Marketing strategy as a key part of the general corporate strategy
A marketing strategy is most effective when it is an integral component of corporate strategy, defining how the organization will engage customers, prospects and competitors in the market arena for success. It is partially derived from broader corporate strategies, corporate missions, and corporate goals. They should flow from the firm's mission statement. They are also influenced by a range of microenvironmental factors.
Marketing strategy and sectorial tactics and actions
A marketing strategy also serves as the foundation of a marketing plan. A marketing plan contains a set of specific actions required to successfully implement a marketing strategy. For example: "Use a low cost product to attract consumers. Once our organization, via our low cost product, has established a relationship with consumers, our organization will sell additional, higher-margin products and services that enhance the consumer's interaction with the low-cost product or service."
A strategy consist of well thought out series of tactics. While it is possible to write a tactical marketing plan without a sound, well-considered strategy, it is not recommended. Without a sound marketing strategy, a marketing plan has no foundation. Marketing strategies serve as the fundamental underpinning of marketing plans designed to fill market needs and reach marketing objectives[3]. It is important that these objectives have measurable results.
A good marketing strategy should integrate an organization's marketing goals, policies, and action sequences (tactics) into a cohesive whole. Many companies cascade a strategy throughout an organization, by creating strategy tactics that then become strategy goals for the next level or group. Each group is expected to take that strategy goal and develop a set of tactics to achieve that goal. This is why it is important to make each strategy goal measurable.
Marketing strategies are dynamic and interactive. They are partially planned and partially unplanned. See strategy dynamics.
Types of marketing strategies
Every marketing strategy is unique, but if we abstract from the individualizing details, each can be reduced into a generic marketing strategy. There are a number of ways of categorizing these generic strategies. A brief description of the most common categorizing schemes is presented below:
Strategies based on market dominance - In this scheme, firms are classified based on their market share or dominance of an industry. Typically there are three types of market dominance strategies:
Leader
Challenger
Follower
Porter generic strategies - strategy on the dimensions of strategic scope and strategic strength. Strategic scope refers to the market penetration while strategic strength refers to the firm’s sustainable competitive advantage.
Cost leadership
Product differentiation
Market segmentation
Innovation strategies - This deals with the firm's rate of the new product development and business model innovation. It asks whether the company is on the cutting edge of technology and business innovation. There are three types:
Pioneers
Close followers
Late followers
Growth strategies - In this scheme we ask the question, “How should the firm grow?”. There are a number of different ways of answering that question, but the most common gives four answers:
Horizontal integration
Vertical integration
Diversification
Intensification
A more detailed schemes uses the categories:
· Prospector
· Analyzer
· Defender
· Reactor
Marketing warfare strategiesWarfare based strategies- This scheme draws parallels between marketing strategies and military strategies.
Strategic Marketing Models
Marketing participants often employ strategic models and tools to analyze marketing decisions. When beginning a strategic analysis, the 3Cs can be employed to get a broad understanding of the strategic environment. An Ansoff Matrix is also often used to convey an organization's strategic positioning of their marketing mix. The 4Ps can then be utilized to form a marketing plan to pursue a defined strategy.
Marketing Practice
In practice, as opposed to theory, research has indicated that the outstanding problems facing marketers lie in the use of specific functions. Most senior managements have committed to the philosophy, even though their junior managers may be cynical about the degree of that commitment. Unfortunately, there is little evidence to show that this new-found belief has led to positive action. Indeed, if we look at the marketing activities they do subscribe to, using the 4Ps framework say, there is little evidence that marketing practice (as opposed to the theory) has been widely embraced. In particular, pricing is largely on a cost-plus or competitive basis, promotional budgets are small (and spent more on sales promotion than advertising or PR), 'place' is - in any case - not relevant, and marketing research is almost all second-hand.
Coarse Marketing
The marketer, in real life, does not face each decision with a copy of a text-book in his or her hand - ready to work through the various lessons. The marketer starts with a quite specific environment; which will immediately limit the range of factors to be explored to a small subset of the literally hundreds explored in this book. To the perceptive marketer the range of options to be explored will usually be obvious. Beyond this, the position will be further constrained by the resources available to deal with them.For instance, theory always says that the first step is marketing research, but if your competitor has just made a major change in strategy you may have just days to react - where research may take months.
Real-life marketing primarily revolves around the application of a great deal of common-sense; dealing with a limited number of factors, in an environment of imperfect information and limited resources complicated by uncertainty and tight timescales. Use of classical marketing techniques, in these circumstances, is inevitably partial and uneven.
Thus, for example, new products will emerge from irrational processes and the rational development process may be used (if at all) to screen out the worst non-runners. The design of the advertising, and the packaging, will be the output of the creative minds employed; which management will then screen, often by 'gut-reaction', to ensure that it is reasonable.
Indeed, the most successful marketer is often the one who trains his or her 'gut-reaction' to simulate that of the average customer!
For most of his or her time the marketing manager is likely to be using his or her considerable intelligence to analyze and handle the complex, and unique, situations being faced; without easy reference to theory. This will often be 'flying by the seat of the pants', or 'gut-reaction'; where the overall strategy, coupled with the knowledge of the customer which has been absorbed almost by a process of osmosis, will determine the quality of the marketing employed!
This, almost instinctive management, is what is sometimes called 'coarse marketing'; to distinguish it from the refined, aesthetically pleasing, form favored by the theorists. It is often relatively crude and would, if given in answer to a business school examination, be judged a failure of marketing. On the other hand, it is the real-life world of most marketing!
ADVERTISING MARKETING
Advertising is often thought of as the paid, non-personal promotion of a cause, idea, product, or service by an identified sponsor attempting to inform or persuade a particular target audience. Advertising has taken many different forms since the beginning of time. For instance, archaeo-logists have uncovered walls painted in Rome announcing gladiator fights as well as rock paintings along Phoenician trade routes used to advertise wares. From this early beginning, advertising has evolved to take a variety of forms and to permeate nearly every aspect of modern society. The various delivery mechanisms for advertising include banners at sporting events, billboards, Internet Web sites, logos on clothing, magazines, newspapers, radio spots, and television commercials. Advertising has so permeated everyday life that individuals can expect to be exposed to more than 1,200 different messages each day. While advertising may seem like the perfect way to get a message out, it does have several limitations, the most commonly noted ones being its inability to (1) focus on an individual consumer's specific needs, (2) provide in-depth information about a product, and (3) be cost-effective for small companies.
Forms of Advertising
Advertising can take a number of forms, including advocacy, comparative, cooperative, direct-mail, informational, institutional, outdoor, persuasive, product, reminder, point-of-purchase, and specialty advertising.
Advocacy Advertising Advocacy advertising is normally thought of as any advertisement, message, or public communication regarding economic, political, or social issues. The advertising campaign is designed to persuade public opinion regarding a specific issue important in the public arena. The ultimate goal of advocacy advertising usually relates to the passage of pending state or federal legislation. Almost all nonprofit groups use some form of advocacy advertising to influence the public's attitude toward a particular issue. One of the largest and most powerful nonprofit advocacy groups is the American Association of Retired Persons (AARP). The AARP fights to protect social programs such as Medicare and Social Security for senior citizens by encouraging its members to write their legislators, using television advertisements to appeal to emotions, and publishing a monthly newsletter describing recent state and federal legislative action. Other major nonprofit advocacy groups include the environmental organization Green-peace, Mothers Against Drunk Driving (MADD), and the National Rifle Association (NRA).
Comparative Advertising Comparative advertising compares one brand directly or indirectly with one or more competing brands. This advertising technique is very common and is used by nearly every major industry, including airlines and automobile manufacturers. One drawback of comparative advertising is that customers have become more skeptical about claims made by a company about its competitors because accurate information has not always been provided, thus making the effectiveness of comparison advertising questionable. In addition, companies that engage in comparative advertising must be careful not to misinform the public about a competitor's product. Incorrect or misleading information may trigger a lawsuit by the aggrieved company or regulatory action by a governmental agency such as the Federal Trade Commission (FTC).
Cooperative Advertising Cooperative advertising is a system that allows two parties to share advertising costs. Manufacturers and distributors, because of their shared interest in selling the product, usually use this cooperative advertising technique. An example might be when a soft-drink manufacturer and a local grocery store split the cost of advertising the manufacturer's soft drinks; both the manufacturer and the store benefit from increased store traffic and its associated sales. Cooperative advertising is especially appealing to small storeowners who, on their own, could not afford to advertise the product adequately.
Direct-Mail Advertising Catalogues, flyers, letters, and postcards are just a few of the direct-mail advertising options. Direct-mail advertising has several advantages, including detail of information, personalization, selectivity, and speed. But while direct mail has advantages, it carries an expensive per-head price, is dependent on the appropriateness of the mailing list, and is resented by some customers, who consider it "junk mail."
Informational Advertising In informational advertising, which is used when a new product is first being introduced, the emphasis is on promoting the product name, benefits, and possible uses. Car manufacturers used this strategy when sport utility vehicles (SUVs) were first introduced.
Institutional Advertising Institutional advertising takes a much broader approach, concentrating on the benefits, concept, idea, or philosophy of a particular industry. Companies often use it to promote image-building activities, such an environmentally friendly business practices or new community-based programs that it sponsors. Institutional advertising is closely related to public relations, since both are interested in promoting a positive image of the company to the public. As an example, a large lumber company may develop an advertising theme around its practice of planting trees in areas where they have just been harvested. A theme of this nature keeps the company's name in a positive light with the general public because the replanting of trees is viewed positively by most people.
Outdoor Advertising Billboards and messages painted on the side of buildings are common forms of outdoor advertising, which is often used when quick, simple ideas are being promoted. Since repetition is the key to successful promotion, outdoor advertising is most effective when located along heavily traveled city streets and when the product being promoted can be purchased locally. Only about 1 percent of advertising is conducted in this manner.
Persuasive Advertising Persuasive advertising is used after a product has been introduced to customers. The primary goal is for a company to build selective demand for its product. For example, automobile manufacturers often produce special advertisements promoting the safety features of their vehicles. This type of advertisement could allow automobile manufactures to charge more for their products because of the perceived higher quality the safety features afford.
Product Advertising Product advertising pertains to nonpersonal selling of a specific product. An example is a regular television commercial promoting a soft drink. The primary purpose of the advertisement is to promote the specific soft drink, not the entire soft-drink line of a company.
Reminder Advertising Reminder advertising is used for products that have entered the mature stage of the product life cycle. The advertisements are simply designed to remind customers about the product and to maintain awareness. For example, detergent producers spend a considerable amount of money each year promoting their products to remind customers that their products are still available and for sale.
Point-of-Purchase Advertising Point-of-purchase advertising uses displays or other promotional items near the product that is being sold. The primary motivation is to attract customers to the display so that they will purchase the product. Stores are more likely to use point-of-purchase displays if they have help from the manufacturer in setting them up or if the manufacturer provides easy instructions on how to use the displays. Thus, promotional items from manufacturers who provide the best instructions or help are more likely to be used by the retail stores.
Specialty Advertising Specialty advertising is a form of sales promotion designed to increase public recognition of a company's name. A company can have its name put on a variety of items, such as caps, glassware, gym bags, jackets, key chains, and pens. The value of specialty advertising varies depending on how long the items used in the effort last. Most companies are successful in achieving their goals for increasing public recognition and sales through these efforts.
Advertising Objectives
Advertising objectives are the communication tasks to be accomplished with specific customers that a company is trying to reach during a particular time frame. A company that advertises usually strives to achieve one of four advertising objectives: trial, continuity, brand switching, and switchback. Which of the four advertising objectives is selected usually depends on where the product is in its life cycle.
Trial The purpose of the trial objective is to encourage customers to make an initial purchase of a new product. Companies will typically employ creative advertising strategies in order to cut through other competing advertisements. The reason is simple: Without that first trial of a product by customers, there will not be any re peat purchases.
Continuity Continuity advertising is a strategy to keep current customers using a particular product. Existing customers are targeted and are usually provided new and different information about a product that is designed to build consumer loyalty.
Brand Switching Companies adopt brand switching as an objective when they want customers to switch from competitors' brands to their brands. A common strategy is for a company to compare product price or quality in order to convince customers to switch to its product brand.
Switchback Companies subscribe to this advertising objective when they want to get back former users of their product brand. A company might highlight new product features, price reductions, or other important product information in order to get former customers of its product to switchback.
Advertising Budget
Once an advertising objective has been selected, companies must then set an advertising budget for each product. Developing such a budget can be a difficult process because brand managers want to receive a large resource allocation to promote their products. Overall, the advertising budget should be established so as to be congruent with overall company objectives. Before establishing an advertising budget, companies must take into consideration other market factors, such as advertising frequency, competition and clutter, market share, product differentiation, and stage in the product life cycle.
Advertising Frequency Advertising frequency refers to the number of times an advertisement is repeated during a given time period to promote a product's name, message, and other important information. A larger advertising budget is required in order to achieve a high advertising frequency: Estimates have been put forward that a consumer needs to come in contact with an advertising message nine times before it will be remembered.
Competition and Clutter Highly competitive product markets, such as the soft-drink industry, require higher advertising budgets just to stay even with competitors. If a company wants to be a leader in an industry, then a substantial advertising budget must be earmarked every year. Examples abound of companies that spend millions of dollars on advertising in order to be key players in their respective industries (e.g., Coca Cola and General Motors).
Market Share Desired market share is also an important factor in establishing an advertising budget. Increasing market share normally requires a large advertising budget because a company's competitors counterattack with their own advertising blitz. Successfully increasing market share depends on advertisement quality, competitor responses, and product demand and quality.
Product Differentiation How customers perceive products is also important to the budget-setting process. Product differentiation is often necessary in competitive markets where customers have a hard time differentiating between products. For example, product differentiation might be necessary when a new laundry detergent is advertised: Since so many brands of detergent already exist, an aggressive advertising campaign would be required. Without this aggressive advertising, customers would not be aware of the product's availability and how it differs from other products on the market. The advertising budget is higher in order to pay for the additional advertising.
Stage in the Product Life Cycle New product offerings require considerably more advertising to make customers aware of their existence. As a product moves through the product life cycle, fewer and fewer advertising resources are needed because the product has become known and has developed an established buyer base. Advertising budgets are typically highest for a particular product during the introduction stage and gradually decline as the product matures.
Selecting the Right Advertising Approach
Once a company decides what type of specific advertising campaign it wants to use, it must decide what approach should carry the message. A company is interested in a number of areas regarding advertising, such as frequency, media impact, media timing, and reach.
Frequency Frequency refers to the average number of times that an average consumer is exposed to the advertising campaign. A company usually establishes frequency goals, which can vary for each advertising campaign. For example, a company might want to have the average consumer exposed to the message at least six times during the advertising campaign. This number might seem high, but in a crowded and competitive market repetition is one of the best methods to increase the product's visibility and to increase company sales. The more exposure a company desires for its product, the more expensive the advertising campaign. Thus, often only large companies can afford to have high-frequency advertisements during a campaign.
Media Impact Media impact generally refers to how effective advertising will be through the various media outlets (e.g., television, Internet, print). A company must decide, based on its product, the best method to maximize consumer interest and awareness. For example, a company promoting a new laundry detergent might fare better with television commercials rather than simple print ads because more consumers are likely to see the television commercial. Similarly, a company such as Mercedes-Benz, which markets expensive products, might advertise in specialty car magazines to reach a high percentage of its potential customers. Before any money is spent on any advertising media, a thorough analysis is done of each one's strengths and weaknesses in comparison to the cost. Once the analysis is done, the company will make the best decision possible and embark on its advertising campaign.
Media Timing Another major consideration for any company engaging in an advertising campaign is when to run the advertisements. For example, some companies run ads during the holidays to promote season-specific products. The other major consideration for a company is whether it wants to employ a continuous or pulsing pattern of advertisements. Continuous refers to advertisements that are run on a scheduled basis for a given time period. The advantage of this tactic is that an advertising campaign can run longer and might provide more exposure over time. For example, a company could run an advertising campaign for a particular product that lasts years with the hope of keeping the product in the minds of customers. Pulsing indicates that advertisements will be scheduled in a disproportionate manner within a given time frame. Thus, a company could run thirty-two television commercials over a three-or six-month period to promote the specific product is wants to sell. The advantage with the pulsing strategy is twofold. The company could spend less money on advertising over a shorter time period but still gain the same recognition because the advertising campaign is more intense.
Reach Reach refers to the percentage of customers in the target market who are exposed to the advertising campaign for a given time period. A company might have a goal of reaching at least 80 percent of its target audience during a given time frame. The goal is to be as close to 100 percent as possible, because the more the target audience is exposed to the message, the higher the chance of future sales.
Advertising Evaluation
Once the advertising campaign is over, companies normally evaluate it compared to the established goals. An effective tactic in measuring the usefulness of the advertising campaign is to measure the pre-and post-sales of the company's product. In order to make this more effective, some companies divide up the country into regions and run the advertising campaigns only in some areas. The different geographic areas are then compared (advertising versus nonadvertising), and a detailed analysis is performed to provide an evaluation of the campaign's effectiveness. Depending on the results, a company will modify future advertising efforts in order to maximize effectiveness.
Summary
Advertising is the paid, nonpersonal promotion of a cause, idea, product, or service by an identified sponsor attempting to inform or persuade a particular target audience. Advertising has evolved to take a variety of forms and has permeated nearly every aspect of modern society. The various delivery mechanisms for advertising include banners at sporting events, billboards, Internet Web sites, logos on clothing, magazines, newspapers, radio spots, and television commercials. While advertising can be successful at getting the message out, it does have several limitations, including its inability to (1) focus on an individual consumer's specific needs, (2) provide in-depth information about a product, and (3) be cost-effective for small companies. Other factors, such as objectives, budgets, approaches, and evaluation methods must all be considered.
MARKETING RESEARCH
The term market research encompasses a number of activities that are designed to connect marketers to consumers through information gathering and evaluation. Market research provides businesses with information about their customers, their competitors, and their overall industry. It is commonly used to identify marketing problems and opportunities, as well as to develop and evaluate the effectiveness of marketing strategies. Small business owners, because of their usually limited financial resources, have a particular need for adequate, accurate, and current information to aid them in making decisions. Market research can help entrepreneurs evaluate the feasibility of a start-up venture before investing a great deal of time and capital, for example, as well as assist them in effectively marketing their goods and services. Employing such marketing strategies as market segmentation and product differentiation would be nearly impossible without first conducting market research.
Although market research can be costly, it is often even more costly to make erroneous decisions based upon bad or inadequate information. In fact, an average business spends between 25 and 50 percent of its annual marketing budget on research activities. Conducting large-scale market research in-house is not possible for many small businesses, since it requires a comprehensive understanding of the problem to be addressed, the market, and the application of research procedures. But there is a great deal of helpful information available to entrepreneurs who know where to look, and there are many consultants, advertising firms, and market research specialists who offer their services to small businesses for a fee.
The information gathered through market re-search can be divided into two main categories. The first category—primary information—generally does not exist in a coherent form before the marketer gathers it in response to a particular question or problem. The most common methods of gathering primary market research information are through direct mail, telemarketing, and personal interviews. The other category—secondary information—has already been compiled and organized by a source other than the marketer. Rather than looking at a specific marketing problem faced by an individual company, secondary information generally tracks trends within a market, an industry, a demographic group, or a geographic region. A great deal of valuable secondary information is available to small business owners at little or no cost. Some possible sources of secondary market research information include government reports, trade association records, newspaper and magazine surveys, university-sponsored research, local chamber of commerce records, on-line services, and competitors' annual reports.
Market research can provide small business owners with the information they need to answer a wide range of questions, including: Who are my customers? Where are they located? How much and how often will they buy? and What product attributes do they prefer? Given the importance of market research—and its potential cost—experts recommend that businesses follow a step-by-step approach in order to gain the most benefits from their research activieties.
The first step in the market research process is to define the marketing problem to be addressed. Next, a marketer should determine what information is needed to solve the problem, as well as what sources should be used to acquire the information. Many businesses make a preliminary investigation at this early stage in order to give their definition of the problem more focus and to develop tentative answers that can be tested during the next stage of the process. The third step involves planning the research. This step includes selecting the techniques to be used for gathering data and deciding on an appropriate group, or sample, to be included in the research. Fourth, a marketer actually gathers the necessary data. The fifth step involves analyzing and interpreting the information that has been gathered. Finally, the marketer reaches a conclusion about the marketing problem and translates the findings into changes in the firm's overall marketing strategy.
There are three general types of market research suppliers that can assist small businesses with one or more steps in the above process. Some firms specialize in conducting overall market research that they release to a variety of clients for a fee. This type of firm includes syndicated services such as A.C. Nielsen and Company, which provides viewership ratings for national television programs. There are also custom market research firms that handle all aspects of the process, from defining the marketing problem and designing research techniques to evaluating results and formulating new marketing strategies. In contrast, smaller, specialty line suppliers usually concentrate on one aspect of the process. Marketers who wish to secure the services of a market research firm usually obtain bids from a number of suppliers. The following sections provide more information about the various types of market research that such suppliers perform.
Types of Market Research
AUDIENCE RESEARCH. Research on who is listening, watching, and reading is important to marketers of television and radio programs and print publications—as well as to advertisers who wish to reach a certain target audience with their message. Television and radio ratings demonstrate the popularity of shows and determine how much stations can charge for advertising spots during broadcasts. Publication subscription lists, which are audited by tabulating companies to ensure their veracity, are important in determining the per page rate for advertising.
PRODUCT RESEARCH. Product research includes simple, in-person research such as taste tests conducted in malls and in the aisles of grocery stores, as well as elaborate, long-term "beta testing" of high-tech products by selected, experienced users. The objective of product research can be simple; for example, a company may tweak the taste of an existing product, then measure consumers' reactions to see if there is room in the market for a variation. It can also be more extensive, as when a company develops prototypes of proposed new products that may be intended for market introduction months down the road.
In product research, as in all market research, there is a danger to paying too much attention to the wrong things. For instance, the introduction of New Coke was based on the outcome of taste tests that showed the public wanted a sweeter product. But later an angry public, outraged that Coca-Cola was planning to change the familiar formula, forced the company to ignore its taste tests and leave the original Coke on the market. The company had put too much stock in the results of the taste test studies, and had failed to factor in research that showed consumers were happy with the product as it was.
BRAND RESEARCH. Brands, the named products that advertising pushes and for which manufacturers can charge consumers the most money, are always being studied. Advertisers want to know if consumers have strong brand loyalty ("I'd never buy another brand, even if they gave me a coupon"); if the brand has any emotional appeal ("My dear mother used only that brand"); and what the consumer thinks could be improved about the brand ("If only it came in a refillable container").
Brand research, too, has its perils. Campbell's Soup once convened a focus group comprised of its best soup customers. One of the findings was that those customers saw no need for a low-salt alternative soup Campbell's wanted to market. Concerned that the general public seemed to want low-sodium products, Campbell's retested groups other than their best customers. This research found a market interested in a low-sodium soup. The loyal Campbell's customers loved the saltier product, while a larger group of potential customers preferred the low-salt alternative.
PSYCHOLOGICAL RESEARCH. Perhaps the most controversial type of market research is psychological research. This type of research tries to determine why people buy certain products based on a profile of the way the consumers live their lives. One company has divided all Americans into more than 60 psychological profiles. This company contends the lifestyles these people have established, based upon their past buying habits and their cultural upbringing, influences their buying decisions so strongly that individual differences can sometimes be negated.
Psychological research is controversial because it measures attitudes about buying rather than the buying itself. Critics point to conflicting information uncovered through other market research studies. In one series of research projects, researchers asked people what they were planning to buy before they entered a store. After the people surveyed left the store, the same researcher examined what was actually in their shopping carts. Only 30 percent of the people bought what they had said they planned to buy just a half hour earlier.
SCANNER RESEARCH. In contrast, there is no fooling the checkout scanner at the supermarket or the department store: it records what was actually purchased. This is valuable information an advertiser can use to help plan an ongoing marketing strategy. Scanner technology has changed the way advertisers track the sale of consumer products. Before scanners, advertisers received sales information only when retailers reordered stock, generally every two weeks. This meant that the advertisers had no way to quickly measure the effect of national advertising, in-store sales promotions, or the couponing of similar products by their competitors. Now, computer technology can send scanner information to advertisers within days or even hours.
DATABASE RESEARCH. Virtually every type of consumer—credit card holders, smokers, drinkers, car buyers, video buyers—shows up on thousands of lists and databases that are regularly cross-referenced to mine nuggets of marketing research. Database research is growing in popularity among marketers because the raw data has already been contributed by the purchaser. All the marketer has to do is develop a computer program to look for common buying patterns.
Database research can be thought of as the ultimate tool in market segmentation research. For example, from zip code lists, marketers may determine where the wealthy people live in a city. That list can be merged with a list of licensed drivers. The resulting list can be merged with another list of owners of cars of a certain make older than a certain year. The resulting list can be merged with another list of subscribers to car enthusiast magazines. The final list will deliver a potential market for a new luxury car soon to be introduced and profiled in the car magazines. The people on the potential buyers' list could then be mailed an invitation to come see the new car.
Database research also allows companies to build personal relationships with people who have proven from past purchases that they are potential customers. For example, a motorcycle manufacturer such as Harley Davidson may discover from database research that a family with a motorcycle has a teenage son. That son is a potential new customer for everything from clothes to a new motorcycle of his own. Maintaining a personal relationship with customers also provides businesses with a basis for more detailed and economical market research than might be possible through random sampling.
POST-SALES OR CUSTOMER SATISFACTION RESEARCH. Most companies no longer believe that a sale ends their relationship with a customer. Nearly one-third of the research revenues generated by the leading American market research firms concern customer satisfaction. Many companies now wait a few days or weeks, then contact customers with survey questionnaires or telephone calls. Companies want reassurance that the customer enjoyed the buying experience and that the product or service has met the buyer's expectations.
The reason behind post-sales research is to ensure that current customers are happy, will consider themselves future customers, and will spread positive word-of-mouth messages about the product and company. One study found that 70 percent of customers believed it was important for companies to stay in contact with them, but less than one-third of those same customers reported that they had heard from companies whose products they purchased. Nearly 90 percent of those surveyed said they would be more likely to choose a company's products if it stayed in touch with them and sought their satisfaction.
Personal Research Methods
CLOSED-END QUESTIONNAIRE. A closed-end questionnaire is the type of market research most people have experienced. It includes such common activities as filling out a comment card at a restaurant or responding to a telephone survey. In closed-end questionnaires, the person being surveyed cannot expound on their answers. Such surveys usually ask for "yes" or "no" responses or for measures of multiple choice opinion (e.g., "extremely interested, " "somewhat interested, " "not interested"). This type of market research is generally conducted to elicit the opinions and beliefs of the public. It is commonly used for political polling and to determine the awareness or popularity of a product or service.
The inherent problem with multiple-choice questionnaires that ask for clear-cut answers is that many people do not think in a clear-cut fashion. If not carefully prepared, closed-ended questions may elicit answers that do not provide a clear view of the person being surveyed. Sometimes, the company conducting the survey may intentionally or inadvertently write questions that elicit the answers it wants to receive, rather than answers that provide a true picture of what is happening in the marketplace.
OPEN-ENDED QUESTIONNAIRE. Over time, market researchers have grown increasingly aware that people often have opinions that do not fit into a multiple-choice questionnaire. To capture these opinions and try to analyze them, researchers are shifting toward open-ended research—asking people to say exactly what is on their minds. For example, manufacturers are giving customers plenty of space on questionnaires to explain their likes and dislikes about products and services, and telephone researchers will frequently mix closed-end and open-end questions on the same survey to try to delve deeper. A "no" response to whether a person watches a particular cable television station may trigger a follow-up question of "Why not?, " for instance, and the answer will be taken down word for word.
A problem with both closed- and open-ended questionnaire research, particularly when conducted over the telephone, is that people gradually become bored or annoyed and stop providing their true opinions. In addition, some studies have shown that a large percentage of Americans refuse to answer marketing research surveys.
FOCUS GROUPS. In-person, sit-down discussions around a table with groups of consumers, would-be consumers, never-buyers, or any other demographic group a company wishes to bring together are called focus groups. This can be the least expensive type of market research when handled on a local basis by a small business wanting to get a handle on its customers. Or, it can be one of the most expensive if a major corporation wants to test its plans in various sections of the country. Small, local businesses may invite a focus group to a neighborhood home to sit around the dinner table and discuss how the company can develop new markets. In contrast, most major corporations conduct their focus groups in a controlled environment, usually with a one-way mirror at one end of the room. This allows executives to observe the proceedings unobtrusively or to videotape the session for further study.
The key to gathering good information from a focus group is for the moderator to keep the conversation flowing freely without taking a side. The moderator's job is to involve everyone in the discussion and prevent any individuals from dominating the conversation. Most market research experts agree that focus group research should be accompanied by other types of research and not be the sole basis for launching new products. The reason is that opinions expressed among strangers may not always reflect the way people would react when alone. For example, a focus group discussing low-fat foods may garner an enthusiastic response from people who want to be publicly perceived as being concerned about their health. The same people, however, might say they never buy low-fat products if questioned during an anonymous phone interview.
MARKETING MIX
The term marketing mix refers to the four major areas of decision making in the marketing process that are blended to obtain the results desired by the organization. The four elements of the marketing mix are sometimes referred to the four Ps of marketing. The marketing mix shapes the role of marketing within all types of organizations, both profit and nonprofit. Each element in the marketing mix—product, price, promotion, and place—consists of numerous subelements. Marketing managers make numerous decisions based on the various subelements of the marketing mix, all in an attempt to satisfy the needs and wants of consumers.
Product
The first element in the marketing mix is the product. A product is any combination of goods and services offered to satisfy the needs and wants of consumers. Thus, a product is anything tangible or intangible that can be offered for purchase or use by consumers. A tangible product is one that consumers can actually touch, such as a computer. An intangible product is a service that cannot be touched, such as computer repair, income tax preparation, or an office call. Other examples of products include places and ideas. For example, the state tourism department in New Hampshire might promote New Hampshire as a great place to visit and by doing so stimulate the economy. Cities also promote themselves as great places to live and work. For example, the slogan touted by the Chamber of Commerce in San Bernardino, California, is "It's a great day in San Bernardino." The idea of wearing seat belts has been promoted as a way of saving lives, as has the idea of recycling to help reduce the amount of garbage placed in landfills.
Typically, a product is divided into three basic levels. The first level is often called the core product, what the consumer actually buys in terms of benefits. For example, consumers don't just buy trucks. Rather, consumers buy the benefit that trucks offer, like being able to get around in deep snow in the winter. Next is the second level, or actual product, that is built around the core product. The actual product consists of the brand name, features, packaging, parts, and styling. These components provided the benefits to consumers that they seek at the first level. The final, or third, level of the product is the augmented component. The augmented component includes additional services and benefits that surround the first two levels of the product. Examples of augmented product components are technical assistance in operating the product and service agreements.
Products are classified by how long they can be used—durability—and their tangibility. Products that can be used repeatedly over a long period of time are called durable goods. Examples of durable goods include automobiles, furniture, and houses. By contrast, goods that are normally used or consumed quickly are called nondurable goods. Some examples of nondurable goods are food, soap, and soft drinks. In addition, services are activities and benefits that are also involved in the exchange process but are intangible because they cannot be held or touched. Examples of intangible services included eye exams and automobile repair.
Another way to categorize products is by their users. Products are classified as either consumer or industrial goods. Consumer goods are purchased by final consumers for their personal consumption. Final consumers are sometimes called end users. The shopping patterns of consumers are also used to classify products. Products sold to the final consumer are arranged as follows: convenience, shopping, specialty, and unsought goods. Convenience goods are products and services that consumers buy frequently and with little effort. Most convenience goods are easily obtainable and low-priced, items such as bread, candy, milk, and shampoo. Convenience goods can be further divided into staple, impulse, and emergency goods. Staple goods are products, such as bread and milk, that consumers buy on a consistent basis. Impulse goods like candy and magazines are products that require little planning or search effort because they are normally available in many places. Emergency goods are bought when consumers have a pressing need. An example of an emergency good would be a shovel during the first snowstorm of the winter.
Shopping goods are those products that consumers compare during the selection and purchase process. Typically, factors such as price, quality, style, and suitability are used as bases of comparison. With shopping goods, consumers usually take considerable time and effort in gathering information and making comparisons among products. Major appliances such as refrigerators and televisions are typical shopping goods. Shopping goods are further divided into uniform and nonuniform categories. Uniform shopping goods are those goods that are similar in quality but differ in price. Consumers will try to justify price differences by focusing on product features. Nonuniform goods are those goods that differ in both quality and price.
Specialty goods are products with distinctive characteristics or brand identification for which consumers expend exceptional buying effort. Specialty goods include specific brands and types of products. Typically, buyers do not compare specialty goods with other similar products because the products are unique. Unsought goods are those products or services that consumers are not readily aware of or do not normally consider buying. Life insurance policies and burial plots are examples of unsought goods. Often, unsought goods require considerable promotional efforts on the part of the seller in order to attract the interest of consumers.
Industrial goods are those products used in the production of other goods. Examples of industrial goods include accessory equipment, component parts, installations, operating supplies, raw materials, and services. Accessory equipment refers to movable items and small office equipment items that never become part of a final product. Office furniture and fax machines are examples of accessory equipment. Component parts are products that are turned into a component of the final product that does not require further processing. Component parts are frequently custom-made for the final product of which they will become a part. For example, a computer chip could be produced by one manufacturer for use in computers of other manufacturers. Installations are capital goods that are usually very expensive but have a long useful life. Trucks, power generators, and mainframe computers are examples of installations. Operating supplies are similar to accessory equipment in that they do not become part of the finished product. Operating supplies include items necessary to maintain and operate the overall firm, such as cleaners, file folders, paper, and pens. Raw materials are goods sold in their original form before being processed for use in other products. Crops, crude oil, iron ore, and logs are examples of raw materials in need of further processing before being used in products. The last category of industrial goods is services. Organizations sometimes require the use of services, just as individuals do. Examples of services sought by organizations include maintenance and repair and legal counsel.
Price
The second element in marketing mix is price. Price is simply the amount of money that consumers are willing to pay for a product or service. In earlier times, the price was determined through a barter process between sellers and purchasers. In modern times, pricing methods and strategies have taken a number of forms.
Pricing new products and pricing existing products require the use of different strategies. For example, when pricing a new product, businesses can use either market-penetration pricing or a price-skimming strategy. A market-penetration pricing strategy involves establishing a low product price to attract a large number of customers. By contrast, a price-skimming strategy is used when a high price is established in order to recover the cost of a new product development as quickly as possible. Manufacturers of computers, videocassette recorders, and other technical items with high development costs frequently use a price-skimming strategy.
Pricing objectives are established as a subset of an organization's overall objectives. As a component of the overall business objectives, pricing objectives usually take one of four forms: profitability, volume, meeting the competition, and prestige. Profitability pricing objectives mean that the firm focuses mainly on maximizing its profit. Under profitability objectives, a company increases its prices so that additional revenue equals the increase in product production costs. Using volume pricing objectives, a company aims to maximize sales volume within a given specific profit margin. The focus of volume pricing objectives is on increasing sales rather than on an immediate increase in profits. Meeting the price level of competitors is another pricing strategy. With a meeting-the-competition pricing strategy, the focus is less on price and more on nonprice competition items such as location and service. With prestige pricing, products are priced high and consumers purchase them as status symbols.
In addition to the four basic pricing strategies, there are five price-adjustment strategies: discount pricing and allowances, discriminatory pricing, geographical pricing, promotional pricing, and psychological pricing. Discount pricing and allowances include cash discounts, functional discounts, seasonal discounts, trade-in allowances, and promotional allowances. Discriminatory pricing occurs when companies sell products or services at two or more prices. These price differences may be based on variables such as age of the customer, location of sale, organization membership, time of day, or season. Geographical pricing is based on the location of the customers. Products may be priced differently in distinct regions of a target area because of demand differences. Promotional pricing happens when a company temporarily prices products below the list price or below cost. Products priced below cost are sometimes called loss leaders. The goal of promotional pricing is to increase short-term sales. Psychological pricing considers prices by looking at the psychological aspects of price. For example, consumers frequently perceive a relationship between product price and product quality.
Promotion
Promotion is the third element in the marketing mix. Promotion is a communication process that takes place between a business and its various publics. Publics are those individuals and organizations that have an interest in what the business produces and offers for sale. Thus, in order to be effective, businesses need to plan promotional activities with the communication process in mind. The elements of the communication process are: sender, encoding, message, media, decoding, receiver, feedback, and noise. The sender refers to the business that is sending a promotional message to a potential customer. Encoding involves putting a message or promotional activity into some form. Symbols are formed to represent the message. The sender transmits these symbols through some form of media. Media are methods the sender uses to transmit the message to the receiver. Decoding is the process by which the receiver translates the meaning of the symbols sent by the sender into a form that can be understood. The receiver is the intended recipient of the message. Feedback occurs when the receiver communicates back to the sender. Noise is anything that interferes with the communication process.
There are four basic promotion tools: advertising, sales promotion, public relations, and personal selling. Each promotion tool has its own unique characteristics and function. For instance, advertising is described as paid, nonpersonal communication by an organization using various media to reach its various publics. The purpose of advertising is to inform or persuade a targeted audience to purchase a product or service, visit a location, or adopt an idea. Advertising is also classified as to its intended purpose. The purpose of product advertising is to secure the purchase of the product by consumers. The purpose of institutional advertising is to promote the image or philosophy of a company. Advertising can be further divided into six subcategories: pioneering, competitive, comparative, advocacy, reminder, and cooperative advertising. Pioneering advertising aims to develop primary demand for the product or product category. Competitive advertising seeks to develop demand for a specific product or service. Comparative advertising seeks to contrast one product or service with another. Advocacy advertising is an organizational approach designed to support socially responsible activities, causes, or messages such as helping feed the homeless. Reminder advertising seeks to keep a product or company name in the mind of consumers by its repetitive nature. Cooperative advertising occurs when wholesalers and retailers work with product manufacturers to produce a single advertising campaign and share the costs. Advantages of advertising include the ability to reach a large group or audience at a relatively low cost per individual contacted. Further, advertising allows organizations to control the message, which means the message can be adapted to either a mass or a specific target audience. Disadvantages of advertising include difficulty in measuring results and the inability to close sales because there is no personal contact between the organization and consumers.
The second promotional tool is sales promotion. Sales promotions are short-term incentives used to encourage consumers to purchase a product or service. There are three basic categories of sales promotion: consumer, trade, and business. Consumer promotion tools include such items as free samples, coupons, rebates, price packs, premiums, patronage rewards, point-of-purchase coupons, contests, sweepstakes, and games. Trade-promotion tools include discounts and allowances directed at wholesalers and retailers. Business-promotion tools include conventions and trade shows. Sales promotion has several advantages over other promotional tools in that it can produce a more immediate consumer response, attract more attention and create product awareness, measure the results, and increase short-term sales.
Public relations is the third promotional tool. An organization builds positive public relations with various groups by obtaining favorable publicity, establishing a good corporate image, and handling or heading off unfavorable rumors, stories, and events. Organizations have at their disposal a variety of tools, such as press releases, product publicity, official communications, lobbying, and counseling to develop image. Public relations tools are effective in developing a positive attitude toward the organization and can enhance the credibility of a product. Public relations activities have the drawback that they may not provide an accurate measure of their influence on sales as they are not directly involved with specific marketing goals.
The last promotional tool is personal selling. Personal selling involves an interpersonal influence and information-exchange process. There are seven general steps in the personal selling process: prospecting and qualifying, pre-approach, approach, presentation and demonstration, handling objections, closing, and follow-up. Personal selling does provide a measurement of effectiveness because a more immediate response is received by the salesperson from the customer. Another advantage of personal selling is that salespeople can shape the information presented to fit the needs of the customer. Disadvantages are the high cost per contact and dependence on the ability of the salesperson.
For a promotion to be effective, organizations should blend all four promotion tools together in order to achieve the promotional mix. The promotional mix can be influenced by a number of factors, including the product itself, the product life-cycle stage, and budget. Within the promotional mix there are two promotional strategies: pull and push. Pull strategy occurs when the manufacturer tries to establish final consumer demand and thus pull the product through the wholesalers and retailers. Advertising and sales promotion are most frequently used in a pulling strategy. Pushing strategy, in contrast, occurs when a seller tries to develop demand through incentives to wholesalers and retailers, who in turn place the product in front of consumers.
Place
The fourth element of the marketing mix is place. Place refers to having the right product, in the right location, at the right time to be purchased by consumers. This proper placement of products is done through middle people called the channel of distribution. The channel of distribution is comprised of interdependent manufacturers, wholesalers, and retailers. These groups are involved with making a product or service available for use or consumption. Each participant in the channel of distribution is concerned with three basic utilities: time, place, and possession. Time utility refers to having a product available at the time that will satisfy the needs of consumers. Place utility occurs when a firm provides satisfaction by locating products where they can be easily acquired by consumers. The last utility is possession utility, which means that wholesalers and retailers in the channel of distribution provide services to consumers with as few obstacles as possible.
Channels of distribution operate by one of two methods: conventional distribution or a vertical marketing system. In the conventional distribution channel, there can be one or more independent product manufacturers, wholesalers, and retailers in a channel. The vertical marketing system requires that producers, wholesalers, and retailers to work together to avoid channel conflicts.
How manufacturers store, handle, and move products to customers at the right time and at the right place is referred to as physical distribution. In considering physical distribution, manufacturers need to review issues such as distribution objectives, product transportation, and product warehousing. Choosing the mode of transportation requires an understanding of each possible method: rail, truck, water, pipeline, and air. Rail transportation is typically used to ship farm products, minerals, sand, chemicals, and auto mobiles. Truck transportation is most suitable for transporting clothing, food, books, computers, and paper goods. Water transportation is good for oil, grain, sand, gravel, metallic ores, coal, and other heavy items. Pipeline transportation is best when shipping products such as oil or chemicals. Air transport works best when moving technical instruments, perishable products, and important documents.
Another issue of concern to manufacturers is the level of product distribution. Normally manufacturers select from one of three levels of distribution: intensive, selective, or exclusive. Intensive distribution occurs when manufacturers distribute products through all wholesalers or retailers that want to offer their products. Selective distribution occurs when manufacturers distribute products through a limited, select number of wholesalers and retailers. Under exclusive distribution, only a single wholesaler or retailer is allowed to sell the product in a specific geographic area.
MARKETING PLAN
A marketing plan is a written document that details the actions necessary to achieve a specified marketing objective(s). It can be for a product or service, a brand, or a product line. It can cover one year (referred to as an annual marketing plan), or cover up to 5 (sometimes referred to as five) years.
A marketing plan may be part of an overall business plan. Solid marketing strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of little use.
A marketing strategy is most effective when it is an integral component of corporate strategy, defining how the organization will engage customers, prospects and competitors in the market arena for success. It is partially derived from broader corporate strategies, corporate missions, and corporate goals. They should flow from the firm's mission statement. They are also influenced by a range of microenvironmental factors.
Marketing strategy and sectorial tactics and actions
A marketing strategy also serves as the foundation of a marketing plan. A marketing plan contains a set of specific actions required to successfully implement a marketing strategy. For example: "Use a low cost product to attract consumers. Once our organization, via our low cost product, has established a relationship with consumers, our organization will sell additional, higher-margin products and services that enhance the consumer's interaction with the low-cost product or service."
A strategy consist of well thought out series of tactics. While it is possible to write a tactical marketing plan without a sound, well-considered strategy, it is not recommended. Without a sound marketing strategy, a marketing plan has no foundation. Marketing strategies serve as the fundamental underpinning of marketing plans designed to fill market needs and reach marketing objectives[3]. It is important that these objectives have measurable results.
A good marketing strategy should integrate an organization's marketing goals, policies, and action sequences (tactics) into a cohesive whole. Many companies cascade a strategy throughout an organization, by creating strategy tactics that then become strategy goals for the next level or group. Each group is expected to take that strategy goal and develop a set of tactics to achieve that goal. This is why it is important to make each strategy goal measurable.
Marketing strategies are dynamic and interactive. They are partially planned and partially unplanned. See strategy dynamics.
Types of marketing strategies
Every marketing strategy is unique, but if we abstract from the individualizing details, each can be reduced into a generic marketing strategy. There are a number of ways of categorizing these generic strategies. A brief description of the most common categorizing schemes is presented below:
Strategies based on market dominance - In this scheme, firms are classified based on their market share or dominance of an industry. Typically there are three types of market dominance strategies:
Leader
Challenger
Follower
Porter generic strategies - strategy on the dimensions of strategic scope and strategic strength. Strategic scope refers to the market penetration while strategic strength refers to the firm’s sustainable competitive advantage.
Cost leadership
Product differentiation
Market segmentation
Innovation strategies - This deals with the firm's rate of the new product development and business model innovation. It asks whether the company is on the cutting edge of technology and business innovation. There are three types:
Pioneers
Close followers
Late followers
Growth strategies - In this scheme we ask the question, “How should the firm grow?”. There are a number of different ways of answering that question, but the most common gives four answers:
Horizontal integration
Vertical integration
Diversification
Intensification
A more detailed schemes uses the categories:
· Prospector
· Analyzer
· Defender
· Reactor
Marketing warfare strategiesWarfare based strategies- This scheme draws parallels between marketing strategies and military strategies.
Strategic Marketing Models
Marketing participants often employ strategic models and tools to analyze marketing decisions. When beginning a strategic analysis, the 3Cs can be employed to get a broad understanding of the strategic environment. An Ansoff Matrix is also often used to convey an organization's strategic positioning of their marketing mix. The 4Ps can then be utilized to form a marketing plan to pursue a defined strategy.
Marketing Practice
In practice, as opposed to theory, research has indicated that the outstanding problems facing marketers lie in the use of specific functions. Most senior managements have committed to the philosophy, even though their junior managers may be cynical about the degree of that commitment. Unfortunately, there is little evidence to show that this new-found belief has led to positive action. Indeed, if we look at the marketing activities they do subscribe to, using the 4Ps framework say, there is little evidence that marketing practice (as opposed to the theory) has been widely embraced. In particular, pricing is largely on a cost-plus or competitive basis, promotional budgets are small (and spent more on sales promotion than advertising or PR), 'place' is - in any case - not relevant, and marketing research is almost all second-hand.
Coarse Marketing
The marketer, in real life, does not face each decision with a copy of a text-book in his or her hand - ready to work through the various lessons. The marketer starts with a quite specific environment; which will immediately limit the range of factors to be explored to a small subset of the literally hundreds explored in this book. To the perceptive marketer the range of options to be explored will usually be obvious. Beyond this, the position will be further constrained by the resources available to deal with them.For instance, theory always says that the first step is marketing research, but if your competitor has just made a major change in strategy you may have just days to react - where research may take months.
Real-life marketing primarily revolves around the application of a great deal of common-sense; dealing with a limited number of factors, in an environment of imperfect information and limited resources complicated by uncertainty and tight timescales. Use of classical marketing techniques, in these circumstances, is inevitably partial and uneven.
Thus, for example, new products will emerge from irrational processes and the rational development process may be used (if at all) to screen out the worst non-runners. The design of the advertising, and the packaging, will be the output of the creative minds employed; which management will then screen, often by 'gut-reaction', to ensure that it is reasonable.
Indeed, the most successful marketer is often the one who trains his or her 'gut-reaction' to simulate that of the average customer!
For most of his or her time the marketing manager is likely to be using his or her considerable intelligence to analyze and handle the complex, and unique, situations being faced; without easy reference to theory. This will often be 'flying by the seat of the pants', or 'gut-reaction'; where the overall strategy, coupled with the knowledge of the customer which has been absorbed almost by a process of osmosis, will determine the quality of the marketing employed!
This, almost instinctive management, is what is sometimes called 'coarse marketing'; to distinguish it from the refined, aesthetically pleasing, form favored by the theorists. It is often relatively crude and would, if given in answer to a business school examination, be judged a failure of marketing. On the other hand, it is the real-life world of most marketing!
ADVERTISING MARKETING
Advertising is often thought of as the paid, non-personal promotion of a cause, idea, product, or service by an identified sponsor attempting to inform or persuade a particular target audience. Advertising has taken many different forms since the beginning of time. For instance, archaeo-logists have uncovered walls painted in Rome announcing gladiator fights as well as rock paintings along Phoenician trade routes used to advertise wares. From this early beginning, advertising has evolved to take a variety of forms and to permeate nearly every aspect of modern society. The various delivery mechanisms for advertising include banners at sporting events, billboards, Internet Web sites, logos on clothing, magazines, newspapers, radio spots, and television commercials. Advertising has so permeated everyday life that individuals can expect to be exposed to more than 1,200 different messages each day. While advertising may seem like the perfect way to get a message out, it does have several limitations, the most commonly noted ones being its inability to (1) focus on an individual consumer's specific needs, (2) provide in-depth information about a product, and (3) be cost-effective for small companies.
Forms of Advertising
Advertising can take a number of forms, including advocacy, comparative, cooperative, direct-mail, informational, institutional, outdoor, persuasive, product, reminder, point-of-purchase, and specialty advertising.
Advocacy Advertising Advocacy advertising is normally thought of as any advertisement, message, or public communication regarding economic, political, or social issues. The advertising campaign is designed to persuade public opinion regarding a specific issue important in the public arena. The ultimate goal of advocacy advertising usually relates to the passage of pending state or federal legislation. Almost all nonprofit groups use some form of advocacy advertising to influence the public's attitude toward a particular issue. One of the largest and most powerful nonprofit advocacy groups is the American Association of Retired Persons (AARP). The AARP fights to protect social programs such as Medicare and Social Security for senior citizens by encouraging its members to write their legislators, using television advertisements to appeal to emotions, and publishing a monthly newsletter describing recent state and federal legislative action. Other major nonprofit advocacy groups include the environmental organization Green-peace, Mothers Against Drunk Driving (MADD), and the National Rifle Association (NRA).
Comparative Advertising Comparative advertising compares one brand directly or indirectly with one or more competing brands. This advertising technique is very common and is used by nearly every major industry, including airlines and automobile manufacturers. One drawback of comparative advertising is that customers have become more skeptical about claims made by a company about its competitors because accurate information has not always been provided, thus making the effectiveness of comparison advertising questionable. In addition, companies that engage in comparative advertising must be careful not to misinform the public about a competitor's product. Incorrect or misleading information may trigger a lawsuit by the aggrieved company or regulatory action by a governmental agency such as the Federal Trade Commission (FTC).
Cooperative Advertising Cooperative advertising is a system that allows two parties to share advertising costs. Manufacturers and distributors, because of their shared interest in selling the product, usually use this cooperative advertising technique. An example might be when a soft-drink manufacturer and a local grocery store split the cost of advertising the manufacturer's soft drinks; both the manufacturer and the store benefit from increased store traffic and its associated sales. Cooperative advertising is especially appealing to small storeowners who, on their own, could not afford to advertise the product adequately.
Direct-Mail Advertising Catalogues, flyers, letters, and postcards are just a few of the direct-mail advertising options. Direct-mail advertising has several advantages, including detail of information, personalization, selectivity, and speed. But while direct mail has advantages, it carries an expensive per-head price, is dependent on the appropriateness of the mailing list, and is resented by some customers, who consider it "junk mail."
Informational Advertising In informational advertising, which is used when a new product is first being introduced, the emphasis is on promoting the product name, benefits, and possible uses. Car manufacturers used this strategy when sport utility vehicles (SUVs) were first introduced.
Institutional Advertising Institutional advertising takes a much broader approach, concentrating on the benefits, concept, idea, or philosophy of a particular industry. Companies often use it to promote image-building activities, such an environmentally friendly business practices or new community-based programs that it sponsors. Institutional advertising is closely related to public relations, since both are interested in promoting a positive image of the company to the public. As an example, a large lumber company may develop an advertising theme around its practice of planting trees in areas where they have just been harvested. A theme of this nature keeps the company's name in a positive light with the general public because the replanting of trees is viewed positively by most people.
Outdoor Advertising Billboards and messages painted on the side of buildings are common forms of outdoor advertising, which is often used when quick, simple ideas are being promoted. Since repetition is the key to successful promotion, outdoor advertising is most effective when located along heavily traveled city streets and when the product being promoted can be purchased locally. Only about 1 percent of advertising is conducted in this manner.
Persuasive Advertising Persuasive advertising is used after a product has been introduced to customers. The primary goal is for a company to build selective demand for its product. For example, automobile manufacturers often produce special advertisements promoting the safety features of their vehicles. This type of advertisement could allow automobile manufactures to charge more for their products because of the perceived higher quality the safety features afford.
Product Advertising Product advertising pertains to nonpersonal selling of a specific product. An example is a regular television commercial promoting a soft drink. The primary purpose of the advertisement is to promote the specific soft drink, not the entire soft-drink line of a company.
Reminder Advertising Reminder advertising is used for products that have entered the mature stage of the product life cycle. The advertisements are simply designed to remind customers about the product and to maintain awareness. For example, detergent producers spend a considerable amount of money each year promoting their products to remind customers that their products are still available and for sale.
Point-of-Purchase Advertising Point-of-purchase advertising uses displays or other promotional items near the product that is being sold. The primary motivation is to attract customers to the display so that they will purchase the product. Stores are more likely to use point-of-purchase displays if they have help from the manufacturer in setting them up or if the manufacturer provides easy instructions on how to use the displays. Thus, promotional items from manufacturers who provide the best instructions or help are more likely to be used by the retail stores.
Specialty Advertising Specialty advertising is a form of sales promotion designed to increase public recognition of a company's name. A company can have its name put on a variety of items, such as caps, glassware, gym bags, jackets, key chains, and pens. The value of specialty advertising varies depending on how long the items used in the effort last. Most companies are successful in achieving their goals for increasing public recognition and sales through these efforts.
Advertising Objectives
Advertising objectives are the communication tasks to be accomplished with specific customers that a company is trying to reach during a particular time frame. A company that advertises usually strives to achieve one of four advertising objectives: trial, continuity, brand switching, and switchback. Which of the four advertising objectives is selected usually depends on where the product is in its life cycle.
Trial The purpose of the trial objective is to encourage customers to make an initial purchase of a new product. Companies will typically employ creative advertising strategies in order to cut through other competing advertisements. The reason is simple: Without that first trial of a product by customers, there will not be any re peat purchases.
Continuity Continuity advertising is a strategy to keep current customers using a particular product. Existing customers are targeted and are usually provided new and different information about a product that is designed to build consumer loyalty.
Brand Switching Companies adopt brand switching as an objective when they want customers to switch from competitors' brands to their brands. A common strategy is for a company to compare product price or quality in order to convince customers to switch to its product brand.
Switchback Companies subscribe to this advertising objective when they want to get back former users of their product brand. A company might highlight new product features, price reductions, or other important product information in order to get former customers of its product to switchback.
Advertising Budget
Once an advertising objective has been selected, companies must then set an advertising budget for each product. Developing such a budget can be a difficult process because brand managers want to receive a large resource allocation to promote their products. Overall, the advertising budget should be established so as to be congruent with overall company objectives. Before establishing an advertising budget, companies must take into consideration other market factors, such as advertising frequency, competition and clutter, market share, product differentiation, and stage in the product life cycle.
Advertising Frequency Advertising frequency refers to the number of times an advertisement is repeated during a given time period to promote a product's name, message, and other important information. A larger advertising budget is required in order to achieve a high advertising frequency: Estimates have been put forward that a consumer needs to come in contact with an advertising message nine times before it will be remembered.
Competition and Clutter Highly competitive product markets, such as the soft-drink industry, require higher advertising budgets just to stay even with competitors. If a company wants to be a leader in an industry, then a substantial advertising budget must be earmarked every year. Examples abound of companies that spend millions of dollars on advertising in order to be key players in their respective industries (e.g., Coca Cola and General Motors).
Market Share Desired market share is also an important factor in establishing an advertising budget. Increasing market share normally requires a large advertising budget because a company's competitors counterattack with their own advertising blitz. Successfully increasing market share depends on advertisement quality, competitor responses, and product demand and quality.
Product Differentiation How customers perceive products is also important to the budget-setting process. Product differentiation is often necessary in competitive markets where customers have a hard time differentiating between products. For example, product differentiation might be necessary when a new laundry detergent is advertised: Since so many brands of detergent already exist, an aggressive advertising campaign would be required. Without this aggressive advertising, customers would not be aware of the product's availability and how it differs from other products on the market. The advertising budget is higher in order to pay for the additional advertising.
Stage in the Product Life Cycle New product offerings require considerably more advertising to make customers aware of their existence. As a product moves through the product life cycle, fewer and fewer advertising resources are needed because the product has become known and has developed an established buyer base. Advertising budgets are typically highest for a particular product during the introduction stage and gradually decline as the product matures.
Selecting the Right Advertising Approach
Once a company decides what type of specific advertising campaign it wants to use, it must decide what approach should carry the message. A company is interested in a number of areas regarding advertising, such as frequency, media impact, media timing, and reach.
Frequency Frequency refers to the average number of times that an average consumer is exposed to the advertising campaign. A company usually establishes frequency goals, which can vary for each advertising campaign. For example, a company might want to have the average consumer exposed to the message at least six times during the advertising campaign. This number might seem high, but in a crowded and competitive market repetition is one of the best methods to increase the product's visibility and to increase company sales. The more exposure a company desires for its product, the more expensive the advertising campaign. Thus, often only large companies can afford to have high-frequency advertisements during a campaign.
Media Impact Media impact generally refers to how effective advertising will be through the various media outlets (e.g., television, Internet, print). A company must decide, based on its product, the best method to maximize consumer interest and awareness. For example, a company promoting a new laundry detergent might fare better with television commercials rather than simple print ads because more consumers are likely to see the television commercial. Similarly, a company such as Mercedes-Benz, which markets expensive products, might advertise in specialty car magazines to reach a high percentage of its potential customers. Before any money is spent on any advertising media, a thorough analysis is done of each one's strengths and weaknesses in comparison to the cost. Once the analysis is done, the company will make the best decision possible and embark on its advertising campaign.
Media Timing Another major consideration for any company engaging in an advertising campaign is when to run the advertisements. For example, some companies run ads during the holidays to promote season-specific products. The other major consideration for a company is whether it wants to employ a continuous or pulsing pattern of advertisements. Continuous refers to advertisements that are run on a scheduled basis for a given time period. The advantage of this tactic is that an advertising campaign can run longer and might provide more exposure over time. For example, a company could run an advertising campaign for a particular product that lasts years with the hope of keeping the product in the minds of customers. Pulsing indicates that advertisements will be scheduled in a disproportionate manner within a given time frame. Thus, a company could run thirty-two television commercials over a three-or six-month period to promote the specific product is wants to sell. The advantage with the pulsing strategy is twofold. The company could spend less money on advertising over a shorter time period but still gain the same recognition because the advertising campaign is more intense.
Reach Reach refers to the percentage of customers in the target market who are exposed to the advertising campaign for a given time period. A company might have a goal of reaching at least 80 percent of its target audience during a given time frame. The goal is to be as close to 100 percent as possible, because the more the target audience is exposed to the message, the higher the chance of future sales.
Advertising Evaluation
Once the advertising campaign is over, companies normally evaluate it compared to the established goals. An effective tactic in measuring the usefulness of the advertising campaign is to measure the pre-and post-sales of the company's product. In order to make this more effective, some companies divide up the country into regions and run the advertising campaigns only in some areas. The different geographic areas are then compared (advertising versus nonadvertising), and a detailed analysis is performed to provide an evaluation of the campaign's effectiveness. Depending on the results, a company will modify future advertising efforts in order to maximize effectiveness.
Summary
Advertising is the paid, nonpersonal promotion of a cause, idea, product, or service by an identified sponsor attempting to inform or persuade a particular target audience. Advertising has evolved to take a variety of forms and has permeated nearly every aspect of modern society. The various delivery mechanisms for advertising include banners at sporting events, billboards, Internet Web sites, logos on clothing, magazines, newspapers, radio spots, and television commercials. While advertising can be successful at getting the message out, it does have several limitations, including its inability to (1) focus on an individual consumer's specific needs, (2) provide in-depth information about a product, and (3) be cost-effective for small companies. Other factors, such as objectives, budgets, approaches, and evaluation methods must all be considered.
MARKETING RESEARCH
The term market research encompasses a number of activities that are designed to connect marketers to consumers through information gathering and evaluation. Market research provides businesses with information about their customers, their competitors, and their overall industry. It is commonly used to identify marketing problems and opportunities, as well as to develop and evaluate the effectiveness of marketing strategies. Small business owners, because of their usually limited financial resources, have a particular need for adequate, accurate, and current information to aid them in making decisions. Market research can help entrepreneurs evaluate the feasibility of a start-up venture before investing a great deal of time and capital, for example, as well as assist them in effectively marketing their goods and services. Employing such marketing strategies as market segmentation and product differentiation would be nearly impossible without first conducting market research.
Although market research can be costly, it is often even more costly to make erroneous decisions based upon bad or inadequate information. In fact, an average business spends between 25 and 50 percent of its annual marketing budget on research activities. Conducting large-scale market research in-house is not possible for many small businesses, since it requires a comprehensive understanding of the problem to be addressed, the market, and the application of research procedures. But there is a great deal of helpful information available to entrepreneurs who know where to look, and there are many consultants, advertising firms, and market research specialists who offer their services to small businesses for a fee.
The information gathered through market re-search can be divided into two main categories. The first category—primary information—generally does not exist in a coherent form before the marketer gathers it in response to a particular question or problem. The most common methods of gathering primary market research information are through direct mail, telemarketing, and personal interviews. The other category—secondary information—has already been compiled and organized by a source other than the marketer. Rather than looking at a specific marketing problem faced by an individual company, secondary information generally tracks trends within a market, an industry, a demographic group, or a geographic region. A great deal of valuable secondary information is available to small business owners at little or no cost. Some possible sources of secondary market research information include government reports, trade association records, newspaper and magazine surveys, university-sponsored research, local chamber of commerce records, on-line services, and competitors' annual reports.
Market research can provide small business owners with the information they need to answer a wide range of questions, including: Who are my customers? Where are they located? How much and how often will they buy? and What product attributes do they prefer? Given the importance of market research—and its potential cost—experts recommend that businesses follow a step-by-step approach in order to gain the most benefits from their research activieties.
The first step in the market research process is to define the marketing problem to be addressed. Next, a marketer should determine what information is needed to solve the problem, as well as what sources should be used to acquire the information. Many businesses make a preliminary investigation at this early stage in order to give their definition of the problem more focus and to develop tentative answers that can be tested during the next stage of the process. The third step involves planning the research. This step includes selecting the techniques to be used for gathering data and deciding on an appropriate group, or sample, to be included in the research. Fourth, a marketer actually gathers the necessary data. The fifth step involves analyzing and interpreting the information that has been gathered. Finally, the marketer reaches a conclusion about the marketing problem and translates the findings into changes in the firm's overall marketing strategy.
There are three general types of market research suppliers that can assist small businesses with one or more steps in the above process. Some firms specialize in conducting overall market research that they release to a variety of clients for a fee. This type of firm includes syndicated services such as A.C. Nielsen and Company, which provides viewership ratings for national television programs. There are also custom market research firms that handle all aspects of the process, from defining the marketing problem and designing research techniques to evaluating results and formulating new marketing strategies. In contrast, smaller, specialty line suppliers usually concentrate on one aspect of the process. Marketers who wish to secure the services of a market research firm usually obtain bids from a number of suppliers. The following sections provide more information about the various types of market research that such suppliers perform.
Types of Market Research
AUDIENCE RESEARCH. Research on who is listening, watching, and reading is important to marketers of television and radio programs and print publications—as well as to advertisers who wish to reach a certain target audience with their message. Television and radio ratings demonstrate the popularity of shows and determine how much stations can charge for advertising spots during broadcasts. Publication subscription lists, which are audited by tabulating companies to ensure their veracity, are important in determining the per page rate for advertising.
PRODUCT RESEARCH. Product research includes simple, in-person research such as taste tests conducted in malls and in the aisles of grocery stores, as well as elaborate, long-term "beta testing" of high-tech products by selected, experienced users. The objective of product research can be simple; for example, a company may tweak the taste of an existing product, then measure consumers' reactions to see if there is room in the market for a variation. It can also be more extensive, as when a company develops prototypes of proposed new products that may be intended for market introduction months down the road.
In product research, as in all market research, there is a danger to paying too much attention to the wrong things. For instance, the introduction of New Coke was based on the outcome of taste tests that showed the public wanted a sweeter product. But later an angry public, outraged that Coca-Cola was planning to change the familiar formula, forced the company to ignore its taste tests and leave the original Coke on the market. The company had put too much stock in the results of the taste test studies, and had failed to factor in research that showed consumers were happy with the product as it was.
BRAND RESEARCH. Brands, the named products that advertising pushes and for which manufacturers can charge consumers the most money, are always being studied. Advertisers want to know if consumers have strong brand loyalty ("I'd never buy another brand, even if they gave me a coupon"); if the brand has any emotional appeal ("My dear mother used only that brand"); and what the consumer thinks could be improved about the brand ("If only it came in a refillable container").
Brand research, too, has its perils. Campbell's Soup once convened a focus group comprised of its best soup customers. One of the findings was that those customers saw no need for a low-salt alternative soup Campbell's wanted to market. Concerned that the general public seemed to want low-sodium products, Campbell's retested groups other than their best customers. This research found a market interested in a low-sodium soup. The loyal Campbell's customers loved the saltier product, while a larger group of potential customers preferred the low-salt alternative.
PSYCHOLOGICAL RESEARCH. Perhaps the most controversial type of market research is psychological research. This type of research tries to determine why people buy certain products based on a profile of the way the consumers live their lives. One company has divided all Americans into more than 60 psychological profiles. This company contends the lifestyles these people have established, based upon their past buying habits and their cultural upbringing, influences their buying decisions so strongly that individual differences can sometimes be negated.
Psychological research is controversial because it measures attitudes about buying rather than the buying itself. Critics point to conflicting information uncovered through other market research studies. In one series of research projects, researchers asked people what they were planning to buy before they entered a store. After the people surveyed left the store, the same researcher examined what was actually in their shopping carts. Only 30 percent of the people bought what they had said they planned to buy just a half hour earlier.
SCANNER RESEARCH. In contrast, there is no fooling the checkout scanner at the supermarket or the department store: it records what was actually purchased. This is valuable information an advertiser can use to help plan an ongoing marketing strategy. Scanner technology has changed the way advertisers track the sale of consumer products. Before scanners, advertisers received sales information only when retailers reordered stock, generally every two weeks. This meant that the advertisers had no way to quickly measure the effect of national advertising, in-store sales promotions, or the couponing of similar products by their competitors. Now, computer technology can send scanner information to advertisers within days or even hours.
DATABASE RESEARCH. Virtually every type of consumer—credit card holders, smokers, drinkers, car buyers, video buyers—shows up on thousands of lists and databases that are regularly cross-referenced to mine nuggets of marketing research. Database research is growing in popularity among marketers because the raw data has already been contributed by the purchaser. All the marketer has to do is develop a computer program to look for common buying patterns.
Database research can be thought of as the ultimate tool in market segmentation research. For example, from zip code lists, marketers may determine where the wealthy people live in a city. That list can be merged with a list of licensed drivers. The resulting list can be merged with another list of owners of cars of a certain make older than a certain year. The resulting list can be merged with another list of subscribers to car enthusiast magazines. The final list will deliver a potential market for a new luxury car soon to be introduced and profiled in the car magazines. The people on the potential buyers' list could then be mailed an invitation to come see the new car.
Database research also allows companies to build personal relationships with people who have proven from past purchases that they are potential customers. For example, a motorcycle manufacturer such as Harley Davidson may discover from database research that a family with a motorcycle has a teenage son. That son is a potential new customer for everything from clothes to a new motorcycle of his own. Maintaining a personal relationship with customers also provides businesses with a basis for more detailed and economical market research than might be possible through random sampling.
POST-SALES OR CUSTOMER SATISFACTION RESEARCH. Most companies no longer believe that a sale ends their relationship with a customer. Nearly one-third of the research revenues generated by the leading American market research firms concern customer satisfaction. Many companies now wait a few days or weeks, then contact customers with survey questionnaires or telephone calls. Companies want reassurance that the customer enjoyed the buying experience and that the product or service has met the buyer's expectations.
The reason behind post-sales research is to ensure that current customers are happy, will consider themselves future customers, and will spread positive word-of-mouth messages about the product and company. One study found that 70 percent of customers believed it was important for companies to stay in contact with them, but less than one-third of those same customers reported that they had heard from companies whose products they purchased. Nearly 90 percent of those surveyed said they would be more likely to choose a company's products if it stayed in touch with them and sought their satisfaction.
Personal Research Methods
CLOSED-END QUESTIONNAIRE. A closed-end questionnaire is the type of market research most people have experienced. It includes such common activities as filling out a comment card at a restaurant or responding to a telephone survey. In closed-end questionnaires, the person being surveyed cannot expound on their answers. Such surveys usually ask for "yes" or "no" responses or for measures of multiple choice opinion (e.g., "extremely interested, " "somewhat interested, " "not interested"). This type of market research is generally conducted to elicit the opinions and beliefs of the public. It is commonly used for political polling and to determine the awareness or popularity of a product or service.
The inherent problem with multiple-choice questionnaires that ask for clear-cut answers is that many people do not think in a clear-cut fashion. If not carefully prepared, closed-ended questions may elicit answers that do not provide a clear view of the person being surveyed. Sometimes, the company conducting the survey may intentionally or inadvertently write questions that elicit the answers it wants to receive, rather than answers that provide a true picture of what is happening in the marketplace.
OPEN-ENDED QUESTIONNAIRE. Over time, market researchers have grown increasingly aware that people often have opinions that do not fit into a multiple-choice questionnaire. To capture these opinions and try to analyze them, researchers are shifting toward open-ended research—asking people to say exactly what is on their minds. For example, manufacturers are giving customers plenty of space on questionnaires to explain their likes and dislikes about products and services, and telephone researchers will frequently mix closed-end and open-end questions on the same survey to try to delve deeper. A "no" response to whether a person watches a particular cable television station may trigger a follow-up question of "Why not?, " for instance, and the answer will be taken down word for word.
A problem with both closed- and open-ended questionnaire research, particularly when conducted over the telephone, is that people gradually become bored or annoyed and stop providing their true opinions. In addition, some studies have shown that a large percentage of Americans refuse to answer marketing research surveys.
FOCUS GROUPS. In-person, sit-down discussions around a table with groups of consumers, would-be consumers, never-buyers, or any other demographic group a company wishes to bring together are called focus groups. This can be the least expensive type of market research when handled on a local basis by a small business wanting to get a handle on its customers. Or, it can be one of the most expensive if a major corporation wants to test its plans in various sections of the country. Small, local businesses may invite a focus group to a neighborhood home to sit around the dinner table and discuss how the company can develop new markets. In contrast, most major corporations conduct their focus groups in a controlled environment, usually with a one-way mirror at one end of the room. This allows executives to observe the proceedings unobtrusively or to videotape the session for further study.
The key to gathering good information from a focus group is for the moderator to keep the conversation flowing freely without taking a side. The moderator's job is to involve everyone in the discussion and prevent any individuals from dominating the conversation. Most market research experts agree that focus group research should be accompanied by other types of research and not be the sole basis for launching new products. The reason is that opinions expressed among strangers may not always reflect the way people would react when alone. For example, a focus group discussing low-fat foods may garner an enthusiastic response from people who want to be publicly perceived as being concerned about their health. The same people, however, might say they never buy low-fat products if questioned during an anonymous phone interview.
MARKETING MIX
The term marketing mix refers to the four major areas of decision making in the marketing process that are blended to obtain the results desired by the organization. The four elements of the marketing mix are sometimes referred to the four Ps of marketing. The marketing mix shapes the role of marketing within all types of organizations, both profit and nonprofit. Each element in the marketing mix—product, price, promotion, and place—consists of numerous subelements. Marketing managers make numerous decisions based on the various subelements of the marketing mix, all in an attempt to satisfy the needs and wants of consumers.
Product
The first element in the marketing mix is the product. A product is any combination of goods and services offered to satisfy the needs and wants of consumers. Thus, a product is anything tangible or intangible that can be offered for purchase or use by consumers. A tangible product is one that consumers can actually touch, such as a computer. An intangible product is a service that cannot be touched, such as computer repair, income tax preparation, or an office call. Other examples of products include places and ideas. For example, the state tourism department in New Hampshire might promote New Hampshire as a great place to visit and by doing so stimulate the economy. Cities also promote themselves as great places to live and work. For example, the slogan touted by the Chamber of Commerce in San Bernardino, California, is "It's a great day in San Bernardino." The idea of wearing seat belts has been promoted as a way of saving lives, as has the idea of recycling to help reduce the amount of garbage placed in landfills.
Typically, a product is divided into three basic levels. The first level is often called the core product, what the consumer actually buys in terms of benefits. For example, consumers don't just buy trucks. Rather, consumers buy the benefit that trucks offer, like being able to get around in deep snow in the winter. Next is the second level, or actual product, that is built around the core product. The actual product consists of the brand name, features, packaging, parts, and styling. These components provided the benefits to consumers that they seek at the first level. The final, or third, level of the product is the augmented component. The augmented component includes additional services and benefits that surround the first two levels of the product. Examples of augmented product components are technical assistance in operating the product and service agreements.
Products are classified by how long they can be used—durability—and their tangibility. Products that can be used repeatedly over a long period of time are called durable goods. Examples of durable goods include automobiles, furniture, and houses. By contrast, goods that are normally used or consumed quickly are called nondurable goods. Some examples of nondurable goods are food, soap, and soft drinks. In addition, services are activities and benefits that are also involved in the exchange process but are intangible because they cannot be held or touched. Examples of intangible services included eye exams and automobile repair.
Another way to categorize products is by their users. Products are classified as either consumer or industrial goods. Consumer goods are purchased by final consumers for their personal consumption. Final consumers are sometimes called end users. The shopping patterns of consumers are also used to classify products. Products sold to the final consumer are arranged as follows: convenience, shopping, specialty, and unsought goods. Convenience goods are products and services that consumers buy frequently and with little effort. Most convenience goods are easily obtainable and low-priced, items such as bread, candy, milk, and shampoo. Convenience goods can be further divided into staple, impulse, and emergency goods. Staple goods are products, such as bread and milk, that consumers buy on a consistent basis. Impulse goods like candy and magazines are products that require little planning or search effort because they are normally available in many places. Emergency goods are bought when consumers have a pressing need. An example of an emergency good would be a shovel during the first snowstorm of the winter.
Shopping goods are those products that consumers compare during the selection and purchase process. Typically, factors such as price, quality, style, and suitability are used as bases of comparison. With shopping goods, consumers usually take considerable time and effort in gathering information and making comparisons among products. Major appliances such as refrigerators and televisions are typical shopping goods. Shopping goods are further divided into uniform and nonuniform categories. Uniform shopping goods are those goods that are similar in quality but differ in price. Consumers will try to justify price differences by focusing on product features. Nonuniform goods are those goods that differ in both quality and price.
Specialty goods are products with distinctive characteristics or brand identification for which consumers expend exceptional buying effort. Specialty goods include specific brands and types of products. Typically, buyers do not compare specialty goods with other similar products because the products are unique. Unsought goods are those products or services that consumers are not readily aware of or do not normally consider buying. Life insurance policies and burial plots are examples of unsought goods. Often, unsought goods require considerable promotional efforts on the part of the seller in order to attract the interest of consumers.
Industrial goods are those products used in the production of other goods. Examples of industrial goods include accessory equipment, component parts, installations, operating supplies, raw materials, and services. Accessory equipment refers to movable items and small office equipment items that never become part of a final product. Office furniture and fax machines are examples of accessory equipment. Component parts are products that are turned into a component of the final product that does not require further processing. Component parts are frequently custom-made for the final product of which they will become a part. For example, a computer chip could be produced by one manufacturer for use in computers of other manufacturers. Installations are capital goods that are usually very expensive but have a long useful life. Trucks, power generators, and mainframe computers are examples of installations. Operating supplies are similar to accessory equipment in that they do not become part of the finished product. Operating supplies include items necessary to maintain and operate the overall firm, such as cleaners, file folders, paper, and pens. Raw materials are goods sold in their original form before being processed for use in other products. Crops, crude oil, iron ore, and logs are examples of raw materials in need of further processing before being used in products. The last category of industrial goods is services. Organizations sometimes require the use of services, just as individuals do. Examples of services sought by organizations include maintenance and repair and legal counsel.
Price
The second element in marketing mix is price. Price is simply the amount of money that consumers are willing to pay for a product or service. In earlier times, the price was determined through a barter process between sellers and purchasers. In modern times, pricing methods and strategies have taken a number of forms.
Pricing new products and pricing existing products require the use of different strategies. For example, when pricing a new product, businesses can use either market-penetration pricing or a price-skimming strategy. A market-penetration pricing strategy involves establishing a low product price to attract a large number of customers. By contrast, a price-skimming strategy is used when a high price is established in order to recover the cost of a new product development as quickly as possible. Manufacturers of computers, videocassette recorders, and other technical items with high development costs frequently use a price-skimming strategy.
Pricing objectives are established as a subset of an organization's overall objectives. As a component of the overall business objectives, pricing objectives usually take one of four forms: profitability, volume, meeting the competition, and prestige. Profitability pricing objectives mean that the firm focuses mainly on maximizing its profit. Under profitability objectives, a company increases its prices so that additional revenue equals the increase in product production costs. Using volume pricing objectives, a company aims to maximize sales volume within a given specific profit margin. The focus of volume pricing objectives is on increasing sales rather than on an immediate increase in profits. Meeting the price level of competitors is another pricing strategy. With a meeting-the-competition pricing strategy, the focus is less on price and more on nonprice competition items such as location and service. With prestige pricing, products are priced high and consumers purchase them as status symbols.
In addition to the four basic pricing strategies, there are five price-adjustment strategies: discount pricing and allowances, discriminatory pricing, geographical pricing, promotional pricing, and psychological pricing. Discount pricing and allowances include cash discounts, functional discounts, seasonal discounts, trade-in allowances, and promotional allowances. Discriminatory pricing occurs when companies sell products or services at two or more prices. These price differences may be based on variables such as age of the customer, location of sale, organization membership, time of day, or season. Geographical pricing is based on the location of the customers. Products may be priced differently in distinct regions of a target area because of demand differences. Promotional pricing happens when a company temporarily prices products below the list price or below cost. Products priced below cost are sometimes called loss leaders. The goal of promotional pricing is to increase short-term sales. Psychological pricing considers prices by looking at the psychological aspects of price. For example, consumers frequently perceive a relationship between product price and product quality.
Promotion
Promotion is the third element in the marketing mix. Promotion is a communication process that takes place between a business and its various publics. Publics are those individuals and organizations that have an interest in what the business produces and offers for sale. Thus, in order to be effective, businesses need to plan promotional activities with the communication process in mind. The elements of the communication process are: sender, encoding, message, media, decoding, receiver, feedback, and noise. The sender refers to the business that is sending a promotional message to a potential customer. Encoding involves putting a message or promotional activity into some form. Symbols are formed to represent the message. The sender transmits these symbols through some form of media. Media are methods the sender uses to transmit the message to the receiver. Decoding is the process by which the receiver translates the meaning of the symbols sent by the sender into a form that can be understood. The receiver is the intended recipient of the message. Feedback occurs when the receiver communicates back to the sender. Noise is anything that interferes with the communication process.
There are four basic promotion tools: advertising, sales promotion, public relations, and personal selling. Each promotion tool has its own unique characteristics and function. For instance, advertising is described as paid, nonpersonal communication by an organization using various media to reach its various publics. The purpose of advertising is to inform or persuade a targeted audience to purchase a product or service, visit a location, or adopt an idea. Advertising is also classified as to its intended purpose. The purpose of product advertising is to secure the purchase of the product by consumers. The purpose of institutional advertising is to promote the image or philosophy of a company. Advertising can be further divided into six subcategories: pioneering, competitive, comparative, advocacy, reminder, and cooperative advertising. Pioneering advertising aims to develop primary demand for the product or product category. Competitive advertising seeks to develop demand for a specific product or service. Comparative advertising seeks to contrast one product or service with another. Advocacy advertising is an organizational approach designed to support socially responsible activities, causes, or messages such as helping feed the homeless. Reminder advertising seeks to keep a product or company name in the mind of consumers by its repetitive nature. Cooperative advertising occurs when wholesalers and retailers work with product manufacturers to produce a single advertising campaign and share the costs. Advantages of advertising include the ability to reach a large group or audience at a relatively low cost per individual contacted. Further, advertising allows organizations to control the message, which means the message can be adapted to either a mass or a specific target audience. Disadvantages of advertising include difficulty in measuring results and the inability to close sales because there is no personal contact between the organization and consumers.
The second promotional tool is sales promotion. Sales promotions are short-term incentives used to encourage consumers to purchase a product or service. There are three basic categories of sales promotion: consumer, trade, and business. Consumer promotion tools include such items as free samples, coupons, rebates, price packs, premiums, patronage rewards, point-of-purchase coupons, contests, sweepstakes, and games. Trade-promotion tools include discounts and allowances directed at wholesalers and retailers. Business-promotion tools include conventions and trade shows. Sales promotion has several advantages over other promotional tools in that it can produce a more immediate consumer response, attract more attention and create product awareness, measure the results, and increase short-term sales.
Public relations is the third promotional tool. An organization builds positive public relations with various groups by obtaining favorable publicity, establishing a good corporate image, and handling or heading off unfavorable rumors, stories, and events. Organizations have at their disposal a variety of tools, such as press releases, product publicity, official communications, lobbying, and counseling to develop image. Public relations tools are effective in developing a positive attitude toward the organization and can enhance the credibility of a product. Public relations activities have the drawback that they may not provide an accurate measure of their influence on sales as they are not directly involved with specific marketing goals.
The last promotional tool is personal selling. Personal selling involves an interpersonal influence and information-exchange process. There are seven general steps in the personal selling process: prospecting and qualifying, pre-approach, approach, presentation and demonstration, handling objections, closing, and follow-up. Personal selling does provide a measurement of effectiveness because a more immediate response is received by the salesperson from the customer. Another advantage of personal selling is that salespeople can shape the information presented to fit the needs of the customer. Disadvantages are the high cost per contact and dependence on the ability of the salesperson.
For a promotion to be effective, organizations should blend all four promotion tools together in order to achieve the promotional mix. The promotional mix can be influenced by a number of factors, including the product itself, the product life-cycle stage, and budget. Within the promotional mix there are two promotional strategies: pull and push. Pull strategy occurs when the manufacturer tries to establish final consumer demand and thus pull the product through the wholesalers and retailers. Advertising and sales promotion are most frequently used in a pulling strategy. Pushing strategy, in contrast, occurs when a seller tries to develop demand through incentives to wholesalers and retailers, who in turn place the product in front of consumers.
Place
The fourth element of the marketing mix is place. Place refers to having the right product, in the right location, at the right time to be purchased by consumers. This proper placement of products is done through middle people called the channel of distribution. The channel of distribution is comprised of interdependent manufacturers, wholesalers, and retailers. These groups are involved with making a product or service available for use or consumption. Each participant in the channel of distribution is concerned with three basic utilities: time, place, and possession. Time utility refers to having a product available at the time that will satisfy the needs of consumers. Place utility occurs when a firm provides satisfaction by locating products where they can be easily acquired by consumers. The last utility is possession utility, which means that wholesalers and retailers in the channel of distribution provide services to consumers with as few obstacles as possible.
Channels of distribution operate by one of two methods: conventional distribution or a vertical marketing system. In the conventional distribution channel, there can be one or more independent product manufacturers, wholesalers, and retailers in a channel. The vertical marketing system requires that producers, wholesalers, and retailers to work together to avoid channel conflicts.
How manufacturers store, handle, and move products to customers at the right time and at the right place is referred to as physical distribution. In considering physical distribution, manufacturers need to review issues such as distribution objectives, product transportation, and product warehousing. Choosing the mode of transportation requires an understanding of each possible method: rail, truck, water, pipeline, and air. Rail transportation is typically used to ship farm products, minerals, sand, chemicals, and auto mobiles. Truck transportation is most suitable for transporting clothing, food, books, computers, and paper goods. Water transportation is good for oil, grain, sand, gravel, metallic ores, coal, and other heavy items. Pipeline transportation is best when shipping products such as oil or chemicals. Air transport works best when moving technical instruments, perishable products, and important documents.
Another issue of concern to manufacturers is the level of product distribution. Normally manufacturers select from one of three levels of distribution: intensive, selective, or exclusive. Intensive distribution occurs when manufacturers distribute products through all wholesalers or retailers that want to offer their products. Selective distribution occurs when manufacturers distribute products through a limited, select number of wholesalers and retailers. Under exclusive distribution, only a single wholesaler or retailer is allowed to sell the product in a specific geographic area.
MARKETING PLAN
A marketing plan is a written document that details the actions necessary to achieve a specified marketing objective(s). It can be for a product or service, a brand, or a product line. It can cover one year (referred to as an annual marketing plan), or cover up to 5 (sometimes referred to as five) years.
A marketing plan may be part of an overall business plan. Solid marketing strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of little use.
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