BBS 120 Handout

An Overview of Marketing

The goal of every organization is to create value for customers and in turn capture value
from them. Companies aim at building profitable relationships with customers.
Companies must develop and offer products and services that will be of value to the
customers and must convince them that they are gaining more from the products and
services they are buying than what they have foregone in terms of cash or other
alternatives. There is therefore need to understand consumer needs and wants,
deciding which target market an organisation can serve best, and developing a value
proposition by which an organisation can attract and retain target consumers.

Marketing Defined

In order to explain how the marketing of goods and services is done, we must first
describe what marketing is. There are several definitions of Marketing, but we present
two definitions of Marketing as defined by the Chartered Institute of Marketing (CIM)
and the American Marketing Association (AMA).
“The management process of anticipating, identifying and satisfying customer

requirements profitably” (CIM, 2001).
“Marketing is the activity, set of institutions, and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients, partners,
and society at large” (AMA, 2007)
Principles of Marketing Page 1

Simple Marketing Exchange
Process
The Marketing Process
There are four important aspects that constitute the marketing process and these
include;
 Determine – Marketing should begin with potential customer needs in mind

rather than with production. This entails determining or finding out the needs
and wants of society. Marketing practitioners can achieve this by undertaking
marketing research.
 Design: Designing entails coming up with the types of offerings that will be
needed to satisfy those needs or wants that have been identified in the
determination stage. Design decisions might include decisions on the product
design and packaging design.
 Develop: This entails developing the offering in to a finished product that can be
offered for sale. It is important that the product that is developed is non-
defective as the costs associated with defective products can be immense e.g.
product re-calls or bad word of mouth from dissatisfied customers.
 Deliver: This entails making the product available to the market and marketers
need to ensure that they get the product in the right channels.

Functions of Marketing
There are eight functions of marketing as indicated in the figure below. Each of these
functions of marketing is interlinked with stakeholder requirements. Marketers at
different levels within the organisation will undertake different components of these
functions at different levels. In general terms, the senior marketer or marketing director
will direct these functions, while the marketing manager will manage them, the
marketing executive will undertake the actions necessary to fulfil these functions and
the marketing assistant will support the marketing executive. Below is a presentation of
the eight functions of marketers.

Functional Map For
Marketing
The Evolution of Marketing
Marketing is not a new phenomenon and has evolved over time. The development of
marketing is presented as a four stage sequence by most Marketing texts and this
sequence is illustrated below;
Production period, 1890s-1920s – characterised by a focus on physical production

and supply, where demand exceeded supply. This phase took place after the industrial
revolution.
Sales period, 1920s-1950s – characterised by a focus on personal selling supported by

advertising. This phase took place after the First World War.

Marketing period, 1950s – 1980s – characterised by a more advanced focus on the
customer’s needs. This phase took place after the Second World War.
Societal marketing period, 1980s to present – characterised by a stronger focus on

social and ethical concerns in marketing. This phase is taking place during the
‘information revolution’ of the late twentieth century.
The Marketing Mix
The marketing mix is a mix of marketing policies and procedures to produce a

profitable enterprise and is commonly known as the 4Ps. The marketing mix elements
which a manufacturer must consider in developing policies and procedures include;
 Product – Represents the offering and how it meets the customer’s need, it’s
packaging and labelling. Product comprises both goods and services.
 Place (distribution) – Represents distribution and concerns how to place the

optimum amount of goods and services before the maximum number of a target
market at the times and locations they want
 Price – Represents the cost to the customer, and cost plus profit to the seller.
Price is the only element in the marketing mix that generates revenue as the
other element represent cost.
 Promotion – Represents how the product’s benefits and features are conveyed
to the potential buyer. Examples of promotional tools include advertising,
personal selling, direct marketing, sales promotions and public relations.
Extension from 4 to 7Ps
 Physical evidence – to emphasise that the tangible components of services were

strategically important since customers used these to infer what the quality of
society might be (i.e. Airline loyalty cards, in-flight magazine, and entertainment
service).
 Process – because service delivery is inseparable from the customer

consumption process, we include process because of the need to manage

customer expectations and satisfaction which becomes strategically important in
this context. Where processes are standardised, it is easier to manage customer
expectations (i.e. self service, online check in, travel class, increasing availability
of alternative locations).
 People – included to emphasise that services are delivered by customer service

personnel, sometimes experts and often professionals who interact with the
customer sometimes in an intimate manner (i.e. check-in staff, customer service
desk, cabin crew/pilot team).
Marketing Management Philosophies
Four competing philosophies strongly influence an organisation’s marketing processes

and these are; production orientation, sales orientation, marketing orientation and
societal marketing orientation.
1. Production Orientation
A production orientation is a philosophy that focuses on the internal capabilities of the

firm rather than on desires and needs of the market place. A production orientation
means that management asses its resources and asks three questions;
 What can we do best?

 What can our engineers design?
 What is easy to produce given our equipment?
The weakness of the production orientation philosophy is that it does not take into
consideration the needs and wants of the market place when designing goods and
services.
2. Sales Orientation
A sales orientation is based on the ideas that people will buy more goods and services if
aggressive sales techniques are used and that high sales result in high profits. To sales
oriented firms, marketing means selling things and collecting money and they
encourage intermediaries to push manufacturer’s products more aggressively.

The weakness of this philosophy is that there is a lack of understanding of the needs and
wants of the marketplace. Sales oriented companies often find that despite the quality of
their sale force, they cannot convince buyers to buy goods or services that are neither
wanted nor needed.
3. Market Orientation
Market Orientation refers to ‘ the organisation wide generation of market intelligence

pertaining to current and future customer needs, disseminate of the intelligence across
the departments, and organisation wide responsiveness to it’ (Kohli and Jaworski, 1990)
The market orientation is guided by the marketing concept which states that the social
and economic justification for an organisation’s existence is the satisfaction of customer
wants and needs while meeting the organisational objectives. The marketing concept
holds that what a business thinks it produces is not of primary importance but rather
what customers think they are buying and the perceived value they will get. The
marketing orientation includes;
• Focusing on customer wants and needs so that the organisation can distinguish
its products from competitors.
• Integrating all the organisations activities including production to satisfy these

wants.
• Achieving long term goals for the organisation by satisfying customer wants and
needs legally and responsibly.
Achieving a market orientation therefore calls for an organisation to obtain information

about customers, competitors and markets, examining the information from a total
business perspective, determining how to deliver superior customer value and
implementing actions to provide value to customers. Narver and Slater (1994)
suggested that developing a market orientation means developing:

1. Customer orientation
Concerned with creating superior value by continuously developing and

redeveloping product and service offerings to meet customer needs. To do this,
we measure customer satisfaction on a continuous basis and train and develop
front-line service staff accordingly.
2. Competitor orientation
Requires an organisation to develop an understanding of its competitor’s short-

term strengths and weaknesses and its long term capabilities and strategies.
3. Inter-functional coordination
Requires all the functions of an organisation to work together to achieve the

above foci for long term profitability.
The Three (3) Components of Market Orientation

In order to achieve market orientation so that an organisation is internally responsive
to changes in the market place, the following factors must be borne in mind;
 Senior management support

 Development of teams to gather the necessary market intelligence data
 Market sensing through environmental scanning
4. The societal Marketing Concept
The societal marketing orientation extends the marketing concept by acknowledging

that some products that customers want may not really be in their interests or the best
interest of society as a whole. This philosophy states that an organisation exists not only
to satisfy customer wants and needs and to meet organisational objectives but also to
preserve or enhance individual’s and society’s long term interests. This concept tries to
address society’s concerns such as climate change, the depleting ozone layer, fuel
shortages, pollution and health concerns. Addressing these concerns will ensure that
resources are conserved and reduce the damage to the environment.
Marketing in Context
It must be understood that there are different marketing techniques and tools that will
be employed in organisations depending on the specific sector being looked at or the
marketing context. For example, whether it is industrial (e.g business to business),
consumer (e.g retail) or services based (e.g education, car hire or professional services
like accountancy), or used in the not-for profit context. The three unique contexts of
marketing include; consumer goods, industrial (business to business), and services. A
brief discussion on how each of these contexts affects how marketing is undertaken
follows below.
a) The Consumer Goods Perspective

Consumer goods can be classified in three ways. The first classification is that of
convenience goods which looks at those goods that are purchased frequently
and with minimal effort such as sugar and bread. The second classification is that
of shopping goods and this classification refers to those goods that are
purchased in a selective manner based on suitability, quality, price and style such
as furniture and electrical appliances. The last classification is that of speciality

goods and this class represents those goods that are highly selected because
only that product is capable of meeting a specific need (speciality goods are
bought infrequently, are very expensive and represent high risk e.g sports car,
Rolex watches).
The main focus in the consumer goods perspective is around the ideas of the
marketing mix. Marketers will therefore focus their energies in trying to
manipulate the 4Ps based on the product that they are offering. Among the key
issues to focus on is the facilitation of rapid exchange of goods, efficiency in
managing the distribution of the product through the supply chain and the
effectiveness of matching demand and supply.
b) The Consumer Services Perspective
This perspective is organised around the idea that markets are increasingly
characterised not by physical goods but by intangible services. Services
marketing thinkers suggest that the intangible, performance-dependant, nature
of services substancially affect the way services should be marketed. Among
some of the key issues that call for a different strategy to market services
include;
 Services cannot be protected by patent.
 Services do not use packaging
 Services lack physical display
A detailed look the characteristics of services will be done later. These include
intangibility, perishability, variability and inseparability.
Another aspect in the marketing of services is that marketers do not just have the
4Ps to manipulate but rather have to deal with an extended services marketing mix
that also includes process, people and physical evidence.
c) The Business to Business Perspective

Business- to- Business (B2B) marketing is a subject that has not been adequately
covered by most marketing textbooks as a result of over-emphasis on consumer
goods marketing. Business- to- Business marketing is essentially different from
consumer marketing because the customer is a business rather than an
individual household, or chief shopper. B2B requires that marketers deal with

more sophisticated customers who may buy in volume, as part of a decision
making unit (with other buyers and technicians), who are trained to
buy/procure professionally, and who are rewarded for buying the right products
at the right price.
The emphasis in B2B markets is strongly focused on the development and
building of mutually beneficial relationships based on commitment and trust.
Business to Business markets can create a competitive advantage by developing
a strong linkage between the marketing and logistics function, and developing a
strong customer service proposition through;
 Cycle time order reduction
 Accurate invoice procedures
 Reliable delivery
 Effective claims procedures
 Inventory availability
 Effective/planned salesperson visits
 Convenient ordering systems
 Flexible delivery times
 Strong aftersales support
Having looked at the three different contexts in marketing above, it is cardinal
that marketers adopt the correct marketing tools and techniques to use based on
the marketing context or perspective.
Marketing Planning
Planning is the process of anticipating future events and determining strategies to

achieve organisational objectives in the future. Marketing Planning involves designing
activities relating to marketing objectives and the changing marketing environment.
Marketing Planning is the basis for all marketing strategies and decisions. All issues
such as the organisations product portfolio, distribution channels, marketing
communications and pricing are contained in the marketing plan. A marketing plan is a
written document that acts as a guidebook of marketing activities for the marketing
manager.

Reasons for Writing a Marketing Plan
 A marketing plan helps in the setting of objectives and the respective actions
required to attaining those objectives.
 A marketing plan acts as a basis for measuring marketing performance by
comparing actual results and expected results.
 A marketing plan helps managers and employees work towards common goals
as it clearly stipulates the activities that need to be carried out.
Levels of Planning
There are three levels of planning and these include; corporate, division and product
planning.
a) Corporate strategic planning is the responsibility of the corporate

headquarters and its objective is to guide the whole enterprise. Among decisions
that are entrusted with the corporate headquarters include;
 Decisions on the amount of resources to allocate to each division. The

organisation may use the Boston Consulting Group matrix or the General
Electric model to help in the allocation of resources.
 Decisions regarding which businesses to start maintain or eliminate.
b) Division Planning is done at the Division level and emphasises improvement of

the competitive position of a corporation’s products in the specific industry or
market segment served by that division.
c) Product Planning refers to the developing of a marketing plan for each product
level on how it will achieve its objectives in its product market.
Marketing Planning Process
The key elements that are contained in the marketing plan will be discussed below;
1.0. Defining the Business Mission

The foundation of any marketing plan is the firm’s mission statement which
answers the question, “What business are we in?” The way a firm defines its
business mission profoundly affects the firm’s long run resource allocation,

profitability and survival. The mission statement is based on a careful analysis of
benefits sought by present and potential customers and an analysis of existing and
anticipated environmental conditions. The mission statement must therefore focus
on the market or markets that the organisation is attempting to serve rather on the
goods or services offered.
2.0. Conducting a Situational Analysis
Marketers must understand the current and potential environment that the product
or service will be marketed in. A situational analysis tries to answer the question,
“Where are now?” It tries to analyse a firm’s internal and external environment by
using the SWOT analysis; that is, the firm should identify its internal strengths (S)
and weaknesses (W) and also examine external factors in terms of opportunities
(O) and threats (T).
When examining internal strengths and weaknesses, the marketing manager should
focus on factors such as;
 production costs (how high or low are our production costs?).
 marketing skills (do we have a strong or weak marketing talent).
 financial resources (do we have enough or inadequate financial resources?).
 company or brand image (is the company brand strong or weak?).
 Employee capabilities (how strong or weak are our employee capabilities?).
 Available technology (do we have the technology to compete with other
players in the market?).
When analysing the external environment, marketing managers must focus on

analysing opportunities and threats through environmental scanning. Environmental
scanning refers to the collection and interpretation of information about forces in the
external environment that may affect the future of the organisation or the
implementation of the marketing plan. The PESTLE tool is used to identify opportunities
and threats posed by the external environment and factors contained in the PESTLE tool
include;
 Political forces – How stable or unstable is the political environment?

 Economic forces – What is the status quo of economic indicators such as
interest rates, target customer’s disposable incomes, inflationary pressures,
exchange rates e.t.c.?

 Social – cultural forces – What are the trends regarding the social cultural
forces in terms of family composition, changing society values e.t.c?
 Technological forces – Will technological advances affect our operations and
can we cope?
 Legal forces – What are the key changes in the legal framework and how do they
affect us?
 Ecological forces – How damaging are our products to the environment and
what can we do to help preserve the environment?
It must be mentioned that the organisation has control of factors in the internal
environment (SW) but has not control of forces in the external environment (OT)
and it must therefore find a strategic fit between these two forces.
3.0. Setting Marketing Plan Objectives

Once an organisation has carried out the situational analysis and knows where it is
standing, it must set marketing plan objectives. A marketing objective is a statement
of what is to be accomplished through marketing activities. Marketing objectives
must meet the following criteria;
 Specific – They must not be ambiguous but specific in order to allow for easy
measurement.
 Realistic – Managers should develop objectives that have a chance of being
met. A new firm cannot possibly set an objective of taking over the market
leadership within the first year of being launched.
 Measurable – Managers need to be able to quantitatively measure whether or
not an objective has been met.
 Time bound – By what time must the objective be met?
 Compared to a benchmark – it is important to know the baseline against
which the objective will be measured
4.0. Marketing Strategy Crafting
Marketing strategy involves the activities of selecting and describing one or more
target markets and developing and maintaining a marketing mix that will produce
mutually satisfying exchanges with the target market.
4.1. Target Market Strategy

The organisation must decide which market segment to target. A market segment is a
group of individuals or organisations that share one or more characteristics or that
share similar needs. Target marketing is important as the organisation focuses its
resources on the intended market segment and this reduces wastage of resources.
4.2. Marketing Mix Strategy
The term marketing mix refers to a unique blend of tools (product, price, place and
promotion) designed to produce mutually satisfying exchanges with a target market.
The marketing manager can control each component of the marketing mix but the
strategies for all four components must be blended to achieve optimal results.
Marketers can achieve competitive success by devising the following marketing mix
strategies
Product Strategies
This is the starting point of the marketing mix because it is impossible to devise the
place strategy and promotional strategy without the product offering and product
strategy. A product can either be a tangible good or a service. A product strategy must
ensure that all aspects regarding the product are addressed as people do not buy things
for what they do (benefits) but also for what they mean to us (status, quality, or
reputation).
Price
Price is what a buyer must give up to obtain a product and it is often the most flexible
element to change in the marketing mix. Marketers can raise or lower price more
frequently and easily than they can change other marketing mix variables. Price is a
very important competitive tool as it is the only element in the marketing mix that
generates revenue for the organisation.
Place/Distribution
Place or distribution strategies are concerned with making products available when and
where customers want them.

Promotion
Promotion strategies include advertising, public relations, sales promotions, and

personal selling. Promotions role is to inform, educate, persuade and remind customers
of the benefits of an organisation’s products.
5.0. Implementation and Control
Implementation is the process that turns a marketing plan into action assignments and
ensures that these assignments are executed in a way that accomplishes the marketing
plan’s objectives. Implementation activities may involve detailed job assignments,
activity descriptions, budgets, and lots of communication. It must be said that you can
have a brilliant marketing strategy but if it is poorly implemented, the strategy will be a
failure.
Once a plan is chosen and implemented, its effectiveness must be monitored. Control
provides the mechanisms for evaluating marketing results in light of the plan’s
objectives and for correcting mistakes that prevents the organisation to reach its
objectives within budget guidelines.
Marketing Organisation
Introduction
The topic of marketing organization fundamentally addresses the allocation of activities

to groups.The organisation of the marketing function take numerous forms depending
on the size of the organisation, size of the market, product portfolio of the organisation
and the number of markets that the organisation is serving. Below are 6 different
approaches in how the marketing function can be organised;
1. Functional Organisation
This form of marketing organisation consists of functional specialists reporting
to a marketing vice president, who co-ordinates their activities. Below is a figure
that shows how a functional organisation looks like;
Advantage

a) It is very simple when it comes to issues of administration.
Disadvantages
a) The first disadvantage of this form of organisation is that it becomes a challenge
to develop smooth working relationships within the marketing department.
Companies using this organisation form must ensure that critical interfaces
among field sales, customer service and product management groups are
improved as these collective interfaces have a major impact on customer
satisfaction.
b) Another disadvantage is that it leads to inadequate planning for specific markets
and products in the event that there is an increase in the markets being served
and products being sold. For example, products that are not favoured by anyone
are neglected.
c) The last disadvantage is that each functional group competes with the other
function for budget and status.
2. Geographic Organisation
A company selling in a national market often organises its sales force (and
sometimes other functions, including marketing) along geographic lines. For
example, the national sales manager may supervise 6 regional sales managers,
who in turn supervise 5 territory managers and each of those territory managers
will supervise sales representatives in their respective territories. Furthermore,
some organisations add area marketing specialists to support the sales efforts in
high volume, distinctive markets.
Advantage
a) This type of organisation helps companies to pin-point local problems and
opportunities.
b) It leads to better serving of customers as companies can come up with
solutions tailored to meet the needs of the respective region.
Disadvantage
a) This type of organisation is unlikely to work in areas that are sparsely

populated or where the cost of serving customers is high. Furthermore, it can

be very strenuous on the salesforce if they have cover very large geographical
areas.
3. Product or Brand Management Organisation
Companies producing a variety of products and brands often establish a product
(or brand) management organisation. The product-management organisation
does not replace the functional management organisation but rather serves as
another layer of management.
A product manager supervises product category managers, who in turn
supervise specific product and brand managers. A product management-
management organisation makes sense if the company’s products are quite
different or if the sheer number of products is beyond the ability of a functional
marketing organisation.
The tasks for product and brand managers include;
 Developing a long term competitive strategy for the product.
 Preparing an annual marketing plan and sales forecast.
 Working with advertisng and merchanising agencies to develop copy,
programs and campaigns.
 Stimulating support of the product among the salesforce and distributors.
 Gathering continuous intelligence on the product.
 Initiating product improvements to meet changing market needs.
Advantages
a) The product manager can concentrate on developing a cost effective

marketing mix for the product.
b) The product manager can react more quickly to problems in the market place
than a committee of functional specialists.
c) Smaller brands are also not neglected because the product manager is their
advocate.
d) It’s a good training ground for young executives as it involves every area of
company operations.

Disadvantages
a) Product management creates a lot frustration and conflict as product managers

are not given enough authority to carry out their responsibilities effectively.
They have to rely on their persuasion to get the cooperation of advertising, sales,
manufacturing and other departments.
b) Product managers rarely achieve functional expertise even if they are experts of
their own product.
c) This type of marketing organisation tends to be costly when a company has a
large product portfolio as it means appointing product managers for each
product.
d) In instances where brand managers stay for a short time due to promotions or
transfers, it affects long term planning and long term health of the brand.
4. Market- Management Organisation
This marketing organisation form is used where companies sell their products to
a diverse set of markets. This type of marketing organisation is ideal when user
groups fall into distinct buying preferences and practices. For example, a
company can be selling to consumer, business and government markets.
The tasks of market managers include;
 Develop long-range and annual plans for their respective markets.
 Analysis of their market and identify what new products their company
should offer to their market.
The advantage of this type of organisation is that marketing activities are

organised to to meet the needs of distinct customer groups rather than focused
on marketing functions or regions.
5. Product Management/Market Management Organisation

This type of marketing organisation is also called a matrix organisation and it is
ideal when companies produce many products that flow into many markets.
Though the matrix organisation is suitable for a company that is involved in
multi-product and multi-markets, it is costly and creates a lot of conflicts. It is
costly in the sense that there are more managers to support. Conflicts arise when

it comes to the organisation of the sales force and setting of prices for a
particular product or market.
6. Corporate – Divisional Organisation
As multiproduct-multi companies grow, they often convert their larger product
or market groups into divisions. For Example, Zambeef. The divisions set up their
own departments and services. This state of affairs raises questions as to what
marketing services and activities should be retained at corporate headquarters.
Divisionalized companies have reached different answers to this question:
 No corporate marketing – they don’t see the useful function of marketing
at corporate level and therefore, each division has its own marketing
department.
 Moderate corporate marketing – some companies have a small corporate
marketing staff that performs a few functions such as: i) assisting top
management with overall opportunity evaluation ii) providing divisions
with consulting assistance on request iii) helping divisions that have little
or no marketing and iv) promoting the marketing concept throughout the
organisation.
 Strong corporate marketing - This provides various marketing services to
the divisions such as specialised advertising services, marketing research
services and other miscellaneous services in addition to the preceding
activities.
Building Customer Value, Satisfaction and Retention
Customer Value
Customer value is the relationship between benefits and the sacrifice necessary to
obtain those benefits. Customer value is not simply a matter of high quality. A high
quality product that is available only at a high price will not be perceived as a good
value, nor will low quality product selling for a low price. Instead, customers value
goods and services that are of the quality they expect and that are sold at prices they are
willing to pay. A Mercedes Benz and an Iphone fetch for premium prices because
consumers feel they get value in these products. On the other hand, lower income

consumers are price sensitive but they will only pay for a product if the product delivers
a benefit that is worth the money. What sense is in buying a product that is cheaper but
cannot do the job?
Marketers interested in customer value can do the following;
 Offer products that perform – This is the bare minimum requirement and
companies should listen to customers in order to determine the performance
characteristics that are most important to them.
 Earn trust – Earning trust can be achieved by delivering value consistently and
this leads to a loyal customer base which enhances the firm’s ability to grow.
 Avoid unrealistic pricing – Consumers expect the pricing to be realistic based
on the benefits that they will get from the product. Unrealistic prices will chase
customers away.
 Give the buyer facts – Companies must endeavour to give their customers facts
through their sales people so that they can make informed decisions. Sales
people must therefore find out what customers need and work towards finding a
solution.
 Offer organisation-wide commitment in service and after sales-support –
Customer service should be at the centre of an organisation in order to keep up
with customer expectations.
 Co-creation – Some companies and products allow customers to help create
their own experience.
Customer Satisfaction
Customer satisfaction is the customer’s evaluation of a good or service in terms of

whether that good or service has met the customer’s needs and expectations. Failure to
meet the needs and expectations of customers result in dissatisfaction with the good or
service. Organisations must therefore develop a culture of delighting customers. The
tools below can help in tracking and measuring customer satisfaction;
1. Complaint Suggestion Systems – A customer centred organisation makes it

easy for its customers to deliver suggestions and complaints. This could be done

by providing forms which will include the likes and dislikes or establish hotlines
that are toll free.
2. Customer Satisfaction Surveys – Customer satisfaction must be measured by
conducting periodic surveys as dissatisfied customers do not always come
forward to complain even when complaint suggestion systems are in place.
3. Ghost Shopping – Companies can hire persons to pose as potential buyers to
report on strong and weak points in buying company and competitor products.
4. Lost Customer Analysis – Companies should contact customers who have
stopped buying or who have switched to another supplier in order to learn what
happened.
Customer satisfaction is key to customer retention because customer satisfaction leads

to the following;
 Customer loyalty
 A satisfied customer buys more as the company introduces new products and
upgrades existing products.
 A satisfied customer talks favourably about the company and its products
 A satisfied customer pays less attention to competing brands and advertising and
is less sensitive to price.
 A satisfied customer offers product ideas to the company.
 A satisfied customer costs less to serve than new customers because transactions
are routinized.
Building Customer Retention
Attracting new customers to a business is only the beginning but what matters most is
retaining those customers. The best companies view new customer attraction as the
launching point for developing and enhancing a long term relationship. Companies can
expand their market share in three ways; attracting new customers, increasing business
with existing customers and retaining current customers. It must be said though that it
is cheaper to do business with existing customers than to attract new customers and
building long term relationships becomes cardinal. Long-term relationships can be built
using relationship marketing which is a strategy that focuses on keeping and improving
relationships with current customers.

There are two ways in which customer retention can be achieved and these are outlined
below;
1. Erect High Switching Barriers – Under this method, customers are less likely to
switch to other brands or suppliers because this would involve high switching
costs such as high capital costs, high search costs or the loss of loyal-customer
discounts.
2. Deliver High Customer Satisfaction through Relationship Marketing –
Relationship marketing involves all the steps companies undertake to know and
serve their valued customers better.
While erecting barriers might work for a limited period of time, the best strategies for
retention are relationship marketing strategies. Below are the fundamental principles
that relationship marketing strategies are built on;
 Customer Oriented Personnel – This calls for employees to be customer

oriented in terms of their attitudes and actions. Employees represent their firms
in the eyes of their customer and any negative or positive action will be a
reflection of their firm.
 Employee Training - Leading marketers recognise the role of employee
training in customer service and relationship building. Knowledgeable
employees are not only an asset to an organisation but also to its customers.
 Empowerment – Empowerment is about giving employees more authority to
solve customer problems on the spot. Employees develop ownership attitudes
and feel like part-owners. Empowered employees manage themselves, are more
likely to work hard, account for their own performance and take prudent risks
to build a stronger business and sustain the company’s success.
 Teamwork – Teamwork entails collaborative efforts of people to accomplish
common objectives. Teamwork is fundamental in driving high levels of customer
satisfaction and superior customer value. Teamwork must therefore be
emphasised in intra and inter departmental circles as a way of encouraging
cooperation rather than competition.

THE NEED FOR INFORMATION
The marketing environment is changing at an accelerating rate and the need for real
time information is greater now than at any time in history. The world has become
globalised, consumer preferences keep changing and competition has become immense.
Kotler (2000) points out that marketing is now becoming more of a battle based on
information rather than sales power. Companies with superior information are likely to
enjoy a competitive advantage as they can;
 choose better markets

 develop better offerings
 and execute better marketing planning.
In order for companies to come up with the right product for the right market or to
produce an advert that appeals to the target audience, companies need to have
information readily available to address specific problems or opportunities in the
marketing environment. Companies study their information needs and design
Marketing Information System (MIS) to meet these needs.
Marketing Information System (MIS) Defined
A marketing information system consists of people, equipment and procedures to

gather, sort, analyse, evaluate and distribute needed timely and accurate information to
marketing decision makers. The marketing information system therefore provides
timely information to decision makers on a continuous basis. Examples of information
needs for marketers include;
 Historical information such as sales, profitability and market trends.

 Externally focused marketing information (Macro and industry trends).
 Qualitative marketing information such as competitor strategy and buyer
behaviour.
 Quantitative marketing information such as costs, profit and market share.
Basic Rules for Building a Marketing Information System
1. Get the top management involved.

2. Set the objectives for the system.

3. Figure out what decisions your MkIS will influence.
4. Communicate the benefit of the system to the users.
5. Hire and motivate the right people.
6. Free the MkIS from accounting domination.
7. Develop the system on a gradual and systematic basis.
8. Run a new MkIS in parallel with existing procedures.
9. Provide results from the system to users quickly after its initiation.
10. Provide information on a fast turnaround basis.
11. Tie the MkIS with existing data collection procedures.
12. Balance the work of the MkIS between development and operations.
13. Feed valid meaningful data into the system and not useless information.
14. Design a security system to ensure different groups get different access to the
information.
The Components of a Marketing Information System
The role of a MIS is to assess the manager’s information needs, develop the needed
information and distribute that information in a timely fashion. This information is
developed through internal company records, marketing intelligence activities,
marketing research and the marketing decision support system. An in-depth of the
components of a Marketing information system will be done below;
a) Internal Record System

Marketing managers rely on internal reports on orders, sales, prices, costs,
inventory, and receivables and so on. By analysing this information, they can
spot important opportunities and problems. Two important components of the
internal record system include the Order-to-Payment Cycle and the Sales
Information System.
The order-to-payment cycle information is important as it shows when an order
is placed, dispatched, whether everything on the order is fulfilled and when
payment is made. Companies need to perform these steps quickly and accurately
as they have a direct impact on the satisfaction of the customer. Most companies
have resorted to the use of Electronic Data Interchange or company intranets to

improve the speed, accuracy and efficiency of the order-to-payment cycle. A good
example is Shoprite that have introduced an online system for their B2b orders.
A Sales Information System on the other hand has to provide up-to the minute
reports on current sales to managers for them to make quick decisions on lines
that are either moving slowly or too fast.
b) Marketing Intelligence System
The marketing intelligence system is a system that is supposed to supply
information on what is happening. A marketing intelligence system is defined as
a set of procedures and sources used by managers to obtain everyday
information about various developments in the marketing environment.
Marketing managers can collect marketing intelligence information by reading
books, newspapers, trade publications, talking to customers, suppliers and
meeting with other company managers. There are number of ways in which a
company can improve its collection of intelligence information and these are
outlined below;
 Train and motivate sale personnel to spot and report new developments
as they are the eyes and ears of the company.
 The company can also motivate distributors, retailers and other
intermediaries to pass along important information. For example,
intermediaries can report on issues such as product performance, faulty
products or expired products.
 Companies can learn about competitors by purchasing their products,
attending trade shows, reading competitor’s published reports, collecting
competitor’s adverts and reading trade association papers.
 The company can purchase information from outside suppliers such as
Ipsos Zambia who gather information on the advertising spend on
different media.
c) Marketing Decision Support System (MDSS)
A Marketing Decision Support System (MDSS) is used by most organisations to
help their managers make better decisions. A Marketing Decision Support
System (MDSS) is defined as a co-ordinated collection of data, systems, tools and
techniques with supporting software and hardware by which an organisation
gathers and interprets relevant information from the business and environment

and turns it into a basis for marketing action. A good example is the DHL tracking
system which can help the organisation identify areas where shipments are
delayed. An MDSS can also be helpful in areas such as Call Plans for sales people
and analysis of promotions e.t.c.
d) Marketing Research
Marketing managers often commission formal marketing studies of specific

problems and opportunities. They may request a market survey, a product-
preference test or an advertising evaluation.
Marketing Research Defined
Marketing research is the systematic design, collection, analysis and reporting of

data and findings relevant to a specific marketing situation facing the company.
The importance of marketing research cannot be under estimated as it links the

consumer, customer and the public to the marketer through information which is
used to;
 Identify and define marketing opportunities

 Generate, refine and evaluate marketing actions
 Improve understanding of marketing as a process and how specific
marketing activities can be made more effective.
COMMISSIONING MARKETING RESEARCH
Undertaking of marketing research is an activity that can be carried out

internally or externally and largely depends on the size of the organisation and
the type of products it handles. However, many large companies and small
companies alike employ market research agencies to conduct research on their
behalf. The main advantages of employing research agencies include;
 It is relatively cheap to engage market research agencies compared with

undertaking the research in-house as they spread their fixed costs over
numerous projects.
 Research agencies also offer some degree of objectivity and independence
as they conduct the research and in their report findings.

On the other hand, the use of research agencies also presents some
disadvantages and these include;
 The agency cannot achieve the depth of knowledge of the client’s

problems, product or market unless it offers specialism in this area.
Agency Selection Criteria
Agencies are shortlisted to offer their services based on a certain criteria and
they may be asked to make a presentation of their services. Visits are made to
their premises to check the quality of their staff and facilities, and previous
reports maybe considered to assess the quality of the organisation’s work.
Furthermore, permission to interview or obtain references from some of their
other clients may also be requested. Each agency will be evaluated based on its
ability to carry out work of acceptable quality and at an appropriate price. The
criteria used to evaluate the agencies suitability, once they have submitted a
proposal might include;
 The reputation of the agency.

 The perceived expertise of the agency
 Time taken to complete the study
 Likelihood of research design providing insights into the management
problem
Examples of agencies in Zambia offering marketing research services include

Ipsos Zambia (Formerly Synovate) and Research International.
The Marketing Research Brief
The research brief is a formal document prepared by a client organisation

submitted to the marketing research agency. A research brief is given to
shortlisted candidates as a preliminary outline of the client’s needs and as a
guide to submit proposals on research methodology, timing and costs. However,
if the marketing research is to be conducted in-house, the departmental manager
who requires the research prepares a brief for the Marketing Research Manager.
The brief should outline a management problem to be investigated and the
contents of the brief include;

 Background summary – provides a brief introduction and details about
the company and its products and/or services that the organisation
offers.
 The Management Problem – a clear statement of why the research
should be undertaken and what business decisions are dependent upon
its outcome.
 The Marketing Research Questions – a detailed list of the information
necessary in order to make the decisions above.
 The intended scope of the research – the areas to be covered, which
industries, type of customer should be provided. The brief should give an
indication of when the information is required and explain why that date
is important (e.g pricing research required for a sales forecasting
meeting)
 Tendering procedures – The client organisation should outline how
agencies are to be selected as a result of the tendering process. Specific
information may be required such as CVs from agency personnel to be
involved in the study and referee contact addresses.
Analysing Consumer Markets and Buyer Behaviour
Companies that study and understand how and why consumers behave the way they
behave when it comes to making purchases stand to benefit from that study and
understanding. Studying consumers provides clues for developing new products,
product features, prices, channels, messages, and other marketing mix elements
All individuals and households who buy or acquire goods and services for personal
consumption are termed as consumers. Markets have to be understood before
marketing strategies can be developed.
Consumer Buying Behaviour Vs Buyer Behaviour
There is a contrast between consumer behaviour and buyer behaviour and this
contrast can be seen in the definitions of the two concepts below.

Consumer behaviour is the study of the process involved when individuals or groups
select, purchase, use or dispose of products, services, ideas or experiences to satisfy
needs and desires
On the hand Buyer Behaviour reflects an emphasis on the interaction between

buyers and producers at the time or point of purchase.
The Consumer Proposition Acquisition Process
The consumer acquisition process consists of six distinct stages. The process is useful
because it highlights the importance and distinctiveness of proposition selection and
re-evaluation phases in the process. It is also important to mention that the buying
process is iterative because each stage can lead back to any of the previous stages in
the process or move forward to the next stage in the process.
Motive Development
This is the first stage in the model and arises when we decide we need to acquire a
product. This involves the initial recognition that a problem needs to be solved. To
begin to solve a problem, we must be aware of it. For example, a newly recruited
graduate in a Bank who decides that he/she needs to upgrade his wardrobe.
Information Gathering
The second stage entails looking for alternative ways of solving our problems. The
searching of information may be active, overt or passive. Furthermore, the search can
involve an internal search where we consider what we already know about the
problem we face and the products we might buy to solve our problems. Or, it could
be external where we do not know enough of our problem and so we seek advice and
supplementary information to help us decide.
Proposition Evaluation
Once we feel that we have all the information that we need to make a decision, we
evaluate the proposition. The criteria that we may use in proposition evaluation can
either be rational (based on cost) or irrational (based on desire).

Proposition Selection
In most cases, the proposition that we eventually select is the one that we evaluate as
fitting our needs best beforehand. However, certain circumstances might cause to
decide to re-evaluate our propositions and acquire a different proposition when what
we want is not available.
Acquisition/Purchase
This takes place once the selection has been done and involves purchase or
acquisition of the proposition. There are different approaches to proposition
acquisition. If a buyer is making a routine purchase (purchase that we make
regularly), we do not particularly get involved in the decision making process.
However, if a purchase is a specialised or infrequent purchase, the buyer becomes
much more involved in the decision making to ensure that the proposition satisfies
the buyer’s need’s.
Re-Evaluation
This happens after the acquisition stage and entails re-evaluating our actions. The re-
evaluation stage leads to Cognitive Dissonance a theory that suggests that we are
motivated to re-evaluate our beliefs, attitudes, opinions, or values if the position we
hold on them at one point in time is not the same as the position we held at an earlier
period due to some intervening factors. Cognitive dissonance causes us to be
psychologically uncomfortable and leads to feelings of foolishness or regrets about a
purchase decision that we have made. In order to reduce cognitive dissonance, we
actively avoid situations that might increase our feelings of dissonance. Some of the
actions we might take to reduce dissonance include;

Selectively forget information.

Minimise the importance of an issue, decision or act.


Selectively expose ourselves only to new information that agrees with our
existing view (rather than information which doesn’t)

Reverse a purchase decision, for instance by taking a product back or selling it
for what it was worth.
It is important to mention that the concept of cognitive dissonance is most prevalent in

purchase situations that entail high involvement such as the purchase of a car, house or
high value investment.
MODEL OF CONSUMER BEHAVIOUR
Consumers make many buying decisions every day. Most large companies research
consumer buying decisions in great detail to answer questions about what
consumers buy, where they buy, how and how much they buy, when they buy, and
why they buy. Marketers can study actual consumer purchases to find out what they
buy, where, and how much. But learning about the whys of consumer buying
behaviour is not so easy—the answers are often locked deep within the consumer's
head.
The central question for marketers is: How do consumers respond to various
marketing efforts the company might use? The company that really understands how
consumers will respond to different product features, prices, and advertising appeals
has a great advantage over its competitors. The starting point is the stimulus-
response model of buyer behaviour shown in Figurebelow.This figure shows that
marketing and other stimuli enter the consumer's "black box" and produce certain
responses. Marketers must figure out what is in the buyer's black box.

Marketing stimuli consist of the four Ps: product, price, place, and promotion. Other
stimuli include major forces and events in the buyer's environment: economic,
technological, political, and cultural. All these inputs enter the buyer's black box,
where they are turned into a set of observable buyer responses: product choice,
brand choice, dealer choice, purchase timing, and purchase amount.
The marketer wants to understand how the stimuli are changed into responses
inside the consumer's black box, which has two parts. First, the buyer's
characteristics influence how he or she perceives and reacts to the stimuli. Second,
the buyer's decision process itself affects the buyer's behaviour. Consumer purchases
are also influenced strongly by cultural, social, personal, and psychological
characteristics as we will see in the next unit. For the most part, marketers cannot
control such factors, but they must take them into account when devising marketing
strategies.

FACTORS INFLUENCING CONSUMER BEHAVIOUR
There are four major factors that can influence the Buying decision of the buyer. These
are summarised in the figure below:
Figure 10.1: Factors influencing consumer behaviour
a. Cultural Factors
Cultural factors exert the broadest and deepest influence on consumer behaviour. The
marketer needs to understand the role played by the buyer's culture, subculture, and
social class.
I. Culture
Culture is defined as the set of basic values, perceptions, wants and behaviours learned
by a member of society from family and other important institutions. It is the most basic
cause of a person's wants and behaviour. Human behaviour is largely learned. Growing
up in a society, a child learns basic values, perceptions, wants, and behaviours from the

family and other important institutions. A person normally learns or is exposed to the
following values: achievement and success, activity and involvement, efficiency and
practicality, progress, material comfort, individualism, freedom, humanitarianism,
youthfulness, and fitness and health.
Every group or society has a culture, and cultural influences on buying behaviour
may vary greatly from country to country. Failure to adjust to these differences can
result in ineffective marketing or embarrassing mistakes.
II. Subculture
Subculture is a group of people with shared value systems based on common life
experiences and situations. Each culture contains smaller subcultures or groups of
people with shared value systems based on common life experiences and situations.
Subcultures include nationalities, religions, racial groups, and geographic regions.
Many subcultures make up important market segments, and marketers often design
products and marketing programs tailored to their needs.
III. Social Class
Social Classes are society's relatively permanent and ordered divisions whose
members share similar values, interests, and behaviours. Social class is not
determined by a single factor, such as income, but is measured as a combination of
occupation, income, education, wealth, and other variables. Almost every society has
some form of social class structure. In some social systems, members of different
classes are reared for certain roles and cannot change their social positions.
Marketers are interested in social class because people within a given social class
tend to exhibit similar buying behaviour. Social classes show distinct product and
brand preferences in areas such as clothing, home furnishings, leisure activity, and
automobiles.
b. Social Factors
A consumer's behaviour also is influenced by social factors, such as the consumer's

small groups, family, and social roles and status.

I. Groups
Many small groups influence a person’s behaviour. Groups that have a direct
influence and to which a person belongs are called membership groups. In contrast,
reference groups serve as direct (face- to- face) or indirect points of comparison or
reference in forming a person's attitudes or behaviour. Reference groups to which
they do not belong often influence people. Marketers try to identify the reference
groups of their target markets. Reference groups expose a person to new behaviours
and lifestyles, influence the person's attitudes and self-concept, and create pressures
to conform that may affect the person's product and brand choices.
The importance of group influence varies across products and brands. It tends to be
strongest when the product is visible to others whom the buyer respects.
Manufacturers of products and brands subjected to strong group influence must
figure out how to reach opinion leaders—people within a reference group who,
because of special skills, knowledge, personality, or other characteristics, exert
influence on others.
Many marketers try to identify opinion leaders for their products and direct
marketing efforts toward them. In other cases, advertisements can simulate opinion
leadership, thereby reducing the need for consumers to seek advice from others.
The importance of group influence varies across products and brands. It tends to be
strongest when the product is visible to others whom the buyer respects. Purchases
of products that are bought and used privately are not much affected by group
influences because neither the product nor the brand will be noticed by others.
II. Family
Family members can strongly influence buyer behaviour. The family is the most
important consumer buying organization in society, and it has been researched
extensively. Marketers are interested in the roles and influence of the husband, wife,
and children on the purchase of different products and services

Husband-wife involvement varies widely by product category and by stage in the
buying process. Buying roles change with evolving consumer lifestyles.
Children may also have a strong influence on family buying decisions. For example,
parents are now considering places where their children can be entertained while
having dinner. It is not surprising then to find some eating places with jumping
castles for kids. Also we buy food that children like or enjoy to eat. In the case of
expensive products and services, husbands and wives often make joint decisions.
III. Roles and Status
A person belongs to many groups—family, clubs, organizations. The person's

position in each group can be defined in terms of both role and status. A role consists
of the activities people are expected to perform according to the persons around
them.
c. Personal Factors
A buyer's decisions also are influenced by personal characteristics such as the

buyer's age and lifecyclestage, occupation, economic situation, lifestyle, and personality
and self-concept.
I. Age and Life-Cycle Stage
People change the goods and services they buy over their lifetimes. Tastes in food,
clothes, furniture, and recreation are often age related. Buying is also shaped by the
stage of the family lifecycle—the stages through which families might pass as they
mature over time. Marketers often define their target markets in terms of life-cycle
stage and develop appropriate products and marketing plans for each stage.
Traditional family life-cycle stages include young singles and married couples with
children.

II. Occupation
A person's occupation affects the goods and services bought. Blue-collar workers
tend to buy more rugged work clothes, whereas white-collar workers buy more
business suits. Marketers try to identify the occupational groups that have an above-
average interest in their products and services.
A company can even specialize in making products needed by a given occupational

group. Thus, computer software companies will design different products for brand
managers, accountants, engineers, lawyers, and doctors.
III. Economic Situation
A person's economic situation will affect product choice. Marketers of income-

sensitive goods watch trends in personal income, savings, and interest rates. If
economic indicators point to a recession, marketers can take steps to redesign,
reposition, and re-price their products closely.
IV. Lifestyle
Life style is a person's pattern of living as expressed in his or her psychographics. It

involves measuring consumers' major AIO dimensions—activities (work, hobbies,
shopping, sports, social events), interests (food, fashion, family, recreation), and
opinions (about themselves, social issues, business, products). People coming from
the same subculture, social class, and occupation may have quite different lifestyles.
Lifestyle captures something more than the person's social class or personality. It
profiles a person's whole pattern of acting and interacting in the world.
V. Personality and Self-Concept
Personality refers to theunique psychological characteristics that lead to consistent

and lasting responses to the consumer’s environment . Each person's distinct
personality influences his or her buying behaviour. Personality is usually described
in terms of traits such as self-confidence, dominance, sociability, autonomy,
defensiveness, adaptability, and aggressiveness. Personality can be useful in
analyzing consumer behaviour for certain product or brand choices. For example,
coffee marketers have discovered that heavy coffee drinkers tend to be high on

sociability. Thus, to attract customers, Starbucks and other coffeehouses create
environments in which people can relax and socialize over a cup of steaming coffee.
Self-concept orself image is based on the premise that people's possessions

contribute to and reflect their identities; that is, "we are what we have." Thus, in
order to understand consumer behaviour, the marketer must first understand the
relationship between consumer self-concept and possessions. For example, the
founder and chief executive of Barnes and Noble, the nation's leading bookseller,
notes that people buy books to support their self-images.
d. Psychological Factors
A person's buying choices are further influenced by four major psychological factors:
motivation,perception, learning, and beliefs and attitudes.
I. Motivation
A person has many needs at any given time. Some are biological, arising from states
of tension such as hunger, thirst, or discomfort. Others are psychological, arising from
the need for recognition, esteem, or belonging. Most of these needs will not be strong
enough to motivate the person to act at a given point in time. A need becomes a
motive when it is aroused to a sufficient level of intensity. A motive (or drive) is a
need that is sufficiently pressing to direct the person to seek satisfaction.
III. Perception
Perception is the process by which people select, organize, and interpret information
to form a meaningful picture of the world. A motivated person is ready to act. How
the person acts is influenced by his or her own perception of the situation. All of us
learn by the flow of information through our five senses: sight, hearing, smell, touch,
and taste. However, each of us receives, organizes, and interprets this sensory
information in an individual way.
IV. Learning
Learning describes changes in an individual's behaviour arising from experience.

This means that when people act, they learn. Learning theorists say that most human

behaviour is learned. Learning occurs through the interplay of drives, stimuli, cues,
responses, and reinforcement.If experience with a product or service is rewarding,
consumers will probably demand more of it and vice-versa. Marketers can build
demand for a product by associating it with strong drives, using motivating cues and
providing positive reinforcement.
V. Beliefs and Attitudes
A belief is a descriptive thought that a person has about something. An attitude is a

person’s relatively consistent evaluations, feelings, and tendencies toward an object
or idea. Through doing and learning, people acquire beliefs and attitudes. These, in
turn, influence their buying behaviour. Attitudes are difficult to change. A company
should then try to fit its products into existing attitudes rather than attempt to
change attitudes.
Buying behaviour differs greatly for a tube of toothpaste, a tennis racket, an

expensive camera, and a new car. More complex decisions usually involve more
buying participants and more buyer deliberation. Figure12.1 shows types of
consumer buying behaviour based on the degree of buyer involvement and the
degree of differences among brands.

PRODUCT DECISIONS
WHAT IS A PRODUCT?
As the first of the four marketing mix variables, it is often where strategic planning
begins and ends. A marketing manager cannot determine a price, design a promotional
strategy or create a distribution channel unless the firm has a product to sell. Product
strategy calls for making coordinated decisions on individual products, product lines,
and the product mix.
A product is anything that can be offered to a market for attention, acquisition, use, or
consumption and that might satisfy a want or need. It includes physical objects,
services, persons, places, organizations, and ideas.’ Pure' Services are distinguished
from 'physical' products on the basis of intangibility, inseparability, variability and
perish ability. Services are a form of product that consist of activities, benefits, or
satisfactions offered for sale that are essentially intangible and do not result in the
ownership of anything.
Types of Products
Products can either be classified as either business (industrial) or consumer products,

depending on the buyer’s intentions. The key distinction between the two is their
intended use as explained below;
 A business product is used to manufacture other goods or services or to facilitate

an organisation’s operations or to resell to other customers.
 A consumer product is bought to satisfy an individual’s personal use. In certain
instances, the same product can either be a business or consumer product
depending on the use.
Classification of Products
Consumer Products Classification
Knowledge about the different product classes is important because business and
consumer products are marketed differently. They are marketed to different target
markets and require a unique marketing mix strategy. The different classifications of
consumer products are explained below;

 Convenience Products – Convenience products are relatively inexpensive and
non-durable products that consumers by without much effort and on a frequent
basis. Examples of convenience products are grocery items that we purchase on
a regular basis such as bread, soap, petrol e.tc. Consumer products usually
require wide distribution in order to sell sufficient quantities to meet profit goals
as well as provide accessibility to consumers.
 Shopping Products – Shopping products are usually more expensive than
convenience products and are not bought as frequently as convenience products.
Examples include products like electronics, clothes, furniture e.t.c. Consumers
attach more effort and planning to make these purchases because the level of
risk is more substantial than convenience products. Shopping products do not
require mass distribution strategies as compared to convenience products but a
selective distribution strategy as consumers often want specialist advise offered
by experts.
 Speciality Products – Represent high risk and very expensive products that are
bought very infrequently. Consumers search extensively for these products as
they are reluctant to accept substitutes. Custom made cars, watches or rare
paintings and artworks.
 Unsought Products – Unsought products refer to products that people do not
normally anticipate buying and are only motivated to seek knowledge about
them when a need arises. Examples include a coffin, burial plots e.t.c.
Business products
Business products are bought to meet organisational goals and below are the different
classes of business products;
 Capital Equipment – Include all capital goods that are considered large and
expensive such as factory equipment, buildings. These require substantial
investment, lengthy planning processes and are usually once off purchases
designed to be used for a considerable amount of time. A number of different
people and groups are involved in the purchase process.

 Accessory Equipment – Represent those goods that support key operational
processes and activities of the organisation. Examples include furniture,
photocopiers and computers.
 Raw Materials – Represent the basic unprocessed materials that are used in
order to produce finished. They are usually bought in large quantities and buyers
often negotiate heavily on price. Other factors that influence the buying decisions
include length of relationship, service quality and credit facilities.
 Component Parts – Are finished and complete parts that are bought from other
organisations in order to be included in the completion of another product. For
example, Boeing buys seats from another company to be fitted on their planes.
The availability of component parts is key for Original Equipment Manufacturers.
 Processed Materials – Are products used directly in manufacturing other
products and have undergone some processing. For example, manufactures of
pots will need sheets of steel as a processed material. Processed materials are
bought according to customer specifications.
 Supplies – These are consumable items that do not become part of the final
product such as lubricants, stationery, detergents e.t.c. These are routine
purchases and are inexpensive. Supplies fall into a category that is known as
maintenance, repair and operations (MRO).
 Business Services – Are intangible services used to enhance the operational
aspect of the organisation. Examples of business services include management
consultancy, auditing services, marketing research e.t.c.

LEVELS OF PRODUCT S
As shown in the figure below, each product item offered to customers can be viewed on
three levels. Therefore product planners need to think about products and services on
three levels shown below;
Levels of Product Figure
1). The core product is the core, problem solving benefits that consumers are really
buying when they obtain a product or service. It answers the question what is the buyer
really buying?
2). The actual product may have as many as five characteristics that combine to
deliver core product benefits. They are:
a) Quality level
b) Features
c) Design
d) Brand name
e) Packaging
3) The augmented product
This includes any additional consumer services and benefits built around the core and
actual products. Therefore, a product is more than a simple set of tangible features.

Consumers tend to see products as complex bundles of benefits that satisfy their needs.
When developing products, marketers must:
1). Identify the core consumer needs that the product will satisfy.
2). Design the actual product and finally
3). Find ways to augment the product in order to create the bundle of benefits that will
best satisfy consumer’s desires for an experience.
The product life cycle concept
Every product is expected to have a life cycle just like a human being is conceived, born,
grows, matures and finally dies. Product Life Cycle (PLC) is the course of a product’s
sales and profits over its lifetime. The sales of many products appear to follow a typical
pattern, showing a gradually increasing growth to maturity, a levelling out as saturation
point is reached and then a decline. The Product Life Cycle concept can be applied as a
useful framework for describing how products and markets work, and when used
carefully, it may help in developing good marketing strategies for different stages of the
PLC.
The product Life Cycle Figure
The different stages are explained below.

(a) Product development
This begins when the company finds and develops a new product idea. Prior to the
introduction of a product to the market, there is a development stage during which
there tends to be greater and greater investment. This investment cost must be either
charged against future earnings or written off, and it is not unnatural to find that a
company which has invested large sums in a particular development project will be
reluctant to abandon the research. During this stage, sales are zero and the company’s
investment costs mount.The product life cycle concept is useful in determining the time
and cost of development projects in relation to the ultimate pay off. Frequently, large-
scale development projects take much longer than originally expected, and it is
important at regular periods to review progress made, against life-cycle expectations.
(b) Introduction
In the introductory stage, costs of production and marketing will be high, but if there is
a genuine product differential (an advantage not enjoyed or easily copied by other
companies), a company may benefit in various ways, such as high initial pricing or rapid
market penetration. It’s a period of slow sales growth as the product is introduced in
the market. Profits are negative or low due to low sales and heavy expenses of product
introduction e.g distribution, advertising, promotion etc. An organisation must choose a
launch strategy that is consistent with the intended product positioning.
(C) Growth
A period of rapid market acceptance and increasing sales growth and profits. During the
growth stage, the initial marketing efforts should lead to the greatest rate of sales
expansion, but according to the rate or technical change, the rate of market acceptance
and the ease with which competitors can imitate and enter the market, buying
resistance will build up. New competitors enter the market attracted by the
opportunities of profits. They’ll produce new product features and market will expand.
Management must therefore be ready to phase in new products and adjust marketing
tactics in line with the anticipated cycle.Prices must remain where they are or fall
slightly.

(d) Maturity
The maturity and saturation stages, for example, may be the time for changes in pricing,
in advertising and promotion, or in design or quality range. Sales growth slows down.
Slow sales lead to inventory build-up causing greater competition i.e competitors start
marking down prices, raising advertising and sales promotions and raising their R&D
budgets to develop better product version. Profits level off or decline because of
increased marketing outlays to defend product against competition. Weaker
competitors start dropping out and eventually only the well-established ones remain in
the industry. Product managers should ensure that the product evolves to meet
changing consumer needs i.e they should consider modifying the market, product and
marketing mix
(e) Decline
A period when sales fall off considerably and profits drop. Causes include technological
advances, shifts in consumer tastes, increased competition etc. In this stage, some firms
withdraw from the market. The remaining firms may prune their product offerings i.e
drop smaller market segments or cut promotion budget and reduce prices further.
Management should therefore weigh the benefits of keeping a weak product against the
costs associated with it.
Usefulness of the PLC Concept
The PLC is a well known and popular concept as it tries to explain the broad path a
product or brand takes. It also clearly explains that no product, service or brand lasts
forever. The PLC allows marketing managers to adapt marketing strategies and tactics
to meet the evolving conditions and product circumstances.
In conclusion, it is important to note that not all products follow this product life cycle.
Some products are introduced and die quickly; others stay in the mature stage for a
long, long time. Some enter the decline stage and are then cycled back into the growth
stage through strong promotion or repositioning.

Developing and Managing Products
Developing new products is an important undertaking as it tries to sustain growth,

increases revenues and profits and replaces obsolete products. Research the Boston
Research Group has indicated that the World’s 25 most innovative companies have
higher revenue growth and include companies such as Apple, Microsoft, Proctor and
Gamble, Boeing e.t.c. This section will focus on new products, processes for developing
new products and how new products are spread among consumers or business users,
locally, nationally and globally.
Benefits of New products
Being first on the market offers new products benefits that are termed as ‘first mover
advantages’. The different advantages that are presented by new products are outlined
below;
i. Increased sales through longer sales life – The earlier the product reaches the
market, relative to the competition, the longer its life can be.
ii. Increased Sales Margins – The more innovative the product (i.e the longer it
remains unchallenged on the), the longer consumers will accept a premium
purchase price.
iii. Increased Product loyalty – Early adopters are likely to upgrade, customize or
purchase companion products.
iv. Greater market responsiveness – The faster that companies can bring products
to market that satisfy new or changing customer needs, the greater the
opportunity to capitalize on those products for margin lift and to increase brand
recognition.
v. A sustained leadership position – Being first in the market is a market position
that is very difficult for competitors to take away. Furthermore, being first
repeatedly establishes companies as innovators and leaders in the market.
vi. More resale opportunities – Being first can ensure that you record sales in other
channels.
Categories of New Products/Innovations
There are six categories of new products that marketers of goods and services can
innovate and these are explained below;

i. New to the World products – This represents a category of products that are
entirely new to the world. This represents the smallest category of new products
and is also called discontinuous innovations. The cell phone is an example of a
new invention when it was first invented in the 80s.
ii. New product lines – Represents those products that the firm has not previously
offered and allow it to enter new or established markets. For example, not too
long ago, Trade Kings started offering baby porridge (d’lite).
iii. Additions to existing product lines – This category included new products that
supplement a firm’s already established line. For example, Unilever was able to
introduce Omo and Sunlight in small sizes such as 20g and 50g to enable buyers
who could not afford to buy bigger packets.
iv. Improvements or revisions of existing products – The “new and improved”
product may be significantly or slightly changed. For example the Sunlight 2 in 1
is an example. Before it was revised, its job was to wash away the dirt only but
after its revision, it could also act as a fabric softener.
v. Repositioned Products - These are existing products targeted at new markets or
market segments or repositioned to change the current market’s perception. For
example, Lucozade was initially positioned as an energy drink for patients but
has since been repositioned as an energy drink for even healthy people.
vi. Lower-priced products – This category refers to products that provide
performance similar to competing products at a lower price. An example of such
a product is the Blueband Spread for which Unilever introduced as a cheaper
alternative for margarine.
NEW PRODUCT DEVELOPMENT (NPD) Process
New product development is the development of original products, product

improvements, product modifications, and new brands through a company’s own R&D
efforts. This becomes necessary considering changes in consumer tastes, technology
and competition. Improving and updating product lines is crucial for the success for any
organisation. Failure for an organisation to change could result in a decline in sales and
with competitors racing ahead. The process of NPD is crucial within an organisation.
Products go through the stages of their lifecycle and will eventually have to be replaced.

There are eight stages of new product development. These stages will be discussed
briefly below:
Stage 1: Idea generation
New product ideas have to come from somewhere. But where do organizations get their
ideas for NPD? Some sources include:
• Within the company i.e. employees through brainstorming and observing the
marketing environment. E.g sales people, R & D personnel e.t.c
• Competitors – No firm rely solely on internally generated ideas for new products. The
marketing intelligence system should monitor the performance of competitors
products.
• Customers - According to the marketing concept, customers should be the
springboard for developing new products through means such as complaints,
suggestions and market research.
• Distributors, Supplies and others.
A company needs to generate many ideas in order to find a few good ones
Stage 2: Idea Screening
This involves screening new product ideas generated in stage 1 above in order to spot
good ideas and drop poor ones as soon as possible. This stage acts as a filter to
disqualify ideas that are not consistent with the organization’s new product strategy or
are inappropriate. A company should select ideas which are feasible and workable to
develop. Pursing non-feasible ideas can clearly be costly to the company.
Stage 3: Concept Development and Testing
The organisation may have come across what they believe to be a feasible idea;
however, the idea needs to be taken to the target audience. What do they think about
the idea? Will it be practical and feasible? Will it offer the benefit that the organisation
hopes it will? Or have they overlooked certain issues? Note the idea and concept is
taken to the target audience not as a working prototype at this stage but only as a
description and visual representation of a product.

Stage 4: Marketing Strategy and Development
This stage entails designing a marketing strategy to use to introduce the product into
the market. How will the product/service idea be launched within the market? A
proposed marketing strategy will be developed laying out the marketing mix strategy of
the product, the segmentation, targeting and positioning strategy sales and profits that
are expected.
Stage 5: Business Analysis
The ideas that pass the concept testing stage move to the business analysis stage where
preliminary figures for demand, costs, sales and profitability are calculated. Important
information that is considered at this stage include the size, shape and dynamics of the
market. The business analysis stage looks more deeply into the cashflow the product
could generate, what the cost will be, how much market shares the product may achieve
and the expected life of the product.
Stage 6: Product Development
Finally it is at this stage that a prototype is finally produced. The prototype will clearly
run through all the desired tests, and be presented to the target audience to see if
changes need to be made.
Stage 7: Test Marketing
Test marketing means testing the product within a specific area. The product will be
launched within a particular region so the marketing mix strategy can be monitored and
if needed, be modified before national launch.
Stage 8: Commercialization
If the test marketing stage has been successful then the product will go for national
launch. There are certain factors that need to be taken into consideration before a
product is launched nationally. These are timing, how the product will be launched,
where the product will be launched, will there be a national roll out or will it be region
by region?

The Process of Adoption
For any new product or innovation to have a chance of survival requires that the
targeted customers adopt it and start using it. The process by which individuals accept
and use new products is what is referred to as adoption (Rogers, 1983). The adoption
process has different stages and these stages are sequential in nature. The process
starts with people gaining awareness of a product and moves through various stages of
adoption before a purchase is eventually is made. The figure below shows the different
stages of the adoption process.
Stages in the innovation decision process of adoption
Knowledge Stage
This stage entails consumers becoming aware of the new product. They have
little information and have yet to develop any attitude towards the product or
service.
Persuasion Stage
This stage is characterised by consumers becoming aware that the new

innovation may be of use in solving a potential problem. At this stage,

consumers are significantly motivated to find out more about the product’s
characteristics, including its features, price and availability.
Decision Stage
An attitude is developed toward the product in this stage and individuals reach a
decision about whether the innovation will meet their need. If this is possible,
they will go on to try the innovation.
Implementation Stage
This represents the stage when the innovation is tried for the first time. Sales
promotions are usually adopted to give out samples to allow individuals to test
the product without any undue risk. Individuals accept or reject an innovation
on the basis of their experience of the trial.
Confirmation Stage
This stage is represented by the successful adoption of the innovation by the

individual when repeat purchase occurs without sales promotions or other
incentives.
Even if this model assumes that the adoption process or stages occur in a
predictable sequence, this is however not the case in reality. Rejection of the
innovation can occur at any point including the early phases of the confirmation
stages.
The Diffusion Process
It is an acceptable fact that consumers may buy new products based on either
emotional or functional benefits but the speed and timescale at which they will
adopt new products differ significantly. Among some of the factors that
contribute to consumers adopting innovations at different time scales include;
 Different attitude to risk

 Different levels of education
 Different experiences and needs.

Rogers (1962) defines the diffusion process as the rate at which a market adopts
an innovation. The figure below depicts the 5 categories of adopters according to
Rogers;
The Process of Diffusion
Innovators
This group constitutes 2.5% of the buying population. This is a very important group
because they kick start the adoption process. These people like new ideas, are often well
educated, young, confident and financially strong. It is because of the characteristics
above that this group is more likely to take risks associated with new products. It is also
important to mention that being an innovator in one product category such as mobile
phones, will not mean a person will be an innovator in other categories such as sports
cars.
Early Adopters
This group represents 13.5% of the market and is characterised by a high percentage of
opinion leaders. These people are very important for speeding up the adoption process.
Consequently, marketing communications need to be targeted at these people, who, in
turn, will stimulate word of mouth communication to be spread information. This group

is characterised by younger, average education, and individuals who love being at the
leading edge of innovation. This group reads more publications and consults more
salespeople than others.
Early Majority
This group forms 34% of the market, is more risk-averse than the previous two groups.
This group requires reassurance that the product works and has been proven in the
market. They are above average in terms of age, education, social status and income.
Unlike early adopters, they wait for prices to fall and are often prompted into purchase
by other people who have already purchased.
Late Majority
Represent a similar size as the Early Majority. The late majority are sceptical of new
ideas and only adopt new products because of social or economic factors. They read few
publications, and are below average in education, social status, and income.
Laggards
This group represents 16% of the market and it is suspicious of all new ideas and their
opinions are very hard to change. Of all the groups, laggards have the lowest income,
social status, and education, and take a long time to adopt an innovation, if at all.
Marketing managers need to understand the variables when attempting to understand

and predict the diffusion process. For example, they need to understand that diffusion
does not occur at a constant predictable speed as it can either be fast or slow. It is also
important that marketing campaigns are targeted at important adopters such as
innovators and early majority groups as they can stimulate word-of-mouth
communication.
Branding
Branding is a process by which manufacturers and retailers help customers to

differentiate between various offerings in a market. Branding enables customers to
make associations between certain attributes and a particular brand. If this
differentiation is attained and sustained, then a brand is said to have a competitive
advantage. Successful brands create strong, positive and lasting impressions through

their communications and associated psychological feelings and emotions, not just their
functionality through use.
What is a Brand?
A brand is a word, name, mark or a combination of these that identifies and

distinguishes a product or company from its competitors. Examples of brands include;
MTN, Omo, Whitespoon e.t.c. Brands have added value as they add values and
associations that are recognised and meaningful to their customers.
Brands have character and personality and marketing managers need to understand
both the intrinsic and extrinsic attributes of brands in their efforts to develop, protect
and sustain their brands. Intrinsic attributes refer to the functional characteristics of a
product, such as its shape, performance, and physical capacity. If any of these intrinsic
attributes were to be changed, this would directly alter the product. Extrinsic
attributes refer to those elements that are not intrinsic and if changed, do not alter the
material functioning and performance of the product itself. Examples of extrinsic
attributes include brand name, marketing communications, packaging, price and
mechanisms that enable consumers to form associations that give meaning to the brand.
Reasons for Branding
Branding presents opportunities to both consumers and organisations (manufacturers

and retailers) to buy and to sell products and services easily, more efficiently, and
relatively quickly. A discussion on how both consumers and organisations benefit from
brands is outlined below
Consumer Benefits from Brands
 Assist people to identify their preferred

products.
 Reduce levels of perceived risk and in doing so
improve the quality of the shopping experience.
 Help people to gauge the quality of the product
quality.

 Reduce the amount of time spent making
product-based decisions and in turn decrease the time spent shopping.
 Provide psychological reassurance or reward,
especially for products bought on an occasional basis.
 Inform consumers about the source of a product
(country or company).
Manufacturer and Retailer Benefits from Brands
 Enable premium pricing

 Help differentiate the product from competitive
pricing
 Encourages cross-selling to other brands owned
by the manufacturer
 Develop customer loyalty/retention and repeat-
purchase buyer behaviour
 Assist in the development and use of integrated
marketing communications
 Contributes to corporate identity programmes
 Provide some legal protection
Types of Brands
There are three main types of brands namely; manufacturer, distributor and generic
brands.
Manufacturer Brands
These are brands that are made by identifiable manufacturers such as Unilever, Trade
Kings and sold in wholesale and retail shops. Manufacturers try to create brand
recognition and name recall through their direct marketing communications with end
users. Examples include; Coca-Cola, Boom, Geisha e.t.c. Retailers who choose not to
stock certain major brands run the risk of losing customers.

Distributor (Own Label Brands) Brands
This refers to the identities and images developed by the wholesalers, dealers,
distributors and retailers who make up marketing channel. An example is the Rite
brand marketed by Shoprite. Distributor brands have one major advantage of offering
high margins to the distributor.
Generic Brands
Generic brands are sold without any promotional materials or any means of identifying
the company, with the packaging displaying only information required by the law. The
only form of identification is the relevant product category, e.g. sugar. These brands are
sold at prices that are substantially low. This type of brand is common in
pharmaceuticals.
Brand Name Selection
Choosing a brand name is a cardinal undertaking and has a bearing on the success of the
brand. The following factors must be considered when selecting a brand name;
 The name must be easy to spell, recall and

pronounce.
 The name must be distinctive
 The name must be strategically consistent with
the organisations branding policies
 The name must be meaningful to the customer
 The name must be capable of registration and
protection.
Branding Policies
Once a decision has been taken to brand an organisation’s products, an overall branding
policy is required. There are three main strategies and these include; Individual
Branding, Family Branding and Corporate Branding
Individual Branding

This was once referred to as the multi-brand policy. Individual branding requires that
each product offered by an organisation is branded independently of all the others.
Grocery brands offered by Unilever (such as Omo, Blueband) and Geisha and Proctor
and Gamble ( such as Gillette, Heads and Shoulders, Crest) typify this strategy.
One of the advantages of this approach is that it is easy to target specific segments and
to enter new markets with separate names. If a brand fails and or becomes the subject
of negative media attention, the other brands are not likely to be damaged. However,
there is a heavy financial cost as each brand needs to have its own promotional
programme and associated support.
Family Brands
Once referred to as a multi-product brand policy. Family branding requires that all the
products use the organisation name either entirely or in part. Microsoft, Google, Nestle
and Nike are examples of organisations that have incorporated the corporate name in
full or partially as it is hoped that customer trust will develop across all brands.
Promotional investment is therefore not high in this strategy.
Corporate Brands
Many retail brands adopt a single umbrella brand, based on the name of the
organisation. This name is used at all locations and is a way of identifying the brand and
providing a form of consistent differentiation and recognition. Examples include Pick N
Pay, Pep, Hungry Lion e.t.c. The use of Corporate Branding is also extensively used in
business markets such as IBM and consumer markets such as Financial markets. The
use of corporate branding can be very damaging in terms of reputation and financial
terms if something was to go wrong.
Brand Equity
Brand equity is the value of a brand, based on the extent to which it has high brand
loyalty, name awareness, perceived quality, strong brand associations, and other assets
such as patents, trademarks, and channel relationships. Powerful brand names
command strong consumer preference and are powerful assets. The most distinctive
skill of professional marketers is their ability to create, maintain, protect, and enhance

brands. Measuring the actual equity of a brand name is difficult. However, the
advantages of having it include:
1). High consumer awareness and loyalty.
2). Easier to launch brand extensions because of high brand credibility.
3). A good defence against fierce price competition.
4). It is believed to be the company’s most enduring asset.
Packaging
Packages have always served a practical function of holding contents together and
protecting goods as they move through the distribution channel. However, the functions
of packaging extend beyond the primary function of holding and protecting contents but
also to promote the product and make it easier and safer to use.
Types of Packaging
There are three broad categories of packaging namely primary, secondary and tertiary
packaging and these are explained below;
i. Primary packaging – This represents packaging which is normally in contact

with the goods and taken home by consumers.
ii. Secondary packaging – This represents packaging which covers the larger
packaging such as boxes, used to carry quantities of primary packaged goods.
iii. Tertiary packaging – This refers to the packaging that is used to assist
transport large quantities of goods, such as wooden pallets and plastic wrapping.
Packaging Functions
There different functions of packaging are explained below;
i. Containing and Protecting Products – This is the most obvious function and it
entails containing products that are liquid, granular or otherwise divisible.
Packages ensure that manufacturers market products in specific quantities such
as 500ml or 300ml for soft drinks. Packaging offers physical protection to goods

as most products are handled several times from the time they are manufactured
to the time of consumption. Packaging protects products from breakage,
evaporation, spillage, light, heat infestation many other conditions.
ii. Promoting Products – Packaging does more than identify the brand, list the
ingredients and give directions for use. A package differentiates a product from
competing products and may associate a new product with a family of other
products from the same manufacturer.
Packages use designs, colors, shapes and other materials to try to influence
consumer’s perception and buyer behavior. Packaging can also influence
consumer’s perception of quality and prestige.
iii. Facilitating Storage, Use and Convenience – Wholesalers and retailers prefer
packages that are easy to transport, store and stock on the shelves. They also like
packages that protect products, prevent spoilage or breakage and extend the
product’s shelf life.
Consumers also seek packages that are easy to store, use and offer them some
convenience. Consumers seek packages that are easy to handle, open and re-
close as well as those that are child proof for dangerous items. Packages that are
easy to open are important for kids and elderly people. Packages also provide
convenience by offering small packages for those that seek smaller packages.
iv. Facilitating Recycling and Reducing Environmental Damage – Compatibility
with the environment is an important consideration for packaging. Sustainable
packaging that does not harm the environment is what some consumers are
demanding and are ready to give up some conveniences such as easy storage or
transportation.
Labeling and Packaging
An integral part of any package is its label. Labeling takes two forms which include
persuasive and informational labeling.
Persuasive labelling focuses on a promotional theme or logo and consumer

information is secondary. Claims such as “new”, “improved” and “super” are included on
the packaging and at certain times some images.

Informational labeling in contrast is designed to help consumers make proper product
selections and lower their cognitive dissonance after the purchase. Information
included might include the ingredients, company information, and customer care
enquiry contact details e.t.c.
Packaging and Universal Products
Packaging also facilitates the provision bar codes which act as a unique identity for
products. The use of bar codes is important to define products in terms of brand, size
and price when scanned using computerized scanners. Bar codes help retailers to
rapidly and accurately prepare records of customer purchases, control inventory and
track sales.
Despite the importance of packaging and labeling, legal aspects must not be ignored.
False, deceptive or misleading packaging constitutes unfair competition. Marketers
must therefore endeavor to be truthful in the information they provide on their labels as
the truthful always surfaces as was the case in the horse meat scandal (where horse
meat was labeled as beef).
SERVICES AS A PRODUCT
Services are deeds, processes and performance which are intangible, but may have a
tangible component. Unlike physical products, services are produced and consumed at
the same time. Below is a table that shows the differences between goods and services;
Services Vs Goods
Tangibility Intangibility
 touch  can’t see
 see  can’t touch
 taste  can’t smell
 smell  can’t taste

Goods Services
 A physical object  An activity or process
 Transfer of ownership  No transfer of ownership
 Customers do not participate  Customers participate in
in the production process production
 Tangible  Intangible
 Homogeneous  Heterogeneous
 Can be kept in stock  Cannot be kept in stock

 Production and distribution  Production, distribution
are separated from and consumption are
consumption. simultaneous
processes.
Examples of service Industries include:
Health care:
Hospital, medical practice, dentistry, eye care
Professional services:
Accounting, legal, architectural
Financial Services:
Banking investment advising, insurance
Hospitality:
Restaurant, hotel/motel,
Travel:

Airlines, travel agencies, theme park
Others:
Hair styling, pest control, plumbing, lawn maintenance, counselling services etc.
The Services Marketing Mix
The traditional 4Ps marketing mix was developed at a time when goods marketing
was more prevalent and the role of services was insignificant. The growing importance
of services necessitated the revising of the 4Ps as it posed some limitations when it
came to marketing of services. For example, the intangibility aspect of services is
normally ignored and promotion fails to accommodate the inseparability issue between
production and consumption of services.
The shortcomings mentioned above led to the extension of the tradition marketing mix
to an extended marketing mix which comprises 7Ps. The additional 3Ps have been
included to address the unique characteristics of services and these include people,
physical evidence and processes. A detailed explanation of the services marketing mix
follows below;
Product - Products are used to meet and satisfy consumer needs and this can
incorporate anything that is tangible and intangible. Examples of service products
include bank accounts, holidays, insurance policies, freight e.t.c.
Price - Because of the intangibility of services, price often becomes a means by which
customers make a judgment about the quality of service. As there is nothing to touch or
feel, making opinions about the costs and benefits arising from a service interaction is
problematic.
Price also plays an important role of managing demand. By varying prices across
different time periods, it is easier to spread demand and ease pressure at busy times.
This also enables the service providers to reach those customer segments who are
willing and able to pay full price and provide a service that corresponds with customer
expectations.

Place - In a traditional context, place refers to the way in which products are distributed
in order for customers to be able to access them at a time and place that is most
convenient to them. In a services context, place refers to two things;
i. The first concerns the reservation and information systems necessary to support
the service proposition. This is usually undertaken remotely from the service
point. For example, a reservation can be done online for an airline ticket.
ii. The second refers to the simultaneous nature of the production/consumption
interaction. This means that place has little relevance in a service context as
these interactions can occur at a customer’s house or business location or at the
providers location.
One problem that arises for the provider is that there are limitations in terms of
geographic coverage and the number of customers they can manage without suffering a
decline in service performance.
Promotion - Promotion is concerned with the presentation of the marketing offer to

target audiences. However, the promotion of service is more challenging than that for
physical goods because of their intangibility nature. Promotion can therefore not convey
size, volume and images of packaging in use. Showing the physical of people enjoying
the service becomes cardinal and explaining the benefits arising from the purchased
service.
The main goal of services based promotion is to reduce the perceived uncertainty
associated with the intangible service. This can be achieved by providing intangible cues
concerning the nature and quality of the service.
People - People represent an important aspect of services as they represent the service
provider and have a direct impact on the perceived quality of the service itself. Staffs
represent the service and should deliver the service consistently to a level that matches
the desired positioning and service blueprint. Recruitment, training and rewarding of
staff becomes imperative if the required standards and expectations associated with
customer interaction are to be achieved.
Physical Evidence - Physical evidence is about providing the tangible cues for potential
customers to deduce the quality of the service or offering. Common approaches include

the use of brochures to give signs about the quality and positioning of the service. Staff
appearance and dress also provide clues about a service provider’s attitude and
attention to tidiness, routines, safety and customer orientation.
Processes - Understanding the service related processes is important because

customers are an integral part of service production. Processes include all the tasks,
schedules, activities, and routines that enable a service to be delivered to a customer. If
the marketing of services is to be effective, then it is crucial that the processes that
customers use work effectively and appropriately.
THE NATURE OF THE SERVICE PRODUCT
Services are said to have four key characteristics which impact on marketing
programmes. These are: Intangibility, Inseparability, Heterogeneity /Variability and
Perishability. It is helpful to consider each of these characteristics and their implications
briefly:
Intangibility
Services are said to be intangible - they cannot be seen or tasted, for example. This can
cause lack of confidence on the part of the consumer. As was apparent earlier, in
considering pricing and services marketing, it is often difficult for the consumer to
measure service value and quality. To overcome this, consumers tend to look for
evidence of quality and other attributes, for example in the decor and surroundings of
the beauty salon, or from the qualifications and professional standing of the consultant.
Implications of Intangibility:
 Services Cannot be inventoried
 Services Present difficulties in managing demand
 Services cannot be patented easily
 Services are copied by competitors easily
 Cannot be readily displayed or easily communicated
 difficulty for customers to assess quality
 Advertising and Pricing is difficult

Inseparability
Services are produced and consumed at the same time, unlike goods which may be
manufactured, then stored for later distribution. This means that the service provider
becomes an integral part of the service itself. The waitress in the restaurant, or the
cashier in the bank, is an inseparable part of the service offering. The client also
participates to some extent in the service, and can affect the outcome of the service.
People can be part of the service itself, and this can be an advantage for services
marketers.
Implications of Inseparability
 Mass production is difficult.
 Real-time offering. Though this may be risky but it also provides opportunities
for customization.
 Customers affect the outcome based on how they communicate about what they
want.
 Employees affect the service outcome based on their knowledge and training
e.t.c.
Heterogeneity / Variability
Because a service is produced and consumed simultaneously, and because individual

people make up part of the service offering, it can be argued that a service is always
unique; it only exists once, and is never exactly repeated. This can give rise to concern
about service quality and uniformity issues. Personnel training and careful monitoring
of customer satisfaction and feedback can help to maintain high standards.
Implications of heterogeneity:
 Services cannot be easily monitored because the quality depends on

customers, employees, other customers and demand.
 Problems with consistency as it involves emotional labour
 There is no sure knowledge that the service delivered matches what was
planned and promoted.

Perishability
Services are perishable; they cannot be stored. Therefore an empty seat on a plane,
for example, is a lost opportunity forever. Restaurants are now charging for
reservations which are not kept, charges may be made for missed appointments at the
dental clinic. Perishability does not pose too much of a problem when demand for a
service is steady, but in times of unusually high or low demand service organizations
can have severe difficulties.
Implications
 Inability to store the service for future use. It is becomes difficult to forecast
demand or creatively plan for capacity
 It is difficult to synchronize supply and demand with services
 Services cannot be returned or resold and there is therefore need for strong
recovery strategies in the event of service failure.
In conclusion, it is important to mention that the marketing of services must be different

from the way physical goods are marketed because of the nature of the service product.
Marketers of services must be able to overcome the implications that arise as a result of
the unique characteristics that services possess such as intangibility, variability,
perishability and inseparability especially in this era where services as products have
taken prominence.

PRICING DECISIONS
The Concept of Pricing
Price can be defined as the amount the customer has to pay or exchange to receive a
good or service. Price is an important element of the marketing mix as it is the only
element that generates revenue unlike the other elements that represent costs.
To price an offering, we need some idea of what that offering costs us to make or buy.
Cost represents the total money, time and resources sacrificed to produce or acquire a
good or service. These costs might encompass Fixed and variable costs as well as direct
and indirect costs.
The relationship between price and costs is important because costs should be
substantially less than the price assigned to a proposition, otherwise the firm will not
sell sufficient units to obtain sufficient revenues to cover costs and make long term
profits.
Relationship between Price and Quality
The relationship between price and perceived quality is very complex. There is an
assumption that as price increases so does quality, and that in general price reflects
quality. However, this is not always the case and this is evident in industries such as
fashion and perfumes. Consumers in the fragrance and fashion sectors assume that
higher prices reflect higher quality in the fragrance and garments that they are buying.
Consumer Perceptions of Price and Value
Ultimately, the consumer will decide whether a product's price is right. Pricing
decisions, like other marketing mix decisions, must be buyer oriented. When consumers
buy a product, they exchange something of value (the price) to get something of value
(the benefits of having or using the product). Effective, buyer-oriented pricing involves
understanding how much value consumers place on the benefits they receive from the
product and setting a price that fits this value. A company often finds it hard to measure
the values customers will attach to its product. For example, calculating the cost of
ingredients in a meal at a fancy restaurant is relatively easy. But assigning a value to
other satisfactions such as taste, environment, relaxation, conversation, and status is

very hard. These values will vary both for different consumers and different situations.
Still, consumers will use these values to evaluate a product's price. If customers
perceive that the price is greater than the product's value, they will not buy the product.
If consumers perceive that the price is below the product's value, they will buy it, but
the seller loses profit opportunities.
Pricing Approaches
Price setting depends on various factors such as;
 How price affects demand

 How sales revenue is linked to price
 How investment costs are linked to price
There are four broad approaches to pricing and these include;
a) The cost oriented approach

b) The demand oriented approach
c) The competitor oriented approach
d) The value oriented approach
A detailed discussion of the above identified approaches follows below;
a) The Cost Oriented Approach
This pricing approach is based on the idea that the most important element of pricing is
the combined cost of the component resources that combine to make up the product. In
this case, the marketer will sell the output at the highest possible price, regardless of the
firm’s own preference or costs. If the price is high enough compared with costs, the firm
earns a profit and stays in business. If the firm cannot charge the highest possible price
or are unable to reduce the cost of doing business, they are likely to go out of business.
In a nutshell, the cost oriented approach considers the total cost of a proposition in the
pricing equation but does not take into account non-cost factors such as brand image,
degree of prestige in ownership or effort expended.
One approach used to determine price is the use of mark-up pricing which is often used
in the retail sector. The formula used in determining the final price is;

Price = Unit Item/1-markup
Example
Find the final price of a mobile phone costing K1,000 at a 40% mark-up price.
1000/(1-0.4) = K1,667.
It should be noted however that it is not always that the mark-up pricing approach is
used in the cost oriented approach to set prices. In some industries, prices can be set
using fixed formulae with a supplier’s costs in mind.
b) The Demand Oriented Approach
The setting of prices under this approach is according to how much customers are
willing to pay for the offering. This approach to pricing is best used in the airline
industry where different customers pay different amounts for airline seats with varying
levels of service attached. The same can be said for hospitals where you have high cost
and low cost admission wards.
c) The Competitor – Oriented Approach
This approach entails companies setting prices based on competitors’ prices or at the
going rate. This pricing method is also called ‘me too’ pricing. The advantage of this
pricing approach is that when your prices are lower than your competitors, customers
are more likely to purchase from you provided that they know that your prices are
lower, which is not always the case.
Competitor oriented pricing can and does lead to price wars where there is exclusive
focus on competitors rather than customers and this pushes prices downwards to
unsustainable levels. Cost control therefore becomes inevitable in a bid to remain
competitive. A number of circumstances that may lead to price wars include;
 When firms introduce very similar products to one another.

 When a product is more like a commodity and does not command a premium
price.
 When an industry possesses excess capacity.

 When customers are more highly price sensitive.
 When there is a new entrant and is expected to gain a sizeable market position.
 Where the concerned product is of strategic importance.
 When there is little brand loyalty from customers.
d) The Value Oriented Approach
This approach entails the setting of prices based on buyers’ perceptions of specific
product attribute values rather than on costs or competitors’ prices. Value oriented
pricing begins with the customer in mind, determining what value they will derive from
the product and then determining the price rather than the opposite approach used in
the cost oriented approach. The six questions that need to be answered when setting
value based pricing include;
i. What is the market strategy for the segment? What does the supplier want to
accomplish?
ii. What is the differential value that is transparent to customers?
iii. What is the price of the next best alternative?
iv. What is the cost of the supplier’s proposition?
v. What pricing tactics will be used initially?
vi. What is the customer’s expectation of a fair price?
Pricing for New Propositions
When a new product is being launched, we adopt one of two pricing strategies and these
are discussed below;
a) Market Skimming
This strategy entails initially charging a higher price and reduce the price later after
recouping the cost of the research and development investment over time from the
group of customers that is prepared to pay the higher price (hence ‘skimming’ the
market). On average, the market skimming price is likely to yield a lower quantity of
goods/services sold than the market penetration price strategy.

The market skimming strategy is ideal for high technology goods and services or those
products that require substantial R&D investment e.g. prescription pharmaceuticals.
The market skimming approach is appropriate under the following conditions;
 When companies need to recover their research and development investment

quickly.
 When demand is likely to be price-inelastic
 Where there is an unknown elasticity of demand as it is safer to offer a higher

price and then lower it, than offer a lower price and try to increase it.
 Where there are higher barriers to entry within the market.
 Where there are few economies of scale or experience.
 Where product lifecycles are expected to be short.
b) Market Penetration
This pricing approach entails charging a lower price in the hope of gaining a large
volume of sales and recoup our research and development investment.
The market penetration pricing approach is often used for fast moving consumer goods
and consumer durables, where the new product introduced is not demonstrably
different from the existing available formulations. Items aimed at capturing price
sensitive customers will also adopt this approach. The conditions that favour the use of
a market penetration strategy include;
 Where there is a strong threat of competition.
 When our product is likely to exhibit a higher price elasticity of demand in the
short term.
 Where there are substantial savings to be made from volume production.
 Where there are low barriers to entry.
 Where product lifecycles are expected to be long.

 Where there are economies of scale and experience to take advantage of.
Pricing Strategies
1. Product Mix Pricing Strategies
The strategy for setting a product's price often has to be changed when the product is
part of a product mix. In this case, the firm looks for a set of prices that maximizes the
profits on the total product mix. Pricing is difficult because the various products have
related demand and costs and face different degrees of competition. We now take a
closer look at the five product mix pricing situations
a) Product Line Pricing
Companies usually develop product lines rather than single products. In product line
pricing, management must decide on the price steps to set between the various
products in a line. The price steps should take into account cost differences between
the products in the line, customer evaluations of their different features, and
competitors' prices. In many industries, sellers use well-established price points for
the products in their line. The seller's task is to establish perceived quality
differences that support the price differences.
b) Optional-Product Pricing
Optional-product pricing involves offering to sell optional or accessory products

along with their main product. For example, a car buyer may choose to order power
windows, cruise control, and a CD changer. Pricing these options is a sticky problem.
Automobile companies have to decide which items to include in the base price and
which to offer as options.
c) Captive-Product Pricing
This involves setting a price for products that must be used along with a main
product. Examples of captive products are razor blades, camera film, video games,
and computer software. Producers of the main products (razors, cameras, video
game consoles, and computers) often price them low and set high markups on the

supplies. For example, buyers of the IPOD and Iphone will have to continue buying
music or videos from the Apple store on Itunes. Thus, camera manufacturers price
their cameras low because they make their money on the film it sells. In the case of
services, this strategy is called two-part pricing. The price of the service is broken
into a fixed fee plus a variable usage rate.
d) By-Product Pricing
In producing processed meats, petroleum products, chemicals, and other products,

there are often by-products. If the by-products have no value and if getting rid of
them is costly, this will affect the pricing of the main product. Using by-product
pricing, the manufacturer will seek a market for these by-products and should accept
any price that covers more than the cost of storing and delivering them. This practice
allows the seller to reduce the main product's price to make it more competitive. By-
products can even turn out to be profitable. For example, many lumber mills have
begun to sell bark chips and sawdust profitably as decorative mulch for home and
commercial landscaping.
e) Product Bundle Pricing
Using product bundle pricing, sellers often combine several of their products and
offer the bundle at a reduced price. For example, Hungry Lion bundles a fried
chicken, fries and a soft drink at a combo price! Also, theatres and sports teams sell
season tickets at less than the cost of single tickets; hotels sell specially priced
packages that include room, meals, and entertainment; computer makers include
attractive software packages with their personal computers. Price bundling can
promote the sales of products consumers might not otherwise buy, but the combined
price must be low enough to get them to buy the bundle.
2. Price-Adjustment Strategies
Companies usually adjust their basic prices to account for various customer
differences and changing situations. Six price-adjustment strategies: discount and
allowance pricing, segmented pricing, psychological pricing, promotional pricing,
geographical pricing, and international pricing will be discussed.

a. Discount and Allowance Pricing
Most companies adjust their basic price to reward customers for certain responses,
such as early payment of bills, volume purchases, and off-season buying. These price
Adjustments—called discounts and allowances—can take many forms. A cash
discount is a price reduction to buyers who pay their bills promptly. A typical
example is "2/10, net 30," which means that although payment is due within 30 days,
the buyer can deduct 2 percent if the bill is paid within 10 days. The discount must be
granted to all buyers meeting these terms. Such discounts are customary in many
industries and help to improve the sellers' cash situation and reduce bad debts and
credit collection costs.
A quantity discount is a price reduction to buyers who buy large volumes. The aim
is to encourage customer to buy more from a given seller. By law, quantity discounts
must be offered equally to all customers and must not exceed the seller's cost savings
associated with selling large quantities. These savings include lower selling,
inventory, and transportation expenses.
A functional discount (also called a trade discount) is offered by the seller to trade
channel members who perform certain functions, such as selling, storing, and record
keeping. Manufacturers may offer different functional discounts to different trade
channels because of the varying services they perform, but manufacturers must offer
the same functional discounts within each trade channel.
A seasonal discount is a price reduction to buyers who buy merchandise or services
out of season. For example, lawn and garden equipment manufacturers offer
seasonal discounts to retailers during the fall and winter months to encourage early
ordering in anticipation of the heavy spring and summer selling seasons. Hotels,
motels, and airlines will offer seasonal discounts in their slower selling periods.
Seasonal discounts allow the seller to keep production steady during an entire year.
Allowances are another type of reduction from the list price. For example, trade-in
allowances are price reductions given for turning in an old item when buying a new
one. Trade-in allowances are most common in the automobile industry but are also
given for other durable goods. Promotional allowances are payments or price

reductions to reward dealers for participating in advertising and sales support
programs.
b. Segmented Pricing
In segmented pricing, the company sells a product or service at two or more prices,
even though the difference in prices is not based on differences in costs. Companies
will often adjust their basic prices to allow for differences in customers, products,
and locations. Segmented pricing takes several forms. Under customer-segment
pricing, different customers pay different prices for the same product or service.
Museums, for example, will charge a lower admission for students and senior
citizens. Under product-form pricing, different versions of the product are priced
differently but not according to differences in their costs. Using location pricing, a
company charges different prices for different locations, even though the cost of
offering at each location is the same. For instance, theatres vary their seat prices
because of audience preferences for certain locations. Finally, using time pricing, a
firm varies its price by the season, the month, the day, and even the hour. Public
utilities vary their prices to commercial users by time of day and weekend versus
weekday. The telephone company offers lower off-peak charges, and resorts give
seasonal discounts.
For segmented pricing to be an effective strategy, certain conditions must exist. The
market must be segmentable, and the segments must show different degrees of
demand. Members of the segment paying the lower price should not be able to turn
around and resell the product to the segment paying the higher price. Competitors
should not be able to undersell the firm in the segment being charged the higher
price. Nor should the costs of segmenting and watching the market exceed the extra
revenue obtained from the price difference. Of course, the segmented pricing must
also be legal. Most importantly, segmented prices should reflect real differences in
customers' perceived value. Otherwise, in the long run, the practice will lead to
customer resentment and ill will.
c. Psychological Pricing

Price says something about the product. For example, many consumers use price to
judge quality. In using psychological pricing, sellers consider the psychology of prices
and not simply the economics. For example, one study of the relationship between
price and quality perceptions of cars found that consumers perceive higher-priced
cars as having higher quality. By the same token, higher-quality cars are perceived to
be even higher priced than they actually are. When consumers can judge the quality
of a product by examining it or by calling on past experience with it, they use price
less to judge quality. When consumers cannot judge quality because they lack the
information or skill, price becomes an important quality signal.
Another aspect of psychological pricing is reference pricing—prices that buyers carry

in their minds and refer to when looking at a given product. The reference price
might be formed by noting current prices, remembering past prices, or assessing the
buying situation. Sellers can influence or use these consumers' reference prices when
setting price. For example, a company could display its product next to more
expensive ones in order to imply that it belongs in the same class. Department stores
often sell women's clothing in separate departments differentiated by price: Clothing
found in the more expensive department is assumed to be of better quality.
Companies can also influence consumers' reference prices by stating high
manufacturer's suggested prices, by indicating that the product was originally priced
much higher, or by pointing to a competitor's higher price.
d. Promotional pricing
Companies will temporarily price their products below list price and sometimes even
below cost. Promotional pricing takes several forms. Supermarkets and department
stores will price a few products as loss leaders to attract customers to the store in the
hope that they will buy other items at normal markups. Sellers will also use special-
event pricing in certain seasons to draw more customers. Manufacturers will
sometimes offer cash rebates to consumers who buy the product from dealers within
a specified time; the manufacturer sends the rebate directly to the customer. Rebates
have been popular with automakers and producers of durable goods and small
appliances, but they are also used with consumer-packaged goods. Some

manufacturers offer low-interest financing, longer warranties, or free maintenance to
reduce the consumer's "price."
A seller may simply offer discounts from normal prices to increase sales and reduce
inventories. Promotional pricing, however, can have adverse effects. Used too
frequently and copied by competitors, price promotions can create "deal-prone"
customers who wait until brands go on sale before buying them. Or, constantly
reduced prices can erode a brand's value in the eyes of customers. Marketers
sometimes use price promotions as a quick fix instead of sweating through the
difficult process of developing effective longer-term strategies for building their
brands. Promotional pricing can be an effective means of generating sales in certain
circumstances but can be damaging if taken as a steady diet.
e. Geographical Pricing
This involves setting prices for customers located in different parts of the country or
world. Should the company take risk of losing the business of more distant customers
by charging them higher prices to cover the higher shipping costs? Or should the
company charge all customers the same prices regardless of location? Geographical
pricing was used when determining price for fuel in different locations in Zambia.
However, this was changed when the PF government came into power. Now fuel is
priced at the same rate all over Zambia.
f. International Pricing
Companies that market their products internationally must decide what prices to
charge in the different countries in which they operate. In some cases, a company can
set a uniform worldwide price. The price that a company should charge in a specific
country depends on many factors, including economic conditions, competitive
situations, laws and regulations, and development of the wholesaling and retailing
system. Consumer perceptions and preferences also may vary from country to
country, calling for different prices. Or the company may have different marketing
objectives in various world markets, which require changes in pricing strategy. Costs
play an important role in setting international prices. Travellers abroad are often

surprised to find that goods that are relatively inexpensive at home may carry
outrageously higher price tags in other countries. In some cases, such price
escalation may result from differences in selling strategies or market conditions. In
most instances, however, it is simply a result of the higher costs of selling in foreign
markets—the additional costs of modifying the product, higher shipping and
insurance costs, import tariffs and taxes, costs associated with exchange-rate
fluctuations, and higher channel and physical distribution costs.
PRICE CHANGES
Here we will discuss the different price changes that can take place and customers’ and
companies’ responses towards these changes.
a. Initiating Price Changes
A company may find it desirable to initiate either a price cut or a price increase. In both
cases, it must anticipate possible buyer and competitor reactions.
i. Initiating Price Cuts
The following situations may lead a firm to consider cutting its price:
1. Excess capacity – Here, the firm needs more business and cannot get it through
increased sales effort, product improvement, or other measures. It may drop its
"follow-the-leader pricing"—charging about the same price as its leading
competitor—and aggressively cut prices to boost sales. However, cutting prices in
an industry loaded with excess capacity may lead to price wars as competitors try
to hold on to market share.
2. Falling market share in the face of strong price competition. Either the company
starts with lower costs than its competitors or it cuts prices in the hope of gaining
market share that will further cut costs through larger volume.
ii. Initiating Price Increases
A firm may increase price in the following circumstances:

1. Cost inflation. Rising costs squeeze profit margins and may lead companies to pass
cost increases on to the customers.
2. Excess demand: When a company cannot supply all its customers' needs, it can raise
its prices, ration products to customers, or both.
Companies can increase their prices in a number of ways to keep up with rising costs.
Prices can be raised almost invisibly by dropping discounts and adding higher-priced
units to the line. Or prices can be pushed up openly. In passing price increases on to
customers, the company must avoid being perceived as a price gouger. Companies also
need to think of who will bear the brunt of increased prices. There are some techniques
for avoiding this problem. One is to maintain a sense of fairness surrounding any price
increase. Price increases should be supported with a company communication program
telling customers why prices are being increased and customers should be given
advance notice so they can do forward buying or shop around. Making low-visibility
price moves first is also a good technique: Eliminating discounts, increasing minimum
order sizes, curtailing production of low-margin products are some examples.
Wherever possible, the company should consider ways to meet higher costs or demand
without raising prices. For example, it can consider more cost-effective ways to produce
or distribute its products. It can shrink the product instead of raising the price, as candy
bar manufacturers often do. It can substitute less expensive ingredients or remove
certain product features, packaging, or services. Or it can "unbundle" its products and
services, removing and separately pricing elements that were formerly part of the offer.
b. Buyer Reactions to Price Changes
Whether the price is raised or lowered, the action will affect buyers, competitors,
distributors, and suppliers and may interest government as well. Customers do not
always interpret prices in a straightforward way.
c. Competitor Reactions to Price Changes
A firm considering a price change has to worry about the reactions of its competitors as
well as its customers. Competitors are most likely to react when the number of firms
involved is small, when the product is uniform, and when the buyers are well informed.
How can the firm anticipate the likely reactions of its competitors? If the firm faces one

large competitor, and if the competitor tends to react in a set way to price changes, that
reaction can be easily anticipated. But if the competitor treats each price change as a
fresh challenge and reacts according to its self-interest, the company will have to figure
out just what makes up the competitor's self-interest at the time.
d. Responding to Price Changes
Here we reverse the question and ask how a firm should respond to a price change by a
competitor. The firm needs to consider several issues:
1. Why did the competitor change the price?
2. Was it to take more market share, to use excess capacity, to meet changing cost
conditions, or to lead an industry wide price change?
3. Is the price change temporary or permanent?
4. What will happen to the company's market share and profits, if it does not
respond?
5. Are other companies going to respond?
6. What are the competitor's and other firms' responses to each possible reaction
likely to be?
Besides these issues, the company must make a broader analysis. It has to consider its
own product's stage in the life cycle, the product's importance in the company's product
mix, the intentions and resources of the competitor, and the possible consumer
reactions to price changes. The company cannot always make an extended analysis of its
alternatives at the time of a price change, however. The competitor may have spent
much time preparing this decision, but the company may have to react within hours or
days. About the only way to cut down reaction time is to plan ahead for both possible
competitor's price changes and possible responses.
There are several ways a company might assess and respond to a competitor's price cut.
Once the company has determined that the competitor has cut its price and that this
price reduction is likely to harm company sales and profits, it might simply decide to
hold its current price and profit margin. The company might believe that it will not lose

too much market share, or that it would lose too much profit if it reduced its own price.
It might decide that it should wait and respond when it has more information on the
effects of the competitor's price change. For now, it might be willing to hold on to good
customers, while giving up the poorer ones to the competitor. The argument against this
holding strategy, however, is that the competitor may get stronger and more confident
as its sales increase and that the company might wait too long to act. If the company
decides that effective action can and should be taken, it might make any of four
responses.
First, it could reduce its price to match the competitor's price. It may decide that the
market is price sensitive and that it would lose too much market share to the lower-
priced competitor. Or it might worry that recapturing lost market share later would be
too hard. Cutting the price will reduce the company's profits in the short run.
Some companies might also reduce their product quality, services, and marketing
communications to retain profit margins, but this will ultimately hurt long-run market
share. The company should try to maintain its quality as it cuts prices.
Alternatively, the company might maintain its price but raise the perceived quality of
its offer. It could improve its communications, stressing the relative quality of its
product over that of the lower-price competitor. The firm may find it cheaper to
maintain price and spend money to improve its perceived value than to cut price and
operate at a lower margin. Or, the company might improve quality and increase price,
moving its brand into a higher-price position. The higher quality justifies the higher
price, which in turn preserves the company's higher margins. Or the company can hold
price on the current product and introduce a new brand at a higher-price position.
Finally, the company might launch a low-price "fighting brand." Often, one of the best
responses is to add lower-price items to the line or to create a separate lower-price
brand. This is necessary if the particular market segment being lost is price sensitive
and will not respond to arguments of higher quality.

PLACE OR DISTRIBUTION DECISIONS
Place includes all company activities that make the product available to target
consumers. This includes all distribution channels, dealers and resellers that help in
making a company’s product available to customers. A channel of distribution (also
called a marketing channel) is a business structure of interdependent organisations that
are involved in the process of making a product or service available for use or
consumption by end customers or business users. Distribution activities are a vital
element in creating customer value. A product will provide customer value and
satisfaction only if it is available to the customer when and where it is needed, and in
the appropriate quantity. Sometimes, this requires organisations to think outside the
box of traditional delivery channels. For example, a number of organisations have
partnered with providers of mobile payment options to buy services such as electricity
and entertainment packages from DSTV. Failure by organisations to make their
products available leads to lost opportunities and is a recipe for customers to switch
brands to available alternatives.
Why Are Marketing Intermediaries Used?
Why do producers give some of the selling job to intermediaries? After all, doing so
means giving up some control over how and to whom the products are sold. The use of
intermediaries results from their greater efficiency in making goods available to target
markets. Through their contacts, experience, specialization, and scale of operation,
intermediaries usually offer the firm more than it can achieve on its own. From the
economic system's point of view, the role of marketing intermediaries is to transform
the assortments of products made by producers into the assortments wanted by
consumers. Producers make narrow assortments of products in large quantities, but
consumers want broad assortments of products in small quantities. In the distribution
channels, intermediaries buy large quantities from many producers and break them
down into the smaller quantities and broader assortments wanted by consumers. Thus,
intermediaries play an important role in matching supply and demand. A summary of
functions carried out by intermediaries include;
 Managing inventory
 Physical delivery

 Financial services
 Assorted product range/choice
 Relationship management
 Risk Taking
 Product Assembly
Benefits of Intermediaries
The benefits that intermediaries present in the distribution of products include;
i. Improved Efficiency – producers usually manufacture a small range of products

in large quantities, whereas consumers consume a wide range of products in
small quantities. An intermediary such as a wholesaler improves efficiency in the
delivery channel by breaking bulk or breaking large deliveries from producers
into single units and assorting them into a range of goods available for retailers
(i.e. product assortment efficiency).
ii. Accessibility – Intermediaries assist by bringing the product to a more
convenient location for purchase as the point of production is miles away from
the point of usage and consumption.
iii. Time Utility – Manufacturing, purchase and consumption occur at different
times and intermediaries such as retailers provide time utility.
iv. Ownership Utility – Intermediaries such as retailers enable the passing of
ownership of products to the consumer within a limited amount of time.
v. Specialist Services - Intermediaries might also provide specialist services such
as aftersales, maintenance, installation, or training services to increase the
effective use of the product. These services are best offered and performed by
those closest to the purchaser or user of the product.
vi. Information Utility – Intermediaries will sometimes provide information about
the product to aid sales and product usage. They can also be a good source of
customer and competitor intelligence.

Channel Structure
A product can take many routes to reach its final consumer. Marketers must therefore
search for the most efficient from the many alternatives available depending on the
product. Below are the alternative channel structures;
Direct Channel
Producer Consumer
This is a channel structure where producers sell directly to consumers. There are no
intermediaries involved and the producer may use its own stores or direct marketing
techniques such as telemarketing or through its website on the internet. Using this type
of structure has the advantage of maintaining control of the image of the brand and the
pricing. The producer also builds strong customer relationships.
One of the disadvantages of this channel includes the amount of capital and resources
required to reach customers directly and these might lead to potential loss of economies
of scale. The other disadvantage is that the manufacturer might suffer from offering a
low/narrow variety of products especially in the B2C markets as consumers demand for
variety.
Indirect Channel
Producer Wholesaler Retailer Consumer
An indirect marketing channel has at least one intermediary level. For instance,
manufacturers of food, drugs, televisions e.tc. may use resellers to make their products
available to consumers. From the producer's point of view, a greater number of levels
means less control and greater channel complexity.
Hybrid Channel
Producer Consumer
Intermediaries

A hybrid channel is also called a multiple channel structure and it combines the direct
and indirect strategies to distribute products. The producer controls some channels and
the intermediaries control others. The rationale of using this strategy is to ensure that
all available channels are used in order to have the product more accessible. The
benefits presented by this structure include;
 Increased reach to a target audience.

 The producer has some control over prices and communicates directly to
customers.
 There is greater compliance from intermediaries as producer also acts like a
competitor although this can reduce the loyalty the intermediary feels towards
the producer.
 Optimised margins for the producer (from the direct distribution channel) and
increasing bargaining power of the producer as dependence on the intermediary
is reduced.
 Developing direct relationships with customers is a source of useful information.
The disadvantage of this structure is that it is a recipe for channel conflicts as the
intermediaries perceive the producer as a competitor and as a supplier.
Distribution Channel Strategy
When managing distribution channels, we need to consider a number of factors to make

sure that the channels best suits the organisation’s objectives. The three key
considerations in managing distribution channels include;
i. Economics – This makes us recognise where costs are being incurred and profits
being made in a channel to maximise our return on investment.
ii. Coverage – is about maximising the product’s availability in the market for the
customer, satisfying the desire to have the product available to the largest
number of customers, in as many locations as possible and at the widest range of
times. The organisation is likely to lose some control in decision making if there
is a wide range of delivery times and locations through the use of intermediaries
as these intermediaries may also stock competitor products.

iii. Control – This refers to achieving the optimum distribution costs without losing
decision-making authority over how it is priced, promoted and delivered in the
distribution channel.
Making Channel Strategy Decisions
Devising a marketing channel strategy requires several critical decisions. Marketing

managers must decide what role distribution will play in the overall marketing strategy.
In addition, they must be sure that the channel strategy chosen is consistent with
product, promotion and pricing strategies. The major factors influencing channel
strategy decisions are the choice of channel and the levels of distribution intensity;
1.0. Factors Affecting Channel Choice
The factors that need to be taken into consideration when choosing the channel choice
include market factors, product factors and producer factors and a detailed discussion
of these factors follows below;
a) Market Factors – the several market factors that need to be taken into
consideration when choosing the channel choice include;
 Target customer considerations – Several questions must be answered
when looking at the target customer and these include; who are the
potential customers? What do they buy? Where do they buy? When do
they buy? How do they buy?. Furthermore you have to take into
consideration whether the target customer is a consumer or an industrial
buyer. Industrial customers usually buy in large quantities and require
more customer service than consumers.
 Geographical location of the market - If a target market is concentrated
in one or more specific areas, selling directly to customers through the
salesforce might be ideal while if the target market is widely dispersed,
the use of intermediaries would be less expensive
 Size of the market – The size of the market does influence the channel
choice. Larger markets require more intermediaries than smaller
markets. For example products targeted at the mass market will require
more intermediaries than products targeted at a niche market.

b) Product Factors – Different product will demand certain channels because of
the nature of the products. For example, products that are more complex,
customised and expensive tend to benefit from shorter and more direct
channels through a direct salesforce. Examples include pharmaceuticals,
industrial equipment e.t.c. Products that are not complex and are standardised
can have a longer distribution chain are there are no complexities involved in the
product. Examples include products such as groceries.
The product life cycle stage of the product is also an important consideration.
Initial phases of the product might require the use of a direct sales force in order
to have the product listed or adopted and as the product gets in its growth stage,
more channels can be added.
Lastly, the perishability of the product is another important product
consideration. Perishable products like vegetables and milk and have a relatively
short life span. Some products are fragile and might not need a lot of handling.
Therefore, such products require shorter marketing channels.
c) Producer factors – Several factors pertaining to the producer must also be
taken into consideration. In general, producers with large financial, managerial
and marketing resources are better able to use more direct channels. They have
the ability to hire and train their own salesforce, warehouse their own goods and
extend credit to their customers.
Another consideration for the producer would be their desire to control pricing,
positioning, brand image and customer support. For example, firms that sale
upscale products would want to maintain an image of exclusivity so that their
brand is not diluted and will avoid intermediaries that do not conform to their
standards.
2.0. Levels of Distribution Intensity
Organisations have three options for intensity of distribution namely; intensive

distribution, selective distribution and exclusive distribution. These three
options are discussed in detail below;
Intensive Distribution – This is a form of distribution aimed at maximum

market coverage. The manufacturer tries to have the product available in every

outlet where potential customers might want to buy it. This strategy is very ideal
especially for convenience and low value products that are purchased frequently
and where buyers are unwilling to search for a product. A challenge with this
strategy arises when you want to list a new product with intermediaries that are
already carrying similar products.
Selective Distribution – This entails screening dealers and retailers and

selecting a few to distribute your product in a single area. A few are selected
because consumers are likely to seek out the product. This strategy is ideal when
the manufacturer would like to maintain a superior product image and be able to
charge a premium price as well as where the product is complex. This strategy is
mostly used for shopping goods.
Exclusive Distribution – This is a very restrictive form of market coverage

where only one or a few dealers within a given area are responsible for
distributing a company’s products. This strategy is ideal for specialty goods, a
few shopping products and major industrial equipment because buyers are
willing to search extensively for these products.
Retailers and dealers are only willing to commit time and resources to distribute
a product only if the manufacturer guarantees them exclusivity in that territory.
Retailers also have to agree not to sell a manufacturer’s competing brands.
Channel Design Process
In designing marketing channels, manufacturers struggle between what is ideal and

what is practical. A new firm with limited capital usually starts by selling in a limited
market area. Deciding on the best channels might not be a problem: The problem might
simply be how to convince one or a few good intermediaries to handle the line. If
successful, the new firm might branch out to new markets through the existing
intermediaries. In smaller markets, the firm might sell directly to retailers; in larger
markets, it might sell through distributors. In one part of the country, it might grant
exclusive franchises; in another, it might sell through all available outlets. In this way,
channel systems often evolve to meet market opportunities and conditions. However,
for maximum effectiveness, channel analysis and decision
making should be more purposeful. Designing a channel system calls for analyzing

consumer service needs, setting channel objectives and constraints, identifying major
channel alternatives, and evaluating them. Let us now look at these.
a) Analyzing Consumer Service Needs
Marketing channels can be thought of as customer value delivery systems in which each
channel member adds value for the customer. Thus, designing the distribution channel
starts with finding out what targeted consumers want from the channel. The following
questions should be answered:
 Do consumers want to buy from nearby locations or are they willing to travel to
more distant centralized locations?
 Would they rather buy in person, over the phone, through the mail, or via the
Internet?
 Do they value breadth of assortment or do they prefer specialization?
 Do consumers want many add-on services delivery, credit, repairs, and

installation) or will they obtain these elsewhere?
The company must balance consumer service needs not only against the feasibility and
costs of meeting these needs but also against customer price preferences.
b) Setting Channel Objectives and Constraints
Channel objectives should be stated in terms of the desired service level of target
consumers. Usually, a company can identify several segments wanting different levels of
channel service. The company should decide which segments to serve and the best
channels to use in each case. In each segment, the company wants to minimize the total
channel cost of meeting customer service requirements.
The company's channel objectives are also influenced by the nature of the company, its
products, marketing intermediaries, competitors, and the environment. For example,
the company's size and financial situation determine which marketing functions it can
handle itself and which it must give to intermediaries. Companies selling perishable
products may require more direct marketing to avoid delays and too much handling. In

some cases, a company may want to compete in or near the same outlets that carry
competitors' products.
In other cases, producers may avoid the channels used by competitors. Finally,
environmental factors such as economic conditions and legal constraints may affect
channel objectives and design. For example, in a depressed economy, producers want to
distribute their goods in the most economical way, using shorter channels and dropping
unneeded services that add to the final price of the goods.
c) Identifying Major Alternatives
After defining its channel objectives, a company should identify its major channel
alternatives in terms of types of intermediaries, the number of intermediaries, and the
responsibilities of each channel member.
i. Types of Intermediaries
A firm should identify the types of channel members available to carry out its channel
work. The following channel alternatives are available:
 Merchants: Include Wholesalers and retailers who buy, take title to and
resell merchandise.
 Agents: Include brokers, manufacturers’ representatives, sales agents

who search for customers and may negotiate on the producer’s behalf but
do not take title to the goods.
 Facilitators: Are transportation companies, independent warehouses,

banks, and advertising agencies. These assist in the distribution process
but neither take title to goods nor negotiate purchases or sales.
ii. Number of Marketing Intermediaries
Three strategies are available: intensive distribution, exclusive distribution, and

selective distribution. Producers of convenience products and common raw materials
typically seek intensive distribution—a strategy in which they stock their products in
as many outlets as possible. These goods must be available where and when consumers

want them. For example, toothpaste, candy, and other similar items are sold in millions
of outlets to provide maximum brand exposure and consumer convenience.
By contrast, some producers purposely limit the number of intermediaries handling

their products. The extreme form of this practice is exclusive distribution, in which
the producer gives only a limited number of dealers the exclusive right to distribute its
products in their territories. Exclusive distribution is often found in the distribution of
new automobiles and prestige women's clothing. Exclusive distribution enhances the
product's image and allows for higher markups.
Between intensive and exclusive distribution lies selective distribution—the use of

more than one, but fewer than all, of the intermediaries who are willing to carry a
company's products. Most television, furniture, and small-appliance brands are
distributed in this manner. They can develop good working relationships with selected
channel members and expect a better-than-average selling effort. Selective distribution
gives producers good market coverage with more control and less cost than does
intensive distribution.
iii. Responsibilities of Channel Members
The producer and intermediaries must agree on the terms and responsibilities of each
channel member. They should agree on price policies, conditions of sale, territorial
rights and specific services to be performed by each party.
d) Evaluating the Major Alternatives
After identifying the major channel alternatives, a company must evaluate them before
selecting the one that will best satisfy its long-run objectives. Evaluation should be
against economic (sales, costs and profitability), control and adaptive criteria. The best
channel alternative must be selected and managed.
e) Channel Management Decisions
Once the company has reviewed its channel alternatives and decided on the best
channel design, it must implement and manage the chosen channel. Channel
management calls for selecting and motivating individual channel members and
evaluating their performance over time.

i) Selecting Channel Members
Producers vary in their ability to attract qualified marketing intermediaries. Some

producers have no trouble signing up channel members. In some cases, the promise of
exclusive or selective distribution for a desirable product will draw plenty of applicants.
At the other extreme are producers who have to work hard to line up enough qualified
intermediaries.
When selecting intermediaries, the company should determine what characteristics

distinguish the better ones. It will want to evaluate each channel member's years in
business, other lines carried, growth and profit record, cooperativeness, and reputation.
If the intermediaries are sales agents, the company will want to evaluate the number
and character of other lines carried and the size and quality of the sales force. If the
intermediary is a retail store that wants exclusive or selective distribution, the company
will want to evaluate the store's customers, location, and future growth potential.
ii) Motivating Channel Members
Once selected, channel members must be motivated continuously to do their best. The
company must sell not only through the intermediaries but to them. Most companies see
their intermediaries as first-line customers. Some use the carrot-and-stick approach: At
times they offer positive motivators such as higher margins, special deals, premiums,
cooperative advertising allowances, display allowances, and sales contests. At other
times they use negative motivators, such as threatening to reduce margins, to slow
down delivery, or to end the relationship altogether. A producer using this approach
usually has not done a good job of studying the needs, problems, strengths, and
weaknesses of its distributors. More advanced companies try to forge long-term
partnerships with their distributors to create a marketing system that meets the needs
of both the manufacturer and the distributors. In managing its channels, a company
must convince distributors that they can make their money by being part of an
advanced marketing system.
iii) Evaluating Channel Members
The producer must regularly check the channel member's performance against
standards such as sales quotas, average inventory levels, customer delivery time, and

treatment of damaged and lost goods, cooperation in company promotion and training
programs, and services to the customer. The company should recognize and reward
intermediaries who are performing well. Those who are performing poorly should be
assisted or, as a last resort, replaced. A company may periodically "requalify" its
intermediaries and prune the weaker ones. Finally, manufacturers need to be sensitive
to their dealers. Those who treat their dealers lightly risk not only losing their support
but also causing some legal problems.
Channel Behaviour and Organization
A distribution channel consists of firms that have banded together for their common
good. Each channel member is dependent on the others. Each channel member plays a
role in the channel and specializes in performing one or more functions. The channel
will be most effective when each member is assigned the tasks it can do best. Ideally,
because the success of individual channel members depends on overall channel success,
all channel firms should work together smoothly. They should understand and accept
their roles, coordinate their goals and activities, and cooperate to attain overall channel
goals. By cooperating, they can more effectively sense, serve, and satisfy the target
market.
However, individual channel members rarely take such a broad view. They are usually
more concerned with their own short-run goals and their dealings with those firms
closest to them in the channel. Cooperating to achieve overall channel goals sometimes
means giving up individual company goals. Although channel members are dependent
on one another, they often act alone in their own short-run best interests. They often
disagree on the roles each should play—on who should do what and for what rewards.
Such disagreements over goals and roles generate channel conflict.
Horizontal conflict occurs among firms at the same level of the channel. Vertical
conflict, conflicts between different levels of the same channel, is even more common.
Some conflict in the channel takes the form of healthy competition. Such competition
can be good for the channel—without it, the channel could become passive and non
innovative. But sometimes conflict can damage the channel. For the channel as a whole
to perform well, each channel member's role must be specified and channel conflict
must be managed. Cooperation, role assignment, and conflict management in the

channel are attained through strong channel leadership. The channel will perform
better if it includes a firm, agency, or mechanism that has the power to assign roles and
manage conflict.
CHANGING CHANNEL ORGANIZATION
Changes in technology and the explosive growth of direct and online marketing are
having a profound impact on the nature and design of marketing channels. One major
trend is toward disintermediation—a big term with a clear message and important
consequences. Disintermediation means that more and more, product and service
producers are bypassing intermediaries and going directly to final buyers, or that
radically new types of channel intermediaries are emerging to displace traditional ones.
Thus, in many industries, traditional intermediaries are dropping by the wayside.

Disintermediation presents problems and opportunities for both producers and
intermediaries. To avoid being swept aside, traditional intermediaries must find new
ways to add value in the supply chain. To remain competitive, product and service
producers must develop new channel opportunities, such as Internet and other direct
channels. However, developing these new channels often brings them into direct
competition with their established channels, resulting in conflict.

PROMOTION OR MARKETING COMMUNICATION
Introduction
The function of all elements of the promotional mix is to communicate. Promotion is

the function of informing, persuading and influencing the customer’s purchase decision.
The marketing manager sets the goals and objectives of the firm’s promotional strategy
in accordance with overall organizational objectives. Based on these objectives, the
various elements of the strategy – personal selling, advertising, sales promotion, direct
marketing, public relations and publicity are formulated into a coordinated promotional
plan. Promotional strategy is closely related to the process of communication.
Communication has been variously defined as “the passing of information”, “the
exchange of ideas”, “the process of establishing a commonness or oneness of thought
between a sender and a receiver”, or the transmission of a message from the sender to a
receiver”.
The Key Tasks for Marketing Communication
1. To differentiate – In many markets, there is little that separates brands (e.g

mineral water, soft drinks). In these cases, it is the images created by marketing
communications that help differentiate one brand from another and position
them so that consumers develop positive attitudes and make purchasing
decisions.
2. To reinforce – Communications may be used to remind people of a need they
might have or of the benefits of past transactions with a view to convincing them
that they should enter into a similar exchange. In addition, it is possible to
provide reassurance or comfort either immediately prior to an exchange or post-
purchase. This is important as it helps to retain current customers and improve
profitability.
3. To inform – Communications informs and makes potential customers aware of
the features and benefits of an organization’s offering. In addition, marketing
communications can be used to educate audiences on how to use a product or
what to do in particular situations.

4. To persuade – Communication may attempt to persuade current and potential
customers of the desirability to enter into an exchange relationship.
The Promotion Mix
Promotion is the function of informing, persuading and influencing the consumer’s

purchasing decision. The role of promotion is to communicate with individuals, groups,
or organizations to directly or indirectly facilitate exchanges by informing and
persuading one or more of the audiences to accept an organisation’s products. In short
it is an element of the marketing mix by which firms communicate with their customers.
Promotional mix refers to promotional methods used by firms to communicate with
individuals, groups and organizations. These methods or rather components of
promotional mix include:
1. Advertising – is any paid form of non-personal communications about an

organization’s product, service, or idea by an identified sponsor. The paid aspect
of this definition reflects the fact that the space or time of an advertising message
must generally be bought. The non-personal aspect means that advertising
involves mass media (e.g. television, radio, magazines, and newspapers) that can
transmit a message to large groups of individuals, often at the same time.
Advertising is therefore a very important promotional tool for companies whose
products are targeted at mass market consumer markets such as packaged goods
and drug companies.
2. Direct marketing – involves an organization’s direct communication with target
customers to generate a response and/or a transaction. It involves a variety of
activities, including direct selling, telemarketing, and direct response ads
through direct mail etc. The rapid growth of the internet is a factor that is
fuelling Direct Marketing and a good example is how traders in second hand
Japanese cars are using this marketing tool to reach their Zambian market. Other
activities include the distribution of flyers, catalogues and this is very common
among furniture retailers in Zambia.
3. Sales Promotion – are those marketing activities that provide extra value or
incentives to the sales force, distributors, or the ultimate consumer and can stimulate

immediate sales. Sales promotions are generally broken into two major categories;
Consumer Oriented and trade oriented sales promotions.
Consumer Oriented sales promotions are targeted to the ultimate user of a product and
includes couponing, sampling, premiums, sweepstakes and rebates.
Trade oriented sales promotions are targeted toward marketing intermediaries such as
wholesalers, distributors and wholesalers. Promotional and merchandising allowances,
price deals and trade shows are some of the promotional tools used to encourage the
trade to stock and promote a company’s products.
4. Publicity – is non-personal communications regarding an organization, product,

service or idea that is not directly paid for or run under identified sponsorship.
It usually comes in the form of news story, editorial or announcement about an
organization and/or its products and services.
5. Public relations – is the management function which evaluates public attitudes,

identifies the policies and procedures of an individual or organization with the
public interest and executes a program of action to earn public understandings
and acceptance.
Public relations uses publicity and a variety of tools including special

publications, participation in community activities, fund raising, sponsors of
special events, and various public affairs activities , to manage an organisation’s
image.
6. Personal selling – is a form of person to person communication in which a seller
attempts to assist and/or persuade prospective buyers to purchase the
company’s product or service or to act on an idea. It involves direct contact
between the buyer and seller either face-to-face or through some form of
telecommunications such as telephone sales. The interaction gives the marketer
communication flexibility; the seller can see or hear the potential buyer’s
reaction and modify the message accordingly.
7.0. Other Promotional Tools
The fragmentation of the media and audiences has necessitated the introduction of new
tools to complement the mass media and digital media. These additional
complementary tools are explained below;

7.1. Sponsorship – This is a promotional tool which is normally associated with public
relations but with strong associations with advertising. Sponsorship is a commercial
activity, whereby one party permits another an opportunity to exploit an association
with a target audience in return for funds, services, or resources. A good example is the
sponsoring of sporting teams like football and formula one or sponsoring a programme
on T.V.
7.2. Product Placement – This also a form of sponsorship and represents a

relationship between film/TV producers and managers of brands. Through this
arrangement, brand managers are able to pay for a fee to present their brands
‘naturally’ within a film or entertainment. Product placement initiatives are designed to
increase brand awareness, develop positive brand attitudes and possibly lead to
purchase activity.
7.3. Exhibitions – are held for both consumer and business markets. Organizations
benefit from meeting their current and potential customers, developing relationships,
demonstrating products, placing and taking of orders, generating leads and gathering
market information. Exhibitions such as trade shows bring together customers,
suppliers, competitors and prospective customers in one place and these offer great
communication opportunities for the parties involved.
7.4. Viral Marketing – Viral marketing is a recent development based on the credibility
and reach associated with word of mouth communications. Viral marketing refers to the
unpaid peer-to-peer communication of often provocative content originating from an
identified sponsor using the internet to persuade or influence an audience to pass on
the message/content to others.

INTEGRATION OF MARKETING COMMUNICATIONS
According to the American Association of Advertising Agencies, Integrated marketing

communication is a concept of marketing communications planning that recognises the
added value of a comprehensive plan that evaluates the strategic roles of a variety of
communication discipline such as general advertising, direct response, sales promotion
and public relations and combines these disciplines to provide clarity, consistency and
maximum communications impact.
Up until the mid-1980s organisations were able to use a fairly predictable and stable
range of tools and media. For example, advertising was used to build awareness and
brand values, sales promotions to stimulate demand, public relations to build goodwill
and personal selling as a means of getting orders especially in the B2b market. However,
that has not been the case over the last two decades as there has been fragmentation of
both the media and audiences. Media fragmentation refers to the expansion of the
media and people are therefore not locked to in and restricted to a few media. Audience
fragmentation on the other hand looks at the fact that despite the fact that there has
been an expansion on the type of media, the size of audiences that each medium
commands has greatly reduced. It is reasons such as these that have made the pursuit of
integrated marketing communication a popular activity among different companies.
Schultz identified three key principles as foundations of a successful IMC campaign;
 By focusing on a single message, stronger relationships are developed with

consumers.
 More focused and single-minded messages are processed are processed more
effectively by consumers.
 All elements of the marketing mix must be co-ordinated.
If marketing communications are to be effective, it is important to move from a situation
of specialization in which marketers are experts in one area of marketing
communications – to people who are trained in all marketing communication
disciplines.

Steps in Developing Effective Communication
Communicating just for the sake of communicating can be a waste of resources and
there is need to plan the communication process carefully. Marketers must undertake
the following steps in order to develop an effective communication mix
Identify Target Audience
A marketing communicator starts with a clear target audience in mind. The audience
may be potential buyers or current users of the product or those who will influence the
buying decision. The target audience will largely affect the communicator’s decisions on
what will be said, how it will be said, when it will be said and where it will be said.
Determine the Communication Objectives
Once the target audience has been identified, the marketer must decide what response
they seek or the objectives of the marketing communication. The objective could be to
create awareness for a newly introduced product, persuade potential customers to buy
your product or re-assure your current customers of the choice they have made
Design a Message
Having set the objectives of communication, the marketer must now develop an
effective message by looking at the appropriate message content, message structure and
message format.
The message content may focus on using appeals such as emotional appeal, fear appeals
or humorous appeal to convey the message.
The message structure will be determined by 3 structure issues. The first is whether to
draw a conclusion or leave it to the audience. The second is whether to present the
strongest arguments first or last. Lastly, whether to present a one sided argument
(mentioning only the products strengths) or (mentioning both the strengths and
weaknesses) e.g Listerine ran the message, “Listerine Taste twice a day” for its mouth
wash.

Message Format also needs to be strong. For print ads for example, font size and
decisions on whether to run a color ad will be decided. If radio, whether to use English
or local languages e.t.c.
Choosing Media
The communicator must select channels of communication and this can either be
personal or non-personal channels. Personal channels will involve communication on a
personal basis such as sales personnel or word of communication through opinion
leaders, family and friends. Non-personal communication channels are media that carry
messages without personal contact or feedback. Examples include; Print media
(newspapers, magazines), broadcast media (radio, TV), Oudoor (Billboards) and online
media (emails, websites).
Selecting the Message Source
Whether you are using personal or non-personal communication, the message’s impact
on the target audience is also affected by how the audience views the communicator.
Messages delivered by highly credible sources are more persuasive. Caution must
however be taken when selecting spokespersons or celebrity endorsers to avoid
scandals perpetrated by celebrities.
Collecting Feedback
It is important for organizations to collect feedback once they have implemented their
communication to find out the effect of their communication on the target audience. It
may involve asking the target audience whether they remember the message, what
points they recall, how they felt and their past and present attitudes towards the
product and company.
Setting The Total Promotion Budget
One of the hardest marketing decisions facing a company is how much to spend on
promotions and industry and companies vary on how much on promotion. Four
common methods used to set the total budget for advertising are: the affordable
method, the percentage-of-sales method, the competitive parity method, and the
objective-and-task method.

a. Affordable Method - setting the promotion budget at the level they think the
company can afford. Small businesses often use this method, reasoning that the
company cannot spend more on advertising than it has.
b. Percentage-of-Sales Method - setting the promotion budget at a certain percentage

of current or forecasted sales.
c. Competitive-Parity Method - Setting the promotion budgets to match competitors'

outlays. They monitor competitors' advertising or get industry promotion spending
estimates from publications or trade associations, and then set their budgets based on
the industry average.
d. Objective-and-Task Method - The most logical budget-setting method is the

objective-and-task method, whereby the company sets its promotion budget based on
what it wants to accomplish with promotion. This budgeting method entails (1) defining
specific promotion objectives, (2) determining the tasks needed to achieve these
objectives, and (3) estimating the costs of performing these tasks. The sum of these
costs is the proposed promotion budget.

PRACTICE QUESTIONS
SET A
Question One
Professor Philip Kotler made an observation that marketing is now becoming more of a
battle based on information rather than sales power (Kotler, 2000). Explain the
different ways that organisations can use to accumulate, analyse and disseminate the
necessary information that can give marketers of goods and services a competitive
edge. (20 marks).
Question Two
So often, Marketers are faced with making pricing decisions based on the product mix
or on the product line because they not only have to strike a balance between the sales
volume that they intend to generate but also on the profitability of the entire product
mix or product line. Explain the five product mix pricing strategies and whether the
rationale is to improve on the profitability or on the sales volume of the product mix for
each product mix pricing strategy. (20 marks).
Question Three
You are a marketing communications expert and you have been given a task of training
novice Small and Medium Enterprises (SMEs) owners on the different steps necessary
to develop effective marketing communications so that their resources do not go to
waste. Explain to these SMEs owners the necessary steps that they should take. (20
marks)
Question Four
There are numerous bases of segmenting markets depending on the type of product or
market. Explain the bases of segmenting the following products and give justification for
your choice.
a) A transportation company dealing in passenger transportation. (5 marks).
b) A company dealing in clothing. (5 marks).

c) A company dealing in fragrance. (5 marks).
d) A luxury and utility car manufacturer. (5 marks).
Question Five
The development of the service industry is on the rise both in Zambia and across the
world as evidenced by new players in the banking industry, hospitality industry,
educational services industry e.t.c.
a) Explain why the approach to marketing of goods should not be the same
approach to market service products. (8 marks).
b) Choose any service business and outline extended marketing mix as it applies to
that service business. (12 marks).
Question Six
It can be argued that organisations can make better margins on their products and
exercise control if they distributed their products directly to the consumers as they do
not have to pass through any intermediaries. However, organisations in practice
continue to engage intermediaries in the distribution of their products for various
reasons.
a) Explain the different reasons intermediaries are engaged in the distribution of

products by manufacturers. (5 marks).
b) Explain the three channel structure strategies that can be employed to distribute
products and highlight the pros and cons of each strategy. (15 marks).
Question Seven
Write short notes on the following marketing constructs;
a) Customer satisfaction and its importance to marketing. (5 marks).

b) Explain the product life cycle concept. (10 marks).
c) Production concept as a marketing management orientation. (5 marks).

SET B
1. For decades now, marketing has played a fundamental role across different
industries.
a) Define marketing and outline the different functions played by marketing
in an organisation. (10 marks)
b) What characterises a company that is marketing oriented? (10 marks)
2. Information can be a source of competitive advantage for an organisation. How
can a company develop this much needed information to make better marketing
decisions and to respond quickly to changes in the business environment?
3. The functional, geographic and product/brand organisational structures are
used in the organising and allocating of marketing resources. Explain the
characteristics of these organisational structures and outline their advantages
and disadvantages. (20 marks).

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An Overview of Marketing

“The management process of anticipating, identifying and satisfying customer

Principles of Marketing Page 1

The Marketing Process

 Determine – Marketing should begin with potential customer needs in mind

Principles of Marketing Page 2

Principles of Marketing Page 3

The Evolution of Marketing

Production period, 1890s-1920s – characterised by a focus on physical production

Sales period, 1920s-1950s – characterised by a focus on personal selling supported by

Principles of Marketing Page 4

Societal marketing period, 1980s to present – characterised by a stronger focus on

The Marketing Mix

The marketing mix is a mix of marketing policies and procedures to produce a

 Place (distribution) – Represents distribution and concerns how to place the

Extension from 4 to 7Ps

 Physical evidence – to emphasise that the tangible components of services were

 Process – because service delivery is inseparable from the customer

Principles of Marketing Page 5

 People – included to emphasise that services are delivered by customer service

Marketing Management Philosophies

Four competing philosophies strongly influence an organisation’s marketing processes

A production orientation is a philosophy that focuses on the internal capabilities of the

 What can we do best?

Principles of Marketing Page 6

Market Orientation refers to ‘ the organisation wide generation of market intelligence

• Integrating all the organisations activities including production to satisfy these

Achieving a market orientation therefore calls for an organisation to obtain information

Principles of Marketing Page 7

Concerned with creating superior value by continuously developing and

Requires an organisation to develop an understanding of its competitor’s short-

Requires all the functions of an organisation to work together to achieve the

The Three (3) Components of Market Orientation

Principles of Marketing Page 8

 Senior management support

4. The societal Marketing Concept

The societal marketing orientation extends the marketing concept by acknowledging

a) The Consumer Goods Perspective

Principles of Marketing Page 9

c) The Business to Business Perspective

Principles of Marketing Page 10

Planning is the process of anticipating future events and determining strategies to

Principles of Marketing Page 11

a) Corporate strategic planning is the responsibility of the corporate

 Decisions on the amount of resources to allocate to each division. The

 Decisions regarding which businesses to start maintain or eliminate.

b) Division Planning is done at the Division level and emphasises improvement of

Marketing Planning Process

1.0. Defining the Business Mission

Principles of Marketing Page 12

When analysing the external environment, marketing managers must focus on

 Political forces – How stable or unstable is the political environment?

Principles of Marketing Page 13

3.0. Setting Marketing Plan Objectives

4.1. Target Market Strategy

Principles of Marketing Page 14

4.2. Marketing Mix Strategy

Principles of Marketing Page 15

Promotion strategies include advertising, public relations, sales promotions, and