MARKETING MANAGEMENT

UNIT 2

ENVIRONMENTAL SCANNING Environmental scanning is a process of gathering, analyzing, and dispensing information for tactical or strategic purposes. The environmental scanning process entails obtaining both factual and subjective information on the business environments in which a company is operating or considering entering. The businesses have to be aware of what is happening in environment generally because the environment has impact in the business operation. A business unit has to monitor key macro environmental forces (demographic-economic, natural, technological, political-legal, and social-cultural) and significant micro environmental actors (customers, competitors, suppliers, distributors, dealers) that affect its ability to earn profits. The business unit should set up a marketing intelligence system to track trends and important developments. The Marketing Environment The companies marketing environment can be defined as the 'controllable and uncontrollable elements that influence the strategic direction of the company'. The companies marketing environment can be analyzed in two broad levels.

MARKETING MANAGEMENT

UNIT 2

The macro environment involves looking at uncontrollable variables that influence company strategy. PEST Analysis Pest Factors These are external forces which the organization does not have direct control over these factors. PEST is an acronym and each letter represents a type of factor (Political, Economical Social and Technological). A PEST analysis is used to identify the external forces affecting an organization .This is a simple analysis of an organizations Political, Economical, Social and Technological environment. A PEST analysis incorporating legal and environmental factors is called a PESTLE analysis. Political The first element of a PEST analysis is a study of political factors. Political factors influence organizations in many ways. Political factors can create advantages and opportunities for organizations. Conversely they can place obligations and duties on organizations. Political factors include the following types of instrument: - Legislation such as the minimum wage or anti discrimination laws. - Voluntary codes and practices - Market regulations - Trade agreements, tariffs or restrictions - Tax levies and tax breaks - Type of government regime eg communist, democratic, dictatorship Non conformance with legislative obligations can lead to sanctions such as fines, adverse publicity and imprisonment. Ineffective voluntary codes and practices will often lead to governments introducing legislation to regulate the activities covered by the codes and practices.
2

MARKETING MANAGEMENT

UNIT 2

Economical The second element of a PEST analysis involves a study of economic factors. All businesses are affected by national and global economic factors. National and global interest rate and fiscal policy will be set around economic conditions. The climate of the economy dictates how consumers, suppliers and other organizational stakeholders such as suppliers and creditors behave within society. An economy undergoing recession will have high unemployment, low spending power and low stakeholder confidence. Conversely a booming or growing economy will have low unemployment, high spending power and high stakeholder confidence. A successful organization will respond to economic conditions and stakeholder behavior. Furthermore organizations will need to review the impact economic conditions are having on their competitors and respond accordingly. In this global business world organizations are affected by economies throughout the world and not just the countries in which they are based or operate from. For example: a global credit crunch originating in the USA contributed towards the credit crunch in the UK in 2007/08. Cheaper labor in developing countries affects the competitiveness of products from developed countries. An increase in interest rates in the USA will affect the share price of UK stocks or adverse weather conditions in India may affect the price of tea bought in an English caf. A truly global player has to be aware of economic conditions across all borders and needs to ensure that it employs strategies that protect and promote its business through economic conditions throughout the world. Social The third aspect of PEST focuses its attention on forces within society such as family, friends, colleagues, neighbors and the media. Social forces affect our attitudes, interest s and opinions. These forces shape who we are as people, the way we behave and ultimately what we purchase. Population changes also have a direct impact on organizations. Changes in the structure of a population will affect the supply and demand of goods and services within an economy. Falling birth rates will result in decreased demand and greater competition as the number of consumers fall. Conversely an increase in the global population and world food shortage predictions are currently leading to calls for greater investment in food production. Due to food shortages African countries such as Uganda are now reconsidering their rejection of genetically modified foods.

MARKETING MANAGEMENT

UNIT 2

In summary organizations must be able to offer products and services that aim to complement and benefit peoples lifestyle and behavior. If organizations do not respond to changes in society they will lose market share and demand for their product or service.

Technological Unsurprisingly the fourth element of PEST is technology, as you are probably aware technological advances have greatly changed the manner in which businesses operate. Organizations use technology in many ways, they have 1. Technology infrastructure such as the internet and other information exchange systems including telephone 2. Technology systems incorporating a multitude of software which help them manage their business. 3. Technology hardware such as mobile phones, Blackberrys, laptops, desktops, Bluetooth devices, photocopiers and fax machines which transmit and record information. Technology has created a society which expects instant results. This technological revolution has increased the rate at which information is exchanged between stakeholders. A faster exchange of information can benefit businesses as they are able to react quickly to changes within their operating environment. However an ability to react quickly also creates extra pressure as businesses are expected to deliver on their promises within ever decreasing timescales..
4

MARKETING MANAGEMENT

UNIT 2

For example the Internet is having a profound impact on the marketing mix strategy of organizations. Consumers can now shop 24 hours a day from their homes, work, Internet cafs and via 3G phones and 3G cards. Some employees have instant access to e-mails through Blackberrys but this can be a double edged sword, as studies have shown that this access can cause work to encroach on their personal time outside work. The pace of technological change is so fast that the average life of a computer chip is approximately 6 months. Technology is utilized by all age groups, children are exposed to technology from birth and a new generation of technology savvy pensioners known as silver surfers have emerged. Technology will continue to evolve and impact on consumer habits and expectations, organizations that ignore this fact face extinction. PESTLE A PEST analysis is sometimes expanded to incorporate legal and environmental factors; this is known as a pestle analysis. There are many statutes books containing company law as almost every aspect of an organizations operation is controlled through legislation from treatment of employees through to health and safety. Legal factors are important as organizations have to work within legislative frameworks. Legislation can hinder business by placing onerous obligations on organizations. On the other hand legislation can create market conditions that benefit business. The micro environment involves analyzing controllable variables close to the company that the company does have an influence over. These are internal factors close to the company that have a direct impact on the organizations strategy. These factors include: Customers Organizations survive on the basis of meeting the needs, wants and providing benefits for their customers. Failure to do so will result in a failed business strategy. Employees Employing the correct staff and keeping these staff motivated is an essential part of the strategic planning process of an organization. Training and development plays an essential role particular in service sector marketing in-order to gain a competitive edge. This is clearly apparent in the airline industry.

MARKETING MANAGEMENT

UNIT 2

Micro Environmental Factors

Suppliers Increase in raw material prices will have a knock on affect on the marketing mix strategy of an organization. Prices may be forced up as a result. Closer supplier relationships are one way of ensuring competitive and quality products for an organization. Shareholders As organization requires greater inward investment for growth they face increasing pressure to move from private ownership to public. However this movement unleashes the forces of shareholder pressure on the strategy of organizations. Satisfying shareholder needs may result in a change in tactics employed by an organization. Many internet companies who share prices rocketed in 1999 and early 2000 have seen the share price tumble as they face pressures from

MARKETING MANAGEMENT

UNIT 2

shareholders to turn in a profit. In a market which has very quickly become overcrowded many have failed.

Media Positive or adverse media attention on an organizations product or service can in some cases make or break an organization. Consumer programs with a wider and more direct audience can also have a very powerful and positive impact, forcing organizations to change their tactics. Competitors The name of the game in marketing is differentiation. What benefit can the organization offer which is better then their competitors. Can they sustain this differentiation over a period of time from their competitors? Competitor analysis and monitoring is crucial if an organization is to maintain its position within the market. TH E C O M P O N E N T S O F A M O D E R N M A R K E T I N G INFORMATIONSYSTEM A marketing information system (MIS) consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers. To carry out their analysis, planning, implementation, and control responsibilities, marketing managers need information about developments in the marketing environment. The role of the MIS is to assess the managers information needs, develop the needed information, and distribute that information in a timely fashion. The information is developed through internal company records, marketing intelligence activities, marketing research, and marketing decision support analysis.

MARKETING MANAGEMENT

UNIT 2

The explanation of this model of an MIS begins with a description of each of its four main constituent parts: the internal reporting systems, marketing research system, marketing intelligence system and marketing models. It is suggested that whilst the MIS varies in its degree of sophistication - with many in the industrialized countries being computerized and few in the developing countries being so - a fully fledged MIS should have these components, the methods (and technologies) of collection, storing, retrieving and processing data notwithstanding. Internal reporting systems: All enterprises which have been in operation for any period of time nave a wealth of information. However, this information often remains under-utilized because it is compartmentalized, either in the form of an individual entrepreneur or in the functional departments of larger businesses. That is, information is usually categorized according to its nature so that there are, for example, financial, production, manpower, marketing, stockholding and logistical data. Often the entrepreneur, or various personnel working in the functional departments holding these pieces of data, do not see how it could help decision makers in other functional areas. Similarly, decision makers can fail to appreciate how information from other functional areas might help them and therefore do not request it. The internal records that are of immediate value to marketing decisions are: orders received, stockholdings and sales invoices. These are but a few of the internal records that can be used by marketing managers, but even this small set of records is capable of generating a great deal of information. Below, is a list of some of the information that can be derived from sales invoices. Product type, size and pack type by territory Product type, size and pack type by type of account Product type, size and pack type by industry Product type, size and pack type by customer Average value and/or volume of sale by territory
8

MARKETING MANAGEMENT

UNIT 2

Average value and/or volume of sale by type of account Average value and/or volume of sale by industry Average value and/or volume of sale by sales person By comparing orders received with invoices an enterprise can establish the extent to which it is providing an acceptable level of customer service. In the same way, comparing stockholding records with orders received helps an enterprise ascertain whether its stocks are in line with current demand patterns. MA R K E T I N G I N T E L L I G E N C E S Y S T E M A marketing intelligence system is a set of procedures and sources used by managers to obtain everyday information about developments in the marketing environment. Marketing managers collect marketing intelligence by reading books, newspapers, and trade publications; talking to customers, suppliers, and distributors; and meeting with other company managers. A company can take several steps to improve the quality of its marketing intelligence. First, it can train and motivate the sales force to spot and report new developments. Sales representatives are the companys eyes and ears; they are positioned to pick up information missed by other means. Yet they are very busy and often fail to pass on significant information. The company must sell its sales force on their importance as intelligence gatherers. Sales reps should know which types of information to send to which managers. Second, the company can motivate distributors, retailers, and other intermediaries to pass along important intelligence. MA R K E T I N G R E S E A R C H S Y S T E M Marketing research is the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company. Marketing research firms fall into three categories: Syndicated-service research firms: These firms gather consumer and trade information, which they sell for a fee. Examples: Nielsen Media Research, SAMI/Burke. Custom marketing research firms: These firms are hired to carry out specific projects. They design the study and report the findings. Specialty-line marketing research firms: These firms provide specialized research services. The best example is the field-service firm, which sells field interviewing services to other firms. Marketing models: Within the MIS there has to be the means of interpreting information in order to give direction to decision. These models may be computerized or may not. Typical tools are:
9

MARKETING MANAGEMENT

UNIT 2

Time series sales modes Brand switching models Linear programming Elasticity models (price, incomes, demand, supply, etc.) Regression and correlation models Analysis of Variance (ANOVA) models Sensitivity analysis Discounted cash flow Spreadsheet 'what if models THE MARKETING RESEARCH PROCESS Effective marketing research involves the five steps: Step 1: Define the Problem and Research Objectives Management must not define a problem too broadly or too narrowly. The research objectives should be specific. Not all research projects can be this specific. Some research is exploratoryits goal is to shed light on the real nature of the problem and to suggest possible solutions or new ideas. Some research is descriptiveit seeks to ascertain certain magnitudes. Some research is causalits purpose is to test a cause-and-effect relationship. Step 2: Develop the Research Plan The second stage of marketing research calls for developing the most efficient plan for gathering the needed information. The marketing manager needs to know the cost of the research plan before approving it. Designing a research plan calls for decisions on the data sources, research approaches, research instruments, sampling plan, and contact methods. Data Sources: The researcher can gather secondary data, primary data, or both. Secondary data are data that were collected for another purpose and already exist somewhere. Primary data are data gathered for a specific purpose or for a specific research project. Researchers usually start their investigation by examining secondary data to see whether their problem can be partly or wholly solved without collecting costly primary data. Secondary data provide a starting point for research and offer the advantages of low cost and ready availability. The Internet, or more particularly, the World Wide Web, is now the greatest repository of information the world has seen. In an incredibly short span of time, the Web has become a key
10

MARKETING MANAGEMENT

UNIT 2

tool for sales and marketing professionals to access competitive information or conduct demographic, industry, or customer research. When the needed data do not exist or are dated, inaccurate, incomplete, or unreliable, the researcher will have to collect primary data. Most marketing research projects involve some primary-data collection. The normal procedure is to interview some people individually or in groups to get a sense of how people feel about the topic in question and then develop a formal research instrument, debug it, and carry it into the field. When stored and used properly, the data collected in the field can form the backbone of later marketing campaigns.

Research Approaches: Primary data can be collected in five ways: observation, focus groups, surveys, behavioral data, and experiments. Observational research: Fresh data can be gathered by observing the relevant actors and settings. Focus-group research: A focus group is a gathering of six to ten people who are invited to spend a few hours with a skilled moderator to discuss a product, service, organization, or other marketing entity. The moderator needs to be objective, knowledgeable on the issue, and skilled
11

MARKETING MANAGEMENT

UNIT 2

in group dynamics. Participants are normally paid a small sum for attending. The meeting is typically held in pleasant surroundings and refreshments are served. Survey research: Surveys are best suited for descriptive research. Companies undertake surveys to learn about peoples knowledge, beliefs, preferences, and satisfaction, and to measure these magnitudes in the general population. Behavioral data: Customers leave traces of their purchasing behavior in store scanning data, catalog purchase records, and customer databases. Much can be learned by analyzing this data. Customers actual purchases reflect revealed preferences and often are more reliable than statements they offer to market researchers. Experimental research: The most scientifically valid research is experimental research. The purpose of experimental research is to capture cause-and-effect relationships by eliminating competing explanations of the observed findings. It calls for selecting matched groups of subjects; subjecting them to different treatments, controlling extraneous variables, and checking whether observed response differences are statistically significant. To the extent that extraneous factors are eliminated or controlled, the observed effects can be related to the variations in the treatments. Research Instruments: There are three main instruments in collecting primary data: questionnaires, qualitative measures, & technological devices. Questionnaires: a questionnaire consists of a set of questions presented to respondents. Qualitative measures: qualitative research techniques are relatively unstructured measurement approaches that permit a range of possible responses. Their variety is limited only to the creativity of the marketing research. Ex: Depth Interviews, Focus Groups or Group Discussions, Observation (Observing a respondent in their 'natural' environment.) Technological devices: Technological devices are occasionally useful in marketing research. Sampling plan: after deciding on the research approach, the next step is to decide to design the sampling plan: 1. Sampling unit: whom to survey? 2. Sample size: how many people to survey? 3. Sampling procedure: how should we choose the respondents? Contact methods: At this stage the market researcher should decide how to contact the subjects: Some methods are listed below: 1. Mail questionnaire 2. Telephone interview
12

MARKETING MANAGEMENT

UNIT 2

3. Personal interview 4. Online interview Step 3: Collect the Information The data collection phase of marketing research is generally the most expensive and the most prone to error. In the case of surveys, four major problems arise. Some respondents will not be at home and must be re-contacted or replaced. Other respondents will refuse to cooperate. Still others will give biased or dishonest answers. Finally, some interviewers will be biased or dishonest. Step 4: Analyze the information This step in the process is aimed to extract findings by tabulating the data & developing frequency distributions. Step 5: Present the findings This is the last step where in the researcher presents findings relevant to the major marketing decisions facing management. Research findings only provide additional information & insight to the managers. Depending on their confidence in the findings, managers decide to use it, discard it, or carry out more research. DEMAND MEASUREMENT & FORECASTING One major reason for undertaking marketing research is to identify market opportunities. Once the research is complete, the company must measure & forecast the size, growth, & profit potential of each market opportunity. The measures of market demand: Ways to break down the market: The potential market is the set of customers who profess a sufficient level of interest in a market offer. The available market is the set of consumers who have interest, income, & access to a particular offer. The target market is the part of qualified available market the company decides to pursue. The penetrated market is the set of consumers who are buying the companys product. The major concepts in demand measurement are: Market Demand Market demand for a product is the total volume that would be bought by a defined customer group in a defined geographical area in a defined time period in a defined marketing environment under a defined marketing program.
13

MARKETING MANAGEMENT

UNIT 2

Marketing expenditures beyond a certain level would not stimulate much further demand, thus suggesting an upper limit to market demand called the market potential

Market Forecast Only one level of industry marketing expenditure will actually occur. The market demand corresponding to this level is called the market forecast. Company Demand Company demand is the companys estimated share of market demand at alternative levels of company marketing effort in a given time period. The company sales forecast is the expected level of company sales based on a chosen marketing plan and an assumed marketing environment. A sales quota is the sales goal set for a product line, company division, or sales representative. A sales budget is a conservative estimate of the expected volume of sales and is used primarily for making current purchasing, production, and cash flow decisions. Company Sales Potential Company sales potential is the sales limit approached by company demand as company marketing effort increases relative to competitors. Total Market Potential Total market potential is the maximum amount of sales that might be available to all the firms in an industry during a given period under a given level of industry marketing effort and given environmental conditions. Area Market Potential Companies face the problem of selecting the best territories and allocating their marketing budget optimally among these territories. Therefore, they need to estimate the market potential of different cities, states, and nations. Industry sales & market shares Apart from estimating total potential & area potential, a company needs to know the actual industry sales taking place in a market. This requires identifying competitors & estimating their sales. The company can then compare & evaluate its performance vis-a-vis the competition. Estimating future demand In estimating future demand, all forecasts are built on one of the three information basis: what people say, what people s do, or what people have done. The first basis- what people say14

MARKETING MANAGEMENT

UNIT 2

involves surveying the opinions of buyers or those close to them, such as salespeople or outside experts. It includes three methods: survey of buyers intentions, composites of sales force opinions, & expert opinion. Building a forecast on what people do involves another methodputting the product into a test market to measure buyer response. The final basis- what people have done- involves analyzing records of past buying behavior or using time series analysis or statistical demand analysis. Survey of buyers intentions Forecasting is an art of anticipating what buyers are likely to do under a given set of conditions. Because buyer behavior is so important, buyers should be surveyed. Composite of sales force opinions When the interviewing is impractical, the task is on the sales force to estimate the future sales. Each sales representative estimates how mush each current & prospective customer will buy of each of the companys products. Expert opinion Companies can also obtain forecasts from experts, including dealers, distributors, suppliers, marketing consultants, & trade associations. Occasionally, companies will invite a group of experts to prepare a forecast. The experts exchange views & produce a group estimate (group discussion method); or the experts supply their estimates individually, and an analyst combines them into a single estimate (pooling of individual estimates). Alternatively the experts supply individual estimates & assumptions that are reviewed by the company, and then revised. Further rounds of estimating & refining follow (Delphi method). Past-Sales Analysis Sales forecasts can be developed on the basis of past sales. Time-series analysis consists of breaking down past time series into four components (trend, cycle, seasonal, and erratic) and projecting these components into the future. Exponential smoothing consists of projecting the next periods sales by combining an average of past sales and the most recent sales, giving more weight to the latter. Statistical demand analysis consists of measuring the impact level of each of a set of causal factors (e.g., income, marketing expenditures, price) on the sales level. Finally, econometric analysis consists of building sets of equations that describe a system and proceeding to fit the parameters statistically. Market-Test Method

15

MARKETING MANAGEMENT

UNIT 2

Where buyers do not plan their purchases carefully or experts are not available or reliable, a direct market test is desirable. A direct market test is especially desirable in forecasting newproduct sales or established product sales in a new distribution channel or territory.

CUSTOMER DATABASE & DATABASE MARKETING A customer database is an organized collection of comprehensive information about individual customers or prospects that is current, accessible, & actionable for such marketing purposes as lead generation, lead qualification, sale of a product or service, or maintenance of customer relationship. Database marketing is the process of building, maintaining, & using customer databases & other databases (products, suppliers, resellers) to contact, transact, & build customer relationships. Data warehouse A data warehouse (DW) is a database used for reporting. The data is uploaded from the operational systems for reporting. A data warehouse maintains its functions in three layers: staging, integration, and access. Staging is used to store raw data for use by developers (analysis and support). The integration layer is used to integrate data and to have a level of abstraction from users. The access layer is for getting data out for users. This definition of the data warehouse focuses on data storage. The main source of the data is cleaned, transformed, catalogued and made available for use by managers for data mining, market research and decision support. Data mart A data mart (DM) is the access layer of the data warehouse (DW) environment that is used to get data out to the users. The DM is a subset of the DW, usually oriented to a specific business line or team. Data Mining Data mining is the process of analyzing data from different perspectives and summarizing it into useful information - information that can be used to increase revenue, cuts costs, or both. Data mining software is one of a number of analytical tools for analyzing data. It allows users to analyze data from many different dimensions or angles, categorize it, and summarize the relationships identified.

16