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24108 Marketing Foundations

1. Introduction to Marketing and the Marketing Environment


What is marketing?
The activity, set of institutions, and processes for creating, communicating,
delivering and exchanging offers that have value for customers, clients, partners and
society at large
Marketers need to learn what customers, clients, partners and society want
Marketers use information, develop new ideas and offer something unique/special
Ongoing process
Why study marketing?
Market orientation firms have better performance
o Better profits, sales volume, market share, return on investment
Marketing drives economic growth/stimulates consumer demand
Every employee is a stakeholder in the success of their organisation
The Marketing Evolution
Changed from:
o Trade
o Production orientation
o Sales orientation (e.g. black vs. blue)
o Market orientation (i.e. what colour do you want, and matching the product)
o Societal market orientation (e.g. to stop consumerism)
Used by small and large, those selling goods and services, private, public, profit and
non-for-profit
Marketing Exchange
Mutually beneficial transfer of offerings of value between buyer and seller
o Two or more parties, each with something of value
o All must benefit
o Exchange must meet expectations of both parties
What is value?
A customers overall assessment of the utility of an offering based on perception of
what is received and given
Refers to the total offering
What is the market?
Group of customers with heterogeneous (different) needs and wants (e.g. geographic,
demographic, product markets)
o Customers
o Consumers
o Clients (customers of non-for-profit)
o Partners (all who are involved in activities of exchange process)

o Society
Stakeholders
Individuals, organisations and groups with a rightful interest in the activities of a
business
o Owners
o Employees
o Customers (and clients)
o Partners
o Government
Ethics and Corporate Social Responsibility
Ethics are a set of moral principles that guide attitudes/behaviour
Law and regulatory bodies govern the conduct of individuals/organisations
Corporate social responsibility are businesses with the obligation to act in the interests
of the societies that sustain them
o Trade Practices Act, ACCC
The Marketing Mix
Set of variables a marketer can exercise control over in creating an offering for
exchange

o 4Ps: Product, Price, Promotion, Place


o Services Marketing Mix: People, Process, Physical Evidence
The Marketing Mix: Product
Product: good/service/idea offered to the market for exchange
Demand: want the customer has the ability to satisfy
Brand: collection of symbols creating a differentiated image
Good: physical offering capable of being delivered
Service: intangible offering that does not involve ownership
The Marketing Mix: Price
Price: amount of money a business demands in exchange for its offering
Willingness to pay: prepared to give in return for what they get
Must consider:
o Production, communication and distribution costs
o Required profitability
o Partners requirements
o Competitors prices
The Marketing Mix: Place
Distribution: making the offering available to the customer at the right time/place
Logistics: concerned with supply/transport
Supply chain: parties involved in providing all raw materials/services to get a product
into the market
The Marketing Mix: Promotion

Promotion: activities that make potential customers/partners/society aware of and


attracted to the businesses offering
Examples:
o Advertising
o Loyalty scheme
o Sales promotion
o Product trials
Product may be already established, modified, new, or a form of
information/education

The Marketing Environment


All of the internal and external forces that affect a marketers ability to create,
communicate, deliver and exchange offerings of value
Environmental analysis is breaking the marketing environment into smaller parts to
gain a better understanding

Internal
The parts of the organisation, the people and the processes used to create,
communicate, deliver and exchange offerings that have value

Can be directly controlled


Measured by strengths and weaknesses

External
The people and processes that are outside the organisation and cannot be directly
controlled, only influenced
Such as when outsourcing (transferring internal function to external provider)
Measured as opportunities and threats
The external environment includes:
o Micro-Environment
Forces within an organisations industry that affects its ability to serve
customers/clients
Customers and clients, marketers need to understand current
and future needs
Partners e.g. logistics firms, financers, advertising agencies,
suppliers
Competitors
Not directly controllable
o Macro-Environment

PESTL: political, economic, sociocultural,


technological, legal

Political e.g. effect of political issues on marketing


Economic e.g. prices, level of savings/debt, availability of
credit
Social and cultural affect attitudes, beliefs, behaviours,
preferences, customs and lifestyle and can be influenced by
demographics
Technology changes expectations/behaviours and affects how
suppliers work
Legal such as enacted legislation and regulations governing
what marketing can/cant do e.g. fair trading, consumer safety,
prices, intellectual property

Situational Analysis and Marketing Planning


Situational analysis identifies key factors that will be used as a basis for the
development of marketing strategy
o Return on investment, customer satisfaction, market share, brand equity (%s
and information)
o SWOT analysis
Marketing planning is an ongoing process that combines organisation objectives and
situational analyses to formulate and maintain a marketing plan that moves the
organisation to where it wants to be
o Executive summary, introduction, situational analysis, objectives, target
market, marketing mix strategy, budget, implantation, evaluation, future
recommendations

2. Market Research

What is market research?


Business activity that discovers information of use in making marketing decisions
o Understand (market research i.e. willingness to pay), create (product),
communicate (promotion), deliver (place)
Informs about different types of decisions e.g. market segmentation, sales
performance, attitudes and behaviours, 4ps
Begins with an issue, discovers information, allows informed decisions about how to
report and ultimately results in outcomes that match the marketing goals
Involves:
o Defining research problem
Question that research intends to answer
Clearly specified problem
o Designing research method
Need to create a market research brief
Brief is a set of instructions/requirements that states the problem,
information required and specifies budget/time frame etc.
Generally includes executive summary, introduction, background,
problem definition, time and budget, reporting schedule, appendices
o Collecting data
Research design is methodology created to guide project
Hypothesis is tentative explanation that can be tested
Types of research include:
Exploratory research: loosely defined e.g. focus groups
Descriptive research: solves particular e.g. 90% of customers
are 60 and older
Causal research: assumes variables affect outcome e.g.
relation
Types of data include:
Secondary: originally gathered for another purpose
Primary: specifically for current project
Data mining: processing large data sets to find patterns
Qualitative: numerical e.g. surveys
Qualitative: rich, deep and detailed information about attitudes
and emotions e.g. interview/focus group
This process may include sampling
Probability sampling: every member of the population has a
known chance of being selected
Non-probability sampling: no way of knowing the chance of
a particular member
Sampling error: measure of extent to which results from
sample differ from population
o Analysing and drawing conclusions
Must be collecting according to methods in research design
Can be conducted in-house or outsourced
Data analysis involves filtering and organising data

Quantitative analysis: converts numerical data into knowledge


to be used for decision making
Qualitative analysis: reductions and coding used to interpret
non-numerical data
o Presenting results and making recommendations
Written research report should include cover page/executive summary,
contents, background, methodology/findings, statement of limitations,
conclusions, recommendations and appendices
Results in decisions that take the form of marketing plans/strategies
Essential to understand market
However, before undertaking you need to consider:
o Relevance
o Timing
o Availability of resources
o Need for new information
o Cost-benefit analysis
o Ethics
Only valuable if it contributes to improved performance

3. Consumer behaviour
What is consumer behaviour?
Analysis of behaviour of individuals/households who buy g/s for personal
consumption
Consumers make decisions along a continuum
o Habitual decision making extended decision-making
One we know our target market we want to work out:
o Why they behaviour in a certain way?
o Whey that have preference for particular brands?
Influences on consumer behaviour
Situational
Group
Physical location
Social interaction
Time available
Purchase
motivation
Mood

Cultural
Culture
Subcultural
Social class

Social
Reference
groups
Family
Roles and status

Individual
(independent of social circumstances)
Personal
Psychological
Demographics
Motivation
e.g. age,
Perception
occupation,
Beliefs and attitudes
income
Lifestyle

Group influences - Cultural factors


Influences on behaviours that operate at the level of the whole society, or major
groups within society
Culture and sub culture
Culture is a system of knowledge, beliefs, values and rituals by which a society/other
large group defines itself

o Includes tangible and intangible e.g. clothing, food, laws, customs


Examples of influences:
o Power distance i.e. degree of acceptable inequality within culture
o Uncertainty avoidance
o Individualism
o Masculinity (now known as nurturing)
o Long-term orientation
Sub culture is groups of individuals who share common attitudes, value and
behaviours that distinguish them for the broader culture in which they are immersed

Social class
Individuals of similar rank within social hierarchy
Defined by values and lifestyles
Indicators include income, occupation and education
Group influences - Social influences
Influences on the individual to behave in a way that reflects group norms
Reference groups
Any group to which an individual looks for guidance
o Membership reference groups: groups the individual belongs to
o Aspiration reference groups: would like to belong
o Dissociative reference groups: does not wish to belong
Opinion leader is reference group member who provides relevant and influential
advice about a specific topic of interest to group members
Family
Family life cycle is series of characteristic stages most families pass through
Family decision-making roles is differing responsibilities for specific types of
decisions
Pester power is influence of children on parents purchasing decisions
Role and status
Individuals play a number of roles with complex set of expectations
o Parents, child, neighbour, employee, employer, customer, friend
Influence of status lies in perceived status of individual
o Criteria such as formal role, age, social popularity, technical competence
Individual influences - Personal
Demographic, lifestyle and personality factors that influence consumer behaviour
Demographics
Vital and social characteristics of populations e.g. age, education
Lifestyle
Involves how an individual spends their time/interacts with others

Personality
Unique set of psychological characteristics and behavioural tendencies that
characterise an individual
o Combination of genetics and experiences
Individual influences Psychological
Internal factors, independent of situational or social circumstances, that shape
thinking, aspirations, expectations and behaviours
Motivation
Drive to satisfy unfulfilled needs or achieve goals
Maslows hierarchy of needs
Suggests people seek to satisfy needs according to hierarchy that places low order
biogenic before higher order psychogenic needs
o Physiological (hunger/thirst), safety, love/belongingness, esteem, selfactualisation
Perception
Psychological process that filters, organises and attributes meaning
o Selective exposure, attention, distortion, retention
Beliefs
Descriptive of evaluative thoughts that an individual holds regarding their knowledge
of a person, idea or product
May be based on objective knowledge, opinions or faith
Attitudes
Individuals relatively stable and consistent thoughts, feelings and behaviours towards
an object/idea
Learning theories
Behavioural learning theory: stresses role of experience and repetition
o Relevant in low involvement purchases
Cognitive learning theory: learning takes place through rational problem solving,
emphasising acquisition and processing of new information
o Relevant in high involvement purchasing decisions
Types of consumer decision making
Habitual: low engagement, small, routine, low-risk products
Limited: infrequently bought but familiar products
Extended decision making: high engagement, high price, high-risk and/or infrequent
and unfamiliar products
Consumer decision making steps
Need/want recognition
o Become aware of unsatisfied wants/needs
o Marketer stimulates/creates awareness of new need/want

Information search
o Seeks information from sources about how to solve the problem
Evaluation of opinions
o Develop evaluation criteria, rank alternatives, consider not purchasing/other
uses of money
Purchase
o Choose product and brands, decide to purchase or not to purchase, purchase
Post-purchase evaluation
o Continue to evaluate product, deal with post-purchase cognitive dissonance,
assess attitude towards product/bank/seller in relation to future purchases
Cognitive dissonance: when purchaser has second thoughts or doubts

4. Business Buying Behaviour: Business-to-business


Product
Parts and materials
Equipment (capital and accessory used in production)
Supplies and services
Business markets
Individuals or organisations that purchase products for resale, use in production of
other products, or for use in their daily business operations
Compromise four major categories:
Reseller markets
Producer markets
Government markets
Institutional markets
Intermediaries that buy
Organisations and
Governments that buy/sell
Not-for-profit
products in order to
professionals who
products to provide services organisations and
sell/lease them to another
purchase products for use
for their citizens
these organisations
party for profit
in the production of other
compete for market
products or in daily
share
business operations
Wholesalers
(sell to other
intermediaries)

Industrial
distributors
(sell to
organisational
buyers)

Primary
industries
(agriculture
or mining)

Secondary
industries
(manufacturing)

Retailers
Retailers
N.B Retailers sell to consumers

Federal
(Commonwealth)

State
(provincial)

Local (municipal)

Charities

Religious
organisations

Clubs

Marketing to business customers


High-value purchases
High-volume purchases (common in reseller market and somewhat in producer as you
can negotiate volume discounts)
Price competition and negotiation
Number of (fewer) buyers and sellers
Formal assessment of purchase of alternatives
Ongoing relationships

Characteristics of business demand


Derived demand
Businesses tend not to adjust consumption in relation to price changes
o They pass costs on to customer or look for substitute products
Demand is more likely to be affected by a change in demand due to the end consumer
o Derived demand has a snowball effect at all levels of the value chain
Business customers make purchase decisions infrequently and based on expectations
of long-run demand, resulting in demand that fluctuates more so than in consumer
markets
Joint demand
Interdependent demand for multiple products that are used together in the product of
another product
o E.g. when purchasing an MRI, will try to secure maintenance and supplies
contracts
Price and demand
In many parts of the business market, demand is inelastic
Generally speaking, industry demand tends to be price inelastic in business markets,
while company demand can be highly elastic
Business market segmentation
Markets characterised by small number of buyers with close relationship to seller
Customised or one-to-one marketing is a good approach to use
Business marketers isolate business customers by using commercial industrial
directories that contain detailed information on companies
Business buying behaviour
Straight rebuy: low engagement of same products, established terms, efficient and
convenient, reliable source of income for suppliers
Modified rebuy: similar but not identical after evaluating a small range of
alternatives
New task purchase: first purchase in product category in response to a new
problem/process/product, extended information search
Purchasing decisions
Purchasing decisions usually involve:
o Negotiation (not just price but supply agreements and volumes)
o Description (technical specifications)
o Inspection
o Sampling
Buying centre is group/structure with the organisations that make buying decisions
including:
o Initiators
o Users (evaluate product performance)
o Influencers (technical experts)
o Deciders

o Buyers
o Gatekeepers (control relevant information)
Steps in the decision making process
Problem/need recognition
o Initiator becomes aware of a problem/unsatisfied need
o External party creates a new problem or need
Information search and specification development
o Seek information about the problem and possible solutions
o Develop product specification to describe the features required of the solution
Evaluation of options
o Identify potential vendors and invite proposals
o Analyse and evaluate each characteristics of the proposed solution/each
potential vendor
Purchase
o Choose one or more suppliers based on evolution of solutions/vendors
o Decide to purchase (or not to), purchase
Post-purchase evaluation
o Evaluate product/suppliers and assess attitude in relation to future purchases
Factors
External environmental factors: macro-environment (PESTL) and microenvironmental (industry, customers, competitive situation) which are not directly
controllable
Internal environmental factors: explain why each organisations makes purchasing
decisions
o Nature of the organisations (size, location, objectives, resources)
o Organisational structure (how responsibility/authority is arranged)
o Individuals within the organisation (personal characteristics)
5.

Markets: Segmentation, Targeting and Positioning

The market
Groups of customers with heterogeneous needs and wants
Markets can have a variety of characteristics:
o Common wants, needs and demands
o Unique wants, needs and demands
o Contains subgroups
Market segments are subgroups within the total market that are relatively similar in
regards to certain characteristics
What is targeting marketing?
An approach to marketing based on identifying, understand and developing an
offering for those segments of the total market that the organisation can best serve

Mass marketing
A single product will meet the needs of most people in the market (undifferentiated
approach)
Producing large volumes at a lower cost per unit makes it possible to sell at a lower
price and capture very large markets
One-to-one marketing
Unique, customised offering to meet individual needs
Results in higher unit costs and a more restricted market
Differentiated targeting strategy (in between mass and one-to-one)
Developing a different marketing mix for each target market segment
o Product specialisation: concentrated on offering a single product range to a
number of marketing segments e.g. barcode scanner
o Market specialisation: focused on meeting a wide range of needs within a
particular market segment e.g. travel agent
o Product-market specialisation: offering a single product to a single market
segment
Entails high costs and therefore to achieve high profits it requires higher retail prices,
higher market share and strong customer loyalty
The target marketing process

Market segmentation Stage 1 of the diagram


Segmentation variables: characteristics that buyers have in common and that might
be closely related to their purchasing behaviours
These variables fall into four broad categories:
Demographic (most
Geographic
Psychographic
Behavioural
commonly used)
Age, education,
Climate, local
Lifestyle, motivates,
Based on actual
income
population, market
personality attributes, purchase and/or
density, region,
based on how you live consumption
topography, urban vs. your life reflected in
behaviours e.g. brand
suburban
hobbies and choice of loyalty, occasion,
entertainment
price sensitivity,
volume usage
Effective segmentation involves:
o Measurability
o Accessibility
o Substantiality (at least 100)
o Practicability
o Stability (stays long enough to produce results)
Market segment profile: description of the typical potential customer in the market
segment
Marketing targeting Stage 2 of the diagram
This involves the selection of target markets resulting from an evaluation of identified
market segments
Potential is influenced by the market potential, level of marketing activity in the
industry and the effectiveness of an organisations promotional spending

o Market potential: total sales of a product category that all organisations in an


industry are expected to sell in a specified period of time, assuming a specific
level of marketing activity
Sales revenue: total volume of sales average selling price
Market share: proportion of the total market share held by
organisation
o Company sales potential: estimate of the maximum sales revenue and market
share that an organisation can expect to achieve for a specific product

Market positioning Stage 3 of the diagram


The way in which the target market segments perceives an organisations offering in
relation to competing offerings
o Company positioning: designed to create a single market perception of the
entire organisation in relation to its competitors
o Brand positioning: designed to create a market perception of a particular
brand, usually based on product attributes

6. Product
Definitions
Product: good/service offered to the market for exchange
Service: intangible offering that does not involve ownership
Good: physical (tangible) offering capable of being delivery to a customer
Idea: concept, issue or philosophy offered to the market
Product item: particular version of a product
Product line: set of product items related by characteristics e.g. end use, target
market, technology or raw materials
Product mix: set of all products that an organisation makes available to customers
Product: Consumer vs. B-to-B
Consumer products: purchased by households/individuals for private consumption
Business to business products: purchased by individuals/organisations for use in
production or for daily business operations
Consumer product classifications
Shopping products: moderate to high engagement with purchase based on
consideration of features, quality and price e.g. washing machine
Convenience products (fast-moving consumer goods): little engagement,
inexpensive, frequently purchased
Speciality products: highly desired with unique characteristics that consumers will
go to considerable effort to obtain e.g. Ferrari
Unsought products: purchased to solve a sudden, unexpected need
B-to-B product Classifications
Parts and materials: products that form part of the purchasing businesss products
Equipment: capital equipment and accessory equipment used in the production of
businesss products

Services and suppliers: products that are essential to the business operations but do
not directly form part of the production process

Total product concept


To understand how the products value is perceived by customers, it is useful to
describe it in four levels:
o Core product (fundamental benefit)
o Expected product (attributes that deliver that benefit)
o Augmented product (bundle of benefits that buyer may not require)
o Potential product (possibilities that could become a part of total product)
The Product Life Cycle (PLC)
Typical stages:
o New product development
Idea generation
Screening
Concept evaluation
Marketing strategy
Business analysis
Product development
Test marketing
Commercialisation (not all products make it to the market)
o Introduction (see production adoption process)
o Growth
o Maturity
o Decline

Product Adoption
Product Adoption Process
Awareness
o Consumer becomes aware of the product but knows little about the product
Interest
o Experiences interest in the product and seeks information to learn more
Evaluation
o Consumer evaluates information and decides whether or not to try
Trial
o Examines and tries out the product and decides if it will satisfy a need/want
Adoption
o Decides to purchase the product and evaluates whether it will re-purchase
The diffusion of innovation
Theory that social groups influence the decisions made by individuals in such a way
that innovations are adopted by the market in a predictable pattern overtime

Product differentiation
Creation of products and product attributes that distinguish it from one another
o Characteristics perceived by customers such as design, brand, image, style,
quality
Branding
Brand: a collection of symbols to create an image in a customers mind
Brand image: the set of beliefs that a consumer has regarding a particular brand
Brand name: part of a brand that can be spoken (including numbers, words, letters)
Brand mark: part of a brand not made up of words (often symbols of designs)
Trade mark: brand name or brank mark that has been legally registered so as to
secure exclusive use of the brand
Brand equity: added value that a brand gives a product
Brand loyalty: customers favourable attitude/purchasing behaviour towards a brand

Brand metrics: measure of the value of a brand e.g. brand assets, stock price
analysis
Brand strategies include:
o Individual branding: approach where each product is branded separately
o Family branding: uses the same brand for many of the organisations products
o Brand extension: giving an existing brand name to a new product in a
different category
Brand ownership includes:
o Manufacturer brands: brands owned by producers and clearly identified
with the product at the point of sale
o Private label brands: brands owned by resellers and not identified with
manufacturer
o Generic brands: products that only indicate product category
o Licensing: brand owner permits another party to use the brand on its products
o Franchising: agreement to establish a business model
o Co-branding: use of two or more brand names on the same product

Packaging
Primary packaging: holds the actual product
Secondary packaging: material used to hold or protect the product (removed or
discarded after purchase)
Shipping package: used to carry out of the factory and through distribution channel
Labelling: usually forms part of the packaging and provides promotion, legal and
other information
Compulsory label information can include:
o Brand name/logo
o Product name
o Ingredients list
o Use-by-date or date of packaging
o Barcode
Existing product expansion
Line extensions: new products that are closely related to existing products in a
product line
Product modifications: changes to the characteristics of a product e.g. functionality,
quality, aesthetics
Product positioning
The way in which the market perceives a product in relation to competing offerings
Product deletion: process of removing a product from the product mix
The role of law
Marketing law is regulations that draw the line between acceptable competitive
business conduct and unacceptable business practices
Designed to protect consumers, traders and the competitive system that underpins the
free market
Example of marketing laws:

o Competition and Consumer Act 2000: provides protection for consumers and
prevents some restrictive trade practices of companies
o Australian Consumer Law: uniform legislation for consumer protection
Product Laws
Intellectual property laws:
o Covers patents, trademarks, registering designs and copyright
Packaging/labelling laws
o Designed to standardise information and protect against misleading
information e.g. weight, contents of food, ingredients
Common law protection and statutory protection
o Statutory protection:
Australian Consumer Law
Misleading and deceptive conduct
Unfair trade practices
Product safety and information standards
Trade Measurement Legislation
National Measurements Act 1960 (Commonwealth)
Product liability laws
o Minimum acceptable product safety and quality standards e.g. food hygiene
regulations, manufacture liability for defective/negligent products

7. Pricing
What is price?
Measure of value to both buyers and sellers
o Buyers see are measure of benefit
o Sellers need prices to cover cost/generate profit
Price is a determinant of sales volumes
o Sales volume influences cost
Price is directly related to profitability
o Profit = ($ sales volume) total costs

Profits are when total revenues > total costs, i.e. prices must exceed costs
Return on investment is profit required to justify investment in a project

Pricing objectives
Objectives should be SMART
o Specific, measureable, actionable, reasonable, timetabled
Objectives focus on:
o Profitability
o Long-term prosperity
o Market share
o Positioning
Not-for-profit pricing
Do not seek to make profits

Objectives include:
o Generating funds to sustain activities
o Making products/activities appealing to a target market
o Encouraging change in attitude/behaviour amongst market

The legal environment and pricing


The legal environmental includes areas subject to restrictions
o Essential services
o Misleading/deceptive conduct
o Price collusion
o Price discrimination
o Comparability and clarity of pricing
Governments can intervene to control prices e.g. medical care
Trade Practices Act Australia and Fair Trading Act (NZ) prohibit deceptive
advertising
Price laws
Protect against:
o Price fixing
o Price discrimination (different prices to different customers)
o Predatory pricing (selling below cost for extended period)
o Resale price maintenance (recommended retail price)
Price surveillance
The ACCC:
o Holds inquiries into the supply of specified g/s
o Monitors price, cost and profits of any industry/business
Selecting the best pricing method
Should be based on understanding of the customer
Should reflect the value of the product
Important to consider internal and external environment
Need to:
o Appeal to target customers
o Yield acceptable profit margins
o Provide a competitive market offer
Pricing can be based upon:
o Demand
o Costs (including profits and margins)
o Competition

Demand considerations

Demand-based pricing sets prices based on demand


o Success depends on organisations ability to predict fluctuations in demand
o Price elasticity is sensitivity of quantity demanded to price changes
Q/ P

Elastic means % change in Q > % change in $ e.g. luxury goods


Inelastic means % change in Q < % change in $ e.g. necessities
Innovation can also increase demand

Cost considerations
Cost mix includes:
o Fixed
o Variable
o Marginal costs (expressed in cost per extra unit of production)
o Shared (cost shared across products)
Pricing methods and strategies
Price floor
Minimum price to cover costs
o Cannot maintain this approach
o Low prices generate high sales volume
o However, may conflict with high-quality/differentiated positioning
Price leader
High-volume product priced near cost to attract customers into the store
Expected they will buy other, normally priced products
Loss leader
High-volume product priced below cost to attract customers into the store
Expected they will buy other, normally priced products

Cost and revenue analysis


Break even analysis
Designed to estimate the volume of unit sales required to cover total costs
Importance to test price and volume sensitivity
Contribution margin is the difference between the price and the variable cost per unit
Marginal analysis
Analysis to determine the effect on costs/revenue when an organisation produces/sells
one more unit of product
o Must be examined in terms of:
Average cost (total cost divided by volume of production)
Marginal cost (cost to product and sell one more)
Average revenue
Marginal revenue
Cost-based pricing
Approach to pricing in which a % or dollar amount is added to the cost of the product
in order to determine its selling price
o Cost-price plus mark-up price

Competition based pricing

Approach to pricing based on the prices charged by competitors or likely response of


competitors
Undesirable unless seller has cost advantage from:
o Economies of scale (amount produced increases, cost to produce decreases)
o Low-cost production
This can result in price volatility e.g. petrol, or price wars
In developed countries, long-term price competition creates oligopolies
o Oligopoly: market dominated by small number of suppliers
o Monopoly: one supplier who can determine price
o Perfect competition: number of buyers/sellers with undifferentiated products
o Monopolistic competition: numerous competitors whose offers are different

Non-price competition
Approach to competition based on factors other than price e.g. promotion/distribution
o Organisations must differentiate by product attributes
o Can build loyalty which insulate organisation from competitor price offers
Business-to-business pricing
Overview of B2B relationships
Business market involves purchasing products for use in production of others
products, for resale or for daily use in business
Involves relationship between suppliers and organisational buyers
Need to be close, long-term and formal
More complex
Pricing methods
Discounts:
o Reduction in price in return for another benefit e.g. cash, seasonal, quantity
Geographic pricing:
o Include price differentials based on those costs that vary with distance
o E.g. freight on board destination price (seller has built in transport costs), or
freight on board origin price (price excludes delivery cost)
Price management
Purchasing behaviour is usually rational evaluation of value
Relative importance of price varies between individuals, market segments and product
categories
Perceptions of vary with time (especially over economic cycles)
Buyer sensitivity price falls into:
o Value-conscious
o Price-conscious
o Prestige-sensitive
Examples of managing perceptions of value and price
Approach
Description
Example
Advantages
Multiple-unit
Multiple units of a
Ice creams in six Save by buying
pricing
product are sold for a
packs
a low unit price,

Disadvantages
Margin per product
may be lower

single price, usually


Wine and beer
higher aggregate
significantly lower per
are per case or
sales,
unit than the individual per carton
consumption
price
may increase
Bundle pricing Selling a combination
Fast food meal Extra value is
Undermine price of
of complementary
deals
offered, increase unbundled products
products for a single
of overall sale
price
Odd-even
Pricing based on theory $6.95 movies
Manages
Inconclusive
pricing
that odd prices are
customers
research on success
perceived as cheaper
perceptions
Reference
Pricing a product at a
Upsize deals
May choose to
Criticism from
pricing
moderate level and
trade up
health groups
positioning it next to a
more expensive model
Product-line
Approach that sets prices for groups of products in a product line, rather than
pricing
individual products
Penetration
Pricing tactic based on setting a lower price in order to gain rapid market share and
pricing
turnover for a new product
Price
Charging the highest price that customers who most desire the product are willing to
skimming
pay, and then lowering the price to bring a larger number of buyers
Pricing management and pricing established products definitions
Internal reference price: price expected by consumers, largely based upon actual
experience
External reference price: price comparison provided by manufacturer/retailer
Differential pricing: the practice of charging different buyers different prices for the
same product
Promotional pricing: combination of pricing approach with promotional campaign,
includes price leader (and loss leader), comparison discounting and special-event
pricing

8. Promotion
What is promotion?
Marketing activities that make potential customers, partners and society aware of and
attracted to the businesss offerings
o Marketing communication (a term for promotion) refers to communicating a
message to the market place
Objectives of promotion
To support the organisations overall marketing objectives
To demonstrates features/benefits
To encourage product trial and create demand
To reinforce the product or brand and encourage repeat purchase
To increase support offered by retailers

To increase awareness about and goodwill for the organisation (cause-related


marketing)

Integrated marketing communications (IMC)


The coordination of promotional efforts to maximise the communication effort
Large promotion budgets usually use multiple strategies
The best promotion mix will change over time
The promotion mix
Advertising
Transmission of paid messages about organisation, brand or product to mass audience
o Competitive advertising promotes features/benefits relative to competing
products
o Comparative advertising uses advertising to directly compare a product
against competing
Benefit: reaches many at a low cost
o Limitation: difficult to measure effectiveness
Creating an advertising campaign involves:
1. Understanding the market environment
2. Knowing target market
3. Setting specific objectives
4. Creating message strategy
5. Allocating resources
6. Selecting media
7. Producing advertisement
8. Placing advertisement
9. Evaluating campaign
Public relations
Promotional efforts are designed to build and sustain good relations between
organisation and stakeholders
o Publicity is unpaid exposure in the media
o Sponsorship is a paid association with an event or person
o Written communication with stakeholders e.g. annual reports
o Involvement in charitable donations/acts
PR needs to generate good public relations but also be reactive to negative publicity
Benefit: increased credibility, resulting word of mouth, low or no cost and an effective
way to combat negative perceptions
Limitation: to be effective, they need to be timely, engaging, accurate and in public
interest
Sales promotion
Offers of extra value to resellers, sales people and consumers in a bid to increase sales
o Free samples
o Premium offers as a bonus for purchases
o Loyalty programs
o Contests to promote benefits and build a database
o Coupons that offer a discounted price

o Discounts
o Rebates are return of some of purchase price upon presentation of proof of
purchase
o Point of purchase promotions including in-store signage/display, free
product trials or demonstrations in store
o Event sponsorship e.g. exclusive merchandise deal
Trade sales promotion presents products to business customers and stimulated the
products movement through the market channel
o Conventions and trade shows
o Sales contest for marketing intermediaries
o Gifts and premium money
o Trade allowances
o Cooperative advertising
o Dealer listings
Benefit: can be used irregularly to smooth demand
Limitation: can lose effectiveness if overused, easily copied and the public become
increasingly cynical about product value

Personal selling
Efforts that seek to persuade consumer to buy products
o Mainly used for expensive, high-involvement or industrial products
o System involves: information, needs, product, leverage, commitment/close,
follow up
o Good sales people are: committed, enthusiastic, persuasive, self-confident,
have good listening skills, self-motivated
Benefit: can be tailored to specific individuals
Limitations: expensive, limited reach, labour intensive and time consuming
Additional forms of marketing
Ambush marketing: presentation of messages at an event that is sponsored by an
unrelated business or competitor (however, need to assess risk)
Product placement: in movies, videos, songs, books
A plug: media overtly promoted a product within the program rather than separately
Guerrilla marketing: aggressive/unconventional
Viral marketing: social networks to spread
Permission marketing: aims to build an ongoing relationship with customer
Sponsorship: paid association
o However, need to consider media fragmentation, consumer cynicism, social
consciousness and environmental awareness
Push and pull policies
Push: product is promoted to the next institution in the marketing channel
Pull: product is promoted to consumers to create demand through the marketing
channel
Statutory regulation of advertising
Australian Consumer Law

ACL Section 18: prohibition on misleading and deceptive conduct or conduct likely to
mislead and deceive by persons engaged in trading or commerce
o E.g. comparative advertising, use of celebrities, similar or identical brands

The common law and advertising


Law of contract
Law of torts e.g. tort of deceit, negligence, injurious falsehood, passing off,
defamation
Right of privacy
Right of publicity

9. Placement/Distributions
Marketing channels
Marketing intermediaries: individuals/organisations that act in the distribution chain
between the producers and end user
Distribution channel: the group of individuals/organisation directing products from
producers to end users
Effective intermediaries in marketing channels achieve the following:
o Time utility: available at the time when wanted
o Place utility: available in the locations wanted
o Form utility: customising products to needs
o Exchange efficiencies: making transactions simple/cheap through efficiency
Decisions take into account nature of product and target market
Generally a choice between:
o Intensive distribution: distributed via every suitable intermediary
o Exclusive distribution: distributed through single intermediary for any given
geographic region
o Selective distribution: distributes products through intermediaries chosen for
some specific reason
Place laws
Prevent suppliers from imposing unreasonable restraints on distributors
o Exclusive dealing: restricting products a distributor may sell
o Territorial restraints: restricting area in which a distributor may operate
o Customer restraints: restricting customers with which a distributor may deal
Consumer product marketing channels

Business to business product marketing channels

Supply-chain management
Managing marketing channels based on ongoing partnerships among marketing
channel members that reduce cost, eliminate redundant processes and develop new
ways to deliver value to customers
o Channel captain: when one member of the marketing channel can exert power
over the ability of others members to achieve goals (known as channel power)
The more parties involved in the marketing channel, the greater potential for conflict
Types of supply-chain management
Horizontal channel integration
o Bringing organisations at the same level of operation under single
management structure e.g. retailer buys out competitor
Vertical channel integration
o Bringing different stages of the marketing channel under single management
structure e.g. wholesalers buy s a retailer of transport business
Vertical marketing system

o Marketing channel in which all stages occur under a single management


structure e.g. Australia Post
Franchising
o Approach to business in which one party licenses the business model

Distribution of goods

Order processing
All activities involved in managing information requires to receive/handle/fill order
Important to minimise cost and ensure customer satisfaction
Inventory management
Managing stocks of products to ensure availability to customers
Important to minimise holding cost e.g. JIT method
Most businesses manage inventory by developing a trigger to reorder
o Could be based on usage rate, safety stock etc.
Warehousing
Enable businesses to hold surplus/safety stock
Becoming obsolete due to increasing link between producers/consumers (from the
internet), demand for customisation and speed of innovation
Variation of a warehouse is a distribution centre
o Focuses on moving rather than storing
o Cross-docking is this process of receiving, assembling into orders and
shipping them with minimum handling

o Materials handling is the physical handling of these goods


Transportation
Freight forwarders are specialist transport companies
o Combine cargo from different business to achieve efficient load sizes
Modes of transport include road, rail, sea, air, pipelines
The role of technology in physical distribution
E-distribution (full implementation of advanced telecommunications technologies) is
replacing the physical distribution process
Radio frequency identification (RFID) is attaching small tags to items/contains to
track movements

Distribution of services

Key differences and similarities between service and physical distribution


o Physical distribution is required for physical inputs used in
producing/delivering the service product
o Some services are delivered using infrastructure
o Service business must ensure labour is available at the right time/in the right
quantities

Retailing
Any exchange in which the buyer is the ultimate consumer of the product (not
reselling/using it in the making of something else)
The retailing strategy
The marketing organisation to decide a suitable approach
Retailer must then decide on location/positioning
o Location (often CBD, free standing, shopping centres etc.) determines:
Determines geographic area customers come from
Proximity to competitors/complementary retailers
Access to parking/transport
o Positioning is important as it:
Identifies gap in the market and targets it by creating a distinguished
feature in the minds of customers
Store image is an important factor to attract customers
Benefits of retailers
Retailers add value for customers and products by creating/providing:
o Time utility (24 hours)
o Place utility (corner store)
o Form utility
o Advice/personal service
o Exchange efficiencies
o Or a mixture of these
Types of retailers

General merchandise retail stores (wide variety)


Speciality retailers (small number, but variety within their line)
Online retailing (via the internet)

Other forms of retailing


Direct marketing (i.e. non store that promotes/sells via mail, telephone or web e.g.
mobile e-commerce)
Door to door selling
Automatic vending

The wheel of retailing theory


Theory about how retailers evolve in the market:
o Retailers enter using innovation with achieves low costs (used for low prices)
o Other new/existing retailers copy and compete directly
o To distinguish, the retailers adds extra services, improves location/store image
which results in higher costs and higher prices
o New retailers enter using new innovation and have to compete with the
original, now high-price retailer
Agents
Marketing intermediaries engaged by buyers/sellers on an ongoing basis to represent
them in negotiations with other parties in the marketing channel
o E.g. manufacturers agents, selling agents, buying agents, commission
merchants
Brokers
Marketing intermediaries engaged by buyers/sellers on a short-term/one-off basis
o E.g. insurance and mortgage brokers, stock brokers
Wholesaling
Exchange in which products are bought for resale, for use as inputs in other products,
or for some other use in business
Major wholesaling functions
Act as a sales force, promoting and selling its products to retailers
Hold/manage inventory, reliving the producers warehousing and transport burden
Assume the risk when retailers are given products on credit
Provide cash flow by paying for/taking possession of inventory shortly after it is
produced
Communicate producer and market issues to retailers
Types of wholesalers
Merchant wholesalers
o Independently owned wholesaling business that take title to products
Full-service: perform all activities
Limited-servicing: specialise in narrow range e.g. cash and carry, truck

Manufacturers wholesalers
o Wholesalers owned by the producer

10.

Services marketing

Service vs. Services


Services are activities, performance or benefits that are offered for sale but which
involve neither an exchange of tangible goods nor a transfer of title
Service is the act of delivery a product involving human, intellectual or mechanical
activity that adds value to the product
Consumer services
Purchased by individual consumers or households for their own private consumption
o E.g. air travel, banking, finance, hairdressing, restaurants
Technological change provides opportunities for service providers e.g. eBay
Business to business services
Purchased by individuals and organisations for use in the production of other products
or for use in daily business operations
The four unique characteristics of services
Intangibility increases customer feelings of uncertainty and risk about purchase
o Use tangible cues e.g. logos or guarantees, testimonials and word-of-mouth

Inseparability of production and consumption mean buyers and sellers of


services are frequently co-producers of the service e.g. Botox
o Need to be concerned with technical skill and customer service delivery e.g.
face-to-face promotes trust
Heterogeneity variations in quality are inevitable
o Can try to develop service delivery systems, manage expectations and invest
heavily in staff training
Perishability means it cannot be used at a later date
o S and D balanced by stimulating/restricting demand and increasing/decreasing
capacity
o If demand fluctuates over time, flexible pricing can be used

The Extended Services Marketing Mix


Traditional 4Ps: product, place, price, promotion
Services Mix 7Ps: process, physical evidence, people
People
Create and deliver the service
Affect value for customer as they are directly involved
Staff are the most controllable factor
o Technical competence
o Ability to deliver high standards of service
o Ability to promote products through personal selling

Process
All of the systems/procedures used to create, communication, deliver and exchange an
offering
o Functional expectations: expectations of the technical delivery
o Customer service expectations: relate to the service experience
Physical evidence
Tangible cues that can be used as a means to evaluate service quality prior to purchase
o Includes architectural design, floor layout, furniture, background music
Service marketing challenges
1. Achieving a sustainable differential advantage
o Services cannot be protected by legal patents
o Innovations are immediately replicated
2. Managing profitable customer relationships
o Professional service provides manage customers as individuals
o Consumer service providers typically provide a standardised offering
o Churn (rate of customer turn over) and the fact that many customers will never
be profitable
3. Deliver consistently high levels of service quality and customer service
o Quality can be examined in different ways:
Search qualities: determined prior to purchase e.g. flight duration
Experience equalities: determined after or during e.g. quality of meal,
speed of cleaning
Credence qualities: characteristics impossible to evaluate e.g. hygiene
in restaurant
o To maintain quality they need to:
Understand customer expectations
Establish service quality standards
Manage customers service expectations
Measure employee performance
Check-list of Service Quality
Dimension of service quality Explanation
Reliability
Consistency and
dependability
Tangibles

Physical evidence

Responsiveness

Willing and able to provide


service

Assurance

Trust and confidence in the

Evaluation criteria
Began on time
Finished on time
Billed correctly
Condition of premises
Presentation of service
provider
Condition of equipment
Enquiries responded to
Service provided promptly
Accommodated urgent needs
Demonstrated knowledge

service provider

Empathy

Care and attentiveness

and skills
Reputation
Personal manner of service
provider
Listened to needs
Cared about customers
interests
Provided personalised
service

Not-to-profit marketing
Marketing activities of individuals and organised designed to achieve objects rather
than generate profits
o Activities of non-for-profits e.g. Red Cross
o Social marketing e.g. anti-smoking campaigns

4. Electronic marketing
Electronic marketing
The activities involved in planning and implementing marketing in the electronic
environment
o Sales of product via e-commerce website
o Texting potential customers
o Emails to participate in surveys
o Discount vouchers on take away websites
Advantages/disadvantages
Advantages
For
Convenience
consumers

For marketing

Access to the entire global market


Reduced cost

Disadvantages
Inability to physically examine
product
Risk of credit card fraud
Lack of personal service
Increased competition
Some target markets have lower
rates of internet access
Consumer concerns about security

Characteristics of e-marketing
Profiling
Getting to know customers/potential customers before they make purchases
Organisations can gather information on customers through:
o Requiring registration to access a website
o Cookies on websites
o Competitions requiring personal information
o Storing information in database
Interaction

Ongoing exchange of information


o Virtual customer service
o Real customer service via online chat
o Email newsletters
o RSS feeds
o Survey participation
o Online communities

Control
The ability of the customer to determine how they interact with the marketing
message and to influence the presentation and content of the marketing message
o Push advertising: sent from the marketer to the customer
o Pull advertising: the customer actively seeks out
Accessibility and comparability
Customers can easily research different options/opinions/reviews
Choice of completing transaction online or in-store
Digitalisation
Ability to deliver a product as information or to present information about a product
digitally
o Some can be completely digitalised e.g. music, others the service cant e.g.
groceries
Electronic marketing methods
Banner advertisements e.g. on newspapers
Pop-up advertisements
Brochure sites
Web 2.0 (or Social Web) i.e. members contribute to build community/content e.g.
Wikipedia, Facebook
Viral marketing i.e. use of social networks to spread message, relying on
forwarding/linking/word-of-mouth
Portal i.e. website acting as a gateway
Search engine optimisation (SEO) i.e. tailoring features to website to achieve best
possible search results
Search engine marketing i.e. paid advertising the appears similar to search result
Email/SMS/MMS marketing
Apps
Ethical and legal issues
Privacy
Misleading of deceptive conduct
Intellectual property issues:
o Copyrights
o Trademarks
o Patents
o Domain names

Registration does not give propriety rights


Party holds a license to use the domain name for specified time
Cyber stuffing
o Embedding of meta tags in a website
Deep hyperlinking
o The practice of linking directly to the contents of another website
SPAM
o Unsolicited commercial electronic messages
o Australian Communications and Media Authority (ACMA) is responsible for
enforcing SPAM Act 2003 (Commonwealth)
Technology burn-out
o Professionals seeking to switch off or unplug

Electronic marketing and marketing strategy


Target markets are extremely diverse
o Can be divided into segments or niches as they would be offline
Customer relationships management (CRM)
o Use information about customers to produce e-marketing experiences that
create, build and sustain relationships
The marketing mix
o Product: only products that can be completely digitalised are suited to online
purchase
o Place: the internet provides a place for customers to compare price and can act
as a distribution platform
o Price: need to find another way to create value as prices are easily compared
o Promotion: internet provides opportunities for promotion, but these are also
available for competitors
Evaluating e-marketing effectiveness
Metric measurements
o Cost per thousand views: number who see it, but not necessarily pay
attention
o Click-through rate: amount of people who actually clicked on it
o Cost per click: dividing the total cost by total number of people who click
o Conversion rate: how many people who clicked through actually completed a
transaction
o Customer acquisition cost: cost associated with acquiring new customer
o Unique visitors: number who have visited the site at least once over a given
period of time
Electronic business
Electronic data interchange
o Comprehensive, secure and real-time data exchange
Intranet
o Internal website for use of staff
Extranet
o Private web site for sharing information securely

5. International marketing
Globalisation
Process through which individuals, organisations and governments become
increasingly interconnected and similar
Barriers have diminished
Greater closeness in terms of trade, finance, living standards and security
Standardisation vs. Customisation
Standardisation: applying a uniform marketing mix across international
modifications to meet local conditions
Customisation: tailoring marketing mix to specific characteristics of each market
Global trade
Large proportion of total production/consumption is sent overseas/sourced from
overseas
Many governments run export promotion programs to help domestic organisations
succeed in international markets
o Australian Trade Commission (Austrade)
o NZ Trade and Enterprise Agency
The international environment
Political forces
Alliances/agreements between countries
o Alliances favour one country which can enhance success but work against
international marketing goals
o Alliances aim to:
Stream line paperwork
Reduce/eliminate trade barriers
Create preferred zones of trade
o Agreements can be bilateral (2) or multilateral
Political factors within target market countries
o Democratic systems see regular changes in government and therefore policy
o Dictatorships see infrequent chances but drastic change when it occurs
o Multiparty systems often suffer an inability to implement policy
Economic forces
The global economy
o Exchange rates
The economies of each specific country
o Market specific economic indicators:
Levels of income/wealth
Exchange rates
Availability of credit
Quality of national infrastructure

Socio-cultural forces
E.g. different meanings of colour for each country
o Anglo-Saxon interpret green as envy, whereas it symbolises love in Japan
Technological forces
Cheap communication enable easy transfer of information
Technology has created, revolutionised and destroyed entire industries
Marketers cannot assume potential markets will have the same technological
infrastructure as the home market
Legal forces
Tarrifs: charge to effectively increase the price relative to domestically made goods
Quotas: annual limits on imports
Embargos: bans/restrictions on imports
The benefits of going international
The world holds more potential
May find a market that does not have access to its products
Economies of scale
It has become a more feasible option:
o Communication/transport technology
o Increasingly free trade environment
It is a way to respond to increased domestic competition
Methods of Market Entry
Exporting
Sale of products into foreign markets from home market base
o Direct: marketing organisation deals directly with international market
o Indirect: approach that relies on the use of specialist marketing intermediaries
Contractual agreements
Licensing: business (licensee) in a foreign country manufactures and sells the product
of a home country and pays commission on the sales it makes
Franchising: business (franchisee) pays a fee in return for the right to use the
marketing/business plan of another business
Contract manufacturing: business pays a foreign business to manufacture its
product and market it in the foreign country under the domestic businesss name
Strategic alliances and joint ventures
Strategic alliance: cooperative arraignment between business in a foreign market
Joint venture: marketing organisation forms a new business with an existing business
in the target foreign market
Direct investment
FDI: outright ownership of a foreign operation
Greenfields operation: new business established in foreign market from ground up

Multinational corporations: businesses that develop extensive directly owned assets


in numerous foreign countries

The born global business view


A born global business view views the whole world as its market from the outset
Not suitable for all industries/products
They must offer:
o Intellectual property or data services
o Very high-end products
o A unique/desirable product
The international marketing mix
Product
Must respond to customer preferences
Different levels of disposable income may require changes in quality/size/packaging
Sociocultural differences way require changes to the way service is delivered
Branding is important
Promotion
May confront issues e.g. language barriers, advertising regulations, different media or
market maturity
Place
Need to transport products
Exchange rate effects costs
Appropriate use of marketing intermediaries facilities distribution into foreign
markets
Price
Must be sensitive to local market conditions
Must reflect cost of marketing effort
Influenced by exchange rates, trade barriers, gov regulations, level of competition and
specific marketing goals for each market
International markets with little/no experience must rely on market research