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ã : Tarun Dewan
Contents
PREFACE 7
PART1:THEBASICS 8
1.INTRODUCTION 9
Origins 9
Utility and Marketing 14
The Central Idea in Marketing 15
What do Marketers Do? 17
2.THECONSUMER 22
The Black Box 24
Consumer Characteristics 25
Consumer Decision Process 28
Organisational Buyer Behaviour 30
Is That All ? 31
3.THECOMPANY 33
Resource Based Perspective 33
Positioning Perspective 34
Configurational Perspective 37
SWOT Analysis 37
4.THECOMPETITION 40
Who are our Competitors 40
How is our Competition Structured 41
5.STPANDMARKETINGRESEARCH 44
Segmentation 44
Targeting 45
Positioning 46
Tools 47
Factor Analysis 49
Cluster Analysis 49
Discriminant Analysis 49
Perceptual Maps 50
Summary 53
6.PRODUCT 55
Types of Products 56
Consumer Goods 56
Industrial Goods 57
Durable and Non-Durable goods 57
New Products 57
The Product Life Cycle 60
Diffusion of Innovation 61
7.PRICE 65
Cost-Plus Pricing 65
Breakeven Analysis 70
Value Based Pricing 71
Competition Based Pricing 74
Conclusion 75
8.PLACE 77
Channels 77
Functions 78
Control 80
Conclusion 81
9.PROMOTION 83
What’s “Promotion” 83
Integrated Marketing Communications (IMC) 84
5 M’s 85
Mission 85
Money 86
Message 86
Media 87
Measurement 90
Conclusion 90
Preface
This book is of use to the Marketing student who does not wish to read
through multiple examples and stories, but prefers a concise reference for
basic concepts.
TD
Toronto
The Basics
1
Chapter
1. Introduction
What is the “story” behind the “Fine art of Storytelling “?
Origins
Marketing is about buying and selling - and buying and selling are as old
as the end of "Barter". Barter had the inconvenience of requiring a
"double coincidence of wants. (If Jim had an extra copy of "Titanic", but
needed "Kill Bill", he needed to find someone who not only had a spare
copy of "Kill Bill", but also needed "Titanic"). What was required was
something that could be used to “store” value – Jim could then exchange
Titanic with the first person who came along and wanted it for a “credit”;
and then whenever he found someone willing to part with Kill Bill he
9
could transfer the stored value. Using "credits" (or Money!) to trade marks
the origins of Marketing. We can look back quite far into history thanks to
Herodotus (the "Father of History" - his notes are the oldest record of
events in his past). He wrote about the Lydians (who lived about 3000
years ago in modern day Turkey) as being the first people he knew of to
use gold and silver coins. Ok. So there is now trade and hence marketing
(people grow/build things others need, set prices, go to a “market”, shout
out their wares). What do people think about it?
Aristotle (around 2400 years ago) thought (essentially) that marketers were
useless parasites. We still hear echoes of this thought today when people
speak of pushy salespersons, telemarketers and large advertising budgets
that translate into higher costs for consumers.
Thankfully (for readers of this book) this view may not be without a
counter point. Plato, for example, had a more constructive view of things.
If we put his ideas into contemporary terminology, he proposed that with
division of labour came a separation between producer and consumer.
Also, it turned out that some people were better at bridging this gap -
Marketing Intermediaries!
Lets now skip forward almost a thousand years to about the 13th century.
St. Thomas Aquinas (a Dominican monk) wrote mainly about church
related issues like social policy and philosophy. Views about marketing
cropped up in his writing, though, and it turns out that his thoughts
anticipated our version of the Utilities of Marketing. (Marketing: What is
it good for?) We'll talk more about these utilities of marketing, but for
now suffice to say that these are the value provided by marketing.
We make another jump - this time to the early 20th century when
marketing role in creating utility and providing satisfaction begins to be
better understood. Robert Bartels (History of Marketing Thought) places
the first use of the term "Marketing" to "about 1910". Finally in about the
1950's the concept of Marketing Management evolved - again more on
that later.
10
have". Creative advertising and selling will overcome consumers
resistance and convince them to buy) "Marketing Era" ("The consumer is
king! Find a need and fill it." "Whatever the consumer wants, we do.")
and the "Relationship Era" (our customers are our best assets - build a
relationship with the customer.). Now it is important to note that these
'eras' may not have occurred exactly in that order, or even successively. In
fact you will find that these situations may all still be found today - with
some companies adopting one or the other! We are at the point now that
we recognize that the most money is made when both the company and
the customers are happy.
11
In 1985, the AMA agreed on the following definition of marketing:
First, this definition highlights the 4 P’s – Product, Price, Place and
Promotion. (Distribution is referred to as “Place”; otherwise it would be
the 3 Ps and a D!). These are the 4 decision variables, or controllables
available to the Marketing manager. Marketing decisions and plans are
choices involving the 4 Ps.
Good Marketers are those who understand all elements of this definition
well – and perhaps the most important element of this definition is the
fourth one – there must be something of “value” for all participants in a
Marketing exchange.
12
In September 2004, the AMA agreed on a new and updated definition of
Marketing.
As you can see, the basic elements of the definition remain the same.
Marketing is not just an organizational function (something that a
“Marketing department” might do in a firm), but more than that – it is a
“set of processes”. The newer definition continues to explicitly recognize
that “benefit” to the organization and its stakeholders comes from
“delivering value” to customers. What is new in the definition is the
explicit recognition of “customer relationships” i.e. the concept that
marketers do not simply engage in one-off transactions, but look at the
longer term and at building ongoing relationships.
Most recently, in July 2013, the AMA agreed on the current definition of
Marketing.
Once again, the basic elements continue to be the same and value to the
society has been added.
13
Utility and Marketing
Utility is anything of value. The following are the four utilities provided by
marketing:
14
Form
Product Design,
Packaging
Possession Place
Transactions,
Transfer of
Utility Distribution, Store
Location
Ownership
Time
Inventory Mgmt,
Warehouses,
Delivery
15
Economic Forces
Product
Competitive Forces
Social and Legal Forces
Price Consumer Place
Promotion
Technological Forces
This is quite appropriate as the money flows from the consumer to the
producer. Even if we “follow the money”, the focus of our attention needs
to be firmly centered on the consumer. More “basic” mistakes occur due
to a lack of understanding of this simple idea than any other Marketing
concept.
Very simply, Marketers have just two basic tasks: To discover consumer
needs and to satisfy them.
16
Marketers First Task
We all know that Marketing is not just Sales. Marketing is the process of
determining customer wants and then developing a product to satisfy that
need and still yield a satisfactory product. This is, as we have seen a
Customer-Centric approach. Selling, on the other hand, is producing a
product and then trying to persuade customers to purchase it. This is a
Product-centric approach. Marketers need to understand Market
Orientation (putting the needs and wants of the target market first and then
deciding a cost effective approach to providing the product/service).
17
3 C’s STP
Customer Segmentation
Competition Targeting
Company Positioning
4P’s
Product
Place
Price
Promotion
This book is structured around Figure 1.3. The 3C- STP – 4P framework
offers a much broader strategic understanding of Marketing than the
classical Marketing Management school of thought that focuses just on the
4P’s. This represents key parts of Figure 1.2 that Marketers incorporate
into practice. A Marketing manager may, usefully, begin with an analysis
of the 3Cs and in the process understand the marketing problem well.
During the Segmentation, Targeting and Positioning phase, the manager
decides what subset of the entire population she will address, and finally
with the 4P’s she will have a solution for the problem. I advocate this
framework for addressing most Marketing problems.
The field of marketing also has substantial rules and process involved in
order to be effective. There is a distinct system behind marketing: rules
18
behind pricing, rules behind designing a better product; rules behind
promotion, rules the govern channels, and rules about how to distribute
products. It should also be noted that both profit and not-for-profit
businesses need effective and targeted marketing activities to achieve
success.
you buy a pair of shoes by informing yourself of the various options you
have, as well as emphasizing styles, colours, prices etc.
you apply for a job by getting to know what a company is 'all about' - do
you want to work with this firm?
when you watch TV: if you understand how marketing works, you have
a better appreciation for the types of ads you see on TV, and why those
particular ads are out there.
The confusion with marketing often arises from the different perspectives
that marketers and customers may have. For all of of us, our experiences
as customers are a really big part of our "take" on Marketing. As students
(and practitioners) of Marketing, however, the perspective is different. We
have to take off our "customer" hat to appreciate the Marketing Managers
19
viewpoint. Our experiences as customers do help even when we have the
Marketer's hat on as a guide to what customers think, but we have to force
ourselves to remember that there are many, many different kinds of
customers out there and generalizing from our own experience may often
not be appropriate
Marketing is everywhere, and we hope that by the end of this book, you
will have a good handle on the Basics of Marketing. The object here is not
to make you a Marketing expert (that would several books and several
courses !) , but to introduce you to the field and provide you with a good
enough road map that helps you avoid some major pitfalls. Happy Trails!
20
NOTES
21
2
Chapter
2. The Consumer
Understanding the focus of our attention.
22
What motivates and makes consumers happy/upset?
On a more practical front, here are some implications for the 4 P’s:
• Product
o What products do consumers use now?
o What benefits do consumers want from this product?
• Promotion
o What promotion appeal would influence consumers to purchase
and use our product?
o What advertising claims would be more effective for our
product?
o We will talk about different types of appeals, and the
circumstances under which they work.
• Pricing
o How important is price to consumers in various target product?
o What effects will a price change have on purchase behaviour?
o As marketers we could figure out price just by observing
consumers
o If we change price, we could figure out consumers’ sensitivity
to price
o If demand drops, should we increase the price?
• Place (distribution)
o Where do consumers buy this product?
(For example: Majority of consumers buy milk more at
grocery stores, than at convenience stores )
o Would a different distribution system change consumers’
purchasing behaviour?
23
The Black Box
The key to understanding consumers is first recognizing our limitations.
We are attempting not only to understand what goes on in one person’s
mind (a huge, complicated, and as yet mostly unsolved task) but also how
different things go on in different people’s minds (so even if you know
what one person is thinking, you may not know anything about what
thousands of other people are thinking). I like to think of this problem as a
“Black Box” problem. (Figure 2.1)
INPUTS
(Controllable)
4P’s
Product
Place
Price Customer’s
Promotion
Black Box
OUTPUTS
Decisions
Product Choice Uncontrollable
Brand Choice
Store choice
Influences
Purchase Timing Mood/Attitude
Purchase Amount Psychological/Personal
Social/Cultural
Since, we do not yet possess the tools to get inside a consumer’s head, we
have to make do with the best we can do. This involves looking at the
24
relationship between Inputs and Outputs in figure 2.1 and based on that
inferring what is going on in the Customer’s Black box. To make our life
more exciting, it is not even as “simple” as that – There are many
influences on the consumer unrelated to our “Marketing” inputs. Things
like the consumer’s mood, his/her friends and a host of other influences
that we (as marketers) have no control over – and that we cannot even
observe in most cases !
We will look at the effect of the 4P’s on the consumer’s decision later on
in the book. This chapter will look at the Uncontrollable (from the
Marketing Managers point of view) Influences.
Consumer Characteristics
Consumer characteristics are what make up the individual consumer.
These can be classified into Cultural, Social, Personal and
Psychological influences.
25
prices, to prefer certain stores etc.). An important model about motivation
is “Maslow’s Hierarchy of needs:
Self
Actualization
Esteem Needs
Social Needs
Safety/Security Needs
Physiological Needs
The idea here is that there is a “hierarchy of needs that people are
motivated to satisfy. Some needs come before others and must be satisfied
before motivation to satisfy a “higher” need kicks in. I like to think of a
caveman in pre-historic times as a story to help understand the Hierarchy
of needs. Our ancient homo-sapien wakes up in the morning and his first
thought is for his basic (physiological) needs. He does his morning thing
and then hunts for food and water. After much exertion (the hunger
clearly motivates him to give his best), he brings down his prey and
proceeds to fill his belly. (Step 1 !). As he lays happily on his rock, full
and satiated, with his basic needs met for the present, his thoughts turn to
the next day – It would be nice to have food for tomorrow as well ! – and
to make sure the hyenas don’t make off with the remainder of the kill. He
promptly gets up and with more exertion (motivated no doubt, by the
thought of his hungry stomach the following day) he drags the rest of the
26
meat into his cave to protect it. It might pass through his mind, that the
local lions might be hungry as well.
Let us imagine our hairy friend a few weeks later. He has found a big
dead mammoth and has managed to store all the meat in his cave. He has
also figured out that if he lights a fire outside his cave, the lions and hyenas
can’t get to him or his stock of food. (step 2 !) Now when he lounges
around in front of his cave, he doesn’t have to worry about his next meal,
or his safety. He now wishes he could share his wonderful story of the
ingenious way he dragged the mammoth’s meat back to his cave with
someone. Not seeing anyone close by, he is again motivated to wander the
woods searching for others like him – He is getting to be quite the social
animal ! (Step 3). If we return to him many moons later, we find him
seated around a fire with a bunch of Neanderthals having a whale of a
time. But amidst all the happy grunting, his brow furrows (more than it
usually does) as he tries to get the rest of his buddies to think really, really
well of him. Our caveman, it turns out needs the respect of his friends!
(Step 4). When (and if) he becomes “chief”, he is held in high regard by
the others and now he occupies himself with weight issues like the
meaning of life and fulfillment. He is up to Step 5 !
You can see how at each stage our protagonist was motivated by a
particular type of need, once that need was satisfied, he became motivated
by a higher level need.
There are three more “basic” ideas of human behaviour we need to keep in
mind as marketers:
1. Perception.
2. Psychological Learning
27
3. Persuasion
1. Problem Recognition
2. Information Search
28
Once an unfulfilled need or want has been identified, the consumer looks
(both in her memory and externally) for information to help in the decision
process. Often the information search does not involve all possible ways
of fulfilling the need, but a much smaller set of options, which is often
different for each consumer. To explain this better, we can use the
following three “sets”:
There are, of course, times when the consumer may not go through the full
decision process and may make an “Impulse” Buy. This is a purchase
with little or no advance planning. To put this in perspective, it is known
that only about 31 % of grocery shoppers use shopping lists ! As
marketers, stores try to induce impulse buying with in-store displays, loss-
leader items (i.e. items priced very low) placed for store traffic, or sample
food in the store.
3. Alternative Evaluation
4. Purchase Decision
In the end the final decision is based on the information search and
alternative evaluation. However, situational issues are important – the
display of a particular type of Orange Juice may result in a purchase. As
29
marketers we try and figure out the patterns of behaviour – “Overall, what
will the average consumer (or most consumers) do when we change one or
more of the 4 Ps?”
The transaction and the process does not end with a purchase. There are
“after-effects”. The consequences of satisfaction are Repeat purchase and
word of mouth communication. Dissatisfaction would not be good for the
company. On average a dissatisfied consumer spreads bad word of mouth
to 11 others. It is also 5 times more expensive, on average, to get a new
customer than it is to keep an existing one. Post purchase evaluation is
generally based on expectations and performance. If the product
performs better than expectations, we get a satisfied consumer, and if not,
a dissatisfied one. “Post purchase Dissonance” is the term used to
describe the state of anxiety or tension caused by the difficulty of choosing
from among several alternatives. (“Did I do the right thing ? Did I get a
good deal? Should I have waited ? Did I get ripped off ?). No decision is
perfect, so some dissonance is always to be expected. As marketers we try
and reduce dissonance as much as we can. Dissonance increases with the
dollar value of the purchase, the similarity between selected items and
rejected items and the relative importance of the decision. To reduce
dissonance, consumers avoid information favourable to the unselected
alternative and seek information favourable to the selected alternative. To
reduce post purchase dissonance, companies reassure buyers through
advertising and personal selling, provide return policies, and provide post
purchase service and support. The idea is to make the consumer feel good
about the choice they have made.
Consumers may not always follow the exact decision process outlined
above. In many cases some steps are skipped (for example with low-
involvement products). However, breaking up the process into the 5
stages helps us as marketers focus on the appropriate action required to
satisfy the consumer’s needs.
30
together based on some norms. A company buyer may have
reporting/justification issues to deal with, or internal company priorities to
keep track of. The interplay of these elements makes organizational buyer
behaviour just a little bit more complex. So long as we keep this in mind,
we can fruitfully apply the basic principles of marketing in a “B2B”
context as well, quite effectively.
Is That All ?
This is not even close to being all about Consumer Behaviour. This is a
field that spans hundreds of articles, books and other scholarly work every
year. Even for this book, however, we are not done. We will have
consumer behaviour discussions in the chapters on Price, Product and
Promotion. It makes more sense to deal with behaviour issues related to
price in the chapter on price and the issues related to Promotion in the
promotion chapter. This way it will be easier to link the understanding of
consumer behaviour directly with the Marketing implication. The
behaviour issues we have discussed in this chapter are “broad” items that
apply to all areas of marketing!
31
NOTES
32
3
Chapter
3. The Company
Who are we ?
Assets include not only capital items like factories and production
equipment, but also advantages like brand equity, relationships, consumer
lists etc.
33
Capabilities are the “complex bundles of skills and accumulated
knowledge exercised through organizational processes that enable firms to
coordinate activities and carry on learning how to perform these activities
better.” (Day and Wensley, Handbook of Marketing). Capabilities are not
just about skills and technical expertise that the company’s employees
have, it is also about the processes within the company that keep track of
an effectively store and use these skills. When the whole is greater than the
sum of it’s parts, it is generally due to good managerial systems and norms
in the company.
Positioning Perspective
This perspective is best understood in terms of the 3-4-5 framework.
3 Generic Strategies
Michael Porter identified the three generic strategies that companies might
position themselves as:
34
4 Contexts
The Boston Consulting group Growth share identifies four contexts into
which individual business units may be classified based on industry
attractiveness (Market Growth Rate – how much potential the industry
has) and how well we are doing in relation to our competition (Relative
Market Share). Each business unit is represented on this grid. The size of
each unit represents the volume of business associated with it.
High
Question Marks
Market Growth Rate
Stars
Dogs
Cash Cows
Low
Low High
Relative Market Share
The 4 "contexts" are the four ways one can classify individual business
units (products), i.e. Question Marks, Stars, Dogs and Cash Cows, based
on the Market Growth rate and Relative Market Share.
35
So, a product that has a high market share (for "our" brand) in a market
that is stagnant or declining, is a "Cash Cow" - such a product would
probably no require excessive promotional spending (because it's future is
not particularly good even though the present is pretty profitable), and
would be a good candidate for "harvesting" (getting as much profit out of
it as possible before it declines).
"Dogs" are products that are not doing well (low market share) in poor
markets. The products probably need to be divested (discontinued!).
"Stars" are products that are doing well in good markets. They generally
require lots of attention, but are good for profits. Eventually (because of
the Product Life Cycle) stars become cash cows.
"Question Marks" are just that - they may become stars or dogs
Michael Porter (him again !) has identified Five Forces which determine
industry attractiveness. Both Buyer and Supplier power make an industry
less attractive from the perspective of the company, because it means the
company itself has lesser “power” vis-à-vis it’s external contacts. Industry
competitors determine how much competition the company has to deal
with and the threat of new entrants (or, barriers to entry) determine how
easy it is for new competitors to emerge. It is also important to keep track
of not only competition within the industry the company operates, but also
keep track of other products which may be substitutes for ours.
(Remember the focus on “Consumer Needs” instead of on products ? –
this implies that all other products which satisfy the consumer need that we
are targeting are our competition).
36
Threat of
New Entrants
Supplier Buyer
Power Power
Industry
Attractiveness
Industry Threat of
Competitors Substitutes
Configurational Perspective
This perspective deals with the internal organization of the company and
it’s boundaries (i.e. the nature of it’s links with other entities). The way a
company is structured (both internally and externally is an important
determinant of what it can and cannot do. For example “make or buy”
decisions are generally determined by the cost of doing something within
the company or outsourcing.
SWOT Analysis
SWOT Analysis (Strengths – Weaknesses – Opportunities – Threats) is a
very simple, but powerful tool for collecting information on the company
and summarizing the classification approaches of the 3-4-5 framework.
37
Internal External
+ Strengths Opportunities
- Weaknesses Threats
Items (“facts”) are classified along the Positive (“Good for us”) and
Negative (“Bad for us”) dimension as well as along the Internal
(“Controllable”) and External (“Uncontrollable”) dimension. It is easy
then to see not only the internal issues of the 3 generic strategies or the 4
contexts (BCG) , but also the external issues of the 5 forces (Porter).
38
NOTES
39
4
Chapter
4. The Competition
What are we up against ?
40
use is relevant.” The definition of a Product-Market is critical because
when we try to get measures of competitive intensity, the results could
vary greatly depending on the particular set of products we have classified
as “our market”. So, Coke might view just Pepsi as a competitor, but it
may be argued that Coke’s competitors also include all other “pop” drinks,
not just colas. In fact, there is also an argument for treating all grocery
store beverages as competitors for Coke. Clearly in each case, Coke’s
market share would be different as would our inferences on intensity of
competition.
In the STP chapter, later in this book we will see some “spatial” models of
representing competition (Perceptual Maps). These models are built based
on attribute differences, and since they are generated using needs based
data, are quite a good tool for representing “our market”.
Monopoly is the structure that exists when there is just one main
producer/seller of a particular product or service. (at least in some area).
41
The product is clearly unique and cannot be substituted. Mostly, because
of monopoly power, marketing effort is minimal.
Oligopoly is the structure where there are only a few main large
competitors who produce similar products. Marketing effort consists
mostly of trying to find attributes along which each competitor can attempt
to seek a leadership position.
42
NOTES
43
5
Chapter
Segmentation
Different Customers want different things (product), are able to pay
different prices, have different information sources (promotion) and buy at
different places (geographic, demographic). Essentially, these are the 4
P’s. Marketers must try to understand their consumer.
44
Definition: Segmentation:
Good segments are also Homogenous (similar needs and desires within
segments) and mutually exclusive (different needs and desires among
segments). The essence of segmentation is that there are differences
across but similarities within different groups of consumers.
Targeting
Once we have identified groups of consumers with similar needs, we need
to choose, which of these we will target.
45
Factors that need to be considered when selecting Target Markets (Big
Picture):
Positioning
Positioning relates to the use of various marketing techniques and
marketing-mix variables to create the image or perception that will best fit
with what the company wishes to be known for.
46
Tools
There are four main tools we use for STP.
Factor Analysis
Cluster Analysis
Discriminant Analysis
Perceptual Maps.
1. Size
2. Mega pixels
3. Optical Zoom
4. Digital Zoom
5. Movie Clip capability
6. LCD size
7. Weight (including batteries)
8. Bundled software
9. Image Stabilisation
10. White Balance override
11. Manual Focus
12. Storage media type
13. Price
47
We will also ask potential consumers how they rate the following brands
(again on a 7 point scale; 1: Poor, 7: Excellent) on each of the above
attributes: Canon, Nikon, Minolta
Here is a sample data we might collect from this exercise. Each number in
a cell represents the average from all the respondents:
Attribute Ratings
Attribute
Importance
Canon Nikon Minolta
1. Size 4 6 5 4
2. Mega pixels 6 6 6 4
3. Optical Zoom 4 4 5 6
4. Digital Zoom 3 5 5 5
5. Movie Clip capability 7 6 3 4
6. LCD size 5 2 4 6
7. Weight (incl. batteries) 5 6 5 4
8. Bundled software 2 6 2 3
9. Image Stabilisation 1 3 2 5
10. White Balance 1 4 2 1
11. Manual Focus 3 7 4 5
12. Storage Media type 4 6 3 2
13. Price 7 4 5 3
As you can surmise, there is a table like the one above for every
respondent. Different respondents will have different responses to both the
Attribute Importance question, but also the Brand Rating question.
Let’s see how we can use the Market Research tools we mentioned earlier
with the data we have collected.
48
Factor Analysis
It turns out that all the 13 attributes listed above are not necessary to
analyse digital cameras. Factor Analysis is a mathematical technique that
looks at all the responses from all the respondents and finds that most
respondents who think that (for example) White Balance is an important
attribute also think that Image Stabilisation is important. What this means
is that we can use fewer attributes to describe digital cameras. (We can
“merge” some of the attributes – White Balance and Image Stabilisation
can be merged into an attribute called “Professional Features” – In fact,
factor analysis may reveal that Manual Focus and Storage Media Type can
also be merged into the “Professional Features” attribute). The purpose of
Factor Analysis is data reduction. We can proceed with much fewer
attributes. (If you look at websites which rate and compare digital
cameras, you will find upwards of 30 attributes that are used – Factor
analysis would be a very useful tool to reduce the attributes to a more
manageable number without losing important information.
Cluster Analysis
We will also find that there are patterns among the responses of different
groups of consumers. We might find that there is a group of consumers
that rates Mega pixels and Professional features very highly, but rate LCD
size and price low. (these could be professional photographers who need
the best equipment and may not be too price sensitive). We might also
discover another group that rates size and price very highly, but not any of
the other attributes. (these could be people who are not technically
advanced, but want a simple small camera). Cluster Analysis is the
mathematical tool that looks for and finds these groups of respondents.
Cluster Analysis is thus the tool used for Segmentation. Note also, that we
are segmenting consumers based on “Needs Variables” (i.e. attributes of
the product, or items that represent the needs of the consumers). These
variables are called “Bases variables”. We are not segmenting consumers
based on their income, or age etc.
Discriminant Analysis
The next issue is identifying these groups. We want to link these
groupings to something observable (like age, income, magazines read etc.)
These are called “descriptor variables” and are used to identify and target
49
(reach) different segments of consumers. The mathematical technique that
lets us link groupings of consumers with descriptor variables is called
Discriminant Analysis. We might, thus, discover that of the two groups
we identified through cluster analysis, the first is composed mostly of
people in the age group of 35 – 55 with an income of between $70,000 to
$90,000 and the second group is mostly people in the age group of 15 – 40
with an income range of $50,000 to $70,000. We may also discover that
the first group watches mostly the news on TV, but the second group
watches mostly reality shows. This would help us a great deal in terms of
being able to target ads for the first group during news shows, and for the
second group during reality shows. As you may have guessed, if we used a
survey to collect data on our respondents earlier, we would also have
needed to ask them the appropriate questions about their gender, income,
magazine preference, age, address etc.
Perceptual Maps
Based on the data we have collected in our digital camera example, we can
get an idea of what our average consumer thinks of us. This is the
Position we occupy in the consumer’s mind. It may not necessarily be
what we want it to be, or even what we think it should be. For example,
we might produce a really safe car (based on our tests), but consumers
may think of it as “unsafe” if there are negative news stories about it.
Perceptual Maps represent the information we have gathered in a visual
manner to make it easier to interpret. A “Snake Plot” is the simple,
traditional way to “see” the differences (in the average consumer’s mind)
among the three brands of digital cameras.
1 2 3 4 5 6 7
1. Size
2. Mega pixels
3. Optical Zoom
4. Digital Zoom
50
5. Movie Clip capability
6. LCD size
8. Bundled software
9. Image Stabilisation
13. Price
51
Manual Focus Image Stabilisation
Advanced
Price
Simple
Now that we have seen how to “condense” several attributes into two main
attributes, we can see what the consumers think of the three digital camera
brands in a way that is easy to understand and interpret. (Figure 3.3) (Please
note that this example is constructed with “made up data” and is not truly representative
of the digital camera marketplace)
52
Advanced
Canon
Minolta
Nikon
Simple
Summary
So, we use Factor Analysis to reduce data to a manageable size. Then we
use Cluster Analysis to Segment consumers. Next, we use Discriminant
Analysis to identify and hence Target consumers, and finally we use
Perceptual Maps to help Position our product offering – and that’s STP !
53
NOTES
54
6
Chapter
6. Product
What do we have to offer ?
This idea is a little different from what people have thought of in terms of
“Product” in the past. (a Product hasn’t always been thought of as being a
service or idea). The product is, in essence, anything of value that can be
exchanged for a price. This is another example of the centrality of the
exchange concept to Marketing. Thus, for a product to be a product in the
marketing sense, there has to be a form of exchange. Products also
incorporate both tangible (physical) and intangible (perceived, felt,
experienced) attributes. Products embody, not just the physical or
measurable characteristics of an item, but also how consumers ‘feel’ about
it. We’ll talk more about this perception/feeling issue when we discuss
branding.
55
Types of Products
It is useful to classify products into different types. The two main
classifications are Consumer vs. Industrial goods and Durable vs. Non-
durable goods.
Consumer Goods
Consumer goods are goods purchased by the ultimate consumer (i.e. user).
These can be further classified as follows:
Convenience Goods
These are goods that are purchased frequently and involve minimal
shopping effort. (E.g. Milk, chewing gum, pop etc.). These goods are
generally inexpensive and can be bought at many different types of stores.
Consumers in this category are not particularly brand loyal, will accept
substitutes and are often price conscious. Marketers focus on building
awareness of their brands, and recognize that easy availability is very
important in determining sales.
Shopping Goods
Shopping goods are more expensive than convenience goods and require
effort deliberation and thought before purchase decision are made. These
goods are purchased infrequently, and can be bought only at particular
types of stores. Consumers generally go through all five stages of the
consumer decision process when buying these goods. They are often high
involvement items like cars, or electronics and consumers are brand
conscious. Marketers focus on differentiating their brands from
competitors.
Specialty Goods
Specialty goods are usually very expensive and can only be purchased at a
very limited number of stores. (e.g. Mont Blanc pens, Harley Davidson
Motorcycles, Vintage cars). Availability is not important here, but rather
exclusiveness is sought after. Marketers stress the uniqueness and status
of their brand.
56
Unsought Goods
Industrial Goods
Industrial goods are not purchased by the ultimate consumer, but by other
producers who then manufacture consumer goods (or other industrial
products). These goods assist in providing products for resale and are
bought by companies to be put into production to be used in the
manufacturing other goods. The sale of industrial goods is the result of
derived demand. The demand for these products comes from the demand
for the final consumer good. The demand for bicycle wheels is derived
from the demand for bicycles.
New Products
Launching a new product is one of the most important and riskiest things
that a company does. By some estimates 80 % of new products fail. From
a business perspective this sounds pretty grim considering that new
product launches cost several hundred million dollars. What can
marketers (and they are the ones ultimately responsible for new product
57
introductions) do about this ? Can the failure rate be reduced ? Let’s see
why new products fail. New products typically fail due to some (or all) of
the following reasons:
§ Poor Execution
§ Poor Quality
From the perspective of this book, these seem to be fairly obvious, “basic”
and avoidable errors. We have highlighted the primacy of consumer’s
needs, so the new product would be expected (in the hands of a competent
marketer) to satisfy some consumer needs. We would also expect (given a
basic understanding of STP) that a new product would go through
sufficient research to find and target appropriate consumer segments, as
well as be launched in an area of the market that differentiates it from
competitors. As we will see in succeeding chapters, there are some simple
ideas to be kept in mind to ensure good execution on the 4 Ps. Please do
remember, however, that this book just presents the basics; there are a host
of details that need to be worked out when making real life decisions that
we don’t go into.
58
companies use for new product development. Most of them involve
creative ways of keeping track of new opportunities, and some process for
idea generation (both from consumers and employees) and screening, as
well as development. In terms of opportunities, a firm has four main
options (Figure 6.1)
Existing New
Products Products
Existing Market Product
Markets Penetration Development
New Market
Markets Development Diversification
59
The Product Life Cycle
This is a key concept in understanding products. Every product has a life
cycle from “birth” to “death”. Figure 6.2 shows the general shape of Sales
over time for any product.
Time
Individual products may have variations on the shape of the Product Life
Cycle (PLC). Fads (products that quickly become popular, but then just as
quickly fade away) have a very narrow peak. Some products have life
cycles that are done in a few weeks or a few months. Others (e.g.
Ketchup) have product life cycles that can last several decades
During the Introduction stage, the product has just been introduced into
the market and customers are not quite familiar with the product yet. Due
mostly to start up costs, Research and Development costs that go into
every new product, the company is generally losing money in this stage.
60
There is usually not much competition and the company focuses on
building awareness.
The Growth phase marks the point where sales begin to “take off”. This
generally happens once a threshold of awareness is crossed. There is, by
this time, more competition and the company must continue to inform
potential customers about their competitive advantages.
Sales of the product eventually begin to peak and level off. This is the
Maturity stage. The company’s profits also peak around this time. The
company now focuses on defending it’s market share and reminding
consumers of the value of the product and it’s differentiation from
competition.
Eventually, the sales of the product begin to drop in the Decline stage and
the profits for the firm fall as well. At the decline stage, the firm will
generally “Harvest” the product and eventually delete it from their product
line (stop manufacturing it).
Diffusion of Innovation
The shape of the PLC is linked to how quickly a new product or idea
(innovation) spreads (diffuses) amongst the population. Figure 6.3
illustrates a typical curve representing the adoption of a new product. The
figure shows the different categories of consumers who adopt the new
product at different speeds. Innovators are motivated by being pioneers
and buying the “latest and greatest” product. This really small group is
more inclined to pay a higher price for the new product. They are often
referred to as being at the “bleeding edge”. Innovators have a high
tolerance or risk. The Early Adopters are a slightly larger group who also
value trying something new, but are not as informed about new products
as Innovators. As you can see from Figure 6.3, Early Adopters are still
well ahead of the curve. Marketers have realized that a skimming (high)
pricing strategy works well for both these groups because of their
willingness to pay higher prices. A skimming price strategy has the
advantage of recouping costs quicker, but it does slow the diffusion
process. The Majority of consumes buy the new product when there are
enough others who have already tried it and the “bugs” have been
discovered and fixed. This group has an average tolerance of risk and is
generally price sensitive. Finally the Late Adopters (sometimes referred
61
to as Laggards) are the last segment of the market to adopt the new
product. This group is extremely risk-averse and want a competitive price.
% Adoption
Majority
Time
62
• The ease with which it’s features (and especially it’s benefits) can
be observed and communicated. (the easier this is, the easier it is
for word of mouth to occur and spread the message – and the
adoption – faster)
The final thing to keep in mind is that typically consumers go through the
following stages in the adoption process:
Each of these stages has it’s own “Diffusion Curve” and it is important to
remember that each curve influences the succeeding ones. So, if the
spread of awareness is slow, the other parts are automatically slowed down
and the final adoption is also slow.
63
NOTES
64
7
Chapter
7. Price
What do we want in return for our offering ?
Cost-Plus Pricing
To begin this section we need to remind ourselves of some basic concepts
from Economics. The “Demand Curve” describes the relationship
between price and the quantity demanded (or, the number of units
65
consumers will buy at that price). In keeping with the idea that if price
increases, fewer units will be bought, the demand curve is generally
downward sloping. Figure 7.1 shows a simplified demand curve. (It is
simplified because it is assumed that there is a linear – the simplest
mathematical form – relationship between quantity demanded and price.)
60 Total Revenue
40
P*
20
Demand Curve
Price
0
0 10 20 Q* 30 40 50 60
-20
-60
Quantity
This is a scenario where, when the Price is $1, 49 units of the good are
purchased/sold. When the Price is $ 48, 2 units are demanded etc. Table
7.1 lists the various combinations. The revenue that the firm generates is
the price it charges times the quantity demanded (or the quantity sold – for
simplicity we will assume these are the same). In equation form:
66
TR = P.Q (7.2)
Table 7.1 also shows the Total Revenue (TR) for our example.
If you look at Figure 7.1 (or Table 7.1), you can see that as the price drops,
the quantity demanded increases and the Total Revenue increases as well.
However, a point is reached where the price is low enough that even
67
though the quantity demanded keeps increasing, the Total Revenue starts
to drop. On inspection, you can see that Total Revenue is highest when
P*= 25 and Q* = 25. This is the Optimal Point to price at.
You can see (from either Figure 7.1 or Table 7.1) that the optimal price we
found earlier corresponds to the point where MR = 0. This just means that
we can keep lowering the price and increasing quantity demanded till there
is no additional revenue from selling more.
So far so good. But we have not considered Costs. It does cost the
company to produce the product and get it to the consumer. Costs can be
broken up into Fixed Costs (i.e. the costs that are independent of the
number of units produced) and Variable Costs (costs that increase with
the number of units produced – In general, if you can break up a cost into a
per-unit charge for marketing purposes, you can treat it as a variable cost).
MC = 30 - Q (7.5)
68
60
40
Price
Demand Curve
P*
Marginal Cost
20
Marginal Revenue
0
0 10 20 30 40 50 60
Q* Quantity
In Figure 7.2, the area between the Marginal Cost cure and the Marginal
Revenue curve represents the “gain” from producing an additional unit.
Clearly, we should increase the quantity upto the point where MR=MC.
Beyond (to the right) of this point, the cost of producing the next unit is
higher than the revenue we would generate from it, so it is not worthwhile.
This gives us a better idea of the optimal price to charge. From the figure,
we can see that that the point where MR = MC corresponds to P* = 30 and
Q* = 20. We can also see this in equation form below:
MR = MC
Þ 50 - 2Q = 30 - Q (From Equation 7.4 and 7.5)
Þ Q* = 20
Þ P* = 50 - Q = 30
69
(7.6)
Breakeven Analysis
So far, we have taken into account the demand curve as well as the
marginal cost of producing the product. Let us now look at the optimal
price from the point of view of Profit. This will include consideration of
Variable Costs as well as Fixed Costs.
The analysis is quite simple, yet incredibly powerful (Figure 7.3 illustrates
the Breakeven Point graphically).
Higher
0 More
Units of Production (Quantity)
In terms of equations:
70
And,
P = P.Q - ( FC + Q.VC )
(7.8)
Þ P = Q( P - VC ) - FC
This is where the concept of Breakeven point comes in. The Breakeven
point is the Quantity we need to produce to just recover our costs. It is the
quantity below which we make a loss and above which we make a profit.
So, to obtain the Breakeven Point (BEP), we need to find the Quantity that
leads to a zero profit : (Q* = BEP)
P=0
Þ Q * ( P - VC ) - FC = 0
Þ Q * ( P - VC ) = FC (7.9)
FC
Þ Q* =
( P - VC )
Equation 7.9 is the Breakeven Point Equation and shows that the BEP is
the quantity at which the Fixed Costs are covered by the “Contribution”
(P-VC).
You will notice that we need to know the price before we can calculate the
Breakeven Point. So, how does this help us determine price ? The power
of Breakeven Analysis is that we can calculate the BEP for many different
levels of price and potentially many different cost scenarios as well, to see
the effect of price levels on profitability. In conclusion, Breakeven
Analysis provides us with a simple tool to incorporate costs (both variable
and fixed) into the pricing decisions and let’s us evaluate many different
scenarios to pick the best one.
71
that the purpose of price is to capture the perceived value of the product in
the minds of the consumer.
At one level, this can be characterized as charging “what the market will
bear” (what the market is willing to pay) and at another level it can be seen
as focusing on the value we are offering the consumers. (something we
have recommended throughout this book).
The basis for this approach to pricing is to use the customers’ perception of
value, rather than the company’s cost. Once we determine the price we
wish to charge, we can work backwards to create the appropriate cost
structure.
To better understand value based pricing we will have to switch our focus
from economic theory to more behavioural characterizations. One
example of this switch is the difference between Reservation Price and
Reference Price.
Reference Price on the other hand is a more behavioural concept and the
literature offers several ways to define it. It can be thought of as either one
or a combination of the following:
• Fair Price
• Frequently Charged Price
• Last Price Paid
• Price of Brand usually bought
• Average price for similar products
• Expected future price
• Typical discounted price
72
concept of Price Elasticity). The availability of alternatives, perceived
substitutes, reference points, switching costs etc. all contribute to the level
of price sensitivity. Sometimes, consumers may perceive higher prices to
be a signal of quality and therefore would not be very price sensitive.
73
brand is a good value than by placing it right next to a low price
alternative.
This also explains the “On Sale” phenomenon. The price we pay for a
product is a “loss” from the consumers perspective. However, if we
present a $80 watch as a $100 watch at a 20 % discount, consumers will be
attracted by the seeming “gain”. Marketers should also try and frame
purchases (i.e. the price paid) as gains denied rather than losses. Further,
the marginal utility of gains is decreasing, which means that (for example)
$10 is worth more to the person with nothing in their pocket than the
person with $1000 in their pocket. This further implies that two distinct
gains of $10 will perceived as better than a one time gain of $20.
If you have seen Ron Popeuil sell knife sets on TV, you will see him
separating gains as well: “You can have 2 knives for three easy payments
of $13.33”, he says. “But wait ! There’s more !! I will give you 3 knives
for the same three easy payments of $13.33 !”. “But wait ! There’s more
!! I will give you 2 more knives – so 5 knives for the same three easy
payments of $13.33 !”… and so on till he is selling you 21 (!) knives all
for “three easy payments of $13.33 !”
Two losses, on the other hand are worse than one combined loss. So as a
marketer, it is better to raise your price in one big jump, rather than
gradually, in many steps.
The lesson from all this is that perceptions of price often don’t follow strict
economic models of utility. Knowing how his works can help marketers
understand consumer reactions to price and set prices effectively.
74
Conclusion
So, where does all this leave us overall. Cost analysis typically gives us a
“floor” or minimum price we need to charge to meet our costs. Value
analysis gives us a “ceiling” or maximum price our customer will be
willing to pay. Between these two extremes is where (based on
competitive and behavioural considerations) is where we will actually
price our product. (See Fig. 7.4)
Perceived Value
(Some fraction of actual value to user)
Consumer Surplus
Price
Producer Surplus
PENETRATION
$10 Variable Cost
75
NOTES
76
8
Chapter
8. Place
How do we connect with the consumer ?
Channels
Distribution is how the product gets from the producer to the consumer. A
distribution channel is the set of companies and individuals who
participate in getting the product from the producer to the consumer.
Getting a product to a consumer is important not only (say) geographically
(i.e. having the product available at the local grocery store) but also across
time (tomatoes only ripen in May, but we can usually find them in grocery
stores all year round).
77
Functions
The main function of distribution channels is to provide efficiencies in the
interactions between producers and consumers. There are typically about
50,000 different items sold at the average grocery store. If the
manufacturer of each of those 50,000 items needed to have a way of
accessing the consumer directly, the number of outlets required would be
huge. However, each of those manufacturers deals only with 5 – 10 retail
stores. In turn the grocery stores collect all these different items under one
roof and consumers can also now deal with a few stores instead of 50,000
different manufacturers. Figure 8.1 and Figure 8.2 illustrate this idea of
improved efficiency.
Products Consumers
78
Distribution Channel members (or intermediaries) also provide the
following functions: Assuming title (ownership) and physical ownership
of products (including storing the products), taking risks by stocking the
product, gathering sorting and delivering the product, providing
information about the product and facilitating purchase including financing
of the product.
79
To continue the tomato example, the channel members (wholesalers and
stores) buy the tomatoes from the farmers when the tomatoes ripen. Since
these tomatoes won’t all be sold immediately, the channel members are
assuming the task of storing them till they can be sold, transporting them
to the stores where consumers will buy them, sorting them (making sure
the spoilt ones are taken out), and dealing with the ones left unsold –all of
this while keeping them looking “fresh”.
Shorter channels (i.e. channels with fewer levels) occur more when there
are fewer consumers (e.g. business consumers), higher service needs, the
product is complex or perishable and when the producer has the resources
and ability to reach the consumers directly and requires a high degree of
control over the process. Longer Channels are required when the
consumers are highly dispersed, the products are standardized and
inexpensive and the producer does not have expertise in distribution and
the need for control is not high.
Control
A key issue in the discussion on Channels is Control. When the product
goes through a longer channel (i.e. several intermediaries) the company
(producer) has to make sure that the interests of it’s agents (the
intermediaries) are aligned with it’s own. For example, although your
local grocery store carries several brands of cereal, it’s profits don’t
depend on the sale of any one of the brands, but rather on the sale of all the
cereals it carries. This means that the interests of a particular cereal
manufacturer (who just want to maximize the sales of his brand) may not
be aligned with the grocery store’s interests which may lie with increasing
80
the sales of a different brand of cereal that offers a higher margin to the
store. Franchising agreements offer another example of a situation where
the company needs independent agents to reach the customers and has to
give up a certain degree of control. Contracts and monitoring become vital
in this type of structure.
Conclusion
In conclusion, it is important to remember the functions (utilities) of
intermediaries and the issues that accompany the lack of control and
alignment of incentives. Good decision making on distribution channels
can provide companies with huge competitive advantage and are often a
key determinant of corporate success.
81
NOTES
82
9
Chapter
9. Promotion
What do we say to the consumer?
What’s “Promotion”
Advertising is any paid form of non-personal presentation and promotion
of ideas, goods and services by an identified sponsor. The key here is that
the sponsor is not anonymous and that the advertising is paid for (and not
free)
83
Public Relations is building good relations with the company’s various
publics by obtaining good publicity and creating a good corporate image
(including heading off unfavourable rumours and events). The key
element is that PR is free.
Consistency (making sure the message is the same and not conflicting
across different points of contact with the customer)
84
5 M’s
Many marketing texts (including Marketing Management, Phillip Kotler)
use the concept of the 5 M’s to illustrate the “big picture” of Promotion (or
IMC)
Slice of Life
Lifestyle
Fantasy 5 M’s
Mood/Image Desirability
Musical Exclusiveness
Personality Symbol Style Message Believability
Tone
Technical expertise Words •Message
Scientific Evidence Format Generation Rational Positioning
Testimonial Evidence Emotional Positioning
•Message
Money evaluation and
Factors to selection
Consider: •Message Measurement
Mission
•Stage in PLC execution
•Sales Goals •Social •Communication
•Market Share
•Adveritising responsibility impact
and consumer
Objectives review •Sales impact
base
•Competition and
Clutter
•Advertising Media
Frequency Share of expenditures
•Product •Reach, Share of voice
Inform
substitutability frequency, Share of mind and heart
Persuade
impact Share of market
Remind
•Major media
types
•Specific media
vehicles
•Media timing
•Geographical
media allocation
Mission
The mission of the IMC program must be well defined. If we are not clear
about where we are going, we probably won’t get there ! The mission
involves deciding what the objectives are. A Push strategy aimed at
channel members may be used when there is low brand loyalty, and most
85
purchase decisions are made in-store or are impulse buys. A Pull strategy
aimed at the final customer is used when there is high brand loyalty, there
is high involvement in the category, and brand purchase decisions are
generally made before the trip to the store. Further, the objectives may be
either to Inform, Persuade or Remind consumers.
Money
Deciding how much to spend on an IMC campaign is vital. Often
companies use percentage of sales and modifications of previous years’
budgets to determine promotion budgets. These may not be the best ways
to determine an optimal budget. The following factors should be
considered when determining the budget:
• Advertising Frequency
• Product Substitution
Message
The message is the key ingredient of the IMC program. This is what we
wish to convey to our consumer. In general Keeping It Short and Simple
works very well.
Message Execution involves selecting the Style, Tone, Words and Format
of the message
86
Media
Selection of the medium or carrier of the message is almost as important as
the message itself. The determinants of an appropriate medium are Reach,
Frequency, Impact, and Timing. Here is what media buyers mean when
they use these terms: Reach is “the number of different people or
households exposed to an ad. Rating (used only for TV/Radio) is the
percentage of households in a market that are tuned to particular TV or
Radio show. Frequency is the average number of times an individual is
exposed to an advertisement. Gross Rating Points is Reach (expressed as
a percentage of the total market) multiplied by Frequency, and CPM (Cost
per Thousand) is the cost of advertising divided by the number of
thousands of individuals or households who are exposed.
Here are the main media options with advantages and disadvantages of
each:
Television advertising
Advantages Disadvantages
High reach Limited targeting
Some targeting High total cost
Low cost per exposure Hard to convey complex info
Auditory & visual Short exposure time
Strong visual impact Easy to avoid seeing
Repetition possible Perishable message
High prestige Some distrust
Clutter
87
Radio advertising
Advantages Disadvantages
Local coverage Limited targeting
Some targeting Local coverage
(geog./station/program) Auditory only
Low cost Clutter
Quick Low attention
High frequency Short exposure time
Sound, humor, imagery Perishable message
Low production costs Hard to convey complex info
Little research available
Magazine advertising
Advantages Disadvantages
Good targeting Long lead time for placement
Quality of color Limited control of placement
High info content Visual only
Can convey complex info Visual clutter
Longevity of ad
Can be saved
Pass-along readership
88
Newspaper advertising
Advantages Disadvantages
High local coverage Limited targeting
Low cost Short life
Short lead time Low attention-getting
Placement in interest Short attention span
sections No page position control
Quick placement & Poor reproduction
changes Clutter
Reader controls exposure Selective reader
Can be saved exposure
Can be used for coupons Poor pass-along
Advantages Disadvantages
Good targeting High cost per contact
Can be personalized Poor image
Intense coverage Clutter
Speed May not read
Flexible format
High information content
Can be saved
No ad competition
89
Measurement
No campaign can be effective, unless we can figure out a way to judge or
measure effectiveness. This may sound like something Yogi Berra or
Forrest Gump might say, but it is important to set up criteria to test
whether the campaign met the objectives or not. Typically these criteria
involve either the Communication Impact or Sales Impact. The
communication impact is often hard to measure because the items being
measured are just perceptions in the consumer’s mind (like awareness,
interest etc.). Sales can be measured easily but linking it to a particular
campaign can be difficult, because there is often a lag between a message
going out and it’s impact. Further, the impact of most campaigns lingers
for various periods well after the campaign has ended, and this makes it
harder to judge sales impact of a particular campaign.
Conclusion
Promotion (or IMC) involves communicating a simple, coordinated
message effectively to consumers.
90
NOTES
91
A
Appendix
Appendix A: Glossary
Words ! Words ! Words !
92
Brand is a name, term, symbol or design which identifies the goods and
services of one seller and distinguishes them from those of its competitors.
Cookies are computer files that are downloaded onto the consumer’s
computer that enables the firm to identify consumers that return to the
website.
93
Corporate Social Responsibility is the principle that firms operate within
a societal framework, and not in isolation, and have an obligation to make
a positive contribution to society.
Ethics is the system of moral principles and values that guide the actions
of an individual or group of individuals.
Experience curve is the relationship between cost per unit and cumulative
output.
Family Life Cycle is the stages of life that people go through (i.e.
bachelor, early married, married with young children, married with older
dependent children, empty nest, sole survivor). The modern family life
94
cycle includes divorces, second marriages, same-sex marriages, step-kids,
etc.
Geocentric pricing is a policy in which the firm sets one worldwide price
that applies to the product regardless of the country market in which it is
sold.
The Gross Rating Point (GRP) is a metric that combines reach and
frequency. It is calculated by multiplying reach, expressed as a percentage
of the market, by frequency.
Individualization is the ability of the firm to tailor its interactions with its
customers.
95
Institutional advertising is advertising that is geared to building the
firm’s goodwill in the marketplace among consumers, shareholders,
regulators and other stakeholders.
Interactivity is the ability of the firm to have a two-way dialogue with its
customers.
Interstitials are ads that appears on the screen while a webpage is being
loaded.
Licensing is the practice by which a firm grants to another firm the right to
use a trade mark, patent or other form of intellectual capital for a fee or
royalty payment.
Localization involves changes that are made to a product in order for that
product to function in a foreign market.
Logistics is all activities that are involved in physically getting the right
product to the right place at the right time at the lowest cost possible.
96
Marketing is the process of planning and executing the conception,
pricing, promotion, and distribution of ideas, goods and services to create
exchanges that satisfy individual and organizational objectives (AMA,
1986).
Marketspace is the virtual world where the interaction between buyer and
seller is mediated by a computer.
Oligopoly is a market structure where there are only a few main large
competitors who product similar products.
Place utility refers to the process of getting the product from the
dealership to the consumer’s house.
97
Possession utility refers to the consumer’s actual ownership of the
product.
Product Life Cycle is the general shape of sales of a given product over
time from introduction to growth to maturity and to decline.
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Pure Competition is a market structure that involves a large number of
producers/sellers with the same undifferentiated product or service.
Reach is the number of individuals and households that have the potential
to be exposed to the firm’s ads over a specified period of time.
Sales promotion refers to any limited time, value adding offer by a firm
designed to generate an immediate sales response or accelerate a sales
response.
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tends to be homogeneous in some significant way. The market is
segmented using bases of segmentation (i.e. demographics,
psychographics, etc.).
Shopbots are intelligent agents which search and compare prices on the
Internet.
Supply chain infers all of the firms that are involved in the creation and
delivery of goods and services to final consumers or industrial buyers.
Targeting is the process of selecting the target markets that will provide
the greatest return on investment.
Tim e utility refers to the utility of having access to the product at the right
time.
Unsought Good is a product that a consumer does not know they want,
such as insurance policies and funerals.
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Utility refers to the value achieved from satisfying a need. The utilities of
form, possession, place and time are achieved by marketing
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