CHAPTER FIVE: MARKETING

A market is any set of arrangement that allows buyers and sellers to exchange goods and
services. Marketing is a management process responsible for identifying, anticipating and
satisfying consumer’s requirements (needs and wants) profitably. This is done by getting the
right product at the right price to the place at the right time.

The marketing objectives

 To increase profits and make the business grow by increasing sales revenue and profits
through marketing by selling more products as a result of intensive advertising
campaigns. Business aiming to grow often attempt to create a competitive advantage.
 To gain and maintain sales and market share. This is so because if the business is to
introduce a new product it will have to promote the product to break through into the
market. This can be achieved by charging low prices to penetrate the market.
 To differentiate products from those of competitors by changing packaging, design, and
ingredients advertising or charging high or low prices.
 To introduce new products into the market if research indicates that this could be
essential.
 To gain consumer knowledge about their needs and wants.

The purpose of marketing

 To satisfy consumer‘s needs. If the business is to be successful then it has to produce

goods and services that satisfy consumer needs and wants.
 To identify consumer needs and wants through market research.
 To anticipate consumer needs and wants. This is trying to understand what consumers
want in advance. This is because consumer tastes and preferences are changing faster
nowadays so marketing should respond to these e.g. butcher stocking goat meat before
Christmas.
 To compete effectively by providing products and services with the greatest value to
consumers. This results from well identified consumer needs and wants.
 To make a profit
Marketing management

This is the analysis, planning, implementation, and control of programmes designed to create,
build and maintain beneficial exchanges with target buyers for the purpose of achieving
organisational objectives.

Marketing management philosophies (concepts)

Production concept

States that consumer will favour products and services that is available and highly affordable.
The management should therefore focus on improving production and distribution efficiency.
The concept applies in two situations:

1. When the demand for a product exceeds supply so the management should focus on ways
to increase production.
2. When product cost is too high and improved productivity is needed to bring it down. This
helps to spread overheads over large quantities of products.

The organisation try to concentrate on efficient, low cost production with the expectation that the
goods will find a market provided the price is low enough. The firm will try to sell what they
make.

Product concept

States that consumer will favour a product that offers the best quality, performance and features.
The firm devote its energy to make continuous product improvements. The firm maintains a
detailed version of the new product idea stated in meaningful consumer terms. It assumes that
suppliers know best, it will produce high quality goods and expect customers to buy them.

Product oriented firms exist in product areas where quality or safety is of great importance e.g.
bottled water plants and manufacturers of crash helmets.

Selling concept

States that consumer will not buy enough of a firm’s product unless the firm undertakes a large
scale selling and promotion effort. It is practiced with unsought goods, those that consumers do
not normally think of buying e.g. insurances. It is practised when firms have over capacity. Their
aim is to sell what they make rather than make what the (market) consumers wants. It focuses on
creating sales transactions rather than building long term, profitable relationships with
customers. It assumes that customers who are persuaded to buy will like the product. However
disappointed buyers do not buy again and will tell ten others about their bad experiences.

Marketing concept

It holds that achieving organisational objectives (goals) depends on determining the needs and
wants of the target markets and delivering the desired satisfactions more effectively and
efficiently than competitors do. It takes an outside –in approach. It continually identifies reviews,
and analyses consumer’s needs. It is led by the market. It carries out large scale marketing
efforts. The consumers are central in the firm’s decision making. It starts with a well defined
market, focuses on consumer needs, coordinates all the marketing activities affecting customers,
and makes profit by creating long term relationships with customers based on customer value
and satisfaction. Customer value and focus are the paths to sales and profits.

Advantages of the marketing concept

 It can respond more quickly to changes in the market because of its use market
information.
 It will be in a stronger position to meet the challenge of new competitors entering into the
market
 It will be more able to anticipate market changes.
 It will be more confident that the launch of a new product will be a success.

However

 It will have to consult the consumer continuously (research)

 It will design the product according to the wishes of the consumers but the consumers’
wishes are varied.
 It will have to produce the product in the quantities that consumers want to buy.
 It will have to distribute products according to the buying habits and delivery
requirements of consumers which might be difficult and expensive.
 To set the price of the product at a level that the consumer is prepared to pay.

Mass marketing
 Occurs when a business offers almost the same products to all consumers and promotes
them in almost the same way e.g. coca cola.
 Products are usually sold to a large number of consumers
  The products may be marketed in different countries that are global marketing.
 The business can manufacture large quantities and the average costs can be reduced due
economies of scale.
 High sales and low average costs lead to high profits
However
 It is expensive to set up the production plant to provide mass marketed products
 The products face competition in parts of the market from producers who might be more
effective in niche marketing or targeting market segments.
 It does not necessarily guarantee profitable products.

Niche marketing
 This aiming or targeting a product at a particular, often small, segment of a market.
 It is the opposite of mass marketing.

Reasons for niche marketing

 Small firms are often able to sell to niche markets which have been overlooked or
ignored by other firms. The firms are able to avoid competition in the short run.
 By targeting specific market segments, firms can focus on the needs of consumers in
these segments. This can allow them to gain competitive advantage over firms targeting a
wider market.

However

 Firms which manage to successfully exploit a niche market attract competition. The
niches by nature are very small to sustain two or more firms. Large firms entering the
markets may be able enjoy economies of scale than small firms.
 Many small firms involved in niche marketing have just one product aimed at one small
market. This causes a great risk of failure.
 Niche markets have small numbers of consumers so tend to have swings in consumer
spending than larger markets.

Demand, Supply and Price relationship

Demand is the quantity of a product that consumers are willing and able to buy at a given price
in a time period. The law of demand states more of a product is demanded at a lower price and
less at a higher price.

Demand curve
Price

P1
 P2

Q1 Q2 quantity demanded

Importance of demand curves.

They can be used in analysing and planning their marketing activities. They enable businesses to:

 Calculate revenue to be earned for any given price change e.g. from p1 to p2.The revenue
is calculated as follows = P1*Q1 or P2*Q2
 Predict the likely reaction of consumers to price changes.
 Predict the likely impact upon revenue of price changes.

Determinants of demand
 Price of a product-The lower the price the higher the quantity demanded.
 Disposable income of consumers, for most products the higher the income the quantity
demanded.
 Price of substitute and complementary goods. If the price of a substitute product goes up
e.g. butter the quantity of margarine demanded will go up.
 Change in population size and structure. An increase in population will lead in increase in
demand.
 Advertising and promotional activities .successful advertising increases demand.
 Change in taste and fashion.

Elasticity of Demand
Is the degree of responsiveness of the quantity demanded following a change in one of the
determinants of demand

There are four types of elasticity’s of demand namely:

Price elasticity of demand

Is the degree of responsiveness of quantity demanded to a change in price of a product.
P.E.D= % change in quantity demanded/% change in price

=(Q2-Q1)/Q1*100

(P2-P2)/P1*100

The value of P.E.D is normally negative because a fall in price (-ve) results in a rise in demand
(+ve).E.g. if the price of a cell phone increases from $40 to $50 the demand will fall from 300
to270 cell phones.

P.E.D=270-300/300*100= -10%
 50-40/40*100 = 25%

-0, 4 (the negative sign can be overlooked)

P.E.D of 0, 4 is less than 1.It is said to be inelastic. This shows that an increase in the price of a
product does not result in a significant change in quantity demanded. Products like basic food
have an inelastic demand. It is recommended to raise the price of the product to increase the sales
revenue of the firm .The lower sales will mean lower cost so the profits will increase. If demand
is inelastic the producer will have to spend more on advertising to increase sales.

If the P.E.D is greater than 1 demand is elastic. A slight change in price results in a proportionate
increase in quantity demanded. It is necessary to lower the price of the product to stimulate
demand for the product. This will increase sales revenue and total profits. However higher sales
mean higher costs. Profits will only occur if the increase in sales revenue is greater than increase
in costs.

Factors that determine Price elasticity of demand

 Availability of close substitutes makes the consumers to switch to another brand if there
is an increase in the price of the other e.g. margarine and butter.
 Nature of product, a necessity is less likely to be affected by increase in price.
 If the product is habit forming or addictive like tobacco a change in price may not
significantly affect quantity demanded.
 Price of a product as a proportion of consumer’s income, thus very cheap products e.g.
matches are likely to be inelastic as the consumers will not care too much about a 10% or
15% price increase.
 Branding creates consumer loyalty. If the product is successfully branded its product e.g.
coca cola they are less likely to react to price changes.

Usefulness of Price elasticity of demand

 It can assist in pricing decisions as the prices determine sales revenue. Tenda can raise
prices on routes with low P.E.D (inelastic) and lower prices on routes with high P.E.D
 The analysis also underpins the strategy known as Price discrimination. Price
discrimination is charging the different prices to the same product.
 It can be used to make sales forecasts. If the firm is considering a price increase to cover
costs of production and the P.E.D is known, then the quantity demanded can be
accurately forecasted.
 It can be used for production planning, that is the quantity to be produced as well as for
manpower planning.

However
  The P.E.D assumes that nothing has changed, which is impractical. The assumptions may
be misleading e.g. if a firm reduce its price by 15%, it will expect sales to rise, but if a
competitor enters a market, sales might actually decrease.
 The P.E.D can become outdated quickly and may need to be recalculated because over
time consumer tastes change and new competitors may bring in new products so a years’
PED may be different from the other year.
 It is not always easy to calculate PED. The data used to calculate it comes from past sales
results following price changes. This data could be quite old and market conditions might
have changed.
 The results can be wrongly interpreted leading to wrong decisions. It is also difficult to
predict human behaviour.

Income elasticity of demand

 Is the responsiveness of quantity demanded for a product following a change in
consumer’s income.

Income elasticity of demand=% change in quantity demanded/% change in consumer

income.

 Income elasticity of demand is used to distinguish between normal and inferior goods.
 Examples of inferior goods include basics like bread, bus transport and salt.
 For the inferior goods as the disposable income increases, the consumers substitute the
inferior goods like sadza for rice and potatoes so the quantity demanded goes down.
 Their income elasticity of demand is negative.
 Products with a positive income elasticity of demand are normal goods.
 As the income increases the quantity demanded goes up.
 Normal goods are perceived to be of high quality.
 It becomes important to produce high quality goods in times rising incomes and low
quality goods when incomes fall.

Usefulness of Income Elasticity of Demand

 It can be used as a basis for manpower planning. The exact number of employees can be
determined.
 It can be used to classify goods as either being normal or inferior goods.

 It can be used for production planning and to make sales forecasts.

Cross Elasticity of Demand
 Is the responsiveness of quantity demanded for a product following a change in the price
of another product. An example is the reduction in the quantity of fuel demanded
following an increase in the price of cars.
 C.E.D=% change in demand for good A/% change in price of good B
 It is used to classify goods as either being substitutes or complementary.
  If C.E.D is positive the goods are substitutes. If the price of butter goes up, this leads to a
decrease in the demand for butter and an increase in the quantity of margarine demanded
to go up. Both changes are positive. These goods compete with each other.
 If C.E.D is negative the products are complementary. An increase in price of tennis
rackets cause a decrease in the quantity of rackets and also tennis balls demanded.
Complementary products are used jointly.

Promotional (advertising) Elasticity of demand

 Is the responsiveness of demand for a product following a change in the amount spent on
promoting it.
 % change in demand for product/% change in promotional expenditure.
 It allows businesses to assess the effect of their advertising effort to judge how far
consumers are influenced by advertising campaigns. If it is positive then an increase in
advertising leads to an increase in quantity demanded. The business will have to increase
the expenditure on promotion to increase sales.
 If it is negative then quantity demanded is not responsive to advertising expenditure. It
becomes necessary to reduce spending on advertising since the increase in costs is not
met by an increase in sales revenue.

Market location, size, share and growth

Successful marketing requires firms to understand which market they are operating in, who their
consumers are and where they are located, whether the market is growing or shrinking.

Location
Firms that operate and sell products in the area they are located are said to operate locally. Other
firms may venture into regional or international markets.

Factors considered for making location decisions.

Pull Factors

 Large market in the proposed destination

 Nearness to related industries (interdependency of industries)
 Large pool of skilled labour
 Availability of raw materials
 Low levels of competition
 Better communication services

Push Factors

 Exhaustion of raw materials

  State interventions
 Dwindling market
 Intense competition from other businesses

Market Size

The total level of sales of all producers within the market

It can be measured in two ways:
1. Volume of sales units. This is the quantity of goods that are produced and sold
2. Value of goods sold. This is the total amount spent by consumers buying the products.

The market size is important because:

1. A marketing manager can assess whether a market is worth entering or not

2. Firms can calculate their own market share.
3. Growth or decline of the market can be identified.

Market growth
 The percentage change in the total size of a market over a period of time.
 Market growth depends on:
1. Changes in consumer incomes, a rise in consumer incomes help the growth of market e.g.
in Zimbabwe 2009
2. General economic growth, it leads to more firms opening and more people being
employed thus the market grows.
3. Technological changes can cause rapid growth in other markets. The sales can go up
when an innovation becomes available. An example is the growth in the use of iPods and
MP3 players and downloading music from the internet is leading to the decline in the
market for CDs.
4. Developing new products and markets ,this can lead to increased sales
5. Social changes like decline of marriages, increase in the proportion of working women
increase the market for child care and child support services like day care centres.
6. Changes in population structure
7. Changes in legislation governing use of products

Market share

 The percentage of sales in the total market sold by one business. It describes the
proportion of a particular market that is held by a business, a product, a brand or a
number of business or products
 Market share=(sales of a business/total sales in the market)*100
 It might indicate a business that is a market leader.
 This could influence other companies to follow the leader or influence the leader to
maintain its position.
  It might influence the objectives of the business e.g. a firm with a small market share may
set a target of increasing its share by 10%
 It may also be an indication of failure or success.

Advantages of a high market share

1. Sales are higher than those of competing firms and this could lead to high profits
2. Retailers are keen to stock and promote the best selling brands. These brands may be
given prominent positions in shops.
3. As shops are keen to stock the product it might be sold to them with a lower discount
rate like 10% instead of 15% offered by competing firms.
4. Consumers are keen to buy the most popular brands because they are market leaders.

Marketing Strategy
 This is a coordinated plan of action to identify, anticipate, and satisfy consumer demand
and thereby achieve the organisation’s objectives.
 It can refer to the techniques an organisation tends to adopt to gain a competitive
advantage.
 Components of a marketing strategy are:
1. Market research ,to identify consumer needs and wants to tailor goods to consumers
needs
2. Product planning and development that is creating products to satisfy these needs
3. Pricing, that is determining the value placed on the product by customers
4. Distribution, that is movement of the product to consumers
5. Promotion, an exercise in communications that includes advertising and selling.

Factors that may affect the marketing strategy

1. The objectives of the business e.g. if the objective is to increase market share by 10%
therefore a low, penetration pricing policy is adopted, using mass marketing to a wider
market in several countries or to maintain high product quality image in the new product,
but increase profit margin to 20% using niche marketing to carefully selected target
markets as well as high skimming pricing policy
2. The resources available to the organisation. If the organisation has a lot of delivery
vehicles e.g. Delta then it can distribute its products to remote areas to enhance product
availability. This will increase market share.
3. The company’s organisational structure that is the marketing manager must take into
account other groups in the company in formulating marketing plans e.g. top
management, finance etc.
4. Situational analysis which is concerned with the current market conditions, what the
competitors are doing. It covers:
 a) Current product analysis which focuses on product positioning, product quality,
features and packaging
b) Target market analysis which establishes important features of consumer profiles that
is high income or low. This will enable pricing strategy and segmentation. This
should establish whether it is a segmented or mass market. The organisation should
establish the consumers’ perceptions to the company’s products e.g. Harare parts
distributors’ products are perceived to be of poor quality.
c) Competitor analysis, the organisation should identify its main competitors as well as
the strengths and weaknesses of their marketing mix e.g. a new company entering a
market for liquor production will identify Delta and its strength in distribution. It is
also supposed to identify potential future competitors.
d) Economic and political environmental analysis through PESTLE.
e) SWOT analysis of the organisation i.e. management skills, financial strength and
potential internal weaknesses and the external environment, the opportunities and
threats that it presents to the business.

Marketing Mix
The set of controllable tactical marketing tools that is product, price, place and promotion that
the firm blends to produce the response it wants in the target market. This consists everything
that the firm can do to influence the demand for its product. This includes the 4P’s

 Product (customer solution)

Refers to the goods and services the company offers to the target market. Important
features of the product to be manipulated include: Variety, quality, features, brand name,
packaging and services.
 Price (customer cost)
The amount of money customers have to pay to obtain the product. It includes
allowances, discounts, and payment period and credit terms. Some organisations like
Ford does not charge full sticker price instead if negotiates the price with each customer,
offering discounts, trade in allowances and credit terms to adjust for competitive situation
and bring the price in line the buyer’s perception.
 Place (customer convenience)/Distribution
This is a broad concept that includes all the activities responsible for getting the product
to the consumer. It details the channels to be used, the range and number of outlets that
will sell the product and how these are linked to the market segment. It includes aspects
like channels, coverage, assortments, location, transportation, and logistics. Delta
maintains a large body of independently owned shops and stockist that sell the
company’s products. Some are sold through wholesalers.
 Promotion ( communication)
 Activities that communicate the merits of the product and persuade target customers to
buy it. This involves advertising, personal selling, sales promotion and public relations.
Time scales for promotional activities are important as some promotions like adverts may
need to be repeated at different stages of the product launch. The scale and type of
advertising campaign will depend on:
a) The image being created for the product
b) Market being targeted
c) Price being charged
d) Marketing budget available

Market segmentation
 The process of dividing a large heterogeneous market into small homogenous market.
 It is dividing a market into distinct groups of buyers on the basis of needs characteristics,
or behaviours who might require separate products or marketing mixes.
 A market segment is a sub group of a whole market in which consumers have similar
characteristics.
 To segment a market the firm should have a consumer profile. This is the quantified
picture of consumers of a firm’s products, showing proportions of age groups, income
levels, location, gender and social class.

Ways of segmenting a market

 Geographic segmentation

It is dividing a market into different geographical units such as nations, regions, states, cities or
neighbourhoods. A company might to operate in one geographical area e.g. European market.
The geographical differences might result from cultural differences, thus alcohol may not be
promoted in Arab countries .Many firms are localising their products, advertising, promotion and
sales efforts to fit the needs of individual regions. In Zimbabwe Alliance Cotton Company set up
a Ginnery in Norton and has branches in rural areas like Makonde, Hurungwe, Chegutu where
cotton growers are found. It is less costly to operate in these areas.Maggi and Crosse &
Blackwell soups are adapted to suit different tastes, by varying ingredients from one country to
another. However now consumer tastes are becoming uniform across geographical boundaries so
boundaries are becoming less significant in determining tastes.

Demographic segmentation

Demography is the study of population data and trends, and demographic factors such as age,
sex, family size and ethnic background. The process divides the market into groups based on
variables such as age, gender, family size, family life cycle, income, occupation, education,
religion, race and nationality .Consumer needs, wants and usage rates often vary with
demographic variables and they are easy to measure than most other types of variables.

a) Age and life cycle stage segmentation

It involves offering different products or using different approaches for different age and life
cycle groups. Johnson and Johnson used to produce baby products (baby Powder) and now have
included products for adults. R&B CDs may be marketed to teenagers whilst hits of the 70s to
older people. However marketers should guard against stereotypes using age and life cycle e.g.
although 18 year olds can drink beer, others do not so advertising beer to 18 year olds might not
be effective always.80 year olds might require wheel chairs while others still play tennis.
Therefore age is a poor predictor of a person’s life cycle, health, work, needs and buying power.

b) Gender segmentation

It is based on sex. It is widely used in clothing, cosmetics, toiletry and magazines. Some
perfumes (rose) ganelli are for ladies and others are men. Face powders and ear rings are
specifically for women. Also car manufacturers are now designing vehicles that suit women
better that have trunks that are easier to open glove boxes to preserve such things as lipsticks

c) Income segmentation.

This is dividing based on income groups .It is used by manufacturers of automobiles, clothing,
cosmetics and financial services like Prestige or priority banking for executives or high income
earners .The company target affluent consumers with luxury goods and convenience services
e.gBarbours sells expensive clothing for high income earners .Grey hound and Intercity bus
companies target the affluent while CAG is for low income earners. The Hammer car is likely to
be marketed to high income earners.

d) Religion

The business may divide the market according to religious groups. Food producers and
restaurants, butchers may concentrate on producing for Jews (kosher food).

Psychographic segmentation

This is dividing the market into different groups based on social class, lifestyle or personality
characteristics. The products people buy reflect their lifestyles, so marketers often segment their
markets by consumer’s lifestyles. Personality is also used to segment the market. This grouping
of people results in (i) clothes may be geared towards those interested in ‘retro’ fashions from
earlier decades like the so called ‘revo’ (ii) Certain newspapers are geared towards opposition
party voters whilst others are geared towards ruling party voters.(iii) mobile phones provide
services such as internet access to business travellers

Behavioural Segmentation
This is dividing the market into groups based on consumer knowledge, attitude, use or response
to a product. This includes:

1) Occasion segmentation

This is dividing the market into groups according to occasions when buyers get the idea to buy a
product or use the product. It helps the firms to build up product usage e.g. orange juice is most
often consumed breakfast or lunch, but orange growers have promoted drinking orange juice as a
cool and refreshing drink at other times of the day. Some holidays like mother’s and father’s day
were originally promoted partly to increase sales of candy, flowers, cards and other gifts. Also
marketers prepare special offers and adverts for holiday occasions. In Zimbabwe fire crackers
sell high over the New Year holiday.

Benefit segment Demographic Behaviour Psychographic Favoured brand

Economic Men Heavy users High autonomy Brands on sale
Medicinal Large families Heavy users Conservative crest
Cosmetic Teens Smokers Active, social Aqua fresh
Taste Children Spearmint High self Aim, Colgate
lovers involvement

1) User status
2) Markets are segmented into groups of non users, ex-users, potential users and first time
users and users of a product. One study showed that blood donors are low in self esteem,
low risk takers, and more highly concerned about their health while non donors are the
opposite.
3) Usage rate

The market can be divided into groups of high, medium, heavy users of a product. Thus a
firm would benefit by directing its efforts towards heavy users of a product. British Airways
established the Executive club to encourage and develop the custom of regular business
travellers.

Market Segmentation and Strategy

Undifferentiated strategy is when the firm promote the product in the whole market. The
business does not segment the market but try to make the product appeal to the whole market.
This is done by firms producing goods in bulk where customers want to buy a standard product.
It could also be that the cost of producing different products far outweighs the return. Customers
might prefer to buy cheap undifferentiated products than expensive one tailored precisely for
their needs.

Differentiated strategy is when the firm develop marketing strategies for particular market
segments. This could mean different price, advertisements, packaging, place or channel of
distribution as well as quality. A detergent manufacturer might sell cleaning products to
consumers and companies and larger packs for companies.

Concentrated strategy is when a company focus on one segment of the market. This is usually
done by luxury brands like Gucci and Dior that sell to high income earners only.

Advantages of market segmentation

 There is less wastage of resources as they are used more efficiently

 This gives the company a more competitive advantage in a particular market segment
 It enables the firm to concentrate its marketing effort in one segment precisely, design
and produce goods that are specifically aimed at these groups, leading to increased sales
 The firm may identify a Niche market through identifying groups of consumers that not
currently being targeted and these could be successfully exploited.
 The products can be tailored to match requirements of the market leading to customer
satisfaction
 Differentiated marketing strategies can be focused on target market groups therefore
avoiding wasting money on trying to sell products to the whole market as some consumer
groups will never have the intention to buy the product.
 Small firms unable to compete in the whole market are able to specialise in one or two
market segments
 Price discrimination can be used to increase revenue and profits
 There is quick response to needs of consumers by the firm
 Market segmentation facilitates the identification of excellent marketing opportunities

However

 More resources are wasted in the development of differential products. Product

differentiation is a wasteful practice
 Research and development costs might be high as a result of marketing different product
variations
 Promotional costs might be high as different advertisements and promotions might be
needed for different market segments. Advertisement increase costs without adding value
to a product.
 Focusing on one or two limited market segments poses a danger that excessive
specialisation could lead to problems if consumer tastes and purchasing habits change
 Extensive market research is needed
  It is more complex and time consuming
 It is associated with higher administration costs

Market Research

The process of collecting, recording and analysing data about the customer, competitors and the
market, for example a firm might gather information about the likely consumers of a new
product and use the data to help in its decision making process. The data gathered might include:
 Whether or not consumers would want such a product
 What type of promotion will be effective;
 What style, shape, colour or form it should take;
 The price people are prepared to pay for it;
 Information about the consumers themselves like age, attitudes ,lifestyles etc

Advantages of Desk or Secondary research

 It is relatively easy, quick and cheap to collect, especially if the sources that exist are
known. This makes it very useful for smaller businesses
 Several sources can be used. This allows the data to be checked and verified. This allows
a cost effective analysis of several sources of data.
 Historical data may be used which make it easier to establish trends
 It can be used before carrying out primary research which helps to establish questions to
ask in questionnaires.
 It is inexpensive
 It avoids repeating effort that is finding out what already exists
 There is a wide choice of data that can be used for exploratory research.

Disadvantages of secondary research

 The data is not always in the form required by the firm. Adapting it may take time.
 The data may be out of date and not relevant, especially in fats changing markets
 The data might not be available
 Coverage of existing information may be inappropriate, thus some aspects covered may
be not relevant.
 There is little control over the quality of the information
 Researchers must be aware of bias from published accounts and reports due to window
dressing
 There can be problems of interpretation of research findings

Primary research is the collection of first hand data that is directly related to the firms needs
Advantages of primary research

 It is up to date and therefore more useful than most secondary data

 It is relevant as it is collected for a specific purpose. It directly addresses the questions
the business wants answers to.
 It is confidential as no other business has access to this data. It can be used to gain
marketing advantages over rivals.
 Secondary data may be unavailable in a certain area
However
 It is costly to carry out primary research since the firm might use a research agent
 It is time consuming to carry out the research
 There may be doubts over accuracy and validity because of the need to use sampling and
the risk that the sample used may not be fully representative of the population.
4) The fourth step is to select the primary research methods
Basically there are 3basic techniques of field research to collect primary data. These include
surveys, observations and experiments. The researcher should choose the most appropriate
method.

The choice of the method is affected by:

 Relative costs of the method
 Time available to carry out research
 Type of information required. If empirical evidence is required then experiments
become appropriate
 Type of people to be investigated
 Degree of accuracy required

However it should be noted that:

 Primary research is expensive and time consuming
 The accuracy of findings causes a rise in resources employed and time taken
 Costs should be controlled so that they do not exceed the benefits to the firm
 It should not take too long to allow rivals to take advantage
5) Decide on the research technique. This will include formulation of questionnaires and
deciding on sampling methods.
6) Analysis, interpretation and evaluation of data. This is done to be able to draw
conclusions from the data
7) Recommendations, involves the strategy to be pursued in relation to the product and
marketing effort

Methods of primary research

Qualitative research involves collection of data about attitudes, beliefs and intentions. The data
collected is open to a high degree of interpretation. There are often disagreements about the
significance of the data. It includes use of Focus groups and Interviews

Focus groups
This is a group of customers being brought together on one or a number of occasions. They are
asked about their attitude towards a product, service, and advertisement or new style of
packaging. It involves a group discussion in which people are encouraged to freely express views
and opinions on a selected subject. It is a widely used method of obtaining feedback about new
products, new brand names and new advertisement. It is used as a means of obtaining both overt
and sub conscious attitudes and motivations. Researchers are present in the focus group and they
take part in the discussion only to stimulate and not lead the group to a particular conclusion.
They are a relatively cheap and easy way of collecting market research information. The
problem is that a fairly small number of respondents may be representative so may not reflect the
views of the whole market. Also it may be time consuming and some members of the group may
discuss issues not directly related to the research. Focus groups are a form of qualitative
research, so the data is qualitative in nature can be difficult to analyse and present to senior
managers. Also some members of the group may discuss issues not directly related to the
research.

Interviews

This involves an interviewer obtaining information from one person face to face. The
interviewer fills out the questionnaire not the interviewee. The questions asked are mainly open
ones.

Merits of interviews
 The interview allows the respondent to detailed responses to questions concerning them.
 It allows for time and scope for answers to be followed up in more detail.
 Long and difficult questions can be explained by the interviewer and the percentage of
responses that can be used is high.
 It allows the observation of reactions and it is very flexible.
 Visual material can be used in an interview.
 Skilled interviewer can elicit information in greater depth

Demerits
 There can be interviewer bias
 It can be time consuming and tends to rely on the skill of interviewer
 There can be respondent bias a they can give false answers to impress the interviewer
 It is difficult to sample a scattered population
 It is difficult to control the interviewer.

Quantitative research involves the collection of data that can be measured. It involves
collection of statistical data such as sales figures and market share. The data is less open
interpretation than qualitative data. The methods include:

Consumer panel
It involves a group of consumers being consulted on their reactions to a product over a period of
time. They are widely used by TV companies to judge the reactions of viewers to new or existing
programmes.

Merits
 They can be used to consider how consumer reaction changes over time.
 Trends over time can be established.
 Control groups can be formed.
 It saves time as panel members know the procedures.
 The firm can build a picture of consumer trends.
Demerits
 It is difficult and expensive to choose and keep a panel available for research over a long
period.
 Also panel sophistication develops.
 Members tend to be not typical.

Observation and recording

The researcher observe and record how consumers behave. They can look out for the amount of
time consumers spend making decisions and how readily they notice a particular display or how
many take a product from the shelves. It can include a stock to check and record sales over time.
They can count the number of people or cars that pass a particular location in order to assess the
best site for a new business. A great number of consumers can be surveyed.

However it does not give researchers opportunity to ask for explanations. It can leave many
questions unanswered e.g. it might show that a particular display is unpopular but does give
clues as to why. The results can be distorted if people are aware that they are being watched.

Test marketing

This involves selling a product in a restricted section of the market in order to assess consumer
reaction to it. It is an experiment to test and assess the response of consumers to changes in the
marketing mix. It takes place by making the product available within a particular geographical
area. The region selected should reflect as closely as possible the social and consumer profiles of
the rest of the market.
The main merit is that it reduces marketing costs by targeting a particular market before national
launch. It reduces the risk of new product launch failure.
The demerit lies in choice of participants and difficulties in controlling random variables e.g
mood of participants or weather conditions

Questionnaires

Many field research methods use a questionnaire. It is a series of questions designed to find out
the views and opinions of a respondent. In designing a questionnaire it is important to follow the
following principles:
  Clarify the purpose of research
 Devise clear unambiguous questions so as not to confuse or mislead respondents so
technical language should not be used.
 Use language intelligible to the respondent
 Avoid leading questions, which encourage a certain answer e.g. Do you think Diet coke
is better than Diet Pepsi? (which brand of diet coke do you prefer Pepsi or Coke)
 Follow a logical sequence in questions
 Avoid questions that tax memory too much
 Do not use multiple choice questions where one of the offered answers appears to confer
status on respondents
 Avoid questions on topics that respondents will be reluctant to answer
 Strike a balance between open and closed questions. Open questions give respondents
opportunity to reply in their own terms, uninfluenced by guidance within the
questionnaire or by the interviewer. e.g. what is your opinion of Mazda cars?
Closed questions are those in which the respondents choose from a number of specific
responses.

Sampling

A sample is the group of people taking part in the market research survey selected to be
representative of the overall target market.
Sampling is the process of selecting individuals for inclusion in the sample.

Advantages of sampling
 It reduces costs of researching the whole market
 It saves on time since a few selected individuals are used
 It requires few resources like manpower
 It is more reliable as there is concentration on fewer units

Disadvantages
 There can be sampling error
 It can be done for convenience at the expense of representativeness.

Sampling methods

Probability sampling

This involves the selection of a sample from a population based on the principle of random
chance. It requires use of a sampling frame, the complete list of the sampling population. The
sample can be selected from the frame. This can include the voter’s roll, phone directory,
Nemakonde high pupils. The sample frames should be evaluated for: completeness, accuracy, so
that reliable estimates can be made about the whole market and the chance of errors can be
determined.However probability sampling is complex and time consuming. It is more costly than
non probability sampling.

Techniques of probability sampling

Simple random sampling

This is the method in which each member in the population has an equal chance of being
selected. The sample is selected at random, like picking numbers out of a hat. It can be done as
follows:
 Make a list of all people in the target population,
 Give sequential numbers to each member of this population.
 A list of random numbers generated by a computer or can be picked out from a hat.
 The selected numbers will make the people included in the sample e.g. if a sample of 5
people is required then the first 5 numbers on the list is taken.

Advantage
 It removes bias from the sample

Disadvantages
 It assumes that all members of the group are the same which is not always true
 It is costly and time consuming for firms to draw up a list of the whole population and
then contact and interview them.

Systematic sampling

It involves choosing a starting point in a sample and then selecting every nth item thereafter.
This is not a fully random method and will produce a bias if there is a regular, recurring
pattern in the frame. E.g. a supermarket wishing to study buying habits of customers can
decide to ask every 8th customer entering the shop until the required sample has been reached.

Stratified sampling

The population is divided into sub groups with different opinions. The groups are called
strata. The sample reflects each subgroup in proportion to their representation in the
population as a whole. The selection of individuals within each group is made on a random
basis. If a firm wants to establish shoe polish preferences at a school, it can use the following
strata like class groups, age groups etc. It is appropriate where a fair representation of
respondents is required in the sample. It is preferred by researchers as it makes the sample
more representative of the whole population and it is less likely to privilege a particular
subgroup.

Non Probability sampling

Quota sampling

This involves dividing the population into subgroups with quotas attached that reflect known
population characteristics in a variety of respects e.g. age, sex, income, occupation. The
selection of individuals is done on a non random basis. An example might be that it is known
that consumers of beer are: 80% males and 20% females.Age:15-20 years =30%, 21-30
 years=35%, 31-40 years=20% and over 41 years=15%.The sample selected should conform
to these proportions. If a sample of 100 is needed, so 80 will be males and 20 females. It is
appropriate where the information is needed quickly and when time is not available. It is also
useful when proportions of different groups in the population are known. It is also used when
sample frame is not available. However it is not possible to estimate sampling error since it is
a non random method. The results are not representative of the population and are not
randomly chosen.

Cluster sampling

This involves separating the population into clusters based on geographical areas. A random
sample is then taken from the clusters which are assumed to be representative of the
population. It is used when survey results need to be found quickly, such as opinion polls. It
is used when the population is widely spread and a full sample is not available.

Judgemental sampling

The researcher chooses the samples based on who they think would be appropriate to study.
This may be used by an experienced researcher who may be short of time as he has been
asked to produce a report quickly.

Convenience sampling

Researcher chooses respondents based on the relative ease of access like sampling friends,
fellow workers.

Snowballing sampling

This is a highly specialised method of sampling .It involves starting with one individual or
group and then using these contacts to develop more. It is used with highly secretive
markets/products such as fire arms or expensive one off products for a very limited range of
customers.

Measures of central tendency

This involves calculating the most likely or common outcome from the data. These are called
averages. This is useful in a number of situations which are of interest to the business:

 The level of stock ordered most often

 The production level a department achieves most often
 The average sales each month
 The average number of days lost through injury

Arithmetic mean
It is calculated by totalling all the results and dividing by the number of items.

Mean (X)=Sum of items/number of items.

∑x/n or ∑fx/∑f

Uses of the mean

 When the range of results is small, the mean can be a useful indicator of the likely sales
level per period of time.
 It can be used to determine sales level
 It is often used for making comparisons between sets of data.

Advantages of mean

 It includes all data in its calculations

 It is easily understood by managers
 It is well recognised as the average as it is widely used
 It is well organised and can be used further in other ways that assist in understanding the
significance of the results

Disadvantages of the mean

 It is affected by one or two extreme results making result meaningless

 It is a distorted result and not commonly a whole number e.g. the common shoe size is
calculated to be 2, 56 for stock ordering.

Mode

This is the value that occurs most frequently in a set of data. The data is first put in descending
order and the recurring figures will be obvious immediately. It can be used for stock ordering
purposes, for stockholding purposes that is which colour, size to stock most, and where
averaging is affected and distorted by extreme values like salaries.

Advantages

 It is easily observed
 No calculations are required
 It is easily understood and the result is a whole number

Disadvantages

 It does not consider all the data

 It is time consuming for grouped data
 The exact location may be uncertain as there may be more than 1 modal class
Median

This is the value of the middle item when the data has been ordered or ranked. It divides the data
into two equal parts. When the number of items is odd the median item=n+1/2.For even number
of items it is n/2.For example with 20 items n/2 gives 10.The median item will be between the
10th and 11th items. These will be added and divided by two. The median is mostly used in wage
negotiations e.g. half of our union members get less than $x. It is often used in advertising

Advantages

 It is less influenced by extreme figures

 This makes it more representative than mean
 It is easy to understand
 It is represented by an actual item

Disadvantages

 When there is an even number of items then it is estimated

 It is time consuming to determine for grouped data
 It cannot be used for further statistical analysis

E.g. for this set of data: 120,122,128,122,120,135,128,120,130 calculate arithmetic mean, mode
and median

Mean =120+122+128+122+120+135+128+120+130=1125/9=25

Median=first arrange data in ascending order

120,120,120,122,122,128,128,130,135

N+1/2=9+1/2=5

The fifth item is 122

The mode is 120 the number with the highest frequency.

Range

This is the difference between the highest and the lowest value. It is used to measure data
dispersion or spread. Inter quartile range is the range of the middle 50% of the data.
Forecasting

This is an attempt to predict the future behaviour of a variable. It provides a basis planning.
Forecasting can be used in:

 Planning production schedules. The marketing department first have to produce a sales
forecast. This will determine the number of goods to be produced.
 Manpower planning that is the number of employees in the firm to meet the forecasted
demand of goods and services
 Stock control as regards the raw materials to be acquired and stocks of finished goods to
be maintained.
 Investment appraisal where the firm projects the expected cash flows of different projects
 Cost projections in the production process like material, labour and related overheads at
forecasted production level
 Distribution planning of goods and services to meet the projected sales
 Corporate planning that is strategic planning by top management
 Market testing

Forecasting techniques can be divided into two groups:

Qualitative techniques

They depend on human judgement and experience and are used when:

 Data is scarce or unavailable e.g. when a new product is launched

 Time frame is so long that data is of limited use

Techniques

Personal insight, these are forecasts based on individual judgement. They are inexpensive but
the level of accuracy is low.

Jury of experts uses the specialists within the firm to make forecasts for the future. Senior
managers meet and develop forecasts based on their knowledge of their specific areas of
responsibility within the business. It is quicker and cheaper than the Delphi method. However it
lacks the external view of market conditions and consumer trends.

Panel consensus, is a panel of experts discussing issues to arrive at a consensus forecast. There
is pooling of knowledge and idea so accuracy is likely to be high. However it is very adequate
for most business purposes.
Market surveys involve data collection and analysis. They are included in qualitative methods
because even in the absence of data judgement is required. Accuracy of forecasts depend on :

 Representativeness of the sample

 Quality of the questions asked
 Reliability of replies
 Quality of analysis and conclusions

Historical analogy

It uses the idea of the product life cycle as a model to help understand the likely trends in the
demand for a product. The performance of one product provides an analogy to predict trends in a
similar product.

Delphi method

This involves a panel of experts responding to questionnaires. This is a long range qualitative
forecasting technique that obtains forecasts from a panel of experts. The experts do not meet but
are anonymous. The facilitator collects and coordinates the opinions from experts who are sent
detailed questionnaires. This avoids experts being swayed by individuals who shout loudest.
Extreme answers are often amended and moderated so that a consensus is reached that represents
the most likely correct forecasts.

Quantitative techniques

Correlation methods involve establishing casual relationships between variables. Casual methods
involve use of mathematical models to link cause and effect relationship between variables like
price, or income and demand. The aim is to identify variables that are believed to cause changes
in the variables we want to forecast. If the relationship is established between the variables, then
it is possible to forecast trends in one variable from movements in other variables. Links may
exist between sales and price, competitor’s promotional activities, levels of disposable income,
weather

However establishing correlation does not prove that there is a cause and effect relationship.
Sales could have been rising for other reasons entirely different. It fails to consider other factors
such as changes due to seasonal variations. Mathematical methods of correlation analysis can be
undertaken that do not rely on graphical approach.

Time series analysis

A time series is a set of data recorded over uniform time periods, such as a year or a month. It
shows how the variable has behaved over time. It involves predicting future levels based on past
data. The business may predict future sales by analysing sales data over the last 10 years.
Analysing the data involves decomposing the data to establish a pattern, which serves as the
basis for predicting trends into the future. The time series can be plotted on a graph and it is
likely that the pattern will conform to one the graphs below.

There can be fluctuations around a trend e.g.

1. Seasonal fluctuations are regularly repeated fluctuations associated with seasons of the
year, days of the week or even hours of the day. If a fluctuation is repeated regularly it is
a seasonal fluctuation.
2. Cyclical fluctuations occur in a repetitive cycle but over a medium term period e.g. a
boom or slump.
3. Random variations occur as a result of a major disturbance such as a war, a substantial
rise in disposable income following a tax cut, a change of government, a change of
consumer taste.

The time series data is made up of four elements that is trends, seasonal variations, cyclical
and random variations. Time series=T+ S+ C+ R

Forecasts are more likely to be reliable when

 The forecast is for a short period of time in future, such as six months rather a long
time.
 They are revised frequently to take account of new data and other information.
 The market is slow changing.
  There is plenty of back data from which to produce a forecast.
 Market research data, including test marketing data is available.
 Those preparing forecasts have an understanding of how to use data to produce a
forecast.

Moving Averages

This is a smoothing technique to isolate the trend from fluctuations around it. It is important
in constructing sales forecasts. The moving average is updated as new information is
received e.g. Inflation rate is published monthly is an average of price rises in the previous 12
months. At each successive updating, one month drops out of the calculation and is replaced
by the latest month’s data. A basic principle of moving averages is that the period chosen
must coincide with the cycle so for 12 period moving cycles we have 12 months represented
to eliminate seasonal fluctuations. The greater the number of periods in the moving average,
the greater will be the smoothing effect.

The calculation of moving averages

The first average covers the first 7 days starting with the Sunday week 1.The next average,
Sunday wk1 drops out will be replaced by Sunday wk2 and the process is repeated. E.g

Day Sales Moving total Moving average Daily variation

Sunday 50

Monday 31

Tuesday 36

Wednesday 40 337 48, 1 -8, 1

Thursday 48 338 48, 3 -0, 3

Friday 66 339 48, 4 +17, 6

Saturday 66

Sunday 51

( 337+51-50=338)

The moving average is always centred, for odd numbers it is usually the middle value in
chronological order, Wednesday. For even numbers it is between the 2 middle numbers e.g.
between June and July for a year. In the above example a 7 period moving average can be
found by dividing the 7 day moving total by 7.The 7 periods centred moving average can be
plotted onto a graph which will show a trend. This will produce a smoother trend line than
 the figure showing the actual sales and gives a clearer picture of the trend. After identifying
the trend the firm can now predict what can happen in future. The sales figure can be
predicted by drawing a line through the trend figures and extending it to the next period. This
is done by plotting a line of best fit all points in the trend. Computer software can be used to
calculate estimated sales using the ‘sum of least squares.’

Limitations of moving averages

 Moving average calculations of thousands of items of stock require the storage of a

considerable amount of data.
 Moving average calculation takes no account of data outside the period of the moving
average
 Equal weight is given to all values. It can be argued that the more recent data is
relevant and should be given a greater weight

 Forecasting from the trend is an exercise in extrapolation of future data from the past.
We have to ask the extent to which we can forecast the future from the past.

PRODUCT
A product is a good, service or idea consisting of a bundle of tangible and intangible attributes
that satisfies consumers and received in exchange for money or some other unit of value.

Goods have a physical form while services have no physical form or existence.

Products can be classified as:

1. Capital goods that are produced for industrial markets and are used to produce other
goods
2. Consumer goods that are ready made for the end user e.g. a pen

Product positioning is the act of communicating the product’s key features so that it creates an
image/space in the minds of customers. It can refer to the way consumers perceive a product in
terms of its characteristics and advantages and its competitive position. The key approaches to
positioning include: Attributes, Quality, Price, Benefit/application, and Usage.

Product mix is the variety of products a company sells. It is the total number of products lines
that a company offers to its customers. There are four dimensions to product mix which are:

1. Width which pertains to the number of product lines that a company sells. If a company
has two product lines ,its width is 2
 2. Length is the number of total product or items in a company’s product mix e.g.
Dairiboards’ products may have 3 product brands in each product line. The length will be
9.
3. Depth is the total number of variations for each product. Variations can include size,
flavour and any other distinguishing characteristics e.g. if Dairiboard’s sells 2 sizes and
three flavours of yoghurt. The yoghurt has a depth of 6.
4. Consistency pertains to how closely related product lines are to one another, in terms of
use, production and distribution

NEW PRODUCT DEVELOPMENT

A new product is an innovative product distinct from anything else in existence.

Firms develop new products for the following reasons:

 To replace declining products on the market as they come to the end of their life cycle
and keep up with changes in the market
 For growth purposes for example Econet developed Ecocash for growth purposes by
increasing sales revenue offering a variety of products to customers.
 New products can be developed as part of competition. The mobile phone industry has
seen introduction of new products to fight competition and remain relevant in the market.
 To meet changing tastes and preferences of consumers as they constantly changing.
 To fully utilise resources within the organisation that might be under utilised
 To respond to the dynamic technological environment as in the electronic industry

Why do new products fail on the market

1. Due to inadequate market research as it could have been done for convenience at the
expense of representativeness
2. Misleading research findings. The research findings may not contain the actual consumer
needs and wants. The sample used might have been not representative or there could have
been researcher bias
3. There can be defects in the product like the product being of poor quality resulting in
poor performance
4. Activities of competitors who might have a competitive advantage over the firms New
product
5. Insufficient /Inappropriate marketing efforts that could include lack of differentiating
advantage as no or very little advertising might have been done.
6. Distribution problems as the firm might have no access to distribution outlets, to make
product available to consumer s at their convenience.
7. Inadequate sales force to persuade personally customers to purchase products
8. Unexpectedly high production costs which translate to high product prices thereby
reducing the demand of the product
Firms develop new products in two ways:
1. By acquisition of another firm, bringing in new products to their product lines
 2. Internal development

Value Analysis/Value Engineering

This is the process of analysing whether a new product can be made more efficiently (at a lower
cost) without affecting its appeal to customers. It is an approach to cost reduction in which
components are studied carefully to determine if they can be redesigned, standardised or made
by less costly methods of production. The firm decides on the best product characteristics and
specifies them. Its aim is to optimise the value of the product to the customer. The process
eliminates any costs which do not add value to product or improve performance of products and
services. Thus for example if a car has an expected life of 10 years but the engine can live for 15
years, it becomes important to look for a less costly components with a shorter life span. This so
because many firms will want to replace vehicle say after 5 to 10 years, they do not want assets
that live forever. The product should be economic to manufacture and easy to store and
distribute. Design should take into account production of scrap and waste material.

Factors influencing the design of a product include

 Performance of the product in terms of efficiency, reliability, ease of operation, safety of

operation, ease of maintenance
 Appearance of the product
 Legal requirements, i.e the controls over the product appearance like colour toys
 Economy of manufacture and distribution and storage
 Environmental concerns on pollution like the switch to unleaded petrol by car
manufacturers
 Market conditions, competitor activity

Importance of Value Analysis

 It enhances coordination between departments such as production and marketing. The

process can make use of cross departmental teams who check to find ways to reduce
costs of components.
 It enhances the production of better quality products by eliminating any costs which do
not add value and improving performance of the product.
 It guarantees more competitiveness by improving product value. The consumers prefer
products that offer more value than others.
 The process solves root cause problems and capture opportunities
 It takes command of powerful problem solving methodology to use in developing new
products
 It is an approach to cost reduction so reduces product costs and increases profit margins
  It assists in decision making that is determining the costs and benefits of alternative
courses in developing new products
 It enhances efficient resource allocation by eliminating costs which do not add value to
products.
 More simpler methods of production are used
 Fewer components in products results in lower maintenance and repair costs.

PRODUCT LIFE CYCLE

The product life cycle shows the different stages that a product passes through over time and the
sales that can be expected at each stage.

There are four stages in the PLC

1. Introduction stage
The product is introduced into the market with the intention to build a clear identity. Sales are
low and profits may be negative as the costs are high when the product is launched. Before
offering the product to the customers it passes through the development phase. There are high
costs of R&D. Prototypes are produced and market tests are carried out. The core focus is to
establish a brand, a market and demand for the product. The marketing mix is as follows:
 Product-This is concerned with branding, quality level and intellectual property
protections. These are obtained to stimulate consumers for the entire product category.
There is need to create the best first impression for consumers.
 Price-A penetration pricing policy is a low price used to penetrate the market and gain a
market share. This is used for substitute products whose demand is elastic and when there
is intense competition. Skimming pricing policy is a high price used for making high
 profits with the intention to cover initial cost in a short time. It is used to cover costs. The
aim is to maintain a high image .It is used for unique product with inelastic demand and
when the firm is dominant. The pricing strategy depends on the company’s objectives.
 Place –Refers to the distribution of goods. Sufficient distribution is done to produce to
ensure product availability after being advertised. The distribution is usually selective and
scattered. If distribution is not ensured, trade discount and cooperative advertising
allowances to convince distributors to stock the brand.
 Promotion- This is done to build brand awareness. Samples can be provided and it is
fruitful in attracting early adopters. Usually informative advertising is used to let
consumers aware of the product’s existence, its price, and where it can be found and the
main features. Sales promotion can be used to offer free samples to encourage consumers
to taste the product
Price incentives can be offered to traders to stock the product.
Growth stage
There are higher sales volumes that enable the firm to benefit from economies of scale. New
customers buy the product and there are repeat purchases. Costs may fall down due to production
increases. Profits grow as sales rise and costs fall. The product penetrates the market. The firm
tries to build up customer loyalty before the entry of competitors. The competitors may launch
their own version of products. This can lead to a slow down of a rise in sales. The marketing
strategy is as follows:
 The product strategy is to identify deficiencies and improve on these and maintain
existing quality. New features and improvements in the product quality may be done.
This is done to compete and maintain the market share.
 The promotion strategy is to continue with informative advertising but the focus can
move to brand building and persuasive advertising. This is done to educate customers on
specific benefits .When acceptability increases, more efforts are made for brand
preference and loyalty. The company can cut back trade discounts and allowances after
gaining trade acceptance. Sales promotion incentives are given to encourage repeat
purchases and build brand image.
 The price strategy is to lower the skimming price that could have been used to introduce
the product to increase market share. However if the firm had used penetration price with
high demand at low competition it can be increased to increase profits.
 The distribution strategy is to use intensive distribution as the demand and acceptability
increases in order to meet demand. Resellers start getting interested in the product.

Maturity stage
The sales continue to rise but at slower rate. The product is now bought by the majority of
consumers so it’s established. Competition is high so at some point sales will level off as
competitors enter to compete away the profits. Brand preference is now a crucial factor in the
continuing process. The aim of the firm is to retain its market share by capturing sales from
weaker rivals.
 The promotion strategy is to use persuasive advertising to differentiate the product from
rival products. There is need to remind consumers of the existence of the product. Sales
promotion incentives can be used to fight competition and encourage brand switching and
continued loyalty. There is need for sales promotion to encourage retailers to give more
shelf space to the product than that of competitors.
  The product strategy is to add more features and modify the product in order to
compete in the market and differentiate the product from competition. It is best to get
dominance over competitors and increase market share.
 The price strategy is to reduce prices in order to compete due to intense competition.
This attracts the price conscious segment and retains the customers.
 The distribution strategy is to add new distribution channels. Incentives are offered to
retailers to get shelf preferences over rivals.
Decline stage
The market is now saturated so sales and profits decline. This could be due to technical
obsolescence or change in customer tastes. Substitute products flood the market. The firm
seeks to cut its losses by cutting costs or elimination of the product. The firm can
maintain the product, reduce costs and find new uses of the product. The firm can harvest
the product by reducing marketing costs and continue offering the product to loyal niche
markets until a zero profit. He firm can discontinue the product totally. However the firm
must take care not to remove the product too early. Some products can have long or
shorter life cycle like fads which do have a very short life cycle.

Life cycle extension strategies {methods used to extend the life of a product.}
 Finding new markets for existing products e.g. there has been a boom in sports clothing
as it is being used as fashion.
 Developing a wider range of products like lucozade which was originally used for those
recovering from illness but there is now a sports version
 Gearing the product towards specific target markets like banks have accounts young
people
 Changing the appearance, format or packaging of the product e.g. coca cola is available
in individual cans, in glass, or plastic bottles or multipacks.
 Changing ingredients or components like cars are equipped with CD or MP3 players and
air conditioning as standard
 Updating designs like what car manufacturers are doing.

The product life cycle and capacity utilisation

Capacity utilisation is the extent to which a business uses the capacity that it has to produce a
particular product. It is the relationship between what the firm produces and what it is capable of
producing. A business working at full capacity is unable to produce any more products. The
relationship is as follows:
 At the launch sales are likely to be limited so there is spare capacity
 At the growth stage a business will often be expanding its operations and using up spare
capacity to meet the rising demand for the product.
 At the maturity stage the business may be operating at full capacity. If sales continue to
grow it must decide whether to invest to expand capacity.
 At the decline stage there will be under utilisation of existing capacity.

Usefulness of the PLC

 It illustrate the broad trends in revenue that a product might earn for the business
  It will identify points at which business may need to consider launching new products as
older ones are in decline
 It will identify points at which extension strategies may be introduced
 It may help a business to identify when and where spending is required e.g. on research
and development at the start or on marketing at introduction and when extension
strategies are required
 It may help to identify points at which a business should no longer sell the product
 It will help the business to manage its product portfolio
 It will give an indication of the profitability of a product at each stage in its life cycle
 It will allow a business to plan different styles of marketing that a product might need
over its life cycle.

The Boston Consulting Group matrix (BCG)

A product portfolio is the range of products that a firm offers to different market segments.
The BCG matrix is a portfolio planning method that evaluates a company’s strategic business
units in terms of their market growth rate and relative market share. Strategic business units or
product portfolios are classified as cash cows, stars, dogs and question marks/ problem child.
It shows the growth and market share relationships. Market growth measures the attractiveness
of the product. Market share serve as a measure of company strength in the market.

The BCG Matrix

The Boston Consulting Group Box ("BCG Box")

Stars are successful products which are performing well in an expanding market. They have a
high market growth rate and relative market share. The firm needs heavy investment to finance
their rapid growth. The firm will be keen to maintain the market position of this product in what
may be a fast changing market. Promotion costs may be high to help differentiate the product
and reinforce its brand image. Stars are likely to generate high amounts of income. Using
Dairiboard, Yoghurt can be said to be a star.
The strategy that can be used with Stars is called Holding. This is continuing to support the star
products so that they can maintain their good market position. The firm ca freshen the product in
the eyes of the consumers so that high sales growth can be sustained.

Cash cows are successful products that produce high positive cash flows and are profitable. The
sales of cash cows are high relative to the market and promotional costs are likely to be low as a
result of high consumer awareness. They are well established products in mature markets. They
can generate a lot of cash that can be used to support other products. This strategy is called
Milking (taking positive cash flows from the cash cow products and investing in other products
in the portfolio). Chimombe can be regarded as a cash cow.

Problem child/ question marks are products with low market share and high growth rate. They
consume resources but generate little return. If it is a new product it will require heavy
promotion costs to help become established. They can be financed by cash flows from cash
cows. The future of the product may be uncertain so quick decisions may need to taken if sales
do not improve e.g. revise design, relaunch or even withdrawal from the market. The firm should
use the strategy of Building that is supporting the problem child products with additional
advertising or further distribution outlets.

Dogs are low growth, low market share products. They may generate enough cash to maintain
themselves, but do not promise to be large sources of cash therefore they offer little to the
business either in terms of existing sales and cash flows or future prospects. It may need to be
replaced shortly. The strategy used with dogs is called Diversifying. This involves identifying
worst performing dogs and stopping the production and supply of these products.

ANSOFF MATRIX

This is a model used to show the degree of risk associated with the four growth strategies of
market penetration, market development, product development and diversification

Products
Existing New

Existing Market penetration Product development Increasing risk

Markets

New Market development Diversification

Increasing risk

Long term business success was dependent upon establishing business strategies and planning
for their introduction. ANSOFF matrix considered two main variables in strategic marketing
decision. These are:
1) The market in which the firm was going to operate
2) The products intended for sale
In terms of the market, managers have two options
1) To remain in the existing market or (b) To enter new markets.
In terms of the product the two options are:
2) Selling existing products or (c) To develop new products

Market penetration is achieving higher market share in existing markets with existing products.
This can be achieved by reducing prices of products so as to stimulate demand for product and
increase sales and market share. However this could lead to price wars that can reduce profit
margins of all firms in the industry.

Product development is the development and sale of new products or new developments of
existing products in existing markets. E.g. the launch of coke zero took an existing product
developed it into a slightly different version and sold it in the soft drinks market where diet coke
was already available. This involves innovation.

Market development is the strategy of selling existing products in new markets. This can
include exporting products to overseas markets or selling in new market segments e.g. Dell can
use existing business computer systems and repackage them for sale to consumer markets.

Diversification is the process of selling different, unrelated goods and services in new markets.
This strategy is done to spread risks. It involves new challenges in both markets and products. It
is a risky strategy.

Price
The price is the amount of money the customer pays for the product. Price is very important
because it determines the company’s profits and hence survival. Adjusting the price has the
profound impact on the marketing strategy depending on elasticity. It is a compensation given
from one party to another in return for goods and services. The price includes what:
 The buyer is willing to pay
 A seller is willing to accept and
 The competition is allowing to be charged.

The Role of price

 A product cannot exist without a price
 The price affects the demand of the product and an inverse relationship exists between
the two
 It affects the economy because inflation is caused by rapid price increases
 Price provides a crucial role of providing the income
 It also determines the quantity supplied and consumed
 It regulates quantity available and consumed so during times of price controls less is
supplied and consumed
 Price serve as a signal especially through price incentives, (premiums) and disincentives
( discounts)
 It communicates information to provide more or less of a product
 Lastly prices transfer ownership of goods, once you pay the price you are the owner

Pricing Objectives
1) Profit maximisation is the greatest difference between sales revenue and costs. Profits are
maximised when Marginal revenue (MR)=Marginal costs (MC).Firms are assumed to be
profit maximisers
2) To get a target level of profits that can be in monetary terms or percentage.
3) To get an increase in market share, this can be achieved using penetration pricing even to
the extent of sacrificing short term profits. By building up sales, the market share will
increase long term profits
4) To maximise sales revenue by setting prices that maximise current sales revenue,
especially if they seek an early recovery of cash
 5) To minimise risks by setting prices to maximise survival. Prices may be set to meet
competition or abandon competition in favour of non price competition.
6) To get a certain profit margin on each unit sold. This can be seen as skimming pricing
based on the assumption that buyers are still prepared to purchase the goods despite the
high price (demand is inelastic) and the firm has sufficient lead over rivals for there to be
little danger of high prices attracting competitors in the immediate future.

Factors affecting Price decision

1) Cost of production since the price must cover the cost of production in order for the firm
to make profits. The costs include both fixed and variable costs
2) Market conditions- the monopolist or market leader has freedom in setting prices. The
monopolist can set prices anywhere along its demand curve. A firm with high market
share is dominant and can be a price setter. If the market is competitive prices are likely
to be closely related.
3) Competitor’s prices are usually used to set prices closer to those of competitors to stay
competitive in the market.
4) Business and marketing objectives thus if a firm aims to be a market leader through mass
marketing, thus will require a different price from those firms which aim to select niche
markets. A firm wishing to establish a premium branded product sets high prices
5) Price elasticity of demand
6) Whether it is a new or existing product

Pricing methods
There are three broad categories of pricing methods. These are:
 Cost based pricing
 Customer oriented pricing
 Competitor oriented pricing

The choice of the pricing strategy will depend on:

1) The market segment being targeted
2) Stage in the life cycle of the product
3) The likelihood of repeat purchases behaviour
4) Competitive circumstances

Cost based pricing

This involves the addition of a profit element to the cost of production. The following
strategies can be used:

1) Mark up pricing which involves adding a fixed mark up for profit to the unit price of
a product. It is often used by retailers. A fixed percentage mark up is added to the
price of bought in materials e.g. if a textbook is bought for $10 and a mark up of 20%
is required. The selling price will be =20% of 10=$2. The selling price will be $12. A
higher mark up usually leads to lower turnover or sales while a lower mark up leads
to higher sales.
2) Cost plus/ Full cost
This involves setting a price by calculating a unit cost for the product and then adding
a fixed profit margin. The costs of the product include both allocated overheads and
variable as well as fixed costs. A way of allocating fixed overheads has to be found.
This is said to be a fair and logical method of pricing to recover overhead costs and
maximise long term profits.

Advantages of full cost pricing

 A price set will cover all costs of production
 It is easy to calculate for single product firms where there is no doubt about
fixed costs allocation
 It is suitable for firms that are price makers due to market dominance

However
 Full costing ignores demand and price elasticity of demand
 It ignores the competitive situation in the market
 It does not take advantage of market potential that is the potential to increase
market share by lowering prices
 It is inflexible in the face of demand changes
 It exaggerates the precision with which costs can be allocated. The allocation
of overheads depends on level of output. If sales fall average costs rise and
prices could be raised
 It is not necessarily accurate for firms with several products where there is
doubt over the allocation of fixed costs.
 Poor methods of allocating overheads can result in overpricing and under
pricing due to under/over absorption

3) Target pricing is setting prices that will give a required rate of return at a certain
level of output/ Sales. A percentage mark up is added to variable costs. The mark up
covers fixed costs.

4) Contribution cost pricing

This is setting prices based on the variable costs of making a product in order to make a
contribution towards fixed costs and profits. It does not try to allocate the fixed costs to
specific products. The firm calculates unit variable costs for the product and then adds an
extra amount known as a contribution to fixed costs. If enough units are sold, the total
contribution will be enough to cover the fixed costs and a return on profits.

Marginal costing is only suitable where the firm:

 Has spare capacity and can take advantage of increased sales
 Cannot put its resources into profitable use
 Is able to segment its market to avoid a diversion of its regular customers to the
low priced alternative. It is widely used in the service industries which suffer from
daily or seasonal fluctuations in demand e.g. hotels, transport and holiday firms.
Off peak prices are usually low like trains, commuter omnibuses
 5) Standard cost pricing is setting prices based on a mark up above standard costs.
Standard costs are the expected costs of production based on certain standards.
Customer oriented pricing
1) Perceived value pricing involves charging a price that customers will be prepared to pay.
It is used in markets with where the demand is known to be inelastic and a price s placed
upon the product that reflects its value, as perceived by the consumers in the market. This
is to position a product in the market. As quality is informally assessed by the price
charged, It is important to choose a price consistent with the image of a product, so
prestigious cars like Fortuner are perceived to be highly valued so should be priced
higher
2) Psychological pricing is a pricing approach that considers the psychology of prices and
not simply the economics. The price is used to say something about the product e.g. a
highly priced car may be perceived to be having higher quality than a lowly priced one.
Also small differences in prices can suggest differences in products. A price of $2, 99 is
different from $3. The $2, 99 will likely be seen as a bargain price which offers value for
money. The $3 can also suggest higher quality. Psychologists argue that each digit has
symbolic and visual qualities that should be considered when pricing. The manufacturers
of prestigious products will use rounded up figures like $100 not $99, 99.
3) Promotional pricing is temporarily pricing products below list prices and sometimes
even below cost, to increase short term sales. This takes several forms. Supermarkets and
Department stores can price a few products lowly as Loss leaders to attract customers to
the store with the intention that customers will buy other items at normal mark ups. Loss
leaders are product sold at a loss on the individual product with the expectation that the
loss will be covered by extra profit on other product. The firm can offer discounts from
normal prices to increase sales and reduce inventories or clear excess stocks. The
manufacturer can offer cash rebate directly to customer
4) Skimming pricing involves charging higher prices when introducing a product in the
market, that can be reduced later as the product becomes more acceptable and volume of
sales increases. The firm will enjoy economies of scale with the growth in sales, so firm
can afford to lower prices. It is used when the firm is price maker, the product is unique
with no close substitutes and there is little or no competition
5) Price discrimination can be used to charge different prices for the same product in
different market segments. This is viewed as an unfair pricing. It is only acceptable if
seller can prove that its costs are different when selling them to different retailers. It can
be used by airline operators who charge different prices for the same journey.
6) Penetration pricing is charging low prices when introducing products to encourage
retailers and consumers to purchase the product in large quantities so as to gain a high
market share. It is used when competition is intense and the product demand is elastic. It
is used for the following reasons:
I. Consumers are encouraged to develop the habit of buying the product, so that
when prices rise eventually they will continue to purchase it
II. Retailers and wholesalers are likely to purchase large quantities of the product.
This mean they will not buy from other suppliers and the firm can gain a market
share.
It is often used by large firms operating in mass markets to cover high production costs like
production of canned drinks. It is not suitable for products with a shorter life cycle.
Competitor Oriented pricing

This is charging prices based upon the price set by its competitors. The price set can be plus or
minus a certain percentage. Less attention is paid to costs and demand of the product. The
situations in which the method can be used include:
 In markets where there is one dominant firm and other firms simply follow the price
charged by the market leader. This is called price leadership
 In markets that have a number of firms of the same size but prices are still the same to
prevent price wars
 Destroyer pricing which exists where the price charged is below that of competitors in
order to try and force them out of the market.

Promotion
This is an attempt to draw attention to a product or business in order to gain new customers or
retain existing ones. This can include the use of advertising, sales promotion, personal selling,
direct mail, trade fairs, sponsorships and public relations to inform consumers and persuade them
to buy.

Advertising
This is a non-personal one way communication to promote the sale of goods or services through
paid for advertisements in the media e.g. TV. This is a form of above the line promotion
undertaken by the business by paying for communication with consumers. Advertisements are
usually targeted towards appropriate target markets by selecting the right media.

Types of advertising

Informative advertising are adverts that give information to potential purchasers of a product,
rather than trying to create a brand image. This is used to create consumer awareness of the
product. The information could be price, technical specifications, places where the product can
be purchased.

Persuasive advertising is trying to create a distinct brand image or identity for the product. It is
taken to promote own products at the expense of other firms’ products. The products of
producers will be competing and having little differences e.g. Heinz and Cashel valley beans.
Competition among producers often results in improved quality and reduced prices.

Reassuring advertising is aimed at existing customers. It tries to persuade them that their
purchase was correct and they should continue to buy from the firm.

Advantages of advertising
  It advises customers about the products available, their prices and where to get the
products
 It creates brand loyalty and image
 It increases sales thereby profit maximisation
 It can be used to fight competition
 It encourages repeat and first time purchases
 Advertising reminds customers about the products available
 It makes consumers to make a more informed decision as it offers choice to consumers
which allow them to make more informed consumption decisions
 It gives valuable information to customers that might otherwise be difficult to come by
like how to use the product.
 It also earns a lot of revenue for the television and radio and allows newspapers and
magazines to be sold at lower prices.
 The advertising industry employs a lot of people directly through advertising agencies
and indirectly through jobs that may result from a successfully advertised product. If
demand for such a product goes up then more of it might need to be produced leading to
employment creation
 It acts as a guarantee of product quality
 It helps reduce sales fluctuations and assist in production planning

However
 Advertising is very expensive. It raises product costs and therefore prices without adding
value to the product. The money could be used to make product improvements or price
reductions to the benefit of consumers. It is likely that consumers will pay more for the
advertising costs than the firm
 It may persuade consumers to buy unnecessary and unwanted products. It assumes that
people are gullible in nature. This leads to a situation whereby consumers are judged by
how much they consume rather than their value as human beings.
 It exaggerates the performance of a product e.g. washing powders
 It is wastage of resources as these could be put into some other profitable use.
 Advertising can be used as a way of maintaining monopoly power by preventing the
entry of new rivals, thus it exploits consumers
 It stimulates wants that cannot be satisfied. Environmentalists are concerned with high
levels of consumption caused by advertising as the earth’s resources cannot sustain this.
 It encourages people to buy products which are regarded as being damaging to society.
 It also encourage behaviour which might be to the detriment of society as a whole like the
fast ‘macho’ driving often seen in advertisements for cars and related products.

Types of advertising Media

Television is often used by business marketing consumer goods to a mass market. The
features are as follows:
 It produces sound and vision, it provides a wide coverage especially due satellite
television system accessible worldwide, advertising on colour television is attractive
and has greater impact on the audience, advertisements can be repeated, detailed
 information can be given, demonstration are possible on the television,
advertisements can be in different languages, audience can be targeted, can cater for
both literate and illiterate.

Radio has the following features

 It provides sound, it has personal impact or effect on people’s emotions, it has a wide
coverage, advertisements can be repeated and timed, producer can target the group
thus adverts can be placed during certain programmes, message is transmitted fast,
advertisements can be produced in different languages, it caters for illiterate and
blind.

Newspapers and magazines are an important media of advertising in mass markets products.
They can be used for targeting a particular market segment. It can also be useful for smaller
businesses which may make use of regional and local newspapers such as Makonde star or the
Telegraph. Newspapers have the following features:
 Advertisements can be placed on daily, weekly or monthly newspapers, provides a
wide coverage, can be passed on for readership, can be timed or placed in weekly or
daily papers, adverts can be detailed, they can be in colour for greater impact, it
provides a written record, it is cheap, and caters for a selected group.
Other Medias include posters, trade journals and the internet.

Factors considered when choosing advertising media

Cost –The cost of placing an advert in the TV or radio can be very expensive per minute but
however actual cost will depend on the time of the day the advert is transmitted. The cost has
to be measured against the effectiveness that is how much new extra business will be
generated by each extra dollar spend on advertising expenditure. Managers should choose the
media that falls within their budget. The costs include media space and time, the advert
production and use of celebrities in TV and radio or cinema.

Size of the market –This refers to the areas to be covered by the advertisement. A radio is
suitable for a wide coverage. There is need to choose a media that will best get to the
audience the advertiser wishes to reach.

Profile of the target market audience- This is in terms of age, income levels etc. This
should reflect as closely as possible the target consumer profile of the market being aimed.
Advert for a Toyota Fortuner cannot be placed in the Telegraph newspaper.

The message being communicated- Written communication is required for giving detailed
information about a product that needs to be referred to more than once by potential
customers. For products where there is need for creating image, a colourful; TV advert is
more effective.

The law – There are legal restrictions on the use of different media for advertising certain
products, such as cigarettes. There can be a limit on adverts aimed at children.
 The other aspect of the marketing mix- There is need to integrate other aspects of the
marketing mix. Advertisements can be part of a wider campaign using other elements of the
mix such as below the line promotion or pricing. These elements may determine which
media ton use for advertising.

Sales promotion
This includes incentives such as special offers or special deals directed at customers or retailers
to achieve short term sales increases and repeat purchases by consumers. This is a form of
‘below the line promotion’. This is a promotion that is not a directly paid for means of
communication, but based on short term incentives to purchase a product.

The forms of sales promotion include:

1 Price promotion, which are temporary reductions in prices of products to encourage
existing customers to buy more and to attract new customers to buy as the product now
appears competitive. However increased sales affect Gross profit of each item sold. This
might have a negative impact on the brands’ reputation from the discounted price.
2 Money off coupons is a versatile and better focused way of offering price discounts.
Coupons can appear at the back of a receipt, existing pack of a product like on bottle tops
or newspaper adverts. However they may simply encourage purchase of goods the
consumers would have bought already. Retailers may be surprised by the increase in
demand and not hold enough stocks, leading to consumer disappointment. The proportion
of consumers using the coupon might be low if the reduction it offers is too small.
3 ‘Buy one, get one free’ encourages repeat purchases which reduces demand for
competitors products too. However there could be substantial reduction in gross profit
margin. Consumers may consider that if the scheme is able to operate, are they paying a
‘normal price’ that is too high. If the scheme is used to sell off stock that cannot be sold
at normal prices, this might damage the reputation of the firm. Current sales might
increase, but future sales could fall as consumers have stocked up on the product.
4 Point of sale displays in shops that can be a dump bin placed centrally full of dumped
products inside to attract attention of customers. This is normally used with chocolates
and other products at the points of sale (tills). However best display points are usually
offered to market leader products (with high market share).

Branding
This is the strategy of differentiating products from those of competitors by creating an identifiable
image and clear expectations about a product.

A brand is a name, term, symbol or design or any other feature that allows consumers to identify the
goods and services of a business and to differentiate them from those of competitors
A brand might be one product, a family or range of product, or the actual business itself.

Importance of branding
 To create brand loyalty as consumers often have a high degree of loyalty to popular, well
established, brands. Firms can only compete in markets if they have strong brands. If brand
 loyalty is achieved then persuasive advertising is reduced. It therefore reduces the amount
spend on advertising
 To help recognition. A product with strong brand name is likely to be instantly recognised by
most consumers. This could be because consumers trust the product and therefore are willing
to buy the product.
 To differentiate the product and give an identity which aids identification. It is important in
markets where products are fairly similar so that a firm’s products can be clearly distinguished
from others.
 To gain flexibility when making pricing decisions as the greater the loyalty of consumers to a
particular brand, the more room for manoeuvre a firm will have in its pricing decisions.
 To develop a brand image as it is argued that consumers respond to brand images they can
identify. If consumers identify strongly with a brand they are often prepared to go to great
lengths to pay for the brand of their choice.
 It provides a sense of security, reassurance about the quality of goods inside the package. This
arises out of the familiarity with the brand.
 It adds value to the product making it more appealing to customers. The essence of a brand is
its perception by buyers.

Types of Brands

1 Family brands(manufacturer brand) containing the name of the company making the
product like Heinz baked beans
2 Family brands covering a range of products but not containing the name of the company.
They cover a range of products that are in competition with other products of the firm that are
in a different family. The main aim is to appeal to different segments of the market and reduce
the chance of brand switching.
3 Distributor brands are also called own label brands. They are products manufactured for
wholesalers or retailers by other businesses. The wholesalers sell them under their own brand
name like OK pot ‘O’ gold, TM super saver. They allow retailers to buy from the cheapest
manufacturers reducing oits cost.
4 Generic brands (Individual brands) are products that only contain the name of actual product
category rather than the company name eg aspirin and carrots.

Packaging

Packaging performs the utilitarian function of containing and protecting the product. It protects the
product and retain its freshness.

Advantages of packaging
 It helps to identify the product using colour, logos and designs on the packaging in advertising
as themes
 It aids promotion to provide a constant reminder of the product
 It can attract customers by being colourful
 If the goods are competing with rivals they have to be distinctive
 Packaging can be used to prolong the life of the product by revitalising interest or enabling
 the product to penetrate new markets.
 It aids self service and help to build brand loyalty
 It preserves the contents like tinned beans
 It contains instructions on how to use the product
 It can be used after the product has been consumed like empty buckets which contained
cooking oil.
 It makes handling easier and convenient
However:
 Packaging is expensive
 It increase the prices of the product to final consumer
 It contains legislative prohibitions (not for under 16)
 Some type of products package can be provocative like jiggies which have pictures of
wrestlers.
 Packaging can pollute the environment

Promotion budget
The financial amount set aside by a business for spending on marketing during a certain time period.

Factors determining the promotional budget

1 Percentage of sales. If sales increase, the expenditure will also increase. However it has the
weakness that if sales go down due to inadequate promotional activities, then the budget goes
down
2 Objective based budgeting as the budget is based on the promotional support required to meet
the sales level required
3 Competitors’ budget is used by firms of relatively similar size in terms of sales; they can
match each other marketing spending. However this can raise promotional costs as firms try to
outdo each other
4 Funds available which make big firms like to be able to advertise while small firms cant.
Budgets are set based on what firms can afford
5 Last year’s budget (incremental budgeting). This takes last year’s budget and adds a
percentage to reflect different sales targets.

Distribution
It refers to the channel of intermediaries a product passes through from producer to final
consumer. It involves a strategy of moving products from point of creation to the point of
consumption in an efficient and low cost manner so that it is convenient for the consumer
Players in the distribution channel include:
Manufacturer, agent, wholesaler, retailer and consumer
These can be arranged as follows:
 Producer

Route 4
A Agent Route 3
Route 2
Route 1
Wholesaler

Retailer

Consumer

Route 1
It involves direct marketing from producer to customer. It is used in industrial markets for the
supply of capital goods, mail order firms/manufacturers, factory shops or farm shops, airline
tickets sold over the internet.

Advantages
 There is no intermediary so there is no mark up or profit margin taken up by other
businesses.
 Producer has complete control over the marketing mix of the product, that is how the
product is sold, promoted and priced to consumers
 It is quicker than other channels
 It may lead to fresher food products
 Direct contact with consumers offers useful market research
Disadvantages
 All the storage and stock holding costs have to be paid by the producer
 No retail outlets limits the chance for consumers to see and try before they buy
 It may not be convenient for consumers
 No advertising is paid for by intermediaries and no after sales service offered by shops
 It can be expensive to deliver each item sold to consumers

Route 2
It is used by large retailers with own warehouses, holiday companies selling holidays via travel
agents or where the whole country can be reached using one level route.

Advantages
 Retailers hold stocks and pay for storage costs
 Retailers has the product displays and offers after sales service
 Retailers are often in locations that are convenient to consumers
  Producers can focus on production and not selling
Disadvantages
 Intermediaries take a profit margin that make the product more expensive
 Producers lose some control over the marketing mix
 Retailers may also sell products from competitors so there is no exclusive outlet
 Producer has delivery costs to retailer
Route 3
This is the traditional channel in consumer markets. Small retailers depend on wholesalers for
supplies and manufacturers are also keen to avail themselves tp the services of wholesalers.

Advantages
 A wholesaler holds goods and buys in bulk from producer
 It reduces stock holding costs fo producer
 Wholesalers pay for transport costs to retailers
 Wholesalers breaks bulk by buying in large quantities and selling in smaller quantities
 It may be the best way to enter foreign markets where producer has no direct contact with
retailers
Disadvantages
 Another intermediary takes a profit mark up and may make final goods more expensive
to consumers
 Producer loses further control over the marketing mix
 It slows down the distribution chain

Factors influencing the distribution channel

1 Nature of products- industrial products tend to move directly to consumers
2 Geographical dispersion of target market, thus if consumers are widely spread throughout
the country then more intermediaries are used
3 Level of service expected by consumers like after sales service of cars means that internet
selling is not appropriate
4 Technical complexity of product like business computers are sold directly as they require
a great deal of technical knowhow among the sales staff and supporting service team
5 The unit value of the product as high value products like cars can be sold via sales
persons while low value items like exercise books use wholesalers and retailers
6 The number of potential customers affect thus commercial aircraft tickets are sold
directly

Internet Marketing
This is the marketing of products over the internet. It can involve several different marketing
functions:
1 Selling of goods directly to consumers or other business as orders are placed online
through the company website
2 Advertising using the company’s website or ‘pop-up’ on another firms website e.g. a car
insurance company may pay to have a banner advert on a car manufacturers website
3 Sales links are established by visitors to a website leaving their details and then the
company emails them or calls them to attempt to make a sale
 4 Collecting market research data by encouraging visitors to the website to answer
questions that can provide important consumer data
5 Dynamic pricing using online data about consumers to charge different prices to different
consumers over the internet.

Advantages
1 It is relatively inexpensive when compared to the ratio of cost and the number of
potential consumers reached
2 Components can reach a worldwide audience for a small proportion of traditional
promotional budget
3 Consumers interact with the website and make purchases and leave important data about
themselves
4 The internet is convenient for consumers to use if they have access to a computer
5 Accurate records can be kept on the number of visitors or clicks and the success rate of
different web promotions can be quickly measured
6 Computer ownership and usage are increasing in all countries of the world
7 Selling products over the internet involves lower fixed costs than traditional retail stores
8 Dynamic pricing is made possible

Disadvantages
1 Some countries have low speed internet connections and in poorer countries, computer
ownership is not wide spread
2 Consumers cannot touch, smell, feel or try on tangible goods before buying. This may
limit their willingness to buy certain products online
3 Product returns may increase if consumers are dissatisfied with their purchases once they
have been received
4 Cost and unreliability of postal services in some countries may reduce the cost advantage
of internet selling.
5 The website must be kept up to date and user friendly. Good websites can be expensive to
develop.