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UFS 102 : CONTEMPORARY BUSINESS

CHAPTER 6:Marketing

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2010 Cosmopoint

6.1 Nature of Marketing 6.1.1 Definition of Marketing 6.1.2 The Exchange Relationship 6.1.3 The Evolution of Marketing 6.2 Developing a Marketing Strategy 6.2.1 Identify Market Segmentation 6.2.2 Select Target Market 6.2.3 Developing Marketing Mix 6.3 Buying Behaviour 6.4 Marketing Mix 6.4.1 Product 6.4.2 Pricing 6.4.3 Distribution 6.4.4 Promotion

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Chapter Aims

This chapter aims to:

1. Explain the nature of marketing such as definition of marketing, the exchange relationship and the evolution of marketing. 2. Discuss how marketing strategy is developed and how buyers make buying decisions. 3. Introduce the four marketing mix, which are products, pricing, distributions and promotions.

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6-1: Nature of Marketing


6-1-1: Definition of Marketing A process whereby individuals or groups obtain what they need and want through exchanging products, services and value with others. Needs are things that are necessary for survival. The basic needs that most people must have are food, clothing, and housing.

Wants are things not necessary for survival but add comfort and pleasure to our lives.
A want can be a car, camera, a luxurious sofa and so on.
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6-1: Nature of Marketing


6-1-2: The Exchange Relationship People can obtain products in one of four ways.

Self-production People can relieve hunger through hunting, fishing, or fruit gathering. In this case, there is no market and no marketing.

Coercion Hungry people can wrest or steal food from others. No benefit is offered to the others except that of not being harmed.

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6-1: Nature of Marketing


6-1-2: The Exchange Relationship 3 Begging Hungry people can approach others and beg for food. They have nothing tangible to offer except gratitude.

Exchange Hungry people can offer a resource in return for food such as money, a good, or a service. Marketing appears when people decide to satisfy needs and wants through exchange.

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6-1: Nature of Marketing


6-1-2: The Exchange Relationship Exchange is the act of giving up one thing (money, credit, labour, goods) in return for something else (goods, services, or ideas). Businesses exchange their goods, services, or ideas for money or credit supplied by customers in a voluntary exchange relationship. The buyer must feel good about the purchase, or the exchange will not continue.

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6-1: Nature of Marketing


6-1-2: The Exchange Relationship Example If your dry cleaner does a good job with your blouse on time, and without damage, you will probably feel good about using its services. But if your blouse is damaged or is not ready on time, you will probably use another dry cleaner the next time you need to.

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6-1: Nature of Marketing


6-1-3: The Evolution of Marketing

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6-1: Nature of Marketing


6-1-3: The Evolution of Marketing Production: Stresses on producing quality products.

Sales: The consumers are not interested and will not buy the companys product unless heavy promotion is done.
Marketing: Companies must identify the needs and wants of target customers and deliver the products to the customers in a better way than the competitors. Relationship: A strategy that focuses on forging long-term partnership with customers by offering value and providing customer satisfaction. Companies will benefit from repeat sales and referrals that lead to increase in sales, market share, and profit.

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6-1: Nature of Marketing


6-1-3: The Evolution of Marketing Example Relationship marketing goes beyond an effort of making the sale to a drive for making the sale again and again. Mesra card, Smiles card and Tesco Clubcard are some examples of relationship marketing as an effort for making the sale again and again.

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6-2: Developing a Marketing Strategy


6-2-1: Identify Market Segmentation

Market segmentation is the process of separating, identifying, and evaluating the layers of a market in order to identify a target market.

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6-2: Developing a Marketing Strategy


6-2-1: Identify Market Segmentation Segmenting Consumer Markets

1 Geographic segmentation
Geographic segmentation is where a marketer divides and offers his/her products or services into different geographical units such as states or regions. Example: Proton and Perodua cars exported to United Kingdom come in a different version than that are offered in Malaysia.

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6-2: Developing a Marketing Strategy


6-2-1: Identify Market Segmentation Segmenting Consumer Markets

2 Demographic segmentation
Demographic segmentation divides the whole market into small groups by: Age and life-cycle:

Example: Dutch Lady markets several brands and products of formula milk, targeted to different age segments.
Gender: Example: Wanita magazines are meant for women, Maskulin magazines are meant for men. Income and occupation: Example: Proton Perdana are for managers and Perodua Kancil cars are for manual workers.
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6-2: Developing a Marketing Strategy


6-2-1: Identify Market Segmentation Segmenting Consumer Markets

3 Psychographic segmentation
Psychographic segmentation divides a market into various groups such as social class, lifestyles or personality characteristics. Social class has a strong effect on preferences in cars, clothes and leisure activities. Lifestyle is the way people lead their lives. Life and the personality of customers can be categorized or segmented on the basis of their ambitions and attitudes such as in being a passive follower or having authoritarian characteristics.

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6-2: Developing a Marketing Strategy


6-2-1: Identify Market Segmentation Segmenting Consumer Markets

4 Product-related or behavioural segmentation


Product-related or behavioural segmentation is dividing a market into groups based on their attitude, use or response to a product. Occasions segmentation Benefits sought Usage rate Loyalty status User status

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6-2: Developing a Marketing Strategy


6-2-1: Identify Market Segmentation Segmenting Consumer Markets

4 Product-related or behavioural segmentation


Occasions segmentation Dividing a market into groups according to occasions when buyers get the idea to buy or actually make their purchase or use the purchased item. Example: Nasi lemak has traditionally been promoted as a breakfast meal. In an attempt to build additional demand for nasi lemak, the nasi lemaks sellers promote the consumption of nasi lemak at other times such as at night.

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6-2: Developing a Marketing Strategy


6-2-1: Identify Market Segmentation Segmenting Consumer Markets

4 Product-related or behavioural segmentation


Benefits sought Dividing the market into groups according to the different benefits that consumers seek from the product. Example: Colgates toothpaste consists of three benefits in terms of economy, protection and taste.

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6-2: Developing a Marketing Strategy


6-2-1: Identify Market Segmentation Segmenting Consumer Markets

4 Product-related or behavioural segmentation


Usage rate A consumer market can be segmented according to the amounts of the product used by different consumers. Categories used to differentiate consumers are light users, medium users and heavy users.

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6-2: Developing a Marketing Strategy


6-2-1: Identify Market Segmentation Segmenting Consumer Markets

4 Product-related or behavioural segmentation


Loyalty status Customers can also be identified by the loyalty status factor. Loyalty means the degree to which customers recognize, prefer and insist on a particular brand. Example: Consumers buying the same brand five times in a row have brand loyalty.

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6-2: Developing a Marketing Strategy


6-2-1: Identify Market Segmentation Segmenting Consumer Markets

4 Product-related or behavioural segmentation


User status Members of a market can also be segmented according to non-users, potential users, regular users, ex-users, and first-time users of products. Larger firms with substantial market share often target non-users or potential users in an attempt to stimulate primary demand for the product category. Smaller firms, in contrast, target regular users in an attempt to encourage brand switching.

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6-2: Developing a Marketing Strategy


6-2-2: Selecting a Target Market

Target market is a specific group of consumers on whose needs and wants a company focuses its marketing efforts.

Undifferentiated (Mass) Marketing Differentiated (Segmented) Marketing Concentrated (Niche) Marketing

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6-2: Developing a Marketing Strategy


6-2-2: Selecting a Target Market 1 Undifferentiated (Mass) Marketing Undifferentiated marketing is a market coverage strategy where a firm decides not to do segmentation and offers the market just one item. The Coca-Cola Companys early marketing of only one drink in one bottle size in one taste to suit everyone.

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6-2: Developing a Marketing Strategy


6-2-2: Selecting a Target Market 2 Differentiated (Segmented) Marketing Differentiated marketing is a market coverage strategy in which a firm will have several market segments and divide the market into different groups of customers. Shoes are sold at different sizes, colours and designs.

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6-2: Developing a Marketing Strategy


6-2-2: Selecting a Target Market 3 Concentrated (Niche) Marketing Concentrated marketing is a market coverage strategy in which a firm enters a few and small segments in which they can procure a large share of the market. Porsche directs all its marketing efforts towards highincome individuals who want to own high-performance vehicles.

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6-2: Developing a Marketing Strategy


6-2-3: Developing Marketing Mix Marketing mix is the blend of product offering, pricing, promotional methods, and distribution system that brings to a specific group of consumers superior value.

Marketing Mix

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6-2: Developing a Marketing Strategy


6-2-3: Developing Marketing Mix Example
Everyone wants to look good and feel young with healthy and fairer skin. Therefore, the demand for cosmetic products have increased tremendously. To take advantage of this opportunity, Amni has produced her owns skincare products such as cleanser, toner, moisturizer, and day and night cream. Her skincare products are targeted at teenagers and women from 13 to 50 years of age. All the products are priced from RM15 to RM80. Amni makes this price affordable to all. In terms of distribution, Amni will distribute her products to outlets such as Mydin, Giant and Carrefour because customers can get her products easily. Amni chooses to advertise her products in teen, female and women magazines where it is cheaper than the TV commercial.

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Class Activity: Determining the Marketing Mix of a Product


Time required: 30 mins Form small groups of four to five students. Each group will then select a product and discuss the marketing mix used in the products. Examples of question which might be asked by the lecturer are: 1. Name the brand of the product. 2. Does the packaging attractive? 3. Where can you normally get this product? 4. What types of promotional strategies used to inform, persuade or influence purchase decision of the product? 5. What is the price of the product? Groups may choose one of the following products (or select their own): TC Boy Tuna Nescafe Tropicana Twister Vitamin C Dettol Instant Hand Sanitizer Present it to the class
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6-3: Buying Behaviour

Buying behaviour is the study of the decision process by which customers come to purchase and consume products.

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6-3: Buying Behaviour


Determined by personal, interpersonal factors and events. Personal Consumer behaviour can be influenced by individual needs and motives, perceptions, attitudes, learned experiences, and selfconcepts. The interpersonal factors that influence consumer behaviour are cultural, social, and family influences. Examples of event factors are the global SARS and the H1N1 epidemic. All of these events affect the decision consumers make about travelling.

Interpersonal

Events

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6-3: Buying Behaviour


Determined by personal, interpersonal factors and events. Personal Personal factors Busy consumers who are constantly looking for ways to save time will choose Campbells products especially Campbells condensed soup as a simple wholesome fast meal.

Apart from condensed soup, consumers can also choose to have instant soup by consuming Campbells instant soup.

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6-3: Buying Behaviour


Determined by personal, interpersonal factors and events. Interpersonal Interpersonal factors Children often influence family purchases; therefore, marketers will create messages aimed directly at them.

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6-3: Buying Behaviour


Determined by personal, interpersonal factors and events. The outbreak of SARS (severe acute respiratory syndrome), a pneumonia-like virus that quickly infected thousands and claimed the lives of hundreds, has affected business and vacation travel worldwide. A World Health Organizations warning against travel to Beijing, Hong Kong and Toronto left these destination cities virtually empty of tourists and business visitors.

Events

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6-4: The Marketing Mix


The marketing mix, as mentioned previously, is divided into 4 categories:

Marketing Mix

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6-4: The Marketing Mix


6-4-1: Product Products refer to goods, such as tires, clothing, MP3 players and cars; and services such as hotels, hair salons and restaurants. A product is one variable of the marketing mix.

Services
Goods

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6-4: The Marketing Mix


6-4-1: Product Classification of consumer products

Convenience products
Consumer products are items the consumer seeks to purchase frequently, and immediately. They are inexpensive and are purchased often and with little expenditure of time and effort.

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6-4: The Marketing Mix


6-4-1: Product

Shopping products The product requires comparison shopping effort because the product is usually more expensive than convenience products and found in fewer stores. Consumers usually buy products after comparing several brands or stores based on styles, practicality, price, and lifestyles compatibility.

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6-4: The Marketing Mix


6-4-1: Product

Speciality products Consumers will search extensively for a particular item and are very reluctant to accept substitutes. Marketers usually use selective, status conscious advertising to maintain product image. The distribution is also limited to one or few outlets in a geographical area.

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6-4: The Marketing Mix


6-4-2: Pricing Price is the amount of money charged for a product or service that consumers buy with the exchange for the benefits of having or using the product or service. Pricing Objectives: Profitability objectives Volume objectives Meeting competition Prestige objectives

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6-4: The Marketing Mix


6-4-3: Distribution Distribution is the act of efficiently managing the acquisition of raw materials to the factory and the movement of products from the producer or manufacturer to industrial users and consumers. A distribution channel is a group of organizations that moves product from their producer to customers.

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6-4: The Marketing Mix


6-4-3: Distribution Number of channel levels

Channel 1 The products move from the producer directly to the consumer.
Manufacturer Customer

Channel 2 This is also known as a one-level channel. It consists of one selling intermediary that is the retailer who will sell it to consumers. In using the retailers, manufacturers shift the distribution function to retailers whose role is to acquire ownership of products or maintain inventories.
Manufacturer Retailer Customer

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6-4: The Marketing Mix


6-4-3: Distribution

Channel 3 The channel arrangement in which wholesaler intervenes between manufacturers and retailers. Manufacturers need the help of wholesalers to distribute the goods to many retailers.
Manufacturer Wholesaler Retailer Customer

Channel 4 The product goes to an agent, a wholesaler, and a retailer before going to the consumer. This long channel of distribution is especially useful for convenience products. Manufacturer Agents Wholesaler Retailer Customer

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6-4: The Marketing Mix


6-4-4: Promotion Promotion is an attempt by marketers to inform, persuade, or remind consumers to engage in the exchange process. Promotion Tools Advertising Sales promotion Public relations Personal Selling

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6-4: The Marketing Mix


6-4-4: Promotion Promotion Tools

Advertising
Advertising is a paid form of non-personal communication transmitted through a mass media, such as: television commercials online ads magazine advertisements

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6-4: The Marketing Mix


6-4-4: Promotion Promotion Tools

Sales promotion
Sales promotions are short-term incentives used to encourage consumers to purchase a product or service.

Sales promotion tools: Samples Coupons Cash refunds Patronage rewards Contest, games and sweepstakes

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6-4: The Marketing Mix


6-4-4: Promotion Promotion Tools 3 Public relations Public relations is different from advertising or sales promotion. A company will spend a lot on publicity; but normally they do not buy space in magazines or newspapers, television or radio.

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6-4: The Marketing Mix


6-4-4: Promotion Promotion Tools 3 Public relations Functions Press relations Descriptions Placing positive, newsworthy information in the news media to attract attention to a product, service or company. Building and maintaining good relationship with the community or local residents. Building good relationship with government officials and legislators. Maintaining good relationship with investors and the financial community.

Public affairs Lobbying Investors relations

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6-4: The Marketing Mix


6-4-4: Promotion Promotion Tools 3 Public relations Tools Speeches Description The company fields questions from the media or gives talks at trade associations. These events can either build or hurt the companys image.

Buzz marketing

It is a campaign to generate excitement and word of mouth advertising for the brands. It is done by getting consumers to spread information about a good or service to the communities.
It helps to create a corporate identity that the public recognizes such as brochures, business cards and logos. It is travelling or tours that brings the brand to consumers. In other words, the company is putting its show on the road.
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Corporate Identity materials Mobile marketing

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6-4: The Marketing Mix


6-4-4: Promotion Promotion Tools

Personal Selling
Personal selling is direct communication between buyers and sellers face to face, by telephone or by video conferencing.

Personal selling has a six-step process. The steps are: 1. Prospecting: Identifying potential buyers of the product. 2. Approaching: Using a referral or calling on a customer without prior notice to determine interest in the product. 3. Presenting: Getting the prospects attention with a product demonstration. 4. Handling objections: Countering reasons for not buying the product. 5. Closing: Asking the prospect to buy the product. 6. Following up: Checking customer satisfaction with the purchased product.

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6-4: The Marketing Mix


Class Activity: Group Discussion
You have learnt the four variables (product, promotion, price and distribution-) that a marketer can select to achieve specific goals within a dynamic marketing environment. This activity will give you an opportunity to analyze the marketing strategies of some wellknown companies to determine which of the variables received the most emphasis as to help the companies achieve their goals. In a group of three to five students, discuss the examples and decide which variable received the most emphasis. A. Product B. Distribution C. Promotion D. Price Click on each numbered button below to start. Once all groups have given their answers, click on Check Answer button to compare the answer.

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6-4: The Marketing Mix


Class Activity: Group Discussion 1 Starbucks Coffee began selling bagged premium specialty coffee through an agreement with Kraft Foods to gain access to more than 30,000 markets. Check Answer

Click to go to Main Menu Activity

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6-4: The Marketing Mix


Class Activity: Group Discussion

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1 Starbucks Coffee began selling bagged premium specialty coffee through an agreement with Kraft Foods to gain access to more than 30,000 markets. Check Answer

Answer(s):
B- Distribution

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6-4: The Marketing Mix


Class Activity: Group Discussion 2 American Online (AOL) offers 24-hour, 9-cents-perminute long-distance telephone service for AOL Internet customers who will provide their credit card number and receive bills and information about their account online.

Click to go to Main Menu Activity

Check Answer

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6-4: The Marketing Mix


Class Activity: Group Discussion

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2 American Online (AOL) offers 24-hour, 9-cents-perminute long-distance telephone service for AOL Internet customers who will provide their credit card number and receive bills and information about their account online.

Check Answer
Answer(s): A- Product

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6-4: The Marketing Mix


Class Activity: Group Discussion 3 With 150,000 advance orders, Apple Computer launched the iMac computer with a $100 million advertising budget to obtain first-time computer buyers who could get Internet access by just plugging in the computer. Check Answer

Click to go to Main Menu Activity

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6-4: The Marketing Mix


Class Activity: Group Discussion

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3 With 150,000 advance orders, Apple Computer launched the iMac computer with a $100 million advertising budget to obtain first-time computer buyers who could get Internet access by just plugging in the computer. Check Answer Answer(s): A- Product B- Distribution

C- Promotion

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6-4: The Marketing Mix


Class Activity: Group Discussion 4 After more than 35 years on the market, WD-40 is in about 80 percent of U.S. households- more than any other branded products. Although WD-40 is promoted as a product that can stop squeaks, protect metal, loosen rusted parts, and free sticky mechanisms, the WD-40 Company has received letters from customers who have sprayed the product on bait to attract fish, on pets to cure mange, and even on people to cure arthritis. Despite more than 200 proposals to expand the WD-40 product line and ideas to change the packaging and labeling, the company stands firmly behind its one highly successful and respected original product.

Click to go to Main Menu Activity

Check Answer

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6-4: The Marketing Mix


Class Activity: Group Discussion

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4 After more than 35 years on the market, WD-40 is in about 80 percent of U.S. households-more than any other branded product. Although WD-40 is promoted as a product that can stop squeaks, protect metal, loosen rusted parts, and free sticky mechanisms, the WD-40 Company has received letters from customers who have sprayed the product on bait to attract fish, on pets to cure mange, and even on people to cure arthritis. Despite more than 200 proposals to expand the WD-40 product line and ideas to change the packaging and Check Answer labeling, the company stands firmly behind its one highly successful and respected original product. Answer(s): A- Product C- Promotion

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6-4: The Marketing Mix


Class Activity: Group Discussion 5 Southwest Airlines makes flying fun. Flight attendants try to entertain passengers, and the airline has an impeccable customer service record. Employees play a key role and take classes that emphasize that having fun translate into great customer service. Check Answer

Click to go to Main Menu Activity

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6-4: The Marketing Mix


Class Activity: Group Discussion

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5 Southwest Airlines makes flying fun. Flight attendants try to entertain passengers, and the airline has an impeccable customer service record. Employees play a key role and take classes that emphasize that having fun translate into great customer service. Check Answer Answer(s): A- Product

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6-4: The Marketing Mix


Class Activity: Group Discussion 6 Hewlett Packard offered a $100 rebate on a $799 HP LaserJet printer when purchased with an HP LaserJet toner cartridge. To receive the rebate, the buyer had to return a mail-in certificate to certify the purchase. A onepage ad with a coupon was used in USA Today stating, Were taking $100 off the top. Check Answer

Click to go to Main Menu Activity

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6-4: The Marketing Mix


Class Activity: Group Discussion

X
6 Hewlett Packard offered a $100 rebate on a $799 HP LaserJet printer when purchased with an HP LaserJet toner cartridge. To receive the rebate, the buyer had to return a mail-in certificate to certify the purchase. A onepage ad with a coupon was used in USA Today stating, Were taking $100 off the top. Check Answer Answer(s): C- Promotion

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6-4: The Marketing Mix


Class Activity: Group Discussion 7 Dennys, the largest full-service family restaurant chain in the United States, serves more than 1 million customers a day. The restaurants offer the Grand Slam breakfast for about $3, lunch basket specials for $4-$6, and a dinner of prime rib for about $7.

Click to go to Main Menu Activity

Check Answer

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6-4: The Marketing Mix


Class Activity: Group Discussion

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7 Dennys, the largest full-service family restaurant chain in the United States, serves more than 1 million customers a day. The restaurants offer the Grand Slam breakfast for about $3, lunch basket specials for $4-$6, and a dinner of prime rib for about $7.

Check Answer Answer(s): D- Price

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Class Activity: Analyzing a Sales-Promotion Sample


Divide students into 4-5 groups In previous session, students had been asked to bring a sales-promotion sample from any company. Lets the student take out the sample and put on the table. Then, analyze a sales-promotion sample using the questions below. What is this sales promotions objective? Do you think that it will accomplish its objective? What do you think is the most interesting or intriguing part about the sales promotion? Should it be continued? Why or why not? What are some of the negatives associated with this sales promotion? Write your answers in the mahjong paper. Present it to your class.
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