Business Chapter 13 Flashcards
Marketing management
Business organization
Can be described as an institution of the free-market system that attempts to satisfy the needs and wants of the community while making a profit
Marketing function
Is that aspect of the business involved in the marketing process, which is the transfer of products(or services) to the market
The marketing process consists of:
Environmental scanning
The development of a market offering
Environmental scanning
Environmental scanning (by means of market research) in order to collect information on which marketing management can base sound decisions
The development of a market offering
Consists of tangible products
and intangible services, offered at a specific price and convenient place, and about
which the consumer has received adequate information
The evolution of marketing thought
Operation-oriented management
Sales-oriented management
Marketing-oriented management
Consumer-oriented management
The strategic approach to marketing
Relationship marketing
Operation-oriented management
Initially, instead of focusing on the needs of the market, management focused on the
capabilities of the organisation. Operation-oriented organizations tried to increase the
number and variety of products they produced
A major disadvantage of operation-oriented
management was that management concentrated mainly on encouraging production in order to solve operation problems.
Sales-oriented management
Misleading advertisements and unethical sales methods were employed. The
objective was to sell the products at any cost. This gave rise to the idea that products needed to be marketed instead of merely sold.
Marketing-oriented management
Market-oriented management means that not only the sales message and price of the
product need to be considered, but also the quality of the product, the packaging, the
choice of distribution channels and the methods of informing potential consumers
about the market offering
Consumer-oriented management
As increasingly competitive consumer products became available and the financial position of consumers improved, consumer demands also started changing.
It became clear that consumers’ needs, demands and preferences needed to be considered when product-related decisions were made
The strategic approach to marketing
Continual changes in the
marketing environment, and the need to ensure the survival and growth of the
organization, meant that management had to concentrate on scanning the environment and on long-term issues
Relationship marketing
In order to survive in the changing environment, marketing management needed to establish long-term relationships with people and institutions in the environment in which the marketing task was to be performed. A long-term relationship with customers leads to loyalty and the repeated purchase of need-satisfying products. A long-term relationship with a supplier ensures the availability of the raw materials and
the inventory
The marketing concept
The marketing concept is a well-known concept and can be described as the philosophy by which the marketing task is performed. Four principles are contained in the marketing concept
The marketing concept directs all
marketing decisions about products, distribution methods, marketing communication and price determination.
Four principles of the marketing concept:
1.Profitability
2.Consumer orientation
3.Social responsibility
4.Organisational integration.
Profitability
The first principle of the marketing concept in a profit-seeking business is the long-term
maximisation of profitability. This is the primary objective of the business in a free market system. It is therefore also the main objective of marketing management. The principle of profitability is fundamental to the marketing concept. It emphasises
profitability instead of sales, which do not necessarily maximise profits.
Consumer orientation
The satisfaction of consumer needs, demands and preferences constitutes a consumer-oriented approach to marketing where emphasis is placed on what the consumer needs.
Consumer orientation also means that the consumer has to be supplied with adequate and correct information about the business’s market offering
Social responsibility
Besides its responsibility towards the consumers of its products, marketing
management also has a responsibility towards the community in which the marketing task is performed
The objective of these projects is to create a stable economic, social and political environment in which future profits can be optimised
If a business were to disregard the norms of society, consumer resistance could
result, thereby harming the primary objective of the business
Organisational integration
This principle expresses the need for close co-operation between all the functions of the business. All the functional decision-making activities should be co-ordinated in a way that will eventually lead to the successful marketing of the products of the business. Organisational integration entails close co-operation between the marketing,
operations, purchasing and all other functions of the business in pursuit of the
business’s mission and objectives
Merits of the marketing concept
The true marketer is proud of his or her product and of the way it satisfies the needs of consumers. The marketer jealously guards the product’s name, paying meticulous attention to complaints and criticism, even though his or her main purpose is continually to improve the profit position. The business is entitled to this profit to offset the risks involved in
developing products for the market
The four principles of the marketing concept, the philosophy according to which all marketing tasks are performed.
1)Organizational management, top management, marketing management, operations management, Financial management, human resource management, purchasing management, public relations management
2)Social responsibility
3)Consumer orientation
4)The primary objective: profit maximization in the long term
Defining marketing
Marketing consists of management tasks and decisions directed at successfully meeting opportunities and threats in a dynamic environment, by effectively developing and transferring a need-satisfying market offering to consumers in such a way that the objectives of the business, the consumer and society will be achieved
Decisions
Product distribution, marketing communication methods and price
Opportunities
Favorable circumstances in the marketing environment that must be utilized by marketing management
Threats
Unfavourable conditions that marketing management must endeavour to change into opportunities
Dynamic environment
Continually changing environmental variables that necessitate appropriate reaction from marketing management
Development
Creating a need-satisfying product or service
Transferring
Effectively bridging the gap between the producer and the consumer
Need-satisfying
Properties of a product based on what the consumer wants
Market offering
Product, price, distribution, marketing communication and service
Attainment of objectives:
The organisation
The consumer
Society
Maximisation of profitability in the long term
Need satisfaction within the limits of the resources and capabilities of the enterprise
Ensuring the well-being of society in the longer term
In marketing management, four variables (the four Ps) are used for decision-making:
1.The product itself
2.The place where it is offered for sale (distribution of the product)
3.The marketing communication methods used to inform consumers about the
product
4.The price, which reflects the product’s value to consumers.
Marketing management
Takes a decision regarding the market offering consisting of four variables:
A product with need-satisfying properties
Distribution, which delivers the product to the consumer at the correct place and time
Marketing communication messages, which inform consumers about the market offering and persuade them to purchase
A price that the consumer is willing to pay
Main objective: Maximization of profitability in the long term
Target market
Consists of consumers with certain needs for products and services ,and who are willing to sacrifice something(money) to satisfy needs
Objective: Total need satisfaction
Market research
Market research is used to gain relevant information about the market, competitors and other environmental changes.
Market research(the need for information)
In order to manage a business effectively, a manager needs information. All businesses
operate in an environment that is constantly changing
continuous scanning of the micro-environment, market environment and macro-environment is necessary to identify the strong and weak points of the organization. SWOT analysis
Information gathered by means of an environmental scan should include
information on the following:
*External environmental variables and internal resources in the form of records and reports about current prices;
*Sales figures and market trends;
*Technological changes;
*Changes in market share;
*Consumer preferences;
*New legislation;
*Production schedules; and
*Internal financial problems
To ensure that managers make good decisions, the information needs to:
*increase understanding of the relevant market segment and its consumers;
*be pertinent to planning and controlling; and
*help in decision-making once alternative sources of information have been
considered.
Problem-identification
Market-potential research
Market-share research
Image research
Market-characteristics research
Sales analysis research
Forecasting research
Business-trends research
Problem-solving research
Segmentation research
Product research
Pricing research
Promotion research
Distribution research
12 steps to follow when conducting a survey:
1: Define the research problem
2: Identify the research objectives/hypothesis
3: Investigate secondary resources
4: Compilation of a questionnaire
5: Pre-testing of the questionnaire
6: Selecting a sample to distribute the questionnaire to
7: Training of the fieldworkers
8: Statistical analysis of data collected from questionnaires
9: Interpretation of the information
10: Research report and recommendations
11: Management evaluation
12: Implementation of management’s decisions
Market forecasting
To be able to exploit an opportunity, its potential in terms of profit has to be
established. If the potential profit is negligible, then the opportunity may be deemed to
be not worth pursuing. Measuring the size of the opportunity entails forecasting future sales (sales forecasting) and forecasting the contribution to profit.
Sales forecasting
The following types of forecasting are often used:
*Forecasting done by a panel of experts from within the organization and from outside;
*Forecasting based on market-research results
*Forecasting based on consumers’ reactions in test marketing situations;
*Forecasting based on historical data
*Forecasting based on mathematical and statistical models
Forecasting of the profit contribution
The forecasting of the profit contribution of a marketing opportunity is normally done
for long-term periods.
It is usually done for the full payback period During the payback period, the sum of
money invested in utilizing an opportunity has to be recovered through the earnings
generated by sales. The payback amounts include the rate of return decided on at the
outset by top management.
Problem with sales forecasting
It is, however, extremely difficult to predict future sales as a number of factors can, and will, influence sales. It is nevertheless the task of marketing management to forecast not only future sales, but also to predict how uncontrollable environmental variables will influence the sales figures
Consumer behavior
to the behavior patterns of decision-making units (individuals or families) directly involved in the purchase and use of products, including
the decision making processes preceding and determining these behavior patterns
it is clear that consumer behavior consists of overt acts (that is, acts that can be observed by people).
consumer behavior also includes covert processes, which cannot be seen
consumer behavior can then be explained, influenced and predicted
Determinants of consumer behaviour
1.Individual factors peculiar to a particular person
2.Group factors.
Individual factors
Needs, attitudes, perception, learning abilities and personal traits are individual factors
that determine what a consumer will or will not buy
Motivation
Needs (also called motives) are the
driving force behind all behaviour patterns
Advertisements attempt to draw people’s attention to unsatisfied needs that can be met by buying a specific product
Attitude
Attitudes also determine purchasing patterns. A consumer with a positive attitude towards a particular product can perhaps be persuaded to buy the product, whereas a person with a negative attitude will not buy the product.
Perception
Consumers’ perceptions determine what they pay attention to and what excites
their interest
Learning ability
The learning ability of consumers determines whether they are able to learn the marketer’s ‘lesson’ about the benefits of a particular product that make it worth paying for
Personality traits
Personality traits also influence consumers’ purchasing patterns. People can be
described by means of these traits
Lifestyle
The lifestyle of those who are high-income earners may be different than those who are
average-income earners. Lifestyle classification can be used to segment the consumer
market
Group factors
Group factors refer to the influence of various groups on consumer purchasing patterns.
These groups include:
*the family;
*reference groups;
*opinion leaders; and
*cultural groups.
The family
Children learn their consumer function in their families. The family is also a decision-making unit whose members decide about
purchasing products that will provide the greatest degree of need satisfaction for the
family as a whole. Marketers need to know the role structure of families in their target market,
because the marketing message needs to be based on such knowledge
Reference groups
A reference group is any group against which people can evaluate their own behaviour
and purchasing patterns
Opinion leaders
Research has shown that information does not flow directly from the mass media to
individual consumers in the target market, but is channeled through a person, the opinion leader. This person interprets and evaluates the information, and then relays acceptance or rejection of the message to other consumers in the market.
Cultural groups
The cultural group to which a person belongs has a strong influence on his or her purchasing and consumption patterns. Culture comprises a complex system of values, norms and symbols, which develop in a society over time and which are shared by the society’s members
There are four influences in any organizational buying decision:
1.The environment
2.The organization itself
3.The buying group
4.The individual buyer.
Consumer decision making
Phase 1: Awareness of an unsatisfied need or a problem
Phase 2: Gathering information on how best to solve the problem
Phase 3: Evaluation of the possible solutions
Phase 4: Decision on a course of action or purchase
Phase 5: Post-purchase evaluation
In brief, a market consists of a relatively large number of people (or organizations) who:
*have a need for a specific product;
*have the money to buy the product;
*are willing to spend money on it; and
*are legally able to buy the product.
Consumer market
The consumer market consists of individuals or households purchasing products
for their own consumption
Industrial market
The industrial market consists of individuals, groups of people or organisations
purchasing materials and products to be used in the production process
Resale market
The resale market includes individuals, groups or organisations purchasing products in order to sell them to final consumers, for example, retailers
The government market
The government market consists of the state institutions and departments that purchase various products needed to supply services to the public
Effective market segmentation show follow these steps:
*Identify the needs of the consumers in the market.
*Group these identified needs of the consumers into homogeneous subgroups or
segments that have similar characteristics.
*Select target markets on which the company will focus its marketing effort based
on its resources and know-how.
*Position the product or service offering within the selected segment or segments.
Three approaches to market segmentation:
1.The total-market approach (market aggregation)
2.A single-segment approach
3.A multi-segment approach
Market segmentation
Market segmentation is the process in which the total heterogeneous market is divided
into smaller, more homogeneous groups with relatively uniform needs or characteristics
For segmentation to be meaningful, the following criteria must be met:
*The segment must be identifiable and measurable. In other words, it must be
possible to identify the segment and measure its size.
*The segment must be substantial and sustainable. In other words, the segment
should be large enough to make profitable exploitation possible and it must be
sustainable over a period of time
*The segment must be reachable. In other words, it should be possible for
marketing management to reach its chosen segment with its product and marketing
communication methods
*The segment must be responsive. For a segment to be cultivated, it needs to be
receptive to a separate approach
Criteria for market segmentation
Geographic criteria
Demographic criteria
Psychographic criteria
Behavioral criteria
Geographic criteria
relate to place of residence. Geographic factors result in the
development of different need patterns, thereby affording marketers opportunities they can use
Demographic criteria
Marketers often segment the market according to demographic criteria, as the information is easily obtainable.
Psychographic criteria
The main variables in this group are personality factors and lifestyle.
Personality traits are difficult to quantify, but they nevertheless offer opportunities to marketing management for market segmentation
Behavioral criteria
Product usage refers to the way in which products are used by different consumers
Product
May be described as a composition of tangible and intangible need-satisfying utilities offered to consumers by a business, so that the consumers can take note of them, procure them and use them
Product decisions
Decision-making about the product itself and the composition of the product offering
Product offering
Consists of various product ranges
The product range
Consists of various product lines
Target-market selection
The objectives and resources of the business have to be carefully
considered before a target market can be selected
the abilities and expertise of the business have to be linked to the characteristics of consumers in the different market segments.
It is clear that target-market selection does not
necessarily involve only one target market. Numerous individual target markets can be selected
Marketing management
constantly modifies decisions about the four marketing-mix instruments (that is, the product, distribution, marketing communications and pricing) as circumstances change and consumers’ acceptance of the product gradually increases
Consumer product consists of:
A core product-Technical and physical qualities
A formal product-May also include specific features such as style, quality, brand and packaging
Need-satisfying product-Guarantees, installation ,repair services and free delivery
The product image-Gives the product symbolic value
The total product-Comprising all the above-mentioned components
Brand decisions
is a word, a letter or a group of words
Consumers use this name when they intend to buy the product. The concept of a brand name is therefore much narrower than the concept of a brand
Some trademarks are so familiar that the names are almost unnecessary. The distinctive names and trademarks are often used in reminder advertising
Classification of consumer products
Convenience products are products which should be within easy reach of the consumer
Shopping products are products for which the consumer wants to compare suitability, quality, price and style before buying
Specialty products are products with unique characteristics for which consumers will make a special purchasing effort
Advantages offered by the use of brands for consumers
*They facilitate the identification of products when purchasing.
*They assure consumers of a quality standard they can count on.
*They offer a certain degree of protection to consumers because branded products can be identified with a specific producer.
*They facilitate decision-making because consumers easily recognise the brands they usually buy.
*They serve as a warning against products that do not meet requirements set by consumers.
Advantages offered by the use of brands for the marketer
1.Brands are the foundation stone of the marketing communication strategy, where the message indicates precisely which product should be purchased.
2.Brands promote brand loyalty among consumers and make product substitution by the retailer or consumer more difficult
3.Brands are an inseparable part of the product image and offer the marketer the opportunity of creating the product image
4.Brands make product differentiation possible and enable the marketer to distinguish his or her product from competing products.
5.Brands facilitate the expansion of existing product ranges because consumers tend to accept new additions to an existing range more readily than an unknown product item that is not part of a range.
Brand loyalty
1.Brand recognition. Consumers recognise the brand and know what it stands for.
2.Brand preference. Consumers prefer the brand to other competing brands.
3.Brand insistence. Consumers insist on the specific brand and refuse to accept a substitute
Individual/family brands
Marketing management also has to decide whether it is going to choose an individual brand for each product item or whether it is going to use a family brand for the whole range of products.
If a family brand is chosen, the costs of introducing a new product in the range into the market are lower
Manufacturer, dealer or generic brands
Manufacturers usually give their own brands to the products they market – for example, Nike. Large retailers or dealers also often buy unmarked products from manufacturers
and give these products their own brand names
A manufacturer should decide whether it wants to market its products bearing its own brands or, instead, market unbranded products directly to dealers.
Family packaging
All the products in the range are packed more or less
identically
Specialty packaging
This gives an image of exclusivity to the product
Reusable packaging
Reusable packaging. This creates the impression that the consumer receives a ‘free’ container if he or she buys the product. The container can be reused for something else later
Product differentiation
Product differentiation means that a business distinguishes its product, physically and/or psychologically, from essentially
identical competing products, so that the product is regarded as a different product by consumers in a specific target market.
Physical and psychological differentiation
Physical and psychological differentiation can
take place on the basis of design, quality, colour, taste, size, brand, packaging or any other distinguishing feature, such as price, the marketing communication message or
the type of distribution outlet
Product obsolescence
A product may intentionally be made technically and/or psychologically obsolete in order to compel the consumer to make repeat purchases. At the technical level, products can be
designed to have a specific lifespan
Multi-product decisions
The total product offering of a business changes continually
New product
New product development is planned and executed step by step and the new product idea goes through various phases until the product is eventually introduced into the market
The nature of the product’s life cycle
The introductory phase
The growth phase
The maturity phase
The declining phase
The phases of new product development are as follows:
*Phase 1: Product ideas are developed.
*Phase 2: Product ideas are screened according to financial
*Phase 3: Product ideas that do not appear to be viable (profitable) are eliminated.
*Phase 4: Physical product development is done by the manufacturing division and a prototype is manufactured.
*Phase 5: The marketing strategy is developed. This strategy entails:
»positioning of the product in the market;
»choice of brand;
»design of packaging;
»compilation of the marketing communication message;
»decision on price; and
»choice of a distribution outlet.
*Phase 6: Test marketing takes place in a specific small segment of the market
*Phase 7: The product is introduced into the market
The integrated marketing strategy entails the following in the introductory phase:
*Objective. The objective is to create a demand. (for example, the demand for the Netflix television streaming product).
*Target market. The target market consists of consumers who are adventurous and prepared to try out new things and run risks, for it is possible that the new product may be a great failure.
*Product decisions. The product decisions that are taken during product development are implemented (for example, the shape and size of the product).
*Distribution decisions. These involve exclusive or selective market coverage.
*Price decisions. A high initial price (skimming price) is fixed, since a new product (innovation) usually has a certain degree of prestige value.
*Marketing communication decisions. Initially, the business relies heavily on personal selling to dealers.
Integrated marketing strategy entails the following in the growth phase
*Objective. The objective here is to develop a demand. The demand for the specific brand has to be created
*Target market. The target market consists of consumers who are less receptive to new things and new ideas
*Product decisions. Minor product modifications are made. The brand is emphasized
*Distribution decisions. This involves selective market coverage.
*Price decisions. The price declines because of competition.
*Marketing communication decisions. Advertising occurs through the mass media, such as newspapers, radio and television.
The integrated marketing strategy entails the following in the maturity phase:
*Objective. The objective is to counteract competition and prolong the life cycle of the product.
*Target market. New target markets are sought and exploited because marketing management is aiming at a large market share
Product decisions. Modifications or improvements have to be introduced to differentiate the product from numerous similar products on the market
*Distribution decisions. There is intensive market coverage. All suitable dealers with the required facilities are allowed to stock and sell products.
*Price decisions. The current market price or market price level should be adhered to unless marketing management has succeeded in differentiating the product
successfully.
*Marketing communication decisions. There is persuasive advertising through the mass media. The sales message is less technical and more emotional than during the introductory phase
The integrated marketing strategy entails the following in the declining phase:
*Objective. The objective is either to maintain the market share or to withdraw the product.
*Target market. The target market consists of an older, more conservative group of consumers who resist change and avoid innovation.
*Product decisions. No modification of the product is considered. Attention is paid to the development of substitute new products or models. The obsolete product is
eventually withdrawn from the market.
*Distribution decisions. There is limited market coverage and this coverage occurs only in areas where the product is still in demand.
*Price decisions. Prices are reduced and the product is offered on sales.
*Marketing communication decisions. There is personal selling and advertising only in areas where the product is still in demand.
Th meaning of price
The marketer and the consumer attach different meanings to the price concept
For the consumer, the price he or she pays for a
product entails a sacrifice of disposable income. The final price usually represents a compromise between the seller (marketer), who wants to receive as much as possible, and the consumer, who wants to pay as little as possible
It is often not possible to specify a single price for a product because of the large number of products
Price is only one of the four marketing instruments
The price-determination process consists of four phases:
Phase 1:Determination of the cost price
Phase 2:Determinatiom of the market price
Phase 3:Determination of the target price
Phase 4:Determination of the final price
Adaptation of the final price
Skimming prices
Market-penetration prices
Market-price level
Leader prices
Odd prices
Skimming prices
If the product is an innovation and therefore a unique new product, the final price may have a much higher profit margin. Some consumers are prepared to pay the high price
because such new inventions usually have prestige value
Market-penetration prices
Marketing management may decide against setting a high skimming price and rather set a market-penetration price. Here the initial price of a new product is lower, and the marketer hopes to penetrate the market rapidly, discouraging competitors in the process
Market-price level
This strategy is followed if there is keen competition and numerous similar products have to compete against each another
Leader prices
Leader pricing concerns special offers. These so-called specials are used by retailers to lure consumers to their shops. Purchasers purchase the low-priced ‘specials’ as well as
many other products with a higher profit margin
Odd prices
Odd prices indicate that the final prices of products have odd numbers
It is thought that consumers are more likely to accept odd
prices and that an odd price looks smaller than an even price
Bait prices
Bait prices are unethical and are therefore avoided by honest retailers. A bait-price item has a particularly low price and is widely advertised
Marketing communication
can be regarded as the process of informing, persuading and reminding the consumer
These six elements are:
1.Advertising
2.Personal selling
3.Direct marketing
4.Sales promotion
5.Publicity
6.Public relations.
Five alternative distribution channels
*Channel 1: This is also called the direct-distribution channel. Although the intermediary is eliminated, physical distribution activities involved in the transfer of products still have to be performed, in this case by the producer
Channel 2: This indirect-distribution channel is found especially in large retail businesses that buy from manufacturers
Channel 3: This indirect-distribution channel is often found nowadays.
*Channel 4: This is the classic indirect-distribution channel that is still regarded as the most effective by a large number of manufacturers
*Channel 5: In this case, the first wholesaler is usually a specialty wholesaler, which obtains a specific product from numerous producers and then sells it to the second wholesaler, which sells it to the retail trade, which in turn sells it to the
consumer
Stores
General dealers. These stores are one of the oldest forms of retailer in South Africa
Department stores. These large stores sell products in departments
Speciality stores. These stores have a narrow but deep product range – for example, jewellery stores
Chain stores. These stores are similar shops that are found all over the country and are similar in layout and product range
Supermarkets. These stores operate on a self-service basis and sell mostly fast-moving consumer goods (FMCGs) and especially groceries. An example is Pick n Pay.
*Convenience stores. These stores are found all over South Africa. Examples are shops at petrol stations
*Discount stores. These stores are renowned for a high stock turnover and low prices
Hypermarkets. These stores are larger than supermarkets
Shopping centres. Shopping centres are usually found on the periphery of large cities or in suburbs outside the central city.
Mail-order stores. As the name indicates, these stores sell by mail
Internet stores. These retailers work off the Internet, and often incorporate other media such as mobile technology
Informal retailers. Owing to the uniqueness of the South African situation, there are also many informal retailers operating in South Africa.
Market coverage
1.Intensive market coverage indicates a situation where as many suitable and available intermediaries as possible are utilized
2.Exclusive market coverage results when a manufacturer purposely limits the number of people handling its product
3.Selective market coverage refers to the selection of only those intermediaries that will distribute the product efficiently
Customer service
It is vital to any organization, in spite of accepted importance of customer service, the delivery excellent customer service is rare
In many businesses today everyone mentions how important customer service is, but very few know how to provide outstanding customer service
