MARKETING MANAGEMENT

MARKETING -Marketing is all of the activities directed toward identifying and satisfying consumer needs and wants. -It is a management function which organizes and directs all those business activities involved in assessing and converting consumer purchasing power into effective demand for a specific product/service and in moving the product/service to the final consumer so as to achieve the profit target or other objectives set by the company while satisfying the customer’s needs and wants. What is a Market? -A market is people/organizations with needs or wants and the ability for willingness and authority to buy. -An aggregate of people lacking any one or more of these characteristics is not a market. *People sometimes use the word market: 1. To refer to a specific location where products are bought or sold 2. To refer to a large geographical area 3. To refer to the relationship between the demand and supply of a specific product 4. To refer to the act of selling something Types of Markets 1. Consumer Market -Consists of purchases and/or individuals in their households who intend to consume or benefit from the purchased products and who do not buy products for the main purpose of making a product for resale. 2. Organizational/Industrial Market -Consists of individuals or groups who purchase a specific kind of product for any of following purposes; (a) Resale (b) Direct use in producing other products (c) General use in daily operations *There are four categories of industrial markets which are; Producer Reseller Government Institutions The Exchange Process THE MARKETING CONCEPT -The increased responsiveness to customer wants is the end focus of a marketing orientation, which is the foundation of contemporary marketing philosophy. -The Marketing Concept involves the following: 1. Focusing on customer wants so that the organization can distinguish its product(s) From competitors’ offerings. 2. Integrating all of the organization’s activities, individual production, to satisfy these wants. 3. Achieving long-term goals for the organization through satisfying the customer needs logically, responsibly and profitably. The Social Marketing Concept -It states that the social and economic justification of an organization’s existence is the determination of target market needs, wants and interests and the delivery of the desired satisfactions more effectively and efficiently than competitors while preserving or enhancing both the consumers’ and the society’s best interests or well being. -It is embodied in such terms as “green marketing”, and “environmental friendliness”. Functions of Marketing 1. Marketing Information -Collection, analysis and distribution of all the information needed to plan, carry out and control marketing activities, market research. 2. Purchasing -Looking for and evaluating goods and services 3. Selling -Promoting the product – personal selling, advertising-it is the most visible function of marketing. 4. Transportation -The movement of goods from one place to another 5. Storage -Holding goods until customers need them 6. Standardization and Grading -Sorting products according to size and quality-breaking bulk 7. Financing -Provides the necessary cash and credit to produce, transport, store, promote, sell and buy products. 8. Risk Taking -Bearing the uncertainties that are part of the marketing process e.g. damage to products, theft and obsolescence. Marketing Objectives -They specify the results expected from marketing efforts and should be consistent with overall organizational objectives. Criteria for Good Marketing Objectives 1. Must express realistic expectations 2. Must be expressed in clear, simple terms so that all marketing personnel understand exactly what they want to achieve 3. Must be measurable 4. Must be based upon adequate supply of the program 5. Must be time-framed Examples of Objectives 1. Sales revenue – e.g. to achieve a turnover of $8 billion 2. Unit sales – e.g. to sell 100 000 units 3. Profit – e.g. to earn overall level of 10% 4. Market share – increase by attracting sales from competitors 5. Rate of growth – e.g. increase market share by 5% 6. Market penetration – find new markets or new parts of existing markets 7. Quality assurance – to ensure that customers always receive goods/services that give them maximum satisfaction (utility) -When objectives are clearly stated, they: 1. motivate staff 2. force the executives to sharpen and clarify their thinking The Marketing Process -Marketing entails the following; 1. Environmental Scanning -Collection and interpretation of information about forces, events and relationships that may affect the future of the organization. It involves identifying market opportunities and threats and provides guidance for the design of marketing strategies (SWOT ANALYSIS). 2. Market opportunity analysis -Describes and estimates the size, scale and potential of market segments of their interests to the firm and assesses key competitors on these market segments. 3. Setting marketing objectives -A market objective is a statement of what is to be accomplished through marketing activities. 4. Target market strategy -Describes exactly who wants and whose wants the organization will try to satisfy. It also involves developing and maintaining the marketing mix that will produce mutually satisfying exchanges with target markets. 5. Developing a marketing mix -a marketing mix refers to a unique blend of product, place (distribution), promotion and pricing strategies (4Ps) designed to produce mutually satisfying exchanges in a target market. The traditional 4Ps of the Marketing Mix Product Place Price Promotion Product variety Channels List price Advertising Quality Carriage Discounts Personal selling Design Assortments Allowances Sales promotion Features Locations Payment methods Publication Brand name Inventory Creditors Packages Transport Extra services Warranties Size TARGET MARKET -these factors of the marketing mix can be varied in order to increase customer appeal and change sales of the product 1. Product -Using the findings from market research firms, develop products to satisfy consumer needs, introduce new products or improve existing ones. Appearance factors such as size, shape, color, label of brand name are also very important in attracting customers, as might be guaranteed and after-sales services. 2. Price -A price must be set which is competitive and attractive to customers. It covers cost of production and provides a profit for the firm. The price may also be affected by discounts, credit facilities, special promotions and pricing psychology e.g. $9 999. 99 sounds cheaper than $ 10 000. 00. 3. Place -Is about how products are made available to the consumer. It also involves choosing the channel of distribution e.g. retailers, wholesalers or direct selling. 4. Promotion -Includes sales promotion, advertising, public relations and personal selling. -These are forms of marketing communications. The aim is to; -tell potential customers about the benefits of the product -remind existing customers that the product is still available -encourage both groups to buy or use them Market Segmentation -In order to market successfully a firm needs to know what the total potential market is for its product/service and tries to identify various segments within it. -Market segmentation is defined as the process of dividing a total market into market groups consisting of people who have relatively similar product needs. It is appropriate for heterogeneous markets (individuals with diverse products needs). -Thus a market segment is a group of individuals or organizations sharing one or more characteristics that cause them to have relatively similar product needs. Types of Segmentation Strategies 1. Undifferentiated Targeting -This is when a firm designs a marketing mix and directs it to an entire market. It uses “mass marketing” philosophy. This means that the firm mass produces, mass distributes and mass promotes one product to all buyers. 2. Concentration Strategy -It is when an organization directs its marketing effort toward a single market segment through one marketing mix it specializes on. 3. Multi-segment Strategy -An organization directs its marketing effort at two or more segments by developing a marketing mix for each selected segment. Criteria for Effective/Successful Segmentation 1. Substantiality -A selected segment must be large enough to warrant developing and maintaining a special marketing mix. 2. Measurability -Segments must be identifiable and their size measurable 3. Accessibility -A firm must be able to reach members of targeted segments with customized marketing mixes. 4. Responsiveness -Unless one marketing segment responds to marketing mixes differently, treating the segments separately is unnecessary. 5. Compatibility -The total market should be divided in such a way that the segments can be compared with respect to the estimated sales potential, costs and profits. Choosing Segmentation Variables -Segmentation variables are the dimensions or characteristics of individuals, groups or organizations that are used for dividing a total market into segments. CATEGORY ELEMENT DEMOGRAPHIC Age, sex, occupation, family size, religion, ethnicity, social class, family life cycle, education, income, nationality GEOGRAPHIC District size, state size, urban/suburban, rural, market density, city size, climate, terrain, country size, province size PSYCHOGRAPHIC Personality attributes, motives, lifestyle, social class BEHAVIORALISTIC Volume usage, end user, benefit expectances, price sensitivity, purchase occasions, brand loyalty, attitude - One can use a single variable (single-variable segmentation) to segment a market or any combination of the above variables (multi-variable segmentation). Limitations of Segmentation Firms may: 1. appeal to segments that are too small to be profitable 2. misinterpret consumer similarities and differences 3. become short-run rather than long-run oriented 4. compete in too many disparate segments 5. confuse customers 6. become locked into a declining market segment 7. be able to use certain media (due to small size of the segment) 8. be too slow to seek out innovative opportunities for new goods and services Target Marketing - It involves 3 stages; 1. Market Segmentation -Determining the characteristics of the market and dividing it into distinct groups to consumers. 2. Market Targeting -Involves evaluating the commercial potential of each market segment and selecting any one or more to target. 3. Product Positioning -Developing a marketing mix specifically designed to fit each particular chosen segment and therefore maximize potential sales. -Developing a specific mix to influence potential customer’s overall perception of a brand relative to competing offerings -Effective positioning requires; (a) assessing the current positions occupied by competing brands (b) determining the important dimensions underlying those positions (c) selecting a position in the market where the organization marketing efforts will have a greatest impact. Positioning Bases 1. Attribute – features, benefits 2. Price and quality – e.g. high price as a signal of quality or low price as an indication of value 3. User/application – positioning by association – personality profile 4. Product class – e.g. a margarine brand in the category of butter 5. Competitors – e.g. “we are the number one” Evolution of Marketing Production Era (1870-1930) -Focuses on internal capabilities of a firm rather than desires and needs of the market. -It was at the time of industrial revolution when there was high demand for products and less competition; therefore there was no need for consumer research. -The goal was to increase production to keep up with demand. -The organization seeks to pursue efficiently in production and distribution and holds that consumers favor products that are available and highly affordable. Product Era -The major task of the organization is to produce products that it thinks would be good for the public. The emphasis is on quality, performance and features of the product. -However, this stage leads to marketing myopia where the firm falls in love with its products while the public may have second thoughts. Sales Era (1920-1950) -The assumption was that buyers will not purchase items that are not essential. -People will buy more goods and services if aggressive sales techniques are used e.g. personal selling and advertising. -The business looks at sales as the major means of increasing profit, consumer tastes and needs receive little consideration. -The budget and advertising, sales promotion, personal selling and other demand-stimulating activities increase. -It is most common with unsought goods e.g. encyclopedia, funeral policies, political candidates etc. -The fundamental problem with this approach is lack of understanding of the needs and wants of the market. Marketing Era -It recognizes that production and extensive promotion didn’t guarantee that customers would buy the product. It realizes that sales depend more on customer decision to buy the product. -The business adopts a customer orientation – where they have to determine what the customer wants, rather than try to change the customers’ needs to fit what is produced. -This is also known as “outside-inside marketing”. Societal Marketing Era -States that the social and economic justification of any organization existence is the determination of target market needs, wants and interests to the delivery of the desired satisfactions more effectively and efficiently than competitors while preserving or enhancing both the consumers and the society’s best interests or well-being. -It involves “green marketing”, “friendly production” and “environmental friendliness”. Marketing Research -marketing intelligence -refers to data available for marketing decisions, It is everyday information about development in the marketing environment that managers use to prepare and adjust marketing plans. -it is the function which links the customer, consumer and public to the market through information -the information is used to identify and define marketing opportunities and problems, generate, refine and evaluate marketing actions, monitor marketing performance and improve understanding of marketing as a process. -it is the systematic gathering, recording and analysis of information about specific issues related to the marketing of goods/services, organization, people, places or ideas Market Research -It is conducted on a special – project basis, and research methods are adapted to the problems studied and the changes in the environment -It is the activities undertaken by a business in order to identify and assess the needs of the market for its products. It involves; (a) field research (primary research) – involves collection of data from a sample of potential customers (b) desk research (secondary research) – collection, analysis and evaluation of information from such sources as government statistics, journals and business accounts. Reasons for Information Search 1. to gain a competitive edge 2. to reduce financial and image risk 3. to determine consumer attitudes 4. to monitor the environment 5. to coordinate strategy 6. to measure performance 7. to improve advertising credibility 8. to gain support for decisions 9. to verify intuition 10 to improve effectiveness Scope of Marketing Research 1. Market Research -size of the market -customer profile -future potential market -market segments -geography of the market -customer profile -customer behavior 2. Product Research -evaluate strengths and weaknesses of existing product(s) -investigation of new uses from existing products -product variations -product development -packaging research -pricing policies 3. Promotion Research -advertising tasting -formulation of advertising themes -measurement of effectiveness of sales force and promotional activities -media decisions 4. Sales Research -examination of selling activities by outlet, territory, agencies -identification of suitable outlets -evaluation of sales methods -analysis of distribution systems 5. Competitor Research -activities of competitors -trends and market shares -identification of unique selling points (USPs) Qualitative Research -It provides information on consumer tastes and preferences, attitudes and buying habits and motivations behind consumer behavior and attitudes. -It is conducted by psychologists working with small groups of people within the target market. Quantitative Research -It concentrates on factual information such as market share, probable levels of sales at a given price etc. -It is concerned with who buys the product and how much they buy. Sources of Information for Desk Research 1. Internal Information -Company accounts, invoices and stock control methods giving information on patterns of trade. 2. Government Statistics -They give an overall view of changing social and economic patterns e.g. demographics, industrial etc. They are available in Zimbabwe at the Central Statistical Office. 3. The Media -Commercial publications like journals, magazines, newspapers, bulletins etc 4. Competitor Information -The analysis of the published accounts of competitors can also be useful in identifying the success or failure of their strategies. Techniques of Field Research 1. Observation -Market researchers can observe how people behave. Observation can trace the form of audits (e.g. stock checks), recording devices (e.g. security commercials/televisions). It is an expensive technique and provides limited information (it is more descriptive than explanatory). Its results can be distorted if the person is aware that he is being observed. 2. Questionnaires -They can be dichotomous (requiring a simple ‘yes’ or ‘no’ response) multiple choice questions or open-ended. 3. Consumer Panels -These are groups of people who agree to keep records of all their actions as consumers 4. Test Marketing -It is sometimes used by manufacturers to gauge consumer response to a new product or promotion before deciding whether or not to market it nationwide. 5. Retail Audits -Involves the use of sample surveys of retailers to analyze sales in order to gauge market size and shares, check price levels and assess the proportions of outlet stocking various brands. Choice of Research Method -depends upon the following factors 1. budget available 2. accuracy required 3. how quickly the information is needed 4. complexity of the method 5. accessibility of the new sample population The Marketing Research Process -The research process is a set of steps that a researcher goes through in planning a research project. Stage 1-Problem Definition -purpose of study -necessary background information -kind of information needed and its use Stage 2-Development of an approach to the Problem -refers to research design formulation -secondary data analysis -data collection methods -sample design Stage 3-Conducting Field Work -actual data collection is affected through interviews, telephone surveys, observations etc Stage 4-Data Preparation and Analysis -involves such processes as editing, coding, verification of data and processing Stage 5-Research Report Writing and Presentation -involves documentation of information and presenting a discussion of findings Sampling -Market research data is based on a sample of the total population. A sample is that part of the whole population whose characteristics are studied to give insights into the characteristics of the populations as a whole. -Statistical theory can be used to calculate the minimum size of sample necessary to give the required degree of accuracy. The larger the size the more accurate the information but also the greater the cost. -The sample must be more representative of the population, it should be balanced in terms of age, sex, type of occupation, social class etc -A carefully chosen sample should be statistically reliable. It should produce very similar results to those that would be achieved by asking everyone in the population. -However, bias will also exist especially if the samples are poorly selected or too small, the questionnaires have complex interview questions etc. Methods of Sampling Probability Samples 1. Random Sampling -Every member of the population has an equal chance of being selected. -Names and addresses for respondents may be chosen at random from the electoral register and then visited for an interview. 2. Systematic Random Sampling -It is similar to the above but involves selecting every nth item or person e.g. every 10th name in the telephone directory. 3. Stratified Random Sampling -It divides the population into groups (strata) by age, sex, occupation, social class etc and provides a more representative cross-section of the whole. Each selected sub-group is then randomly sampled. Non-Probability Samples -It excludes estimating the probability of any particular item being included. 1. Quote Sampling -the interviewer selects a given number of the population who fulfill certain criteria such as age, sex etc. It is used for street interviews e.g. a quota may be used to interview 25 males and 25 females for each selected age group. 2. Purposive Sampling -It is biasing a sample towards the market being investigated e.g. a manufacturer launching a new drug would want to discover doctors’ likely response. 3. Cluster Sampling -It is used to reduce costs of interviewing and traveling. -A random group is selected from a particular area or region where they are concentrated e.g. choosing the CBD in a town. 4. Convenience Sampling -gathering information from whoever is available when the survey takes place, regardless of their age, sex, background etc. -It involves stopping by-passers. It is very cheap but less reliable. The Marketing Mix 1.PRODUCT -the product offering is the heart of an organization’s marketing program. It is usually the starting point in creating a marketing mix. -a product is anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a want or need. -the description of a product includes a range of variables, both tangible and intangible, as represented below. ACTUAL PRODUCT – Packaging, features, styling, quality, brand name AUGMENTED PRODUCT – Installation, warranty, delivery and credit, after-sales services Product Range -firms do not produce just one but a range of related products in order to spread risks (not putting all their eggs in one basket). The advantages are: (a) contribution of profits (b) economies of scale (c) advertising and selling costs can be spread (d) distribution costs can be reduced -The products can be related (conglomerate) or unrelated (diversification) Product Life Cycle -This involves the stages that a product goes through from its inception onto the market to the time it is eliminated or redesigned or extended. -It can be represented as follows: INTRODUCTION GROWTH MATURITY SATURATION DECLINE STAGE 1 Product Development -research and development of the product -high costs (research and technical development) -preparation and marketing plan prior to launch STAGE 2 Launch/Introduction -advertising and bringing to market for sale -high promotional spending -low volume sales, high costs, high risks -aim is to develop/create awareness STAGE 3 Growth -if product is successful, sales start increasing -firms benefit from economies of scale -profits grow -product penetrates the market -firms attempt to build customer loyalty STAGE 4 Maturity -sales continue to rise, but at a slower rate -majority buys the product -packaging becomes an important part in marketing effort -brand preference is a competitive edge STAGE 5 Saturation -sales stop increasing -most people who are likely to buy have purchased the product STAGE 6 Decline -sales and profits decline -substitutes appear/product becomes obsolete -firm seeks to cut losses by eliminating the product *A firm can opt at this stage to completely eliminate the product or extend it. (a) Elimination –it depends on whether the decline is temporary or terminal/irreversible. It is done when the decline is irreversible. (b) Extension –extension strategies aim to rejuvenate the product to prolong its life. It can involve making an adjustment in the marketing mix. Extension can be achieved through: 1. more frequent use of the product 2. repositioning it by finding new uses or new markets 3. modifying the product to retain its consumer appeal 4. technical developments e.g. new packaging 5. a wider product range New Product Development (NPD) -NPD is vital for all organizations for them to maintain present and future success. The ideas for NPD are generated from the firm’s market research and R&D projects. -New products must be developed which cater for changing markets as consumers demand new and better quality products. Reasons for Product Development 1. it stimulates sales enabling existing markets to be developed 2. to enter new markets or market segments 3. to counter competition more effectively 4. to increase market share and profitability 5. to spread risks 6. to maintain market positions as innovator 7. to utilize spare capacity in production, sales etc Value Analysis/Engineering -It is a technique used in product design that aims at improving efficiency and reduce production costs by evaluating whether all the materials or components in a product have a value commensurate with its costs. -If for example complex expensive components are used it may be possible to replace them with simpler lower cost items without impairing the product’s safety, quality or performance. -An effective value analysis team would contain experts in each of the major business functions e.g. engineers, production managers, marketing managers, employees etc. Branding -Brand is a name/term/design or symbol or a combination of these which is intended to identify the goods/services of one business from others, usually offering similar products. -Brand Image is a perception a person has of a particular brand -Brand Extension is a strategy by which an established brand name is applied to new products from the same manufacturer. -Brand Loyalty is a consumer’s decision to consistently repurchase a brand continually because he/she perceives that the brand has the right product features or quality at the right price. -With brand loyalty, consumers can reduce purchasing time, thought and risk therefore developing brand loyalty as the long-term objective of all marketing organizations and the major reason for their continued study of consumer behavior. Types of Brands 1. Family Brands -the brand name is used to cover all the products of a business, even if they are widely different and in different markets e.g. Willard, Heinz, Kellogg, and Unilever 2. Retail Brands -the retailer, not the manufacturer is the one guaranteeing quality and consistency e.g. Barbour’s, Greatermans, Truworths 3. Corporate Brands -the name of the business is incorporated into the brand name of the product e.g. Jewel Band-CBZ 4. Individual Brand -each product is given its own brand name Factors to consider when selecting a brand 1. easy to spell, say or recall 2. should allude to the product uses, benefits or special characteristics 3. should be distinctive and recognizable 4. should be sufficiently versatile to be applicable to new products 5. should be capable of being registered and legally protected under The Trade Marks Act 6. should be adaptable to packaging and labeling requirements Benefits of Branding -protects quantity -it aids in shelf selection (case of identity) -it differentiates similar goods -for prestige -it facilitates product diversification -it hampers price comparisons -it facilitates promotional effort Reasons for Not Branding -to avoid the high initial costs of promoting a brand -the physical nature of some goods may prevent branding e.g. vegetables -to maintain a consistent quality of output -it may be difficult to differentiate products of one firm from another e.g. safety pins, coal, wheat etc Packaging -Packaging is used to develop brand image by making it distinct and easily recognizable. -It is termed the ‘silent salesman’ in marketing. -It is often an integral part of a product designed to add to its appeal through the use of color, shape, size, logos etc, all of which can have a significant effect on sales. -Packaging is useful in successful advertising and promotion as it can encourage impulse buying. *A package should have; 1. brand (product) name 2. quantity 3. expiry date 4. ingredients/nutritional information 5. guarantee 6. directions for use 7. address and contact number of manufacturer 8. health information e.g. ‘do not litter’ Product strategies depend on; 1. products and market forces 2. existing competition 3. potential for new entrants 4. availability of substitute products 5. power of buyers and suppliers -The two techniques used to analyze the product and market options available to organizations are the Boston Matrix (BCG) and the Ansoff Matrix by Igon Ansoff. The Boston Matrix -It is used to analyze the product and represents a firm’s product range in terms of market share and market growth. 100% LOW HIGH GROWTH High PROBLEM CHILD STARS MARKET Low DOGS CASH COWS 0% 1. Stars -these are very profitable products with high market share and high growth rate, they are usually at the early stages of the product life cycle. 2. Cash Cows -these are established products which require little advertising. They have a high market share but low growth. They generate a lot of cash and are usually ‘milked’ to finance other products. 3. Dogs -they have low market share and low growth rate. They have little potential for development and should therefore be withdrawn from sale. 4. Problem Child -these are under-achieving products and therefore have an uncertain future. They have high growth rate but small market share. With a cash injection they may become stars but equally without if they are old, end up as dogs. The Ansoff Matrix -It considers marketing objectives or markets and products in terms of age. MARKETS Existing MARKET PENETRATION Sell more to existing markets PRODUCT DEVELOPMENT Sell new products to existing markets New MARKET EXTENSION Sell more of existing products to new markets DIVERSIFICATION Sell new unrelated products to new markets Existing PRODUCTS New 1. Product Management –It involves improving the product and introducing new related products. Value analysis is used to suggest ways of improving the product. R & D is also used for new products. 2. Market Penetration –It aims to increase the sales of existing products in existing markets. It is for additional distribution opportunities and extend promotions to organizations in the distribution chain to persuade more wholesalers and retailers to stock the product. 3. Market Extension –The business intends to increase sales of existing products by developing new markets. This can be achieved by extending the geographical market, looking for new uses of the product and changing the image of the product so that it appeals to a wider range of people. 4. Diversification –It involves selling new unrelated products in new markets. Reasons why new products fail Product failure is attributed either to failure in the marketing process or to an unanticipated change in the external environment. -inadequate market research -misleading market research findings -defects in the product -activities of competitors -insufficient or inappropriate marketing efforts -distribution problems -unexpectedly high costs -inadequate sales force 2. PRICE -To maximize sales and profits, organizations will seek to fix a price which suits the market. Pricing Objectives -They include the following: 1. Profitability -prices should increase overall profitability of the firm 2. Rate of return –a specified return on capital employed (ROCE) 3. Growth –the price should provide a steady profit over a period of years to enable the firm to survive and grow. 4. Competition –should be competitive and attractive to customers 5. Market share –a price must be set which enables a firm to at least maintain its market share. 6. Utilization of capacity –it should cover fixed costs and enable the firm to fully utilize capacity, thus spreading unit costs over a larger output. Pricing Policies/Strategies 1. Skim Pricing –It uses high prices to obtain high profit margins and a quick recovery of development costs. It is useful for products with a short life cycle and fashion items e.g. computers, videos, toys, CDs etc 2. Penetration Pricing –The main objective is to capture a large share of the market as quickly as possible. It depends on the expected product life. It is mainly used for products with a longer life. Low prices are set in the initial stages of the product and gradually increased as it gains market share. Consumer products are often introduced this way. 3. Differentiated/Discrimination Pricing –It involves the use of different prices for the same product when it is sold in different locations or market segments e.g. wholesalers may receive trade discounts while small buyers in remote areas may be charged a higher price due to additional distribution costs. 4. Promotional Pricing –Involves the use of a lower and normal price either to launch a new product or to periodically boost sales of existing products. 5. Negotiable Pricing –It is common in industrial markets and building trade. The price is individually calculated to take account of costs, demand and any specific customer requirements. 6. Market Pricing –Prices are quoted ‘at market’. They are determined by forces of supply and demand. Common for commodity markets e.g. gold, silver, stock exchange etc 7. Premium Pricing –Involves charging a higher price than competitors to strengthen the image perceived by consumers of a certain brand. 8. Sealed-Bid Pricing –It is common in public sector markets. It involves the use of bids or tenders. Market Prices -In a free economy, market prices are determined by supply and demand (a) individuals maximize their utility (satisfaction) by choosing how to spend their income. (b) consumer demand determines what producers should produce (c) there is competition between producers leading to increased efficiency Demand -this is the total amount of a particular product which consumers wish to buy at a given price or period of time. -generally, demand increases if price falls and vice-versa -a change in price has an income effect (low price, real income increase) and substitution effect (high price, consumer switch on to substitute goods or other cheaper products from competitors) The Demand Curve Factors Influencing Changes in Demand 1. change in size and composition of population 2. consumer income 3. advertising and promotions 4. consumer tastes and preferences 5. prices of complementary goods 6. new improved goods 7. prices of substitute goods 8. taxation 9. legal requirements Elasticity of Demand Elasticity is the degree of responsiveness of demand to changes in demand conditions (price, income). 1. Price Elasticity of Demand (PED) -it measures the responsiveness of demand to changes in price PED = % change in quantity demanded % change in price -If PED > 1, a small change in price causes a large change in quantity demanded therefore it is elastic. A reduction in price causes revenue to increase. -If PED < 1, a small change in price causes a relatively small change in quantity demanded, therefore it is inelastic. A reduction in price causes total revenue to fall and vice-versa. -Unitary Elasticity is when total revenue stays the same at all prices. Factors determining the degree of Elasticity 1. Availability of Substitutes e.g. glass has no perfect replacement therefore it is very inelastic 2. The proportion of income spent on a product –e.g. matches, salt are very inelastic – they cost a tiny proportion of a person’s income. 3. Necessities –e.g. bread, mealie-meal, clothing are inelastic. Luxuries e.g. computers, holidays, satellite, television are elastic. 4. Habit forming goods –e.g. tobacco and alcohol have a relatively inelastic demand because they make substitution more difficult for consumers to accept. 2. Income Elasticity of Demand (YED) -it measure the responsiveness of demand to change in levels of income YED = % change in quantity demanded % change in income -If income increases, the demand for necessities will probably not change but the demand for luxuries is likely to increase. -If income produces a fall in demand, YED is negative because people switch from ‘inferior’ to ‘better’ products. 3. Gross Elasticity of Demand (XED) -it measures the responsiveness of demand to changes in price of other products. XED = % change in demand for A % change in price for B -Substitute goods have a positive XED e.g. coffee, beer, butter and margarine. -Complementary goods have negative XED e.g. cars and petrol, VCR and video tapes. 3. PROMOTION -The basic sum of promotion is to communicate information to customers and potential users about the product/services on offer and to eventually persuade them to buy. -It focuses on the distinctive features of a product called the ‘Unique Selling Points’ (USPs). -Promotion comprises advertising, public relations (PR) and sales promotion -This is called the communication/promotion mix. -The objectives of promotion are; 1. to increase awareness of the product 2. to target particular segments 3. to position the product in relation to its main competitors 4. to build an image for the organization -The promotional mix depends on; 1. the nature of the product 2. the nature of the market and its customers 3. the product life cycle 4. the relative costs and the availability of funds (a) Advertising -It is a controlled, impersonal conveyance of a message regarding a need-satisfying product/service/personality/place/institution/idea by an identifiable sponsor to a specific target audience with the objective of informing, reminding and persuading them to take a specific action. -The basic objectives are to: 1. inform –create brand awareness 2. persuade –develop brand awareness 3. reinforce –maintain brand loyalty 4. image –create general demand -Advertising is not a guarantee of success. Its success depends on; 1. the appropriateness of the media chosen and the message 2. whether the product is able to satisfy and demand 3. the economic climate 4. consistency to the marketing mix -The choice of media depends on 1. scope of coverage – the ‘reach’ of the media 2. selectivity of the media 3. user friendliness of the media and its impact 4. relative cost 5. permanence of the advertisement 6. the product itself Advertising Agencies -These are specialist firms employing experts to advise on the most effective ways of advertising the products/service clients. Functions 1. they carry out market research to discover information on which to base the marketing strategy 2. they select and book the appropriate advertising media 3. they create advertisements, devising appropriate themes and the messages and writing advertising copy 4. they produce the advertisements 5. they look after the clients advertising budget and offer advice on future campaigns. Advertising Agencies in Zimbabwe 1. Advertising and Marketing Association ADMA 2. Benefits of Advertising 1. enables consumers to make informal decisions 2. firms can achieve economies of scale 3. promotes competition thereby resulting in high quality products 4. can help reduce sales fluctuations Criticisms of Advertising 1. leads to higher prices 2. encourages impulse buying 3. some products may be harmful e.g. tobacco, alcohol 4. can be used to maintain monopoly power (b) Personal Selling -It operates at the point of sale and involves two-way communication. It is done by sales people or sales representatives. Selling requires persuasiveness. Successful selling requires: -interpersonal skills -intelligence -knowledge of the product -energy and determination -good appearance -an outgoing personality -empathy with customers -Sales people need motivation and a financial incentive in the form of a commission. (c) Sales Promotion -It involves all forms of promotion other than advertising or personal selling. -It is a process of developing the product, enhancing the promotional activities undertaken by distributors, reinforcing advertising and selling messages, aiding recognition, attracting attention and encouraging consumers to try the product. -It can be categorized into 3 groups 1. Trade Promotions -aimed at distributors (wholesalers and retailers) to persuade them to stock a firm’s product. Examples are (a) special discounts (b) bonuses such as free extra products per case (c) cash incentives (d) competition 2. Consumer Promotions -used to create interest and tempt potential customers to make a purchase. Examples are; (a) free gifts (b) special offers (c) low prices for a product that draws people to shop and end up buying other things as well (d) free samples (e) competitors (f) personality promotions (g) coupons (h) credit cards (i) credit facilities 3. Industrial Promotions -these are modified versions of some consumer promotions to suit industrial goods and services. Examples; (a) free gift e.g. company logos for calendars, diaries (b) catalogues (c) free training (d) sales force incentives (e) trade shows and exhibitions (d) Public Relations -It covers a wide range of business activities. It could be in the form of articles in the newspaper about the growth of the business, the sponsorship of the local sports event or generally ‘green marketing’. -The aim is to present good publicity of the company, thus generating more sales. -The PR department of the firm feeds the media with information and new stories about the good deeds of the company and also ready to counteract any positive reports in the media and give the organization’s point of view. Promotional Budgets -the following methods can be used to determine the amount of money to be spent on promotional activity; 1. a % of last year’s sales volume 2. a % of next year’s planned turnover 3. the level of expenditure of competitors 4. allocation of an arbitrary sum -Promotions should be cost effective. (4) DISTRIBUTION -It is concerned with getting the product from the producer to the customer at the right quantity, to the right place, at the right time and in the right condition. Chain of distribution -It involves the links between the manufacturer and the consumer. There are 3 types which are: 1. Agents -An agent works on behalf of another firm to perform certain specified services. They are usually used in importing and exporting and also in domestic trade. 2. Wholesalers -A wholesaler buys goods for resale to someone other than the eventual customer. They usually supply goods to retailers who in turn sell to the public or to the manufacturers who use the goods in the production process. Functions of Wholesalers a) they break down bulk purchases and repack them into smaller lots to retailers b) they offer warehousing for products for the manufacturer c) they provide financial service to manufacturer (pay cash) and extend credit to the retailer d) they handle publicity and promotion on behalf of the manufacturer 3. Retailers -Retailing refers to all activities that are related directly to the sale of goods/services to the ultimate consumer. A Channel of Distribution for a product is the route taken by the product as it moves from the producer to ultimate consumer. Types of Distribution Channels Producer Consumer (Direct channel) Producer Retailer Consumer Producer Wholesaler Retailer Consumer Producer Agent Retailer Consumer Producer Agent Wholesaler Retailer Consumer Factors Affecting Choice of Distribution Channel Product Factors 1. unit value/cost plus mark up 2. perishability 3. technical nature of product Market Factors 1. financial strength 2. marketing ability of management 3. desire for channel control Middlemen Factors 1. middlemen policies 2. availability of suitable middlemen 3. services provided by middlemen 4. variety of products handled