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Institute of Public Administration   (IPA)   Sales Program

Principal of Marketing

Extracted from

(Principal of Marketing, Seventh edition by Philip Kotler and Gary Armsrong )

                                       Prepared by Dr. Obaid Saad Alabdali

King Fahd University of Petroleum and Mineral                                             ,

College of Industrial Management,                                    

Management and Marketing Department                                     .

Prepared to Sales Program student, at Institute of Public Administration      (IPA)   , Eastern Province.

Introduction:

Marketing is concern with identifying customer needs and wants, determines which target markets the organization can serve best, and design appropriate products, services, and programs to serve these markets. Marketing is more than selling and promotion. Companies gain leadership by satisfying customers and building ever lasting relationships.  All kind of companies used marketing, lawyers, accountants, and doctors use marketing to manage demand for their services. Marketing is all around us. Students need to know marketing to play their role as consumers and citizen. In Saudi Arabia and other countries someone is trying to sell something, therefore we need to recognize the methods they use. You need marketing after you finish this course, to market yourself, to get a job. Many of you may start their career with marketing jobs in sales force, in retailing, in advertising, in research or other marketing area.

I will take a practical and managerial approach to teach marketing. I will provide practical local and international examples and application, showing the major decisions that the marketing manager will face.

Course objectives:

This course will give the marketing students a managerial and practical introduction to marketing. We will cover the following topics; marketing role in the global economy, marketing role within the firm or non-profit organization, marketing management philosophies, finding target market opportunities with market segmentation, marketing strategy and planning, the marketing environment, marketing information system including marketing research, consumer market, industrial market, the marketing mix of the 4Ps including, product, price, place, and promotion, and new technology in marketing, namely Internet marketing.

Course evaluation:

Participation                                                                            10%

Quizzes                                                                                    5%     

Homework                                                                               5%

In class assignment and project                                              15%

Cases                                                                                       5%

Mid term Exam 1                                                                    15%

Mid term Exam  2                                                                   15%

Final Exam                                                                              30%

Course policies:        

The policies of the Institute of Public Administration           regarding the course attendance, exams, and etc. will be strictly followed without any exception.

Text book: Essential of Marketing by McCarthy and Perreault, 1994, IRWIN

First week lectures

14 and 16 September 1997

The first week lectures introduce the students to the subject of marketing. We talked about the marketing role in the global economy. We discuss what marketing is all about. Local and international examples of marketing practices in the Saudi markets were mentioned. We discuss how marketing is related to production, why marketing is important to you and to the whole economy. What is the definition of marketing, we discussed many but we agree that marketing is all to do with the customer satisfaction at profit.

                                                         Institute Of Public Administration  (IPA)  

                                                     Sales Program

                        PRINCIPAL OF MARKETING

 In writing this course material. I believe that there is no need to reinvent the wheel.  Marketing subject is very well structure and many marketing books are found almost in any book store. I write this course material with the influenced by many marketing books and articles. The two which has most of the influence are “Principal of Marketing, Seventh edition by Philip Kotler and Gary Armsrong “ and Essential of Marketing by McCarthy and Perreault, 1994, IRWIN

Prepared to Sales Program student, at Institute of Public Administration   (IPA)   , Eastern Province.

                          29/09/97

CHAPTER ONE

Introduction:

Marketing is concern with identifying customer needs and wants, determines which target markets the organization can serve best, and design appropriate products, services, and programs to serve these markets. Marketing is more than selling and promotion. Companies gain leadership by satisfying customers and building ever lasting relationships.  All kind of companies used marketing, lawyers, accountants, and doctors use marketing to manage demand for their services, charities such as Islamic relief, fire station, schools, police, hospitals and etc. Marketing is all around us. Marketing permeates our daily living. It influence our choice of the stores we patronize, the product we buy, the services we use.  Students need to know marketing to play their role as consumers and citizen. In Saudi Arabia and other countries, someone is trying to sell something, therefore we need to recognize the methods they use. You need marketing after you finish this course, to market yourself, to get a job. Many of you may start their career with marketing jobs in sales force, in retailing, in advertising, in research or other marketing area.

In designing this course, I will take in my consideration, that the students taking this course, are not familiar with what is marketing all about. Most of them may did not know what is it. Research were done in KFUPM, and students confused between marketing and selling, they always think of marketing as only advertising and selling. This is not surprise, even in USA and Europe, people have the same confusion. Reading through this course materials, my objective is to introduce student and the reader in general to the topic of marketing. I will assume that the reader has no background about marketing. I will start from scratch. A practical and managerial approach to teach marketing will be adopted. Practical local and international examples and application will be provided wherever is possible. The major decisions that the marketing manager will face will be highlighted.

Some people think that marketing is only needed for big companies such as ARAMCO, SABIC, Saudi Airline, etc. that might be true but even small companies need marketing for their success. Marketing is critical for companies success either small or large, for profit or non-profit, local or international. In Saudi Arabia market, we find many international companies such as Coca-Cola, Pepsi Cola, McDonald’s, Sony, Toshiba, IBM, BMW and others. Without doing good marketing they will not keep their presence on global market. We as consumer always notice the marketing war between the to big giant in the soft drinks, Coca-Cola and Pepsi Cola. We see their promotion campaign,  marketing research to find out what the customer needs and want, and meet his needs and wants with the right marketing mix at profit. Saudi Airlines says in all their promotion “proud to serve you” that reflect how they treat their customers. And the question whether they keep their promises or not?. All companies know for sure that if they take care of their customers, market share and profit will follow.

The remaining part of this report will give the reader a summery and formal introduction to the basic concept and practices of today marketing.

History of Marketing   ( extracted from, Marketing, by David Mercer, 1993)

Marketing has been in existence for thousand of years; ever since people first started to barter the surplus they had accumulated. But it has not been taken seriously because the people have not much left to barter. But after the industrial revolution made people produce more than what they need, and surpluses were more commonplace, the marketing of these became the province of the salesman, with his specialized skills. The first academic discussion of marketing can be traced back to the turn of the century, a round 1911 and 1914. But only after 1945 that the newly fashionable advertising agencies began to redefine the discipline in a away which came close to the modern concept of marketing. In 1960s that marketing in its modern form, based upon a customer focus ( in particular, making extensive use of market research to investigate customers’ needs and wants), emerged on the scale that we now witness. The discipline mature in the 1970s as, led by Philip Kotler seminal text book Marketing management.

WHAT IS MARKETING?

Many definitions were given, some of them will be listed below.

Marketing is human activity directed at satisfying customer needs and wants through exchange process at profit.

The Chartered Institute  of Marketing, UK give the following definition;

Marketing is the management process responsible for identifying, anticipating, and satisfying customer requirement profitably.

Philip Kotler give the following definition,

 Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchange products and value with others.

 By examining these definitions, we found similarities more than differences. And to have a complete picture of what is marketing, we need to examine the following important terms;  needs, wants, and demand, products, value, satisfaction, and quality; exchange, transaction, and relationships and market.

 ·      Needs;  human needs are states of felt deprivation. As human we have many complex needs. These needs can be physical such as for food, warmth, clothes and safety; social needs for belonging and affection; and individual needs for knowledge and self-expression.

These needs are not invented by marketers , they are basic part of the human makeup.

  ·      Wants; are the form taken by human needs as they are shaped by culture and individual personality.

Example:  a hungry person in UK may want  a fish and chips to satisfy his need (hunger) whereas a person in Saudi Arabia may want a rice and meat to satisfy his hunger.

Marketer will try to provide more want-satisfying products and services. People have unlimited wants but limited resources. Therefore they will choose products that provide the most value and satisfaction for their money.

  ·      Demand;  is human want that are backed by buying power.

Example; you want a BMW but may be money is problem to you. In this case you do not have buying power. Some people have the money but they are not welling to spend much money on BMW, those people may do not have the buying power as well. Buying power means you have the ability and willingness to buy things. 

  ·      Product; anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. It include physical object, services, persons, places, organization, and ideas. Some people urge that a product is the need-satisfying offering of a firm.  To make the definition easy we can say that a product is anything that can be offered to a market to satisfy a need or want. We buy the product not to look at them, but for the benefit we get from them. We buy a car for the transportation. We buy cooker not to admire,  but to cooks our food.

Example, physical products such as car, TV, Radio, soft drink.  Services products, such as airline, hairdresser, dental, etc.

·      Customer value is the difference between the value the customer gains from owning and using a product and the cost of obtaining the product. Always as a customer, we want to get more for less.

  ·      Customer satisfaction it is all do with the customer expectation,  if the product performance falls short of the customer expectation, he will be dissatisfied, if it meet its expectation, he will be satisfied. But if it exceed his expectation he will be delighted. Companies should aim to make their customer delighted. Nowadays, the trend is towards having customers for life. The key to success is to match customer expectation with company performance. We should ask ourselves, what make us happy to deal with one shop not with the other shop. I think the answer will rely mostly on the services we get, the product quality, friendless of the salesperson, cleanses of the shop, etc.

Example,    if you go to a five stars hotel, you should expect a five star services. If any service you get during your stay was bad, definitely you will be dissatisfied. Because your expectation was so high. But imagine you go to two stars hotel and you find very good services, you will be so happy, because you were not expecting that services.

Exchange, is the act of obtaining a desire object from someone by offering something in return. Marketing arises from exchange. For exchange to take place, five conditions must be satisfied:

  1.  There are at least two parties.

  2.  Each party has something that might be of value to the other party.

  3.  Each party is capable of communication and delivery.

  4.  Each party is free to accept or reject the offer.

  5.  Each party believes it is appropriate or desire to deal with the other party.

Example,  if you are hungry you can get food by many ways such as, hunting, fishing, or gathering fruit. You could go to the street and beg or steal food from someone. Or you can offer the money, another good, or services in return for food. Before money were invented people used barter.

Transaction, a trade between two parties that involves at least two things of value, agreed-upon conditions, a time of agreement, and a place of agreement.

Example,  you pay  a dealer 1000 SR. For a video set. This is a classic monetary transaction, but not all transaction involves money. In a barter transaction, you might trade your old car in return for a friend’s secondhand motorbike.

HOW MARKETING RELATES TO PRODUCTION

Production is a very important economic activity. We do not make most of the product we use. Do we make our clothes, food, car, etc. the answer is no. Although production is very important economic activity, some people overrate its importance in relation to marketing. People think that if you make a good product, your business will be a success. Production and marketing are both important parts of a total business system aimed at providing consumer with need-satisfying goods and services. Together, production and marketing supply five kinds of economic utility. Utility means the power to satisfy human needs. The five kinds of economic utility are:

  1.  Form utility,  is provide when someone produce something tangible- for example, a watch.

  2.  Task utility, is provided when someone performs a task for someone, for example, when a bank handles financial transaction.

  3.  Possession utility, means obtaining a good or services and having the right to use or consume it.

  4.  Time utility, means having the product available when the customer wants it.

  5.  Place utility, means having the product available where the customer wants it.

Marketing is both a set of activities performed by organization and social process. In other words, marketing exist at both micro and macro levels. Therefore, we will use two definitions of marketing-one for micro-marketing and one for macro marketing.

·      Micro-marketing  this looks at customers and the organization that serve them. It is the performance of activities that seek to accomplish an organization’s objectives by anticipating customer needs and directing a flow of need-satisfying goods and services from producer to customer. The emphasis is on the activities of individual organization.

·      Macro-marketing  is a social process that directs an economy’s flow of goods and services from producers to consumers in a way that effectively matches supply and demand and accomplishes the objectives of society. The emphasis is on how the whole marketing system works. This include how marketing affects society, and vice versa. 

All societies must provide for the needs of their people. Therefore, they need some sort of economic system- the way an economy is organize to use scarce resources to produce goods and services and distribute them for consumption by various people and groups in societies. How the economy operates depends on a society’s objectives and nature of its political institutions.

There are two basic kinds of economic systems:

·      Planned economic system, government planners decides what and how much is to produced and distributed, by whom, when, to whom, and why. Producers have little choice about what goods and services to produce. Prices are set by the government planners. Example, Eastern European markets, till recently they have this system, customers did not have any choices, but buy what is offered.

·      Market directed economic system, the individual decisions of the many producers and consumers make the macro-level decisions for the whole economy. Example, in Saudi Arabia, there are many products and customers can choose what product they want to buy, from whom, when, etc.

In real life, we did not find 100% planned economy neither market directed economy. But a mixed.

Market, is a group of potential customers with similar needs who are willing to exchange something of value with sellers offering various goods and services-that is, ways of satisfying those needs. This can be done face to face at some physical location or indirectly through middlemen who links buyers and sellers living far apart.

UNIVERSAL FUNCTIONS OF MARKETING

The universal functions of marketing are as follow;

    1.  buying function means looking for and evaluating goods and services .

    2.  selling function  involves promoting the product. Buying and selling is most likely the most visible function of marketing

    3.  transporting function  means the movement of goods and services from one place to another.

    4.  storing function involves holding goods until the customers need them.

    5.  standardizing function involve sorting products according to size and quality.

    6.  financing function provides the necessary cash and credit to produce.

    7.  risk taking  involves bearing the uncertainties that are part of the marketing function

    8.  market information function involves the collection, analysis, and distribution of the information needed to plan, carry out, and control marketing activities.

Producers, consumers, and marketing specialist are perform the marketing functions.

 MARKETING MANAGEMENT PHILOSOPHIES

 There are four stages in the evolution to modern marketing.

    1.  production era  is a time when a company focuses on production of a few specific products. The management philosophy is that, if we can make it, it well sell. The production era can be useful in two situations; first, when the demand for a product exceeds the supply. Second, when the product cost is too high and improved productivity is needed to bring it down

    2.  sales era   is a time when a company emphasize selling because of increased competition. Companies believe that customers will not buy the product unless it undertakes a large-scale selling and promotion effort. I have noticed in Saudi market that many companies using this concept. Because they have overcapacity.

    3.  marketing department era is a time when all marketing activities are brought under control of one department to improve short-run policy planning and to try integrate the firm’s activities.

    4.  marketing company era   is a time when, in addition to short-run marketing planning, marketing people develop long-range plans, and the whole company effort is guided by the marketing concept.

MARKETING CONCEPT

 If you read any marketing textbook, you always come cross the term of  marketing concept. The question is what is the marketing concept.

Marketing concept means that a company aims all it is efforts at satisfying its customers- at a profit. 

The marketing concept holds that achieving the company objectives depends on determining the needs and wants of target markets and delivering the desire satisfaction more effectively and efficiently than competitors do. Some people will confused between selling concept and marketing concept. To make it easy, we can say that the selling concept takes an inside-out perspective. It starts with the factory, focuses on the company existing products, and call for heavy selling and promotion to obtain high profit. Whereas, the marketing concept takes outside-in perspective. It start with a well defined market, focuses on customer needs, coordinate all the marketing activities affecting customer, and make profits by creating long-term customer relationships based on customer value and satisfaction. 

In Saudi Arabia, we see some companies pay attention to the customer satisfaction, such as Procter & Gamble and McDonald's, but most of them they show little interest on making their customer happy. If customers are not happy, they most likely will not buy again, and they might tell their friends. Someone might ask why shall I make the customer happy, where I know he has no other option, but to come to me again. This view might hold some truth, but not any more. Saudi market is full of competition, and each company try to get some market share. That can only be achieved by getting satisfied customers.

Saudi market moved from the seller market to buyer market. What that means?. Till recently, Saudi market was dominated by the seller market, meaning that the seller can decides the product he sells, the price he would charge and the timing he opens his shops. The demand was higher than the supply. Whatever he put on the market, there were more one customer waiting for it. Example, if the company has 1000 cars on the market, there will be 3000 customers waiting to buy. In this case there was not much need for customer satisfaction. The customer has no option to choose. But nowadays, things has changed dramatically, the supply exceed the demand, many competitors entering the market, selling similar or identical products. The customer has the option to choose. Every company is striving to make him happy. Therefore, we need to pay attention to his needs and wants. That why we need marketing.

In Saudi market, there are many companies claiming that they are applying the marketing concept, but did not. They have the form of marketing such as, marketing department, marketing research, marketing plans, but this does not mean that they are market-focused and customers-driven companies. Several years of hard work are needed to turn our Saudi companies who adopted selling concept into a marketing oriented companies.

 CHAPTER TWO

THE MANAGEMENT JOB IN MARKETING

 Know I assume you have some knowledge about marketing concept- a philosophy guiding the whole company. Let us know, say how you as a marketing manager helps your company to achieve its objectives.  Your job as a marketing manager will be;

 1.   planning marketing activities

 2.   directing the implementation of the plans

 3.   controlling these plans

This jobs are  basic jobs of all managers- but we will emphasize what they mean to you as a marketing manager. One of your first job is marketing planning, this include; set objectives, evaluate opportunities, plan marketing strategies, develop marketing plans, and develop marketing program, implementing marketing plan(s) and programs, and control marketing plan(s) and program by measuring the results and evaluate progress.

The job of planning strategies to guide a whole company is called strategic (management) planning,  the managerial process of developing and maintaining  a match between an organization’s resources and its market opportunities.

WHAT IS MARKETING STRATEGIC PLANNING

Marketing strategy planning means finding attractive opportunities and developing profitable marketing strategies. The question is what marketing strategy?. Below, you will find some answers.

Marketing strategy specifies a target market and related marketing mix. It is a big picture of what a firm will do in some market. From this definition two interrelated parts are needed.

 1.  a target market- fairly homogenous (similar) group of customers to whom a company wishes to appeal.

 2.  a marketing mix- the controllable variables the company puts together to satisfy this target group.

Companies have two options, one is to aim all its marketing effort to everyone. This called mass marketing, or aim its activities to fit some specific target customers, this called target market. Later we will talk about segmentation, targeting  and marketing mix.

MARKETING SEGMENTATION AND TARGETING

In Saudi Arabia, we see that Procter & Gamble (P&G) makes eleven brands of laundry detergent such as Tide, Bold, Ivory, Ariel and others and it also sell eight brands of hand soap such as Zest, Coast, Ivory, Camay, Oil of Olay etc. Six shampoos such as Prell, Head & Shoulder, Pert, Ivory, Vidal Sassoon, etc. Toothpaste such as Crest, Gleam and etc. 

These P&G brands compete with one another on the same supermarket shelves. But why P&G introduce several brands in one category instead of concentrating its resources on a single leading brands?. The answer lies in the fact that different people want different mixes of benefits from the product they buy. People use laundry detergents to get their clothes clean. But they also want other things from their detergents- such as economy, bleaching power, fabric softening, fresh smell, strength or mildness, and lots of suds. We all want some of every one of these benefit from our detergent, but we may have different priorities for each benefit.  P&G has identified at least eleven important laundry detergent segments, along with sub-segments, and had developed a different brand designed to meet the special need of each.

From the above example, we see that by segmenting the market and having several detergent brands, P&G has an attractive offering for consumer in all important preference groups. 

From the P&G example, we can understand market segmentation which means dividing a market into distinct groups of buyers with different needs, characteristics, or behavior who might require separate products or marketing mix.

Market targeting, evaluating each market segment’s attractiveness and selecting one or more of the market segment to enter.

HOW CAN WE SEGMENT THE MARKET?. 

Markets consist of buyers and buyers differ in one or more ways. You may differ than any body else in terms of your wants, income, location, and buying preference. Can any company sell the same product to all the people in Saudi Arabia with the same marketing activities. The answer should be no. Normally what companies do, is to look for broad classes of buyer who differ in their product needs or buying responses. For example, in Saudi Arabia, Toyota had found that high and low income groups differ in their car-buying needs and wants. They found that young people differ than old people in their buying behavior. Toyota, design different car for different segment. For example, Camary  was design for middle income people, Lexus for highly educated and high income customer. Income and education are only two of many bases that companies use for segmentation their markets.

BASES FOR SEGMENTATION CONSUMER MARKET

Companies try to find variables which can be used to segment a market. They used many variables, alone and in combination, to find the best way to view the market structure. Below you will find the major variables used by marketers, in Saudi Arabia to segment the market.

·      Geographic segmentation;  that means companies can divide the market into different geographical units such as nations, regions, cities, or neighborhoods. Then the company can decide to operate on one or a few geographical areas. For example, Saudi Arabian Airlines operates in most of the world, whereas, AlRashed Mall only in Al-khobar.

·      Demographic segmentation;  consist of divining the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, and nationality. Demographic factors are the most popular bases for segmenting customer group. 

·      Behavioral segmentation; divides customers into groups based on their needs, benefit sought, rate of use, purchase frequency, kind of shopping.

To conclude market segment means aim at one or more homogenous segments and try to develop a different marketing mix for each segment. Ideally, good market segments meet the following criteria;

  1.  Homogenous (similar) within- the customers in a market segment should be as similar as possible with respect to their likely responses to marketing mix variables and their segmenting dimension.

  2.  Heterogeneous (different) between- the customers in different segments should be as different as possible with respect to their likely responses to marketing mix variables and their segmenting dimension.

  3.  Substantial- the segment should e big enough to be profitable.

  4.  Operational- the segmenting dimension should be useful for identifying customers and deciding on marketing mix variables.

THREE BASIC WAYS TO DEVELOP MARKET-ORIENTED STRATEGY.

·      The single target market approach; segmenting the market and picking one of the homogeneous segments as the firm's target market.

·      The multiple target market approach; segmenting the market and choosing two or more segments, then treating each as a separate target market needing a different marketing mix.

·      The combined target market approach; combining two or more sub-markets into one larger target market as a basis for one strategy.

DEVELOPING MARKETING MIX FOR TARGET MARKETS.

What is a marketing mix? There are many possible ways to satisfy the needs of target customers. A product can have many different feature and quality levels. Services level can be adjusted. The packaging can be of various size and color. The brand name and warranty can be changed. Various advertising media can be used such as newspapers, TV, magazine.  A company can used different location, sales-force, and choose different layout. Price discount can be given, quantity allowance can be granted, fixed or barging price may be available, and so on. With so many possible variables, is there any way to help organize all these decisions and simplify the selection of marketing mix? The answer is yes.

The four “Ps” make up a marketing mix

·      Product- the good or services for the target’s needs

·      Place- reaching the target market

·      Price-making it right

·      Promotion-telling and selling the customer

It helps to think of the four major parts of a marketing mix as the “four Ps”. Which Ps is more important?. All four Ps are needed in a marketing mix. In fact they should all be tied together. All the four Ps contributes to one whole.

Example,  a local company develop a product to satisfy the target market (marketing oriented). They find a way to reach their target customers, Place. They use promotion to tell their customers. And set a price after estimating expected customer reaction to the total offering and the cost of getting it to them. In later chapters more attention will be given to these four Ps.

FINDING TARGET MARKET OPPORTUNITIES WITH MARKET SEGMENTATION

An important part of marketing strategy involves finding attractive target market. Companies should find possible market opportunities and choose the ones to turn into strategies and plans. Attractive opportunities for a particular firm are those the firm has some chance of doing something about-given its resources and objectives. Marketing strategy planning tries to match opportunities to the firm’s resources (what it can do) and its objectives (what it wants to do). Companies should come with ideas, which are very difficult for other competitors to copy and profitable for long term(breakthrough opportunities) . Even if these breakthrough opportunities can not be found companies should develop a competitive advantage, means  that a firm has a marketing mix that the target market sees as better than a competitor's mix. Sometimes companies might achieve breakthrough opportunities and competitive advantage by simply fine-tuning their marketing mix (es). Sometimes may need new facilities, new people. Every firm needs sort of competitive advantage- so the promotion people have something unique to sell.

TYPES OF OPPURTNATIES TO PURSUE

There are many types of opportunities;

  ·      Market penetration, means trying to increase sales of a firm’s present product in its present market, through a more aggressive marketing mix. The company may encourage customers to use the product more often, attract nonuser, or attract competitor’s customers.

  ·      Market development,  means trying to increase sales by selling present products in new market. Example, TIHAMA Bookstores open branches in the Airports, to reach more customers.

  ·      Product development, means offering new or improved products for present market.

  ·      Diversification,   means moving into totally different lines of business- perhaps entirely unfamiliar products.

 SERACH FOR GOOD OPPOURTANTIES CAN BEGIN BY UNDERSTANDING MARKET.

Marketing manager should understand their target market. Once they know it, they can find breakthrough opportunities. 

What is a company market. This is an important question. A company market is a group of potential customers with similar needs and seller offering various products, that is, ways of satisfying those needs. It is helpful think of two types of market..

  ·      A generic market, is a market with broadly similar needs and sellers offering various- often diverse-ways of satisfying those needs.

This looks at  market broadly and from customer’s viewpoint. Example, Status seekers, have several very different ways to satisfy status needs. They might buy a new Mercedes, a Rolex watch. Any of these products may satisfy status needs. A marketer job is to focus on the needs the customer wants to satisfy- not on how one seller’s product (car, watch) is better than another. It is sometimes difficult to define the generic market because quite different product types may compete with each others.

  ·      a product market, is a market with very similar needs and seller offering various close substitute ways of satisfying those needs.

Broader market definition- including generic market definition and broader product market definition- can help companies find opportunities.

 CHAPTER THREE: 

Getting Information for Marketing Decisions.

Marketing managers whether here in Saudi Arabia or anywhere in the world need information to make better decisions. They need information about the potential customers, and likely responses to marketing mixes, as well as about competitors and other marketing environment such as economic, political, technological and social variables. Information is needed for implementation and control. Without good information manager would rely n their intuition and guess, and that might leads to failure. Marketing managers in Saudi Arabia seldom have all the information they need. Both customers and competitors are unpredictable. Sometimes getting more information may cost too much or take too long. The objective of this chapter is will talks about how marketing managers can get information they need to plan successful strategies. 

Managers can rely on Marketing Information System (MIS)  which is an organized way of continually gathering and analyzing data to provide marketing managers with information they need to make decisions. We will not go in details to explain what we mean by MIS, because we believe it is out of the scope of this course.

Basically MIS system organize incoming data in a database so that it’s available when needed. Most companies with an MIS have information processing specialist who help managers get standard reports and output from the database.  To get better decisions, some MIS provide managers with a Decision Support system (DSS) which is a computer program that makes it easy for marketing manager to get and use information as he is making decisions. DSS helps change raw data- like product sales for last day- into more useful information. Some DSS go even further. They allow the manager to see how answers to questions might change in various situations. For example, a manager may want to estimate how much sales will increase if the firm expands into a new market area. Drawing on data in the database, the system will make an estimate using a marketing model. A marketing model   is a statement of relationships among marketing variables. The question is, are our Saudi companies using MIS and DSS, my own experience, there are not yet there. Most of our managers work in the old way, and do not know what information they need.

Companies should not only rely on MIS as their sole source of information. They must try to satisfy ever-changing needs in dynamic markets. So Marketing Research must be used.  

What Is Marketing Research?

We know from chapter one, that marketing concept means to meet the needs of customers. As we know marketing mangers are isolated in company offices- far from potential customers. Imagine a producer in USA and a customer in Saudi Arabia. How he knows about his customer without doing marketing research.

Marketing Research is a procedures to develop and analyze new information to help marketing managers make decisions. One of the important jobs of a marketing researcher is to get the facts not currently available in the MIS.  

The Scientific Methods And Marketing Research 

Scientific decision is a decision-making  approach that focuses on being objective and orderly in testing ideas before accepting them. Managers use their intuition and observations to develop hypotheses- educated guesses about the relationships between things or about what will happen in the future. Example, manager who relies only on intuition might introduce a new product without testing consumer response. But a manager who use scientific method might say “I think (hypothesize) that consumer currently using the most popular brand will prefer our product. Let us run some consumer tests. If at least 60 per cent of the customers prefer our product, we can introduce it in a regional test market. If it does not pass the consumer test there, we can make some changes and try again.

Five Step Approach to Marketing Research.

The marketing research process is a five step application of the scientific method that includes:

 1.  Defining the problem

 2.  Analyzing the situation

 3.  Getting problem-specific data

 4.  Interpreting the data

 5.  Solving the problem

Step One:       Defining the problem

Defining the problem is often the most difficult step in the marketing research process. But it is important for the objectives of the research to be clearly defined. The best research job on the wrong problem is wasted effort. Finding the right problem level almost solves the problem. The problem definition step sound simple- and that’s the danger. It’s easy to confuse symptoms with the problem. Example, suppose a firm’s MIS shows that the company’s sales are decreasing in Dhahran while expenses are remaining the same-resulting in a decline in profits. Will it help to define the problem just by asking: how can we stop the sales decline? Probably not. This is like fitting a hearing-impaired patient with a hearing aid without first trying to find out why the patient is having trouble hearing.  Advice. Do not confuse problem with symptoms.

Step Two:    Analyzing The Situation.

A situation analysis is an informal study of what information is already available in the problem area. It can help define the problem and specify what additional information- if any- is needed. This step involves informal talks with informal people. Informed people can be others in the company, middlemen, or other knowledgeable about the industry.  The situation analysis is especially important if the marketing manager is dealing with unfamiliar areas. The situation analysis should also find relevant secondary data - information that has been collected or published already. Later in step 3, we will cover primary data- information specifically collected to solve a current problem. Advice,  do not rush to gather primary data when much relevant secondary information is already available- at little or no cost.

Much secondary data is already available from the MIS. Data that has not been organized in an MIS may be available  from the company’s files and reports. Secondary data is available from libraries, government agencies, etc. At the end of the situation analysis, you can see which questions-from the list developed during the problem definition step-remain unanswered. Then you have to decide exactly what information you need to answer those questions and how to get them. This requires discussion between technical experts and the marketing manager. Usually companies use research proposal-  a plan that specifies what information will be obtained and how-to be sure no misunderstanding occur later. The research plan may include information about the cost, what data to be collected, how it will be collected, who will analyze it and how, and how long the process will take. And the marketing manager must decide if it makes sense to go ahead.

Step Three:    Getting Problem Specific Data.

The next step to plan a formal research project to gather primary data. There are different methods for collecting primary data. The best approach depends on the nature of the problem and how much time and money is available. There are two basic methods for obtaining information about customers: questioning and observing.  Questioning can rang from qualitative to quantitative research. And many kind of observing are possible.

Qualitative research- seeks in-depth, open ended responses, not yes or no answers. The researcher try to get people to share their thought on a topic- without giving them many directions or guidelines about what to say.  Example,  a researcher might ask different customers “what do you think about when you decide where to shop for food?” one person may talk about convenient location, another about services, and another about quality of the fresh food. The real advantage of this is depth. The problem here is that the researcher needs a lot of judgment to summarize it all.

The most widely used form of qualitative questioning in marketing research is the focus group interview, which involve interviewing 6-10 people in an informal group setting. The focus group uses open-ended questions, but here the interviewer wants to get group interaction- to stimulate thinking and getting immediate reactions. A typical session might last an hour so participant can cover a lot of ground.

When researchers use identical questions and responses alternatives, they can summarize the information quantitatively. Sample can be larger and more representative, and they can use various statistics to draw conclusion. For these reasons, most survey research is quantitative research- which seeks structured responses that can be summarized in numbers, like percentage, averages, or other statistics. Fixed responses speed answering and analysis.

Communicating with Respondents.

Decisions about what specific questions to ask- and how to ask them- are usually related to how respondents will be contacted- by mail, phone, or in person.

 Mail survey are the most common and convenient.

 The mail questionnaire is useful when extensive questioning is necessary. With a mail questionnaire, respondents can complete the questions at their convenience. They may fill personal questions, since a mail questionnaire can be returned anonymously. But the questions should be simple and easy to follow since no interviewer is there to help. The big problem with questionnaire is that many people do not complete or return them. The response rate- the percentage of people contacted who complete the questionnaire- is often low and people who respond may not be representative. Illiteracy is problem with questionnaire.

Telephone surveys-fast and effective

They are effective for getting quick answers to simple questions. Telephone interviews allow the interviewer to probe and really learn what the respondent is thinking.  In addition, with computer aided telephone interviewing, answer are immediately recorded on a computer, resulting in fast data analysis. On the other hand some consumers find calls intrusive-and refuse to answer any questions. Telephoning is not good if the interviewer is trying to get confidential personal information- such as details of family income. Question, would you welcome someone telephoning and asking you personal question?. Respondents are not certain who is calling or how such personal information might be used.

Personal interview surveys- can be in-depth.

It is usually much more expensive per interview than a mail or telephone survey. But it is easier to get and keep the respondent’s attention when the interviewer is right there. There is two ways communication. Respondents can ask interviewer to clarify questions. Researcher have to be careful that having an interviewer involved does not affect the respondents answers.

Some questioning has limitation. Then observing may be more accurate or economical. Observing as a method of collecting data- focuses on a well defined problem. With the observation method, researcher try to see or record what the subject does naturally. They do not want the observing to influence the subject’s behavior. In some situation, consumers are recorded on videotape. Later, researchers can study the tape by running the film at very slow speed or actually analyzing each frame. Researchers use this techniques to study the routes consumer follow through a grocery store-or how they select products in a department store. Computerized scanners at retail checkout counters, a major breakthrough in observation, help researchers collect very specific-useful-information.

A marketing manager can get a different kind of information- with either questionnaire or observing-using the experimental method. With the experimental method, researcher compare the responses of two or more groups that are similar except on the characteristic being tested. 

Step Four:      Interpreting The Data  

After collecting the data, it has to be analyzed to decide what it all means. In quantitative research, this step usually involves statistics. Statistical package -easy to use computer programs that analyze-have made this step easier. Cross tabulation is one of the most frequently used approaches for analyzing and interpreting marketing research data. It shows the relationship of answers to two different questions. It is impossible for marketing manager to collect all the information they want about everyone in a population- the total group they are interested in. Marketing researcher typically study only a sample- a part of the relevant population. How well a sample represent the total population affects the result. Result from a sample that is not representative may give a misleading picture.  Even if the sampling is carefully planned, it’s also important to evaluate the quality of the research data itself. Validity- concerns the extent to which data measures what it is intended to measure. Poor interpretation can destroy research.

Step Five:       Solving The Problem

In the problem solution step, managers use the research results to make marketing decisions. When the research process is finished, the marketing manager should be able to apply the findings in marketing strategy planning- the choice of a target market or the mix of the four Ps. If the research does not provide information to help guide these decisions, the company wasted research time and money.

This chapter is a summary of chapter 5 of Essential of Marketing, by McCarthy and Perreault, 1994, Sixth Edition

Chapter Four:           Marketing Environment

A company marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to develop and maintain successful relationships with its target customer. Here in Saudi Arabia successful companies knows the vital importance of constantly watching and adapting to the changing environment. Too many other companies, unfortunately fail to think of change as opportunity.   They ignore or resist critical changes until it almost too late. The role of marketers is very important in identifying significant changes in the environment. More than any other group in the company, marketers must be the trend trackers and opportunities seekers. Marketers have discipline methods- marketing intelligence and marketing research-for collecting information about the marketing environment.  

We can distinguish between two kind of environment.

 1.  Internal environment- this includes those activities, contained totally within the company itself, which make up the daily life of most companies.

 2.   External environment- this has the most immediate impact on companies, and determine the performance of that companies.

Social and Culture Factors:

Cultural tradition are not easily overturned, but over the years they can change quite significantly- without the companies involved noticing. For example, the role of women in society- and particularly women’s role at work- changed dramatically; and this was of considerable significant to those supplying services to women. The cultural and social factors affects how and why people live and behave as they do-which affect customer buying behavior and eventually the economic, political, and legal environment. Many variables make up the cultural and social environment. Some example are the language people speak, the type of education they have, their religions, beliefs, what type of food they eat, the style of clothes and housing they have, and how they view marriage and family. 

The Competitive Environment

The competitive environment affects the number and types of competitors the marketing manager must face-and how they may behave. Marketing managers can not control these factors, they can choose strategies that avoid head-on competition. And where competition is inevitable, they can plan for it. Economist describe four type of competitions;

·      Pure competition-  the market consists of many competitors offering the same product and service. Since there is no basis for differentiation, competitor's prices will be the same.

·      Pure oligopoly- the market consists of a few companies producing essentially the same commodity.

·      Pure monopoly- a pure monopoly exist when only one firm provides certain product or service in a certain country or area.

Most product-markets move toward pure competition - or oligopoly- over the long-run.

A marketing manager should actively seek information about current or potential competitors. Sources of competitors information include trade publications, alert sales people, middlemen, and other industry experts.

THE TECHNOLOGICAL ENVIRONMENT

Technological developments affect marketing in two basic ways: with new products and with new process (way of doing things). Many argue, for example, that we are moving from industrial society to an information society. Advances in electronic communications make it possible for people in different parts of the world to communicate face to face with satellite video-conferencing and transmit faxes.

THE POLITICAL ENVIRONMENT

Marketing decisions are strongly affected by developments and the political environment. This environment is composed of laws, government agencies, and pressure groups.

The economic Environment

The economic Environment effects the way companies use resources. The economic Environment change quite rapidly. This effects can be far reaching- and require changes in marketing strategy. The economic environment-including changes of recessions or inflation- also affects the choice of strategies.

 To conclude, companies should understand the environment working on. A marketing manager must study the competitive environment. How well established are competitors? Are there competitive barriers, and what effect will they have? How will competitors respond to a plan?. The marketing manager must try to anticipate, understand, and deal with the changes of interest rate, inflation and other economic factors. The marketing manager must also be aware of legal restriction- and be sensitive to changing political climates. The social and cultural environment affects how people behave and what marketing strategies will be successful. Developing good marketing strategies within all these environment is a challenging job that require integration of information from many disciplines. 

 This chapter is a summary of chapter 4 of Essential of Marketing, by McCarthy and Perreault, 1994, Sixth Edition. And other source.

CHAPTER FIVE:                CONSUMER  BEHAVIOR

Many variables influence consumer buying behavior, they differ for different products and target markets.

Consumer spending patterns are related to income

Markets are made up of people with money to spend. So consumer spending patterns are related to income. Most families spend good portion of their income on such “necessities” as food, rent or house payments, car and home furnishing payments. A family purchase of luxuries comes from discretionary income- what is left of income after paying taxes and paying for necessities. The definition of necessities varies from family to family and over time. It depends on what they think is necessary for their lifestyle. A color TV might be purchased out of discretionary income by lower income family but seen as necessity by a higher income family. 

Most economist assume that consumer are economic buyer-people who know all the facts and logically compare choices in terms of cost and value received to get the greatest satisfaction from spending their money. Most customers appreciate firms that offer them improved value for their money they spend. Most customers face “a poverty of time”. Carefully planned place decisions can make it easier and faster for customers to make a purchase. Products can be designed to work better, require less service, or last longer.

Many behavioral dimension influence consumers. Psychological variables, social influences, and the purchase situation all affect a person’s buying behavior. An explanation of these variable will be discusses below.

Psychological Influences Within an Individual

Everybody is motivated by needs and wants. When a need is not satisfied, it may lead a drive. A drive is strong stimulus that encourages action to reduce a need. A drives are internal-they are the reasons behind certain behavior or pattern. In marketing, a product purchase results from a drive to satisfy some need. Some critics imply that marketers can somehow manipulate consumers to buy products against their will. But marketing managers can not create internal drives.

Some psychologist argue that a person may have several for buying-at the same time. Maslow is well known foe his five-level hierarchy of needs. We will discuss a similar four-level hierarchy that is easier to apply to customer behavior. The lowest level needs are physiological, then come safety, social, and personal needs.

Physiological needs- are concerned with biological needs-food, drink, and rest.

Safety need-are concerned with protection and physical well-being (perhaps involving health food, medicine, and exercise).

Social needs- are concerned with love, friendship, status and esteem-things that involve a person’s interaction with others.

Personal needs-are concerned with an individual’s need for personal satisfaction-unrelated to what other think or do.

Motivation theory suggest that we never reach a states of complete satisfaction. As soon as we get our lower-level needs reasonably satisfied, those at higher levels become more dominant.

Consumers sometimes select varying ways to meet their needs because of differences in perception- how we gather and interpret information from the world around us. We are constantly bombarded by stimuli-ads, products, store-yet we may not hear or see anything. This is because we apply the following selective process:

·      Selective exposure-our eyes and minds seek out and notice only information that interest us.

·      Selective perception- we screen out or modify ideas, messages, and information that conflict with previously learned attitudes and beliefs.

·      Selective retention-we remember only what we want to remember.

These selective processes help explain why some people are not affected by some advertising-even offensive advertising. They just do not see or remember it.

Learning is a change in a person’s thought processes caused by prior experience. Learning is often based on experience. Learning determines what response is likely.  Experts describe a number of steps in the buying process. Drive is a strong stimulus that encourage action. Depending on the cues-products, sign, ads, and other stimuli in the environment-an individual chooses some specific responses. A response- is an effort to satisfy a drive. The specific response chosen depends on the cues and the person’s past experience. Reinforcement-of the learning process occurs when the responses is followed by satisfaction-that is, reduction in the drive. Reinforcement strengthen the relationship between the cue and the response. And it may lead to a similar response the next time the drive occur.

An attitude is a person’s point of view towards something. The something may be a product, an ad, a salesperson, a firm or an idea. Attitudes are important topic for marketers because attitudes affect the selective process, learning, and eventually the buying decisions people make. Because attitudes are usually thought of as involving liking and disliking, they have some action implications. Beliefs are so action oriented. A belief is a person’s opinion  about something. Beliefs may help shape a consumer’s attitudes but do not necessarily involve any liking or disliking. Marketers generally try to understand the attitudes of their potential customers and work with them.

Psychographics, or life-style analysis, is the analysis of a person’s day-to-day pattern of living as expressed in that person’s Activities, Interest, and Opinion- sometimes referred to as AIOs. Life-style analysis assume that marketers can plan more effective strategies if they know more about their target markets. Understanding the lifestyle of target customers has been especially helpful in providing ideas for advertising themes.

Social Influence affect consumer behavior

Here marketers should look at how the individual interacts with family, social class, and other groups who may have influence. Relationships with other family members influence many aspects of consumer behavior. Family members may share many attitudes and values, consider each other’s opinions, and divide various buying task. Marital status, age, and the age of any children shape the nature of these family influence.  Young couples seem to be more willing to try new products and brands and they are careful, price-conscious shopper. And theses younger families-especially those with no children- are still accumulating durable goods, such as automobiles and home furnishing.  As children arrive and grow, family spending shifts to soft goods and services, such as education, medical, and personal care. Divorce is disrupts the family life cycle.

Who is the real decision maker in family purchase?. The answer to this question is not easy. But it all depends on the nature of the product.

A social class-  is a group of people who have approximately equal social position as viewed by others in the society.  Almost each society has some social class structure.

Reference group is the people to whom an individual looks when forming attitudes about a particular topic. People normally have several reference groups for different topics. Some they meet face to face. Others they just want to imitate. In either case, they may take values from these reference groups and make buying decisions based on what the group might accept. Reference groups are more important when others will be able to see which product or brand we are using.

Opinion leader is a person who influences others. Opinion leaders are not necessarily wealthier or better educated; each social class attends to have its own opinion leaders. And opinion leader on one subject are not necessarily opinion leaders on another.

Culture is the whole set of beliefs, attitudes, and ways of doing things of a reasonably homogenous set of people. People within these cultural groupings tend to be more similar in outlook and behavior. But sometimes it is useful to think of subculture within such groupings.

Individuals are affected by the purchase situation

Why  a consumer makes a purchase can effect buying behavior, For example, a student buying a pen to take notes might pick up an inexpensive Bic. But the same student might choose a Cross pen as a gift for a friend.

Time  influences a purchase situation. When consumer make a purchase- and the time they have available for shopping-will influence their behavior.

Surrounding   can affect buying behavior. The excitement of an auction may stimulate impulse buying. Surrounding can discourage buying too. For example, some people do not like to stand in a checkout line where others can see what they are buying-even if other shoppers are complete stranger.

Needs, benefit sought, attitudes, motivation, and even how a consumer selects certain products all vary depending on the purchase situation.

Consumer use problem-solving processes

The variables discussed affect what products a consumer finally decides to purchase. Marketing mangers also need to understand how buyers use a problem-solving process to select particular products.

Most consumer seem to use the following five-step problem solving process:

    1.  Becoming aware of-or interested in-the problem

    2.  Recalling and gathering information about possible solution

    3.  Evaluating alternatives solutions-perhaps trying some out.

    4.  Deciding on the appropriate solution

    5.  Evaluating the decision

Three levels of problem solving are useful

The basic problem-solving process shows the steps consumers may go through trying to find a way to satisfy their needs-but it does not show how long this process will take or how much thought a consumer will give to each step. Individuals who have had a lot of experience solving certain problems can move quickly through some of the steps or almost directly to a decision. It is helpful, therefore, to recognize three levels of problem solving:

·      extensive problem solving- for a completely new or important need-when they put much effort into deciding how to satisfy it. Example, a music lover who wants higher-quality sound might decide to buy a CD player-but not have any idea what to buy. After talking with a friends to find out about good places to buy a player, he might visit several store to find out about different brands and their features. After thinking about his needs some more, he might buy a portable Sony unit.

·      Limited problem solving when they are willing to put some effort into deciding the best way to satisfy a need. Limited problem solving is typical when a consumer has some previous experience in solving a problem but is not certain which choice is best at the current time.

·      Routinized  response behavior when they regularly select a particular way of satisfying a need when it occurs. Routinized  response behavior is typical when a consumer has considerable experience in how to meet a need and has no need for additional information.

 Adoption process

When consumer face a really new concept, their previous experience may not be relevant. This situation involves adoption process- the steps individuals go through on the way to accepting or rejecting a new idea.

 In the adoption process, an individuals moves through some fairly definite steps:

·      Awareness- the potential customer comes to know about the product but lacks details. The consumer may not even know how it works or what it will do.

·      Interest- if the consumer becomes interested, he or she will gather general information and facts about the product.

·      Evaluation- a consumer begins to give the product a mental trial, applying it to his or her personal situation.

·      Trial- the consumer may buy the product to experiment wit it in use.

·      Decision- the consumer decides on either adoption or rejection.

·      Confirmation- the adopter continues to rethink the decision and search for support for the decision- that is, further reinforcement.

This chapter is a summary of chapter 6 of Essential of Marketing, by McCarthy and Perreault, 1994, Sixth Edition

CHAPTER SIX:      

Elements of Product Planning for Goods and Services

What is a product: when people buy product, they buy it not to look at it. Customers are buying the satisfaction, use, or benefit of the product.

Product means the need-satisfying offering of a firm.

Quality means a product’s ability to satisfy a customer’s needs or requirement.

Product may be a physical good or a service or a blend of both. If a firm’s objective is to satisfy customer needs, service can be part of its product-or service alone may be the product- and must be provided as part of a total marketing mix.

Differences Between Goods and Services

Because a good is a physical thing, it can be seen and touched. A good is a tangible item. When you buy it, you own it. And it’s usually pretty easy to see exactly what you will get. On the other hands, a service is a deed performed by one party for another. When you provide a customer with a service, the customer can not keep it. Rather, a service is an experienced, used, or consumed. Services are not physical-they are intangible. You can not hold a service. And it may be hard to know exactly what you will get when you buy it. Goods are usually produced in a factory and then sold. By contrast, services are often sold first, then produced. And they are produced and consumed in the same time frame. Thus, goods producers may be far away from the customer, but services but service provides often work in the customer’s presence.  Services are perishable-they can not be stored. This makes it harder to balance supply and demand.

Product Classes Help Plan Marketing Strategies

You do not have to treat every product as unique when planning strategies. Some product classes require similar marketing mixes. These product classes are a useful starting point for developing marketing mixes for new products-and evaluating present mixes.

All products fit into one of two broad groups-based on the type of customer that will use them. Consumer products are products meant for the final consumer. Business products are products meant for use in producing other products. The same product might be in both group. But selling the same product to both final consumers and business customers require (at least) two different strategies.

There are product classes within each group. Consumer product classes are based on how consumers think about and shop for products. Business product classes are based on how buyers think about products and how they will be used.

Consumer Product Classes

Each class is based on the way people think about and shop for products, consumer product classes divide into four groups:

1.         Convenience products are products a consumer needs but is not willing to spend much time or effort shopping for. These products are bought often, require little service or selling, do not cost much. A convenience products may be:

                                                ·      Staples are product that are bought often, routinely, and without much thought-like breakfast cereal, canned soup. These products are usually sold in convenient places like food stores.

                                                ·      Impulse products are products that are bought quickly-as unplanned purchase-because of a strongly felt need. The impulse products are items that the customer had not planned to buy, decide to buy on sight.

                                                ·      Emergency product are products that are purchased immediately when the need is great. The customer has no time to shop around.

2.         Shopping products are products that a customer feels are worth the time and      effort to compare with competing products. Shopping products can be divide into two types:

                                                                        ·      Homogenous shopping products are shopping products that customer sees as basically the same-and wants the lowest price. Example, TV set, washing machine.

                                                                        ·      Heterogeneous shopping products are shopping products the customer sees as different-and wants to inspect foe quality and suitability. Example are furniture, clothing, dishes.

3.         Specialty products are consumer products that customer really wants-and makes a special effort to find.

4.         Unsought products are consumer products that customers do not yet want or know they can buy. There are two types of unsought products.

                                                                        ·      New unsought products are products offering really new ideas that potential customers do not know yet.

                                                                        ·      Regularly unsought products are products-like car insurance, and encyclopedias-that stay unsought but not unbought forever.

Business Products are different

Business products classes are useful for developing marketing mix too. Before looking at business products differences, however, we will note some important similarities that affect marketing strategy planning.

The big difference in the business products market is derived demand- the demand for business product derive from the demand for final consumer products. For example, car manufacturer buy about fifth of all steel products. Even a steel company with a good marketing mix will lose sales if demand for car drops.

How a firm’s accountant treat a purchase is also important to business customers. An expense item a product whose total cost is treated as a business expense in the year it is purchase. A capital item is a long-lasting product that can be used and depreciated for many years.

Business Product Classes- How they are Defined

 1.  Installation- such as building, land right, and major equipment are important capital item Convenience products.

 2.  Accessories are short-lived capital item-tools and equipment used in production or office activities-like sharp fax machine.

 3.  Raw materials are unprocessed expense items-such as logs, iron ore, wheat and cotton. There are two types of raw materials:

                        ·      Farm products are grown by farmer example are oranges, wheat, eggs.

                        ·      Natural products are products that occur in nature-such as fish copper, zinc.

 4.  Component are processes parts or materials that become part of a finished product

 5.  Supplies are expense items that do not become part of a finished product. Buyers may treat these items less seriously. When a firm cut its budget, orders for supplies may be the first to go. Supplies can  be divide into three types:

·      Maintenance supplies include products such as paint and light bulbs.

·      Repair supplies are parts-like filters and gears.

·      Operating supplies including paper clips, insurance and typing paper. 

These supplies are given the name MRO.

6. Professional services are specialized services that support a firm’s operations. They are usually expense items. Example consulting services. 

Branding Needs a Strategy Decision Too

Branding means the use of a name, term, symbol, or design-or a combination of these-to identify a product. It includes the use of brand names and trademarks. Brand name is a word, letter, or a group of words or letter. Trade mark includes only those words, symbols, or marks that are legally registered for use by only one company. A service mark is the same as trade mark except that it refers to a service offering.

Five Levels of Brand Familiarity

 1.  Brand rejection means that potential customers will not buy a brand unless its image is changed.

 2.  Brand nonrecognition means final consumers do not recognized a brand at all.

 3.  Brand recognition means that customer remember the brand.

 4.  Brand preference-which means that target customers choose the brand over other brands.

 5.  Brand insistence means customers insist on a firm’s branded product and are willing to search for it.

The Right Brand Name can help

A good brand name can help build brand familiarity. The following is a list of some characteristics of a god brand name:

    1.  Short and simple

    2.  Easy to spell and read

    3.  Easy to recognize and remember

    4.  Easy to pronounce

    5.  Suggestive of product benefits

    6.  Can be pronounced in all language

What Kind Of Brand To Use

Branders of more than one product must decide whether they are going to use a family brand- the same brand name for several products- or individual brands for each product. The use of the same brand for many products makes sense if all are similar in type and quality. The main advantage is that the goodwill attached to one or two products may help the others. The advantage of using individual brands is that when it is important for each product to have a separate identity, as when product vary in quality or type.

Generic brand- products that have no brand at all other than identification of their contents and the manufacturer or middlemen. They usually offered in plain package at lower price.

Who Should Do The Branding?

Manufacturer brands are brands created by manufacturer. These are called sometimes “national brands” because the brand is promoted all cross the country. Dealer brands also called private brands, are brands created by middlemen. The battle of the brands, the competition between dealer brands and manufacturer brands, is just a question of whose brands will be more popular-and who will be in control.

The Strategic Importance of Packaging.

Packaging involves promoting and protecting the product. Packaging can make a product more convenient to use or store. It can prevent spoiling or damage. Good packaging makes products easy to identify.

Warranties are important too. A warranty explains what the seller promise about its product. The warranty does not have to be strong. In fact, a written warranty can reduce the responsibility a producer would have under common law. 

This chapter is a summary of chapter 8 of Essential of Marketing, by McCarthy and Perreault, 1994, Sixth Edition

CHAPTER SEVEN

Product Management and New-Product Development

Products like consumer-go through life cycle. The product life cycle (PLC) describes the stage a new product ideas goes through from beginning to end. A particular firm’s marketing mix must changed during the product life cycle.

Product life cycle has four major stages:

  1.   Market introduction stage, sales are low as new idea is first introduced to a market. Customers are not looking for the product. Informative promotion is needed. Marketing introduction invest in the future.

  2.  Market growth stage, industry sales grow fast-but industry profit rise and then start falling. The innovator begins to make big profits and more customer buy.  This the time for the biggest profit for the industry. And competition increase.

  3.  Market maturity stage occurs when industry sales levels off-and competition get tougher. Industry profit go down throughout the market maturity. Persuasive promotion becomes more important during this stage.

  4.  Sales decline stage, new products replace the old. Price competition from dying products becomes more vigorous-but firms that successfully differentiated their products becomes may make profits until the end. They may make some sales by appealing to loyal customers or those who are slow try new ideas. Individual brands may not follow the pattern of product life cycle. Some products move fast. The PLC might last for long but or may for short all depends on the nature of the product. In other words, product life cycles vary in length. The cycle may vary from 90 days in the case of toys to possibly 100 years for gas-powered cars.

New Product Planning

Competition is strong and dynamic in most market. So it is essential for a firm to keep developing new products-and improving its current products.

What is a new product?

A new product is one that is new in any way for the company concerned. A product can be new in many ways. A fresh idea can be turned into a new product, and start a new product life cycle. Variation on existing product idea can also make a product new.

Five Steps to New-Product Success

Stage One: Idea generation-finding new product ideas can not be left for chance. Companies need formal procedures for seeking new ideas. Ideas can come from many sources such as customer, employees, middlemen and others. In this stage companies should collect as many ideas as they can.

Stage Two: Screening, involves evaluating the new ideas with the product market screening criteria. Ideas should fit with the companies objectives.

Stage three-  Idea evaluation when idea moves past the screening step, it is evaluated more carefully. For help in idea evaluation- firm use concept testing - getting reactions from customers about how well a new product idea fits their needs. Concept testing use marketing research.

Stage four - Development-  product ideas that survive the screening and idea evaluation step must now be analyzed further. That involves some research and development. With actual product customers can react to how well the product meets their needs. Focus group can provide reaction to specific features and to the whole product idea.

Stage five- Commercialization-  A product idea that survive this far can finally be placed on the market.  Putting a product on the market is expensive. Manufacturer or service facilities have to be set up.

New product development is a total company effort. Top management should encourage and involves in developing new product. Companies are in need for product manager or brand manager to manages specific products.

This chapter is a summary of chapter 9 of Essential of Marketing, by McCarthy and Perreault, 1994, Sixth Edition

CHAPTER EIGHT: PROMOTION

Promotion is communicating information between seller and potential buyer or others in the channel to influence attitude and behavior.  The marketing manager main job is to tell target customer that the right product is available at the right place at the right price.  What the marketing manager communicate is determined by target customer’s’ needs and attitude.

Marketing manager can choose from several promotion methods-personal selling, mass selling, and sales promotion.

Personal selling involves direct spoken communication between sellers and potential customers. Face to face selling provides immediate feedback-which help sales people to adapt. Personal selling can be very expensive.

Mass selling is communicating with large numbers of potential customers at the same time. It is less flexible than personal selling, but when the target market is large and scattered, mass selling can be less expensive. Mass selling can be divide into two form.

·      Advertising is any paid form of nonpersonal presentation of ideas, goods, or services by an identified sponsor. It include of such media as magazine, newspaper, radio and TV. The media can be classified into print media, broadcasting (indoor media) or outdoor media such as billboard and sign.

·      Publicity is any unpaid form of nonpersonal presentation of ideas, goods, or services

The main differences between advertising and publicity are that publicity is free, sponsor is not identified and the marketer can not control the message.

Sales promotion refers to promotion activities-other than advertising, publicity, and personal selling-that stimulate interest, trial, or purchase by final customers or other in the channel. Sales promotion may be aimed at consumers, at middlemen, or even at firm’s own employees.

Examples of Sales Promotions Activities

·      Aimed at final consumer or user

            Contests

            Coupons

            Samples

            Trade show

            Trading stamps

            Sponsored event

·      Aimed at middlemen

            Price deal

            Promotion allowance

            Sales contest

            Calendars

            Gifts

Merchandising aids

·Aimed at company’s own sales force

            Contest

            Bonuses

            Display

            Training materials

Promotion Objectives

For a firm’s promotion to be effective, it is promotion objectives must be clearly defined-because the right promotion blend depends on what the firm wants to accomplish. It is helpful to think of three basic promotion objectives: informing, persuading, and reminding target customer about the company and it is marketing mix.

  1.  Informing is educating-potential customers must know something about a product if they are to buy at all. The informing objective is very important during the introduction stage of the product life cycle. Here, informative promotion must educate consumers and build primary demand- demand for the general product idea-not just the company’s own brand.

  2.  Persuading -when competitors offer similar products, the company must not only inform customers that its product is available but also persuade them to buy it. The focus here is on building selective demand-demand for a company’s own brand.

  3.  Reminding- if target customers already have positive attitudes about a firm’s marketing mix, a reminding objectives might be suitable.

Promotion Requires effective Communication

There are many reasons why promotion message can be misunderstood-or not heard at all. To understand this, it is useful to think about a whole communication process-which means a sources trying to reach a receiver with a message. Here the source is the sender of a message-is trying to deliver a message to a receiver-a potential customer. Customer evaluate not only the message but the source of the message. A source can use many message channels to deliver a message. In any communication there is a noise-is any distraction that reduces the effectiveness of the communication process. Example, conversation during TV ads.

The basic difficulty in the communication process occurs during encoding and decoding. Encoding- means the source deciding what it wants to say and translating it into words or symbols that will have the same meaning to the receiver. Decoding is the receiver translating the message.

The AIDA Model is a Practical Approach.

The action oriented model called AIDA. The AIDA model consist of four promotion jobs.

  1.  To get attention - get attention is necessary to make consumers aware of the company’s offering

  2.  To hold interest-     holding interest gives the communication a chance to build the consumer’s interest in the product.

  3.  To arouse desire-  arousing the desire affects the evaluation process-perhaps building preference.

  4.  To obtain action- obtaining action includes gaining trial, which may lead to a purchase decision.

When a channel of distribution involves middlemen, their cooperation can be crucial to the success of the overall marketing strategy. Pushing ( a product through channel) means using normal promotion effort to help sell the whole marketing mix to possible channel members. Pulling means getting customers to ask middlemen for the product.

Someone must plan and manage the promotion blend. And this can be a sales manager, advertising manger, public relations or sales promotion manager.

This chapter is a summary of chapter 13 of Essential of Marketing, by McCarthy and Perreault, 1994, Sixth Edition

CHAPTER NINE:     PLACE: Channel Systems and Distribution Customer Service

Offering customers a good product at a reasonable price is important to a successful marketing strategy. But it is not the whole story. Managers must also think about place-making goods and services available in the right quantities and locations-when customer want them.

Channel of distribution-any series of firms or individuals who participate in the flow of products from producers to final user or consumer.  This is very important to any manager.

Place Decision are Guided by “Ideal” Place Objectives

We mentioned earlier the product classes-which summarize consumers urgency to have needs satisfied and willingness to seek information, shop, and compare. Now you should be able to use the product classes to handle place decisions. It is very difficult to decide the one best place arrangement. The marketing manager must also consider place objective in relation to the product life cycle. Place decisions have long-run effects. They are usually harder to change than product, price, promotion decisions. It can take years and great deal of effort to develop effective channel arrangement.

Channel System May Be Direct or Indirect

One of the most basic place decisions producers must make is whether to handle distribution themselves-or use wholesaler, retailer, and other specialist. Middlemen, in turn, must select the producer they will work with.

Many firm prefer to distribute direct to the final customer or consumer because they want to control the whole marketing job. They may think that they can serve target customers at lower cost or do the work more effectively than middlemen.  Middlemen may carry many competing products.

If a firm is in direct contact with its customers, it is aware of changes in customer attitudes. It is in a better position to adjust its marketing mix quickly because there is no need to convince other channel members to help. A firm may have to go direct is suitable middlemen are not available-or will not cooperate.  

When Indirect Channels are Best?

Even if a producer wants t handle the whole distribution job, sometimes it is simply not possible. Customers often have established buying patterns. Similarly, consumers are spread throughout many geographic areas and often prefer to shop for certain  products at specific places. Direct distribution usually requires a significant investment in facilities and people. The most important reason for indirect channels is that middlemen can often help producers serve customer needs better and at lower cost.

Discrepancies and Separation Require Channel Specialist

The assortment and quantity of products customers want may be different from the assortment and quantity of products companies produce. Producer often located far from their customers and may not know how best to reach them. Customers do not always have perfect information about all producers-nor do all producers know which customers need what product, where, and at what price. Middlemen develop to help provide information to bring buyers and sellers together.

Discrepancy of quantity means the difference between the quantity of products it is economical for a producers to make and the quantity final users normally want.

Discrepancy of assortment means the difference between the lines a typical producer makes and the assortment final consumers wants.

Channels Must Be Managed

Ideally, all of the members of a channel system should have a shared product-market commitment-with all members focusing on the same target market at the end of the channel and sharing the various marketing functions in appropriate ways.

In traditional channel systems-the various channel members make little or no effort to cooperate with each others.  They buy and sell from each other-and that is all. This is shortsighted. Because members of traditional channel systems often have different objectives-and different ideas about how things should be done-conflict is common.

The Best Channel System Should Achieve Ideal Market Exposure

Ideal market exposure means makes a product available widely enough to satisfy target customers needs but not exceed them. Too much exposure may increase the total cost of marketing.

Intensive distribution means selling a product through all responsible and suitable wholesalers or retailers who will stock and/or sell the product.   Selective distribution is selling through only those middlemen who will give the product special attention. Exclusive distribution is selling through only one middleman in a particular geographic area. As we move from intensive to exclusive distribution we give up exposure in return for some other advantage.

Physical Distribution Gets It To Customers

Physical distribution (PD) is the transporting and storing of goods to match target customers needs with a firm’s marketing mix-both within individual firms and along  a channel of distribution.

Logistics is another common name for physical distribution.   Logistic costs are very important to both firms and customers.

Physical distribution (PD) concept says that all transporting and storing activities of a business and a channel system should be coordinated as one system, which should seek to minimize the cost of distribution fir a given customer service level.

The Transportation Function Adds Value To A Marketing Strategy

Transporting is the marketing function of moving goods. Transportation provides time and place utilities-at a cost. But the cost is less than the value added to products by moving them or there is little reason to ship in the first place.

Which Transporting Alternative Is Best?

Picking the best transporting alternative can be difficult. The best alternative depends on the product, other physical distribution decisions, and what service level the company wants to offer. The best alternative should not only be as low-cost as possible but also provide the level of service (for example, speed and dependability).

Different mode of transportation have different strength and weaknesses. Low transporting cost is not the only criterion for selecting the best mode.

Modes of Transportation

 There are many different modes of transportation, among them are:

·      Railroad they carry more freight over more miles than any other mode. They carry heavy and bulky goods-such as raw material, steel, cars. Because they moves more slowly than truck shipments, it is not as well suited foe perishable items or those in urgent demand.

·      Trucks are more expensive, but flexible and essential. The flexibility of trucks makes them better at moving small quantities of goods for shorter distance. They can travel on almost any road.  

·      Ship water transportation is the slowest shipping mode-but usually the lowest cost way of shipping heavy freight. Water transportation is very important for international shipments and often the only practical approach.

·      Pipelines are used primarily to move oil and natural gas. So pipelines are important for both in the oil producing and oil consuming countries.

·      Airfreight the most expensive cargo transporting mode in airplane-but is fast. High value and low-weight goods-like high fashion clothing and parts foe electronics are often shipped by air. 

The Storing Function And Marketing Strategy

Storing is the marketing function of holding goods. It provides time utility. Inventory is the amount of goods being stored. Strong is necessary when production of goods does not match consumption. Strong allows producers and middlemen to keep stocks at convenient location-ready to meet customers’ needs. In fact, storing is one of the most major activities of some middlemen. Storing can increase the value of goods, but storing always involves cost too.

Specialized storing facilities reduce cost-and serve customers better. 

Private warehouses are storing facilities owned or leased by companies for their own use.

Public warehouses are independent storing facilities. They can provide all the services that a company’s own warehouse can provide.

In the following lines a brief description for both retailers and wholesalers will be given. 

Retailers  covers all of the activities involved in the sale of products to final consumers. Different consumers prefer different kinds of retailers.  Consumer consider many factors when choosing a particular retailer. Some of the most important ones relates to their economic needs. Obviously price is relevant, and so are:

  1.  Convenience

  2.  Variety of selection

  3.  Quality of products

  4.  Help from salespeople

  5.  Value offered

  6.  Special services offered

Wholesaling is concerned with the activities of those persons or establishments which sell to retailer and other merchants, and/or industrial and commercial users.

Wholesalers are firms whose main function is providing wholesaling activities.  

This chapter is a summary of chapter 10 of Essential of Marketing, by McCarthy and Perreault, 1994, Sixth Edition

CHAPTER TEN: PRICE OBJECTIVES AND POLICIES

Price is one of the four major variables a marketing manager controls. Price level decisions are especially important because they affect both the number of sales a firm makes and how much money it earns. Guided by the company’s objectives, marketing managers must develop a set of pricing objectives and policies. These policies should explain

  1.  how flexible price will be

  2.  at what level they will be set over the product life cycle

  3.  to whom and when discounts and allowances will be given

  4.  how transportation cost will be handled.

It is not easy to define price in real-life situation because prices reflect many dimension. People who do not realize this can make big mistake. 

The price equation 

Price is what is charged for “something”. Of course, price  can be called different things. College charges tuition, Landlord collect rent, banks asks for interest. The something can be physical product in various stage of completion, with or without supporting services, with or without quality guaranties, and so on. Some customers pay list price. Others obtain large discounts or allowance because something is not provided.

Objectives Should Guide Strategy Planning For Price

Pricing objective should flow from-and fit in with-company level and marketing objectives. Pricing objectives should be explicitly stated because they have a direct effect on pricing policies as well as the methods used to set prices.

Profit Oriented Objectives

A target return objective sets a specific level of profit as an objective. Often this amount is sated as percentage of sales or of capital investment. A large manufacturer might aim for a 15 percent on investment.  Some managers just want only satisfactory returns. They just want returns that ensure company survival and convince shareholders that they are doing good job.

A profit maximization objective seeks to get as much profit as possible. Some people believe that anyone seeking a profit maximization objective will charge high prices-prices that are not in the public interest. However, pricing to achieve profit maximization does not always lead to high price.

Sales Oriented Objectives

A sales Oriented Objectives seeks some level of unit sales, dollar sales, or share of market, without referring to profit. Some managers are more concern about sale growth than profit. They always think sales growth leads to more profit. This kind of thinking causes problem when a firm’s costs are growing faster than sales-or when manager do not keep track of their cost.

Market share objectives are more popular, many firms seek to gain a specific share (percent) of a market. A larger market share give a firm cost advantage over competitors-because of economic of scale.

Status Quo Pricing Objectives

Managers satisfy with their current market share and profit adopt status quo objectives. Managers may want to stabilize prices, or meet competition, or even avoid competition.

Price Flexibility Policies

One of the first decisions a marketing manager has to make is about price flexibility. A one-price policy means offering the same price to all customers who purchase products under essentially the same conditions and the same quantities. This can provide a goodwill among customers. This make pricing easy.

A flexible price policy means offering the same product and quantities to different customers at different prices. Flexible price policies often specify a range in which the actual price charged must fall. This pricing has disadvantage that a customer who finds others paid lower prices for the same marketing mix will be unhappy.

Price Level Policies-Over The Product Life Cycle

Skimming price policy tries to sell the top (skim the cream) of a market-the top of the demand curve-at a high price before aiming at more price-sensitive customers. This may maximize profits in the market introduction stage for an innovation.

A penetration pricing policy tries to sell the whole market at one low price.  Such an approach might be wise when the elite market-those willing to pay a high price-is small.

Price cuts do attract customers. Therefore, marketers often use introductory price dealing-temporary price cuts-to speed new product into a market. The plan here is to raise prices as soon as the introductory offer is over.

Most Price Structure Are Built Around List Price

Basic list prices are the prices final customers or user are normally asked to pay for products.

Discount Policies- Reductions From List Prices

Discount are reductions from list price given by a seller to buyers who either give up some marketing function or provide the function themselves. There are many types of discounts, they are as follow:

·      Quantity discounts are discounts offered to encourage customers to buy in larger amount.

·      Cumulative quantity discount apply to purchase over a given period-such as a year-and the discount usually increase as the amount purchased increase.

·      Noncumulative quantity discount  apply only to individual orders. Such discounts encourage large orders-but do not tie a buyer to the seller after that one purchase.

·      Seasonal discount are discounts offered to encourage buyers to buy earlier than present demand requires.

Most sales to business are made on credit. The seller sends a bill (invoice) and the buyer’s accounting department process it for payment. Some firms depend on their suppliers for temporary working capital (credit). Therefore, it is important for both parties to clearly state the terms of payment.  In the following I will discuss some payment terms  

Net means that payment for the face value of the invoice is due immediately. These terms are sometimes changed to net 10 or net 30-which means payment is due with 10 or 30 days of the date on the invoice.

Cash discount are reductions in price to encourage buyers to pay their bills quickly.

2/10,net 30 means the buyer can take a 2 percent discount off the face value of the invoice if the invoice is paid within 10 days. Otherwise, the full face value is due within 30 days.

A trade discount is a list price reduction given to channel members for the job they are going to do.

A sales price is a temporary discount from the list price. A sales discount encourage immediate buying.

Allowance Policies-Off List Prices

Allowance like-discount- are given to final consumers, or channel members for doing something or accepting less of something.

·      Advertising allowance are price reductions given to firms in the channel to encourage them to advertise or otherwise promote the supplier’s product locally.

·      Trade in allowance is a price reduction given for used products when similar new products are bought.

This chapter is a summary of chapter 16 of Essential of Marketing, by McCarthy and Perreault, 1994, Sixth Edition

Conclusion

You have to understand that, the purpose of this summary was to introduce you to the subject of marketing. Therefore, we only touched in the most important issue, more details and elaboration are needed. I strongly recommend you to buy a marketing textbook as a reference.

                      Institute of Public Administration       Mid Term Exam  Two   15%

True and False

Essay (Answer only 4 Questions)

 1.  Consumer product can be divided into many classes, discuss?

 2.  There are many different levels of brand familiarity, explain?

 3.  There are five steps to new product success, discuss?

 4.  What are the promotion objectives, explain?

 5.  Companies can follow many pricing objectives, what are they and explain?