m1 marketing 1 lg 2011 -...

IMM GSM© of 114 MAR101/M1

Learner Guide

for

Marketing 1 (MAR101) Principles of Marketing (M1)

2011

The copyright of all IMM Graduate School of Marketing material is held by the IMM GSM. No

material may be reproduced without prior written permission from the IMM GSM.

Revised: November 2010


Table of contents

SECTION A

1. Word of welcome 4

2. How to use this guide 5

3. Purpose and overall learning outcomes 7

4. National Qualifications Framework specifications 8

5. Pre-knowledge 8

6. Relationship with other modules 8

7. Prescribed textbook 9

8. Curriculum 9

9. Specific learning outcomes 10

10. Critical cross-field outcomes 15

11. Assessment details 17

SECTION B

Study Unit 1: 20

Study Unit 2: 38

Study Unit 3: 52

Study Unit 4: 61

Study Unit 5: 65

Study Unit 6: 79

Study Unit 7: 87


Study Unit 8: 95

Study Unit 9: 107

Study Unit 10: 113


SECTION A

1. Word of welcome

Congratulations on your decision to enter the exciting world of marketing.

Whether you are a recently matriculated student, a seasoned professional in one

of the allied disciplines, or somewhere within that spectrum, you will soon come

to appreciate the value marketing can add to an organisation. You will also come

to realise that marketing can help guide the efforts of all organisations – from the

smallest ‘one-man show’ to the hugest multi-national, and from consumer goods,

to financial services, to legal practitioners, to entertainers, and to many other

others.

Just one of the exciting challenges in today’s world is the rapidly changing arena

in which we must operate. The effects of the improvements, or changes in the

technological, economic, political, and social fields can create enormous

opportunities as well as challenges. It is because marketing is such a ‘hands on’

outward bound orientation that these possibilities can be identified and analysed

for possible utilisation to the organisation’s advantage.

It has been said that ‘marketing is too important to be handled by a single

department’. In the context of any marketing-oriented organisation, this is

perfectly true, as the organisation needs to operate as a total unit with all

personnel and departments working toward a common goal. One of the important

roles of marketing is to assist in giving guidance to management so the

organisation is able to satisfy the intended market and in doing so, reach its

objectives in a professional and ethical manner.


Marketing can possibly be seen as both a science and an art. This is because

the marketing principles have been established on universally accepted

theoretical as well as empirical data and can thus be construed as a science. The

practical application of these principles, however, can largely be a matter of

creativity, (think of product design, advertising, and packaging for example) and

in this regard can be described as an art.

It is a combination of all of these considerations that becomes the challenge for

any organisation. For any professional marketer, it is tremendously rewarding to

be part of a team being able to carry out a successful and ongoing marketing

campaign and this in itself is extremely stimulating to the whole organisation.

2. How to use this guide

Marketing is designed to be practical. It focuses on the application of marketing

principles in providing guidance for better managerial decision making.

The goal then is to instil in you a healthy sense of respect for, and understanding

of, the marketing process. We aim to eventually make you a competent and

confident marketing practitioner. The most effective way to achieve this will be to

ensure that you understand and enjoy this initial course.

The learner guide is especially designed for a student who studies at a distance.

The guide will provide an overview of the total curriculum and will indicate the

learning outcomes, which are essentially the core of this guide. It will provide

you with each major topic that has to be covered, along with the learning

outcomes for each topic, which are systematically explained. The guide will also

indicate how the learning material must be prepared for examination.

IMPORTANT: Please understand that the learner guide is NOT a synopsis

of the textbook – it is compiled with the intention of guiding you through


your studies and so should be studied in conjunction with the textbook as

the content of the learner guide is supplementary, and does not replace the

detailed contents of the textbook.

At the end of each study unit you will find some typical examples of examination

questions which should be used for self-evaluation.

The following icons appear in all of the learning guides of the IMM Graduate

School of Marketing:

indicates learning outcomes.

indicates the sections in the prescribed textbook that you need to

study.

indicates key concepts.

indicates the self-evaluation questions.


3. Purpose and overall learning outcomes

The emphasis of this module is on marketing as an aid to management decision

making. The module is aimed at providing a solid foundation in marketing

knowledge – combining a thorough description of underlying principles with

suggested procedures for later applying these principles in practice.

Once you have completed this module you will be able to demonstrate overall

• an understanding of the concept of marketing.

• an understanding of the nature and scope of marketing.

• an understanding of the marketing process.

• an understanding of the role of marketing within the organisation.

• an understanding of the basic marketing terms and related concepts.

• an understanding of the importance of the consumer in marketing decisions.

• an understanding of some of the consumer decision-making processes.

• an understanding of the micro- and macro-marketing environments.

• an understanding of the compilation of each of the elements of the marketing

mix.

• an understanding of how marketing interrelates with the other functions of the

organisation.

• an understanding of the composition of a marketing plan.

You are not expected to be able to actually compile a marketing plan at this

stage – this will be covered in further studies. The emphasis on this course will

be on the development of your understanding of the basic marketing terms and

concepts, and the examinations will therefore focus on testing your knowledge

gained in this regard.


4. National Qualifications Framework specifications

This module forms a compulsory module for the Higher Certificate in Marketing,

the Higher Certificate in Export Management, the Diploma in Marketing

Management and the BBA in Marketing Management.

In terms of the new National Qualifications Framework (NQF) it is designed as a

20-credit module offered on NQF level 6.

The IMM Graduate School of Marketing regards Marketing 1 as a first year

subject.

5. Pre-knowledge

Marketing requires a thorough understanding of the principles and practice of

marketing and business management and, for this reason you must be able to

absorb concepts relating to the world of business.

It is also assumed that you will be sufficiently literate and that you will have

access to the Internet when attempting this module. It is further assumed that

you would have had sufficient experience in producing written assignments in a

full and clear fashion.

Knowledge in the use of the Harvard Referencing System is required before

attempting this module.

6. Relationship with other modules

You should be acquainted with the broad context of marketing management in

order to understand the frame of reference that is applicable to this module. It is

especially important for you to be able to link marketing with the other subjects


including business management, business statistics, business law and

economics.

Marketing aims to provide you with the essential skills used in the marketing

industry so that you can, on completion of your studies, apply what you have

learnt with ease.

7. Prescribed textbook

The prescribed textbook for this module is: Strydom, J. (ed). 2010. Introduction

to Marketing. 4th edn. Cape Town: Juta.

The textbook is written in a clear and systematic manner. Always start your

studies by consulting the learner guide and then study the relevant sections in

the prescribed textbook. It is unlikely that you will pass this module if you have

only consulted the learner guide without studying the content of the textbook.

8. Curriculum

This section addresses the overall content of the module. The Marketing 1

curriculum is divided into 10 units. These units with the corresponding chapters

in the prescribed textbook are as follows:


Study

Unit

Description

Relevant Chapters

1 Marketing in Perspective Chapters 1 to 2

2 Consumer Considerations Chapter 3

3 Market Analysis Chapter 4

4 STP – The Essence of Marketing Chapter 5

5 Product Decisions Chapter 6

6 Distribution (Place) Chapter 7

7 Marketing Communication Decisions Chapter 8

8 Price Chapter 9

9 Integrated Marketing Chapters 10 to 11

10 Marketing and the Internet Chapter 12

9. Specific learning outcomes

There are a number of specific learning outcomes for this module, as indicated

per study unit in the table below.

You are encouraged to use this information for the planning in advance of your

studies and to avoid ‘cramming’. It is always wise to set up your own study

timetable so that you can manage your time effectively. When planning your

studies, please keep the submission date for the assignment in mind.

Unit Description Module Learning Outcomes

1 Basic concepts

and marketing

planning

Define marketing and explain how the ‘marketing

concept’ should guide organisations

Understand the notion of ‘customer value’ and

why it is important in achieving customer

satisfaction


Identify the management functions of marketing

Explain the marketing manager’s role of planning,

co-ordination and integration

Discuss the concept of strategic marketing

planning

Understand the difference between micro and

macro marketing

Explain how social responsibility and ethics relate

to the marketing concept

2 Finding target

market

opportunities with

market

segmentation

Explain generic markets and product markets

Understand target market segmentation and how

to segment product markets into submarkets

Explain the various market segmentation variables

and apply the seven step approach to segmenting

a market

Understand the role of the South African

Research Foundation (SAARF) and LSM’s as a

method of market segmentation

Identify and discuss the three different

approaches to market oriented strategic planning

3 The importance of

understanding

external

environments and

the use of

marketing

research

Explain how organisational objectives can affect

its search for opportunities

Understand the uncontrollable variables that

impact the marketer’s job

Understand the meaning of ‘competitive

advantage’

Explain how the various external environments


within which the business operates can affect the

strategic planning process

Discuss business strategy planning and

understand how to screen and evaluate

marketing opportunities

Explain marketing information systems and

understand how to implement them for maximum

effectiveness

Understand the scientific approach to marketing

research and describe the various methods of

collecting primary and secondary data.

4 A closer look at

customers

Explain how population and income trends in local

and global markets affect the job of the marketer

Explain the relationship between consumer

spending patterns and the stages of the family life

cycle and other demographic dimensions

Understand and explain the consumer buying

decision making process

Understand business-to-business customers and

buyers

Explain the purchasing behaviour and the basic e-

commerce methods usually employed in

business-to-business marketing

5 Developing a

marketing mix

using the 4Ps of

marketing

Understand and apply the concept of the

marketing mix and the 4Ps

Explain the principles of coordination and the

required integration of the marketing mix elements


Understand the definition of a product, product

classifications and product mixes

6 Product planning

and product

management

Understand and apply the theory of product life

cycles and how they affect the planning of a

marketing strategy

Explain the new product development process

and the definition of a ‘new’ product

Explain key differences between goods and

services

7 Distribution /

Place

Discuss the role of ‘place’ (distribution) in the

marketing mix

Understand the principles of distribution in the

context of southern Africa

Describe the logistics and operations of a

distribution centre

Explain the elements of wholesaling and retailing

Discuss the major retailing strategies

List the various functions that can be performed

by wholesalers

8 Promotion and

communication

Explain the importance of setting promotional

objectives

Discuss the process of communication, and how it

affects promotional planning in the marketing mix

Explain the differences between ‘push’ and ‘pull’

communication strategies

Discuss the components and role of sales in

marketing and describe the role of the sales


manager in an organisation

Explain the nature and importance of personal

selling

Understand the three basic selling tasks: order

getting, order taking and sales support

Understand the concept of communication

through advertising and explain the various types

of advertising and their objectives

Understand the differences between advertising

on the internet and advertising in other forms of

media

9 Price Explain the role of pricing in the marketing mix

Explain pricing objectives, the various pricing

strategies and their impact on pricing decisions

Identify the various components of a ‘price’ and

understand the methodology of costing and

pricing

Explain the concept of break-even analysis in

evaluating a range of possible prices

10 Marketing’s link

with other

functional areas

and marketing

ethics

Understand how implementing a successful

marketing plan can lead to a profitable business

Understand where and how to allocate resources

and people and explain how location and

production costs can impact the marketing

strategy

Understand how financial demands can affect

marketing strategy decisions


Explain how organisations can implement and

expand on the marketing plan

Understand why marketing strategies needs to be

evaluated on both micro and macro levels

Describe some of the challenges facing marketers

in adhering to ethical marketing practices

Understand the need for good corporate

governance and the role of the King Commission

11 Marketing Plans –

content and

dynamics

Define and understand the differences between

strategies, plans and programmes

Explain the components of a marketing strategy

List the contents of a marketing plan and describe

the marketing planning process

Discuss ways in which an organisation can

implement a ‘global’ marketing strategy

Understand the Total Quality Management

approach (TQM)

Define the Marketing Audit and its role in the

marketing planning process

10. Critical cross-field outcomes

The critical cross-field outcomes, also known as transferable skills as identified

by the South African Qualifications Authority (SAQA), are essential for your

development as a student within the education and training system, regardless of

the specific area of learning. It is these outcomes that are deemed critical for

your development in the capacity of life-long learning.


The critical cross-field outcomes adopted by SAQA are as follows:

(1) Identify and solve problems in which responses display that responsible

decisions using critical and creative thinking have been made.

(2) Work effectively with others as a member of a team, group, organisation

and community.

(3) Organise and manage oneself and one’s activities responsibly and

effectively.

(4) Collect, analyse, organise and critically evaluate information.

(5) Communicate effectively using visual, mathematical and/or language skills

in the modes of oral and/or written presentation.

(6) Use science and technology effectively and critically, showing

responsibility towards the environment and health of others.

(7) Demonstrate an understanding of the world as a set of related systems by

realising that problem-solving contexts do not exist in isolation.

(8) Reflecting on and exploring a variety of strategies to learn more

effectively.

(9) Participating as responsible citizens in the life of local, national and global

communities.

(10) Being culturally and aesthetically sensitive across a range of social

contexts.

(11) Exploring education and career opportunities.

(12) Developing entrepreneurial opportunities.


The transferable skills identified in this module are as follows:

Taught Practised Assessed

Problem solving X X X

Working in teams X X

Self-management X

Information gathering/research

skills

X X X

Communication skills X X X

Analytical skills X X X

Learning strategies X X X

Responsible citizenship X X

Cultural sensitivity X X

Career development X

Entrepreneurship X

11. Assessment details

There is one compulsory assessment involved in terms of the Marketing 1

module:

• Assignment: The assignment contributes 20% to the overall mark for the

module. Assignments will focus on selected chapters, and need to be typed.

Please ensure that you adhere to the general rules of the IMM Graduate

School of Marketing pertaining to the style and format of assignments.

• This assignment is extremely important to you as a good pass mark

contributes significantly to your final year mark. Please note that this

assignment is intended to be an indication of your understanding of the topics

covered in the designated chapters of the prescribed textbook. Remember

that whilst this test is of an ‘open book’ format, you must concentrate on


explaining your answers using your own words – not simply transcribing

quotations from the textbook or other outside sources. The examiners are

very strict on this rule, as the practice of simply copying published data does

not show your understanding of the subject matter, which is really the

objective of the exercise.

Please also remember that there could be multiple-choice and/or true/false

format questions included in tests, and that you are advised to give these

questions your very serious attention by studying their content carefully prior

to committing to your answers.

• Examination: The exam incorporates all content covered in the textbook

and learner guide. It constitutes 80% of the final mark for the Marketing 1

module. The duration of the examination is three hours and the paper will

count 100 marks. The examination paper will probably consist of

paragraph, short-essay, and multiple-choice type questions. Examination

results are usually released within six weeks of sitting the examination.

• Please be sure to read each of the questions very carefully to enable you

to establish the precise requirement of the questions before you start

compiling your answers. This is because, rather surprisingly, the

misreading of questions seems to have been a major factor in contributing

to disappointing results in past examinations. It is important also to

remember that examiners can only award marks for information which is

relevant to the question. The practice by some students of writing

information which will ‘hopefully fit in somewhere’ is rarely successful. It

seems wise then, to allocate some time to plan your answers prior to

committing pen to paper in the exam.


The final mark, consisting of the assignment mark and the examination

mark, is released in the form of a final percentage (mark out of 100). The

grading system is as follows:

Percentage Scale Description

75% or more Pass with Distinction

50% - 74% Pass

0% - 49% Fail

A timetable of the assessment programme for the semester, including dates for

the assignment to be submitted during the course of the year, is available in the

Calendar of Events for that year. Please refer to the current issue of the IMM

GSM Prospectus. This document and the Student Yearbook provide details of

the IMM GSM assessment policy.


SECTION B

Study Unit 1: Marketing in Perspective

This study unit covers the nature and scope of marketing by first examining the

philosophy of marketing as well as the marketing process and the role of

marketing in guiding the whole firm in achieving its objectives through the

satisfaction of customer needs. You are therefore introduced to the concept of

marketing and its importance both within the organisation as well as to society as

a whole. As a rounded student you should clearly understand the ethical issues

in conducting marketing. This will bring you to the heart and soul of this study

unit, namely grasping the different steps in the marketing process.

Before commencing these studies, it is worth repeating the statement contained

in Section A which clarifies the point that this study guide is not a synopsis of

the textbook. The information contained in this document is intended only to

supplement the textbook in order to highlight some of the more important

concepts and terms. It is therefore very important that you understand the

content of both this study guide and the textbook because without a complete

grasp of all of the elements of marketing you will be unlikely to succeed in the

final examination.

Furthermore, for purposes of clarity, it should be important to note that certain

terms are used interchangeably and should be taken to mean the same thing in

both the textbook and this document. These would include the terms ‘consumer’

and ‘customer’, and also applies to the synonyms ‘firm’, ‘organisation’,

‘enterprise’ and ‘company’.


This study unit comprises the first two chapters of the prescribed textbook which

are intended to give you some perspective of marketing. This serves as a broad

introduction to the philosophy, role, process, evolution, and importance of the

concept. It is intended to give you some perspective of how marketing can play a

significant role in guiding any organisation’s strategy to successfully achieve their

objectives through the satisfying of specific consumer/customer needs.

Helpful Hint:

As it is your objective to become a proficient marketer, you should attempt to

relate your new-found knowledge to your own current or future area of interest as

quickly as possible. It is therefore recommended that you begin to do this from

stage one. Probably the best way to start is that whenever the text uses an

example from a practical situation to illustrate a term or concept, you should try to

develop a parallel example from within your own particular field of interest. This

might require serious thinking initially, but as you progress, you will find this

practice will become easier, more meaningful, and more stimulating. You will find

that you gradually build up a bank of information relating to how marketing can

specifically benefit both you and your own organisation – which is your ultimate

objective.

Reading reference

Strydom 2010: Chapter 1


Learning outcomes

After studying this chapter, you should be able to:

• Define marketing and explain how the ‘marketing concept’

should guide organisations.

• Discuss ‘customer centricity’ and customer satisfaction.

• Identify the management functions of marketing.

• Explain the marketing manager’s role of planning, coordination and

integration.

• Discuss the concept of marketing planning.

• Understand the difference between micro- and macro-marketing.

• Explain how social responsibility and ethics relate to the marketing

concept.

1.1 Marketing defined

As stated in the textbook, marketing has been defined in many ways including

that used in the textbook. The following is a synopsis of just one of the alternative

explanations. It is presented here to clarify the point that all of the definitions

seem to revolve around the same central issues – these being that marketing is

based on the philosophy that an organisation’s objectives can best be achieved

by successfully directing the whole of the organisation’s efforts at matching and

satisfying the customers’ needs.

Some authors have divided the concept into two sectors, each of which is briefly

outlined in the following paragraphs.


Micro-marketing

Micro-marketing can be defined as “the performance of activities that seek to

accomplish an organisation’s objectives by anticipating customer or client needs

and directing a flow of need-satisfying goods and services from producer to

customer or client.”

Marketing on a micro-level deals mainly with private organisations.

Organisations need to determine what the needs in the market are and how they

can make use of expertise and resources to fulfill those needs. Organisations

are also responsible for ensuring that consumers are able to find these products

conveniently and that they are easily accessible.

Macro-marketing

Macro-marketing can be defined as 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 objective of society.”

Macro-marketing focuses on society and the community as a whole and

attempts to regulate what consumers want and how providers fulfill these

needs. This also gives rise to the micro-macro dilemma. This dilemma

originates from the fact that what consumers want and desire might not be good

for them individually and for the society in general. For example, cigarettes and

alcohol, which maybe considered as desirable to consumers, may be extremely

detrimental to the health of the individual and seriously harm members of

society.


1.2 The evolution of marketing One of the exciting aspects of marketing is the challenges which are brought

about through the constantly changing technological, economic, social and legal

environments.

To put this into perspective, a very brief resume of how marketing evolved is as

follows:

Simple Trade Era: Years ago, it was the practice of simple producers to

exchange any of their surplus product in a barter system.

Production Era: About the time of the Industrial Revolution, factories began

emerging and started the concept of mass-production. However, as time went by,

a situation arose where the supply of goods exceeded the demand for them,

which led to the next stage.

Sales Era: The pressure of surplus stocks of product required that firm’s attention

shifted to creating extra sales in order to release the invested capital through

concentrating on the hard-selling of the products. This really was a case of

selling whatever the firm could produce and gradually led to the realisation that

this approach had only limited success.

Marketing Department Era: The realisation that the focus of attention should be

on satisfying the identifiable needs of the consumer was first identified by some

of the large international Fast Moving Consumer Goods Manufacturers (FMCG’s)

which, based on this revised premise, introduced marketing into their operations.

This too became outdated when one of the leaders of industry came to the

realisation that “marketing was far too important to be handled by a single

department” and so the stage was set for the conversion to the next level.


Marketing Company Era: This is the stage where a growing number of leading

firms are currently at. It is even more pleasing to note that these companies are

not restricted to the FMCG’s but include most other categories of economic

activity including some of the non-profit establishments. So, nowadays we find

financial services practitioners, medical suppliers, hardware manufacturers, and

a host of other organisations using this philosophy of making their whole

organisation focus on the satisfaction of consumer needs.

The textbook briefly refers to these phases as organisational orientations.

1.3 The marketing concept

It is all about the big ‘C’, the customer! From the content of

Study Unit 1, you will understand that if we put the customer in

the centre of our strategic business decisions we are likely to be successful.

Companies realise that old ways of selling are not sufficient to retain customers

and ensure sustained business from customers. As competition grows more

intense across most industries, organisations need to seek ways of improving

interaction with customers. The first element of the marketing concept is

customer satisfaction.

The key factor in successful marketing is in understanding the needs of

customers and then designing a marketing mix that best satisfies the needs of

the customers. The marketing concept suggests that marketing decisions should

originate from the firsthand knowledge of customers and what they want. Only

then should an organisation initiate the process of developing and marketing

products and services.


The second element of the marketing concept is total company effort. This

means that every person associated with the organisation needs to behave

consistently with the concept of customer satisfaction. It would, for instance, not

be consistent with the marketing concept if a company proclaims that they care

for customers or value customers and the front line staff of the company are rude

or unhelpful. It would contradict the claims made by the company and cause

disbelief among customers.

The third element is profit. Companies are in business to make profit and reward

investors and shareholders. The marketing concept is founded on the belief that

sustainable profit comes from satisfying customer needs and providing customer

values.

Non-profit organisations are also dependent on support either financially or in the

form of assistance. If customers who provide this support are not satisfied with

the manner in which the organisation is managed and money is allocated,

support will be lost and the organisation will not be able to reach its objectives.

The principles of total company effort also apply to organisations without a profit

motive, in order to work towards a common goal and implement strategies

successfully.

The strategic tools used to implement the marketing concept include

segmentation, targeting, positioning, and the marketing mix. These will be dealt

with in detail in later study units.

1.4 Customer value

Marketing provides value for both the customer and the

marketer. It is important to understand that value is defined from

a customer’s point of view or perception. It is measured by the exchange

between what customers need to give up and what is received by them in return.


This perception of value differs from one customer to another, even though they

purchase the same product.

On the other side of the transaction, the marketer may measure value in terms of

how much profit is made from the marketing efforts and resources expended.

For a successful marketing effort to take place, both the customer and the

marketer must feel that they are receiving something worthwhile in return for their

efforts.

The concept of fair value refers to the transaction point where consumers are of

the opinion that their sacrifice either in terms of monetary value or time is

acceptable for what they have received in return. If customers receive more than

this fair value, we refer to customer delight, where the product or service exceeds

the customer expectations. Should the product or service not meet the

expectations of the customer, customers will perceive the value as inferior to

their expectations. In a highly competitive environment, if this is the case,

customers will simply purchase competitive offerings or make use of a suitable

substitute.

It is important to remember that branding provides significant value to customers

(trust, recognition, etc.).

1.5 Marketing management process

The rather complex model of the marketing process is depicted in figs. 1.2 and

1.3 of the textbook but this will be covered in greater detail in Study Unit 9 which

deals with the coordinating and integrating aspects of marketing.

The following paragraphs attempt to clarify the main managerial considerations

for a firm.


An organisation must continuously assess which customers it is trying to target

and how it can design products and services that provide better value

(‘competitive advantage’).

The main problem with this process is that the ‘environment’ in which

organisations operate is constantly changing. Organisations must therefore

adapt to reflect changes in the environment and make decisions about how to

change the marketing mix (product, place, price and promotion) in order to

succeed. This process of adapting and decision making is known as marketing

planning.

Strategic planning is concerned with the overall direction of the organisation,

which includes the mission, vision and objectives. It is concerned with marketing,

of course, but it also involves decision making on production and operations,

finance, human resources management and other business issues.

The challenge is that the combination of the marketing mix elements needs to be

carefully considered to achieve this.

The strategic plan gives direction and creates the shape of the organisation so

that the products and services provided meet the overall objectives of the

organisation. Marketing has a key role to play in strategic planning because it is

the job of marketing management to understand and manage the links between

the organisation and the ‘environment’.

The following questions lie at the heart of any marketing and strategic planning

process and need to be addressed:

• Where are we now?

• How did we get there?

• Where are we heading?

• Where would we like to be?

• How do we get there?

• Are we on course?


Implementation of the planning phase entails setting the planning phase into

action so to speak and is the implementation stage of the management process.

Control is an action whereby the objectives that the organisation was aiming for

are measured and compared against the actual results.

Referring to the textbook again, the functions within the firm as reflected in the

textbook (financial, operations, human resources, purchasing, I.T. and marketing)

are probably typical of a manufacturing operation, but would undoubtedly differ

somewhat in the areas of a service provider or a financial institution. This aspect,

too, will be dealt with more in-depth during later chapters.

1.6 Conducting a SWOT analysis

A SWOT analysis is used to assess the organisation’s strengths, weaknesses,

opportunities and threats in order to determine focus areas within the marketing

strategy. Since a SWOT analysis can be subjective, it should be used as a guide

in the process and not be seen as the ultimate solution.

Strengths and weaknesses refer to internal factors. A strength may refer to

specialist marketing expertise, and a weakness could be the lack of a new

product.

Opportunities and threats refer to external factors. An opportunity could be a

developing distribution channel, such as the Internet, or changing consumer

lifestyles that potentially increase demand for an organisation’s products. A

threat could be a new competitor in an existing market or a technological change

that makes existing products potentially obsolete.

Some of the key areas to consider when identifying and

evaluating strengths, weaknesses, opportunities and threats are


listed in the example SWOT analysis reflected in fig. 1.4 in the textbook.

Reference is also made in Chapter 2 of the textbook as to how the SWOT

analysis can be used as a tool for marketing.

1.7 Marketing growth opportunities (Ansoff Matrix) Before we commence with the possible growth opportunities, it is important to

understand the following concepts with regard to what makes an opportunity

attractive.

A breakthrough opportunity is when an organisation designs and implements

hard-to-copy marketing strategies. If the product (as part of the marketing mix)

has unique attributes or qualities that competitors cannot copy, it would be

classified as a breakthrough opportunity. This kind of opportunity is also

sustainable, which means that it is profitable over a long time period.

A competitive advantage on the other hand is when customers view the

marketing mix as superior to that of a competitor. It is important to note that this

is a subjective view of the marketing mix, so that even if the marketing mix is not

superior, customers may think so, or if they can be convinced of the superiority, it

is classified as a competitive advantage.

Differentiation refers to a marketing mix which is different in consumer relevant

aspects to that of a competitor. Marketers often use differentiation techniques to

distinguish themselves from competitors and use these as part of their

promotional mix. For instance, when Panasonic brought out the slogan ‘the

quest for zero defect’ they set themselves apart by claiming that they strive for a

product of excellent quality that is extremely reliable.

When organisations are considering expansion of their current product lines and

ranges, there are four opportunities that could be pursued in an attempt to grow.

Ansoff has identified possible growth opportunities. For examination purposes it


is important to study these opportunities which should be grouped as explained

in the following table:

Current Products

New Products

Current Markets

Market

Penetration

Product

Development

New

Markets

Market

Development

Diversification

Market penetration

When market penetration is pursued as an opportunity, the marketer tries to

increase the sales of an organisation’s present products in its present markets,

probably through a more aggressive marketing mix. The elements of the

promotional mix are normally also used to increase sales among the customers

who the organisation currently serves. Nothing about the product is adapted,

only the methods used to market it to the customers are altered.

Market development

Market development is when an organisation develops new markets to serve and

includes new target markets in the existing portfolio of markets. An example of

market development is an organisation that is providing cell phones on contract

to specific targets markets which have the ability to generate a stable income for

12 months of the year.

If this organisation wants to approach a new target market in which consumers

might not have a stable income, they could provide the same service and cell


phone, but will vary the conditions by offering a pre-paid option. This would

enable a previously excluded market to afford the product and would be a very

lucrative opportunity for the organisation to pursue.

Product development

Product development implies that new or improved products are offered to

current markets. The markets in which the organisation is currently operating do

not change but the product offering is adapted to accommodate their changing

needs and demands. A toothpaste manufacturer may currently provide various

flavours of toothpaste to the adult market, which have to be adapted significantly

when targeting the children’s market. For example, the peppermint flavour could

be changed to a fruity flavour.

Diversification

Diversification occurs where the organisation develops totally different lines of

products. The product lines and ranges are thus totally adapted or totally

replaced, whereafter new markets are targeted. The organisation may move into

completely new territory with regard to the products and markets. Such a

situation may occur when a supermarket decides to add furniture as part of its

product offering. The products may be completely different and although there is

a possibility that the existing customers might purchase the furniture, the target

market would invariably be different to the existing market.

1.8 Ethics and social responsibility

These two closely related concepts are given clear analysis

together with local examples included to illustrate certain specific points.


Very simplistically, ethics can be viewed as a code of conduct within an

organisation or an industry as a whole. It should be noted that some industries

have established their own regulatory bodies to ensure their members’ activities

are up to industry standards – an example of this can be seen in some of the

broadcasting and advertising industries, where there is an active standards

authority established to protect the rights of the public. This country is currently

preparing legislation which will set very strict standards in order to afford legal

protection to consumers affected by harmful or misleading marketing practices.

This proposed legislation is not part of this current course, but will be given due

consideration once the bill has been propagated.

Social responsibility can be seen as being on a rather broader scale in that the

welfare of society in general is the focus. It should be part of the responsibilities

of marketing, as well as top management, that society should benefit from the

activities of marketing rather than be inconvenienced or harmed in any manner

whatsoever.

Make sure that you understand and are able to explain

the following ‘Key Terms’:

Customer centricity, customer value, marketing process, customer

relationship marketing, convenience goods, services, managerial functions,

strategic planning, Ansoff Matrix, marketing mix, ethics and social

responsibility.


Self-assessment exercise

Reading reference


Learning outcomes


• Understand the uncontrollable and controllable variables that

impact the marketer’s job.

• Conduct macro-environmental analyses using PESTLE analyses.

• Explain the meaning of ‘competition’ and ‘competitive advantage’ and

conduct a thorough competitor analysis.

• Describe the competitive forces that determine market attractiveness.

• Explain why internal analysis is important.

• Explain the meaning of environmental scanning, its importance and

how management can execute it.

1. Explain Ansoff’s Matrix and explain its purpose.

2. Create your own definition of marketing.

3. Explain the differences between macro- and micro-marketing.

4. In what ways can marketing aid in guiding the efforts of an organisation?

5. Explain why ethics is important to marketers.


• Describe SWOT analysis and its relationship to marketing objectives

and strategy planning.

1.9 The marketing environment

This chapter discusses the three environment levels within

which marketing has to operate. The information given in this

study unit should be seen in the context of being supplementary to the textbook –

and not as a replacement.

The marketing environment typically consists of three levels as identified in the

textbook as:

Internal environment – which relates to the elements within the firm that the firm

has control over. These would include such matters as setting objectives,

creating a mission statement, and all the other high level measures needed to

guide the business. Detail in this regard is illustrated in fig. 2.3 of the textbook.

Market environment – which relates to the forces immediately surrounding the

firm. These are the factors the firm requires to use in order to carry out the

marketing function, and include such elements as distributing agents, suppliers,

customers, and the like. The firm does sometimes have a certain amount of

influence over these decisions made.

When studying this sector in the textbook, please pay particular attention to fig.

2.2 which illustrates very clearly the characteristics of the competitive market

structure.

Macro-environment – which are the forces which can affect the whole area of

operations, not just the firm. The textbook uses the acronym PESTLE which

stands for political, economic, social, technological and legal environment.


Each of these is elaborated on in detail in the textbook and you are advised to

study these, together with the explanatory diagram found in fig. 2.1.

The following are brief explanations of some of the terms which might be

encountered when analysing the environments:

Environmental interdependence

When one of the external factors changes, for instance in the market

environment or in the macro-environment, this may cause the internal factors to

change as well. In the same way, when one of the factors in the market

environment or the macro-environment changes, this may cause another variable

within these two environments to change.

The consequence of interdependence in the environment causes increasing

instability and change. Although the general rate of change in these

environments accelerates, environmental fluctuation is greater for some

organisations than others.

Inflation refers to the rate at which the prices of products increase

because the buying power of money decreases.

Shortages may include the lack of raw material.

Growth implies periods of time when an economy is able to produce

more goods and services for each consumer than was possible during

the previous year.

Money supply refers to coins, paper money, deposits in savings

accounts and others at a particular time.

Interest rate refers to the extra sum of money a client has to pay when

money is borrowed.


The uncertainty of the marketing environment is a function of the following,

namely

• the amount of information that is available about environmental variables,

and

• the confidence that management places in such information.


1. What is a SWOT analysis and what is it used for?

2. What is environmental scanning?

3. What does the acronym PESTLE stand for?

4. Describe a ‘competitive advantage’.

5. Show how changes in the technical environment can affect marketing

decisions.



Environmental scanning, PESTLE, competitive advantage, social

environment, market environment, market attractiveness, and SWOT

analysis.


Study Unit 2: Consumer Considerations

It is worth repeating that the information presented in this study unit is intended to

supplement that contained in the prescribed textbook – not to replace it. You

need to study fully the relevant chapter of the textbook in order to be successful

in passing the year-end examination.

Reading reference


This study unit is intended to supplement Chapter 3 of the prescribed textbook

and focuses on some of the considerations requiring attention in relation to

matters concerning consumers and how they might behave.

Learning outcomes

After studying this chapter you should be able to:

• Understand and explain the consumer decision-making

process.

• Discuss the various influences on consumer buyer behaviour.

• Explain the perception process and the marketing implications.

• Explain the relationship between consumer purchasing and the stages of

the family life cycle and other demographic dimensions.

• Understand the consumer adoption process.


• Understand business-to-business customers and buyers.

• Explain the purchasing behaviour and the basic e-commerce methods

usually employed in business-to-business marketing.

2.1 Consumer behaviour

The primary reason for studying consumer behaviour is to understand why and

how consumers make their purchasing decisions. These insights enable

marketers to design more effective marketing strategies.

Marketers need to know why consumers behave as they do with regard to need

satisfaction, in order to explain, influence and predict consumer behaviour.

Knowledge of the factors that determine consumer behaviour provides a sound

basis for consumer-oriented marketing strategies.

It is apparent that businesses are becoming more aware of and are increasingly

recognising the importance of understanding customer behaviour and the vital

role it plays in their success. Now, more than ever, because of the increase in

competition, as well as the effects of numerous internal and external forces,

understanding their customers will play a cardinal role in the success and

survival of organisations.

By learning more about how customers behave, organisations gain a better

understanding as to why customers buy what they buy or, more generally, why

they respond to marketing stimuli as they do. An understanding of this behaviour

makes it possible for organisations to develop marketing communications (e.g.

advertisements, brochures, etc.) that are focused on the way customers react.

Organisations that focus on the needs of customers ensure that the needs of

society as a whole are served better. By listening to customers and paying


attention to how customers behave, organisations are in a better position to meet

customers’ needs.

Customers express their support for a company by buying its products and

becoming loyal to a company and/or its products. Generally, this loyalty depends

on the perceived value of its products to the customer. A product will therefore

sell well only if it meets the needs of customers, who exercise their ‘choice’ by

patronising the marketer they believe responds best to their needs.

The textbook begins this chapter by identifying and explaining the four basic

views of consumer decision making. It then proceeds to discuss the steps in the

decision-making process which are illustrated in fig. 3.2.

Fig. 3.3 then reflects some of the influences on this process and

then expands on some of these. The following comments are

intended to embellish the detail in the textbook.

Psychological variables

Psychological variables are factors that influence the decision making of

consumers to purchase or not. These factors are mainly internal to consumers

and include the following aspects:

Motivation

Motivation consists of three elements, namely needs, wants and motives. Needs

are the most basic forces that motivate an individual to do something. Wants are

ways of satisfying needs that are learnt during an individual’s life. A motive is a

need or want sufficiently stimulated to move an individual to seek satisfaction.


The textbook elaborates on Maslow’s identified ‘hierarchy of needs’ in fig. 3.4

where each level is identified and discussed.

Motivation refers to the reason that a consumer would have to purchase the

product. For example, if the consumer does not have a use for the product

he/she would not purchase it. As is the case with physiological and other

emotional motives, economic motives can also influence buyers to purchase.

Motivation can be positive or negative in orientation. Consumers may feel a

driving force toward some object or condition or a driving force away from some

object or condition. For example, a person may be impelled toward a restaurant

to fulfill a hunger need and away from motorcycle transportation to fulfill a safety

need.

Perception

Perception refers to how we gather and interpret information from the world

around us. If the consumer has a negative perception of a product, purchasing

the product will be unlikely.

Perception involves seeing, hearing, feeling, tasting and smelling. Stimuli picked

up by the senses are relayed to the brain where they are interpreted. The buyer

reacts according to this interpretation and not always according to the objective

reality. Subjective factors always play a role in perception.

Perception is influenced by experiences, values and prejudices of an individual.

Few people perceive things in exactly the same way as we all have different

values, experiences and prejudices, which mean that we perceive the world in

different ways.


Perception also plays a role in the interpretation of a marketing message. A

buyer will perceive a certain market offering only after receiving sensory stimuli,

especially after seeing or hearing the marketing message.

Consumer perceptions determine what they pay attention to and what excites

their interest. They subconsciously choose whether to pay attention to a

marketing message or not. Furthermore, consumers’ perceptions cause them to

attach their own interpretation to a message, which may not quite be what the

marketer intended. Consumers seem able to defend or protect themselves

against the content of communication.

An advertisement must therefore be simple to ensure complete understanding of

the message. It should have some impact to attract attention and must contain a

promise of need satisfaction, or else consumers could distort the message or

ignore it completely.

Learning

The learning ability of consumers determines whether they are able to learn the

marketer’s ‘lesson’ about the benefits of a particular product that make it worth

paying for. In addition, the marketer should ‘teach’ consumers the product’s

name in such a way that they remember it.

Sometimes, consumers forget the name of the product they

intend to purchase, but are still able to recognise the

distinctive package among other products on the shelf.

Reminder advertising, in which only the name of a product in distinctive lettering

appears on a billboard, helps to remind consumers of what they have learnt from

the marketer.


Consumer learning may result from things that marketers do, or it may result

from stimuli that have nothing to do with marketing. Either way, almost all

consumer behaviour is learnt. Consumers need to learn which product attributes

relate to which brand and where it can be purchased and also must be able to

recognise the distinctive packaging. The buyer must remember the information

supplied in the marketing message when in a position to act.

Learning refers to the change in thought process and behaviour as a result of

prior experience. Consumers thus learn through previous purchasing

experiences which products they would purchase again and which they would

not. Learning therefore occurs through repetition.

Attitude

Attitudes encompass an individual’s value system, which represents personal

standards of what is good and bad, right and wrong. An attitude is a person’s

point of view towards something. The ‘something’ may be a product, an

advertisement, a salesperson, a firm, or an idea. Attitudes are important

because they affect the selection processes, learning, and eventually the buying

decisions consumers make.

Marketers strive to reinforce the positive attitudes held by consumers,

considering that it is far more difficult to change strongly held attitudes.

A consumer with a positive attitude towards a certain product can perhaps be

persuaded to purchase a product, whereas a consumer with a negative attitude

will not be persuaded to buy. A negative attitude is virtually impossible to

change. Once consumers have decided to avoid a certain product because it is

faulty or of bad quality, too expensive, or has the wrong taste, their negative

attitudes towards the product cannot easily be changed. Marketers can,


however, try to reinforce existing positive attitudes, or to change neutral attitudes

to favour their products.

In an attempt to relate attitude more closely to purchase behaviour, some

marketers stretched the attitude concept to include consumer ‘preferences’ or

‘intention to buy’.

Research on consumer attitudes and beliefs can sometimes help a marketing

manager get a better picture of markets. For example, consumers with very

positive attitudes towards a new product idea might provide a good opportunity,

especially if they have negative attitudes about competitors’ offerings. Or they

may have beliefs that would discourage them from buying a product, taking into

consideration that it is more economical to work with consumer attitudes than to

try to change them.

Personality/lifestyle

Personality distinguishes one individual from another and one group of

individuals with similar characteristics from another group. There are several

personality types identified by research. While research seems to indicate that

individual traits are not good predictors of behaviour, it is a well-known fact that

marketers use personality traits to describe individuals and to differentiate

between them. It is also true that marketers can expect that buyers will tend to

purchase the product which reflects the personality most pleasing to them.

Normally, people’s traits, in conjunction with other

characteristics, determine what they buy and use. As a

rule, a combination of people’s personality traits and other characteristics

determines their lifestyle.


Inner-directed individuals (who use their own values and standards in evaluating

products) prefer advertisements that stress product features and personal

benefits, while other-directed people (who tend to look to others to give direction

to their actions) prefer advertisements that feature social environment or social

acceptance. So other-direct customers may be more easily influenced because

of their natural inclination to go beyond the content of an advertisement and think

in terms of likely social approval of a potential purchase.

Lifestyle refers to the way of living of individuals or families. The lifestyle concept

provides descriptions of behaviour and purchasing patterns, especially the ways

in which people spend their time and money. Lifestyle is a function of one’s

inherent individual characteristics that have been shaped through social

interaction as one moves through one’s life cycle.

Psychographics or lifestyle analysis is the analysis of a person’s day-to-day

pattern of living, as expressed in that person’s activities, interests, and opinions.

Lifestyle analysis assumes 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 influences

Family

Of all the groups influencing buyer behaviour, the individual maintains the closest

contact with the family. In family interaction the child learns behaviour patterns

by means of the socialisation process.

With regard to the influence of the family, there are two aspects which are

important in developing marketing strategies: the family life cycle, and role

differentiation between family members.


The family as a decision-making unit appoints members to decide about

purchasing products that will provide the greatest degree of need satisfaction for

the family as a whole. Family members have certain roles. Marketers have to

know the role structure of families in their target market, because the marketing

message must be based on such knowledge.

Family members may also share many attitudes and values, consider each

other’s opinions, and divide various buying tasks. Although only one family

member may go to the store and make a specific purchase, when planning

marketing strategies it is important to know who else may be involved. Other

family members may have influenced the decision or really decided what to buy.

Still others may use the product. For example, a husband and wife may jointly

agree on many important purchases, but sometimes they may have strong

personal preferences. However, such individual preferences may change if the

other spouse has different priorities.

Children also play a role in family decision making by acting as initiators and

making suggestions about products which their parents may know very little

about. The socialisation of family members from young children to adults is a

central family function. In the case of young children, this process includes

teaching children the basic values and types of behaviour consistent with their

culture. These generally include moral and religious principles, interpersonal

skills, dress and grooming standards, appropriate manners and speech, and the

selection of suitable educational and occupational or career goals.

Family will influence the behaviour of consumers in one of two ways. One could

be that being part of a family with established purchasing patterns would cause

the consumer to continue with the established patterns. For instance, if the

person in the family who is normally responsible for purchasing always


purchases Lux soap, there is a chance that when an individual member of the

family starts his/her own purchasing, he/she will purchase the same brands.

The opposite is also a possibility. If certain products were consistently

purchased in a family, the member could have developed a negative attitude

towards these familiar products because they had to use them without being

considered or consulted about the purchase. The family member might then

purchase a different product to what was purchased in the family.

The above discussion is elaborated on in the form of the family

life cycle reflected in table 3.1, and you are advised to study this

carefully.

Social class

Although social class can be thought of as a continuum – a range of social

positions on which each member of society can be placed – researchers have

preferred to divide the continuum into a small number of specific social classes,

or strata. Within this framework, the concept of social class is used to assign

individuals or families to a social-class category.

Researchers often measure social class in terms of social status; that is, they

define each social class by the amount of status the members of that class have

in comparison with members of other social classes.

A related concept is status consumption – the process by which consumers

endeavour to increase their social standing through conspicuous consumption or

possessions.

Social class is not easy to identify or describe. The tendency among consumers

is to ascribe it to financial resources. Although this forms part of how individuals


are classified, it is not the sole method of classification. Social class also refers

to educational level, occupation, geographic residential area, etc. It is also

dependent on what a society would value and how they would categorise

individual members.

Reference groups Reference groups are individuals and groups of consumers that other consumers

see as knowledgeable about a specific topic. These individuals or groups might

not necessarily be as knowledgeable, but the opinions of consumers are

subjective and when they view these individuals as reference groups they will

influence consumer behaviour. Consumers will thus in many instances take the

advice of or copy the behaviour of these reference groups.

Normally, people want to be members of some group or other and in order to

gain acceptance will maintain the habits and purchasing patterns of the group.

People normally have several reference groups for different areas. Some they

meet face-to-face, others they may wish to imitate.

In either case, they may take values from these reference groups and make

buying decisions based on what the group might accept. Attraction refers to the

desirability that membership in a given group has for the individual. This can

range from negative to positive responses.

In all reference groups there are instinctive norms of behaviour and members are

expected to conform to these norms in order to avoid sanctions being applied

against them.

A circle of friends, a social club and a work group are all examples of reference

groups. Choosing a typical reference group to portray in an advertisement is

difficult, because what one person may regard as a positive group with which to


be associated may well be regarded by another as something to be avoided at all

costs.

Culture

Culture consists of various elements that make one culture unique to another.

Examples of these include language, religion, habits, superstitions and beliefs.

Culture includes the whole set of beliefs, attitudes and ways of doing things of a

reasonably homogeneous set of people.

The cultural values, norms and symbols are created by people and are

transmitted from one generation to another to ensure survival and also to

facilitate adaptation to the circumstances of life. They are transmitted from

parents to children. In this process the school, church and other social

institutions also play an important role. At an early age, we begin to acquire from

our social environment a set of beliefs, values, and customs that make up our

culture.

The cultural group that a consumer belongs to will greatly influence consumer

behaviour of the individual. If the cultural group that the individual belongs to

forbids the eating of pork, the individual would not purchase this product.

Besides the four main groups, smaller subcultures can develop, perhaps

according to language, age, interests or occupation. In such a way the South

African culture can be subdivided into the subcultures of the Xhosa, English,

Afrikaner, Zulu, etc. Each of these cultures may be subdivided even further. The

cultural group to which people belong also strongly influences their purchasing

and consumption patterns.

Advertising messages which are directed simultaneously at multi-cultural

consumer markets are often variations of the same theme. Marketing


management must, however, be careful not to use symbols which can be

interpreted incorrectly (or differently) and not to portray unacceptable behaviour

patterns. Effective communication can take place only if the theme of the

advertising message reflects the cultural norms, values and symbols of the

cultural group at which it is directed.

Planning strategies that consider cultural differences in international markets can

be even harder – and such cultures usually vary more. Each foreign market may

need to be treated as a separate market with its own sub-markets. Ignoring

cultural differences or assuming that they are not important, almost guarantees

failure in international markets.

2.2 Decision-making process

It is important for you to understand the five stage consumer problem-

solving process and be able to explain the application of this.

Fig. 3.5 of the textbook illustrates Rogers’ innovative adoption model (sometimes

referred to as the classification of the adopters) and you should understand each

of these stages.

The final section of this chapter deals with the process of the organisational

buying process – as distinguished from the consumer buying process. This

process is illustrated in fig. 3.6 and is followed by a discussion on some of the

influences encountered in this process.



1. What is the family life cycle?

2. Describe the steps in the consumer decision-making process.

3. Discuss the need levels as identified in Maslow’s hierarchy.

4. What are the categories of adaptors as identified in the adoption

process?

5. Describe the steps in the consumer adoption process.



Reference groups, innovators, laggards, family life cycle, decision-making

process, categories of adopters, Maslow’s theory.


Study Unit 3: Market Analysis

This study unit covers the nature and scope of marketing research by first

defining marketing research. The link between marketing research information

and decision making is critical in understanding this study unit. You are therefore

introduced to the concept of a Marketing Information System (MIS) and its

differentiation from a Marketing Decision Support System (MDSS). As a rounded

student you should clearly understand the issues in conducting marketing

research. This will bring you to the heart and soul of this study unit, namely

grasping the different steps in the marketing research process.

Reading reference


This study unit is supplementary to the content of Chapter 4 of the prescribed

textbook.

Learning outcomes


• Explain the difference between data and information.

• Explain how a marketing information system and a


marketing decision support system can help marketing managers to

make decisions.

• Discuss the marketing research process.

3.1 The marketing information system

In studying this chapter, you will come to learn the basics of what marketing

information consists of, why information is required, how it can be obtained, and

where the information can be sourced. In this regard, you should be aware of the

difference between data and information, as explained in the textbook. The

textbook contains a comprehensive explanation on the MIS. The diagram in fig.

4.1 also gives a clear indication of the procedure for developing this project.

3.2 The marketing research process

All organisations have at least one thing in common – they need information to

make informed decisions. A marketing information system is an ongoing,

organised set of procedures and methods, designed to generate, analyse,

disseminate, store and retrieve information for use in making marketing

decisions.

Marketing research provides organisations with information on aspects such as

industry trends, market potential, channel performance, advertising effectiveness,

customer satisfaction and brand awareness.

Marketing research projects are normally commissioned to a research company

if an internal research department is not available. It is important for the

marketing manager to understand the process in both cases, since he or she will

play a significant role in the research project.


It is important to understand the four-step approach in

conducting marketing research, which you should refer to in the

textbook. This process is summarised in fig. 4.3.

Primary and secondary data

Primary data is information specifically collected to solve a current problem and

is collected by means of applicable methods.

Secondary data is information that has been collected or was published

previously, it already exists somewhere, having been collected for another

purpose. There are various sources of secondary data such as government,

census recordings, research conducted by independent research companies,

articles, publications and research findings provided by governing bodies. It is

obviously cheaper to make exclusive use of secondary data sources, but this is

not always feasible or possible. The researcher needs to carefully consider the

nature of the information needed before making a decision.

The textbook gives a clear illustration of sources of both secondary and primary

data in fig. 4.4 which should give you a very comprehensive idea on the

availability of obtaining information. You might also consider the increasing use

being made of the Internet for research purposes.

Research designs

Quantitative research seeks information among a larger group of

respondents, the findings of which can be quantified through statistical data

summarised in numbers, like percentages and averages. The questionnaire

used for data collection mainly consists of structured responses like rating


scales, ranking questions, closed questions like yes and no answers and

provides categories of answers with mutually exclusive answers.

Qualitative research refers to gathering of information among smaller groups of

respondents and seeks in-depth responses, which require probing questions

through selective guidance, which should not be influenced by the researcher.

The aim of this research is to obtain information on feelings, attitudes, and

emotions and gain better insight into the research problem. It is possible to ask

in depth questions and find answers to more complex and problematic research

questions.

Data collection methods

Consumer panels

A consumer panel is a group of consumers who provide information on a

continuing basis. The panel’s behaviour is analysed through purchasing

decisions and feedback although the panels do not necessarily come in contact

with the researchers. These consumer panels are especially useful for testing

the impact and success of marketing efforts. For example, if a sales promotion

campaign is launched to encourage consumers to purchase more of a certain

product, the purchasing behaviour of the consumer panel could be analysed to

determine if the campaign was successful or not. The consumer panel is very

carefully selected to represent the consumers in the target market.

Surveys

Personal interviews conducted face-to-face or telephonically with respondents

who represent the target market. Using a questionnaire structured for mainly

‘closed’ questions.


Focus groups

Focus groups are groups of consumers who are included in an open, in-depth

discussion rather than simply asking questions to solicit participant responses.

The facilitator leads the discussion and seeks to find detailed information on the

emotions, feelings and attitudes of respondents on the specific problem or topic.

This group normally consists of six to eight respondents and because focus

groups tend to have small sample sizes they have limited population coverage.

In addition to generating new ideas, organising a focus group is an excellent

method of initially screening new ideas and concepts.

In-depth interviews

In-depth interviews entail personal interviews with specific respondents in order

to gather complex information that cannot be gathered by means of surveys.

The disadvantages are that each interview is very costly and it is difficult to

obtain participation for such long interviews.

This kind of interview is normally also conducted among a small group of

respondents who are experts in a specific field. In-depth interviews are widely

used in marketing research and are certainly the most flexible and versatile of all

the data collection methods. Most of the problems associated with mail or

telephone interviews can be addressed by using in-depth interviews.

Experiments

An experiment is a controlled study in which a researcher actively manipulates

one or more experimental variables. These variables include product features,

price levels and advertising levels or advertising appeals. The effect of these

manipulations is then measured on one or more dependent variables of interest.

Dependent variables can be measured by either observation or self-report.


Since the purpose of an experiment is to isolate the effects of the manipulated

variable(s), experiments are useful only to the extent that the effects of other

variables can be controlled or eliminated. However, this is very difficult to do in

real market-place situations where competitor’s actions are uncontrolled. Also, it

may not be feasible to perform certain manipulations in a real environment. For

example, it is not practical to test the effects of a product’s features by changing

the product from market to market.

In order to improve control or facilitate feasible manipulations, experiments are

often undertaken as laboratory studies rather than field studies. A laboratory

refers to any controlled environment. For example, if customers are invited to a

research facility where they express their preferences for products with

manipulated features, this would be classified as a laboratory study.

Data collection instruments

The data collection method used in the research often determines the instrument

used. The most common instruments are questionnaires and electronic or

mechanical equipment such as cameras. With the design of a questionnaire,

careful consideration must be given to the type of questions, the format, wording

and sequence.

The questions should be relevant and easily understood by the respondents.

The questions can be open-ended, in which case the respondents reply in their

own words, or closed where the respondents select one or more alternative

responses listed in the questionnaire.

Fig. 4.2 of the textbook gives examples of the various forms of

question composition.


The wording of the questions and instructions needs to be simple, unambiguous

and direct. The sequence of the questions also has to be considered when

structuring the questionnaire. The pre-testing of a questionnaire is always

strongly recommended in order to confirm that these considerations have been

correctly implemented and to make adjustments if necessary.

Mail and fax questionnaires are particularly versatile in reaching all types of

respondents in remote geographic areas, provided that a mailing or fax list is

available. It is also customary to include a postage-paid envelope to facilitate

and encourage the return of the questionnaire. Mail surveys have been proven

to be the least expensive of all the questionnaire collection methods, and are

preferred in research problems of a personal or sensitive nature, but are also

characterised by a very low response rate.

Internet surveys are growing in popularity as technology provides more and more

solutions to the problems associated with this technique. Systems such as

Computer-Aided Telephone Interviewing (CATI) offer the user an automated

sampling and dialing procedure, scrolled questions on a computer screen and

almost immediate data analysis.

This step further involves instruments such as galvanometers, eye cameras,

electronic and mechanical meters. The instruments range from simple counting

meters, for example counting the number of people passing through a shopping

centre, to sophisticated reaction measurements.

Sampling

The population among which research will be conducted includes the total group

of people the researchers are interested in. It is however impossible to gain

research information from every member of the population. It is for this reason

that a sample is chosen, including those individuals from the population of


interest, as the subjects in an experiment or to be the respondents to a survey.

There are various sampling methods available to researchers, but for the

purpose of this course we only focus on random and non-random sampling.

Random sampling

With random sampling, each member of the population has

the same chance of being included in the sample. Random

sampling, also known as probability sampling, is the best way to ensure a

representative sample. With simple random sampling, population members are

numbered and random members are drawn to determine which members are

selected. With systematic sampling, a random start is followed by a predefined

number of the population. With physical sampling, a systematic sample is taken

according to locations on a page or some other physical arrangement.

Non-random sampling

Non-random sampling does not give every member of the population a known

and equal chance to be included in the sample, and is not representative of the

population. This is not to say that non-random sampling is of little value, as

researchers will still employ some method to assure a form of representation in

the sample. The judgment of the researcher can be based upon factors such as

convenience, relative importance of units and recommendations of experts.

Factors that can result in a sample not being representative include non-

sampling error, which includes all error sources unrelated to sampling, sampling

error which refers to chance variation in the sample, and sample bias, which

occurs when the sample differs from the population in some systematic way.

To maintain sample integrity, a method that encourages participation from the

highest possible percentage of selected population members should be chosen.


Callbacks or follow-up procedures should be used to ensure that virtually all of

the selected population members will be contacted for the research.


1. Why is a marketing information system important to marketers?

2. Using examples to illustrate, discuss the marketing research process.

3. Distinguish between primary and secondary data.

4. What could be included in a marketing information system?

5. What are focus groups, and why are they usually used?



Data, information, MIS, MDSS, marketing research process, research

design, primary data, secondary data, observational research, focus groups,

sampling.


Study Unit 4: STP – The Essence of Marketing

This chapter explains some of the most important concepts encountered in

marketing. It is essential that you study the contents of this chapter thoroughly.

You must understand each of the concepts: segmentation, targeting, and

positioning (STP).

Reading reference


Learning outcomes


• Understand the concept of target market

segmentation and how to segment product markets

into sub-markets and evaluate each.

• Explain the various market segmentation variables and apply

the process of segmenting a market.

• Understand the role of the South African Research

Foundation (SAARF) and Living Standards Measures

(LSM’s) as methods of market segmentation.


• Identify and discuss the three different types of market

coverage.

• Discuss the role of product positioning and be able to devise

appropriate positioning maps.

The textbook investigates each of the three distinctive

components of this study unit. Segmentation, targeting and

positioning are given comprehensive explanations which are probably the

clearest and most complete of any published to date. Not only do they illustrate

the concepts with examples relating to our particular environment, but they also

give extensive coverage of the LSM model – a very important contributor in

investigating or compiling a marketing project, as a wealth of information is found

in this source of information.

The first part of the chapter deals with market segmentation – what it is, what the

purpose of segmentation is for the marketing effort, and why it is so essential.

Then the four levels of segmentation, mass marketing, segment marketing, niche

marketing and micro marketing, are reflected in fig. 5.1 together with a brief

analysis of each of these.

The chapter then progresses with a further brief description of each of the STP’s

before moving on to discuss the basic demographic and psychographic variables

used in segmentation. It is important that you understand these concepts very

clearly which are clearly explained in the text.

Table 5.1 of the textbook gives five bases for segmentation

together with some of the variables which could be included in

each of the bases.


LSM’s: The textbook then gives substantial detail on the contents and possible

usage of this valuable marketing tool. Please remember, however, that the

information gleaned in this type of exercise will be restricted to demographic

information only – it is quite probable that a certain amount of psychographic

information would add significantly to the value of the exercise.

Target marketing: When considering target market/s, there are three levels from

where your market can be selected, these being undifferentiated marketing, (also

referred to as mass-marketing), differentiated marketing, (targeting different

markets with different products) and concentrated marketing. Each of these is

explained in the text.

Positioning: This is the final stage in this particular exercise in which several

bases can be utilised. These are elaborated on in the text and do not require

elaboration in this guide apart from emphasising that the concept of positioning

relates to the consumers’ perception of the product or service and not that of the

producer.

You should also pay attention to the composition of a positioning map (often

referred to as perceptual mapping) as you could be expected to compile one of

these applying to an organisation of your own choice.

It should be mentioned at this point that further discussion on the coordination

and integration of the STP’s will be covered in Study Unit 9.



1. What are LSM’s and what are they used for?

2. Distinguish between demographic and psychographic data.

3. How do segmenting, targeting, and positioning interrelate?

4. Discuss the four levels of market segmentation.

5. Why is segmentation so important to the marketing effort?



Niche marketing, mass marketing, segmentation variables, SAARF, LSM’s,

product positioning, segmentation, targeting, demographics, and

psychographics.


Study Unit 5: Product Decisions

The first four study units have dealt with the basic marketing concepts. Study

Units 5 to 8 together describe the components of the marketing mix – which are

frequently referred to as the 4P’s. These components all interrelate, as you will

come to understand as you progress through these study units.

Reading reference


Learning outcomes


• Understand what is meant by the term ‘product concept’.

• Demonstrate how products and services are classified.

• Contrast product mix and product line decisions.

• Explain the importance of branding, packaging and labelling.

• Explain the new product development process and propose changes

to the product strategy during the product life cycle.


5.1 Introduction

As mentioned in the previous unit, the STP’s are extremely important in

preparing a marketing mix. You will come to realise just how the preparation of

the composition of the mix is dependent largely on the information received

through the STP’s, as these factors will give the direction in the development of

the mix in order to fully meet the requirements of the chosen market segment. It

is from this point that you should start trying to relate the examples used in the

textbook to parallel situations in your own area of interest.

This study unit relates to Chapter 6 of the prescribed textbook. It deals initially

with the concept of product, and then moves on to explain the components of the

product composition.

The prescribed textbook is well-presented in an integrated, analytical way – a

format that facilitates the development of marketing strategies in a logical

manner. The material in this study unit is intended to embellish the content of the

textbook not replace it.

5.2 Product as a concept

The starting point in the textbook is the identification of the four levels of which

the concept is comprised. Each of these, the image, augmented, tangible, and

core are identified and explained.

In order to define ‘product’, you need to analyse the concept from the consumer’s

point of view. Consumers do not buy products – they buy solutions to their

problems, which implies that this entails more than a set of physical attributes.

For that reason, a product can be an intangible item, namely a service, a place, a

person or an idea.


When making decisions about products, the following aspects could influence the

consumer’s decision to purchase, namely:

• The quality of the product

• The physical characteristics/attributes of the product

• The price of the product

• The brand which the product forms part of

• The packaging of the product

• The warranties included when purchasing the product

• The seller’s and manufacturer’s reputation

• The value-added services such as delivery and installation of the product.

The aspects listed above could all contribute to what the textbook refers to as the

product value package, and is illustrated in fig. 6.2.

5.3 Products and services

Products and services include the offerings of the organisation to satisfy the

needs of consumers. Products and services have fundamental differences that

make it possible to categorise these two market offerings. The following

differences can be distinguished between products and services.

Tangibility

Physical products are tangible, which means that we can experience them

through our senses, namely feeling, seeing, touch, smell and hearing.

Services, however are not tangible, it is therefore more difficult to decide on

making use of a specific service, as the outcome of the service cannot be

anticipated. Marketers have to provide consumers with tangible clues as to what

can be expected when deciding to make use of a service.


For example, if consumers need services such as hair grooming, it is a difficult

decision to choose a specific hairdresser – consumers will have no idea what

their hair would look like afterwards and whether they would be satisfied with the

results. It is therefore helpful to provide consumers with hairstyles that the

hairdresser has styled successfully as examples of excellence. Also, when

making use of services, word of mouth and references made by satisfied

customers prove to be extremely valuable sources of information to consumers.

Separability

The term separability implies that products which are manufactured by a specific

manufacturer can be sold to intermediaries who will handle the final sales to the

end-consumer. Cola-Cola manufactures cool drinks that can be sold to Spar as

an intermediary, whereafter the cool drinks will be ultimately sold to end-

consumers. A service provider such as a hairdresser or supplier of garden

services cannot be separated from the person providing the service.

Heterogeneous

Heterogeneous means different by definition. In the case of service provision, it

refers to the fact that every time a service is provided, it may differ from the

manner in which it was delivered previously. The reason for this is that humans

are not able to ensure an exact repetition of service delivery at different times. In

the case of a physical product however, the manufacturing process is geared

towards producing the exact same product on a mass production scale.

5.4 Consumer product classes

Consumer products are classified as products that are bought

and consumed by end-consumers. These products are sold

mainly by intermediaries and are made available where it is convenient for final


consumers to purchase these products. Consumer products can be divided into

four different groups, which include: convenience products, shopping products,

exclusive products and unsought products.

Convenience products

Convenience products are products that do not require extensive information

searches or problem solving. These products are often bought routinely and

without much thought. Consumer products can be further divided into the

following sub-categories:

Staple products are bought often, routinely and without much thought, such as

monthly groceries, routinely bought from a list every month.

Impulse products are normally quick unplanned purchases which are bought

without much thinking and consideration. An example would be to purchase a

magazine or chocolate bar whilst standing at the till waiting to pay. This is

precisely why these products are placed there, as retailers know that consumers

would be willing to purchase these products at the last minute, as they are not

extremely expensive and pose a low risk of cognitive dissonance.

Emergency products are bought immediately, as the need arises, when the

consumer does not have time to shop around. These are not necessarily

products that the consumer would normally have a need for; the situation dictates

a new product purchase. Examples include purchasing headache tablets when a

headache is experienced or purchasing an umbrella when it is raining.

Shopping products

Shopping products are products that the consumer feels are worth the time and

effort to compare with competing products. There would thus definitely be more


information-searching involved and consumers would use more criteria before

purchasing a shopping product. Shopping products can also be further divided

into the following sub-categories.

Homogeneous shopping products are products that the consumer sees as

basically the same as that of competitors and price thus becomes a major factor

in the purchasing process. For example, if a customer needs to purchase a

washing machine and is of the opinion that all washing machines have remotely

the same performance and functions, the price difference between products will

weigh heavily on the purchasing decision.

Heterogeneous shopping products are products that the consumer sees as

different to that of competitors and wants to inspect the product for quality and

suitability. If the same example is used, consumers could be of the opinion that

the various brands and products on the market have definite functional

differences. In this case, the customer views the product as a heterogeneous

shopping product. The consumer would then compare the functions,

performance levels and value-added services and compare aspects such as

quality and price before purchasing the washing machine.

Speciality products

Speciality products are consumer products that the consumer really wants and

makes a special effort to find. Consumers who are extremely brand loyal

normally fall under this category. These consumers do not only have a

preference for a certain product, they insist on a certain product or service. In

extreme cases, the customer would refuse to purchase alternatives or substitutes

and would go to great lengths to obtain the product or service. For example, if a

customer specifically wants a Bosch washing machine, and the retailer does not

stock this product or have it in stock, the customer would go to various retailers

until the product of choice is obtained.


Unsought products

Unsought products are products that consumers do not yet want or know that

they can purchase. Two kinds of unsought products can be identified, namely

regularly unsought and newly unsought.

Newly unsought products offer new ideas of which customers are not yet aware.

These products have not yet been introduced to the target market and marketing

efforts need to be launched to create awareness. These products are not

necessarily unwanted; a need or want for these products has just not been

established.

Regularly unsought products are products that have an established need, but

consumers are not motivated to satisfy these needs due to the nature of the

products, such as insurance and gravestones. Consumers need to have these

products but would prefer not to – unfortunately they have no choice.

5.5 Business product classes and services

You must be able to explain each category of consumer product, give

an example of such an item, and explain the specific related marketing

considerations. You will find this information in the textbook. Refer to the

summary of the relevant categories, as well as the marketing mix considerations.

As was explained in Study Unit 4, business customers are very different from

end-consumers of products and services. For examination purposes you are

required to be able to distinguish between business and consumer product

classes and provide an explanation of how the products provided differ.


Like end-consumers, organisations make purchases to satisfy needs. But it is

often easier to understand an organisation’s needs because most make

purchases for the same basic reason. They buy goods and services that will

help them meet the demand for goods and services that they in turn supply to

their markets. In other words, their basic need is to satisfy their own customers

and clients. A producer buys because he/she wants to earn a profit by making

and selling goods or services. A wholesaler or retailer buys products it can

profitably resell to its customers. Organisational buyers typically focus on

economic factors when they make purchase decisions. They are usually less

emotional in their buying than final consumers. An organisation will need

business products and services to either support the infrastructure and other

resources, the manufacturing process, and the human resources, as well as the

products that will form part of the manufacturing process as component parts and

materials of the final product. These are classified as business products and

services.

Business products and services

These are products needed to operate the business and may be utilised or

purchased for resale, assembling or manufacturing of products. They are usually

processed during the manufacturing process and/or used as part of a final

product. They are very different from those used by the end-consumers and are

classified a follows:

• Installations

• Accessory equipment

• Raw materials

• Components and parts

• Maintenance and repair

• Professional services.


Installations and accessories

Installations and accessories are industrial products that support the

manufacturing process. Installations consist of buildings (factories, offices) and

fixed equipment (generators, large computers, elevators). Because installations

are major purchases, they are usually bought directly from the producer after a

long decision period. Consequently, salespeople must have the technical

expertise necessary to describe product performance. Buyers also tend to be

price insensitive and base their purchases on product performance.

Accessories include portable factory equipment and tools (hand tools, lift trucks)

and office equipment (typewriters, desks). These products do not become part of

the finished product. They have a shorter life than installations and simply aid in

the manufacturing process. Most accessory equipment sellers use middlemen

because the market is spread out geographically, the buyers are numerous and

the orders are small.

Raw materials and production goods

These are the goods which are utilised to enable the manufacturer to produce an

intermediary or final product related to the core business of the company.

Production goods fall into two classes

• Raw materials and natural resources, including such materials as

diamonds, glue, glass, wool, vegetables and altered raw materials from

which a final product may be manufactured. For example, tomato sauce

is manufactured by using raw tomatoes and additives. The raw materials

assimilate with the manufacturer’s product completely, through further

processing.

• Manufactured materials and components form part of the final product

through, for example, the further assembly of parts of a car.


Raw materials can be divided into the following;

• Farm products include wheat, cotton, livestock, fruits and vegetables.

Farm products are supplied by many small producers who turn them over

to marketing intermediaries to process and sell them.

• Natural products include crude petroleum and iron ore. Natural products

usually have great bulk and low unit value and require a lot of

transportation to move them from producer to user. There are fewer and

larger producers, who tend to market them directly to industrial users.

Manufactured materials and parts include:

• Component materials such as iron, yarn, cement and wires. Component

materials are usually processed further – for example, pig iron is made

into steel and yarn is woven into cloth.

• Component parts include small motors, tyres and castings. Component

parts enter the finished product unaltered with no further change in form,

such as when small motors are put into vacuum cleaners and tyres are

affixed to motor cars.

Most manufactured materials and parts are sold directly to industrial users.

Personal selling, price and service are the major marketing factors, and branding

and advertising tend to be less important.

Business supplies and services

Business supplies and services are products that support the manufacturing

process but are not part of it – they do not enter the finished product at all.

Supplies include operating supplies (lubricants, coal, typing paper, pencils) and

maintenance and repair items (paint, nails, brooms). Supplies are the


convenience products of the industrial field because they are usually purchased

with a minimum of effort or comparison.

Business services include the following.

• Maintenance and repair services such as window cleaning, typewriter

repair. Maintenance services are often provided by small producers, and

repair services are often available from the manufacturers of the original

equipment.

• Business advisory services which include legal, management consulting

and advertising services. These services are usually supplied under

contract.

The characteristics of a product have a major effect on marketing strategy. The

marketing strategy will also depend on factors such as the number of competitors

and the state of the economy. Buyers try to consider the total cost of selecting a

supplier and its particular marketing mix, not just the initial price of the product.

For example, a hospital that needs a new type of x-ray equipment might look at

both the original cost and ongoing costs, how it would affect doctor productivity

and of course the quality of the images it produces.

The hospital might also consider the seller’s reliability and general

cooperativeness; the ability to provide speedy maintenance and repair, steady

supply under all conditions, reliable and fast delivery; and any past and present

relationships.

The matter of dependability deserves further emphasis. An organisation may not

be able to function if purchases do not arrive when they’re expected. For

example, there is nothing worse for a manufacturer than shutting down a

production line because sellers have not delivered the goods. Dependable

product quality is important too. For example, a bug in e-commerce software


purchased by a firm might cause the firm’s online order system to shut down.

The costs of finding and correcting the problem – to say nothing about the cost of

the lost business – could be completely out of proportion to the original cost of

the software.

Organisational buyers often buy on the basis of a set of purchasing specifications

using a written (or electronic) description of what the firm wants to buy. When

quality is highly standardised, as is often the case with manufactured items, the

specification may simply consist of a brand name or part number.

With products like agricultural commodities, where there is more variation, the

specification may include information about the grade of the product. Often

however, the purchase requirements are more complicated; then the

specifications may set out detailed information about the performance standards

the product must meet. Purchase specifications for services tend to be detailed

because services tend to be less standardised and usually are not performed

until after they’re purchased.

Organisational customers considering a new supplier or one from overseas may

be concerned about product quality. However, this is becoming less of an

obstacle because of ISO 9000, which is a way for a supplier to document its

quality procedures according to internationally-recognised standards.

ISO 9000 assures a customer that the supplier has effective quality checks in

place, without the customer having to conduct his/her own costly and time-

consuming audit. Some customers will not buy from any supplier who does not

have it. To get ISO 9000 certified, a company basically must prove to outside

auditors that it documents in detail how the company operates and who is

responsible for quality assurance every step of the way.


The products an industrial customer needs to buy depend on the business it is in.

Because of this, sales of a product are often concentrated among customers in

similar businesses.

5.6 Branding and new product development

Please refer to the textbook for full explanations of these two

important concepts as it is felt that they require no additional

comment here. The New Product Development (NPD) process is illustrated in fig.

6.3 in the textbook, together with detail of each of the steps as well as some of

the reasons why NPD might be necessary for a firm to consider.

The description on the product life cycle is very important to marketers, so you

are advised to study this section in detail. You need to understand the

characteristics of each of the four stages through which a product would typically

move over time. Whilst the textbook explains how these different stages might

affect the branding of the product, please note that the life stages of the product

might well affect any of the components of the marketing mix. This will become

clearer as you progress through the compilation of the marketing mix

components in following study units.



Branding, product life cycle, services, consumer product classes, business

products, product levels, new product development process, packaging,

product image, and features.



1. Describe the concept of ‘product’.

2. Explain the stages found during a typical product life cycle.

3. What are the four levels of the product concept?

4. Explain why branding is so important to both marketers and customers.

5. Describe the stages of the new product development process.

6. How can information gleaned from STP investigations impact on product

decisions?


Study Unit 6: Distribution (Place)

Distribution is a very important function within the marketing mix and deals with

the mechanics and the intermediaries involved in transferring the goods/services

from producer to the selected target market. Here again, the STP’s have a very

important influence on decisions made within this function. The text gives detail

on both the concept of distribution as well as an analysis on the various channels

available to marketers in this region. Please try to relate the concepts and the

examples of their application to areas within the sphere of particular interest to

you.

Reading reference


Learning outcomes


• Understand the concept of supply chain management and the

role of intermediaries in the distribution channel providing value

to the customer.

• Analyse the distribution activities performed in the distribution

channel.

• Illustrate with the aid of figures how a product is pulled and

pushed through the distribution channel.


• Differentiate between the different intermediaries that are found

in the South African distribution channels.

• Understand why hybrid channels and vertical marketing systems are

used in distribution channels.

• Show how the factors involved in selecting a suitable distribution

channel are used to develop a distribution channel for a product

or service.

• Discuss the merits of channel leadership or captaincy and how

channel conflict is handled in the distribution channel.

• Explain why marketing logistics is such an important factor of the

distribution decision.

• Discuss the steps involved in managing a distribution channel.

6.1 Introduction

In Study Unit 6 you will study the role of place or distribution in the marketing mix

and cover aspects of development of channel systems, logistics and distribution

services, and retailer and wholesaler strategies. You are expected to develop an

understanding of the concept ‘place’ utility and availability to target consumers (in

context with other elements of the marketing mix).

It is important to understand the place and distribution in the southern African

context, namely:

• The population distribution with its many different ethnic and

cultural groups, and rural vs. urban consumers.

• The distributive trade channels and types of distribution that

make southern Africa unique and, in many ways, different to the

First World. The spaza trade, cash ‘n carry wholesalers, and

rural market nodes are examples.


Special attention must to be paid to the following aspects:

• The different types of distribution channels

• The physical distribution and transport of the product

• Distribution suited to specific to target markets

• The role of the retailer and the wholesaler, as well as an

understanding of the strategies implemented by both the

retailer and the wholesaler

6.2 Types of distribution channels

The textbook perceives the supply chain (also referred to as

the chain of distribution) in two spheres – the supply of raw

materials into the organisation and the transfer of finished goods to the target

market. This is illustrated in fig. 7.1 with an actual example reflected in fig. 7.3. In

this study unit, however, attention should be focused on the latter activity as this

forms the components of the place segment of the marketing mix.

The channel system can be direct or indirect. The concept of distribution refers

to the ‘making available’ of products to consumers by placing products in shops

to enable consumers to buy them. You were introduced to different product

classes in Study Unit 5. Can you remember these? Similar decisions must be

made for the other product classes. Can you also now see that unless you have

a very good understanding of your target market, you will not be able to make

appropriate decisions in terms of place?

The textbook identifies the activities carried out through the distribution channel

in fig. 7.3 with a broad description of some of the intermediaries in fig. 7.4.


An important decision in terms of place is whether, as producer of the product,

you want to have a direct or indirect channel system. It is important to

understand the difference between the two, as well as when to choose a direct

channel rather than indirect to market.

The difference between a direct and indirect channel is the amount of control and

direct contact that the manufacturer has with end-consumers. When making use

of an indirect channel of distribution, middlemen are used for the distribution and

deal directly with the final consumers. Pick n Pay, which deals directly with

consumers and takes responsibility for stocking, transporting and making

products available on behalf of manufacturers such as KOO and Knorr, is an

example of an indirect channel of distribution.

Direct channels in comparison imply that the manufacturer chooses to have

direct contact with the end-consumer. The manufacturers thus do not make use

of intermediaries or middlemen to make their products available to end-

consumers. In the case where Pick n Pay has a house brand manufactured,

namely its ‘Choice’ brand, the retailer is making use of direct channels of

distribution. Other examples include factory outlet stores such as Meltz clothing.

There are various reasons why manufacturers would prefer to deal directly with

customers. In some instances there are no middlemen available for the

distribution of products of the manufacturer or the existing middlemen are not

willing to stock or purchase a product that does not have a demand among

consumers yet. In some cases the manufacturer has a very specific brand

identity and would like to ensure that the image of the brand is consistent with the

brand identity created.

Should a decision be taken to utilise an indirect channel to market, the following

should be considered, namely:


• The kind of middlemen required

• The management of relationships with channel partners to ensure customer

satisfaction.

A diagram of possible channels for consumer goods and

consumer services is shown in figs. 7.5 and 7.6 respectively.

This is followed by a diagram of business-to-business products

in fig. 7.7. Please ensure you understand the differences in these as well as the

reasons for the different approaches.

6.3 Vertical marketing systems

As a result of the complexities within distribution channels, vertical marketing

systems have become a dominant force in distribution. You are required to

define a vertical marketing system, describe the various options available within

a vertical marketing system and name examples of these. Vertical marketing

systems exist in the instance where all the members of the channel, including

intermediaries, focus on the end result of their respective efforts.

All the members within the marketing system contribute toward a common goal,

which is to satisfy the target market. If they do this and approach their working

relationship in this manner, all involved in the distribution channel would benefit.

Ultimately if the end consumer is satisfied and has a demand for the product in

the future, the channel members would have the opportunity to be involved in the

distribution of the product in the future. They would thus all be able to continue

making profits.

The concept of vertical marketing systems is relatively new, in contrast to the

traditional channel system where there is very little integration of channel


members – each activity is executed for their own gain and shows very little

regard for fellow channel members.

Another concept that is of importance to understand when

dealing with intermediaries is a channel captain. In every

distribution system there is usually one member that has more

bargaining power than the others. The channel captain could thus have more

financial resources, have a bigger market share or could be more popular among

consumers. The end result is that this member is more powerful and the rest of

the members have to accommodate this member.

For example, if a relatively unknown brand is currently selling its product through

Pick n Pay and has a problem with the manner in which Pick n Pay operates, the

unknown brand does not have the liberty of deciding not to distribute through

Pick n pay anymore. The unknown brand is dependent on Pick n Pay and needs

it desperately to introduce consumers to the brand and push sales.

6.4 Channel systems

There are three alternatives when deciding on the ideal market

exposure, namely

• Intensive distribution

• Selective distribution

• Exclusive distribution.

Intensive distribution is a channel system characterised by selling the product

through as many intermediaries as possible. The purpose of this channel system

is to obtain as extensive market coverage as possible. Wherever there is a

demand for the product it is made available to consumers. An example is for


instance the various types of bread sold in major retailers, supermarkets, cafes

etc.

Selective distribution entails selecting certain intermediaries that are most

suitable to their product strategy. By making use of this strategy, manufacturers

and resellers are afforded the opportunity to choose intermediaries with the

correct image and support structure to facilitate the sale of their products. For

example, all Verimark and Glomail advertisements provide selected stores where

their products are sold. These stores have been selected to distribute these

products.

Exclusive distribution is selling through only one intermediary. There is normally

a legal agreement with this one intermediary that prohibits other intermediaries

from distributing the products. For example, BMW only sells new cars through its

new car dealership and no other brand or dealership is allowed to sell this

product.

6.5 Physical distribution

In choosing your physical distribution system, the levels of customer service

which you wish to achieve and maintain are critically important. The textbook

highlights some of the factors that could affect service levels. The organisation

would also need to consider factors such as the kind of product that needs to be

transported as some products need specific requirements for transportation.

Examples include flowers and perishable products; products that could break,

have unusual shapes and need to be transported within a specific time limit. You

will find Woolworths’ approach very interesting and educational – please refer to

their website on www.woolworths.co.za.


Transporting alternatives

For the purpose of this module, you should be able to select the best transporting

option related to a particular product and/or service and be able to motivate your

selection. Remember (to reiterate) that none of the 4P’s can be seen in isolation

– they impact on one another and should therefore not be considered

independently. The textbook features the benefits and limitations of each of the

transport options and will assist you in this regard.

6.6 Wholesale and retail strategies

You need to be able to differentiate between retailing and

wholesaling. The sections below will assist you in doing so.

Most retail and wholesale buyers see themselves as purchasing agents for their

target customers – remembering the old saying that ‘Goods well bought are half

sold’. Typically, retailers do not see themselves as sales agents for particular

manufacturers. They buy what they think they can profitably sell.

Similarly, wholesalers buy what they think their retailers can sell. In other words,

they focus on the needs and attitudes of their target customers. In an effort to

make a profit, the buyer tries to forecast sales, merchandise costs, and

expenses.

In wholesale and retail firms, there is usually a very close relationship between

buying and selling. Buyers are often in close contact with their firm’s salespeople

and with customers. The house-wares buyers for a local department store, for

example, may even supervise the salespeople who sell house wares.

Salespeople are quick to tell the buyer if a customer wants a product that is not

available – especially if the salespeople work on commission.


You should find the case study at the conclusion of the chapter rather interesting

in that you might find the scenario familiar, and therefore easier to follow.


1. What do you understand by the term ‘logistics’?

2. Describe the distribution channels available to a marketer.

3. What are the functions of retailers and wholesalers?

4. Describe the categories of channel activities.

5. What are the steps in the planning of the distribution process?



Supply chain management, distribution channels, wholesalers, retailers,

logistics, vertical marketing, franchising, and inventory management.


Study Unit 7: Marketing Communication Decisions

This study unit examines the concepts and methods of communication between

the producer and the selected target market. This is the third of the major

components of the marketing mix but is equally important for the successful

creation and implementation of a marketing campaign. Here again, the

information derived from the STP investigation is critical in making

communication decisions. For example, the selected target market’s

demographic profile will indicate that specific market’s location which will assist in

selecting appropriate advertising media.

Reading reference


This study unit is supplementary to Chapter 8 of the prescribed textbook. As in

the previous chapters, you are urged to try to find parallel applications of the

concept illustrations which can be applied to your own particular field of interest.

Learning outcomes


• Show how Integrated Marketing Communication (IMC)

can help develop the optimal marketing communication

mix for the organisation.


• Explain the steps in the integrated marketing communication

campaign.

• Advise on the budgeting techniques that must be used in this process.

• Design an advertising campaign.

• Explain the role and types of direct marketing.

• Describe the personal selling process.

• Explain the types of sales promotions.

• Describe public relations and publicity.

7.1 Introduction

Study Unit 7 emphasises the overall communication role of promotion, as well as

how promotion must be integrated with the other P’s to achieve sales and profits.

You must understand the different methods of promotion and develop an

understanding of which methods to use, depending on the target market and

promotional objectives.

7.2 Promotional objectives

Promotional objectives include informative, persuasive and reminder objectives.

Informative objectives aim to inform consumers of new products

and services available on the market. Examples of these types

of objectives include advertisements introducing new products, products

available in South Africa for the first time, special introductory offers and new

product launches.

Persuasive objectives are aimed at persuading consumers to purchase products

they might not otherwise purchase. Examples of these types of objectives


include sales promotion, specials, samples and testers, discount, rebates and

coupons.

Reminder objectives are aimed at reminding consumers about existing and

mostly familiar products. Advertisements with this purpose often do not name or

mention specific products, but instead focus the attention of these consumers on

products and services they are already familiar with. The purpose of these

objectives is to ensure that consumers continue to purchase the products or

support the brand.

7.3 Promotional methods

When studying the different promotional methods, it is important to

know what each method involves, when and how it is used most effectively, and

how it could be used as part of an integrated strategy.

First of all, focus on which of these methods is most suitable to the

situation. Ensure that you understand the demand curve and how it can be

moved by promotional activities.

Personal selling

The nature and importance of personal selling is covered extensively in your

prescribed textbook, please ensure that you familiarise yourself with this chapter

and focus very strongly on the steps in the personal selling process.

The critical success factor in personal selling is people. Personal selling may be

the most customer-oriented promotional activity, but it requires exceptionally


skilled people. In this section, focus on the basic sales tasks and the kinds of

resources and structures required to fulfill these effectively.

Once you know what kind of salespeople you require, you need to make sure

you recruit them effectively, provide appropriate training and compensate them

appropriately to maximise the potential of the sales force.

Familiarise yourself with the steps in personal selling, as presented in fig. 8.5.2 in

your prescribed textbook.

Advertising

Advertising is one of the most prominent tools for building awareness of an

organisation, product or service. If advertisements are also creative, they can

assist in building brand image and preference. The reality is that it is expensive

and therefore needs careful strategic decision making regarding the expenditure.

Not only do you need to make careful decisions regarding the

advertising strategy, but the effectiveness thereof needs to be measured and

reviewed regularly. In studying the section on advertising, you must pay

attention to the following:

• Choice of advertising medium (related specifically to the South African

environment)

• Advertising objectives as a strategy decision

• Opportunities on the Internet

• What to pay attention to when preparing advertising messages

• The role of an advertising agency

• Measuring the effectiveness of advertising.


It is important for examination purposes to distinguish between the different types

of advertising. The following types are of importance:

Product advertising refers to promotion of a specific tangible product such as

shampoo.

Institutional advertising however refers to a company that could provide either a

product, service or both. Old Mutual and ABSA bank are examples of institutions

that target end-consumers with institutional advertising.

Pioneer advertising is done when there is no established demand (primary

demand) for the product or service category. A product or service category

refers to a new concept or idea to which consumers have not adapted.

Comparative advertising refers to a case where a product or brand compares the

features and functionality of the product directly and claims to be superior. In

South Africa this kind of advertising is not allowed.

This should not be confused with competitive advertising, which simply refers to

convincing consumers to purchase a specific brand (selective demand) and

includes most of the advertisements aired on television. This is not to be

confused with comparative advertising.

Sales promotion

Most advertising does not deliver sales quickly, since it works on the mind of the

consumer. Sales promotion, however, works on the behaviour of a consumer.

When consumers hear of a sale, such as two for the price of one, a free gift or

the opportunity to win a prize, they typically react.

Just as all the other promotional tools need to be planned carefully, the use of

sales promotion is not a whimsical decision based on what the competitors are


doing; it may seem to be one of the easiest options, but requires careful

management.

Another reality is that sales promotions will work for certain target markets and

product categories and not for others. It is important to understand when to use

sales promotion and when it will work. The easiest way of distinguishing sales

promotion from other promotional methods is that is always has an expiry date.

All sales, competitions and special offers only last until a certain time. An

example of where it becomes confusing could be Romans Pizza that has a buy

one get one free policy – it seems like a sales promotion, but has been running

so long (and will continue to do so) that is has become part of their product

offering.



Pioneer advertising, comparative advertising, reminder advertising,

advertising media, slogans, jingles, aided recall, direct marketing pull/push

strategies, and integrated marketing communication.



1. Explain how an integrated marketing communication process is

developed.

2. What is direct marketing?

3. How can the information obtained through the STP’s influence decisions

in the communication process?

4. What are the six steps used in personal selling?

5. Describe the three types of sales promotion.


Study Unit 8: Price

This study unit covers the fourth main section of the marketing mix. Please

remember that although pricing is the last aspect to be discussed, it is just as

important as the other three components already covered. Here, too, the

implications of the information obtained during the STP’s investigation will play a

significant role in the establishment of a pricing policy.

Reading reference


Learning outcomes


• Explain the various steps in the determination of the price of

a product or service.

• Analyse the factors that will influence the determination of the price of

a product or service.

• Describe the different pricing objectives that may be used by an

organisation.

• Explain the relationship between cost, volume and profits.


• Describe how the break-even analysis is used in price determination.

• Describe the three methods that may be used to select the approximate

price level.

• Write an essay in which the steps followed to determine the price of a real

product or service are explained.

8.1 Introduction

Unit 8 is discussed in Chapter 9 of the prescribed textbook, and covers aspects

of pricing and completes the 4P’s of marketing. You are expected to understand

the various methods of pricing and more importantly, to have a clear

understanding of ‘price’ in relation to the other three P’s (and to ‘profitability’, and

‘affordability’).

Price is the amount of money that is charged for something of value. As price-

setting is a vital part of the marketing strategy and decision making, it is

important to understand the following aspects:

• Break-even analysis

• Demand-oriented approaches

• Full-line pricing

• ‘Added values’ and effect on price

• Price-level policies – skimming price policy, penetrating

pricing policy and introductory price dealing.

The aspects mentioned should be studied from the prescribed textbook. You also

need to have a fundamental grasp of how prices are communicated and

controlled, and realise that pricing can differ by customer type and volume base.


8.2 Pricing

Price differs from the other three marketing mix elements in that it produces

revenue, whereas the others create cost. Needless to say, this is therefore

critically important since up to now organisations have only spent money and not

earned any revenue.

In order for you to apply the principles of pricing, you must have

a thorough understanding of, and be able to apply, the following

aspects:

• The different pricing objectives

• Factors that influence pricing – elastic and inelastic demand – (please

refer to the prescribed textbook for these aspects)

• The various kinds of costs involved in pricing

• The methods to set price

• Legalities around pricing – (please refer to the prescribed textbook for

these aspects).

8.3 Price determination

Fig. 9.1 of the textbook reflects the steps and sequence of determining the price

for a product or service. Please study this together with the factors identified in

fig. 9.2 which could influence this process.

8.4 Pricing objectives

The following information supplements the textbook in

elaborating on the information illustrated in fig. 9.3.


When setting pricing objectives, the organisation could either be profit-orientated,

sales-orientated or status quo orientated.

Profit-orientated objectives include two objectives that could be pursued, namely

target return and profit maximisation. Achieving a target return implies that the

company sets a specific level of profit as an objective, for example if the

organisation is selling shampoo, it could be determined that a profit of R1.00

should be made on each bottle sold. Profit maximisation on the other hand

means striving to make as much profit as possible. If the same example is used,

the cost of producing the shampoo would be determined and the mark up would

be made as high as possible to maximise profits.

Sales-orientated objectives are primarily aimed at a certain number of sales as

an objective. In the same example, the objective would be to sell as many

shampoo bottles as possible. The reason why an organisation would prefer to

follow such an objective is to sell as many units of a specific product and thereby

close up opportunities for competitors to flourish in the market-place.

Status quo objectives are aimed at keeping things as they are for a certain period

of time and in doing so avoiding any form of pricing competition.

A diagram of the possible pricing objectives is reflected in fig. 9.3 of the textbook.

8.5 Pricing policies

Pricing policies are decisions made with regard to how pricing

will be approached and what the organisational rules and

regulations of pricing will entail.

One-price policy offers the same price to all customers who purchase the product

under essentially the same conditions and in the same quantities. Flexible-price


policy offers the same product and quantities to different customers at different

prices. For example, some organisations allow sales representatives more

freedom in customising a final price for customers. The sales representative is

thus at liberty to include additional products and services in the price structure or

negotiate a more desirable price within a range provided.

Price level policies

Skimming price policy is when the company tries to sell to the higher income

group at a high price before aiming to sell to more price-sensitive customers.

Skimming may maximise profits in the market introduction stage for an innovative

product, especially if there is little competition.

Marketers thus initially charge the highest price that they can possibly get for the

product or service. There is often a price quality correlation in the minds of

consumers in that they perceive expensive products to be of good quality.

Penetration pricing policy is when the company tries to sell to the whole market

at one low price. Such an approach might be wise when the elite market,

namely those willing to pay a high price, is small. Introductory price dealing is

when low prices do attract customers. Therefore, marketers often use

introductory price dealing (temporary price cuts) to accelerate a new product’s

acceptance into the market.

Basic list prices are price structures built around a base price schedule or price

list. Basic list prices are the prices final customers or users are normally asked

to pay for products.


Pricing policies around list prices

Discounts are reductions from a list price given by a seller to buyers. They either

give up some marketing functions or provide the function themselves. Discounts

can be useful in marketing strategy planning.

Quantity discounts are offered to encourage customers to buy in larger amounts.

This allows a seller to get more of a buyer’s business and shifts some of the

storing function to the buyer, or reduces shipping and selling costs. This is often

provided to customers in order to get rid of stock that would otherwise just have

become obsolete.

For example, if a tomato farmer has surplus stock of tomatoes and is unable to

sell it off quickly, it will perish and huge losses will be incurred. By offering a

discount on the quantities bought, chances are that some of the losses will be

absorbed.

Cumulative quantity discounts are applied to purchases over a given period (e.g.

a year). The discount usually increases as the amount purchased increases.

Cumulative discounts are intended to encourage repeat buying by a single

customer by reducing the customer’s cost of additional purchases. This is a way

to develop closer, ongoing relationships with customers.

Non-cumulative quantity discounts are applied to individual purchases. Such

discounts encourage larger orders, but do not tie a buyer to the seller after that

one purchase.

Seasonal discounts are discounts offered to encourage buyers to buy earlier than

present demand requires. The reason for these discounts is that the demand for

specific products decreases in certain seasons and with that the sales figures for

these products. An example would be that of ice cream for which the demand is


much greater in the summer time. If ice cream vendors are willing to purchase

ice cream in the winter for instance, they would be rewarded with a seasonal

discount.

Cash discounts refer to a reduction in price to encourage buyers to pay their bills

faster than they normally would.

Trade (functional) discount is a list price reduction given to channel members for

the job they intend to do. Trade discounts are calculated from the suggested

retail list price to cover the cost of the retailing function and their profit.

Sale price is a temporary discount from the list price. Sale price discounts

encourage immediate buying. In other words, to get the sale price, customers

give up the convenience of buying when they want to buy in exchange for when

the seller wants to sell.

Allowance policies

Advertising allowances are price reductions given to organisations and

intermediaries in the distribution channel to encourage them to advertise or

otherwise promote the supplier’s products locally.

Stocking allowances (Slotting allowances) are provided to middlemen to get shelf

space for a product. For example, a producer might offer a retailer cash or free

merchandise to stock a new item. Stocking allowances are used mainly to get

supermarket chains to handle new products.

Push money allowance (Price money allowances), also called PM’s or spiffs, are

given to retailers by manufacturers or wholesalers to pass on to the retailer’s

sales clerks for aggressively selling certain items. PM allowances are used for


new items, slower-moving items, or higher-margin items. They are often used for

pushing furniture, clothing, consumer electronics and cosmetics.

Trade-in allowance is when producers and retailers offer discounts for free items,

through coupons distributed in packaging, mailings, print advertisements, or at

the store. Rebates are refunds paid to consumers after a purchase.

Geographic pricing policies

Value pricing is setting a fair price level for a marketing mix that really gives the

target market superior customer value. It is important to note that value is a

perception held by the consumers. It might not be correct, but will have a great

influence on whether they purchase products or not. Dumping is when a product

is sold in a foreign market, below the cost of producing it in that specific country

or at a price lower than in its domestic market.

Dumping has detrimental effects on the world economy and has therefore been

deemed illegal. An example of dumping would be when the South African

market exports apples to the United Kingdom. Because of the difference in

currency between the rand and the pound, the apples could be sold in the United

Kingdom for less than they could be grown in the UK. If this is allowed, South

Africa could easily flood the UK fresh produce market.

Price fixing is when competitors agree to raise, lower or stabilise prices.

Competitors often engage in this also illegal act in which they all decide to set

prices at a minimum amount and none of them sell their product lower that the

agreed amount. This is extremely beneficial to the competitors as their profit

ratio will rise as a result. For consumers however, this is detrimental. For

example, if all car manufacturers and importers in South Africa decided to set a


minimum price for purchasing a vehicle, and this is at an unaffordable price level,

consumers would not be able to purchase a car to commute to work.

Under this heading you should also make sure you understand the different types

of market competition as identified in the textbook.

8.6 Pricing methods

Please ensure you understand the definitions of the cost

concepts total fixed cost, total variable cost, and total cost.

When selecting an approximate price level (refer to fig. 9.1 again in this regard;

the three different methods identified in fig. 9.7.1 should be understood. These

are elaborated on in the text. Markup is when organisations – including most

retailers and wholesalers – set prices by using a markup. A rand amount is

added to the cost of products to get the selling price. Markup percent is a

percentage of the selling price that is added to the cost to get the selling prices.

Bait pricing means setting some very low prices to attract customers into a store,

but trying to sell more expensive models or brands once the customer is in the

store.

Complementary product pricing is setting prices on several related products as a

group. Demand backward pricing is setting an acceptable final consumer price

and working backward to what a producer can charge. Full-line pricing is setting

prices for a whole line of products.

Leader pricing is setting some very low prices and real bargains to get customers

into retail stores. Odd-even pricing is setting prices that end in certain numbers.


Prestige pricing is setting a rather high price to suggest high quality or high

status.

Price lining is setting a few price levels for a product line and then marking all

items at these prices. Psychological pricing is setting prices that have special

appeal to target customers.

8.7 Break-even analyses

Learners have immense difficulty in understanding and

explaining break-even analyses. For examination purposes you

are required to understand the underlying principles and costs involved in

calculating the break-even point and you must also be able to use the

mathematical calculation provided in the textbook to calculate the point.

The break-even point can very simply be explained by making use of a

production facility as an example. If we take a Coca Cola factory as an example,

when producing a bottle of Coca Cola or any product for that matter, there are

ALWAYS two cost components, namely fixed costs and variable costs. Fixed

costs refer to costs that remain the same, irrespective of how much of the

product is produced. These include costs such as rent, machinery payments,

bank charges and salaries of permanent staff. Variable costs on the other hand,

include cost such as water and electricity, wages and product components.

When a product is manufactured, both of these cost components are added

together to calculate the cost of manufacturing the product. If the fixed cost for

the factory is five rand and only one bottle of Coca Cola has been produced, the

fixed cost for that one bottle will be five rand. If two bottles are produced the

fixed cost per bottle becomes R2.50 and if five bottles are produced the fixed

cost per bottle becomes R1.00.


In other words, the more bottles produced, the lower the fixed cost per bottle

becomes, bringing down the production cost per unit. This concept is also

referred to as economy of scale.

When calculating the break-even point, the fixed cost, as mentioned earlier,

remains consistent, irrespective of how many units are produced. The total fixed

cost is used in the top part of the calculation. To determine how many units must

be produced, the total fixed cost contribution is used in the bottom part of the

calculation. Total fixed cost contribution per unit means that because there are

two cost components, fixed and variable, and only the fixed cost per unit can be

lowered through economy of scale, the total cost is taken, minus the variable cost

component of the unit (that cannot change).

The fixed cost contribution is thus all that is left for the fixed cost per unit and we

need to calculate how many units must be produced for the fixed cost per unit to

be the desired amount.

For example, if the total fixed cost of the production facility is R10.00 and the

total cost of producing a unit is R2.00, with the variable cost per unit at R1.50,

there is only 50 cents left for the fixed cost. To determine how many units need

to be made, R10.00 is divided by the 50 cents, which is the fixed cost

contribution – this amounts to 20 units. This means that if we produce 20 units of

Coca Cola, the fixed cost per bottle is 50 cents, which is exactly what we had in

mind!



1. What are the steps required in determining the price for a product?

2. Discuss the three possible pricing objectives.

3. What is meant by the term ‘competition-based pricing methods’?

4. How does the information obtained from the STP investigation assist in

making pricing decisions?

5. Explain the term ‘break-even analysis’.



Gross margin, trading margin, net margin, price sensitivity, perfect

competition, monopolistic competition, oligopoly, monopoly, status-quo

pricing, fixed costs, variable costs, total costs, loss-leader pricing, prestige

pricing price skimming, and price penetration.


Study Unit 9: Integrated Marketing

This study unit reviews the information given in the previous chapters in order to

show how they interlink. You may already have been able to build up your own

‘library’ of references which are now starting to form your own cohesive picture of

the whole concept of marketing. However, you should still find the information

given in the text rather enlightening.

Reading reference

Strydom 2010: Chapters 10 and 11

This study unit covers Chapters 10 and 11 of the prescribed textbook. Each of

these two chapters reveals how the contents of the previous four chapters can be

integrated into a marketing mix. Chapter 10 focuses on how marketing can be

effective for a service as well as analysing all of the properties of the service

concept. Chapter 11 dwells on the application of the mix components of

marketing in a more general, or product-oriented context.

Learning outcomes

After studying these chapters, you should be able to:

• Clearly distinguish between a service product and a physical

product.

• Classify the different types of services that can be provided.

• Explain the distinguishing features that are unique to the service product.

• Describe the components of the service product.


• Combine the elements of the expanded marketing mix for services into

appropriate marketing programmes.

However, before dealing with these topics, it is of interest to note not only how

marketing integrates the components of the marketing mix, but also how it

facilitates the integration of the various functions within the organisation.

However, before investigating this, perhaps a little clarity on the terms integration

and coordination is required. A simple dictionary definition of cooperation reads

‘organising people or things to work properly together’. Similarly, integration is

defined as ‘joining parts into a harmonious whole’. Please keep these concepts in

mind as you study this unit in order to see how marketing contributes to guide the

organisation’s efforts through this coordinating and integrating effect.

9.1 Marketing within the organisation

Apart from the organograms used in earlier chapters of the textbook to illustrate

how an organisation might be structured into different departments, it must be

recognised that each firm or organisation would be structured according to

criteria set by top management, and would therefore vary from organisation to

organisation. This does not really alter the fact that marketing has an important

role to play, irrespective of how the organisation is structured.

From the various definitions of marketing available, the common thread of most

of these is that marketing contains four main factors – these being the focus of all

the organisation’s efforts on satisfying the target market’s needs, facilitating a

cohesive and integrated effort through each department having the same

eventual goal, the attainment of the organisation’s objectives, whilst at the same

time, conducting the organisation’s affairs in a socially responsible manner.


Turning now to the marketing mix, it now becomes clear that

the implementation of the marketing programme requires the

input of virtually every part of the organisation.

Product

Here, whilst the design, quality levels, branding, differentiation, and other

associated decisions might be taken by marketing, the actual construction or

production would be carried out by the production team. Without the input of

marketing, there could well be production of a product unsuited to the market

needs, so the cooperation between the marketing and production units is vital if

the product is to meet the needs of the target market. Please understand that this

does not mean that marketing is more important than production. It simply that

each department is reliant on the efforts of the other in order to satisfy the target

market needs. Vital interaction between the two operations would include such

matters as the specifications of the product, the quantities required, and a timing

schedule of when and where the product is required.

Place

When considering the implementation of distribution, the decisions taken during

the STP investigation would give the necessary direction on when and where the

product or service is required which would then facilitate the establishment of the

channels and logistical plans to transfer the production to where the customer

could obtain it conveniently. The physical distribution function does not have to

be performed by the organisation itself, but can be facilitated through outsourcing

this function. It does need to be carefully planned in order to consistently keep

the target market satisfied.

Promotion

The very important task of communicating with the target market is also directly

as a result of the STP process, which will identify the specific target market

details which, in turn, facilitates the construction of the communication plan of


action. Whilst some firms have their own promotions division, many of these

tasks can be outsourced to advertising agencies, branding experts, sales

promotion specialists, PR practitioners, media owners, and the like. However, it

is up to marketing to initiate and control these activities.

Pricing

This final element of the mix entails considerable thought. Not only does it

require information obtained through the STP process, but it also requires input

from other segments of the organisation. Marketing must liaise very closely with

every other department involved in the marketing effort. Production and logistics,

for example will need to give estimates of expected costings to obtain the

production and distribution required. Finance must also be involved to enable the

funding of marketing activities, but also to have input on costing decisions and

final pricing policies.

9.2 Coordination and integration

Whilst the above outline of the marketing activities relates to the

application of the marketing mix, the coordinating and

integrating responsibility is certainly not restricted to the spheres already

discussed. Some of the other divisions of the organisation interacting with

marketing include the following:

Administration

Marketing places great reliance upon the MIS and therefore must communicate

the requirements of a statistical and logistical nature if the desired data is to be

obtained. The administration duties also extend to the area of customer

communication, accounting, sales statistics, and the like. It thus requires detailed

interaction with this segment of the business.


Human resources

The continuous changes taking place in the field of marketing require constant

upgrading of skills and procedures. This calls for the input of the specialist

knowledge of the HR arena in order to hire and develop the required level of

sales and marketing personnel’s skills.

Information technology

Following on from earlier discussion, the availability of well thought out statistical

data on such aspects as salespersons’ performances, customer purchases,

marketing costs, progress against budgeted plans, and suchlike, is absolutely

essential for the necessary managerial control and so requires an ongoing

dialogue between these two areas of the organisation.

It should be noted that marketing’s relationship is not restricted to the areas

outlined above. For example, some service industries might include departments

such as ‘technical’, ‘reservations’, ‘customer service’, and ‘maintenance’.

Please bear these interactive relationships in mind when studying the two

chapters covered in this study unit.



1. How does ‘urbanisation’ create opportunities for marketers?

2. Is it important to pay attention to ethnic dimensions?

3. Compare and contrast the problem-solving approaches used by

organisational buyers (industrial) and by end-consumers.

4. In Europe, populations are ‘ageing’, while in SA our population profile is

becoming younger. What does this mean? What are the implications for

marketing in SA?

5. Would a furniture manufacturer have a different marketing strategy for a

chain of furniture retail stores as opposed to a single furniture store run

by its owner?


Study Unit 10: Marketing and the Internet

This study unit recognises the fact that one of the benefits of the rapidly evolving

technical environment is the increasing usage of the Internet for marketing

purposes. Whilst recognising that everyone might not yet be aware of the various

applications, it is felt that some knowledge of this emerging facility will at some

stage in your career become either necessary or, at least, worthwhile

investigating.

Reading reference


This study unit is covered in Chapter 12 of the prescribed textbook. This is

intended to give you an understanding of precisely what the Internet is, what it

can be used for, and also how marketers might consider using it as part of their

marketing mix.

The information contained in this chapter is deemed sufficient to enable you to

obtain a grasp of the important features of this ever-expanding possible tool for a

marketer, and so no further information will be given here.

Regarding this topic in the year-end examination, you would be wise to learn the

basic concepts and be able to explain them clearly. You are unlikely to be tested

on any technical issues in this first year’s studies, although you will probably

require in-depth knowledge in the following course.



1. What are some of the advantages of using the Internet for marketing

purposes?

2. Is it important to pay attention to ethnic dimensions?

3. What are some of the benefits of email marketing?

4. How can the Internet be used in each of the 4P’s?

5. What is viral or buzz marketing?

Make sure that you understand and are able to explain the

following ‘Key Terms’:

The World Wide Web (WWW), website, search engine, mailing lists, spam,

autoresponders, Frequently Asked Questions (FAQ’s), and online advertising.

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