1.

Marketing - creating and capturing value

Marketing is the process by which companies create value for customers and build strong
customer relationships in order to capture value from customers in return. The marketing
process involves five steps. The core marketplace concepts are needs, wants, and demands;
market offerings (products, services, and experiences); value and satisfaction; exchange
and relationships; and markets. Wants are the form taken by human needs when shaped
by culture and individual personality. To design a winning marketing strategy, the
company must first decide whom it will serve. It does this by dividing the market into
segments of customers (market segmentation) and selecting which segments it will cultivate
(target marketing). Next, the company must decide how it will serve targeted customers
(how it will differentiate and position itself in the marketplace). Today, marketers of all
kinds are taking advantage of new opportunities for building relationships with their
customers, their marketing partners, and the world around them.

Example Amazon: its success lies in being customer needs driven. Even in company meeting
attention is always paid to the customers voice. Such customer focus leads to taking risks and
innovating differently from other companies and focusing not just on products, but how they are
sold. The latter makes customers' experiences more personal through collaborative filtering
('recommendations for you" feature). Lastly, Amazon allows for a discovery experience with its
huge product variety attracting more customers (by offering products of competing retailers as
well as used items).
Obiective 1: Definition of marketing and steps in marketing process
Marketing - (simple definition) - managing valuable customer relationships. 2 goals of
marketing: (1) attract new customers by greater value and (2) maintain and expand current
customers by providing satisfaction.
Nowadays marketing includes not only "telling and selling", but fulfilling customer needs.
Marketing mix includes tools that are combined to satisfy consumers' needs and manager
relationships with customers.
Marketing is the "process by which companies create value for customers and build
strong customer relationships in order to capture value from customers in return"
Marketing process consists of 5 steps, in 4 of which companies create value for their
customers, whereas in the last step they capture the value from the customers. The figure below
summarizes the process.

Objective 2: Understanding marketplace and customer needs (five core marketplace

concepts)
Step 1: consists of 5 core customer and market concepts - (1) needs, wants, and demands; (2)
market offerings (products, services, and experie nces); (3) value and satisfaction; (4) exchanges
and relationships; and (5) markets.
Needs - are states of deprivation of humans; they include physical (e.g. food, warmth), social
(e.g. affection), and individual (e.g. knowledge). Wants - are needs that have been shaped by
culture and personality; they can be described by an objects that is able to satisfy them (need for
food can be satisfied with pizza). When wants are supported by buying power they turn into
demands. Companies analyse customer data and perform marketing research to find out more
about needs, wants and demands of their customers.
Market offerings - are combinations of products (physical), services (e.g. banking), information
(e.g. ideas) or experiences that fulfil customers' needs and wants. Marketing myopia occurs
when sellers suffer from paying more attention to products than to benefits and experiences
provided by them to the customers. It occurs when companies think that customer needs their
product instead of the actual need of what the product provides (e.g. customer needs a hole in the
wall, not a drill). Needs stay the same, whereas products change. Brand experiences can be
created by combining several service and products to satisfy the needs.
Customers choose and buy based on formed expectations about value and satisfaction
provided by market offerings. Marketers should carefully adjust levels of expectation as low
levels fail to attract new buyers, whereas high ones disappoint.
Exchange involves obtaining something (satisfying needs) by offering something else
in return. Marketing includes actions that help create, maintain and expand exchange
relationships with target segments.
Markets grow from exchange and include actual and potential buyers of product or
service. Marketing involves managing markets, searching for customers and their needs,
designing and pricing market offerings, promoting and delivering them. Furthermore, in modern
days customers are empowered by technology and marketers need to manage customer-managed
relationships, allowing customers to reach companies. Companies' success in building valuable
relationships depends on the marketing system which includes suppliers, competitors, marketing
intermediaries and consumers.

Objective 3: Designing marketing strategy and integrated marketing plan

Customer-driven marketing strategy can be designed once consumers' needs and markets
are understood. Marketing management consists of "choosing target markets and building
profitable relationships with them". For a successful strategy 2 questions need to be answered:
(1) what is the target market and (2) how will it be served/what is the value proposition?
Selecting customers to serve: the company needs to segment the market and choose target
segments, customers the can be served well and bring most profit when their demand is
managed.
Choosing value proposition: this involves deciding on how to differentiate and position the
company; value proposition is the benefit the company promises to customers to fulfil their
needs helping to differentiate and giving advantage in target markets.
Marketing management orientations: 5 concepts around which organizations can create and
implements their marketing strategies

 Production concept: if consumers prefer products that are available and affordable,
company improves production and distribution efficiency (can lead to marketing myopia).
 Product concept: if consumers prefer innovative products of high quality, and superior
performance, company focuses on continuous product improvement (can lead tif marketing
myopia).
 Selling concept: consumers will not buy the products unless the company launches a
selling and promotion effort (e.g. insurance, donations); this is a risky concept as it aims at
creating sales (profits through sales volume), not high quality relationships with customers.
 Marketing concept: the outside-in perspective (opposite of inside out perspective of selling
concept) where achieving company objectives depends on identifying the needs and wants of
consumers to fulfil them in a better manner than competitors. In many cases consumers do not
know what they want and what is possible; then such consumer-driven marketing may even
allow understanding the consumers better than they do themselves.
 Societal marketing concept; considers possible conflicts between short-run wants and long-
run welfare. It suggests that value should be provided to customers to improve their own and
society's well-being. Sustainable marketing is included in the concept and involves socially and
environmentally responsible strategies while considering ability of future generations to meet the
same needs. Shared value recognizes societal needs and not only economic ones.
Companies should balance human welfare, want satisfaction and profits.

Integrated marketing program outlines how value will be delivered to target consumers. It
involves transforming marketing strategy into action with the marketing mix tools. The latter are
grouped into 4 Ps: product, price, place and promotion. These are integrated into marketing
program.
Objective 4: CRM and creating & capturing value
Customer Relationship Management - the "process of building and maintaining profitable
customer relationships by delivering superior customer value and satisfaction"

Relationship Building Blocks: customer value and satisfaction

Customer value: highest customer-perceived value, evaluation of benefits and costs that are
judged subjectively, leads to a customer buying from the company.
Customer satisfaction: this depends on whether the bought product meets expectations. More
satisfied customers are more loyal leading to better company performance. Smart companies
deliver even more than they promise to delight customer, who in turn buy again and spread the
word. However, the goal is not to maximize customer satisfaction, but to generate customer
value profitability.
Customer relationship levels and tools: companies with low margin customers develop basic
relationships through brand building ads, websites and etc. companies with high margin
customers create full partnerships though personal approach. Other tools include: frequency
marketing programs to reward those who buy often, club marketing programs that benefit
members and create communities.
Changing nature of customer relationships - important trends in relationships:

1. Relating with more carefully selected customers: important customers are identified and
targeted for pampering (e.g. potentially unprofitable customers are preselected and weeded
out).
2. Relating more deeply and interactively:
a. New technology allows relating in multiple ways, with deeper customer involvement and
sense of community. The challenge is to be able to manage with great power, control and
informedness of customers. Customer-managed relationships allow customers to interact
with each other and brands shaping their relationships. Therefore, marketing should
practice attraction, involving customers in market offerings. When using social media,
companies should find ways to join social conversations and provide relevant and
engaging brand information
 b. Consumer-generated marketing is created by the consumers where they influence,
intendedly or unintendedly, their own and others' experiences with the brand by using
blogs, sharing videos, reviewing. Some companies make use of this by inviting
consumers to participants in marketing efforts by collecting new ideas or generating ads.
The danger of this is the high costs and difficulty in identifying good solutions.

Partner relationship management - involves close collaboration with partners inside and
outside to generate more value for the consumers. Internally, firms must connect all departments
with a customer-focus objective. Additionally, close links are required outside, along the whole
supply chain, as the success of delivering greater value is dependent on all partners.
Capturing value from customers (outcomes of creating customer value)

• Creating customer loyalty and retention: good CRM leads to satisfaction of customers,
making them loyal and generating retention. Therefore. this adds to the customer lifetime
value, all the purchases a customer makes over a lifetime of patronage.
 Growing share of customer: the share a company gets of the customer's purchasing of the
offered products can be increased with good CRM and by offering a variety of products
• Building customer equity: this is the ultimate goal of CRM; customer equity is the
combined customer lifetime values of potential and current customers creating a measure
for the future customer base.
Building the right relationships with the right customers:

Not all customers are good investments for the company. The customers can be separated
according to their potential profitability and loyalty and the relationships with them can be
managed accordingly. Nothing should be invested into stranger as there is no fit between
company' offerings and their needs. The opposite good fit is true for butterflies, however, the
company should invest in them in the short time of their interest. True friends are profitable and
loyal, company should nurture the relationship and constantly invest into it, turning the group
into true believers who purchase regularly and spread the word. Barnacles are most problematic
and the company can true to raise their profitability, however, if that does not work, investments
into them should be ceased.
Objective 5: Trends and forces in marketing landscape

 Changing economic environment: in the uncertain economic times, brand value needs to
be balanced with long-term equity and market share should be build strengthening
customer relationships.
 Digital age: Internets provides new ways to access customer information and
communicate, leading to growth of online marketing.
 Growth of not-for-profit marketing: marketing helps museums, zoos, hospitals attract
funds and members. Additionally, government employs social marketing to discourage
smoking and increase concern for environment.
 Rapid globalization: managers are increasingly focused not only on local, but global
views of processes in organizations.
 Call for more ethics and social responsibility: social responsibility and environmental
concerns place increasingly stricter demands on organizations; marketing aims at
profiting from serving current needs with a long-term outlook.
2. Strategy - partnering to build customer
relationships
Strategic planning sets the stage for the rest of the company's planning. Marketing
contributes to strategic planning, and the overall plan defines marketing's role in the
company. Guided by the company's mission statement and objectives, management plans
its business portfolio, or the collection of businesses and products that make up the
company. Under the strategic plan, the major functional departments-marketing, finance,
accounting, purchasing, operations, information systems, human resources, and others-
must work together to accomplish strategic objectives. Customer value and relationships
are at the centre of marketing strategy and programs. To find the best strategy and mix
and to put them into action, the company engages in marketing analysis, planning,
implementation, and control.

Example McDonalds: to adapt to the changing tastes and needs McDonalds changed its strategy
to being the customers' favourite restaurant, taking care of them. This helped the restaurant to
change the overall direction, rediscover new opportunities and menu, as well as increase sales.
Objective 1: 4 steps of company-wide strategic planning
Strategic planning - the process of "developing and maintaining a strategic fit between the
organization's goals and capabilities and its changing marketing opportunities". Strategic
planning occurs on 2 levels: corporate level and business unit, product and market level.
The first step is to define the mission, which describes the purpose of the organization and its
goals in broader environment and it meant to guide the member of the organization. Mission
statements should be oriented towards the market, focused on customers and described in terms
of fulfilling consumers' needs.
The second step is to set company objectives and goals, dedicating responsibility to management
to achieve them. Such goals are to become marketing objectives.
Objective 2: Designing the business portfolio
The third step is to use the mission and objectives to develop a business portfolio for the
company containing its businesses and products. It needs to fit the strengths and weaknesses of
the company considering environmental threats and opportunities. To plan a portfolio 2 steps
need to be taken: current business portfolio should be analysed and balanced, and the future
portfolio needs to be developed aiming at growth and downsizing.

In portfolio analysis (evaluating products and businesses that the company consists of) the first
step is to identify strategic business units (SBU). A widely used portfolio planning method was
developed by BC and uses a growth-share matrix to classify the SBU. Market growth share
measures market attractiveness, and relative market share - the company strength in the market.
Stars require investments for growth and eventually turn into cash cows. Cash cows are
established and successful and need less investment; they provide cash for bills and other
investments. Question marks require a lot of cash, and management needs to choose some that
they can turn into stars. Dogs may provide enough revenue to sustain themselves but are not
large sources.
4 strategies can be pursued after classifying:

 Build share by investing

  Hold share by investing just enough
 Harvest by focusing on short-term cash flow
 Divest by selling and using resources elsewhere

Problems with matrix approaches: limited, difficult, time-consuming, costly, little advice for
future; thus customized approaches are favoured.
Strategies for growth and downsizing (future)
Product market expansion grid - identifies company's growth opportunities through 4
following categories. Market penetration involves growth by increasing current product sales to
current market (no change). Market development includes identifying and developing new
market segments for current products. Product development complies of offering new products
to current segments. Diversification includes beginning or acquiring completely new businesses.
Downsizing may be useful when it lack experience in new areas, environment changes making
SKUs unprofitable, and some products or businesses may just die out.
Objective 3: Planning marketing
Marketing affects strategic planning in the following ways:

• It provides a guiding philosophy for the strategy

• It gives input about potentially attractive markets
• In individual BU marketing designs strategies reaching objectives

Across the value chain ("the series of internal departments that carry out value-creating
activities") all employees and departments need to understand marketing and creating customer
value as well as remain customer focused.
However, nowadays companies need to look beyond thein internal value chains. The Can create
networks with suppliers, distributors, and customers to improve the entire system and increase
create value through partnership (value delivery network).
Objective 4: Marketing strategy and mix
Marketing strategy: the logic which the company uses to create value and profitable
relationships. It consists of the company deciding who (segmentation and targeting) and how
(differentiation and positioning) it will serve. Marketing analysis, planning, implementation and
control are used to design an integrated marketing mix.
Customer-driven marketing strategy
• Market segmentation: encompasses dividing the market into separate groups of buyers
with diverse needs, characteristics, or behaviours, and necessitate different products or
marketing. Each segment represents a group of consumers responding in a similar way to
particular marketing efforts.
• Market targeting: includes evaluating how attractive each segment is to select ones to
enter.
• Market differentiation and positioning: each product occupies. a position relative to
the competitors; positioning involves arranging for a clear and desirable position relative
to competitors to distinguish the product and gain competitive advantage. Differentiation
helps to position by adding value to the marketing offering.

Developing an integrated marketing mix (4Ps): (needs to occur after determing marketing
strategy and tactical marketing tools are to be used for this)
1. Product: Goods and Services Company provide to target market.
2. Price: money customers pay to obtain the product.
3. Place: activities that make product available to customers.
4. Promotion: activities that communicate advantages of the product and convince to buy

The concern with 4Ps is that it only takes the perspective of the seller, not the buyer.
Customers may be interested in more than just the Ps (customer solution, cost, convenience,
communication).
Objective 5: Managing marketing effort and ROI
Managing marketing process involves 4 marketing functions: analysis, planning,
implementation, and control.
Analysis of a complete situation can be completed using SWOT framework (internal strengths
and weaknesses, external opportunities and threats). Opportunities and threats are identified,
whereas strengths and weaknesses help determine which opportunities to pursue and how to deal
with threats.
Planning helps decided what to do with each BU and what marketing strategies to use for
achieving strategic objectives. The plan includes assessments, goals and recommendations in
terms of strategy and marketing mix.
Marketing implementation is the process of turning plans into action, addressing who, where,
when and how and is often more difficult than strategizing.
Marketing department organization needs to correspond to the needs for carrying our plans and
strategies. Different arrangements exist:

 Functional organization where marketing activities are headed by functional specialists.

 Geographic organization where sales and marketing employees are assigned to specific
regions.
 Product management organization where a product manager is responsible for the complete
strategy.
 Customer/market management organization where managers are responsible for specific
markets and customers.
 Some companies may use a combination of all of the above.

Marketing control involves measuring and evaluating results of marketing effort and adjusting
them when necessary to achieve the objectives.
Measuring return on marketing investment: this is necessary to ensure the money is well
spent. An important measure is marketing ROl, the net return from marketing investment divided
by the costs of the marketing investment. MROI can be difficult because return on, for example,
advertisement or brand-building are difficult to put into tangible figures. Some companies use
marketing dashboards which are sets of marketing performance measures assembled together to
monitor performance. Also customer-centred measures are used a lot, like customer equity or
retention.
3. Analysing the marketing environment
The company’s microenvironment consists of actors close to the company that combine to
form its value delivery network or that affect its ability to serve its customers. The macro
environment consists of larger societal forces that affect the entire microenvironment.
Demography is the study of the characteristics of human populations. The economic
environment consists of factors that affect buying power and patterns. The natural
environment shows three major trends: shortages of certain raw materials, higher
pollution levels, and more government intervention in natural resource management. The
political environment consists of laws, agencies, and groups that influence or limit
marketing actions. The cultural environment consists of institutions and forces that affect a
society’s values, perceptions, preferences, and behaviours. Whenever possible, companies
should try to be proactive rather than reactive.

Example YouTube: YouTube has been successfully navigating through change in the past years
and setting new trends in video content generating more than $1 billion revenue from ads.
YouTube thrives to create new content in changing environment distributing the videos through
various channels. The company is attempting to provide an alternative for television engaging
viewer for longer. It also continues to innovate the ways to monetize its content.
Objective 1: Environmental forces that affect companies
Marketing environment - the players and forces outside marketing that affect marketing
management's ability to build and maintain successful relationships with target customers.
Carefully considering and adapting strategies to the environment can help meet new challenges
and discover opportunities.
Marketing environment consists of:
• Microenvironment - the players close to the company that affect its ability to serve
its customers - the company, suppliers, marketing intermediaries, customer markets,
competitors and publics.
• Macro environment - the larger societal forces that affect the microenvironment -
demographic, economic, natural, technological, political and cultural forces.
Microenvironment

For marketing success marketers need to build relationships across the value delivery network.
The company: all departments share responsibility for understanding customer needs and
creating value.
• Suppliers: supply availability and cost are important to look after and can harm sales;
suppliers are to be treated as partners.
• Marketing intermediaries: companies that help your company promote sell and distribute
its goods to final buyers; they are an important component of the value network;
partnering effectively is required for optimization of system.Competitors: marketers need
to no simply satisfy needs, but also position the company against competitors to gain
strategic advantages.
• Publics: any group that has an actual or potential interest in or impact on an organization's
ability to achieve its objectives; financial publics, media publics, government public,
citizen-action public, local publics, general publics and internal publics; company can
prepare marketing plan for these public and make the offer attractive to them.
 • Customers: five types of customer markets can be targeted by the company:
o Consumer markets - individuals and households buying goods for personal
consumption
o Business markets - use goods and services in their production process
o Reseller markets - buy goods and service to resell for profit
o Government markets - governmental agencies that buy goods or services to produce
public service or supply them to the needed
o International markets - comprise of these buyers in other countries

Objective 2: Effects of demographic and economic environments on marketing

Macro environment:

Even the most dominant and largest companies can be vulnerable to turbulences in the macro
environment, as they are hard to control and foresee.
 Demographic: involves people who make up markets; (demography study of human
populations in terms of size, density, location, age, gender, race, occupation and other
statistics); changing age structure is an important demographic trend nowadays; the
population consists of three generations:
o Baby boomers - the 78 million people born during years following World War 2 and
lasting until 1964; rethinking purpose and values; wealthiest generation hit by the
recession - spending more carefully, but not phasing out, have lust for adventure and
remaining young.
o Generation x - the 45 million people born between 1965 and 1976 in the 'birth death'
following the baby boom; less materialistic and prize experience; family comes first;
quality over quantity and negative attitude towards convention; embrace technology.
o Millennials - the 83 million children of the baby boomers, born between 1977 and
2000; most financially strapped generation; comfort with digital technology; engage
with brands in a new way; seek out info and engage in two-way conversations.
o Marketers need to form precise age specific segments, but segmenting by birth date is
less effective than by life style or common values.
 Changes in family constitution need to be considered. Traditional picture of two-child
family shifted to singles, couples without children and single parents. Also in many
families women are becoming the main source of income.
 Population has also been shifting geographically as many migrate across and within
countries. Many people move closer to big cities, telecommute and have different needs.
 The population is becoming better educated and the work force is becoming
more white-collar.
 The diversity of countries is increasing as they vary with ethnic and racial make-up.
Moreover, companies are operating internationally, therefore, marketers are able to target
various segments based on such characteristics as ethnicity, sexual orientation, and
consumers with disabilities.

Economic environment - economic factors that affect consumer purchasing power and spending
patterns. Distribution of income varies across countries and marketers need to watch out for it.
The following factors need to be considered in economic environment:
 Changes in consumer spending occurred after the recent recession. As a result consumers are
becoming more careful in spending and are looking for greater value for lower price.
 Income distribution and income levels are important for marketers. These factors create a
tiered market and provide basis for segmentation. Marketers can forecast such changes in
trends and prepare businesses to adapt to the situations.

Objective 3: Major trends in natural and technological environments of firm's

Natural environment - natural resources that are needed as inputs by marketers or that are
affected by marketing activities. Anything from weather to natural disasters can affect companies
and contingency plans should be prepared for such. The following are trends in the natural
environment marketers should be aware of:

 There is a growing shortage of raw materials that need to be taken into consideration,
especially by the firms that use such.
 Increased pollution comes from industrial waste.
 Increased government intervention in natural resource management is occurring due to
concerns for sustainability.
 Environmental sustainability - developing strategies and practices that create a world
economy that the planet can support indefinitely.
 Many brands are doing everything to reduce their environmental footprints.

Technological environment - forces that create new technologies creating new product and
market opportunities. It is characterized by rapid change where new technologies replace old
ones. All new products need to be tested for safety and meet certain standards which marketer
should be aware of.
Objective 4: Changes in political and cultural environments
Political environment - laws, government agencies and pressure groups that influence and limit
various organizations and individuals in a given society.

 Legislation regulating business: governments develop public policy to guide commerce. It

is often difficult to understand public policy implications for marketing activities and it
has been increasing over the years. Marketers must keep up with all the changes.
 The following are the reasons for enacting business legislation:
o Protecting companies from each other, preventing unfair competition
o Protecting consumers from unfair business practices
o Protecting interest of society against unrestrained business behaviour making forms
take responsibility for the social costs
 Business is also governed by social codes and professional ethics such as the following:
o Socially responsible behaviour: "doing the right thing" and protecting long-run interests
of consumers and environment; internet marketing is creating new social and ethical
issues especially with availability of personal data and private information; some worry
that companies know too much when tracking consumers' activities and digital data can
be used unfairly.
 o Cause-related marketing: many companies link themselves to worthwhile causes to
show social responsibility; it has become the primary form of corporate giving, but also
stirred some controversy as some use it to improve image and sales.
Cultural environment - institutions and other forces that affect society's basic values,
perceptions, preferences and behaviours. The following cultural characteristics affect marketing
decisions:

 Persistence of cultural values: core belief and values of societies have high persistence and
shape specific attitudes and behaviours. Core beliefs and values are passed on from
parents and reinforced by institutions, whereas secondary ones area open to change and
can be affected by marketers.
 Shifts in secondary cultural values: this is something marketers want to predict and consist
of the following:
o People's views of themselves: people differ in their emphasis of serving themselves or
others. This affects their purchases that also tend to match the views.
o People's views of others: these tend to shift overtime and have been affected by the
internet causing mass mingling where people interact more than ever but online. This
also affects how companies should communicate with their consumers.
o People's views of organizations: people are willing to work for organizations and
expect society work in return; overall, there has been a decline in loyalty and
confidence due to scandals and layoffs, whereas work is regarded as source of income
not satisfaction.
o People's views of society: this influences people's consumption patterns and attitudes,
marketers must be careful when addressing national emotions of consumers.
o People's views of nature: people are more and more aware of fragility of nature and
are willing to consume organic products more often, constituting a growing segment.
o People's views of universe: many people are moving away from religion differing in
their attitudes; however, they share some permanent values and shift to spirituality
that affects their choices.
Objective 5: Reacting to marketing environments
Some companies are passive in terms of their marketing environment and see it as
uncontrollable flow of things they need to adapt to taking advantage of opportunities only once
they arise. Others are more proactive and develop strategies to change the environment affecting
public and forces. This helps overcome some events that may seem irrepressible. Such proactive
approach is recommended whenever possible.
5. Consumer markets and buyer behaviour
The consumer market consists of all the individuals and households that buy or acquire
goods and services for personal consumption. Consumer buyer behaviour is influenced by
four key sets of buyer characteristics: cultural, social, personal, and psychological. Buying
behaviour may vary greatly across different types of products and buying decisions.

Example GoPro: GoPro engages that customers to become dedicated to the brand and
encourages video sharing. This leads to very fast growth of the company, The cameras offered
by GoPro combine great quality and attractive price. The company focuses on what the cameras
allow the customers do in terms of capturing experiences. GoPro's success is based on
understanding customers' needs and motivations and turning them into loyalty and enthusiasm by
allowing sharing emotions.

Objective 1: Consumer market and model of consumer behaviour

Consumer buyer behaviour - the buying behaviour of final consumers - individuals and
households that buy goods and services for personal consumption. All the individuals and
households that buy or acquire goods and services for personal consumption constitute a
consumer market. It is important to examine factors that affect consumer behaviour.
Model of consumer behaviour:
Marketers try to study why consumers buy, which can be difficult as sometimes it is
unexplainable by consumers themselves. Therefore, the central question described by the model
is how consumers respond to various stimuli used in the company's marketing. Marketers want to
find out how the stimuli are processes into responses.

Objective 2: 4 characteristics that affect consumer behavior

1. Cultural factors: they have a deep influence on consumer behaviour.
 Culture - the set of basic values, perceptions, wants and behaviours learned by a member
of society from family and other important institutions. Cultural influences vary greatly
across and within countries. Marketers aim at discovering cultural shifts to create new
products that may be wanted.

 Subculture - a group of people with shared value systems based on common life
experiences and situations. Subcultures include nationalities, religions, racial groups and
geographic regions.
o Hispanic American consumers: deeply family oriented, loyal, price sensitive, shop
groceries more often.
o African American consumers: brand, quality and selection are important.
o Asian American consumers: very diverse, shop frequently and are brand
conscious.
o Cross-cultural marketing: including ethnic themes and cross-cultural perspectives
into mainstream marketing.
Social class - relatively permanent and ordered divisions in a society whose members share
similar values, interests and behaviours. It is measured by a combination of income, occupation,
education, wealth and etc. Social classes show distinct product and brand preferences.
1.Social factors:
o Group - two or more people who interact to accomplish individual or mutual
goals. Reference groups serve as direct point of comparisons and have an
influence on persons' behaviour and attitudes. Marketers try to identify these.
o Word of mouth influence - the influence of personal words and
recommendations of trusted friends, associates, and other consumers on buying
behaviour.
o Opinion leaders - people within a reference group who, because of special skills,
knowledge, personality or other characteristics, exerts social influence on others.
Marketers try to identify and direct their efforts towards them. Buzz marketing
involves enlisting or even creating opinion leaders to spread the word about
products.
o Online social networks - online social communities - blogs, social networking
websites, and virtual worlds - where people socialize or exchange information and
opinions. These are used by marketers to promote products and build customer
relationships. Although most brands have a social media presence, this requires
marketers to be careful as they are hard to measure and control.
o Family - members can influence each other's buying behaviour and marketers are
interested in their internal roles. Moreover the typical roles of husbands and wives
are shifting and marketers need to adapt. In addition, children have a strong
influence on all family decisions.
o Occupation - this affects the goods and services that are bought, allowing
marketers to identify and specialize in such.
o Economic situation - income, interest rates, savings have an effect on choices
and during recession many companies have been forces to redesign and reposition
their offerings.
o Lifestyle - person's pattern of living as expressed in his or her activities, interest
and opinions. It profiles the whole pattern of interactions with the world. It can
help observe changes in values and buying behaviours.
o Personality - the unique psychological characteristics that distinguish a person or
group.it can be useful in analysing behaviour for particular product or brand
choices. Brands are also supposed to have personalities attributed to them by
marketing and consumers are likely to choose those that match their own. To
understand consumer actions marketers must understand relationship between
consumers* self-image and possessions.
2.Psychological factors:
 Motive - need that is sufficiently pressing to direct the person to seek satisfaction of the
need. There are 2 most popular theories of human motivation. (1) Freud suggested that
people are unconscious about the forces that shape their behaviour and cannot understand
them. Motivation researcher use techniques to search for consumers" hidden needs. (2)
Maslow suggested that human needs are organized in a hierarchy (psychological, safety,
social, esteem and self-actualization needs). Person attempts to satisfy the most basic
needs first, moving to the next steps once the previous is finished.
 Perception - process by which people select, organize and interpret information to from a
meaningful picture of the world.
  This influences a person in different ways as perceptions are diverse because of the
following perceptive processes. Selective distortion - tendency of people to interpret
information in a way that will support what they already believe. Selective retention
means that consumers are more likely to memorize positive characteristics of their
favoured brand, and forget such of a competing brand. Therefore, marketers worry
whether consumers will at all perceive their offers. Consumers are worried whether they
are affected by marketing messages without knowing it - subliminal advertising - as there
are so many out there.
 Learning - changes in an individual's behaviour arising from experience. Drive describes
an internal stimulus calling for action and it turns into a motive once directed at stimulus
object. Cues determine when, where and how a person responds influencing response in
interest to buy the product.
 Belief - descriptive thought that a person holds about something based on knowledge,
opinion and faith and can make up brand and product images. Attitude, - person's
consistently favourable or unfavourable evaluations, feelings and tendencies toward an
object or idea. They are hard to change and thus, companies try to fit their products into
existing ones.
Objective 3: Types of buying decision behaviour and the buyer decision process
Types of buying decision behaviour:

 Complex buying behaviour - consumer buying behaviour in situations characterized by

high consumer involvement (expensive, risky, rare product) in a purchase and significant
perceived differences among brands. Buyer goes through a learning process developing
attitudes and beliefs toward products.
 Dissonance-reducing buying behaviour - Consumer buying behaviour in situations
characterized by high involvement but few perceived difference among brands.
Customers may respond to price and convenience. Post-purchase dissonance may occur
afterwards as disadvantages are uncovered and hear favourable things about competitors'
products.
 Habitual buying behaviour - consumer buying behaviour in situations characterized by
low consumer involvement (low-cost, frequently bought products) and few significantly
perceived brand differences. No extensive search occurs, and buyers are not highly
committed to any brands.
 Variety-seeking buyer behaviour - consumer buyer behaviour in situations
characterized by low consumer involvement but significant perceived brand differences.
Consumers switch brands often and try something different. In such situations marketing
strategy of leaders and minors differs.
The buyer decision process:

Speed of passing through the stages may differ, and some stages may be skipped with routine
purchases.

 Need recognition - the first stage of the buyer decision process, in which the consumer
recognizes a problem or need, triggered by either internal or external stimuli. Marketer
should research what needs arise and what lead to products.
  Information search - the stage of the buyer decision process in which the consumer is
aroused to search for more information the consumer may simply have heightened
attention or may go into an active information search.Information search will not occur if
consumer's drive is strong and a suitable product is near. Info is obtained from several
sources: personal, commercial, public, experiential. Personal are the most effective
sources as they evaluate product for the buyer, although most info is received
commercially. Companies should make information available so that consumers are able
to gain knewledge about the brand.
 Evaluation of alternatives - the stage in which the consumer uses information to evaluate
alternative brands in the choice set. Several evaluation processes are involved and
marketers need to study buyers and attributes of products to identify how evaluative
processes occur and how decisions can be affected.
 Purchase decision - the buyer's decision about which brand to purchase. 2 factors can
come between purchase decision and intention: attitudes of others and unexpected
situational factors.
 Post-purchase behaviour - the stage in which the consumer takes further action after
purchase based on their satisfaction or dissatisfaction with a purchase. Satisfaction is
determined by expectations and perceived performance of the product. Most of purchases
result in cognitive dissonance - buyer's discomfort caused by post purchase conflict.
Marketers should try to satisfy customers and can go beyond that by delighting them.
 By studying the whole process marketers are able to help consumers go through it.
Objective 4: Adoption and diffusion process for new products
New product - good, service or idea that is perceived by some potential customers as new.
Adoption process - the mental process through which an individual passes from first hearing
about an innovation to final adoption. Adoption is when one begins to regularly use the product.
Stages in adoption process:

1.Awareness of new product, but lack of info

2.Interest in seeking info about product
3.Evaluation of the product
4.Trial of the new product on a small scale
5.Adoption in terms of decision to make full and regular use of the product

Marketers should help consumers move through these stages.

Individual differences in innovativeness: some are consumption pioneers or early adopters,
whereas others lag adoption. This suggests that innovative companies should identify
characteristics of innovators and early adopters and target them with marketing.
Influence of product characteristics on rate of adoption: 5 characteristics are especially
important in influencing the rate. They are the following.
1. Relative advantage: whether innovation is superior compared to existing products
2. Compatibility: whether innovation fits existing values and experiences of potential
consumers
3. Complexity: Whether innovation is difficult to understand/use
4. Divisibility: whether innovation may be tried on limited basis
5. Communicability: whether results of using it can be described or observed by others
7. Customer-driven marketing strategy
There are 4 major elements of customer-driven marketing strategy: segmentation,
tapering, differentiation, and positioning. There are multiple ways to segment the market
which can be used together. Target market is a set of buyers sharing common needs or
characteristic that the company decides to serve. Target marketing can be carried out on 4
levels and best strategy depends on resources. A position of a product consists of a
sophisticated set of perceptions, impressions and feelings of consumers for the products
compared to a competing one. The company's marketing mix should support the positing
strategy.

Example AirAsia: AirAsia started as the first Asian budget airline. The company has been
cutting costs through more seats on the planes, secondary airports and not frequent flyer
programs. Best possible service is provided to customers over the internet. The company has
been successful so far; however, it is facing challenges due to rising operational costs.
Objective 1: Customer-driven marketing strategy
Most companies have moved away from mass marketing and use target marketing: developing
products and services tailored to one of the specific identified market segments, focusing on
consumers who have the greatest interest in the values company can deliver best.
4 steps in deigning customer driven marketing strategy:
Market Segmentation - dividing a market into smaller segments with distinct needs,
characteristics or behaviour that might require separate marketing strategies or mixes.
Market targeting - the process of evaluating each market segment's attractiveness and selecting
one or more segments to enter.
Differentiation - differentiating the market offering to create superior customer value.
Positioning - Arranging for a market offering to occupy a clear, distinctive and desirable place
relative to competing products in the minds of target consumers.
Objective 2: Market segmentation
Geographic segmentation - dividing a market into different geographical units, such as nations,
states, regions, counties, cities or even neighbourhoods. Many companies choose to localize their
effort to fit individual needs.
Demographic segmentation - dividing the market into segments based upon variables such as
age, gender, family size, life cycle, income, occupation, education, religion, race, generation and
nationality. These factors are the most popular segmentation basis because they are close to
needs and wants and easy to measure.

 Age and life cycle segmentation - dividing a market into different age and life cycle
groups.
 Gender segmentation - dividing a market into different segments based on gender (often
used in toiletries, clothing, cosmetics, and magazines).
 Income segmentation - dividing a market into different income segments (clothing,
cosmetics, travel, financial services).
Psychographic segmentation - rividing a market into different segments based on social class,
lifestyle or personanty characteristics. People may be in the same demographic group but have
different psychographic characteristics.
Behavioral segmentation - dividing a market into segments based on consumer knowledge,
attitudes, uses or responses to a product.

 Occasion segmentation - segments according to occasions when buyers get the idea to
buy, actually make their purchase or use the purchased item. It can help firms increase
product usage.
 Benefit segmentation - segments according to the different benefits that consumer seek
from the product.
 User status - markets can be divided into non-users, ex-users, potential users, first-time
users, regular users.
 Usage rate - markets can be split into light, medium and heavy users.
 Loyalty status - the segmentation can be done based on degree of user loyalty.

Multiple segmentation bases are often used to identify better-defined, smaller target customer
groups. PRIZM is a tool by the Nielsen Company to classify households based on demographic,
behavioural and lifestyle factors. Such tools help identify and understand key segments and reach
them more efficiently adjusting offering to their wants and needs.
Segmenting international markets can be done by combining several variables based on for
instance, geographic location, and economic, political and legal factors.
Intermarket segmentation (cross-market segmentation) can be used, forming segments of
consumers who have similar needs and buying behaviour even though they are located in
different countries.
Requirements for effective segmentation:
 Measurable: size, purchasing power, and profiles can be measured.
 Accessible: segments can be successfully reached and served.
 Substantial: market segments are big / lucrative enough to serve.
 Differentiable: segments are conceptually distinct and respond diversely to various
marketing mix elements and programs.
 Actionable: effective programs can be created for appealing to and serving the segments.
Objective 3: Market targeting
Evaluating market segments: 3 factors need to be taken into consideration - size and growth,
structural attractiveness, and company objectives and resources. The company should evaluate
threats of competition, new entrants and substitute products, as well as power of buyers and
suppliers. The segments the company enters have to provide potential to create superior value for
the customers and become better than competitors.
Selecting target market segments:
 Target market is a set of buyers sharing common needs or characteristic that the company
decides to serve. Target marketing can be carried out on the following levels:
 Undifferentiated marketing - a market-coverage strategy in which a firm decides to
ignore market segment differences and go after the whole market with one offer. It is
difficult to ensure the product satisfies all the customers and is able to compete with
focused firms.
  Differentiated marketing - a market-coverage strategy in which a firm decides to target
several market segments and designs separate offers for each. By offering such variation
companies aim at higher sales and stronger market position. However, it can also increase
costs of conducting business.
 Concentrated (niche) marketing - a market-coverage strategy in which a firm goes after a
large share of one or a few segments or niches. The firm achieves string market position
as its knowledge of needs deepens and reputation improves. Limited resources can be
targeted at reaching deep niches and companies can become highly profitable. However,
such firm also bear higher risks of competition and loss of segment.
 Micromarketing - tailoring products and marketing programs to the needs and want of
specific individuals and local customer segments.
 Local marketing - tailoring brands and promotions to the needs and wants of local
customer segments - cities, neighbourhoods and even Target market is a set of buyers
sharing common needs or characteristic that the company decides to serve. Target
marketing can be carried out on the following levels:
 Undifferentiated marketing - a market-coverage strategy in which a firm decides to
ignore market segment differences and go after the whole market with one offer. It is
difficult to ensure the product satisfies all the customers and is able to compete with
focused firms.
 Differentiated marketing - a market-coverage strategy in which a firm decides to target
several market segments and designs separate offers for each. By offering such variation
companies aim at higher sales and stronger market position. However, it can also increase
costs of conducting business.
 Concentrated (niche) marketing - a market-coverage strategy in which a firm goes after a
large share of one or a few segments or niches. The firm achieves string market position
as its knowledge of needs deepens and reputation improves. Limited resources can be
targeted at reaching deep niches and companies can become highly profitable. However,
such firm also bear higher risks of competition and loss of segment.
 Micromarketing - tailoring products and marketing programs to the needs and want of
specific individuals and local customer segments.
o Local marketing - tailoring brands and promotions to the needs and wants of
local customer segments - cities, neighbourhoods and even specific stores.
Advances in technology enable highly localized marketing where consumers can
be engaged locally via their GPS, for example. Such marketing drives up costs
and reduces economies of scale.
o Individual marketing - tailoring products and marketing programs to the needs
and preferences of individual customers - also called one-to-one marketing,
customized marketing and markets-of-one marketing. In this case relationships
with customers become most important.

Choosing targeting strategy: best strategy depends on company's resources. When they are
limited concentrated marketing is the most suitable. Undifferentiated marketing is better for
uniform products, and those that vary in design work better with differentiation and
concentration. Life cycle stage of product should also be considered. New products should use
undifferentiated or concentrated marketing. With low market variability (buyers with same
tastes) undifferentiated marketing work best. Finally, the opposite of competitors' strategies
provides better competitive advantage.
Socially responsible target marketing: targeting can generate controversy and concerns if
vulnerable or disadvantaged customers are targeted with potentially harmful products. Also
problems may appear when marketing of adult products also move onto children. Especially
internet allows for targeting most vulnerable with questionable products. Socially responsible
marketing call for targeting with consideration of consumers' interests and focusing on how and
for what they are targeted.

Objective 4: Differentiation and positioning

Product position - the way the product is defined by consumers on important attributes - the
place the product occupies in consumers' minds relative to competing products. A position of a
product consists of a sophisticated set of perceptions, impressions and feelings of consumers for
the products compared to a competing one.
Positioning maps show consumer perceptions of brands versus competitors.
Choosing differentiation and positioning strategy: the strategy must serve the needs to
identified target segment. The task consists of 3 steps:

1. To identify a set of differentiating competitive advantages on which to build position

marketers must understand needs and deliver value and gain competitive advantage - an
advantage over competitors gained by offering greater customer value, either by having lower
prices or providing more benefits that justify higher prices. The company needs to definitely
deliver what it offers in the position. Companies can differentiate themselves along the lines oft
o Product - features, performance, style and design.
o Services - speedy, convenient, careful delivery.
o Channels - coverage, expertise, performance.
o People - hiring and training better.
o Image - conveying distinctive benefits and positioning.

2. Choosing the right competitive advantages entails deciding how many differences to promote
and which ones:
 How many differences to promote: one opinion is that company should develop a
unique selling proposition and focus on one difference and become number one brand
in it. The other is that companies should use more than one differentiator to avoid
situations where more than one firm claims to be the best in the attribute.
 Which differences to promote: not all differences are meaningful. A worthwhile
difference should fit the following criteria:
o Important: difference brings a highly valued advantage to target buyers.
o Distinctive: competitors do not provide the difference, or the company can supply it in a
more distinctive way.
o Superior: difference is superior compared to ways to gain the same benefit.
o Communicable: difference is communicable and visible.
o Pre-emptive: competitors cannot easily copy difference.
o Affordable: it is cheap enough for buyers to pay.
o Profitable: company can use it profitably.
 3. Selecting an overall positioning strategy leads to establishing value proposition - the full
propositioning of a brand - the full mix of benefits on which it is positioned. There are 5
winning value propositions:
o More for more: providing superior product or service for a higher price; it gives
prestige to buyer and provide higher quality symbolizing status; it can be a
vulnerable strategy, as imitators can provide the same at lower price.
o More for the same: firms can attack more for more positioning by providing
comparable quality for lower price.
o The same for less: offer the same brands or initiative brands for a lower price
o Less for much less: not everyone can afford the very best, thus lower performance
and quality requirements can be met for lower price.
o More for less: in the long-run this strategy is difficult to sustain.

Developing a positioning statement: a statement that summarizes company or brand

positioning.
Communicating and delivering the chosen position: the company's marketing mix should
support the positing strategy. Company needs to deliver the position it describes and design
marketing mix accordingly. The pitfall is that it is easier to come up with a good strategy than
implement and maintain it. The position needs to be monitored closely and adapted to the
changing market environment to remain sustainable.
8. Products, services and brands
Products are key part of market offering as marketing mix planning starts with creating an
offering for customer value delivery which becomes the basis for profitable relationships.
Often the offering consists of both products and services. There are various product
attributes and service characteristics. Sometimes brands are defined as major enduring
assets of companies outliving specific products and services. Companies must carefully
manage brands and ensure brands are maintained by customer experiences by managing
all touch points with customers.

Example Nike: Nike revolutionized marketing in the 80s by building a strong brand image,
using endorsements and big budget ads. In the 90s they outdid competitors by adding lots of new
products and sports. However, by the end of 90s their success cooled down and the brand
became common. So to change the situation Nike turned to heavy focus on customers and new
products, and began using digital and social media creative marketing. Such deep relationships
with customers that Nike created gave the company a unique competitive advantage providing
customers with not just the product, but an experience.
Objective 1: Product and major classification of products and services
Product is anything that can be offered to a market for attention, acquisition, use or consumption
that might satisfy a want or need, including services, events, places, etc.
Service is given special attention to as it is activity, benefit or satisfaction offered for sale that is
essentially intangible and does not result in the ownership of anything (e.g. banking, travel,
retail, etc.).
Products, Services, and Experiences: products are key part of market offering as marketing
mix planning starts with creating an offering for customer value delivery which becomes the
basis for profitable relationships. Often the offering consists of both products and services.
Sometimes it includes pure tangible goods or pure services. To differentiate the offering firms
provide both and deliver experiences, and customers buy what company's offers do for them.
Three levels of products and services: (each adds more value for customer)
1.Core customer value: defining core benefits that consumers seek.
2.Actual product: what the core value is turned to, developing features, design, brand,
packaging, etc.
3.Augmented product: additional service and benefits, creating most value and brand
experience (e.g. aftersales service, warranty, product support, etc.).
Product and service classifications: (1) consumer products and (2) industrial products.
Consumer products:
 Bought by final consumers for a personal consumption, classified based on based on how
consumers buy them.
 Convenience product - a consumer product that customers usually buy frequently,
immediately and with minimal comparison and buying effort.
 Shopping product - a consumer product that the customer, in the process of selecting and
purchasing, usually compares in such attributes, such as suitability, quality, price and
style.
 Specialty product - a consumer product with unique characteristics or brand identification
for which a significant group of buyers is willing to make a special purchasing effort.
  Unsought product - a consumer product that the consumer does not know about or knows
about but does not normally consider buying.
Industrial products:
 bought by individuals and organizations for further processing or for use in conducting a
business; the distinction between consumer and industrial is based upon their purpose, the
same product can be both depending on what situation the customer decides to use it in.
 Materials and parts - these consist of raw and manufactured materials and parts sold
directly to industrial users with price and service as major marketing factors.
 Capital items - assist buyers in production or operations (e.g. installations and accessory
equipment).
 Supplies and services - such as operating supplies and repair and maintenance items.
Organizations, Persons, Places, and Ideas: these are also products included to broaden the
concept. There are marketing activities to 'sell' the organization such as:

 Organization marketing - activities to create, maintain and change attitudes and behaviours
towards the organizations of targeted consumers.
 Corporate image marketing - is used to polish company images.
 Person marketing - activities to create, maintain and change attitudes and behaviours
towards specific persons.
 Place marketing - activities to create, maintain and change attitudes and behaviours
towards specific places.
 Ideas can also be marketed; social marketing is using commercial marketing concepts and
tools in programs designed to influence individuals behaviour to improve their well-being
and that of society, meaning marketing social ideas.
Objective 2: Product and service decisions
Product and service attributes: (these decisions define benefits of the offering)

 Product quality - is the major positioning tool defining characteristics of product or

service that bear on its ability to satisfy stated or implied customer needs. Some
companies use total quality management, constantly improving quality of products,
service and business processes, often taking a return on quality approach viewing quality
as investment, Quality has 2 dimensions: level (performance quality as ability to perform
the functions) and consistency (conformance quality as freedom from defects and
consistency of delivery).
 Product features - product can be offered to customers with different features.
 Product style and design - is another way to add customer value and make it distinct;
style describes appearance, design contributes to usefulness and looks.

Branding:
 name, term, sign, symbol, design or a combination of these that identifies the products or
services of one seller or group of sellers and differentiates them from those of
competitors, customers add meaning to brands and develop relationships with them.
Brands can help buyers identify products and their benefits, providing legal protection to
sellers and helping them to segment the markets.
Packaging:
  Activities of designing and producing the container or wrapper for a product, and is an
important marketing tool to communicate position and attract buyers apart from holding
and protecting it. Over packaging raises concern about the environment, whereas
innovative packaging can provide competitive advantage.
Labeling:
 This includes tags attached to products as part of packaging; they identify products,
describe its contents, and promote the brand; labels can become the essential element of
brand-customer connection, as well as cause legal concerns since sellers need to ensure to
include all the required info.
Product support service:
 . Customer service is part of brand experience, its value to customers' needs to be assessed
and various digital technologies can be used to provide the support.

Product line decisions: product line is a group of products that are closely related because they
function in a similar manner, are sold to the same customer groups, are marketed through the
same types of outlets, or fall within given price ranges. One of the most important product line
decisions is its length in terms of the number of items. The line can be expanded by filling
(adding items within the present range) or stretching (lengthening beyond the current range).
Companies can stretch lines downward (to plug a market hole) and upward (to add prestige to
current products).
Product mix decisions: product mix (or portfolio) is the set of all product lines and items that a
particular seller offers for sale. It has 4 dimensions that help define product strategy and provide
ways to increase business:
 width (number of various product lines)
 length (number of items within the product lines)
 depth (number of versions of each product in the line)
 consistency (how closely related the product lines are)
Objective 3: Services marketing
Services are growing very fast and service industries vary from governments to private non-
profit organizations to business organizations.
Service characteristics:

1.Service intangibility - services cannot be seen, tasted, felt, heard or smelled before they are
bought. Buyers search for signals of quality to reduce uncertainty.
2.Service inseparability - services are produced and consumed at the same time and cannot
be separated from their providers, having employee being part of the service making
provider-customer interaction a special feature of service marketing.
3.Service variability - the quality of services may vary greatly depending on who provides
them and when, where and how.
4.Service perishability - services cannot be stored for later sale or use, which may become a
problem when demand is fluctuating.

Marketing strategies for service firms:

 Service profit chain - the chain that links service firm profits with employee and customer
satisfaction. It consists of 5 links:
 o Internal service quality: (superior employees training and selecting good work
environment and support leading to ...)
o Satisfied and productive service employees: (loyal and hardworking employees
leading to ...)
o Greater service value: (increased effectiveness and efficiency of
o customer value creation resulting in...)
o Healthy service profits and growth: (superior service performance).
 Internal marketing - orienting and motivating customer-contact employees and
supporting service people to work as a team to provide customer satisfaction; it involves
making everyone customer-centred and comes before external marketing.
 Interactive marketing - training service employees in the fine art of interacting with
customers to satisfy their needs.
Service companies marketing tasks:

 Managing service differentiation: to become distinct from competitors, a differentiated

offer, image and delivery should be developed. Offer includes feature that will set
company apart from competitors' products. Differentiating by delivery includes having
more reliable customer-contact employees or designing a superior delivery process.
Images can be differentiated through symbols and branding.
 Managing service quality: service can be differentiated by providing higher quality to
consumers than competitors, and most companies employ customer-driven quality
technique. However, this characteristic is harder to define and judge, with customer
retention as perhaps the best measure. Service quality will always vary depending on the
interaction, leading to importance of service recovery to win over angry customers.
 Managing service productivity: as costs rise, it is important to increase service
productivity, which can be done in 3 ways:
o By training current employees or hiring more skilful ones
o By increasing quantity of service by giving up some quality, which although efficient
in the short-run, can reduce ability innovate, maintain quality and responsiveness to
customer needs.
o By harnessing the power of technology
Objective 4: Branding strategy
Sometimes brands are defined as major enduring assets of companies outliving specific products
and services.
Brand equity:
 Brands are key elements to customer relationships, representing thein emotions and
perceptions about products.
 Brand equity is the differential effect that knowing the brand name has on customer
response to the product or its marketing; it is a measure of ability of capturing preference
and loyalty.
 Brand Asset valuator uses 4 dimensions to assess brands' strength:
o Differentiation (what makes brand distinct)
o Relevance (consumers perception on brand fulfilling their needs)
o Knowledge (how much is known by consumers about it)
o Esteem (whether consumers respect the brand)
  Positive equity increases connections with a brand and can be a valuable asset. Brand
valuation is a measure which estimates the total financial value of a brand. Powerful
brands have many competitive advantages such as high loyalty and awareness, more
leverage when negotiating with resellers, increased credibility, and defence against price
competition.
 Customer equity underlines brand equity. The former is the value of the customer
relationships created by the brand, leading to companies thinking of themselves as
portfolios of customers.

Building strong brands: this involves strategy decisions in 4 major areas:

1. Brand positioning: brands can be positioned on 3 levels: on product attributes (is
dangerous, as attributes can be copied and so not interest consumers as such), on desirable
benefit, and on strong beliefs and values. Successful brands engage customers on deep emotional
level, establishing a mission and vision for a brand
2. Brand name selection: the process begins with reviewing benefits, target customers and
proposed strategies. Desirable names should include the following:
• Suggest something about the product's benefits Be easy to pronounce, recognize and
remember
• Be distinctive
• Be extendable
• Be easily translated into different languages
• Be capable of registration and legal procedures
3. Brand sponsorship: products can be launched as national or store bands. Store brands (or
private brands) are created and owned by a reseller of a product or service. Nowadays store
brands are growing much faster than national brands; they offer wide selection and high quality.
Additionally, retailers have advantages in this battle of brands as they can choose which brands
to stock and how to price they own brands. National brands in turn improve their value
propositions and offer discounts and promotions.
a. Licensing is a practice of using names, symbols such a celebrities to market the brands for
a fee.
b.Co-branding is a practice of using the established brand names of two different companies
on the same product allowing to expand brands into directions which may be otherwise
hard to enter taking advantage of complementary strengths of 2 brands. The limitation of
this practice is complex legal agreements and need to trust the partners.
3.Brand development: the following are the major strategies for development:
• Line extension - extending an existing brand name to new forms, colours, sizes,
ingredients or flavours of an existing product category.
a. The danger is that such development can cannibalize existing items.
b.Brand extension - extending an existing brand name to new product categories, giving the
product instant recognition and faster acceptance saving some advertising costs.
However, it the extension fails, it may harm other products too and existing brand names
may not be fitting.
c. Multiband - this includes marketing many different brands in a given product category
and offers ways to establish different features for different segments, lock up more
resellers and gain more market share. The drawback is that each product may obtain only
a small market share.
 d.New brands - involves creating an entirely new brand name, when for instance entering a
new product category.

Managing brands: companies must carefully manage brands and ensure brands are maintained
by customer experiences by managing all touch points with customers.
Workers need to be trained to be customer centred, and distributors and dealers can also be
discovered to add to the experience. Lastly, brands strengths and weaknesses need to be audited
periodically.
9. New product development
There are 2 ways to obtain new products: through acquisition of companies, patents, or
licenses and through new-product development. Companies must set up a clear customer
driven new-product development process. Managing new product development requires
customer-centred, team based, systematic effort to be successful. Product life cycle (PLC) is
the course of a product's sale and profits over its lifetime and is used to ensure consistent
profit earning from the product. It involves five distinct stages. Marketers should consider
public policy issues and regulations regarding acquiring or dropping products.

Example Samsung: Samsung was not very well known 20 years ago and was far from
cutting-edge. However, in 1993 the company decided to move away from its copycat strategy
and overtake the major rival Sony by innovation. The company hired new designers and
managers who were young and unleashed many new products. The company also put customers
at core and began working to provide customer experiences. Nowadays Samsung invests heavily
into R&D to maintain its competitive advantage and it continuing to wow the consumers with
new products.
Objective 1: New-product development strategy
There are 2 ways to obtain new products:
 Through acquisition of companies, patents, or licenses.
 Through new-product development of original products, product improvements,
product modifications and new brands through the firm's own product
development efforts. These bring new solutions to customers and are key for
company growth.
 Innovation can be risky and expensive. Many ideas fail because market size is
overestimated, designs are poor, products are positioned wrongly, and costs of
development may be higher than expected, etc.
Objective 2: New-product development process and management
Companies must set up a clear customer driven new-product development process consisting of
the following 8 steps:

1. Idea generation - the systematic search for new-product ideas. Internal idea sources
include R&D departments at companies, as well as other employees from executives
to salespeople through for instance internal social networks and intrapreneural
programs. External idea sources are distributors and suppliers as they are close to
markets and new concepts and techniques; competitors who also introduce new
products; customers as they pose questions and complaints, and are able to share
suggestions. Crowdsourcing is used by many companies to develop new ideas by
inviting broad communities or people - customers, employees, independent scientists,
researchers, public at large - into the new-product innovation process allowing to
produce unexpected new ideas.
2. Idea screening - screening new product ideas to spot good ideas and drop poor ones
as soon as possible reducing the number of ideas from previous stage and going
forward with only the profitable ones. The R-W-W framework can be used to screen
ideas where 3 questions are asked: is it real, can we win and is it worth doing.
 3. Concept development and testing - is when attractive ideas are developed into a
product concept - a detailed version of the new product idea stated in meaningful
consumer terms. Marketers tend to develop a variety of concepts for a new product to
identify the one that appeals to customers most. Concept testing involves testing the
proposed concepts with groups of target customers and presenting them symbolically
or physically. Potential customers are exposed to the concept and then asked to
answer questions about it.
4. Marketing strategy development - designing an initial marketing strategy for a new
product based on the product concept. Marketing strategy statement has 3 parts: (1)
description of target market, planned value proposition, and sales, market share, and
profit growth for next years; (2) outline of planned price, distribution, and marketing
budget for year 1; and (3) description of long-run sales, profit goals and marketing
mix.
5. Business analysis - a review of the sales, costs and profit projections for a new
product (by looking at history of similar ones and conducting surveys) to find out
whether these factors satisfy the company's objectives and assess the risks.
6. Product development - developing the product concept into a physical product to
ensure that the product idea can be turned into a workable market offering and is
usually done by the R&D department and includes testing with actual consumers (to
ensure presence of required functional and psychological characteristics).
7. Test marketing - the stage of new-product development in which the product and its
proposed marketing program are tested in realistic market settings to give the
marketer experience and test marketing program before spending on full introduction.
Test marketing can be expensive and often companies do not perform it for simple
line extensions of low production costs. However, when required investment or risks
are high, a lot of test marketing can be done. As an alternative companies may use
controlled or simulated test markets, where products are either tested on a controlled
panel of shoppers in stores or on shopper in laboratory stores or simulated online
environments.
8. Commercialization - introducing a new product into the market associated with high
costs. Launching a new products, company must decide on timing (from as soon as
possible to be first-movers to later due to current weak economy) and on where to
launch the product (from single location to international market).
Managing new product development: requires customer-centred, team based, systematic effort
to be successful.
Customer-centered new-product development:
 Customer-centred new-product development focuses on finding new ways to solve
customer problems and create more customer-satisfying experiences by
understanding and involving customers in the process.
Team-based new-product development:
 Team-based new-product development is an approach to developing new products in
which various company departments work closely together, overlapping the steps in the
product development process to save time and increase effectiveness. It requires a
complete company cross-functional effort. Team-based approach however, may lead to
organizational tension and confusion.
Systematic new-product development:
  New-product development should be holistic and systematic with commitment from the
whole firm, and not compartmentalized and precarious. To ensure this, companies can
install innovation management systems to collect, review, evaluate and manage new
product ideas. This helps create innovation-focused company culture and generate more
new product ideas.
New-product development in turbulent times:
 In difficult financial times cutting back on new product may not be the best idea, as it
makes the company less competitive. On the contrary, tough times may require even
more new-product development, as innovation makes the company more competitive and
positions it better for the future..
Objective 3: Product life-cycle strategies
Product life cycle (PLC) - the course of a product's sale and profits over its lifetime and is used
to ensure consistent profit earning from the product. It involves five distinct stages:
1.Product development: begins when the idea is found, remains when sales are zero and
investments costs are rising.
2.Introduction: sales begin to grow as the product enters market, but profits do not exist due
to high costs of this stage.
3.Growth: market accepts the product and profits begin to increase.
4.Maturity: sales slowdown, profits decrease as investments are made into defending product
from competitors.
5.Decline: sales and profits drop.
 Not all products go through all stages; PLC can apply to product classes, forms and brands.
It can also be applied to styles - a basic and distinctive mode of expression with several
periods of renewed interest, fashion - a currently accepted or popular style in a given field
with slow growth and decline, and fads - a temporary period of unusually high sales
driven by consumer enthusiasm and immediate product or brand popularity.
 PLC can help in developing marketing strategies, but is problematic for forecasting product
performance. Marketers should not follow the lifecycle blindly, but continuously
reposition the product to rescue mature or declining. products.

Strategies for lifecycle stages:

Introduction stage - the PLC stage in which a new product is first distributed and made
available for purchase. At this stage costs and investments are high. Chosen strategy must be
consistent with intended product positioning, realizing that it is merely the first step to a grander
marketing strategy.
Growth stage - the PLC stage in which a product's sales start climbing quickly, buyers will
continue to buy, but competitors will be attracted to the new opportunities. To sustain rapid
market growth as long as possible, firm should continuously improve quality and add new
features, enter new segments and look for new distribution channels, shift advertising from
building awareness to building conviction and purchase and lower prices at right time.
Maturity stage - PLC stage in which a product sales growth slows or levels off. It lasts longer
than others and poses more challenges. Such slowdown leads to overcapacity and greater
competition. Most successful producers at this stage are evolving to meet new demands and
needs. By modifying the market, the company will try to increase sales by looking for new users
and segments or increasing it among current ones. The company can try modifying the product
by changing its characteristics, quality, features, etc. It can also modify the marketing mix which
involves improving sales by changing marketing mix elements.
Decline stage - PLC stage in which a product's sales decline. Sales decline for various reasons
from technological advances to shifts in tastes and increased competition. Carrying weak product
can be very costly, thus, companies should identify declining products and decide whether to
maintain (by repositioning and moving back to growth), harvest (by reducing costs and hoping
for sales to remain) or drop them (by selling or liquidating them).
Objective 4: Additional product and service considerations
Product decisions and social responsibility: marketers should consider public policy issues and
regulations regarding acquiring or dropping products. Governments may prevent companies
from acquisitions because of competition regulations, or dropping may entail legal obligations,
whereas manufacturers must comply quality and safety laws. Companies must also ensure no
consumers are harmed by products as they can be sued in case this happens.
International product and services marketing: internationally, marketers face challenges of
figuring out where to introduce the products, and how much to standardize and adopts them. On
one hand, there is the choice of standardization to make use of economies of scale, and on the
other, there are great difference between consumers worldwide. Service marketer need to be
especially careful when going global due to globalization of firms they serve and other factors.
10. Pricing
Price is one of the most important elements to establish company's market share and
profitability and is the most flexible and the only one of the marketing mix that generates
revenue, whereas others entail costs. Before deciding on the price the company needs to
create overall marketing strategy for the product. Sometimes the strategy can be built
around price and value. Management has to consider who within the company should set
the prices. Marketers should comprehend the relationship between the price and demand
for the product. Economic conditions have an impact on pricing, as they affect customers'
perceptions and spending.
Example Air Arabia: Air Arabia is a budget airline that revolutionized flying in the Middle East
and North Africa with a different way of doing business. It customized operations to local
preferences and sets itself apart with reputation and operational excellence. The customer
interface is based on pricing structure on the website and the company offers competitive prices
throughout the year to enable customers to fly affordably. The company continues to expand into
high-growth markets with affordable air travel.
Objective 1: What is price?
Price - the amount of money charged for a product or service. It is the sum of all values
customers give up to obtain the benefits of using the product. Price is one of the most important
elements to establish company's market share and profitability and is the most flexible and the
only one of the marketing mix that generates revenue, whereas others entail costs.
Objective 2: Major pricing strategies
There are 3 major pricing strategies:
1. Customer value-based pricing - setting price based on buyers' perceptions of value rather
than on the seller's cost. Value-based pricing occurs when the marketer sets the price before
setting marketing program. The price is set according to target customers' needs and perceptions
of value. However, it can be hard to measure the value perceived by customers as it is variable
and subjective. There are 2 types of value-based pricing:
 Good-value pricing - offering the right combination of quality and good service at a fair
price. Often it involves offering cheaper versions of brand-name products or redesigning
existing brands to offer more quality for the same price or same for less. An important
element of this is everyday low pricing (EDLP), which involves always charging a low
price with few temporary price discounts.
 Value-added pricing - attaching value-added features and services to differentiate a
company's offers and charging higher prices
3. Cost-based pricing - setting prices based on the costs for producing, distributing and selling
the product plus a fair rate of return for effort and risk. Companies with lower costs can set
lower prices, and although their margins are low, sales and profits are high. Other companies
pay higher costs claiming higher prices due to more value and have higher margins.
 Types of costs:
o Fixed costs (overhead) - costs that do not vary with production or sales level.
o Variable costs - costs that vary directly with the level of production
o Total costs - the sum of the fixed and variable costs for any given level of production
  Costs at different levels of production: management needs to establish how costs
vary at different levels of production. The production costs may depend on capacity
and size of the plant.
 Costs as a function of production experience: Experience curve (learning curve) - the
drop in the average per-unit production costs that comes with accumulated production
experience. This creates an opportunity for the company to reduce production costs by
manufacturing and selling in a given period. However, there are dangers with blindly
exploiting the experience curve such as cheap product image and lower-cost competitors.
 Cost-plus pricing (mark-up pricing) - is the simplest method and entails adding a standard
mark-up to the cost of a product. Mark-up does not produce the best price as it does not
take into consideration demand and competitor pricing. But it is popular because: sellers
are more sure of costs, than of demand; if all firm in an industry use such pricing, price
competition is minimized; it may be perceived as fairer to buyers and sellers.
 Break-even pricing (target return pricing) - setting price to breakeven on the costs of
making and marketing a product or setting price to make a target return. Different prices
should be considered to estimate volumes, demands and profits.

1. Competition-based pricing - setting prices based on competitors' strategies, prices, costs and
market offerings. No matter What price is charged in this case, the company needs to make sure
it provides customers with superior value.
Objective 3: Internal and external considerations affecting price decisions
Overall marketing strategy, objectives and mix: before deciding on the price the company
needs to create overall marketing strategy for the product. Sometimes the strategy can be built
around price and value. If the company established its target market and positioning well,
marketing mix strategy including price should be easy to develop. Price can help accomplish
various company objectives, such as attracting new customers, preventing competition, keep
loyalty or resellers and avoid government intervention. Sometimes firms position their products
based on price and use target costing, pricing that start with an ideal selling price and then targets
costs that will ensure that the price is met. Other companies do not focus on price and use other
marketing mix elements to create non-price positions, often making the product worth a higher
price. Sometimes, products are positioned on high prices making it part of their prestigious
image.
Organizational considerations: management has to consider who within the company should
set the prices. It can be departments from top management to special pricing departments.
The market and demand: before setting the price, marketers should comprehend the
relationship between the price and demand for the product.
 Pricing different types of markets: 4 types of market are identified with
different pricing challenges:
o Pure competition: many buyers and sellers trading in a uniform commodity, without
spending much time on marketing strategy.
o Monopolistic competition: many buyers and sellers trading over a range of prices with
differentiated offers, using pricing and other marketing tools to set their products apart.
o Oligopolistic markets: only a few large sellers alert to changes in competitors' price.
o Pure monopoly: market dominated by one seller.
  Analysing price-demand relationship: demand curve - a curve that shows the number of
units the market will buy in a given time period, at different prices that might be charged.
The companies measure demand curves by estimating demand at different prices.
 Price elasticity of demand: a measure of the sensitivity of demand to changes in price. If
demand changes little or is inelastic, sellers may lower prices.
The economy: economic conditions have an impact on pricing, as they affect customers'
perceptions and spending. It is important to consider that even in difficult economic times,
customers do not buy only based on price, but care about value.
Other external factors: the company must consider the impact the prices will have on external
parties in the environment, such as government, reseller, those with social considerations.
11. Pricing strategies
Product mix pricing strategies should help firm set prices that maximize profits on total
product mix. Price-adjustment strategies are used to adjust basic prices to various
customer differences and situations. When initiating price changes the company needs to
anticipate buyer and competitors reactions. Price competition is essential for a free-market
economy and there are laws and regulations to govern rules of fair play in pricing.

Example Panera Bread: Panera Bread understands that even in tough times, low prices do not
mean best value. Panera is a bakery-café that provides a full-value dining experience for what
customers pay. Panera does not only provide tasty food and outstanding service, it also makes
the restaurants so inviting the customers do not want to leave. Therefore, without offering low
prices the company is a great success.
Objective 1: New-product pricing strategies
Market-skimming pricing (price skimming) - setting a high price for a new product to skim
maximum revenues layer by layer from the segments willing to pay the high price; the company
makes fewer but more profitable sales. This strategy only makes sense when the product's quality
and image support the price and customers want the product for the price, when the costs of
producing less of the product do not exceed the benefits of charging more, and when competitors
are not able to easily enter and undercut prices.
Market-penetration pricing - setting a low price for a new product to attract a large number of
buyers and a large market share. For the low-price strategy to function, low price should
stimulate market growth and market should be sensitive to prices, the company should be able to
make use of economies of scale and low price must keep away the competition.
Objective 2: Product mix pricing strategies
Product mix pricing strategies should help firm set prices that maximize profits on total product
mix.
 Product line pricing - setting the price steps between various products in a product line
based on cost differences between the products, customer evaluations of different features
and competitors' prices.
 Optional product pricing - the pricing of optional or accessory products along with a
main product; companies must decide what to include in the base price and what to offer
as an option.
 Captive product pricing - setting a price for products that must be used along with a main
product, such as blades for a razor and games for a videogame console. Companies that
use this strategy must be cautious in finding the right balance between product and
captives. Customers forced to buy expensive captive may begin resenting the brand. With
service, captive pricing is known as two-part pricing and is broken down into a fixed fee
and variable usage rate.
 By-product pricing - setting a price for by-products to make the main product's price
more competitive.
 Product bundle pricing - combining several products and offering the bundle at a reduced
price. This can help promote products customer would otherwise not buy.

Objective 3: Price-adjustment strategies

Price-adjustment strategies are used to adjust basic prices to various customer differences and
situations.
• Discount - a straight reduction in price on purchases during a stated period of
time or of larger quantities.
• Allowance - promotional money paid by manufacturers to retailers in return for
an agreement to feature the manufacturer's products in some way.
• Segmented pricing - selling a product or service at two-or more prices, where the
difference in prices is not based on differences in costs. There are different forms
of this strategy such as customer-segment, product-form, location-based and time-
based (by season). For this strategy to work, the market must be segmentable and
segments should show different demands, the costs of reaching the segments
should not exceed additional revenue obtained, and the segmented pricing should
be legal. Importantly, prices should reflect differences in customer perceived
value.
• Psychological pricing - pricing that considers the psychology of prices, not
simply the economics; the price says something about the product. Reference
pricing is an aspect of psychological, it is prices that buyers carry in their minds
and refer to when they look at a given product. Customers often rely on certain
signals and cues to determine the height of the price.
• Promotional pricing - temporarily pricing products below the list price and
sometimes even below cost, to increase short-run sales. It can be in form of
discounts, special-event prices, and limited-time offers. Manufacturers may offer
cash rebates, low interest financing or free maintenance. Promotional pricing may
have negative effects such as bargain wars or create customers that only buy on
sale. Some marketers may abuse promotions as an easy way to avoid developing
longer-term strategies.
• Geographical pricing - setting prices for customers located in different parts of
the country or world.
o FOB-origin pricing - a geographical pricing strategy in which goods are
placed free on board a carrier, the customer pays the freight from the
factory to the destination.
o Uniform-delivered pricing - geographical pricing strategy in which the
company charges the same price plus freight to all customers, regardless
of their destination.
o Zone pricing - geographical pricing strategy in which the company sets
up two or more zones. All customers within a zone pay the same total
price. The more distant zone pays more.
o Basing-point pricing - geographical pricing strategy in which the seller
designates some city as a basing point and charges all customers the
freight cost from that city to the customer.
o Freight-absorption pricing - geographical strategy in which the seller
absorbs all or part of the freight charges to get the desired business for
market penetration and to stay in increasingly competitive markets.
Dynamic pricing - adjusting prices continually to meet the characteristics and needs of
individual customers and situations. It is especially predominant online, where sellers can
customize their offers and prices based on behaviours of individual customers. Dynamic pricing
is legal as long as no discrimination is involved and marketers are careful not to take advantage
of customer groups. Customers are enabled to easily compare prices on the internet and many
retailers suffer from showrooming when consumers use stores as showrooms and then buy
products online.
International pricing: companies must decide what prices to charge in different countries,
adjusting them to local market conditions, cost considerations, consumers' perceptions and
preferences.
Objective 4: Price changes
 Initiating price changes: when doing so the company needs to anticipate buyer and
competitors reactions.
 Initiating price cuts: excess capacity, falling demand from strong competition or weak
economy, and attempts to dominate the market may lead to price cuts.
 Initiating price increases: a successful increase can help grow profits. Cost inflation and
over-demand are significant factors of price increase. When doing so, the company has to
evade being seen as price gouger by maintaining sense of fairness with communication.
When possible companies should consider ways to deal with higher costs or demand
without increasing prices.
 Buyer reactions to price changes: price increase may lower sales, but have positive
meaning for buyers. Price cuts can be associated with lowering quality or changing
product image.
 Competitor reactions to price changes: competitors will react in case few firms are
involved, product is uniform or when buyers are well-informed.Competitors can interpret
actions in different ways.
 Responding to price changes: there are 4 responses a company can produce if it decides
to take action to competitor's price cut:
o Reduce the price in case it decides the market is price sensitive and too much share will be
lost.
o Raise the perceived value to differentiate from the lower-priced competitor.
o Improving quality and raising price changes positioning, created greater customer value
and raises margin.
o Launching a lower-price fighter brand by adding a new item to the line or a separate brand
is a good strategy when the market is price sensitive and will not be responsive to better
quality. However, there is a danger of cannibalization with this strategy.

Objective 5: Public policy and marketing

Price competition is essential for a free-market economy and there are laws and regulations to
govern rules of fair play in pricing.
Pricing within channel levels: federal legislation states that price-fixing only allows sellers to
set prices without talking to competitors. Sellers are not allowed to use predatory pricing which
involves selling below cost with the intention of exhausting a competitor or acquisition of higher
long-run profits by putting players out of business
Pricing across channel levels: unfair price discrimination is prevented by ensuring that sellers
provide the same price terms to customers at a given level of trade (such as providing different
qualities of the same product to different buyers). Retail price maintenance is also not allowed
when manufacturer cannot demand from dealers to change specified retail price. Deceptive
pricing is prohibited and involves a seller stating prices or savings that mislead consumers and
are not actually available.
12. Marketing channels
Building relationships with buyers, suppliers and resellers or upstream and downstream
partners that make up the supply chain is necessary to deliver value to the customers.
Using intermediaries enables producers to deliver goods to end customers more efficiently.
The number of intermediary levels defines the length of the channel. Each channel member
depends on the others as firm's partner for a common goal with a specialized role per
member. Ideally companies should work together towards common channel goals, but they
often do not match the individual organizations' goals. In channel decisions manufacturers
struggle between What is ideal and what is practical. Companies are free to develop any
kinds of relationships they want and have mutual rights and duties.

Example Netflix: Netflix made its way to be one of the most powerful video entertainment
distributors by using innovation. It moved away from traditional DVDs to pure digital video
streaming, losing many customers at first. However, it did not take long for the company to
replace lost subscribers and increase revenues again. Nowadays competitions continues to attack
at many companies offer video streaming as delivery mode by Netflix remains ahead by
providing content on demand for any device and producing its own content too
Objective 1: Value delivery network and marketing channels
Building relationships with buyers, suppliers and resellers or upstream and downstream partners
that make up the supply chain is necessary to deliver value to the customers. This makes up the
value delivery network - a network composed of the company, suppliers, distributors and
customer who partner with each other to improve the performance of the entire system in
delivering customer values.
Marketing channel (distribution channel) - a set of interdependent organizations that help
make a product or service available for use of consumption by the consumer or business user.
Such channel decisions have a direct effect on marketing decisions. Distribution channels can
damage the profits if they are not paid attention too. However, they can also be used innovatively
to gain competitive advantage. Since distribution channels involve long-term partnerships, they
need to be designed with an outlook for future.
How channel members add value: using intermediaries enables producers to deliver goods to
end customers more efficiently. Economically, marketing intermediaries are there to transform
the assortments of products of manufacturers into those wanted by customers. They buy larger
quantities from producers, and offer consumers to buy smaller ones. Channel intermediaries add
value by closing the gap in time, place and possession between goods and consumers. They
assist with the following transactions:
 Information: gathering and distributing the info
 Promotion: developing and spreading persuasive communications
 Contact: finding prospective buyers
 Matching: shaping offers to match needs
 Negotiation: reaching agreements
 Physical distribution: transporting and storing
 Financing: acquiring funds
 Risk taking: assuming the risks
 All these need to be performed, and when this is done by the producers, production costs
increase. However, work can be divided across the channel in such way that members can add
most value for the cost.

Number of channel levels: channel level is a layer of intermediaries that performs some work in
bringing the product and its ownership closer to the final buyer. The number of intermediary
levels defines the length of the channel. There are several common distribution channels:
 Direct marketing channel - a marketing channel that has no intermediary levels.
 Indirect marketing channel - channel containing one or more intermediary levels.
Business distribution channels vary and greater number of channels gives less control to
producers and makes channels more complex. All institutions in the channels are connected with
different types of flows, such as physical flow of products, the flow of ownership, the payment
flow, the information flow, and the promotion flow.
Objective 2: Channel behaviour and organization
Each channel member depends on the others as firm's partner for a common goal with a
specialized role per member. Ideally companies should work together towards common channel
goals, but they often do not match the individual organizations goals. Channel conflict occurs as
disagreement among marketing channel members on goals, roles and rewards - that should do
what and for what rewards. Horizontal conflict occurs among forms at the same level of the
channel. Vertical conflict occurs between different levels of the same channel and is more
common. Often conflict in the channel leads to healthy competition which makes the channel
more active and innovative.
Vertical marketing systems: conventional distribution channel is a channel consisting of one
or more independent producers, wholesalers and retailers, each a separate business seeking to
maximize its own profits, even at the expense of profits for the system as a whole. On the
contrary, vertical marketing system (VMS) is a distribution channel structure in which
producers, wholesalers and retailers act as a unified system. One channel member owns the
others, has contracts with them or has so much power that they all cooperate. There are 3 major
types of VMSs:
 Corporate VMS - vertical marketing system that combines successive stages of
production and distribution under single ownership - channel leadership is established through
common ownership.
 Contractual VMS - vertical marketing system in which independent firms at different
levels of production and distribution join together through contracts. Franchise organization is
a contractual vertical marketing system in which a channel member, called a franchisor, links
several stages in the production-distribution process. There are 3 types of franchises:
o Manufacturer-sponsored retailer franchise system
o Manufacturer-sponsored wholesaler franchise system
o Service-firm-sponsored retailer franchise system
 Administered VMS - vertical marketing system that coordinates successive stages of
production and distribution through the size and power of one of the parties.

Horizontal marketing system: this is a channel arrangement in which two or more companies at
one level join together to follow a new marketing opportunity combining their financial,
production, or marketing resources to achieve more than one company could have done on its
own.
Multichannel distribution system: this is a distribution system in which a single firm sets up
two or more marketing channels to reach one or more customer segments. There are many
advantages of such multichannel systems such as expanding sales and market coverage, as well
as tailor products better to more different segments. However, such systems are more difficult to
control and may generate conflict.
Changing channel organization: nature and design of marketing channels is influenced by
changes in technology and growth of direct online marketing. A major trend is towards
disintermediation - the cutting out of marketing channel intermediaries by product or service
producers or the displacement of traditional resellers by radical new types of intermediaries.
Channel innovators look for ways to add value and displace resellers, whereas intermediaries in
turn innovate to avoid being shifted. Developing new channel opportunities can lead to new
direct competition with established channels.
Objective 3: Channel design decisions
In such decisions manufacturers struggle between what is ideal and what is practical. Marketing
channel design involves designing effective marketing channels by analysing customer needs,
setting channel objectives, identifying major channel alternatives and evaluating those
alternatives.
Analysing customer needs: designing the channel involves finding out what customers want
from the channel. It is important to provide fast delivery, great assortment, and most services for
greater service level; however, it may not be practical, due to lack of resources or skills and
increased costs.
Setting channel objectives: companies should set marketing channel objectives in terms of
targeted levels of customer service, deciding which segments to serve and the best channels to
use for each to minimize costs and meet customer requirements.
The nature of the company, its competition and environmental factors affect channel design.
Identifying major alternatives: the company should identify channel alternatives after setting
objectives in terms of the following:
 Types of intermediaries: there are many choices of intermediaries, and using many types of
reseller may provide benefits such as addressing more different buyers, as well as drawbacks
such as difficulty of controlling and managing channels.
 Number of intermediaries: 3 strategies are available for this
o Intensive distribution - stocking the product in as many outlets as possible
o Exclusive distribution - giving a limited number of dealers the exclusive right to distribute
the company's products in their territories, which is often done with luxury brands.
o Selective distribution - the use of more than one but fewer than all intermediaries who are
willing to carry the company's product; this is often done with furniture and home
appliances for example.
Responsibilities of channel members: producer and intermediaries should agree on terms and
responsibilities such as price policies, conditions of sale, territory rights and specific services,
especially in franchise and exclusive channels.
Evaluating major alternatives: to identify the best alternative to satisfy long-run objectives
they should be evaluated against economic (sales, costs, profits), control and adaptability (long-
term commitments vs. flexibility) criteria.
Designing international distribution channels: countries have many additional complexities in
designing distribution channels and systems can vary from country to country. They can vary
from being complex and hard to penetrate to being scattered and inefficient.
Objective 4: Channel management, public policy and distribution decisions
Marketing channel management - selecting, managing and motivating individual channel
members and evaluating their performance over time.
Selecting channel members: producers vary in being able to draw competent marketing
intermediaries. When selecting them, a company should consider characteristics that distinguish
better ones evaluating criteria such as location, growth record, cooperativeness, etc.
Managing and motivating channel members: the company needs to sell to and with
intermediaries building strong partner relationships with them. The company needs to convince
suppliers and distributors that more value can be achieved as part of value delivery system.
Partnership relationship management PM and supply chain management (SCM) software is used
by many companies (similarly to CRM) to help recruit, train, organize, manage, motivate, and
evaluate relationships with channel partners.
Evaluating channel members: member performance must be controlled against standards, and
well performing intermediaries should be recognized. Companies should also assist those that
perform poorly and pay attention to the needs of channel partners.
Public policy and distribution decisions: Companies are free to develop any kinds of
relationships they want and have mutual rights and duties. When the seller allows only certain
outlets to carry its products, this strategy is called exclusive distribution.
When the seller requires that these dealers not handle competitors' products, its strategy is called
exclusive dealing. In exclusive arrangement, seller receives loyal and dependable outlets and
dealers get a steady source of supply. However, producers are excluded from selling to others.
Exclusive territorial agreements often occur when the producer may agree not to sell to other
dealers in a given area, or the buyer may agree to sell only in its own territory. Producers of a
strong brand sometimes employ full-line forcing and agree to sell to dealers only if they will take
some or all of the rest of its line. Generally, dealers can only be dropped for a cause.
Objective 5: Marketing logistics and supply chain management
Nature and importance of marketing logistics: marketing logistics entails planning,
implementing and controlling the physical flow of materials, final goods and related information
from points of origin to point of consumption to meet customer requirements at a profit.
Nowadays, logistics is customer-centred starting with marketplace and moving backwards
towards the factory. Marketing logistics includes outbound logistics (moving products from the
factory to resellers), inbound logistics (moving materials from suppliers to the factory) and
reverse logistics (dealing with excess products). Supply chain management is managing
upstream and downstream value-added flows of materials, final goods and related information
among suppliers, the company, resellers and final consumers. Logistics manager coordinates
activities of suppliers, purchasers, marketer, other channel members and customers.
Companies are increasing their emphasis on logistics because improving it provides competitive
advantage, it can save costs
Distribution centre - a large, highly automated warehouse designed to receive goods from
various plants and suppliers and deliver goods to customers, assist increasing product variety
often through information technology, and improve company's environmental footprint.
Goals of the logistics system: no logistics system can both maximize customer service and
minimize distribution costs. Thus, the goal of the system should be provide targeted level of
customer service at the least cost maximizing profits, not sales.
Major logistics functions:
  Warehousing: how many and what types of warehouses are needed and where they will be
located has to be decided by the company. The company can use either storage
warehouses or distribution centres. Storage warehouses store goods for moderate to long
periods. Distribution centres are large, highly automated warehouses designed to obtain
goods from different factories and supplier, take orders, fill them efficiently, and deliver
to customers as fast as possible.
 Inventory management: managers need to balance between costs of too little and too
much inventory to satisfy customers. Companies reduce their inventories and related
costs through just in time logistics systems, having producers and retailers carry only
small inventories of parts or merchandise, often enough for only a few days of operations.
New stock arrives exactly when needed and such system requires accurate forecasting
and delivery.Other companies use RFID to know exactly when and where each product is
located allowing reordering automatically.
 Transportation: this affects pricing, delivery and condition of goods upon arrival.
Companies can choose between truck, rail, water, pipeline and air, and possibly the
internet. Trucks are flexible in routing and time schedules and they are usually faster than
railroads. They are efficient for short hauls of high volumes. Railroads are one of the
most cost-effective when it comes to large amounts of bulk products. Water carriers
transport large amounts of non-perishable goods and are the slowest mode. Pipelines are
specialized means for petroleum, natural gas and etc. Air carriers are very important,
although costly and rarely used. They are used for perishable products, high value and
small bulks. The internet is used for carrying digital products. Intermodal
transportation can also be used to provide advantages that cannot be delivered by single
modes and entails combining two or more modes of transportation. Piggyback describes
the use of rail and trucks; fishy back, water and trucks; trainship, water and rail; and air
truck, air and trucks.
 Logistics information management: supply chains are managed through information
and companies require simple, accessible, fast and accurate processes for capturing,
processing and sharing information. Electronic data interchange (EDI) is the digital
exchange of data between organizations, which primarily is transmitted via the Internet.
In vendor-managed inventory (VMI) systems or continuous inventory replenishment
systems the customer shares real-time data on sales and inventory with the supplier. The
supplier takes full accountability for managing inventories and deliveries.
Integrated logistics management: this is a logistics concept that emphasizes teamwork - inside
the company and among all the channel organizations - to maximize the performance of the
entire distribution system.
Cross-functional teamwork inside the company: responsibility for logistics activities can be
assigned to different departments. The goal of integrated supply chain management is to balance
all of the company's decisions. Close relationships in work of different departments can be
achieved through permanent logistics committees, creating supply chain manager positions, and
employing complex system wide supply chain management software.
Building logistics partnerships: whole-channel distribution needs to be improved.
Many companies create cross-functional cross-company teams, whereas others use shared
projects.
Third party logistics: third-party logistics (3PL) provider is an independent logistics provider
that performs any or all the functions required to get a client's product to the market. They are
used by companies as they are more efficient and cheaper, they allow the company to focus on
its core business, and they can better understand complex logistics environments.
14. Communicating customer value
The promotion mix (marketing communication mix) is the specific blend of promotion
tools that the company uses to persuasively communicate customer value and build
customer relationships. But marketing goes beyond the promotional tools, as all features of
the product communicate something to consumers. The changes come together in a need
for integrated marketing communications (IMC) which involves carefully integrating and
coordinating the company's many communications channels to deliver a clear, consistent
and compelling message about an organization and its products. Marketers are moving to
viewing communications as managing customer relations over time. Communications
process can start with evaluating potential touch points target customers have with
company and its brands. The promotion mix consists of five tools that have unique
characteristics and costs.

Example Tesco: Tesco is number one supermarket in the UK and uses a brilliant
communications strategy by carefully integrating and coordinating its communication channels.
Its strapline Every Little Helps helps communicate firm's brand and unique value proposition. As
economic environment becomes increasingly challenging, Tesco is reviewing its marketing
strategies critically and focusing on communications.
Objective 1: Promotion mix
The promotion mix (marketing communication mix) is the specific blend of promotion tools
that the company uses to persuasively communicate customer value and build customer
relationships. It consists of five major promotion tools:
1.Advertising: any paid form of non-personal presentation and promotion of ideas, goods or
services by an identified sponsor.
2.Sales promotion: short- term incentives to encourage the purchase or sale of a product or a
service.
3.Personal selling: personal representation by the firm's sales force for the purpose of
making sales and building customer relationships.
4.Public relations: building good relations with the company's various public by obtaining
favourable publicity: building up a good corporate image and handling or heading off
unfavourable rumours, stories and events.
5.Direct marketing: direct connections with carefully targeted individual consumers to both
obtain an immediate response and cultivate lasting customer relationships.

For each category specific promotional tools can be used to communicate with consumers. But
marketing goes beyond the promotional tools, as all features of the product communicate
something to consumers.
Objective 2: Integrated marketing communications
New marketing communications model: several factors are changing today's marketing
communication. First, consumers are changing: they are better informed and more empowered.
Also, marketing strategies are shifting away from traditional mass marketing. Finally,
communications technology is changing the way companies and customers communicate with
each other. Some companies are doing more narrowcasting, and less broadcasting by
personalizing products. Some even predict that old mass-media models are to become obsolete.
Some marketers even skip traditional marketing completely. However, mostly there is a blend
between new and traditional media, and the goal is to integrate in such way that the message is
communicated most clearly.
The need for integrated marketing communications: the changes come together in a need for
integrated marketing communications (IMC) which involves carefully integrating and
coordinating the company's many communications channels to deliver a clear, consistent and
compelling message about an organization and its products.
MC recognizes all touch points where the company and customers meet and puts together all
messages. Many companies appoint marketing communications directors to place responsibility
for unifying company's image in someone's hands.
Objective 3: Communication process and developing effective marketing communication
Marketers are moving to viewing communications as managing customer relations over time.
Communications process can start with evaluating potential touch points target customers have
with company and its brands.
In order to develop marketing communications, a marketer needs to understand the
communication process which involves 9 elements.
1.Sender: party sending the message to another party
2.Encoding: process of putting thought into symbolic form
3.Message: set of symbols that the sender transmits
4.Media: communication channels through which the message moves from the sender to the
receiver
5.Decoding: process by which the receiver assigns meaning to the symbols encoded by the
sender
6.Receiver: party receiving the message sent by another party
7.Response: The reactions of the receiver after being exposed to the message
8.Feedback: The part of the receiver's response communicated back to the sender
9.Noise: The unplanned static or distortion during the communication process, which results
in the receiver getting a different message than the one the sender sent

For high effectiveness of the message, sender's encoding process must network with the
receiver's decoding. Best messages include words and symbols familiar to the receiver. Senders
also need to know the audiences they want to reach and responses they want to achieve. They
have to be good at encoding messages and consider how they will be decoded. They have to use
channels that can reach target receivers and develop feedback channels as well as become good
receivers of messages with new media.
Steps in developing effective marketing communication:
1.Identifying the target audience: the target audience affects communicator's decisions.
2.Determining the communication objectives: once audience is defined, marketers must
determine desired response. Target audience can be in any one of 6 stages of the buyer-
readiness stages. The buyer-readiness stages are the stages consumers normally pass
through on their way to a purchase, including awareness, knowledge, liking, preference,
conviction and finally the actual purchase. A goal of a marketer is to move target
customers through the buying process.
3.Designing the message: the message should get attention, hold interest, arouse desire and
obtain action. Attention, interest, desire and action come together as the AIDA model.
o The marketer determines the content of the message. Rational appeals relate to the
audience self-interest and their benefits. Emotional appeals attempt to stir up
 emotions that can motivate purchase. Moral appeals are directed to the audience's
sense of what is right and proper.
o Marketers must also decide the message structure. There are 3 issues with this:
deciding on whether to draw conclusion or leave it to the audience, whether to
present strongest arguments first or last, and whether to present one-sided
argument or a two-sided one.
o Marketers must also decide the message format. In print ads, this involves
deciding on headline, copy, illustration and colours, whereas in message on
packaging it is texture, scent, colour, size and shape.
4. Choosing media: there are two broad types:
o Personal communication channels are channels through which two or more
people communicate directly with each other, including face to face, on the
phone, via e-mail or even through Internet chat. Personal communication channels
include word-of-mouth influence: personal communications about a product
between target buyers and neighbours, friends, family members and associates.
Personal influence is influential especially for products that are expensive, risky,
or highly visible. Buzz marketing is cultivating opinion leaders and getting them
to spread information about a product or a service to others in their communities.
o Non-personal communication channels are media that carry messages without
personal contact or feedback, including major media, atmospheres and events.
Atmospheres are designed environments that create the buyer's leanings toward
buying a product. Such communication affects buyers directly as well as
indirectly in case mass media causes more personal communication.
5. Selecting the message source: the effect depends on how target audience views the
communicators. Highly credible sources are more persuasive. When using celebrity
endorsement, marketers need to be careful as choosing wrong spokesmen leads to
embarrassment and destroyed company image.
6. Collecting feedback: the marketer must research the effect on the target audience to suggest
changes in the promotion program or the product offer
Objective 4: Setting the total promotion budget and mix & socially responsible marketing
communication
Setting the total promotion budget: there are 4 common methods that can be used:

1. Affordable method: setting the promotion budget at the level management thinks the
company can afford. Small businesses often use this method. This method ignores effects of
promotion on sales. It results in uncertain annual promotion budget.
2. Percentage-of-sales method: setting the promotion budget at a certain percentage of current
or forecasted sales or as a percentage of the unit sales prices. It is easy to use and helps think
about relationships between promotion spending, selling price, and profit. However, it
wrongly views sales as cause of promotion rather than result. Thus, it's based on availability
of funds and not opportunities
3. Competitive-parity method: setting the promotion budget to match competitor's outlays.
Competitors' budgets represent collective wisdom of industry and spending what they spend
prevents promotion wars. But competition might not have a better idea what to spend and
companies differ in promotion needs. There is also no evidence for fewer promotion wars.
4. Objective-and-task method: developing the promotion budget by (1) defining specific
promotion objectives, (2) determining the tasks needed to achieve these objectives and (3)
estimating the cost of performing these tasks. The sum of these costs is the proposed
promotion budget. The advantage of the method is the it forces management vocalize the
assumption between spending and promotion results. But it is also the most difficult method
to use.

Shaping the overall promotion mix:

The promotion mix consists of five tools that have unique characteristics and costs.

 Advertising can reach masses of geographically dispersed buyers at a low cost, says
something positive about seller's size, popularity and success, but it cannot be as
persuasive as people and lacks personal touch. It can be used to build up long-term image
and can trigger quick sales. Advertising can be very costly.
 Personal selling is the most effective in certain stages of the buying process (building up
buyers' preferences, convictions, and actions). Persons can observe needs and
characteristics to make adjustments, personal selling allows a variety of customers and
forces the buyer to listen and respond. However, it is most costly out of all tools.
 Sales promotion includes coupons, contests, discounts and etc. and attracts the customer's
attention, but the effect is often short lived.
 Public relations (PR) is believable including stories, features, sponsorships, etc., but is
often underused.
 Direct marketing is less public involving catalogues, online or mobile marketing, etc., and
is delivered to a certain person. It is immediate and customized, as well as interactive.

Promotion mix strategies: marketers can choose from two basic promotion mix strategies. A
push strategy calls for using the sales force and trade promotion to push a product through
channels. A producer promotes a particular product to channel members, who in turn promote it
to final consumers. A pull strategy calls for spending a lot on consumer advertising and
promotion to induce final consumers to buy a particular product, creating a demand vacuum that
"pulls" a product through the channel.
15. Advertising and public relations
Advertising is any paid form of non-personal presentation and promotion of ideas, goods
or services by an identified sponsor. Advertising media are the vehicles through which
advertising messages are delivered to their intended audiences. Measuring advertising
effectiveness and the return on advertising are becoming important, especially in the
complex economic environment. Public relations (PR) means building good relations with
the company's various public by obtaining favourable publicity, building up a good
corporate image and heading off unfavourable rumours, stories and events.

Example Allstate: Allstate positions its brand as superior to price-oriented competitors by using
creative, award-winning advertising. In the past decade the spending on advertising by insurance
companies more than doubled. The campaign introduced by Allstate has been raising brand
awareness and increasing spending. The company expanded it to target other customer segments
and it helps emphasize the provided higher customer value.
Objective 1: Advertising
Advertising is any paid form of non-personal presentation and promotion of ideas, goods or
services by an identified sponsor.
Objective 2: Developing an advertising program
o Setting advertising objectives: this is done based on past decisions on the target
market, positioning and the marketing mix. Advertising objective is a specific
communication task to be accomplished with a specific target audience during a
specific period of time. Objectives are classified by primary purpose into 3
categories:
o Informative advertising is often used when introducing a new product when the
objective is to build primary demand.
o Persuasive advertising is more used when competition is increasing and helps
building selective demand. It can become comparative advertising in which the
company directly or indirectly compares the brand to competition. It should be
used with caution, as it can result in advertising war.
o Reminder advertising is relevant for mature products and is used to maintain
customer relationships. Its major goal is to help move customers through the
buying process by for instance moving them to immediate action or changing the
way they think
o Setting the advertising budget: advertising budget is the money and other resources
allocated to a product or a company advertising program. The budget is dependent on
various factors, such as the stage in the product life cycle, market share and the
number of competitors in the market. There are dangers of under- and overspending
when setting the budget.
o Developing an advertising strategy: the strategy by which the company
accomplishes its advertising objectives. It consists of two major elements:

Creating advertising messages:

 Advertising can only be successful if it generates attention and communicates well. For a
powerful advertising message, it needs to break through the clutter. Considering on
demand digital technologies, the message needs to be better planned, creative,
 entertaining, and emotionally engaging. A way to do this is merging advertising and
entertainment. The aim of "advertainment" is to make ads entertaining enough, so that
people actually want to watch them. Branded entertainment, or brand integrations,
involves making the brand an inseparable part of some form of entertainment.
 Message strategy is the general message that will be communicated to consumers which
begins with identifying customer benefits to be used as advertising appeals. Next the
creative concept needs to be developed which is the compelling "big idea" that will
bring the advertising message strategy to life in a distinetive and memorable way. It will
guide the choice of advertising appeal for the campaign. Advertising appeals should have
three characteristics: they should be meaningful, believable and distinctive.
 After that, message execution needs to take place capturing market's attention and interest.
The marketer has to establish the approach, style, tone, words and format used for
executing an advertising message. The following are examples of execution styles:
o Slice of life: typical people using a product in a normal setting.
o Lifestyle: shows how a product fits within a certain lifestyle.
o Fantasy: creates a fantasy around the product.
o Mood or image: builds a mood or certain image around the product.
o Musical: singing about the product.
o Personality symbol: creates a character that represents the product.
o Technical expertise: shows company's expertise in making the product.
o Scientific evidence: scientifically proving the brand is better.
o Testimonial evidence or endorsement: features a highly believable or likable source.
 The marketer must also decide upon the tone and format of the advertisement. The
illustration is the first thing noticed, whereas the headline must entice the right people to
read to advertisement. The copy (main block of text in the ad) must be simple, strong and
convincing All of the elements must work together in order to persuade the customer.
 Consumer-generated messages can also be effectively used by companies considering
today's interactive technologies. They can give the brand messages consumers' voice and
generate greater brand involvement.
Selecting advertising media: advertising media are the vehicles through which advertising
messages are delivered to their intended audiences. There are 4 major steps to select one:

 Determining reach, frequency and impact: Reach is a measure of the percentage of

people reached in the target market, while frequency is a measure to show how many
times the average person is exposed to the message. An advertiser will want to reach the
desired media impact: the qualitative value of the message exposure. Generally, the
media should help engage the customers, not just reach them, as engaged customers are
more likely to act upon brand messages and share them.
 Choosing among major media types: advertisers must choose media that can effectively
and efficiently transmit message to target customers. Moreover, a mix of media should be
chosen and blended to create an integrated communication campaign. Nowadays,
marketers aim at mixing paid, owned, earned and shared media delivering involving
content. Alternative media can be used as a tool to save money and reach more
customers, but can also be irritating to consumers. Media multi-taskers affect the choice
as well as they absorb more than one type.
  Selecting specific media vehicles: media vehicles are specific media within each general
media type. Media planners have to compute the cost per number of persons reached by
such vehicle. Furthermore, they need to evaluate costs against such factors as audience
quality, audience engagement and editorial quality. Some media sources are more
believable than others.
 Deciding on the media timing: marketer must decide on scheduling over the year and
pattern for the ads. Continuity means scheduling ads evenly within a given period, while
pulsing means scheduling ads unevenly over a given time period.

Evaluating advertising effectiveness and ROAl: Measuring advertising effectiveness and the
return on advertising are becoming important, especially in the complex economic environment.
Return on advertising investment is the net return on advertising investment divided by the costs
of the advertising investment. There are two types of advertising results:
 Communication effects: they tell whether the ad message is communicated well.
 Sales and profit effects: these are affected by many factors and are harder to measure. One
way is to compare past sales and profits with past ad expenditures. Another way is
through experiments.
Other advertising considerations:
 Organizing for advertising: advertising is organized differently in different comparies. It
ranges from someone handling it in the sales department, to advertising departments and
advertising agencies. Advertising agencies are marketing services firm that assists
companies in planning, preparing, implementing and evaluating all or portions of their
advertising programs.
 International advertising decisions: the most basic challenge is the degree to which
global advertising should be adapted to the unique characteristics of country markets.
Global online presence for large brands leads to advertising standardization, where at
least web sites are coordinated globally. Standardization produces such benefits as lower
costs, greater global coordination, and more consistent image; however, it ignores the
great differences between country markets. There are also difficulties generated by media
costs and availability as well as regulations of advertising practices.
Objective 3: Public relations and its role and impact
Public relations (PR) means building good relations with the company's various publics by
obtaining favourable publicity, building up a good corporate image and heading off unfavourable
rumours, stories and events. PR departments may perform any of the following activities: press
relations, product publicity, public affairs, and lobbying and managing investor relations. PR can
have a strong impact on public awareness at lower costs than advertising, especially in the digital
age. However, often PR departments are limited or scattered in their work, thus effectiveness is
restricted.
Objective 4: Major public relations tools
Some of the most important tools of PR are the news (found or created by PR about the
company, products or people), special events (designed to reach and interested target audiences),
written materials (to reach and influence target markets), audiovisual materials (as
communication tools), corporate identity materials (make the image attractive, distinctive, and
memorable), and public services activities (improving public goodwill).
16. Personal selling and sales promotion
Personal selling involves personal presentations by the firm's sales force for the purpose of
making sales and building customer relationships. Sales force management entails
analysing, planning, implementing and controlling sales force activities. The selling process
consists of the steps that salespeople follow when selling. Sales promotion is short-term
incentives to encourage the purchase or sale of product or service. Sales promotions tools
are used by most companies, and can be consumer promotions (for final buyers), trade
promotions (for retailers and wholesalers), business promotions (for business customers)
and sales force promotions (for members of the salesforce). Marketers need to make
several decisions in designing promotion program such as determining size of incentive,
setting conditions for participating, determining how to promote and distribute the
promotion, length of the promotion, and evaluation.

Example IBM: IBM has prospered for almost 100 years. Over the time, what the company sells
has changed dramatically; however, how it is done has remained unchanged. IBM sales people
are customer relationship developers and solution providers.
Objective 1: Personal selling
Personal selling: personal selling involves personal presentations by the firm's sales force for the
purpose of making sales and building customer relationships.
A salesperson is an individual representing a company to customers by performing one or more
of the following activities: prospecting, communicating, selling, services, information gathering
and relationship building.
Role of the sales force: personal selling is an interpersonal part of the promotion mix.
The sales force is a link between the company and its customers and involves interpersonal
interactions. Personal selling can be more effective than advertising in more complex selling
situations, where sales people can learn about customers problems and adjust the offer to fit
special needs.
Liking the company with its customers: sales people represent the company to customers
approaching them and maintaining contact, but at the same time they represent customers to a
particular company being the direct link between customer needs and the firm. To some
customers, salespeople are the company and salesperson owned loyalty concept suggests that
customers build strong relationships with the salespeople and stay loyal to them.
Coordinating marketing and sales: the sales force should work closely with other marketing
functions in order to create value for its customers, but often sales and marketing are treated as
different functions. When this happens, neither group will value the others' contributions, which
can damage customer relationships and firm performance. To bring the two closer together,
companies can increase communication between them, create joint objectives and reward
systems, appoint marketing-sales liaisons and high-level marketing executives to oversee both
marketing and sales.
Objective 2: Managing the sales force
Sales force management entails analysing, planning, implementing and controlling sales force
activities. There are six major steps in the sales force management process:
1.Designing the sales force structure and strategy:
o The sales force structure can have different shapes. Territorial sales force structure is a
sales force organization that assigns each salesperson to an exclusive geographic territory in
which that salesperson sells the company's full line. Territory sales representatives report to
territory managers, who are under the supervision of regional managers, who in turn report to a
director of sales. It is suitable when the company sells one product line to one industry with
customers in many locations.
o Product sales force structure is a sales force organization in which salespersons specialize
in selling only a portion of the company's products or lines. This suits companies with numerous
and complex products. However, it might lead to trouble when customers buy multiple products
of the same company and could lead to double work
o Customer or market sales force structure is a sales force organization in which salespeople
specialize in selling only to certain customers or industries. This can help a company build closer
relationships with meaningful customers.
o When a company sells a lot of different products to a wide variety of customer in different
locations combinations of sales force structures are possible, leading to complex sales force
structure.
o Once the structure is set, the sales force size must be determined. The workload approach,
where the number or salespersons are based on the amount of effort desired for different classes
of work, can be used to set sales force size.
o Sales management must also determine who will be involved in the sales force. Outside
sales force (field sales force) are salespeople who travel to call on customers in the field. Inside
sales force are salespeople who conduct business from their offices via telephone, the Internet or
visits from prospective buyers. Inside sales people may support outside sales force allowing them
to spend more time with major customers or finding new ones: technical sales support provide
info and answers to customers' questions, sales assistants provide administrative backup.
Telemarketers and internet sellers find new leads and qualify prospects or sell and service
customers directly over the phone or internet. These approaches are especially popular after the
recession when many companies reduced their personal customer visits. Team selling means
using a team of people from sales, marketing, engineering, finance, technical support an even
upper management to service large, complex accounts where one expert cannot service customer
needs. The pitfalls of team selling include competitive nature of sales force and thus trouble
trusting team members, confusing for customers, difficulty evaluating individuals and thus
compensations issues.
2.Recruiting salespeople:
o The success of a sales force operations depends on the skills of salespeople and thus
recruiting and selecting them. Typically, top 30% of sales force will bring 60% of the
sales showing how important selection can be. Poor selection can also result in costly
turnover leading to loss of productivity and customer relationships. Good sales people
are motivated, disciplined, have skills and knowledge and a great understanding of
customer needs. Proven sales people need less training and can be productive
immediately. Selection procedures may differ from interviews and tests.
3.Training salespeople: Salespeople go through initial training for few weeks to several
months. Afterwards, most companies provide continuous sales training. Training
programs aim at teaching salespeople what they need to know about their customers and
building relationships with them, as well as teach about company's objectives,
organization, products, and competitors' strategies. Many companies use e-learning for
sales training to cut travel and other costs, as well as save time.
4.Compensating salespeople:
 o To attract good salespeople, they need to be well compensated. Compensation
consists of 4 elements: a fixed amount, a variable amount, expenses and fringe
benefits. The fixed amount, a salary, provides stable income. The variable amount,
which may consist of commission or bonuses, rewards for greater effort and success.
Management need to determine the right mix of the elements for specific sales jobs.
Different combinations give rise to 4 basic types of compensation plans: straight
salary, straight commission, salary plus bonus, and salary plus commission. A
compensation plan can motivate workers and direct their activities. Many companies
are moving away from high commission plans that focus on short-term goals, to shift
to long-term relationships.
5.Supervising and motivating salespeople:
o Supervision: the goal of supervision is to help salespeople work smart, by doing
the right things the right way. Supervising salespeople can be done by period call
plans, which specify how much time to spend on activities which customers or
prospects to call and which activities to carry out, and time-and-duty analysis,
which specifies how much time to spend selling, as well as travelling, waiting,
taking breaks and doing administrative chores. Many firms adopted sales force
automation systems, computerized, digitalized sales force operations that let sales
people work more effectively anytime, anywhere.
o Selling and the internet: internet is the fastest growing sales technology.
Companies use it to enhance sales effectiveness and save time and money. Internet
gives sales people a new vehicle for selling and servicing accounts, allowing
closely connecting with customers. Additionally, social media is gaining
popularity among sales departments. However, some drawbacks of technologies
include their high price, intimidation of low-tech customers or salespeople, and
presence of things that require personal interactions.
o Motivation: it helps salespeople to work hard to reach the sales force goals.
Beyond directing, sales managers must also motivate salespeople as they for
various reasons need special encouragement to achieve their best. Salesforce can
be motivated through organizational climate, the feeling that salespeople have
about their opportunities, value, rewards for a good performance. Salespeople can
be motivated by setting sales quotas, standards that state the amount a salesperson
should sell and how sales should be divided among the company's products.
Compensation is often related to quotas, whereas positive incentives can be used to
increase sales efforts. Sales meetings provide occasions to air feelings, break the
routine and talk to the company. Companies can sponsor sales contests to provide
motivation for more effort.
6. Evaluating salespeople: The last step in the process is evaluating the salespeople.
Information can be gathered by management in several ways: via sales reports, call reports
and expense reports. Additional info cones from personal observation, customer surveys,
and talks with colleagues. Formal evaluation brings management to establish clear
standards for judging performance, and provide salespeople with constructive feedback.

Objective 3: Personal selling process

The selling process consists of the steps that salespeople follow when selling, which
include the following 7:
 1.Prospecting: a salesperson or company identifies qualified potential customers.
Approaching the right customer is vital for success, and the best source for leads is referrals.
Sales people need to be aware of how to qualify leads - recognize good ones and drop poor ones.
This is done by looking at prospects' financial ability, volume of business, location and
possibilities for growth.
2.Pre-approaching: a salesperson learns as much as possible about a prospective customer
before making a sales call. It involves research and preparation. The salesperson needs to
set call objectives, determine best approach and overall sales strategy.
3.Approaching: a salesperson meets the customer for the first time. It involves getting the
relationship to a good start with positive opening lines, questions about customer needs,
and listening to customer.
4.Presentation and demonstration: a salesperson tells the "value story" to the buyers,
showing how the company's offer solves the customer's problems. Customer-solution
approach is fitting for relationship marketing. The approach calls for listening and
applying problem-solving skills to develop solutions to present. Lastly, salespeople need
to plan their presentation methods, employing advanced presentation technologies.
5.Handling objections: a salesperson needs to use positive approach to seek out, clarify and
overcome customers' objections to buying turning them into reasons for buying. Training
is necessary to gain skills in handling objectives.
6.Closing: salespeople need to know how to recognize closing signals from the buyer and
can use several closing techniques such as asking for the order, review points of
agreement, offer help to write up the order, ask which model the buyer wants, or note the
buyer will lose out if the order is not placed immediately.
7.Following up: a salesperson follows up after the sale to ensure customer satisfaction and
repeat business.

Personal selling and managing customer relationships: the steps in the selling process can be
described as transaction oriented: they aim at closing sale with a customer. But in most cases, the
long-term goals are to develop a mutually profitable relationship.
Most companies aim at having sales people that practice value selling - demonstrating and
delivering superior customer value and capturing return on that value. However, sometimes sales
people cut prices instead of selling value to close sales, therefore managers must promote the
right approach.
Objective 4: Sales promotion
Sales promotion - short-term incentives to encourage the purchase or sale of product or service.
Rapid growth of sales promotion: sales promotions tools are used by most companies and can
be consumer promotions (for final buyers), trade promotions (for retailers and wholesalers),
business promotions (for business customers) and sales force promotions (for members of the
salesforce). Such rapid growth of promotion comes from pressures to increase short-run sales,
from need to differentiate, from declining advertising efficiency, and from deal-oriented
consumers. This growing use of sales promotion leads to promotion clutter, which manufacturers
try to overcome with larger coupon values, more dramatic point-of-purchase displays, using new
and interactive media.
Sales promotion objectives: they can vary widely and are dependent of promotion mix tools.
Major sales promotion tools:
Consumer promotions are sales promotion tools used to boost short-term customer buying and
involvement or enhance long-term customer relationships. They include:

o Samples (trial products) are the most effective, but also most expensive as a way to
introduce new products or boost popularity of existing one.
o Coupons (saving certificates) are loved by consumers and can help promote new brand or
stimulate sales of existing one, but lead to coupon clutter.
o Cash refunds are similar to coupons but price reduction occurs after purchase.
o Price packs (money-off deals) offer consumers reduced prices directly on the package and
are most effective in stimulating short term sales.Premiums (goods offered at low cost)
are incentives to buy a product.
o Promotional products are items imprinted with brand name, logo or message and given for
free to consumers.
o Point-of-sales (POS) promotions (displays and demonstrations) offered by manufacturers
to retailers
o Contests and games give chances to win something to consumers.
o Event marketing (event sponsorship) means creating a brand-marketing event or serving as
a sole or participating sponsor of events created by others. This is considered the fastest
growing area in promotion linking events and sponsorship to brand value proposition.

Trade promotions are sales promotion tools used to persuade resellers to carry a brand, give it
shelf space, promote it in advertising and push it to consumers. Due to scarce shelf space
manufacturers often offer price-offs, allowances, buy-back guarantees, or free goods. Several
promotion tools can be used such as discounts, allowances, free goods, push money or free
specialty advertising items.
Business promotions are sales promotion tools used to generate business leads, stimulate
purchases, reward customers and motivate salespeople. These include many of the same tools as
for consumer or trade promotion. Often companies and trade associations organize conventions
or trade shows to promote products and reach prospects. Also sales contests can be organized for
salespeople or dealers to motivate them to raise their sales performance over a period of time.
Developing sales promotion program: marketers need to make several decisions in designing
promotion program such as determining size of incentive, setting conditions for participating,
determining how to promote and distribute the promotion, length of the promotion, and
evaluation. Marketers need to measure returns on sales promotion investments, which can be
done by comparing sales before, after and during promotion.
17. Direct and online marketing
Direct marketing is defined as connecting directly with carefully targeted segments of
individual consumers, often on a one-to-one, interactive basis. For most companies, direct
marketing is a supplemental channel, but for others it is a complete model for doing
business. There are several major forms of direct marketing. Online marketing are efforts
to market products and service and build customer relationships over the internet. The
internet has fundamentally changed customers notions of convenience, speed, price,
product info and service. The direct-marketing industry has been facing some privacy
concerns and cases of unfair practices.

Example Facebook: Facebook is gigantic and has a huge impact on the Internet from
connections between users. Facebook has a great potential in online marketing, and it showed
companies value of networks. Nowadays Facebook allows companies place advertising targeting
them based on user profile data. Moreover, Facebook makes money by selling entertainment
such as games. It also introduced Facebook payments.
Thus, the company is expanding and using its potential as a marketing company.
Objective 1: Model, growth, benefits, customer databases of direct marketing
Direct marketing is defined as connecting directly with carefully targeted segments of
individual consumers, often on a one-to-one, interactive basis. For most companies, direct
marketing is a supplemental channel, but for others it is a complete model for doing business.
Growth and benefits of direct marketing: direct marketing is growing fast. It has become
internet based and internet-marketing is fastest growing component of marketing spending.
Benefits to buyers: direct marketing is convenient, private, easy and private.
Customers can shop anything anywhere and anytime. Direct marketing gives access to a huge
variety of products as well as comparative information. It also is immediate and interactive
giving consumers more control.
Benefits to sellers: direct marketing is a helpful tool for building customer relationships giving
companies an opportunity to interact with customers. It is a low-cost, fast and efficient way of
reaching target markets, handling of channel and logistic functions. It also provides an
opportunity for greater flexibility in making adjustments to price and programs. Digital
environment provides tools for building close personalized interactive customer relationships,
giving access to buyers that would otherwise not be reached.
Customer databases and direct marketing: customer database is an organized collection of
comprehensive data about individual customers or prospects, including geographic,
demographic, psychographic and behavioral data. In B2B customer database would contain past
purchases, volumes and prices, key contacts, competing suppliers, current contracts, estimated
future spending, etc. Companies can use this database to located potential customers, to fine-tune
offering, to learn about their customers and to build stringer relationships with them.
Objective 2: Forms of direct marketing
There are several major forms of direct marketing:

o Direct-mail marketing: direct marketing by sending an offer, announcement, reminder or

other item to a person at a particular physical or virtual address. It is to be used well for
direct one-to-one communication as it is flexible, can be personalized and allows for high
target market selectivity and easy measurement of results. Although digital direct
marketing forms are gaining popularity, traditional mail marketing remains used as it
 provides something tangible for consumers. It can be used as a component of integrated
marketing campaign. However, it can be resented as "junk mail" by those not interested.
o Catalogue marketing: direct marketing through print, video or digital catalogues that are
mailed to select customers, made available in stores, or presented online. Digital
catalogues are gaining popularity and eliminate printing and mailing costs as well as can
offer unlimited merchandise. They also offer more presentation formats and allow real-
time merchandising. However, printed catalogues are still thriving as they create an
emotional connection and drive online sales.
o Telemarketing: it entails using the telephone to sell directly to customers and to business
customers. Companies use outbound telemarketing to sell directly and inbound to receive
orders. The benefits of telemarketing include purchasing convenience, increased product
and service info. However, consumers have been annoyed by telemarketing and the
government introduced do-not-call law which has been hurting the telemarketing
industry.
o However, inbound consumer telemarketing and outbound B2B telemarketing have been
growing. Considering the new law, many companies are using it to their advantage and
developing opt-in calling systems inviting customers to contact them.
o Direct-response television (DRTV) marketing: direct marketing via television, including
direct-response television advertising (or infomercials) and home shopping channels.
They can drive up sales. Home-shopping channels are television programs or channels
dedicated to selling goods and services, whereas infomercials are 30 minute advertising
programs. A new form of television marketing is interactive TV which allows viewers
interact with TV programming and advertising.
o Kiosk marketing: is marketing via information and ordering machines that are located
everywhere these days and can be wireless enabled with modern technologies.
Objective 3: Online marketing
Online marketing are efforts to market products and service and build customer relationships
over the internet.
Marketing and the Internet: Internet is a vast public web of computer networks that connects
users of all types around the world to each other and an amazingly large information repository.
The internet has fundamentally changed customers' notions of convenience, speed, price, product
info and service. Click-only companies are the so-called dot-coms, which operate only online
and have no brick-and-mortar market presence. They include search engines and portals,
transaction sites, content sites, and online social networks: Click-and-mortar companies are
traditional brick-and-mortar companies that have added online marketing to their operations.
They are having even more success than click-only competitors.
There are four major online marketing domains:

1.Business-to-consumer (B-to-C) online marketing: businesses selling goods and services

online to final consumers. There is growing number of consumers using smartphones to
shop. In contrast to offline shopping, in online exchange customers have more control
and initiate contact, requiring marketing approaches
2.Business-to-business (B-to-B) online marketing: businesses using online marketing to
reach new business customers serve current customers more effectively and obtain
buying efficiencies and better prices. Businesses use Internet to build stronger
 relationships with business customers, as well as offer product information, customer
purchasing and customer support services online.
3.Consumer-to-consumer (C-to-C) online marketing: online exchanges of goods and
information between final consumers which is facilitated by the internet. In some cases
C2C involves exchanges of info through forum appealing to special-interest groups.
Blogs are online journal where people post their thoughts, usually on a narrowly defined
topic. Marketers are beginning to use blogs to reach targeted consumers by setting up
their own blogs, advertising on blogs and influencing content there. Blogs offer fresh,
original, personal, and cheap way to enter consumer online conversations. However, the
disadvantage is that the blogosphere is cluttered and hard to control. Companies need to
at least listen and monitor the C2C conversations if not participate in them.
4.Consumer-to-business (C-to-B) online marketing: online exchanges in which consumers
search out sellers, learn about their offers and initiate purchases, sometimes even driving
transaction terms. Internet allows easy consumers to easily communicate with companies.
Consumers can drive online transactions with businesses, ask questions, offer suggestions
and deliver complaints or compliments.
Objective 4: Setting up online marketing presence
Most companies exist online. The following outlines the ways to conduct online marketing:
Creating web sites: corporate (brand) websites are websites designed to build customer
goodwill, collect customer feedback and supplement other sales channels rather than sell the
company's products directly. A website provides a lot of information and other features to
answer questions, build closer customer relationships, and generate excitement about the brand.
Marketing website is a website that engages consumers in interactions that will move them
closer to a direct purchase or other marketing outcome. However, creating a website is not
enough, sites must be visited and therefore a website must be promoted. Companies need to
create sufficient value and excitement for customer to stay and keep coming back to, the site. It
should be easy to use, professional looking, and attractive, as well as useful.
Effective websites contain deep info, interactive tools that help find and evaluate products, links
to related sites, promotional offers and entertaining features.
Placing ads and promotions online: online advertising is advertising that appears while
consumers are browsing the Web. Some forms of it include display ads, search-related ads,
online classifieds and other forms. Rich media allow animation, sound, video and interactivity.
The largest form of online advertising is search-related ads (or contextual advertising). The
advertisers buy search items from the search sites and pay if consumers click through to their
sites. Content sponsorships allow companies to gain name exposure on the web by sponsoring
special content. Viral marketing is the Internet version of word-of-mouth marketing: websites,
videos, email messages or other marketing events that are so infectious that customers will want
to pass them along to friends. It is a cheap form of advertisement and is more likely to be
viewed. However, marketers have little control over the fate of viral messages. Creating or
participating in online social networks: online social communities, blogs, social networking
websites or even virtual worlds, where people socialize or exchange information and opinions.
Marketers can engage in online social communities by participating in existing Web networks or
establishing their own. The former seems to be the easiest option, as some of the existing social
networks are huge. However, this also presents challenges such as not knowing how to use them
effectively and measure success, becoming value part of networks that are user controlled. To
avoid these challenges companies create their own online communities.
Sending e-mail: email marketing is an important and growing online marketing tool and it can
be the ultimate marketing medium. Marketers can use email to send highly targeted,
personalized, relationship building messages at low cost. However, the explosion of spam
(unsolicited, unwanted commercial e-mail messages) can lead to customer irritation. Thus,
nowadays most marketers use permission-based email marketing, sending emails only to
customers who opt-in.
Using mobile marketing: mobile marketing is marketing to on-the-go consumers through
mobile phones, smartphones, tablets, and other mobile communication devices. It is used to
interact with customers anywhere anytime during the buying and relationship-building processes.
A mobile marketing campaign may involve placing search ads, display ads or videos on relevant
mobile internet sites and online communities. It gives companies an opportunity to engage
customers with immediate info, incentives and choices at the exact moment when they are
interest or consider buying the brand. Mobile ads can create impact and involvement. However,
marketers also run the risk of irritating consumers. To avoid this they need to ensure useful info
is provided so that customers opt-in.
Objective 5: Public policy issues in direct marketing
The direct-marketing industry has been facing some privacy concerns and cases of unfair
practices.
Irritation, unfairness, deception, and fraud: direct marketing can sometimes annoy customers.
Online marketers have also been accused of taking advantage of impulsive or less clever buyers.
Internet fraud has also become a serious problem. Phishing is a type of online identity theft uses
deceptive emails to fool users into divulging their personal data. Customers also worry about
online security and that their personal information will be stolen. Another concern is access by
vulnerable or unauthorized groups such as minors.
Consumer privacy: although customers harvest the benefits of database marketing as many
online marketers have become skilled at obtaining detailed consumer information, they also
worry that this information can be used to take advantage of them.
Need for action: because of these challenges, various governments are putting up legislation to
protect customers, regulating how internet and mobile operators obtain and use consumer
information. There concerns also call for marketers to monitor and prevent abuses before
legislators step in. Companies and the direct marketing industry are responding to consumer
privacy and security concerns. Marketers understand that direct marketing abuses can lead to
negative consumer attitudes, low response rates and calls for increase regulations. Thus, they
also want to use direct marketing on only those who are interested, as direct marketing is too
expensive to waste on the wrong audience.