HBC 2108: PRINCIPLES OF MANAGEMENT.

Prerequisite: None

Course purpose
This course aims at giving students the basic management principles cutting across
various aspects of managing business organizations for economic vibrancy, in an ever
changing environment.

Learning Outcomes
By the end of this course the student should be able to:
1. Explain the key functions of management and skills required to effectively carry
out managerial roles
2. Apply skills related to marketing decision- making
3. Outline the key functions of HRM and its role in organizational success
4. Describe the relationship between different strategies, the organizational goals
in a dynamic environment

Course description
1. Introduction to Management.
i. Definition of management.
ii. Management as a system of authority.
iii. Functions of management.
iv. Overview of management.
v. Managerial skills and roles.
2. Evolution of management.
i. Theories of management. – Classical theories, Scientific and
Administrative theories.
ii. The Behavioral approach.
iii. Neo Human relations.
iv. Modern theory of management- Operations research and Contingency
Approach.
3. Management environment.
i. Internal environment.
ii. External environment.
4. Managing productivity.
i. Time management.
5. Human resource / Staffing function.
i. Recruitment and selection.
ii. Training and development.
iii. Compensation.
iv. Performance appraisal, its objectives and performance appraisal
process.
6. Motivation.
i. Definition.
ii. Motivation theory.
iii. Limitations of each theory.
 iv. Factors affecting each theory.
v. Importance of motivation.
vi. Limitations of motivation.
7. Managing work groups.
i. Definition of a group.
ii. Types of groups.
iii. Group formation.
iv. Types of conflicts that may arises in groups.
v. Causes of such conflict.
vi. Managing conflicts.
8. Leadership.
i. Definitions.
ii. Leadership styles.
iii. Characteristics of leadership.
iv. Functions of leadership.
v. Factors that influence /determine leadership.
vi. Qualities of leaders /traits.
vii. Importance of leadership.
viii. Theories of leadership.
ix. Types and sources of power.
9. Strategic management.
i. Definition.
ii. Factors / reasons for strategic management.
iii. Types of organization strategies.
iv. Models for strategic choice.
v. Strategy implementation.
vi. Strategy evaluation and control.
10. Marketing Management.
i. Definition.
ii. Components of marketing.
iii. The core concepts of marketing.
iv. Marketing philosophies.
v. Marketing mix.

Teaching methodologies
Lecturers, group discussions, Case studies, Presentations

Instructional Materials:
Tablet, Smart board, LCD projector & Computers, Flipcharts, televisions, videos

Course Evaluation
CATs/Assignment/Presentation 30 %
Final Examination 70 %

Course textbooks
Hill Charles W and Mashane Steven, (2006) Principles of Management, McGraw
Hill.ISBN 13:9780073530123, ISBN 10:0073530123

Kotler , P., Armstrong, G. (2010). Principles of Marketing, 13th Ed., Pearson. New
York.ISBN-0-13-700669-1

Armstrong, M. (2009), A Hand Book of Human Resource Management, 11th Edition,

Kogan ISBN-10:0749446315/ISBN-139780749446314

Pearce / Robinson, (2009), Strategic Management, Formulation, ImplementationAnd

Control, 10th, 978-81-317-1925-1

Jay B. Barney, William S. Hesterly, (2009), Strategic Management And Competitive

Advantage: Concepts And Cases, 978-81-203-3377-2

Reference textbooks
Cole G.A., (2002) Personnel & Human Resource Management, 7th Ed., Book
power.ISBN-10-08264586371/ISBN-13:978-0826458636

Kinicki, A. and Kreitner R, (2006). Organization Behaviour: Key Concepts, Skills and
Best Practices, 2nd Ed., Burr Ridge, Ill: Irwin/McGraw – Hill. ISBN-10:0073404969,
ISBN-13:9780073404967

J. David Hunger, Thomas L. Wheelen, (2007), Essentials of Strategic Management,

4th Ed, McGraw Hill Irwin, Boston, USA. 978-81-203-3234-8

Course Journals
Journal of Organizational Behaviour
International Journal of Business and Management
Journal of Marketing
The International Journal of HRM
Strategic Management Journal

Reference Journals
American Journal of Business and Management by World Scholars publishing
Journal of Strategic Marketing
Journal of Human Resource Management; SA
Journal of Social Psychology
International Journal of Strategic Management
LESSON ONE.
MANAGER AND MANAGEMENT ENVIRONMENT
Introduction: Management principles are universal in nature. Therefore, applicable in
government organizations, business enterprises, the military, NGOs, educational
institutions etc.

Henry Fayol came up with certain principles of management which are generally
applied in every organization even though the management principles are universal,
they are flexible and they provide a working guideline which can be adopted according
to the condition.

The process of management integrates human and other resources to accomplish

organizations’ goals. It’s therefore essential for managers to manage human resources
carefully and effectively to achieve organizations goals.

Definition and Meaning of Management

The term management has been defined in a variety of ways by managers and different
authorities in management as follows: -
1. Henry Fayol: It’s the process of planning, organizing, staffing, directing and
controlling activities in the organization in a systematic manner in order to
achieve organization’s goals.
2. Mary Farber Fallet – its art of getting things done through other people.
3. Haroid Koontz – It’s the process of designing and maintaining an environment
in which individuals work with such performance as to optimize efficiency to
achieve organizations goals.
4. Management as an economic resource – as viewed by economist management
is one of the factors of production together with kind, labour & capital.
Management is therefore one of the economic resources needed by an
organization to co-ordinate its activities.
5. Economic resources refer to the five M’s i.e. Money, Machinery, Men,
Materials & Management.

Management a system of Authority – As viewed by specialist in administration

management can be defined as a system of authority.

1. Management as an Art, Science, profession

An art is an appreciation of knowledge and theories. Management is regarded
as an art because it can be applied effectively in saving various organization
problems. Management as developed certain theories and assumption which are
applied in modern management practices.

Management is a science as developed certain principles; laws of generalization

which are applicable to a group of activities. The process of management is
systematic and the existing management themes are capable of being tested
empirically.
 Management is viewed as a profession because:-

(a) It has basic principles which can be identified, mastered and practiced.
(b) Management as a systematic approach e.g. in decision making
(c) Management involves specific trends and techniques.
(d) Management like any other profession appears to a cord of ethics.

Functions of management

Henry Fayol and other leading a management theorist have identified and classified
management functions as follows:

a) Planning: - This entails formulation of strategies, policies, procedures and

programs to ensure organizational success. Its therefore essential at all levels of
management planning is an important function when begins with the
determination of the objectives of the organization.
b) Organizing: - Entails division of activities, assigning duties and
responsibilities and delegating authority. It also involves blending together
different resources such as man machinery, materials and money. Depart
mentation, decentralization and delegation are essentials elements of an
organization.
c) Staffing: - This is concerned with providing proper personnel who are
competent, qualified and possess essential skills, to perform the job effectively
and efficiently. Staffing encompasses man power planning, scientific section of
employees, training of personnel provision of proper remuneration and benefit
and performance appraisal.
d) Directing leadership: - This refers to provision of positive and dynamic
leadership in the organizations. It also implies the creation of a favorable work
environment which can provide opportunities to improve employee
performance.
Directly takes up the roles of guiding and supervising activities and operations
in the organizations.
e) Controlling: - Involves verifying weather everything occurs in conformity with
the plans adopted, instructions issued and principles established. Controlling
refers to the establishment of standards, appraisal of performance and taking
corrective action in case of the diversions from the set standards. It has the
objective of pointing out weaknesses and errors in order to rectify them and
prevent their reoccurrence.
f) Decision making: - Process by which a cause of action is chosen from available
alternatives to save the organizations problems. It helps in attainment of desired
results.
g) Communicating and reporting: - Ethics transmission of information to aid in
decision making and informing the various parties.
h) Motivating: - Concerned with getting employees to perform the work willingly
and enthusiastically.
Overview of management

1. Managers are individuals responsible for completing the task that requires
supervision of other members and organization of resources of the
organizations. They comprise the management team and they re-ensure
organization activities are effectively implemented to achieve the organizations
goals.
2. Management Hierarchy / cadies of management - often managerial
positions are ranked from bottom to top as follows :

a) Line / Lower level managers- These are the lowest level of management
hierarchy, they supervise directly the work of subordinate. Often referred to us
supervisors, foremen.
b) Middle level management – They are responsible for implementing, plans and
policies of the organizations by focusing on the coordination of tasks performed
to achieve departmental or divisional objectives. Include departmental heads,
division heads, plan/ unit managers etc
c) Top level managers: - responsible for overall performance of the organization.
They engage extensively in formulation of policies and strategies. They must
provide leadership, evaluate and shape the direction of the organization. They
include CEO, MD and GM

Illustration Chief Executive Officer

Top managers

Managing Directors

Middle managers
HOA

Foremen
Foreman

Low level Managers

Supervisor

Characteristics of management
1. Management principles are applied at all levels
2. Its purposeful – all management aim at achieving some target.
3. Its concerned with productivity i.e. efficiency and effectiveness
4. Integrative process – the essence of management lies in the coordination of
individual effort in a team.
5. Management is universal.
Managerial skills
Skill refers to the proficiency acquired or developed through training and experience.
Managers require certain skills to perform their tasks successfully. Managers tend to
possess a mix of skills. The skills are interrelated and required by all managers by the
relative significance of each skill varies according to the level of a manager.

a) Technical skills – Acquired through education, training and experience.

This refers to the knowledge of proficiency in activities involving methods, processes
and procedures in a specialized skill. Enables managers to carry out specific tasks in a
specialized field and relates to individuals expertise in performing in a work related
task. It’s of greatest importance to managers at low levels e.g. supervisors

b) Interpersonal skills
Skills associated with manager’s ability to work well with others as a member and a
leader of a group. Human skills also deal with ability to work with, motivate and direct
individuals in an organization with their subordinates, peers and supervisors.
Human skills include communication, creation of positive attitude, and development of
cooperation among members and motivation of subordinates.
Human skills can be developed by understanding the human and growth behaviour.
This skill is needed by all managers in any organization.
c) Conceptual skill
Refers to the ability to think in abstract and understand complexities in a given situation
and reduce complexities to manageable levels.
It enables managers to understand how an event is influenced by and influences others
in the organization competent strategies, legislation etc. This skill is mostly needed by
middle level and top managers.
d) Design skill ( Diagnostic skills)
Refers to the ability to solve problems in ways that can benefit organization.
To be effective particularly at the top management, managers must be able to work out
the solution to the problem like engineers, managers must be capable of designing a
workable solution to complex problems.

Top Managers

Design & Conceptual

Skill
Middle
Human Skill
Managers

Technical Skill
Low Level
managers
 MANAGERIAL ROLES
Organized set of behaviours, Henry Mintzberg has identified 10 roles common to all
managers and divided them into 3 groups as illustrated below:

Mintzbergs Managerial role

Interpersonal Role Information Role Decision making role

4. Monitor 7. Entrepreneur
1. Figure head
5. Disseminator 8. Disturbance handler
2. Leader
6. Spokes person 9. Resource Allocator
3. Liaison
10. Negotiator

a) Interpersonal Roles:
Concerned with interpersonal relationship and there are 3 of these managerial roles:

1) Figurehead role
The manager representative the organization in all matters of formalities and
ceremonies e.g. receiving visitors and making presentation.
Top level managers’ representative the organization to the outside world and the
supervisor’s representative the work group to the top management.
2) Leader role
Entitles the interaction and influencing of subordinates by motivating and developing
them. It involves coordination and control of work with the organizations. Managers’
practices that enhance this role are MBWA, open door policy, MBO – by objective.
3) The liaison role
Involves interaction with peers and other people outside the organization. The top
management uses the liaison role to gain favours and information where the supervisors
use it to maintain flow of work.
The management often makes contest with people within and outside the organization
e.g. by having lunches with supplies and customers. A manager thus develops a
network of contacts through which information and favours can be traded for mutual
benefits.

b) Information roles
These roles are as a result of developing network of interpersonal relationship.
1) Monitor role:
The manager receivers and collects information, he/she continuing seems the
environment both internal and external for information or activities in order to
identify opportunities or threats to the functioning of the work units. The
management gains information from the information which is mostly informal
and derived from the network of contacts.
2) Dissemination role
Involves transmission of information gathered. The management transmits
information to peers subordinates and superiors for use in accomplishing
organization’s goals. The manager uses meetings, memos & notices among
such other information.

3) Spokes Person
Managers perform these roles by representing and conveying information on
networking around behalf of the organization or the work on it. The manger
gives information on the plans, policies, performance & any such aspects of the
organization.

d) Decision making roles

The manager is usually at the center of decision making in the light of unique
aspects of information enjoyed by managers.
1) Entrepreneur role
Under this role the manager designs and initiates change – the manager seeks
to improve work by adopting a new technique or improving on existing one.
2) Disturbance handler role
The manager deals with all organization problems. This establishes the manager
as respondence to change. Managers are often called upon to respond to
unexpected call & are required to work within a limited time to restore stability.
3) Resource allocator role
The manager chooses from among many competing demands for organization
resources i.e. money, equipment, personnel and management time.
4) Negotiation role
Managers take charge when their organization must engage in negotiating with
others. In these negotiations managers seek to better the overall organizationss
stand and ensure that the objectives set are attained.
Topic 2: THE EVOLUTION OF MANAGEMENT THOUGHT

Classical Approach
It emerged in Europe due to industrial revolution, during the second half of 18th Century
due to rapid growth and expansion of firms involved in production of goods & services.
These created the need to develop management skills which would integrate
technology, materials & workers activities in productive & efficient manner.
Classical management theory evolved in an effort to establish those techniques that
could solve problems of organization inefficiencies in production of goods & services.
The classical theory can be divided information.

i. Administrative management schools.

ii. Scientific management schools.
iii. Bureaucratic school.

i) Administrative management school – Henry Fayol (1841-1925)

Was a French Mining Engineer and Administrator in a French Coal Firm for 30 years
during which he wrote a book “General Industrial Management” Fayol was regarded
as a father of medal management for having developed the best principles of
management – POSDC.

Fayol also came up with 14 administration principles which he often referred to as the
roles of managerial conducts. (Fayol).

Fayol’s 14th Administration principles

a. Division of labour – labour should be divided into specialized units to increase
efficiency and output.
b. Anthony – refers to right to give orders and exercise power and should be vested
in former position.
c. Discipline – respect of the agreement between the organization and its
employees and adherence to the rules governing the organizations.
d. Unity of command – each subordinate should be answerable to any one
superior, when employees receive instructions from different people confusion
may result.
e. Unity of Direction – Tasks of a similar nature should be grouped together under
one single head.
f. Subordination of interest – organization interests should override individual and
sectional interests.
g. Remuneration – rewards should be fair to both the employees & the employers.
h. Centralization – Depending on the size of organization and its activities and or
decentralization thereof.
i. Secure chain of command – clear lines of authority should exist graduating from
top to bottom of the organization.
j. Order – (Coordination) – There should be an ordinary coordination of human
& material resources in the organization.
k. Equity – there should be fairness of justice when dealing with subordinates.
Feelings of inequity. May demonstrate employees.
l. Stability of tenure – staffing should be approximately planned and labour
however should be minimized.
m. Initiative – employees should be encouraged to be creative & innovative within
boundaries of authority & discipline.
n. Spirit de corps (spirit of operation) – team work should be encouraged under
sense of unity in the organizations.

ii) Bureaucratic Management – Max Weber (1864 – 1920)

Max Weber was a German Sociologist and an advisor to one government. Government
to Government. He believed that an organization will become an instrument of
efficiency structured around certain guidelines.
To study this movement towards rationality he developed a typology – bureaucracy
when describes the organization in its most rationale form.

Features of Burecratic organizations

a) Hierarchical structures – a beauracratic organization have a well-defined
hierarchy defining the behaviour of employees & their roles, positions are
established by a well-defined chain of command. Power & authority increases
through the levels of position in the organization.
b) Division of labour – in a burecratic organization labour is divided as narrowly
as possible. This is to make the task simpler and allow a greater efficiency.
c) Roles & Regulations – critical to the burecratic organizations are do’s and
don’ts governing management decisions and interpersonal behaviour. This is to
enhance orderliness and achievements of goals.
d) Technical competence – Recruitment and replacement should be based on
adequate technical training as opposed to friendship, family ties and any other
form of subjective consideration.
e) Positional power – Weber believed that an organization can achieve rationality
when power and authority are vested on positions and not on individuals.
f) Record keeping – since an organization will out leave its members, its necessary
to develop a memory. Minutes of meetings written documents and financial
reports should be filed for safe keeping. This strengthens management
decisions.
g) Centralization of authority – decision making in a bureacratic organization is
concentrated at the top management level e.g.

iii) Scientific Management Schools (Fredric Taylor 1856-1915)

Focuses on issues concerning management of works. A leading contributor was Fredric
W. Taylor (1856 – 1915). Before 1886s there was almost no systematic effort of
properly managing work. Fredrick Taylor – 1886 – 1915.
Was an engineer at Middle Steel Co. (USA) and observed that workers were working
at a slow pace and were not motivated. He was of the view that managers should study
work scientifically to determine one best way of performing tasks.
Main Contributions
Scientific analysis of work – managers should study work scientifically and come up
with best way of using time and motion studies. Time and motion studies entail
measurements of all tasks movement made by a worker and eliminating. Those that
would not improve productivity.

1) Scientific selection of employees/workers - Taylor was a strong advocate of

maintaining physician treats of workers to dimension of tasks to be performed.
He felt that some individuals could be more suitable for some task them that
others and managers should seek. Those with proper traits to increase efficiency
in task performance.
2) Financial incentives based on piece rates - Taylor felt that workers should be
motivated to improve production efficiency through financial retentive based
on piece rates i.e. paying employees based on the pieces of work or level of
output.
3) Training & Development of workers – Taylor advocated for training &
development of workers to improve their productivity.
4) Functional Foremanship – Taylor advocated that responsibility should be
divided between managers and workers. Managers should PD &C work process
while workers should be responsible for performing the actual task.

Henry Gantt
Gantt was one of the leading contributors of scientific management. He believed that
the piece rate system was not having the desired impact. He focused his attention on
techniques that would further motivate workers.

His Contribution

1) Bonus System – production goals were set for the workers & if a worker
achieved then he/she was provided with a bonus on top of the day’s wages. In
addition whenever a worker achieved a goal the immediate supervisor also
received a bonus. This was based on the assumption that if the supervisor was
rewarded he would train the worker more to do the work more efficiently.
2) Gantt Chart – This is a technique that is shown on a graph, the scheduling of
work to be done during any given period, it ensures that resources are optimally
utilized e.g. A Gantt chart may show which much will be used for various tasks.

Frank & Lillian Gilbreths

He made the following contribution:

1) Tree position plan – This plan intended to serve as an employee development

programme as well as a morale boost. Under this plan the worker was to do
his/her present job, prepare for the next highest job and train the successor at
some time.
2) Job rotation – this entails developing of workers by rotating them two tasks
under this assumption that, diversity in the work place would motivate them &
thus increase performance.
3) Training & Development of workers – to improve their productivity

Limitation of Scientific Management

1) Subordinated the worker to the work system i.e. it reduces the workers’ role
that of a rigid adherence to methods & procedures over which he had no
discretion.
2) It leads to fragmentation of work on account of emphasis on the analysis of
individual tasks and organisations.
3) It put the planning & control of work place activities exclusively in hands of
management.
4) It ruled out any realistic bargaining about wage rates since every job was
measured, rated & timed satisfactorily.

BENEFITS OF SCIENTIFIC MANAGEMENT

1) It’s a rationale approach to organisations of work, and this enables tasks, &
processes to be measured with accuracy.
2) Measurement of tasks & processes resulted into improvement & growth of the
organization.
3) Lead to increased productivity
4) It enabled employees to be paid by results and thus take advantage of the piece
rate to better their pay.
5) Stimulates the managers into adopting a more positive role in leadership guided
by principles rather than subjectivity.

BEHAVIORAL APPROACH – (HUMAN RELATION) – ELTON MAYO

Whereas classical management theorists were concerned with structures and
maintenance of the organization to improve productivity, the human relations theorist
focused on human factors to improve productivity.

The behavioural “looked at the people” side of the organization. A leading proponent
of this theory was Elton Mayo.

ELTON MAYO (Hawthorne Experiments)

Professor Mayo with others carried out investigation, known as the Hawthorne
Experiments at Western Electric Company in Chicago.

The experiment involved a group of women (controlled group) segregated and initially
introduced to a payment incentive scheme. Their output was seen to increase;
subsequently even without the payment incentive, output was also seen to increase. The
various physical factors were physical factors were also altered and output was still
high. The experiments were done in stages and involved:
a) Studying effects of lighting on the output – illumination was increased &
dimmed for the women & the output was recorded.
b) Extending the work day and eliminating the breaks for the women & recording
the output.
c) Altering supervisory authority so that the women could determine on their own
when to take a break.

It was clear that changes in the working conditions could not account for the increased
output, & thus the enhanced satisfaction & personnel friendship among the ladies must
have played a great part.

Contribution from Hawthorne Experiment

1) The organization is more than a formal structure, it’s a social system.

2) Non – economic rewards and sanction significantly affect the workers tend to
react as members of the group & not an individuals.
3) The supervisor cannot exert pressure on worker groups about work knows since
he has to accept the knows of the group.

NEO HUMAN RELATIONS

Also referred to as behaviourism and its concerned with the personal adjustments of
the individual within the work and the effects of group relationship and leadership
styles.

The term organizational behaviour began to emerge in early 1960’s due to the
shortcomings of human relationship appropriate. The main contributors were:

(a) Douglas Mc Gregor

(b) Abraham Maslow
(c) Rensis Likert

(a) Abraham Maslow

Maslow provided a framework of individual personality development &
motivation based on the hierarchy of needs. He was of the view that workers
are motivated by needs of the very basic upto the highest in the hierarchy.
 Self

Actualization
Self esteem

Security (Safety

Affiliation (Social love)

Psychological needs / Basic

(b) Douglas MC Gregor (Theory X & Theory Y)

Mc Gregor developed two sets of assumptions and suggested that managers
could be classified as the Theory X and Theory Y leaders based on how they
view subordinates.

(i) Theory X Leaders

They view employees:
(a) As inherently lazy
(b) Needing Firm Control
(c) Avoiding responsibility
(d) Seeking job scanty and benefits only.

(ii) Theory Y Leaders

View employees:

(a) Creative & Innovative

(b) People who like work
(c) Responsibility seekers
(d) People committed to the achievement of companies objectives

Each set of assumptions will generally affect the way managers carry out their
functions.

(iii) Rensis Likert

Tried to merge the theories of Maslow & Mc Gregor. He saw leadership
as a creating a motivational environment. His view was of a manager as
part of a team.
MODERN THEORY OF MANAGEMENT – MANAGEMENT SCIENCE
APPROACH
The management science approach originated from Britain where the British
government formed the operation research teams. However they are several schools of
thoughts that have come up trying to explain management of people and resources, in
other words modern theories of management are the theories have been recently
advanced regarding management. They include:

a) Operation research / management science

b) Contingency / Situations theory
c) Systems theory / system approach

a) Operations Research (OR)

Operation research was started by British government & entered the formulation of
teams i.e. groups of Mathematicians and either Scientist to develop new tactics in
inter……. Submarine warfare. After the Second World War the techniques were
applied in industries to help managers come up with solution to new management
problems emerging.
With development of technology and particularly comps, operational research
procedures became more formalized to what is now referred to as management science
school.

Management science approach nowadays entails the formulation of interdiscipling

teams from various disciplines to analyze organization problems & propose a course of
action.

The team constructs mathematical medals & simulates the problem. Comp team is
largely used in this approach.

b) Contingency Situations Approach

The proponent of this provides that lessons from other theorist should be adopted to the
circumstances. Therefore the tasks, managerial functions and persons should be
integrated for the best join to a specific problem becoming in mind:
 Economic policies / situations
 Political environment
 Type of industry
 Type of employees
 Competition
 Market share
 Location

c) Systems Approach
Provides that an organization is a social system, consisting of individuals who operate
within a framework, converting resources & operating within an environment.
 Inputs Transformation process output to
From environment the environment

Peter Drucker
Drucker argued that the management of a business has a one co-function – economic
performance. Drucker defines his view of management under three dimensions:

 To fulfil the specific purpose and mission of the organization

 To make work productive & the worker achieving
 To manage social inputs & responsibility

He identified five basic operations of a manager

a) Setting objectives and communicating them

b) Organizing
c) Motivating and communicating with the members
d) Establishment of will of measurement
e) Developing people

NB: Unlike fayol Drucker emphasis on the work of importance of communication.

Theory Z (Ouchi)
Ouchi came up with what he referred to as ideal Theory Z type of a company. The key
feature in Theory Z is the emphasis on building trusts through informal relationship
while retaining the formal hierarchy. i.e. decision is by consists but responsibility lies
with individual.

Characteristics
1) Long term employment
2) Gradual education & promotion
3) Moderate specialization
4) Consciencial decision making
5) Individual responsibility
6) Concern for the employee
7) Informal relationship within formal boundaries.

THE EXCELLENCE SCHOOL – Tom Peter’s & Robert Watchman

Peter’s & Watchman developed a formula to analyse an organisation and applying it
on several successful organizations/companies. They identified the following 8
characteristics shared by them all:
1) Bias for action
2) Being close to the customer
3) Autonomy & entrepreneurship
4) Productivity through people
5) Value driven / hands on
6) Sticking to the ‘knitting (Focus on business/staying on business)
7) Simple / lean staff
8) Simultaneous loose & tight properties i.e. freedom within boundaries of
responsibility.
Topic 3: MANAGEMENT ENVIRONMENT
Management Environment refers to forces influencing organization activities and
management decisions from within and outside the organization. Modern organizations
are systems that continuously attract with their environment both internal and external
(open system).

Internal Environment
Also referred to as the Micro-Environment, the internal environment refers to the
activities and events within the organization which influence the management
decisions.

The management is often in a position to control these factors and they include:

a) Information resources
These refer to the procedures, processes & data and other forms of knowledge
required to make various decisions in the organization. Information can provide
an organization with a competitive edge over the organizations in the industry.

b) Financial resources
These refer to the capital and other monetary instruments used to fund current
and future activities of the organization. It thus refers to the sources and
availability of fund.

c) Human resources
Refers to the number and type of skills within the organization, an organization
work force may comprise of skilled employees, semi-skilled employees,
experienced, inexperienced employees among others.

Factors to consider under the human resources include:

- The size of the labour force
- The adoptability of labour force
- Efficiency of the work force
- Training and development
- Salary and waged structure.

d) Physical or material resources

Refers to the physical assets such as plant & equipment, raw materials, furniture
etc. Factors to consider here may include; Depreciation, technological changes,
capacity of the assets.
Other internal environment forces include;

e) Culture - Organizational culture.

f) Leadership style
g) Power and authority distribution
h) Organizational characters and guidelines
i) Higher – level managers
j) Organizational policies, processes, rules

EXTERNAL ENVIRONMENT
Refers to the factors outside the organization which influence organization’s activities,
an organization being an open system continuously receives input from external
environment and provides output to the environment

Input Process Output to Environment

Feedback

Components of external environment include:

a) Social cultural environment

A firm is influenced by changes in beliefs, values, habit and altitudes of the society and
should thus be able to anticipate and react to these changes.

Changes in Fashion and preference must be taken into account since they also greatly
influence organization activities.

b) Legal environment
Refers to the laws and regulations in which a business organization runs its activities.
The laws may affect the business either directly or indirectly e.g. health and safety
regulations restriction on advertisement etc.

c) Ecological Factors
Business organization need also to consider the impact of the physical environment i.e.
weather and climatic conditions.
Packaging, waste handling and green policies are areas likely to be influenced by these
environmental factor.

d) Economic Environment
The current state of economy coupled with future prospects’ affects how a business
organization conducts its activities. Economic influences include: Taxation levels,
inflations, interest rates, government borrowing, and balance of payment.

e) Political environment
The government is one of the largest customer, supplier, employer and investor. The
priorities and political attitude prevailing in the country are thus likely to influence
business activities.

Government may take steps to control monopolies or provide financial and either
incentives to ailing industries.
f) Technological Environment
Technology changes vary rapidly and organization must be constantly aware of the
happenings. A lot of technological changes occur in the community, field, businesses
must therefore keep in pace with changing/changes/advances in technology.

g) Competition
Knowledge of competitors is very important for a success of a business, competitors
must: - be taken into account and as they greatly influence the companies’ decision e.g.
on pricing, location, product quality, recruitment etc.
Topic 4: MANAGING PRODUCTIVITY
Productivity is the measure of a well a system functions increase in productivity results
in savings of scarce resources and helps strengthen the firms competitive positions;
According to John Kendrick productivity may be defined as a relationship between
output of goods and services and the input resources (human & non – human) used in
production process. The relationship is usually expressed as a ratio of output to input,
the higher the numerical value of the ratio the higher the productivity.

Productivity = Output
Input

Causes of low productivity in Organization

1) Poor staffing i.e. poor recruitment, placement, training and development &
compensation of employee.
2) Poor implementation of management plans and other functions e.g. controlling,
directing, organizing, staffing.
3) Lack of capital for investment in modern technology
4) Poor working conditions e.g. poor wages.
5) Lack of investment in research & development
6) High energy costs & raw material costs.
7) Stress in the work environment
8) Discuses such as HIV/AIDs, Cancers
9) Changes in family structures e.g. single parenting due to high rate of divorce.

Measures to improve productivity

1. Investing in modern production technology.

2. Investing in research & development
3. Strengthening management function
4. Motivating employees to higher productivity through competence wages &
other benefits.
5. Organization re-engineering
6. Job enrichment programs
7. Employment counselling program
8. Effective management information systems
9. Change through creating & innovation
10. Developing on appropriate organization culture.
TIME MANAGEMENT
Time management is concerned with planning time usage in such a manner has to carry
out effectively and efficiently all planned activities. Time management is often
considered synonymous with self-management i.e. how a person plans/organization
his/her activities.

Potential ways of time wastage

1. Interruptions
2. Idle talk
3. Telephone
4. Failure to delegate
5. Poor delegation
6. Meetings both scheduled & unscheduled
7. Crisis situation which could have been avoided.

Time Saving Methods

1. Simple filling
2. Properly planning for meetings & sticking to the agenda
3. Delegating adequately
4. Setting up a time table & sticking to it
5. Setting priorities based on realistic time estimates
6. Reserving prime time when you are not been interrupted or organizing on
appointment.
7. Keeping yourself and other people in an organization straight to the point.

Time Management techniques

1) Time budgeting – Time must be budgeted in order to get the best use from it.
2) Time Planners – A daily planner is a chart, which allows a manager to plan the
activities of the day and fit them in.
3) Work Plans – A plan of work enables the progressive performance of work thus
serving time that would have otherwise being wasted.
4) Time – log – a chart that is used to track time spent in certain activities.

Characteristics of time
1) Inelastic
2) Cannot be stored
3) Irreversible
4) Limiting factors
5) Cannot be borrowed
6) Equitably available to everyone.

REINFORCING QUESTIONS

1. How would you define the term management?

and describe its key characteristics.
2. Describe management in terms of its functions.

3. Is management an art or science? Explain.

4. Describe management in terms of the management roles.

5. How do you measure successful management?

Topic 5: HUMAN RESOURCE/STAFFING FUNCTION:-

1) Discuss the nature of staffing, including the staffing process.

2) Describe human resource planning and selection of human resource
3) Define performance appraisal and discuss both objective and subjective
appraisal methods.
4) Discuss labour relations, including how unions are formed and of what benefits
unions
Are to employees, to management and to the organization.

STAFFING
The managerial function of staffing can be defined as the filling and keeping filled all
positions in the organization’s structure.
This is done by identifying workforce requirements, inventory of the people available,
recruiting, selecting, placing, training & developing, protecting, appraising and
compensating the job holders so that the tasks in the organization can be accomplished
effectively.

RECRUITMENT & SELECTION

RECRUITMENT
It’s a staffing process that provides the right human input to the org. It’s basically the
searching process aimed at attracting potential job candidates.

SOURCES OF RECRUITMENT
There are 2 major sources of potential candidates’ i.e. internal & external sources.

Internal sources
This involves recruiting from within the organization either by advertising internally,
promotion transfers or deployment.

Advantages of recruitment
1. Improves the employees morale
2. The employer is in a better position to evaluate existing personnel in contrast to
the outside candidates i.e. there is better knowledge of the candidates.
3. It promotes loyalty among the employees and gives them a sense of job security
& hope
4. Less costly due to elimination of costs such as public advert & screening camps.
5. Little training is needed since the employees are well acquainted with the
policies, procedures and the outline of the organization.
6. Promotes organization’s cohesiveness or promotes teamwork the members of
the organization feel that it’s one of these who has been given the job.
Disadvantages of internal recruitment
1. It leads to in –breeding and organization’s stagnation. Negative organization’s
culture are developed to more defined levels e.g. corruption.
2. There are possibilities that internal sources may dry upon and may be difficult
to find required period from within.
3. Promotion is based on ** (the duration served) there are chances that highly
capable people may not be chosen because of their current position and the
duration served.
4. The appointments may be biased may be based on nepotism and other vices
because the candidates of the person recruiting may be in contract before.
5. It restricts the selection pool into a smaller no hence less qualified personnel
may be chosen than those available in the market.
6. It cannot be applied in a new idea from outside the organization.

External sources
This refers to attracting personnel from outside the organization. This source may
include:
- New entrants to the labour market e.g. fresh graduates
- The unemployed already in the labour market.
- Critically employed personnel from other org.
- Retired experienced persons

Advantages of external sources

1. External sources provide a large pool of qualified candidates to pool from.
2. New ideas and expertise from other organization can be brought in i.e. it helps
to bring in new bleed.
3. It enables the organization to attract people with skills and expertise that is not
existent or which is lacking in the organization.
4. The sources never dry up. They are available even to newly formed business.
5. It eliminates the risk of bias due to prior knowledge and favours by members
of the organized.

Disadvantages
1. It’s an expensive way of recruitment in terms of time wasted & financial
resources.
2. Its time consuming.
3. It may erode the employee’s morale. i.e. it may be demotivating to the current
employees when people from outside are brought in to take up their dream jobs.
4. There’s high cost of training new employees
5. There is a risk that the candidates from outside the organization may come with
negative radical ideas which may corrupt the organization.

Methods of recruitment from external sources

1. Advertising in newspaper and other print media e.g. notices.

2. Advert through electronic media such as the internet
3. Head-hunting (this is the practice of ** top people in rival org to work for the
organization
4. Use of private recruitment firms e.g. PWC
5. Direct links with educational /professional institute
6. Employee referrals i.e. consulting the existing personnel for contact or qualified
persons.
7. Government employment agencies
8. Hiring at the gate
9. Trade unions e.g. KNUT, FKE.(Federation of Kenya employees)
10. Unsolicited applications

SELECTION PROCESS
Employee selection may be defined as the process by which job candidates are accessed
or screened, to determine their secure additional information from the applicants
necessary for evaluating their suitability for the position.

The process involves a series of handles or barriers design to eliminate unqualified

applicant at any point in the process. Not all selections however, contain many hurdles
and the complexity of any selection usually increases with the level and position to be
filled.

Steps in the selection process

- Preliminary Interview
- Application forms
- The panel Interviews
- Employment Tests
- Assessment centres
- Medical examination
- Reference checks
- Final selection and approval by top managers.

1. Preliminary Interview
This involves the sorting, comparing the candidates, qualifications with the job
requirements.
It’s conducted to prepare the interviewee for the main interview. At times it
may be conducted at the reception of the employment office or by a special
interview at the office or special interviewer.

2. Application Forms – Application forms or blanks may be given to job

candidates on reporting for the interview or may be posted in advance for the
interviewee application.

Application forms sets out information on a job candidates in a standardized

form. They provide a structured basis for comparing the job candidates.
Contents of application forms
- Biographical data e.g. Name, Age, Sex, Marital Status
- Educational attainment and professional qualifications
- Work experience ( previous job held and at times reason for leaving)
- Expected salary(s) and benefit(s)
- Interests , hobbies
- Signature and date

The above items are weighted according to their relative importance. The purpose of
filing the forms therefore is to:

a) Ensure that the questions to the candidates are relative

b) To score as a framework around which to build the interview.
c) To be kept as a record of the employees background

1. Panel Interview
Interview refers to a formal convention or a formal interchange between an
interviewer or interviewers and the interviewee. The purpose of a selection
interview is to secure maximum information from the job candidate. Therefore
various type of selection interviews such as:

a. Structured ( Patterned interviews)

b. Unstructured / free willing
c. Semi structured interview
d. Stress interviews
e. Group discussion / group interviews

a) Structured (Patterned) Interview – Most common method of interview,

involves working out in advance questioned to be asked to be sort, how the
interview will be conducted and how much time will be allocated.

In this type of interview questions are asked in an order with minimal deviation
should applicant want to discuss something else?

b) Unstructured Interview
This type of interview is relatively unplanned in such interviews the applicant
may be asked general questions and may reply to them for a considerable length
of time without interference, generally it’s conducted in a free atmosphere and
the candidate is encouraged to express himself freely.

c) Semi – structured interview

These interviews have a certain degree of flexibility i.e. they contain a mix of
pre-planned questions and spontaneous questions.
d) Stress interview
Under this type of interview, the interviewer assumes a hostile role towards the
job candidate. The interviewer deliberately asks questions or makes comments
which are meant to frustrate the interviewee by putting on the defense.

He usually asks questions rapidly, criticizes a…, interposes him / her frequently
etc.

The purpose of stress interview is to find out how the job candidate behaves in
a stressful situation e.g. Does he / she lose temper, get confused or frightened.

e) Group discussion ( Interview)

The interviewers are placed in group and are given a particular problem or case
to discuss within a specific time frame.

The purpose of this is to see how well individuals perform on particular tasks
and how they link up with others.

2. Employment Tests
Are often conducted during the selections and will usually include

a) Aptitude tests - Measures the intellectual ability of a job candidate

Testing for special aptitude, they may focus on a particular talent such as
reasoning.

b) Achievement Tests – Measures individuals’ current achievement on the

current job and thus checks on the practical ability of the applicant on a specific
job. The test may include job knowledge through oral or written questions or
work tests which require actual performance e.g. typing tests.

c) Personality tests – This aims at measuring the basic characteristics which may
be non – intellectual, they probe to discover clues about an individual value
system, emotional reaction, level of maturity, motivation, ability to adapt to
stress and capacity for interpersonal relationship and self-image.

3. Assessment Centres
Is a controlled or simulated work environment used to predict the probable
management success on a given job, mainly by evaluating behaviour in a variety
of simulated situation?

Involves a series of exercises e.g. performance tests that reflect on the type of
work done in that position or a leadership group discussion and report writing.

4. Medical Examination
Candidates are medically examined to find out whether they are medically fit for
any job physical and medical exam will reveal fitness of a candidate to job and
 ensure the candidate selected will be productive. Certain jobs may require
stamina, strength or given work conditions, candidates may be examined by a
company doctor or at an hospital or by a doctor approved by a company.

5. Reference Checks
These are attempts to obtain job related information about the applicants from
previous employees or individuals who know about the job candidate. Reference
checks may be conducted through Mail, telephone or in person. Such checks
are done to verify information on application forms and CV’s and sometimes to
collect additional data that will facilitate selection decision.

The major reason for the use of reference checks is that many candidates will tend
to fabricate their CV’s and application forms.

6. Final selection and approval by the top management

After the candidate has undergone or the selection step administered by the
organization and management is satisfied that the job candidate is qualified the
top management approves the appointment and signs the letter of employment.
This letter contains terms and conditions and the reporting date, it’s then sent to
the job candidate.

TRAINING AND DEVELOPMENT

a) Training – Refers to short term job related skills when are impacted it can be
defined as the short term activity in which skills and capabilities of staff are
improved through a systematic and organized procedures.

Its job centred or task oriented and is concerned with impacting job related skills
to subordinates to improve their performance

b) Development – This is a long term educational and growth process by which

managerial personnel acquire conceptual knowledge for the general
administrative purposes. In layman’s term it can be viewed as training for
managers.

Distinguish between training and Development

Training and development can be distinguished on basis of
- Who is learning?
- What is learned?
- Why Learn?
- When Learning occurs?

Dimension Training Development

Who Non – managerial Managerial / Executives
 What Technical / Mechanical Operations Theorical / Conceptual
ideas
Why Specific Job Functions General Knowledge
When Short term in nature Continuous / long-term

Objectives of training and department

a) Training Objectives
1. Improves the technical capacity of the personnel to be able to undertake their
jobs effectively.
2. To improve health and safety of the employees i.e. to reduce or minimize
industrial accidents.
3. To reduce the cost of operations
4. To prepare the employees for future job challenges or promotions.
5. To enable employees adapt to change in the working procedures
6. To enable employees learn how to operate new equipment
7. A change in a product may also necessitate training
8. To enable employees to be versatile i.e. capable of undertaking several tasks
(multi tasking).

b) Objectives of management development

1. Improve manager’s ability to be able to cope with increased challenges.

2. To improve manager’s performance on their present job e.g. to enable managers
undertake their current job effectively.
3. To prepare managers for higher job positions i.e. succession planning
4. To build a steady source of supply of a competent person at all levels of
management.
5. To compensate for lack of previous experiences or training
6. To enable the managers achieve their overall goals of organizations by
acquiring the requisite competences.
7. To present managers obsolesces ( outdated)

Management development methods

There are two broad approaches in developing manager’s i.e.
- The internal and
- The external approaches

a) Internal approaches
i) Job rotation – Managers may be moved within organizations so as to broaden
their knowledge of the organization activities.

ii) Assignment to committees and boards – These express managers to broader

organizations issues discussed in such committees and boards. It also teaches
managers on group decision making skills and techniques of managing
meetings
iii) Appointment to duties or as assistance – Enable managers / appointees to
learn from their immediate basses through delegation.

iv) Case studies – Case analysis enables managers to develop their analytical
ability and decision making.

v) Coaching by senior managers – Junior managers may be assigned to be

coached by senior managers for a given durations

vi) In house seminars , lecturer’s and workshops

vii) Monthly budgeting

b) External approaches
Managers may be sponsored to attend the following development programmes or
courses:

- University sponsored programmes e.g. MBA, MSC etc

- Management consulting firms, training and development programmes e.g. short
term courses for managers offered by consulting firms.
- Government sponsored programmes e.g. programmes offered by Kenya
Institute of administration, GTI (Government Training Institute)
- Secondment to other firms in similar industry (Exchange development
programmes bet managers in the same industry)
- Training and development programmes offered by professional bodies and
institute under which the managers fall e.g. ICPAK, ICPSK, IPM
- Conference and seminars.

COMPENSATION
Compensation administration involves direction of programmes designed to
improvement payment of monetary and non-monetary rewards.

The primary financial reward is paid in form of wages and salaries and is referred to as
remuneration.
Other forms of compensation will include supplementary payments known as fringe
benefit, pension payment, and provident payment.

Objectives of employee compensation

1. To attract highly qualified employees
2. To motivate the employees towards higher performance
3. To retain the work force for a long period of time
Types of compensation
There are three broad types of compensation
1. Base compensation ( Basic wages and salaries)
2. Supplementary compensation (fringe benefit)
3. Variable compensation

Factors influencing basic wages and salaries

1. Demand and supply and labour within the market

In determination of basic wages and salaries to be paid the role of demand and
supply plays a vital role, the higher the supply of labour relative to demand the
lower the wages. The scarce the labour in relation to demand the higher the
wages and salaries.

2. Labour Union Pressure

The more powerful a union loss and its bargaining power the greater the
possibility of higher salaries and wages.

3. Job requirements
The nature of jobs in terms of job specification and job description, various job
in the organizations are graded according to the relative strength and
weaknesses of the job. The higher the skilled level position is the higher the
wages and salaries paid.

4. Organization size and ability to pay

If organization products are highly competitive the wages and salaries will be
high.

5. Product market compensation

If organization products are highly competitive the wages and salaries will be
high.

6. Psychological , Ethical and sociological factors

These factors exert pressure or the wage level of the firm. If the employees are
dissatisfied with wages and salaries paid to them pressure for salary and wages
increase will increase from time to time though it may not be justified
economically.

Psychological the level of salary is a measure of security and status in life. Wage
differentiations serve to depict social mercury’s and individuals perceive
themselves in terms of how much each earns in relation to others.

Ethically persons feel that salaries earned should be parallel to the effort by
them in achieving organizations goals.

7. Government
Government may exert pressure on the wage salary practice acting in public
interest the government may pass legislation, issues executive orders or
establish a commission with a view to regulate compensation practices with the
 purpose of attaining economic objective, such as elimination of law wage
levels.

8. Cost of living / consumer price index

The higher the cost of living due to factors such as inflation the higher the wages
and salaries. This is often regarded as the auto minimum pay requirement.

9. Increase in productivity
The higher the level of output the higher the level of wages and salaries.

INDIVIDUAL AND GROUP COMPENSATION SCHEMES

a) Individual compensation schemes

- Compensation based on merit e.g. payment by results (PDR)
- Incentives wages to production workers e.g. piece rate payments time rate
payment etc.
- Incentives plans for managers e.g. cash bonus or free share ownership
- Incentives pay for individuals’ creativity and innovation

b) Group compensation schemes

- Group piece rate: Refers to compensation to all members of the
group where efforts of an individual cannot be separated from these
of the group e.g. M. Vchuie assembly.
- Employee profit sharing schemes: Under this method cash bonus / contribution
to trust funds may be made to employees by the employer.
- Employee share ownership, in this type of compensation plan the management
allow employees to participate in share ownership at a reduced rate i.e. 30%
lower than the market price.

NB: Individual and group compensation form the variable compensation

Supplementary compensation (Fringe benefit)

Fringe benefit is a reward given to employees in addition to the basic wages or salaries.
This benefit offers the employees at the employers’ exports goods and services which
would have been paid for by the employees themselves. Main types include:

i) Pension scheme – Setting aside pension monies to paid retirements or at the end
of contract such as gratuity
Medical schemes e.g. group medical cover allowances
ii) Housing schemes e.g. house allowance or house purchase allowance
iii) Insurance scheme e.g. life policy schemes to employees
iv) Car loans or use of Company’s car.
Subsidized meals at the work place
Company good at discounted rate or prices
v) Companies transport or transport allowance
1. Entertainment allowance given to senior managers

Characteristics of Fringe Benefits

Not directly related to merit but they often improve with the status and length
of service.
2. They do not necessarily benefit all employees e.g a person with good health
may not benefit from medical scheme.
3. Not universal i.e. not all organizations have these scheme
Prevent dissatisfaction

PERFORMANCE APPRAISALS
Employee performance refers to the contribution made by employees towards
achievement of organizations goals. Performance appraisal therefore is the process of
evaluating, the performance / contribution of employees against standards or job
requirements. It entails the measurement of how well the employees have carried out
their job. They are two main categories of performance appraisal i.e. Formal and
informal method

a) Formal Appraisal
Under the formal appraisal individual performance is appraised in a systematic
pre-designed manner using well planned appraisal forms and interviews.

It’s a more rational and orderly assessment of individuals performance.

b) Informal Appraisal
This is a continuous form of performance appraisal carried out by supervisors
in the course of the job, it’s a byproduct of the day to day relationship between
a manager and subordinates.

Objective of performance appraisal

1. To determine the strength and weaknesses of the subordinates

2. To formulate job improvement plans e.g. job enrichment or enlargement.
3. To identify problems and opportunities related to the job
4. To provide a rational basis for salary review and rewarding system.
5. To make decision relating to retention or separation of employee
6. To identify the training and dare needs
7. To facilitate coaching or counselling of employees or any other measure where
there is need for corrective action
8. To provide a feedback to the employees for motivational purposes
9. To help improve job performance by receiving ideas and suggestions

Performance Appraisal process

Performance appraisal may employee several appraisal methods such as:
1. Banking
Employees are rewarded in order of merit based on the ability of the job

2. Grading
Employees are allocated into a predefined series of categories. These method
works well for a homogenous group of subordinate, such a category’s may as
shown below.

Poor Below Average Above Good Very Good

Average
Average (exceptional)
0% - 10% 11%- 20% 21% - 40% 41% - 60% 61% - 80% 81% - 100%

3. Open minded method

This method lays emphasis on the way the job is performed and expects the
manager or supervisor to give remarks about the subordinates

A systematic performance appraisal involves 3 major steps:

- Completion of appraisal forms by employees

- Appraisal interviews to determine how employees have been doing
- Action agreement e.g. training and development needed to improve job
performance.

Appraisal Forms and performance rating

Appraisal form
Contain key attribute against which employee’s performance is evaluated. These
attributes include:

1. Leadership
a) Always at centre of activity
b) Capable of leading a small group
c) Has no real leadership qualities

2. Initiative
a) Acts on own initiative
b) Acts on own initiative in manner ways
c) Never ask unless instructed

3. Judgment
a) Assessment of Situation with great care
b) Sometimes confused by counter argument
c) Total lacks any critical ability
4. Decision Making ability
a) Make sound decision most of the time
b) Cannot always foresee the outcomes of his decisions
c) Decision are more like guessing ( guess work)

Performance rating
The purpose of performance rating is to identify the level of job holders performance
e.g.

A - Outstanding - Exceptional performance i.e. exceeds Standards in all

respects
B - Above average-performance is significantly above average
In all respect
C - Average - Performance meets the job or Expectations
D - Below average- Performance does not fully meet the
Expectation of the job
E - Poor - Poor is below expectation in most aspects of the job.

Factors that affect performance appraisal

1. Soft spot syndrome – Tendency on the port of the superior to over rate certain
employees. This is frequently a product of previous relation with the
subordinates which makes major believes that the employees are perfect.
2. Halo effect – Refers to pre judging of the employees or formation of favorable
or unfavorable opinion on the basis of a single event e.g. an overweight
employee may be considered lazy, attractive employees may be considered
better , older employees may be viewed to be behind time i.e. can’t cope.

3. Latest behaviour – Regency

Entails the basing of an appraisal on the latest behaviour demonstrated by an
employee e.g. an employee may perform poorly throughout the year and
towards the year end when appraisal is carried out the employee exceeds the
target and thus soon an employee may be appraised favorably in contrast to an
employee who has been performing well and whose performance have been
continuous.

4. Central tendency –
These occur when an appraisal clusters all rating around the central
measurement usually an average / mid-point scale. This is the most common
rating error. The objective usually to please everyone in the department and to
be seen to be fair, it denies good employees the results of merits and the benefit
there from such as promotion and poor performance may be denied chance to
improve.

5. Generosity –
 Involves being too generous to the extent that nearly all employees get high
rating. Generosity may be as a result of lack of expenses in rating or poor
supervision on the part of the manager and hence the need to cover up through
generous rating.

6. Over strictness
Involves managers being too mean and strict in awarding deserved scores. It’s
as a result of setting very high standards.

7. Inter – individual standards / sterior typing

Rating based on inter – individual standards should be avoided, inter individual
standard occur whereby an employee is considered by the rator to be a model
and the other employee are rated against the employees.

Stereo typing occurs whereby model employees are determined on the account
of

8. Lack of clearly defined performance standard.

9. Lack of training to rators on effective use of appraisal tool.

Measures to improve performance appraisal

1. Appraisals should be well trained on the tools and the skills required for
effective appraisal exercises.
2. The management should clarify to the employees. The standards against which
their performance is compared.
3. The appraisers should identify the desired behaviour in observable terms rather
than subjective terms i.e. the rators should be as objective as possible.
4. The appraisers should be aware of their personal bias and work hard to
overcome them.
5. The management should try as much as possible to use more than one assessor
and compare the results.
6. The rating results should be discussed with the employee and the immediate
supervisor.
7. The rator should conclude the appraisal by giving comments and
recommendations.

Peter Principle – The Peter Principle concept was introduced by a Canadian Psycologist
doctor, Doctor Laurence Johnstone, Peter in his book, he describes the pitfalls of
bureactic organizations which he witnessed during extensive research into the business
organizations.

The Peter Principle is based on use of promotion as a reward. As long as a person is

competent in his current position he or she will be promoted to the next higher one and
by extension. The only way a person can step, the only way a person can be promoted
is by reaching a point where he is no longer to do well and therefore does not appear to
be legible for promotion.

Peter describe the theme of his book has hierachilogy and the central principle is stated
as follows in the book: “In a hierarchy every employee tends to rise to his level of
incompetence”.

After Peter principle has attained much fame such that the American heritage dictionary
defines it “The Theory that employees within a organization will advance to their
highest level of competitive and then be promoted to deny remain and a level at which
they are incompetent?.

b) One way of the organization can

Organizations need to understand the “Peter Principle” so as to ensure the optimal use
of its workforce. The importance of “Peter Principle” includes:

- Improves performance by ensuring that mechanisms are availed to see to it that

employees do not remain at the level of incompetence but are able to be referred
back to their highest level of competence.
- Ensures that employers are promoted to their optimal level of their
performance.
- Organizations are able to inflate the promotion criteria i.e. introducing several
stages on the promotion ladder.
- By understanding the “Peter Principle” organizations are able to refrain from
promoting an individual until he/she shows skills or habits necessary to succeed
at the next high level. This can be tested through delegation.

Separations:

This is the process of terminating employment. The following are the most common
methods of separation:

1. Retirement
2. Dismissal/Discharge
3. Lay-offs/Redundancy/Retrenchment
4. Resignation / Voluntary exist
5. Expiry of contract
6. Death / Defence of an employee.

1) Retirement: It can be defined as the exit from an organization’s positions or

career path after middle age and with an intention of reducing psychological
commitment to work.
- It is an action initiated by the employer of or the employee.
- There are 2 types or Retirement: -
o Mandatory / Fixed retirement
o Voluntary Retirement
i) Mandatory/Fixed Retirement
This is a compulsory retirement initiated by the employer by setting a maximum
retirement age limit e.g. 55 years or 74 years for Judges.

Benefits of Mandatory Retirement

- It enables an organization to acquire young employees with a greater potential

- It enables an organization to replace those whose productivity has gone down
due to an advancement of age.
- It facilitates succession planning.
- It encourages employees to make plans for retirement in advance.

Limitations of Mandatory Retirement

- Mandatory retirement may lead to less commitment to the organization in the
last few years of the organization.
- Employees may develop a short time attitude and may retire on job before the
official retirement. This may lead to lower productivity.
- It may lead to lose of experienced employees which may affect performance
during the transaction period.
- It is costly especially if many employees retire at the same time. Retirement
benefit may have to be paid as well as other retirement costs.

ii) Voluntary Retirement:

This is initiated by the employee who voluntarily opts to retire before the
attainment of Mandatory retirement age. An employee for example may opt for
early retirement on medical grounds. Employers may induce the voluntary
retirement by payment of the early retirement benefits.

iii) Discharge / Dismissal

Discharge takes place when an employee terminates an employment contract
with or without notice. Termination with a notice require that the employer must
give a months notice as per the Employment Act.

The employer may alternatively discharge the employee without notice.

(Summary Dismissal by payment of one month’s salary in lieu of notice.
The practice of employment contract termination may however vary from one
organization to another.

Causes of Dismissal: -

1. Preadont Unsatisfactory Performance

2. Insubordination (Being disrespectful to your boss)
3. Gross Misconduct
4. Theft or fraud or steal the company’s property.
5. Drunkardness or being intoxicated at the place of work. Which renders the
individual incapable of working.
6. Deserting without notice.
7. Conviction in a court of law.
8. Gross negligence of duties leading to heavy loss or destruction of the
company’s property.
9. Non observance of health and safety rules resulting in injury or breakdown of
machinery.
10. Participating in an illegal strikes or A.O form of individual action against the
employee.
11. Sharing company’s secrets with the competitors (corporate espionage).

iv) Redundancy Retirement:

Employees may be declared redundant and laid off if their positions are not
longer needed by the organization as a result of ceasing or intending to cease
business operations. This may be due to major restructuring which may result
in a merger of certain results of closedown of certain departments or branches
in a bid to reduce operation costs.

Retirement is a humane way of carrying out redundancy and does not always results
from cessation of business but can also be carried out so as to improve the operations
of the business.

Retirement is also referred to the downsizing of eh workforce

Causes of Redundancy:

- Poor economic conditions resulting to poor business performance.

- Poor management i.e. mismanagement by the managers leading to poor
performance.
- Increased competition and falling profits that necessitates the need to review
the work method.
- Business mergers, takeovers and divestments.
- Introduction of capital intensive technology which requires few people e.g.
ATMs, robots, P.O.S etc.
- Changes in operation structures designed to enable quick decisions and fast
responses.
- The need to hire much skilled personnel capable of increasing the capacity and
responding to change e.g. a cultural change for customers focused performance.

Measures to avoid Retrenchment:

1. Planning – the staffing requirement through effective Human Resource

Planning.
2. Implementing a recruitment freeze fro a given time period.
3. Retraining & reemployment to other sections of the organization.
4. Seeking application for voluntary redundancy.
5. Filling vacancies – from the existing employees
6. Implementing effective cost controls to control cost and thus retain
employees.
7. Implementing productivity measures.

v) Resignation:
This occurs when an employee gives a notice as stipulated in the employment
contact. The notice should be appropriately filled and records maintained of the
resignation details and the benefits paid.

An exist interview should be organized where the reasons for the resignation
should be sought and clearly documented. The exist interview is important to
the organization in the improvement of its method and processes.

REINFORCING QUESTIONS

Q1. What is manpower planning and what are the major steps in manpower
planning?

Q2. Discuss the benefits and limitations of promotion from within versus outside
recruitment.

Q3. Discuss the major steps in the personnel management

Q4. Outline the major principles of interviewing for both interviewers and
interviewees.

Q5.
MOTIVATION
To achieve a desired level of performance or productivity in an organization employees must
be motivated. Motivation is concerned with getting members of organizations to do work
willingly and enthusiastically.

Motivation: refers to the drive that makes individuals seek and carry on work within the
organization.

According to Beach .S; Date Motivation can be defined as the willingness to expand energy to
achieve a goal / reward.
Therefore refers to the energetic forces originating from within individuals which initiate
positive behaviour and determines the direction and intensity of the individual performance.

Motivation Theories
Management theorists differ on why and how people are motivated. There are several theories
therefore which attempt to explain the motivation concept.

a) Maslow’s Hierarchy of needs

Abraham Maslow developed a theory based on the idea that individuals have certain
needs which can be ranked into a hierarchy in order of importance.

A person is motivated to satisfy the 1st level need before proceeding onto the second level and
third level systematically. Satisfaction of one level of need: - Means that the level no longer
motivates the individual.

Maslow’ hierarchy can be shown diagrammatically as follows:-

Self
Actualization

Self Esteem
/Ego
Affiliation
(social needs)
Security needs
(safety)
Basic Needs (Physiological needs)

(i) Physiological needs (Basic Needs)

This refers to the sustainess need/bodily. They are the basic needs such as food, Water,
shelter, clothing etc.

Until the needs are satisfied to the degree that sustains life other needs will not motivate
employees / individuals.

Employees should ensure that their employers are able to meet these needs by
providing them with better terms and conditions of service e.g better wages.
(ii) Security / safety needs
These refer to the needs to be free from physical danger and fear of losing job, property
or shelter. It includes social security needs and provisions for the future.

(iii) Social / Affiliation needs

These refer to the needs for love, feelings of belongings and human contact or
relationship. Since human beings are social beings they need to belong and be accepted
by others. Employers should: provide a friendly working environment to motivate the
employees.

(iv) Self esteem / Ego needs

Refer to the need for self respect and respect from others. These type of needs produce
such satisfaction as power prestige, self confidence etc. Employers should therefore
provide esteem to the employees based on positions.

(v) Self Actualization

Actualization refers to the attainment of an individual’s life goal. These needs therefore
refers to the desire to become what is capable of becoming in life it refers to realization
of what is potential. Employers should encourage career development and growth of
individuals.

Implications of Maslow’s Theory

Managers within the organizations should he able to identify the level which these employees
are in the hierarchy of needs and determine how best to satisfy their needs, and thus motivate
them to be more productive.

Limitations of Maslow’s Theory:

1) It assumes that individuals can only move up the hierarchy one at a time.
2) It assumes that individuals can only move up the hierarchy up and down whereas in
reality individuals may even more downwards the hierarchy.
3) An organization is made up of very many employees at different levels uniformity of
hierarchy of needs and therefore the management might find if difficult.
4) Some individuals may not be motivated by material items since they may have
vocations to save humanities such as volunteers and phyatherapists e.g. Mr. Chandaria.

Herzberg two Factors Theory

Fredric Herzberg looked at what causes employees to be satisfied or dissatisfied. Herzberg
interviewed professionals (Engineers and accountants) and he explained motivation in terms of
two factors:

1) Hygiene / Environmental/dissatisfiers/ demotivators

2) Motivators / Satisfiers

1) Hygiene / Environmental Factors

These are factors that must be in place before an individual can be motivated. They do not in
themselves motivate but they prevent dissatisfaction. When they are absent individuals become
dissatisfied with the job. They relate to the external conditions surrounding the job. They
include basic salary, working conditions, company’s policy etc.

2) Motivations / Satisfiers
These are factors that are essential for motivation and are the main determinants of satisfaction.
They relate to the performance of the job i.e. the job content. They include: sense of
achievement, level of recognition by colleagues and management, opportunities for
advancement, levels of responsibility etc.

Satisfiers are intrinsic to the job

NB: The most important aspect of these theory is that the main motivating factors, are not in
the environment but in. the intrinsic value and satisfaction gain. From the job itself.

ALDERFERS ERG THEORY

Clington Alderfer developed the existence /relatedness /growth need (ERG) Theory which
revised the Maslow’s Theory of motivation to make it consistent with research on human needs.

Studies have shown that human beings have three sets of needs rather than 5 set out by
Maslow’s. Alderfer reduced Maslow’s categories into 3 as follows:-

(i) Existence needs: Refers to all forms of material and psychical desires e.g. physiological
and safety needs.

(ii) Relatedness needs: These refer to all needs that relate or involve relationship with other
people. Individuals interact with others within the organization. Such needs may
include social and esteems needs.

(iii) Growth needs: These refer to the needs that involve individuals creating efforts on
themselves to achieve their full potential i.e. self actualization.

EXPECTARY THEORY –Victor Vioom

This theory provides that employees are motivated by expectary of rewards resulting from their
efforts. Employers will be motivated to perform better or put up more effort. If they are to
believe that greater efforts will translate directly to greater performance and more rewards it
provides that strength of individual’s motivation and product of his expectancy. The strength
for his preference for certain outcome i.e. expectancy and valence.

Motivation of an individual – Expectancy x valence. Thus theory analyses the link between
effort performance and related records. This theory can be shown in a model as follows:-

Promotion
 Expectancy Effort Performance Salary
income Motivation

Greater
Esteem

MC Clellands Theory – MC Clelland David

David Mc Clellands identified three types of motivating needs.

a) Needs for achievement

This is the need to attain something, a desire for success and a strong fear for failure. To excel
one self, to rival and surpass others.

Mc Clellands argued that people with strong need of achievement share the following
characteristics:
(i) Desire for personal responsibility
(ii) Desire for quick and concrete feedback concerning the results of their action.
(iii) Derives intrinsic satisfaction for doing the job well.
(iv) Sets achievable or moderate goals.

Mc Clelland believed that the need for achievement and be developed through the following
ways: -

 Speaking the language of achievement i.e. individuals should be encouraged to think,

talk, act and passive as would a person with a high achievement motive.
 Individuals should focus on speaking goals in life and work hard to achieve them.
 Individuals should develop a honest picture of themselves and strive to overcome their
limitations.
 Individuals should seek emotional support.

b) Affiliation
There is a need to develop interpersonal relationships on a friendly basis and a sense
of belonging.

c) Need for power

This is the need to influence others into behaving in the way they would ordinary not
behave.

Reinforcement Theory: BF Skinner

This theory is related with the learning theories and the work of scientists, BF Skinner, Skinner
used rewards in attempt to strengthen desired behaviour and to encourage continuation with
the desired behaviour.
Skinner found that behaviour which is enforced will be repeated and non-reinforcement
weakens undesired behaviour. The theory suggests that a given behaviour is a function of
consequences of earlier behaviour and therefore behaviours are determined to a greater extent
by the reward / punishment obtained from previous behaviour positive reinforcement (rewards)
encourages continuation with behaviour)
Performance & negative reinforcement (punishment) /Non – recognition defers the specific
behaviour.

- MC Gregor’s Theory X and Theory Y –check previous notes

- Adams Equity Theory

Adams argued that inequities exists whenever people feel that rewards obtained for their efforts
are unequal to those received by others. Inequalities can be negative (when they feel they are
receiving less) or positive (receive more)

When people sense inequities they will be aroused to remove discomfort and restore a state of
fat equity by:

1) Changing the work input/effort

2) Changing the rewards received e.g. by demanding for a better pay.
3) Leaving the institution or the situation
4) Changing the comparison points
5) Psychologically distorting the comparison e.g. believing that is not working as hard as
others.

Content and process theories of motivation

The above theories of motivation can be classified as content or process theories.

Content Theories
Content theories ask the question what are the things that motivate people? They assume that
human beings have a sense of needs or desired outcomes (needs theories) include:

- Maslows Hierarchy of needs

- Herzbergs two factor theories
- Mc Clellands theory

The content theories can therefore be shown in a model

Perceived needs Motivating force Activity / Fulfillment of the

performance motivating force

Process theories
Process theories of motivation ask the question, how are people motivated? Or how can they
be motivated?

They focus on the process through which outcomes become desirable, individuals select
particular behaviours and individuals determined whether its work maintaining the behaviours
e.g.
- Brooms expectancy theory
- Adams Equity theory
- Hand Psychological contacts

Factors that affect motivation

1. The nature of the job i.e. or not
2. The work environment
3. The management practices
4. The trust and loyalty between the employees and the management
5. Recognition by the management in
6. Involvement in planning and decision making
7. Job security
8. Personal growth and development and potential for career advancement

Importance of Motivation
1. Leads to greater performance
2. Results in very low levels of conflicts and resistance by the employees
3. Helps in creating good labour relationship and a good image of the organization
4. Results into attainment of organizations’ goals and is therefore an important
management tool.
5. Leads to improvement of skills and knowledge by the employees.

Limitations of Motivations
1. There are problems in implementation of motivation theory.
2. Motivation is oftenly situational
3. Motivation can be limited by employees themselves
4. Motivation is an internal instinct or self drive and therefore difficult to implement
5. Self drive within individuals will vary from one individual to another.

Elements of a sound motivating system

1) Productivity
A good motivation system is one that helps in increasing productivity

2) Competition
A good motivating system should encourage positive competition

3) Flexibility
The system should be such that it enables the organization and employees to adopt to
the situations.

4) Comprehensive
A good reactivating system should be able to meet a range of needs both personal and
organizational.

Characteristics of Motivation

1. Internal (Self Drive)

Motivation is a psychological phenomenon which relates to the feeling of individual
and therefore motivations is the urge to achieve or drive to excel or the call to do.
2. Motivation is continuous
Motivation is an ongoing process rather than a onetime affair.

3. Goals and motivation are inseparable

These means that motivation is the means to goal attainment and at times the goals act
as motivating forces.

4. Motivation can be positive or negative i.e. an individual may have the desire to
perform as expected or drive to perform otherwise.

5. Motivation is an interplay of many factors

6. Motivation is different from (work) job satisfaction however the two are related.
MANAGING WORK GROUPS
A group can be defined as a collection of two or more people who interact with and influence
each other towards a common purpose or goal. Therefore a group consists of individuals who
are:

1. Interact and influence each other towards a common goal.

2. Are psychologically aware of each other
3. Perceive themselves as a group
4. A team is a group of people with complementary skills who are committed to a
common purpose, performance goals and approach for which they held themselves
basically accountable (Ketzerbach & Smith).

Types of groups
The following are types of a work group commonly found in an organization:

a) Task forces
b) Committees
c) B.O.D

Formal work groups

a) Task forces
- Are formed to deal with specific problems (task) affecting the organization.
- Their existence is limited to the task.
- They are usually formed to deal with complex problems or tasks that involves several
departments e.g. a company Firm intending to develop a new storage device that has
not been manufactured before can form a task force to determine what equipment will
be needed and any changes in the current work procedures.
- Task forces are appointed by a top management body or entity e.g. C.E.O, MDs.
- Task groups will usually include representatives from the various departments.
- Task forces may achieve or communicate their results in one of the following
methods:-
o By making recommendations to the supporting body.
o By reaching decisions within the group. This is usually so where the group
member include the top executives.
o By individual representative of the various departments taking up
responsibility for the actions by their departments as proposed by the group
e.g. Commission of inquiry.

b) Committees
Committees may be various types including:
1. Standing committees
2. Adhoc committees

1) Adhoc Committees
- Are non-permanent in nature and are formed for a specific purpose. They are
disbanded on achievement of their goal / submission of their report. They deal
with less complex functions / activities.
- May be appointed by any manager in the organization.
 2) Standing / Permanent committees
- Established on a permanent basis and remain in existence to meet a continuing
organization need.
- They deal with recurring problems affecting the organization e.g. finance,
committee, new product review committee, disciplinary committee,
procurement committee, administration committee etc.
- Usually the committees will either make formal commitment to a higher level
authority or they have the authority to make their own decisions.

Distinguish between task forces and committees

- Task forces are not permanent in nature

- Members tend to be chosen on basis of skills and expertise in task forces.
- Task forces tend to be more research oriented
- Task forces are formed to specific complex problems

- Committees are generally long lasting and at times permanent

- Committees are formed to deal with recurrent problems & decisions e.g loan approval
committees.
- Members may be chosen because of this and positions rather than individual
qualification.
- Committees are characterized by stability of memberships.

Advantages of tasks forces & committees

- Providing of knowledge and experience – different personality and members will come
with different ideas which results in better quality decisions.
- Enhances implementation chances: Recommendation by committees and task forces
are representatives of the interest of various departments and will therefore be
supported in the different department and are thus more likely to be implemented then
individual’s decisions would be implemented.
- Improved coordination – committee discussions bring together members from different
departments with other units.
- Facilitates training for managers – tasks forces and committees may serve as a training
ground for your executives who learn to think in terms of wilder issues affecting their
organizations rather than focusing on their narrow function within the organization.
- Distribution / Dispersion of power- committees and task forces ensure that too much
authority is not concentrated on individuals but is distributed to the group.
- Improved communication – C & TF bring together their members.

Limitations of C & TF
- Individuals domination e.g. by chairperson
- Lack of individual responsibility
- Its expensive to constitute and maintain in terms of financial resources
- Lack of secrecy regarding the decisions reached.
- Time consuming.

BOARD OF DIRECTORS
Formal group of individuals appointed to see the general administration and financial activities
of the organization.

They make key decisions affecting organizations performance and survival

Appointment and Composition of Board of Directors
The board members may be appointed by S.H in a company or may be instituted by the
appropriate appointing body as per the statutes governing the operations of public sector
enterprises e.g. KASNEB

Functions and Responsibilities of Board of Directors

- An organization may have a functional or a policy board of directors
- In a functional board members have functional responsibilities i.e. they are in charge
of functional areas within the enterprise e.g. finance directors, marketing director,
research and development director, director in charge of functional organization.
- In a policy board members do not have any functional responsibility but also need to
deliberate on key issues affecting the organization, formulate and recommend policy
changes.
- The board is charged with the following specific responsibilities:
o Formulation, review and amendment of the organization major policies.
o Recommend / approving major changes in the organization structures.
o Appointment and filing of Senior executives of the origination e.g. Managing
Directors
o Appointment or approving the appointment of committees and task forces
o Defining the vision and mission statements of the organization.
o Declaration of dividends to S.H
o Calling for AGMs and other meetings
o Carrying out functional responsibilities i.e. being incharge of various
functional units in the organization.
o Recommending / approving, wages and salaries structures
o Reporting to shareholders on the operating results and any developments for a
given year.
o Finding solutions to major problems facing the organization e.g. strikes by
employees.

INFORMAL WORK GROUPS

Refers to the network of personal contacts and social relationships established primarily to
satisfy the employees’ immediate social needs.

It refers to an unofficial work groups formed by employees due to common interests or

friendship e.g. similarities in values, social background, professional backgrounds, religion etc.

Factors Influencing group formation

- Physical proximity
- Common values and interests
- Age group
- Similar jobs & professions
- Organization culture and policies
- Individuals background
- Need for bargaining power & group satisfaction
- Group goals
- Time factor
Advantages of Informal Workgroups
(i) May be used by managers as a grapevine to convey certain unofficial information in
the organization.
(ii) May promote certain values, believes and norms beneficial to the organization.
(iii) Provide social satisfaction, status and security to members’ e.g. emotional support
during sickness.
(iv) Enhance harmony and unity i.e. promote team spirits
(v) Helps members to save work related problems e.g. by encouraging the spirit of
commitment.
(vi) May encourage better management by pointing out mistake & problems early enough.
(vii) Improves communication channels within the organization

Disadvantages of Informal Work groups

(i) May insight workers to resist changes
(ii) Facilitate spread of harmful rumours about the organization and if these are not arrested
in time they can be detrimental to the organization.
(iii) May promote an unethical behaviour in organization e.g. stealing from company.
(iv) They result into time wastage through gossiping and idle talk during official workings
hours.
(v) May force members to continue to certain norms or practices which may be counter-
productive to the achievements of the organization goals e.g. reporting to work late.
(vi) May result in development of group think philosophy which makes informal groups
hard to control.

FORMATION OF GROUPS / GROUP DEVELOPMENT

A group which is a number of individuals coming together for certain or specific objectives
undergoes several stages i.e. groups are born, they grow and die.

Groups undergo 5 main stages in their lives:

1) Forming
At this stage the group is no more than a collection of individuals who are seeking to
define the purpose of a group and how they operate. Group members attempt to
determine what can be gained from being group members.

2) Storming
At this stage there is a intergroup conflict, preconceptions are challenged norms of
attitude and behaviour are challenged and related. Members compete for chosen roles
e.g. leader, comedian etc. if successful these stage increases trusts and a greater
knowledge of each other.

3) Norming
This stage establishes the norms under which the group will operate. Typically this
stage will establish how the group takes decision, behaviour pattern and attitudes.

4) Performing
At this stage the team sets to execute its purpose, the difficulties of growth no longer
hinder the group objectives. The group is capable of operating at full potential.
5) Dorming
Once a team has been performing well for some time, it may get compliant (lax) and
these results to self-maintenance function at the expense of the task. Group think occurs
to the extent that the group is unaware of changing circumstances. Signs of group work
include:
- Rising of protective barriers
- Negative attitude towards competition
- Unwavering believes in group.

6) Adjourning / Mourning
At this stage the group sees itself as having fulfilled its purpose, it’s a stage of sadness
and anxiety as the group breaks up and there is evolution of achievement and gradual
withdrawal by the members.

MANAGEMENT OF CONFLICTS
Organization conflicts refer to the disagreements within the context of organizational settings
between individuals, employees, groups departments or divisions.

It can be broadly defined as disagreement between two or more organizational units

(individuals or groups) from differing views, ideologies, attitudes, behaviours or perception
thereof.

Changing views of conflicts

a) Traditional view
This view hold that conflicts was harmful and unnecessary early managers and
management writers generally thought that the appearance of conflicts was a clear sign
that there was something wrong in the organizations.

They believe that conflict would develop only if managers fail to apply sound
principles in directing the organization and its activities.

b) Modern view
This view holds that organization’s conflicts is inevitable and even a time necessary
regardless of management of organizations.

This view however still holds that too much conflicts is dysfunctional and harmful to
the organization and individuals therein.

Some conflicts on the other hand can be functional because the effectiveness of the
organization.

From the perspective the task of managers is not to suppress or resolve all conflicts but
to manage them so as to minimize their harmful aspects and maximize their benefits.

Types of conflicts
a) Conflicts within individuals
b) Conflicts between individuals
c) Conflicts between individuals and groups
d) Conflicts between groups
e) Conflicts between organizations
a) Conflicts within individuals
Occurs when an individual’s uncertain about the expectation or what expected
of them within the organization. The conflict arises when an individual
expected to do what he or she is capable of doing .These type of conflicts
influences the way an individual reacts to other organizations conflicts. E.g. an
individual who is experiencing strong inner conflict may do to stress react to
organizations conflict in a disruptive manner dysfunctional.

b) Conflicts between individuals

Arises due to personality differences. Oftenly such conflict erupts from role
related pressures (between managers and subordinates) or from manner in
which people personalize conflicts between groups e.g. your people are always
dumping extra work on my people.

c) Conflicts between individuals and Groups

This type of conflict is frequently related to the way individuals deal with the
pressures of conformity imposed on them by the work groups e.g. an individual
may be punished by his / her work group for failing to adhere to the group’s
norms

d) Conflicts between groups in same organizations

Arises due to differences between work group within the organization e.g
between staffing and finance departments between sales and production
department.

e) Conflicts between organizations

Considered as inherent and a desirable form of conflicts in the economic system
of a country. This arises due to the differences between organizations and their
management. Such conflict has been recognized to result in development of
new product, technologies, services, lower prices and more efficient utilization
of resources.
Causes of conflicts
1. The need to share scarce resources e.g. workers, space, equipment.
2. Differences between departmental goals e.g. finance and marketing department goals
3. Interdependence of work activities in the organization
4. Differences in values or perception among organization units of individuals e.g.
disagreements between top managers over certain policies.
5. Lack of effective communication which results in attendancy to rely on informal
channels.
6. Differences in educational / professional background
7. strict rules, policies and procedures
8. Inadequate motivation to the work force resulting in attendancy to disobey roles
9. Poor delegation which hinders the subordinate from effectively carrying out their task.

Conflicts management techniques

Management of conflicts may focus on:
a) Interpersonal relationship
b) Structural changes in the organization

a) Management of conflicts through interpersonal relationships

The following measures may be taken to prevent conflicts between individuals

i) Use of force – under this method the manager may compel one party to accept a certain
solution. The party which is overruled may not agree with the results but must accept
the directive of the boss. The conflict is likely to occur because its root cause is not
addressed.

ii) Withdrawal /avoidance - involve withdrawing from or avoiding the person with
whom the conflict exists. The conflict is reduced but original cause remains.

iii) Smoothing - employed when a manager attends top provide a peaceful corporation by
presenting an image of unified entity such as we are one family. With this approach
problems are rarely committed to come to the surface.

Problems are only smoothed away but not rarely solved

iv) Compromise - under this method neither party gets all it wants. Each party gains only
a portion of their demands. The method is based on give and take principles.

v) Mediation - This is the process by which the third party enters despite between two
parties, for purpose of assisting them to reach an agreement. The thirds party only
recommends / comment / suggest keep the two parties talking.

vi) Arbitration - This is the process by which a dispute is submitted to the third party to
make a binding decision. The arbitrator is given authority to act as a judge and his
decision is final. Usually the parties to the disagreement will prescribe use of an
arbitrator before or prior to any disagreement.

vii) Rules and regulations - Rules and regulations can be used to change the behaviour of
others and managers may require that conflicting parties resolve their disputes by
adhering to the existing rules and regulations.

viii) Re-assignment - An individual may be re-assigned to another organization unit to

avoid interpersonal conflict. The managers will therefore use their positions in
authority to effect such a re-assignment.

ix) Over ruling the parties - Managers may also exercise their authority to quash any
conflicts within the parties.

b) Through structural changes

Structuring involves breaking old work teams and departments and their re-organising
them so that they have new members and responsibilities. The management may
therefore undertake the following steps:
 i. Changing of the organization structure – authority and responsibility should
be clarified to the conflicting parties.

ii. Rotating members – refers to transfer of members from one group to another
or one department to another.

iii. Bringing in new managers – new managers can be employed to bring a major
shake-up in the organization.

iv. Establishment of autonomous workgroups – this is aimed at reducing

interdependence which may result into conflict.

v. Selection of appropriate managers – Managers for the groups should be

appointed who are ready to accommodate other departments and groups and
not seeking from flaws.

LEADERSHIP
Managerial leadership can be defined as the process of directing and influencing
activities of group members to achieve certain goals.
According to Arigfer Tago leadership can be viewed as a process or a property.
Leadership as a process is a non-cohesive influence to direct other activities towards
accomplishment of group goals. As a property it’s a set of qualities attributed to these
perceived to employee influence over others.

The term leadership and management are not synonymous. One may be a manager and
fail to be a good leader. Management is involved with directing task related activities
and the manager’s abilities are vested on formal authority.

Management and leadership in summary differ in the following ways:

i. The manager administer, the leader inspires / innovate

ii. The manager maintains, the leader develops
iii. The manager relies on controls, the leader inspires trusts
iv. The manager has his/her eyes on the grounds, the leader focus on the
horizons.
v. The manager focuses on systems and structure, the leader focuses on people.
vi. The manager accepts the status quo and the leader challenges the status quo.
vii. Leaders are original and they act their own self.

Effective managers should therefore be leaders; they should be able to influence other
under them. A leader may have followers but if he lacks the formal authority to manage
then he is not a leader. E.g. a subordinate may have a greater ability to organize a group
effort and influence colleagues to carry out a certain activities, such as person is a leader
but not a formal manager.

LEADERSHIP STYLES

a) Democratic / Participative
 Under this style of leadership, leaders involve employees in decision making. It is
positively related to subordinate satisfaction. The relationship of this style to
performance/output is true but weak. It’s desirable, where the nature of work is simple
and repetitive. It’s followed by employee oriented managers.

These managers encourage members to participate in decision making, they form

friendly, trusting and respectful relationship with group members.

b) Authoritative / Task oriented / Autocratic

Under this style, managers make decisions themselves without input from the
subordinates, this leadership style is negatively related to employee satisfaction
relationship to perform may be positive or negative however in most cases its positive.

This leadership style is desirable where nature of task is complex and subordinates have
to rely on instructions given. It’s followed by task oriented leaders who closely
supervise subordinates to ensure that task are formed to their satisfaction. A manager
using the style is only concerned with achievement of task rather than support and
development of the subordinates.

c) Laissez Fair (Free Reign)

Under this style of leadership, a leader passes on all the responsibilities of decision
making to the subordinates. He / she allows subordinates to operate with minimum
supervision, it is based on the principle of non-intervention.

Subordinates consult with the manager, but the manager is not directly involved in final
decision. It is subordinated centered.

d) Charismatic Style
Type of leadership style where the leader commands a great following by virtue of mystical and
magnetic properties such as a leader who tends to highly energetic, quick in taking initiative and
opportunities.

Such a leaders shows high emotional involvement with inspiration showing in the success and
failures of group members.

Characteristics of Leadership

1. It is a personal quality of character and behaviour which enables a person to exact

influence.
2. Leadership helps others in choosing and attaining goals.
3. A leader heads the group with authority and confidence
4. A leader unifies and motivates the group to the achievement of goals.
5. Leaders between individuals and group
6. Leadership is the process of directing and guiding
7. Involves aspiring and influencing others.

Functions of leaderships

1. To provide a conducive environment for others to work.

2. Leadership integrates the efforts of followers with the organization’s objective.
3. Leadership performs the function of motivating and encouraging the members to greater
heights of performance.
4. Leadership enhances communication. Thus enabling employees to appreciate policies of
organization.
5. Leadership leads to a climate of corporation and team spirits
6. Leadership provides counsel and guidance
7. Resources are better utilized.
8. Take up culture

Factors that influence / determine leadership

1) The organizational culture and policy
2) The personality of the managers
3) Experience of the managers
4) Personal expectation of the subordinates
5) The requirements of the job
6) Expectation of managers themselves.

Qualities of leaders / traits

Range from physical, psychological, intellectual to character
This will include the following:
1. Self-assurance
2. Attractive in behaviour
3. Fluent in language
4. Above average in height
5. Intelligent
6. Ability to understand human behaviour
7. Assertive – command & force through in a polite way
8. Willingness to take reasonable risk.
9. Person of integrity
10. Endurance
11. Open minded
12. Ability to take criticisms
13. Heart of compromise
14. Patience
15. Fairness

Importance of leadership
1. Helps in attainment of organization’s goal
2. Effective leadership leads to motivation of employees
3. Effective leadership facilitate growth and development of employees.
4. Effective leadership fosters creativity and limits wastage of resources.
5. God leadership enhances cohesiveness among group members or organizations.
6. Good leadership promotes communication within the organization, which improves
relationship within the organization and work performance.

Components of leadership
These include:-

- Authority
- Power
- Influence
- Delegation
- Responsibility and accountability.

Theories of leadership
Leadership has been defined in terms of traits, behaviours, contingency power and position
held. There are various theories of leadership therefore classification in the following
categories:

1. Trait theories
2. Activity theories
3. Continuous based theories
4. Contingency theories
5. Style theories

1. Trait theories
These theories try to seek all communication personality characteristics (traits) so as
to recognize potential and actual leaders by identifying leaders. Leadership traits
compiled included:

a) Physical traits e.g. appropriate, height etc.

b) Personality traits e.g. adaptability i.e. ability to fit in groups

The traits by leaders are many and may include the following:
Courage, persuasive, role, intelligence, physical fitness etc.

Weakness of this theory

a) A claim that certain traits are absolutely necessary for effective leadership has never
been sustained.
b) The list of traits proposed for leaders have been vast, __________ contradictory.
c) The pattern of personal characteristics must bear some relevant relationship to the
activities being performed the people being led i.e. the trait theories ignores the
situational factors.
d) It assumes that leaders are born.

2. Activity based theories

These theories have emphasized on what a leader does. They can also be referred to as the
behavioural approach to leadership. They view leadership as an active process and as an
activity.

Leadership as an active process is seen to involve giving instructions, persuasion and

motivation.

Leadership as an activity is the art of practicing leadership.

Action centre leadership model by professor Aduir

This model focuses on the needs of the task. The group and the individual. The idea behind
this theory is that any effective leader in any group must constantly strive to adhere to the 3
goals while maintaining their position as the leader.
 - Team building
- Setting objective Task Group
Needs - Communication
- Planning tasks Needs
- Discipline
- Allocation of duties
Individual - Motivation
needs
- Counselling

- Coaching
The model focuses on the appropriate behaviour or activities rather than personality. It stresses
on what the leader do to meet the needs of the task. Development
- The group and the individual.

3. Situational or Contingency theory

These theories hold that leadership is strongly affected by the situation in which a leader works.
These theories are of the view that there is not one right way to lead that will fit all situations.

It is necessary therefore to lead in a manner appropriate 2 the situation. Contingency models of

leadership include:

(i) Fiediers contingency theory

(ii) Maturity of followers by Hersey and Blanchord
(iii) Handy’s best fit theory.

a) Fledier’s Contingency theory of leadership

Fiediers studied the relationship between the styles of leadership effectiveness of the
work group. He developed a way of assessing leadership based on their preference to
the co-workers.
He came up with a scene referred to as the least preferrel/co-worker score two types of
leaders were this established based on new managers rated their least preferred co-
workers.

i). Psychologically distant managers – These maintain distance with the subordinates
and rate co-workers – rely they:
(i) Formulate roles and relationship
(ii) Prefer formal consultation methods of seeking information
(iii) Are task oriented

ii). Psychologically close managers – These are closer to their subordinates and:

(i) The don’t seek a formularize roles

(ii) They are more concerned with good human relationship at work.
(iii) They prefer informal contacts.

Fredler suggested that leadership is affected by the following key variables:

a) Relationship between the leader and the group.

b) The extent to which the task is defined
c) The power of the leader in relationship to the group.
a) Maturity of followers theory by Hersey and Blancherod
Hersey and Blanchard focused on the readiness of the team members to perform a
given task in terms of their task ability and the willingness to determine the appropriate.
Leadership style therefore, leaders must first determine the maturity level of the
followers.

Maturity level of followers may take up different readiness levels e.g.

(i) High readiness - These are able and willingly – don’t need director or
supportive leadership. The best leadership style is delegating.
(ii) High to moderate readiness – These teams are able but unwilling or insecure.
They require supportive behaviour. Best leadership style is participative.
(iii) How to moderate readiness: These teams are willing on confident but lacking
on ability. They require both directive and supportive behaviour. The best
leadership is selling style.
(iv) Low readiness – These teams are lacking in ability on motivation. The style
therefore, depending on the maturity of the followers are:

 Delegating to subordinates
 Participating with the subordinates
 Selling ideas to the subordinates
 Telling the subordinates what to do

b) Handy’s best fit approach

Handy identifies 4 factors which are key to successful leadership i.e.
(i) The leader – their personality, character and style
(ii) The subordinates – their individual on collective personalities
(iii) The task – its objective, structure on methods and technology
(iv) The environment

From the first three factors, Handy creates a spectrum ranging from tight to flexible i.e. from
autocratic to a democratic. Handy’s best fit therefore occurs where all the 3 factors are at the
same point in the spectrum i.e. they alight at the same level or are close e.g. An autocratic
leader overseeing subordinates who have a low opinion of their abilities and do not like
uncertainties and a task that’s routine and repetitive.

4. STYLE THEORIES

These concentrate on the style of leadership. Many theories of leadership on management have
been expressed in terms of authorisation versus democratic style or task orientated versus
people oriented.

The 2 extremes provide a range of leadership styles contributes to the style theories include

(i) Rensis Likert

(ii) White & Lippit – Democratic, Autocratic
(iii) Black & moution
(iv) Mc – Gregor – X & Y
Rensis Likert
Likert distinguished 4 key systems/styles of leadership i.e.

a) System 1: Exploitative Autocratic

- This is the epitome of autoritanan style
- The leader has no confidence or trust in the subordinates. He never
delegates.
- Motivation is by threats

b) System 2: Benevolent Autocratic

- The leader has superficial trust
- Criticism or dissent is not tolerated
- There is a little element of rewards

c) System 3: Participative
- The leader has some confidence in the subordinates
- He listens to them but controls decision making.
- The leader motivates by reward & involvement.

d) System 4: Democratic
- The leader has complete confidence in the subordinates.
- Subordinates are allowed to make decisions.

Likert felt that leadership styles will depend on the situation and there is no one single
appropriate style.

Leadership and Power

Power is the ability to change and conveyed by the organisation of the group. The ability to
influence the beliefs and behaviour of others.

Types and Sources of Power

1) Legitimate Power
This is the power created and conveyed by the organisation. It is derived from the
organisation structure and manuals.

It is conferred to a position held by an individual. However it doesn’t make the holder

of the position a leader: all managers have legitimate power.

2) Reward Power
This is the power to reward or withheld various kinds of rewards. Typical rewards
include; pay increases, promotions, recognitions. The greater the number of controls
the managers controls and the more important. They are to the subordinates, the more
the reward power that manager has.

3) Coercise Power
This is based on the ability of the manager to punish or reprimand. It forces compliance
through psychological, emotional or physical treats.

4) Expert Power
 This is derived from the expertise of the managers or individuals. The more knowledge
an individual to one field, the greater the influence that individual will have.

5) Referrent Power
This is the power derived from the desire by the subordinates to identify with the
manager or a leader. It is based on charisma, the desire to identify with, imitation etc.
e.g. if a middle level manager emulates a top manager, the top manager has power over
the middle manager.

Factors influencing leadership effectiveness

1) Leaders personality and post experience
2) Expectations of superiors
3) Subordinates characters and expectation
4) Task requirements
5) Organization climate and policies
6) Expectation of co-workers and peers and their behaviours
7) Qualification and experience of a manager.
COMMUNICATION
It is the process of transferring information from one person to another and back. It’s the
process by which people attempt to share meaning through the transmission of symbolic and
other types of messages.

This definitions cause to attention three important points:

1) Communication involves people i.e. the sender and the recover

2) Communication involves shared meaning which suggests that in order for people.
3) Communication is symbolic i.e. it involves the use of gestures, sounds, letters,
numbers, words.

Sender Encoder Transmitter Channel Receiver Decoder

Message Message
Or

Sender Medium Receiver

The process of communication begins with a message which the sender intends to transmit.
This may include facts a problem or even an idea.

The message is encoded to put it in an appropriate form e.g. in words or symbols.

A transmitter then places the messages into the channel of communication the receiver picks
up the message and the decoder translates the message.

The receiver of the message then gives a feedback.

Need/Importance of communication in organizations.

1) Provides information four managerial and subordinates decisions. The information

may be obtained from internal or external sources.
2) Communication facilitates effective coordination of organization activities e.g. various
departments in the organization are able to communicate with each other regarding
activities they are undertaking.
3) Communications facilitate planning by providing the requisite information for
planning purposes.
4) Communication facilitates motivation. Effective motivation requires appropriate
communication so as to provide.
5) Communication in an organization enhances good leadership. Effective leaders
communicate appropriately with their employees.
6) Communication is critical four effective control. This is necessary so as to inform the
subordinates on the expected standards and to provide the appropriate reports or
feedback.
7) Communication permits the expression of feelings and satisfaction of social needs and
thus helps to vent out frustrations.
8) Communication helps management to communicate with the outsiders e.g.
government, suppliers, T. union
9) Communication fosters the team spirit in the organization which improves
performance.
10) Communication keeps employees informed of the various happening within and
outside the organization.
11) Communication is important for marketing purposes.

Barriers / Obstacles to effective communication

1) Inconsistent Non – Verbal signs

Inappropriate interpretation of a non-verbal sign may hinder communication e.g.
inappropriate body languages, gestures etc.

2) Inappropriate language
The choice of words is vital to effective communication and technical language should
only be used when communicating with people who understand it.

3) Poor Listening skills

Listening is a skill which requires careful concentration and in the absence of
appropriate listening messages may be distorted.

4) Pre-judgement
What is understood out of the message is often coordinated by what we already know
and our background and prior experience.

Pre-judgement of a message being communicated may result in a communication

failure.

5) Poor relationship with the speaker

If the relationship between the sender and receiver is poor communication may fail all
together.

6) Poor Communication channel or systems

Ineffective system or poor information handling may affect the way information is
received and discriminated. In the organization e.g. information may be received late
or note recorded.

7) Poor planning of messages

Poorly expressed message due to poor planning of communication e.g. lack of support
data, lack of clear objective of communication may affect communication.

8) Noise
Noise in the physical environment e.g. loud music or psychological noise may lead to
communication failure.
9) Size of audience
Communication may fail if the speaker is addressing a very large audience with
inappropriate electronic gadgets.

10) Emotional responses/influences

Emotions may distort/disfiguring of the information.

11) Deliberate misinterpretation / misrepresentation of the information

Some individuals will deliberately misrepresent facts leading to communication
failure.

12) Lack of communication skills

Measures to improve communication

1) Proper planning of communication, messages being transmitted should be relevant and

well organized.

2) Use of appropriate language

Technical language should be avoided and the appropriate tone consistent with the
message being communicated should be employed.

3) Use of appropriate communication aid

Communication facilitates such as projectors, Pas etc. should be used where necessary.

4) Listening skills should be improved

5) Speakers / senders should be considerate of eh users or receivers of the information.

Individuals differ in their needs and expectations & company with those differences
with help senders understand the audience.

6) Provision of appropriate channels of communication

7) Training in the communication area.

Forms of Communication

1) Oral Communication – Communication carried out through spoken words e.g. a face
to face communication between a manager and staff members. It includes telephone
communication.
It’s most preferred form of communication because message is received
instantaneously.
2) Written Communication – Use of letters, memos, notices, newsletters, reports etc.
- This type of communication may be sent using electronic media e.g. Email or
Faxes or can be sent through the use of services or post offices.
- It allows for a record which can be used for future reference.

3) Non-Verbal Communication –
- Refers to communication through the use of body languages and other signs.
 - Involves use of gestures & other body signs
- Used to reinforce verbal communication.

Channels of Communication

1) Vertical channels of communication

Involves downward & upward communication

a) Downward Communication
Involves most of information from top management lever to lower level
positions e.g. information flowing from a tope manager to a middle level
manager.
It is used for giving information on the companies’ policies and procedures,
motivating employees, announcing the companies’ major event.
Involve use of memos, notices, telephone, newsletters etc.

b) Upward communication
Involves movement of information from lower levels of the top levels in the
organization hierarchy or structure. It’s often used for giving information on
performance or progress e.g. the progress report or letters of complains to top
managers etc.

2) Horizontal / Internal Communication Channel

Involves the movement of information within or between departments at the same lover
in the organization hierarchy or structure e.g. communication between the production
manager and the purchasing manager.

It is used to coordinate activities of groups/departments. It may also be used to

persuade/information others about the activities in the department.
The methods used include meetings, telephone, letters, departments, memos etc.

3) Diagonal / Grapevine
Most of the information in the organization flows through formal channels, however
much information in the organization may flow through an unofficial (grapevine).

Grapevine consists of information communication informally and unofficially among

employers.
Grapevine is often oral or through emails.

Diagonal communication serves within the informal groups which comprise of

members from different levels and departments.

Grapevine satisfies the following needs of employer:

i) They are faster and flexible

ii) Provide messages that would not be carried by the formal channels.
Managers should accept grapevine since it must exist in an
organization and they should therefore try to limit its negative impact by
minimizing information gaps.
REINFORCING QUESTIONS

Q1 (a) Define communication and show its importance.

(b) Describe managerial communication, horizontal communication, and chief

information officer.

(c) Discuss how to manage communication, barriers to effective communication

and how to improve communication effectiveness.

Q2. Define leadership, indicate the difference between leadership and management and
identify the challenges of leadership.

Q3. Discuss the various types of power, their application and their outcomes.

Q4. Identify important human needs and discuss two theories that attempt to outline how
these needs motivate people

Q5. Describe employee motivation from the perspectives of expectancy satisfaction and
equity.

Q6. Describe clearly the nature of groups and discuss their psychological character.

Q7. Discuss the management of functional groups and committees showing clearly the
advantages and disadvantages of group decision-making.

Q8. Describe the nature and management of organizational conflicts.

STRATEGIC MANAGEMENT
Strategic management is a modern field of management and industrial environment in which it
operates and approximately positions itself in industry.

Activities that are encompassed in a strategic management have in the past been referred
variously as follows
a) Strategic planning
b) Long rate planning
c) Corporate planning
d) Business policy

Planning has been put a side in recent years in favour of management which has a broad
approach to activities involved.
Strategic management therefore is a broad framework in which strategic planning is done.
Strategic management field has grown in importance over the last 30 years largely on account
of increased complexity of modern business.

Factors / Reasons for strategic management

1. Increased expectations of customer for quality and variety of goods and services.
2. Rapid advances of micro electronic technology which has revolutionalised many of
the processes by which goods are availed to the customer.
3. Entry into world markets of new low cost manufacturing forms from Asia and
Eastern European countries that are challenging the Westerns times.
4. Increased Ability of firms to compete due to benefits of new technology such as the
internet when has made the world to be a global village.
5. Greater concern over the environment resulting into different alternative production
method.
6. Improvement of worldwide Communication facilities leading to better and timely
information for better decision making.
7. Greater emphasis on Consumers rights e.g. safety of product or product reliability.
8. Greater interconnectivity of the human race, in terms of political systems, social
systems e.g. sports and economic system serving as training blocks.

The above scenarios presented to many commences and industrial entities are complex
environment requiring a long term view and a broader approach to management hence
developed of strategic management.

This requires strategic limiting to address the following questions:

1. What is our business?
2. Where do we want to be in the next 5, 10…….. 20 years?
3. What do we have to achieve to get there?
4. What strategies can take us there?
5. What resource are we likely to be required?
6. What changes are we likely to have to cope within the environment
7. How can we gain or retain comparative advantage over them?

Such questions make up principle challenges to top managers for it’s that task to ensure that
the organization has a healthy and process future.
Strategic management is therefore concerned with the achievement of long term goals through
effective development implementation and evolution of strategies.
Definition of a strategic management
It’s the process by which top managers determine long term performance and direction of the
organization by ensuring / instituting a careful study and development of strategies, that
implementation and evaluation to achieve long term goals of the organization.

Strategic management is therefore a broader concept of managing an organisation. It takes into

account all aspects of managerial problems and the strategic approaches needed to save them.

Definition of a strategy
Strategy can be defined broadly as an action plan to achieve objective and missions of the
organization. It’s a method of competition or a means to an end i.e. means to achieving
organizations goals.
Originally the term strategy was used to direct military forces. Today the term is used in
business to describe the steps taken by an organization to achieve its long term success / goals.
Most organizations have several options available to them for achieving their goals, strategies
concerned about deciding which option to be used.

Types of organizations strategies

1. Corporate strategies
Are established at the highest level of management and involve a long term horizon or
view of the organizations developed and implemented by the top managers e.g. B.O.D,
CEOs, MDs etc
2. Business unit strategies
Focus on how to compete in a given strategic business unit (SBU). Are narrow in scope
than corporate strategy. Are generally applied to a single business Unit (SBU). A SBU
is an operating unit in an organization that sells a distinct set of products / services to
an identifiable group of customers in competition with a well-defined set of
competitors.
3. Functional strategies
Are Narrow in scope than business unit strategies, are developed to deal with activities
of the functional areas of the business e.g. production, finance, marketing, personnel
etc they support the business.
4. Strategic management Model

Vision, Mission and objectives

Environmental / Industries analysis B

Feedback

Strategy Alternative and choices

C

Implementation of strategy

Strategy Evaluation
KEY

A - Strategy Formulation
B - Implement
C – Evaluation

1. Vision - A vision statement is bread and precise statements which defines where the
organization aspires to be in the future.
It defines to the management the desires and aspiration of the organization. It serves to
provide strategic direction to the management; it acts as a guide or a mirror to the
organization.

2. Mission statement is a broad statement which is precisely defined to include what the
organization wants to achieve. It broadly defines the proposed intent of the
organization. It captures the overall goal of the organization which provides a sense of
direction and guidance in decision making at all levels of management. It must be in
writing and challenging to the organization. It must also be well communicated and
internalized by the management and employees of the organization. When a mission
statement is accepted by employees & management it becomes a framework for
decision making and setting of priorities. A Mission statement therefore provides
criteria for strategy selection by the management. Without a clear statement its
virtuality impossible for the organization to develop collective and strategies thus an
organization is likely to lose the strategic direction and achievement of long term goals.

3. Objectives – Refer to the desired and results and also derived from the goals of the
organization. Ideally they should be set at every level of management.

Broad Categories of objectives

(i) Corporate objectives – Apply to the entire organization and are set by the top managers
of the organization.

(ii) Divisional objectives - / SBU Objectives applied on in certain divisions or business

unit of the organization.

(iii) Functional / operational + departmental objectives – apply to certain areas or

departments of the organization.

4. Strategic

An organization may consider the following corporate alternatives of

Strategy

(i) Stable growth strategies

(ii) Growth strategies
(iii) Defensive strategies

(i) Stable growth strategies

Implemented when the organization is satisfied with its past performance and desire to continue
to pursue the same & similar objective strategies. Each year the level of achievement is
increased appropriate by some percentage. The organization continues with the same market,
customers, and similarly with some products and services. These strategies are applicable
mostly when: -
 The environment is less competitive or volatile
 An organization is experiencing resource scarcity and change will require additional
resources.
 Organization is incapable of keeping up with changes that they affect its products or
market.

(ii) Growth strategies

An organization pursuing growth strategies (those seeking to increase their growth)
have the following characteristics:-
 Growth faster than the market in which their products or services are sold.
 Regularly develop new products and hence new market and new uses for their
products.
 Instead of adapting to changes of the outside world they tend to adopt the outside world
to themselves by creating products that do not exist.

Strategies here include (growth strategies)

a) Concentration strategy
b) Market development strategy
c) Product development
d) Diversification strategy
e) Integration
f) Integration / merger
g) Modernization

Concentration strategy
Under this a company focuses on a single product or service on a small number of closely
related product / services. It involves increasing sales, profit and market share.

Market development strategy

Involves expanding the markets of the current business, this can be done by gaining a large
share of the current market or expanding to new geographic areas or attracting new market
segments e.g. Coca-Cola has continued to take this strategy by acquiring impressive market
share through adverts and expanding into new geographic areas.

Product Development Strategy

Involves altering basic products / services or adding a closely related product that can be sold
through the current market channel e.g. telephone companies have continuously their products
to make services such as call holding e.g. please call me.

Diversification strategy
Occurs when a company moves into areas that are clearly differentiated from its current
business.
Reasons for diversification include:
- Spread the risk
- Attract opportunities for growth and more profits
- To balance seasonal and cyclical fluctuation of demand.
Types of diversification include: -
- Concentric diversification – involves expanding into a related area of business, allows
and organization to build on its expertise in a related area.
- Conglomerate diversification – involves expanding into areas of business
differentiated from the organization’s current products / services.

Integration strategy
May be either horizontal or vertical.
Horizontal Integration: -
Occurs when a organization adds one or more existing businesses that produce similar products
or services and which operate at some stage of business may accomplished by acquisition of
another same area of business.

Vertical Integration:
Involves extending the organization’s present business forward or backward.
Forward – Involves a decision to move an organization to distribute products and services.
Backward – moves the organization into supplying its own raw materials.

Mergers, Acquisitions and Joint ventures

Merger – Occurs when two or more companies combine into one firm or entity. Neither
participant acquires the other rather both companies bring their operation into one.

Acquisition – Occurs when one company purchases the asset of another and absorbs them into
its operations.

Reasons for Acquisition and Mergers

(i) Increase the market values of stocks of both companies
(ii) To provide better utilization of existing facilities.
(iii) To reduce unproductive competition in purchase and resources and sale of products in
the market.
(iv) To strengthen the product / services competitiveness.
(v) To gain synergistic benefit e.g. one CEO to pay, better expertise.

Joint Ventures – Occurs when two or more organizations pull their organization resources for
a given product or business operation. International companies are usually encouraged by host
countries to enter into joint ventures with local companies. Pulling their resources,
organizations may be able to undertake ventures which they cannot undertake alone and thus
sharing the risks.

Modernisation Strategy – Involves the use of technology as a strategic competitive tool.

Basically it involves upgrading of technology, modernization is used to achieve organization
objective such as increased production, lower cost, greater efficiency etc.
Involves investing heavily in new technology e.g. ICT and training of technical personnel to
strengthen the company’s competitiveness in offering quality goods.

Defensive Strategies
These are strategies used by the companies whose performance has deteriorated and there is
need to improve performance, they include;
1) Turnaround strategy – Designed to change / reverse a negative performance and to
get organization back to track for profitability. Turn around strategies usually try to
reduce operation costs by cutting down on costs and operating more efficiently by
reducing size of operation.

Specific measures include: -

 Eliminating / reducing employee remuneration or compensation e.g. fringe benefit

 Leasing rather than buying equipment.
 Replacing highly paid employees or re-negotiating their pay.
 Cutting back on marketing budgets e.g. on expensive adverts.
 Eliminating low merging or an unprofitable products
 Dispensing off non-current assets such as building or equipment
 Laying off / retrenching employees.
 Dropping low merging customers

2) Divestment – Divestment involves selling part of product, division selling part of

product, division selling part of business or product line. It’s frequently used when turn
around strategies are not successful. It may also be used when the companies’ situation
has detonated such that the only survival is to sell major components so as to raise
funds to support the remaining business.

3) Liquidation – occurs when the entire company is either sold or dissolved.

Reasons for dissolution

- management may have negative attitude of the organizations future potential
- The owners do not wish to proceed in that business.
- A company may be forced into liquidation due to deteriorated financial conditions.

Business Unit Strategies – The following are categories of Business

(i) Overall cost leadership – under this a company produces & delivers the product at
the lowest cost than competitors. It’s attained through a combination of various
production expansion and efficiency. It pays close attention to production method used,
overhead costs and overall cost minimization.

(ii) Product differentiation – the organization seeks to have its products recognized from
the rest in the market. Such an organization will: -

- Create an image unique from the rest which allows it to charge higher
prices than the average in the market. It can take many form such as –

o Brand image
o Technology used
o Customer Service

(iii) Focused Strategy – Involves focusing on a particular Market segment as defined by a

particular customer group, geographic segment or product line. Based on the premise
that the Firm is able to serve a well-defined market better than competitors who serve
broad market.
External Environment Analysis
An organization external environment consists of competitors and other Forces outside the
industry. Thus are not under the direct control of an organization. The environmental analysis
is a critical component of strategic management because it produces much of the information
required to access the output from the future. Major external environment forces include:
competition + SLEEPT

Industry and Competitive Analysis

Industry and competitive analysis attempts to answer the following questions:

1) Who are the companies’ current & potential competitors?

2) What are their goals aspiration & capability?
3) What are their strategic intentions?
4) How and where will they compete?

In recent years industry and competitive analysis have become important so as to identify and
select the companies’ arena or areas by defining the industries boundaries and the market
served.

Internal Analysis
This addresses the issues on what the organization was and what will need to change. In other
words its strengths and weaknesses. A key issue is internal analysis – is the reserve allocation,
is the company and its influence strategy.

1. Access covered by internal analysis

Typically every area of the organization can be significant in determining its long tern
survival, some of the areas commonly analyzed by most of the organizations:

i) Financial Position
ii) This analysis helps the business to develop awareness of its financial
strengths and weaknesses.
Tools and techniques that may be used include:
- Cash flow statements
- Income statements
- Balance sheet statements
- Budgets

2. Product position in the market

Managers should determine the level of product/market share i.e. whether the market
share is decreasing or increasing, whether the share concentrated on a small number of
customers or diversified

3. Product quality
A company should evaluate its product or services related to those of competitors.
Source of such data may include: feedback from customers, repairs records / levels etc.

4. Market capability
Refers to the organizations ability to deliver the right product at the right place, right
time, and right price. Areas that should be analyzed include price, distribution channel
etc.
 5. Research & development capability
Should be determined whether an organization has the research ability to develop new
products or services. The analysis entails looking at the number of products and their
success in the previous years.

6. Organizational structure
An assessment should be made on the effectiveness of the current structure. Such an
assessment should focus on: -
- The time taken to make decisions
- Paper work required for decisions
- The degree of condition and corporation among various units
- Relationship between the organization strategies and structure
7. Human resources capability
Consideration should be made on:
- Quality and quantity of human resource
- Training programmes used
- The compensation system
- Performance appraisal

8. Conditions of facilities & equipment.

9. Past and current objective strategies

MODEL FOR STRATEGIC CHOICE

Environmental Analysis
(SWOT) Choice of Stakeholders
Strategy Satisfaction
Goals and Objectives
Feedback

Predefining
objectives/goals
STRATEGY IMPLEMENTATION
Strategy Implementation Model

Strategic Choice

Power & Leadership Financial & Physical

resource

Organization Structure & Human Resources

Framework

Organization Culture

Implementation of
Strategy

Strategy implementation involves the following:

1) Communicating the strategies – the strategy chosen should be well communicated to

all members of the organization and the department concerned.

2) Appropriate leadership – this is necessary by the top managers and other managers
to supervise and direct the implementation process.
3) Motivating subordinates – this is necessary to ensure that they are committed to the
strategy implementation and it entails offering rewards and forms of incentives to
recognize effective implementation of a given strategy.

4) Provision of human resources required – it’s necessary that the appropriate human
resource is availed and where necessary the training of the employers to have the right
skill for the strategies being implemented.

5) Provision of the appropriate structures – the structures necessary to implement the

strategy should be provided e.g. establishment of committees clear path of
communication, defined chain of command, delegation of authority etc. Such
structures should be adequately supported and well laid down.

6) Deployment of sound policies, procedures, programs and rules, - should be laid

down to strengthen the strategy implementation roles.

Strategy Evaluation / Control

The Purpose of Strategy evaluation / control

1) To check the validity of strategic choice made and the premises upon which it has been
implemented/ formulated.
2) To determine whether the companies chosen strategy is being implemented on time
and within the resource constraints of the organization.
3) To determine whether the strategy is performing according to plan i.e. whether it is
resulting into achievement of desired objective.
4) To provide the managers with feedback on the unit performance with respect to the
strategic performance of organization.
5) To generate information or data for evaluating executive performance and making
compensation decisions for the executives.
6) To motivate employees by giving them feedback on their performance and even
rewarding them on their performance.
7) To provide information to the organization strategies for further strategic planning.

Strategy Evaluation Process

The process involves the following activities:
- Establishing standards of performance / objectives of the overall organization,
departments or units of the organizations.
- Monitoring progress in the execution of organizations strategy
- Measuring the implementation of different strategy pursued in different
organization units.
- Initiating corrective action to ensure continued commitment to the implementation
of strategy.
- Corrective action involves timely dissemination of feedback to managers and other
members of the organization.

Key Players in evaluation of strategy

1) Line Managers – they monitor the operation/ implementation of strategy at operation

level and obtain feedback data on performance of strategy. They may suggest minor
corrective measures on strategies being implemented or give feedback to the heads of
the departments.
2) Heads of departments – they evaluate the strategies implemented against department
goals and objectives. Are in charge of overall implementation of strategies at the
departmental levels and may initiate changes to ensure that the strategies is in the line
with the department.
3) Corporate planning department – receives all performance data from all affected
areas and evaluates the information received against set objectives. This department
recommends appropriate changes in the strategies being implemented.
4) CEO’s MD’s – receive feedback on performance of various strategies & pass this on
to the board of directors.
5) B.O.D – B.O.D – evaluates overall results of the organization performance and
recommends appropriate changes in the strategies to be implemented in the future.
REINFORCING QUESTIONS

Q1 Define strategic management?

Q2 What are the major steps in strategy formulation?

Q3. Give some examples of objectives.

Q4. Clearly define and describe work study and show its advantages.

Q5. Write short notes on constraints to productivity measurement.

Check your answers with those given in Lesson 12 of the Study guide.

PAST PAPER REVIEW

1. June 2005 Q7
2. December 2005 Q8
3. December 2004 Q 5
4. December 2003 Q 5
5. June 2003 Q 3
6. December 2001 Q 1
7. June 2000 Q 2
8. June 2000 Q 8
9. December 2006 Q5
MARKETING MANGEMENT
INSTRUCTIONS

1. Carefully read the Chapter 12 of study text.

2. Attempt the Reinforcing Questions at the end of the Lesson.
3. Check your answers with those given in Lesson 12 of the Study guide.
4. If your answers are significantly different from the model answers read the lesson again and
supplement your reading with the text book.

Developing the marketing

mix

Marketing of services

Analysing marketing
opportunities –
segmentation and selection

Extending marketing
(international marketing)

CONTENTS

Understanding marketing and the marketing process

Developing the marketing mix

Marketing of services

Analyzing marketing opportunities – segmentation and selection

Extending marketing (international marketing)

MARKETING MANAGEMENT

UNDERSTANDING MARKETING AND THE MARKETING PROCESS

Marketing defined
The American marketing association defines marketing as “the performance of business activities
that direct the flow of goods and services from producer or seller to the consumer or user”.

Kotler defines it as “the satisfaction of human needs and wants through exchange”. Stanton says
that “marketing comprises a system of business activities designed to plan, price, promote and
distribute want satisfying products and services to present and potential consumer segments.

Drucker says “marketing is the whole business seen from the point of view of its final result that is
from the customer’s point of view!”

What we must note is that marketing is very broad and encompassing, and no one definition will
suffice. However all the definitions are clear on the main issue underlying the discipline of
marketing that is there must be two sets of factors—givers and takers or producers and users.

Note that one individual or organization can be both a producer and a consumer of different
products. The two sets of factors must interact through a process of exchange where they give and
simultaneously receive something of value. Marketing as an exchange process does not include
production for own use, robbing, stealing or begging. Human beings who form the buyers have
unlimited wants which must be satisfied with limited income, therefore they must make choices.

Components of Marketing
Has two sets of factors:

a. Controllable variables: marketing mix

These are the activities or areas that are under the control of the marketing executive and which he can
manipulate to achieve his marketing objectives. They include product, price, promotion and place
(distribution) and they are popularly known as the 4p’s of marketing or the marketing mix. A marketing
programme contains a “mix” of these variables. The way the marketing manager mixes these variables
determines the effectiveness of the firm’s marketing programmes.
To have an optimum mix of the 4p’s the market must have a clear understanding of the target market, e.g.
size, composition, ages, incomes, education, lifestyle etc. This information is usually gathered through
marketingresearch.

Note
Services, however, have additional 3ps (people, physical facilities and process) in addition to the usual 4ps
giving a total of 7ps.

(b) Non-Controllable variables

Marketing takes place in an environment that has other factors which can be divided into micro and macro
environmental factors.
The micro factors include such factors as buyers, suppliers, competitors, marketing intermediaries and
employees. The macro environmental factors include economic factors, political-legal factors, socio-
cultural factors, and technological factors, the international marketing environmental and physical or
geographical factors.

Importance of Marketing
Marketing helps people consume goods and services that they would not otherwise consume. It is through
marketing that we get goods produced within our country and also from other countries.

It is through marketing that we are able to export our products like tea and coffee to other countries.

Marketing therefore plays a big role in raising our standards of living as it creates utility. Marketing also
creates employment. Many people in Kenya earn their living by performing marketing activities e.g. all
those people in wholesaling, warehousing retailing, transportation, advertising agents etc. Marketing gives
us information and also pays for most of the entertainment and news that the mass media provide to the
public.

The Core Concepts of Marketing

The starting point for the discipline of marketing lies in human needs and wants.

Needs
A human need is a state of deprivation of some basic consumption e.g. hunger, shelter, safety belonging.
These needs exist within our biological makeup.

Wants
Wants are desires for specific satisfiers of these deeper needs. Wants are influenced by the environmental
factors. So they are continually shaped and reshaped by social forces and institutions, such as churches,
schools, families and business corporations e.g. different people can satisfy their need for transport
differently depending on where they are. Also people in different environments satisfy the need for food
differently.

Demands
Are wants for specific products that are backed by the ability and willingness to buy. So wants become
demands when they are backed by purchasing power. Many people may want bread but only a few are able
to buy it. In marketing companies they must therefore measure not how many people want their product
but more importantly how many are willing and able to buy the product. Marketers do not create needs, but
they influence wants. For instance marketers suggest to us that a Mercedes-Benz would satisfy our needs
for social status, they do not create the need for social status. Marketers also suggest to people that a toilet
soap would satisfy their need for beauty - they do not create the need for beauty. So needs actually precede
marketers. Marketers try to influence demand by making the products attractive, affordable and easily
available.

Products
People satisfy their needs and wants through products. So a product is anything that can be offered to
someone to satisfy a need or a want. The product can be tangible (physical) e.g. T.V, soap, car, pen, etc. or
intangible (service) like a haircut, transport, cleaning etc. People do not buy physical product for their own
sake but because of the benefits they think they will receive from the product. So when a lady buys a tube
of lipstick she is in effect buying beauty or a better look. When we choose to travel by bus we are looking
for certain benefits e.g. safety, comfort, speed, etc. So marketers should concentrate on the benefits in-built
in the product. Some marketers however fall in love with their products and keep emphasizing the physical
features of the product and how the product is good (to their eyes of course) forgetting that people buy
products because they satisfy certain needs. Such marketers are said to suffer from marketing myopia.
Utility, Value, Satisfaction
How do consumers choose among the products that might satisfy a given need? The guiding concept is
utility. It is the consumer’s estimate of the products overall capacity to satisfy his needs. But each alternative
has a price, so to make a choice the consumer must consider the products utility with the price and choose
the product that gives the highest utility per shilling (greatest value). So although one product may offer
more utility to a consumer, it may represent less value in relation to another product. A product that is of
better value than another is one that offers more for the price.

Exchange, Transactions and Relationships

The fact that people have needs and wants and can place value and utility on them does not fully explain
marketing. Marketing emerges when people decide to satisfy needs and wants through exchange.
Exchange is the act of obtaining a desired product from someone by offering something in return. For
exchange to take place the following must exist:

(a) Two parties

(b) each party has something that might be of value to the other
(c) each party can communicate and deliver
(d) each party is free to accept or reject the offer
(e) each party feels it’s desirable to deal with the other party.

Whether the exchange will take place or not will depend on whether the parties can agree on the terms of
exchange. If they agree then a transaction takes place i.e. trade of value between the two parties. So
transactions are the basic units of exchange. A transaction can either be a monetary transaction or a barter
transaction.

Smart marketers try to build long-term trusting, win-win relationships with customers, distributors, dealers
and suppliers. This way a company builds a marketing network of solid dependable relationships between
itself and other actors in the market place.

Markets
The concept of exchange leads to the concept of a market. A market consists of all potential customers with
a certain need or want and who are willing and able to engage in exchange to satisfy that need or want. The
size of the market depends on the number of people who exhibit the needs, have resources that interest
others and are willing to offer the resources to acquire the product.

Marketing and Marketers

The concept of markets brings us to the concept of marketing. (Human activity taking place in relation to
markets). It means working with markets to actualize potential exchanges for the satisfaction of human
needs and wants.
The party that is seeking the exchange more aggressively i.e. making the offer is the marketer while the
other is the prospect. So a marketer is the person seeking a resource from someone and willing to offer
something of value in exchange. The marketer is seeking a response from the other either to sell
something or to buy something. The marketer can be a seller or a buyer. Where both parties are actually
seeking an exchange, they become both marketers and the situation is reciprocal marketing. Marketing
therefore is the social and managerial process by which individuals or groups obtain what they need and
want through creating and exchanging products and value with others.

MARKETING MANAGEMENT

Marketing management takes place when at least one party to a potential exchange gives thought to
objectives and means of achieving desired responses from other parties. It is therefore the process of
planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to
create exchanges that satisfy individual and organizational objectives.

Marketing management is historically identified with tasks and personnel dealing with customer (final
consumer) market. So the people carrying out marketing management are going to include sales manager,
marketing managers, advertising managers, marketing researchers, customer service managers, product
managers etc.

Marketing management has the task of influencing the level, timing and composition of demand in a way
that will help the organization achieve its objectives. Essentially marketing management is demand
management. Each organization has a desired level of demand with its target market. The actual demand
may be below or above desired level, i.e. there may be either no demand, weak demand, adequate demand
or excessive demand.

MARKETING MANAGEMENT PHILOSOPHIES.

Philosophy refers to management attitudes, orientation or state of mind as far as marketing management
practice is concerned. Five different marketing philosophies have been advanced.

(a) Production Concept

When manager’s main concern is production and distribution efficiency, it holds that consumers will
favour those products that are widely available and low in cost. The concept works when:
i). Demand exceeds supply especially in many third world countries. Here the consumers are more
interested in obtaining the product than in its fine details.
ii). Where products cost is high and has to be brought down through increased productivity to expand
the market.

(b) The product Concept

Holds that consumers will buy products of high quality and performance and shun inferior quality
products. The producers concentrate on improving their product without knowing “what turns the
customers on”. It is weak in that it assumes people are aware of the product’s technical qualities and that
they will buy without persuasion from the producer.

(c) Selling Concept

Holds that consumers if left alone will ordinarily not buy enough of the organization’s products. The
organization must therefore undertake an aggressive selling and promotion effort practiced most
commonly with “unsought goods” like insurance. The marketer must practice hard selling. It is also
practiced a lot in the nonprofit areas e.g. colleges, political parties, churches and harambee movements (in
Kenya). Most firms practicing the concept have overcapacity so their aim is to sell what they make rather
than make what the market wants.

(d) Marketing Concept

Holds that the key to achieving organizational goals consists in determining the needs and wants of target
markets and delivering the desired satisfactions more effectively and efficiently than competitors.
Marketing concept focuses on the needs of the buyer and argues that all marketing decision-making
should start by understanding the target consumer. It takes the view that consumers are the most
important stakeholders in the organization. This does not mean that the customer is always right but rather
that he (customer) forms the starting point for the organizations corporate strategy. With this concept
marketing is seen as an activity that is so important in the organization that it cannot be left to the
marketing department only-everybody in the organization must think to serve the consumer.

The marketing concept is therefore a market focused, customer oriented co-coordinated marketing effort
aimed at generating customer satisfaction as the key to achieving organizational goals.

(e) Societal Marketing Concept

The marketer is concerned with both satisfying consumer needs and the long run welfare of the society at
large. It argues that the needs of the individual consumers are not always in conformity with societies
needs and therefore in trying to satisfy individual needs and wants the marketer should consider the
societal consequences of his activities. The world is characterized by environmental degradation, resource
shortages, explosive population growth, poverty, hunger and neglected social services. The question is
whether companies are acting in the long run interest of the society. Should marketers satisfy customers
regardless of environmental issues? The societal concept argues that it is only right to satisfy consumer’s
needs so long as in doing so the marketer does not affect the environment adversely.

9.2 THE MARKETING MIX VARIABLES

The marketing mix is a vital element of every marketing strategy. The mix forms the group of variables
that are offered to the market at a particular point in time. These variables include product, price, place
(distribution) and promotion. The 4 P’s careful use of the marketing mix enables marketers to speedily
respond to changes in the marketing environment.

A. PRODUCT DECISIONS
Product means anything that is offered to customers for attention, acquisition or purchase. The term
embraces physical objects, services, ideas, personalities, places etc. Products can be grouped into major
categories as follows:

(a) On durability—here we have durable and non-durable products

(b) Buying effort expended—here we have

i Convenience goods e.g. bread and milk
ii Shopping goods e.g. television, furniture especially e.g. Rolex watch or fine crystal Unsought
good e.g. life insurance
(c) Industrial vs. Consumer goods—industrial goods used by producers of industrial products,
consumer goods purchased for final consumption.
(d) Standardized vs. Custom-made products
Classifying products helps marketers in designing marketing programmes. Whether the
product is perishable or durable, consumer or industrial, standardized or custom made will influence
the mode of distribution, packaging, labeling and promotion decisions.
New Product Development
Companies develop new products for various reasons:
(a) To help a business meet the pressure of competition. The more brands a company has the more
shelf space it has and the higher the likelihood of consumers picking one of the products.
(b) To help utilize excess marketing or production capacity.
(c) Sometimes company growth can only be sustained through the development of new products.
(d) To meet changing consumer demands and tastes.

Stages in New Product Development

(a) Idea Generation-where a pool of ideas is developed. Sources of ideas include customers, sales
people, competitors, researchers, group discussions or company laboratories.
(b) Idea Screening—where ideas are analyzed to see their viability bearing in mind the following:-

i Size of demand
ii Marketing capability
iii Expected life cycle
iv Technical capability
v Expected sales growth

(c) Business analysis-the concern is future sales and profits. Here forecasts of sales and cost are
made to see whether the venture is worth it.

(d) Product development-Here the company tries to find out if the product is technically feasible.
Decisions on names, brands, packaging are resolved and a model is developed.

(e) Test Marketing-The product is introduced into the market on a small scale to see the
reactions of the market.

(f) Commercialization-Full scale production and marketing of the product is implemented. Once
the product is made available to the market the consumer adoption process begins.

Consumer Adoption Process

The process represents the mental sequence of stages through which an individual progresses from
awareness of a new product to final acceptance or rejection. In deciding whether to accept or reject a
product, the consumer may go through three stages:
(a) Knowledge phase
(b) Attitude development
(c) Action phase
One becomes aware of the new product, then analyses it to see how it may suit his tastes, then he may
sample small quantities and finally adopt the product. Different individuals adopt new products at different
time periods. Where the consumer attention process ends there begins the product life cycle.

The Product Life Cycle

Just like plants and animals, products also have a life cycle. That is they are born, grow up, mature and
finally die. The concept of product life cycle involves an attempt to identify the different stages or phases
in the sales history of a product. Each stage when identified, presents different marketing opportunities
and problems. If the marketer knows the phase in which a product is in or is moving towards, he can
devise a marketing programme that befits that stage. The product life cycle shows an S shaped curve.

Growth stage Maturity stage Decline stage

Introduction
stage
Introduction Growth Maturity Decline

(1) Introduction

This stage is characterized by slow growth in sales and low or no profits. The customers are largely unaware
of the new product and those who become aware may be involved in searching for information before
deciding whether or not to buy it. Profits are usually negative or negligible because of high investment for
launching the product e.g. heavy promotion and distribution.

Marketing Strategies in the Introduction Stage

In launching a new product, management can set a high or low level for each marketing variable such as
price, promotion and distribution. Management can pursue any of the following strategies:

A Rapid Skimming Strategy—the new product is launched at a high price and a high promotion level.
The high price is aimed at recovering as much gross profit per unit as possible. Heavy promotion is aimed
at convincing the market of the merits of the product.

Slow Skimming Strategy—the product is launched at a high price and low promotion. High price to get
as much gross profit per unit as possible and the low promotion to keep marketing expenses down.

Rapid Penetration Strategy—launching the product at a low price and high promotion aims to bring
fastest penetration and a large market share.

A Slow Penetration Strategy—the product is launched at a low price and low promotion. The low price
is aimed at encouraging rapid product acceptance while the low promotion keeps costs down.

(2) Growth Stage

This stage is marked by a rapid climb in sales because the product has managed to satisfy customers. The
high sales are due to trial buys and repeat buys. The high profits start to attract competitors. The marketer
needs to maintain the sales by engaging in product quality improvements shifting the emphasis in
advertising from informing to convincing potential buyers.

(3) Maturity Stage

In this stage the sales growth rate slows down and sales reach their peak. This stage which lasts longer
than previous stages is divided into:

i. Growth maturity—where sales increase at a decreasing rate

ii Stable maturity—sales have flattened and the market is saturated and
iii. Decaying maturity—the absolute level of sales starts to decline and customers start
switching to other products and substitutes. The industry experiences over-capacity which
leads to intense competition. A marketing manager must carefully combine market
modification, product modification and marketing mix modification in order to devise a
marketing programme that will efficiently help him achieve his objectives.
(4) Decline
The absolute level of sales decreases consistently. This decline can be slow or rapid depending on
the existing market conditions as well as the strategy adopted by the marketer. As the sales and
profits decline some firms withdraw from the market, those left may reduce product offering or
withdraw from smaller market segments and weaker trade channels. The marketer must however
decide very carefully when to quit since leaving the market too early or too late may be
uneconomical. The strategies available to the manager at this stage are:

• Increasing the firm’s investment to dominate or strengthen its competitive position

• Maintaining the firm’s investment level until the uncertainties about the industry are
resolved
• Decreasing investment selectively e.g. Dropping unprofitable customer groups
• Harvesting (milking) trying to recover cash very quickly
• Divesting the business quickly by disposing of its assets as advantageously as
possible.

Importance of Product Life Cycle Curve (PLC)

• The PLC can be used by marketing managers to interpret market movements

• As a planning tool, the PLC concept characterizes the main marketing
challenges in each stage and poses major alternative marketing strategies.
• As a control tool, the PLC allows the company to measure product
performance against similar products
• Taking to account the stages in the PLC it is easy to plan development and introduction
of new products, and plan the withdrawal of obsolete products
• Knowing the stage on the PLC, the potential sales growth of a product can be assessed.

Problems in Using The PLC

(a) Time period—how long is the product life cycle? years, months or decades. There is no
fixed length of each stage.
(b) Sometimes you cannot tell which stage the product is truly in. Not every decline means an
absolute decline or maturity. It could be temporary due to other forces in the market place.
(c) Products could show other curves other than the S curve.
(d) Product definition-the concept of product life cycle does not clearly define what it is that is
being referred to by the term ‘product’, yet in marketing the term product could refer to any of the
following

 Product item-e.g. Close-up tooth paste, Toyota RX, or Bic pen.

 Product-line - e.g. toothpastes, soaps, cars, etc.
 
Product mi -e.g. FAT range of products, Cussons range of
products or Bidco range of products.

It seems that when marketers talk about a product in the Life Cycle, they are usually referring to product
items or brands. It is logical for instance to argue that individual brands of cigarettes come and go than to
say that all cigarettes will one day disappear from the Kenyan market.

B. PRICE DECISIONS
The second marketing mix variable is the price. A simple term but with many dimensions. Price is the
value placed on a good or service by the customers at some point in time. A product placed in the market
with a price higher or lower than the value perceived by potential customers does not really contain the
customer orientation necessary to market that product. Price may go by many other names e.g. rent, fees,
wages, interest, honorarium, salary etc. All these terms mean one thing—what customers pay for a good
or a service.

Importance of Price

• Pricing keeps the economy in balance

• Price serves as a regulator of economic activity
• The rise in any of the factors of production e.g. land, labour and capital is dependent upon the
price received by each
• A products price has a strong effect on sales and an increase or decrease may mean different
sales levels depending on the nature of the product

Price in many cases has a psychological impact on consumers. Sometimes it can be used to emphasize
quality, other times a bargain or gain hence a saving. Price can also play a big role in offsetting competition.
Of all the 4P’s only price can be changed quickly to respond to changes in the market. So whether or not
pricing is properly done does determine the success of the firm. The marketing executive must have a
thorough understanding of pricing decisions. Factors affecting prices

Marketing Objective: The firm must decide on the strategy for its product. The objective could be survival,
profit maximization, market share, leadership or product quality leadership. E.g. a company may have
survival as the objective when there is heavy competition in which case it may set low prices to increase
demand.

Cost: They set the floor for the price that the company can charge a price that both covers all its cost for
producing, distributing and selling the product and delivers a fair return on its effort and risk.

Market and demand: The market and demand set upper limits. Both consumer and industrial buyers
balance the price of a product against the benefits of owning it.

Consumer perception of price and value: In the end the consumer will decide if the price is right or
wrong. The perception will affect the consumer’s buying decision. Pricing decisions must be buyer oriented.
Effective, buyer-oriented pricing involves understanding how much value consumers place on the benefits
they receive from the Product and selling a price that fits its value.

Competitors’ prices: Consumers always evaluate a number of companies’ products prices before buying.

Economic factors such as boom, recession, inflation and interest rates. The consumer price index all affects
pricing decisions.

Government legislation for example minimum price levels.

Social concerns

(C) DISTRIBUTION DECISIONS (PLACE)

The third element of the marketing mix is distribution. This refers mainly to the movement of goods and
services from producer to the consumer through a given channel of distribution. A channel of distribution
has been defined as a chain of market intermediaries or middlemen used by a producer or a marketer to
make products and services when and where consumers or users want them. It is therefore a route
followed by a product as it moves from the producer to the user.

Examples of Channels

P-C Zero level

P-R-C One level
P-W-R-C Two level
P-A-R-C Two level
P-A-W-R-C Three level
P = Producer, A Agent, W = Wholesaler, R = Retailer, and C Consumer
Factors to Consider in Selecting Channels

1. Customer Characteristics-the size of the market, the geographical dispersion of consumers,

buying habits and preferences, buying outlets etc. For example where customers are widely inspired
one cannot sell direct. If the market is composed of industrial buyers then fewer intermediaries are
better.
2. Product Characteristics-important factors include perishability, whether product is household or
industrial, need for bulk breaking whether product is
products that are highly perishable like bread, milk, fresh flowers or fruits require very short
channels usually from producer to consumer direct.
3. Company Characteristics-here you look at the company objectives, financial status, product mix
and desired degree of channel control High degree of control allows only for one middleman or
direct selling.
4. Middle-men Characteristics-What markets do the middlemen serve? Do they provide any
financial support, what services do they provide, how sound are they financially because financially
weak middlemen may require credits. Some channels of distribution for example are not available
everywhere.
5. Competitive Characteristics-Is one going to use the channels already being used by competitors
or his own channels?
6. Environmental Characteristics-Economic, Political, Legal, Social and Cultural factors also
influence channel decisions. Where economic conditions are depressed, marketers should try to
move their products to the market via the least number of channels. The government also has
imposed certain legal regulations to govern distribution, for example the requirements that
manufacturing companies should not retail directly to consumers.

Functions of channels of distribution members

 Information: Gathering and distributing marketing research and intelligence information about
actors and forces in the marketing environment needed for planning and exchange.
 Promotion: developing and spreading persuasive communications about an offer.
 Contact: Finding and communicating prospective buyers.
 Matching, shaping and fitting the offer to the buyers’ need including activities such as
manufacturing, grading, assembling and packaging.
 Negotiation: reaching an agreement on price and other terms of the offer so that ownership or
possession can be transferred.
 Physical distribution: transporting and storing goods.
 Financing: acquiring and using funds to cover the costs of the channel work.
 Risk taking: assuming the risks of carrying out the channel work.

D. PROMOTION DECISIONS
Every product needs to be brought to the attention of the market through identification of the benefits of
the product. The basic elements of promotion which when put together from the promotional mix include:
advertising, personal selling, sales promotion and publicity.
(a) Advertising
Has been defined as any paid form of non-personal presentation by an identifiable sponsor. Advertising is
used to communicate persuasive information about a product to the target group through use of spoken or
written word and by visual materials.
Advertising has certain distinctive qualities:
i. Public presentation: Advertising is a highly public mode of communication, which suggests a
standardized offering to customers.
ii. Pervasiveness: Advertising is pervasive as it permits the seller to repeat a message many times.
iii. Amplified Expressiveness: Advertising provides opportunities for dramatizing the company and
its products through the artful use of print, sound and colour.
iv. Impersonality: In developing an advertising program marketing managers must make five major
decisions:

 What are the advertising objectives? (Mission)

 How much will be spent? (Budget)
 What is to be communicated? (Message)
 What channel will be used? (Media)
 How should the results be measured? (Effectiveness)

Advertising Objectives Include:

i. To inform
ii. To persuade
iii. To remind
(b) Personal Selling
Involves use of sales people to communicate the product to the market. It involves face to face contact
between the sales person and the prospective customer. Because of the personal contact personal selling is
the most expensive of the promotional elements but it can also be the most rewarding and effective in
clinching deals.
Sales people besides just selling the product have other duties which include:
 after-sales
 servicing, information gathering, communicating new information to
 Customers and prospecting.

To be effective sales people need information about the company, the products offered sales and profit
targets, customers, sales plan, promotional material, techniques of selling and knowledge of competitor
products.
A company must decide on how to structure its sales force depending on the product and the market being
targeted. The alternative forms of sales force structure include:
i. Territorial Structured Sales Force—here each sales person is assigned an exclusive territory in which to
represent the company’s full line.
ii. Product Structured Sales Force—where each sales person is in charge of a specific product or line of
products.
iii. Customer Structured Sales Force—where sales force are set up for different groups of customers.
iv. Combined Structure (Complex)
Sales force effectiveness can be measured either by net sales achieved, call rate, value of sales per call,
number of new sales or by sales expenses in proportion to sales achieved.
(c) Sales Promotion
Sales promotion involves attempts to stimulate sales by use of incentives. These incentives may include
free samples, special discounts; bonus for sales people, temporary price reductions, bargain packs, gifts,
point of sale demonstrations etc.
When directed at consumers, sales promotion has the following objectives:
i Draw attention to new products
ii. Encourage sales of slow moving products
iii. Stimulate off peak sales
iv. Increase usage of products

Sales promotion can also be directed at traders with the following objectives:
 Encourage dealer/retailer cooperation
 Persuade dealers/retailers to devote increased shelf space to the company’s products
 Develop goodwill of dealers/retailers

(d) Publicity
Publicity often does not cost the organization money. It is news about the product or the
organization reported in the press and other media without charge to the organization, but there are
however certain costs involved in setting up the publicity programme. In publicity the firm aims to
secure editorial space as divorced from paid space in the media available to customers.

Publicity is a part of the larger concept of public relations. A company’s public relations has several
objectives including, obtaining favorable publicity for the company, building up a good company
image, and handling adverse rumours or stories about the company. To carry out these objectives
the public relations department of a company could use press relations, product publicity, corporate
communications, lobbying, and counseling.

The people in charge of publicity must make the following major decisions:
i. Establish the publicity objectives
ii choosing the publicity message and media
iii. Implementing the publicity plan and
iv. Evaluating the publicity results

MARKETING OF SERVICES
Establish How to market Services
Definition of Services
Services can be defined as “separately identifiable, essentially intangible activities that provide. Want
satisfaction and that are not necessarily tied to the sale of a product or another service. To produce a
service may or may not require the use of tangible goods. However, when such use is required, there is no
transfer of the title (permanent ownership) to these tangible goods.” (Stanton)
Scope of Services

The above definition includes the services which are sold by people, business firms and professional firms
to earn profits. The list includes the following services:

• Domestic Services eg. Cleaning

• Swimming
• Movie - viewing
• Accommodation provided by hotel owners
• Transport services provided by public transporters
• Repair services
• Management, financial, or investment services;
• Personal care, e.g. beauty care; and
• Many others, e.g. recreation, private education, communication, insurance and financial, medical
and other care like dental services, etc.

The three stages of Economic Development

(a) Stage One

The first (lowest primary level) stage of economic growth consists of production and marketing of
agriculture and extractive products like raw coffee, raw cotton, forest products, fish products and minerals.

(b) Stage Two

This is the secondary level of economic development which is characterized by manufactured and
processed products, e.g. motor vehicles, televisions, refrigerators, processed foods, etc.

The stage is dominated by the marketing of manufactured and agricultural goods.

(c) Stage Three

At the third stage of economic development, marketing of services reflects the tertiary level of economic
development. When we refer to marketing of services, our discussion is largely based on the commercial
activities which go on during this third stage. However, it should be noted that to a small extent, marketing
services can take place during the first and the second stages of economic development, there is nothing as
a dividing line.
Our definition does not include those services which are incidental to the sale of physical products. The
demand for services is considered as a function of the following: -

 Incomes of people;
 Leisure time which is available;
 General standard of living
The higher the incomes of people, for instance the more purchases of services will be made. In East Africa
the personal disposable incomes are low, hence the quantity of services purchased must be less than the
quantity purchased in Japan where the personal disposable incomes are much higher than ours.
Characteristics of Services
Services have unique characteristics which affect marketing programmes for service markets. These
characteristics are so important that marketers must consider them while they establish their marketing
programmes which have to be different from those made for physical products. The services are usually
intangible, perishable, inseparable and heterogeneous.

a) Intangibility
Services are essentially intangible, hence a customer cannot be given a sample to taste, feel, smell,
see or hear before purchasing is done. For this reason, the marketers must sell benefits of services
and not features or services in the promotional programmes. This means that
instead of emphasizing the service itself, emphasis must be on the service benefits.
Some examples of benefits include the following: -

• An insurance company sells service benefits such as payment of a child’s college expenses
or a retirement income of some good money or income per month.

• A telephone company may also sell to the business users the benefits of suing long- distance
calling to reduce selling and inventory costs.

b) Inseparability

In the majority of cases, services cannot be separated from the people selling them. Some services are
created and dispensed simultaneously, e.g. dentists create and dispense their services at the same time, while
barbers create the services of a haircut and dispense it at the same time. The same apply to the services of
doctors, motor mechanics in repair work, etc. The buyers have to receive the service directly from the
producer/seller and not through some intermediaries in many cases. The marketing programmes have to
relate to this direct selling as the only possible channel of distribution. A seller’s service cannot be marketed
in many other markets per day while a dentist can also treat only some patients per day.

An exception to the inseparability, however may be possible in a situation where the service is sold by a
representative of the creator-seller, e.g. a travel agent, an insurance broker, a rental agent, etc.

Perishability (“In storability”) & Fluctuating Demand

Services are perishable because they cannot be stored.
Examples of perishable services are the following:
 Idle mechanics in a garage
 Empty seats in a stadium during a game, or in a cinema when a show is going on, or in a plane.

Furthermore, there are seasonal market fluctuations, e.g. some golf courses remain unused during winter in
some countries, or city buses and matatus are irregular in Kenya during the weekends and mid-days.
Some exceptions to the generalization regarding perishability and storage of services are given below: -

• In health and life insurance the service is purchased but held by the seller until it is required
by the buyer or the beneficiary (the holding is a temporary storage).
• Telephone companies can sometimes lower rates at night and weekends. This is done to avoid
perishability or fluctuating demand.
• For idle plant, marketing executives may look for new uses of equipment in order to avoid the
fluctuations.
• In transport services the consumers can be encouraged to use the non-peak hours period.
Heterogeneity
Services are heterogeneous because it is impossible for the individual sellers to standardize the output. Each
“unit” of the service is different from other “units” of the same seller. It is also difficult to standardize the
“output” of different sellers in the same service industry. For example:

 The shoe-shine boys in Nairobi cannot provide a service of the same quality from one customer to
another every time.
 An airline cannot give the same quality service on each flight
It is difficult to judge the quality of a service, e.g. repair work done by a mechanic on different
vehicles. Nobody can forecast the quality of a service before purchasing is made. If you pay for a
ticket to watch a football game, you will in the end find that: It was according to your expectation,
or
 It was better than your expectation, or
 It was below your expectation.

The marketers of services should be careful and pay particular attention to the “product planning” stage
(i.e. service planning stage) of the marketing programme. Consistency of quality must be adhered to all the
time, despite the problems which have been discussed above.

Marketing Concept and Service Marketing

Service marketers not marketing — oriented
In many cases the marketing executives have not been marketing-oriented in the service industries in the
same way as they have done in the product industries. This has happened because of the following
reasons:-

 The intangibility of services creates more serious challenges for the service marketers than for
product sellers.

 The service sellers in many service industries have lagged behind the product sellers in adopting
the marketing concept, especially the modem techniques of marketing. This has happened
because the sellers in professional services still see themselves as producers or creators, and not
as marketers, of services. For example, they can be proud of their ability to repair a vehicle,
diagnose an illness, or do a good job of haircut. They do not perceive themselves as business
people.

 One leading reason is that in some cases top management executives do not understand what
marketing is and its importance to the success of their company. The top managers seem to
equate marketing with selling; this means that they do not consider the other aspects of
marketing.

 The marketing activities are not organizationally co-coordinated by some top managers in the
service industries, and many service firms do not have senior executives in charge of marketing,
e.g. Marketing Director or Manager.
Some successful service firms.
There are many successful service firms which have adopted modern marketing techniques. Their success
is in largely due to the marketing orientation. In Kenya, we can consider marketing orientation as the
major reason for the success of companies such as American Life Insurance Company (Alico), Express
Kenya Limited, etc. At Express you can find the Managing Director, the Freight Director, the Travel
Director and the Marketing Manager of the company spending
their working time in checking the quality of customer service and planning new service strategies.

In the USA, organizations such as Holiday Inn, Avis, Pacific South-West Airlines, etc, have done well
because they are marketing-oriented in the service industry.

In the banking service industry, things are changing. In the past, the top management executives were not
marketing-oriented. For years, commercial banks thought that they honoured or favoured customers to
deposit their money in the banks. The bank tellers were faceless people behind the protective counters,
savings accounts earned low interest rates, and customers paid charges for operating current accounts
(checking accounts).

The above situation is still prevailing in East Africa. However, competition has intensified both within
and outside the banking service industry. This has forced many banks to do a little marketing. They are
now making efforts to attract the retail (customer) business, e.g. introducing 24 hour service, designing
buildings and internal layouts to project good image, bank credit cards, etc. Their new services include
insurance, financial counselling, payment of customers’ monthly bills, etc.

At the present moment in Kenya or East Africa, Barclays Bank Ltd. appears to lead other banks in respect
of customer service, for they have a feedback system in their communication with their customers. The
Standard Chartered Bank is another one which has become customer-oriented in Kenya today.

Introduction
The recommended starting point for a service industry marketer is similar to the one for a physical
product. Analysis has to be made of customer behaviour, motives and reasons for purchasing must be
analysed and the objectives of buyers must be known.

In most cases, everything that applies to tangible products will be relevant to services. The product
planning, price decisions, channels of distribution and promotional activity are the same, except for a few
modifications designed to reflect the nature of the service to be marketed.

However, it must be noted that the task of developing a total marketing programme in a service industry
is a serious challenge to the marketing executives.

Market Analysis

The market analysis for a service industry will include:

Components of population
 Why the customers want the services;
 Buying motives in different market segments;
 Buying patterns of service (when, where, how and who does buying).
 Psychological determinants of buyer behaviour, e.g. attitude, perceptions, personality.
 Sociological factors, e.g. social class, small-group influence, etc.
 External and internal factors of business environment.

Product Decisions: Planning & Developing The Service

I. Process of Service Planning and Development

The demand for service comes as a result of a standard of living in a nation’s economic development.
The primary level of economic development is dominated by agricultural and extractive products
marketing; the secondary level is dominated by manufactured and processed products marketing; and the
third level is characterised by tertiary or service marketing.

In service marketing segmentation and product differentiation are skillfully combined into a single
package. For example, an airline offers first class and economy class services in one flight and Kenya
Railways usually offers first, second, and third class coaches (i.e. differentiated product and segmented
market in one package). In the cinema industry, the sitting arrangement consists of viewers from upstairs
(circle) and stalls. The football stadium segmentation depends on locality differentiation, seat quality,
roofing on an area, etc. new services, improvement of existing services, elimination of unwanted or
unprofitable services are all key factors in service planning and development.

Marketing managers can use the following systematic procedures in developing their marketing
programmes:-

 to determine the services to be offered;

 to determine the length and breadth of the service mix to be offered;
 to decide the service attributes e.g. branding or offering guarantees.

If the service firm wants to increase its total volume, or reduce the seasonal fluctuations, or cater for
changing buyer patterns, then the firm can: expand or contract the service mix; change current services;
and trade up or down.

2. Difficulties of Service Planning and Development

Process such as packaging, colour, labeling, style, etc. are not available in service marketing. This makes
service planning relatively easier than tangible product planning for the marketing executives.

In other areas of product planning, e.g. branding and standardization of quality, service planning is
relatively more difficult than tangible product planning for the marketers. Branding becomes difficult
because it is not possible to attach physically your brand to your service. The customer wants consistency
in a service quality, but it is a challenge for marketers to provide it in some fields like beauty care,
medical care, and some of the recreation industries. No attempt can be made by marketers to provide a
mass-produced service. Although the customer still wants consistency in a service quality, the sellers
provide customer service which is required by each individual customer.

Pricing Decisions
The basic methods of pricing for tangible products are applicable for services. Car rental agencies give
quantity discounts and their daily rates are cheaper if you agree to rent the car for a week, or a month at
any given period of time. Insurance companies also give cash discounts if their customers pay premiums
annually, or quarterly, instead of monthly. Doctors and management consultants use variable — price
policies, while hotel and building owners offer different services (e.g. one bedroom, two bedrooms,
suites, etc) and seasonal discounts for hotel accommodation.

Geographical pricing may apply where mechanics charge more if they go to work out of a town, or
doctors may charge more if you call them from their homes instead of their offices. Lower rates for long
distance telephoning at night and on Sunday can be seen as another example of geographical pricing and
creative pricing.

Perfect competition does not exist in service marketing because of the heterogeneous nature of services.
Most services are highly differentiated because of the difficulty in standardisation. To have complete
market information is not possible and there are geographical limits for offering services. There is a small
number of sellers, and freedom of entry is hampered by the heavy capital requirement for producing
certain services like transport and medical car. For the above reasons, the private seller just establishes a
price, but it must be reasonable and approved by a government or regulatory agency.

Finally, the need for managerial creativity and skill in pricing is essential and necessary as well, because:-

 services are extremely perishable and not storable

 demand for services often fluctuates considerably
 customers can postpone purchases or perform the services by themselves The price should be
based on the elasticity of demand, i.e. High price should be charged whenever the demand is low;
the price will depend on the intensity of demand, the cost of producing the service and the
existing competition.
In practice, “uniform” prices are charged by land valuers, doctors, lawyers and shoe-shine boys
who operate in the same geographical areas, e.g. within Nairobi area.

Channels of Distribution (Placing decisions)

traditionally services have been distributed directly from the producer/creator to the consumer. There
have been no intermediaries because the services cannot be separated from the sellers (services are
created and marketed simultaneously). Public utilities, medical care, repair service, etc. can be given as
examples of direct distribution from the producer to the• consumer. The sellers personalize their services
and receive feedback from their customers.

Sometimes one intermediary agent may be used, e.g. in marketing of securities, travel arrangements,
entertainment, or house rentals. Dealers may be trained in the production of a service, then franchised to
sell it.
The main issue in distribution, however, is the transfer of permanent ownership (or title) from the seller to
the buyer or consumer/user. This is usually done at the time when the seller (e.g. a doctor) is providing
the service.

In recent years some firms have made efforts to overcome the problems of distribution in the following
ways: Banks have introduced tellers’ windows which are accessible to their customers. They have set up
additional 24-hour service mechanical banking facility (i.e. using bank cards). Some banks ask employers
to deposit employees’ pay cheques directly into their bank accounts; here the employers operate as
service intermediary agents for the banks.

A service marketer can broaden his distribution, but there is limitation. Some service industries such as
rental stores can have rental problems while accountants do not have the same problems.

Promotional Decisions
This is done mainly through advertising, personal selling, sales promotion, public relations and publicity
as it is done in the case of promotion for tangible products. Emphasis, however, is on personal selling and
advertising which are used more effectively than the other aspects of promotion. In the transport industry,
for example, advertising and personal selling both play a very significant role in promotional activities of
the services offered. It is easy to sell something that the buyers can see, smell, feel or something that can
be demonstrated. Services are not in this category of products. Point of purchase displays are impossible
but the benefits of using the service can be effectively advertised or explained through personal selling.
Recreation, entertainment, travel, sports, etc. benefit considerably from publicity through newspapers,
radios, television. For many years advertising has been used for covering many service fields such as the
ones quoted above plus housing, household operation, transport and insurance.

Until recently, the professional associations of doctors, lawyers, accountants, etc thought that it was
unethical to advertise their services. They prohibited advertising. Things are changing now and some
advertising is being done by their members. They also do an indirect type of promotion. For example,
they:-

Participate in community affairs and this helps them to put their names before the public; Advertise to
attract new industry; this is done by banks, utilities, railroads, etc. they are aware that if anything helps the
community to grow, it will definitely lead to a market expansion for them.

The main objectives of the promotional programme in a service firm should have three components.

(i) it should portray the benefits of the service in an appealing manner,

(ii) it should differentiate the service benefits from those of the competitors and

(iii) it should build the firm’s good reputation. The reputation of the firm becomes very essential
because of the intangible nature of the service being offered. In addition to the 4 services
mentioned earlier have three additional S i.e. people, processes and physical evidence.

People:
the importance of employees as an element in the marketing mix is particularly evident in the service
industries.
If you have had poor service in a shop or restaurant you may not be willing to go there again. Research
has should that there is an identifiable relationship between low staff turnover and repeat purchases.
Managing front-line workers e.g. cabin crew on aircraft who are the lowest in the organizational hierarchy
but whose behaviour has most effect on customers is an important task for senior management. It involves
corporate culture, job design and motivational issues. People issues include:
 • Appearance
• Attitude
• Commitment
• Behaviour
• Professionalism
• Skills
• Numbers
• Discretion

Processes:
involve ways in which the marketers task is achieved. Efficient processes can become a marketing
advantage in their own right. For example if an airline develops a sophisticated ticketing system it can
encourage customers to take connecting flights offered by allied airlines. Efficient processing of purchase
orders received from customers can decrease the time it takes to satisfy them. Process issues include the
following: -

 Procedures
 Policies
 Mechanization
 Queuing
 Information
 Capacity levels
 Speed/timing
 Accessibility

Physical evidence/facilities
This is important in service industries for example where the ambience of a restaurant is important logos
and uniforms help create a sense of corporate identity:

Environment e.g. Furnishing, smell, colour, layout, noise levels

 Facilities (van, equipment, tools, apparel or uniform

 Tangible evidence (ticket, logos, packaging, labels) etc.

Recent Trend in Service Marketing

Factors Affecting Growth in Service Industries
Some internal barriers to future growth of service industries are:

 Specialisation: There are few people with specialised skills, e.g. doctors, lawyers, engineers and
accountants.
 Competition: There is limited competition in some service industries such as transport,
communication and medicine.
 Research and development: In many service fields there is little emphasis on research and
development.
 Role of marketing: There is general failure in some service industries to adopt the concept and
role of marketing in every business.
 Alternative performance: In some cases the customers are capable of performing the services by
themselves
 Use of technology: Some manufacturers produce goods which decrease the demand for service
industries, e.g. wash and wear clothes which do not require laundry service, or television sets
replacing commercial entertainment.
 Poor quality: The boom in the services market has led to deterioration of the service quality
because of poor management, inefficiency, low productivity, etc.

Prospects of Future Growth

In some recent cases the service industries have adopted the marketing concept. The idea of selling
benefits to the customers is being stressed and this enables traders to focus on new performance methods.
Mechanisation, assembly-line standardisation, specialisation and organisational consolidation are
manufacturing concepts which are applied in the service industries in the following ways:

 Laundry and dry cleaning (Mechanisation of services).

 Fast food retailing (assembly-line technology in services)
 Medical field (doctors, dentists, etc. as specialists in services)
 Travels and hotels (airlines owning hotels — this is an example of consolidation of services for
improved productivity).

In conclusion, the recent trend shows that despite the drawbacks, services will continue to grow in the
future. The demand for services is less sensitive to economic fluctuations than the demand for tangible
products. The business becomes more complex and management realises that there is a need for business
service specialists.

9.4 ANALYSING MARKETING OPPORTUNITIES - SEGMENTATION AND

SELECTION

9.4.1 CONSUMER MARKETS AND SEGMENTATION

Introduction
Strategic marketing planning has the following five-step process:-

 Conducting a situation analysis

 Developing marketing objectives
 Determination of positioning and differential advantage
 Selecting target markets and measuring market demand
 Designing a strategic marketing mix for the marketing operation

What is a Market
A market simply means people or organizations with needs and wants to satisfy. They have money to
spend in satisfying their needs and wants by buying benefits of products and services. They must have the
willingness to spend their money in buying the satisfying benefits.
For example, many people in Nairobi need and want transportation service, and they are willing to pay for
it. However, they are in a large group. Some of them want low-cost and efficient transportation. Others
want luxury and privacy. A firm can satisfy all groups with different needs. This is done through the
process of target market segmentation strategy.

Target Marketing Strategies

A target market refers to a group of people or organisations selected by a firm which directs a marketing
programme to the group. In a new company management uses research methods to identify the markets,
and in an old company the management routinely studies changes in the characteristics of its target
markets and alternative markets. The total or aggregate market is normally divided into different
segments at which respective marketing programmes are directed. The firm may choose a single market
segment as its target for marketing operations or more segments for the same purpose.

Selection of the target markets segments is done on the basis of opportunities. A firm must forecast
demand or anticipate sales in its target market segment in order to assess, analyze and evaluate its
opportunities. The demand or anticipated sales forecasting results are used to decide whether the
company’s target markets should be pursued or alternatives should be identified.

Four Approaches to Target Market-Segmentation

Market segmentation usually reveals whether or not there are opportunities for the firm. After adopting a
segmentation strategy, a company can take one of the following four approaches:

(i) Market customisation strategy

In market customization strategy each consumer is treated as a unique customer. The strategy is popularly
used by companies marketing industrial (business) products. It is extensively used for consumer goods,
e.g. by firms which market tailor-made goods such as furniture, dresses, suits, etc. They all practice
market atomization.

(ii) Differentiated Marketing Strategy

This refers to a multi-market segmentation in which a company directs its marketing programmes to
several marketing segments. This is done by variations in the marketing mix. For example, in each market
segment you can have different products, different prices, different promotion activity and different
distribution facilities. A university engages in different marketing by offering its course programmes at
different educational levels. When a firm differentiates products, it has a chance to increase its total sales,
in the total or aggregate market. This happens because the firm focuses on several market-segments as its
mixes are being directed at many people. Products such as clothes are capable of great variations. Hence
they are easily differentiated.

(iii) Concentrated Marketing Strategy

This approach is called concentrated marketing strategy because the marketers endeavor to serve a single
market-segment. For example the manufacturers of BMW cars and Mercedes- benz cater for the affluent
consumers in different countries.
Advantages of Concentrated Marketing Strategy

 Its main advantage is that the firm has a good chance to specialise by concentrating its efforts on
a single market-segment.
 The firm has the opportunity to carefully analyse its customers’ needs and wants then concentrate
in satisfying the identified needs. Hence the firm can generate a large sales volume if it deeply
penetrates that single market-segment.

Disadvantages of Concentrated Marketing Strategy

The danger is that the firm puts all its eggs in one basket. Should the demand for the product decline, the
firm would get into problems.

(iv) Undifferentiated Marketing Strategy

 Here the firm focuses on what it has identified as common to all people in the aggregate or total
market.
 A single marketing mix is designed and directed at the complex aggregate market
 The market is treated as an aggregate
 This strategy is suited for homogeneous products such as coca cola soft drink.

Market Segmentation: Consumer Markets

Definition of Market Segmentation

We talk about a market segmentation if the total market for a product is broken down into several sub-
markets (i.e. different markets), and each sub-market has homogeneous characteristics in its essential
aspects.

Marketing segmentation is customer-oriented; a company will first identify the needs of the consumers
within a proposed sub-market or segment before it plans, develops, prices and delivers goods and services
to satisfy such needs profitably in the market segment.

The total market for most products is heterogeneous and cannot be considered as one homogeneous
market. It does not have a single uniform entity. It has sub-markets which are significantly different from
one another. It is easily broken down into sections known as segments.

Benefits of Market Segmentation

 The advertising media can be used more effectively, especially if the company develops different
promotion messages aimed at each market segment.
 Market demands can be well satisfied by designing suitable products for each segment.
 It is possible for small firms with little resources to survive and compete in one or two segments.
It will be too difficult for them to compete in the total market.

Criteria for Market Segmentation

 Measurable and accessible data for consumer;
 Access through the existing distribution channels
 Each market segment to be large enough to be profitable;
Segmentation to be according to the ultimate consumers and industrial users

(d) Strategies Commonly Used

The strategies used in market segmentation include:
Developing different varieties of basic product for each segment; or
using the same product but with different promotion activities for each segment. Take for
example a Toyota Corolla (1300cc) in Kenya. It can be marketed to three different market
segments with three different sales appeals:-

Family car: The sales appeals could be a family car which is likely to be either medium or large
with interior comfort and plenty of space.

Company car: The same may be promoted in a different market segments as a company car
which is easy to drive, easy to service and easy to sell after new replacement cars have been
bought etc.

Second car: The vehicle can also be sold to a third market segment of the rich people who can
buy it as a second car. The sales appeal can show that it is a small ,economical car which is
inexpensive to buy and easy to run.

In East Africa, Toyota Corolla (a Japanese car) has fulfilled the above segments of the car market.
It is Possible for the car firms to develop particular models for particular markets. For example,
Rolls Royce (Britain), BMW and Mercedes-Benz (Germany) are luxury cars which appeal to a
special market segment in Kenya and in other parts of the world.

In Kenya, East Africa Breweries usually sell at home mostly their brands of Tusker, Pilsner,
Whitecap and Export Kubwa, while overseas they sell Premium Lager, Malt Lager, etc.
However, Kenyans are free to buy the latter if they like.

Methods of segmentation

Each market segment has its own unique requirement because it is homogeneous. Hence it needs a
different mix of the marketing resources. Market segments vary from one market to another in the
following ways: -
• Age: People in different age groups use different fashions, styles of clothes, etc. The
marketing strategy for one age group (a segment) will be different from that of the other age groups.

• Population: This includes the sire of the total population is considered together with age, sex,
family lifestyle and family life cycle. These are useful factors for market segmentation to consider. The
marketers must consider these factors before they make their decisions on advertising, distribution
of products, market research, and other marketing activities in each market segment.

• Grouping: It is essential for the marketers to know the various groups making up their
markets. Religious, cultural, racial and social groups must be identified. Nationalities, education,
occupations, personality, attitudes, and product benefits which are desired must be considered
by the marketers.
The grouping is useful for firms which sell products such as clothes, shoes, cars, toys for
babies, etc. Each group can form a distinct market segment within a region or a country.

• Income: The sire of disposable income (net income after deductions) is important for the
marketers who have to determine the quality and quantity of the products to be marketed, and how
many lines or models that their companies should market. The question of money to spend is
answered by the sire of the income.

GLOBAL/INTERNATIONAL MARKET-SEGMENTATION

1. Segmentation Within-country
This is done in the home country by those companies which apply global/international
operations.

2. Cross-border segmentation
Segments in one country are different from those of another country however, some
countries may have segment similarities between groups of consumers. A regional segment is
possible. Even a global is possible sometimes.

Advantages of regional or global segments are:

• Opportunities for standardisation;

• Significant economies of scale in production;
• Economies in R&D and marketing costs;
• Segmentation can be done in the youth market; e.g. for jeans, pop records, etc and the
business market (business suits and magazines)
The disadvantage is lack of customer responsiveness.
3. Country Groupings

• Complete countries are grouped into segments

• This is good for standardization
• Economies of scale are realized
• Criteria used for grouping may be level of economic development or geographical proximity.
This is based on a single variable.
• Advantages are convenience of management for geographical proximity
• Disadvantages are the segmentation ignores social, cultural and political differences. If whole
countries are grouped by using a single variable, it is not likely that there will be a real cost or marketing
advantage.

CONSUMER BUYING BEHAVIOUR

Introduction

The consumer buying behaviour can be considered as complex decision making processes and acts by
individual consumer over a time period. The actual purchase is usually preceded by a series of related
psychological and physiological activities. These activities influence the nature of the consumer
purchasing processes and acts before the actual buying transaction is done.
It is essential for the marketers to analyse and understand the consumer buying behaviour because of the
following reasons:

A firm’s success depends on the reaction and behaviour of the consumers towards its marketing
programmes and strategies.

• The marketing concept states that a firm’s marketing mix should satisfy the consumers’ needs
and Wants.
• A better understanding of factors influencing consumer buying behaviour is necessary. Why?
The marketer is in a safer position to anticipate and predict how consumer will respond to the firm’s
marketing strategy.

Consumer Buying Decisions Behaviour

The consumer buying decisions can be classified into the following categories:-

• Routine response behaviour.

• Limited decision making behaviour
• Extensive decision making behaviour
• Impulsive buying behaviour
• Routine response behaviour is applied when the consumer makes frequent and common
purchases e.g. buying soap, salt or bread. These are commodities of low cost and risk.
• Limited decision making behaviour is used when the consumer purchases products occasionally
or when she/he requires information about some unfamiliar brand in a familiar product category.
• Extensive decision-making behaviour applies when the consumer purchases an unfamiliar
expensive, high risk or infrequently bought product.
• Impulsive buying behaviour occurs when the consumer does an unplanned buying. This
involves a powerful persistent urge to buy something immediately without any prior decision.

The above mentioned decisions do not mean that to buy a certain product the same type of behaviour
must follow. Individuals differ in their response to purchases situations.

Sometimes even the same consumer makes a different decision in other circumstances.

Consumer Buying Decision Process

The consumer buying decision process is divided into five stages. These are:

 problem recognition
 information search
 evaluation of alternatives
 purchase stage
 post-purchase evaluation
 It should be noted that decision processes do not necessarily lead always to a purchase. Not all
consumer decisions include all the five stages.

Problem Recognition

Problem recognition applies when a buyer realises that there is a difference between his desired state and
an actual condition. After realisation of the problem or need, the buyer decides to search for information
for products that can help him. Satisfy his needs or solve the problem.

• Information Search
In this internal search, buyers search their memories to see if they have information about
the product which can solve their problem. They may be unable to retrieve from their memories
sufficient information to make a decision. Then they seek additional information through
external search.

A successful search then provides the consumers with a group of brands known as an evoked set. The
buyer sees the evoked set as possible alternatives.

Evaluation of Alternatives in Evoked Set

First, the buyer will establish his/her criteria for evaluating the alternatives in the evoked set. This is done
by assigning certain importance or salience for comparing, rating and ranking the differed products.
Purchase Stage The product or brand is selected on the basis of the results of evaluation stage and on
other dimensions. The buyer now chooses the seller from whom to buy the chosen product. After the
purchase, the buyer evaluates the product again to see if its actual performance is satisfactory. Post-
purchase Evaluation and Cognitive Dissonance

After the purchase the post-purchase evaluation sometimes provokes cognitive dissonance. This means
the dissatisfaction brought about by consumer’s doubts regarding whether or not she/he should have been
better off to buy this one or another brand which had also ranked high in the evaluation stage. The results
of the post-purchase evaluation can affect future buying behaviour.

Major Categories of Influence on Consumer Buying Behaviour

There are three major categories of influences on consumer buying decision process. They are outlined
below.

• personal factors
• psychological factors
• social factors

Personal factors are unique to individual consumers. They include (a) demographic factors, (b) situation
factors and (c) level of involvement

• Demographic factors refer to those characteristics such as age, sex , race, ethnic origin,
income, family life cycle and occupation.
• Situation factors regard external circumstances or conditions, which are relevant and exist
when a consumer is making a purchase. For example, time to make a decisions is a situation factor.

Consumer’s levels of involvement refers to the importance and intensify of his/her interest in a product in
a particular situation. This will affect the buying decision.

The consumer is said to have enduring involvement if he/she has an on-going interest in a product class
because of personal relevance. If he/she finds himself/herself in the particular circumstances or
environment, the case becomes a situational involvement at the time of purchasing.

Psychological Factors
The psychological forces which influence the buying decisions are primary psychological factors such as
(a) perception, (b) motives, (c) attitudes, (d) personality and (e) learning.

Perception. The perception process leads to selecting, organizing and interpreting information and
interpreting information inputs, e.g. the sensations received through sight, taste, hearing, smell and touch.
The process is done to produce meaning.

Selecting exposure applies where people select inputs which are to be exposed to their awareness.

Selective distortion occurs when people change or twist currently received information Selective retention
happens when people decide to remember only the inputs which support their personal feelings and
beliefs. They forget the inputs which do not favour such feelings and beliefs.

Integrating the new information: This is the second step of perception after selection. It requires
organisation and integration of the new information with that which is already stored in memory.
Interpretation: This is the third step of perception after integration of the new information. It is the
assignment of meaning to what has been organised.
Self-concept or self-image: people have self-concept or self-image in addition to their perceptions of
packages, products, brands, organisations, etc.
Motive. All consumer behavioural activities are motivated by some aroused need. A motive is an internal
energy or force which directs a person’s behaviour towards seeking a need satisfaction or achieving a
goal.

Patronage motives: These motives influence a person if he/she purchases products regularly. Marketers
use in depth interviews, focus groups or projective techniques to analyse the major, motives which
influence the consumers to buy or not to buy their products. The common projective techniques are word
association tests, bubble drawings, sentence completion tests, etc.

Learning: Learning is a change in behaviour as a result of experience. Stimulus-response learning

involves drives, cues, responses, reinforcement and punishment.

The above items mean that learning is an activity caused by receiving information and acquiring
experience. Knowledge consists of (a) familiarity with the product and (b) the individual’s ability to apply
the product, i.e. expertise.

Attitudes: Attitudes refer to learned predispositions to respond positively or negatively to an object or

class of objects in a consistent manner. Attitudes concern positive or negative feelings about an object or
activity. Consumer attitudes towards a firm’s image or products will always influence the success or
failure of the company’s marketing strategy and programmes. Marketers use projective techniques and
attitudes scales to measure consumers’ attitudes. Attitudes have direction and intensity and they tend to be
stable and generalisable. The strongly held attitudes are usually difficult to change.
Personality: Personality refers to the sum of an individual’s traits that make him/her different from other
people by influencing his/her behaviour. The traits and behaviours make a person unique. Hence
personality influences the types and brands of products which the consumer buys.

Social Factors
The social factors in this context are forces which people exert on buying behaviour. Social factors
include:-

• influence of roles and family

• reference groups
• social classes
• culture and sub-cultures
People occupy positions within groups, organizations and institutions. Each holder of a position has a role
to play. A role is a set of actions and activities. A person in particular position plays a specified role. This
is based on the expectations of the person and the surrounding people or group.

• Reference group: A group is referred to as a reference group if an individual joins it and

identifies with it to the extent that he/she adopts its values, attitudes or behaviours of the group members.

• Opinion leaders: In most reference groups, one or more members emerge as opinion
leaders.

• Social class: This is an open group of people who have similar rank.
• Cultural and sub-culture: Culture and sub-culture refer to the things in our surroundings. Such
things are made by human beings. It is practical to divide a culture into sub-cultures based on
geographical regions, human characteristics, etc.

Conclusion
Marketers use research methods to understand consumer buying behaviour so that they can offer the
consumers more satisfaction.

BUSINESS (INDUSTRIAL) MARKETS AND SEGMENTATION

MARKETING OF INDUSTRIAL (BUSINESS) PRODUCTS

What are industrial products?

In marketing, we do not define products by using their physical characteristics. We usually define them
by reference to the utility that the product confers on the buyer or user. This means that a product is
defined in the form of utility which the product user derives from it. The reader should pay careful
attention to our definition in the next paragraph below.

Definition of a Product
A product has been defined as “A set of tangible and intangible attributes, including packaging, colour,
price, manufacturer’s and retailer’s service, which the buyer may accept as offering want satisfaction.”
(Stanton).

Classification of Industrial Products

They can be classified into raw materials, fabricating and parts, installations, accessory equipment, and
operating supplies.

Raw materials
These are industrial goods that become part of another physical product. They are not processed and they
include: natural resources-e.g. minerals, products such as wheat, cotton, coffee, tobacco, fruits,
vegetables, livestock or animal products like eggs and milk.

Features
• They are limited in supply and cannot be substantially increased
• A few large-scale producers axe involved
• Products are highly standardized and graded
• They axe bulky and have low unit value
• Their location (where they are situated) is sometimes far away from the location of the industrial
user
• In agriculture, raw materials are supplied by many small producers located far away from
the markets
• Supply in agricultural products used as raw materials is controlled by people, however, it
cannot be increased or decreased quickly.
• Agricultural products are perishable and not uniformly throughout the year.

Marketing strategies
Short channels of distribution are required e.g. from the producer to the industrial user directly. One
intermediary agent may be used. Because of limited supply, the industrial goods users assure themselves
by signing contracts in advance to buy the goods for a whole season. Little branding and other product
differentiation are applied by marketers.

Competition is based on price and certainty of specified supply by producer. Many small producers
supply agricultural products used as industrial raw materials, transport consideration is essential because
of the distance between the producer and the user. Small and numerous producers lead to many
intermediaries. Hence long distant channels of distribution are used to acquire the raw materials for
agricultural products.

Fabricating Materials and Parts

These are industrial goods which eventually become part of the finished product. They are already
processed, but require further processing. This means that they are inputs which are bought in a processed
form and will normally be subjected to further processing before they are incorporated into the final
product.

Features
• Fabricating materials are those processed inputs which will be incorporated with the final
product without any further processing, e.g. rubber for Bata Shoe Co., iron for steel manufacturing,
cement for building, etc.
• Fabricating parts will be assembled with no further change in form, e.g. spark plugs, battery and
many car parts not manufactured by motor vehicle manufacturers.

Marketing strategies
• They are purchased in large quantities
• Buyers place their orders a year or more to secure adequate and timely supply
• Selling is direct from the producer to the user in most cases (except in some industries like
textile firms).
• Buying decisions are based on the existing prices and the services provided by the sellers
• Branding is not important in many cases, but some firms succeed by branding their products

Installations
The installations are manufactured industrial products or assets that set the scale of production for the
firm. Their main features or characteristics are that they directly affect the scale of production in the firm.
For example, if you give Kenya Airways new typewriters, the change in production will not be altered
very much. But if you give the same airline 15 new jet planes, e.g. Jumbo 767 planes, their scale of
production will drastically change.

Examples of installations are furnaces for steel mills, building in a factory, or diesel engines for a railway.
Marketing of installations provides a big challenge to the marketers because each sale is important. No
intermediary agents are used for sales are made directly from the producer to the user.

Marketing challenges include the following:-

• The unit sale is large

• The product is made to the required buyer’s specifications
• Presale and after-sale services are essential
• The sales force must be of high caliber
• Sales engineers are used for selling
• Personal selling is used for promoting the product (limited advertising can also be applied)

Accessory equipment

Features
• The accessory equipment can be defined as those small installations which cost very little
money, but are very essential for the operation of the firm.
• They do no set the scale of operation for the firm like the other bigger installations previously
mentioned. Examples include fork-lifts, typewriters, fixtures, etc.
• Accessory equipment does not become an actual part of the finished product
• The life of the accessory parts are shorter than the one of the major installations Examples
are:- office equipment, cash register, etc

Marketing strategies

• It is difficult to generalize the method of distribution

• If a product is of relatively high unit value e.g. a forklift, direct selling is preferred
• For others the manufacturers of accessory equipment use intermediary agents because of the
geographical dispersal of the market. This is necessary where there are many different types of
potential buyers with relatively small individual orders.

Operating Supplies

Features

The operating supplies are the convenience goods of the industrial markets.
• They are demanded on day to day basis in the process of production
• Examples:- lubricating oils, pencils and stationeries, etc
• They are short-lived, low priced and are purchased without careful analysis of the
purchasing decision
• Although they help in the firm’s production process, they do no become part of the finished
products

Marketing strategies

• They are distributed widely by using wholesaling intermediaries because: They have low unit
value
• They are bought in small quantities
• They go to many users,
• The price competition is heavy
• The products are standardized and
There is insignificant brand insistence

Characteristics of Industrial Products

Introduction

Industrial products market is characterized by four distinct features:

demand is derived

• demand is generally inelastic

• demand fluctuates widely
• the producers and the users have full knowledge of the market which is well informed.

Derived demand
Demand for an industrial product is a derived demand because it is based on the ultimate demand for the
consumer product in which that industrial product is used Thus the demand for the grinding mills in
Kenya depends on the consumer demands for maize, millet or wimbi used for making porridge or bread
(ugali)
If an industrial products marketer wants to estimate the demand for his products, he or she must be
familiar with how they are used. The producer/manufacturer of the industrial products can sometimes
decided to encourage the sale of the buyer’s products. For example, Pembe Flour Mills Ltd. may advertise
to urge the consumers to buy their brand called Peinbe from Ongata Rongai Supermarket. The increase in
consumer demand for Pembe flour at the supermarket will trigger an increase in the derived demand for
the grinding mills used by Pembe Mills Ltd.

Inelastic Demand
By demand elasticity we refer to how responsive the demand is to a change in the product price. The
demand for many industrial products tends to be relatively inelastic because a product responds very little
to changes in its price.

For example, if the price of Pembe is a small part of the flour brands, the change in it will be inelastic for
the demand of the mills for grinding flour.
But if the demand for all other brands like Jogoo increases substantially, there is likely to be an eventually
increased demand for the mills or machines for grinding the flour.

Some Marketing Factors Affecting Demand Elasticity

• If a change occurs throughout an entire industry, not in a single firm, the industry- wide cut in
price wi11 affect the price of the industrial product. For example, if the prices of all the flour brands
like Pembe, Jogoo, etc. are decreased for a long time, there will be a decrease in the derived
demand for the grinding mills or machines.

• Time is another factor, Over the long-run situations, the demand for any given industrial
product will become elastic. If the prices of maize, millet, wimbi, etc, increase for a long time, the
price of flour will go up and this will affect the demand elasticity of the grinding mills. The mills
will be elastic in the long run.

• Finally, if the cost of an industrial product has a greater percentage of the total price of the
finished good, then there is a greater elasticity of demand for this industrial product.

Demand Fluctuations
Generally, demand for the industrial products does not change very much in response to price changes.
However, the demand fluctuations are more than the demand fluctuations in the consumer goods. Why do
such wide fluctuations occur?

Individual firms in the industries fear shortages of inventory when the consumer demand is high
Individual firms fear being caught with excess inventory when the consumer demand declines
Because of the above reasons the firms over react to the economy signals by:

Building their inventories when they anticipate growth in the economy and Reducing their inventories
when they see signs of stagnation

When you combine all the actions of the individual firms, there are fluctuating demand effects on their
suppliers. This is known as the acceleration principle.
Agricultural products intended for processing functions are exception to the above generalization.

Examples of widely fluctuating demand are common among the following:-

• In product planning, a firm may decide to diversify into other products in order to solve the
production and marketing problems.
• Distribution strategies may be changed when a manufacturer/producer discovers that selling to
some re-sellers is unprofitable. He/she may drop them. Prices may be reduced to stem a decline in
sales. This strategy may attract customers away from competitors.
• The buyers and the producers are well informed about the market.
• The industrial goods producers/manufacturers are well informed about the industrial market.
They know where to sell their producer goods.
• The industrial goods buyers tend to be better informed about the goods they want to buy than
the ultimate consumers. For example, they know the relative merits of sources of supply and
competitive products. This essential for the following reasons:-
They are relatively few alternatives for them to consider
• The responsibility of a buyer in a firm is usually limited to a few industrial products. He must
have knowledge about a narrow set of products.
• In consumer purchases an error could be a minor inconvenience. This is not so in industrial
purchasing. The cost of a mistake can lead to heavy losses of thousands of shillings or even a loss of
decision maker’s job.
• Sellers of industrial products put greater emphasis on personal selling than firms marketing
consumer products. They carefully select business sales people, train them well, and compensate
them adequately. They (sales people), are in a position to give effective sales presentations.
They must furnish satisfactory services before and after each sale is made. Hence business buyers
are dealing with highly professional sales people with a great deal of knowledge about the
industrial products.

How to Determine Industrial Market Demand

(Analysis of the Industrial Market)

The consumer market is studied by analyzing population distribution, demographic factors, economic and
political considerations, and consumers’ motives and behaviour. The same kind of analysis is done for the
industrial users. The main factors affecting the industrial are outlined below:-
• The number or potential number of business users.
• The type of potential business users
• The purchasing power of the users
• Their buying motives and buying behaviour
• The size of their purchases
• Regional concentration of business users
• Vertical and horizontal business markets
• Manufacturing activity
• Mining activity
• Agriculture activity
• Construction activity
• Innovation (technology) activities.

The size of Industrial Market

The industrial market contains fewer buyers then the consumer market. One way of organizing required
information for the market analysis is to use the standard industrial classification (SIC) system. It enables
a fin-n to identify small segments of its business market. The system divides all types of businesses into
groups.

Then the subgroups are developed with the SIC sub-code numbers following the main SIC range of two-
digit category. The diversity of a conglomerate is hidden. Four digit detail cannot be made available to an
industry in a geographical location where the information would identify a particular firm.

Sometimes the industrial market may be limited in size regarding the total number of buyers. However, it
may have a big purchasing power. Few firms in the country can account for the greatest share of the value
added which is defined as the shillings value of a company’s output minus the value of the inputs it
purchases from other companies.

The buying power in many industrial markets is highly concentrated in the hands of a relatively few
firms. A high percentage of industry sales is done by a small number of companies.

Regional Concentration of Industrial Users

In Kenya at Thika, Ruaraka, Industrial area of Nairobi, there is a substantial concentration of many major
industries and industrial users as a whole. They have vertical and horizontal markets.

Vertical and Horizontal Industrial Markets

It is useful for an industrial marketer to know whether his/her market is vertical or horizontal. This is
necessary for effective marketing planning. A vertical business market applies if a firm’s product is
virtually usable by all firms in only one or two industries. For example, a precision instrument may be
intended only for the marine market although the boat builder and ship builder are potential market
segments.
A horizontal business market applies if the product is usable by many industries. Products such as
lubricating oils and electric wires can be sold to a variety of industries.

The marketer normally tailor makes his product to meet the specific needs of one industry.

The industry is expected to buy enough in order to support this king of specialization.

The Purchasing Power of Industrial Customers

The way to measure the purchasing power of the industrial goods customers is to look into the
expenditure of the industrial users or through their sales volume. But this method is difficult to estimate
because the information is difficult to obtain. Purchasing power can only be estimated indirectly.
By using an activity indicator of buying power, some market factor is applied in relation to sales and
expenditures.

The purchasing power and the number of industrial users can be combined. Various methods of
measurement are outlined below.

Mining Activity
To measure the purchasing power of the industrial customers in the mining activity means a reference to
output and value. How many mines are operating? What is their output? What is
the shilling value of the output as it leaves the mine? The answers to these questions can help determine
the purchasing power of the mining firms.

Construction Activity
If a firm markets brick, lumber, gypsum products, builder’s hardware and other building materials, its
market depends on construction activity. Consideration is based on the number of value of building
permits issued by a local authority.

Another way is to consider the number of construction work started and the type of structures, e.g. single
houses for residence, commercial houses, flats (apartment) and maisonettes. Local data are available from
the local government offices.

Agricultural Activity
The buying power of the farm market can be estimated by studying such indicators as cash from farm
income, acreage planted and crop yields. If a firm markets agricultural products or equipment, the above
estimates are essential for its effective marketing. For example, if you are a chemical producer selling to a
fertilizer manufacturer, you need to study the same indices. Why? Because the demand for chemicals is
derived from the demand for fertilizer.

Manufacturing Activity
If a firm sells to manufacturers it can use the following activity indicators: The number of employees
• The number of plants
• The shilling value added by manufacturing.

Industrial Buying Behaviour

Introduction
As in the case of consumer buying behaviour, industrial buying behaviour follows the usual pattern
outlined below.

• An aroused need (motive) is recognized

• The aroused need leads to goal-oriented activity meant to satisfy the recognized need.
• The need motivator must be determined by marketers who understand the buying processes
and patterns of industrial firms in the markets.
Industrial purchasing has become an important part of overall strategy because top
management is interested in it. It cannot be left to the purchasing department alone. The overall
purchasing strategy has become, important because:

Many companies make less and buy more product contents for the finished
products. For example, motor vehicles manufacturers buy parts form independent suppliers and use the
parts to build the vehicles.

• Firms want to reduce costs and improve efficiency, and they are under intense quality and time
pressures. They no longer buy and hold inventories of parts and supplies. They want the raw materials
and the components that meet their specifications to be delivered promptly to go into the production
process.

• Firms concentrate their purchases in fewer suppliers and develop long- term partnering
relationships. This is essential for them to get what they need. This high level of involvement goes
beyond a purchase. It includes other things such as working together in order to develop new
products and providing financial support.

Buying Motives of Industrial users

There are two views about the buying motives of the industrial purchases. They are based on the
individual interests and the organisational interests.
Individual Interests
Buyers in business have their attitudes, perceptions, and values. Therefore they are motivated more
towards personal goals than organisational interests.

Organizational Interests
Buyers conduct purchases in a methodical and structured manner. The business buying motives are
expected to be practical and unemotional They are motivated to achieve the optimal combination of price,
quality, and service in the products which they buy. The two are in conflict.

Individual and Organizational Interests

Buyers usually have two goals. They want to further their company’s position in profits and acceptance
by society. They want also to protect or improve their position in their firms.
This is about self-interest. These goals can be mutually consistent. For example, if the firm’s goal is to
save money, the buyer may negotiate a low price from a supplier and he knows that his organization will
reward him for good performance.

The buying decisions are made easier if the individual and organisational goals are consistent. But in
some significant areas the buyer’s goals are not consistent with those of the firm. The firm may insist in
dealing with the lowest price so the buyer does not want to change. In this situation the seller must stress
to the buyer (1) What is good for the firm and (ii) What is in it for the buyer.

Promotional appeals should be directed to the buyer’s self-interest if two or more competing firms offer
the same products, prices and post sale services.
Buyers purchases range from routine to complex buying decisions. This means that the buying situations
in industrial organisations vary widely in their complexity, the people involved, and the time required. A
great deal of research has been carried out about organisational buying behaviour.
Three classes have been identified. They are discussed
below.

New Task Buying Situation

The new task buying situation is both difficult and complex. It is a first time purchase of a major product.
More people are involved in the process of buying because there is a great risk. Information need is high
and it is difficult to evaluate the alternatives since the decision makers have little experience concerning
the product.

The sellers/marketers have the challenge to identify what the buyer needs and communicate the ability of
the product to satisfy the identified need.

Straight Re-buy Situation

The straight re-buy situation refers to a routine and low-involvement purchase. It has a minimum
information need without great consideration of alternatives. Here the buyer has had experience with the
seller and there is no incentive to search. It is a repeat purchase.

The buying decisions are made in the purchasing department. There is a predetermined list of acceptable
suppliers. If some suppliers are not in this predetermined list they will find it difficult to sell their
products to the buyer.

Modified Re-buy Situation

Considering time and people involved, information needed, and the alternatives available, the modified
rebuy situation lies between the first and the second type. However, each purchase is evaluated on regular
basis because new designs of products are introduced frequently.

Buying Decision Process in Business

The buying - decision process in business markets commonly involves five stages as the ones in
consumer purchasing. Straight rebuy purchases skips some stages because they are routine. However, a
new-task purchase of an expensive good or service is usually an involving purchase decision.

The main buying-decision process stages in business include the following:

 Need recognition
 Identification of alternatives
 Evaluation of alternatives
 Purchasing decision
 Post-purchase behaviour

a) Need Recognition

The marketing staff must recognise that there is a need for buying. For example, when the Chief
Executive of Express Kenya Ltd. was promoted from General Manager to Managing Director, an
appropriate car was found. A BMW was bought for the CEO while the middle managers used Toyota
Corolla cars.

b) Identification of Alternatives
The marketers draw up a list of product performance specification, then the purchasing agent or
department identifies various alternative brands and supply sources of the product that can meet the
specifications. In the case of Express Kenya Ltd. a decision was made later to buy a Mercedes Benz to
replace a BMW when the time came for vehicle replacement.

c) Evaluation of Alternatives
In a manufacturing organization the production research and purchasing people join hands together. They
evaluate products and sources of supply to help purchasing department to identify the right product. The
evaluation is done for such factors as product performance, price and supplier’s ability to meet delivery
schedules. The supplier must provide a consistency in quality.

d) Purchasing Decision
The buyer bases his decision on evaluation outcome. He decides on a particular brand and supplier before
he negotiates the contract. The contract is bound to have many details because the large sums are usually
involved. Also many people are involved before the final contract is signed.

e) Post - Purchase Behaviour

The buyer continues to evaluate the performance of the product and the selected supplier. This is done to
ensure that the buyer’s expectations are adequately met. Any future dealings with the supplier will be
affected by the results of post-purchase evaluation. In the case of Express Kenya Ltd., Mercedes Benz
proved to be better than a BMW in terms of product reliability and better performance.

Marketing Management

Buying Influences: Multiple buying factors

Business-to-business marketing is complex for it is difficult to determine which individuals play various
roles. It is challenging for the buyer to know
 • Who makes the buying decision?
• Who influences the buying decision?
• Who determines products specifications?

The above activities involve several people in an organisation, especially in large organisations. Medium-
sized and small firms are equally affected. The owner manager may make all the decisions alone, but he
consults knowledgeable employees and relatives or friends.

The Central Buying Office

The Central buying office is defined as the total of the individuals or groups of people involve in the
process of decision to purchase a product. They include (i) users, (ii) influencers (iii) deciders (iv) gate-
keepers and (v) ultimate buyers.

i) Product Users: They actually use the industrial products. Examples are: (a) a secretary (b) an
executive (c) a product-line or (d) truck driver. They are very important because their views are a
source of feedback regarding product performance or general utility.

ii) Decisions Influencers: Some people set the product specifications plus aspects of
buying decisions. Such people are influential because of their technical expert knowledge,
organisational position, or some political power in the firm.

iii) Deciders: The deciders make actual buying decisions in respect of the product plus the
supplier. In some cases a purchasing agent/department is a decider in a straight - rebuy situation. If the
item to purchase is expensive, the top management becomes involved.

iv) Gate-keepers: Some people control the flow of the purchasing information. These gate-keepers
carry out their control activities within the organisation and between the firm and its potential vendors.
They may be purchasing agents, secretaries, receptionists, and technical personnel.

v) The Ultimate buyers: They interact with the suppliers and arrange the final terms of sale. They
process the actual purchase orders. The ultimate buyers are the employees of the purchasing department.
Where the value of the purchase is high, the top management becomes involved.

Multiple roles in purchasing

The same person can play more than one role. For example, a secretary can be a user, an influencer, and a
gatekeeper if the purchase is about a word-processing equipment. On the other hand, there could be
several users of the same product.

The size and composition of the central buying office depend on the requirements of various business
organisations. The requirements will depend on the cost of the product, the complexity of the decision,
plus the stage of the buying process.
Sales representatives usually waste time by talking to the wrong people in business buying. This happens
because of many people involved in the buying process, differences among companies and other factors.
The decision makers are usually busy people. It is not easy to reach them. This means that selling
activities in the organisation must be organisationally coordinated. The business marketer’s activities
should be matched with the buying needs of the purchasing organisation.

Buying characteristics of business users

The buying characteristics of the industrial users markets, buyer-seller relationships in business
marketers, and the total buying behaviour are different.

Direct purchase occurs when the business user buys products from the producer. This happens if there are
large orders that make it necessary for the purchaser to need technical assistance. Direct sale in the
business market is convenient for the seller because there are relatively few potential buyers. The buyers
are big and geographically concentrated. The nature of the relationship in the business market is unique.
The business marketers consider the roles of producers, manufacturers, suppliers, distributors aid end
users. The marketers see how each of the participants adds value to the final products. Emphasis and
efforts are made on building and maintaining relationships with all parties. They (the parties) are actually
responsible for successfully bringing the products to the business markets.

Frequency of purchase is another characteristic different from the pattern in consumer purchase. Certain
products are bought in frequently. Examples include (a) large installations (b) small parts and materials
used in the product manufacture and (c) standard operating supplies (e.g. cleaning items).

Personal selling programmes of business sellers will have to call on their potential customers as often as
possible to keep track of company’s products. The seller will know when the customer wants to make the
next purchase.
Size of order is considerably larger in the business purchase than it is in the consumer market. Hence each
sale in the business market is important for the seller because it is unique.
Time for negotiations tend to be longer than in the consumer transaction. The reasons for extended
negotiations are many e.g. many executives are involved in the buying decision one single sale involves a
large amount of money the product is made specifically as ordered by the business customer. Hence
considerable discussion is necessary for establishing the specifications.

Reciprocity arrangements used to be common among firms selling homogenous and basic products such
as oil, steel, rubber, paper products and chemicals. The arrangement here is:
“I will buy from you if you will buy from me.” Reciprocity has some drawbacks. For example, (I) the
price and quality of the product offered by seller may not be competitive and (ii) the morale of the sales
force and the purchasing personnel may suffer if their company fails to pursue the profit maximisation
objectives. In some countries reciprocity is illegal (eg in the USA).

Excellent service counts very much as a business buying motive and it determines the business buying
patterns. The industrial users demand it. In many cases a firm’s main differentiating feature is its service.
This happens if the product is standardised and can be purchased from a number of competing companies.
The sellers will be ready to offer excellent service before and after sale. The firm must serve its business-
to-business customers.

Dependability is important because the industrial user wants (a) and adequate quantity, (b) uniformity and
(c) good quality products. Variation in quality of materials for finished products can harm manufacturing
process. This can happen if the imperfections exceed the allowed quality limits. Costly disruptions in the
production process will follow and this will obviously lower overall productivity. Adequate quantity is
equally important because work stoppage caused by insufficient supply of materials is costly and
detrimental to the producer because the sellers may fail to deliver the products on schedules.

Companies put emphasis on total quality management QM) in order to show how important dependability
is to their manufacturing processes.

Leasing Replacing Buying

In many business markets, leasing business goods instead of buying them has become common. Industrial
firms are expanding leasing arrangements to include machinery, tools, vehicles, etc. Leasing method has
advantages for both the lessor and the lessee.

Advantages for the Lessor

• Total net income is higher than the income which could be received if the equipment was sold.
• Market expansion is possible for the lessor. Industrial users who could not afford to buy the
equipment may rent it.
• Leasing is a way of getting industrial users to try a new product. It is possible that they will
be more willing to rent it than to buy it, especially if the price is high.

Advantages for the Lessee

• Industrial users retain their investment capital to use other purposes;
• Firms will require less capital outlay to get into a new business than they would otherwise
need if they had to buy the initial equipment.
• An added advantage is that the leased products are serviced regularly by the lessors.
This eliminates the problems of equipment ownership
• One attraction in leasing is that if a firm wants to use the equipment seasonally, it can hire it
during the high-season. Vehicles used in tours business are an example in Kenya.
Market segmentation: industrial market
The industrial users make up the industrial market. If supermarkets, hospitals, paper manufacturers, etc,
purchases were for future use in their industries, we consider them as the industrial users which constitute
the industrial market.

The broad, diversified industrial market must be segmented further for a firm to develop effective
marketing plans which will enable the marketers to satisfy the industrial needs by supplying the right
products and services. We define industrial marketing as the marketing of the producer goods and
services for industrial, or producer, good user.

The following classification of the industrial market is useful for the segmentation of the producer goods,
market:-

• agriculture, forestry and fishing

• mining and quarrying
• contract construction
• communication, transport and other public utilities
• wholesale and retail trade;
• finance, insurance and real estate
• services
• Government Central Local

This is regarding the number of firms, their sizes, locations, etc.

Size of customer: The size of customer is measured by some factors eg. sales volume, number of
employees, number of production facilities, and number of sales offices. Many marketers divide their
customers into large and small accounts. They use distribution channels to reach the segments. For
example the firms, sales persons handle their large accounts while the small accounts are left for the
firm’s agents or intermediaries.

Type of buying situation: A business or industrial buyer modifies his market segments into (i) new buy,
(n) straight rebuy and (iii) modified rebuy. These have been discussed previously under section 10 (i, ii
and iii) above.

Other bases of segmentation: Many bases which were discussed in chapter 6 under consumer market
segmentation are also relevant to segmenting the industrial or business markets.

Geographical Segmentation
Geographical segmentation of the industrial goods applies if the industries are geographically
concentrated. For example firms which process natural resources are located close to the source. This
minimises the transport or shipping costs. In Kenya most of the manufacturing companies are located in
the industrial area of Nairobi.
Demographical Segmentation
This is like in the case of consumer market segmentation. The industrial firms can be segmentation
according to their sizes (e.g. based on sales volumes or number of employees). The type of business can
also be used, e.g. firms which sell to other industrial firms can be considered. The segmentation can be
based on type of customer, size of customer and type of buying situation.

• Type of customer types can be identified by using the standard industrial classification called
SIC. The SIC codes have two-digits, three-digits and four-digits which help to identify industries plus
sub- classes of each industry. The information is available for the industrial or business targeted
markets.

This is regarding the number of firms, their sizes, locations, etc.

• Size of customer: The size of customer is measured by some factors e.g. sales volume,
number of employees, number of production facilities and number of sales offices. Many marketers
divide their customers into large and small accounts. They use distribution channels to reach the
segments. For example, the firm’s salespersons handle their large accounts while the small accounts are
left for the firm’s agents or intermediaries.
• Type of buying situation: A business or industrial buyer modifies his market segments into (I)
new buy, (ii) straight re-buy and (iii) modified re-buy. These have been discussed previously under
section 10 (i, ii, iii) above.

• Target- Market Strategies

First, a firm will segment its total market. Then the second strategy is to select one or more segments as
the target markets. Thirdly a decision is made to follow one of the three strategies: (I) market aggregation,
(ii) single-market concentration, or multiple-segment targeting. The market potential of each segment is
assessed and evaluated before management determines which segment it has identified. The segment is
then chosen. There are four guidelines in selecting a target market.

Target markets should be relevant to the firm’s goals, objectives and image. Company’s resources must
be matched strategically with the market opportunities identified in the target segments. This is necessary
for earning profits in the long run.

An organization must select those market segments which will generate enough sales volume at a low
cost to ensure the firm’s profits. Profitability sales volume is essential Selection must be made regarding
market segments which have the least and smallest competitors. With these guidelines a seller is expected
to decide how many market segments he/she wants to pursue as his/her target markets. Three strategies
commonly used by marketers include the following:-

Aggregate Strategy
A market aggregate strategy is called a mass-market or an undifferentiated-market strategy. Here a
marketer treats his/her total market as a single segment. Market members are considered to be alike. The
marketing programme mix is for one mass, undifferentiated market. Products such as salt and sugar are
suitable for this strategy because they are undifferentiated.

Advantages:
• Cost minimization. A firm produces distributes and promotes its products very efficiently
• One product is produced for the entire market. This leads to a longer production run at a
lower cost
• Inventory cost is minimized because of lack of variety of colours and sizes of products
• Warehousing and transportation are efficient because one product goes to one market.

Product Differentiation Strategy

Product differentiation strategy goes together with market aggregate strategy. Customers perceive the
product as differentiated and distinguished from the competitors’ brands in the same aggregate market.
Hence the firm creates the perception that its products are better than the competitors’ brands.
A marketer differentiates his/her products in the following ways:
By changing the appearance of some features of the product, e.g. colour, package, etc

• By using promotional appeal which stresses some differentiating features or claims, e.g. Claiming
that the brand is the most effective product in market.
Single-segment Strategy
A single-segment strategy is called a concentration strategy because it means selection of one segment as
the target from the total market. Here a company wants to concentrate only on one single market but not
on the whole market.

The company’s marketing mix is directed at one segment of the total market.

Advantages
• A seller will penetrate a market in depth
• The seller will acquire a reputation for a specialist or an expert in the limited market.
• Limited resources can be used to imitate a single-segment strategy.
• Large competitors are likely to leave it alone if it remains small. If it becomes big, then the
large competitors will come in Limitations
• The drawbacks of a single-segment strategy include the following risks and limitations:
The seller puts all his/her eggs in one basket. If the market declines the seller will suffer
heavy losses
• A seller with a strong name and reputation in one market-segment will sometimes fail to
expand into another market-segment.

Multiple-segment Strategy
In a multiple-segment strategy, two or more groups of potential customers are identified as the target
markets. Then the marketer develops a marketing mix to reach market-segment. A marketer usually
develops a different version of his/her basic product for each market- segment. But the market
segmentation can be established even if the product is not changed. It may be accomplished by either
separate distribution channels or promotional appeals each tailored to the particular market-segment.

Advantages
• A multiple-segment strategy tends to a greater sales volume than a single-segment strategy
• It is beneficial for a company, if it faces seasonal demand.
• If a company has excess production capacity, it may look for additional market- segments to
absorb its excess production capacity.

Limitations
• High costs exist. Marketing to multiple-segments is expensive in respect of production and
marketing of products.
• Producing mass quantities of one model and one colour is less expensive than producing many
varieties with many models, colours and sizes.
• Multiple-segment strategy increases marketing expenses in many ways e.g.
• Inventory cost increases because each style, colour etc, require adequate inventory
• advertising costs increase because each market segment requires different advertisement.
• Promotional activities other than advertising become expensive
• Distribution costs will also go up if sustained efforts are made to make products reach market-
segment
• Administration expenses will also increase because managers will plan, organize, direct
and control or implement various different marketing programmes
9.5 INTERNATIONAL MARKETING

(A) Universality Of Marketing Process

Marketing is a universal economic activity that is found in all societies. Through marketing, individuals
and organizations obtain what they need and want. When conditions allow some marketers can sell goods
and services outside their national boundaries. When business people or entrepreneurs see opportunities to
make profits by serving the needs of users of a product in other parts of the world then international trade
takes place. The principles of marketing are universal but their application is affected by the
environmental conditions that each country faces. The goal of any marketer whether local or international
is the same: “to execute exchanges with the market”.

The key element in international marketing or exchange is the ability to recognize foreign opportunities,
to interpret the external uncontrollable environment and to understand how the company’s resources fit
the requirements for a profitable exchange.

(B) Universal Marketing Strategy Development Process

Whether marketers are developing marketing strategies for local or foreign markets, the process remains
the same. This process will follow the following steps:

Step 1: Recognition of market opportunities

Involves mainly looking out for unmet needs in the market.

Step 2: Analysis of the firms environment

Here the marketer analyses both the internal and external environments of the firm. The internal analysis
mainly involves an appraisal of the firm and its
resources and capabilities. The external analysis covers, political, legal, cultural, economic, technological,
physical and competitive factors.

Step 3: Setting the marketing objectives

Here the objectives that the organization wants to meet are set or selected in the light of Step 2.

Step 4: Development of market strategy

This covers the entry strategy into the market including the products/services to be offered, pricing
objectives and tactics, distribution logistics and
communication strategies.

Step 5: Evaluation of market strategies

involves an attempt to select the best possible strategy.

Step 6: Implementation
Matching strategy with the objectives developed in the initial stages and with the firm’s resources.
(C) The International Marketing Environment
The most difficult part of planning for international markets is environmental analysis.

Marketing internationally means entering other cultures and there is need to understand these cultures.
The marketer must understand all the possible trends and how they ate likely to affect demand.
Environmental analysis is actually the heart of international marketing. The environmental factors that the
marketer must understand include:

(a) Political environment: Includes such issues as:

• the effects of type of government
• level of political stability
political vulnerability
• forces of nationalism

(b) Legal environment: Covers the following:

• type of legal system
• effects of regulations
• possibilities of regulatory changes
• protection for properties and
• preferences for local products

(c) Social/Cultural environments: Includes:

Languages, religious beliefs, levels of education, people’s values and
attitudes and social roles which all affect buyer behaviour.

(d) Business/Technological environments: This covers:

Types and sizes of businesses
• rules for business conduct
• role of business in society
• level of technology used and ability to absorb technological changes.

(e) Competitive environment: Includes the strengths and actions of:

• local and international competitors
• intensity of competition
• nature of competition and relationships and interactions with competitors.

(f) Economic environment: Includes:

• Balance of payments trends
• Strengths/weakness of currency
• Trade barriers
• Interest rates and levels of inflation
• Financial risks
• Barriers to market entry and local economic trends
(g) Physical/demographic environments: Includes such factors as:
• population trends
• climatic conditions
• physical infrastructures e.g. transportation
• demographic profiles of population etc.

All these environmental factors greatly affect the market structure e.g. size of retailers, buyer tastes and
preferences, buyer responsiveness to marketing variables, ease of starting business, product availability
and communication with the market. Without a clear understanding of these environmental variables
international marketing becomes a very difficult if not impossible task.

(D) The Concept Of Comparative Marketing

Because the environment for Marketing decision making vary from society to society, marketing
strategies should be tailored to fit each different environment, if they are to achieve optimum results. But
it would be extremely costly to design a strategy for each market entered. Comparative marketing, by
providing for comparison between markets gives marketers a basis for grouping nations with respect to
common characteristics. So nations may be grouped into capitalist, socialist or communist and further
according to levels of development. Marketers for instance may find that groups of nations with similar
economic characteristics may be penetrated with generally similar marketing strategies.

The multinational corporations for example minimize the importance of national boundaries whenever it
is legally and culturally possible by developing their strategies on economic terms. These corporations
remain generally apolitical with their loyalties to their shareholders wherever they are located rather than
to any one country.

9.5.1 SALES FORECASTING

(A) TERMS DEFINED

(a) Market Potential (S.L) This is an estimate of the maximum possible sales opportunities in a
particular segment and open to all sellers of a good or service during a stated future period A market
potential indicates how much of a particular product can be sold to a particular market segment over some
future period, assuming the application of appropriate marketing methods.

(b) Sales Potential. A sales potential is an estimate of the maximum possible sales opportunities
present in a particular market. Segment open to specified company selling a good or service during a
stated future period. A sales potential represents sales opportunities available to a particular manufacturer.

(c) Sales Forecast: A sales forecast is an estimate of sales, in monetary terms or physical units for a
specified future period under a proposed marketing plan or programme and under assumed set of
economic and other forces outside the unit for which the forecast is made. The forecast could be for a
single product, or for an entire product-line. It could also be for a manufacturer’s entire marketing area, or
for any sub-division of it. Such forecasts are short- term (operating) sales forecast. Long-range forecasts
are used for planning production capacity and for long-run financial planning. It is the short-term
(operating) sales forecasts that are of importance to the sales executive.

Note
The purpose of an operating sales forecast is to predict how much of a company’s particular product can
be sold during a specified future period in certain markets under a given marketing plan or programme
and under an assumed set of economic and other outside forces.

(B) SALES POTENTIAL VS SALES FORECASTING

We have already said that sales potential are estimates of the maximum possible sales open to a specified
company selling a good/service. Sales potential are derived from market potentials after analysis of
historical market-share relationships and adjustments for recent or impending changes in company’s and
competitors selling strategies.

A company’s sales potential and sales forecast are not always identifiable and in most instances the sales
potential is larger than the sales forecast.

There are several possible reasons for this:

(a) some companies do not have sufficient production capacity to capitalize on the full sales
potential.
(b) Others have not developed distributive networks capable of reaching every potential
customer.
(c) Others axe limited financially and therefore do not attempt to realize their total sales
potential.
Others are more profit oriented than sales oriented so they seek to maximize profitable
sales and not possible sales.

Note
Estimate for sales potential indicates how much a company could sell if it had all the necessary resources,
and desired to use them for this purpose. On the other hand the sales forecast is a related but different
estimate. It indicates how much a company with a given amount of resources can sell if it implements a
given marketing programme.

(C) SALES FORECASTING METHODS

A sales forecasting method is a procedure for estimating how much of a given product (product line) can
be sold if a given marketing programme is implemented. No method is full- proof and each is subject to
some degree of error. In well managed companies the practice is not to rely upon one method but to
combine many methods to minimize the chances of errors.
• Forecasting means estimating the unknown. It is like gazing into the future.
• Rarely can anyone predict the future accurately.
• Forecasting then only reduces the forecasting error.
• The two errors common are the random error. i.e. predicts a certain percentage say 4% of actual,
plus or minus without consistently overestimating or consistently under-estimating sales. Systematic error
(the tendency to consistently over-estimate or under-estimate sales).
A good forecasting method reduces random error as far as possible and eliminates systematic error.

METHODS AVAILABLE
The methods are either:

I. Qualitative (subjective or judgmental)

II. Quantitative

I. QUALITATIVE METHODS
There are three main qualitative methods:

(a) Expert opinions

(b) Historical analogy
(c) Chain ratio
(a) Expert Opinions

An expert is someone whom the decision maker considers to be such—(they have specialized knowledge
in certain fields).

(a) EXPERT OPINIONS can be under the following methods:

i. Jury or executive opinion

There are two steps in this method:

• certain high ranking executives estimate the likely future level of sales.
• A rough average of their estimates is taken. The executive used should be well
• informed about both the industry and the company.

Advantages
• It is quick and easy
• It is a way to prove the experience and judgment of well informed people
• This may be the only feasible approach to forecasting if the company is so young that it has not
yet accumulated the experience necessary to use other methods.
• This method may have to be used when adequate sales and market statistics are missing or
unless future figures have not yet been put into the form required for more sophisticated forecasting
methods.

Weaknesses
• Its findings are based primarily on opinions.
• It adds to the work of key executives requiring them to spend time they would otherwise spend
on managerial duties.
• A forecast by the method is hard to breakdown into forecasts by products, by time, by customers
or by markets.

ii. Sales Force Composite

The salesmen are considered as experts on their territories. They are asked to project sales volume to their
own territories and their estimates are reviewed at a higher management level. The forecasting rule
assigned to sales people is assigned to those who must later produce results.

Advantages
• This method has the merit of utilizing the specialized knowledge of those company
personnel who are in the closest touch with market conditions.
• Because the salespeople help to develop the forecast, they should have greater confidence
in quotas based upon it.
• Forecasts developed by this method are easy to breakdown according to products, territories,
customers, middlemen and sales force.

Weaknesses
• It is not free of bias
• Sales people are not trained in forecasting and many tend to be even optimistic or over-
pessimistic about their prospects for making future sales (many predict either too much or much
more than they can deliver).
• A salesperson might also be unaware of larger economic developments in the country or of
company marketing plans that will shape future sales in his territory.

iii. Percent of sales growth

The percent growth method too is based on opinions, with past data serving as a bench-mark. So the sales
forecast for the coming year are set at the same figure for the current year’s actual sales or by adding a set
% to last years sales.

Next year’s sales = this year’s sales X This year’s sales

Last year’s sales

Yl Yo Y2 S2 = So X So
 Si SI So S2

The assumption here is that this year’s sales are inevitably related to last year’s while next years are
related to this years sales.
iv. Intentions-to-buy survey (survey of customers buying plans)
Here customers are asked about their future buying plans.
Commonly used by industrial markets more than consumer goods marketers.

Advantages
It is easiest to use where:

• Potential market consists of small numbers of customers and prospects.

• Substantial sales are made to individual buyers.
• The manufacturer sells direct to users.
• Customers are concentrated in a few geographical areas.
• Buyers are asked questions like: Do you intend to buy a cooker in the next 3 months?

Answers may be the following:

0 0.25 0.5 0.75 1.0

No Chance Slight Fairly Good Very likely Certain
Possibility service

The answers are aggregated and estimates of total demand for each product prepared and forecast are then
derived from total demand using share estimates.

Weaknesses
• Usually time consuming
• Assumes that customers actually know what they are going to do (not always)
• Assumes that buyers will actually carry out their plans. Some may not actually buy.
• Customers do not always have well formulated buying plans.
• Possibilities of non sampling errors are high depending on how the sample is selected.

(v) The Delphi method

The aim of this method is to gain the consensus of a group of experts on a certain matter. This is
accomplished by questioning them individually and providing them with anonymous feedback from other
people in the group until they agree on a common line.

Any set of information available to some expert is passed on to all other experts enabling them to have
access to all the information for forecasting.
The questioning is handled impersonally by a co-ordinator. The method is commonly used in
technological forecasting.
The Delphi method eliminates:
• Committee activity
• Bandwagon effect of majority opinion
• Possibility of one strong person dominating the decision making

Note
The above form expert opinion methods. Seeking opinions from experts has certain advantages and
disadvantages.

Advantages
• Different points of view are brought out and balanced in the forecasting process.
• Forecasting using expert-opinions can be done quickly and inexpensively.
• In many cases, the management has no choice but to use expert opinions, when basic data are
sparse or lacking.

Weaknesses
• Opinions are less satisfactory than hard facts.
• Responsibility for the final figure of the forecast is (too) dispersed
• The methods are usually more reliable for aggregate forecasting rather than developing reliable
breakdowns for territory, customer or product.

(b) HISTORICAL ANALOGY

It is a comparative analysis of the introduction and growth of a new product with other products that have
similar characteristics. Efforts are made to:

(i) Quantify the degree of similarity by rating, ranking or other expert opinion approaches.

(a) Determine what the dissimilarities will do to the basic pattern.

The accuracy of this method depends on the ability to find analogous products or situations. It is a
reasonably good range forecasting depending on the analyst’s skill at interpreting or estimating the effects
of differences in product and market factors. Major applications are for forecasts of new product sales and
profitability.

II. QUANTITATIVE FORECASTING

Quantitative forecasts are based on assumptions. The common methods are:
Regression analysis:
Using the least squares method. This method has the following
Advantages:
 It guarantees the best fit, i.e. the best sales prediction with the data available.
 It is a statistical method & therefore we have the advantage of probability distributions to make
probabilistic forecasts and to reach conclusions about the relative magnitudes of forces that affect
sales.

On the other hand:

(a) It works only with data that can be quantified. With the qualitative forecasts discussed,
assumptions and judgements were made about important marketing factors. The regression forecast will
suffer to the extent that these factors are not in the equation.

(b) It is easy to be deceived by the apparent accuracy of results when in fact the regression
equation may perform rather poorly.

REINFORCING QUESTIONS

Q1. What are the major functions of a marketing department in a large manufacturing firm?

Q2. Briefly evaluate the different approaches to sales forecasting.

Q3. What do you understand by the term product life cycle?

What advantages can be achieved by applying the PLC concept in making marketing decisions?
EXAMINATION PAPER. TIME ALLOWED: THREE HOURS. ANSWER ALL QUESTIONS

Q1. a. Why is communication such an important feature of management policy?

b. Discuss the advantages and disadvantages of written communication.

Q2. "A budget is both a plan and a control device"

Critically evaluate this statement.

Q3. Leaders are born and not made. Discuss.

Q4. Critically examine the elements of work study.

Q5. What are the advantages and disadvantages of a small business?

Q6. How can mangers improve their personal time management so that they can focus on the
pressing demands of the day and create space in which to plan strategically for the future?