BBPM2203 Marketing Management II - Ssept13rs (Lib)

BBPM2203
MARKETING
MANAGEMENT II
Zahari Mohamad
Nor Pujawati Md Said
Abdul Rahim Othman
Sany Sanuri Mohd Mokhtar
Noor Hasmini Abd Ghani
Loo Sze Wei
Project Directors:
Prof Dato Dr Mansor Fadzil

Prof Dr Wardah Mohamad
Open University Malaysia
Module Writers:
Zahari Mohamad
Nor Pujawati Md Said
Abdul Rahim Othman
Sany Sanu ri Mohd Mokhtar
Noor Hasmini Abd Ghani
Universiti Utara Malaysia
Co-writer:
Loo Sze Wei

Moderators:
Dr Rosli Salleh
Universiti Putra Malaysia
Dr Oh Teik Hai
Developed by:
Centre for Instructional Design and Technology

Printed by:
Meteor Doc. Sdn. Bhd.

Lot 47-48, Jalan SR 1/9, Seksyen 9,
Jalan Serdang Raya, Taman Serdang Raya,
43300 Seri Kembangan, Selangor Darul Ehsan
First Edition, August 2007

Second Edition, August 2013 (rs)
Copyright Open University Malaysia (OUM), August 2013, BBPM2203
All rights reserved. No part of this work may be reproduced in any form or by any means without
the written permission of the President, Open University Malaysia (OUM).
Table of Contents
Course Guide
xixvi
Topic 1
Market Positioning and Managing Product Life Cycle

1.1
Market Positioning
1.2
Bases of Positioning
1.2.1 Product Differentiation
1.2.2 Service Differentiation
1.2.3 Channel Differentiation
1.2.4 Staff or Personnel Differentiation
1.2.5 Image Differentiation
1.3
Product Life Cycles
1.3.1 Introduction Stage
1.3.2 Growth Stage
1.3.3 Maturity Stage
1.3.4 Decline Stage
1.3.5 Product Life Cycle Patterns
Summary
Key Terms
1
2
2
3
5
5
6
6
7
8
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Topic 2
New Product Development

2.1
What is a New Product?
2.2
Challenges in New Product Development
2.3
Stages in New Product Development
2.4
Success and Failure Factors of New Products
2.4.1 Success Factors of New Products
2.4.2 Failure Factors of New Products
Summary
Key Terms
13
13
14
15
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Topic 3
Managing New Product Lines and Brands

3.1
Product Levels
3.2
Product Classification
3.2.1 Consumer Products
3.2.2 Organisational Products
3.3
Product Mix
3.4
Product Line Analysis
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25
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27
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TABLE OF CONTENTS
3.5
Brands
3.5.1 Characteristics of Effective Branding
3.5.2 Brand Equity
3.5.3 Brand-name Decision
3.5.4 Managing Brand
3.6
Packaging
3.6.1 Packaging Functions
3.7
Labelling
Summary
Key Terms
30
30
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36
Topic 4
Managing Services Marketing

4.1
What are Services?
4.1.1 Categories of Service Mix
4.1.2 Characteristics of Services
4.2
Marketing Strategies for Service Firms
4.2.1 Traditional Marketing Mix
4.2.2 Advanced Marketing Mix Elements for Services
4.2.3 The Services Triangle
4.2.4 Managing Service Differentiation
4.2.5 Managing Service Quality
Summary
Key Terms
37
38
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Topic 5
Developing Strategies and Managing Pricing

5.1
Factors in Pricing
5.1.1 Internal Factors
5.1.2 External Factors
5.2
Pricing Policies
5.3
Pricing Programmes
5.3.1 Geographical Pricing
5.3.2 Price Discounts and Allowances Strategies
5.3.3 Promotional Pricing Strategies
5.3.4 Discriminatory Pricing Strategies
5.3.5 Product Mix Pricing Strategies
5.4
Price Changes
5.4.1 Decreasing and Increasing Prices
5.4.2 Reactions to Firms Price Changes
5.4.3 Responding to Competitors Price Changes
Summary
Key Terms
48
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TABLE OF CONTENTS
Topic 6
Topic 7
Managing Marketing Channels, Intermediaries and Physical

Distribution
6.1
What is a Marketing Channel?
6.1.1 Classifications of Marketing Channel?
6.1.2 Marketing Channel Functions
6.1.3 Marketing Channel Levels
6.2
Channel Design Decisions
6.2.1 Channel Design Systems
6.3
Channel Management Decisions
6.4
Channel Dynamics
6.4.1 Vertical Marketing Systems
6.4.2 Horizontal Marketing Systems
6.4.3 Multi-channel Marketing Systems
6.5
Conflict, Cooperation and Competition
6.6
Legal and Ethical Issues in Channel Relations
6.7
Managing Intermediaries of Distribution Channels
6.7.1 Importance of Intermediaries
6.8
Wholesaling
6.8.1 Importance of Wholesaling
6.8.2 Types of Wholesalers
6.8.3 Trends in Wholesaling
6.9
Retailing
6.9.1 Importance of Retailing
6.9.2 Forms and Types of Retailers
6.9.3 Retailing Wheel
6.9.4 Trends in Retailing
6.10
Agents and Brokers
6.11
Managing Physical Distribution
6.11.1 Components of Physical Distribution
Management
6.11.2 Integrated Physical Distribution Management
System
Summary
Key Terms
Managing Integrated Marketing Communications
7.1
Marketing Communication Mix
7.2
The Communication Process
7.3
The Steps of Developing Effective Communications
7.3.1 Identify the Target Audience
7.3.2 Determine the Communications Objectives
68
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TABLE OF CONTENTS
7.3.3 Design the Message

7.3.4 Media Selection
7.3.5 Message Source Selection
7.3.6 Feedback Collection
7.4
Promotional Budget Deciding Method
7.4.1 Most Affordable Method
7.4.2 Percentage of Sales Method
7.4.3 Competitive-parity Method
7.4.4 Objective-and-task-based Method
7.5
Promotional Mix Strategy
7.6
Integrated Marketing Communication
7.7
Ethical and Social Issues in Marketing Communications
Summary
Key Terms
108
108
109
110
110
111
111
112
112
113
114
115
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117
Topic 8
Managing Advertising, Sales Promotion and Public Relations

8.1
Advertising
8.1.1 Setting the Advertising Objectives
8.1.2 Setting the Advertising Budget
8.1.3 Choosing the Advertising Strategy
8.1.4 Advertising Effectiveness
8.1.5 Advertising Management
8.1.6 International Advertising Decisions
8.2
Sales Promotion
8.2.1 Sales Promotion Objectives and Strategies
8.2.2 Major Decisions in Sales Promotion
8.2.3 Deciding on Major Sales Promotion Tools
8.3
Public Relations
8.3.1 Public Relations Marketing
8.3.2 Functions of Public Relations Department
8.3.3 Making Major Decisions in Public Relations
Summary
Key Terms
118
119
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134
135
135
136
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139
Topic 9
Managing the Sales Force and Direct Selling

9.1
Roles of Personal Selling
9.2
Managing the Sales Force
9.2.1 Sales Force Objectives and Strategies
9.2.2 Designing Sales Force Strategy and Structure
9.2.3 Recruiting and Selecting Sales Force
9.2.4 Training Sales Force
9.2.5 Sales Force Compensation
9.2.6 Supervising Sales Force
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TABLE OF CONTENTS
Topic 10
Answers
vii
9.2.7 Motivating Sales Force

9.2.8 Evaluating Sales Force
9.3
The Process of Personal Selling
9.4
Relationship Marketing
9.5
Benefits of Direct Marketing
9.5.1 The Advantages of Direct Marketing
9.6
Consumer Database and Marketing Database
9.7
Major Channels of Direct Marketing
9.8
Online Marketing
9.8.1 Advantages and Disadvantages of Online
Marketing
9.8.2 Managing Online Marketing
Summary
Key Terms
147
148
148
150
151
151
151
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154
Marketing Control
10.1
Control Process
10.1.1 Deciding on Performance Standards
10.1.2 Deciding on Types of Feedback
10.1.3 Obtaining Feedback
10.1.4 Evaluating Feedback
10.1.5 Implementing Corrective Action
10.2
Control Mechanisms
10.2.1 Annual-plan Control
10.2.2 Profitability Control
10.2.3 Efficiency Control
10.2.4 Strategic Control
10.3
Marketing Audit
Summary
Key Terms
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TABLE OF CONTENTS
COURSE GUIDE
COURSE GUIDE
xi
COURSE GUIDE DESCRIPTION

You must read this Course Guide carefully from the beginning to the end. It tells
you briefly what the course is about and how you can work your way through
the course material. It also suggests the amount of time you are likely to spend in
order to complete the course successfully. Please keep on referring to the Course
Guide as you go through the course material as it will help you to clarify
important study components or points that you might miss or overlook.
INTRODUCTION
BBPM2203 Marketing Management II is one of the courses offered by the Faculty
of Business and Management at Open University Malaysia (OUM). This course is
worth 3 credit hours and should be covered over 15 weeks.
COURSE AUDIENCE
This is a core subject for students enrolled in the Bachelor of Management,
Bachelor of Business Administration, Bachelor of Tourism Management and
Bachelor of Hospitality Management. It is also a foundation course for students
undergoing the Bachelor of Human Resource Management. This module aims to
impart the knowledge of marketing and managing marketing efficiently.
As an open and distance learner, you should be able to learn independently and
optimise the learning modes and environment available to you. Before you begin
this course, please ensure that you have the right course materials, understand
the course requirements, as well as know how the course is conducted.
STUDY SCHEDULE
It is a standard OUM practice that learners accumulate 40 study hours for every
credit hour. As such, for a three-credit hour course, you are expected to spend
120 study hours. Table 1 gives an estimation of how the 120 study hours could be
accumulated.
xii X
COURSE GUIDE
Table 1: Estimation of Time Accumulation of Study Hours

STUDY ACTIVITIES
STUDY
HOURS
Briefly go through the course content and participate in initial discussion
Study the module
60
Attend 3 to 5 tutorial sessions
10
Online participation
12
Revision
15
Assignment(s), Test(s) and Examination(s)
20
TOTAL STUDY HOURS ACCUMULATED
120
COURSE OUTCOMES
By the end of this course, you should be able to:
1.
Discuss what is marketing and managing marketing efficiently and

effectively;
2.
Assess the environment and the factors that influence marketing

management from the consumers and competitors perspectives;
3.
Appraise the development stages and marketing mix strategy from the
aspects of market positioning, product management, pricing, distribution
channels and integrated marketing communications;
4.
Explore the methods of managing and implementing the marketing

programme; and
5.
Evaluate the insights and control implementation and performance

evaluation for marketing activities.
COURSE SYNOPSIS
This course is divided into 10 topics. The synopsis for each topic is presented
below:
Topic 1 discusses general efforts taken by the marketer to place products in the
market according to consumer tastes and preferences. Perceptual maps, which
are the main methods used in managing product placements in the market, will
be discussed in-depth.
COURSE GUIDE
xiii
This topic also discusses the first part relevant to product strategy, which is the
product cycle management. In this topic, product life cycle concepts and product
life cycle management methods will be introduced. The focus will be on the
design strategy appropriate for each marketing situation of the product.
Topic 2 explains new product concepts as well as effective and efficient new
product development processes. New products can be classified into three
categories: innovations, modifications and imitations. All three new product
categories have to comply with the new product development process and
marketing strategy design which are unique to the marketers.
Topic 3 discusses product management from the aspects of product mix
management, specifically from the aspects of product line decisions. Brand
management process, product packaging and labelling are discussed in detail.
Topic 4 explains the concept of intangible products, that is, services. This topic
answers questions on why the marketer needs to market services differently as
compared to marketing physical products. This is caused by the unique
influences of services. This topic also explains in detail the process of creating
services, gap reduction concepts and service quality.
Topic 5 discusses pricing management processes in terms of pricing objectives
and pricing methods. It explains all the steps in the pricing management process
from selecting the pricing objective to selecting the final price. This topic focuses
on how the marketer needs to manage pricing based on the 3C model, cost
considerations, consumer value and competitors pricing. Techniques or pricing
programmes such as new product pricing, product mix pricing, standardised
pricing and reactions to price changes are discussed as well.
Topic 6 explains channel management concepts in terms of distribution channels
and the creation of effective distribution channels. Here, channel conflict
concepts and vertical marketing systems are introduced. Generally, marketers
can choose from two types of distribution channels, either the direct channel or
the indirect channel. This topic also discusses the roles of wholesalers and
retailers. The distribution channel management process is explained using
physical distribution management. Order management, inventory management,
warehousing and transportation will be discussed in-depth to aid in the
understanding of integrated logistics systems.
Topic 7 discusses the last element in the marketing mix strategy, which is
marketing communication. This topic explains the communication process and
the method chosen by the marketer to come up with an effective communication
and marketing management model.
xiv X
COURSE GUIDE
Topic 8 discusses strategies and elements of management tactics in the

promotional mix (except for individual or personal selling). Each decision made
by the marketing manager in advertising management, sales promotional mix,
public relations and publicity is explained in detail.
Topic 9 explains the management of the sales force, which is an important topic
in the management of personal selling and promotional mix. This topic also
covers direct marketing and on-line marketing. Direct marketing and on-line
marketing methods including the advantages and disadvantages to the marketer
and consumers are discussed.
Topic 10 is the last topic in the module. It discusses marketing control processes
and covers marketing audits specifically. The marketing audit is used to control
and evaluate the performance of all marketing activities and strategies by the
marketer.
TEXT ARRANGEMENT AUDIENCE

Before you go through this module, it is important that you note the text
arrangement. Understanding the text arrangement will help you to organise your
study of this course in a more objective and effective way. Generally, the text
arrangement for each topic is as follows:
Learning Outcomes: This section refers to what you should achieve after you
have completely covered a topic. As you go through each topic, you should
frequently refer to these learning outcomes. By doing this, you can continuously
gauge your understanding of the topic.
Self-Check: This component of the module is inserted at strategic locations
throughout the module. It may be inserted after one sub-section or a few subsections. It usually comes in the form of a question. When you come across this
component, try to reflect on what you have already learnt thus far. By attempting
to answer the question, you should be able to gauge how well you have
understood the sub-section(s). Most of the time, the answers to the questions can
be found directly from the module itself.
COURSE GUIDE
xv
Activity: Like Self-Check, the Activity component is also placed at various

locations or junctures throughout the module. This component may require you to
solve questions, explore short case studies, or conduct an observation or research.
It may even require you to evaluate a given scenario. When you come across an
Activity, you should try to reflect on what you have gathered from the module and
apply it to real situations. You should, at the same time, engage yourself in higher
order thinking where you might be required to analyse, synthesise and evaluate
instead of only having to recall and define.
Summary: You will find this component at the end of each topic. This component
helps you to recap the whole topic. By going through the summary, you should
be able to gauge your knowledge retention level. Should you find points in the
summary that you do not fully understand, it would be a good idea for you to
revisit the details in the module.
Key Terms: This component can be found at the end of each topic. You should go
through this component to remind yourself of important terms or jargon used
throughout the module. Should you find terms here that you are not able to
explain, you should look for the terms in the module.
References: The References section is where a list of relevant and useful
textbooks, journals, articles, electronic contents or sources can be found. The list
can appear in a few locations such as in the Course Guide (at the References
section), at the end of every topic or at the back of the module. You are
encouraged to read or refer to the suggested sources to obtain the additional
information needed and to enhance your overall understanding of the course.
PRIOR KNOWLEDGE
Learners of this course are required to pass BBPM2103 Marketing Management I
course.
ASSESSMENT METHOD
Please refer to myVLE.
xvi X
COURSE GUIDE
REFERENCES
Bagozzi, R. P., Rosa, J. A., Celly, K. S., & Coronel, F. (1998). Marketing
management. New Jersey: Prentice Hall.
Dalrymple, D. J., & Parsons, L. J. (2000). Marketing management: Text and cases
(7th ed.). New York: John Wiley & Sons.
Harrel, G. D. (2007). Marketing: Connecting with customers (1st ed.). Chicago
Education Press.
Hoffman, D. K., & Bateson, J. E. G. (2001). Essentials of services marketing
(2nd ed.). Fort Worth: The Dryden Press.
Kotler, P., & Armstrong, G. (2007). Principles of marketing (12th ed.). New
Jersey: Prentice Hall.
Kotler, P., Ang, S. H., Leong, S. M., & Tan, C. H. (1999). Marketing management:
An Asian perspective (2nd ed.). Singapore: Prentice Hall.
Kotler, P. (2008). Marketing management (13th ed.). New Jersey: Prentice Hall.
Lamb, C. W., Hair, J. K., & McDaniel, C. (2008). Marketing (10th ed.). Canada:
South-Western Publishing.
Mowen, J. C. & Minor, M. (1997). Consumer behaviour (5th ed.). New Jersey:
Prentice Hall.
Shiffman, L. G. & Kanuk, L. L. (2003). Consumer behaviour (8th ed.). New Jersey:
Prentice Hall.
Zeithaml, V. A., & Bitner, M. J. (2002). Services marketing: Integrating customer
focus across the firm (3rd ed.). Boston: Irwin-McGraw-Hill.
TAN SRI DR ABDULLAH SANUSI (TSDAS)

DIGITAL LIBRARY
The TSDAS Digital Library has a wide range of print and online resources for the
use of its learners. This comprehensive digital library, which is accessible
through the OUM portal, provides access to more than 30 online databases
comprising e-journals, e-theses, e-books and more. Examples of databases
available are EBSCOhost, ProQuest, SpringerLink, Books24u7, InfoSci Books,
Emerald Management Plus and Ebrary Electronic Books. As an OUM learner,
you are encouraged to make full use of the resources available through this
library.
Topic X Market
Positioning
and Managing
Product
Life Cycles
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1.
Define the concept of market positioning;
2.
Explain the dimensions that can be used by a company to

differentiate its market offerings from the ones offered by its
competitors; and
3.
Discuss product life cycle concepts and the relevant positioning

strategies under each stage of product life cycle.
INTRODUCTION
There are many types of products in the market. For example, in Malaysia there
are more than 10 types of fast food outlets. Even so, we are able to differentiate
between them. McDonalds and Kentucky Fried Chicken (KFC) have different
products, services, staff or personnel, distribution channels and images.
We often see new products being introduced into the market. Some survive
while others vanish from the market within a short period. Every product has its
own product life cycle. First, the product is introduced, then it obtains positive
responses from consumers and finally consumers no longer buy or use it.
X TOPIC 1
1.1
MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE
MARKET POSITIONING
Market positioning is the act of designing a companys offerings and image to

occupy a distinctive place in the mind of the target market.
Without differentiation, a product will be viewed as similar to other products. If

a product is not unique, consumers will find no reason to purchase and consume
it or replace the current product that is being consumed.
Perodua and BMW are two companies which produce cars. The majority of
consumers perceive a BMW as having better quality, performance and safety
measures. A Perodua Kancil, on the other hand, is perceived by the consumer as
the cheapest car and that its quality is not at par with the BMW. Both cars are
different from the perspectives of quality, pricing, performance level and safety
measures.
Perodua Kancil uses pricing and the small car concept as the basis of its market
positioning in Malaysia, while BMW uses luxury and status as its main
strategy.
There are many methods to differentiate businesses and products. For example,
we can use brand, quality, services offered, sales force, materials used and
business location to differentiate between businesses and products.
The market positioning preferred should be attained by the product being
offered. If the company emphasises differences which cannot be carried by the
product, consumers will feel disappointed or cheated and this will create a
negative image of the company and the product. A negative image can cause
losses for the company and the product will not be marketable anymore.
1.2
BASES OF POSITIONING
ACTIVITY 1.1
Coca-Cola and Pepsi are renowned soft drink producers. How would you
differentiate between Pepsi and Coca-Cola?
TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE W
At the beginning of the topic, the basis used to differentiate products that are
offered and the business itself has been explained. Generally, a business or a
company can be differentiated based on:
(a)
The product itself;
(b)
Services offered;
(c)
Company staff or personnel;
(d)
Distribution channel used; and
(e)
Company image.
1.2.1
Product Differentiation
Products offered by a company can be used as a basis to differentiate the

companys business. The bases used in market positioning are:
(a)
Form
Most products can be differentiated based on product design like size,
shape or physical structure. Some are round, cylindrical, square and other
shapes.
(b)
Features
Most products can be offered with varying features or accessories that
supplement the products basic functions. For example, the features of a
radio are CD and cassette players and a loud stereo.
(c)
Quality
Most products can be differentiated based on the quality of the product.
Normally, quality is categorised into three levels: high, average and low or
inferior. Product quality can be measured according to the following
features:
(i)
Performance
Performance quality is the level at which the products primary
characteristics operate. For example, a washing machine that washes
efficiently is said to be of good quality and high performance.
(ii)
Durability
A product that can last for many years is perceived as being of good
quality.
X TOPIC 1
(iii) Defect Free

A product which is free from defects is perceived as being of good
quality.
(iv) Features
Products with various attractive features can also be perceived as
being of good quality. For example, a Sony television set with loud
stereo sound, clear picture quality, remote control and a big screen
falls into the category of a product of good quality.
(v)
Brand
Well-known brands also imply good quality. For example, Rolex
watches, Mercedes cars and Nescafe coffee.
(vi) Fit and Finish

This aspect requires the product to be strong, efficient and of quality.
For example, a dining table is said to be of good quality if the wood
used is hard, steadfast and unshakeable.
(d)
Design and Style

Design and style offers a good way to differentiate and position a
companys products. A Jaguar car uses attractive design and style as its
basic market positioning strategy. Perfume manufacturers use various
bottle designs and styles which are attractive and unique as the basis of
their product differentiation. Figure 1.1 displays various designs and
shapes of perfume bottles for the purpose of attracting the consumers
attention.
Figure 1.1: Designs and shapes of perfume bottles

Source: http://images.google.com
ACTIVITY 1.2
Based on the product list below, what are the suitable basic differencees
for the given products?
Products
Basic Difference
Textbooks
Childrens storybooks
Nasi lemak
Jewellery
Garments by Bonia
Garments at the night market
1.2.2
Service Differentiation
The business of one company can be differentiated from another based on the
services offered or the services that are attached to the products sold. Services
that can be used as market positioning are delivery services, fixing, maintenance,
staff training and repair work.
1.2.3
Channel Differentiation
Distribution channels used to distribute the products of a company can be used

as a differentiation factor as well. Some companies use only stores to distribute
products whereas others use intensive distribution, exclusive distribution or
selective distribution strategies.
(a)
Intensive Distribution
In intensive distribution, a company sells its products in as many shops as
possible. The objective of this method is to enable consumers to purchase
the products anywhere and they are needed.
X TOPIC 1
(b)
Exclusive Distribution
Through exclusive distribution, the company distributes its products in
exclusive stores only. The company gives special rights to certain stores to
distribute its products. For example, manufacturers of Cartier accessories
distribute their accessories only in one store in Malaysia, which is situated
in Suria KLCC.
(c)
Selective Distribution
Selective distribution strategy incorporates aspects of intensive distribution
and exclusive distribution. Through this strategy, the manufacturer will
select a few stores to carry its products. The objective of this strategy is to
build good relationships with a few stores in order to provide excellent
service to consumers.
1.2.4
Staff or Personnel Differentiation
Personnel can also be a differentiating factor for a company. Trained, dedicated,

friendly, self-confident, capable and honest are a few basic attributes of personnel
that can differentiate a company from its competitors.
1.2.5
Image Differentiation
Today, there are many types of images that are used to differentiate products and
companies in the market. McDonalds portrays itself as a clean and cheerful
restaurant. Nestle positions its Nescafe coffee as an international beverage.
Marlboro portrays its cigarettes as cigarettes that embody a rugged lifestyle.
Pepsi, on the other hand, portrays its carbonated cola as a drink for the new
generation.
Generally, images are created through advertisements that are passed on to
consumers. Global companies are willing to spend billions of ringgit in
advertisement programmes to create a desirable image for their products or
company name. Image and brands are differentiating factors that competitors
find most difficult to copy. On the other hand, other market positioning
differentiating factors like features, design and style, and services offered are
easily imitated and followed by competitors.
EXERCISE 1.1
Essay Questions
1.
Describe briefly the concept of market positioning.
2.
Why do basic differences exist in businesses?
1.3
PRODUCT LIFE CYCLES
Each product has its own life expectancy. The product will go through stages
when it is very popular and later its popularity will decline. For example, when
the VCD player was first introduced, the response from the consumers was
overwhelming. Now, sales of VCD players are declining because consumers are
purchasing DVD players.
Figure 1.2 shows the life cycle of a product.
Product life cycles can be divided into four stages, which are:
(a)
Introduction stage;
(b)
Growth stage;
(c)
Maturity stage; and
(d)
Decline stage.
Figure 1.2: Product life cycle curve
X TOPIC 1
1.3.1
Introduction Stage
This stage is when the product is newly introduced into the market. Consumers
are not aware of the product and profits are very low or negative in this stage.
This is caused by the heavy expenses incurred during the product introduction
stage as well as low sales volume.
The market positioning strategies which should be followed by companies at the
product introduction stage are to:
(a)
Increase the volume of advertisements to create consumer awareness;
(b)
Increase the number of distributors to distribute the products to the

consumers;
(c)
Price the product high or low depending on the suitability of the market;
and
(d)
Price the product high if the product is new and has not existed in the
market before.
1.3.2
Growth Stage
At the growth stage, sales will increase tremendously. Here, consumers are
aware of the existence of the product in the market and they have already
purchased the product for the first time. Profit increases and is at a profit-making
level. When the product gains attention from the consumers, competitors start
entering the market with similar products.
growth stage are to:
(a)
Continue the advertisement campaign to build awareness, interest and

confidence among the consumers;
(b)
Appoint more distributors to ensure the products can be purchased by a

larger number of consumers;
(c)
Slash product price if it was priced too high during the product
introduction stage. Slashing the price will increase the number of
purchasers and it will scare off competitors who are beginning to enter the
market; and
(d)
Expand factory and company operations to fulfil increasing demands from

the consumers.
1.3.3
Maturity Stage
At the maturity stage, profits and sales start to reach the maximum level. The
other companies start to offer similar or identical products. Therefore, consumers
have more options. In this stage, competition is tough and there are many
competitors in the market. The market positioning strategies which should be
followed by companies at the maturity stage are:
(a)
Offer products with improvised design, enhanced quality and features.

Figure 1.3 depicts Pepsis soft drink design which has been modified
according to time;
(b)
Offer new models to the existing product lines. The advertising campaigns
have to be continued to build consumer trust and loyalty;
(c)
The price offered is lower or at par with the competitors price;
(d)
Own wide and excellent distribution networks; and
(e)
Able to obtain economies of scale to enable the company to price their

products lower and control a bigger market share.
Pepsi in the 1970s
Figure 1.3: Design of Pepsi cans in the seventies and the modified version in 2002
Source: http://images.google.com
1.3.4
Decline Stage
In the decline stage, sales and profits decline until there are no sales or profits
anymore. This happens because there is a better product replacement, new
technologies exist or the consumers are bored of the old product and do not want
to purchase it anymore. When this happens, that particular product will
disappear from the market. An example of a product that has disappeared from
the market is the black and white television set. Video recorders are experiencing
10
X TOPIC 1
the decline stage but have not disappeared from the market yet. However,
they will eventually disappear from the market altogether when technological
developments set in.
decline stage are:
(a)
When the technology changes rapidly and the consumer demand declines
sharply, it is better for the company to cease the products production; and
(b)
When there is continuous demand for the output, the company can
continue to produce the product at a smaller quantity regularly until there
is insufficient demand.
1.3.5
Product Life Cycle Patterns
Some products have similar product life cycles as shown in Figure 1.4. There are
other product life cycle patterns such as:
x
Fad product life cycle;
Style product life cycle; and
Seasonal product life cycle.
(a)
Fad Product Life Cycle

Fads are fashions that come quickly into public view, are adopted with
great zeal but decline very fast as shown in Figure 1.4.
Figure 1.4: Fad product life cycle
(b)
Style Product Life Cycle

A style is a basic and distinctive mode of expression. When a style is
created, it will exist for a few generations. Then, it will disappear and
reappear again. Figure 1.5 shows the style product life cycle.
Figure 1.5: Style product life cycle
(c)
11
Seasonal Product Life Cycle

Figure 1.6 shows the seasonal product life cycle.
Figure 1.6: Seasonal product life cycle
ACTIVITY 1.3
Give an example of a product which has gone through all the product
life-cycle stages.
EXERCISE 1.2
Essay Questions
1.
How does one ensure that the product purchased is of high quality?
2.
Explain the stages in the product life cycle.
12
X TOPIC 1
This topic explains how businesses and products can be differentiated.

Companies are able to use design, pricing, product quality and branding as
differentiating factors.
Without product differentiation, a company will not be able to stay on in the

market and will soon fail.
Without differentiation, consumers will not be able to distinguish between a

companys and its competitors products.
Each product will pass through a few stages in its product life cycle
beginning with the introduction stage until it disappears from the market.
There are a few market positioning strategies that can be carried out at each
stage of the product life cycle.
These strategy implementations are important to ensure that products

marketed survive long in the market.
Exclusive distribution
Market positioning
Image differentiation
Personal differentiation
Intensive distribution
Services differentiation
Topic X New Product
Development
LEARNING OUTCOMES
1.
Define new products;
2.
Explain the six stages of new product development; and
3.
Discuss the factors which contribute towards the success or failure of

new products.
INTRODUCTION
The needs and wants of humans constantly vary. Companies need to innovate and
introduce new products regularly to fulfil the needs and wants of consumers.
Without new products, a company will struggle behind its competitors. New
product introduction is a continuous process and requires high initial expenditure.
In this topic, we will discuss new product categories, challenges in new product
development, new product development processes and the factors contributing
towards the success or failure of new products.
2.1
WHAT IS A NEW PRODUCT?
We often read, watch or listen to advertisements about new products in the

newspapers, on television and over the radio. Some new products are brand new
and enter the market for the first time. Also, there are some new products which
are similar in features to existing products in the market. Generally, new
products can be categorised into:
x
Innovation products;
Modification products; and
Imitation products.
14
X TOPIC 2
(a)
Innovation Products
Innovated products are products that have not been introduced in the
market before. Examples of product innovation are microwave ovens,
cellular phones, CD players and digital cameras.
(b)
Modification Products
Modified products are existing products in the market that have been modified
and given a new look from the aspects of packaging, design, features and
functions. Modified products are new products that are widely available in the
market. An example of a modified product is a car. Cars were introduced in
the market during the 19th century. New cars introduced by manufacturers are
modified products with new designs and features.
(c)
Imitation Products
An imitation product is a new product for a company, but the product type
has been introduced and marketed by other companies. The company
copies a particular product and introduces it in the market using a different
brand name. For example, Proton introduced Waja cars recently. For
Proton, Proton Waja was a new product. However, cars are products that
have been introduced much earlier by other companies. Product imitation
and product modification can take place concurrently, but an imitation
product can be a modified product as well.
2.2
NEW PRODUCT DEVELOPMENT
CHALLENGES IN NEW PRODUCT

DEVELOPMENT
Introducing new products is not an easy task. There are companies that fail in
their efforts to introduce and market new products. Companies have to face
many obstacles and challenges (refer to Figure 2.1). Some of the challenges in
new product development are:
(a)
Insufficient ideas to create new products because most of the products

needed by consumers are already available in the market.
(b)
Costs to create new products are very high because it involves research and
development. It is difficult for small companies to introduce new
innovations.
(c)
The product life cycle becomes shorter because of technology and better
replacement products.
TOPIC 2 NEW PRODUCT DEVELOPMENT W
15
(d)
Government regulations and social obstacles. A product has many safety

measures and rules assigned by the government. For example, medical
products have to obtain permission and approval from the Ministry of
Health before they can be marketed.
(e)
A company has to act fast in introducing new products. A company which

introduces a product first in the market will become the market leader.
Market leaders are able to control market share, build loyalty and consumer
awareness, gain experience as well as create and control distribution
networks.
Figure 2.1: Competition in new product development
2.3
STAGES IN NEW PRODUCT DEVELOPMENT
Introducing new products also involves high risk. This is because most of the
products needed by consumers are already available in the market. As a
consequence, most new product introductions fail and the company has to bear
the losses. The new product development process has to be carried out carefully
to ensure that products developed fulfil consumers needs and tastes and are
profitable for the company. There are six main stages in the new product
development process. The stages are shown in Figure 2.2.
Figure 2.2: Stages in new product development
16
X TOPIC 2
(a)
Idea Generation
Every product originates from an idea. Normally, ideas for new products
are obtained from a few sources. The sources are:
(i)
Personnel or Employees
A companys employees are a reliable source of new product ideas.
This is because most employees, like the sales personnel of a
company, often deal with consumers and suppliers.
Some companies conduct brainstorming sessions to generate new
ideas among their employees. Refer to Figure 2.3.
Figure 2.3: Brainstorming session
(ii)
Customers
Good new product ideas can be obtained from consumers. This is
because consumers know better what they need and want.
Companies normally have suggestion boxes, customer complaint
sections (Figure 2.4) and conduct surveys to generate new ideas from
consumers.
Figure 2.4: Customer complaint
17
(iii) Competitors and Suppliers

Companies should be aware of reactions as well as actions taken by
other companies to obtain new product ideas. Marketers are allowed
to copy competitors ideas if the ideas are accepted by the market.
Smaller companies often copy ideas from other companies to
introduce new products.
Raw materials and component suppliers of a company are a good
source of new product ideas. Generally, they are aware of the new
products introduced by the competitors because they supply the
competitors with the actual components.
(iv) Research
Global and large companies normally set up their own research and
development department to source for ideas and develop new
products. Companies that conduct extensive research to introduce
new products are those which produce consumer goods such as
Nestle, Sony, Honda, Proton and Procter & Gamble.
(b)
Idea Screening
Not all ideas obtained during the idea generation stage can be
implemented. Some of them cannot be implemented because they are too
expensive, there is inappropriate technology definition, the definition of
raw materials is needed, the definition of knowledge is required, it is too
early to be introduced or the market is not ready to accept the idea. This is
why companies need to screen the ideas generated to ensure that they are
practical and well-received by consumers when they are marketed. Ideas
that are attractive and have the ability to prosper will be chosen.
Idea screening is normally done by a committee appointed by the top
management. The committee comprises personnel from the technical,
finance, marketing, manufacturing, and research and development
departments. Some of the basic criteria used to evaluate new ideas are:
(i)
Market Opportunity Identification

Market opportunity identification evaluates whether there is sufficient
demand and profit for the company when a product is marketed.
(ii)
Investment Costs
Costs needed to create new products must be affordable to the
company. Investments should be recovered at a predetermined period
through product sales.
18
X TOPIC 2
(iii) Manufacturing and Marketing Skills

Before a company decides to turn an idea into reality, it has to
evaluate whether it has the skills and ability to manufacture the
product. A company needs up-to-date technology and a proper
factory to manufacture the product. It also needs a sufficient sales
force to market the product using appropriate distribution channels.
(iv) Other Factors
Other factors used as the bases in evaluating new ideas are legal
effects, social product impact, community and company image.
At the idea screening stage, companies will run concept testing to ensure
that the selected idea is well received when it is marketed. At this stage, the
physical shape of the product does not exist yet. It is still at the idea stage
on paper which is a product concept that depicts the product or a few
statements about the product. At this stage, a few questions will be posed to
consumers to obtain early reactions about the product. The questions
normally asked are:
x
Will you purchase this product?
Do you see any benefits from this product?
How often will you use this product?
Who will purchase this product?
(c)
Business Analysis
If concept testing attains positive reactions from consumers, it will be
evaluated at the next stage, which is the business analysis stage. At this
stage, the company will analyse market size, competition, expected cost,
total sales and other environmental factors that will influence product sales.
(d)
Prototype Development
At the prototype development stage, the product concept will be given a
physical form. It will be given a shape and design, packaging, branding,
and features. Prototype development is normally done in the companys
research and development lab. It will be tested for its strength, durability
and ability to carry out the benefits suggested.
Automobile manufacturing companies often issue prototypes and display
them to the public to identify consumers reaction. After this, they will
change and re-test the prototypes in the lab to produce a product of good
quality.
19
SELF-CHECK 2.1
What do you understand about product prototypes?
(e)
Market Testing
After the prototype is developed, it will be tested in a few market areas
using selected groups of consumers. The objective of market testing is to
identify the consumers actual reaction towards the companys new
product. This includes:
(i)
How do consumers purchase?
(ii)
How do they use the product?
(iii) Who purchases the products?

(iv) Who uses the products?
(v)
What attracts their attention?
(vi) What is their reaction towards the marketing strategy of the

company?
Figure 2.5 shows an example of the market testing process for a new
product, a detergent powder.
Figure 2.5: Method of market testing
Information gathered from market testing helps a company to identify

appropriate marketing strategies and to find out the products potential
when it is marketed.
20
X TOPIC 2
There are many types of market testing methods that can be carried out by the
company. Test market is one of them. Through this method, the company will
choose one or a few areas as test venues. The new product will be distributed
and marketed in those areas. Later, the company will run promotional
programmes, distribute products at appropriate outlets and run pricing
strategies as planned. When the product reaches the market, the company will
collect data on consumer buying patterns. In Malaysia, the Klang Valley,
Penang and Johor Bahru are the areas often chosen as testing areas.
The test market strategy is one of the most efficient ways of getting to know
consumers actual reactions. However, this test will give competitors a
chance to copy the product and marketing campaign run by a company.
Other testing methods frequently used are market simulation tests, focus
groups and controlled test marketing methods.
(f)
Product Launching
From test marketing, a company will determine whether or not to launch a
product. If the company decides to introduce a new product in the market,
it needs to determine a few important matters first. Some are as follows:
(i)
Launching Time
Sometimes the launching function has to be postponed because of
unstable economic conditions, for example, like in Malaysia at the end
of 1977.
(ii)
Place of Product Introduction

The company can use information obtained from its market testing to
determine where the new product should be introduced.
(iii) Other Preparations

The company has to make sure the manufacturing department and the
employees are ready to manufacture the new products commercially.
ACTIVITY 2.1
From your point of view, why are urban areas chosen for market testing
of new junk food products?
2.4
21
SUCCESS AND FAILURE FACTORS OF NEW

PRODUCTS
Some new products launched are successful while others reach a dead end or fail
in the market. Why does this happen? The next section will discuss the factors
contributing towards the successes and failures of new products in the market.
2.4.1
Success Factors of New Products
The commercial launching of the first national car, Proton Saga, on 9 July 1985 by
YAB Dato Seri Dr Mahathir Mohamed was well received by consumers. That
success motivated Edaran Automobil Nasional Bhd (EON) to launch its new
product, Proton Waja, on 31 August 2000. The response from consumers was
encouraging and Proton Waja was equally well received. Refer to Figure 2.6.
Proton Waja was Well Received
SALES of Proton Waja cars were very encouraging. On 31 August
2000, its launching day, 2000 units were already booked.
The car was launched by Deputy Prime Minister, Datuk Seri
Abdullah Ahmad Badawi at the headquarters of EON. The launch
was followed by a carnival by EON to make it lively and to attract
visitors and potential consumers. The carnival, which was visited by
many people, lasted until late at night.
The Deputy Prime Minister commented that Proton Waja was the
best in its class and also the best from the money for value
category. The product launched in May 2000 has a solid make and it
is economical because for every one litre of petrol used, it can move
as far as 62.5 kilometres for manual transmission. Thus, a one-way
journey to Penang from Kuala Lumpur only costs RM25.
Figure 2.6 Article from Proton Wajas launch

Source: http://www.drb-hicom.com
22
X TOPIC 2
The following are a few success factors for a new product:

(a)
The product must be unique and different from the existing products in the
market;
(b)
The product has to be needed and wanted by consumers;
(c)
The product has to have high consumer demand and a high growth rate;
(d)
The product has to be reasonably priced and affordable for the majority of
consumers; and
(e)
The company should have sufficient funds to build consumer awareness

and carry out other promotional activities.
2.4.2
Failure Factors of New Products
New product launches sometimes fail and this leaves a negative impact on the
profitability of a company. Ford Motor Corporation experienced new product
failure with the Ford Edsel car model which was introduced in early 1990. Ford
lost hundreds of millions of dollars because of this.
Some of the main factors why new products fail in the market are as follows:
(a)
The new product is not distinctively different from other products in the
market. As a result of this, consumers do not see a need to try out that
particular product;
(b)
The product is not of high quality and does not function as expected;
(c)
The new product idea is not very good and irrational, but it is still
continued by management due to various reasons;
(d)
Inappropriate market definition and insufficient market testing;
(e)
New product development cost is too high and burdensome;
(f)
Lack of good promotional programmes to build awareness, trust and

interest of consumers towards the product;
(g)
The time of launching is not appropriate; and
(h)
Tough competition.
23
EXERCISE 2.1
Essay Questions
1.
Some companies lose millions of ringgit because a new product is

not well received by consumers. What could be the reasons behind
this?
2.
Name some sources that can be referred to in obtaining new ideas.
New products are important to every business.
Without new products, a company will not be as current and competitive as

other companies.
New product offers have to be ongoing to fulfil constantly changing

consumer needs and desires.
Ideas for new product development normally come from a companys

employees, consumers, competitors and researchers.
Decisions to offer new products have to be handled strategically and

carefully because the new product development process involves a large sum
of money and time.
Business analysis
Market testing
Idea generation
Modification product
Idea screening
Product launching
Imitation product
Prototype development
Innovation product
Topic
Managing New
Product Lines
and Brands
LEARNING OUTCOMES
1.
Explain the characteristics of products;
2.
Discuss the concepts of product mix and product line management;
3.
Describe how to make better brand decision; and
4.
Describe the functions of packaging and product labelling.
INTRODUCTION
Products are the most important marketing mix component. Without products,
there is no other marketing activity. Generally, products are what the marketer
offers to be experienced and consumed for personal, household, manufacturing
or re-selling purposes. A product includes the product itself, services, places,
ideas, individuals and organisations.
In this topic, you will be exposed to the different product levels, classes of
products as well as the management of product mix and product lines. This topic
also discusses brand management processes, packaging and product labelling.
3.1
PRODUCT LEVELS
A product normally consists of three levels which are: core product, actual
product and product support.
TOPIC 3
MANAGING NEW PRODUCT LINES AND BRANDS W
25
(a)
Core Product
When we create a product, we have to consider the benefits that will be
provided by that product. Core benefits are the actual reasons why most
consumers purchase a particular product. For example, the core benefit of a
refrigerator is to store food so that it remains fresh. The core benefit of a pen
is to write. The core benefit of a car is for transportation and to move from
one place to another.
(b)
Actual Product
The second component of a product is the actual product or the tangible
and intangible characteristics of a product. Obvious characteristics of a
product are its design, size, colour, brand, features and quality.
(c)
Product or Service Support

The third product component is product or service support. It is a valueadded component of a product which makes it easier for consumers to
consume or purchase the product. It can be a delivery service, the assembling,
maintenance and warranty of a product as well as credit granting.
Figure 3.1 shows the product levels.
Figure 3.1: Product levels

Source: Kotler, P., & Armstrong, G. (2000). Principles of marketing
(9th ed.). New Jersey: Prentice Hall.
3.2
PRODUCT CLASSIFICATION
Generally, a product can be divided into two classes:

x
Consumer products; and
Organisational products.
26
X TOPIC 3
3.2.1
MANAGING NEW PRODUCT LINES AND BRANDS
Consumer Products
Consumer products are those consumed by end-users for personal or family

purposes. Consumer products comprise:
(a)
Convenience Goods
Convenience goods are products that are regularly purchased by
consumers. The buying process does not take very long. Convenience
goods consist of:
(i)
Emergency Goods
Emergency goods are purchased when there is an urgent need like
umbrellas and candles.
(ii)
Staple Goods
Staples are basic goods purchased by consumers on a regular basis
like sugar and rice.
(iii) Spontaneous Goods

Spontaneous goods are products bought spontaneously like
newspapers, chocolates and other products that may be displayed at
the supermarkets paying counter.
(b)
Shopping Goods
Shopping goods are goods that consumers, in the process of selection and
purchasing, compare on the basis of price, quality, features and style. The
buying process is quite long. Examples of shopping goods are garments,
household equipment, furniture and shoes.
(c)
Specialty Goods
Specialty goods are goods that have unique characteristics, exclusive
brands and can only be obtained from certain places. For a consumer,
speciality goods cannot be replaced. Consumers are willing to pay high
prices and normally travel a distance to obtain the product. Examples are
brands like Versace and Rolex, antique products and luxury cars.
(d)
Unsought Goods
Unsought goods are those which consumers do not normally think of
buying. An example of an unsought good is life insurance. Unsought goods
require the support of advertising and personalised selling.
TOPIC 3
3.2.2
27
Organisational Products
Organisational products are those that are purchased by organisational

consumers to be used in the output of end products and in the organisations
daily operations. Organisational goods consist of:
(a)
Materials and Parts

Materials and parts are raw materials, components and other materials
used in the output of end products. For example, wheat to be made into
bread, white cloth to be made into clothes and rubber to be made into tyres.
Figure 3.2 shows a few raw materials which are processed to produce end
products.
Figure 3.2: Raw materials and end products

Source: http://www.google.com
(b)
Capital Products
Capital items are important goods in the output process. For example,
ovens are used to bake bread. Capital products also include buildings,
machines and office equipment.
28
X TOPIC 3
(c)
Supplies and Business Services

Supplies and business services are products used in the office and in other
types of temporary work. Examples of supplies are paper, paper clips,
plastic bags, pens and pencils. Examples of services are office washing
services and air conditioner maintenance services.
3.3
PRODUCT MIX
Product mix is the type, category or product line that is marketed by a company.
There are companies that offer only one product type and there are others who
offer many product types. Normally a company that offers only one product type
is a small company which adopts the specialisation strategy or concentration. It
normally concentrates on one segment of the market. A company that offers
many product types is a large company that normally markets consumer
products. For example, Nestle offers many product types.
The basic concept of product mix is the width, depth, length and product
consistency. Figure 3.3 will aid in the understanding of the concept.
Figure 3.3: Product Mix for Nestle Corporation (M) SD Bud
(a)
Product Width
The width of a product mix refers to how many different product lines the
company carries. For example, Nestle Corporation produces more than 20
product types such as baby milk, chocolates and breakfast cereals. A
product with a wide product width is able to satisfy the various needs of
different market segments.
TOPIC 3
29
(b)
Product Depth
The depth of a product mix refers to how many brands or items are offered
in each product category. For example, in Figure 3.3, the product depth of
chocolate products is four, the product depth of baby milk products is three
and the product depth of breakfast cereal is two. A product has more
product depth when the product has more items in each product category.
A product that has product depth is able to meet the various needs and
desires of different market segments. For example, various types of
chocolates are able to satisfy the different tastes of purchasers.
(c)
Product Length
The length of the product mix refers to the total number of items in the mix.
Nestle Corporation has more than 300 marketable items in its product mix.
(d)
Product Consistency
The consistency of the product mix refers to the close link or synergy
between one product and another which is offered by the company. Nestle
Corporation offers consistent products, most of which are food and
beverage-based products. Consistent products enable the company to
specialise in that product.
3.4
PRODUCT LINE ANALYSIS
A product line is a group of products that have the same functions, is

marketed to the same group, is sold at the same price range, and is distributed
by the same distributors.
Nestle Corporation has many product lines such as for baby milk, chocolates
and cocoa drinks.
Normally, each product line will be supervised by a manager. Product line
managers need to identify the items in that particular line that are going to be
built, taken care of and taken off from the market. Items that generate low sales
and are making losses are normally retracted from the market. Each companys
sales, cost, and market profile are analysed. If a company offers too many items,
it will have to bear high operation, inventory and advertising costs.
30
X TOPIC 3
3.5
BRANDS
ACTIVITY 3.1
There are many brands in the market. Some brands are popular while
others are unknown to consumers. What is the purpose of product
branding?
Brand is a name, letters or a symbol that identifies a product. Branding is a part
of the product. Without branding, it is difficult for a consumer to recall or
differentiate products. Products with well-known brand names and ones that are
easy to remember are profitable. Examples of well-known brands in Malaysia are
Milo, Nescafe, McDonalds, KFC, Maggi, Telekom and Coca-Cola. Examples of
well-known brands in the world are McDonalds, Sony, Coca-Cola, Pepsi Cola,
Marlboro, Kodak, Toyota and Mercedes. Coca-Colas brand value is estimated at
more than USD$35 billion (RM140 billion).
3.5.1
Characteristics of Effective Branding
An effective brand has the following characteristics:

(a)
Easy to pronounce;
(b)
Easy to remember;
(c)
Easy to identify;
(d)
Does not have any negative connotation;
(e)
Different from the competitors brand; and
(f)
Depicts product benefits to the consumers.
3.5.2
Brand Equity
Brands vary in the amount of value and power they have in the marketplace. For
example, McDonalds is a well-known fast food restaurant as compared to
Grandys, which is losing its popularity in Malaysia. A powerful brand has highbrand equity. Brand equity is the value of the brand and it is measured based on
the following characteristics:
TOPIC 3
31
(a)
Brand Awareness
When a consumer knows that a brand exists in the market, the brand is said
to have high brand awareness. If consumers awareness towards the brand
is high, its brand equity is also high.
(b)
Brand Identity
Brand identity is the connection between a brand and an individual,
services or feelings. For example, McDonalds is normally connected with
burgers, a clean restaurant and a cheerful place.
(c)
Brand Loyalty
A brand is valued highly when consumers stay loyal to it. Consumers do
not switch to other brands and are willing to wait even if the store runs out
of stock. Examples of products and brands that have high brand loyalty are
Milo, Nescafe, Coca-Cola and Maggi.
(d)
Perceived Quality
A brand is perceived to have high value if it is of good quality. For
example, products with the Sony brand are perceived to be of high quality.
3.5.3
Brand-name Decision
Choosing a brand name is not easy. Companies which brand their products must
choose between four strategies:
(a)
Individual Names
The company uses a different brand for every product or product line
introduced. For example, Procter & Gamble named its different shampoo
lines as Pantene, Head & Shoulders, Rejoice and Vidal Sassoon. The
advantage of individual branding is that it attracts attention from different
market segments and every brand has a distinct image and position. The
disadvantage is that the brands will have to compete with one another.
(b)
Blanket Family Names

The company uses only one name for all the products. Normally, the
company will use its company name. For example, Sharp Roxy (M) Sdn
Bhd uses the Sharp brand for refrigerators, television, rice cookers and
other kitchen appliances. The disadvantages of this brand type is when
problems exist in one product, it will have a negative image on all the other
products that are marketed.
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X TOPIC 3
(c)
Separate Family Names for All Products

The company uses a few brands for every product line that is introduced.
For example, Matsushita Corporation uses the National brand generally for
its electrical product line, the Panasonic brand for its audio-visual product
line and the Technics brand for its music product line.
(d)
Corporate Name Combined with Individual Product Names

This brand type is the most popular and widely used by the majority of
companies. The company name and the individual product brand are
combined here. For example, Proton uses the brand names Proton Waja,
Proton Wira, Proton Iswara and Proton Perdana for its line of cars. The
advantage of this brand type is that it strengthens the company name while
having its own image and position.
3.5.4
Managing Brand
Brands are non-tangible assets that are valuable to a company. A famous brand
can be marketed anywhere and normally it will be well received by the
consumers. Most consumers purchase products based on their familiarity with a
certain brand. They rarely purchase products that are unheard off or never used
before. Some companies do not manage their brands well. Thus, these brands
lose their popularity and finally become unfamiliar again. When this happens,
the company is unable to compete with the other market players that are
increasing in the market. There are a few factors that cause a brand to lose its
popularity such as the following:
(a)
The company focuses on short-term business only. The company

emphasises short-term sales and profitability and does not emphasise
advertising to build its brand. The company treats advertising as cost and
not as a long-term investment.
(b)
Lack of marketing support includes the inability to obtain a sufficient

budget for advertising. Brand management is not given importance and it
is placed in a less important section like the corporate issues management
section. Brand management has to be put under brand management itself
or under product management for that particular product.
(c)
The company only concentrates on sales promotion which has an impact on

increasing short-term sales.
TOPIC 3
(d)
33
Unstable economic conditions also have an impact on brand popularity.

When there is a recession, consumers do not give importance to product
brands anymore. They give importance to products that are attractive and
sold at low prices. However, the company still has to carry on advertising
programmes regularly to remind consumers of its existence.
ACTIVITY 3.2
Competition constantly exists between famous brands. In this brand
competition, what has to be done by the marketer to popularise the
brands that are introduced by them?
3.6
PACKAGING
What is meant by packaging? Packaging is a part of the product. Some

companies use their packaging as a competitive advantage and also as a basis for
their product positioning. For example, Pringles potato chips are stored in a
cylindrical box made out of hard paper. This packaging method differs from that
of other companies which market potato chips because these other companies
pack their potato chips in soft aluminium covers.
Nowadays, packaging plays an important role in marketing a product. A good
and attractive package design can attract interest, make it convenient for
consumers and act as the differentiation basis of promoting the product.
3.6.1
Packaging Functions
The various functions of packaging are:

(a)
As a container to contain and protect the product.
(b)
Makes it easier for the distributors to store, arrange and display products at
their sites. It is also easier for consumers to store the products that are
purchased.
(c)
Packaging can be used as the basis for segmentation as well. For example,
small packages for single people and large packages for family consumption.
(d)
As a communication and promotion tool directed towards consumers.
(e)
As an element that can be used in new product development. There are

companies that change the packaging shape and promote the product as a
new one although the basic product has not changed.
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X TOPIC 3
3.7
LABELLING
Labels are any writing that appears on the package. It consist of price tags,
product brands, company names, information on product content, product
recipes, halal signs, company addresses, expiry dates and others. Figure 3.4
shows one of the product labels for Nescafe.
Figure 3.4: Nescafes product label

Source: http://www.bevnet.com
Labels play a few important functions:

(a)
Enables consumers to identify a particular product or brand.
(b)
Enables a product to be graded, for example, grading done to chicken eggs,

fruits and other foodstuff.
(c)
Explains who distributes a product, where it is manufactured, what are its

contents and how to use it effectively.
(d)
Promotes the product through its attractive graphic design.
Labels are an important issue in marketing. The company has to take into
account the issue of appropriate language usage, government regulation on
safety issues and product content, as well as product pureness issues for
products marketed in Islamic countries.
TOPIC 3
35
EXERCISE 3.1
Essay Questions
1.
Explain the various types of convenience goods.
2.
Provide four functions of packaging.
Product is the most important component of the marketing mix. Without a

product, the other marketing activities do not exist.
Generally, a product can be categorised into individual consumer products

and organisational products.
Individual consumer products can be categorised into convenience goods,

shopping goods, specialty goods and unsought goods.
All these product types can be sub-divided further based on consumers

behaviour when they purchase the product.
A product is incomplete without its packaging and labelling. Nowadays,

most companies use product packaging as a basis for competition and
differentiation.
An attractive product package can win the hearts of consumers to purchase

the product.
Government regulations regarding product content like calorie value as well

as vitamin and nutrient content result in a lot of information being labelled
on the package.
A brand is a product component which is very important. Without branding,

consumers cannot identify a product.
Branding is an intangible asset but it is valuable to the company because

popular brands can be sold anywhere.
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X TOPIC 3
Brand identity
Speciality goods
Branding
Spontaneous goods
Emergency goods
Staple goods
Product line
Unsought goods
Product width
Topic
Managing
Services
Marketing
LEARNING OUTCOMES
1.
Explain services and the categories of services;
2.
Discuss how services are different from physical products;
3.
Illustrate service differenciation; and
4.
Evaluate the quality of services.
INTRODUCTION
The interest to look at services in more detail surfaced when a significant trend
started to exist where people began to realise its particular importance. Services
is seen as an output that can give a competitive edge when it is used together
with the physical product. It is also instrumental in increasing the gross output of
the country. This can be seen in the contributions from the banking, food,
education and health industries. Based on statistics from the US Labour Bureau,
job opportunities in the service sector are growing and have increased since 2005.
Discussions in this topic will focus on services as products and services as
tangible product complements and their importance to the market.
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4.1
MANAGING SERVICES MARKETING
WHAT ARE SERVICES?

ACTIVITY 4.1
What is the difference between the OUM module and the course being
offered by OUM?
Services are a series of actions, processes and implementations that cannot be

seen. A service is any action or performance that one party can offer to another
which is essentially intangible and does not result in the ownership of anything.
The service industry can be categorised into three main categories:
(a)
Government sectors like the court, employment services, loan agencies,

military services, police and fire departments, regulatory agencies, post
offices and schools.
(b)
Private non-profit sectors such as museums, churches, colleges and

hospitals.
(c)
Business sectors such as airlines, banks, hotels, insurance companies, law

firms and consulting firms.
Services that are being offered are not centred on the services as products only,
but also as part of the offer to complete the tangible products. As such, service
departments like accounts and law departments as well as hotline services have
been created in companies.
4.1.1
Categories of Service Mix
A companys offering to the marketplace often includes some products and

services. The service component can be a minor or major part of the total
offering.
There are five categories of offerings:
(a)
Pure Tangible Goods

The offering consists primarily of tangible goods such as soap, toothpaste,
or salt. No services accompany the products.
TOPIC 4
MANAGING SERVICES MARKETING W
39
(b)
Tangible Goods with Accompanying Services

The offering consists of a tangible good accompanied by one or more
services. For example, Proton and Perodua both offer cars and after-sales
services.
(c)
Hybrid
The offering consists of equal parts of goods and services. For example,
people patronise restaurants for both food and good service from the
restaurants waiters.
(d)
Major Service with Accompanying Minor Goods and Services

For example, Malaysian Airlines Systems (MAS) basic product is
transportation and its supporting services consist of food and baggage
services to the consumers.
(e)
Pure Services
The offering consists primarily of a service. Examples include baby sitting,
psychotherapy and massages.
4.1.2
Characteristics of Services
Services have characteristics that are different from tangible products. A a result
of this, the business firm has to take into account all these characteristics in its
marketing strategy.
Services have four major characteristics that differentiate them from the other
physical outputs. The characteristics are:
(a)
Intangibility
Unlike physical products, services cannot be seen, tasted, felt, heard or
smelled before they are bought.
The service cannot be evaluated until a person uses the service. This means
that a person has to purchase the service first before he can evaluate it.
To reduce uncertainty, buyers will look for evidence of service quality.
They will draw inferences about the quality from the place, people,
equipment, communication material, symbols, and prices that they see.
Therefore, the service providers task is to manage the evidence and to
tangibilise the intangible.
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X TOPIC 4
(b)
Inseparability
In the process of introducing a physical product, the product has to
be manufactured, kept in a warehouse, distributed through multiple
distribution channels and finally purchased and used by consumers.
Services are typically produced and consumed simultaneously. The buyer

has to be present when the service is carried out. For example, a restaurant
cannot carry out its services until the food is ordered by the consumer.
Provider-client interaction is a special feature of service marketing. Provider
and client both influence the service output that is being delivered.
(c)
Variability
Services are highly variable because they depend on who provides them
and when and where they are provided. For example, take services in a
restaurant. McDonalds serves delicious instant food. However, McDonalds
employees may not have the skills to prepare orders immediately. To
overcome this limitation, a few steps should be taken:
(i)
Controlling the hiring of employees. Recruiting the right employees

and providing them with the right training is crucial in increasing
their knowledge and expertise.
(ii)
Standardising the service-performance process throughout the

organisation. This is done by preparing a service blueprint that
depicts events and processes in a flowchart with the objective of
recognising potential weak points.
(iii) Monitoring customer satisfaction through suggestion and complaint

systems as well as customer surveys.
(d)
Perishable
Services cannot be stored. The perishability of services is not a problem when
demand is steady. When demand fluctuates, service firms have problems.
For example, if there is a shortage in demand for air transportation, it cannot
be made up for the next day. The airline agency has to bear losses at that time
for offering more than what was being demanded.
To control this problem, a few strategies can be used:
(i)
Differential pricing for peak demand and non-peak demand;
(ii)
Create reservation systems;
(iii) Hire part-time employees to serve peak demand; and

(iv) Increase customer participation in the form of self-service.
TOPIC 4
41
ACTIVITY 4.2
If you are getting a haircut at a salon, what are the important criteria that
have to be taken into consideration for you to evaluate the satisfaction
obtained from that service?
EXERCISE 4.1
Essay Questions
1.
What are services? Explain the main categories or types of services.
2.
Explain three categories of service mix that you normally experience

or that you make purchases on.
3.
What are the characteristics that differentiate services from physical

products?
4.
What are the marketing implications that have to be addressed to

minimise elements that cannot be separated in services?
4.2
MARKETING STRATEGIES FOR SERVICE

FIRMS
Marketing strategies for service firms refer to:

(a)
Traditional marketing mix;
(b)
Advanced marketing mix elements for services; and
(c)
Service triangle.
4.2.1
Traditional Marketing Mix
One of the basic concepts in marketing is marketing mix. Marketing mix is the
organisations control elements which can be used to satisfy consumers or to
communicate with them.
The main marketing mix elements are product, price, distribution and
promotion. These elements are basic deciding factors in any marketing plan.
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X TOPIC 4
4.2.2
Advanced Marketing Mix Elements for Services
Services are typically produced and consumed simultaneously. Normally, the

buyer has to be present when the service is offered. Services are something that
are intangible or cannot be seen. This is why consumers normally look for
tangible evidence to aid them in evaluating the service. Service marketers use
additional elements of marketing mix to communicate and satisfy their
customers because of these factors. The additional elements of marketing mix are:
(i)
People
Human management refers to the involvement of individuals such as
personnel, firms, users or other consumers in conveying and influencing
buyers perceptions.
(ii)
Physical Evidence
Physical evidence refers to the surroundings where the service is offered. It
also includes interaction between the firm and consumer and any tangible
component that enables communication to take place. For example,
business cards, formal reports, catalogues, equipment and buildings are
types of physical evidence.
(iii) Process
Processes involve actual procedures, mechanisms and activity flows where
services are offered. This includes the offer process and service operations.
Service providers can offer various service processes to consumers. For
example, a restaurant may have a cafeteria concept, fast food, buffet and
romantic candlelight services.
4.2.3
The Services Triangle
The creation of a service is influenced by physical evidence, people management

and processes that support the tangible element for consumers. Services
marketing does not only need external marketing, but it also involves three other
marketing processes such as external marketing, interactive marketing and
internal marketing.
(a)
External Marketing
External marketing refers to marketing that involves promotion mix like
advertising, sales promotion, public relations, direct selling or online selling.
TOPIC 4
43
(b)
Interactive or Relationship Marketing

Interactive or relationship marketing involves interpersonal relationships
which are carried out by an employee with a consumer through channels
like personal selling, customer service centres, service encounters and
services capes. It involves employees skills and knowledge in managing
consumers. Customer service is one example where services are evaluated
in terms of technical and functional quality.
(c)
Internal Marketing
Internal marketing describes the work of training and motivating
employees to serve customers well. Internal marketing requires systematic
and capable management so that communication between employees is
accurate, clear and consistent with what is seen and heard by consumers.
All three types of marketing above are based on the services triangle shown in
Figure 4.1.
Figure 4.1: Services triangle

Source: Kotler & Armstrong (2000).
The suppliers of services are responsible in ensuring that the interactive message
between the companys employees (internal and interactive marketing) and what
is channelled by the company through external marketing is in line. To ensure
that the companys objectives are achieved, internal marketing communications
have to be managed well. This ensures that the firm communicates accurately
and adequately with its employees and the information is consistent with that
which the consumers receive through external communication.
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X TOPIC 4
Figure 4.2 shows the continuum of evaluation for different types of products and
services. Services generally involve experience and credence qualities. Hence,
there is more risk in purchase here. This has several consequences:
(a)
Service consumers generally rely on word of mouth rather than advertising;
(b)
They rely heavily on price, personnel and physical cues to judge quality; and
(c)
They are highly loyal to service providers who satisfy them.
Figure 4.2: Consumers evaluation for different types of products and services
Due to these factors, service companies have to perform three main tasks:
(a)
Manage competitive differentiation for the services offered by the firms;
(b)
Manage service quality offered; and
(c)
Manage productivity.
4.2.4
Managing Service Differentiation
Service marketers frequently complain about the difficulty in differentiating their

services. If consumers are unable to differentiate between services that are
provided by a particular company and other service providers, consumers will
pay less attention to that company. Consumers, on the other hand, will place
more importance on the price that is being offered. The alternative to price
competition is to develop:
TOPIC 4
Differentiated offering;
Service delivery; and
Image.
(a)
45
Differentiated Offering
This offering can include innovative features. The customer is offered the
primary service package while the secondary service features complement
or support the primary service package.
For example, MASs primary service package is providing transportation
through air. Its secondary services are baggage, television and music.
The major challenge is that most service offerings and innovations are
easily copied. Still, the company that regularly introduces innovation will
be successful through its reputation as the market innovation leader.
(b)
Service Delivery
A service firm can hire and train employees to be qualified in delivering
services to consumers. The company has to come up with an attractive
physical environment in the service delivery process because it is one of the
factors that influences the customer.
(c)
Image
Service companies can also differentiate from each other through symbols
and branding. For example, American Express is one of several highly
branded service companies that have developed a successful international
image.
4.2.5
Managing Service Quality
If a firm is better than its competitiors in delivering services to consumers, the

company increases its customer expectation for the services offered. Customer
expectation refers to the benefits that are expected from the consumption of a
service. Increased customer expectation can increase loyalty levels in consumers
where they will be apt to use the services again. Customer expectation is
developed through past experiences, word of mouth and advertising.
If the perceived service level falls below the expected service level, customers
will be disappointed. The existence of a gap between the perceived service and
expected service levels causes consumers to lose interest in that service in the
future. So, the company needs to manage the service quality smartly to fulfil and
increase customer expectations. There are five determinants of service quality:
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X TOPIC 4
(a)
Reliability
The ability to perform the promised service efficiently and accurately.
(b)
Responsiveness
The willingness to help customers and to provide prompt service.
(c)
Assurance
The knowledge and courtesy of employees and their ability to deliver
trusted services.
(d)
Empathy
The willingness to provide care and individualised attention to customers.
(e)
Tangibles
The appearance of physical
communication material.
facilities,
equipment,
personnel
and
ACTIVITY 4.3
Have you faced an uncomfortable situation when dealing with companies
that offered services? If yes, think of one example of this dissatisfaction.
EXERCISE 4.2
Essay Questions
1.
Services differ from other physical outputs. Discuss the major

differences between their characteristics. Explain the effect of
marketing on each characteristic.
2.
Discuss three forms of services marketing mix elements that are

considered important, but not emphasised in the marketing mix of
the physical product.
3.
Explain the elements that are involved in the services marketing

triangle. How do these elements influence the service marketing
communication?
TOPIC 4
47
Services include seven elements from the marketing mix as compared to the
physical product and these are: output, price, place, promotion, human,
physical evidence and process.
Services have four major characteristics that differentiate them from other
physical outputs. The characteristics are intangibility, inseparability,
variability and perishable quality.
Services marketing strategy not only involves external marketing but also
requires capability and trust in interactive marketing and integrated internal
marketing.
Service firms face three main marketing tasks, which consist of differentiating
their product offerings, service delivery and companys image, service
quality management and service productivity management.
Services offered need excellent customer support systems which give high
importance to consumers. This support programme involves before-sales and
after-sales programmes.
Hybrid
Perishable
Inseparability
Pure services
Intangibility
Variability
Topic
Developing
Strategies and
Managing
Pricing
LEARNING OUTCOMES
1.
Identify a firms internal and external factors influencing pricing;
2.
Explain the important steps in pricing procedure;
3.
Apply the five major pricing programmes;
4.
Justify price changes; and
5.
Examine the reactions towards price changes.
INTRODUCTION
Pricing is one of the most important elements in the marketing mix apart from
product, promotion and place. It shows the value of the product or service to the
seller or buyer. The value of a product or service involves tangible and intangible
marketing factors. Setting the price of a product is very important because it
influences the consumers buying decisions. The marketer has to choose and
determine a final price that can maximise consumer satisfaction and compete
with the competitors pricing strategy.
Examples of tangible marketing factors are cost savings offered by firms if
purchases are made in large quantities. An example of an intangible marketing
factor is such as the consumers feelings of pride when he or she owns a
luxurious or posh car like a Jaguar. Pricing can be connected with price lists,
discounts, allowances, payment periods, and credit terms.
TOPIC 5 DEVELOPING STRATEGIES AND MANAGING PRICING W
49
The discussion in this topic starts with an explanation of price setting factors.
This discussion continues with the pricing process, price matching, initiating
price changes and effects towards price changes, pricing strategies, pricing
change management, and marketers and competitors reactions towards price
changes.
5.1
FACTORS IN PRICING
The pricing process involves the firms internal and external environmental
factors. Figure 5.1 shows examples of factors that influence pricing.
Figure 5.1: Factors in pricing
5.1.1
Internal Factors
Internal factors that influence pricing are:

x
Firms marketing objectives;
Marketing mix strategy;
Cost; and
Organisation.
(a)
Firms Marketing Objectives

When a firm has clear marketing objectives, it will go through the pricing
process smoothly. For example, General Motors marketing objective,is to
produce sports cars at par with those from Europe. Its main target market is
focused on the high income group. There is a possibility that the pricing of
the sports car will be higher because of the targeted market.
Some of the pricing objectives normally used by firms are:
(i)
Survival
Survival refers to low price setting for the purpose of generating high
demands. In this situation, the survival concept is more important
than profit.
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X TOPIC 5
(ii)
DEVELOPING STRATEGIES AND MANAGING PRICING
Maximising Current Profits

Companies that use current profit maximisation as a factor in
setting prices will estimate cost and demand at different prices. Then,
the company will select the price that will produce current profits,
cash flow and maximum return on investment.
(iii) Market Share Leadership

Most companies aim to obtain market share leadership because
market leaders believe they will enjoy low costs and high profits for
long periods. Price is set at the lowest level.
(iv) Product Quality Leadership
Companies that desire to be product quality leaders are generally
active in research and development activities that involve high costs.
This requires the company to maintain a higher price to bear quality
costs incurred due to product research and development.
To achieve the marketing objectives above, a products pricing
decision has to be in line with the marketing mix strategy.
(b)
Marketing Mix Strategy

Price is the only marketing mix instrument which is used by a firm to
achieve its marketing objectives. Thus, the pricing decision has to be in line
with the product design, distribution and promotion. This is important to
develop marketing programmes that are effective and consistent. Decisions
made for the other elements in the marketing mix may have an impact on
the pricing decision.
(c)
Cost
Cost is an instrument used by a firm to fix the products floor price or
minimum price. The company will choose a price that can bear the overall
production cost, distribution and product sales and one that will include
sufficient profit for the capital turnover of the company. Fixed costs,
variable costs and total costs are the types of costs that influence the pricing
of a product.
Fixed costs are costs that do not vary with production or sales revenue.
Variable costs are costs that vary directly with the level of production. Total
cost consists of the sum of the fixed and variable costs for any given level of
production.
(d)
51
Organisation
A firms management has to decide who will set prices in the organisation.
For a small firm, price setting is generally done by the top management.
Meanwhile, for a big firm, price setting is generally done by the output
manager or division manager.
5.1.2
External Factors
ACTIVITY 5.1
Does the price of a product influence your purchases?
External factors that influence pricing are:

x
Market condition and demand;
Competitors price and offer; and
Other factors like economy, sales personnel needs and government actions.
(a)
Market Condition and Demand

The marketer has to understand the relationship between market and
demand before pricing is done. Pricing depends on the following four
different types of markets:
(i)
Pure Market Competition

Pure market competition refers to the market that has many buyers
and marketers who market similar products like rubber, palm oil, rice
and tin. In this type of market, prices are quite standard. As a result of
this, the marketer and buyer are unable to influence pricing. If a
marketer increases the price, the buyer will purchase the product from
another marketer at a lower price. Thus, marketing strategy does not
play an important role in this market.
(ii)
Monopolistic Market
The monopolistic market includes many buyers and marketers who
conduct business at different prices. Different prices are based on the
marketers ability to differentiate their offers to the buyers from the
aspect of quality, characteristics, image or service forms prepared. In
this market, marketing strategy plays an important role.
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X TOPIC 5
(iii) Oligopolistic Market

An oligopolistic market is a market that has very few marketers
because it is difficult for new marketers to enter the market. Outputs
offered are uniform outputs like steel and tin, and non-uniform markets
like cars and computers. Marketers are always aware of pricing
strategies and marketing strategies between them. When a marketer
reduces the price, other marketers have to follow suit. However, if a
marketer increases the price, other marketers may not do so too.
(iv) Pure Monopoly Market
In a pure monopoly market, the market consists of one marketer only.
The marketer is normally the government or government-operated
companies, for example, Tenaga Nasional Berhad, Malaysian Airlines
System and Telekom Malaysia Berhad. Prices that are fixed by the
government and government-controlled companies are different from
one another. Government monopolies may fix many objectives in
setting prices. Some are as follows:
x
Pricing below costs;
Pricing that is able to cover costs;
Pricing that produces lucrative returns to the government; and
Pricing high to reduce consumption.
For a government-controlled company, price setting is done either

through the government itself or through the freedom that is given by
the government. However, the price setting freedom is at a rate that
enables the company to maintain and develop its operations.
Besides market conditions, consumer perceptions on the price and
value will determine whether the firm has priced its product
appropriately. If the product has been priced higher than the
perceived value, customers will not purchase that product. As a result
of differences in the perceived value of every customer, marketers
normally differentiate their pricing strategy based on identified
market segments. For example, Sony offers a television model which
is less expensive and small for consumers who prefer just the basic
features. The expensive television model is offered to consumers who
want additional features and benefits.
53
When evaluating markets and demand, firms have to estimate price

elasticity of demand. The relationship between price and demand
level can be seen through the demand curve. The demand curve
shows the possible quantity that will be purchased for a period at a
stipulated price. Figure 5.2 shows this relationship.
Figure 5.2: Price elasticity
In Figure 5.2, the demand curve (a) shows the number of market purchases
for a stipulated duration at various prices. Normally, demand and price are
inversely related. The higher the price, the lower the quantity demanded. If
a firm increases the price from P1 to P2, the quantity demanded by the
market will decrease from K1 to K2.
In the case of prestige goods, the demand curve (b) sometimes slopes
upwards. This means when the company increases the price from P1 to P2,
the quantity will increase from K1 to K2. If the price is increased too high,
from P2 to P3, the quantity demanded will decline from K2 to K1. This is
because not many buyers have the means to purchase at that price.
(b)
Competitors Price and Offer

Most consumers compare the price of a product with the competitors price
and will choose the product that offers the best value. So, it is important for
a firm to know about the price and quality offered by competitors. This can
be the basis for smart and appropriate pricing decisions for all products.
(c)
Other Factors
Other external factors that influence the pricing decision are economy, the
effect of price on other marketers and the government. An economic
downturn influences pricing decisions because production cost and
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X TOPIC 5
consumers perceived cost towards the price and value of the product is
affected. The final price has to provide reasonable profit to the retailer or
wholesaler to encourage more effective sales.
The government is also an important external factor that can influence
pricing. Pricing decisions should not be against the law.
EXERSICE 5.1
Essay Question
List the internal and external factors that influence pricing.
5.2
PRICING POLICIES
In this topic, we have discussed the factors in pricing. Next, we will discuss how
the price of a product is decided. The firm has to consider many factors in setting
its pricing policy.
There are six steps that can be used by firms in setting their pricing policy. These
steps are:
x
Step 1: Selecting the pricing objective;
Step 2: Determining the demand curve;
Step 3: Estimating costs;
Step 4: Analysing competitors costs, prices and offers;
Step 5: Selecting a pricing method; and
Step 6: Selecting the final price.
(a)
Step 1: Selecting the Pricing Objective

Firms have to decide on and select a pricing objective. The major objectives
of most firms are survival, maximising current profits, market share
leadership and product quality leadership.
(b)
Step 2: Determining the Demand Curve

After the pricing objectives have been selected, the firm needs to estimate
the quantity that can be sold at each price. Generally, the higher the price,
the lower the level of demand. In the case of prestige goods, the demand
increases although the price offered is higher. However, if the price is too
high, the level of demand may fall.
55
(c)
Step 3: Estimating Costs

Cost estimation has to be implemented to see how the firms cost differs at
different output levels or increases in outputs and market offers. This is
done to satisfy consumer needs. A firms costs refer to production costs,
distribution costs and product sales costs.
(d)
Step 4: Analysing Competitors Costs, Prices and Offer

A firm has to take into account the cost, price and the possibility of price
changes among competitors in setting their prices. Besides that, a firm has
to consider the competitors offers as well. If a firm offers something similar
to its competitors, the price set has to be approximately the same or better
than its competitors. If not, the firm will lose its market. If the firms offer is
better than that of its competitors, a higher price can be set. However, the
firm has to be careful about any price change that may be set by its
competitors.
(e)
Step 5: Selecting a Pricing Method

When it comes to the pricing method, the firm will generally choose a
method which takes into account the pricing factors that have been
discussed previously.There are five pricing methods that can be used by
firms. These methods are:
x
Mark-up pricing;
Target-return pricing;
Perceived-value pricing;
Going-rate pricing; and
Auction-type pricing.
(i)
Mark-up Pricing
Through this method, the producers cost is determined first and a
standard percentage is added:
x
To the producers cost; or
As a percentage of the product price.
Example 5.1
ABC Company produces baju kurung for school children. Financial
information and sales of ABC Company are shown below:
Variable cost
= RM20
Fixed cost
= RM400,000
Expected sales = 100,000 pairs
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X TOPIC 5
Based on the information above, the cost of one baju kurung is:
Fixed Cost
Total Sales
= RM20 + RM400,000/100,000 pairs
= RM 24 a pair
Baju kurung cost = Variable cost +
Assume ABC wants to earn a profit of 20 percent on the output price.

So, the output price will be:
Output price
Cost per unit + Cost per unit (mark-up)
Cost per unit + Cost (0.2)
= RM24 + (0.2 u RM24)
= RM24 + RM 4.80
= RM28.80 per pair
Assume ABC Company wants to earn a 20 percent mark-up on sales.

The product price will be:
Unit cost
(1 % of markup or desired return on sales)
= RM24/(1 0.2)
= RM30 per pair
Product Price =
(ii)
Target-return Pricing
Price setting can also be done using the break-even analysis. Through
this method, we can also determine target profits desired by the firm.
At the break-even point, the total revenue and total cost are the same.
The formula to find the break-even point is:
Break-even point (unit) =
Fixed Cost
(Price Variable cost)
Using the example in 5.1, and assuming that product price is RM30,
the break-even point for ABC Company is:
Break-even point (unit) =
RM400,000
(RM30 RM10)
20, 000 pairs
If the firm wishes to make profits, it must sell more than 20,000 pairs
of baju kurung at RM30.
57
(iii) Perceived-value Pricing

An increasing number of companies base their product price on the
customers perceived value. A purchase is done not only based on the
cost or price that is decided by the firm but according to the perceived
value offered as well. For example, the price of a glass of orange
juice is higher at an exclusive restaurant than at an ordinary stall.
This is because the perceived value increases with the environment
experienced by diners at the restaurant as compared to the stall.
(iv) Going-rate Pricing
Through this method, the firm bases its product price largely on
competitors prices and pays less attention to the factors of cost and
demand. The firm may charge the same, more or less than major
competitors.
(v)
(f)
Auction-type Pricing
This method refers to pricing which is based on the ways competitors
set their prices. For example, when a firm wants to win a contract, it
has to bid lower than its competitors. However, companies cannot set
prices too low unless they are lower than the firms cost. Pricing too
highly has to be avoided as well to prevent the firm from missing
opportunities. The firm has to balance all these factors.
Step 6: Selecting the Final Price

The pricing methods discussed above can aid firms in selecting final prices.
Before the final price is selected, the firm has to take into account
psychological pricing factors. Price is set based on psychological factors so
as to encourage purchases based on emotional actions rather than rational
ones. The determinants of psychological pricing are:
(i)
Odd-even Prices
The setting of odd-even prices refers to the use of certain numbers at
the end of the price like RM59.99 and not RM60. This is used to
influence the consumers perception about the price and not the
product. Many customers will round up the figures by thinking of
RM59.99 as RM50 or a little more rather than RM60.
(ii)
Even Prices
This method is used to give an expensive and exclusive image to the
product. For example, a shoe dealer may decide on RM88 rather than
RM79.90 as the retail price for a pair of shoes. Even numbers are used
to enhance the product image.
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X TOPIC 5
(iii) Prestige Prices

Through this method, products are priced high to create prestigious
and high product quality image. For example, Rolex watches are
priced high because they portray an image of a prestigious product
with quality.
ACTIVITY 5.2
During the sales season, many companies use the psychological pricing
strategy to attract the consumers attention. Based on your observation,
do you think this strategy will succeed? What are the success or failure
factors of this strategy?
EXERCISE 5.2
1.
List the steps in pricing.
2.
Kelisa Company Sdn Bhd is at the stage of setting prices for its new
products which will be marketed in one year. As an executive from
the company, explain briefly the price setting process.
3.
For a firm in the price selection stage, explain briefly four other
main objectives of the firm in price setting.
4.
The production cost for XYZ Company is:

Variable cost per unit = RM20
Fixed cost
= RM400,000
Expected unit sales
= RM50,000
What is the product cost per unit for XYZ Company? If the
company wants to earn a 12 percent mark-up on sales, what is the
mark-up price for that product? If the product price has been
decided at RM30, what is the total break-even for that product?
5.3
59
PRICING PROGRAMMES
Companies usually do not set a single price, but rather a follow a pricing
structure that reflects variations in geographical demand and cost, marketsegment requirements, purchase timing and order levels. There are five price
adaptation strategies that are normally used by companies. They are:
x
Geographical pricing;
Price discounts and allowances;
Promotional pricing;
Discriminatory pricing; and
Product mix pricing.
5.3.1
Geographical Pricing
Geographical pricing involves the company deciding how to price its products
for different customers in various locations and countries. Besides the price issue,
another issue is how to get paid especially when it involves countertrade. Forms
of countertrade are:
(a)
Barter System
The direct exchange of goods, with no money and no third party involved.
In 1993, Eminence S.A., one of Frances major clothing makers, launched a
five-year deal to barter $25 million worth of US produced underwear and
sportswear for customers in eastern Europe. This was done in exchange for
a variety of goods and services, including global transportation and
advertising space in eastern European magazines.
(b)
Compensation Deal
The seller receives a percentage of the payment in cash and the rest
in products. A British aircraft manufacturer sold planes to Brazil for
70 percent cash and the rest in actual coffee.
(c)
Buyback Arrangement
The seller sells a plant, equipment or technology to another country and
agrees to accept as partial payment the products manufactured using the
supplied equipment. The other half of the payment is made in cash.
(d)
Offset Agreement
The seller receives full payment in cash but agrees to spend a substantial
amount of the money in that country within a stated period.
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5.3.2
Price Discounts and Allowances Strategies
Most companies will adjust their list price and give discounts and allowances for
early payment, volume purchases and off-season buying. Some of the types of
discounts and allowances are:
(a)
Cash Discount
Cash discount is a price reduction for buyers who pay promptly or pay in
cash.
(b)
Functional Discount
Functional discount, also known as trade discount, is offered by a
manufacturer to trade-channel members if they perform certain functions.
(c)
Quantity Discount
Quantity discount is a price reduction for those who buy in large volumes.
(d)
Seasonal Discount
Seasonal discount is a price reduction for those who buy merchandise and
services out of season.
(e)
Trade-in Allowance
Trade-in allowance is granted for turning in an old item when buying a
new one.
(f)
Promotional Allowance
Promotional allowance rewards dealers for participating in advertising and
sales support programmes.
5.3.3
Promotional Pricing Strategies
Companies can use several promotional pricing techniques to stimulate early

purchases:
(a)
Loss-leader Pricing
Loss-leader pricing is normally practised by departmental shops and
shopping centres where some of their products prices are lowered to
attract customers. It is implemented with the hope that customers will buy
other products at normal price.
(b)
61
Special-event Pricing
Sellers will establish special prices in certain seasons to draw in more
customers. For example, promotions are done every January to attract
purchasers on holidays to return to the store.
Figure 5.3: Cash rebates

Source: http://www.era.fm
(c)
Cash Rebates
Cash rebates are discounts that are given for a specified period. Figure 5.3
shows an example of cash rebates used to attract customers.
(d)
Psychological Discounting
This strategy involves setting an artificially high price and then offering the
product at substantial savings. For example, Was $359, now $299.
(e)
Other Techniques
Other techniques in promotional pricing are low-interest financing, long
payment terms and warranties.
5.3.4
Discriminatory Pricing Strategies
Discriminatory pricing consists of a few forms. They are:

(a)
Segment Pricing
Different customer groups are charged differently for the same products or
services. For example, museums often charge a lower admission fee to
students and senior citizens.
(b)
Product-form Pricing
Different versions of products are priced differently but not proportionately
to their respective costs. For example, the canned Coke is cheaper than the
bottled Coke although the quantity is the same in both.
(c)
Image Pricing
Pricing is decided based on the image of the products or services.
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X TOPIC 5
(d) Location Pricing

The same product is priced differently at different locations even though
the cost at each location is the same.
(e)
Time Pricing
Prices vary by season, month, day or hour.
5.3.5
Product Mix Pricing Strategies
Using this strategy, the firm searches for a set of prices that maximises profit in
the overall product mix. The five product mix pricings are:
(a)
Product-line Pricing
This strategy is adopted when the firm has a few product lines. Each
product line is priced differently. In this strategy, the firm has to look at the
overall product lines to ensure that the new models price is in the price
range of the current products. In the setting of prices one has to take into
account cost differences between the product lines, consumers evaluation
on features and competitors pricing.
(b)
Optional-feature Pricing
Many companies offer optional products, features and services along with
their main products. For example, a person who purchases a computer may
purchase additional accessories like a modem, speakers and other accessories.
(c)
Captive-product Pricing
This strategy is used by firms that offer products which have to be used
along with a main product. Take for example, the price of a box of film with
a camera. For services, this strategy is known as two-part pricing.
Telephone users pay a minimum monthly fee plus charges for calls made.
(d)
By-product Pricing
If by-products have value to a customer group, they should be priced for
their value. For example, chicken farmers use this strategy in valuing their
manure, setting prices and informing interested potential customers.
(e)
Product-bundling Pricing
Sellers often bundle products and features. For example, take a special
package that is offered by a hotelier or a supplier of personal computer
software. The seller normally charges less for the bundle than if the items
were purchased separately.
63
ACTIVITY 5.3
Other than the examples that are provided above, suggest an example of
price adaptation strategy that is normally used by firms to market their
outputs.
EXERCISE 5.3
Essay Questions
1.
The managing director of Automobile Sdn. Bhd. intends to expand

its product marketing to an international level. The managing
director is interested in venturing into the business using
countertrade. As the marketing director, explain:
(a)
What is meant by countertrade?
(b)
List and explain four main countertrades that can be used as

an alternative for your company.
2.
Explain four types of discriminatory pricing that are normally

carried out by a firm in its pricing strategy.
3.
When is it appropriate to use price discounts and allowances

strategy? Explain the forms of discounts and allowances.
4.
If a firm wants to maximise profits for all its product lines, state a
suitable pricing strategy that can be used by the firm. Discuss five
determinants that are involved in this strategy and provide suitable
examples for each determinant discussed.
5.4
PRICE CHANGES
Generally, companies will face situations where they may have to change prices
either by lowering or increasing the prices.
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X TOPIC 5
5.4.1
Decreasing and Increasing Prices
Companies often face situations where they may need to cut or raise prices.
Several circumstances may lead a firm to cut prices:
(a)
Excess capacity;
(b)
The firm wants to dominate the market. Thus, marketers introduce low
introduction prices as compared to the competitors; and
(c)
Declining market share forces the firm to reduce prices.
Price-cutting strategy involves the following possible traps:

(a)
Low Quality Trap

Outputs that are priced low are normally perceived by consumers as low
quality products or goods.
(b)
Fragile Market Share Trap

A low price buys market share but not market loyalty.
(c)
Shallow Pockets Trap

Pricing products low will influence competitors to reduce their prices as
well. The higher-priced competitors may cut their prices and may have
longer staying power because of deeper cash reserves.
Major circumstances provoking price increases by firms are as follows:

(a)
Cost Inflation
Rising cost squeezes the companys profit margins and leads it to increase
the prices of its products or services. Companies often raise their prices
higher than their cost increase, in anticipation of future inflation.
(b)
Over Demand
When a company cannot supply products or services to all of its customers,
it can raise its prices, ration supplies to customers or both.
5.4.2
65
Reaction to Firms Price Changes
Any price change by the marketer will generally provoke a response from a few
parties such as the following:
(a)
Customers
The normal reactions among consumers when there is a price reduction is
they feel that:
(i)
The item is about to be replaced by a new model. Thus, a price

reduction is done to clear old stock;
(ii)
The item is not selling well;
(iii) The firm is in financial trouble;

(iv) Price will come down even further; and
(v)
Quality has been reduced.
A price increase, which would normally deter sales, may bring about some
positive responses among customers. They may think that the item is hot
and represents an unusually good value.
(b)
Competitors
Besides consumers, firms have to monitor competitors reactions towards
their price changes. Some competitors reactions towards price changes are:
(i)
The company is trying to steal their market;
(ii)
The company is doing poorly and is trying to boost its sales; and
(iii) The company wants to dominate the whole industry by reducing

prices to stimulate total demand.
Competitors normally prepare a few strategies to avoid unfortunate occurrences
from happening when price changes are made by other marketers. As marketers,
they will analyse the objectives that the competitors are striving to achieve. If a
competitor has a market share objective, it is likely to match the price change. If it
has a profit-maximisation objective, it may react by increasing the advertising
budget or improving product quality.
Before a firm makes any changes to its product or service price, it will need to do
research on the competitors current financial situation, recent sales, customer
loyalty and corporate objectives.
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X TOPIC 5
5.4.3
Responding to Competitors Price Changes
If a firm realises that competitors have reduced prices, it will have to consider
alternative strategies. If the price reduction did not have a negative impact on the
market share and firms profits, the firm can maintain its price while monitoring
the prices of its competitors. However, if the competitors price changes leave a
negative impact on the firm, there are a few strategies that should be implemented:
(a)
Reduce price;
(b)
Increase consumers perceived quality;
(c)
Modify products; and
(d)
Launch brand fight through low prices.
EXERCISE 5.4
Domestic Motors Company intends to control market share for one of its
products by pricing the product low rather than high at the beginning
stages of its product introduction into the market.
(a)
Price changes that are undertaken by Domestic Motors Company

may affect consumer perception in the market. Explain briefly three
major effects of the price changes.
(b)
List and explain two competitors reactions towards the price

changes that have been implemented by Domestic Motors
Company.
Pricing is one of the most important elements of the marketing mix besides
product, promotion and place. It depicts the value of the product or service to
the seller or buyer. It is the only marketing mix element that is flexible and
can be increased or decreased depending on the factors that influence pricing.
The pricing process includes the firms internal and external factors.
Internal factors that influence pricing are the firms marketing objectives, its
marketing mix strategy, cost and the organisation itself. External factors that
influence pricing are the market condition and demand, the competitors
pricing and offers, and other factors like economy, sales personnel needs and
actions by the government.
67
Based on the factors of pricing, there are six steps in price setting. The first
step is selecting the pricing objective which includes survival, maximising
current profits, market share leadership and product quality leadership. The
second step is determining the demand curve, which involves estimating the
quantity that can be sold at each price. The third step is estimating costs, that
is, how cost differs at different output levels. The fourth step is analysing
competitors costs, prices and offers. The fifth step is selecting a pricing
method and the final step is selecting the final price. In the final step, the firm
has to take into account psychological pricing factors, the influence of the
other marketing mix elements towards the price and the effects of the pricing
on others.
Although other non-price factors are becoming more popular in the modern
market, pricing is still one of the most critical elements of the marketing mix
besides products, promotion and place.
The marketer has to design a price determining programme, taking into

account the selection, the pricing objective, cost estimation, competitors
pricing and the final price selection method.
There are a few important decisions to be made in determining the final

pricing programme. They consist of setting prices based on geography or
location, price discounts and allowances, promotional pricing, discriminatory
pricing and product mix pricing.
Besides managing the pricing strategy, the marketer has to decide on price
changes and reactions towards price changes that take place in the market,
especially due to competitors price changes.
Cash discounts
Quantity discounts
Functional discounts
Seasonal discounts
Loss-leader pricing
Special-event pricing
Mark-up pricing
Target-return pricing
Promotional pricing
Trade-in allowances
Topic
Managing
Marketing
Channels,
Intermediaries
and Physical
Distribution
LEARNING OUTCOMES
By the end of the topic, you should be able to:
1.
Explain marketing channel elements like function, types and

marketing channel levels;
2.
Explain how to make channel design and channel management

decisions;
3.
Discuss the major developments of marketing channels;
4.
Assess conflict, cooperation and competition that exist between the

marketing channels as well as legal and ethical issues in marketing
channel relations;
5.
Relate the importance of intermediaries of distribution channels to

manufacturers and consumers;
6.
Explain wholesaling and retailing; and
7.
Apply physical distribution management and the concept of

integrated logistics systems.
TOPIC 6 MANAGING MARKETING CHANNELS, INTERMEDIARIES W

AND PHYSICAL DISTRIBUTION
69
INTRODUCTION
Most firms or producers use intermediaries to bring their outputs to the market.
This intermediary channel is a marketing channel and is also known as a
distribution channel.
The marketing channel is one of the important elements of the marketing mix.
Marketing channel decisions have direct effects on other marketing activities. In
this topic, we will discuss forms of intermediaries as well as responsibilities of
intermediaries and their marketing activities. Effective marketing channel
management and design will also be discussed.
Apart from paying attention to forms and conflicts of distribution channels, a
marketer has to manage the members of the distribution channel. Most of the
products these days are channelled to the consumers through indirect channels,
which are the intermediaries. Distribution channel intermediaries like agents,
brokers, wholesalers and retailers have to be managed so that they move in line
with the companys objectives, especially from the aspects of maximising
customer satisfaction and increasing the companys competitiveness. Thus, the
marketer has to choose and allocate resources and power, manage conflict as well
as communicate effectively to all the intermediaries to create an efficient and
effective distribution channel process. This topic also discusses an important
component in the distribution channel, which is, physical distribution. Physical
distribution is a process that ensures that the products reach the market
efficiently and effectively and fulfils consumer needs especially from the aspect
of delivering on time.
6.1
WHAT IS A MARKETING CHANNEL?
Marketing channels are sets of interdependent organisations involved in the

process of making a product or service available for use or consumption.
6.1.1
Classifications of Marketing Channel
There are three types of marketing channels:

(a)
Merchants
Merchants refer to retailers and wholesalers. The merchants marketing
channel purchases products from firms, takes title of the goods and resells
the merchandise. Merchants make profit from buying and selling.
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X TOPIC 6
(b)
Agents
Agents are manufacturers representatives or brokers who search for
customers and may negotiate on the producers behalf but do not take the
title of the goods. Agents obtain revenues in the form of commission from
the manufacturer.
(c)
Facilitators
Facilitators are those involved in the firms merchandise distribution
process but neither take the title of the goods nor negotiate purchases or
sales. Instead, they provide support services to the firm to ensure the
merchandise distribution process to the consumers or customers is
successful. Examples of facilitators are transportation companies,
warehouses, banks and advertising agencies.
6.1.2
MANAGING MARKETING CHANNELS, INTERMEDIARIES AND

PHYSICAL DISTRIBUTION
Marketing Channel Functions
A marketing channel is an important marketing mix element because it performs

the work of moving goods from producers to consumers. The key functions of
the marketing channel are that:
(a)
They gather and disseminate marketing information about potential and

current customers, competitors as well as other actors and forces in the
marketing environment;
(b)
They develop and disseminate persuasive communication regarding the

offer designed to attract the consumer;
(c)
They reach agreements on prices and other terms so that transfer of

ownership or possession will not be affected;
(d)
They acquire the funds to finance inventories at different levels in the

marketing channel;
(e)
They assume risks of carrying out responsibilities as distributors;
(f)
They provide the storage and movement of physical products;
(g)
They provide for the buyers payment of their bills through banks and other
financial institutions; and
(h)
They oversee actual transfer of ownership from one organisation or person

to another.

6.1.3
71
Marketing Channel Levels
Marketing channels can be explained as channel levels that are involved in the
process of moving goods from producers to consumers. A channel level is every
layer of the channel or intermediary who carries out the activity of moving goods
from producers to consumers. There are four forms of marketing channels based
on marketing channel levels. They are:
(a)
Zero-level channel;
(b)
One-level channel;
(c)
Two-level channel; and
(d)
Three-level channel.
Figure 6.1 shows four forms of marketing channels. A zero-level channel is also
known as a direct marketing channel while one, two and three-level channels are
known as indirect marketing channels. A direct marketing channel does not
involve intermediaries in the process of moving goods from producers to
consumers. An indirect marketing channel involves intermediaries in the process
of moving goods from producers to consumers.
Figure 6.1: Marketing channel levels
(a)
Zero-level Channel
A zero-level channel, also called a direct marketing channel, consists
of a manufacturer selling directly to the final consumers. Examples of
direct marketing are personal sellers like Avon, Amway, Tupperware,
telemarketing, Internet selling, manufacturer-owned stores and TV selling.
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X TOPIC 6
(b)
One-level Channel
A one-level channel consists of one selling intermediary, such as a retailer.
For example, manufacturers of electrical goods, furniture and tyres sell
their merchandise directly to large retailers like Carrefour and Jaya Jusco.
(c)
Two-level Channel
A two-level channel contains two intermediaries which typically include a
wholesaler and retailer. This marketing channel normally takes place in
consumer markets like small distributors for foodstuff and house appliances.
(d)
Three-level Channel
A three-level channel contains three intermediaries which typically include
a wholesaler, jobber and retailer. This marketing channel is normally used
in industrial markets like the meat packaging industry.
6.2

CHANNEL DESIGN DECISIONS
In designing a marketing channel, the producer has to consider what is ideal and
practical. A firm that has newly started business normally starts in a limited
market. Thus, it has limited capital, using only a few intermediaries to carry its
products to the consumers.
The firm designs a channel system which involves analysing customer needs,
establishing channel objectives, identifying major channel alternatives, and
evaluating major channel alternatives. The problem of designing marketing
channels lies in identifying a good way to convince the best intermediary to carry
products to consumers.
6.2.1
Channel Design System
Channel design system refers to:

x
Analysing customer needs;
Establishing channel objectives;
Identifying major channel alternatives; and
Evaluating major channel alternatives.
(a)
Analysing Customer Needs

Designing the marketing channel starts with determining the value that is
expected by the consumer from the marketing channel. Normally,
consumer needs analysis involves the following items:

73
(i)
Lot Size
Lot size refers to the number of units the channel permits a typical
customer to purchase on one occasion.
(ii)
Waiting Time
Waiting time refers to the average time customers of that channel wait
for receipt of that goods.
(iii) Spatial Convenience

Spatial convenience refers to the degree to which the marketing
channel makes it easy for customers to purchase the product, like
having more agents sell the product in the market.
(iv) Product Variety
Product variety refers to the assortment and breadth provided by the
marketing channel.
(v)
Service Backup
Service backup refers to add-on services like installation, repairs,
credit and delivery.
(b)
Establishing Channel Objectives and Constraints

Channel objectives differ based on the characteristics of the products.
Channel institutions should arrange their functional tasks to minimise total
channel costs with respect to desired levels of service outputs. Channel
design must take into account the strengths and weaknesses of different
types of intermediaries. Legal regulations and restrictions have to be
seriously considered when deciding channel objectives.
(c)
Identifying Major Channel Alternatives

After a firm identifies its customer needs and objectives, it has to identify
major channel alternatives like:
(i)
Types of Intermediaries
A firm needs to identify the types of intermediaries that are suitable to
be appointed to carry on its channel work. Some of the intermediaries
that are normally appointed by firms are:
x
Companys Sales Force

The companys sales force is the companys direct selling
representatives who have been appointed to contact all prospects
in an area. For example, sales representatives from Avon, Amway,
and Nutrimetics.
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X TOPIC 6
(ii)
(d)

Company Agents
The firm appoints or hires manufacturers agents in different
regions or end-user industries to sell its products. For example,
take agents selling cars, tourist agents and insurance agents.
Industrial Distributors
The firm finds distributors in different regions or end user
industries who will buy and carry products to end users. The firm
has to offer a few benefits for the purpose of motivating its
distributors. The firm may give them exclusive distribution,
adequate margins, product training and promotional support.
Number of Intermediaries
Companies have to decide on the number of intermediaries to be used
at each channel level. Three main strategies that can be used are:
x
Exclusive distribution means limiting the number of
intermediaries significantly. It is used when the seller wants to
maintain control of the service level and products offered.
Granting of exclusive rights is normally practised in the
distribution of new automobiles and a few prestige goods.
Intensive distribution involves the manufacturer placing the
goods or services in as many outlets as possible. This strategy is
generally used for items such as tobacco products, gas, snack food
and soap. Responsibilities and rules for channel members refer to
the pricing policy, sales rules, territory rights and certain services
that have to be carried out by elected channel members.
Selective distribution involves the use of more than a few but less
than all of the intermediaries willing to carry a particular product.
Most products like television, furniture and some electrical
appliances normally involve retailers or selected agents only.
Evaluating Major Channel Alternatives

Each channel alternative needs to be evaluated against:
(i)
Economy
The manufacturing firm has to take into account the sales level that
can be achieved by the channel members and the different cost of
sales estimation for every channel member.

(ii)
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Control
This refers to a form of control that has to be implemented by the firm
on its elected intermediaries. Control is important if the intermediary
is an independent unit, like an agent.
(iii) Adaptive Criteria

Channel members must have some degree of commitment to each
other for a specified period. The producer needs channel structures
and policies that provide high adaptability.
ACTIVITY 6.1
Give an example of a company in Malaysia that implements the exclusive
distribution, intensive distribution and selective distribution strategies.
EXERCISE 6.1
Essay Question
1.
Provide the definition of marketing channel.
2.
There are four forms of marketing channels that have been discussed
in this topic. List and explain these marketing channel levels.
3.
In the marketing channel design system, what are the four major
elements that act as references for a firm?
4.
Explain briefly three important elements in identifying a suitable

marketing channel for a producer.
5.
Explain the differences between exclusive distribution strategy,

selective distribution strategy and intensive distribution strategy.
6.3
CHANNEL MANAGEMENT DECISIONS
The following are the steps that have to be implemented by a firm after choosing
a marketing channel.
(a)
Selecting Channel Members

The selection of channel members must be done based on qualifications.
Normally, the ability to attract qualified channel members differs for every
producer. For example, Toyota has the ability to attract many new agents to
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market its new Lexus car. Whether producers find it easy or difficult to
recruit intermediaries, they should at least determine which characteristics
distinguish the better intermediaries from others.
(b)
Evaluating Channel Members

Producers must periodically evaluate intermediaries performance against
such standards as sales quota attainment, average inventory levels, customer
delivery time, treatment of damaged and lost goods and co-operation in
promotional and training programmes. The recruitment process demands
that producers identify the best characteristics of their channel members.
(c)
Training Channel Members

Companies need to plan and implement careful training programmes for
their appointed intermediaries to increase their understanding of the firms
policies, rules and restrictions.
(d)
Motivating Channel Members

The company should provide training programmes, market research
programmes and other capability building programmes to improve the
intermediaries performance.
Besides implementing the activities above, the producer has to use the
power of cooperation to increase its channel members motivation. They
can draw on the following types of power to elicit cooperation:
(i)
Coercive Power
A manufacturer threatens to withdraw a resource or terminate a
relationship if intermediaries fail to cooperate.
(ii)
Reward Power
The manufacturer offers intermediaries extra benefits for performing
specific actions or functions.
(iii) Legitimate Power

The manufacturer requests a behaviour that is warranted under the
contract. For example, Proton requests its agents to carry a certain
amount of stock in their area as part of the agreement.
(iv) Expert Power
The manufacturer has special knowledge that the intermediaries
value. Normally, it refers to the technology which is owned by the
manufacturer. The manufacturer permits agents to use the technology
only if the agents cannot increase their performance level and will be
left behind without it.

(v)
(e)
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Referent Power
The manufacturer is so highly respected that intermediaries are proud
to be associated with him. For example, companies like IBM,
McDonalds and Rolex have high referent power and intermediaries
are normally willing to cooperate in all aspects desired by the firm.
Modifying Channel Arrangements

A producer must periodically review and modify its channel arrangements.
Modifications become necessary when:
(i)
The distribution channel is not working as planned;
(ii)
There are changes in consumer buying patterns;
(iii) The market expands;

(iv) New competition arises;
(v)
Innovative distribution channels emerge; and
(vi) The product moves into other stages in the product life cycle.
Normally, changes done to channel arrangements are:
(i)
Adding or dropping individual channel members;
(ii)
Adding or dropping particular market channels; and
(iii) Developing a totally new way to sell goods.
6.4
CHANNEL DYNAMICS
Channel dynamics refer to marketing channels that are categorised according to

continuous or dramatic changes. There are three major developments:
x
Growth of vertical marketing systems;
Growth of horizontal marketing systems; and
Growth of multi-channel marketing system.
6.4.1
Vertical Marketing Systems
The development of the vertical marketing system (VMS) challenges the

traditional marketing channel system. Figure 6.2 compares the traditional
marketing channel with the vertical marketing channel.
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A traditional marketing channel comprises an independent producer,

wholesalers and retailers. Each party is a separate business seeking to maximise
its own profits. There is no complete control over the appointed channel
members.
Figure 6.2: Traditional marketing channel versus vertical marketing channel
A vertical marketing system, by contrast comprises producers, wholesalers, and

retailers acting as a unified system. Each channel member cooperates as one
entity and is capable of influencing the market significantly. This system is
capable of eliminating conflict and elicitng complete control over every channel.
There are three types of vertical management systems:
(a)
Corporate Vertical Management System

A corporate vertical management system combines successive stages of
production and distribution under a single ownership. Vertical integration
is utilised by a company that requires a high level of control for each
channel that exists. For example, Toyota owns equity in most of its major
suppliers in the world and this makes it one of the giant companies that has
survived till today. Table 6.1 shows the equity percentage owned by Toyota
among the major suppliers in the world.

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Table 6.1: Major Suppliers and Toyotas Equity Percentage

Company
(b)
Equity Percentage (%)
Akebono Disc Brakes
13.1
Koito Lighting
19.0
Aisin Sicki Transmissions
21.7
Shiroki Door
11.5
Trinity Paint
30.2
Kyowa Upholstery
33.5
Nippondenso Electronics
22.9
Jaco Clocks
34.2
Tokai Rika Seat Belts
29.5
Contractual Vertical Management System

A contractual vertical management system consists of independent firms at
different levels of production and distribution which are able to integrate
their programmes on a contractual basis to obtain more economic or sales
impact than they would achieve if they were alone. The contractual vertical
management system is divided into three categories:
(i)
Wholesaler-sponsored voluntary chain;
(ii)
Retailer co-operatives; and
(iii) Franchise organisations.

There are three types of franchise organisations:
x
Manufacturer-sponsored Retailer Franchise System

The manufacturer-sponsored retailer franchise system is normally
found in automobile industries. Ford, for example, licenses dealers to
sell its cars.
Manufacturer-sponsored Wholesaler Franchise System

The manufacturer-sponsored wholesaler franchise system is normally
found in the soft drink industry. Coca-Cola, for example, licenses bottlers
(wholesalers) in various markets who buy its syrup concentrates to
carbonate, bottle and sell them to retailers in local markets.
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(c)

Service firm-sponsored Retailer Franchise System

Through this franchise system, a firm gives licences to retailers allowing
them to offer services to consumers. Examples are found in the fast food
industry (McDonalds and Burger King) and also in motel businesses
like Holiday Inn and Seri Malaysia.
Administered Vertical Management System

An administered vertical management system coordinates successive stages
of production and distribution through the size and power of one of its
members, and not through normal ownership or contractual ties. Famous
brand producers like P&G, Kraft and Campbell Soup are able to generate
high levels of cooperation from their resellers in connection with displays,
shelf space, promotions and pricing policies.
Figure 6.3 shows the overall vertical marketing system.
Figure 6.3: Vertical marketing system
6.4.2
Horizontal Marketing System
In the horizontal marketing system, two or more unrelated companies put

together resources or programmes to exploit an emerging marketing
opportunity. For example, Proton cooperates with a few local banks to channel
multiple loan facilities and automobile insurance to the consumers.

6.4.3
81
Multi-channel Marketing System
Multi-channel marketing occurs when a single firm uses two or more marketing
channels to reach one or more customer segments. The benefits of using multichannel marketing are:
(a)
Increased market coverage;
(b)
Lower channel cost. The firms may add new channels for the purpose of
reducing cost of sales for the existing customer group; and
(c)
Better understanding and priority is given to consumers in the selling

process. The company may add another channel to sell products that are
needed by consumers.
In Figure 6.4, through multi-channel marketing, the firm sells to consumer

segment 1 direct through catalogues, telephone and other forms of telemarketing.
Then, the firm sells its output to consumer segment 2 through retailers. For
industrial consumers, the firm sells indirectly to industrial segment 1 using
distributors and agents. For industrial segment 2, firms use their own sales force.
Figure 6.4: Multiple marketing channel

6.5
CONFLICT, COOPERATION AND

COMPETITION
The entire marketing channel may be involved in conflicts and competition

because of unsuitable objectives, unclear roles and rights, differences in opinions,
and relationships that are not open. Hence, the firms intervention in each
decision is required.
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Types of conflict that often take place are:

(a)
Vertical Channel Conflict

Vertical channel conflict involves conflict between different levels within
the same channel. For example, take conflicts between a manufacturing
firm and its distributors in terms of price, service policies and advertising.
(b)
Horizontal Channel Conflict

Horizontal channel conflict involves conflict between members at the same
level within the channel. For example, some Proton Wira car dealers in one
state may criticise the aggressive promotion done by other Proton Wira
dealers in the same state.
(c)
Multi-channel Conflict
Multi-channel conflict exists when the manufacturer has established two or
more channels that sell to the same market. For example, Swatch agrees to
distribute its watches through selected agents besides distributing them
through specialty stores.
The manufacturing firm normally manages all these conflicts through:

(a)
Adoption of superordinate goals. This strategy resolves conflict by

encouraging channel members to come to an agreement based on the
fundamental goals that were outlined when the agreement was first made.
(b)
Exchange of persons between channels.
(c)
Co-optation. Co-optation is an effort by one organisation to win the support

of the leaders of another organisation by including them in the advisory
councils and board of directors. Through this method they are able to give
opinions and are assured that their opinions will be accepted. However, the
initiating organisation may have to compromise its policies and plans to
win the support of the other organisation.
(d)
Joint membership in and between trade associations. For example, there is

good cooperation between the Grocery Manufacturers of America and the
Food Marketing Institute, which represents most of the food chains.
(e)
Mediator. Mediation means resorting to a neutral third party who is skilled

in conciliating the two parties interests.
(f)
Arbitrator. Arbitration occurs when the two parties agree to present their
arguments to one or more arbitrators and accept the arbitration decision.

6.6
83
LEGAL AND ETHICAL ISSUES IN CHANNEL

RELATIONS
Companies are legally free to develop whatever channel arrangements that suit
them. However, there are a few legal and ethical issues that have to be
considered in the marketing channel arrangements. These issues are:
(a)
Exclusive Dealings
Exclusive dealings refer to the arrangements done between the firm and the
intermediary. For example, the dealers cannot handle competitors products;
dealers can only handle the firms products. Exclusive arrangements are
legal as long as they do not substantially lessen competition or create a
monopoly, and as long as both parties enter into the agreement voluntarily.
(b)
Exclusive Territories
Exclusive territories refer to certain areas of intermediaries. It is legal as
long as the intermediary does not sell the products outside the
predetermined territory.
(c)
Tying Agreements
Producers of a strong brand name sometimes sell it to dealers only if they
will take some or all of the rest of their product lines. This practice is called
full-line forcing. Such tying agreements are not necessarily illegal but it will
become a violation if the elements of market monopoly exist.
(d)
Dealers Rights
Producers are free to select their dealers but their right to terminate dealers
is somewhat restricted. In general, sellers can drop dealers for cause or
for reasons stated in the agreement.
ACTIVITY 6.2
Can you differentiate between The Store supermarket line and the rice
wholesaler at your place based on the purchase volume or sales volume
of rice for both entities?
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EXERCISE 6.2
Essay Questions
1.
Explain the meaning of:

(a)
Exclusive dealings
(b)
Exclusive territories
(c)
Tying agreements
(d)
Dealers rights
2.
List and explain the forms or types of power that are frequently
used by producers on their appointed marketing channel to elicit
cooperation.
3.
What is the difference between the traditional marketing channel

system and the vertical marketing system in terms of channel
dynamics? Using a diagram, explain briefly the difference between
vertical marketing and the multi-channel marketing system in terms
of system dynamics.
4.
Explain briefly three forms of vertical marketing channels.
5.
Explain the difference between a wholesaler-sponsored voluntary

chain, retailer cooperatives and franchise organisations.
6.7
MANAGING INTERMEDIARIES OF
DISRIBUTION CHANNELS
Distribution channel intermediaries refer to members or a number of members

in the distribution channel. As stated in the previous topic on distribution
management, distribution members are marketers and intermediaries. There are
two main forms of distribution channels; the direct distribution channel and the
indirect distribution channel.
Direct distribution refers to the direct distribution channel which is created by
the marketer to channel products to the consumers. Indirect distribution
refers to forms of distribution channels which require the presence of a third
party or middleman to channel the products to the consumers. This third
party or middleman is known as the intermediary.

85
Marketing intermediaries can be classified into three categories; agents or

brokers, wholesalers and retailers. All three categories of intermediaries have
different functions and influence marketing activities in different ways. Thus, all
three categories can be differentiated easily based on two factors, risk taking and
types of business dealings.
Agents or brokers differ from wholesalers and retailers from the angle of risk
taking. Agents or brokers do not take on the risk of business dealings as
compared to wholesalers and retailers. The agent or the broker functions only as
a third party who arranges meetings between the marketer and buyer to discuss
business dealings. A big portion of the agents or brokers revenue is generated
through commission and price negotiation techniques. Price negotiation
techniques refer to the agents or brokers skill in keeping the actual offer price a
secret from the consumer and the seller.
Wholesalers and retailers can be differentiated based on the wholesalers or
retailers involvement with the individual consumer. Most experts state that the
main difference between the wholesaler and retailer is from the aspect of
purchasing volume the wholesaler buys in bulk while the retailer buys in
smaller order sizes. There are experts who see the difference between
wholesalers and retailers from the aspect of sales volume. The wholesaler sells in
bulks while the retailer sells in smaller quantities.
Based on the question in Activity 6.2 in the previous page, you cannot
differentiate The Store supermarket line with the rice wholesaler at your place
based only on purchase and sales quantity of both these entities. This is because
the purchase quantity for The Store supermarket line is far larger than the rice
wholesaler. Thus, the opinion that wholesaling and retailing can be differentiated
through types of business dealings is more accurate.
Wholesalers and retailers can be differentiated based on the statement that
wholesalers do not have business dealings with individual consumers. This
means that if Din Borong Supermarket or a trader in Selangors wholesale market
carries out business dealings with individual consumers, that trader cannot be
categorised as a wholesaler. Considering the business transaction that was made
by that trader, a mixture of transactions were carried out part wholesaling and
part retailing. Wholesaling only takes place as a business transaction with
organisational users, especially retailers, while most of the other business
transactions are considered retailing (individual or public).
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X TOPIC 6

To further aid in the understanding of the presence of intermediaries in a

distribution channel, please refer to the discussion on distribution channel forms
in the distribution channel topic. However, Figure 6.5 can aid in recalling
distribution channel forms that involve all three channel intermediaries (the
three-level distribution channel).
Figure 6.5: Three-level distribution channel
ACTIVITY 6.3
Try drawing all the forms of distribution channels other than the threelevel distribution channel. What dimension is used to name the forms of
distribution channel levels?
6.7.1
Importance of Intermediaries
All intermediaries have the same amount of influence, both on the manufacturer
as well as the consumer. The difference in roles between the wholesaler, retailer
and agents or brokers is only in the form of application. The following are the
importance of intermediaries to the manufacturer and consumer:
(a)
Bulk Breaking
The manufacturer faces problems in marketing its products to end-users
(individuals or organisations) because of the problem in the quantity
offered. Thus, the presence of intermediaries, especially wholesalers, help
manufacturers in marketing their products in smaller quantities according
to the consumers needs.
(b)
Product Promotion
Besides distributing products, intermediaries play an important role in the
promotion of the product to the consumers either individually or with the
manufacturer. For example, the wholesaler gives trade discounts to retailers
or retailers have sales promotions for the consumers.
(c)
Transportation
Intermediaries, especially wholesalers, provide efficient transportation
services in the physical distribution of products for the manufacturers.
Normally, the intermediary is liable for the transportation cost of the
products to the market.

87
(d)
Risk Bearing
The wholesaler or retailer purchases the product from the manufacturer.
This means that the intermediary transfers the financial risk from the
manufacturer onto itself. There are wholesalers who grant credit payment
to their retailers or retailers who grant credit sales to their customers. This
means that other than helping the manufacturer to avoid losses, the
intermediary also takes on risks through the granting of credit services to
the other intermediaries or consumers.
(e)
Market Information
Intermediaries, especially retailers, are known to understand the needs and
wants of consumers better as compared to manufacturers. Normally, the
intermediary will pass the latest information regarding customer taste and
preference to the manufacturer for them to act upon.
(f)
Warehousing Services
Besides providing transportation services, there are a few intermediaries
especially wholesalers who provide warehousing services for the
manufacturers in the physical distribution of their products to the market.
(g)
Consultation Services
Some intermediaries like wholesalers or agents (brokers) provide business
consultation services to the organisational users from the aspects of
material and financial management. Besides this, some retailers also
provide consultation services for the consumer, especially from the aspects
of product usage and financial consultation.
6.8
WHOLESALING
The number of wholesalers is declining day by day because of changes in the

marketing environment, especially consumer taste and the existence of
supermarket chains like The Store and Parkson. However, the volume of
business through wholesaling has increased tremendously. For example, the
wholesaling business in the United States has increased more than 5.8 times in
the new millennium as compared to the early 1990s (Kotler, 2002).
As stated in the earlier section of this topic, wholesaling is a distribution activity
carried out by the wholesaler to organisational consumers, especially retailers.
Wholesaling excludes business activities with the individual consumer.
Wholesalers can exist in the one-level, two-level or three-level distribution
channel. As shown in Figure 6.5, wholesalers are present before retailers in
distributing the products to the consumers. However, a wholesaler can exist
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X TOPIC 6

before an agent or broker in the three-level distribution channel where an agent

or broker will deal with the wholesaler before marketing the products to the
retailers. In the two-level distribution channel, the wholesaler can be present
together with the retailer, agent or broker. For the one-level distribution channel,
wholesaling only involves the marketing of industrial products or products for
the organisational consumers.
SELF-CHECK 6.1
What is meant by wholesaling?
6.8.1
Importance of Wholesaling
Wholesalers, like the other important intermediaries, are found to play an

important role in multiple aspects of helping the manufacturer produce a
product distribution process that is far more efficient and effective. Some of the
roles of wholesalers are bulk breaking for retailers and organisational consumers,
conducting trade promotion activities, providing transportation services,
warehousing, consultation, and others. The facilities provided by the wholesalers
enable the product distribution process in the market to be carried out more
efficiently and effectively.
6.8.2
Type of Wholesalers
Wholesalers can be classified into five major types which consist of merchant
wholesalers, full-service wholesalers, limited-service wholesalers, manufacturers
and retailers branches and offices, and miscellaneous wholesalers (Kotler, 2002).
The five major types of wholesalers are described briefly below:
(a)
Merchant Wholesalers
These are independently owned businesses that take title to the
merchandise they handle. They are called jobbers, distributors, or mill
supply houses and fall into two categories full service and limited service.

89
(b)
Full-Service Wholesalers
This type of wholesaling provides all the functions of intermediaries such
as transportation, sales force supports, credit facilities, management
support assistance, promotion and others. Full-service wholesalers are
known as wholesale merchants and industrial distributors.
(c)
Limited-Service Wholesalers
This type of wholesaling provides some intermediary functions such as
transportation, sales force support and credit facilities or a combination of
other intermediary functions. The wholesalers from this category are
known as cash-and-carry wholesalers, truck wholesalers, rack jobbers and
producers cooperatives.
(d)
Manufacturers and Retailers Branches and Offices

Manufacturers and retailers branches and offices are organisation units
that are established by the manufacturer to market goods straight to the
consumers. Manufacturers establish branches or offices on a temporary or
permanent basis. Normally, the branch or sales office is managed by the
companys sales personnel or the appointed sales personnel (external sales
personnel).
(e)
Miscellaneous Wholesalers
A miscellaneous wholesaler refers to wholesalers who specialises in one
type of business only like agricultural wholesalers, rice wholesalers, auction
wholesalers and others.
6.8.3
Trend in Wholesaling
As stated in the earlier section, wholesaling activities have shown a relatively

huge increase since the 1990s. Although the number of wholesalers is decreasing
due to changes in consumers taste and preference as well as the influence of
technology, the volume of business through wholesaling is increasing steadily.
Also, wholesalers are more aggressive in carrying out marketing activities which
are noticed in the product distribution system especially from the aspect of sales,
transportation and product promotion.
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Thus, it is not surprising that there are certain brands owned by wholesalers
through the private brand strategy. Through this strategy, wholesalers will
support that particular brand in the market through distribution, pricing and
integrated promotion.
EXERCISE 6.3
Fill in the Blanks
1.
Wholesaling is a marketing intermediary activity which does not

involve business transactions with the _______________________
users.
2.
_____________________
wholesalers
only
wholesaling services to their consumers.
6.9
provide
certain
RETAILING
Retailing is an important process in the product distribution system. The type of

business transaction involved in the retailing process is a business transaction
between the marketer and the individual consumer, where the product is bought
for personal or household consumption. Distribution channel members who are
involved in the retailing process are the retailers. Other than understanding the
retailing concept, one has to understand a few other important concepts that are
related to retailing management such as the importance of retailing, forms of
retailing, types and organisations of retailers, the retailing wheel and the latest
trends in retailing. The next section in this topic will help you understand all
these concepts better and in detail.
6.9.1
Importance of Retailing
Similar to wholesaling, retailing plays an important role in the creation of an

efficient and effective distribution system. The difference between the roles of
retailing and wholesaling is small. The role of retailing involves individual
consumers and other intermediaries in the channel such as wholesalers and
agents or brokers. Thus, similar to wholesaling, retailing also plays an important
role from the aspects of bulk breaking for the individual consumers, conducting
promotional activities like internal advertising and sales promotions, providing
transportation services, warehousing, consumer consultations and others.

6.9.2
91
Forms and Types of Retailers
Generally, the retailing process can be classified into two main categories which
are store retailing and non-store retailing. Both forms of retailing differ physically
and have obviously different tangible roles. Although both have obvious tangible
differences, both still have the same roles in creating an efficient and effective
distribution channel. Some marketers use both forms of retailing in creating the
best marketing process for the consumers.
The physical difference in store retailing and non-store retailing refers to the
need for physical space. This means that even if a retailer sells in a stall at the
night market or using a motorcycle, that retailer is still categorised as a store
retailer because the retailing process involves the use of physical space (selling
lots, tables, motorcycles and others). An example of non-store retailing is direct
marketing and online marketing. The list and a brief discussion about all the
main forms of store retailing and non-store retailing are as follows:
(a)
Store Retailing
The classification of store retailing is based on a few factors like physical form
(especially size), product lines marketed and services preparation for the
customer. From the physical aspect, retailers can be categorised as grocery
stores, supermarkets, departmental stores, hypermarkets, specialty stores or
discount stores. A grocery store sells most items that are needed daily either
in wet or dry form which are frequently purchased by consumers. A
supermarket is a concept store similar to the grocery store but larger in size.
A departmental store is the larger-sized retailing form that is most popular
in Malaysia. The main difference between a departmental store and a
supermarket is the specialisation of departments according to product
categories. For example, the first floor is for daily need goods, the second
floor for womens products, the third floor for childrens products, and so
on. Hypermarkets or business malls is the latest retailing concept being
developed in Malaysia. The main difference between hypermarkets and
other grocery stores is from the aspect of size and consumers product
selection. Specialty stores refer to retailers who sell certain selected
products like cosmetics, sports equipment, personal accessories and others.
Besides size and product lines, store retailers can be classified according to
the services that are provided to consumers. Store retailers can be categorised
into three services: full service, limited service and self-service retailing. Fullservice retailing offers an array of services for the convenience of customers
like salespeople, advisory services, credit, delivery and others. On the other
hand, the limited-service retailer only offers selected services to consumers
like delivery service or credit and delivery alone.
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(b)
Non-store Retailing
Direct marketing and online marketing are forms of non-store retailing.
Types of direct marketing are direct selling (salespeople without stores or
door-to-door salespeople), the usage of machines like vending machines or
ATMs, kiosks, catalogue marketing (using catalogues to get nearer to the
customers), and so on.

Online marketing is a retailing form which is gaining popularity among

consumers around the world. Online retailing is mostly handled through
computer websites or electronic mails and the electronic payment method
is used. For example, you can purchase a book and make a payment
electronically at www.amazon.com or buy other products from many
marketers that provide electronic business services.
6.9.3
Retailing Wheel
The wheel of retailing refers to the life cycle that is often experienced by most
retailers. Most large retailers like The Store network and PTK (Pasaraya Taman
Kemajuan) network started their business as a small retail outlet first and then
later expanded into a large retail outlet.
Besides expanding, there are large retailers that had to close down or were taken
over by other retailers because they reached the decline stage in the retailing
wheel.
6.9.4
Trends in Retailing
Retailing in Malaysia and around the world has grown significantly. Other than
experiencing a growth rate in business, the existence of more hypermarkets and
specialty stores as well as the vast development in electronic transactions
through electronic retailing is an important trend faced by retailers in Malaysia
and around the world.
ACTIVITY 6.4
What do you understand about store retailing and non-store retailing?
Provide a few examples of store retailing and non-store retailing in
Malaysia.

6.10
93
AGENTS AND BROKERS
Agents and brokers are traders involved in the agencys business, where the
business does not take the title of goods. This means the agents and brokers do
not take the title of goods and do not bear any risk in the business transaction.
Agents and brokers have some similarities and differences. They are similar in
the sense of a business agency, which is a form of business where the
intermediary does not take the title of goods and the agency only brings buyers
and sellers together. Other than this, the similarities between agents and brokers
are based on revenues earned. Agents and brokers obtain revenues through
commissions and negotiation price mark-ups.
However, the usage of the term agent to refer to the agencys business is more
frequently and widely used by traders and consumers. The term broker is only
used for certain agency businesses like financial shares, car sales and real estate.
According to Kotler (2002), the main difference between the two is from the
aspect of organisation forms. Organisation agents have more permanent
characteristics compared to brokers. According to some view points, consumers
and sellers are more likely to use the term agents. However, some view
brokers as more suitable because there are organisation brokers who are fixed
like security brokers.
ACTIVITY 6.5
What are the important decisions related to marketing logistics
management or physical distribution?
6.11
MANAGING PHYSICAL DISTRIBUTION
Physical distribution management is also known as marketing logistics

management and is an important decision in the distribution channel
management. Physical distribution is important especially in ensuring that the
product reaches the consumer without any problems.
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The marketer needs to be familiar with a few concepts relevant to marketing

logistics management. Besides the marketing logistics component, the marketer
has to pay attention to the logistic management process, especially from the
aspect of objective setting. Normally, every marketer has the same objective
towards marketing logistics management, which is to obtain raw materials and
market the products to the consumers at the bare minimum cost.
However, to reach this objective, the marketer has to implement the following
tasks:
(a)
Create an Integrated Logistics Management System

The marketing logistics system is supported by four components: order
processing, transportation, warehousing and inventory management. Thus,
the marketer has to use the best technology and has to have a systematic
management system to ensure all the four marketing logistics components
complement each other optimally. For example, the marketer will use
information technology to manage the marketing logistics system. The
usage of advanced information technology helps information channelled
between the marketing logistics component to be faster and more accurate.
(b)
Implement Continuous Research on Marketing Logistics

The marketer has to research the needs and the marketing logistics
achievements based on the consumers perception regularly. The research is
done to control, monitor and access the achievement of marketing in the
marketing distribution system.
(c)
Compare Companys Practice and Market Practice

The marketer needs to refer to the market practice especially that carried
out by the competitors as a basis or benchmark to measure how far the
marketer has succeeded in coming up with a distribution channel
management process that is competitive.
(d)
Realistic Promises to the Market

The marketer has to look into the companys internal ability before
promising the consumer that he will deliver products according to the
consumers needs, especially from the aspect of on-time delivery and
quality conformance. The marketer has to avoid from falling into the trap of
what is promised is not the same as what is delivered.

6.11.1
95
Components of Physical Distribution

Management
There are four major components in the physical distribution management

system or marketing logistics system. All the four components are shown in
Figure 6.6.
Figure 6.6: The components of physical distribution management
(a)
Order Processing
This consists of activities like order receipt, delivery and payment. This
includes order processing from the consumers or as passed on by the sales
personnel. The order check, scheduling, invoice delivery and receipt
preparation are all products of this component. Consumer satisfaction is
generally influenced by the efficiency of each of the operations in that
particular component. Delay in processing will cause consumer
dissatisfaction and consumers may switch to other competitors.
(b)
Transportation
The marketer has to decide on the best mode of transportation to ensure
that delivery will be smooth and cost of delivery will be economical. The
marketer can choose whether to use land, water or air transportation or
through pipes (for non-solid products). Decisions on whether to use the
land, air or water transportation mode depends on two issues, namely,
timely delivery and cost.
96
X TOPIC 6

Normally, both issues are at opposite ends. This means that to obtain a
transportation mode that is cheap, the marketer has to choose a
transportation mode that is slow and vice versa. There are two issues that
have to be considered by the marketer in choosing a mode of
transportation. They are product suitability and consumer needs.
Perishable goods need to be delivered urgently. Luxury goods may also
require a transportation mode that is fast and expensive.
(c)
Warehousing
Warehousing is needed to ensure raw materials and completed products
are stored in an appropriate place so that they can be taken out or
distributed to consumers according to type and order. There are a few
important decisions to be made in warehousing management. They consist
of inventory level, location, number of warehouses and the management
itself.
Warehousing inventory management will be discussed in the next section.
Marketers have to choose and prepare suitable warehouses according to the
needs of marketers and consumers especially based on time and cost. The
marketer may also have to set up or choose a few warehouses for the
material and finished goods distribution process. The marketer will also
have to evaluate the effectiveness of using rented warehouses or his own
warehouse after considering the cost of both.
(d)
Inventory Management
The marketer has to ensure that the inventory is managed at the lowest cost
possible and is capable of fulfilling production operation and consumer
needs. There are four issues that have to be seriously considered by the
marketer during inventory management. The four issues are reserve or
back-up record systems, electronic reorder point, order cost processing and
inventory handling cost.
The marketer has to ensure that all these four issues are managed
accurately to ensure that stock receipt and delivery are systematic and
efficient. The usage of information technology through computer systems
and barcode systems can aid marketers in managing all these four issues
effectively.

97
There is a tendency for manufacturers and consumers (business and

industrial users) to use the production operation system without inventory
or using the Just-in-Time Inventory Management. Through the JIT
Inventory Management system, marketers or consumers require accurate
delivery according to certain times and in appropriate quantities in line
with the production process being implemented. For example, if Modenas
needs 1000 tyres a day and the output shift is divided into four, the tyre
suppliers have to deliver 250 units of four deliveries a day to the
manufacturers factory.
6.11.2
Integrated Physical Distribution Management

System
The integrated physical distribution management system or the integrated

logistics system refers to a logistic management quality that is solid and
complementary. Although the marketing logistics management process involves
four different components, the marketer can succeed in creating an effective and
systematic logistic management system. Normally, the usage of modern
technology especially information technology using an electronic communication
network and barcode system is able to help marketers in creating the best
integrated logistics management system. Besides technology, the following
formula will aid marketers in creating the best integrated logistics management
system:
M = T + FW + VW + S
Where:
M
T
FW
VW
S
=
=
=
=
=
Total market logistics cost

Total transportation cost
Total fixed warehouse cost
Total variable warehouse cost
Total cost of lost sales due to average delivery delay
98
X TOPIC 6

EXERCISE 6.4
Fill in the Blanks
1.
__________________ retailing is a form of retailing that does not

involve physical business space.
2.
A retailers life cycle in the market can be explained through

_________________.
3.
The main difference between agents or brokers as compared

to wholesalers and retailers is that agents and brokers
______________________.
4.
The
four
components
________________________.
of
physical
distribution
are
Essay Questions
1.
Explain briefly the five functions that are carried out by the
intermediaries in the distribution channel.
2.
To what extent does the concept of wholesaling and retailing differ?
3.
Explain briefly the current trends that are happening in wholesaling

and retailing in Malaysia.
4.
If you have the intention of forming a logistics company or physical

distribution handling company, what are the management decisions
that the company has to handle during the implementation of the
integrated logistics management process?
The marketing channel is also known as the intermediary, merchant or

distributor channel which performs part of the marketing activities on behalf
of the manufacturer.
There are two main channels, which are, direct marketing channel and
indirect marketing channel.
The direct marketing channel does not involve intermediaries in the process
of carrying goods to consumers.

99
The indirect marketing channel involves intermediaries in the process of

carrying goods to consumers.
The marketing channels design decision generally involves four main stages,
which are, analysing customer needs, establishing channel objectives,
identifying major channel alternatives and evaluating major channel
alternatives.
There are three important elements that have to be considered by the

manufacturing firm: the types of marketing channels, the number of
marketing channels needed and the responsibilities of each channel member.
In the manufacturing firm, a marketing channel has to go through changes

either dynamically or continuously.
There are three trends or important transitions of a marketing channel, which

are: vertical marketing system, horizontal marketing system, and multichannel marketing system.
The marketing system often involves conflicts, competition due to unsuitable

objectives, unclear roles and rights, difference in opinion, and others.
The manufacturing firm has to manage this conflict to ensure cooperation

from the channel members.
Besides this, legal issues and ethical relations between firms and channels
have to be given importance in the arrangement of marketing channels.
The marketer has to create a distribution channel management process that is

good and effective.
To create the distribution channel management process mentioned, the

marketer has to ensure that each intermediary (agents or brokers, wholesalers
or retailers) is able to carry out its responsibilities effectively to create an
efficient and effective distribution channel system together.
Bulk breaking
Indirect distribution
Direct distribution
Indirect marketing channel
Direct marketing channel
Multi-channel marketing system
Horizontal marketing system
Vertical marking system
Topic X Managing
Integrated
Marketing
Communications
LEARNING OUTCOMES
1.
List the major types of the marketing communication mix;
2.
Examine the elements in the communication process;
3.
Apply the steps in developing effective communication;
4.
Assess the methods in deciding the promotional budget; and
5.
Appraise factors that influence the promotional mix strategy.
INTRODUCTION
In this topic, we will discuss the marketing communication mix, the

communication process, steps in developing effective communication, the
promotional mix strategy and integrated communications.
Marketing communications or marketing promotion is one of the most important
marketing mix elements. Products do not get sold on their own, although they
have features that are desired by consumers, are attractively priced and are easily
obtainable without promotions. Consumers may not be aware of the products
existence or the advantages of the product as compared to other products that
are readily available in the market.
TOPIC 7 MANAGING INTEGRATED MARKETING COMMUNICATIONS
7.1
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MARKETING COMMUNICATION MIX
The marketing communication mix or promotional mix are forms of promotion

or communication insights that can be used by the marketer to promote their
products. Five main elements of the marketing communication mix are personal
selling, advertising, sales promotion, public relations and direct marketing.
(a)
Advertising
Advertising is any form of non-personal presentation paid by a sponsor to
promote ideas, organisations or products through various forms of media
such as television, radio, newspaper and magazines, advertising boards,
and the Internet.
(b)
Sales Promotion
Sales promotion is a variety of short-term incentives to encourage trial or
purchase of a product or service. It is a promotion paid by a sponsor and is
normally used to encourage consumers to purchase the product for a
particular period. Examples of sales promotions are samples, coupons, cash
rebates, premiums and discounts.
(c)
Public Relations
Public relations is an activity or effort by a company to:
(i)
Build a healthy and mutually beneficial relationship with the public;
(ii)
Obtain good publicity;
(iii) Build a positive corporate image and keep negative stories, incidents
or rumours away from the media; and
(iv) Obtain opinions, behaviour and the publics perception towards the
company and its products.
The public includes customers, suppliers, government, employees and the
surrounding community. Public relations is a promotion that is often
trusted by the general public because of the publicity obtained by the firm
or output in the form of news. For example, when a company introduces an
innovative new product in the market, the company can maximise its
coverage in newspapers and the radio as well as television channels. Thus,
public relations is an effective form of communication that can introduce a
company and its products to the market at a low cost.
(d)
Personal Selling
Personal selling is a direct representation by the companys sales force to
the customers to obtain sales and build relationships with each other. It is
102 X
focused on the end users and it is done either face to face or through the
telephone. Personal selling can persuade and influence buyers to accept an
opinion or to purchase a product. Nowadays, personal selling is used to
build long-term relationships between the company and consumers or
future consumers.
(e)
Direct Marketing
Direct marketing is a form of marketing communication that connects the
marketer with target consumers to obtain instant feedback. It uses the
telephone, mail, fax, e-mail, the Internet and other communication tools to
connect the marketer with a specific consumer base. Thus, direct marketing
creates a good relationship between the marketer and the consumer.
7.2
THE COMMUNICATION PROCESS
Communication is the delivery of information or exchange of ideas from the

sender to the receiver. Communication between two parties is important to reach
a mutual agreement.
There are nine basic elements in the communication process. The marketer needs
to analyse each element to enable more effective delivery of the message to the
customers. Figure 7.1 shows the main elements in the communication process.
Figure 7.1: Elements in the communication process

Source: Kotler & Armstrong (2000)
(a)
Sender
A sender is the source of the original message in the communication
process. It consists of individuals or organisations. For example, family,
friends or the sales force. Companies can also use spokespersons who are
celebrities to advertise and promote their products. The perception of
receivers towards a source can influence their purchases. Therefore, the
company has to be careful in choosing its spokesperson.
W 103
(b)
Encoding
Encoding is the process of transforming ideas, thoughts or the senders
opinions in the form of words, symbols, pictures, signs or others so that it is
easier for the receiver to understand. The usage of these symbols will help
the company deliver a message more effectively. If a symbol is well known,
such as sports equipment brands like Adidas, Nike, Puma and Reebok, then
it is better for companies to use these symbols in its message delivery
because they are easily identifiable and well known.
(c)
Message
Message is an encoding process that transforms ideas into information in
the verbal, writing or symbolic form.
(d)
Media
Media is a communication channel which is used to send messages from
the sender to the receiver. The communication channel consists of nonpersonal or non-time sensitive media. Through mass media, messages can
be spread widely to more individuals at the same time. For example,
advertising on television, radio and in newspapers.
(e)
Decoding
Decoding is a process where the receiver interprets or assigns meanings
towards certain messages which the sender is trying to communicate. That
message may consist of symbols and will be interpreted by the receiver
according to his understanding. Thus, to guarantee effective communication,
the sender needs to understand the receiver more closely in terms of the
receivers knowledge and character.
(f)
Receiver
A receiver is the party that receives the message from the sender. The
receiver may be the public who views the advertisement of a brand or
product that the company is trying to sell. Not all receivers will be
influenced by the message that is being communicated by the sender.
Receiving depends on many factors like knowledge, culture and the
receivers age.
(g)
Response
Response is the receivers reaction towards a particular message that is
communicated. For example, when a receiver views an advertisement on
television, he may be influenced to purchase the product that is being
advertised. On the other hand, maybe the customer will not do anything or
may not be interested in the message that is being communicated through
the advertisement.
104 X
(h)
Feedback
Feedback is part of the receivers reaction towards the message received.
The reactions differ from one receiver to the other. For example, when
Proton launched its latest model Waja, there was a lot of feedback. Some
gave positive feedback stating that the car was priced cheaper than
imported cars of the same class. However, some gave negative feedback. If
personal selling was used, the response received would be faster as
compared to the other communication channels.
(i)
Noise
Noise is an unplanned external factor that interrupts the communication
process. An example of this would be the noise from roadside vehicles
when the sales personnel communicates with customers.
Understanding the communication process helps the company or the marketer

communicate with users more efficiently. For example, in encoding, the marketer
has to know how to change ideas or opinions into symbols that are easily
accepted and understood by the receiver. The selection of media channels is
important to ensure the message that is going to be communicated is for the
accurate target market. The sender has to know the behaviour and other factors
that are able to influence the receipt of the message.
Finding out these factors enables the sender to send appropriate messages that
can leave an impact on the receiver and obtain positive feedback. The feedback
that is received, either positive or negative, has to be given consideration so that
the next communication process can be improved according to the receivers
preference. Finally, although noise cannot be controlled, the sender has to
analyse the forms of noise that may happen so that it can be reduced or
eliminated.
EXERCISE 7.1
Essay Questions
1.
List and explain the five elements of the marketing communication

mix or marketing promotion mix.
2.
Discuss the elements in the communication process.
7.3
W 105
THE STEPS OF DEVELOPING EFFECTIVE

COMMUNICATION
There are six important steps in effective communication development. These

steps are to:
(a)
Identify the target audience;
(b)
Determine the communication objectives;
(c)
Design the message;
(d)
Select the media;
(e)
Select the message source; and
(f)
Collect feedback.
SELF-CHECK 9.1
After studying the elements in the communication process, what are the
steps that have to be followed in efficient marketing communication
development?
7.3.1
Identify the Target Audience
The target audience greatly influences the decision to determine the appropriate
promotional tools that the company will use. The target audience may consist of
end-users, existing consumers and the person deciding on purchases or even
future customers. It may also consist of individuals, certain consumers or
watchdog groups or the general public.
Identifying the target audience is very important to the marketer because
different audience segments need different promotions. The existing customer
needs a promotional programme that is different from that of the potential
customer. For example, the promotional programme for end-users may require
the marketer to use advertising to create product awareness in the market. To
encourage retailers and wholesalers to buy the companys products, the marketer
has to use other promotional elements like cash discounts or sales promotion to
encourage immediate purchases.
106 X
7.3.2
Determine the Communications Objective
After identifying the target audience, the marketer has to determine the
communication objective. The final communication objective is purchasing by the
audience. Before the consumer purchases a product, the consumer may fit into
one of the six buyer-readiness levels. These levels are awareness, knowledge,
liking, preference, conviction and then purchase. Knowledge about the
characteristics of each level can help the marketers achieve their communication
objectives. Figure 7.2 shows the buyer-readiness levels.
Figure 7.2: Buyer-readiness levels
(a)
Awareness
The marketers main objective at this level is to create awareness among the
potential target customers. If future customers are not aware of the
existence of a product or know only a little about it, how are they going to
purchase the product? For example, Susu Asli Company wishes to
introduce its new product brand Cerdik into the market. This milk product
has a special formula for newborns up till the first year. However
consumers are unaware of its existence in the market because no effort has
been taken to create awareness among the consumers. Thus, the
promotional campaigns objective at this level would be to make consumers
aware about the products existence in the market. This can be done
through advertising on television.
W 107
(b)
Knowledge
Besides creating awareness, the marketer has to provide knowledge about
the product to future customers. For example, after future customers are
aware of the existence of the Cerdik brand in the market, the marketer has
to provide information about the contents of the product that will help in
the babys growth. Providing information to future customers does not just
entail providing knowledge about the content but includes all aspects that
can help the marketer get closer to consumers. Some examples of this are
the products quality, tests conducted or services offered.
(c)
Liking
If future customers know about the product, the marketer has to get to
know their preference level. The question at this stage is what would be the
potential customers feelings after finding out about the product? Will they
feel satisfied or dissatisfied with the company? If the potential customers
are still doubtful at this stage, the marketer has to promote the product
more intensively until the appropriate liking level for that product is met.
(d)
Preference
If future customers prefer a product, they may not necessarily choose that
brand or product. The selection of a brand depends on many factors. Thus,
the marketer needs to create differences between his products and the other
alternatives that are in the market. One of the methods that can be used is
by developing creative advertisements to attract future customers to give
priority to a product in the selection process.
(e)
Conviction
Future customers will be more likely to purchase a product if efforts to
convince them are carried out in the first place. At the conviction stage, the
marketer or the company has to use a combination of promotional methods
to create conviction and positive feelings towards the product. For example,
let us have a look again at the Cerdik brand which was marketed. Besides
advertising, Susu Asli Company has to use sales promotions like free
samples for potential customers to try the product. Also, the company can
use public relations strategies to introduce the product in the form of news
either through the television or newspapers. A good combination of
promotional methods can help the company build the conviction of future
customers towards that product.
(f)
Purchase
At the purchase stage, there is a big possibility of a future customer
purchasing a product. Although the future customer may be convinced to
purchase the product, they may not actually purchase it yet. Some of the
108 X
factors that cause them not to purchase are shortage of money, lack of
desire to gather more information and they may be waiting for the
appropriate time. The promotional effort at this level is through
promotional tools that can help future customers to buy. Some examples of
these tools are the reduction of product price, giving special offers and
other short-term incentives.
7.3.3
Design the Message

ACTIVITY 7.1
Try to remember your experience while watching an advertisement

aired on television. Were you attracted to the message that was
communicated? If you were attracted to it, what caught your attention?
After determining the communication objective in each of the buyers readiness

levels, knowledge about effective message development is essential.
Normally, the design of an effective message will attract the attention of the
audience. For example, this would be a message that provides products benefits
to consumers and sustains the audiences interest from the beginning till the end.
If the audience pays attention to the message from the beginning till the end, it
shows that the message has been well designed. Also, the message has to arouse
a consumers desire or curiosity. A good message is a message that is able to
make the audience take a particular action, such as wanting to know more,
purchasing the product and giving feedback. In short, an effective message
design has to take into account a framework known as the AIDA model.
A
I
D
A
=
=
=
=
Attention
Interest
Desire
Action
7.3.4
Media Selection
After designing an effective message, the marketer has to choose an appropriate

media to channel the message. The communication channel selection depends on
many factors such as product features and the type of consumer or
organisational market. The marketing channel chosen can be categorised into
two, personal communication channel and non-personal communication channel.
W 109
The personal communication channel involves two or more persons

communicating directly with each other. This type of communication can be
done face to face or through the telephone, mail, fax and other methods.
Generally, products for organisation markets use this type of communication
channel. This is because organisational products are normally expensive, have
high risk factors, are complex and need direct explanation from the sales force.
This type of communication enables the company to obtain immediate feedback.
The feedback received can be channelled to the companys management for them
to take the next appropriate action.
The use of non-personal communication channels is normally directed to the end
user market. The media that can be used includes:
(a)
Printed media like newspapers, magazines and letters;
(b)
Broadcast media like radio and television;
(c)
Display media like posters and billboards; and
(d)
Online media like websites and on-line services.
The appropriate media selection is very important to communicate the message

clearly to the target audience that has been identified. The main objective of
media selection is to get the target audience to purchase the organisations
product.
7.3.5
Message Source Selection
The effectiveness of a particular message to the audience depends on how

convinced the audience is with the message source. Consumers perceptions and
views are based on the belief and conviction that the message delivered is true. A
strategy that can be used to convince and gain consumers trust is by using
credible message sources.
For example, professionals and celebrities are normally chosen as spokespersons
for a companys product. Professionals like doctors are chosen to explain the
advantages of a health-based product. Celebrities are used because they have
their own fans. For example, singer Siti Nurhaliza promoted product brands like
Maybelline and Pepsi while badminton player Rashid Sidek was the
spokesperson for energy drink products like 100 Plus and Livita. The selection of
a spokesperson in a product promotion will increase the audiences conviction
towards the message source because of the credibility associated with the
spokespersons.
110 X
7.3.6
Feedback Collection
Finally, in effective communication development, the marketer has to obtain

feedback from the target audience. The questions that are normally used to
obtain feedback are:
(a)
Does the audience remember the message?
(b)
How many times did they watch it?
(c)
What content do they remember in the message?
(d)
How do they feel towards the message?
(e)
How is their behaviour now towards the product and the company?
These questions are important to the marketer because the feedback received can
help them in improving the promotional programme or the product that is
offered.
EXERCISE 7.2
Essay Questions
1.
List all the steps in effective communication development.
2.
Explain the buyers readiness levels in deciding the communication

reaction.
7.4
PROMOTIONAL BUDGET DECIDING

METHOD
ACTIVITY 7.2
What are the advantages and disadvantages of using well-known athletes

to promote a companys products?
The budget is used to plan and control the operations of an organisation for a
specific period. Deciding the budget for promotional purposes is one of the
issues that have to be considered by the management. Detail planning and
promotional budget controlling can bring in profits for the company in the longterm, at the same time avoiding the failures of promotional programmes.
W 111
How does the management decide on an appropriate budgeting method that can
be used by the company? Every company has its own way of deciding the most
appropriate budgeting method. There are many factors that can influence the
promotional budget decision. Some of the factors are financial position, company
size, product characteristics and company policies. There are four methods in
determining budgets that are used by companies such as the affordable method,
percentage-of-sales method, competitive-parity method, and objective-and-task
method.
7.4.1
Most Affordable Method
The most affordable method in determining the promotional budget is thought of

as the most cost effective by the company. This means that if the company is of
good financial position, the allocation for the promotional budget will be big.
However, if the company is going through financial problems, the allocation for
the promotional budget will be small. Most small businesses will use this method
in determining their promotional budget. The balance of the money obtained
after paying all the expenses will be used as part of the promotional budget.
However, this method has many weaknesses. This is because it categorises the
promotional programme as the final expenses in the budget. If the company does
not have sufficient finances, the promotional programme cannot be carried out
because there is no allocation. In this method, promotion does not have an
impact towards sales. Promotion should be considered a long-term investment
that can increase the companys profit and sales.
7.4.2
Percentage of Sales Method
Another method that is normally used by businesses is the percentage-of-sales

method. Most companies set their promotional expenditure at a specific
percentage of sales (either current or anticipated) or of the sales price. This
method is popular and easy to use because marketers need to decide on a
percentage of sales that changes only at certain times.
For example, ABC Untung Company allocates 10 percent of its sales towards
promotion. If the sales for ABC Untung Company is RM100,000, the allocation
for its promotional budget will be RM10,000. This method has its weaknesses.
Some of its weaknesses are:
(a)
The management perceives promotion as a product of sales or caused by sales.

However, in reality, promotion is the cause or the determinant of sales.
112 X
(b)
When a companys sales declines or drops, the promotional budget

allocated will also decrease. Generally, when a company experiences a
decline in sales, the promotional programme has to be further developed
for sales to increase again or to be better than previous sales.
7.4.3
Competitive-Parity Method
There are companies that determine their promotional budget based on

competitors. This method is known as the competitive-parity method, where
marketers keep an eye on the competitors promotional budget through
published sources. This method helps the company allocate expenses more
accurately for the promotion. It is normally used based on the assumption that
competitors are skilled in determining promotional budgets. Budgeting based on
competitors will also reduce promotional wars.
However this assumption is incorrect because competitors need not be accurate
in determining the promotional budget. If the competitor makes a mistake, the
marketer who follows will also fail. The assumption that states this method
reduces promotional wars is also not true because there is no strong basis for it.
7.4.4
Objective-and-Task-Based Method
Before determining the promotional budget, the company has to identify the
objectives that are to be achieved as well as determine costs and tasks that are
appropriate to reach the set objective. There are three main steps in the objective
and task-based method:
(a)
Identifying the objective;
(b)
Determining the task; and
(c)
Determining the cost.
For example, Casiola Company wishes to introduce and provide awareness

about their new watches in the market. Thus, Casiola Company has to determine
the appropriate media and message to use in order to reach the set objective as
well as the cost to be used for media advertising on television, in newspapers and
other avenues.
Because of the difficulties in determining tasks and costs to achieve objectives,
not many companies use this method in setting their promotional budget.
However, this method is one of the most effective promotional budget methods
because the management has to plan meticulously based on the companys
objectives long before doing the promotional budget.
7.5
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PROMOTIONAL MIX STRATEGY
After determining the appropriate budgeting method, the marketer has to think
of an appropriate strategy for promotional purposes. There are two types of
strategies that can be chosen by the marketer, which are the pull and the push
strategies.
(a)
Push Strategy
In this strategy, the product will be pushed through promotion in the
distribution channel to the final users. For example, the producer will
promote the product to the wholesaler. Then, the wholesaler will promote
the product to the retailers and the retailers will carry out promotional
activities for the users so that they purchase the product. Figure 7.3 clearly
explains the pull and the push strategies.
Figure 7.3: Push strategy

Normally, the push strategy is used in organisational markets. When a

company sells its products to another company, the personal selling
method will be used to provide explanations and user demonstrations.
(b)
Pull Strategy
In the pull strategy, the producer will carry out promotional activities
directly for the end users to encourage them to purchase the products in the
market. For example, the producer will carry out promotional activities like
advertising on the television or sales promotion to the final users. If this
strategy succeeds, the users will demand for products from the retailers, the
retailers will demand for products from the wholesalers and wholesalers
from the producers. Thus, in the pull strategy, the users will pull the
product by demand through the distribution channel. Figure 7.4 clearly
explains the pull strategy.
114 X
Figure 7.4: Pull strategy

The pull strategy is normally used in consumer markets. For example,

Coca-Cola advertises its products and brand on the television. Consumers
watch and are attracted to visit the retail stores to get the product. Demand
from consumers will encourage retailers to demand the product from the
wholesalers and then from the producers.
The use of an appropriate promotional mix depends on the product life
cycle stage. At the introduction stage of the product life cycle, advertising
creates awareness among consumers. Meanwhile, sales promotions will
encourage consumers to try the products that are on promotion.
Advertising and public relations are used at the growth stage while sales
promotion is reduced. This is because sales incentives are used less at this
stage. At the maturity stage, sales promotion is used widely as compared to
advertising. Finally, during the decline stage, advertising is used to remind
consumers about the products and sales promotion continues.
In conclusion, the use of the promotional mix strategy depends on various
factors like product type, organisation and the product life cycle stage that
the product is in.
7.6
INTEGRATED MARKETING
COMMUNICATION
Generally, we have found that marketing communication is used widely by the

marketer to communicate effectively with consumers using the appropriate
promotional mix. However, many companies fail in their promotional activities.
A promotional failure causes the company huge losses and brings a negative
image because of ineffective communication. Today, organisations are starting to
practise integrated marketing communication concepts.
Through this concept, companies combine and meticulously realign all or as
many communication channels as possible to deliver messages clearly and
consistently about the organisation and the companys products. The company
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will realign and combine communication channels like personal selling,

advertising, sales promotion, public relations, and direct marketing in the same
message form to ensure delivery is more clear and consistent and achieves the
organisations overall objectives. Figure 7.5 shows the integrated marketing
communication model.
Figure 7.5: Integrated marketing communication

Examples of integrated marketing communication practices are: if a companys

public relations department communicates a message about a product or an
organisation, the company can use advertising and sales promotion in the same
message as communicated in its public relations strategy. It will be easier for the
sales force to explain a product or an organisation to their target markets because
the same message has been communicated to them. Using this method, messages
will be communicated more consistently. The combination of promotional tools
will help companies in communicating the message more clearly.
7.7
ETHICAL AND SOCIAL ISSUES IN

MARKETING COMMUNICATIONS
In developing a promotional programme, the company has to pay close attention

to social and ethical issues. A companys promotional activity can have a big
impact on society. Among the issues that arise because of the breach of ethics in
marketing communication are:
(a)
Disturbance
Various promotional programmes like advertising and sales promotion
harass customers to purchase a product.
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(b)
Unfairness and Fraud

This refers to product scams advertised in the mass media. For example, the
product size differs from the actual size and products purchased do not
benefit the consumers. Customers are also deceived because certain product
features are not communicated to the customers. The advertisement only
shows the advantages of the products which are sold at confusing sales
prices.
Thus, if a company wishes to maintain a good name and image, ethical
issues like these have to be considered. At the same time, social issues in
marketing communication can increase the companys credibility. Among
the social issues that increase the image and the credibility of the company
include marketing communications in the form of education, information
source and becoming a model or moral development agent. Besides this,
the company has to implement direct marketing communication strategies
for the development of consumer communities that have accurate
information, have the opportunity to choose, and are able to plan expenses
and reduce risk.
EXERCISE 7.3
Essay Questions
1.
List four methods that are used by marketers in deciding the

promotional budget.
2.
Explain the marketing communication mix which can be used by

the marketer to market their products more efficiently.
3.
Discuss the existing methods in deciding the promotional budget.

Suggest the best method and why you decided on it.
4.
Explain clearly the promotional mix strategies.
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Successful marketing management does not only depend on products,

pricing and distribution. Successful marketing management is marketing
management which combines all the four marketing mix elements of product,
price, distribution and promotion.
Promotion and marketing communication are communication insights that

are used by the marketer to promote products.
The marketing communication mix like advertising, sales promotion, public

relations, personal selling and direct marketing has to be carried out at the
appropriate buyer readiness levels.
Before carrying out any promotional programmes, the company has to

understand the communication process between the marketer and the user.
Besides this, the marketer has to take certain steps to develop an effective
communication system.
The marketer has to give importance to the promotional budget because the
promotional activities involve cost. This is to ensure that the promotional
programme is carried out cost effectively.
AIDA model
Pull strategy
Marketing promotional mix
Push strategy
Topic X Managing
Advertising,
Sales Promotion
and Public
Relations
LEARNING OUTCOMES
1.
Discuss the major decisions to be made in advertising;
2.
Discuss sales promotion strategy development and major decisions

in sales promotion; and
3.
Assess the importance of public relations and the major decisions

made in public relations.
INTRODUCTION
In this topic, marketing communication tools will be discussed in detail. This

topic also discusses advertising, sales promotion and public relations. Some of
the advertising topics that will be discussed are objective setting, budgeting
decision making, message selection, determining the media, and campaign
evaluation. The sales promotion topic will discuss sales promotion objectives and
strategies, major decisions in sales promotion and determining the major sales
promotion tools. Finally, public relations will discuss the functions of a public
relations department and the major decisions made in public relations.
TOPIC 8
8.1
MANAGING ADVERTISING, SALES PROMOTION AND

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ADVERTISING
ACTIVITY 8.1
We often see advertisements on television, the Internet and bulletin

boards. These advertisements differ from one another from various
aspects. The differences may be from the aspects of the message that is
going to be delivered as well as the advertising time. What are the
important decisions that are involved in the development of an
advertisement?
The previous topic on marketing communication defines advertising. Generally,

advertising is a form of non-personal communication by identified sponsors.
When the word advertising is mentioned, we may imagine advertisements on
television. Whether we know it or not, advertising has existed for a long time in
Malaysia and in other countries in various forms. In the past, before television
sets were introduced in our country, announcements were made using mobile
lorries and vans. Also, posters will be pasted on vans and other appropriate
places. This is one form of advertising. Thus, advertising as we understand it
today does not just include advertising on television, but covers various media
channels like the radio, newspapers, posters, magazines and others.
Advertising management is not easy. It involves many activities and detailed
planning. Meticulous planning can create effective advertisements for the
company and the audience. Thus, we have to be familiar with four important
decisions that have to be made by the management in creating these advertising
programmes. The four advertising programmes are: setting advertising
objectives, setting advertising budget, developing the advertising strategy
(making message decisions and media decisions) and evaluating advertising
campaigns. Figure 8.1 shows the major decisions in building advertising
programmes.
Figure 8.1: Major decisions in advertising

Source: Adapted from Kotler & Armstrong (2000)
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8.1.1
Setting the Advertising Objectives
The first step in developing an advertising programme or campaign is setting the

advertising objective. An advertising objective is the goal to be accomplished
through that advertisement. Setting objectives is very important because the
activities and initiatives of the parties involved in advertising lead to the
accomplishments of that objective. Objective setting provides a guide to the
company on the strategies of decision making, budgeting, disseminating
messages and advertising media. In the setting of objectives, the company gets to
measure the results during evaluation to see whether the objective that was set at
the beginning was accomplished. Thus, an advertising objective has to identify a
special communication task that needs to be conveyed to the target viewers in a
predetermined time frame.
Below are some examples of common objectives for advertising:
(a)
Provide support to personal selling.

Advertising is used to help the sales force obtain sales from prospects. For
example, take the advertisement for Noveaux Visages.
(b)
Improve relationship with distributors.

Retailers and wholesalers need producers support to promote products
through advertising.
(c)
Introduce new products.
(d)
Widen product usage.

Advertising can be used to widen product usage and increase multiple
usage of products.
(e)
Advertising is also used to create a reaction towards competitors

advertisements and to reduce the effect of consumers switching to
substitute products.
There are three major advertising objectives and they are to inform, persuade or
remind.
(a)
Informative advertising is a form of advertising which aims at providing

information to the target consumers. When a company wishes to introduce
a new product, it can use this type of advertising. Information on the
products features and advantages as compared to its competitors can be
communicated to the target market. Informative advertising is also
appropriate to inform the methods of using a product. For example, in
rubbish disposal advertisements, certain categories of rubbish are disposed
according to the bins colour. For instance, bottles are disposed in orange
coloured bins while tins are disposed in green coloured bins.
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Persuasive advertising is used when competition increases. When there are

too many competitors producing the same products, this kind of
advertising is appropriate to persuade consumers to choose a particular
companys products. At this stage, the company has to state the advantages
of the product over the competitors.
For example, consider the competition between companies that produce
washing detergent brands like Fab, Breeze, Trojan, Ekonomi Handalan,
Harimau Kuat, and others. These companies have to make use of the
advantages of their products and develop a creative advertisement to
persuade consumers to choose their brands. Due to the competition that
exists between companies, they start to compare their products and those of
the competitors. For example, Trojan soap and Brand Z indirectly compare
products.
(c)
Reminder advertising is for products that have reached the maturity stage.
The advertising objective at this stage is to remind the consumers that the
product still exists in the market and for the consumers to remember the
product always. For example, take Milos nutritious drink advertisement.
Although this brand is well known, the company continuously advertises
in order for the consumer to remember its products and select them in
stores. Other examples are such as soft drinks like Pepsi and Coca-Cola that
advertise repetitively on the television all year long.
Figure 8.2 shows Pepsi which has been in the market for a long time, using only
short slogans like Drink Pepsi Cola as it does not need any further
introduction.
Table 8.1 shows examples of advertising objectives according to purpose.
Figure 8.2: Reminder advertising

Source: http://j4tb.com
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Table 8.1: Examples of Advertising Objectives According to Purpose

To Inform
x
To inform the market about the new product.
To suggest new ways of using a product.
To inform the market about a price change.
To explain how the product is used.
To explain the existing services.
To correct the impression made.
To reduce purchasers fears.
To build the companys image.

To Persuade
To build the brands strength.
To encourage brand switching.
To change consumers perception about a products attributes.
To persuade consumers to buy immediately.
To persuade consumers to accept a sales call.

To Remind
To remind consumers that the product may be needed in the near future.
To remind consumers where to purchase the product.
To remind consumers about the product during off-season.
To maintain high product awareness.

8.1.2
Setting the Advertising Budget
After setting the objectives, the company has to set the budget to advertise its
products. An objective that has been decided upon cannot be carried out if there
is no budget allocated for it. Thus, budgeting decisions need detailed or
meticulous planning as discussed in Topic 7. There are four methods of
determining the budget. These methods are the affordable method, percentageof-sales method, competitive-parity method and objective and task method.
These methods have been discussed in detail in Topic 7.
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However, in this topic, the focus is on a few factors that determine the
advertising budget. Among the factors that have to be considered are product life
cycle stages, market share, competition and the number of advertising and
product differences.
In the product life cycle stage, the budget is allocated differently according to the
product stage. If the product is at the beginning stage of the product life cycle,
advertising expenses will be huge because the company needs to advertise
aggressively for the product to be well known. At the growth and maturity
stages, budgets for advertising can be reduced because the product is already
well known by the prospects.
A company that wishes to obtain a large or high market share for its products
and brands needs a huge budget because advertising needs to be aggressive in
order to persuade consumers to choose their products and not the competitors.
A high allocation is also needed if the companys product is in a market with
many competitors and numerous advertisements. Many competitors means
plenty of advertising, to the point that consumers cannot differentiate a product
anymore. Thus, a creative advertisement needs to be produced to differentiate it
from other advertisements. To develop an advertisement that is creative, be it big
or small, a big allocation is required.
Decisions regarding budgets depend on many factors. Thus, detailed planning
has to be done after researching internal or external factors so that the budgeting
decision is accurate. Internal factors that have to be considered are the companys
financial sources and human resources.
ACTIVITY 8.2
In your opinion, are high sales promotion expenses a good strategy for
long-term profits? What are your reasons?
8.1.3
Choosing the Advertising Strategy
After deciding the budget allocation, the company has to think of an effective
advertising strategy. Advertising strategies can be divided into two main
elements, which are, advertising message creation and advertising media
selection. Both these strategies are equally important because they are
interrelated with one another. For example, although an effective advertising
message has been developed, that message will not reach the target viewers
effectively if the media selection was not done carefully. On the contrary, a good
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media selection will be meaningless if the message is not developed effectively.

There are three steps in the advertising strategy development: the message
strategy, message implementation and advertising media selection.
(a)
Message Strategy
The first step in the development of an effective advertising message is the
decision on the general message that will be communicated to the target
viewers. Decisions can be made through planning of the message strategy.
Normally, consumers will watch a message if the message is beneficial to
them. Thus, the focus of message strategy development has to be on the
message that will benefit the consumers. After that, the company needs to
create a creative concept for the message either visually or using words.
The creative strategy in advertising is the development of a message that is
able to attract attention, has difference and it is easily remembered by the
target viewers. A creative advertisement will stand out among the other
cluttered advertisements. Advertising creativity can be shaped if the
advertising agency has the talent to generate new and unique ideas as well as
ideas that are related to the target market. Examples of well-known
companies that often develop creative advertisements are Procter & Gamble,
Coke, Pepsi, Celcom and Bumiputra Commerce Bank. Advertisements by
these companies often generate new ideas and attract viewers
According to Kotler (2003), normally an advertiser will go through four
steps in developing the creative strategy. They are message generation,
message evaluation and selection, message execution and social
responsibility review.
Three main features of advertisments that are able to attract attention are:
(i)
First, the advertisement has to be meaningful; it has to show the

benefits that can be obtained from the product.
(ii)
Second, the advertisement has to be trustworthy; the consumers have

to trust that the advertisement will be able to provide all the benefits
promised.
(iii) Third, the advertisement has to be different; it has to show that the
product is better than the competitors product.
(b)
Message Implementation
In implementing a message, the marketer has to change the creative ideas
of the actual advertisement so that it will be able to attract attention and
win over the target market. Some of the normal styles of message
implementation are:
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(i)
Slice of Life
This advertisements implementation style gives importance to
normal life situations. For example, the advertisement on Koko
Crunch cereals shows individuals eating breakfast every day.
(ii)
Lifestyles
This style shows how a product is adapted to a certain lifestyle. For
example, a luxury lifestyle is portrayed in Dunhills advertisement
while challenging or dream lifestyles are depicted in the Benson &
Hedges (Golden Dreams) advertisement.
(iii) Fantasy
This style tries to create a certain level of fantasy around the product
and its usages. For example, take advertisements that depict fun when
the product is used.
(iv) Feelings or Images
This style shows feelings or images associated with the product usage
such as feelings of affection. For example, take advertisements that
show affection and love between the father, mother, and children.
(v)
Musical
These advertisement shows the usage of background music or singing
that can attract the viewer. For example, take the World Cup football
advertisements.
(vi) Personality Symbol

This is an advertisement style that uses personalities to represent the
product. For example, take the Garfield the cat and Ronald in
McDonalds advertisements.
(vii) Technical Experts
This style shows the company displaying their expertise or technical
skills in producing a product. For example, advertisements that show
the production process of a product from the beginning till the end.
(viii) Scientific Evidence
This style shows research has been done by proving that the product
advertised is better than the competitors product. For example,
product advertisements where its contents are tested through a
scientific process such as the advertisement on Quantum Trim & Firm
formerly known as Hollywood FB, show that consumers who use the
product are able to slim down.
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(ix)
(c)
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Testimonials
This advertisement uses celebrities or professional members to
represent a company in introducing a product. For example, take the
national squash player Ong Beng Hee in the Excel drink
advertisement and singer Siti Nurhaliza in the Maybeline
advertisement. Besides this, there are many types of messages that can
be delivered including inserting elements of humour such as jokes,
positive tones, fear and others. The advertiser or the company can
insert any message that will attract the viewers to watch and act to act
accordingly.
Advertising Media Selection

Although message development is discussed before media selection,,in
actual fact, both decisions are made together to ensure advertising is more
effective. Steps in media selection that have to be given attention are:
(i)
Deciding on Reach, Frequency and Impact

When media selection is done, the advertiser has to think about reach,
frequency and the medias impact to achieve the advertising
objectives. Reach means the percentage of viewers from the target
market that are exposed to that media.
For example, 80% of the viewers from the target market will be
exposed to the advertising campaign in the first six months. The
media tools chosen will have their own characteristics in reaching out
to them.
For example, the usage of national newspapers has a high rate of
coverage. Thus, the probability of reaching the target viewers is quite
high as compared to other media tools. Frequency refers to the
number of times within a specified period that an average person or
household is exposed to the message.
For example, a company wants the advertisement or message to reach
each individual or for them to be exposed at least thrice a month.
Media impact refers to the enhancement of qualitative values or the
effectiveness of a media channel used.
For example, the effects of using a television to show movements and
actual product have a larger impact on the audience as compared to
newspapers. Reach, frequency, and impact need thorough planning
because they involve outputs to be achieved through budget
allocation.
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Choosing among Major Media Types

Choosing between major media types depends on the reach,
frequency and impact level of each major media. Here, the advertiser
needs to look at the advantages and disadvantages of each major
media. For example, if the target market is wide, has general
characteristics and the company does not want high costs, the usage
of newspapers will be appropriate.
However, if the advertiser needs to reach a specific target market with
a certain frequency and within a time period, magazines are more
appropriate. Table 8.2 shows the advantages and disadvantages of
major types of media.
Table 8.2: Advantages and Disadvantages of Major Media Types
Media
Advantages
Disadvantages
Outdoor
Advertising
Flexibility
in
terms
of
geography, low cost, easy to
identify and is remembered last
before purchase is done.
Cannot select audience, short

appearance time, hard to
measure viewers size and
environmental problems.
Newspapers
Good market coverage, flexible,

able
to
give
detailed
explanation, high believability
and timeliness.
Does not reach the specific

target
group,
moderate
reproduction quality and short
lifespan.
Magazines
Specific target market, long

lifespan, high reproduction
quality,
complete
product
information
and
product
credibility.
High cost and takes a long time

for an issue to be published.
Radio
Reaches local target viewers,

able to cover a wide target
market and low cost.
Cluttered, no visual only audio,

low attention, difficult to
purchase radio advertising time.
Television
Able to demonstrate, good

market coverage, combination
of audio and visual is able to
attract high attention.
Cluttered, high cost, audience

selectivity not specific.
(iii)
Selecting Specific Media Channels

At this stage, the company or advertiser has to choose a specific media
channel from the general media chosen. For example, if a company
chooses the magazine as its advertising media channel, the company
has to choose a specific magazine channel for its target viewers.
Examples of specific magazine channels are Wanita, Ibu, Bola Sepak,
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Roda-roda, Anjung Seri, and other magazines. If the company chooses

television as its main media, it has to choose a specific segment like
Buletin Utama, comedy programmes, Majalah 3, sports programmes,
and others.
Selecting a specific media channel depends on many factors. Some
of the major factors are target viewers like sports enthusiasts,
entertainment enthusiasts or documentary enthusiasts. Product
characteristics influence media selection as well. For example, luxury
furniture is more appropriate to be displayed in coloured and high
quality magazines. Besides this, the advertiser or company has to think
about costs. For example, advertising costs for a popular and well-liked
programme such as Who Wants To Be A Millionaire are high.
(iv) Deciding on Media Timing
The final step in media selection is deciding on the appropriate media
timing to air the advertisement. Planning can be done through
detailed media scheduling based on the companys objectives. A
company can schedule the advertisement at the same frequency rate
all year long. For example, an advertisement can be aired once a week
or once a month in a year like advertisements for Coca-Cola.
The company can schedule advertisements intensively within a
specified period or reduce the frequency of the advertisements in a
specified period. For example, the advertisement for Yeos soya bean
milk drink is aired on television at a high frequency rate during the
fasting month (Ramadan) but is aired less frequently during the other
months. Both types of scheduling have their own advantages.
Scheduling that concentrates on a specified time period will produce
an instant reaction from the viewers because they need the product at
that time. Evenly spread scheduling has the ability to reinforce
memory and brand loyalty.
8.1.4
Advertising Effectiveness
Finally in the development of an advertising programme, a company needs to

evaluate the effectiveness of its advertising. A company can measure
effectiveness by reviewing the advertising objectives. A measurement can be
made by evaluating the communication and sales effects. The communication
effects can be measured with the users, before and after the advertisement is
aired. For example, measuring consumers memory about the message
communicated, consumers awareness level towards the brand advertised and
their knowledge on the product.
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The effects on sales can be measured by researching whether the advertisement

increased sales for the company. This can be done by comparing sales before and
after the advertising campaign. If there is an increase, it shows that the
advertisement was effective and is a major factor that influenced consumers to
purchase.
8.1.5
Advertising Management
Advertising management differs between companies. In small companies, the

advertising activity may be managed by the sales department. Sales personnel in
the sales department will carry out advertising activities as one of their job
functions besides selling. In larger companies, an advertising department will be
created. This department has its own workforce to carry out full-time advertising
activities and programmes.
However, there are many companies that use advertising agencies to carry out
their advertising activities. The advantage of using an advertising agency is that
the agency is highly skilled and knowledgeable in the advertising field. Besides
this, the company can save on costs because they do not have to hire permanent
employees to carry out the advertising programme. The advertising agent can
also help the company to plan, prepare, implement, and evaluate the advertising
programmes.
8.1.6
International Advertising Decisions
Companies that market products at the international level need to decide on

advertising in specific countries. International advertising decisions are complex
and complicated because the marketer has to think of many factors before
reaching a decision. The factors that need attention are advertising cost,
advertising media that is available in the countrys market, rules and policies
that govern the advertising industry as well as the language and consumers
knowledge about the product in that particular country.
Advertising failures often happen because less attention is paid to any one of
these factors. For example in Malaysia, advertising alcohol and cigarette products
on television is prohibited. In Norway and Sweden, children below the age of 12
cannot be used in television for advertisements.
Because advertising internationally is complex, the marketer has to study a
countrys market before launching their advertising programme. Companies can
practise global advertising strategies by adapting advertisements according to
each country.
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EXERCISE 8.1
Essay Questions
1.
Explain briefly the importance of advertising objectives to the

marketer.
2.
Explain briefly four message implementation styles that can be

used by the marketer in advertising.
8.2
SALES PROMOTION
ACTIVITY 8.3
What is the difference between advertising and sales promotion?
The usage of sales promotion tools as a promotion method is increasing

significantly. Among the factors that cause fast growth rate are desires to add
sales instantly. Sales promotion is perceived as the most effective promotional
tool for this purpose. The company will also have to face many competitors who
sell the same products. The usage of sales promotion helps differentiate the
competitors products from the companys.
Other factors that cause an increased usage in sales promotion are when users
want something that will bring instant benefits and a high increase in cost caused
by using advertising as a promotion method. Sales promotion contains shortterm incentives which encourages the purchasing or selling of a product or
service. For example, when you buy a big pack of Chipsmore cookies, you will be
given a smaller packet of Chipsmore cookies for free. This is an example of a
special short-term offer to encourage sales. These offers can attract the consumer,
making them respond and react because these offers are rare and beneficial.
8.2.1
Sales Promotion Objectives and Strategies
Sales promotion differs from advertising, public relations and personal selling.
However, all three promotional methods are often used together to form a firm
tie-in to achieve the marketing communication objectives. For example, if the
advertising objective is to provide awareness about the new product in the
market, sales promotion can be used by giving out free samples to the consumers
to try out the product.
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There are two categories of sales promotion trade promotion directed towards
members of the distribution channel and consumer promotion directed towards
the consumers. Trade promotion and consumer promotion has its own objectives
and strategies.
(a)
Trade Promotion Objectives

(i)
To introduce the new or modified product.
(ii)
To increase the distributed size or new packaging.
(iii) To add or maintain producers space at the store room or shop.

(iv) To reduce the excess inventory and increase sales.
(v)
(b)
To encourage retailers to purchase early and to support the producer.
Consumer Promotion Objectives

(i)
To attract consumers to try out new products.
(ii)
To attract consumers to purchase the companys products as

compared to the competitors products.
(iii) To reward loyal consumers.

(iv) To maintain long-term relationship with customers.
Generally, the objectives and strategies of sales promotion are:
To encourage demand for a product.
To improve and smoothen the marketing performance of the middle men and
the sales force.
To help in advertising and personal selling.
Sales promotions can result in long-term relationships with consumers because

they can discourage consumers from switching brands. Sales promotions, if done
too often, can cause consumers to delay purchasing until the next promotion
takes place. This will result in the failure of the promotional objective which is
supposedly to build long-term relationships, maintain existing customers and be
competitive.
8.2.2
Major Decisions in Sales Promotion
When a company uses sales promotion as its promotional method, the

companys management has to make certain major decisions in order for the
sales promotion to be more effective.
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The first step is objective setting. Sales promotion objectives can be in the form of
initial marketing objectives that have been decided during the product
development. Setting of objectives will help the company in planning more
effective sales promotion programmes to achieve the objectives.
The next step is selecting the major sales promotion tools that are appropriate to
achieve the companys objectives. Some of the major sales promotional tools
include coupons, samples, premiums and others.
After choosing the appropriate sales promotional tool, the next step is to develop
the sales promotion programme. There are a few factors that have to be taken into
account here. Some of the factors are decisions on the incentives size because the
incentives size can determine total sales that are needed. The next factor is
deciding on the conditions that have to be in place before a consumer purchases.
For example, the consumer has to purchase the product first before he is entitled
for any incentives from the company. The other factor that has to be considered is
the promotions timeframe. A sales promotion that goes on for too long will reduce
sales and become ineffective because consumers will perceive it as a norm.
Besides that, the marketer has to decide on the appropriate timing to carry out
promotions according to the companys yearly schedule or certain seasons like
festive seasons, school holidays and others.
Finally, the marketer has to decide on the overall budget for the sales promotion.
The total budget will help the promotional activities to be carried out smoothly,
achieving the objectives.
After the promotion programme is designed, the company has to test the
programme. An examples of testing that can be carried out is to determine
whether the promotional tool selected is appropriate with the incentives size.
After testing is done, the company can plan implementation and control of the
sales promotion programme. Implementation planning has to take into account
the effects of promotion before and during the promotional programmes launch.
Finally, the company has to evaluate decisions after the promotional programme
has been implemented. Decisions can be evaluated through two major methods
sales records and consumer surveys. Through sales records, a company can view
the promotions impact before and after the programme is implemented. If sales
increases, does the increase in sales achieve the objectives which is required
through consumer surveys, and can the company collect various types of
information from the customers to evaluate the effectiveness of the sales
promotion programme? Some of the information that can be collected include
consumer tendency to purchase the product when an incentive is given.
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8.2.3

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133
Deciding on Major Sales Promotion Tools
There are various sales promotion tools that can be used by the marketer. The
usage of these sales promotion tools are in accordance with the companys
objectives and strategy. A sales promotional tools advantages and disadvantages
have to be analysed to avoid the failure of a promotion. Some of the major sales
promotion tools that are normally used are:
(a)
Coupons
A coupon is a promotional tool that saves money for the consumers. It is a
form of promotional tool that is frequently used by the producer. Normally,
coupons are given in the form of certificates where the consumers will
obtain savings when they purchase a specific product stated on the
certificate. Coupons are normally distributed through newspapers,
magazines, direct mail or from the inside or the outside of a package.
Coupons can give instant rewards to the consumers and encourage trial
purchases and repeat purchases by loyal customers.
(b) Samples
Sales promotion tools that use samples are among the most popular tools
that are used to deliver products to potential consumers. Normally,
samples are products that are packaged in smaller packs for consumers to
try. They are normally distributed through individuals inside or outside
stores and supermarkets. Samples are the most effective method to
introduce new products in the market. However, the cost to use them is
quite high because samples are normally given free to prospective
customers who will most probably miss out if the sample is sent through
mail.
(c)
Premiums
Sales promotion tools that are known as premiums are products that are
offered free or at low cost as an incentive to the consumers to purchase
those products. Premiums can be included inside or be kept outside the
package or mailed. Example of premium is the offer of a free sports bag to
customers for buying racquets manufactured by Jaguh Sports Company.
(d)
Cash Refund Offers

Cash refund offers or rebates is a practice that gives cash refunds or cash
discounts to customers who show purchase evidence. Normally, this offer
is given after the customer purchases the product. For example, Astro gives
rebates or cash refund offers as much as RM300 when the customer
subscribes to a programme or purchases its satellites.
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(e)
Price Packs
This promotional method offers price discounts to consumers through signs
that are pasted on the labels or on the products packaging. Price discounts
are normally in the form of savings like when two products are packaged
together and sold at a discounted price. For example, two pens that would
normally cost RM2 each, is packaged together and sold at RM1 each.
Products offered need not necessarily be the same but may include two
different products like a pen offered together with its refill.
(f)
Advantage Specialties
Advantage specialties are sales promotional tools in the form of calendars,
pens, hats, T-shirts, umbrellas and others that are given as souvenirs to
customers. The companys name or logo is normally printed on these
souvenirs. Through these souvenirs, the company gets to introduce its
name and image besides maintaining long-term relationships with
customers. The advantage of this promotional method is that the customer
remembers the company by its name or logo that appears on the souvenir.
(g)
Trade Promotions
Besides sales promotional tools that are specific to consumers, there are
other sales promotional tools that are specific to trade. Trade promotional
tools are normally used by producers to attract more retailers to support the
producers products. For example, discounts of the original price are given
to retailers. If the retailer buys in bulks, a larger discount will be given.
There are more specific promotional tools for trade. Generally all these tools are
to attract the seller to react towards a product. Generally, besides specific sales
promotional tools that can be used for trade sales promotions, there are other
sales promotion tools that are specific to trade like conventions, trade exhibitions
and business allowances.
8.3
PUBLIC RELATIONS
One of the promotional tools which is not frequently used by organisations is

public relations. Besides customers and suppliers, the company has to pay
attention to the public who is interested in the companys activities. A public is
any group that has an actual or potential interest or impact on a companys
ability to achieve its objectives.
Public relations involve a variety of programmes designed to promote or protect
a companys image or its individual products (Kotler & Armstrong, 2001).
Programmes that involve product or company promotions are known as
proactive public relations. This is because the programmes are carried out
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135
according to the marketing objectives that have been decided by the firm.
Programmes that are carried out always seek opportunities to introduce the
company and its products to the public. For example, when a company wishes to
introduce a new product or modify an existing product, the company can create
publicity to spread information about its products to the general public using the
existing mass media. Besides promoting a company and its products, public
relations also handles programmes that are able to safeguard images of the
product and company.
Reactive public relations are activities carried out to safeguard the companys
image. For example, if there is a defect on a product, the company has to act fast
and react positively to overcome that situation. All the efforts that are
undertaken by public relations are for the purpose of building and maintaining
good relationships between the company and the public.
8.3.1
Public Relations Marketing
Proactive public relations often supports the companys promotion efforts and
tries to portray a positive or good image to the parties that have interests in the
company or its stakeholders. The major roles that are carried out by public
relations are:
(a)
To aid in launching new products.
(b)
To aid in repositioning of matured products.
(c)
To influence specific target groups. For example, when they sponsor events
in specific areas.
(d)
To protect products that are problematic among the public. For example,
take products that cause negative incidents to the public.
(e)
To build a corporate image that will foster a good relationship between the
company and the companys product among the public.
8.3.2
Functions of the Public Relations Department
Normally, a large company will have a public relations department which is

responsible for carrying out the public relations programme. Companies without
their own public relations department will carry out public relations programmes
through their marketing department. Some of the tasks and programmes that are
carried out by the public relations department specifically are:
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PUBLIC RELATIONS
(a)
To create publicity for the companys product like the launching of new
products or sponsoring a television show.
(b)
To handle issues related to the public.
(c)
To handle media relations like preparing information or news about the

organisation or product for the media to attract attention and create a
positive image among the public.
(d)
To lobby in the effort to build and maintain long-term relationships that are
good with the government.
(e)
To create a positive corporate image through internal and external

communication in corporate communications.
(f)
To build relationships with investors.
(g)
To provide counselling services to the management like advising them on

current and public issues.
8.3.3
Making Major Decisions in Public Relations
There are four major steps in decision making when the management wants to
use public relations as one of its promotional methods for marketing
communication. These steps are creating marketing objectives, message and
channel selection, programme implementation and decision evaluation.
(a)
Creating Marketing Objectives

Before message and channel selection are done, the first step that has to be
taken by a company in managing public relations is the setting of its
marketing objectives. The marketing objectives involve:
(i)
Building Awareness
Public relations can build awareness by placing a story in the media to
attract attention towards the product, services, organisation or ideas.
(ii)
Building Credibility
Credibility can be created by the marketer through messages that are
communicated in the form of short stories or editorials.
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137
(iii) Providing Motivation to the Sales Force and Sales Representatives

Besides building awareness and credibility, public relations can be
used to stimulate the sales force and the sales representatives in an
effort to increase sales. News or stories about a new product before its
launch can help sales personnel in selling the product to the retailers.
The other objectives include cost reduction as public relations
costs are lower as compared to the other promotional methods like
advertising, sales promotion and personal selling.
(b)
Message Selection
After the objective has been decided, the company has to identify an
attractive message to be passed on to the prospective customers. The storys
content has to have high credibility and be in a news form to maintain its
good name and build up the companys image. Besides this, the company
has to create special events to catch the publics eye. Some of the events that
can be carried out include collection through trust funds for the purpose of
drawing the community towards the companys caring nature in current
issues.
The company can also introduce new products in a product launching
ceremony usually officially opened by a dignitary. For example, Perodua
launched a new car model Kelisa which was officially unveiled by the
Deputy Prime Minister of Malaysia. Besides this, the company can release
news which is communicated through bulletins and magazines in business
columns from the Chief Executive Officer regarding the product, opinions
and remarks on current business issues.
(c)
Programme Implementation
After the message has been selected and the delivery method has been
identified, the next step is the implementation of the public relations
programme. At times, media selection for public relations can be difficult
due to high demand. For example, assume that your company wishes to
inform the prospective purchasers about the advantages of your product in
WANITA magazine but the space in that magazine is limited. What has
to be done by the companys public relations officer? To obtain space in
the WANITA magazine, the public relations officer has to have a close
relationship with the editors. The editors have to be perceived as the
companys customers who have to be satisfied in order to obtain good
cooperation from them in implementing the public relation programme.
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(d)
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Decision Evaluation
Finally, the company has to measure whether the public relations
programme that is carried out has achieved the objectives. The
measurement has to take into account the level of exposure, awareness,
behavioural changes and contribution towards sales, and profits.
EXERCISE 8.2
Essay Question
1.
Explain four main differences between sales promotion objectives

and trade promotion objectives.
2.
Explain the meaning of public relations.
3.
List four functions of the public relations department.
4.
Explain three forms of advertising objectives that can be used by

the marketers.
5.
List and explain briefly four steps in selecting the advertising

media.
6.
List the advantages and the disadvantages of the main media in

advertising.
7.
Discuss the differences between coupons and samples in the

context of the companys objectives and strategies.
8.
Explain briefly four main steps in public relations that can be used
by management in making decisions.
Promotion is an important marketing mix element.
After the product is introduced, price is set and the distribution channel is
decided.
The company has to inform users about its products. This can be done
through promotional programmes such as advertising, sales promotion, and
public relations.
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139
Advertising informs, persuades and reminds customers about the companys

products.
Advertising management involves making decisions on advertising

objectives, budgeting, media and the message, and evaluation towards the
effectiveness of the advertising programme.
Sales promotion is carried out to increase sales immediately.
Sales promotion management involves determining decisions about

strategies and objectives, promotional tools, promotional programmes,
promotional time, budgeting, and evaluation programmes.
A sales promotion which occurs too often and is too long will reduce sales
because consumers will perceive it as ineffective.
Public relations is a promotional tool which is rarely used by the marketer

although it has a huge potential to build consumers awareness and interest
towards the companys product.
Public relations can also be used to build the companys credibility and
image. Public relations management covers activities that are similar to
advertising management.
Advertising message creation
Informative advertising
Advertising message selection
Objective and task method
Affordable advertising
Percentage-of-sales method
Competitive-parity method
Persuasive advertising
Topic
Managing
the Sales
Force and
Direct Selling
LEARNING OUTCOMES
1.
Explain the meaning and roles of personal selling;
2.
Explain how to design and manage a sales force;
3.
Illustrate the steps in the personal selling process; and
4.
Apply the latest direct marketing methods and list the advantages
and disadvantages of using them.
INTRODUCTION
This topic will discuss another marketing communication element which is

equally important, and it is, personal selling. Besides personal selling, the
methods used by a company to manage sales have to be known. Personal selling
is a sales promotional method which has been practiced for a long time. A sales
representative is an occupation which is popular till today. Sales personnel are
also known as sales representatives, marketing representatives, sales consultants,
and others. A sales personnels task requires interaction and communication
directly with customers. It is not an easy job. It needs sufficient preparation from
the aspects of knowledge and appearance to communicate with customers well.
This topic will look at the sales personnels processes and roles as well as the
planning of the sales force management.
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9.1
MANAGING THE SALES FORCE AND DIRECT SELLING W 141
ROLES OF PERSONAL SELLING
Personal selling plays an important role in the company because it helps other
promotional activities as well. The use of advertisements as a promotional
method has its disadvantages because it follows a one way communication path.
The explanation which is given through advertisements may not be sufficient or
may be hard for the audience to understand. Essentially, personal selling
explains a complex product which is difficult to understand and has to be
demonstrated by trained sales personnel. Personal selling is mostly used in
business and industrial markets. Products for these markets are more
complicated and expensive, requiring sales personnel to explain them in detail to
customers. The sales personnel becomes the companys representatives when
they meet customers.
The duties of the sales personnel are not limited to selling alone but cover a
wider aspect. Sales personnel have to look for prospective customers, conduct
demonstration for the companys products, answer questions, handle objections,
and deal with pricing and the closing of sales.
Sales personnel also act as the customers representative in the company. If there
is any feedback or dissatisfaction among customers, the sales personnel has to
pass the message back to the company. They act as the middlemen between the
company and their customers.
The purpose of personal selling is to educate potential customers, explain the
products usage and help in marketing. Personal selling also completes aftersales service and encourages repeat purchases.
The advantages of personal selling are:
(a)
Listening can be done more attentively because the marketing method used
is face to face sales from the sales personnel to the prospect.
(b)
The message that is to be communicated can be modified according to the

customers characteristics.
(c)
It follows a two-way communication path between the marketer and the

customer and instant feedback can be obtained.
(d)
It is easy to explain information and answer questions posed by the

consumers and customers.
(e)
Enables the demonstration of the product in front of customers.
(f)
Enables the building of long-term relationship with customers.
142 X TOPIC 9 MANAGING THE SALES FORCE AND DIRECT SELLING
EXERCISE 9.1
Essay Question
Explain briefly the roles of personal selling in a company.
9.2
MANAGING THE SALES FORCE

ACTIVITY 9.1
Why does a company set objectives for its sales force?
The sales and marketing department is one that needs to be managed efficiently
because this department produces business for the company. Sales force
management involves the efforts of analysing, planning, implementing and
controlling the activities of the sales force. The main steps in sales force
management are designing strategy, structure, recruitment and selection,
training, supervision and sales personnel evaluation.
9.2.1
Sales Force Objectives and Strategies
The sales force is the companys representatives when meeting customers. Thus,
as the companys representatives, the sales force has to achieve the objectives that
have been determined by the company. The company has to set objectives for its
sales force to enable them to focus on achieving them. For example, the
companys objective is for its sales force to dedicate 50 percent of their time
towards sales and another 50 percent towards building relationships with
customers in order for the customers to stay with the company. The following are
the activities that are normally carried out by the sales force:
(a)
Sales Functions
This includes planning for sales presentations and increasing sales.
(b)
Receiving Orders
Most of the time this involves writing orders down, solving order-related
problems and controlling orders.
(c)
Services
Providing after-sales services and technical services for technical products.
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(d)
Information to the Management

Receiving feedback from customers and passing the information back to the
management.
The time duration for these activities depends on the objectives that have been
set by the company.
Besides sales activities, the type of sales jobs can also influence the objectives and
strategies of the sales force. Types of sales jobs which are carried out by the sales
force are:
(a)
Trade Sales
This sales activity promotes products for business sales and not for end
users.
(b)
Technical Sales
This includes industrial sales activities like engineering, computer science,
and others. Technical sales personnel have to know the products that are
produced by the company well.
(c)
Retailing Sales
This is a selling activity where the consumer or the customer visits the sales
personnels premises and not vice versa. Most of the retailers and sales
personnel know about the products and they should have interpersonal
skills.
(d)
Telemarketing
Through telemarketing, the sales personnel does not have to meet with the
customer. Communication is done through the telephone for activities like
opening new accounts, receiving orders, and others.
(e)
New Business Sales

This is a sales activity that involves the opening of new accounts
continuously and getting new customers often.
9.2.2
Designing Sales Force Strategy and Structure
An organisation has to arrange its sales force structure according to the strategies
that have been decided. A good arrangement of the sales force structure will help
the company maximise the usage of their sales force to generate profits. The sales
force structure depends on many factors.
Product characteristics are one of the main factors. If a company has various
product characteristics, its sales force can be structured according to that product
category. Also, if the product sold is single or only a few but is sold in many
locations, the sales force structure can be arranged according to territory or
certain areas. However, the sales force structure need not necessarily follow the
stated categories. If an organisation sells various products to their customers, the
company may need both structures.
(a)
Territorial Sales Force Structure

This structure divides each sales personnel or a few sales personnel to a
geographical sales territory exclusive for them to sell and build
relationships. The advantage of this structure is that the sales personnel
gets to focus his energy on a territory and communicate only with the
customers from that particular territory. Thus, sales quality, productivity
and communication can be maximised because the sales force gets to focus
on the customers in that particular location.
For example, Q&P Company which exports goods overseas has divided its
sales staff according to territories: South East Asia, Middle East, Europe and
North and South America. Here, the sales staff is assigned to particular
territories where they can focus on communicating with and generating
sales from the customers in those territories.
(b)
Product Sales Force Structure

Companies that have various products can use this structure in arranging
their sales personnel. Every sales personnel who is assigned to sell a
product has to be knowledgeable about the product itself. For example,
Harum Semerbak Company sells perfume, scented powder, shampoo, and
others. Sales personnel who sell products like powder have to be
knowledgeable about the product, customers and the territory where they
are going to sell the products.
The advantage of the product sales force structure is that the sales
personnel is able to focus its skills on the product and it is able to sell it to
customers regardless of territory, customer size and other factors. However,
the disadvantage of this structure is when the same company buys various
products from the seller. Two or more sales personnel will frequent the
same territory and they will meet the same customers. Besides incurring
high expenses, this will also cause confusion in the consumers product
purchases.
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(c)
Customer Sales Force Structure

The sales force structure can be arranged according to customers or
industries such as:
(i)
New and existing customers;
(ii)
Major and normal accounts; and
(iii) Different industries.

A customer-based sales force structure enables the sales personnel to
concentrate on customers whom they are responsible for. Thus, the
company gets to build long-term relationships with customers because the
sales personnel gets to focus its attention on them. However, this structure
involves high operation costs because not many customers can be visited if
they live in a few locations away from one and another.
(d)
Complex Sales Force Structure

This structure is a combination of the territorial, product and customer sales
force structure. This structure is suitable for the company that has many
products, various customers and covers a wide area. The sales personnel
can concentrate its sales efforts according to territories and customers,
products and territories or others appropriately.
9.2.3
Recruiting and Selecting the Sales Force
Recruitment and selection of sales personnel is important in managing the sales

force of a company because a good recruitment and selection process will
provide long-term profits to the company. Furthermore, recruiting a capable and
a quality sales force will improve the companys image and sales. The cost of
firing an existing staff is high because the company has to retrain a new one.
Recruiting experienced staff involves high costs because high compensation have
to be given. Thus, a careful selection has to be done in order for the staff to
remain and be loyal to an organisation for a long period.
(a)
Recruitment Procedures
Before the staff is recruited, the company has to determine the
characteristics and the quality a sales personnel should have. After that, the
human resource department can carry out recruitment activities through a
few methods like obtaining names from existing sales personnel, using
recruitment agencies, advertising in the newspapers, radio or television,
and contacting insitutions of higher learning.
(b)
Selection Procedures
After activities to obtain applications are carried out, the company has to go
through the selection process. Normally, companies will carry out
interviews as the procedure to select employees. Interviews can be
conducted once or twice to select employees carefully.Also, the company
can use tests to measure a persons attitude towards sales, their analysing
and management skills, personality characteristics, and others. This test will
help the company in choosing capable employees to work for the company.
9.2.4
Training Sales Force

ACTIVITY 9.2
Why is training for sales personnel considered important to the

company? Does the sales personnel need official training?
After obtaining the sales personnel, the company has to engage in training them.
Some companies do not consider providing training for staff. The company
assumes that the selected sales personnel has the ability to carry out the job as the
cost of providing training is very high. Thus, there is no formal training provided.
However, formal training has to be given to the sales personnel because they may
lack knowledge in the product, procedures, and customers.
Through a comprehensive training programme, the sales personnel will be more
exposed to information regarding the market, competitors, prospective
purchasers, and on how sales presentations should be done. Training on time
management, reports, and methods of communicating with the management has
to be given to ensure that the sales personnel become more skilled at handling
their jobs. Providing good training will leave a positive impact on the company
from the aspects of obtaining new customers, maintaining the existing ones, and
maximising profits.
9.2.5
Sales Force Compensation
Compensation for the sales personnel has to be attractive and has to follow the
current trends to help retain the current sales personnel and attract new sales
personnel. Compensation is normally given based on skills and the experience of
the sales personnel. Compensation can be given in the form of fixed salaries or
based on commissions and bonuses. Commission is normally given based on
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sales. The higher the total sales, the higher the total commission obtained.
Bonuses can also be given based on achievements. For example, if a sales
personnel exceeds the yearly target fixed, a bonus will be given to him.
Also, staff can obtain other benefits like medical services, loans, and others. A
good compensation will motivate the sales personnel to stay loyal to the
company and to excel.
9.2.6
Supervising Sales Force
The supervision of sales personnel by the employers will help them to be more
productive and committed. Sales personnel supervision can also guide and
motivate them.
On of the methods in which employers can help sales personnel is by identifying
the target customers. Identifying target customers will make it easier for the sales
personnel as they can concentrate their efforts on these target customers.
A company can also help its sales personnel use time more effectively. For
example, the company can allocate two days in a week for the sales personnel to
look for prospective customers. The method or tool that can be used by a
company to help its sales staff use time more effectively is by coming up with a
yearly schedule, analysing time and tasks, and by using automated sales like the
through the Internet or a computer system. A good computer system can help
sales personnel analyse customer profiles more efficiently, for example, doing
research on customers who place the most amount of orders or make payments
fast. This profile can be used by the sales personnel to provide efficient services.
9.2.7
Motivating Sales Force
Besides compensation, the company can motivate its sales personnel by

preparing a good organisational environment. For example, promotion
opportunities and rewards will be given to employees who reach their sales
targets. The company can also decide on the sales quantity that has to be sold by
each sales personnel in a month or a year. Targets set can motivate sales
personnel to work towards achieving them.
Also, the management has to schedule sessions or meetings with sales teams. In
these sessions, problems and opinions can be voiced out to the management in
order for the sales process to improve. The management can also give positive
sales incentives like sales competitions, honours and gifts like vacations, cash,
and other goods. The company can also evaluate the sales personnels performance
through talents like interests and personality characteristics. Sales personnel can
also be evaluated through skill levels like communication skills and the ability to
close sales. The sales personnels motivation levels can also be evaluated by
looking at their confidence levels in carrying out work and in sales activity.
9.2.8
Evaluating Sales Force
After training, compensation and supervision are given by management to

evaluate the performance of the sales personnel. Sales reports are scrutinised and
used as an information source by the management to evaluate the work
performance of the sales personnel. A sales reports shows the sales performance
that has been achieved by a sales staff in a determined period.
The company can also scrutinise the budget report to evaluate whether the
expenditure incurred brought in good returns. The company can analyse the
working plan of its sales personnel like their daily activities. Also, visit reports
reveal the number of visits done by the sales personnel to existing and
prospective customers. All these information sources are examples of tools that
can be used by the companys management to evaluate the ability of the sales
personnel in their work based on the planning that has been done.
9.3
THE PROCESS OF PERSONAL SELLING
After knowing about sales personnel management, we have to know the steps
that are involved in carrying out the sales activity. Stages in the personal selling
process are normally experienced by the sales personnel when carrying out the
selling process. Main steps in the personal selling process are:
x
Identifying prospective customer;
Pre-approach;
Approach;
Presentation and demonstration;
Identifying objections and questions and answers;
Closing; and
Follow up.
(a)
Identifying Prospective Customers

The first step in the personal selling process is identifying prospective
customers. At this stage the sales person has to identify qualified purchasers
in order for the potential personal sales process to succeed. By focusing on
prospective potential customers, the sales person gets to save time and
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expenses. This is because not all potential purchasers have the potential or
are qualified to become the companys customers. There are some purchasers
who dont fulfil the criteria to become qualified purchasers because of poor
buying records. There are some purchasers who have fixed and existing
suppliers and they do not want to look for new ones. Through proper
identification, sales staff get to avoid wasting time, energy, and money.
(b)
Pre-approach
The second step in the personal selling process is learning about the
prospective customers characteristics and buyer behaviour. If the
companys customers are industrial customers, the sales person has to get
to know about the organisation, like their needs and who is involved in the
purchasing process. Getting to know as much as possible about the
prospective customer helps sales personnel to plan strategies to get even
closer to the customer. A salesperson can obtain information about future
customers through an acquaintance in the organisation or through reading
secondary data like magazines, newspapers, and others.
(c)
Approach
The next step is getting closer to the customer. At this stage, the sales
personnel have to know how to greet customers and begin a conversation.
This stage is the most important stage because behaviour, mannerisms and
appearances of sales personnel are important aspects that will be evaluated
by the future customer and will determine the next round of communication.
(d)
Presentation and Demonstration

In this stage, the sales person will do presentations and product
demonstrations. Explanations about the product and the companys sales
personnel will be presented in detail. If necessary, demonstration regarding
the product usage that fulfils the customers requirements will be done to
simplify the selling process for the sales personnel.
(e)
Identifying Objections and Questions and Answers

In the selling process, the sales person has to be prepared for potential
objections. Objections are made probably because potential purchasers wish
to get more information about the product or because they are not satisfied
with the explanation that was provided. Customers will normally make
comparisons between one companys products and that of another. In this
stage, the sales staff has to use their skills to handle objections and question
and answers posed by potential purchasers. Sales staffs have to use positive
methods like logical and psychological aspects to clear the customers
doubts regarding quality, price of services and product warrantees. Sales
staff have to be given exposure and training at this stage because they will
face experienced purchasers who want the best.
(f)
Closing
After passing the objection and the question and answer levels, a
salesperson will require skills to close the sales. Techniques that can be used
are by identifying signs that the purchaser is ready to purchase. Purchasers
will show positive reactions when they agree to the product. At this time,
the salesperson has to be clever in convincing the purchaser by acting
immediately and by offering attractive prices, providing after-sales services
or offering to take down orders and ensuring that terms will be discussed
later. This technique can close sales immediately and include those
customers who were purchasing from the competitor before.
(g)
Follow Up
Finally, a salesperson who has obtained sales for the company has to do a
follow up to get to know whether the customer is happy with the purchase
made. Follow ups are important in order for the customer to stay loyal and
to repurchase. The sales personnel also gets to build long-term relationship
with the purchasers. Thus, a detailed schedule has to be planned by visiting
and making calls to these customers.
9.4
RELATIONSHIP MARKETING
Personal selling was traditionally done for short-term business dealings only.
The main objective was to obtain customers and to close sales. However,
personal selling based on this dealing has its disadvantages. Among the
disadvantages are that it only emphasises sales at that time without the presence
of the long-term relationship aspect. After sales, there is no form of
communication and the sales staff will have to look for new customers for the
next sales. Looking for new customers will involve high costs because sales staff
have to contact the potential customers all over again. Based on this
disadvantage, companies have started to emphasise relationship marketing.
Relationship marketing emphasises long-term relationships with the customers
by creating values and high satisfaction in the customers. The main objective of
relationship marketing is to maintain existing customers. Through continuous
relationship with customers, the company gets to save the cost of obtaining new
customers. Thus, the sales staff has to emphasise long-term and close
relationships with customers. Customers will feel appreciated and this will be
profitable to the company in the long run.
TOPIC 9
9.5
BENEFITS OF DIRECT MARKETING
Direct marketing is an interactive marketing system which uses one or more

advertising media to obtain reactions that can be measured or to enable
transactions to be done anywhere.
Reactions that can be measured are normally referred to as orders that are placed
by consumers. Thus, direct marketing is also known as direct-order marketing.
9.5.1
The Advantages of Direct Marketing
The advantages of direct marketing are:

(a)
Able to save time;
(b)
Introduces consumers to a larger selection of merchandise;
(c)
Marketer is able to shape direct marketing relationship with customers;
(d)
Ability and permission to conduct market testing through alternative media

via an cost efficient method;
(e)
Marketer can measure reactions towards any campaign which is carried out
and can determine campaigns that are profitable;
(f)
Consumers can place orders for themselves or for others; and
(g)
Firms do not have to deal with the companys sales personnel in order to
obtain any necessity or suppliers.
9.6
CONSUMER DATABASE AND MARKETING

DATABASE
One of the direct marketing instruments that is most valuable is the customer
database. The customer database refers to a complete and organised data system
on customers or potential customers of a company. The information in the
consumer database is up to date, easy to obtain or reach, and can be used for the
purpose of marketing, either as a guide or from the aspect of generation,
qualification and suitability, product sales or communication between consumers.
The marketing database refers to the development process, maintaining and
using the database as well as other databases (including products, suppliers, and
sellers) for communicating and business purposes.
Consumer databases not only contain the consumers information (such as name,
address or telephone number) but it also contains other information regarding
products that are bought, units purchased before, prices, practical buying
practices, demographic information, and others.
Effective database management is a valuable asset because through this, one is
able to compete with other competitors.
Companies use databases to:
(a)
Identify potential customers for the company;
(b)
Determine which customers have the rights to accept certain offers from the
company;
(c)
Enhance customer loyalty; and
(d)
Attract consumer to purchase. This is because a database is capable of

helping a company from the angle of preparing the companys best services
for the consumers like the delivery of appreciation cards, reminders,
promotions, and others, especially to the companys own customers.
9.7
MAJOR CHANNELS OF DIRECT

MARKETING
Some of the major direct marketing channels that can be used by direct marketers
are as follows:
(a)
Face to face Selling

Face to face selling refers to the personal selling source that is professional
and represents the company by placing and moulding potential customers
and directing them towards the business.
(b)
Direct Mail
Direct mail involves delivery of an offer, announcement, reminder or other
items to the companys customers. Before this, direct mail was generally
done on paper and was delivered through the help of the government post
offices or profit-oriented private companies such as Nationwide Express,
Federal Express, DHL and UPS. However, nowadays, through the
advancement of technology, three forms of new direct mail have been
created: the fax machine, e-mail and delivery through voice mail in
telephones.
TOPIC 9
Direct mail is the most popular direct marketing mediator because it allows
media selection by the target market, is more flexible and allows trials and
reactions to be measured.
(c)
Catalogue Marketing
Catalogue marketing refers to marketing outputs through catalogues. There
are a few types of catalogues. Some of them are:
(i)
Full-Line Merchandise Catalogues;
(ii)
Specialty Consumer Catalogues; and
(iii) Business Catalogues.

All these catalogues are printed, in the form of CDs, videos or are on-line.
(d)
Telemarketing
Telemarketing refers to the use of telephone operators to attract new
consumers, current consumers or to take purchase orders. Effective
telemarketing depends on the right and accurate selection of the
telemarketer at the beginning stage, providing training to them and
providing performance incentives for the purpose of motivating them.
(e)
Other Media for Direct Response Marketing

This involves the use of all major media types by the marketer in offering
products directly to the potential customer. Major media include
newspapers and magazines and they are used by the marketers in
advertising their products. Through the direct marketing concept,
consumers who are interested in the products that are advertised can
telephone the marketer directly on a toll-free line. This form of advertising
can be done through the television using three main methods:
(i)
Direct Response Advertising

The latest example of direct response advertising is the toll-free line
which appears on the television screen for the purpose of placing
orders and also obtaining more information regarding the products
advertised.
(ii)
At-home Shopping Channel

At-home shopping channel is a specific shopping channel reserved for
the sales of goods.
(iii) Videotext and Interactive Television

Through videotext and interactive television, television is connected
to the sellers catalogues through cable lines or telephones. Consumers
are able to place orders through certain equipment which is connected
to modified systems. Research done recently shows that most

companies are trying to combine television, telephone and computers
towards creating an interactive television.
(f)
Kiosk Marketing
Kiosk marketing refers to the customer-order-placing machines better
known as kiosks. Kiosks are normally placed in warehouses, airports or at
other suitable locations. For example, The Florsheim Shoe Company uses
the kiosk method where it is easier for consumers who wish to place orders
for the shoes that they like. Various types of shoes will appear on the
screen. If the shoes that the customer is interested in are not in that
particular warehouse, the purchaser can contact Florsheim by leaving his
address or telephone number in order for the shoes to be delivered.
The selection of various effective and successful direct marketing channels
requires each direct marketer to determine the objectives of using that
particular channel, the target market and accurate potential customers,
important element strategies (that involve output, offer, middleman,
creative strategies and distribution methods), campaign tests, and
development measurements in deciding the success of a campaign.
9.8
ONLINE MARKETING
The electronic channel is the latest direct marketing method. The word ecommerce means the usage of multiple electronic platforms like message
delivery to the supplier through EDI (Electronic Data Interchange), usage of fax
machines and e-mails in carrying out various business dealings, the usage of
ATMs and smart cards to ease payments, and the usage of the Internet or other
telemarketing services.
These electronic channels are network systems that involve two phenomena,
namely, digitalisation and connectivity. It is known as the intranet which
involves communication networks between departments or between employees
in a firm. Extranets involve communication networks between firms and their
suppliers or the firms customers. Internet refers to the connection of the
consumers network channels to the wide and amazing information corridor.
The e-commerce channel consists of two forms and they are:
(a)
Commercial Channels
Commercial channels are on-line information or marketing services that are
created by most firms today for the purpose of making it easier for the
consumers to obtain specific information regarding the firm. Besides this, it
TOPIC 9
is used for the purpose of making monthly payments easier, especially for
payment in the form of fees. These channels normally provide information
in the form of news, references, sports and learning, entertainment, buying
services, opportunities to interact through bulletin boards, forums or chat
sites and e-mails.
(b)
Internet
Internet is a global computer web network which can shape global
communication, fast and instantly. Through the Internet, users can send
e-mails, exchange and share opinions, purchase outputs, obtain and receive
news or obtain business information quickly and effectively.
9.8.1
Advantages and Disadvantages of Online

Marketing
The main objective of online marketing is to look, get near, deliver and sell. The
advantages of using online marketing are:
(a)
Big, medium and small-sized firms are capable of using this method of
marketing;
(b)
Unlimited space for advertising;
(c)
Able to look for and deliver information at a fast rate;
(d)
The web sites can be visited by anyone who is interested; and
(e)
The buying concept is fast and is private.
From the angle of a potential purchaser, online service usage is convenient,

resourceful and reduces noise like persuasion and emotions that occur when the
sales personnel meets the customers face to face. This is because they do not have
to meet the sales personnel.
From the marketers angle, the benefits are listed below:
(a)
Able to do adjustments fast especially when it comes to increasing the

outputs of the company, price changes, and output description;
(b)
Reduce cost like insurance cost, rental or usage cost. The marketer is able to
produce digital catalogues which is able to reduce delivery and printing
cost;
(c)
Able to have business relationships with customers or the other consumers;

and
(d)
Online marketing is able to share information with a large number of

consumers.
The online marketing concept is not appropriate for all the companies or outputs.
The Internet is unsuitable to be used as an advertising media if an output needs
to be touched and checked immediately. However, there are large firms that use
this sales concept although they are aware that the output offered has to be
evaluated closely by the consumer. For example, computer companies and
florists practice online order concepts.
Although there are many benefits of using online marketing (the latest direct
marketing method), the marketer has to avoid campaigns that would create
elements of noise, unfairness, fraud and trespassing.
ACTIVITY 9.3
In your opinion, how far does online marketing influence the community
especially the younger generation?
9.8.2
Managing Online Marketing
Online marketing can be handled through four methods and they are:
x
Creating websites using the Internet;
Online advertising;
Joining forums, news groups and community-based websites; and
E-mails and web releases.
(a)
Creating Websites Using the Internet

The marketer can place orders online through websites on the Internet.
There are two forms of websites on the Internet and they are:
(i)
Corporate Websites
Corporate websites are formed by firms that wish to communicate
basic information regarding the firm. The information that is normally
found in websites is usually about the companys history, its mission
and philosophy, the firms outputs and also its location.
(ii)
Marketing Websites
Marketing websites are formed to provide exposure and insights to
the consumers from the aspect of purchasing or other marketing
outputs. This includes catalogues, shopping guides, promotions,
competitions and others.
TOPIC 9
(b)
Online Advertising
Online advertising can be done through three methods, and they are:
(i)
Placing selected advertisements through certain sections that are

offered by the main online service provider;
(ii)
Placing advertisements in news groups on the Internet for commercial

reasons; and
(iii) Paying for online advertisements that appear when consumers or

customers survey services online or on the web.
(c)
Joining Forums, News Groups, and Community-based Websites

Through this method, the firm can join or sponsor Internet forums, Internet
news groups and Internet bulletin boards which focus on certain consumer
groups.
Internet forums are online discussion groups which are placed
commercially for the purpose of exchanging messages spontaneously. The
forum can operate in the form of a library, chat space or advertisement
directories.
News group is a version of internet forum. What differs here is that the
group is limited to those who send and read messages for certain topics
only. Internet users can join the news groups without having to subscribe.
There are various news group topics like healthy eating, methods of caring
for a bonsai tree, exchange of opinions regarding operas, stories, and
others.
The bulletin board system, on the other hand, refers to certain online
services that focus on particular topics or groups.
(d)
E-Mails and Web Releases

Firms can encourage potential customers and the companys customers to
send in questions, suggestions or comments to the company through the
usage of e-mails. By using e-mails, the customer service department is able
to react fast and instantly to customers. Firms are also able to form Internetbased electronic mailing lists. By using e-mails, the marketer can send the
companys latest news to the customers or the can send promotion offers on
the company special products, reminders, warranty renewals and the
companys announcements.
Firms can also enter into agreements with any web casting service provider
such as Pointcast or Ifusion, that will automatically send information that is
needed by the consumers to their computers. For a paid monthly fee,
customers can decide on the channel and topics that are needed, either in
the form of news, company information or entertainment. The web casters
will be responsible in sending the information. It is better known by the
term push programming. The online marketer looks at this matter as an
opportunity to send information or advertisements to the parties who
subscribe to this service without requiring the customer to demand for it.
ACTIVITY 9.4
Visit
Pointcast
at
www.pointcast.com
and
Infusion
www.infusion.com to understand how web casting is done.
at
EXERCISE 9.2
Essay Questions
1.
Provide the meaning of direct marketing and explain the

advantages of direct marketing.
2.
State the main channels of direct marketing. Explain clearly each of

the channel forms.
3.
Discuss four sales force structures that can be used by the

management in designing sales force strategies and structures.
4.
Explain briefly the seven steps in the personal selling process that is
used in carrying out sales activities.
5.
Explain the importance of direct marketing to the company in

businesses today.
6.
Explain the differences between consumer database and marketer

database.
7.
Explain the latest forms of direct marketing.
8.
Explain briefly the benefits of using online marketing from the

purchasers and marketers perspective. Please state the elements
that have to be avoided in using this channel to keep away any
disaster.
TOPIC 9
Direct marketing is an interactive marketing system that uses one or more

advertising media to obtain reactions that can be measured or to enable
business dealings to be done anywhere.
According to the latest trends, the world stresses widely on the usage of
direct marketing in the consumer market, business markets as well as
donation and contribution markets.
One of the most important direct marketing instruments is the ability to

create consumer databases that are used by the company (especially large
companies) in identifying potential customers, determining customers who
are most eligible to receive any form of the companys offer, increasing
customer loyalty, and also increasing purchases among the consumers.
There are various forms of major direct marketing channels. The oldest form
of direct marketing channel introduced is face to face sales, followed by direct
delivery, catalogues, telemarketing, direct marketing through the usage of
other media, and kiosk marketing.
Online marketing is the latest direct marketing channel. It consists of two

types of direct marketing channels, namely the commercial channels and the
Internet.
The marketer can choose to handle online advertisements through the

development of websites using the Internet, online advertising, participation
in forums, news groups and community webs and through the usage of emails, and web casting.
Direct marketing
Electronic channel
Topic
10
Marketing
Control
LEARNING OUTCOMES
1.
Illustrate the marketing control process;
2.
Discuss the marketing control methods; and
3.
Explain the marketing audit process.
INTRODUCTION
Control is the last step in the marketing management process. However, it is

implementated together with the marketing tactic and strategy implementation
process. The control process is important in ensuring that all marketing
implementation strategies and techniques are carried out as planned. The
marketing control process generally can be classified into three major sections,
which are, control mechanisms, surveillance and performance evaluation.
Control mechanisms refer to the usage of internal controls in the marketing
control process, while surveillance is the control step that is carried out together
with the marketing tactics and strategy implementation process. Performance
evaluation is the marketing control implementation that occurs after all the
marketing strategies and techniques are implemented. The main reason for
performance evaluation is to measure how far the marketing tactics and strategy
implementation achieves the objectives that have been decided at the start of the
marketing management process.
TOPIC 10
10.1
MARKETING CONTROL
W 161
CONTROL PROCESS
The marketing control process covers five important activities, such as deciding
on performance standards, deciding on types of feedback, obtaining feedback,
evaluating feedback and implementing corrective actions. Figure 10.1 shows the
big picture of the implementation mechanism for the marketing control process.
10.1.1
Deciding on Performance Standards
This step requires the marketer to select performance measurement standards.

Standards that are selected should be achievable and measurable. If the
standards selected involve rewards, the marketer has to take into account the
time factor like monthly, quarterly or yearly. The marketer can use control
methods like profit analysis and sales as a performance benchmark or use
consumer satisfaction index as the basis for evaluation.
Figure 10.1: Marketing control process
There are two methods to measure the consumer satisfaction index: consumer
expectation measure and performance measure. Consumer expectation measure
refers to the act of understanding and measuring criteria that are used by
consumers to evaluate their satisfaction levels toward the product. Performance
measure on the other hand refers to measuring how far the marketer has
succeeded in fulfilling the consumers expectations.
162 X TOPIC 10 MARKETING CONTROL
10.1.2
Deciding on Types of Feedback
There is various feedback data that can be selected by the marketer. Among the
feedback data that can be used by the marketer are the purchasers feedback,
intermediary, supplier, product performance and business dealings.
10.1.3
Obtaining Feedback
After deciding on the feedback type that will be used in the control process, the
marketer has to obtain that information. Feedback can be obtained from two
main sources, and they are:
(a)
Internal sources such as sales records, purchase records and staff; and
(b)
External sources such as marketing research findings regarding consumer

behaviour, competitors and market trends.
All the feedback obtained has to be focused on the evaluated units performance,
such as the achievement of sales groups or strategic business units.
10.1.4
Evaluating Feedback
All feedback has to be scrutinised and analysed in depth to help the marketer in
making accurate conclusions regarding the units performance that is being
evaluated. Marketers normally use various types of information to evaluate
performance, especially from the aspect of identifying weaknesses and
shortcomings of the evaluated unit.
10.1.5
Implementing Corrective Action
ACTIVITY 10.1
Why does a manager have to carry out corrective actions?
If the evaluation results uncover that the unit analysed has succeeded in
exceeding the performance standards, motivational actions such as giving out
rewards, promotions, and salary hikes have to be implemented. If the evaluation
results discover that the units actual performance achievement is below or does
not meet performance standards that have been decided, then corrective
measures need to be taken.
TOPIC 10
MARKETING CONTROL
W 163
Based on the control process that is shown in Figure 10.1, the marketer has to
correct the performance standards. However, this action need not be carried out
by the marketer. The inability to reach performance standards that have been
decided may be due to the staffs incapability or inappropriate marketing tactics
or strategies. This means the marketer has to repeat certain steps in the
marketing management process. If the marketer finds the pricing strategy
ineffective, thus corrective measures have to be taken towards that strategy.
EXERCISE 10.1
Essay Questions
1.
Explain briefly all the steps that have to be implemented by the

marketer in marketing control.
2.
Why does a marketer need to obtain feedback regarding staff

achievement and marketing activities?
10.2
CONTROL MECHANISM
There are four methods or mechanisms that the marketer can choose from to
implement the marketing control process. These methods are:
(a)
Annual-plan control;
(b)
Profitability control;
(c)
Efficiency control; and
(d)
Strategic control.
10.2.1
Annual-plan Control
Most business organisations prepare plans or annual-planning control systems.

This method makes it easier to achieve all the objectives that have been decided
on in the marketing management process, especially from the aspect of target
sales, profitability or market share dominance. There are five evaluation methods
that can be used by the marketer to come up with annual plan methods. Those
methods are sales analysis, market-share analysis, sales expenses analysis,
financial analysis and market analysis.
(a)
Sales Analysis
Sales analysis is done to evaluate sales outcomes based on the relationship
between inputs and outputs. This means sales analysis covers measurement
and evaluation of actual sales as compared to the sales objectives that have
been decided by the marketer. There are four forms of sales analysis that can
be chosen by the marketer, which are the territorial sales analysis, product
sales analysis, sales analysis based on the order size and sales analysis based
on purchasers. (These are according to the purchasers categories, namely
individual, organisational consumers or specialised purchasers).
(b) Market-share Analysis

Market-share dominance analysis is an important indicator towards the
actual performance of the company as compared to its competitors. There
are four methods of measuring market share which can be chosen by the
marketer, which is, the overall market share, served market share, relative
market share as compared to the two largest competitors and relative
market share as compared to the largest competitor.
(i)
Overall Market Share

Overall market share analysis compares the companys total sales
with the markets overall sales.
(ii)
Served Market Share

Through the served market-share analysis, the marketer compares
sales with the total sales of the overall served market.
(iii) Relative Market Share Comparing Two Largest Competitors

Relative market-share analysis compares the market shares of the two
largest competitors in the market. If the comparison ratio value exceeds
one third (1/3), the marketers market share is stable. The reverse is
true if the comparison ratio value is less than one third (1/3).
(iv) Relative Market Share as Compared to the Largest Competitor
This method is similar to the market-share analysis which compares
two of the largest competitors. However, the marketer only compares
the companys market share with the largest competitor in the market.
(c)
Sales Expenses Analysis

This analysis is for the purpose of ensuring the marketer spends smartly or
wisely to reach the objectives that have been decided in the marketing
management process. Through this method, total sales expenditure will be
compared with sales outcomes obtained. The larger the ratio value, the lower
the performance achievement for the marketing strategy implementation.
TOPIC 10
MARKETING CONTROL
W 165
(d)
Financial Analysis
This method helps the marketer identify factors that influence net return
rates. Some of the factors evaluated are profit contributions, asset
turnovers, return on assets and financial leverages. This means that the
marketer has to analyse asset compositions like cash flow, accounts
receivables, inventories and equipment.
(e)
Market Analysis
This is different from the other four market share analysis methods that
have been discussed before. This method does not count the financial factor
in analysing the companys performance. Through this method, the
marketer evaluates factors like the total number of new purchasers,
purchasers who are not satisfied and the target consumers awareness level
before a conclusion regarding the markets performance is made.
10.2.2
Profitability Control
Through these control mechanisms, the marketer has to determine cost that is
required for each marketing activity that is to be carried out as stated in the
marketing plan. This indirectly acts as a guide for profit levels that will be
obtained. The marketer can use the full costing or the direct costing method.
Through the full costing method, the marketer has to determine the direct cost,
variable cost and indirect cost in the cost calculation. In the direct costing
method, the marketer will use the contribution accounting method to calculate
costs that will be incurred during the marketing activities. Besides using the
contribution accounting method to calculate costs and profits, the marketer can
also use the activity-based cost accounting method, which is a detailed
accounting method for each marketing activities costing like advertising, sales
and production.
10.2.3
Efficiency Control
Efficiency control is a control method which is used to complete the other control
mechanisms especially the profitability control method. Through this method,
the marketer will evaluate each units performance or special activities like the
sales teams effectiveness, advertising activities and distribution.
10.2.4
Strategic Control
Strategic control is a comprehensive and systematic control system for the entire
performance attainment by all the units and activities. This control method is
often used by marketers in the strategic business units control process.
ACTIVITY 10.2
If you are a marketer, how will you control the running of your
marketing control activities? What are the control steps that you will
undertake?
Strategic control normally involves analysis on strengths, weaknesses,

opporutnities and threats (SWOT analysis which was discussed in Topic 2). This
strategic control method can help in answering a few important questions in the
marketing management process, especially from the aspects of competitors
environmental changes, objectives and strategies of competitors, changes in the
industrys trends, opportunities and threats in the market, and the influence
of technological environmental changes. Normally, marketers will use the
marketing audit to implement strategic control.
10.3
MARKETING AUDIT
The concept of marketing audit was introduced by Kotler, Gregor and Rogers in
1977. The implementation process of a marketing audit is similar to the
implementation process of marketing control as shown in Figure 10.1. However,
the steps that are involved in the marketing audit are briefer and more
comprehensive. Figure 10.2 shows the marketing audit process.
Similar to the marketing control process, the marketing audit starts with the
setting of objectives, the scope (control standards) and marketing control
measurement methods. The next step is the marketer has to obtain data on
feedback. There are obvious differences between the marketing audit and the
feedback process, from the aspect of the need to evaluate feedback data. Through
the marketing audit, the marketer has to collect and prepare reports about the
findings.
TOPIC 10
MARKETING CONTROL
W 167
Figure 10.2: Marketing audit process
EXERCISE 10.2
Fill in the Blanks
1.
Marketing control is the __________________ step in the marketing

management process.
2.
The marketing control process is divided into _________________

steps and it starts with the _________________ step.
3.
Steps to scrutinise and research in depth every piece of information

on the organisations achievement is done in the ______________
step.
4.
_______________________ step has to be carried out if the marketer

finds that implementation does not meet planning.
5.
_______________________ analysis uses the companys sales

achievements as compared to the markets overall sales as a
performance evaluation measure.
6.
__________________ control has similarities with marketing audit.
Essay Questions
1.
Explain briefly all the control mechanisms that can be used by the
marketer.
2.
Explain all methods that can be used by a company through the

annual plan control mechanisms.
3.
How far does marketing audit differ from the traditional marketing
control process?
Marketing control is an important step in the marketing management process

which ensures all marketing activities and strategies are implemented as
planned.
Marketing control can be divided into three sections that always complement
each other; control mechanisms, supervision, and performance evaluation.
Marketing audit is the latest tool that is comprehensive and can be chosen by
the marketer to create a control process that is systematic and meticulous.
Annual-plan control
Profitability control
Efficiency control
Strategic control
Marketing audit
ANSWERS
W 169
Answers
TOPIC 1
MARKET POSITIONING AND MANAGING

PRODUCT LIFE CYCLE
Exercise 1.1
Essay Questions
1.
Market positioning is a process that creates differences in the consumers

mind about the products that are offered or about the business.
2.
This basic difference is present in a business due to tough competition in

business. Each business will compete with the other to obtain sales or its
own markets by differentiating its business from others. It will differentiate
its business based on multiple perspectives known as the basis for
differentiating. Therefore, principles of business also exist in businesses.
Exercise 1.2
Essay Questions
1.
A high quality product generally has the following characteristics:

(a)
A famous brand and a well-known reputation in quality
(b)
Looks firm
(c)
Does not have any defects or repairs
(d)
Good performance
(e)
Long lasting
(f)
Features look interesting and unique
170 X
2.
ANSWERS
Generally product life cycles consists of four stages as follows:

(a)
Introduction Stage
The product is newly introduced into the market. Consumers are
ignorant and not aware of the introduction of the product and profits
are very low or negative. This is caused by the heavy expenses
incurred during the product introduction stage and low sales volume.
(b)
Growth Stage
At the growth stage, sales increases tremendously. Consumers are
aware of the existence of the product in the market and they have
purchased the product for the first time. Profit increases and is at a
profit-making level. Competitors start entering the market and offer
similar products.
(c)
Maturity Stage
At the maturity stage, profits and sales start to reach the maximum
level. The other companies start to offer similar or identical products.
Therefore, consumers have options. At this moment, competition is
tough and there are many competitors in the market.
(d)
Decline Stage
At the decline stage, sales and profits decline until there are no sales
or profits anymore. When this happens, that particular product will
disappear from the market.
TOPIC 2
Exercise 2.1
Essay Questions
1.
There are a few reasons why a product can fail in the market and they are:
(a)
The new product is not distinctive and unique from the other products
in the market.
(b)
Insufficient advertising support and other promotions.
(c)
Market research is not done in advance.
(d)
Insufficient budget allocation.
ANSWERS
2.
W 171
(e)
Insufficient support from the top management.
(f)
New product idea is not very efficient or rational, but it is still

continued by management because it was their idea.
(g)
Competitors strength and strategy is not evaluated in advance. In the

end, the company is unable to compete with the other competitors.
(h)
Selling price is too high as compared to the product quality.
Sources that can be used to obtain ideas for new products are as follows:
(a)
Personnel or employees.
(b)
Companys customers.
(c)
Competitors and suppliers.
(d)
Through research conducted.
TOPIC 3
MANAGING NEW PRODUCT LINES AND

BRANDS
Exercise 3.1
Essay Questions
1.
Convenience goods consist of:

(a)
Emergency Goods
Emergency goods are purchased when a need is present, such as
umbrellas when it is raining and candles when there is a power
failure.
(b)
Staple Goods
Staples are basically food stuff used daily, such as eggs, rice and fish.
(c)
Spontaneous Goods
These are products bought spontaneously. The products are priced
low and consumers do not think much when they purchase them.
Spontaneous goods are products bought at the spur of the moment,
like newspapers, chocolate, magazines, and other products displayed
at the supermarkets payment counter.
172 X
2.
ANSWERS
The various functions of packaging are:

(a)
As a container to contain and protect the product.
(b)
Makes it easier for the distributor to store, arrange and display

products at their stores. It also makes it easier for the consumers to
store the products that are purchased.
(c)
Packaging can be used as the basis for segmentation as well. Small

packages can be used for one person and large packages for family
consumption.
(d)
As a communication and promotion tool directed to the consumers.
(e)
As an element that can be used in the new product development.

There are companies that change packaging shapes and promote them
as a new product although the basic product does not change.
TOPIC 4
Exercise 4.1
Essay Questions
1.
Services are seen as a series of actions, processes and implementations that

cannot be viewed. A service is any act or performance that one party can
offer to another that is essentially intangible and does not result in the
ownership of anything.
The Main Categories of Services are:
(a)
Pure Tangible Goods

This consists primarily of a tangible good such as soap, toothpaste, or
salt. No services accompany the product.
(b)
Tangible Goods with Accompanying Services

This consists of tangible goods accompanied by one or more services.
For example, Proton and Perodua offer cars and after-sales services.
(c)
Hybrid
The offering consists of equal parts of goods and services. For
example, people patronise restaurants for both food and for good
service from the restaurants waiters.
ANSWERS
2.
3.
W 173
(d)
Major Service with Accompanying Minor Goods and Services

For example, Malaysian Airlines Systems (MAS) basic product is
transportation and the supporting services include in-flight food and
baggage service to the consumers.
(e)
Pure Services
The offering consists primarily of a service. Examples include babysitting, psychotherapy, and massages.
Three service mix categories that are normally experienced or referred to as

assessment factors while purchasing services are:
(a)
People
Human management refers to the involvement of individuals such
as personnel, firms, users or other consumers in conveying and
influencing buyers perceptions..
(b)
Physical Evidence
Physical evidence refers to the surroundings where the service is
offered. Here, the firm and consumers interact and any tangible
component that enables communication is presented.
(c)
Process
Processes involve actual procedures, mechanisms and activity flows
where services are offered including the offer process and service
operations.
The characteristics that differentiate intangible elements of services from

the tangible elements of physical products are:
(a)
Unlike physical products that can be seen, felt, smelled and tasted,
services cannot be seen, tasted, felt or smelled.
(b)
Compared to a physical product, the existence of intangible elements

in services causes a need to create elements that are more tangible or
seen. For example, like a companys employees, equipment, facilities,
or symbols.
4. Characteristics cannot be separated implies doing the sales first, and then
producing and using simultaneously. To minimise this element, the suppliers
of services can offer services towards large groups or create an efficient
waiting line system to avoid congestion or to encourage group visits.
174 X
ANSWERS
Exercise 4.2
Essay Questions
1. (a)
Intangibility:
Services cannot be seen, tasted, felt or smelled.
Effects:
There is a need to create elements that are more tangible or visible as
compared to intangible elements. For example, like a companys
employees, equipment, facilities or symbol.
(b)
Inseparability:
This characteristic means carrying out the sales first, and then
producing and using simultaneously.
Effects:
The suppliers of services can offer services towards large groups or
create an efficient waiting line system to avoid congestion or encourage
group visits.
(c)
Variability:
Variability is described as different service delivery processes.
Effects:
Recruiting the right employees or monitoring customer satisfaction
through suggestions, positive criticisms and research directed towards
consumers. This includes standardising that particular service.
(d)
Perishable:
It refers to the statement that services cant be stored, saved, resold or
returned.
Effects:
Pricing is different for peak hour demand and non-peak hour demand.
This may lead to the creation of a booking system, the use of temporary
employees during peak hours or encouraging self-service.
ANSWERS
W 175
2. (a)
People
Human management refers to the involvement of individuals such as
personnel, firms, users or other consumers in conveying and influencing
buyers perceptions.
(b)
Physical Evidence
Physical evidence refers to the surroundings where the service is
offered. Here, the firm and consumers interact and any tangible
component that enables communication is presented. For example,
business cards, formal reports, catalogues, equipment, and buildings.
(c)
Process
Processes involve actual procedures, mechanisms and activity flows
where services are offered including the offer processes and service
operations. Service firms can afford to vary their processes in delivering
their services to consumers. For example, take a restaurant with a
cafeteria concept, fast food, buffet and romantic candlelight services.
3. (a)
External Marketing
External marketing refers to external communication and market
expansion from the suppliers to the users that involve marketing mix
strategies like advertising, sales promotion, public relations, direct
selling or on-line selling.
(b)
Interactive/Relationship Marketing
Interactive or relationship marketing involves an interpersonal
relationship which is carried out by an employee with a consumer
through channels like personal selling, customer service centres, service
encounters and services capes. It involves utilising an employees skills
and knowledge in managing consumers.
(c)
Internal Marketing
Explains methods of training and motivating employees in making sure
customers are satisfied with the services that they receive. To ensure the
company reaches its objectives successfully, internal marketing
communication has to be managed meticulously so that communication
between the employees is accurate, clear and consistent with what is
seen and heard by the consumers.
176 X
ANSWERS
TOPIC 5
DEVELOPING STRATEGIES AND MANAGING

PRICING
Exercise 5.1
Essay Question
1.
Internal factors:
x
Marketing Objectives.
Strategy.
Cost.
Organisation.
External factors:
x
Market and Demand.
Competitors Price and Offer.
Other Factors (economy, sales personnel, government).
Exercise 5.2
Essay Questions
1.
Step 1: Select the pricing objective

Step 2: Determine demand curve
Step 3: Estimate costs
Step 4: Analyse competitors costs, prices, and offer
Step 5: Select a pricing method
Step 6: Select the final price
2.
(a)
Step 1: Selecting the Pricing Objective

The major objectives that are normally set by firms are survival,
maximising current profits, market share leadership, and product
quality leadership.
ANSWERS
(b)
Step 2: Determining Demand Curve

The firm needs to estimate the quantity that can be sold at each
alternative price.
(c)
Step 3: Estimating Costs

A firms costs refer to output cost, distribution cost and output sales
cost. Cost estimation has to be done to look at how the firms cost
differs at different output levels, increases in outputs and market
offers which are done by a firm to satisfy consumer needs.
(d)
Step 4: Analysing Competitors Costs, Prices, and Offer

A firm has to take into account the cost, price and the possibility of
price changes that are done by the competitors in setting their prices.
From the perspective of the output offered, if the firm offers
something that is similar to its competitors, the price set has to be
more or less than that of its competitors. If not, the firm will lose its
market.
(e)
Step 5: Selecting a Pricing Method

Some of the pricing methods are:
(f)
3.
W 177
Mark-up pricing
Target-return pricing
Perceived-value pricing
Going-rate pricing
Auction-type pricing
Step 6: Selecting the Final Price

Before the final price is decided, the firm has to take into account
additional factors including psychological factors and influence from
other marketing mix elements on pricing, the firms pricing policy and
the effects of pricing on others.
The four main objectives of pricing are:

(a)
Survival: Survival refers to low price setting for the purpose of

generating high demands. In this situation, the survival concept is
more important than profit.
178 X
4.
ANSWERS
(b)
Maximising Current Profits: Pricing is based on the difference

between cost and demand at different prices that is able to produce
current profits, cash flow and maximum return on investment.
(c)
Market Share Leadership: Price is set at the lowest level to enjoy low
costs and high profits in the long run.
(d)
Product Quality Leadership: Normally, the company sets a high price

because it involves high quality and research and development costs.
The total break even for the output is:

Variable cost
RM20
Fixed cost
RM400,000
Expected sales =
50,000 units
Cost per unit for the output is:
Variable Cost + Fixed Cost

Total Sales
Baju kurung Cost =
RM20 + RM400,000
50,000
= RM8
If the seller wants to earn a 20% mark-up on sales, the sellers mark-up price
will be:
Markup Price =
Unit cost
(1 % of Markup or desired return on sales)
RM8
1 0.12
Breakeven point (unit) =
RM9.10
Fixed Cost
(Price Variable cost)
RM400,000
(RM30 RM20)
= RM40,000
ANSWERS
W 179
Exercise 5.3
Essay Questions
1.
(a)
Countertrade refers to business transactions that involve nonmonetary payment or payment that does not involve money.
(b)
The following are the forms of countertrades and its explanation:

(i)
Barter System
The direct exchange of goods, with no money and no third party
involved. For example in 1993, Eminence S.A., one of Frances
major clothing makers, launched a five year deal to barter
$25 million worth of U.S. produced underwear and sportswear
to customers in eastern Europe in exchange for a variety of
goods and services including global transportation and
advertising space in eastern European magazines.
(ii)
Compensation Deal
The seller receives a big portion of the payment percentage in
cash and a small portion of the reminder in products. For
example, a British aircraft manufacturer sold planes to Brazil for
70 percent cash and the rest in the form of coffee.
(iii) Buyback Arrangement

The seller sells a plant, equipment or technology to another
country and agrees to accept as partial payment products
manufactured with the supplied equipment. The other half of
the payment is made in cash.
(iv) Offset
The seller receives full payment in cash but agrees to spend a
substantial amount of the money in that country for a fixed time
period.
180 X
2.
3.
ANSWERS
The types of pricing discrimination that is normally carried out by a firm in

the pricing strategy is as explained below: (any of the four types below is
sufficient to answer the question)
(a)
Segment Pricing
Different customer groups are charged different prices for the same
products or services. For example, museums often charge a lower
admission fee to students as compared to the adults.
(b)
Product-Form Pricing
Different versions of the product are priced differently but not
proportionately to their respective costs. For example, the canned
Coca-Cola is cheaper than the bottled Coca-Cola although the
quantity is the same in both.
(c)
Image Pricing
Pricing is decided based on the image of the products or services.
(d)
Location Pricing
The same product is priced differently at different locations.
(e)
Time Pricing
Prices are varied by season, month, day or hour.
Suitable discounts and allowances pricing strategies are used in the

following situations:
(a)
The firm wants to encourage buyers to make early payments.
(b)
Purchases involving large volumes.
(c)
Off-season buying.
Some of the forms of discounts and allowances are:

(a)
Cash Discounts
Cash discount is a price reduction to buyers who pay promptly or pay
in cash.
(b)
Functional Discounts
Functional discount, also known as trade discount, is a reduction in
list price offered to middlemen for performing certain functions.
ANSWERS
4.
W 181
(c)
Quantity Discount
Quantity discount is a price reduction to those who buy in large
volumes.
(d)
Seasonal Discount
Seasonal discount is a price reduction to those who buy merchandise
and services out of season.
(e)
Trade-in Allowances
Trade-in allowances are granted for turning in an old item when
buying a new one.
(f)
Promotional Allowances
Promotional allowances are allowances that are given to dealers for
participating in advertising and sales support programmes.
If the firm wishes to maximise profits for the entire total output line, the
appropriate pricing strategy is the output mix pricing strategy. Five
determinants involved in this strategy are:
(a)
Product-line Pricing
This strategy is adopted when the firm has a few product lines. Each
product line is priced differently. Through this strategy, the firm has
to look at the overall product lines to ensure that the new models
price is in the price range of the current products. The setting of prices
has to take into account cost differences between the product lines,
consumer evaluation on varying elements and competitors pricing.
(b)
Optional-feature Pricing
Many companies offer optional products, features and services along
with their main products. For example, a person who purchases a
computer may purchase additional accessories like modem, speakers
and other accessories.
(c)
Captive-product Pricing
This strategy is used by firms that offer products which have to be
used with a main product. Take for example, the price of a box of film
with a camera. For services, this strategy is known as two-part
pricing. For example, telephone users pay a minimum monthly fee
plus charges for calls made.
182 X
ANSWERS
(d)
By-product Pricing
If the by-products have value to a customer group, they should be
priced on their value. For example, chicken farmers use this strategy
in valuing their manure, setting prices and informing interested
potential customers.
(e)
Product-bundling Pricing
Sellers often bundle products and features. For example, take a special
package that is offered by a hotel supplier or software supplied for
personal computers. The seller normally charges less for the bundle
than if the items were purchased separately.
TOPIC 6
MANAGING MARKETING CHANNELS,

INTERMEDIARIES AND PHYSICAL
DISTRIBUTION
Exercise 6.1
Essay Question
1.
The marketing channel refers to an organisation group that is

interdependent and is involved in processes to ensure the firms products
are able to be delivered, purchased and consumed by the customers.
2.
The four marketing channels are:

(a)
Zero-level Channel
A zero-level channel also called a direct marketing channel consists of
a manufacturer selling directly to the final consumer. Examples of
direct marketing are personal selling like Avon, Amway and
Tupperware, telemarketing, internet selling, manufacturer-owned
stores and TV selling.
(b)
One-level Channel
A one-level channel involves the usage of retailers as middlemen.
(c)
Two-level Channel
A two-level channel involves the usage of two intermediaries,
normally wholesalers and retailers. This marketing channel normally
takes place in consumer markets.
ANSWERS
(d)
3.
4.
W 183
Three-level-Channel
A three-level channel involves the usage of three intermediaries, like
wholesalers, jobbers and retailers. This normally happens in industrial
markets like the meat packaging industry.
The major elements that become reference points for firms in a channel
design system are:
(a)
Analysing customer needs;
(b)
Establishing channel objectives;
(c)
Identifying major channel alternatives; and
(d)
Evaluating major channel alternatives.
The three important elements are:

(a)
Types of Business Channel or Appropriate Intermediaries:

It involves the firms knowledge about the appropriate channel types
to perform channel related work on the firms behalf. Some types of
intermediaries who are normally appointed are the companys sales
force, agents and industry distributors.
(b)
Number of Channel/Intermediaries Needed:

It involves three main strategies, namely:
(i)
Exclusive distribution
(ii)
Intensive distribution
(iii) Selective distribution

(c)
5.
Rules and Responsibilities for Every Channel Member:

The roles and responsibilities of every channel member refers to
pricing policy, terms and conditions of sales, territorial rights, and
certain services that have to be carried out by every appointed
channel member.
The difference between the three are:

(a)
Exclusive distribution means significantly limiting the number of
intermediaries. It is used when the producer wants to maintain
control over the service level and output offered by the resellers.
Granting of exclusive rights is normally evident in distribution of new
automobiles and a few prestige goods.
184 X
ANSWERS
(b)
Selective distribution involves the use of more than a few but less than
all of the intermediaries who are willing to carry a particular product.
Most products like television, furniture and some of the electrical
appliances normally involve retailers or selected agents only.
(c)
Intensive distribution consists of the manufacturer placing the goods
or services in as many outlets as possible. This strategy is generally
used for items such as tobacco products, gas, snack food, soap and
others.
Exercise 6.2
Essay Questions
1.
(a)
Exclusive Dealings
Exclusive dealings refer to the arrangements done between the firm
and the intermediary. For example, the dealers cannot handle
competitors products; dealers can only handle the firms products.
Exclusive arrangements are legal as long as they do not substantially
lessen competition or create a monopoly, and as long as both parties
enter into the agreement voluntarily.
(b)
Exclusive Territories
Exclusive territories refer to certain areas of intermediaries. It is legal
as long as the intermediary does not sell the products outside the
predetermined territory.
(c)
Tying Agreements
Producers of a strong brand sometimes sell it to dealers only if they
will take some or all of the rest of the product line. This practice is
called full-line forcing. Such tying agreements are not necessarily
illegal but it will become a violation if the elements of market
monopoly exist.
(d)
Dealers Rights
Producers are free to select their dealers, but their right to terminate
dealers is somewhat restricted. In general, sellers can drop dealers
for cause or for reasons stated in the agreement.
ANSWERS
2.
3.
W 185
Forms of power that are normally implemented to elicit cooperation are:

(a)
Coercive Power
A manufacturer threatens to withdraw a resource or terminate a
relationship if intermediaries fail to co-operate.
(b)
Reward Power
The manufacturer offers intermediaries and extra benefit for
performing specific acts or functions.
(c)
Legitimate Power
The manufacturer requests a behaviour that is warranted under the
contract. For example, Proton requests its agents to carry a certain
amount of stock in their area as part of the agreement.
(d)
Expert Power
The manufacturer has special knowledge that the intermediaries
value. Normally, it refers to the technology which is owned by the
manufacturer. The manufacturer permits the agent to use the
technology only if without using it, the agents cannot increase their
performance level and or will be left behind.
(e)
Referent Power
The manufacturer is so highly respected that intermediaries are proud
to be associated with him. For example, companies like IBM,
McDonalds and Rolex have high referent power, and intermediaries
are normally willing to co-operate in all ways desired by the firm.
The differences are:

(a)
Channel Dynamics of a Vertical Marketing System: Comprises the

producers, wholesalers, and retailers acting as a unified system. Each
channel member co-operates under one entity and is capable of
forming a big power of influencing the market.
(b)
Traditional Marketing Channel System: Comprises an independent

producer, wholesalers and retailers. Each is a separate business
seeking to maximise its own profits. There is no complete control over
the appointed channel members.
186 X
ANSWERS
Figure 6.2: Dynamic vertical marketing system
Figure 6.4: Multi-channel marketing system
Explanation:
Channel dynamics of a vertical marketing system comprises the producers,
wholesalers, and retailers acting as a unified system. Each channel member
co-operates under one entity and is capable of forming a bigger influence on
the market. The multi-channel marketing system involves a single firm, using
two or more marketing channels to reach one or more customer segments.
Through the diagram, the firm sells directly to consumer segment 1 through
catalogues, the telephone and other forms of telemarketing. Then, the firm
sells its outputs to consumer segment 2 through retailers. For the industrial
consumers, the firm sells indirectly to industrial segment 1 using distributors
and agents. For industrial segment 2, firms use their own sales force.
ANSWERS
4.
W 187
The vertical marketing channel consists of:

(a)
Corporate Vertical Management System

A corporate vertical management system combines successive stages
of production and distribution under a single ownership. Vertical
integration is a system that is needed by a company that requires a
high control level for each channel that exists. For example, Toyota
owns equity in most of its major suppliers in the world and this
makes it one of the giant companies that is still surviving till today.
(b)
Contractual Vertical Management System

A contractual vertical management system consists of independent
firms at different levels of production and distribution integrating
their programmes on a contractual basis to obtain more economic or
sales impact than they could achieve alone. Contractual vertical
management system consists of three forms:
(i)
Wholesaler-sponsored voluntary chain;
(ii)
Retailer co-operatives; and
(iii) Franchise organisations.

(c)
5.
Administered Vertical Management System

An administered vertical management system co-ordinates successive
stages of production and distribution through the size and power of
one of its members, and not through normal ownership or contractual
ties. Famous brand producers like P&G, Kraft and Campbell Soup are
able to command high levels of co-operation from their resellers in
connection with displays, shelf spaces, promotions and price policies.
The difference between manufacturer-sponsored, retailer cooperatives and

franchise organisations are listed below:
(a)
Wholesaler-Sponsored Voluntary Chains

Wholesalers organise voluntary chains of independent retailers to
help them compete with large chain organisations. The wholesaler
develops a programme in which independent retailers standardise
their selling practices and achieve economies of scale that enable the
group to compete effectively with other chain organisations.
188 X
ANSWERS
(b)
Retailing Cooperatives
Retailers take the initiative and organise a new business entity to carry
on wholesaling and possibly some production. Members concentrate
their purchases through the retailer co-operation and plan their
advertising jointly. Profits are passed back to members in proportion
to their purchases.
(c)
Franchise Organisations
A channel member called a franchisor might link several successive
stages in the production-distribution process. There are three types of
franchise organisations:
x
Manufacturer-Sponsored Retailer Franchise System
Manufacturer-Sponsored Wholesaler Franchise System
Service Firm-Sponsored Retailer Franchise System
Exercise 6.3
Fill in the Blanks
1.
individual
2.
Limited-service
Exercise 6.4
Fill in the Blanks
1.
Non-store
2.
Retailing Wheel
3.
do not take title of goods and do not bear any risk in the business transaction.
4.
order processing, transportation, warehousing and inventory management
ANSWERS
W 189
Essay Questions
1.
(a)
Bulk Breaking
The manufacturer faces problems in marketing products to end-users
(individual or organisation) because of the problem in the quantity
offered. Thus, the presence of intermediaries especially wholesalers
help manufacturers in marketing their products in smaller quantities
according to the consumers needs.
(b)
Product Promotion
Besides distributing products, intermediaries play an important role
in the promotion of the product to the consumers either individually
or in collaboration with the manufacturer. For example, the
wholesaler gives trade discounts to retailers or retailers have sales
promotions for consumers.
(c)
Transportation
Intermediaries especially wholesalers provide efficient transportation
services in the physical distribution of products for the manufacturers.
Normally, the intermediary is liable for the transportation cost of the
(d)
Risk Bearing
The wholesaler or retailer purchases the product from the
manufacturer. This means, the intermediary has transferred the
financial risk from the manufacturer onto itself. Besides this, there are
wholesalers who grant credit payment to their retailers or retailers
who grant credit sales to the customers. This means, besides helping
the manufacturer to avoid losses, the intermediary also assumes risk
through the granting of credit services to other intermediaries or
consumers.
(e)
Market Information
Intermediaries especially retailers are known to understand the needs
and wants of consumers better as compared to the manufacturer.
Normally, the intermediary will pass the latest information regarding
customers taste and preference to the manufacturer for them to act
upon.
190 X
2.
ANSWERS
(f)
Warehousing Services
Other than providing transportation services, there are a few
intermediaries especially wholesalers who provide warehousing
services for the manufacturers in the physical distribution of their
(g)
Consultation Services
Some of the intermediaries like wholesalers or agents (brokers)
provide business consultation services to the organisational users
from the aspects of materials and financial management. Besides this,
some retailers also provide consultation services to the consumer,
especially from the aspect of product usage and financial consultations
to their customers.
Wholesalers and retailers can be differentiated based on the involvement of

wholesalers and retailers with individual consumers. Most experts state
that the main difference between wholesalers and retailers is from the
aspect of purchase volume, which is wholesalers buy in bulk while retailers
buy in smaller order sizes. There are experts who see the difference
between wholesalers and retailers from the aspect of volume of sales to the
consumers, which means the wholesaler sells in bulk while the retailer sells
in smaller quantities.
For example, you cannot differentiate The Store supermarket network with
the rice wholesaler at your place based only on the purchase or sales
quantity of both the organisations. This is because the purchase quantity by
The Store network is far larger than the rice wholesaler. Thus, opinions that
state wholesalers and retailers can be differentiated through business
transactions are more accurate.
Wholesalers and retailers can be differentiated based on statements that
says that wholesalers do not have business transactions with individual
users. This means that if Din Borong supermarket or the retailer at
Selangors wholesale market have business transactions with individual
users, that particular trader cannot be categorised as a wholesaler. If
attention is given towards the business transaction that is done by that
trader, a mixed business transaction is being carried out, part retailing and
part wholesaling. Wholesaling only affects transactions with organisational
users especially retailers while most business transactions are retailing
(individual or mass).
ANSWERS
3.
W 191
As stated in the beginning, wholesaling activities have relatively seen a

huge increase from the 1990s. The number of wholesalers is decreasing by
the day and this is caused by the changes in consumers taste and
preference and the influence of technology. However, the volume of
business through wholesaling is increasing steadily. Besides this,
wholesalers are more aggressive in carrying out marketing activities to be
noticed in the product distribution system, especially from the aspect of
sales, transportation and product promotion.
Thus, it is of no surprise that there are certain brands that are owned by
wholesalers through the private brand strategy. Through the private brand
strategy, wholesalers will support that particular brand in the market
through distribution, pricing and integrated promotion.
4.
The integrated physical distribution management system or the integrated

logistics system refers to a logistic management quality that is solid and
complements aspects of the distribution system. Although the marketing
logistics management process involves four different components, the
marketer can succeed in creating and effective and systematic logistic
management system. Normally, the usage of modern technology especially
information technology using electronic communication network and barcode systems are able to help marketers in creating the best integrated
logistics management system. Besides using technology, the following
formula will aid marketers in creating the best integrated logistics
management:
M = T + FW + VW + S
Where:
M
Total market logistics cost
Total transportation cost
FW =
Total fixed warehouse cost
VW =
Total variable warehouse cost
Total cost of lost sales due to average delivery delay
192 X
ANSWERS
TOPIC 7
MANAGING INTEGRATED MARKETING

COMMUNICATIONS
Exercise 7.1
Essay Questions
1.
(a)
Advertising
Advertising is any form of non-personal presentation paid by a
sponsor to promote ideas, organisations or products. The media that
is normally used are the television, radio, newspapers, magazines,
advertising boards and the latest is the Internet.
(b)
Sales Promotion
Sales promotion is a variety of short-term incentives to encourage trial
or purchase of a product or service. It is a promotion paid by a
sponsor and normally it is used to encourage consumers for a
particular period. Examples of sales promotion are samples, coupons,
cash rebates, premiums and discounts.
(c)
Public Relations
Public relations is an activity or effort by a company to:
x
Build good relationship with the public;
Build a positive corporate image and keep away negative stories,

incidents or rumours; and
Obtain opinions, behaviour, and the publics perception towards

the company and its products.
The public includes customers, suppliers, government, employees and

the surrounding community. Public relations is a promotion that is
often trusted by the general public because of the publicity obtained
by the firm or output in the form of news. For example, when a
company introduces an innovative new product in the market, the
company can attempt newspaper coverage, news coverage on the
television and radio. Thus, public relations is one form of effective
communication to introduce a company and its products to the
market at a lower cost.
ANSWERS
2.
W 193
(d)
Personal Selling
Personal selling is a direct presentation by the companys sales force
to the customers to obtain sales and build relationships between each
other. It is directed straight to the end users and it is done either
through face to face or through the telephone. Personal selling can
persuade and influence buyers to accept an opinion or to purchase a
product. Nowadays, personal selling is used to build long-term
relationships between the company and consumers or future
consumers.
(e)
Direct Marketing
Direct marketing is a form of marketing communication that connects
the marketer with the target consumers to obtain instant feedback. It
uses telephone, mail, fax, e-mail, the Internet and other
communication tools to connect the marketer with a specific
consumer. Thus, the usage of direct marketing creates a good
relationship between the marketer and the consumer.
There are nine basic elements in the communication process. The marketer
needs to analyse each element to enable more effective delivery of message
to the customers. The main elements in the communication process are:
(a)
Sender
The sender is a source of the original message in the communication
process. It consists of individuals or organisations, for example, family,
friends, or the sales force. Companies can also use spokespersons who
are celebrities to advertise and promote their products. The perception
of receivers towards a source can influence their purchase, so the
company has to be careful in choosing their spokesperson.
(b)
Encoding
Encoding is the process of transforming ideas, thoughts or the
senders opinions in the form of words, symbols, pictures, signs or
others so that it is easier for the receiver to understand. The usage of
these symbols will help the company in delivering a message more
effectively. If a symbol is famous such as sports equipment brands
like Adidas, Nike, Puma and Reebok, then it is better for these
companies to use these symbols in the message delivery because these
symbols are easily identified and well known.
(c)
Message
Message is an encoding process that transforms ideas to information
in the verbal, writing or symbol form.
194 X
ANSWERS
(d)
Media
Media are communication channels which are used to send
messages from the sender to the receiver. Message moves through the
communication channel that is chosen by the sender. The
communication channel consists of non-personal or non-time sensitive
media. Through mass media, messages can be spread widely to more
individuals at the same time. For example, take advertising on the
television, over the radio and in newspapers.
(e)
Decoding
Decoding is a process where the receiver interprets or assigns
meanings towards certain messages which the sender is trying to
communicate. That message, may consist of symbols, and will be
interpreted by the receiver according to his understanding. Thus, to
guarantee communication effectiveness, the sender needs to
understand the receiver more closely in terms of the receivers
knowledge and character.
(f)
Receiver
The receiver is the party which receives the message from the sender.
A receiver may consist of the public who views the advertisement for
a brand or product that the company is trying sell. Not all the
receivers will be influenced with the message that is trying to be
communicated by the sender. Receiving depends on many factors like
knowledge, culture and the receivers age.
(g)
Response
The response is the receivers reaction towards a particular message
that is communicated. For example, when a receiver views an
advertisement on the television, he may be influenced to purchase the
product that is being advertised. On the other hand, maybe the
customer will not do anything or may not be interested in the message
that is being communicated through the advertisement.
(h)
Feedback
Feedback is part of the objective or receivers reaction towards the
message received. The receivers reaction differs from one to another.
For example, when Proton launched its latest model Waja, a lot of
feedback was received. Some gave positive feedback stating that the
car was priced cheaper than the imported cars of the same class.
However, some gave negative feedback. If personal selling was used,
the response received would be faster as compared to the other
communication channels.
ANSWERS
(i)
W 195
Noise
Noise is an external factor that interrupts the communication process.
These are unplanned external factors. An example is the noise from
roadside vehicles when the sales personnel are communicating with
customers.
Exercise 7.2
Essay Questions
1.
2.
There are six important steps in an effective communication development.

Those steps are:
(a)
Identify the target audience
(b)
Determine the communication objectives
(c)
Design the message
(d)
Media selection
(e)
Message source selection
(f)
Feedback collection
The levels of buyer readiness in deciding the communication reaction is

awareness, knowledge, liking, preference, conviction and purchase.
(a)
Awareness
The marketers main objective at this level is to create awareness
among the future target customers. If the future customers are not
aware of the existence of the product or only know a little about the
existence of the product, how are they going to purchase the product?
For example, Susu Asli Company wishes to introduce their new
product brand Cerdik in the market. This milk has a special formula
for new born babies up till one year. However, the consumers are
unaware of its existence in the market because no effort has been
taken to spread the awareness to the consumers. Thus, the
promotional campaigns objective at this level will be to make
consumers aware about the products existence in the market. This
can be done through advertising on television.
196 X
ANSWERS
(b)
Knowledge
Besides creating awareness, the marketer has to provide knowledge
about the product to the future customers. For example, after future
customers are aware of the existence of the Cerdik brand in the
market, the marketer has to provide information about the contents of
the product which will help the babys growth. Providing information
to future customers does not stop at providing knowledge about the
content but covers all aspects that can help the marketer get closer to
consumers such as the products quality, test conducted or services
offered.
(c)
Liking
If future customers know about the product, the marketer has to get to
know their preference level. The question at this level is what will be
the future customers feelings be after finding out about the product?
Will they like the company, or feel dissatisfied with it? If the future
customer is still doubtful at this stage, the marketer has to promote
the output more intensively until they reach that products liking
level.
(d)
Preference
Even if future customers prefer a product, they need not necessarily
choose that brand or product. The selection of a brand depends on
many factors. Thus, the marketer needs to create differences between
their products and the other alternatives that are in the market. One of
the methods is by developing creative advertisements to attract future
customers to give priority to a product in their product selection.
(e)
Conviction
Future customers will become more convinced to purchase a product
if efforts to convince them are carried out in the first place. At the
conviction stage, the marketer or the company has to use a
combination of promotional methods to create conviction and positive
feelings towards the product. For example, lets have a look again at
the Cerdik brand which was marketed. Besides advertising, Susu Asli
Company has to use sales promotion like free samples for its future
customers to try the product. Besides that, the company can use
public relations by introducing that product in the form of news either
through television or newspapers. A good combination of promotion
methods can help the company in building the conviction of the
future customers towards the product.
ANSWERS
(f)
W 197
Purchase
At the purchase stage, the possibility of a future customer purchasing
a product is big. However, the future customer may be convinced to
purchase the product although they have not actually made the
purchase yet. Some of the factors that cause future customers not to
purchase are shortage of money, desire to gather more information
and they may wait for the appropriate time. The promotional effort at
this level uses the promotional tools that can help future customers to
act on buying. An example would be reducing the pricing of the
product, giving special offer prices and other short-term incentives.
Exercise 7.3
Essay Questions
1.
Methods used by marketers in determining promotional budgets are the

affordable method, percentage-of-sales method, competitive-parity method
and objective-and-task method.
2.
All the marketing communication mix elements that can be used by

marketing to market products more efficiently are:
(a)
Advertising
Advertising is any form of non-personal presentation paid by a
sponsor to promote ideas, organisations or products. The media that
is normally used is the television, radio, newspapers, magazines,
advertising boards and the latest is the Internet.
(b)
Sales Promotion
Sales promotion is a variety of short-term incentives to encourage trial
or purchase of a product or service. It is a promotion paid by a
sponsor and normally it is used to encourage consumers for a
particular time period. Examples of sales promotion are samples,
coupons, cash rebates, premiums and discounts.
(c)
Public Relations
Public relation is an activity or effort by a company to:
x
Build good relationship with the public;
198 X
ANSWERS
Build a positive corporate image and keep away negative stories,

incidents or rumours; and
Obtain opinions, behaviour, and the publics perception towards

the company and its products.
The public includes customers, suppliers, government, employees and

the surrounding community. Public relations is a promotion that is
often trusted by the general public because of the publicity obtained
by the firm or output in the form of news. For example, when a
company introduces an innovative new product in the market, the
company can attempt newspaper coverage, news coverage on the
television and radio. Thus, public relation is one form of effective
communication to introduce a company and its products to the
market at a lower cost.
3.
(d)
Personal Selling
Personal selling is a direct presentation by the companys sales force
to the customers to obtain sales and build relationships between each
other. It is directed straight to the end users and it is done either
through face to face or through the telephone. Personal selling is able
to persuade and influence buyers to accept an opinion or to purchase
a product. Nowadays, personal selling is used to build long-term
relationships between the company and consumers or future
consumers.
(e)
Direct Marketing
Direct marketing is a form of marketing communication that connects
the marketer with the target consumers to obtain instant feedback. It
uses telephone, mail, fax, e-mail, the Internet and other
communication tools to connect the marketer with a specific
consumer. Thus, the usage of direct marketing creates a good
relationship between the marketer and the consumer.
There are four methods in determining budgets that are used by companies
and they are the most affordable method, percentage-of-sales method,
competitive-parity method, and objective-and-task method.
(a)
The Most Affordable Method

The most affordable method in determining the promotional budget
follows what is thought of as the most affordable by the company.
This means that, if the company has a good financial position, the
allocation for the promotion budget will be big. However, if the
ANSWERS
W 199
company is going through financial problems, the allocation for

promotional budget will be small. Most small businesses will use this
method to determine their promotional budget. The balance of the
money that is obtained after paying for all the expenses will be used
for the promotional budget.
(b)
Percentage-of-Sales Method
Another method that is normally used in businesses is the percentageof-sales method. Most companies set promotional expenditure at a
specific percentage of sales (either current or anticipated) or of the
sales price. This method is popular and easy because marketers only
need to decide on a percentage of sales that changes at certain times.
(c)
Competitive-Parity Method
There are companies that determine their promotional budget based
on competitors. This method is known as the competitive-parity
method, where marketers keep an eye on the competitors
promotional budget through published sources. This method will
help the company in allocating more accurately for the promotion. It
is normally used based on the assumption that states competitors are
skilled at determining promotional budgets. Budgeting based on
competitors will also decrease promotional wars.
However, this assumption is incorrect because competitors need not
be accurate in determining the promotional budget. If competitors
make a mistake, the marketer who follows will also fail. The
assumption that states this method reduces promotional war is also
not true because there is no strong basis that states this method
reduces promotional war.
(d)
Objective-and-Task-based Method
Before determining the promotional budget, the company will
identify the objectives that are to be achieved later and determine
costs and tasks that are appropriate to achieve the set objective. There
are three main steps in the objective and task-based method and they
are:
(i)
Identifying the objective
(ii)
Determining task
(iii) Determining cost
200 X
ANSWERS
Because of the difficulties in determining the task and cost to achieve

objectives, not many companies use this method in determining their
promotional budget. However, this method is one of the best
promotional budget methods because the management has to plan
meticulously based on the companys objectives before doing the
promotional budget.
4.
There are two types of promotional mix strategies, which is the pull and the
push strategy.
(a)
Push Strategy
Through the push strategy, the product will be pushed through
promotion in the distribution channel to the final users. For example,
the producer will promote the product to the wholesaler. Then, the
wholesaler will promote the product to the retailers; the retailers will
carry out promotional activities to the users so that they purchase the
product. Normally the push strategy is used in the organisational
markets. When a company sells its products to another company,
personal selling will be used to provide explanation, and user
demonstration.
(b)
Pull Strategy
In the pull strategy, the producer will carry out promotional activities
direct to the final users to encourage them to purchase the products in
the market. For example, the producer will carry out promotional
activities like advertising on the television or sales promotion for the
final users. If this strategy succeeds, the users will demand for
products from the retailers and retailers will demand for products
from the wholesalers and wholesalers from the producers. Thus, in
the pull strategy, the users will pull the product by demand
through the distribution channel.
The pull strategy is normally used in consumer markets. For example,
Coca-Cola the producer of soft drinks advertises its products and
brand on the television. Consumers will watch and visit the retail
stores to get the product. Demand from the consumers will encourage
retailers to demand from the wholesalers and next from the
producers.
ANSWERS
TOPIC 8
W 201
MANAGING ADVERTISING, SALES

PROMOTION AND PUBLIC RELATIONS
Exercise 8.1
Essay Questions
1.
2.
The advantages of the advertising objectives in marketing are:

(a)
It ensures activities and initiatives of the parties involved in

advertising are towards the accomplishments of that objective
(b)
It will be a guide to the company on the strategies of decision-making,

budgeting, message and advertising media.
(c)
It helps a company in its effort to conduct evaluation for its marketing

actions and to check whether the objectives set at the beginning is
achievable.
Any four of the message implementation styles can be used as your

answers. Some of the message implementation styles are:
(a)
Slice of Life
This advertisements implementation style gives importance to life
acting in normal situations. For example, the advertisement on Koko
crunch cereals shows individuals eating breakfast everyday.
(b)
Lifestyles
This style shows how a product is adapted to a certain lifestyle. For
example, a luxury lifestyle is depicted in Dunhills advertisement
while challenging or dream lifestyles are portrayed in the Benson &
Hedges (Golden Dreams) advertisement.
(c)
Fantasy
This style tries to create a certain level of fantasy around the product
and its usages. For example, take advertisements that depict fun when
the product is used.
202 X
ANSWERS
(d)
Feelings or Image
This style depicts feelings or images associated to the product usage
like the feelings of affection. For example, take advertisements that
shows family affection and love between the father, mother and
children.
(e)
Musical
This advertisement shows the usage of background music or singing
in an advertisement that can attract the viewer. For example, take the
World Cup football advertisement.
(f)
Personality Symbol
This is an advertisement style that uses personality as a character to
represent the product. For example, take the cat Garfield and Ronald
in McDonalds advertisements.
(g)
Technical Experts
This style shows the company displaying their expertise or technical
skills in producing a product. For example, advertisements that show
the production process of a product from the beginning to the end.
(h)
Scientific Evidence
This style shows research has been done by proving that the product
advertised is better than the competitors product. For example, in a
gamat or sea herb product advertisement, its contents are tested
through a scientific process and the advertisement Quantum Trim &
Firm which used to be known as Hollywood FB, shows that
consumers who use the product are able to slim down.
(i)
Testimonials
This advertisement uses celebrities or professional members to
represent a company in introducing a product. For example, the
national squash player Ong Beng Hee in the Excel drinks
advertisement and singer Siti Nurhaliza in the Maybeline
advertisement. Besides that, there are many types of messages that
can be delivered like inserting elements of humour such as jokes,
positive tones, fear, and others. The advertiser or the company can
insert any message that will attract the viewer to watch and act
accordingly.
ANSWERS
W 203
Exercise 8.2
Essay Questions
1.
Trade promotion is directed towards the members of the distribution

channel and consumer promotion is directed towards the consumers.
(a)
Trade Promotion Objectives

(i)
To introduce the new or the modified product.
(ii)
To increase the distributed size or new packaging.
(iii) To add or maintain producers space at the store room or shop.

(iv) To reduce the excess inventory and increase sales.
(v)
(b)
To encourage retailers to purchase early and to support the

producer.
Consumer Promotion Objectives

(i)
Attract consumers attention to try out new products.
(ii)
Attract consumers to purchase the companys products as

compared to the competitors products.
(iii) To reward loyal consumers.

(iv) To maintain long-term relationship with customers.
2.
Public relations involves a variety of programmes designed to promote or

protect a companys image or its individual products.
3.
Public relations involves a variety of programmes designed to promote or

protect a companys image or its individual products. Its four functions are:
(a)
To create publicity for the companys product such as launching of

new products or sponsoring a television show.
(b)
To handle issues related to the public.
204 X
4.
ANSWERS
(c)
To handle media relations like preparing information or news about

the organisation or product for the media to attract attention and
create a positive image among the public.
(d)
To lobby in the effort to build and maintain long-term relationships

that are good with the government.
Three forms of advertising objectives that can be used by the marketers are:
(a)
Informative advertising A form of advertising with the goal of

passing information to the target consumers. When a company wishes
to introduce a new product, it can use this type of advertising.
Information on the products features and advantages as compared to
that of the competitors can be conveyed to the target market.
Informative advertising is also appropriate for informing the methods
of using a product. For example, in rubbish disposal advertisements
certain categories of rubbish are disposed according to the bins
colour. For example, bottles are disposed in orange coloured bins
while tins are disposed in green coloured bins.
(b)
Persuasive advertising is used when competition increases. When

there are too many competitors producing the same products, this
kind of advertising is appropriate to persuade consumers to choose
that particular companys products. At this stage, the company has to
state the advantages of the product as compared to the competitors.
For example, consider the competition between companies that
produces washing detergent brands like Fab, Breeze, Trojan, Ekonomi
Handalan, Harimau Kuat, and others. These companies have to make
use of the advantages of their products and develop a creative
advertisement to persuade consumers to choose their brands. Due to
the competition, this causes the companies to compare their products
to those of the competitors. For example, Trojan soap and Brand Z
indirectly compare products.
(c)
Product advertising For the products that have reached the maturity
stage. The advertising objective at this stage is to remind the
consumers that the product still exists in the market and for the
consumers to remember the product always. For example, take Milos
nutritious drink advertisement. Although this brand is well known,
the company still continuously advertises in order for the consumer to
remember its products and select them in stores. Other examples are
soft drinks like Pepsi and Coca-cola which advertise repetitively on
the television all year long.
ANSWERS
5.
W 205
There are four steps in advertising media selection:

(a)
Deciding on Reach, Frequency and Impact

When media selection is done, the advertiser has to think about reach,
frequency, and the medias impact in achieving the advertising
objectives. Reach means the percentage of viewers from the target
market who are exposed to that media.
For example, 80 percent of viewers from the target market will be
exposed to the advertising campaign in the first six months. The
media tools chosen will have their own characteristics in reaching out
to the public.
For example, the usage of national newspapers has a high rate of
coverage. Thus, the probability of reaching the target viewers is quite
high as compared to the other media tools. Frequency refers to the
number of times within a specified period that an average person or
household is exposed to the message.
For example, a company may want the advertisement or message to
reach each individual or for it to be exposed at least thrice a month.
Media impact refers to the enhancement of qualitative values or the
effectiveness of a media channel used.
For example, the effects of using a television to show movements and
the actual product leave a larger impact as compared to newspapers.
The selections of reach, frequency and impact levels need thorough
planning because they involve outputs to be achieved through budget
allocation.
(b)
Choosing among Major Media Types

Choosing between major media types depends on the reach,
frequency and impact level of each major media. The advertiser needs
to look at the advantages and disadvantages of each major media. For
example, if the target market is wide, has general characteristics and
the company does not want high cost to be involved, the usage of
newspapers will be appropriate.
However, if the advertiser needs to reach a specific target market with
a certain frequency and period, the usage of magazines would be
more appropriate.
206 X
(c)
ANSWERS
Selecting Specific Media Channels

At this stage, the company or advertiser has to choose a specific media
channel from the general media chosen. For example, if a company
chooses the magazine as its advertising media channel, the company
has to choose a specific magazine channel for its target viewers.
Examples of specific magazine channels are Wanita, Ibu, Bola Sepak,
Roda-roda, Anjung Seri and other magazines. If the company chooses
television as its main media, it has to choose a specific segment like
Buletin Utama, comedy programmes, Majalah 3, sports programmes,
and others.
Selecting a specific media channel depends on many factors. Some of
the major factors are target viewers like sports enthusiasts,
entertainment enthusiast or documentary enthusiasts. Product
characteristics influence media selection as well. For example, luxury
furniture is more appropriately displayed on coloured and high
quality magazines. Besides this, the advertiser or company has to
think about cost. For example, advertising costs in a popular and well
liked programme like Who Wants To Be A Millionaire are high.
(d)
Deciding on Media Timing

The final step in media selection is deciding on the appropriate media
timing to air the advertisement. Planning can be done through
detailed media scheduling based on the companys objectives. A
company can schedule the advertisement at the same frequency rate
all year long. For example, an advertisement can be aired once a week
or once a month in a year like advertisements for Coca-cola.
The company can schedule advertisements intensively within a
specified period or reduce the frequency of the advertisements in a
specified period. For example, the advertisement for Yeos soya bean
milk drink is aired on the television at a high frequency rate during
the fasting month (Ramadan) but is aired less frequently during the
other months. Both types of scheduling have their own advantages.
Scheduling that concentrates on a specified time period will produce
an instant reaction from viewers because they need the products at
that time. Evenly spread scheduling has the ability to reinforce
memory and brand loyalty.
ANSWERS
6.
W 207
The advantages and disadvantages of major media types are explained in

Table 8.2 below.
Table 8.2: The Advantages and Disadvantages of Major Media Types
Media
Advantages
Disadvantages
Outdoor
Advertising
Flexibility in terms of geography,

low cost, easy to identify, and is
remembered last before purchase
is done.
Cannot select audience, short

appearance time, hard to measure
viewers size and environmental
problems.
Newspapers
Good market coverage, flexible,

able to give detailed explanation,
high believability and timeliness.
Doesnt reach the specific target

group, moderate reproduction
quality and short life span.
Magazines
Specific target market, long life

span, high reproduction quality,
completes product information,
and has credibility.
High cost and takes a long time

for an issue to be published.
Radio
Reaches local target viewers, able

to cover a wide target market and
low cost.
Cluttered, no visual only audio,

low
attention,
difficult
to
purchase radio advertising time.
Television
Able to demonstrate, good market

coverage, combination of audio
and visual is able to attract high
attention.
Cluttered, high cost, audience

selectivity not specific.
7.
A coupon is a promotional tool that saves money for the consumers. It is a

promotional tool that is frequently used by the producer. Normally,
coupons are given in the form of certificates and the consumers will obtain
savings when they purchase a specific product which is stated on the
certificate. Coupons are normally distributed through newspapers,
magazines, direct mail from the inside or the outside of a package. Coupons
can give instant rewards to the consumers and encourage trial purchases
and repeat purchases by loyal customers.
Sales promotion tools that use samples are among the most popular tools
that are used to deliver products to potential consumers. Normally,
samples are products that are packaged in smaller packs for consumers to
try them. It is normally distributed through individuals inside or outside
stores and supermarkets. Samples are the most effective method to
introduce new products in the market. However, the cost to use it is quite
high because samples are normally given free to prospective customers
who most probably would miss out if the sample is sent thorough mail.
208 X
8.
ANSWERS
There are four main steps in decision making when the management wants
to use public relations as one of the promotional tools. Methods for
marketing communication are creating marketing objectives, message and
channel selection, programme implementation and decision evaluation.
TOPIC 9
MANAGING THE SALES FORCE AND DIRECT

SELLING
Exercise 9.1
Essay Questions
1.
Personal selling plays an important role in the company because it helps

other promotional activities. The usage of advertisements as a promotional
method has its disadvantages because it consists of one way
communication. The explanation which is given through advertisements
may not be sufficient or may be hard to understand for the audience.
Personal selling explains a complex product which is difficult to
understand and has to be demonstrated by trained sales personnel.
Personal selling is mostly used in business and industrial markets. Products
for these markets are more complicated and expensive, requiring sales
personnel to explain in detail to the customers. Sales personnel are the
companys representatives when they meet customers.
Exercise 9.2
Essay Questions
1.
Direct marketing is an interactive marketing system which uses one or

more advertising media to obtain reactions that can be measured or to
enable transactions to be done anywhere.
2.
The advantages of direct marketing are:

x
Able to save time;
Introduces consumers to a larger selection of merchandise;
Marketer is able to shape direct marketing relationship with customers;
Ability and permission to conduct market testing through alternative

media using a cost efficient method;
ANSWERS
2.
W 209
Marketer can measure reactions towards any campaign which is carried

out and the ability to determine campaigns that are profitable;
Consumers can place orders for themselves or for others; and
Firms do not have to deal with the companys sales personnel to obtain
any necessity or stock.
Some of the major direct marketing channel forms that can be used by
direct marketers are:
(a)
Face to face Selling

Face to face selling refers to the personal selling source that is
professionally conducted for the company by placing and moulding
potential customers and directing them towards the business.
(b)
Direct Mail
Direct mail involves delivery of an offer, announcement, reminder or
other items to the companys customers. Before this, direct mail was
generally based on the concept of paper and was delivered through
the help of the government post office or private companies based on
the concept of profit such as Nationwide Express, Federal Express,
DHL and UPS. However, nowadays, through the advancement of
technology, three forms of new direct mail have been created: the fax
machine, e-mail and delivery through voice mail in telephones.
(c)
Catalogue Marketing
Catalogue marketing refers to marketing outputs through catalogues.
There are a few types of catalogues. Some of them are:
(i)
Full-Line Merchandise Catalogues
(ii)
Specialty Consumer Catalogues
(iii) Business Catalogues

(d)
Telemarketing
Telemarketing refers to the usage of telephone operators to attract new
consumers, current consumers or to take purchase orders. An effective
telemarketing depends on the right and accurate selection of the
telemarketer at the beginning stage, providing training to them and
providing performance incentives for the purpose of motivating them.
210 X
(e)
(f)
3.
ANSWERS
Other Media for Direct Response Marketing

It involves the usage of all major media types by the marketer in offering
directly to the potential customer. Major media includes newspapers
and magazines and they are used by the marketer in advertising his
products. Through the direct marketing concept, consumers who are
interested in the products that are advertised can telephone the
marketer directly through a toll free line. This form of advertising type
can be done through the television using three main methods:
x
Direct Response Advertising
At-Home Shopping Channel
Videotext and Interactive Television
Kiosk Marketing
Kiosk marketing refers to the customer-order-placing machines, better
known as kiosks. Kiosks are normally placed in warehouses, airports
or other suitable locations.
A good arrangement of the sales force structure will help the company to
maximise its sales force to generate profits. There are four sales force
structures that can be used by the management in designing the sales force
structure and strategy. They are sales force structures according to territory,
products, customers and complexity.
(a)
Territorial Sales Force Structure

This structure divides every sales personnel or a few sales personnel
to a geographical sales territory exclusive for them to sell and build
relationships. The advantage of this structure is the sales personnel
gets to focus their energy on a territory and communicate only with
the customers from that particular territory alone. Thus, sales quality
and productivity and communication can be maximised because time
and sales force get to concentrate on the customers at that particular
location. For example, SS Company that exports goods divided its
sales staff according to territories such as in South East Asia, Middle
East, Europe and North and South America.
ANSWERS
(b)
W 211
Product Sales Force Structure

Companies that have various products can use this structure in
arranging their sales personnel. Every sales personnel who is assigned
to sell a product has to be knowledgeable about the product. For
example, Harum Semerbak Company sells perfume, scented powder,
shampoo and others. Sales personnel who sell products like powder
have to be knowledgeable about the product, customers and the
territory when they are going to sell the products there.
The advantage of the product sales structure is that the sales
personnel are able to focus their skills on the product and they are
able to sell to customers regardless of territories, customer size and
others. But, the disadvantage of this structure is when the same
company buys various products from the seller. Two or more sales
personnel will frequent the same territory and they will meet the same
customers. Besides incurring high expenses, this will also cause
confusion in the consumers purchases.
(c)
Customer Sales Force Structure

Arranging the sales force structure according to customers or
industries can be divided into a few situations. Companies can divide
them according to:
(i)
New and existing customers
(ii)
Major and normal accounts
(iii) Different industries

The advantage of this structure is it enables the sales personnel to
concentrate on customers whom they are responsible for. Thus, the
company gets to build long-term relationships with consumers
because the sales personnel can focus on them. However, this
structure involves high operation costs because not many customers
can be visited if they live in a few locations away from one and
another.
(d)
Complex Sales Force Structure

This structure is a combination of territorial, product and customer
sales force structures. This structure is suitable when the company has
many products, various customers and they cover a wide area. Sales
personnel can concentrate their sales efforts according to territories
and customers, products and territories or others that are appropriate.
212 X
4.
5.
ANSWERS
There are seven steps in the personal selling process which is normally
experienced by the sales staff in carrying out the sales process. However,
they may not happen in sequence. The seven steps are:
(a)
Identifying prospective customer
(b)
Pre-approach
(c)
Approach
(d)
Presentation and demonstration
(e)
Identifying objectives and question and answers
(f)
Closing
(g)
Follow-up
Personal selling had a short-term business dealing motive traditionally. The

main objective was to obtain customers and to close sales. However,
marketing based on this dealing has its disadvantages. Among the
disadvantages is that it only emphasises on sales at that time without the
presence of the long-term relationship aspect. After sales, there is no other
form of communication and the sales staff will have to look for new
customers for the next sales. Looking for new customers will involve high
cost because sales staff have to contact the customers all over again. Based
on this disadvantage, companies have started to emphasise on relationship
marketing. Relationship marketing emphasises long-term relationships
with the customers by creating values and high satisfaction to the
customers.
The main objective of relationship marketing is to maintain the existing
customers. Through continuous relationship with customers, the company
gets to save the cost of obtaining new customers. Thus, sales staffs have to
maintain long-term and close relationships with customers. Customers will
feel appreciated and this will be profitable to the company in the long run.
6.
Customer database refers to a complete and organised data system of

customers or potential customers of a company. In addition, a consumer
database also contains other information regarding outputs that are bought,
units purchased before, price, practical buying practices, demographic
information and others. What is more important is the information in the
consumer database is up to date, easy to obtain or reach, and can be used
for the purpose of marketing, either as a guide or from the aspects of
generation, qualification and suitability, output sales or communication
between consumers.
ANSWERS
W 213
Marketing database refers to the development process, maintaining and

using the database, and other databases (including output, suppliers, and
sellers) for the communication and and business purposes.
7.
The electronic channel is the latest direct marketing method. The word ecommerce means multiple electronic platforms such as message delivery to
the supplier through EDI (Electronic Data Interchange), usage of fax
machines and e-mails in carrying out various business dealings, the usage
of ATMs and smart cards to ease payments, and the usage of the Internet or
other telemarketing services.
The e-commerce channel consists of two forms and they are:
8.
(i)
Commercial Channels
Commercial channels are online information or marketing services
that are created by most firms today for the purpose of making it
easier for the consumers to obtain specific information regarding the
firm. Besides this, it is for the purpose of making monthly payments
easier, especially for payment in the form of fees. These channels
normally provide information in the form of news, references, sports
and learning, entertainment, buying services, opportunities to interact
through bulletin boards, forums or chat sites and e-mails.
(ii)
Internet
The Internet is a global computer web network which is capable of
shaping global communication fast and instantly. Through the
Internet, users can send e-mails, exchange and share opinions,
purchase outputs, obtain and receive news, or obtain business
information quickly and effectively.
From the angle of a potential purchaser, online service usage is convenient,

resourceful and reduces noise like persuasion and emotions that occur
when the sales personnel meets the customers face to face. This is because
they do not have to meet the sales personnel.
From the marketers perspective, the benefits are listed below:
(a)
The ability to do adjustments fast especially when it comes to

increasing the outputs of the company, price changes and output
description.
214 X
ANSWERS
(b)
Reduces costs such as insurance, rental or usage costs. The marketer is

able to produce digital catalogues which are able to reduce delivery
and printing costs.
(c)
The ability to have business relationships with customers or market

share, analyse sales expenditure, analyse financial positions and
analyse the market to carry out yearly planning control.
TOPIC 10
MARKETING CONTROL
Exercise 10.1
Essay Questions
1.
Steps that have to be taken by the marketer in marketing control are:

(a)
Deciding on Performance Standards

This step requires the marketer to select performance measurement
standards. Standards that are selected should be achievable and
measurable.
(b)
Deciding on Types of Feedback

There are various feedback data that can be selected by the marketer
to be used in deciding the types of feedback. Among the feedback
data that can be used by the marketer is purchasers feedback,
intermediary, supplier, product performance and business dealings.
(c)
Obtaining Feedback
Feedback can be obtained from two main sources, and they are:
x
Internal sources like sales records, purchase records and staff
External sources like marketing research findings regarding

consumer behaviour, competitors and market trends
All the feedback obtained has to be focused towards the evaluated

units performance like the achievements of sales groups or strategic
business units.
ANSWERS
3.
W 215
(d)
Evaluating Feedback
All feedback has to be scrutinised and analysed in depth to help the
marketer in making accurate conclusions regarding the units
performance that is evaluated. Marketers normally use various types
of information to evaluate performance, especially from the aspect of
identifying weaknesses and the evaluated units shortcomings.
(e)
Implementing Corrective Action

If the evaluation results discover the unit that is analysed has
succeeded in exceeding the performance standards, motivational
actions like giving out rewards, promotions and salary raises have to
be implemented. If the evaluation results discover that the units
actual performance achievement is below or does not meet
performance standards that have been decided, then corrective
measures have to be carried out.
The marketer has to obtain feedback regarding the staff performance and
marketing activities to carry out corrections towards the performance
standards. The inability to reach performance standards that has been
decided may be a result of staffs incapability or inappropriate marketing
techniques or strategies.
Exercise 10.2
Fill in the Blanks
1.
final
2.
five, deciding on performance standards
3.
evaluating feedback
4.
Implementing corrective actions
5.
Market share
6.
Strategic
216 X
ANSWERS
Essay Questions
1.
2.
There are four methods or mechanisms that the marketer can choose from
to implement the marketing control process. Those methods are:
(a)
Annual-Plan Control
This method is provided to make it easier to achieve all the objectives
that have been decided in the marketing management process,
especially from the aspect of target sales, profitability or market share
dominance. There are five evaluation methods that can be used by the
marketer to come up with annual plan methods. Those methods are
sales analysis, market-share analysis, sales expenses analysis, financial
analysis and market analysis.
(b)
Profitability Control
Through these control mechanisms, the marketer has to determine the
cost that is required for each marketing activity that has to be carried
out as stated in the marketing plan. This indirectly acts as a guide for
profit levels that will be obtained.
(c)
Efficiency Control
Efficiency control is a control method which is used to complete
the other control mechanisms especially the profitability control
method. Through this method, the marketer will evaluate each units
performance or special activities like the sales teams effectiveness,
advertising activities and distribution.
(d)
Strategic Control
Strategic control is a comprehensive and systematic control system for
the entire performance attainment by all the units and activities. This
control method is often used by marketers in the strategic business
unit control process. Strategic control normally involves analysis on
strength weaknesses, threats and opportunities.
There are five evaluation methods that can be used by the marketer to come
up with the annual plan and they are:
(a)
Sales Analysis
Sales analysis is done to evaluate sales outcomes based on the
relationship between inputs and outputs. This means, sales analysis
covers measurement and evaluation of actual sales as compared to the
sales objectives that have been decided by the marketer. There are
four forms of sales analysis that can be chosen by the marketer, which
ANSWERS
W 217
are the territorial sales analysis (according to sales area), product sales
analysis (every product or according to the product line marketed),
sales analysis based on the order size and sales analysis based on
purchasers (according to purchasers, who are individual consumers
and organisations or special purchasers).
(b)
Market-share Analysis
Market-share dominance analysis is an important indicator towards
the actual performance of the company as compared to its competitors.
There are four methods of measuring market share which can be
chosen by the marketer. They are: the overall market share, served
market share, relative market share as compared to two of the largest
competitors and relative market share as compared to the largest
competitor.
(c)
Sales Expenses Analysis

This analysis is for the purpose of ensuring that the marketer spends
smartly or wisely to reach the objectives that have been decided in the
marketing management process. Through this method, total sales
expenditure will be compared with sales outcomes obtained. The
larger the ratio value, the lower the performance achievement for the
marketing strategy implementation.
(d)
Financial Analysis
This method helps the marketer identify factors that influence net
return rates. Some of the factors evaluated are profit contributions,
asset turnover, return on asset and financial leverage. This means, the
marketer has to analyse asset composition like cash flow, accounts
receivables, inventories and equipment.
(e)
Market Analysis
This method is different from the other four market share analysis
methods that have been discussed before this and does not count the
financial factor in analysing the companys performance. Through this
method, the marketer evaluates factors like the total number of new
purchasers, purchasers who are not satisfied and the target consumers
awareness level before a conclusion regarding the markets performance
is made.
218 X
3.
ANSWERS
The implementation process of a marketing audit is similar to the

implementation process of marketing control. However, the steps that are
involved in the marketing audit are briefer and more comprehensive.
The marketing audit, similar to the marketing control process starts with
the objective setting effort, the scope determination (control standards) and
marketing control measurement methods. The next step is the marketer has
to obtain data on feedback. There are obvious differences between the
marketing audit and the feedback process from the aspect of the need to
evaluate feedback data. Through the marketing audit, the marketer has to
collect and prepare reports on the revenue.
MODULE FEEDBACK
MAKLUM BALAS MODUL
If you have any comment or feedback, you are welcome to:

1.
E-mail your comment or feedback to modulefeedback@oum.edu.my
OR
2.
Fill in the Print Module online evaluation form available on myVLE.
Thank you.
Centre for Instructional Design and Technology
(Pusat Reka Bentuk Pengajaran dan Teknologi)
Tel No.:
03-27732578
Fax No.:
03-26978702

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BBPM2203

Prof Dato Dr Mansor Fadzil

Loo Sze Wei

Centre for Instructional Design and Technology

Meteor Doc. Sdn. Bhd.

First Edition, August 2007

Market Positioning and Managing Product Life Cycle

New Product Development

Managing New Product Lines and Brands

Managing Services Marketing

Developing Strategies and Managing Pricing

Managing Marketing Channels, Intermediaries and Physical

7.3.3 Design the Message

Managing Advertising, Sales Promotion and Public Relations

Managing the Sales Force and Direct Selling

9.2.7 Motivating Sales Force

COURSE GUIDE DESCRIPTION

Table 1: Estimation of Time Accumulation of Study Hours

Briefly go through the course content and participate in initial discussion

Study the module

Attend 3 to 5 tutorial sessions

Assignment(s), Test(s) and Examination(s)

TOTAL STUDY HOURS ACCUMULATED

Discuss what is marketing and managing marketing efficiently and

Assess the environment and the factors that influence marketing

Explore the methods of managing and implementing the marketing

Evaluate the insights and control implementation and performance

Topic 8 discusses strategies and elements of management tactics in the

TEXT ARRANGEMENT AUDIENCE

Activity: Like Self-Check, the Activity component is also placed at various

TAN SRI DR ABDULLAH SANUSI (TSDAS)

Define the concept of market positioning;

Explain the dimensions that can be used by a company to

Discuss product life cycle concepts and the relevant positioning

MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE

Market positioning is the act of designing a companys offerings and image to

Without differentiation, a product will be viewed as similar to other products. If

TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE W

The product itself;

Company staff or personnel;

Distribution channel used; and

Products offered by a company can be used as a basis to differentiate the

MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE

(iii) Defect Free

(vi) Fit and Finish

Design and Style

Figure 1.1: Designs and shapes of perfume bottles

TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE W

Distribution channels used to distribute the products of a company can be used

MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE

Staff or Personnel Differentiation

Personnel can also be a differentiating factor for a company. Trained, dedicated,

TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE W

Describe briefly the concept of market positioning.

Why do basic differences exist in businesses?

PRODUCT LIFE CYCLES

Maturity stage; and

Figure 1.2: Product life cycle curve

MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE

Increase the volume of advertisements to create consumer awareness;

Increase the number of distributors to distribute the products to the

Continue the advertisement campaign to build awareness, interest and

Appoint more distributors to ensure the products can be purchased by a