BDPM1103 PDF

OUM Business School
BDPM1103
Introductory Marketing
Copyright © Open University Malaysia (OUM)

BDPM1103
INTRODUCTORY
MARKETING
Alvin Yong Onn Soon

Project Directors: Prof Dato’ Dr Mansor Fadzil
Prof Dr Wardah Mohamad
Open University Malaysia
Module Writer: Alvin Yong Onn Soon

Universiti Putra Malaysia
Developed by: Centre for Instructional Design and Technology

Open University Malaysia
First Edition, May 2007

Copyright © Open University Malaysia (OUM), October 2010, BDPM1103
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 xiă xv
Topic 1 What is Marketing? 1

1.1 Definition and Core Concepts of Marketing 2
1.1.1 Definition of Marketing 2
1.1.2 Core Concepts 2
1.1.3 Relationship between Concepts 7
1.2 Marketing Management 8
1.2.1 Demand Management 8
1.2.2 Managing Customer Relationship 9
1.3 Philosophy of Marketing Management 9
1.3.1 Production Philosophy 9
1.3.2 Product Philosophy 10
1.3.3 Sales Philosophy 10
1.3.4 Marketing Philosophy 11
1.3.5 The Societal Marketing Philosophy 11
1.4 Marketing Challenges in the 21st Century 13
1.4.1 Information Technology Explosion 13
1.4.2 Internet 13
1.4.3 Rapid Global Development 14
1.4.4 Ethics and Social Responsibility 14
1.4.5 New Marketing Landscape 15
Summary 16
Key Terms 17
Topic 2 Influence of Environmental Factors 18

2.1 Micro Environment 19
2.1.1 Company 19
2.1.2 Suppliers 20
2.1.3 Marketing Channels 20
2.1.4 The Market 21
2.1.5 Competitors 22
2.1.6 Community 22
2.2 Macro Environment 22
2.2.1 Demographic Forces 23
2.2.2 Economic Forces 24
2.2.3 Technology Forces 24
2.2.4 Cultural Forces 25
2.2.5 Political Forces 25
2.2.6 Natural Forces 25

iv X TABLE OF CONTENTS
Summary 26
Key Terms 27
Topic 3 Importance of Market Information 28

3.1 Marketing Information System 28
3.1.1 Assessing Information Needs 29
3.1.2 Gathering Information 30
3.1.3 Analysing Information 31
3.1.4 Sharing Information 31
3.2 Marketing Research Process 32
3.2.1 Identifying Problems and Research Objective 32
3.2.2 Developing a Research Plan 33
3.2.3 Implementing Research Plan 37
3.2.4 Analysing Report Findings 37
Summary 39
Key Terms 40
Topic 4 Strategy Formulation 41

4.1 Model of Consumer Behaviour 42
4.2 Factors Influencing Consumer Behaviour 43
4.2.1 Cultural Factors 43
4.2.2 Social Factors 44
4.2.3 Personal Factors 46
4.2.4 Psychological Factors 47
4.3 Buying Decision Process 48
4.3.1 Recognising the Need 49
4.3.2 Information Search 49
4.3.3 Alternative Evaluation 50
4.3.4 Decision to Buy 50
4.3.5 Behaviour after Buying 51
4.4 Decision Making Process for Buying New Products 52
Summary 53
Key Terms 54
Topic 5 Business Market 55

5.1 Characteristics of Business Market 56
5.1.1 Market Structure and Demand 56
5.1.2 Purchasing Unit Behaviour 56
5.1.3 Decision Making Type and Process 56
5.2 Business Purchasing Behaviour Model 57
5.3 Types of Purchasing Situation 58
5.3.1 Direct Repurchase 58
5.3.2 Repurchase Adjustment 58

TABLE OF CONTENTS W v
5.3.3 New Purchase 58

5.4 Participants in Business Purchase Process 59
5.5 Factors Influencing Business Buying 61
5.5.1 External Factors 61
5.5.2 Organisation Factors 62
5.5.3 Individual Personality 62
5.5.4 Individual Characteristics 62
5.6 Business Purchasing Process 62
Summary 64
Key Terms 65
Topic 6 Marketing Strategy: Segmentation, Targeting and Positioning 66

6.1 Steps in Marketing Strategy 67
6.2 Market Segmentation 68
6.2.1 Bases of Consumer Market Segmentation 68
6.2.2 Effective Segmentation 71
6.3 Market Targeting 72
6.3.1 Evaluate the Market Segment 72
6.3.2 Select Target Segment 73
6.4 Market Positioning 76
6.4.1 Recognise Own ProductÊs Competitive Edges 76
6.4.2 Select the Most Appealing Edge 77
6.4.3 Choose an Overall Positioning 77
6.4.4 Communicate the Positioning 77
Summary 78
Key Terms 79
Topic 7 Product 80
7.1 Product Levels 80
7.1.1 Core Benefit 81
7.1.2 Actual Product 81
7.1.3 Additional Product 81
7.2 Product Classification 82
7.2.1 Consumer Products 82
7.2.2 Industrial Products 84
7.3 Decisions on Product 84
7.4 New Product Development Process 88
7.4.1 Idea Generation 88
7.4.2 Idea Screening 89
7.4.3 Concept Development and Testing 89
7.4.4 Marketing Strategy 90
7.4.5 Business Analysis 90
7.4.6 Product Development 90

vi X TABLE OF CONTENTS
7.4.7 Market Testing 90

7.4.8 Commercialisation 91
7.5 Product Life Cycle 91
7.5.1 Product Development Stage 92
7.5.2 Introduction Stage 92
7.5.3 Growth Stage 92
7.5.4 Maturity Stage 92
7.5.5 Decline Stage 93
7.5.6 Style, Fashion and Fad 94
Summary 96
Key Terms 97
Topic 8 Price 98
8.1 Definition 98
8.2 Factors Affecting Price Decision 99
8.2.1 Internal Factors 99
8.2.2 External Factors 101
8.2.3 Other Uncontrollable Factors 102
8.3 General Approach in Price Setting 103
8.3.1 Cost-based Pricing 103
8.3.2 Perceived Value Pricing 104
8.3.3 Competition-based Pricing 104
8.4 Pricing Strategy 105
8.4.1 Pricing Strategy for New Product 105
8.4.2 Market Penetration Pricing 108
8.4.3 Price Adjustment Strategies 108
Summary 111
Key Terms 111
Topic 9 Distribution Channels 112

9.1 Channel Members 112
9.1.1 Multi Channel Marketing 114
9.2 Factors in Selecting Distribution Channels 115
9.2.1 The Market Factor 115
9.2.2 The Product Factor 115
9.2.3 The Producer Factor 116
9.3 Channel Functions 116
9.4 Channel Power 116
9.5 Channel Management 117
9.5.1 Channel Conflict 117
9.5.2 Conflict Settlement 117
9.6 Retailing and Wholesaling 117
9.6.1 Retailing 118

TABLE OF CONTENTS W vii
9.6.2 Wholesaling 121

Summary 122
Key Terms 123
Topic 10 Promotions 124

10.1 Integrated Communications 125
10.2 Promotion Mix Strategy 128
10.3 Advertising 129
10.3.1 Determine the Advertising Objective 130
10.3.2 Deciding on Media Use 132
10.4 Personal Selling 134
10.4.1 Steps in Selling Process 135
10.5 Sales Promotion 136
10.6 Public Relations 137
10.6.1 Functions of Public Relations 138
10.6.2 Major Tools of Public Relations 138
10.7 Direct Marketing 139
10.7.1 Benefits of Direct Marketing 139
10.7.2 Direct Marketing Tools 140
Summary 143
Key Terms 144
Answer 145

TOPIK 2 KAEDAH DAN TEKNIK W 17

COURSE GUIDE

x X PANDUAN KURSUS

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 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
BDPM1103 Introductory Marketing is one of the courses offered by 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 course for students pursuing the Diploma in Management
program.
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 confirm the course material, the course requirements and 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  COURSE GUIDE
Table 1: Estimation of Time Accumulation of Study Hours
Study
Study Activities
Hours
Briefly go through the course content and participate in initial discussion 3
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
LEARNING OUTCOMES
By the end of this course, you should be able to:
1. Explain the principles of marketing management;
2. Describe the process of marketing research and marketing strategies;
3. State the factors which influence the marketing environment;
4. Identify the factors influencing the behaviour of consumer purchasers and
the processes gone through until the decision is made;
5. State how the company does its segmentation, targeting and market
positioning;
6. Explain the level of products and the classification of consumer and
industrial products;
7. List the development stages of a new product; and
8. Discuss the various factors towards the new product price.
COURSE SYNOPSIS
This course is divided into 10 topics. The synopsis for each topic can be listed as
follows:
Topic 1 discusses on the definition of marketing and core marketing concepts.

This is followed by explanations the meaning of marketing management and the
main focus of marketing management. Subsequently, the philosophy of

COURSE GUIDE  xiii
marketing and the challenges faced by marketing managers in the new

millennium are discussed.
Topic 2 describes the influences of environment factors which are divided to

micro and macro environment.
Topic 3 discusses on how marketing information systems can assist marketing

managers to obtain information on the environment. This topic also focuses on
one of the way in obtaining information· research.
Topic 4 provides an introduction to consumer behaviour, both marketing and

non-marketing stimuli. Next, factors that influence the purchasing behaviour of
end consumers are discussed. The process of decision making by end consumers
are discussed e.g. point of purchase and after purchase behaviour.
Topic 5 describes the differences between business consumers and end

consumers. Factors that influence the business consumers in decision making
and appropriate methods of dealing with them are discussed.
Topic 6 looks on how companies resolves issues of diversity in consumers and

how it focuses on smaller groups which are more similar in nature. In other
words, companies makes decisions on products, price, distribution channel and
various forms of promotion· called marketing mix, to fulfil the needs and
requirements of the target market.
Topic 7 discusses on definition of products and marketing strategies related to

product.
Topic 8 discusses on determining price. In this topic, issues discussed include

factors that influence price and approaches in determining price.
Topic 9 explains about distribution channel and decisions that should be made
while designing and managing distribution channel.
Topic 10 covers promotion mix – a multiplicity of ways that can be used to

inform and influence consumer into buying products.
TEXT ARRANGEMENT GUIDE

Before you go through this module, it is important that you note the text
arrangement. Understanding the text arrangement should help you to organise
your study of this course to be more objective and more effective. Generally, the
text arrangement for each topic is as follows:

xiv  COURSE GUIDE
Learning Outcomes: This section refers to what you should achieve after you
have completely gone through a topic. As you go through each topic, you should
frequently refer to these learning outcomes. By doing this, you can continuously
gauge your progress of digesting the topic.
Self-Check: This component of the module is inserted at strategic locations

throughout the module. It is inserted after you have gone through one sub-
section or sometimes a few sub-sections. It usually comes in the form of a
question that may require you to stop your reading and start thinking. When you
come across this component, try to reflect on what you have already gone
through. When you attempt to answer the question prompted, you should be
able to gauge whether you have understood what you have read (clearly,
vaguely or worse you might find out that you had not comprehended or retained
the sub-section(s) that you had just gone through). Most of the time, the answers
to the questions can be found directly from the module itself.
Activity: Like Self-Check, activities are also placed at various locations or junctures
throughout the module. Compared to Self-Check, Activity can appear in various
forms such as questions, short case studies or it may even ask you to conduct an
observation or research. Activity may also ask your opinion and evaluation on a
given scenario. When you come across an Activity, you should try to widen what
you have gathered from the module and introduce it to real situations. You should
engage yourself in higher order thinking where you might be required to analyse,
synthesise and evaluate instead of just having to recall and define.
Summary: You can 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 inside
the summary that you do not fully understand, it would be a good idea for you
to revisit the details from 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 jargons used
throughout the module. Should you find terms here that you are not able to
explain, you should look for the terms from the module.
References: References is where a list of relevant and useful textbooks, journals,

articles, electronic contents or sources can be found. This list can appear in a few
locations such as in the Course Guide (at References section), at the end of every
topic or at the back of the module. You are encouraged to read and refer to the
suggested sources to elicit the additional information needed as well as to
enhance your overall understanding of the course.

COU R SE GUIDE  xv
PRIOR KNOWLEDGE
No prior knowledge is required
ASSESSMENT METHOD
Please refer to myINSPIRE.
REFERENCES
Kotler, P., & Armstrong, G. (2003). Marketing: An introduction (6th ed.). Upper
Saddle River, NJ: Prentice-Hall.
Other suggested references are:
Boone, L. E., & Kurtz, D. L. (2001). Contemporary marketing (10th ed.) Texas,
USA: Dryden Press.
Etzel, M., Walter, B., & Stanton, E. (2001). Marketing (12th ed.). Boston: McGraw-
Hill.
Brassington, F., & Petitt, S. (2003). Principles of marketing (3rd ed.) London:
Pittman Publishing.
Zikmund, W. G. (1996). Marketing (5th ed.). New York, USA: West Publishing
Company.
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, Books24x7, 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.

TOPIK 2 KAEDAH DAN TEKNIK W 17

Topic X What Is
1 Marketing?
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define marketing and the 12 core concepts of marketing;
2. State the relationships that exist among core concepts of
marketing; and
3. Explain the differences between marketing philosophy and sales
philosophy.
X INTRODUCTION
Do you know what is marketing? Often, we hear the word „marketing.‰ Some of
us might even have a friend who works in a marketing department. This leads us
to think, what is marketing all about? Some of us might have an idea as
marketing exists around us. Some regard it as selling while others consider it as
advertising and promotions. These are general perceptions of what marketing
really is. Selling, advertising and promotions are all marketing activities. Is the
scope of marketing confined to only selling, advertising and promotional
activities? To find out more about marketing, we need to understand the
definition and meaning of marketing, the core concepts of marketing, the
relationship between these concepts, the major development of marketing
management philosophy and the roles played by the firm and the consumer
based on this philosophy. Finally, we will learn about new challenges faced by
marketers.

2 X TOPIC 1 WHAT IS MARKETING?
1.1 DEFINITION AND CORE CONCEPTS OF

MARKETING
1.1.1 Definition of Marketing
ACTIVITY 1.1
Before looking at the meaning of marketing, please write down what you
think marketing means.
Marketing is a business function which deals with customers. Marketing can be

defined as a process where individuals or groups in a community obtain their
needs and wants through the creation and exchange of products with each other.
The main objectives of marketing are to create value, provide customer
satisfaction and generate profit for the company.
A more formal definition of marketing is provided by the American Marketing

Association (AMA), which states that „marketing is the process of planning and
executing the conception, pricing, promotion and distribution of ideas, goods
and services to create exchanges that satisfy the objectives of individuals and
organisationsÊ goals.‰
The above definition incorporates various aspects of the core concepts of

marketing. We will explain each core concept and hopefully, the meaning of
marketing will become clearer to you.
1.1.2 Core Concepts

The core concepts are the main thrusts in defining marketing. The core concepts
of marketing are listed below:
Ć Needs, wants and demand
Ć Products and services
Ć Value, satisfaction and quality
Ć Exchange, transaction and relationship
Ć Market

TOPIC 1 WHAT IS MARKETING? W 3
(a) Needs, Wants and Demand

To understand and appreciate the meaning of marketing, we must be able
to differentiate between the three basic concepts of marketing. There are
needs, wants and demand.
Human beings have many needs. Their basic needs comprise:

(i) Physical needs such as food, clothing and shelter;
(ii) Security needs;
(iii) Social needs like sense of belonging and being loved;
(iv) Self-esteem; and
(v) Self-actualisation.
These needs were not created by marketers.
We have many wants as well. Wants vary from needs. Wants are human
needs created by cultural influence or individual personality. For example,
a hungry person may want to eat roti canai. He wants roti canai because it
is a type of Malaysian food that he is accustomed to eating. In this example,
food is a basic need while roti canai is a want.
The concept of demand is derived from consumersÊ wants which are

supported by their purchasing power. In the above example, if the person
has enough money, he might demand two roti canai. Not all wants are
demands. Although many people want to own a luxury car like Mercedes
or BMW, not all can afford to buy them (Figure 1.1).
Figure 1.1: Luxury goods

Source: www.google.com
Companies ought to understand their customersÊ needs, wants and demands

before offering them products and services. Only then will the customers
purchase their products and services. The products and services bought would
then be able to satisfy their needs and wants.

SELF-CHECK 1.1
What do you understand by needs, wants and demands?
(b) Products and Services

Another core concept of marketing is products and services. Consumers
satisfy their needs and wants by using products and services offered by
companies. In marketing, products consist of things which can be
purchased by customers to satisfy their needs and wants. These are not
limited to objects like houses, cars, computers and clothes but also include
services like haircut, car repair, banking etc.
ACTIVITY 1.2
Apart from the examples of products and services mentioned above,
think and write down two additional examples of products and
services which you have purchased recently.
(c) Value, Satisfaction and Quality

Value is defined as the difference between the value obtained by the
customer from possessing and using a product and the cost of acquiring the
product. If a customer perceives the benefits of a product as more than its
price, the productÊs customer value is positive and most probably the
customer will buy it. For example, if you are attracted to purchase a new
computer, you would develop expectations about it. If you think the
computer can meet your expectations and provide value for the money
paid, you may consider buying it.
This does not mean that customers are satisfied with every purchase. To
understand why, we must analyse the concept of satisfaction. According to
studies, customer satisfaction can be derived from two factors: customer
expectations and product performance. Consumers make choices based on
their perceptions of the value offered by the company. If product
performance is lower than expectations, satisfaction is low. If product
performance is higher than expectations, satisfaction is high. Based on the
earlier example, if the computer performance is not up to the customerÊs
expectations, the customer will not be happy with the purchase. On the
other hand, if the computer performance is within the limits or above the
customerÊs expectations, the customer will be satisfied with the purchase.

In order to determine customer satisfaction with every purchase, product

performance should be within or above customer expectations. The
company has to ensure that its products are of high quality and meet
customer expectations.
In short, the concepts of value, satisfaction and quality are closely related to
each other. The value or benefit gained by customers is positively linked to
satisfaction. If product performance meets customer expectations, this will
lead to customer satisfaction.
ACTIVITY 1.3
Draw a diagram to show the connection between satisfaction,
quality and customer value.
At this juncture, we have described the core concepts that relate to how
individuals and groups attain satisfaction by acquiring products and
services of value. The next question is how do customers satisfy their needs
and wants through exchange? This leads us to the next concept.
(d) Exchange, Transaction and Relationship

Customers obtain goods and services through exchange. Exchange happens
when individuals or groups interact to get a product they want by offering
something in return. Thus, the exchange process involves activities among
sellers and buyers. Sellers must find buyers, identify their needs, create a
quality product, set a price, promote and distribute the product to them.
When sellers and buyers are involved in exchange, this activity is known as
a business transaction (Figure 1.2). Transaction occurs when there is a trade
value between both parties. One party (marketer) offers a product to the
other party (customer) and in return, gets money from the transaction.

Figure 1.2: Business transaction
By transacting business, both the marketer and customer obtain something

of value. Hence, a relationship can be established. The relationship concept
is becoming more important in marketing because good relationship with
customers is the key to success in any business.
(e) Market
Market is a place where potential sellers and buyers meet with specific
intention. The purpose of a seller is to make profits from transactions while
the purpose of a buyer is to gain access to products and services which he
requires at an affordable price.
Every individual buyer is unique to the seller because of different needs

and wants. Hence, it is difficult for companies to produce
products/services that can satisfy all these needs and wants to be better
than their competitors. So, many companies strategise to segment and
target a smaller group of customers who have quite similar characteristics
and offer products/services to satisfy them. The target group identified by
the marketers is known as their market.
Knowing the market is important for a company to attract the right

customers into making an exchange, which means buying the
products/services of the company. By identifying the market, the company
can also understand the consumersÊ actual wants and needs. When the
company has actually understood the consumers well, it will provide
products/services wanted by the consumer. Then, consumers will be
pleased to buy the products/services of the company to fulfil their needs.

1.1.3 Relationship between Concepts

After learning each concept, we have to relate all these concepts together in order
to have a clearer understanding of marketing. Figure 1.3 shows the relationship
between concepts.
Figure 1.3 can be summarised as follows:

(a) Marketing begins with identifying consumersÊ needs, wants and demand.
(b) To fulfil the needs and wants, consumers will look for the goods and
services that can satisfy them.
(c) The goods/services purchased by consumers must be perceived of high
value then only consumers will feel satisfied with the purchase. The
company must also constantly deliver quality products to meet the
customersÊ expectation.
(d) Exchange occurs when both parties i.e. seller and buyer agree to let go of
something in return for some other things. If both parties agree to the
exchange, then a transaction will take place. When transaction occurs
repeatedly between the consumer and seller, a relationship is established.
(e) All these marketing activities happen in a marketplace where sellers
interact with buyers and understand their needs and wants.
Figure 1.3: Relationship between core marketing concepts

ACTIVITY 1.4
Think of your own understanding of the definition of marketing
before reading the formal definition. What are the similarities and
differences between your own definition and the formal definition?
Does your definition include the core concepts? Explain your answer.
If your answer is quite close to the actual definition and core concepts of
marketing, you may continue with the second subject in Topic 1, which is
marketing management. Remember what is important in subtopic 1.1 is the
relationship between all the marketing core concepts. If you are not happy with
your achievement, review the concept before you start subtopic 1.2.
1.2 MARKETING MANAGEMENT

A company consists of various functions. Among the functions are marketing,
production, finance, human resource,, etc. Marketing management is the only
function that deals with the demand of the market and satisfying customer
needs. Hence, marketing management not only involves customer acquisition,
retention and growth but is also concerned with creating value and customer
satisfaction.
There are two major activities in marketing management ă demand management

and managing customer relationship.
1.2.1 Demand Management

Demand management relates to activities in which a company can change the
demand level of the companyÊs product to another level desired by the company.
For instance, if the company has excess stock due to production overcapacity, it
can increase the demand by running promotional campaigns to encourage quick
sales.
A company may experience an erratic demand or changing demand level. For

example, a cinema is usually crowded during weekends while on weekdays it is
almost empty. In this situation, the cinema owner may want to balance up the
demand by shifting high demand on weekends to ordinary weekdays by offering
more expensive ticket price on weekends.

1.2.2 Managing Customer Relationship

Apart from managing demand, marketing management also involves activities
such as building relationships with customers. The concept of demand
management and building a good relationship with customers are inter-related.
This is because managing demand in the long run can result in establishing a
good relationship with customers. Thus, many companies put in a greater effort
to retain customers and develop a long-term relationship.
1.3 PHILOSOPHY OF MARKETING

MANAGEMENT
Marketing management philosophy serves as a guide to companies on how they
should conduct business. The philosophies outlined here are based on certain
principles. In this section, we will learn five philosophies.
1.3.1 Production Philosophy

The philosophyÊs assumption: Consumers prefer products in the
market that are affordable to them. In other words, consumers will
buy products that are available in the market but are also cheap.
Implications: The company should focus on its internal capability to

increase total production and efficiency of distribution. This
philosophy reflects mass production during the Industrial Revolution.
Companies will strive to decrease cost per unit of producing a product
in order to achieve what we call economies of scale. With this, price
can be reduced and more people can afford the product.
Production philosophy has long been sellersÊ practice with the condition that
there is a widespread mass production, huge untapped markets, limited firms
competing, no product differentiation, consumers have no selection and demand
is more than supply. A classic example is the Model T manufactured by the Ford
motor company.
But what we have seen in todayÊs world is a different scenario where businesses
and marketing are often changing and challenging. Very often, marketing
activities involve head-on competition with rivals and the market is flooded with
so many products for customers to choose. Then, we might ponder whether the
production philosophy is still applicable in todayÊs business context. However,

the production concept may be still useful in the situations: (a) when demand is
higher than supply and (b) when product cost is high. In these situations, the
company must increase its production level so that cost per unit produced can be
reduced.
1.3.2 Product Philosophy

The philosophyÊs assumption: Consumers favour products of higher
quality, performance and excellent innovative features.
Implications: Companies should devote efforts to continuously improve

production techniques so that better products can be offered in the
market.
The main weakness of this philosophy is that a company might become too
obsessed with its own products and neglect to identify the real needs of
consumers. This philosophy can put the company in jeopardy. When a company
is shortsighted in its product offering due to over-confidence that the product
will be accepted by customers and will never be outdated, it is called „marketing
myopia.‰ For instance, the typewriter was replaced by the personal computer.
The demand for typewriters declined sharply after the personal computer was
introduced. Typewriter companies did not foresee this coming.
1.3.3 Sales Philosophy

The philosophyÊs assumption: Consumers will not buy enough products
unless a company initiates more grand sales and promotions.
Implications: Many companies engage in this selling concept when they

face the problem of excess stocks due to customersÊ decision not to buy
their products. The company has to put in more effort by employing the
„aggressive selling‰ or „hard selling‰ approach to coax customers into
buying the products. This concept is still suitable for products that are not
commonly sought by customers such as insurance and funeral plots. So, it
is not surprising that companies in this type of business have to hire many
sales teams to find new markets.

This philosophy has its own weaknesses. For example, companies which over-
emphasise in selling activities are only interested in making sales and not
building customer relationships. The outcome is that consumers may find more
excuses not to buy the products.
1.3.4 Marketing Philosophy

The philosophyÊs assumption: Consumers will be loyal to the company on
condition that the company can satisfy their needs and wants better than
other firms in the market.
Implications: A company should initiate the study of needs and wants of

the target markets. It could then produce products based on the research
findings so that these products really meet customersÊ wants. A company
which holds this philosophy is customer-oriented. The organisational goal
is to satisfy customersÊ changing tastes and wants. Customers are treated
like a king and considered as always right.
However, this marketing philosophy has created environmental problems,

insufficient resources, fast population growth, economic problems and shortage of
social services. The problems arise because of this philosophy too emphasise on
customer satisfaction in short term period and neglect long term negative effects.
1.3.5 The Societal Marketing Philosophy

The philosophy's assumption: The societal marketing philosophy is a new
concept among all the marketing management philosophy discussed above.
It states that firms doing businesses within a community framework and
their marketing activities should not only deliver value to customer but also
care for the communityÊs welfare.
Implications: Due to this, the societal marketing philosophy calls for

companies to balance up their marketing activities between maximising
profit, customer satisfaction and the society welfare. The company should
be responsible for the consumersÊ short term wants and long term welfare.
Unfortunately, there are some companies who focused on satisfying
consumersÊ short-term wants but harm consumersÊ health and the
environment in the long run. Such companies are tobacco, liquor and fast
food companies and plastic waste that caused pollution to the public.

EXERCISE 1.1
The following are the five marketing philosophy. There are production
philosophy, product philosophy, sales philosophy, marketing
philosophy and societal marketing philosophy. Based on the scenario
given, select the most suitable philosophy for each manager.
Marketing Manager Opinion Philosophy

I believe the customer will buy our products which has
special features. So, I must ensure my companyÊs
products are constantly improved. ă Siti
For me, the best way is to minimise production cost. If

we can decrease the production cost, then we can priced
our products cheaper. It is very important that our
products can be found in every shops and
supermarkets. ă Wong
Due to environmental quality deteriorating and

coupled with increasing fraud cases and selling of
goods that caused negative effects to human health, I
believe the most effective strategy to guarantee the
companyÊs long term profit is by delivering products
that is useful to customers and do not spoil the natural
environment. ă Murali
One of the most effective ways to increase quick sale is

by implementing sales and promotion campaigns
aggressively. As a proof, we see a lot of customers
throng into the supermarkets when there is sales going
on. ă Michael
An effective marketing programme is very much

depends on how well the company knows the target
consumerÊ needs and wants. A company will always
strive to satisfy its customers' wants and needs better
than the competitors with a strong hope that customers
will come to purchase or use the products again. ă
Salleh

1.4 MARKETING CHALLENGES IN THE 21ST

CENTURY
This is the last subtopic in Topic 1. You have learned the definition of marketing,
its core concepts and marketing management philosophy. You know the study of
marketing management is important as it is the function that creates customersÊ
values and satisfaction, since satisfied customers would ensure continuous sales
to the company. However, the company has to face many challenges in the effort
to serve and build profitable relationships with target customers. This is due to
many factors and forces outside marketing environment that influence the
company. In this section, we will discuss the major trends that challenge the
marketer in this new millennium.
1.4.1 Information Technology Explosion

Information technology explosion has given us a new ways of discoveries like
internet, hand phones, and video conferencing. The technologies influence our
ways of communication and products/services distribution. For example,
courses offered by the Open University Malaysia (OUM) are conducted via
internet called electronic learning to replace traditional classroom lecture. Besides
that, there are many banks in this country offer internet banking facilities to
customer for easy access that is 24 hours by 7 days.
1.4.2 Internet
One of the most attractive technological developments is the expansion of
internet. Internet is a global computer network. Internet expansion generates
many new opportunities to the marketer. By using internet a company can reach
out to the global market (Figure 1.4).
Many businesses in Malaysia setup their own website to provide information

about the company and its products. Companies who engaged in e-commerce
will allow customer to perform online transactions through their dynamic
website. Examples are Air Asia, Maybank2u, Amazon, Dell and etc. These
websites allow customers to do internet services. You can surf the website
mentioned above and observe the services offered by them.

Figure 1.4: Business deals can now be conducted on the internet
1.4.3 Rapid Global Development

With fast development, especially in the area of transportation and
communication, our world has become „smaller.‰ The invention of
transportation modes such as motorcars and airplanes as well as sophisticated
communication gadgets such as fax machine, handphone, computer and satellite
has enabled companies to run their operations in a borderless environment.
Companies like McDonalds and Pepsi-Cola have business networks around the
world. The expansion in transportation and communication sectors has provided
greater opportunities for marketers in Malaysia. Malaysian companies can
market their products and services to overseas markets. However, they may face
strong competition from foreign companies.
1.4.4 Ethics and Social Responsibility

Due to environmental decline and negative social effects such as materialistic
behaviour, there are now many ethical and environmental movements. For
example in Malaysia, there are consumer associations such as Consumer
Association Penang (CAP) and non-governmental organisations championing
environment and development issues like Sahabat Alam Malaysia. The number
of environmental movements is expected to increase in coming years. Marketers
are encouraged to be more socially and ethically responsible while performing
their marketing activities.

1.4.5 New Marketing Landscape

Today, companies face many challenges from their competitors. If you observe
your surroundings, you will notice that there are many advertisements designed
to draw your attention. Moreover, newly formed companies enter the
marketplace every day. Together with global competition and innovative
methods, attempts are made to attract more customers. Hence, it is more difficult
to market our products successfully. Successful companies are those that take
advantage of new opportunities to establish relationships with their targeted
customers. Companies should really understand their customersÊ needs and
wants and offer products/services to satisfy those needs better than their
competitors. They also need to practise more of the marketing and community
marketing philosophies. The sales, product and production philosophies may be
less effective in todayÊs business context.
EXERCISE 1.2
The following are statements on five concepts of marketing challenges in

the 21st century. Match the statements and the concepts by inserting the
correct number in the brackets.
Statements Concepts
1. Internet, modem, wireless mobile Ethics and social responsibility
phone, World Wide Web ( )
2. Chain of computer networks New marketing landscape ( )
3. Wider geographical marketing Information technology boom

coverage ( )
4. New marketing concepts focusing Rapid global development ( )
on customer relationship
5. Concern for social effects when Internet ( )
producing and marketing products
Please surf these links to get more information on what is marketing.

Ć www.carrefour.com.my
Ć www.metrojayaonline.com
Observe how supermarkets in our country use the Internet as part of their
marketing strategy.
• Marketing is „the process of planning and executing the conception, pricing,

promotion and distribution of ideas, goods and services to create exchanges
that satisfy the objectives of individuals and organisationsÊ goals.‰
• The core concepts of marketing are:
- Needs, wants and demand;
- Products and services;
- Value, satisfaction and quality;
- Exchange, transaction and relationship; and
- Market.
• Marketing begins with identifying consumersÊ needs, wants and demand.
• Consumers will look for goods and services that can satisfy their needs and
wants.
• Goods/services must be perceived to be of high value, then only consumers
will feel satisfied with them.
• Companies must constantly deliver quality products to meet customersÊ
expectations.
• Exchange occurs when a seller and a buyer agree to let go of something in
return for some other things. If both parties agree to the exchange, then a
transaction will take place. When a transaction occurs repeatedly between a
seller and a consumer, a relationship is established. All these marketing
activities happen in a marketplace where sellers interact with buyers and
understand their needs and wants.
• Marketing management philosophy guides companies on how to conduct
business.
• There are five marketing management philosophies ă production, product,
sales, marketing and societal marketing philosophy.
• Companies have to face many challenges in order to build profitable
relationships with customers. Some of these challenges include information
technology, globalisation, ethics and social responsibility and new marketing
landscapes.

Demand Quality
Demand management Relationship
Exchange Sales philosophy
Market Satisfaction
Marketing Societal philosophy
Marketing philosophy Transaction
Needs Value
Product philosophy Wants
Production philosophy

Topic X Influence of
2 Environmental
Factors
LEARNING OUTCOMES
1. Explain whether micro or macro environment has more influence
on marketing; and
2. Appraise the forces in micro and macro environments.
X INTRODUCTION
In Topic 1, you have learned some key concepts of marketing. In this topic, we
are going to discuss marketing environment factors. Marketing environment
forces consist of micro environment and macro environment. These require a
company to monitor changes in its environment in order to identify
opportunities and threats. The objective of these marketing environment
activities is to develop and sustain closer relationships with target customers.
Subsequently, a companyÊs success depends on how well its marketing
programme meets the internal and external forces of the environment in which
the company operates.
When reading this topic, pay more attention to the learning objective of whether
the micro or macro environment has more influence on company marketing
activities.

TOPIC 2 INFLUENCE OF ENVIRONMENTAL FACTORS W 19
2.1 MICRO ENVIRONMENT

Company marketing activities are influenced by micro environment forces. These
are forces close to the company, suppliers, marketing channels, markets,
competitors and the public. Generally, micro environment factors are
manageable by the company. It can be further explained that the company has
direct influence on parties involved in conducting business with an objective to
better serve customers.
In this section, we will look at major micro environment elements and how they
directly impact on a companyÊs marketing.
2.1.1 Company
A company consists of various functional departments. Today, the marketing
department is not the only department responsible for satisfying customersÊ
needs and wants. In fact, a marketing department needs assistance from other
departments in order to achieve its objectives. Hence, everyone in a company,
regardless of which department they belong to, should cooperate and work as a
team to serve the customers.
The following describes the ways other departments can assist the marketing
department in achieving its objectives.
(a) Top Management

Plan the companyÊs overall mission, vision, objectives and strategies and
lead the firm into the right direction.
(b) Finance Department

Source for funds to implement marketing programmes.
(c) Research and Development Department

Create and innovate new products to meet ever-changing customersÊ needs.
(d) Purchasing Department

Liaise with vendors or suppliers. This allows the purchasing manager to
source for quality materials with a reasonable price.
(e) Production Department

Manufacture products for the company to offer to its target markets.
(f) Accounting Department

Account for procurement and cost in assisting the marketing programmes.

20 X TOPIC 2 INFLUENCE OF ENVIRONMENTAL FACTORS
Figure 2.1 below summarises the relationships between the marketing

department and other departments.
Figure 2.1: Inter-department relationship
2.1.2 Suppliers
A supplier sells raw materials demanded by the company to produce final
products and services. Suppliers can influence marketing efforts in a certain way.
Assuming the materials are supplied at a high cost, it will definitely affect the
companyÊs competitiveness in the market as the higher price will be passed back
to the customers. This could be the reason why companies should pay more
attention in choosing suppliers.
Furthermore, the company should choose good suppliers who contribute

towards achieving marketing objectives by supplying quality materials, adhering
to the specifications, providing timely delivery and offering competitive prices.
The suppliers should also provide suggestions on new materials available in the
market and developments in the industry.
2.1.3 Marketing Channels

Marketing intermediaries is defined as a group of interdependent firms which
participate in the process of making a product/service available for use by
consumers. Examples of marketing intermediaries are wholesaling and retailing
companies. Companies rely on intermediaries as distribution channels to ensure
products/services reach customers. The roles played by marketing

intermediaries are not limited to distribution of products/services to end users

but also include promotional activities, transportation and storage.
2.1.4 The Market

A market is made up of potential buyers and sellers. Sellers will look for buyers,
find out their needs and wants, develop a good offer, labelled a right price,
conduct promotional campaigns and deliver products/services to end users. At
the same time, buyers will search for products/services that meet their
expectations.
Generally, the market consists of consumer market, business market, resellers

market, government market and international market (Figure 2.2). Consumer
market comprises individual consumers who purchase products/services for
their personal use. Business market involves companies which buy supplies as
inputs to the production process. Resellers market consists of companies which
purchase products from manufacturers and resell them to end users for profit.
Government agencies also buy commodities from manufacturers such as
agricultural, mining, dairy and plantation products. Lastly, the international
market involves buyers and sellers who conduct businesses in international
arena.
Figure 2.2: Types of market
Each of these markets has different characteristics and the marketer should know
them in-depth. However, the consumer market will be discussed in detail in
Topic 4.

2.1.5 Competitors
Marketing success depends very much on how firms fulfil their consumersÊ
needs better than their competitors. In order to realise this objective, a company
should select a market where it possesses a strong competitive advantage over
other competitors. Besides serving consumers, the company should also be aware
of its competitorsÊ strategies. Formulation of an appropriate strategy is crucial
for a company to compete successfully with its rivals. Strategies against
competitors which are implemented by companies may differ according to their
size.
2.1.6 Community
A community can be defined as a group of people who have interests with an
organisation. Examples are the media (i.e. magazine publishing company,
newspaper, radio and television), government, environmental groups and
internal community (such as company employees and board of directors). The
community plays an important role in determining the success of the
organisationÊs marketing strategy. An organisation that has a good image and
has the support of its community groups such as the media, government and
employees is more important than its competition in the market.
SELF-CHECK 2.1
What are the important points of micro environment factors?

Explain your answer with the aid of a diagram.
2.2 MACRO ENVIRONMENT

A company operates a business within a macro environment. The larger external
forces that the company has to face are demographic forces, economic forces,
technology forces, cultural forces, political forces and natural forces. All these
forces exist beyond the organisationÊs control. Therefore, the marketing manager
needs to monitor the developments inside and outside the company in order to
identify the opportunities and threats. Figure 2.3 depicts the macro environment
forces.

Figure 2.3: OrganisationÊs macro environment
2.2.1 Demographic Forces

Demographic variables include the characteristics of human population in the
form of size, growth, location, age, gender, ethnic group, occupation and etc.
Demographics are of interest to the marketer as it helps to describe the market
characteristics. The marketer should know the recent development of
demographics in order to evaluate the markets and to follow up closely on how
this development can influence the demand for its products. Among
demographic factors that are related to consumer purchasing habit and of
interest to the marketer are:
(a) Changes in Age Structure

Many companies pay great attention to the changes of age structure in the
population because it influences consumer demand for products. For
example, if the Malaysian population birth rate continues to rise, then the
demand for baby and childrenÊs products will be in upward trend as well.
(b) Geographic Population Movement

Many university and college graduates leave their hometown in rural areas
and migrate to big cities like Kuala Lumpur to find jobs. In line with this
movement, the demand for residential houses, transportation and
consumer products will be increasing in the vicinity of universities and
colleges.

(c) Better Educational Qualification

The higher standard of education in Malaysia has created demand for
products like computers, business magazines, academic magazines,
theatrical acts and others.
2.2.2 Economic Forces

Economic situation influences consumer purchasing power and spending
behaviour. When the economy is expanding rapidly, many people will have
more disposable income to spend and their purchasing power will increase. For
instance, demand for luxury goods will increase as well. On the other hand,
when the economy falls into recession, consumer spending on luxury goods will
decline.
2.2.3 Technology Forces

Technology has advanced rapidly. Many new products have been created such
as compact discs (CD), mobile phones, Internet and robots (see Figure 2.4).
Technology products can become obsolete very fast. For example, earlier versions
of computer models are replaced by more sophisticated and faster models.
Figure 2.4: Examples of technology products
How does the technological environment affect the marketer? A marketer must
always be aware of technological developments in order to offer the best
products to consumers. Companies should monitor competitorsÊ launch of new
products in order to keep pace with developments in the industry. Besides new

and innovative products, marketers should also be aware of new developments

in production technique to manufacture goods at minimum cost.
2.2.4 Cultural Forces

The culture aspect refers to the way individuals behave in a society. Cultural
factors have a strong impact on the behaviour of individuals and groups. A
marketing manager must be aware of consumer culture in order to know their
characteristics in detail. The study of cultural factors is important especially
when a company is involved in international business.
2.2.5 Political Forces

A political environment comprises laws and government agencies that influence
a companyÊs operations and marketing efforts. The Malaysian government has
constantly looked into legislation to promote good business practices. This can be
seen by an increasing concern focusing on ethics and social responsibility.
2.2.6 Natural Forces

Natural forces are natural sources required by a marketer to operate a business.
The company should consider natural forces when designing marketing
programmes. In recent decades, there has been some concern regarding
marketing activities which have destroyed the environment and caused
pollution. This concern is becoming more serious as environmental issues are
being highlighted by environmental groups at international forums.
One of the main environmental issues often discussed is population growth. The
rising population poses problems such as higher demand for natural resources.
This will lead to scarcity of resources. Moreover, pollution and rubbish pilings
are beyond oneÊs imagination. Today, environmental conscience has encouraged
environment-friendly groups to push the government and corporations to be
more responsible towards the environment.
Marketers should look into matters concerning environmental development so

that they can be more responsible in their marketing efforts and assist in
protecting the natural environment. Companies which ignore environmental
issues may face the risk of being fined by the government or having their
products boycotted by the public.

In conclusion, we have learned that the marketing environment consists of forces

inside and outside a company which can affect the way its business is conducted.
Companies which devote more attention to the environment could foresee
threats and opportunities in the market. The marketing environment comprises
micro environment and macro environment. Micro environment consists of
forces that are closer to the company. Macro environment consists of larger
forces that are beyond the companyÊs control.
SELF-CHECK 2.2
1. List macro environment forces.
2. Explain briefly how macro environment factors impact on the

marketing function.
EXERCISE 2.1
1. What is macro environment?

2. What does the macro environment consist of?
3. How does macro environment affect an organisation?
Please surf the following website to study how environmental situations affect
the airline business.
• http://www.airasia.com.my
• Marketers need to perform environmental scanning in order to identify

opportunities and threats.
• Marketing environment consists of micro environment and macro
environment.
• Micro environment comprises forces that are closer to the company. It allows
the company to control its environment to better serve its customers.

• Macro environment consists of larger uncontrollable forces that pose

difficulty to the companyÊs operations.
Community Macro environment

Company Marketing challenge
Competitors Micro environment
Culture Natural environment
Demographic Suppliers

Topic X Importance
3 of Market
Information
LEARNING OUTCOMES
1. Discuss six reasons why managers must have a marketing
information system; and
2. State three reasons why marketing research is important.
X INTRODUCTION
In Topic 2, we discussed the marketing environment which consists of micro and
macro environments and how environmental forces influence marketersÊ ability
to fulfil consumersÊ needs better than their competitors. This requires the
marketing manager to keep abreast of recent developments and trends in the
environment. To keep pace with the environment, the manager can use
marketing research to collect information about the marketing environment,
consumersÊ needs and competitors. What the manager requires is better real-time
information that can help him to develop appropriate marketing actions in a
more proactive, rather than reactive, manner.
3.1 MARKETING INFORMATION SYSTEM

Gathering marketing information is not an individualÊs effort. It involves various
departments in an organisation. All functional departments must have a database
system to collect, store and disseminate information needed by a manager to aid
his marketing decision making. This system is known as marketing information
system (MIS). A good MIS should facilitate real-time access of information and

TOPIC 3 IMPORTANCE OF MARKET INFORMATION W 29
be able to produce daily reports for further analysis. In this section, we will
discuss in more detail on how the marketing information system operates.
ACTIVITY 3.1
Assuming you are the marketing manager of an organisation, how
would you gather all the important information relevant to the
environment?
Figure 3.1 shows the components of a marketing information system.
Figure 3.1: Components of a marketing information system
3.1.1 Assessing Information Needs

To devise an effective marketing information system, it requires four major
elements to be put in place. These are assessing real-time information needed,
information gathering, analysing the information using statistical tools and
sharing the information with all departments for use in marketing activities.
In order to assess the information, firstly, the marketing manager should identify
the types of information available. Assessing the correct information will allow
the marketing manager to make quick and sound decisions. On the contrary, if a
marketing manager is provided with incomplete information, this may hinder
him from making the right decisions.
Information overload can pose difficulty for the manager to differentiate between
important and less important information. Moreover, the cost of gathering
information will increase as more information is required.

30 X TOPIC 3 IMPORTANCE OF MARKET INFORMATION
3.1.2 Gathering Information

After identifying the type of information needed, the next step is to gather it. The
information can be retrieved from three sources: internal data, marketing
intelligence/ investigation and marketing research.
(a) Internal Data

Internal data is information that is readily available in the company. It can
be in the form of reports and records. Most companies keep these reports
and records electronically in computer files.
Since this information is already available in the companyÊs records, the

marketing manager must initiate an effort to go through the internal data. If
the internal data is insufficient or inappropriate, then the marketing
manager should look for other sources of information outside the
organisation. The benefit of internal data is that it can be quickly retrieved
without any cost. Nevertheless, information from internal data may not be
suitable or incomplete as it might mean for other purposes.
(b) Marketing Intelligence

If the required information is not available in the companyÊs records, the
subsequent approach is to gather from external sources. This can be done
by using marketing intelligence. Marketing intelligence refers to
information related to competitors and development in the marketing
environment.
Sources of information can be suppliers, resellers and customers. The

marketing manager may also want to search for competitorsÊ information
which is made available through annual reports, business editorials, trade
exhibitions, press conferences, advertisements and websites.
(c) Marketing Research

Since we cannot obtain full information via marketing intelligence, the
marketing manager should consider marketing research as another
approach to collect information. For example, if a company wants to find
out what will be customersÊ reaction to a new product design, it can use
marketing research. Marketing research involves a series of activities
related to the design of the research plan. This covers the collection of
information, analysis of data and reporting of the findings. As marketing
research process involves many activities, it may take a long time to obtain
the information needed.

3.1.3 Analysing Information

Assuming data collection from the various sources mentioned above was done,
the next step requires the marketing manager to analyse the data. Data analysis
has to be presented in a meaningful way such as reports or diagrams to ease the
managerÊs understanding of the results in order to make decisions. This can be
done with the help of computer statistical software.
3.1.4 Sharing Information

Now, we have reached the final step in the marketing information system, which
is information sharing. Information which is gathered and analysed is
meaningless unless it is shared with other decision makers and is related to
specific marketing situations faced by the company. Marketing information can
be shared by using a computer system. Most companies have a computer system
which can quickly disseminate information. This enables the marketing manager
to obtain the right information within the shortest time.
In conclusion, a marketing information system contains four main components.

These are: assessing the information needed, gathering information, analysing
information and sharing information. A good MIS can provide real-time
information required by marketing managers in making better decisions with
regard to marketing development.
EXERCISE 3.1
For each source of information below, you are required to give one
simple explanation with examples with regard to information
gathered through these sources. Use the space below for your answers.
Information Sources Explanation Examples

Internal Data
Marketing Intelligence
Marketing Research

ACTIVITY 3.2
You have been exposed to the marketing information system. The
next step requires you to write down your own understanding of the
characteristics of MIS. You can use a concept map, short notes or a
flowchart to illustrate your answer.
3.2 MARKETING RESEARCH PROCESS

We will discuss in-depth one of the data sources called marketing research.
Research is usually carried out extensively by large corporations. Result findings
from the research will be able to guide companies to make sound marketing
decisions.
Here, we will be looking into various steps involved on how marketing research
process is conducted (refer to Figure 3.2).
Figure 3.2: Steps in marketing research process
3.2.1 Identifying Problems and Research Objective

The first step in conducting marketing research is to identify the real problems
encountered by the company and formulate related research objectives that need
to be achieved. This is a crucial step in the research process because the design of
the whole research plan is basically based on identifying the right objectives to
solve the problems identified. The marketing manager can conduct preliminary
research to help identify the actual problems. If the marketing manager fails to
understand the problems or is rather unsure of the objectives, the research
findings will not be of much value to the company.

3.2.2 Developing A Research Plan

The second step in research planning is to determine the types of information
needed by the marketing researcher. Such information is important in order to
guide the researcher in formulating a solid marketing research plan. The
marketing manager can outline the data to be obtained through primary or
secondary sources and select the most suitable methods for data collection. LetÊs
take a look at the major data sources and marketing research methods
recommended for data gathering.
(a) Data Sources

There are two categories of data sources ă primary and secondary. Primary
data is information collected for specific purposes. Secondary data consists
of existing information which has been collected for other purposes.
(i) Secondary data

The researcher usually starts by sourcing for secondary data in
marketing research. This is because secondary data is easily available
and faster to obtain as it has already been collected. Secondary data
can be obtained from company reports, government statistics reports,
economic reports, central bank annual reports, newspapers and
magazines. Besides that, an organisation can perform Internet search
to gather secondary data. Secondary data can also be purchased from
outsource information companies such as AC Nielsen.
The benefits of secondary data are its availability for analysis and
cheaper cost of acquisition compared to primary data. The main
weakness of secondary data is that it is sometimes not available and
even if it is available, it may be inappropriate for use because it has
been collected for different purposes. In addition, it may not be
relevant or accurate. We may not be able to check its validity. The
data may also be outdated as it was gathered years ago, thus
rendering the data useless in solving current problems confronted by
the company.
(ii) Primary data

However, if secondary data is insufficient, the researcher should
consider collecting data through primary sources. Primary data refers
to new raw data collected for a specific reason. Primary data collection
can be done through observation, research survey or experiment. An
example of data collection through observation is by watching
consumersÊ purchasing behaviour in certain situations. On top of that,
a company can install video cameras to study consumer behaviour,
buying patterns and movements. Based on this information, the
company can make good decisions on how to offer its products more
attractively to customers.
The most commonly used research approach is survey questionnaire.

This method is suitable to collect primary information about
consumersÊ behaviour, knowledge, attitude and preferences in buying
products. A survey can be carried out through interview, mail,
telephone and Internet. Examples of questions pertinent to survey
research are:
• How much sales can be generated if the price is reduced by 10%?
• What are the effects of advertisements on sales performance?
• What is the most effective method in running a promotion?
Likewise, experimental research can be used to find out the cause and
effect of certain relationships of interest to the marketer. Examples of
experimental research are:
• If a manager wanted to know the effects of price reduction on the
sales level, he can test the price reduction on a selected group of
customers in a particular area. This will enable him to monitor the
preference groupÊs responses to price reduction.
• Alternatively, he could have a price cut in certain business outlets
and then make a comparison with other outlets where the price
remains unchanged. This is to check the effects of price sensitivity
among consumers.
(b) Methods of Gathering Information

There are several methods that can be used for information collection.
(i) Postal questionnaires

This can be done by posting questionnaires to selected informants.
The answered questionnaires will then be returned to the sender. The
disadvantages of this method are: administration of survey
questionnaires can be quite costly and time consuming. Moreover,
this method has a low response rate as respondents are not obliged to
answer the questionnaires.
(ii) Telephone interview

Interviews can be conducted by phone. The benefit of this method is
that the information gathered can be quite fast and timely. It is more
flexible than postal questionnaires. For example, viewers of television
commercials like the „Smartshop‰ programme can dial a toll-free line

to request for more information about the products advertised.

Telephone interview provides a platform for viewers to clarify any
doubt regarding the products advertised. This method can generate a
higher response rate compared to survey by post. Nevertheless, costs
to initiate outbound calls from the marketer can be quite high
compared to postal questionnaires.
(iii) Personal interview

Personal interview can be done in two ways: individual or focus
group interviews.
Personal interview refers to face-to-face meeting between an

interviewer and an interviewee. Generally, the researcher will
organise a personal interview with an individual to learn and gain
more information. Personal interviews can be carried out by visiting
offices or in public areas such as shopping complexes and bus stops to
attract a large number of people. The advantage of a personal
interview is that the interviewer can use his discretion to investigate
further whether the information provided is complete. The
interviewers also have the opportunity to further explain the
questions according to the respondentsÊ understanding. They can
demonstrate the actual products or show the advertisement or
packaging to the potential customers and observe their reactions. The
disadvantage of personal interviews is its high cost. Moreover,
personal interviews usually consume more time and effort.
Another method of personal interview is called focus group

interview. This can be done by inviting a group of people (preferably
six to ten) to join a moderator in discussing issues related to a
companyÊs products. Focus group sessions require all participants to
avail themselves at a particular time and venue. The focus group
interview can generate valuable ideas through group interaction and
discussion by stimulating more thoughts and comments. The
disadvantage is the high cost incurred to convene the group
discussion.
(iv) Computerised interview

In computerised interview, respondents sit in front of a computer,
read questions on the screen and type in the answers. Computer
terminals can be located in a research centre, trade show, exhibition
centre, shopping complex or other strategic locations.

(v) Online marketing research

One of the latest and most popular ways of getting information is
through the Internet. Research done through the Internet is called
online marketing research. The strength of Internet research is the low
cost of administration of the web-based survey. Internet networks
allow respondents from any part of the world to be connected and
participate in online research easily. The downside of using this
method is in its inability to gain trust from the participants in the
research study. Hence, there is also a high possibility of including
respondents who are not serious in their answers.
(c) Sampling Plan

Prior to obtaining information from the target respondents who represent
the sample population, the researcher should decide on the sampling plan
that includes sampling unit, sample size and sampling method. These are
discussed below.
(i) Sampling unit

Who should be investigated? For example: a researcher who wishes to
get information from female consumers wearing executive attires may
decide to target career women as its sampling unit.
(ii) Sample size

How many people are to be investigated? The results of a research
with a larger sample size is considered more accurate than those of a
research with a smaller sample size. How large should a sample size
be to closely represent the whole population? In this case, the
researcher must decide how many people to be interviewed. Another
way is to use statistical formula to calculate the sample size.
(iii) Sampling method

How to select candidates as samples? One way is to use the random
sampling method. This method allows researchers to make
generalisations based on their findings. Candidates who are randomly
selected can represent the population as everyone stands an equal
chance of being selected.

SELF-CHECK 3.1
1. Explain briefly two categories of data source.

2. List the methods that can be used for information collection.
3. What are the things that the researcher should decide on prior to
obtaining information from the target respondents?
3.2.3 Implementing Research Plan

A well-documented marketing research plan will enable researchers to
implement research activities immediately. At this stage, research activities
should include data gathering, processing and analysis. Data collection can be
done by an organisation or outsourced to external research firms such as AC
Nielsen. The data collection phase requires a large amount of funds. In addition
to the high cost, the researcher may also face the possibility of getting poor data
during the collection stage. Therefore, close monitoring of the data collection
process is required to eliminate potential errors. For data collection through
interviews, the researcher must undergo training to conduct interviews
effectively.
The next step is to process and analyse the raw data. Processing and data
screening will help the researcher to separate out the most important information
for further analysis. This can be done by screening the data while entering data
into the computer and analysing it by using sophisticated statistics software.
3.2.4 Analysing Report Findings

This is the final stage of the marketing research process. The role played by the
marketing researcher at this time is the most crucial in interpreting the data,
making conclusions and recommendations before presenting the findings to the
top management. The presentation of research findings is important in assisting
the management to make major decisions concerning the company.
A case in brief on how marketing research differs between Small Enterprises and
Large Profit-Oriented Organisations
A marketing research involves a long process and is time consuming in general.

Large corporations usually conduct research in a formal and systematic manner.
Sometimes, the corporation uses the seervices of professional researchers who are

conversant with research procedures, statistical software and research

techniques.
If you are an entrepreneur running a small business, you may require some basic
knowledge of marketing research to help you make a better decision. But what if
you do not have the expertise, experience or workforce to perform the research?
Can you say that marketing research is only implemented by the large
corporations? Actually, research can be conducted regardless of the size of the
corporation. Marketing research is considered an important activity for
companies whether large or small. To keep pace with the marketing challenges
and consumersÊ ever-changing behaviour, information on buyersÊ opinions and
feedback are very useful for marketers to make major decisions for the company.
But then, research done by small businesses and large profit-centred

organisations can be differentiated in terms of the research scale. Smaller
enterprises invite and gather smaller informal focus groups during launch time.
Issues discussed can be specific to those surrounding their interests. In addition,
primary data gathering through surveys, observations and experiments can be
conducted by these enterprises with minimum budget cost.
Even though the preciseness of results findings may be insignificant compared to

those of large scale research, it will still be meaningful if the research is done
systematically and serves a specific purpose.
ACTIVITY 3.3
Please surf these links:

• www.statistics.gov.my
• www.acnielsen.com.my
• www.bnm.gov.my
What sort of information can you retrieved from these links?

EXERCISE 3.2
Write down the advantages and disadvantages of each marketing

research method used to collect data.
Method Advantages Disadvantages
Mail Questionnaires
Telephone Interview
Personal Interview
Group Interview
Computerised Interview
Online Marketing Research
• All functional departments must have a database system to collect, store and
disseminate information needed by the manager for marketing decision
making. This system is known as marketing information system (MIS).
• The marketing activities involved in MIS are assessing the information
needed, finding the information from various sources, analysing it and
disseminating it to relevant people in the organisation in order for them to
make some major decisions about the company.
• The information can be retrieved from three sources: internal data, marketing
intelligence/ investigation and marketing research.
• There are various steps involved in how marketing research process is
conducted: identifying problems and research objective, developing research
plan, implementing research plan and analysing report finding.
• Identifying problem is a crucial step in the research process because the
design of the whole research plan is based on identifying the right objectives
to solve the problems.

Group interview Sampling plan

Internal data Secondary data
Marketing Information System (MIS) Personal interview
Marketing Intelligence Primary data
Marketing Research

Topic X Consumer
4 Market
LEARNING OUTCOMES
1. Explain three stages of decision making;
2. Assess four main factors influencing the buying decision of
consumers; and
3. Compute a chart showing five stages in buying decision making.
X INTRODUCTION
This topic examines consumersÊ purchasing behaviour. This can be defined as the
behaviour of individuals or groups who purchase products and services for their
personal consumption. What exactly influences consumersÊ ways of buying? To
answer this, you will be led to identify factors affecting consumer behaviour.
These are cultural, social, personal and psychological factors. Marketers would
definitely try their very best to study how consumers react to their marketing
activities. A model of consumer behaviour can then be served as a guide for
marketers to figure out what stimulates consumersÊ buying behaviour. It does
not matter whether we are impulse buyers or take a long time to think before
buying, we are in fact influenced by our own buying decisions.
The following section will discuss more on the model of consumer behaviour,
factors influencing consumersÊ buying trends and consumersÊ unique ways of
buying decision.

42 X TOPIC 4 CONSUMER MARKET
4.1 MODEL OF CONSUMER BEHAVIOUR

Based on the model of consumer behaviour as shown in Figure 4.1, the marketer
can identify the „marketing mix‰ and „other environmental forces‰ affecting the
buyerÊs „black box,‰ thus resulting in consumersÊ responses in choosing and
buying the products. The marketing mix consists of product, price, promotion
and distribution. The environmental forces are economy, technology, politics and
culture. All these marketing and environmental forces are easily exposed to the
buyersÊ „black box.‰ At this point, the marketer should pay more attention to
find out how consumersÊ own characteristics or buying decision-making can
influence their ultimate responses in selecting the product, brand, specific seller,
time of purchase and amount spent on products/services.
As the decision-making process is in the buyersÊ mind, it is not easy for

marketers to determine how buyersÊ characteristics can affect their expectations
in response to making purchase decisions. This leads us to find out the factors
influencing consumer buying behaviour.
Figure 4.1: Consumer behaviour model

Source: Adapted from Kotler, P. and Armstrong, G. (2008). Marketing: An introduction
(9th ed.). Upper Saddle River, NJ: Prentice-Hall.

TOPIC 4 CONSUMER MARKET W 43
4.2 FACTORS INFLUENCING CONSUMER

BEHAVIOUR
There are four main factors that can influence consumer behaviour. These are
cultural aspects, psychology, personal characteristics and social influences. We
will then look into how each of these factors can affect buyersÊ behaviour. Please
refer to Figure 4.2 for further clarifications.
Figure 4.2: Factors influencing consumer behaviour
4.2.1 Cultural Factors

The cultural factor can be divided into culture, sub-culture and social class. The
marketer must know how each of these cultural factors influences customer
behaviour.
(a) Culture
Culture can be defined as an individualÊs ways of living in a society. It
includes the basic practice of good values, perceptions, needs and
behaviour learned from institutions such as family, workplace, schools and
churches. Ideally, every group in a society must have its own cultural
backgrounds. However, we have seen certain influences of culture spread
around the world. The marketer must understand the societyÊs cultural
movement in order to identify new products or services. For example, there
is a rise in health consciousness among people who are more concerned

about having a healthy diet. They may prefer to consume more organic
foods than processed food such as fastfood.
(b) Sub-culture
A sub-culture involves a group of individuals who share similar values.
Each culture has a smaller sub-culture. Sub-culture can be identified
through nationality, ethnic group and religion. Every racial group in
Malaysia has its own sub-culture. It is important for the marketer to be
aware of sub-culture groupsÊ likes and behaviour.
(c) Social Class

Social class is referring to a group of society who share similar values,
interests and behaviours. Social class can be determined by looking at
various combinations of factors such as income level, types of occupation,
education and wealth. Marketers are keen on social class to recognise some
similar consumersÊ characteristics within a given social class.
SELF-CHECK 4.1
What do you understand about the characteristics of the cultural

factors listed below?
• Culture
• Sub-culture
• Social class
4.2.2 Social Factors

A consumerÊs behaviour can be affected by social factors such as group, family,
role and status.
(a) Groups
An individual is a member of small groups. The groups can be formed by
office mates, friends and peers. Small groups can influence a personÊs
behaviour. A groups which has direct impact on an individual is called a
membership group. A membership group can comprise family members,
neighbours or office mates. There are frequent interactions and closer
relationships among members. In contrast, there is another type of
membership group which has fewer interactions among members. These
are religious groups, professional bodies and trade associations.

An individualÊs behaviour is also influenced by other groups of which he is

not a member, which are known as reference groups. Reference groups can
shape the attitudes and behaviours of a person. For example, a professional
golfer like Tiger Woods is the one whom other golfers would like to be
associated with because of his special skills, knowledge, personality and
other traits that can exert influence on others.
People within reference groups can become an inspirational group to

inspire new members to join the group. Examples of inspirational groups
are film stars, entertainers, athletes and politicians.
(b) Family
Family members can influence buying behaviour. Research findings indicate
that husband, wife and children can influence each other in buying decision
making. For instance, purchase of family vacation packages can be
influenced by children. Such changes may require marketers to coax children
instead of parents in purchasing. Another example is fastfood operators like
McDonaldÊs and Kentucky Fried Chicken. They often target their
advertisements at children even though the decision makers are the parents.
ACTIVITY 4.1
1. Recall how your family members influence you in buying

products or services. For example, how did your family members
influence you when you told them that you wanted to enrol in
OUM?
2. If you have children, how do they influence you when you
intend to dine in an exclusive restaurant? Discuss.
3. How does your spouse influence you in buying furniture?
Discuss.
(c) Role and Status

Roles can be considered as expected activities a person needs to perform.
Each role portrays a different status. For instance, the roles and status of a
person in a group explains his position. Everyone plays a different role
according to their expected activities. You play the role of a child to your
parents and the role of a brother or sister to your siblings. In school, you
play the role of a student.
Each role comes with status that reflects the general pride in a society.
People usually choose a certain product that is compatible with their status

in society. For example, a manager in a multinational company might wear

branded clothes and drive a luxury car to reflect his status.
4.2.3 Personal Factors

In this section, we will look at personal characteristics such as age, occupation,
economic situation, lifestyle, personality and self concept. These can influence
buying behaviour.
(a) Age
Different stages of age can cause different tendencies in purchasing
products and services. For instance, childrenÊs preferences are different
from adults. Children like sweets and ice cream but this changes when they
grow older.
(b) Occupation
The type of job held by an individual can impact his buying behaviour. A
blue-collar worker normally wears casual and rugged clothes while a
white-collar worker prefers conservative clothes.
(c) Economic Situation

The choice of products and brands purchased as well as the place to shop
are influenced by the economic status of a person. A wealthy person would
prefer to buy more luxurious and quality goods compared to a less wealthy
person.
(d) Lifestyle
Lifestyle is a way of living that can be explained by three distinct
dimensions. These are activities, interests and opinions.
(i) Activities can be hobbies, sports, social events etc;
(ii) Interests can be on food, fashion, recreation etc.; and
(iii) Opinion about themselves, social issues, business and product. A
person with a different lifestyle may possess different preferences for
activities, interests and opinions.
(e) Personality and Self Concept

Personality refers to a personÊs characteristics such as confidence, sincerity
(e.g. honest and cheerful), sophistication (e.g. modern and charming), social
skills, autocratic and aggressiveness. Marketers use personality in studying
how consumers make product selection. For example, researches have
shown that coffee lovers normally have a higher need to socialise.
Therefore, Westernised coffee houses such as Starbucks and San Francisco

provide a cosy atmosphere for coffee lovers to relax and chat while
enjoying their drink.
Self concept relates to a personÊs self identify. It reflects the image a person
portrays to others. For example, a person who owns a Harley Davidson
motorcycle might wish to portray himself as someone who enjoys freedom.
SELF-CHECK 4.2
Identify the personal factors that can influence the consumer
behaviour. Explain your reasoning with examples.
4.2.4 Psychological Factors

There are four main psychological factors namely motivation, learning, belief and
attitude and perception. These four psychological factors play a major role in
influencing an individualÊs buying decisions as described below.
(a) Motivation
In theory, motivation relates closely to needs. If a person has a strong need
to gain material recognition, he is motivated to seek satisfaction by owning
material things. Human motivation can be explained using the popular
Maslow hierarchy of needs. According to Abraham Maslow, a person is
driven to satisfy five levels of needs. They consist of physiological needs,
safety needs, social needs, esteem needs and self actualisation needs. A
person will put more emphasis on satisfying the most important needs in
the hierarchy. When the need is fulfilled, the person will move on to the
next level. One flaw of MaslowÊs hierarchical needs is that it does not
address the issue such as when a person has achieved a certain level of
needs, e.g. esteem needs and due to some unforeseen circumstances he
loses his job, will the next level of self actualisation needs still be an
important motivator for that person.
(b) Learning
Learning occurs when a person has gone through some changes in life due
to experiences. For instance, suppose Ali purchases a product from
Company X and experiences a high level of satisfaction using the product.
He will want to visit the company again to buy other similar products. On
the other hand, if he encounters problems with the product he bought, he
will feel unhappy about it and not visit the company in future. So, learning
through experience can reinforce a personÊs behaviour.

(c) Belief and Attitude

Belief is a thought a person holds about something. A person can acquire
beliefs through learning. Suppose Siti believes that electrical goods from
Japan are of higher quality due to her good experience in using Japanese
electrical brands. She will then be keen to buy Japanese electrical products
more than other products.
Attitude is a personÊs tendency to judge something either positively or

negatively. OneÊs belief in certain products can influence the attitude. Refer
to the example above. Because of SitiÊs belief in the high quality of Japanese
electrical goods, she developed a positive attitude towards Japanese goods.
(d) Perception
Everyone has his own perceptions towards something. Perception allows us
to choose, organise and analyse information that we receive every day. It is
through our own perception that we form a meaningful picture in our
mind. In fact, we rely on our own perception when buying a product. A
person might have different perceptions even though he is exposed to the
same information.
SELF-CHECK 4.3
What do you understand about the following key terms of

psychological factors which affect consumer behaviour?
• Motivation
• Learning
• Belief and Attitude
• Perception
4.3 BUYING DECISION PROCESS

In this section, we will look at the process of how consumers make buying
decisions. This is illustrated in Figure 4.3. Before you perform a buying activity
such as carrying the items you want to buy to the payment counter, you have to
decide what to buy first. Making a decision to buy is a process. Consumers have
to go through five stages in this process:
(a) Recognise a need;
(b) Search for relevant information;

(c) Evaluate options available;

(d) Decide on what product to buy; and
(e) Consumer behaviour after purchasing the product.
This model provides a basic guide to aid consumers in any buying situation,
whether buying simple or complex products.
Figure 4.3: Buying decision process

4.3.1 Recognising the Need

The first stage starts with recognising the need i.e. identifying a problem or
finding out a need. A need arises from individual internal urges such as the need
to eat and drink. The needs can also be triggered by external urges such as
cinema advertisements that make you think of watching a movie.
4.3.2 Information Search

When a consumer feels a strong need for a certain product, he will look for more
information on the product such as the price, product specifications and others.
Consumers can find information from various sources. Experience using the
product can be the source of information in guiding consumers to purchase a
product. Besides experience, consumer can obtain information from trade
sources such as advertisements, salesperson and public sources such as
printed/electronic media and government agencies. Sometimes, consumers
might feel more comfortable seeking products recommendations from personal
sources such as family members, friends and neighbours.

EXERCISE 4.1
Identify the source of information below and state whether it is an
experiential source, trade source, personal source or public source of
information.
Explanation Information Source
1. Advice from friends who have

used the product.
2. Your own thoughts when using the
product.
3. Information from a pamphlet.
4. Information from an advertisement.
5. Information from an article in the
newspaper.
4.3.3 Alternative Evaluation

From the information search, consumers will devise a list of product choices in
order to make comparisons. Consumers can weigh the pros and cons of a
product in the choice set by identifying a set of criteria to evaluate the product
attributes such as price, quality, design, size and etc. By evaluating various
brands, consumers can make better choices.
4.3.4 Decision to Buy

At this decision-making stage, consumers should decide what is the best product
to buy after evaluating every alternative. However, not all purchase intentions
will result in a real purchase. There are two reasons that may cause a person to
change his mind in buying decision i.e. (i) other peopleÊs attitude and (ii)
unexpected situation. If other people who are close to the buyer such as the
buyerÊs spouse, immediate family or friend do not agree with the purchase, this
may result in a lower chance of the buyer buying the product. Unexpected
situations are such as a sudden increase in price of the most preferred choice or
the preferred product being out of stock. Unforeseen circumstances might
adversely affect the buyerÊs interest in buying the product.

ACTIVITY 4.2
Have you ever been in a situation where you really wanted to buy
something but your close friends or family members disagreed with
your decision? Did you go ahead and purchase it or did you change
your mind? Discuss.
4.3.5 Behaviour after Buying

The buying process does not end after a consumer buys a product. Consumers
engage in what we call „after purchase behaviour.‰ Therefore, marketers must
continuously ensure that buyers are satisfied with the product bought. Clearly,
buyerÊs satisfaction level depends on his expectations and the actual product
performance. Suppose the buyerÊs expectations are higher than the actual
product performance, he will not be satisfied with the product purchased.
However, if the product performance fulfils the buyerÊs expectations, then the
buyer is satisfied. What is of interest to the marketer is to ensure the product
performance exceeds customerÊs expectations so that the overjoyed customer will
come back for repeat purchase.
Therefore, marketers learned to be more careful and not over promise their
customers. Marketers must be sure that their products are of high quality and
able to meet or exceed their customer satisfaction.
EXERCISE 4.2
Write down the five steps of the buying decision process according to
the right sequence.

• Alternative Evaluation
• Behaviour after Buying
• Information Search
• Recognition of a Need
• Decision to Buy

4.4 DECISION MAKING PROCESS FOR BUYING

NEW PRODUCTS
You have learnt the five stages of the buying decision process. In this section, we
will look at the buyerÊs decision process in adopting new products. It is said that
marketing new products is more challenging than selling existing products.
When a new product is launched into the market, the marketer has to strive hard
to get consumers to learn about and accept the new product. The acceptance
process is a mental process an individual has to go through. It starts from the
very beginning when a person learns about the new product until he accepts it.
There are five stages in the new product adoption process, namely, awareness,
interest, evaluation, trial and adoption.
There are individuals who are quick in accepting new products while some are
slow. They can be divided into five groups in accordance with the time taken to
learn about and accept a new product. These five groups are called pioneer, early
accepter, early majority, late majority and laggards. Please look at Figure 4.4.
Figure 4.4: Time of accepting an innovation

A pioneer is a risk-taker and will be the first to try the new idea. The pioneer is
followed by an early accepter who is the lead thinker and adopts the new idea
early. The early accepter group could influence other people as well. The early
majority group is more careful in accepting new ideas yet still accepts the new
idea earlier than most people. The group may be influenced by the lead thinker
to accept the new idea. The last majority is more sceptical about the new idea and
only accepts it after most people have. The laggard group is the slowest group in
terms of accepting the new idea. This group is normally conservative and holds
on to traditions.

SELF-CHECK 4.4
1. What are the stages involved when a buyer adopts a new idea
or product?
2. State the five categories of consumers in accepting a new idea

or product.
ACTIVITY 4.3
1. Are you the first one to accept a new idea or the opposite? Give
reasons for your answer.
2. Among all the categories of new product adoption process,

which group best describes your characteristics?
3. Please visit http://www.kfc.com.my. How is the creator of this

website able to attract Malaysians, who are culturally diverse, to
visit this website?
4. Click on link http://www.claritas.com/Default.jsp to find out

how the website sells information related to consumersÊ buying
characteristics and how this information can benefit the marketer
in terms of generating greater response from buyers.
• Marketing mix and other environmental forces affect buyersÊ „black box,‰
thus resulting in consumersÊ responses in choosing and buying products.
• There are four main factors that can influence consumerÊs own buying
decisions: cultural aspects, psychology, personal characteristics and social
influences.
• A consumerÊs behaviour can be affected by social factors such as groups,
family, role and status.

• There are five major steps in the buyersÊ decision process ă needs recognition,
information search, alternative evaluation, decision to buy and post-purchase
behaviour.
Alternative evaluation Information search

Culture Post purchase behaviour
Decision to buy Social class
Family Sub-culture
Groups Roles

Topic X Business
5 Market
LEARNING OUTCOMES
1. Discuss four characteristics of the business market;
2. Explain three stages of business buying;
3. List three situations of buying;
4. Describe five groups of participants in a business buying process;
5. Formulate four main influences in business buying; and
6. Evaluate the eight processes of business buying.
X INTRODUCTION
In this topic, you will learn about business market. The business market consists
of organisations that buy raw materials to be used as inputs in the manufacturing
process and then sell again to earn profit. These organisations are business
companies, factories and government agencies.
We will go through by explaining business buying behaviour, circumstances

affecting business buyers, the parties involved and the influencing factors in
business buying and finally, understanding of the whole business buying
process.
ACTIVITY 5.1
Is the behaviour of a business buyer the same as that of a consumer

buyer? Please give your opinion by looking at the characteristics of
both buyers.

56 X TOPIC 5 BUSINESS MARKET
5.1 CHARACTERISTICS OF BUSINESS MARKET
Described below are the characteristics of business market that comprises of:
• Market structure and demand;
• Purchasing unit behaviour; and
• Decision making type and process.
5.1.1 Market Structure and Demand

The business market usually consists of a small number of buyers but large in
terms of quantity of purchase. For example, JVC electronic and electrical
company buys a large volume of materials and parts for further used in the
production process.
The business market is focused in areas such as business centres or industrial

zones. Business demand arises from consumersÊ demand. For example,
consumersÊ demand for books will determine the quantity of raw paper needed
to be purchased by the publishing company.
5.1.2 Purchasing Unit Behaviour

It is more difficult to do business buying compared to consumer buying as it
involves more buying efforts. Some companies form a buying committee which
consists of technical officers and upper management to perform the duty of
purchasing complex and expensive items. This shows that business purchases
involve more participants to make decision.
5.1.3 Decision Making Type and Process

Business buying decision is more complex and it involves a huge sum of money,
complex technical issues and interactions among many people. The more
complex the purchase, the more formal the buying process will be i.e. more
documentation and evaluation of the suppliers.
ACTIVITY 5.2
Compare and contrast business market with consumer market.

TOPIC 5 BUSINESS MARKET W 57
5.2 BUSINESS PURCHASING BEHAVIOUR

MODEL
Look at Figure 5.1. According to this model, the buyerÊs buying decision is
influenced by marketing factors such as product, price, distribution and
promotion, and external factors such as economic, technological, political and
cultural. The buyer will take into consideration all these factors in making a
buying decision. The buying decisions involve choosing a product or service, the
supplier, quantity of order, delivery condition and payment. Besides that, an
organisational buyerÊs decisions can be influenced by individuals or the
organisation.
Figure 5.1: Model of business buying behaviour

ACTIVITY 5.3
What do you think the external environment factors such as
economic, political and technology influence the decision process of
business buying?

5.3 TYPES OF PURCHASING SITUATION

There are three types of purchasing situations:
• Direct repurchase;
• Repurchase adjustment; and
• New purchase.
5.3.1 Direct Repurchase

Direct repurchase refers to a buying situation where the product has been
ordered before. Usually, business buyers re-order the product without making
any changes. The existing suppliers have to ensure buyersÊ satisfaction by
delivering quality products and services on time.
5.3.2 Repurchase Adjustment

Repurchase adjustment refers to a buying situation where the buyer of the
product wants some changes to the product specifications or terms of payment.
Repurchase adjustment needs to involve more decision makers. From the
suppliersÊ point of view, it may present an opportunity for them to counter offer
to secure more business.
5.3.3 New Purchase

A new purchase refers to an order for a product at the first time. The new order
involves many individuals in the company, who are involved in identifying the
product specifications. Extra efforts are required to understand the product or to
source for suppliers for the new purchase.
SELF-CHECK 5.1
Identify three situations in which a business buyer makes purchases

5.4 PARTICIPANTS IN BUSINESS PURCHASE

PROCESS
In any business organisation, the purchasing decision maker is known as a
buying unit. It consists of individuals or groups that play a different role in
making buying decisions. This group of individuals are shown in Table 5.1.
Table 5.1: Participants in Business Purchase Process
No. Participant Description
1. Individual User The individual users of the product are the ones involved in
using and evaluating the performance of the product. They
will be able to provide feedback on the product specification
and propose to the purchasing unit to buy products that can
help solve their operational problem.
2. Influencer A member of an organisation who is not the user but is
permitted to participate in the product evaluation process as
his experience and knowledge is sought by the purchasing
unit.
3. Purchaser A member of an organisation who has the authority to make
final decisions on matters such as vendor selection and terms
and conditions of a purchase.
4. Decider A member of the organisation who holds the power to
approve the purchase.
5. Information A member of the organisation who filters the information
Controller before channelling it to the relevant party. For example, a
purchasing officer can restrict the sales agent from seeing the
decider.
ACTIVITY 5.4
Since many individuals participate in the business buying process,

how do they affect the vendors?

EXERCISE 5.1
Below is a short scenario on different individuals in Oryzz Sdn Bhd who

are involved in the business purchasing process. Try to identify these
participants.
Participant Role
Ali is the General Manager of Oryzz

Sdn Bhd. His key responsibility is to
approve any purchase exceeding
RM100,000.
John works as an engineer in Oryzz Sdn

Bhd. Sometimes his expertise is sought
by the marketing division concerning
the product specification.
Chan works in the manufacturing

section as a manager. One of his
responsibilities is to ensure the
machines are functioning well at all
times. If there is a need to change for
spare parts, Chan will contact the
purchasing section.
Mahmud is a manager in the

purchasing section. He manages all
purchases of the company.
Lily works as a personal assistant to Ali.

Her duty is to screen through the calls
before transferring the line to Ali.

5.5 FACTORS INFLUENCING BUSINESS

BUYING
Figure 5.2 shows the four major factors that influence the business purchasing
process. These are the external factors, organisation, individual personality and
individual demographic characteristics.
Figure 5.2: Factors influencing business purchasing

5.5.1 External Factors

The environmental factors is said to have great impact on business purchases.
For example, the economic environment can affect the demand of a product. The
business purchaser faces challenges when economy is uncertain. Besides the
economic factor, others such as technological, political and cultural can play a
role in affecting the business purchase.

5.5.2 Organisation Factors

Organisational factors such as the companyÊs objective, policy, procedure,
structure and system will determine the business purchasing behaviour.
Therefore, the business marketer must know the buying organisationÊs objective.
5.5.3 Individual Personality

Since the purchasing centre consists of many members, the interactions between
the members can influence the decision to purchase. Business marketers must
know who has the strongest influence so that they can plan the strategies
accordingly.
5.5.4 Individual Characteristics

The characteristics of the individuals such as age, income, education, personality
and attitude towards risks also play a role in affecting business buying decision
making.
SELF-CHECK 5.2
Briefly state the main influences of business purchasing of an
organisational buyer that you are familiar with.
5.6 BUSINESS PURCHASING PROCESS
The business purchasing process consists of eight stages. A short discussion is

shown in Table 5.2 below to examine the steps involved in the business buying
situation.

Table 5.2: Business Purchasing Process
No. Stage Description
1. Problem The purchasing process begins with acknowledgment of

Identification problems encountered by users. Problem identification will
require the purchaser to source for solutions by finding
certain products or services in the market.
2. Description of The next step is to prepare a description of product
General Needs requirements. This step requires the involvement of the
consumer, engineer and consultant if the nature of the
product required is complex.
3. Product From the description of general needs, a more detail
Specification technical specification of the product is identified.
4. Search for The business purchaser can now source for the suppliers
Suppliers who supply this specific product.
5. Invitation for At this stage, the purchaser will invite suppliers to send in a
Proposal proposal and specifications for consideration. If necessary,
the supplier will be called to make a product presentation or
demonstration to the purchaser.
6. Supplier Selection The members in a purchasing centre will evaluate each of
the supplierÊs proposals in accordance with some specific
criteria and make a decision to select the most qualified
supplier.
7. Order Issuance The purchaser will prepare a purchase order that is the
contract agreement to the selected supplier. The contract
specifies the product specifications, the required quantity,
delivery time, goods return policy and warranty.
8. Reviewing After a certain period of time using the product purchased,
Performance the purchaser will review and evaluate the performance of
the supplierÊs product. Based on the evaluation, the
purchaser will decide whether to continue repurchase, or
modify or terminate the contract.
SELF-CHECK 5.3
Test yourself by writing and explaining the eight stages of the
business purchase process.

ACTIVITY 5.5
Please click on these websites: http://www.heidelberg.com and

http://www.slb.com
Heidelberg is a German printing company which provides solutions for

commercial print, industrial commercial print, packaging print and label
print. Schlumberger is the world's leading supplier of technology, project
management and information solutions to the oil and gas industry.
In your opinion, who are their customers? What is the difference

between their website content compared to websites selling consumer
goods?
• The characteristics of business market comprises of market structure and

demand, purchasing unit behaviour, and decision making type and process.
• Business buying behaviour is influenced by marketing factors such as
product, price, distribution and promotion, and external factors such as
economic, technology, political and culture. The buyer will take into
consideration all these factors in making a buying decision.
• There are three types of purchasing situation: direct repurchase, repurchase
adjustment and new purchase.
• In any business organisation, the purchasing decision maker is known as
buying unit. It consists of individuals or groups that play a different role in
making buying decision. These groups of individuals are individual user,
influencer, purchaser, decider and information controller.
• Some major factors influencing the buying process are the organisations,
individuals, personality and external factors.
• The business purchasing process involves problem identification, needs
identification, product specification and search for suppliers, proposal
invitation, supplier selection, routine specification order and performance
review.

Decider Information controller

Direct repurchase Personality
New purchase Purchaser
Individual user Repurchase adjustment
Influencer

Topic X Marketing
6 Strategy:
Segmentation,
Targeting and
Positioning
LEARNING OUTCOMES
1. Explain three steps of target marketing;
2. List four stages of market segmentation;
3. Compose four basics of market segmentation;
4. Apply conditions of effective segmentation;
5. List the evaluation factor and selection of market segments; and
6. Design four components of marketing mix.
X INTRODUCTION
Today, companies know that it is very difficult to serve all consumers in a large
market in the same way. They are aware that consumersÊ needs and wants are very
diversified and it is difficult to attract all of them with a standard product.
Most companies nowadays are more careful in choosing who they want to serve.
They found that it is more effective to split the market and group those with similar
profiles together. This will enable the marketer to identify the most appropriate
market segments and design marketing activities tailored to each segmentÊs needs.
This shows companies are more focused on buyersÊ needs. This will give their
products a competitive edge.

TOPIC 6 MARKETING STRATEGY: SEGMENTATION, TARGETING AND W 67
POSITIONING
ACTIVITY 6.1
Visit a shopping mall and look for a product that attracts your
attention. Look at different brands as well under the same product
category such as toothpaste with brands like Colgate, Darlie, Fresh &
White and others. Can you tell from the brands on how the
producers segment the market?
6.1 STEPS IN MARKETING STRATEGY

The first step in market strategy is to divide the market into different groups of
buyers with their own unique needs, characteristics and behaviours. Marketers
carrying out this first step are pursuing a market segmentation strategy. The next step
is to choose which group of segment to serve. This is called market targeting. Market
targeting requires marketers to evaluate the attraction of each market segment and
select one or a few segments best to explore. The third step is market positioning,
which means determining the competition position for the product for each target
segment.
Figure 6.1 shows the three main steps in segmentation, targeting and positioning.
Figure 6.1: Market segmentation, targeting and positioning


68 X TOPIC 6 MARKETING STRATEGY: SEGMENTATION, TARGETING AND
POSITIONING
6.2 MARKET SEGMENTATION

Market segmentation refers to how a marketer can divide a huge market into smaller
consumer groups. The smaller groups have their own characteristic, behaviours and
needs. The purpose of segmentation is to enable the marketer to attract the right
segments which consist of different individuals with similar needs. The marketer can
adopt the appropriate marketing strategy to reach out to these consumer groups more
effectively with products or services that meet their requirements. Moreover, suitable
products and services can be delivered to them more efficiently than competitors.
6.2.1 Bases of Consumer Market Segmentation

There are several bases for segmenting consumer market. These include
demographic, geographic, psychographic and behavioural segmentations.
(a) Demographic Segmentation

Demographic factors refer to variables like age group, gender, income,
occupation, education, race, religion and nationality. The demographic factor is
one of the most applied bases for segmenting the consumer market. This is
because the market consists of different individuals and demographic
segmentation permitts the marketer to dissect and group the segments
according to similarity in characteristics. For example, a marketer can group a
segment that has these characteristics ă a Malay female aged between 20 and 30,
single, holds a diploma or degree and works as an executive with an income
range of RM2000 to RM4000. With such segmentation, the marketer can
communicate the right brand messages to the target consumers.
(i) Age
Needs and wants change in line with our age and stages in life. For
example, marketing of the Proton Satria car is aimed at the young
Malaysian consumer group who prefers style while marketing of Proton
Perdana car is targeted at mature consumers who are more conservative.
(ii) Gender
Segmentation can be done based on consumersÊ gender. This is because
menÊs and womenÊs needs or desires towards any product or service are
often different. For example, the female consumer group influences the
purchase of household products such as washing machine, electric
products, clothing and cosmetics.

POSITIONING
Gender segmentation is also applied to products used by both males and

females, such as cars. Women may prefer easy, comfortable and
economical cars while men prefer big and powerful cars.
(iii) Income
Income segmentation segregates the market into smaller segments with
various levels of income. For instance, marketers of BMW and Mercedes
cars focus on high-income consumers while marketers of Proton cars give
priority to the average and lower-income consumer group.
(b) Geographic Segmentation

Marketers use geographic segmentation to split the market segments according
to country, region, state, province and city. Many companies try to localise their
products to geographicals area such as Penang Fried Kuey Teow, Johor Laksa,
Ipoh Hor Fun and etc.
(c) Psychographic Segmentation

Psychographic segmentation divides consumer groups into different groups
according to social class, lifestyle or personality characteristics. For example,
„Nescafe‰ advertisement is targeted at consumersÊ lifestyle of happiness with
friends.
(d) Behavioural Segmentation

Behavioural segmentation refers to the action of dividing the market into
several groups according to consumersÊ behaviour, attitude, use and response to
the products. Marketers use behavioural segmentation to categorise consumers
according to:
(i) Special Occasions

Consumers are grouped in accordance to special occasions. These
occasions can be Valentine Day, MotherÊs Day, FatherÊs Day, Hari Raya
Aidilfitri, Deepavali, Chinese New Year and Christmas. Marketers can
offer promotions for special occasions e.g. the low-cost carrier Air Asia
gives away free tickets to Thailand for couples during ValentineÊs Day.
(ii) Value Sought

Marketers also understand that different consumers in the market will
search for different product values. Therefore, they must build multiple
product lines to fulfil consumersÊ needs. For example, Colgate uses this
tactic when launching various types of toothpaste products that give
different benefits such as protection from tooth decay, special teeth
whitening formula and also toothpaste that is normal but economical,
which is aimed at price-conscious consumers.

POSITIONING
(iii) Buyer Status, Consumption Level and Loyalty

This segment consists of:
• Consumer Status
Marketer can also divide buyer groups into different status such as
non-buyers, formal buyers or normal buyers. The marketer can create
different advertisements for different buyers. For instance,
advertisements directed at non-buyers might aim at encouraging them
to try a companyÊs products while advertisements for normal buyers
may be aimed at increasing frequency of usage.
• Consumption Level
The consumption level can be divided into high usage, medium usage
or low usage. Dividing usage level into three categories helps
marketers to strategise on how to increase frequency of usage.
• Loyalty
Some buyers are loyal to a companyÊs products while others like
variety and change product brands frequently. By examining the usage
pattern, the company can identify the loyal and the less loyal group.
For the loyal group, the company can give gifts to them for the
purpose of maintaining their loyalty for a long time. As for the less
loyal group, the marketer may need to think of some marketing
programmes to increase loyalty.
SELF-CHECK 6.1
What are several bases for segmenting the consumer market? Explain
briefly.
ACTIVITY 6.2
A marketer can learn a lot by analysing customer loyalty. What is your

loyalty status and how the marketer can learn from you?

POSITIONING
EXERCISE 6.1
Below are descriptions of some companiesÊ segmentation strategy.

Identify the bases of market segmentation these companies used.
Description Market Segmentation
1. The manufacturer of Honda

motorcycles recently launched its
new model called „Feminine,‰
especially targeting female
motorcyclists.
2. The handphone maker Ericsson has

launched a small and compact
handphone model that features an
interesting design colour with the
advertisement message, „Especially
for the young and cheerful.‰
3. Reliance Travel Agency promotes

holiday packages to Africa for
honeymoon couples.
6.2.2 Effective Segmentation

There are some conditions in which marketers must ask themselves how to carry out
market segmentation effectively. There are numerous ways marketers can use to
segment the market. However, marketers must be wise enough to choose the right
market segment. Below are some conditions marketers must ask if they want to
achieve effective segmentation.
(a) Measurable
Can the segment selected be measured in terms of its size and profitability? By
answering this question, the marketer will know what marketing program is
appropriate to target at this segment.
(b) Reachable
Can the different individuals in this segment be reached and served effectively.
It is important that the individuals in the segment are reachable if not the

POSITIONING
marketer will not be able to implement any marketing program to influence the
behaviour of this segment.
(c) Substantial
Is the targeted segment big enough to make a decent profit? If the segment is too
small, it may not be profitable to the company.
(d) Distinguishable
Is the market segment distinguishable? This will help the marketer to decide on
how to plan the marketing strategy for distinguishable market. For instance, if
teenage and adult women respond the same to the sale of cosmetics, then the
market should not treat them as separate segment.
(e) Actionable
Is there too many small segments identified for the marketing program? If the
marketer were to divide the market into too many small segments, it will
require more staff to develop different marketing plan for all these segments.
ACTIVITY 6.3
If you wish to start an on-line business (business using internet),
what are some of the conditions you can apply to ensure and
effective market segmentation?
6.3 MARKET TARGETING

In the previous session, you learn on how the marketers divide the large market into
a smaller segment called market segmentation. In this part, you will learn how the
marketers select the segment(s) to enter which we called market targeting. You will
also study how marketers evaluate the market segment(s) before selecting the right
target segment(s) they wanted to cover.
6.31 Evaluate the Market Segment

To evaluate the market segment(s), marketers must look into three major factors as
describe below.
(a) Growth and Size of the Segment

The marketers must begin their effort in gathering information relevant to the
recent development of the segment(s) characteristics such as size, growth level

POSITIONING
and estimated sales revenue. The selected segment(s) must have a reasonable
size and potential growth.
(b) Competitiveness of the Segment

Besides the size and growth, marketers must also consider other factor such as
competitiveness of the segment(s) identified. For example, if the marketers have
found out the selected segment(s) controlled by many big players, then they
may choose not to enter or perhaps consider other segment(s).
(c) MarketerÊs Goal

Lastly, a segment that is evaluated must meet the companyÊs goal. Marketers
must ensure that they have sufficient resources in terms of people skills and
capital in order to secure the target segment that they wanted. This is important
to assure that they can offer the best products and services to the target
segment(s) better than their competitors.
6.3.2 Select Target Segment

Upon evaluation of each market segment(s), marketers must continue with the
process of deciding which segment to serve and how many. To answer this, they have
to look into various target marketing strategies explained here.
(a) Non Differentiated Marketing

This non differentiated marketing strategy allows the company to target the
large market as a whole (Figure 6.2). An example of company using this strategy
is the Coca-cola Company selling only one type of bicarbonate drinks for all
markets.
The advantage of this strategy is that it can create a huge potential market buyer
through mass distribution. Nevertheless, marketers faced difficulty in creating a
product that can satisfy all of these diversified groups. Today, marketers who
try to market a standard product to mass markets found their approach is less
effective and often lose out to companies which are more focused in terms of
satisfying the niche consumer group.
Figure 6.2: Marketing mix for a whole segment

POSITIONING
(b) Differentiated Marketing

This strategy allows the company to decide on a few segments and create
marketing program to cater for each of this different segment as shown in
Figure 6.3. For example, the Proton car manufacturing company practices the
differentiated marketing when it produces the Proton Iswara car for low income
consumers, the Proton Waja car for middle class consumers and the Proton
Perdana for high income consumers.
The benefit of this strategy is that it enables marketers to market their products
more effectively i.e. marketers can modify the product to satisfy the different
segment. Moreover, communication, promotion and advertisement can be
adjusted to meet different segments. By offering different products with its
separate marketing strategy, companies wish to achieve higher sales in each
segment. Additionally, companies offer a variety range of products to
accommodate different needs of the segments. The disadvantage is in high cost
to implement separate marketing plan.
Figure 6.3: Different marketing mix for different segment
(c) Focused Marketing

This strategy allows the company to aim at larger market share in one or several
segments or niches (Figure 6.4). For example, The Rolls Royce car pursues
focused-market to concentrate on a very small market of super rich individuals,
country leaders and royal families.
Figure 6.4: Marketing mix for larger market share segment(s)

POSITIONING
The focused marketing strategy is most suitable to use when the company has
limited resources. The objective is to be the specialist in the niche segment. As
the market size is small, it attracts only limited competitors. Therefore, the
company can offer its product at a premium price. In sum, focused marketing
strategy gives opportunities for smaller firms to compete by concentrating their
limited resources on the niche segment that have not been served by the bigger
competitors.
(d) Micro Marketing

This is a unique strategy as it allows customisation of products/services as well
as its marketing strategies to cater specific requirements from individuals or
segments. Micro marketing can be divided into two categories.
(i) Local Marketing

Local marketing refers to marketing activities that has been adjusted to the
taste of the local community. Besides modifying the product, marketer can
also customise its other marketing mix like price, promotion and
distribution method.
Local marketing has its advantages and disadvantages as well. As for the
advantage, the local marketing can help marketers to understand the
needs and behaviour of local residents and tailor an effective marketing
program to serve them. The drawback of this approach is it can weaken
the image of the product due to different messages to different localities.
(ii) One-to-one Marketing

One-to-one marketing refers to marketing activities that has been modified
to satisfy the taste of each unique individual. Example is Dell Computer
lets individual customer custom-made the computer to his/her
requirements.
The advantage of one-to-one marketing is lies on its effectiveness on

satisfying individual needs and preferences. However, it is difficult to
implement in many industries as it involves high cost compared to its
benefits. Nevertheless, modern technology especially with the existence of
the internet has enabled the marketer to practice individual customer
marketing at lower cost.
ACTIVITY 6.4
There are several strategies marketer can use when selecting a target
segment? Think of a company you are familiar with and explain how it
chooses its target segment(s).

POSITIONING
6.4 MARKET POSITIONING

After the company has selected one or a few target segment(s) to serve, the next step
is to look at how to position its product in those segment(s). A productÊs positioning
in the market means the way consumers are influenced to perceive the productÊs
important features against competing product. In other words, the consumers can
relate themselves strongly with the product better than competitorsÊ ones. For
example, Mercedes is positioned as luxury and a reliable car.
There are basically four criteria a company can select when identifying its positioning
strategy.
• Recognise own productÊs competitive edges.
• Select the most appealing edges.
• Choose an overall positioning.
• Communicate the positioning.
6.4.1 Recognise Own Product’s Competitive Edges

First and foremost, a company must recognise its own products features that can offer
some differentiation from its competing brands. A company can look into some key
differentiators highlighted here as the way to win the consumers heart and soul
greater than competitors do by:
• Delivery more product value;
• Differentiates its services;
• Differentiates its reputation; and
• Differentiates its people.
(a) Product Edge

Product can be differentiated on its characteristics such as quality, design,
performance, durability, reliability and etc. For example, Porsche positioning its
product feature as powerful performance sports car.
(b) Service Edge

Besides product positioning, the company can also look at the services aspect
that come along with the product such prompt service, free delivery, free
installation, convenience and etc. For example Citibank provides a round the
clock service of 24 hours/7 days.

POSITIONING
(c) Reputation Edge

A company can distinguish itself for innovative product and socially
responsible. For example J.W. Marriot provides a strong image of excellent
quality service. To live up to the image, the company must do and deliver its
promise.
(d) People Edge

We know that people are the key asset to an organisation. People differentiation
requires the company to recruit the right people and provide training so that
they are more customer sensitive, proactive to customersÊ needs, personalise
care for the customers and etc.
6.4.2 Select the Most Appealing Edge

From a list of competitive advantages identify, the company must decide the most
attractive edge on which the positioning strategy will be crafted. Hopefully, this
special edge will eventually becomes a unique selling point (USP) on which the
company will recognise in the long run.
6.4.3 Choose an Overall Positioning

To select an overall positioning, the company should fully position its brandÊs key
values which is called brand value proposition. By choosing the right value
proposition, it answers the question of why consumer must buy its product and not
the competing products.
6.4.4 Communicate the Positioning

Communication can be done by utilising the marketing mix activities especially on
the integrated marketing communication (IMC) tools to effectively convey the brand
positioning strategy messages to the target market. The frequent adaptation of IMC
to match the changing consumersÊ needs and competitorsÊ strategies can help the
company to deliver its desired positioning strategy.
In conclusion, building a strong product positioning strategy requires the company to

also to implement it successfully. Company which is able to build its desired brand
positioning must constantly check its position status time to time to keep pace with
the changing consumersÊ needs and competitorsÊ strategies.

POSITIONING
ACTIVITY 6.5
You can learn how the market segmentation, targeting and

positioning is applied by visiting the following websites:
• http://www.swatch.com/
• http://www.rolex.com/
What do you think the Rolex and Swatch watch company use its
marketing strategy of segmenting, targeting and positioning? Which
group do you think is the target market for the Rolex brand and the
Swatch brand?
You are encouraged to discuss in detail with your classmates.
• Market segmentation is referring to how a marketer can divide the huge market
into smaller consumer groups.
• The purpose of segmentation is to enable the marketer to attract the right
segment(s) which consist of different individuals with similar needs. The
marketer can adopt the appropriate marketing strategy to reach out to this
consumer group(s) more effectively with products or services that meet their
requirements.
• There are several bases for segmenting consumer market. This includes
demographic, geographic, psychographic and behavioural segmentations.
• In order to achieve an effective segmentation, there are some conditions that
marketers must ask: measurable, reachable, substantial, distinguishable and
actionable.
• There are three major factors that need to be look by the marketers in order to
evaluate the market segment; growth and size of the segment, competitiveness of
the segment, and marketerÊs goal.
• A productÊs positioning in the market means the way consumers are influenced to
perceive the productÊs important features against competing product.

POSITIONING
• There are basically four criteria a company can select when identifying its
positioning strategy: recognise own productÊs competitive edges, select the most
appealing edges, choose an overall positioning, communicate the positioning.
Local marketing People edge

Market positioning Product edge
Market segmentation Reputation
Market positioning Service edge
One-to-one marketing

Topic X Product
7
LEARNING OUTCOMES
2. List four stages of market segmentation;
3. Compose four basics of market segmentation;
4. Apply conditions of effective segmentation;
5. List the evaluation factor and selection of market segments; and
6. Design four components of marketing mix.
X INTRODUCTION
Product is one of the important elements of marketing mix. The term „product‰ is
closely related to the production process. In production, whatever outputs produced
is called product. Examples are computer, furniture, television and etc. In the
marketing context, product can be defined as „anything offered to the market and
received by the consumer through the exchange process.‰ In this part, you will learn
about the meaning of product, how products are categorised, different types of
products in the market, new product development and product life cycle.
7.1 PRODUCT LEVELS

Have you ever thought about what is the level of a product? Suppose you have just
bought a motorcycle, what have you actually got? What are the benefits you gain
from owning and using the motorcycle?
To understand the above question, you need to know the levels of product. There are
basically three levels as depicted in Figure 7.1. The most inner layer is called core
benefit. This is followed by the second layer called actual product and finally, the
outer layer called additional product.

TOPIC 7 PRODUCT W 81
Figure 7.1: Product levels

Source: Adapted from Kotler, P. and Armstrong, G. (2008). Marketing: An
introduction (9th ed.). Upper Saddle River, NJ: Prentice-Hall.
7.1.1 Core Benefit

The core benefit level means the most basic benefits that consumers actually
purchase. Examples are: (i) the core benefit of a wristwatch is the knowledge about
precise time and (ii) the core benefit of soap is hygiene.
7.1.2 Actual Product

Actual product refers to the real product featuring its own brand name, design,
quality, and packaging. For example, the actual product of a Hewlett Package (HP)
computer printer is its name, design, features, packaging and quality. All these
characteristics made up the actual printer that is obviously derived from the core
benefits i.e. wanting to transfer the images and words from the computer screen into
a printed material.
7.1.3 Additional Product

Definitely, marketers would like to offer a complete solution to customers. Additional
products will be built around the core and actual products. This includes free
delivery, easy credit facility, maintenance, prompt sales service, longer warranty
period, instruction manual and etc. As for the HP printer example above, the

82 X TOPIC 7 PRODUCT
company may give a warranty of two years to assure customers of product quality. In
fact, this warranty adds value to the printer sales.
EXERCISE 7.1
Identify the core benefits for the products below:
Product Core Benefits
• Television
• Car
• Diploma offered by OUM
7.2 PRODUCT CLASSIFICATION

The approach to categorise products is to segregate them into consumer products and
industrial products.
7.2.1 Consumer Products

Consumer products are products purchased by the end user for personal or family
use. Consumer products comprises of (a) convenience products, (b) shopping
products, (c) specialty products and (d) unsought products. Below is the detailed
explanation of consumer products.
(a) Convenience Products

Convenience products refer to products which are conveniently available to
consumers for quick and easy purchase. Examples are salt, soap, newspaper and
toothpaste. These types of products are frequently purchased without much
planning and the price is normally cheap. The marketing strategy for convenience
products is to distribute widely to retail shops in many locations. The objective is
to make products easily available to consumers regardless of geographical place.
As convenient products are purchased by people of all walks of life, the
promotion and advertisement activities are targeted at everyone.
(b) Shopping Products

Shopping products refer to consumer products that are not frequently
purchased by consumers. Buying shopping products requires consumers to

perform some planning beforehand. Simple planning such as making a product

comparison in terms of product brand, price, quality, size, weight and others.
The reason consumers carry out the planning is because of the nature of product
that is more expensive than convenience products. Examples are branded
designer clothes, electronic and electrical appliances and furniture. The
marketing strategy for shopping products involves more advertisements and
one-to-one selling. The objective is to differentiate the companyÊs products from
those of its competitors.
(c) Specialty Products

Specialty products are consumer products that have unique features.
Consumers will go the extra mile to look for the special product brands they
want. For example, expensive cars like Ferrari, Porsche and Jaguar, antique
goods and diamonds. Since they are willing to invest their time and money to
reach any distributor carrying the specialty products, price is no longer a
concern for them. From the marketersÊ perspective, they can appoint exclusive
distributors/dealers in a specific market area to reach this target group. The
promotion efforts have to be specifically designed for this group of target
consumers.
(d) Unsought Products

Unsought products are consumer products that consumers never think of
buying. Examples are insurance, financial products, funeral plots and etc. From
the strategy point of view, marketers should focus more on aggressive
advertisements and use relationship selling to close business deals.
ACTIVITY 7.1
Can you name two other examples of consumer products in the space
given below?
• Consumer Products:
• Convenience Products:
• Shopping Products:
• Specialty Products:

7.2.2 Industrial Products

Industrial products are products purchased by business organisations as input in the
production process. These products can also be used by the organisations to do
business. Industrial products can be divided into three main groups. These are:
(a) Raw Materials and Spare Parts

Raw materials can be from agricultural products such as cotton, latex, palm oil,
livestock, vegetables and etc. Likewise, spare parts are semi-processed goods
used for further processing before it can be converted into end products.
Examples are tyres, die-casting parts, bulbs etc.
(b) Accessory Equipment

Accessory equipment comprises products used in manufacturing plants to ease
the production. These are heavy-duty machinery, equipment, automatic system,
conveyors and etc.
(c) Supplies and Services

Supplies are operating items such as lubricating oil, paper, pencil and other
stationery. Supply items include installation, repair and maintenance items
such as nails, screwdriver and broom. Services refer to the provision of
maintenance, repair services or other forms of assistance.
SELF-CHECK 7.1
Based on what you learnt earlier, please illustrate your

understanding of the following questions with examples.
1. What are the three levels of products and services?
2. Distinguish the differences between consumer products and
industrial products.
7.3 DECISIONS ON PRODUCT

Marketers use product decision as depicted in Figure 7.2 as a guide in making
judgment on what products and services to sell to target customers. This diagram
illustrates the development and marketing process of product decisions such as
product characteristics, branding, packaging, labelling and support services which
are of importance to the marketer.

Figure 7.2: Product decision

introduction (6th ed.). Upper Saddle River, NJ: Prentice-Hall, pg. 286.
(a) Product Characteristics

Product characteristics refer to the quality, features and design of a product.
Prior to producing a new product, the marketer must decide on the product
characteristics required. The marketer must make decisions pertinent to the
quality, features and design aspects of the product.
(i) Quality of Product

The marketer must determine the acceptable level of product quality. A
company may not necessarily offer the highest product quality to all
targeted customers. This is because not all customers require high quality.
Or rather, only a handful can afford to pay for a high-quality product.
Quality can be divided into: (i) performance quality and (ii) conformance
quality. For example, we can say that the performance quality of the
„Parker‰ pen is higher than the „Kilometrico‰ pen. In contrast,
conformance quality means a product meets the industrial specifications
and is free from any defect. For example, even if the quality performance
of the Kilometrico pen is not as good as the Parker pen, both pens meet the
conformance criteria and no defect is found by users.
(ii) Features of Product

In deciding what features are required for a product, the marketer can
conduct surveys to identify consumersÊ preferences for certain features of
a product.

The product offered to consumers can be in a few versions or models with

different features. For example, Dell computer offers a variety of PC
products with different features such as speed, memory and screen
quality, different size, weight and design. More product alternatives tend
to provide greater options for customers. Customers can select their ideal
features to satisfy their needs, thus leading to higher customer satisfaction
level.
(iii) Design of Product

Marketers can differentiate their products by creating a unique design. A
good product design is able to attract customersÊ attention. For example, a
mini compact handphone can be attractive to consumers.
(b) Branding
A brand consists of the name, sign or symbol of a product. A brand enables
consumers to identify the products or manufacturers. A brand can also
differentiate a product from its competitorÊs products.
The selection of brands is important because a good brand can contribute to the
marketing success of a company. A good brand must:
(i) Highlight the benefits and qualities of the product to consumers;
(ii) Be easy to mention; and
(iii) Not have a bad meaning in a foreign language.
(c) Packaging
Product package refers to the product container or wrapper. Packaging is a
process of designing and producing the container or wrapper of a product. The
traditional function of package is for product storing and protection purposes.
Today, marketers use packaging as an important marketing device to attract
customersÊ attention (Figure 7.3). An attractive packaging can attract consumers
and generate sales. The packaging is also designed to give added value to the
product description.

Figure 7.3: Examples of attractive product packaging

Source: http://www.hhcc.com/wp-content/uploads/2006/04/Packaging.jpg
A company must decide on the size, shape, material, colour, texture and brand
sign for the product packaging. Prior to making the decision, the marketer must
determine the objective of the packaging, whether it serves as protection or
description of the product. These decisions must match the objectives of the
packaging and other features such as quality, image and price.
(d) Labelling
Labelling involves efforts on printing words or symbols onto a package or
simply sticking a tag on the product. A label distinguishes the identity of a
product or brand, provides information on the product such as the contents and
instructions on how to use the product.
(e) Product Warranty

Product warranty is a value-added service that comes along with a product.
Today, a lot of companies use product warranty to convince customers of their
productsÊ quality and reliability.
ACTIVITY 7.2
Imagine you are a marketing manager who has been assigned to

look at product decisions. State the decisions you would make on
product characteristics.

7.4 NEW PRODUCT DEVELOPMENT PROCESS

When reading a newspaper or watching TV, we are constantly bombarded with lots
of advertisements of new products and services. Technological advancement has
introduced more new products into the market faster than before. When you see
advertisements of new products, ask yourself what are some of the features of these
products and compare them with the earlier versions or models of the product. Have
you ever pondered how companies get new ideas? How do companies ensure that
their newly developed product will be able to satisfy the target market?
Product development is associated with high risk. That is why many new products
fail after their launch into the market, causing huge losses to the company. However,
there are companies which have learned to be more careful when introducing a new
product. This section will present to you the eight stages of developing a new product
as shown in Figure 7.4.
Figure 7.4: Stages in development of new product

7.4.1 Idea Generation

The development of a new product begins with idea generation. The main objective
of this stage is to generate as many ideas as possible in the hope of finding a few good
ones. A company can welcome new ideas through brainstorming with employees or
seeking outside information from customers, competitors, suppliers and distributors.

(a) Internal Sources

The company can find new ideas from its internal sources such as research
work, employees, salespersons and etc.
(b) Customers
The company can conduct joint activities with customers on product
development. Focus group sessions to discuss new product ideas are often
encouraged. The company may want to consider customersÊ complaints as an
important source of information and use it to identify new methods to improve
or modify products.
(c) Competitors
Competitors are the best source of ideas. A company can monitor its
competitorsÊ new product launches through advertisements and other media
such as their website, annual report and pamphlets.
(d) Suppliers and Distributors

Suppliers and distributors can provide valuable information to the company.
Suppliers and distributors are closer to the market and know what are the
problems encountered by consumers and new product possibilities that can
help to solve the problems.
7.4.2 Idea Screening

The second stage in the new product development process is idea screening. The
purpose of this stage is to eliminate poor ideas as early as possible. This is because
product development cost rises substantially with each development stage.
7.4.3 Concept Development and Testing

A good idea must be able to be transformed into a fantastic product. It is important at
this stage to determine those attractive ideas that can be further developed and tested
with groups representing the target market. In this way, consumers are given a
chance to imagine and feel a potential real product offering for them.
Based on this experiment, the most interesting concept will enter into the next stage
while the other alternative concepts will be dropped.

7.4.4 Marketing Strategy

At this stage, the marketing strategy designed is to answer the following questions:
• Who are the target customers?
• What is the most suitable positioning strategy for this product?
• What are the marketing strategies for this product?
• What are the expected sales and forecasted market shares in the short term and
long term?
This marketing strategy is aimed at fulfilling the objective of successfully introducing

the new product into the market.
7.4.5 Business Analysis

After the marketing strategy is developed, the company will perform a business
analysis. It will work out the forecast for sales revenue generation, profit and loss
projection and project cost estimation. If the projected profit from the new product is
satisfactory, the company may decide to develop the product. The idea will be
dropped if profit projections are below the satisfactory level.
7.4.6 Product Development

In this stage, the concept of the product is transformed into a physical sample. A
product prototype can be built as a sample for demonstration to the management.
The company will then perform functional examinations of the prototype and make
necessary modifications. If the prototype passes all functional examinations, the
sample will progress to the production stage, where the prototype is turned into an
actual product.
7.4.7 Market Testing

Once the product is developed and passes all functional tests, the next stage is to
bring the product out for further testing in actual market settings. The objective of test
marketing is to examine whether the companyÊs marketing programme designed to
test the product is able to successfully attract new buyers. The results of test
marketing will indicate to the company whether the product requires any changes or
whether the marketing programme requires any adjustments before the product is
fully launched.

7.4.8 Commercialisation
In this stage, the company must decide on a suitable time and place to launch the
product. The company can strategise to introduce the new product in a small market
segment and hopefully, it will slowly penetrate and spread into other segments in a
short time. However, if the company has high confidence in its new product, it can
launch the product immediately into the international market.
SELF-CHECK 7.2
What are the stages involved in developing new products? Explain

briefly.
EXERCISE 7.2
Identify the various sources of ideas for a new product development

of your choice.
7.5 PRODUCT LIFE CYCLE

There are many products that can be found in a supermarket today which did not
exist in the past decade. There are also products and brands that existed a decade ago
but are no more on the supermarket shelves. For example, it is now quite difficult to
find a video cassette player although it was a popular item in the past. This is because
the video cassette player has been replaced by DVD player. Immense technological
advancement has caused electronic goods to become obsolete in a shorter time.
Technological gadgets seem to have quite a short life. Every product introduced in
the market has to go through a series of its own life cycle. This brings us to look at
the other concept of product, which is commonly known as product life cycle. In this
section, you will learn about the five stages of the product life cycle. These are:
(a) Product development stage;
(b) Introduction stage;
(c) Growth stage;
(d) Maturity stage; and
(e) Decline stage.

We will also discuss the sales and profit growth, competition, strategies and
marketing objectives of each stage.
7.5.1 Product Development Stage

This stage starts when a company tries to develop a good idea and convert it into a
new workable product. The company has to invest money and effort in research and
development with the objective of introducing the new product successfully into the
market. At this stage, the sales and profit growth is zero.
7.5.2 Introduction Stage

When a product is newly launched into a market, not many people are aware of it.
Due to it being new, the sales growth is slow. The profit generated is most likely
small or sometimes the company may even experience initial losses. The number of
competitors in the market is few. The marketing strategy is to offer a unique product
with a reasonable price, build selective distribution and conduct heavy promotions to
entice new product trials. The objective is to create product awareness and new trials.
7.5.3 Growth Stage

At this stage, more customers are aware and begin to accept the product. The sales
and profit increase tremendously. Competition at this stage is moderate. The
marketing strategy is to offer product extension and value-added services such as
warranty. The marketer can set a low price to penetrate the market faster and build
intensive distribution for wider market coverage. At this time, promotions are
reduced to take advantage of the high demand. The marketing objective is to
maximise the market share.
7.5.4 Maturity Stage

The maturity level starts when sales begin to slow down. This could be because most
of the prospective buyers have purchased the product. At this stage, the profit will be
stabilised to a moderate level. Competition becomes fierce with many direct ones
challenging each other. We can also see a few indirect competitors entering the
market. The marketing strategy is to diversify the product brand, match the price
with that of the competitor, build more intensive distributors and increase
promotions to encourage brand switching. The objective is to maximise profits while
defending market share.

7.5.5 Decline Stage

At this declining stage, the sales and profits are low. If this situation persists, it may
lead to negative sales and profits. This could be due to the product being substituted
with a new product. This new product has the capability to satisfy the market needs
better than the current one. At this stage, there are only a few direct competitors. The
marketing strategy is to modify the:
(a) Market in order to increase the current product status. This strategy will allow
the marketer to find new users and market segments, reposition its product
brand so that it can become more attractive to other bigger and fast-growing
segments and finally, increase the usage rate among existing users.
(b) Product by changing its physical appearance or the content to attract more new
users. This can be done by improving the quality, reliability, speed, styling and
etc. The marketer can also consider extending the warranty period, expanding
the safety features and increasing ease of use.
(c) Product mix, for instance, by offering a new or improved version, cutting the
price, launching a more effective advertisement campaign and appointing larger
distribution channels. The marketing objective is to reduce expenditure and
milk the product to the maximum.
Figure 7.5: The life cycle of a product

Figure 7.5 illustrates the life cycle of products. The summary of the product life cycle
is shown in Table 7.1 for easy reference.

Table 7.1: The Product Life Cycle

Stages of Product Sales Profit Competitor Strategy Marketing
Life Cycle Growth Objective
1. Product Zero Zero Zero To invest. To successfully
Development introduce new
Stage products.
2. Introduction Slow Slight/ Few Unique offer To create
Stage losses with awareness.
affordable
price, appoint
selective
distributors
and go for
heavy
promotions.
3. Growth Stage Very fast High Moderate Offer product To maximise
extension and market share.
value-added
service,
penetration
strategy,
intensive
distribution,
less promotion.
4. Maturity Slow Moderate Many Diversify To maximise
Stage direct product, price profits and
competitors matching with market share.
competitors,
intensive
distribution,
heavy
promotions
5. Decline Stage Slow/ Low A few Market To reduce
negative direct modification, expenditure and
competitors product to milk the
modification brand.
and marketing
mix
modification.
7.5.6 Style, Fashion and Fad

We have to understand that not all products undergo a normal product life cycle as
highlighted above. The different life cycles are depicted in Figure 7.6. There are (i)
style, (ii) fashion and (iii) fad. Style is a specific way of expression. Once a style is

created, it can last for generations. Fashion is the more recent style that is popularly
accepted in certain fields. Fad is fashion that emerges quickly and is adopted
vigorously but then it fades quickly as well.
Figure 7.5: Style, fashion and fad

SELF-CHECK 7.3
1. Identify the five stages involved in product life cycle. Explain

each stage based on your own understanding.
2. Draw the five stages of product life cycle. The product life cycle
can also be formed in various shapes. Draw and explain the
different forms of product life cycle.
ACTIVITY 7.3
Visit http://3m.com. 3M is well known in the market for its

innovative products. Click on the „About 3M‰ icon and then on
„WhatÊs New‰ to find out the secrets of 3MÊs innovative product
development.

EXERCISE 7.3
The situations below explain each stage of product life cycle. Write your
answer in the space provided.
Situations Stages of Product Life

Cycle
Many consumers are aware of and accept the
product. Sales and profits increase
tremendously.
Sales and profits drop because the product

has been substituted with a new product that
can better satisfy current usersÊ needs.
The product has just been launched and the

growth of sales is slow. Profit does not exist
because the advertisement cost is high.
The company develops a new product. There

is no sales generation and investment cost is
high.
The increase in sales starts to moderately

stabilise as most prospective buyers have
bought the product. The profits become stable
or begin to drop.
• There are three major levels of a product: additional, actual and core product.
• The core benefit level means the most basic benefits that consumers actually
purchase. The actual product refers to the real product featuring its own brand
name, design, quality, and packaging.
• Additional products will be build around the core and actual product. This
includes free delivery, easy credit facility, maintenance, prompt sales service,
longer warranty period and instruction manual and etc.

• The two basic classifications of a product are consumer product and industrial
product.
• Consumer products are purchased by the end user for personal or family use.
Consumer products comprise convenience products, shopping products, specialty
products and unsought products.
• Industrial products are purchased by business organisations as input in the
production process. Industrial products can be divided into three categories: raw
materials and spare parts, accessory equipment, and supplies and services.
• A new product is developed by going through the eight stages of product
development: idea generalisation, idea screening, concept development and
testing, marketing strategy, business analysis, product development, market
testing and commercialisation.
• There are five stages of product life cycle: product development, introduction,
growth, maturity and decline.
Actual product Labelling

Additional product Packaging
Branding Shopping product
Consumer product Speciality product
Convenience product Support service
Core benefit Unsought product
Industrial product

Topic X Price
8
LEARNING OUTCOMES
2. Explain three approaches in cost determination; and
3. Integrate the pricing strategy with the product situation and its
market.
X INTRODUCTION
Price is the second element of marketing mix. Price is the cost to buyers to own a
product and is the sellerÊs revenue. How to determine the price of a product is always
the main concern of the marketer. The marketer has to consider all internal and
external factors that can affect price decision. Besides that, there are some general
approaches that can be used by the marketer as a guideline in setting the price. In the
last section, we will discuss some major pricing strategies which can be adopted by
the marketer in different specific situations such as pricing for new product, market
penetration pricing strategy and price adjustment strategy.
8.1 DEFINITION
Price is the amount of money paid by the consumer in the exchange of products. Price
can be seen in different forms such as fee, rent, wage, deposit and instalments. Price
can determine the success or failure of marketing efforts. Hence, the marketer plays
an important role to convince consumers that what they buy is value for money that
they are willing to let go. Several factors contribute to the price setting as described
below.

TOPIC 8 PRICE W 99
8.2 FACTORS AFFECTING PRICE DECISION

In this section, we will discuss factors that can affect the price determination of a
product. These factors can be divided into two categories: (i) internal and (ii) external.
8.2.1 Internal Factors

The internal factors consist of all factors which can be derived from inside the
company. These internal factors are shown in Figure 8.1.
Marketing Mix
Strategy
INTERNAL
FACTORS
Marketing Costs
Objectives
Figure 8.1: Internal factors
(a) Marketing Objectives

The company must decide on its marketing objectives prior to making pricing
strategy for the product. Some of the objectives are explained in Table 8.1.

100 X TOPIC 8 PRICE
Table 8.1: Marketing Objectives
No. Objective Explanation
1. Continuity If a company is facing production capacity surplus and

serious competition, the management should set a lower
price so that sales will increase for survival.
2. Maximising the • If the company wishes to maximise its current profits, it
Current Profits has to estimate the production cost and sales demand at
different price levels. Then select the price that can give
maximum profit.
3. Leadership in • If the marketing objective is to obtain a bigger market
Market Shares share, the company should consider using the
penetration pricing strategy to attract a large number of
customers quickly.
• This strategy allows the firm to set a low initial price in
order to penetrate the market quickly.
• This penetration strategy works well if the market is
highly sensitive to price.
• A low price supports high market share. This strategy is
reflected in the Malaysian local retail business scene. One
example is one supermarketÊs tagline, „Everyday Low
Price.‰
4. Leadership in • If the company aims to lead the market in terms of
Product Quality product quality, then it must place greater emphasis on
research and development activities.
• To pay for the research costs, the company will have to
charge a high price on its product.
(b) Marketing Mix Strategy

The decision to fix the price must be in line with the other marketing mix
decision such as the product, distribution and promotions. This is to ensure a
more consistent and effective marketing programme.
(c) Cost
Cost is the main element in deciding the product pricing. In order to make a
decent profit, the price determination must include all costs involved in
producing a product. However, there are situations when the company has to
set a price lower than the current production cost, hoping to increase demand.
An increase of demand will result in increase of production. The increased
quantity produced will be able to reduce the unit cost over. Over a certain
period of time the cost per unit will end up lower than the selling price. This is

TOPIC 8 PRICE W 101
when the production has achieved the economies of scale. With this strategy,
the company can obtain higher profits in the long term.
8.2.2 External Factors

The company can also consider factors outside the company when determining the
price. Among these factors are:
(a) Market and Demand

Generally, the demand for a product by customers will eventually lead to price
increase. However, if the market demand is low due to high price, then the
company may have to consider re-fixing the price. Hence, the marketer should
study the market and demand impact on its price setting. In fact, how pricing
decision impacts consumer demand depends on the types of market i.e. whether
it is characterised by pure competition (market consists of many buyers and
sellers trading in a uniform commodity like wheat, rice), monopolistic
competition (many buyers and sellers who trade over a range of prices due to
differentiation of their offering), oligopolistik (a few sellers who are highly
sensitive to each otherÊs pricing and marketing strategies, e.g. cars) or pure
monopoly (market consist of one seller ă government monopoly) as well as
consumersÊ assumptions of the price and value.
(b) Competitions
If a company is confronted with a situation where there are many competitors
i.e. the product offered is quite similar to the competitorÊs product, this
company may set its price based on the competitorsÊ price with less attention
paid to its own production cost or market demand. This is because consumers
will make price comparison before buying the product. Assuming the marketer
overlooked the competitorsÊ prices and offers the product at a higher price, the
outcome is that fewer buyers will purchase it, especially when they find out that
the product is not better than other competitorsÊ product.
ACTIVITY 8.1
Should the firm base its price largely on competitorsÊ prices and
ignore its own costs? Please comment.

102 X TOPIC 8 PRICE
(c) ConsumersÊ Assumption Towards Price and Value

If buyers feel that a high price reflects high quality and value, then it will not
affect the demand. In fact, if customers perceive the value of a product as
greater than the price, they will not hesitate to pay a high price to own the
product. In contrast, if customers perceive the price as higher than the productÊs
value, they will not be interested to buy.
(d) Consumer Buying Power

The marketer needs to understand consumer purchasing power in setting the
price. Ideally, a responsible marketer should offer more product choices to
customers and not limit selection to a single product. For example, hotel
operators provide customers with the choice of various room types such as
superior, deluxe and standard room. Airline operators give options to customer
to choose air flight tickets either business class or economy class. On top of that,
the marketer can help customers ease their purchasing by offering a flexible
payment scheme such as payment by instalment.
SELF-CHECK 8.1
What are the factors affecting price decision? Discuss.
8.2.3 Other Uncontrollable Factors

There are other uncontrollable factors that the company may consider in price setting
such as the economy, government and society. Our economic situation can be in a
state of depression or inflation. If there is an economic downturn in a country, the
purchasing power of consumers will drop drastically. In this situation, the company
can decide to reduce the price.
The Government plays an important role in affecting pricing decision. For example,
our staple food products such as rice, eggs, salts, sugar are controlled items by the
government. Retailers are monitored so that they do not resort to profiteering during
major festive seasons such as Hari Raya Aidilfitri, Chinese New Year and Deepavali.
Lastly, social concerns have forced companies to take serious consideration of their
social responsibility when determining the price of the product and not merely focus
on profit maximisation. For example, the Malaysian Airline System (MAS) has to
consider social responsibility in deciding the price for domestic flights as the
government urges corporations to be socially responsible.

TOPIC 8 PRICE W 103
EXERCISE 8.1
Tick (3) those that affect pricing decisions.
(a) Cost to produce a product

(b) ConsumerÊs taste
(c) CompanyÊs objective to obtain maximum profit
(d) Amount of products offered by the company
(e) Competitions
(f) ConsumerÊs perception on product
(g) Large number of salespeople
8.3
GENERAL APPROACH IN PRICE SETTING
In our earlier discussion on factors affecting pricing decision, we touched on several
important factors such as costs, customersÊ perception and competitorsÊ pricing.
Here, in this section, we are able to link these factors to the general approach
recommended in determining a price, namely:
• Cost-based pricing
• Perceived value pricing
• Competition-based pricing
8.3.1 Cost-Based Pricing

In this approach, the company can adopt (i) mark-up pricing or (ii) break-even
analysis.
(a) Mark-up Pricing

Under the mark-up pricing, the company adds a standard mark-up to the
productÊs cost. For example, if the production cost of making a book is RM40
and the company decides to mark up 50%, then it will price the book at RM60.
The main advantages of this method are that it is convenient and easy to
calculate. The disadvantage is not considering other factors such as competitorsÊ
price and market.

104 X TOPIC 8 PRICE
(b) Break-even Analysis

In order to decide what price target to set, the company can use break-even
analysis. Break-even pricing analysis enables the marketer to know the actual
price level that can break even the costs of producing and marketing a product.
This method uses estimation of demand level, expected total revenue, estimated
production cost and estimated profit at different price sets. See Table 8.2 for the
example. The break-even analysis table shows the different price levels,
estimated demand, total revenue, total costs and profits at each price level. In
this example, the company that wishes to gain maximum profit will set the price
at RM14.
Table 8.2: Break-even Analysis Table
(1) (2) (3) (4) (5)

Price Expected Total Revenue Total Cost Profits
Demand (Unit) (1) x (2) (Estimated) (3) ă (4)
10 2,000 20,000 22,000 -2,000

12 1,800 21,600 20,800 800
14 1,500 21,000 19,000 2,000
16 1,000 16,000 16,000 0
8.3.2 Perceived Value Pricing

Price determination under this method uses customersÊ perceived value of the
product and not the sellersÊ cost as the key to pricing. The customersÊ perceived value
can be gauged by asking them how much they are willing to pay for the value they
assign to the product. Finally, when the companies have decided the level of
customersÊ perception of the product value, they will have to set a price which is
lower than customersÊ expectation. In this situation, the companyÊs sales will not be
affected.
The logic behind this method is to avoid the mistake of overpricing which may cause
product sales to decline. At the same time, the company does not wish to fix a price
too low that will affect its profits.
8.3.3 Competition-Based Pricing

The marketer can use competitorsÊ prices as a base in determining the product price.
There are two forms of competition-based pricing:

TOPIC 8 PRICE W 105
(a) Going-rate pricing: Allows the company to base its price largely on competitorsÊ
prices, with less attention paid to its own costs or demand. For example, firms
selling commodities like steel, paper and fertiliser normally charge the same
price.
(b) Sealed-bid pricing: Allows the company to base its price on how it thinks
competitors will price the product rather than on its own costs or on demand.
EXERCISE 8.2
Description of General Pricing

Name the Pricing Approach
Approach
The company surveys the price of the
competitorsÊ product before fixing a
price for its product.
The company asks consumers how
much they are willing to pay for the
product.
The company adds a standard markup
to the cost of the product.
8.4 PRICING STRATEGY

In the previous discussion, we dwelled on the general approaches in price setting.
Now, we continue the next part on pricing strategy. The following will give you some
ideas on the pricing strategy which can be adopted by a company in different
situations.
• Pricing Strategy for new product.
• Market penetration pricing.
• Price adjustment strategies.
8.4.1 Pricing Strategy for New Product

A newly developed product can be divided into two categories:
• New product imitates an existing product

106 X TOPIC 8 PRICE
• Innovative product
There are different pricing strategies for new products, whether these are imitation or
innovation products.
(a) New Product Imitates an Existing Product

There are four strategies that a company can use when setting the price for a
new product that imitates an existing product of a competitor. This is shown in
Figure 8.2.
Figure 8.2: The strategies for quality price

(i) Premium Strategy

This strategy allows the company to charge a higher price for higher
quality new products. It is effective to attract customers who emphasise on
high-quality products and willing to pay a high price.
(ii) Value Strategy

This strategy allows the company to charge a lower price for a higher
product quality. It is effective to poach the competitorsÊ customers as it
offers better value at a lower cost.
(iii) Economic Strategy

This strategy allows the company to charge a lower price for a lower
product quality. It is effective to attract customers who are price sensitive.
(iv) Over-charge Strategy

This strategy allows the company to charge a higher price for a lower
product quality. Even though some people will buy the product but if they
find out, they will feel cheated and stop buying.

TOPIC 8 PRICE W 107
EXERCISE 8.3
Name the pricing strategy for the following new imitated products.
New Product Pricing Strategy

(a) When a high price charged is
not proportionate with the
product quality.
(b) When a company sells a new
product with high value and
high price.
(c) When a company decided on
both low price and product
quality.
(d) When a company charges a
lower price for better value
product.
(b) Innovative Product
(i) Rip-off Strategy

This pricing strategy allows companies which introduce a new invention
to fix a high price. Setting a high price permits the company to „reap‰ the
maximum revenues from various layers of customers in the market. For
example, Intel Corporation has fixed a high price for its new product.
Because of this, you find the price for a new specification computer is
always very expensive. By using this strategy, the company is able to make
a huge profit.
This strategy is suitable when there are sufficient numbers of buyers who
are willing to pay a high price for a newly launched product. This strategy
will succeed if other competitors are not able to enter the market
immediately due to high technological costs.
ACTIVITY 8.2
Give some examples of new products which use the rip-off strategy.

108 X TOPIC 8 PRICE
8.4.2 Market Penetration Pricing

This pricing strategy allows a company to charge an initial low price with the
objective of penetrating the market as fast as possible. Low price increases the market
demand and overtime production increases. The cost per unit produced can be
reduced from the high sales volume. Eventually, lower costs will result in more price
reduction to customers who are price sensitive. It is expected that by charging a lower
price, it can restrain new players from entering the market. The company must keep
out the competition or else the effects of maintaining low price are only temporary.
8.4.3 Price Adjustment Strategies

Most company are likely to consider price adjustment due to various reasons. We will
look at six types of price adjustment strategies as shown below.
(a) Price Discounts and Allowances

Price discounts are a direct cut in price on purchases during a given time line.
Examples of price discounts are:
(i) Cash discount i.e. price reduced for customers who pay their bills on time;
(ii) Quantity discount i.e. price deducted to customers who buy in bulk
quantities; and
(iii) Seasonal discount i.e. price reduction given to customers who are willing
to buy outdated products.
For example, supermarkets in our country often give price discounts whether
cash discount, quantity discount or seasonal discount during the sales
promotion season to attract the public to visit their outlets.
Allowances are price reduction from the list price to retailers. Examples are
trade-in allowances and promotional allowances. Trade-in encourages price
reductions for turning in an old item when buying a new one e.g. trading in an
old mattress when buying a new one. Promotional allowances are price
reductions given to retailers for their involvement in advertising or promotional
campaigns.
Discounts and allowances are price adjustments strategies used as an incentive

for customers or retailers to buy more. Discounts and allowances are popular
technique to promote the manufacturersÊ products and sales.
(b) Segmentation Pricing

A companyÊs practice of price segmentation can be seen when it sells a product
at two or more different prices, even though the production cost is the same.

TOPIC 8 PRICE W 109
There are a few types of segmented price such as customer-segment, product-

form, location pricing and time pricing.
Customer-segment means different customers pay different prices for the same
products e.g. Zoo Negara charges lower ticket price to students and children as
compared to adults. The National Museum charges lower admission for
students. Product-form means different product versions are priced differently.
Location pricing means different prices for different locations, even though the
cost of offering each location is the same e.g. universities, theatres. Finally, time
pricing means a firm varies its price by the season, the month, the day and the
hour e.g. Genting Highland Resorts gives weekend and seasonal discounts.
(c) Psychological Pricing

Consumers do consider the psychology of prices when making a purchase. For
instance, consumers usually feel the more expensive product is of higher
quality. They rely on price as a key reflection of product quality. Hence, price
becomes an important quality signal to marketers.
Sometimes, a small difference in price can be seen as a glaring difference in

customersÊ mind. Compare a Dell computer which costs RM3,999 with another
HP computer which costs RM4,000. Even though the actual price difference is
only one ringgit but the customers will see within the price range of RM3,000
instead of RM4,000.
ACTIVITY 8.3
Is psychological pricing effective on you? For example, are you

easily attracted to brands which use psychological pricing? Provide
your explanation with examples.
(d) Promotional Pricing

Promotion pricing takes place when a company temporarily adjusts its product
price below its price list or sometimes below its actual cost. The reason behind it
is to generate quick short-term sales. For example, supermarkets price certain
products as loss leader that is below its own cost with the hope that customers
are attracted to the supermarkets and perhaps buy other products of ordinary
price.
Promotional pricing can also be used during special seasons such as festive
seasons. This promotional pricing is commonly known as special occasion
pricing.

110 X TOPIC 8 PRICE
(e) Geographical Pricing

A company must also look into price adjustment based on the difference in the
location where the products are sold. The price charged differently based on
different geographical locations could also be due to the difference in the
buyersÊ purchasing power.
(f) Price Change

The product price is not a permanent feature. Therefore, the company has the
right to consider price change. For example, competitors changed product prices
to make them more attractive or production excess capacity caused the
company to cut price to increase sales. In these two situations, the price has to
be reduced.
Nevertheless, price change does not necessarily mean price reduction.

Sometimes companies experience continuous increase in production cost due to
natural resources depletion, they have to increase the product price to cover
cost. Other than this, there are companies raising the price due to high demand.
SELF-CHECK 8.2
Identify five types of price adjustment strategies. Explain briefly.
ACTIVITY 8.4
You are encouraged to refer to this website htpp://www.parkson.com to

answer the following questions:
Are you able to identify ParksonÊs pricing strategy as mentioned below?

• Psychological pricing;
• Promotional pricing; and
• Geographical pricing.

TOPIC 8 PRICE W 111
• Price is the amount of money paid by the consumer in the exchange of products.
• Price can be seen in different forms such as fee, rent, wage, deposit and
instalments.
• There are two factors affecting price decision: internal and external.
• Internal factors are factors which can be derived from inside the company. The
internal factors are marketing mix strategy, marketing objective and costs.
• The company can also consider factors outside the company when determining
the price i.e. market and demand, competitions, consumerÊs assumption towards
price and value, and consumer buying power.
• There are three general approaches used in determining price: cost-based pricing,
perceived value pricing and competition-based pricing.
Break-even analysis Market and demand

Competition based pricing Market penetration pricing
Competitions Marketing mix strategy
Costs Perceived value pricing
Cost based pricing Price adjustment strategies

Topic X Distribution
9 Channels
LEARNING OUTCOMES
1. Explain five types of consumer marketing channels;
2. List five types of shop retailing and three types of non-shop
retailing; and
3. Discuss four basic elements in retail marketing.
X INTRODUCTION
Have you ever pondered when you buy a packet of instant noodle at a retail shop as
to how this food product is displayed on the shelves in the retail shop? Who is the
producer and how often does it change hands before reaching the shop? These
questions are related to distribution channels.
Now, we are discussing one of the elements of marketing mix called „place‰ or
„distribution.‰ Distribution channels refer to the processes of how manufacturersÊ
goods are delivered to places easily accessible by customers. This process involves a
group of interdependent parties who make the products or services available to end
users. These interdependent parties are what we call middle persons or
intermediaries. They include wholesalers, retailers, agents and etc.
In this section, we will explain the various types of distribution channels and
functions of distribution channels in marketing.
9.1 CHANNEL MEMBERS

Channel members can be in the form of direct channel, retail channel and a wholesale
channel.

TOPIC 9 DISTRIBUTION CHANNELS W 113
(a) Direct channel

This is the simplest form of direct marketing channel and consists of two layers
i.e. producer and end user. Example of direct channel distribution is Dell
Computer.
(b) Channel 2 ă A retail channel

The channels will have more layers if the retailer becomes a member.
(c) Channel 3 ă A wholesale channel

The channels will have more layers if the wholesaler becomes member.
This shows that channel distribution can be either direct marketing to end user or
through several layers of intermediaries before a product can reach the end user. See
Figure 9.1.
Figure 9.1: ConsumerÊs marketing channel

If several channel levels are involved, it will become indirect marketing channel. The
indirect marketing channel can be in the form of Channels 2 or 3 as shown above. The
producer sells to the retailer, who in turn resells the products to the end user
(Channel 2), or the producer sells in large quantities to the wholesaler, who
segregates the quantities and resells to the retailer (Channel 3) who in turn resells to
the end buyer.
How can channel members add value to the distribution? This question leads us to
look at the use of intermediaries has resulted in greater efficiency in making goods
available to target markets. In addition, the intermediaries offer the producer more
than it can achieve on its own through their networks, experiences, specialisations
and etc.

114 X TOPIC 9 DISTRIBUTION CHANNELS
ACTIVITY 9.1
Explain why some companies use direct channels and some use
indirect channels. How would you advise them to combine direct
with indirect channels?
9.1.1 Multi Channel Marketing

Today, companies can use multi channel distribution to reach one or many segments
compared to the past where most companies only use a single channel to sell to one
market segment. Look at Figure 9.2 to get a glimpse of how multi channel marketing
works. Of course, we know it is a distribution system whereby companies/producers
can set up one or more channels for them to cover wider market segments. For
instance, they can approach the user segment directly through sending of catalogues,
phone calls and Internet. Alternatively, they can appoint retailers who are closer to
the market to bring the products to end users. Companies can also sell indirectly to
business market through wholesalers and retailers. Finally, they can also form their
own sales team to cover the business market.
Salesperson
Figure 9.2: Multi channel marketing

ACTIVITY 9.2
Based on the multi channel marketing, identify and explain how
some products have gone through each of the channel levels.

9.2 FACTORS IN SELECTING DISTRIBUTION

CHANNELS
There are several factors a marketer must think about in choosing the right
distribution channels. The suitable distribution channels will help the marketer to
bring the products into the marketplace. These factors are:
• The market factor;
• The product factor; and
• The producer factor.
9.2.1 The Market Factor

The marketer needs to consider market factors such as (i) target group, (ii)
geographical area and market size, and (iii) competition.
The marketer needs to know where their targeted groups do their purchasing. The
goal is to make sure the products reach out to them. Geographical area will be able to
hint to the marketer on how wide the markets are. The wider the markets, the more
extensive the distribution channels required. Other companies might use the same
distribution channels. Therefore, the marketer needs to select the channel that is less
chosen by others.
9.2.2 The Product Factor

The product factors which require the marketerÊs attention is (i) the nature of the
product, (ii) the stages of product life cycle and (iii) perishable goods.
If the product is complex and requires technical expertise or high customisation, the
marketer may want to consider forming a sales force to sell to this group of customers
rather than appointing distributors. If the product is simple, such as a carbonated
drink, the marketer has to appoint an intensive distribution channel to cover larger
and wider consumer markets. At the introduction stage, the marketer may not need
many channels. During the growing stage, when sales achieves its peak level, more
extensive channels may be required. When the product reaches the maturity stage,
the marketer will usually start reducing the channels while at the declining stage even
more channels may be reduced. In the case of perishable goods such as seafood,
vegetables, meats or fruits that cannot be stored for a long period, short channels are
required to quickly bring the goods to end users.

9.2.3 The Producer Factor

The producer factors are (i) resources and (ii) control. Resources like capital, assets
and human skills will determine the type of distribution channel needed by the
marketer. Lastly, the marketerÊs capability to determine and control price, image and
service is important in choosing a distribution channel.
SELF-CHECK 9.1
Describe briefly what are the factors that a marketer must consider
in selecting the right distribution channels.
9.3 CHANNEL FUNCTIONS

Among the functions of distribution channels are:
(a) Transporting and sorting goods prior to distribution to consumers;
(b) Collecting and disseminating relevant information on market and others, and
identifying and communicating to the prospective buyers regarding the
products;
(c) Matching the offer with buyersÊ needs;
(d) Ensuring product services are available where and when customers want it; and
(e) Carrying out the channel functions.
9.4 CHANNEL POWER

Channel power refers to the ability of a channel member to make other members do
what they will not do without the presence of this power. A channel member has
more power compared to others. This can be due to the following reasons:
(a) Higher sales volume.
(b) Members have more up-to-date and detailed information.
(c) Contracts between members of a channel are loose.

9.5 CHANNEL MANAGEMENT

When we look at the channel management, it is important to assign the tasks that the
channel members can perform the best. Besides that, all membersÊ cooperation is the
key to achieving the overall channel goals.
In the event this does not work well then the channel members will start having
conflict.
9.5.1 Channel Conflict

Channel conflict refers to disputes among channel members due to their inability to
work together. There are several sources of conflict such as:
(a) Various objectives among members;
(b) Overlap of power distribution/activities among channel members;
(c) Different perceptions of roles among channel members; and
(d) Abuse of power among channel members.
9.5.2 Conflict Settlement

Once channel conflict arises, it has to be resolved quickly. Settlement of conflict can be
initiated by discussing and agreeing based on a win-win resolution of conflict.
Secondly, it is necessary to ensure that there is minimum overlapping of
responsibilities assigned to channel members. Third is to allocate more money for
„pull‰ and „push‰ activities among channel members. Finally, provide higher
monetary rewards in the form of commissions to channel members.
9.5 RETAILING AND WHOLESALING

This section looks at retailing and wholesaling in distribution channels. The first part
describes retailing, different types and forms of retail shops and the marketing
strategies decision which need to be made by the retailers. This is followed by the
next part which discusses wholesaling.

9.6.1 Retailing
Retailing includes all activities involved in selling goods or services directly to end
users for personal consumption. The common types of retailers in Malaysia are Tesco,
Giant, Globe Silk Store, 7-Eleven, Makro and this includes sundry shops. Today,
retailing is not limited to only business-operated shops. It includes direct selling and
automatic vending machine which sells convenience drinks and foods. This type of
retailing is becoming more popular in our country. Finally, there are certain major
marketing strategies which retailers need to use in order to run a successful retailing
business.
(a) Types of Retail Shop

There are two types of retail shops such as shop retailing and non-shop
retailing. This is shown in Table 9.1.
Table 9.1: Types of Retail Shop
No. Type Description

1. Shop Retailing These are various forms of retailing shops such as
specialty shops, departmental stores, supermarkets,
convenience shops and hypermarket. Every form of
retail shop is different from the aspect of the number of
different products sold as well as the number of choices
offered for each product type.
2. Specialty Shops Specialty shops are shops which carry a limited line of
products such as computer shop, bicycle shop, stationery
shop and watch shop.
3. Departmental Store Departmental stores are like Active Lifestyle and

Metrojaya. Departmental stores carry various lines of
products ă usually clothes, household equipment and
household goods. Every line of product is produced by
different companies.
4. Convenience Convenience shops are usually found near housing

Shops/Sundry Shops areas.
They sell various kinds of consumer products. Because
of proximity to housing areas, they facilitate buyers with
all necessary household goods. Example of a
convenience shop that operates 24 hours is 7-Eleven.

5. Supermarket Supermarkets are larger, have a wider variety of

products and are located further away from housing
areas, such as in city centres. The types of products
carried by the supermarkets include food, cleaning and
household maintenance products and many others.
Examples of supermarket are Bintang, Billion, The Store
and Extra Supermarket.
6. Hypermarket The present trend is the construction of very large super

centres such as Carrefour and Tesco which offer food
and non-food products. These provide many product
choices to customers with cheaper prices.
(b) Non-Store Retailing

This includes direct marketing, automatic vending machine and direct selling.
These are explained in Table 9.2.
Table 9.2: Types of Non-store Retailing
No. Type Description

1. Direct Market The direct marketing can be done through mailing the
catalogues, mail order, telemarketing, television
marketing and live radio and online shopping services.
Direct marketing has received good support in recent
years. This is because through direct marketing,
marketers can communicate with individual customers
closely and directly in order to identify their unique
needs.
2. Direct Selling You may have encountered salespersons trying to sell to
you while you were eating or walking in public places.
This form of retailing is known as direct selling.
Insurance companies use agents to perform direct
selling. Multi-level marketing like Avon and Amway use
membership to lock in members as selling agents.
3. Automatic Vending Automatic vending machine is a type of non-shop

Machine retailing. It can be placed anywhere in areas such as
petrol stations, airports, railway stations, bus stops,
factories, offices and etc. Many of these vending
machines in our country sell drinks and snacks. Another
example is the ATM machine. It is an automatic retail
machine that offers banking services.

SELF-CHECK 9.2
Identify various forms of shop retailing and non-store retailing by
providing some examples.
EXERCISE 9.1
The table below provides a list of information on various forms of

retailing. Please identify and write your answer in the right column.
Information Types of Retailing
Large shops which have many product lines

and each of these lines is produced by a
different company.
Larger in terms of size and the shop offers

many choices of products and is usually
located far from housing areas.
This involves direct communication with

consumers through catalogues, mail order,
telemarketing and etc.
Shops that has limited product line on

shelves.
Distribution which uses salespersons.
(c) Retailing Marketing Strategies

Retail businesses are very challenging nowadays. Retailers are confronting with
situations where they have to make tough marketing decisions concerning the
target customers they want to focus on, product positioning, price, promotion
and distribution. Retailers have to constantly ask themselves on how each
element in the marketing mix can assist them in deciding the most appropriate
marketing strategy.
There are three major decisions which retailers have to make regarding the
product as highlighted:

(i) What products to carry?

This question will guide the retailers to decide on what types of retail store
is suitable for their business. If retailers decide to carry a larger choice of
products then the departmental store or supermarket will be preferable
than mini market. If the products carried are limited yet special, then
specialty store may be the most suitable.
(ii) What service mix to offer?

The retailers have to decide on what services to be offered, for instance
home delivery, credit facilities, instalment scheme or consultation.
(iii) What kind of shop atmosphere can be created?

Retail shops must create an atmosphere that is compatible with the market
environment. If the target group comprises upper class, users then the
shop atmosphere should portray luxury or prestige.
The product or service price very much depends on the retailersÊ target market,
production cost and competitorsÊ prices. The product price should be
competitive and affordable to the target market.
The retailers need to decide on various promotions campaigns such as

advertisement, personal sales, public relations, sales promotions and etc.
The choice of location is very important in retailing business. The success of

retailing business is strongly related to location. Many retailers choose busy
locations like shopping centres in the city. Nevertheless, there are some retailers
that choose a location that is less busy and thus, has less competition.
9.6.2 Wholesaling
Wholesaling activities include selling products and services to another intermediary
who in turn will resell to end users or industrial users. A wholesaler plays an
important role in distribution channel. Among the roles are:
(a) Selling and promoting manufacturerÊs products;
(b) Breaking the bulk for resell to retailers;
(c) Playing logistic functions such as warehousing, inventory management and
transportation; and
(d) Offering credit facilities to buyers.

Just like the retailers, wholesalers are needed to decide on its marketing strategies.
Wholesalers need to make decision on various products choice that it can carry.
Usually a product line that is profitable will be chosen by the wholesalers. To set a
reselling product price is not easy. The wholesalers can choose a simple cost-based
pricing approach like mark-up pricing i.e. to add a certain standard percentage into
the products or services costs. Deciding on a promotional campaign may not be
simple for the wholesalers but they may consider some promotion methods such as
trade advertisement, sales promotion with discount, personal selling and public
relation. Finally, location plays an important factor in deciding the distribution
channel. Wholesalers can choose a location closer to retailers for low transportation
cost.
ACTIVITY 9.3
Please refer to the following links:

• http://www.amway.com.my/
• http://www.tesco.com.my
Can you identify the type of retailing business which Amway and
Tesco are involved in? Please explain.
• Channel members can be in the form of direct channel, a retail channel and a
wholesale channel.
• A marketer must choose the right distribution channels based on the market,
product and producer factors.
• The marketer needs to consider the market factors such as (i) the target group, (ii)
geographical area and market size, and (iii) competition.
• The product factors which required the marketerÊs attention is (i) the nature of the
product, (ii) the stages of product life cycle and (iii) perishable goods.
• The producer factors are (i) resources and (ii) control. Resources like capital, assets
and human skills will determine the type of distribution channel needed by the
marketer.

• Among the functions of distribution channels are:

(a) Transporting and sorting goods prior to distribution to consumers;
(b) Collecting and disseminating relevant information on market and others,
and identifying and communicating to the prospective buyers regarding the
products;
(c) Matching the offer with buyersÊ needs;
(d) Ensuring product services are available where and when customers want it;
and
(e) Carrying out the channel functions.
• Channel power refers to the ability of a channel member to make other members
to do what they will not do without the presence of this power. A channel
member has more power as compared to others.
• Channel conflict refers to the disputes among channel members due to their
inability to work together.
• Retailing includes all activities involved in selling goods or services directly to the
end users for their personal consumption. The common types of retailers in
Malaysia are Tesco, Giant, Globe Silk Store and etc.
• There are various types of retail shop. These are shop retailing, speciality shops,
departmental store, convenience shops, supermarket and hypermarket.
• The form of non-store retailing includes direct marketing, automatic vending
machine and direct selling.
Channel conflict Direct market

Channel management Direct selling
Channel power Multi channel marketing
Channel settlement Retailing
Direct channel Wholesaling

Topic X Promotions
10
LEARNING OUTCOMES
1. Relate five promotion tools in the marketing mix;
2. Explain two types of promotion mix strategies;
3. Elaborate three objectives of advertisements;
4. Differentiate between the advantages and disadvantages of
seven advertising media; and
5. Categorise five functions of public relations.
X INTRODUCTION
In this section, we will talk about promotions i.e. the last „P‰ of the marketing mix.
Promotion is derived from the verb „promote.‰ Promotional activities started with
the production philosophy and product philosophy. At that time, promotional efforts
were just one-sided communication reflecting the marketerÊs activities with little
focus on customers. Customers were expected to fit their needs with the products
available in the market.
Recent developments in communications have resulted in „Promotions‰ being

replaced with „Integrated Marketing Communications‰ (IMC). Communication is
derived from the verb „communicate‰ which means an effort to exchange
information, business transaction and social interaction. Communication is said to be
more relevant to marketing compared to promotions simply because marketing
involves reciprocity between seller and buyer in the market. This multilateral
communications effort is initiated by the marketer. Today, marketing activities are
focused on customers. This can be achieved only through integrated communication
such as advertising, personal selling, sales promotion, public relations and direct
marketing. Integrated communication will be discussed.

TOPIC 10 PROMOTIONS W 125
10.1 INTEGRATED COMMUNICATIONS

Integrated communications refers to how the company plans its promotional
activities. Today, it is important for the company to consider various combinations of
promotional methods in order to send clear and consistent brand messages of its
product. Promotion mix consists of a combination of advertising tools, personal
selling, sales promotion sales, public relations and direct marketing (Figure 10.1). A
company applies promotion mix to achieve its marketing objectives i.e. to inform, to
persuade and to remind customers about the companyÊs products.
Figure 10.1: Integrated communications

(a) Advertising
Advertising refers to any form of non-personal promotion of ideas, goods or
services by a known sponsor.
It can deliver a message cheaply and widely to potential buyers who are
scattered geographically. Advertising can also be repeated several times in
order to remind buyers or they can easily recognise the companyÊs brand and
product. Using the advertising method allows the marketer to choose media
such as newspapers, magazines, radio, television, signboards or the Internet.
The drawbacks of advertising are that it is an impersonal and one-sided form of

communication. So, it may not be easy for the company to attract the attention
of the target group.
(b) Personal Selling

Personal selling involves a companyÊs sales people meeting face to face with
customers. The intention is to secure sales and develop customer relationships.

126 X TOPIC 10 PROMOTIONS
The main advantage of personal selling lies in its salespersonÊs interpersonal

skills to communicate with customers. The downside of personal selling is that
it is the most expensive method among other promotional mixes. This is because
every salesperson hired is dedicated to serve one or a group of potential buyers
at a time.
(c) Sales Promotion

Sales promotions are incentives offered to customers during a short time (Figure
10.2). The intention is to generate quick sales of a product. Examples of sale
promotion tools are coupon, trial sample, contest, sweepstake, rebate and price
discount.
Figure 10.2: An example of sales promotion

Source: http://shoppingnsales.blogspot.com/2006_12_01_archive.html
A sales promotion is usually able to attract customersÊ attention. It can attract

customersÊ quick response especially when it is a great offer. One of the
weaknesses of sales promotion is the difficulty to lock in customersÊ loyalty.
This is because when a promotion ends, customers will stop visiting the store.
(d) Public Relations

Public relations refers to establishing a good relationship with stakeholders who
have some interest in the company. The purpose of public relations is to create
good publicity and corporate image of the company. For example, a company
launching a new product can officially invite the press to cover the event. This
type of public relations is called press agency or press relations. Other examples
are product publicity and lobbying,

(e) Direct Marketing

Direct marketing involves direct conversation with targeted individuals to get
quick feedback. This includes the use of mails, telephone, fax and e-mail.
Direct marketing uses customer database to initiate the first contact. This can be
done by using telephone whereby telemarketers will make outbound calls to
customers. Technology such as the Internet allows the marketer to communicate
with customers through email or SMS through handphone. Direct marketing is
interactive, allowing marketers to conduct dialogue sessions with consumers
and modify the message depending on consumersÊ feedback.
Direct marketing is most suitable if a company wants to target a specific

customer group. The downside is that the company has to set up a direct
marketing operation by integrating its existing databases. This may involve a
high cost.
EXERCISE 10.1
Identify the promotion tools based on the description below.
Explanation Promotion Tools
Personal presentation by a companyÊs

sales force to make sales and develop
customer friendships.
Using mail, telephone, fax and e-mail to

communicate directly with specific
consumers in order to obtain immediate
feedback.
A short-term incentive to encourage the

purchase of a product.
Any form of non-personal presentation

and promotion idea, goods or services
by a known sponsor.
Good relationship established with

various public companiesÊ representatives
with the aim of creating publicity and a
good corporate image.

10.2 PROMOTION MIX STRATEGY

There are two types of promotional mix strategy a company can use ă push strategy
or pull strategy.
(a) Push Strategy

This involves marketing efforts to push a product through a distribution
channel (i.e. retailer or wholesaler) to the consumers. The producer will perform
marketing activities such as personal sales and trade promotions targeted at
wholesalers or retailers. Subsequently, the wholesalers and retailers will carry
out the marketing activities using advertising, sales promotion or personal
selling to attract consumers to buy the products.
(b) Pull Strategy

The marketer directs the marketing activity towards consumers through
advertising and/or sales promotions to increase the consumersÊ demand of a
product. Higher demand might lead to consumers asking for more products
from the retailers or wholesalers. In return, the retailers or wholesalers could
buy more stock from the producer.
Figure 10.3 below summarises the two types of promotional mix strategy.
Figure 10.3: Push strategy versus pull strategy

ACTIVITY 10.1
Identify a few companies which use the „push‰ and „pull‰ strategies
to promote their products.

10.3 ADVERTISING
When we watch television, listen to the radio, read the newspaper or magazine, we
come across many advertisements. Advertising is one of the most important
promotion tools used by companies to convey messages to the customers.
In this section, we will discuss how marketers make decisions in advertising. Some
basic questions are such as: What messages to convey in the advertisement? How
many advertisements to be broadcast? When to broadcast? How effective is the
advertisement?
We will look at the steps in advertising and discuss the decisions which need to be
made by the marketer for each step.
Figure 10.4 shows the five main steps in advertising:

(a) Determine the advertising objective.
(b) Determine the budget for advertising.
(c) Form the advertising message.
(d) Select the advertising media.
(e) Evaluate the advertising campaign.
Figure 10.4: Main steps in advertising


10.3.1 Determine the Advertising Objective

An advertising objective is to communicate a specific message to a niche target group.
Generally, advertising has three main objectives i.e. to inform, to persuade or to
remind.
(a) To Inform
When marketers wish to introduce a product to a target market, they will
initiate an advertising campaign to inform and make the public aware of the
new product. The advertisement for the purpose of informing is known as
informative advertisement because it usually has plenty of information and
explanation regarding the product.
(b) To Persuade
If the target market is already aware of the product, the next objective is to
persuade it to buy the product. The company will launch a persuasive
advertisement for the purpose of persuading consumers to buy. Usually, a
persuasive advertisement emphasises on the benefits of the product and its
unique features against a competing brand. Some persuasive advertisements are
comparative advertisements, e.g. Tesco retail store makes a direct comparison
between its brand and competitorsÊ brands.
(c) To Remind
For products which have existed for a long while in the market, a company may
want to communicate message in the form of a reminder advertisement in order
to refresh consumersÊ mind about the existing product.
More information regarding the objectives of advertising is presented in Table 10.1.

Table 10.1: Objectives of Advertising
To Inform
• To inform market of a new product.
• To suggest new usage of product.
• To inform market on price change.
• To explain how a product functions.
• To explain available services.
• To rectify false views.
• To reduce anxiety of buyer.
• To build a company image.
To Persuade
• To persuade customers to switch brands.
• To change consumersÊ perception about a product.
• To persuade consumers to buy now.
• To persuade consumers to accept a sales call.
To Remind
• To remind consumers that a product might be needed in future.

• To remind consumers where to buy a product.
• To implant a product in the consumersÊ mind during off peak
season.
• To maintain a strong awareness of a product.
Sources: Adapted from Kotler, P. and Armstrong, G. (2008). Marketing: An


EXERCISE 10.2
Identify the objectives of the following advertisements:
(a) This advertisement is related to a product brand that has long been
in the market. The advertisement has a few words but exhibits the
brand clearly.
Answer: ______________________________________________
(b) This advertisement contains lots of information about a product

including instructions on how to use it.
Answer: ______________________________________________
(c) This advertisement emphasises on some special features of product

brand. The main message of the advertisement is to explain why
consumers must buy the brand compared to the competing brand.
Answer: ______________________________________________
ACTIVITY 10.2
Pay attention to advertisements on television and radio and in
newspapers. Can you identify the objective of the advertisements?
Give an example for each of the following types of advertisements:
• Advertisement to inform:
• Advertisement to persuade:
• Advertisement to remind:
10.3.2 Deciding on Media Use

The marketer must evaluate each media to determine the reception, frequency and
impact level of the media. The strengths and weaknesses of each media are shown in
Table 10.2. The marketer must consider some important factors such as:
(a) Media Preference by Consumers

Marketers can decide on the media type by identifying the media frequently
preferred by customers. Choosing the customersÊ preferred media will enable
marketers to reach them more effectively.

(b) Characteristics of the Product

Technical products such as computers can be best advertised using newspapers
or television.
(c) Type of Message

A message which is very informative can be demonstrated using media such as
newspapers or the Internet.
(d) Cost
The marketer must weigh the costs in choosing the media. Printed media like
newspapers and magazines are cheaper than electronic media like television,
radio or the Internet.
Table 10.2: Strengths and Weaknesses of Each Type of Media
Media Strengths Weaknesses
Newspaper Wide market coverage, high trust, Short life span, less attractive
cheap. compared to other media such
as television and the Internet.
Television Broad coverage, combination of High cost, limited selection of

sight, sound and movement audience.
attracts attention.
Direct mail High audience choice, flexible and High cost for each exposure,
allows personal messages. junk mail.
Radio High reception, demography Motivates only sense of

choice and low cost. hearing, low attention.
Magazine High selection of geography and Slow response on

demography, credibility, prestige advertisement as magazines
and long life span. are not read immediately.
Advertisement Flexible, high repetitive exposure, Low audience selection,

Board low cost, low message exposure limited as audience
competition. does not have a lot of time to
read.
Internet High audience choice, low cost Low audience representation

and interactive. from all demographical
aspect. Low impact on
advertisement.


SELF-CHECK 10.1
1. Name the three main objectives of determining advertising

objectives.
2. What must marketers consider in choosing the type of media to

use?
ACTIVITY 10.3
In your opinion, what types of products are usually advertised on

television? Compare products advertised on television with those
advertised in newspapers.
10.4 PERSONAL SELLING

Personal selling allows a sales representative of a company to initiate interaction with
potential buyers. This interaction can be in the form of prospecting, communicating
and servicing. It has to be two-way communication between the salesperson and an
individual customer. It is different from advertising which is one-way
communication. Personal selling can be conducted through face-to-face meetings.
With the advancement of technology, personal selling can be done through tele-
conferencing or video conferencing. Unfortunately, this method is the most expensive
compared to other promotion mixes.
There are situations where personal selling is preferred over advertisement. This
could be due to the nature of the product that is very complex such as machinery or
software applications. Personal selling enables customers to ask direct questions and
clarify doubts during the meeting. Additionally, the seller can understand the buyers
better and fit the offer according to their needs.
The following diagram reflects the sales process involving: (i) courting and qualifying
the sales lead, (ii) pre-selling approach and (iii) approaching potential prospects. This
is followed by (iv) presenting and demonstrating the products. During this stage, the
salesperson must be good in (v) tackling rejections. The success of pulling through
this stage will enable the salesperson to (vi) close the deal and subsequently (vii)
follow the order. A detailed description is given below.

10.4.1 Steps in Selling Process

The selling process can be simple or complex depending on the nature of the product.
Generally, the selling process includes the main steps as shown in Figure 10.5.
Figure 10.5: Major steps in selling process

(a) Courting and Qualifying

The first step in the selling process is to initiate the courting activity that is to
identify potential and qualified suspects list to prospects list. The purpose of
courting and qualifying is to ensure the salesperson will not waste too much
time on poor prospects. Moreover, to qualify the prospects, the salesperson can
assess them by screening their financial ability, quantity of business, special
needs, location and growth potential.
(b) Pre-selling Approach

Prior to making a sales call, the salesperson must study the prospectsÊ profile
and their characteristics. The salesperson must also set the calls objective and
plan the pre-selling approach. This step is essential in order for the salesperson
to secure an appointment with the prospects.
(c) Approach Selling

The salesperson meets and talks to prospects to kickstart the relationship. A
recommended selling approach is to ask about the prospective buyersÊ needs.
(d) Presentation and Demonstration

The salesperson must talk about the productÊs features and core benefits. The
salesperson must also listen to comments and questions raised by the
prospective buyers. At the same time, the salesperson can obtain friendly
opinions and feedback regarding the sales presentation.

(e) Tackling Rejections

The salesperson must find out the reasons that hinder the prospective buyers
from buying. The salesperson must react positively and look at objections as an
opportunity to gain knowledge on prospectsÊ needs.
(f) Deal Sealed

After the product presentation and addressing the objections, the next process is
to close the sales. Closing sales can be done by asking the prospective buyers to
buy or to place an order. This step becomes easier if the salesperson makes
special offer to close sales such as offering a lower price or extra quantity.
(g) Follow-up Action

A salesperson must remember that closing deals is not the last step in the selling
process. After the sales, there must be a follow-up action by ensuring customers
are happy with the purchase. Follow-up action is important to secure repeat
business from customers.
EXERCISE 10.3
1. Why is the pre-selling approach important?

2. What are the main objectives of follow-up action?
10.4 SALES PROMOTION

Sales promotion often relates to discounts or free gifts given to generate quick sales.
Sales promotion includes all types of short-term incentives as describe below which
are used to encouraged sales of a product or service.
The company can set sales promotion objectives: (i) to increase short-term sales, (ii) to
capture a bigger market share or (iii) to persuade consumers to try its products.
Sometimes, the objective of a sales promotion is just to reward a companyÊs loyal
customers and build longlasting relationships.
The sales promotion tools normally used by marketers are shown in Table 10.3.

Table 10.3: Sales Promotion Tools
No. Tool Description

1. Sample A sample is a free product offered to consumers or trial.
2. Coupon A piece of paper that gives customers a saving when they

purchase certain products.
3. Rebate A refund or price reduction given to a customer when the receipt

of purchase is presented to the company. In other words, the
marketer will return a portion of purchase price to customers who
can show the receipt of purchase.
4. Discount A price cut offered to consumers during promotions. This is one

of the most popular promotion tools used by marketers in
Malaysia.
5. Premium Goods are offered for free or at a low price as an incentive for
buying a product.
6. Loyalty Reward Cash or gifts offered as token of appreciation to loyal customers.
7. Games and Lucky This promotion tool gives customers the opportunity to win a
Draw Competition game or competition. Customers who buy the product will stand a
chance to participate and win if they are lucky.
ACTIVITY 10.4
Identify a few sales promotion tools used by retailing marketers in
the outlets that you frequent.
10.6 PUBLIC RELATIONS

Public relations refer to developing a good relationship with various groups which a
company has to deal with in order to obtain a more favourable publicity and
corporate image. It can be used for handling or overcoming rumours, stories and
incidents that are negative in nature.

10.6.1 Functions of Public Relations

The functions carried out by a public relations department are as follows:
(a) Press Relations

Creating and placing valuable information in news media to attract attention
towards a person, product or service.
(b) Product Publicity

The company can hold an event to launch a new product to announce it to the
public.
(c) Community Relations

The company can develop and maintain good relationship with the community
it serves.
(d) Investor Relations

The company can maintain strong relationships with its shareholders.
(f) Lobbying
The company can build relationships with government agencies as well.
10.6.2 Major Tools of Public Relations

Public relations tools that can be used by companies include news release, speech and
special events. Companies could create news releases regarding the products, the
company or its employees in prime media such as newspapers or the Internet. A
speech by the chief executive can also build publicity for the product or company.
The speech can be placed in a news column or company bulletin. Special occasions
such as the companyÊs 50th anniversary could be a public relations tool. Reporters,
customers and family members could be invited to the event.

SELF-CHECK 10.2
Write down the main public relations tools used by marketers in
the boxes below:
10.7 DIRECT MARKETING

Using direct marketing requires the company to build interactive databases to
integrate the operation with the marketing. The purpose is to have direct
communication with customers. This also allows the marketer to match its offer to a
smaller segment or individual buyersÊ needs. Today, direct marketing is becoming
more important as a promotional tool. Marketers directly solicit response from
customers and build long-term relationships with them. Examples of direct marketing
are catalogue, telemarketing, online marketing and etc.
10.7.1 Benefits of Direct Marketing

Direct marketing allows customers and sellers to enjoy the following benefits.
(a) Benefit to Customer

Direct marketing in the form of online marketing allows customers to shop at
home with ease and comfort. This helps to solve customersÊ problems such as
shopping in an overcrowded supermarket or parking problems. Direct
marketing also enables customers to find information from various sources. This
will help them in making product comparisons before deciding which product
to purchase.
(b) Benefit to Seller

This method enables sellers to build longer relationships with customers. With
the existence of direct selling using new technology like the Internet, sellers can
interact with customers and a continuous relationship can be established.
Moreover, the sellers can buy a mailing list e.g. lifestyle list to reach out to

targeted small groups and use more personalised messages according to their
taste and preference.
Since there are many great benefits to both buyers and sellers, it is not surprising that
direct marketing is expanding. Some say direct marketing will be the main form of
marketing in the future.
SELF-CHECK 10.3
List the benefits of direct marketing to customers and sellers.
Benefit to Customers Benefit to Sellers

1. 1.
2. 2.
3. 3.
10.7.2 Direct Marketing Tools

There are different forms of direct marketing that can be implemented by the
marketer. Major forms of direct marketing are:
(a) Direct Selling

Direct selling is the oldest form of direct marketing. Companies hire salespeople
or agents to identify prospective buyers, convert them into customers and build
relationships with them. Examples of companies fully dependent on direct sales
are insurance companies and multi-level marketing companies like Amway,
Cosway and Avon.
(b) Direct Mailing

Direct mailing involves the marketing activity of delivering offers,
announcements and reminders to specific addresses. By using a database list,
marketers can send volumes of mails/letters in a year. The advantage of direct
mailing is that it allows specific targeting of prospects compared to advertising
even though it is costly in the initial stage of setting up the customer database.
For example, the publishers of the Times, Newsweek and Readers Digest
magazines use direct mailing to find new prospects. Due to fast technological
development, these companies use new methods such as facsimile, electronic
mail, voice mail and the Internet to reach customers.

(c) Catalogue Marketing

Print catalogues are delivered to a list of chosen customers. For example, Isetan
and the Jusco supermarket use catalogues to promote sales.
(d) Telemarketing
Direct selling is conducted via telephone to entice customers towards certain
products. With the aid of a database, telemarketers initiate outbound calls to
prospective buyers and explain to them new offers and promotions. Examples
of companies using telemarketing are hotels, resorts clubs and credit card
companies.
(e) Direct Response using Television

Television shows of 30 minutes to an hour are used for product presentation
and demonstration. One example is SmartShop. People interested to buy a
product can place an order by dialling toll-free telephone numbers.
(f) Online Marketing

Online marketing is conducted through an online interactive computer system.
Examples of online marketing channels are online commercial services and the
Internet.
Online commercial services offer information and marketing services to

customers. The most popular online services are eBay.com, Yahoo.com,
Gooogle.com and etc. The services offered to customers are in the form of
information, entertainment, shopping service, virtual dialogue opportunities
and e-mail.
In Malaysia, electronic business is expected to greatly expand in the years to

come following the rise in computer ownership among its citizens.

SELF-CHECK 10.4
1. Fill in the boxes below by determining the direct marketing

tools used by marketers to communicate a product brand and
corporate image.
Direct
Marketing
Tools
2. People have various reasons not to buy online. Which one of

the comments indicates the main challenge faced by online
marketers?
(a) I do not like buying using the Internet because the line
is always very busy and I have to take a longer time to
surf.
(b) I am afraid to pay using my credit card for online
purchases. I feel it is not safe to provide my credit card
number.
(c) I do not use the Internet for the purpose of buying
because I can make price and quality comparisons
between brands if I visit the supermarket.
(d) It is easier for me to buy the traditional way than
through the Internet.
(e) I do not know how to use the Internet.

ACTIVITY 10.5
1. Please visit the following websites:
http://www.carrefour.com.my
http://www.giant.com.my/
Look at how Carrefour and Giant promote their products. Do

you think the sales promotion carried out by Malaysian retail
supermarkets is effective?
2. You are also encouraged to refer to these websites:
http://www.ikea.com/
http://www.nestle.com
These websites show how companies use public relations to

establish product brand and corporate image. Is this method able
to help the companies to improve their image? Discuss.
• Promotion mix consists of a combination of advertising tools, personal selling,

sales promotion sales, public relations and direct marketing. A company applies
promotion mix to achieve its marketing objectives i.e. to inform, to persuade and
to remind customers about the companyÊs products.
• Advertising refers to any form of non-personal promotion of ideas, goods or
services by a known sponsor.
• Personal selling involves a companyÊs salespeople meeting face to face with
customers to secure sales and develop customer relationships.
• Sales promotion involves offering incentives to customers during a short period of
time to generate quick sales of a product.
• Public relation refers to establishing a good relationship with stakeholders who
have some interest in the company.

• Direct marketing involves direct conversation with targeted individuals to get

quick feedback. This includes the use of mails, telephone, fax and e-mail.
• There are two types of promotional mix strategy a company can choose from i.e.
push strategy or pull strategy.
• „Push‰ strategy involves pushing a product through a distribution channel (i.e.
retailer or wholesaler) to consumers.
• „Pull‰ strategy involves directing marketing activity towards consumers through
advertising and/or sales promotions to increase demand.
• There are five main steps in advertising: (i) determine the advertising objective,
(ii) determine the budget for advertising, (iii) form the advertising message, (iv)
select the advertising media, and finally (v) evaluate the advertising campaign.
• Public relations refer to developing a good relationship with various groups the
company has to deal with in order to obtain a more favourable publicity and
corporate image.
• The functions carried out by the public relations department are press relations,
product publicity, community relations, investor relations and lobbying.
• Direct marketing requires the company to build interactive databases to integrate
the operation with marketing. The purpose is to have direct communication with
customers. This allows the marketer to match its offer to a smaller segment or
individual buyersÊ needs.
Advertising Personal selling

Catalogue marketing Public relations
Direct mailing Online marketing
Direct marketing Sales promotion
Direct selling Telemarketing

ANSWERS W 145
Answers
TOPIC 1: WHAT IS MARKETING?
Exercise 1.1
The following are five marketing concepts: production concept, product concept,
sales concept, marketing concept and community concept. Choose the most
suitable philosophy for each manager.
Marketing Manager Opinion Concept
I believe buyer will buy product which has special characteristics. So I Product
should ensure my company product should always be improved - Siti
For me, the best way is to reduce production cost. If the production
cost could be reduced, the price of our goods can also be reduced. It is Production
also important that our product is on the shelves of all shops and
supermarkets ă Wong
Because environmental quality continues to decline and fraud cases

together with sales of goods which have negative effects on health Society
continues to spread, I believe the most effective strategy is to Marketing
guarantee long term profit by producing products which really useful
to customers and do not spoil the natural environment ă Murali
The most important and effective way to increase sale is by

implementing sales and promotion activities aggressively. As proof, Sales
every time supermarkets are having sales, customers would visit them
ă Micheal
The effective marketing programme depend on product capability to

satisfy customer needs. If customer is confident that the product is Marketing
useful, he will buy the product. ă Salleh

146 X ANSWERS
Exercise 1.2
The following are statements on the five concepts of marketing challenges in the
21st century. Choose and match the statements with concepts by inserting the
correct number in the brackets in the left column.
Statements Concepts
1. Internet, Modem, Wireless Mobile Internet (2)

Phone, WWW.
2. Chain of computer network Rapid global development (3)
3. Wider geographical marketing Information technology boom (1)

coverage.
4. New marketing concepts, like New marketing landscape ( 4 )

community marketing concept.
5. Concern for the social effects when Ethics and social responsibility (5)
producing and marketing product.
TOPIC 2: INFLUENCE OF ENVIRONMENT FACTORS
Exercise 2.1
1. Macro-environment refers to the economy, technology, society,
government, and competitive forces which have a great impact on an
organisation. These forces are not under the control of the organisation
therefore, the organisations have to develop strategies to face the macro-
environment challenges. There are further components of the macro-
environment which affect the companies like economic factors include GDP,
inflation, unemployment and society include culture, traditions and
language etc.
2. Following are the components of a macro environment:

• Economic forces.
• Technology forces.
• Cultural forces.

ANSWERS W 147
• Political forces.
• Natural forces.
• Demographic forces.
3. No organisation works in vacuum, it is effected by both internal and

external environment. Here external environment is the macro
environment. The macro environment has many elements like the political
environment, market condition, competitors strategy, etc. These factors
definitely effect the organisations working.
TOPIC 3: IMPORTANCE OF MARKET

INFORMATION
Exercise 3.1
For each source of information, give one simple explanation and also examples of
types of information that can be gathered through each source. Use spaces below
for your answers.
Information
Explanation Example
Source
Internal Data CompanyÊs available data. It can be Production Report,

in a file form and a physical form or Sales Report
even electronic form.
Marketing Information of the surroundings Motion from the

Intelligence obtained from other parties such as customer and the
the supplier, marketing mediator or mediator
customers.
Research Information that cannot be obtained Research to know the

from any party but has to go customerÊs inclination
through a research to obtain it. Inclination Test
Exercise 3.2
In spaces below, write down the advantages and disadvantages for each method
in getting information.

148 X ANSWERS
Method Advantages Disadvantages

Mail • Cheap • Slow
Questionnaires • Can obtain an honest • Low response rate
response. • Difficult to control samples
• Answers are not influenced (not able to control the
by the interviewer's numbers answered and who
conduct. answered).
Telephone • Fast • High cost
Interview • Good sampling • Interviewer's method when
• Interviewer can explain posing questions might
difficult questions. influence the answers.
Personal • Fast • Very expensive
Interview • Good sampling • Interviewer's method when
• Questions difficult to posing questions might
explain by interviewer. influence the answers.
• Able show product
samples or other printed
materials.
Group • Fast • Very expensive
Interview • Good sampling • Interviewer's conduct
• Difficult questions can be influences the direction and
explained by interviewer. contents of the discussion.
• Able to show product
samples or other printed
materials.
• A good interviewer can
encourage the group to
discuss specific issues in
depth.
Computerised • Answers are normally • Very expensive
Interview honest as there is no • Interviewer's conduct
pressure from any party. influences the direction and
• Able to minimise the contents of the discussion.
interviewer's conduct as
questions are posed using
the computer.
Online • Cheap • Not able to control sampling.
Marketing • Able to obtain worldwide • Due to internet surfers who
Research response. are mostly youngsters and
professionals, the survey
answers cannot reflect the
opinion of the general
public.

ANSWERS W 149
TOPIC 4: CONSUMER MARKET
Exercise 4.1
Try to identify the source of information below and state whether it is an

experiential source, trade source, personal source or public source of information.
Explanation Information Source
1. Advise from friends that have used Private Source

the product.
2. Your own memory when using the Experience Source

product.
3. Obtaining information from Trade Source

pamphlets.
4. Information from advertisements. Trade Source
5. Obtaining information from an article Public Source

in the newspaper.
Exercise 4.2
Write down the five steps of buying decision process according to the right
sequence.
(a) Alternative Evaluation
(b) Behaviour after Buying
(c) Information Search
(d) Recognition of a Need
(e) Decision to Buy
Answer: d c a e b

150 X ANSWERS
TOPIC 5: BUSINESS MARKET
Exercise 5.1
Below herewith is a short scenario on different individuals in Oryzz Sdn Bhd that
involved in the business purchasing process. Try to identify these participants.
Participant Role
Ali is the General Manager of Oryzz

Sdn Bhd. His key responsibility is to
Decider
approve any purchase exceeding
RM100,000.
John works as an engineer in Oryzz Sdn

Bhd. Sometimes his expertise is sought
Influencer
by marketing division concerning the
product specification.
Chan works in the manufacturing

section as a manager. One of his
responsibilities is to ensure the
machines are functioning well at all Individual User
times. If there is a need to change for
spare parts, Chan will contact the
purchasing section.
Mahmud is a manager in the

purchasing section. He manages all Purchaser
purchases of the company.
Lily works as a personal assistant to Ali.

Her duty is to screen through the calls
Information Controller
before transferring the line to Ali.

ANSWERS W 151
TOPIC 6: MARKETING STRATEGY: SEGMENTATION,

TARGETING AND POSITIONING
Exercise 6.1
Below are the descriptions of some companiesÊ segmentation strategy. Try to
identify the bases of market segmentation these companies used.
Description Market Segmentation
1. The manufacture of Honda

Demographic (gender)
motorcycle recently launched its
new model called „feminine‰
especially targeting at women
motorcyclist.
2. The hand phone maker Ericsson

Psychographic
has newly launched its small and
compact hand phone model that
featuring an interesting design
color with an advertisement
message Âespecially for the young
and cheerfulÊ.
3. The Reliance Travel Agency has

Behavioural
lately promotes its holiday
packages to Africa for
honeymoon couples.
TOPIC 7: PRODUCT
Exercise 7.1
Try to think of what are the core benefits for the products below:
Product Core Benefits

Television Entertainment
Car Transport
Diploma Course offered by the OUM Knowledge

152 X ANSWERS
Exercise 7.2
Identify the various sources of ideas for a new product development of your
choice.
1. Internal source: staffs in the company.
2. Consumers.
3. Distributors and Suppliers.
4. Competitors.
Exercise 7.3
The situations below explain each stage of the productÊs life cycle. Write your
answer in the space provided.
Situations Stages of Product Life Cycle
At this stage, many consumers aware and accept Growth Stage

the product. Sales and profits increase
tremendously.
At this stage, the sales and profits drop because of

Decline Stage
the product has been substituted with a new
product that can better satisfy the current usersÊ
needs.
At this stage, the product has just been launched

Introduction Stage
and the growth of sales is slow. Profit does not
exist because of the advertisement cost is high.
This stage begins when the company finds and

Production Stage
develops a new product. There is no sales
generation and investment cost is high.
This stage occurs when the increase in sales starts

Maturity
to moderately stabilise as most prospective buyers
have bought the product. At this stage, the profits
become stable or it may begin to drop.

ANSWERS W 153
TOPIC 8: PRICE
Exercise 8.1
Indicate a tick (3) if the following statements affect pricing decisions.
(a) Cost to produce a product 3
(b) Consumer's taste

(c) Company's objective to obtain maximum profit 3
(d) Amount of products offered by the company

(e) Competitions 3
(f) Consumer's perception on product 3
(g) Large number of salespeople
Exercise 8.2
Description of General Pricing Approach Name the Pricing Approach
In this method, the company surveys the Competitor Based approach

price of the competitorsÊ product before
fixing a price for its product.
In this method, the company will ask the Perceived Value Approach
consumers how much they are willing to
pay for the product.
In this method, the company adds a Cost Based approach
standard mark-up to the cost of the product.

154 X ANSWERS
Exercise 8.3
Name the pricing strategy for the following new imitated products.
New Product Pricing Strategy
(a) When a high price charged is not Overcharged strategy

proportionate with the product
quality.
(b) When a company sells a new product Premium strategy
with high value and high price.
(c) When a company decided on both Economic Strategy
low price and product quality.
(d) When a company charged a lower Value Strategy
price for better value product.
TOPIC 9: DISTRIBUTION CHANNELS
Exercise 9.1
The table below provides you a list of information on various forms of retailing.
Please identify and write your answer in the right column.
Information Types of Retailing
Large shops which have many product lines and each of Departmental store
this product lines is produced by a different company.
Larger in terms of size and the shop offering many

choices of products and usually located far from housing Supermarket
areas.
This involves direct communications with consumers

done through catalogues, mail order, telemarketing and Direct Marketing
etc.
Shops that has limited product line on selves. Specialty Shop
Distribution which uses salesperson. Direct Selling

ANSWERS W 155
TOPIC 10: PROMOTIONS
Exercise 10.1
Identify the promotion tools based on the description below.
Explanation Promotion Tools
Personal presentation by the companyÊs sales force

with the intention to make sales and develop customer Personal Sales
friendships.
It involves the usage of mails, telephone, fax and e-

mails to communicate directly with specific consumers Direct Marketing
in order to obtain immediate feedback.
It is a short term incentive to encourage the purchase

Sales Promotion
of a product.
It refers to any form of non personal presentation and

promotion idea, goods or services by a known Advertising
sponsor.
It refers to good relationship established with various

public companies representatives with the aim of Public Relations
creating publicity and good corporate image.
Exercise 10.2
You are advised to attempt the following question by identifying the objectives of
the advertisements:
(a) This advertisement is related to a product brand that has long been in the
market. The advertisement has a few words but exhibits the brand clearly.
Answer: Advertisement to remind
(b) This advertisement contains lots of information about a product including

instructions on how to use it.
Answer: Advertisement to inform

156 X ANSWERS
(c) This advertisement emphasises on some special features of product brand.

The main message of the advertisement is to explain why consumers must
buy the brand compared to the competing brand.
Answer: Advertisement to persuade
Exercise 10.3
1. Why is pre-selling approach important?
• Understanding the potential prospects and their needs in detail (if the
customer consists of companies, the marketer must know their needs in
making a decision and also those who influence the decision).
• Determining the finding of the objective.
• Determining the best approach.
2. What are the main objectives of follow up action?

• Ensuring all the fixing work and services provided is carried put well.
• Convincing the buyer of the product bought by giving positive
information of the product.
• Solving any problems relate to the product.

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 myINSPIRE.
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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OUM Business School

Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

Module Writer: Alvin Yong Onn Soon

Developed by: Centre for Instructional Design and Technology

First Edition, May 2007

Copyright © Open University Malaysia (OUM)

Topic 1 What is Marketing? 1

Topic 2 Influence of Environmental Factors 18

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Topic 3 Importance of Market Information 28

Topic 4 Strategy Formulation 41

Topic 5 Business Market 55

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5.3.3 New Purchase 58

Topic 6 Marketing Strategy: Segmentation, Targeting and Positioning 66

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7.4.7 Market Testing 90

Topic 9 Distribution Channels 112

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9.6.2 Wholesaling 121

Topic 10 Promotions 124

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Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

COURSE GUIDE DESCRIPTION

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Table 1: Estimation of Time Accumulation of Study Hours

Topic 1 discusses on the definition of marketing and core marketing concepts.

Copyright © Open University Malaysia (OUM)

marketing and the challenges faced by marketing managers in the new

Topic 2 describes the influences of environment factors which are divided to

Topic 3 discusses on how marketing information systems can assist marketing

Topic 4 provides an introduction to consumer behaviour, both marketing and

Topic 5 describes the differences between business consumers and end

Topic 6 looks on how companies resolves issues of diversity in consumers and

Topic 7 discusses on definition of products and marketing strategies related to

Topic 8 discusses on determining price. In this topic, issues discussed include

Topic 10 covers promotion mix – a multiplicity of ways that can be used to

TEXT ARRANGEMENT GUIDE

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Self-Check: This component of the module is inserted at strategic locations

References: References is where a list of relevant and useful textbooks, journals,

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Other suggested references are:

TAN SRI DR ABDULLAH SANUSI (TSDAS) DIGITAL

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Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

1.1 DEFINITION AND CORE CONCEPTS OF

1.1.1 Definition of Marketing

Marketing is a business function which deals with customers. Marketing can be

A more formal definition of marketing is provided by the American Marketing

The above definition incorporates various aspects of the core concepts of

1.1.2 Core Concepts

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(a) Needs, Wants and Demand

Human beings have many needs. Their basic needs comprise:

These needs were not created by marketers.

The concept of demand is derived from consumersÊ wants which are

Figure 1.1: Luxury goods

Companies ought to understand their customersÊ needs, wants and demands