Marketing

Saadat Ali Mughal

9/18/2011

Marketing

3AS. 1 what is marketing

Market is any set of arrangements that allow buyers and sellers to exchange goods and services. It can be a street market in a small town or a large market, involving internationally traded goods while marketing is the management process involved in identifying, anticipating and satisfying consumer requirements profitably. In marketing behavior, consumers have vital importance and only consumer oriented goods and services are produced. Marketing is ongoing all the times and it has to respond to the changes in consumer behavior. It also builds relations with customers and increases sales and profit. Market maintains or improves the image of products or a business. In other words it creates brand loyalty. New products are developed or improved only with the help of marketing. Market oriented business place the consumer at the center of their activities. Such businesses continuously identify, review and analyze the needs of consumers i.e. Pepsi, Mc Donalds, Toyota, Honda etc. On the other side some businesses are product oriented and focus their activities on product or production process by which the product is manufactured. The main concern of Concorde aircraft is the high technical specification of the product only. Breadth of marketing activity and its relationship with other business activities Decisions on, for example, the prices or the promotion strategy will need to be considered in the light of other parts of the business. In fact when decision is taken on any aspect of marketing the rest of the business will be affected. Production- The marketing department will need to ensure that the production department is actually able to manufacture the items according to the specifications lay down by the customers. Similarly the design department must ensure that the design does fit in with the customer requirements. Producing a product that is technically sound but is not aesthetically attractive, may lead to a lack of interest in the product. Finance- marketing costs money. Not only expensive research is required before the product is launched, but the finance department will be anxious to see that other department spend within budget, otherwise it might have to raise more money, which in turn will add to the cost of product. Personnel- As the sales of a product increase, the business will need to maintain customer contacts with a view to continuing the feedback or response. It will also need increasingly competitive, hungry sales farce, which is ambitious. The generation of ideas

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also requires bright, innovative minds. The personnel department must therefore be sensitive to demands that the company is making on its employees within the marketing department and must not ensure that the appropriate personnel are selected for the marketing job but also that there is continual investment in training.

DEMAND CONCEPT
Demand in economics means effective demand and may be defined as the quantity of commodity, which will be demanded at any given price over some given period of time. First economists look for the quantity demanded of a product by a single individual and the price of that product then by adding the quantities demanded by each individual buyer at each price they obtain the market demand. A demand schedule is a table giving the quantities demanded at a range of prices. A demand curve plots this information on a graph, with price on a vertical axis and quantity demanded on horizontal axis. The demand curve The demand curve tells us what quantities would be demanded at any given price, if other things (fashion, caste, price of other goods, population etc.) do not change. A typical demand curve is shown in figure. Which can indicate that at price OP prices of the quantity demanded would be OQ. If prices fell to OP1, quantity would increase to OQ1. This change in demand is known as extension and contraction in demand.

Alternatively we can use the demand curve to tell the maximum price consumers are willing to pay for given quantity. The areas of rectangles under the demand curve represent the total revenues forthcoming at different prices since they are equal to price quantity. Changes in demand A change in demand means that one or, more of the factors, which determine demand (other than prices of the product) have changed. It means that whole demand curve will move. An increase in demand means that more is demanded now at each and every price. These changes are illustrated in following fig.

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An increase in demand would mean that the curve D1D1 has replaced curve DD, which shows, that now more quantity is demanded at the same price OP. A shift to left D2D2 shows that now less in demanded at the same price level OP. in the modern worlds there are many possible causes of changes in demand. These causes may include. Changes in disposable real income- if incomes are raising the demand for most goods and services will tend to increase. A striking example of this tendency has been the remarkable increase in the demand for motorcars, which has an accompanied, the general rise in incomes. Rising incomes however may cause the demand for some good to fall. These items are described as inferior goods like cheaper basic foodstuffs and cheaper clothing. Government policies on taxation and on social expenditure directly affect disposable income, which ultimately causes to changes in demand of people and curve. If incomes become more unevenly distributed, demand for luxury goods will increase whilst demand for basic necessities like heating will decrease. Changes in the prices of other goods- many of goods/services we buy have close substitutes and in making purchases, we are influenced by the relative prices of competing goods. If the prices of butter fell the demand for margarine would probably fall. The demand for some goods will be affected by changes in the price of complementary good (jointly demanded goods). The demand for videos is linked to the demand for video reorders. Changes in the taste and fashion- the demand for some goods and services are susceptible to change in taste and fashion. Particularly affected are the clothes, furniture, processed foods and beverages are also subject to movements in taste and fashion. Advertising- in advanced capitalist societies, advertising is a powerful instrument affecting demand in many markets. Its aim, quite clearly, is to move the demand curve. In highly competitive markets a successful advertising campaign will move the products demand curve to the right and at the same time move the demand curve for competing goods to the left. The availability of credit- availability of credit on easy terms increases the purchasing power of consumers. Which ultimately increases the demand for products especially motorcars, electrical appliances, furniture and other types of household equipment.

Saadat Ali Mughal

Changes in population- the influence of this factor is of a longer-term nature unless the change comes about by large-scale migration. Changes in total population and changes in age distribution will affect both the total demand for goods and services and the composition of that demand.

SUPPLY
The basis law of supply says more will be supplied at a higher price than at a lower price. Supply curves, therefore will stop upward from left to right, which is derived from the accompanying supply schedule. To supply larger quantities firms need higher prices in order to cover their higher cost, movements along the supply curve are referred to as extension and contractions or as change in the quantity supplied. A rise in price form OP to OPI cause an increase in quantity supplied from OQ to OQ1.

Changes in supply An increase in supply means that more is supplied at each and every price. A decrease in supply means that less is supplied at each and every price.

The figure shows an increase in supply. It shows that supply curve shifting form SS to S1S1. This leads to an increase in the quantity supplied at any given price. For example, at price OP suppliers are now prepared to offer quantity OQ1. Similarly at price OP1 the quantity supplied has increased form OQ2 to OQ3. The fallowing figure illustrates a decrease in supply. The supply curve shifts to the left form SS to S1S1. The effect will reduce the quantities supplied at all prices.

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Some possible causes of changes in the condition of supply are set out below. Weather- the supply of agricultural products is seriously affected by variations in weather conditions. Output in this industry is subject to variations from year to year which are independent of the acreage planted and hence independent to a large extent to the cost incurred in preparation and planting. A bad harvest means that the supply curve moves to the left; the movement of the supply curve to the right represents a bumper harvest. Technical progress- technical progress is a term, which covers improvements in the performance of machines and labour, in the quantity of raw materials, in organization and management, in factory layouts, in communications, in techniques of productions and so on. It is the main source of improvement in productivity and these increases in outputper-person-hour will move the supply curve to the right because of the other things remain unchanged, average cost of production will fall. Changes in the prices of factors of production- movement in wages, the price of raw materials, fuel and power, rates of interest, rents and others factors will clearly affect the cost of production. In recent years factor prices have risen quite sharply, far more than movements in productivity, so that the supply curve for most products have been moving to the left. If factor price fall, of course the supply curve moves to the right. Changes in the prices of other commodities- changes in the prices of other goods many affect the supply of commodity whose price does not change. If, because of decrease in demand the prices of other goods increase, the production of these goods will become more profitable and resources tend to move towards the industries making this higherpriced goods. The production of goods, with prices unchanged would be less attractive to suppliers. In case of products, which are, substitutes in supply, a rise of one good will cause the supply of that good to extend and the other good to decrease. However some products are in joint supply for instance petrol and paraffin. So if there is a rise in price of petrol this will cause the supple of petrol to extend and the supply of paraffin to increase. Taxation and subsides- the imposition of indirect taxes will bring about changes in supply. A tax on a commodity may be regarded as an increase in the costs of supplying that commodity and the supply curve will move to the left. Subsides will have exactly the

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opposite effect. They lower the costs of bringing the goods to the market and increase the supply. Changes in the number of producers- supply will increase if new firms enter the market. Unexpected events- wars, natural disasters and diseased in crops and animals can all affect supply. Product and customer orientation When a business bases it's marketing mix on what the business sees as it's internal strengths, the business's marketing is said to be 'product orientated'. When a business is product orientated, it will base its products or services on what it perceives as its internal orgainisational strengths. Firms with a product orientated approach to selling, try to sell whatever they can make, without trying to find out if it's what the customers want. Sony grew hugely successful using this policy, and became famous for this approach. The clearest example was the Walkman, launched in the late 70s, marketing professionals said it would not sell because it had no recording facility a generation of teenagers proved them wrong. A more up to date example is Apple, the IPhone being the latest in a long line of product led launches. Being product orientated brings a number of advantages; Firms can focus on internal quality Technological investment can be applied to a wide range of products Economies of scale can more easily occur Allows outsourcing of productionthe firm is essentialy a design house But of course there are disadvantages as well. These disadvantages include: Changes in market structure will not be responded to Fashion and taste are not accounted for in product mix Technology applied can be left behind When a business bases it's marketing mix on it's perception of what the market/customer wants, the business's marketing is said to be 'customer led', or 'customer orientated'. Customer orientation is the placing of consumers at the central spot to determine the products to be produced. This means that the firm focuses on the identification of the needs and wants of consumers and elevated production and marketing resources to satisfying them. Some of the key features of customer orientation are: The plans of the business towards its production are determined by customers needs The product made is the one which can be sold as it has a market for itself Market research and market analysis are required to determine customer needs, the price they are willing to pay i.e. demand as well as to decide which segment of market to aim for Giving credit to customers is seen as a service The packaging is designed for customer convenience as a selling tool

Marketing The stock quantity and orders are set with customers in mind Innovation is used to identify new opportunities Profits is critical objective Transport and delivery is customer service Advertising focuses on the benefits of the product that would satisfy customer needs.

Taking a customer orientated approach has several important advantages, especially in fast changing, volatile consumer markets. In these cases increasing consumer awareness about the competitors products, prices and image can result in significant fluctuations in popularity of goods and services. Some of the major benefits of customer orientation are: The firm will be more confident of a successful launch of a new product as effective market research has been undertaken to determine customer requirements Appropriate products that meet customer needs are likely to survive longer and give higher profits then those built with a product led approach Firm can respond quickly to changes in the market information as constant feedback from customers is given Due to continuous market research firm will be better able to anticipate changes and will be in a strong position to meet the challenge of new competitor entering the market.

ANALYZING THE MARKET

Market segmentation Market segmentation is the process of subdividing a large undefined market into smaller groups of consumers with similar spending pattern. To a manufacturer of consumer goods, market segmentation is profitable when consumer needs and wants are heterogeneous. Segmentation enables a firm to effectively allocate marketing resources to satisfy the needs and wants of a well-defined group of consumers. There are a host of benefits that a firm can reap via segmentation besides effective allocation of marketing resources. Market segmentation facilitates better identification of marketing opportunities, provides guidelines for developing separate target market groups, guides the products positioning relative to consumer needs and competition and it also provides guidelines for new product development. In a poor or developing country where purchasing power is limited, its consumers purchase mostly mass produced, low price goods that are highly standardized and cheap to produce. But as a society becomes more affluent, its consumers would expect more from the products they purchase. They would now be able to afford unique products that are designed for their specific requirements. This gives rise to niche marketing i.e. when a product is uniquely designed and targeted towards a narrow but loyal segment. Due to low volume generated from such niche segments, average cost of production is usually high since firms would not derive economies of scale. However, since such niche groups have higher purchasing power, firms can charge higher prices. 8

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Market segmentation enables a firm to identify the characteristics of specific groups and their specific preferences thus discovering the suitable product range to develop according to the different groups ability to pay, price sensitivity and the type of advertising and promotion they respond to. Consumers would purchase a product only if it gives them satisfaction. Therefore, by designing a product tailored accordingly would ensure success for a firm. This reduces the risk of introducing a new product. Market segmentation enables a firm to identify the more lucrative markets and abandon the declining, unprofitable ones. There are always some group of people who would never purchase a particular product. Marketing resources could therefore be put to more effective use by concentrating on the group{s} that are likely to purchase a product. This avoids wastage thus making a firm more profitable. It allows a firm to streamline advertising and promotion budget and devise a suitable marketing concept to cater to the target group to achieve a more effective response. Market segmentation can also enable a firm to detect changes in consumer tastes and preferences over a period of time. Accordingly, changes and improvements can be made in the product or new products can be developed based on value analysis. Different segments also respond differently to a given marketing mix. Through segmentation, a firm can devise a marketing strategy by varying the marketing mix for different segments for better results. Geographic segmentation- calls for deciding the market into different geographical units such as nations, states, regions, countries, or neighborhoods. The company can decide cooperate in one or a few geographic areas or operate in all but pay attention to local variations in geographic need and preferences. For example, Maxwell House ground coffee is sold nationally but flavored regionally. Its coffee is flavored stronger in the West than in the East. Demographic segmentation- the market is devided into groups on the basis of demographic variables such as age, family size, gender, income, occupation, education, religion, race, generation, nationality or social class. Demographic variables are the most popular basis for distinguishing customer groups. One reason is that consumer wants preferences and usage rates are often highly associated with demographic variables. Another is that demographic variable are easier to measure than most other types of variable. Demographic characteristics are needed in order to know the size of the target market and the media that should be used to reach it efficiently. Psychographics segmentation- divides buyers into different groups on the basis of life styles for personality. Peoples product interests are influenced by their life styles. In fact, the goods they consume express their life styles. Companies making cosmetics, alcoholic, beverages and furniture are always seeking opportunities in lifestyles segmentation. Many companies endow their products with brand personalities that correspond to consumer personalities. For example, Ford buyers were identified as independent, impulsive and self-confident, while Chevrolet owners were conservative, thrifty and less masculine. Behavioral segmentation- divides buyers into groups on basis of their knowledge of attitude towards use of or responds to a product. Many marketers believe that behavioral

Marketing variables- occasions, benefits, user status, usage rate, loyalty, status, buyer readiness stage and attitude are the best starting points for constructing market segments. Buyers can be distinguished according to the occasion. They develop need to purchase a product or use a product occasionally. Segmentation helps firms expand product usage. For example, orange juice is usually consumed at breakfast. Markets can be segmented into groups of nonuser, ex-user, potential users, first time users and regular users of a product. Usage rate segmentation is based on light, medium and heavy product users. User can also have varying degrees of loyalty to brands (Coca-Cola). Multi-attribute segmentation (geoclustering)- marketers no longer talk about the average consumer, or even limit their analysis to only a few market segments, rather, they are increasingly crossing several variables in an effort to identify smaller, better-defined target groups. Thus a bank may not only identify a group of wealthy retired adults but also within that group distinguish several segments depending on their current income, assets, savings and risk preferences. Geoclustring is going popular, because population is growing daily. More women are in work force changing household structures and changing size of age groups. Secondly marketing to micro segments has become accessible to even small organizations. Targeting multiple segments- very often companies may begin their marketing with one targeted segment than expand into other segments. Market location A business will need to look carefully at its chosen location with respect to many factors. It may want to be close to its suppliers, so as to be sure of reliable delivery, or near to its main customers, so they can save costs when visiting the business. For a multinational organization, key decisions need to be made about the location of production facilities in order to balance cost minimization with access to a wide range of rational markets. Market size Market size means the value of the sales made annually by all firms with in a market. Market potential can be measured by the annual rate of growth. Due to globalization and technological changes more and more multinational companies are coming in. This has lead to increase the size of market. Cultural differences and rapid changes in fashion have changed the shape and size of markets. Demographic doctors like age, social class, gender, occupation etc. also have given a new shape of market size. Due to it now there is the importance of specialized markets, which could fulfill the demands of their prestigious customers. Market share When new products are launched, one of its initial objectives may well be to achieve market share of a certain percentage. If this is achieved, it means that customers are actually trying the product and revenue is flowing into the business. Every brand manager has agreed targets for market share that must be met or beaten by the year-end.

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Market competitors The degree of competition in a market will affect how price are determined. Assessing the level of competition in a market is not as easy as it sounds. The amount of competition that exists in a market is known as the market structure. There are a number of widely recognized models of competition with different market structures. They vary according to: The amount of knowledge consumer has about different products. The ease with which firm can setup and compete within the market. The number of firms operating within the market. The extent to which rival products are different. The amount of control which business exert within their markets. The extent to which individual business can determine the price of their goods and services. On the basis of the factors, competition is divided into following types. Perfect competition is a market structure with perfect knowledge, many buyers and sellers, freedom of entry and exit and a homogenous product. The competitor is prices taker. Businesses make only normal profits. Monopolistic competition a market structure with freedom of entry and exit, differentiated products and a large number of small firms competing. Firms have perfect knowledge of the market. Each forms has a product that is differentiated from the others. This is achieved through branding. Monopolistic completion has features in common with both monopoly and perfect competition. For example, soaps and detergents are supplied by number of different firms but each firms soap and detergent is slightly different in price, smell, colour and some times quality. Oligopoly a market structure with a small number of dominant firms producing heavy branded product, with some barriers to entry. For example, 90% of chocolate sale in Britan come form Mars, Cadburys and Nestle. Monopoly a market structure in which only one firm supplies the entire output, there is no competition and large barriers to entry or exists. Firms are price maker. British gas, railways are examples of pure monopoly. Levels of market segmentation Individual marketing the ultimate level of segmentation leads to segments of one, customized marketing or one-to-one-marketing. It includes examples of tailors, cobbler and hair cutter. Differentiate between Niche Marketing and Mass Marketing. Niche marketing involves a business aiming a product at a particular, often tiny segment of a larger market. It is opposite to mass marketing which involves products being aimed at whole markets rather than particular parts of them.

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Marketing The products in mass marketing are standardized so that majority of the members of that market can utilize it e.g. PEPSI. The products are generalized like pens. However in market niches, the products are customized and sometimes made to order e.g. the Rolls Royce cars arent available in the show rooms. Orders have to be placed buy them. So niche marketing can be for the elite class who wish to have the unique and the best that only market niches can provide. There are certain products which arent only for elite class but could be for any class of society. However, due to their nature, they are a part of niche market e.g. the medicines for cancer and tuberculosis patient would only be made available by niche market due to the fact that very few people require it. However Aspirin and Dispirin are part of mass markets as nearly anyone can use them to relieve pains and fever. In mass marketing there is a lot of competition as the needs and wants of the general market or a large market can be seen by many businesses and companies. The demand for certain products e.g. phones is very high and so several businesses try to set up to produce something which is obviously needed. However, niche marketing has very little competition as it has deliberately been searched for and so is an extremely tiny with limited customers. In mass- marketing products are being produced for a very large market due to which they have to be produced in very large quantities. Due to this the firms using mass marketing can benefit from economics of scale and so lower average costs. However niche market cannot as they have a very limited number of customers and so produce in very few numbers to actually benefit from e.g. bulk buying. Niche markets are great deal more risky than mass markets. In niches there is no way of cutting down costs. So if they fail then the owners have to incur huge losses. However, if they succeed than again there are huge profits. But due to competition in mass markets profits are low and so are costs. In niche marketing details about consumer preferences are needed. Specifies on the needs and wants of consumers are required. However, in mass marketing a general idea of their needs is required.

3AS. 2 Market research Collection of Information

It is the systematic design, collection analysis and reporting of data and finding relevant to the specific marketing situation facing the company. Marketing managers often commission marketing research, formal study of specific problem and opportunities, they may request a market survey, product preference test, a sales forecast by region, or research on advertising effectiveness. Marketing research is conducted to descriptive reason or to identify market trends, to predict future goals, to explain variety of reasons and to explore or investigation purpose.

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Collection of data Data can be collected by two ways, 1 Primary data It is first hand information which is not available before and a company may collect it by field research. Field research can either be carried out by a firm itself or by a market research company. This primary information can therefore be used to gain marketing advantages over rival firms. The main disadvantage of primary information is that it can be very expensive to collect information and time consuming. Methods of field or primary research There are two types of primary research: 1. Quantitative research (finding out the no. of consumers who might buy a product And in what quantities) 2. Qualitative research (it refers to why consumers will or will not buy a particular product. It discovers the motivational factors behind consumers buying habits. This research can be done through personal interviews and in-depth discussions among groups i.e. focused groups and consumer panels. Focused group It is a selected group of 15 20 people who are shown a product and asked about what they feel of its taste, or design and color depending on what the product is. Once they are interviewed they wont be asked again. In a focus group people related to a one segment of market are selected. Consumer panel It is a great extent like the focus group. The difference is that after one interview, the focus group is dismissed and the next time another group is selected. However, in consumer panel, the same group is asked for opinions after intervals about the product and any changes that are introduced. It is more accurate as asking the same people give a better idea of how consumer thoughts and feelings are changed. Quantitative Research Techniques 1 1. Observation Method 2 2. Survey Method 3 3. experimental Method / Test marketing Observation method It can give you the answer of what is happening but not why as you just observe and see through cameras, stock movements e.g. seeing how much time they spend at a shelf and looking at which products. Survey method

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Marketing Telephonic surveys, mall intercepts, internet surveys and mail surveys, simple questionnaire surveys and door-to-door surveys. Mall intercept is when you are stopping people in malls and ask them about a product. Questionnaire surveys are most common when people are given out forms with questions that could be open-ended or closed ended. Quantitative is closed ended. Experimental Method / Test Marketing Two types of experimental methods:Laboratory method when you invite people to a particular artificial setting and ask them to taste a product or try it at their own place. Field experimentation is test marketing you select a particular geographic area and launch your product to it to see the reaction of the people. This is cheap as if product isnt successful then the loss is less but if it is successful then the product can be launched throughout the country.

SAMPLING METHODS
Sampling methods are the techniques of market research that enable an organization to select the consumer groups which have to be interviewed or researched upon for their choices and opinions. It includes random sampling, multistage sampling and snowballing. Random sampling The major objective as well as advantage of this method is that the entire survey population has an equal chance of becoming a part of the sample. It would not be practical to include the entire population of the country or countries. Therefore a survey population is decided which consists of all of the present customers as well as potential customers of the firms product. From this population people are selected randomly e.g. if survey population includes all the people in a telephone directory, then random names are selected for research. The disadvantage is that by chance the selected people may have similar preferences and so may not be a true representation. Stratified sampling In this method, the population is divided into sub-groups samples that would be selected. The sub-group consists of only those people that are interested in the product. Therefore, the samples would be a truer representation e.g. if a new magazine is to be printed that would have articles related to teens, then the sub-group would be teenagers or people belonging to age group of (12 19) year. Therefore, any examples selected would also be from this sub-group. Quota sampling When samples are selected by quotas, then selection is according to a set proportion of people from particular areas based on consumer consumption. E.g. if research was to be conducted in Pakistan, and a sample of 200 people was to be selected, then 10% might be selected from Baluchistan, 15% from NWFP, 50% from Punjab and 25% from Sindh. Cluster sampling

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When a full sampling frame list is not available or when the product is mainly likely to appeal to specified groups of consumers, e.g. town or regional newspapers, then cluster sampling will take a sample from just this group not the whole population. Random methods can then be used to select the sample from this group. Multistage sampling This method involves the selection of a sample from another larger sample until the exact group of people to be research on is decided e.g. a continent Asia may be decided, then its south-east region, from which Pakistan is selected, then a province, then city and finally a district is decided upon. Similarly a street within a city would be selected and then a particular household on that street. Snowballing sampling It is a very specialized form of sampling. In this, firstly a group of people is selected as the first sample. Then they are asked for one contact or reference who is then added into the sample and so the size increases, the snowball effect. Sampling in this way is not representative and should only be used when other methods cant be used. Businesses in highly secretive markets use this e.g. firms engaged in producing highly specialized and expensive one off products for a very limited range of customers may need to rely upon snowballing. 2 Secondary data Desk research involves the use of secondary data. This is information, which already exist in some form and business use it as basis for their studies. The secondary data may be available internally (within the business) like existing market research reports, sales figures, annual report, internal stock movements etc. and externally like information from competitors, government publications, the European commission, international publications, commercial publications, retail audits, general public etc. Benefits for market research It allows a business to make more informed decisions. Businesses are less likely to waste resources on failed activities if careful market research is carried out. It provides a link with the outside world. As markets become ever larger and as new markets open up, market research becomes ever more important. It creates public relations and consumers may feel that their views are being considered. It helps to assess the most popular designs, styles, brands, promotions and packages

PRESENTATION OF DATA
The development of information, communication and technology in recent years has made the handling of data far easier and less prone to error. Data can be stored in

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Marketing computer memory or disk, manipulated and presented in number of ways. Presenting data in graphical firm can: Be more concise and easier to understand. Take less time to interpret. Identify trends easily. Be used to impress potential client. Bar charts Numerical information is represented by bars or blocks, which can be drawn horizontally or vertically. The length of the bars shows the relative importance of the data. Bar charts can show results very clearly. At a glance the reader can get a general feel of the information and identify any trends or changes over the time period. These are more attractive than tables and may allow the reader to interpret the data more quickly.
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Component bar charts It allows more information to be presented to the reader. Each bar is divided into number of components. For example, cost structure of five furniture manufacturers in particular years can be broken into labour, material and overheads. By this method total costs can be seen easily.

5 3 1 0 5 10 15 Series1 Series2

There are three types of bar charts, which can be used according to the requirements and form of data.

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Parallel bar chart- it shows the turnover contributed by the each of the companys three products in comparison. This type of the graph is similar to a component bar chart. The advantage is that it is easier to compare changes between the components, although it is more difficult to compare totals.

Gain and loss bar chart- it is also known as middle chart. It shows the profitability of the company over the time period. This type of chart distinguishes very clearly between positive and negative values.
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Product

Percentage component bar chart- it shows the breakdown of workforce in terms of their skills with each section represented as the percentage of workforce. One advantage of this percentage carry is that changes in the total size of the workforce are not shown. Pictograph or pictogram It represents data in a similar way of bar charts. The difference is that the data is represented by pictorial symbols rather than bars. One problem with pictogram is that it is not easy to divide symbol exactly. This makes it difficult to read precise quantities from the graph. The main advantage of this method is that the graph tends to be more eyes catching. Such a method is used in business presentations to attract clients or in reports to the public.

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Pie chart Pie chart shows data in circle form. This is divided into segments. Each segment represents the size of a particular part relative to the total. The 360 degrees in a circle have to be divided between the various parts, which make up the total output. To calculate area of each segment following formula is used, Value of the part 360 Total Pie charts are useful because reader can get an immediate impression of the relative importance of the various parts. This can also be used to make comparison over different time periods. The problem is that it does not allow precise comparison to be made between segments.

Line graphs It is the most common type of the graph used by a business. A line graph shows the relationship between two variables, one at X-axis and other on Y-axis. The values of the variable are joined by a straight line or smooth curve. The main advantage of this graph is the way in which the reader can get an immediate picture of the relationship of the two variables. Quite often more than one line is shown on a line graph so that comparison can be made. Economic data is often presented on a line graph.

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80 60 40 20 0 A B C D Series1

3AS. 3 Marketing mix

Marketing mix is a key part of nay firms marketing plan. It refers to those elements of a marketing strategy which are designed to meet the needs of the consumers. There are four main elements of the marketing mix that can be varied to meet consumer needs more effectively which can increase sales and profits. These elements are as follows: 1 1. Product 2 2. Price 3 3. Promotion 4 Ps of marketing 4 4. Placement / Distribution So to meet consumer needs businesses must produce the right product at the right price, make it available at the right place and then let consumers know about it through promotion. Not all the 4Ps in marketing mix have the same degree of significance in each case. It is vital that these elements should fit together into a coherent and integrated plan. A company should have a coordinated marketing mix. It means that every element of the mix should be in one direction to achieve the marketing and overall objectives of the firms.

The New Marketing Mix

Have I convinced you that seeing marketing in terms of the traditional marketing mix of the 4Ps or the service marketing mix of 7Ps is too simplistic? So how does the new marketing mix appeal - the 27P's of Marketing (and counting) 1. Product 2. Price 3. Promotion 4. Place

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Marketing 5. People: Some say the success of any business is dependent on the people employed. Its essential that you endeavour to choose the right person for the job then throw in ongoing motivation, inspiration, salary reviews, excellent working conditions, great people skills, etc, etc. 6. Process: It is the process involved in providing a service and the behaviour of people which can be critical to customer satisfaction 7. Physical evidence: You can hand your prospective customer a product and they can see with their own eyes whether its good or bad. This can be achieved through staff uniforms, your premises, exhibitions, case-studies and testimonials. 8. Packaging: Packaging can have a significant impact on your marketing mix. At a glance, well designed packaging tells your customers a lot about your company & the quality of your products. Cheap & nasty looking packaging screams out that the product inside is also cheap & nasty. Quality products are always packaged accordingly. 9. Purpose 18. Pull together
10. Purchaser 11. Push/pull 12. Personal relationships 13. Positioning 14. Persuasion 15. Performance 16. Profitable 17. Proactive 19. Perform 20. Permission 21. Pain 22. Pleasure 23. Periodic 24. Persistent 25. Partners 26. Psychology 27. Perceptions

Factors on which marketing mix depends 1 1. the types of product 2 2. the type of market 3 3. the degree of competition 4 4. the marketing mix of the competitors 5 5. the position of a business within the industry 6 6. the size of the business 7 4 C's versus the 4 P's of Marketing Many people who have taken a marketing course have learned about the "4 P's" of marketing. Are Product, Price, Place and Promotion elements of this marketing formula something from the past?

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Bob Lauterborn, professor of advertising at the University of North Carolina has tracked the success of new products introduced into the U.S. According to Bob, 80 percent of new products fail each year. With such a high failure rate, Bob notes that something isn't working with our "mindset". He wants to replace the Four P's with his Four C's: Consumer wants and needs (vs. Products) You can't develop products and then try to sell them to a mass market. You have to study consumer wants and needs and then attract consumers one by one with something each one wants. Author of the movie Field of Dreams, J.P. Cancilla may have exclusive rights to the phrase "build it and they will come". In most cases, you have to find out what people want and then "build" it for them, their way. Cost to satisfy (vs. Price) You have to realize that price - measured in dollars - is one part of the cost to satisfy. If you sell hamburgers, for example, you have to consider the cost of driving to your restaurant, the cost of conscience of eating meat, etc. One of the most difficult places to be in the business world is the retailer selling at the lowest price. If you rely strictly on price to compete you are vulnerable to competition - in the long term. Convenience to buy (vs. Place) You must think of convenience to buy instead of place. You have to know how each subset of the market prefers to buy - on the Internet, from a catalogue, on the phone, using credit cards, etc. Lands End clothing, Amazon Books and Dell Computers are just a few businesses who do very well over the Internet. Communication (vs. Promotion) You have to consider the communication instead of promotion. Promotion is manipulative (ouch!) - its from the seller. Communication requires a give and take between the buyer and seller (that's nicer). Be creative and you can make any advertising "interactive". Use phone numbers, your web site address, etc. to help here. And listen to your customers when they are "with" you. Developing a brand takes into account these considerations. Developing a brand is developing a promise. When you take into consideration the "4 Cs" noted above you begin the process of developing a brand! Custom Fit Communications follows the "4 C's" approach when developing strategy for our clients

PRODUCT PORTFOLIO PLANNING

Classification of products Consumer goods and services- a consumer good, is any good that satisfies consumers wants. Some of these consumer goods are called consumer durable goods because they cast a long time, for example, car, washing machines, television, computer etc. Non -durable goods are those which have a short life, for example, food, drink, petrol etc.

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Marketing Sometimes our wants are satisfied by some one doing thing for us. These are called consumer services for example, police, lower, doctor, teacher etc. Capital goods- man-made resources, which help to produce other goods and service, are known as capital goods. For example, drills, tractors, lorries, power stations and factory buildings etc. Capital goods are bought by producers. The buying of capital goods is known as investment. Public goods- goods and services, which are provided by the government because everyone benefits from them even if they do not pay for them, are called public goods. Government provides these goods and services, as no private firm would wish to produce them, because nobody would pay for their use. For example, police, street light, law and order, cleaning of environment etc. Merit goods- some times the government provides goods and services because they think that people ought to have them even if they cannot afford to buy them. For example, health care and education. We are entitled to these goods and services even we do not have money to pay for them.

PRODUCT LIFE CYCLE (PLC)

The PLC concept in best is used to interpret product and market dynamics. As a planning tool the PLC concept helps managers to characterize the main marketing challenges of each stage of products life cycle and develop major alternative marketing strategies as a control tool, the PLC concept helps the company to measure product performance against similar products launched in the past. We now turn each stage of the PLC and consider the appropriate marketing strategies. 1 Introductory stage The introduction stage starts when a new product is launched. Because it takes time to call out the product in several markets and to fill the dealer pipelines, sales growth is apt to be slow at this stage. Delays in the expansion of production capacity, technical delays in obtaining distribution through retail outlets and customer reluctance to change established behavior could be some causes for the slow growth of many new products. In the case of expensive new products such as high definition TV sales growth is retarded by additional factors including the small number of buyers who can afford the new product. Profits are negative or low in introduction stage because of the low sales and heavy distribution and promotion expenses. Much money is needed to attract distributors. Promotional expenditures are at their highest ratio to sales because of the need for the high level of promotional efforts to (1) inform potential consumer of the new and unknown product, (2) Induce trial of the product, and (3) secure distribution in retail outlets. The firms focus their sellings on those buyers who are the readiest to buy, usually higher income groups. In addition prices tend to be on the high side because (1) costs are high due to relatively low output rates, (2) technological problems in production may have not yet been fully mastered, and (3) high mergers are required to supports the heavy promotional expenditures that are necessary to achieve growth.

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Marketing strategies in the introduction stage Considering only price and promotion managers can pursue one of the four strategies. A rapid skimming strategy- consists of launching the new product at a high price and a high promotional level. The firm charges a high price in order to recover as much profit per unit as possible. It spends heavily on promotion to convince the market of the products merits even at the high price. Thee high promotion acts to accelerate the rate of market penetration. This strategy makes since under the assumption that a large part of the potential market is unaware of the product, those who become aware of the product are eager to have it and can pay the asking price and the firm faces potential competition and wants to build broad preference A slow- skimming strategy- consists of launching the new product at a high prices and low promotion. The high price help to cover as much profit per unit as possible and the low level of promotion keeps marketing expenses down this combination is expected to skim a lot of profit from the market. This strategy makes sense when the market is limited in size most of the market is aware about the product, buyers are willing to pay a high price and potential competition is not imminent. A rapid penetration strategy- consists of launching the product at a low price and spending heavily on promotion. This strategy promises to bring about the fastest market penetration and the largest market share. The strategy makes it unaware about the product, most buyers are price-sensitive, there is strong potential competition and the companys unit manufacturing costs fall with the companys scale of production and accumulated manufacturing experience A slow - penetration strategy- consists of launching the new product at a low price and low level of promotion. The low price will encourage rapid product acceptance and low promotion costs bring profits up. The company believes that market demand is highly sensitive to price but minimally sensitive to promotion. This strategy makes sense when the market is large, the market is highly aware of the product, the market is price sensitive and there is some potential competition. 2 Growth stage The growth stage is market by a rapid climb in sales. The early adopters of the product along with additional consumers start buying the product. New competitors enter the market, attracted by the opportunities for large-scale production and profit. They introduce new product features and expand the distribution chain. Prices remain where they are or fall slightly depending on how fast demand is increasing. Companies maintain their promotional expenditures at the same or slightly increased level to meet competition and to continue to educate the market. Sales rise much faster than promotional expenditures do, causing a decline in the promotion-sales ratio. Profits increase during the growth stage as (1) promotion costs are spread over a large volume and (2) unit manufacturing costs fall faster than price declines owing to the producer learning effect. The rate of growth eventually changes form an accelerating rate to a

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Marketing decelerating. Firms have to watch for the onset of the decelerating rate in order to prepare new strategies. Marketing strategies in the growth stage During the growth stage, the firm uses several strategies to sustain rapid market growth as long as possible It improves product quality and adds new product features and improves styling It adds new models and flankers products (i.e. product of different sizes, flavor and so forth that protect the main product). It enters mew market segment It increases its distribution coverage and enters new distribution channels. It shifts from product- awareness advertising to product preference advertising It lowers prices to attract the neat layer of price sensitive burgers The firm that pursuers these market expansion strategies will strengthen its competitive position 3 Maturity stage At some point a products rate of sales growth will slow down. It posses formidable challenges to marketing management. The maturity, stage can be divided into there phases. In the first phase growth maturity the sales growth rate starts to decline. There are no new distribution channels to fill, although some laggard buyers still enter the market. In the second phase, stable maturity, sales flatten on a per capita basis because of market saturation. Most potential consumers have tried the product, and future sales are governed by population growth and replacement demand. In the third phase, decaying maturity, the obsolete level of sales switching to other products and substitutes. The slowdown in the rate of sales growth creates over capacity in the industry. This overcapacity leads to intensified competition. Competitors increase their advertising and consumer deals. Their R&D budgets to develop products improvements and line extensions. A shakeout period begins and weak competitors withdraw. These competitors are of two types. Dominating the industry are a few gaint firms that produce a large proportion of the industrys output. The industries serve the whole market and make their profits mainly through high volume and lower costs. The niches serve and satisfy their small target market very well and command a price premium Marketing strategies in the maturity stage Company should expand its brand users. The company can try to expand the number of brand users in three ways Convert non-users- the company can try to attract non-users to the product. Enter new market segments- the company can try to enter new market segments that use the product but not brand. For example. Johnson & Johnson successfully promoted its body shampoo to adults. Wing competitors customers- the company can attract competitors customers to try or adopt the brand; for example, Pepsi Cola is constantly tempting Coco-Cola user to switch to Pepsi cola throwing out one challenge after another.

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Convincing current brand users to increase their annual usage of the brand can also increase volume. Here are three strategies. a) More frequent use- the company can try to get customers to use the product more frequently. For example, orange juice markets try to get people to drink orange juice at occasion other than breakfast time. b) More usage per occasion- they company can try to interest users using more of the product on each occasion. Thus a toothpaste manufacture might indicate that the tooth post is more effective twice a day. c) New and more varied uses- the company can try discovering new product uses and convincing people to use the product in more varied ways. Food manufactures, for example, list several recipes on their packages to broaden the consumers uses of the product. Product modification- managers also try to stimulate sales by modifying the products characteristics through quality improvement, feature improvement or style improvement. A strategy of quality improvement aims at increasing the products functional performance, its durability, reliability, speed, taste etc. These strategies are known as extension strategies, which are adopted by firms to extend the life of a product. 4 Decline stage The sales of most product forms or brands eventually decline. The sales decline might be slow or plunge to zero. Sales decline for a number of reasons including technological advances, shifts in consumer tastes and increased domestic or foreign competition. All lead to over capacity, increased price-cutting and profit erosion. As sales and profits decline some firms withdraw farm the market those remaining may reduce the number of products they offer. They may withdraw from smaller market segments and weaker trade channels, and they may cut their promotion budgets and reduce their prices further. Carrying a week product is very costly to the firm. It also consume disproportionate amount of management time, require frequent price and inventory adjustments, require both advertising and sales force attention that might be better used to make the healthy products more profitable. Marketing strategies in the decline stage In handling its aging product, a company faces a number of tasks and decisions. The company may take following steps at this stage. Identify the weak products- the first task is to establish a system for identifying weak products. To do this many companies appoint a product review committee with representatives form marketing, R&D, manufacturing and finance. This committee develops a system for identifying weak products. The controllers office supplies data for each product showing trends in market size, market share, prices, costs and profits. A computer program then analyzes this information to help managers to decide which

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Marketing products are dubious. The mangers responsible for dubious product fill out rating forms showing where they think sales and profits will go, with and without any changes in marketing strategy. The product review committee examines this information and makes a recommendation for each dubious product- leave it alone, modify its marketing strategy or drop it. Determining marketing strategies- some firms will abandon destining markets earlier than others. Much depends on the presence and height of exit barriers in the industry. The lower the exit barrier, the easier it is for firms to leave the industry, and the more tempting it is for the remaining firms to stay and attract the withdrawing firms customers. The remaining firms will enjoy increased sales and profits. For example, Procter & Gamble staged in the declining liquid soap business and improved its profits as the other withdrew. Here are five declining strategies available to the firm Increasing the firms investment (to dominate the market or strengthen its competitive position) Maintain the firms investment level unless the uncertainties about the industry are resolved Decreasing the firms investment level selectively, by dropping unprofitable customer groups, while simultaneously strengthen the firms investment in lucrative niches. Harvesting (milking) the firms investment to cover cash quickly Divesting the business quickly by disposing of its assets as advantageously as possible.

Uses of the product life cycle It illustrate broad trends in revenue that a product might earn for the business It identify points at which extension strategies may need to be introduced It identify points at which business may need to consider launching new products as older ones are in decline It may help to identify points at which a business should no longer sell a product. It may help a business to identify when and where spending is required It helps a business to manage its product portfolio It constantly indicate profitability of a product It allows a business to plan different styles of marketing that a product might need at different stages. 26

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Q. With examples, explain why different products have different product life cycles. A. Different products can have different life cycles depending on the nature of the product and the changes in the tasks of consumers. Some products have a very short period of life between introduction and decline. They are called fads. Their growth slope is very steep indicating a sharp rate of increase in sales and their decline is as sudden too. Products like this could be fashion clothes or gadgets. Examples include the childrens toy Micropets in 2003. Products showing severe loss in sales are usually withdrawn or replaced with other products in case they damage a companys image. Some products may be successful when they are first launched, then they may show a trend in moving towards decline for a very short period before their sales start to increase again. So businesses should be careful when withdrawing products as they may become popular again e.g. skateboards were popular in the early 80s before decline set-in, however, they regained popularity in the mid 90s and early twenty first country. Certain producers may all set a lifecycle of a decade for their products due to the high investment cost. E.g. car manufacturers may do this for their models so as to be able to coverup their costs. However, the product life cycles of electronics and specially the computer industry is getting shorter due to the continuous technological advancements. So this may render software obsolete within a short span of time. E.g. Microsoft launched its software Windows 95, and then replaced it by Windows 98, followed by Windows 2000, Windows XP and finally Windows Vista. For still other products, the sales continue to increase constantly without a decline setting in ever since it has bee launched. Examples include Coca Cola and Pepsi who have found more and more customers and havent seen any such dangerous decline by continuously innovating packaging, undertaking research and bringing in new products and promotional schemes.

THE MARKETING MIX

The marketing mix refers to those elements of a firms marketing strategy, which are desired to meet the needs of its consumers. There are four parts of to the marketing mix product, prices, place and promotion. These are often known as the four Ps. To meet consumers, business must produce the right product at the right price, make it available at the right place, and let consumers know about if through promotion.

1 2

Product Price

(All is covered in product portfolio)

Price is defined as the amount a customer pays in return for a good or service. Factor affecting pricing decisions

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Marketing A) Pricing objectives Before a business chooses its pricing strategy, it must first decide on the objectives that the pricing strategy will fulfill. Profitability- higher prices do not necessarily mean higher profits. If the business is in a competitive market, then setting the price too high may make it uncompetitive, resulting in a loss of demand. Growth of a business is generated from profit, so the price must allow for the costs of manufacture as well as the costs of dividend, interest and tax. This will help to ensure that there is some profit available for future investment. Market share- when new products are launched one of the initial objectives may well be to achieve market share of a certain percentage. If this is achieved, it means that customers are actually trying the product, revenue is flowing into the business and it is using its productive capacity. A business may then change the objective to profitability in the longer term, once brand loyalty has been established. Competitive advantage- companies set the prices to differentiate their products form competitors. By this companies try to create the image of their product. Barrier to entry- as companies become larger, it is possible, through the process of achieving economies of scale, to produce more cheaply and therefore charge lower prices. Many small or new firms suffer when larger firms reduce prices in order to force the smaller firms out of business. Survival- if competition intensifies, then a business may need to reduce its prices just to encourage customers to purchase. B) Costs A business must take account all of their cost when setting price. In the short run, however, it is unlikely that a business would expect to cover the fixed cost. Providing its price high enough to generate revenue that covers its variable costs, the firm will stay in business. C) Consumer perception and expectation Business must pay attention to what consumers think a product is worth. A product priced above that consumer considers its value to be may generate low sales because of doubts about its value for money. A product price too low may also generate low sales because consumer often suspect that such products have something wrong with them or that they are of inferior quality. D) Market segment Some products are differently charged for different segments. E) Legal constraints The price of a number of products is affected by government policies (taxes or subsidies). F) Weather At different time of year certain products become more or less expensive according to the weather.

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G) Exchange A stronger domestic currency will means that a business selling abroad will earn less revenue when foreign currency is translated back.

Pricing methods
1.Cost based pricing Cost plus pricing Businesses are influenced by their cost so they only consider their cost as the floor or bottom line when choosing a price instead of other factors like market conditions, competitor etc. This uses the calculation of total cost per unit and adds, a mark up to get the price. If a business produces 10,000 goods costing $50,000 the average cost would be $5. A mark up of 20 percent would mean goods would cost extra $1 and the price would be $ 6 per product. Retailers often use this method of pricing. It is a quick and simple way of setting a selling price. It also ensures that sales revenue will cover total cost and generate profit. The problem is that a fixed markup does not allow a business to take market needs into account when setting prices. In addition no attempt is made to allocate indirect cost to particular products. Note: - For all other pricing methods consult operations management topic costing.

Pricing strategies
In order to develop pricing strategies organization need to be clear about their pricing objectives. These are also known as market oriented pricing. These might include the following. Penetration pricing- see product life-cycle. Market skimming pricing- see product life cycle. Customer value- this involves charging the price that consumers are prepared to pay. Products which have prestige name attached to them may be able to commend a higher price because of the status of these names. Products for one-off events such as music festivals or sports final may be given a high price because they are unique. Loss leaders or promotional pricing- are products priced at very low levels in order to attract customers. The price of a loss leader is set lower than the overage total cost of producing the product. The company selling the product makes a loss on each product sold. Businesses use this technique because they expect the losses made on the loss leader to be more than compensated for by extra profits on other product or they give a tough time to their competitors. The competitors are unable to beer loss for a long period and they quit. The remaining company is then able to sell the product at desired prices.

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Psychological pricing- many businesses seek to take account of the psychological effects of their prices upon consumers. A common example is the use of prices just a little lower than a round figure, such as $ 199.99 rather than $ 200. This technique is used to attract consumers who value their money. Discriminatory pricing- occurs when a company sells a product or services at two or more prices that does not reflect a proportional difference in cost. For example, different version of products or customer groups is priced differently but not proportionately to their respective costs. Price discounts and allowances- most companies modify their basic price to reward customers for such acts as early payments, volume purchases and off-season buying. Optional facture pricing- many companies offer optional products or features along with their main product. The automobile buyer can order electric window controls, defoggers and light dimmers. Captive product pricing- some products require the use of ancillary or captive products. Example of captive products is blades (razors are useless without blades) and camera film (cameras are useless without film). Manufacture of main product (razors and cameras) often price them low and set high markups on the supplies. Thus Kodak prices its cameras low because it makes its money on selling film. Two part pricing- service firms often engage in tow-part pricing. That is they charge a fixed fee plus a variable usage fee. Thus telephone users pay minimum monthly fee plus charges for calls beyond a certain limit. An amusement parks charge an admission fee plus fees for rides over a certain minimum. Byproduct pricing- it the byproducts have value to a customer group, and then they should be priced on their value. Any income earned on the byproducts will make it easier for the company to charge a low price on its main product if competition forces it to do so. Product bundle pricing- sellers often bundle their products at a set price. Thus an auto manufacturer might offer an option package at less than the cost of buying all the options separately. Since customers may not have planned to buy all of the components, the saving on the price bundle must be substantial enough to include them to buy the bundle. Close bid pricing- this method of pricing occurs when firm have to tender a bid for work, which they are carrying out. This is common practice for firms dealing with the government or local authorities. Firms clearly need to pay very close attention to the price at which they expect their competitors to bid. Firms comparatively lowest price are likely to be accepted.

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Premium pricing- when a product is considered to be particularly high values, due to its exceptional level of quality or the brand image it portrays, then a business may decide to charge a premium for the privilege of purchasing the product. The Ritze hotel in London charges over $ 5 for a cup of tea. It is not only that the tea is high quality but also certain customers are willing to pay to the status and prestige. Factors influencing Pricing Decisions 1. Business and marketing objectives e.g. objective is profit maximization so prices would be increased new lineproduct as status symbol so only high price. 2. The other marketing mix element e.g. new technological innovation high price products of common nature low price or in line with competitor channels of distribution involved. 3. Cost of production - direct technical factor, not psychological 4. Demand in the market 5. Supply in the market 6. Competition 7. Market conditions Monopoly, Perfect competition, Oligopoly etc. 8. Stage of product lifecycle 9. Resources or capital available - economies of scale 10. Scale of operation 11. Type of the market (consumers) - niche market or mass market, elite class or middle class 12. Product positioning 13. Elasticity of demand 14. Economic situation a. interest rates b. inflation rates c. taxation d. unemployment rates e. condition i.e. boom or recession Q. Evaluate two pricing strategies when launching a new product. Pricing strategies are the pricing policies or the methods of pricing adopted by a business. When launching a new product, business usually choose one of these two strategies: penetration pricing or price skimming. Penetration pricing is charging very low prices for the new product in order to gain a higher market share in short time. Businesses using this strategy hope that consumers would be more willing to buy their new products as they are cheaper than that of the market. This cost of strategy is used by businesses aiming at the mass market where they want the maximum number of customers to be introduced to their product. Thus a low price would attract customers to atleast try the product once. Also businesses using this strategy are usually in a market with several competitors such food (cornflakes) and general clothing. Then penetration pricing may be charged in accordance with their marketing objectives of gaining a large market share. Once customer loyalty for a product develops, businesses may then increase their prices slowly to come at par with the rest of the competitors. This would ensure that the business is able to cover up any losses it 31

Marketing incurred when charging the low prices. However, penetration pricing requires heavy amounts of promotion and advertising in order to gain a large volume of sales that would help cover up the costs. Despite all the features of penetration pricing, there is the drawback that the costs are not over because the product becomes outdated before business has the chance of increasing prices. Therefore certain products such as fashion gadgets or fads the penetration pricing may prove unsuccessful. This is because facts could be outdated before the business has a chance of increasing prices. In such cases it may be better idea to charge higher prices to cover up the costs. The other pricing strategy i.e. price skimming is where the business decides to charge a very high price for its new product as compared to other competitors or in case of no competitors then its just high. This strategy is especially successful for brand new, innovative products especially electronics such as mobile phones with movie cameras and the feature of sending them to others. This is a very unique selling point and so firms such as these are confident of success. Therefore, they set a very high price in order to maximize revenue before any other competitors loan come into the market. Such strategy is especially true for technological breakthroughs such as optical fibers. Price skimming may also be very successful if a niche market has been targeted e.g. designer clothes for the elite class. This ensures that a strong brand image for a unique, high quality product is built up in the consumers mend. It could also be that skimming pricing is used in order to target a small segment in the requiring so that the higher research and investment costs are covered up before selling to other customers at a lower price. This is especially line for pharmaceutical companies that only sell the medicines at very high prices in the beginning. This may be important to generate funds for further research too. Also at lines the pharmaceutical industries may (e.g.) get patents for their new product. This is an exclusive right to sell as a monopoly for a few years before the other competitors are allowed to entire the market for that product. So in this case also price skimming is used throughout the period except the last year when the business lowers its price to maintain its customers even after competitors when the market. Both pricing strategies for new products in the right circumstances will be very beneficial. However, before deciding on these strategies extensive market research should be undertaken. This would allow a business to see what price the consumers are willing to pay for the product. In case of price skimming it ensures that the high price charged is not beyond the purchasing power of the consumer. Otherwise, despite being a unique, advanced technological and innovative product the price strategy would fail. At the other extreme, a low priced product because of penetration pricing may be taken by consumers to be of low quality. This market research is essential to know the perceived value of ht product in the consumers sight, otherwise, low price may prove to be an image damaging strategy.

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Saadat Ali Mughal 3 Promotion

Promotion is used as part of the marketing mix in on attempt to persuade the customer to purchase the products or services of the business. The principal objective of promotion is increasing the desires of the customer to buy the product or services on offer. In addition, promotion is used to inform the customer of the product and explain its benefits and uses. It is important for promotion to help the customer to become aware of the product and to understand its selling features and distinctiveness. Using DAGMAR (Define Advertising Goads Measuring Advertising Results), promotion has an important role to fulfill. Promotion can then be used to sell the product as service by explaining exactly what it does and creating an image for the product that makes it important for all advertisements to satisfy AIDA test i.e. Attention- it should gain attention of customer. Interest- it should maintain interest of customer throughout. Desire- it should able to create a level of desire for the product Action- in response of successful ad customer will actually purchase the product. By identifying target market and buyer motives, marketing managers make the five major decisions in developing an advertising program, known as 5Ms. Mission- what are advertising objectives? Money- how much can be spent. Message- what message should be sent? Media- what media should be used? Measurement- how should the result be evaluated? Above the line promotion Above the line promotion is through independent media such as television or newspapers. These allow a business to reach a wide audience easily. Most advertising is carried out above the line. There is not attempt to attract individual customer and promotions is seen by most of the readers, even though some will not be interested. Below the line advertising or merchandising or promotion out of pipe line It takes place by methods over which firms have some degree of control. These include direct mail advertising, exhibition and trade fairs, sales promotions, merchandising, packaging, personal selling, and public relation. Below the line promotion allows a business to aim its marketing at consumers it knows and are interested in the product. It allows to prick the customer exactly which a business wish to attract.

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Marketing On the other hand this type of advertising is expensive and their outcome is difficult to predict. They are often one off events, which have an impact for a limited period. Customers dislike some methods like direct mail and personal selling.

Types of advertising
Informative advertising- it is desired to increase consumer awareness of a product. New products may be launched with informative advertising campaigns to make consumers aware about the product. It helps consumers to make a rational choice as to what to buy. Persuasive advertising- it lies to convince consumers to porches a product often by stress that it is more desirable than others. This type of advertising distorts consumer buying, pushing them to buy products which they would other wise not have bought. Most advertising falls into this category. Some persuasive advertising has moved into the category of comparative advertising, which seeks to establish the superiority of one brand through specific comparison of one or more attributes with one or more other brands in the product class. Comparative advertising has been used in consumers durable goods. In using comparative advertising, a company should make sure that it can prove its claim of superiority and that it cannot be counterattacked in an area where the other brand is stronger. The ads are also based on showing famous personalities, sex appeal or financial incentives. Reminder Advertising- it is highly important with mature products. Expensive Coca-Cola ads have the purpose not of informing or persuading but of reminding people to purchase Coca-Cola. A related form of advertising is reinforcement advertising, which seeks to assure current purchasers that they have made the right choice. Automobile ads often depict satisfied customers enjoying special features of their new car. Corporate advertising- it is concerned with promoting a company as a whole, rather than individual products. Companies such as Uniliver, now have their name on all branded packets. The reason is that the company wants to become a brand and need to ensure that their corporate image is positive. Corporate advertising often makes use of slogans or catches lines. Nestle, for example, all kit kats now have the name Nestle clearly marketed on their covers. Corporate advertising allows a company to advertise its whole philosophy.

Types of advertising media

Television- advertising is often used by business marketing consumer goods to a mass market. The growth of cable satellite and digital television may attract companies to advertise on television. It is flexible timeliness and cover good local market. Creative advertisements can attract attention and have a great impact. It can demonstrate product in use. The message can be reinforced by continuous advertisements. On the other hands it is relatively expensive. The message is short lived consumers have broad varity channels and switch over to others quickly.

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Radio- in recent year there has been a growth in the number of independent radio station and their listeners. Most consumer groups are covered by the radio. It is cheap. The problem is of no visuals and no copy of materials. Cinema- it has the greatest potential for having a strong impact on its audience. Colors, sound and movements can be used in it. Advertisements can be highly localized. Different age groups can be targeted. Cinema has limited audience; the messages are short lived and may only be seen once. The internet- the world wide web offers the opportunity for businesses to advertise their products to countries throughout the world. Any computer linked to the Internet can call up home page of companies or search for these using search index. Many well known companies have their own web site where they can provide complete information about their product range. Advertisements on Internet are relatively cheep and easy to setup. Number of hits can be monitored and can be targeted. Due to limited users it has limited audience. It contains many technical problems for connection, viewing, ordering and maintaining. Newspaper / magazines- newspapers are very important medium for advertising of massmarket consumer goods, because of a number of readers. Newspaper can be important in reaching target audience. People sharing similar chrematistics read these. Newspaper advertisements are important for small firms. The only promotion they can afford may be in local paper. Details of the products can be provided and can be linked to local conditions. On the other hand individual effort may be lost amongst large quantities of other advertisements. Ads layout may be poor. Posters- these are appeared in variety of location and tend to carry short messages. An effective poster is likely to be large attention grabbing and placed in site where it is highly visible to large audience. A national campaign is possible by posters and target group can be covered. These are used to change decisions at the last movement by placing close to shops. Posters are excellent for short shop messages etc. On the other side they provide limited amount of information. It is difficult to measure effectiveness; weather and graffiti can ruin the poster. Signboard or neon sign- these are placed on the edges of roads. These are very effective to attract all people passing though them. Good light and colors make it more attractive and meaningful. Bonners- this is relatively cheep and able to attract target audience in better way. Factors affecting advertising media There are number of factors that advertisers may take into account while deciding advertising media. Cost- small firms specially are very concerned with their budget, while large firms are more concerned with the cost effectiveness of each different media.

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Target audience- it is important for media to cover target audience fully. If message is not reached to target audience that means business is wasting his money and time. It also create bad image about the product. Competitors advertisements- a major advertising campaign by one firm is followed by a counter campaign of its competitors to eliminate impact of the product from target customer or to replace image of the competitors product with their own product. The impact- the basic aim of advertisement is to create great impact about firm/product. Different medias are used to create desired impact of the product. For example, some Products such as sports equipment will benefit from being shown in action to have the most impact on an audience. Television and cinema are the obvious choice of media in such cases. The law- there are legal restrictions, which mean that same products cannot be advertised in particular media. For example, tobacco, alcohol, contraceptive etc. The presentation and recording of Information- if an advertisement is designed to be visual, with little written information, then posters on hill boards or magazines articles can be effective. Magazine advertisements can also include a lot of text, usually in small print. Advertising on television will also be useful for visual image and has the advantage that words can be spoken at the same time. Advertisement on the Internet allows to download information or to give quick response. Advantages of advertising Advertising is the subject of much debate between those who see it as a waste of valuable resources and those who see it as essential to the survival of our economic system. As usual, the truth lies someware between the two extremes. Among the main arguments in favour of advertising are the following: Advertising leads to higher profits, which the producer either can retain or can share with the customers by charging the lower prices. In the very competitive industry many manufacturers do the letter. Without advertising it would be almost impossible to launch new products. Consumers would only know about them when they saw them in the shops or when other people spoke about them. Producer would never be prepared to invest vast sums in new products. Advertising increases sales which contribute towards countrys economic life. Consumers can be better informed of the goods available and of their relative merits through advertising. This is often true even of competitive advertising. Many would argue that, by introducing new products, to consumers, advertising improves the slandered of living. Some people argue that advertised goods are of a high quality than other goods, because the producers reputation is at stake. If advertised goods turn out to be shoddy, subsequent advertisements will be ignored.

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Saadat Ali Mughal

An indirect benefit of advertising is that it keeps the prices at a reasonable level. Also, without advertising there would, of course, be no commercial television at all. On a broader scale, advertising may help to keep people employed. If a firm can sell more goods as a result of advertising, the labour force will almost certainly increase to meet the extra demand. Advertising create jobs for very large number of people who are associated with this profession. Classified advertisement is local news paper s are an important source of information about houses, second-hand cars and many other things for sale. The same is true for advertisement for jobs. Disadvantages of advertising Advertisement can be very expensive. Companies allocate billions of Dollars for advertisement budget. The manufacturers sources may be severely stretched to meet the costs. The cost of advertisement may lead to higher prices of consumers if sales do not increase sufficiently to cover the cost of the advertising. Advertising uses scare resources which could be better employed else ware. Advertising is the main form of non-price competition. Consumers might be better off is there were less advertising and more competition over prices. Advertising can persuade consumers to but things they do not really want and can not afford. When people can not immediately afford the goods being advertised, they may be attempted to live beyond their means, by buying the goods on credit or hire purchase. Some people criticize advertising on ethical rather than economical ground. They point out that it often exploits people for example, in suggesting that only using a certain product can they give their family the treatment they deserve. Other advertisements exploit sex by implying strongly that girls who wear the advertisers products will be surrounded by the most desirable men (and vice versa). Yet others suggest that the consumption of alcohol and tobacco is a symbol of maturity, without emphasizing the dangers associated with these products. There have been cases of advertisements of misleading the public like false claims (manufacturer claim certain qualities in their products which are not present in it). Manufacturers spend heavily in the form of advertisement and may change social and cultural values.

PACKAGING
Many physical products going to the market have to be packed and labeled. Many marketers consider it as a fifth P along with product, price, place and promotion. Most marketers, however, treat packaging and labeling an element of product strategy. Packaging includes the activities designing and producing the container or wrapper for a product. The container or wrapper is called the package. The package might include up to three levels of material.

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Marketing Primary package- these are single pieces of a particular product packed. For example, Old Spice after-shave lotion in a bottle. Secondary package- it is a packaging of a particular product with number of units. For example, cardboard box containing one dozen Old Spice after-shave lotions. Shipping package- a secondary package in a corrugated box containing dozen boxes Old Spice. In recent times, packaging has been an important marketing tool. Well-designed packages can create convenience value for the consumer and promotional value for the producer. Various factors have contributed to packaging growing use as a marketing tool. Self- service- an increasing number of products are sold on a self-service basis in super markets and discount houses. The package performs many of the sales tasks. It attracts attention, describe the products feature, create consumer confidence and make favorable overall impression. Consumer affluence- rising consumer affluence means consumers are willing to pay a little more for the convenience, appearance, dependability and prestige of better package. Company and brand image- companies are recognizing the power of well-designed packages to contribute to instant recognition of the company or brand. Innovation opportunity- innovative packaging can bring large benefits to consumers and profits to producers. Protection- it protects and preserves, thereby extending the shelf life of the product. Handling- it provides the means to carry. This is important when items are important and sold in large quantities today. The multi pack is sought out by the customer and therefore carrying becomes a factor in the decision making process.

Place (Distribution)

Distribution is about one of the 4 'Ps' of the marketing mix. A business gets the product to the right place at the right time. A product, which is effectively priced and promoted, may not be a success unless the consumer is able to purchase it easily. A channel of distribution is the route taken by a product as it passes from the producer to the consumer. Distribution channels Distribution decisions are concerned with how products should pass from manufacturer to the final consumer. Several different channels of distribution are available for firms to use.

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Factors affecting distribution channels Efficient channels of distribution allow business to make products available to consumers quickly when required and at a minimum distribution cost to the firm itself. Here are some of the factors, which may affect the decisions while selecting distribution channels. The product- nature of product itself influences the type of distribution channel chosen. For example, perishable goods require direct channel to save the time spent on handling goods. Similarly consumer goods need to be widely available through retailers. Producers wish to sell large quantities to low valued good, through wholesaler. Industrial goods tend to be sold more directly with fewer intermediaries then consumer goods. Consumer ease- consumers need easy access to a firms product to allow them to try them and see them before they buy, to make purchasing easy and to allow, if necessary, for the return of the goods. Company objectives- when manufacturer wishes to keep complete control over the marketing strategy then direct routes are more likely to be used or the producer may even establish their own retail outlets. Legal restriction- certain drugs, for example, can only be sold by pharmacists through a prescription. Alcohol cannot be sold at petrol stations and only those with special gaming licenses are able to operate casinos. The market- small, local markets can often use a system where consumers buy directly while large dispersed markets usually require intermediaries. Time period- a time period within which consumers expect a response to orders is sometimes on influence. The company- larger companies have abilities to establish their own distribution channels, while; small firms tend to use intermediaries.

Patterns of distribution
Channel 1: using two intermediaries wholesale and retail This is the traditional route as, until recent development in retailing and the internet, it was the most common of all channels of distribution. Manufacturer sells goods in large quantities to the wholesaler, who distributes them in smaller quantities to a large number of retailers who distribute these goods to final consumers in shorter quantities. The wholesaler provides service to the manufacturing company by buying in large quantities and relieving it of storage problems and to the retailer by obtaining goods from a number of different manufacturers and supplying them when required.

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Manufacturer Wholesaler Retailer Shop Warehouse Consumer

Advantages Wholesaler performs the important functions of stock handling and breaking bulk. They facilitate manufacturers by purchasing in bulk but sell to retailers in smaller quantities. This method of distribution is important where the demand for the product is seasonal but production takes place throughout the year. This channel is also important where the demand for the product is throughout the year but output is concentrated into a few weeks or seasons like crops. They have well established distribution network and are likely to have strong links with retailers. The wholesaler has the important function of balancing supply and demand. Sometimes the resources of a manufacturer might not allow to distributing its goods on their own. In this case the wholesalers can provide a wide coverage. Disadvantages It slows down the distribution chain because of too many involved parties. Wholesalers expect to make high profit which reduce profit margin for manufacturers. Products become more expensive when it reaches to the end consumer because manufacturer, wholesaler and retailer add their profit margin in it. Channel 2: using a wholesaler Certain goods like electronics, furniture, automobile and capital goods can not be delivered to retailers further. Wholesalers play a very vital role for the distribution of these goods. Due to their financial strength they can place large orders, maintain showrooms and warehouses. Manufacturer Wholesaler Consumer

Warehouse

Channel 3: using retail Retailing has undergone even more changes than wholesaling. Intensive selling by manufacturers and the development of minimum-service operations, such as self-service in department stores, has drastically changed the retailers way of doing business.

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Supermarkets and discount stores have become commonplace not only for groceries but for products as diversified as medicines and gardening equipment. More recently, warehouse retailing has become a major means of retailing higher-priced consumer goods such as furniture, appliances, and electronic equipment. The emphasis is on generating store traffic, speeding up the transaction, and rapidly expanding the sales volume. Chain storesgroups of stores with one ownerand cooperative groups have also proliferated. Special types of retailing, such as vending machines and convenience stores, have also developed to fill multiple needs. Great changes also have taken place in the structure of retail trade, with the rapid development of transport and communication. These huge retailers have great purchasing power. Retail shops are generally larger than they were few years ago. They are able to arrange their own storage and distribution systems to individual stores. Retailers can frequently afford to buy direct form the manufacture. This is particularly true where the retail shop belongs to a large group. (Advantages and disadvantages for channel 2 & 3 could be the same). Manufacturer Retailer Consumer Shop

Advantages Retailers undertake stock holding for the manufacturer and distribute the product to consumers over a wide geographical area. Manufacturer can concentrate on making and not spending time or resources on selling to consumers directly. Manufacturers can get quick feedback. Disadvantages Retailers expect high profit margin which either comes from the manufacturers profit margin or leads to high prices. Final decisions on marketing policies are under the control of retailers/wholesalers manufacturers can not determine final price. Channel 4: direct selling to consumers Some manufactures carry this process further still by combining the functions of manufacturer and wholesaler with that of the retailer and selling their products to the consumer thought their own retail shops. This is useful to producers of perishable commodities where delay in selling to wholesaler would spoil the product. Shell petrol is usually sold through filling stations owned by the company. Manufacturers can sell their products directly by using any one of the following way:

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Marketing Manufacturer Consumer

Direct marketing
A further way of eliminating the wholesaler and the retailer from the distributive process is for the manufacture to sell directly to the consumer through newspaper advertisements or catalogues. While the method gives the producer access to a large number of potential customers. It may be less satisfactory to consumers who are deprived of personal contact with the seller and who may have difficulty in obtaining after sales service. Television is a potent tool in direct marketing because it facilitates the demonstration of products in use. Direct sale of all kinds of goods to the public via home-shopping clubs broadcasting on cable television channels is gaining in popularity. Some companies also use telephone marketing, called telemarketing, a technique used in selling to businesses as well as to consumers Advantages Personalised communications with the potential purchasers name on a letter can improve sales. Changing work pattern means that many consumers now find it easier to shop from home. Increased use of credit cards have made buying in this way easy and direct Group of consumers or market segments can be targeted. Detailed information can be provided. Group of consumers who are widely dispersed can easily be reached. There are no intermediaries to take part of the profits.

Disadvantages Some consumers do not like the personalised nature of direct mail and the amount sent to their home address. The database with potential consumers name and address on them quickly go out of date, so that a large amount of mail goes to the wrong people. It is felt to be a waste of paper due to too much correspondence.

Internet
Many types of products and services now use direct mail catalogs or have a presence on the World Wide Web. Because many people are extremely busy, they may find it simpler to shop in their leisure hours at home by using catalogs or visiting Web sites. Comparison

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shopping is also made easier, because both catalogs and e-commerce sites generally contain extensive product information. For retailers, catalogs and the Web make it possible to do business far beyond their usual trading area and with a minimum of overhead. More than 95 percent of the leading 1,000 companies in the United States sell products over the Internet. Advantages It cuts out the profit margins of middlemen or wholesaler. Consequently profit margin for manufacture is increased and consumers may get products at lower prices. The manufacturer has full control over the pricing and marketing of the products. Direct marketing can be selective and targeted at the most likely potential consumers by using computer databases containing details of consumer income, age and response. Disadvantages Manufacturer is solely responsible for holding stock. Due to distance from the manufacturer consumer is unlikely to have any chance to see or try the product. After sale service could be a problem too. Direct marketing involving mail shots has a poor image and can lead to resentment at junk mail which has not been specifically requested. More capital is required by the manufacturer to establish distribution network, sales force and transportation. Through agents or brokers The usual role of agent is to negotiate sales on behalf of a seller. A refinement of this kind of selling is the marketing of goods through agents who demonstrate them at parties in the homes of potential customers. Cosmetics and kitchen equipment are notable examples of such goods, but clothes, jewellery and pottery are among the products sold in this way. These agents work on commission basis. Agents are often used by firms wishing to break into a foreign market. They are helpful to businesses which are unsure about the trading practices and legal requirements in foreign countries. They help to take the risk out of trading abroad.

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3AL. 1 What is marketing

No topic beyond AS level

3AL. 2 Marketing research

No topic beyond AS level

3AL. 3 The Marketing Mix

No topic beyond AS level

3AL. 4 Marketing planning

Price elasticity of demand (PED) Elasticity of demand is the relationship between the proportionate change in price and proportionate change in quantity demanded. PED= Percentage changes in quantity demand Percentage change in price Degrees of price elasticity of demand Products with elastic demand have a coefficient greater than one and less than infinity. In this case given percentage change in price will cause a grater percentage change in demand. Demand tends to be elastic for goods, which take up a large portion of consumers incomes, and goods whose purchase can be postponed.

When a given change in price causes small percentage change in demand, the product has inelastic demand and the coefficient is more than zero but less than one. Basic necessities goods, which take up a small portion of consumers income, addictive goods, goods with no substitutes and goods that have a number of different uses have inelastic demand.

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The other three degrees of price elasticity of demand are less common and may with certain products; occur over a limited price range. Unit price elasticity of demand occurs, when a percentage change in price results in an

equal percentage change in demand. In this case coefficient will be 1. Perfectly elastic demand is when a change in price causes no change in quantity demand. For instance a person will serious illness might be prepared to buy the same quantity of medicine when its price rises and may not find it beneficial to increase the quantity they take when its price falls.

When demand is perfectly elastic a change in price will cause an infinite change in the quantity demand and the coefficient is infinity. For example, if there are a number of people selling CD of a pop group at one of their concerts, if one lowered her price below those of her competitors she may capture all the customers at the concert.

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Cross elasticity of demand (CED) The relationship between changes is the price of one commodity and resulting changes in the quantity demand for other commodity is described as the cross elasticity of demand. This concept is useful as a means of assessing the extent to which goods are close substitutes or closely related to complementary goods. CED= Percentage change in quantity demand of good A Percentage change in price of good B In case of substitute goods, cross elasticity of demeaned will be positive, an increase in the price of B will lead to an increase in the quantity demand of A (and vice versa).

In case of complementary goods the cross elasticity of demand will be negative; an increase in the price of B will lead to fall in the quantity demand of A (and vice versa).

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Goods, which are unrelated have zero cross elasticity of demand. For instance, a rise in the price of leather is unlikely to have any effect on the demand for Jeans goods. These are also referred as independent goods.

Income elasticity of demand (YED) Income elasticity of demand is concerned with the relation between changes in income and changes in demand. YED= Percentage change in quantity demand Percentage change in income Normal goods have positive income elasticity of demand. This means that in most cases income and quantity demand will move in the same direction an increase in income will lead to an increase in quantity demand and vice versa.

In case of inferior goods increase in income will lead to decrease in quantity demand so that the income elasticity of demand will be negative. Hence income and quantity demand will move in opposite direction.

When quantity demand does not change as income changes, the income elasticity of demand is zero. For example, eatable salt etc.

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For any particular commodity income elasticity of demand depends very much on the current standard of living. In Western Europe, relatively expensive household goods, motorcars, and holidays abroad have a positive income elasticity of demand while the demand for some staple foodstuffs (e.g. bread), poor quality clothing and public transport have regained income elasticity of demand. In developing countries, however, commodities such as clothing and footwear, which in Europe probably have zero income elasticities, will have large positive income elasticity of demand. Income elasticity of demand can also vary over time. For example, demand for blankets increasing as a country becomes richer, then demand remaining constant when a certain stranded of living is reached and then fall as people become richer end replace blankets with duvets.

Advertising elasticity of demand Advertising elasticity of demand is a measure of the responsiveness of demand to change in advertising expenditure. It is measured by the following formula Percentage change in quantity demand Percentage change in advertising expenditure Business needs to be able to measure the effectiveness of their advertising campaigns. One way of doing this is to consider impact on consumer demand of spending on advertising. This can provide businesses with valuable data, which can enable them to judge how far consumers are influenced by advertising campaigns. It also allows businesses to evaluate the relative success of advertising campaigns. If the percentage increase in quantity demand is greater than the percentage increase in advertising

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spending, then advertising elasticity of demand is strong and positive. This may tell a business that advertising is effective in influencing consumers. Product development During the development stage the product is being designed. Suitable ideas must be investigated, developed and tested. If an idea is considered worth pursuing then a prototype or model of the product might be produced. A decision then is made whether or not to launch the product. A large number of new products never progress beyond this stage. This is because management is often reluctant to take risk associated with new product. According to research first success factor is a unique superior product (for example, higher quality, new features, higher value in use and so forth). Another key success factor is a well-defined product concept prior to development, where a company carefully defined and assessed the target market. Other success factors are technological and marketing strategy, quality of execution in all stages and market attractiveness. New products are needed to replace products coming to the end of their life cycle to keep up with changes in the market. It is known as new product development. New products normally pass through five stages when they are being developed. Generating ideas- the first stage is when firms generate ideas. Idea for new products comes form variety of sources like: Identifying gaps in the market perhaps through market research Firms do scientific researches and innovate new products with unique features Creative ideas or brainstorming helps a lot to generate new products By studying competitors products, one firm may be able to improve his own product Analysis- the second stage is the analysis of those ideas generated in the first stage. Businesses must consider that the product fits in with the companys objects, covers the expectations of consumers. It is legal and technology is suitable to produce it. Development- the third stage is the actual development of the product. This may involve technical development in the laboratory or the production of a prototype. Such work will be carried out by the research and development deportment. An actual part of this process is the actual design of the product. Some preliminary testing may be carried out to find out whether or not the product actually meets consumers needs. Test marketing- occurs when a new product is tested on a small representative section of the total market. The test market area should share characteristics, which are similar to those, found in the market as a whole. The benefit of test marketing is the high degree of reliability of results gained. It is carried out because of the high cost and risk of launching a product in a large, usually notional market. Test marketing can itself be costly but not as expensive as a national launch with fails. One problem is that it allows competitors to see the new product and gives them the chance to take counter action before a national launch.

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Marketing Commercialization and launch- it is the final stage. Here any problems found during test marketing must be solved. The firm then decides on the marketing package, it will use to given the product launch the greatest chance of success. At each of five stages many ideas are rejected. This means that very few ideas generated in the first stage will actually end up as a product launched on-to the market.

FORECASTING
Forecasting gives a business the opportunity to plain for the future as well as planning for the various changes. A business is likely to begin with a forecast of sales volume and sale revenue because this leads to such issues as labour costs, material costs, cash flow, advertising costs and the future requirement of new machinery. Sales forecasting is therefore likely to be the most important part of the forecast, although a business may try to forecast such issues as: Companys action Government decision on running the economy Changing consumer trends and fashion Methods of forecasting Trying to predict the future is difficult and there are two methods used to achieve this: Models We use mathematical models every day. Models enable us to make more precise calculations than just coming up with a rough estimate based on gut feeling. For example calculation of average, S=VT, sequence of scores etc. Qualitative models- it is based on opinion. These are realistic but less neat then quantitative ones. The way these types of models operate is less clear and unpredictable. Quantitative models- involve clear logic pattern, often at the expense of realism. Data are fed into a mathematical model and the output will be a fairly closed solution. There are several methods of forecasting data but most popular is: Time series analysis Moving averages

There are four components that a business wants to identify in time series data and Moving average: Trend- this is the underlying movement in a time series, e.g. the sales trend is declining. Seasonal fluctuation- these are the regular and repeated variations that occur in sales data within a period of 12 months. Cyclical fluctuations- these variations in sales occur over periods of time of much more than a year and are due to the trade cycle. 50

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Random fluctuations- these can occur at any time and will cause unusual and unpredictable sales figures. Exceptionally poor weather or negative public image following a high-profile product failure is two examples.

Time series analysis

It involves predicting future levels from past data. The data is known as time series data a set of figures arranged in order, based on the time they occurred say, over five years or ten years. It does not explain the data, it simply describes what is happening and what will happen if it continues. It is based on extrapolation basing future predictions on past results. When actual results are plotted on a time series graph, the line can be extended or extrapolated into the future along the trend of the past data.
Forecast
70 69 68 67

Actual

m $ s e l a S

66 65 64

90

91

92

93

94 95

96 97

98 99

00

Time series analysis becomes more helpful if trading conditions are stable or business needs to forecast trends in the short term.

Year

Moving average
This method is more complex than simple graphical extrapolation. It allows the identification of underlying factors that are expected to influence future sales. It is useful for identifying and applying the seasonal variation to predictions. It can be reasonable accurate for short-term forecasts in reasonably stable economic conditions. It also identifies the average seasonal variations for each time period and this can assist in planning for each quarter in future.

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Column 1 Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Column 2 Actual sales 67 70 64 61 59 66 73 69 64 63 69 75 72

Column 3 5-Point moving total

Column 4 5-Point moving average

Column 5 Cyclical variation

321 320 323 328 331 335 338 340 343

64.2 64 64.6 65.6 66.2 67 67.6 68 68.6

-0.2 -3 -5.6 0.4 6.8 2 -3.6 -5 0.4

Calculations: Column 2- from the past data as there is a peak every fifth year this means a five-period moving average will be used. Column 3 calculate the five year moving total- this is done by adding the first five points of data, and writing the total in the fifth row i.e. 67+70+64+61+59 = 321. The next calculation involves dropping the first figure and picking up the next figure i.e. 70+64+61+59+66 = 320. The process repeats itself until the last figure in the time series for 2000 is included. Column 4 calculate the five year moving average- it is calculated by dividing each five year moving total by 5 i.e. 321/5 = 64.2 and placed against year 1990 (middle of the range of five years). Similarly for next year 320/5 = 64 and placed against next year. The process will repeat. Column 5 calculating cyclical variation- it can be calculated only for those point where there is a data for both actual and cyclical data. Cyclical variation = Actual sales Trend (5 year moving average) For example, for 1990 cyclical variation = 64.2 64 = -0.2 It is important to note the signs as to whether the cyclical variation should be negative or positive. A negative answer means that the actual data is less than the trend, i.e. during that time period; the actual data was less than the underlying movement of the data, which means a slump in sales due to the point in the cycle.

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On the other hand, it is a fairly complex calculation. Future forecasts become less accurate as the projections made are entirely based on past data. Forecasting for the longer term may require the use of more qualitative methods that are less dependent on past results.

3AL. 5 Globalisation and international Marketing

Globalization (or globalisation) describes an ongoing process by which regional economies, societies, and cultures have become integrated through a globe-spanning network of communication and trade. The term is sometimes used to refer specifically to economic globalization: the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology.[1] However, globalization is usually recognised as being driven by a combination of economic, technological, sociocultural, political, and biological factors. [2] The term can also refer to the transnational circulation of ideas, languages, or popular culture through acculturation. International marketing is simply the application of marketing principles to more than one country. However, there is a crossover between what is commonly expressed as international marketing and global marketing, which is a similar term. For the purposes of this lesson on international marketing and those that follow it, international marketing and global marketing are interchangeable. The intersection is the result of the process of internationalisation. Many American and European authors see international marketing as a simple extension of exporting, whereby the marketing mix is simply adapted in some way to take into account differences in consumers and segments. It then follows that global marketing takes a more standardised approach to world markets and focuses upon sameness, in other words the similarities in consumers and segments. So let's take a look at some generally accepted definitions.

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Marketing What is International Marketing? At its simplest level, international marketing involves the firm in making one or more marketing mix decisions across national boundaries. At its most complex level, it involves the firm in establishing manufacturing facilities overseas and coordinating marketing strategies across the globe. What is Global Marketing? Global marketing refers to marketing activities coordinated and integrated across multiple country markets. So, as with many other elements of marketing, there is no single definition of international marketing, and there could be some confusion about where international marketing begins and global marketing ends. These lessons will assume that both terms are interchangeable, and will define international marketing as follows: International marketing is simply the application of marketing principles to more than one country. How to Enter a Foreign Market This lesson gives an outline of the way in which an organization should select which foreign to enter. The International Marketing Entry Evaluation Process is a five stage process, and its purpose is to gauge which international market or markets offer the best opportunities for our products or services to succeed. The five steps are Country Identification, Preliminary Screening, In-Depth Screening, Final Selection and Direct Experience. Let's take a look at each step in turn. Step One - Country Identification The World is your oyster. You can choose any country to go into. So you conduct country identification - which means that you undertake a general overview of potential new markets. There might be a simple match - for example two countries might share a similar heritage e.g. the United Kingdom and Australia, a similar language e.g. the United States and Australia, or even a similar culture, political ideology or religion e.g. China and Cuba. Often selection at this stage is more straightforward. For example a country is nearby e.g. Canada and the United States. Alternatively your export market is in the same trading zone e.g. the European Union. Again at this point it is very early days and potential export markets could be included or discarded for any number of reasons.

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Step Two - Preliminary Screening At this second stage one takes a more serious look at those countries remaining after undergoing preliminary screening. Now you begin to score, weight and rank nations based upon macro-economic factors such as currency stability, exchange rates, level of domestiv consumption and so on. Now you have the basis to start calculating the nature of market entry costs. Some countries such as China require that some fraction of the company entering the market is owned domestically - this would need to be taken into account. There are some nations that are experiencing political instability and any company entering such a market would need to be rewarded for the risk that they would take. At this point the marketing manager could decide upon a shorter list of countries that he or she would wish to enter. Now in-depth screening can begin. Step Three - In-Depth Screening The countries that make it to stage three would all be considered feasible for market entry. So it is vital that detailed information on the target market is obtained so that marketing decision-making can be accurate. Now one can deal with not only microeconomic factors but also local conditions such as marketing research in relation to the marketing mix i.e. what prices can be charged in the nation? - How does one distribute a product or service such as ours in the nation? How should we communicate with are target segments in the nation? How does our product or service need to be adapted for the nation? All of this will information will for the basis of segmentation, targeting and positioning. One could also take into account the value of the nation's market, any tariffs or quotas in operation, and similar opportunities or threats to new entrants. Step Four - Final Selection Now a final shortlist of potential nations is decided upon. Managers would reflect upon strategic goals and look for a match in the nations at hand. The company could look at close competitors or similar domestic companies that have already entered the market to get firmer costs in relation to market entry. Managers could also look at other nations that it has entered to see if there are any similarities, or learning that can be used to assist with

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Marketing decision-making in this instance. A final scoring, ranking and weighting can be undertaken based upon more focused criteria. After this exercise the marketing manager should probably try to visit the final handful of nations remaining on the short, shortlist. Step Five - Direct Experience Personal experience is important. Marketing manager or their representatives should travel to a particular nation to experience firsthand the nation's culture and business practices. On a first impressions basis at least one can ascertain in what ways the nation is similar or dissimilar to your own domestic market or the others in which your company already trades. Now you will need to be careful in respect of self-referencing. Remember that your experience to date is based upon your life mainly in your own nation and your expectations will be based upon what your already know. Try to be flexible and experimental in new nations, and don't be judgemental - it's about what's best for your company - happy hunting.

Choosing a strategy
International Marketing and Price How should we set prices for international markets? This lesson considers the basics of pricing for international marketing. As with all of the international marketing lessons, every country and culture within it will influence price. So here we are going to look at some of the common influences upon pricing decisionmaking, the impact of grey markets, international approaches to pricing, and more mainstream marketing approaches to pricing that can be applied to an international context. Influences on pricing for international marketing. The cost of manufacturing, distributing and marketing your product. The physical location of production plants might influence price. For example, Toyota have plants in their European market, in the United Kingdom and Turkey. Of course fluctuations in foreign currencies affect pricing. Many companies are benefiting from a relatively low US Dollar price during the 2010s. This make imports to the United States expensive, but exports relatively cheap to other nations. However fluctuations make it very difficult for companies to make long-term decisions - such as building large factories in global markets i.e. costs of production are cheap today, but could be expensive in the future, impacting upon the price that your business is forced to charge. The price that the international consumer is willing to pay for your product. Your own business objectives will influence price. For example, large international companies such as Starbucks may operate at a loss in some locations but still need a local presence in order to maintain their economies of scale, as well as their reputation as a global player.

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The price that competitors in international markets are already charging. Business environment factors such as government policy and taxation. International Pricing Approaches Export Pricing - a price is set for by the home-based marketing managers for the international market. The pricing approach is based upon a whole series of factors which are driven by the influences on pricing listed above. Then mainstream approaches to pricing may be implemented - see below. Non-cash payments - less and less popular these days, non-cash payments include counter-trade where goods are exchanged for goods between companies from different parts of the World. Transfer Pricing - prices are set in the home market, and goods are effectively sold to the international subsidiary which then attaches its own margin based upon the best price that local managers decide that they could achieve. Then mainstream approaches to pricing may be implemented. Standardization versus adaptation - do you use a standard, common approach to pricing in each market, or do you decide to adapt the price to local conditions? Generic Marketing Approaches to Pricing. Premium Pricing. Penetration Pricing. Economy Pricing. Price Skimming. Psychological Pricing. Product Line Pricing. Optional Product Pricing. Captive Product Pricing Product Bundle Pricing. Promotional Pricing. Geographical Pricing. Value Pricing. International Marketing Communications (Promotion) Media Choices for International Marketing Marketing communications in international markets needs to be conducted with care. This lesson will consider some of the key issues that you need to take into account when promoting products or services in overseas markets. There will be influences upon your media choice, cultural issues to be considered, as well as the media choices themselves personal selling, advertising, and others. Influences upon International Media Choice

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Marketing There are a number of factors that will impact upon choice and availability of media such as: The nature and level of competition and channels of distribution in your target market. Whether or not there is a rich variety of media in your target market. The level of economic development in your target market (for example, in remote regions of Africa there would be no mains electricity on which to run TVs or radios). The availability of other local resources to assist you with your campaign will also need to be investigated (for example, sales people or local advertising expertise). Local laws may not allow specific content or references to be made in adverts (for example, it is not acceptable to show naked legs in adverts displayed in Muslim countries). And of course a lot depends upon the purpose of the international campaign in the first place. What are your international marketing communications objectives? Modes of Entry into International Markets (Place) How does an organization enter an overseas market? Background A mode of entry into an international market is the channel which your organization employs to gain entry to a new international market. This lesson considers a number of key alternatives, but recognizes that alteratives are many and diverse. Here you will be consider modes of entry into international markets such as the Internet, Exporting, Licensing, International Agents, International Distributors, Strategic Alliances, Joint Ventures, Overseas Manufacture and International Sales Subsidiaries. Finally we consider the Stages of Internationalization. It is worth noting that not all authorities on international marketing agree as to which mode of entry sits where. For example, some see franchising as a stand alone mode, whilst others see franchising as part of licensing. In reality, the most important point is that you consider all useful modes of entry into international markets - over and above which pigeon-hole it fits into. If in doubt, always clarify your tutor's preferred view. The Internet The Internet is a new channel for some organizations and the sole channel for a large number of innovative new organizations. The eMarketing space consists of new Internet companies that have emerged as the Internet has developed, as well as those pre-existing companies that now employ eMarketing approaches as part of their overall marketing plan. For some companies the Internet is an additional channel that enhances or replaces their traditional channel(s). For others the Internet has provided the opportunity for a new online company. More Exporting There are direct and indirect approaches to exporting to other nations. Direct exporting is straightforward. Essentially the organization makes a commitment to market overseas on 58

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its own behalf. This gives it greater control over its brand and operations overseas, over an above indirect exporting. On the other hand, if you were to employ a home country agency (i.e. an exporting company from your country - which handles exporting on your behalf) to get your product into an overseas market then you would be exporting indirectly. Examples of indirect exporting include: Piggybacking whereby your new product uses the existing distribution and logistics of another business. Export Management Houses (EMHs) that act as a bolt on export department for your company. They offer a whole range of bespoke or a la carte services to exporting organizations. Consortia are groups of small or medium-sized organizations that group together to market related, or sometimes unrelated products in international markets. Trading companies were started when some nations decided that they wished to have overseas colonies. They date back to an imperialist past that some nations might prefer to forget e.g. the British, French, Spanish and Portuguese colonies. Today they exist as mainstream businesses that use traditional business relationships as part of their competitive advantage. Licensing Licensing includes franchising, Turnkey contracts and contract manufacturing. Licensing is where your own organization charges a fee and/or royalty for the use of its technology, brand and/or expertise. Franchising involves the organization (franchiser) providing branding, concepts, expertise, and infact most facets that are needed to operate in an overseas market, to the franchisee. Management tends to be controlled by the franchiser. Examples include Dominos Pizza, Coffee Republic and McDonald's Restaurants. Turnkey contracts are major strategies to build large plants. They often include a the training and development of key employees where skills are sparse - for example, Toyota's car plant in Adapazari, Turkey. You would not own the plant once it is handed over. International Agents and International Distributors Agents are often an early step into international marketing. Put simply, agents are individuals or organizations that are contracted to your business, and market on your behalf in a particular country. They rarely take ownership of products, and more commonly take a commission on goods sold. Agents usually represent more than one organization. Agents are a low-cost, but low-control option. If you intend to globalize, make sure that your contract allows you to regain direct control of product. Of course you need to set targets since you never know the level of commitment of your agent. Agents might also represent your competitors - so beware conflicts of interest. They tend to be expensive to recruit, retain and train. Distributors are similar to agents, with the main difference that distributors take ownership of the goods. Therefore they have an incentive to market products and to make a profit from them. Otherwise pros and cons are similar to those of international agents. Strategic Alliances (SA)

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Marketing Strategic alliances is a term that describes a whole series of different relationships between companies that market internationally. Sometimes the relationships are between competitors. There are many examples including: Shared manufacturing e.g. Toyota Ayago is also marketed as a Citroen and a Peugeot. Research and Development (R&D) arrangements. Distribution alliances e.g. iPhone was initially marketed by O2 in the United Kingdom. Marketing agreements. Essentially, Strategic Alliances are non-equity based agreements i.e. companies remain independent and separate. Joint Ventures (JV) Joint Ventures tend to be equity-based i.e. a new company is set up with parties owning a proportion of the new business. There are many reasons why companies set up Joint Ventures to assist them to enter a new international market: Access to technology, core competences or management skills. For example, Honda's relationship with Rover in the 1980's. To gain entry to a foreign market. For example, any business wishing to enter China needs to source local Chinese partners. Access to distribution channels, manufacturing and R&D are most common forms of Joint Venture. Overseas Manufacture or International Sales Subsidiary A business may decide that none of the other options are as viable as actually owning an overseas manufacturing plant i.e. the organization invests in plant, machinery and labor in the overseas market. This is also known as Foreign Direct Investment (FDI). This can be a new-build, or the company might acquire a current business that has suitable plant etc. Of course you could assemble products in the new plant, and simply export components from the home market (or another country). The key benefit is that your business becomes localized - you manufacture for customers in the market in which you are trading. You also will gain local market knowledge and be able to adapt products and services to the needs of local consumers. The downside is that you take on the risk associated with the local domestic market. An International Sales Subsidiary would be similar, reducing the element of risk, and have the same key benefit of course. However, it acts more like a distributor that is owned by your own company. Economic Globalisation As far as the economics is concerned, the big challenge is poverty, and the surest route to sustained poverty reduction is economic growth. Growth requires good economic policies. The evidence strongly supports the conclusion that growth requires a policy framework that prominently includes an orientation towards integration into the global economy. This places obligations on three groups: those who are most responsible for the operation of the international economy, primarily the governments of the developed countries; those who determine the intellectual climate, which includes this audience but also government and non-government organizations and individuals; and the

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governments of the developing countries who bear the major responsibility for economic policy in their countries. Economic globalization, the ongoing process of greater economic interdependence among countries, is reflected in the increasing amount of cross-border trade in goods and services, the increasing volume of international financial flows, and increasing flows of labor. As is well known to our profession, economic globalization The importance of marketing in todays global economy Today, businesses around the world, both large and small, cannot ignore the impact that the global economy is having on their performance. Globalisation, the internet, and information transparency have led to an increasingly mobile workforce, ever more fickle customers, and rapidly changing technologies and business models. One result of this seemingly inexorable trend is that companies are less able to predict - let alone control the short-term shape of their own markets. As a result, more and more organisations are choosing to adopt a marketing-led philosophy to enable them to win market share and capture and retain the hearts and minds of current and prospective customers. Marketing is becoming more important as organisations around the world strive to develop products and services that appeal to their customers and aim to differentiate their offering in the increasingly-crowded global marketplace. These complex issues heighten the need for effective marketing whilst expanding its scope beyond the marketing function. Put simply, marketing is no longer the sole prerogative of a single function, even if the leadership on marketing comes from that function, together with the framework within which marketing strategies are conceived, developed, planned, executed, reviewed and improved. It used to be that a company could rise to the top of its industry and deliver superior shareholder returns by doing one thing well. Not anymore. Marketings perceived ability to orchestrate collaboration across an organisation (and its role in driving demand in markets that suffer from low rates of consumption) indicates that marketing is becoming increasingly important, even in organisations and sectors where it has, perhaps, traditionally taken a back seat. Factors influencing the method of entry in international market 1. Technological change, especially in communications technology. For example, UK businesses and data by satellite to India (taking advantage of the difference in time zones) where skilled but cheaper data handlers input the data and return it by satellite for the start of the UK working day. 2. Transport is much cheaper and faster. This is not just aircraft, but also ships. The development of containerization in the 1950s was a major breakthrough in goods handling, and there have been continuing improvements to shipping technology since then.

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Marketing 3. Deregulation. From the 1980s onwards (starting in the UK) many rules and regulations in business were removed, especially rules regarding foreign ownership. Privatisation also took place, and large areas of business were now open to purchase and/or take-over. This allowed businesses in one country to buy those in another. For example, many UK utilities, once government businesses, are owned by French and US businesses. 4. Removal of capital exchange controls. The movement of money from one country to another was also controlled, and these controls were lifted over the same period. This allowed businesses to move money from one country to another in a search for better business returns; if investment in one's own country looked unattractive, a business could buy businesses in another country. During the 1990s huge sums of money, mainly from the US, have come into the UK economy. See, for example, this news story: http://news.bbc.co.uk/1/hi/business/2250903.stm 5. Free Trade. Many barriers to trade have been removed. Some of this has been done by regional groupings of countries such as the EU. Most of it has been done by the WTO. This makes trade cheaper and therefore more attractive to business. 6. Consumer tastes have changed, and consumers are more willing to try foreign products. The arrival of global satellite television, for example, has exposed consumers to global advertising. Consumers are more aware of what is available in other countries, and are keen to give it a try. 7. Emerging markets in developing countries, especially the 'Tigers' of SE Asia eg Thailand. There has been high growth of incomes in these countries, which makes large consumer markets with money to spend. Indonesia, for example, whilst still not particularly rich, has some 350 myn consumers. Both India and China are very poor countries, but there are small middle classes who are doing very well and have money to spend. Although these groups are small in the context of the country, the overall populations are so huge (over 1 byn) that a small middle class adds up to many millions of consumers. Advantages and Disadvantages of Globalization Some Advantages Increased free trade between nations Increased liquidity of capital allowing investors in developed nations to invest in developing nations Corporations have greater flexibility to operate across borders Global mass media ties the world together Increased flow of communications allows vital information to be shared between individuals and corporations around the world Greater ease and speed of transportation for goods and people Reduction of cultural barriers increases the global village effect Spread of democratic ideals to developed nations Greater interdependence of nation-states 62

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Reduction of likelihood of war between developed nations Increases in environmental protection in developed nations

Some Disadvantages Increased flow of skilled and non-skilled jobs from developed to developing nations as corporations seek out the cheapest labor Increased likelihood of economic disruptions in one nation effecting all nations Corporate influence of nation-states far exceeds that of civil society organizations and average individuals Threat that control of world media by a handful of corporations will limit cultural expression Greater chance of reactions for globalization being violent in an attempt to preserve cultural heritage Greater risk of diseases being transported unintentionally between nations Spread of a materialistic lifestyle and attitude that sees consumption as the path to prosperity International bodies like the World Trade Organization infringe on national and individual sovereignty Increase in the chances of civil war within developing countries and open war between developing countries as they vie for resources Decreases in environmental integrity as polluting corporations take advantage of weak regulatory rules in developing countries

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