marketing64

A product is a physical good, service, idea, person, or place that is capable of offering tangible and intangible attributes that individuals or organisations regard as so necessary, worthwhile or satisfying that they are prepared to exchange money, patronage or some other unit of value to acquire it.                                               (Blythe, 2007)

THE ANATOMY OF A PRODUCT MODEL

Core products are the core function or benefit that is being sought by the consumer by buying the product

Actual products are all the tangible features/benefits that are associated with the core product such as its features or design, level of quality, packaging, size 

Augmented products are the intangible features/benefits associated with the core & actual product such as branding, warrantees, delivery, guarantees, and after sales service. Augmented products can be thought of as the psychological benefits that enhance the value of the core & actual products in the mind of the consumer

Marketers use both (i) actual and (ii) augmented products to differentiate their product offering from those of their competitors

Consumer User-Based Classification of Products

-    Convenience products are consumer products and services that customers usually buy frequently, immediately, and with a minimum of comparison and buying effort.
-    Shopping products are less frequently purchased consumer products and services that customers compare carefully on suitability, quality, price, and style.
-    Specialty products are consumer products and services with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort.
-    Unsought products are consumer products that the consumer either does not know about or knows about but does not normally think of buying.
 

CLASSIFYING NEW PRODUCTS
Continuous Innovation
This type of innovation is a simple changing or improving of an already existing product where the adopter still uses the product in the same fashion as they had before. An example of a continuous innovation is now seen in the automobile industry as it continues to change and develop.
- Dynamically Continuous Innovation
Here the innovation can either be a creation of a new product or a radical change to an existing one. Here the consumption patterns of people are altered some. An example of this type of innovation would be compact discs.
- Discontinuous Innovation
This is a totally new product in the market. This is the big idea innovation .In this situation, because the product has never been seen before, there are total changes to consumers buying and using patterns total changes to consumers buying and using patterns.

REASONS FOR PRODUCT FAILURE
1. Market size may have been overestimated.
2. The actual product may have not been designed as well as it should have been.
3. The product may have been incorrectly positioned in the market, priced too high, or advertised incorrectly.
4. A new product may have been pushed though in spite of poor marketing research findings.
5. The costs of producing the product may have been higher than expected.
6. Competitive Actions

REASONS WHY ORGANISATIONS SHOULD INTRODUCE NEW PRODUCTS
1. If consumer tastes are changing so that existing products no longer satisfy their needs, as is the case with any product that is susceptible to fashion or style preferences.
2. If the environment has changed so as to create new needs in the market; out of town shopping centers’, for example, have grown in popularity as more and more people become car owners and traffic restrictions make the high street an increasingly difficult and expensive place to park.
3. If competitors are actively developing new products or technologies that will accelerate the decline of existing products.
4. If growth potential in a market is limited by the total size of the market or the intensity of the competition.
5. If a firm has a portfolio of products that are generating a lot of cash at the maturity stage of their life cycle.
6. If competition in the market is likely to intensify (i.e. patent due to expire)
7. If production capacity is under utilized (i.e. seasonal demands)
8. If legislation threatens to curtail the marketing of existing products in the future.

1.    Production Concept

The production concept holds that consumers will favour products that are available and highly affordable and that management should, therefore, focus on improving production and distribution efficiency.  This is one of the oldest philosophies that guides’ sellers.
The production concept is useful when:
-    Demand for a product exceeds the supply.
-    The product’s cost is too high and improved productivity is needed to bring it down.
-    The risk with this concept is in focusing company operations too narrowly.  Do not ignore the desires of the market.

2.    Product Concept
The product concept states that consumers will favour products that offer the most quality, performance, and features.  The organisation should, therefore, devote its energy to making continuous product improvements. The product concept can also lead to “marketing myopia,” the failure to see the challenges being presented by other products.

3.    Selling Concept
Many organisations follow the selling concept.  The selling concept is the idea that consumers will not buy enough of the organisation’s products unless the organisation undertakes a large-scale selling and promotion effort. This concept is typically practiced with unsought goods (those that buyers do not normally think of buying). To be successful with this concept, the organisation must be good at tracking down the interested buyer and selling them on product benefits. Industries that use this concept usually have over-capacity.  Their aim is to sell what they make rather than make what will sell in the market. There are not only high risks with this approach but low satisfaction by customers.

4.    Marketing Concept
The marketing concept holds that achieving organisational goals depends on determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitor. The marketing and selling concepts are often confused.  The primary differences are:
-    The selling concept takes an “inside-out” perspective (focuses on existing products and uses heavy promotion and selling efforts).
-    The marketing concept takes an “outside-in” perspective (focuses on customer needs, values, and satisfactions).
Many companies claim to adopt the marketing concept but really do not unless they commit to market-focused and customer-driven philosophies.

5.    Ethical & Sustainable Marketing / The Societal Marketing Concept
Ethical and Sustainable Marketing is the establishment, maintenance, and enhancement of customer relationships so that the objectives of the parties involved are met without compromising the ability of future generations to achieve their own objectives.
The societal marketing concept holds that the organisation should determine the needs, wants, and interests of target markets.  It should then deliver the desired satisfactions more effectively and efficiently than competitors in a way that maintains or improves the consumer’s and the society’s well-being. The societal marketing concept is the newest of the marketing philosophies. It questions whether the pure marketing concept is adequate given the wide variety of societal problems. According to the societal marketing concept, the pure marketing concept overlooks possible conflicts between short-run consumer wants and long-run consumer welfare. The societal concept calls upon marketers to balance three considerations in setting their marketing policies:
-    Company profits.
-    Customer wants.
-    Society’s interests.

WHAT IS INTERNATIONAL MARKETING?

International marketing is the marketing of goods, services, and information across international boundaries. The home firm’s domestic approach may be ineffective, counterproductive, or illegal in foreign markets.

CHALLENGES OF THE INTERNATIONAL MARKETING ENVIRONMENT

1.    Culture
2.    Markets
3.    Data
4.    Politics
5.    Governments
6.    Economies
7.    Finance
8.    Business
9.    Control 
 
MOTIVES FOR INTERNATIONALISATION            (Albaum et al, 2007)
Internal motives are those that arise from stimuli within the firm, while external motives are those that arise from stimuli outside the firm.
Reactive motives are those that arise simply in response to some occurrence in the environment, while proactive motives arise from the executives actively seeking new opportunities.
                
   

However, Solberg (1997) argues that with limited international experience and a weak position in the home market there is little reason for engaging in international markets. Instead organisations should attempt to improve their position at home. Companies may seek ways to increase its net worth to attract partners for future buyouts.  

THE INTERNATIONAL MARKETING STRATEGY PROCESS

1.    Understand the environmental influences on firms international markets
2.    Segment international markets, identify and analyse opportunities.
3.    Develop appropriate strategies for SME’s and global players
4.    Decide market entry strategies and determine product portfolio’s
5.    Build added value through communication, distribution and pricing
 

A commonality shared by all elements of the promotional mix is that their function is to communicate. Thus, it is important that advertising and promotional planners have an understanding of the communication process.

Communication has been variously defined as the “passing of information,” the “exchange of ideas,” or the “process of establishing a commonness or oneness of thought between a sender and a receiver.”

THE COMMUNICATIONS PROCESS

Source - the sender or source of a communication is the person or organisation
who has information to share with another person or group.
   
Encoding is the process of putting together thoughts, ideas and information into a symbolic form to communicate a message. The sender’s goal is to encode the message in such a manner so as to ensure that the receiver will understand it.

Message - the encoding process leads to the development of a message that contains the information or meaning the source or sender hopes to convey. Messages can take a variety of forms and may include symbolic forms or signs.
 
Channel - the channel is the method or medium by which the communication travels from source or sender to receiver. At the broadest level, channels of communication exist as two types:

•     Personal Channels

•     Non-personal channels

Receiver - the receiver is the person(s) with whom the sender shares thoughts or
information. Receivers are generally viewed as the consumers in the target audience
targeted by the firm’s marketing and promotional programme.

Decoding is the process of transforming and interpreting the sender’s message back
into thought and is heavily influenced by the receiver’s frame of reference or field of
experience. 

Noise - throughout the communications process the message is subject to noise
which refers to factors that can distort or interfere with adequate reception or
comprehension. Noise can occur during the encoding, transmission, or decoding of a
message. 

Response - response refers to the reaction the receiver has after seeing, hearing
and/or reading the message. These responses can range from non-observable
actions such as storing information in memory to taking immediate actions such as
ordering a product seen in a direct response ad.

Feedback is the part of the receiver’s response that is communicated back to the
sender and takes a variety of forms. Feedback provides the sender with a way of
monitoring how the message is being decoded and received by the target audience.

An important aspect of developing effective communication involves having an understanding of the response process the receiver may go through and how the promotional efforts of the market might influence this process. 

Traditional Response Hierarchy Models
 
The hierarchy models are useful to promotional planners from several perspectives.

• They delineate the series of steps or stages potential purchasers often must be taken through to move them from a state of no or little awareness to the point where they are ready to purchase.
•   The hierarchy models can also be useful as “intermediate” measures of communication effectiveness. Knowing where potential buyers are with respect to the various stages of the hierarchy helps the marketers know the specific communication task that must be performed.
   

Pricing methods are closely related to pricing objectives.The three basic pricing methods are:
1.    Cost-based pricing:  Which is also divided into 2 subgroups:
a.    Cost plus pricing - this involves simply adding a standard mark-up to the cost of the product e.g. cost of producing the product + 20%
b.    Mark-up pricing – Often used by retailers. Retailers add a percentage to bought in stock – this is known as the ‘mark-up and it can vary from one retailer to another. Differs to cost-plus pricing in that
i.    Retailers can price based on ‘market intuition’ and
ii.    Retailers have ways to sell off unsold stock e.g. ‘January sales’

2.    Competition-based pricing
a.    Market skimming (new product pricing strategy) - prices are set high initially when a new product is introduced to the marketplace with a view to gradually lowering its price as the product moves through the stages of the Product’s Life Cycle (PLC) The objective of Market Skimming is to enable the firm to recover product development and marketing costs early in the PLC. Firms focusing on profit objectives in developing their pricing strategies often set skimming prices for new products

When to use market-skimming pricing
Market-skimming pricing only makes sense under certain conditions;
1.    The product’s quality and image must justify its higher price 
2.    Demand is likely to be price inelastic
3.    The product is unique enough to be protected from competition by patent, copyright, or trade made
4.    An organisation wants to recover costs quickly
5.    There is a realistic perceived value in the product or service

b.    Market-penetration pricing - (new product pricing strategy) - prices are set low initially when a new product is introduced to the marketplace in order to attract large numbers of buyers and increase market share. It is the opposite of a skimming pricing strategy High sales volumes result in falling cost which, in turn, allows the company to further lower its prices. Market-penetration pricing can also discourage competitors from entering the market. The firm ‘first to market’ with a new product has an important advantage. Experience has shown that a brand first to market is often able to maintain dominant market share for a long time. Penetration pricing may also act as a barrier to entry for competitors. Prices may be so low that competitor’s may not be able to compete

When to use Market-Penetration Pricing
Certain conditions favour penetration pricing:
1.    The offering is not unique or protected by patents, copyrights, or trade secrets
2.    Competitors are expected to enter market quickly
3.    There are no distinct and separate price-market segments
4.    There is a possibility of large savings in production and marketing costs if a large sales volume can be generated
5.    The organisation’s major objective is to obtain a large market share     

3.    Customer-based pricing (value based pricing)
 Value based pricing is where a product’s price is actively dependant upon its demand. This method of pricing allows companies to take advantage of highly demanded products by charging more. A good example is how refreshments generally costs more at sporting events
Rationale: Customers generally don’t know your margins or costs. Customer assessments of value are based on their personal gains and losses provided by competing alternatives

It is usually the most profitable form of pricing, if you can achieve it. The most extreme variation on this is "pay for performance" pricing for services, in which you charge on a variable scale according to the results you achieve.

Internal Reference Prices
Sometimes consumers’ perceptions of the customer price of a product depend on the internal reference price. Based on past experience, consumers have a set price or a price range in their mind that they refer to in evaluating a product’s cost.

In some cases, marketers try to influence consumers’ expectation of what a product should cost by employing reference-pricing strategies. A price might be compared to a competitor’s price listed in an advertisement or a higher-priced version of the same or different brand.

Two results are likely. If the prices (and other characteristics) of the two products are fairly close, the consumer will probably feel the product quality is similar. This is called an assimilation effect. If the prices of the two products are too far apart, a contrast effect may result in which the customer equates it with a big difference in quality

Price-Quality Inferences
Consumers make price-quality inferences about a product when they use price as a cue or an indicator of quality. If consumers are unable to judge the quality of a product through examination or prior experience, they usually will assume that the higher-price product is the higher-quality product

ALTERNATIVE PRICING STRATEGIES
-    PRICE BUNDLING: A firm may sell several products that consumers typically buy at one time. Price bundling means selling two or more goods or services as a single package for one price.

-    CAPTIVE PRICING is a pricing tactic a firm uses when it has two products that work only when used together. The firm sells one item at a very low price and then makes its profit on the second high-margin item

-    PSYCHOLOGICAL PRICING Setting a price is part science, part art.  Psychological aspects of price are important for marketers to consider. An example of this is Odd-Even Pricing. Marketers have assumed that there is a psychological response to odd prices that differ from the responses to even prices. Habit may also play a role. Some prices are set at even numbers because of necessity. Lottery tickets and admission to sporting goods are two examples. Many luxury items use even dollar prices to set them apart.

-    MARK-UP PRICING Often used by retailers. Retailers add a percentage to bought in stock – this is known as the ‘mark-up and it can vary from one retailer to another. Differs to cost-plus pricing in that
i.    Retailers can price based on ‘market intuition’ and
ii.    Retailers have ways to sell off unsold stock e.g. ‘January sales’

-    PREMIUM PRICING - Use a high price where there is uniqueness about the product or service. This approach is used where a substantial competitive advantage exists.

-    ECONOMY PRICING - This is a no frills low price. The cost of marketing and manufacture are kept at a minimum.

-    VALUE PRICING (also referred to EDLP) This approach is used where external factors such as recession or increased competition force companies to provide ‘value’ products and services to retain sales
-    GEOGRAPHICAL PRICING is evident where there are variations in price in different parts of the world.

-    LOSS LEADER -this is an item you sell at or below cost in order to attract more customers, who will also buy high-profit items. This is a good short-term promotion technique if you have customers that purchase several items at one time.
 

‘Price is the amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service’                                (Kotler at al, 2008)

CHARACTERISTICS OF PRICE:
1.    Price is the only one of the ‘4Ps’ which generates income
2.    Customers can make inferences based on the price of a product
3.    Price is the value that customers give up or exchange to obtain a desired product
4.    It is flexible therefore it can be changed quickly
5.    Price decisions are coordinated with product design, distribution and promotional decisions to form an effective integrated marketing programme
6.    Pricing can also affect product positioning
7.    It can be used as a competitive tool 

PRICING OBJECTIVES:

-    Sales or Market Share Objectives

-    Profit Objectives

-    Competitive Effect Objectives

-    Customer Satisfaction Objectives

-    Image Enhancement Objectives

FACTORS AFFECTING PRICING DECISIONS:
There are a number of factors to be considered when setting prices and these can include internal and external factors.

INTERNAL FACTORS:

-    Marketing objectives   

-    Marketing mix strategy

-    Costs 

-    Organisational considerations

EXTERNAL FACTORS

-    The market and demand 

-    Competition 

-    Other external variables 

-    Customers 
 

Integrated marketing communications (IMC) is the coordination and integration of all marketing communication tools, avenues, and sources within a company into a seamless program, which maximizes the impact on consumers and other end users at a minimal cost. This integration affects all of a firm’s business-to-business, marketing channel, customer-focused, and internally directed communications.

1.    Information Technology

The challenge for marketers in the future is not so much related to gathering information, but rather sifting through an avalanche of statistics, ideas, and messages and putting them together in an intelligible format for company leaders to study. Technology allows instant communications between business executives and their employees, even when workers are disbursed throughout the world. Marketers can quickly determine who is buying a company’s products and identify the best communication channels to reach those customers.

2.    Changes in Channel Power
The World Wide Web and the availability of information technology have shifted more power to the consumer. Both individual customers and businesses can shop online and even place orders without ever visiting a retail store.

3.    Increase in Competition
Consumers can purchase goods and services from anyplace in the world. Competition no longer comes from the firm just down the street—it can also come from a firm 10,000 miles away or one in another country. In this type of mature market, the only way one firm can gain sales is to take customers away from another firm. Integrating advertising and other marketing communications becomes extremely important in such an environment and advertising alone is not enough to maintain sales.

4.    Brand Parity
Many products have nearly identical benefits. From the consumer’s perspective, this means shoppers will purchase from a group of accepted brands rather than one specific brand. In response, marketers must generate messages in a voice that expresses a clear difference. They must, in essence, build some type of perceived brand superiority for the company and its products or services.

5.    Integration of Information
Because consumers are able to integrate information they receive from various sources, marketers should also be concerned about integration. Every contact point should project the same message. Contact points are the places in which a customer may interact with or acquire additional information about a firm.

6.    Decline in the Effectiveness of Mass Media Advertising
VCRs and other devices make it possible to watch programmes without commercials. The rise in popularity of cable TV and satellite dishes means consumers have a wider variety of viewing choices. As a result, the number of people tuned to the major national networks has declined. IMC programmes help firms reach these harder-to-find consumers.

Segmenting means dividing markets into homogenous groups based on similar characteristics or traits. To divide a market into segments, firms use segmentation variables that describe the characteristics of each part of the market.

1.    Demographic
Demographic segmentation is a market segmentation strategy whereby the intended target audience for a given product is divided into categories based on demographic variables (demographics). Demographic segmentation is the most popular basis for dividing groups, primarily because consumer usage and wants or needs usually match demographic categories, but also because demographic variables are easy to measure and obtain. Demographic variables can include age and life cycle, gender, income and generation.

2.    Geographic
Geographic segmentation is a market segmentation strategy whereby the intended target audience for a given product is divided according to geographic units, such as nations, states, regions, counties, cities, or neighbourhoods. Marketers will tailor marketing programmes to fit the needs of individual geographic areas, localising the products, advertising, and sales effort to geographic differences in needs and wants. Marketers can also study the population density or regional climate as factors of geographic segmentation.
Benefits:
-    New ways to generate sales in sluggish and competitive markets
-    Scanner data allow assessment of best selling brands in region
-    Regional brands appeal to local preferences

Limitations:
-    Does not ensure that all consumers in a location will make the same buying decision.

Psychographic
Psychographics can be defined as the study of consumer lifestyles. Psychographic segmentation calls for dividing a market into different groups based on activities interests and opinions: 
-    Activities – leisure, sports, entertainment, shopping behaviour.
-    Interests – role perceptions, level of social interaction.
-    Opinions –such topics as politics, social and moral issues.

Psychographic Segmentation of Global Markets (Boone & Kurtz, 2004)
1.    Strivers:  the largest segment, value professional and material goals more than the other groups.
2.    Devouts: value duty and tradition.
3.    Altruists:  emphasise social issues and societal well-being.
4.    Intimates:  value family and personal relationships.
5.    Fun seekers: focus on personal enjoyment and pleasurable experiences.
6.    Creatives: seek education, technology, and knowledge, and their male-female ratio is roughly equal. Many creatives live in Western Europe and Latin America.

Psychographic segmentation is difficult and risky because:
-    Lifestyles are complex
-    Many intangible variables are involved
-    It is difficult to define which variables are relevant

3.    Behavioural
Behavioural segmentation differs because instead of focusing purely on the characteristics of the customer, it looks at the relationship between the customer and the product. It is a market segmentation strategy whereby the division of the target market is made according to the patterns in which the people in the market live and spend their time and money. Buyers in a market will differ in their wants, resources, locations, buying attitudes, and buying practices and any of these variables can be used to divide a market. In behaviour segmentation, potential buyers of a product are divided into groups based on their knowledge, attitude, uses, or responses to a product. These variables can include:
-    Occasions
-    Benefits sought from the product
-    Usage rate
-    Loyalty status
-    User status

Marketers rarely limit their segmentation analysis to only one or a few variables. They are increasingly using multiple segmentation bases in an effort to identify smaller, better defined target groups. In addition, when marketing the product to a global audience companies can use an approach called “intermarket” segmentation. This means they form segments of consumers who have similar needs and buying behaviour even though they are located in different countries.

Requirements for effective segmentation
Not all segmentations are effective. To be useful, market segments must be:
-    Measurable: The size, purchasing power, and profiles of the segments can be measured.
-    Accessible: The market segments can be effectively reached and served.
-    Substantial: The market segments are large or profitable enough to serve.
-    Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programmes.
-    Actionable: Effective programmes can be designed for attracting and serving the segments.
 

MARKET: people or organisations with needs and wants and the ability and willingness to buy

MARKET SEGMENT: A subgroup of people or organisations sharing one or more characteristics that cause them to have similar product needs
MARKET SEGMENTATION: The process of dividing a market into relatively similar, identifiable segments or groups. It  
-    Involves dividing a market into distinct groups of buyers who have different needs & require separate marketing mixes.
-    Involves dividing the market to identify the most attractive parts to serve.
-    Is a recognition that buyers differ in terms of wants, resources, locations, attitudes and buying practices.
The segmentation process is fundamental to analysing markets - few markets possess buyers who are the same. Both profit-oriented and not-for-profit organisations practice market segmentation.

LEVELS OF MARKET SEGMENTATION
a)    Mass Marketing: This is where the product is mass-produced and the company uses mass promotions and mass distribution of the same product to all consumers. 
b)    Segment Marketing: This is where the company isolates broad segments that can make up a market and adapts the marketing mix to match the needs of one of those segments.
c)    Niche marketing: This is where the company focuses on sub segments/niches with distinctive traits that may seek a special combination of benefits.