5. Marketing Mix Decisions Introduction The term Marketing Mix essentially refers to all those features of an organisation‟s activities that have a primary influence on sales. Together, these features form the basis of marketing tactics, the aim being to fine-tune the match between customer needs and what the firm supplies. The marketing mix is a vast topic and could easily form the basis of an entire degree course in its own right. For the purposes of Managing in the Competitive Environment, we‟ll therefore focus primarily upon the management decisions associated with the Marketing Mix and, in particular, decisions associated with:- Product Pricing Marketing Communications Promotional Activities Marketing Channels I. Product Decisions Defining the Product A product is basically anything that can be offered to a market in order to satisfy a want or need. This can include anything from a physical good (a car) or service (a haircut), to a place (tourism in Durham) or idea (safer driving). Typically, however, marketers extend what constitutes a product to include five main sub-units:- Core Product: The actual benefit the customer is really buying; e.g. a consumer buys a drill, but the real need is to make a hole in the wall! Basic Product: The primary features of the product bought, such as the drill‟s motor and drill-bit. Expected Product: The features the customer expects to be present in the product (s)he is buying, such as motor speeds and safety features of the drill. Augmented Product: The features which exceed the customer‟s expectations and provide added value, such as extra drilling bits or an extended warranty. Potential Product: Possible future evolutions of the product (a solar-powered drill, perhaps?). The term “product”, then, refers to anything a customer is prepared to pay for in order to receive benefits. In addition to the defining product characteristics outlined above, the American Marketing Association distinguish two primary product classifications:- Consumer Products Convenience Goods Most grocery products, cigarettes, etc Shopping Goods Most consumer durables, such as TVs and fridges Speciality Goods Products considered important enough for the customer to make extra effort; e.g. a PC, new car Industrial Products Raw Materials e.g. wool, sugar, hops, etc Equipment Capital goods, such as machinery and testing facilities Fabrications Components used in manufacturing Supplies e.g. fuel, stamps, uniforms, etc In economies with strong service sectors, however, an alternative classification might be:- Durable Goods e.g. radios, machinery, etc Non-durable Goods e.g. groceries, raw materials, etc Services e.g. banking, insurance, repairs, etc Whatever the classification adopted, however, there can be little doubt that product decisions lie at the heart of a firm‟s marketing effort. In the long run, no amount of clever advertising or promotional activity can ever compensate for mismanagement of the key product! Product Life-Cycle (PLC) One of the most ubiquitous marketing concepts is that of the product life-cycle (PLC), the realisation that products have life-cycles just like human beings. A child is born and grows, passes through stages of childhood, adolescence, maturity and old age, then finally death. Likewise, a product is invented, developed, introduced into the market, goes through stages of maturity, then dies. The stages of the PLC can be expressed as follows:- Introduction: In the first stage, the product is introduced onto the market. Sales are initially very low and the product is making a loss due to the amount of money spent on research, development, advertising, promotion, etc. Growth: During the growth stage, possibly as a result of the lack of competition, sales increases are rapid and profitability high. Maturity: Eventually, sales begin to rise at a slower pace and profitability is less than in the previous stage. There can be many reasons for this, but often it is because of increased competition and the need for larger marketing budgets in order to retain market share. Decline: Finally, we see a period of product decline and saturation. More competitors have probably entered the market, supply exceeds demand and prices fall (along with profitability!). There is now a much greater recognition that products and services have life-cycles. This is largely due to innovation, new technologies and the speed/impact of communications. The time lag between appearance of a new product and availability even on a global scale can be a matter of mere days or even hours, whereas previously the process may have taken many moths or even years. There is also a growing realisation that products have much shorter life-cycles than in the past, making monitoring of continued viability a very pressing management function. Of course, not all products follow the exact same “S” pattern of PLC. Fashion goods, fads and crazes, for instance, can exhibit much steeper growth and decline:- Different categories of PLC have therefore been proposed to denote the different shaped curves observed. The three main categories are as follows:- Product Category Life-Cycles: Examples of this category would be the life-cycles for goods such as televisions, cars and cigarettes; i.e. generic products. Some categories in particular exhibit very enduring life-cycles; e.g. shoes. Product Form Life-Cycles: The examples here would be colour televisions, petrol cars and tipped cigarettes; i.e. sub-sets of the generic product, with shorter life- cycles than those for the product category as a whole. Brand Life-Cycles: Here, we could use the examples of Phillips televisions, Mercedes cars and Players untipped cigarettes. The life-cycle of the individual brand is, on the whole, the shortest of all – though with obvious exceptions (e.g. Ford cars!). When using the PLC for decision-making purposes, then, the marketer must be careful to distinguish between these different levels. Managing Existing Products From time to time, the organisation needs to re-evaluate its products. Sales data are crucial here! Marketers must be alert to significant fluctuations in demand without obvious cause and consider ways of developing even the most popular line. There is also the issue of whether demand can be satisfied should growth rapidly increase. Extending the PLC: When an organisation is experiencing a boom in sales, it can be very easy to overlook under-achieving products which, if left unchecked, may begin to damage the rest of the business in time. Sometimes, the product may simply have “had its day” (e.g. the Betamax video-recorder, the LP record). Occasionally, though, the life-cycle can be “stretched out” a little and extended by finding new uses for the product (e.g. washboards as musical instruments), new users for the product (analogue cellphones in developing countries) or via promoting increased usage (fireworks all-year-round). Discarding Dead Products: Once a product has reached the end of its life-cycle, however, the decision must be taken for production to cease. Of course, simply stopping production is rarely sufficient. The marketer must also ask why the product has “died”. If it has simply become obsolete, fair enough. If it could be revitalised with a new image or packaging or whatever, though, ending production would clearly be premature and leave the market clear for competitors. This is not a decision which should therefore be taken lightly! Only when the organisation is absolutely sure that the PLC is ended should the line be discarded in order to give customers the impression that the company is up-to-date and to ensure profits on successful lines are not eroded by “lame ducks”. Standardisation: A marketing-oriented organisation seeks to satisfy customer needs absolutely. In practice, however, it is rarely possible to develop a tailor-made solution for each individual buyer. A garment manufacturer, for instance, can make a coat in every possible shade of red just to be sure an individual customer is totally satisfied! The compromise solution in the real world beyond marketing philosophy is therefore to adopt certain standards; i.e. to ensure a reasonable range of choice alternatives are available to satisfy the majority of customers‟ needs (sizes, colours, quality variants, etc.). From an operations perspective, this greatly simplifies production and, therefore, its associated costs. At the same time, however, there is an increased risk that the degree of satisfaction obtained may not prove sufficient, affecting future patronage. Simplification: Simplification entails a reduction in the number of products available. The aim is to specialise in those lines with greatest demand and/or profitability. This can allow production economies of scale, bulk contracts with key suppliers, more effective stock control and simpler service and maintenance demands. Most importantly, it can reduce price and yield a competitive advantage – provided, of course, the range of products retained has been optimised correctly on the back of effective marketing research! Value Analysis (VA): Value Analysis is a discipline which originated in the USA and focuses upon the elimination of unnecessary costs. Essentially, VA seeks to identify the most economical way of performing each function of a manufactured product. It is more than merely a cost reduction exercise, however, as VA has no “sacred cows” and encourages evaluation of every aspect of the product. For instance, cost reduction rarely considers the basic design of the product, but VA certainly would in order to establish with a better designed alternative could be less expensive to produce. In VA, then, the function of each part of the product is defined and alternative options considered, the aim being to establish which available option can be achieved at the lowest possible cost. Interrelationships between Products: When marketing any product, it is worth looking at it in conjunction with related products. Products might be related because they are part of the same range (Coke and Diet Coke), because they compliment each other (PC printers and ink cartridges), or merely because one product is utilising spare capacity or waste from another (tyres and oils). Related products are a very important part of the decision-making process. Customers often expect/demand to be able to buy a wider variety of products from the same source and, if neglected, the absence of “spin-offs” may affect sales of the core product and represent under-capacity. Packaging and Presentation: Finally, decisions must be taken in respect of the external appearance or finish of the product. For many people, first impressions of a product count for a great deal! Further, even manufacturers of very well established products may find their brand suddenly loses appeal as a result of a competitor whose product suddenly appears more appealing. This can be a VERY difficult area of marketing to manage. On the one hand, a “face-lift” may give a product a new lease of life. At the same time, however, there is a very real danger that the old packaging or design was a symbol of reliability in the eyes of the customer, any change to which could prove disastrous. In today‟s competitive environment, aesthetics are far more important than at any time previously, making research into buyer behaviour a crucial component of the marketing function in order to manage such product decisions. II. Pricing Decisions The Role of the Price The significance of price has declined since the 1950s and the gradual transition to a buyers‟ market. Today, consumer demand is often characterised more by perceived added value than by mere price alone. Nevertheless, price remains a crucial component of the marketing mix – after all, it is the only element of the mix which actually generates revenue, all of the other elements are costs to the organisation! Lancaster and Massingham (1993) highlight three key roles of the price:- It pulls together various aspects of company activity needed to satisfy customer requirements. It funds their respective contributions to the final package offered to the customer. It contributes residual profits in order to help the company achieve its overall objectives. Pricing Models The Economics Model: Economists see price as the key variable in the marketing mix. The economics model argues that all pricing decisions should be made primarily on the basis of maximisation of profits. Profits are defined as revenues minus costs, so price can only ever be reduced to a level where any additional revenue derived from selling additional units just balances with the increased cost of producing more units. Alternatively, price can only be increased to such a point where cost savings from producing fewer units just balances the loss in revenues from selling fewer units. Profits are therefore maximised where the marginal cost of production (the increased cost incurred by producing one additional unit) equals the marginal revenue from sales (the increase in revenue generated from producing and selling one additional unit). The cost and revenue curves are thus a function of the demand curve (i.e. the quantity that will be sold at each price level). The economics model has a number of weaknesses. It rather assumes that price decisions are made solely in order to maximise short-term profits on one particular product, rather than for the organisation overall, and it presupposes that price is the only factor which can influence demand. It also focuses on the supplier-customer relationship at the expense of prices charged by competitors and that price can be set independent of other elements of the marketing mix. More seriously, it rather assumes consumers behave rationally toward price and/or perceived utility – as our discussion of buyer behaviour noted, this is often far from the truth! The Accountancy Model: The accountant‟s rationale is basically that price must always be set such that total unit costs are covered. The usual method is to calculate variable cost per unit, allocate fixed costs on the basis of either a standard volume or an anticipated output level, then add a further margin as profit. Prices are thus primarily determined by costs, with only a slight influence of demand conditions. The problem with this approach is that it requires average costs to be estimated ahead of knowledge of demand, but demand itself is influenced in part by price, which helps determine average costs. It‟s all very circular and imprecise! More seriously, it can lead to certain marketing opportunities being passed by because the price set would not cover production costs in the shorter term. The Marketing Model: There is no universally accepted “marketing model of pricing” on which all would agree, the nearest we come being statements such as “price should be set at what the market will bear” and “prices should be set such that the total contribution from all products to the company’s fixed costs and profits is maximised”. In addition to taking account of both production costs and the laws of demand, however, it is possible to identify common factors marketers typically consider when fixing price:- The customer‟s psychological judgement of price and its relationship with perceived quality. The effect of price upon company/brand image. The role of price in achieving company objectives. The competitive nature of the market. The importance of price in establishing trade relationships. The influence of government policy, consumer groups, trade bodies, etc. Price and its relationship to other marketing activities. Pricing Methods: Market Penetration The market penetration approach to pricing sets the price low to stimulate growth in the market and to achieve a large market share. This is a particularly valid approach to setting the price for a new product if the market is very price sensitive, there is an opportunity to achieve economies of scale as a result of the growth achieved, if a low price would discourage competition, and if the company has sufficient resources to sustain this low price and any potential initial losses. Pricing Methods: Market Skimming The market skimming approach sets initial prices high rather than low, then reduces them later in the PLC. The approach is based on the assumption that some segments are willing to pay more than others; e.g. high income groups willing to pay for the latest technological innovation. Price is thus set high to obtain an initial premium from them, then reduced to attract customers from more price-sensitive segments. His is a very useful pricing strategy where there are a sufficient number of premium customers at the outset, the costs involved in initial low volume production are not prohibitive, and where high prices do not encourage too many new entrants into the market. Pricing Methods: Cost-Plus Pricing The cost-plus method basically adds an amount of money to an estimated product cost to arrive at the selling price. In terms of determining the cost element, two main derivatives of cost-plus pricing can be identified:- Full-Cost Pricing: Costs here represent the production costs per unit and an allocation of overhead. To this sum, a percentage margin is added to determine the selling price. This is an extremely simple method to use and it ensures that all costs are covered. The problem, though, is that it can ignore the relationship between costs and volume and lead to missed pricing opportunities. Target Pricing: Here, the profit mark-up is targeted to a desired rate of return on total costs, taking into account an estimated standard production volume. This is more flexible and can allow the margin percentage to be varied according to market factors. Again, however, there can be the circular problem of projected sales being used to estimate costs and therefore price, whilst price influences actual sales and thus costs, and so on. Pricing Methods: Competitive Pricing The competitive pricing method, logically enough, bases price largely upon what competitors are charging. This doesn‟t necessarily mean charging the same price as competitors, although this is often done. More usually, the aim is to maintain one‟s own price level at a fixed percentage below of above the primary competitor(s). This can be a very effective strategic approach to use, provided costs are not overlooked in the process and the need to differentiate oneself from the competition is not lost. Further Issues in Pricing Decisions Policy and Procedure: Whatever pricing method or methods are used, pricing must not become an ad hoc process. Organisations need clear policies and procedures to be observed at all time, covering the criteria for both short-term and long-term pricing decisions, together with clearly defined areas of responsibility. Quantity Incentives: Most sellers, whether manufacturers or merchants, prefer to sell in large quantities, whereas buyers often prefer to spread their purchasing over a number of suppliers in order not to become overly dependent upon a single source. To attract bulk purchasing, pricing incentives are therefore clearly needed to counter such a tendency and achieve volume sales. However, it is important to evaluate potential incentives very carefully so as to avoid making the practice uneconomic in terms of either excessively low prices and/or overly favourable credit terms. Discount Policies: There are two main types of discount. Trade discounts are offered in the normal course of business, such as when a builder buys a bath from a merchants at which (s)he has an account. Cash discounts are more frequently associated with prompt payment for goods or services, such as offering a 2% reduction for settlement within 28 days. Whatever the discount method offered, however, a company needs clearly defined policies for implementation and must apply the standard evaluative criteria used to assess the appropriateness of all other forms of incentive. Single and Multiple Pricing Arrangements: Companies may adopt single- product price structures, or else it may offer multiple-price structures which offer the same goods to different buyers at different prices and/or vary with quantity purchased or geography of purchaser. Again, however, the strategies adopted must be clearly defined and assessed for viability. Price Reduction: Finally, it is worth remembering that firms often reduce prices without any reduction being tied to discounts, incentives, etc. A reduction may be used to strengthen the organisation‟s competitive position, for instance, or to dispose of a particular product line. The best way to achieve this is via promotional activity and/or advance notice to relevant distribution channels (particularly when the reduction is for a limited period!). Again, such decisions must be managed effectively and be fully informed. Moreover, not all price “reductions” are necessarily cash-based. They can take the form of money-off vouchers, multi-purchases (“buy one, get one free”) or distributed free gifts, and so on. III. Communications Decisions Marketing Communications The effectiveness of marketing is significantly determined by the effectiveness of marketing communications. The market is activated through information flows, the way the buyer perceives the firm‟s market offering being determined in part by information received and associated reactions to it. Buyers also communicate with sellers via marketing research. Marketing communications is, therefore, the management of the buyer-seller dialogue. This two-way dialogue can be conceptualised in a formal definition of marketing communications, encompassing two key features:- The process of presenting an integrated set of stimuli to a target market with an intent of invoking a desired set of responses within that target market. And The setting up of channels to receive, interpret and act upon messages received from the market for the purposes of modifying company activity. Communications, then, are a vital part of marketing strategy. However good a product is, the customer may be quite unaware of its existence and/or may remain completely oblivious to its potential benefits until the product itself is brought to his or her attention in an effective way. Seen from this perspective, communications is often interpreted in terms of just advertising and other promotional activities. However, this is just the beginning of the communicative process. The average buyer will have an established set of ideas, opinions and prejudices which will affect how he or she receives and interprets that information. Effective marketing communications must therefore be credible, have impact and be able to modify customer perceptions in a favourable way. It is this that is the overall task of marketing communications. The Communications Mix To get their message across, organisations use a variety of communications media in varying proportions to their cost-effectiveness. Each medium has a different function to perform and must be carefully managed in a complimentary way. In other words, the company needs a total communications strategy whereby the effect of synergy is realised through two or more paths of communications – a sales representative‟s visit may be worthless unless advertising or direct mail have created awareness of his/her company and offering first! The marketing communications mix is a sub-set of tools of a “communicative” nature, each playing a role in promotional activity:- Advertising: Any paid form of non-personal presentation and promotion of ideas, goods or services. Personal Selling: Oral presentation in a conversation with one or more prospective buyers for the purposes of making sales. Sales Promotion: Short-term incentives offered to encourage purchase or sales of a product or service. Publicity: Non-personal stimulation for a product or service, usually brought about by news or editorial comments, not paid for by the sponsor. It is the marketer‟s role to co-ordinate all of the above communicative channels, organising them so that they present a mutually reinforcing message consistent with the needs of the company. NOTE: Many text books classify marketing communications as a sub-unit of promotion and we will refer to all of the above again in our discussion of promotional decisions which follows. So, why make it a separate component of the marketing mix? Three points worth highlighting:- Again, beware of “pigeon-holing” models in marketing! They rarely work as discrete categories because businesses are complex organisms and there is nothing to say that a particular aspect of the marketing mix should not appear in more than one category – indeed, identifying areas of overlap where an activity appears under more than one heading can be extremely informative (as in the study of consumer psychology, for example, with the interaction of environmental variables such as background music and mood!). Marketing communications are a two-way process, whereas most promotional activity is a uni-directional attempt to project a message. By placing marketing communications decisions in a distinct section on its own in these lecture notes, this reminds us that we must always consider both directions – subsuming communications totally under promotion encourages us to consider one side of the coin only! Finally, as the range and nature of the interactive media available to the marketer becomes ever more complex, organisations are finding that they must have specific policies developed in order to manage their communicative activities and designate communication as a specific area of responsibility. In other words, marketing communications are often a designated function within the marketing department and presenting them in this way for discussion more accurately reflects the organisational structure of the firm than the traditional approach in the marketing texts. Objectives of Marketing Communications The primary decision the marketer must make in respect of communicative activity must always be: What must the communication achieve? Setting communications objectives forms the basis of subsequent promotional activities. Rogers (1962) proposes an Innovation-Adoption Model of communications objectives:- Awareness Interest Evaluation Trial Adoption Webster (1982) suggests that the above can be condensed into four information source decisions:- 1. Who is the target audience? 2. What shall we tell them? 3. What channels shall we use? 4. How shall we time the message(s)? However we represent the decisions taken, communications tools will always be most cost-effective at the buyer awareness stage, far more so than endless “cold calls” from sales representatives. Advertising is highly cost-effective in terms of producing awareness and comprehension, personal selling coming a poor second. Buyer conviction, on the other hand, is more influenced by the sales person than advertising. Ultimately, actual choice of channels will depend on the number and type of persons the company wishes to communicate with. A wide range of potential customers may suggest a direct mail strategy, backed up by sales visits to respondents. Conversely, a more selected market may only be accessible via initial sales visits, backed up by promotional material. IV. Promotional Decisions Types of Promotional Decision If we want to draw a simple distinction, marketing communications is the element of the marketing mix which focuses on how an organisation communicates with its customers, whereas marketing promotional decisions emphasise what the organisation communicates to its customers; i.e. promotion is the use of the medium to convey the message itself, rather than the medium per se. In general, promotional decisions relate to the effective use of four key promotional tools, often referred to as promotools, namely; advertising, sales/promotion, merchandising and publicity. Advertising Advertising can be defined as any form of paid-for media communication designed to inform and influence potential and existing customers. It is a major marketing expense but, in spite of the money invested in it, there is little hard and fast research into how it works or how effective particular forms are. So, if you‟re looking for a “science of advertising”, you‟ll be very disappointed! All we can say really is that there are certain principles which appear to work well in particular circumstances. Advocates of the hard sell, for example, advocate the use of a simple and direct message, hammered home as effectively as possible. This approach draws heavily on Reeves‟ (1968) concept of the Unique Selling Proposition (USP) – the idea that you need to stress your own product‟s unique features and the advantages this gives it over the competition. In contrast to this, the soft sell approach works by endowing the product with an attractive personality over a period of time with which users can identify. In the UK, for example, the gravy product Oxo became endeared to the public via years of exposure to the stereotypical “Oxo Family” in a long-running series of commercials. Whether the “Oxo Family” were every a “typical British family” is highly questionable, but they certainly represented some form of ideal to be aspired to for many years and this family image became strongly associated with the product. The „soft sell‟ approach is closely related to brand image advertising, whereby the benefits of the product are taken for granted and, instead, the focus is upon creating emotional and psychological associations with the product. It‟s a gentle, confident approach, very „soft sell‟ as opposed to „hard sell‟. Research suggests it is an approach that is most effective with expensive, highly visible purchases and/or goods associated with derived status (e.g. designer jeans, cars). Again, however, it is important to avoid pigeon-holing! Most advertising contains a variable mix of forms – commercials for the detergent Fairy Liquid, for instance, stress kindness to hands and value-for-money, but the ads also wrap the product in very warm (almost sickly!) associations. It‟s also important to remember that not all advertising is actually meant to have an impact on sales. The oil company Shell, for example, run slick campaigns aimed at improving the company‟s image with investors and environmentalists alike. Lots of campaigns focus more upon corporate image than any particular product. There are also public campaigns to consider, such as those to discourage drinking and driving or raise awareness of meningitis. Advertising and Share-of-Voice Share-of-Voice is the term given to the idea that the amount of advertising a firm engages in relative to competitors will have an observable relationship with actual Share-of-Market for its products. So, the proportion of car advertising released by Ford in the UK will reflect the number of Ford cars sold relative to others. Furthermore, a long-running US study known as PIMS (Profit Impact of Marketing Strategy) has collected data for many years and has repeatedly demonstrated that success breeds success in this area. In other words, increasing Share-of-Voice can be an effective way for a large brand to achieve an even greater market share, or for a new brand to establish itself in the marketplace. There are a number of decisions relating to the Share-of-Voice to aim for, however, particularly given that advertising is expensive and its overall effectiveness less that clear. Indeed, many marketing managers report that defending their advertising budgets can be the hardest battle to win. There are three traditional methods of determining what Share-of-Voice to aim for, though they all have their problems:- History: Looking at what was spent the previous financial year and adding in an element to cover inflation. This takes no account of any changes in the market, nor of the actual effectiveness (good or bad!) of the previous year‟s spend. Competitor Activity: Monitoring the amount of activity of key competitors and estimating their advertising spends. This can be very difficult to achieve reliably in practice and takes no account of any residual effects of previous advertising. Percentage of Sales: One frequently used yardstick of advertising effectiveness is the Advertising Association‟s advertising:sales ratio. Basically, the more important brand image is to the success of a product, the greater the percentage of its retail price will be devoted to advertising. So, 13& of the price of a typical bottle of shampoo goes on advertising, whereas only 0.5% of the price of a litre of petrol reaches the advertising budget. There are numerous problems with such a crude measure, the most obvious being that sales can decline as a result of too little advertising anyway! Advertising: The Objective-Task Model One of the most rational methods of advertising budget setting is the objective- task approach. It works on the principle that the firm first needs to decide what it wants to achieve (the objective), then cost the necessary action to achieve it (the task). The ideal programme will, of course, be very expensive and exceed available funds. However, the model focuses attention on the key elements of the task and forces planners to prioritise to maximise available resources. A number of components of the task have been shown to be key variables to prioritise. Let‟s consider the example of effective frequency. The actual number of times an advertisement needs to be seen before it registers varies considerably with both the type of ad and the product it depicts. A reminder ad for a very familiar product only needs to be seen once or twice; a groundbreaking ad for a new product needs far more exposures to sink in. Determining the effective frequency of an ad is a very important factor in maximising the use of the advertising budget, affording this particular variable a high priority in the model. Evaluating Advertising Decisions Like any marketing activity, advertising needs clear metrics to determine its effectiveness and measure success against the objectives set. Sales increments are the obvious metric to use and the most important, but these can take time to accrue – indeed, this time period is built into the strategy adopted (e.g. “a 5% increase in sales within 12 weeks”). Given that advertising can be so expensive, however, marketing departments typically want more immediate evidence that a campaign is working, particularly where the advertising itself has been entrusted to an outside organisation. The answer to this problem is customer research. For instance, three very simple measures can be used quickly to gauge the likely impact of a recently-launched campaign:- Recall: Ask people what they can remember seeing advertised in a particular period. Attitude: Measuring consumer attitudes toward a product before the campaign starts, then taking regular repeat measures at appropriate intervals afterwards. Exposure: Use television or radio audience figures, or newspaper/magazine circulation figures, to determine the likely exposure rate of the advertisement and, on the basis of past experience, estimate the likely sales increment. In respect of the latter, measuring exposure keeps an entire marketing support industry busy and discussion is way beyond the time limitations of this course. However, the key point to note is that marketers have at their fingertips detailed intelligence on the likely exposure yields of everything from particular TV programmes and magazines to direct mailing lists and billboard posters – all key variables to prioritise in the objective-task analysis. Sales Promotion Sales Promotion is a support activity, used to supplement personal salesmanship and advertising. It is an area of marketing which has grown significantly in recent years, primarily due to the increasingly competitive nature of advertising itself and increased customer resistance to it. Essentially, sales promotion aims to encourage purchasing by temporarily providing a brand with added value. An example might be point-of-sale material advertising a competition related to the product, a move designed to increase impulse buying over a limited period. In many respects, sales promotion can therefore be seen as a sort of “silent salesman”. The sales promotion process must always begin with clearly-defined objectives; i.e. to introduce a new brand, to increase repeat purchases, to “prop up” a seasonal trend, and so on. This may involve tying the promotion to a broader advertising campaign, or it may employ a totally unrelated theme. It may be organised within the firm, or it may involve use of an outside agency. Whatever its form and implementation, however, there are three important questions to address before deciding to use a sales promotion activity:- 1. Is the intended promotion feasible, given the nature of the product and the way it is sold? 2. Is it necessary (and if so, cost-effective) to recruit additional staff with particular promotional skills (e.g. in-store demonstrators)? 3. Can the promotion be managed as a separate entity for the purposes of both financial control and outcome evaluation? Promotional Methods There are a great many different types of sales promotion and it is impossible to list them all here. However, Coulson-Thomas (1992) suggests that a useful way of classifying sales promotion types is via a tripartite taxonomy, thus:- Consumer Sales Promotions Use of “money off” coupons Self-liquidating offers (e.g. £1 & 5 labels) Sampling Bargain (or “Flash”) packs Give-aways (e.g. trading cards) Etc. Trade Promotions Percentage discounts / cash allowances Extra products free Gifts to the end buyer Dealer loaders Trade exhibitions Co-operative advertising Etc. Salesforce Promotions Sales contests Bonus schemes Incentive gifts Etc. Key Sales Promotion Considerations Market Trends: In an expanding market with growth potential, it may be possible to gain business from both new customers and customers currently using competitors‟ goods. In a static market, on the other hand, the task will be much harder as it may only be possible to win customers from competitors. Product Market Position: Consumer promotions such as coupons or bargain packs can be an effective form of sales promotion if a firm currently has only a small to medium market share. However, if a firm already enjoys a large market share, all this would achieve would be to sell to a large number of regular customers at a lower price than normal – not advisable! Consumer Product Rating: There is no point in using promotions if the firm‟s product is considered markedly inferior by customers. Promotion can only really be effective if there is an observable price advantage to be gained over competitors with a similarly rated product. Production Capacity: Sales promotions can have a huge impact on demand. Before launching a promotion, the firm must ensure it has the capacity available to satisfy that demand, preferably in such a way that the additional production merely takes up slack. Brand Image: The product‟s brand image is a crucial factor to take into consideration. After all, if the product is prestige and aimed at a higher class market, a „tacky‟ sales promotion may damage the brand image irrevocably. Competitors’ Promotional Activities: Finally, it is important to keep an eye on competitors‟ sales promotions. There is no point in spending a great deal of money on promotional activities if a competitor is already aggressively promoting its product to an extent to which the firm cannot hope to compete. Merchandising Merchandising is an ancillary activity used to support advertising and sales promotion. It is almost exclusively applied to the distributive trades, where goods are sold to traders (e.g. wholesalers, retailers) for resale to buyers (the public). Such goods are typically advertised to encourage the public to buy them via third parties (shops), merchandising being used to further encourage purchase at the point of sale. Put another way, merchandising is simply presenting merchandise at the point of sale. The aim of merchandising is to provide a link between the availability of goods and the persuasion of advertisements. It is very closely allied to sales promotion and typically involves negotiating optimum in-store product positioning and/or reinforcement of advertising elsewhere via the provision of high-impact point of sale materials. Both advertising and sales promotion can be seen as creating a climate favourable to the sale of goods. Merchandising simply serves to finally clinch the sale when correlated effectively with both the advertising and sales promotion campaigns. In other words, it is the final link in a recurring promotional theme. A number of possible merchandising strategies and techniques are available to the marketer, including:- Product packaging and positioning on the shelf relative to competitors‟ brands. Positioning of the product in the store relative to customer flow. Allocation of space on the basis of sales volume. Feature displays. High-impact packaging. Miscellaneous point of sale materials. Managing Merchandising There are four basic merchandising objectives to consider:- To obtain as much display and shelf space as possible, relative to competitors. To ensure a favourable position for the brand relative to customer flow. To seek maximum impact for the brand through packaging and display materials. To ensure stocks are kept at a sufficient level to satisfy demand. Normally, the company‟s sales person is charged with responsibility for merchandising, serving as a link between manufacturer and re-seller (e.g. ensuring adequate stocks and coverage). Increasingly, however, firms are now employing local merchandising agents to visit outlets regularly, ensure shelves are stocked and erect appropriate display materials. For example, in a recent promotion, a well- known paint manufacturer employed merchandises for one morning each week to call on one local hardware or DIY store, the agent being charged with everything from ensuring agreed shelf space was being utilised and point of sale materials were visible, to dusting tins of paint and re-stocking shelves. There are four main ways of maximising merchandising effectiveness:- Obtaining Maximum Impact: This is probably the most important aspect of merchandising as it can make or break an entire marketing campaign. The product must be presented in a dramatic and favourable manner, any merchandising materials used being designed with this impact in mind. Merchandising Deals: The types of deal offered will largely be determined by the product‟s profitability and the anticipated sales returns. Each offer must be evaluated with profitability in mind. Order Planning: The anticipated typical order must be taken into account during the planning stage. The offer usually hinges around anticipated sales and the merchandising offer must therefore show an anticipated acceptable level of profitability in order to proceed, with adequate stocks being available from the outset. Merchandising Problems: Some large re-sellers will not accept manufacturers‟ display materials, preferring to produce their own. Where this is the case, the merchandising must only proceed where the re-seller‟s materials are compatible with the overall campaign. Also, do not forget that a display erected without permission is likely to get moved and lead to disputes – the message here is liase with the re- seller! Publicity / Public Relations Public Relations (PR) is not the same as advertising. Whereas advertising tries to persuade people to buy, PR seeks to inform the public and create an understanding. It should be managed, constituting a “deliberate, planned and sustained effort to establish and maintain mutual understanding between an organisation and its public” (Institute of Public Relations). PR can interact with the marketing function in four main ways:- Corporate and financial PR creates an impression of the company in people‟s minds, which in turn may affect buyer behaviour. Companies may seek to improve their image in a local area by engaging in community relations PR; e.g. helping the police or other local bodies to address social problems via sponsorship. Industrial relations PR can help deal with issues of product quality, customer complaints, etc. Companies may seek to affect the attitudes and opinions of key opinion- givers; e.g. politicians, broadcasters, educationalists, etc. A number of methods may be used by PR personnel to reinforce marketing activity. Press releases can be used to release product information in an “objective” (or at least pseudo-journalistic!) form; press conferences can be used in a managed way to make major announcements; press receptions can be staged as “invitation only” major events (e.g. launch of a new car); facility visits can be used to allow the media to inspect some special aspects of a firm‟s operations. It should be noted that PR work is essentially all about effective communications. Consequently, it may equally involve sponsorship of key events in order to strongly associate a brand with a particular market segment; e.g. sponsorship of exhibitions, educational groups, arts events, etc. V. Marketing Channel Decisions Marketing Channels Traditional classifications of the elements of the marketing mix typically include place as one of the elements of the so-called “4 Ps” (or “3 Ps” or “7 Ps” or “13 Ps” or “however-many-Ps-it-is-this-week”!!!). Rosenbloom (2001), however, points out that the distribution medium now often contains no actual physical place whatsoever (e.g. distribution via the Web). Rather than getting into needless philosophical discussions about concepts such as “virtual places” and the like, marketers therefore now increasingly prefer to use the term marketing channel (or sometimes channel of distribution). According to Rosenbloom, the marketing channel can be seen as a bridge to the market place. As with all other elements of the marketing mix, marketing channel decisions directly affect sales. No matter how cheap a product is, or how good it is, it cannot be sold if it is not available via the right channel at the right time. Each producer of goods or services faces the problem: “How do I ensure my customers are adequately serviced when it is not possible to do so myself?”. The answer is delegation. Seen from this perspective, a marketing channel can thus be seen as a chain of companies or individuals, each of whom facilitates movement of the product from producer to end user. The two essential parties are the manufacturer and the end user. Theoretically, intermediaries are superfluous as they inflate the manufacturer‟s price in order to accommodate their own costs and profits. In reality, of course, it would be virtually impossible for most large scale manufacturers to sell their products direct to the consumers – imagine the problems if Heinz had to sell its baked beans to you direct! In practice, therefore, the presence of a wholesaler and a retailer is essential if the manufacturer is to supply sufficient quantities to the market and the consumer, wherever he/she may be, is to be able to obtain a ready supply. Functions of Intermediaries Seen from the point of view of the manufacturer, intermediaries in the marketing channel fulfil five key roles:- Stockholding Function: By holding the producing firm‟s stock, intermediaries can offset the effects of peaks and troughs in demand. They allow raw materials to be purchased in bulk, goods to be produced in economic batch sizes and finished stock levels to be minimised. Marketing Function: Many producers of goods can remain just that – producers. They do not brand their own goods, instead supplying them to intermediaries who have copyrighted brand labels of their own. For example, many companies produce goods sold under the Marks and Spencer brand name St. Michael. Often, these companies are producing goods exclusively, with no brand names of their own. Conversely, Marks and Spencer sell only their own St. Michael range of products, despite engaging in no manufacturing activity whatsoever. Distribution Function: Firms specialising in distribution can yield significant economies of scale for the manufacturer. By delivering several lines from several different manufacturers simultaneously, they are able to significantly reduce transportation costs. Cash-Flow Function: By using a distributor, the manufacturer can often gain a more secure income. By buying goods to re-sell to the end user, the distributor is effectively taking on more of the risk of poor payment or even non-payment, providing the manufacturer with a degree of insulation from the problems associated with the end user. Information-Flow Function: A further saving may come about because the distributor is able to convey market information back to the manufacturer. This information may be costly and difficult for the manufacturer to compile and interpret – not having to pay for this information is a great advantage! Channel Design And Selection Channel design affects all of the marketing mix decisions. In markets where there is ample competition from goods which are not inherently inferior, distributing the goods in the same way as the competition may mean that manipulating price and distributor markups is the only way to affect sales. On the other hand, where there is little competition, restricting the number of channels may allow promotional efforts to be more effectively targeted; e.g. targeting customers who frequent a particular chain of shops. Channel decisions must be made with the long term in mind. Once a channel is established, it becomes a key external resource and the company becomes totally dependent on that channel proving efficient and effective. Such channels take a long time to nurture. Not only is it necessary to persuade the distributor to stock your goods, it is also necessary to persuade customers to buy from that distributor. Many factors influence channel design and selection. For convenience, we can divide these factors into two key categories:- Macro Factors Is distribution to be for home or overseas markets? At which industries/regions is effort to be targeted? What is going to be the likely overall volume of demand? What are the overall objectives of the manufacturer? Micro Factors Is the product going to be uniform, or will it have regional variations? Related to the above, will the price be uniform? Will intermediaries have any input into marketing strategy? What are the objectives of any possible intermediary? Channel Length Decisions Its not always possible to consider intermediaries. Conversely, there may be several. The most common pattern of distribution is:- Manufacturer - Wholesaler - Retailer - Consumer The above is by no means always followed. The standard practice in determining the length of the channel between producer and consumer is to count the number of intermediaries, then assess efficiency. Here are some examples of channel length measurements in the UK:- Zero-Level Channels Avon Cosmetics – marketed direct on a door-to-door basis. Sales of leading computer brands, such as IBM, ICL, etc. Fruit farms which sell to consumers on a “pick-your-own” basis. One-Level Channels Marks and Spencer, who act as retailer but blur the line between wholesaler and retailer by organising their own warehousing facilities. Moore and Wright, who sell their engineers‟ hand tools to stockists who, in turn, sell them to engineers. Two-Level Channels Most goods purchased from an independent shop or store have come via a wholesaler to the store. The number of channel levels is not always determined by planning, but may be due to circumstances. For instance, each channel member (i.e. level) may be concerned more with passing title of the goods and receiving his/her own profit, rather than with getting them to the end user. An extreme example of this would be pyramid selling. Bulk stocks are sold on, but end up being discarded unused by the last member in the chain. Everyone else‟s profit margin is taken up by that luckless individual‟s own personal loss. When determining channel length, it‟s important to take into account the types of intermediary to be used at each level. Some common examples include wholesalers (traditional), cash-and-carry wholesalers, mail order businesses, marker/street vendors, direct sales agencies, and overseas intermediaries of varying types. Channel Width The third element of channel design is the channel width, which specifically determines the degree of market exposure. The manufacturer can quite often determine the degree of market exposure, following basic laws of economics:- Increasing Demand - Restricted Supply - Increased Price Or Increased Demand - Increased Supply - Steady/Falling Price Or Stable Demand - Increased Supply - Rapidly Falling Price The degree of market exposure can be controlled in one of two ways:- Restricting the number of intermediaries allowed to distribute the product. Placing restrictions on who those intermediaries distribute to. Following on from this, three main ways of managing market exposure can be identified:- Intensive Distribution: With very fast moving products demand can be created by advertising, distribution relying on a large number of outlets. Consumers are then presented with a large number of potential purchase points, high volume sales being the objective. An example here might be newspapers, available in a large number of corner shops as well as hypermarkets. This can achieve high volume sales, but the logistical costs and problems can be enormous; e.g. getting newspapers out on time and in all weathers. These problems can be compounded if the numbers of intermediaries increases. Exclusive Distribution: Market leaders exert a great deal of power and may often channel all their output via one or two distributors. For instance, one of the most dramatic examples of this back in the 1980s was Amstrad‟s decision to initially restrict supplies of the PCW computer to Dixons stores only. Another side of this can be when the market leader threatens to refuse to supply a distributor unless it stops selling competitors‟ products (a practice IBM have been heavily criticised for in Europe). Selective Distribution: Between the above two extremes lies selective distribution, whereby there may be more than one outlet in a single territory so that, in effect, the outlets are competing with each other for sales of the same product, the manufacturer being the only winner. Firms may also keep distribution costs down by deciding to supply only a limited number of outlets, or else they may decide to supply only those outlets which enhance brand image (consider the controversy currently surrounding the sale of designer clothing in supermarkets, or cut-price drugstores stocking designer perfumes or cosmetics!).
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