Marketing Foundations
Marketing Foundations
Marketing Foundations
THE
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Over the past 100 years marketing has evolved through the following
stages:
Trade orientation people exchanged what they have for what they
wanted.
Production orientation (late 1800s/early 1900s) new technology +
infrastructure = firms were able to produce greater volumes of everincreasing range of products (where demand was strong). Marketers
offerings were largely determined by what could be made & what people
bought was largely determined by what was available. (Henry Ford
philosophy)
Sales orientation (1930s) which focused on increasing profits through
advertising and one-to-one selling. As competition increased, companies
could no longer rely on consumers to want + buy everything they make.
AMA definition in 1935: Marketing is the performance of business
activities that direct the flow of good and services from producers to
consumers.
Market orientation (mid to late 1900s) approach to marketing in which
businesses worked to determine what potential customers wanted and
then made products to suit. In second half of 20th century, customers had
so many products to choose from that they could not buy them all. When
they did want to buy a particular product, they could choose from many
similar items. In a new era of increased competition, firms realised that
customers would not automatically buy any devised product (essential to
respond to markets needs and wants).
Societal market orientation (2000s) is where companies implement
practices and policies that seek to minimise their negative impact on
society and maximise their positive impact. Today businesses are
increasingly faced with not only satisfying customer wants but ensuring
they are socially responsible corporate citizens. Businesses face wellinformed customers with an enormous number of competing products
vying for their attention. The market is now viewed as not just customers,
but also broader society. This is reflected in marketers consideration of
issues such as the sustainability of their products and the benefits their
products might bring to society generally.
The future of MARKETING? The most recent advancement in marketing
is the idea of service-dominant logic, which represents a shift from a
goods-dominant mentality.
Marketing inherited a model of exchange from economics, and
traditional definitions of marketing refer to the exchange of goods or
manufactured output.
Service-dominant logic focuses on intangible resources, the co-creation
of value, and relationships. Today, the dominant logic for marketing is that
service provision, rather than a traditional goods focus, is fundamental to
market exchange.
Co-creation is the process whereby consumer experiences are used to
drive organisation improvement and change, resulting in enhanced
market performance drivers for the firm (loyalty, relationships,
customer word of mouth).
Service-dominant logic embraces concepts of value-in-use and the cocreation of value, rather than the value-in-exchange and embedded-value
concepts that were characterised in more traditional marketing.
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Quality
Benefits Expected
Value=
Price
Benefits Received
o Some marketers view this simply as a ratio between quality and price.
This is the ECONOMIC view of value.
According to this view, value is a comparison between what a customer
gets and what a customer gives; i.e. the benefits, a customer receives
from a product in relation to its price.
o Other marketers view value as unique and determined by the beneficiary.
According to this view, value is idiosyncratic, experiential, contextual and
meaning laden.
When value is viewed this way, it is not thought of in terms of one
transaction. Rather value is thought of in a way that helps to promote
customer loyalty and to consider the lifetime value of the customer/client
to the firm what does the firm offer in exchange for loyalty?
However, the quality-price ratio view is simplistic as value refers to the
total offering.
This includes all aspects, from the reputation of the organisation to how
the employees act, the features of the products, the after sales service,
quality and price.
Most companies have competitors and value is relative to the competition
as the competing offerings influence how a customer perceives value.
o Value evolves continually as it changes with each purchase, experience
and a conversation that a person has. Furthermore, value means different
things to different people.
o Value is unique for each individual. Some customers perceive value when
there is a low price while others perceive value when there is a balance
between quality and price.
It clear that then that value is a matter of individual perception (marketing
is complicated).
THE MARKET
A market is a group of customers with heterogeneous (different) needs
and wants.
Examples include geographic markets (e.g. Malaysian), product markets
(e.g. smartphone) and demographic markets (e.g. age, gender, education,
income).
- Markets can also cover different types of customers according to most
recent AMA definition; marketing is aimed at customers, clients, partners
and society at large.
- Different marketers have to market to different groups.
- The group that the marketer has to market to is the focus of all marketing
activities.
- Successful marketers are those who view their products in terms of
meeting customer needs and wants.
CUSTOMERS
Customers are those people who purchase products (goods and services)
for their own or other peoples use. While, consumers are people who use
the good or service.
- E.g. Mother purchases item but her children also uses item. Children =
consumers.
CLIENTS
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Logistics is the part of the marketing process concerned with supply and
transport.
Supply chain refers to the parties involved in providing all of the raw
materials and services that go into getting a product to the market.
PEOPLE
People refer to any person coming into contact with customers who can
affect value for customers.
PROCESSES
Process refers to the systems used to create, communicate, deliver and
exchange an offering.
PHYSICAL EVIDENCE
Physical evidence refers to the tangible cues, including the physical
environment that customers use to evaluate products, particularly
services prior to purchase.
Includes architectural design, furniture, dcor, shop fittings, colours,
background music, staff uniforms, brochures, service or delivery
vehicles and stationery.
HOW MARKETING IMPROVES BUSINESS PEFORMANCE
Firms with a market orientation perform better than firms without a market
orientation.
They have better profits, sales volumes, market share and return on
investment when compared to their competitors.
Every employee is a stakeholder in the success of their organisation.
Marketing drives economic growth; marketers play a role in stimulating
consumer demand.
Developing social change programs to influence the voluntary behaviour
of target audiences to improve the welfare of the society.
Social marketing is a process that uses commercial marketing principles
and techniques to influence target audience behaviours that will benefit
society, as well as the individual.
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INTERNAL ENVIRONMENT
The internal environment refers to the parts of the organisation, the
people and the processes used to create, communicate, deliver and
exchange offerings that have value. The internal environment is directly
controllable by the organisation.
- A thorough understanding of the internal environment ensures that
marketers understand the organisations strengths and weaknesses.
- Strengths and weaknesses are internal factors that positively and
negatively affect the organisations ability to compete in the marketplace.
The main parts of a typical organisation include:
Senior management responsible for making decisions about the
overall objectives and strategy of the organisation.
Middle management typically responsible for a department or a
geographic region.
Functional departments their aim is to make sure the objectives for
their department (e.g. marketing, HR) are aligned with the broader
organisational objectives and to manage their departments to ensure
departmental objectives are achieved.
Employees responsible for carrying out work required to meet
departmental objectives
External Vendors (outsourcing) outsource functions + roles if they can
be done more efficiently by specialist external providers. This
represents a shift of function from the internal environment to the
micro environment and thus reduces the level of control.
INTERNAL MARKETING
Internal marketing is a cultural framework and a process to achieve
strategic alignment between front-line employees and marketing.
- More specifically, internal marketing is a collection of activities, processes,
policies and procedures that treat employees as members of an internal
market who need to be informed, educated, developed and motivated in
order to serve clients more effectively.
- Thus, these satisfied employees are more likely to deliver to a customers
satisfaction.
Internal marketing is practised in three main ways.
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Generic Competition
Product Competition
Brand Competition
Example
Opportunity cost for
university students.
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MARKETING METRICS
Marketing metrics are the measures that are used to assess marketing
performance.
The Australian Marketing Institute offers a framework to guide marketers
choice of metrics.
- The frameworks underlying principles are that metrics should be linked to
strategy and should include, as a minimum, four key elements:
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OBSERVATION
Manipulation of
variables of interest
while holding
everything else
constant in a bid to
determine just what
and how particular
things affect
behaviour.
The variable of
interest is the
independent variable
& variable of
influences is the
dependent variable.
Studying peoples
behaviour and the
circumstances
surrounding it.
Major
advantages
o Allows
researchers
to establish
cause and
effect
o Tracks
actual
behaviour
(e.g. what
people do)
rather than
relying on
consumers
self-reports.
o
Measures
actual
behaviour
as opposed
to intended
or reported
behaviour.
Major
disadvantages
o The artificial
setting may not
truly reflect
real-life
settings.
o Variables other
than the one
being studied
could be
influencing the
outcome.
o
o
BIOMETRICS
Can be
expensive
Results can be
significantly
affected by the
subjectivity of
the observer.
May provide
shallow data
(e.g. it may
reveal a lot of
descriptive
information,
but little about
the motivation
or cause of
observed
behaviours)
Cannot explain
how a
consumer
thinks or what
they
remember.
The science is
still evolving.
Very expensive.
Can be
uncomfortable
for
respondents.
Determining a
o Measures
o
participants
actual
psychological
response as
response to certain
opposed to
stimuli. Examples
intended or
include heart rate,
reported
respiration
behaviour.
o
(breathing), muscle
activity, brain
o
activity (e.g.
o
neuromarketing) and
oculometric (e.g. eye
tracking) activity.
QUALITATIVE RSEARCH METHODS
Qualitative research is research intended to obtain rich, deep and
detailed information about the attitudes and emotions that underlie the
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ethically (e.g.
privacy
concerns)
In addition to deciding the appropriate method for a research project, the
market researcher must decide on the participants done through process
of SAMPLING.
SAMPLING
Population means all of the things (often people) of interest to the
researcher in the particular research project.
- It is rarely possible to conduct market research directly on the entire
population, so market researchers try to study a smaller number of
representative members of the population using a statistical principle
known as SAMPLING.
Sampling is the process of choosing members of the total population.
Sample is the group chosen for the study.
Probability sampling is a sampling approach in which every member of
the population has a known chance of being selected in the sample that
will be studied.
Results obtained can be considered to represent the entire population.
Nonprobability sampling is a sampling approach that provides no way
of knowing the chance of a particular member of the population being
chosen as part of the sample that will be studied.
Sample results obtained unlikely to be representative of the population.
Sampling error is a measure of the extent to which the results from the
sample differ from the results that would be obtained from the entire
population.
Because sampling error is directly related to the extent to which
findings from a sample can be generalised to the population of interest,
marketers must take steps to ensure that sampling error is minimised.
Sample Methods
Sample Method Type
Description
Example
Random
Probability
Each member of the If the population of
sampling
entire population to
interest is the
be studied has an
members of your
equal opportunity of marketing course,
being selected for
then a random sample
the sample.
of every 10th student
from an alphabetical
list of all students
enrolled in the course
is needed.
Stratified
Probability
The population is
Consider morning and
sampling
divided into different night classes. Morning
groups based on
= people with no
some characteristic
children and night =
(e.g. age, sex, home people with children.
state) and then from Divide into 2 groups
each of those groups and then choose a
a random sample is
sample from each.
chosen.
Stratified
sampling is used
when you expect
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SITUATIONAL INFLUENCES
Situational influences are simply the circumstances a consumer finds
themselves in when they are making purchasing decisions and/or
consuming the product.
- The principal situational influences may be classified as:
Physical location characteristics of location in which purchase
decision is made.
Social interaction interactions with others at time which purchase
decision is made.
Time available for a purchase decision
Motivational the reasons for purchase
Consumer mood the mood of a person at the time of the purchase
decision.
GROUP FACTORS
Group influences comprise SOCIAL FACTORS and CULTURAL FACTORS.
CULTURAL FACTORS
Cultural factors are those influences on behaviours that operate at the
level of the whole society or of major groups within society.
The study of human behaviour at the cultural level has traditionally
been the focus of sociology + anthropology, and a no. of key concepts
used by marketers and behavioural researchers were originally
discovered and studied by sociologists/anthropologists.
CULTURE
Culture is the system of knowledge, beliefs, values, rituals and artifacts
by which a society or other large group defines itself.
Culture is multi-dimensional and includes both tangible and intangible
elements.
Tangible elements include housing, technology, clothing, food and
artworks.
Intangible elements include laws, beliefs, customs, education and
institutions.
Hofstede, in his original landmark studies, found that national cultures
could be distinguished by variations across four core dimensions that he
described as follows:
Power distance is the degree of inequality among people that is
acceptable within a culture.
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1. Lower order, physiological, needs are the most basic: food, water, shelter,
clothing, sleep and sex.
2. The need for physical and emotional safety and security.
3. Social needs such as the desire for love, affection and belonging.
4. Ego or esteem needs which relate to self-esteem and the individuals need
to be recognised and respected by others. E.g. owning a prestige car.
5. Self-actualisation needs refer to an individuals need for self-improvement,
achievement, fulfilment and success.
PERCEPTION
Perception is the psychological process that filters, organises and
attributes meaning to external stimuli.
- The first stage of the process of perception filtering enables the
individual to deal with only those inputs that are relevant to their
particular needs and circumstances.
- In this sense, perception is selective and can result in the following:
Selective exposure the tendency to actively seek out messages
with which the audience already agrees or those that are pleasant and
to avoid messages that are threatening or disagreeable.
Selective attention the process by which an individual chooses to
take in only those messages which are relevant to their needs. E.g.
particular brands, price, etc.
Selective distortion an individuals tendency to perceive messages
that are inconsistent with existing beliefs or attitudes in such a way as
to reduce the inconsistency.
Selective retention the tendency to remember only that
information which is consistent with other beliefs and which is relevant
to an individuals needs.
- The ultimate outcome of the perceptual process is the assigning of
meaning.
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Need/Want Recognition
Need/want recognition typically occurs when a buyer becomes aware of
a discrepancy between a desired state and the actual state.
- Often, an individual will become aware of an unsatisfactory state of affairs
such as poor physical or emotional wellbeing.
Information Search
- After the recognition, the buyer searches for information about how to
solve the problem.
Typically, an information search will begin with the individual examining
their knowledge and memory for appropriate solutions.
Once this first stage has been done, decision makers look externally for
more information.
Evaluation of Options
A successful information search will usually yield a range of alternative
solutions for consideration.
From the range of evaluative criteria, the potential buyer rates and
eventually ranks the alternative solutions.
Purchase
In the purchase stage, the particular product and specific brand are
chosen.
It is important to recognise that the purchasing decision may, in fact, be to
not purchase.
Post-Purchase Evaluation
After the purchase, the buyer continues to evaluate their purchase
decision.
- In fact, once the purchase decision is made, the consumer is in a much
better position to evaluate their choice and so they will continue to assess
whether the product matched their expectations.
Cognitive dissonance refers to a purchasers second thoughts or doubts
about the wisdom of a purchase they have made.
- For example, a computer purchased today was $500 then 2 days later, it
was $350. Regrets?
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Reseller Markets
Reseller markets are the market of retailers, wholesalers and other
intermediaries that buy products in order to sell or lease them to another
party for profit.
Generally, the reseller does not make any substantial change to the
products.
- The distribution of products usually involves various marketing
intermediaries:
Wholesalers purchase products from suppliers and producers for resale
to other intermediaries, including retailers (and sometimes directly to
organisational buyers and consumers).
Industrial distributors purchase products from producers and sell them
on to organisational buyers (retailers, producers, governments and
institutions).
Retailers purchase products from suppliers, manufacturers or other
intermediaries (including wholesalers and distributors) for resale to
consumers.
- Resellers and producers share a common interest in developing successful
partnership arrangements in which both parties sales and profit
objectives can be met.
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1. Problem/Need Recognition
- Business purchase decisions begin when a problem or unfulfilled need is
recognised.
- In the business buying centre model, the person who recognises the
problem = initiator.
2. Information Search and Specification Development
- Second stage involves seeking information on the problem/need and
possible solutions, and formalising the product requirements.
- This stage requires extensive input from the members of the buying
centre, especially the users and influencers, who are often best placed to
describe how the product meets needs.
3. Evaluation of Options
- Once the product specification has been developed, the buying centre
searches for potential suppliers and specific product solutions.
- New task purchases are likely to involve extensive evaluation of potential
suppliers and solutions. This will often involve inviting expressions of
interest or more formal proposals from potential suppliers.
4. Purchase
- The detailed evaluation of suppliers + their offerings leads to a decision
about whether to purchase, which product to purchase and which supplier
to choose.
5. Post-Purchase Evaluation
- Following purchase, the organisation especially the users within the
organisation buying centre can fully evaluate whether the product meets
expectations.
- If performance of product/supplier is below expectations, the business
purchaser may choose to seek corrective action or compensation from the
supplier. Alternatively, they may choose to search for a new supplier,
particularly for recurrent or service product purchases.
ENVIRONMENTAL INFLUENCES
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MARKET SEGMENTATION
The first stage of the target marketing process is market segmentation.
There are two steps in the market segmentation phase: identifying
variables that can be used to define meaningful market segments; and
profiling the market segments so they can be assessed in the second
stage of the target marketing process.
IDENTIFY SEGMENTATION VARIABLES
The target marketing process aims to identify groups of buyers (market
segments) who have wants or needs in common that are a good match
with the organisations ability to deliver products of value.
Segmentation variables refer to the characteristics that buyers have in
common and that might be closely related to their purchasing behaviour.
- The key to effective segmentation is to choose segmentation variables
that are:
Easy to measure and readily available (e.g. demographic data available
from census)
Linked closely to purchase of the product in question.
- Market research plays a crucial role in the process of understanding the
link between segmentation variables and consumers purchasing
behaviour.
SEGMENTING CONSUMER MARKETS
- The range of possible variables for segmentation falls into four broad
categories geographic, demographic, psychological and behavioural
variables.
GEOGRAPHIC SEGMENTATION
Geographic segmentation is market segmentation based on variables
related to geography.
Useful geographic variables include:
Climate, local population, region, topography, urban, suburban and
rural location.
Geographic segmentation is particularly relevant to a country that is both
large and diverse, such as Australia.
The number of buyers or potential buyers in any given geographical area
is an important measure of market potential.
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Lecture 6 Product
LEARNING OBJECTIVES:
define product and product attributes
describe the product life cycle, new product development and the product
adoption process
outline how an organisation can differentiate its products to obtain a
competitive advantage
explain value of branding brand management
describe the roles of packaging
explain key aspects of product management and positioning through the
product life cycle.
Chapter 7 Product
PRODUCTS: GOODS, SERVICES AND IDEAS
A product is a good, service or idea offered to the market for exchange.
Goods are physical, tangible offerings that are capable of being delivered
to a customer.
Purchase of goods usually involves transfer of ownership from marketer
to consumer.
As they are intangible, a service cannot be touched or tasted and does
not involve ownership; instead, you experience a service.
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An idea can also be offered to the market in the form of a concept, issue
or philosophy.
Ideas are often the products of community organisations, charities and
political parties.
TOTAL PRODUCT CONCEPT
- To understand how a products value is perceived by potential customers,
TPC is useful.
Total product concept is a view of the product that describes the core
product, expected product, augmented product and potential product in
order to analyse how the product creates value for the customer.
It is crucial for marketers to understand that when customers choose a
product, they do not purchase some thing; rather, they buy a solution to a
problem.
TPC = way of viewing a product as a totality of value and benefits it
provides to a customer.
THE
THE
THE
-
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The product life cycle refers to the typical stages a product progresses
through: new product development, introduction, growth, maturity and
decline.
- The PLC has five stages:
1. New product development discussed later.
2. Introduction first appearance of product in marketplace. Market knows
little about product and so the organisation must often make considerable
investment in promotional activities to build awareness. Sales start at zero
and must offset promotional costs associated with product launch and
recoup the R&D costs occurred in the NPD stage.
3. Growth increasing popularity, sales and profits.
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Lecture 7 Price
Chapter 8 Price
LEARNING OBJECTIVES:
Understand the objectives that guide pricing strategies
Analyse demand to inform the development of an appropriate pricing
strategy
Describe the principles of pricing based on costs
Explain the role of competitive analysis in determining pricing
Appreciate the issues involved in pricing for business markets
Understand how to manage prices as part of the marketing mix.
FUNCTIONS OF PRICE
- Management of price is called PRICING and is based on organisational
objectives.
Price is a measure of value for buyers and sellers.
Sellers need prices to cover their costs (short and long term) and to
provide sufficient returns to justify the risk of business and invested
capital.
Buyers need prices that reflect what they think the product is worth
and what they can pay.
Price is directly related to profitability Profit = (Price x Sales
Volume) Total Costs
PRICING OBJECTIVES
Pricing benefits are essentially two-way.
For the BUYER, the benefit is the satisfaction derived from the
consumption or ownership of the product.
For the SELLER, the benefit is primarily the revenue derived from
purchases. In normal circumstances, a seller will only engage in an
exchange if that benefit is in excess of the cost of creating and delivering
the product.
Price serves as a visible expression of the value of the product to be
exchanged and enables buyers and sellers to negotiate and agree on that
value.
DETERMINING PRICING OBJECTIVES
More specific pricing objectives tend to focus on various combinations of
the following:
Profitability, long-term prosperity, market share, positioning and what
the customer is prepared to pay.
Pricing objectives should be SMART specific, measurable, actionable,
reasonable and timetabled.
PROFITABILITY
Profits are generated when total revenues exceed total costs.
Prices must exceed costs.
Return on investment (ROI) is the profit required to justify investment in
a particular product or project.
LONG-TERM PROSPERITY
Ongoing survival is a fundamental goal of all businesses and brings a longterm perspective to the setting of pricing objectives.
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LAWS
Protect against practices such as:
Price fixing
Price discrimination:
Different prices to different customers
- Predatory pricing:
Selling below cost for an extended period
- Resale price maintenance:
Recommended Retail Price
PRICE SURVEILLANCE
- The ACCC:
Undertakes price surveillance
Holds inquiries into the supply of specified goods or services
Monitors the prices, cost and profits of any industry or business.
SELECTING THE PRICING METHOD PRICING DECISIONS
o Pricing decisions should be based on an understanding of the customer
and should reflect the value of the product to the customer.
o Pricing decisions need to consider internal organisational factors and
external environmental factors.
o Prices generally need to appeal to target customers, yield acceptable
profit margins and provide a competitive market offer.
Theoretically impossible to set optimal prices across the 3 pricing
dimensions (demand, costs and competition), in practice it is
crucial to seek price which yields a satisfactory outcome (or
compromise) across all 3.
DEMAND CONSIDERATIONS
Demand is the relationship between the price of a particular product and
the quantity of the product that consumers are willing to buy.
Demand-based pricing refers to the influence of demand on pricing
decisions.
Demand-based pricing sets prices according to the level of
aggregate or individual customer demand in the market.
- The success of demand-based pricing fundamentally depends on the
organisations ability to accurately forecast fluctuations in demand and to
accurately predict consumers price sensitivity.
THE DEMAND SCHEDULE AND DEMAND CURVE
Demand schedule is a table showing actual or estimated quantity
demanded for a particular good at particular prices.
Demand curve is a graph showing the relationship between price and
volume sold.
- For the vast majority of products, there is an inverse relationship between
price and quantity sold; that is, as price rises, the quantity sold falls, and
VICE VERSA.
Hence, the demand curve has a downward slope. Prestige products =
exception.
- Ceteris paribus relationship is based on the assumption of all else
remaining constant.
- A change in demand due to a change in price alone is known as a
movement along the demand curve.
- A shift in the demand curve to the right means greater quantities will be
demanded at all prices than was previously the case.
Example increase in the price of substitute goods would increase
demand.
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Price elastic is the demand for which price elasticity is greater than 1
(i.e. the percentage change in quantity demanded exceeds the percentage
change in price).
I.e. price reduction leads to an increase in revenue.
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Price inelastic is the demand for which price elasticity is less than 1 (i.e.
the percentage change in quantity demanded is less than the percentage
change in price).
I.e. price increase leads to a revenue increase.
When
ed
= 1 it is uniform elasticity.
costs
Costs
=
Price Per UnitVariable Costs Per Unit Contribution Margin
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MARGINAL ANALYSIS
Marginal analysis is an analysis designed to determine the effect on
costs and revenue when an organisation produces and sells one more unit
of product.
Marginal analysis is useful in pricing individual units of output or to
individual buyers.
- Costs must be examined in terms of the following:
Average cost the total cost divided by volume of production.
Marginal cost represents the cost to produce and sell one more unit of
output.
- Revenues must be examined in terms of the following:
Average revenue the total revenue divided by unit sales volume.
Marginal revenue the revenue obtained by selling one more unit of the
product.
Profit is maximised by selling the quantity at which marginal cost =
marginal revenue
Marginal cost < marginal revenue, firm can increase profits by
selling more units.
When marginal cost > marginal revenue, business starts to incur a
loss.
PRICING BASED ON COSTS
Cost-based pricing is an approach to pricing in which a percentage or
dollar amount is added to the cost of the product in order to determine its
selling price.
Usually either COST-PLUS pricing or MARKUP pricing.
o Cost-plus pricing is often used when it is difficult or impossible to
determine the costs of the product until it has been made of completed.
o Mark-up pricing is used by wholesalers and retailers and involves adding
a percentage of their purchase cost to determine the resale price.
COMPETITION CONSIDERATIONS
Competition-based pricing is an approach to pricing based on the
prices charged by competitors or on the likely response of competitors to
the organisations prices.
Undesirable unless seller has a cost advantage arising through:
Economies of scale in purchasing as the amount of unit produced
increases, the cost to produce each unit decreases.
Low-cost production often based on the country of origin.
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Cash discounts offered to customers who pay promptly and who thus
save the supplier time and money in managing and collecting account
receivable.
PRICING FOR DISTRIBUTION
Geographic pricing is a pricing strategy that includes price differentials
based on those costs that vary with distance between the buyer and seller.
- A seller may charge:
A freight on board destination (FOB destination) price which means
the seller has built the transport costs in to the price.
A freight on board origin (FOB origin) which means the price
excludes the delivery costs, which must then be met by the buyer.
PRICE MANAGEMENT
THE PSYCHOLOGY OF PRICING
- Consumer purchasing behaviour is USUALLY based on a rational evaluation
of value.
- While all customers will ultimately be concerned with value, what
customers regard as value is personal and, at times, idiosyncratic.
- The relative importance of price varies between individual customers,
market segments and product categories.
- Perceptions of price also vary with time, especially over economic cycles
between booms and recession.
CUSTOMER VALUE PERCEPTIONS (PRICE MANAGEMENT)
- All customers will have a notional price range or specific price in mind
when contemplating a purchase.
Customers often use reference prices to help them form an impression of
value and price.
Internal reference price is the price expected by consumers, largely
based upon their actual experience with the product.
External reference price is a price comparison provided by the
manufacturer or retailer.
- Buyers sensitivity to price fall into three categories;
valueconscious, priceconscious, prestigesensitive.
As previously mentioned, productline pricing is an approach to pricing
that sets prices for groups of products in a product line rather than for
individual products.
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Lecture 8 Promotion
Chapter 9 Promotion
LEARNING OBJECTIVES:
Explain promotion and its role in the marketing mix
Understand the IMC approach to marketing promotion and the major
elements of the promotion mix
Describe different types of advertising and the steps in creating an
advertising campaign
Outline the role of public relations in promotion
Explain how sales promotion activities can be used
Understand the nature of personal selling
Discuss a range of marketing communication options additional to the
traditional promotion mix.
WHAT IS PROMOTION?
Promotion is the marketing activities that make potential customers,
partners and society aware of and attracted to the businesss offerings.
Promotion is the creation and maintenance of communication with
target markets.
Marketing communication is a term for promotion that refers to
communicating a message to the marketplace.
- Further, when carefully combined and coordinated to achieve a consistent
and effective message, the promotional approach is known as integrated
marketing communications.
- The idea behind IMC is that the planning of each part of the promotion mix
advertising, public relations, sales promotion and personal selling
should not be done in isolation; rather, strategies should be planned so
that they work together to achieve greater clarity and consistency, and a
better overall result.
COMMUNICATION PROCESS A MODEL OF COMMUNICATION
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Contests
Point of purchase promotions
Coupons
Event sponsorship
SAMPLES
Free sample is a sample of a product provided for free to consumers so
they can experience the benefits and features of the product without
having to commit to a purchase.
Free samples remove any monetary disincentive to trial a product.
PREMIUM OFFERS
Premium offers are bonus products given for free or sold at a heavily
discounted price when another product is purchased.
LOYALTY PROGRAMS
Loyalty programs refer to schemes that reward customers based on the
amount they spend.
The rewards can be discounts, vouchers, free gifts and so on.
CONTESTS
- Contests are effective in promoting product benefits and allow
organisations to build a database of members of their target market.
COUPONS
- Coupons are vouchers that offer consumers a discount price on a product
or service.
E.g. Shop-A-Docket.
DISCOUNTS
Discount offers provide a certain amount off the regular price.
REBATES
Rebates are the return of some of the purchase price to consumers upon
presentation of proof of purchase.
- To the consumer they result in a similar price to a discount, but they offer
several advantages to the marketer over discounts:
Any regret or second thoughts the consumer might experience after
purchase is softened by the receipt of cash.
The consumer needs to apply for the refund ad usually has to give up
some personal information when making the application.
Some consumers will not bother to claim the refund (whereas no
consumers turn down a discount and ask to pay full price).
POINT OF PURCHASE PROMOTIONS
Point of purchase (POP) promotions includes signage and displays in
stores and free product trials or demonstrations in stores.
EVENT SPONSORSHIPS
- E.g. Exclusive merchandise deal, where sponsor has sole right to sell
products at venue.
TRADE SALES PROMOTIONS
- Trade sales promotions present products to business customers and
stimulate the products movement through the marketing channel.
- Examples include:
Conventions and trade shows
Sales contests offer rewards to marketing intermediaries that sell at a
certain level or sell the most of a particular product in a particular
timeframe.
Trade allowances aim to encourage marketing intermediaries to stock
and push the marketers products. They essentially give marketing
intermediaries price discounts, refunds or contributions towards
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ORDER PROCESSING
Order processing is the term used to describe all of the activities
involved in managing the information required to receive, handle and fill a
sales order.
Efficient order processing is important to minimise costs and ensure
customer satisfaction.
Order processing is usually most efficient when computerised systems
are involved, but paper-based order systems are still common and their
relative simplicity and low cost are significant advantages for smaller
businesses.
Order processing begins when a customer or salesperson (on behalf of a
customer) places an order.
The next step is order handling, which involves checking that the terms
of the purchase are acceptable and that the product is in stock.
When order details and product availability are verified, the order will
be assembled and shipped, and the company records will be updated
to reflect completion of purchase.
INVENTORY MANAGEMENT
Inventory management involves managing stocks of products to ensure
availability to customers while minimising holding costs.
- Most businesses manage inventory by developing a trigger to reorder (the
reorder point). This is based on:
Order lead time the usual time between placing an order and
receiving the stock.
Usage rate how much stock is sold during a particular period of time.
Safety stock a quantity of stock held to cover unexpectedly high sales
and/or unexpectedly long order lead times.
Just-in-time (JIT) is an approach to inventory management that involves
holding only that stock that is about to be used or sold.
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The wheel of retailing is the theory that retailers enter the market with
low costs, low margins and low prices, but move to high costs and high
prices as they seek to compete with copiers, only to then have to compete
with new low-price entrants.
- According to the wheel of retailing theory:
Retailers enter the market using some innovation to achieve low costs
and use that to charge low prices.
Other new + existing retailers copy the low-cost innovation and
compete directly with the new entrants.
To distinguish itself, the retailer adds extra services, improves its
location and store image, and so on, which results in higher costs +
prices.
New retailers enter the market using some new innovation to achieve
low costs and then compete with the original, now high-priced, retailer.
ONLINE RETAILING
Online retailing (or e-tailing) involves selling to customers via the
internet.
There are generally 2 types of online retailers those that exist only
online or online in combination with other direct marketing avenues;
and those that operate an online store as a complement to their
physical store.
Mobile e-commerce refers to the use of a mobile phone to make
purchases.
OTHER FORMS OF RETAILING DIRECT MARKETING
Direct marketing is a type of non-store retailing that promotes and sells
products via mail, telephone or the web.
Mobile ecommerce is an example of direct marketing.
The main types of direct marketing are online retailing, telemarketing,
catalogue marketing, television shopping and direct response
marketing.
TELEMARKETING
Telemarketing is the performance of marketing-related activities over
the telephone.
CATALOGUE MARKETING
In catalogue marketing, the marketing organisation provides a
catalogue to customers who then place their orders by mail, telephone or
the internet.
Catalogue marketing offers customers all the convenience of online
shopping.
DIRECT-RESPONSE MARKETING
Like catalogue marketing, direct-response marketing requires
customers to use the mail, internet or telephone to make a purchase.
The difference is that instead of catalogues, direct-response
marketing uses advertising, such as a brochure in a mailbox, spam or
a television advertisement.
ONE-TO-ONE OR NONE-TO-ONE?
DOOR-TO-DOOR SELLING
Door-to-door selling, sometimes known as direct selling, is an approach
taking its name from the old practice of a salesperson walking door to
door to promote products to people at home.
Today a modified version, whereby potential customers are more
strategically selected, is more common.
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Explain the importance of the service sector to the Australian and New
Zealand economies.
Describe how to develop and manage an effective marketing mix based on
the unique characteristics of services.
Appreciate the major challenges in the marketing of services.
SERVICE-DOMINANT ECONOMIES
- Service industries generate about 70% of the national incomes of Australia
and NZ.
Accordingly employ the majority of the workforces of both countries.
SERVICES AND SERVICE
Services are the activities, performances or benefits that are offered for
sale, but which involve neither an exchange of tangible goods nor a
transfer of title.
Service is the act of delivering a product (whether it is a good or services
product) involving human, intellectual or mechanical activity that adds
value to the product.
Service-dominant logic
- All products should be seen as means to an end that of providing value
to the consumer.
- The value derives from the use of the product that is, the service the
product provides the value in use.
- The value is co-created in the interaction between customers, service
providers, suppliers, distributions and other participants in the service
interactions.
SERVICE PRODUCT CLASSIFICATION
CONSUMER SERVICES
Consumer services refer to those services purchased by individual
consumers or households for their own private consumption.
E.g. airlines, banking, finance, hairdressing, hotel accommodation and
restaurants.
- During periods of economic growth, demand for services tends to
increase.
- During tougher economic times, demand for many services drops away.
Some services, however, are counter cyclical e.g. during periods of
higher UE, the demand for higher education and training services tends
to increase.
- Lifestyle changes over the years have also created demand for new
services.
E.g. emergence of dual income families has created demand for child
care services.
- Technological change = opportunity for service providers (e.g. eBay)
BUSINESS-TO-BUSINESS SERVICES
Business-to-business services refer to those services purchased by
individuals and organisations for use in the production of other products or
for use in their daily business operations.
They include services provided by lawyers, accountant, advertising
agencies, engineers and management consultants.
- For many organisations, an important question in the delivery of their core
service products is whether or not to rely on their permanent full-time
workforce.
- Alternatively, they can use specialist outside service providers as
contractors. Outsourcing tends to go hand in hand with downsizing.
UNIQUE CHARACTERISTICS OF SERVICES
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CREDENCE QUALITIES
- Based on evaluation of the service providers trustworthiness, integrity
and professionalism.
In some circumstances, consumers cannot even assess the quality of
the service after they have consumed it.
Examples medical surgery, legal advice, investment advice.
The below figure illustrates the use of search, experience and credence
qualities in the evaluation of products.
MANAGING EXPECTATIONS
ESTABLISH SERVICE QUALITY STANDARDS
- Based on what factors the customers hold most important (fast versus
perfect?).
MANAGE CUSTOMERS SERVICE EXPECTATIONS
- Because services are typically intangible and frequently variable in quality,
it is important that service marketers actively manage customers
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ELECTRONIC BUSINESS
SUPPLY CHAIN MANAGEMENT
Electronic data interchange (EDI) refers to the comprehensive, secure
and realtime data exchange between partners such as for supply chain
management.
Technology plays a crucial role in managing the supply chain.
Because the web provides EDI, organisations can remain connected
with partners, ensuring stock is managed in real time.
INTRANETS AND EXTRANETS
Intranet is an internal website for the use of staff.
Extranet is a private website for sharing information securely between
different organisations.
THE VIRTUAL ORGANISATION
- Virtual organisation can come together easily and cheaply.
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TECHNOLOGICAL FORCES
Technology has been an enabling force in international marketing for the
past 20 years:
Cheap communication technologies enable easy transfer of information
between countries
Technology has created, revolutionised and destroyed entire industries.
Marketers cannot assume potential target markets will have the same
technological infrastructure as the home market.
ENVIRONMENTAL FORCES
- Overfishing, poor resource management, climate-induced acidification,
coral bleaching these are problems for the GLOBAL ECONOMY.
LEGAL FORCES
- Some countries restrict trade practices through laws and regulations. It is
important for international marketers to be aware of trade barriers such
as:
Tariffs are the duties charged on imports that effectively increase the
price of imports relative to domestically made products.
Quotas are the annual limits on the amount of particular types of goods
that can be imported.
Embargoes are the bans or restrictions on imports from a particular
country.
Limits or bans on foreign ownership for example, AU imposes limits on
the amount of Australian assets that can be foreign owned.
WHY AND HOW ORGANISATIONS GO INTERNATIONAL
In many ways, the imperative for international marketing is
straightforward:
World holds many more potential customers than does the home
market.
Communication + transport technologies make international marketing
a realistic option
Increasingly free trading environment makes international marketing
easier and at the same time, increases competition within the domestic
market.
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Lecture 13 REVISION
The Pareto principle was covered in the mid-semester exam.
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