Marketing Management Two

BBPM2203 MARKETING MANAGEMENT II
Zahari Mohamad Nor Pujawati Md Said Abdul Rahim Othman Sany Sanuri Mohd Mokhtar Noor Hasmini Abd Ghani Loo Sze Wei
Copyright Open University Malaysia (OUM), October 2010, BBPM2203 All rights reserved. No part of this work may be reproduced in any form or by any means without the written permission of the President, Open University Malaysia (OUM). Version December 2009 Project Directors: Prof Dr Mansor Fadzil Prof Dr Zakaria Ismail Open University Malaysia Module Writers: Zahari Mohamad Nor Pujawati Md Said Abdul Rahim Othman Sany Sanuri Mohd Mokhtar Noor Hasmini Abd Ghani Universiti Utara Malaysia Co-writer: Loo Sze Wei Open University Malaysia Moderators: Dr Rosli Salleh Universiti Putra Malaysia Dr Oh Teik Hai Open University Malaysia Translated & Edited: Pearson (M) Sdn. Bhd. Developed by: Centre for Instructional Design and Technology Open University Malaysia Printed by: Meteor Doc. Sdn. Bhd. Lot 47-48, Jalan SR 1/9, Seksyen 9, Jalan Serdang Raya, Taman Serdang Raya, 43300 Seri Kembangan, Selangor Darul Ehsan First Printing, August 2007 Seventh Printing, December 2009 Eight Printing, October 2010
Table of Contents
Course Guide xi-xvi Topic 1 Market Positioning and Managing Product Life Cycle 1 1.1 Market Positioning 2 1.2 Bases of Positioning 2 1.2.1 Based on Products Differentiation 3 1.2.2 Based on Services Differentiation 5 1.2.3 Based on Channel Differentiation 5 1.2.4 Based on Staff or Personnel Differentiation 6 1.2.5 Based on Image Differentiation 6
1.3 Product Life Cycles 7 1.3.1 Introduction Stage 7 1.3.2 Growth Stage 8 1.3.3 Maturity Stage 8 1.3.4 Decline Stage 9 1.3.5 Product Life Cycle Patterns 10 Summary 11 Key Terms 12 Topic 2 New Product Development 13 2.1 What is a New Product? 13 2.2 Challenges in New Product Development 14 2.3 Stages in New Product Development 15 2.4 Success and Failure Factors of New Products 21 2.4.1 Success Factors of New Products 21 2.4.2 Failure Factors of New Products 22 Summary 23 Key Terms 23 Topic 3 Managing New Product Lines and Brands 24 3.1 Product Levels 24 3.2 Product Classification 25 3.2.1 Consumer Products 26 3.2.2 Organisational Products 27 3.3 Product Mix 28 3.4 Product Line Analysis 29 3.5 Brands 30 3.5.1 Characteristics of Effective Branding 30
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3.5.2 Brand Equity 30 3.5.3 Brand-name Decision 31 3.5.4 Managing Brand 32 3.6 Packaging 33 3.6.1 Packaging Functions 33 3.7 Labelling 33 Summary 35 Key Terms 35 Topic 4 Managing Services Marketing 36 4.1 What are Services? 37 4.1.1 Categories of Service Mix 37 4.1.2 Characteristics of Services 38 4.2 Marketing Strategies for Service Firms 40 4.2.1 Traditional Marketing Mix 40 4.2.2 Advanced Marketing Mix Elements for Services 41 4.2.3 The Services Triangle 41 4.2.4 Managing Service Differentiation 43 4.2.5 Managing Service Quality 44 Summary 46 Key Terms 46 Topic 5 Developing Strategies and Managing Pricing 47 5.1 Factors in Pricing 48 5.1.1 Internal Factors 48
5.1.2 External Factors 50 5.2 Pricing Policies 53 5.3 Pricing Programmes 57 5.3.1 Geographical Pricing 58 5.3.2 Price Discounts and Allowances Strategies 58 5.3.3 Promotional Pricing Strategies 59 5.3.4 Discriminatory Pricing Strategies 60 5.3.5 Product Mix Pricing Strategies 61 5.4 Price Changes 62 5.4.1 Decreasing and Increasing Prices 62 5.4.2 Reactions to Firms Price Changes 63 5.4.3 Responding to Competitors Price Changes 64 Summary 65 Key Terms 66
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Topic 6 Managing Marketing Channels, Intermediaries and Physical 67 Distribution 6.1 What is a Marketing Channel? 68 6.1.1 Classifications of Marketing Channel? 68 6.1.2 Marketing Channel Functions 69 6.1.3 Marketing Channel Levels 70 6.2 Channel Design Decisions 71 6.2.1 Channel Design Systems 71 6.3 Channel Management Decisions 74 6.4 Channel Dynamics 76 6.4.1 Vertical Marketing Systems 76 6.4.2 Horizontal Marketing Systems 79 6.4.3 Multi-channel Marketing Systems 79 6.5 Conflict, Co-operation and Competition 80 6.6 Legal and Ethical Issues in Channel Relations 81 6.7 Managing Intermediaries of Distribution Channels 83 6.7.1 Importance of Intermediaries 84 6.8 Wholesaling 86 6.8.1 Importance of Wholesaling 86 6.8.2 Types of Wholesalers 87 6.8.3 Trends in Wholesaling 87 6.9 Retailing 88 6.9.1 Importance of Retailing 88 6.9.2 Forms and Types of Retailers 89 6.9.3 Retailing Wheel 90 6.9.4 Trends in Retailing 90 6.10 Agents and Brokers 91 6.11 Managing Physical Distribution 91 6.11.1 Components of Physical Distribution Management 93 6.11.2 Integrated Physical Distribution Management 95 System Summary 96 Key Terms 98 Topic 7 Managing Integrated Marketing Communications 99 7.1 Marketing Communication Mix 100
7.2 The Communication Process 101 7.3 The Steps of Developing Effective Communications 104 7.3.1 Identify the Target Audience 104 7.3.2 Determine the Communications Objectives 105 7.3.3 Design the Message 107 7.3.4 Media Selection 107 7.3.5 Message Source Selection 108
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7.3.6 Feedback Collection 109 7.4 Promotional Budget Deciding Method 109 7.4.1 Most Affordable Method 110 7.4.2 Percentage of Sales Method 110 7.4.3 Competitive-parity Method 111 7.4.4 Objective-and-task-based Method 111 7.5 Promotional Mix Strategy 112 7.6 Integrated Marketing Communication 113 7.7 Ethical and Social Issues in Marketing Communications 114 Summary 116 Key Terms 116 Topic 8 Managing Advertising, Sales Promotion and Public Relations 117 8.1 Advertising 118 8.1.1 Setting the Advertising Objectives 119 8.1.2 Setting the Advertising Budget 121 8.1.3 Choosing the Advertising Strategy 122 8.1.4 Advertising Effectiveness 127 8.1.5 Advertising Management 128 8.1.6 International Advertising Decisions 128 8.2 Sales Promotion 129 8.2.1 Sales Promotion Objectives and Strategies 129 8.2.2 Major Decisions in Sales Promotion 131 8.2.3 Deciding on Major Sales Promotion Tools 132 8.3 Public Relations 134 8.3.1 Public Relations Marketing 134 8.3.2 Functions of Public Relations Department 135 8.3.3 Making Major Decisions in Public Relations 135 Summary 137 Key Terms 138 Topic 9 Managing the Sales Force and Direct Selling 139 9.1 Roles of Personal Selling 140 9.2 Managing the Sales Force 141 9.2.1 Sales Force Objectives and Strategies 141 9.2.2 Designing Sales Force Strategy and Structure 142 9.2.3 Recruiting and Selecting Sales Force 144 9.2.4 Training Sales Force 145 9.2.5 Sales Force Compensation 145 9.2.6 Supervising Sales Force 146 9.2.7 Motivating Sales Force 146 9.2.8 Evaluating Sales Force 147 9.3 The Process of Personal Selling 147
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9.4 Relationship Marketing 149 9.5 Benefits of Direct Marketing 149 9.5.1 The Advantages of Direct Marketing 150 9.6 Consumer Database and Marketing Database 150 9.7 Major Channels of Direct Marketing 151 9.8 Online Marketing 153 9.8.1 Advantages and Disadvantages of Online Marketing 154 9.8.2 Managing Online Marketing 155 Summary 158 Key Terms 158 Topic 10 Marketing Control 159 10.1 Control Process 160 10.1.1 Deciding on Performance Standards 160 10.1.2 Deciding on Types of Feedback 161 10.1.3 Obtaining Feedback 161 10.1.4 Evaluating Feedback 161 10.1.5 Implementing Corrective Action 161 10.2 Control Mechanisms 162 10.2.1 Annual-plan Control 162 10.2.2 Profitability Control 164 10.2.3 Efficiency Control 164 10.2.4 Strategic Control 164 10.3 Marketing Audit 165 Summary 167 Key Terms 167 Answers 168
TOPIK 2 KAEDAH DAN TEKNIK 17
COURSE GUIDE
COURSE GUIDE xi
COURSE GUIDE DESCRIPTION

You must read this Course Guide carefully from the beginning to the end. It tells you briefly what the course is about and how you can work your way through the course material. It also suggests the amount of time you are likely to spend in order to complete the course successfully. Please keep on referring to the Course Guide as you go through the course material as it will help you to clarify important study components or points that you might miss or overlook.
INTRODUCTION
BBPM2203 Marketing Management II is one of the courses offered by the Faculty of Business and Management at Open University Malaysia (OUM). This course is worth 3 credit hours and should be covered over 15 weeks.
COURSE AUDIENCE
This is a core subject for students enrolled in the Bachelor of Management, Bachelor of Business Administration, Bachelor of Tourism Management and Bachelor of Hospitality Management. It is also a foundation course for students undergoing the Bachelor of Human Resource Management. This module aims to impart the knowledge of marketing and managing marketing efficiently. As an open and distance learner, you should be able to learn independently and optimise the learning modes and environment available to you. Before you begin this course, please confirm the course material, the course requirements and how the course is conducted.
STUDY SCHEDULE
It is a standard OUM practice that learners accumulate 40 study hours for every credit hour. As such, for a three-credit hour course, you are expected to spend 120 study hours. Table 1 gives an estimation of how the 120 study hours could be accumulated.
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Table 1: Estimation of Time Accumulation of Study Hours STUDY ACTIVITIES STUDY HOURS Briefly go through the course content and participate in initial discussion 3 Study the module 60 Attend 3 to 5 tutorial sessions 10 Online participation 12 Revision 15 Assignment(s), Test(s) and Examination(s) 20 TOTAL STUDY HOURS ACCUMULATED 120
LEARNING OUTCOMES
By the end of this course, you should be able to: 1. Discuss what is marketing and managing marketing efficiently and effectively; 2. Assess the environment and the factors that influence marketing management, from the consumers and competitors perspective; 3. Appraise the development stages and marketing mix strategy, from the aspects of market positioning, product management, pricing, distribution channels and integrated marketing communications; 4. Explore the methods of managing and implementing the marketing program; and 5. Evaluate the insights and control implementation and performance evaluation for marketing activities.
COURSE SYNOPSIS
This course is divided into 10 topics. The synopsis for each topic is presented below: Topic 1 discusses general efforts taken by the marketer to place products in the market according to consumer taste and preferences. Perceptual maps which are the main methods used in managing product placements in the market, will be discussed in-depth to explain the best method used by the marketer to place products in the market.
COURSE GUIDE xiii
This topic also discusses the first part relevant to product strategy, which is the product cycle management. Through this topic, product life cycle concepts and product life-cycle management methods will be introduced. The focus will be on the design strategy appropriate for each marketing situation faced by the product. Topic 2 explains new product concepts and effective and efficient new product development processes. New products can be classified into three categories, innovations, modifications and imitations. All three new product categories have to comply with the new product development process and marketing strategy design which are unique to the marketers. Topic 3 discusses product management from the aspects of product mix management, specifically from the aspects of product line decisions. Besides, brand management process, product packaging and labelling are also discussed in detail. Topic 4 explains the concept of intangible products, that is services. This topic answers questions regarding why the marketer needs to market services differently as compared to marketing physical products. This is caused by the unique influences of services. This topic also explains the process of creating services, gap reduction concepts and service quality in detail. Topic 5 discusses pricing management processes in terms of pricing objectives and pricing methods. It explains all the steps in the pricing management process from selecting the pricing objective to selecting the final price. This topic focuses on how the marketer needs to manage pricing based on the 3C model, cost considerations, consumer value and competitors pricing. Techniques or pricing programmes such as new product pricing, product mix pricing, standardised pricing and reactions to price changes are discussed here too. Topic 6 explains channel management concepts in terms of distribution channels and the creation of effective distribution channels. Channel conflict concepts and vertical marketing systems are introduced here. Generally, marketers can choose from two types of distribution channels, either the direct channel or the indirect channel. This topic also discusses wholesalers and retailers. The distribution channel management process is explained using physical distribution management. Order management, inventory management, warehousing and transportation will be discussed in-depth to aid in the understanding of integrated logistics systems. Topic 7 discusses the last element in the marketing mix strategy, which is marketing communication. This topic explains the communication process and
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the method chosen by the marketer to come up with an effective communication process and marketing management. Topic 8 discusses strategies and the elements of management tactics in the promotional mix (except for individual/personal selling). Each decision made by the marketing manager in advertising management, sales promotional mix, public relations and publicity is explained in detail here. Topic 9 explains managing the sales force, which is an important topic in the management of personal selling and promotional mix. Managing the sales force and the personal selling process effectively are discussed here as well. This topic also covers direct marketing and on-line marketing. Direct marketing and on-line marketing methods and the advantages and disadvantages to the marketer and consumers are explained in depth.
Topic 10 is the last topic in the module. This topic discusses marketing control processes, and covers specifically on marketing audits. The marketing audit is used to control and evaluate performance of all marketing activities and strategies done by the marketer.
TEXT ARRANGEMENT AUDIENCE

Before you go through this module, it is important that you note the text arrangement. Understanding the text arrangement should help you to organise your study of this course to be more objective and more effective. Generally, the text arrangement for each topic is as follows: Learning Outcomes: This section refers to what you should achieve after you have completely gone through a topic. As you go through each topic, you should frequently refer to these learning outcomes. By doing this, you can continuously gauge your progress of digesting the topic. Self-Check: This component of the module is inserted at strategic locations throughout the module. It is inserted after you have gone through one subsection or sometimes a few sub-sections. It usually comes in the form of a question that may require you to stop your reading and start thinking. When you come across this component, try to reflect on what you have already gone through. When you attempt to answer the question prompted, you should be able to gauge whether you have understood what you have read (clearly, vaguely or worse you might find out that you had not comprehended or retained the sub-section(s) that you had just gone through). Most of the time, the answers to the questions can be found directly from the module itself.
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Activity: Like Self-Check, activities are also placed at various locations or junctures throughout the module. Compared to Self-Check, Activity can appear in various forms such as questions, short case studies or it may even ask you to conduct an observation or research. Activity may also ask your opinion and evaluation on a given scenario. When you come across an Activity, you should try to widen what you have gathered from the module and introduce it to real situations. You should engage yourself in higher order thinking where you might be required to analyse, synthesise and evaluate instead of just having to recall and define. Summary: You can find this component at the end of each topic. This component helps you to recap the whole topic. By going through the summary, you should be able to gauge your knowledge retention level. Should you find points inside the summary that you do not fully understand, it would be a good idea for you to revisit the details from the module. Key Terms: This component can be found at the end of each topic. You should go through this component to remind yourself of important terms or jargons used throughout the module. Should you find terms here that you are not able to explain, you should look for the terms from the module. References: References is where a list of relevant and useful textbooks, journals, articles, electronic contents or sources can be found. This list can appear in a few locations such as in the Course Guide (at References section), at the end of every topic or at the back of the module. You are encouraged to read and refer to the suggested sources to elicit the additional information needed as well as to enhance your overall understanding of the course.
PRIOR KNOWLEDGE
Learners of this course are required to pass BBPM2103 Marketing Management I
course.
ASSESSMENT METHOD
Please refer to myVLE
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REFERENCES
Bagozzi, R. P., Rosa, J. A., Celly, K. S., & Coronel, F. (1998). Marketing management. New Jersey: Prentice Hall. Dalrymple, D. J., & Parsons, L. J. (2000). Marketing management: Text and cases (7th ed.). New York: John Wiley & Sons. Harrel, G. D. (2007). Marketing: Connecting with customers (1st ed.). Chicago Education Press. Hoffman, D. K., & Bateson, J. E. G. (2001). Essentials of services marketing (2nd ed.). Fort Worth: The Dryden Press. Kotler, P., & Amstrong, G. (2007). Principles of marketing (12th ed.). New Jersey: Prentice Hall. Kotler, P., Ang, S. H., Leong, S. M., & Tan, C. H. (1999). Marketing management: An Asian perspective (2nd ed.). Singapore: Prentice Hall. Kotler, P. (2008). Marketing management (13th ed.). New Jersey: Prentice Hall. Lamb, C. W., Hair, J. K., & McDaniel, C. (2008). Marketing (10th ed.). Canada: South-Western Publishing. Mowen, J. C. & Minor, M. (1997). Consumer behaviour (5th ed.). New Jersey: Prentice Hall. Shiffman, L. G. & Kanuk, L. L. (2003). Consumer behaviour (8th ed.). New Jersey: Prentice Hall. Zeithaml, V. A., & Bitner, M. J. (2002). Services marketing: Integrating customer focus across the firm (3rd ed.). Boston: Irwin-McGraw-Hill.
Market Positioning and Managing Product Life Cycle

INTRODUCTION
There are many types of products in the market. For example, in Malaysia there are more than ten types of fast food outlets. Even so, we are able to differentiate between them. McDonalds and Kentucky Fried Chicken (KFC) offer different products, services, staff or personnel, distribution channels and images.
We often witness new products being introduced in the market. Some survive while the others vanish from the market within a short period of time. Every product has its own product life cycle. First, the product is introduced, then it obtains positive responses from the consumers and finally consumers no longer buy and use the product.
LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. Define the market positioning concept; 2. Explain in detail the basic differentiating factors that are used in market positioning to distinguish products, services, staff or personnel, distribution channel, image; and 3. Describe product life cycle concepts and its strategies.
Topic
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TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE
1.1 MARKET POSITIONING

Market positioning is the act of designing the companys offerings and image to occupy a distinctive place in the mind of the target market. Without differentiation, a product will be viewed as similar to other products. If a product is not unique, consumers will find no reason to purchase and consume that particular product, or to replace the current product that is being consumed. Perodua and BMW are two companies which produce cars. The majority of consumers perceive that a BMW possesses better quality, performance and safety measures. A Perodua Kancil on the other hand, is perceived by the consumer as the cheapest car although its quality is not at par with the BMW. Both cars are different from the perspective of quality, pricing, performance level and safety measures. Perodua Kancil uses pricing and the small car concept as the basis of its market positioning in marketing its cars in Malaysia, while BMW uses luxury and status as its main strategy. There are many methods used to differentiate businesses and products offered. For example, we can use brand, quality, services offered, sales force, materials used and business location to differentiate between businesses and products offered. The market positioning desired should be achieved by the product which is being offered. If the company emphasises differences which cannot be carried by the product, consumers will feel disappointed or cheated and this will leave a negative image for the company and the product as well. Negative image can
cause losses for the company and the product will not be marketable.
1.2 BASES OF POSITIONING

ACTIVITY 1.1
Coca-cola and Pepsi are renowned soft drink producers. How do you differentiate Pepsi and Coca-cola?
In the beginning of the topic, the basis used to differentiate products that are offered and the business itself has been explained. Generally, a business or a company can be differentiated based on five aspects: (a) The product itself (b) Services offered (c) Company staff or personnel (d) Distribution channel used (e) Company image
1.2.1 Based on Products Differentiation

Products offered by a company can be used as a basis to differentiate the companys business. The bases used in market positioning are: (a) Form Most products can be differentiated based on products design like size, shape or physical structure. Some are round, cylindrical, square and others. (b) Features Most products can be offered with varying features or accessories that supplement the products basic function. For example, the features of a radio are CD and cassette players and a loud stereo. (c) Quality Most products can be differentiated based on the quality of the product itself. Normally, quality is categorised into three levels: high, average and low or inferior. Product quality can be measured according to the following features: (i) Performance Performance quality is the level at which the products primary characteristics operate. For example, a washing machine that washes efficiently is said to be of good quality and high performance. (ii) Durability A product that can last for many years is perceived as a product of good quality. (iii) Defect Free A product which is defect free is perceived as a good quality product.
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(iv) Features Products with various attractive features can be perceived as good quality products too. For example, a Sony television set with loud stereo sound, clear picture quality, remote control and a big screen falls into the good quality product category. (v) Brand Well-known brands also mean that the products are of good quality. For example, Rolex watches, Mercedes cars and Nescafe coffee. (vi) Fit and Finish
This aspect makes sure that the product is strong, efficient and is of good quality. For example, a dining table is said to be of good quality if the wood used is hard, steadfast and unshakeable. (d) Design and Style Design and style offers a good way to differentiate and position a companys products. A Jaguar car uses attractive design and style as its basic market positioning strategy. Perfume manufacturers use various bottle designs and styles which are attractive and unique as the basis of their product differentiation. Figure 1.1 displays various designs and shapes of perfume bottles for the purpose of attracting the consumers attention.
Figure 1.1: Designs and shapes of perfume bottles Source: http://images.google.com/images?/=perfume+bottles&ie=UTF-8&hl=en TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE
ACTIVITY 1.2
Based on the product list below, what is the suitable basic difference for the given products? Products Basic Difference Text books Childrens story books Nasi Lemak Jewellery Garments by BONIA Garments at the night market
1.2.2 Based on Services Differentiation

The business of one company can be differentiated from another based on the services offered or the services that are attached to the products sold. Services that can be used as market positioning are delivery services, fixing, maintenance, staff training and repair work.
1.2.3 Based on Channel Differentiation

Distribution channels used to distribute the products of a company can be used as a differentiation factor as well. Some companies use only stores to distribute products whereas others use intensive distribution, exclusive distribution or selective distribution strategies. (a) Intensive Distribution In intensive distribution, a company sells its products in as many shops as possible. The objective of this method is to enable consumers to purchase the products anywhere and when it is needed. (b) Exclusive Distribution Through exclusive distribution, the company distributes its products in exclusive stores only. The company gives special rights to certain stores to distribute its products. For example, manufacturers of Cartier accessories
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only distribute their accessories in one store in Malaysia, which is situated in Suria KLCC. (c) Selective Distribution Selective distribution strategy incorporates aspects of intensive distribution and exclusive distribution. Through this strategy, the manufacturer will
select a few stores to carry its products. The objective of this strategy is to build good relationships with a few stores in order to provide excellent service to consumers.
1.2.4 Based on Staff or Personnel Differentiation

We can also use the personnel as a differentiating factor for a company. Trained, dedicated, friendly, self-confident, capable and honest personnel are a few basic examples that can be used to differentiate a company from its other competitors.
1.2.5 Based on Image Differentiation

Today there are many types of images that are used to differentiate products and companies in the market. McDonalds portrays an image of a clean and cheerful restaurant. Nestle pictures its Nescafe coffee as an international beverage. Marlboro portrays its cigarettes as a cigarette that embodies a rugged lifestyle. Pepsi on the other hand, portrays its carbonated cola as a drink for the new generation. Generally, images are created through advertisements that are passed on to consumers. Global companies are willing to spend billions of Ringgit in advertisement programmes to create an image for their products or company name which is desired by them. Image and brands are differentiating factors that are the most difficult to be copied by competitors. Other market positioning differentiating factors like features, design and style, and services offered are easily imitated and followed by the competitors.
EXERCISE 1.1
Essay Questions 1. Describe briefly the market positioning concept. 2. Why do basic differences exist in businesses?
1.3 PRODUCT LIFE CYCLES

Each product has its own life expectancy, the product will go through stages when it is very popular and later it will decline. For example, when the VCD player was first introduced the response from the consumers were overwhelming. Now, sales of VCD players are declining because consumers are purchasing DVD players. Figure 1.2 shows the life cycle of a product. Product life cycles can be divided into 4 stages, which are: (a) Introduction stage; (b) Growth stage; (c) Maturity stage; and (d) Decline stage.
Figure 1.2: Product life cycle curve
1.3.1 Introduction Stage

The product is newly introduced in the market. Consumers are not aware of the product and profits that are very low or negative at the moment. This is caused by the heavy expenses incurred during the product introduction stage and low sales volume. The market positioning strategy which should be followed by companies at the product introduction stage are: (a) Increase the volume of advertisements to create consumer awareness. (b) Increase the number of distributors to distribute the products to the consumers.
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(c) Pricing the product high or low depending on the suitability of the market. (d) Pricing the product high if the product is new and has not existed in the market before.
1.3.2 Growth Stage

At the growth stage, sales increase tremendously. Consumers are aware of the existence of the product in the market and they have purchased the product for the first time. Profit increases and is at a profit-making level. When the product gains attention from the consumers, competitors start entering the market with similar products. The market positioning strategies which should be followed by companies at the growth stage are: (a) Continue the advertisement campaigns to build awareness, interest and confidence among the consumers. (b) Appointing more distributors to ensure the products can be purchased by a larger number of consumers. (c) Slashing product price if it was priced too high during the product introduction stage. Slashing the price will increase the number of purchasers and it will scare off competitors who are beginning to enter the market. (d) Expand factory and company operations to fulfil increasing demands from the consumers.
1.3.3 Maturity Stage

At the maturity stage, profits and sales start to reach the maximum level. The other companies start to offer similar or identical products. Therefore, consumers have more options. At this moment, competition is tough and there are many competitors in the market. The market positioning strategies which should be followed by companies at the maturity stage are: (a) Offer products with improvised design, enhanced quality and features. Figure 1.3 depicts Pepsis soft drink design that has been modified according to time. (b) Offer new models to the existing product lines. The advertising campaigns have to be continued to build consumer trust and loyalty.
(c) The price offered is lower or at-par with the competitors price. (d) Own wide and excellent distribution networks. (e) Able to obtain economies of scale to enable the company to price their products lower and control a bigger market share.
Figure 1.3: Design of Pepsi cans in the seventies and the modified version in 2002 Source: http://images.google.com/images?q=2002+pepsi&btnG= Google+Searchhl=en&lr=&ie=UTF-8&oe=UTF-8
1.3.4 Decline Stage

At the decline stage, sales and profits decline until there arent any sales or profits anymore. This happens because there is a better product replacement, new technology exists, or the consumers are bored of the old product and they dont want to purchase them anymore. When this happens, that particular product will disappear from the market. An example of a product that has disappeared from the market is the black and white television set. Video
recorders are experiencing the decline stage but they havent disappeared from the market yet. It will eventually disappear from the market altogether when technology developments set in. The market positioning strategies which should be followed by companies at the decline stage are: (a) When the technology changes rapidly and the consumer demand declines sharply, it is better for the company to cease the products production. (b) When there is continuous demand for the output, the company can continue to produce the product at a smaller quantity from time to time until there isnt any new production.
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1.3.5 Product Life Cycle Patterns

Some products have similar product life cycles as shown in Figure 1.4. There are other product life cycle patterns such as: Fad product life cycle Style product life cycle Seasonal product life cycle (a) Fad Product Life Cycle Fads are fashions that come quickly into public view, are adopted with great zeal but decline very fast as shown in Figure 1.4 as follows.
Figure 1.4: Fads product life cycle
(b) Style Product Life Cycle A style is a basic and distinctive mode of expression. When style is created, it will exist for a few generations. Then, it will disappear and reappear again. Figure 1.5 shows styles product life cycle.
Figure 1.5: Styles product life cycle TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE
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(c) Seasonal Product Life Cycle Figure 1.6 shows seasonal product life cycle.
Figure 1.6: Seasonal product life cycle
ACTIVITY 1.3
Try to give an example of a product which has gone through all the product life-cycle stages.
EXERCISE 1.2
Essay Questions 1. How do we ensure that the product purchased is of high quality? 2. Explain the stages in the product life cycle. This topic explains how businesses and products can be differentiated. Companies are able to use design, pricing, product quality and branding as the differentiating factors. Without product differentiation, a company will not be able to stay on in the market and will soon fail. Without differentiation, consumers will not be able to distinguish the companys products with the competitor products. Each product will pass through a few stages in its product life cycle. It begins
with the introduction stage until it disappears from the market.

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There are a few market positioning strategies that can be carried out at each stage of the product life cycle. These strategies implementations are important to ensure products that are marketed survive long in the market. Exclusive distribution Market positioning Image differentiation Personal differentiation Intensive distribution Services differentiation
New Product Development

INTRODUCTION
Needs and wants of humans constantly vary. Companies need to innovate and introduce new products from time to time to fulfil the needs and wants of consumers. Without new products, a company will struggle behind its competitors. New product introduction is a continuous process and requires high initial expenditure. In this topic, we will discuss new product categories, challenges in new product development, new product development processes and the factors contributing towards the success and failure of new products.
WHAT IS A NEW PRODUCT?

We often read, watch or listen to advertisements about new products in the newspapers, on television and over the radio. Some new products are brand new and they enter the market for the first time and there are some new products which are similar in features to the existing products in the market. Generally, new products can be categorised into: Innovation Products Modification Products Imitation Products
2.1
LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. Define new products; 2. Explain the six stages of new product development; and 3. Discuss the factors behind the success or failure of new products.
Topic
2
TOPIC 2 NEW PRODUCT DEVELOPMENT
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(a) Innovation Products Innovated products are products that have not been introduced in the market before. Examples of product innovation are microwave ovens, cellular phones, CD players and digital cameras. (b) Modification Products Modified products are existing products in the market that has been modified and given a new look from the aspects of packaging, design, features and functions. Modified products are new products that are vastly available in the market. An example of a modified product is a car. Cars were introduced in the market during the nineteenth century. New cars introduced by manufacturers are modified products with new designs and features. (c) Imitation Products An imitation product is a new product to a company, but the product type has been introduced and marketed by other companies. The company copies a particular product and introduces it in the market using a different brand name. For example, Proton introduced Waja cars recently. For Proton, Proton Waja was a new product but cars are products that have been introduced way earlier by other companies. Product imitation and product modification can take place concurrently, but an imitation product can be a modified product as well.
CHALLENGES IN NEW PRODUCT DEVELOPMENT 2.2

Introducing new products is not an easy task. There are companies that fail in their effort to introduce and market new products. Companies have to face many obstacles and challenges (refer Figure 2.1). Some of the challenges in new product development are: (a) Insufficient ideas to create new products because most of the products needed by the consumers are already available in the market. (b) Costs to create new products are very high because it involves research and development. It is difficult for small companies to introduce new innovations. (c) Product life-cycle becomes shorter because of technology and better replacement products. (d) Government regulation and social obstacles. A product has many safety measures and rules assigned by the government. For example, medical products have to obtain permission and approval from the Ministry of Health before they are marketed.
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(e) A company has to act fast in introducing new products. A company which introduces a product first in the market will become the market leader. Market leaders are able to control market share, build loyalty and consumer awareness, gain experience as well as create and control distribution networks.
Figure 2.1: Competition in new product development
2.3 STAGES IN NEW PRODUCT DEVELOPMENT

Introducing new products involves high risk. This is because most of the products needed by the consumers are already available in the market. As a consequence, most new introductions often fail and the company has to bear the losses. New product development process has to be carried out carefully to ensure products developed fulfil the consumers needs and tastes and is profitable for the company. There are six main stages in the new product development process. The stages are shown in Figure 2.2.
Figure 2.2: Stages in new product development
(a) Idea Generation Every product produced originates from an idea. Normally, ideas for new products are obtained from a few sources and the sources are:
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(i) Personnel or Employees A companys employee is a reliable idea source for new products. This is because most employees like the sales personnel of a company often deal with consumers and suppliers. Some companies conduct brainstorming sessions to generate new ideas among their employees. Refer to Figure 2.3.
Figure 2.3: Brainstorming session
(ii) Companys Customers Good new product ideas can be obtained from consumers. This is because, consumers know better what is needed and wanted by them. Companies normally have suggestion boxes, customer complaints (Figure 2.4) and they conduct surveys to generate new ideas from the consumers.
Figure 2.4: Customer complaint TOPIC 2 NEW PRODUCT DEVELOPMENT
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(iii) Competitors and Suppliers Companies should observe reactions and actions that are being taken by other companies to obtain new product ideas. Marketers are allowed to copy competitors ideas if the ideas are accepted by market. Smaller companies often copy ideas from other companies to introduce new products. Raw materials and component suppliers of a company are a good source of new product ideas. Generally they are aware of the new products introduced by the competitors because they supply the competitors with components too. (iv) Through Research Conducted Global and large companies normally set up their own Research and Development Department to source for ideas and develop new
products. Companies that extensively research about new products are consumer good companies like Nestle, Sony, Honda, Proton, and Procter & Gamble. (b) Idea Screening Not all ideas obtained during the idea generation stage can be implemented. Some of them cannot be implemented because they are too expensive, inappropriate technology definition, definition of raw materials needed, definition of knowledge, too early to be introduced or the market is not ready to accept the idea. This is why companies need to screen ideas generated to ensure it is practical and it is well received by the consumers when it is marketed. Ideas that are attractive and ideas that do have the ability to prosper will be chosen. Idea screening is normally done by a committee appointed by the top management. The committee comprises of personnel from the technical department, finance, marketing, manufacturing, and research and development. Some of the basic criteria used to evaluate the new ideas are: (i) Market Opportunity Identification Market opportunity identification evaluates whether there is sufficient demand and profit for the company when the product is marketed. (ii) Investment Costs Costs needed to create new products must be affordable to the company. Investment should be recovered at a predetermined period through product sales.
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(iii) Manufacturing and Marketing Skills Before a company decides on turning an idea into reality, it has to evaluate whether it has the skills and ability to manufacture the product. A company needs technology and proper factory to manufacture the product. Besides, a company needs sufficient sales force to market the product using appropriate distribution channels. (iv) Other Factors Other factors used as bases in evaluating new ideas are legal effects, social product impact, community and company image. At the idea screening stage, companies will run concept testing to ensure the selected idea is well received when it is marketed. At this moment, the physical shape of the product does not exist yet. It is still at the idea stage on paper, which is a product concept that depicts the product or a few statements about the product. At this stage, a few questions will be posed to the consumers to obtain early reaction about the product. Questions normally asked are: Will you purchase this product? Do you see any benefits from this product? How often will you use this product? Who will purchase this product? (c) Business Analysis If concept testing obtains positive reactions from the consumers, it will be evaluated at the next stage, which is the business analysis stage. At this
stage, the company will analyse market size, competition, expected cost, total sales and other environmental factors that will influence product sales. (d) Prototype Development At the prototype development stage, product concept will be given a physical form. It will be given shape and design, packaging, branding and features. Prototype development is normally done in the companys research and development lab. It will be tested for its strength, durability and ability to carry out the benefits suggested. Automobile manufacturing companies often issue prototypes and display them to the public to identify consumers reaction. Later, they will return to the lab, change and re-test the prototypes to produce a good quality product.
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SELF-CHECK 2.1
What do you understand about product prototypes? (e) Market Testing After the prototype is developed, it will be tested in a few market areas using selected groups of consumers. The objective of market testing is to identify consumers actual reaction towards the companys new product. This includes: (i) How do consumer purchase? (ii) How do they use the product? (iii) Who purchases? (iv) Who uses the products? (v) What attracts their attention? (vi) What are their reaction towards the marketing strategy of the company? Figure 2.5 shows an example of market testing process for a new product, a detergent powder.
Figure 2.5: Method of market testing
Information gathered from market testing helps the company to identify appropriate marketing strategies and to find out product potential when it is marketed.
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There are many types of market testing methods that can be carried out by the company. Test market is one of them. Through this method, the company will choose one or a few areas as test venues. The new product will be distributed and marketed in those areas. Later, the company will run promotional programmes, distribute products at appropriate outlets and run pricing strategies as planned. When the product reaches the market, the company will collect data on consumer buying patterns. In Malaysia, Klang Valley, Penang and Johor Bahru are the areas often chosen as testing areas. The Test Market strategy is one of the most efficient ways of getting to know the consumers actual reactions. But, this test will give the competitors a chance to copy the product and marketing campaign run by the company. Other testing methods frequently used are, market simulation test, focus groups and controlled test marketing. (f) Product Launching From test marketing, a company will determine whether to launch or not to launch a product. If the company decides to introduce the new product in
the market, it needs to determine a few important matters first. Some are: (i) Launching Time Sometimes the launching function has to be postponed, because of the unstable economic condition. For example, like the one in Malaysia at the end of 1977. (ii) Place of Product Introduction The company can use information obtained from market testing to determine where the new product will be introduced. (iii) Other Preparations The company has to make sure the manufacturing department and the employees are ready to manufacture the new products commercially.
Figure 2.6: New products commercial stage TOPIC 2 NEW PRODUCT DEVELOPMENT
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ACTIVITY 2.1
From your point of view, why are urban areas chosen for market testing of new junk food products?
SUCCESS AND FAILURE FACTORS OF NEW PRODUCTS 2.4

Some new products launched are successful while the others reach a dead end or fail in the market. Why does this happen? The next section will discuss the factors contributing to the successes and failures of new products in the market.
2.4.1 Success Factors of New Products

The commercial launching of the first national car, Proton Saga on 9th July 1985 by YAB Dato Seri Dr. Mahathir Mohamed was received well by the consumers. That success motivated EON to launch its new product; Proton Waja on 31st August 2000. The response from the consumers was encouraging and Proton Waja was also well received. Refer to Figure 2.7. Proton Waja was Well Received
SALES of Proton Waja cars were very encouraging. On the 31st August 2000, its launching day, 2000 units were already booked. It was launched by the Deputy Prime Minister, Datuk Seri Abdullah Ahmad Badawi at the headquarters of Edaran Automobil Nasional Bhd (EON). The launch was followed by EONs Carnival to make it livelier and to attract visitors and potential consumers. The Carnival, which was visited by many people, lasted until late at night. The Deputy Prime Minister commented that Proton Waja was the best in its class and also the best from the money for value category. The product launched in May 2000 has a solid make and it is economical because for every one litre of petrol used, it can move as far as 62.5 kilometres for manual transmission. A one-way journey to Penang from Kuala Lumpur only costs RM25. Figure 2.7: Article from Proton Wajas launch Source: http://www.drb-hicom.com/endeavour/vol15/news-protonwaja.htm TOPIC 2 NEW PRODUCT DEVELOPMENT
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The followings are a few success factors for a new product: (a) The product must be unique and different from the existing products in the market.
(b) The product has to be needed and wanted by the consumers. (c) The product has to have high consumer demand and a high growth rate. (d) The product has to be reasonably priced and affordable to the majority of consumers. (e) The company should have sufficient funds to build consumer awareness and carry on other promotional activities.
2.4.2 Failure Factors of New Products

Some new product launches fail and this leaves a negative impact on the profitability of the company. Ford Motor Corporation has experienced new product failure with the Ford Edsel car model which was introduced in early 1990. Ford lost hundreds of millions of dollars because of this. Some of the main factors why new products fail in the market are: (a) The new product is not distinctively different from the other products in the market. Because of this, consumers dont see a need to try out that particular product. (b) The product is not of high quality and does not function as expected. (c) New product idea is not very good and less rational, but it is still continued by management because of some reasons. (d) Inappropriate market definition and insufficient market testing. (e) New product development cost is too high and burdensome. (f) Lack of good promotional programmes to build awareness, trust and consumers interest towards the product. (g) The time of launching is not appropriate. (h) Tough competition.
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EXERCISE 2.1
Essay Questions 1. Some companies have to bear millions of ringgit of losses because the new product introduced was not well received by consumers. What are the reasons behind it? 2. Name sources that can be referred to in obtaining new ideas. New products are important to every business. Without new products, the company will be left behind and will be uncompetitive compared to the other companies. New product offers has to be on-going to fulfil constantly changing consumer needs and desires. Ideas for new product development normally come from the companys employees, consumers, competitors and researchers. Decisions to offer new products have to be handled strategically and with care because the new product development process involves a large sum of money and time. Business analysis Market testing Idea generation Modification product Idea screening Product launching Imitation product Prototype developmet Innovation product
Managing New Product Lines and Brands

INTRODUCTION
Products are the most important marketing mix component. Without products, there isnt any other marketing activity. Generally, products are what the marketers offer to be seen experienced and consumed for personal, household, manufacturing or to be resold. A product includes the product itself, services, places, ideas individuals and organisations. In this topic, you will be exposed to the product stages, types of products and product mix management and product lines. This topic also discusses brand management processes, packaging and product labelling.
PRODUCT LEVELS
A product normally consists of three stages, which are core product, actual product and product support.
3.1
LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. Categorise stages and types of products; 2. Discuss concept of product mix management and product lines; 3. Assess brand management processes; and 4. Illustrate packaging processes and product labelling.
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TOPIC 3 MANAGING NEW PRODUCT LINES AND BRANDS
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(a) Core Product When we create a product, we will have to consider the benefits that will be provided by the product. Core benefit is the actual reason why most consumers purchase a product. It is the actual benefit provided by the product. For example, the core benefit of a refrigerator is to store food so that it remains fresh. The core benefit of a pen is to write. The core benefit of
a car is for transportation and to move from one place to another. (b) Actual Product The second component of a product is the actual product or tangible and intangible characteristics of a product. Obvious characteristics of a product consist of design, size, colour, brand, features and quality. (c) Product/Service Support The third product component is product or service support. Product/service support is a value-added component of a product to make it easier for the consumers to consume or purchase the product. It can either be a delivery service, assembling, maintenance, warranty and credit granting. Figure 3.1 shows the product stages.
Figure 3.1: Product stages Source: Kotler, P. & Amstrong, G. (2000). Principles of marketing (9th ed.). New Jersey: Prentice Hall.
3.2 PRODUCT CLASSIFICATION

Generally, a product can be divided into two categories: Consumer products; and Organisational products.
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3.2.1 Consumer Products

Consumer products are products used by end-users for personal or family consumption. A consumer product can be divided into four categories: (a) Convenience Goods Convenience goods are products that are regularly purchased by the consumers. The buying process does not take very long. Convenience goods consist of: (i) Emergency Goods Emergency goods are purchased when a need is urgent like umbrellas and candles. (ii) Staple Goods Staples are basic goods consumers purchase on a regular basis like sugar and rice. (iii) Spontaneous Goods Spontaneous goods are products bought spontaneously like newspaper, chocolate and other products displayed at the supermarkets paying counter. (b) Shopping Goods Shopping goods are goods that the consumers, in the process of selection and purchase, compare on such basis as price, quality, features and style. The buying process is quite long and sometimes can be time consuming. Examples of shopping goods are garments, household equipment, furniture and shoes. (c) Specialty Goods Specialty goods are goods that have unique characteristics, exclusive brands and can only be obtained from certain places. For a consumer, speciality goods cant be replaced. Consumers are willing to pay a high price and normally are willing to travel a distance to obtain the product.
Examples are brands like Versace and Rolex, antique products and luxury cars. (d) Unsought Goods Unsought goods are those the consumer does not normally think of buying. An example of unsought good is life insurance. Unsought goods require the support of advertising and personalised selling.
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3.2.2 Organisational Products

Organisational products are products that are purchased by organisational consumers to be used in the output of end products and in the organisations daily operations. Industrial goods consist of: (a) Materials and Parts Materials and parts are raw materials, components and other materials used in the output of end products. For example, wheat to be made into bread, white cloth to be made into clothes and rubber to be made into tyres. Figure 3.2 shows a few raw materials which are processed to produce the end products.
Figure 3.2: Raw materials and its products Source: http://www.google.com/imghp?hl=en&ie=UTF-8&oe=UTF-8&q=
(b) Capital Products Capital items are important goods in the output process. For example, ovens are used to bake the bread. Capital products also include building, machines and office equipment.
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(c) Supplies and Business Services Supplies and business services are products used in office work and other temporary works. Examples of supplies are paper, paper clips, plastic bags, pens and pencils. Examples of services are office washing services and air conditioner maintenance services.
3.3 PRODUCT MIX

Product mix is the type, category or product line that is marketed by a company. There are companies that offer only one product type and there are others who offer many product types. Normally a company that offers only one product type is a small company which adopts the specialisation strategy or concentration. It normally concentrates on one segment of the market. A company that offers many product types is a large company that normally markets consumer products. For example, Nestle offers many product types. The basic concept of product mix is the width, depth, length and product consistency. Figure 3.3 will aid in the understanding of the concept.
Figure 3.3: Product Mix for Nestle Corporation (M) Sdn. Bhd.
(a) Product Width The width of a product mix refers to how many different product lines the company carries. For example, Nestle Corporation produces more than 20 product types like baby milk, chocolates and breakfast cereals. A product with a wide product width is able to satisfy various needs of different market segments.
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(b) Product Depth
The depth of a product mix refers to how many brands or items are offered in each product category. For example, in Figure 3.3, the product depth of chocolate products is four, the product depth of baby milk products is three and the product depth of breakfast cereal is two. A product has more product depth when the product has more items in each product category. A product that has product depth is able to meet various needs and wants of different market segments. For example, various types of chocolates are able to meet different tastes of purchasers. (c) Product Length The length of the product mix refers to the total number of items in the mix. For Nestle Corporation they have more than three hundred items in the product mix that is marketed. (d) Product Consistency The consistency of the product mix refers to a close link or synergy between one product and another which is offered by the company. Nestle Corporation offers consistent products, most of them are food and beverages based products. Consistent products enable the company to specialise in that product.
3.4 PRODUCT LINE ANALYSIS

A product line is a group of products that have the same functions, is marketed to the same group, is sold at the same price range, and is distributed by the same distributors. At Nestle Corporation, the company has many product lines such as the baby milk lines, chocolates lines and cocoa drink lines. Normally each product line will be managed by a manager. Product line managers need to identify the items in that line that are going to be built, taken care of and taken off from the market. Items that generate low sales and are making losses are normally retracted from the market. Each companys sales, cost, and market profile is analysed. If a company offers too many items, it will have to bear high operation costs, inventory cost and advertising cost.
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3.5 BRANDS
ACTIVITY 3.1
There are many brands in the market. Some brands are popular while others are unknown to the consumers. What is the purpose of product branding? Brand is a name, alphabet, or symbol that identifies a product. Branding is a part of the product. Without branding, it is difficult for a consumer to recall or differentiate products. Products with well known brands and that are easy to remember are profitable. Examples of well known brands in Malaysia are Milo, Nescafe, McDonalds, KFC, Maggi, Telekom and Coca-Cola. Examples of wellknown brands in the world are McDonalds, Sony, Coca-Cola, Pepsi Cola, Marlboro, Kodak, Toyota and Mercedes. Coca-Colas brand value is estimated exceeding USD$35 billion. (RM140 billion).
3.5.1 Characteristics of Effective Branding

An effective brand is a brand that has the following characteristics: (a) Easy to pronounce. (b) Easy to remember.
(c) Easy to identify. (d) Doesnt bring any negative meaning. (e) Different from the competitors brand. (f) Depicts product benefits to the consumers.
3.5.2 Brand Equity

Brands vary in the amount of value and power they have in the marketplace. For example, McDonalds is a well-known fast food restaurant as compared to Grandys which is losing its influence in Malaysia. A powerful brand has got high-brand equity. Brand equity is the value of the brand and it is measured based on the following characteristics:
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(a) Brand Awareness When a consumer knows that a brand exists in the market, the brand is said to have high brand awareness. If consumers awareness towards the brand is high, its brand equity is also high. (b) Brand Identity Brand identity is the connection between a brand and an individual, services or other feelings. For example, McDonalds is normally connected with burgers, clean restaurant and a cheerful place. (c) Brand Loyalty A brand is valued high when consumers stay loyal to that particular brand. Consumers dont switch to other brands and they are willing to wait even if the store runs out of stock. Examples of products and brands that have high brand loyalty are Milo, Nescafe, Coca-Cola and Maggi. (d) Estimated Quality A brand is perceived to have high value if the brand is of good quality. Sony is a brand that describes its products as high-quality products.
3.5.3 Brand-name Decision

Choosing a brand name is not an easy task. Companies who brand their products must choose based on four strategies: (a) Individual Names The company uses a different brand for every product or product line introduced. For example, Procter & Gamble names its shampoo as Pantene, Head & Shoulders, Rejoice and Vidal Sassoon. The advantage of individual branding is, it attracts attentions from different segments and every brand will have a distinct image and position. The disadvantages are, the brands will have to compete among themselves. (b) Blanket Family Names The company uses only one name for all the products. Normally the company will use its company name itself. For example, Sharp Roxy (M) Sdn. Bhd. uses Sharp for refrigerators, television, rice cookers and other kitchen appliances. The disadvantages of this brand type is when problems exist in one product, it will leave a negative image on all the other products that are marketed. (c) Separate Family Names for All Products The company uses a few brands for every product line that is introduced. For example, Matsushita Corporation uses the National brand generally for
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its electrical product line, the Panasonic brand for its audio visual product line and the Technics brand for its music product line. (d) Corporate Name Combined with Individual Product Names This brand type is the most popular and widely used by the majority of companies. The company name and the individual product brand are combined here. For example, Proton uses brand names Proton Waja, Proton Wira, Proton Iswara and Proton Perdana for its line of cars them. The advantage of this brand type is, it strengthens the company name and it has its own image and position.
3.5.4 Managing Brand

Brands are non-tangible assets that are valuable to a company. A famous brand can be marketed anywhere and normally it will be well-received by the consumers. Most consumers purchase based on the familiarity with a certain brand. They rarely purchase products that are unheard off or never used before. Some companies dont manage their brands well till they lose their popularity and finally become unfamiliar again. When this happens, the company is unable to compete with the other market players that are increasing in the market. There are a few factors that cause a brand to lose its popularity and they are: (a) The company focuses its business on a short-term only. Company emphasises on short-term sales and profitability and doesnt emphasise on advertising to build its brand. The company treats advertising as cost and not as long-term investment. (b) Lack of marketing support includes the inability to obtain sufficient budget for advertising. Brand management is not given importance and it is placed in a less important section like the corporate issues management section. Brand management has to be put under brand management itself or under product management for that particular product. (c) Company only concentrates on sales promotion that leaves an impact on increasing sales for the short term. (d) Unstable economic condition also leaves an impact on brand popularity. When there is a recession, consumers dont give importance to product brands anymore, they give importance to the products that are attractive and sold at low prices. But the company still has to carry on with its advertising programmes from time to time to remind consumers about its existence.
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ACTIVITY 3.2
Competition constantly exists between famous brands. In this brand competition, what has to be done by the marketer to popularise the brands that are introduced by them?
3.6 PACKAGING
What is meant by packaging? Packaging is a part of the product. Some companies use their packaging as a competitive advantage and also as their product positioning basis. For example, Pringles potato chips are kept in a cylindrical box which is made out of hard paper. This packaging method differs from the other companies that market potato chips because they pack their potato chips in soft aluminium covers. Now, packaging plays an important role in marketing a product. A good and attractive package design can attract interest, make it easier for consumers and
act as the differentiation basis to promote the product.
3.6.1 Packaging Functions

The various functions of packaging are: (a) As a container to contain and protect the product. (b) Makes it easier for the distributors to store, arrange and display products at their stores. It also makes it easier for the consumers to store the products that are purchased. (c) Packaging can be used as the basis for segmentation as well. Small packages for single people and large packages for family consumption. (d) As a communication and promotion tool directed to the consumers. (e) As an element that can be used in the new product development. There are companies that change packaging shapes and promote them as a new product although the basic product doesnt change.
3.7 LABELLING
Labels are any writing that appears on the package. It consist of price tags, product brand, company name, information on product content, product recipe,
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halal sign, company address, expiry date and others. Figure 3.4 shows one of the product labels, which is Nescafe.
Figure 3.4: Nescafes product label Source: http://www.bevnet.com/images/reviews/nescafe/nescafe-espressoroast.jpg
Label plays a few important functions: (a) Enables consumers to identify a particular product or brand. (b) Enables a product to be graded like, grading done to chicken eggs, fruits and other foodstuff. (c) Explains who distributes the products, where it is manufactured, what the contents of the product are and how to use it effectively. (d) Promotes the product through its attractive graphic design. Label is an important issue in marketing. The company has to take into account the issue of appropriate language usage, government regulation on safety issues and product content, product pureness issue for the products marketed in Islamic countries.
EXERCISE 3.1
Essay Questions 1. Explain the types of convenience goods. 2. Provide four functions of packaging.
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Product is the most important component of the marketing mix. Without a product, the other marketing activities dont exist. Generally, a product can be categorised into individual consumer products and organisational products. Individual consumer products can be categorised into convenience goods, shopping goods, specialty goods and unsought goods. All these product types can further be sub-divided based on the consumers behaviour when they purchase the product. A product is incomplete without its packaging and labelling. Now, most
companies use product packaging as a basis for competing and differentiating. An attractive product package wins the hearts of the consumers to purchase the product. Government regulation regarding product content like calorie value and vitamin and nutrient content causes a lot of information to be labeled on the package. Brand is a product component which is very important. Without branding, consumers cant identify a product. Branding is an intangible asset but it is valuable to the company because famous brands can be sold anywhere. Brand identity Speciality goods Branding Spontaneous goods Emergency goods Staple goods Product line Unsought goods Product width
Managing Services Marketing

INTRODUCTION
The interest to look at services in more detail surfaced when a significant trend existed that started to realise the importance of services. Services are seen as an output that is able to shape the advantages to compete when it is used together with the physical product. But it is also important in increasing the gross output of the country. This can be seen from the contribution from the banking industry, food industry, education and health. Based on the statistics report from the US Labour Bureau, job opportunities in the service sector are growing and has increased since 2005. Discussions in this topic will focus on services as products and services as tangible product complements and its importance to the market.
Topic
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4. Appraise customer support services. 3. Assess the strategies in differentiating offers, presentation and service image besides understanding the needs of quality management and service productivity; and
LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. Explain services and the categories of services; 2. Discuss how services are different from physical products;
TOPIC 4 MANAGING SERVICES MARKETING
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4.1 WHAT ARE SERVICES?

ACTIVITY 4.1 Whats the difference between the OUM Module and the course which is being offered by OUM? Services are seen as a series of actions, processes and implementations that cannot be viewed. A service is any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. The service industry can be categorised into three main categories: (a) The government sectors like the Courts, employment services, loan agencies, military services, police and fire departments, regulatory agencies, post office and schools. (b) Private non-profit sectors such as museums, churches, colleges and hospitals. (c) Business sectors such as its airlines, banks, hotels, insurance companies, law firms and consulting firms. Services that are being offered are not centred on the services as products only, but also as part of the offer to complete the tangible product. Service departments like the accounts department, the law department and hotline services have been created in companies.
4.1.1 Categories of Service Mix

A companys offering to the marketplace often includes some products and services. The service component can be a minor or major part of the total offering. There are five categories of offerings: (a) Pure Tangible Goods The offering consists primarily of a tangible good such as soap, toothpaste, or salt. No services accompany the product.
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(b) Tangible Goods with Accompanying Services The offering consists of a tangible good accompanied by one or more services. For example, Proton and Perodua both offer cars and after-salesservices. (c) Hybrid The offering consists of equal parts of goods and services. For example,
people patronise restaurants for both food and services like good treatment from the restaurants waiters. (d) Major Service with Accompanying Minor Goods and Services For example, Malaysian Airlines Systems (MAS) basic product is transportation and the supporting services consist of food offerings and baggage services to the consumers. (e) Pure Services The offering consists primarily of a service. Examples include baby-sitting, psychotherapy and massage.
4.1.2 Characteristics of Services

Services have characteristics that are different from tangible products. Because of that, the business firm has to take into account all those characteristics in its marketing strategy. Services have four major characteristics that differentiate them from the other physical outputs. The characteristics are: (a) Intangibility Unlike physical products; services cannot be seen, tasted, felt, heard or smelled before they are bought. The service cannot be evaluated until a person uses the service. This means that a person has to purchase the service first before he can evaluate the service. To reduce uncertainty, buyers will look for evidence of the service quality. They will draw inferences about the quality from the place, people, equipment, communication material, symbols, and price that they see. Therefore, the service providers task is to manage the evidence, to tangibilise the intangible.
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(b) Inseparability In the process of introducing a physical product, the product has to be manufactured, kept in a warehouse, distributed through multiple distribution channels and purchased and consumed by consumers. Services are typically produced and consumed simultaneously. The buyer has to be present when the service is created. For example, a restaurant can not create its services until the food is ordered by the consumer. Providerclient interaction is a special feature of services marketing. Provider and client will influence the service output that is being delivered. (c) Variability Services are highly variable because they depend on who provides them and when and where they are provided. For example, services in a restaurant, McDonalds serves delicious instant food. But McDonalds employees may not have the skills to prepare the order immediately. To overcome this weakness, a few steps should be taken: (i) Control in hiring employees. Recruiting the right employees and providing them with the right training is crucial to increase their knowledge and expertise. (ii) Standardising the service-performance process throughout the organisation. This is done by preparing a service blueprint that depicts events and processes in a flowchart, with the objective of recognising potential fail points. (iii) Monitoring customer satisfaction through suggestion and complaint
systems as well as customer surveys. (d) Perishable Services cannot be stored. The perish ability of services is not a problem when demand is steady. When demand fluctuates, service firms have problems. For example, if there is a shortage in demand for airtransportation, it cannot be stored for the next day. The airline agency has to bear losses at that time for offering more than what is being demanded. To control this problem, a few strategies can be used: (i) Differential pricing for peak demand and non-peak demand. (ii) Create reservation systems. (iii) Part-time employees can be hired to serve peak demand. (iv) Increase customer participation in the form of self-service.
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If you are receiving an offer for a hair cut, what are the important criteria that have to be taken into consideration for you to evaluate the satisfaction which will be obtained from that service? ACTIVITY 4.2 Essay Questions 1. What are services? Explain the main categories or types of services. 2. Explain three categories of service mix that you normally experience or you make purchases on. 3. What are the characteristics that differentiate services from physical products? 4. What are the marketing implications that have to be done to minimise elements that cannot be separated in services? EXERCISE 4.1
MARKETING STRATEGIES FOR SERVICE FIRMS 4.2

Marketing strategies for service firms refers to: (a) Traditional marketing mix; (b) Advanced marketing mix elements for services; and (c) Service triangle.
4.2.1 Traditional Marketing Mix

One of the basic concepts in marketing is marketing mix. Marketing mix is the organisations control elements which can be used to satisfy consumers or to communicate with them. The main marketing mix elements are product, price, distribution and promotion. These elements are basic deciding factors in any marketing plan.
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4.2.2 Advanced Marketing Mix Elements for Services

Services are typically produced and consumed simultaneously. Normally, the buyer has to be present when the service is offered. Services are something that are intangible or cannot be seen. This is why consumers normally look for tangible evidence to aid them in evaluating the service. Service marketers use additional methods to communicate and satisfy their customers because of these
factors. As an addition to the basic marketing mix elements like product, price, place and promotion are marketing mix elements for services which include: (i) People Human management refers to the involvement of individuals, either personnel, firms, users or other consumers in conveying and influencing buyers perceptions. (ii) Physical Evidence Physical evidence refers to the surroundings where the service is offered, the firm and consumers interact and any tangible component that enables communication to take place. For example, business cards, formal reports, catalogues, equipment and buildings. (iii) Process Processes involve actual procedures, mechanisms and activity flows where services are offered including the offer process and service operations. Service providers can offer various service processes to the consumers. For example, restaurant with a cafeteria concept, fast food, buffet and romantic candle light services.
4.2.3 The Services Triangle

The creation of a service is influenced by the physical evidence, people management and processes that support the tangible element for the consumers. Services marketing does not only need external marketing, but it also involves three other marketing processes, like external marketing, interactive marketing and internal marketing. (a) External Marketing External marketing refers to marketing that involves promotion mix like advertising, sales promotion, public relations, direct selling or online selling.
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(b) Interactive/Relationship Marketing Interactive or relationship marketing involves interpersonal relationship which is carried out by an employee with a consumer through channels like personal selling, customer service centres, service encounters and services capes. It involves employees skills and knowledge in managing consumers. Customer service evaluates services from the perspective of technical and functional quality. (c) Internal Marketing Internal marketing describes the work to train and motivate employees to serve customers well. Internal marketing needs a systematic and capable management so that communications between the employees are accurate, clear and consistent with what is seen and heard by the consumers.
Figure 4.1: Services triangle Source: Kotler, P. & Amstrong, G. (2000). Principles of marketing (9th ed.). New Jersey: Prentice Hall.
All the three types of marketing above were based on the services triangle as in Figure 4.1. The suppliers of services are responsible to ensure that the interactive message is in-line between the companys employees (internal and interactive marketing) with what is channelled by the company through external marketing. To ensure that the companys objectives are achieved, internal marketing communication
has to be managed well. This is done so that the firm communicates accurately and sufficiently with its employees and is consistent with the information that the consumers receive through what is being delivered through external communication.
TOPIC 4 MANAGING SERVICES MARKETING 43 Figure 4.2: Consumers evaluation for different types of products and services
Figure 4.2 shows various products and services according to the continuum of evaluation for different types of products and services. Services are generally involved experience and credence qualities; there is more risk in purchase here. This has several consequences: (a) Service consumers generally rely on word of mouth rather than advertising. (b) They rely heavily on price, personnel, and physical cues to judge quality. (c) They are highly loyal to service providers who satisfy them. Due to these factors, service companies have to perform three main tasks: Manage competitive differentiation for the services offered by the firms Manage service quality offered Manage productivity
4.2.4 Managing Service Differentiation

Service marketers frequently complain the difficulty in differentiating their services. If consumers are unable to differentiate between services that are provided by a company and other service providers, consumers will pay less attention to them. Consumers on the other hand will give emphasis on the price that is being offered.
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The alternative to price competition is to develop: Differentiated offering; Service delivery; and Image. (a) Differentiated Offering The offerings can include innovative features. The customer is offered the primary service package and the secondary service features complement or support the primary service package. For example, Malaysian Airlines System (MAS) offers its primary service package which is providing transportation through air. The secondary services offered are baggage services, television, and music. The major challenge is that most service offerings and innovations are easily copied. Still, the company that regularly introduces innovation will be successful through its reputation as the market innovation leader. (b) Service Delivery A service firm can hire and train employees to be qualified and to deliver services to consumers. The company has to shape and create an attractive physical environment in the service delivery process because it is one of the factors that influences the customer. (c) Image Service companies can also differentiate through symbols and branding. For example, American Express is one of several highly branded service
companies that have developed a successful international image.
4.2.5 Managing Service Quality

If a firm succeeds in delivering services to consumers better than their competitors, the company has increased their customer expectation for the services offered. Customer expectation refers to the benefits that are expected from the consumption of a service. Increased customer expectation can increase loyalty levels in consumers and they are apt to use the services again. Customer expectation is developed through past experiences, word of mouth and advertising. If the perceived service level falls below the expected service level, customers will be disappointed. The existence of a gap between the perceived service and expected service causes consumers to lose interest in continuing to use that service in the future.
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So, the company needs to manage the service quality smartly to fulfil and increase customer expectations. There are five determinants of service quality: (a) Reliability The ability to perform the promised service efficiently and accurately. (b) Responsiveness The willingness to help customers and to provide prompt service. (c) Assurance The knowledge and courtesy of employees and their ability to deliver trusted services. (d) Empathy The willingness to provide caring, individualised attention to customers. (e) Tangibles The appearance of physical facilities, equipment, personnel and communication materials. Quality determinant also known as SERVQUAL is an important and major guideline that is widely used by the firm to manage service quality. ACTIVITY 4.3 EXERCISE 4.2 Have you faced an uncomfortable situation when dealing with companies that offered services? If yes, think of one example of dissatisfaction. Essay Questions 1. Services differ as compared to other physical outputs. Discuss the major differences between the characteristics. Explain marketings effect on each characteristic. 2. Discuss three forms of services marketing mix elements that are considered important, but the importance has not been emphasised in the marketing mix of the physical product. 3. Explain the elements that are involved in the Services Marketing Triangle. How do these elements influence the service marketing communication?
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Services include seven elements from the marketing mix as compared to the physical product and they are output, price, place, promotion, human,
physical evidence and process. Services have four major characteristics that differentiate them from the other physical outputs. The characteristics are intangibility, inseparability, variability and perishable quality. Services marketing strategy not only involves external marketing but it also needs capability and trust in interactive marketing and integrated internal marketing in the firm. Service firms face three main marketing tasks, which consists of differentiating their product offerings, service delivery and companys image, service quality management and service productivity management. Services offered need excellent customer support service for each service that gives high importance to consumers. This support programme involves before- sales and after-sales programmes. Hybrid Perishable Inseparability Pure services Intangibility Variability
INTRODUCTION
Pricing is one of the most important elements of the marketing mix apart from product, promotion, and place. It shows the value of the product or service to the seller or buyer. The value of a product or service involves tangible and intangible marketing factors. Setting the price of a product is very important because it influences the consumers buying decisions. The marketer has to choose and determine the final price which is capable of maximising consumer satisfaction and competing with the competitors pricing strategy. Examples of tangible marketing factors are cost savings offered by firms if purchases are made in large quantities. Intangible marketing factors are like a consumers pride when they own luxurious posh cars like a Jaguar. Pricing can be connected with the price list, discount, allowances, payment period, and credit terms.
Topic
Developing Strategies and Managing Pricing
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By the end of this topic, you should be able to: 1. Identify a firms internal and external factors that influence pricing; 2. Explain the important steps in pricing procedure; 3. Discuss the effects of pricing on the prices of products; 4. Appraise the five major pricing programmes; 5. Assess price changes; and 6. Examine the reactions towards price changes.
LEARNING OUTCOMES
TOPIC 5 DEVELOPING STRATEGIES AND MANAGING PRICING
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The discussion in this topic starts with an explanation regarding price setting factors. This discussion is continued with the pricing process, price matching, initiating price changes and effects towards price changes, pricing strategies, pricing change management, and marketers and competitors reactions toward price changes.
5.1 FACTORS IN PRICING

The pricing process involves the firms internal factors and external environmental factors. Figure 5.1 shows examples of factors that influence pricing.
Figure 5.1: Factors in pricing
5.1.1 Internal Factors

Internal factors that influence pricing are: Firms marketing objectives Marketing mix strategy Cost Organisation (a) Firms Marketing Objectives When a firm has clear marketing objectives, it will go through the pricing process smoothly. For example, General Motors has set its marketing objective, which is producing sports cars which will compete with sports cars from Europe. Its main target market is focused on the high income group. There is a possibility of pricing the sports car higher because of the targeted market.
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Some of the pricing objectives normally used by the firm are: (i) Survival Survival refers to low price setting for the purpose of generating high demands. In this situation, the survival concept is more important
than profit. (ii) Maximising Current Profits Companies that use current profit maximisation as a factor in setting price will estimate cost and demand at different prices. Then, the company will select the price that will produce current profits, cash flow and maximum return on investment. (iii) Market Share Leadership Most companies desire to obtain market share leadership because market leaders believe they will enjoy low costs and high profits for long periods of time. Price is set at the lowest level. (iv) Product Quality Leadership Companies that desire to be product quality leaders are generally active in research and development activities that involve high costs. This requires the company to maintain a higher price to bear quality costs incurred due to product research and development. To achieve the marketing objectives above, a products pricing decision has to be in line with the marketing mix strategy. (b) Marketing Mix Strategy Price is the only marketing mix instrument which is used by a firm to achieve its marketing objectives. Thus, the pricing decision has to be in line with the product design, distribution and promotion. This is important to develop marketing programmes that are effective and consistent. Decisions made for the other elements in the marketing mix may leave an impact on the pricing decision. (c) Cost Cost is an instrument used by a firm to fix the products floor price/minimum price. The company will choose a price that will be able to bear the overall production cost, distribution and product sales including sufficient profit to be used as the capital turnover for the company. Fixed cost, variable cost and total cost are the types of costs that influence the pricing of a product. Fixed costs are costs that do not vary with production or sales revenue. Variable costs are costs that vary directly with the level of production. Total
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cost consists of the sum of the fixed and variable costs for any given level of production. (d) Organisation A firms management has to decide who in its organisation will set prices. For a small firm, price setting is generally done by the top management. Meanwhile, for a big firm, price setting is generally done by the output manager or division manager.
5.1.2 External Factors

ACTIVITY 5.1
As a consumer, does the price of a product influence your purchases? External factors that influence pricing are: Market condition and demand Competitors price and offer
Other factors like economy, sales personnels needs and governments actions (a) Market Condition and Demand The marketer has to understand the relationship between market and demand before pricing is done. Pricing in the market depends on four different types of markets: (i) Pure Market Competition Pure market competition refers to the market that has many buyers and marketers who market products that are the same or similar like rubber, palm oil, rice and tin. In this market, prices are quite standard. As a result of this, the marketer and buyer are unable to influence pricing. If a marketer increases the price, the buyer will purchase from another marketer at a lower price. Thus, marketing strategy does not play an important role in this market. (ii) Monopolistic Market The monopolistic market includes many buyers and marketers who conduct business at different prices. Different prices are based on the marketers ability to differentiate their offers to the buyers, from the
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aspect of quality, characteristics, image, or service forms prepared. In this market, marketing strategy plays an important role. (iii) Oligopoly Market An oligopolistic market is a market that has very few marketers because it is difficult for new marketers to enter the market. Outputs offered are uniform outputs like steel and tin, and non-uniform markets like cars and computers. Marketers are always alert for price pricing strategies and marketing strategies between them. When a marketer reduces price, the other marketers have to follow suit. But, if a marketer increases the price, it may not be followed by other marketers. (iv) Pure Monopoly Market In a pure monopoly market, the market consists of one marketer only. The marketer is normally the government (example, for water supply) or government operated companies (example, Tenaga Nasional Berhad, Malaysian Airlines System and Telekom Malaysia Berhad). Price that is fixed by the government and a government-controlled company are different from one and another. Government monopolies may fix many objectives in setting prices, some are: Pricing below costs Pricing that is able to cover costs Pricing that produces lucrative returns to the government Pricing high to reduce consumption For a government-controlled company, price setting is done either through the government itself or through the freedom that is given by the government. But, the price setting freedom is at a rate that enables the company to maintain and develop its operations. Besides market conditions, consumer perceptions on the price and value will determine whether the firm has priced its product appropriately. If the product has been priced higher as compared to
the perceived value, customers will not purchase that product. Because the perceived value of every customer is different, the marketer normally differentiates their pricing strategy based on identified market segments. For example, Sony offers a television model which is less expensive and small for consumers who prefer the basic features. The expensive television model can be offered to consumers who want additional features and benefits.
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When evaluating markets and demand, firms have to estimate price elasticity of demand. The relationship between price and demand level can be seen through the demand curve. Demand curve shows the possible quantity that will be purchased for a time period at a stipulated price. Figure 5.2 shows this relationship.
Figure 5.2: Price elasticity
In Figure 5.2, demand curve (a) shows the number of market purchases for a stipulated duration at various prices. Normally, demand and price are inversely related. The higher the price, the lower the quantity demanded. If a firm increases price from P1 to P2, quantity demanded by the market will decrease from K1 to K2. In the case of prestige goods (b), the demand curve sometimes slopes upwards. This means, when the company increases price from P1 to P2, quantity will increase from K1 to K2. If the price is increased too high, from P2 to P3, quantity demanded will decline from K2 to K1. This is because not many buyers have the means to purchase at that price. (b) Competitors Price and Offer Most consumers compare the price of a product with the competitors price, and will choose the product that offers the best value. So, it is important for a firm to know about the price and quality that is offered by the competitors. It can be made as the basis for smart and appropriate pricing decisions for all products. (c) Other Factors Other external factors that influence the pricing decision are economy, the effect of price on other marketers and government. An economic downfall
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influences pricing decisions because it influences production cost and consumers perceived cost towards price and the value of the products. The price decided on has to provide reasonable profit to the retailer or wholesaler to encourage more effective sales. Government is also an important external factor who can influence pricing. Pricing decisions shouldnt be against the law.
EXERSICE 5.1
Essay Question List the internal and external factors that influence pricing.
5.2 PRICING POLICIES

After discussing the factors in pricing, next we will discuss how the price of product is decided. The firm has to consider many factors in setting its pricing policy. There are six steps that can be used by firms as procedures of setting their pricing
policy. These steps are: Step 1: Selecting the pricing objective Step 2: Determining demand curve Step 3: Estimating costs Step 4: Analysing competitors costs, prices and offer Step 5: Selecting a pricing method Step 6: Selecting the final price (a) Step 1: Selecting the Pricing Objective Firms have to decide and select a pricing objective. The major objectives that are normally used by firms are survival, maximising current profits, market share leadership, and product quality leadership. (b) Step 2: Determining Demand Curve After the pricing objectives have been selected, the firm needs to estimate the quantity that can be sold at each price. Generally, the higher the price the lower the demand. In the case of prestige goods, the demand increases although the price offered is higher. However, if the price is too high, the level of demand may fall.
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(c) Step 3: Estimating Costs Cost estimation has to be done to look at how the firms cost differs at different output levels, increases in outputs and market offers which is done by a firm to satisfy consumer needs. A firms costs refer to production cost, distribution cost and product sales cost. (d) Step 4: Analysing Competitors Costs, Prices, and Offer A firm has to take into account the cost, price and the possibility of price changes caused by the competitors in setting their prices. Besides, a firm has to look into the competitors offers as well. If the firm offers something that is similar to its competitors, the price set has to be more or less or better than its competitors. If not, the firm will lose its market. Besides, if the firms offer is better than its competitors, a higher price can be set. But the firm has to be careful towards any price change that may be carried out by the competitors. (e) Step 5: Selecting a Pricing Method When it comes to the pricing method, the firm will generally choose a method which takes the pricing factors that have been discussed previously into account. There are five pricing methods that can be used by firms. Those methods are: Markup pricing Target-return pricing Perceived-value pricing Going-rate pricing Auction-type pricing (i) Markup Pricing Through this method, the producers cost is determined first and a
standard percentage is added: to the producers cost; or as a percentage of product price. Example 5.1 ABC Company produces Baju Kurung for school children. Financial information and sales of ABC Company are shown below: Variable cost = RM20 Fixed cost = RM400,000 Expected sales = 100,000 pairs Based on the information above, the cost of one pair of Baju Kurung is:
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Baju Kurung Cost = Variable Cost + Fixed Cost Total Sales = RM20 + RM400,000/100,000 pairs = RM 24 a pair Now, assume ABC wants to earn a profit of 20% on output price, so the output price will be: Output price Cost per unit + Cost per unit (markup) Cost per unit + Cost (0.2) = RM24 + (0.2 x RM24) = RM24 + RM 4.80 = RM28.80 per pair Now assume ABC Company wants to earn a 20% markup on sales, the product price will be: Product Price = Unit cost (1-% of markup or desired return on sales) = RM24 / (1-0.2) = RM30 per pair (ii) Target-return Pricing Price setting can also be done using the break-even analysis. Through this method, we can also determine target profits that are desired by the firm. At the break-even point, total revenue and total cost are the same. The formula to find break-even point is: Break-even point (unit) = Fixed Cost (Price - Variable cost) Using the example in 5.1 and assuming that product price is RM30, the break-even point for ABC Company is: Break-even point (unit) = RM400,000 (RM30 RM10) = 20,000 pairs If the firm wishes to make profits, it must sell more than 20, 000 pairs of Baju Kurung at RM30. (iii) Perceived-value Pricing
An increasing number of companies base their price on the customers perceived value. A purchase is done not only based on cost or price
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that is decided by the firm but according to the perceived value offered as well. For example, the price of a glass of orange juice is higher at an exclusive restaurant as compared to an ordinary stall. This is because the perceived value increases with the environment which is experienced by diners at the restaurant as compared to the stall. (iv) Going-rate Pricing Through this method, the firm bases its price largely on the competitors prices and pays less attention to cost and demand itself. The firm may charge the same, more, or less than major competitors. (v) Auction-type Pricing This method refers to pricing based on the ways competitors to set their price. For example, when a firm desires to win a contract, it has to bid lower than its competitors. But, companies cannot set prices too low until they are lower than the firms cost. Pricing too highly has to be avoided as well to avoid the firm from missing the opportunities offered. The firm has to balance all these issues. (f) Step 6: Selecting the Final Price Pricing methods discussed above can aid firms in selecting the final price. Before the final price is selected the firm has to take into account psychological pricing factors. Price is set based on psychological factors to encourage purchases based on emotional actions as compared to the rational actions. The determinants of psychological pricing are: (i) Odd-even Prices The setting of odd-even price refers to the use of certain numbers at the end of the price like RM59.99 and not RM60. This is used to influence the consumers perception about the price and not the product. Many customers will round up the figure by thinking RM59.99 as RM50 and a little more rather than RM60. (ii) Even Prices This method is used to give an expensive and exclusive image to the product. For example, a shoe dealer may decide on RM88 rather than RM79.90 as the retail price for a pair of shoes. Even numbers are used to enhance the product image. (iii) Prestige Prices Through this method, products are priced high to create prestigious and high product quality image. For example, Rolex watches are
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priced high because they leave an impression of a prestigious product with quality.
ACTIVITY 5.2
During the sales season, there are many companies that use psychological pricing strategy to attract the consumers attention. Through your observation, will this strategy succeed? What are the success or failure factors of this strategy?
EXERCISE 5.2
1. List and explain briefly the steps on pricing. 2. Kelisa Company Sdn. Bhd. is at the stage of setting prices for its new products that will be marketed one year from now. As an executive from a prestige company, explain briefly the price setting process. 3. For a firm in the price selection stage, explain briefly four other main objectives of the firm in price setting. 4. The production cost for XYZ Company is: Variable cost per unit = RM20 Fixed cost = RM400, 000 Expected unit sales = RM50, 000 What is the product cost per unit for XYZ Company? If the company wants to earn a 12% markup on sales, what is the markup price for that product? If the product price has been decided at RM30, what is the total break-even for that product?
5.3 PRICING PROGRAMMES

Companies usually do not set a single price, but rather a pricing structure that reflects variations in geographical demand and cost, market-segment requirements, purchase timing and order levels. There are five price adaptation strategies that are normally used by companies and they are: Geographical pricing Price discounts and allowances
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Promotional pricing Discriminatory pricing Product mix pricing
5.3.1 Geographical Pricing

Geographical pricing involves the company in deciding how to price its products to different customers in different locations and countries. Besides the price issue, another issue is how to get paid especially when it involves countertrade. Forms of countertrade are: (a) Barter System The direct exchange of goods, with no money and no third party involved. In 1993, Eminence S.A., one of Frances major clothing makers, launched a five-year deal to barter $25 million worth of U.S. produced underwear and sportswear to customers in eastern Europe, in exchange for a variety of goods and services, including global transportation and advertising space in eastern European magazines. (b) Compensation Deal The seller receives some percentage of the payment in cash and the rest in products. A British aircraft manufacturer sold planes to Brazil for 70 percent cash and the rest in coffee. (c) Buyback Arrangement The seller sells a plant, equipment or technology to another country and agrees to accept as partial payment for products manufactured with the supplied equipment. The other half of the payment is made in cash.
(d) Offset Agreement The seller receives full payment in cash but agrees to spend a substantial amount of the money in that country within a stated time period.
5.3.2 Price Discounts and Allowances Strategies

Most companies will adjust their list price and give discounts and allowances for early payment, volume purchases and off-season buying. Some of the types of discounts and allowances are: (a) Cash Discounts Cash discount is a price reduction to buyers who pay promptly or pay in cash.
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(b) Functional Discounts Functional discount also known as trade discount, is offered by a manufacturer to trade-channel members if they perform certain functions. (c) Quantity Discounts Quantity discount is a price reduction to those who buy large volumes. (d) Seasonal Discounts Seasonal discount is a price reduction to those who buy merchandise and services out of season. (e) Trade-in Allowances Trade-in allowance is granted for turning in an old item when buying a new one. (f) Promotional Allowances Promotional allowance rewards dealers for participating in advertising and sales support programmes.
5.3.3 Promotional Pricing Strategies

Companies can use several promotional pricing techniques to stimulate early purchase: (a) Loss-leader Pricing Loss-leader pricing is a normal practice practiced by departmental shops and shopping centres which lower some of their products price to attract customers. It is implemented with the hope customers will buy other products at normal price. (b) Special-event Pricing Sellers will establish special prices in certain seasons to draw in more customers. For example, promotion is done every January to attract purchasers who are on holidays to return to the store.
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Figure 5.3: Cash rebates Source: http://www.era.fm/cgi-bin/epass/vouchers/icon_malay_strawberry.gif
(c) Cash Rebates Cash rebates are discounts that are given for a specified time period. Figure 5.3 shows an example of cash rebates used to attract customers. (d) Psychological Discounting This strategy involves setting an artificially high price and then offering the product at substantial savings. For example, Was $359, now $299. (e) Other Techniques Other techniques in promotional pricing are low-interest financing, long
payment terms and warranties.
5.3.4 Discriminatory Pricing Strategies

Discriminatory pricing consists of a few forms and they are: (a) Segment Pricing Different customer groups are charged differently for the same products or services. For example, museums often charge a lower admission fee to students and senior citizens. (b) Product-form Pricing Different versions of products are priced differently but not proportionately to their respective costs. For example, the canned Coke is cheaper than the bottled Coke although the quantity is the same in both. (c) Image Pricing Pricing is decided based on the image of the products or services.
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(d) Location Pricing The same product is priced differently at different locations even though the cost of offering at each location is the same. (e) Time Pricing Prices are varied by season, month, day or hour.
5.3.5 Product Mix Pricing Strategies

Through this strategy, the firm searches for a set of prices that maximises profit in the overall product mix. There are five product mix pricing and they are: (a) Product-line Pricing This strategy is adopted when the firm has a few product lines. Each product line is priced differently. Through this strategy, the firm has to look at the overall product lines to ensure that the new models price is in the price range of the current products. The setting of prices has to take into account for cost differences between the product lines, consumers evaluation on features and competitors pricing. (b) Optional-feature Pricing Many companies offer optional products, features and services along with their main products. For example, a person who purchases a computer may purchase additional accessories like modem, speakers, and other accessories. (c) Captive-product Pricing This strategy is used by firms that offer products that have to be used with a main product. Take for example, the price of a box of film with a camera. For services, this strategy is known as two-part pricing. Telephone users pay a minimum monthly fee plus charges for calls made. (d) By-product Pricing If the by-products have value to a customer group, they should be priced for their value. For example, chicken farmers use this strategy in valuing their manure, setting prices and informing interested potential customers. (e) Product-bundling Pricing Sellers often bundle products and features. For example, a special package that is offered by a hotelier or supplier of personal computer software. The seller normally charges less for the bundle than if the items were purchased separately.
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Other than the examples that are provided above, suggest an example of price adaptation strategy that is normally used by firms to market their outputs.
EXERCISE 5.3
Essay Questions 1. The Managing Director of Automobile Sdn. Bhd. has intentions to expand its product marketing at the international level. The Managing Director is interested to venture into the business using countertrade. As the Marketing Director explain: (a) What is meant by countertrade? (b) List and explain four main countertrades that can be used as an alternative for your company. 2. Explain four types of discriminatory pricing that is normally carried out by a firm in its pricing strategy. 3. When is price discounts and allowances strategy appropriate to be used? Explain the forms of discounts and allowances. 4. If a firm wants to maximise profits for all its product lines, state the suitable pricing strategy that can be used by the firm. Discuss five determinants that are involved in this strategy and provide suitable examples for each determinant that is discussed.
5.4 PRICE CHANGES

Generally, companies will face situations where they may have to change prices either by lowering or increasing the prices.
5.4.1 Decreasing and Increasing Prices

Companies often face situations where they may need to cut or raise prices. Several circumstances may lead a firm to price cut: (a) Excess capacity.
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(b) Firm wants to dominate the market. Thus, marketers introduce low introduction prices as compared to the competitors. (c) Declining market share will force the firm to reduce prices. Price-cutting strategy involves the following possible traps: (a) Low-quality Trap Outputs that are priced low are normally perceived by consumers as low quality products or goods. (b) Fragile-market-Share Trap A low price buys market share but not market loyalty. (c) Shallow-pockets Trap Pricing products low will influence the competitors to reduce their prices as well. The higher-priced competitors may cut their prices and may have longer staying power because of deeper cash reserves. Major circumstances provoking price increases by firms are done in the following situations: (a) Cost Inflation Rising cost squeezes companies profit margins and leads them to increase their products or services prices. Companies often raise their prices more than their cost increase, in anticipation of future inflation.
(b) Over Demand When a company cannot supply all of its customers, it can raise its prices, ration supplies to customers or both.
5.4.2 Reaction to Firms Price Changes

Any price changes by the marketer will generally provoke a response from a few parties like: (a) Customers The normal reaction among the consumers when there is a price reduction is: (i) The item is about to be replaced by a new model. Thus, a price reduction is done to clear old stock. (ii) The item is not selling well. (iii) The firm is in financial trouble.
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(iv) Price will come down even further. (v) Quality has been reduced. A price increase, which would normally deter sales, may carry some positive meanings to customers. The item is hot and represents an unusually good value. (b) Competitors Besides consumers, firms have to monitor competitors reactions towards its price changes. Some competitors reactions toward price changes are: (i) The company is trying to steal their market. (ii) The company is doing poorly and is trying to boost its sales. (iii) The company wants to dominate the whole industry by reducing prices to stimulate total demand. Competitors normally prepare a few strategies to avoid something bad from happening when there are price changes by the other marketers. As marketers, they will analyse the objectives that the competitors are striving to achieve. If the competitor has a market share objective, it is likely to match the price change. If it has a profit-maximisation objective, it may react by increasing the advertising budget or improving product quality. Before a firm does any changes to its price, it will need to research on the competitors current financial situation, recent sales, customer loyalty and corporate objectives.
5.4.3 Responding to Competitors Price Changes

If a firm realises that competitors have reduced prices, the firm will have to consider alternative strategies. If the price reduction did not leave a negative impact on the market share and firms profits, the firm can maintain its price while monitoring the prices of its competitors. But, if the competitors price changes leave a negative impact on the firm, there are a few strategies that should be implemented: (a) Reduce price (b) Increase consumers perceived quality (c) Modify products (d) Launch brand-fight through low prices
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EXERCISE 5.4
1. Domestic Motors Company has intentions to control market share for one of its product through pricing the product low as compared to pricing it high at the beginning stages of its product introduction in the market. (a) Price changes that are undertaken by Domestic Motors Company may create a few consumer perceptions in the market. Explain briefly three major effects of the price changes. (b) List and explain two competitors reaction towards the price changes that are carried out by Domestic Motors Company. Pricing is one of the most important elements of the marketing mix besides product, promotion and place. It shows the value of the product or service to the seller or buyer. It is the only marketing mix element that is flexible and can be increased or decreased depending on the factors that influence pricing. The pricing process includes the firms internal factors and external factors. Internal factors that influence pricing are firms marketing objectives, marketing mix strategy, cost and organisation. External factors that influence pricing are market condition and demand competitors, pricing and offers, and other factors like economy, sales personnels needs and actions by the government. Based on the factors of pricing, there are six steps in price setting. The first step is selecting the pricing objective (survival, maximise current profits, market share leadership and product quality leadership). The second step is determining the demand curve, which involves estimating the quantity that can be sold at each price. The third step is estimating costs, how cost differs at different output levels. The forth step is analysing competitors costs, prices, and offers. The fifth step is selecting a pricing method and the final step is selecting the final price. In the final step, the firm has to take into account the psychological pricing factors, the influence of the other marketing mix elements towards price and the effects of the pricing on others.
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Pricing is still one of the most critical elements of the marketing mix besides products, promotion and place, although other non-price factors are becoming more popular in the modern market. The marketer has to design a price determining programme, taking into account the selection the pricing objective, cost estimation, competitors pricing and the final price selection method. There are a few important decisions in determining the final pricing programme and they consist of prices based on geography or location, price discounts and allowances, promotional pricing, discriminatory pricing and product mix pricing. Besides managing the pricing strategy, the marketer has to decide on price changes and reactions towards price changes that takes place in the market especially due to competitors price changes. Cash discounts Quantity discounts
Functional discounts Seasonal discounts Loss-leader pricing Special-event pricing Markup pricing Target-return pricing Promotional pricing Trade-in allowances
Topic
Managing Marketing Channels, Intermediaries and Physical Distribution
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By the end of the topic, you should be able to: 1. Identify and explain the marketing channel elements like function types and marketing channel levels; 2. Explain the design decision and marketing channel management; 3. Differentiate between dynamic marketing channels and traditional marketing channels; 4. Assess conflict, cooperation, and competition that exist between the marketing channels, legal and ethical issues in marketing channel relations; 5. Appraise the management concept of managing intermediaries of distribution channels; 6. Explore wholesaling and retailing; and 7. Examine physical distribution management and the concept of integrated logistics system.
LEARNING OUTCOMES
TOPIC 6 MANAGING MARKETING CHANNELS, INTERMEDIARIES AND PHYSICAL DISTRIBUTION
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INTRODUCTION
Most firms or producers use intermediaries to carry their outputs to the market. This intermediary channel is a marketing channel and it is also known as a distribution channel. The marketing channel is one of the important elements of the marketing mix. Marketing channel decisions have direct effects on other marketing activities. In this topic, we will discuss forms of intermediaries, responsibilities of intermediaries and their marketing activities. Besides this, effective marketing channel management and design will be discussed. Apart from paying attention to forms and conflicts of distribution channels, a marketer has to manage the members of the distribution channel. Most of the products these days are channelled to the consumers through indirect channels, who are the intermediaries. Distribution channel intermediaries like agents and brokers, wholesalers and retailers have to be managed so that they move in line towards achieving the companys objectives, especially from the aspects of maximising customer satisfaction and increasing the companys competitiveness. Thus, the marketer has to choose, allocate resources and power, manage conflict and communicate effectively to all the intermediaries used to create an efficient and effective distribution channel process. This topic also discusses an important component in the distribution channel which is physical distribution. Physical distribution is a process to ensure the products reach the market efficiently and effectively and fulfils consumer needs especially from the aspect of delivering ontime.
6.1 WHAT IS A MARKETING CHANNEL?

Marketing channels are sets of interdependent organisations involved in the process of making a product or service available for use or consumption.
6.1.1 Classifications of Marketing Channel

There are three types of marketing channel: (a) Merchants Merchants refer to retailers and wholesalers. The merchants marketing channel purchases products from firms, takes title of the goods and resells the merchandise. Merchants make profits from buying and selling.
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(b) Agents Agents are manufacturers representatives or brokers who search for customers and may negotiate on the producers behalf but do not take the title of the goods. Agents obtain revenues in the form of commission from the manufacturer. (c) Facilitators Facilitators are those involved in the firms merchandise distribution process but neither takes the title of the goods nor negotiates purchases or sales. Instead they provide support services to the firm to ensure the merchandise distribution process to the consumers or customers is successful. Examples of facilitators are transportation companies,
warehouses, banks and advertising agencies.
6.1.2 Marketing Channel Functions

A marketing channel is an important marketing mix element because it performs the work of moving goods from producers to consumers. The key functions of the marketing channel are: (a) They gather and disseminate marketing information about potential and current customers, competitors and other actors and forces in the marketing environment. (b) They develop and disseminate persuasive communications regarding the offer designed to attract the consumers interest. (c) They reach agreements on price and other terms so that transfer of ownership or possession cannot be effected. (d) They acquire the funds to finance inventories at different levels in the marketing channel. (e) They assume risks of carrying out responsibilities as distributors. (f) They provide the storage and movement of physical products. (g) They provide for buyers payment of their bills through banks and other financial institutions. (h) They oversee actual transfer of ownership from one organisation or person to another.
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6.1.3 Marketing Channel Levels

Marketing channel can be explained based on channel levels that are involved in the process of moving goods from producers to consumers. A channel level is every layer of the channel or intermediary who carries out the activity of moving goods from producers to consumers. There are four forms of marketing channels based on marketing channel levels and they are: (a) Zero-level channel; (b) One-level channel; (c) Two-level channel; and (d) Three-level channel. Figure 6.1 shows four forms of marketing channels. A zero-level channel is also known as a direct marketing channel while one, two and three-level channels are known as indirect marketing channels. A direct marketing channel doesnt involve intermediaries in the process of moving goods from producers to consumers. An indirect marketing channel involves intermediaries in the process of moving goods from producers to consumers.
Figure 6.1: Marketing channel levels
(a) Zero-level Channel A zero-level channel also called a direct marketing channel consists of a manufacturer selling directly to the final consumers. Examples of direct marketing are personal selling like Avon, Amway and Tupperware, telemarketing, internet selling, manufacturer-owned stores and TV selling.
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(b) One-level Channel
A one-level-channel consists of one selling intermediary, such as a retailer. For example, manufacturers of electrical goods, furniture and tyres sell their merchandises directly to large retailers like Carrefour and Jaya Jusco. (c) Two-level Channel A two-level channel contains two intermediaries, these are typically a wholesaler and retailer. This marketing channel normally takes place in consumer markets like small distributors for foodstuff and house appliances. (d) Three-level Channel A three-level channel contains three intermediaries, these are typically a wholesaler, jobber and retailer. This marketing channel is normally used in industrial markets like the meat packaging industry.
6.2 CHANNEL DESIGN DECISIONS

In designing a marketing channel, the producer has to consider what is ideal and what is practical. A firm that newly started business normally starts in a limited market. Thus, it has limited capital, using only a few intermediaries to carry its products to the consumers. They design a channel system involving analysing customer needs, establishing channel objectives, identifying major channel alternatives, and evaluating major channel alternatives. The problem of designing marketing channel is to identity a good ways to convince the best intermediary to carry product to consumers.
6.2.1 Channel Design System

Channel design system refers to: Analysing customer needs Establishing channel objectives Identifying major channel alternatives Evaluating major channel alternatives (a) Analysing Customer Needs Designing the marketing channel starts with determining the value that is expected by the consumer from the marketing channel. Normally, consumer needs analysis involves the following items:
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(i) Lot Size Lot size refers to the number of units the channel permits a typical customer to purchase on one occasion. (ii) Waiting Time Waiting time refers to the average time customers of that channel wait for receipt of that goods. (iii) Spatial Convenience Spatial convenience refers to the degree to which the marketing channel makes it easy for customers to purchase the product like having more agents selling the product in the market. (iv) Product Variety Product variety refers to the assortment breadth provided by the marketing channel.
(v) Service Backup Service backup refers to the add-on services like installation, repairs, credit and delivery. (b) Establishing Channel Objectives and Constraints Channel objectives differ based on the characteristics of products. Channel institutions should arrange their functional tasks to minimise total channel costs with respect to desired levels of service outputs. Channel design must take into account the strengths and weaknesses of different types of intermediaries. Legal regulations and restrictions have to be seriously considered when deciding on channel objectives. (c) Identifying Major Channel Alternatives After a firm identifies its customer needs and objectives, it has to identify major channel alternatives like: (i) Types of Intermediaries A firm needs to identify the types of intermediaries that are suitable to be appointed to carry on its channel work. Some of the intermediaries who are normally appointed by the firms are: Companys Sales Force Companys sales force is the companys direct selling representatives who have been appointed to contact all prospects in an area. For example, sales representatives from Avon, Amway, and Nutrimetics.
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Company Agents The firm appoints or hires manufacturers agents in different regions or end-user industries to sell its products. For example, agents for selling cars, tourist agents and insurance agents. Industrial Distributors Find distributors in the different regions or end-user industries who will buy and carry products to end-users. The firm has to offer a few benefits for the purpose of motivating its distributors. The firm then gives them exclusive distribution, adequate margins, product training, and promotional support. (ii) Number of Intermediaries Companies have to decide on the number of intermediaries to use at each channel level. Three main strategies that can be used are: Exclusive Distribution Exclusive distribution means severely limiting the number of intermediaries. It is used when the seller wants to maintain control over the service level and products offered. Granting of exclusive rights is normally evident in distribution of new automobiles and a few prestige goods. Intensive Distribution Intensive distribution consists of the manufacturer placing the goods or services in as many outlets as possible. This strategy is generally used for items such as tobacco products, gas, snack food
and soap. Responsibilities and rules for channel members, refers to the pricing policy, sales rules, territory rights and certain services that have to be carried out by elected channel members. Selective Distribution Selective distribution involves the use of more than a few but less than all of the intermediaries who are willing to carry a particular product. Most products like television, furniture and some of the electrical appliances normally involve retailers or selected agents only. (d) Evaluating Major Channel Alternatives Each channel alternative needs to be evaluated against: (i) Economy The manufacturing firm has to take into account sales level that can be achieved by the channel members and different cost of sales estimation for every channel member.
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(ii) Control Control refers to a form of control that has to be implemented by the firm on its elected intermediaries. Control is important if the intermediary is an independent unit, like an agent. (iii) Adaptive Criteria Channel members must take some degree of commitment to each other for a specified period of time. The producer needs channel structures and policies that provide high adaptability.
ACTIVITY 6.1
Give an example of a company in Malaysia which implements exclusive distribution, intensive distribution and selective distribution strategies.
EXERCISE 6.1
Essay Question 1. Provide the definition of marketing channel. 2. There are four forms of marketing channels that has been discussed in this topic. List and explain those marketing channel levels. 3. In the marketing channel design system, what are the four major elements that act as reference for a firm? 4. Explain briefly three important elements in identifying a suitable marketing channel for a producer. 5. Explain the differences between exclusive distribution strategy, selective distribution strategy and intensive distribution strategy.
6.3 CHANNEL MANAGEMENT DECISIONS

The following are the steps that have to be implemented by a firm after choosing a marketing channel. (a) Selecting Channel Members Selection of channel members must be done based on qualification. Normally, the ability to attract qualified channel members differs for every
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producer. For example, Toyota has the ability to attract many new agents to market its new Lexus car. Whether producers find it easy or difficult to recruit intermediaries, they should at least determine what characteristics distinguish the better intermediaries. (b) Evaluating Channel Members Producers must periodically evaluate intermediaries performance against such standards as sales-quota attainment, average inventory levels, customer delivery time, treatment of damaged and lost goods and cooperation in promotional and training programmes. The recruitment process demands the producers to differentiate the best characteristics of their channel members. (c) Training Channel Members Companies need to plan and implement careful training programmes for their appointed intermediaries to increase their understanding on the firms policies, rules and restrictions. (d) Motivating Channel Members The company should provide training programmes, market research programmes and other capability building programmes to improve intermediaries performance. Besides implementing the activities above, the producer has to use the power of co-operation to increase its channel members motivation. They can draw on the following types of power to elicit co-operation: (i) Coercive Power A manufacturer threatens to withdraw a resource or terminate a relationship if intermediaries fail to cooperate. (ii) Reward Power The manufacturer offers intermediaries extra benefit for performing specific acts or functions. (iii) Legitimate Power The manufacturer requests a behaviour that is warranted under the contract. For example, Proton requests its agents to carry a certain amount of stock in their area as part of the agreement done. (iv) Expert Power The manufacturer has special knowledge that the intermediaries value. Normally, it refers to the technology which is owned by the manufacturer. The manufacturer permits the agent to use the
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technology if without using it, the agent cannot increase their performance level and they will be left behind. (v) Referent Power The manufacturer is so highly respected that intermediaries are proud to be associated with it. For example, companies like IBM, McDonalds and Rolex have high referent power and intermediaries are normally willing to co-operate in all ways desired by the firm. (e) Modifying Channel Arrangements A producer must periodically review and modify its channel arrangements. Modifications become necessary when the distribution channel:
(i) Is not working as planned. (ii) There are changes in consumer buying patterns. (iii) The market expands. (iv) New competition arises. (v) Innovative distribution channels emerge. (vi) The product moves into other stages in the product life cycle. Normally, changes done to channel arrangements are: (i) Adding or dropping individual channel members. (ii) Adding or dropping particular market channels. (iii) Developing a totally new way to sell goods.
6.4 CHANNEL DYNAMICS

Channel dynamics refer to marketing channels that are categorised according to continuous changes or dramatic changes. There are three trends or important transitions: Growth of vertical marketing systems Growth of horizontal marketing systems Growth of multi-channel marketing system
6.4.1 Vertical Marketing Systems

The development of vertical marketing system (VMS) challenges the traditional marketing channel system. Figure 6.2 shows the traditional marketing channel as compared to the vertical marketing channel.
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A traditional marketing channel comprises an independent producer, wholesalers and retailers. Each party is a separate business seeking to maximise its own profits. There is no complete control over the appointed channel members.
Figure 6.2: Traditional marketing channel versus vertical marketing channel
A vertical marketing system by contrast, comprises the producers, wholesalers, and retailers acting as a unified system. Each channel member co-operates under one entity and is capable of forming a big power of influencing the market. This system is capable of eliminating conflict and designing complete control over every channel. There are three types of vertical management system: (a) Corporate Vertical Management System A corporate vertical management system combines successive stages of production and distribution under single ownership. Vertical integration is utilised by a company that needs a high level of control for each channel that exists. For example, Toyota owns equity in most of its major suppliers in the world and this makes it one of the giant companies that still survives till today. Table 6.1 shows equity percentage owned by Toyota among the main suppliers in the world.
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Table 6.1: Major Suppliers and Toyotas Equity Percentage Company Equity Percentage (%) Akebono Disc Brakes 13.1
Koito Lighting 19.0 Aisin Sicki Transmissions 21.7 Shiroki Door 11.5 Trinity Paint 30.2 Kyowa Upholstery 33.5 Nippondenso Electronics 22.9 Jaco Clocks 34.2 Tokai Rika Seat Belts 29.5
(b) Contractual Vertical Management System A contractual vertical management system consists of independent firms at different levels of production and distribution integrating their programmes on a contractual basis to obtain more economic or sales impact than they could achieve alone. Contractual vertical management system is divided into three forms: (i) Wholesaler-sponsored voluntary chain (ii) Retailer co-operatives (iii) Franchise organisations There are three types of franchise organisations: Manufacturer-sponsored Retailer Franchise System Manufacturer-sponsored retailer franchise system is normally found in automobile industries. Ford, for example licenses dealers to sell its cars. Manufacturer-sponsored Wholesaler Franchise System Manufacturer-sponsored wholesaler franchise system is normally found in the soft drink industry. Coca-Cola, for example, licenses bottlers (wholesalers) in various markets who buy its syrup concentrates and then carbonate, bottle and sell them to retailers in local markets. Service firm-sponsored Retailer Franchise System Through this franchise system, a firm gives licenses to retailers allowing them to offer services to consumers. Examples are found in the fast food industry (McDonalds and Burger King) and also motel businesses like Holiday Inn and Seri Malaysia.
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(c) Administered Vertical Management System An administered vertical management system co-ordinates successive stages of production and distribution through the size and power of one of the members, and not through normal ownership or contractual ties. Famous brand producers like P&G, Kraft and Campbell Soup are able to command high levels of co-operation from their resellers in connection with displays, shelf space, promotions and pricing policies. Figure 6.3 shows the overall vertical marketing system.
Figure 6.3: Vertical marketing system
6.4.2 Horizontal Marketing System

In the horizontal marketing system, there are two or more unrelated companies put together resources or programmes to exploit an emerging marketing opportunity. For example, Proton co-operates with a few local banks to channel multiple loan facilities and automobile insurance to the consumers.
6.4.3 Multi-channel Marketing System
Multi-channel marketing occurs when a single firm uses two or more marketing channels to reach one or more customer segments. The benefits of using multichannel marketing are: (a) Increased market coverage. (b) Lower channel cost. The firms may add new channels for the purpose of reducing cost of sales for the existing customer group. (c) Better understanding and give priority to consumers in the selling process. The company may add another channel to sell products that are needed by consumers.
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In Figure 6.4, through multi-channel marketing, the firm sells consumer segment 1 direct through catalogues, telephone and other forms of telemarketing. Then, the firm sells its output to consumer segment 2 through retailers. For the industrial consumers, the firm sells indirectly to industrial segment 1 using distributors and agents. For industrial segment 2, firms use their own sales force.
Figure 6.4: Multiple marketing channel Source: Kotler, P. & Amstrong, G. (2000). Principles of marketing (9th ed.). New Jersey: Prentice Hall.
CONFLICT, CO-OPERATION AND COMPETITION 6.5

The entire marketing channel may be involved in a conflict and competition because of unsuitable objectives, unclear roles and rights, differences in opinions, and relationships that are not free which requires the firms intervention in each decision that is made. Types of conflict that often take place are: (a) Vertical Channel Conflict Vertical channel conflict means conflict between different levels within the same channel. For example, conflict between a manufacturing firm and its distributors on price, service policies, and advertising. (b) Horizontal Channel Conflict Horizontal channel conflict involves conflict between members at the same level within the channel. For example, some Proton Wira car dealers in one state criticised the aggressive promotion done by other Proton Wira dealers in the same state. (c) Multi-channel Conflict Multi-channel conflict exists when the manufacturer has established two or more channels that sell to the same market. For example, Swatch agreed to distribute its watches through selected agents besides distributing them through specialty stores.
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The manufacturing firm normally manages all these conflicts through: (a) Adoption of superordinate goals. This strategy resolves conflict when channel members come to an agreement on the fundamental goals they are jointly seeking when the agreement was made.
(b) Exchange persons between channels. (c) Co-optation. Co-optation is an effort by one organisation to win the support of the leaders of another organisation by including them in the advisory councils and board of directors. Through this method they are able to give opinions and are aware that their opinions will be accepted. But, the initiating organisation may have to compromise its policies and plans to win their support. (d) Joint membership in and between trade associations. For example, there is a good co-operation between the Grocery Manufacturers of America and the Food Marketing Institute, which represents most of the food chains. (e) Mediator. Mediation means resorting to a neutral third party who is skilled in conciliating the two parties interests. (f) Arbitrator. Arbitration occurs when the two parties agree to present their arguments to one or more arbitrators and accept the arbitration decision.
LEGAL AND ETHICAL ISSUES IN CHANNEL RELATIONS 6.6

Companies are legally free to develop whatever channel arrangements that suit them. But there are a few legal and ethical issues that have to be considered in the marketing channel arrangements. Those issues are: (a) Exclusive Dealings Exclusive dealings refer to the arrangements done between the firm and the intermediary. For example, the dealers cannot handle competitors products; dealers can only handle the firms products. Exclusive arrangements are legal as long as they do not substantially lessen competition or tend to create a monopoly, and as long as both parties enter into the agreement voluntarily. (b) Exclusive Territories Exclusive territories refer to certain areas of intermediaries. It is legal as long as the intermediary does not sell the products outside the predetermined territory.
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(c) Tying Agreements Producers of a strong brand sometimes sell it to dealers only if they will take some or all of the rest of the product lines. This practice is called fullline forcing. Such tying agreements are not necessarily illegal but it will become a violation if the elements of market monopoly exist. (d) Dealers Rights Producers are free to select their dealers but their right to terminate dealers is somewhat restricted. In general, sellers can drop dealers for cause or for reasons stated in the agreement.
ACTIVITY 6.2
Can you differentiate The Store supermarket line from the rice wholesaler at your place based on the purchase volume or sales volume of rice for both companies?
EXERCISE 6.2
Essay Questions
1. Explain the meaning of: (a) Exclusive dealing (b) Exclusive territories (c) Tying agreements (d) Dealers rights 2. List and explain the forms or types of power that is frequently used by producers on their appointed marketing channel to elicit cooperation. 3. Whats the difference for channel dynamics between traditional marketing channel system and vertical marketing system? Using a diagram, explain briefly the difference for system dynamics between vertical marketing and multi-channel marketing system. 4. Explain briefly three forms of vertical marketing channel. Explain the difference between wholesaler-sponsored voluntary chain, retailer co-operatives and franchise organisations.
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MANAGING INTERMEDIARIES OF DISRIBUTION CHANNELS 6.7

Distribution channel intermediaries refer to members or number of members in the distribution channel. As stated in the Distribution Management topic, distribution members are marketers and intermediaries. There are two main forms of distribution channels; direct distribution channel and the indirect distribution channel. Direct distribution refers to the direct distribution channel which is created by the marketer to channel products to the consumers. Indirect distribution refers to forms of distribution channel which requires the presence of a third party or middleman to channel the products to the consumers. This third party or middleman is known as the intermediary. Marketing intermediaries can be classified into three, who are agents or brokers, wholesalers and retailers. All the three categories of intermediaries have different functions and influence in the marketing activities. Thus, all three categories can be differentiated easily based on two factors, which are risk taking and types of business dealings. Agents or brokers differ from wholesalers and retailers from the angle of risk taking. Agents or brokers dont assume risk towards any business dealings as compared to wholesalers and retailers. The agent or the broker functions only as a third party who arranges for a meeting between the marketer and buyer to discuss business dealings. A big portion of the agents or brokers revenue is contributed through commission and price negotiation techniques. Price negotiation techniques refer to the agents or brokers skill in keeping the actual offer price a secret from the parties, the consumer and the seller. Wholesalers and retailers can be differentiated based on the wholesalers involvement or retailers involvement with the individual consumer. Most writers state the main difference between the wholesaler and retailer from the aspect of purchasing volume the wholesaler buys in bulk while the retailer
buys in smaller order sizes. There are writers who see the difference between wholesalers and retailers from the aspects of sales volume. Wholesaler sells in bulks while the retailer sells in smaller quantities. Based on the question in Activity 6.2 in the previous page, you cannot differentiate The Store supermarket line with the rice wholesaler at your place based only on purchase and sales quantity of both the companies. This is because the purchase quantity for The Store supermarket line is far larger than the rice
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wholesaler. Thus, the opinion that wholesaling and retailing can be differentiated through types of business dealings is more accurate. Wholesalers and retailers can be differentiated based on the statement that wholesalers dont have business dealings with individual consumers. This means that if Din Borong Supermarket or a trader in Selangors Wholesale Market carries out business dealing with individual consumers, that trader cannot be categorised as a wholesaler. Looking at the business transaction that was carried out by that trader, they have carried out a mixture of transactions, part wholesaling and part retailing. Wholesaling only takes place in a business transaction with organisational users, especially retailers while most of the other business transactions are retailing (individual or public). To further aid understanding about the presence of intermediaries in a distribution channel, please refer to the discussion on distribution channel forms in the distribution channel topic. But Figure 6.5, can aid in recalling distribution channel forms that involve all three channel intermediaries (three-level distribution channel).
Figure 6.5: Three-level distribution channel
ACTIVITY 6.3
Try drawing all the forms of distribution channels other than the three-level distribution channel. What dimension is used to name the forms of distribution channel level?
6.7.1 Importance of Intermediaries

All intermediaries have the same amount of influence on the manufacturer and consumer. The difference in roles between the wholesaler, retailer and agents or brokers is only in the form of application. This followings are the importance of intermediaries to the manufacturer and consumer: (a) Bulk Breaking The manufacturer faces problems in marketing its products to end-users (individual or organisation) because of the problem in the quantity offered Thus, the presence of intermediaries especially wholesalers help
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manufacturers in marketing their products in smaller quantities according to the consumers needs. (b) Product Promotion Besides distributing products, intermediaries play an important role in the promotion of the product to the consumers either individually or together with the manufacturer. For example, the wholesaler gives trade discounts to retailers or retailers have sales promotion for the consumers.
(c) Transportation Intermediaries especially wholesalers provide efficient transportation services in the physical distribution of products for the manufacturers. Normally, the intermediary is liable for the transportation cost of the products to the market. (d) Risk Bearing The wholesaler or retailer purchases the product from the manufacturer. This means, the intermediary has transferred the financial risk from the manufacturer onto itself. Besides, there are wholesalers who grant credit payment to their retailers or retailers who grant credit sales to the customers. This means, besides helping the manufacturer to avoid losses, the intermediary also assumes risk through the granting of credit services to the other intermediaries or consumers. (e) Market Information Intermediaries especially retailers are known to understand better the needs and wants of consumers as compared to the manufacturer. Normally, the intermediary will pass the latest information regarding customers taste and preference to the manufacturer for them to act upon. (f) Warehousing Services Besides providing transportation services, there are a few intermediaries especially wholesalers who provide warehousing services for the manufacturers in the physical distribution of their products to the market. (g) Consultation Services Some intermediaries like wholesalers or agents (brokers) provide business consultation services to the organisational users from the aspects of material and financial management. Besides, some retailers also provide consultation services for the consumer, especially from the aspect of product usage and financial consultation.
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6.8 WHOLESALING
Although the number of wholesalers is declining by the day because of the influence from changes in the marketing environment, especially consumers taste and the existence of supermarket chains like The Store and Parkson, volume of business through wholesaling has increased tremendously. For example, wholesaling business activity in the United States has increased more than 5.8 times in the new millennium as compared to the early 1990s (Kotler, 2002). As stated in the earlier section of this topic, wholesaling is a distribution activity carried out by the wholesaler to the organisational consumers, especially retailers. Wholesaling excludes business activities with the individual consumer. Wholesalers can exist in the one-level, two-level or three-level distribution channel. As shown in Figure 6.5, wholesalers are present before retailers in distributing the products to the consumers. But, a wholesaler can exist before an agent or broker in the three-level distribution channel, in which an agent or broker will deal with the wholesaler before marketing the products to the retailers. In the two-level distribution channel, the wholesaler can be present together with the retailer, agent or broker. For the one-level distribution channel, wholesaling is only involved in the marketing of industrial products or products for the organisational consumers.
SELF-CHECK 6.1
What is meant by wholesaling?
6.8.1 Importance of Wholesaling

Wholesalers like the other important intermediaries are found to play an important role in multiple aspects of helping the manufacturer produce a product distribution process that is far more efficient and effective. Some of the roles of wholesalers are, bulk breaking for retailers and organisational consumers, conduct trade promotion activities, provide transportation services, warehousing and consultation, and others. The facilities that are provided by the wholesalers are able to smoothen out the product distribution process in the market more efficiently and effectively.
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6.8.2 Type of Wholesalers

Wholesalers can be classified into five major types, which consists of merchant wholesalers, full-service wholesalers, limited-service wholesalers, manufacturers and retailers branches and offices, and miscellaneous wholesalers (Kotler, 2002). The five major types of wholesalers are described briefly below: (a) Merchant Wholesalers Independently owned businesses that take title to the merchandise they handle. They are called jobbers, distributors, or mill supply houses and fall into two categories: full service and limited service. (b) Full-Service Wholesalers This type of wholesaling provides all functions of the intermediaries like transportation, sales force supports, credit facilities, management support assistance, promotion and others. Full-service wholesalers are known as wholesale merchants and industrial distributors. (c) Limited-Service Wholesalers This type of wholesaling provides some functions intermediaries like transportation, sales force support, and credit facilities or a combination of other intermediary functions. The wholesalers from this category are known as cash-and-carry wholesalers, truck wholesalers, rack jobbers and producers cooperatives. (d) Manufacturers and Retailers Branches and Offices Manufacturers and retailers branches and offices are organisation units that are established by the manufacturer to market goods straight to the consumers. Manufacturers establish branches or offices on a temporary or permanent basis. Normally, the branch or the sales office is managed by the companys sales personnel or appointed sales personnel (external sales personnel). (e) Miscellaneous Wholesalers A miscellaneous wholesaler refers to wholesalers who specialise towards one type of business only like agricultural wholesalers, rice wholesalers, auction wholesalers and others.
6.8.3 Trend in Wholesaling

As stated in the earlier section, wholesaling activities have shown a relatively huge increase since the 1990s. Although the number of wholesalers is decreasing due to changes in consumers taste and preference and the influence of
technology, the volume of business through wholesaling is increasing steadily.

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Besides, wholesalers are more aggressive in carrying out marketing activities to be noticed in the product distribution system, especially from the aspect of sales, transportation and product promotion. Thus, it is of no surprise that there are certain brands that are owned by wholesalers through the private brand strategy. Through this strategy, wholesalers will support that particular brand in the market through distribution, pricing and integrated promotion.
EXERCISE 6.3
Fill in the Blanks 1. Wholesaling is a marketing intermediary activity which does not involve business transactions with the _______________________ users. 2. _____________________ wholesalers, only provide certain wholesaling services to their consumers.
6.9 RETAILING
Retailing is an important process in the product distribution system. The form of business transaction that involves the retailing process is a business transaction between the marketer and the individual consumer, which is buying the product for personal or household consumption. Distribution channel members who are involved in the retailing process are the retailers. Besides understanding the retailing concept, you have to understand a few other important concepts that are related to retailing management, which is the importance of retailing, forms of retailing, types and organisations of retailers, retailing wheel and the latest trends in retailing. The next section in this topic will help you in understanding all those concepts better and in detail.
6.9.1 Importance of Retailing

Similar to wholesaling, retailing plays an important role in the creation of an efficient and effective distribution system. The difference in roles between retailing and wholesaling is a small issue. The roles of retailing are toward individual consumers and the other intermediaries in the channel like wholesalers and agents or brokers. Thus, similar to wholesaling, retailing also plays an important role from the aspects of bulk breaking for the individual consumers, conducting promotional activities like internal advertising and sales
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promotions, provide transportation services, warehousing, consumer consultation and others.
6.9.2 Forms and Types of Retailers

Generally, the retailing process can be classified into two main categories, which store retailing and non-store retailing. Both forms of retailing differ physically and have obviously different tangible roles. Although both have obvious tangible differences, both still have the same roles in creating an efficient and effective distribution channel. Some marketers use both forms of retailing in creating the best marketing process for the consumers.
The physical difference which is meant in the earlier section about the differences in store retailing and non-store retailing is referring to the need for physical space. This means, even if you sell in a stall at the night market or you use a motorcycle, that retailer is still categorised as a store retailer because the retailing process that is carried out involves the use of physical space (selling lot, tables, motorcycle and others). An example of non-store retailing is direct marketing and on-line marketing. Below are the list and a brief discussion about all the main forms of store retailing and non-store retailing. (a) Store Retailing The classification of store retailing is done based on a few factors like physical form (especially size), product lines marketed and services preparation for the customer. From the physical aspect, a retailer can be categorised either as a grocery store, supermarket, departmental store, hypermarket, specialty stores or discount stores. A grocery store sells most of the items that are needed daily either wet or dry and which are products frequently purchased by consumers. A supermarket is a concept store similar to the grocery store but larger in size. Departmental store is the larger-sized retailing form that is most popular in Malaysia. The main difference between a departmental store and supermarket is from the specialisation of departments according to product categories like first floor is for daily need goods, second floor for womens products, and third floor for childrens products and so on. Hypermarkets or business malls is the latest retailing concept that is developing in Malaysia. The main difference between hypermarkets and other grocery stores is from the aspect of size and consumers product selection. Specialty stores refer to the retailers who sell certain selected products like cosmetic shops, sports equipment, personal accessories and others. Besides size and product lines, store retailers can be classified according to the services that are provided to the consumers. Store retailers can be
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categorised into three: full service, limited service and self-service retailing. Full-service retailing offers an array of services for the convenience of customers like salespeople, advisory services, credit, delivery and others. While the limited-service retailer only offers selected services to consumers like delivery service or credit and delivery alone. (b) Non-store Retailing Direct marketing and on-line marketing are forms of non-store retailing. Types of direct marketing are direct selling (salespeople without stores or door-to-door), the usage of machines like vending machines or ATM, kiosk, catalogue marketing (using catalogues to get nearer to the customers) and so on. Online marketing is a retailing form which is gaining popularity among the consumers in the world. Online retailing is mostly handled through computer websites or electronic mails and electronic payment method is used. For example, you can purchase a book and make payment electronically at www.amazon.com or buy other products from many marketers that provide electronic business services.
6.9.3 Retailing Wheel
The wheel of retailing refers to the life cycle that is often experienced by most retailers in the retailing system. Most large retailers like The Store network and PTK (Pasar Raya Taman Kemajuan) network started business as a small retailer and expanded into a large retailer. Besides expanding, there are large retailers that had to close shop or were taken over by other retailers because they reached the decline stage in the retailing wheel.
6.9.4 Trends in Retailing

Retailing in the world and in Malaysia have shown an encouraging growth. Besides experiencing a growth rate in business, the existence of more hypermarkets and specialty stores and the vast development in electronic transactions through electronic retailing is an important trend that is being experienced in retailing in Malaysia and in the world.
91 ACTIVITY 6.4
What do you understand about store retailing and non-store retailing? Provide a few examples of store retailing and non-store retailing in Malaysia.
6.10 AGENTS AND BROKERS

Agents and brokers are traders who are involved in the agencys business, which is a form of business that does not take the title of goods. This means the agents and brokers do not take the title of goods and dont bear any risk towards the business transaction. Agents and brokers have some similarities and differences. They are similar in the sense of a business agency, which is a form of business where the intermediary doesnt take title of goods and the agency only acts to brings buyers and sellers together. Besides this, the similarities between agents and brokers are based on revenues earned. Agents and brokers obtain revenues through commissions and negotiation price markups. But, the usage of the term agent to refer to the agencys business is more frequently and widely used by traders and consumers. The term broker is only used for certain agency businesses like financial (shares), car sales and real estate. But, according to Kotler (2002), the main difference between them is from the aspect of organisation forms. Organisation agents have more permanent characteristics compared to brokers. There are opinions that say, consumers and sellers are more likely to use the term agents, or brokers are more suitable because there are organisation brokers who are fixed like the security brokers.
ACTIVITY 6.5
What are the decisions that can be related to the marketing logistic management or physical distribution?
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6.11 MANAGING PHYSICAL DISTRIBUTION

Physical distribution management or also known as marketing logistics management is part of the important decision in the distribution channel
management. Physical distribution is important especially to ensure the product reaches the consumer effectively. The marketer needs to know a few concepts that are relevant to marketing logistics management. Besides the marketing logistics component, the marketer has to pay attention towards the logistic management process, especially from the aspect of objective setting. Normally, every marketer has the same objective towards marketing logistics management, which is to obtain raw materials and market the products to the consumers at the bare minimum cost. But, to reach this objective, the marketer has to implement a few actions like: (a) Create an Integrated Logistics Management System The marketing logistics system is supported by four components: order processing, transportation, warehousing and inventory management. Thus, the marketer has to use the best technology and has to have a systematic management system to ensure all the four marketing logistics components optimally complement each other. For example, the marketer uses information technology to manage the marketing logistics system. The usage of advanced information technology helps information channelling between the marketing logistics component faster and more accurately. (b) Implement Continuous Research on Marketing Logistics The marketer has to research the needs and the marketing logistics achievement based on the consumers perception from time to time. The research is done to control, monitor and access the achievement of marketing in the marketing distribution system. (c) Compare Companys Practice and Market Practice The marketer needs to refer to the market practice especially by the competitors to be made the basis or benchmark to measure how far the marketer has succeeded in coming up with a distribution channel management process that is competitive. (d) Realistic Promises to the Market The marketer has to look into the companys internal ability before promising the consumer to deliver products according to the consumers needs especially from the aspect of on-time delivery and quality conformance. The marketer has to avoid from falling into the perception of what is promised is not the same as what is delivered.
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6.11.1 Components of Physical Distribution Management

There are four major components in the physical distribution management system or marketing logistics. All the four components are shown in Figure 6.6.
Figure 6.6: The components of physical distribution management
(a) Order Processing It involves activities like order receipt, delivery and payment. This means, order processing from the consumers or passed by the sales personnel, order check, scheduling, invoice delivery and receipt preparation are all products of this component. Consumer satisfaction is generally influenced by the efficiency of the components operations. Delay in processing will cause consumer dissatisfaction and consumers may switch to competitors. (b) Transportation
The marketer has to decide on the best method or transportation mode to ensure delivery smoothness and the cost of delivery is economical. The marketer can choose whether to use the land transportation, water transportation, air transportation or through the usage of pipes (for nonsolid products). Consideration on whether to use the land, air or water transportation mode depends on two issues, which are timely delivery and cost. Normally, both the issues are always at the opposite ends. This means, to obtain a transportation mode that is cheap, the marketer has to choose a transportation mode that is slow and vice versa. There are two issues that have to be considered by the marketer in choosing a mode of transportation, which is product suitability and consumer needs. Perishable goods need to be delivered urgently. Luxury goods enable the marketer to choose a transportation mode that is fast and expensive.
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(c) Warehousing Warehousing is needed to ensure raw materials and completed products are stored in an appropriate place to be taken out or distributed to consumers according to type and order. There are a few important decisions in warehousing management, and they consist of inventory level, location, number of warehouses and the management itself. Warehousing inventory management will be discussed in the next section. Marketers have to choose and prepare suitable warehouses according to the needs of marketers and consumers especially based on time and cost considerations. The marketer may also have to set up or choose a few warehouses to be used in the material and finished goods distribution process. The marketer will also have to evaluate the effectiveness of using rented warehouses or their own warehouses based on the cost consideration. (d) Inventory Management The marketer has to ensure that the inventory is managed at the lowest cost and is capable of fulfilling the production operation needs and consumer needs. There are four issues that have to be seriously considered by the marketer during inventory management. The four issues are reserve or back-up record systems, electronic reorder point, order cost processing and inventory handling cost. The marketer has to ensure that all the four issues are managed accurately to ensure stock receipt and delivery is done systematically and efficiently. The usage of information technology through the usage of certain computer systems and barcode system can aid marketers in managing all the four issues effectively. There is a tendency for the manufacturers and consumers (business and industrial users) to use the production operation system without inventory or Just-in-Time Inventory Management. Through JIT Inventory Management system, the marketers or consumers require accurate delivery according to certain time and in appropriate quantities with the production process which is being implemented. For example, if Modenas needs 1000 tyres a day, and the output shift is divided into four, the tyre suppliers have
to deliver 250 units for four deliveries a day to the manufacturers factory.
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6.11.2 Integrated Physical Distribution Management System

The integrated physical distribution management system or the integrated logistics system refers to a logistic management quality which is solid and they complement each other. Although the marketing logistics management process involves four different components, the marketer has succeeded in creating an
effective and systematic logistic management system. Normally, the usage of modern technology especially information technology using electronic communication network and barcode systems are able to help marketers in creating the best integrated logistics management system. Besides using technology, the following formula will aid marketers in creating the best integrated logistics management: Where: M = total market logistics cost M = T + FW + VW + S T = total transportation cost FW = total fixed warehouse cost VW = total variable warehouse cost S = total cost of lost sales due to average delivery delay
96 EXERCISE 6.4
Fill in the Blanks 1. __________________ retailing is a form of retailing that doesnt involve physical business space. 2. Retailers life cycle in the market can be explained thorough _________________. 3. The main difference between agents or brokers with wholesalers and retailers is from the aspect of ______________________. 4. The four components of physical distribution are ________________________. Essay Questions 1. Explain briefly the five functions that are carried out by the intermediaries in the distribution channel. 2. To what extent does the concept of warehousing and retailing differ? 3. Explain briefly about the current trends that are happening in wholesaling and retailing in Malaysia. 4. If you have the intentions of forming a logistics company or physical distribution handling company, what are the management decisions that the company has to handle during the implementation of the integrated logistics management process?
The marketing channel is also known as the intermediary, merchant or distributor channel, which performs part of the marketing activities on behalf of the manufacturer. There are two main channels, which are the direct marketing channel and the indirect marketing channel. The direct marketing channel doesnt involve intermediaries in the process of carrying goods to consumers.
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The indirect marketing channel involves intermediaries in the process of carrying goods to consumers. The marketing channels design decision generally involves four main stages, which are analysing customer needs, establishing channel objectives, identifying major channel alternatives and evaluating major channel alternatives. There are three important elements that have to be considered by the manufacturing firm. They are the types of marketing channel, the number of marketing channels needed and the responsibilities of each channel member. As the manufacturing firm, the marketing channel has to go through changes either dynamically or continuously. There are three trends or important transitions, which are the vertical marketing system, horizontal marketing system, and multi-channel marketing system. This marketing system is often involved in conflicts, competition due to unsuitable objectives, unclear roles and rights, difference in opinion, and others. The manufacturing firm has to manage this conflict to ensure co-operation from the channel members. Besides this, legal issues and ethical relations between firms and channels have to be given importance in the arrangement of marketing channels. The marketer has to create a distribution channel management process that is good and effective. To create the distribution channel management process mentioned, the marketer has to ensure that each intermediary, who are agents or brokers, wholesalers and retailers are able to carry out their responsibilities effectively to create an efficient and effective distribution channel system together.
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Bulk breaking Indirect distribution Direct distribution Indirect marketing channel Direct marketing channel Multi-channel marketing system
Horizontal marketing system Vertical marking system
INTRODUCTION
In this topic, we will discuss the marketing communication mix, the communication process, steps in developing effective communication, promotional mix strategy and integrated communication. Marketing communication or better known as marketing promotion is one of the most important marketing mix elements. Products dont get sold on their own, although they have features that are desired by consumers, attractively priced and is easily obtainable without promotion. Consumers may not be aware of the products existence or the advantages of the product as compared to other products that are readily available in the market.
Topic
7
Managing Integrated Marketing Communications
4. Assess the methods in deciding the promotional budget; and 5. Appraise factors that influence the promotional mix strategy.
LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. List five types of marketing communication mix; 2. Examine nine elements in the communication process; 3. Illustrate the steps in developing effective communication;
TOPIC 7 MANAGING INTEGRATED MARKETING COMMUNICATIONS
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7.1 MARKETING COMMUNICATION MIX

Marketing communication mix or promotional mix are forms of promotion or communication insights that can be used by the marketer to promote their products. Five main elements of the marketing communication mix are personal selling, advertising, sales promotion, public relations and direct marketing. (a) Advertising
Advertising is any form of non-personal presentation paid by a sponsor to promote ideas, organisations or products, through various forms of media such as television, radio, newspaper and magazines, advertising boards, and the Internet. (b) Sales Promotion Sales promotion is a variety of short-term incentives to encourage trial or purchase of a product or service. It is a promotion paid by a sponsor and is normally used to encourage consumers to purchase the product for a particular time period. Examples of sales promotions are samples, coupons, cash rebates, premiums and discounts. (c) Public Relations Public relations is an activity or effort by a company to: Build a healthy and mutually beneficial relationship with the public. Obtain good publicity. Build a positive corporate image and keep negative stories, incidents or rumours away from the media. Obtain opinions, behaviour, and the publics perception towards the company and its products. The public includes customers, suppliers, government, employees and the surrounding community. Public relations is a promotion that is often believed by the general public because of the publicity obtained by the firm or output in the form of news. For example, when a company introduces an innovative new product in the market, the company can maximise its coverage in newspapers and through radio as well as television channels. Thus, public relation is one form of effective communication to introduce a company and its products to the market at a lower cost. (d) Personal Selling Personal selling is a direct representation by the companys sales force to the customers to obtain sales and build relationships between each other. It is focused on the end users and it is done either face-to-face or through the
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telephone. Personal selling is able to persuade and influence buyers to accept an opinion or to purchase a product. Now, personal selling is used to build long-term relationships between the company and consumers or future consumers. (e) Direct Marketing Direct marketing is a form of marketing communication that connects the marketer with the target consumers to obtain instant feedback. It uses telephone, mail, fax, e-mail, the Internet and other communication tools to connect the marketer with a specific consumer base. Thus, the usage of direct marketing creates a good relationship between the marketer and the consumer.
7.2 THE COMMUNICATION PROCESS

Communication is the delivery of information or exchange of ideas from the sender to the receiver. Communication between two parties is important to aid both parties in heading towards mutual agreement. There are nine basic elements in the communication process. The marketer needs to analyse each element to enable more effective delivery of message to the customers. Figure 7.1 shows the main elements in the communication process.
Figure 7.1: Elements in the communication process
Source: Kotler, P. & Amstrong, G. (2000). Principles of marketing (9th ed.). New Jersey: Prentice Hall.
(a) Sender The sender is a source of a message or the original message in the communication process. It consists of individuals or organisations. For example; family, friends or sales force. Companies can also use spokespersons who are celebrities to advertise and promote their products. The perception of receivers towards a source can influence their purchases, so the company has to be careful in choosing their spokesperson.
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(b) Encoding Encoding is the process of transforming ideas, thoughts or the senders opinions in the form of words, symbols, pictures, signs or others so that it is easier for the receiver to understand. The usage of these symbols will aid the company in delivering a message more effectively. If a symbol is well known, such as sports equipment brands like Adidas, Nike, Puma and Reebok, then it is better for these companies to use these symbols in the message delivery because these symbols are easily identifiable and well known. (c) Message Message is an encoding process that transforms ideas to information in the verbal, writing or symbolic form. (d) Media Media is a communication channel which is used to send messages from the sender to the receiver. The communication channel consists of nonpersonal or non-time sensitive media. Through mass media, messages can be spread widely to more individuals at the same time. For example, advertising on television, radio and in newspapers. (e) Decoding Decoding is a process when the receiver interprets or assigns meanings toward certain messages which the sender is trying to communicate. That message, may consist of symbols and will be interpreted by the receiver according to his understanding. Thus, to guarantee communication effectiveness, the sender needs to understand the receiver more closely in terms of knowledge and character. (f) Receiver Receiver is the party which receives the message from the sending party. The receiver may be the public who is viewing the advertisement for a brand or product that the company is trying to communicate. Not all receivers will be influenced with the message that is trying to be communicated by the sender. Receiving depends on many factors like knowledge, culture and the receivers age. (g) Response Response is the receivers reaction towards a particular message that is communicated. For example, when a receiver views an advertisement on television, he may be influenced to purchase the product that is being advertised. Maybe the customer will not do anything or may not be interested in the message that is being communicated through the advertisement.
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(h) Feedback Feedback is part of the objective or receivers reaction towards the message received. The receivers reaction differs from one to the other. For example, when Proton launched its latest model Waja, much feedback was received. Some gave positive feedback stating that the car was priced cheaper than imported cars in the same class. But, some gave negative feedback. If personal selling was used, the response received was faster as compared to the other communication channels. (i) Noise Noise is an unplanned external factor that interrupts the communication process. For example, noise from vehicles when the sales personnel are communicating with customers at the road-side. Understanding the communication process helps the company or the marketer communicate with the users more efficiently. For example, in encoding, the marketer has to know how to change ideas or opinions into symbols that are easily accepted and understood by the receiver. The selection of media channels is important to ensure the message that is going to be communicated is for the accurate target market. The sender has to know the behaviour and other factors that are able to influence the receipt of the message. Finding out these factors enables the sender to send appropriate messages that can leave an impact on the receiver and obtain a positive objective. The feedback that is received, either positive or negative, has to be focused on by the sender so that the next communication process can be improved according to the receivers preference. Finally, although noise cannot be controlled, the sender has to analyse the forms of noise that may happen, so that this noise can be reduced or eliminated.
EXERCISE 7.1
Essay Questions 1. List and explain the five elements of the marketing communication mix or marketing promotion mix. 2. Discuss the elements in the communication process.
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THE STEPS OF DEVELOPING EFFECTIVE COMMUNICATIONS 7.3

There are six important steps in an effective communication development. These steps are: (a) Identify the target audience (b) Determine the communication objectives (c) Design the message (d) Media selection (e) Message source selection (f) Deedback collection
SELF-CHECK 7.1
After studying the elements in the communication process, what are the steps that have to be followed in an efficient marketing
communication development?
7.3.1 Identify the Target Audience

The target audience has a huge influence in the decision to determine the appropriate promotional tools that the company will use. The target audience may consist of end-users, existing consumers and the person deciding on purchases or future customers. It may also consist of individuals, certain consumers or watchdog groups or the general public. Identifying the target audience is very important to the marketer because different audience segments need different promotions. The existing customer needs a promotional programme that is different from the potential customer. For example, the promotional programme for end-users may require the marketer to use advertising to create product awareness for the new product in the market. To encourage retailers and wholesalers to buy the companys products, the marketer has to use other promotional elements like cash discounts or sales promotion to encourage immediate purchase.
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7.3.2 Determine the Communications Objective

After identifying the target audience, the marketer has to determine the communication objective. The final communication objective is purchasing by the audience. Before the consumer purchases a product, the consumer may fit into one of the six buyer-readiness level. These levels are awareness, knowledge, liking, preference, conviction and then only purchase. Knowledge about the characteristics of each level can aid the marketers in achieving their communication objectives. Figure 7.2 shows the buyer-readiness level.
Figure 7.2: Buyer-readiness level
(a) Awareness The marketers main objective at this level is to create awareness amongst the potential target customers. If the future customers are not aware of the existence of the product or know only a little about the existence of the product, how are they going to purchase the product? For example, Susu Asli Company wishes to introduce its new product brand CERDIK in the market. This milk has a special formula for new born babies up until the first year. But the consumers are unaware of its existence in the market because no effort has been taken to create awareness to the consumers. Thus, the promotional campaigns objective at this level will be to make consumers aware about the products existence in the market. This can be done through advertising on television.
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(b) Knowledge Besides creating awareness, the marketer has to provide knowledge about the product to the future customers. For example, after future customers are aware of the existence of brand CERDIK in the market, the marketer has to provide information about the contents of the product which will help the babys growth. Providing information to future customers does not stop at providing knowledge about the content but covers all aspects that can help the marketer get closer to consumers. For example, the products quality, tests conducted or services offered. (c) Liking
If future customers know about the product, the marketer has to get to know their preference level. The question at this stage is what will be the potential customers feelings after realising and finding out about the product. Will they feel satisfied or dissatisfied with the company? If the potential customer is still doubtful at this stage, the marketer has to promote the product more intensively until they reach the liking level for that product. (d) Preference If the future customers prefer a product, they need not necessarily choose that brand or product. The selection of a brand depends on many factors. Thus, the marketer needs to create differences between products and the other alternatives that are in the market. One of the methods is by developing creative advertisements to attract future customers to give priority to a product in product selection. (e) Conviction Future customers will become more convinced to purchase a product if efforts to convince them are carried out. At the conviction stage, the marketer or the company has to use a combination of promotional methods to create conviction and a positive feeling towards the product. For example, lets have a look again at the CERDIK brand which was marketed. Besides advertising, Susu Asli Company has to use sales promotions like free samples for their potential customers to try the product. Besides, the company can use public relations by introducing the product in the form of news either through television or newspapers. A good combination of promotional methods can aid the company in building conviction of the future customers towards the product. (f) Purchase At the purchase stage, the possibility of a future customer purchasing is big. But, the future customer may be convinced to purchase the product but they have not actually purchased yet. Some of the factors that cause them
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not to purchase are shortage of money, lack of desire to gather more information and waiting for the appropriate time. The promotional effort at this level is by using promotional tools that can help future customers to act on buying. For example, reducing the price of the product, giving special offers and other short-term incentives.
7.3.3 Design the Message

Try to remember your experience while you were watching an advertisement that was aired on television. Were you attracted to the message that was trying to be communicated? If you were attracted to it, what caught your attention?
ACTIVITY 7.1
After determining the communication objective at each of the buyers readiness level, you have to know about effective message development. Normally, the design of an effective message will be able to attract the attention of the audience. For example, a message that provides products benefits to consumers and sustains the audiences interest from the beginning till the end. If the audience pays attention to the message from the beginning till the end, it shows that the message has been well designed. Besides, the message has to arouse desire or curiosity. A good message is a message that is able to make the
audience take action, such as wanting to know more, purchasing the product, and giving feedback. In short, an effective message design has to take into account a frame work known as the AIDA model. A = Attention I = Interest D = Desire A = Action
7.3.4 Media Selection

After designing an effective message, the marketer has to choose an appropriate media to channel the message. The communication channel selection depends on many factors. For example, product features, and the type of consumer or organisational market. The marketing channel chosen can be categorised into two, which is the personal communication channel and the non-personal communication channel.
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Personal communication channel involves two or more persons communicating directly with each other. This type of communication can be done face-to-face or through telephone, mail, fax, and other methods. Generally, products for organisation markets use this type of communication channel. This is because organisational products are normally expensive, has high risk attached to them and they are complex and need direct explanation from the sales force. This type of communication enables the company to obtain immediate feedback. The feedback received can be channelled to the companys management for the next action to be taken. The use of non-personal communication channel is normally directed to the end user market. The media that can be used includes: (a) Printed media like newspapers, magazines and letters (b) Broadcast media like radio and television (c) Display media like posters and billboards (d) Online media like websites and online services The appropriate media selection is very important so that the message can be communicated clearly to the target audience that have been identified. The main objective of media selection is for the target audience to purchase the organisations product.
7.3.5 Message Source Selection

The effectiveness of the message to the audience depends on how convinced the audience is with the message source. Consumers perceptions and views are based on the beliefs and the conviction that the message delivered is true. Strategies that can be used to convince and gain consumers trust are by using credible message sources. For example, professionals and celebrities are normally chosen as spokespersons for a companys product. Professionals like doctors are chosen to explain the advantages of a health-based product. Celebrities are used because they have their own fans. For example, singer Siti Nurhaliza promotes product brands like Maybelline and Pepsi. While, other sportsmen like the countrys badminton player, Rashid Sidek has been chosen as the spokesperson for energy drink products like 100 Plus and Livita. The selection of a spokesperson in a product promotion will add the audiences conviction towards the message source because of the credibility that is attached to the spokespersons.
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7.3.6 Feedback Collection

Finally, in effective communication development, the marketer has to obtain feedback from the target audience. The questions that are normally used to obtain feedback are: (a) Do the audience remember the message? (b) How many times did they watch it? (c) What is the main content that they remember about the message? (d) How do they feel towards the message? (e) How is their behaviour now as compared to before towards the product and the company? These questions are important to the marketer because the feedback that is received can help them in improving the promotional programme or the product that is offered.
EXERCISE 7.2
Essay Questions 1. List all steps in an effective communication development. 2. Explain the buyers readiness level in deciding the communication reaction.
PROMOTIONAL BUDGET DECIDING METHOD 7.4

ACTIVITY 7.2
Do you know the positive and the negative effects of using wellknown athletes to promote the companys products? Budget is used to plan and control the operations of an organisation for a specific period of time. Deciding the budget for promotional purposes is one of the issues that have to be given attention by the management. Detail planning and promotional budget controlling can bring in profits for the company in the longterm and at the same time it can avoid the failures of promotional programmes.
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How do the management decide on an appropriate budgeting method to be used by the company? Every company has its own method in deciding the most appropriate method. There are many factors that can influence the promotional budget decision. Some of the factors are financial position, company size, product characteristics and company policies. There are four methods in determining budgets that are used by companies and they are the affordable method, percentage-of-sales method, competitive-parity method, and objectiveandtask method.
7.4.1 Most Affordable Method

The affordable method in determining the promotional budget follows what is thought the most affordable by the company. This means that, if the company has a good financial position, the allocation for promotion budget will be big. But, if the company is going through financial problems, the allocation for promotional budget will be small. Most small businesses will use this method to determine their promotional budget. The balance of the money that is obtained after paying for all
the expenses will be used for as part of the promotional budget. This method, however, has many weaknesses. This is due to the fact that it places the promotional programme as the final expenses in the budget. If the company cannot afford or they dont have sufficient finances, the promotional programme cannot be carried out because there is no allocation. This method treats promotion as not having an impact towards sales. Promotion should be thought of as a long-term investment that can increase companys profit and sales.
7.4.2 Percentage of Sales Method

Another method that is normally used in businesses is the percentage-of-sales method. Most companies set promotional expenditure at a specific percentage of sales (either current or anticipated) or of the sales price. This method is popular and it is easy to use because marketers only need to decide on a percentage of sales that changes from time to time. For example, ABC Untung Company determines 10% of its sales will go to promotion. If the sales for ABC Untung Company are RM100,000, the allocation for promotional budget will be RM10,000. This method has its weaknesses. Some of its weaknesses are: (a) The management perceives promotion as a product of sales or is caused by sales. But in reality, promotion is the cause of sales or the determinant of sales. (b) When a companys sales declines or drops, the promotional budget allocated will also decrease. Generally, when a company experiences
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decline in sales, the promotional programme has to be developed further for sales to increase again or be better than the previous sales.
7.4.3 Competitive-Parity Method

There are companies that determine their promotional budget based on competitors. This method is known as the competitive-parity method, where marketers keep an eye on the competitors promotional budget through published sources. This method will help the company in allocating more accurately for the promotion. It is normally used based on the assumption that states competitors are skilled at determining promotional budgets. Budgeting based on competitors will also decrease promotional wars. But this assumption is less accurate because competitors need not be accurate in determining the promotional budget. If competitors make a mistake, the marketer who follows will also fail. The assumption that states this method reduces promotional war is also not true because there isnt a strong basis that states this method reduces promotional war.
7.4.4 Objective-and-Task-Based Method

Before determining the promotional budget, the company will identify the objectives that are to be achieved later as well as determine cost and task that are appropriate to reach the objective that has been set. There are three main steps in the objective and task based method: (a) Identifying the objective; (b) Determining task; and (c) Determining cost. For example, Casiola Company wishes to introduce and provide awareness about their new watches in the market. Thus, Casiola Company has to determine task, what is the appropriate media and message to use to reach the objective that has been determined and what is the cost to be used for media advertising on
television, newspapers and others. Because of the difficulties in determining task and cost to reach objectives, not many companies use this method in determining their promotional budget. But this method is among the best promotional budget method because the management has to plan meticulously based on the companys objectives before doing the promotional budget.
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7.5 PROMOTIONAL MIX STRATEGY

After determining the appropriate budgeting method, the marketer has to think of an appropriate strategy for the promotional purpose. There are two types of strategies that can be chosen by the marketer, which is the pull and push strategy. (a) Push Strategy Through this strategy, the product will be pushed through promotion in the distribution channel to the final users. For example, the producer will promote the product to the wholesaler. Then, the wholesaler will promote the product to the retailers; the retailers will carry out promotional activities to the users so that they purchase the product. Figure 7.3 explains clearly the pull and push strategy.
Figure 7.3: Push strategy Source: Adapted from Kotler, P. & Amstrong, G. (2000). Principles of marketing (9th ed.). New Jersey: Prentice Hall.
Normally the push strategy is used in the organisational markets. When a company sells its products to another company, personal selling will be used to provide explanation and user demonstration. (b) Pull Strategy In the pull strategy, the producer will carry out promotional activities direct to the end users to encourage them to purchase the products in the market. For example, the producer will carry out promotional activities like advertising on the television or sales promotion to the final users. If this strategy succeeds, the users will demand for products from the retailers and retailers will demand for products from the wholesalers and wholesalers from the producers. Thus, in the pull strategy, the users will pull the product by demanding through the distribution channel. Figure 7.4 explains the pull strategy clearly.
TOPIC 7 MANAGING INTEGRATED MARKETING COMMUNICATIONS Figure 7.4: Pull strategy Source: Adapted from Kotler, P. & Amstrong, G. (2000). Principles of marketing (9th ed.). New Jersey: Prentice Hall.
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The pull strategy is normally used in the consumer markets. For example, Coca-Cola the producers of soft drinks will advertise the products and its brand on the television. Consumers will watch and get attracted to visit the retail stores to get the product. Demand from the consumers will encourage retailers to demand from the wholesalers and next from the producers. The use of an appropriate promotional mix depends on the product life cycle stage. At the introduction stage of the product life cycle, advertising is effective to create awareness to consumers. Meanwhile sales promotion will encourage consumers to try the products that are on promotion. Advertising and public relations are used at the growth stage while sales
promotion is reduced because sales incentives is used less at this stage. At the maturity stage, sales promotion is used widely as compared to advertising. Finally during the decline stage, advertising is used to remind consumers about the products and sales promotion is continued. The conclusion for the use of the promotional mix strategy depends on various factors like product type, organisation and the stage the product is in the product life cycle.
INTEGRATED MARKETING COMMUNICATION 7.6

Generally, you have found out that marketing communication is used widely by the marketer to communicate effectively with consumers by using the appropriate promotional mix. But, there are many companies that fail in their promotional activities. A promotional failure causes the company huge losses and a negative image because of the ineffective communication delivery. Today, organisations are starting to practice integrated marketing communication concepts.
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Through this concept, companies combine and meticulously realign all or as many communication channels as possible to deliver messages clearly and consistently about the organisation and the companys products. The company will realign and combine communication channels like personal selling, advertising, sales promotion, public relations, and direct marketing in the same message form to ensure delivery is more clear and consistent and reaches the overall organisations objectives. Figure 7.5 shows the marketing communication integration that forms the integrated marketing communication.
Figure 7.5: Integrated marketing communication Source: Adapted from Kotler, P. & Amstrong, G. (2000). Principles of marketing (9th ed.). New Jersey: Prentice Hall.
Examples of integrated marketing communication practices are: if public relations state a message about a product or an organisation, the company can use advertising and sales promotion in the same message form as communicated in public relations. It will be easier for the sales force to explain about a product or an organisation to their target markets because the same message has been communicated to them. Using this method, messages will be communicated more consistently. The combination of promotional tools will aid companies in communicating the message more clearly.
ETHICAL AND SOCIAL ISSUES IN MARKETING COMMUNICATIONS 7.7

In developing a promotional programme, the company has to pay attention towards social and ethical issues. A companys promotional activity can cause a major impact to the society. Among the issues that arise because of the breach of ethics in marketing communication are:
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(a) Disturbance
There are various promotional programmes like advertising and sales promotion that harass customers to purchase a product. (b) Unfairness and Fraud There is a scam for products advertised on the mass media. For example, product size differs from the actual size and products purchased dont benefit the consumers. Customers are also deceived because the lack of certain product features is not communicated to the customers. The advertisement only shows the advantages of the product sold at a confusing sales price. Thus, if a company wishes to nurture its good name and image, ethical issues like these have to be given attention. At the same time, social issues in marketing communication can increase the companys credibility. Among the social issues that increase the image and the credibility of the company include marketing communication in the form of education, information source and becoming a model or moral development agent. Besides that, the company has to implement direct marketing communication towards the development of consumer communities who have accurate information, have the opportunity to choose, able to plan expenses and reduce risk.
EXERCISE 7.3
Essay Questions 1. List four methods that are used by the marketers in deciding the promotional budget. 2. Define and explain all the marketing communication mix which can be used by the marketer to market their products more efficiently. 3. Discuss the existing methods in deciding the promotional budget and suggest the best method and why you decided on it. 4. Explain clearly the promotional mix strategies.
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Successful marketing management does not only depend on products, pricing and distribution. Successful marketing management is marketing management which combines all the four marketing mix elements like products, price, distribution and promotion. Promotion and marketing communication are communication insights that are used by the marketer to promote the products. Marketing communication mix like advertising, sales promotion, public relations, personal selling and direct marketing has to be carried out at the appropriate buyer readiness level. Before carrying out any promotional programmes, the company has to understand the communication process between the marketer and the user. Besides that, the marketer has to follow certain steps to develop an effective communication system. Promotional budget has to be given importance by the marketer because the promotional activities involve cost. This is to ensure the promotional programme is carried out cost effectively. AIDA model Pull strategy
Marketing promotional mix Push strategy
INTRODUCTION
In this topic, the marketing communication tools will be discussed in detail. This topic also discusses advertising, sales promotion and public relations. Some of the advertising topics that will be discussed are objective setting, budgeting decision making, message selection, determining the media, and campaign evaluation. The sales promotion topic will discuss sales promotion objectives and strategies, major decisions in sales promotion, and determining the major sales promotion tools. Finally, public relations will discuss the functions of Public Relations Department and the major decisions in public relations.
Topic
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Managing Advertising, Sales Promotion and Public Relations
2. Propose sales promotion strategy development and major decisions in sales promotion; and 3. Assess the importance of public relations and the major decisions in public relations.
LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. Explain advertising strategy development;
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TOPIC 8 MANAGING ADVERTISING, SALES PROMOTION AND PUBLIC RELATIONS
8.1 ADVERTISING
ACTIVITY 8.1
We often watch advertisement on television, the Internet and bulletin boards. Those advertisements differ from one another from various
aspects. The differences maybe from the aspect of the message that is going to be delivered, and advertising time. What are the important decisions that are involved in the development of an advertisement? In the marketing communication topic, you have been introduced to the definition of advertising. Advertising generally is a form of non-personal communication sponsored by identified sponsors. When the word advertising is mentioned, we may imagine the advertisements on the television. With or without our knowledge, advertising has long existed in Malaysia and in other countries in various forms. In the past, before television sets were introduced in our country, announcements were made using mobile lorries and vans. Posters will also be pasted on vans and other appropriate places. This is one form of advertising. Thus, advertising which we understand is not about advertising on television alone, but it covers various media channels like radio, newspapers, posters, magazines and others. Advertising management is not something that is easy. It involves many activities and detailed planning. Meticulous planning can create effective advertisements for the company and the viewers. Thus, we have to know four important decisions that have to be made by the management in creating the advertising programmes. The four advertising programmes are setting advertising objectives, setting advertising budget, developing the advertising strategy (making message decisions and media decisions) and evaluating advertising campaigns. Figure 8.1 shows the major decisions in the management process and in building advertising programmes.
Figure 8.1: Major decisions in advertising Source: Adapted from Kotler, P. & Amstrong, G. (2000). Principles of marketing (9th ed.). New Jersey: Prentice Hall. TOPIC 8 MANAGING ADVERTISING, SALES PROMOTION AND PUBLIC RELATIONS
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8.1.1 Setting the Advertising Objectives

The first step in developing a programme or advertising campaign is advertising objective setting. Advertising objective is a goal to be accomplished through that advertisement. Setting objectives is very important because the activities and initiatives of the parties involved in advertising are towards the accomplishments of that objective. Objective setting will provide a guide to the company on the strategies of decision making, budgeting, disseminating message and advertising media. With that objective, a company gets to measure the results during evaluation to see whether the objective that was set at the beginning got accomplished. Thus, an advertising objective has to identify a special communication task that needs to be communicated to the target viewers in a predetermined time frame. Examples of common objectives for advertising: (a) Provide support to personal selling. Advertising is used to help the sales force obtain sales from prospects. For example, the advertisement on Noveaux Visages. (b) Improve relationship with distributors. Retailers and wholesalers need the producers support to promote products through advertising. (c) Introduce new products. (d) Widen product usage. Advertising can be used to widen the product usage and increase the multiple usages of products.
(e) Advertising is also used to create reaction towards competitors advertisements and to reduce the effect of consumers switching to substitute products. Advertising objectives can be divided into three major ones and they are to inform, persuade or remind. (a) Informative advertising is a form of advertising with the goal of providing information to the target consumers. When a company wishes to introduce a new product, it can use this type of advertising. Information on the products features and advantages as compared to the competitors for the new product can be communicated to the target market. Informative advertising is also appropriate to be used to inform the methods of using a product. For example, in rubbish disposal advertisements certain categories of rubbish are disposed according to the bins colour. For instance, bottles are disposed in orange coloured bins while tins are disposed in green coloured bins.
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(b) Persuasive advertising is used when competition increases. When there are too many competitors producing the same products, this kind of advertising is appropriate to persuade consumers to choose the companys products. At this stage, the company has to state the advantages of the product as compared to the competitors. For example, competition between companies that produces washing detergent brands like Fab, Breeze, Trojan, Ekonomi Handalan, Harimau Kuat, and others. These companies have to make use of the advantages that they have in their products and develop a creative advertisement to persuade consumers to choose their brands. Owing to the competition that exists between the companies, companies start to compare between their products and the competitors. For example, Trojan soap and Brand Z indirectly compare products. (c) Product advertising for the products that have reached the maturity stage. The advertising objective at this stage is to remind the consumers that the product still exists in the market and for the consumers to remember the product all the time. For example, Milos nutritious drink advertisement. Although this brand is well known, the company still continuously advertises in order for the consumer to remember its products and select them in stores. Other examples are soft drinks like Pepsi and Coca-cola advertise repetitively on the television all year long. Figure 8.2 shows the Pepsi product which has been in the market for long, using only short slogans like Drink Pepsi Cola because it doesnt need introduction anymore. Table 8.1 shows examples of advertising objectives according to purpose.
Figure 8.2: Reminder advertising Source: http://j4tb.com/mall/h20bury/pepsi.jpg TOPIC 8 MANAGING ADVERTISING, SALES PROMOTION AND PUBLIC RELATIONS
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8.1.2 Setting the Advertising Budget

Table 8.1: Examples of Advertising Objectives According to Purpose To Inform To inform the market about the new product. To suggest new ways of using a product.
To inform the market about a price change. To explain how the product is used. To explain the existing services. To correct the impression. To reduce purchasers fears. To build the companys image. To Persuade To build the brands strength. To encourage brand switching. To change consumers perception about a products attributes. To persuade consumers to buy now. To persuade consumers to accept a sales call. To Remind To remind consumers that the product may be needed in the near future. To remind consumers where to purchase the product. To remind consumers about the product during off-season. To maintain high product awareness. Source: Kotler, P. & Amstrong, G. (2000). Principles of marketing (9th ed.). New Jersey: Prentice Hall.
After setting the objectives, the company has to set the budget to advertise its products. An objective that has been decided upon cannot be carried out if there isnt budget allocated for it. Thus, budgeting decisions need detailed or meticulous planning as discussed in Topic 7. There are four methods in determining the budget. Those methods are the affordable method, percentageofsales method, competitive-parity method and objective and task method. These methods have been discussed in detail in Topic 7.
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But in this topic, a few factors that have to be focused on in determining the advertising budget will be discussed. Among the factors that have to be given attention are product life-cycle stages, market share, competition and the number of advertising and product differences. In the product life-cycle stage, budget is allocated differently according to the product stage. If the product is at the beginning stage of the product life cycle, advertising expenses will be huge because the company needs to advertise aggressively for the product to be well known. At the growth and the maturity stage, budget for advertising can be reduced because the product is well known by the prospects. A company that wishes to obtain a large or high market share for its products and brands needs a huge budget because advertising aggressively needs to be done to persuade consumers to choose their products as compared to the competitors. A high allocation is also needed if the companys product is in a market with many competitors and numerous advertisements. Many competitors means plenty of advertising until the consumers cant differentiate a product anymore. Thus, an advertisement that is creative needs to be created to differentiate it from the other advertisements. To develop an advertisement that
is creative either big or small, requires a big allocation. Decisions regarding budgets depend on many factors. Thus, detailed planning has to be done after researching factors that are involved, whether internal or external factors, so that the budgeting decision is accurate. Internal factors that have to be considered are the companys financial sources and human resources.
ACTIVITY 8.2
In your opinion, are high sales promotion expenses a good strategy for long-term profits? What are your reasons?
8.1.3 Choosing the Advertising Strategy

After deciding the budget allocation, the company has to think of an effective advertising strategy. Advertising strategy can be divided into two main elements, which are advertising message creation and advertising message selection. Both these strategies are equally important because they interrelate with one another. For example, although an effective advertising message has been developed, that message will not reach the target viewers effectively if the media selection was not done carefully. On the contrary, a good media selection will be meaningless if the message is not developed effectively. There are three
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steps in the advertising strategy development: the message strategy, message implementation and advertising media selection. (a) Message Strategy The first step in the development of an effective advertising message is the decision on the general message that will be communicated to the target viewers. Decisions can be made through planning of the message strategy. Normally, consumers will watch a message if the message is beneficial to them. Thus, message strategy development has to focus on the message which will benefit the consumers. After that, the company needs to create a creative concept for the message either in the form of visual or word. Creative strategy in advertising is the development of a message that is able to attract attention, has difference and it is easily remembered by the target viewers. A creative advertisement can create differences among the other cluttered advertisements. Advertising creativity can be shaped if the advertising agency has the talent to generate new ideas, unique ideas, and ideas that are related to the target market. Examples of well-known companies that often develop creative advertisements are Procter & Gamble, Coke, Pepsi, Celcom and Bumiputra Commerce Bank. Advertisements by these companies often generate new ideas and attract viewers attention. According to Kotler (2003), normally an advertiser will go through four steps in developing the creative strategy and they are message generation, message evaluation and selection, message execution and social responsibility review. Three main features of advertising that are able to attract attention are: (i) First, the advertisement has to be meaningful; it has to show the benefits that can be obtained from the product. (ii) Second, the advertisement has to be trustworthy; the consumers have to trust that the advertisement will be able to provide all the benefits promised. (iii) Third, the advertisement has to be different; it has to show that the product is better than the competitors product.
(b) Message Implementation In implementing a message, the marketer has to change the creative ideas into implementation of the actual advertisement that will be able to attract attention and win over the target market. Some of the normal styles of message implementation are:
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(i) Slice of Life This advertisements implementation style gives importance to life acting in normal situations. For example, the advertisement on Koko Crunch cereals shows individuals eating breakfast everyday. (ii) Lifestyles This style shows how a product is adapted to a certain lifestyle. For example, luxury lifestyle is shown in Dunhills advertisement or challenging or dream lifestyles are shown in Benson & Hedges (Golden Dreams) advertisement. (iii) Fantasy This style tries to create fantasy around the product and its usages. For example, advertisements that depicts fun when the product is used. (iv) Feelings or Image This style shows feelings or image associated to the product usage like the feelings of affection. For example, advertisements that show family affection and love between the father, mother and children. (v) Musical This advertisement shows the usage of background music or singing in an advertisement that can attract the viewers attention. For example, the World Cup football advertisements. (vi) Personality Symbol It is an advertisement style that uses personality as a character to represent the product. For example, the Garfield character as a cat and Ronald in McDonalds advertisement. (vii) Technical Experts This style shows the company displaying their expertise or technical skills in producing a product. For example, advertisements that show the production process of a product from the beginning till the end. (viii) Scientific Evidence This style shows research has been done, by proving that the product advertised is better than the competitors product. For example, (gamats) product advertisement where its contents are tested through a scientific process and the advertisement Quantum Trim & Firm which used to be known as Hollywood FB, shows consumers who use the product are able to slim down. (ix) Testimonials This advertisement uses celebrities or professional members to represent a company in introducing a product. For example, the national squash player Ong Beng Hee in the Excel drinks advertisement and singer Siti Nurhaliza in the Maybeline
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advertisement. Besides that, there are many types of messages that can be delivered like inserting elements of humour and jokes, positive
tones, fear and others. The advertiser or the company can insert any message that will attract the viewers attention to watch and act upon. (c) Advertising Media Selection Although message development is discussed before media selection, but in actual fact both the decisions are made together to ensure advertising is more effective. Steps in media selection that have to be given attention to are: (i) Deciding on Reach, Frequency and Impact When media selection is done, the advertiser has to think about reach, frequency and the medias impact to reach the advertising objectives. Reach means the percentage of viewers from the target market who are exposed to that media. For example, 80% of the viewers from the target market will be exposed to the advertising campaign in the first six months. The media tools chosen will have their own characteristics in reaching out. For example, the usage of national newspapers has a high rate of spread. Thus, the probability of reaching the target viewers is quite high as compared to the other media tools. Frequency refers to the number of times within a specified time period that an average person or household is exposed to the message. For example, a company wants the advertisement or message to reach each individual or for them to be exposed at least thrice a month. Media impact refers to the enhancement of qualitative values or the effectiveness of a media channel used. For example, the effects of using a television to show moving actions and actual product leave a larger impact as compared to using the newspapers. Selection of reach, frequency and impact needs thorough planning because it involves outputs to be reached through budget allocation. (ii) Choosing among Major Media Types Choosing between major media types depends on the reach, frequency and impact level of each major media. Here, the advertiser needs to look at the advantages and disadvantages of each major media. For example, if the target market is wide, has general characteristics and the company doesnt want high cost to be involved, the usage of newspapers will be appropriate.
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But, if the advertiser needs to reach a specific target market with a certain frequency and time period, magazines are more appropriate. Table 8.2 shows the advantages and disadvantages of major types of media.
Table 8.2: Advantages and Disadvantages of Major Media Types Media Advantages Disadvantages Outdoor Advertising Flexibility in terms of geography, low cost, easy to identify and is remembered last before purchase is done. Cannot select audience, short appearance time, hard to
measure viewers size and environmental problems. Newspapers Good market coverage, flexible, able to give detailed explanation, high believability and timeliness. Doesnt reach the specific target group, moderate reproduction quality and short lifespan. Magazines Specific target market, long lifespan, high reproduction quality, complete product information and has credibility. High cost and takes a long time for an issue to be published. Radio Reaches local target viewers, able to cover a wide target market and low cost. Cluttered, no visual only audio, low attention, difficult to purchase radio advertising time. Television Able to demonstrate, good market coverage, combination of audio and visual is able to attract high attention. Cluttered, high cost, audience selectivity not specific.
(iii) Selecting Specific Media Channels At this stage, the company or advertiser has to choose a specific media channel from the general media chosen. For example, if a company chooses the magazine as its advertising media channel, the company has to choose a specific magazine channel for its target viewers. Examples of specific magazine channels are Wanita, Ibu, Bola Sepak, Roda-roda, Anjung Seri and other magazines. If the company chooses television as its main media, it has to choose a specific segment like Buletin Utama, comedy programmes, Majalah 3, sports programmes and others. Selecting a specific media channel depends on many factors. Some of the major factors are target viewers like sports enthusiast, entertainment enthusiast or documentary enthusiast. Product
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characteristics influence media selection as well. For example, luxury furniture is more appropriate to be displayed on coloured and high quality magazines. Besides that, the advertiser or company has to think about cost. For example, advertising cost in a popular and wellliked programme like Who Wants To Be A Millionaire involves high cost. (iv) Deciding on Media Timing The final step in media selection is deciding on the appropriate media timing to air the advertisement. Planning can be done through detailed media scheduling based on the companys objectives. A company can schedule the advertisement at the same frequency rate all year long. For example, an advertisement can be aired once a week
or once a month in a year like advertisements for Coca-cola. The company can schedule advertisements intensively within a specified time period or reduce the frequency of the advertisements in a specified time period. For example, the advertisement for Yeos soya bean milk drink is aired on television at a high frequency rate during the fasting month (Ramadan) but is aired less frequently during the other months. Both types of scheduling have their own advantages. Scheduling that concentrates on a specified time period will produce an instant reaction from the viewers because they need the product at that time. Evenly spread scheduling has the ability to reinforce memory and brand loyalty.
8.1.4 Advertising Effectiveness

Finally in the development of an advertising programme, a company needs to evaluate the advertising effectiveness. A company can measure effectiveness by reviewing the advertising objectives. A measurement can be made by evaluating the communication and sales effects. The communication effects can be measured with the users, before and after the advertisement is aired. For example, measuring consumers memory about the message communicated, consumers awareness level towards the brand advertised and their knowledge on the product. The effects on sales can be measured by researching on whether the advertisement increased sales for the company. This can be done by comparing sales before and after the advertising campaign. If there is an increase, it shows that the advertisement was effective and is a major factor that influenced consumers to purchase.
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8.1.5 Advertising Management

Advertising management differs between companies. In small companies, the advertising activity may be managed by the sales department. Sales force at the sales department will carry out advertising activities as one of their job description besides selling. In larger companies, the advertising department will be created. This department has its own workforce to carry out full-time advertising activities and programmes. But, there are many companies that use advertising agencies to carry out their advertising activities. The advantage of using an advertising agency is that the agency is highly skilled and knowledgeable in the advertising field. Besides that, the company can save cost because they dont have to hire permanent employees to carry out the advertising programme. The advertising agent can also help the company to plan, prepare, implement, and evaluate the advertising programmes.
8.1.6 International Advertising Decisions

Companies that market products at the international level need to decide regarding advertising in specific related countries. International advertising decisions are complex and complicated because the marketer has to think of many factors before reaching a decision. The factors that need attention are advertising cost, advertising media that is available in the countrys market, rules and policies that govern the advertising industry as well as the language and consumers knowledge about the product in that particular country. Advertising failures often happen because less attention is paid to these factors. For example in Malaysia, advertising alcohol and cigarette products on television
is prohibited. While in Norway and Sweden, children below the age of 12 cannot be used on television for advertisements. Because advertising internationally is complex, the marketer has to study a countrys market before launching their advertising programmes. Companies can practise global advertising strategies, by adapting advertisements according to the country.
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SALES PROMOTION 8.2

Essay Questions 1. Explain briefly the importance of advertising objectives to the marketer. 2. Explain briefly four message implementation styles that can be used by the marketer in advertising.
EXERCISE 8.1 ACTIVITY 8.3

What is the difference between advertising and sales promotion? The usage of sales promotion tools as a promotion method is increasing from time to time. Among the factors that cause fast growth rate are desires to add sales instantly. Sales promotion is perceived as the most effective promotional tool for this purpose. The company will also have to face many competitors who sell the same products. The usage of sales promotion helps differentiate the competitors products from the companys. Other factors that cause an increased usage in sales promotion are when users want something that will bring instant benefits and the high increase in cost caused by using advertising as a promotion method. Sales promotion contains short-term incentives which encourages the purchasing or selling of a product or service. For example, when you buy a big pack of Chipsmore cookies, you will be given a small packet of Chipsmore cookies free. This is an example of a special short-term offer to encourage sales. These offers can attract the consumers attention to respond and react because these offers are rare and they can benefit the consumers.
8.2.1 Sales Promotion Objectives and Strategies

Sales promotion differs from advertising, public relations and personal selling. However, all three promotional methods are often used together to form a firm tie-in reaching the marketing communication objectives. For example, if the advertising objective is to provide awareness about the new product in the
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market, sales promotion can be used by giving out free samples to the consumers to try out the product. There are two categories of sales promotion - trade promotion directed towards members of the distribution channel and consumer promotion directed towards the consumers. Trade promotion and consumer promotion has its own objectives and strategies. (a) Trade Promotion Objectives (i) To introduce the new or modified product. (ii) To increase the distributed size or new packaging. (iii) To add or maintain producers space at the store room or shop.
(iv) To reduce the excess inventory and increase sales. (v) To encourage retailers to purchase early and to support the producer. (b) Consumer Promotion Objectives (i) Attract consumers attention to try out new products. (ii) Attract consumers to purchase the companys products as compared to the competitors products. (iii) To reward loyal consumers. (iv) To maintain long-term relationship with customers. Generally, the objectives and strategies of sales promotion are: To encourage demand for a product. To improve and smoothen the marketing performance of the middle men and the sales force. To aid advertising and personal selling. Sales promotion should try to build long-term relationships with consumers because they can discourage consumers from switching brands. Sales promotions, if done too often, can cause consumers to delay purchasing until the next promotion takes place. This will cause the failure of the promotional objective which is supposed to build long-term relationships, maintain existing customers and be competitive.
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8.2.2 Major Decisions in Sales Promotion

When a company uses sales promotion as its promotional method, the companys management has to make certain major decisions in order for the sales promotion to be more effective. The first step in deciding is objective setting. Sales promotion objectives can be in the form of initial marketing objectives that has been decided during the product development. Setting of objectives will aid the company in planning more effective sales promotion programmes to reach the objectives. The next step is selecting the major sales promotion tools that are appropriate to reach the companys objectives. The major sales promotional tools include coupons, samples, premiums and others. After choosing the appropriate sales promotional tool, the next step is to develop the sales promotion programme. The programmes that are to be developed have to take into account a few factors. Some of them are decisions on the incentives size because incentives size can determine total sales that are needed. The next factor is deciding on the conditions that have to be in place before a consumer purchase. For example, the consumer has to purchase the product first before he is entitled for any incentives from the company. The other factor that has to be considered is the promotions timeframe. A sales promotion that is too long will reduce sales and become ineffective because consumers will perceive it as a norm. Besides that, the marketer has to decide on the appropriate timing to carry out promotions according to the companys yearly schedule or certain seasons like festive seasons, school holidays and others. Finally, the marketer has to decide on the overall budget for the sales promotion. The total budget will help the promotional activities to be carried out smoothly, and achieve the objectives. After the promotion programme is designed, the company has to test the programme beforehand. Examples of testing that can be carried out are determining whether the promotional tool selected is appropriate with the
incentives size. After testing is done, the company can plan implementation and control of the sales promotion programme. Implementation planning has to take into account the effects of promotion before and during the promotional programmes launch. Finally, the company has to evaluate decisions after the promotional programme has been implemented. Decisions can be evaluated through two major methods
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sales records and consumer surveys. Through sales records, a company can view the promotions impact before and after the programme is implemented. If sales increases, does the increase in sales reach the objectives which is required through survey done on consumers, and can the company collect various types of information from the customers to evaluate the effectiveness of the sales promotion programme? Some of the information that can be collected includes consumer tendency to purchase the product when an incentive is given.
8.2.3 Deciding on Major Sales Promotion Tools

There are various sales promotion tools that can be used by the marketer. The usage of these sales promotion tools are according to the companys objectives and strategy. A sales promotional tools advantages and disadvantages have to be analysed to avoid the failure of a promotion. Some of the major sales promotion tools that are normally used are: (a) Coupons A coupon is a promotional tool that saves money for the consumers. It is a form of promotional tool that is frequently used by the producer. Normally, coupons are given in the form of certificates and the consumers will obtain savings when they purchase a specific product stated on the certificate. Coupons are normally distributed through newspapers, magazines, direct mail from the inside or the outside of a package. Coupons can give instant rewards to the consumers and encourage trial purchases and repeat purchases by loyal customers. (b) Samples Sales promotion tools that use samples are among the most popular tools that are used to deliver products to potential consumers. Normally, samples are products that are packaged in small packs for consumers to try them. It is normally distributed through individuals inside or outside stores and supermarkets. Samples are the most effective method to introduce new products in the market. However, the cost to use it is quite high because samples are normally given free to prospective customers who most probably would be missed out if the sample is sent through mail. (c) Premiums Sales promotion tools that are known as premiums are products that are offered free or at low cost as an incentive to the consumers to purchase those products. Premiums can be included inside or be kept outside the package or mailed. Example of premium is the offer of free sports bag to customers for buying racquets manufactured by Jaguh Sports Company.
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(d) Cash Refund Offers Cash refund offers or rebates is a practice that gives cash refunds or cash discounts to customers who show purchase evidence. Normally, this offer is given after the customer purchases the product. For example, Astro gives rebates or cash refund offers as much as RM300 when the customer
subscribes a programme or purchases its satellites. (e) Price Packs This promotional method offers price discounts to consumers through signs that are pasted on the labels or on the products packaging. Price discounts are normally in the form of savings like two products are packaged together and sold at a discounted price. For example, two pens that would normally cost RM2 each, is packaged together and sold at RM 1 each. Products offered need not necessarily be the same but they may be two different products like a pen offered together with its refill. (f) Advantage Specialties Advantage specialties are sales promotional tools in the form of calendars, pens, hats, T-shirts, umbrellas and others that are given as souvenirs to customers. The companys name or logo is normally printed on these souvenirs. Through these souvenirs, the company gets to introduce its name and image besides maintaining long-term relationship with customers. The advantage of this promotional method is that the customer remembers the company through the company name or logo that appears on the souvenir. (g) Trade Promotions Besides sales promotional tools that are specific to consumers, there are other sales promotional tools that are specific to trade. Trade promotional tools are normally used by producers to attract more retailers to support the producers products. For example, discounts from the original price are given to retailers. If the retailer buys in bulks, a larger discount will be given. There are more specific promotional tools for trade. Generally all these tools are to attract the sellers attention to react towards the producers products. Generally, besides specific sales promotional tools that can be used for trade sales promotions, there are other sales promotion tools that are specific to trade like conventions, trade exhibitions and business allowances.
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8.3 PUBLIC RELATIONS

One of the promotional tools which is not frequently used by organisations is public relations. Besides customers and suppliers, the company has to pay attention to the public who are interested in the companys activities. A public is any group that has an actual or potential interest in or impact on a companys ability to achieve its objectives. Public relations involve a variety of programmes designed to promote or protect a companys image or its individual products (Kotler & Armstrong, 2001). Programmes that involve product or company promotion are known as proactive public relations. This is because the programmes are carried out according to the marketing objectives that have been decided by the firm. Programmes that are carried out always seek opportunities to introduce the company and its products to the public. For example, when a company wishes to introduce a new product or modify an existing product, the company can create publicity to spread information about its products to the general public using the existing mass media. Besides promoting a company and its products, public relations also handles programmes that are able to safeguard images of the product and company. Reactive public relations are activities carried out to safeguard the companys
image. For example, if there is a defect on a product, the company has to act fast and react positively to overcome that situation. All the efforts that are undertaken by public relations are for the purpose of building and maintaining good relationships between the company and the public.
8.3.1 Public Relations Marketing

Proactive public relations often tries to support the companys promotion efforts and tries to raise a positive or good image to the parties that have interests in the company or the stakeholders. The major roles that are carried out by public relations are: (a) Aid in launching new products. (b) Aid to reposition matured products. (c) Influence specific target groups. For example, they sponsor events in specific areas. (d) Protect products that are problematic among the public. For example, products that cause negative incidents to the public. (e) Build corporate image that will build a good relationship between the company and the companys product among the public.
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8.3.2 Functions of the Public Relations Department

Normally, a large company will have a public relations department which is responsible to carry out the public relations programme. Companies without their own public relations department will carry out public relations programmes through their marketing department. Some of the task and programmes that are carried out by the public relations department specifically are: (a) To create publicity for the companys product like launching of new products or sponsoring a television show. (b) Handle issues related to the public. (c) Handle media relations like preparing information or news about the organisation or product for the media to attract attention and create a positive image among the public. (d) To lobby in the effort to build and maintain long-term relationships that is good with the government. (e) Corporate communication through internal and external communication will create a positive corporate image. (f) To build relationships with investors. (g) Counselling services to the management like advising on current and public issue.
8.3.3 Making Major Decisions in Public Relations

There are four major steps in decision making when the management wants to use public relations as one of the promotional methods for marketing communication. Those steps are creating marketing objectives, message and channel selection, programme implementation and decision evaluation. (a) Creating Marketing Objectives Before message and channel selection is done, the first step that has to be taken by a company in managing public relations is the setting of its marketing objectives. The marketing objectives involve: (i) Building Awareness Public relations can build awareness by placing a story in the media to
attract attention towards the product, services, organisation or ideas.
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(ii) Building Credibility Credibility can be created by the marketer through messages that are communicated in the form of short stories or editorials. (iii) Providing Motivation to the Sales Force and Sales Representatives Besides building awareness and credibility, public relations can be used to stimulate the sales force and the sales representatives in an effort to increase sales. News or stories about a new product before its launch can help sales personnel in selling the product to the retailers. The other objectives include cost reduction because public relations cost is lower as compared to the other promotional methods like advertising, sales promotion and personal selling. (b) Message Selection After the objective has been decided, the company has to identify an attractive message to be passed on to the prospective customers. The storys content has to have high credibility and in a news form to take care of its good name and increase the companys image. Besides that, the company has to create special events to catch the publics eye. Some of the events that can be carried out include collection through trust funds for the purpose of attracting the communitys attention towards the companys caring nature for current issues. The company can also announce new products in a product launching ceremony which is officially opened by a dignitary. For example, Perodua launched a new car model Kelisa which was officially unveiled by the Deputy Prime Minister of Malaysia. Besides that, the company can release news which is communicated through bulletins and magazines in business columns from the Chief Executive Officer regarding the product, opinions and remarks on current business issues. (c) Programme Implementation After the message has been selected and the delivery method has been identified, the next step is the implementation of the public relations programme. At times, media selection for public relations can be difficult due to high demand. For example, assume that your company wishes to inform the prospective purchasers about the advantages of your product in WANITA magazine but the space in that magazine is limited. What has to be done by the companys public relations officer? To obtain space in the WANITA magazine, the public relations officer has to have a close relationship with the editors. The editors have to be perceived as the companys customers who have to be satisfied to obtain good cooperation from them to implement the public relation programmes.
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(d) Decision Evaluation Finally, the company has to measure whether the public relations programme that is carried out has reached the objectives. The measurement has to take into account the level of exposure, awareness, behavioural changes and contribution towards sales, and profits.
EXERCISE 8.2
Essay Question 1. Explain four main differences between sales promotion objectives
and trade promotion objectives? 2. Explain the meaning of public relations. 3. List four functions of the Public Relations Department. 4. Explain three forms of advertising objectives that can be used by the marketers. 5. List and explain briefly four steps in selecting the advertising media. 6. List the advantages and the disadvantages of the main media in advertising. 7. Discuss the differences between coupons and samples in the context of the companys objectives and strategies. 8. Explain briefly four main steps in public relations that can be used by management in aiding them to make a decisions. Promotion is one of the important marketing mix elements. After the product is introduced, price is set and the distribution channel is decided. The company has to inform users about its products. This can be done through promotional programmes be such as advertising, sales promotion, and public relations. Advertising informs, persuades and reminds customers about the companys products. Advertising management involves determining decision on advertising objectives, budgeting, media and message, and evaluation towards the effectiveness of the advertising programme.
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Sales promotion is carried out to increase sales immediately. Sales promotion management involves determining decisions about strategies and objectives, promotional tools, promotional programmes, promotional time, budgeting, and evaluation programmes. Sales promotion which is too often and long will reduce sales because consumers will perceive it as ineffective. Public relations is a promotional tool which is rarely used by the marketer although it has a huge potential to build consumers awareness and interest towards the companys product. Public relations can also be used to build the companys credibility and image. Public relations management covers activities that are similar to advertising management. Advertising message creation Informative advertising Advertising message selection Objective and task method Affordable advertising Percentage-of-sales method Competitive-parity method Persuasive advertising
INTRODUCTION
This topic will touch on another marketing communication element which is no less important and it is personal selling. Besides personal selling, the method
used by a company to manage sales has to be known. Personal selling is a sales promotional method which has been practiced for a long time. Sales representative is an occupation which is popular from the past till today. Sales personnel are also known as sales representatives, marketing representatives, sales consultants, and others. A sales personnels task requires him to interact and communicate directly with the customers. It is not an easy job. It needs sufficient preparation from the aspects of knowledge and appearance to communicate with customers well. This topic will look at sales personnels process and roles and the planning of sales force management.
Topic
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Managing the Sales Force and Direct Selling
5. Apply the latest direct marketing channel and the advantages and disadvantages of using it; and 6. Evaluate consumers and marketers database.
LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. Explain strategy development and the structure of the sales force; 2. Assess how a company trains its sales personnel; 3. Examine how a company compensates, supervises, and evaluates its sales personnel; 4. Illustrate the steps in the personal selling process;
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TOPIC 9 MANAGING THE SALES FORCE AND DIRECT SELLING
9.1 ROLES OF PERSONAL SELLING

Personal selling plays an important role in the company because it helps other promotional activities. The use of advertisements as a promotional method has its disadvantages because it consists of one way communication. The explanation which is given through advertisements may not be sufficient or it is hard to understand for the audience. Personal selling able explains a complex product which is difficult to understand and has to be demonstrated by trained sales
personnel. Personal selling is mostly used in business and industrial markets. Products for these markets are more complicated and expensive, requiring sales personnel to explain in detail to the customers. The sales personnel are the companys representatives when they meet customers. The duties of sales personnel are not confined to selling alone but it cover a wider aspect. Sales personnel have to look for prospective customers, conduct demonstration for the companys products, answer questions, handle objections, and deal with pricing and close sales. Sales personnel also act as the customers representative in the company. If there is feedback and dissatisfaction from the customers, sales personnel have to pass the message back to the company. They act as the middlemen between the company and their customers. The purpose of personal selling is to educate potential customers, explain the products usage and help in marketing. Personal selling also completes aftersales service and encourages repeat purchases. The advantages of personal selling are: Able to listen more attentively because the marketing method used is face-toface sales from the sales personnel to the prospect. The message that is to be communicated can be modified according to the customers characteristics. Two-way communication between the marketer and the customer will be able to obtain instant feedback from the customers. Easy to explain information and answer questions posed by the consumers and customers. Able to demonstrate the product in front of the customers. Able to build long-term relationship with customers.
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MANAGING THE SALES FORCE 9.2

Essay Question Explain briefly the roles that are played by personal selling to a company.
EXERCISE 9.1 ACT I V ITY 9.1

Why does a company set objectives for its sales force? The sales and marketing department is the main department that needs to be managed efficiently because this department produces business for the company. Sales force management involves the efforts of analysing, planning, implementing and controlling the activities of the sales force. The main steps in sales force management are designing strategy, structure, recruitment and selection, training, supervision and sales personnel evaluation.
9.2.1 Sales Force Objectives and Strategies

Sales force is the companys representatives in meeting customers. Thus, as the companys representatives, the sales force have to achieve the objectives that have been determined by the company. The company has to set objectives for its sales force to enable them to focus towards achieving it. For example, the companys objective is for its sales force to use 50% of their time to do sales and another 50% to build relationship with customers in order for the customers to stay with the company. Following are the activities that are normally carried out
by the sales force: (a) Sales Functions This includes planning for sales presentation and to increase sales. (b) Receiving Orders Most of the time this involves writing orders down, solving order-related problems and controlling orders. (c) Services Providing after-sales services and technical services if the product is a technical product.
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(d) Information to the Management Receiving feedback from customers and passing the information back to the management. Time duration or emphasis on time for these activities depends on the objectives that have been set by the company. Besides sales activities, the type of sales jobs can also influence the objectives and strategies of the sales force. Types of sales jobs which are carried out by the sales force are: (a) Trade Sales This sales activity promotes products for business sales and not for end users. (b) Technical Sales Industrial sales activities like engineering, computer science and others. Technical sales personnel have to know well about the products that are produced by the company. (c) Retailing Sales It is a selling activity where the consumer or the customer will visit the sales personnels premise and not the other way round. Most of the retailers and sales personnel know about the products and they should have interpersonal skills. (d) Telemarketing Through telemarketing, the sales personnel does not have to meet with the customer. Communication is done through the telephone for activities like opening new accounts, receiving orders and others. (e) New Business Sales Sales activity that involves the opening of new accounts continuously and getting new customers often.
9.2.2 Designing Sales Force Strategy and Structure

An organisation has to arrange its sales force structure according to the strategies that have been decided. A good arrangement of the sales force structure will help the company to maximise the usage of their sales force to generate profits. The sales force structure depends on many factors. Product characteristics are one of the main factors. If a company has various product characteristics, its sales force can be structured according to that product category. Besides, if the product sold is single or only a few, but it is sold in many locations, the sales force structure can be arranged according to territory or
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certain areas. However, the sales force structure need not necessarily follow the stated categories. If an organisation sells various products to their customers, the company may need both structures.
(a) Territorial Sales Force Structure This structure divides every sales personnel or a few sales personnel to a geographical sales territory exclusive for them to sell and build relationships. The advantage of this structure is that the sales personnel gets to focus his energy on a territory and communicate only with the customers from that particular territory. Thus, sales quality and productivity and communication can be maximised because the sales force get to concentrate on the customers at that particular location. For example, Q&P Company that exports goods overseas has divided its sales staff according to territories: South East Asia, Middle East, Europe and North and South America. Thus, the sales staff have been assigned to particular territories and they can concentrate on communicating and generating sales from the customers in those territories. (b) Product Sales Force Structure Companies that have various products can use this structure in arranging their sales personnel. Every sales personnel who is assigned to sell a product has to be knowledgeable about the product. For example, Harum Semerbak Company sells perfume, scented powder, shampoo and others. Sales personnel who sell products like powder have to be knowledgeable about the product, customers and the territory when they are going to sell the products there. The advantage of the product sales structure is that the sales personnel are able to focus their skills on the product and they are able to sell to customers regardless of territories, customer size and others. But, the disadvantage of this structure is when the same company buys various products from the seller. Two or more sales personnel will frequent the same territory and they will meet the same customers. Besides incurring high expenses, it will also cause confusion in the consumers purchases. (c) Customer Sales Force Structure Arranging the sales force structure according to customers or industries can be carried out through a few methods like: (i) New and existing customers (ii) Major and normal accounts (iii) Different industries
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A customer-based sales force structure enables the sales personnel to concentrate on customers whom they are responsible for. Thus, the company gets to build long-term relationship with the customers because the sales personnel get to focus attention on them. However, this structure involves high operations cost because not many customers can be visited during a visit if they live in a few locations away from one and another. (d) Complex Sales Force Structure This structure is a combination between territorial, product and customer sales force structure. This structure is suitable to be used when the company has many products, various customers and they cover a wide area. Sales personnel can concentrate their sales efforts according to territories and customers, products and territories or the others that are appropriate.
9.2.3 Recruiting and Selecting the Sales Force

Recruitment and selection of sales personnel is important in managing sales force
because a good recruitment and selection process will provide long-term profits to the company. Furthermore recruiting capable and quality sales force will increase the companys image and sales. The cost of firing an existing staff is high because the company has to retrain a new staff. Recruiting experienced staff involves high cost because a high compensation has to be given. Thus, a careful selection has to be done for the staff to remain and be loyal to an organisation for a long period of time. (a) Recruitment Procedures Before staff are recruited, the company has to determine the characteristics and the quality a sales personnel should have. After that, the Human Resource Department can carry out recruitment activities through a few methods like obtaining names from existing sales personnel, using recruitment agencies, advertising in the newspapers, radio or television, and contacting higher learning institutions. (b) Selection Procedures After activities to obtain applications are carried out, the company has to go through the selection process. Normally companies will carry out interviews as a procedure to select employees. Interviews can be conducted once or twice to select employees carefully. Besides, the company can use tests to measure a persons attitude towards sales, analysing and management skills, look at personality characteristics and others. This test will help the company in choosing capable employees to carry out work for the company.
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9.2.4 Training Sales Force

AITY CTIV 9.2
Why is training for sales personnel considered important to the company? Do sales personnel need official training? After obtaining the sales personnel, the company has to train the selected sales personnel. Some companies dont pay attention to providing training for the staff. The company assumes that the selected sales personnel have the ability to carry out the job and the cost of providing training is very high. Thus, there is no formal training provided. However, formal training has to be given to the sales personnel because they may lack of skills on the product, procedures, and customers. Through a comprehensive training programme, sales personnel will be more exposed to that information. Besides, sales personnel need information regarding the market, competitors, prospective purchasers, and on how sales presentations should be done. Training on time management, reports, and methods of communicating with the management has to be given to ensure that the sales personnel are more skilled at handling their job. Providing good training will leave an impact on the company from the aspect of obtaining new customers and maintaining the existing ones, and maximising profits.
9.2.5 Sales Force Compensation

Compensation for the sales personnel has to be attractive and has to follow the current trends to help maintain the current sales personnel and attract new sales personnel. Compensation is normally given based on skills and the experience of the sales personnel. Compensation can be given in the form of fixed salary or based on commission and bonus. Commission is normally given based on sales.
The higher the total sales, the higher the total commission obtained. Bonus can also be given based on achievements. For example, if sales personnel exceed the yearly target fixed, bonus will be given to that staff. Besides, staff can also obtain other benefits like medical services, loans and others. A good compensation will motivate the sales personnel to stay loyal with the company and to excel.
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9.2.6 Supervising Sales Force

The supervision of sales personnel by the employers will help that staff to be more productive and committed. Sales personnel supervision is also done to guide and motivate them. Methods that can be used by employers to help sales personnel are by identifying the target customers. Identifying target customers will make it easy for the sales personnel to concentrate their sales efforts on certain target customers that have been defined by the company. A company can help its sales personnel use time more effectively. For example, in a week the company can allocate two days for the sales personnel to look for prospective customers. The method or tool that can be used by a company to help its sales staff use time more effectively is by coming up with a yearly schedule, analysing time and task, and by using automated sales like the Internet or computer system. A good computer system can help sales personnel to analyse customer profiles more efficiently, for example, researching on customers who place the most amount of orders or make payment fast. This profile can be used by the sales personnel to provide efficient services.
9.2.7 Motivating Sales Force

Besides compensation, the company can motivate its sales personnel by preparing a good organisational environment. For example, promotion opportunities and rewards will be given to employees who reach their sales targets. The company can also decide on the sales quantity that has to be sold by each sales personnel in a month or a year. Targets that are decided can motivate sales personnel to work towards achieving them. Besides, management has to schedule sessions or meetings with the sales teams. In these sessions, all the problems and opinions can be voiced out to the management in order for the sales process to be improved. The management can also give positive sales incentives like sales competitions, honours and gifts like vacations, cash and other goods. The company can also evaluate the sales personnels performance through talents like interests and personality characteristics. Sales personnel can also be evaluated through skill levels like communication skills and the ability to close sales. Sales personnel motivation level can also be evaluated by looking at the confidence level in carrying out work and sales activity.
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9.2.8 Evaluating Sales Force

After training, compensation and supervision services are given by management to evaluate sales personnel performance. Sales reports are scrutinised and used as an information source by the management to evaluate the work performance of the sales personnel. Sales reports show sales performance that has been achieved by a sales staff in a determined time period. The company can also scrutinise the budget report to evaluate whether the
expenditure incurred brought in good returns. The company can analyse the working plan of its sales personnel like their daily activities. Besides, visit reports show visits done by the sales personnel to the existing and the prospective customers. These entire information sources are examples of tools that can be used by the companys management to evaluate the ability of the sales personnel to plan their work and work based on the planning that has been done.
9.3 THE PROCESS OF PERSONAL SELLING

After getting to know about sales personnel management, we have to know the steps that are involved in carrying out the sales activity. Stages in the personal selling process are normally experienced by the sales personal in carrying out the selling process. Main steps in the personal selling process are: (a) Identifying prospective customer (b) Pre-approach (c) Approach (d) Presentation and demonstration (e) Identifying objections and questions and answers (f) Closing (g) Follow up (a) Identifying Prospective Customer The first step in the personal selling process is identifying prospective customers. At this stage the sales person has to identify qualified purchasers in order for the potential personal sales process to succeed. By focusing on prospective potential customers, the sales person gets to save time and expenses. This is because, not all potential purchasers have the potential or are qualified to become the companys customers. There are some purchasers who dont fulfil criteria to become qualified purchasers because of poor buying records. There are some purchasers who have fixed and existing suppliers and they dont want to look for new ones. Through
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proper identification, sales staff get to avoid themselves from wasting time, energy, and spending money. (b) Pre-approach The second step in the personal selling process is learning about the prospective customers characteristics and buyer behaviour. If the companys customers are industrial customers, the sales person has to get to know about the organisation, like their needs and who is involved in the purchasing process. Getting to know as much as possible about the prospective customer helps sales personnel to plan strategies to get closer to the customer. A salesperson can obtain information about future customers through an acquaintance in the organisation and through reading secondary data like magazines, newspapers, and others. (c) Approach The next step is by getting closer to the customers. At this stage, the sales personnel have to know how to face and greet to begin a conversation. This stage is the most important stage because behaviour, mannerism and appearance of the sales personnel are important aspects which will be evaluated by the future customer for the next round of communication. (d) Presentation and Demonstration At this stage, the sales person will do presentation and product demonstration. Explanation about the product and the companys sales
personnel will be presented in detail. If necessary, demonstration regarding the product usage that fulfils the customers characteristics will be done to simplify the selling process for the sales personnel. (e) Identifying Objections and Questions and Answers In the selling process, the sales person has to be prepared to face potential purchasers who will object. Objections are done maybe because potential purchasers wish to get more information about the product or because they are not satisfied with the explanation which was provided. Customers will normally do comparisons between one companys products with another. At this stage, the sales staff have to use their skills to handle objections and question and answers with the potential purchasers. Sales staffs have to use positive methods like, using the logical and psychological aspects to explain the customers doubt regarding quality, price of services and the product warrantee. Sales staff have to be given exposure and training at this stage because they face experienced purchasers who want the best. (f) Closing After passing the objection and the question and answer levels, a salesperson will require skills to close the sales. Techniques that can be used
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are by identifying signs that the purchaser is ready to purchase. Purchasers will show positive reactions when they agree to the product. At this time the sales person has to be clever in convincing the purchaser by acting immediately and by offering attractive prices, providing after-sales services or offering to take down orders and ensure terms will be discussed later. This technique can close sales immediately and get the purchaser who was purchasing the competitors products before. (g) Follow Up Finally, a salesperson who has obtained sales for the company has to follow up to get to know whether the customer is happy with the purchase done. Follow ups are important in order for the customer to stay loyal and to repurchase. Sales personnel also get to build long-term relationship with the purchasers. Thus, a detailed schedule has to be planned by visiting and making calls to these customers.
9.4 RELATIONSHIP MARKETING

Personal selling had a short-term business dealing motive traditionally. The main objective was to obtain customers and to close sales. However, personal selling based on this dealing has its disadvantages. Among the disadvantages are that it only emphasises on sales at that time without the presence of the long-term relationship aspect. After sales, there isnt any form of communication and the sales staff will have to look for new customers for the next sales. Looking for new customers will involve high cost because sales staff have to contact the potential customers all over again. Based on this disadvantage, companies have started to emphasise on relationship marketing. Relationship marketing emphasises on long-term relationships with the customers by creating values and high satisfaction to the customers. The main objective of relationship marketing is to maintain the existing customers. Through continuous relationship with customers, the company gets to save the cost of obtaining new customers. Thus, sales staffs have to emphasise long-term and close relationships with customers. Customers will feel appreciated and this will be profitable to the company in the long term.
9.5 BENEFITS OF DIRECT MARKETING

Direct marketing is an interactive marketing system which uses one or more advertising media to obtain reactions that can be measured or to enable transactions to be done anywhere.
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Reactions that can be measured are normally referred to orders that are placed by consumers. Thus, direct marketing is also known as direct-order marketing.
9.5.1 The Advantages of Direct Marketing

The advantages of direct marketing are: (a) Able to save time. (b) Introduces consumers to a larger selection of merchandise. (c) Marketer is able to shape direct marketing relationship with customers. (d) Ability and permission to conduct market testing through alternative media via an efficient cost method. (e) Marketer can measure reactions towards any campaign which is carried out and the ability to determine campaigns that are profitable. (f) Consumers can place orders for themselves or for others. (g) Firms dont have to deal with the companys sales personnel to obtain any necessities or suppliers.
CONSUMER DATABASE AND MARKETING DATABASE 9.6

One of the direct marketing instrument that is most valuable is the customer database. Customer database refers to a group of complete and organised data regarding customers or potential customers of a company. The information in the consumer database is the latest, easy to obtain or reach, and can be used for the purpose of marketing, either as a guide or from the aspect of generation, qualification and suitability, product sales or communication between consumers. Marketing database refers to the development process, maintaining and using the database, and other databases (including products, suppliers, and sellers) for the purpose of communicating and business. Consumer database not only contains consumer information list (like name, address or telephone number) but it also contains other information regarding products that are bought, units purchased before, price, practical buying practices, demographic information and others. Effective database management is capable of becoming a valuable asset because of its ability to compete with the other competitors.
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Companies use database to: (a) Identify potential customers for the company. (b) Determine which customers have the rights to accept certain offers from the company. (c) Enhance customer loyalty. (d) Attract consumers attention to purchase. This is because a database is capable of helping a company from the angle of preparing the companys best services for the consumers like the delivery of appreciation cards,
reminders, promotions, and others, especially to the companys own customers.
MAJOR CHANNELS OF DIRECT MARKETING 9.7

Some of the major direct marketing channels that can be used by direct marketers are: (a) Face-to-face Selling Face-to-face selling refers to the personal selling source that is professional and reacts for the company by placing and moulding potential customers and directing them towards the business. (b) Direct Mail Direct mail involves delivery of an offer, announcement, reminder or other items to the companys customers. Before this, direct mail was generally based on the concept of paper and was delivered through the help of the government post office or profit-oriented private companies such as Nationwide Express, Federal Express, DHL and also UPS. But now, through the advancement of technology, three forms of new direct mail has been created, which is the fax machine, e-mail and delivery through voice mail like telephone. Direct mail is the most popular mediator because it allows media selection by the target market, is more flexible, allows trial and reactions to be measured. (c) Catalogue Marketing Catalogue marketing refers to marketing outputs through catalogues. There are a few types of catalogues. Some of them are: (i) Full-Line Merchandise Catalogues
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(ii) Specialty Consumer Catalogues (iii) Business Catalogues All these catalogues are printed, in the form of CDs, videos or on-line. (d) Telemarketing Telemarketing refers to the use of telephone operators to attract new consumers, current consumers or to take purchase orders. An effective telemarketing depends on the right and accurate selection of the telemarketer at the beginning stage, providing training to them and providing performance incentives for the purpose of motivating them. (e) Other Media for Direct Response Marketing It involves the use of all major media types by the marketer in offering directly to the potential customer. Major media include newspapers and magazines and they are used by the marketers in advertising their products. Through the direct marketing concept, consumers who are interested towards the products that are advertised can phone the marketer directly on a toll-free line. This form of advertising type can be done through the television using three main methods: (i) Direct Response Advertising The latest example of direct response advertising is the toll-free line which appears on the television screen for the purpose of placing orders and also obtaining more information regarding the products
advertised. (ii) At-home Shopping Channel At-home shopping channel is a specific shopping channel reserved for the sales of goods. (iii) Videotext and Interactive Television Through videotext and interactive television, television is connected to the sellers catalogues through cable lines or telephone. Consumers are able to place orders through certain equipments which are connected to modified systems. Research done recently points out that most companies are in an effort to combine television, telephone and computers towards creating an interactive television. (f) Kiosk Marketing Kiosk marketing refers to the customer-order-placing machines or better known as kiosks. Kiosks are normally placed in warehouses, airports or at other suitable locations. For example, The Florsheim Shoe Company uses the kiosk method where the usage of it is able to make it easier for consumers who wish to place orders for the shoes that they like. Various
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types of shoes will appear on the screen. If the shoes that the customer is interested in are not in that particular warehouse, the purchaser can contact Florsheim by leaving his address or telephone number in order for the shoes to be delivered. The selection of various effective and successful direct marketing channels requires each direct marketer to determine the objectives of using that particular channel, target market and accurate potential customers, important element strategies that involves (output, offer, middleman, creative strategy and distribution method), campaign test, and development measurements in deciding the success of a campaign.
9.8 ONLINE MARKETING

Electronic channel is the latest direct marketing method. The word e-commerce explains the meaning of multiple electronic platforms like message delivery to the supplier through EDI (Electronic Data Interchange), usage of fax machines and e-mails in carrying out various business dealings, the usage of ATM, smart cards to ease payments, and the usage of the Internet or other telemarketing services. These electronic channels are network systems that involve two phenomenas, namely digitalisation and connectivity. It is known as intranet if it involves communication networks between departments or between employees in a firm. Extranets involve communication networks between firms and their suppliers or the firms customers. Internet refers to the connection of the consumers network channels to the wide and amazing information corridor. The e-commerce channel consists of two forms and they are: (a) Commercial Channels Commercial channels are on-line information or marketing services that are created by most firms today for the purpose of making it easier for the consumers to obtain specific information regarding the firm. Besides that, it is for the purpose of making monthly payment easier, especially for payment in the form of fees. Those channels normally provide information in the form of news, references, sports and learning, entertainment, buying services, opportunities to interact through bulletin boards, forums or chat
sites and e-mails. (b) Internet Internet is a global computer web network which is capable of shaping global communication, fast and instantly. Through the Internet, users can
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send e-mails, exchange and share opinions, purchase outputs, obtain and receive news or obtain business information fast and quickly.
9.8.1 Advantages and Disadvantages of Online Marketing

The main objective of online marketing is to look, get near, deliver and sell. The advantages of using online marketing are: (a) Big, medium and small-sized firms are capable of using this method of marketing. (b) Unlimited space for advertising. (c) Able to look for and deliver information at a fast rate. (d) The web sites can be visited by anyone who is interested. (e) The buying concept is fast and has privacy. From the angle of a potential purchaser, online service usage is convenient, resourceful and reduces noise like persuasion and emotions that occurs when the sales personnel meets the customers face-to-face. This is because they dont have to meet the sales personnel. From the marketers angle, the benefits are listed below: (a) Able to do adjustments fast especially when it comes to increasing the outputs of the company, price changes, and output description. (b) Reduce cost like insurance cost, rental or usage cost. The marketer is able to produce digital catalogues which is able to reduce delivery and printing cost. (c) Able to have business relationships with customers or the other consumers. (d) Online marketing is able to share information with a large number of consumers. The online marketing concept is not appropriate for all the companies or outputs. The Internet is unsuitable to be used as an advertising media if an output needs to be touched and checked immediately. However, there are large firms that use this sales concept although they are aware that the output offered has to be evaluated closely by the consumer. For example, computer companies and florists practice online order concepts.
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Although there are many benefit of using online marketing (the latest direct marketing method), the marketer has to avoid campaigns that would create elements of noise, unfairness, fraud and trespassing.
ACTIVITY 9.3
In your opinion, how far does online marketing influence the community especially the younger generation like children?
9.8.2 Managing Online Marketing

Online marketing can be handled through four methods and they are: (a) Creating websites using the Internet. (b) Online advertising. (c) Joining forums, news groups and community-based websites. (d) E-mails and web releases.
(a) Creating Websites Using the Internet The marketer can place orders online through websites on the Internet. There are two forms of websites on the Internet and they are: (i) Corporate Websites Corporate websites are formed by firms that wish to communicate basic information regarding the firm. The information that is normally found on websites are regarding the companys history, mission and philosophy, firms outputs and also its location. (ii) Marketing Websites Marketing websites are formed to provide exposure and insights to the consumers from the aspect of purchasing or other marketing outputs. This includes catalogues, shopping guides, promotions, competitions and others. (b) Online Advertising Online advertising can be done through three methods, and they are: (i) Placing selected advertisements through certain sections that are offered by the main online service provider. (ii) Placing advertisements in news groups on the Internet for commercial reasons.
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(iii) Paying for online advertisements that appear when consumers or customers survey services online or on the web. (c) Joining Forums, News Groups, and Community-based Websites Through this method, the firm can join or sponsor Internet forums, Internet news groups and through Internet bulletin boards which focus on certain consumer groups. Internet forums are online discussion groups which are placed commercially for the purpose of exchanging messages spontaneously. The forum can operate in the form of a library, chat space or advertisement directories. News group is a version of internet forum. What differs here is, the group is limited to those who send and read messages for certain topics only. Internet users can join the news groups without having to subscribe. There are various news group topics like healthy eating, methods of caring for a bonsai tree, exchange of opinions regarding operas, stories and others. The bulletin board system, on the other hand, refers to certain online services that focus on particular topics or groups. (d) E-Mails and Web Releases Firms can encourage potential customers and the companys customers to send in questions, suggestions or comments to the company through the usage of e-mails. By using e-mails, customer service is able to react fast and instantly to them. Firms are also able to form Internet-based electronic mailing list. By using e-mails, the marketer can send the companys latest news to the customers or the can send promotion offers on the company special products, reminders, warranty renewals and the companys announcements. Firms can also enter into agreements with any web casting service provider such as Pointcast or Ifusion, that will automatically send information that is needed by the consumers to their computers. For a paid monthly fee, customers can decide on the channel and topics that are needed, either in
the form of news, company information or entertainment. The web casters will be responsible in sending the information. It is better known by the name push programming. The online marketer looks at this matter as an opportunity to send information or advertisements to the parties who subscribe to this service without requiring the customer to demand for it.
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ACTIVITY 9.4
Visit Pointcast at www.pointcast.com and Infusion at www.ifusion.com to understand how web casting is done. Essay Questions 1. Provide the meaning of direct marketing and explain the advantages of direct marketing. 2. State the main channels of direct marketing. Explain clearly each of the channel forms. 3. Discuss four sales force structures which can be used by the management in designing sales force strategies and structures. 4. Explain briefly seven steps in the personal selling process that is used in carrying out sales activities. 5. Explain the importance of direct marketing to the company in businesses today. 6. Explain the differences between the consumers database and the marketers database. 7. Explain the latest forms of direct marketing. 8. Explain briefly the benefits of using online marketing from the purchasers and marketers perspective. Please state the elements that have to be avoided in using this channel to keep away any disaster that will occur.
EXERCISE 9.2 1 58 TOPIC 9 MANAGING THE SALES FORCE AND DIRECT SELLING
Direct marketing is an interactive marketing system that uses one or more advertising media to obtain reactions that can be measured or to enable business dealings to be done anywhere. According to the latest trends, the world stresses widely on the usage of direct marketing in the consumer market, business markets and donation and contribution markets. One of the most important direct marketing instruments is the ability to create consumer databases that are used by the company (especially large companies) in identifying potential customers, determining customers who are most eligible to receive any form of the companys offer, increase customer loyalty, and also increase purchases among the consumers. There are various forms of major direct marketing channels. The oldest form of direct marketing channel introduced is face-to-face sales, followed by direct delivery, catalogues, telemarketing, direct marketing through the usage of other media, and kiosk marketing. Online marketing is the latest direct marketing channel. It consists of two types of direct marketing channels, namely the commercial channels and the Internet.
The marketer can choose to handle online advertisements through the development of websites using the Internet, online advertising, participation in forums, news groups and community webs and through the usage of emails, and web casting. Direct marketing Electronic channel
INTRODUCTION
Control is the last step in the marketing management process. However, its implementation is together with the marketing tactic and strategy implementation process. The control process is important in ensuring that all marketing implementation strategies and techniques are as planned. The marketing control process generally can be classified into three major sections, and they are control mechanisms, surveillance and performance evaluation. Control mechanisms refer to the usage of internal controls in the marketing control process, while surveillance is the control step that is carried out together with the marketing tactics and strategy implementation process. Performance evaluation is marketing control implementation after all the marketing strategies and techniques are implemented. The main reason for performance evaluation is to measure how far the marketing tactics and strategy implementation reaches the objectives that have been decided in the beginning process of marketing management.
Topic Marketing
10 Control
2. Discuss the marketing control methods; and 3. Explore the marketing audit concept.
LEARNING OUTCOMES
By the end of this topic, you should be able to: 1. Explain the marketing control process;
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TOPIC 10 MARKETING CONTROL
10.1 CONTROL PROCESS

The marketing control process covers five important activities, like deciding on performance standards, deciding on types of feedback, obtaining feedback, evaluating feedback and implementing corrective actions. Figure 10.1 shows the big picture of the implementation mechanism for the marketing control process.
10.1.1 Deciding on Performance Standards

This step requires the marketer to select performance measurement standards. Standards that are selected should be achievable and measurable. If the standards selected involve rewards, the marketer has to take into account time
factor like monthly, quarterly or yearly. The marketer can use control methods like profit analysis and sales as a performance benchmark or use consumer satisfaction index as the basis for evaluation.
Figure 10.1: Marketing control process
There are two methods to measure consumer satisfaction index: consumer expectation measure and performance measure. Consumer expectation measure refers to the act of understanding and measuring criteria that are used by consumers to evaluate their satisfaction levels toward the product. Performance measure on the other hand refers to measuring how far the marketer has succeeded in fulfilling the consumers expectations.
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10.1.2 Deciding on Types of Feedback

There are various feedback data that can be selected by the marketer to be used in deciding the types of feedback. Among the feedback data that can be used by the marketer are the purchasers feedback, intermediary, supplier, product performance and business dealings.
10.1.3 Obtaining Feedback

After deciding on the feedback type that will be used in the control process, the marketer has to obtain that information. Feedback can be obtained from two main sources, and they are: Internal sources such as sales records, purchase records and staff. External sources such as marketing research findings regarding consumer behaviour, competitors and market trends. All the feedback obtained has to be focused towards the evaluated units performance, such as the achievement of sales groups or strategic business units.
10.1.4 Evaluating Feedback

Every feedback has to be scrutinised and analysed in depth to help the marketer in making accurate conclusions regarding the units performance that is being evaluated. Marketers normally use various types of information to evaluate performance, especially from the aspect of identifying weaknesses and shortcomings of the evaluated unit.
10.1.5 Implementing Corrective Action

ACTIVITY 10.1
Why does the manager has to carry out corrective actions? If the evaluation results uncover that the unit analysed has succeeded in exceeding the performance standards, motivational actions such as giving out rewards, promotions, and salary hikes have to be implemented. If the evaluation results discover that the units actual performance achievement is below or does not meet performance standards that have been decided, then corrective actions have to be carried out.
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Based on the control process that is shown in Figure 10.1, the marketer has to correct the performance standards. However, this action need not be carried out by the marketer. The inability to reach performance standards that has been decided may be due to the staffs incapability or inappropriate marketing tactics or strategies. This means the marketer has to repeat certain steps in the marketing management process. If the marketer finds the pricing strategy ineffective, thus corrective action has to be taken towards that strategy.
EXERCISE 10.1
Essay Questions 1. List and explain briefly all the steps that have to be implemented by the marketer in the marketing control. 2. Why does a marketer obtain feedback regarding staff achievement and marketing activities?
10.2 CONTROL MECHANISM

There are four methods or mechanisms that the marketer can choose from to implement the marketing control process. Those methods are: (a) Annual-plan control (b) Profitability control (c) Efficiency control (d) Strategic control
10.2.1 Annual-plan Control

Most business organisations prepare plans or annual-planning control systems. This method is provided to make it easier to achieve all the objectives that have been decided in the marketing management process, especially from the aspect of target sales, profitability or market share dominance. There are five evaluation methods that can be used by the marketer to come up with annual plan methods. Those methods are sales analysis, market-share analysis, sales expenses analysis, financial analysis and market analysis.
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(a) Sales Analysis Sales analysis is done to evaluate sales outcomes based on the relationship between inputs and outputs. This means, sales analysis covers measurement and evaluation of actual sales as compared to the sales objectives that have been decided by the marketer. There are four forms of sales analysis that can be chosen by the marketer, which are the territorial sales analysis, product sales analysis, sales analysis based on the order size and sales analysis based on purchasers. (According to purchasers categories, namely individual or organisational consumers or specialised purchasers). (b) Market-share Analysis Market-share dominance analysis is an important indicator towards the actual performance of the company as compared to its competitors. There are four methods of measuring market share which can be chosen by the marketer, which is the overall market share, served market share, relative market share as compared to two largest competitors and relative market share as compared to the largest competitor. (i) Overall Market Share Overall market share analysis compares the companys total sales with the markets overall sales. (ii) Served Market Share Through the served market-share analysis, the marketer compares sales with the total sales of the overall served market. (iii) Relative Market Share Comparing Two Largest Competitors Relative market-share analysis compares the market shares of two largest competitors in the market. If the comparison ratio value exceeds one third (1/3), the marketers market share is stable. The
reverse is true if the comparison ratio value is less than one third (1/3). (iv) Relative Market Share as Compared to the Largest Competitor This method is similar to the market-share analysis comparing two largest competitors. However, the marketer only compares the companys market share with the largest competitor in the market. (c) Sales Expenses Analysis This analysis is for the purpose of ensuring the marketer spends smartly or wisely to reach the objectives that have been decided in the marketing management process. Through this method, total sales expenditure will be compared with sales outcomes obtained. The larger the ratio value, the lower the performance achievement for the marketing strategy implementation.
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(d) Financial Analysis This method helps the marketer identify factors that influence net return rates. Some of the factors evaluated are profit contributions, asset turnover, return on asset and financial leverage. This means, the marketer has to analyse asset composition like cash flow, accounts receivables, inventories and equipment. (e) Market Analysis Different from the other four market share analysis methods that have been discussed before this. This method doesnt count the financial factor in analysing the companys performance. Through this method, the marketer evaluates factors like the total number of new purchasers, purchasers who are not satisfied and the target consumers awareness level before a conclusion regarding the markets performance is made.
10.2.2 Profitability Control

Through these control mechanisms, the marketer has to determine cost that is required for each marketing activity that is to be carried out as stated in the marketing plan. This indirectly acts as a guide for profit levels that will be obtained. The marketer can use the full costing or the direct costing method. Through the full costing method, the marketer has to determine direct cost, variable cost and indirect cost in the cost calculation. In the direct costing method, the marketer will use the contribution accounting method to calculate costs that will be incurred during the marketing activities. Besides using the contribution accounting method to calculate costs and profits, the marketer can also use the activity-based cost accounting method, which is a detailed accounting method for each marketing activities costing like advertising, sales and production.
10.2.3 Efficiency Control

Efficiency control is a control method which is used to complete the other control mechanisms especially the profitability control method. Through this method, the marketer will evaluate each units performance or special activities like the sales teams effectiveness, advertising activities and distribution.
10.2.4 Strategic Control

Strategic control is a comprehensive and systematic control system for the entire performance attainment by all the units and activities. This control method is often used by marketers in the strategic business units control process.
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ACTIV I T Y 10.2
If you are a marketer, how will you control the smoothness of your marketing control activities? What are the control steps that you will undertake? Strategic control normally involves analysis on strengths, weaknesses, threats, and opportunities (SWOT analysis which was discussed in Topic 2). This strategic control method is capable of answering a few important questions in the marketing management process, especially from the aspect of competitors environmental changes, objectives and strategies of competitors, changes in the industrys trends, opportunities and threats in the market, and the influence of technological environmental changes. Normally, marketers will use marketing audit to implement strategic control.
10.3 MARKETING AUDIT

The concept of marketing audit was introduced by Kotler, Gregor and Rogers in 1977. The implementation process of marketing audit is similar to the implementation process of marketing control as shown in Figure 10.1. However, the steps that are involved in marketing audit are briefer and more comprehensive. Figure 10.2 shows the marketing audit process. Same as the marketing control process, marketing audit starts with the setting of objective and scope determination (control standards) and marketing control measurement methods. The next step is the marketer has to obtain data on feedback. There is obvious difference between marketing audit and the feedback process, from the aspect of need to evaluate feedback data. Through marketing audit, the marketer has to collect and prepare reports about the findings.
Figure 10.2: Marketing audit process
1 66 TOPIC 10 MARKETING CONTROL EXERCISE 10.2

Fill in the Blanks 1. Marketing control is the __________________ step in the marketing management process. 2. The marketing control process is divided into _________________steps and it starts with the _________________step. 3. Steps to scrutinise and research in depth every piece of information on the organisations achievement is done in the ______________ step. 4. _______________________ step has to be carried out if the marketer finds that implementation does not meet planning. 5. _______________________ analysis uses the companys sales achievements as compared to the markets overall sales as a performance evaluation measure. 6. __________________ control has similarities with marketing audit. Essay Questions 1. List and explain briefly all the control mechanisms that can be used by the marketer. 2. List and explain all methods that can be used by a company through the annual plan control mechanisms.
3. How far does marketing audit differ from the traditional marketing control process?
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Marketing control is an important step in the marketing management process to ensure all marketing activities and strategies are implemented as planned. Marketing control can be divided into three sections that always complement each other; control mechanisms, supervision, and performance evaluation. Marketing audit is the latest tool that is comprehensive and can be chosen by the marketer in order to create a control process that is systematic and meticulous. Annual-plan control Profitability control Efficiency control Strategic control Marketing audit
ANSWERS 168
Answers
TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE CYCLE Exercise 1.1
Essay Questions 1. Market positioning is a process that creates differences in the consumers mind about the products that are offered or about the business. 2. This basic difference is present in a business due to the tough competition in business. Every business will compete with the other to obtain sales or its own markets by differentiating its business from the others. It will differentiate its business based on multiple perspectives known as the basis for differentiating. Therefore, principles of business in businesses exist.
Exercise 1.2
Essay Questions 1. A high quality product generally has the following characteristics: (a) A famous brand and a well-known reputation in quality (b) Looks firm (c) Does not have any defects or repairs (d) Good performance (e) Long lasting (f) Features look interesting and unique 2. Generally product life cycles consists of four stages as follows: (a) Introduction Stage The product is newly introduced in the market. Consumers are ignorant and they are not aware of the introduction of the product and profits are very low or negative at the moment. This is caused by the heavy expenses incurred during the product introduction stage and low sales volume.
ANSWERS 169
(b) Growth Stage At the growth stage, sales increases tremendously. Consumers are aware of the existence of the product in the market and they have purchased the product for the first time. Profit increases and is at a profit-making level. Competitors start entering the market and offer the same or similar products. (c) Maturity Stage At the maturity stage, profits and sales start to reach the maximum level. The other companies start to offer similar or identical products. Therefore, consumers have options. At this moment, competition is tough and there are many competitors in the market. (d) Decline Stage At the decline stage, sales and profits decline until there arent any sales or profits anymore. When this happens, that particular product will disappear from the market.
TOPIC 2 NEW PRODUCT DEVELOPMENT Exercise 2.1

Essay Questions 1. There are a few reasons why a product can fail in the market and they are: (a) The new product is not distinctively different from the other products in the market and it is not unique (b) Insufficient advertising support and other promotions (c) Market research was not done in advance (d) Insufficient budget allocation (e) Insufficient support from the top management (f) New product idea was not very efficient or rational, but it was still continued by management because it was their idea (g) Competitors strength and strategy was not evaluated in advance. In the end, the company is unable to compete with the other competitors (h) Selling price is too high as compared to the product quality 2. Sources that can be referred to obtain ideas for new products are as follows: (a) Personnel or employees (b) Companys customers (c) Competitors and suppliers (d) Through research conducted
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TOPIC 3 MANAGING NEW PRODUCT LINES AND BRANDS Exercise 3.1

Essay Questions 1. Convenience goods consist of: (a) Emergency Goods Emergency goods are purchased when a need is present, such as umbrellas when it is raining and candles when there is a power failure. (b) Staple Goods Staples are basically food stuff used daily, such as eggs, rice and fish. (c) Spontaneous Goods
These are products bought spontaneously when we look at them. The products are priced low and consumers dont think much when they purchase them. Spontaneous goods are products bought at the spur of the moment, like newspapers, chocolate, magazines and other products displayed at the supermarkets payment counter. 2. The various functions of packaging are: (a) As a container to contain and protect the product. (b) Makes it easier for the distributor to store, arrange and display products at their stores. It also makes it easier for the consumers to store the products that are purchased. (c) Packaging can be used as the basis for segmentation as well. Small packages for the singles and large packages for family consumption. (d) As a communication and promotion tool directed to the consumers. (e) As an element that can be used in the new product development. There are companies that change packaging shapes and promote them as a new product although the basic product doesnt change.
ANSWERS 171
TOPIC 4 MANAGING SERVICES MARKETING Exercise 4.1

Essay Questions 1. Services are seen as a series of actions, processes and implementation that cannot be viewed. A service is any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. The main forms of services are: (a) Pure Tangible Goods This consists primarily of a tangible good such as soap, toothpaste, or salt. No services accompany the product. (b) Tangible Goods with Accompanying Services This consists of tangible goods accompanied by one or more services. For example, Proton and Perodua offer cars and after-sales-service. (c) Hybrid The offering consists of equal parts of goods and services. For example, people patronise restaurants for both food and services like good treatment from the restaurants waiters. (d) Major Service with Accompanying Minor Goods and Services For example, Malaysian Airlines Systems (MAS) basic product is transportation and the supporting services include in-flight food and baggage service to the consumers. (e) Pure Services The offering consists primarily of a service. Examples include babysitting, psychotherapy, and massage. 2. Three service mix categories that are normally experienced or referred to as assessment factors while purchasing services are: (i) People Human management refers to the involvement of individuals either personnel, firms, users or other consumers in conveying and influencing buyers perceptions.
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(ii) Physical Evidence Physical evidence refers to the surroundings where the service is offered, the firm and consumers interact and any tangible component that enables communication to take place. (iii) Process Processes involve actual procedures, mechanisms and activity flows where services are offered including the offer process and service operations. 3. The characteristics that differentiate services intangible elements from the tangible elements of physical products are: (a) Unlike physical products that can be felt, smelled and tasted, services cannot be seen, tasted, felt or smelled. (b) Compared to a physical product, the existence of intangible elements in services causes a need to create elements that are more tangible or seen. For example, like a companys employees, equipment, facilities, or symbol. 4. Characteristics cannot be separated means doing the sales first, and then followed by producing and using simultaneously. To minimise this element, the suppliers of services can offer services towards large groups or create an efficient waiting line system to avoid congestion or encourage group visits.
Exercise 4.2
Essay Questions 1. (a) Intangibility: Services cannot be seen, tasted, felt or smelled. Effects: There is a need to create elements that are more tangible or seen as compared to intangible elements. For example like, companys employees, equipment, facilities or symbol. (b) Inseparability: This characteristic means doing the sales first, and then followed by producing and using simultaneously. Effects: The suppliers of services can offer services towards large groups or create an efficient waiting line system to avoid congestion or encourage group visits.
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(c) Variability: Variability is described as different service delivery processes. Effects: Recruiting the right employees or monitoring customer satisfaction through suggestions, positive criticisms and research directed towards consumers. Standardising that particular service. (d) Perishable: It refers to the statement that services cant be stored, saved, resold or returned. Effects: Pricing differently for peak hour demand and non-peak hour demand.
Creating a booking system or using additional temporary employees during peak hours or encouraging self-service. 2. (a) People Human management refers to the involvement of individuals either personnel, firms, users or other consumers in conveying and influencing buyers perceptions. (b) Physical Evidence Physical evidence refers to the surroundings where the service is offered, the firm and consumers interact and any tangible component that enables communication to take place. For example, business cards, formal reports, catalogues, equipment, and buildings. (c) Process Processes involve actual procedures, mechanisms and activity flows where services are offered including the offer processes and service operations. Service firms can afford to vary their processes in delivering their services to consumers. For example, a restaurant with a cafeteria concept, fast food, buffet and romantic candlelight services. 3. (a) External Marketing External marketing refers to external communication and market expansion from the suppliers to the users that involve marketing mix like advertising, sales promotion, public relations, direct selling or online selling.
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(b) Interactive/Relationship Marketing Interactive or relationship marketing involves an interpersonal relationship which is carried out by an employee with a consumer through channels like personal selling, customer service centres, service encounters and servicescapes. It involves utilising an employees skills and knowledge in managing consumers. (c) Internal Marketing Explain methods of training and motivating employees in making sure customers are satisfied with the services that they receive. To ensure the company reaches its objectives successfully, internal marketing communication has to be managed meticulously so that communication between the employees are accurate, clear and consistent with what is seen and heard by the consumers.
TOPIC 5 DEVELOPING STRATEGIES AND MANAGING PRICING Exercise 5.1

Essay Question 1. Internal factors: Marketing Objectives. Strategy. Cost. Organisation. 2. External Factors
Market and Demand. Competitors Price and Offer. Other Factors (economy, sales personnel, government).
Exercise 5.2
Essay Questions 1. Step 1: Selecting the pricing objective Step 2: Determining demand curve Step 3: Estimating costs Step 4: Analysing competitors costs, prices, and offer Step 5: Selecting a pricing method Step 6: Selecting the final price
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2. (a) Step 1: Selecting the Pricing Objective The major objectives that are normally used by firms are survival, maximise current profits, market share leadership, and product quality leadership. (b) Step 2: Determining Demand Curve The firm needs to estimate the quantity that can be sold at each alternative price. (c) Step 3: Estimating Costs A firms costs refer to output cost, distribution cost and output sales cost. Cost estimation has to be done to look at how the firms cost differs at different output levels, increases in outputs and market offers which is done by a firm to satisfy consumer needs. (d) Step 4: Analysing Competitors Costs, Prices, and Offer A firm has to take into account the cost, price and the possibility of price changes that are done by the competitors in setting their prices. From the perspective of the output offered, if the firm offers something that is similar to its competitors, the price set has to be more or less than its competitors. If not, the firm will lose its market. (e) Step 5: Selecting a Pricing Method Some of the pricing methods are: Markup pricing Target-return pricing Perceived-value pricing Going-rate pricing Auction-type pricing (f) Step 6: Selecting the Final Price Before the final price is decided, the firm has to take into account additional factors including psychological pricing factors besides the influence from other marketing mix elements on pricing, the firms pricing policy and the effects of pricing on others. 3. The four main objectives of pricing are: (a) Survival: Survival refers to low price setting for the purpose of generating high demands. In this situation, the survival concept is
more important than profit. (b) Maximising Current Profits: Pricing is based on the difference between cost and demand at different prices that is able to produce current profits, cash flow and maximum return on investment.
ANSWERS 176
(c) Market Share Leadership: Price is set at the lowest level to enjoy low cost and high profits for the long run. (d) Product Quality Leadership: Normally, the company sets a high prices because it involves high quality and research and development cost. 4. The total break even for the output is: Variable cost = RM20 Fixed cost = RM400, 000 Expected sales = 50,000 units Cost per unit for the output is: Baju Kurung Cost = Variable Cost + Fixed Cost Total Sales = RM20 + RM400,000 50,000 = RM8 If the seller wants to earn a 20% markup on sales, the sellers markup price will be: Markup Price = Unit cost (1-% of Markup or desired return on sales) = RM8 RM9.10 1-0.12 Breakeven point (unit) = Fixed Cost (Price - Variable cost) = RM400, 000 (RM 30 - RM 20) = RM40 000
Exercise 5.3
Essay Questions 1. (a) Countertrade refers to business transactions that involve nonmonetary payment or payment that does not involve money. (b) The following are the forms of countertrades and its explanation: (i) Barter System The direct exchange of goods, with no money and no third party involved. For example in 1993, Eminence S.A., one of Frances major
ANSWERS
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clothing makers, launched a five-year deal to barter $25 million worth of U.S. produced underwear and sportswear to customers in eastern Europe, in exchange for a variety of goods and services, including global transportation and advertising space in eastern European magazines. (ii) Compensation Deal The seller receives a big portion of the payment percentage in cash and a small portion of the reminder in products. A British aircraft manufacturer sold planes to Brazil for 70 percent cash and the rest in the form of coffee. (iii) Buyback Arrangement The seller sells a plant, equipment or technology to another country and agrees to accept as partial payment products manufactured with the supplied equipment. The other half of the payment is made in cash. (iv) Offset The seller receives full payment in cash but agrees to spend a substantial amount of the money in that country for a fixed time period. 2. The types of pricing discrimination that is normally done by a firm in the pricing strategy is as explained below: (any of the four types below is sufficient to answer the question) (a) Segment Pricing Different customer groups are charged different prices for the same products or services. For example, museums often charge a lower admission fee to students as compared to the adults. (b) Product-Form Pricing Different versions of the product are priced differently but not proportionately to their respective costs. For example, the canned Coke is cheaper than the bottled Coke although the quantity is the same in both. (c) Image Pricing Pricing is decided based on the image of the products or services. (d) Location Pricing The same product is priced differently at different locations. (e) Time Pricing Prices are varied by season, month, day or hour.
ANSWERS 178
3. Suitable discounts and allowances pricing strategy is used in the following situations: (a) The firm wants to encourage buyers to make early payment (b) Purchases involving large volumes (c) Off-season buying Some of the forms of discounts and allowances are: (a) Cash Discounts Cash discount is a price reduction to buyers who pay promptly or pay in cash. (b) Functional Discounts Functional discount, also known as trade discount, is a reduction in
list price offered to middlemen for performing certain functions. (c) Quantity Discount Quantity discount is a price reduction to those who buy in large volumes. (d) Seasonal Discount Seasonal discount is a price reduction to those who buy merchandise and services out of season. (e) Trade-in Allowances Trade-in allowances are granted for turning in an old item when buying a new one. (f) Promotional Allowances Promotional allowances are allowances that are given to dealers for participating in advertising and sales support programmes. 4. If the firm wishes to maximise profits for the entire total output line, the appropriate pricing strategy is the output mix pricing strategy. Five determinants involved in this strategy are: (a) Product-line Pricing This strategy is adopted when the firm has a few product lines. Each product line is priced differently. Through this strategy, the firm has to look at the overall product lines to ensure that the new models price is in the price range of the current products. The setting of prices has to take into account cost differences between the product lines, consumer evaluation on varying elements and competitors pricing. (b) Optional-feature Pricing Many companies offer optional products, features and services along with their main products. For example, a person who purchases a
ANSWERS 179
computer may purchase additional accessories like modem, speakers and other accessories. (c) Captive-product Pricing This strategy is used by firms that offer products that have to be used with a main product. Take for example, the price of a box of film with a camera. For services, this strategy is known as two-part pricing. Telephone users pay a minimum monthly fee plus charges for calls made. (d) By-product Pricing If the by-products have value to a customer group, they should be priced on their value. For example, chicken farmers use this strategy in valuing their manure, setting prices and informing interested potential customers. (e) Product-bundling Pricing Sellers often bundle products and features. For example, a special package that is offered by a hotel supplier or software supplied for personal computers. The seller normally charges less for the bundle than if the items were purchased separately.
Exercise 6.1
Essay Question 1. The marketing channel refers to an organisation group that is interdependent and is involved in processes to ensure the firms products are able to be delivered, purchased and consumed by the customers. 2. The four marketing channels are: (a) Zero-level Channel A zero-level channel also called a direct marketing channel consists of a manufacturer selling directly to the final consumer. Examples of direct marketing are personal selling like Avon, Amway and Tupperware, telemarketing, internet selling, manufacturer-owned stores and TV selling.
ANSWERS 180
(b) One-level Channel A one-level channel involves the usage of retailers as middlemen. (c) Two-level Channel A two-level channel involves the usage of two intermediaries, normally wholesalers and retailers. This marketing channel normally takes place in consumer markets. (d) Three-level-Channel A three-level channel involves the usage of three intermediaries, like wholesalers, jobbers and retailers. This normally happens in industrial markets like the meat packaging industry. 3. The major elements that become reference points for firms in a channel design system are: (a) Analysing customer needs; (b) Establishing channel objectives, (c) Identifying major channel alternatives, and (d) Evaluating major channel alternatives. 4. The three important elements are: (a) Types of Business Channel or Appropriate Intermediaries: It involves the firms knowledge about the appropriate channel types to perform channel related work on the firms behalf. Some types of intermediaries who are normally appointed are companys sales force, agents and industry distributors. (b) Number of Channel/Intermediaries Needed: It involves three main strategies, namely: (i) Exclusive distribution (ii) Intensive distribution (iii) Selective distribution (c) Rules and Responsibilities for Every Channel Member: The roles and responsibilities of every channel member refers to pricing policy, terms and conditions of sales, territorial rights, and certain services that have to be carried out by every appointed channel member. 5. The difference between the three are: (a) Exclusive Distribution Exclusive distribution means severely limiting the number of intermediaries. It is used when the producer wants to maintain
control over the service level and output offered by the resellers.
ANSWERS 181
Granting of exclusive rights is normally evident in distribution of new automobiles and a few prestige goods. (b) Selective Distribution Selective distribution involves the use of more than a few but less than all of the intermediaries who are willing to carry a particular product. Most products like television, furniture and some of the electrical appliances normally involve retailers or selected agents only. (c) Intensive Distribution Intensive distribution consists of the manufacturer placing the goods or services in as many outlets as possible. This strategy is generally used for items such as tobacco products, gas, snack food, soap and others.
Exercise 6.2
Essay Questions 1. (a) Exclusive Dealings Exclusive dealings refer to the arrangements done between the firm and the intermediary. For example, the dealers cannot handle competitors products; dealers can only handle the firms products. Exclusive arrangements are legal as long as they do not substantially lessen competition or tend to create a monopoly, and as long as both parties enter into the agreement voluntarily. (b) Exclusive Territories Exclusive territories refer to certain areas of intermediaries. It is legal as long as the intermediary does not sell the products outside the predetermined territory. (c) Tying Agreements Producers of a strong brand sometimes sell it to dealers only if they will take some or all of the rest of the line. This practice is called fullline forcing. Such tying agreements are not necessarily illegal but it will become a violation if the elements of market monopoly exist. (d) Dealers Rights Producers are free to select their dealers, but their right to terminate dealers is somewhat restricted. In general, sellers can drop dealers for cause or for reasons stated in the agreement.
ANSWERS 182
2. Forms of power that are normally implemented to elicit cooperation are: (a) Coercive Power A manufacturer threatens to withdraw a resource or terminate a relationship if intermediaries fail to co-operate. (b) Reward Power The manufacturer offers intermediaries and extra benefit for performing specific acts or functions. (c) Legitimate Power The manufacturer requests a behaviour that is warranted under the contract. For example, Proton requests its agents to carry a certain amount of stock in their area as part of the agreement done.
(d) Expert Power The manufacturer has special knowledge that the intermediaries value. Normally, it refers to the technology which is owned by the manufacturer. The manufacturer permits the agent to use the technology if without using it, the agents cannot increase their performance level and they will be left behind. (e) Referent Power The manufacturer is so highly respected that intermediaries are proud to be associated with it. For example, companies like IBM, McDonalds and Rolex have high referent power, and intermediaries are normally willing to cooperate in all ways desired by the firm. 3. The differences are: (a) Channel Dynamics of a Vertical Marketing System: Comprises the producers, wholesalers, and retailers acting as a unified system. Each channel member co-operates under one entity and is capable of forming a big power of influencing the market. (b) Traditional Marketing Channel System: Comprises an independent producer, wholesalers and retailers. Each is a separate business seeking to maximise its own profits. There is no complete control over the appointed channel members.
ANSWERS 183 Figure 6.2: Dynamic vertical marketing system Figure 6.4: Multi-channel marketing system
Explanation: Channel dynamics of a vertical marketing system comprises the producers, wholesalers, and retailers acting as a unified system. Each channel member co-operates under one entity and is capable of forming a bigger influence on the market. While the multi-channel marketing system involves a single firm, using two or more marketing channels to reach one or more customer segments. Through the diagram, the firm sells consumer segment 1 direct through catalogues, telephone and other forms of telemarketing. Then, the firm sells its outputs to consumer segment 2 through retailers. For the industrial consumers, the firm sells indirectly to industrial segment 1 using distributors and agents. For industrial segment 2, firms use their own sales force.
ANSWERS 184
4. The vertical marketing channel consists of: (a) Corporate Vertical Management System A corporate vertical management system combines successive stages of production and distribution under single ownership. Vertical integration is a system that is needed by a company that needs a high control level for each channel that exist. For example, Toyota owns equity in most of its major suppliers in the world and this makes it one of the giant companies that are still surviving till today. (b) Contractual Vertical Management System A contractual vertical management system consists of independent firms at different levels of production and distribution integrating their programmes on a contractual basis to obtain more economic or
sales impact than they could achieve alone. Contractual vertical management system consists of three forms: (a) Wholesaler-sponsored voluntary chain (b) Retailer co-operatives (c) Franchise organisations (c) Administered Vertical Management System An administered vertical management system co-ordinates successive stages of production and distribution through the size and power of one of the members, and not through normal ownership or contractual ties. Famous brand producers like P&G, Kraft and Campbell Soup are able to command high levels of co-operation from their resellers in connection with displays, shelf space, promotions and price policies. The difference between manufacturer-sponsored, retailer cooperatives and franchise organisations are listed below: (a) Wholesaler-Sponsored Voluntary Chains Wholesalers organise voluntary chains of independent retailers to help them compete with large chain organisations. The wholesaler develops a programme in which independent retailers standardise their selling practices and achieve economies of scale that enable the group to compete effectively with other chain organisations. (b) Retailing Cooperatives Retailers take the initiative and organise a new business entity to carry on wholesaling and possibly some production. Members concentrate their purchases through the retailer co-operation and plan their advertising jointly. Profits are passed back to members in proportion to their purchases.
ANSWERS 185
(c) Franchise Organisations A channel member called a franchisor might link several successive stages in the production-distribution process. There are three types of franchise organisations: Manufacturer-Sponsored Retailer Franchise System Manufacturer-Sponsored Wholesaler Franchise System Service Firm-Sponsored Retailer Franchise System
Exercise 6.3
Fill in the Blanks 1. Individual 2. Limited-service
Exercise 6.4
Fill in the Blanks 1. Non-store 2. Retailing Wheel 3. do not take title to goods and do not bear any risk towards the business transaction 4. order processing, transportation, warehousing and inventory management Essay Questions
1. (a) Bulk Breaking The manufacturer faces problems in marketing products to end-users (individual or organisation) because of the problem in the quantity offered. Thus, the presence of intermediaries especially wholesalers help manufacturers in marketing their products in smaller quantities according to the consumers needs. (b) Product Promotion Besides distributing products, intermediaries play an important role in the promotion of the product to the consumers either individually or in collaboration with the manufacturer. For example, the wholesaler gives trade discounts to retailers or retailers have sales promotion for the consumers.
ANSWERS 186
(c) Transportation Intermediaries especially wholesalers provide efficient transportation services in the physical distribution of products for the manufacturers. Normally, the intermediary is liable for the transportation cost of the products to the market. (d) Risk Bearing The wholesaler or retailer purchases the product from the manufacturer. This means, the intermediary has transferred the financial risk from the manufacturer onto itself. Besides that, there are wholesalers who grant credit payment to their retailers or retailers who grant credit sales to the customers. This means, besides helping the manufacturer to avoid losses, the intermediary also assumes risk through the granting of credit services to the other intermediaries or consumers. (e) Market Information Intermediaries especially retailers are known to understand better the needs and wants of consumers as compared to the manufacturer. Normally, the intermediary will pass the latest information regarding customers taste and preference to the manufacturer for them to act upon. (f) Warehousing Services Besides providing transportation services, there are a few intermediaries especially wholesalers who provide warehousing services for the manufacturers in the physical distribution of their products to the market. (g) Consultation Services Some of the intermediaries like wholesalers or agents (brokers) provide business consultation services to the organisational users from the aspects of materials and financial management. Besides that, some retailers also provide consultation services to the consumer, especially from the aspect of product usage and financial consultation to their customers. 2. Wholesalers and distributors can be differentiated based on the involvement of wholesalers and retailers with individual consumers. Most writers state that the main difference between wholesalers and retailers is from the aspect of purchase volume, which is wholesalers buy in bulk while
retailers buy in smaller order sizes. There are writers who see the difference between wholesalers and retailers from the aspect of volume of sales to the consumers, which means the wholesaler sells in bulk while the retailer sells in smaller quantities.
ANSWERS 187
Based from the question in Your Idea, you cannot differentiate The Store supermarket network with the rice wholesaler at your place based only on the purchase or sales quantity of both the organisations. This is because the purchase quantity by The Store network is far larger than the rice wholesaler. Thus, opinions that state wholesalers and retailers can be differentiated through business transactions are more accurate. Wholesalers and retailers can be differentiated based on statements that says that wholesalers dont have business transactions with individual users. This means that if Din Borong supermarket or the retailer at Selangors Wholesale Market have business transactions with individual users, that particular trader cannot be categorised as a wholesaler. If attention is given towards the business transaction that is done by that trader, a mixed business transaction is being carried out, part retailing and part wholesaling. Wholesaling only affects transactions with organisational users especially retailers while most business transactions are retailing (individual or mass). 3. As stated in the beginning, wholesaling activities have shown a relatively huge increase from the 1990s. Although the number of wholesalers is decreasing by the day caused by the changes in consumers taste and preference and the influence of technology, the volume of business through wholesaling is increasing steadily. Besides that, wholesalers are more aggressive in carrying out marketing activities to be noticed in the product distribution system, especially from the aspect of sales, transportation and product promotion. Thus, it is of no surprise that there are certain brands that are owned by wholesalers through the private brand strategy. Through the private brand strategy, wholesalers will support that particular brand in the market through distribution, pricing and integrated promotion. 4. The integrated physical distribution management system or the integrated logistics system refers to a logistic management quality that is solid and complement aspects of the distribution system. Although the marketing logistics management process involves four different components, the marketer has succeeded in creating and effective and systematic logistic management system. Normally, the usage of modern technology especially information technology using electronic communication network and barcode systems are able to help marketers in creating the best integrated logistics management system. Besides using technology, the following formula will aid marketers in creating the best integrated logistics management:
ANSWERS 188
M = T + FW + VW + S Where: M = total market logistics cost
T = total transportation cost FW = total fixed warehouse cost VW = total variable warehouse cost S = total cost of lost sales due to average delivery delay
TOPIC 7 MANAGING INTEGRATED MARKETING COMMUNICATIONS Exercise 7.1

Essay Questions 1. (a) Advertising Advertising is any form of non-personal presentation paid by a sponsor to promote ideas, organisations or products. The media that are normally used are the television, radio, newspaper and magazines, advertising boards and the latest is the Internet. (b) Sales Promotion Sales promotion is a variety of short-term incentives to encourage trial or purchase of a product or service. It is a promotion paid by a sponsor and normally it is used to encourage consumers for a particular time period. Examples of sales promotion are samples, coupons, cash rebates, premiums and discounts. (c) Public Relations Public relation is an activity or effort by a company to: build good relationship with the public obtain good publicity build a positive corporate image and keep away negative stories, incidents or rumours obtain opinions, behaviour, and the publics perception towards the company and its products
ANSWERS 189
The public includes customers, suppliers, government, employees and the surrounding community. Public relation is a promotion that is often believed by the general public because of the publicity obtained by the firm or output in the form of news. For example, when a company introduces an innovative new product in the market, the company can attempt newspaper coverage, news coverage on the television and radio. Thus, public relation is one form of effective communication to introduce a company and its products to the market at a lower cost. (d) Personal Selling Personal selling is a direct presentation by the companys sales force to the customers to obtain sales and build relationships between each other. It is directed straight to the end users and it is done either through face-to-face or through the telephone. Personal selling is able to persuade and influence buyers to accept an opinion or to purchase a product. Now, personal selling is used to build long-term relationship between the company and consumers or future consumers.
(e) Direct Marketing Direct marketing is a form of marketing communication that connects the marketer with the target consumers to obtain instant feedback. It uses telephone, mail, fax, e-mail, the Internet and other communication tools to connect the marketer with a specific consumer. Thus, the usage of direct marketing creates a good relationship between the marketer and the consumer. 2. There are nine basic elements in the communication process. The marketer needs to analyse each element to enable more effective delivery of message to the customers. The main elements in the communication process are: (a) Sender The sender is a source of a message or the original message in the communication process. It consists of individuals or organisations. For example; family, friends, or sales force. Companies can also use spokespersons who are celebrities to advertise and promote their products. The perception of receivers towards a source can influence their purchase, so the company has to be careful in choosing their spokesperson. (b) Encoding Encoding is the process of transforming ideas, thought or the senders opinion in the form of words, symbols, pictures, signs or others so that it is easier for the receiver to understand. The usage of these
ANSWERS 190
symbols will aid the company in delivering a message more effectively. If a symbol is well-known such as sports equipment brands like Adidas, Nike, Puma and Reebok, then it is better for these companies to use these symbols in the message delivery because these symbols are easily identified and well-known. (c) Message Message is an encoding process that transforms ideas to information in the verbal, writing or symbol form. (d) Media Media are communication channels which are used to send messages from the sender to the receiver. Message moves through the communication channel that is choosen by the sender. Communication channel consists of non-personal or non-time sensitive media. Through mass media messages can be spread widely to more individuals at the same time. For example, advertising on the television, radio and newspapers. (e) Decoding Decoding is a process when the receiver interprets or assigns meanings towards certain messages which the sender is trying to communicate. That message, may consist of symbols, and will be interpreted by the receiver according to their understanding. Thus, to guarantee communication effectiveness, the sender needs to understand the receiver more closely in terms of knowledge and character. (f) Receiver Receiver is the party which receives the message from the sending
party. The receiver may consist of the public who are viewing the advertisement for a brand or product that the company is trying to communicate. Not all the receivers will be influenced with the message that is trying to be communicated by the sender. Receiving depends on many factors like knowledge, culture and the receivers age. (g) Response Response is the receivers reaction towards a particular message that is communicated. For example, when a receiver views an advertisement on the television, he be influenced to purchase the product that is being advertised. Maybe the customer will not do anything or may not be interested in the message that is being communicated through the advertisement.
ANSWERS 191
(h) Feedback Feedback is part of the objective or receivers reaction towards the message received. Receivers reaction differs from one and another. For example, when Proton launched its latest model Waja, many feedbacks were received. Some gave positive feedbacks stating that the car was priced cheaper than the imported cars in the same class. But, some gave negative feedback. If personal selling was used, the response received would be faster as compared to the other communication channels. (i) Noise Noise is an external factor that interrupts the communication process. These are unplanned external factors. For example, noise from vehicles when the sales personnel are communicating with customers at the roadside.
Exercise 7.2
Essay Questions 1. There are six important steps in an effective communication development. Those steps are: (a) Identify the target audience (b) Determine the communication objectives (c) Design the message (d) Media selection (e) Message source selection (f) Feedback collection 2. The levels of buyer readiness in deciding the communication reaction is awareness, knowledge, liking, preference, conviction and purchase. (a) Awareness The marketers main objective at this level is to create awareness among the future target customers. If the future customers are not aware of the existence of the product or only know a little about the existence of the product, how are they going to purchase the product? For example, Susu Asli Company wishes to introduce their new product brand CERDIK in the market. This milk has a special formula for new born babies until one year. But the consumers are unaware of its existence in the market because no effort has been taken to spread
the awareness to the consumers. Thus, the promotional campaigns objective at this level will be to make consumers aware about the
ANSWERS 192
products existence in the market. This can be done through advertising on television. (b) Knowledge Besides giving awareness, the marketer has to provide knowledge about the product to the future customers. For example, after future customers are aware of the existence of brand CERDIK in the market, the marketer has to provide information about the contents of the product which will help the babys growth. Providing information to future customers does not stop at providing knowledge about the content but covers all aspects that can help the marketer get closer to consumers. For example, the products quality, test conducted or services offered. (c) Liking If future customers know about the product, the marketer has to get to know their preference level. The question at this level is what will be the future customers feelings after realising and finding out about the product. Will they like, or feel dissatisfied with the company? If the future customer is still doubtful at this stage, the marketer has to promote the output more intensively until they reach the liking level for that product. (d) Preference If the future customers prefer a product, they need not necessarily choose that brand or product. The selection of a brand depends on many factors. Thus, the marketer needs to create differences between products and the other alternatives that are in the market. One of the methods is by developing creative advertisements to attract future customers to give priority to a product in product selection. (e) Conviction Future customers will become more convinced to purchase a product if efforts to convince them are carried out. At the conviction stage, the marketer or the company has to use a combination of promotional methods to create conviction and a positive feeling towards the product. For example, lets have a look again at the CERDIK brand which was marketed. Besides advertising, Susu Asli Company has to use sales promotion like free samples for its future customers to try the product. Besides that, the company can use public relations by introducing that product in the form of news either through television or newspapers. A good combination of promotion methods can aid the company in building conviction of the future customers towards the product.
ANSWERS 193
(f) Purchase At the purchase stage, the possibility of a future customer purchasing is big. But, the future customer may be convinced to purchase the product but they have not actually purchased yet. Some of the factors
that cause future customers not to purchase are shortage of money, desire to gather more information and waiting for the appropriate time. The promotional effort at this level is by using the promotional tools that can help future customers to act on buying. An example would be reducing the pricing of the product, giving special offer prices and other short-term incentives.
Exercise 7.3
Essay Questions 1. Methods used by marketers in determining promotional budgets are the affordable method, percentage-of-sales method, competitive-parity method and objective-and-task method. 2. Definition and explanation for all the marketing communication mix elements that can be used by marketing to market products more efficiently are: (a) Advertising Advertising is any form of non-personal presentation paid by a sponsor to promote ideas, organisations or products. The media that is normally used is the television, radio, newspaper and magazines, advertising boards and the latest is the Internet. (b) Sales Promotion Sales promotion is a variety of short-term incentives to encourage trial or purchase of a product or service. It is a promotion paid by a sponsor and normally it is used to encourage consumers for a particular time period. Examples of sales promotion are samples, coupons, cash rebates, premiums and discounts. (c) Public Relations Public relation is an activity or effort by a company to: Build good relationship with the public Obtain good publicity Build a positive corporate image and keep away negative stories, incidents or rumours Obtain opinions, behaviour, and the publics perception towards the company and its products
ANSWERS 194
The public includes customers, suppliers, government, employees and the surrounding community. Public relation is a promotion that is often believed by the general public because of the publicity obtained by the firm or output in the form of news. For example, when a company introduces an innovative new product in the market, the company can attempt newspaper coverage, news coverage on the television and radio. Thus, public relation is one form of effective communication to introduce a company and its products to the market at a lower cost. (d) Personal Selling Personal selling is a direct presentation by the companys sales force to the customers to obtain sales and build relationships between each other. It is directed straight to the end users and it is done either
through face-to-face or through the telephone. Personal selling is able to persuade and influence buyers to accept an opinion or to purchase a product. Now, personal selling is used to build long-term relationship between the company and consumers or future consumers. (e) Direct Marketing Direct marketing is a form of marketing communication that connects the marketer with the target consumers to obtain instant feedback. It uses telephone, mail, fax, e-mail, the Internet and other communication tools to connect the marketer with a specific consumer. Thus, the usage of direct marketing creates a good relationship between the marketer and the consumer. 3. There are four methods in determining budgets that are used by companies and they are the most affordable method, percentage-of-sales method, competitive-parity method, and objective-and-task method. (a) The Most Affordable Method The affordable method in determining the promotional budget follows what is thought most affordable by the company. This means that, if the company has a good financial position, the allocation for promotion budget will be big. But, if the company is going through financial problems, the allocation for promotional budget will be small. Most small businesses will use this method to determine their promotional budget. The balance of the money that is obtained after paying for all the expenses will be used for as part of the promotional budget.
ANSWERS 195
(b) Percentage-of-Sales Method Another method that is normally used in businesses is percentage-ofsales method. Most companies set promotional expenditure at a specific percentage of sales (either current or anticipated) or of the sales price. This method is popular and it is easy to be used because marketers only need to decide on a percentage of sales that changes from time to time. (c) Competitive-Parity Method There are companies that determine their promotional budget based on competitors. This method is known as the competitive-parity method, where marketers keep an eye on the competitors promotional budget through published sources. This method will help the company in allocating more accurately for the promotion. It is normally used based on the assumption that states competitors are skilled at determining promotional budgets. Budgeting based on competitors will also decrease promotional wars. But, this assumption is less accurate because competitors need not be accurate in determining the promotional budget. If competitors make a mistake, the marketer who follows will also fail. The assumption that states this method reduces promotional war is also not true because there isnt a strong basis that states this method reduces promotional war. (d) Objective-and-Task-based Method
Before determining the promotional budget, the company will identify the objectives that are to be achieved later, determine cost and task that are appropriate to reach the objective that has been set. There are three main steps in the objective and task based method and they are: (i) Identifying the objective (ii) Determining task (iii) Determining cost Because of the difficulties in determining task and cost to reach objectives, not many companies use this method in determining their promotional budget. But, this method is among the best promotional budget method because the management has to plan meticulously based on the companys objectives before doing the promotional budget.
ANSWERS 196
4. There are two types of promotional mix strategy, which is the pull and push strategy. (a) Push Strategy Through the push strategy, the product will be pushed through promotion in the distribution channel to the final users. For example, the producer will promote the product to the wholesaler. Then, the wholesaler will promote the product to the retailers; the retailers will carry out promotional activities to the users so that they purchase the product. Normally the push strategy is used in the organisational markets. When a company sells its products to another company, personal selling will be used to provide explanation, and user demonstration. (b) Pull Strategy In the pull strategy, the producer will carry out promotional activities direct to the final users to encourage them to purchase the products in the market. For example, the producer will carry out promotional activities like advertising on the television or sales promotion to the final users. If this strategy succeeds, the users will demand for products from the retailers and retailers will demand for products from the wholesalers and wholesalers from the producers. Thus, in the pull strategy, the users will pull the product by demanding through the distribution channel. The pull strategy is normally used in the consumer markets. For example, Coca-Cola the producer of soft drinks will advertise its products and brand on the television. Consumers will watch and get attracted to visit the retail stores to get the product. Demand from the consumers will encourage retailers to demand from the wholesalers and next from the producers.
TOPIC 8 MANAGING ADVERTISING, SALES PROMOTION AND PUBLIC RELATIONS Exercise 8.1
Essay Questions 1. The advantages of the advertising objectives to marketing are:
(a) It ensures activities and initiatives of the parties involved in advertising are towards the accomplishments of that objective
ANSWERS 197
(b) It will be a guide to the company on the strategies of decisionmaking, budgeting, message and advertising media (c) It helps a company in its effort to conduct evaluation for its marketing actions and to check whether the objectives set at the beginning is achievable 2. Any four of the message implementation styles can be made into your answers. Some of the message implementation styles are: (a) Slice of Life This advertisements implementation style gives importance to life acting in normal situations. For example, the advertisement on Koko Crunch cereals shows individuals eating breakfast everyday. (b) Lifestyles This style shows how a product is adapted to a certain lifestyle. For example, luxury lifestyle is shown in Dunhills advertisement or challenging or dream lifestyles are shown in Benson & Hedges (Golden Dreams) advertisement. (c) Fantasy This style tries to create fantasy around the product and its usages. For example, advertisements that depicts fun when the product is used. (d) Feelings or Image This style shows feelings or image associated to the product usage like the feelings of affection. For example, advertisements that shows family affection and love between the father, mother and children. (e) Musical This advertisement shows the usage of background music or singing in an advertisement that can attract the viewers attention. For example, the World Cup football advertisement. (f) Personality Symbol It is an advertisement style that uses personality as a character to represent the product. For example, the Garfield character as a cat and Ronald in McDonalds advertisement. (g) Technical Experts This style shows the company displaying their expertise or technical skills in producing a product. For example, advertisements that show the production process of a product from the beginning to the end.
ANSWERS 198
(h) Scientific Evidence This style shows research has been done, by proving that the product advertised is better than the competitors product. For example, in a gamat or sea herb product advertisement, its contents are tested through a scientific process and the advertisement Quantum Trim & Firm which used to be known as Hollywood FB, shows consumers who use the product are able to slim down. (i) Testimonials
This advertisement uses celebrities or professional members to represent a company in introducing a product. For example, the national squash player Ong Beng Hee in the Excel drinks advertisement and singer Siti Nurhaliza in the Maybeline advertisement. Besides that, there are many types of messages that can be delivered like inserting elements of humour and jokes, positive tones, fear and others. The advertiser or the company can insert any message that will attract the viewers attention to watch and act upon.
Exercise 8.2
Essay Questions 1. Trade promotion is directed towards the members of the distribution channel, and consumer promotion directed towards the consumers. (a) Trade Promotion Objectives (i) To introduce the new or the modified product. (ii) To increase the distributed size or new packaging. (iii) To add or maintain producers space at the store room or shop. (iv) To reduce the excess inventory and increase sales. (v) To encourage retailers to purchase early and to support the producer. (b) Consumer Promotion Objectives (i) Attract consumers attention to try out new products. (ii) Attract consumers to purchase the companys products as compared to the competitors products. (iii) To reward loyal consumers. (iv) To maintain long-term relationship with customers. 2. Public relations involve a variety of programmes designed to promote or protect a companys image or its individual products.
ANSWERS 199
3. Public relations involve a variety of programmes designed to promote or protect a companys image or its individual products. The four functions are: (a) To create publicity for the companys product like launching of new products or sponsoring a television show. (b) Handle issues related to the public. (c) Handle media relations like preparing information or news about the organisation or product for the media to attract attention and create a positive image among the public. (d) To lobby in the effort to build and maintain long-term relationships that is good with the government. 4. Three forms of advertising objectives that can be used by the marketers are: (a) Informative advertising is a form of advertising with the goal of passing information to the target consumers. When a company wishes to introduce a new product, it can use this type of advertising. Information on the products features and advantages as compared to the competitors for the new product can be communicated to the target market. Informative advertising is also appropriate to be used to inform the methods of using a product. For example, in rubbish disposal advertisements certain categories of rubbish are disposed according to the bins colour. For example, bottles are disposed in
orange coloured bins while tins are disposed in green coloured bins. (b) Persuasive advertising is used when competition increases. When there are too many competitors producing the same products, this kind of advertising is appropriate to persuade consumers to choose the companys products. At this stage, the company has to state the advantages of the product as compared to the competitors. For example, competition between companies that produces washing detergent brands like Fab, Breeze, Trojan, Ekonomi Handalan, Harimau Kuat, and others. These companies have to make use of the advantages that they have in their products and develop a creative advertisement to persuade consumers to choose their brands. Due to the competition, this causes the companies to compare their products and those of the competitors. For example, Trojan soap and Brand Z indirectly compare products. (c) Product advertising for the products that have reached the maturity stage. The advertising objective at this stage is to remind the consumers that the product still exist in the market and for the consumers to remember the product all the time. For example, Milos
ANSWERS 200
nutritious drink advertisement. Although this brand is well known, the company still continuously advertises in order for the consumer to remember its products and select them in stores. Other examples are soft drinks like Pepsi and Coca-cola advertise repetitively on the television all year long. 5. There are four steps in media selection and they are: (a) Deciding on Reach, Frequency and Impact When media selection is done, the advertiser has to think about reach, frequency, and the medias impact to reach the advertising objectives. Reach means the percentage of viewers from the target market who are exposed to that media. For example, 80% of the viewers from the target market will be exposed to the advertising campaign in the first six months. The media tools chosen will have their own characteristics in reaching out. For example, the usage of national newspapers has a high rate of spread. Thus, the probability of reaching the target viewers is quite high as compared to the other media tools. Frequency refers to the number of times within a specified time period that an average person or household is exposed to the message. For example, a company wants the advertisement or message to reach each individual or for it to be exposed at least thrice a month. Media impact refers to the enhancement of qualitative values or the effectiveness of a media channel used. For example, the effects of using a television to show moving actions and actual product leave a larger impact as compared to using the newspapers. Selection of reach, frequency and impact needs thorough planning because it involves outputs to be reached through budget allocation. (b) Choosing among Major Media Types
Choosing between major media types depends on the reach, frequency and impact level of each major media. The advertiser needs to look at the advantages and disadvantages of each major media. For example, if the target market is wide, has general characteristics and the company doesnt want high cost to be involved, the usage of newspapers will be appropriate.
ANSWERS 201
But, if the advertiser needs to reach a specific target market with a certain frequency and time period, the usage of magazines are more appropriate. (c) Selecting Specific Media Channels At this stage, the company or advertiser has to choose a specific media channel from the general media chosen. For example, if a company chooses the magazine as its advertising media channel, the company has to choose a specific magazine channel for its target viewers. Examples of specific magazine channels are Wanita, Ibu, Bola Sepak, Roda-roda, Anjung Seri and other magazines. If the company chooses television as its main media, it has to choose a specific segment like Buletin Utama, comedy programmes, Majalah 3, sports programmes and others. Selecting a specific media channel depends on many factors. Some of the major factors are target viewers like sports enthusiast, entertainment enthusiast or documentary enthusiast. Product characteristics influence media selection as well. For example, luxury furniture is more appropriate to be displayed on coloured and high quality magazines. Besides that, the advertiser or company has to think about cost. For example, advertising cost in a popular and well liked programme like Who Wants To Be A Millionaire involves high cost. (d) Deciding on Media Timing The final step in media selection is deciding on the appropriate media timing to air the advertisement. Planning can be done through detailed media scheduling based on the companys objectives. A company can schedule the advertisement at the same frequency rate all year long. For example, an advertisement can be aired once a week or once a month in a year like advertisements for Coca-cola. The company can schedule advertisements intensively in a specified time period or reduce the frequency of the advertisements in a specified time period. For example, the advertisement for Yeos soya bean milk drink is aired on the television at a high frequency rate during the fasting month (Ramadan) but is aired less frequently during the other months. Both types of scheduling have their own advantages. Scheduling that concentrates on a specified time period will produce an instant reaction from viewers because they need the products at
ANSWERS 202
that time. Evenly spread scheduling has the ability to reinforce memory and brand loyalty.
6. The advantages and disadvantages of major media types are explained in Table 8.2 below.
Table 8.2: The Advantages and Disadvantages of Major Media Types
Media Advantages Disadvantages Outdoor Advertising Flexibility in terms of geography, low cost, easy to identify, and is remembered last before purchase is done. Cannot select audience, short appearance time, hard to measure viewers size and environmental problems. Newspapers Good market coverage, flexible, able to give detailed explanation, high believability and timeliness. Doesnt reach the specific target group, moderate reproduction quality and short life span. Magazines Specific target market, long life span, high reproduction quality, completes product information, and has credibility. High cost and takes a long time for an issue to be published. Radio Reaches local target viewers, able to cover a wide target market and low cost. Cluttered, no visual only audio, low attention, difficult to purchase radio advertising time. Television Able to demonstrate, good market coverage, combination of audio and visual is able to attract high attention. Cluttered, high cost, audience selectivity not specific. 7. A coupon is a promotional tool that saves money for the consumers. It is a form of promotional tool that is frequently used by the producer. Normally, coupons are given in the form of certificates and the consumers will obtain savings when they purchase a specific product which is stated on the certificate. Coupons are normally distributed through newspapers, magazines, direct mail from the inside or the outside of a package.
Coupons can give instant rewards to the consumers and encourage trial purchases and repeat purchases by loyal customers.
ANSWERS 203
Sales promotion tools that use samples are among the most popular tools that are used to deliver products to potential consumers. Normally, samples are products that are packaged in small packs for consumers to try them. It is normally distributed through individuals inside or outside stores and supermarkets. Samples are the most effective method to introduce new products in the market. However, the cost to use it is quite high because samples are normally given free to prospective customers who most probably would be missed out if the sample is sent thorough mail. 8. There are four main steps in decision making when the management wants to use public relations as one of the promotional methods for marketing communication are creating marketing objectives, message and channel selection, programme implementation and decision evaluation.
TOPIC 9 MANAGING THE SALES FORCE AND DIRECT SELLING Exercise 9.1
Essay Questions 1. Personal selling plays an important role in the company because it helps other promotional activities. The usage of advertisements as a promotional method has its disadvantages because it consists of a one-way communication. The explanation which is given through advertisements may not be sufficient or it is hard to understand for the audience. Personal selling explains a complex product which is difficult to understand and has to be demonstrated by trained sales personnel. Personal selling is mostly used in business and industrial markets. Products for these markets are more complicated and expensive, requiring sales personnel to explain in detail to the customers. Sales personnel are the companys representatives when they meet customers.
Exercise 9.2
Essay Questions 1. Direct marketing is an interactive marketing system which uses one or more advertising media to obtain reactions that can be measured or to enable transactions to be done anywhere.
ANSWERS 204
The advantages of direct marketing are: Able to save time Introduces consumers to a larger selection of merchandise Marketer is able to shape direct marketing relationship with customers. Ability and permission to conduct market testing through alternative media using a cost efficient method Marketer can measure reactions towards any campaign which is carried
out and the ability to determine campaigns that are profitable Consumers can place orders for themselves or for others Firms dont have to deal with the companys sales personnel to obtain any necessity or stock 2. Some of the major direct marketing channel forms that can be used by direct marketers and the explanations for them are: (a) Face-to-face Selling Face-to-face selling refers to the personal selling source that is professionally conducted for the company by placing and moulding potential customers and directing them towards the business. (b) Direct Mail Direct mail involves delivery of an offer, announcement, reminder or other items to the companys customers. Before this, direct mail was generally based on the concept of paper and was delivered through the help of the government post office or private companies based on the concept of profit such as Nationwide Express, Federal Express, DHL and UPS. But now, through the advancement of technology, three forms of new direct mail has been created, which are the fax machine, e-mail and delivery through voice mail like telephone. (c) Catalogue Marketing Catalogue marketing refers to marketing outputs through catalogues. There are a few types of catalogues. Some of them are: (i) Full-Line Merchandise Catalogues (ii) Specialty Consumer Catalogues (iii) Business Catalogues (iv) Telemarketing Telemarketing refers to the usage of telephone operators to attract new consumers, current consumers or to take purchase orders. An effective telemarketing depends on the right and accurate selection of the telemarketer at the beginning stage, providing training to them
ANSWERS 205
and providing performance incentives for the purpose of motivating them. (v) Other Media for Direct Response Marketing It involves the usage of all major media types by the marketer in offering directly to the potential customer. Major media includes newspapers and magazines and they are used by the marketer in advertising its products. Through the direct marketing concept, consumers who are interested towards the products that are advertised can phone the marketer directly through a toll free line. This form of advertising type can be done through the television using three main methods: Direct Response Advertising At-Home Shopping Channel Videotext and Interactive Television (vi) Kiosk Marketing Kiosk marketing refers to the customer-order-placing machines or
better known as kiosks. Kiosks are normally placed in warehouses, airports or at other suitable locations. 3. A good arrangement of the sales force structure will help the company to maximise the usage of their sales force to generate profits. There are four sales force structure that can be used by the management in designing the sales force structure and strategy and they are sales force structure according to territory, products, customers and complexity. (a) Territorial Sales Force Structure This structure divides every sales personnel or a few sales personnel to a geographical sales territory exclusive for them to sell and build relationships. The advantage of this structure is the sales personnel gets to focus their energy on a territory and communicate only with the customers from that particular territory alone. Thus, sales quality and productivity and communication can be maximised because time and sales force get to concentrate on the customers at that particular location. For example, SS Company that exports goods divided its sales staff according to territories, South East Asia, Middle East, Europe and North and South America. (b) Product Sales Force Structure Companies that have various products can use this structure in arranging their sales personnel. Every sales personnel who is assigned to sell a product has to be knowledgeable about the product.
ANSWERS 206
For example, Harum Semerbak Company sells perfume, scented powder, shampoo and others. Sales personnel who sell products like powder have to be knowledgeable about the product, customers and the territory when they are going to sell the products there. The advantage of the product sales structure is that the sales personnel are able to focus their skills on the product and they are able to sell to customers regardless of territories, customer size and others. But, the disadvantage of this structure is when the same company buys various products from the seller. Two or more sales personnel will frequent the same territory and they will meet the same customers. Besides incurring high expenses, it will also cause confusion in the consumers purchases. (c) Customer Sales Force Structure Arranging the sales force structure according to customers or industries can be divided into a few situations. Companies can divide them according to: (i) New and existing customers (ii) Major and normal accounts (iii) Different industries The advantage of this structure is it enables the sales personnel to concentrate on customers whom they are responsible for. Thus, the company gets to build long-term relationship with the consumers because the sales personnel can focus on them. However, this structure involves high operation costs because not many customers can be visited during a visit if they live in a few locations away from one and another.
(d) Complex Sales Force Structure This structure is a combination between territorial, product and customer sales force structure. This structure is suitable to be used when the company has many products, various customers and they cover a wide area. Sales personnel can concentrate their sales efforts according to territories and customers, products and territories or the others that are appropriate. 4. There are seven steps in the personal selling process which is normally experienced by the sales staff in carrying out the sales process but it they may not happen in sequence. The seven steps are:
ANSWERS 207
(a) Identifying prospective customer (b) Pre-approach (c) Approach (d) Presentation and demonstration (e) Identifying objectives and question and answers (f) Closing (g) Follow-up 5. Personal selling had a short-term business dealing motive traditionally. The main objective was to obtain customers and to close sales. However, marketing based on this dealing has its disadvantages. Among the disadvantages is that it only emphasises on sales at that time without the presence of the long-term relationship aspect. After sales, there isnt any form of communication and the sales staff will have to look for new customers for the next sales. Looking for new customers will involve high cost because sales staff have to contact the customers all over again. Based on this disadvantage, companies have started to emphasise on relationship marketing. Relationship marketing emphasises on long-term relationships with the customers by creating values and high satisfaction to the customers. The main objective of relationship marketing is to maintain the existing customers. Through continuous relationship with customers, the company gets to save the cost of obtaining new customers. Thus, sales staffs have to emphasise long-term and close relationships with customers. Customers will feel appreciated and this will be profitable to the company in the longterm. 6. Customer database refers to a group of complete and organised data regarding customers or potential customers of a company. In addition, consumer database also contains other information regarding outputs that are bought, units purchased before, price, practical buying practices, demographic information and others. What is more important is, the information in the consumer database is the latest, easy to obtain or reach, and can be used for the purpose of marketing, either as a guide or from the aspect of generation, qualification and suitability, output sales or communication between consumers. Marketing database refers to the development process, maintaining and using the database, and other databases (including output, suppliers, and sellers) for the purpose to communicating and also business.
ANSWERS 208
7. Electronic channel is the latest direct marketing method. The word ecommerce explains the meaning of multiple electronic platforms like message delivery to the supplier through EDI (Electronic Data Interchange), usage of fax machines and e-mails in carrying out various business dealings, the usage of ATM, smart card to ease payments, and the usage of the Internet or other telemarketing services. The e-commerce channel consists of two forms and they are: (i) Commercial Channels Commercial channels are online information or marketing services that are created by most firms today for the purpose of making it easier for the consumers to obtain specific information regarding the firm. Besides that, it is for the purpose of making monthly payment easier, especially for payment in the form of fees. Those channels normally provide information in the form of news, references, sports and learning, entertainment, buying services, opportunities to interact through bulletin boards, forums or chat sites and e-mails. (ii) Internet The Internet is a global computer web network which is capable of shaping global communication, fast and instant. Through the Internet, users can send e-mails, exchange and share opinions, purchase outputs, obtain and receive news, or obtain business information fast and quickly. 8. From the angle of a potential purchaser, online service usage is convenient, resourceful and reduces noise like persuasion and emotions that occurs when the sales personnel meets the customers face-to-face. This is because they dont have to meet the sales personnel. From the marketers angle, the benefits are listed below: (a) The ability to do adjustments fast especially when it comes to increasing the outputs of the company, price changes and output description (b) Reduce costs such as insurance, rental or usage costs. The marketer is able to produce digital catalogues which is able to reduce delivery and printing cost (c) The ability to have business relationships with customers or market share, analyse sales expenditure, analyse financial positions and analyse the market to carry out yearly planning control
ANSWERS 209
TOPIC 10 MARKETING CONTROL Exercise 10.1

Essay Questions 1. Steps that have to be taken by the marketer in marketing control are: (a) Deciding on Performance Standards This step requires the marketer to select performance measurement standards. Standards that are selected should be achievable and measurable. (b) Deciding on Types of Feedback There are various feedback data that can be selected by the marketer to be used in deciding the types of feedback. Among the feedback data that can be used by the marketer is purchasers feedback,
intermediary, supplier, product performance and business dealings. (c) Obtaining Feedback Feedback can be obtained from two main sources, and they are: Internal sources like sales records, purchase records and staff External sources like marketing research findings regarding consumer behaviour, competitors and market trends All the feedback obtained has to be focused towards the evaluated units performance like the achievements of sales groups or strategic business units. (d) Evaluating Feedback Every feedback has to be scrutinised and analysed in depth to help the marketer in making accurate conclusions regarding the units performance that is evaluated. Marketers normally use various types of information to evaluate performance, especially from the aspect of identifying weaknesses and the evaluated units shortcomings. (e) Implementing Corrective Action If the evaluation results discover the unit that is analysed has succeeded in exceeding the performance standards, motivational actions like giving out rewards, promotions and salary raise has to be implemented. If the evaluation results discover that the units actual performance achievement is below or does not meet performance standards that have been decided, then corrective actions have to be carried out.
ANSWERS 210
2. The marketer has to obtain feedback regarding the staff performance and marketing activities to carry out corrections towards the performance standards. The inability to reach performance standards that has been decided may be caused by the staffs incapability or inappropriate marketing techniques or strategies.
Exercise 10.2
Fill in the Blanks 1. final 2. five, deciding on performance standards 3. evaluating feedback 4. Implementing corrective actions 5. Market share 6. Strategic Essay Questions 1. There are four methods or mechanisms that the marketer can choose from to implement the marketing control process. Those methods are: (a) Annual-Plan Control This method is provided to make it easier to achieve all the objectives that have been decided in the marketing management process, especially from the aspect of target sales, profitability or market share dominance. There are five evaluation methods that can be used by the marketer to come up with annual plan methods. Those methods are sales analysis, market-share analysis, sales expenses analysis, financial analysis and market analysis.
(b) Profitability Control Through these control mechanisms, the marketer has to determine cost that is required for each marketing activities that are to be carried out as stated in the marketing plan. This indirectly acts as a guide for profit levels that will be obtained. (c) Efficiency Control Efficiency control is a control method which is used to complete the other control mechanisms especially the profitability control method. Through this method, the marketer will evaluate each units
ANSWERS 211
performance or special activities like the sales teams effectiveness, advertising activities and distribution. (d) Strategic Control Strategic control is a comprehensive and systematic control system for the entire performance attainment by all the units and activities. This control method is often used by marketers in the strategic business unit control process. Strategic control normally involves analysis on strength weaknesses, threats and opportunities. 2. There are five evaluation methods that can be used by the marketer to come up with the annual plan and they are: (a) Sales Analysis Sales analysis is done to evaluate sales outcomes based on the relationship between inputs and outputs. This means, sales analysis covers measurement and evaluation of actual sales as compared to the sales objectives that have been decided by the marketer. There are four forms of sales analysis that can be chosen by the marketer, which are the territorial sales analysis (according to sales area), product sales analysis (every product or according to the product line marketed), sales analysis based on the order size and sales analysis based on purchasers (according to purchasers, who are individual consumers and organisations or special purchasers). (b) Market-share Analysis Market-share dominance analysis is an important indicator towards the actual performance of the company as compared to its competitors. There are four methods of measuring market share which can be chosen by the marketer, which are the overall market share, served market share, relative market share as compared to two largest competitors and relative market share as compared to the largest competitor. (c) Sales Expenses Analysis This analysis is for the purpose of ensuring the marketer spends smartly or wisely to reach the objectives that have been decided in the marketing management process. Through this method, total sales expenditure will be compared with sales outcomes obtained. The larger the ratio value, the lower the performance achievement for the marketing strategy implementation. (d) Financial Analysis This method helps the marketer identify factors that influence net return rates. Some of the factors evaluated are profit contributions,
ANSWERS 212
asset turnover, return on asset and financial leverage. This means, the marketer has to analyse asset composition like cash flow, accounts receivables, inventories and equipment. (e) Market Analysis Different from the other four market share analysis methods that have been discussed before this, this method doesnt count the financial factor in analysing the companys performance. Through this method, the marketer evaluates factors like the total number of new purchasers, purchasers who are not satisfied and the target consumers awareness level before a conclusion regarding the markets performance is made. 3. The implementation process of marketing audit is similar to the implementation process of marketing control. However, the steps that are involved in marketing audit are briefer and more comprehensive. Same as the marketing control process, marketing audit starts with the objective setting effort and scope determination (control standards) and marketing control measurement methods. The next step is the marketer has to obtain data on feedback. There is obvious difference between marketing audit and the feedback process, from the aspect of need to evaluate feedback data. Through marketing audit, the marketer has to collect and prepare reports about the revenue.
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Marketing Management Two

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Marketing Management Two

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BBPM2203 MARKETING MANAGEMENT II

COURSE GUIDE DESCRIPTION

TEXT ARRANGEMENT AUDIENCE

Market Positioning and Managing Product Life Cycle

1.1 MARKET POSITIONING

1.2 BASES OF POSITIONING

1.2.1 Based on Products Differentiation

1.2.2 Based on Services Differentiation

1.2.3 Based on Channel Differentiation

1.2.4 Based on Staff or Personnel Differentiation

1.2.5 Based on Image Differentiation

1.3 PRODUCT LIFE CYCLES

1.3.1 Introduction Stage

TOPIC 1 MARKET POSITIONING AND MANAGING PRODUCT LIFE-CYCLE

1.3.2 Growth Stage

1.3.3 Maturity Stage

1.3.4 Decline Stage

1.3.5 Product Life Cycle Patterns

with the introduction stage until it disappears from the market.

New Product Development

WHAT IS A NEW PRODUCT?

CHALLENGES IN NEW PRODUCT DEVELOPMENT 2.2

TOPIC 2 NEW PRODUCT DEVELOPMENT

2.3 STAGES IN NEW PRODUCT DEVELOPMENT

SUCCESS AND FAILURE FACTORS OF NEW PRODUCTS 2.4

2.4.1 Success Factors of New Products

2.4.2 Failure Factors of New Products

Managing New Product Lines and Brands

3.2 PRODUCT CLASSIFICATION

3.2.1 Consumer Products

3.2.2 Organisational Products

3.3 PRODUCT MIX

(b) Product Depth

3.4 PRODUCT LINE ANALYSIS

3.5.1 Characteristics of Effective Branding

3.5.2 Brand Equity

3.5.3 Brand-name Decision

3.5.4 Managing Brand

act as the differentiation basis to promote the product.

3.6.1 Packaging Functions

Managing Services Marketing

4.1 WHAT ARE SERVICES?

4.1.1 Categories of Service Mix

4.1.2 Characteristics of Services

MARKETING STRATEGIES FOR SERVICE FIRMS 4.2

4.2.1 Traditional Marketing Mix

4.2.2 Advanced Marketing Mix Elements for Services

4.2.3 The Services Triangle

4.2.4 Managing Service Differentiation

companies that have developed a successful international image.

4.2.5 Managing Service Quality

5.1 FACTORS IN PRICING

5.1.1 Internal Factors

5.1.2 External Factors

5.2 PRICING POLICIES

5.3 PRICING PROGRAMMES

5.3.1 Geographical Pricing

5.3.2 Price Discounts and Allowances Strategies

5.3.3 Promotional Pricing Strategies

payment terms and warranties.

5.3.4 Discriminatory Pricing Strategies

5.3.5 Product Mix Pricing Strategies

5.4 PRICE CHANGES