what is marketing?

What is marketing?

There are many different definitions of marketing. Consider some of the following alternative definitions:

“The all-embracing function that links the business with customer needs and wants in order to get the right product to the right place at the right time”

“The achievement of corporate goals through meeting and exceeding customer needs better than the competition”

“The management process that identifies, anticipates and supplies customer requirements efficiently and profitably”

“Marketing may be defined as a set of human activities directed at facilitating and consummating exchanges”

Which definition is right? In short, they all are. They all try to embody the essence of marketing:

• Marketing is about meeting the needs and wants of customers;
• Marketing is a business-wide function – it is not something that operates alone from other business activities;
• Marketing is about understanding customers and finding ways to provide products or services which customers demand

To help put things into context, you may find it helpful to often refer to the following diagram which summarises the key elements of marketing and their relationships:

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customers or consumers?

A common question that arises when studying marketing is the following:

What is the difference between a customer and a consumer?

The following distinction should help:

• A customer – purchases and pays for a product or service

• A consumer – is the ultimate user of the product or service; the consumer may not have paid for the product or service

Consider the following example:

• A food manufacturing business makes own-label, Italian ready meals for the major supermarkets.

• So far as the business is concerned, the customer is the supermarket to whom it supplies meals

• The consumer is the individual who eats the meal

In terms of its marketing effort, who should the business above target?

In reality – it needs to understand the needs and wants of both the customer and the consumer.

It needs to develop a strong understanding of the needs of the supermarkets in terms of their requirements for ready meals (e.g. packaging, recipes, price & delivery).

It also needs to understand (perhaps with the help of the supermarkets) the needs and wants of the consumer. How are tastes changing? Are consumers happy with the standard / taste of the product?

http://www.tutor2u.net/business/marketing/customers_consumers.asp

marketing concept and orientation

It is a fundamental idea of marketing that organisations survive and prosper through meeting the needs and wants of customers. This important perspective is commonly known as the marketing concept.

The marketing concept is about matching a company's capabilities with customer wants. This matching process takes place in what is called the marketing environment.

Businesses do not undertake marketing activities alone. They face threats from competitors, and changes in the political, economic, social and technological environment. All these factors have to be taken into account as a business tries to match its capabilities with the needs and wants of its target customers.

An organisation that adopts the marketing concept accepts the needs of potential customers as the basis for its operations. Success is dependent on satisfying customer needs.

What are customer needs and wants?

A need is a basic requirement that an individual wishes to satisfy.

People have basic needs for food, shelter, affection, esteem and self-development. Many of these needs are created from human biology and the nature of social relationships. Customer needs are, therefore, very broad.

Whilst customer needs are broad, customer wants are usually quite narrow.

A want is a desire for a specific product or service to satisfy the underlying need.

Consider this example:

Consumers need to eat when they are hungry.
What they want to eat and in what kind of environment will vary enormously. For some, eating at McDonalds satisfies the need to meet hunger. For others a microwaved ready-meal meets the need. Some consumers are never satisfied unless their food comes served with a bottle of fine Chardonnay.

Consumer wants are shaped by social and cultural forces, the media and marketing activities of businesses.

This leads onto another important concept - that of customer demand:

Consumer demand is a want for a specific product supported by an ability and willingness to pay for it.

For example, many consumers around the globe want a Mercedes. But relatively few are able and willing to buy one.

Businesses therefore have not only to make products that consumers want, but they also have to make them affordable to a sufficient number to create profitable demand.

Businesses do not create customer needs or the social status in which customer needs are influenced. It is not McDonalds that makes people hungry. However, businesses do try to influence demand by designing products and services that are

• Attractive
• Work well
• Are affordable
• Are available

Businesses also try to communicate the relevant features of their products through advertising and other marketing promotion.

Which leads us finally to an important summary point.

http://www.tutor2u.net/business/marketing/marketing_concept.asp

structural characteristics of a marketing-orientated business

A business that has a marketing orientation sees the needs of customers and consumers as vital. As it develops and markets products to meet those demands, certain structural characteristics become apparent in the business.

These are summarised in the table below:

Business Function	Activities
Identifying customer/consumer needs and wants	Marketing research
Developing products to meet customer/consumer needs and wants	Research and development Production
Deciding on the value of the product to customers	Pricing (sales and marketing department)
Making the product available to customers at the right time and place	Distribution
Informing customers/consumers of the existence of the product and persuading them to buy it	Promotion

You should expect to see all the above activities well-established in a business that is marketing-orientated.

http://www.tutor2u.net/business/marketing/marketing_orientation_structures.asp

marketing concept and orientation

It is a fundamental idea of marketing that organisations survive and prosper through meeting the needs and wants of customers. This important perspective is commonly known as the marketing concept.

The marketing concept is about matching a company's capabilities with customer wants. This matching process takes place in what is called the marketing environment.

Businesses do not undertake marketing activities alone. They face threats from competitors, and changes in the political, economic, social and technological environment. All these factors have to be taken into account as a business tries to match its capabilities with the needs and wants of its target customers.

An organisation that adopts the marketing concept accepts the needs of potential customers as the basis for its operations. Success is dependent on satisfying customer needs.

What are customer needs and wants?

A need is a basic requirement that an individual wishes to satisfy.

People have basic needs for food, shelter, affection, esteem and self-development. Many of these needs are created from human biology and the nature of social relationships. Customer needs are, therefore, very broad.

Whilst customer needs are broad, customer wants are usually quite narrow.

A want is a desire for a specific product or service to satisfy the underlying need.

Consider this example:

Consumers need to eat when they are hungry.
What they want to eat and in what kind of environment will vary enormously. For some, eating at McDonalds satisfies the need to meet hunger. For others a microwaved ready-meal meets the need. Some consumers are never satisfied unless their food comes served with a bottle of fine Chardonnay.

Consumer wants are shaped by social and cultural forces, the media and marketing activities of businesses.

This leads onto another important concept - that of customer demand:

Consumer demand is a want for a specific product supported by an ability and willingness to pay for it.

For example, many consumers around the globe want a Mercedes. But relatively few are able and willing to buy one.

Businesses therefore have not only to make products that consumers want, but they also have to make them affordable to a sufficient number to create profitable demand.

Businesses do not create customer needs or the social status in which customer needs are influenced. It is not McDonalds that makes people hungry. However, businesses do try to influence demand by designing products and services that are

• Attractive
• Work well
• Are affordable
• Are available

Businesses also try to communicate the relevant features of their products through advertising and other marketing promotion.

Which leads us finally to an important summary point.

A marketing orientated business is one that which has adopted the marketing concept

http://www.tutor2u.net/business/marketing/marketing_concept.asp

alternatives to a marketing orientation

Whilst marketing text books usually suggest that successful business will be "marketing orientated", it is the case in the real world not all businesses subscribe to the marketing concept.

The implications of believing in the marketing concept become clearer when the alternatives are examined:

There are three main alternatives to adopting a marketing orientation. These are:

(1) Sales orientation

(2) Production orientation, and

(3) Product orientation.

These are described briefly below.

Sales orientation

Some businesses see their main problem as selling more of the product or services which they already have available. They may therefore be expected to make full use of selling, pricing, promotion and distribution skills (just like a marketing-orientated business).

The difference is that a sale-orientated business pays little attention to customer needs and wants, and does not try particularly hard to create suitable products or services.

Production orientation

A production-orientated business is said to be mainly concerned with making as many units as possible. By concentrating on producing maximum volumes, such a business aims to maximise profitability by exploiting economies of scale.

In a production orientated business, the needs of customers are secondary compared with the need to increase output. Such an approach is probably most effective when a business operates in very high growth markets or where the potential for economies of scale is significant.

Product orientation

This is subtly different from a production orientation. Consider a business that is “obsessed” with its own products – perhaps even arrogant about how good they are. Their products may start out as fully up-to-date and technical leaders.

However, by failing to consider changing technological developments or subtle changes in consumer tastes, a product-orientated business may find that its products start to lose ground to competitors.

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marketing management in a customer-orientated business

The process of marketing management is about attracting and retaining customers by offering them desirable products that satisfy needs and meet wants.

Marketing management in a customer-orientated business consists of five key tasks summarised in the table below:

Marketing Task	Commentary
Identify target markets	Management have to identify those customers with whom they want to trade. The choice of target markets will be influenced by the wealth consumers hold and the business' ability to serve them
Market research	Management have to collect information on the current and potential needs of customers in the markets they have chosen to supply. Areas to research include how customers buy (which marketing channels are used) and what competitors are offering
Product development	Businesses must develop products and services that meet needs and wants sufficiently to attract target customers to wish and buy
Marketing mix	Having identified the target markets and developed relevant products, management must then determine the price, promotion and distribution for the product. The marketing mix is tailored to offer value to customers, to communicate the offer and to make it accessible and convenient
Market monitoring	The objective in marketing is to first attract customers - and then (most importantly) retain them by building a relationship. In order to do this effectively, they need feedback on customer satisfaction. They also need to feed this back into product design and marketing mix as customer needs and the competitive environment changes

http://www.tutor2u.net/business/marketing/marketing_orientation_tasks.asp

market analysis - defining the market

All businesses operate in “markets”. But what is a market? And how can it be defined?

It is important to be careful about how a market is defined. The following key marketing processes rely on a relevant market definition:

- Measuring market share
- Measuring market size and growth
- Specifying target customers
- Identifying relevant competitors
- Formulating a marketing strategy

A market can be defined as follows:

A market is the set of all actual and potential buyers of a product or service.

This definition suggests that a market is the total value and/or volume of products that satisfy the same customer need.

For example, if the customer need is “eat breakfast”, then the relevant market could be defined as the “Breakfast Food Market”. Many products would be relevant to measuring and analysing such a market:

- Breakfast Cereals
- Nutrition Bars
- Porridge / Oats
- Speciality Breads (e.g. croissants)
- Fast-food Outlets serving breakfast

In defining a market, it is important not to focus only on products/services that currently meet the customer need. For example, the button manufacturer who believed that their market was the “button market” would have made some poor marketing decisions unless he had seen the arrival of products such as Velcro and zips – which also satisfy the same need – “to fasten clothes”.

Thinking about customer needs first – and then identifying the products that meet those needs – is the best way to define a market.

However, it is also important not to define a market too broadly. For example, it is not particularly helpful for a marketing manager to define his or her market as the “food market” or the “transport market”. The purpose of market definition is to provide a meaningful framework for analysis and decision-making.

For example; consider the “entertainment market”. The customer need is to be “entertained”. There are many products and services that can claim to meet that need in different ways:

At home:
- Television
- Radio
- Video
- DVD
- Games Consoles

Outside the Home:
- Cinema
- Theatre
- Theme Parks
- Opera
- Sporting Events

It is important to avoid too broad a definition of a market. For example, it will be more manageable for marketing managers in the sporting events market to further refine their market definition into more detailed classes or segments.

To help with calculating market share, the following definitions are helpful:

Product class – e.g. computers, televisions, holidays

Product subclass – e.g. laptops, digital televisions, long-haul holidays

Product brands – e.g. Dell, Panasonic, Kuoni

Kuoni as a brand, for the purposes of measuring market share, is only concerned with the aggregate of all other travel brands that satisfy the same group of customers. However, Kuoni also needs to be aware of the trends in long haul holidays and the holiday market in general.

http://www.tutor2u.net/business/marketing/market_analysis_defining.asp

market analysis - introduction to market share

Definition

Market share can be defined as the percentage of all sales within a market that is held by one brand / product or company. Market share can be measured in several ways. However, the two most important measures are by:

- Sales revenue

- Sales volume (the number of units sold)

Examples of market share

Market share information on the UK clothing retail market is summarised below:

Position	Brand	Sales(£'m)	Market Share (%)	Number of Outlets
1	Marks & Spencer	2,743	10.2	315
2	Next	1,708	6.3	333
3	Arcadia	1,609	5.9	1,603
4	Debenhams	1,076	4.0	97
5	Asda	963	3.6	215
6	Matalan	776	2.9	137
7	Tesco	710	2.6	588
8	Bhs	631	2.3	163
9	New Look	552	2.1	573
10	John Lewis	482	1.8	25
	Total of Top 10	11,250	41.8
	UK Market	26,911	100.0
Source; Deutsche Bank 2002

The UK clothing market, as defined by Deutsche Bank in their recent report, is valued at £26.9 billion. It is one of the most concentrated retail markets in Europe, with the top ten retailers accounting for some 42% of the market.

What is market concentration? It is the proportion of market value that is owned by the leading brands or products/companies in the market. Where the market leaders own a large part of the overall market, the market is said to be highly concentrated. By contrast, where the market leader has a relatively small market share and there are many other competitors, a market is said to be "fragmented"

There has been little change in the concentration of the UK clothing retail market in recent years. The top 10 retailers accounted for 39% of the market in 1995. However, as the table below illustrates, the composition of the top 10 has changed quite considerably, with only six of the top ten in 1995 remaining in the top league in 2002:

Position	1995	1997	2002
1	M&S	M&S	M&S
2	Arcadia	Arcadia	Next
3	Debenhams	Debenhams	Arcadia
4	C&A	Next	Debenhams
5	Next	C&A	Asda
6	Sears	Sears/Adams	Matalan
7	Bhs	Bhs	Tesco
8	Littlewoods	Asda	Bhs
9	John Lewis	Littlewoods	New Look
10	House of Fraser	House of Fraser	John Lewis
Source: Deutsche Bank

The table above masks the change in the format of retail businesses that have evolved in the UK over recent years. Five years ago, the value or "discount" retailers had a relatively small share of the clothing market, accounting for only 18% total market share. Today the market is very different. The value or discount retailers now have over a quarter of the market. Foreign clothing retailers have also penetrated the market (e.g. the Gap, H&M and Zara) although their total market share is still less than 5%.

http://www.tutor2u.net/business/marketing/market_analysis_marketshare_intro.asp

types of market

Before delving too deep into the study of marketing, it is worth pausing to consider the different types of market that exist.

Markets can be analysed via the product itself, or end-consumer, or both. The most common distinction is between consumer and industrial markets.

Consumer Markets

Consumer markets are the markets for products and services bought by individuals for their own or family use. Goods bought in consumer markets can be categorised in several ways:

• Fast-moving consumer goods (“FMCG's”)

– These are high volume, low unit value, fast repurchase
– Examples include: Ready meals; Baked Beans; Newspapers

• Consumer durables

– These have low volume but high unit value. Consumer durables are often further divided into:
– White goods (e.g. fridge-freezers; cookers; dishwashers; microwaves)
– Brown goods (e.g. DVD players; games consoles; personal computers)

• Soft goods
– Soft goods are similar to consumer durables, except that they wear out more quickly and therefore have a shorter replacement cycle
– Examples include clothes, shoes

• Services (e.g. hairdressing, dentists, childcare)

Industrial Markets

Industrial markets involve the sale of goods between businesses. These are goods that are not aimed directly at consumers. Industrial markets include

• Selling finished goods
– Examples include office furniture, computer systems

• Selling raw materials or components
– Examples include steel, coal, gas, timber

• Selling services to businesses
– Examples include waste disposal, security, accounting & legal services

Industrial markets often require a slightly different marketing strategy and mix. In particular, a business may have to focus on a relatively small number of potential buyers (e.g. the IT Director responsible for ordering computer equipment in a multinational group). Whereas consumer marketing tends to be aimed at the mass market (in some cases, many millions of potential customers), industrial marketing tends to be focused.

http://www.tutor2u.net/business/marketing/market_types.asp

market analysis - importance of market share

Why is Market Share important?

An important piece of research in the 1960's provided the basis for understanding the importance of market share - and emphasised the implications for marketing and business strategy.

The Profit Impact of Market Strategy ("PIMS") analysis was developed at General Electric in the 1960's and is now maintained by the Strategic Planning Institute. The PIMS database provides evidence of the impact of various marketing strategies on business success.

The most important factor to emerge from the PIMS data is the link between profitability and relative market share. PIMS found (and continues to find) a link between market share and the return a business makes on its investment. The higher the market share - the higher the return on investment. This is probably as a result of economies of scale. Economies of scale due to increasing market share are particularly evident in purchasing and the utilisation of fixed assets.

Case Study on Market Share - Dixons

Dixons is widely regarded as the dominant electrical retailer in the UK. What does dominant mean? It refers to the fact that Dixons (which is the market leader) has a very high relative market share. In other words, it is substantially bigger than the next largest competitor. This can be illustrated by the chart below which lists the leading UK electrical retailers in 2000.

How might Dixon's market dominance enable it to further increase its market share? Many retail analysts believe that the electrical retailing market provides advantages to larger businesses. In recent years, Dixons, along with the number two Comet, has been able to thrive while other retailers have suffered. The reasons for the advantages of size include:

Buying advantage: An ability to use size to source product more cheaply is a clear advantage in an industry that faces rapidly declining consumer prices

Volume advantage: As a low-margin business, retailers that can sell in high volumes are in the best position to gain market share

Access to new products: The largest retailers typically have first-mover advantage in stocking new "in demand" products that have just been released

Advertising scale: As a price-led business, access to national advertising provides the ability to keep customers regularly informed of the latest product deals. This helps to reinforce customer perception of value, in addition to strengthening the Dixons Group brands

Access to retail property: With the continuing trend towards out-of-town, larger destination stores that offer a broader range of choice, and with restrictive planning laws limiting opportunities, the larger electrical retailers have both the financial and operational capacity to secure such important new sites.

The UK electrical retail market has many examples of businesses with a small market share that have fallen victim to the intense competition in the market. In the UK, Tiny Computers and US brand Gateway both folded. In the electrical appliance sector, well-known market casualties include Tandy (which was acquired by Carphone Warehouse who subsequently closed 110 of Tandy's shops and reformatted the remaining 160 into its own format) and Scottish Power's consumer appliance chain. These are summarised in the table below:

Retailer	Format	Stores Closed	Date
PowerZone	Electrical Appliances	60	Feb-02
Scottish Power	Electrical Appliances	80	Jun-01
Tandy	Electrical Appliances	110	Jan-99
Tempo	Electrical Appliances	37	Sep-01
02	Mobile Phones	133	Feb-02
The Phone People	Mobile Phones	60	Jul-01
The Wap Store	Mobile Phones	70	Jan-02
Gateway	Personal Computers	12	Sep-01
Time/Time	Personal Computers	50	Apr-02
Source: Lehman Brothers

http://www.tutor2u.net/business/marketing/market_analysis_marketshare_importance.asp

market analysis - measuring market share

Measuring Market Share

An accurate measure of market share is dependent on several factors:

- A satisfactory definition of the market. This would answering questions such as which products to include, which geographical areas, which means of distribution?

- The availability of reliable, up-to-date information

- Agreement on which measures of share are most relevant. For example, should market share be calculated on the basis of sales revenues, profits, units produced or some other measure that competitors in the market generally recognise as valid.

In reality, market shares are calculated in a myriad of ways. However, most tend to be based on one or both of the following:

- Sale revenues

- Sales volumes (units)

Worked Example of Market Shares based on Sales Volumes

In this example, we take figures for the global sale of personal digital assistants ("PDA@s") in 2001.

According to research by Dataquest, global sales of PDA's totaled 13.1 million units, a 18% increase from sales in 2000

The breakdown of these 13.1 million units by major PDA manufacturer is shown in the table below:

Company (Operating System)	2001 Sales Units	2001 Market Share %	2000 Sales Units	2000 Market Share %	Sales Growth %
Palm (Palm)	5,056	38.6	5,588	50.4	-9.5
Handspring (Palm)	1,648	12.6	1,369	12.4	20.4
Compaq (Microsoft)	1,283	9.8	466	4.2	175.4
Hewlett-Packard (Microsoft)	711	5.4	442	4.0	60.9
Casio (Microsoft)	529	4.0	440	4.0	20.4
Others	3,884	29.6	2,777	25.1	39.9
Total Market	13,111	100.0	11,083	100.0	18.3
Source: Gartner Dataquest February 2002

As can be seen from the table, Palm continues to lead the PDA market with a market share of 38.6%. However, in just one year, its market share fell by 11.8 percentage points from 50.4% in 2000 reflecting the aggressive marketing of new and strong players in the market such as Compaq and Hewlett-Packard.

In 2000, Palm was four times the size of the next largest competitor (Handspring). By 2001, Palm was just three times the size of Handspring, implying a reduction in its relative market strength.

Worked example of Market Share Based on Sales Revenues

In this example, we look at the retail sales figures of the major UK grocery chains.

This analysis is based upon data collected by the leading market research company Taylor Nelson Sofres ("TNS"). The TNS data is sourced via a continuous interview of 15,000 households in the UK. It measures the relative sales performance of the major grocery chains using what it calls the "Till Roll" measure.

The Till Roll measures by retailer the total amount spent by each household in the grocery store as captured by the total printed on the till receipt. This is then adjusted to exclude items such as petrol purchases, kiosk sales and amounts spent in the coffee shop or restaurant.

Based on the Till Roll measure, the monthly market shares of the leading grocery chains in August 2002 were as follows:

http://www.tutor2u.net/business/marketing/market_analysis_marketshare_measuring.asp

distribution - introduction

Distribution (or "Place") is the fourth traditional element of the marketing mix. The other three are Product, Price and Promotion.

The Nature of Distribution Channels

Most businesses use third parties or intermediaries to bring their products to market. They try to forge a "distribution channel" which can be defined as

"all the organisations through which a product must pass between its point of production and consumption"

Why does a business give the job of selling its products to intermediaries? After all, using intermediaries means giving up some control over how products are sold and who they are sold to.

The answer lies in efficiency of distribution costs. Intermediaries are specialists in selling. They have the contacts, experience and scale of operation which means that greater sales can be achieved than if the producing business tried run a sales operation itself.

Functions of a Distribution Channel

The main function of a distribution channel is to provide a link between production and consumption. Organisations that form any particular distribution channel perform many key functions:

Information	Gathering and distributing market research and intelligence - important for marketing planning
Promotion	Developing and spreading communications about offers
Contact	Finding and communicating with prospective buyers
Matching	Adjusting the offer to fit a buyer's needs, including grading, assembling and packaging
Negotiation	Reaching agreement on price and other terms of the offer
Physical distribution	Transporting and storing goods
Financing	Acquiring and using funds to cover the costs of the distribution channel
Risk taking	Assuming some commercial risks by operating the channel (e.g. holding stock)

All of the above functions need to be undertaken in any market. The question is - who performs them and how many levels there need to be in the distribution channel in order to make it cost effective.

Numbers of Distribution Channel Levels

Each layer of marketing intermediaries that performs some work in bringing the product to its final buyer is a "channel level". The figure below shows some examples of channel levels for consumer marketing channels:

In the figure above, Channel 1 is called a "direct-marketing" channel, since it has no intermediary levels. In this case the manufacturer sells directly to customers. An example of a direct marketing channel would be a factory outlet store. Many holiday companies also market direct to consumers, bypassing a traditional retail intermediary - the travel agent.

The remaining channels are "indirect-marketing channels".

Channel 2 contains one intermediary. In consumer markets, this is typically a retailer. The consumer electrical goods market in the UK is typical of this arrangement whereby producers such as Sony, Panasonic, Canon etc. sell their goods directly to large retailers such as Comet, Dixons and Currys which then sell the goods to the final consumers.

Channel 3 contains two intermediary levels - a wholesaler and a retailer. A wholesaler typically buys and stores large quantities of several producers goods and then breaks into the bulk deliveries to supply retailers with smaller quantities. For small retailers with limited order quantities, the use of wholesalers makes economic sense. This arrangement tends to work best where the retail channel is fragmented - i.e. not dominated by a small number of large, powerful retailers who have an incentive to cut out the wholesaler. A good example of this channel arrangement in the UK is the distribution of drugs.

http://www.tutor2u.net/business/marketing/distribution_introduction.asp

distribution - channel strategy

The following table describes the factors that influence the choice of distribution channel by a business:

Influence	Comments
Market factors	An important market factor is "buyer behaviour"; how do buyer's want to purchase the product? Do they prefer to buy from retailers, locally, via mail order or perhaps over the Internet? Another important factor is buyer needs for product information, installation and servicing. Which channels are best served to provide the customer with the information they need before buying? Does the product need specific technical assistance either to install or service a product? Intermediaries are often best placed to provide servicing rather than the original producer - for example in the case of motor cars. The willingness of channel intermediaries to market product is also a factor. Retailers in particular invest heavily in properties, shop fitting etc. They may decide not to support a particular product if it requires too much investment (e.g. training, display equipment, warehousing). Another important factor is intermediary cost. Intermediaries typically charge a "mark-up" or "commission" for participating in the channel. This might be deemed unacceptably high for the ultimate producer business.
Producer factors	A key question is whether the producer have the resources to perform the functions of the channel? For example a producer may not have the resources to recruit, train and equip a sales team. If so, the only option may be to use agents and/or other distributors. Producers may also feel that they do not possess the customer-based skills to distribute their products. Many channel intermediaries focus heavily on the customer interface as a way of creating competitive advantage and cementing the relationship with their supplying producers. Another factor is the extent to which producers want to maintain control over how, to whom and at what price a product is sold. If a manufacturer sells via a retailer, they effective lose control over the final consumer price, since the retailer sets the price and any relevant discounts or promotional offers. Similarly, there is no guarantee for a producer that their product/(s) are actually been stocked by the retailer. Direct distribution gives a producer much more control over these issues.
Product factors	Large complex products are often supplied direct to customers (e.g. complex medical equipment sold to hospitals). By contrast perishable products (such as frozen food, meat, bread) require relatively short distribution channels - ideally suited to using intermediaries such as retailers.

Distribution Intensity

There are three broad options - intensive, selective and exclusive distribution:

Intensive distribution aims to provide saturation coverage of the market by using all available outlets. For many products, total sales are directly linked to the number of outlets used (e.g. cigarettes, beer). Intensive distribution is usually required where customers have a range of acceptable brands to chose from. In other words, if one brand is not available, a customer will simply choose another.

Selective distribution involves a producer using a limited number of outlets in a geographical area to sell products. An advantage of this approach is that the producer can choose the most appropriate or best-performing outlets and focus effort (e.g. training) on them. Selective distribution works best when consumers are prepared to "shop around" - in other words - they have a preference for a particular brand or price and will search out the outlets that supply.

Exclusive distribution is an extreme form of selective distribution in which only one wholesaler, retailer or distributor is used in a specific geographical area

http://www.tutor2u.net/business/marketing/distribution_channel_strategy.asp

distribution - types of distribution intermediary

Introduction

There is a variety of intermediaries that may get involved before a product gets from the original producer to the final user. These are described briefly below:

Retailers

Retailers operate outlets that trade directly with household customers. Retailers can be classified in several ways:

• Type of goods being sold( e.g. clothes, grocery, furniture)
• Type of service (e.g. self-service, counter-service)
• Size (e.g. corner shop; superstore)
• Ownership (e.g. privately-owned independent; public-quoted retail group
• Location (e.g. rural, city-centre, out-of-town)
• Brand (e.g. nationwide retail brands; local one-shop name)

Wholesalers

Wholesalers stock a range of products from several producers. The role of the wholesaler is to sell onto retailers. Wholesalers usually specialise in particular products.

Distributors and dealers

Distributors or dealers have a similar role to wholesalers – that of taking products from producers and selling them on. However, they often sell onto the end customer rather than a retailer. They also usually have a much narrower product range. Distributors and dealers are often involved in providing after-sales service.

Franchises

Franchises are independent businesses that operate a branded product (usually a service) in exchange for a licence fee and a share of sales.

Agents

Agents sell the products and services of producers in return for a commission (a percentage of the sales revenues)

http://www.tutor2u.net/business/marketing/distribution_intermediaries.asp

buyer behaviour - introduction

Introduction

An important part of the marketing process is to understand why a customer or buyer makes a purchase.

Without such an understanding, businesses find it hard to respond to the customer’s needs and wants.

Marketing theory traditionally splits analysis of buyer or customer behaviour into two broad groups for analysis – Consumer Buyers and Industrial Buyers

Consumer buyers are those who purchase items for their personal consumption

Industrial buyers are those who purchase items on behalf of their business or organisation

Businesses now spend considerable sums trying to learn about what makes “customers tick”. The questions they try to understand are:

• Who buys?
• How do they buy?
• When do they buy?
• Where do they buy?
• Why do they buy?

For a marketing manager, the challenge is to understand how customers might respond to the different elements of the marketing mix that are presented to them.

If management can understand these customer responses better than the competition, then it is a potentially significant source of competitive advantage.

http://www.tutor2u.net/business/marketing/buying_introduction.asp

buyer behaviour - cultural factors

Cultural factors have a significant impact on customer behaviour.

Culture is the most basic cause of a person’s wants and behaviour. Growing up, children learn basic values, perception and wants from the family and other important groups.

Marketing are always trying to spot “cultural shifts” which might point to new products that might be wanted by customers or to increased demand. For example, the cultural shift towards greater concern about health and fitness has created opportunities (and now industries) servicing customers who wish to buy:

• Low calorie foods
• Health club memberships
• Exercise equipment
• Activity or health-related holidays etc.

Similarly the increased desire for “leisure time” has resulted in increased demand for convenience products and services such as microwave ovens, ready meals and direct marketing service businesses such as telephone banking and insurance.

Each culture contains “sub-cultures” – groups of people with share values. Sub-cultures can include nationalities, religions, racial groups, or groups of people sharing the same geographical location. Sometimes a sub-culture will create a substantial and distinctive market segment of its own.

For example, the “youth culture” or “club culture” has quite distinct values and buying characteristics from the much older “gray generation”

Similarly, differences in social class can create customer groups. In fact, the official six social classes in the UK are widely used to profile and predict different customer behaviour. In the UK’s socioeconomic classification scheme, social class is not just determined by income. It is measured as a combination of occupation, income, education, wealth and other variables:

Class name	Social Status	Occupational Head of Household	% of UK Population
A	Upper middle	Higher managerial, administrative or professional	3
B	Middle	Intermediate managerial, administrative or professional	14
C1	Lower middle	Superiors or clerical, junior managerial, administrative or professional	27
C2	Skilled working	Skilled manual workers	25
D	Working	Semi-skilled and un-skilled manual workers	19
E	Those at lowest level of subsistence	State pensioners or widows, casual or lower-grade workers	12

http://www.tutor2u.net/business/marketing/buying_cultural_factors.asp

buyer behaviour - social factors

Introduction

A customer’s buying behaviour is also influenced by social factors, such as the groups to which the customer belongs and social status.

In a group, several individuals may interact to influence the purchase decision. The typical roles in such a group decision can be summarised as follows:

Initiator

The person who first suggests or thinks of the idea of buying a particular product or service

Influencer

A person whose view or advice influences the buying decision

Decider

The individual with the power and/or financial authority to make the ultimate choice regarding which product to buy

Buyer

The person who concludes the transaction

User

The person (or persons) who actually uses the product or service

The family unit is usually considered to be the most important “buying” organisation in society. It has been researched extensively. Marketers are particularly interested in the roles and relative influence of the husband, wife and children on the purchase of a large variety of products and services.

There is evidence that the traditional husband-wife buying roles are changing. Almost everywhere in the world, the wife is traditionally the main buyer for the family, especially in the areas of food, household products and clothing. However, with increasing numbers of women in full-time work and many men becoming “home workers” (or “telecommuting”) the traditional roles are reversing.

The challenge for a marketer is to understand how this might affect demand for products and services and how the promotional mix needs to be changed to attract male rather than female buyers.

http://www.tutor2u.net/business/marketing/buying_social_factors.asp

buyer behaviour - decision-making process

How do customers buy?

Research suggests that customers go through a five-stage decision-making process in any purchase. This is summarised in the diagram below:

This model is important for anyone making marketing decisions. It forces the marketer to consider the whole buying process rather than just the purchase decision (when it may be too late for a business to influence the choice!)

The model implies that customers pass through all stages in every purchase. However, in more routine purchases, customers often skip or reverse some of the stages.

For example, a student buying a favourite hamburger would recognise the need (hunger) and go right to the purchase decision, skipping information search and evaluation. However, the model is very useful when it comes to understanding any purchase that requires some thought and deliberation.

The buying process starts with need recognition. At this stage, the buyer recognises a problem or need (e.g. I am hungry, we need a new sofa, I have a headache) or responds to a marketing stimulus (e.g. you pass Starbucks and are attracted by the aroma of coffee and chocolate muffins).

An “aroused” customer then needs to decide how much information (if any) is required. If the need is strong and there is a product or service that meets the need close to hand, then a purchase decision is likely to be made there and then. If not, then the process of information search begins.

A customer can obtain information from several sources:

• Personal sources: family, friends, neighbours etc
• Commercial sources: advertising; salespeople; retailers; dealers; packaging; point-of-sale displays
• Public sources: newspapers, radio, television, consumer organisations; specialist magazines
• Experiential sources: handling, examining, using the product

The usefulness and influence of these sources of information will vary by product and by customer. Research suggests that customers value and respect personal sources more than commercial sources (the influence of “word of mouth”). The challenge for the marketing team is to identify which information sources are most influential in their target markets.

In the evaluation stage, the customer must choose between the alternative brands, products and services.

How does the customer use the information obtained?

An important determinant of the extent of evaluation is whether the customer feels “involved” in the product. By involvement, we mean the degree of perceived relevance and personal importance that accompanies the choice.

Where a purchase is “highly involving”, the customer is likely to carry out extensive evaluation.

High-involvement purchases include those involving high expenditure or personal risk – for example buying a house, a car or making investments.

Low involvement purchases (e.g. buying a soft drink, choosing some breakfast cereals in the supermarket) have very simple evaluation processes.

Why should a marketer need to understand the customer evaluation process?

The answer lies in the kind of information that the marketing team needs to provide customers in different buying situations.

In high-involvement decisions, the marketer needs to provide a good deal of information about the positive consequences of buying. The sales force may need to stress the important attributes of the product, the advantages compared with the competition; and maybe even encourage “trial” or “sampling” of the product in the hope of securing the sale.

Post-purchase evaluation - Cognitive Dissonance

The final stage is the post-purchase evaluation of the decision. It is common for customers to experience concerns after making a purchase decision. This arises from a concept that is known as “cognitive dissonance”. The customer, having bought a product, may feel that an alternative would have been preferable. In these circumstances that customer will not repurchase immediately, but is likely to switch brands next time.

To manage the post-purchase stage, it is the job of the marketing team to persuade the potential customer that the product will satisfy his or her needs. Then after having made a purchase, the customer should be encouraged that he or she has made the right decision.

http://www.tutor2u.net/business/marketing/buying_decision_process.asp

buyer behaviour - new products

Customer buying process for new products

How do customers approach the process of buying a new product? How does this differ from the process for buying a product which the customer has bought before? What is meant by a “new product”?

A new product can be defined as:

"A good, service or idea that is “perceived” by some potential customers as new. It may have been available for some time, but many potential customers have not yet adopted the product nor decided to become a regular user of the product"

Research suggests that customers go through five stages in the process of adopting a new product or service: these are summarised below:

(1) Awareness - the customer becomes aware of the new product, but lacks information about it

(2) Interest - the customer seeks information about the new product

(3) Evaluation - the customer considers whether trying the new product makes sense

(4) Trial - the customer tries the new product on a limited or small scale to assess the value of the product

(5) Adoption - the customer decides to make full and/or regular use of the new product

What is the role of marketing in the process of new-product adoption?

A marketing team looking to successfully introduce a new product or service should think about how to help customers move through the five stages.

For example, what kind of advertising or other promotional campaign can be employed to build customer awareness? If customers show a desire to trial or sample a product, how can this be arranged effectively?

Research also suggests that customers can be divided into groups according to the speed with which they adopt new products.

Rogers, in his influential work on the diffusion of innovations, suggested the following classification:

The “innovators” (those who adopt new products first) are usually relatively young, lively, intelligent, socially and geographically mobile. They are often of a high socioeconomic group (“AB’s”). Conversely, the “laggards” (those who adopt last, if at all) tend to be older, less intelligent, less well-off and lower on the socioeconomic scale.

It follows from the above model that when a business launches a new product or service, the customers who buy first are likely to be significantly different from those who buy the product much later. This needs to be borne in mind when developing the marketing mix.

http://www.tutor2u.net/business/marketing/buying_new_products.asp

buyer behaviour - stimulus-response model

Introduction

A well-developed and tested model of buyer behaviour is known as the stimulus-response model, which is summarised in the diagram below:

In the above model, marketing and other stimuli enter the customers “black box” and produce certain responses.

Marketing management must try to work out what goes on the in the mind of the customer – the “black box”.

The Buyer’s characteristics influence how he or she perceives the stimuli; the decision-making process determines what buying behaviour is undertaken.

Characteristics that affect customer behaviour

The first stage of understanding buyer behaviour is to focus on the factors that determine he “buyer characteristics” in the “black box”. These can be summarised as follows:

Each of these factors is discussed in more detail in our other revision notes on buyer behaviou

http://www.tutor2u.net/business/marketing/buying_stimulus_model.asp

brands - introduction

Introduction to brands

Take a look at the list below that shows the world’s top 10 brands in 2002 (as measured by value):
{Rank Brand Value ($ billions)}

1 Coca-Cola ($69.6)
2 Microsoft ($64.1)
3 IBM ($51.2)
4 GE ($41.3)
5 Intel ($30.9)
6 Nokia ($30.0)
7 Disney ($29.3)
8 McDonalds ($26.4)
9 Marlboro ($24.2)
10 Mercedes ($21.0)
Source: Interbrand; JP Morgan Chase, 2002

Why do companies such as Coca-Cola, Microsoft, IBM and Disney seem to achieve global marketing success so easily? Why does it seem such an effort for others?

Why do we, as consumers, feel loyal to such brands that the mere sight of their logo has us reaching into our pockets to buy their products?

The meaning of brands

Brands are a means of differentiating a company’s products and services from those of its competitors.

There is plenty of evidence to prove that customers will pay a substantial price premium for a good brand and remain loyal to that brand. It is important, therefore, to understand what brands are and why they are important.

Macdonald sums this up nicely in the following quote emphasising the importance of brands:

“…it is not factories that make profits, but relationships with customers, and it is company and brand names which secure those relationships”

Businesses that invest in and sustain leading brands prosper whereas those that fail are left to fight for the lower profits available in commodity markets.

What is a brand?

One definition of a brand is as follows:

“A name, term, sign, symbol or design, or a combination of these, that is intended to identify the goods and services of one business or group of businesses and to differentiate them from those of competitors”.

Interbrand - a leading branding consultancy - define a brand in this way:

“A mixture of tangible and intangible attributes symbolised in a trademark, which, if properly managed, creates influence and generates value”.

Three other important terms relating to brands should be defined at this stage:

Brand equity

“Brand equity” refers to the value of a brand. Brand equity is based on the extent to which the brand has high brand loyalty, name awareness, perceived quality and strong product associations. Brand equity also includes other “intangible” assets such as patents, trademarks and channel relationships.

Brand image

“Brand image” refers to the set of beliefs that customers hold about a particular brand. These are important to develop well since a negative brand image can be very difficult to shake off.

Brand extension

“Brand extension” refers to the use of a successful brand name to launch a new or modified product in a new market. Virgin is perhaps the best example of how brand extension can be applied into quite diverse and distinct markets.

Brands and products

Brands are rarely developed in isolation. They normally fall within a business’ product line or product group.

A product line is a group of brands that are closely related in terms of their functions and the benefits they provide. A good example would be the range of desktop and laptop computers manufactured by Dell.

A product mix relates to the total set of brands marketed by a business. A product mix could, therefore, contain several or many product lines. The width of the product mix can be measured by the number of product lines that a business offers.

For a good example, visit the web site of Hewlett-Packard (“HP”). HP has a broad product mix that covers many segments of the personal and business computing market. How many separate product lines can you spot from their web site?

Managing brands is a key part of the product strategy of any business, particularly those operating in highly competitive consumer markets.

http://www.tutor2u.net/business/marketing/brands_introduction.asp

brands - building a brand

What factors are important in building brand value?

Professor David Jobber identifies seven main factors in building successful brands, as illustrated in the diagram below:

Quality

Quality is a vital ingredient of a good brand. Remember the “core benefits” – the things consumers expect. These must be delivered well, consistently. The branded washing machine that leaks, or the training shoe that often falls apart when wet will never develop brand equity.

Research confirms that, statistically, higher quality brands achieve a higher market share and higher profitability that their inferior competitors.

Positioning

Positioning is about the position a brand occupies in a market in the minds of consumers. Strong brands have a clear, often unique position in the target market.

Positioning can be achieved through several means, including brand name, image, service standards, product guarantees, packaging and the way in which it is delivered. In fact, successful positioning usually requires a combination of these things.

Repositioning

Repositioning occurs when a brand tries to change its market position to reflect a change in consumer’s tastes. This is often required when a brand has become tired, perhaps because its original market has matured or has gone into decline.

The repositioning of the Lucozade brand from a sweet drink for children to a leading sports drink is one example. Another would be the changing styles of entertainers with above-average longevity such as Kylie Minogue and Cliff Richard.

Communications

Communications also play a key role in building a successful brand. We suggested that brand positioning is essentially about customer perceptions – with the objective to build a clearly defined position in the minds of the target audience.

All elements of the promotional mix need to be used to develop and sustain customer perceptions. Initially, the challenge is to build awareness, then to develop the brand personality and reinforce the perception.

First-mover advantage

Business strategists often talk about first-mover advantage. In terms of brand development, by “first-mover” they mean that it is possible for the first successful brand in a market to create a clear positioning in the minds of target customers before the competition enters the market. There is plenty of evidence to support this.

Think of some leading consumer product brands like Gillette, Coca Cola and Sellotape that, in many ways, defined the markets they operate in and continue to lead. However, being first into a market does not necessarily guarantee long-term success. Competitors – drawn to the high growth and profit potential demonstrated by the “market-mover” – will enter the market and copy the best elements of the leader’s brand (a good example is the way that Body Shop developed the “ethical” personal care market but were soon facing stiff competition from the major high street cosmetics retailers.

Long-term perspective

This leads onto another important factor in brand-building: the need to invest in the brand over the long-term. Building customer awareness, communicating the brand’s message and creating customer loyalty takes time. This means that management must “invest” in a brand, perhaps at the expense of short-term profitability.

Internal marketing

Finally, management should ensure that the brand is marketed “internally” as well as externally. By this we mean that the whole business should understand the brand values and positioning. This is particularly important in service businesses where a critical part of the brand value is the type and quality of service that a customer receives.

Think of the brands that you value in the restaurant, hotel and retail sectors. It is likely that your favourite brands invest heavily in staff training so that the face-to-face contact that you have with the brand helps secure your loyalty.

http://www.tutor2u.net/business/marketing/brands_building_brands.asp

brands - brand positioning

Brand positioning

As we have argued in our other revision notes on branding, it is the “added value” or augmented elements that determine a brand’s positioning in the market place.

Positioning can be defined as follows:

Positioning is how a product appears in relation to other products in the market

Brands can be positioned against competing brands on a perceptual map.

A perceptual map defines the market in terms of the way buyers perceive key characteristics of competing products.

The basic perceptual map that buyers use maps products in terms of their price and quality, as illustrated below:

http://www.tutor2u.net/business/marketing/brands_positioning.asp