V CONTENTS IN BRIEF 1 pa rt 1 M ODE R N M A R K E T I N G CHAPTER 1 The field of marketing 2 CHAPTER 2 The marketing environment 38 CHAPTER 3 Gathering marketing information 76 113 pa rt 2 u n d e r s ta n d i n g m a r k e t s CHAPTER 4 Market segmentation and targeting 114 CHAPTER 5 Understanding the consumer market 152 CHAPTER 6 Understanding the business market 200 The international market 231 APPENDIX A 237 pa rt 3 T H E M A R K E T I N G M I X Product planning and development 238 CHAPTER 8 Product-management strategies 276 CHAPTER 9 Services marketing strategies 312 CHAPTER 10 Pricing strategies 346 CHAPTER 11 Distribution strategies 388 APPENDIX B Retailing and wholesaling 417 CHAPTER 12 The promotional program 436 APPENDIX C Marketing planning models APPENDIX D Measuring marketing programs ge s CHAPTER 7 pa 496 e 525 pl Glossary 563 sa m index 550 rix87006_fm_i-xxii.indd v 6/3/10 11:08 AM VI CONTENTS IN FULL About the author xii E-student xvi Preface xiii E-instructor xvii Acknowledgments xiv What’s new xviii Competency grid xv Text at a glance PA RT 1 MODERN MARKETING 1 CHAPTER 1 THE FIELD OF MARKETING 2 What is marketing? 4 The development of marketing 7 3 CHAPTER REVIEW 32 EXERCISES AND PROBLEMS 34 KEY TERMS AND CONCEPTS 35 THE CAMPAIGN TRAIL: CLOSING CASE 36 CHAPTER 2 The marketing approach versus the sales approach 10 The marketing concept 11 Marketing in the digital era 13 Criticisms of marketing 20 The marketing plan 22 Marketing plans in practice 25 THE MARKETING ENVIRONMENT 38 ge THE CAMPAIGN TRAIL: SPINBRUSH Your changing world: Are you prepared? THE CAMPAIGN TRAIL: NATIONAL PRESCRIBING SERVICE 39 CHAPTER REVIEW 71 The external micro-environment EXERCISES AND PROBLEMS 72 The internal environment KEY TERMS AND CONCEPTS 73 The elements of the marketing environment THE CAMPAIGN TRAIL: CLOSING CASE 74 s xx 40 46 pa The external macro-environment 65 70 sa m pl e 68 rix87006_fm_i-xxii.indd vi 6/3/10 11:08 AM VII CHAPTER 3 THE CAMPAIGN TRAIL: THE SUPERCAR CLUB 77 CHAPTER REVIEW 108 EXERCISES AND PROBLEMS 110 GATHERING MARKETING INFORMATION 76 The need for marketing information 78 Defining marketing research 80 Marketing research projects 86 105 Where to get help with marketing research 107 PA RT 2 U N D E R S TA N D I N G M A R K E T S 113 CHAPTER 4 MARKET SEGMENTATION AND TARGETING 114 Market segmentation 116 How to segment a market effectively 119 Bases (or dimensions) for segmenting markets 121 Target-market strategies 132 Positioning 138 Forecasting market demand 144 THE CAMPAIGN TRAIL: 115 INCU LAUNCHES OPENING CEREMONY CHAPTER REVIEW 147 EXERCISES AND PROBLEMS 148 KEY TERMS AND CONCEPTS 149 sa m pl e pa THE CAMPAIGN TRAIL: CLOSING CASE 150 ge THE CAMPAIGN TRAIL: CLOSING CASE 112 s Marketing research in small businesses KEY TERMS AND CONCEPTS 111 rix87006_fm_i-xxii.indd vii 6/3/10 11:08 AM THE CAMPAIGN TRAIL: 153 CELESTIAL SEASONINGS CHAPTER REVIEW 194 EXERCISES AND PROBLEMS 197 KEY TERMS AND CONCEPTS 198 THE CAMPAIGN TRAIL: CLOSING CASE 199 CHAPTER 6 THE CAMPAIGN TRAIL: 201 SPOS LAUNCHES ICANDY CHAPTER REVIEW 227 EXERCISES AND PROBLEMS 229 KEY TERMS AND CONCEPTS 229 Understanding consumers 154 Population distribution and composition 154 Consumer demographics 157 Consumer income and its distribution 166 Consumer decision making 169 The buying-decision process 170 Information and purchase decisions 175 Social influences on consumer purchasing 176 Psychological influences 183 Situational influences 191 UNDERSTANDING THE BUSINESS MARKET 200 What is the business market? 202 The characteristics of demand in the business market 205 Influences on demand (sales) in business markets 210 The importance of relationships in business markets 222 Appendix A The international market 231 sa m pl e pa THE CAMPAIGN TRAIL: CLOSING CASE 230 152 ge CHAPTER 5 UNDERSTANDING THE CONSUMER MARKET s VIII rix87006_fm_i-xxii.indd viii 6/3/10 11:08 AM IX THE MARKETING MIX 237 CHAPTER 7 PRODUCT PLANNING AND DEVELOPMENT 238 The meaning of ‘product’ 240 Classifications of products 242 The importance of product innovation 252 The development of new products 252 A new-product strategy 254 New-product adoption and diffusion 260 Product life cycle 263 PRODUCT-MANAGEMENT STRATEGIES 276 Product management 278 Managing a product range 278 Presenting products to customers 283 Branding 283 Brand strategies 288 CHAPTER REVIEW 272 EXERCISES AND PROBLEMS 273 KEY TERMS AND CONCEPTS 274 THE CAMPAIGN TRAIL: CLOSING CASE 275 CHAPTER 8 THE CAMPAIGN TRAIL: 277 SHADY DESIGNS CHAPTER REVIEW 308 EXERCISES AND PROBLEMS 310 KEY TERMS AND CONCEPTS 310 THE CAMPAIGN TRAIL: CLOSING CASE 311 ge THE CAMPAIGN TRAIL: 239 CARMELA CERRONE COLLECTION s PA RT 3 Types of brands 290 295 pa Packaging Other product features 302 307 sa m pl e Support services rix87006_fm_i-xxii.indd ix 6/3/10 11:08 AM X CHAPTER 9 THE CAMPAIGN TRAIL: 313 PAYPAL CHAPTER REVIEW 342 EXERCISES AND PROBLEMS 343 KEY TERMS AND CONCEPTS 343 SERVICES MARKETING STRATEGIES 312 What are services? 314 The characteristics of services 317 Marketing strategies for services 322 The not-for-profit market 339 PRICING STRATEGIES 346 The meaning of ‘price’ 348 Stage 1: Set a pricing goal 350 Stage 2: Consider costs, demand and competitors 352 Stage 3: Set the base price 360 Stage 4: Adjust the base price 370 DISTRIBUTION STRATEGIES 388 THE CAMPAIGN TRAIL: CLOSING CASE 344 CHAPTER 10 THE CAMPAIGN TRAIL: 347 RESTAURANT 2060 CHAPTER REVIEW 384 EXERCISES AND PROBLEMS 385 KEY TERMS AND CONCEPTS 386 THE CAMPAIGN TRAIL: CLOSING CASE 387 KEY TERMS AND CONCEPTS 415 THE CAMPAIGN TRAIL: CLOSING CASE 416 393 pa Designing distribution channels Step 1: Decide on the role distribution within the mix 394 Step 2: Select the channel type 394 Step 3: Set the level of distribution intensity e EXERCISES AND PROBLEMS 415 390 Step 4: Work with channel members 407 410 417 sa Appendix B Retailing and wholesaling pl CHAPTER REVIEW 414 The role and functions of distribution m THE CAMPAIGN TRAIL: 389 THE FRESH + FAST COOKBOOK ge s CHAPTER 11 rix87006_fm_i-xxii.indd x 6/3/10 11:08 AM XI CHAPTER 12 THE CAMPAIGN TRAIL: 437 JODIE MCGREGOR FLOWERS CHAPTER REVIEW 489 EXERCISES AND PROBLEMS 492 KEY TERMS AND CONCEPTS 492 436 What is promotion? 438 Promotion is communication 440 What forms of promotion should we use? 445 Choosing a push or pull strategy 448 Planning a promotional campaign 450 How much should we spend on promotion? 451 The regulation of promotion 454 Managing the promotion mix 455 Appendix C Marketing planning models 496 Appendix D Measuring marketing programs 525 Glossary 550 Index 563 sa m pl e pa ge s THE CAMPAIGN TRAIL: CLOSING CASE 495 THE PROMOTIONAL PROGRAM rix87006_fm_i-xxii.indd xi 6/3/10 11:08 AM XII ABOUT THE AUTHOR Peter Rix has marketed a diverse range of marketleader goods and services in Australia and South-East Asia. His marketing experience ranges from food lines in Australia to wines and spirits in Hong Kong, and from outdoor challenge courses to childcare services in Australia. Peter has undertaken sales, marketing, management and consulting roles for companies such as CSR, Edgell-Birds Eye, Wattyl, Zurich Investment Management, NSW Valuer General’s Department, Windsor Farm Foods, Australian Timber Shutters and many others. Today, he combines his writing and teaching with business interests in the childcare, food processing and outdoor education industries. Peter has also taught and written extensively in the marketing, customer relationship management and sales fields. His involvement with Vocational Education and Training extends over thirty years in both the public and private systems. His aim has been to demystify marketing. ‘There are certain concepts underpinning the practice of marketing’, he says, ‘but they are largely based on common sense responses to human behaviour. I have always questioned overly theoretical approaches to our discipline.’ Peter Rix has two clear goals for readers of his texts: firstly, to encourage the customer-focused mindset that is the basis of all good marketing; secondly, to demonstrate through repeated and varied practical examples how marketing is sa m pl e pa ge s actually carried out. rix87006_fm_i-xxii.indd xii 6/3/10 11:08 AM XIII PREFACE teachers and students to contribute their comments, examples, cases and questions on marketing as it is actually practised. In pursuit of the aim of demystifying marketing, we have also worked hard to further clarify explanations of marketing concepts and principles included in the text. In the workplace, young marketers are expected to be clear and succinct in presenting their analyses of market or competitive situations and their proposed strategies for responding to these; they have a right to expect the same straightforward communication from their textbook. Perhaps the most important of all marketing adages is ‘Do one thing well’. In this edition we have refocused our attention on this goal. The twelve chapters each take students through the essential learning fields of a practical introductory marketing course. Four appendixes then offer additional material for those who wish to extend themselves beyond the fundamentals. I welcome your feedback, comments and suggestions through this forum. Visit www.mhhe.com/au/rix7e for more information. Peter Rix sa m pl e pa ge s I regularly hear employers commenting that young marketing graduates are often great on theory but unable to perform marketing tasks in practice. Marketing is first of all a business philosophy, but the fundamental idea behind marketing has to be effectively implemented if it is to achieve organisational goals. Over many years McGraw-Hill and I have branded this textbook Marketing: A Practical Approach for a very good reason. We are determined that every explanation of a marketing term and practice, every illustrative photograph or diagram, every review question or activity, will genuinely help students develop practical marketing knowledge and skills. Yes, there are theoretical concepts in marketing that students should be familiar with, but more importantly they need to learn how marketing is done in the field. With this seventh edition we have taken that commitment several steps further. First, over fifty separate practical demonstrations of real marketing action are included through the Marketing on the street and the new Marketing up close features. Second, each chapter is topped and tailed by a marketing practitioner outlining an actual marketing campaign. And third, The Online Learning Centre associated with the book invites rix87006_fm_i-xxii.indd xiii 6/3/10 11:09 AM XV COMPETENCY GRID COMPETENCY CHAPTER BSBMKG401B Profile the market 4 BSBMKG402B Analyse consumer behaviour for specific markets 5, 6 BSBMKG408B Conduct market research 3 BSBMKG409A Design direct response offers 12 BSBMKG412A Conduct electronic marketing communications 1, 2, 12 BSBMKG413A Promote products and services 12 BSBMKG414A Undertake marketing activities 3, 4, 7–12 BSBMKG410A Test direct marketing activities Appendix D BSBMKG411A Analyse direct marketing databases Appendix D BSBMKG415A Research international markets 3, Appendix A, Global focus BSBMKG416A Market goods and services internationally Appendix A BSBMKG501B Identify and evaluate marketing opportunities 2, Appendix C BSBMKG502B Establish and adjust the marketing mix 7,8,9,10,11,12 BSBMKG506B Plan market research 3 BSBMKG507A Interpret market trends and developments 2 BSBMKG514A Implement and monitor marketing activities 7–12, Appendix D BSBMKG515A Conduct a marketing audit Appendix D BSBMKG508A Plan direct marketing activities 12, Appendix D BSBMKG509A Implement and monitor direct marketing activities Appendix D BSBMKG510A Plan electronic marketing communications 1, 2, 12 BSBMKG511A Analyse data from international markets Appendix A, D, Global focus BSBMKG512A Forecast international market and business needs Appendix A, D, Global focus CERT IV Core Electives DIPLOMA Core Electives BSBMKG513A Promote products and services to international markets Appendix A, 12 BSBMKG516A Profile international markets Appendix A, Global focus BSBMKG517A Analyse consumer behaviour for specific international markets Appendix A, Global focus BSBMKG603B Manage the marketing process 1, Appendix C, D BSBMKG607B Manage market research 3 BSBMKG608A Develop organisational marketing objectives 1, Appendix C BSBMKG609A Develop a marketing plan 1, Appendix C, D, Marketing plan worksheets ge pa Electives BSBMKG605B Evaluate international marketing opportunities Appendix A, D, Global focus BSBMKG606B Manage international marketing programs Appendix A, C, D, Global focus e Core s ADV DIP sa m pl Please note: This grid refers to competencies within BSB07 and is subject to change. Refer to www.mhhe.com/au/rix7e for updates. rix87006_fm_i-xxii.indd xv 6/3/10 11:09 AM XVI E-STUDENT PowerPoint® slides for students A set of PowerPoint® presentations summarise the key points of each chapter. They can be downloaded as a valuable revision aid. Video interviews These case studies provide a real-world insight into marketing from the perspective of our interviewees. They are ideally suited to enhancing practical skills by drawing together the underlying principles of marketing. Marketing plan worksheets s Marketing plan worksheets are an effective tool. When used with the textbook, they will enable students to create useful marketing plans in a step-by-step process. These worksheets will be available online for students to download. sa m pl e pa ge TH E ONL INE L E A RN I N G C ENTR E TH AT A C C O MPA N I E S TH IS TEX T I S A N I N T E G RAT E D O NL INE PR O D UC T T O A S S I S T Y O U IN G ET T I N G T H E MO S T F R O M Y OU R C O URS E rix87006_fm_i-xxii.indd xvi 6/3/10 11:09 AM XVII E-INSTRUCTOR PowerPoint® slides for instructors Test Bank PowerPoint® presentations summarise the key points of each chapter. PowerPoint presentations on each Campaign trail case study provide for in-class activities and extension assignments. They may be downloaded and adapted to suit individual instructor requirements or distributed to students as lecture notes. A bank of test questions lets instructors build examinations and assessments quickly and easily. The test bank is available in a range of flexible formats; in Microsoft Word, in EZ Test Online or formatted for delivery via Blackboard or WebCT. Artwork Library Marketing up close and Marketing on the street features from the text are available in an online artwork library as digital image files. Instructors thus have the flexibility to use them in the format that best suits their needs. Instructor Resource Manual The instructor resource manual provides chapter summaries, solutions to end of chapter questions and additional quality teaching resources. It saves time for instructors and helps provide consistency across teaching teams. EZ Test Online EZ Test Online is a powerful and easy to use test generator for creating paper or digital tests. It allows easy ‘one click’ export to course management systems such as WebCT and Blackboard, and straightforward integration with Moodle. EZ Test Online gives instructors access to the test banks of this text and a range of others from one point of entry and also permits them to upload or edit their own questions. More information is available via the Online Learning Centre. Video interviews Online Updates These case studies provide a real-world insight into marketing from the perspective of our interviewees. They are ideally suited to enhancing practical skills by drawing together the underlying principles of marketing. s Every six months the Online Learning Centre will feature new material from the author on marketing updates and brand new case studies and photos. e pa ge A s a l ea d in g p u b lis h e r o f e le c troni c m a t e ri a l , M cGra w - Hi l l ha s b e e n p rod ucing a v ar iety o f o nl i n e t o o ls t o a s s is t in c o u rs e - w ork f or m a ny y e a rs . T he Pre m i um cont e n t ar eas, which a re a c c e s s e d b y r e g is t e r in g t h e cod e a t t he f ront of thi s te x t , p rovi d e y ou with excellent o nl i ne r e s o u r c e s . sa m pl www. m h h e . c o m / a u/ ri x 7e rix87006_fm_i-xxii.indd xvii 6/3/10 11:09 AM XVIII W H AT ’S N E W ? This table highlights the key content changes in each chapter of the seventh edition of Marketing: A Practical Approach. The new edition has been revised to reflect the ever-changing marketing environment and the needs of the VET curriculum. PART 1 MODERN MARKETING CHAPTER 1 THE FIELD OF MARKETING • Establishes the fundamental marketing principle of customer focus and identifies the role of modern marketing in the twenty-first century world of business (both large and small), government and not-for-profit organisations. • Introduces today’s consumer who wants to be ‘involved,’ not merely marketed to. • Identifies new or increasingly important fields such as social media and customer relationship management, global marketing, marketing integration and the use of communications technologies. CHAPTER 2 THE MARKETING ENVIRONMENT • Identifies the major trends impacting on organisations, including the importance of China and other regional markets, the global financial crisis and resultant instability, fast-changing consumer behaviours and market fragmentation, and the effect and use of new technologies. • Highlights the need for marketers to adapt strategies for the digital age environment, including social network trawling, website strategies such as search engine optimisation, and the need for customer engagement through interactive marketing. GATHERING MARKETING INFORMATION • Maintains the role of fast, accurate, relevant information as critical to informed marketing decision making. • Highlights new sources and channels of data gathering, especially digital sources such as online, SMS and Bluetooth. PART 2 UNDERSTANDING MARKETS CHAPTER 4 MARKET SEGMENTATION AND TARGETING • Identifies increasing market fragmentation in today’s marketing environment, highlighting the need for effective segmentation. • Clearly demonstrates how to conduct a segmentation study. s CHAPTER 3 UNDERSTANDING THE CONSUMER MARKET • Traces the characteristics and behaviour patterns of today’s new consumers as they work through purchase decisions, highlighting the influences on consumers and the changes these influences are bringing. pa CHAPTER 5 ge • Identifies behavioural segments such as internet or mobile phone usage. UNDERSTANDING THE BUSINESS MARKET • Provides a close examination of the B2B market: its attributes, motivations and purchase behaviours. pl CHAPTER 6 e • Clearly identifies the increasingly age-fragmented consumer markets, especially in younger and older age groups. sa m • Provides extended coverage of B2B relationship marketing strategies: winning business trust and building barriers to entry and exit. rix87006_fm_i-xxii.indd xviii 6/3/10 11:09 AM XIX APPENDIX A THE INTERNATIONAL • Provides an introduction to the strategic opportunities and requirements of the international market. Note that practical insights and tactics for global marketing are MARKET included in the Global focus features throughout the text. PART 3 THE MARKETING MIX CHAPTER 7 PRODUCT PLANNING AND DEVELOPMENT • Begins the examination of the marketing mix, highlighting the interdependence of the elements and the requirements for effective product management. • Examines critical issues of new product development. • Clarifies factors affecting product adoption rates and adopter categories. CHAPTER 8 CHAPTER 9 CHAPTER 10 PRODUCTMANAGEMENT STRATEGIES • Extends the management of physical products into specific strategies, such as ranging, brands, packaging, quality and style. SERVICE MARKETING STRATEGIES • Provides a comprehensive yet concise analysis of services strategies under the headings of the additional three Ps—people, physical evidence and process, including servicescapes and blueprinting. PRICING STRATEGIES • Deals with the practical activities of setting and adjusting prices: economics-based aspects of pricing are condensed, including demand curves and marginal costs. • Provides new insights into contemporary product presentation strategies. • Provides a practical focus for pricing tactics in modern organisations, including the new pricing models for online selling. CHAPTER 11 DISTRIBUTION STRATEGIES • Presents distribution as the means of providing customer access to an organisation’s goods or services. RETAILING AND WHOLESALING • Outlines the structure of the retail and wholesale markets and the evolving requirements of successful retailing, including catalogue and online retailing. CHAPTER 12 THE PROMOTIONAL PROGRAM • Lays out the planned, strategic approach to determining and allocating promotional resources, now giving extended emphasis to customer retention. APPENDIX C MARKETING PLANNING MODELS • Introduces commonly used strategic planning models, clearly demonstrating their purpose and providing analysis and critique of their use in modern market environments. APPENDIX D MEASURING MARKETING PROGRAMS • Provides in-depth, formula-based financial and marketing metrics across a wide range of market, sales and marketing mix elements. sa m pl e pa ge APPENDIX B s • Highlights new methods of achieving convenient access in today’s time-poor marketing environment, including using online and mobile phone as access channels for local and international customers. rix87006_fm_i-xxii.indd xix 6/3/10 11:09 AM XX T E X T AT A G L A N C E The features described on these pages are specially designed to encourage and enhance students’ understanding of and interest in the concepts of marketing in a truly practical and involving way. PART OPENER The text is broken up into three main parts. Each part covers an important element of marketing: • Part 1 Modern marketing • Part 2 Understanding markets • Part 3 The marketing mix Four appendices supplement the main chapter material: A: The international market B: Retail and wholesale markets C: Strategic marketing models D: Measuring marketing programs The detailed appendices cater for those who wish to carry the text though into advanced subjects or who have an interest in these particular areas of learning. MODE R N M A R K E T I NG In Part 1 we will introduce the principle of modern the process that marketers use to manage their marketing programs, investigate trends and changes in the marketing environment and look at how marketers use marketing research to inform and guide their CHAPTER 1 The field of marketing CHAPTER 2 The marketing environment CHAPTER 3 Gathering marketing information decisions. PA RT O N E Understanding Markets the CAMPAIGN TRAIL 1 Chapter One THE FIELD OF M ARKETING Spinbrush LE A R N I N G O B JE C T I VE S Welcome to the study of marketing! You are entering the field at one of the most critical times in its economic crisis) and changes in consumer attitudes and behaviours—are having an enormous influence on the practice of marketing. And yet the fundamental principle of marketing, developed Situation analysis groups of customers better than your competitors. In this chapter you will come to appreciate those • The toothbrush market has three primary types—manual, power (i.e. plug-in) and battery. While the vast majority of Australian consumers currently use a manual brush, in the United States the power and battery segments account for close to half the market. principles and be introduced to the many ways in which marketing practice is changing. • The Australian battery toothbrush market is dominated by two household name brands that Spinbrush would have to compete with to win market share. In the United States, however, the Spinbrush brand is the market leader in the battery segment. After studying this chapter, you should be able to: 1.1 Explain what marketing is, both in a general sense and in a narrower business context. 1.2 Trace the stages of the development of marketing management. 1.3 Distinguish between the marketing and selling approaches to business development. • Clinical research had shown that Spinbrush offered a significantly better teeth-cleaning experience—removing up to 70 per cent more plaque in hard-to-reach places than a manual brush. (Note: this is the core benefit or major customer need the product can satisfy.) • Toothbrushes are sold through supermarkets and pharmacies; retail shelf space in these stores is very crowded and difficult to obtain. • As this was a new brand in a small market segment, the launch budget was not large. 1.4 Explain the marketing concept. Objectives 1.5 Identify recent developments in the practice of marketing. • Win product trial among men and women aged 24–54 who are concerned with the appearance and health of their teeth; offer this target market an attractive opportunity to ‘trade up’ from manual toothbrushes. 1.7 Outline the marketing management process. • Achieve a suitable share of the battery segment of the toothbrush market. ge s What marketing strategies do you feel will achieve these three critical objectives? See page 36 for the campaign developed by Alison Goodall and the Church & Dwight team. CHURCH & DWIGHT • Gain 100 per cent retailer ranging; as with all convenience products, wide distribution was essential. 1.6 Evaluate some of the common criticisms of marketing. MARKETING ON THE STREET MARKETING O ON NT THE H STREET Many different types of businesses practise marketing, from global corporations to local tradespeople. Y RIX pl sa This feature takes students into the ‘down-town’ of marketing campaigns and tactics—from displays to transit advertising, from billboards to street signage. This feature encourages students to observe and assess the many examples of marketing practice they will encounter simply by being out and about. It aims to help students appreciate the wide variety and scale of marketing activities used by large and small organisations. more than fifty years ago, remains largely unchanged; that is, satisfying the needs of specific m MARKETING ON THE STREET ▼ At the beginning of each chapter practising marketers outline situations facing their products or brands that require campaigns to be developed. Sufficient background information is provided to enable students to consider how they would respond. At the end of the chapters the actual campaign developed by the firm is described. These features can be used as class openers, discussion points or expanded into individual or group assignments. pa ▼ history. Right now, three massive forces—digital technology, globalisation (including the 2008/09 As a qualified marketer with fifteen years’ experience with health and beauty brands, Alison Goodall and her team were well equipped to manage the new Spinbrush line her company was looking to introduce to the Australian consumer. Church & Dwight Australia markets well-known brands such as Nair, Dencorub, Pearl Drops, Curash and First ALISON GOODALL Response. The firm has great expertise marketing through the grocery, discount variety and pharmacy distribution channels. First, Alison had to consider vital background information and set several objectives. e 2 JENNY RIX At the start of each chapter the Learning objectives clearly match the competencies of the training package and are highlighted with revision questions in the margins of all chapters. Throughout the text, questions and activities allow students to consider actual marketing strategies and to test themselves against each Learning objective. THE CAMPAIGN TRAIL CONTENTS marketing known as the marketing concept, outline ▼ LEARNING OBJECTIVES Part One rix87006_fm_i-xxii.indd xx 6/3/10 11:09 AM XXI ▼ ? MARKETING UP CLOSE JENNY RIX The campaign to find a new name for Kraft’s Vegemite and cheese snack product is a good example of a firm engaging with its customers to build relationships. MARKETING UP CLOSE Much as an anatomy class allows medical students to see the actual constituent parts of the body, so this new feature brings students in close to consider the detail of logos and brands, packaging and label design, pricing and promotion. Pointers and highlighters give students specific and fast access to critical elements in ads and packs and signs that are the working parts of marketing. E EI ETHICAL INSIGHTS ▼ ETHICAL INSIGHTS Marketers face a constant barrage of criticisms on what might be called ethical issues. In this feature throughout the text we’ll raise many of these questions for you to consider. Note, they are for you to consider. Ultimately, each of us is responsible for our own actions. It is up to you to decide what’s the right thing to do in a given situation. Ethical insights features give students an example of ethical issues relating to the concepts covered in the chapter. Students are then asked to apply critical-thinking skills to consider discussion points relating to each example. Sex in advertising Advertising to children Sharing information with third parties Product quality Product testing Ambush marketing Deceptive packaging MB MARKETING bytes so should marketers be looking at how they can deliver promotional messages in real time to take advantage of this trend? And if so, how? Some marketers are using Bluetooth to reach customers in local geographic spaces such as shopping malls or nightclubs. A problem, however, seems to be that although we expect commercial messages on our TVs, radios and newspapers, we resent getting them on our phones. It may be that these devices are more personal to us and we regard promotional messages as not only annoying but also an invasion of our privacy. Recruiting competitors’ staff Selling under the guise of research MARKETING BYTES This feature provides concise snippets of hot topics in the emerging world of digital and interactive media. Students can assess the marketing uses of social media such as Facebook and Twitter, blogs, viral campaigns, SEO strategies, pay-perclick versus pay-per-result ads, and many more. sa m pl e pa ge s From the Walkman to the iPod to the iPhone and iPad, the trend over the last decade is well known; people want access to music, news and information wherever they are. Many people today spend more time looking at or listening to their mp3 or mobile (or their smart phone, which combines the two devices plus internet access) than they do listening to radio or watching TV. This presents marketers with both a problem and an opportunity. When consumers are out and about they are also likely to be making buying decisions—for snack products, magazines, and entertainment services, for example— ▼ TAKE IT WITH YOU Exaggeration in advertising rix87006_fm_i-xxii.indd xxi CONTINUED ❯ 6/3/10 11:09 AM These feature boxes provide practical information and tips on overseas marketing. They show, for instance, how to tap into the service of Austrade, how to use to FOB or FIS pricing, how to hedge foreign exchange, and how to exchange business cards with a Japanese counterpart. MARKETING STAGE Identify and satisfy targeted customer wants = Success SOCIETAL MARKETING STAGE Satisfy customer wants and community needs = Success Stages in the evolution of marketing as a business approach 32 CHAPTER REVIEW The Chapter review succinctly explains the concepts taught in each chapter. This summary of concise, pointform ‘must know’ material is a useful tool for students revising for exams. l f l Definitions of marketing (p. 4) 6. Using a marketing approach (i.e. seeing business in terms of the benefits provided or wants satisfied), an the question ‘What business are you in?’ for each of following organisations: supply. In the marketing approach, an organisation bends its supply to fit consumer demand. 1. In a general sense, marketing is any exchange activity intended to satisfy human wants. Marketing is practised by individuals, businesses, sports clubs, political parties, charities and many other organisations. The principle of marketing: the marketing concept (p. 11) 1. The marketing concept is a business philosophy that Exercises and problems These are aimed both at testing students’ understanding of concepts and providing them with opportunities to apply the chapter concepts to practical situations. They are used by many teachers as in-class reviews and formative assessments. (a) Radisson Hotels (hospitality) key terms and concepts KEY TERMS AND CONCEPTS cloud computing......................................................18 customer relationship management (CRM) ..................13 customer service ......................................................16 demand ...................................................................4 exchange activity ......................................................4 four Ps (product, pricing, placement and promotion) ..... 29 globalisation...........................................................19 integrated marketing ................................................19 loyalty marketing .....................................................14 marketing concept ...................................................11 marketing controls ...................................................31 marketing management ............................................22 marketing metrics ....................................................31 marketing mix .........................................................20 marketing plan ........................................................34 marketing objectives ................................................27 marketing stage of development (orientation) ................9 mass customisation ..................................................18 mass marketing .......................................................33 needs ......................................................................4 not-for-profit (non-profit) organisations ..........................6 positioning .............................................................28 products ...................................................................4 production stage of development (orientation) ...............7 quality (and marketing) ............................................15 relationship marketing ..............................................13 sales stage of development (orientation) .......................8 services industries....................................................16 situation analysis .....................................................27 social engagement ..................................................13 societal-marketing stage of development (orientation) ...... 9 target markets .........................................................20 viral marketing ........................................................18 wants.......................................................................4 sa m pl e These provide students with page-referenced access to the important terms from the chapter. s 3 both approaches you have observed or encountered illustrate your answer. 5. Describe the planning, implementation and evaluatio steps in the management process and explain how th three steps are connected. ▼ 2. One way of explaining the importance of marketing in our economy is to consider how we would live if there were no marketing activities. Describe some of the ways in which your daily activities would be affected under such a situation. These topic outlines are useful to study for exams. ▼ EXERCISES AND PROBLEMS 1. Marketing has been increasingly used by not-for-profit organisations in recent years. Why do you think this is so? Describe some of the ways in which not-for-profit organisations that you have encountered are engaging in marketing activities. FIGURES ge Chapter review Can Australian products and brands be successful overseas? The international market is highly competitive and often expensive to access, but more than 60 000 Australian firms are now trading internationally, and many of them are SMEs (small and medium-sized enterprises). Why have they taken the Figures are designed to offer enhanced visual ways of helping students understand concepts and models. ▼ SALES STAGE Stronger sales force and better selling techniques = Success ▼ FIGURE 1.1 PRODUCTION STAGE Well-made products at good-value prices = Success GF TAKING AUSTRALIA TO THE WORLD GLOBAL FOCUS pa GLOBAL FOCUS NEWSPIX ▼ XXII rix87006_fm_i-xxii.indd xxii 6/3/10 11:09 AM Part One MODE R N M A R K E T I NG In Part 1 we will introduce the principle of modern CONTENTS marketing known as the marketing concept, outline CHAPTER 1 The field of marketing the process that marketers use to manage their CHAPTER 2 Thema rketinge nvironment s marketing programs, investigate trends and changes in the marketing environment and look at how marketers ge CHAPTER 3 Gatheringm arketing information pa use marketing research to inform and guide their sa m pl e decisions. rix87006_ch01_001-037.indd 1 5/27/10 4:49 PM 2 PA RT O N E Understanding Markets 1 Chapter One THE FIELD OF M ARKETING L EA RN IN G OB J EC T IV ES Welcome to the study of marketing! You are entering the field at one of the most critical times in its history. Right now, three massive forces—digital technology, globalisation (including the 2008/09 economic crisis) and changes in consumer attitudes and behaviours—are having an enormous influence on the practice of marketing. And yet the fundamental principle of marketing, developed more than fifty years ago, remains largely unchanged; that is, satisfying the needs of specific groups of customers better than your competitors. In this chapter you will come to appreciate those principles and be introduced to the many ways in which marketing practice is changing. After studying this chapter, you should be able to: 1.1 Explain what marketing is, both in a general sense and in a narrower business context. 1.2 Trace the stages of the development of marketing management. 1.3 Distinguish between the marketing and selling approaches to business development. 1.4 Explain the marketing concept. 1.5 Identify recent developments in the practice of marketing. ge s 1.6 Evaluate some of the common criticisms of marketing. sa m pl e pa 1.7 Outline the marketing management process. rix87006_ch01_001-037.indd 2 5/27/10 4:50 PM the CAMPAIGN TRAIL JENNY RIX Spinbrush As a qualified marketer with fifteen years’ experience with health and beauty brands, Alison Goodall and her team were well equipped to manage the new Spinbrush line her company was looking to introduce to the Australian consumer. Church & Dwight Australia markets well-known brands such as Nair, Dencorub, Pearl Drops, Curash and First ALISON GOODALL Response. The firm has great expertise marketing through the grocery, discount variety and pharmacy distribution channels. First, Alison had to consider vital background information and set several objectives. Situation analysis • The toothbrush market has three primary types—manual, power (i.e. plug-in) and battery. While the vast majority of Australian consumers currently use a manual brush, in the United States the power and battery segments account for close to half the market. • The Australian battery toothbrush market is dominated by two household name brands that Spinbrush would have to compete with to win market share. In the United States, however, the Spinbrush brand is the market leader in the battery segment. • Clinical research had shown that Spinbrush offered a significantly better teeth-cleaning experience—removing up to 70 per cent more plaque in hard-to-reach places than a manual brush. (Note: this is the core benefit or major customer need the product can satisfy.) • Toothbrushes are sold through supermarkets and pharmacies; retail shelf space in these stores is very crowded and difficult to obtain. • As this was a new brand in a small market segment, the launch budget was not large. s Objectives pa • Win product trial among men and women aged 24–54 who are concerned with the appearance and health of their teeth; offer this target market an attractive opportunity to ‘trade up’ from manual toothbrushes. CHURCH & DWIGHT ge • Gain 100 per cent retailer ranging; as with all convenience products, wide distribution was essential. • Achieve a suitable share of the battery segment of the toothbrush market. sa m pl e What marketing strategies do you feel will achieve these three critical objectives? See page 36 for the campaign developed by Alison Goodall and the Church & Dwight team. rix87006_ch01_001-037.indd 3 5/27/10 4:50 PM 4 PA RT ON E MODERN MARKETING WHAT IS MARKETING? First let’s dispel a common myth. If you are like many people new to marketing, you probably think of it as being advertising, promoting or selling—in other words, persuading people to buy something. Marketers are often singled out for criticism on this basis, even though many others—teachers, doctors, even ministers of religion—also use persuasion. The difference seems to be that we see these other professions as trying to persuade us to think or do something that will be in our best interests. But, in fact, the ethical practice of marketing can make a similar claim. At its simplest level, marketing involves identifying one or more people or organisations who have particular needs or wants, developing goods or services to meet those needs or wants, and then demonstrating how these goods or services meet those needs or wants better than other suppliers’ goods or services can. Once you understand this fundamental aspect you will see marketing as a problemsolving activity, just as you might regard the practice of teaching or medicine. Do some marketers try to persuade people unethically? Yes, as do some teachers, doctors and religious leaders. However, marketing itself has an ethical and extremely valuable role to play in our society, and the vast majority of marketing programs reflect this. So, advertising, promoting and selling are really some of the final steps in a marketing process that begins much earlier and has as its basic aim the satisfaction of wants in exchange for money. In a general sense, then, marketing is any exchange activity intended to satisfy human wants. e pa ge for entertainment on a wet and cold Melbourne weekend might give rise to a desire—a want—to attend an AFL game, go to a movie or visit the Arts Centre. It is the function of marketing to bring about exchanges between an organisation and its customers. An exchange activity takes place when something of value is offered in return for something else of value. In this regard, marketers talk of the demand for products. Demand occurs when consumers or organisations are willing and able to pay for the goods or services they want (that is, make an exchange). A fundamental requirement of marketing then is to understand the nature and level of demand that might exist for a particular product. Marketers spend a great deal of time and money on this quest, rather than simply advertising or promoting their products. sa m ecause the terms wants and needs tend to be used interchangeably by many marketers and non-marketers alike, in this text we will not draw clear-cut distinctions between them. However, it is worth noting the basis upon which the distinction is usually made. If, for example, I am hungry, it could be said that I have a ‘need’ for food. The alternatives that I consider to meet this basic need, however, will reflect my ‘wants’. I might choose to prepare a salad, buy a take-away hamburger or go to a restaurant for a bowl of pasta. So, at this level, my wants might result from my sociocultural background, personality, lifestyle, and attitudes to food and eating. Similarly, a need to write a business report could give rise to the want for a basic ballpoint pen, or an expensive and prestigious Mont Blanc fountain pen. Or, my need pl B s WANTS, NEEDS AND DEMAND rix87006_ch01_001-037.indd 4 5/27/10 4:50 PM THE FIELD OF MARKETING CHAPTER ONE 5 ? MARKETING UP CLOSE JENNY RIX Marketing aims to satisfy needs and wants. We need food for survival but Aussie kids want something more from their breakfast cereal. WHO IS INVOLVED IN MARKETING? Another way of helping you to understand ‘What is marketing?’ is by looking at who does it. Marketing is practised by individuals, businesses, governments and not-forprofit organisations. Goods and services, ideas and causes, images and even people are all marketed. Marketing is directed at consumers, organisational buyers and others who are interested in, or affected by, an organisation’s activities. Here is a definition of marketing that focuses on its role in business: Marketing is a system of business activities aimed at achieving organisational goals by developing, pricing, distributing and promoting products, services and ideas that will satisfy customers’ wants. ge s There are several important points about this definition: sa m pl e pa • To be a ‘marketing organisation’, everything the firm does must be customer oriented. Customers’ needs or wants must be identified and satisfied effectively. ‘Find an unsatisfied need and fill it’ is a useful way of thinking about marketing. • Marketing is more than just ideas or methods for advertising or selling; it is a complete system for guiding and running an organisation. Marketing activities include researching market needs, developing products, pricing and promoting products, and making them available to customers. rix87006_ch01_001-037.indd 5 5/27/10 4:50 PM 6 PA RT ON E MODERN MARKETING • Marketing is results oriented—a marketing program starts with an identified want or product idea and does not end until the customers’ wants are completely satisfied and the organisation’s own goals, such as to increase market share or profit, are met. • The definition implies that successful marketing helps the organisation to achieve short- and long-term goals. For many firms these days, this means ensuring that customers’ wants are so well satisfied that they remain loyal to the firm’s products. Repeat business is recognised as an important key to long-term success. • The definition also implies that the organisation can satisfy customers’ wants better than its competitors—if it cannot do this, it is unlikely to achieve its own goals, particularly in the long term. Marketing is often thought of as an activity or a function performed only by large firms such as Toyota, Billabong, Coca-Cola or Westpac; we immediately recognise their promotions and advertising as the work of marketers. But marketing is not limited to large public businesses. For example: • Not-for-profit (non-profit) organisations also engage in marketing. Their products might be holiday places they want you to visit, social causes or ideas they want you to support, people they want you to be aware of, or cultural institutions or events they want you to attend. Organisations such as The Salvation Army, the Catholic Church and Opera Australia are all engaged in marketing, even if sometimes they might not think of their activities in this way. MARKETING ON THE STREET MARKETING O ON NT THE H STREET JENNY RIX sa m pl e pa ge s Many different types of businesses practise marketing, from global corporations to local tradespeople. rix87006_ch01_001-037.indd 6 5/27/10 4:50 PM THE FIELD OF MARKETING CHAPTER ONE 7 • Small businesses are often excellent marketers, although again they may not recognise what they are doing as marketing—plumbers, clothing retailers, personal trainers and hairdressers all rely on their ability to understand and satisfy their customers’ wants. The reason these small operators often don’t see their activities as marketing is that they are very close to their customers, so identifying and satisfying wants is simply what they do to stay in business. We can also consider the scope of marketing by considering what is marketed: • • • • • • Physical goods—tractors, clothes, DVDs. Services—banks, theatres, health insurance. Ideas—Clean Up Australia, road safety, anti-drug-use campaigns. People—Adam Goodes, Delta Goodrem. Places—the Daintree rainforest, a new business estate or shopping centre. Experiences—travel, yoga, a photography course. So, marketing is diverse, complex and involves almost all of us! In your own words explain what marketing is, using examples to describe the following key terms: exchange, business activities, organisational goals, customer wants. 1.1 REVISION QUESTION FROM LEARNING OBJECTIVE 1.1 THE DEVELOPMENT OF MARKETING To understand exactly what marketing is, it is helpful to learn a little of its history as a management approach. Although marketing has been practised ever since business and trading began, the formal principles were developed relatively recently. Management thinking about business in Western economies, including Australia, has evolved through several stages of development over the past century (see Figure 1.1). Many companies, though, are still in the earlier stages (also known as orientations); this often means that they talk about marketing but still follow business practices that are not really true to the principles of modern marketing. THE PRODUCTION STAGE Organisations in the production stage were very common until around the start of the Great Depression in the 1930s. In this first stage: SOCIETAL MARKETING STAGE Satisfy customer wants and community needs = Success Stages in the evolution of marketing as a business approach e MARKETING STAGE Identify and satisfy targeted customer wants = Success pl SALES STAGE Stronger sales force and better selling techniques = Success sa m PRODUCTION STAGE Well-made products at good-value prices = Success pa FIGURE 1.1 ge s • The focus was on increasing production because for many products, demand exceeded supply—people wanted more than firms could produce, so producing more goods meant selling more. rix87006_ch01_001-037.indd 7 5/27/10 4:51 PM 8 PA RT ON E MODERN MARKETING MARKETING ON THE STREET MARKETING O ON NT TH HE STREET pa ge • Production and engineering staff had control of the organisation; there were sales departments, but their functions were simply to sell the company’s output at prices set by the production and financial managers. • Firms in this stage assumed that people would naturally look for and buy products that were well made and reasonably priced. And for quite a few years, they were right. So, marketing effort was not really needed. s JENNY RIX Marketing techniques are used for many purposes, not only to help sell cars or clothes or computers. e THE SALES STAGE sa m pl Organisations in the sales stage were common in Australia right up until the 1970s. In this stage: rix87006_ch01_001-037.indd 8 5/27/10 4:51 PM THE FIELD OF MARKETING CHAPTER ONE 9 • Supply began to exceed demand because more and more firms had come into the market. Simply having a good product was no longer a guarantee of success, because consumers could choose between many similar products. • As a result, the firm’s emphasis shifted from production to selling. • Suddenly, selling skills and sales managers were given new respect and responsibilities. • Promotional efforts and activities were dramatically increased to help the firm compete. Unfortunately, it was during this period that selling acquired a bad reputation, because it was the age of the ‘hard sell’—the unscrupulous used-car salesman or the door-to-door encyclopaedia salesperson. Worse, even today, many organisations still believe that to do well they have to use hard-sell methods. And, as long as there are companies operating with a hard-sell philosophy, there will continue to be criticisms of selling and marketing. THE MARKETING STAGE The marketing stage began in the 1960s. In this stage: • A firm’s two main goals became customer orientation (understanding and responding to customer wants) and profitable sales volume (rather than simply making sales to build volumes). • Companies began to adopt the idea of coordinated marketing management. Activities that were previously not considered marketing came under the control or influence of marketing staff, such as packaging, inventory control, warehousing, delivery and some aspects of product planning. • Marketing principles began to guide, or at least influence, all short-term and long-range company planning. s In this stage, firms’ senior management also needed to be aware of and support marketing activities. This is not to say that marketing executives should always hold the top positions in a company, but rather that they needed to be marketingoriented. In fact, many organisations that follow a marketing orientation make sure that managers from other departments such as accounting and engineering are given marketing training. Many Australian firms are now in this stage in the evolution of marketing management. ge THE SOCIETAL-MARKETING STAGE sa m pl e • Marketing managers see that they should act in a socially responsible manner in order to succeed, or even survive. • External pressures need to be resolved—consumer complaints, concerns for environmental problems (including the depletion of natural resources) and pa Over the past twenty years we have seen the emergence of the idea that organisations have a duty not only to their customers but also to the community as a whole. This has led to the fourth stage in the evolution of marketing management. In the societalmarketing stage: rix87006_ch01_001-037.indd 9 5/27/10 4:51 PM 10 PA RT ON E MODERN MARKETING political–legal forces began to influence the marketing programs of the firm. Cases of illegal or unethical practices by firms such as packaging firms Visy and Amcor and the cash-for-comment case involving talkback radio personalities and several large marketing organisations are examples of how pressure has been exerted on marketers to behave in ways that are acceptable to the community. Various recalls of contaminated or unsafe products, community concerns about individual rights to privacy, and the promoting of fast foods to children are all examples of the need for engagement between a business and the society in which it operates. • The internet has made it virtually impossible for firms to avoid being scrutinised by their customers and the community. There are so many ways for people to report and compare their experiences with a firm and its products: blogs, YouTube, Twitter, Facebook, LinkedIn, Digg, StumbleUpon. On the other hand, social engagement experts (see The campaign trail feature with on page 313) are helping marketers to use these new methods to engage with their customer groups, showing firms how to get and respond to customer feedback. • One mark of an affluent society is a shift in consumption from physical goods to services; the aim of marketing should focus more on creating and delivering a better quality of life rather than just a material standard of living. 1.2 REVISION QUESTION FROM LEARNING OBJECTIVE 1.2 Match each statement below with the relevant stage of marketing development. ‘A meeting has been organised between the marketing and production departments to discuss customer attitudes and preferences relating to our proposed new product.’ Marketing stage Production stage Sales stage Societal-marketing stage ‘It’s a tough market out there: customers only buy what they are sold, and that’s marketing’s job.’ pa THE MARKETING APPROACH VERSUS THE SALES APPROACH ge s ‘The factory understands production so it decides which products will be made; marketing’s job is to get them to the customers.’ ‘I’m pleased to announce that our new product has been awarded the Heart Foundation endorsement for healthy food.’ sa m pl e These stages of marketing development show that there are quite important differences in the various ways of running an organisation. Perhaps it is most critical for new marketers to clearly understand the difference between the marketing and sales (or selling) approaches to business management, especially as the differences might not be apparent on the surface. Two organisations might each think of themselves as rix87006_ch01_001-037.indd 10 5/27/10 4:51 PM THE FIELD OF MARKETING CHAPTER ONE 11 being a ‘marketing company’ and have staff with marketing titles and backgrounds. Yet they might be quite different in their actual application of the fundamental ideas behind marketing. Many people, including some business managers, still do not understand the difference between the sales and marketing approaches as methods of business activity. Under the sales approach, a company first makes a product and then uses various selling methods to persuade customers to buy it. In effect, the company is trying to bend consumer demand to fit the company’s supply. Just the opposite occurs under the marketing approach—the company finds out what the customer wants and then tries to develop a product that will satisfy that want and still yield a profit. Now the company is bending its supply to the will of consumer demand. Of course, it is not quite as simple as this. A supermarket chain like Aldi or Costco, for example, might say to a customer who wants her shopping carried to her car: ‘Sorry, we are focused on satisfying customers’ wants for the lowest possible prices, so we can’t satisfy your need for additional service’. Remember, marketing is not about trying to satisfy the wants of all customers, nor even all wants of a targeted group of customers. For the paired statements below, which part describes the sales stage of marketing and which describes the marketing stage? 1. (b) Emphasis is on customers’ wants. 2. (a) Management is profit-oriented. 2. (b) Management is sales-volume oriented. 3. (a) Company first determines customers’ wants and then works out how to make and deliver a product to satisfy those wants. 3. (b) Company first makes the product and then works out how to sell it. 4. (a) Stress is on the needs of the seller. 4. (b) Stress is on the wants of buyers. 5. (a) Planning is long-run oriented, in terms of new products, tomorrow’s markets and future growth. 5. (b) Planning is short-run oriented, in terms of today’s products and markets. 1.3 ge s 1. (a) Emphasis is on the product. REVISION QUESTION FROM LEARNING OBJECTIVE 1.3 e pl sa m So far we have looked at definitions of marketing and traced the development or evolution of marketing practice. Now these threads can be drawn together into a statement of marketing principle. This is known as the marketing concept, and it is the most fundamental idea behind all marketing practice (or should be!). The marketing concept first requires an organisation to say: ‘The reason for our existence is the satisfaction of our customers’ wants. Only by satisfying these wants pa THE MARKETING CONCEPT rix87006_ch01_001-037.indd 11 5/27/10 4:51 PM 12 PA RT ON E MODERN MARKETING FIGURE 1.2 The marketing concept in action Whole firm concentrates on customers’ wants Firm focuses on markets where its products can compete profitably Satisfied customers and company goals achieved Departments coordinate all marketing activities can we expect to achieve, in the long term, our own objectives for survival and profit’. This statement might at first glance seem no big deal. However, as many organisations have found, the principle is much easier to say than to do. So, how does a firm ‘live up’ to the marketing concept? (See also Figure 1.2.) pa ge s 1. All company planning and operations should be customer-oriented. This means that every department and employee—from sales reps to forklift drivers, from chemists to accountants—should be focused on contributing to customers’ want satisfaction. Marketing becomes then not so much a functional department but a way of operation for the entire firm. The enterprise needs to ask itself: Are the ingredients in our products clearly stated? Are our deliveries made when the customer wants them? Is our invoice easy to understand? Can customers get through to us quickly on the phone or by email? 2. All marketing activities in the firm should be coordinated. Product planning, pricing, distribution and promotional activities should be consistent and under one authority. Without this coordination—or if, as happens in some organisations, the different functions are actually in conflict—it is unlikely that we will ever truly satisfy our customers. This can happen even when the various functional departments are actually trying to deliver their particular version of customer satisfaction. For example, Production is trying to make a very high quality product, Sales want to get the price down as low as possible, Marketing wants extra features added; the result is that everyone is doing their best, but not in the same direction. There needs to be a common understanding of which wants of which customers we are trying to satisfy. 3. The firm operates only in markets in which it can profitably or effectively ‘compete’ with other suppliers of similar goods and services. The firm’s goal has to be profitable sales volumes—if we cannot satisfy customers’ wants in this market and make a profit doing so, we should get out of that market. sa m pl e In its fullest sense, the marketing concept is a philosophy of business that states that customers’ want satisfaction is the economic and social justification for a firm’s existence. So, all company activities should be devoted first to identifying and understanding customers’ wants and then to satisfying those wants, while still making a profit over the long run. rix87006_ch01_001-037.indd 12 5/27/10 4:51 PM THE FIELD OF MARKETING Think about the organisation you work for or even one with which you are familiar as a customer, such as a fast-food outlet or the college or university where you are studying. To what extent is this organisation applying the marketing concept? Can you suggest how it could change its practices to become more of a marketing organisation? CHAPTER ONE 13 1.4 REVISION QUESTION FROM LEARNING OBJECTIVE 1.4 MARKETING IN THE DIGITAL ERA The marketing concept is not a static principle. As the world changes, so too does the way in which the marketing concept is being applied. Let’s look at some of the most relevant developments that you might need to deal with. SOCIAL ENGAGEMENT, DATABASES AND CUSTOMER RELATIONSHIP MANAGEMENT The terms social engagement, customer relationship management (CRM) and relationship marketing are used to describe a variety of marketing practices in recent times, but there are no commonly agreed definitions. In essence, however: • They mean having two-way interaction with customers, and focusing on continuing relationships with them, rather than merely on making sales to them. • They are based on the principle that customers no longer want to be sold to— they want to be involved; they want experiences, not just products. Marketers believe also that making repeat sales to current customers is more profitable than continually seeking new customers, because each new sale does not need to absorb the costs of finding and winning new customers. Ongoing sales are more likely if a customer feels genuinely engaged with the firm, or at least with the process of obtaining the goods or services it provides. This new approach to marketing can be thought of like this. Social engagement with customers is the aim of many firms and CRM in its many forms provides the technological solutions to managing the engagement between a firm and its customers. Many organisations today use social networking websites such as Facebook, Twitter and YouTube to develop relationships with customers. They might use online resource software such as crazyegg.com and clicktale.com to track how customers are using their website. And many also have CRM systems using sophisticated databases aimed at: pa e pl sa m There are many examples of how CRM systems are being used to carry out relationship marketing. Event organiser Swap My Style has tens of thousands of ‘members’ who log on to check out the latest in fashion, and are given tips and offers of sponsored products. Motoring organisations such as the NRMA and RACV have expanded their products from roadside service to insurance, travel advice and financial services—extending the ways in which they can serve their customers. CRM systems ge s • identifying each customer’s actual or potential needs and preferences • measuring the profitability of the firm’s relationship with each customer • encouraging each customer to continue with mutually beneficial exchanges. rix87006_ch01_001-037.indd 13 5/27/10 4:51 PM 14 PA RT ON E MODERN MARKETING ? MARKETING UP CLOSE JENNY RIX The campaign to find a new name for Kraft’s Vegemite and cheese snack product is a good example of a firm engaging with its customers to build relationships. sa m pl e pa ge Loyalty marketing schemes One popular application of relationship marketing is known as loyalty marketing. The largest of these schemes in Australia is Fly Buys operated by Coles and National Australia Bank. This scheme has attracted well over 500 000 members, all of whom are given incentives to purchase from these organisations. This type of program is known as loyalty marketing because customers are rewarded for remaining loyal to (continuing to buy from) the organisers. You will see other examples in airlines’ frequent flyer schemes and many suppliers’ preferred customer clubs. Or, on a small business level, your local coffee shop might be one of those businesses that operate a simple stamped-card system to give regular customers every ‘nth’ cup free. s are used to manage the new relationships that the organisations are trying to develop with their customers. The Harley-Davidson Motor Company sponsors its own division, the Harley Owners’ Group (HOG International), which uses a CRM system to distribute news and information of interest to its chapter (club) members, organises events and facilitates other interaction between Harley-Davidson bike owners. So, the company acts as a catalyst to assist the development of relationships between HOG members and the firm, and between the members themselves. The club, and many like it, offers valuable and varied benefits to its members, plus a feeling of ‘belonging’. In turn, the firm can use these channels of communication to learn more about its customers’ wants, thus further enriching the information in its CRM system. rix87006_ch01_001-037.indd 14 5/27/10 4:51 PM THE FIELD OF MARKETING TAKE IT WITH YOU From the Walkman to the iPod to the iPhone and iPad, the trend over the last decade is well known; people want access to music, news and information wherever they are. Many people today spend more time looking at or listening to their mp3 or mobile (or their smart phone, which combines the two devices plus internet access) than they do listening to radio or watching TV. This presents marketers with both a problem and an opportunity. When consumers are out and about they are also likely to be making buying decisions—for snack products, magazines, and entertainment services, for example— CHAPTER ONE 15 MB MB MARKETING bytes so should marketers be looking at how they can deliver promotional messages in real time to take advantage of this trend? And if so, how? Some marketers are using Bluetooth to reach customers in local geographic spaces such as shopping malls or nightclubs. A problem, however, seems to be that although we expect commercial messages on our TVs, radios and newspapers, we resent getting them on our phones. It may be that these devices are more personal to us and we regard promotional messages as not only annoying but also an invasion of our privacy. Two points can be made about loyalty programs: • The number of firms using these schemes has risen dramatically in recent years, almost to the point in some industries (e.g. the airline market) where the benefits to the firms are questionable. • The schemes are sometimes complex and the actual benefit to loyal customers does not live up to the implied promise. Customers can become confused or disappointed. But, of course, once the schemes are part of the requirements of doing business in that market, they are difficult to avoid. QUALITY AND MARKETING While quality has always been important to customers, the management of quality is a recent development, beginning in Japan after World War II. Japan’s global success of the post-war period saw the evolution of a new management movement, often known as total quality management (TQM), based on the aims of: pa ge s 1. reducing variability in product quality—customers should receive the same ‘experience’ each time they purchase a particular good or service 2. increasing responsiveness to changing customer needs—firms must be organised so that they can quickly adjust their offerings to meet the inevitable changes in preferences 3. reducing costs through less wastage or re-working—reducing the number of ‘mistakes’ can significantly reduce the total cost of supplying products. sa m pl e The ultimate objective, and the reason for the natural alignment of TQM and marketing, is to consistently and reliably meet the expectations of the customer. rix87006_ch01_001-037.indd 15 5/27/10 4:51 PM 16 PA RT ON E MODERN MARKETING Quality management aims to ‘build in’ the processes that lead to quality assurance, because quality is defined by the customer. This can be contrasted with earlier approaches that tried to ‘check’ quality after the product had been produced. ‘Building in’ quality involves: • creating genuine partnerships between employers and employees, and especially empowering employees to make independent decisions • creating partnerships between suppliers and their customers, so that they work together to improve quality, rather than each being interested only in their own specific issues • constantly measuring the firm’s processes—production, distribution and customer service—and the satisfaction levels of its customers. Only by measuring can the firm know where it needs to improve. As discussed, TQM and marketing should go hand in hand—they both focus ultimately on satisfying customers. Another marketing-related movement, customer service, has developed a set of principles and practices that attempt to bridge some of the gaps between TQM and marketing. This movement has focused on conducting research to identify those elements of service that are most important to customers, measuring the extent to which the firm is satisfying customers on these specific elements, and then modifying the firm’s services to improve customer satisfaction. In the future, all three ‘disciplines’ will hopefully work together to create a ‘whole-of-firm’ approach to creating customer satisfaction. sa m pl e pa ge All Western societies have now well and truly moved beyond the manufacturing stage of economic development to become services based. In Australia, services industries such as finance and insurance, telecommunications and media, travel and tourism, entertainment, education and training, health and well-being, and government services now employ more than three-quarters of the workforce. They also account for over half of all consumer expenditure. Some services industries were slow to adopt marketing as a guiding influence for their businesses. A major issue was how to ensure that customers received satisfaction each time they interacted with the service provider. Unlike physical goods, which can be standardised in the factory, services are often ‘produced’ by individual staff members, and therefore customers’ satisfaction can vary according to the experience, skill and even mood and attitude of the personnel who serve them. A further complication for services firms trying to apply the marketing concept has been measuring the profitability of particular services provided to individual customers. Services firms have now developed complex sets of measurements, or customer metrics, to guide their strategies. However, in some instances this has resulted in confusion and even conflict between organisations and their customers as services previously supplied have been altered or withdrawn. Banks closing branches and encouraging customers to use telephone or online banking is a good example of this trend, as is News Limited’s move to charge for access to online news, which had previously been free. s TREMENDOUS GROWTH IN SERVICES rix87006_ch01_001-037.indd 16 5/27/10 4:51 PM THE FIELD OF MARKETING CHAPTER ONE 17 ? MARKETING UP CLOSE C O U RT E S Y O F M C D O N A L D ’ S These ads are aimed at communicating the quality of McDonald’s new Grand Angus burger. pa ge s More recently, firms in banking, healthcare and some other industries have combined the principles of marketing with the techniques of customer service. Many have also adopted the CRM techniques we discussed earlier in this section. Services marketing is discussed at relevant points throughout the text, and especially in Chapter 9. pl sa m During the past few years, many government departments and instrumentalities, charities, arts companies, educational and healthcare institutions have realised they need effective marketing programs to make up for shrinking government funding, e MARKETING IN THE NOT-FOR-PROFIT SECTOR rix87006_ch01_001-037.indd 17 5/27/10 4:51 PM 18 PA RT ON E MODERN MARKETING decreases in contributions from the private sector and unfavourable economic conditions. Examples include: • Universities and TAFE colleges have targeted full-fee-paying students, many from overseas, to offset declining funding from governments. • Museums and art galleries import and promote special exhibitions to raise funds. • Government departments are held accountable for meeting their clients’ needs. • Charities such as the Salvation Army and Vision Australia employ professional marketers to develop campaigns that will cut through community reluctance to donate. Until recently, many of these organisations rejected the idea of marketing. Now they see it as a means of growth, or even survival. Marketing in not-for-profit organisations is discussed in more detail in Chapter 9. MARKETING ONLINE The internet has, of course, brought many changes to the field of marketing. Very few firms today do not use the internet to attract buyers, make sales and maintain relationships with customers. Online retailing and interactive marketing are used by banks, insurance firms, airlines, supermarkets, in fact almost all large and most small firms in almost every industry. Here are some benefits for firms using the internet: sa m pl e pa ge Innovative ways of using online technology are constantly emerging. Viral marketing involves sending provocative or interesting material to selected customers suggesting that they send it on to their friends and colleagues, who in turn will send it on to more people, with the hope that eventually the message will be seen by thousands or even millions of potential customers. Many firms are using social websites such as Facebook or open content sites such as YouTube. In consumer marketing, the prospect of linking various multi-channel digital communication and entertainment media such as television, broadband, the internet and especially ‘smart’ mobile phones is coming ever closer. Certainly the ‘big players’ such as News Corporation, Google, Yahoo! and Microsoft want to be part of this revolution in information, entertainment and consumer purchasing. The main battleground between these firms is cloud computing, where software, documents s • Size doesn’t matter—large and small companies have the same access to customers and can create the same kind of internet presence. • Location becomes largely irrelevant—a company is as close to its customers as their PC or notebook screens (or mobile phones). • Mass customisation is possible—communication with each and every customer can be customised according to preset parameters and action triggers. • Customers can feel in control—to access information, make purchase decisions and complete transactions at any hour of the day, any day of the week. • Customer feedback is faster and easier—online surveys or visitor tracking let firms better understand their customers’ behaviours and preferences. • Data mining can be used to cross-sell and up-sell—by tracking customer behaviour, firms can suggest related products or encourage upgrades to increase sales. rix87006_ch01_001-037.indd 18 5/27/10 4:52 PM THE FIELD OF MARKETING CHAPTER ONE 19 and other services such as email are delivered by the internet and stored in vast warehouses of computers (the cloud) rather than on each person’s PC or laptop. Cloud computing presents real challenges for hardware firms like Dell and Lenovo and software firms like Microsoft. More relevantly for us here, though, is that it will take online advertising onto new levels and into new methods and applications; imagine if you are offered all the software and data storage you need (and now pay for) for free, as long as you allow marketers of various goods and services you are interested in to promote themselves and their products to you. INTEGRATION OF MARKETING FUNCTIONS Another trend of the digital era is integrated marketing, the increased overlapping of various marketing-related functions such as advertising and promotion, CRM, digital and direct marketing, personal selling, social engagement and customer service. In the past, departments or separate agencies that often had little contact with one another carried out many such functions; as a result they had no real understanding of one another’s aims and constraints. Marketing and sales departments, for example, often had an ‘us and them’ attitude towards each other. Similarly, mainstream media advertising agencies had little contact with direct marketing and promotional firms. And to many ‘traditional’ marketers, the principles, methods and even the language of their digital marketing peers were totally foreign. Increasingly, management is insisting on better integration of all the firm’s marketing functions, and many of these barriers are being removed. This is in line with the marketing concept’s requirement that all activities be coordinated. For example, for many years an ad agency’s traditional creative team (the individuals who develop the ideas for ads) has consisted of a copywriter (who develops the text or words) and an art director (who works on the visual elements). Today, some agencies are adding a third person to this team, a specialist in digital media such as email, the internet and SMS. Consumers are no longer distinguishing between their TV viewing, newspaper reading and online searches for information or entertainment, so why should the marketers responsible for communicating with them? In other cases, the idea of a ‘creative team’ is disappearing altogether, replaced by a interactive marketing expert who develops both the creative strategy and the web-based tools and designs to implement it. ge pa e pl sa m Many markets are no longer limited by national or regional borders or boundaries. Consider the youth market for clothes, music and other related products. Check out teenagers on the streets of New York, Tokyo, Istanbul, Sydney, São Paulo and Moscow. The similarities will be more evident than the differences. The speed of this trend for globalisation has been driven by international travel, global music, TV and movie distribution and, of course, the internet. Marketers operating in global markets must develop strategies for crossing the boundaries with their products, just as their customers have crossed them with their communications, their lifestyles and their product preferences. s GLOBALISATION rix87006_ch01_001-037.indd 19 5/27/10 4:52 PM PA RT ON E MODERN MARKETING GF GLOBAL FOCUS 1.5 REVISION QUESTION FROM LEARNING OBJECTIVE 1.5 TAKING AUSTRALIA TO THE WORLD Can Australian products and brands be successful overseas? The international market is highly competitive and often expensive to access, but more than 60 000 Australian firms are now trading internationally, and many of them are SMEs (small and medium-sized enterprises). Why have they taken the plunge into the overseas market? Here are the main reasons: • Australia is a small market (22 million people). • The Australian population is growing more slowly than the populations of other countries in our region. • Local firms face increased competition at home from foreign firms. NEWSPIX 20 • Opportunities to make sales overseas sometimes just present themselves, especially in the internet era. • Many product markets are mature in Australia but are still growing in lessdeveloped countries. • Economies of scale can often be achieved through export expansion. The trends in marketing are all around us. Scan your work, college or home environment to identify one practical example of each of the trends we have discussed. (Read the newspaper, check your email or SMS messages, and be alert for global brands. Perhaps you’ve received some direct mail?) sa m pl e pa ge For many years, critics of our marketing system have raised a variety of thoughtprovoking questions and generated many discussions. Let’s examine some of their criticisms. We can summarise the major charges against marketing by grouping them in relation to the parts of the marketing mix. (This is the combination of product, price structure, distribution system and promotional activities employed by marketers to attract specific target markets. The mix is discussed more fully later in this chapter and the individual elements are examined in Chapters 7–12.) Some criticisms of marketing, in terms of the elements of the marketing mix, are outlined in Table 1.1. First, let’s be honest: in some cases the criticisms of marketing are justified. There certainly are instances of each of the criticisms listed in Table 1.1. Not all marketers—or people who call themselves marketers—operate ethically. But this does not mean that marketing per se is unethical or without value. The test of this is to imagine a world in s CRITICISMS OF MARKETING rix87006_ch01_001-037.indd 20 5/27/10 4:52 PM THE FIELD OF MARKETING TABLE 1.1 CHAPTER ONE 21 Criticisms of marketing—some examples, in terms of the elements of the marketing mix Field of marketing Possible criticisms Product Quality MP3 players don’t work properly; clothes shrink; software programs have bugs Packaging Not enough information on labels; deceptive graphics; poor operating instructions Services Service is slow or uncaring; repair services are overpriced Range Too many brands and varieties with few real differences Price structure Levels Prices are too high; prices are controlled by large firms; price comparisons are difficult to make Discounts Quoted discounts are not genuine; some buyers are not able to get special deals; little real price competition between firms Distribution system Intermediaries Too many ‘middlemen’, each taking a ‘cut’ Delivery Inflexible and slow; lack of care in storage and handling Promotional activities Poor-quality retail salespeople; high-pressure tactics; poorly informed and trained salespeople; insufficient attention to customer service Advertising Overemphasis on a material standard of living; manipulative; causes people to buy things they don’t really need and can’t afford; ads deceptive and misleading; overemphasis on sex; ads play on fear; too many ads (especially on TV); advertising adds too much to the cost of products; advertising helps firms to dominate markets Direct and digital marketing Customers’ details are on lists without their permission; telemarketers phone at inconvenient times; mobile phones and PCs are flooded with annoying email and text promotions ge pa e pl sa m which marketing does not exist: no marketing research to uncover customers’ wants, no development of new products to meet those wants, no advertising or promotion to inform customers, no competition between suppliers for customers’ loyalty. This is not to mention that all of those currently employed in fulfilling these functions would be out of a job. Clearly, this is not a world most of us would choose to live in. In fact, marketing has been responsible for many of the improvements in our standards of living, health and well-being and the life choices we enjoy today. Freely operating markets provide mechanisms for us to tell organisations what we want and for them to work hard to answer our demands. The demise of other systems such as socialism (command economies where supply and consumption decisions are made by governments) has demonstrated that while it is far from perfect, the market has provided a better way of allowing us access to goods and services that we can use to improve our lives. And it is the principles and practices of marketing that allow the market to do its job. This is not to say that we should be defensive in the face of criticism. Let’s admit to the mistakes and excesses, let’s be the strongest critics of those who give marketing a bad name, and let’s be socially responsible, even when it costs us in the short term. It’s possible that marketing will come under even more criticism in years to come. If the profession is to avoid being over-regulated by governments, it must tackle the criticisms honestly and head-on. Marketers should respond to instances of unethical s Personal selling rix87006_ch01_001-037.indd 21 5/27/10 4:52 PM 22 PA RT ON E MODERN MARKETING ? MARKETING UP CLOSE JENNY RIX With these brochures, National Australia Bank is demonstrating its social responsibility as a corporate citizen. or illegal practice just as doctors or lawyers do, discipline or exclude the wrong-doers, and promote to the community the overall value of the profession. 1.6 REVISION QUESTION FROM LEARNING OBJECTIVE 1.6 Visit the website of the Australian Competition and Consumer Commission (ACCC) or the Privacy Commission (www.accc.gov.au or www.privacy.gov.au). Locate an article or feature that involves a criticism of marketing. Suggest ways that the marketing industry could respond to this criticism. What should it say and do, and to whom? sa m pl e pa ge The marketing concept requires marketers to organise the firm’s activities to satisfy the wants of its customers. This seems a worthwhile, logical and, on the surface, straightforward business strategy. In practice, however, it is much more difficult than it first appears. To give themselves the best chance of success, marketers use a formal planning process to organise and guide their programs. The marketing plan documents this process of planning and managing the firm’s marketing effort. Before we examine the marketing plan in detail, let’s clarify exactly how management and marketing are combined. Marketing management aims to make the marketing concept an operational reality, rather than simply an ideal to which the firm pays lip service. It involves a three-step process—one of planning, implementation and evaluation (see Figure 1.3). s THE MARKETING PLAN rix87006_ch01_001-037.indd 22 5/27/10 4:52 PM THE FIELD OF MARKETING CHAPTER ONE 23 E EI ETHICAL INSIGHTS Marketers face a constant barrage of criticisms on what might be called ethical issues. In this feature throughout the text we’ll raise many of these questions for you to consider. Note, they are for you to consider. Ultimately, each of us is responsible for our own actions. It is up to you to decide what’s the right thing to do in a given situation. Sex in advertising Advertising to children Sharing information with third parties Product quality Product testing Exaggeration in advertising Ambush marketing PHOTODISC Deceptive packaging Selling under the guise of research Recruiting competitors’ staff OverRights to promising privacy Appeals to prejudice Rights to privacy Gifts and entertainment Pricing of replacement parts and refills FIGURE 1.3 PLAN Analyse situation Set goals Develop strategies IMPLEMENT Organise and carry out marketing activities The marketing management process EVALUATION Measure actual performance against goals s Review and adjust marketing strategies as needed ge PLANNING The planning step asks, and then provides answers to, marketing questions such as: pl e pa Which markets should we be operating in? Which customers should we be trying to attract? How do we identify them? How can we understand their wants? Which of their wants should we be attempting to satisfy? With which goods and services should we do this? How many products can we sell? sa m • • • • • • • rix87006_ch01_001-037.indd 23 5/27/10 4:52 PM 24 PA RT ON E MODERN MARKETING IMPLEMENTATION The implementation step converts the plans into action by deciding on the answers to these questions: • • • • • How should the business be structured and organised? Which departments should perform which tasks? Who are the right people or outside agencies to do the job? How do we find them? When and how will we carry out the marketing activities? EVALUATION The evaluation step monitors the organisation’s actual performance as it carries out the marketing programs. Financial reports and marketing metrics (or measurements) are used to answer questions such as: • • • • • How many of each product did we sell? How much did we sell to each market sector or customer? How much did it cost us to make these sales? How much profit did we make from particular products, areas or customers? Were our product, pricing, distribution and promotional programs effective? STRATEGIC PLANNING The highest level of planning in an organisation is known as strategic planning, which is the managerial process of matching an organisation’s resources with its opportunities. ‘If you don’t know where you are going, then any road will take you there.’ This saying suggests that organisations need a well-defined plan to succeed. Quite simply, planning is deciding today what you want to do tomorrow. A more thorough analysis of the strategic marketing process and the tools it uses is contained in Appendix C. So, an overall strategic company plan is often developed for the organisation as a whole, often covering a five- or even ten-year timeframe. Planning issues here include: sa m pl e pa ge PBL Ltd’s decision to diversify from media businesses such as the Nine Network and Women’s Weekly magazine into gaming businesses such as casinos is an example of planning at this level. It is worth noting here that long-term strategic decisions often carry significant elements of risk—for example, Telstra took a strategic decision in the 1990s to enter the Asian telecommunications market but ten years later has written off most of its investment in Hong Kong. Issues such as where to locate production facilities for market expansion, which particular markets to enter, in what timeframe and with which product types, are also part of this level of planning. Not that planning is a guarantee of success. In the early 1990s, Foster’s Brewing invested large amounts to expand its beer production and sales in China. This venture was unsuccessful and the company finally sold its assets s 1. setting the direction for the business as a whole 2. deciding on the expansion or contraction of production capacity 3. developing broad markets and product ranges. rix87006_ch01_001-037.indd 24 5/27/10 4:52 PM THE FIELD OF MARKETING CHAPTER ONE 25 in that market. Then it entered the Russian beer market, another long-term strategic planning decision. More recently, the company decided to sell the rights to the highly successful Foster’s brand for all its business in Europe. Once the strategic company plan is complete, plans are developed for each functional division, including marketing. These might cover a one-, two- or threeyear period. Strategic marketing planning consists of four processes: 1. Conducting a situation analysis to analyse the organisation’s environment and its capabilities. 2. Setting objectives and controls to guide marketing programs and evaluate performance. 3. Selecting target markets that are both attractive to and feasible for the organisation. 4. Developing a marketing mix (or mixes) that will allow the firm to effectively enter the chosen market(s), satisfy the wants of the target customers and achieve the organisation’s objectives. Annual marketing plans are also developed for individual brands, products or categories. They serve as specific guides for the operational managers responsible for marketing particular products or with responsibility for particular markets. In these plans, the marketing issues are largely tactical and include: • • • • • modifications to product range, packaging and so on specific promotional campaigns pricing tactics locating new distribution points particular staffing requirements. Although many businesspeople believe that there can be an overemphasis on planning (especially in organisations where planning becomes an alternative to action), most agree that planning can reduce business risk. Systematic marketing planning: ge s • allows for the coordination of activities between departments and within the marketing department • provides individuals with a clear sense of the organisation’s overall goals and their role in achieving them • encourages marketers to critically and systematically examine the environment they will be operating in • ensures that marketing programs are rigorously thought through rather than impulsively carried out • provides the basis for motivating staff to achieve the plan’s goals. pa MARKETING PLANS IN PRACTICE While most marketing plans follow similarly structured outlines, they do vary significantly in the depth and breadth of analysis employed. For instance: sa m pl e • An annual plan for a well-established product in a stable market, for example, might require only a summarised and updated situation analysis, and details of the specific activities to be undertaken during the year. rix87006_ch01_001-037.indd 25 5/27/10 4:52 PM 26 PA RT ON E TABLE 1.2 MODERN MARKETING Elements of the marketing plan What’s involved Examples (for a new wine range) Situation analysis Analysis of trends or changes in the firm’s external environment Might any of the following affect our product—the economy, drink-driving laws, new wine technologies, our ageing population etc? Analysis of the specific market Who is drinking wine? How many bottles of wine are sold, of what type and is the market growing or declining? Do drinkers prefer red or white wine? Analysis of competitors Who are our main competitors? What market share do they have? What are their strengths and weaknesses? Analysis of the company/ product situation—strengths and weaknesses, resources How well placed are we to launch this new product—our production capacity, branding, sales team and advertising? Can we afford to carry another product line? Marketing objectives Development of clearly expressed statements of what the plan is to achieve How much do we want to sell, at what price, through which outlets and in which areas? Market segmentation, targeting and positioning strategies Identification of groups of people or organisations at whom to direct marketing strategies Should we target male or female wine drinkers, young or older? Selection of a particular image to be used for the product or brand What image do we want for our new wine—an everyday, good-value wine, or a wine for connoisseurs? Marketing mix Development of specific tactical action plans for the product, its pricing, distribution and promotion How many different wines will we offer? What brand, bottle and label will we use? Will we price just under $10, or $15, or more expensively? What discounts might we offer? Will we sell through liquor stores, or supermarkets, or only through restaurants? Will we use TV ads to promote our wine, or magazines, or just our sales reps? Budgets and marketing metrics Preparation of forecasts of sales, costs, expenses and profit We need to prepare a detailed budget by product and customer group, with all anticipated prices, costs and expenses included. Preparation of other measurements or metrics to be used to check actual performance against marketing objectives (see Table 1.3) We also need to establish specific performance metrics such as consumer awareness of our brand, trial purchase rates, price levels achieved and so on. pa ge s Marketing plan section • A plan for the launch of a brand new product range, however, will require considerably more research, analysis and strategy development. sa m pl e The elements of a marketing plan are outlined in Table 1.2. Let’s look at each section of the plan in more detail. Even at this early stage, it is critical to your development as a marketer that you understand the marketing plan’s role and the rix87006_ch01_001-037.indd 26 5/27/10 4:52 PM THE FIELD OF MARKETING CHAPTER ONE 27 MARKETING PLANS MADE EASY! A ll the elements of a marketing plan are examined in more detail in various chapters of the book, as noted in the sections below. On the textbook’s website you’ll also find a set of step-by-step work sheets that will guide you through the process of developing a marketing plan for a product of your choice. The work sheets refer you back to specific sections of the text to help you to stay on track. Go to www.mhhe.com/au/rix7e. process of constructing a plan. The sections below will help prepare you for this important task. SITUATION ANALYSIS Marketers do not carry out their activities in isolation. Their actions are influenced by many other individuals, firms, governments and products. Marketers monitor their ‘environments’ to detect changes, threats and opportunities. They collect information from various sources and analyse it so that they can make informed decisions for their firm and products. A full strategic situation analysis will include: • an analysis of changes in the broad marketing environment (demographic and social trends, for example) • an industry overview (concentration, competitive intensity, industry forces) • a market analysis (size, growth, segments, trends) • a competitor analysis (shares, positioning, strengths and weaknesses) • a company SWOT analysis (strengths, weaknesses, opportunities and threats). The environments faced by marketers, both external (outside the organisation) and internal (within the organisation itself), are previewed in Chapter 2. Strategic tools for analysing the firm and its industry are outlined in Appendix C. Methods used by marketers to gather information about their operating environment, customers and competitors are the subject of Chapter 3. MARKETING OBJECTIVES Objectives, or goals, are desired outcomes—in other words, what you are trying to achieve. In marketing terms: pl sa m In order to be worthwhile, objectives should be specific, measurable and realistic. Table 1.3 overleaf demonstrates these principles. e pa ge s • Marketing objectives flow from the firm’s financial goals. These goals in turn come from the organisation’s corporate mission, a statement of what the organisation aims to achieve and for what purpose it exists (see Appendix C). • Marketers want consumers to be aware of, and have a favourable attitude towards, their products. They want to achieve certain levels of sales, market share, distribution, realised prices, and gross profit margins and expenses. Each of these can be expressed as an objective. rix87006_ch01_001-037.indd 27 5/27/10 4:52 PM 28 PA RT ON E MODERN MARKETING TABLE 1.3 Making objectives specific, measurable and realistic Poorly expressed objectives Well expressed objectives Objective: ‘To improve our sales position [non-specific] significantly [non-measurable] and double our net profit [unrealistic]’ Objective: ‘To increase our market share, measured by units sold [specific] by 5 percentage points, by year end [measurable] and improve net profit by 10% [realistic]’ Objective: ‘To have our product sold through as many outlets as possible’ Objective: ‘To increase our weighted distribution through the retail pharmacy channel from 58 to 70%’ Objective: ‘To keep our retail prices down’ Objective: ‘To be the cheapest brand on retail shelves by a minimum of $1.00 per bottle’ Objective: ‘To ensure our brand is well-known’ Objective: ‘To achieve 80% unprompted brand awareness by the end of the current period’ Objective: ‘To develop an effective advertising campaign’ Objective: ‘To achieve 60% advertising message recall among our target audience’ pa ge Most organisations cannot hope to sell to all the individuals or organisations in their market place. So, marketers identify particular groups of customers whose wants they feel they can most completely and accurately satisfy. First, they divide the overall market into groups of current or potential customers who share common wants in respect of the particular product category. The car market, for example, will be segmented into a number of different customer groups— the people within each group want similar things from a car and will be different from the people in each of the other groups. Firms then decide which market segments they will direct their marketing efforts towards—those whose wants they have the best chance of profitably satisfying. This often means not targeting some groups or market segments. Diners Club, for example, targets international business travellers—it will, of course, accept business from tourists or any other person who can pay for the card, but its services, pricing and promotional programs are specifically targeted to travelling businesspeople. Once a firm has selected particular market segments to target, it decides how to ‘present’ itself and/or its products to those customers. The development of a particular image or perception for a product or organisation is called positioning. For example: s MARKET SEGMENTATION, TARGETING AND POSITIONING STRATEGIES sa m pl e • Woolworths positions itself as ‘The Fresh Food People’. • Etnies is positioned as a ‘street’ clothing brand. • APIA (Australian Pensioners Insurance Agency) is positioned as better understanding the insurance needs of the over 55s. rix87006_ch01_001-037.indd 28 5/27/10 4:52 PM THE FIELD OF MARKETING CHAPTER ONE 29 Each organisation is hoping to attract customers by creating a specific and definite perception in people’s minds as to what the company does, and what it stands for. The means that marketers use to select target markets and develop positioning are analysed in Chapter 4. Firms often make the first cut (or segmentation) of their market by dividing it into individuals and households on the one hand (the consumer market, or B2C) and organisations on the other (the business market, or B2B). In Chapter 5 we will look at the consumer market, and in Chapter 6 the business market. THE MARKETING MIX A marketing mix is the combination of the four major elements that make up a company’s tactical marketing program—production, pricing, distribution (or place of availability) and promotion. The four Ps, as they are known, are described below. The marketing mix is also shown in Figure 1.4, together with the decisions involved for each element. • Product. The product element of the marketing mix involves developing the right goods and/or services for the target market, changing existing products and deleting unsuccessful product lines, and developing branding, packaging and other product features (see Chapters 7 and 8). Chapter 9 examines an expanded mix for intangible services, incorporating three additional Ps—physical evidence, people and process. • Pricing. The pricing element involves selecting the right base-price level, setting special prices, and deciding on discounts, allowances, and whether and how to charge delivery costs (see Chapter 10). • Distribution. The distribution element involves selecting distribution channels to make the product available to customers, selecting and negotiating with middlemen, and arranging physical handling, storage and delivery (see Chapter 11). The marketing mix s COORDINATED MARKETING MIX pa ge TARGET MARKET e PROMOTION • advertising • personal selling • sales promotion • public relations • online/digital promotions sa m PRICE • list price • discounts • geographic pricing • allowances • credit terms FIGURE 1.4 PLACE • channels • coverage • locations • transport pl PRODUCT • quality • features • style • brand name • packaging • sizes • services • warranties rix87006_ch01_001-037.indd 29 5/27/10 4:52 PM 30 PA RT ON E MODERN MARKETING ? MARKETING UP CLOSE This Kathmandu catalogue contains each of the elements (4Ps) of the marketing mix. Promotion Product JENNY RIX Price ge s Distributor pa • Promotion. The promotion element involves informing and persuading the market about the company’s products, using advertising, personal selling, public relations and sales promotion (see Chapter 12). sa m pl e Note: To make them easier to learn, we will look at the individual marketing mix elements separately in the text. In practice, however, they are closely linked or interrelated—decisions in one area will always affect other areas. rix87006_ch01_001-037.indd 30 5/27/10 4:52 PM THE FIELD OF MARKETING CHAPTER ONE 31 Marketers of services, such as health care, education, entertainment and travel, often add a further three Ps to their mix: • Physical evidence. The physical evidence element includes aspects such as buildings, promotional material and vehicles that are used to create an image of the company and its service offering. • People. The people element covers managers and other staff who ‘deliver’ the service to the firm’s customers. • Process. The process element involves the operational logistics for ensuring customers receive a timely and effective service. These extra marketing mix elements for services are examined in Chapter 9. BUDGETS, EVALUATION MEASURES AND CONTROLS (OR METRICS) Businesses carry out marketing programs to make a profit. Not-for-profit organisations, too, have to operate within certain financial constraints. In both situations, budgets are established to guide the programs and provide a means of measuring their success. Budgets are usually set annually. The marketing budget begins with sales forecasts— how many units the organisation is going to sell that year, and at what price. The costs of achieving these sales—sales costs, advertising expenses and so on—are also budgeted. The marketing department will usually be held accountable for achieving a certain level of profit contribution, or profit from the sales it makes. During the year, comparisons will be made between the budgets and actual performance. Other controls—known as marketing metrics—will also be in place to help marketers to assess their progress against the marketing plan. Such marketing controls measure the effectiveness of distribution, personal selling, advertising and other promotional activities. We will look at these in Appendix D. 1.7 REVISION QUESTION FROM LEARNING OBJECTIVE 1.7 sa m pl e pa ge s List and briefly explain the elements in a modern marketing plan. Use an example of a product you are familiar with to show the role of each element of the plan. rix87006_ch01_001-037.indd 31 5/27/10 4:52 PM 32 CHAPTER REVIEW These topic outlines are useful to study for exams. Definitions of marketing (p. 4) s ge pa Marketing in the digital era (p. 13) 1. Marketing has always been about trying to better understand sa m 1. Since the Industrial Revolution began in the eighteenth century, the methods that businesses have used to find customers, then promote and sell their products have evolved through several stages (orientations): (a) The production stage assumes that marketing effort is not needed to make people buy products that are well made and reasonably priced. (b) The sales stage calls for a substantial promotional ‘hard sell’ to persuade customers to buy a firm’s products. (c) The marketing stage sees companies adopting the twin goals of customer orientation and a profitable sales volume. The companies under this orientation shift to satisfying customer wants. (d) The societal-marketing stage extends the marketing concept to consider societal well-being. 2. The stages of marketing management orientation can be traced historically. It is clear, however, that the production and sales orientations are still followed today by many organisations, including some that appear on the surface to be following marketing principles. 3. A distinction can be drawn between the sales (or selling) approach to business management and the marketing approach. A sales approach involves persuading consumers to buy goods and services that an organisation has already decided to produce or make available. A marketing approach involves identifying consumers’ wants and developing goods and services to satisfy those wants. In the sales approach, an organisation attempts to bend consumer demand to fit the company’s 1. The marketing concept is a business philosophy that states that the satisfaction of customers’ wants is the economic and social justification for an organisation’s existence. This is the basic principle underlying all marketing practices. 2. To implement the marketing concept, an organisation (and all who work in it) should: (a) be customer oriented in all decision making and activities (b) focus on profitable market opportunities rather than simply trying to increase sales at any cost. (c) systematically coordinate all marketing activities so that everyone in the organisation has the same view as to which customer wants are to be satisfied, and how. 3. In adopting the marketing concept, an organisation thinks about its business in terms of the wants it is satisfying, rather than in terms of the products it makes or sells. e Stages in the development of marketing management (p. 7) The principle of marketing: the marketing concept (p. 11) pl 1. In a general sense, marketing is any exchange activity intended to satisfy human wants. Marketing is practised by individuals, businesses, sports clubs, political parties, charities and many other organisations. 2. In a business sense, marketing is a system of business activities aimed at achieving organisational goals by developing, pricing, distributing and promoting goods, services and ideas that will satisfy customers’ wants. supply. In the marketing approach, an organisation bends its supply to fit consumer demand. rix87006_ch01_001-037.indd 32 5/27/10 4:52 PM THE FIELD OF MARKETING firms, but also presents issues and problems when firms have to market in places with different legal, political, cultural and economic environments. Criticisms of marketing (p. 20) e pa ge s 1. Over many years, criticisms of marketing have included its responsibility for unsafe products, deceptive packaging, excessively high prices, invasion of privacy and misleading advertising. Marketers need to analyse these criticisms coolly and respond to them positively. 2. During the past twenty years, concern has grown for the conservation and appropriate allocation of scarce resources, the protection of the environment and the safeguarding of quality of life. Marketers are increasingly being faced with a choice between profitably satisfying the wants of their customers and complying with the wishes of various other groups in the community. This choice will become increasingly complex. sa rix87006_ch01_001-037.indd 33 33 pl 2. Today’s customers are extremely quality conscious. Marketing and quality management are used together to ensure firms maximise customer satisfaction by: (a) reducing variability in product quality (b) increasing responsiveness to changing customer needs and (c) reducing costs through less wastage and re-working. 3. The digital era has been accompanied by and has helped develop a vast range of services, especially in the fields of communication and information processing, hospitality, entertainment, sports and events. Services firms have been increasing their use of marketing in recent years, especially using loyalty marketing and other customer-retention strategies. 4. Organisations in the not-forprofit sector (also referred to as ‘non-profit’ or ‘non-business’) have adopted marketing principles and practices in response to reduced funding from government and other sources. 5. Marketing campaigns work best when they are integrated; advertising, promotion, CRM, direct and digital marketing, and personal selling are increasingly being planned and carried out in a coordinated manner. 6. Many markets today are global. This has opened up many opportunities for Australian m customer wants. As markets are increasingly fragmenting and rapidly changing, this is now more important than ever. Many firms today are using interactive methods and tools such as blogs and social networks to engage with customers so that they can better understand them. Another major tool in this quest is the database. A customer database enables an organisation to gather and analyse large amounts of detailed information about its customers so that well-targeted offers can then be developed. This customised approach is known as customer relationship management (CRM) and is considered more cost effective than previous mass marketing campaigns. CHAPTER ONE CONTINUED ❯ 5/27/10 4:53 PM 34 PA RT ON E MODERN MARKETING CHAPTER REVIEW CONTINUED The marketing plan (p. 22) 1. Marketing management may be described as the process of planning, implementing and evaluating marketing programs. 2. Strategic planning is the managerial process of matching an organisation’s resources with its opportunities. 3. The main document used by marketers to plan and carry out their programs is the marketing plan, which consists of: (a) Conducting a situation analysis—supplying a review of the company’s existing marketing program, an analysis of the external and internal environment, and a review of the marketing mix. (b) Setting marketing objectives—establishing the desired outcomes of marketing activities and the means by which success will be measured. (c) Segmenting the market, selecting target markets and developing a positioning strategy. (d) Designing the marketing mix (or mixes)—identifying the combination of elements that are the core of an organisation’s marketing: the four Ps—product, pricing, placement (distribution) and promotion. (e) Establishing financial budgets and other marketing metrics to check performance and enable corrective action to be taken. EXERCISES AND PROBLEMS (a) (b) (c) (d) (e) Radisson Hotels (hospitality) Adidas (sports shoes) Apple (iPhone) Village (cinemas) Goodyear (tyres and brakes). s sa m pl 4. Explain the difference between the marketing and selling approaches to business management, using examples of 6. Using a marketing approach (i.e. seeing business in terms of the benefits provided or wants satisfied), answer the question ‘What business are you in?’ for each of the following organisations: ge 3. Using as an example an organisation you are familiar with, explain the three steps an organisation should follow to implement the marketing concept effectively. 5. Describe the planning, implementation and evaluation steps in the management process and explain how these three steps are connected. pa 2. One way of explaining the importance of marketing in our economy is to consider how we would live if there were no marketing activities. Describe some of the ways in which your daily activities would be affected under such a situation. both approaches you have observed or encountered to illustrate your answer. e 1. Marketing has been increasingly used by not-for-profit organisations in recent years. Why do you think this is so? Describe some of the ways in which not-for-profit organisations that you have encountered are engaging in marketing activities. rix87006_ch01_001-037.indd 34 5/27/10 4:53 PM THE FIELD OF MARKETING CHAPTER ONE 35 KEY TERMS AND CONCEPTS mass customisation ..................................................18 mass marketing .......................................................33 needs ......................................................................4 not-for-profit (non-profit) organisations ..........................6 positioning .............................................................28 products ...................................................................4 production stage of development (orientation) ...............7 quality (and marketing) ............................................15 relationship marketing ..............................................13 sales stage of development (orientation) .......................8 services industries....................................................16 situation analysis .....................................................27 social engagement ..................................................13 societal-marketing stage of development (orientation) ...... 9 target markets .........................................................20 viral marketing ........................................................18 wants.......................................................................4 sa m pl e pa ge s cloud computing......................................................18 customer relationship management (CRM) ..................13 customer service ......................................................16 demand ...................................................................4 exchange activity ......................................................4 four Ps (product, pricing, placement and promotion) ..... 29 globalisation...........................................................19 integrated marketing ................................................19 loyalty marketing .....................................................14 marketing concept ...................................................11 marketing controls ...................................................31 marketing management ............................................22 marketing metrics ....................................................31 marketing mix .........................................................20 marketing plan ........................................................34 marketing objectives ................................................27 marketing stage of development (orientation) ................9 For more information on this chapter topic, visit the OLC website at www.mhhe.com/au/rix7e. rix87006_ch01_001-037.indd 35 5/27/10 4:53 PM (from page 3) the CAMPAIGN TRAIL Spinbrush Here is the Spinbrush launch campaign developed by Alison Goodall for Church & Dwight. • • • • s • • Using the success of the product in the US market to encourage retailers to stock the line; buyers are always interested to know what the product has done in other markets. • Producing a full-colour sales presenter to be used with head office buyers and store managers. Sales aids like this help sales reps to ‘tell the story’ and to back it up with hard evidence such as statistics, graphs and charts. • Showing the retailers the level of support Church & Dwight would give to the brand both with media, online and at pointof-sale. The company was convinced that once consumers tried the Spinbrush battery-powered toothbrush they would not go back to manual brushing. Here is how they gained customer trial: Spinbrush was priced at $12.95 RRP, a good-value offer by comparison with the two household-name brands. (Note that this price level still offered retailers an attractive dollar profit margin compared to manual brushes.) • A 15-second commercial was run nationally on free-toair TV in metro areas. This short and sharp ad campaign communicated very clearly the Spinbrush core benefit. (Check it out at www.spinbrush.com.au.) Several months after launch a pay TV campaign was used to build frequency. (Note also that a 15-second TVC also allowed Alison to extend the campaign’s reach and frequency.) The TV campaign was supported by advertorials in selected retail magazines such as Good Taste. These are sold in the same stores as Spinbrush and so target the consumer perfectly. Spinbrush ads were also placed in several Christmas gift guides: a very clever tactic as the Spinbrush’s good-value price made it an excellent ‘stocking stuffer’. A specific Spinbrush Australia website was developed to give consumers access to additional information on oral health care. A publicity campaign targeted editors of twenty ‘beauty’ magazines. Follow-up email shots targeted media such as local and regional newspapers, especially duringD entalH ealthW eek. ge JENNY RIX First, support from the major supermarket, discount variety and pharmacy chains and independent stores was achieved by: The sales results? sa m pl e pa Achieving retailer support and consumer trial helped Spinbrush to exceed sales budgets and after two years to gain an impressive share of the targeted market segment. This is an excellent example of how effective marketing campaigns are planned and carried out. rix87006_ch01_001-037.indd 36 5/27/10 4:53 PM
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