introduction - tafe nsw
TRANSCRIPT
Introduction
To fully understand the marketing concept you will need to understand the
range of activities in which the marketer participates. Not only will you
need to be aware of the emerging trends in the industry but also the
relationships that exist between marketing and its key promotional
components such as personal selling and advertising.
You will need to be aware of the legal and ethical constraints on marketing
and how these affect the marketing of goods and services.
1. What is marketing?
In its most basic form, marketing is about the old-fashioned idea of barter. That is,
if someone has something you want and you have something they want, you can
exchange, or trade, and both parties are then satisfied. This sort of trade was
common many years ago.
Where does this kind of barter still occur?
It still occurs in primitive societies, where food, clothing and tools may be bartered
between tribes. It also happens in schoolyards, where children swap lunches and
collectibles such as cards.
In the case of modern day marketing the barter, or exchange, is usually in terms
of goods and services for money. In order for the exchange to occur, the buyer
must have a need. We will discuss the concept of needs later in this topic.
Find some definitions of marketing from textbooks and dictionaries and write
them down.
Marketing may be defined as all the activities undertaken by an organisation in
the process of satisfying customer demand, while making a profit. This includes
producing, pricing, distributing and promoting goods and services in a way that
satisfies demand.
It is not only businesses that engage in marketing. The range of organisations
involved in marketing is diverse. It includes businesses, charities and non-profit
groups, government departments and farms. For example, rather than selling
goods or services, charitable organisations may encourage donations or support
for a cause.
Government departments may seek community support or private enterprise
investment in infrastructure. You will find out more about the
The Marketing Concept –overview
Topic 1: The Market Place
range of organisations that engage in marketing in the following reading.
Note that the term ‘customers’ includes a wide range of people including
consumers, businesses and other organisations. Note also that the term ‘profit’ can
also include a wide range of concepts – for example in the case of a charity
‘profit’ may refer to greater efficiency in the acquisition of new donors or
supporters.
2. The marketing concept
The marketing concept is a business philosophy built upon the reason for the
existence of a business organisation is the satisfaction of customer needs.
If the basis of the marketing concept is customer need satisfaction, it therefore
makes sense that those organisations which best satisfy customer needs will be
the most successful and profitable in the long run.
Think about your own purchase behaviour. Imagine you have your car in for a
service and the manager goes out of their way to make sure you are looked after
and the car is cleaned and washed ready for collection at the allocated time. Now
imagine you book your car in somewhere else and find the service poor and the
waiting time unacceptable—it happens! Which of these two service agents is
more likely to get the return customers?
Did you say that the service agent that best meets customer expectations will
obviously get the return customers?
Again, we must stress that it is not only businesses that can profit from
satisfying ‘customer’ needs.
If you were running the Blood Bank, how would you get your blood donors to
come back and let people stick needles into them and take their blood, again
and again and again? (Note: it is illegal in Australia to give people money for
donating blood’)
The Blood Bank is not a business, but it certainly is in the business of marketing
itself to get people to give blood regularly. Whilst blood donors aren’t
‘customers’ they are as important to the blood bank as customers are to profit
making businesses. The Blood Bank provides comfortable facilities and food
and beverages for blood donors. They also have friendly and welcoming staff.
The Blood Bank gives people a reason to come back!
3. The elements of the marketing
concept
The marketing concept has three basic elements. These are:
1. Customer focus
Everything the organisation does should be done with customer needs in
mind. This means conducting formal and informal research to identify and
satisfy changing customer needs and preferences.
2. Organisational objectives
These may include profitable sales volume, customer service or market share.
An organisation should endeavour to maximise sales whilst still ensuring the
sales volume is profitable for the business.
3. Co-ordination of marketing related activities
Management of a truly ‘marketing-focused’ organisation will ensure that all
aspects of the business are geared towards satisfying customer needs. This
starts with co-ordination of the elements of the marketing mix and includes
production, finance, sales and warehousing. Co-
Ordination among all these areas aimed at satisfying customer
needs will yield greater productivity and profitability in the long
term.
You can read further about the marketing concept by clicking onto the
following web addresses and text-based resources.
www.netmba.com/marketing/concept/
4. The role of marketing in organisations
Marketing planning
This occurs in the wider context of organisational planning. Marketing
objectives and plans are directed by long-term corporate goals and
strategies. Some of the key questions that are addressed by a corporate
plan are:
Where are we now?
Where are we going?
How are we going to get there?
How will we know we got there?
The marketing plan is derived from these corporate goals. For example, if an
organisation is looking to dramatically increase its profitability, the management
teams in each department would be required to develop their own department’s
plan to address this goal.
The human resources department may need to hire additional staff and the
production department might have to upgrade machinery.
The specific marketing plan may involve the introduction of new product lines, or
entry into new markets. It may even involve a long-term brand building campaign.
5. How is marketing different to selling?
So far we have seen what a marketing person does and the position the marketing
function holds in various organisations. There is still one area where even those
with some understanding of marketing get confused— whether marketing is
different to selling.
It has been suggested that marketing is just a fancy name for selling – some
cynics have called it ‘selling with a university degree’. Other people think that
marketing is advertising.
So, at this point, we need to be quite clear in out thinking. In fact,
personal selling and advertising are both parts of the ‘promotional mix’— a
concept we will examine in detail a little later.
6. The marketing mix
The marketing mix is also referred to as the 4 Ps. It is called the
4 Ps because it is a combination, or mix, of four key elements.
These are:
Product
Price
Promotion
Place (or distribution)
Service markers add an additional 3 Ps to as a means of
controlling variables created by intangibilities caused by the
delivery of services
People
Processes and
Physical evidence
For the purpose of this topic, you do not need to know about the marketing mix
in detail. However you should be familiar with the concept.
The 7 Ps – The marketing mix
Figure 1: The marketing mix
Product mix
A product is a set of tangible and intangible elements. The term ‘product’ can
refer to physical goods, such as cars, food or clothing, as well as services such as
Tourism, Events, insurance and ideas.
The term ‘product mix’ refers to the total range of products offered by an
organisation. For example, a consumer electronics company may market a range
of television sets, DVD players, camcorders and hi-fi equipment. Within each
product category, various models with different features as well as sizes and
prices are available to suit a range of needs and budgets.
It is vital that advertisers communicate the benefits of products, rather than
focus on features. Consumers do not buy features; they buy benefits as you can
see from the example below.
Let’s look at the example of buying a car.
Features Benefits
Air conditioning Comfortable driving experience
Security system Reduce risk of theft
Free servicing for 12 months Have more money to spend on other things
A person doesn’t buy a car with air conditioning because they like the actual air
conditioning. The air conditioning provides comfort, particularly on hot summer
days and cold winter mornings!
You must always keep this in mind when developing advertising to appeal to a
target market.
Fill in the table for a Tourism product of your choosing.
Product:
Features Benefits
Brands
A brand identifies a product and acts as a point of differentiation. A brand can be
as valuable to an organisation as its entire plant and equipment. Consider brands
such as QANTAS or McDonalds and Nike. These brand names are invaluable to
their owners. Consumers often buy ‘brand name’ items to reduce risks associated
with purchase. This is because the consumer perceives that the brand is
‘reputable’ or “safe”.
‘Branding’ does not only apply to consumer goods. Consider the following case
scenario:
This example illustrates that even in the market for charitable donations,
branding is still important.
What are some items where brand is an important consideration in your choice?
Price
Price is what you pay for what you get. The price customers are willing to pay
depends on the situation. Consider the following examples:
Buying a can of soft drink
What is the usual price for a can of soft drink from a takeaway shop? Don’t you
hate paying more when you go to sporting events or concerts? They are dearer
here because at the sporting venue, customers are limited to one or two choices.
Often drinks are not allowed to be taken into these venues so the drink sellers
have a ‘captive’ market. At the take-away shop, customers have the option of
going to another shop or choosing something else.
What are some circumstances where price is the most important consideration
in your choice of product?
When is price a less important consideration?
Setting a price
Setting a price is a delicate business. It must be higher than the costs (including
costs of marketing, distribution and retailing) but must not be more than the
customer is willing to pay.
Place (distribution)
‘Distribution’ involves all of the activities in the process of delivering a product to
its end user. An organisation may choose to distribute directly to customers, or
indirectly, using intermediaries.
Intermediaries are the independent organisations that act as a link between the
producers of goods and services and their customers. Intermediaries are
commonly referred to as ‘middlemen’. Examples of intermediaries are retailers,
wholesalers, agents and other distributors.
Direct distribution
Direct distribution occurs when an organisation has direct dealing with a
customer and delivers the product directly to them.
Examples of direct distribution are:
Major paint companies such as Wattyl, Dulux and Taubmans all have
company-owned stores for customers to buy from.
Party plan or catalogue selling of products such as home wares, lingerie and
ladies fashions.
Airlines such as QANTAS sell seats on their flights direct to consumers.
Stationery suppliers that sell to other business users through catalogues and
phone orders.
Indirect distribution
Indirect distribution occurs when an organisation uses one or more intermediaries
to distribute its products.
Examples of this are:
Coca Cola sells products to Woolworths stores which then sell to consumers.
Smallgoods companies sell to distributors who then sell to retail outlets such
as delicatessens, which then sell to consumers.
QANTAS also use intermediaries to sell to the public, such as Travel agents
who sell on their behalf or wholesalers who package their flights with touring
product.
Promotion
Advertising is the most obvious and visible form of promotion. However there is
more to promotion than just advertising. The promotion mix includes advertising,
promotion marketing (sales promotion), public relations/publicity and personal
selling.
Advertising
This involves mass communication of paid advertisements, placed in the media.
Promotion marketing (sales promotion)
This generally involves all the activities used by marketers to generate interest
and short-term sales. However, a consistent effort is required to ensure all of the
smaller ‘promotions’ communicate a common message to the market place.
Promotion marketing includes: in-store displays, trade shows, competitions and
give-aways.
Public relations/publicity
This can broadly be described as communication designed to influence attitudes
and opinions of a target group. Unlike advertising, public relations does not involve
guaranteed media placement.
Publicity and media coverage are the largest areas of public relations. However
there are many other effective public relations tools. Some of these include media
relations, corporate public relations, crisis and issues management as well as
marketing and product public relations.
Personal selling
This involves two way interpersonal communication. It may involve face-to- face
communication and interaction or personal interaction over the telephone.
Personal selling is common in the Tourism industry, where companies such as
airlines, hotels and wholesalers have Sales representatives who call on retail
travel agents to promote their products.
Organisations commonly use more than one type of promotion to get a message
across. For example, cosmetics manufacturers such as ‘Clinique’ commonly use
glossy magazines for advertising, however they also often use direct media (to
Myer and David Jones credit card holders) and frequently seasonal gifts with
purchase promotions.
7. The marketing environment
A lot of significant world and national events have occurred in the past decades
that have had a huge impact on the way organisations do business – particularly
the Tourism industry. The marketing environment itself is a dynamic and
constantly changing phenomenon just as the world is. Marketers must be aware of
changing market conditions in order to respond quickly and stay competitive.
Most managers in organisations have a good understanding of the environment in
which they operate. For example, some markets, such as hair care products, are
highly competitive, where others, such as service agents for large mining
equipment, may be far less competitive. Every different market has a range of
factors that influence it.
The marketing environment includes all those factors that have an influence over
the operation of a business and its effectiveness in the market place. It can include
factors that the organisation has total control over, such as cash reserves to things
such as interest rates over which the organisation has no control.
You must also be aware of your organisation’s strengths and limitations as these
factors will influence your marketing decisions. For example, a small or medium
sized manufacturing business may not have the financial resources or the
marketing knowledge to conduct an advertising campaign, but they may be very
good at relationship building via their sales force.
When analysing the marketing environment, the first question to ask, is ‘what
market are we in’? It might sound easy and obvious, but it requires careful
consideration.
For example, imagine you manufacture soft drinks. Would you say you operate in
the ‘soft drink market’, or the broader ‘beverages market’? In each case there
may be different competitors. In the beverages market you are competing against
alcoholic drinks, milk drinks, fruit juices, and water. These products are not direct
competitors, however they are substitutes for soft drinks. They must still be
considered when analysing the marketing environment. As a marketer you must
get to know the market/s you operate in and who your key competitors are.
Another example may be an airline such as Jetstar. Are they operating in just the
“airline market” or the broader “transportation market”? Again, in each they
would have different competitors. In the airline market they compete against
Virgin and other domestic carriers, and in the transportation market they are
competing against bus, rail and car transport operators.
When we analyse the marketing environment, we are looking at all the factors that
influence our company’s marketing activities and the behaviour of the target
market. In marketing and advertising planning, this is done as part of a ‘situation
analysis’.
There is a macro environment (external) and a micro environment (internal). For
the purpose of this unit we will only focus on the external environment as this
influences the needs and wants of the target market.
You should now review the relevant chapter from the recommended text list for
this topic:
Political/legal factors
Political and legal factors are usually considered together as laws and
regulations are developed by Governments at all levels. Examples of political
and legal factors that could influence marketing activities include:
laws and regulations
change of Government (or elections)
taxes and other economic policies
trade policies.
Some of the many laws and regulations affecting marketing and advertising
include
Competition and Consumer Act 2010, . This is monitored by the Australian Consumer
and Competition Commission (ACCC).
Privacy Act (1988) Monitored by the Office of the Federal Privacy
Commissioner
The ACCC website provides summaries of the Competition and Consumer Act 2010,,
and you can also find out about the range of action taken by the ACCC against
marketers over the past few years.
www.accc.gov.au/
You can read about the 10 National Privacy Principles at
http://www.privacy.gov.au/act/index.html
Economic factors
People and organisations are the market—but they don’t exist in a vacuum,
unaffected by the economy around them. Nor do they have a constant and infinite
supply of money. A variety of factors govern their willingness to spend and the
marketer must take these influences into account.
The first thing to consider is the general state of the economy. Economies tend to pass
through a four-stage cycle—prosperity, recession, depression and recovery.
Thankfully, economic management techniques are able to prevent the third stage
from occurring too frequently. When it does occur, the results are disastrous, as
happened in the 1890s and 1930s in Australia. However recessions, as
experienced in Australia in the early 1980s and 1990s, are a regular fact of
economic life. During recessions, customers reduce their spending.
What is the state of the economy now?
Inflation, interest rates and unemployment
The general state of the economy, inflation, unemployment and interest rates are
referred to as ‘key economic indicators’ and they can have a huge
impact on the marketing environment.
Inflation affects customers and marketers. Inflation means prices are rising, so
buyers receive less for each dollar spent. It is most common at times when there
is money around, but not enough goods and services to meet new needs. Such a
situation occurs when an economy is coming out of recession and production
levels have not caught up with new levels of demand.
The challenge for the marketer is to handle inflation most effectively. When
inflation is high, both pricing and the control of costs, which will also rise, are
important. You must know how high to permit prices to rise without driving
customers away.
It is important to be careful with expansion plans. Many marketers, driven along
on a wave of optimism by the apparent strength of the economy, rush to release
ill-considered new products or enter normally low profit areas of the market.
Times of low inflation mean you must keep a closer eye on costs. You must select
your markets carefully to ensure you continue to make reasonable profits. You
cannot rely on inflation alone to provide you with automatic price increases if you
get into trouble. Inflation alone will not provide automatic price rises. You still
have to make a decision to raise prices.
Interest rates can affect marketing activities greatly. In a period of high interest
rates, the purchase of items that require the customer to borrow money tends to
slow down. Houses and motor vehicles, along with industries associated with
these areas (furniture, white goods, motor vehicle parts and accessories), tend to
suffer severely in these periods. Low interest rates have the opposite effect.
Household debt increases as money is more freely available for property
investment and other purposes.
Finally, unemployment has a direct affect on people’s capacity and willingness to
spend. In times of high unemployment or uncertainty over the future stability
employment, people tend to spend less on items that are perceived as ‘non
essential’ or luxury items. Similarly, there is less money given to charity groups at
a time when it is most needed.
Economic data and forecasts are freely available from the Australian Bureau of
Statistics (www.abs.gov.au). You can also keep up to date by reading the
financial pages of daily newspapers.
Socio-cultural trends
Lifestyle factors, such as how we spend our time as well as our attitudes towards
a range of issues, are vital for marketers to understand when attempting to build a
profile of the target audience. The socio-cultural environment includes social and
cultural trends such as lifestyle choices and social values. It has a huge influence
on the marketing environment. Some of the major trends are the emphasis on
healthier living and increasing awareness of, and concern for, the environment.
What changes in the supermarket have you seen in the last few years that reflect
changing socio-cultural trends?
Social diversity
Australia is a multicultural society, but we are also a socially diverse nation. As a
democratic society, we have a range of cultures, religious beliefs, social attitudes
and political beliefs that influence our lifestyle choices. There is also a large
income spread among the community.
The ‘traditional’ nuclear family with mum, dad and the kids is not as common as
it was many years ago. Divorce, single parent families and people deciding to
have children later in life (or not at all) all combine to influence purchasing habits.
The advertising media in Australia is becoming increasingly fragmented to appeal
to the needs of different groups. This is the result of our busy lifestyles and
growth in the use of technology and telecommunications innovations.
Technology factors
Thanks to technology marketers have instant, low cost access to a global
market and consumers have access to a world full of products and information.
Technology is often well beyond the control of the organisation and can create
enormous changes in the marketing environment. Examples of technology factors
that have influenced the advertising and promotions industry in Australia include
the Internet, SMS and other mobile phone technologies.
Demographic trends
Demography involves the statistical study of populations. It includes elements
such as income, gender, family status, religion, education and age. The major
demographic trends in Australia are the ageing population, changing household
compositions and the appearance of ‘Generation X’. Each of these is discussed in
the following section.
One of the best sources of demographic data in Australia is the Australian Bureau
of statistics (ABS). The ABS offers a great deal of free information but can also
provide a range of customised and specific reports for a fee.
Australia’s ageing population
One of the most significant trends in the marketing environment is the trend
towards an ageing population. The phrase ‘ageing population’ refers to the fact
that as a percentage of the total population, older generations are increasing in
numbers.
You may have heard the term ‘baby boomers’. This refers to those people who
were born in the years following the Second World War. Most of these people are
somewhere in the age bracket 50–65 and they are nearing or planning for
retirement. After the ‘baby boom’ period of the 1950s and 60s, the birth rate began
to decline. This is why we have an ageing population. The percentage of
Australians aged over 65 is over 13%.
Generation X
Another significant grouping for marketers is the so-called Generation X— those
born between 1965 and 1981. This demographic group has been described as the
‘selfish generation’—well-educated, watching more television, and living in the
family home longer. This group is also extremely attractive to marketers. Many
Xers are now in their 30s and at their peak earning potential and are well
established in their careers.
Generation Y and Generation Z
Perhaps you would be more familiar with the term Generation Y – which
describes the generation born between 1982 and 2000; or, perhaps, not so
familiar with Generation Z which describes those after 2001.
You can read all about Generation Y here:
http://www.learningtolearn.sa.edu.au/Colleagues/files/links/UnderstandingG
enY.pdf
Household composition trends
Another part of demographics also includes the make-up of the household. In the
1960s and 1970s, the traditional concept of mother and father with two children
was the reality for marketers. By the year 2000, however, things changed
radically. Nearly 30% of households consist of one adult living alone. A
substantial number of homes (approximately 18%) is occupied by only two
people. The response to this trend has been the construction of increasing
numbers of small flats and units for one or two persons.
Factors that have lead to the increasing number of singles (sometimes called
‘home-alones’) include:
the increasing divorce rate
ageing of Australia’s population
the increasing life expectancy of Australians
people marrying later in life—or not at all
people having children later in life—or not at all.
A look around your supermarket reveals a variety of brands and types of meals
for one or two people. Many of these are for microwave use, the convenient way
of preparing a meal for those with no need or wish to cook. The traditional items,
such as family-size pies, are pushed to the back of the freezer.
Ethnic diversity
The increasing diversity of Australia’s ethnic population mix is also an
opportunity for marketing action. Supermarket shelves carry a variety of foods
from all parts of the world (from Indian curries to Thai stir fries) and some are
pre-prepared meals designed for variety in tastes and eating patterns.
Restaurants offering cuisine of overseas origin are found in every town and
suburb. Impacts of cultural diversity are also being found in other areas, such as
housing, financial services and leisure industries.
Changing gender roles
The roles of both men and women have changed considerably over the past 40 or
so years. The changing role of women is often talked about, with women having
greater flexibility and choice in their work and social lives.
However, marketers are slowly realising that the role of men is also
changing. Product categories that were once considered for ‘women only’ are
now targeting men. A perfect example is the launch of the Nivea for Men range in
the 1990s. There are many more examples of personal and skin care products now
targeting men. Fashion has also become a point of interest for many men, with
major city and metropolitan shopping centres, such as Westfield, actively
promoting fashion to men.
Competition
We all know that in today’s competitive business environment, business is tough,
especially with the impact of technology that links people around the world—
instantly!
Just how much of a problem competition causes you depends on who is out there
competing. In the case of the computer market, there are lots of companies all
trying to gain the greatest market share they can. If you are a marketer in this
industry you had better be on your toes. The mobile phone service battle is pretty
hot also.
At the other end of the line are operations like Australia Post that have a position
of no competition (monopoly) for their postal services. Even they have to watch
out for people providing the same service in a different way, such as courier
companies and the suppliers of fax machines.
8. Marketing information and market research
How does a family pizza shop know what types of toppings are preferred by its
customers and how does the Red Cross know who is supporting the charity?
Finally, how do the television networks know who is watching? The simple
answer is that they have market information.
The pizza shop owner only has to look at her records to see that seafood and BBQ
chicken seem to be the most popular choices lately. The Red Cross could look at
its database of receipts to find out who is donating and how much they are giving.
The television networks subscribe to ratings information.
Marketing information is critical to the success of any organisation, large or small.
Marketing information includes everything from how much and what you are
selling (such as the Pizza shop example), to who is watching television and when
they are watching. It also helps organisations to keep an eye on competitors and
monitor market trends.
In this section we will discuss the types of marketing information, their
collection methods and their application.
Gathering market information
A marketing information system is simply a method of collecting, analysing and
storing information. For example, the pizza shop owner in the previous example
might know from memory that seafood is a popular pizza topping,
however she might not know off the top of her head how cheese suppliers and
prices have changed over time. She would need to look at her records to find this
information. This information would form part of the marketing information
system for the business. Of course, large organisations have hi- tech computerised
data base systems for this purpose, however the pizza shop example demonstrates
that even small businesses can use a marketing information system.
Modern marketing information systems can now, at the press of a button,
provide:
regular reports on sales, profit, and stock turnover
data on trends and sales movements by product, service or geographical area
estimates of the likely result of particular marketing actions, e.g.
He effect on sales and profit of a price rise, extra discounting to
certain customers or an increase in the level of stock held in the warehouse
marketing intelligence from your own people and contacts.
At this point we should make the difference between a marketing information
system and marketing research clear.
Marketing information systems (MkIS)
MkIS are systems that continually gather information that can be used to make
marketing decisions. Information may include sales figures, economic data for
trend analysis, customer details, etc. In the case of the Blood Bank that we
discussed earlier, it may maintain its database of previous donors as part of its
MkIS.
Marketing research
Marketing research is information gathered for a specific question. We use
marketing research to gather information about the marketing environment and
about customer needs. In the case of the television network mentioned earlier, it
relies on external information that is specifically collected to determine ratings.
You should now review the relevant chapter from the recommended text list for
this topic:
Rix P Marketing: A Practical Approach, McGraw Hill, Sydney.
Primary and secondary data
Researchers usually divide their data into: primary data and secondary data.
Primary data is information gathered specifically for the project you are working
on. Secondary data is information that is directly relevant to what you are doing
but that has been gathered originally for some other purpose. Or if you like, your
secondary data is someone else’s primary data!
Although it is just as likely to be your own data from another project.Gathering
secondary data
The beauty of secondary data is that you can get a lot of it while sitting at a desk.
That’s why you may hear it referred to as desk research. Where can you find
secondary data?
The best place is probably the Internet. The Internet is a valuable source of
information. If you use major search engines carefully, you’ll be able to access
secondary data, which would save hours of work.
Alternatively, you could visit a library, where you can access information either in
written publications, books, magazines and journals or on a computer database.
One thing both the Internet and a library have in common is information published
by the Australian Bureau of Statistics (ABS). They publish statistical data and
information about trends in a large variety of areas. Examples include census data,
population estimates and projections, information about consumer income and
expenditure, housing and construction, manufacturing industries, retail outlets and
much more.
Other sources of secondary data
Another place you could look would be in the files of large general market
research companies. A number of these (with A C Nielsen being the prime
example) conduct continuous research programs on all manner of subjects with a
view to selling the results to anyone interested. If your project involves consumer
goods sold in a supermarket, the AGB research organisation can supply you with
information on customer buying patterns drawn from records created by checkout
scanners. Visit their website www.agbgroup.com for further information.
Gathering primary data
Primary data may be collected using a range of techniques. These include focus
groups, observation research and surveys. If you are not already familiar with
these from your previous reading, look them up in your textbook.
Focus Groups
Surveys
Central location/personal survey
Telephone survey Mail survey
You can read further about marketing information and market research in
Australia by visiting the website of the Australian Market and Social Research
Society at www.amsrs.com.au
9. Consumer and business markets
The term ‘B2B’ means ‘business to business’ marketing. Similarly, the term
‘B2C’ means ‘business to consumer’ marketing. The basic difference between the
two is the intended use of the product.
In this section we will introduce the key differences between B2B and B2C
marketing. We will also look at the different influences on decision making in
both types of markets.
We will look at consumer markets first, followed by a discussion of
business markets.
Consumer markets
We are all consumers—so when you are considering how consumers
behave, think about your own buying behaviour! Understanding
consumer motivations and behaviour is very important for advertisers as it
underpins all of our marketing communication planning strategies and
decisions.
Consumers should actually be viewed as problem solvers because we make
purchase decisions to solve problems. For example, we buy new clothes to make
us feel good or because old ones have worn out. We might buy a drink when we
are thirsty, or food when we are hungry.
Earlier when we discussed the product mix, we stated that people buy benefits,
not features. The benefits that consumers look for are those that will best solve
their immediate problem.
There are three broad types of decision-making. These are:
Extended search decisions
Extended search decisions are likely to be high involvement decisions. They
involve a lot of time and effort and often a great deal of expense and risk.
Extended search decisions tend to be made in the case of some shopping goods
and specialty goods.
Examples of extended search decisions may be buying a house or new car, or
buying a wedding dress.
Limited search decisions
Limited search decisions involve some search; however, the buyer is likely to
settle for a substitute item if the preferred item cannot be found. These decisions
tend to be made for shopping goods, such as new shoes or a new wallet.
Routine decisions
Routine purchases tend to be everyday convenience items such as milk and bread.
If the sought brand is not available, the brand will be substituted without much
thought.
As you can see, the type of decision influences the marketing decisions that should
be used in each case.
10. Business markets
Think about something you have purchased recently. It may be a can of soft drink, or a
new CD, or maybe even a new car. For each of these purchases you would have gone
to a shop and paid money and taken the item home and used it. But how did each of
these items get into the ‘shop’ for you to be able to buy them? All the steps in the
manufacture and delivery of these items to a retail outlet are part of the business
market.
As consumers we don’t tend to think about how all the things we buy get to their
point of purchase. However thinking of soft drink, the manufacturers must buy cans,
ingredients and other packaging materials to actually make their products. All these
stages of manufacture fall into what is called the business market.
In tourism, the Tourism wholesaler “buys” hotel rooms, flights and touring products
to create their products and brochures.
The basic principles of marketing apply equally to business and consumer
markets.
The differences between consumer and business decision making lie in
the nature of demand
the composition of the business market
the motives of buyers in each market.
There are also differences in the use requirements in each market.
The business market consists of all organisations that purchase goods and services. All
organisations operate in the business market in some way. We refer to the business
market, but in fact we are actually referring to the organisational buying market. This is
because it is not only businesses that are the target of business-to-business marketers.
Other organisations such as hospitals, schools, charities and agricultural enterprises
also form part of the business market. The business market is often referred to as the
B2B (business-to-business) market.
Organisational buyers will also have different needs and buying patterns across
different buying situations. For example, a stationery and office furniture company
sales representative may call on major accounts regularly to maintain orders for
consumable type products, such as photocopy paper and general office supplies.
However, more time is required when looking at a situation where a client is looking
at spending many thousands of dollars on the upgrading of all its office furniture. In
this case, a large amount of sales time may be required before the sale is actually
finalised. The same applies in Tourism, where Product Managers from Tour
Wholesalers will negotiate deals with suppliers such as airlines, hotels and cruise
companies approximately 18 months in advance.
The basic principles of marketing apply equally to business and consumer markets.
The differences between consumer and business decision making lie in the nature of
demand, the composition of the business market and the motives of buyers in each
market. There are also differences in the use requirements in each market.
The scope of the business market
The following is a list of some of the types of ‘organisations’ that are
considered business buyers:
Agri-business sector
You may not think of a flower grower as a business, but they are in fact businesses.
The grower needs irrigation equipment, labour and other supplies to run the operation.
Tourism sector
Tour wholesalers can be considered business buyers, as they “buy” product from
suppliers such as airlines, hotels and tour operators to create packages and
brochures. Without these other businesses to buy from, they would not have
products to sell.
Mining
The mining industry in Australia a significant market for companies such as
Caterpillar, which sells and leases large mining machinery.
Building and construction
The construction market has been booming in recent years with commercial and private
developments across the major cities of Australia. The mobile population means that
coastal areas in New South Wales are now booming as people move north from city
areas of Sydney.
Manufacturing
Manufacturing organisations need production machinery, raw materials, packaging
supplies, safety equipment and many other products and services to keep the business
running.
Transport
Obviously in this sector, vehicles and their maintenance are very important, however
there are other associated markets that are linked to the transport sector. Forklift
suppliers, pallet suppliers, container shipping and handling facilities, storage
warehouses are just some examples of industries linked to the transport market.
Wholesale and retail trade
This is probably the main industry you would think of when you first consider the
business market. Tourism is a very good example of this. Retailers market to
consumers, however retail suppliers (such as airlines, wholesalers etc.) conduct
extensive marketing and personal selling aimed at retailers. Companies that buy goods
from other organisations to resell are commonly referred to as ‘resellers’. Retail travel
agents could be classed as resellers.
Business services
Finance, insurance and real estate are just three examples of service based
markets but they are just as important as product based markets
Government contracts
Government contracts can sometimes be very lucrative, depending on their
nature. However
The government market operates slightly differently from many other markets, with
tender processes to determine which supplier will be awarded government business.
Not for profit organisations
Non-profit organisations are often charities, but they could also be community groups,
such as Greenpeace, council run childcare centres or special interest clubs and
associations. Each of these types of organisations forms part of the business market
with its own unique environmental influences and busying decision processes.
Buying patterns in business to business markets
This section contains a summary of the material you looked at in the previous text
reading. It discusses some of the elements that influences B2B buying patterns.
Buying is often a group process
Marketers should never assume that there is only one person involved in the decision
process. There may be a number of people which influence the process, but who do
not actually place the order
Buying is less frequent and in larger quantities Order sizes and quantities will vary from order to order in business markets.
One week you may have a customer ordering 100 pallets and the next week
demand may be significantly down.
Tourism is a very good example of this with fluctuating and seasonal
demand.Negotiation period is often longer
Obviously this depends of the type of decision. For example, a factory owner’s
decision to buy manufacturing machinery would take longer than their decision
about what brand of soap to use in their washrooms.
Customer service is often a main requirement
Many organisations count on the reliability of suppliers to help them satisfy their own
customers;’ needs. Often greater reliability may come at a higher cost, meaning that
price is not always the key concern of buyers. For example, Tsubaki Australia sells
maintenance parts for heavy mining equipment. If mine operations are closed down
for any length of time for a breakdown while parts are sourced, a great deal of money
will be lost in down time. Guaranteed availability means that customers are willing to
pay more.
Consistency of quality and supply are important
This point is similar to the previous and also indicates why some firms may pay more
for guarantee of quality and consistency. For example, Coke could not accept cans
with varying print quality, some red, some crimson, some pink. That would be totally
unacceptable from any supplier. McDonalds is the same. They are famous for
consistent quality. In Tourism (being in the service industry) the product or service
(airline, hotel etc) must deliver a consistently high standard of product and of
customer service. If they don’t, consumers will complain and negative publicity will
result in a drop in sales.
Business market demand
Consumer demand is heavily influenced by such marketing environment factors as
the interest rate level, social trends and marketing communications. Whilst some of
these factors may influence business buying, there are three main aspects of business
market demand that marketers should understand
Demand is derived
The demand for business goods is based on the underlying demand for consumer
goods, so business markets are said to have ‘derived demand’. For example, a brick
manufacturer must base its forecast on the number of brick homes and buildings being
constructed. The company can only sell as many bricks as there is demand for brick
buildings.
The healthy lifestyle trend has seen a decline in the consumption of sugar and some
dairy goods. Campaigns by the industry associations for these products have helped to
boost consumption levels. In each case, the demand for the raw materials is influenced
by consumer demand. A similar industry campaign was run several years ago by the
aluminum can manufacturers. They ran a campaign that promised ‘nothing’s as good
as a coldie’, which encouraged consumers to choose drinks in aluminium cans as they
stay colder, longer. The industry was trying to influence consumer demand so that
demand for can stock from soft drink and beer manufacturers would increase.
In Tourism, destinations try to drive demand by advertising both domestically and
internationally with campaigns such as those run by Tourism Australia.
It is extremely important for B2B marketers to keep up to date with trends in the
consumer market. For example the increasing popularity of Spa Resorts, Cruising
holidays and Eco style resorts. Other examples might be the popularity in lifestyle
and home improvement television shows has seen an increase in demand for a whole
range of products, including paint, pots for plants, garden maintenance products and
light building goods such as pergola roofing. There has also been a trend towards
more internal décor items such as wall hangings and light fittings.
Demand is relatively inelastic
‘Elasticity of demand’ refers to how responsive demand will be to a change in price.
The price must be an industry wide price change. The demand for business goods is
generally considered inelastic as the cost of one element of a product is usually only a
small portion of the cost of the finished product. For example, if the price of sugar
went up, it might cost beer manufacturers an average of an extra two cents per can.
Even if the retail price increased by two cents, the overall demand for sugar would be
unlikely to change. Unless consumer demand changes as a result of the industry price
rise, business market demand is unlikely to change significantly.
Demand is widely fluctuating
The demand for business products fluctuates more widely than for consumer products.
This is because consumers tend to purchase in single units, where as business market
purchases vary in size and order frequency.
Business market buyers are well informed
Increasingly, business purchasing is handled by a specialist buyer, even in small
businesses, buyers are aware of what each supplier can offer and where the best deal
is. Many organisations make purchasing a specialised function and establish teams of
purchasers. The individuals on those teams are often university or TAFE qualified and
have skills in evaluating alternative suppliers and conducting negotiations.
Most B2B marketers place greater emphasis on personal selling, so sellers are able to
make sure their customers and potential customers are well informed about products
and services on offer in the market place. As mentioned previously, personal selling
is used across the Tourism sectors and hotels, cruise companies, airlines and the like
all have Sales representatives that make it their job to build strong relationships with
business buyers (such as Tour wholesalers).
The key distinction between consumer and B2B markets is the type of
customer and their reason for buying, or product usage.
Consider the example of a hotel room. The following table outlines the different
motives that different customer types have when they purchase a hotel room.
Reasons for buying a hotel room.
Tourist (consumer) Retail Travel Agent
(re-seller)
Tour Wholesaler (B2B)
Price Some are interested in
value for money
– not necessarily the
lowest price, others may
just be interested in the
lowest price.
Requires high profit from the
sale, so will try to upsell
where possible to a more
expensive hotel. If not, will
charge a service fee.
Will try to negotiate the
lowest price possible to
increase their margin.
Product
Range Different consumers will
have different needs and
requirements of a hotel room.
Some want views, others
want larger rooms with extra
facilities. Hotels try to have
a range of rooms to suit
individual needs.
Travel Agents may try to
promote exclusive lines with
higher profit yield such as
selling exclusive upmarket
resorts or promoting 5 star
hotels. They also need to be
able to access and sell hotels
in all categories for the
varying needs of their client
base.
Will try to buy a good quality
range of hotels that they can
include in their brochures.
Maybe a few in each category
but generally not 1 or 2 star
hotels. More likely to feature
more 3 star hotels with some
4 and 5 star for the top end.
Promotion In general hotel
promotion direct to the
Tourist is done via
newspaper advertising.
Consumers are looking
for hotels for varying
reasons, but the lure of
beautiful beaches and
tropical settings will
always attract.
Hotels use Personal selling
to drive business. They
have dedicated
representatives that call on
Travel Agents to promote
their products. They offer
free or discounted rooms to
Travel agents so they can
experience the product first
hand.
Tour wholesalers are looking
for hotels that will support
them in the long run with good
rates and great service
standards.
Incentive deals may be done
and deals on rates are very
important. Again, this is all
done via Personal selling,
building strong business
relationships for the long term.
Distribution The ease and availability of
the Internet have made
purchasing easy for the
consumer. They can now
look at brochures, look at
websites and find prices
and availability online.
These are all methods of
distribution for a hotel,
along with the use of Retail
Travel agents.
Retail travel agents have
their own websites and
sometimes call centres. This
is their way of distributing
their services.
Tour wholesales buy in bulk
from hotels by the way of
room allocations or a room
freesale facility. The more
they sell, the better their rate
might be the next year.
Business users are organisations that buy goods and services for any of the
following purposes:
To make other goods and services such as a cheese company buying milk,
or a bread manufacturers buying flour to make bread.
To resell to other business users or consumers—these are often called
‘resellers’ because they buy goods to ‘resell’ them. For example, the major
supermarkets are all resellers.
To conduct the organisation’s operations—these are the day-to-day supplies
that the business needs, such as stationery and staff amenities.
11. Emerging trends and technologies
A number of changes in the last decade have impacted on the marketer and
therefore the way that marketing is applied. We will now look at some of the
emerging trends and technologies in marketing.
Relationship marketing
Have you bought a cup of coffee lately or a muffin for morning tea and then been
asked for your ‘customer card’ for stamping? Many businesses now run a bonus
system where regular customers receive every ‘nth’ purchase free. What are these
businesses trying to do? They are telling you, the regular customer, that you are
important to them and should be rewarded. The business is participating in
relationship marketing.
Examples of relationship marketing
Remember that relationship marketing focuses on the long term relationship not just
the current sale.
Let’s now look at two areas of relationship marketing
loyalty marketing
value adding.
Loyalty marketing
Do you belong to a ‘customer club’? You may know someone who does. This
‘customer club’ is most probably a loyalty marketing scheme, where the more you
buy from the organisation the more you may benefit. The best known schemes in
the Tourism industry are the airline Frequent Flyer programs. These are incentive
programs designed to reward you for continuing to fly with them. The more you
fly, the more points you earn, which can be exchanged for free flights and even
other goods and services.
Value adding
Another popular area of relationship marketing is value adding. Many
organisations believe that customers need to be rewarded with extra benefits. Many
luxury car companies provide benefits at their showrooms such as gymnasiums,
billiard rooms, and meeting rooms. Others provide benefits like free valet parking
at hotels and airports, special events tickets to sporting and cultural events and even
fashion previews.
In Tourism, hotels add value by offering 7 nights for the price of 5, or by including
Free Buffet Breakfast daily.
Total quality management (TQM)
Because of the importance of quality and reliability to consumers today
marketers are starting to use Total quality management (TQM) as a means of
meeting continuous improvement in their organisations.
The ‘father’ of TQM, W. Edwards Deming, was responsible for taking TQM
techniques to Japan after WWII. This approach has been credited with the
incredible economic growth that Japan saw in the post-war era.
Deming’s message about TQM is summarised in the following three points:
1 Find out about your customers and what they want
2 Study and improve your products and services until they cannot be
beaten.
3 Involve everyone throughout the organisation, at all levels and
disciplines.
It sounds like Dr Deming was a marketer!
Technology and marketing
Have you used Facebook this week? Or posted a video on YouTube? Have you
surfed the Internet using a Wi-Fi connection? Or used a Bluetooth hands free
device in your car? Or downloaded songs to your iPhone?
These are all examples of major technological breakthroughs that are relatively
new. So, what has this to do with you? Plenty, you are a marketer!
Major technological breakthroughs have created new industries, killed off industries
and stimulated unrelated industries. Think of the negative effect e- mail has had on
courier and postal services, however on the positive side, the positive effects of online
stores have dramatically increased their business.
Retail Travel has suffered and had to change with the times as Tour Wholesalers and
many other Tourism sectors sell their wares online. This has been the biggest change
to this Industry ever and it is still changing today.
As a marketer you will need to be aware of what technology is doing to your
market.
Technology has particularly changed the way we communicate with each other.
Telemarketing
Telemarketing is where an organisation uses telecommunications equipment to
market to customers, contact existing customers or to take order. Often
Telemarketing is used in conjunction with other sales techniques such as a
follow up call by a salesperson. There are strong financial benefits as the cost of
a phone call is minimal compared to that of a call in person. Having routine
orders placed with telephone sales staff allows the sales team to devote more
time and efforts in other more profitable areas.
Another area of Telemarketing is customer service. You may have had a
customer service operator from your educational institution phone you to ask
how your study program is going. Many organisations use this type of follow
up call to ensure customer satisfaction and the chance of repeat usage.
Telemarketing is also used as a feature on different television programs, where
to enter a contest you call a particular number and give information about that
program or choose the ‘catch of the day’ in a cricket game.
An effective telemarketing team can be difficult to run effectively and some
organisations outsource. There are many specialist firms that run call centres for
a variety of clients.
E-marketing
E-commerce or e-marketing is the term that is being used to describe the on-
line activities of a business. These may include the use of web pages, email,
mobile phones and wireless access.
E-marketing includes online shopping and online purchasing. Online shopping
is where the customer gathers information about the product or service that
they would like to buy. Online purchasing is where the organisation provides
the technology for the customer to place an order and then pay for the product
or service via the Internet.
Suggested response
The marketers in an organisation should ask questions like these:
What are the benefits and downfalls of e commerce?
Is our organisation large enough to take advantage of this new style of
marketing?
Do we have the right products or services?
How do we design an effective web site?
How do we get our current and future customers to visit our site?
The answers to these questions are specific to your business.
12. Legal, ethical and environmental
issues
Consumers today are calling for organisations to be more socially responsible
and to be aware of the impact of their actions on the environment and society.
Corporate ethics has become the hot issue in the first few years of the new
millennium. The collapse of such companies as Ansett Airlines, Onetel and
HIH Insurance has many board-room members looking at their legal and
ethical obligations.
Across the other side of the world, the fall of the huge organisations of Enron
and WorldCom, setting records as the largest ever corporate collapses, has had
the US Government tightening their laws regarding corporate governance.
More recently, the global financial crisis had created a range of issues little
imagined by our legislators and leaders just a few short years ago.
Where does marketing fit in all of this? Well, you the marketer needs to realise
that this is part of meeting the consumers needs and wants. As consumers
become more socially aware and demanding of organisations to meet higher
standards of social responsibility, it is the marketing department that must meet
this challenge head on.
Legal issues
There is a range of legislation that relates to marketing. You don’t need to be a
‘legal eagle’ but you do need to be aware of the main laws and why they were
passed and how they could affect your organisation.
The legislation can be divided into two main areas, those that regulate
competition and those that protect consumers. One of the best-known laws
would be the Trade Practices Act 1974.
The ACCC
A regulatory body that you should also be aware of, is the Australian
Competition and Consumer Commission (ACCC). It was established in 1995
by merger between As an independent Authority it administers the
Competition and Consumer Act 2010 and the Prices Surveillance Act 1983. It
is the only national agency that handles matters of competition and the only
agency with the responsibility for enforcing the Competition and Consumer
Act 2010
You may wish to look up the ACCC’s website, which is quite informative.
The web address is: http://www.accc.gov.au.
Legislation can be found at: http://www.austlii.edu.au/
Summary
This has been a brief introduction to some of the most essential aspects of
marketing, such as the marketing concept, the effect of emerging trends and
technologies on marketing and the legal and ethical constraints of marketing.
You should now be familiar with some marketing terms and strategies, and be
able to apply some of them to real life situations