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PRINCIPLES OF MARKETING

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University of Malaya Centre for Continuing Education (UMCCed)

TABLE OF CONTENTS

Page

SCHEME OF WORK

Learning Outcomes

Course Synopsis

Teaching Methodology

Assessment Method

Teaching Schedule

References

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CHAPTER 1: INTRODUCTION TO MARKETING

1.1 Introduction

1.2 Components of a Market

1.3 Marketing Management – Role and Importance

1.4 Challenges for Marketing Managers

1.5 Technology and Marketing

1.6 Successful Companies

1.7 Terminologies

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CHAPTER 2: THE ENVIRONMENT AND MARKETING

2.1 Environment and Companies

2.2 External Environment Analysis

2.3 STEEP Analysis

2.4 Industry Competitive Framework (ICF)

2.5 Internal Environment Analysis

2.6 Strengths, Weaknesses, Opportunities and Threats (SWOT)

2.7 Stakeholder Analysis and Impact on Marketing

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CHAPTER 3: MARKETING MANAGEMENT – ORIGINS AND

PHILOSOPHIES

3.1 Introduction

3.2 Barter Trading

3.3 Philosophies in Marketing

3.4 Production Philosophy

3.5 Product Philosophy

3.6 Sales Philosophy

3.7 Marketing Philosophy

3.8 Green Marketing

3.9 E-Marketing

3.10 Social Marketing

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CHAPTER 4: MARKETING MIX 1 – PRODUCT

4.1 Introduction

4.2 Product Classification

4.3 Product Life Cycle

4.4 Product and Market Strategies

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CHAPTER 5: MARKETING MIX 2 – PRICING

5.1 Introduction

5.2 Issues with Pricing

5.3 Aspects Related to Pricing

5.4 Profit And Pricing

5.5 Market Structure

5.6 Cost Structure

5.7 Taxation and Subsidy Policies

5.8 Competition

5.9 Consumer Purchasing Power

5.10 Price Elasticity of Demand

5.11 Stages in the Product Life Cycle

5.12 Summary

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CHAPTER 6: MARKETING MIX 3 – PROMOTION

6.1 What is Promotion?

6.2 The Importance of Promotion in Marketing

6.3 Traditional Promotional Methods

6.4 New Forms of Promotional Methods

6.5 E-commerce and E-marketing

6.6 Mistakes Common in Promotional Activities

6.7 Promotions and Market Segmentation

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CHAPTER 7: MARKETING MIX 4 – PLACE

7.1 What is Place?

7.2 Why is Place Important in Marketing?

7.3 Factors that Influence Distribution Channel Used

7.4 E-Commerce and Place

7.5 Misconception with Place

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CHAPTER 8: MARKETING – GLIMPSE OF THE FUTURE

8.1 Introduction


8.3 Environmental Forces and Future Impact on Marketing

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SCHEME OF WORK

Programme : Executive Diploma in Management

Course Code : UESM 1102 / UESB 1203 / UESH 1102

Course Title : Principles of Marketing

Credit Hours : 4

LEARNING OUTCOMES

By the end of this course, students are able to:

1. Discuss the basic concept related to marketing principles.

2. Use the important concept of marketing principles in their daily activities.

3. Identify the main differences between four elements of marketing mix and the marketing

strategies for each element.

4. Produce a basic marketing plan for the manufacturing / service sector.

5. Acquire the meaning of customer value and how to ensure marketing managers an ascertain

customers are given full attention in accordance with business values.

COURSE SYNOPSIS

This course provides the introduction to basic ideas of marketing principles. The course

commences with discussions on the importance of marketing concepts and shifts to prudent

discussion of the four elements in marketing mix. This course also discusses the importance of

customers and the marketing system strategy.

TEACHING METHODOLOGY

Lecture, class discussion, and case study

ASSESSMENT METHOD

Continuous Assessment 40%

Final Examination 60%

Total 100%


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REFERENCES

1. Anderson, J., & Narus, J. A. (2011.) Business marketing management: Understanding,

creating, and delivering value. USA: Kellog School of Management.

2. Turner, M. J. (2000.) How to think like the world's greatest marketing minds. New York:

McGraw-Hill.


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CHAPTER 1

INTRODUCTION TO MARKETING

1.1 Introduction

Welcome to the subject marketing management. It is vital that several core distinctions are

made in relation to defining basic concepts pertaining to marketing. This section addresses

this issue in detail.

The term market is defined as the meeting point between buyers and sellers (Kotler et al,

2010). The origins of a market can be traced back to early days of barter trading between

buyers and sellers at a common and predetermined meeting point. Details of what entails a

market are discussed in section 1.2.

Learning Outcomes:

At the end of this chapter, you should be able to:

1. Define the term markets, marketing, and marketing management

2. Describe the core elements that constitute a market

3. Discuss the role and importance of marketing to an organisation

4. Highlight the core challenges facing modern day marketing management

5. Discuss the impact of technology on new-age marketing

6. Be exposed to examples of companies with good marketing strategies

7. Obtain an overview of core concepts and terminologies used throughout the module

8. Discuss the review questions

9. Work on a case study at the end of the module


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The term marketing relates to a core activity or procedural viewpoint from a company’s or

organisational perspective (Dennis and Halborg, 2010). Marketing is often looked at as a

process of taking a product/service produced by a company to the consumer in a given

market. This means that there are several core components involved in marketing when

examined from a procedural dimension. Traditionally the core aspects of marketing from

womb (product/service) inception right purchase by the consumer entail the following:

Product – the basic value created by a company. Often this is described as being

either tangible (a can of coca-cola) or as an intangible service – e.g. a hair cut at a

saloon, a flight that we take or education that we receive. In this module we will look

at several aspects of products – such as new product development, the different

product strategies and also the issues with products in general.

Price – the value derived from the sale of a product or service by the company. Price

can also be interpreted from an economic perspective as the willingness of a

consumer to pay a certain amount of money to obtain a product. In this regard, price

could have different meaning to the seller (i.e. value placed on product/service

created; or as the value that a consumer is willing to part with).

Promotion – all processes and activities geared towards informing the customers

about our product/services created. In this module, we will examine promotional

concepts such as advertisement, traditional media, the Internet, Social media and so

on.

Place – often referred to as the distribution channel or the manner in which a

company delivers/distributes its product/services to the consumers. For example, let’s

take a farmer who is in Cameron Highlands. His produce will normally be channelled

to the consumers via a wholesaler, retailers and finally picked up by the consumers.

We will explore issues such as short versus long channel conflict, challenges in

channel management and so on in this module.


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Given the above, we can classify markets into two broad categories namely, consumer and

business markets (Kotler, 2009). Consumer markets focuses on exchange of product and

service for money between the seller and household customers – largely involving consumer

products and services. An example would be an individual household buying electronic

appliances for a home. Business markets involve buying and selling between businesses – i.e.

the products and services are used as part of producing the final product/service for the

individual market. For example, Proton buys tires from Goodyear to make cars.

The American Marketing Association (AMA) take a conceptual definition of marketing and

define it as "the activity, set of institutions, and processes for creating, communicating,

delivering, and exchanging offerings that have value for customers, clients, partners, and

society at large (AMA, 2007).

The Charted Institute of Marketing defines marketing as "the management process

responsible for identifying, anticipating and satisfying customer requirements profitable

(CIM, 2009).

Paliwoda, Stanley and Ryan (2009) define marketing from a value based concept and link the

idea of marketing to maximisation of shareholder value.

In terms of the environment, market environment is a marketing term and refers to factors

and forces that affect a firm’s ability to build and maintain successful relationships with

customers. Three levels of the environment are: Micro (internal) environment – forces within

the company that affect its ability to serve its customers; Meso environment – the industry in

which a company operates and the industry’s market(s); Macro (national) environment –

larger societal forces that affect the microenvironment (Kotler et al, 2010).

Finally, the term marketing management refers to all activities inherent in marketing that

requires a management approach of planning, leading, organising, implementing and


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evaluation of marketing processes in an organisational context. This implies that viewed

from the lens of management, marketing is often associated to management concepts such as:

Planning – overall marketing plan

Leading – requires role of marketing managers and directors

Organising – planners (managers) who take charge of developing the right amount of

resources (financials and non-financials) to ensure a marketing activity can be

executed

Implementing – timely execution of events/activities under the marketing banner –

which implies a strong link to managing marketing projects

Evaluation – establishment and control of marketing related key performance

indicators (KPIs) such as revenue targets, sales volume targets, market share, product

growth and so on.

1.2 Components of a Market

BUYER SELLER MEETING

POINT

Figure 1.1: Elements of a market

Figure 1.1 presents the basic components of a market. Essentially there are 3 major

components of a market:

The Buyer – also referred to as consumers or end users of a product/service (PS

henceforth).


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The Seller – often referred to as the person or entity that produces or offers a PS for

sale to the customer.

Meeting point – this is the venue at which the exchange of value between the buyer

and seller takes place. Examples of traditional venue or meeting points of the

marketplace are:

o The pasar malam (night markets)

o Shopping malls

o Road-side stalls

o Cafes

o Restaurants

o Retail outlets such as Tesco, Giant, Carrefour

o A service outlet – service centre for automotive companies

Increasingly, with the advent of the Internet and the birth of E-Commerce in general (born

circa 1992), various new forms of virtual markets have emerged – this includes among others

related concepts such as:

Business to Consumer market space – e.g. Dell.com

Business to Business market spaces – e.g. Alibaba.com

Social networks – e.g. Twitter, Fb, Orkut etc.

Business to Government spaces – e.g. ePerolehan in Malaysis

As mentioned, when buyers and sellers meet in the market place (or in the virtual domain),

an exchange process takes place – the buyer exchanges money (price he/she is willing to pay)

with an expected value derived from the PS sold by the seller. Given this concept, there

could be additional players in the market to facilitate both the buyers and sellers in

completing a transaction. This would include players such as:

Bankers – provide financial assistance to allow consumers to purchase a PS e.g. home

ownership


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Insurance companies – providing additional value to both the buyers and sellers in terms

protecting products from unintended consequences such as damage/lost during

transaction

Internet platforms and hosting companies – facilitating e-commerce models e.g.

ebay.com provides a platform for consumer-consumer buying and selling of products

based on an auction model.

1.3 Marketing Management – Role and Importance

Figure 1.2 shows the essential components of the value chain within a company. The value

chain model suggests that there are two types of activities for a company – primary (main

activities) and support functions. Examples of primary activities are inbound logistics (inflow

of supplies/material), operations, outbound of finished goods, and after sales support. Quite

clearly the figure suggests that marketing (different from sales) and sales form a core

component of a company’s value chain. Support activities include elements such as

Information Technology, Procurement, Administrative Support, Finance and Accounting.


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Figure 1.2: Value Chain and Marketing

The importance of marketing for a company can be summarised as follows:

Plays an important part in introducing a products/service to potential consumers

Vital in the context of bringing in revenue to the company

Provides accurate information to consumers about PS

Educates consumers on the benefits/value of the product

Assists sales team to develop comprehensive relationship strategies

Positions the products/service accurately in the market

Assists in discovering new markets/new product development initiatives

1.4 Challenges for Marketing Managers

Increasingly, in this new era, marketing managers are facing numerous challenges in relation

to their day-to-day functions. Examples of these main challenges are:


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Changing consumer lifestyle which demands up-to-date know-how of changes in

taste, trend and fashion- thus asserting greater need to keep abreast of social changes

in the marketplace.

Competitive forces from local and international players – especially for service

sectors such as telecommunication, finance and insurance, due to liberalization of

policies and traditional business boundaries.

Need to manage new generation of the marketing workforce – generation X and the

increasingly net-gen (C-gen), who continue to demand new forms of work-lifestyle.

Need to explore new business opportunities and develop new markets.

Need to understand the interaction between various components of the value chain

and inter-linkages between different business units affiliated to marketing.

Appreciate the opportunities offered by the Internet as a new form of business and

marketing model.


Inevitably, we are living in an information age – where the pervasiveness of technology used

in every business process cannot be undermined. Similarly, in the context of marketing,

Information Technology has played a very vital role. Examples of how IT has impacted the

marketing wave in the new information area are:

Greater dependency on e-commerce and growth of various e-business models in

relation to marketing

Use of real time data to provide updated information to clients particularly in the

service sector

Use of different types of Personal Digital Assistants by the sales force – which are

linked to back-end data servers – allowing them to make real time decisions


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1.6 Successful Companies

The companies that have been very successful in marketing their products and services are

summarised in the table that follows:

International Companies Local Companies

Apple Inc

Coca-cola

Pepsi

McDonald’s

Boeing

Dell.com

Amazon.com

Honda, Toyota, Hyundai

Continental Airlines

Vodafone

Ramly Burger

AirAsia

Lim Kok Wing

Genting Group

Malaysia Airlines

TM Group

Axiata

myEG

Mudah.com

The Star.com

1.7 Terminologies

In this module, the following concepts are used and discussed throughout:

CRM – Customer Relationship Management – the art and process of developing good

customer relationship

E-Business – businesses conducted driven by Internet and its component technologies

E-Commerce – buying and selling online

4Ps – Product, Price, Promotion and Place

Stakeholders – any party which has either a direct or indirect relationship with the

marketing function and process of a company

Supply chain – all parties and activities involved in the process of converting raw

material into final PS till its delivered to the end customer


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Consumer – also used interchangeably with buyers, customers, or clients in this

module-

Review Questions

1. Define the term marketing, markets and marketing management. How are these ideas

related? How are they different?

2. Take examples of local and International companies that are successful in marketing.

Discuss the reasons behind their success

3. What does e-commerce mean? How has e-commerce ideas impacted marketing

management in general?

4. Briefly discuss what the 4Ps mean in relation to marketing.

5. You are the marketing manager for UMCCED. Briefly discuss the 4Ps in relation to your

UMCCED and what you can do given these 4Ps to improve the student intake.

6. Why is marketing important to a company? Who should be responsible for marketing a

company’s product or service?

7. What are the main challenges that marketing managers face today? How can these

challenges be addressed?

Case study – Café Coffee Day (CCD)

Note:

This case is taken from the following source: http://www.casestudyinc.com/Coffee-Day-

Brand-Strategy-India

“CCD today has become the largest youth aggregator, and from a marketing stand point, the

success has come by focusing on the 3As: Accessibility, Affordability and Acceptability.”-

Bidisha Nagaraj, the Marketing President of Cafe Coffee Day.


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“Although demographically, a typical consumer would be male or female between 15-29 years

of age, belonging to middle or upper middle class, we call our consumers young or young at

heart. We are about juke boxes, good and affordable coffee and food. The brand fit is with youth

or the young at heart. So we often look out for brands that are aspirational in nature.” – Sudipta

Sen Gupta, Marketing Head, Café Coffee Day.

CCD – an established brand image in India

Cafe Coffee Day (CCD) has an established brand image in India and ranks No 2 in the Brand

Equity’s Most Trusted Brands 2008 survey – in the food services category. Rival Barista is at

No 5. CCD has been able to make a connection with the Indian consumers, predominantly

among the youth. CCD is the market leader in India and was awarded the ‘Exclusive Brand

Retailer of the Year’ by ICICI Bank in its Retail Excellence Awards 2005 for the organised

retail sector.

CCD’s wide network – the anytime, anywhere cafe

CCD has been able to make its brand presence felt through the sheer number of stores. CCD has

620 cafes at present and it has ambitious plans to launch more than 900 cafes by the end of the

current financial year. This means launching one store every other day which is not surprising

from a company which launched a cafe (in 2005) in Vienna, the coffee capital of the world. CCD

also has three cafes in Vienna, and two in Karachi, Pakistan. Lagging behind CCD in the Indian

market, Barista has about 200 cafés, Java Green (around 75 cafés) and Mocha (around 25 cafés).

The Indian organised sector has potential for around 5,000 cafés but fewer than 1,000 cafés exist

currently.

CCD’s vision: To be the only office for dialogue over a cup of coffee.

CCD’s Expansion Strategy: Cafe Coffee Day has around 821 outlets in 115 cities in India.

CCD plans to take the total number of cafes to 1,000 by March 2010 and double it to 2,000

by 2014. (Update: By Jan 2012, CCD had approx 1,200 cafes and 900 express outlets). In

October 2009, CCD announced that it will increase its international presence from the current


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six outlets in Vienna and Pakistan to a total of 50 stores across Europe and Middle East in

two years’ time.

International coffee chains in India – Recent entrants in the Indian market include Gloria

Jeans, Coffee Bean & Tea Leaf and Illy Café.

Operating Formats – Café Coffee Day operates in both regular (Coffee Day Square) and

premium formats (Lounge).

Highway Cafes: In 2004, CCD began cafes on highways. By 2009, the total number of Café

Coffee Day highway cafes rose to 30 owing to the overwhelming response it received from

travellers.

CCD’s new brand identity: In October 2009, CCD unveiled a new brand logo, a Dialogue

Box, to weave the concept of ‘Power of Dialogue’. In accordance with this new brand

identity, CCD planned to give all its existing outlets a new look by the end of 2009. Cafés

would be redesigned to suit different environments such as book, music garden and cyber

cafes suitable for corporate offices, university campus or neighbourhood. The change plan

included new smart menu, furniture design, among others.

Coffee consumption in India is growing at 6% per annum compared to the global 2% plus.

In India, the per capita consumption of coffee is around 85 grams while it is 6 kg in the US.

Case Discussion Question

Based on the CCD case study given above, discuss what you think are the main success factors

of the company in India.


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CHAPTER 2

THE ENVIRONMENT AND MARKETING

2.1 Environment and Companies

Every company faces two types of environment: the internal environment and the external

environment. The external environment is also often labelled as the macroeconomic forces or

industrial factors that have an impact on a company’s marketing efforts. For example

political instability in the Middle East since early 2011, particularly in countries such as

Syria and Egypt has led to economic slowdown in general. As a result, companies with

business located there had to temporarily seize their marketing and business efforts, given

these political instabilities.

The internal environment on the other hand, relates to the set of internal forces that have an

influence over the marketing efforts of a company – and these forces may have either a

positive or negative impact on the outcome of any marketing efforts of a company. For

example in a study by Raman and Lim (2012), the authors find that companies with a strong

focus being socially responsible, have a better brand perception amongst their consumers.

Cleary focusing on social responsibility ideal are within a company’s control.

Learning Outcomes:


1. Differentiate between the external and internal environment of a company

2. Be able to derive a SWOT analysis for a company from a marketing domain

3. Understand the relationship between stakeholders and role of marketing efforts

4. Address the discussion questions at the end of the module

5. Work on a case study at the end of the module


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The sections that follow address these two external and internal forces in greater detail.

2.2 External Environment Analysis

As mentioned, the external environment facing an organisation refers to the forces that

extend beyond the immediate control of a company. These are also called the industry or the

macroeconomic forces. There are two models that can be used to examine the external

environment and in turn link the outcome of this analysis to the marketing efforts of a

company. These two models are the STEEP and the Industry Competitive Forces

Framework.

2.3 STEEP Analysis

STEEP stands for social, technology, economic, environment, and political forces that impact

every company. What each of this force/factor entails and how these impact the marketing

efforts for a company are summarised in the following table:

Factor Variables Involved Impact on Marketing

Social Changes in shopping trends e.g.

e-shopping

Changes in lifestyle – phone

and web lifestyle

New fashion and demands for

new products and services

Demand for anywhere, anytime

service – e.g. e-banking

Marketers need to respond to

ever changing consumer

demands and changes in

lifestyle.

Example – offer new types of PS

based on demand – e.g. Proton’s

latest model Prevé which

includes a wide spectrum of

value added items in a car


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Technology Use of social media

The Internet and WWW

leading to new opportunities

and extension of the

distribution channel

Demand for innovative

products such as iPads,

iPhones, and other tablet based

computing

Marketers need to explore new

PS opportunities offered by these

new technologies. Example

would be traditional media

companies such as TM

getting/expanding into IPTV

services via Unify, based on

demand from consumers

Economic Variables such increasing

inflationary pressure, higher

cost of living, provision of

COLA for public sector.

World trade arrangements that

remove traditional business

boundaries

These forces impact the need for

competitive pricing strategies –

local companies such as MAS,

Proton, Maybank etc. need to

keep abreast with liberalization

In addition, macroeconomic

variables such as inflation and

interest rates in the economy

impact pricing and market

segmentation initiatives.

Environment Climate change

Green products

3R concept – reuse, recycle,

reduce

These issues create the need for

marketers to rethink product and

promotional strategies –

showcasing a company image

that is friendly towards the

environment


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Examples would be the need to

use recycled material in the

production process, minimize

waste in production and also

work on reusable energy

Political Changes in global political

scenarios – e.g. middle east

crisis

Growing power of China,

Brazil, changes in the Euro-

zone

Opening up of new markets in

growing sector and rethinking

initiatives in sectors that are not

doing well such as middle east

Impact of US-Iran relationship

also could have an impact on our

trade with Iran assuming greater

sanctions are imposed


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2.4 Industry Competitive Framework (ICF)

Figure 2.1: ICF

Figure 2.1 shows the forces that impact a company from an external viewpoint. This model is

called the industry competitive forces framework (ICF). There are five major forces in the

industry that impacts every company. These forces, what they mean and impact on the

marketing function of a company are summarised in the following table:


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Competitive Force Meaning Impact on marketing

Thereat of new entrants The ability of a new

company to enter an

existing market

Study if the industry is

either in a monopoly,

oligopoly, or in a free

market structure

More aggressive marketing

efforts needed in a more

competitive market

Thereat of PS substitution The more the competition

in a market, there will be

greater threat for a PS- e.g.

in the past, MAS was the

only airline service

provider in Malaysia for

the domestic route. Today

it has competition from

AirAsia

Marketers need to formulate

strategies that prevent

customers from switching to

a competitors PS. This is

where issues such as CRM

and loyalty comes in.

Bargaining power of

consumers

The extent to which

consumers exert the power

of a company’s PS.

The more options (more

substitutes) consumers

have a greater bargaining

power.

Marketers need to examine

how much power and choice

consumers have in relation to

their PS-then device suitable

strategies in relation to the

4Ps.

Bargaining power of

suppliers

The extent to which

suppliers (providers of

material/inputs) have a say

It is in the best interest for

companies to assert

bargaining power over


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on issues such as pricing

and quality of

materials/resources

delivered.

suppliers to ensure issues

such as competitive pricing

and quality is addressed

Nature of rivalry A combination of all of the

above forces results into

the forces that shape the

industry and in turn impact

the marketing efforts of a

company as discussed.

Formulate either a defensive

or offensive strategies in an

given market given the

nature of the competitive

forces.

2.5 Internal Environment Analysis

The Internal Environmental Analysis is done to gauge the interconnectivity between the core

(primary) and supporting activities within a company. The goal of this analysis is to examine

if any inefficiency exists in the activities of a company. A model that is often used to

understand the Internal Analysis of a company is the value chain analysis (VCA). The

paragraphs that follow highlight the main aspects of the VCA particularly from a marketing

perspective.


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This model (value chain analysis/VCA model) was presented in Chapter 1. The basic

elements of the VCA suggests that the core functions of a company can be examined as being

either Primary or Secondary activities. The components of the primary activities and how

these impact marketing managers is summarised in the next table:


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Component of

Primary Activity

Meaning Impact on Marketing

Inbound logistics Purchase and movement of

raw materials/resources from

suppliers into the company

Need to ensure that the quality of

raw materials and resources used

in the operations process is good.

This will in turn guarantee good

value for money from the

consumer perspective when the

purchase the final PS

Production/

Manufacturing/

service creation/

operations

Process of converting raw

materials into final products

and services

Marketers need to understand

demand from sales and match

this to production/operational

planning to avoid issues such as

over/under supply.

Oversupply occurs when demand

is > supply of PS

Excess supply occurs when

demand from consumers <

supply of PS

Outbound logistics Processes and activities

involved in distributing the

final PS to consumers in the

market

Need to make sure that accurate

distribution channels are used –

based on the market segment,

consumer requirement and

product positioning

Marketing & Sales Process of establishing the 4Ps

(core) and therein integrating

these with sales strategy

Discussed in the introduction

chapter – only point to keep in

mind that marketing and sales


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are different albeit strongly

related to each other.

After Sales Service Activities involved in making

sure post sales services

continues to take care of

consumers’ requirements

Need to ensure company

provides sound after sales policy

e.g. warranty periods, free

service for cars for e.g. etc.

2.6 Strengths, Weaknesses, Opportunities and Threats (SWOT)

Upon completing the internal and external environmental analysis, a marketing managers is

now ready to understand what the SWOT of his company is – and thus in a better position to

formulate the internal marketing strategies for the company.

Let us consider the example of Proton. This company’s SWOT can be summarised as

follows:

S = good market presence locally, steady accepted brand by middle income and

lower income groups, good brand locally, government backing

W = overdependence on government backing, poor quality perception amongst

local consumers

O = good partnership with Japanese automakers in terms of technology transfer,

opening of new markets, local consumers willing to purchase models that are on

par with other automakers in a similar class of cars

T = Very established presence of Japanese and Korean makers – Honda, Toyota,

Hyundai, and local players such as Naza and Perodua

Based on the above Proton’s launch of innovative models have made an impact in the past few

years with good warranty schemes (e.g. lifetime warranty for power windows, good financing

package etc).


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2.7 Stakeholder Analysis and Impact on Marketing

Stakeholders refer to any parties that have either a direct or indirect impact on a company’s

marketing initiatives. Examples of major stakeholders that company is subject to are:

The suppliers – must supply quality materials and they need to be given preferred

status

Consumers- expect good value for money spent

Shareholders – expect good dividends and high share price and earnings per share

Environmental groups and other NGOs- environmentally sound marketing policies

e.g. transparent product/service information

Employees – e.g. marketing team – expect good reward systems and work

environment

Government – expect regular payment of taxes and also compliance to marketing

laws and legislation.

Discussion Questions

1. What does environmental analysis (EA) means to a company?

2. How is EA related to marketing?

3. What is the difference between Internal EA and external EA? How are these related to

marketing management?

4. What is the VCA? How does it impact marketing?

5. What is the ICF? How does this model impact marketing?

6. What does the term stakeholder mean? How does a stakeholder analysis impact

marketing managers?

7. Is marketing = sales? Why or Why not? Discuss by using several real world examples.


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Case study – Netflix.com

Netflix registered as NFLX in Nasdaq, is the world's largest online movie rental service. It

provides access to more than 100,000 DVD titles to more than 10 million subscribers currently.

It is also touted as the largest online movie rental service that has a growing library of more than

5,000 choices that can be watched instantly on PCs of subscribers. The 100,000 titles provided

spans across 200 genres including, Action & Adventure, Anime, Children & Family, Classics,

Comedy, Documentary, Drama, Foreign, Horror, Independent, Music & Concert, Romance, Sci-

Fi & Fantasy, Special Interest, Sports, Television, and Thrillers. The company offers nine

subscription plans, starting at only $4.99 per month with one very interesting feature that is there

are no due dates and no late fees. Rentals are given out, three DVDs at a time and the most

popular plan is at $17.99 a month.

Subscribers can rent as many DVDs as they want but with three movies out at a time. All

subscription plans include both DVDs delivered to homes and for no extra cost, movies and TV

series can be downloaded within 30 seconds on PCs of subscribers. DVDs are delivered by first

class mail, free of charge with a postage-paid return envelope. Delivery is done for over 100 U.S.

shipping points and usually delivered within one business day.

Netflix offers personalised movie recommendations with over two billion movie ratings giving

subscribers a full-range of movie synopsis, previews and personalised information. There are

more than 1200 employees at the corporate headquarters and shipping centres. Since the

launching of its subscription service in 1999, Netflix reached one million subscribers faster than

any other industry in the same space.

Netflix operates in over 37 shipping centres located throughout the U.S. It reaches nearly 95% of

subscribers with generally one-day delivery. On average, it ships 1 million DVDs each day.

Movie recommendations are provided to members every time they visit the Netflix website.


25


These recommendations are based on a member's individual likes and dislikes (determined by

their movie ratings and rental history). The recommendations allow members to discover great

new films they may not have otherwise considered watching. Netflix members say they rent

twice as many movies per month than they did prior to joining the service. Netflix members and

visitors watch more than 90,000 movie trailers per day on the Netflix website. The business

model and value proposition of Netflix is quite interesting.

Instead of receiving movies by mail, if Netflix subscribers drove two miles each way to a rental

store (like the corner Block Buster store), they would have consumed 500,000 gallons of

gasoline per day and released approximately 6,000 tons of carbon dioxide emissions per day or

more than 1.5 million tons annually.

Netflix ships amazingly, about 11,000 tons of DVDs per year. Placed side by side, the discs

would form a line about 20,500 miles long, which is the circumference of the world at 34.1

degrees north, the latitude of Hollywood, CA. If we were to stack every DVD shipped in a single

pile, the stack would grow by 3,000 feet each day and would be taller than Mt. Everest within ten

days. New Netflix members say they are immediately more satisfied with their home-

entertainment experience than they were prior to joining Netflix. Their high level of satisfaction

tends to increase the longer they remain with Netflix.

[Source: Netflix, December 2007]

Based on the above paragraphs, answer the following questions:

a. Highlight the STEEP forces facing Netflix.com

b. Analyze the company using the VCA and ICF framework.

c. How does your analysis above impact the marketing efforts for this company?


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CHAPTER 3

MARKETING MANAGEMENT – ORIGINS AND

PHILOSOPHIES

3.1 Introduction

We are social creatures and thus we need interaction. As members of society, we constantly

engage in transaction. The Islamic term ‘Muamalat’ refers to transaction and interaction,

which also implies that societies need to engage in interaction, exchange and transactions.

Therefore when people meet, there is always something that is exchanged between them.

These are the early days of markets.

Learning Outcomes:


1. Define the term barter trading

2. Differentiate between different types of marketing philosophies:

a. Production philosophy

b. Product philosophy

c. Sales philosophy

d. Marketing philosophy

e. Green marketing philosophy

f. E-Marketing philosophy

g. Social Marketing philosophy

3. Discuss review questions

4. Work on a short case study pertaining to the above philosophies


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3.2 Barter Trading

Trading is a process of social interaction, as already mentioned. The earliest days of trade

was facilitated by the barter system. The barter system essentially consisted of the following

idea:

Buyer and sellers would meet at a trading point

This trading point normally was the port (sailors from all over the world) where

traders would meet.

The exchange was done for product with products. For example, a trader from

China brining in silk to Melaka, would exchange silk for spices. There was also

an exchange of products with services rendered in the olden days. For example a

trader selling spices would rest in a hotel/lodge and pay for the services with

certain amount of spices.

There was an issue with this system though. Essentially the barter system faced a challenge

of attaching value for products and services – for example how much was a piece of silk

cloth worth in relation to an amount of spice in a given trade? Thus, unlike in modern day

marketing, the barter system was subject to issues inherent in attaching an equivalent value

for/between products and services.

This gave way to the evaluation system based on gold bars – where every product or service

would be matched against the value equivalent to a bar of gold. This created a more standard

way of attaching value to products and services. This system of using gold as a standard

eventually led to the use of currencies as we know today.

3.3 Philosophies in Marketing

As discussed before a market denotes the place where buyers and sellers meet and thus an

exchange process takes place. With the 1750 – industrial revolution, the world witnessed


28


better machines, that led to the notion of mass production. When products were

manufactured in abundance, there was therefore a need to sell products to people – to avoid

these products being kept in the inventory. The idea of how to convince people to buy

products and use services emerged in early 19th century in the US – and with this the concept

of marketing then became a vital subject.

Traditional markets as we know are linked to markets, retail outlets and malls. These forms

of market venues are also labelled as brick and mortar based businesses. Overtime, with the

revolution of the information age particularly through the advent of the Internet and the

World Wide Web (1992), new forms of markets that were driven by e-commerce emerged.

New market models such as Business-to-Consumer (B2C), Business-to-Business (B2B),

Government-to-Government (G2G), Government-to-Citizens (G2C) etc. All driven by

websites and use of technology are now common. These models are generally called brick

and click models.

Collectively, there evolution of markets and marketing methodologies can be examined from

a philosophical standpoint. The various philosophies associated to marketing are in turn

discussed in sections that follow.

3.4 Production Philosophy

The production philosophy was not focused on customers’ needs and wants. This method or

philosophy was driven by internal production capabilities and used during early days of

Industrial revolution days. Firm produces based on its internal capacity and then sells to the

market. The core values/ideas/issues driven by this philosophy are summarised in the

following table:


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Players in the philosophy Buyers

Sellers

Other service providers such as companies

providing resources and material to lead

manufacturer

Concept of operations Driven by the need to rapidly deploy products into

market

Follows a mass-production ideal

Operates based on economies of scale benefits

Emphasis on use of massive machines in the

production process

Scientific management principles – guided the

early days of automation and work

Justification of operations Availability of machinery

Demand for products from growing population and

better living standards

Opening up new business regions from Europe to

America and Asia

Role of marketing

management

The focus was not on integrating the 4Ps

Main emphasis was in producing products driven

by mass production requirements

Core advantages We sell according our internal capacity

More produced, more we can sell

Early pioneers Ford’s Model-T

Core limitations Customers had no choice

Poor inventory management not JIT

Works well only if company is a monopoly

Considered as an inside-out approach to marketing


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In summary, this philosophy focused on an inside-out approach of doing business.

3.5 Product Philosophy

This method moved alongside the evolution of technology. As technology improved,

production methods improved also. This led to more quality products being offered.

However, the production mentality still remained amongst the manufacturing communities as

these were still the early days of the mass commercialization era. This led to Leavitt talking

about marketing myopia concept – suggesting that companies should take into consideration

of consumers’ wants and tastes and thus meet these expectations. The core

values/ideas/issues driven by this philosophy are summarised in the following table:


Sellers



manufacturer

Concept of operations Use of technology to spearhead productions

process and operations

Main technology was confined to improvement in

the assembly line and use of machines that were

faster and better relative to what was used in the

1800s.

Justification of operations Need to improve product quality and performance

Demand for better products and faster time to

market

Role of marketing

management

Consumers still had relatively limited choice as the

goals were still an output based production

orientation.


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Core advantages With the improvement of technology such as

assembly line systems and automation, the

production processes were more accurate.

Overtime the quality of products also improved

alongside the technical revolution

In the case of the automotive industry for example,

newer and more stylish models were designed and

launched to the market

Core limitations Marketing myopia

Still inside-out approach

Customers had no choice

In summary, this philosophy also focused on an inside-out approach of doing business.

3.6 Sales Philosophy

Soon after the industrial revolution, competition emerged for different industries. There were

many producers of products such as garments and food that were after a similar market or

consumers. Stated differently, there was more supply relative to demand. So, companies

began appointing sales staff/salesmen to sell products. In the case of Malaysia, early

examples include the emergence of door-to-door insurance agents, Electrolux salespeople

selling their electrical appliances and so on. The core values/ideas/issues driven by this

philosophy are summarised in the following table:


Sellers



manufacturer


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Concept of operations Focus still on production

Need to secure consumers in the market

Offer various sales friendly policy to capture

market

Justification of operations Demand for products less relative to supplies

This could lead to stock piling

Need therefore to push products to consumers

Role of marketing

management

Develop good sales strategies

Identify and recruit sales team

Give proper sales incentive to team

Core advantages Personalised service – companies can offer

customized service to consumers driven by items

such as sales discounts etc.

Convenience to customers – as there are sales

agents or staff who approach consumers

Can listen to feedback from consumers

Core limitations Still driven by supply without focusing on demand

and consumer buying behaviour

Stock pile could still occur as demand forecasting

is not done

Over supply could lead to sales discounts which

could lead to reduction in price and thus lower

revenues for companies

3.7 Marketing Philosophy

This philosophy emerged when market for most products hit saturation point - too much of

same products chasing limited customers. Marketers recognized the idea that customers are


33


kings and queens - Need to understand consumer buying patterns. This led to the emergence

of the outside-in approach in production systems. Market surveys, testing, free samples etc

were the highlight of this approach. The core values/ideas/issues driven by this philosophy

are summarised in the following table:


Sellers



manufacturer

Concept of operations New product and/or market development

Understanding the consumer buying behaviour

Proper anticipation of demand for products based

on forecasting techniques

Also emphasis on pricing, promotions, and channel

strategies

Identification of proper target market

Justification of operations Need to better understand consumers

Avoiding excess supply or stock pile

Role of marketing

management

Good marketing mix techniques

For example, higher price charges only when

product and service quality can be guaranteed

Core advantages Basis for modern day marketing

As mentioned opportunities to better understand

consumers could lead to better revenues for

companies

Outside-in approach of doing business which is

proven to be profitable


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Core limitations Method that still did not value societal issues such

as need for greener products, recycle issues,

concern over environmental exploitation and use of

tobacco, alcohol abuse and so on

3.8 Green Marketing

The focus of this philosophy is on environmental issues. Focus on positioning

environmentally disastrous companies as good corporate citizens – e.g. Shell, Petronas etc.

Also marketing environmental friendly products such as using recycled paper, do not waste

etc. Hotels using the recycle of towels is another example. The core values/ideas/issues

driven by this philosophy are summarised in the following table:


Sellers

NGO and other pressure groups



manufacturer

Concept of operations Need to address issues that are vital to society

particularly in relation to the environment

degradation

Focus on the 3Rs (reuse, recycle, reduce)

Reduction in carbon emissions

Justification of operations The environment is constantly being challenges

with pollution, and degradation of various forms

Role of marketing

management

Embed environmental friendly policies

Add new product information – e.g. indicating to


35


consumer that the packaging is made from

recycled paper etc

Promoting environmentally conscious nature of

company such as Shell – although involved in

O&G, claims itself to be proactive in persevering

nature.

Core advantages Concern over societal needs can add to brand value

and perception amongst consumers

Core limitations Extent to which companies are genuine on this

issues ‘vis a vis’ providing lip service remains a

concern.

3.9 E-Marketing

This philosophy grew in early 90’s with the advent of the Internet and the WWW which led

to the formal birth of e-commerce in the year 1992. Early leaders of this concept and idea of

e-marketing were companies such as Dell.com, eBay, and Amazon.com. In Malaysia,

examples are lelong.com, jobstreets.com etc.


Sellers

ISP, hosting providers, various eBusiness

providers



manufacturer

Concept of operations Focus on moving from market place to market

place where issues such as mobile marketing, and


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location based commerce ideals are promoted

Expansion of channel of distribution

Justification of operations In line with the expansion and growth of the

Internet e.g. in Malaysia – close to 65% access to

Internet

Availability of new forms business model

Growth of the C-generation that demand for PS

anywhere, anytime.

Role of marketing

management

Virtual marketing tools – social networks e.g. FB

marketing is added

Seek different forms of e-marketing partnership

and collaborative efforts

Core advantages Rapid market expansion

Caters to changing social trends

In line with emerging business requirements

Adds value to consumers – convenience in buying

Enables mining of consumer purchase data for

targeting marketing – e.g. collaborative filtering

used by Amazon.com

Core limitations Security and privacy concerns

Changing nature of technology – need to keep up

to date with new forms and need of technology

Digital divide issues.

3.10 Social Marketing

The Internet boom led not only to new forms of business models but has also created a

massive opportunity for marketers to use social networks to enhance their respective


37


marketing efforts. Social marketing refers to the use of social media web-sites such as

Facebook, Twitter, and Orkut to market their products and services. The main idea of using

social networks (or also called social-nets) is to target a people of similar interest to talk and

exchange ideas about products and services offered by companies.

Facebook for example allows companies to track the number of times people hit the ‘Like’

icon – which is a direct measure of the popularity of a product, service or idea that has gone

viral on the web. Positive reviews on the social sites often led to more sales generated for a

given product or service. The main challenge with using social media is the risk of a negative

review of a product or service which could be brought to the attention of consumers (on the

social networks) very quickly. This also explains why even famous people today are using

social network sites to remain close to the main-steam population that they are interested in.

Review Questions

1. Define a barter trading system. What were the major benefits of this system? What were

the core issues in this system? How were these issues addressed?

2. Define the marketing philosophy and address the core benefits and limitations of this

philosophy.

3. By using specific examples from the real world, compare and contrast the following

philosophies in marketing:

a. Product

b. Production

c. Sales

d. Marketing

e. Green

f. E-Commerce


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Case study – 20/20 Clean Air

Source: http://socialmarketing.wetpaint.com/page/20%2F20+The+Way+to+Clean+Air

20/20 The Way to Clean Air involved individuals in the Greater Toronto Area in reducing home

energy use and vehicle use by 20%. It asked participants to make a small commitment (some

easy-to-do activities done for a period of two weeks), leading to a larger commitment (longer-

term, greater cost savings actions), and connected them with programs and services that helped

them succeed.

Background

In November 1999, Toronto Public Health contracted a social marketing firm - Eric Young

Enterprise (E.Y.E.) - to develop a strategic framework for its education program on smog and air

quality. The goal was to identify a strategy for Toronto Public Health to conduct risk reduction

and smog reduction activities and to create a platform for long-term change on air quality. E.Y.E.

developed the brand for the 20/20 The Way for Clean Air program in 2000.

The strategic framework, completed in March 2000, outlined the components of a social

marketing campaign whose focus was to engage residents, both at the individual and collective

level, in taking actions to reduce air pollution. Driving the public to partner programs and

services was also key. A planning guide (the 20/20 Planner) was envisaged, with a Connector

section to link participants to service providers that would help them achieve their 20% energy

reduction goal.

Setting Objectives

20/20 hoped to:

Involve 20 corporate participants in the GTA to become a 20/20 workplace by 2005.

Involve 500 schools in the GTA in its EcoSchools partnership program by 2010.


39


Deliver 150,000 20/20 Planners to households across the GTA by 2010.

Achieve 30% home energy use reduction per participating household by 2020.

Achieve 20% vehicle use reduction per participating household by 2020.

Getting Informed

Toronto Public Health contracted Cullbridge Marketing and Communications to conduct a best

practices analysis. This analysis, completed in January 2001, outlined a series of energy reducing

activities for the 20/20 program, both for the home energy use and personal vehicle use

components. These included: 1) home energy audits, 2) insulation, 3) weatherization, 4) home

thermostat, 5) lower-income housing, 6) water heater thermostat, 7) lighting, 8) walking and

biking for adults, 9) walking and biking for school children, 10) transit, 11) work-based

carpooling and 12) school-based carpooling.

The development of the 20/20 Planner and 20/20 EcoSchools Planner (a student-focused version

of the 20/20 Planner) built on these energy-reducing activities, targeting residents and schools

respectively.

In 2000, Toronto Public Health worked with E.Y.E. to develop a living lab exercise to test out

draft materials with 20 families across the Greater Toronto Area. Participants received incentives

and regular telephone support from the five health units in the regions of York, Peel, Halton,

Durham and Toronto. To further test and refine the program, Toronto Public Health hired a team

led by Lura Consulting to pilot the program with 250 families in Toronto and Peel Region.

The living lab and pilot, completed in May 2002, indicated that a 20% energy goal was

achievable. These studies confirmed the barriers and opportunities for behavioural change that

were identified in the best practices analysis, including the need for: 1) a comprehensive resource

to guide actions, 2) some form of follow-up/reminder to participants of their action, 3) incentives

to take action, 4) making a pledge for action, and 5) having measurable results.


40


The studies also suggested that 20/20 needed to be promoted to a wider audience, enabling a

much larger number of people to find out that the program and support was available. Other

recommendations included: 1) providing on the ground support to priority neighbourhood, 2)

making basic information about home energy-savings opportunities easy to access, 3) the need

for a simple information kit for participants, 4) providing easy-to-use tracking tool and incentives

for participants, and 5) partnering with local service providers such as Green$aver and Pollution

Probe to deliver a work-based initiative.

Targeting the Audience

20/20 in general residents in the Greater Toronto Area, including those living in

multi-unit residences

20/20 workplace companies in the Greater Toronto Area interested in promoting

energy efficiency to their employees

20/20 EcoSchools, predominantly Grade 5 classrooms in elementary schools

20/20 community pilot selected neighbourhoods, whose first language is not English

Delivering the Program

20/20 was officially launched to the general public in June 2002. It introduced its workplace

program at the end of 2002 and the schools program in 2003, as a pilot with the Toronto District

School Boards EcoSchools initiative. The regional health units contracted the Clean Air

Partnership to coordinate the program throughout the GTA at the same time. They also set up a

Regional Steering Committee composed of 20/20 staff from the five regional health units to

oversee the implementation of the program across the GTA. In 2005, 20/20 partnered with

community groups to bring the program to multi-ethnic communities. A small-scale advertising

campaign also took place in 2003 and 2004.

The 20/20 Planners went through several revisions to include updated information from program

partners, prize draws, activity tracking/feedback forms, and energy saving tips for tenants and


41


condo owners. 20/20 developed a new teacher's guide in 2005 to accompany the 20/20

EcoSchools Planner, outlining the program links to curriculum.

By the summer of 2005, the program had reached over 20 workplaces, 70 schools across the

Greater Toronto Area and over 14 communities bringing the 20/20 program to residents whose

first language is not English. More than 10,000 Planners, per year, in total were distributed in the

Greater Toronto Area and beyond.

Distribution and promotion of the residential 20/20 Planner:

The general public could order a free copy of the 20/20 Planner (Overcoming Specific Barriers)

by calling a hotline. 20/20 promoted the hotline through the 20/20 point of contact brochure,

advertising in the media electronic bulletin boards, and printed articles in magazines and

commuter papers (Mass Media). Participants could also download the Planner from the 20/20

program web site or sign up at 20/20 displays at public events (e.g., Environment Days, Smog

Summit Fresh Air Fair, Bike Week, Earth Week, and Clean Air Day).

20/20 encouraged participants to complete and return a feedback form indicating the type of

energy use activity they would do, both in a Stage One, two-week period and beyond (Building

Motivation Over Time), and be entered into a draw for some prizes (Incentives).

On receiving the feedback form, 20/20 sent participants a welcome letter, a window decal, and

energy saving plugs/shoelaces/fridge magnet to remind them of their commitment to energy use

reduction (Norm Appeals, Prompts).

20/20 workplace program:

20/20 partnered with Green$aver, Pollution Probes S.M.A.R.T. Movement program and the

Smart Commute Association to bring energy efficiency to companies across the Greater Toronto

Area (Work Programs). Each company that signed up for the program received a welcoming

http://www.toolsofchange.com/en/tools-of-change/overcoming-specific-barriers/

http://www.toolsofchange.com/en/tools-of-change/mass-media/

http://www.toolsofchange.com/en/tools-of-change/building-motivation-over-time/

http://www.toolsofchange.com/en/tools-of-change/building-motivation-over-time/

http://www.toolsofchange.com/en/tools-of-change/financial-incentives-and-disincentives/

http://www.toolsofchange.com/en/tools-of-change/norm-appeals/

http://www.toolsofchange.com/en/tools-of-change/prompts/

http://www.toolsofchange.com/English/ToolsofChange/default.asp?Section=WorkPrograms


42


package, filled with information to help the workplace coordinator communicate the program to

its employees.

20/20 also worked with the participating workplaces to organise lunch and learn events and

education displays where employees could sign up for their free copy of the 20/20 Planner.

20/20 EcoSchools program:

20/20 partnered with the Ontario EcoSchools initiative to bring the 20/20 Planner (revised for

student use and called the 20/20 EcoSchools Planner) to teachers and their students. Staff from

the regional health units worked with local school boards to invite teachers to participate in the

program. 20/20 focused predominantly in Grade 5 classrooms where energy conservation is a

curriculum requirement for this grade. 20/20 also encouraged schools in the Greater Toronto

Area to tie the 20/20 EcoSchools program to annual environmental events such as Earth Week in

April, Clean Air Day in June and International Walk to School month in October.

Incentives for participating schools in the Greater Toronto Area included: 1) monthly pizza lunch

prize draw for classroom and, 2) opportunity to win a "clean air" presentation by a Clean Air

Champion. Participating classrooms also received a colourful child-focused poster with stickers.

Schools that registered a minimum of three classrooms also received an attractive school banner.

Students of the participating classrooms received copies of the 20/20 EcoSchools Planner to take

home to their families (School Programs that Involve the Family). A teacher's guide was also

sent to the teachers outlining instructions for participating, curriculum connections, and

additional resources to enhance the 20/20 program in the classroom.

Schools outside of the Greater Toronto Area could also download the 20/20 EcoSchools Planner

and the teachers guide from the 20/20 program web site.

http://www.toolsofchange.com/en/tools-of-change/school-programs/


43


20/20 Community Pilot:

20/20 partnered with local community agencies to deliver the program to selected communities

who first language is not English. Participating communities translated 20/20 materials,

including part of the 20/20 Planner to different languages, including Spanish, Chinese, Tamil,

Punjabi and Arabic. The 20/20 Planner also included energy saving tips for people living in

multi-units residences thus expanding the reach of the program (Overcoming Specific Barriers).

Financing the Program

20/20 received funding from the Toronto Atmospheric Fund, the Climate Change Action Fund,

Environment Canada Ontario Region, Ontario Ministry of the Environment, Ontario Ministry of

Energy, TD Friends of the Environment Foundation, and the EcoAction Fund in the development

and implementation of the program. Many program partners also provided in kind support

throughout the course of the program.

Measuring Achievements

In the spring/summer of 2004, Toronto Public Health conducted a participant survey to assess if

program participants used the 20/20 Planner (the programs central resource) to achieve

reductions in energy use and to determine the specific actions that they were taking. This

information was used to quantify the emissions reductions related to the energy saving activities

undertaken by the participants. The study involved two surveys.

Survey #1 targeted program participants who ordered the 20/20 Planner and returned their

activity tracking/feedback forms. The main objectives of this survey were to find out whether

these individuals had done the longer-term activities to which they committed and, if not, what

the barriers to success had been.

http://www.toolsofchange.com/en/tools-of-change/overcoming-specific-barriers/


44


Survey #2 targeted program participants who had ordered the 20/20 Planner, but had not sent

back their activity forms. The objectives of this survey were to find out why the participants

activity tracking/feedback forms were not sent back, and whether they were in fact engaged in

the program.

Emissions reductions were calculated based on self-reporting of activities by participants. The

amount of emissions reduced for each activity was assigned a value based on models that

predicted estimated transportation emissions per passenger per kilometer traveled, and home

energy use based on typical housing stock in Canada.

The results of the two surveys were as follows:

An average of 19% reduction in home energy use per household (20% from participants

who returned their feedback forms and 18% from those who did not).

An average of 15% reduction in vehicle km traveled per household (13% from

participants who returned their feedback forms and 16% from those who did not).

An average of 1.2 tonnes emissions reduction (mainly CO2) per household per year (1.3

tonnes from participants who returned their feedback form and 1.1 from those who did

not).

Based on the above case, discuss the following questions:

1. What philosophy or philosophies in the context of marketing are expressed in the case

study? Justify your answer.

2. How can a similar initiative in Malaysia be done to replicate the above model-think of

who would lead this initiative and who they would partner with?


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CHAPTER 4

MARKETING MIX 1 – PRODUCT

4.1 Introduction

Marketing mix is like making a cake -The ingredients have to be correct in order for us to get

a tasty final product (cake). The ingredients integral in the marketing mix as mentioned in

Chapter 1 are the: Product, Price, Place and Promotional aspects. Why these 4Ps? They are

the essence of the marketing principles. Mix means getting the right level of combination

with reference to the 4Ps.

Assuming that the marketing mix is not done correctly: we could end up facing anyone of the

following problems:

Product Problem

o Poor product quality

o Defective products

o That results into:

Weak demand for the product in the market

Unable to satisfy customers’ wants and needs

Learning Outcomes:


1. Define the term product

2. Differentiate between tangible and intangible products in the context of marketing

3. Examine role of marketing mix in relation to product

4. Understand the meaning of the Product Life Cycle curve (PLC)

5. Understand different product-market strategies based on the Ansoff Matrix

6. Discuss various issues inherent in developing a good product strategy


46


Oversupply results in the end

E.g. Proton often criticized for weak quality

Pricing problem

o Price > Purchasing power = Oversupply

o Price < Purchasing power (with good quality product assured) = Out of stock

situation

o Other generic issues with pricing that will be addressed in the subsequent

chapter includes issues such as type of pricing strategy pursued and objective

of setting that particular price level

Promotional problem- could lead to issues such as:

o Meeting the wrong target audience

o Improper selection of media type

o Improper selection of timing of promotional event –e.g. case of Giant

Mattress in the USA

o The above issues could lead to weak brand presence, low

acceptance/awareness of products and oversupply.

Place problem – also called distribution channel issues – leading to elements such as

brand confusion, competing venues, cannibalization etc. These will be discussed

separately in a subsequent chapter on place.

4.2 Product Classification

The term product from a marketing standpoint can be classified into 3 major categories:

Goods – also called tangible products – things that we can touch, see, hold, smell etc

– and are also called physical products. Example would be things like a laptop, a

printer, a book, a makeup kit, garment, a box of chocolates and so on

Services – these are also called intangibles – items that we derived utility from

receiving a service. Example would be items such as getting a haircut, obtaining a

college degree, watching a movie, and so on.


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Money – is also considered a product as money can be bought and sold – i.e. basis

for currency trading where at times, the forex markets could lead to profitable

ventures indeed.

4.3 Product Life Cycle

Figure 4.1: Product Life Cycle

Product Life Cycle (PLC) refers to the four stages of any product or service from the time of

introduction to its decline stage in the market. The PLC looks at a product/service in two

dimensions. The first dimension is the stage in which a particular product is in – i.e. as

indicated in Figure 4.1, these refers to the four stages on the X-axis. Next each phase of the

product is measured in terms of its sales volume as measures in the Y-axis, in Figure 4.1. For

example, when the product is in its mature state, the sales volume tends to peak, and in its

decline stage, the sales volume of a product naturally falls rapidly. The PLC is important for

marketing management following reasons:


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Requires marketing managers to examine which stage a particular product/service

is in

Allows managers to formulate relevant marketing strategies for each stage for a

particular product of service

PLC can be used to determine new market and/or product development initiatives

for a company.

The above figure (Figure 4.1) was sourced from QuickMBA.com. It essentially suggests that

the life cycle of a product (just like human beings) can be classified into four major stages.

The stages, what each stage means, and the marketing strategies relevant to each stage of this

product in its life cycle is summarised in the table that follows:

Stage of Life Cycle Characteristics Relevant marketing

strategies

INTRODUCTION Low sales- as product

is not famous yet

High cost per

customer acquired-

esp. in terms of

marketing and

promotional costs

Negative profits-

costs are higher than

revenue

Innovators are

targeted

Little competition- as

product is not famous

yet

Product – Offer a

basic product

Price – Use cost-plus

basis to set

Distribution – Build

selective distribution

Advertising – Build

awareness among

early adopters and

dealers/resellers

Sales Promotion –

Heavy expenditures

to create trial


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GROWTH Rapidly rising sales

Average cost per

customer

Rising profits

Early adopters are

targeted

Growing competition

Product – Offer

product extensions,

service, warranty

Price – Penetration

pricing


intensive distribution

Advertising – Build

awareness and

interest in the mass

market

Sales Promotion –

Reduce expenditures

to take advantage of

consumer demand

MATURITY Sales peak

Low cost per

customer

High profits

Middle majority are

targeted

Competition begins

to decline

Product – Diversify

brand and models

Price – Set to match

or beat competition


more intensive

distribution

Advertising – Stress

brand differences

and benefits

Sales Promotion –

Increase to

encourage brand

switching


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DECLINE Declining sales

Low cost per

customer

Declining profits

Laggards are targeted

Declining

competition

Product – Phase out

weak items

Price – Cut price

Distribution – Use

selective

distribution: phase

out unprofitable

outlets

Advertising –

Reduce to level

needed to retain

hard-core loyalists

Sales Promotion –

Reduce to minimal

level

The above table implies that for each stage of the product life cycle, a different type of

marketing mix strategy would be appropriate. In the case of Proton, the following models can

be mapped to the different product life cycle:

Introduction – Preve’

Growth – Exora, Pesona

Maturity – Waja

Decline – Savvy, Tiara etc.

4.4 Product and Market Strategies

Figure 4.2 illustrates the various product and market strategies that can be pursued by

companies. This matrix is called the Ansoff Matrix and is used to formulate a company’s

way forward direction in terms of venturing into either a new market or product initiative.


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Figure 4.2: Ansoff Matrix

The above figure suggests that a company can pursue four different marketing-product

strategies based on its product-market dimensions. The meaning of each strategy, examples

and also identification of proper marketing ideas for each are given the table as follows:

Strategy Definition Marketing implications

Market Penetration Go deeper into an existing

market

Offer similar products to

similar markets (existing

markets)

Example: Maybank getting

Create more product

awareness

Providing market penetration

strategy in terms of pricing –

perhaps offering lower

pricing or different options

for customers


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more aggressive into the

local banking markets

Intensify promotional efforts

Product Development Develop a new product for

an existing market

Example a Telco company

with main business in fixed

line can add/bundle other

services using same infra for

the existing market

Requires R&D

Understanding of new

product requirements from

the market

Market Development Existing products targeted to

a new market

Example would be Proton

going into a new market e.g.

India/China

Identification of new market

opportunity

Market survey of potential

area(s)

Segmentation required

Diversification New product targeted to new

markets

Example would be Gillette –

popular for its male shavers –

sometime back introduced

shavers (different twist) to

the female market.

R&D needed

Also understanding consumer

buying behaviour in the

new/identified market.


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Review Questions

1. Define the term product.

2. Differentiate between tangible, intangible and money as major categories of products

3. What is marketing mix? Why is it often said that product is the main component of the

marketing mix?

4. What are problems that a marketer often faces assuming the marketing mix is inaccurate

for a company?

5. What does product problem mean? How might this problem be addressed in a marketing

context?

6. What is the Product Life Cycle? What are the marketing strategies for each phase of the

product life cycle?

7. By using the example of the various models produced by Proton, map the different

brands produced to the respective stages of the product life cycle.

8. What is Ansoff Matrix? How does it impact the decisions of a marketing manager?

Case Study

Company: Olympus Imaging America Inc.

Contact: Sally Smith Clemens, product manager

Location: Center Valley, PA

Industry: Electronics, E-Commerce, B2C

Annual revenue: $10,000,000,000

Number of employees: 4,000

Quick Read

It is said that consumers are four times more likely to buy a product once they’ve held it in their

hands. But if you know retail, you understand how challenging it can be to get people into stores,

let alone within reaching distance of your product (and interested in handling it).

http://www.marketingprofs.com/topic/all/customer-behavior/

http://www.marketingprofs.com/topic/all/product-marketing/


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When electronics giant Olympus introduced a new SLR (single lens reflex) hybrid camera to the

marketplace, it knew that it was vital that people get their hands on it; that's because one of the

camera's major selling points was its advanced compact body design. In short, it was far more

representative of a pocket-size point-and-shoot than the typical SLR with interchangeable lenses.

To provide the masses with a hands-on experience that wouldn't require heading to the nearest

store, Olympus trialed a new augmented-reality technology. Consumers could print out paper-

doll versions of the product and test out its various features via an online interactive tutorial and

simulation experience. The campaign even included social elements to motivate users to share

these virtual experiences with their networks, and a contest was added to draw additional

attention.

Source:

http://www.marketingprofs.com/articles/2011/4642/case-study-how-olympus-spurred-product-

awareness-and-sales-with-augmented-reality#ixzz1uR4fnGLC

Questions

1. Based on the short situational case as listed above, discuss the product strategy used by

the company.

2. Based on the Ansoff Matrix, what more can be done by the company, to improve its

overall competitive positioning?

http://www.marketingprofs.com/articles/2011/4642/case-study-how-olympus-spurred-product-awareness-and-sales-with-augmented-reality#ixzz1uR4fnGLC

http://www.marketingprofs.com/articles/2011/4642/case-study-how-olympus-spurred-product-awareness-and-sales-with-augmented-reality#ixzz1uR4fnGLC


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CHAPTER 5

MARKETING MIX 2 – PRICING

5.1 Introduction

Price is often described as the value that a consumer is willing to pay to obtain a product or

service in the market. Price is associated with the following terms:

Rent – price someone is willing to pay for a property that is leased

Fees – payment or value given to say getting an education (college fees)

Wages- price that an employer is willing to pay to obtain the services of an

employee

Deposits – price that a financial institution is willing to pay to customers who

keep money with them

The payment for a product/service can be done either as a one-off or paid

progressively – this term is called payment in instalment.

Learning outcomes:


1. Define the term price

2. Understand the different approaches in establishing price for a company

3. Relate pricing strategies to product quality issues

4. Work on several review questions

5. Discuss a case study pertaining to pricing and marketing mix


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5.2 Issues with Pricing

Why do we buy pirated CDs? Often this is because we perceive it to be of value sufficient to

meet the value derived from the original ones. Note that in marketing, as long as consumers

are willing to pay for a particular value, they will do so and this might cause failure to market

original products e.g. software, music and movie industries.

In this context, price is therefore said to be a reflection of the anticipated and actual quality of

a product purchased/used by a consumer. For example, while a consumer would be willing to

pay RM15 for a cup of coffee at Starbucks, the same consumer might not be willing to pay

more than RM3 for a cup of coffee in a stall by the street. Why? This is given the fact that the

consumer perceives that the value derived from a cup of coffee at Starbucks is much higher

than the value derived from a cup of coffee by the roadside.

The above point has major implications on pricing strategies for a marketer. Price should be

blended well with the product that is produced and sold – and inherent in this discussion is

the issue of product quality and obviously the purchasing power (willingness and ability) of

consumers to pay for that particular product of service.

5.3 Aspects Related to Pricing

Several major aspects must be considered when we price a product or service:

Profits

Market objectives

Cost structure

Taxation policies

Competition

Purchasing power

Price elasticity


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Stage of the product in its PLC

Social responsibility

Long term plan/forecast

The subsequent sections discuss these issues in greater detail.

5.4 Profit and Pricing

In this method of pricing strategy, the producer sets a price by asking ourselves what is the

cost of production and adding on an expected profit to that. This is summarised as follows:

PRICE = COST + PROFIT EXPECTED

For example, let us assume that En. Razak is selling nasi lemak in front of his house. The

following assumptions are made:

He sells pre-packed nasi lemak

His cost of producing one pack is RM1.00 (rice, coconut milk, anchovies, chilli,

sambal, peanuts, cucumbers, gas used, and his effort)

Let us assume that En. Razak expects a 50% profit for each pack of nasi lemak that he

sells

As such, based on the above formula, the price he should charge would be:

Price = Cost + Profit Expected

Price = RM1.00 + RM 0.50 (50 sen profit per pack expected) [Note: 1.50-1.00 = 50%

profit)

Price = RM1.50 per pack


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5.5 Market Structure

Pricing is also closely related to the nature of the market in which a company operates in. A

monopoly (one one producer of a product/service) can set its own price as it desires – as

there is no competition in the market. Nevertheless, in the case of Malaysia, monopolies in

the utilities sector are not allowed to blindly set the prices – as regulators often take control

of the situation also.

In a competitive market (where there are similar companies selling the same/similar products

and service) pricing becomes a little more complex. In this context marketing managers often

pursue anyone of more of the following pricing techniques:

Penetration pricing – a tactic to obtain volume or more sales – prices are

considered to be very affordable to penetrate the market

Skimming pricing – where aim is to maximise profits – works well when a

company has good position in the industry

Cartel or Collusion – agreement between few players in the industry to fix a price

level (ceiling) example in the oil and gas sector

Dumping pricing – where prices are lowered to a level where competitors have no

option but to leave the market


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5.6 Cost Structure

Figure 5.1: Cost Structure

Pricing strategies are often related to cost structure in a given company also. Cost often refers

to the cost of production (or value added activities that go into making a final product or

service). The typical cost breakdown for a company is as follows:

Fixed Cost (FC) – refers to cost that is not dependant on the production volume

(e.g. cost of rental of factory)

Variable Cost (VC) – refers to cost that is subject to production volume e.g. more

final products to be produced, more raw material that we need to purchase – i.e.

more cost is incurred

Total Cost (TC) – refers to the total of FC + VC in a given production cycle.

Based on the above, a company needs to take into account this cost structure before

thinking of a profitable pricing mechanism that makes sense for being in the business. In


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setting a particular price based on cost structure, marketers should also take into

consideration the industry cost structure – to ensure the estimates are in par with industry

norms.

5.7 Taxation and Subsidy Policies

Pricing of a product is often related to taxation policies too. Taxation is not something that

the marketing manager has control of. These policies are implemented by regulators. In

Malaysia we are familiar with sales tax, service tax, and import tax, set by the government.

The sales and service tax are often transferred to consumers –i.e. we are required to pay

higher for cars in Malaysia relative to the same car in the UK – due to taxes imposed on

imported cars.

Subsides also impact pricing of products –and this is largely relevant to controlled items such

as price of petrol, oil, rice and other basic goods in Malaysia. Subsides keep prices stable and

thus ensure that the average consumer is able to purchase basic necessities in the economy.


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5.8 Competition

Figure 5.2: Industry Competitive Forces

We have been exposed to the above model in Chapter 2 of this module. The industry

competitive forces framework is also a powerful tool that can be used by a marketing

manager when thinking about setting a price for products and services. The major forces that

impact pricing decisions from this model are: bargaining power of consumers, threat of new

entrants and threat of substitute products and services. These three forces often move in

tandem with each other – for example, when a new restaurant is opened along a street in a

residential area (selling similar food with 2 other existing restaurants), this implies that:

Consumer have more choice or options


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The threat of a new entrant is high in this industry

There are alternative products for consumers

All of the above give more bargaining power to consumers

And this ultimately, can impact the nature of pricing in the industry.

5.9 Consumer Purchasing Power

Purchasing power refers to the willingness and ability of consumers to buy a product or

service in a given market. This is also called the affordability of consumers. Issues that

impact purchasing power in an economy include:

Minimum wage policies

Economic well being

Credit terms given

Access to credit facilities

Stated differently, marketers need to understand the overall living standard based on the

above factors given before deciding on a price. Take the case of the EDIM program –

UMCCED cannot simply put a price on this program – and charge say RM25, 000 – as this

might not be affordable to many consumers who are seeking a diploma level qualification.


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5.10 Price Elasticity of Demand

Figure 5.3: Elasticity of Demand

Figure 5.3 provides a quick illustration of the elasticity of demand for a given product in the

economy. A product that has an inelastic demand (e.g. cigarette, alcohol) is often subject to

continuous price increase. Why? Consumers are somewhat addicted to these products and are

still willing to consumer albeit there is a price increase. Stated differently, any increase in

taxation or cost of production, can be transferred to consumers without impacting the

company drastically.

In contrast, products with high demand elasticity (airplane fare) require more careful pricing

– as increase in taxation and/or production costs, cannot be directly transferred to consumers.

This factor should also be considered by marketers when thinking about making changes to

pricing structures or strategies.


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5.11 Stages in the Product Life Cycle

Figure 5.4: Pricing Strategies and PLC

Figure 5.3 suggests that the pricing strategy for a company also depends on the particular

stage of a product facing a company. These are summarised as follows:

Introduction stage – use skimming or penetration pricing

Growth stage – price can be lowered slightly assuming increase in competition

Mature stage – use a stable price – that is by now well accepted in the market

Decline stage – offer discount prices

5.12 Summary

The establishment of proper pricing for a given product or service offered by a company is

subject to numerous factors. A marketing manager should understand these factors in detail

and develop relevant pricing strategies.


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Review Questions

1. Define the term pricing. Why is pricing important in the marketing mix or a company?

2. By using an example, discuss how is cost plus pricing derived?

3. What are three major factors that impacts pricing mechanism of a company?

4. How does taxation and price elasticity of demand impact pricing?

5. How does pricing options relate to the product life cycle?

6. How does the nature of industry rivalry impact pricing decisions for a company?

7. What does purchasing power of consumer mean? How does this impact pricing?

8. For a private education company, what factors should be considered before pricing of a

diploma program is set? Explain your answer by using a real world example.

9. What is cost structure? How does it impact pricing?

10. What does penetration pricing mean? When would you consider using this method of

pricing?

Case Study – College Prowler

Source:

http://www.inc.com/magazine/20091001/finding-the-right-price-for-a-hot-product.html

It was 5 o'clock on a crisp October morning, and Luke Skurman was wide awake, on edge, and

restless. It wasn't the first time he had awoken that way. His company, College Prowler, was

stuck in a revenue rut, and after months of mulling the problem, he felt that radical changes were

needed. Skurman tossed and turned a bit more, then dragged himself out of bed and headed to a

nearby Starbucks, hoping that a change of scenery and a strong cup of coffee might jump-start

some creative thinking.

As Skurman sipped his coffee, he made a list of the reasons he had started College Prowler. First,

he wanted to create great content about colleges and universities. He also sought to help as many

people as possible make the right college choices. Finally, he wanted College Prowler to be


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financially successful. Looking over the list, Skurman came to a bitter conclusion: He had

succeeded at the first goal but failed at the other two. The only glimmer of hope was an idea he

had been pondering to change the business's revenue model. For the third time.

Skurman founded College Prowler in 2002, after graduating from Carnegie Mellon University.

His idea was to create college guides written entirely by the students. "When I was in high

school, I was obsessed with finding the perfect college," Skurman says. "I used every resource

imaginable. But I still didn't feel like I knew what the kids were like, or anything about the food

and the dorms."

So he decided to give prospective collegians the real inside skinny. Student authors would

distribute surveys to their peers, who would rate their school on a variety of criteria -- including

academics, dorms, and food, as well as Greek life, the drug scene, and (of course) the hotness of

the girls and guys. In the spring of his senior year, Skurman wrote a business plan and a 37-page

prototype for Clark University and entered Ernst & Young's Enterprise Creation Competition. He

was chosen as a national finalist.

After graduation, a former professor gave Skurman and three co-founders (none of whom remain

with the company) a bit of office space in a nearby biotech incubator, and two angel investors

invested $5,000 each in exchange for 2 percent of the company. By September, College Prowler

had produced guides to nine schools and was ready to debut its products at the National

Association for College Admission Counseling trade show in Salt Lake City. Skurman and his

colleagues chatted up guidance counselors and admissions officers and nailed down their first

two orders. "We made $240," Skurman says, "but we felt like we had validated our idea."

College Prowler soon began attracting coverage in Publishers Weekly, The New York Times, and

The Washington Post, and on CNN, all of which responded to the guides' honesty and

irreverence. "Alcohol seems to be the drug of choice for most students and just about everyone

knows that guy who sits in his room and smokes pot all day," according to the guide to Carnegie


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Mellon. "We at the University of Arizona are not 'everyday people.' We are beautiful and hot," a

U of A student wrote. More good news followed. A new investor, Glen Meakem, now the co-

founder of Meakem Becker Venture Capital in Sewickley, Pennsylvania, put $500,000 into the

company in August 2004. The country's largest book wholesaler, Ingram, agreed to distribute

College Prowler's guides, which helped get them into major bookstore chains like Barnes &

Noble and Borders. Revenue hit about $500,000 in 2005. Soon, the company was publishing

guidebooks for 220 colleges.

But one day Skurman came to a sobering realization: He did the math and concluded that even if

he could get 1,000 retail stores to carry a rack of 60 books at $14.95 apiece -- an all but

impossible goal -- College Prowler's revenue potential was still less than $1 million. So Skurman

began selling ads on the books' inside covers and on the company's website. Wachovia signed on

as an advertiser, with a six-figure deal that included book and Web banner ads, plus sponsorship

of an online scholarship contest. The revenue needle was moving, but Skurman was still not

satisfied. He decided to experiment with a subscription model. Skurman and his team digitized

50,000 pages of College Prowler's content on more than 250 schools and, in March 2007, offered

it online for $39.95 per year. The site mimicked the format of the books, with student-generated

ratings for a variety of campus experiences.

The company turned a small profit in 2007, but revenue stubbornly remained below $1 million,

and Skurman began to second-guess the strategy. He knew he had to do something. The

marketplace for college information was changing. Not only were universities beefing up their

websites, but a new competitor called Unigo had launched a free student-generated site.

Meanwhile, just as Skurman was preparing to renew College Prowler's contract with Wachovia

in June 2008, the bank announced massive losses and layoffs. Though the bank (which was

acquired by Wells Fargo late last year) would continue to advertise, the deal was scaled back.

That's when he started losing sleep.


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Skurman knew that College Prowler had great content. The hard part was getting people to pay

for it. That morning at Starbucks, he began to think that maybe he should stop trying altogether

and begin giving it away. He had been toying with the idea since attending the 2008 NACAC

conference. Strolling around the show, Skurman took a close look at the exhibitors and was

surprised at how many of them were in the business of selling sales leads -- that is, information

about prospective students -- to colleges. His contact at Wachovia, in fact, later told him that

qualified leads were the single most valuable element of the bank's relationship with College

Prowler. Perhaps, Skurman thought, the company should make lead generation a primary income

stream.

Changing strategy would be risky. The company would face some tough rivals, such as College

Board, which sells the names of students who take the SAT to colleges. Meakem, who invested

another $500,000 in College Prowler at the end of 2005 and now serves as chairman, pushed for

the shift. But Skurman was worried. If lead generation didn't work and the content was free,

would the value of his company be diluted?

The Decision

Last October, Skurman changed College Prowler's business model. The company, which now

has a staff of 11, hired new student editors to update the site's content, and Skurman began

meeting with admissions staffs at colleges and universities. "Our pitch to them is that they don't

want just a random list of students," Skurman says. "They want to make sure the student

understands their school, that the fit will be great, and that they'll be reaching the student early in

the process." That rang true to Michael Steidel, director of admissions at Carnegie Mellon.

"We've got to think about more innovative ways to communicate with kids before they shoot an

application out," Steidel says. But Steidel has been reluctant to pull the trigger. "Of the names I

buy from College Board, only 8 percent translate into a bona fide inquiry, and that's pretty low,"

he says.


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College Prowler's leads are different, Skurman says, because the company sells only the names

of users who opt to receive information about specific colleges. But Skurman has yet to close a

deal with a single school. Fortunately, he has had better luck with corporate clients looking to

market to college-age consumers. Wachovia is buying leads, and Skurman recently inked a deal

with the Army ROTC. The company, he says, now gets half its revenue from lead generation.

The rest comes from ad and book sales. On July 16, all of College Prowler's online information

was made available for free. Page views, Skurman says, jumped 60 percent the first week and are

increasing every day. The average amount of time users spend on the site has doubled. By

opening up the site, Skurman hopes to fulfill his second goal: helping as many families as

possible choose the right college. His third goal -- financial success -- may be more difficult. "It's

going to take time to prove to colleges that we're finding great applicants who they haven't

already found and that we're doing it at a competitive price," he says. "We're still figuring it out."

Question

How would you relate this case to pricing strategies for a company such as College Prowler?


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CHAPTER 6

MARKETING MIX 3 – PROMOTION

6.1 What is Promotion?

Any activity that is done to inform society at large about our products/services is called

promotions. What do we promote? Well essentially promotional efforts are aimed at

informing our potential consumers (and also current ones) about the following:

The product brand – identity of the product in the eyes of the consumer – stated

differently the impact a promotional initiative leaves on the minds of consumers.

Product price

Any offers given

Content information

Mode of payment

Where the product can be obtained from

Learning outcomes:


1. Define what promotional strategy refers to in relation to marketing mix

2. Differentiate between traditional and new forms of promotions

3. Look at different examples of promotions used in marketing

4. Examine the role of e-commerce in relation to promotion

5. Segmentation and promotions

6. Review the discussion questions on promotion

7. Review a case study on promotional strategies


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6.2 The Importance of Promotion in Marketing

The main idea and purpose of promotional activities for a company is to provide consumers

with as much awareness and information possible for a particular product that is being sold

by the market. The objectives of a well designed promotional piece would entail the

following:

To position the product in the consumer eye

To inform consumers about product content e.g. issues such as calorie content, sugar

level etc.

Inform consumers about augmented features in addition to the core features of the

product.

6.3 Traditional Promotional Methods

The table that follows provides examples and definition of the main methods of promotions

that are traditional:

Method Definition Example

Newspapers Use of mass media to

promote products

NST

STAR

SUN all are examples of

press that promote products

using adverts

Billboards Use of large scale boards

placed by the roadside to

promote product

Many examples e.g. AirAsia

uses many boards on the way

to LCCT

Brochures Specifically designed

promotional pack to describe

product content and

We see this in our mailbox

almost daily – sometimes

offering free sample for


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information products such as

soap/shampoo

Television- Advertising A very popular form of

advert used till this very day

A very powerful albeit

expensive method of

promoting products

Popular companies use TV

to promote as the cost is high

– e.g. Dutch Lady, Samsung,

Toyota etc.

Sales Discounts/Sales

Promotions

Offer of sales discounts to

lure in the consumers

E.g. buy-one-get one

promotional events

Other print media-

advertising

Use of printed material to

promote products

Door-to-door information

pack

Road shows Company sends its team of

sales and marketers to reach

people across the nation

Used by universities to get to

remote areas too

Direct Selling Use of sales people to

directly push products to

consumers

At times we can see people

selling kids toys, snacks etc

– and they approach

consumers who are eating in

restaurants/shopping etc.


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6.4 New Forms of Promotional Methods

Method Definition Example

Websites Use of the Internet as a basis

to promote a product

Use the web by Nike.com to

promote its products

Social Media Use of specific websites

driven by social presence to

promote a product

FB and Twitter are very

popular amongst the C-

generation today to obtain

product information

Viral Use of video based websites

to promote a product

Use of Youtube to promote a

product/service. Many stars

in the entertainment worlds

A point to note is that sometimes companies may use a combination of multiple promotional

mix methods. Examples are as follows:

Nike – uses websites, Facebook, and also appears on billboards

AirAsia – combines traditional methods such as billboards and e-mail and web-based

marketing methods

TM – uses sponsorships (Malaysia Super League football), print media, billboards,

and also uses road shows to promote products/services such as Unify.

6.5 E-commerce and E-marketing

E-commerce born circa 1992, in the US, paved the way for new forms of promotional efforts

for companies. E-commerce essentially refers to buying and selling online suing the Internet

as a medium that connects buyers and sellers. The major advantages of e-commerce that are

often discussed in the literature are:

Convenience offers to consumers in shopping


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Elimination of middle men in the transaction process which can lower cost to the

final consumer

Ability to offer wider geographical coverage for products and services – e.g. a lady

selling dumplings in Malaysian went global based on the MyMSC initiative

Borderless marketing efforts

New forms of promotional events/activities such as

o Viral marketing

o Member-get-member promotions

o Web adverts

o Pop-ups

o Peer review in social networks

o Click through models

o Page ranks and search engine sponsored sections

E-commerce has also led to various forms of business models in the world as we

speak today, with examples such as B2B, B2C, C2C, B2G, G2C models

While there are numerous benefits offered or derived from e-commerce ideas, the major

concerns of using the foray for promotional and transactional activities are as follows:

Security concerns

Privacy issues

Need to establish sound value proposition in using e-commerce

Issues pertaining to trust and quality of products

Availability of technical know-how to get online etc.

6.6 Mistakes Common in Promotional Activities

There are several common mistakes that are marketers often make in the context of

promotions. These mistakes are summarised as follows:


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Timing of adverts that is not correct – example Giant Mattress advertised during

serials such as bold and beautiful, while in actual fact their main customers were

actually men.

Adverts not targeted to specific segment of the market that would indeed be attracted

to a particular product or service

Spamming the world at large with promotional items- resulting into increasingly

high marketing and promotional cost which lead to overall lower profitability levels

Promotional hype that does not live up to the expectations of the consumers –

example a hotel promoting itself to be world class but when a consumer checks in

basic issues such as hygiene are not adhered to.

As such, marketers should always ensure that promotional elements are carefully planned

and executed to avoid the common mistakes made as mentioned above.

6.7 Promotions and Market Segmentation

Promotions and market segmentation work closely together. Market segmentation involves

three major aspects: Segment (S), Target (T) and Position (P) (Kotler et al. 2010). Prior to

promotional events/initiatives, marketing managers should have a good understanding of

what the STP in relation to segmentation means. The table that follows discusses this point in

detail.

Segmentation Concept Definition Impact on Promotions

Segment Dividing the consumers into

their respective profiles –

using different methods such

as geographical, sociological

and psychographic methods.

The purpose is to identify the

Good segmentation allows

clear promotional events to

take place – we have a focus

on the target group that we are

seeking to push products and

services to.


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consumers that we are

interested in

Target Once the market has been

segmented – we now have a

clear group or targeted

consumers to which specific

promotional events can be

implemented

Example based on

sociological segmentation

driven by religion, a tour

company can target people of

Islamic faith aged between 30-

50 who have yet to perform

the ‘Haj’ - and offer unique

promotional packages such as

group discounts.

Positioning Upon identification of a clear

target, a clear product/service

statement can be developed –

messages such as why this

product/service is relevant or

applicable to a particular

segment can be made

Use promotional methods

such as advertisements and

other relevant techniques to

position the product/service to

the targeted group.

Review Questions

1. What is promotion? Why is promotion important in marketing?

2. What does e-commerce mean? How does e-commerce relate to promotional efforts of a

company?

3. What are the major benefits of using social media for promoting a product?

4. Briefly describe three major types of promotional methods that are classified as being

more traditional – and provide the advantages and limitations of using these methods

5. Why is social media playing a vital role in promotional efforts for a company?


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6. What is e-commerce? How does e-commerce relate to promotional activities for a

company?

7. What is the relationship between segmentation and promotions in marketing?

Promotion Case Study – Five Star Destinations

Promotion Case Study Russ Cabe, Blizzard Internet Marketing, Inc.

Source:

http://newsletter.blizzardinternet.com/promotion-case-study-five-star-destinations/2004/12/13/

Client Profile:

Five Star Destinations offers worldwide luxury accommodations ranging from Mediterranean

villas and ski condos to large luxury yachts, and everything in between. Their properties span

the globe, offering the very highest level of accommodations, but their Internet presence was not

nearly living up to its potential.

The Challenge:

Drive more qualified traffic to their web site by increasing internet presence.

Increase revenue generated by web site.

Decrease reliance on pay-per-click resources by diversifying traffic sources.

The Strategy:

The client hired Blizzard Internet Marketing, Inc. to develop an aggressive plan to improve their

web site performance in major search engines. The key ingredients to the plan were:

Increase web site saturation in Google.

Before web site promotion started, Google was only indexing the site’s home page,

completely unaware of all of the web site’s interior pages.

Increase link popularity.

Before promotion began, the site had only 62 backward links.

http://www.5stardestinations.com/


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Optimize site for search engine performance.

Prior to promotion, very little had been done to the site to consider how search engines

view it.

The Results:

Within the first three months of promotion, the following results have been achieved:

The site has gone from web site saturation in Google of 1 page to a total of 1,490 pages.

That means they now have 1,489 more opportunities to be seen on the Internet than they

previously had. Further, as we have discussed in previous issues, search engines favor

larger sites.

Working in conjunction with their hosting company, we reorganised the web site to

improve organisation of information for visitors and to optimize individual pages for

increased overall presence in search engines.

Link popularity has increased from 62 to 1,587 links.

Traffic to the web site has almost tripled since promotion began.

According to Robin of Five Star Destinations, “We’re so busy we can’t see straight.” When

asked how business this year compares with the same time last year she stated, “We have

really, really increased business. We have been so busy we have joked about wanting to turn it

off for a little while.”

Question

Relate the above case to promotional issues as presented in this chapter. Was the company

successful in its promotional efforts? Why or Why not?


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CHAPTER 7

MARKETING MIX 4 – PLACE

7.1 What is Place?

Figure 7.1: Place or Distribution Channel

Learning Outcomes:


1. Define what place/distribution strategy refers to in relation to marketing mix

2. Differentiate between traditional and new forms of distribution channels

3. Look at different examples of distribution channels

4. Examine the role of e-commerce in relation to distribution channels

5. Review the discussion questions on place

6. Review a case study on distribution channel as in the context of marketing mix


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As illustrated by Figure 7.1 above, place or also called distribution channel (DC) refers to all

parties and activities involved in getting the product/service from the producer till the

product/service reaches its final destination, namely the final consumers. The Business

dictionary defines distribution channel as:

“A path through which goods and services flow in one direction (from vendor to the

consumer), and the payments generated by them that flow in the opposite direction (from

consumer to the vendor). A distribution channel can be as short as being direct from the

vendor to the consumer or may include several interconnected intermediaries such as

wholesalers, distributors, agents, retailers. Each intermediary receives the item at one

pricing point and moves it to the next higher pricing point until it reaches the final buyer.

Also called channel of distribution” Source: http://www.businessdictionary.com/

The above implies that in place or DC, the following items are considered:

Producer – the lead company that manufactures or produces the product/service –

e.g. Proton produces cars, and MAS delivers the service of an airline company.

Activities involved in the process of channelling the product/service to consumers

could include issues such as (i) warehousing (ii) transportation and logistics

companies (iii) insurance companies to secure the value of product (iv)

showrooms and (v) service outlets in the case of service based marketing.

Let us take a simple example of buying vegetables. The vegetable is produced in

say Cameron Highlands and we buy it at a night market in KL. In this example,

the following parties and activities are involved in this DC:

o Farmer – grows the vegetables

o Transport company – transports the vegetables from the farm to the

wholesaler in let say Selayang wholesale market

o The wholesaler – collects the vegetables and sells this to smaller retailers

o The retailers in turn sell these vegetables at various night market or retail

outlets in KL, where we buy them from.

http://www.businessdictionary.com/definition/path.html

http://www.businessdictionary.com/definition/goods-and-services.html

http://www.businessdictionary.com/definition/flow.html

http://www.businessdictionary.com/definition/vendor.html

http://www.businessdictionary.com/definition/consumer.html

http://www.businessdictionary.com/definition/payment.html

http://www.businessdictionary.com/definition/distribution.html

http://www.businessdictionary.com/definition/channel.html

http://www.businessdictionary.com/definition/intermediary.html

http://www.businessdictionary.com/definition/wholesaler.html

http://www.businessdictionary.com/definition/distributor.html

http://www.businessdictionary.com/definition/agent.html

http://www.businessdictionary.com/definition/retailer.html

http://www.businessdictionary.com/definition/receive.html

http://www.businessdictionary.com/definition/buyer.html

http://www.businessdictionary.com/


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o Please take note that in the above process: there can be multiple roles

played by any one or more party e.g. the wholesaler may own his/her own

transport company and a consumer can also buy directly from the farm is

he/her so wishes. As such, the nature of a DC is rather fluid and thus there

is ample room for profit taking in the process.

o In general, for a consumer, the longer the DC, the final cost incurred in

buying the product, is naturally higher. Why? This is given the fact that

each party in the chain will add some cost (make profit) in the process of

distribution.

7.2 Why is Place Important in Marketing?

Place or DC is an important concept or element in the marketing mix. The following are the

reasons:

o A DC ensures that there a meeting point between buyers and sellers – stated

differently, a DC facilitates the transaction process in the market

o A DC generates value to the economy by allowing people to add value in the

process of product/service distribution. This adds value to the gross domestic

product in the economy as a whole

o The various parties involved in the DC often aim to add value to consumers –

example would be companies involved in packaging and labelling which could

give a product more shelf-life

7.3 Factors that Influence Distribution Channel Used

There are several factors that can impact the selection criteria of a particular DC. We will

explore two factors namely: the market factor and the product factor.


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The Market Factor

• Target group of clients

– Decide on channel based on where target customers engage in transaction

– E.g. if more people are using the internet to do banking that this can be used as a channel

• Geographic location and market size

– Bigger the size, we need more channels or use the in combination:

• Internet

• Distributors

• Competition

– Choose a channel that is not congested

– Example in selling home-made kuih, we can use direct selling as sales using outlets in

malls are many already

The Product Factor

Here we will decide on a DC based on nature of product. We have 2 options: Use a short

channel or a long channel

• What is short channel? Use less intermediaries e.g. we might sell direct from factory using

sales team.

• Short channels work well for the following products:

– Customized

– Complex

– Expensive

– Perishable items

– E.g. cars/sales of airline tickets and also fruits and vegetables need short DC

– This also minimizes the costs involved to consumer when the DC is short


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7.4 E-Commerce and Place

As stated in Chapter 6, e-commerce has allowed marketers to offer a new form of DC into

the market. Although the nature of a tangible product such as a book cannot be altered, the

way in which a book is placed in the online DC can be shifted. Stated differently, rather than

using a bookstore, a company such as Amazon.com, can with the use of e-commerce sells

and ship books directly to end consumers. For the consumers this could add value in terms of

lower cost and shopping at their leisure.

7.5 Misconception with Place

There are three major misconceptions in relation of marketing mix and DC. These are

summarised in the table that follows:

Misconception Justification

Parties or players in a DC are not

consumers

This is not true

A wholesaler is the consumer as he buys

from a farmer who is a seller. As such, in a

DC, one can play multiple roles of buyer,

transporter and also seller – depending on the

nature of the business.

A DC is static and not dynamic This is also not correct

The nature of DC is always evolving – for

example Kodak had to reestablish its

physical DC and use selected form of e-

commerce (B2B) to ensure its sales were

intact.


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A DC relates to distribution of physical

products only

This is not correct

This is given the fact that even service sector

is subject to DC. For example, take the

installation of broadband to consumer homes

in Malaysia – the service provider is TM.

TM works with its vendor to install fibre to

our home for the service.

Review Questions

1. What is place? Why ‘Place’ is also called Distribution Channel (DC) in a market?

2. What are three major misconceptions in relation to DC in the context of a marketing mix?

3. Think of an example of buying vegetables- what might the DC look like? How might this

be different relative to buying a car?

4. What factors impact the selection of a particular DC? Give examples to illustrate your

answers.

5. Relate e-commerce to DC. What are the benefits of using e-commerce for distributing

products and services to consumers? What are challenges in doing so?

Case Study

Managing the distribution channel: the case of Scot Trout and Salmon - by A. Wagner,

Marketing Department, University of Stirling, Stirling, UK, and Andrew D.G. Alderdice,

Marketing Department, University of Stirling, Stirling, UK

Since the early 1990s, companies across a wide variety of industries have become increasingly

interested in exploring the opportunities for competitive advantage that can be realised by

leveraging the core competencies and innovative capabilities to be found among networks of


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business partners. These business behaviours have evolved as firms in today's market place are

finding that they can no longer compete effectively in isolation of their suppliers or other entities

of their supply chain points out how the concept of supply chain management (SCM) is merely

an extension to previous management models, such as just-in-time (JIT), total quality

management (TQM), and business process reengineering (BPR). These concepts were largely

concerned with increasing market place value by leveraging the capabilities to be found in

internal business processes, whereas the concept of SCM strives to identify further sources of

competitive advantage by converging both internal and external resources, such as customers and

suppliers. Essentially the objective of SCM is to reduce or minimise total cost, improve total

quality, maximise customer service and increase profits.

The relationship between buyers and suppliers is fundamental to SCM and plays an important

role in an organisation's ability to respond the dynamic and unpredictable changes that

characterise today's business environment. These unpredictable changes are undermined by

Skjoett-Larsen (2000), arguing that the international competitiveness of company's in today's

market place will increasingly depend on their ability to deliver customer adapted products all

over the world quickly and on time. The dynamics of these relationships in today's market place

have gravitated from the traditional adversarial arms-length agreements, to ones based on trust,

collaboration and information sharing proposes that the SCM philosophy enables even the

smallest company to maximise customer satisfaction and accessibility at the lowest cost through

the development of closely networked supply chains.

However, critics such as Sinclair et al. (1996) and Bask and Junga (2001), question the extent to

which customer-supplier relationships can ever lead to genuine partnering and according to

Blundel and Hingley (2001), fostering partnering behaviours such as those previously mentioned

is overly optimistic for many small- to medium-sized enterprises (SMEs). This “Insight from

industry” is designed to deepen the understanding of the role of SCM and its potential

contribution to the growth of SME's through a case study of Scot Trout and Salmon.

http://www.emeraldinsight.com/journals.htm?issn=1359-8546&volume=11&issue=2&articleid=1546185&show=html&PHPSESSID=63qlf2hu1uuuoh7hbk41d5at60#idb14





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The grocery food retailer and the SME supplier

Most British retailers are very advanced by comparison with those in mainland Europe and

utilise business practices that compete with the best in the world. This professionalism is

demonstrated in the retailing buying processes, where marketing organisations in the retail

chains are geared towards purchasing from large suppliers able to distribute products nationally.

For their part retailers are now well equipped to handle stores' demand, having developed

efficient purchasing and logistical capabilities to ensure a smooth exchange between the parties.

The growing demand for specialist products in supermarkets testifies to consumers' tastes

becoming more discriminating. This is especially true for regional products that can gain

popularity outside the community of origin. The small supplier servicing a single supermarket is

not really the issue. The point is that sometimes demand for their products is wider than local or

regional and this increase in demand, in the short-term, can create supply problems. As well as

longer term strategic issues in terms of managing rapid growth. The small supplier is therefore

faced with logistical and supply chain issues not considered before. To achieve mutual advantage

both the supplier and retailer require to work together to get the product to the consumer where

and when required.

Scot Trout and Salmon – company background

Company mission statement:

To be the number one speciality fish and smoked fish company in the UK providing security of

income for members and employees.

Originally based in Motherwell, Scot Trout and Salmon goes back to 1983 and at that time was

as a small fish in a big pool involved in trading whole trout. Yet even in those early years, they

had a clear vision for their business. When Muir Hunter was appointed as their managing

director, that vision was soon to become reality. He felt that as a fish farmers co-operative, Scot


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Trout was not operating as effectively as he would have liked and there was something that was

holding them back. Recognising the need to be more demand driven than farmer focussed, they

set out on a period of steady growth and between the period of 1983 and 1993 Scot Trout

commenced primary processing of trout (gutting), started filleting trout and introduced salmon to

their product range. Also, during this period they moved from Motherwell to Bellshill were they

are now presently located. The developments did not stop here and in 1995 they introduced pre-

packing that allowed them to directly supply supermarkets and further growth to the present day

necessitated two factory extensions. Today they boast an extensive product range, which

includes:

fresh trout, salmon, haddock and whiting;

smoked trout, salmon, mackerel;

sushi components including salmon, tuna and haddock; and

added-value herring and mussel products

Critical to the successful growth of Scot Trout was the decision to develop and grow their

existing business with the major retailers. Currently Tesco, Sainsbury's, Safeway and Marks &

Spencer account for 95 per cent of Scot Trout's business and they have been supplying Marks &

Spencer for some ten years. The remainder of their customer base comprises other wholesalers,

further processors and the exporting market.

Loadshare distribution initiative

A notable Scot Trout development was the “loadshare” distribution initiative, which began in

1999. With an established and extensive distribution network already in place, Scot Trout were

well placed to take full advantage of linking up with other suppliers as a means of sharpening

their competitive edge. Essentially the driving force behind this concept was that all parties

involved benefit. The smaller partners were able to offset high distribution costs by literally

sharing transport. The reduced distribution costs meant that they could access markets they could


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not otherwise have done resulting in increased sales. Scot Trout on the other hand were able to

increase their voice with their customers (the large grocery retailer) through a much wider

portfolio of products. In turn, the customers of Scot Trout could access small, high quality,

innovative Scottish food companies without increasing their supply base. The success of this

initiative can be seen by the sales figures seen in Table I.

The sales figures from Table I make impressive reading for both Scot Trout and their suppliers.

The growth and success of Scot Trout is undermined by the £28.4 million turnover in 2001/2002

when compared with the mere £300,000 they managed to turn over in their first year in 1983.

Much of this success has been attributed to the principles of the Loadshare initiative.

Scot Trout act as a distribution hub. The costs associated with dealing direct to larger customers

like Tesco and Sainsbury are simply too much for these small suppliers to deliver on their own.

The suppliers are responsible for getting their goods to Scot Trout who then transport the goods

onto the their respective customers, enabling them to receive product from a number of suppliers

in one delivery.

The loadshare distribution initiative developed by Scot Trout has enabled all members of the

supply chain to achieve the goal of cost reduction by simply sharing transport. The suppliers of

Scot Trout essentially piggyback on their distribution network, an arrangement that has enabled

them to access markets they previously could not afford to reach. As pointed out by the

managing director of Orkney Herring:

With Loadshare our distribution costs have been cut by 5 per cent (KS. MD. Orkney Herring).

According to Scot Trout:

Loadshare has allowed us to reduce our overall distribution cost by 20 per cent (HF. MM. Scot

Trout). The customers of Scot Trout also save on cost, as they are able to receive products from a

number of suppliers using the one distributor.

http://www.emeraldinsight.com/journals.htm?issn=1359-8546&volume=11&issue=2&articleid=1546185&show=html&PHPSESSID=63qlf2hu1uuuoh7hbk41d5at60#id1770110202001.png



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Benefits of loadshare

As advocated by Harland (1996), this type of arrangement has enabled smaller suppliers to

develop a longer-term relationship with a purchaser and currently the concept of loadshare seems

to be facilitating this.

Scot Trout and Salmon have taken a developmental role with the SME supplier. Quayle (2000)

has advocated that supplier development activities are induced by innovative behaviour to

improve quality and to produce new products and services through close co-operation and

intensive interaction between supplier and customer and the loadshare project developed by Scot

Trout clearly illustrates this process. This type of arrangement appeals to larger customers like

Tesco are now after, for example:

The range of products in a store like Tesco makes it unfeasible to take delivery from absolutely

every one. The Loadshare initiative means that one distributor can account for as many as five

different suppliers and that's crucial to the way we run our business as it saves us invaluable time

and resources on an ongoing bases (DK. PDM. Tesco).

Risk of takeover

It may be very tempting for a company to absorb a small supplier in order to gain control and

reduce costs further. Scot Trout have recently acquired two of the suppliers involved in the

loadshare initiative (both within the last two years), namely R.R Spink & Sons and Daniel's

Sweet Herring.

This type of behaviour provides evidence of how the weaker party is always open to exploitation

and as suggested by Campbell (1997), trust on its own is not sufficient in creating relationships.

As pointed out by Harland (1996) and Ellram (1991), both purchasers and suppliers need to

commit to the long-term capability as opposed to a means of achieving immediate results.







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Currently it would be fair to infer that both Scot Trout and their customers are striving to meet

this objective, but in doing so Scot Trout are prepared to exercise whatever power they have over

their smaller counterparts in order to better control their relationship with their customers. The

loadshare initiative has only been on the go since 1999 and already Scot Trout have acquired two

suppliers. Therefore while the general consensus from the suppliers of Scot Trout tend to

confirm their commitment the loadshare arrangement, it will be interesting to see just how long it

is before Scot Trout try and take further control through more acquisitions. These findings tend

to support the belief of both Blundel and Hingley (2001) and Sinclair et al. (1996) who question

the extent to which customer-supplier relationships can ever lead to genuine partnering.

The loadshare initiative reflects all the credentials of the practical application of the SCM

concept in that it is geared towards the win-win philosophy and collaborative arrangements that

are mutually beneficial. In reality however, these benefits are distributed in favour of the more

powerful party and as a result the weaker party is always going to be open to exploitation. For

example, the acquisitions made by Scot Trout would suggest that they are prepared to use

whatever power they have over their smaller counterparts in order to better control their

relationship with their customers. Despite this however, the findings illustrate how all the

suppliers of loadshare can enjoy considerable growth regardless of these power imbalances and

this growth is expounded by the impressive figures in Table I. For this initiative to be sustained,

both parties have to continue to add value to one another otherwise the relationship risks

termination. The case demonstrates how clusters of small suppliers can be organised and routed

through a distribution hub and gain access to large companies and the wider marketplace.

Summary

This case has provided greater insight in understanding the role of SCM and its potential

contribution to the growth of SME's and illustrates how small-medium suppliers like Scot Trout

actually manage their supply chains in respect to their larger counterparts. The loadshare

initiative developed by Scot Trout exemplifies a practical working model of the SCM concept





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and how the squeezing of profit margins by their larger counterparts can be somewhat alleviated

by collaborating and co-operating with other suppliers. The principles of this initiative provides

food for thought for suppliers across other industries and how they too may be able to realise the

“holy grail” of SCM, cost reduction.

Source: http://www.emeraldinsight.com/journals.htm?issn=1359-8546&volume=11

Discussion Question

Based on the case, discuss the important factors that are required to ensure profitable

management of distribution channels.


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CHAPTER 8

MARKETING – GLIMPSE OF THE FUTURE

8.1 Introduction

The future of marketing will evolve in accordance to both structural and strategic shifts in

overall business outlook for the majority of companies across different industries. The key

themes in relation to the future of marketing discussed in this chapter are essentially

summarised as follows:

Greater role for technology in marketing

Globalization

Focus on sustainable issues

Changes in lifestyle

Customer centric initiatives

The subsections that follow discuss each of the abovementioned themes in greater detail.

Learning Outcomes:


1. Understand how the traditional 4Ps in marketing could evolve in the future.

2. Examine how macroeconomic variables such as politics, social, technological,

environmental and economic variables in the future could impact marketing efforts.

3. Work on the review questions on the future of marketing.

4. Examine a case study that compares how traditional versus online marketing can be

compared – using video rental industry as an example.


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Inevitably, there role played by new forms of media driven by Internet and the World Wide

Web technologies have changed the global landscape of marketing. The table that follows

examines the impact once can expect technology (particularly web based technologies) on

the traditional 4Ps:

Product As witnessed post the e-commerce boom in early 1990s to mid-

2000’s, numerous new ideas and innovative products, services and

business ideas have emerged.

In the next decade we are certain to witness the emergence and

proliferation of more smart/intelligent products such as smart phones –

that will serve as ubiquitous communication tools. Products of the

future will become IP (Internet Protocol) enabled – which explains

why the global standard to rapidly roll out IPV6

Sensor technologies are becoming more prevalent in electronic

products – e.g. refrigerators that recognize content and television sets

are set to become more interactive and 3D enabled.

Price Prices for products are contingent of production factors

However, for technology based products such as smart phones and

laptops are expected to fall as cost of production of technologies have

been proven to rapidly decline over time as and when an upgrade or

new product is launched in a similar product category. Example would

be the decline in iPhone (generation 1) when gen 4 was launched.

Promotion We can expect more products and services to be promoted

aggressively on social networks – hence explaining why more and

more companies are developing alliances with social-driven websites

such as Twitter, FB and Orkut.


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Place Increasingly in the future we could witness more and more traditional

distribution channels being replaced by virtual channels – the scene is

set for most producers to get to the consumer direct and with an

increase volume and as access to the Internet becomes more pervasive,

we could slowly witness the disappearance of physical outlets.

In the education sector also, one can expect greater demand for and

access to multimedia learning tools and platforms – alongside the

emergency of massive and pervasive smart school philosophies, across

the globe.

8.3 Environmental Forces and Future Impact on Marketing

The table that follows examines how key macroeconomic variables could impact marketing

in the future:

Variable Definition Impact on marketing in the

future

Political climate – worldwide Changes in relation to the

collapse of dictatorial

leadership e.g. Egypt, Syria

and in China – will lead to

more open systems in the

economy

This potentially could offer

new marketing opportunities

into such nations – offering

somewhat a blue-ocean

approach to visualize

marketing efforts.

Environmental issues such as

climate change, and global

warming

Mother nature is constantly

being challenged with

degradation impact led by

harmful corporate activities.

Companies will focus more on

green-marketing and being

recognized as more socially

responsible in positioning

their respective brand,

products and services. More


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prevalent use of the 3R (reuse,

reduce and recycle) approach

in production and marketing

will be witnessed.

Economic variables

particularly the full

implementation on the World

Trade Order (WTO)

Agreements that are set to

liberalize trade and level the

playing field for all companies

in the globe. Could lead to the

need for smaller players to

quickly improve to keep

abreast with global leaders and

transnational corporations

Local companies such as

Maybank, TM, and Proton,

need to buck up – and become

more competitive or risk

losing the market to foreign

competitors.

Technological revolution Discussed in the preceding

section

Discussed in the preceding

section

Social Structural changes Society is set to change with

the growing number of Net

generation – demanding for

real time products and services

at light speeds, and also new

and flexible work culture

across the globe.

Marketers need to follow

social changes very closely

particularly with regards to

how society responds to

innovative ideas and solutions.

Review Questions

1. Briefly discuss how the 4Ps might be impacted by changes in technology in the near

future.

2. Discuss the core macroeconomic variables and how these variables could impact

marketing in the future.


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Case Study – Netflix versus Blockbuster Video

Source: https://www.socialtext.net/ism4300/netflix_vs_blockbuster

Competition

A competition between Netflix and Blockbuster has been fierce for the past few years. The two

companies are leaders in a rental movie industry and major rivals. Blockbuster has a longer

tradition in the business. The Blocbuster has been around since 1985, while Netflix enters its

12th year of existence. However, as of now, Netflix has about 9.6 million online subscribers

compared to Blockbuster's more than 3 million. Other online DVD rental companies include

Intelliflix, GameZnFlix and Redbox. The latter two mostly target Asian markets. Walmart also

tried to generate profits in this industry by was soon run out of business by Netflix. Nowadays

Walmart has a promotional agreement with Netflix.

Online Service Overview

Both Netflix and Blockbuster Total Access are online movie rental services. This means that you

can browse their databases and put your movies or favorite shows in your queue. A member is

allowed to keep a DVD as long as he/she wants and there are no due dates or late fees. Once a

movie had been seen it is placed in an envelope a sent back to one of the two movie rental

companies. As soon as the movie is received at either company a next movie in the queue will be

sent to a member. Both companies have many different plans to choose from. There are two

possible options and they are limited and unlimited rentals. Netflix offers 8 plans under its

unlimited DVD rental option. The prices range from $9.99 for 1 movie at a time to $47.99 for 8

movies. Blockbuster has 4 different plans between $9.99 and $23.99. As limited rentals Netflix

offers 2 DVDs per month for $5.99 or 4 DVDs in a month period for $11.99. On the other hand,

as a limited Blockbuster rental a member can get 2 DVDs for the same price as their rival’s or 4

DVDs for only $7.99. If a person is a Netflix member movies can even be watched from their

website while a person is waiting to get next movies from a list. This advantage is only available

to Netflix customers. On the other hand, Blockbuster lets a rental person to physically return a

watched movie/show. Netflix usually sends a new movie within one day, while it takes

http://www.netflix.com/

http://www.blockbuster.com/

http://www.blockbuster.com/totalaccess


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Blockbuster about two or three days for the same. Netflix offers a wider variety of movies

compared to its biggest rivals as well as a convenience of watching movies online. They are also

quicker on shipping. Blockbuster lets a member order movies online and by going to their store.

In addition, Blockbuster gives an opportunity to get as much as double movies since their in

store rental is free with a Total Access Pass.


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Strategies Used

Netflix and Blockbuster have been using different strategies to gain more market share and

revenues. Both companies have been engaged in price war lowering their cost of services

compared to that of their rival. This strategy works advantageous to customers because for the

less money they will be getting the same type of services. Netflix CEO Reed Hastings plans to

reach 20 million customers by 2012. This number will represent about 20 percent of all US

households. Netflix puts a lot of pressure on Blockbuster forcing them to change something in

their strategy. Up until about 2 years ago, Blockbuster was still charging late fees for not

returning DVDs back on time. The company changed their strategy and does not charge late fees

any more. However, due to elimination of late fees, Blockbuster and Movie Gallery lost about 1

billion dollars in 2005. Netflix has also been buying rights to independent films. This will enable

Netflix to sell or rent DVDs or show movies in theatres. By doing this Netflix wants to gamble

and try to make more money on movies that Hollywood does not want to consider. This works in

favor of Netflix because only 30 percent of their rentals are new releases.

Advantages/Disadvantages of Two Rivals

Advantages of Netflix:

Watch more than 7000 movies online as a member

Website makes recommendations based on your previous ratings

Website keeps track of movies rented

A large selection of special interest DVDs

2 week free trial available

Disadvantages of Netflix:

Poor customer service

Long wait for new releases


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Advantages of Blockbuster Total Access:

2 free video/game in store monthly rentals

Can return online order to a local Blockbuster store

Only pay $9.99 for the first month of subscription

Disadvantages of Blockbuster Total Access:

Movie rented in store cannot be returned by mail

Need to have 2 separate accounts to rent in store and online

Summary

From the user perspective there may be different preferences towards one service or the other. It

mostly depends on an individual needs of a service member. For example, a student residing on a

campus will more likely be in favor of Netflix, while a family living close to a Blockbuster store

will prefer its services. Last year Blockbuster closed more than 200 of their stores and seems to

me losing online DVD rental battle with its rival Netflix. Netflix has been able to be a step ahead

of Blockbuster since they do not have to bear an overhead cost of owning its stores and storing

all DVDs. Reed Hastings CEO of Netflix, states that their company strategy is to build "a very

large DVD rental subscriber base."

Discussion Question

Compare the application of the 4Ps between Netflix and Blockbuster video rental service. How

does this case relate to the difference between traditional and marketing of the future?


100


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