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Key Topics: - Measuring markets - Assessing strengths and weaknesses - Understanding customers - Segmenting markets - The marketing mix - Selling - Researching markets Business schools didn't invent marketing but they certainly ensured its pre-eminence as an academic discipline. Principles of Marketing and Marketing Management, seminal books on the subject by Philip Kotler (et al) of Kellogg School of Management at Northwestern University, have been core reading on management programmes the world over for decades. The School's marketing department has rated at the top in all national and international ranking surveys conducted during the past 15 years. (You can see Kotler lecture at this link: www.anaheim.edu/Resources > CEO Video Interviews).
Marketing is defined as the process that ensures the right products and services get to the right markets at the right time and at the right price. The devil in that sentence lies in the use of the word 'right'. The deal has to work for the customer, because if they don't want what you have to offer the game is over before you begin. You have to offer value and satisfaction, otherwise people will either choose an apparently superior competitor or, if they do buy from you and are dissatisfied, they won't buy again. Worse still, they may bad-mouth you to a lot of other people. For you the marketer, being right means that there have to be enough people wanting your product or service to make the venture profitable; and ideally those numbers should be getting bigger rather than smaller.
So inevitably marketing is something of a voyage of discovery for both supplier and consumer, from which both parties learn something and hopefully improve. The boundaries of marketing stretch from inside the mind of the customer, perhaps uncovering emotions they were themselves barely aware of, out to the logistic support systems that get the product or service into customers' hands. Each part of the value chain from company to consumer has the potential to add value or kill the deal. For example, at the heart of the Amazon business proposition are a superlatively efficient warehousing and delivery system and a simple zero-cost way for customers to return products they don't want and get immediate refunds. These factors are every bit as important as elements of Amazon's marketing strategy as are its product range, website structure, Google placement or its competitive pricing.
Marketing is also a circuitous activity. As you explore the topics below, you will see that you need the answers to some questions before you can move on, and indeed once you have some answers you may have to go back a step to review an earlier stage. For example, your opinion as to the size of the relevant market may be influenced by the results achieved when you segment the market and assess your competitive position. Getting the measure of markets The starting point in marketing is definition of the scope of the market you are in or are aiming for. This comes from the business objectives, mission and vision that form the heart of the strategy of the enterprise. For most MBAs for most of the time these will be a 'given' and as such will not inhibit your ability to apply the marketing concepts explored here. So, for example, if you are working in, say, Body Shop, McDonald's, IBM, a Hospital Trust or the Prison Service, the broad market thrust of your current business will be self-evident. Later you may want or need to change strategic direction, but effective marketing is concerned fundamentally with dealing with a defined product (service)/market scope. These concepts apply to any marketing activity, but you will find that understanding them is made easier by applying them to the business you are in, or have some appreciation of. Assessing the relevant market Much of marketing is concerned with achieving goals such as selling a specific quantity of a product or service or capturing market share. MBAs are frequently set the challenging task of measuring the size of the market. Now in principle this is not too difficult. Desk research will yield a sizeable harvest of statistics of varying degrees of reliability. You will be able to discover that the consumption, say, of bread in Europe is £10 ($16/€11) billion a year. But first you need a definition of bread. The industry-wide definition of Bakery includes sliced and un-sliced bread, rolls, bakery snacks and speciality breads. It covers plant-baked products; those that are baked by in-store bakers; and products sold through craft bakers.
Assessing the relevant market then involves refining global statistics down to provide the real scope of your market. If your business operates only in the UK the market is worth over £2.7 ($4.2/€3.03) billion, equivalent to 12 million loaves a day, one of the largest sectors in Food. If you are operating only in the craft bakery segment then the relevant market shrinks to £13.5 ($21.16/€15.16) million; this contracts still further to £9.7 ($15.2/€10.9) million if you are, say, operating only within the radius of the M25 ring road. CASE STUDY Google fits in Google China, founded in 2005, was headed by former Microsoft executive, Kai-Fu Lee, until 4 September 2009. The Chinese government operated, and still does, a level of censorship on all communication media, alien to Western culture. To enter the Chinese market Google had to operate a form of uncomfortable self-imposed censorship known as the 'Golden Shield Project'. The effect of this was that whenever people in China searched for keywords on a list of blocked words maintained by the government, google.cn displayed the following at the bottom of the page (translated): 'In accordance with local laws, regulations and policies, part of the search result is not shown.' By the start of 2010 Google had only a third of the search-engine market in China, where the market was dominated by local giant Baidu. Though its sales revenues continued to rise, it was finding business hard going. On 12 January 2010, Google and more than a score of other US companies recognized that they had been under cyber attack from organizations based in mainland China. On 12 January 2010 Google declared it was no longer willing to censor content on its Chinese site after discovering that hackers had obtained proprietary information and e-mail data of some human-rights activists. On 22 March, Google decided to stop censoring Chinese internet searches and shifted its search operations from the mainland to an unfiltered Hong Kong site, in effect reversing its original decision to comply with local conditions. There is little evidence that this marketing strategy has been effective since Google Inc's share of China's online-search market had, by 2012, declined to barely 15 per cent. Baidu, the market leader's share, was 78 per cent and Sogou Inc held just short of 3 per cent. The importance of market share The relevant market will be shared by various competing businesses in different proportions. Typically there will be a market leader, a couple of market followers and a host of businesses trailing in their wake. The slice that each competitor has of a market is its market share. You will find that marketing people are fixated on market share, perhaps even more so than on absolute sales. That may appear little more than a rational desire to beat the 'enemy' and appear higher in rankings, but it has a much more deep-seated and profound logic.
Back in the 1960s a firm of US management consultants observed a consistent relationship between the cost of producing an item (or delivering a service) and the total quantity produced over the life of the product concerned. They noticed that total unit costs (labour and materials) fell by between 20 and 30 per cent for every doubling of the cumulative quantity produced. So any company capturing a sizeable market share will have an implied cost advantage over any competitor with a smaller market share. That cost advantage can then be used to make more profit, lower prices and compete for an even greater share of the market, or invest in making the product better and so stealing a march on competitors.
Figure below demonstrates clearly the advantage of market share in the supermarket business. Tesco, the market leader, made over twice as much profit per percentage point of market share as Morrisons.
FIGURE: Market share UK supermarkets 2011–12 Competitive position It follows that if market share and relative size are important marketing goals, you need to assess your products' and services' positions relative to the competition in your relevant market. The techniques most used to carry out this analysis are SWOT and perceptual mapping. Strengths, weaknesses, opportunities and threats (SWOT) This is a general-purpose tool developed in the late 1960s at Harvard by Learned, Christensen, Andrews and Guth, and published in their seminal book, Business Policy, Text and Cases (Richard D Irwin, 1969). The SWOT framework consists of a cross, with space in each quadrant to summarize your observations, as in Figure below .
FIGURE: Example SWOT chart for a hypothetical Cobra Beer competitor In this example the SWOT analysis is restricted to a handful of areas, though in practice the list might run to a dozen or more areas within each of the four quadrants. The purpose of the SWOT analysis is to suggest possible ways to improve the competitive position and hence market share while minimizing the dangers of perceived threats.
A strategy that this SWOT would suggest as being worth pursuing could be to launch a low-alcohol product (and sidestep the tax threat) that would appeal to all restaurants, rather than just Indian (widen the market). The company could also start selling in India using the international cachet of being a UK brand. That would open up the market still further and limit the damage that larger UK competitors could inflict.
SWOT is also used as a tool in strategic analysis and indeed it was so used by General Electric in the 1980s. While it is a useful way of pulling together a large amount of information in a way that is easy for managers to assimilate, it can be most effective when used in individual market segments, as a strength in one segment could be a weakness in another. For example, giving a product features that would enhance its appeal, say, to the retirees market may reduce its appeal to other market segments. Perceptual mapping Perceptual or positioning maps are much used by marketing executives to position products and services relative to competitors on two dimensions. In Figure below the positions of companies competing in a particular industry are compared on price and quality, on a spectrum from low to high.
FIGURE: Perceptual mapping Similar maps can be produced for any combination of variables that are of importance to customers – availability, product range, after-sales support, market image and so on. The technique is used in a variety of ways, including highlighting possible market gaps when one quadrant is devoid of players, suggesting areas to be built on or extended; or where a USP (see below) is required to create a competitive edge. Understanding customers Without customers no business can get off the ground, let alone survive. Knowing something about your customers, what they need, how much they can 'consume', who they buy from now, all seems such elementary information that it is hard to believe so many people could start without those insights: and yet they do. There is an old business maxim that says the customer is always right. But that does not mean they are necessarily right for you. So as well as knowing who to sell to, you also need to know the sorts of people who are not right for you and accept that trying to interest them will be a waste of scarce resources on your part. Recognizing needs The founder of a successful cosmetics firm, when asked what he did, replied: 'In the factories we make perfume, in the shops we sell dreams.' Those of us in business usually start by defining our business in physical terms. Customers, on the other hand, see businesses having as their primary value the ability to satisfy their needs. Even firms that adopt customer satisfaction, or even delight, as their stated maxim often find it a more complex goal than it at first appears. Consider exactly what Mothercare is selling when it markets its upmarket maternity wear range. It made clothes for the mother-to-be, sure enough: but the primary customer need it was aiming to satisfy was neither to preserve their modesty nor to keep them warm. The need it was aiming for was much higher: it was ensuring that its customers would feel fashionably dressed, which is about the way people interact with each other and how they feel about themselves. Just splashing, say, a Tog rating showing the thermal properties of the fabric, as you would, say, a duvet, would cut no ice with the Mothercare potential market. Until you have clearly defined the needs of your market(s) you cannot begin to assemble a product or service to satisfy them. Fortunately, help is at hand. An American psychologist, Abraham Maslow, who taught at Brandeis University, Boston and whose International Business School now ranks highly in the Economist's survey of top business schools (see the Appendix for more on business school rankings), demonstrated in his research that 'all customers are goal seekers who gratify their needs by purchase and consumption'. He then went a bit further and classified consumer needs into a five-stage pyramid he called the hierarchy of needs. Self-actualization This is the summit of Maslow's hierarchy, in which people are looking for truth, wisdom, justice and purpose. It's a need that is never fully satisfied and according to Maslow only a very small percentage of people ever reach the point where they are prepared to pay much money to satisfy such needs. It is left to the likes of Bill Gates and Sir Tom Hunter to give away billions to form foundations to dispose of their wealth on worthy causes. The rest of us scrabble around further down the hierarchy. Esteem Here people are concerned with such matters as self-respect, achievement, attention, recognition and reputation. The benefits that customers are looking for include the feeling that others will think better of them if they have a particular product. Much of brand marketing is aimed at making consumers believe that by conspicuously wearing the maker's label or logo so that others can see it, it will earn them 'respect'. Understanding how this part of Maslow's hierarchy works was vital to the founders of Responsibletravel.com (www.responsibletravel.com). Founded six years ago with backing from the late Anita Roddick (Body Shop) in Justin Francis's front room in Brighton, with his partner Harold Goodwin, it set out to be the world's first company to offer environmentally responsible travel and holidays. It was one of the first companies to offer carbon offset schemes for travellers and it boasts that it turns away more tour companies trying to list on its site than it accepts. It appeals to consumers who want to be recognized in their communities as being socially responsible. Social needs The need for friends, belonging to associations, clubs or other groups and the need to give and get love are all social needs. After 'lower' needs have been met, these needs, which relate to interacting with other people, come to the fore. Hotel Chocolat (www.hotelchocolat.co.uk), founded by Angus Thirlwell and Peter Harris in their kitchen, is a good example of a business based on meeting social needs. It markets home-delivered luxury chocolates but generates sales by having Tasting Clubs to check out products each month. The concept of the club is that you invite friends round and use the firm's scoring system to rate and give feedback on the chocolates. Safety The second most basic need of consumers is to feel safe and secure. People who feel they are in harm's way, either through their general environment or because of the product or service on offer, will not be over-interested in having their higher needs met. When Charles Rigby set up World Challenge (www.world-challenge.co.uk) to market challenging expeditions to exotic locations around the world, with the aim of taking young people up to around 19 out of their comfort zones and teaching them how to overcome adversity, he knew he had a challenge of his own on his hands: how to make an activity simultaneously exciting and apparently dangerous to teenagers, while being safe enough for the parents writing the cheques to feel comfortable. Six full sections on its website are devoted to explaining the safety measures that the company takes to ensure that unacceptable risks are eliminated as far as is humanly possible. Physiological needs Air, water, sleep and food are all absolutely essential to sustain life. Until these basic needs are satisfied, higher needs such as self-esteem will not be considered. Features, benefits and proofs While understanding customer needs is vital, it is not sufficient on its own to help put together a saleable proposition. Before you can do that, you have to understand the benefits that customers will get when they purchase. Features are what a product or service has or is, and benefits are what the product does for the customer. When Nigel Apperley founded his business Internet Cameras Direct, now Internet Direct and part of the AIM-listed eXpansy plc, while a student at business school, he knew there was no point in telling customers about SLRs or shutter speeds. These are not the end product that customers want; they are looking for the convenience and economy of buying direct, so he planned to follow the Dell Computer direct sales model and show good pictures. Within three years Apperley had annual turnover in excess of £20m and had moved a long way from his home-based beginnings.
Look at the example of product features and benefits (Table below ), which has been extended to include proofs showing how the benefits will be delivered. The essential element to remember here is that the customer only wants to pay for benefits while the seller has to pick up the tab for all the features whether the customers sees them as valuable or not. Benefits will provide the 'copy' for a business's advertising and promotional activities. TABLE: Example showing product features, benefits and proofs
Product/service adoption cycle – who will buy first? Customers do not sit and wait for a new business to open its doors. Word spreads slowly as the message is diffused throughout the various customer groups. Even then it is noticeable that generally it is the more adventurous types who first buy from a new business. Only after these people have given their seal of approval do the 'followers' come along. Research shows that this adoption process, as it is known, moves through five distinct customer characteristics, from innovators to laggards, with the overall population being different for each group. (See Table below ) TABLE: The product/service adoption cycle
Let's suppose you have identified the market for your internet gift service. Initially your market has been constrained to affluent professionals within five miles of your home to keep delivery costs low. So if market research shows that there are 100,000 people that meet the profile of your ideal customer and they have regular access to the internet, the market open for exploitation at the outset may be as low as 2,500, which is the 2.5 per cent of innovators. This adoption process, from the 2.5 per cent of innovators who make up a new business's first customers through to the laggards who won't buy from anyone until they have been in business for 20 years, is most noticeable with truly innovative and relatively costly goods and services, but the general trend is true for all businesses. Until you have sold to the innovators, significant sales cannot be achieved. So, an important first task is to identify these customers. The moral is: the more you know about your potential customers at the outset, the better your chances of success. One further issue to keep in mind when shaping your marketing strategy is that innovators, early adopters and all the other sub-segments don't necessarily use the same media, websites, magazines and newspapers or respond to the same images and messages. So they need to be marketed to in very different ways. Segmenting markets Having established that customers have different needs means that we need to organize our marketing effort so as to address those individually. However, trying to satisfy everyone may mean that we end up satisfying no one fully. The marketing process that helps us deal with this seemingly impossible task is market segmentation. This is the name given to the process whereby customers and potential customers are organized into clusters or groups of 'similar' types. For example, a carpet/upholstery cleaning business has private individuals and business clients running restaurants and guesthouses, for example. These two segments are fundamentally different, with one segment being more focused on cost and the other more concerned that the work is carried out with the least disruption to their business. Also, each of these customer groups is motivated to buy for different reasons and your selling message has to be modified accordingly. Worthwhile criteria These are four useful rules to help decide if a market segment is worth trying to sell into: - Measurability: Can you estimate how many customers are in the segment? Are there enough to make it worth offering something 'different'? - Accessibility: Can you communicate with these customers, preferably in a way that reaches them on an individual basis? For example, you could reach the over-50s by advertising in a specialist 'older people's' magazine, with reasonable confidence that young people will not read it. So if you were trying to promote Scrabble with tiles 50 per cent larger, you might prefer that young people did not hear about it. If they did, it might give the product an old-fashioned image. - Open to profitable development: The customers must have money to spend on the benefits that you propose to offer. - Size: A segment has to be large enough to be worth your exploiting it, but perhaps not so large as to attract larger competitors. One example of a market segment that has not been open to development for hundreds of years is the sale of goods and services to retired people. Several factors made this a particularly unappealing segment. First, retired people were perceived as 'old' and less adventurous; second, they had a short life expectancy; and finally, the knockout blow was that they had no money. In the past decade or so that has all changed: people retire early, live longer and many have relatively large pensions. The result is that travel firms, house builders, magazine publishers and insurance companies have rushed out a stream of products and services aimed particularly at this market segment. Segmentation is an important marketing process, as it helps to bring customers more sharply into focus, classifies them into manageable groups and allows you to focus on one or more niches. It has wide-ranging implications for other marketing decisions. For example, the same product can be priced differently according to the intensity of customers' needs. The first- and second-class post is one example, off-peak rail travel another. It is also a continuous process that needs to be carried out periodically, for example when strategies are being reviewed. Methods of segmentation These are some of the ways by which markets can be segmented: - Psychographic segmentation divides individual consumers into social groups such as 'yuppies' (young, upwardly mobile professionals), 'bumps' (borrowed-to-the-hilt, upwardly mobile, professional show-offs) and 'jollies' (jet-setting oldies with lots of loot). These categories try to show how social behaviour influences buyer behaviour. Forrester Research, an internet research house, claims that when it comes to determining whether consumers will or will not go on the internet, how much they'll spend and what they'll buy, demographic factors such as age, race and gender don't matter anywhere near as much as the consumers' attitudes towards technology.
Forrester uses this concept, together with its research, to produce Technographics® market segments as an aid to understanding people's behaviour as digital consumers. Forrester has used two categories: technology optimists and technology pessimists, and has used these alongside income and what it calls 'primary motivation' – career, family and entertainment – to divide up the whole market. Each segment is given a new name – 'Techno-strivers', 'Digital Hopefuls' and so forth – followed by a chapter explaining how to identify them, how to tell whether they are likely to be right for your product or service, and providing some pointers as to what marketing strategies might get favourable responses from each group. - Benefit segmentation recognizes that different people can get different satisfaction from the same product or service. Lastminute.com claims two quite distinctive benefits for its users. First, it aims to offer people bargains that appeal because of price and value. Second, the company has recently been laying more emphasis on the benefit of immediacy. This idea is rather akin to the impulse-buy products placed at checkout tills, which you never thought of buying until you bumped into them on your way out. Whether 10 days on a beach in Goa or a trip to Istanbul are the type of things people 'pop in their baskets' before turning off their computers, time will tell. - Geographic segmentation arises when different locations have different needs. For example, an inner-city location may be a heavy user of motorcycle dispatch services, but a light user of gardening products. Internet companies have been slow to extend their reach beyond their own back yard, which is surprising considering the supposed global reach of the service. Microsoft exports only 20 per cent of its total sales beyond US borders, and fewer than 16 per cent of AOL's subscribers live outside the United States. However, the figure for AOL greatly overstates the company's true export performance. In reality, AOL does virtually no business with overseas subscribers, but instead serves them through affiliate relationships. Few of the recent batch of internet IPOs have registered much overseas activity in their filing details. By way of contrast, the Japanese liquid crystal display industry exports more than 70 per cent of its entire output. - Industrial segmentation groups together commercial customers according to a combination of their geographic location, principal business activity, relative size, frequency of product use, buying policies and a range of other factors. Logical Holdings is an e-business solutions and service company that floated for over £1 ($1.6/€1.12) billion on the London Stock Exchange and TechMark index, making it one of the UK's biggest IT companies. It was formed from about 30 acquisitions of small (ish) businesses. The company was founded by Rikke Helms, formerly head of IBM's E-Commerce Solutions portfolio. Her company split the market into three segments: Small, Medium-Sized and Big, tailoring its services specifically for each. - Multivariant segmentation is where more than one variable is used. This can give a more precise picture of a market than using just one factor. Specifiers, users and customers When analysing market segments it is important to keep in mind that there are at least three major categories of people who have a role to play in the buying decisions and whose needs have to be considered in any analysis of a market: - The user, or end customer, will be the recipient of any final benefits associated with the product. - The specifier will want to be sure that the end user's needs are met in terms of performance, delivery and any other important parameters. Their 'customer' is both the end user and the budget holder of the cost centre concerned. There may even be conflict between the two (or more) 'customer' groups. For example, in the case of, say, hotel toiletries, those responsible for marketing the rooms will want high-quality products to enhance their offer, while the hotel manager will have cost concerns close to the top of their concerns and the people responsible for actually putting the product in place will be interested only in any handling and packaging issues. - The non-consuming buyer, who places the order, also has individual needs. Some of their needs are similar to those of a specifier, except that they will have price at or near the top of their needs. A particular category here is those buying gifts. Once again their needs and those of the recipient may be dissimilar. For example, those buying gifts are as concerned with packaging as with content. Watches, pens, perfumes and fine wines are all gifts whose packaging is paramount at the point of purchase. Yet for the user they are often things to be immediately discarded. The marketing mix The term 'marketing mix' has a pedigree going back to the late 1940s when marketing managers referred to mixing ingredients to create strategies. The concept was formalized by E Jerome McCarthy, a marketing professor at Michigan State University, in 1960. The mix of ingredients with which marketing strategy can be developed and implemented is price, product (or/and service), promotion and place. A fifth 'P', people, is often added. Just as with cooking, taking the same or similar ingredients in different proportions can result in very different 'products'. A change in the way these elements are put together can produce an offering tailored to meet the needs of a specific market segment. The ingredients in the marketing mix represent only the elements that are largely, though not entirely, within a firm's control. Uncontrollable ingredients include the state of the economy, changes in legislation, new and powerful market entrants and rapid changes in technology. Product/service When the term 'marketing mix' was first coined, the bulk of valuable trade was concerned with physical goods. Certainly services existed, but these were mostly supplied by professions such as law, accountancy, insurance and finance where the concept of marketing was in any event taboo; today, a product is generally accepted as the whole bundle of 'satisfactions', either tangible such as a physical product, or intangible such as warranties, guarantees or customer support that support that product.
The bundle that makes up a successful product includes: - design; - specification and functionality; - brand name/image; - performance and reliability; - quality; - safety; - packaging; - presentation and appearance; - after-sales service; - availability; - delivery; - colour/flavour/odour/touch; - payment terms. The principal tools that marketing managers use to manage product issues are as follows. Product/service life cycle The idea that business products and services have a life cycle much as any being was first seen in management literature as far back as 1922, when researchers looking back at the growth of the US automobile industry observed a bell-shaped pattern for the sales of individual cars. Over the following four decades various practitioners and researchers, adding, substituting and renaming the stages in the life cycle to arrive at the five steps in Figure below carried out further work.
The length of a product's lifetime can be weeks or months in the case of fads such as the hula-hoop or the Rubik's cube: - Product development: This stage is typified by cash outlays only, and can last from decades in the case of medical products down to a few months or even weeks to launch a simple consumer product. - Introduction: Here the product is brought to market, perhaps just to one initial segment, and it may comprise little more than a test marketing activity. Once again costs are high; advertising and selling costs have to be borne up front and sales revenues will be minimal. - Growth: This stage sees the product sold across the whole range of a company's market segments, gaining market acceptance and becoming profitable. - Maturity and saturation: Sales peak as the limit of customers' capacity to consume is reached and competitors or substitute products enter the market. Profits start to tail off as prices drop and advertising is stepped up to beat off competitors. - Decline: Sales and profits fall away as competition becomes heavy and better and more competitive or technologically advanced products come into the market. FIGURE: The product life cycle
The usefulness of the product life cycle as a marketing tool is as an aid to deciding on the appropriate strategy to adopt. For example, at the introduction stage the goal for advertising and promotion may be to inform and educate, during the growth stage differences need to be stressed to keep competitors at bay, and during maturity customers need to be reminded that you are still around and it's time to buy again. During decline it's probable that advertising budgets could be cut and prices lowered. As all major costs associated with the product will have been covered at this stage, this should still be a profitable stage.
These, of course, are only examples of possible strategies rather than rules to be followed. For example, many products are successfully relaunched during the decline stage by changing an element of the marketing mix or by repositioning into a different marketplace. Cigarette manufacturers are responding to declining markets in the developed economies by targeting markets such as Africa and China, even setting up production there and buying up local brands to extend their range of products. Unique positioning proposition This used to be known as the unique selling proposition (USP) and still is in the sales field. For marketers the term is synonymous with the idea of a slogan or strap line that captures the value of the product in the mind of the user. It should position your product against competitors in a manner that is hard to emulate or dislodge. John Lewis, for example, has 'never knowingly undersold' as its powerful message to consumers that they can safely set price considerations to one side when they come to making their choice.
Another strategy is to set out to own the word and turn it into an adjective.
Hoover with vacuum cleaners and FedEx with overnight delivery are examples of this approach. Product range Being a single-product business is generally considered too dangerous a position except for very small or start-up businesses. The two options to consider are: - Depth of line: This is the situation when a company has many products within a particular category. Washing powders and breakfast cereals are classic examples of businesses that offer scores of products into the same marketplace. The benefit to the company is that the same channels of distribution and buyers are being used. The weakness is that all these products are subject to similar threats and dangers. However 'deep' your beers and spirits range, for example, you will always face the threat of higher taxes or the opprobrium of those who think you are damaging people's health. - Breadth of line: This is where a company has a variety of products of different types such as Marlboro with cigarettes and fashion clothing, or 3M with its extensive variety of adhesives extending out to the Post-It Note. Branding Derived from the Old Norse brandr, meaning 'to burn', entered the business lexicon. Brand refers to the custom of owners burning their mark (or brand) onto their goods, but burning of a different kind has swept over brands and their owners for reasons linked more or less to the recent global economic catastrophes.
Whilst long-established companies such as Lehman Brothers, respected and feared in equal measure on Wall Street since before 1929, have been swept away, a host of new names have sprung up to take their place. Bank of China, first listed on the Hong Kong stock market in 2002, became the world's 24th most valuable brand in 2010, just behind HSBC, but well ahead of Citibank. That same year ICICI, India's largest bank by market capitalization, entered the listings as the 45th most valuable brand. So for the first time since its inception in 2006, the BrandZ Top 100, who provide an objective annual study of brand value and positioning, include brands from all four of the BRIC countries. Why branding matters This is considered the holy grail of the product/service aspect of the marketing mix. A brand encompasses not just what a product is or does but all the elements such as logo, symbols, image, reputation and associations. The McDonald's arches represent its brand as a welcoming beacon drawing customers in. Branding is an intangible way of differentiating a product in a way that captures and retains markets through loyalty to that brand. Coca-Cola tastes little different from a supermarket brand, but the promotion that supports the brand confers on the consumer the chance to share the attractive lifestyle of those 'cool' people in the adverts. Apple's iPod is differentiated from just any old MP3 player in much the same way. Intel and Audi are examples of branding designed to reassure consumers in unfamiliar territory that a product will deliver. Body Shop International exudes ethics and concern for the environment, where other cosmetics concentrate on how they will make the wearer look beautiful. Building a brand takes time and a considerable advertising budget to build. But by creating brand value, that is the price premium commanded by that product over its unbranded or less appealing competitors, a business can end up with a valuable asset. Superbrands (www.superbrands.com) has a listing of the top brands by country, often with a case study supporting the top brands in any country. Alongside this dramatic position jostling the global meltdown has revealed some important facts about the economic resilience of established brands. Warren Buffet's statement 'it's not until the tide goes out that you can see who is swimming naked' could be aptly applied here. The share prices of the top 100 brands as identified in the BrandZ study have outperformed the S&P 500 by over 30 per cent over the period 2005–10. In fact whilst companies in the S&P 500 lost 11.5 per cent in value, those of the top 100 brands gained 18.5 per cent. The reasons for this outperformance in hard times seem to be: - A brand generates trust, a fact that appears to transcend business sectors. Consumers are as loyal to Coca-Cola, Procter & Gamble and WalMart as business users are to Cisco, HSBC and Goldman Sachs for a company, for its products, and for its services. According to BrandZ consideration of brand in the purchase decision has risen by 20 percentage points since 2005 so in uncertain economic conditions people turn to something they can trust – an established brand. - Brands are established in almost every corner of the globe. In China, India and Russia brands are as prevalent as in France, the United Kingdom or in the United States. Today over a dozen emerging market economies now have world class brands, where there were none at all in 2000. This global dimension allows businesses with top brands to keep growing across economic cycles. So while the Western economies shrank between 2008 and 2010, China, India, Brazil and much of South America were powering ahead. - The population of top brands is relatively stable, and that in turn allows them the luxury of formulating and implementing long-term strategy, rather than being buffeted by turbulence. Seven of the same brands are present in both the 2006 and the 2010 BrandZ rankings. True, some positions have changed with Google now number 1 brand up from 7th in 2006 and IBM in the second slot up from 8th. This resilience means that firms such as Starbucks, Samsung, Toyota and Exxon had the ability to recover from difficulties relatively quickly. Exxon, for example, a virtual pariah after the Valdez oil spill disaster in 1989, was back in the top rankings in under a decade, coming in at 39th in the world, ahead of Disney, Orange and Colgate in 2010. It remains to be seen if BP is as fortunate.
Branding pitfalls Brands have global visibility and as a consequence problems can appear to be on some distant horizon yet suddenly become amplified and virtually omnipresent with unfortunate consequences. Nowhere has this capacity to suffer global reputation for local or narrow specific problems been more in evidence than the fall from grace in 2010 of two of the world's most successful brands, BP ranked 34th and Toyota ranked 26th in the top 100 brands of 2009/10. Both brands suffered catastrophic, though perhaps not terminal, blows to their reputations for quality, integrity and honesty. Whilst BP tussled with leaking oil in the Gulf of Mexico it received four times as many mentions in the world press as it did two years earlier on 29 July 2008 when it announced record profits of £3.5 billion ($5.53 billion) for a single quarter. Though the brand may survive on the international arena – a survey running on a local Gulf website puts 48 per cent in favour of adopting Amoco for US gas stations, a brand it abandoned when that company was acquired by BP. Toyota and its near invisible chairman Akio Toyoda also found themselves the centre of a storm of unwelcome public visibility when the company had to recall a few million cars for a variety of reasons – ranging from sticking accelerator peddles to steering lock defects. Price Seemingly the simplest of the marketing choices, it is often the most agonizing decision that MBAs are faced with. The subject transcends almost every area of a business. The economists get the ball rolling with ideas around the elasticity of demand. Set too high a price and no one comes to the dance; too low and your budget for bouncers will go off the Richter scale. The accounts and production teams are concerned that sales will at least be sufficient to reach break-even in reasonable time. The strategists are worried about the signals in terms of corporate positioning that prices can send. However profitable a certain price may be for the business, it may just be so low that it devalues other products in your range. Apple, for example, has a position fairly and squarely at the innovator end of the product adoption cycle. Their customers expect to pay high prices for the privilege of being the first users of a new product. The iPod was positioned above the Walkman in price terms, though as the market for pocket sound devices was already mature there was scope to come into the market lower down the price spectrum. Skim vs penetrate You need to decide between two generic pricing strategies before you can fine-tune your plans. Skimming involves setting a price at the high end of what you believe the market will bear. This would be a strategy to pursue if you have a very limited amount of product available for sale and would rather 'ration' than disappoint customers. It is also a way to target the 'innovators' in your market who are happy to pay a premium to be among the first to have a new product. To be successful with this strategy you would need to be sure that competitors can't just step in and soak up the demand that you have created. Penetration pricing is the mirror image; prices are set at the low end, while being above your costs. Prices are competitive, with the deliberate intention of eliminating your customers' need to shop around. Slogans such as 'everyday low prices' are used to emphasize this policy. The aim here is to grab as much of the market as you can before competitors arrive on the scene and hopefully lock them out. The danger here is that you need a lot of volume either of product or hours sold before you can make a decent profit. This in turn means tying up more money for longer before you break even. Dragon Lock (the executive puzzle makers), who were Cranfield enterprise programme participants, adopted a penetrating strategy when they launched their new product. Their product was easy to copy and impossible to patent, so they chose a low price as a strategy to discourage competitors and to swallow up the market quickly. Danger of low pricing Aside from the obvious possible problems of the cash-flow implications of stretching out the break-even horizon and quality/image issues, it is an immutable law that raising prices is a whole lot more difficult than lowering them. It is less of a problem if the market as a whole is moving up, but raising a price because you set it too low in the first place is a challenge to say the least. Value pricing Another consideration when setting your prices is the value of the product or service in the customer's mind. His or her opinion of price may have little or no relation to the cost, and he or she may be ignorant of the price charged by the competition, especially if the product or service is a new one. In fact, many consumers perceive price as a reliable guide to the value they can expect to receive. The more you pay, the more you get. With this in mind, had Dyson launched its revolutionary vacuum cleaner, with its claims of superior performance, at a price below that of its peers, then some potential customers might have questioned those claims. In its literature Dyson cites as the inspiration for the new vacuum cleaner the inferior performance of existing products in the same price band. A product at six times the Dyson price is the one whose performance Dyson seeks to emulate. The image created is that, although the price is at the high end of general run-of-the-mill products, the performance is disproportionately greater. The runaway success of Dyson's vacuum cleaner would tend to endorse this argument. Real-time pricing The stock market works by gathering information on supply and demand. If more people want to buy a share than sell it, the price goes up until supply and demand are matched. If the information is perfect (that is, every buyer and seller knows what is going on), the price is optimized. For most businesses this is not a practical proposition. Their customers expect the same price every time for the same product or service – they have no accurate idea what the demand is at any given moment. However, for businesses selling on the internet, computer networks have made it possible to see how much consumer demand exists for a given product at any time. Anyone with a point-of-sale till could do the same, but the reports might come in weeks later. This means that online companies could change their prices hundreds of times each day, tailoring them to certain circumstances or certain markets, and so improve profits dramatically. easyJet.com, a budget airline, does just this. It prices to fill its planes, and you could pay anything from £30 ($47/€34) to £200 ($313/€223) (including airport taxes) for the same trip, depending on the demand for that flight. Ryanair and Eurotunnel have similar price ranges based on the basic rule – discounted low fares for early reservations and full fares for desperate late callers! Internet auction pricing Once the prerogative of the fine art and antiques markets, auctioning is a fast-growing pricing strategy for a whole host of very different types of business. The theory of auctioning is simple. Have as many interested potential buyers as possible see an item, set a time limit for the transaction to be completed and let them fight it out. The highest bidder wins and, in general, you can get higher prices than by selling through traditional pricing strategies. eBay was a pioneer in the new auction house sector and is still perhaps the best known. But there are dozens of others covering this area and other auction houses you can plug into: - eBay (http://ebay.com/sellerinformation/) has its own training resource helping 160,000 or so people in the UK, PowerSellers as they are known, in the art of successful auctioning. - IBidFree.com (www.ibidfree.com), set up by Shane McCormack, a former eBay seller, with the proposition that you can have all the features of eBay but for free. IBidFree.com was created as a perfect opportunity for the person working from home trying to market their products without all of their profits being swallowed up by charges and fees. The rules are few and, unlike eBay, sellers are encouraged to place a link in their auctions back to their own websites. They are also allowed to e-mail each other directly to allow for better communication. - UBid.com (www.ubid.com), founded in 1997, went public in 2005. Its online marketplace provides merchants with an efficient and economical channel for selling on their surplus merchandise. UBid currently carries over 200,000 items for auction/sale each day. You have to become a certified merchant to sell on the site, which cuts down on fraud. The fees are no sale, no fee, and then from 12.5 per cent down to 2.5 per cent on sales of over $1,000. You could consider starting your own online auction house. The case study example below is a good one, with an interesting twist. To lend a bit of extra credibility, the products being sold can be seen in the showroom. Pay-what-you-like pricing This strategy is based on the auction concept but buyers set their own price. The twist is that there is no limit on supply, so everyone can have one at the price they want to pay. Radiohead, the band, released its seventh album In Rainbows in October 2007 as a download on its website where fans could pay what they wished, from nothing to £99.99 ($157/€112). Estimates by the online survey group comScore indicate that of the 1.2 million visitors to Radiohead's website, three out of five downloaders paid nothing and the payers averaged £3 ($4.7/€3.37) per album, so allowing for the freeloaders the band realized £1.11 ($1.74/€1.25) per album. The band reckons that was more than they would have made in a traditional label deal. In fact the version of the album released in this way was not the definitive one; that was released three months later in CD format, debuting at No 1 in the United States and the UK. A number of restaurateurs have experimented with this pricing strategy with some success, but as yet it is in its infancy. Still, eBay is only a 'baby' in the business model world, so watch this space, as they say in the marketing world. Promotion and advertising The answers to these five questions underpin all advertising and promotional strategies: - What do you want to happen? - If that happens, how much is it worth? - What message will make it happen? - What media will work best? - How will you measure the effectiveness of your effort and expense? What do you want to happen? Do you want prospective customers to visit your website; phone, write to you or e-mail you; return a card; or send an order in the post? Do you expect them to have an immediate need to which you want them to respond now, or is it that you want them to remember you at some future date when they have a need for whatever it is you are selling? The more you are able to identify a specific response in terms of orders, visits, phone calls or requests for literature, the better your promotional effort will be tailored to achieve your objective, and the more clearly you will be able to assess the effectiveness of your promotion and its cost versus its yield. How much is that worth to you? Once you know what you want a particular promotional activity to achieve, it becomes a little easier to estimate its cost. Suppose a $/£/€1,000 advertisement is expected to generate 100 enquiries for your product. If experience tells you that on average 10 per cent of enquiries result in orders, and your profit margin is $/£/€200 per product, then you can expect an extra $/£/€2,000 profit. That 'benefit' is much greater than the $/£/€1,000 cost of the advertisement, so it seems a worthwhile investment. Then, with your target in mind, decide how much to spend on advertising each month, revising that figure in the light of experience. Deciding the message Your promotional message must be built around facts about the company and about the product. The stress here is on the word 'fact', and while there may be many types of fact surrounding you and your products, your customers are interested in only two: the facts that influence their buying decisions, and the ways in which your business and its products stand out from the competition. These facts must be translated into benefits. There is sometimes an assumption that everyone buys only for obvious, logical reasons, when we all know of innumerable examples showing this is not so. Do people buy new clothes only when the old ones are worn out? Do bosses have desks that are bigger than their subordinates' because they have more papers to put on them?
The message should follow the AIDA formula: get Attention, capture Interest, create Desire and encourage Action. Looking at each in turn: - Getting attention requires a hook. Colour, humour and design are tools used to focus people on your offer and away from the masses of distracting clutter that occupy minds. - Interest is achieved by involving people in some aspect of the product, perhaps by posing a question such as one diet company does with its challenge 'would you like to lose 2 kg in two weeks?'. - Desire is about showing people the end result they could achieve by having or using your product. Every speedboat advertisement has a beautiful bikini-clad girl posing on the bow, the inference being that if you owned the boat you would be sure to get the girl too. - Action means provoking a painless way for people to start the buying process. Free trial, money-back guarantee, offer only lasts this week and so forth are examples of the strategies used to achieve this result. UACCA – Unawareness, Awareness, Comprehension, Conviction, Action is another acronym used in this context. Choosing the media Your market research (see below) should produce a clear understanding of who your potential customer group are, which in turn will provide pointers as to how to reach them. But even when you know whom you want to reach with your advertising message it's not always plain sailing. The Fishing Times, for example, will be effective at reaching fishermen but less so at reaching their partners who might be persuaded to buy them fishing tackle for Christmas or birthdays. Also, the Fishing Times will be jam packed with competitors. It might just conceivably be worth considering a web ad on a page giving tide tables to avoid going head to head with competitors, or getting into a gift catalogue to grab that market's attention. If a consumer already knows what they want to buy and are just looking for a supplier then, according to statistics, around 60 per cent will turn to print Yellow Pages (or similar); 12 per cent will use a search engine; 11 per cent will use telephone directory enquiries; and 7 per cent online Yellow Pages. Only 3 per cent will turn to a friend. But if you are trying to persuade consumers to think about buying a product or service at a particular time then a leaflet or flyer may be a better option. Once again it's back to your objectives in advertising. The more explicit they are the easier it will be to choose media. Above or below the line Advertising media are usually clustered under two headings, above the line and below the line. It has to be said that the line is becoming increasingly indistinct but it is still a term that is part of the lexicon in setting the advertising budget. Above the line Above the line (ATL) involves using conventional impersonal mass media to promote products and services, talking at the consumer.
Major above-the-line techniques include: - TV, cinema and radio advertising: The vast array of local newspapers, TV channels and digital radio stations can make this a more targeted advertising strategy than has been the case. - Print advertising in newspapers, magazines, directories and classified ads: Print of all forms has the merit of having a long life, so it can be used for handling more complex messages than, say, radio or TV. - Internet ads act as a point of entry for a more detailed advert. - Search engines: Search engine advertising comes in two main forms. PPC (pay per click) is where you buy options on certain key words so that someone searching for a product will see your 'advertisement' to the side of the natural search results. Google, for example, offers a deal where you pay only when someone clicks on your ad and you can set a daily budget stating how much you are prepared to spend, with $5 a day as the starting price. - Podcasts, where internet users can download sound and video free, are now an important part of the E-advertising armoury. - Posters and billboards. Below the line Below the line (BTL) talks to the consumer in a more personal way using such media as: - Direct mail – leaflets, flyers, brochures: Response rates are notoriously low, often less than 1 per cent resulting in sale, but direct mail has the merit of being a proven method of reaching specific targeted market segments. - Direct e-mail and viral marketing: The latter is the process of creating something so hot that the recipients will pass it on to friends and colleagues, creating extra demand as it rolls out. Jokes, games, pictures, quizzes and surveys are examples. - Sales promotions, including point of sales material: Activities carried out in this area include free samples, try before you buy, discounts, coupons, incentives and rebates, contests, and special events such as fairs and exhibitions. - PR (public relations): This is about presenting yourself and your business in a favourable light to your various 'publics' – at little or no cost. It is also a more influential method of communication than general advertising – people believe editorials. There may also be times when you have to deal with the press – anything from when you are trying to get attention for a new product to handling an adverse situation, say if your product has to be recalled for quality reasons, or worse. - Letterheads, stationery and business cards are often overlooked in the battle for customer attention, but are in fact often the first and perhaps only way in which a business's image is projected. - Blogs, where the opinions and experiences of particular groups of people are shared using online communities, for example, are an extension of this idea. Push or pull Like above or below the line, push and pull are different advertising strategies used for achieving different results. Pull advertising is geared to drawing visitors into your net if they are actively looking for your type of product or service. Search engines, listings in on- and off-line directories, Yellow Pages and shopping portals are examples here. Push advertising tries to get the word out to groups of potential customers in the hope that some of them will be considering making a purchase at about that time. Magazines, newspapers, TV, banner ads and direct mail both on- and off-line are examples here. As with above and below the line, the distinctions are fast becoming blurred, but the message used in your advertising will be different. With pull there is the assumption that people want to buy, and they just need convincing that they should buy from you. Push calls for a different message convincing them of their need and desire in the first place. Measuring results A glance at the advertising analysis in Table 3.3 will show how to tackle the problem. It shows the advertising results for a small business course run in London. At first glance the Sunday paper produced the most enquiries. Although it cost the most, $/£/€3,400, the cost per enquiry was only slightly more than for the other media used. But the objective of this advertising was not simply to create interest; it was intended to sell places on the course. In fact, only 10 of the 75 enquiries were converted into orders – an advertising cost of $/£/€340 per head. On this basis the Sunday paper was between 2.5 and 3.5 times more expensive than any other medium. TABLE: Measuring advertising effectiveness
Place (distribution and logistics) Place is the fourth 'P' in the marketing mix. This aspect of marketing strategy is about how products and services are actually delivered into the customers' hands. If you are a retailer, restaurant or hotel chain, for example, then your customers will come to you. Here, your physical location will most probably be the key to success. For businesses in the manufacturing field it is more likely that you will go out to 'find' customers. In this case it will be your channels of distribution that are the vital link. For many businesses delivering a service the internet will be both the ordering and fulfilment vehicle.
The following are the factors to take into account in this area. Channels of distribution If your customers don't come to you, then you have the following options in getting your product or service to them: - Retail stores: This general name covers the great range of outlets from the corner shop to Harrods. Some offer speciality goods such as hi-fi equipment, where the customer expects professional help from the staff. Others, such as Marks & Spencer and Tesco, are mostly self-service, with customers making up their own mind on choice of product. - Wholesalers and distributors: The pattern of wholesale distribution has changed out of all recognition over the past two decades. It is still an extremely important channel where physical distribution, stock holding, finance and breaking bulk are still profitable functions. - Cash and carry: This slightly confusing route has replaced the traditional wholesaler as a source of supply for smaller retailers. In return for your paying cash and picking up the goods yourself, the 'wholesaler' shares part of his or her profit margin with you. The attraction for the wholesaler is improved cash flow and for the retailer a bigger margin and a wide product range. Hypermarkets and discount stores also fit somewhere between the manufacturer and the marketplace. - Mail order: This specialized technique provides a direct channel to the customer, and is an increasingly popular route for new small businesses. - Internet: Revenue generation via the internet is big business and getting bigger. For some sectors, such as advertising, books, music and video, it has become the dominant route to market. There is no longer any serious argument about whether 'bricks' or 'clicks' is the way forward, or if service businesses work better on the web than physical products. Almost every sector has a major part to play and it is increasingly unlikely that any serious 'bricks' business will not either have or being building an internet trading platform too. Tesco has built a £ billion-plus home delivery business on the back of its store structure. Amazon, the sector's pioneer, now has in effect the first online department store, with a neat sideline in selling on second-hand items once the customer has finished with the product. - Door-to-door selling: Traditionally used by vacuum cleaner distributors and encyclopaedia companies, this is now used by insurance companies, cavity-wall insulation firms, double-glazing firms and others. Many use hard-sell techniques, giving door-to-door selling a bad name. However, companies such as Avon Cosmetics have managed to sell successfully door-to-door without attracting the stigma of unethical selling practices. - Party-plan selling: This is a variation on door-to-door selling that is on the increase, with new party-plan ideas arriving from the United States. Agents enrolled by the company invite their friends to a get-together where the products are demonstrated and orders are invited. The agent gets a commission. Party plan has worked very well for Avon and other firms that sell this way. Selecting distribution channels These are the factors you should consider when choosing channels of distribution for your particular business: - Does it meet your customers' needs? You have to find out how your customers expect their product or service to be delivered to them and why they need that particular route. - Will the product itself survive? Fresh vegetables, for example, need to be moved quickly from where they are grown to where they are consumed. - Is it compatible with your image? If you are selling a luxury product, then door-to-door selling may spoil the impression you are trying to create in the rest of your marketing effort. - How do your competitors distribute? If they have been around for a while and are obviously successful, it is well worth looking at how your competitors distribute and using that knowledge to your advantage. - Will the channel be cost-effective? A small manufacturer may not find it cost-effective to sell to retailers over a certain distance because the direct 'drop' size – that is, the load per order – is too small to be worthwhile. - Will the mark-up be enough? If your product cannot bear at least a 100 per cent mark-up, then it is unlikely that you will be able to sell it through department stores. Your distribution channel has to be able to make a profit from selling your product too. - Push–pull: Moving a product through a distribution channel calls for two sorts of selling activity. 'Push' is the name given to selling your product in, for example, a shop. 'Pull' is the effort that you carry out on the shop's behalf to help it to sell your product out of that shop. That pull may be caused by your national advertising, a merchandising activity or the uniqueness of your product. You need to know how much push and pull are needed for the channel you are considering. If you are not geared up to help retailers to sell your product, and they need that help, then this could be a poor channel. - Physical distribution: The way in which you have to move your product to your end customer is also an important factor to weigh up when choosing a channel. As well as such factors as the cost of carriage, you will also have to decide about packaging materials, warehousing and storage. As a rough rule of thumb, the more stages in the distribution channel, the more robust and expensive your packaging will have to be. - Cash flow. Not all channels of distribution settle their bills promptly. Mail-order customers, for example, will pay in advance, but retailers can take up to 90 days or more. You need to take account of this settlement period in your cash-flow forecast. Logistics: The goal of a marketing logistics system is to manage the whole process of getting products to customers in an efficient and cost-effective manner to meet marketing goals; and to get faulty or unwanted products back. This interfaces with a host of related areas of business, including physical transportation, warehousing, relationships with suppliers, and inventory and stock management. Some important considerations in logistics include: - Just in time (JIT) aims to reduce the need for warehousing through accurate sales forecasting. All parties in the distribution channel carry minimum stock and share information on demand levels. - Vendor managed inventory (VMI) and continuous inventory replenishment systems (CIRS) require customers to share real-time data on sales demand and inventory levels with suppliers. Both supplier and customers, while benefiting from cooperation, have mutually conflicting goals in that they want to shift costs onto the other party. Their capacity for doing so depends on their relative strengths. For example, giant retailers such as Tesco and Marks & Spencer have been very successful in getting their suppliers to carry a major part of the cost of stockholding. Selling Marketing is the thinking process behind selling; in other words, finding the right people to buy your product or service and making them aware that you are able to meet their needs at a competitive price. But just because customers know you are in the market is not in itself sufficient to make them buy from you. Even if you have a superior product at a competitive price they can escape your net. Getting customers to sign on the dotted line almost invariably involves selling. This is a process that business people have to use in many situations other than in persuading customers to buy. MBAs have to 'sell' bank managers the idea that lending their business money is worthwhile, that shareholders should invest, that employees by working for them are making a good career move or that their boss should back one of their proposals. Though essential, selling on its own is an inefficient method of getting potential customers to the point of buying. Understanding the 'ascending ladder of influence', as marketers call it, puts the salesperson's role in perspective. This is a method to rank the 'warm bodies' a customer will encounter in the selling process in the order in which it is most likely to influence your customers favourably. At the top of the scale is the personal recommendation of someone whose opinion is trusted and who is known to be unbiased. An example here is the endorsement of an industry expert who is not on the payroll, such as an existing user of the goods or services who is in the same line of business as the prospective customer. While highly effective, this method is hard to achieve and can be expensive and time consuming. Further down the scale is an approach by you in your role as a salesperson. While you may be seen to be knowledgeable, you clearly stand to gain if a sale is made. So you can hardly be unbiased. Sales calls, however they are made, are an expensive way to reach customers, especially if their orders are likely to be small and infrequent. How selling works There is an erroneous view that salespeople, like artists and musicians, are born, not made. Selling can be learnt, improved and enhanced just like any other business activity. First, you need to understand selling's three elements: - Selling is a process moving through certain stages if the best results are to be achieved. First, you need to listen to the customers to learn what they want to achieve from buying your product or service; then you should demonstrate how you can meet their needs. The next stage is handling questions or objections; a good sign as it shows that the customer is sufficiently interested to engage. Finally comes 'closing the sale'. This is little more than asking for the order with a degree of subtlety. - Selling requires planning in that you need to keep records and information on customers and potential customers so you know when they might be ready to buy or reorder. - Selling is a skill that can be learnt and enhanced by training and practice. Negotiating Like selling, negotiating, of which it usually forms a part, is as much a science as an art. There are a few immutable rules, easily understood but invariably difficult to execute: - Aim high at the outset. Unless you can find the point of resistance, you can't find the outer limits of your negotiating range. - You must be prepared to walk away from a deal and make that evident, if you are to have any negotiating leverage. To achieve this you must have prepared plans B and C ready to execute if the terms you want can't be achieved. For example, when negotiating to buy out a competitor, have other businesses in the frame too; or have plans to enter that market without them. - Search out a range of variables to negotiate other than price. Delivery date, payment terms, quantities, currencies, shared future profits, know-how swaps are just a handful of areas rich in negotiating possibilities. - Never give a concession away. Anything given for nothing is seen as being worth nothing. Instead, trade concessions and always put the highest value possible on the concession. 'We will pay 30 per cent upfront rather than the 20 per cent you're asking for (a gain for the seller) if you bring the price down to $/£/€1.2m rather than the $/£/€1.3m you're asking' (a gain for the buyer) is the place to start if you hope to hit a $/£/€1.25m final price. - Talk as little as possible. The less you say the less you can give away. - Once you have put a proposition on the table, shut up. The first to blink is the loser. Market research The purpose of market research is to ensure you have sufficient information on customers, competitors and markets so that you can be reasonably confident that enough people want to buy what you want to sell at a price that will give you a viable business proposition. You do not have to launch a product or enter a market to prove there are no customers for your goods or services; frequently, even some modest market research beforehand can give clear guidance as to whether your venture will succeed or not. While big businesses may employ market research agencies to design and execute their research, an MBA should both understand the process and be able to carry out elementary research themselves quickly and on a low budget. The fundamental goals of market research The purpose of market research from an MBA's perspective is twofold: - To build credibility for a business proposition. The MBA must demonstrate, first to his or her own satisfaction, and later to colleagues, superiors and eventually to financiers, a thorough understanding of the marketplace for the new product, service or strategy. This will be vital if resources are to be attracted to execute the proposal. - To develop a realistic market entry strategy for the proposed course of action, based on a clear understanding of genuine customer needs and ensuring that product quality, price, promotional methods and the distribution chain are mutually supportive and clearly focused on target customers. You will need to research in particular: - Your customers: Who will buy your goods and services? What particular customer needs will your business meet? How many of them are there? - Your competitors: Which established companies are already meeting the needs of your potential customers? What are their strengths and weaknesses? - Your product or service: How should it be tailored to meet customer needs? - What price should you charge to be perceived as giving value for money? - What promotional material is needed to reach customers; which newspapers, journals do they read? - Whether or not your operational base is satisfactorily located to reach your customers most easily, at minimum cost. Seven steps to successful market research Researching the market need not be a complex process, nor need it be very expensive. The amount of effort and expenditure needs to be related in some way to the costs and risks associated with the proposition. The market research needs to be conducted systematically following these seven stages: - Formulate the problem: Before embarking on your market research you should first set clear and precise objectives, rather than just setting out to find interesting general information about the market. So, for example, if you are planning on selling to young fashion-conscious women, among others, your research objective could be: to find out how many women aged 18 to 28, with an income of over £35,000 ($54,800/€39,700) a year, live or work within your catchment area. That would give you some idea whether the market could support a venture such as this. - Determine the information needs: Knowing the size of the market, in the example given above, may require several different pieces of information. For example, you would need to know the size of the resident population, which might be fairly easy to find out, but you might also want to know something about people who come into the catchment area to work or stay on holiday or for any other major purpose. There might, for example, be a hospital, library, railway station or school nearby that also pulled potential customers to that particular area. - Where can you get the information? This will involve either desk research in libraries or on the internet, or field research, which you can do yourself or get help in doing. Field research, that is, getting out and asking questions yourself, is the most fruitful way of gathering original information that can provide competitive advantage. - Decide the budget: Market research will not be free even if you do it yourself. At the very least there will be your time. There may well be the cost of journals, phone calls, letters and field visits to plan for. At the top of the scale could be the costs of employing a professional market research firm. Starting at this end of the scale, a business-to-business survey comprising 200 interviews with executives responsible for office equipment purchasing decisions cost one company £12,000 ($18,800/€13,500). Twenty in-depth interviews with consumers who are regular users of certain banking services cost £8,000 ($12,500/€9,000). Using the internet for web surveys is another possibility, but that can impose too much of your agenda onto the recipients and turn them away from you. Check out companies such as Free Online Surveys (http://free-online-surveys.co.uk) and Zoomerang (www.zoomerang.com/web/signup/Basic.aspx) which provide software that lets you carry out online surveys and analyse the data quickly. Most of these organizations offer free trials. Doing the research yourself may save costs but may limit the objectivity of the research. If time is your scarcest commodity, it may make more sense to get an outside agency to do the work. Using a reference librarian or university student to do some of the spadework need not be prohibitively expensive. Another argument for getting professional research is that it may carry more clout with investors. Whatever the cost of research, you need to assess its value to you when you are setting your budget. If getting it wrong would cost £100,000, then £5,000 spent on market research might be a good investment. - Select the research technique: If you cannot find the data you require from desk research, you will need to go out and find the data yourself. The options for such research are described later in this section, under 'Field research'. - Construct the research sample population: It is rarely possible or even desirable to include every possible customer or competitor in your research. So, you have to decide how big a sample you need to give you a reliable indication of how the whole population will behave. - Process and analyse the data: The raw market research data needs to be analysed and turned into information to guide your decisions on price, promotion and location, and the shape, design and scope of the product or service itself. Desk research There is increasingly a great deal of secondary data available in published form and accessible either online or via business sections of public libraries throughout the UK to enable new home business starters both to quantify the size of market sectors they are entering and to determine trends in those markets. In addition to populations of cities and towns (helping to start quantification of markets), libraries frequently purchase Mintel reports, involving studies of growth in different business sectors. Government statistics, showing trends in the economy, are also held (Annual Abstracts for the economy as a whole, Business Monitor for individual sectors). If you plan to sell to companies or shops, Kompass and Kelly's directories list all company names and addresses (including buyers' telephone numbers). Many industrial sectors are represented by trade associations, which can provide information (see Directory of British Associations, CBD Research), while Chambers of Commerce are good sources of reference for import/export markets. These are some readily available sources of desk research data that an MBA can use without tapping deeply into the corporate budget: - Applegate (www.applegate.co.uk) has information on 237,165 companies cross-referenced to 57,089 products in the UK and Ireland. It has a neat facility that allows you to search out the top businesses and people in any industry. - Business.com (www.business.com): Contains some 400,000 listings in 25,000 industry, product and service sub-categories. Useful for general industry background or details about a particular product line. - Chambers of Commerce (www.britishchambers.org.uk/business/ > International Trade) run import/export clubs, international trade contacts and provide market research and online intelligence through a 150-country local network of chambers. - Companies House (www.companieshouse.gov.uk) is the official repository of all company information in the UK. Their WebCHeck service offers a free-of-charge searchable Company Names and Address Index which covers 2 million companies either by name or by their unique company registration number. You can use WebCHeck to purchase a company's latest accounts giving details of sales, profits, margins, directors, shareholders and bank borrowings at a cost of £1 ($1.57/€1.12) per company. - Corporate Information (www.corporateinformation.com > TOOLS > Research Links) is a business information site covering the main world economies, offering plenty of free information. This link takes you to sources of business information in over 100 countries. - Easy Searcher 2 (www.easysearcher.com) is a collection of 400 search engines, both general and specialist, available on drop-down menus, listed by category. - Kelly's (www.kellysearch.co.uk) lists information on 200,000 product and service categories across 200 countries. Business contact details, basic product and service details and online catalogues are provided. - Key Note Ltd (www.keynote.co.uk) has built a reputation as an expert provider of market information, producing highly respected off-the-shelf publications that cover a comprehensive range of market sectors, from commercial and industrial to service and consumer titles. Its report gallery has a listing of literally hundreds of reports covering everything from Activity Holidays to Women's Magazines. The executive summary, a generous 1,000 words plus a full index, is available free on every report, which should make it clear if the report is worth buying, or worth a trip to a major reference library that may well have a copy to view. Reports are priced from around £300 ($470/€340) upwards, with most in the £500 to £700 range. - Kompass (www.kompass.com) claims to have details of 1.6 million UK companies, 23 million key product and service references, 3.2 million executive names, 744,000 trade and brand names and 50,000 Kompass classification codes in its UK directory. It also creates directory information in over 70 countries. Its website has a free access area that users may access without registration. - LexisNexis (www.lexisnexis.com) has literally dozens of databases covering every sector you can think of, but most useful for researching competitors is Company Analyser, which creates comprehensive company reports drawn from 36 separate sources, with up to 250 documents per source providing access to accurate information about a company. - Mintel (www.mintel.com) publishes over 400 reports every year examining every conceivable consumer market. Reports cost several hundred pounds, but you can view the introduction and main headings. Most are available free in business libraries. Mintel also offers a number of reports on the US and European markets. - National Statistics (www.statistics.gov.uk) contains a vast range of official UK statistics and information about statistics, which can be accessed and downloaded free. There are 13 separate themes. Each one deals with a distinct and easily recognizable area of national life. So, whether you are looking to access the very latest statistics on the UK's economy, or research and survey information released by the government, or want to study popular trends and facts, click on one of these themes and explore! - Online Newspapers (www.onlinenewspapers.com). Newspapers and magazines are a source of considerable information on companies, markets and products in that sphere of interest. Virtually every online newspaper in the world is listed here. You can search straight from the homepage, either by continent or country. You can also find the 50 most popular online newspapers from a link in the top centre of the homepage. There is also a separate site for online magazines (www.onlinenewspapers.com/SiteMap/magazines-sitemap.htm). - Research and Markets (www.researchandmarkets.com) is a one-stop shop that holds nearly 400,000 market research reports listed in a hundred or so categories and across over 70 countries. Reports are priced from £20 ($31.50/€22.50) upwards. - The Wholesaler UK (www.thewholesaler.co.uk) is a directory for a wide range of products. It is intended for businesses looking for additional suppliers but as such provides a valuable first sift to see who is the market. - Thomas Global Register (www.thomasglobal.com) is an online directory in 11 languages with details of over 700,000 suppliers in 28 countries. It can be searched by industry sub-sector or name either for the world or by country. - World Market Research Associations (www.mrweb.com), while not quite the world, does have web addresses for over 65 national market research associations and a hundred or so other bodies such as the Mystery Shopping Providers Association, which in turn has over 150 members, companies worldwide. Using the internet The internet is a rich source of market data, much of it free and immediately available. But you can't always be certain that the information is reliable or free of bias, as it can be difficult if not impossible to always work out who exactly is providing it. That being said, you can get some valuable pointers as to whether or not what you plan to sell has a market, how big that market is and who else trades in that space. The following sources should be your starting point: - Google Trends (www.google.com/Trends) provides a snapshot on what the world is most interested in at any one moment. For example, if you are thinking of starting a bookkeeping service, entering that into the search pane produces a snazzy graph showing how interest measured by the number of searches is growing (or contracting) since January 2004 when they started collecting the data. You can also see that South Africa has the greatest interest and the Netherlands the lowest. You can tweak the graph to show seasonality, thus showing that Croydon registers the greatest interest in the UK overall and 'demand' peaks in September and bottoms out in November. - Google News (www.google.com), which you can tap into by selecting 'News' on the horizontal menu at the top of the page under the Google banner. Here you will find links to any newspaper article anywhere in the world covering a particular topic over the past decade or so listed by year. Asking for information on baby clothes will reveal recent articles on how much the average family spends on baby clothes, the launch of a thrift store specializing in second-hand baby clothes and the launch of an Organic baby clothes catalogue. - Bing Ads Intelligence is a keyword research tool that allows you to easily gauge the performance of relevant keywords and use these insights to improve your keyword selection and campaign performance (http://advertise.bingads.microsoft.com/en-us/bing-ads-intelligence). - Blogs are sites where people, informed and ignorant, converse about a particular topic. The information on blogs is more straw in the wind than fact. Globe of Blogs (www.globeofblogs.com), launched in 2002, claims to be the first comprehensive world weblog directory, which links up to over 58,100 blogs, searchable by country, topic and just about any other criteria you care to name. Google (http://blogsearch.google.com) is also a search engine to the world's blogs. - Trade Association Forum (www.taforum.org > Directories > Association Directory) is the directory of Trade Associations on whose websites are links to industry-relevant online research sources. For example, you will find The Baby Products Association listed, at whose website you can find details of the 238 companies operating in the sector, including their contact details. - The Internet Public Library (www.ipl.org) is run by a consortium of US universities whose aim is to provide internet users help with finding information online. There are extensive sections on business, computers, education, leisure and health. Field research Most fieldwork carried out consists of interviews, with the interviewer putting questions to a respondent. The more popular forms of interview are currently: - personal (face-to-face) interview: 45 per cent (especially for the consumer markets); - telephone, e-mail and web surveys: 42 per cent (especially for surveying companies); - post: 6 per cent (especially for industrial markets); - test and discussion group: 7 per cent. Personal interviews, web surveys and postal surveys are clearly less expensive than getting together panels of interested parties or using expensive telephone time. Telephone interviewing requires a very positive attitude, courtesy, an ability not to talk too quickly, and listening while sticking to a rigid questionnaire. Low response rates on postal services (less than 10 per cent is normal) can be improved by accompanying letters explaining the questionnaire's purpose and why respondents should reply, by offering rewards for completed questionnaires (small gift), by sending reminder letters and, of course, by providing pre-paid reply envelopes. Personally addressed e-mail questionnaires have secured higher response rates – as high as 10–15 per cent – as recipients have a greater tendency to read and respond to e-mail received in their private e-mail boxes. However, unsolicited e-mails ('spam') can cause vehement reactions: the key to success is the same as with postal surveys – the mailing should feature an explanatory letter and incentives for the recipient to 'open' the questionnaire.
There are the basic rules for good questionnaire design, however the questions are to be administered: - Keep the number of questions to a minimum. - Keep the questions simple! Answers should be either 'Yes/No/Don't know' or offer at least four alternatives. - Avoid ambiguity – make sure the respondent really understands the question (avoid 'generally', 'usually', 'regularly'). - Seek factual answers, avoid opinions. - Make sure that at the beginning you have a cut-out question to eliminate unsuitable respondents (eg those who never use the product/service). - At the end, make sure you have an identifying question to show the cross-section of respondents. Sample size is vital if reliance is to be placed on survey data. Testing the market The ultimate form of market research is to find some real customers to buy and use your product or service before you spend too much time and money in setting up. The ideal way to do this is to sell into a limited area or a small section of your market. In that way, if things don't quite work out as you expect, you won't have upset too many people. This may involve buying in a small quantity of product, as you need to fulfil the order in order to fully test your ideas. Once you have found a small number of people who are happy with your product, price, delivery/execution and have paid up, you can proceed with a bit more confidence than if all your ideas are just on paper. Pick potential customers whose demand is likely to be small and easy to meet. For example, if you are going to run a bookkeeping business, select five to 10 small businesses from an area reasonably close to home and make your pitch. The same approach would work with a gardening, baby-sitting or any other service-related venture. It's a little more difficult with products, but you could buy in a small quantity of similar items from a competitor or make up a trial batch yourself. Marketing in the internet era Exactly when the internet was born, like so many enabling technologies – steam, electricity and the telephone, for example – is a subject for conjecture. Was it 1945 when Vannevar Bush wrote an article in Atlantic Monthly concerning a photo-electrical-mechanical device called a Memex, for memory extension, which could make and follow links between documents on microfiche? Or was it a couple of decades later when Doug Engelbart produced a prototype of an 'oNLine System' (NLS) which did hypertext browsing editing, e-mail and so on? He invented the mouse for this purpose, a credit often incorrectly awarded to Apple's whiz-kids. Some date the birth as 1965 when Ted Nelson coined the word 'hypertext' in 'A file structure for the complex, the changing, and the indeterminate', a paper given at the 20th National Conference, New York, of the Association for Computing Machinery. Others offer 1967 when Andy van Dam and others built the Hypertext Editing System. The most credible claim for being the internet's midwife probably goes to Tim Berners-Lee, a consultant working for CERN, the European Organization for Nuclear Research. In June–December of 1980 he wrote a notebook program, 'Enquire-within-upon-everything', that allowed links to be made between arbitrary nodes. Each node had a title, a type and a list of bidirectional typed links. 'Enquire' ran on Norsk Data machines under SINTRAN-III. Berners-Lee's goal was to allow the different computer systems used by the experts assembled from dozens of countries to 'talk' to each other both within CERN itself and with colleagues around the globe. The record of the internet's meteoric growth has been tracked by Internet World Stats (www.internetworldstats.com/emarketing.htm) since 1995. So what's new? Richness vs reach The internet has largely changed the maths of the traditional trade-off between the economics of delivering individually tailored products and services to satisfy targeted customers and the requirement of businesses to achieve economies of scale. The near-impossible second-hand book that had to be tracked down laboriously and at some cost is now just a mouse click away. The cost of keeping a retail operation open all hours is untenable but sales can continue online all the time. A small business that once couldn't have considered going global until many years into its life can today, thanks to the internet, sell its wares to anyone anywhere with a basic website costing a few hundred dollars and with little more tailoring than the translation of a few dozen key words or phrases and a currency widget that handles its payments. The internet has made real what in the 1970s Marshall McLuhan, a Canadian visionary of marketing communications, called the 'global village'. The book business is a powerful illustration of the way a product and its distribution systems endure in principle while changing in method over the centuries. From 1403 when the earliest known book was printed from movable type in Korea, through to Gutenberg's 42-line Bible printed in 1450, which in turn laid the foundation for the mass book market, the product, at least from a reader's perspective, has had many similarities. Even the latest developments of in-store print-on-demand and e-book delivery, such as Amazon's Kindle, look like leaving the reader holding much the same product. What has, however, transformed the book business is its routes to market, the scope of its reach and the new range of business partnerships and affiliate relationships opened by the internet. The Alibris case is a powerful example of how the internet has affected the way in which marketing strategy is developed and implemented. FIGURE: Richness vs reach
\ Clicks and bricks Of course, the internet business world and the 'real' world overlap and in some cases take over from one another. Woolworth's, for example, died on the high street in 2009 only to be born again on the internet. Many of the old economy entrants to the e-economy have kept the 'mortar' as well as acquiring 'clicks'. When one national retail chain announced the separation of its e-commerce business, one great strength claimed for the new business was: 'Customers know and trust us and that gives us a real competitive edge.' That trust stemmed from customers being able to physically see what the company stands for. Software produced by a leading UK internet software company plans to offer an intelligent internet tool that reacts to customers' shopping habits by suggesting different sites related to subjects or products they are interested in. In that way it hopes to build a similar level of trust, but over the internet. The firm uses its local stores for 'pick and pack' and delivers locally using smaller vehicles.
Viral marketing This term was coined to describe the ability of the internet to accelerate interest and awareness in a product by rapid word-of-mouth communications. To understand the mathematical power behind this phenomenon it is useful to take a look at recent communications networks and how they work. The simplest are the 'one-to-one' broadcast systems such as television and radio. In such systems the overall value of the network rises in a simple relationship to the size of the audience: the bigger the audience, the more valuable your network.
Mathematically the value rises with N, where N represents the size of the audience.
This relationship is known as Sarnoff's Law, after a pioneer of radio and television broadcasting. Next in order of value comes the telephone network, a 'many-to-many' system where everyone can get in touch with anyone else.
Here the mathematics are subtly different. With N people connected, every individual has the opportunity to connect with N – 1 other people (you exclude yourself). So the total number of possible connections for N individuals = N (N – 1), or N² – N. This relationship is known as Metcalf's Law, after Bob Metcalf, an inventor of computer networking. The size of a network under Metcalf's Law rises sharply as the value of N rises, much more so than with simple one-to-one networks.
The internet, however, has added a further twist. As well as talking to each other, internet users have the opportunity to form groups in a way they cannot easily do on the telephone. Any internet user can join discussion groups, auction groups, community sites and so on.
The mathematics now becomes interesting. As David Reed, formerly of Lotus Development Corporation, demonstrated, if you have N people in a network they can in theory form 2n – N – 1 different groups. You can check this formula by considering a small N, of say three people, A, B and C. They can form three different groups of two people: AB, AC and CB, and one group of three people, ABC, making a total of four groups as predicted by the formula. As the value of N increases, the size of the network explodes. See Figure below . FIGURE: The mathematics of internet networks The birth of viral marketing, using the power of Metcalf's Law to the full, has been attributed to the founder of Hotmail, who insisted that every e-mail sent by a Hotmail user should incorporate the message 'Get your free web-based e-mail at Hotmail'. By clicking on this line of text, the recipient would be transported to the Hotmail home page. While this e-mail sent by the company itself would not have had much effect, at the foot of an e-mail sent by a business colleague or friend it made a powerful impact. The very act of sending a Hotmail message constituted an endorsement of the product and so the current customer was selling to future customers on the company's behalf just by communicating with them.
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