Session 4The marketing mix

4.1: Product:• The product should be what the customer wants and expects to get.• Products can be described as a 'bundle of benefits'. This means that it is not usually the actual

product itself which is important to customers but what it will do for them. • There are three levels of product benefits (see figure 1): 1- The core benefit: is the kind of main benefit and is NOT the tangible, physical product (see figure

2). You can't touch it. That's because the core product is the benefit of the product that makes it valuable to you. So when you buy a car for example, the benefit is convenience i.e. the ease at which you can go where you like, when you want to. Another core benefit is speed since you can travel around relatively quickly. Marketers must first define what the core benefits the product will provide the customer.

2- The actual product benefit: is the tangible, physical product. You can get some use out of it. Again with the car example, it is the vehicle that you test drive, buy and then collect. Marketer must then build the actual product around the core product. May have as many as five characteristics (quality level, features, design, brand name and packaging).

3- The augmented product benefits: is the non-physical part of the product. It usually consists of lots of added value, for which you may or may not pay a premium. So when you buy a car, part of the augmented product would be the warranty, the customer service support offered by the car's manufacture, and any after-sales service. Augmented Product - offer additional consumer benefits and services (installation, after-sale service, warranty, delivery and credit, and customer training).

Figure 1: The three levels of product (Kolter et al., 2001, p. 460)

Core benefit or service

Delivery and credit

Packaging

Warranty

Installation

After-sale service

Styling

FeaturesBrand name

Quality

Core product

Actual product

Augmented product

Education

Restaurant

Figure 2: Tangible and intangible continuum for goods and servicesThe product life cycle (PLC):

• The course of a product’s sale and profit over it lifetime. It involves four distinct stages (see figure 3): introduction, growth, maturity, and decline. The characteristic profile is an S-shaped growth curve.

- The introduction stage: after a new product has been developed and is first introduced to the market. In this stage sales are small and the rate of market penetration is low because the industry’s products are little known and customers are few.

- The growth stage: characterized by accelerating market penetration as product technology becomes more standardized and prices fall.

- The maturity stage: increasing market saturation and slowing growth as new demand gives way to replacement demand (direct: customers replacing old products with new products, or indirect: new customers replacing old customers).

- The decline stage: product becomes challenged by new products that produce technologically superior substitute products.

The life cycle concept is useful for describing what is happening to a product at a particular moment but it is not much use for predicting the product's future.

Marketing issues

- High advertising and sales promotion costs, - High price possible - Distribution problematic

- High advertising costs still but as a % of sales, - Costs are failing, Price falling, - More distributors

- Segmentic specific- Choose best distribution- Brand image- Modifying the Marketing Mix: Improving sales by changing one or more marketing mix elements

- Less money spent on advertising and sales promotion- Cut price

Figure 3: Product life cycle

New product development:• All businesses must do this or eventually die. …use the business’s resources to meet objectives in the

changing environment.• To create successful new products, the business must:

- Understand its customers, markets and competitors; - Develop products that deliver superior value to customers.

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TimeDecline Maturity Growth Introduction

Mon

ey

Sales

Profit

(Tangible)Good Dominant

(Intangible)Service Dominant

Food

• Model of the new product development process (Crawford, 1991): in this model, a number of steps of new product development are shown in the following sequence:

Table 1: Steps of new product development:

Steps Features

1 New product planning A business looks at its current products, how well they are performing, and where the marketing environment poses threats to existing products and opportunities for new products .

2 Idea generation Specific ideas for new products are generated and collected, perhaps through group discussion techniques such as brainstorming.

3 Idea screening and evaluation The ideas generated in the previous step are examined for their feasibility and marketability.

4 Technical development The technical aspects of the product are investigated and prototype is developed.

5 Market appraisal Market research is carried out to assess whether the product would be successful in the market.

6 Lunch The product is produced and offered in the market.

Although some form of new product development is highly important to most businesses and many put considerable resources and expertise into their new product development processes, new products often fail in the market. Not all innovations which seem technically brilliant to the experts really fulfil a need in the market. For instance, picture messaging in mobile phone technology got off to a slow start because many consumers did not really see the need to send each other pictures via the phone. On the other hand, heavy reliance on market research in the early product development stages may also lead to less than successful innovation.

4.2: Pricing:• Pricing is one of the most important and complex marketing decisions. Of all the aspects of the

marketing mix, price is the one, which creates sales revenue - all the others are costs. The price of an item is clearly an important determinant of the value of sales made. In theory, price is really determined by the discovery of what customers perceive is the value of the item on sale. Researching consumers' opinions about pricing is important as it indicates how they value what they are looking for as well as what they want to pay.

• Objectives in pricing: Achieve a target return on investment; create stabilization of price and margin; reach a market share target; meet or prevent competition; profit maximization; and survival.

• Pricing must be carefully coordinated with the other marketing mix elements.Approaches to pricing:

There are three main approaches to setting prices, which vary in the degree to which they are customer oriented.

Table 2: Approaches of pricing:

Approach Features

1 Cost-based pricing (Cost-Plus Pricing)

- Adding a standard markup (a fixed profit percentage) to cost, to cover unassigned costs and provide a profit.- The least customer-oriented pricing method.- Popular pricing technique because it simplifies the pricing process, Price competition may be minimized, and it is

perceived as more fair to both buyers and sellers.- By using solely a cost-based approach the seller my miss opportunities for additional profit or set a price too high to

realise adequate sales to even cover cost.- The fundamental flaw of this approach to pricing is that it ignores demand and fails to account for competition.

2 Customer-based pricing

- Uses customers' perceptions of value rather than seller’s costs to set price.- Is more in line with a marketing orientation, as it stats with the customer's willingness to pay.- Net value = Perceived benefits to customer (gross value) minus all Perceived outlays (Money, Time, Mental/Physical

effort)

3 Competition-based pricing

- Pricing influenced primarily by competitors’ prices.- Involves comparing the prices of all competing products and then setting the price of one's own product.- Determine your competitor’s pricing, after this, you must decide to: price below or in line with or above the competition.- Method importance increases when: competing products are homogeneous or lack differentiation, and business is serving

markets in which price is a key consideration.

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Cost-based pricing:

Customer-based pricing:

Figure 4: Approaches of Pricing

In practice, businesses will take into account all three elements of costs, customer perceptions and competition when setting prices.

Pricing for strategic effect:• Pricing also includes decisions on discounts and price differentiation, as well as relative prices for the

whole product range.• 'Product line pricing': refers to the setting of prices within linked product groups. Sometimes sales of

one product are directly linked to sales of another product. It may therefore be possible to sell one product cheaply in order to encourage more purchases of another product and thus achieve a higher sales volume. Some products may be sold as a bundle (E.g. stereo system vs. components; computers), thereby creating complimentarity. The price of one product in a line may influence the buyer’s subjective evaluation of other products in the line.

• 'Psychological pricing': involves setting prices in such a way that they capture or encourage particular psychological effects in consumers. For example, in the real estate market properties are often priced at uneven dollars - $239,000 instead of $240,000. The psychology of that pricing is that buyers will recognize the $239,000 price as being much better (even though it's only $1000 less) than $240,000. Another example, in the luxury car segment. An increase in price resulted in an increase in sales because buyers tied the price increase to a value.

• Retail prices are often expressed as odd prices: a little less than a round number, e.g. $19.99 or? 6.95. Psychological pricing is a theory in marketing that these prices have a psychological impact that drives demand greater than would be expected if consumers were perfectly rational. Psychological pricing is one cause of price points.

• If the actual price is higher, consumers feel the product is overpriced. If it is too low, consumers assume quality is inferior.

Ethical issues in pricing:

• Pricing is an area of the marketing mix where irresponsible and unethical actions are often found. In a market economy prices are, in principle, negotiated depending on supply and demand but, because of the power differences that often exist between producers and consumers, there is room for unethical pricing practice.

• Predatory pricing: is another unethical pricing tactic. Here, a business offers its products at artificially low prices, below the cost of production, with the aim of winning a majority of customers and driving competitors out of the market. Consumers only benefit temporarily from such a practice as the business will later put up prices after the competition has been weakened or eliminated. Markup Laws are a regulatory approach to prevent predatory pricing. Such laws require a certain markup above cost in particular industries.

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Product PriceCost Value

Customers PriceValue Cost

Customers

Product

• Price discrimination: the use of different prices for different customers. It is illegal if a price advantage is granted to one, but not another, where both compete and the products are similar. Granting promotional allowances must be done on a proportionate basis to all customers.

4.3: Distribution (Place):• Place: Making goods and services available in the right quantities and at the right locations - when

customers want them.• Distribution Channels: A series of businesses or individuals participating in the flow of products

from producer to final user or consumer.• Marketing channel strategy is growing in importance. Why?

1-Search for sustainable competitive advantage.2-Growing power of retailers in marketing channels.3-The need to reduce distribution costs.4-The increased role and power of technology.5-The new stress on growth.

Members of the distribution channel:1- The shortest distribution channel (also called direct distribution or producer to customer): are

those in which producers sell directly to final customers without any intermediaries. The internet now plays an important role in connecting businesses directly with their customers (e.g. mail order) without the need for further intermediaries.

2- Slightly longer: are those channels which include retailers as well as producers and final customers. Distribution channels involving large retail businesses often take this shape.

3- Smaller retailers: are often not in a position to buy directly from manufacturers. In this case the channel contains a further level, namely wholesalers.

4- Wholesalers: are businesses that buy products from producers and sell them on to retailers. They often carry out a number of functions in the distribution channel, such as storage and transportation, information gathering and dissemination, or certain promotional activities.

5- Retailers: are businesses that buy from producers or wholesalers and sell on to consumers (such as: high street shops, out-of-town superstores, internet seller, door-to-door salespeople).

Technology has the power to greatly enhance the effectiveness and efficiency of marketing channels and could potentially change the entire structure of distribution around the world.

4.4: Marketing communications (Promotion): • Marketing Communication or Promotion is the communication undertaken by a firm to persuade/inform

potential buyers to accept ideas, concepts, or things. The concept under which a business carefully integrates and coordinates its many communications channels to deliver a clear, consistent, and compelling message about the business and its products. Marketing communications is not a straight forward, one-way process from marketers to potential customers.

• Marketers often follow the so-called AIDA approach, which suggests that good marketing communication should go through the sequence of stimulating 'Awareness', 'Interest', 'Desire' and 'Action' on the part of consumers (get your customer’s Attention, keep them Interested, generate a Desire and encourage them to take Action). AIDA framework guides message design.

• Promotional Mix: is the specific mix of advertising, personal selling, sales promotion, and public relations that a firm uses to pursue its advertising and marketing objectives (see figure 5).

1- Advertising: any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor. Advertising tools include print (newspapers, magazines), TV, radio, outdoor, and online.

2- Sales promotions: refers to the specific element of the promotional mix which tries to create a temporary increase in sales by offering customers an incentive to buy the product. Types of sales promotions include: 1) Money based, such as cash-back, immediate price reductions at point of sale, and coupons. 2)

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Product based, such as X % extra free, buy one get one free, free samples, piggy-backing with another product. 3) Gift, prize or merchandise based, such as gifts in return for proof of purchase, loyalty schemes, and contests 'solve questions and you win something' or sweepstakes 'depend on luck'.

3- Personal selling: personal presentation by the business’s sales force for the purpose of making sales and building customer relationships. Most effective tool for building buyers’ preferences, convictions, and actions. Personal interaction allows for feedback and adjustments.

4- Pubic relations (PR): building good relations with the business’s various publics by obtaining favorable publicity, building up a good “corporate image”, and handling or heading off unfavorable rumors, stories, and events. It is unpaid advertising. PR tools include: press releases, sponsorships, and special events.

Direct marketing: direct communications with carefully targeted individual consumers-the use of telephone, mail, fax, e-mail, the internet, and other tools to communicate directly with specific consumers. Direct marketing such as: sending catalogues and telemarketing.

Figure 5: The promotional mix

Ethical issues in marketing communications:• Marketing Communications can be easily misused or abused:

- Communication messages often include promises about the benefits that customers will receive and the quality of service delivery.

- Promises made and then broken disappointment, and dissatisfaction can occur.- Perceptions of wasted time and, or money may lead to anger.- Employees may feel frustrated.

• Ethical issues in promotion mix:- Personal selling: insincere, use power to gain publicity and orchestrating news events.- Sales promotion: misleading promotions, slotting allowances and misuse of mailing lists.- Public relations: high-pressure tactics.

4.5: Marketing services:

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Advertising

Personal selling

Sales promotion

Public relations

Other publics

Pressure groups

Employees

Information about products and brands

Consumers

Information about the company

ReceiversReceiversMessagesMessages TransmittersTransmitters

• Services: Any act of performance that one party can offer another that is essentially intangible and does not result in the ownership of anything; its production may or may not be tied to a physical product.

• Characteristic of service: - Intangibility: A service is not physical and you need to make some evidences.- Inseparability: A service is normally produced, consumed and evaluated simultaneously.- Variability: Services are heavily dependent on the person that provide them.- Perishability: Services can not be stored.

• This makes it difficult for customers to assess service quality before buying; for instance, by handling or testing the product. Customers find it hard to evaluate services: more dependent on marketing communications for information and business’s reputation becomes a critical factor.

• The three additional ‘P’s of Service Marketing: The marketing mix should be extended by further elements, to take better account of the particular nature of services marketing. These elements are the 'people' who deliver the service, the 'processes' by which the service is delivered and any other 'physical evidence' for service quality that the marketer may provide.

In summary, the unique 3 Ps of services marketing: People, Physical evidence and Process are within the control of the firm and its contact employees. They influence the customer’s initial decision to purchase a service, customer’s level of satisfaction and repurchase decisions.

The 7 Ps - price, product, place, promotion, physical presence, provision of service, and processes comprise the modern marketing mix that is particularly relevant in service industry, but is also relevant to any form of business where meeting the needs of customers is given priority.

Session 5Addressing societal and environmental concerns

in marketing5.1: The societal marketing concept:

• The societal marketing concept holds that a business should work out what the needs, wants and expectations of its target customers and markets are.

• It should then satisfy these needs, wants and expectations better and more effectively and efficiently than competing businesses, in a way that maintains or improves the customer's and society's well-being.

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• The societal marketing described as a “customer orientation backed by integrated marketing aimed at generating customer satisfaction as the key to attaining long-run profitable volume.”

• Societal Marketing: A societal oriented marketer intends to design products that are both pleasing and beneficial

• Kotler (1972), who was among the first to write about the idea of societal marketing, argue that businesses should think of the product they offered and where developing in terms of two dimensions:

1- The immediate satisfaction they provided to consumers; 2- The long-term consumer welfare they provided.

Figure 1 shows four different types of product, depending on whether the score is high or low on these two dimensions.

Immediate satisfactionLow High

Lon

g-ru

n

con

sum

er High

Salutary products Desirable products

LowDeficient products pleasing products

Figure 1: Classification of new product opportunities (Kolter, 1972, p. 56)

• Societal Classification of ProductsIn the above diagram the products are classified according to their degree of immediate

consumer satisfaction and long-run consumer benefit. 1- Desirable Products: gives both high immediate satisfaction and high long run benefits e.g. Fresh

fruit juices.2- Salutary Products: have low appeal but may benefit consumers in the long run e.g. seat belts,

pension plan insurance.3- Pleasing Product: gives high immediate consumer satisfaction but may hurt the consumer in the

long run e.g. cigarettes and junk food.4- Deficient Product: gives neither immediate appeals nor long run benefits e.g. poor quality cheap

imitations.Marketers must become aware of the ethical standards and acceptable behaviour in today’s society.

This awareness means that marketers must recognise the viewpoints of three key players: the company, the industry, and society.

Ethical conflicts in marketing: A conflict may arise when there is a difference between the needs of the three groups: the company, the industry, and society. Cigarette and tobacco marketing have been good for companies and good for the tobacco industry. The Marketing process is moving towards the confluence of the consumers short run wants with the consumer’s long run welfare, through the societal marketing concept. This states that the marketing strategy should deliver value to the customer in a way that maintains or improves the consumer’s and the society’s welfare (figure 2).

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Society(Human Welfare)

Figure 2: The Societal Marketing Concept

Harmful and Low benefit Products: Producing harmful products like tobacco, cigarettes and Alcoholic drinks are a concern just as promoting products that lack nutritional value like the fast foods (such as McDonalds).

The societal marketing approach considers not only the commercial exchanges carried out to satisfy the needs of customers, but also the effects on all members of the public involved in some way in these exchanges.

Kotler and Keller (2006, p. 22) define societal marketing as follows: The societal marketing concept holds that the organization’s task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the consumer’s and the society’s well-being.

Therefore, marketers must endeavour to satisfy the needs and wants of their target markets in ways that preserve and enhance the well-being of consumers and society as a whole. Recognising profit as a major business motive, the societal marketing concept advocates fairness to consumers while maintaining good practices in terms of consequences for society. The societal marketing concept introduces corporate social responsibility into marketing practices. Corporate social responsibility (CSR) means that a corporation should be held accountable for any of its actions that affect people, their community, and the environment surrounding those people and community.

Another popular term related to societal marketing is cause-related marketing. This term has been identified by Kotler (2000) as a form of societal marketing. Cause related marketing is defined as the process by which a business creates a marketing strategy that is characterized by contributions to specific causes through customer interaction, which also serves to generate revenue for the business itself. In addition, it can refer to a strategic positioning and marketing tool which links the corporation or its brand to a relevant social cause for their mutual benefit.

“Cause-related marketing” is defined as activity which a business with an image, product or service to market builds a relationship or partnership with a “cause”, or a number of “causes”, for mutual benefit. Cause-related marketing may afford an opportunity for businesses to enhance their corporate reputation, raise brand awareness, increase customer loyalty, and build sales (Kotler, 2000). According to this thinking customers are increasingly looking for demonstration of good corporate citizenship.

5.2: 'Green' marketing:Unfortunately, a majority of people believe that green marketing refers solely to the promotion or

advertising of products with environmental characteristics. Terms like Recyclable, Ozone Friendly, and Environmentally Friendly are some of the things consumers most often associate with green marketing. While these terms are green marketing claims, in general green marketing is a much broader concept, one that can be applied to consumer goods, industrial goods and even services.

Thus, green marketing incorporates a broad range of activities, including product modification, changes to the production process, packaging changes, as well as modifying advertising. Yet defining green marketing is not a simple task. Indeed the terminology used in this area has varied, it includes: Green Marketing, Environmental Marketing and Ecological Marketing. While green marketing came into prominence in the late 1980s and early 1990s, it was first discussed much earlier. Green marketing is the best known and most frequently applied designation in the management practice. This refers to the leading

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Consumers(Want Satisfaction)

Business(Profits)

Societal Marketing Concept

role of environmental considerations compared to that of the principle of social equity as basic elements of the sustainability concept.

There are a large number of well-known environmental problems which are largely or partly the result of human economic activity. Throop et al. (1993) list the following problems at local, regional and global level:Table 1: Steps of new product development:

Environmental issues Features

1 Inadequate solid waste disposal capacity

Modern society produces ever large quantities of industrial and household waste, whereas suitable places for landfill sites and other forms of waste disposal become ever scarcer.

2 Air pollution Industrial processes and consumer use of more and more machinery, including cars, leads to air pollution.

3 Declining fish and crustacean populations

Modern fishing fleets use high-tech methods to find and catch more and more fish, to a point where major fisheries worldwide have collapsed.

4 Topsoil erosion This is a common problem associated with modern agriculture, particularly large-scale, industrial-style agriculture - heavy machinery disturbs top soils which are then blown away by wind or washed away by rain.

5 Ozone depletion CFCs (chlorofluorocarbon), a chemical once common in aerosols and refrigerators, is the main culprit of ozone depletion; the pushing out of such chemicals from consumer products and industrial processes may be able to reverse this process.

6 Marine and fresh water pollution This results from industry, agriculture, households, shipping and other sources.

7 Toxic waste accumulation Such as many artificial chemicals.

8 Species extinction and reduction of biodiversity

Population pressure, intensive agriculture and industrial development all encroach on the habitats of plant and animal species and can lead to their extinction.

9 Wetlands destruction This is one example of valuable wildlife habitats being destroyed by development.

10 Climate modification Accelerated use of fossil fuels in industrial processes and consumption is thought to contribute to global climate change.

Environmental marketing as a term for marketing with a concern for ecological issues has established itself during the past few years as consumer behaviour has become more environmentally conscious. It can be seen as a continuation of the adaptation of marketing thinking to the requirements of each marketing era. A common feature of most definitions for “green”, “ecological”, “ecologically oriented”, or “environmental” marketing is that marketing in the ecological era attempts to connect the classical components of marketing and management of ecological issues.

Peattie (1995) defines green marketing as the holistic management process responsible for identifying, anticipating and satisfying the requirements of customers and society, in a profitable and sustainable way. Sustainable consumption has also become the aim of environmental policy. Sustainable consumption aims at fulfilling the needs of the current generation without neglecting those of future generations. Antonides and Raaij (1998) define environmental attributes of consumer behaviour as following:

- To avoid harmful products to the natural environment (spray cans, batteries, etc.);- To reject products which deplete natural resources (products with high energy consumption);- To reject harmful products to one’s health (meat from animals submitted to hormone treatment);- To return to original taste of food;- To adhere to animal friendliness.

Peattie and Charter (1994) identify a number of driving forces which encourage marketers to aim for more sustainable marketing practices, including:

1- Public opinion and changing societal values;2- Green consumer demand and the opportunities of a growing market for environmentally friendly

goods and technologies;3- Internal and competitive pressures;

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4- Legislations;5- Green investment funds;6- Interest from media and pressure groups;7- The cost to business from environmental disasters.

Thanks

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Prepared by Dr. Helal Afify

2/5/2009