IMPORTANCE OF MARKETING (Part - II)
Specific methods used to forecast sales are market¬factor analysis, survey of buyer intentions, test marketing, past sales and trend analysis, sales-force composite, and executive judgment. Management's challenge is to select the techniques that are appropriate in a particular situation.
For a company to operate successfully today, management must engage in marketing research: the development, interpretation, and communication of decision-oriented information. Three tools used in research are marketing information systems, decision support systems, and the research projects.
A marketing information system (MkIS) is an ongoing set of procedures designed to generate, analyze, disseminate, stare and retri~ve information for use in marking marketing decisions. An MklS provides a man¬ager with a regularly scheduled flow of information and reports. As firms develop global MklSs, they are faced with problems of timing, accuracy of data, and termi¬nology and measurement differences.
A decision support system (DSS) differs from an MklS in that the manager, using a personal computer, can interact directly with data. The DSS adds speed and flexibility to the MkIS, but requires considerable invest¬ment to create and maintain.
Data used in an MklS or DSS come from databases, which are organised set of data pertinent to a particular topic stored •and updated in a computer. Retail scan¬ners are major sources of data that go into databases.
When data sets grow beyond simply a "base" of infor¬mation, they are referred to as data warehouses. These enormous collections of data are probed for patterns and meaningful 'relationship in a process called data mining.
A marketing research project is undertaken to help resolve a specific marketing problem. The problem must first be clearly defined. Then a researcher conducts a situation analysis and an informal investigation. If a for¬mal investigation is needed, the researcher decides
which secondary and primary sources of information to use. Secondary data already exit. Primary data are gatt~er for the problem at hanQ. Primary data are gath¬ered using observation, surveys, or experiments. Ob¬servation is unintrusive, but cannot provide explana¬tions for the behavior observed. Surveys are conducted in person, by phone or through the mail. The Internet and e-mail are growing in popularity as tools for doing . surveys. The challenges in survey research are select¬ing a sample, designing a questionnaire, and generat¬ing an adequate response. The research project is com¬pleted Y."hen data are analyzed and the results reported. Follow-up provides information for improving future re¬search.
Researchers have recently developed a stronger in¬terest in competitive intelligence, or finding out what competitors are currently doing and forecasting what they are likely to do in the future. The new media, gov¬ernment, the Internet, and a company's own sales people are important sources of competitive intelligence information."
Among the ethical issues in .marketing research are protecting the privacy of respondents when collecting and using data, being overly intrusive, deceiving respon¬dents, and selling or fund raising under the guise of research.
Some managers are not highly supportive of research because its task, predicting behavior, is inexact and very difficult to accomplish; researchers and managers often operate with different Qbjectives; and research is conducted sporadically. These problems can be reduced and research made actionable if researchers and man¬agers remain in- close contact.
The first commandment is marketing is "Know thy customer," and the second is "Know thy product." The relative number and success of a company's new prod¬ucts are a prime determinant of its sales, growth rate, and profits. A firm can best serve its customers by pro¬ducing and marketing want-satisfying goods or services.
The manage its products effectively, a firm's market¬ers must understand the full meaning of product, which stresses that customers are buying want-satisfaction .. Products can be classified into two basic categories¬consumer products and business products. Each cat¬egory is then subdivided, because a different market¬ing program is required for each distinct group of prod¬ucts.
There are many view as to what constitutes a new product. For marketing purposes, three categories of new products need to be recognized-innovative, sig¬nificantly different, and imitative.
A clear statement of the firm's new-product strategy serves as a solid foundation for the six-stage develop¬ment process for new products. At each stage, a firm needs to decide whether to proceed to the next stage or to halt the project. The early stages in this process are especially imrtant. If a firm can make an early and correct decision to stop the development of a proposed product, a lot of money and labor can be saved.
In deciding whether or not to add a new product, a producer or middleman should consider whether there is adequate market demand for it. The product also' should fit in with the firm's marketing, production, and financial resources.
Management needs to understand the adoption and diffusion processes for a new product. A prospective user goes through six stages in deciding whether or not to adopt a new product. Adopters of an innovation can be divided into five categories, depending on how¬quickly they accept an innovation such as a new prod¬uct. These categories are innovators, early adopters, early majority, late majority, and laggards. In addition, there usually is a group of nonadopters. Five character¬fstics of an innovation seem to influence its adoption rate: relative advantage, compatibility, complexity, trialability, and observability.
Successful product planning and development require long-term commitment and strong support from top man¬agement. Furthermore, new-product programs must be soundly organized. Most firms use one of three organi¬zational structures for new-product development: prod¬uct-planning committee or team, new-product depart¬ment, or brand manager. Recently, the trend has been away from brand managers and toward term efforts for developing new products.
Many strategic decisions must be made to manage a company's assortment of products effectively. To start, a firm must select strategies regarding its product mix. One decision is how to position the product relative to competing products and other products sold by the firm.
Another strategic decision is whether or how to ex¬pand the product mix by adding items to a line and/or introducing new lines. Altering the design, packaging, or other features of existing products is still another option among the strategies of selecting the best mix. The product mix also can be changed by eliminati[lg an entire line or by simplifying the assortment within a line. Alternatively, management may elect to trade up or trade down relative to existing products.
Executives need to understand the concept of a prod¬uct life cycle, which reflects the total sales volume for a generic product category. Each of the cycle's four stages-introdu~tion" growth, maturity, and decline-has distinctive characteristics that have implications for marketing. Managing a product as it moves through its life cycle present a ,number of challenges and opportu¬nities. Eventually, a product category may lack adequate acceptance; at the point, all or most companies should abandon their versions of this product.
Planned obsolescence is a controversial product strat¬egy, built around the concepts of style, fashion and the fashion cycle. Fashion-essentially a socio-Iogical and psychological phenomenon-follows a reasonably predict¬able pattern. With ,advances in communications and production, the fashion-adoption process has moved away from the traditional trickle-down pattern. Today the process is better described as trickle-across. There also are examples of fashions trickling up. Managing a product, such as expensive apparel, through a fashion cycle may be even more challenging than adjusting an¬other type of product's strategies during its life cycle.
Effective product management involves developing and then monitoring the various features of a product¬its brand, packaging, labeling, design color, quality, warranty, and postsale service. A consumer's purchase decision may take into account not just the basic good or service, 'but also the brand and perhaps one or more of the other want-satisfying product features.
A brand is a means of identifying and differentiating the products of an organization. Branding aids sellers in managing their promotional and pricing activities. The dual responsibilities of brand ownership are to promote the brand and to maintain a consistent level of quality. Selecting a good brand name- and there are relatively
• few really good ones-is difficult. Once a brand becomes well known the owner may have to protect it from prod¬uct counterfeiting. and from becoming a generic term.
Manufacturers must decide whether to brand their prod¬ucts and/or sell under a middleman's brand. Middlemen must decide whether to carry producers' brands alone or to establish their own brands as well. Both producers and middlemen must set policies regarding branding group of products and branding for market saturation. The use of cobranding, placing two brands on a product or an enterprise, is growing.
An increasing number of companies are recognizing that the brands they own are or c~n be among their most valuable assets. They are building brand equity¬the added value that a brand brings to a product. Al¬though it's difficult to build brand equitY, doing so suc¬cessfully can be the basis for expanding a product mix. Prodblcts with abundant brand equity also lend them¬selves to trademark licensing, a popular marketing arrangement.Packaging is becoming increasingly important as sell¬ers recognize the problems, as well as the marketing
'opporwnities, associated with it. Companies must choose among strategies such as family packaging, multiple packaging, and changing the package. Label¬ing, a related activity, provides information about the product and the seller. Many consumer criticisms of marketing relate to packaging and labeling. As a result, there are several federal laws regulating these activities.Companies are now recognizing the marketing value of both product design and quality. Good design can improve the marketability. of a product; it may be the only feature that differentiates a product. Projecting the appropriate quality image and then delivering the level of quality desired by customers are essential to mar¬keting success. In many cases, firms need to enhance product quality to eliminate a differential disadvantage; in others, firms seek to build quality as a way of gaining a differential advantage.
The scope of services marketing is enormous. About 50% of what consumer spend goes for services, and more than 80% of- nonfarm jobs are in services indus¬tries. Services purchased by businesses constitute an¬other major segment of the economy. The nonbusiness services field includes thousands of organizations span¬ning educational, cultural religious, charitable, social, health care, and political activities. Services marketers can be divided into for-profits and non profits. The not¬for-profits organizations have a profit (orsurplus) objec¬tive, but it is secondary to some other goal. Nonprofits do not !'lave a profit objective.
Most product offerings are a mix of tangibles (goods) and intangibles (services), somewhere between pure goods and pure services. The distinguish between good and services, we define services as separately identifi¬able, intangible activities that are the main object of a transaction designed to provide want-satisfaction.
Services are intangiblE1, usually inseparable from the seller, heterogeneous, highly perishable, and widely fluc¬tuating in demand. These characteristics that differen¬tiate services from goods have several marketing im¬plications.
The growth in services has not been matched by ser¬vice management's application of the marketing con¬cept. Monopoly status, external constraints, and a non¬business orientation have caused. many services mar¬keters to be slow in adopting marketing techniques that, in goods marketing, have brought, satisfaction in con¬sumers and profits to producers and middlemen. How¬ever, thais .changing as constraints and restrictions are removed, and service producers observe the benefits of effective marketing.
Many nonbusiness services organizations must deal with two markets: donors, the contributors to the orga¬nization; and clients, the recipients of the .organization's money or services. Consequently, a nonbusiness orga¬nization must develop two separate marketing programs: one to attract resources from donors and one to provide services to clients.
In the product-planning stage, services enterprises use various product-mix strategies, and they should try to brand their services. Service firms must determine base prices and select appropriate pricing strategies.
Pricing in nonbusiness organizations often is quite dif¬ferent from pricing in profit-seeking businesses.
Channels of distribution are quite simple in services marketing, and middlemen are not often used. The main physical distribution challenge is to locate the services organization where it can most effectively serve its markets. Regarding promotion, services firms often per¬sonal selling and advertising extensively and quite ef¬fectively. These ":'rganizations are recognizing the im¬portance of service encounters and the need to engage in internal marketing directed at customer-contact per¬sonnel.
The expanding services arena has exposed ineffi¬ciency in services industries. Key issues in improving services marketing are the effective use of technology, the need of increase productivity, and the development of useful performance measures.
In our economy, price influences the allocation of re¬sources. In individual companies, price is one signifi¬cant factor in achieving marketing success. And in many purchase situations, price can be of great importance to consumers. However, it is difficult to define price. A general definition is: Price is the amount of money and! or other items with utility needed to acquire a product.
Before setting a product's base price, management should identity its pricing objective. Major pricing ob¬jectives are to (1) earn a target return on investment or on net sales, (2) maximize profits, (3) increase sales, (4) hold or gain a target market share, (5) stabilize prices, and (6) meet competition's prices ..
Besides the firm's pricing objective, other key fac¬tors that influence price setting are: (1) demand for the product, (2) competitive reactions, (3) strategies planned for other marketing-mix elements, and (4) cost of the product. The concept of elasticity refers to the effect that unit-price changes have on the number of units sold and on total revenue.
Three major methods used to determine the base price are cost-plus pricing, marginal analysis, and setting the price only in relation to the market. For cost-plus pric¬ing to be effective, a seller must consider several types of costs and their reactions to change in the quantity produced. A producer usually sets a price to cover total cost. In some cases, however, the best policy may be to set a price that covers marginal cost only. The main weakness in cost-plus pricing is that it completely ig¬nores market demand. The partially offset this weak¬ness, a company may use break-even analysis as a tool in price setting.
In actual business situations, price setting is influ¬enced by market conditions. Hence, marginal analysis, which takes into account both demand and costs to determine a suitable price for the product, is helpful in understanding the forces affecting price. Price and out¬put level are set at the point where marginal cost equals
marginal revenue. The effectiveness of marginal analy¬sis in setting process depends on. obtaining reliable cost data.
For many products, price setting is relatively easy because management simply sets the price at the level of competition. Pricing at prevailing market levels makes sense for firms selling well-known, standardized prod¬ucts and sometimes for individual firms .in an oligopoly. Two variations of market-level pricing are to price be¬low or above the levels of primary competitors.
After deciding on pricing goals and setting the base (or list) price, marketers must establish pricing strate¬gies that are compatible with the rest of the marketing mix. A basic decision facing management is whether to
• engage primarily in price or nonprice competition. Price competition establishes price as the primary, perhaps the sole, basis for attracting and retaining customers. A growing number of businesses are adopting value pricing to improve the ratio of benefits to price and, in turn, lure customers from competitors. In non-price com¬petition, sellers maintain stable prices and seek a dif¬ferential advantage through other aspect~ of their mar¬keting mixes. Common methods of nonprice competi¬tion include offering distinctive and appealing products, promotion, and/or customer services.
When a form is launching a new product, it must choose a market-skimming or a market-penetration pric¬ing strategy. Market skimming uses a relatively high initial price, market penetration a low one.
Strategies also must be devised for discounts and allowances-deductions from the list price. Management has the option of offering quantity discounts, trade dis¬counts, cash discounts, and/or other types of deduc¬tions. Decisions on discounts and allowances must con¬form to the Robinson-Patman Act, a federal law regu¬lating price discrimination.
Freight costs must be considered in pricing. A pro¬ducer can require the buyer to pay all freight costs (FOB factory pricing), or a producer can absorb all frefght costs (uniform delivered pricing). Alternatively, the two parties can share the freight costs (freight absorption).
Management also should decide whether to charge the same price to all similar buyers of identical quanti¬ties of a product (a one-price strategy) or to set differ¬ent prices (a flexible-price strategy). Many organizations, especially retailers, use at least some of the following special strategies: price lining- selecting a limited num¬bE;!r of prices at which to sell related products; odd pric¬ing-setting prices at uneven (or odd) amounts; and leader pricing- temporarily qutting prices on a few items to attract customers. Some forms of leader pricing are illegal in a number of states. A company must also choose between everyday low pricing, which relies on cQ!lsistently low prices and few if any temporary price reductions, and high-low pricing, which involves alter nating between regular and "sale" prices on the most visible products offered by a firm.
Many manufacturers are concerned about resale price maintenance, which means controlling the prices at which middlemen resell products. Some appr~aches to resale price maintenance are more effective than other; moreover; some methods may be illegal.
Market opportunities and/or competitive forces may motivate companies to initiate price changes or, in dif¬ferent situations, to react to other firms' price changes. A series of successive price cuts by competing firms creates a price war, which can harm the profits of all participating companies.
