Marketing strategies refers to the ways the marketing function goes about achieving the marketing objectives.
A business must know its market and the needs of their customers. This is done by breaking it up into smaller parts where customers have common characteristics, i.e. market segmentation.
Then a business identifies which segments match the business’ resources. A business could develop products that fit a number of segments, i.e. product/service differentiation.
The business then decides what image (in terms of price and quality) it wants to but forward, before
developing products that will most competitively meet the needs of customers, price, promote and distribute them.
Marketing strategies → achieve marketing goals → consistent with overall business goals
market segmentation, product/service differentiation and positioning
Market segmentation:Market segmentation occurs when businesses focus their efforts on a particular group of customers who have similar needs. This is because customers’ needs in the total market are so varied, e.g. Supre targets young women.
Segmentation allows a business to develop a more competitive product/approach.
Segmentation → focus on needs of that group → provide better products for that group (therefore more competitive)
Markets can be segmented on many variables including:
- Gender – is crucial in providing different products/styles for women and men. Not only clothes but also housing, furniture, entertainment and cars, e.g. the Nissan Micra is aimed at females while the Toyota Hilux is aimed at men.
- Age – crucial in determining the needs, e.g. Huggies target families with babies.
- Income – very important in products we purchase, e.g. cars, clothing, furniture and housing all contain segments directed at the rich.
- Lifestyle – interests vary greatly from person to person, e.g. health magazines and gyms meet certain lifestyle needs.
Product/service differentiation:
Product/service differentiation occurs when businesses decide to compete across a number of segments by changing their products to meet the specific needs of the customers in each segment, e.g. the smartphone market.
Product/service differentiation is better able to satisfy customer needs in a particular segment but it is a more expensive strategy than having a standardised product designed to generally meet the needs of all customers in all segments.
Standardised products can take advantage of economies of scale (lower costs). Economies of scale are the cost savings, such as bulk-buying, associated with large-scale production.
However, customers are increasingly heterogeneous (have individual needs). The increase in market share for HTC and the consistent market share of Apple’s iPhone 4 supports this.
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Positioning:
Positioning provides the ‘fit’ between customers in a particular market segment and the business resources and skills required to develop a product that will successfully meet the needs of customers in that segment.
Positioning is a perception or image that potential buyers have of a product compared with its competitors, e.g. a restaurant with a top chef will be positioned at the top of the market while McDonalds will be positioned lower, promoting value for money.
This shows the relationship between market segmentation, product/service differentiation and positioning.
products – goods and/or services
-branding
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packaging
There are two aspects to a product:
- The core product refers to the benefits the product offers to customers, e.g. a can of drink quenches thirst, a car gets you from point A to point B etc.
- The actual product includes not only benefits but also added features, positioning, brand and packaging. It also includes intangible features such as a guarantee, possibly delivery and installation and after-sales service. The actual product is also called the augmented product.
Product strategies refer to the ways a product itself can be used as a strategy to improve competitiveness, e.g.
a car could be made more competitive by extending the warranty.
Typically, the core product is augmented with features like:
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- Quality - Styling - Warranty - After-sales service
- A brand name that can be trusted
- Provision of credit, including interest free periods - Packaging
Branding:
A brand is the heart of marketing and therefore a business. Marketing is all about making the business’
products different from its competitors’. If a customer doesn’t see a difference, they will buy the cheapest or the most convenient.
A brand is a logo, name, symbol or design (often a combination) that distinguishes a business’ products from other products in the market place. Over time a customer identifies the product with the characteristics of the brand, (e.g. style, reliability, price etc.). Satisfied customers develop brand loyalty.
Brand supports positioning, e.g. Sony does not have to convince customers of quality every time they release a new product. Brands like Sony develop brands over a long time and it costs a lot of money to achieve this dominance in the market place.
Brand dominance → high profit margins
Packaging:
Packaging has both a functional and marketing role. It protects goods in transit and it contains information such as identification of the brand, weight and possibly the instructions of the product (functional role). It also is important in getting potential customers attention (marketing role).
Packaging is all about making the product more competitive. It can give info about possible uses and dangers associated with incorrect use. It can add to the aesthetics of the product. Packaging is essential to calculate the maximum space in things like standard containers.
Packaging impacts significantly on the cost of distribution. It needs to support the positioning of the brand, i.e.
an expensive, highly positioned product wouldn’t be placed in cheap packages.
price including pricing methods – cost, market, competition-based
-pricing strategies – skimming, penetration, loss leaders, price points
-price and quality interaction
There are three methods of pricing a product:
1. Costs – businesses can work out how to price their products on the cost to develop, manufacture and distribute. They then add a margin to this (profit) and this becomes the price. It is called cost-based pricing.
2. Market – used by businesses producing commodity products (e.g. wheat, wool, coal, iron ore). They tend to be price takers and are literally forced to accept the market price. This price fluctuates on the world market.
3. Competition based – businesses look very closely at competitors’ prices because if a business is charging more, a customer is likely to go to a competitor. Charging too much less than competitors
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can lead to a price war. Lower prices should only be used in the long run if a business has cut costs, e.g. like Woolworths did to Coles.
Pricing strategies – prices are can vary and different pricing strategies can be used to gain a competitive advantage. The key strategies are:
1. Skimming strategies – where the business sets a relatively high price at first and then lowers the price over time. This helps the business recover its development costs before competition forces a lower market price. The price is set at what the market will bear, e.g. Microsoft’s Xbox 360.
2. Penetrating strategies – where a business sets a lower price (below competitors) in order to increase market share. If successful it will increase sales and market share and usually lower per unit costs through economies of scale. Usually only done for a short period of time as it will impact profit, unless economies of scale are achieved and profit is maintained.
3. Loss leaders – are prices set at a very low level to encourage consideration of a product newly introduced to the market or to encourage customers to consider other products, e.g. Woolworths use this with specials, hoping customers do the rest of their shopping there. Businesses must be careful they are not using ‘bait advertising’, which is illegal.
4. Price points – is psychological and refers to cut-offs in the minds of customers, e.g. $9.99 is less than
$10 even though it is rounded up to $10 at the checkout. In the minds of customers, under $10 is ok, but $10 or over is the price point that becomes too high.
Price and quality interaction:
Customers are individuals, varying greatly, with some being price sensitive, i.e. price is the dominant criteria when a customer makes their choice between competing products and services.
Other customers consider quality, service and image as the dominant criteria when choosing between competing products and services.
Therefore, a business must understand its customers’ sensitivity to the different factors, e.g. some Qantas customers are price sensitive where a 5% increase in prices would see them choose another airline while some customers insist on the full service (meals, drinks, entertainment).
The solution to the price and quality interaction is multi-branding, i.e. the development of several products, positioned in terms of quality and price, and supported by a logo, name or symbol the customer associates with the value or quality of the product, e.g. Qantas underwent multi-branding with their Jetstar brand.
Promotion
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elements of the promotion mix – advertising, personal selling and relationship marketing, sales promotions, publicity and public relations
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the communication process – opinion leaders, word of mouth
Promotion is about effective communication with customers. If a customer doesn’t know about a product, they won’t buy it, regardless if it’s the best product. A business can use many techniques to communicate. This mix of techniques is called the promotion mix.
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Elements of the promotion mix:
The promotional mix refers to the way techniques (such as advertising, personal selling and relationship marketing, sales promotions, publicity and public relations) are combined so that they effectively meet the communication requirements of a particular business at a particular time.
1. Advertising – paid communication with the target market and it is usually designed to be persuasive.
It can be very effective and expensive. Advertising uses various types of media such as television, newspapers, magazines, radio, social media (e.g. Facebook, Google) and viral advertising. Viral advertising involves promoting products in such a way (usually humorous) that customers want to send it to friends (usually via email). A lot of advertising supports the brand and positioning, e.g. the milk aspect of Cadbury’s advertising suggests quality and high market positioning.
2. Personal selling and relationship marketing – personal selling is what teams of sales representatives employed by manufacturers do when they sell products to retail outlets. It is one of the most
important promotional tools and is becoming a partnership between the supplier and the retailer, e.g.
Dulux Paint sales reps at Bunnings will replace stock, clean the shelves, ensure the display is
attractive, often serve customers and do point of sale advertising by setting up promotional material.
Relationship marketing is concerned with building a long-lasting relationship, not only between manufacturer and retailer customer but also between the retailer and their customers, e.g. Myer gets 60% of its business from customers who own a Myer card. There is an ethical dimension to
relationship marketing as social media is increasingly used as a tool to build relationships, some of which are dubious, e.g. Paddle Pop and Smarties aimed at young children.
3. Sales promotion – are non-media communication, e.g. promotional activities such as vouchers, loyalty card offers and competitions. They are very cost effective and often include special displays in retail stores.
4. Publicity and public relations – increasingly used to communicate with a target market. Public relations is a planned effort to present a business and its products in a positive light, i.e. ensure strong public image. It involves activities that are not paid for directly. Big businesses have specialist PR departments to deal with any media aspect that has the potential to affect the image of a business.
PR is about ensuring that every aspect of the business gives a positive message customers feel good about. Publicity is concerned with creating newsworthy stories about the business and its products.
Celebrities are often used to wear the products or the talk about them, e.g. Ricky Ponting with Swisse Vitamins, Derrick Rose $260 million Adidas deal over 14 years. Celebrities are used because people (young people in particular) listen to their message. Using celebrities is not always ethical as they sometimes do not use the product. It is also unethical to endorse products like alcohol and tobacco.
Publicity is about creating and reinforcing an image of the business in the eyes of customers. An effective way of creating a positive image is through sponsorship of special events and sporting teams.
The communication process:
Marketing is all about communicating with potential customers or buyers in a way that will influence their behavior. Two important aspects are:
- Understanding what influences buyer behavior - Understanding who influences buyer behavior
What – key influences include personal and psychological factors as well as social and cultural environments in which people live.
Who – buyer behavior is influenced by other people who do things like suggest buying a product or service and influence whether they buy it or not and where they buy it from.
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The people who influence buying decisions in this way are called opinion leaders. Opinion leaders are people you respect and tend to agree with their views on a whole range of things, including fashion and taste. The internet and social media have increased the influence of opinion leaders greatly.
National sporting figures and celebrities tend to be very effective opinion leaders, e.g. Nicole Kidman, Michael Clarke.
Word of mouth communication relies on local opinion leaders. It refers to personal endorsement.
place/distribution
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distribution channels
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channel choice – intensive, selective, exclusive
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physical distribution issues – transport, warehousing, inventory
The distribution process is about allowing the customers access to the product when they want it. The distribution channel links the point of manufacturing to the final customer.
Traditional distribution channel:
Manufacturers produce the product → wholesaler → retailer → customer
Although all parties work together, they are all trying to achieve their own goals (maximise profits), often at the expense of those before or after them.
Modern distribution channel – involves vertical distribution where the one business designs, manufactures, sells, and delivers the product to the final customer, e.g. Walmart, and Woolworths with their ‘Select’ brand.
Channel choice:
The intensity of the distribution refers to the number of outlets selling the product. The choice of distribution channel is crucial to success, e.g. Poppy King manufactured lipsticks and delivered them through an exclusive distribution channel. Her business failed, but if she had of chosen a selective channel she may have been successful. The main channels are:
1. Intensive distribution – chosen when the manufacturer wants to uses as many outlets as possible, e.g. Coca-Cola uses supermarkets, service stations, vending machines etc.
2. Selective distribution – is used when the manufacturer wants the product widely distributed but not quite to the degree of intensive distribution, e.g. groceries, clothing, furniture
3. Exclusive distribution – is often used for products positioned at the top of the market that are high quality and with prices that indicate exclusivity, e.g. Rolls-Royce cars.
Physical distribution issues:
Physical distribution is about efficiency, i.e. using as few resources as possible to achieve the goals. It is important as it is a cost component of the final product. If done efficiently (by managing transport, warehousing and inventory more effectively) it allows a business to gain a competitive advantage over its competitors.
1. Transport – cost-reduction advances in transport have been very significant. The most important being standardization of packaging to ensure the pantechnicons (warehouse) and containers are fully loaded and that a business is minimizing its unit cost of transport. Another advancement is the
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adoption of pallets and the fitting of automatic “roll-on-roll-off” conveyor belt technology to trucks that means the driver can load and unload without assistance.
2. Warehousing – technological advancements have led to cost reductions, e.g. Woolworths stopped using the old warehouse sheds and went to totally sealed warehouses with no lights or windows.
They are totally automated and run by computers. Very few staff are needed and they warehouse and distribute incredibly large amounts of products. Coles then followed.
3. Inventory – stock must be available when the customer wants it, but businesses must take into account the cost of storage.
people, processes and physical evidence
The classical marketing mix (4 p’s) has typically related to traditional manufacturing but now in Australia there has been a big move from businesses manufacturing goods to provide services. This is due to a great deal of manufacturing being outsourced to low-wage countries. The people, processes and physical evidence are crucial parts of the marketing mix in a service business.
People:
People are central to a business, e.g. Kmart focuses greatly on customer service, putting employees through training on how to deliver it. Therefore recruitment and selection of employees is critical.
Employees selected with desired basic skills → training to enhance/develop interpersonal skills → happy customers → repeat purchases
Processes:
Processes are very important, e.g. McDonalds, as a fast-food restaurant, must be fast. They spend a lot of time and money on this, especially on the drive through.
Physical evidence:
Physical evidence in the market place can give a business a competitive advantage. It is the part of the marketing mix where the customer makes judgments about the business. Quite often the physical evidence is the most important factor in the customer’s evaluation of the product, e.g. flying first class on a plane has very high expectations. If the physical evidence of that expectation isn’t there, then you won’t repeat purchase and you will be negative in your word of mouth comments.
e-marketing
E-marketing is concerned with using the internet to research customer needs, develop a brand to meet that need and then use the internet to sell that product, e.g. the success of www.bookdepository.co.uk probably led to the failure of Angus & Robertson and Borders. E-marketing has an enormous potential, mainly across two areas:
1. Access to customers – the internet can target an enormous market and because it is so large, there is a great deal of potential to develop a product that satisfies a small niche in that market, e.g. the Apple App Store. Of course building a global brand is entirely different and very difficult.
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2. The area of costs – businesses such as www.bookdepository.co.uk are able to set up factory-type processes using relatively unskilled labour and consequently they have low costs. Competing
businesses are often very high cost, with highly skilled employees and very expensive retail premises.
E-marketing is growing rapidly and so is the range of products including:
- Consumer products
- Whole range of business services (these include call centres to telephone businesses and banks, graphic artists, computer programming and accounting services)
Increasingly, functions in a business are outsourced in the e-marketing environment.
global marketing
-global branding
-standardization
-customization
-global pricing
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competitive positioning
Businesses are often tempted to enter the global market as the potential market is enormous. Before doing so, it is important for a business to consider the following marketing concepts:
1. Global branding:
Customers generally buy things because they have confidence in the brand. If brand was irrelevant, the customer would buy the cheapest. There has been a move from local brands to become global brands, i.e.
recognized in most countries.
The main reasons for developing a global brand are:
- Growing internationalism of tastes and buying patterns, e.g. smartphones, computers.
- Growing internationalism of tastes and buying patterns, e.g. smartphones, computers.