CIMA E1 Official Learning System - Enterprise Operations Aug 2009

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STUDY MATERIAL E1

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MARKETING

When plotted precisely an organisation’s products can be placed against the axes of:

●

Relative market share calculated as the ﬁ rm’s market share against their largest rival, so a ﬁ rm

with a 20 per cent share of the market which has a rival with a 60 per cent share would have

03 03

..⫻⫽⫻

()

, while the rival would calculate their relative share as

3⫻⫽ ⫻.

●

Market growth rate, the annual percentage change in sales volume in the industry as a whole.

This is shown in Figure 4.2.

The principal beneﬁ ts of the BCG matrix are that it:

●

Provides a convenient way for management to visualise a diverse range of businesses or

products.

●

Ensures that management will pay attention to cash-ﬂ ow balances within the product

portfolio.

●

Can be used to analyse the portfolios of rival ﬁ rms: to identify which products they may

decide to devote resources to spot potential areas for attack such as knocking out a cru-

cial cash cow with an identical product.

4.9.4 Pricing strategies

Reference was made earlier to generic competitive strategy and the possibility of an organi-

sation competing on the basis of price. If this is the chosen strategy it is important that

excess production costs are squeezed with the overall aim that the organisation will be cost

leader within their market. These savings should be passed on to the customer and will be

reﬂ ected in low prices. Larger, well-established businesses are better able to compete on

price. This is generally as a result of two basic concepts:

●

The experience curve. Reductions in the average unit cost price as a result of learning

from past experiences.

Question marks

(Problem children)

Stars

High

Low

High

10× 0.5× 0.1×

5× 1×

Low

Relative market share

(log scale)

Invest to build

Market growth rate, %

Optimum cash flow

Hold

Harvest

Cash cows Dogs

Divest

Figure 4.2 The BCG matrix

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●

Economies of scale. Reductions in the average unit cost price as a result of size of

operation.

There can after all only be one price leader in a market. It may be more advisable therefore

to add value to the product so differentiating it from the competitors offering in some

way. Alternatively, part of the market (a segment) might be identiﬁ ed where the competi-

tion will ﬁ nd it hard to access. Here the organisation is in a position to price on the basis

of ‘what the market will bear’.

Pricing can be explained by reference to the product life cycle (see earlier).

Exercise 4.14

For each of the four stages of the product life cycle describe the pricing considerations.

Solution

●

Introduction. High prices might be charged, because the product is new and supply is

limited also initial set up costs need to be recovered.

●

Growth. Competition between rival producers intensiﬁ es so prices will reduce in the

hope of penetrating the existing market and either retaining or increasing market share

at the expense of competitors.

●

Maturity. Prices fall mainly in order to beat competitors but the experience curve and

scale economies should come into play. Market segments are sought where higher prices

can be charged.

●

Decline. The product declines into obsolescence so it may even be sold off below cost

price to clear stocks and exit the market.

Two forms of pricing might also be applied particularly in the introduction stage of the

product life cycle, namely:

●

Skim pricing reﬂ ecting high prices but low proﬁ t due to high ﬁ xed costs.

●

Penetration pricing, deliberately entering a market to build market share and pricing so as

to deny the competitors those opportunities.

There may be several other considerations when ﬁ xing price and some of which include:

●

The nature of competition. If the competitor is the price leader pricing levels may be

determined by follow the leader pricing. So, for instance, if the largest oil company cuts

the price of fuel, others are likely to follow suit.

●

The nature of the market. By way of example, a company may ﬁ nd itself in the fortu-

nate position of being the sole producer of a product due to a monopoly of ‘know-how’,

resources or raw materials, etc.

●

Pricing as a result of a short-term promotion. This may lead to loss leader pricing on

certain items to generate either customer loyalty or more sales of other products. This is

particularly popular in pricing consumables in supermarkets.

●

Pricing as a competitive weapon. The pricing of product may be set in order to crush

competitors rather than achieve returns in revenue.

STUDY MATERIAL E1

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MARKETING

4.10 Branding

4.10.1 Brand equity

It is impossible to ignore brands. By merely observing what is worn, what is purchased

from a supermarket, and the cars that are driven it is apparent that brands are all around

us. Brands are however much more than corporate symbols, logos and packaging.

Successful brands create special relationships with customers because they rely on intan-

gible attributes that provoke strong emotional responses by individuals. Motorcyclists do

not so much ride a large bike such as own a Harley Davidson with all the connotations

surrounding that brand which once had the strap line ‘ride the dream’. Grandparents by

comparison insist on only purchasing one type of cough lozenge; something they have

bought all their lives. Whether it is the motorcyclist or the grandparent they are showing

brand loyalty. Little wonder then that ‘brand loyalty’ is a signiﬁ cant source of competitive

advantage for organisations with products that have a positive strong brand image. The

value of brands exists in the minds of those who use them. CIM identify certain attributes

of brands as follows:

●

people use brands to make statements about themselves

●

goods brands reduce the risk of poor product choice

●

brands can be a key asset for a business

●

brands are the reason consumers choose one company over another

●

although intangible, brands can be of substantial value

●

strong brands can positively inﬂ uence share performance

●

brands can command higher prices

4.10.2 Experiential marketing

Experiential marketing (EM) is concerned with brand promotion. EM uses techniques

aimed at establishing deeper emotional connection with a market segment (see Table 4.11).

Kirkby (2007) explains:

Table 4.11 Examples of experiential marketing

Organisation Aim Mechanisms

Strongbow cider Challenge negative perception

of its brand and engage more

18–30 year olds.

‘In the know’ music events at music

festivals with cult DJs; media partnerships

with relevant ‘hip’ music magazines.

Umbro, sports supplier Demonstrate its love of

football.

Organising a touring World Cup

photographic exhibition.

Dove, body products Challenge the stereotypical

model of female beauty.

Using ‘real’ women (not models) in its

advertising.

Source: http://www.mycustomer.com/cgi

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Experiential marketing (EM) is a hybrid of ﬁ eld marketing (FM) shop ﬂ oor prod-

uct promotion techniques, e.g. sampling, merchandising and point of sale offers.

Only the objective of experiential marketing is not to just sell more products, but to

engage a target audience with the ‘personality’ of the brand through experiencing it.....

what EM is not, and has been much mistaken for, is product promotion with entertain-

ment thrown on top. Dressing sampling staff up as drag queens to sell more bleach, as

one company did, is ampliﬁ ed product promotion, it is not experiential marketing....

4.11 Summary

This chapter has covered much of the basics of marketing in practice, including the mar-

keting concept, buyer behaviour and the notion of the marketing mix and its associated

tools. Throughout understanding has been built of the applicability of marketing to many

types of organisation and the particular considerations associated with them.

References and further reading

Anon (2003) How to…inﬂ uence employee behaviour through internal marketing.

Personnel Today, 8th April.

Berens, C. (2006) Windows of opportunity. Financial Management (UK), November,

p.12(5).

Benady, D. (2004) Marketing’s age concern. Marketing Week, 28 October.

Boddy, D. and Paton, R. (2005) Management. An Introduction (3rd edn). Harlow:

Financial Times, Prentice Hall.

Bruce, I. (2005) Charity Marketing: Meeting Need through Customer Focus’ (3rd edn). ICSA.

The Chartered Institute of Marketing (2004) [www.cim.co.uk]

CIMA (2005) CIMA Ofﬁ cial Terminology. Elsevier.

Deighton, J. A. The Future of Interactive Marketing. Harvard Business Review 74, no. 6

(November – December 1996), pp. 151–160.

Entrepeneur.com (2006) How to Develop and Run a Marketing Campaign. [http://small-

business.aol.com/grow/marketing/article/_a/how-to-develop-and-run-a-market-

ing/20051213184009990005]

Fine, J. (2005) Hard questions from Google; Asking advertisers: What’s the right amount

to spend? Business Week, 24 October, p. 28.

Gray, R. (2004) Right people, place, time. Marketing (UK), 1 August, p. 23.

Holme, R. and Watts, P. (2000) Corporate social responsibility: making good business sense.

World Business Council for Sustainable Development, 2000: 10

Houston, F. (1986) The marketing concept: What it is and what it is not. Journal of

Marketing, 5th. April, pp. 81–87.

Johnson, G., Scholes, K. and Whittington, R. (2008) Exploring Corporate Strategy: Text

and Cases (8th edn). Harlow: Financial Times, Prentice Hall.

Kirkby, J. (2007) What art thou experiential marketing? 14th. August [http://www.mycus-

tomer.com/cgi]

Kotler, P. and Armstrong, G. (1994) Principles of Marketing. New Jersey, Prentice-Hall.

STUDY MATERIAL E1

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Kotler, P. and Lane Keller, K. (2006) Marketing Management (12th edn). Prentice Hall.

Kotler, P. and Zaltman, G. (1971) Social marketing: an approach to planned social change.

Journal of Marketing, Vol. 35 No. 3, pp. 3–12.

Lancaster, G. and Withey, F. (2006) Marketing Fundamentals. The ofﬁ cial CIM

Coursebook Oxford: Butterworth-Heinemann.

Levinson, J. L. (1983) Guerrilla Marketing: Secrets for Making Big Proﬁ ts from Your Small

Business. Boston: Houghton Mifﬂ in & Co.

MacArthur, K. (2006) Why McD’s hasn’t cut the fat, Advertising Age, 11/6/2006, Vol. 77,

No. 45.

Mullins, L. J. (2007) Management and Organisational Behaviour (8th edn). Harlow:

Financial Times, Prentice Hall.

Porter, M. E. (1980) Competitive Strategy. New York: The Free Press.

Proctor, T. (2007) Public Sector Marketing. Pearson.

Simms, J. (2007) Biggest Brands. Marketing, 22 August, pp. 30–31.

also

National Social Marketing Centre (2008) (www.nsms.org.uk)

Entrepreneur.com

177

Question 1

In the last few decades, companies have moved increasingly towards the targeting of partic-

ular customer segments rather than seeking to sell a single product range to all customers.

Explain the advantages that a company might hope to gain by targeting particular seg-

ments of the market. (10 marks)

Question 2

2.1 Public relations activity can be used within marketing as part of:

(A) marketing decision support protocols

(B) a promotional mix

(D) segmentation practices. (2 marks)

2.2 Charging very low prices in order to generate customer loyalty and increased sales of

other items is called:

(A) market penetration

(B) loss leader pricing

(D) skim pricing. (2 marks)

2.3 An organisation’s credit policy represents a variable within:

(A) the price marketing mix

(B) the product marketing mix

(D) the matrix of potential sales and growth. (2 marks)

2.4 Explain the concept of physical evidence when applied to the marketing mix. (50 word

limit) (4 marks)

2.5 Identify the potential beneﬁ ts of a marketing database and sources from which it

might be constructed. (50 word limit) (4 marks)

2.6 Explain why a ﬁ rm might choose not to engage in market segmentation after con-

ducting appropriate research. (50 word limit) (4 marks)

2.7 Brieﬂ y explain the data and techniques that might be useful in forecasting future market

demand for an organisation’s products or services. (50 word limit) (4 marks)

Revision Questions

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Question 3

Describe three variables you think would be useful as a basis for segmenting the market for

clothing sold by a large retail chain, and two variables for segmenting the market in paint

sold to other businesses by a paint manufacturer. Explain your reasons for the choice of all

variables. (10 marks)

Question 4

Hubbles, a national high-street clothing retailer has recently appointed a new Chief

Executive. The company is well established and relatively ﬁ nancially secure. It has a repu-

tation for stability and traditional, quality clothing at an affordable price. Lately, however,

it has suffered from intense competition leading to a loss of market share and an erosion of

customer loyalty.

Hubbles has all the major business functions provided by ‘in house’ departments,

including ﬁ nance, human resources, purchasing, strategy and marketing. The Strategy and

Marketing department has identiﬁ ed a need for comprehensive review of the company’s

effectiveness. In response, the new Chief Executive has commissioned a review by manage-

ment consultants.

Their initial ﬁ ndings include the following:

●

Hubbles has never moved from being sales-oriented to being marketing-oriented and

this is why it has lost touch with its customers.

●

Hubbles now needs to get closer to its customers and operate a more effective marketing

mix.

●

Additional investment in its purchasing department can add signiﬁ cantly to improving

Hubbles’ competitive position.

The Chief Executive feels that a presentation of interim ﬁ ndings to senior managers would

be helpful at this point. You are a member of the management consultancy team and have

been asked to draft a PowerPoint slide presentation of some of the key points.

On a single sheet of paper prepare a slide outline and a few notes in response to follow-

ing sub-questions:

(a) Describe the difference between a company that concentrates on ‘selling’ its products

and one that has adopted a marketing approach. (5 marks)

(b) Explain how Hubbles might develop itself into an organisation that is driven by cus-

tomer needs. (5 marks)

(d) Identify examples of ways in which the management in Hubbles could make use of the

marketing mix to help regain its competitive position. (5 marks)

Question 5

Q’s founder ﬁ rst began producing breakfast food from a start-up unit on a small industrial

estate. Now Q is the market leader in Europe and Oceania. Once established in Europe,

the company made the breakthrough into Oceania thanks to demand from ex-pats and

contacts with a family member who happened to be a director of a supermarket chain in

Australia. The company’s founder is very ‘hands on’ and has made all the major strategic

decisions to date based on intuition.

REVISION QUESTIONS E1

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Q spends heavily on displaying most of their twenty products on television, normally

before and after childrens’ programmes with high viewing ﬁ gures. Research conducted 10

years ago shows that children love small gifts contained within packs and the association of

certain of the products to cartoon characters. Q also manufactures its most popular lines

and packages them as ‘own brand’ alternatives for some large supermarket chains. These

sell more cheaply than Q branded products, are less costly to produce (they contain inex-

pensive packaging and no gifts) but sales remains low.

Q ﬁ nds itself at something of a ‘cross-roads’ as it currently faces increasing competition

(from a North American ﬁ rm), sales levels that seem to have ‘peaked’ and the prospect

of the founder retiring very soon. Management consultants advising Q have identiﬁ ed a

need to develop a structured marketing strategic plan for the organisation and for greater

involvement of other staff in future strategic decisions. As a further complication Q has

recently received some adverse publicity from an international health ‘watchdog’ body that

claims that Q’s products contain potentially harmful levels of both sugar and salt.

Requirements

(a) Evaluate Q’s situation making speciﬁ c mention of marketing and ethical issues.

(10 marks)

(b) Explain how Q might develop a marketing strategic plan. (10 marks)

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Solution 1

Companies have a number of alternatives as to where they will focus their marketing

effort. They can adopt an undifferentiated marketing stance in which they make a product

offering to the market as a whole. They can alternatively seek to cater for the needs of each

individual customer, a bespoke approach, ﬁ nally they can focus on particular segments of

the market. The idea of dividing the market into segments is to identify groups of poten-

tial consumers who have similar needs and will respond to a particular marketing mix in

broadly similar ways.

The undifferentiated or mass marketing approach is inefﬁ cient in many ways because

much of the marketing effort is wasted on consumers who have no interest in purchasing

the product or service and are unlikely to do so whatever the efforts of the marketing staff.

The alternative of targeting and catering for the different needs of every individual cus-

tomer is costly and impractical for most organisations. Resources in organisations are lim-

ited and the task of dealing with each customer on a one-to-one basis is too costly for most

companies to contemplate.

The advantage of market segmentation is that it allows a company to concentrate its

resources on meeting the needs of consumers who have been identiﬁ ed by market research

as those who are most likely to purchase the product or service. This is, of course, if the

product or service is of an appropriate quality and is offered at the right price, in the right

place at the right time.

In addition to the advantage of being able to concentrate resources in a way that will bring

the greatest return, segmentation has other advantages. These include easier analysis of cus-

tomers, a better understanding of the competition and more effective market planning.

Segmentation allows a company to gain a better understanding of customer needs,

wants and other characteristics because of the sharper focus it allows on the personal, situ-

ational and behavioural factors that characterise customers in a particular segment of the

market. This detailed knowledge allows marketers to respond quickly to any changes in

what the target customers want.

Competitor analysis is also assisted by knowledge of market segmentation because it

enables a company to develop an understanding of the nature of the competition they

face. By focussing on particular segments, it is much easier for a company to identify its

competitors and at which segments it is targeting its products. If the company observes

that competition is severe in a particular segment, it may be that this knowledge of market

segments will allow the company to focus on a different segment and so avoid head-on

and costly competition.

Solutions to Revision

Questions