DMA 501

MARKETING MANAGEMENT

BY

DR JUSTUS M MUNYOKI

SCHOOL OF BUSINESS

UNIVERSITY OF NAIROBI

2008

1

INTRODUCTION

THE CORE CONCEPTS OF MARKETING.

Marketing is a social and Managerial process by which individuals and groups obtain what they

need and want through creating, offering and exchanging products of value with others.

Then the core concepts of marketing are

- Needs , wants and demands

- Products

- Value, cost and satisfaction

- Exchange and translations

- Relationships and networks

- Markets

- Marketers and prospects

Needs , wants and demands

A need is a state of deprivation of some basic satisfaction. A need is not created by the marketer, but is a

biological concept, for example hunger, thirst, safety, shelter, esteems.

Wants are desires for specific satisfiers of needs and may be considered a higher level need. For example

when an individual may have a need for food, his / her want will be a specific prepared meal such as

chicken or fish,

Demands are wants for specific products that are backed by an ability and willingness to buy them, wants

become demands when supported by purchasing power. Effective demand is comprised of people who are

willing and are able to buy a product.

Product – Comprises of goods, services and ideas that satisfy human needs and wants. A product is

anything that can be offered to satisfy a need or want.

Value, cost satisfaction - a value is the consumer’s estimates of the products overall capacity to satisfy

another need. To get the value. There must be something he/ she can give up the opportunity cost.

Depending on the perceived value and level of satisfaction, different products cost differently.

2

Exchange and transactions.

Exchange is the art of obtaining a desired product from someone by offering something in return.

Kother (1997) identifies five conditions that must be satisfied in order to have the potential exchange.

- There must be at least two parties

- Each party must have something of value to the other party.

- Each party is capable of communication and delivery.

- Each party is free to accept or reject the exchange offer.

- Each party believes it is appropriate or desirable to deal with the other party.

Exchange must be seen as a process rather that an event, because the two parties go through negotiations

as they move towards agreement.

A transaction is a track of values between two or more parties and has several dimensions.

- At least two things of value

- Agreed upon conditions

- A time of agreement

- A place of agreement

It is usually supported by a legal system in order to make it binding. A transaction is different from a

mere transfer, because in a transfer the party transferring a product to the other party does not get

anything in return.

Relationships and networks.

Relationship marketing is the practice of building long term satisfying relations with the key

parties (customer and supplier) I order to retain their long term preference and business.

Serious marketers try to build very strong relationships with their customers, suppliers and

distributors by promising and delivering high quality, goods and services and fair pries to the other parties

over time. It results in strong economic, technical and social ties among parties and cuts down on

transaction costs and time. The ultimate outcome of relationship marketing is the building of a unique

company asset, a marketing network.

Such a network consists of the company and all of its supporting stakeholders (customers,

suppliers, employees, the government etc) with whom it has built mutually profitable business

relationships.

3

Markets – the concept of exchange leads to the concept of a market, which consists of all the

potential customers sharing a particular need or want who might be willing and able to engage in

exchange to satisfy that need or want. Initially, a market was viewed as the ‘place’ other buyers and

sellers gather to exchange their goods.

Economists is the term to refer to a ‘collection of buyers and sellers’ who transact over a

particular product of product class. Marketers on the other hand, use the term market to refer to a

collection of buyers as opposed to and industry ( collection of sellers ). Business people use the term ‘

market’ to cover various groupings of customers, hence we have product market ( such as maize market)

demographic markets ( e.g ladies market ) , or geographical markets ( such as European market) .

A market is therefore a complete term that involves various stakeholders such as sellers and buyers

involved in carrying out business / marketing transactions.

Markets and prospects.

A marketer is that party in an exchange process that is more actively seeking an exchange than

the other party. While the other party is the prospect. A marketer is someone seeking one or more

prospects who might engage in an exchange of values.

A prospect is someone whom the marketer identifies as potentially willing and able to engage in an

exchange of values.

A marketer can be a seller or a buyer. E.g. when two or more prospective buyers are trying to

convince a seller to sell a car to them, each buyer tries to present him/herself as the best buyer. In this

case the buyer is actually the marketer because they are marketing themselves to the seller.

Considering all these concepts, marketing may therefore be defined as ‘ a social and managerial

process by which individuals and groups obtain what they need and want through creating, offering and

exchanging products of values with others.

MARKETING MANAGEMENT

This is the process of planning and executing the conceptions, pricing, promotion and distribution

of ideas, goods and services to create exchangers that satisfy individual and organizational goals.

4

Marketing management is therefore a process involving analysis, planning , implementation and

control is as far as exchange of goods and services is concerned, with the goal of satisfying the parties

concerned.

Marketing management is practiced by all levels of staff in the organization including sales

managers, promotion managers, brand managers and so on.

It has the task of influencing the level, timing and composition of demand in a way that will help

the organization of demand in a way that will help the organization achieve its objectives. It is therefore

essentially demand management. ( Kotter 1997).

By carrying out the various managerial functions of planning enables managers to make decisions

on target markets, market positioning, product development, pricing, distribution, communication and

promotion.

COMPANY ORIENTATION TOWARDS THE MARKET PLACE

All marketing activities should be carried out under a well thought out philosophy of efficient,

effective and socially responsible marketing. There are 5 competing concepts under which organizations

can choose to conduct their marketing activities:

The production concept , the product concept, the selling / sales concept, , the marketing

concept, the marketing concept and the sociable marketing concept

The Production Concept: Holds that consumers will favour those products that are widely

available and at low cost. Managers of production oriented organizations concentrate on achieving high

production efficiency and wide distribution.

The Product concept: Holds that consumers will favour those products that offer the most

quality, performance or innovative features. Managers in product oriented organizations focus their

energy on making superior products and improving them over time.

The Selling concept/ sales concept: holds that consumers if left alone will ordinarily not

buy enough unless the organization undertakes an aggressive selling and promotion effort.

5

The Marketing concept: holds that the key to achieving organizational goals consist of being

more effective that competitors in integrating marketing activities towards determining and satisfying the

needs and wants of the target market.

The societal marketing concept : holds that the organizations task is to determine the needs,

wants and interests of target markets and to deliver the desired satisfactions more effectively and

efficiently that competitors in a way that preserver or enhances the consumers and society’s well being.

THE RAPID ADOPTION OF MARKETING MANAGEMENT

Marketing is increasingly becoming an important aspect among all types of organizations. Both

individuals as well as consumer goods companies have found it necessary to practice modern marketing.

This is evident from the way companies are engaged is aggressive advertising, both indoor as well

as outdoor. Marketing has also attracted the interest of insurance and stock brokerage companies which

are also beginning to practice effective marketing. The banking industry has not been left behind either.

Almost all banks in Kenya have improved their service delivery and introduced many new products to

take care of the desired needs of the customers.

Marketing is also increasing attracting the interest on non- profit organizations such as colleges,

hospitals and churches. In the wake of declining government support, universities, hospitals and colleges

have had to engage in aggressive marketing of their services in order to attract more customers.

Competition within the domestic market has also made companies to focus on global market.

SCANNING THE MARKETING ENVIRONMENT

<<>>

6

MANAGING THE MARKETING PROCESS AND MARKETING PLANNING

(THE MARKETING MANAGEMENT PROCESS)

WINNING MARKETS THROUGH MARKET-ORIENTED STRATEGIC PLANNING

In order to understand marketing management, we must understand strategic planning. In large

organizations, strategic management is practiced at four organizational levels:

- Corporate Level

- Divisions Level

- Business Unit Level

- Product Level

The Corporate and Divisional Level:

The Corporate level establishes the overall strategic plan to oversee the entire organization and

makes decision on how to allocate resources to each Division. Each division develops a division plan

covering the allocation or resources to the business levels. Four main activities are undertaken at the

corporate level.

1. Defining the Corporate Mission:

A company’s mission specifies what the company is formed to do, and it must be

Very clear from the beginning. A company’s mission is based on five elements.

- History (Must be based on the company's history, aims, policies and achievements).

- Current preferences of the owners and management.

- The market environment.

- The available resources

- The companys distinctive competencies – the organization should base its mission on what it

does best.

Good mission statements have three main characteristics

- They focus on limited numbers of goals.

- Stress the major policies and values that the company wants to honor.

- They define the major competitive scopes within which the company will operate.

7

2. Establishing the strategic business units.

Large companies normally manage quite different businesses, each requiring its own strategy,

these businesses need to be managed separately as they have different requirements and often seek to

satisfy specific customer groups.

3. Assigning resources to each SBU

Once the SBU’s have been identified, they need to be allocated resources accordingly. There are two

main models for evaluating business portfolios.

- Boston Community group model

- General Electric model.

Boston Community group model The BCG Matrix

This focuses on three aspects of a particular business unit (i) Its sales (ii) Growth of the market (iii)

whether it generates funds. It tries to balance up between those units that generate funds and those that

spend funds, so that their units support one another. The matrix is based on two dimensions: namely

market growth rate and the relative market share of each particular unit. These gives rise to four types of

business: The question marks (?) (Problem children), the stars, the cash cow, and the dog . The question

marks (?) (Problem children), and the dog both have low market share, but while the question mark is in

a market with a high growth rate, the dog is in a low growth market. On the other hand, the stars, and the

cash cow, have a high market share, and whereas the star is in a market with a high growth rate, the cash

cow is in a low growth market Figure 7.2 demonstrates the BCG model.

Problem Children

High Low

Relative Market Share

Figure 7.2 The BCG model.

8

*The Star Question Marks

Cash cow The dog

Hig

h L

ow

Mar

ket G

row

th R

ate

The Question Marks: The business has a low relative market where but is in a rapidly growing market.

It is an uncertain business and requires heavy investments in order to reap from the existing market

opportunities. Profits may be low or negative. Today’s question marks, if successful, become the

tomorrows star’s.

The Star: This is a very profitable business which has a high market share in a rapidly expanding market.

It requires an extra investment in order to keep up with the market’s rapid growth. It may consume more

cash than is currently being earned by it. Today’s stars are tomorrow’s cash cows. Examples of stars

include provision of internet services when they were started in Kenya, and mobile phone services ‘Simu

ya jamii’.

The cash cow: This is characterized by high market share in a slowly growing market. Very profitable

and major source of funds for other businesses it does not require heavy investments, but should be

sustained to continue generating funds. Tusker beer may be considered a cash cow by the East African

Breweries, just as are the module II programs for self sponsored students in the University of Nairobi. A

cash cow is usually the highest income earner in any company.

The Dog: This is characterized by low market share in a slowly growing market. It should be slowly sold

off to cut further losses. There is no need to spend money investing in the dogs, as they are not profitable.

The success sequence of the BCG model involves harvesting the cash from cash cows and investing it in

selected question marks to become stars by enhancing their market share. When the rate of market growth

slows, the stars become cash cows and generate funds for another generation of promising question

marks.

Limitations of the BCG Model

1. It is very difficult to clearly define a market, and so measuring market share and market growth

rate can be a problem.

2. It considers only the extremes – low or high and therefore leaves no room for firms with average

growth rates or businesses with average market shares.

9

3. It assumes that firms with large market share must enjoy unit cost advantages while those with

low market share cannot be profitable. This may not necessarily be true for sometimes.

4. It is not very useful in comparing relative investment opportunities across business units in the

corporate portfolio.

5. It is rather over simplified and the strategic missions recommend do not reflect the diversity of

options available.

After plotting its various businesses in the growth share matrix, a company must determine

whether the portfolio is healthy. An unbalanced portfolio would have too many dogs or questions

marks and too few stars and cows.

The company then needs to determine the best strategy, objective or budget to assign to each SBU

few strategies can be pursued.

Build – This aims at increasing the market share and is appropriate for question marks whose market

share must rise for them to become stars.

Hold – The objective is to preserve the SBU’s market share. This is appropriate for strong cash cows

if they are to continue yielding a large positive.

Harvest – The objective is to increase the SBU’s short term cash flow regardless of long term effects.

It aims at finally withdrawing from a business by implementing a program of continuous cost

retrenchment. The cost retrenchment must be done very carefully and less visibly lest it begins to raise

unnecessary anxiety and concern among employees, distributors and importers.

Divert – The aim is to sell or liquidate the business because resources can be better utilized

elsewhere. The strategy is appropriate for dogs and question marks that are upcoming.

THE GENERAL ELECTRIC MODEL.

The GE Nine –Cell planning gird

This was developed by the General Electric company as an adaptation of the BCG matrix in order to

overcome limitations of BCG. This was achieved by

10

- Using multiple factors to assess identity attractiveness and business strength.

- Expending the matrix from 4 to 9 cells, thereby provide for the average (medium) industries.

The General Electric’s screening grid is based on two main dimensions – business strength and industry

attractiveness. It considers several market characteristics (such as size, growth, and location), industry

trends and structure, key competitors, and environmental influences. A strategic business unit is placed on

the gird in terms of identity attractiveness and business strengths as shown below.

High Medium Low

According to this grid, Strategic Business Units (SBUs) lying in the low -low category in terms of

attractiveness and strength should be considered for harvesting/divesting, while SBUs lying in the high-

high category should be considered for investment and growth. Those in the intermediate range require

selective use of resources and emphasis on earnings. Although the strategic recommendations generated

by the GE grid are similar to those generated by BCG, it improves on BCG in three fundamental ways.

1. The terminology used by GE is less offensive and more understandable.

2. It taps many factors relevant to business strength and market attractiveness besides market share

and growth.

3. Provides for broad assessment during the planning process, thus enabling planners to consider the

importance of both strategy formation and strategy implementation.

11

Industry attractiveness

Bus

ines

s S

tren

gths

Harvest / Direst

Selectivity/earnings

Invest/grow

Critique of Portfolio Models

They have helped managers to think more strategically, understand the economics of their

businesses better improve the quality of their plans, eliminate weaker businesses, and strengthen their

investments in more promising businesses.

However the models must be handled with care because they mat make companies place too much

emphasis on market share growth or to neglect the current businesses. Further use of averages may result

in businesses that are totally different in ratings being placed in the same cell.

Finally the models fail to differentiate the averages between two or more businesses, making it

risky to make decisions for one business at a time.

4. Planning new businesses.

For many cases the projected sales and profits are lower than what the corporate management wants

them to be. The company therefore tries to bridge the gap by developing or acquiring new businesses to

fill it.

There are three systems

- To identify opportunities to achieve further work within the companys current businesses

( intensive growth opportunities)

- To identify opportunities to build or acquire businesses that are related to the companys

current business ( integrative growth opportunities).

12

- To identify opportunities to add attractive businesses that are related to the company current

businesses ( diversification growth opportunities ) this gives the figure below

Sales

0 5 10 years

1. Intensive growth :

The company needs to review whether any opportunity exits for improving its existing business

performance. Ansoft has proposed a useful framework for detecting new intensive growth

opportunities called the product/ market expansion grid which gives 4 options depending on the

market and products as show in the figure:

Current product New product

Current market

New market

1. Market penetration strategy

2. Market development strategy

3. Product development strategy

4. Diversification strategy

2. Integrative growth

1 2

3 4

13

Sales and profits can be increased through backwards, forwards or horizontal integration within

the industry

( More notes)

3. Diversification growth

This makes sense when good opportunities can be found outside the present businesses.

14

BUSINESS STRATEGIC PLANNING

This consists of several steps as show below.

<>

Business illusion – Each business unit needs to define its specific mission within the broader company

mission.

External environment analysis ( Opportunities and treats )

Opportunity – An area of buyer’s need in which a company can perform profitably

Threat - a challenge posed by an unfavorable trend or development that would lead to the absence of

defensive marketing actions, leading to deterioration in sales and profits.

Once management has identified the major opportunities and threats facing a specific business

unit, it can characterize that business overall attractiveness giving possible outcomes.

- An ideal business is high in major opportunities and low in major threats.

- A speculative business is high in both major opportunities and threats.

- A mature business is low in major opportunities and low in threats.

- A troubles business is low in opportunities and high in threats,

15

INTERNAL ENVIRONMENT ANALYSIS ( strengths / weaknesses)

<>

Goal formulation

Once the company has performed its SWOT analysis it can proceed to develop goals for the

Planning period. Goals are those objectives that are specific with respect to magnitude and time. Forming

reasonable goals facilitates management planning, implementation and control.

Strategic formulation

Goals indicate what a business unit wants to achieve, while strategy is a game plan for how to get

them. Although many strategies are available, they may be condensed into three.

- Overall cost leadership

- Differentiation

- Focus – business focuses on one or two more narrow market segments rather than going after

a large market.

Program formulation

Management must design detailed supporting programs to support the various strategies choose

for example a company that want to attain technological leadership must have a program to strengthen its

R & D department, gather technological intelligence and train technical sales force.

Implementation

A good strategy even with a well laid out program may be useless unless it can be implemented.

The firm must have a clear plan of implementation.

Feedback and control

This allows the company to track the results and monitor new developments in the internal and

external environment. The firm should be able to review and revise its implementation, programs

strategies or even objectives according to changing environmental conditions.

Micheal E. [orter (1980) Competitive strategy, techniques for analyzing industries and competitor ( NY

Free Press).

16

Ansoft. L (1957) Diversification : Harvard Business Review (Sept – Oct) P114

17

THE MARKETING PROCESS

Planning at all levels is an internal parts of the marketing process. This process consists of

analyzing marketing opportunities, developing marketing strategies, planning marketing programs and

managing the marketing effort.

Analyzing marketing opportunities:

This involves analyzing the long run opportunities in order to improve performance. This requires

that the company operates a reliable marketing information system. In this case, marketing research

becomes a very useful tool for collecting analyzing information about the micro as well as the macro

environment, the consumer market and the business market.

Developing Marketing Strategies:

The company must develop relevant strategies to deal with the opportunities identifies.

Planning marketing programs:

To transform marketing strategy into marketing programs, marketing managers must make

decisions on marketing expenditures, marketing mix and marketing allocation. Of particular importance is

the marketing mix which requires decisions based on the 4Ps ( Product, place, price, promotion). The 4ps

must be matched with the 4C’s to deliver customer satisfaction.

18

4Ps 4C’s

Product Customers need & wants

Price Cost to the customers

Place Convenience

Promotions Communication

Managing the marketing effort.

This is the final step and involves organizing the marketing resources and then implementing and

controlling the marketing plan.

Product Planning : The Nature And Contents Of A Marketing Plan

It has been seen that each product level ( product line, brand) within a business unit must develop

a marketing plan for achieving its goals. The market plan is one of the most important outputs of the

marketing process.

The components of a marketing plan are:

1. Executive summary and table of contents

Provide a brief overview of the marketing plan.

2. Current market situation

This provides relevant data on the market, product, competition, distribution and macro

environment.

3. Opportunity and issue analysis

Identifies the main opportunities threats, weakness and strengths and issues facing the product

line.

4. Objectives

Defines the plans financial and marketing goals in terms of sales volume, market share and profit.

5. Marketing strategy

Presents the broad marketing approach that will be used to achieve the plans objectives.

6. Action programs

Presents the special marketing programs designed to achieve the business objectives.

7. Projected profit and loss statements

19

Forecasts the plans expected financial outcomes.

8. Controls Indicates how the plan will be controlled.

20

2b

MARKETING INFORMATION SYSTEMS & MARKETING RESEARCH.

MIS and its components.

A marketing information system consists of people, equipment and procedures to gather, set,

analyse and evaluate and distribute needed timely and accurate information to marketing decision makers.

It is designed to assist managers to assess the managers information needs, develop the needed

information and distribute the information in a timely fashion to the marketing managers.

Its main components are:

- Internal records system

- Marketing intelligence system

- Marketing research system

- Marketing decision support system

These components are interlinked and work together in a coordinated manner within the context of the

prevailing marketing environment, to generate information that enable marketing managers to carry out

their management activities.

MIS

<>

INTERNAL RECORDS SYSTEM

This involves marketing information on orders, sales inventory levels, receivables and payables

within the organization that is useful to managers in making decisions.

The company needs to maintain good records in order and how they are processed, current sales and

inventory levels.

MARKETING INTELLIGENCE SYSTEM.

This is a set of procedures and sources used by managers to obtain their everyday information

about pertinent developments in the marketing environment.

Marketing intelligence enables managers to easily spot problem areas that need to be addressed urgently.

21

The company needs to have a good system of market intelligence which may include buying

information from outside suppliers and using established internal marketing information centers to collect

and circulate marketing intelligence obtained from major publications , abstracts if the internet.

MARKETING RESEARCH SYSTEM.

Marketing research helps an organization to gather and analyse data on various issues. This is

often applied research which aims at specific marketing problems.

Marketing research is the systematic design, collection , analysis and reporting of data and

findings relevant to a specific marketing situation facing the company.

MARKET RESEARCH

Involves collection of data , recording, analyzing and evaluating data on all facts affecting the

products or services. It should be done objectively.

Market research – the means used by those who provide goods / services to keep themselves in touch

with the needs and wants of those who buy and use their goods / services ( AMA Definition)

Factors Market research Marketing research

Concern Market research is an

element of marketing

research about a particular

target market

About planning, problem solving and

control in the whole target market

behavior, opinion, motivation

Source & Data Two sources : External and

internal secondary data

( Concentrating on

secondary data)

Utilizes both primary and secondary

data with more emphasis on primary

data

Output Customers profile,

Competitive profile,

And market profile

Interested on textural interpretation of

data usually supported by use of tables

and designs

Users Forms the foundation of To predict TM reactions to alternative

22

marketing plan, provides a

benchmark for setting

measurable objectives, and

also to trace progress in

achieving the objectives

marketing alternatives.

Also helps to select strategies of

marketing and also to provide a

benchmark for setting measurable

objectives and track the progress of

objectives.

CONTRIBUTION OF MARKTING RESEARCH

- Provides information useful to reduce risks involved in decision making process relating to

pricing, advertising target market etc.

- Provides an opportunity to greater monitoring and controlling the activities and thereby minimizes

the areas of uncertainness.

- Very viral for the planning process and building the foundation for the market process.

MIS is useful if the MR can be used as a tool of marketing for monitoring the process of planning

and other activities. But MR cannot make decisions but can be useful in decision making.

PROFILES IN MIS

These profiles should be drawn for the whole national market and these profiles customers, market

and competitive profiles.

1. Customer profile

Looks at data from internal records, surveys, customers accounts, credit application forms etc

The information must be categorized into customer markets and industrial buyers. For

consumers you consider the demographic factors.

For industrial companies you consider the size interms of turnover, number of products handled

etc and also details of directors if possible.

2. Market profile

23

Purely on the market we are covering. Mist be defined in terms of geographical location, size

population etc.

3. Competitive profile

The company must study the competitors form the regional and national levels

Who are the ? how do they distribute? Who is the market leader in each strategic business unit

(SBU) ? does any of them have any unique selling proposition (USP) achieved through their

positioning etc.

MARKETING RESEARCH AGENCIES

Many organizations today have inhouse research units and do not use agencies, but other have

agencies , while others use both.

MR agencies are very useful in case

- You want to have new information on specific projects. This is because they do not disclose the

firm for which they are researching and so competitors do not know the firm.

- MR requires personalized skills and it may be economical to engage the agencies when necessary

that to engage a full time specialized researcher.

- Useful to avoid bias internal researchers may be biased

The Research Process.

Has four main stages:

1. preparation stages

2. execution stages

3. summation stages

4. application stages

1. Preparation Stage

One has to be careful in analyzing all the processes involved to avoid wastage of money and time.

a. Review of market objectives:

24

Review them to ensure that every step in the research will take care of the whole

companys objectives.

b. Problem definition identify the problem and define it through situational analysis through

and informed investigation or exploratory research or pilot survey.

c. Select the source of information - primary and secondary sources. The sources will be

influenced by the type of data cost involved etc.

d. Data collection methods – Research projects vary and so data collector’s methods also

vary . the methods is influenced by the time available, budget allocated, type of market and

type of data needed.

e. Define the market research objectives- help in monitoring and ensure a focused and

directional approach.

f. Design the sample and data collection materials. The sample has to be representation.

g. Pre-test the data collection materials to identify any misunderstandings.

h. Research proposal ( survey brief) lays down a clear picture of the objective of the research

and identify an existent data gap, and how the gap is going to be filled. The idea is to avoid

unnecessary waste in time and money in what has already been done. The proposal should

be distributed t all the executives and has to be approved.

2. Execution stage

Deals with collection of data and analysis.

Collection of data – administer the questionnaire or performs the interviews of the targeted

sample.

You may use observations which may be done secretly in which the target customer should not be

aware that anybody is studying it. Telephone interviewing can also be done. Both observation and

telephone.

Analysis of the data – tabulate the data on the computers, or analyse the key statements in the

question.

3. Summation stage

25

The data and results are summarized to gibe a clear picture of the whole exercise. These are the

methods of presenting ( reporting)

a. present the results and recommendations

b. present the results without recommendations

The first method is better.

4. Application of results

Reminds us that the research is an expensive affair and so the report should be useful to the

organization.

The report should be implement able with good monitoring and control systems.

Post research tests may also be done to see the success of the implementable plan.

26

CHAPTER 4

ANALYSING CONSUMER MARKETS AND BUYER BEHAVIOUR

“ You never really understand a person until you consider things from his point of view until you climb

into his skin and walk around in it”

(Atticus finch in Harper Lees to kill a mocking bird)

There is an old saying in Spain : To be a bullfighter you must first learn to be a bull ( Anonymous)

In order to satisfy a consumer ( which is the principle objective of a marketer) , it is important to

first seek to understand the consumer. The marketer needs to understand the consumer behaviour ( how

individuals, groups and organizations select, buy, use or dispose of goods and satisfy their needs and

wants. Marketers must study their target customer needs, wants perceptions, preferences and shopping

and buying behaviour.

Inorder to understand the consumer we present a model of consumer behaviour. This explains the

various aspects of the consumer characteristics and the decisions process that lead to certain decisions.

The basic model of buyer behaviour shows that marketing stimuli and environmental stimuli enter the

buyer’s characteristics and processes leading to buyers decisions as shown below.

Marketing stimuli Environmental stimuli

Products Ecomomic

Price Technological

Place Political

Promotion Cultural

27

Buyers characteristics Buyer decisions

Cultural process

Social problem recognition

Personal information search

Psychological evaluation

Decision

Past purchase behavior

Buyers decision

Product choice

Brand choice

Dealers choice

Purchase timing

Purchase amount

Fig. Basic model of buyer behaviour

Several theories have been developed to explain the consumer and buyer behaviour. They attempt to

answer the question ‘ why do consumers behave the way they do?”. A model is a representation of

reality , ( a replica of what it attempts to explain) usually reduced in scale and simplified. Its primary

function is to force systematic and logical thinking. Models are sometimes used synonymously with

theory. Thus human behaviour has been explained extensively by use of models. These models are

categorized into two:

1. traditional ( simple) Models of human behaviour

2. Contemporary ( Complex) Models of consumer behaviour

Basic Concepts

A consumer and a buyer do not necessarily mean the same thing. Presented below are some distinctions.

28

a. Consumer - person or organization that buys and or/ consumers products for an

industry.

b. Buyer - purchaser. May be defined as the person who actually procures

goods and services, and may not necessarily consume.

c. User - consumers of goods and services, and do not have to have bought

them.

d. Consumers - people who buy from a given seller.

2.1 TRADITIONAL MODELS OF HUMAN BEHAVIOUR

These models are described under single element aspect and ignore most other factors that

influence buying. Each model describes only one part of the consumer buying behaviour – economic,

social, learning and so forth. Thus each model is an incomplete description of human beings, and different

models may be appropriate for different marketing situations. Philip Koter, who has described 5

traditional models asserts.

Depending on the product, different variables and behavioral mechanisms may assume

particular importance. A psychoanalytic behavioral model might throw much light on the factors

operating in cigarette demand, while an economic behavioral model might be useful in explaining

machine tool purchasing. Sometimes alternative models may shed light on different demand aspects of

the same product ( Kotler, 1967)

The five traditional models as given by Kotler are:

Marshallian ( economic ) model

Parvlopian ( Learning ) model

Freudian ( psychoanalytic ) model

Veblenian ( social ) model

Hobbesian ( organizational) model

2.1.1. Marshallian ( Economic man ) model

The Marshallian model asserts that purchasing decisions are the result of largely ‘rational’ and

conscious economic calculation. The buyer seeks to spend his income on those goods that will deliver the

most utility according to his tastes and relative prices ( Kotler, 1965) . In other words, the consumer uses

29

economic cues of price and income and makes a fresh utility calculation before each purchase. The model

uses the ‘ measuring for of money’ as an indicator of the intensity of human psychological desires. The

theory has been refined into economic man (under the modern utility theory) who is bent on maximizing

his utility (satisfaction) and does this by carefully calculating the ‘expected pleasures and pains’

consequences of any purchase.

2.1.2. The Pavlovian learning model

This theory holds that learning is largely an associative process and that a large component of

behavior is conditional ie the stimuli – response. This implies that man behaves in a habitual manner

rather than thoughtful way. In this case, certain cues will set off the same behavior because of rewarded

learning or punishment in the past.

The pavlovian is based on four central concepts thus :

a. Drives (needs and motives) : this refers to strong stimuli internal to the consumer which implies

action. The needs may be:

i. Primary physiological (biogenic) needs such as hunger, thirst, cold and so on or

ii. Learned drives ( secondary needs) which are derived form society such as co-operation ,

prestige.

b. Cue : This is a stimuli in the environment and or in the individual which determines when, where

and how the consumer responds. For example, an ad (cue) may stimulate a need (drive) as a

coca cola ad stimulating thirst drive in a customer. The response will depend upon the cue and

others such as time of the day, availability of other thirst quenchers, and the cues intensity.

Thus, if the cue is presented during a hot and sunny day the consumer may respond

immediately to quench the thirst.

c. Response: This is the organism’s reaction to the configuration of cues. For example, a purchase of

coca cola to quench thirst after an ad featuring coca cola as a good thirst quencher. Whether the

consumer responds immediately of not will depend on the degree to which the experience is

rewarding ie drive-reducing.

d. Reinforcement: This refers to the strengthening of a response. For example, when an experience

(gained through consuming a product) is rewarding, a particular response is reinforces ie it is

30

strengthened and there is a tendency for it to be repeated when the same configuration of cues

appears again (Kotler 1965). Thus if a consumer’s need is satisfied by a particular product, he

will moist likely buy the same product since from experience, the consumer has come to

associate it with satisfaction ( ie it rewards him).

Freudian Psychoanalytical Model

The Freudian approach to consumer behavior relies on a psychoanalytic or conflict view of human

behavior. The conflict model portrays primitive human constant inner struggle between good and evil.

According to Sigmund Freud, the human behavior cannot be consciously explained. Instead most

consumer behavior is mostly unconscious in nature. Thus the personality structure can be explained

within the unconscious framework and therefore Freud identified three interrelated but often conflict,

psychoanalytic concepts, the id, the ego and the super ego (Luthans 1981)

The Id concept

This is the core of the unconscious. It is the unleashed raw, primitive instinctual drive which is

constantly struggling for gratification and pleasure. It is manifested mainly through the libido (sexual

urges) or aggression. The libido strives for equal relations and pleasure, but also for warmth, food, and

conform. Thus, libido may account for a consumer’s purchase of food, clothing or shelter.

The ego

This represents the conscious part of a consumer. It represents logic in the Freudian approach and is

associated whit the reality principle. The ego keeps the id in check through the realities of the external

environment (Luthans, 1981). The ego interprets reality for the id through intellect and reason. This

concept can be equated to the parent whereas the id is the child. It is therefore the responsibility of the

parent to control the child.

The superego.

This concept can best be interpreted as the conscience. The superego provides the norms that enable

the ego to determine what is right or wrong. The conscience is developed by absorption of the cultural

values and morals of a society. The superego aids the consumer by assisting the ego combat the impulses

of the id.

31

Veblenian social – psychological model

This model, developed by Thorstein Veblen, seeks to explain the consumers behaviour as being

influenced by both social and psychological factors.

At the level of social factors, Veblen sees man as primarily a social animal and therefore conforms

to the general forms and norms of his larger culture and to the more specific standards of the subcultures

and face to face groupings to which his life is bound (Kotler 1965). Veblen hypothesizes that much of

economic consumption is motivated not by intrinsic needs or satisfaction so much as by prestige –

seeking (Kotler,1984) thus a consumer may purchase a product simply to show off rather that to satisfy a

specific need. Among the social variables that influence consumer behaviour are his social class,

reference groups, culture and subcultures as well as his family.

Veblen saw man’s behavior as being influenced also by psychological factors. Even though a

consumer may buy a product to impress, he may be at the same time be buying it because of

psychological factors such as his personality, motivation, perception, and attitudes towards the purchase.

Hobbesian (organizational) model

This considers organizational buyers as opposed to individual buyers. Organizational buyers buy

not for the purposes of consumption but for further production and distribution. The buyer is guided by

both personal as well as group goals, and must make specific considerations very carefully because he has

to satisfy his own needs as well as those of the organization.

The importance of this model is that buyers can be appealed to on both personal as well as organizational

grounds. The buyer has his own drives, but still tries to do the best for his organization and would

therefore try to secure the best terms for the organization.

CONTEMPORARY MODELS

• Andreason Model

• The Engel – Kollat – Blackwell Model (EKB)

• The Howard – Sheth model

• Sheth – Family decision making model

• Bettman’s Information Processing Model of Consumer Choice

• Sheth – Newman – Gross Model of Consumption Values

32

Andreason Model

This is one of the earliest models that attempted to construct a theory of consumer bahaviour by

Alan Andreason in 1965 (Horton, 1969). The model addressed the problem of how a consumer decides

whether or not to purchase a new product ie the role of attitudes on buyer behavior process. The model is

shown in figure 1. Andreason gave explicit recognition to the importance of information in consumer

decision making and provided a forerunner of the current information processing theories especially by

Bettman. The heart of the Andreason model is attitudes (Horton, 1969).

Information in the context of wants of the consumers, prior to purchasing experience, the

consumers personality, and the social norms and expectations of significant others such as friends, give

rise to attitude. Attitude, which is seen as a predisposition to act toward the attitude object ( a particular

brand), gives rise to behavior. Thus behavior may be changed by changing attitudes. In Andreason’s

model, attitudes can be changed in a number of ways. For example, a consumer who changes group

affiliation ( social factor) is likely to conform to the new group norms eg a sales person, recently

promoted to the position of a marketing manager, joins a prestigious local club because it is expected of

someone in that position.

<>

Figure: Andreason Model of buyer behaviour (Modified)

Field 1 Between the consumer and the firm in field 1 results in the consumer forming an attitude about

the firm and the product which is the input to field 2.

Field 2 : Search and evaluation. With the information gained in field 1, the consumer makes an

evaluation of the alternative brand choices. This motivates the consumer into field 3.

Field 3: In this field, the consumer makes a decision to purchase a specific brand.

Field 4: This involves storage of the product by the consumer, retention of the experience by the

consumer for future used in buying the product and feedback of sales results to the firm.

33

Field 1(Attitude formation)

Field 2 (Search)

Field 3(Purchase)

Field 4 (Storage)

This model has the advantage of being very simple to understand. It also acts as a guide in

decision making when one is dealing with a new product. However it has the weakness of being

unrealistic, as it shows the consumer moving form one field to the next in a very predictable manner. We

know that this may not always be the case.

The Engel – Kollat – Blackwell Model (EKB)

This model focuses on the decision process and has 4 basic components.

1. The Central control unit

2. Information processing unit

3. Environmental influences

4. The decision process.

This is illustrated in figure 3.

Information processing

Central

Control Unit

34

Per

sona

lity

ExposureAttention:Comprehension/perceptionRetention

Stimuli

InformationExperienceEvaluation- criteriaAttitude

Filter

External search

Figure: Engel-Kollat-Blackwell Model (Simplified)

1. The Central Control Unit

This is the governing unit of the model and has two main roles:

i. It reacts to external stimuli

ii. It initiates and oversees the decision making process.

The unit has both the conscious and unconscious components. In the central control unit, there is

evaluation and attitude formation based on the consumers personality.

2. Information Processing Unit

This is actually the first phase and it is where external stimuli is selectively received through

exposure, attention, comprehension and attention. The information is further filtered and passed to the

central control unit. Thus the incoming stimuli are processed and made part of the central control unit.

3. The Decision process unit

35

Outcomes

Post purchase evaluation

Problem recognition

Internal search and alternative evaluation

External search and alternative evaluation

Purchasing process

IncomeCultureFamilySocial classPhysical factors

Further behaviour

Environmental Influences

This is where the consumer finally makes a decision to buy. It is the part that is activated to

determine whether and how a consumer will react to the incoming stimuli. The decision making process

follow the traditional stages of problem recognitions internal and external search for alternatives and the

purchase process.

4. Environmental influences

This comprises of the culture, income, family, social class and other variables that influence the

decision making process. These may also play a role in filtering incoming stimuli. The outcome of the

decision process is to buy, and these are followed by further buyer behaviour and post purchase

evaluation as shown in the figure.

The EKB and the Howard Sheth Model (H-S) have a lot of similarities as models for decision

making. However the two major differences are:

1. Howard – Sheth model does not directly handle problem recognition, but does it indirectly

through the arousal function of motives.

2. the EKB model has omitted such variables as stimuli ambiguity and confidence which are well

addressed by Howard – Sheth model

Engel – Kollat – Blackwel has the following strengths:

1. It emphasizes on decision making and conscious behavior.

2. Easy to follow, since it doesn’t get overly involved in the interrelationships of vaguely defined

psychological constructs and variables.

The model however has several weaknesses

1. its simplicity is a problem, and it does not clearly explain the central processing unit

2. It is rather mechanical in the way it explains the sequence of steps in the decision making process

thereby ignoring the complexities of human behaviour.

3. Important psychological variables such as needs, motivation and learning are only implied in the

model.

4. The relationship of the environment factors to the central control unit and to information

processing is not clear.

36

The Howard – Sheth model

This model recognizes the fact that consumers are involved in continuous search for information

regarding products and product alternatives. There are both product and information cues which help

the consumer in making the right decision.

The learning process involves three levels as shown in the diagram below:

1. Extensive Problem Solving (EPS)

The consumer has very limited knowledge and beliefs about a product and do not have a

specific brand preference (evoked set) . the probability of repeat purchase is low, and much

time is consumed in the choice process.

2. Limited Problem Solving (LPS)

The consumer’s knowledge and beliefs about the brands are partially established. The buyer

has an evoked set and his probability of repeat purchase is medium. Limited thinking is

involved and not much time is required in making a choice.

3. Automotive ( Routenised ) Response Behavior(ARB)

The buyer has a well established evoked set, and his knowledge and beliefs about the brands are

well established. Thus the consumer is predisposed to the purchase of one particular brand and

therefore requires very little if any thinking and time for the decision.

Probability

Of repeat

Purchase of A

37

EPS LPS ARB

0 X1 X2 X3

Fig. Learning curve for brand A

The model consists of four major sets of variables as illustrated in figure 4

1. Inputs

These comprises of three different types of stimuli in the consumers environment. The physical

brand characteristics (significative stimuli) such as quality, price, services and availability, verbal or

visual product characteristics (symbolic stimuli) such as quality, price, services and availability and the

consumers social environments (family, reference groups, social class).

The three stimuli act as sources of information ( inputs) concerning the product class or specific

brands required by the consumer.

2. Perceptual and Learning Constructs

These comprise variables that are psychological in nature and come into play when the consumer

is contemplating a decision as a result of the stimuli received as input.

Perceptual constructs are concerned with how a consumer receives processes information

acquired. For example, stimulus ambiguity occurs when the consumer does not get clear information

about a product, while perceptual bias occurs when the consumer distorts the information so as to fit his

or her established needs or experience. Learning constructs lead to concept formation.

These include the consumer’s goals, preferences, information about brands in the evoked set and

criteria for evaluation alternatives.

3. Outputs

38

These include intention attitude, attention and brand comprehension in addition to the actual

purchase.

4. Exogenous variables

These are not directly part of the decision making process, but include such considerations such as

the importance of the purchase, consumer personality traits, time pressure and financial status. These

variables will influence the decision consumers is likely to make in the purchase of various brands. One

may for example buy a product from a certain supplier because he she has not time to look for

alternatives or buy a very expensive item due to his her financial status.

The main strength of the Howard- Sheth model is in its interactions between the perceptual and

learning constructs, but suffers the weakness of failing to operationalize these variables.

Sheth – Family decision making model

The model consists of 3 variables as shown in figure 5.

Figure: Sheth – Family decision making model

a. Psychological systems that represent the distinct predispositions of the father, mother and

other family members. The psychological system consists of :

- Perceptual bias gained from overt search and sensitivity of information either from mass

media, display or word of mouth.

- Buying motives and evaluative beliefs as a result of perceptual bias. Motives and

evaluative beliefs will depend on the gender, confidence, personality and reference

groups.

39

Factors Family life cycle

stage Product

importance Time pressure Social class Lifestyle Role orientation

Family Buying decision

Psychological Systems

b. Family buying decisions

The separate predispositions lead into family buying decisions for products to be consumed

by members family or household units./ the decisions may be either

- Individually (autonomously) determined e.g father making a buying decision or mother or

any other family member.

- Jointly determined as when the father or mother together make a buying decision for the

household unit consumption.

Joint decision making tends to be prevalent in families that are middle class, newly married

and with few prescribed family roles. Similarly joint decisions prevail in situations when

there is high perceived risk or uncertainty about the purchase (product) when the purchase

decision is considered to be important and when there is ample time to make a decision.

c. Factors influencing the purchase decisions. The factors determine whether a decision is

autonomous or joint. The factors are:

- Family life cycle stage eg married, married with children

- Perceived risk in the purchase – low or high

- Product importance ie the importance of the purchase

- Time pressure – plenty or constrained

- Social class eg upper, middle or lower

- Lifestyle

- Role orientation – roles that are played in the family and how many.

Bettman’s Information Processing Model of Consumer Choice

The model portrays the consumer as possessing limited capacity for processing information. When

faced with a choice, he / she rarely undertakes very complex analysis of available alternatives. Instead the

consumer typically employs simple decision strategies ( heuristics – also called consumer decision rules –

40

procedures adopted by consumers to reduce the burden of making complex decisions by providing

guidelines or routines that make the process less taxing.

The model consists of 7 basic components as illustrated in figure 6

a. Processing capacity

b. Motivation

c. Attention and perceptual encoding

d. Information acquisition and evaluation

e. Memory

f. Decision processes

g. Consumption and learning process

In addition, there are mechanisms that scan the environment and receive and respond to interruptions

( scanner and interrupt mechanisms).

a. Processing capacity

This component assumes that individuals have only a limited capacity fro processing information.

Thus, in making choices, consumers find complex computations and extensive information processing

particularly difficult or burdensome. To deal with these demands, consumers are likely to select choice

strategies or rules of thumb that make product selection an easier and less taxing process. Processing

capacity influences major components of the model.

b. Motivation – the driving force within individuals that impel them to action.

Motivation influences both the direction and the intensity of customer choice stimulates the

consumer to seek the information required to evaluate alternatives and make a choice (eg a purchase).

Motivation provides momentum by means of a hierarchy of goals mechanisms. The hierarchy of goals

mechanism is a dynamic force that takes the form of a series of intermediate sub-goals that lead to a

desired end state-a-choice.

c. Attention and perceptual encoding

These are influenced by the consumers goal hierarchy.

41

Attention ( act of fixing the mind on something especially by watching or listening ) may be:

i. Voluntary attention – a conscious allocation of processing capacity

ii. Involuntary – automatic response to disruptive events e.g newly acquired complex information

These different types of attention influences how individuals progress in reaching goals and

making choices.

iii. Perpetual encoding – consumer organizes and interprets perceived stimuli and provides

insights into the need for additional information.

d. Information Acquisition and Evaluation.

The consumer acquires information form external search if information available in his / her

memory is inadequate. The newly acquired information is evaluated against its suitability or usefulness.

The consumer continues to acquire additional information until all relevant information has been

secured or until the consumer perceives any additional effort to be too costly in terms of time and effort.

e. Memory

Component through which all information flows. It is also the first place where a consumer begins

his/ her internal search for information on which to base a choice. If the internal information is

insufficient, then the consumer undertakes external search.

f. Decision processes

This refers to the heuristics or rules of thumb in the evaluation and section of a specific brand. The

decision rules have been broadly classified into two major categories:

i. Compensatory – Consumer evaluates brand option in terms of each relevant attributes and

computes a weighted or summated score for each brand. For example, assume a hypothetical

rating for product X: ( Evaluations on a 10- point scale, where a higher score indicates a higher

rating).

Attribute rating

Durability 5

Price 7

Quality 8

42

A positive evaluation of brand on one attribute is balanced out on a negative evaluation on some

other attributes. For example a positive assessment of a particular brand of automobile in terms of

performance may offset an unacceptable assessment interms of petrol consumption.

ii. Non- Compensatory – these do not allow consumers to balance positive evaluations of a brand

on one attribute against a native evaluation on some other attribute. For example, a consumer may

establish a separate, minimal acceptable level as a cut off point for each attribute. If any particular

brand falls below the cut off point on any one attribute, the brand is eliminated from further

consideration.

The specific heuristic a consumer employs are influenced by both individual factors (eg personality

differences) and situational factors ( eg urgency of the decision).

g. Consumption and learning processes

This deals with future utilization of experiences acquired after the purchase choice has been made

and the selected alternative consumed.

The consumption experience is useful in providing information to be applied to future choice

situations as well as providing the consumer with a basis for developing of refining heuristics.

h. Scanner and interrupt mechanisms

This receives all kinds of messages from the environment. Scanner is open to relevant information

from the environment whereas the interrupt mechanism deals with messages that interfere with the

process of making a choice.

Sheth – Newman – Gross Model of Consumption Values

This model tries to explain ‘ why’ consumers make the choices they do. It concentrates on

assessing consumption – relevant values that explain why consumers choose to buy or not to buy ( or use

or not to use) a specific product, why consumers choose one product type over another and why

consumers choose one brand over another ( Figure 7) . the model is rooted in three central propositions:

a.Consumer choice is a function of a small number of consumption values.

b. Specific consumption values make differential contributions in any given choice situation

43

c.Different consumption values that are the core of the model, namely functional value, social value,

emotional value, epistemic value and conditional value.

Figure: Sheth – Newman – Gross Model

a. Functional Value – Performance of a product as expected. This is the perceived functional,

utilitarian, or physical performance utility received from the choices attributes such as reliability,

durability and price. For example the decision to purchase price and promised fuel economy.

b. Social value – The perceived utility acquired because of the association between one or more

specific social group and a consumers choice ie what others ( reference groups) will say about the

purchase.

44

Consumer choice behaviour

Epistemic valueEmotional Value

Conditional value

Functional value Social Value

c. Emotional value – Utility acquired from a product’s capacity to stimulate the consumers emotional

value when associated with specific feelings or when it triggers or sustains those feelings. For

example, the anticipation of driving a new car.

d. Epistemic value – Perceived utility acquired by a choice as an outcome of some particular situation

or circumstances facing the consumer. For example some products are associated with a particular

time or event eg wedding dress, others have specific climate or location benefits eg suntan lotion,

yet others are associated with once in a lifetime events. Eg purchase of a house and others are used

only in emergency situations eg dentist services.

e. Conditional value – Perceived utility acquired by a choice as an outcome of some particular

condition facing the consumer. For example a patient may buy a drug prescribed by a doctor, or a

student buys a book that must be used in a course.

MERITS AND DEMERITS OF THE COMPLEX MODELS

Merits

Runyon (1959) gives the following as the values of comprehensive models.

First, the models encourage systematic thinking by forcing the theorist to define the relevant

elements in a behavioral theory.

Secondly, complex models make explicit the interrelationships between these variables, thereby

offering a tentative explanation of behavioral phenomena.

Thirdly, the models provide a framework for testing hypotheses derived from the model and for

incorporating new findings into and integrated system.

Lastly, they sometimes permit computer simulations of behavior, so that the implication of the

model can be observe under different sets of assumptions

Shortcomings

Contemporary models are simply empirically – based generalization that may or may not apply to

specific cases. They may not apply because they oversimplify the relationship between the

45

independent and dependent variables and fail to consider the multiplicity of factors that influence

consumers purchases. Thus according to Runyon the attractiveness of their simplicity is often negated

by their lack of predictive value.

Secondly, the models do not provide adequate methods for evaluating the relative importance of

the variables involved in the so called floe charts.

Lastly, the models borrow heavily and sometimes indiscriminately, from the behavioral science

for their theoretical base ( Runyon ) These sciences are fragmented and lack a coherent integrated

theory of behavior.

WHY DO WE HAVE SO MANY MODELS?

As seen above, there are many models which try to explain the buyer and consumer behaviour.

Perhaps the following reasons would explain this.

1. Human behavior is a complex phenomenon and consumer behaviour , being a component of human

behavior, is also complex, hence cannot be described by just one model. Different models would thus

be necessary to explain specific parts of the behavior\, economic, social, psychoanalytic and so forth.

The Sheth family decision model considers the family. Betman talks of information processing and so

forth.

2. The models were developed by theorists with different backgrounds. For example the ‘ blackbox’ or

the human psyche explained in the traditional models use different aspects – economic, psychological,

socio psychological and so forth depending of the background of researcher.

3. Various concepts in buyer behavior are highly abstract and this brings about conceptual difficulties in

defining the concepts. This also creates the problem of operationalisation.

4. The constructs used are highly interdependent and this creates the problem of bridging points.

Different scientists demarcate them at different points and end up describing the models differently.

Kotler (1965) tried to answer the question ‘Why do people buy?’ by explaining the models named above.

He observed that the buyer is subject to many influences which trace a complex course through his

psyche and lead eventually to overt purchasing practices . The buyer’s psyche is a ‘black box’ whose

workings can only be partially deduced by use of the models advanced by use of the models named

above.

46

INPUTS CHANNELS PROCESSOR OUTPUTS

(Buying Influence) (Purchasing responses)

Fig. The buying process conceived as a system of inputs and outputs

CONCLUSION

The models described try to shed some light into the consumer buying behavior. They attempt to

explain why consumers behave the way they do. The traditional models take a single element approach

( eg economic, social ) while the comprehensive models use combinations of the elements and in a way

adopt a system approach.

It is worth noting that the models were developed based on consumer behaviour of the western world

consumers ( America, Europe) and may not necessarily apply to the African ( 3rd worlds) consumer. There

may be need to modify the models to accommodate the African culture. We know for example that the

African family settings is different from that of the western world

Research is thus required to study the African culture and subcultures and incorporate them in the models

47

Advertising mediaSalesmenFamilyPersonal Observation

Buyer’s Psyche

Black Box

Product choiceBrand choiceDealer choiceQuantitiesFrequency

PriceQualityAvailabilityServiceStyleOptionsImages

MAJOR FACTORSINFLUENCEING BUYING BEHAVIOUR

FACTORS INFLUENCING CONSUMER BEHAVIOUR

These are classified into internal and external environmental factors.

Internal (Psychological) factors

These factors include motivation, perception, learning and beliefs and attitudes.

Motivation and involvement: Motivation is the force that activities some needs and provides

direction of behaviour towards fulfillment of these needs. Motivation – Inner state that drives an

individual towards the attainment of a need. A need may be biogenic arising from physiological

states of tension like hunger, thirst, discomfort or psychogenic arising from psychological states of

tension such as need for recognition, esteem and belonging. There are many theories that explain

human motivation ( eg Maslow and Herzberg). We consider Maslow’s hierarchy of needs as an

example

Self actualization

Esteem

Social ( love and belonging)

Security

Physiological

Fig. Maslow’s Hierarchy of needs

Different people have different factors that motivate them and are also at different levels of need,

implying that they may not be motivated by a need outside their level. Physiological needs are the most

48

basic and include desire for food, water, air, and shelter. People with this need just buy to satisfy these

needs and may not be concerned about quality or prestige. Security needs are also lower level needs, but

slightly higher than physiological needs. One buys an item because he feels secure with the item. For

example, buying a strong door lock for a house, or putting up a steel gate. Social needs such as love and

belonging have to do with association and a feeling of social acceptability. One may therefore buy a

product just to associate with his friends who use the same product. Esteem or ego needs are higher level

needs that go beyond the basics, and include prestige purchases, or purchasing to suit a certain lifestyle,

recognition, and status. For example, building a very expensive residential house (Palatial Home), or

buying a prestigious car. Self actualization occurs when one has attained his/her full potential in life. Such

people are very difficult to motivate, and require custom made products, such as ordering utensils with

one’s names imprinted onto them, owning a ranch, or belonging to exclusive members clubs.

Perception – is the process to which an individual selects, organizes and interprets

information, inputs to create a meaningful picture of the world. It depends not only on the physical

stimuli but also on the stimuli relation to the surrounding field and on conditions within the

individual. People may perceive the same situation differently because of selective attention,

selective distortion, and selective retention. People are exposed to many stimuli daily and cannot

possibly attend to all these stimuli. They selectively choose some stimuli and ignore the rest. This

means that marketers have to work hard to attract consumers notice.

Selective distortion occurs when twist information into personal pre conceptions . There is

very little that marketers can do about selective distortion.

Similarly, people will forget much of what they learn but will tend to retain information

that supports their attributes and beliefs. One is likely to remember only the good paints about a

product and forget about the bad points. This is selective retention and explains why marketers use

multiple Medias of communication to enhance retention.

Learning: involves changers in an individual’s behavior arising from experience. It is produced

through the interplay of drivers, stimuli, responses and reinforcements.

These are also called individual determinants and have a direct influence on consumer behaviour. They

include motivation and involvement, attitudes, personality and self concept, learning and memory, and

information processing

49

Beliefs and attitudes arise from doing and learning, and influence the buying behavior of the consumer.

A belief is a descriptive thought that a person holds about something. Buyers often hold distinct beliefs

about products or brands based on their country of origin. Certain countries enjoy reputation for certain

goods. For example Japan is renowned for automobiles. If the wrong belief towards a product is held,

marketers must launch a campaign to correct these beliefs.

An attitude is a person’s enduring favorable or infavorabe3l evaluation emotional feelings and action

tendencies towards some object or ideas. Attitudes lead people to behave in a fairly consistent way

towards similar objects. Once a person develops a consistent attitude towards a product, it is very difficult

to change the attitude.

50

Personality and self concept: This is the sum total of our mental, physical and moral qualities and

characteristics that are present in us and that make us what we are buying a very expensive wrist watch to

enhance your personality as a man, or putting on an expensive suit to enhance your personality as a sales

executive

Learning and memory: People are able to filter and retain only that information that is of interest to

them. For instance, a student may only remember his own mark if read out in class, but easily forget what

his colleague got.

Information processing

Every consumer has a way of analyzing and processing information received. Consumers assimilate and

evaluate selective information and thus reflect on their motives, attitudes personality and self concept.

This differs from consumer to consumer, and so two consumers can evaluate the same information quite

differently.

External Environmental factors

These do not effect the decision process directly but filter through the individual determinant to influence

the decision making process. They include.

Cultural influences

Sub-cultural influences

Social class influences

Social group influence

Family influence

Personal influence

Cultural influence

This is a complex sum total of knowledge, traditional customs and other habits acquired by people

as members of a society, people from different parts of the world exhibit different culture &

values and beliefs. These exert the broadest and deepest influence on consumers behavior. Culture

51

defines the values and beliefs that are held dear by a group or society, and is transmitted through

generations. It is therefore a fundamental determinant of a person’s wants and behavior.

Each culture consists of several subcultures that provide more specific identification and

socialization for its members. They include, religions, racial groups and geographical regions.

Many of these sub cultures make important market segments and marketers, design products that

meet the needs of these subcultures.

Social classes are relatively homogenous and distinct in societies which are hierarchically

ordered and whose members share similar interests and behavior. Members of a particular class

are different from members of another class, in terms of indicators such as income, occupation,

education and residence.

An individual can move from one social class to another (up or down) during his lifetime

but the extent of the mobility depends on the rigidity of the social stratification within the

particular society.

Sub-cultural influence

They are smaller practices found within cultures for example, among Kenyans, we have sub-cultures for

every community on tribe.

Social class

Refer to the group of people who share equal position in socially, defined by parameters such as income,

education, occupation e.tc. people of the same social class seem to share the same values and belief, they

live in the same estates, take children to the same schools; buy the same products and so on.

Social factors

These include reference groups, family roles and status.

A person’s reference group consists of all the groups that have a direct or indirect

influence on the person’s attitudes or behavior. Groups having a direct influence on a person are

called membership groups. Membership groups may be primary (family, friends, neighbors and

co- workers), or secondary (religious, professional, trade unions). Primary groups are less formal

than the secondary groups.

The family is the most important consumer buying organization in society and family

members constitute the most influential primary reference groups. Each member of the family

influences the buyer decision making process.

52

A person participates in many groups throughout life (such as family, organizations, and

the persons position in each groups can be defined interms of the role and status. A role consists of

the various activities that a person is expected to perform. Each role carries a status for example

being a police inspector carries more status than being a corporal, a sales manager has high status

than a store keeper. Similarly, traveling by air has higher status than rail or road transport. Thus

consumers choose products that communicate their role and status in society.

Social group influences

A group is a collection of people who share the same goals, aspiration and interests. They have a lot of

interaction among themselves and so individuals’ members in a group can influence the behaviour of

other members in the group. They may be primary groups such as a family, or secondary groups which

are more formal in their interrelationships, for example, members of a rotary club

Family influence

A family is the most important group and is the strongest source of influence on consumer behaviour. All

family members, husband, wife, and children, have a big influence on consumer behaviour.

Personal influences

1. Personal factors

Personal factors that influence buyer’s decisions include age and stage in lifecycle,

occupation, economic characteristics, lifestyles, personality and self concept.

Age and stage in the lifecycle influence the buyer behavior because people’s tastes tend to be

related with age. A family’s stage in life also affects the consumption patterns of that family.

A person’s occupation can also influence the consumption pattern of that person. A company

manager may buy expensive suits, travel by air and afford expensive holidays for self and family,

unlike an office messenger who cannot afford luxuries.

Product choice is also greatly affected by ones economic circumstances (availability of spendable

income, savings, assets, buying power and attitude towards spending versus saving)

Marketers of income sensitive goods pay constant attention to trends in personal income, savings

and interest rates.

53

A persons lifestyle is the persons pattern of living in the world as expressed in the person’s

activities, interests and opinions. It portrays the whole person interaction with his or her environment.

A person’s lifestyle has influence on his her buyer’s decision making. Marketers need to match

their products to lifestyles of the groups.

Finally, each person has a distinct personality that influences his /her behavior. Personality is a

person distinguishing psychological characteristics that lead to consistent and enduring responses to

his or her environment. It is described interms of such traits as self confidences, dominance, sociality,

defensiveness and adaptability. Once a marketer knows the main personality traits of his her target

consumers, he/ she can design marketing programs suitable for those traits.

Persons self concept of self image is also an n important determinant of buyer behavior. How does

the consumer perceive him/her self? This is a difficult concept to measure, but marketers should

always try to develop, brand images that match the target markets self image.

REFERENCE GROUP

A Group may be defined as any two or more people who share a set of norms, values or beliefs and have

certain implicitly or explicitly defined relationship with one another.

Groups normally have a clearly defined membership and entries and if one needs to join, he must

conform to the standards of the group. Their values and attitudes have to be appreciated and adopted and

one tends to buy and use the products that the group appreciates.

Groups that are highly homogeneous are more prone to attitude change that those that are less

homogeneous.

Sometimes the groups can excert pressure on the members to conform, for example to buy a certain

product. For instance a choir member may be compelled to buy a particular uniform. There are three

levels of group involvement;

1. Compliance

2. identification

3. internalising

54

1. Compliance: members have to comply with the norms and standards, e.g. by paying membership fees

attending meeting or putting on uniform. Thus compliance is through overt or open behavior without any

demand & on the change of attitudes

2. Identification: A deeper relationship not only complies to the standards but also maintains a social

relationship and changes its perception to a great extend for example by strongly identifying with the

group.

3. Internalising: One does not only get deeply involved with the group, but makes an effort to force

others to follow the norms and rules of the organization. For example, one may begin to preach the

religious message to others to convert them to his religion.

A Reference group is a group of people who you refer to when making a decision to buy. It influences

consumer behaviour by building aspirations for the individual and helping him to choose a particular

product or lifestyle. Reference groups include family, close friends, workmates, neighbours e.t.c. They

affect consumers by imparting information and by influencing values expressive needs of the consumers.

Reference groups lay down certain norms, roles or status that is followed by members.

Norms – Unwritten codes or standards of conduct that are assigned to individuals within a group.

Roles – The part played by members e.g. initiator, facilitator, decision maker, the purchaser, or the end

user.

Status – Position of authority one holds in the group

Reference groups can be further divided into four categories depending on the functions they perform,

and their degree of influence.

Normative groups

These are groups that uphold the norms of the group. The norms influence the way one dresses, what he

eats or drinks. Normative influence leads to normative behaviour and occurs when an individual fulfills

group expectations to receive a direct reward or to a used sanction. For example, you may refrain from

wearing the latest fashion for fear of being teased by friends

Comparative reference group

55

Groups with whom one compares himself and his attitudes. They provide the basis for validation of

beliefs, values, and attitudes. Consumers need not be in direct social contact with reference group to be

influenced by it.

In the case of comparative reference groups, if values are expressed, they can be practiced and one can

come closer to the group and be accepted by it. This is known as value expressive influence e.g where

drinking is prohibited

Dissociative group

Some individuals want to dissociate themselves from a group. You may want to dissociate yourself from

a dishonest group, or a group whose behaviour you do not approve.

Status reference group

An individual may aspire to achieve the status of the people in a group, for example to become a Kadhi or

a priest just because he likes the status held by Kadhis or priests. One may also want to get the status of a

tour guide and so on. These are aspiration groups.

The influence of reference groups as consumer behaviour is felt through the influence of social power,

which has five bases.

Reward power – Ability to give rewards in the form of money, gifts or psychological rewards

like recognition

Coercive power – Ability to give threats or withhold rewards for example, by selling products

that one has to have, for example, a mosquito net to protect oneself from malaria or a good recommended

book to pass an examination

Legitimate power- linked to cultural group or group values. The power one has because of his

legitimate position in an organization.

Expert power – the buying behaviour is influenced by the expertise of the people in a group for

example a machine may recommend a good car to a buyer or computer expert recommend a certain brand

of computer

Referent power – One buys an item or a product that matches his status in society. For example

a manager may want to buy a model of a car that his colleagues have.

Factors that affect the influence of reference groups

56

Level of knowledge and experience of the individual. If the individual is not informed and is

inexperienced, he will rely on the group.

Credibility of the group – If the group is very credible, it can exert greater influence on the

individuals behaviour. It can then change the attitudes and beliefs of the consumers.

THE FAMILY

A family comprises the nuclear family (father, mother and children )and the extended family (up to three

generations living together, including uncles, aunts, cousins)

A household contains at least two people who are related by marriage or blood. Changes in family

structures such as the issues of divorce often represent opportunities for markets as normal purchasing

patterns become more activated as people make new choices about products and brands.

There have been major changes in family structures since the mid last century. Consumers have migrated

to urban centres largely due to availability of automobiles, while others have facilitated by high rates of

unemployment a mid high levels of education.

In Kenya, many urban families are now engaged in learning at some level, where in some cases, the

parents, are pursuing college education while the children are in high school. This puts pressure on the

family budget and a certain choices like luxury holidays are no longer common.

Another shift has been in the area of age of the family. Many families are now comprised of people used

35 to 44 years. This makes up nearly 40% of the households in the use, although in Kenya, the situation

may be slightly different. Because people have to spent a lot of their time going through the education

system before they settle down many people have to wait longer before getting married, and this again

has implications for business ranging from catering to cutlery.

Family size

Family sizes have been declining over the years and today, family sizes have dropped to almost 2.6

people, especially in the developed countries. Family size is dependent on such factors as education level,

availability of birth control and religion. Fertility rate is also an important factor and marketers keep a

close eye on the populations birth rate to gauge how the pattern of birth rate affects demand for products

in the future.

Sex of the family head

57

There has been an increase of households headed by single person in the last decade, paths due to divorce

or deaths. The number of unmarried adults is steadily rising and likely to continue rising. The spending

pattern for single men and women, is quite different, despite single makes grater incomes, single women

dominate many markets because of their spending patterns. Women spent more on housing related items

and furniture, while men spent more in restaurants and on cars

Living together

There is also a growing trend towards, children living with their parents longer than it was before. This is

particular so with urban parents where even the working (sometimes married) children are still housed by

their parents. Many adults also take care of their aged parents longer than it was before. This trend may

affect the housing and rental business as many young people want to be housed rather than rent house.

Effects of family structure on consumption

Family needs and expenditure are affected by such factors as the number of people in the family, ages of

the family members and number of adults in formal employment. How the couple spends time and money

depends on whether the couple has children and whether the woman works. Couples with children

generally have higher expenses. A couple with young children has a different operating pattern from that

with children in college e.t.c. Families where the woman is working also spent differently from where the

woman is not on formal employment and stays at home with the children.

Marketers are interested in family life cycle (FLC) which deals with changing needs and expenditure

requirements of families. It combines trends in income and family composition with the changes and

demands placed upon the income.

This is particularly valuable in predicting demand for specific product categories over time. Although

many models have been proposed to describe FLC stages, their usefulness has been limited because they

have failed to take into account such important social trends as the changing role of women, childless and

delayed child marriages and simple parent house holds

Four variables are necessary to adequately describe these trends:

-Adult head of household

-Marital status

-Presence or absence of children in the home

-Age of the children

58

The definition for marital status must be relaxed to include any couple living together who are in long

term relationship

Household decisions

Two basic types of decision are made by facilities:

1. Consensual purchase decision : The group agrees on the desired purchase and only differs on

how it will be achieved. They will engage in problem solving and consider alternatives until the

means of satisfying the groups goal is attained

2. Accumulative decision making: Recognized that members have different preferences and may

no agree on a purchase that will satisfy the maximum expectation of all involved. There is

therefore bargaining, coercion and compromise to achieve the primary goal of agreement on the

purchase.

Family decisions are often characterized by an accommodative rather than a consensual decision

Many conflicts may occur as relates to purchasing in the household due to such factors as.

Interpersonal need- depends on a persons level of investment in the group

Product involvement and utility – degree to which the product in question will be used to

satisfy a need.

Responsibility – who is responsible for making the funds decision

Power – the degree to which one family member exerts influence over the others in making

decision.

Traditionally, decision making depended on one of the spouses making the decision for example, men had

the sole responsibility for selecting the car to by, the land, cows e.t.c while women concentrated on

clothing house hold furniture and consumable. Food crops harvested from the shamba was the woman’s

property and could decide when to sell what kinds of harvested food crops. Children made very few

purchase decision.

This trend has changed and today members of the family decide together what is to be bought when it is

to be bought where and how much. Even children participate actively, for example by providing their

school or college requirements to the parents to buy

59

The family life cycle stages

A family goes through several stages, each with distinct features and requiring different purchase

decisions. These include;

1. The bachelor stage- young single

- Young and unmarried, can go up to 35 years

- very active, care free and with limited responsibilities

- few if any financial responsibilities

- live with parents, although some are independent

- fond of sports and other recreational activities

2. Newly married couples

Young, no children (empty nest). They lead joint life style and share new experiences and

responsibilities.

Usually have dual income part of which is spent on furnishing and household goods, the rest on

outings, vacations and luxuries

3. Full nest 1

- Young, married with children. A good proportion of spending is concentrated on baby food, clothing

and medical care. Life style changes greatly and most activities revolve around the child.

4. Full nest 2

– older married with children, heavy expenditure on school going children, toys bicycles outings with

children is common. Parents start spending less on themselves

5. Full nest 3

- older married with dependent children. Income is high and parents are experienced buyers. Spent

less on new products

6. Empty nest

– Older married with no children living with them. Financial position stabilizes and there is very

little spending on children. Couple is free to enjoy their own pursuits and spent on luxury and self

improvement.

7. Solitary Survivor

60

- Older single retired people often live alone due to death of a partner. Life becomes lonely and

income may reduce due to retirement. This again changes the consumption pattern and living style of

the old people.

These stages are important for marketers because they are related to spare time, available income

education and so on. Households at different life cycle have different consumption patterns and it is

important to understand these.

ANALYSING ORGANISATIONAL MARKETS AND ORGANISATIONAL BUYING

BEHAVIOUR

‘Treat the customer as an appreciating asset’ –Tom Peters

‘Companies don’t make purchases; they establish relationships’- Charles S. Goodman

INDUSTRIAL MARKETS

The term industrial marketing simply implies marketing that involves industrial products, that is

those products that are produced by manufacturing firms and sold to other organizations or firms rather

than to households. These goods are therefore not meant for consumption by the households, but are used

to facilitate organizational productivity. Industrial marketing thus deals with marketing of goods and

services among organizations as opposed to consumer marketing which deals with individuals and

households. Industrial marketing is engaged (internally) in the process of exchanging semi-furnished

61

products, component parts, operating supplies and equipment among the constituent manufacturing

establishment.

To be able to understand the concept of industrial marketing, we consider the movement of industrial

goods from the source to the users. This is given in figure 1. The flow encompasses the movement of

materials from mines as well as the return flow of goods to mines, farms, fisheries and other extractive

enterprises. For example soda ash is mined at Magadi in Kenya and sold for further conversion to soda

ash. Similarly, Athi River Mining, Portland Cement and Bamburi Cement are involved with extraction of

stone that is finally processed into cement. Such firms that are involved in the extraction process are

called Extractive industries. They may start the conversion process or sell the materials to other

manufacturers for further conversion. The final products are finally sold to the consuming or the user

units. The flow thus includes the movement of goods to government, non manufacturing business users,

exporters as well as between units within the manufacturing complex itself. This is so because the

manufacturing firms also need some of the materials, and therefore buy from one another.

Extractive Manufacturing Using and consuming

Industries Industries units

Figure 1: Flow of industrial goods from source to users

The flow involves movement from the suppliers to the users, in which the supply side of the industrial

marketing complex involves manufacturing and mining establishments as the major participants, while on

the demand side are households, government and exporters. In most cases, the producer and users of

Supply sideUser side

62

Farms Mines Forests Fisheries

Manufacturer sales to the manufacturers

Households

Other business uses

Government

Exporters

industrial products are linked by industrial middlemen, who include manufacturer branches, merchant

wholesalers, or distributors and agents. Merchant wholesalers are independently owned firms that buy

products from manufacturers and resell them on their own account. Agents represent only sellers, whom

they serve on a commission basis. Brokers also come in to provide essential services, for example by

negotiating and facilitating sales for a commission. Other players include advertising agencies, consulting

firms, transportation companies and financial institutions. Thus, the participants in the industrial

marketing system are linked by both direct and indirect channels. For a direct channel, the producer

controls the distribution by being in direct contact with the consumer. An indirect channel involves

independent middle men who limit the control of the manufacturer can exercise over the marketing of the

products.

RESELLER MARKETS

Organizations that buy goods and services in order to resell them at a profit. Usually middle men

such as wholesalers and retailers. These are Very important in the distribution of goods and services.

Functions of the Reseller Markets (Same functions as retailers and wholesalers)<<<<>>>

GOVERNMENT MARKET

These are government agencies that buy goods and services in order to produce public services or to

transfer these goods and services to those who need them.

They include government departments and public institutions such as universities and hospitals.

The government is a major buyer of industrial as well as consumer goods.

(Define nature of government procurement)

CONSUMER MARKETS

Refers to individuals who buy goods and services for household consumption. They buy fully processed

goods and services for final consumption.

Marketers need to understand the unique characteristics of consumer markets. These markets tend to have

- Very many buyers who buy in small quantities

- The buyer are small usually individuals or households

- They tend to have long channels of distribution characterized by middlemen

63

- The demand for consumer’s goods tends to be elastic and direct.

- The relationship believe buyers and suppliers of a consumer goods and service tend to be less

formed that those for industrial goods.

ORGANISATIONAL BUYING

Organizational buying is the decision making process by which formal organizational establish the

need for purchased products and services and identify, evaluate and choose among alternative brands and

suppliers.

BUSINESS MARKET

This consists of all the organizations that acquire goods and services used in the production of other

goods and services for supply to others. Their characteristics include:

- They deal with fewer buyers than consumer markets.

- Buyers tend to be large. For example, buyers of aircraft are few but large.

- Suitably a few large firms buy cranes.

- There is a close relationship between customers and suppliers in business markets.

- Suppliers are often expected to customize their offerings to individual business customers needs.

- They are concentrated in large towns and cities.

- The demand for business (industrial) goods is derived from the demand for consumer goods. For

example, demand for skins and hides arise because customers want leather products such as shoes.

Demand for steel metal is derived form demand for steel products such as spoons.

- Business buyers often buy directly from the manufacturers without involvement of middlemen.

- The total demand for most business (industrial) foods is inelastic i.e it is not affected much by price

changes. It is especially inelastic in the short run because producers cannot make quick changes in

their production methods.

Buying situations:

Buying phases are classified into three categories, namely straight re-buy, modified re-buy, and new task.

Straight Re-buy- In this case, the problem faced is not a new one, and there is minimum information

requirements with no consideration of alternatives. These are highly routinized as the problem arises

on a regular or repetitive basis. It is the most prevalent in industrial marketing, and is also called

automatic reordering. The decision is usually decided at the lower level of management.

64

Modified Re-buy – This is essentially characterized as a learning problem which has certain new

aspects, but limited importance of considering alternatives. Such situations are located on the

continuum between straight re-buy (habitual) and new task (complex) decision making. It involves

consideration of new suppliers, items or marketing services, buy buyers who have considerable

relevant buying experience.

New task – This describes a buying situation in which the problem encountered is a new one.

Information requirements are high and the consideration of alternatives is very important. This

requires top management decision making. It involves buying goods that are very expensive and have

many cost implications to the firm, or the firm is buying material that has not been used before, which

will therefore affect the firms operations.

Participants in the Business Buying Process

In the buying process there are many participants who have face-to-face contact with others with respect

to the purchase decision and who realize or perceive both an influence and a responsibility to a purchase

decision. The main participants are purchasing agents, scientists and managers.

1. Purchasing agents – This includes all purchasing department personnel and other staff who are

responsible for vendor section decisions. Although the purchase process may be routine, the role of

the purchasing agent increases as the organization becomes bigger. He becomes a gatekeeper of the

entire process, and is responsible for the maintenance of good relationship with suppliers. The agent

acts as a catalyst in generating alternative solutions to the purchasing problems. He is responsible for

integrating the various skills involved, such as marketing, legal implications, and finance.

2. Scientists – In the context of industrial purchasing, scientists are people with considerable education,

in areas such as engineering, chemistry, physics, biology and so on. They have considerable technical

know how related to the products. They influence decisions by providing technical expertise, for

example by determining the feasible set based on technical criteria and other attributes. The feasible

set can help in selecting the right suppliers.

3. Managers. Managers are crucial in making decisions based on advice by the technical personnel and

the purchasing agents. The top level managers make decisions based on the more complex and

important purchases, while lower level managers make decisions related to lower and less important

purchases.

65

In general, the main tasks played by the participants place them into the following:

1. Users – those who will use the product. They may influence the product development

specifications, because they know exactly what they need in a product.

2. Gatekeepers – These control information to be received by other members of the buying centre.

This may be done by releasing printed information or restrictively authorizing those to release

information.

3. Influencers – They influence decisions by providing vital information on alternatives. This may

relate to technical aspects, quality control and so on. They are very well informed about the market

and know where to get which products and at what conditions.

4. Deciders – those who actually make the buying decisions, whether or not they have formal

authority to do so. The overall authority may lie with the top executive, depending on the product.

5. Buyers – the buyer has formal authority a selecting a supplier and for implementing all the

producers.

To target their efforts properly, business marketers have to figure out

- The main decision makers

- The decisions they make

- Their level of influence

- The evaluation criteria they use.

Major influences on industrial buying behaviour

1. Environmental

- Level of demand

- Economic outlook

- Rate of technological change

- Political and regulatory developments

- Competitive developments

- Social responsibility concerns

2. Organizations factors

- Objectives

66

- Policies

- Procedures

- Organizational structures

- Systems

3.Individual factors

- Age

- Income

- Education

- Religion

- Personality

- Attitude towards risk

- Culture

6

ANALYSING COMPETITORS

67

Competition can have both positive as well as negative effects on a company’s market opportunity. For

example, competition can cause an entire market to flow through market development, which results from

more people becoming aware of the product, and therefore more people buying the product, thereby

increasing total sales for the entire industry.

But competition limits market opportunity for individual companies. Firms try to enhance their

competitive position by using appropriate marketing strategies, and as long as the company has a stronger

competitive position than the others, it will expand its market share while that of the weaker firms is

reduced. It is therefore important for marketers to analyze competitors in the market in which they

operate. A good starting point would be to identify the competitors

IDENTIFYING THE COMPANY’S COMPETITORS

You cannot deal with a competitor you do not know.

Need to know the name of the competitor, the physical location and address, age and size of the

competitor. It is important to know whether the competitor is -multinational

or indigenous, and the ownership status. Strengths and weaknesses of the competitors are also very

important

Competition – this can have both positive as well as negative effects on a company’s market opportunity.

For example, competition can cause an entire market to flow through market development, which results

from more people becoming aware of the product, and therefore more people buying the product, thereby

increasing total sales for the entire industry.

Competition limits market opportunity for individual companies. Firms try to enhance their competitive

position by using appropriate marketing strategies, and as long as the company has a stronger competitive

position than the others, it will expand its market share while that of the weaker firms is reduced.

IDENTIFYING THE COMPETITOR’S STRATEGIES

Competitors use different strategies, and it is impossible to deal with a competitor whose competitive

strategies you do not know. The strategies may depend on the competitor’s strengths, weaknesses,

opportunities and threats . Competitors make many strategies depending on the market situation in which

they operate. Competitors make many strategies depending on the market situation in which they operate,

the management level, and the life stage of the market

68

Corporate Marketing Strategies

These strategies try to carry out the organization missions and objectives by specifying how to attain them

thro’ strategic program. They focus on the entire organization and objectives include expanding market

share, entering new market or exiting from the market. The organization, given specific objectives might

come up strategic program with goals as follows.

Gaining initial foothold – the company would introduce new products to gain a foothold.

Penetrating the market – firm would have program directed toward achieving some specified level of

market share.

Vertical integration – A firm would take an activities usually done by others, for example a manufacture

opening do his own retail outlets, or a company marketing products under its own brand name, as is now

happening with most supermarkets in Kenya – while they are branding bread, rice and so on.

Horizontal integration – when a company buys out competitors or opens its own competing divisions in

the same line and level of business.

Exiting from the market – this occurs when products become unprofitable and requires program to

achieve planned exit from the market.

DIVISIONAL MARKETING STRATEGIES

These are strategies developed by the strategic business units (SBUs) typically, each SBU

- Is a single unit with separate and distinct missions

- Controls its as our resources

- Has a top management team in charge of its operations

- Faces distinct markets and competitors

Each SBU therefore develops its own strategies which must not be in conflict with the overall enterprise

goals, and may adopt any of these general types of strategy: maintenance, contraction, expansion .

Maintenance – seek to maintain the status quo, i.e. to retain the current market there, market position,

image, and reputation. This is appropriate when existing markets and products are well defined and the

organizations current approaches only need minor adjustments. The emphasis is on ‘control’ in order to

get more from the same program, by making only minor adjustments on price, distribution, and enhance

on sales efforts.

69

Contraction strategies – used when an organization plan to retreat from existing markets and products,

usually through retrenchment, divestiture, liquidation or bankruptcy. Sometimes a maintenance strategy is

adopted before contraction, for example by deciding not to invest further in an SBU but just maintain the

status quo before liquidating the unit.

Expansion strategies – this range from managing existing products better to adding new products, and

from reaching existing markets to cultivating entirely new markets. They are the most popular by far, as

management wants to add products, enter new markets, and generally grow and diversify. Major

expansion strategies are categorized as

- Market penetration

- Market development

- Product development

- Diversification

-

Fig: Product/market expansion matrix: source Laser, marketing mgt Pg. 140

1. Market Penetration – refers to existing products and existing markets. The organization tries to expand

by gaining greater dominance in markets it already serves. This may be done by encouraging existing

customers to buy more than before, or by winning customers from competitors. It may also be done by

reaching customers who have not tried the product before.

70

New

Exi

stin

g M

arke

ts

M

arke

ts

Existing products New Products

Market Product Penetration Development

Market Diversification Development

2. Market development – an organization sells existing products in new markets. This may include

expanding into geographically new locations, or finding new uses for existing products. For instance, a

manufacturer may slightly modify products to suit new markets, which is less risky.

3. Product development – this strategy involves marketing new or improved products in existing markets.

For example, Boeing followed this strategy in developing its new Boeing 767. It is more risky more

involving and more expensive than the other strategies; yet all firms at one time or another must

undertake this strategy in order to survive and grow. In adopting this strategy, the firm must decide

whether they want to lead or follow, and in which market segments. It must also decide whether to

select the entire market as its relevant market and challenge all the competition, or to start with only

certain segments or narrow market niches before expanding to the entire market.

4. Diversification – Diversification strategies deal with developing new products for new markets. It can

be a high risk strategy especially considering that it involves both new products and new markets. Some

of the goals for diversification are

- To survive - To prompt competition

- To grow - To enter new market segments

- To increase sales volume - To gain market share

- To spread risks

Diversification has application in the following

Concentric diversification – an organization expands its core business into new but related

products and markets. For example, are motor vehicle insurer may include road rescue services as

is the care with premier road Rescue Company.

Similarly a manufacturer of soaps and detergents may include production of cooking oil.

Conglomerate diversification – involves adding new product lines and whole new companies

which may not relate to the organization lines and markets, but because they promise increased

opportunities to offset seasonal fluctuations and help spread risks. An example is the Securicor

Company that has added courier services to its services. Most commute services in Kenya e.g.

Akamba and Coast Bus Services also have included Courier services among their services.

71

Horizontal diversification – a business unit adds new products in the same general line or industry.

For example, a fish, chicken and chips cafeteria may add pop corns to its lines of offerings. It may

also be achieved by a company purchasing or controlling companies in the same line of business.

Vertical diversification – an organization adds new products new markets by moving backwards

or towards in the manufacturing or distribution system. For example when oil refiners mine coal

and produce petroleum based chemicals, they diversify vertically. A manufacturer may also

undertake services previously handled by others, for example, a manufacturer undertakes

distribution and selling of his products instead of rising distributors and wholesalers.

The basic objective is to improve procurement or marketing while lowering the cost of needed

products and ensuring their availability.

The development of marketing strategies is a continuing, dynamic process which entails a

sequence of decisions, assessment of the competitors more, and development of counter strategies.

To be effective strategies should be articulated clearly and precisely enough to give direction.

The appropriate strategies should be carefully selected, taking into new firm’s perceived

opportunities, resources, its missions and objectives, and its markets and competition.

Management should be a firm grasp of the firm’s resources, missions and objectives.

The figure below shows the ranking of the strategies most likely to be used under growing and

declining market conditions and weak and strong competition.

Growing Markets

Weak Competition Strong Competition

72

Concentration Horizontal diversification Concentric diversification Vertical integration

Concentration Vertical integration Concentric diversification Horizontal diversification

Retrenchment Conglomerate

diversification DivestitureLiquidation Bankruptcy

Concentric diversification Conglomerate diversification Joint venture into new markets

Declining Markets

MARKET ENTRY STRATEGIES

In entering a new market, a firm can use several strategies.

Pioneer Strategy

This takes a very high risk and probably experiences more failures than other strategies, but if successful,

the reward is very handsome. One can always try to sustain competitive advantage once he becomes the

first to enter a market. Some of the potential sources of competitive advantages available for pioneers

includes:

- First choice of market segments and positions

- The pioneer defines the rules of the game

- Economies of scale and experiences

- Distribution advantages

- Early switching costs for early adapters – those who become first customers find it expensive to

switch to others.

- Possibility of preempting scarce resources and suppliers.

- Influence on consumer choice criteria and attitudes.

Follower strategy

Sometimes a firm may, either deliberately or by default, allow itself to be beaten to a new product by

quicker competitor.

Possible advantages of being a follower include:

- Ability to take advantage of the pioneer’s positioning mistakes

- Ability to take advantage of the pioneer’s product mistakes

- Ability to take advantage of the pioneer’s marketing mistakes.

- Ability to take advantage of the latest technology

- Ability to take advantage of the pioneer’s limited resources.

73

Research evidence suggests that a pioneering firm stands the best chance for long term success in market

have leadership when

- There are strong barriers to entry by competitors at least for a while.

- The firm has sufficient size, resources and competences to take full advantage of its pioneering

positions.

Such successful pioneering firms tend to support their early entry with one or more of the following

marketing strategy elements.

- Large entry scale

- Broad product line

- High product quality

- Heavy promotional expectations

STRATEGIC MARKETING PROGRAMS FOR PIONEERS

There are three different types of pioneering strategies.

- Mass market penetration

- Niche penetration

- Skimming and early withdrawal

Mass market penetration – The primary objective is to capture and maintain a commanding share of

the total market for the new product. It aims at convincing as many customers as possible to adopt the

new product so that units costs are reduced, and to build a large pool of loyal customers before

competitors enter the market.

Niche penetration – this works for small firms that may not wish to capture the entire market, but

focuses effort on a single market segment. It is particularly attractive when there are few barriers to

the entry of major competitors and when the pioneer has only limited resources and competencies to

defend any advantages it gains through early entry.

Skimming and early withdrawal – this involves setting a high price and engaging in only limited

advertising and promotion to maximize profits and recover the products’ development costs as

quickly as possible, by the time competitors come into the market, the firm is ready to move into new

segments of the market, or to re-launch the product at a high level of technology.

74

STRATEGIES FOR GROWTH MARKETS

Strategies for pioneers (Leaders)

In a growth market, the market leaders, usually the pioneer, would like to maintain and expand its

market share, and will therefore have three main objectives.

- To retain the current customers

- To stimulate selective demand among later adopters

- To stimulate primary demand to help speed up overall market growth.

The following strategy may therefore be used

1. Fortress (Position defense) strategy

The firm builds up very strong defense to repel attack by current and future competitors. The firm

tries to increase satisfaction, loyalty and repeat purchase among current customers by building on

existing strengths. It also appeals to late adopters with same attribute, and benefits offered to early

adopters.

2. Flanker strategy

This involves developing a second brand (fighting brand) to compete directly against the challenge’s

offering. The purpose of the fighting brand is to shield the firm’s main brand from the competitor, and

is often a lower quality product designed to appeal to a low-price segment. It is always used in

conjunction with a position defense strategy, in which the leader simultaneously strengthens its

primary brand while introducing a flanker to compete in segments where primary brand is vulnerable.

E.g. Toyota introduced the Lexus brand of automobiles as a flanker.

3. Confrontation strategy

This involves taking on a competitor head to head to prevent the competition from taking away the

firm’s customers. With a good intelligence system, the firm can detect competitors and quickly

proactively change its marketing program before a suspected competitive challenge comes. A

confrontational strategy tends to be reactive in that the leader usually lives to meet or beat the

attractive features of the competitor. This may be done by making product improvement, increasing

promotional efforts, or lowering prices. However, this does nothing to re-establish a sustainable

competitive advantage for the leaders. Further lowering prices may depress profit margin the firm

may therefore adopt a penetration pricing policy and try to re-establish the competitive advantage

eroded by the challenges frontal attacks.

75

4. Market expansion strategy

This is a more aggressive and proactive version of the flanker strategy. The leader defends its relative

market share by expanding into a number of markets segments. The primary objective is to capture a

large share of new customer groups who may prefer something different from the firms initial

offerings, protecting the firm from future competitive threats from a number of directions. This may

be done by developing line extensions, new brands, or alternative product forms utilizing similar

technologies to appeal to multiple market segments.

5. Contraction or strategic withdrawal

In some cases, the leader may be unable to defend itself in some segments, especially when the newly

emerging competitors have more resources than the leader. The firm may have to reduce or abandon

its efforts in some segments to focus on areas where it enjoys the greatest relative advantage, or in

areas that have the greatest relative advantage, or in areas that have the greatest potential for growth.

SHARE GROWTH STRATEGIES FOR FOLLOWERS

Followers usually come into the market after the pioneers. Their main objectives would therefore include:

- To eventually surpass the leader by capturing a dominant market share.

- To seek to build a small but profitable business within a specialized segment of the larger market

that the pioneer may have overlooked.

- To attain a share growth and become a major challenges to the pioneer.

Followers may adopt the following share growth strategies

- Frontal attack

- Leapfrog strategy

- Flanking attack

- Encirclement

- Guerilla attack

An important initial decision that must be made is to decide who to attack, especially if more than one

competitor exists. Options include:

- Attacking the market share leaders within its primary target market – either frontal assault or

leapfrog strategy.

76

- Attacking another follower who has an established position within a major market segment –

usually by frontal assault

- Attacking one or more smaller competitors who have only limited resources – involves

eliminating the small competitors one at a time to finally gain market large share.

- Avoid direct attacks on any established competitor – involves either flanking or an encirclement

strategy.

Frontal Attack

In situations when the market is relatively homogeneous with respect to customers’ needs and few

untapped segments, and at least one established competitor. This is likely to succeed when most existing

customers do not have strong brand preferences or loyalties. If the challengers have a cost advantage, it

can cut prices to attract customers from the competitor, or it can maintain the same price but engage more

extensive promotion. This can only work if the challenger has offsetting advantages (otherwise the

competitor will similarly lower prices) such as more advanced technology. The best way for a challenger

to effectively implement frontal attack is to differentiate its products or associated services in ways that

better meet the needs and preferences of many customers.

Leapfrog strategy

This is an attempt to gain a significant advantage over the existing competition by introducing a new

generation of products that significantly out perform existing brands. The challenges seek to attract repeat

purchasers from competitors customers by offering product that are more attractively differentiated than

the competitor. Superior to that of established competitors, and must have the already adopted that the

new products offers sufficient benefits to justify the cost of switching.

Flanking and Encirclement strategies

These seek to avoid direct confrontation by focusing on market segment whose needs are not being

satisfied by existing brands and where no current competitor has a strongly held position.

Flank attack

Appropriate when the market can be broken down into two or more large segments, when the competitors

hold a strong position in the primary segment, and when no existing brand fully satisfies the needs of

77

customers in at least one other segment. The challenger may concentrate on one large untapped segment,

by developing product feature tailored to the needs and preferences of the targeted customers, together

with appropriate promotional and pricing policies to quickly build selective demand. A challenger can

sometimes meet the special needs of an untapped segment by providing specially designed customer

services or distribution channels.

Encirclements

This involves targeting several small untapped segments in the market simultaneously. The idea is to

surround the leaders brand with a variety of offerings aimed at several peripherals segments. It involves

developing a varied line of products with features tailored to the needs of different segments. For example

Cadbury Schweppes has avoided direct confrontation with Coca-cola and Pepsi in the soft drinks industry

by offering a wide variety of flavours such as cream soda, ginger ale etc, which lack the color and appeal

to small groups of customers with unique tastes. E.g. BIDCO uses prestige to attack BB of Unilever.

Guerrilla Attack

Involves making a series of surprise raids against the more established competitors, especially when the

competitors are already very well established in all the major segments. The challenger should use

guerrilla attacks sporadically, perhaps in limited geographic areas where the competitor is not particularly

well rooted. This may include sales promotion efforts, or short term price cuts. Sometimes several smaller

competitors may also bring lawsuits against the leader on a number of activities in order to slow down the

leader’s expansion by diverting some of its resources and attention.

STRATEGIES FOR MATURE AND DECLINING MARKETS

Although many managers tend to concentrate on growth related objectives (such as increasing sales

volume or market share), there is a major challenge on how to deal with mature and declining markets.

This is particularly so in the developed countries where many firms have reached maturity.

During transitions from growth to maturity, there is often a shakeout during which weaker businesses fail,

withdraw from the industry, are acquired by other firms. Business that survive the shakeout face new

challenges as the market growth stagnates. A primary objectives of all competitors in the mature markets,

is simple to hold their existing customers – to ensure they are satisfied and loyal. A share leader in such a

78

market might build on a cost – or product differentiation and aim at increasing volume by encouraging

current customers to buy more of the product.

In the declining market, the main challenge is whether to divert or liquidate the business. It may be

universe to support a dying product for too long at the expense of current profitability. However, an

appropriate strategy can produce substantial sales and profits even in a declining market.

MARKETING STRATEGIES FOR MATURE MARKETS

The objectives during the maturity should be to sustain the sales by extending the market life cycle, with a

possibility of moving into a period of renewal growth. Thus, stimulating additional volume growth can be

an important secondary objective. The main strategies that can be used include

- Penetration strategy

- Extended use strategy

- Market expansion strategy

Increased penetration strategy. This is concerned with finding out why non users are not intended in the

product, and then enhancing the products value by adding new feature, benefits or services. The firm can

also stimulate additional primary demand through promotional efforts targeting non users. The firm can

also increase its distribution as some non users may not have access to the product.

Extended use strategy. This works best in situations of good penetration but low frequency of use. It

can be done by:

- Moving storage of the product closes to the point of end use, for example, by opening a hostel

near a university, or piling up store for sale near a construction site.

- Encouraging larger volume purchasers especially for non perishable, by offering quantity,

discounts or having large volume packages, of packing rice in 5kg instead of 1kg or sugar packed

in 2kg not one 1kg as Mumias has been doing.

- Reminder advertising to remind customers to use the product no frequently.

- Extending use among current customers by finding and promoting new functional uses for the

product.

Market expansion strategy – this can be done by exploring new opportunities either wthin the domestic

geographic markets or globally. One may do this by developing differentiated positions focused on

untapped or undeveloped segments by:

79

- Building unique distribution channels to more effectively reach potential customer in untapped

segments.

- Developing multiple line extensions or brand offerings with features targeted at the unique needs

of the target customers.

- Entering global markets where product category is in an earlier stage in its life cycle.

STRATEGIES DECLINING MARKETS

For a declining market, conventional wisdom dictates that firms should either divest declining products

quickly or harvest them to maximize short term profits. However, not all markets decline in the same

way, hence the appropriate strategy should be dictated by the relative attractiveness of the declining

product and the market and business competitive position within it. Three sets of factors help to dictate

the strategic attractiveness of declining product markets:

Conditions of demand – decline in demand may be due to different factor such as technological

advances that result in substitute products, demographic shifts, changes in consumer needs, tastes

and lifestyles etc. reasons for decline need to be known before coming up with a appropriate

strategy.

Exit barriers – when there are high exit barriers, weaker competitors will find it hard to exit,

thereby creating excess capacity as demand falls. Firms will therefore engage in aggressive

pricing or promotional efforts to try and maintain their volume and hold down unit costs.

Intensity of future competitive rivalry - Even when there is a likelihood of continued demand in a

declining business, it may not be wise for the firm to pursue it in the face of future intense

competitive rivalry.

STRATEGIES USED

Divestment and Liquidation

This involves selling the business to recover some of the investments. It should be done quickly as

possible before buyers are certain about the future direction of the demand pattern in the industry.

However, a firm that divests early runs the risk that is forecast of the industry’s future may be wrong.

Further divestment may not be easy where exist barriers are high.

Competitors that refuse to divest and choose to remain in the declining market can adopt the following

strategies:

80

1. Harvesting strategy – this is also called milking, and aims at generating cash quickly by

maximizing cash flow over a relatively short term. It is done by avoiding additional investment

and reducing operating expenses, and perhaps raising prices.

This works best if the firm holds a relatively strong competitive position in the market at the start

of the decline, or when competition among the remaining competitors is not likely to be strong.

2. Maintenance strategy – Done in situations where future direction and attractiveness are hard to

predict. A business with a leading share will try to maintain that share, at least until the markets

future becomes more predictable. This often results in reduced margin and profits in the short term

as the firm usually must reduce prices or increase marketing expenditures to hold the share in the

face of declining industry volume.

3. Profitable survivor strategy – A business with a strong share position and as sustainable

competitive advantage may decide to make more investment to increased its share positions and

establish itself for the remainder of the markets decline. The firm might encourage smaller firms

to abandon the business by being visible and explicit about its commitment to become the leading

survivor. It should aggressively seek increased market share either by cutting prices or by

increasing advertising and promotion expenditures.

4. Niche Strategy – the firm identifies one or more of the segments that remain as stable pockets of

demand as other segments decline. The firm then focuses on this segment by developing a strong

competitive position in the segment.

DETERMINING THE COMPETITOR’S OBJECTIVES

Competitors often have multiple objectives such as profit maximization, market share growth, cash

flow, technological leadership, customer satisfaction, etc. It is important to know what weight is attached

to the various objectives as so as to know what objective is more important. This will enable the

company to know how the competitor is likely to react to different types of competition attack. For

example, a company that pursues low cash leadership will react more strongly to a company that has

significantly reduced its costs.

81

A competitor objectives are shaped by many things, including its size, history, current management,

financial situation, and place it occupies in the larger organization. If the competitor is not very strongly

tied to the parent company, it is easier to attack than if it is a very critical company to the parent company.

A company must also monitor its competitor’s expansion plan in order to develop strategies that

counter the expansion.

ASSESSING COMPETITOR’S STRENGTHS AND WEAKNESSES

Strengths and weaknesses relate to the internal environment of the firm. A company should gather

sufficient information on each competitor’s business, including data on sales, market share, profit margin,

return on investment, cash flow, new investment and capacity utilization. Most of this data is within the

company therefore difficult to get.

Knowing a competitor’s strengths and weaknesses helps the company to know the best strategy to

adopt in dealing with the competitor. Some companies have resorted to bench marking their most

successful competitors. This involves more closely monitoring the competitor’s market share

performance in relation the company’s market share.

ESTIMATING THE COMPETITOR’S REACTION PATTERNS

It is important to have some idea as to how the competitor is likely to react to other companies

strategies (such as price reductions or product introduction). Each company has its own philosophy of

doing business, corporate culture, beliefs and values that guide it. A deep understanding of a competitor’s

mind-set helps a company to anticipate how the company might react or act.

There are four main categories of competitors:

- The laid back competitor

This competitor does not react quickly or strongly to a rival’s move. This may happen if the

competitor thinks he has loyal customers, is milking the business, is slow in noticing the move or lacks

the funds to react. Rivals must try to assess the reasons for the competitor’s laid back behaviour.

82

- The selective competitor

This reacts only to certain types of competitors and not to others. For example, the competitor

may respond to price cuts but not to promotional appeals. Knowing what a key competitor reacts to give

its rivals a cue as to the most feasible lines of attack.

- The tiger competitor

Such a competitor reacts quickly and strongly to any assault on its terrain. Such a competitor

carefully monitors its rivals and gathers information on the rival’s likely attacks and prepares to react

immediately on the assaults.

- The Stochastic competitor

This kind of competitor is rather unpredictable. The reaction depends on the situation and the

competitor may or may not react to assaults. The response may depend on availability of resources

and the prevailing circumstances.

DESIGNING THE COMPETITIVE INTELLIGENCE SYSTEM

A company needs to have a well elaborate and cost effective intelligence system that facilitates

quick response. Everyone in the company needs to be able to quickly detect any sensitive competitive

information and pass it on to the right authorities for relevant response.

Designing a good competitive intelligence system involves 4 main steps.

1. Setting up the system.

This involves identifying the main types of competitive information, identifying the main sources of

the information and assigning a person who will manage the system.

2. Collecting the data.

The data is collected on a continuo’s basis from the field (usually by the sales personnel), trade

associates and research firms, from competitor’s employees, from published data (government records)

and by observing the competitors behaviour. The company should as much as possible use legal and

ethical means by collecting data.

83

The company has to develop effective ways of acquiring needed information about competitors

without violating legal and ethical boundaries.

3. Evaluating and analyzing data;

The data should be cleared for validity and reliability, interpreted and organized. Various statistical

tools exist for data analysis . It may involve quantitative as well as qualitative techniques, descriptive and

interpreted statistics.

4. Disseminating information and responding

This involves sending key information to relevant decision makers including managers so as to know

how to respond.

Some companies have intelligence departments that specialize with market intelligence while others

( especially small ones) assign specific executives to watch specific competitors.

It is also important to know that the intelligence systems are expensive to maintain and companies

should try to match the cost such systems to their profit objectives.

SELECTING COMPETOTORS TO ATTACK AND AVOID

Having a good competitive intelligence system should enable a company to identify the competitors

that it can attach and ones that it should avoid. The company should carefully asses its own strengths

and weaknesses and weighs them against those of the competitors.

In doing this the company needs to carry out customer analysis to reveal its strength and weaknesses

relative to those of the competitors.

The aim is to determine the benefit that customers in a target market want and how they perceive the

relative value of competing suppliers offer. Once they have done that the company can focus its attack on

one of the following classes of competitors:

1. Strong verses weak competitors

Whereas a company would want to attack the weak competitors ( they need fewer resources to

attack). It is also important to try and attack the strong competitors in order to keep up with the

state of the art. Furthermore even the strong competitors have some weaknesses.

84

2. Close verses distant competitors

It is important to carefully assess whether to attack competitors that are closest to you or the ones

that are far and different. Attacking ( and destroying) competitors that are very close ( or similar)

to you may open stronger external competitors that may be difficult to deal with. It may be

advisable to spare competitors that are closest to the company because they are easier to deal with.

3. ‘Good’ versus ‘bad ‘ competitors

Every industry has Good’ and ‘bad ‘ competitors. It is therefore imperative that a company should

attack its bad competitors and support its good competitors.

Good competitors are those that play the industry’s rules, make realistic assumptions about the

industry, set reasonable prices in relation to costs and generally engage in ethnical practices.

They help in improving industry bargaining power, acquisition of new technology and increase

the total demand.

Bad competitors violate the rules they try t buy the share rather that earn it, take large risks and

invest in overcapacity.

BALANCING CUSTOMER AND COMPETITORS ORIENTATIONS

A company needs to create a balance between the attention it gives to its customers and that it gives to

competitors. A company can become so competitor centered that it looses its customers focus. Similarly a

company can become so customer centered that it looses competitor focus.

A competitor centered company is one whose work is basically dictated by competitor’s actions and

reactions. This helps the company to develop a fighter strategy. However this may make the company fail

to move towards its goals as it moves will depend on what its competitors do.

A customer centered company focuses more on customer developments in formulating its strategies.

Such a company is in a better position to identify mew opportunities and use a strategy course that makes

sense. Monitoring customer needs enables the company to decide which customer groups and emerging

needs are the most important to serve given its objectives and resources.

In practice today’s companies must carefully monitor both customers and competitors.

85

IDENTIFYING MARKET SEGMENTS AND SELECTING MARKET TARGETS

“Small opportunities are often the beginning of great enterprises”

MARKET SEGMENTATION

Segmentation involves subdividing the market into distinct subsets of customers who are relatively

homogeneous, so that specific marketing mix strategies can be developed to secure each segment. To be

useful to a marketer, a segment should be

Sufficiently large (so that it can provide a sustainable market)

Accessible (This ensures that the supplier can easily reach the customer) Accessibility is

viewed from the point of view of infrastructure (transport) as well as communication

(telephone, internet and so on)

Have a potential for growth ( should have clear indicators for sustained growth)

Measurable - Degree to which size and purchasing power of buyers can be measured.

Action able- Degree to which effective programmes can be designed for attracting and

serving a market segment.

It can be done at different levels

- Segments

- Niches

- Local Areas

- Individuals

In order to be able to clearly understand these we first define mass marketing.

Mass Marketing: The seller engages in the mass production, mass distribution and mass promotion of

one product for all buyers. It tends to create the largest potential market, which may increase economies

of scale which can translate into either lower price of higher profits.

86

Segment Marketing: A market segment consists of a large identifiable group within a market. A

company dealing with segment marketing recognizes that customers are different in terms of their wants,

buying attitudes, geographical locations and purchasing power.

However the company does not customize its offerings but tries to isolate some broad segments that

make up a market. Segmentation marketing is the midpoint between mass marketing and individual

marketing.

Consumers of a particular segment are assumed to be similar in their wants and needs although not

identical. Thus members of a particular segment may need specific attention.

Segment marketing enables a company to create more refined product service offerings and price

come up with appropriate price, distribution and promotion programs suitable for the target market.

Niche marketing: A niche is a more narrowly defined group than a market segment. Within a market

segment, there may be some members whose needs are not being met. These groups are identified and

specific program designed to serve them. Niche marketers presumably understand their niche so well

that their customers are willing to pay a price premium. A good niche is one whose members have a

distinct and complete set of needs which the firm tries to serve. The niche is not likely to attract other

competitors, and the niche has sufficient size, profit and growth potential.

Local marketing: There is a growing trend towards regional or local marketing, with marketing

programs being tailored towards the needs and wants of local customer groups.

There is emphasis on local customer groups, for example developing products for the coast province,

the rift valley province or the east African market. This enables the company to concentrate on the

localized market especially where resources do not allow it to go global. The main limitation to this

kind of approach is that it reduces economies of scale which lower the profit margins.

Individual marketing: This is essentially a one to one approach in which a company identifies one

customer and concentrates on that customer. This customized marketing in which a firm makes products

that are tailor made to suit certain customers only. For example a company that makes graduation gowns

for a university or police uniforms for the police force.

87

Self marketing: this is a form of individual marketing in which the individual customer takes more

responsibility for determining which products and brands to buy.

MARKET SEGMENTATON PROCEDURE

There is no one common procedure for segmentation. However there is a three step approach that is

commonly used.

Step one : Survey Stage

This involves conducting exploratory surveys among consumers to gain a deeper understanding of the

consumer behaviour, attitudes, and motivations. Data is collected regarding product usage, brand

awareness, demographic geographic and psychological variables.

Step two : Analysis Stage

The researcher applies factor analysis to remove highly correlated variables, then cluster analysis to

create a specified number of maximum different segments.

Step three : Profiling Stage

Each cluster is profiled in terms of its distinguishing features such as attitudes behavior,

demographics, and psychographics and media patterns. Each segment is then given a name based on a

dominant distinguishing characteristic. Market segmentation must be done periodically because market

segments change with time. This is because the segment comprises of dynamic customers whose behavior

patterns keep changing.

BASIS FOR SEGMENTING MARKETS

Market segmentation may be based on two bases:

1. User – oriented : This includes such categories as location (geographic), demographic,

psychographic and behavioural.

2. Product usage : Under this system we have such categories amount of use, time of use, place

of use.

We will explain these categories below:

88

1. Geographic Segmentation : Market divided into different geographic units such as regions or

countries. For example selling fish in Nyanza province, as exporting tea to Pakistan.

2. Demographic Segmentation: Based on such variables as:

2.1 Age – some products like cigarettes are meant for mature people; which children may

like toys.

Life styles – some people prefer certain lifestyles for example, use of dark sun goggles.

Occupations A marketer may target people of certain professions. Such as teachers, managers, sailors,

drivers, photographers etc. These have different needs.

Religious – Christians, Muslims etc.

Sex – ladies or gentlemen.

2. Psychographics – Based on the social class, lifestyles or personality of the individuals.

3. Behaviour – buyers divided on the basis of their knowledge, attitude or response to a product.

4. Usage – Based on consumption patterns. We have large scale and small scale purchasers.

5. Loyalty Segmentation – on the basis of loyalty to certain products.

6. Occasion Segmentation – based on occasions such as success cards, x-mas cards and other

seasonal cards for a specific occasion.

7. Benefit Segmentation – Focuses on reason for seeking a product – Producers can design products

according to different benefits.

For industrial goods, the main criteria of segmentation include

1. Demographic

- Industry - what industry to serve: agricultural

- Company size – Small , medium, large

- Location – geographical location

2. Operating variables

- Technology – what customer technologies should we focus on

- User /non user status – heavy medium, light or nonusers.

- Customer capability- whether to serve the customers requiring many or fewer services.

89

3. Purchasing approvals.

- Purchasing a function organization – whether to serve an organization whose functions are

highly centralized or one whose functions are decentralized.

- Nature of existing relationships, whether to serve companies with which we have strong

relationships or simply go after the most desirable companies.

- General purchase policies – should we serve companies that prefer leasing, service

contracts or sealed biddings.

4. Situational factors

- Urgency – so we serve companies that need urgent delivery

- Specific application – whether to focus on specific applications of products or all

applications.

- Size of order – should we focus on larger or smaller orders.

5. Personal characteristics.

- Buyer – seller similarity – should we serve companies whose people and values are similar to ours?

- Attitude towards risk – should we serve risk taking or risk avoiding customers?

- Loyalty – should we serve companies that show high loyalty to their suppliers?

Multi attribute segmentation (geo clustering).

Many markets do not just consider one attribute with a segment, but consider several variables in an

effort to identify smaller, better defined, targets groups. Geo clustering yields richer descriptions of

consumer than traditional demographics because it reflects the socio economic status and lifestyles of

consumers and their neighborhoods.

Targeting multiple segments

A situation is which a company starts by targeting one segment , then expanding into other segments.

This is a very good entry strategy for young and small companies. It enables the company to gradually

gain market share as it grows.

This is also useful when the company does not have sufficient resources to enter multiple segments.

90

MARKET TARGETING

This involves evaluating and selecting one or more market segments to enter. This should

be based on their current use, their potential for future growth, competitor’s strength and so on. The

segment should be large enough to provide good market and should have good potential for growth. In

approaching the target segment, one can use several criteria, which include:

1. Current segment size. It is very important to consider the size of the market, because this has a

bearing on the customer base. The concern should not just be the number of customers in a

segment, but their sizes as well, the volume of purchases made by each customer and the

frequency of purchases.

2. Potential competition. This is important, because it will dictate the intensity of competition to be

experienced by the firm, either now or in the future.

3. Compatibility with company goals. The target segment should be compatible with the goals of the

firm. Market practices in the target segment should not be at variance with those of the firm,

otherwise there will be conflicts.

4. Undifferentiated marketing- The firm ignores segment differences and develops a single

marketing program common to all buyers within the market.

There are four main types of targeting, namely differentiated marketing, undifferentiated marketing,

concentrated marketing and niche marketing. In differentiated marketing, the firm offers a product to a

number of different segments whose needs, product usage or responses are significantly different. For

instance, some may be heavy consumers, while others are light consumers. Undifferentiated marketing

involves offering a product to a number of different segments whose needs, product usage or responses

are not significantly different On the other hand, concentrated marketing is a situation in which a firm

chooses to concentrate on one or a few markets due to limited resources. Finally, niche marketing is a

situation in which a firm segments the market into fines, more homogeneous clusters than that which is

normally approached traditionally. This enables an organization to provide products to buyers who are

seeking specially tailored products to suit their needs.

PRODUCT POSITIONING

91

Positioning is process by which a company establishes an image for its, product in the minds of

consumers relative to the image of the competitors product offering. It is the distinct place that a product

occupies in the minds of the target customers with respect to competing products. It has to do with

building a positive image or perception about a company’s product and services. This should be based on

specific product attributes as distinct from those of competitors. Product positioning follows segmentation

and targeting and aims at creating a positive image about a product among the selected segment. It is

concerned with creating a marketing mix that is appropriate to each market segment.

Fig.6.1: Process of product positioning

In positioning a product, one must identify, the key features in a product that make people buy that

product. It may be the taste, durability, quality, and so on. This is the feature that is emphasized in

marketing the product. Examples

- Kenya Airways on ‘the pride of Africa’.

- Safari boots as ‘the shoes that says you know Africa’.

92

Segmentation Targeting Positioning

Subdivide market to homogeneous segments

Identify one or a few segments to concentrate all on

Come up with the most appropriate market mix that is more appealing to consumers (products’ unique features)

PRODUCT DECISIONS

Understanding a Product

A product is anything that is potentially valued by a target market for the benefits or satisfactions it

provides and includes goods and services. Product decisions are based on the customer product

perceptions, which are at three levels.

Level 1: Benefits and satisfactions that a particular product provides; which depends on the

customer e.g. Fridge may be just for prestige, storage or for preservation.

Level 2: Based on the tangible attributes such as quality, style packaging, branding etc.

Level 3: Extended product which include promotion, company image, distribution and

codependence

These three levels create the customer’s overall perception of the product, and the

Management’s task is to blend the three levels in a systematic, synergetic manner in order to meet the

needs of the customer. We need to be able to differentiate between consumer goods and individual goods,

bought for consumption and for industrial use respectively; because they require different marketing

strategies. Consumer goods may be categorized into

Convenience goods – bought frequently, require little service or selling, are expensive and may be

bought by habit e.g. cigarettes, soap, groceries (sugarcane, cassava etc),

Shopping goods – considered with eh time and effort needed to carefully evaluate them and

compare with competing products of refrigerators furniture, watches etc.

Specialty goods – consumers will make a special effort to buy, usually specific branded items e.g.

buying a specific text book.

93

We must think about packaging and branding of products in order to be attractive to consumers.

Packaging plays both the role of protection as well as advertising of the product.

Product Mix: Entire collection of product lines and items offered by an organization. The depth of a

product mix refers to the variations within each product types, while width refers to the number of types

of products, often organized into product lines.

Product line: Group of product s that are in someway related e.g. by fulfilling the same

customer need, or by being marketed to the same target market through the same

distribution network.

Branding

A brand is a name, design or symbol that identifies the products of a seller. When firms

establish well known brands, companies are usually able to obtain acceptance, extensive

distribution and higher prices. The relevant terminologies used in branding include:

i) Brand name – word, letter (number) group of words or letter (numbers) that can be spoken e.g

Coca-Cola.

ii) Brand mark – Symbol, design or distinctive colouring or lettering e.g. Lion for Kenya

Commercial Bank; Eagle for Barclays Bank. It is easy to notice the distinct colours of

Safaricom ( green ) and Celtel (purple).

iii) Trade character – brand mark that is personified – using someone’s name. For example, a

company can use the name of a celebrity like a world record holder such as Drogba,

Kipchoge, Keino, Ronaldinho, Bekele, and so on.

iv) Trade mark – brand name, brand mark or trade character or combination of these, given legal

protection. E.g. Blue band®, Rexona®, MasterCard®

A brand name, brand mark, or trade character do not offer a company protection against competitors

unless registered as a trade mark. A major goal of companies is to develop brand loyalty which enables

them to maximize sales and maintain a strong brand image.

Branding is very important in marketing. Its benefits to the firm include

Enhancing product identification

94

Customers can be guaranteed of quality by reordering the same brand.

Enabling the firm responsible for the brand to be known.

Reducing price comparisons when customer’s perceive distinct brands.

Increasing product prestige.

Branding Philosophy

In developing a brand strategy, firms need to spell out the branding philosophy, which outlines the use of

manufacturer, deals or generic brand well as the use of family or multiple branding.

i) Manufacturer (national) brands – contain the name of the manufacturer, and appeal to a wide

range of consumers who desire low risk of poor product performance, good quality, status and

convenience shopping. Nearly 70% of most product categories are national brands .e.g.

automobiles.

ii) Dealer (Private) brands – Contains name of the wholesaler or retailer. Dealer brands appeal to

price conscious consumers who compare prices and ingredients with manufacturer brands.

E.g. Shoes, tires, and most appliance items. In some cases, the brands are made to dealer

specifications.

iii) Generic brands – Emphasize the names of the products themselves and not manufacture or

dealer names. They started in the industry as low –cost alternatives to expensive manufacturer

brands. Today, they are found in many other products e.g. cigarettes, coffee, shoes, bear etc.

the major marketing goal of generic brands is to offer low-priced, low quality items to

consumers interested in price savings.

iv) Mixed brand strategy – sell a combination of manufacturer and dealer brands. Thereby

providing benefits for both manufacture and retail.

Family and Multiple Branding

Family (blanket) branding. One name is used for several products. Common for industrial products

e.g. industrial produce IBM, and Xerox. Most effective for specialized firms with specialized product

lines. One effective use of family branding is brand expression, a strategy by which an established brand

name is applied to new products.

Multiple (individual) branding. Separate brands are used for different items or product lines. Very

useful in product positioning. It attracts various market segments, increases sales and control; and allows

a manufacturer to secure greater shelf space in a retail store.

95

Packaging

Packaging is the process of designing the container (s) for a product. A package is a product’s physical

container or label and may include cardboard box, glass, plastic can, paper bag etc. There are three levels

of physical packaging:

Primary Package – materials that envelope a product and hold it. E.g. a Coca Cola can.

Secondary Package – packaging that holds the primary package for transportation of a cardboard

box for holding medicine bottles.

Tertiary packaging – Bulk packaging to hold secondary packages for example, several boxes

may be put in one big box for transportation.

Packaging Functions (strategy)

1. Aid new product strategy – some packaging is such an integral part of the product that

it becomes a major part of new product strategies.

2. Provide access to channels – packaging can open up new distribution channels e.g.

through venturing machines characteristics of packaging such as protection against

pilferage and ease of shelf stating determine the distribution channels to one.

3. Support pricing strategy – Premium quality and design packaging can contribute to

being able to ask premium price.

4. Serves as part of promotion – the size, shape, design and wording on a package can

convey a particular image on the product. Packages are often eye catching create

awareness and are informative.

5. Provide Protection and containment. The most basic function of packaging is

protection and to hold products in specified qualities for transportation.

6. Provide information to customers – packaging provides information to customers

regarding use, misuse, and guarantees.

New Product DevelopmentIt is very difficult to define a new product, but generally anew product may refer to:

96

A product that is new only to the company, but not to the customer which could be supply a

product extension.

A product that is new to the customer, but not to the Company, which is a modification.

A product new both to the customer as well as to the company, which is an innovation.

Thus, what is considered new may simply be an extension, a modification or an innovation. Whatever the

case, we need to appreciate that new product development is a very expensive and time consuming

exercise but firms still find it useful to develop new products, mainly because of the following reasons:

To utilize excess capacity

To enhance a firms usage

To ensure continued sales growth

To replace “dying” products

To diversity and spread out risks

To exploit technology

To meet new customer needs and life styles.

Many products that are developed often fail due to lack of differential advantage, poor planning, poor

timing, and excessive enthusiasm by the product sponsor. There are two types of product failure. The first

is absolute product failure, which results when a company is unable to regain its production and

marketing costs. It is a financial loss. The other type is relative product failure, which results when a

company makes profit on the product but the product does not reach profit objectives and/or production

of the product adversely affects the firm, for example, it leads to poor relations with the society as a result

of its harmful effects.

Steps in new Product Development1. Idea generation. A continuous implementation search for new product opportunities. – ideas

come from many sources, both internally and externally. internal sources include R and D

department, scales and production personnel and managers at all levels. External sources

include government agencies, customers, trade associations, and research journal. Many new

ideas are reached to end up with one suitable idea, management should create a conducive

97

environment to encourage ideas generation. The only ideas rejected at this point are those that

are obviously not related to the business and those that are not feasible to develop.

2. Idea Screening. The ideas should be carefully screened and bad ones eliminated. This may

be done by committees compared of various managers and possibly consultants in product

design. Two types of errors can occur here; namely rejecting an otherwise good idea which

leads to a lost opportunity, or accepting an otherwise bad idea which leads to increasing costs.

The longer it takes to drop a bad idea, the more costly it is to the firm. It may be necessary to

use checklists to rate new ideas, and weights may be assigned to the various criteria to position

numerical ranking of the ideas.

3. Concept testing – This is meant to get consumer feedback about the firms ideas. It presents

the consumer with a proposed product and measures attitudes and intentions at the early stage

in development. This enables the firm to determine the initial attitudes prior to the expensive,

time consuming prototype development.

4. Business Analysis – This is a more detailed analysis of the product concepts in terms of costs,

demand, competition, required instrument profitability and growth potential. Business

analysis should include both short term as well as long term projections and potential. Demand

analysis includes estimating R & D, production and marketing costs, while profitability,

analysis brings together demand and cost factors. Environmental factors must also be

carefully considered.

5. Product development. At the stage, a product idea is converted into physical form, and

physical products are constructed albeit on a limited production basis. It then involves a

limited scale of product construction, packaging, branding and positioning, so that laboratory

tests and consumer reaction can be studied. The type of packaging materials, colour, and sizes

need to be determined, as well as branding decision (name of the product, trademark

protection etc).

98

6. Test marketing: This involves testing the product in a few selected areas in order to assess its

receptability among the target consumers. Sometimes free samples may be given to

consumers.

7. Commercialization. This is the last step and involves releasing the product into the market on

a full scale basis, and follows successful test marketing. Aggressive promotion is necessary for

successful commercialization. Good planning and timing are very important at this level

because if it is badly done, the product is bound to fail. The step corresponds with introduction

in the product life cycle.

The Concept of product life Cycle

Every product has a life cycle PLC) which goes through introduction, growth, maternity, saturation

and death (obsolescence). It is important to monitor the product and be able to replace products that

have reached their obsolescence. In an ideal situation, as one product reaches its peak, another should

be introduced so that by the time the first products contribution begins to decline, the new product is

ready to take over. Old equipment that have become less productive and uneconomical to maintain

ought to be replaced from time to time. Product life cycles are affected by the state of technology, and

may be long or short. It is therefore important to forecast technology as part of product planning. In

fact for industrial products that affect and are affected by technological change, and which take at

least two and up to five years or more to develop, technological forecasting is very important. The

product lifecycle is comprised of the following stages.

A B C D E

Time

99

Sal

es

Fig: Product Life Cycle

Introduction (phase A)

This is the product launch. After several years of product development, the product development, the

product is finally released into the market. This period is characterized by heavy promotional activities

aims at convincing customers to buy the product. Profits are low and may be negative. There is limited

competitors as not many firms know about the product. Sales are low and market share of product is

small. It is a period of uncertainty and under the launch (or commercialization) is done well

many products fail at this stage.

Growth phase (Phase B)

This is a phase of intense market activity in which the market becomes very dynamic with purchases

and many new customers coming in. there is also increased competition and the firm needs to do

aggressive promotions to deal with the competitors. Market share is also increasing and profits are

increasing at an increasing rate.

Maturity (Phase C)

The market begins to stabilize and profits though growing, begin to grow at a decreasing rate. The

market share is also growing at a decreasing rate. The firm should try to maintain the market share by

making sure that customers do not switch to the competition.

Saturation Phase (Phase D)

This is the period during which the market share is the highest and the profit at their best. The market

is however not growing and the firm should try to maintain the market share. The firm should also try

to look for other opportunities before the product finally releases the final share.

Decline phase (Phase E)

The product finally release the declining phase during while sales begin to decline and market share

begins to shrink. At this point the firm should systematically reduce further expenses on the products

and milk it finally removing it from the market to generate whatever money that can be generated from

the product before.

100

101

PRODUCT DIFFUSION AND ADOPTION

Diffusion and Adoption process

Diffusion process is a communication process that takes place between people and thus takes place in the

social sphere. Adoption process is a decision making process that takes place within a individual and thus

belongs to the individual sphere it is the mental process though which an individual passes from first

learning of an innovation to final adoption.

1 2

A I E T A

Diffusion(in the social sphere) Adoption(In the mental Sphere)

Fig:. Diffusion and adoption of Innovation.

DiffusionThe diffusion process starts with the original two step flow theory in which a company uses mass media

to influence opinion leaders (Step 1) who in turn take the initiative in influencing their followers (Stage

2). However, we usually use the multi-step flow theory which involves use of several opinion leaders.

An opinion leader is one who responds faster and more positively to the production information. The time

that elapses from the first hearing about an innovation until its final adoption is called the adoption

period. Diffusion has the following elements:

And innovation. An innovation is an idea that an individual perceives as new, provided the person

is hearing it of the first time.

Its communication from one individual to another. Communication involves the transfer of

information, ideas, opinions or emotions by verbal or non-verbal means.

102

In a social system. A group of people who interact on more or less frequently due to common

interest. This may be employees among themselves, employees with the employer, or employer

with the neighborhood. In marketing, it is the target market, i.e. the group of consumers the

company is trying to serve.

Overtime. Diffusion takes place overtime, that is the time it takes to get word to every potential

buyer.

Personal influence is very important in the diffusion process, and this is why we have opinion leaders, to

whom people turn for guidance – we may also have trickle effect in which people of low class tend to

follow the buying behaviour of high status consumers. The rate of diffusion is affected by :

The innovation’s relative advantage over competing products

Its compatibility with the promoter’s life style.

Its complexity in comprehension and use

Its ability to be tried on a large scale

Communicability and observability of its benefits.

Adoption of InnovationWhile diffusion means spreading the word, adoption involves use of the new product. It involves the

decision making process by the consumer, regarding the innovation. It has five stages, namely;

Awareness, Interest, Evaluation, Trial, and Adoption.

Awareness is created when a prospect becomes aware of the existence of a product, either by talking to

friends, seeing an ad, or hearing about it through TV or radio adverts. One may also see the product on

display through shop windows, or at exhibitions. Thus awareness is created mainly through promotional

campaigns. Once a prospect is aware of the product, he may develop interest in knowing more about the

product. This is demonstrated when a prospect comes closer to the window to have a closer look at the

product, or picks it to study the label more closely, or walks into the exhibition stand to enquire more

about the product.

After getting the necessary information, the prospect carries out an evaluation on his ability to buy the

product. He considers the benefits that will accrue from using the product, the cost of the product, terms

of payment, and his ability to buy. This may take a bit of time as the prospect consults with his family and

103

with peers as well as trying to make comparisons with other possible sources of the product. If satisfied

that benefits exceed the costs, the prospect may buy the product on a trial basis, without promising to

make a repeat purchase. One may order a few units of the product to see how the family will like it. If it is

an industrial product, the organization may order a few materials to see how they perform in terms of

reliability of service, durability, efficiency, and so on. The last stage, adoption, involves repeat purchase

in which the prospect now becomes a regular consumer or user of the product after being satisfied in the

trial stage.

Factors influencing Adoption (Predisposition Factors)

Adoption is affected by the following factors:

Venturesome ness. This is an indication of the buyer’s willingness to accept one or more types of

perceived risks in the adoption of innovations.

Social integration. Degree of involvement in community affairs.

Cosmopolitan ness. This is the extent to which individuals information and values come from

outside their social systems.

Social mobility. Social mobility indicates the peoples’ willingness to make significant changes

and commitments in the lives.

Geographic mobility which indicates a willingness to move and relocate to a new place.

Educational mobility , an indication of the interest for pursuit of advanced education.

Adopter categories

There are five adopter categories, namely innovators, early adopters, early majority, late majority, and the

laggards.

104

1 2 3 4 5

Figure : Adopter categories

Innovators

These are always the first in trying things that others have not. They tend to be young and usually quite

comfortable financially. They are likely to be highly educated, well traveled and speak several languages.

This makes them cosmopolites. They are mobile, open minded, and risk takers. Innovators are a very

suitable group when it comes to introducing a new product. They are more likely to buy the new product,

even if just for trial. Given their financial stability and few financial commitments (They are mainly the

unmarried or married with young families), they are willing to spend their money on something new.

These make up only about 2.5% of the target market

Early adopters

These are the true trendsetters, and comprise local leaders, deeply rooted in community development.

Early adopters interact readily with the community, and enjoy high prestige and respect from the

community. They create confidence among community members, and command sizeable incomes. They

constitute about 13.5% of the target market.

Early majority

These have above average incomes, and are deliberate people who try to keep up with the early adopters.

Though relatively older, they are influenced by early adopters. They are less flexible and more focused

than the innovators and early adopters. They constitute about 34% of the potential customers. These are

very crucial owing to the large number of customers in this group.

Late majority. Late majority are people who are very sensitive to price changes, and would wait until

prices have come down to a level that they are comfortable with. They will buy those products that are

105

almost out of fashion, or those that are being cleared from the shelves. Like the early majority, they

constitute about 34% of the potential customers.

The laggards

Laggards are tradition bound persons oriented toward the past. They resist change and will therefore not

want to try new products. They are usually isolated and interact very little with other people. They are

usually older people with fixed retirement incomes, and are usually the first to discontinue an innovation

as they soon find that they either cannot afford it or do know how use it.

PRICING DECISIONS

IntroductionPricing is a very important marketing mix variable, as it contributes directly to the profitability of the

firm. It is also used to enhance the image of equality product, as it is argued that price and quality of a

product are directly related.

Pricing is the process of setting objectives, determining the available flexibility, developing strategies;

setting prices, and engaging in implementation and control. Price decisions can enhance or impede the

marketing strategy or program, and so marketers should seek to develop an integrated, internally

consistent, and synergistic combination of marketing mix elements. Price is often used to enhance the

image of a product, to increase sales though discount pricing, or in combination with promotion, to build

future sales. Some of the pricing objectives include:

To meet the price of competitors

To follow the price of the market leader

To maintain existing market share

To promote new products

To stabilize inventory prices

To maximize profits.

Whatever the objectives, they must be consistent with decisions about other marketing mix variables,

such as promotional decisions. In setting prices, one must take to account the production costs, since the

106

price must exceed average unit costs. Normally, costs set the lower limit of price, while demand and

competition typically set the upper limit.

Pricing Strategies

Pricing strategies are guidelines and policies used to effectively guide pricing decisions to match target

market conditions. The common ones are discrimination, psychological, penetration, skim the cream, and

discount pricing strategies.

Discrimination prices

This is a variable pricing policy which enables a firm to achieve higher profits because it allows sellers to

negotiate with potential buyers and set selling prices approximately equal to each buyer’s perception of

product values. The same product is sold at different prices to different customers, based on some

discriminative characteristic such as geographical, nationality, age, or season. Some of the practices thus

include:

Charging different prices for the same product in different geographical locations. For

example the price of most agricultural products differ with the location. Everyday, newspapers

report this prices for different towns Nairobi, Mombasa, Nakuru, Eldoret and so on.

Charging significantly different prices for services, for example first class, economy class and

so on in trains and air transport.

Charging different prices at different times (off-peak, or rush hour). In the public transport

system, commuters find that prices are different depending on the time of the day, for the same

distance. They also adjust prices for such occasions as Christmas and Easter, when they expect

many people to travel up country. Similarly, many retailers adjust their prices during special

occasions such as Easter, Christmas holidays and so on.

Changing different prices for different customers (nationally Vs foreign, children Vs. adults).

For example, Kenya wildlife Service charges different entry fees into Museums and national

parks, depending on the nationality of the visitor.

Psychological Pricing

107

This is based on creating customer price perceptions so as to have special appeal in certain target markets.

Examples include

Odd-even pricing. This is a very common form of pricing. Research evidence shows that odd

pricing (e.g. 99.9, 499, 899) is more appealing to customers than even pricing (e.g. 100, 500,

900). The odd price is perceived to imply that the product is cheaper than the even price, yet this

difference is not significant.

Prestige pricing to benefit from snob appeal (if you ask the price, you can’t afford it!). Some

customers feel that bargaining is an indication of inability to buy at the higher price, and so some

shoppers deliberately avoid indicating the price on the product, so that such customers will come

and simply as for the product and pay whatever he is charged. A doctor will first operate on the

patient before telling him what to pay. A customer may go into a hotel and order food without

asking for the price!

Large, bright price labels. Indicating the price on very large, bright labels can be more attractive to

customers that small, dull prices or no prices at all.

Deliberately setting high prices to imply high quality. Some customers want to buy expensive

products, imagining that the high price implies higher quality. For example they will seek

accommodation in a hotel that charges slightly higher than one that is cheaper, believing that

services in the more expensive hotel are better.

Putting an initial price, then canceling it and indicating a lower price next to the original price.

This is very useful for creating attention and interest among consumers.

Penetration Pricing

This is a pricing system commonly used for new prices and involves starting with low price, gradually

raising to the expected level. It enables a firm to acquire a large share of the potential market within a

short time, and tends to discourage early competitors. This is suitable for low quality, low priced products

targeting price sensitive, low income earners and may not appeal to customers who value quality.

Skim the Cream Pricing

This skimming pricing strategy in for new products, and involves setting a high initial price to first

benefit from price inelastic customers, then successively lowering prices, often under increasingly

108

competitive conditions, to the levels that more price sensitive customers are wiling to pay. Skimming

allows the firm to recover their investments rapidly, though the high margins tend to attract competition.

Factors Affecting Pricing Decisions

Before a firm develops a pricing strategy, it should analyze the various factors affecting decisions. Many

pricing decisions depend heavily on elements external to the firm. Both pricing and distribution decision

are largely influenced by forces external to the firm, unlike product and promotion decisions which are

more directly controlled by the firm. The factors affecting pricing decisions include:

Consumers

Marketers should understand the relationships between price and consumer purchases and perceptions.

This may best be understood by studying the law of demand and price elasticity of demand. The law of

demand states that consumers generally buy more of a commodity at low price than at a high price, while

price elasticity of demand defines the sensitivity of buyer to price changes.

In terms of elasticity, we have elastic demand which shows that a small change in price results in a

big change in the quantity demanded as shown in figure b.

a. Inelastic demand curve b. Elastic demand curve

Fig : Price elasticity of demand

Fig b shows that when price is increased from P0 to P1, there is a very big drop in the quality demand,

from Q0 to Q 1. Elastic demand is common for luxurious goods (such as beer, entertainment and so on.

On the other hand, inelastic occurs when price changes have little impact on quantity demand. This

109

shows that consumers will buy the product irrespective of the prices, as shown in fig a. It is common for

goods that are necessities, such as salt. The figure shows that even after price is increased by a very large

margin quality demanded changes very little. It is also necessarily to recognize that consumer are

different, and may not be equally price conscious. (Evans 1986) discusses for categories or segments of

consumers based on their shopping orientation:

o Economical shopper – Generally shops for values and is extremely sensitive to price and

quality.

o Personalizing shopper – Emphasis product image, personal service and treatment by firms, and

is less concerned with price.

o Ethical Shopper – Willing to sacrifice low prices and wide assortments in order to patronize a

small form.

o Apathetic Shopper – Very concerned with convincing whatever the price.

Government

The government plays a major role in pricing decisions, for example, through price fixing in which the

government places limitations on price fixing by manufactures, and wholesales, for example, by checking

that manufactures do not fix prices that cannot be justified. The government also coordinates discounts

and credit terms with consumers. It also arranges will competitors to issue new price lists at the same

time. Sometimes the government agrees with competitors to restrict production to maintain high prices.

Thus the government monitors both horizontal price fixing (agreements among manufactures, among

wholesalers and among retailers to fix price at some stage in the channel distribution) and vertical price

fixing (when manufactures or wholesalers are able to control the retail prices of their goods or services).

Other areas in which the government influences prices are:

i) Price discounts. The government discourages price discounts especially if the effect of such

discounts to injure competition

ii) Minimum prices. The government discourages fixing prices below the cost of the product plus a

certain percentage that covers overhead profits as some large firms may want to do in order to

drive smaller firms out of business. For instance under predatory pricing, large companies cut

prices below their cost in selective geographic areas in order to eliminate small, local competitors.

110

On the other hand, under loss leaders, items are priced below cost to attract more customers into a

store, in the hope that as the consumers by the loss leaders, they will also buy the other less

moving products

iii) Unit pricing: The government encourages unit pricing of products so that consumer can compare

price per quality for competing brands and for various sizes of the same brand.

Channel MembersEvery channel member wants a significant role in setting prices in order to generate sales volume obtain adequate profit margin, and meet specific goals. It is therefore important to carefully consider the effect of channel members, as the price increases at various levels are ultimately passed on to final consumers.

Competition

A market must consider competitors and how they set their prices for similar products. Price wars are

very common among competitors, in which, various firms continually try to undercut each others prices

to draw customers. These wars usually had to reduce profit margins or even losses, and may force some

companies out of business.

Cost

The costs of raw materials, labour, transport and so on must be factored in making price decisions. The

market needs to carefully consider both the fixed as well as the variable consists, and decide who should

bear the costs. For example, in times of increasing production costs, modifications could be done to use

cheaper packaging materials, use cheaper ways of transportation and so on. When cost declines occur,

firms can lower selling prices or raise profit margins.

Further Reading:

Evans, J. (1986); Marketing. Macmillan Publishing Co. 3rd Ed.

111

DISTRIBUTION DECISIONS

Channels of Distribution

The marketing system is made up of many organizations and individuals linked together by organizations

and individuals linked together by hours of information, products, negotiations, risks, money and people.

They form a channel of distribution which consists producers of products to the people and organizations

that consume those products. Each organization in the channel plays a specific task to facilitate the

smooth flow of goods and series from producers to consumers. The firms that perform the various

channels of distribution functions necessary to link producers with and users are called market

intermediaries. A simplified marketing system would look as follows:

Manufacturers andProcessors

Agriculture Marketing facilitatingRaw materials Intermediaries

Wholesalers organizations

Extractive materials financial institutions

Supplies Retailers Insurers

Agents/brokers

End usersIndustries

112

Institutions

Fig :. Simplified Marketing System

Market IntermediariesMarket intermediaries play a critical role of linking the and users of products to the producers. They may

be classified as follows:

Retailers

These are business that buy and resell merchants to end users. They usually buy from

wholesalers or agents, but may also buy directing form the manufacturers. They usually

take title of the goods. Like wholesalers, retailers play a very important role in linking

manufactures into the end users. Retailing involve all the activities involved in selling

goods or services directly to final consumers. Retailers are the final link between

manufacturers and consumers,. They usually buy from wholesalers and resell to

consumers, although there are a few cases where large retailers buy directly from

manufactures. The main factors of retailers are:

(i) Buying goods from manufacturers or wholesalers.

(ii) Selling goods to consumers

(iii) Storage of goods

(iv) Transportation of goods from wholesalers to the retail outlet.

Types of Retailers

Retailers may be categorized as small scale or large scale retailers.

Small scale retailers are those into low turnover of sales, and many not have fixed premises from where to

operation. They include:

Roadside sellers – they do not have fixed premises from where to operate, and usually display

their wares at strategic points such as bus stops, school gates and hospital gates.

Itinerant traders: they carry their wares from door to door, often using hand carts, tricycles or

motorbikes.

Hawkers – they move around with their wares, usually on foot, and do not have fixed premises.

113

Mobile shops. These are closely related to the itinerant traders but their stocks are bigger and

move from town to town using trucks.

Tied Shops – These sell goods from only one manufacturers, for example Bata shoes dealers or

Coca Cola kiosks.

On the other hand, large scale retailers have very large operations and usually operate from fixed

premises. They include:

Department Stores – These area number of single shops under one roof and under the same

management, for example, the stores may have several units dealing with clothing, hardware, a

bar and so on.

Supermarkets. These are self-service stores which usually stock a circle variety of goods. All the

goods are put on open display with fixed prices indicated. Consumers go in and select the goods

they wish to buy and pay for them at the cash counter as they walk out.

Mail order shops. These are operated by manufactures, in which a list of their goods and prices is

sent to prospective customers, who place an order through the post. The goods are also sent

through the post. These type of retailers are not common in Kenya.

Vending machines – Automatic vending machines can be used to sell a variety of goods with a

high convenience like sweets, cigarettes or newspapers. Example are jukeboxes and electronic

computer games. They offer a 24 hour service to consumers.

Service Retailers: These are retailers that offer services rather than physical goods, to consumer.

They include doctors and lawyers.

Wholesalers

These businesses buy as reset merchandise to retailers or to institutional, industrial or commercial

enterprises. They normally take title of goods they sell. Wholesalers are perhaps the most widely used

intermediaries in any channel of distributions along with retailers. There functions include:

1. Purchase in bulks from producers, and hence help to source for finance for producers. Who are

relieved of typing up their finances into finished goods.

2. Assume all the risk – transporting and storing goods.

114

3. Provides storage and transportation services that could otherwise be provided by

manufacturers.

4. They sometimes offer credit facilities to retailers.

5. They offer advances services to retailers, for example, how to display, or promote products.

Types of Wholesalers

(i) Merchant Wholesalers – These take title of goods, and are involved in buying of goods from

manufacturers and selling them to retailers and internal users. The manufacturers have no control

of the goods once they have sold them to these type of wholesalers, who thereafter the goods and

take all the risks related to further distribution of the goods.

(ii) Agents and Brokers- Agents do not take title to the goods, but only negotiate and

arrange sales on behalf of other the sellers or the buyers. They are paid a commission for the survives.

Their main function is therefore to facilitate selling and buying. These negotiate purchases or sale for a

commission and do not therefore take title of the goods. Unlike agents who may handle the goods through

not owning them, brokers only bring buyers and sellers together to negotiation the sale, but do not handle

goods. They are paid by the party that hired them. Broken are commonly found in the insurance

industry, and in real estate (buying and selling of land and houses).

(ii) Manufacturers’ sales branches and offices some manufacturers establish their own distribution

offices with their own staff, who market products for the manufacturers. This type of wholesalers

ensures total control by the seller in the marketing of his product.

Role of market intermediaries

Marketing intermediaries are very vital in a channel of distribution. Their main roles include:

Contact – market intermediaries establish contact between consumers and producers, such that a single

intermediary may sell goods from several producers and enable the consumer to get the goods from the

single intermediary, instead of going to all the producers separately. For example, a supermarket enables

consumers for access goods from many manufacturers under one roof.

Physical distribution – market intermediaries transport goods from the point of production to areas

closer to the consumers. For example cooking oil products by BIDCO at Thika or KAPA at Athi River is

transported to all parts of Kenya.

115

Storage – Intermediaries play an important role of storing goods produced, as they sell them in smaller

quantities. This ensures continuity of production as producers nearly not have enough space to store all

the goods produced, so most of it will be stored by intermediaries at various levels.

Breaking Bulk- In many cases, produces produce goods in bulk and package them in large quantities,

such as tones, in order to attain economies of scale. Intermediaries buy these goods and sell them in

smaller quantities to and users. For example, sugar is repackaged into 1Kg packages or even smaller

quantities, which cement bought buy distributors in terms of tones can be sold as single packets of 50Kgs

each to end users.

Research- Intermediaries gather and disseminate information between producers and consumers in order

to facilitate exchange. For example, they gather information actual consumer needy taste and

preferences.

Risks taking- Intermediaries assume risks is moving goods from producer to consumers. Since they

possess the goods, they relief the end users of the risks such as loss, deterioration and so on.

Logistical Support- Intermediaries provide logistical support, for example, facilitating payments

between commenced producers, and banking services.

Channel Structures

Although the channel structures for both consumer and industrial goods are basically similar, we will

discuss them separately in order to point out the differences between the two. The channel structure of

consumer products is demonstrating below:

Producers

Agents/B C brokers

A Wholesalers

116

Retailers

Consumers

Fig : The channel structure of consumer products

As shown in the diagram, producers can reach consumers through various channels, including directly

selling to the consumers (A) or going through market intermediaries (B, C, D).

Direct Channel (A). This is a direct channel in which a manufacturer decides to sell directly to the

consumers. It is the shortest channel and has no intermediaries. Manufacturer sells directly to the

consumers, either through door to door sales force mail order selling (using a catalogue or other printed

materials) or this manufacturer stores).

Mail order

Door to door

Manufacturer owned stores

Fig: Direct channel

Mail Order – The most widely used, and has a big potential for expansion.

Door-to-door – Relatively expensive, requires high gross margins and results in higher prices to

consumer. One may choose to call people to together for demonstration, then sell.

Manufacturer owned Store – Manufacturer establishes world wide chain of company owned stores for

sale of its products.

Direct channels are mainly for perishable or very delicate produ7cts e.g. agricultural products.

117

ManufacturerConsumers

Indirect Channel (B, C, D). These involve use of intermediaries such as retailers, wholesalers and

distribution agents/brokers. They are mainly for products that are not perishable or have long shelf lives.

They are also appropriate where the product need to be broken into smaller quantities before being sold to

the final consumers.

Industrial Products

Unlike consumer products, institutional products have shorter distribution channels, usually involving the

manufactures sales force, distribution agents and wholesalers. Distribution of industrial product, is very

important in ensuring that goods and services reach consumers in good time and good condition. An

industrial marketing channel is composed of many outlets through which goods flow to the market. These

outlets perform different but related functions, some of the outlets (e.g. manufacturers branch house and a

files) are part of the internal organization structure, which others are independently owned (e.g.

wholesalers, agents). Generally, a distribution channel for industrial goods is shorter than that of

consumer goods. This is because manufacturers of indirect goods, interact either directly with consumer,

or through distributors and agents. A typical diagram is as shown in figure below.

Fig:. Distribution channel for industrial products

Channel A is direct which B, C, D are indirect. The indirect channels involve intermediaries.

Industrial Distributors

118

Industrial Manufacturer

Manufacturer’s branch office Industrial

Distributor Manufacture’s representative

Industrial Customer

1. Industrial distributors generally buy and sell industrial goods, and therefore take little of the goods,

and assume some of the risks. They tend to be concentrated in those areas where there is heavy

concentration of manufacturing firms. They are typically small, often with only a handful of

employees. They usually harm show room displays when they display their products, and own large

warehouses for storage of the products. Some of the reasons why buyers may use distributors include:

Economical delivery – distributors provide efficient and reliable delivery – lot sizes that are

convenient to the user. This reduces inventory carrying costs and reduces the likelihood of losses

due to obsolescence and price declines.

They provide relevant information regarding quality and prices.

They offer credit facilities to small buyers.

They offer technical services to users, by virtue of their proximity.

2. Distribution agents. These do not own the goods, but only represent the sellers. Manufacturer’s

agents usually represent the seller written a limited area, while sales agents deal with buyers where

they care. They are paid a commission for what they do.

Advantages

- Lower marketing cost than distributors

- They help buyers to establish contacts with manufacturers.

- They tend to offer more competent and better quality of sales effort than distributor.

Disadvantages

- It is difficult for the manufacturer to have a full control over them because they are not on the

payroll of the manufacturers.

- They lack flexibility especially in bargaining for prize reduction, since the price is fixed by the

manufacturers.

- They have divided loyalty since they service several manufacturers.

3. Brokers .These are usually firms with detailed knowledge about markets and therefore help

manufacturers sell their goods very fast, for a commission. They are particularly useful in situations

where a manufacturer finds himself with an excess supply of a commodity on hand, more than he can

sell to his usual customers within an economical storage period. The broker will in this case come in

to persuade customers to buy the product.

119

4. Manufacturers branch houses/offices’ This are not as common in industrial goods as is the care for

consumer goods. However, some manufacturers for industrial goods still maintain branch houses

where goods are first stored before being sold to individual buyers. This enables the manufacturers to

ship/transport the goods in economically less quantities to the branch houses, from where they are

sold off to customers in smaller quantities.

8.7 Channel Logistics

The efficiency and effectiveness of a distribution channel depends on there being a well coordinated

physical movement of products, which includes such activities as production, scheduling, storage,

inventory control, materials handling, purchasing order processing, transportation and plant/warehouse

site selection. These will depend on the type of industrial product and the nature of the channel structure.

For instance, large equipment may pose transportation problem is, they exceed road/rail specifications.

The success in dealing with logistics problems requires a comprehensive plan and a system of executing

it.

The Logistical Plan

Companies need to have a well coordinated logistical plan that takes into amount the interdependence of

the different distribution functions and provides an opportunity for cost saving. The problem always

arises when managers in different departments have objectives that are at variance, for instance traffic

managers may prefer slow transportation means that carry large quantities, while sales men want faster

transportation. Thus, without carefully appraising the implications of their decisions, they may seriously

weaken a company’s competitive position. Industrial marketers are thus becoming increasingly aware of

the savings to be realized from careful interaction of the various logistical elements of physical

distribution into a single system.

Industrial buyers are increasingly becoming aware of the need to minimize storage which is often

associated with heavy costs such as interest, spare chargers, insurance, and obsolescence. Inventories

should thus be kept as low as possible without causing production stoppage or interruptions in other

operations as a result of material shortages. Lead time, for example should be reduced as much as

possible. Advances in technology has greatly motivated industrial buyers to have an efficient logistical

120

support. Increased mechanization and automation have made manufacturers push the inventory burden to

suppliers, by making it possible to more materials directly from the supplies its production, without going

through a warehouse. Supplies of such raw materials need therefore to have an effective quantity control

system and also to be able to meet a precise and consistent delivery schedule in order to retain the buyers

patronage. Industrial sellers are equally motivated by cost factors to keep their inventory investment as

low as possible without risking their ability to meet all reasonable customer needs.

The logistic system has three broad categories:

Stationary facilities

Transportation network

Location

1. Stationary facilities. Any geographical location in which there is storage or transfer of goods from

one mode which are located at some points between the company’s plant and its customers. They are

used as storage facilities and transshipment points at which there is bulk breaking, accumulation of

stocks for larger shipments, or transfer form one carrier to another. The terminal and station facilities

of transportation companies as serve as storage depots for manufacturers as well as transit locations at

which shipments can be combined or separated.

2. The transportation network. This includes all types of carriers – rail, water, highway, pipeline and

air. The mode of transport will vary according to circumstances and the nature of product. In addition

to the carriers themselves there are also agencies such as freight forwarders and freight pools. Freight

forwarders provides transportation services to the carriers of collecting less than carry load (L.C.L)

and shipping them in carry load (C L) to a distribution terminal and distributing them in LCL lots by

truck to their respective destinations. The advantages of using freight forwarders include;

- Speed – they usually move the C.L lot on the same day on regularly scheduled trains.

- Flexibility – the forwarders is able to use all forms of transport to attain the most economical

combination.

- Simplicity – the shipper deals with one shipping company.

- Safety – the forwarder ensures that goods are properly packed for safety.

Freight pools are associations or cooperatives of freight forwarders working together for increased saving.

121

3. Location. The locations of the sellers production and distribution facilities in relation to those of

customers is an important factor in his ability to deal with the limitations of time and space. The

location should take the account the availability of raw materials, labour, and location of the market.

System Operations

This is concerned with the how much, when and where of product movement, and has five functions

communication, scheduling, inventory control, materials handling and traffic.

i) Communication. This involves both external as well as internal communication. External

communication is communication with external agencies that comprise the distribution channel and

customers. It provides a feedback concerning sales, customer complaints and operating problems.

Internal communication is also very important, and may relate to product availability, order

processing and credit clearance.

ii) Scheduling. This involves proper synchronization of all the operations and coordination between

the marketing manager and production managers. Production in economic lot sizes should be

matched with customer demand to ensure that shortages do not occur. A balanced schedule that is

neither too flexible nor too inflexible should be in place to ensure there is a relatively continuous

level of output while utilizing various.

iii) Materials handling. Materials handling in the warehouses must be carefully planned and organized

so as not to mess up the other parts of the logistics system. This involves management of the

equipment, supporting components as well as the warehouse layout. Equipment includes towing

tractors, conveyors, drawers, forklifts etc. supporting components include storage racks and

containers. Warehouse layout is important to facilitate smooth flow of materials from receiving, to

storage and to shipping at minimum costs.

iv) Traffic management. This involves traffic planning and traffic analysis. Traffic planning involves

selection of carriers, documentation, payment of carrier charges and establishment of standards for

carrier performance. Main documents include bill of lading, freight bill and freight claim. Standards

of performance should include delivery time, billing, and condition of delivered goods. On the other

122

hand, traffic analysis involves analyses of the traffic system from time to time to ensure that there is

no deterioration of service delivery over time. This might include feasibility studies of owned

version hired transportation, as well as means for negotiating lower quoted rates.

Transportation alternatives to either speed or slow the transfer of products from one phase of the system

to another as needed to match marketing requirement with manufacturing capacity.

Inventory Control

This is very important in order to ensure the sufficient inventory is kept to match customer demand at the

most economic terms. It may be necessary to maintain some buffer stock to take care of unexpected high

demand. This buffer or safety stock will depend on the variability of sales, the cost of carrying inventory

and the seriousness of a stock out. These are quantitative models that can be used to determine the most

economic order quantity to maintain. The common is the basic economic order quantity (BEOQ) model,

given as

Where D= Annual demand

S = Cost per order

C= Procurement cost per unit

i = Holding cost as a % of the value of the unit inventory per time

period.

There are many costs associated with inventory holding and inventory ordering, such as insurance, rent,

obsolescence, pilferage, order processing, salaries etc.

In selecting an appropriate channel distribution, the following factors head to be considered:

1. Customer characteristics – One should consider the distribution of the customers, age, gender

home levels, literacy level and so on.

2. Product characteristics – There include their shelf life, perish ability, ease with which it can

break, e.g. bottles, glass, television,. Bed etc.

123

3. Company characteristics – it is important to consider company characteristics such as financial

base, resources such as availability of trucks to transport the goods and presence of

warehouses with the firm.

4. Environmental characteristics – These include government regulations and controls regarding

movement of goods.

5. Intermediaries – One needs to involve those intermediaries that will perform roles most

beneficial to the firm.

6. Competitors – it is important to be aware and be sensitive to competitors in the market and to

seek to industrial the channels they use. This would enable the firm to try and collaborate with

the competitor, or avoid him/her altogether.

Selection of Middlemen

In choosing a middlemen, the following needs to be considered.

Number of years in business – it is adjustable to coincide the number of years a firm has been in

business, as their has a direct bearing on experience.

Location: this is important as consumers need to have ease of access to the middlemen.

Potential for growth: The middleman should demonstrate the ability to expand or grow.

Other products handled by the middleman. It is important to consider the other products the

middleman handles as the products should not be very different from those for which you want the

middle man for example, chemicals should not be together with foodstuff.

Sales records – it is good to consider the volume of sales handled by the middleman, as this will

determine with whether the goods will sale fast or slowly.

Financial Ability – The middleman should have financially stable to be able to buy the goods and

services without difficulty

Distribution deals with both logistical and facilitating functions that involve organizing and moving the

products from point of production to the final consumer. Decisions have to be made on the most

appropriate mode of moving the product to reach the end users at the right place and at the right price and

quality.

124

The distributions channels involve many market intermediaries who play different roles in insuring that

the process is a smooth and well coordinated. Factors to be considered in selecting the right channel

include customer characteristics, product characteristic company characteristics and the level of

competition in the channel chosen.

Further reading

Govindarajan M (2003); Industrial Marketing Management. Vikas Publishing House PVT Ltd, Mumbai.

McKinnon, A. C (1989); Physical Distribution Channels. Routledge, London

COMMUNICTAON AND COMMUNICATION MIX

THE COMMUNICATION PROCESS

Today there is a movement towards viewing communication as the management of the customer

buying process over time during all the buying stages ( preselling , selling, consuming and pre consuming

stages).

There should be the communication program for specific segments, where each segment has different

customers. It is also important for the marketer to know the most effective communication media that will

reach the target consumer. The issue should not only be how the company can reach its customers, but

how the customers can reach the company.

The communication model

Sender Encoding Message media Decoding Receiver

Noise

Feedback Response

125

The sender and receiver are the major parties in communication. The sender must know what

audience he wants to reach and what response he wants. He must target the message through efficient

media that reach the target audience and develop feedback channels to monitor received responses to the

message.

Message and media represent the major communication tools.

Encoding, decoding, response and feedback are the major communication activities.

Noise represents random and competing messages that may interfere with the intended communication.

The target audience may not receive the intended message due to :

1. Selective attention. There are many messages that keep competing for the consumer’s attention,

ant it is up to the marketers to get his message and get attention.

2. Selective distortion – people may twist the message to hear what they want to hear. The marketer

should try to create simplicity, clarity, intent and repetition to get the main point across to the

audience.

3. Selective recall – people will retain long term memory and only a small fraction of the message

that reach them.

DEVELOPING EFFECTIVE COMMUNICATION

There are eight steps

1. Identifying the target audience

2. determine the communication objectives

3. Designing the message

4. Selecting the communication channels

5. Establishing the total promotion budget

6. Deciding on the promotion mix

7. Measuring the promotion’s results

8. Managing and coordinating the integrated marketing communication process.

126

1. Identifying the target audience

The marketing communicator must start with a clear target audience in mind. The audience could

be individuals, groups, particular publics or the general public.

The audience will critically influence the communicators decision on what to say, how to say it,

when to say it, when to say it, and to whom to say it to.

The target audience can be identified through image analysis, which involves assessing the

audience current image of the company, its products and its competitors. One may use the scale,

semantics differential, or familiarly scale to assess the extent of understanding of various indicators

relating to the company and its products.

2. Determine the communication objectives

The communicators need to decide on the desired audience response. The ultimate response

should be purchase, high satisfaction and a favorable word of mount. The marketer can be seeking a

cognitive, affective or behavioral response from the target audience that is to put something into the

consumers mind, change the consumer’s attitude or get the consumer to act.

There are various response models as shown below,

Stages AIDA Model Hierarchy of

effects model

Innovation –

Adoption model

Communicators

Model

Cognitive Attention Awareness Awareness Exposure

127

stage Knowledge Reception

Cognitive response

Attentive

stage

Interest

Desire

Liking preference

Conviction

Interest

Evaluation

Attitude

Intention

Behavior

stage

Action Purchase Trial

Adoption

Behavior

All these models assume that the buyer passes through a cognitive, affective and behavior, stage in

that order. This is the learn – feel – do sequence which is appropriate when the audience has a high

involvement with a product category perceived to have high differentiation, such as purchasing a car.

But we also have the ‘ do – feel – learn’ sequence when the audience has high involvement but

perceives little or no differentiation with the product as in buying a pressure lamp.

Similarly, we and have ‘learn- do – feel’ sequence which is relevant when the audience has low

involvement and perceives little differentiation within the product category, as in purchasing salt. The

marketer needs to understand the appropriate sequence in order to plan an effective communication.

3. Design the message

Ideally, a well designed message should satisfy the content of the AIDA model ie – gain attention,

hold interest, arouse desire and elicit action. However, it is very difficult to get a single message that

holds the audience through all the stages, but AIDA framework suggests the desirable qualities of any

communicator.

The communicator should solve four problems

i. What to say ( content)

ii. How to say it logically ( structure)

iii. How to say it symbolically ( format)

iv. Who should say it ( source)

i. Message content

In determining the best content management should search for an appeal, theme, idea or a unique

selling proposition.

128

One should create a strong reason as to why the audience should think about or investigate the

product. There are three types of appeals:

- Rational

- Emotional

- Moral

Rational appeals: appeals to the audience self – interest eg product quality, economy, or performance.

Industrial buyers are most responsive to rational appeals.

Emotional appeals: Attempt to stir up negative or positive emotions that will motivate purchase. Positive

emotional appeals include humor, love, pride, and joy.

Moral appeals: are directed to the audience’s sense of what is right and proper and are often used to

extort people to support social causes, such as better environment, equal rights for women, support for the

disadvantages and so on. Moral appeals are not commonly used in connections with everyday products.

ii. Message structure

Structure is very important in determining the effectiveness of am message. For instance should the

audience be left to draw their own conclusions or should the presenter give a conclusion?

Should the message be one sided?

Research evidence indicates that the best ad should allow readers and viewers to form their own

conclusions ( Engel et al 1994)

. Drawing conclusions might cause negative reactions in the following situations:

- If the issue is simple or the audience is intelligent. The audience might be annoyed at the

attempt to explain the obvious.

- If the communicator is seen as untrustworthy, the audience might resent the attempt to

influence them.

Drawing too explicit a conclusion can also limit a product’s appeal or acceptance. One sided

messages work best with audiences that are initially predisposed to the communicator’s position, while

two sided arguments work best with audiences who are opposed. Two sided messages tend to be more

effective with better educated audiences.

129

The order in which arguments are presented is also important. For instance if the audience is initially

opposed to the communicator, he might start with the other side’s arguments and conclude with his or her

strongest argument.

iii. Message format:

This involves deciding on the headline, copy, illustration and so on, for profit ad. If the message is to

be carried over the radio, the communicator has to correctly choose words, voice qualities ( speech

rate, rhythm pitch) and vocalization ( pauses, sighs, yawns)

iv. Message source

The source of message is very important as it enhances its credibility. Messages delivered by

attractive or popular sources achieve higher attention and recall. That is why advertisers often use

celebrities as spokespeople for example Paul Tergat etc. celebrities are likely to be effective when they

personify a key product attribute.

4. Select the communication channels

The communicator must select efficient channels of communication to carry the message. A

combination various channels is often used to delivered the same message.

Communication channels are of two broad types: personal and non personal.

Personal channels: Involves two or more person’s communicating directly or indirectly with each

other, and derive their effectiveness by providing an opportunity for individualizing the presentation

and feedback. One may use advocate channels ( Company, sales people containing buyers) , expert

channels (independent experts making statements, to target buyers) or social channels (neighbors,

friends and family members taking to target buyers). The ‘word of mouth’ coming from upper and

social channels is very powerful in generating new business. Personal influence is particularly useful

with products that are expensive, risky or purchased infrequency.

Non – personal channels: carry messages without personal contact or interaction and include print

media, electronic media and display media ( billboards, signs art posters). It also includes the

atmospheres (the layout of the facility) such as very expensive furniture in a law firm) and events

130

( such as conference, grand opening and sport sponsorship to achieve specific communication effects

with a target audience).

5. Establish the total promotion budget

It is important for the company to carefully plan its promotion budget. Several approaches may be

used:

- Affordable methods – many companies set promotions to what the company can afford. This

approach completely ignores the role of promotions as an investment ant the immediate impact

of promotion on sales volume.

- Percentages of sales methods – Many companies set their promotion expenditure at a

specified percentage of sales ( current or anticipated). This ensures that the company spends

what it can afford, but it views sales as the determinant of promotional rather that as the result.

Further it leads to a budget set by the availability of funds rather that by market opportunities.

- Competitive parity method- Some companies peg their promotion budget on what is

incurred by competitors believing that such expenditures represent the collective wisdom of

the industry. This is unrealistic as companies face different challenges and opportunities as

such their promotion objectives and budgets should be different.

- Objectives and task method – This requires companies to first set specific objectives and

tasks that must be accomplished and the costs involved in performing these tasks. The sum of

these costs becomes the proposed promotion budget. However the problem lies with

determining how much weight promotion should receive in the total marketing.

6. Decide on the promotion mix

Management needs to decide on the distribution of the promotion budget over the promotional tools

( advertising, sales promotions, public relations and publicity, personal selling and direct marketing). The

company needs to access the effectiveness and requirements of each promotional tool and allocate funds

proportionally according to the relative importance of each tool.

131

7. Measuring the promotions results

This involves asking the target audience whether they recognize or recall the message, how may times

they saw it, they recall and their previous and current attitudes toward the product and company. The

company should also find out the audience response in terms of how many people bought the product,

liked it and talked to others about it.

8. Managing and coordinating the integrated marketing communication process.

In order to improve on communication, companies need to emphasis the idea of integrated market

communication, in which several tools can employed to enhance one another in the communication

process. An integrated approach improves the effectiveness of the communication process.

DEVELOPING AND MANAGING AN ADVERTISING PROGRAM

(Definition )

Developing and effective advertising program requires that managers first identify the largest

market then make the following 5 decisions ( the 5M’s)

1. Mission – Set the objectives

2. Money – Decide on the budget

3. Message – Choose the advertising message

4. Media – Decide on the media to use.

5. Measurable – Evaluate the effectiveness of the program.

1. Setting the advertising objectives:

There should be clear objectives for the advertising. Some of the objectives may be informative

( usually for the new products), persuasive ( to persuade customers to buy) or reminder ( to remind

customers that the product may be used in the near future).

The choice of the advertising should be based on a thorough analysis of the current market situation.

2. Deciding on the advertising budget

Specific budgets need to be prepared for each product. This requires management to consider

132

- Stage in the product life cycle – New products typically require a higher advert expenditure

that established brands.

- Market share and consumer base – High market share brands usually require less allocation that

for markets share brands.

- Competitors – Brands facing heavy competition require higher budget allocation that brands

facing less competition.

- Advertising frequency - The number of repetitions will affect the budget

- Sustainability of the product – Brands in a commodity class (eg cigarettes, beer and soft

drinks) require heavy advertising to establish a differential image.

- Types of media used – different media have different expenses.

3. Choosing the advertising message

The message should aim at communicating the major benefits that the brand offers. One must

decide on the styles of the message, the tone and words to be used and the format.

4. Deciding on the media.

In deciding the media to use one should decide on

- The desired reach, frequency and impact

- Choosing among major media types

- Select specific media vehicles

- Media timing

- Geographical media allocation

The desired reach, frequency and impact

Media selection involves finding the most cost effective media to deliver the desired number of

exposures to the target audience.

Reach ( R) is the number of different persons or households exposed to a particular message at least

once within a specific period of time .

Frequency (F) is the number if times an individual or household is exposed to a message within a

specified period.

Impact (I) is the qualitative value of an exposure through a given medium.

133

Choosing among major media types;

There are many types of media, such as newspapers, televisions, billboards, radio, direct mail and

magazines.

The choice of the right media should consider.

- The target audience media habits

- The product

- The message

- Cost of the various media

Selecting specific media vehicles

Within each type of media there are several vehicles with different costs and effectiveness for

example, advertising in the Daily Nation may be more expensive than advertising in the Standard, but the

Nation has a wider circulation.

Similarly, advertising in an FM station may not be as effective as using the KBC radio.

Deciding on media timing

The advertiser is faced with a macro as well as a micro scheduling problem. Macro scheduling

problems involves deciding on how to schedule the advertising in relation to seasonal and business cycle

trends, while micro scheduling problem involves allocating advertising expenditure within a short period

to obtain maximum impact.

Deciding on geographical media allocation

The company has to decide how to allocate its advertising budget over space as well as over time. For

instance a company may decide whether to erect billboards all over the country or within selected

cities.

Evaluating advertising effectiveness – it is important to evaluate the effectiveness of an advert at a

regional or rational level, within a specified period of time.

134

DESIGNING SALES PROMOTION AND PUBLIC RELATIONS PROGRAMS

SALES PROMOTION

Sales promotion is the functions of marketing which seeks to achieve given objectives by adding extrinsic

tangible value to a product or service. It is a function of marketing and a distinct from a marketing

communication. It involves communicating with an audience through various non-personal, non media

vehicles such as free samples, gifts, games, concerts, tradeshows, trading stamps, signs and displays,

sweepstakes are also part of sales promotion. In planning a sales promotion programme it is necessary to

work with one consultant rather than different consultants. This is enhanced when the programme is

worked out using a combination of skilled in- house executives and consultants. In engaging an agency,

the firm must give full brief regarding

i. Specific relevant information about your market

ii. Exactly what you are trying to achieve

iii. What marketing plan you have for your product

iv. The products promotion history

v. Information on competitors campaign (if any)

vi. When you want the campaign to go life

vii. What the budget is

viii. The criteria you will use when necessarily the efficiency of the product.

The major decision taken regarding sales promotion include

Establishing the sales promotion objectives: The objectives must be specific depending on the target

group

Selecting the sales promotion methods: the methods used include offering free samples to

consumers reducing prices of certain product, demonstrations to encourage trial use and displays, usually

in the windows and on roads outside the shops

Developing the sales promotion programme. It is important to clearly establish such items as

size of the incentive – provide a realistic incentive that will not eat too much into the sales returns

Conditions of participation- specify who should participate for example employees of the firm may

not participate because they will have an advantage over non employees

135

Duration of the promotion – it should not be too long or too short. Slogans like ‘ buy now while

stock last are common

Timing – decide when the promotion should be done. Improver timing can be very bad

Total sales promotion budget – this is important as it determines what to include in the sales

promotion

Some examples of sales promotion

Games and competitions. Company arranges for games in which winners are rewarded, or they win

specific items, as is the case with beer promotion by Kenya breweries, win a house promotion by Celtel

and so on. Games lend themselves to seasonal promotions, for example they can be run to target Easter,

Ramadhan and so on. The actual prize may not be the product being promoted, as in the case of beer,

where prizes include cars. Companies also target international events like the world cup to promote their

products in which winners get prizes related to the world cup.

Free gifts. This is one of the oldest methods of sales promotion. The gift may be attached to the product,

as a pair of socks with a ruler tied onto them, or a loaf of bread with a blue band sachet, or they may be

given when one fuels at a petrol station. Sometimes the gifts may first be given out to passers by and not

buyers, for example, samples of a newly introduced tooth paste may be given out at a street to motorist. In

other cases young ladies or men are posted in supermarkets to give free samples to consumers, for

example to prepare a drink for tasting purposes. This would enable the consumer to decide whether to buy

or not. The free gifts is also away of showing faith in the product.

Rebate schemes. This involves refund of cash to consumer who have bought a certain product on

production of coupon (receipt) which specified that the item is on offer.

Demonstration and free samples. These are also commonly done, and together with tasting, help to

popularize the product. The manufacturer has to satisfy the consumer by doing it himself ‘seeing is

believing’

136

PUBLICITY AND PUBLIC RELATIONS

Publicity is the non-personal stimulation of demand for a good or service by placing commercially

significant news about it in a published medium, or by making a presentation or television. But no paid

for by an identified sponsor. Its benefits are that there are no costs for message time or space, and that it

reaches a mass audience, and within a short time new products or company policies are widely known.

Further, it enhances credibility about message because they are reported in independent media. Its

limitations are that the firm has little control over messages, their timings, their placement or coverage,

and that the firm may not be able to plan publicity in advance because new worthy happenings take place

quickly.

Public relations is not only concerned with marketing, but is actually inherent in marketing. It deals with

relations with the public. There is a public relations element in every aspect of marketing communication,

since both marketing and public relations deal with the public.

137

However, public relations goes beyond marketing in two aspects: First, in a commercial enterprise, public

relations deals with the communication aspects of the total organization, and interact with different

publics including opinion leaders. It should therefore be independent from marketing department.

Secondly, in some companies, the function of public relations has been subdivided into public relations

serving marketing, and public affairs serving the management.

The essence of public relations is mutual understanding. This is very important in communication and if

there is lack of understanding then public relations will have failed. Mutual understanding is important in

that marketers do not only seek to be understood, but to understand others. The strength of public

relations is its role in creating understanding

Public relations is very crucial in converting negative image to positive image as shown in figure 10.1

below

Negative Positive

PR

Fig 10.1:. The negative-to positive transfer process of public relation (source Jelkins, 1992)

It would be unrealistic to expect 100% conversion to the positive states, but the four negative states are

the ones which the marketer can easily recognize as the barriers to the success of his marketing strategy.

You may have a good product, a good price, good packing, good distribution and good advertising, but

only up to this far, without a good public relations effort, the whole marketing strategy will fail. Public

relations can come in either by

being made part of the marketing strategy at all levels, or

involving public relations at key stages like in advertising

Hostility – if people hate the company, the product will not sell, however good it may be. A mortorist

may fuel only in certain petrol station and avoid others. Tourists may avoid certain tour firms while

holiday maker may avoid certain countries. Hostility may or may not be justified and while a negative

138

Hostility

Prejudice

Apathy

Ignorance

Sympathy

Acceptance

Interest

Knowledge

situation cannot just be wished away, can put the record straight, or present a good case when a different

situation is deserved.

Prejudice – this is more deeply rooted then hostility, and unlike hostility which may be temporary,

unjustified or sometimes as a result of misunderstanding, a prejudice usually springs from the

environment and upbringing and it is difficult to remove, although it is possible to win tolerance.

Prejudice may be derived from a company’s past performance, behaviour or reputation, and is therefore

very tricky to deal with. It cannot be removed merely by advertising, but requires a combination figure

their prejudice.

Apathy – a situation when one does not imagine that something can happen to him, e.g attitude towards

seat belt, life insurance, household security systems and so on. People think it will never happen to them,

or they are too busy thinking of other things

Ignorance – this is the biggest negative factor! The more are know, the less we know. Marketers often

assure that other people know everything and end up not telling them what they should... all because of

ignorance. The market needs to be educated before advertising can personate effectively, and Public

Relations is an educational operation. Public Relations can help to create demand not through

underhanded stimulation but by producing interest, knowledge and understanding.

139

SALES AND SALES MANAGEMENT

PERSONAL SELLING

This is an oral presentation in a conversation between one or more prospective buyers. It involves

communicating directly with an audience through paid personnel of the organization or its agents (sales

people). May include door to door selling where sales people move from door to door selling goods. It is

common when larger volume of customers require special attention and handling, and for customer made,

expensive and/or complex goods or services that require demonstration and follow-up calls. Also useful

for new products, and for organizational customers.

Effective personal selling depends on how well the sales force is managed. This management revolves

around the following areas.

Establishing the sales force objectives- This involves clearly stating the sales objectives in precise,

measurable terms for instance, stating what is to be accomplished within a specific period.

Recruitment and selection of the sales people – this involves getting sufficiently qualified people to

serve as sales persons

Training the sales people. Once recruited, the sales people should be adequately trained to ensure

that they understand what is expected of them. Refresher courses are also necessary for the experienced

staff to update their skills compensating the sales people. The organization must formulate and work out a

compensation scheme that attracts, motivates and retains most effective sales people. This involves not

only paying them adequately but also reimbursing their traveling expenses and providing certain fringe

benefits. Motivating the sales people- it is important to use both financial as well as non financial

incentives to motivate sales people.

The personal selling process

The personal selling process goes through several stages which include prospecting, determination of

customer needs, Selection of a sales approach, Communicating with the buyer and Evaluation.

140

Prospecting. This is a very important role for a salesperson. It involves identifying and qualifying

potential customers. Sales people should not just concentrate with the existing customers, but should also

try to identify people who could become databases, trade shows and from customs inquiries.

Determining customer needs. The sales person should learn as much as possible about the customer so

that he or she can identify the customer needs and be able to solve them. The sales person should

encourage tan way communication whenever a call comes in try to probe and find out as much as possible

about the seller.

Selecting a sales approach. The sales person needs to find on appropriate way to approach the prospect.

For most, there should be an attempt to influence the customer to switch to the company’s products, and

to change the customer belief about the company and its products.

Communicating with the buyer. Three approaches may be used. The first one is Canned approach, in

which the sales person follows a predefined script without regard to the customers’ response. This works

well when the sales person has very little time and has little knowledge about the customer needs. Useful

in door to door selling or telephone selling. The second approach is Formula selling, which provides

information to customers in a step by step manner to persuade the customer to buy. Work well when the

sales person has already identified the customer needs. The third approach is Problem solving, which

requires the sales person to spend time obtaining an in-depth understanding of the customer and

formulating a sales approach accordingly. This is very useful in consultative selling since products and

services are usually custom made to meet customer needs.

Evaluation. This is very important in order to know the effectiveness of the sales approach. It provides

information necessary for appropriate follow up after the sales call. If a sale has been made, follow up is

necessary to ensure that there is an excellent chance to repeat purchase.

The personal selling process may also be explained by using the following steps

which focus on the goal of getting new customers and obtaining orders from them.

141

Prospecting and qualifying

Follow up

Handling objectives

Closing

Presentation and demonstration

Approach Pre-approach

1. Prospecting and qualifying

Prospecting involves identifying qualified potential customers. Approaching the right potential

customers is very crucial to selling process. Sales person must often approach many prospects to get

just a few sales. He may needto build referral sources or data bank of potential customers for future

use.

The sales people also need to know how to quantity leads that is how to identify the good ones and

screen out the poor ones. Those willing and are capable of buying.

2. Pre-approach

The sales person needs to learn as much as possible about the organization (what it needs, who is

involved in buying) and its buyers (their characteristic buying styles). One should call and talk to the

companies.

3. Approach

During the stage the sales person should know how to meet and greet the buyer did get the

relationship off a good start. This step involves the salesperson appearance, opening lines and the

following up remarks.

4. Presentation and demonstration

The salesperson tells the product story to the buyer, showing how the product will make or save

money. The sales person describes the product features but concentrates on presenting customer

benefits. Using a needs satisfaction approach, the sales person starts with a search for the customers

needs by getting the customer to do most of the talking. This requires good listening and problem,

soling dulls. The qualities that purchasing agents dislike most include being pushy, late and

unprepared or disorganized. The qualities they value most include empathy, honesty, dependability,

and thoroughness. Sales presentation can be improved with demonstration aids such as booklets, flip

charts, slides, video tapes and product samples, Use AIDA approach.

142

5. Handling objections

The sales person seeks out, clarifies and overcomes customer objections to buying. He should use a

positive approach, seek out hidden objections, ask the buyer to clarify any objections, take objections

as opportunities to provide more information, and turn the objections into reasons for buying.

6. Closing

After handling the objections, the salesperson tries to close the sale. It involves obtaining agreement

to buy, and is the action step.

A trial (mock) close may be sued to gauge readiness to close. One could start by asking questions that

lead to commitment e.g. would you prefer blue or red shirt? Would you prefer to pay cash or by

cheque. As the prospect gets closer to a decision, the salesperson can often finalize the sale with

assumptive close. He assures the prospect is going to buy and beings asking questions that will settle

details of the purchase e.g. questions like. Would you want this delivered? This question indicates that

the process has progressed beyond the decision to buy

7. Servicing customers after the sale (post purchase follow up)

The purpose is to ensure customer satisfaction and respect purchase. An effective selling goals does

not end when the order is written up, and should be followed by a series of post purchase service to

build customer good will and lay the ground work for future business.

The salesperson should follow up to ensure that no problems occur in delivery, financing, installation,

routine maintenance and so forth. All these activities reduce the customers post purchase anxiety or

cognitive dissonance. (Dissonance leads buyer to seek a reassurance that a correct choice was made

and to avoid information that would suggest that some other alternative would have been better.

DESIGNING THE SALES FORCE

COMPENSATING SALES PERSONNEL

Compensation deals with determination and provision of monetary payment for staffs for the work they

do. The compensation plan should be done such a way that it fills into a company’s special needs and

problems, in the sense that the company should try to pay only that which it can afford to pay and sustain.

A good sales compensation plan serves three motivations roles.

143

1. Provides a living wage

2. Adjusts pay levels to performance thereby relating

3. Providing a meeting point between meeting a company’s goals and individual goals.

Requirements of good sales compensation plan

1. Provides a living wage, so that staffs have the money they need and can concentrate on work.

2. Should fit in with the other motivational factors without causing conflicts.

3. Should be commensurate with performance (should be equitable) and not penalize staff in fairly.

4. Should be easy to understand by the sales personnel they should be able to compute their salaries.

5. Should be able to adjust to changes in performance

6. Should be economical to administer

7. Should help in attaining the plain of the sales organization.

Developing a sales compensation plan

Developing a sale compensation plans requires the execution to go through a systematic plan of steps.

These include:

1. Define the sales job

Job description should be clearly done to explain the nature of the job. This should be updated to

match it with changing situations. The sales person’s goals, duties and activities should be clearly

spelt out.

2. Consider the company’s General compensation structure

This requires evaluating the jobs to determine the relative value of individual job. There are for main

job evaluation methods

Simple ranking: This is an inexpensive method used by small companies, and involves sorting out

job descriptions in the order of their worth.

Classification or grading – uses a system of grades and grade descriptions, against which

individual jobs are compared. The descriptions are put under those grades or classes, cash grade

with its own worth.

Point system – very common, involves establishing and defining the factors common in most jobs

that represent the chief elements of value found in all jobs. The way factors are assigned a

144

minimum and maximum number of points and then total scores obtained. Finally groups of points

are worked out to become the different compensation classes.

Factor compensation method – resembles the point supply but more complex. It involves use of

factors as in point system, but these are subjected to a lot of cross-comparisons to minimize error

from faulty judgement.

3. Consider compensation patterns in industry one should consider the prevailing pamphlets in other

companies and in the community. The compensation plan should take into account the current rates

for sales positions in the community and industry.

4. Determine compensation level.

Management should come up with the actual amount to pay to each staff, according to their grades or

job group (class). This may involve some bargaining between the sales person and the executive, or

may be determined through judgment by the management. The company must carefully consider its

ability to sustain the payment for its staff.

5. Provide for various compensation elements.

The plan should accommodate the various elements such as the fixed element, variable element, the

fringe factor element and reimbursement of expenses or payment of expense allowance.

Fixed – Salary Fridge – Pensions, medical allowance

Variable – Bonus and Commission

6. Special company needs and problems

The sales compensation plan must consider the needs of the company. For example, it can be used to

stimulate more sales and effectiveness, for instance using variable commission rates on different

products highest rates being for neglected products. The plan should also control traveling expenses

and other allowances.

7. Consult the present sales force

Management should encourage the sales personnel articulate their likes and dislikes about the current

plan and to suggest changes to it. It should also compare the caliber of the sales personnel it has with

what it desires to have.

8. Reduce tentative plan to writing and pretest it

The tentative plan is finally put in writing and pretested. The amount of testing depends upon how

much the new plan differs from the one in use. Pretesting involves mathematically reworking the

145

previous year pay will with the new plan and seeing how the problem experienced the past have been

handled by the current plan. The proposed plan is applied in different territories long enough to detect

how it works under current conditions. These pilot tests are very important in detecting possible

sources of trouble and deficiencies.

9. Revise the plan

The plan is revised to eliminate trouble spots or deficiencies. If alternations are extensive, the revised

plan goes through further pretests to make sure it works.

10. Implement the plan and provide follow-up

In implementing the plan, sales personnel should explained and convinced that the new plan is

necessary and better than the previous one. They should be give a copy of the new plan, with

examples of the computations done. No effort is spared to make certain that everyone on the sales

force fully comprehends the compensation plan and its working. Provisions for follow up are made so

that periodic check ups are made and need for further adjustments detected.

Types of Compensation Plan

1. Straight salary plan

This involves a fixed payment on regular intervals (weekly or monthly). A very common plan in

many companies, although many companies are shifting from it.

Its strength to the management is that it provides financial control over sales personnel, as that

management can direct the sales personnel along the most productive lines – it is also beneficial to the

sales personnel because they are guaranteed of a fixed wage.

Its shortcomings are that,

- Sales personnel may not work hard enough to improve on sales

- Productive sales personnel may be under compensated at the expensive of the unproductive joy

riders.

- It is difficult to maintain the morale of the staff.

- It is difficult to adjust to changing conditions

2. Straight Commission Plan

Involves paying commissions based on the volume of sales, such that each sales person is paid

according to his output. This is common in clothing, texture and show industries, and also in most

insurance and investment securities companies.

146

Advantages

- Very motivating to staff- provides maximum direct monetary incentive to staff.

- Staff are paid according to their productivity

- Provides flexibility for revising commission rates for different products.

Weaknesses

- Provides with financial control over sales people activities, especially when they pay their

expense.

- People may not bother about quality of services, so long as they deliver.

- Sales persons may use high pressure – tactics among customers, leading to loss of customer

goodwill.

- Costs of analyzing and monitoring sales person reports are higher than for straight salary method.

3. Combination salary and incentive plan

This combines the salary and commission plans, such that staff are paid a fixed salary for some

maximum level of performance than a commission for extra output above the maximum required

level of output.

Advantages

- Staff are assured of salary, but also have extra incentives

- Provides for fixed and variable elements, and is therefore flexible.

Disadvantages

- High clerical costs as compared to either a salary or a commission system in more records are

maintained and in greater detail

- May be too complicated for staff to understand.

BONUSES

A bonus is an amount paid for accomplishing a specific sales tasks, and is therefore different from a

commission which varies with sales volume. Bonuses are paid for reaching a sales quota performing

promotional activities, or carrying out other assigned duties. They are never used above, and always

appear with one of the three main sales compensation methods, sales people need to be fully explained

about the bonus to be paid, so that they understand it.

FRINGE BENEFITS

147

Bonuses are not motivating factors, and are given by companies to retain staff in the company, and to

provide them with a feeling of safety and security. However, some of them such as payment of child fees

contribute to fulfillment of higher order needs such as esteem needs.

Since they are given to all staff regardless of job performance, fringe benefits help to prevent job

dissatisfaction but do not add to job satisfaction.

Fringe benefits under different categories

Time: Holiday, vacation, sabbaticals, maternity leave, sick leave.

Retirement: pension plan, profit sharing, social security.

Insurance/Medical: Medical schemes, life insurance, accident insurance, travel insurance, medical

payments and reimbursement.

Job Analysis – a sampling and analyzing factual information on specific jobs. It provides data required

for preparing written job description, which is turn are used to derive job specifications. Sales job analysis

requires systematic collection and study of information on particular sales jobs. It involves determining

the jobs objectives, and what the person holding the job should do to reach the objectives.

Job specification – coming up with the qualifications that an individual needs to perform the job

satisfactorily. Academic and professional training, experience and any other specific skills and as

possession of a clean driving license

Job description – describes the duties and responsibilities of a job, the reporting relationships and the job

objectives. A sales job description tells to whom the sales person reports, what has to be done, how it is

done, at why, and the standards against which performance is measured.

RECRUITMENT OF SALES PERSONNEL

This is one of the key responsibilities of a sales executive. It involves determining the right kind of sales

personnel and sourcing for them. Once the desired kind of personnel is determined, implementation

involves job analysis, job description and specification so that those doing the recruitment will have clear

guidelines as to who to look for.

Recruitment should be a continuous process in order to replace those who learn the job for various

reasons.

148

Selection involves getting the right personnel from among the applicants, received and is sometimes seen

as part of the recruitment process, since recruitment would be incomplete without selection.

Sources of sales force recruits

There are both internal and external sources.

Internal sources

These include

i) Company sales personnel who recommended people they know to the management for placement.

Sales people are a particularly useful source of recommendations when jobs must be filled in remote

territories in which only the sales people know the right people to do the work.

ii) Company executives – recommendations of the sales manager or other chief executives is a major

source. Provided the executives are not biased. They can recommend very competent people they may

have encountered in conferences, in other companies and so on.

iii) Internal transfers – these involve staff being deployed to the sales department from other departments,

these are people with a wide experience about the company and its products, although they may have

little selling experience.

External Sources

External sources include:

i) Direct unsolicited applicants – these are applications from people who first apply for positions

not declared vacant, and either drop or post the letter to the company. Management should not

ignore these applications, and should be processed along with other applications for possible

placements.

ii) Employment agencies – these are many agencies that keep a databank or prospective

employees (job seeker) and can provide very good CVs, provided they know what the

company requires. The agencies can also administer interviews along with the company to

select the best candidates.

iii) Recommendation by customers – customers may recommend suitable persons to the company.

iv) Sales person from competing firms – the company may recruit people from competing

companies, but these are expensive to get because of their demands, since they are unlikely to

accept less than what they already have.

149

v) Educational institutions – these include universities, polytechnics, and other training colleges,

and high schools. Person from these institutions are usually recruited as management trainees

that they just so through training before they are fully absorbed.

The recruitment effort involves identifying the number of positions that need to be filled, then coming up

with a suitable job description and specification. The position is then advertised either internally or

externally, requiring interested applicants to apply within a specified time period. The company must give

full details of application procedure, and what the applicants must provide.

SELECTING SALES PERSONNEL

The selection process involves scrutinizing the applicants against the requirements and coming up with

the best applicants to fill the positions. It refers from simple one step systems consisting of merely an

informal personnel interview, to complex multiple step systems involving series of interviews and

practical experiments.

The selection process starts with an initial short listing exercise in which those who do not meet the

minimum requirement are out rightly rejected, while short listed ones are subjected to interviews. The

interview process starts with preliminary interview which is short and trainees and the company and the

job. This is followed by non detailed interview involving knowledge of the job ability to perform. Some

companies provide detailed interview application forms which ask for specific details, making the

selection process much easier.

THE INTERVIEW

The interview is the commonest method used for selection. This is usually, verbal and the applicant

should be interviewed by a board of interviewees seated together, so that bias is minimized. The interview

should be as interactive as possible and should allow the applicant to seek clarifications or information he

may not know about he company. The interviewees must remain focused on the job requirements and

avoid digressing too much with irrelevant issues.

Written tests may also be included as part of the interviewing process.

The interview should be carefully arranged so that the applicant does not lose interest in the job. He

should be made to feel that the company is the best to work for (but the panel must avoid creating wrong

impressions)

150

Placements

Once the interview is over and the right persons have been identified, they should be limited to take up

the job. This is the process of placement on what the new recruit finally signs an employment contract

with the company and takes up the job.

Orientation /induction

This involves helping the new recruit to settle down on the job. He should be shown around the company

and introduced to various officers with whom he will interact. He should be shown key facilities like

parking, toilets, conference rooms and so on. If possible, he should be given a manual guide with details

of company policies and practices.

TRAINING SALES PERSONNEL

The purpose of training sales personnel is to achieve improved performance. Training supplements

experience. There are many training programs, ranging from simple refresher courses to more

comprehensive programs. Building a sales training program requires five major decisions:

i) Defining the training aims (why)

ii) Identifying the content (what)

iii) Selecting training methods (how)

iv) The actual training execution (who, when, where)

v) Evaluating results

Abbreviated with acronym (A.C.M.E.E)

1. Defining Training Aims

There must be clear aims for the training, which must be defined both in general and specific terms.

The specific aims are expressed in operational terms. The aims are themselves developed after

training needs have been identified. These training needs are identified after considering job

specifications and descriptions. The firms first identifies the initial training needs mainly for new

employees. It should also identify continuing training needs for experienced employees, to keep them

updated on latest technological changes.

2. Deciding Training Content

Training content is developed from specific aims developed by the management after analyzing

training needs. Relevant training content covering all areas of sales training programs must be

developed, although for continuing training, the content should be based on more specific aspects

151

areas generally covered included product data (uses, applications, method of production etc), sales

techniques (communication, dressing, intelligence etc) markets (buyer habits, location, who are the

customers) and company information (policies, procedures, culture, opportunities, promotion

procedures, disciplinary cases etc).

3. Training methods

There are many methods depending on the content, and management must select those training

methods that most effectively convey the desired content. These methods include.

- Lecture - Gaming

- Conference - On the job training

- Demonstration - Correspondence courses

- Role playing - Case discussions

i) Lecture Method

This involves to the trainees with little interaction for discussions. It is manly passive rather than

active, trainee participation. Its main weakness is emphasis on teaching rather than learning. But it

can be made more effective by using relevant examples, demonstrations and visual aids. It is

cheaper than most of the other methods and saves time. Use of multimedia technique such as

video screens, projectors, charts and graphs can enhance efficiency of the lecture method.

ii) Personal Conference

In the case, the trainer (usually the sales executive) and the trainee jointly analyze problems such

as handling unusual selling problems or effective use of time. It is an unstructured and informal

method which varies with the personalities of the trainer and the trainee and the topic of

discussions.

iii) Demonstration

This is very useful for conveying information on such issues as new products and selling

techniques. Demonstrating how a new product works in more effective than the lecture methods.

Demonstrations are generally used alongside the other methods to make those methods more

exciting and effective.

iv) Role playing

The trainer simulates a selling situation, then designates the trainees to play the sales person,

prospect and other characters. Each plays his/her assigned role, after which, they together with

152

other group member appraise each other’s effectiveness and suggest how the performance of each

might have been improved.

Role playing requires participants to become actively and emotionally identified with the

characters they represent, which is not easy. But role playing has many benefits. It provides a

realistic practice in applying what has been learnt in other training or by experience.

It is flexible and adapts to extreme diversity in role playing situations. Other benefits includes: -

Trainees learn to accept criticism from others, and the group soon recognizes the need to

recognize suggestions of others.

When a trainee is criticized by others, he learn not to repeat the mistake later

In role playing sessions for mixed groups, junior staffs have a chance to learn from more

experienced staff.

Role players gain acting experience which may help later in handling difficult selling

situations.

v) Case Discussion

This involves use of practical cases from other companies. The trainees are given practical case

that may have happened in other companies and asked to make decisions on the cases. Trainees

discussing a case should identify the issues, gather the relevant facts, divide specific alternatives

and choose the one most appropriate.

vi) Gaming

This is also called gaming and somehow resembles role playing. It uses highly structured

situations based on reality, in which players assume decision making roles through successive

rounds of play. A unique feature is that players receive information feed back. In one situation,

trainees play the roles of decisions makers in customer’s organizations and make decisions on

timing and size of order, and advertising efforts. Results of thee decisions are then evaluated and

feedback given for use in the next round of decisions.

Advantages

Participants learn easily because they involve themselves in the play.

Players develop skill in identifying key factor influencing decisions.

Games made it possible to easily demonstrate uses and value of various analytical

techniques.

153

Limitations

Requires some minimum time for playing to generate sufficient decision, hence may be

time consuming.

Poorly designed games may make players learn the wrong thing.

vii)On the job training

This combines telling, showing, practicing and evaluating, the trainee learns under the supervisor

or a professional trainer on real work situations. Under the trainer’s supervision, the trainee makes

sales calls, each one followed by discussion and appraisal. Gradually, the trainee works more and

more on his or her own, but with continuing although less frequent coaching.

On the job training is an important part of most initial sales training programs. It is appropriate for

developing trainee’s skills in making sales presentations, answering objections, and choosing

sales.

Effectiveness of this method depends mainly on the coach’s qualifications and dedication. Many

experienced sales people otherwise qualified for coaching are unwilling to spend the necessary

time and effort on training, especially when they are paid commission on sales.

viii) Correspondence Courses

This is used in both initial and continuing sales training. It is used to acquaint new sales people

with industry fundamentals and basic sales techniques. It is also used to acquaint experienced

sales people with new product developments and applications. It is most appropriate as an

interim training method when trainees scattered geographically but are assembled periodically

for lecturers, seminars, role playing and other information.

Successful use of the correspondence method requires administrative skill. Its greatest problem

is how to motivate trainees to complete and submit assignments on time as many of the trainees

have many commitment related to their work, need self discipline to spare sometime for reading.

4. Executing the sales training program

The execution step requires several decisions as to

- who will do the training

- when the training will take place

- And where the training will take place

154

The trainers must be notified in good time and given a clear programs answering the three questions.

Adequate preparation of accommodation travel arrangements and stationery must also be arranged, in

addition to instructional materials, and assembling of training aids.

Effective program execution depends upon instructional skills as well as coordination of planning and

housekeeping details.

There are two philosophies of sales training:-

i) Conditioned response – seeks to train sales personnel to respond in standardized or programmed

ways e.g. by giving multiple choice questions.

ii) Insight – response philosophy seeks to develop trainee’s insight and analytical skills so that they

respond appropriately, and in their own individualized ways e.g. by giving easy type questions.

Organization for sales training

This involves answering the questions:

Who will be trained? – this involves identifies training needs of the staff and identifying those to be

trained at different levels. It should be done very objectively to minimize bias.

Who will do the training? Some companies have training managers who coordinate the training and

identify who is to do the training. Trainers may be solved internally from among the executives, or

from outside experts.

When will the training take place?

Training may be individual or group. It is cheaper to train a group than individual. Either way, proper

training is important, so that the staff to be train benefit at the right time. Regular scheduling training

programs is a disable, so that staff are kept updated on various selling techniques.

Where is the training to take place?

Choose of an appropriate training venue is necessary. Some companies opt to train staffs with their

own premises while other arrange workshops in hotels. In some cases centralized training is arranged

for all staff, while in other case, decentralized training is done in which each department arranges for

their own training.

Instructional materials and training aids

These include manuals to serve as study guides during training and as references later, printed

materials such as journals and business magazines and training aids such as flip charts, slides,

transparencies and projectors. All these must be assembled in good time.

155

5. Evaluating sales training program

Evaluation involves comparing the program’s aims with the actual results. For example, assessing

whether the training has resulted in increased sales, or the time a trained sales person takes to attain

the level of sales for an experienced sales person. Bid even before this is done, there should be a self

evaluation during the training in which the trainees fill a form to indicate their feeling, about the

training. The purpose is to obtain insight for improving the effectiveness of future programs. Trainers

may also rate each trainees performance in role-playing panels and other discussion. Although this is

subjective, it provides learning incentives. In other cases, trainees are asked to rate each trainer’s

performance, either in each session or in the total program. This may stimulate trainers to improve

their effectiveness.

MOTIVATING SALES PERSONNEL

Motivation is a goal oriented behaviour, and is the amount of effort the sales person desires to extend on

the activities associated with the sales job such as calling on the potential accounts or planning sales

presentations.

The sales executive’s ability to attain high sales depends on the composite performances of the individual

sales persons. Their behaviour, and inner drives towards improved performance is therefore very

important. Most sales personnel require motivation to reach and maintain satisfactory performance levels.

Some of the reasons why sales personnel require additional motivation include:

i) The inherent nature of their job – a sales job involves many challenges, including interacting

with both pleasant as well as unpleasant people. It can be very frustrating and depressing,

especially when expected sales are not forthcoming.

ii) Sales person’s boundary position and role conflict – a sales person finds himself /herself in a

boundary position, serving people both within the company and in customer organizations. He

must try to satisfy the needs and expectations of both teams, which can raise conflicts.

iii) Tendency towards apathy – some sales people tend to relax once they are used to their

customer and take it. For granted that their customers will always buy their products. They

need to be motivation to create increased enthusiasm and avoid relaxing, as the customers they

assure they have can easily be won by competitors.

iv) Maintaining a feeling of group identity.

156

Many sales people are often alone in the field, and maintaining team spirit until the other

members is difficult. Motivation can encourage them to work towards attaining group

performance standards and to maintain team spirit with their colleagues.

Maslow’s Theory of Motivation

This is the commonest theory and was developed by Abraham Maslow, a psychologist. It is based on

needs satisfactions in which needs are arranged in a hierarchical order.

Self actualization

Esteem need

Love and belongingness

Safety needs

Physiological needs

As a need at a particular level is satisfied, it loses its potency as a motivator, but other unfulfilled

needs gain in potency.

Physiological

The most basic, include shelter, food, water, air, sex.

Safety needs

Job security, welfare at work, medical care, work environment such as ventilation, protective gear,

gloves and uniform.

Love and belongingness

- Feeling of being accepted by colleagues and by company

- Association with colleagues

- Acceptance, appreciation

Esteem needs

- Promotions, status

- Job enrichment

- Challenging job and assignment

157

- Meeting set sales targets

Self actualization

Person has reached the highest level of achievement.

Sales people can be motivated at the different levels either buy use of financial or non financial

incentives.

Financial incentives

- Usually cash payments in form of salary, wages, overtime pay, bonuses and allowances.

- Usually for satisfying lower level needs such as food and shelter

- Mainly for motivating subordinates

- Sales people with school going children, large families or heavy financial obligations can

effectively be motivated by use of financial incentives.

Non Financial Incentives

- Do not involve use of money, and are more effective for top management, those sales people

worse desire for work is first status. They include recognition promotion, spacious office,

company car, attractive job title, annual service wards etc.

Herzberg’s two factor theory

Fredrick Herzberg came up with two factor theory in which needs are categorized into two groups

Motivator – job context factors which are higher level

Motivation – they relate to the environment of work and include achievement, recognition, advancement,

work itself and responsibility. They create strong motivation and satisfaction among staff.

Hygiene factor – they are job content factors and are called maintenance factor, since their presence

creates no satisfaction, but their absence causes dissatisfaction. They are called hygiene factor because

they support employees ‘mental’ health.

This theory has tow implications for sales management

1. Management must see that the job provides the conditions that prevent job dissatisfaction – that is

create an acceptable work environment, fair compensation, fair and reasonable supervision and job

security. To provide motivation for a fair day’s work.

158

2. Management must provide condition for achievement, recognition, responsibility and advancement –

to provide motivation beyond a fair day’s work.

Factor If present If absent

Hygiene factors No satisfaction Dissatisfaction

Motivating factors Satisfaction (motivation) No satisfaction (no motivation)

MANAGING THE SALES FORCE

Sales force management is the analysis, planning, implementation and control of sales force activities, it

includes – designing sales force strategy and structure, recruiting, selecting, training, compensating,

supervising and evaluating the firm’s sales people.

Designing Sales force strategy and structure

If a company sells only one product line to one industry with customers in many locations, it would use a

territorial sales force structure. However, if it sells many products to many types of customers, it might

need either a product sales force structure, a customer sales force structure, or a combination of both.

1. Territorial Sales force structure

Each salesperson is assigned to an exclusive geographic area and sells the company’s full line of

products or services to all customers in that territory.

Advantage

- Clearly defines the sales person’s job and since only one sales man is responsible for a territory he

gets all the credit or blame for territory sales.

- Increases the sales person’s desire to build local business relations that in turn improve selling

effectiveness.

- Travel expenses for sales persons is reduced

The structure may have several levels of reporting e.g. sales mechanizes reporting to sales

representative who report to retail supervisors. The supervisors report to directors of retail sales

operators, who report to regional sales managers.

2. Product sales force structure

159

The sales force sell along product line and so they specialize in selling only a portion of the

company’s product lines. The problem may arise when sales force people from the same company

end up in one customer perhaps with different products of that company. For example, sales people

selling different drugs from a company may end up in one hospital at the same time. This leads to

increased expenses, which must be compared with the benefits of better product knowledge and

attention to individual products.

3. Customer sales force structure

The sales force is organized along customer or industry liners. The sales force is organized to serve

different industries or customers. This helps a company to become more customer focused and build

close relationship with important customers.

4. Complex sales force structures

This involves combining several sales force structures, in situations where a company handles a

wide variety of products among many types of customers over a broad geographic area.

NB:

No single structure is best for all companies and situations, and each company should select a sales force

structure that best serves the needs of its customers and fits its overall marketing strategy.

Trends in personal selling

Personal selling has been changing over the years, and some of the areas include

Information accessibility. There have been major developments in IT since the 1980’s leading to greater

accessibility of information by the sales people. The internet and mobile phones have made it very easy

for sales people to do business without having to travel long distances. They can also easily communicate

with the head office when they are in the field. People can today get a lot of information from the internet

at very reasonable costs

Telemarketing. This involves making sales by use of telephone, in order to avoid the cost of travel by the

sales people. In many companies orders are placed through the phone and sales are also concluded

through the phone.

160

CHARACTERISTICS OF SERVICES AND THEIR MARKETING IMPLICATIONS

Intangibility

Services are intangible and cannot be seen, touched, felt or smelt before they are bought. To reduce

uncertainty, the buyer will look for signs or evidence of the service quality by drawing inferences about

service quality from the place, people, symbols and the price they sell.

Inseparability

Services are usually produced and consumed simultaneously. Thus, the client is also present when

the service is produced.

Provider- client interaction is a special feature of services marketing.

Variability

Since services depend on who provides them, when and where they are provided, services are

highly variable. Firms therefore should try to have well trained service providers to maintain high quality

of their services and also to standardize their service provision processes.

Perishability

Services cannot be stored and if not utilized at the time they are available, they simply disappear.

For example if a manager fails to turn up for a conference presentation, he misses the proceedings.

Companies can prepare to take care of high demand periods by providing more personnel to provide

services during the peak hours.

161

MARKETING OF SEVICES

A service is any act or performance that one party offers to 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.

Companies often offer a combination of tangible and intangible products. Several categories can be

identified;

- Pure tangible goods – Often consist primarily of a tangible goods such as soaps, toothpaste etc,

without any accompanying services.

- Tangible goods with accompanying services. – This usually applies for industrial goods whose

supply is often accompanied by some services such as transportation, demonstrations, training and

servicing.

- Hybrid – The offer consists of equal parts of goods and services. For example people in a restaurant

get both foods as well as services.

- Major service with accompanying minor goods and services – The offer comprises major service

with minimum goods, for example s\air travel is essentially a service, but passengers may get

some drinks or meals while on board.

- Pure services – Offer consists primarily of a service for example baby sitting, psychotherapy and

massage

Marketing strategies for service firms

The application of marketing strategies for service firms is increasingly becoming important, unlike in the

past when services firms did not think it was necessary to practice marketing. However its market is

difficult to apply the traditional 4 P’s marketing approaches for services. Booms and Bitner have

suggested three additional 3P’s, namely people, physical audience, and processes.

- People – since most services are provided by people, the selection, training and innovation of

employees can make a difference I customer satisfaction.

- Physical audience – Companies try to demonstrate evidence of quality through a physical

presentation, such as office layouts, dress, equipment and furniture. For example in a banking hall,

banks maintain very neat floors, play some soft music and so on.

162

- Processes – Companies choose difficult processes to deliver their services. This may involve both

external marketing ( how the company prepares, prices, promotes and distributes services to

customers) as well as internal marketing ( how the company trains and motivates its employees)

Service companies face three tasks, namely increasing their competitive differentiation, their

service quality and their productivity.

Managing differentiation

Service marketers often find it difficult to differentiate their services from those of competitors.

They often try to deal with price competitors by developing a differentiated offer, delivery and or image.

1. Offer - this can include innovation features to distinguish it from competitors. For example an airline

can include hotel accommodation for its clients at some points or banking having credit cards for

customers. ATM services are also additional offers by banks. The only problem with service offers is

that they are easy to copy.

2. Delivery – A service company can try to differentiate its delivery which is of higher quality than that

of competitors. For example a fast food dealer can deliver meals to offices. Similarly a mechanic can

provide his clients with a car to use during the time that the client’s car is at the garage.

3. Image – Image can also be differentiated, through symbols and branding. For example KCB uses the

lion as its symbol, which convey the impression of strength, Nakumatt supermarkets use the elephant

to imply large size, where customers can get everything under one roof.

Managing service quality and productivity

Service firms try to provide service quality that can meet or exceed the target customer’s service

quality expectations.

The firms need to have clearly stated quality control indicators that can be used to guide service

quality.

Excellently managed service companies share the following common practices.

- Strategic concept – they have a clear sense of their target customers and the customer’s needs

they are trying to satisfy.

163

- History of top management commitment to quality – Management of such companied tend to

be very concerned about quality of services and closely monitor financial as well as service

performance.

- Services for monitoring service performance – Such companies audit service performance both

for themselves and those of their competitors on a regular basis. They use various criteria,

including ghost shopping to find out employees deliver good service.

- High standards – They set high service – quality standards. For example, Swiss air aims at

having 96% more of its passengers rate its services as good or superior.

- Systems for satisfying customers complaints – Company employees who receive complaints

must be trained and empowered to resolve customer problems speedily and satisfactorily. The

company should go beyond satisfying particular customers to discovering the root cause of

frequent problems.

- Satisfying both employees and customers – They aim at satisfying employees in order to cope

with the demands on their lives outside the office. They believe that employee relations will

reflect on customer relations.

MANAGING PRODUCT SUPPORT SERVICES

Just like for other products, service products need to provide buyers with product support services.

The company must define a customer needs carefully in designing both the product and the product

support system. They must take into account the worries that buyer have.

- The failure frequency of a product

- The dependability of the product

- The cost of maintenance and repair.

The importance of reliability, service dependability and maintenance vary among different

products and product users. Thus to provide the best support, a manufactures must identify the services

that customers value most and their relative importance. Manufacturers need to plan their product designs

and services and mix decisions in close coordination so that any product designed will reduce the amount

of subsequent servicing needed.

Companies must describe how they want to offer after – sales services ( eg maintenance and repair

as well as training) to customers. Some companies have customers service departments, while others

164

handle the problem as they come, passing them over to the relevant officers to deal with. There are still

other firms that train personnel of their clients to services the equipment, while some first insist on

providing the technical services instead of training other people.

Over time manufacturers switch more of the maintenance and repair services to authorized

distributors and dealers. These dealers and distributors are closer to the customers operate in more

locations and can offer quicker (sometimes better ) services.

INTERNATIONAL MARKETING

Meaning of International Business

International Business may be defined as any business activities that take place across national

boundaries. This includes international trade, foreign manufacturing and service business. It may also be

defined as … any business activity carried out across national borders by business firms in pursuit of their

stated aims and objectives. International marketing is defined as “performance of one or more of those

activities which direct the flow of goods or services across national boundaries”.

It may also be defined as the performance of those activities that direct the flow of goods from one

country to another country. It involves the marketing of goods and services outside an organization’s

home country. From the definitions given, it is clear that international business, international trade, and

international marketing are often used interchangeably and refer to the same business practices. To be

able to understand international marketing, we need to define the various terminologies which have

aspects of cross border trading. Examples of these terminologies are:-

(a) Domestic marketing

This involves marketing within the home country. It may be done consciously as a strategic choice or

unconsciously in order to avoid the challenge of learning how to market outside the home country.

(b) Export marketing

This is the stage towards addressing market opportunities outside the home country. The marketer relies

upon the home country production to supply products for outside countries.

165

(c) International marketing

The international marketer goes beyond the export and becomes more involved in the marketing

environment in the countries in which the company is doing business. He is more likely to source for

products outside the home country in order to gain greater competitive advantage and also seeks to

establish direct representation to coordinate marketing effort, rather than rely on the intermediaries.

(d) Multinational marketing

This begins by focusing leverage on a company’s experience and productivity, and adapts a company’s

marketing to the unique needs and wants of customers in each country. It is complex form of

international marketing that involves an organization engaged in marketing operations in many foreign

countries.

(e) Global /Transnational marketing

This focuses upon leveraging a country assets, experience and products globally and upon adapting what

is truly unique and different in each country. It recognizes cultural universals and unique market

differences.

The arena in which international trade operates is different from the one involving local trade, because of

such factors as

- different political set ups

- differences in language

- trade restrictions such as tariffs, quotas and bans imposed by the foreign country some of the

reason that motivate a firm towards international trade include

Reasons Why Firms Go International

There are many reasons why firms go international. Some these include;

1. The need to export surplus stock – as a result of increased efficiency in productivity, firms are

able to produce excess goods, and therefore look for a market abroad for the excess stock. As a

rule, a country should satisfy its local demand before turning to international trade.

166

2. To earn foreign exchange. A country encourages firms to engage in international trade so that it

can earn foreign exchange Kenya for example exports tea and coffee foreign exchange. Tourism

is also very important foreign exchange earner in Kenya.

3. To get goods not produced locally. There are instances when a country may not be able to produce

certain commodities. For example, Kenya imports crude oil and heavy machinery from other

counties.

4. To get rid of goods not required locally. A country may also produce good not required locally,

mainly for export markets. Kenya for example produces cut flowers and Asian vegetables mainly

for export markets.

5. To get technology not available locally. Through international trade a country is able to acquire

technology that it does not have. Kenya has benefited heavily especially in the area of

telecommunications – acquisition of mobile phones towards the end of the last millennium.

6. To foster friendly relations with other countries. International trade enables countries to maintain

friendly relations with one another.

Sometimes countries engage in international trade for political reasons to minimize chances of

conflicts as countries engage in trade.

Economic reasons for international trade

There are two generally accepted principles to explain the main basis for international trade. These

are:-

a. The Theory of absolute advantage

This states that each country would benefit from world trade if it specializes in the production of those

goods in which it has an absolute advantage. Kenya, for example is able to produce and export cash

crops such as tea, coffee and pyrethrum.

The theory of absolute advantage was developed by Adam Smith and holds that countries can produce

some goods more efficiently than others. It may arise due to differences in factors such as climate,

quality of land, natural resources, labour, capital, technology or entrepreneurship countries should

167

therefore specific in the production of therefore specialize in the production of those products in

which they are best at, and import the others. However, this principle is not widely used as it

encourages dependence of countries among others, and may be risky in times of war.

b. The theory of comparative advantage

This is based on the fact that whereas a country may be able to produce many different products, there

are some products in which it has a comparative advantage over other countries. It should therefore

produce these for export, while still not ignoring the others.

The theory of comparative advantage was developed by David Ricardo in the 19 th century and springs

from the theory of absolute advantage developed by Adam Smith.

It states that nations should produce there goods for which they have the greatest relatives advantage.

The figure below shows how this works.

Labour cost of production per unit

Wheat Clothing

Country A 100 50

Country B 200 200

From the figure, country A has an absolute advantage in the production of both clothing and wheat. It

would seem that trade for this country is unprofitable, as it can produce both products without trading

with B. However, the theory of comparative advantage holds that the two countries can still trade,

since the relative costs of production for the two countries differ. In country A, one unit of clothing

costs 50/100 units of wheat, so that one unit of clothing is exchanged for 0.5 unit of wheat [price of

clothing is half the price of wheat]. In country B, one unit of clothing is exchanged for one unit of

clothing.

Thus country A can export clothing to country B, since it has relative advantage for the commodity

while country B should export wheat to country A. In this case, country A could specialize with the

production of clothing, while country B could specialize with the production of wheat.

Forms of International Business

168

International business is carried out in different forms so as to accommodate the different types of

goods and services involved in a transaction and the different types of transactions that take place.

This may differ from country to country. The forms of international business are discussed below in

detail;

Counter-trade may be defined as “…all intentional trade in which goods are exchanged for goods…”

It comes in the following forms:

Counter purchase – In this case, exporters agree to buy a certain amount of goods from a

country whenever the country buys from them.

Offset – this is where the seller guarantees to use the goods from the buyer’s country of the

product he is selling.

Buy back – exporters of capital goods (e.g. mining equipment) agree to be repaid in the output

produced by the machinery.

Barter – a swap of one good for another.

Switch trading – this is barter trade involving a chain of buyers. A certain company (Z) may

counter trade with another company. Z may not want the goods and thus sell the contract to

another company at a discount. This company may also not want and sell it to yet another

company for a profit.

Export Documentation

Before a company can export goods, legislation must be followed, documents signed and other

requirements fulfilled. They include:

Bill of Lading: This is used when goods are shipped. It records the contract between the shipper and

exporter. It also enables the buyer to claim the goods. Information found on it include; Serial number,

name of the shipping company, name of the ship, Port of loading, and, Port of unloading. Other details are

;Final destination, description of the goods, number of separate cases, weights, dimensions and markings,

name and address of exporter and name and address of consignee or organization to be contacted when

the goods arrive.

169

Airway bill: Used for goods sent by air. The goods are consigned under it. It is also called an air

consignment note. It is merely a receipt that acts as evidence of a contract of carriage. It is used to

control the progress of the goods and identify them through their journey.

Road Waybill/Railway Consignment Note: This is the equivalent of the airway bill when goods re

transported by road or rail.

Commercial Invoice: This is an invoice prepared for dispatch to the buyer as a claim for payment.

Additional copies have to be produced for use by customs authorities at the exporting and importing ends.

The invoice contains such information as; Name and address of supplier, name and address of buyer, date

of invoice, the buyer’s reference, method of carriage, order number, name of ship or air freight details and

loading and dispatching ports. It also shows net and gross weights of packages, contents and value of each

package, total value of invoice, terms of sale, and remittance instructions.

Pacing List: This is the document that indicates the goods in each package, number and the marks. It

facilitates customs inspection.

Consular invoice: It is an invoice dictated by the government of the importing country. It is obtained in

the consulate of the country concerned. It enables duty to be assessed according to revenue laws of the

importing country.

Certificate of Origin

In this document, the exporter declares the origin of the goods. It is usually issued by the Chamber of

Commerce or certified by the consular authorities of the importing country.

Certificate of Insurance: Insurance cover should be obtained by the exporter for all stages of the

transportation of the goods. It must not have the same date as the bill of lading or airway bill or other

documents and is sent to the buyer with the other shipping documents.

170

The letter of Credit: It consists of an undertaking by the bank, on behalf of its client, to a third party

stating that it will honour the requirements placed in the letter itself. This letter has value both to the

buyer and the seller.

Practices in International Trade

This section deals with the different practices that are carried out as apart of execution of transactions in

International Business. The more important types are outlined below:

a) Merchandise Imports and Exports: Exporting goods – this is where a local business or

government man sells products to a foreign country or government.

Importing goods – in this case, a local business buys goods from a foreign firm in another country.

b) Service Imports and Exports: Importing Services – this is a situation where services are bought

from companies in foreign countries e.g. when a passenger flies to France using KLM or British airways.

Exporting Services – when a country sells insurance, transportation, management consulting, etc, to

another country, this is an example of exporting services.

c) Licensing agreement: A foreign company may be licensed by a local firm to use its trademarks,

patents, manufacturing process or other knowledge. Royalty (a percentage of the sales) is paid to the

local firm (licensee). Example Colgate and Close – up are manufactured in Kenya under license.

d) Management Contracts: This is an arrangement under which a company provides managerial

know-how to another organization for a fee. These contracts last a definite period of time. Many US

airlines and hotels have made such contracts.

e) Franchising: This is a form of licensing that is quickly growing. A franchisee is a person

granted the right to do business sunder a certain trademark or trade name in a certain territory. Examples

in Kenya include, Wimpy, Nandos and so on. The Franchisee and his employees are usually given

management and technical training, and sometimes, financial assistance.

f) Contract Manufacturing: In this case, a foreign company enters into contract with qualified

local manufacturers and produce goods according to its specifications. The foreign corporations or bonds

issued by public or private organizations in foreign countries.

h) Turnkey projects: This is when a firm starts business in foreign country from scratch in another

country. The foreign firm there runs it for a while, then when all is settled, local personnel is hired to

continue with the operations.

171

Ways of Entering International Trade

Different ways have been identified in which a business enterprise can penetrate a foreign market and

begin participating in international trade. The options that can be considered are:

1. Export from Home Base

If a company decides that exporting goods from the home country is how it will go international, the

following factors will be noted and will have to be taken into account.

If the company is using bottles and cans as storage media the cost of transport will rise. It must be

noted that bottles and cans are bulky items to transport.

If the good (e.g. drinks) is being exported to Europe, for example, it must meet the European

Union standards as concerns content, labeling and health and environmental issues. A good

example is that, recently, the European Union wanted to ban the exporting of flowers from Kenya

to Europe because the flowers were said to be below the set standards. This would have been a

big blow to the Kenyan economy.

The exporting country may be required to re-label the product for example, if it is being exported

to a non-English speaking country.

There are risks involved in receiving payment in foreign currency especially if there are

fluctuations in the exchange rate.

Therefore, this means that there must be a market for the goods and the market opportunities must

exceed the extra costs of doing business abroad.

2. Set up an Export Agency

This can be a good option assuming that a company has already acquired a significant market share in

the domestic market before doing business abroad. Agents are appointed, who have some knowledge

of the local market conditions and the language, legal requirements and the best way to market the

product.

Advantages of an export agent

It is a cheap way of establishing a presence in a foreign market.

172

It is faster than exporting goods from home base because the agent has the necessary

information on market conditions and legal requirements. It thus takes a shorter time for a

transaction to materialize.

If a company later on decides to pull out of the market, the costs of withdrawal are less.

The terms and conditions of the overseas agent can be drawn up in such a way extra sales will

be a benefit to the company.

Disadvantages of an Export Agent

The agent may have other clientele and thus give lower priority to your product.

3. License the Product

This is an option that may be useful when the products being sold are to be manufactured in the foreign

country where they are to be sold. This involves setting up a licensing agreement with another

manufacturer. The foreign company may be licensed by a local firm to use its trademarks, patents,

manufacturing process or other knowledge in the production of the good. The manufacturer would

produce the good under license.

Advantages of licensing option

All the risks associated with setting up a manufacturing plant in a foreign country are avoided.

All risks associated with the production process of the beverage, for example would be borne by

the licensee.

The licensee pays a fee (royalty) for being allowed to manufacture the good under license.

All commercial risks associated with selling the product overseas are borne by the licensee who’s

in the foreign market.

Some agreements give the company that’s licensing its product a share in the profits. However in

this case, the risks are shared between the two companies.

Disadvantages of Licensing Option

There may be losses if the licensee company fails to deliver the same quality of goods as required.

The formula of the product (f it is a soft drink) is supposed to be a secret. In this licensing option,

the formula has to be revealed to the licensee company. Once this has happened it becomes to

prevent other organizations from cloning the product. Its originality will be lost. The competitive

173

advantage of the company will also be lost. The only way to avoid this is to take the risk and open

up manufacturing plants in the foreign country. The coca cola company, for this reason, does not

allow anyone else to produce its product.

4. Set up a Joint Venture or Strategic Alliance

A joint venture is an activity of any type performed by at least two firms form different counties, in some

type of partnership agreement. It is a more equal relationship between companies than a licensing

agreement. In a joint venture, both parties put equal money in them and the rewards and risks are divided

between the two or more companies. The foreign company may have the majority shares or the local firm

may be the dominant partner. A strategic alliance may be formed with a supermarket that will

exclusively sell the products of the company.

Advantages of joint ventures and/or strategic alliance

The two companies don’t have to set up another company. They only have to agree to cooperate

in areas of mutual benefit.

A foreign company that enters into a partnership with the local company gets ‘political insurance’

cover.

When a strategic alliance is formed, the partners are operating in different stages of the production

process. This means that the company controls production while the supermarket deals with the

distribution. As a result, there is no need to share information on how the product is made.

There is an increase in the capital owned between the two companies.

It is easier when in a joint venture to access the local market.

There are lower taxes to be paid between two companies when they are in a joint venture.

When a foreign firm gets into a partnership with a local firm, the foreign firm is advantaged as the

local firm has better knowledge about the market conditions.

Disadvantage of joint ventures and/or strategic alliance

In a joint venture, there is a risk of sharing the information on how the product is made.

Firms that enter into partnerships with the government or governmental organizations may risk

being nationalized (taken over by the government).

174

There is a danger that the two companies entering into partnership may have totally different long

term plans or objectives.

5 Acquire or Merge with a Foreign Company

The need for control makes this option very attractive. This is a situation where two companies merge

and form a trade agreement to carry out trade together. There is mutual benefit for the two companies

involved.

Advantages of joint ventures and/or strategic alliance

It is easier for the company to set up operations in the foreign country as the facilities are already

there. All that is needed are the necessary planning permissions.

Disadvantages of joint ventures and/or strategic alliance

The companies may have different cultures and it may be difficult for them to work together

harmoniously.

There may be a tendency to duplicate functions and for there to be hidden costs in integrating two

separate two systems.

Foreign takeovers of national companies call the attention of the host counties who are anxious to

ensure national interests are taken care of.

6. Set up a Wholly-owned subsidiary

This is where the company sets up its own base in the foreign country.

Advantage of a wholly-owned subsidiary.

The company retains complete control of all the aspects of the business.

The company will increase competition in the foreign country’s market.

The company will increase employment opportunities in the country concerned.

The company will offer a greater choice to the consumers in the foreign country.

For these reasons, the company will be well welcomed by the host country and may even be granted a

generous financial package to set up business.

175

Barriers to International Trade

There are certain limitations which interfere with the extent to which a firm can perform its marketing

activities across national frontiers. These include;

1. Political and Currency Instability. Some countries especially the developing countries have very

turbulent political environment which make it hard for foreigners to invest in those countries.

Examples include the political instability in Somalia, Sierra Leone, Liberia, and Zaire. Invasion of

white farms by formers freedom fighters in Zimbabwe in there first half of 2000 is another

example. Currencies foremost third world countries are also rather unstable and weak compared to

the stronger currencies like the sterling pound, the US dollar, French Mark and so forth. Some of

the causes of instability among third world countries include high foreign debt that requires high

servicing costs, inflation and unemployment.

2. Government regulations on foreign firms. These may include government’s requirements that

foreign firms enter into joint ownership with a domestic partner, hiring national and limiting

profits that can be shared.

3. National Controls. These are meant to protect infant industries from unfair competition by

outsiders. The government may impose heavy tariff duty on all imported products, or license only

a few firms to import. However, with deregulation and liberalization the government role is set to

be reduced.

4. Wage Protection

Trade restrictions, (e.g. high tariffs), make a country’s products competitive. They thus sell their

products well and the wages of the workers are secure. However, this approach raises consumer

prices and decreases exports.

5. Cultural Barriers. Different countries have different cultural values, and these may inhibit

international trade. A firm must first understand the cultural values of the target consumers in the

foreign country. Language is very important, as the product must be marketed in a language that

the foreigners can understand. It is important for the firm to familiarize itself with the native

176

language of the foreign country, and also understand the customs of the people - how they live and

do things.

Government Policies and Restrictions of International Trade

International involves use of various government restrictions, such as tariffs, quotas, total bans and the

use of exchange control regulations, in order to limit the amount of goods and services that can be freely

exchanged between trading partners.

1. Tariffs

A tariff is a tax or duty that a government levies on a commodity or service when the commodity

/service is supplied across national boundaries. This is taxed in the form of customs duty at all

entry/exit points such as airports, railway terminals, road terminals and ports. Tariffs levied on goods

passing through the country are transits duties, while those for commodities leaving the country are

called export duties. Those for commodities entering the country are import duties.

Import duties may either be;

- Specific – levied according to quantity e.g. Shs 50 per Kg, and therefore remain constants for a

given consignment not varying with price. OR

- Ad Valorem – quoted as a fraction or percentage the value of the goods, and so varies with the

price of the consignment.

There are tariff schedules (list of the various charges) that guide the customs officers in calculating

the actual duty to be paid, and these take account of such trade agreements North Atlantic Trade

Organization (NATO), Preferential Trade Agreement (PTA) and so forth.

2. Physical Controls

177

A Quota is a specific amount of a commodity that can be imported or exported, and is usually fixed

by the government. For example, the world market restricts the amount of coffee that a country can

export, in order to regulate the world prices of coffee.

Embargoes – severe form of quota which prohibit the flow of goods. They are given for political

reasons, for example, by refusing to buy goods from an enemy country; or by refusing to trade with a

country that is perceived to be violating human rights.

3. Restrictions related to foreign exchange

Exchange control regulations are laws or rules that a country enforces in order to ration the limited

foreign exchange available. For example, a country companies. This helps to eliminate trade deficits,

for example by refusing to license more current imports than exports.

13.10. Effects of Trade Restrictions

Trade restrictions have both negative and positive effects in international trade.

The positive aspects include;

1. Protection of local (infant) industries. Sometimes it is possible for firms in developed countries to

produce products at lower production costs than those produced by local firms in developing countries.

Such firms, unless checked, will be able to bring their products into the developing countries and sell

them at lower prices than similar products produced locally. This will kill the local firms as their products

will not sell. The government therefore imposes heavy taxes on imported products in order to try and

bring the prices at par. Alternatively the government restricts the number of firs that are licensed to

important, as well as the total allowable import tonnage.

2. Protection against dumping- unless checked, some firm will export cheap, poor quality products to

unsuspecting third world countries. Some of these firms may even export products that have been rejected

in their own countries. The government therefore has a duty to check against all these.

3. Price regulation. The restrictive measures assist in the regulation of prices for various commodities

that would otherwise have varied prices depending on where they are imported from.

4. Wage Protection. Trade restrictions, (e.g. high tariffs), make a country’s products competitive. They

thus sell their products well and the wages of the workers are secure. However, this approach raises

consumer prices and decreases exports.

178

5. Cheap labour Argument. Cheap foreign imports are said to be destroying domestic industries and

hence lowering living standards. Trade barriers are thus necessary to prevent low wage countries from

flowing the markets of developed countries. For example if it costs $16 an hour to employ a worker in

the United States and $1 an hour to employ a worker in China, free trade will threaten the prosperity of

rich nations like the United States.

6. Anti-Dumping argument. Trade restrictions are justified if goods are being dumped on domestic

markets by foreign imports. Selective intervention is recommended to protect industries where

“dumping’ is common.

7. Level playing field argument. This argument implies that if other countries have protectionist

measures then it is necessary to have the same for your own industries otherwise the competition will be

unfair.

8. Balance of Payments Argument. If a country is having a problem in its balance of payments such that

it cannot reconcile full employment with a balance of payments, it may be forced to apply protectionist

measures for its industries so that this balance may be restored.

9. Health and safety standards. National health and safety standards for products and services are

applied to both imports and locally made goods. The process of verifying the items may be used as a

barrier to entry. This ensures that only good quality goods enter or are produced in a country.

The Negative Aspects are:-

1. Consumption Loss. This is the loss of welfare imposed on consumers as a result of their inability to

purchase a good at its world price due to the imposition of a tariff. Tariffs, tariffs, as a result raise the

price of a product whether it is imported or produced locally.

2. Production Loss. This is also the loss of welfare but this time sustained by society as a result of

increased domestic production o f goods at a higher cost relative to the world price due to the imposition

of tariffs.

3. Survival of inefficient firms. This implies that a tariff kept in force for a long time, may enable an

inefficient business firm that would have been out of business a long time ago will remain in business.

As a result, resources may be prevented from transferring to other industries in which the country has

developed a comparative advantage.

4. Domestic Monopoly. A tariff may also result in the creation of a domestic monopoly if foreign

competitors are locked out. The monopoly may exploit consumers and allow prices to rise unnecessarily.

179

5. Unproductive use of resources. When tariffs are enforced, resources need to be diverted to this new

task e.g. extra customs officials, and civil servants. Apart of the tariff revenues accruing to the

government will be spend on enforcement of the tariff. This unproductive use of resources and increases

the deadweight loss of the tariff.

Multinational Corporation

A multinational corporation may be defined as an organization that maintains multiple units operating in

multiple environments. It is a firm that owns, controls and manages assets in more than one country.

Multinational corporations (MNC’S) are also known as; Multinational Enterprises (MNE), Multinational

Firms (MNF) or Transnational Corporations (in UN terminology). Multinational corporations are usually

very large organizations. The largest MNC’S are usually Japanese, American or European. The ones

based in developing countries have however growth in number and size in the last decades. Examples of

MNC’s include:Toyota, Nestle foods, International Business Machines (IBM), Microsoft Corporation,

Bata Shoe Company and East African Industries (Unilever)

Multinational Companies have leverage over single national companies, through business practice and

experience in different environments. The following are types of leverage (or advantages) that have been

identified.

1 Programme Transfers. A Multinational corporation can make use of strategies, product,

advertising, sales management and promotions ideas that have been found to be effective and use them in

other markets.

2 System Transfers. These corporations adopt systems that are successful in other markets e.g.

budgeting, planning, new product introduction, among others.

3 People Transfers. Skilled personnel are sent to other countries to work, and as a result there is a

large management pool of international, rather than national dimensions.

4 Scale Economies manufacturing. The Multinational Corporation can combine components

manufactured in scale efficient plants in different countries into finished products other than having one

single plant.

5 Economies of centralization of functional activities. Activities are concentrated in one location

to reduce costs instead of dispersing functional staff. This develops greater competence.

180

6 Resource utilization. This deals with the ability of the Multinational Corporation to identify

sources of management, labour, money and materials that will enable it to compete in world markets.

The corporation has to scan the entire world.

7 Global Strategy. The multinational company looks for markets where it can apply its skills,

matches the market with resources and exploit the opportunities created.

Disadvantages of multinationals

1. They may be too powerful and suffer in a politically unstable world.

2. They may use their power too zealously to protect their interests. Example; it is alleged that the

International Telephone and Telegraph (ITT) company influenced American foreign policy to help

overthrow the existing Chilean government in the 1970’s as the government wanted to take over the

operations of ITT.

3. Multinational Corporations are accused of moving investments from their home country, where they are

needed most.

4. A multinational can find its operations in a country nationalized with no compensation. This is referred

to as expropriation. Example, in Cuba, Fidel Castro’s government nationalized American owned

companies when it came into power.

5. The value of a multinational company’s investments decline if the currency in the host country declines.

181

ORGANISING, IMPELMENTING & CONTROLLING MARKETING PROGRAMS.

Company organization

Companies often need to reorganize their businesses and marketing in response to changes in the

business environment. There should be proper organizations of all organizational activities to ensure

closer coordination and flow of information from top to bottom as well as bottom to top.

Large companies have had difficulties not being able to allow their managers enough freedom to

make decisions and to be entrepreneur, but this is changing.

Small companies tend to be more effective in starting new business than large companies because their

managers are more entrepreneurial.

There seems also to be concern over the number of hierarchical level that an organization ought to

have become too many layers show the process of decision making. Another view is the choice between

centralization and decentralization of decision making.

Networking has made it possible for managers to have more people under their direct supervision

because they can use computers , internet and e-mail to communicate and coordinate more people that it

was before. This has helped to reduce the number of hierarchical levels in the organization

Principles of organization

These principles are guidelines for planning and efficient organization structure, and include

1. Consideration of objectives- An organization structure should only be developed once clear

objectives have been formulated.

2. Division of work and specialization – all activities should be divided into various parts so these

individuals are confirmed to the performance of specialized job.

3. Definition of job – Every position in the organization should be clearly defined in relation to

other positions of the organization

4. Separation of line and staff functions – line functions are those that accomplish the main

objectives of the organization while the other functions are staff functions. They should be

separated.

5. chain of command – there must be clear lines of authority running from the top to the bottom of

the organization

182

6. unity of command – no one should report t more than one supervisor

7. parity of Authority and responsibility

8. span of supervision – There should be an appropriate number of staff under one manager.

9. communication – A good communication net work is essential to achieve the objectives of the

organization

10. flexibility – The organizational structure should be flexible so that it can easily be adapted to the

changes in the environment

SPAN OF MANAGEMENT

This is also called span of control and represents a numerical limit of subordinates to be supervised

and controlled by a manger. It refers to the number of subordinates an executive can supervise. It is

considered that a small span is better than a large one because it enables the executive to have an

intimate and direct contact with his subordinates.

The ideal ratio is considered to be 15 – 25 subordinates for first level supervisors and 5 -8

subordinates for executive spans.

The span of supervision has an impact on organizational structure. For instance, if the span is large,

fewer levels would be needed, and thus the structure would tend to be flat and wide. If the span is

small the structure would be narrow and deep, with many layers.

4 executives

64W 64W 64W 64W

Span control = 64

Flat span

183

4 executives level i=4

16 executives level ii)=16

Levele iii= 64

Level iv) = 64

4 Tall span workers = 256

Span =4

Wide span – when the span is wide, fever executives would be needed to supervise the workers. This

would be less expensive as fever executives are involved, there will also be better communication

184

between workers and the management. However, quality of performance would determine because each

manager would supervise very many subordinated

Narrow span – This leads to a tall structure and an increase in the executive payroll as compared to flat

structure. Additional layers may inhibit communication from the CEO down to operate employees and

back up the line. There will also be a problem of coordination of the activities of different person in the

organization because of more levels of executives. However, the narrow span provides better contact

between subordinate and the supervisor, and facilitates high control and close supervision

Factors affecting span of supervision

Span control varies from individual to individual, from time to time and from place to place.

It is determined by

i. Ability of managers. – Span may be winder if manager possess a great degree of managerial skills

ii. Time available for supervision – Span should be narrow at the top because managers have less

time available for supervision

iii. Nature of work – Routine and repetitive work can be delegated easily hence we have a wide span.

complicated assignment require close supervision and hence have a narrow span

iv. Capacity of subordinates – if the subordinate are skilled efficient, a wider span is possible as they

need less supervision

v. Degree of decentralization – if there is less decentralization the span will be wider

vi. Effectiveness of communication – an effective system of communication in the organization

favours large number of levels ( narrow span) as communication from top to bottom and back is

easily

vii. Control mechanism – if there is a good control mechanism in the organization a narrow span is

possible.

Effective personal supervision factors a narrow span, while a reporting supervision favours a wide

span.

ORGANIZATIONAL CHART

An organizational chart is a diagrammatical form which shows important aspects of an organization

including the major functions and their respective relationships.

185

It is a graphical representation of position in an organization and the formal lines of communication

among them. It enables each executive and employee to understand his position in the organization and to

know to whom he is accountable. It

Is a diagrammatical representation

Shows principle lines of authority in the organization

Shows the interplay of various functions and relationships.

It indicates the channels of communication

An organizational chart is merely a diagrammatic representation of the formal relationship, and is

therefore different from an organizational structure.

Limitation of organization chart

i. Shows only the formal relationships and fails to show the informal relationship.

ii. Shows the lines of authority but is not able to answer the questions on how much authority can be

exercised

iii. It introduces rigidity in the relationship

Types of charts

i. Vertical chart - Presentation as a pyramid. Commonest form shows the executive at the top and

successive levels down the chart. This is the commonest form

186

Series of command proceed from top to bottom vertically

ii. Horizontal chart

This is read from left to right and is not very common. The pyramid lies horizontally, ands lines of

communication flow horizontally from left to right

iii. Circular chart – Top position are locates in the centre of the concentric circle, while positions of

succession electrons extend in all directions outwards from the centre. Positions of equal status lie at

the same concentric circle

ORGANIZATIONAL MANUALS

This is an authoritative guide to the company’s organization, and consists of records of top management

decision, standard practices and procedures and the description of various jobs

Examples

1. policy manuals – prepared to state the policies of the enterprise. It describes the overall limitations

within which activities are to take place, and is therefore a guide to actions

2. operations manual – prepared to inform employees of established methods, procedures and standards

of doing the various tasks.

3. rules and regulation manual – prepared to give specific information about the operating rules and

employment regulation

187

Advantages

1. contains written form of all important decision relating to interred organizations of the enterprise

2. contains rules and regulations to be adhered to

3. helps to avoid overlaps and conflicts of authority

4. helps new employees to get proper orientation

Limitation

1. cannot be done for small enterprise

2. may bring rigidity in the organization

3. may put on record those relationships that no one would like to see exposed

Marketing organization

Marketing has grown from a simple sales department into a corporate group of activities. The

complex nature of activities requires that there is proper coordination of all activities and to ensure that

marketing becomes part and parcel of the company’s overall organization structure.

A company can only become effective in marketing when all the companys employees being to

realize that their jobs are created by customer who chooses the company’s products. Unfortunately, in the

wake of company cost cutting, and downsizing marketing and sales departments have been among those

hardest hit, even though their mission is to grow revenue.

To remain effective and valued, members of the organization marketers and sales people must

become more creative in producing and delivering customer value and company profits.

Ways of organizing the marketing department.

The marketing department may be organized by:

Functions

geographical area

products, or brands and / or other customer markets.

188

1. Functional organizations

This is the commonest and involves marketing specialists reporting to a marketing vice president

who coordinates their activities. These specialists include new product managers, brand manager, sales

manager and so on.

Its main advantage is that its simplicity, but effectiveness decreases as the companys products and

markets expand. For instance the various managers begin to compete for budget allocations and stakes.

Further a product that is not favored by anyone can easily be neglected.

2. Geographical organization

This is practiced by companies that operate in a natural market and involves organizing its sales

force along geographical likes or territories. This enables the firm to cater for the needs of the various

regions, because each region is different and unique.

Multinational companies also structure their sales and marketing efforts along geographical zones in order

to market non effectively across the globe.

3. Product or brand management organization

This is appropriate when the company has many products that make it difficult for the functional

marketing organizations to handle. It does not replace the functional marketing organization, but acts as

an additional layer of management. The company is lead by a product management who service products

and brand managers.

The product manager’s role is to develop plans, implement them, monitor the results and take

corrective actions when necessary. The advantages of this organization are that:

- The product manager can concentrate on developing cost effective marketing mix of the product.

- The brand manager can react more quickly to problems in the market place that a committee of

functional specialists can.

- All brands are managed well since they have specialists closely monitoring them.

189

However this organization has several disadvantages :

- It creates some conflict and frustration because product managers are not given enough authority to

carry out their responsibilities effectively, which can be frustrating.

- Product managers become experts in their products, but rarely become experts in any of the

functions .

- Brand managers keep changing positions which makes it difficult to have a long term plan for the

brand.

- The fragmentation of markets means that it gets harder to develop a national strategy from the

headquarters. The brand managers deal more with response based trade groups that headquarters.

4. Market management organization

This comprises of a market manager who supervises market managers. Market managers are staff

( not line) people with duties similar to those of product managers. They develop long range and annual

plans for their markets and must analyze where their market is going and what new products need to be

developed.

5. Product management / market managed organizations

This combines product management and market management and works institutions when a

company produces many products flowing to different markets. Such organizations use both product and

market mangers, or a matrix organization for this case, product manager’s plan the sales and profits of

their products and ask market managers how much of their products they can sell to each market at a

proposed price.

A matrix organization is desirable in a multi product, multi market company. This systems tends

to be costly and often creates conflicts.

There is always the problem of deciding hoe to organize the sale force and who should set the price for a

particular product/ market.

6. Corporate / Divisional organizations

As multi product / multi market companies grow, they usually convert their larger products and or

market groups into separate divisions.

These divisions set their own departments and services. These may be at different levels.

190

- No corporate marketing – In this case, the divisions so not include the corporate level

managers and each division has its own marketing managers

- Moderate corporate marketing – these have a small corporate staff assisting with a few

functions such as assisting top management with overall opportunity evaluation, or promoting

the marketing concept to other departments of the company.

- Strong corporate marketing – the company has corporate marketing staff who in addition to

the activities above also provide various marketing services to the divisions. They may provide,

specialized advertising services ( eg institutional advertising, auditing of advertising

expenditures ) sales promotion or marketing research services.

MARKETING RELATIONS WITH OTHER DEPARTMENTS.

Ideally all functions of an organization should interact harmoniously to pursue the overall goal of

the organization. However, these are often rivalries and conflicts within the departments become their

goals may not agree. The principal goals of the marketing department is to satisfy the customer needs, but

there is the problem of how much interference the marketing manager can have in ensuring that other

departments work towards customer satisfaction. For example an airline the manager may not determine

the schedules, he cannot hire or train personnel, neither can he determine the fares. But he must work

through the departments to shape key determinants of customer satisfaction.

Examples are given below:

Department Department emphasis Marketing emphasis

R & D Basic research

Functional features

Applied research

Sales feature

Engineering Long design lead time

Standard components

short design lead time

Customer components

Purchasing Narrow product line

Price of material

broad product line

quality of material

Operations Staff convenience

Ordinary service

Customer convenience

Extra Ordinary service

Finance Strict rationales for spending Intuitive rationales for spending

191

Pricing to cover costs

Pricing to further market development

Accounting Standard transactions Special terms and discounts

Credit No credit risk

Tough credit terms

Tough collection procedures

Some credit risk

Easy credit terms

Easy collection procedures

CONTROLLING MARKETING ACTIVITY

In order to effectively implement marketing plans, the marketing department has to continuously

monitor the marketing activities. The common types of control are:

- Annual plan control

- Profitability control

- Efficiency control

- Strategic control

Table 24 – 2 Kottler – pp 765

1. Annual plan control

This aims at ensuring that the company achieves the sale, profit and other goals established in its

annual plan.

The main concern is management by objectives and involves four steps:

- Goal setting ( what do we want to achieve?)

- Performance measurements ( what is happening? )

- Performance diagnosis ( why is it happening?)

- Corrective action ( what should we do about it ?)

The main approaches used include sales analysis, market share analysis, financial analysis and

expense – to – sales analysis.

2. Profitability control

192

Companies need to measure the profitability / of their various products, customer groups, territory

and segments. In order to measure profitability, the company must identify all the expenses and associate

them with various marketing expenses for the various channels. The company then determines the

resulting profit and / or loss and delivers the best corrective action. This may include increasing

promotional aid on the weaker channels, establishing a special charge for handling smaller orders, or just

leaving the situation as it is.

3. Efficiency control

The company needs to consider the efficiency of the marketing activities and find out it there are

more efficient ways to improve such functions as advertising, sales promotion and sales force. To

improve sales force efficiency, it is important to consider such activities:

- Average number of sales calls per sales person per day

- Average revenue per sales call

- Average cost per sales call

- Entertainment cost per sales call

Advertising efficiency is difficult to measure, but the company may monitor such issues as

advertising cost per thousand target buyers needed by media vehicle, consumer opinions on the ad’s

content and effectiveness, number of inquiries stimulated by the ad, and cost per inquiry.

Other areas that need to be assessed are sales- promotion efficiency and distribution efficiency.

4. Strategic control

Companies need to undertake a critical review of their overall marketing goals and effectiveness

from time to time. This is done by carrying out marketing effectiveness review and marketing audit.

Marketing effectiveness involves checking on the carious aspects and operations of the marketing

decision such as

- Integration and control of the major marketing functions

- Follow well the new product development process is organized

- Frequency of marketing research

- Knowledge of marketing about their customers

193

Marketing audit is a comprehensive, systematic, independent and periodic examination of the

company’s marketing environment, objectives, strategies and activities, with a view to determining

problem areas and opportunities and recommending a plan of action to improve the company’s marketing

performance.

It has four main characteristics:

- Comprehensive – It covers all major marketing activities of a business.

- Systematic – It involves an orderly examination of the organizations macro and micro marketing

environments, marketing objectives and strategies, marketing systems and specific marketing

activities.

- Independent – Although marketing audits can be done by the companys self audit office, the best

audits are done by outside consultants who have the necessary objectivity and broad experience

and knowledge about the industry. Self audits sometimes lack objectivity

- Periodic – Marketing audits should be done periodically, whether the company is in trouble or in

good times. It should not be done only when a company faces problems.

MARKETING IMPLEMENTATION

Marketing implementation is the process that turns marketing plans into action assignments and

ensures that such assignments are executed in a manner that accomplishes the plans stated objectives.

Whereas strategy addresses the what and why of marketing activities, implementation addresses the who,

where, when and how.

Effective implementation requires one to have the following skills:

- Skills in recognizing and diagnosing a problem

- Skills in assessing the company level where the problem lies.

- Skills in implementing plans

- Skills in evaluation implementation results.

194

REFERENCES

1. Bettman James R. (1994) An information Processing Theory of consumer Choice in Consumer

Behavior by Schiffman L. G. and Kanuk L.L. New Delhi Prentice Hall of India 1994

2. Engel, J. F., et al (1994); Consumer behaviour. Dryden, Fort Worth, TX 8th ed.

3. Kotler Philip (1968) “ Behavioral Models for Analysing Buyers “ Journal of Marketing Vol 29

Oct 1965 in perspectives in Marketing Theory by Jerome N and Montrose S. New York

Appletone Century Crofts 1968

4. Luthans Fred (1981) Organizational Behavioral New York . Mc Graw Hill International Book

Company

5. Sheth Jagdish N. (1994) “A theory of Family Buying Decisions” Models of Buyer Behavior,

Conceptual, Quantitative, and Empherical in Consumer Behaviour by Schiffman L. G and Kanuk,

Leslie

6. Sheth Jagdish N Bruce L Newman and Barbara L Gross (1994) “ why We Buy What We buy: a

theory of consumption values “ Journal of business research (1991) in consumer Behavior by

Schiffman and Kanuk New Delhi : Prentice Hall of India.

7. Kotler Philip (2000); Marketing Management: Analysis, Planning, Implementation and Control.

Englewood cliffs, N.J. Prentice Hall Inc.

195