MKT 730fundamentals of Marketing

NATIONAL OPEN UNIVERSITY OF NIGERIA
FACULTY OF MANAGEMENT SCIENCES
COURSE CODE:MKT 730
COURSE TITLE: FUNDAMENTALS OF MARKETING

COURSE GUIDE
Course Code: MKT 730
Course Title: FUNDAMENTALS OF MARKETING
Course Developer/Writers: DR. K.O. OSOTIMEHIN

Obafemi Awolowo University, Ile-Ife
Course Editor: DR MANDE SAMAILA

Department of Entrepreneurial Studies,
National Open University of Nigeria,
Victoria Island, Lagos.
Head of Department: DR LAWAL KAMAL

Department of Entrepreneurial Studies,
Dean of Faculty: DR TIMOTHY ISHOLA

Faculty of Management Sciences,
NATIONAL OPEN UNIVERSITY OF NIGERIA
TABLE OF CONTENTS
PAGES
Introduction…………………………………………………………… What
you will learn in this course……………………………. Course

Aims……………………………………………………………. Course
Objectives……………………………………………………… Working
through the course………………………………………. Course
Materials…………………………………………………………. Study
Units……………………………………………………………………. Set
Textbooks………………………………………………………………….
Assignment file/ Exercises…………………………………………………
Presentation Schedule……………………………………………………..
Assessment…………………………………………………………………….
How to get the best from this course……………………………. .
Summary…………………………………………………………………………
Introduction
MKT730, Fundamentals of Marketing is a compulsory second semester course
for Post Graduate Diploma students or learners of PGD Business Administration in
the Facultyof Management Sciences (FMS). It is a 2 credit unit course and the
course material is divided into three sections or modules. The first two modules
are made up of five units each, while the third module is made of six units,
making a total of sixteen units in all.
This course guide is more of a summary of the course, Fundamentals of
Marketing; it tells you in a nutshell what the course is all about, the main
objectives of the course, how you can work your way through the material, some
guidance on how to answer the Tutor-Marked Assignment. The material has been
developed using examples from both local and international environment, so that
anybody, irrespective of your nationality or your country of residence can flow
with the course material.
There are some tutorial sessions which are linked up with this course. You are
advised to attend these classes. Details of these tutorials wil be made known to
you from your study centre.
What you will learn in this course
This course focuses on the appreciation of functions and channels of marketing

and its role in the corporate environment. You will also learn of the major
elements of marketing strategy in relation to productive development,
distribution channels, consumer relationship management, pricing and
contemporary issues in marketing in relation with advertising and sales
promotion.
Course aims
This course aims to give you a sound understanding of the major elements of
marketing, which deals with identifying and meeting human and social needs. This
will be achieved by giving you an overview of the different entities that marketing
is involved in and these include goods and services, people (sellers and buyers or
consumers), events, places, experiences, properties, organizations, information,
ideas to mention but a few.
The course will give detailed information on the concept of marketing
management and demand, value, quality, transactions, relationships and
satisfactions. This course will equip you with critical thinking skills on the
exchange process and the importance of marketing.
Course Objectives
Each of the units in the three modules of the course material has specific
objective or purpose it is meant to fulfil. These unit objectives are at the
beginning of each unit chapters. You are expected to read them before you begin
to work through the unit so that you can work through the course purposefully
and do what is expected of you by the units.
By meeting the overall objectives of this course you should have achieved the
aims of the course. By the end of this course you should be able to do the
following:
1. Explain the concept of marketing
2. Describe the five philosophies guiding marketing efforts
3. Discuss the importance of environmental scanning and environmental
analysis.
4. Identify the two primary dimensions of strategic marketing planning
5. Explain the concepts of market segmentation and target market.
6. Outline the process consumers go through in making purchase decisions.
7. Explain components of customer relationship management.
8. Discuss the characteristic of business market demand.
9. Explain ethical issues in relation to business conducts.
10.Analyse the two primary functions of packaging.
11.Outline the steps in new product development
12.Explain the meaning of price and its roles in the marketing mix.
13. Explain services in relation to its unique characteristics and their marketing
implications.
14.Identify and explain such contemporary issues in marketing as online
marketing, sports marketing, etc.
Working through the course material
To complete this course successfully and be well grounded in it, you are expected
to read the course material thoroughly and other texts, especially those cited
under references/ further readings at the end of each unit. Each unit contains self
assessment exercises you are meant to answer to test your understanding of the
subject matter. You are required to complete and submit Tutor-Marked
Assignments for assessment purposes, after which you are expected to sit for a
final examination at the end of the semester. This course should take you about
15 weeks to complete, all things being equal.
The study units
The course is made up of 16 study units. Students are expected to study these
units carefully, spending at least two to three hours on each study unit with
absolute concentration. The study units are as follows:
Module 1
Unit 1 Introduction to Marketing
Unit 2 Marketing Management and Demand

Unit 3 Forces operating in the Marketing System.
Unit 4 Market –oriented Strategic Planning

Unit 5 Market Segmentation and Target Market Strategies
Module 2
Unit 1 Consumer Buying Behaviour

Unit 2 Consumer Relationship Management
Unit 3 Business Buying Behaviour

Unit 4 Ethical Issues in Business
Unit 5 Products
Module 3
Unit 1 New Product Development
Unit 2 Pricing Decisions
Unit 3 Marketing of Services

Unit 4 Sports Marketing
Unit 5 Online Marketing

Unit 6 Guerilla Marketing
Set Textbooks
There are particularly no compulsory set textbooks. This course material is
designed to be self contained and self explanatory, but if you desire for more
information or to acquire more knowledge, you can purchase any good textbook
in Marketing, especially from among those in the references.
Assignment File/Exercises
The assignment file will be given to you on the registration of this course. You will
use this file to submit all the Tutor-Marked Assignments to your tutor for
assessment. Note that the marks you obtain from these assignments will count
towards the final mark you will obtain for this course. You are expected to
complete and submit four assignments. Further information on the assignment
will be given to you by your tutorial facilitator.
Presentation Schedule
The presentation schedule which includes the dates for the completion and
submission of the assignments and attendance to tutorials will be communicated
to you at your study centre. Remember to submit all assignments by the due
dates. Try to be diligent so that you do not lag behind in your work.
Assessment
There are two types of assessment in this course and these are:
(i) Tutor-Marked Assignment

This assignment constitutes 30% of your total score. You are expected to
do this assignment and hand it over to your tutor for grading.
(ii) Written Examination
At the end of each semester, you will be required to write an exam
which constitutes 70% of your total score.
The summation of the Tutor-Marked Assignment and the written examination
for each semester gives a total score of 100%.
How to get the best from this course
Open and Distance Education is based on self –learning and this entails the tutor
and the learners working apart from one another. This means that you can study
the self- explanatory and easy- to- read course materials at your own
convenience, pace, time and at any location you may choose to. The self learning
material has replaced the lecturer, the material will guide you and direct you the
same way the lecturer will do in the classroom situation.
The study units provide you with exercises and assignments to do at appropriate
points, just the way a lecturer would give you some exercises or assignments to
do in the classroom situation. These exercises are meant to check your progress in
the understanding of the course.
The following are practical strategies to help you work successfully through this
course;
1. Read the guide thoroughly.

2. Arrange a study schedule to enable you study without distractions and try
to stick to your study schedule.
3. Try as much as possible to find about necessary or important information
as regards to dates for tutorials or due dates for the submission of
assignments.
4. For every unit, Endeavour to commence reading from the introduction of
the text, objectives, etc to have a full grasp of the text.
5. Keep in touch with your tutors and your study centre, so that they assist
you to resolve any issue or difficulty that may arise concerning your
schedule.
6. You should form and maintain the good habit of studying always, even after
the submission of assignment or after examination to enhance the
retention of the knowledge acquired.
7. If you have any question or problems with understanding the course
material, do not fail to consult your tutor.
Summary
MKT 730, Fundamentals of Marketing focuses on the essential functions of

marketing and the various channels of marketing. Upon the completion of this
course, you will be equipped with the major aspects of marketing strategies in
relation with production, distribution, pricing, advertising and promotion.
We wish you all the best in the course of your study in National Open University
of Nigeria.
Course Code MKT 730
Course Title Fundamentals of Marketing
Course Developer Dr. K.O. Osotimehin
Unit Writers Dr. K. O. Osotimehin
Mr. M. A. Gana
National Open University of Nigeria, Lagos
Mrs. Ihuoma Ikemba- Efughi
National Open University of Nigeria, Lagos
Course Coordinator Mrs. Ihuoma Ikemba-Efughi
National Open University of Nigeria

TABLE OF CONTENT
PAGE
MODULE 1………………………………………………………………
Unit 1 Introduction to Marketing…………………………………..
Unit 2 Marketing Management and Demand………………………
Unit 3 Forces Operating in the Marketing System…………………
Unit 4 Market-oriented Strategic Planning…………………………
Unit 5 Market Segmentation and Target Market Strategies………..
MODULE 2………………………………………………………………
Unit 1 Consumer Buying Behaviour………………………………..
Unit 2 Consumer Relationship Management……………………….
Unit 3 Business Buying Behaviour…………………………………
Unit 4 Ethical Issues in Business…………………………………...
Unit 5 Products……………………………………………………..
MODULE 3………………………………………………………………
Unit 1 New Product Development…………………………………..
Unit 2 Pricing Decisions…………………………………………….
Unit 3 Marketing of Services………………………………………..
Unit 4 Sports Marketing…………………………………………….
Unit 5 Online Marketing…………………………………………….

Unit 6 Guerilla Marketing…………………………………………..
MODULE 1
Unit 1 Introduction to Marketing
Unit 2 Marketing Management and Demand
Unit 3 Forces Operating in the Marketing System
Unit 4 Market-Oriented Strategic Planning
Unit 5 Market Segmentation and Target Market Strategies
UNIT1: INTRODUCTIONTOMARKETING
Table of Contents
1.0 Introduction
2.0 Objectives
3.1 Introduction to Marketing
3.2 Definition and Meaning of Marketing
3.3 The Building Blocks of Marketing
3.3.1 Needs, Wants, and Demands
3.3.2 Products
3.3.3 Value and Satisfaction
3.3.4 Exchange and Transaction and Relationships 3.3.5 Markets
3.3.6 Marketing and Marketers
3.4 Marketing Functions
3.5 A Classification of Marketing Function
4.0 Conclusion
5.0 Summary
7.0 Further Reading
1.0 INTRODUCTION
This first unit of Fundamentals of Marketing introduces you to the study of marketing, deals
with identifying and meeting human and social needs. In fact, marketing people are involved in
at least 10 types of entities; goods, services, experiences, events, persons, places, properties,
organisations, information and ideas. One interesting thing about marketing is the
several ways it has been defined by different authors. However, you do not need an exact
definition. What you actual y need is a sound understanding of what marketing means.
2.0 OBJECTIVES
After studying this unit, you should be able to:
( i) define the term marketing
(ii) Outline the concepts of needs, wants, and demands, value, satisfaction and quality;
exchange, transactions and relationships, markets and marketers.
(iii) explain the exchange process and its importance in the marketing.
3.1 INTRODUCTION TO MARKETING
The economic system of any given society is made up of three basic elements. These are
production, marketing and consumption. If the given society is a rudimentary or
primitive and stagnant one, production and consumption often play prominent roles.
Marketing, on the other hand, remains inactive in such a primitive society since
production is majorly at subsistence level. In this early stage of the society's economic
development when production is still the problem, the marketing problem focuses
chiefly on the physical distribution of goods. Consumers as such, do not constitute
much of a problem.
However, as the society advances to successively higher stages of economic

development, production capacity catches up with and, even gets to be larger than
market demand. The basic business (and marketing) problem is then one of activating
consumers as individuals and as members of groups into buyers. Increasing at ention is
thus paid to the power of the consumer. Hence, as an economy of scarcity evolves
into one of plenty, business shifts its emphasis from production problems to marketing
problems. In the process, marketing receives recognition as the mechanism
responsible both for initiating and maintaining the flow of income into the business.
It should be noted that this flow of business income is also the result of the outward
flow of goods and services from producers to consumers, which marketing again,
initiates and maintains.
Furthermore, in an economy of plenty, most people have to satisfy their material

wants through outside sources. Whenever these wants are being satisfied, the
people discover that they must take part in various activities related to obtaining
needed good and services from outside sources of supply:
In the first place, they shop for the goods and services they need. Secondly, they
read, listen to advertisements on billboards, handbills, newspapers, magazines,
radio and television sets. Some even look around stores and markets, thereby
performing what is generally known as window-shopping. This is done in order to
find out what is available, and in which qualities at what process. Thirdly they
continual y decide among shops, products, brands and models.
Apart from actively or passively participating in the processes of satisfying their wants,
consumers are also the targets of many activities performed by different groups of business people.
One of such groups are advertisers, who devote their time and efforts to getting information across
to them. Another group conducts studies on them on the likely marketability of some existing
or new products. Yet another set of business people gets the goods and services to them, and finally
"selling" them. The result of this consumer performed and a business-performed activity is a
flow of goods and services from producers to consumers.
3.2 DEFINITION AND MEANING OF MARKETING

The term 'marketing' has been defined in many ways by different authorities.
It is useful for us to pause for a while and consult some of these definitions:
(i)The management function that organises and directs all business activities involved in
assessing and converting consumer purchasing power into effective demand for a specific
product or service, and in moving it to the final consumer or user so as to achieve the profit
target or other objectives set up by the company (British Institute of Marketing).
(ii) Marketing consists of the performance of business activities that direct the flow of
goods and services from producer to consumer or user. (American Marketing
Association).
(iii) Marketing is the business process by which products are matched with markets and
through which transfer of ownership are effected (Cundiff and Stil ,1964)
(i ) Marketing is a total system of business activities designed to plan, price, promote, and
distribute want-satisfying goods and services to present and potential customers
(Stanton, 1964).
(i i) Marketing is human activity directed at satisfying needs and wants through exchange
process, while also aspiring to achieve the market's objectives (Olufokunbi, 1993).
(iv) Marketing is social process by which individuals and groups obtain what they need and
want through creating and exchanging products and value with other. (Kotler, 1984).
(v) Marketing is the function that assesses consumer needs and then satisfies them by
creating an effective demand for, and providing, the goods and services at a profit
(Johnson, 1982).
(vi) Marketing is the business function that identifies customers‘ needs and wants,
determines which target markets the organisation can serve best, and designs
appropriate products, services, and programmes to serve, these markets (Kotler and
Armstrong, 1996).
It is very clear from these definitions that the term 'marketing' is open to
varying definitions as each authority thinks fit, hence no particular one has
universal acceptance. However, the common theme is that marketing is more
than selling; it is the whole process that occurs between the production of any
surplus goods or services and their consumption or use, and it is consumer-
oriented. In actual fact, the most important need of the student is not an exact
definition, but to acquire sound understanding of what marketing means.
Perhaps as a way of get ing a better understanding of the term, we may re-
examine the definition given by Stanton (1964):
'Marketing is a total system of business activities designed to plan, price,

promote and distribute want-satisfying goods and services to present and
potential customers".
This definition given by Stanton has some significant implications. Firstly, it

connotes that the entire system of business action should be market - or
customer-oriented. That is, customers' wants must be recognised and satisfied
effectively. Secondly, it suggests that marketing is a dynamic business process -
a total, integrated process-rather than a fragmented assortment of institutions and
functions. Thus marketing is not any one activity, nor is exactly the sum of several;
rather it is the result of the interaction of many activities.
Thirdly, the marketing programme starts with a product idea and does not end until
the customer's wants are completely satisfied, which may be some time after the
sale is made. Fourthly, the definition implies that to be successful, marketing must
maximise profitable sales over the long run. Thus, customers must be satisfied in
order for a company to get the repeat purchase, which ordinarily is so vital to
success.
What do we gain from the above analysis? Evidently, it should be clear to us that
marketing is much more than just an isolated business function. As Kotler and
Armstrong put it, "it is a philosophy that guides the whole organisation. . its goal
is to create customer satisfaction profitably by building value-laden relationships
with customers". We can also reason that the marketing department cannot
accomplish this goal by itself. Consequently, it necessarily needs to work closely
with other departments in the company, as wel as forge some working relationship
with other organisations throughout its entire value-delivery system to provide
superior values to customers.
From the systems view therefore, marketing involves the whole company, since
everyone in the organisation should be seen to be involved in selling and
satisfying customers. Everyone should also be seen to be making the highest profit
for the enterprise, and using the resources of the company as efficiently as
possible. It is thus important to stress that no section of the company should arrogate
this marketing responsibility to itself. This is because the concept of marketing is a
corporate affair, and the philosophy behind it must be understood by management
at al levels. To this end therefore, marketing may be said to involve finance,
production, research, development, merchandising, and advertising,
promotion, distribution and selling procedures.
3.3 THE BUILDING BLOCKS OF MARKETING

From our analysis of the definitions in section 3.2, we may view marketing
general y as resting on six inter-connected platforms. These are: needs, wants, and
demands; products; value and satisfaction: exchange, transactions and
relationships; market; marketing and marketers. These inter-connected
platforms are illustrated in Figure 1. We shall attempt to run through each of
these platforms.
3.3.1 NEEDS, WANTS, AND DEMANDS
Lets us start by differentiating between needs, wants and demands. The purpose of
this is to shed light on the frequent accusations by marketing critics that
"marketers get people to buy things they don't want". We should get it clear that
marketers do not create needs. In actual fact, needs pre-exist marketers. However,
marketers, along with other influential in the society, influence wants. For
Stance, they may suggest that a particular type of car such as a Mercedes Benz
V-boot would satisfy a person's need for social status. In this case, marketers do
not create the need for social status, but try to point out how a particular good
would satisfy that need. Thus, marketers try to influence demand by making the
product attractive, affordable and easily available.
Figure 1: The Inter-connected Platforms Of Marketing
Needs, Wants Exchange and Markets and

Transaction Marketers
and Demands Products —4 Value and
Satisfaction
We now go to the distinction between needs, wants and demands:
A human need is a state of felt deprivation of some basic satisfaction. Out of

necessity, people require food, clothing, shelter, safety, belonging, esteem, and
a few other things for survival. Note that these needs are not created by the
society or by marketers. They naturally exist in the composition of human biology
and human condition.
Human wants are desires for specific satisfaction of these deeper needs. For
example, a man in the city might need food and wants fried rice and chickens;
needs clothing and wants a French suit; needs esteem and buys a Mercedes
Benz car. In another environment, these needs are satisfied differently. For
instance, in a typical rural environment, a man might satisfy his hunger with pap
or eko or akamu; his clothing needs with simple buba and sokoto; and his esteem
with a shel necklace. People's needs many be few, but their wants are
many. These wants are continual y being shaped and re-shaped by social forces
and institutions such as churches, schools, families, and business corporations.
Demands are wants for specific products that are backed up by an ability and •
willingness to buy them. Hence, wants become demands only when backed up by
purchasing power. For example, many people desire Mercedes Benz cars, but
only a few are real y able and willing to buy one. It is therefore imperative for
,
companies to measure not only how many people want their product, but more
importantly, how many of them would actually be willing and able to buy it.
3.3.2 PRODUCTS
People normal y satisfy their needs and wants with products. Products can be
defined broadly to cover anything that can be offered to someone to satisfy a need
or want. Normal y, we conceive of a product as a physical object, such as a car, a
radio or a television set. However, we often use the expression products and
services to distinguish between physical objects and intangible ones.
If one critically looks at physical products, one realizes that their importance lies
not so much in owning them as in using them to satisfy our wants. For example,
we don't buy a car just to admire it, but because it is a source of service called
transportation. Hence, physical products are real y vehicles that deliver services to
us.
3.3.3 VALUE AND SATISFACTION
Very often, consumers face a wide variety of products and services that might
satisfy a given need. How then do they choose among these variety of goods and
services: Normally, consumers make buying choices based on their
perceptions of the value that various products and services deliver.
Customer value is the difference between the values the customer gains from
owning and using a product and the costs of obtaining the product. For example,
DHL customers gain a number of benefits. The most obvious are fast and
reliable package delivery.
In addition, these customers may also receive some status and image values. For
example, using DHL usual y makes both the package sender and the receiver feel
more important. However, when deciding whether to send a package through
DHL, customers often weigh these and other values against the money, effort, and
psychic costs of using the service. Furthermore, they will compare the value of
using DHL against the value of using other courier services such as EMS, Red
star and Fedex, and then select the one that gives them the greatest desired value.
Customer satisfaction is the extent to which a product's perceived performance matches a

buyer's expectation. If the products performance falls short of expectations, the buyer is
dissatisfied. If performance matches or exceeds expectations, the buyer is satisfied or
delighted. Business — minded marketing companies usual y go out of their way to keep
their customers satisfied. You should note that satisfied customers make repeat purchases,
and they tel others about their good experiences with the product. The key is to match
customer expectations with company performance. This is why smart companies aim
to delight customers by promising only what they can deliver, then delivering more than they
promise.
3.34 EXCHANGE AND TRANSACTION AND RELATIONSHIPS

The mere fact that people have needs and wants, and can place value on products is necessary,
but not sufficient to define marketing. You should realize that marketing exists when people
decide to satisfy needs and wants in a certain way that is called exchange. Exchange is
one of the four different ways in which a person can obtain a product he or she wants.
The first way is self-production. For instance, a hungry person can relieve hunger through
hunting, fishing, or fruit gathering. The person does not have to interact with anyone else. In
this particular case therefore, there is no market and no marketing.
The second way is coercion. Here, the hungry person can wrest food from another person
forcefully. Hence, no benefit is offered to the other party.
The third way is begging. In this instance, the hungry person can approach someone and
beg for food. The supplicant has nothing tangible to offer except gratitude.
The fourth way is exchange. Here, the hungry person can approach someone who has food
and offer some resource in exchange, such as money, another good or some service (as in
trade by barter).
Marketing evolves from this last approach to acquiring products i.e. exchange. Formal y
stated, exchange is the act of obtaining a desired product from someone by offering
something in return. Thus, exchange is the defining concept underlying marketing. For
exchange to take place, Kotler (1984), lists five conditions that must be satisfied:
(i)There are at least two parties;

(ii)Each party has something that might be of value to the other party.
(iii)Each party is capable of communication and delivery
(iv)Each party is free to accept or reject the offer.

(v)(v) Each party believes it is appropriate or desirable to deal with the other
party
These five conditions make exchange possible. Whether exchange
actual y takes place however, depends on the parties coming to an agreement. If
they agree, it is often concluded that the act of exchange has left both of them
better off, or at least not worse off. This is in the sense that each was free to
reject or accept the offer. Hence, exchange creates value just as production
creates value. It gives people more consumption possibilities.
Whereas exchange is the core concept of marketing, a transaction consists of a

trade of values between two parties. In a transaction, for instance, we should be
able to say that one party gives X to another party and gets Yin return.
Transaction marketing is pail of the larger idea of relationship marketing. Aside from
creating short-term transactions, marketers need to build long-term
relationships with valued customers, distributors, dealers, and suppliers. They need
to build strong economic and social ties by promising and consistently delivering
high-quality products, good service, and fair prices. Marketing is rapidly shifting
from trying to maximise the profit on each individual transaction to
maximizing mutually beneficial relationships with consumers and other parties.
Here, the operating assumption is: build good relationships and profitable
transactions will follow
3.3.5 MARKETS
A market is the set of actual and potential buyers of a product. Generally,

these buyers share a particular need or want that can be satisfied through
exchange. It is thus clear that the size of a market depends on the number of
people who exhibit the need, have the resources to engage in exchange, and are
willing to offer these resources in exchange for what they want.
The term market, originally stood for the place where buyers and sellers
gathered to exchange their goods, such as a village square. Economists often use
the term to refer to a collection of buyers and sellers who transact in a particular
product class, as in the yam market, the cat le market or the grain market.
However, marketers see the sellers as constituting an industry and the buyers as
constituting a market.
Figure 2 shows the relationship between the industry and the market.
Figure 2: A simple marketing system
Source: Adapted from Kotler, P. and G. Armstrong (1996): Principles of

Marketing. Seventh Edition, Englewood Cliffs, New Jersey, Prentice Hall,
Inc. P. 12.
You can observe from the figure that sellers and buyers are connected by four
arrows. The sellers send products, services, and communications to the market: in
return, they receive money and information. The inner loop shows an
exchange of money for goods: the outer loop shows an exchange of information.
This concept of markets finally brings us full circle to the concept of marketing.
3.3.6 MARKETING AND MARKETERS

Marketing means managing markets to bring about exchanges for the purposes of
satisfying human needs and wants. If one party is more actively seeking an
exchange than the other party, we call the first a marketer, and the second
party a prospect. A marketer is someone seeking a resource from someone else
and willing to offer something of value in exchange. Usually, the marketer is
seeking a response from the other party, either to sell something or buy
something. Hence, the marketer can be a seller or buyer. Let us imagine that
several persons want to buy a very at reactive house that has just been put up for sale.
You wil notice that each would-be buyer will try to market himself or herself to
be the one the seller selects. Thus, these buyers are doing the marketing. It
could so happen that both the seller and the buyer are actively seeking an
exchange, and in this instance, it is said that both of them are marketers. This
situation is then referred to as one of mutual marketing.
Normally, exchange processes involve some work. For example, sellers need to
search for buyers, identify their needs, design good products and services, set
prices for them, promote these goods and services, as well as store and deliver
them. Activities such as product development, research, communication,
distribution, pricing and service are core-marketing activities.
Market (a collection
_ of Buyers)
--- . Products/Services
Industry (a collection Money
i
Information
3.4 MARKETING FUNCTIONS

Marketing is made up of a number of activities known as marketing functions. Ordinarily,
identifying these functions might look simple since it would appear necessary only to
itemise the various activities required to move goods and services from producers to
consumers. The difficulty of determining exactly where marketing begins and ends
however, complicates the task of identifying and classifying marketing functions.
Though one may oversimplify issues by assuming marketing activities are only concerned
with the flow of goods and services, yet it is obvious that, to achieve maximum efficiency
in marketing, there must also be a flow of information in the other direction i.e. from
the market to the producer. This information gathering activity may actual y take
place before the product is planned or produced. It is therefore reasonable to think
of the marketing process as beginning and ending with the consumer, with
information from the consumer to the producer and, goods flowing back to the
consumer from the producer.
Marketing is involved in all business functions. And, as already viewed from the
systems perspectives, there are no clear-cut lines separating it from production,
personnel, and many other business functions. It is also not restricted within a
single business enterprise. Rather, it overlaps and is spread among producers, other
businesses engaged in marketing known as marketing institutions, and consumers. In the
same vein, the marketing of almost every commodity or service is subject to varying
application of different marketing, and non-marketing functions and is carried on by
diverse groups of institutions.
The activities most easily identified as marketing functions are those concerned with
bringing goods into contact with markets. Selling is one of these. However, buying, the
complementary side of selling is not so easy to identify as a marketing function.
The identification depends on who is buying. For example, a retail store is primarily
involved in marketing, as opposed to producing; hence most of its activities are
clearly concerned with marketing. Buying merchandise for resale is one of the
retailer's most important tasks. He must buy those items the consumer needs and
wants, in order to achieve the aim of selling goods to the consumer.
In the case of a manufacturers firm, buying is so clearly seen as a marketing function.

In some instances, the manufacturing buying decision is influenced by the effect his
purchase has on the marketability of his product. Yet in other instances, it is influenced
by the effect on product cost. For example, the selection and purchase of
containers/packaging materials for beverages and food drinks mainly affects the
marketability of the finished product, whereas the selection and purchase of the
various ingredients for the formulation of the food drink is majorly a production
problem. In most cases however, the
purchasing agent is influenced by both marketing and production needs. In this regard,
most manufactures view buying as a marketing function whose performance is frequently
conditioned by production considerations.
Most commonly, activities not directly concerned with bringing goods into contact with
markets are more difficult to identify as marketing function. This is the reason why
manufacturers' buying activities are often considered as a productive responsibility.
Marketing is also concerned with product planning and design since a product must suit the
needs and wants of the consumer. Therefore, the manufacturer must discover these needs
and wants in an early stage of product development work.
Marketing functions are often performed by the consumer himself For example, he
shops for the goods and services he needs. He reads and listens to advertisement (look around
stores, and talks with sales peoples and do window shopping) to find out what is available in
which quantities and at what prices. In addition, he is continual y deciding among stores,
products, brands and models. Furthermore, the consumer also performs storage functions by
storing goods in his room, store, fridge, freezer etc.
3.5 A CLASSIFICATION OF MARKETING FUNCTION

It is of utmost importance to at empty a classification of marketing functions since this
would make it easier to analyse specific marketing situations. The identification of separate
activities common to large number of businesses engaged in marketing makes it possible to
compare and analyse marketing policies and decisions in different organisations. For
instance, a marketing manager might not know where to make corrections if he were merely
informed that his firm is inferior to that of a competitor. If he however learns that his
transportation costs are higher than the average for the industry, or that his advertising
expenditures are excessive in terms of results, he knows where to particularly direct his
efforts toward improvement.
For obvious reason, no general classification of marketing functions can be used to analyse
the marketing situations of al firms. Such a system must first be modified to fit the specific
marketing circumstances of any firm. With this in our mind, we may thus classify
marketing activities into three categories containing nine functions in all:
A. Merchandising Function.
1. Product planning and development
2. Standardizing and grading
3 . Buying and assembling
4 . Selling
B. Physical Distribution Functions
5. Storage
1
6. Transportation
C. Auxiliary Function
7. Marketing financing
8 . R i s k bear in g
9. Market information
As can be seen from this classification, the merchandising category starts with an
analysis of market needs and development or procurement of products or services to
fil these needs, and ends with the activities necessary to create a demand for these
products and services. The physical distribution category is concerned with the
activities necessary to make these products and services available at the time and place
where the consumer needs them. The last category includes the supporting
activities necessary to the effective performance of the merchandising and
physical distribution functions.
4.0 CONCLUSION
You have learned in this unit that marketing occurs when through a process of exchange.
When values are actually traded between two parties, a transaction occurs. If a series of
transactions occurs between the same parties, a long term relationship develops.
5.0 SUMMARY
Although many factors may contribute to business success, today's successful
companies share a strong customer focus and a heavy commitment to
marketing. Marketing is a total system of business activities designed to plan, price,
promote and distribute want-satisfying products to target markets to achieve
organisational objectives.
Self — Assessment Exercise

1.Explain the concept of an exchange, including the conditions that must exist for an
exchange to occur, and give an example of an exchange that does not involve
money.
2.Attempt a classification of marketing functions.
6.0 TUTOR-MARKED ASSIGNMENT
Question:
Communication between buyers and sellers in a market is a two way process. Explain.
7.0 FURTHER READING

Bovee, C.L. and J.V. Thil (1992): Marketing New York,: McGraw — Hill, Inc. Stanton,
W.J. M.J. Etzal and B.J. Wallcen (1994): Fundamentals of marketing. V' ed. New
York.; McGraw — Hill, Inc.
UNIT 2: MARKETING MANAGEMENT AND DEMAND
Table of Contents
1.0 Introduction
2.0 Objectives
3.1 Marketing and Demand Management
3.2 Different Demand Situations and the Corresponding Marketing Tasks
3.2.1 Negative Demand
2 No Demand
3.2.3 Latent or Hidden or Concealed Demand
3.2.4 Falling Demand
3.2.5 Irregular Demand
3.2.6 Full Demand
3.2.7 Overall Demand

3.2.8 Unwholesome Demand
3.3 Marketing Management Philosophies
3.3.1 The Production Concept

3.3.2 The Product Concept
3.3.3 The Selling Concept (or Sales Concept)
3.3.4 The Marketing Concept
3.3.5 The Societal Marketing Concept

4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment 7.0
Further Reading
1.0 INTRODUCTION:
This unit introduces you to marketing management, which is the process by which
marketers achieve their organisational objectives. It will also expose you to the various
demand situations that marketing management has to cope with. Finally, it examines the five
different philosophies guiding companies' marketing efforts.
2.0 OBJECTIVES
After studying this unit, you should be able to :
(i) define and explain marketing management

(i ) outline the eight different common states of demand and the
corresponding tasks facing marketing managers
(iii) describe the five philosophies guiding marketing efforts.
(iv) Compare and contrast the selling and marketing concepts.
3.1 MARKETING AND DEMAND MANAGEMENT Marketing
management can be defined as the analysis, planning, implementation, and
control of programmes designed to create, build, and maintain beneficial exchanges
with target buyers for the purpose of achieving organisational objectives.
The common impression people often have of the marketing manager is to stimulate
demand for the company's products. This is however, a smal bit of the range of
marketing tasks carried out by marketing managers. The actual situation is that
marketing management has the task of influencing the level, timing, and composition
of demand in a way that will help the organisation achieve its objectives. That is,
marketing management is demand management.
It is usual for an organisation to form an idea of a desired level of transactions with a

target market. One may then find that at times, the actual demand level may be below,
equal to, or above the desired level. This in effect means, there may be no demand,
weak demand, adequate demand, and excessive demand. Marketing management
therefore has to cope with these different demand situations.
There are actually eight different common states of demand and the
corresponding tasks facing marketing managers. These are discussed below under
section 3.4.1. Marketing managers usually cope with these tasks by carrying out
marketing research, marketing planning, marketing implementation, and
marketing control. Within marketing planning, for example, marketers must make
decisions on target markets, market positioning, product development, pricing, channel of
distribution, physical distribution, communication, and promotion.
3.2 DIFFERENT DEMAND SITUATIONS AND THE

CORRESPONDING MARKETING TASKS
The eight different common states of demand together with the cor esponding tasks
facing marketing managers include the following:
3.2.1 NEGATIVE DEMAND

A market is said to be in a state of negative demand if a major part of the market dislikes
the product, and may actual y offer to pay a price in order to avoid it. For example, people
have negative demand for surgical operations for hernia, catarract, etc. In addition,
employers general y feel a negative demand for ex-convicts and alcoholic employees. The
marketing task under this negative demand situation therefore, is to analyse why the market
dislikes the product or service, and then determine whether a marketing programme through
product re-design, lower prices, and more positive promotion can change the market's beliefs
and attitudes.
3.2.2 NO DEMAND
Under the situation of no demand, the target consumers may not be interested in or
indifferent to the product. For examples, farmers may not be interested in changing from
their traditional farming methods to improved ones. Similarly, col ege students are usual y not
interested in mathematics.
The marketing task here, is thus to find ways to connect the benefits of the product or
service with the persons natural needs and interest.
3.2.3 LATENT OR HIDDEN OR CONCEALED DEMAND

A latent demand is one that is not visible or undeveloped, but definitely capable of being
developed. For instance, a substantial number of consumers may hold a strong desire for
something that cannot be satisfied by an existing product or service. For instance, there
is a strong latent demand for safer neighbourhoods and more-fuel-efficient cars. The
marketing task therefore, is to measure the size of the potential market and develop effective
goods and services that would satisfy the demand.
3.2.4 FALLING DEMAND

Every organisation, sooner or later, faces falling demand for one or more of its products.
For example, some churches have witnessed their memberships decline. Similarly, certain
hospitals and col eges have also experienced dwindling patronages. The task of
marketing management here is to analyse the causes of market decline and to determine
whether demand can be re-stimulated through finding new target markets, or changing
the product's features, or developing more effective communication. The efforts are to
reverse the declining demand through creative re-marketing of the product.
3.2.5 IRREGULAR DEMAND
An irregular demand varies on a seasonal, daily or even hourly basis, thereby causing the twin
problems of idle capacity or overworked capacity. In mass transit systems, for example,
much of the fleet of vehicles is idle during the peak hours. The marketing task is to find
ways to alter the time pat ern of demand through flexible pricing, promotion, and other
incentives.
3 .2 .6 FULL DEMAND
An organisation is said to face ful demand when it is pleased with its amount of
business. That is, its actual demand level tal ies with the desired level of transactions
with its target market. The marketing task is to maintain the current level of demand in
the face of changing consumer preferences and increasing competition. The
organisation needs to carefully keep up its quality and continually measure
consumer satisfaction to make sure it is still doing a good job.
3.2.7 OVERALL DEMAND

It happens at times, that an organisation faces a demand level that is higher than they
can or want to handle. The major concern here is that facilities may be overstretched,
and may result in dangerous consequences. For example, the National Stadium often
witnesses huge crowd of footbal spectators during international matches between the
National team and foreign teams. The marketing task, caled de-marketing, requires
finding ways to reduce the demand temporally or permanently. General de-marketing
seeks to discourage overall demand and consists of such steps as raising prices and
reducing promotion and service. Selective de-marketing consists of trying to reduce
the demand coming from those parts of the market that are less profitable or less in
need of the service. Please note that de - marketing does not aim to destroy demand
but only reduce its level.
3.2.8 UNWHOLESOME DEMAND

The demand for something is said to be unwholesome if that particular thing is
perceived to be unsound, tainted in health, taste or morals. Hence,
unwholesome products usual y at ract organised efforts to discourage their
consumption. For example, fierce campaigns are being carried against cigaret es,
alcohol, hard drugs and commercial sex hawking. The marketing task is to set people
who engage in the consumption or practice of the particular vice to give it up, using
such tools as fear communication, price hikes, and reduced availability.
3.3 MARKETING MANAGEMENT PHILOSOPHIES

In section 3.1, you were made to understand that marketing management involves
carrying out tasks to achieve desired exchanges with target market. The question
then is, what philosophy do we use to guide these marketing ef ects?. Again, what
weight should we give to the interests of the organisation, customers, and the society in
this process of trying to achieve the desired exchanges with the market?. These
interests often clash on a number of occasions.
General y, there are five alternative concepts or philosophies under which
organisations can conduct their marketing activities. These are: the production, product, selling,
marketing, and societal marketing concepts.
3 .3 .1 THE P RO DU C TI O N CO N CEP T
This is one of the oldest philosophies guiding marketers. It is of the opinion that consumers
wil always favour those products that are widely available and highly affordable. Thus,
business organisations that reason along this line usually concentrate their efforts on
achieving high production efficiency and wide distribution coverage.
It has been observed that this concept is appropriate under two situations. The first is where
the demand for a product exceeds supply. This makes customers to be more interested in
considering the core product rather than its five points. The major task confronting the firm
here is to look for ways of increasing production.
The second situation is where the cost of production is high and has to be brought down
through increased productivity to expand the market.
Some companies have been making use of this philosophy of increased production and
lower costs in order to bring down prices, so as to capture more shares of the market.
However, the adoptions of this philosophy often lead to the risk of focusing too narrowly on
their own operations. Hence, such organisations are often accused of impersonality and
consumer insensitivity. For instance, the low-priced goods being produced may not be
attractive enough to a large section of the market.
3 .3 .2 THE PRODUCT CONCEPT

The underlying philosophy here is that consumers will favour those products that offer the
best in terms of quality, performance, and innovative features. Management in these product-
oriented organisations usually focus their energy on making good products and improving
upon them over time. In this way, it may be said that an undue concentration is placed on
product rather than the needs of the consumer and his ability to make an effective demand
for such high quality products.
3 . 3 . 3 T H E S E L L I N G C O N C E P T ( O R S A L E S C O N C E P T ) The
selling concept holds that customers, if left alone, wil ordinarily not buy enough of
the organisation's products. The organisation must therefore undertake an
aggressive selling and promotion efforts. It is assumed that consumers typical y
show buying resistance and have to be coaxed into buying more. This concept is
undertaken most aggressively with unsought goods. Most firms also practice the
selling concept when they have over-capacity. Their aim is to sel what they
make rather than make what the market wants. Hence, marketing based on hard
selling carries high risks. For instance, it focuses on creating sales transactions
instead of building long-term, profitable relationship with customers.
Once me customers are dissatisfied, they may not want to buy from such
organisations again.
3.3.4 THE MARKETING CONCEPT

The marketing concept holds that the key to achieving organisational goals
consists in determining the needs and wants of target markets and delivering the
desired satisfactions more effectively and efficiently than competitors.
The concept starts with the company's target customers and their needs and
wants The company then integrates and coordinates al the activities that wil
affect customer satisfaction. The achievement of the company's profit goal is
made through creating and maintaining customer satisfaction.
The marketing concept expresses the company's commitment to consumer
sovereignty. chat is, the determination of what is to be produced should not be in
the hands of the companies or in the hands of government but in the hands of
consumers themselves.
3.3.5 THE SOCIETAL MARKETING CONCEPT

Recent developments all over the world, especially with respect to
environmental degradation, resource shortages, explosive population growth,
worid-wide inflation, and neglected social services have questioned the
aimropriateitess of the organisational goals of the marketing concept. The
feeling Dere •s tnat the concept sidetracks the potential conflicts between
censumers. asatner interests, and long-run societal welfare
Because of such mat ers, a cal has been made for a new concept to revise or rep
taco Inc marketing concept. This has led to the emergence of the societal mat e:ring
tioncept.
The concept folds that the organisation's task is to determine the needs, wants, and
interests of target markets and to deliver the desired satisfactions more effectively
and efficiently than competitors in a way that preserves or enhances the customers
and society s wel -being. The societal marketing concept cal s upon marketers to
balance three considerations in setting their marketing policies, viz coninany
profit, consumer want-satisfaction, and society interests.
4.0 CONCLUSION
Marketing management is the process by which marketers achieve their
organisational objectives. The core or this process is managing the level, timing and
composition of demand and by retaining current customers and at racting new
ones. This is done by developing marketing programmes for the target market
through a process of analysis, planning, implementation, and control. When
properly done, this will result in long-term profitable customer relations
hips.
5.0 SUMMARY
Marketing management can be guided by five different philosophies. The production
concept is based on the idea that low cost is of the highest importance, and the task of
management is to concentrate on production volume and efficiency to bring down costs and
prices. The product concept holds that consumers favour quality products, and that if products
are good enough little promotional efforts wil be required. The selling concept assumes that
heavy sel ing and promotional efforts are needed to stimulate adequate demand for the
product. The marketing concept holds that a company gains competitive advantage by
understanding the needs and wants of a clearly defined target market, and using this
understanding to do a superior job of delivering satisfaction to these customers. The
societal marketing concept expands on marketing concept by stressing that a company
should seek to generate customer goodwil , but must also enhance long-term societal
well being.
-
Self— Assessment Exercise

Is mere a contradiction between marketing something that has negative demand and practicing
the marketing concept?
6.0 TUTOR - MARKED ASSIGNMENT Question:
Contrast the selling and the marketing cone
7 .0 FURTHER R EADING
Bovee, C.L. and J.V. Thill (1992): Marketing New York,: McGraw — Hill, Inc.
UNIT 3: FORCES OPERATING IN THE MARKETING

SYSTEM
Table of Content
1.0 Introduction
2.0 Objectives .
3.1 Analysis of the Marketing Environment

3.2 Environmental Scanning and Environmental Analysis
3.3 Approaches to the Marketing Environment
3.4 The Marketing Forces

3.4.1 External Forces: The Marketing Environment
14.1.1 Micro-Environment-
3.4.1.2 Macro-Environment
3.5 Internal Forces: Control able Marketing Variables or the Marketing
Mix
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 Further Reading
1.0 INTRODUCTION
From previous discussions in unit 1, we have defined marketing as a total
system of business activities designed to plan, price, promote and distribute
want - satisfying goods and services to present and potential customers. A
system itself can be viewed as a "regularly interacting or interdependent group of
items forming a unified whole". This unit focuses on the forces operating in
the marketing system.
2.0 OBJECTIVES
(i) Differentiate between the internal and external forces operating in the
marketing system.
(ii) Discuss the importance of environmental scanning and environmental
analysis
(iii)Describe a company's micro and macro environments.

(iv)Explain the meaning of "marketing mix".
3.1 ANALYSIS OF THE MARKETING ENVIRONMENT Every move a

marketer makes is affected by, and has some effect on his marketing environment. This
could happen on a smal scale, such as between a manufacturer and a retailer. It could also
happen on a larger scale involving entire industries and governments. Very often, changes in
the elements within the environment create new opportunities and eliminate old ones.
These changes can be exciting, frustrating, confusing, irritating and invigorating. They can
establish entire industries as wel as drive some other companies into bankruptcy.
In order to better understand the marketing environment, 8 companies that want to be

successful must continually evaluate al environmental factors, by first gathering and then
analyzing market information. The essence is to understand how the various factors affect
products, pricing, promotion and distribution, both currently and into the future.
Monitoring environmental changes helps discover emerging opportunities such as growth
markets and unfilled market needs. Armed with such information, marketers can develop
strategies suited to the changing environment.
On the other hand, firms who fail to keep up with environmental changes risk missing
interactive opportunities. In actual fact, they may lose their place in the market as
competitors identify the same opportunities and introduce products that take advantage of
them. In the extreme situation, the unaware firm is forced out of business completely.
3.2 ENVIRONMENTAL SCANNING AND ENVIRONMENTAL
ANALYSIS
The process of gathering information on various aspects of the marketing environment is
called environmental scanning. This information can be collected from salespeople,
dealers, distributors, suppliers, government agencies, magazines, publications,
newspapers, books etc.
Environmental analysis is the interpretation of al this information. Marketers evaluate the data
collected in environmental scanning with an eye to their own business, considering how the
various trends could affect them both now and in the future. By so doing, they can create
marketing strategies adapted to the dynamic marketing environment.
3.3 APPROACHES TO THE MARKETING ENVIRONMENT

One can respond to his marketing environment in two ways. The first way is
through reactive marketing, in which the environmental forces are viewed as being
uncontrollable, and one simply try to adjust to them. The second method is via
proactive marketing, whereby steps are adequately taken to change the marketing
environment and this make it more conducive to one's activities.
Let us see how the two approaches are different. For instance, when confronted with
new legislation banning some of their products, reactive marketers might abandon.
Those offerings and concentrate on developing new products in unregulated areas.
A proactive marketer facing the same external threat would probably join an industry
coalition to lobby legislators and raise public support for the industry's point of view.
However, you should note that neither the reactive nor the proactive approach is
inherently better. Whatever approach is chosen depends on organisational goals,
ethical and legal constraints, and other circumstances. Note also, that this does mean
that a marketer always has a choice. For instance, one might be affected by a sudden
change in the marketing environment and just left with no alternative but to react.
However hard one might study the environment, the behaviour of nature,
governments, competitors, or customers may not be accurately predicted. But every
lit le bit helps. Therefore, by understanding the environment and playing active role
in one's industry, there is a reduced chance of being at the mercy of outside forces.
3.4 THE MARKETING FORCES

A company's marketing system often operates within the framework of forces, which
constitutes the system's environment. Such forces are either external or internal to
the firm.
3.4.1 EXTERNAL FORCES: THE MARKETING ENVIRONMENT The

external variables (also known as the marketing environment) general y are not
control able by the organisation. Formally stated, a company's marketing
environment consists of the actors and forces external to the marketing
management function of the firm that impinge on the marketing manager is ability to
develop and maintain successful transactions with its target customers.
These "non-controllable" factors are constantly spinning out new marketing

opportunities. They also set the limits within which firms may apply the
"controllable" factors in their efforts to capitalise on marketing opportunities. In turn,
the impact of differing applications of controllable factors makes for further changes in
the non-controllable factors. The result is that every aspect of marketing is
characterised by endless changes.
Although the individual marketing manager can exert little influence over the
non-controllable factors, he must know a good deal about them: Apart from
being familiar with their general nature, he must also be consistently alert for changes in them
which might affect the application of marketing factors he can control. It should be
observed that changes in the non-controllable factors, and in the way they interact mean not
only changes in markets but changes in his marketing problems. Changes of this kind may
even result in significant alterations in the operations of wholesale and retail marketing
institutions. The marketing environment (or the non-controllable factors) may be divided
into two groups: MICRO-ENVIRONMENT (so cal ed because they affect a particular firm)
and MACRO-ENVIRONMENT (so called because they affect al firms).
3.4.1.1 MICRO-ENVIRONMENT.
The micro-environment consists of the actors in the company's immediate environment
that affect its ability to serve its market. This includes the company, suppliers, marketing
intermediaries, customers, competitors, and publics. While general y classified as non-
control able forces, these elements in the micro-environments are probably susceptible to
a greater degree of influence than the macro group is. For example, a marketing
organisation may be able to exert some pressure on its suppliers or middlemen. It should
also be expected that a firm's advertising efforts wil have some influence on its present
and potential competitors.
Company: The important actors here include top management (e.g. Chairmen/ Managing
Directors, Executive Directors, Board of Directors, etc), which sets the company's
mission objectives, broad strategies, and policies. As a rule, marketing managers must
make their decision within the limited context set by these higher levels of management.
We should also note that their marketing proposals must be approved by top management
before they can be implemented.
In addition, marketing managers need to work closely with other functional departments
within the organisation. These include finance, R&D, purchasing, manufacturing and
accounting. The success or failure of the marketing manager depends on how wel he interacts
with these various internal actors.
Suppliers: These are business firms and individuals who provide resources needed by the
company and its competitors to produce the particular goods and services. Since
development in this environment can have effects on the company's marketing operations, it
is essential for the marketing manager to monitor
(i)price trends
(i )supply availability - supply shortages, strike actions by labour unions, etc.
Marketing Intermediaries: These are firms that aid the company in

promoting, selling and distributing its goods to the final buyers. They include the
following:
(i) Middlemen e.g. agent middlemen & merchant middlemen
(ii) Physical distribution firms e.g. warehousing firms, transportation firms
(i i) Marketing service agencies e.g. marketing research firms, advertising
agencies, media firms, marketing consulting firms.
(iv) Financial intermediaries e.g. banks, credit companies, insurance
companies.
Customers: A company's target market can be one (or more) of the following
types of customer markets:
(i) Consumer markets: individuals and households who buy goods and
services for personal consumption
(ii) Industrial markets: organisations that buy goods and services needed for
producing other products and services for the purpose of making profits
and/or achieving other objectives
(i i) Reseller markets: organistions that buy goods and services in order to
resel them at a profit
(iv) Government markets: Government agencies that buy goods and
services in order to produce public services, or transfer these goods and
services to others who need them.
(v) International markets: Buyers found abroad, including foreign
consumers, producers, resel ers, and government.
Competitors: Competition is often a strong environmental force to be

reckoned with in virtual y al socio-economic systems. It should therefore be
expected that a company's marketing system will be surrounded and influenced/
attacked by lots of competitors. It is therefore imperative that these competitors
be identified, monitored, and outmaneuvered in order to gain and maintain customer
loyalty. Apart from the presence of other companies, the competitive environment
also consists of more basic things.
Publics: A public is any group that has an actual or potential interest or

impact on an organisation's ability to achieve its objectives. In-as-much as
publics can substantially influence an organisation's fortunes, the best thing to
do is to spend some time monitoring these publics, anticipating their moves,
and dealing with them in constructive ways. There are seven types of such publics:
(i) Financial publics. These influence the company's ability to obtain funds. Examples
here include banks, fmance houses, stock brokerage firms, and other stockholders.
(ii) Media publics. Media publics are organisations that carry news, features, and
editorial opinions. Examples include newspapers, magazines, and radio and
television stations.
(i i) Government publics. These have to do with the regulatory activities of government
agencies/departments. Examples, NAFDAC, FEPA, National/State Assemblies,
NNPC, PPMC, etc.
(iv) Citizen-action publics/Consumersism. These are an organised movement of
citizens and government to enhance the rights and powers of buyers in relation to
sellers. Consumerists' groups seek, through company persuasion and legislation, to
increase the amount of consumer information, education, and protection.
(v) Local publics. These are neighbourhood residents and community organisations.
(vi) General public. Though the general public does not act in an organised way toward
the company, the public's image of the company affects its patronage. Hence a
company needs to be concerned with the general public's at itude towards its products
and activities.
(vi ) Internal publics. These include blue-collar workers, white-col ar workers,
managers, and the board of directors.
3.4.1.2 MACRO-ENVIRONMENT
The following six inter-related macro-environmental forces impinge considerably
on any company's marketing system. Like their micro-environment counterparts, they
are also not controllable by management.
They are:
(i)Demography
( ii)E cono mic cond itions
(iii)Physical environment
(iv)Technological
(v)Political/legal forces
(v i)So cio /cu ltur al for ces
Demography. Demography is the statistical study of human population. Marketers are
keenly interested in the size of the population of a place; its geographical distribution;
density; mobility trends; age distribution; birth/ marriage, and death rates; and racial,
ethnic, and religious structures.
Demography is especially important to marketing executives, because people

(together with money to spend and the willingness to spend it) are what
constitute markets. The above listed distribution characteristics can be
properly monitored to bring out useful demographic trends and their
implications for marketing.
Economic conditions. The condition of the economy is a significant force
which affects the marketing system. The marketing manager must therefore
consider al potential fluctuations in the level of economic activity in the
country or countries making up his target markets. Some of the important economic
variables to be monitored and analysed include:
(i)disposable personal income
(ii)discretionary income
(iii)income distribution
(iv)average income
(v)g eograph ical inco me v ar iation
(vi)level of inflation
(vii)interest rates
(viii)money supply
(ix)consumer savings & debt patterns
( x ) av ai l ab i l ity o f cr ed i t
(x i)consu mer exp enditur e p atterns
Physical environment. The concern here is on marketing's impact on the

environment and the costs of serving these needs and wants. For instance,
environmentalists are not against marketing and consumption; they simply want
them to operate on more ecological principles. They are of the opinion that the
goal of the marketing system should be to maximise life quality. And, life quality
means not only the quantity and quality of consumer goods and services, but also
the quality of the environment. Marketing managers therefore need to pay
attention to the physical environment in terms of obtaining needed resources
and also of avoiding damage to the physical environment.
In this regard, marketers need to be aware of the threats and opportunities
associated with four trends in the physical environment:
(i) Impending shortages of certain raw materials especially finite renewable

resources (e.g. forests and food) and finite nonrenewable resources (e.g oil, coal
and other minerals). The marketing implications of these shortages are two-
fold: In the first instance, firms making use of these scarce minerals face
substantial costs increases, even if the materials remain available. Secondly, they may not
find it easy to pass these cost increases on to the consumer. Hence, only firms that engage
in research and development and exploration have vast opportunities to develop valuable
new sources and materials.
(ii) Increased cost of energy. Crude petroleum remains world's major source of energy for
industrial activities. Its price however continues to leap jump. This has created a frantic
search for alternative forms of energy: coal, solar, nuclear, wind, etc.
(iii) Increased levels of pollution. The quality of the natural environment has been
remarkably impacted upon by the following industrial/economic activities:
(a) dumping of chemical and nuclear wastes into streams, rivers, oceans;
(b) application of heavy doses of chemicals in agriculture, leading to the presence
of chemical pollutants in the soil and food supply
(c) littering of the environment with non-biodegradable bottles, plastics, and
other packaging materials.
Protests and public outcries about the gradual destruction of the natural environment in
the manners cited above can create marketing opportunities for smart companies. For
instances, there is the creation of a large market for pollution - control solutions such as
scrubbers and recycling centre. It also leads to a search for alternative ways to produce
and package goods that do not cause environmental damage.
(iv) Strong government intervention in natural - Resource management here, various

government agencies [such as the Federal Environmental Protection Agency (FEPA) and
States' Environment mental Protection Agencies] play active roles in environmental
protection. Companies are made to comply with some environmental regulations.
Technological Environment. Technology has a tremendous impact on people's lives -

e.g. life-styles, consumption patterns and economic well-being. It has been a major factor
underlying the economic growth in the developed countries. However, major technological
breakthroughs carry a threefold market impact:
(a)They can start an entirely new industry - e.g. computers, airplane
(b)They can radically alter, or virtual y destroy, existing industries. For example,
television crippled the radio and movie industries, wash-and-wear fabrics hurt commercial
laundries and dry cleaners; digital watches are turning the traditional watch business upside
down.
(c)They can stimulate new markets and
industries in fields not related to the new
technology. For instance, new home
appliances and frozen foods
give home-makers additional time, thereby al owing them to engage in other gainful
activities.
It is therefore necessary for the marketing manager to understand the changing
technological environment and how technologies can serve human needs. They • need
to work closely with the research and development people to encourage more market -
oriented research. More importantly, they must be alert to the negative aspects of any
innovation that might harm the users and thus bring about distrust and opposition.
Political and Legal Forces:

To a very large extent, a company's conduct is being influenced by the political-legal
processes in our society. This environment is made up of laws, government
agencies and pressure groups.
Legislation at the federal, state and local government levels exercise more influence
on the marketing activities of a firm than on any other phase of its operations. These
legislations have a number of purposes.
(i)To protect companies from each other

(ii)To protect consumers from unfair business practices.
(i i)To protect the larger interests of society against unbridled business behaviour
A serous marketing manager should, out of necessity, have a good working
knowledge of the major laws protecting competition, consumers and the larger interests
of the society.
We noted earlier that macro-environmental forces are not control able by
management. However, in limited areas in the political - legal area, a large firm or
an industry working through its lobbyists and trade association may have some
influence in shaping a piece of legislation or a regulation from government
agencies.
Socio/Cultural Environment
The economic, political-legal and technological forces just reviewed actually make up
the socio-cultural environment. In order words, our people and their socio-cultural
customs and beliefs are fundamentaly what shape our economy, political-legal system,
and technology. For instance, social pressures against air and water pollution have led
to legislation and government regulation, which in turn stimulated new technology to
reduce pol ution.
In addition, cultural pat erns, such as life-styles, social values, beliefs and desires are
changing much faster than ever before. Examples of these changes include:
From a thrift and savings ethic to spending freely and buying on credit
From a work ethic to self-indulgence and having fun
From sexual chastity to sexual freedom
From a husband-dominated family to equality in husband-wife roles; or in a broader
context, the changing role of women,.
From emphasis on quantity of goods to quality of life
From the artificial to the natural (e.g. "braless" look)
Al these changes pose serious marketing challenges to marketing executives.
3.5 INTERNAL FORCES: CONTROLLABLE 1WARICETING
VARIABLES OR THE MARKETING MIX

The second set of forces that make marketing an endlessly changing activity is put in
motion by individual enterprises when they make continual adjustments in the
control able marketing factors. These forces are known as the marketing mix.
Though there are a multitude of these controllable variables, Jerome McCarthy has
popularised a four-factor classification, now commonly known as the 4Ps: Product, Place,
Promotion, and Price.
Definitionally, marketing mix is the mixture of controllable marketing variables that
the firm uses to pursue the sought levels of sales in the target market.
The 4Ps give the marketing manager a framework within which he can operate on a cost-
effective manner. His eventual success will be determined by the wisdom of his choices, his
ability to modify his mix in the face of uncertainty and change, and his determination to
make his strategy work.
Under the first P, which stands for the product, the company conildam al the problems of
developing the product or service which it plans to offer the target market.
Such problems include:
(i)selecting a product or product lines;
(ii)adding or dropping items in the product line;
(iii)branding;
( iv)p ack ag ing; and
(v)Standardising and grading
In a nutshel , the product area is concerned with developing the right product to the target
market.
A product (or a service) is not of any use to the consumer if it is not available when and
where he wants it. Therefore, the company must consider where, when, how and by
whom the goods and services are to be offered for sale. Sometimes, for example,
complicated channels of distribution are necessary, while at the times, very simple
methods can be used effectively. Wholesaling, retailing, transportation, and storage
play a part in the distribution of most goods and services. Hence the second P (for
place) is concerned with al problems, functions and institutions involved in
getting the right product to the target market.
The third P (for promotion) has to do with the methods of communicating to the
target market, the "right product" that wil be sold in the "right place" and "price".
Here, al the problems of sales promotion, advertising and the development,
training, and utilization of a sales force are usual y covered. Advertising, sales
promotion and personal selling are to be considered as complementary methods of
communicating with customers.
While the marketing manager is developing the "right" product, place, and
promotion, he must also decide on the "right" price, i.e the one which wil make his
total marketing mix atractive. Before set ing the price, the marketing manager considers
the nature of competition in his target market, as wel as the existing practices on
mark-ups, discounts, and terms of trade. Ili some instances, he must also consider
legal restrictions affecting prices. In summary, price is concemed with determining the
"right price" to move the "right product" to the "right place" with the "right
promotion" for the target market.
By varying each of these controllable marketing variables, a marketing mi can be

selected from a great number of possibilities. Though this framework may appear
simple, the task of making choices within it is fairly cumbersome. For instance, each
of these four control able marketing variables has man-, potential variations, thereby
making the number of possible marketing mixes very large. Let us assume that
there are five (5) variations of each of the variables (i.e 5 products, 5 places, 5
promotions and 5 different prices), there would be 625 possible different marketing
mixes!. And, it could be more. Hence, as the number of variations increases the
number of possible mixes which must be considered by the marketing manager
increases geometrically.
We must stress here that no human mind is quite capable of cur ently evaluating all the
possible marketing mixes. What is practicable a progressive elimination of the least
desirable, such that the problem can be reduced to manageable proportions.
Generally, there is only one "best" strategy at any given time. However, since
conditions, often change in the market situations; there may be many good
ones. Even then, a good strategy will need to be altered as consumer behaviour, competitors'
behaviour, and other non control able variable change.
4.0 CONCLUSION
You have learned in this unit that environmental forces influence an organisational
marketing. The marketing environment presents an unending series of opportunities and
threats. The major responsibility for identifying changes in the macro environment falls to a
company's marketer. Environmental scanning and analysis are particularly important here.
5.0 SUMMARY
Various environmental forces influence an organisation's marketing activities. Some are
external to the firm and are largely uncontrol able by the organisation. Other forces are within
the firm and are general y control able by management. A company manages its marketing
system within its external and internal environments.
Self Assessment Exercise

—
I. Explain how government regulations can affect a company's marketing plans
6.0 TUTOR — MARKED ASSIGNMENT

Question:
Describe how technology can change both the products that a company sel s and the way in
which the company markets them.
7.0 FURTHER READING
Bovee, CI. and J.V. Thill (1992): Marketing New York,: McGraw — Hill, Inc. Kotler. P (2000):
Marketing Management. The mil ennium Edition. New Delhi, Pretice —Hal of India.
UNIT 4: MARKET-ORIENTED STRATEGIC PLANNING
Table of Content
1.0 Introduction
2.0 Objectives
3.1 Strategic Marketing Planning
3.1.1 The Dimensions of Strategic Planning

3.1.2 Levels of Planning
3.2 The Strategic Marketing Planning Process

3.2.1 Situation Analysis
3.2.2 Marketing Objectives

3.2.3 Positioning and Differential Advantage
3.2 Target Market and Market Demand
3.2.5 Marketing Mix
3.3 Annual Marketing Planning
3.3.1 Purposes and Responsibilities of an Annual Marketing Plan

3.3.2 Contents of an Annual Marketing Plan
4.0 Conclusion
5.0 Summary
7.0 Further Reading
1.0 INTRODUCTION
In the first two units of this course, it was made clear to you that companies that
want to compete successful y in the market place must show sufficient commitment
to creating and retaining satisfied customers. One additional fact you will soon learn in
this unit is that successful companies should know how to adapt to a continual y
changing marketplace. This is achieved by practicing the art of market — oriented
strategic planning
2.0 OBJECTIVES
(i) Identity the two primary dimensions of strategic marketing planning

(i ) Discuss the levels at which planning takes place in an organization and the
types of plans that are made at each level
iii) Outline the activities that take place in the process of developing strategic objectives
3.1 STRATEGIC MARKETING PLANNING

Companies that adopt the marketing concept realize that marketing efforts are more
successful when they are careful y planned. Strategic marketing planning is the process
of examining a company's market opportunities, al ocating resources to capitalize on those
opportunities, and predicting market and financial performance that is likely to occur. From
this definition, you should understand that the aim of strategic planning is to shape the
company's businesses and products so that they yield target profits and growth.
3.1.1 THE DIMENSIONS OF STRATEGIC PLANNING

The strategic planning process rests on two important concepts. In the first place, the
scope of strategic planning is broad. For instance, it considers all the products a company
offers and all the markets the company serves. Strategic planning considers both environment
factors on the outside and organizational factors on the inside. Like marketing concept,
strategic planning also implies functional integration. In this manner, strategic planning
incorporates production, research, finance and the organizational elements necessary for
success.
In the second place, strategic planning looks beyond immediate circumstances, trying to
project market conditions five or ten years into the future. It is therefore important for
marketers to be prepared for changes in the marketing environment, whether the changes are
political, cultural, technological, or economic. Any organization that is aiming at a shorter
span, say only 6 or 12 months down runs the risk of being caught off guard, and hence might
not be able to respond to environmental changes before competitors do
Let us look at another side to this long — term perspective: As a strategic marketer, you
wil not only consider where the world is going to be in 5 or 10 years, you should also weigh
the long-term consequences of the decisions you make today. This may actually mean
skipping an immediate market opportunity that might box you in later on, or perhaps you
wil have to forgo short-term profits to invest in long-term technologies.
3.1.2 LEVELS OF PLANNING
Strategic planning does not happen in isolation at the top layer in the
organization. It is supported by planning and execution throughout the organization.

•
As illustrated by Figure 3.1, there are three levels of marketing planning: Operational
planning looks at the shortest time frame and has the narrowest scope; and strategic planning
takes the longest and broadest view: while tactical planning falls between the two.
Figure 3.1: Levels of Planning
Long
TIME
FRAME
Short
Narrow Broad
SCOPE
As already explained, tactical planning is of narrower scope and shorter time frame than
strategic planning, and it is usual y the responsibility of middle management. Although tactical
planning looks at the performance of specific products or markets over a shorter period of time
than strategic planning, it must actually be tied to strategic planning.
Moving closer to the customer, supervisory managers engage in operational planning, which is
narrower in scope and concerned with matters of the shortest duration of al the formal
planning activities of the business. Operational planning focuses on meeting objective
such as immediate improvement of the market position of a particular size of product or
improvement of the current period's sales of a single product.
Within the business world, the use of the terms "top-down planning" and "bot om-up planning"
are used to refer to planning processes that start as the top and the bot om of the organization,
respectively. Each of these has its advantages. Top-down plans are usual y developed by the
people in the organization with the broadest perspective and the most experience. Bot om-up
planning, on the other hand, is started by people on the "front line" of the organization. It has the
advantage of being close to where action is. For instance, people in sales and customer service
positions, who interact most frequently with customers, have the best idea of what customers are
thinking and doing. The ideal planning process combines both the top-down and bottom-up
approaches, which consequently results in plans that take advantage of an organization's
experience, and which also respond to customer needs and expectations.
It is a fact that the marketing group has the primary responsibility for analyzing the
environment and understanding customers. However, as we already noted under the
marketing concept, everybody in a market-driven firm should be aware of customers and
competitors. Hence, for the firm to be successful, al the departments must be coordinated
by an overal strategic business plan. In this regard therefore, other departments in the
company should also have planning processes similar to the one in marketing. For instance,
the finance department needs to engage in broad, long-range planning to make sure the
'company stays financially healthy from year to year.
3.2 THE STRATEGIC MARKETING PLANNING PROCESS As illustrated
by Figure 4.2, strategic marketing planning is a five-step process that assesses current
performance; establishes specific marketing objectives; determines positioning and
differential advantage; selects target markets and measures market demand, and designs
strategic marketing mix. With the plans in place, the marketing programmes are
implemented, while the results are monitored. If the Plans work well, the feedback
provides the good news. However, if the marketing programme does not meet expectations, the
feedback mechanism helps marketers adjust the processes. You should realize that
strategic marketing planning is a controlling process, not a one-time event. Therefore,
continuous monitoring and feedback is the surest way to stay in touch with dynamic
market conditions.
Figure 4.2 The Strategic Marketing Planning process
Conduct a Develop Determine

Situation SMART positioning
analysis Marketing deferential
Objectives advantage
Monitor
Provide
Result
feedback
Let us briefly examine what the term "strategy" means before proceeding to explore the
various steps in the strategic planning process. Of course, there are various definitions of
strategy. For instance, the Advanced Learners' Dictionary gives two of such:
-. 1111.P
Select target Design a
markets strategic
marketing
measure Shift
demand
ar-
Implement
Programme
(i) "the art of planning operations in a way, especially of the movements of armies
and navies into favourable positions for fighting"
(ii) "skill in managing any affair"
We will however adopt the definition used by aerospace and service
conglomerate TRW (as quoted by Bovee and Thill (1992). This definition is simple
and quite insightful: your strategy defines where and how you plan to compete. With
this definition therefore, having a strategy means that you have analysed your
environment, set some goals, and then made decisions about deploying the various
resources at your disposal. Apart from the elements of the marketing mix, a
business strategy also encompasses product research and development,
manufacturing methods, financial investments, and personnel management. You wil
need to keep these factors in mind as we explore the marketing planning process.
We have already noted that strategic marketing planning is a five-step process as

listed below:
(i)Conduct a situation analysis.

(ii)Develop marketing objectives.
(iii)Determine positioning and differential advantage.
(iv)Select target markets and measure market demand.
(v)Design a strategic marketing mix
Let us carefully discuss each as there steps:
3.2.1 SITUATION ANALYSIS

Situation analysis is the first step in a strategic marketing planning. It usually
involves analysis where the company's marketing programme has been, how it has
been performing and what is likely to face in the years ahead. This step allows
management to determine the necessity of revising the old plans or devise new
ones to realize the company's objectives.
Situation analysis normally covers external environmental forces and internal

marketing resources (e.g. R & D. capabilities, finances, and skil s together with
the experience levels of personnel) surrounding the marketing programme. In
addition, situation analysis considers the groups of consumers served by the
company, the strategy adopted to satisfy them, and key measures of marketing
performance.
From the foregoing, you would see that as a basis for planning decisions,
situation analysis is quite critical. You would also agree that is can be very
costly, time-consuming, and at times, frustrating. For example, it is usually difficult to
extract timely, accurate information from the huge pile of data accumulated during a
situation analysis. Furthermore, some valuable information, such as sales or market-
share figures for competition, is often not available.
In continuation of a situation analysis, many marketers often combine several stages of

examination in a technique called SWOT analysis, from an acronym of strengths,
weaknesses, opportunities, and threats. Once they have analysed both themselves and their
competitors using SWOT analysis, they have a good idea of what their strategic objectives
should be, as well as what their competitors' objectives might be. The application of
SWOT analysis to competitors is part of a lager effort known as competitor intel igence,
which is a systematic process of understanding competitions and their influence on your
markets.
3.2.2 MARKETING OBJECTIVES
This is the second step in strategic marketing planning. Very often, marketing goals should be
closely related to company — wide goals and strategies. Actual y, a company strategy
usual y translates into a marketing goal. For example, in order to reach an organizational
objective of a 25 percent return on investment next year, one company strategy might be to
reduce marketing costs by 20 percent. Thus, this company strategy could become a
marketing goal.
Earlier on, you were made to understand that strategic management involves matching an
organisation's resources with its market opportunities. In this regard therefore, each
objective should be assigned a priority based on its urgency and potential impact on the
marketing area, and, in turn, the organization. These priorities should be the basis for
al ocating the company's resource. General y, it is recommended that each objective should
be SMART, an acronym for Specific, Measurable, At ainable, Realistic, and Time-bound.
3.2.3 POSITIONING AND DIFFERENTIAL ADVANTAGE Two

complementary decisions are involved in the third step of strategic marketing planning:
how to position a product in the market place, and how to distinguish it from competitors. These
wil be discussed in detail under product-mix strategies. The process of achieving a desired
position in the mind of the market is cal ed positioning. For instance, you can position your
company, your products, your technologies, or any other entity that commands customer
attention.
After the product in positioned, a viable differential advantage has to be identified. Here,
differential advantage refers to any features of an organization or brand perceived by
customers to be desirable and different from those of competition.
3.2.4 TARGET MARKET AND MARKET DEMAND

The fourth step in strategic marketing planning is the selection of target markets. We
have already defined a market as consisting of people or organizations with
needs to satisfy, money to spend, and the willingness to spend it. This market may
be large, and usually consist of a number of segments (i.e parts of markets) with
differential needs. Ordinarily, it might be impossible for a firm to satisfy al
segments with different needs. It is therefore bet er for a company to target its
efforts on one or more of these segments. Hence, a target market refers to a group of
people or organizations at which a firm directs a marketing programme. Details of
target markets are described under market segmentation and target-market
strategies.
In a new firm, it is necessary for management to analyse markets in detail to
identify potential target markets. With regard to an existing firm, management should
routinely examine any changes in the characteristic of its target markets and
alternative markets. Consequently, management should decide to what extent and
in what manner to divide up total markets and then pursue only those segments
that are more promising for successful marketing.
It has been suggested that target markets must be selected on the basis of
opportunities. In order to analyse these opportunities, a firm needs to forecast demand
or sales in its target markets. The results of such demand forecasting wil indicate
whether the firm's targets are worth pursuing, or whether alternatives need to
be identified.
3.2.5 MARKETING MIX
The last step in the strategic marketing planning process is the design of an
appropriate marketing mix, i.e. the combination of product, price, promotion and
distribution (place). These four elements should collectively satisfy the needs of
the organisation's target markets and, at the same time achieving marketing
objectives.
We shall briefly examine the four elements together with some of the concepts as
wel as relevant strategies applicable to each: Details are covered in lat er units
(i)Product: Strategies are needed for managing existing product over time, adding
new ones, and dropping failed products. Strategic decisions must also be made
regarding branding, packaging, quality levels, design, and other product features
such as warranty, after-sales service etc.
(ii)Price: Here, the necessary strategies relate to the locations of customers,
price flexibility, related items within a product line, and terms of sales. In
addition, pricing strategies for entering a market, especial y with a new product,
must be designed.
(iii)Distribution: The relevant consideration with respect to distribution involve the
management of the channel(s) by which ownership of products is transferred from producer
to customer and, in many cases, the system(s) by which goods are moved from where
they are produced to where they are purchased by the final customer. Consequently, the
necessary strategies applicable to middlemen (wholesalers and retailers) must be
designed.
(iv)Promotion: Coordinated campaign strategies are needed to blend individual promotion
methods such as advertising, personal sel ing, sales promotion and publicity. Furthermore,
it is necessary to adjust promotional strategies as a product moves from the early stages to
the later stages of its Hein summary, if the analysis of a potential market is promising
enough to make it a good target, management should develop a marketing mix that will
appeal to this market. For example, it should assemble a combination of product
characteristics that closely matches what the customers in the target market are looking for.
Next, it should create a structure of prices that will make product purchase feasible for
market members. Furthermore, management should put together a distribution system
that assures goods are made available where and when they are wanted. Final y, it is
necessary for management to assemble a promotional mix of advertising and other tools
that will communicate the benefits of the offer to the target market.
3.3 ANNUAL MARKETING PLANNING
Apart from the basic strategic planning spanning several years into the future, it is also
necessary to develop a more specific, and shorter — term marketing plan. Hence, strategic
marketing planning in an organization leads to the preparation of an annual marketing plan.
Annual marketing plan is the master blueprint for a year's marketing activity for a specified
organizational division or major product. It is usual y a writ en document.
3.3.1 PURPOSES AND RESPONSIBILITIES OF AN ANNUAL
MARKETING PLAN
An annual marketing plan serves at least three purposes:
(i) It summarizes the marketing strategies and tactics that wil be used to achieve specified
objectives in the upcoming year. Thus it serves as a "how-to-do-it" document that
guides executives and other employees involved in marketing.
(ii) The plan also points to what needs to be done with respect to the other steps in the
management process, such as implementation and evaluation of the marketing
programme.
(iii) The annual market plan also outlines who is responsible for which activities, when
they are expected to be carried out, and how much time and money can be spent. Very
often, the executive responsible for the division or product covered by the plan
typically is he task to subordinates.
2.3.2 CONTENTS OF AN ANNUAL MARKETING PLAN

2.3.3 The following are the contents of an annual marketing plan:
(i)Executive Summary and Table of Contents:

The marketing plan usually opens with a brief summary of the main goals of the
plan and recommendations. The executive summary permits senior management
to grasp the plan's major thrust. A table of contents fol ows the executive summary.
(i )Current marketing situation:

This section presents relevant background data on sales, costs, profits, the markets,
competitors, distribution, and the macro environment. The data are drawn from a
product fact book maintained by the product manager.
(iii)Opportunity and issue analysis:
After summarizing the current marketing situation, the product manager goes ahead to
identify the major opportunities/threats, strengths and weaknesses, as wel as issues
facing the product line.
(iv)Objectives:
With the summary of the issues given, the product manager must decide on the plan's
financial and marketing objectives.
(v)Marketing strategy:
In this section, the product manager outlines the broad marketing strategy or "game
plan" to accomplish the marketing plan's objectives. In developing the strategy, the
product manager often discusses with the purchasing and production personnel to
confirm that they wil be able to buy enough materials and produce enough units to meet
the target sales volume levels. In addition, the product manager needs to discuss with the
sales manager in order to obtain sufficient sales force support. Furthermore, he
should discuss with the accountant to obtain sufficient funds for advertising and
promotion.
(vi)Action programmes:
The marketing plan must specify the broad marketing programme for achieving the
business objectives. Each marketing strategy element must be elaborated to answer
such questions as: what wil be done? When will it be done? Who will do it? How
much will it cost?
(vii)Projected profit-and —loss statement:

This section usually includes two kinds of financial information: On the revenue side, this
budget shows forecasted sales volume in units and the average price. On the expense side, it
shows the cost of production, physical distribution, and marketing, broken down into finer categories.
The dif erence between these two sides is the projected profit. With its approval, the budget is
the basis for developing plans and schedules for material procurement, production
scheduling, employee recruitment, and marketing operations.
(viii) Controls:
The last section of the marketing plan outlines the controls for monitoring the plan.
Typical y, the goals and budget are spel ed out for each month or quarter. The results for
each period are reviewed by senior management. Some control sections often include
contingency plans, which outline the appropriate steps to be taken by management with
respect to specific adverse developments, such as price wars or strikes.
4.0 CONCLUSION
You have learned in this unit that, a company that wants to compete successfully in the
marketplace must show sufficient commitment to creating and retaining satisfied customers. The
company must also know how to adapt to a continually changing marketplace.
5.0 SUMMARY
Market — oriented strategic planning is the managerial process of developing and
maintaining a viable fit between the organisation's objectives, skills and resources, and its
changing market opportunities. The main goal of strategic planning is to help a company
select and organize its businesses in a way that will keep the company healthy even when
unexpected events adversely affect any of its specific businesses or product lines.

Outline and discuss the strategic marketing planning process
6.0 TUTOR - MARKED ASSIGNMENT

Question:
1. a. What are the purposes of an annual marketing plan?

b. List the contents of an annual marketing plan.
7.0 FURTHER READING

Bovee, C.L. and EV. mil (1992): Marketing New York,: McGraw — Hill, Inc.
Kotler, P (2000): Marketing Management. The Millennium Edition. New Delhi, Pretice —Hal
of India.
UNIT 5: MARKET SEGMENTATION AND TARGET-

MARKET SRATEGIES
Table of Content
1.0 Introduction
2.0 Objectives
3.1 An Overview of Markets and Target Market
3.2 Market Segmentation

3.2.1 Benefits of Market Segmentation
3.2.2 Conditions for Effective Segmentation
3.2.3 Ultimate Consumers and Industrial Markets

3.2.3.1 Difference Between Ultimate Consumers and Industrial Users
3.3 Segmenting the Consumer Market
3.3.1 Geographical Segmentation
3.3.2 Demographic Segmentation
3.3.3 Psychological Segmentation
3.3.4 Behavioural Segmentation
3.4 Segmenting Industrial Markets
3.5 Target-Market Strategies
3.5.1 Evaluating the Market Segments
3.5.2 Guidelines in Selecting a Target Market
3.5.3 Target Market Strategies
3.5.3.1 Aggregation Strategy
3.5.3.2 Single-Segment Strategy
3.5.2.3 Multiple-Segment Strategy

4.0 Conclusion
5.0 Summary
7.0 Further Reading

1.0 INTRODUCTION
From our previous discussion, especially in unit 1, you learned that organizations
wishing to be successful in the discharge of theft responsibilities should be oriented towards
satisfying their customers. Again, you have learned that strategic planning is the process of
matching an organization's resources with its market opportunities. With this point at the
back of your mind, it is reasonable therefore, to say that an organization must determine
who its potential customers are. It is only after these customers are identified that the firm's
management can develop a marketing mix to satisfy their wants. For instance, a firm cannot
serve all customers in a broad market such as television sets or soft drinks. The customers are
too numerous and diverse in their buying requirements. Hence, the firm needs to identify the
market segments that it can serve more effectively and efficiently. It is for this reason,
that we shal be looking at market segmentation and target market strategies.
2.0 OBJECTIVES
After studying this unit, you should be able to explain:
(i)the concepts of market segmentation and target markets;
(ii)the process of market segmentation;
(iii)the benefits of market segmentation;
(iv)bases for segmenting consumer and business markets
(v)three target-market strategies.
3.1 AN OVERVIEW OF MARKETS AND TARGET MARKET

In our treatment of the building blocks of marketing in unit one, we defined a market as the
collection of people or organizations with (a) needs to satisfy (b) money to spend, and (c)
the willingness to spend it. You should however understand that, within a total market, there
is usually some differences among the buyers. For instance, not al consumers who own cars
want to buy Peugeot brands, and not everyone who wears skirt suits wants to pay the same price
or purchase them from boutiques. While some Consumers visit the beach in order to rest and
relax, others do so for adventure and excitement.
The illustrations above show that within the same general market, there are groups of
customers with different needs, buying preferences or product — use behaviour. We may
discover that in some markets, these differences are relatively minor. Here, the primary benefit
sought by consumers can be satisfied with a single marketing mix. In other markets,
however, customers' interest may not be completely satisfied by a single marketing mix.
Consequently, alternative marketing mixes are required to cover the entire market.
Whatever its size, the group of customers for whom the seller designs a particular
marketing mix is a target market.
Generally, there are two alternative target-market strategies. The first

alternative is to treat the total market as a single unit, that is, as one mass,
aggregate market. This strategy is premised on the assumption that, in spite of their
differences, everyone in the market can be adequately satisfied with one marketing
mix. Hence in mass marketing, the seller engages in mass production, mass
distribution, and mass promotion of one product for al buyers. Thus, the
argument for mass marketing is that it creates the largest potential market, which
leads to the lowest costs, which in turn can lead to lower prices or higher
margins. This strategy employs a "short run" approach (i.e. are programme,
broad target) in marketing activities.
In the second alternative, the total market is seen to consist of several smal er
segments with differences significant enough to the extent that one marketing mix
will not satisfy everyone or even a majority of the market. In situation like this,
since the firm typical y cannot meet the needs of all these submarkets, one or more
are often selected as target markets. This is sometimes described as a" rifle"
approach (i.e. separate programmes, pinpointed targets).
The truth is that the notion of an aggregate market is relatively uncommon. For
instance, the proliferation of advertising media and distribution channels in
making it difficult to practice "one size -fits all" marketing. It has even been claimed
that mass marketing is dying. It is not surprising therefore, that many firms are
turning to micromarketing at one of four levels: segments, niches, local areas,
and individuals. We shal be looking at these levels of market segmentation
under the section that follows.
3.2 MARKET SEGMENTATION
What we have been stressing up to this point is that, markets consist of buyers, and
these buyers differ in one or more respects. For instance they may differ in their
wants, resources, geographical locations, buying at itudes, and buying practices.
Customer-oriented firms take these differences unto consideration. However, you
should note that these firms usual y cannot afford to tailor-make a different
marketing mix for every customer in this regard, most marketing mix are for al
and a different one for each customer. This usual y involves market
segmentation, which is a process of dividing the total market for a good or service
into several smaller groups, such that the members of each group are similar with
respect to the factors that influence demand. It has been found that a major
element in a firm's success is the ability to segment its market effectively.
3.2.1 BENEFITS OF MARKET SEGMENTATION

Since market segmentation is customer-oriented, it can be said to be consistent with
the marketing concept. For instance, when segmenting the needs of customers
within a submarket are first identified, before deciding if it is practical to
develop a marketing mix to satisfy those needs.
In general, market segmentation have been found to be valuable technique for
a number of reasons:
(i)Efficient use of Marketing Resources
By matching marketing programmes with individual market segments, management
can do a bet er marketing job thereby making more efficient use of its marketing
resources. For instance, smal firm with limited resources might compete very efficiently
in one or two smal market segments, whereas, the same firm would be overpowered by
the competition if it aimed for a major segment. Even the largest firms are also constrained
in one way or the other: they don't have enough marketing personnel, advertising money,
new products and other resources to reach the entire world. Thus, by using market
segmentation, they can deploy resources efficiently to create variations of the
marketing mix that fit only the most attractive market subsets. The
result is more efficient marketing, which saves money and increases sales.
(ii)Better understanding of customer needs

There is no doubt that, it is pretty difficult to at empt to understand customer needs in a
large and diffuse market. However, through market segmentation, it is possible to split or
divide the market into segments whose needs are easier to define. Efforts can then be
geared toward satisfying these needs.
(iii)Better understanding of the competition situation

Firms who target individual marketing segments can see more clearly who their
competitors are, and the tactics each uses in that segment.
(iv)Accurate measurement of goals and performance
Market segmentation also allows accurate measurement of goals and performance.
For instance, a recording company might set sales goals and measure performance by the
number of records, tapes, or compact discs it sel s, but won‘t know how it is doing in
comparison with competitors. If, however, the company specializes on the reggae music
market, it can define its goals more specifical y. One objective might be to sel enough of a
single album to break into the listing of top 100 best sel ing albums. The company might
also want to measure how many of its records make the bestseller chart in a given year.
Because the company has defined its segment as reggae music, rather than as music in general,
the company has an objective way of set ing standards and measuring achievement. This can
be likened to the popular saying of" Jack of all trades, master of none".
In a nutshell, the benefit of marketing segmentation is that it leads to more
satisfying marketing results. For instance, once you have analysed a market
and analysed its natural division, you can pick out the segments that are most
likely to lead to marketing success. Though segmentation may take a little
longer time than just rushing to the market, its rewards are worth the extra
time.
3.2.2 CONDITIONS FOR EFFECTIVE SEGMENTATION Market

segmentation involves more than just thinking of a segment to target. As you
should now understand, the purpose of using market segmentation is to end up
with segments in which marketing can be conducted more efficiently and
effectively. Three conditions help marketers move toward this goal:
(i)The basis for segmenting, i.e. the characteristics used to describe what segment
customers fal into must be measurable. The data describing these characteristics
must also be obtainable. For example, the age of customers is both measurable
and obtainable. Though another variable such as the "desire for ecological y
compatible products" may be useful in segmenting the market for disposal
drapers that are biodegradable. It is neither easily measurable nor the data
easily obtainable.
(ii)A segment is meaningful only if it can be reached with a marketing
programme. Hence, the market segment should be accessible through existing
marketing institution (such as middlemen, advertising media, company sales
force) with a minimum of cost and wasted effort.
(iii)Each segment should be large enough to be profitable. The point here is that
organization should always consider operating in profitable segments. Viewed
from a customer-oriented perspective, the ideal method for segmenting a market
should be on the basis of customers' desired benefits. This position is consistent
with the idea that a firm should be marketing benefit and not just the physical
characteristics of a product. However, in many cases, the benefits desired by
customers do not met the first condition described above (i.e. measurability
and obtainability of the characteristics used in describing segments). This is
because customers are not wil ing or unable to reveal them. For example, what
benefits do people derive from taking beer? Put in another way, why do others
refuse to take beer?
At times when benefits are identified, as in focus-group studies, it is often
difficult to determine how widely they exist in the market.
Consequently, a variety of indirect indicators of benefits are often used to
describe segments. These indicators, such as age, are not the reason customers buy,
but they are easily measured characteristics that people seeking the same benefit
frequently have in common. For example, middle —aged people are more likely
to read financial standard than teenagers, not because they are middle aged but
because the content of the paper is more directly relevant to their lives. Hence,
marketers of financial standard wil find it easier to measure age than relevance,
so age becomes a segmentatit‗variable. In the sections that fol ow, we shal be
discussing many of these commonly used, indirect bases for segmentation.
3.2.3 ULTIMATE CONSUMERS AND INDUSTRIAL MARKETS A company
can segment its market in many different ways. Usually, the bases for segmentation vary from
one product to another. The broadest market division is that which separates a potential
market into two categories: ultimate consumers and industrial users. The sole criterion of
this segmentation is the customer‘s reason for buying
Ultimate consumers buy goods or services for their own personal or household use, and are
satisfied strictly non-business wants. They constitute what is known as the "consumer
market"
Industrial users on the other hand, are business, industrial, or institutional organizations
that buy goods or services to use in their own organizations, to resel , or to make other
products.
3.2.3.1 DIFFERENCE BETWEEN ULTIMATE CONSUMERS

AND INDUSTRIAL USERS
There are important differences between ultimate consumers and industrial users, their
ways and means of purchasing differs considerably. Only a few of the many difference will
be considered here:
Ultimate consumers buy in much smaller quantities and generally for consumption
over much shorter time periods than do industrial buyers. More importantly, ultimate
consumers are not usual y as systematic in their buying as are industrial users. Some
industrial users are business enterprises which exist to make points, thus encouraging them
to adopt systematic purchasing procedures. Though other industrial users are non-profit
institutions (e.g. government agencies, schools, hospitals, clubs, societies, etc), their
operations are audited and reviewed by outside authorities. These also make them adopt
systematic purchasing procedures. In addition, ultimate consumers spend only part of their
time buying, whereas the industrial user employs professionals who devote al of their time
and effort to purchasing. Furthermore, the ultimate consumer spread al his buying skill over a
wide range of goods and services, whereas the professional tends to specialize and,
therefore, has more opportunity to perfect his purchasing skil s.
These few differences clearly il ustrate the point that marketers must use significantly
different approaches in marketing goods and services to each of the two broad
classifications of markets.
3.3 SEGMENTING THE CONSUMER MARKET

There is no single way to segment a market. A marketer has to try different
segmentation variables, singly and in combination, hoping to find an insightful way to
view the market structure. In this section, we shal examine the major geographic,
demographic, psychographics and behavouristic variables used in segmenting
consumer markets. In using these characteristics as bases for segmenting consumer
markets, you should bear several points in mind:
(i)Buying behaviour is hardly traceable to only one characteristic. Hence, useful
segmentation is developed by including several characteristics. At the same time, you
should be careful in adding too many variables, since this may result in the
identified segments being smaller than necessary. The first characteristic to choose
should be the one that provides the clearest and most distinctive division of the market.
Others should then fol ow in the order of how wel they discriminate among the
segments.
(ii)You need to be aware of the interrelationships among these
characteristics, especial y among the demographic variables. For instance, age and
income are often related. Income in turn, depends on the level of education and
occupation. Hence, for a particular product or service, the segments resulting
from divisions according to income, education, and occupation may be very
similar. Whenever this occurs, it is better to use only that at ribute for which the data
are easiest to obtain.
(iii)There are no rules for the number and range of categories used for most
characteristics. For example, in Table 1, the first age category spans 6 years, the
second category includes 7 years, the fourth cover 15 years while the last category is
open-ended. Depending on the situation, it might be appropriate to use fewer or more
categories or to have each category the same size. Considerable trial and error
experimentation may be needed for determining the category structure that provides
the best segment descriptions.
Table 1 Segmentation bases for consumer markets

Segmentation basis Typical market segments
Geographic: South-West middle belt North East and other census regions
Region
City size Under 25,000; 25,001 -100,001-500,000; 500,001 -1,000,000; etc.
Urban-rural Urban; suburban, rural
Climate Cool, warn;
Demographic: Under 10,000; $10,000 -25,000; $25,001-$35,000;
Income N35,001 - $50,000; over N50,000
Age Under 6,6-12,13 -19,20 - 34,35-49, 50-64,65 and over
Gender Male, female
Family life cycle Young single; young, married, no children; etc.
Social class Upper class, upper middle, lower middle, upper lower, etc
Education Primary school, high school graduate, University graduate
Occupation Professional, manager, clerical, craftsman, sales, student,
Homemaker, unemployed
Religion Christianity, Islamic, others
Ethnic background African, Asian, European, Hispanic, Middle Eastern, etc.
Psychological: Ambitious, self- confident, aggressive, introverted, extroverted,
Personality Sociable, etc.
Life style Conservative, liberal, Health and fitness oriented, adventuresome
Psycho logic: VALS, VALS2, LOV
Behavioural Examples vary widely depending on product: appliance-cost,
Benefits desired quality, operating life; toothpaste-no cavities, plague control,
bright teeth, good taste, and low price.
Usage rate Nonuser, light user, heavy user
3.3.1 GEOGRAPHIC SEGMENTATION

Geographic segmentation cal s for dividing the market into different
geographical units such as countries, regions, states, local government areas, cities,
towns or neighbourhoods. Note that this is one of the widely used bases for
segmentation. It is premised on the assumption that consumers' want and product
usage often are related to one or more of these subcategories. In addition,
geographic characteristics are also measurable and accessible.
Marketers consider a wide variety of elements when they use geographic seg-
mentation. Population pat erns, transportation, climate, growth patterns, and
so forth. These elements are important because they influence and sometimes dictate the
marketing mix for a given geographical segment.
3.3.2 DEMOGRAPHIC SEGMENTATION

This is the most common basis for segmenting consumer markets. Marketers use
demographic segmentation when they market on the basis of information about the
size, composition, and distribution of a population, including age, sex, race,
religion, national origin, family size, marital status, occupation, social class, income
and education. Information about demographic variables is general y available
to marketers through government publications and other studies, thus making
demographic segmentation a practical way of looking at the market. It is
interesting to know that many products can be natural y and realistical y targeted
to segments defined by demographic variables.
However, you should note that people are moving targets whose demographics are
constantly changing. It is therefore important to monitor these changes. There is
usually the need to forecast the changes so that you can be ready with marketing
mixes that fit the demographic trends of the present and the future. The family life
cycle is the sequence of events in adult lives starting with the unmarried stage and
then moving through such stages as marriage, children, divorce, and remarriage.
Frequently, the main factor accounting for differences in consumption pat erns
between two people of the same age and gender is that they are in different life-
cycle stages.
There are nine distinct life cycle stages:
(i)Bachelor stage: young, single people.

(ii)Young married: couples with no children
(iii)Full nest I: young married couples with children.
(iv)Single parents: young or middle —aged people with dependent children
(v)Divorced and alone: divorced without dependent children
(vi)Middle-aged married: middle aged married couples without children.
(vii)Full nest II: middle aged married couples with dependent children.
(viii)Empty nest: Older married couples with no children living with them
(ix)Older single: single people still working or retired.
You should realize that family life-cycle stage is a major determinant of buyer
behaviour, and thus can be a very useful basis for segmenting consumer markets. For
instance, marketers can target specific needs that customarily arise in each
stage of the family cycle, from wedding invitations to drapers to legal advice.
Income is another component of the demographic segmentation. Ordinarily,

people alone do not make a market- they must have money to spend. This is the
reason marketers should analyse the spending patterns of people at different income
levels. Actual y, income segmentation has been a long standing practice in such
product and service categories as automobiles, clothing, cosmetics, and travel.
The market for certain consumer products is influenced by such factors as

education, occupation, religion, and ethnic origin. For example, with an
increasing number of people at aining higher levels of education, there may be
changes in product preferences, as well as buyers with higher incomes and more
discriminating tastes. Instead of income, occupation may turn out to be more
meaningful for segmenting some markets. For instance, commercial bus
drivers and auto mechanics may, on the average, earn as much as young
marketing executives or secondary school teachers. However, the buying
patterns of the first two are likely to be different from the second two because of
attitudes and interests.
Figure 1 demonstrates the traditional family cycle and the many possible
stages in the family life cycle.
Middle-aged
Divorced
without
Children
The modern family life cycle.

Today's family life cycle can take many paths compared with the traditional family cycle, and marketers must
consider these
changes when segmenting their market
Young Young Middle aged Older _ Older
Young Middle
single Married Married
Married
Without With -aged dependent Married -4' unmarried
Children
Children Married Children
With
•
Yo ung Middle Middle-aged
Divorced -aged Divorced
With Divorced Without
Children With Dependant
Children
—I, Usual Flow —*
Recycled Flow
* TRADITIONAL FAMILY FLOW
In the case of certain products, it might be better to segment on the basis of

Middle-aged
Divorced
Without
Children
religion or ethnic origin. In Nigeria today, some states have started operating the
Sharia legal system, which forbids the production, sale and consumption of
alcoholic drinks. That legal system also imposes some other restrictions on the
citizenry, which ultimately affect the conduct of business activities in such area
where the Sharia code is operated.
3.3.3 PSYCHOLOGICAL SEGMENTATION

Marketers use psychological segmentation when they segment their markets
according to personality and life styles thereby seeking to group people with
similar life-styles or interests. Usually, when demographics and
psychographics factors are combined, richer descriptions of segments are
produced.
An individual‘s personality characteristics are usually described on the basis
of traits that influence behaviour. Therefore, we ordinarily assume they should be
a good basis for segmenting markets. For instance, compulsory people buy
differently from cautious consumers, similarly, quiet introverts neither buys the
same things nor in the same way as gregarious outgoing people (extroverts).
Fortunately, personality, characteristics have some problems that limit their
usefulness in practical market segmentation.
In the first place, the presence and strength of these characteristics in the
population are virtually impossible to measure. For example, how would you
classify people on the basis of aggressiveness? The second problem is
associated with the accessibility condition of segmentation./ there is no ad-
vertising medium that provides unique access to a particular personality type. For
example, access to newspapers, the radio, televisions, etc. reach introverts as wel
as extroverts, aggressive people as well as timid people. Hence, one of the major
goals of segmentation, i.e., avoidance of wasted marketing effort, is not likely to
be achieved using personality characteristics. In spite of these limitations, many
firms have been found to tailor their advertising messages to appeal to certain
personality traits.
Life-styles relates to activities, interests, and opinions. General y, the lifestyle
of a person reflects how he spends his time and what his beliefs are on various
social, economic and political issues. A person's, life-style, affect what
product he buys and what brand he prefers. It is for this reasons their marketers
attempt to segment their markets on the basis of life-style characteristics.
Life-style segmentation also similar limitation faced by segmentation based
on personality traits.
3.3.4 BEHAVIOURAL SEGMENTATION

In behavioural segmentation, buyers are divided into groups on the basis of
their knowledge of, attitude toward, use of, or response to a product. The belief here is
that behavioural variables, such as occasions, benefits, user status, age rate, loyalty status, buyer
readiness stage, and attitude, are the best starting points for constructing market segments. We
shal briefly examine each of these variables.
(i)Occasions: Buyers can be differentiated on the basis of the occasions they develop a
need, purchase a product, or use a product. For example, air travel may be necessitated by
occasion related to business, vacation, or family. In this way therefore, an airline can
specialize in servicing people for whom one of these occasions dominates.
Occasion segmentation can be used to expand product usage. For example, if it is
discovered that orange juice is usual y consumed at breakfast, an orange juice company can
try to promote drinking orange juice on other occasions such as midday, lunch, and dinner.
(ii)Benefits: Benefit segmentation divides the market according to the benefits consumers
seek from a product or product category. Some researchers belief that benefit segmentation
variables are more accurate than demographic or usage segmentation. Variable in
determining consumer behaviour. Their argument is that the benefits that people seek are
the real basis for their response to a product.
(i i)User status: Market can be segmented into non-users, ex-users, potential users,
first-time users, and regular users of a product. By making use of these classifications,
organization can conduct their activities more effectively and efficiently. For instance, blood
banks should not rely only on regular donors to supply blood, instead, they must recruit new
first-time donor and contact ex-donors. Each of these groups will definite requires a different
marketing strategy
(iv)Usage Rate: Markets can be segmented into light, medium, and heavy product users.
Very often, heavy users are a small percentage of total consumption.
(v)Loyal Status: consumers have varying degrees of loyalty to specific brands, stores, and
other entities. Buyers can be divided into four groups according to loyalty status
aHard-core loyalist, i.e., consumers who buy one brand all the time
bSpit loyalist, i.e. consumers who are loyal to two or three brands
cShifting loyalist, i.e. consumers who shift from one brand to another.
dSwitchers, i.e. consumers who show no loyalty to any brand. By
analyzing the degrees of brand loyalty, a company can learn a lot about the
market. For instance, by studying its hard-core loyalist, the company can identify its
product's strength. In addition, by studying its split loyalist, the company can
pinpoint which brands are most competitive with its own. Furthermore, by looking
at customers who are shifting away from its brands, the company can learn about its
marketing weaknesses and at empt to correct them.
(vi)Buyer Readiness Stage:

-
A market generally consists of people in different stages of readiness to buy a product or

service. Some of these people are unaware of the product, some are aware, some are
informed, some are interested. Some desire the product, while some intend to buy.
The relative numbers for the various categories often make a big difference in
designing the marketing programme.
(vii)Attitude: An attitude is a manner of feeling or behaving. Five attitude group can
be found in a market:- enthusiastic, positive, indifferent, negative, and hostile.
3.4 SEGMENTING INDUSTRIAL MARKETS

Industrial markets can be segmented into some variable employed in consumer market
segmentation.
Such variables include geographic, benefits sought, and usage rate. Apart from these,
several other variables can also be employed. For instance, Bonoma and Shapiro
(1983) have suggested segmenting the business market with the variables shown in
Table 2.
The demographic variables are the most important, filled by the operating variables,
then, down to the personal characteristics of the buyer.
Table 2
You will observe that the table lists major questions that business marketers
should ask in determining which segments and customers to serve. For instance, a
tyre manufacturing company should first decode which industries it wants to serve.
The company can sel tyres to manufacturers of automobiles, trucks, farm
tractors, forklift trucks, or aircraft. From a chosen target industry, it can
Demographic
1.Industry: which industries should we serve?
2.Company size: What size companies should we serve?
3.Location: What geographical areas should we serve? Operating Variables
4. Technology: What customer technologies should we focus on?
5. User or nonuser status: Should we serve heavy users, medium users, light users, or
nonusers?
6.Customer capabilities: Should we serve
customers needing many or few services?
Purchasing Approaches
4. Purchasing-function organization: Should we serve companies with highly centralized or
decentralized purchasing organizations?
5. Power structure: Should we serve companies that are engineering dominated, financial y
dominated, and so on?
6. Nature of existing relationships: Should we serve companies with which we have strong
relationships or simply go after the most Desirable companies?
7. General purchase policies: should we serve-companies that prefer leasing? Service contracts?
System purchases? Sealed bidding?
8. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?
Situational Factors
6.Urgency: should we serve companies that
need quick and sudden delivery or service?
7. Specific application: should we focus on certain applications or our product rather than al
applications?
8.Size of order: Should we focus or smal orders?
9.
Personal Characteristics
9. Buyer-sel er similarity: Should we serve companies whose people and values are similar to
ours?
10. Attitude toward risk: Should we serve risk-taking or risk avoiding customers?
11.Loyalty: Should we serve companies that show
high loyalty to their supplier?
Major Segmentation variables for Business markets further segment by customer size. For
example the company might set up separate operations to sel to both large and smal
customers.
.3.5 TARGET-MARKET STRATEGIESOnce a company has segmented the total

market for its product, the next thing is for it to decide how many and which ones to decide. In
order to arrive at a good decision, management has to evaluate al the market segments, by
following some guidelines in selecting the target market(s).3.5.1 EVALUATING THE
MARKET SEGMENTSIn evaluating different market segments, management needs to
consider some factors, which act as guidelines for target market selection. General y, the firm
must ask whether a potential segment has the characteristic that make it generally attractive, such
as size, growth, profitability, scale economics, and low risk. In addition, the firms must consider
whether investing in the segment makes sense vis-a vis the firms' objectives and resources. On
these bases, some at ractive segments could be dismissed for lack of compatibility with the
firm‘s long run objectives. Furthermore, a seemingly at ractive segment could be dismissed if
the firm lacks one or more necessary competences to offer superior value.
3.5.2 GUIDELINES IN SELECTING A TARGET MARKET
From the general premises laid down in section 3.5.1, four guidelines can be followed
in determining which segments should be the target markets:
(i) the target market(s) should compatible with the organization goals and image;
(ii) the market opportunity represented in the target market(s) should match the
company's resources;
(iii) the target market(s) should generate sufficient sales volume at a low enough
cost to result in a profit and
(iv) the target market(s) should have the least and smallest competitors.
Ordinarily, a seller should not enter a market that is already saturated with
competition unless it has some overriding differential advantage that wil
enable it to take customers from existing firms.
3.5.3 TARGET MARKET STRATEGIES
After thoroughly evaluating the different segments, the company can fol ow one of
three strategies: market aggregation, single segment concentration, or multiple-
segments targeting (see figure -2)
MARKET AGGREGATION
Single marketing mix --•

SINGLE- SEGMENT STRATEGY
The three
target
market
strategies
One mass,
undifferentiated
market
Market segment A
Market segment B
Market segment C
Market segment A
Market segment B
Market segment C
Single marketing mix --•

MULTIPLE SEGMENT STRATEGY
Marketing mix A --•

Marketing mix B --•
Marketing mix C --•
3.5.3.1 AGGREGATION STRATEGY

The market-aggregation strategy is also known as a mass market or an undifferentiated
market strategy. Here, a seller treats its total market as a single segment. This strategy is not
very common. However, it is usual y selected after a firm has examined a market for
segments and came to the conclusion that the majority of customers in the total market are
likely to respond in very similar fashion to one marketing mix. In which case the company
develops a single product for this mass audience; develops one pricing structure and one
distribution system for its product; and uses a single promotional programme aimed at the
entire market. This strategy is appropriate for firms that are marketing an undifferentiated,
staple product such as salt or sugar.
One important advantage of a market aggregation strategy is found in its cost minimization. For
instance, it enables a company to produce, distribute, and promote it products very
efficiently.
Very often, the market aggregation strategy is typical y accompanied by the strategy of
product differentiation in a company's marketing programme. Product differentiation
occurs when in the eyes of customers, one firm distinguishes its product from
competitive brands offered to the same aggregate market. With appropriate distinguishing
strategies, a company can create the perception that its product is bet er than the
competitor‘s brands.
3.5.3.2 SINGLE-SEGMENT STRATEGY

A single-segment (or concentration) strategy involves selecting one segment
from within the total market as the target market. Through concentrated marketing, the
firm gains a strong knowledge of the segment's needs and achieves a strong market
presence. Furthermore, the firm enjoys operating economies through specializing its
production, distribution, and promotion. If it captures segment leadership, the firm can
earn a high return on its
investments.
However, this strategy involves high than normal risks. For instance, if the
market potential in that single segment declines, the seller can suffer
considerably. In addition, a seller with a strong name and reputation in one
segment may find it difficult to expand into another segment.
3.5.3.3 MULTIPLE — SEGMENT STRATEGY

This strategy involves the identification of two or more different groups of
potential customers as target markets. A separate marketing mix is then
developed for each segment.
Usual y, an organization adopting a multiple segment strategy develops a
different version of the basic product for each segment. At times, market
segmentation can also be accomplished with no change in the product, but
rather with separate distribution channels or promotional appeals, each tailored to
a given market segment.
This strategy normally results in a greater sales volume than a single-segment
strategy. In addition, it is useful for an organization facing seasonal demand. For
instance, due to lower summer enrolments, many universities in the United States
market their empty dormitory space to tourists (i.e another market segment).
Furthermore, a firm with excess production capacity may wel seek additional
market segments to absorb the excess.
In spite of the benefits that multiple-segments strategy possesses, it has some
limitations with respect to costs and market coverage. For instance, marketing to
multiple segments can be expensive in both for the production and marketing of
products.
4.0 CONCLUSION
You have learned that the importance and segmentation cannot be over
emphasized in today's increasingly crowded markets. By identifying clear
targets, the process of segmentation helps organization to increase the
effectiveness of nearly every aspect of the marketing efforts.
5.0 SUMMARY
A market consists of people or organizations with wants, money to spend, and the
willingness to spend it. However, within most markets the buyers' needs are not
identical. Therefore, a single marketing programme for the entire market is
unlikely to be successful. A sound marketing programme stands by
identifying the differences that exist within a market, through market
segmentation, and then decoding which segments will be selected as target
markets.
Self- Assessment Exercise

Discuss the role of market segmentation
Solution
(i) Market segmentation is the process of dividing a large market into smal er
groupings of consumer's or organizations with similar characteristics, needs,
wants, or behaviours.
(ii) People and business have extremely diverse needs, and its usual y not advisable to
treat ever body as part of one big market.
(iii) That is why marketers use market segmentation to select just those markets whose
needs they can understand and fulfill.
(iv) Each market can then be targeted using a specific variation of the marketing mix
(v) Market segmentation helps markets use their resources more efficiently, identify markets
and understand their specific needs, gain a bet er understanding of the competitive
environment, and set sales goals and measure performance more accurately.
Explain the relationship between segmentation and the marketing mix.
7.0 FURTHER READING

Bovee, C.L. and J.V. Thill (1992): marketing. New York, McGraw-Hill, Inc.
Kotler, P (2000): Marketing Management. The Mil ennium Edition. New Delhi, Prentice —Hall
of India
Stanton, W.J.; M.J. Etzel and B.J. Walker (1994): Fundamentals of Marketing. 10th ed. New
York, McGraw-Hill, Inc.
M0DULE 2
Unit 1 Consumer Buying Behaviour

Unit 2 Consumer Relationship Management
Unit 3 Business Buying Behaviour
Unit 4 Ethical Issues in Business
Unit 5 Products
UNIT 1: CONSUMER BUYING BEHAVIOUR

Table of Contents
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Decision Making as Problem Solving
3.1.1 Recognition of an Unsatisfied Need

3.1.2 Choice of an Involvement Level
3.1.3 Identification of Alternatives
3.1.4 Evaluation of Alternatives
3.1.5 Purchase and Related Decisions
3.1.6 Post Purchase Behaviour
3.2 Information and Purchase Decisions
3.3 Social and Group Forces
3.3.1 Cultural Influence
3.3.2 Influence of Subcultures
3.3.3 Social Class Influences

3.3.4 Reference-Group Influences
3.3.5 Family and Household Influences
3.4 Psychological Factors
3.4.1 Motivation —The Starting Point

3.4.2 Perception
3.4.3 Learning
3.4.4 Personality
3.4.5 Attitudes
3.5 Situational Influences
3.5.1 When Consumers Buy — The Dimension
3.5.2 Where Consumers Buy — The Physical and Surroundings
3.5.3 How Consumers Buy —The Terms of the Purchase
3.5.4 Why Consumers Buy — The Objective of the Purchase
3.5.5 Conditions Under Which Consumers Buy — States and Moods
4.0 Conclusion
5.0 Summary
7.0 Further Reading
1.0 INTRODUCTION
The aim of marketing is to meet and satisfy customers' needs and wants. The field of
consumer behaviour studies how individuals, groups, and organizations select, buy, use, and
dispose of goods, services, ideas, or experiences to satisfy their needs and desires.
Understanding consumer behaviour and "knowing customers" are never simple.

Customers may say one thing but do another. They may not be in touch with their deeper
motivations. They may respond to influence that change their mind at the last minute.
Smal companies stand to profit from understanding how and why their customers buy. In
this unit we wil consider their willingness to buy as determined by information
sources, social environment, psychological forces and situational factors.
2.0 OBJECTIVES
After going through this unit, you should be able to explain:
The process consumers go through in making purchase decisions.

How commercial and social information sources influence buying
decisions.
The influence of culture, subcultures, social class, membership, and reference
groups on buying behavior.
How buying decision extend beyond the individual to the family and the household
The roles of motivation, perception, learning, personality, and at itudes in shaping

consumer behavior.
The importance of situational factors in buying.
3.1 DECISION MAKING AS PROBLEM SOLVING

To deal with the marketing environment and make purchases, consumers engage in a decision
process. One way to look at that process is to view it as problem solving. When faced with a
problem that can be resolved through a purchase ("I' m bored. How do I satisfy my need
for entertainment"), the consumer goes through a series of logical stages to arrive at a
decision.
The six stages of the buying- decision process are:
1. Need recognition: The consumer is moved by a need.

2. Choice of an involvement level: The consumer decides how much time and effort to
invest in an attempt ot satisfy the need.
3. Identification of alternatives: The consumer identifies alternative products
and brands and col ects information about them.
4. Evaluation of alternatives: The consumer weights the pros and cons of the
alternative identified.
5. Decision: The consumer decides to buy or not to buy and makes other decisions
related to the purchase
6. Post purchase behavior: The consumer seeks reassurance that the choice
made was the correct one.
Purchase decision may not involve all the stages:
1.The consumer can withdraw at any stage prior to the actual purchase. If, for
example the need diminishes or no satisfactory alternatives are available, the
process will come to an abrupt end.
2.It is not uncommon for some stages to be skipped. Al six stages are likely to be
used only in certain buying situations — for instance, when buying high-priced,
infrequently purchased items.
3.The stages are not necessarily of the same length. When a mechanic tells you
that your car's engine needs an overhaul, it may take only a moment to recognize the
need for a new car. However, the identification and evaluation of alternative models
may go on for weeks.
4.Some stages may be performed consciously in certain purchase situations
- and subconsciously in others. For example, we don't consciously calculate for
every purchase the amount of time and effort we wil put forth.
In the fol owing discussion, assume that the six-stage process general y
characterizes buying decisions: However, keep in mind that the stage may have to be
adjusted to fit the circumstance of a particular purchase situation.
3.1.1 RECOGNITION OF AN UNSATISFIED NEED
The process of deciding what to buy begins when a need that can be satisfied through
consumption become strong enough to motivate a person. This need recognition may
arise internal y (for example when you feel hungry). Or the need may be dormant
until it is aroused by an external stimulus, such as an ad or the sight of a product or
the depletion of an existing product (your pen runs out of ink)
3.1.2 CHOICE OF AN INVOLVEMENT LEVEL

After recognizing a need, the consumer consciously or unconsciously decides how
much effort to exert in satisfying it. Sometimes when a need arise a consumer is
dissatisfied with the quality of information about the purchase situation and decides to
actively col ect and evaluate more. These are high — involvement purchase that entail
al six stages of the buying decision process. If, on the other hand, a consumer is
comfortable with the information and alternatives readily available, the purchase
situation is low involvement. In such cases, the buyer will likely skip directly from
need recognition to a decision, ignoring the stages in between.
Some difference in consumer behavior in high and involvement situations are:
Behavior High involvement Low involvement
Timeinvested Largeamount Smal amount
Informationsearch Active Lit le or none
Responsetoinformation Criticaly evaluate Ignore or accept evaluation
Brand evaluations Clearanddistinct Vague and general
Likelihood of bread loyalty Strong Weak Developing
Involvement trends to be greater under any of the fol owing conditions:
The consumer lacks information about alternatives for satisfying the need.
A large amount of money is involved.
The product has considerable social importance.
The product is seen as having a potential for providing significant benefits.
Since they rarely any of these conditions, most buying decisions for relatively low priced
products that have close substitutes would be low involvement. Typical examples are the
majority of items sold in supermarkets, variety stores and hardware store. Involvement must
be viewed from the perspective of the consumer, not the product. Impulse buying or
purchasing with lit le or no advance planning is a form of low involvement decision-
making.
3.1.3 IDENTIFICATION OF ALTERNATIVES
Once a need has been recognized and the level of involvement is selected, the consumer must
next identify the alternatives capable of satisfying the need. The search for alternatives is
influenced by: (i) How much information the consumer already has from past experiences
and other sources. (i ) The consumer's confidence in that information. (iii) The
expected value of additional information.
3.1.4 EVALUATION OF ALTERNATIVES
Once al the reasonable alternative have been identified, the consumer must evaluate them
before making a decision. The evaluation involves establishing some criteria against which
each alternative is compared.
The criteria that consumer use in the evaluation result from their past experience and
feeling toward various brands, as wel as the opinions of family members and friends.
3.1.5 PURCHASE AND RELATED DECISIONS

After searching and evaluating, the consumer must decide whether to buy. Thus the first
outcome is the decision to purchase or not to purchase the alternative evaluated as most
desirable. If the decision is to buy, a series of related decisions must be make regarding
features, where and when to make the actual transaction, how to take delivery or possession,
the method of payment and other issues.
3.1.6 POST PURCHASE BEHAVIOR
What a consumer learns from going through the buying process has an
influence on how he or she will behave the next time the same need arises.
Having gathered information evaluated alternative, and arrived at a decision, the

consumer has acquired additional knowledge about the product and various brands.
Furthermore, new opinions and beliefs have been formed and old ones have been
revised.
Something else often occurs following a purchase. Have you ever gone through a
careful decision process for a major purchase (say, a set of tyres for your car or an
expensive item of clothing), selected what you thought as the best alternative, but
then had doubts about your choice after the purchase? What you were experiencing
is post purchase cognitive dissonance- a state of anxiety brought on by the
difficulty of choosing from among several alternatives.
Dissonance typically increases (1) the higher the value of the purchase (2) the greater the
similarity between the item selected item(s) rejected: and (3) the greater the
importance of the purchase decision. Thus buying a house creates more dissonance
than buying a fan.
With this background on the buying — decision process, we can examine what influences
buying behaviour.
3.2 INFORMATION AND PURCHASE DECISIONS Consumer

must find out what products and brands are available. Without this
market information there wouldn't be a decision process because there wouldn't be

decision to make.
What are the sources and types of information that exist-in the buying
environment? The commercial environment and the social environment are the
two sources. The commercial information environment consists of all marketing
manufacturers, retailers, advertisers, and sales people whenever any of them are
engaged in efforts to inform or persuade. The social environment is comprised of
family, friends, and acquaintances who directly provide information about
products. Advertising is the most familiar type of commercial information. The
normal kind of social information is word — of-mouth communication — two or
more people discussing a product. To understand how the consumer functions, we
wil begin by examining the social and group forces that influence the individual's
psychological makeup and also play a role in specific buying decisions
3.3 SOCIAL AND GROUP FORCES

The ways in which we think, believe, and act are determined to a great extent by
social forces and groups. And our individual buying decisions — including the needs
we experience, the alternatives we consider, and the way in which we evaluate them
— are affected by the social forces that surround us. Our description begin with
culture, the force with the most indirect impact, and moves to the force with the
most direct, the household.
3.3.1 CULTURAL INFLUENCE

Culture is a complex of symbols and artifacts created by a society and handed down from
generation to generation as determinants and regulation of behavior. The symbols may be intangible
(at itudes, belief, values, and language) or tangible (tools. Housing products, work of art) It does
not include instinctive acts. However, the way people perform instinctive biological acts such as
eating is culturally influenced. Thus everybody gets hungry, but what, when and how people eat
vary among cultures
Cultures do change overtime, as old pat erns gradually give way to the new
Time has become as valuable as money

Two — income families are the norm.
Gender roles are losing their identity
Your health is in, and sick is out.
3.3.2 INFLUENCE OF SUBCULTURES

In any social as heterogeneous as the one in Nigeria there are bound to be subcultures.
Subcultures are [coups in a culture that exhibit characteristic behavior pat erns sufficient to
distinguish them from other groups within the same culture. The behavior patterns that distinguish
subcultures are based on factors such as race, nationality, religion, and urban identification.
A subculture take on importance in marketing if it constitutes a significant part of the

population and specific purchasing patterns can be traced to it.
3.3.3 SOCIAL CLASS INFLUENCES

Social class is a ranking within a society determined by the members of the society. People's
buying behavior is often strongly influenced by the class to which they belong or which they
aspire.
The conclusions from social research that are significant for marketing are :
A social class system exists in virtually all societies

There are substantial differences among classes with respect to buying behaviour.
Because of the diversity, different social classes are likely to respond differently to a
seller's marketing program. Thus it may be necessary to design marketing programs
tailored to specific social classes
3.3.4 REFERENCE —GROUP INFLUENCES
Each group in a society develops it's own standard of behavior that then serve as guides or
frames of reference, for the individual members. Families and a circle of friends are such groups.
Members share values and are expected to conform to the group's behavioral patterns. But one
does not have to be a member of a group before you can be influenced by it. There are groups
we aspire to join ( a campus society or club ) and groups that we admire even though
membership may be impossible ( a professional athletic team). Al of these are potential reference
groups — groups of people who influence a person's attitudes, values and behavior.
Advertisers are relying on reference —group influence when they use celebrity
spokespersons. Professional athletes, musician, and actors can influence people
who would like to be associated with them in some way.
3.3.5 FAMILY AND HOUSEHOLD INFLUENCES
A family is a group of two or more people related by blood, marriage, or adoption
living together in a household. The birth family primarily determines core values and
attitudes. The marriage family size is important in the purchase of a car.
A household is a broader concept that relates to a dwelling rather than a

relationship. A household consists of a single person, a family or any group of
unrelated persons who occupy a housing unit.
Sensitivity to household structure is important in designing marketing strategy. In

addition to the direct, immediate impact households have on the purchase behavior of
members, it is also interesting to consider the buying behavior of the household as a
unit. Who does the buying for a household? Marketers should treat this question as
four separate ones, because each may call for different strategies:
Who influence the buying decision?

Who makes the buying decision?
Who makes actual purchase?
Who uses the product?
Different household members may assume these various roles or one individual may play
several roles in a particular purchase. In families, for many years the female did most of
the day-to-day buying. However, this behavior has changed as more women have
entered the work force, and men and children have assumed greater household
responsibility.
3.4 PSYCHOLOGICAL FACTORS

One or more motives within a person activate goal — oriented behavior. One
such behavior is perception — that is, the col ection and processing of information.
Other important psychological activities that play a role in buying decisions are
learning, attitude formation, personality and self—concept.
3.4.1 MOTIVATION THE STARTING POINT

—
To understand why consumers behave as they do we must first ask why a person
acts at all. The answer is, "Because he or she experiences a need. "Al behavior
starts with a need. Security, social acceptance and prestige are examples of
needs. A need must be aroused or stimulated before it becomes a motive.
Thus, a motive is a need sufficiently stimulated to move an individual to seek
satisfaction. At one level buyers are quite wil ing to talk about their motives for buying
common everyday products. At a second level, they are aware of
their reasons for buying but wil not admit them to others. Third level, where
even the buyers cannot explain the factors motivating their buying actions. Purchase is often the
result of multiple motives.
Classification Of Motives. Motives can be grouped into two broad categories:

* Needs aroused from physiological state of tension (such as the need for
sleep)
Needs aroused from psychological state of tension (such as the needs for affection and
self—respect).
3.4.2 PERCEPTION
A motive is an aroused need, it in turn, activates behavior intended to satisfy
the aroused need. The process of receiving, organizing and assigning meaning
to information or stimuli steered by our five senses is known as perception.
Perception plays a major role in the stage of the buying —decision process where alternatives
are identified.
What we perceive- the meaning we give something sensed — depends on the
object and our experience. In an instant the mind is capable of receiving
information, comparing it to a huge store of images in memory and providing
an interpretation. Perception occurs quickly and often with very little infor-
mation but it is a powerful factor in decision making. Scents for example, are
powerful behavior triggers.
Every day we come in contact with an enormous number of marketing stimuli.
However the perceptual process is selective in very specific ways. Consider that:
We pay at ention by exception. That is of al marketing stimuli our senses are exposed to, only
those with the power to capture and hold our attention
have the potential of being perceived. This phenomenon is called selective attention.
As part of perception, new information is compared with a person's existing store of

knowledge, or frame of reference. If an inconsistency is
discovered the new information wil be distorted to conform to the established beliefs.
We retain only part of what we have selectively perceived.
3.4.3 LEARNING
Learning is changes in behavior resulting from observation and experience. According to

stimulus response theory, learning occurs as a person (1) responds to some stimulus by
behaving in a particular way and (2) is rewarded for a correct response or penalized for an
incorrect one. When same correct response is repeated in reaction to the same stimulus a
behavior pattern or learning is established.
Five factors are fundamental to learning

Drive: Internal or external forces that require person to respond in some
way.
Cues: Signals from the environment that determine the pat ern of
Response
.
Responses: Behavioral reactions to the drive and cues
Reinforcement: Results when the response is rewarding. Reinforcement
can be either positive or negative. Positive reinforcement involves experiencing
a desirable outcome as a result of engaging in the behavior. Negative
reinforcement occurs when a behavior allows a person to avoid an undesirable
outcome.
Punishment: A penalty inflicted for incorrect behavior.
3.4.4 PERSONALITY
The study of human personality has given rise to many, widely divergent, schools
of psychological thought. In this discussion, personality is defined broadly as an

individual's pattern of traits that influence behavioral response. We speak of people
as being self-confident, aggressive, shy, domineering, flexible, and / or friendly
and as being influenced (but not control ed) by these that personality traits do
influence in their responses to situations..
The Self Concept. Your self- concept or self —image is the way you see
—
yourself. At the same it is the picture you think other have of you.
Studies of purchases show that general y prefer brands and products that are
compatible with their self— concept.
3.4.5 ATTITUDES
An at itude is a learned predisposition to respond to an object or class of
objects in a consistently favorable or unfavorable way. Numerous studies have

reported a relationship between consumers' attitudes and their buying behavior
regarding both products selected and brands chosen. Surely, then it is a marketer's
best interest to understand how at itudes are formed, the functions they perform
and how they can be changed.
Al attitudes have the fol owing characteristics in common
( i )A t t i t u de s ar e l ea r n ed .
(ii)Attitudes have an object. By definition we can hold attitude only toward
something
(ii)attitudes have direction and intensity : Our attitudes are either favorable
or unfavorable toward the object. They cannot be neutral.This factor is important
for marketers since both strongly held favorable and strongly held unfavorableat itudes are
difficult to change.
(iv) Final y at itudes tend to be stable and generalizable. Once formed, at itudes usual y
endure and the longer they held, the more resistance to change they become. It can be extremely
difficult to change strongly held at itudes. Consequently when the marketer is faced with negative or
unfavorable attitudes, there are two options:
Try to change the attitude to be compatible with the produdt

Determine what the consumers; attitudes are and then change the product to match those
attitudes.
3.5 SITUATIONAL INFLUENCES
Often the situations in which we find ourselves play a large part in determining how we behave.
Students, for example, act differently in a classroom than they do when they are in a stadium
watching a football game. The same holds true of buying behavior.
Situational influences tend to be less significant when the consumer is very loyal to a brand and
when the consumer is highly involved in the purchase. The five categories of situational influences
are related to when, where, how and why consumers buy as wel as the conditions under which
they buy.
3.5.1 WHEN CONSUMERS BUY THE DIMENSION Marketers should be
—
able to answer at least three time questions about consumer buying:

How is it influenced by the season, week, day or hour?
What impact do past and present events have on the purchase decision?
How much time does the consumer have to make the purchase and consume the
product?
The time dimension of buying has implications for promotions scheduling. Promotional
messages must reach consumers when they are in a decision — making frame of mind. It also
influences pricing decision, as when marketers adjust prices in an attempt to even out demand.
For instance, Mr. Biggs can charge lower prices in the evening for its foods.
The second question concerns the impact of past or future events. For example the length of time
since you last went out to dinner at a nice restaurant may influence a decision on where to go
tonight.
3.5.2 WHERE CONSUMERS BUY — THE PHYSICAL AND
SURROUNDINGS
Physical surrounding are the features of a situation that are apparent to the senses. Think of the
importance of atmosphere in a restaurant.
The social surroundings are the number, mix and actions of other people at the purchase site. You
probably would not go into a strange restaurant that has an empty parking lot at dinnertime.
353 HOW CONSUMERS BUY—THE TERMS OF THE PURCHASE

Terms and conditions of sale as well as the transaction —related activities that buyers
are wil ing to perform affect consumer buying.
3.5.4 WHY CONSUMER BUY — THE OBJECTIVE OF THE
PURCHASE
The intent or reason for a purchase affects the choice made. We are likely to behave
very differently when buying a product for a gift as opposed to buying the same
product for ourselves. When purchasing a wristwatch for personal use, a consumer
may be most interested in one that wil provide accurate time at a reasonable price.
However, the appearance of a watch bought as a graduation present can be very
important.
3.5.5 CONDITIONS UNDER WHICH CONSUMERS BUY-

STATES AND MOODS
Sometimes consumers are in a temporary state that influences their buying
decisions. When you are ill or rushed, you may be unwilling to wait in line or to take
the time or care that a particular purchase deserves. Moods can also influence
purchase. Feelings such as anger or excitement can result in purchase that otherwise
would not have been made. Sales people must be trained to recognize consumers'
moods and adjust their presentations accordingly.
4.0 CONCLUSION
You have learned and understand the factors influencing consumer buying behaviour
and how consumer buying decision relates to marketing strategy to be adopted by
marketers.
5.0 SUMMARY
The buying behavior of ultimate consumers can be examined using a five — part
model: the buying — decision process, information, social and group forces,
psychological forces and situational factors.
The buying decision process is composed of six stages consumers go through in

making purchases The stages are need recognition, choice of involvement level,
identification of alternatives, evaluation and post purchase behavior. Information
fuels the buying — decision process. Without it there would be no decisions. There
are two categories of information sources: commercial and social. Commercial
sources include advertising, personal selling, sel ing by phone, and personal
involvement with a product. owned by someone else social sources.
Social and group force are composed of culture, subculture, social class, reference
groups, family and households. Culture has the broadest and most general influence
on buying behavior while a person and group forces has a direct impact on
individual purchase decisions as wel as a person's psychological makeup.
Psychological forces that impact buying decisions are motivation, perception, learning personality
need. Perception is the way we interpret the world around us and is subject to three types of
selectivity: attention, distorting, and retention. Learning is a change in behavior as a result of
experience. Stimulus response learning involves drives, cues, responses, reinforcement, and
punishment. Continued reinforcement leads to habitual buying and brand loyalty
Personality is the sum of an individual's traits that influence behavioral responses. The
Freudian psychoanalytic theory of personality has had a significant impact on marketing, it
has caused marketers to realize that the true motives for behavior are often hidden. The self
concept is related to realize that the true motives for behavior are often hidden. The self
concept is related to personality. Because purchasing and consumption are very expressive
actions, they allow us to communicate to the world our actual ideal self concepts
At itudes are learned predisposition to respond to an object or class of objects in a consistent

fashion. Besides being learned, all attitudes are difficult to change.
Situational influences deals with when, where how and why consumers buy, and the consumer's
personal condition at the time of purchase. Situational influences are often so powerful that
they can override al of the other forces in the buying —decision process.
Self- Assessment Exercise
1 a Explain stimulus response theory

b What are the fundamental factors responsible for learning?
6.0 TUTOR MARKED ASSIGNMENT

-
1 a. How does family and household influence the choice of a consumers' purchase ?
b. List and explain the stages of a buying —decision process.
Bovee, C.L. and J.V. Thil (1992): marketing. New York, McGraw-Hill, Inc.
7 .0 F UR THE R RE A DI NG
Kotler, P (2000): Marketing Management. The Millennium Edition. New Delhi, Prentice —Hal of
India
Stanton, W.J.; M.J. Etzel and B.J. Walker (1994): Fundamentals of Marketing. 10°' ed. New York,
McGraw-Hil , Inc.
Unit 2: Customer Relationship Management
Table of Contents
1.0Introduction
2.0Objectives
3.0Main Text
3.1Customer Relationship Management (CRM)
3.2Framework for One-to-One Marketing in Relation to CRM
3.3Building Loyalty
3.3:1 Reducing Customer Defection
3.4Forming Good Customer Relationship
3.5Reasons for not adopting CRM
4.0Conclusion
5.0Summary
6.0Tutor Marked Assignment
7.0References/Further Readings
1.0Introduction
Ethical issues and government policies are twine elements that a manager
should critical looked into before entering into any form of business. This was
examined in the previous unit studied. This unit looked into of the strategies of
managing customer and company relationship
Maximizing customer value means cultivating long-term customer
relationships. In the past, producers customized their offerings to each
customer. However the industrial revolution ushered in an era of mass
production. To maximize economies of scale made standard goods in advance
of orders and left it to individuals to fit into whatever was available. But these
days, products moved from built-to- order marketing to built-to- stock
marketing. Thus, companies are now moving away from wasteful mass
marketing to more precision marketing designed to build strong customer
relationship.
Customer Relationship Management (CRM), is the process of managing
detailed information about individual customer and carefully managing all
customer ‗touch points‘ to maximize customer loyalty. It is therefore not
enough to attract new customers, but companies must keep them in order to
increase their business.

This unit examined customer-company‘s relationship in relation to increasing
sales and profits. It also looked into reasons why some companies failed to
adopted customer relationship management (CRM).
2.0Objectives
On successful studying of this unit, you should be able to:
a. Define customer relationship management
b. Explain customer relationship management
c. Explain components of customer relationship management and
d. Explain reasons why some companies failed to adopt customer relationship
management
3.0 Main Text
3.1 Customer Relationship Management (CRM)
Customers are becoming harder to please. They are smarter, more price
conscious, more demanding, less forgiving and they are approached by many more
competitors with equal or better offers (Keller and Kotler, 2006: 146). The
challenge according to Jeffrey Gitomer as reported by Keller and Kotler (2006) is
not necessary to produce satisfied customers, several competitors can do this.
Hence, the challenge is to produce delighted and loyal customers.

One technological approach designed specially to enable customer service
and retention is customer relationship management (CRM). Ang and Buttle (2003)
suggests that there are three main approaches: Strategic, where CRM is seen as a
core business strategy; operational, CRM is about automating different aspects of
an organization‘s selling, marketing and service functions; and finally analytical,
where CRM is about manipulating data to improve the efficiency and effectiveness
of each phase of the customer relationship lifecycle. Hence, CRM can be described
as the delivery of customer value through the strategic integration of business
functions and technology. CRM is the process of managing detailed information
about individual customers and carefully managing customer ‗touch points‘ to
maximize customer loyalty. A customer touch point is any occasion on which a
customer encounters the brand and product-form actual experience to personal or
mass communications to casual observation. For example, in an hotel, the touch
points include reservations, check-in and check-out, frequent-stay programs, room
service, business service, exercise facilities, laundry service, restaurants and bars.
CRM is the establishment, development, maintenance and optimization of long
term mutually valuable relationship between consumers and organization.
CRM applications typically consist of cal management, lead management,
customer records, sales support and payment systems. These are necessary in order
to respond to questions from customers and questions from internal stakeholders

about issues such as strategy, processes, operations and sales forecasts. These
systems should be used to at each stage of the customer lifecycle in order to
develop an understanding about customer attitudes and behavior that the
organization desires. CRM should be used to assist in making decisions about
whom to target, which customer differences should be used to assist in making
decisions about which target, which customer differences should be taken into
account and what impact this will have on profitability.
Customer relationship management enables companies to produce excellent real-
time customer service through the effective use of individual account information.
Based on what they know about each valued customer, companies can customize
market offerings, services, programs, messages, and media. CRM is important
because a major driver of company profitability is the aggregate value of the
company‘s customer base.
Self Assessment Exercise 1
Briefly explain the term CRM
3.2. Framework for one-to-one Marketing in relation to CRM
Peppers and Rogers as reported by keller and Kotler (2006) outine a four-step
framework for one –to-one marketing that can be adopted on CRM marketing as
follows:
i. Identify your prospects and customers- Do not go after everyone, but
build, maintain and mine a rich customer database with information
derived from all the channels and customers touch points
ii. Diffrentiate customers in terms of (a) their needs and (b) their value to
your company. Spend proportionately more effort on the most valuable
customers. Apply activity based costing and calculate customer lifetime
value. Estimate net present value of all future profits coming from
purchases, merging levels and referrals, less customer-specific servicing
costs.
iii. Interaction-Interact with individual customers to improve your
knowledge about their individual needs and to build stronger relationship.
Formulate customize offerings that are communicated in a personalized
way.
iv. Customization- Customize products, services and messages to each
customer. Facilitate customer/company interaction through the company
contact centre and website
A key driver of shareholder value is the aggregate value of the customer base.
Winning companies improve the value of their customer base by excelling at
strategies such as:
1. Reducing the rate of customer defection

2. Increasing the longevity of the customer relationship
3. Enhancing the growth potential of each customer through share-of-wallet,
cross selling and up-selling; and
4. Focusing disproportionate effort on high-value customers. The most
valuable customers can be treated in a special way. Thoughtful gestures such
as birthdays greetings, small gifts or invitation to special sports or arts events
can send a strong signal to the customer.
3.3Building Loyalty
While building customers loyalty, this involves costs. Thus, companies should be
careful in building customer loyalty in relation to costs to be incurred. Five levels
of investment in customer relationship building are briefly examined below:
a. Basic marketing- The salespersons who sells the product
b. Reactive marketing- The salesperson sells the product and encourages he
customer to call if he /she has questions, comments or complaints
c. Accountable marketing-The salesperson phones the customer to check
whether the product is meeting expectation. The salesperson also asks the
customer for any product or service improvement suggestions and any
specific disappointments
d. Proactive marketing- The salesperson contacts the customer from time to
time with suggestions about improved products uses or new products
e. Partnership marketing- The Company works continuously with its large
customers to help improve their performance.
It should be noted that all these activities involved costs. Therefore,
companies should carefully compare the costs and the benefits in terms of profits
and sales-volume to be derived from such activities.
Notwithstanding, most companies practiced only basic marketing when
their markets contain many customers and their unit profit margins are small. For
instance, Boeing works closely with American Airlines to design airplanes that
fully satisfy American requirement. An increasing essential ingredient for the best
relationship marketing today is the right technology. These days, companies are
using email, websites, call centers, databases, and database software to foster
continuous contact between company and customers. For example:
The discount brokerage service Ameritrade provides detailed information to
its customers, which helps to create strong bonds. It provides customized alerts to
the device of the customer‘s choice, detailing stock movements and analyzes
recommendations. The company‘s website permits online trading and provides
access to a variety of research tool (Keller and Kotler, 2006).

This is similar to alerts sent by Nigeria Airlines remaining their customers
about their booking with the such airlines. Similarly, MTN also alerted their
teeming customer on their credit usage. To achieve this, these mobile
telecommunication companies maintained databases of their customers.
3.3:1 Reducing Customer Defection
There are five main steps a company can take to reduce the defection rate,
namely:
1. The company must define and measure its retention rate
2. The company must distinguish the causes of customer attrition and identify
those that can be managed better
3. The company needs to estimate how much profit it loses and when it loses
customers
4. The company needs to figure out how much it would cost reduce the
defection rate and
5. Listening to customers- Some companies have created an on-going
mechanism that keeps senior managers permanently as demonstrated by
Banks in Nigeria through their ‗customer care units‘.
State ways through which a company can reduce defection rate

3.4Forming Good Customer Relationship
According to Berry and Parasuraman as reported by Keller and Kotler (2006) three
retention building approaches have been identified, namely:
a. Adding Financial Benefits- The financial benefits that companies can offer
are frequency programs and clubs marketing programs. Frequency programs
are designed to provides rewards to customers who buy frequently and in
substantial amounts. For example, Mobile Telecommunication Companies in
Nigeria used this promotion strategy through rewards of bonuses and other
various gifts to their frequent users of their products Frequency programs are
seen as a way to build long tern loyalty, with these customers, potentially
creating cross-selling opportunities in the process. It should however be
noted that the first company to introduce an frequency programs gains the
most benefit, especially if competitors are slow to respond. After
competitors respond, frequency programs (FP) can become a financial
burden to all the offering companies, but some companies are more
efficient and creative in managing FPs
Many companies have created club membership programs. Club membership can
be open to everyone who purchases a product or service, or it can be limited to an
affinity group or to those willing to pay a small fee. Although open clubs are good
for building a database or snagging customers from competitors, limited
membership clubs are more powerful for long term loyalty builders. Fees and
membership conditions prevent those with only a fleeting interest in a company‘s
products from joining. Those clubs attract and keep those customers who are
responsible for the largest portion of business. Some highly successful clubs
include the following: Ikoyi club, Lagos-Nigeria; Apple- Apple encourages owners
of its computers to form local apple-user groups. The user groups provide Apple
owners with opportunities to learn more about their competitors; Hardley-
Davidson: The world famous Motorcycle Company sponsors the Harley owners
group (H.O.G), which now numbers 650,000 members in over 1, 200 chapters. The
first time buyer of a Harley Davidson Motorcycle gets a free one-year membership.
The company also maintains an extensive web site devoted to H.O. G, which
includes information on club chapters, events and special members – only section
b. Adding Social Benefits- Company personnel works on cementing social
bonds with customers by individualizing and personalizing customer
relationship. In essence, companies turn their customers into clients.
Donnelly, Berry and Thompson as reported by Keller and Kotler (2006)
observed that ―customers may be nameless to the institution; clients cannot
be nameless. Customers are served as part of the mass or as part of longer
segments; clients are served on an individual basis Customers are served by

anyone who happens to be available; clients are served by the professional
assigned to them.‖
E-commence companies looking to attract and retaining customers that
personalization goes beyond creating customized information. For examples,
Skype website offers opportunities to the viewers to talk with the viewer. Another
benefit of providing lives sales assistance as advertised on the web site is the
ability to sell additional items. For Instance, Dallas-based specialty chain, the
container store reaps the benefits of using live customer service personnel to
augment its online orders
c. Adding Structural Ties- The company may supply customers with special
equipment or computers with special equipment or computer links that help
customers manage orders, payroll and inventory. A good example is
McKesson Corporation, a leading pharmaceutical wholesaler, which
invested millions of dollars in FDI capabilities to help independent
pharmacies manage inventory, order-entry processes and self space. Another
example is Milliken and Company, which provides proprietary software
programs, marketing research, sales training and sales lead to loyal
customers.
Below is a misconception about adding structural ties as reported by Lester
Wunderman, an astute observer of contemporary marketing thinks about
―Loyalizing‖ customers misses the point. People can be loyal to country, family
and beliefs, but less sp to their toothpaste, soap or even beer. However, the
marketer‘s aim should be to increase the consumer‘s proclivity to repurchase the
company‘s brand.
3.5Reasons for not Adopting CRM
Listed below are some of the reasons why some companies failed to adopt CRM
system
1. CRM is regarded as a mere add-on application that is expected to resolve all
customer interface difficulties
2. Failure of systems to accommodate the wide array of relationships that
organizations seek to manage
3. Failure to adopt CRM within a strategic orientation
4. Internal political issues concerning ownership of systems

4.0 Conclusion
Customer relationship management is a marketing strategy which aimed at
improving relations between the customers and the company. Customer and
company relationship is very important this is because companies operates under
competitive environment and only those companies that knows their customers that
will be able to retain them and improve on their sales and profits. Therefore, profits
are tied down to retention of customers, repetitive purchases and quality services
render to the keen customers.
5.0 Summary
This unit examined customer relationship management as a marketing strategy for
improving company and customer relationship. It also looked into framework for
one-to-to one marketing, building customer loyalty, ways of reducing customer
defection, ways of forming good customer relationship and reasons why some
companies failed to adopt customer relationship management.
6.0 Tutor Marked Assignment
What do understand by ‗adding Social Benefits‘?
7.0 References/Further Readings

Keller, L. L and Kotler, P (2006) Marketing Management 12 Edition, New Delhi,
Pearson
Education, Inc.
Jill C (2009) Marketing Communications, 6th Edition, England, Pearson Education
Limited
Answers to Self Assessment Exercises and Tutor Marked Assignment
Briefly explain the term CRM
Customer Relationship Management (CRM), is the process of managing detailed
information about individual customer and carefully managing all customer ‗touch
points‘ to maximize customer loyalty. It is therefore not enough to attract new
customers, but companies must keep them in order to increase their business. A
customer touch point is any occasion on which a customer encounters the brand
and product-form actual experience to personal or mass communications to casual
observation.

State ways through which a company can reduce defection rate
There are five ways through which a company can reduce the defection rate,
namely:
1. The company must define and measure its retention rate
2. The company must distinguish the causes of customer attrition and identify
those that can be managed better
3. The company needs to estimate how much profit it loses and when it loses
customers
4. The company needs to figure out how much it would cost reduce the
defection rate and
5. Listening to customers- Some companies have created an on-going
mechanism that keeps senior managers permanently as demonstrated by
Banks in Nigeria through their ‗customer care un
Tutor Marked Assignment
Adding Social Benefits- This a marketing strategy whereby a company personnel
works on cementing social bonds with customers by individualizing and
personalizing customer relationship. In essence, companies turn their customers
into clients. Donnelly, Berry and Thompson as reported by Keller and Kotler
(2006) observed that ―customers may be nameless to the institution; clients cannot
be nameless. Customers are served as part of the mass or as part of longer
segments; clients are served on an individual basis Customers are served by
anyone who happens to be available; clients are served by the professional
assigned to them.‖
UNIT 3: BUSINESS BUYING BEHAVIOUR
Table of Content
1.0 Introduction
2.0 Objectives
3.1 Nature and Scope of the Business Market
3.2 Components of the Business Market
3.2.1 The Agriculture Market

3.2.2 The Resel er Market
3.2.3 The Government Market
3.2.4 The Services Market
3.2.5 The "Non-business" Business Market
3.3 Characteristics of Business Market Demand

3.3.1 Demand is derived
3.3.2 Demand is Inelastic
3.3.3 Demand is Widely Fluctuating
3.3.4 Buyers Are Wel Informed
3.4 Determinants of Business Market Demand
3.4.1 Number and Types of Business Users
3.4.1.1 Size of Business Users
3.4.1.2 Regional Concentration of Business Users

3.4.1.3 Vertical and Horizontal Business Market
3.4.2 Buying Power of Business Users
3.4.3 Business Buying Behaviour

3.4.4 Buying Motives of Business Users
3.4.4.1 Types of Buying Situations
3.5 Buying-Decision Process in Business
3.6 Multiple Buying Influence — The Buying Center
3.7 Buying Pat erns of Business Users

4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignments

7.0 Futher Reading
72
1.0 INTRODUCTION
Business organizations do not only sell, they also buy vast quantities of raw materials,
manufactured components, plant and equipment, supplies, and business services. Sellers
of these products need to understand these organizations' needs, resources, policies, and
buying procedures. Whatever marketing strategies the marketers want to adopt, one thing is
clear. The target markets for their products are business firms that wil use them in making
other products. These are business products marketed to business users in the business market.
The business market is big, rich, and widely diversified. It employs millions of workers in
thousands of different jobs.
In many ways business markets are to the consumer markets, but there are also important
differences. After studying this unit, you should be able to explain:
(i) The nature and scope of the business market.

(ii) The components of the business market.
(iii) The characteristics of business market demand.
(iv) The determinants of business market demand.
(v) The buying motive, buying processes, and buying patterns in business markets.
2.0 OBJECTIVES
We wil examine five questions:
i. What is the business market and how does it differ from the consumer
market?
What buying situations do organization buyers face?
Who participates in the business buying process?
iv.What are the major influences on organization buyers?

v.How do business buyers make their decisions?
3.1 NATURE AND SCOPE OF THE BUSINESS MARKET
The business market consists of all business users, organizations that buy goods and services
for one of the fol owing purposes:
(i)To make other goods and services. FFF buys wood to make furniture.
(ii)To resell to other business users or to consumers.
(iii)To conduct the organization's operations. The Obafemi Awolowo University buys
office supplies and electronic office equipment for use in registrar's office, and her Teaching
Hospital buys supplies to use in the surgical operating rooms.
In the business market we deal with both consumer products and business
products.
Business marketing, then, is the marketing of goods and services to business
users, as contrasted to ultimate consumers.
About 50 percent of al manufactured products are sold to the business market.
In addition, about 80 percent of al farm products and virtual y all minerals,
forest and sea products are business goods. These are sold to firms for further
processing.
Every retail store and wholesaling establishment is a business user. Every bus
company airline, and railroad is part of this market. So is every hotel, restaurant,
bank, insurance company, hospital, theater and school.
3.2 COMPONENTS OF THE BUSINESS MARKET

Traditionally, business markets were referred to as industrial markets.
Manufactures constitute a major portion of the business market, but there are
also six other components — agriculture, resel ers, government agencies,
service companies, nonprofit organizations and international.
3.2.1 THE AGRICULTURE MARKET

The high level of income from the sale of agriculture products gives farmers,
as a group, the purchasing powers that make them a highly at ractive market.
Moreover, world population forecasts and food shortages in many countries
undoubtedly wil keep pressure on farmers to increase their output.
Agribusiness — farming, food processing, and other large-scale farming—related
business — is big business in every sense of the word.
Agriculture has become a modern industry. Like other business executives,
farmers are looking for better ways to increase their productivity, cut their
expenses
3.2.2 THE RESELLER MARKET

Intermediaries constitute the resel er market. The basic activity of resellers
— unlike any other business market segment- is buying products from supplier
organizations and resel ing these items in essential y the same form to the
resel ers' customers. In economic terms, resel ers create time, place and pos-
session utilities, rather than form utility.
It is their role as buyers for resale that differentiates resellers and at racts
special marketing attention from their suppliers. To resel an item, you must
please your customer. Do you know that it is more difficult to determine what
wil please an outside customer than to find out what wil satisfy someone
within your own organization?.
3.2.3 THE GOVERNMENT MARKET

The government market includes Federal, state, and local government units
that spend bil ions of naira a year buying for government institutions such as schools,
offices, hospitals and military bases.
Government procurement processes are different from those in the private sector of
the business market. Try to support this statement by finding out how governments
make their purchases in at the various ministries and parastatals.
3.2.4 THE SERVICES MARKET
Currently, firms that produce services greatly outnumber firms that produce goods. The
services market includes al transportation carriers and public utilities and the many
financial, insurance, legal and real estate firms. This market also includes organizations
that produce and sel such diverse services as rental housing, recreation and
entertainment repairs, health care, personal care and business services.
Service firms constitute a huge market that buys goods and other services. And al
these service firms buy legal, accounting, and consulting advice from other service
marketers. Try to identify some service firms in your locality and determine what they
buy.
3.2.5 THE "NON-BUSINESS" BUSINESS MARKET
The non-business market includes such diverse institutions as churches, colleges and
universities, museums, hospitals and other health institutions. Political parties, labour
unions, and charitable organizations. Actual y, each of these so — cal ed non-business
organizations is a business organization. These organizations do virtual y all the things that
business do — offer a product, col ect money, make investments, hire employees -and
therefore require professional management.
Nonprofit organizations also conduct marketing campaigns — in an effort to at ract
mil ions of Naira in contributions. In turn, they spend mil ions of Naira buying goods and
services to run their operations. When you look closely at your NG0s, your church or
mosque you will tend to agree to the fact that they are business organizations.
3.3 CHARACTERISTICS OF BUSINESS MARKET DEMAND Four demand
characteristics differentiate the business market from the consumer market: (i)
Demand is derived, (i ) demand tends to be inelastic, (i i) demand is widely
fluctuating, and (iv) the market is well informed
3.3.1 DEMAND IS DERIVED
The demand for a business product is derived from the demand for the consumer
products in which that business product is used. Thus the demand for steel
depends partial y on consumer demand for automobiles and refrigerators. But it also
depends on the demand for butter and CD players This is because the tools machines, and
other equipment needed to make these items are made of steel
There are two significant marketing implications in the fact that business market
demand is a derived demand. First to estimate the demand for a product a
business marketer must be very familiar with how it is used. Second the
producer of a business product may engage in marketing efforts to encourage
the sale of its buyers' products. The idea is that increases in consumer demand
wil in turn trigger increases in derived demand for these business products.
3.3.2 DEMAND IS INELASTIC

Another characteristic of the business market is demand elasticity of business
products. Elasticity of demand refers to how responsive demand is to a change
in the price of a product.
The demand for many business products is relatively inelastic, which means
that the demand for a product "a" responds very lit le to changes in price.
The demand for business products is inelastic because ordinarily the cost of a
single part or material is a smal portion of the total cost of the finished product.
The cost of the chemical is a smal part of the price a consumer pays for paint.
As a result, when the price of the business product changes, there is very lit le
change in price of the related consumer products. From a marketing point of
view, there are three factors that can moderate inelasticity of business demand.
i. Price change must occur throughout an entire industry, not in a single

firm
The second marketing factors that can affect the inelasticity of demand is time.
Much of our discussion here applies to short-term situation. Over the long run
the demand for a given industrial products is more elastic. The third factor is
the relative importance of a specific business product in the cost of the finished
good. The greater the cost of a business product as percentage of the total price
of the finished good, the greater the
elasticity of demand for this business product.
3.3.3 DEMAND IS WIDELY FLUCTUATING

The market demand for most classes of business goods fluctuates considerably
more than the demand for consumer products
The main cause of these fluctuations is the individual businesses concern
about having a shortage of inventory when consumer demand increases or being
caught with excess inventory should consumer demand decline. Thus they tend
to overreact to signals from the economy, building inventories when they see
signs of growth in the economy and working inventories down when the sign
suggest stagnation. When the action of al the individual firms are combined the
effect on their suppliers is widely fluctuating demand. This is known as the
acceleration principle. One exception to this generalization is found in
agricultural products intended for processing. Can you explain why this is so?
3.3.4 BUYERS ARE WELL INFORMED

Typical y, business buyers are better informed about what they are buying than ultimate
consumers. They know more about the relative merits of alternative sources of supply and
competitive product for three reasons.
(i) there are relatively few alternatives for a business buyer to consider.
(i ) the responsibility of a buyer in an organization is ordinarily limited to a few products;
and
(i i) for most consumer purchase, an error is only a minor inconvenience. However, in
business buying the cost of a mistake may be thousands naira or even the decision
maker's job!
3.4 DETERMINANTS OF BUSINESS MARKET DEMAND The factors
affecting the market for business products are: (i) the number of potential business users; (i )
their purchasing power; (i i) buying motives, and
(i ) buyer habits. Let us now discuss these factors in turn.
3.4.1 NUMBER AND TYPES OF BUSINESS USERS Number of Buyers. The
business market contains relatively few buying units compared to the consumer market. In the
U.S there are above 15 million business users in contrast to about 250 million consumers
divided among more than 85 mil ions households. The business market seems even more
limited to most companies, because they sel to only a smal segment of the
total market
One very useful way of organizing information is the Standard Industrial Classification
(SIC) system, which enables a company to identify relatively segments of its business
market. Can you get more information on SIC?
3.4.1.1 SIZE OF BUSINESS USERS
While the business market may be limited in the total number of buying units, it is large in
purchasing power. A relatively smal percentage of firms account for the greatest share of the
value added to products by manufacturing. Value added is the naira value of a firm's output
minus the value of the inputs from other firms. If a manufacture buys lumber for 400 naira
and converts it into a table that it sel s for 1000 Naira, the value added by the manufacturer is
600 Naira.
The marketing significance of these facts is that buying power business markets is
highly concentrated in a relatively few firms. That is, a high percentage of industry
sales are accounted for by a very smal number of firms. Therefore sellers have the
opportunity to deal directly with the business users. Middlemen are not as essential as in
the consumer market.
3.4.1.2 REGIONAL CONCENTRATION OF BUSINESS USERS There
is substantial regional concentration in many major industries and among business
users as a whole.
3.4.13 VERTICAL AND HORIZONTAL BUSINESS MARKETS For

effective marketing planning, a company should know whether the market for
its products is vertical or horizontal. If a firm‘s product is usable by virtually al
firms in only one or two industries, it has a vertical business market. On the
other hand, if it is usable by many industries, then it is said to have a broad or
horizontal business market.
A company's marketing programme ordinarily is influenced by whether its

markets are vertical or horizontal. In a vertical market, a product can be
tailor-made to meet the specific needs of one industry. However, the industry
must buy enough to support this specialization. In addition, advertising and
personal sel ing can be directed more effectively in vertical markets. In a
horizontal market, a product is developed as an al purpose item, to reach a
larger market. However because of the large potential market, the products are
likely to move competition.
3.4.2 BUYING POWER OF BUSINESS USERS

Another determinant of business market demand is the purchasing power of
business customers. This can be measured either by the expenditures of
business users or by their sales volume. However, such information is not
always available or is very difficult to estimate. In such cases purchasing
power is estimated indirectly, using an activity indicator of buying power—that
is, some market factor related to sales and expenditures. For example, a
company marketing agricultural products or equipment can estimate the buying
power of its farm market by studying such indicators as cash farm income,
acreage planted, or crop yields. A chemical producer that sel s to a fertilizer
manufacture might study the same indices, because the demand for chemicals
in this case derives from the demand for fertilizer.
3.4.3 BUSINESS BUYING BEHAVIOR
Business buying behavior is initiated when an aroused need ( a motive) is

recognized. This leads to goal —oriented activity designed to satisfy the need,
marketers must try to determine what motivates the buyer, and then understand
the buying process and buying pat erns of business organizations in their
markets. Purchasing has become an important part of overal strategy for at
least three reasons
(i)Companies are making less and buying more. For many year General Motors has
owned the plants that made many of the part for its cars. But in 1992 it announced the
closing of seven plants that were no longer competitive. As a result, General Motors wil
become much more reliant on independent part suppliers.
(i )Finns are under intense quality and time pressures. To reduce costs and improve
efficiency, firms no longer buy and hold inventories of parts and supplies. Instead,
they demand that raw materials and components that meet specifications be delivered
just in time to go into the production process.
(i i)To get what they need, firms are concentrating their purchase with fewer suppliers and
developing long term "partnering" relationships. This level of involvement extends
beyond a purchase to include such things as working together to develop new products
and providing financial support?
3.4.4 BUYING MOTIVES OF BUSINESS USERS
One view of buying motives is that business purchases are methodical and structured.
Business buying motives, for the most part, are presumed to be practical and
unemotional. Business buyers are assumed to be motivated to achieve the optimal
combination of price, quality and service in the products they buy. An alternative view
is that business buyers are human, and their business decisions are certainly
influenced by their attitudes, perceptions, and values.
The truth actual y is somewhere in between. Business buyers have two goals-to further
their company's position (in profits, in acceptance by society) and to protect or
improve their position in their firms (self-interest). For example, the firm's highest
priority may be to save money, and the buyer knows that he wil be rewarded for
negotiating a low price.
3.4.4.1 TYPES OF BUYING SITUATIONS
The buying situation in business organizations vary widely in their complexity, number of
people involved, and time required. Researchers in organizational buying behavior have
identified three classes of business buying situations. The three buying classes are new
—task buying, straight re-buy, and modified re-buy.
i. New —task buying. This is the most difficult and complex buying situation
because it is a first-time purchase of a major product. Typical y more people are
involved in new-task buying than in the other two situations because the risk is
great. Information needs are high and the evaluation of alternatives is difficult
because the decision makers have little experience with the product. A hospital's
first — time purchase of laser surgical equipment or a company robots for
factory (or buying the factory itself) are new — task buying conditions.
ii. Straight rebuy. This is a routine, low —involvement purchase with
minimal information needs and no great consideration of alternative. The
buyer extensive experience with the sel er has been satisfactory, so
there is no incentive to search. An example is the repeat purchase of
steering wheels by Freightliner, a truck manufacturer.
i i. Modified re -buy. This buying situation is somewhere between the

other two in items of time and people involved. Information needed, and
alternatives considered. In selecting diesel engines for the trucks it
manufactures. Freightliners consider Cummins, Detroit Diesel, and
Caterpil ar products among others. However, because these engine makers
frequently introduce new design and performance. Freightliner evaluates each
on a regular basis
3.5 BUYING —DECISION PROCESS IN BUSINESS

The buying — decision process in business markets is a sequence of five stages.
Not every purchase involves al the five steps. Straight re-buy purchase usual y
is low involvement situations for the buyer so they typical y skip some stages.
But a new-task buying of an expensive good or service is likely to be a high —
involvement, total —stage buying decision.
To il ustrate the process let's assume that NBC is considering a sugar substitute
in Coca-Cola:
i.Need recognition. NBC executives are sensitive to the concern of any
consumer about sugar in their diets. The opportunity to produce high-quality,
good tasting Coke without sugar is very attractive, but finding the right
substitute is the chal enge.
ii.Identification of alternatives. The marketing staff draws up a list of
product performance specification for the sugar free drink — at ractive
appearance, good taste, and reasonable cost. Then the purchasing department
identifies the alternative brands and supply sources of sugar substitutes that
generally meet these specifications.
iii.Evaluation of alternatives. The production, research, and purchasing
people jointly evaluate both the alternative products and sources of supply.
The complete evaluation considers such factors as product performance and
price as wel as the suppliers' abilities to meet delivery schedules and provide
consistent quality.
iv.Purchase decision. Based on the evaluation, the buyer decides on a

specific brand and supplier. Next, the purchasing department negotiates the
contract.
v.Postpurchase behavior. NBC continues to evaluate the performances of
the sugar substitutes and the selected suppliers to ensure that both meet
expectations. Future dealings with a supplier will depend on this performance
evaluation and on how wel
the supplier handles any problems that may later arise involving its product.
3.6 MULTIPLE BUYING INFLUENCE - THE BUYING CENTER One of the

biggest chal enges in business-to-business marketing is to determine which individuals
in the organization play the various buying roles. That is, who influences the buying
'decision, who determines product specifications, and who makes the buying decision? In
the business market these activities typically involve several people. In other words, there
are multiple buying influences, particularly in medium-sized and large firms.
Understanding the concept Of a buying center is helpful in identifying the multiple buying
influences and understanding the buying process in business organi7ations. A buying center
may be defined as all the individuals or groups who are involved in the process of making a
decision to purchase. Thus a buying center includes the people who play any of the
following roles.
i.Users .The people who actual y use the business product — perhaps a secretary, an
executive, a production- line worker or a truck drive.
ii.Influencers. The people who set the specifications, and other aspects of buying
decisions because of their technical expertise, their organizational position, or even their
political power the firm.
iii.Deciders. These are the people who make the actual buying decision regarding the
business product and the supplier. A purchasing agent may be the decider in a straight —re-
buy situation. But someone in top management may make the decision regarding whether to
buy an expensive computer.
iv.Gatekeepers. The people who control the flow of purchasing information
within the organization as well as between the firm and potential vendors. These people may
be purchasing agents, secretaries, receptionists, or technical personnel.
v.Buyers. The people who interact with the suppliers, arrange the terms of sale and
process the actual purchase orders The size and composition of a buying center will vary
among business organizations. In one study, the average size of buying centers ranged from
2.7 to 5.1 persons. Within a given organization, the size and makeup of buying center will
vary depending on the product's cost, the complexity of the decision, and the stage of the
buying process.
3.7 BUYING PATTERNS OF BUSINESS USERS
Buying behaviour in the business market differs significantly from consumer behavior in
several ways.
Direct purchase. In the consumer market, consumers rarely buy directly form the producer
except in the case of service. In the business market, however, direct purchase by the
business user from the producer is quite common even for goods.
Nature of the Relationship. Many business marketers take a broad view of

exchanges. Rather than focus only on the immediate customer, they approach marketing
as value chain. That is, they consider the roles of suppliers, producers, distributors, and
end users to see how each adds value to final product. This perspective leads to a
recognition of the importance of al the parties involved in successfully bringing a product
to market and an emphasis on building and maintaining relationships.
Frequency of Purchase. In the business market, firms buy certain products
very infrequently. Large instal ations are purchased only once in many years.
Because of this buying pat ern a great burden is placed on the personal selling
programmes of business sellers. The sales force must call on potential
customers often enough to keep them familiar with the company's products
and to know when a customer is considering a purchase.
Size of order. The average business order is considerably larger than its
counterpart in the consumer market. This fact, coupled with the infrequency
of purchase, spotlights the importance of each sale in the business market.
Length of negotiation period. Period of negotiation in a business sale is
usual y much longer than in a consumer transaction.
Some reasons for extended negotiations are:

a.Several executives participate in the buying decision.
b.The sale involves a large amount of money.
c.The business product is made to order and considerable discussion is
required to establish the specifications.
Reciprocity Arrangements. A highly controversial buying practice is
reciprocity: the policy of I'l buy from you if you "II buy form me. Traditionally,
reciprocity was common among firms marketing homogeneous basic business
products (oil, steel, rubber, paper products, and chemicals). There has been
a significant decline but not total elimination of reciprocity.
Demand for service. The user's desire for excellent service is a strong
business buying motive that may determine buying patterns. Frequently a firm's
only differentiating feature is its service, because the product itself is so
standardized that it can be purchased from any number of companies.
Sel ers must be ready to furnish service both before and after the sale. In the
case of office copiers, manufacturers train the buyers' office staffs in the use
of the equipment, and after the machines have been instal ed, offer other
services, such as repairs by specially trained technicians.
Dependability of Study. Another business buying pattern is the user's
insistence on an adequate quantity of uniform —quality products. Variations in
the quality of materials going into finished products can cause considerable trouble for
manufacturers. Adequate quantities are as important as good quality. A work stoppage
caused by an insufficient supply of materials is just as costly as one caused by inferior
quality of materials
Leasing instead of buying. A growing tendency among firms in the business
market is leasing business goods instead of buying them.
Leasing has several merits for the lessor — the firm providing the equipment: a Total
net income — the income after charging off repairs and maintenance expenses-is often
higher than it would be if the equipment were sold
b. The lessor's market may be expanded to include users who could not afford to
buy the product, especially for large equipment.
c. Leasing offers an effective method of get ing users to try a new product. From the
lessee's —or customer's — point of view, the benefits of leasing are:
d. Leasing allows users to retain their investment capital for other purposes.
e. Firm can enter a new business with less capital outlay than would be necessary if
they had to buy equipment.
f. Leased products are usual y repaired and maintained by lessors, eliminating
one headache associated with ownership.
g. Leasing is particularly attractive to firms that need equipment seasonally • or
sporadical y, as in food canning or construction
4.0 CONCLUSION
In this unit you have learned what business marketing is and how it fits into an
organization's strategy. You also appreciate the importance of careful y defining and
understanding strategy. You also appreciate the importance of carefully defining and
understanding business markets.
5.0 SUMMARY
The business market consists of organizations that buy goods and services to produce
other goods and services, to resell to other business users or consumers, or to
conduct the organization's operations. It is an extremely large and complex market
spanning a wide variety of business users that buy a board array of business goods and
services. Besides manufacturing, the business market includes the agriculture, resel er,
government, services, nonprofit, and international markets.
Business market demand generally is derived, inelastic, and widely fluctuating.

Business buyers usual y are wel informed about what they are buying. Business
market demand is analyzed by evaluating the number and kinds of business users and
their purchasing power.
Business buying, or purchasing, has taken on greater strategic importance
because organizations are buying more and making less, under intense time
and quality pressures, and developing long- term partnering relationships with
suppliers.
Business buying motives are focused on achieving a firm's objectives but the
business buying self—interest must also be considered.
The buying —decision process in business markets may involve as many as five
stages: need recognition, identification of alternatives, evaluation of
alternatives, purchase decision, and post purchase behavior. The actual number of
stages in a given purchase decision depends largely on the buying situation, whether
new-task buy, straight re-buy, or modified re-buy.
The concept of a buying center reflects the multiple buying influences in

business purchasing decisions. In a typical buying center are people playing the
roles of users, influences, deciders, gatekeepers and buyers.
Buying pat erns (habits ) of business users often are quite difference from
pat erns in the consumer market. In the business market, direct purchases
(without middlemen) are more common, purchases are made less frequently, and
orders are larger. The negotiation period usual y is longer, and reciprocity
arrangements are more common. The demand for services is greater, and the
dependability of supply is more critical. Final y, leasing (rather than product
ownership) is quite common in business marketing.
Self-Assessment Exercise
Differentiate in details between:
The Reseller Market:
The government market:
Question
A rational human being does not purchase a product without examining one or
two features, such as price, brand, taste etc.
Briefly examine the buying decision process.
7.0 FURTHER READING

Bovee, C.L and J. V.Thil (1992): Marketing, New Fork McGraw-Hill, Inc.
Kotler, (2000): Marketing Management. The millennium Edition. New

Delhi, Practice-Hall, India.
UNIT 4: Ethical Issues in Business
Table of Contents
1.0 Introduction
2.0 Objectives
3.0 Main Text
3.1 Ethical Issues in International Business
3.2 Theories of Business Ethics
3. 2.1 Stakeholder Theories
3.2.2 Social Contact Theory
3.2.3 Legitimate Theory
4.0 Conclusion
5.0 Summary
7.0 References/Further Readings
1.0 Introduction
National and Multinational Corporations are spread across the globe, but their
operations vary from one another. Therefore it is imperative to know the ethical
issues that governed their businesses. This is because domestic business is not the
same with international business. Thus, the ethics that governed domestic
businesses are quite different from that of international businesses. Ethical issues
arise because of the differences in economic development, politics, legal systems
and culture. The term ethics refers to accepted principles of right or wrong that
governed the conduct of a person, the members of a profession, or the actions of an
organization. Business ethics are the accepted principles of right or wrong
governing the conduct of business people. This unit examines ethical issues as it
affects business activities.
2.0 Objectives
On successful completion of this unit, you should be able to:
1. State ethical issues that affects business activities
2. Explain ethical issues in relation to business conducts
3.0 Main Text

3.1 Ethical issues in Business
Most of the ethical issues in businesses are rooted in the fact that political systems,
laws, economic development and culture vary significantly from nation to nation.
What is considered normal practice in one nation may be considered unethical in
another. Because they work for an institution that transcends national borders and
culture, managers, especially for international firms need to be particularly
sensitive to these differences. Some of these ethical issues are thus briefly
discussed below:
i Employment Practice
Working conditions vary from one nation to another, from one firm to another.
This therefore raise some questions such as when work conditions in a host nation
are clearly inferior to those in multinationals home nation, what standards should
be applied? Those of the home nation or those of the host nation may apply
something in between While some people may support that pay and work
conditions should be the same across nation, how much divergence is acceptable?
For example, Nigeria operates eight hours day work, while some nations such like
Britain operates twelve hours day work. Also per day or hourly pay vary among
nations of the world. For instance Nigeria is considered as one of the least pay
country, hence, it is extremely difficult to suggest standards that should be applied.
However, international business managers should endeavour to study employment
practices as they apply to those host countries of their business.
ii Human Rights
Questions of human rights can arise in international business and as well as on
domestic business. Some basic human rights are not respected in some nations,
especially by the developing countries. For instance, rights that we take for granted
in developing nations, such as freedom of association, freedom of speech, freedom
of assembly, freedom of movement, freedom from political repression and so on,
are by no means universally accepted. For example, during days of apartheid
system in South-Africa, blacks were not permitted to participate in socio-economic
activities which were dominated by the whites. But after the independence, this
practice was abolished. In addition, during military regime in Nigeria, many
citizens including journalists and human right activists were wrongfully detained.
However, Nigeria operates multi-party systems as a means of challenging the
wrongs of the government in power. As business man you should understand
politic- business relationship, this is because the effects on party in power may
affect business activities either positively or negatively.
The issue of foreign multinational firms doing business abroad violates human
rights is critical in international business. For example, Nigeria is a country where
serious questions have arisen over the extent to which foreign multinationals doing
business in the country have contributed to human rights violation? For instance,
the largest foreign oil producer in the country –Royal Dutch Shell has been
criticized in Niger Delta over environmental pollution. Recently, Jonathan‘s
administration ordered Shell Company should bear some environmental costs of
their operations in Niger delta. Notwithstanding, as business managers, issues of
human rights should be critical studied and apply accordingly.
ii Environmental Pol ution
Ethical issues arise when environmental regulations in host nations are inferior to
those in the home nation. For instance, many developed nations have substantial
regulations governing the emission of pollutions, the dumping of toxic chemicals
and so on. Some of these regulations are often lacking in developing nations, such
like Nigeria. For example, according to a 1992 report prepared by environmental
activists in Nigeria in Niger Delta region, it state that
Apart from air pollution from the oil industry‘s emissions
Flares day and night. Producing poisonous gases that are
silently and systematically wiping out vulnerable air-
borne biota and endangering the life of plants, game and
man himself, we have widespread water pollution and
Soil/land pollution that results in the death of most
aquatic eggs and Juvenile stages of the life of fin
fish and shell fish on the other hand, whilst, on the other
hand, agricultural land contaminated with oil
spills, becomes dangers for farming, even when…
The implication in of this is that pollution controls applied by foreign companies in
Nigeria were much lesser than those in developed nations, such like UK and USA.
Therefore, should a multinational feel free to pollute the developing nations? Is
there a danger that a moral management might move production to a developing
nation because costly pollution controls are not required, and the company is
therefore free to despoil the environment and perhaps endanger local people in its
quest to lower production costs and gain a competitive advantage?
These questions take on added importance because some parts of the environment
are a public good that no one owns but anyone can despoil. No one owns the
atmosphere or the oceans, but polluting both, no matter where the pollution
originates, harm all. The atmosphere and oceans can be viewed as a global
commons from which everyone benefits but for which no one is specifically
responsible. In such cases, a phenomenon known as the tragedy of the commons
becomes applicable. The tragedy of the commons occurs when individuals overuse
a resources held in common by all, but owned by no one, resulting in its
degradation. The phenomenon was first named by Garrett Hardin when describing
a particular problem in six-tenth century in England.

Describe tragedy of the commons
iv Corruption
Corruption has been a problem in almost every society in history and it continues
to be one today. There are always have been and always will be corrupt
government officials. Some businesses managers have taken advantage of this ill
practice by making payments to these officials. For example, Carl Kotchian, the
president of Lockheed, made a $12.5 million payment to Japanese agents and
government officials to secure a large order for Lockheed‘s TriStar Jet from
Nippon Air. When the payments were discovered, US officials charged Lockheed
with falsification of its records and tax violations. Although such payments were
supposed to be an accepted business practice in Japan, the recreations created a
scandal there too. The government ministers in question were criminally charged,
one committed suicide, the government fell in disgrace and the Japanese people
were outraged. Apparently, such a payment was not an accepted way of doing
business in Japan. The payment was officials, to secure a large order that might
otherwise have gone to another manufacturer, such as ‗Boeing‘. This case took
place in 1970s.
Recently, Senate Committee on Sale of Government Properties in Nigeria ordered
Bureau for Public Properties (BPP) for public hearing over the sale of government
properties during Obasanjo‘s administration. During the public hearing, the civil
servants, and the communities where these properties were situated alleged that
they were not carry along, and the money collected from such sales were not
remitted to government accounts. It was revealed also during the public hearing
that the foreigners who claimed to have bought these properties especially hotels,
corporations, estates, etc, did not pay the actual money bided for these properties,
and they have overused such properties without remittance to the government of
Nigeria. The senate frown that this is an illegal act in Nigeria and thus the
concerned victims are being prosecuted appropriately.
Similarly in Oil industry, some acts are considered lawful and unlawful in some
nations. For instance, oil buckury and subsidy payments are considered lawful,
hence Nigeria government paid oil marketers these subsidies, and illegal buckers
are not always persecuted. Where attempts are made in persecuting the actors and
actresses, some of these cases are not always conclusive in Nigeria. Whereas in
advanced nations, such like UK and Canada, such acts are considered unlawful,
and the actors and actresses are persecuted accordingly in relations to the laws of
the country.
Research revealed that corruption reduces the returns on business investment and
leads to low economic growth. In a country, where corruption is common,
unproductive bureaucrats who demand side payments for granting the enterprise
permission to operate may siphon off the profits fro a business activity. This
reduces business incentives to invest and may retard a country‘s economic growth
rate.
There are countless examples that could be sited, nevertheless, the message here is
that business investors should know each country business practice, especially
where he/she wish to do business.
v Moral Obligation
Multinationals has power to control their resources and to move production from
country to country. Nevertheless, this power is constrained not only by laws and
regulations, but also by the discipline of the market and the competitive process.
Some moral philosophers argued that multinationals should give back something to
the society where they derived profits. This is refers to social responsibility
The concept of social responsibility refers to the idea that business people should
consider the social consequences of economic actions when making business
decisions and that there should be a presumption in favour of decisions that have
both good economic and social consequences. Advocates of this approach argued
that business, particularly big successful businesses, such as Shell, Mobil, Total,
etc need to recognizes their noble obligations and should give something back to
the societies that made them in their business activities
On the contrary, there are examples of multinationals in Niger Delta of Nigeria,
such Shell, Mobil, etc that have abused their power by neglecting social
responsibilities. Most often, the areas of operations by these companies have been
polluted. But, companies such as MTN, GLO, Airtel, etc in Nigeria have
acknowledged a moral obligation to use their powers to enhance social welfare in
the communities where they do business, by building schools, building hospitals,
offering scholarships, etc.
In conclusion, as business managers, it is pertinent to critically study the ethics of
the countries you wish to do business with and the policies that governed such
business activities.
3.2 Theories of Business Ethics
This section examines three theories of business.
3.2.1 Stakeholder Theory
The stakeholder theory of the firm is used as a basis to analyze those groups to
whom the firm should be responsible. In this sense, the firm can be described as a
series of connection of stakeholders that the managers of the firm attempt to
manage. A stakeholder is any group or individual who can affect or is affected by
the achievement of the organization‘s objectives. Stakeholders are typically
analyzed into primary and secondary stakeholders. Primary stakeholder group is
one without whose continuing participation in the corporation the business will
survived as going concern. A primary group includes investors, employees,
customers and suppliers, together with the public. The secondary groups are
defined as those who influence or affect the operations of the corporation but not
engaged in any transaction with the corporation and thus not essential for its
survival.
3.2.2 Social Contract Theory

The social contract theory has a long tradition in ethical and political theory. In
general, this theory considers the society as a series of social contracts between
members of society and society itself. The social contract theory in business ethics
argues that corporate rights and responsibilities can be inferred from the terms and
conditions of an imaginary contract between business and society
An integrated social contracts theory, as a way for managers to take decisions in an
ethical context, has been developed. Here, distinction is made between macro
social contracts and micro social contracts. Thus, a macro social contract in the
context of communities, for example would be an expectation that business
provides some support to its local community and the specific form of involvement
would be the micro social contract. Hence companies who adopt a view of social
contracts would describe their involvement as part of social expectation.
3.2.3 Legitimacy Theory

Legitimacy is defined as a generalized perception or assumption that the actions of
an entity are desirable, proper, or appropriate within some socially constructed
system of norms, values, beliefs and definitions. There are three types of
organizational legitimacy: Pragmatic, Moral and Cognitive.
It should be pointed out that legitimacy management rests heavily on
communication. Therefore, any attempt to involve legitimacy theory, there is a
need to examine some forms of corporate communications.

Briefly differentiate between primary and secondary stakeholders
4.0 Conclusion
Laws, acts, policies and by-laws are inevitable as long people co-exist. It therefore
implies that there is no society that exists without some governing rules and
regulations. Likewise business do not operates in isolation. Business do operates
under certain prescribed laws, Acts, norms, culture, etc. This is refers as business
ethics. Business ethics are the accepted principles of right or wrong governing the
conduct of business people. Understanding of these ethical laws as they affect
business activities is inevitable in modern business activities. As business
managers, you are at the liberty to go into any forms of business of your choice;
however, you should understand the policies of the government in relation to such
business.
5.0 Summary
In this unit, you learnt about business ethics, ethical issues in business activities,
and theories of business ethics. Ethics as it applies to business vary from one
country to another. This is because there are some factors which accounted for this,
such as culture, political differences, etc. For one to be successful manager, there is
a need to examine ethics issues as it apply to intended business

Briefly explain the concept of social responsibility
7.0References/Further Readings
Charles, H. W.L (2008) Global Business Today, 5th Edition,
New York, McGraw-Hill Companies
Peter, S (2002) ―One World‖, The Ethics of Globalization
New Haven: Yale University Press
Onkvisit, S and Shaw, J.J (1997) International Marketing –
Analysis and Strategy, 3rd Edition, New Jersey,
Prentice-Hall, Inc.
Answers to Self Assessment Exercises

1. The tragedy of the commons describes when individuals overuse a resources
held in common by all, but owned by no one, resulting in its degradation. The
phenomenon was first named by Garrett Hardin when describing a particular
problem in six-tenth century in England.
2. Primary stakeholder group is one without whose continuing participation in the
corporation such corporation will survive as a going concern. A primary group
includes investors, employees, customers and suppliers, together with the public.
The secondary groups are defined as those who influence or affect the operations
of the corporation but not engaged in any transaction with the corporation and thus
not essential for its survival.
Answer to Tutor Marked Assignment
The concept of social responsibility refers to the idea that business people should
consider the social consequences of economic actions when making business
decisions and that there should be a presumption in favour of decisions that have
both good economic and social consequences. Advocates of this approach argued
that business, particularly big successful businesses, such as Shell, Mobil, Total,
etc need to recognizes their noble obligations and should give something back to
the societies that made them successful in their business activities
UNIT 5: PRODUCTS
Table of Contents
1.0 Introduction
2.0 Objectives
3.1 The Meaning of a Product
3.2 Product Levels
3.3 Elements of a Product
3.3.1 Product Attributes

3.3.1.1 Product Quality
3.3.1.2 Product Features
3.3.1.3 Product Design
3.3.2 Branding
3.3.3 Packaging
3.3.4 Product-Support Services

3.4 Product Classification
3.4.1 Consumer Product
3.4.1.1 Convenience Products
3.4.1.2 Shopping Products
3.4.1.3 Speciality Products
3.4.1.4 Unsought Products

3.4.2 Industrial Products
3.4.2.1 Materials and Parts
3.4.2.2 Capital Items
3.4.2.3 Supplies and Services
4.0 Conclusion
5.0 Summary
7.0 Further Reading
1.0 INTRODUCTION
This unit introduces you to fundamental product concepts, beginning with a
broad definition of "product". After this, we wil see how marketers classify
the products they deal with and, this is usual y a vital step in designing your
marketing strategy. The unit also takes you through the elements that make up
a product.
2.0 OBJECTIVES
(i) Define the term production.
(ii) Describe the various classifications of consumer and industrial
products.
(i i) Explain the value of branding and discuss typical branding
strategies.
(iv) Analyse the two primary functions of packaging.
(v) Discuss the three primary functions of labeling.
(vi) Describe the important elements of product support.
3.1 THE MEANING OF A PRODUCT
Let us start by asking you to name any three "products" off head. You are most
likely to consider things like cola, shoes, cars. . or three other similar products.
Indeed, you might not thing of games reserves, WEMA Treasure account, or
the popular TV comedy - "Papa Ajasco". This is because when we are on the
buying end of an exchange, we often think of products as tangible objects, that
is, things we can actual y touch and possess. Football teams, transport
companies, TV programme etc. provide an intangible service for our use or
enjoyment, not for our ownership.
Hence, from the marketing point of view, a product is defined as anything

offered for sale for the purpose of satisfying a need or want on both sides of
the exchange process. In this regard, a product includes a tangible object that
marketers refer to as a good, as wel as an intangible service (such as an ideas,
a place, an event, an organization etc), or any combination o f tangible objects
and intangible services.
Quite often, most products consist of a bundle of at ributes that can be heavy
on the tangible side, or heavy on the intangible side, or anywhere in between.
3.2 PRODUCT LEVELS
As illustrated by Figure 8.1, products can be viewed under five levels. Each of
these levels adds more customer value, and the five constitute a customer
value hierarchy. The most fundamental level is the core benefit i.e. the
fundamental service or benefit that the customer is real y buying. For instance,
the core benefit enjoyed by a guest in a hotel is "rest and sleep".
Figure 8.1: Levels of a Product
At the second level, the marketer has to turn the core benefit into a basic product. In the hotel
example, such things as a bed, bathroom, towels, table, chair, dresser and closet are the basic
products enjoyed by a guest in the hotel. In the third level, the marketer prepares an expected
product i.e. a set of at ributes and conditions buyers norma ly expect when they purchase a product.
For instance, hotel guests expect a clean bed, fresh towels, working lamps, and a relatively quiet
environment.
At the fourth level, the marketer prepares an augmented product that exceeds customer expectations.
In this wise, a hotel can include a remote-controled TV. Set, remote-controlled air conditioner,
fresh flowers, rapid check-in, express checkout, and fine dining and room service. You need to
understand that in the developed countries, however, competition takes place mostly at the
expected product level.
At the fifth level, is the potential product, which consists of al the possible augmentations and
transformations the product might undergo in the future.
The foregoing description of the different layers of a product should make it
clear that a product is definitely more than a simple set of tangible features.
Consumers actual y want to see products as complex bundle of benefits that
satisfy their needs. The facts, as of today are that most competition takes
place at the product augmentation level. This is why successful firms add
benefits to their offers. Such benefits not only satisfy the customers, they are
also delighted.
3.3 ELEMENTS OF A PRODUCT

Elements that make up a product include at ributes, branding, packaging,
labeling, and product support services. Certain decisions along these lines are
often made concerning the development and marketing of individual products.
Each of these elements applies to al categories of products. However, the
way marketers handle them can vary significantly from one product to another.
Actual y, one of the primary goals of marketers is to differentiate their product
from competing ones by developing unique strategies for each product element.
We shal be taking a closer look at each of these elements.
3.3.1 PRODUCT ATTRIBUTES

The development of a product necessarily involves the consideration of the
benefits that the product wil offer. Such benefits are communicated and
delivered by product at ributes like quality, features and design. The degree of
consideration given to these attributes has far reaching implications on
consumer's acceptance of the product.
3.3.1.1 PRODUCT QUALITY

Quality is one of the marketing manager's strategies of placing the product in
the mind of the prospect or the consumer (i.e. positioning). Whenever a product
is being developed, the issue of quality comes under two dimensions: level
and consistency. In the first case, the marketing manager must choose a quality
of a product to perform its functions, such as overal durability, reliability,
precision, ease of operation, and repairs, as well as other valued at ributes.
The second consideration for quality is in respect of consistently delivering
the targeted level of quality to consumers. Hence, there should be no defects
in the products being offered to the market. In addition, no variations should
be spot ed in them.
It is realization of the need for high levels of quality consistency that firms
At up quality control units. General y, good quality control measures involve
preventing defects before they occur, through bet er product design and
improved manufacturing process.
In recent times, many business enterprises have embraced "Total Quality
Management (TQM) as an important tool to constantly improve product and process
quality in every facet of their activities. Such companies are gradual y turning quality into a
potent strategic weapon of gaining an edge over competitors by offering products and services
that bet er serve customers' need and preferences for quality.
3.3.1.2 PRODUCT FEATURES

Another important product at ributes are the features a particular product processes. A
product can be offered with varying features. A model without any extras (a "stripped -
down" model) is usual y the starting point. The company can simultaneously create
higher-level models by adding more features. Consider automobile-manufacturing plant for
example. A "stripped-down" model of the vehicles being produced wil contain no extra
features like air-conditioners, head rests, al oy rims, car stereo etc. However, the higher
models which contain any one or combinations of these extras features are fast becoming a
competitive tool for differentiating the company's products from competitors'. What is
general y needed here is some high degree of innovativeness backed with a sound and
ef icient marketing research unit.
3.3.1.3 PRODUCT DESIGN

The process of designing a product's style and function concerns creating that is attractive,
easy, safe, and inexpensive to use and service. It should also be simple and economical to
produce and distribute.
Just like product features, product design can be one of the most powerful competitive
weapons in a company's marketing arsenal.
For instance, good designs can at ract at ention, improve product perfonnance, cut production
costs, and give the product a strong, competitive advantage in the target market.
3.3.2 BRANDING
A forward-looking marketing manager wil usual y consider the issue of branding, as part
of his strategic plans. But what is a brand?
A brand is a name, term, sign, symbol or design, or a combination of these, which is intended
to identify the products or services of one sel er or group of sellers and to differentiate
them from those of competitors. Therefore, a brand identifies the maker or sel er of a
product. It is a sel er's promise to deliver consistently, a specific set of features, benefits, and
services to buyers.
We must observe that the term branding includes brand names, brand marks and
trademarks.
Brand name is narrower in meaning and is concerned with that part of a brand
which can be vocalized (i.e. utterable or pronounceable). A brand name is defined as a
brand or part of a brand consisting of a word, let er, group of words or let ers,
comprising a name, which identifies the goods or services of a sel er or group of sel ers
and distinguishes them from competitors. Examples here include Coca Cola, Pepsi Cola,
Peugeot, Toyota, Panadol, Bacchus.
Brand mark is that part of a brand which can be recognized but is not ut er able
or pronounceable, such as symbols, designs or distinctive colouring or
let ering. Examples. Lion head (for Peugeot).
A trademark is a brand or part of a brand that is given legal protection because
it is capable of exclusive appropriation. A trademark usually protects the seller's
exclusive rights to use the brand name and/or brand mark.
Branding is now an important issue in product strategy that can be viewed
from two sides. On the one hand, developing a branded product requires a
great deal of long-term marketing investment, especially for advertisement,
promotion and packaging. Hence, some manufactures usually find it conve-
nient and cheaper to make the product and let others do the brand building.
This strategy is common with Taiwanese manufactures who make substantial
proportion of the world's clothing, consumer electronics, and computers that
are sold under non-Taiwanese brand names.
On the other hand, many manufacturers have come to realize that the power
lies with the companies that control the brand names. For example, brand name
clothing, electronics, and computer companies can replace their Taiwanese
manufacturing sources with cheaper sources in Malaysia. It is however
regret able that the Taiwanese producers can do very little to prevent the loss
of sales to less expensive suppliers.
General y, branding adds value to consumers and society since it leads to higher
and more consistent product quality. It also increases the degree of
innovativeness in the business world by giving producers some incentives to
look for new features that cannot be easily copied by competitors. In this
sense, branding can be said to result in more product variety and choice for
consumers. Final y, branding increases shoppers' efficiency by providing
sufficient information about products and where to find them.
Apart from the above, branding has been observed to confer specific advantages
on both the buyer and the seller.
Benefits to the Buyer:
(i) Brand names inform the buyer about product quality. For instance, a buyer
who purchases the same brand knows that he will obtain the same quality
each time he buys.
(ii) Brand names also increase the shopping efficiency of the buyer.
Since different products have their particular brand names, a buyer will find it easy to pick
his choice from the pack instead of just aimlessly going through nameless products.
(i i) Brand names also assist in cal ing customers' at ention to new products,
especial y when backed by aggressive promotional activities. .
Benefits to the Seller:

(i) Brand names make it easier for sellers to receive and process orders, as wel as track
down problems. For example, a contract for the supply of vehicles wil usual y be
specific about the particular model needed.
(ii) The sel ers' brand name and trademark instantly give legal protection for unique
product feature that otherwise might be copied by competitors.
(iii) Branding allows the seller attract loyal and profitable sets of customers.
(iv) Through branding, the sel er is able to segment his markets and by so doing cater for
the needs of the various segments in the market.
3.3.3 PACKAGING
Packaging has to do with the activities of designing and producing the container or wrapper for
a product. The package may comprise of the fol owing:
(a) the product's primary container (e.g. the bottle holding bennylin cough a syrup);
(b) a secondary package, that is thrown away when the product is about to be used (i.e. the
card box containing the bottle of Bennylin cough syrup); and
(c) the shipping package necessary to store, identify and ship the product (e.g. a
corrugated box carrying larger volumes of the product).
In today's business, several factors have made packaging an important marketing tool. For
instance, the increase in self-service dictates that package must necessarily perform many
sales tasks such as at racting at ention, describing the products, as wel as making the sale.
In actual fact, innovative packaging can offer a company an advantage over competitors.
Labeling, which consists of printed information appearing on or with the package, should
be seen as part and parcel of packaging. Labels may range from simple tags attached to
products to complex graphics that are part of the package. They often perform at least two
functions. In the first place, the label identifies the products or brand. Secondly, it may
contain some useful information about the product such as its content, expiry date,
direction for use etc.
3.3.4 PRODUCT-SUPPORT SERVICES

Another important element of product strategy is customer service. What a firm offers in
the market place usually includes some services, which may be a minor or major part of
the total offer. These are known as product-support services since they augment actual
products.
Good customer service has its positive points. For instance, it costs less to
keep the goodwil of existing customers that it does to at ract new ones or win
back lost customers. Firms that provide high quality service usual y have the
opportunity to charge more, grow faster and make more profits.
It is in this sense that many are now setting up strong customer service
operations to handle complaints and adjustments, credit service, maintenance
service, technical service, and consumer information. A wel -staffed and
equipped customer service department should be able to effectively coordinate
al the firm's services, create consumer satisfaction and loyalty, and helps the
firm to further be ahead of its competitors.
3.4 PRODUCT CLASSIFICATION

Several product classification systems have been devised for efficient
marketing of products and services. In the first place, al products and services
can be broadly grouped into two major classes on the bases of the types of
consumers that use them. These classes are: consumer products and industrial
products. In the second place, these two group are further subdivided into
various subgroups (see Figure 8.2).
3 .4 .1 CONSUMER PRODUCT
These are goods or services bought by final consumer for personal
consumption, in such a form that they may be used without further commercial
processing.
The purpose of the marketing process is the satisfaction of consumers. Hence,

to develop and market products effectively, it is necessary to know how
customer feel about the products most especial y their basis of choice. It
follows form here that any sub-division of consumers goods should be based
on consumer behaviour. In this regard, al customer goods can be separated
into four categories.
( a)Co n v en i en c e p ro d u ct s
(b)Shopping products
(c)Specialty products
(d)Unsought products
A closer examination of these categories of products wil reveal that they
differ in the ways consumers buy them, hence there are differences in how
they are marketed. Table 8.1 gives a summmary of the marketing considerations
for the four categories of consumer products
92
<
Exampl Promoti Distri P Typic Maj
es on bution r al or
Cust
i M
c omer ar
buyi ket
Cigaret e Mass *Wid Ie L• * * ng (
habit ing
* Co
s, soap, esprea * Little
drugs, Promotion d L Lo Com Littl Freq a
newspap by the w paris e uent )
outlets o
on or
cus shop plan
magaziner
P
s, urc
producer *
Convew
es, nient to ping ning hase CTyp
chewing
locatioPr me effo oes of
gums, ns ic r rt nCon
grocery e inv v sum
products
.Refrige *Adverti *Sele * *Com * * er
rators, sing and ctive H pariso L ( Pro
televisi o n sets, persona l sel ing
distri n of M e b
brand u s duct
washin by both butio i s on c s )
g producer n in g price, h f S
machin
and few h style, p r h
es
furnitur resel ers outle suitabi l e o
a
ts e lity
e, r and q p
Mostly *More *(
it l
S
t
r
o
n
g
luxury
careful y *Exclu * sive * *L*Specia
products targeted distribu H L e l bran c
such as promotio tion in co d
Rolex n by both only i o m purchas )
Prefe
g w pa e effort
wrist one or ris rence S
Watches producer a few h pr on and p
and outlets of loyal
resel ers within p ic b ty e
Varies V If *Litt (
insurance, Life
*Aggres
encyclo a aw le
advertisisive
pedias, r are, prod d
ng,
personal litl uct )
e
Red selling i or
Gross and othe e ne
aw
arU
e
n
e
s
s, n
blood promotio s gati
donatio nal tools ve
ns by both int
ks o
n
o
w
l
e
3 .4 .1 .1 CONVENIENCE PRODUCTS
Convenience products are those products and services for which the probable
gain from making price and quality comparisons is thought to be smal relative
to the value of the customer is time and efforts Examples include cigarettes,
soap, newspapers, magazines, chewing gun and most grocery products. These
products are frequently and readily purchased, require lit le service or sel ing
efforts, are not very expensive, and may even be bought by habit.
Convenience products can be subdivided further into three types, based
primarily on how customers think about and buy such products:
(i )St ap l es p ro d u ct s
(ii)Imp uls e p roduct s
( i i i ) E me r g e n c y p r o d u c t s .
Staples: Staples such as food and drug items used regularly in every household,
are usually bought without much thought beyond the initial decision to buy
such products. Staples are usual y purchased frequently. Here branding
becomes important since brand recognition or preference helps the customer
reduce his shopping effort. In addition, if prices change occasional y on
these items, he does not need to reconsider which items to purchase, since he
can make do with familiar ones.
i
i
v
1 I V 1 1
Convenience I Shopping Speciality Unsou Material& Capital
gh
Parts Items
• 1 , •
I
Staple
1
v
Homogenous New Products
•
Emergency Installations Supplies
Impulses Heterogeneous Perpectual Accessories

I
Fig
ure
8.2
Cla
—
ssif
icat
ion
of
Pr
od
uct
s
SI
DI
10
30
1—
Usual y, staple items are offered for sale in many convenient places because
of customers' reluctance to search very far. Hence, they an found mostly in
food stores, drugstores, super -markets etc.
Impulse Products:- These are products which customers typical y do not

seek, they are often purchased with lit le planning or search effort. These
products are normal y widely available. This is why candy bars, magazines, etc
are placed next to checkout counters in many stores since shoppers may not
otherwise think of buying them.
It has been observed that as the income and buying power of customers grow,
the number of impulse items seems to the expanding. We should however
note that not al impulse items are purchased for emotional reasons alone. To
be sure, these products may satisfy both emotional and economic motives.
Emergency Products:- These are purchased only when the need is urgent,
and are thus purchased less frequently. Considerations for price and quality
is of little importance if the need is immediate enough. Examples include
ambulance services, umbrel as or raincoats during a rainstorm.
3.4.1.2 SHOPPING PRODUCTS

Shopping product are those for which the probable gain from making price,
style, suitability and quality comparisons is thought to be large relative to the
time and effort needed to shop properly for these products. Consumers spend
much time and efforts in gathering information and making comparisons when
buying shopping product. Examples include furniture , clothing, used cars,
and major appliances.
Shopping products can be subdivided into two classifications, depending on

what customers are seeking; (1) homogenous and (2) heterogeneous.
Homogenous Shopping products are seen by the consumer to be similar in

quality but different enough in price to justify shopping comparison.
Examples here include refrigerators, television sets, and automobiles. Thus,
each competitor has an almost perfect elastic demand curve. In such a case, a
slight price cut would substantial y increase sales volume, therefore, we might
expect price competition among the various competitors in the market.
Heterogeneous:-Shopping products are seen by the consumer as non-

standardized, hence wants to inspect for quality and suitability because the
product features are more important than price.
It is important therefore that a sel er of heterogeneous shopping products

carry a wide assortment to satisfy individual tastes. In addition, the seller must have
well-trained sales people to give information and advice to customers since they often
prefer to be guided. Furthermore, draperies, dishes and clothing are good examples of this
category shopping product.
3.4.1.3 SPECIALITY PRODUCTS:
Specialty products are those consumer products with unique characteristics or brand
identification for which or significant group of buyers is wil ing to make a special purchase
effort. The special effort the consumer makes is not to compare the product with others, but
merely to locate it, hence searching in the shopping products sense does not take place
here.
Specialty products are usually specific branded items rather than product categories, i.e.
they are specific products which have passed the brand preference stage and reached
the brand insistence stage. For instance, consumers have been observed asking for a drug
product by its brand name, and when offered a substitute actually leaving the store in anger.
Some wel -advertised food and drug products seem to have carved out a market for
themselves. If they achieve the brand insistence stage, we refer to them as specialty
products. The demand for specialty products is relatively inelastic at least within reasonable
price ranges since customers are wil ing to insist upon the product. Typical examples of
specialty products include specific brands and types of cars, high-priced photographic
equipment and custom-made men's suits.
3.4.1.4 UNSOUGHT PRODUCTS:-
These are consumer products that the consumer either does not know about or knows
about, but does not normal y think of buying. There seem to be two types of unsought products:
Almost all new products in the introductory stages may be classified as "Unsought" until the
consumer becomes aware of them through advertising. Yet there are some consumer
products that seem to perpetually remain unsought for the majority of potential
customers. Aggressive and continuous promotion is therefore necessary for both types to
move new products out of this category and simply to sel the lat er group (which very often
never gets out of the introductory stage). Examples of unsought products include life
insurance, encyclopedias, blood donation to the Red Cross.
3.4.2 INDUSTRIAL PRODUCTS
Industrial products are those purchased for further processing or for use in conducting a
business. When this description is compared with that of consumer products, it would
be seen that the distinction between then is simply based on the purpose for which the
particular product was bought. For example, if a consumer buys a camcorder for the recording
of important event for personal and private use, the camcorder is seen as a consumer
product If on the other hand, the consumer buys the same camcorder for the recording
of events such as wedding, funeral, birthdays with the intention of receiving financial
rewards, this camcorder is considered an industrial product.
Industrial product can be classified into three groups:

(a)Materials and parts
( b ) C a p i t a l i t e ms
( c)Su p p l y an d s erv i ces
3.4.2.1 MATERIALS AND PARTS

These are industrial products that enter the manufacturer's product completely,
including raw materials and manufactured materials and parts.
Raw Materials include farm products (e.g. Maize, wheat, cot on, cocoa
beans, livestock, fruits, vegetables etc) and are supplied by many small
producers who turn them over to marked intermediaries that process and sel
them. The other component of raw materials are natural products (e.g. lumber,
fish, crude petroleum, iron ore etc). They usually have great bulk and low unit
value, and require a lot of transportation to move them from producer to user.
They are also supplied by fewer but lager producers, who often tend to supply
these products directly to industrial users.
Manufactured materials consist of component materials (e.g. yam, cement,

wires, iron etc) and component parts (e.g. castings, engines, tires, bulbs etc).
3.4.2.2 CAPITAL ITEMS
Capital items are industrial products that aid in the buyers production or
operations. These are composed of (i) installations and (i ) accessory
equipment.
Instal ations are large and expensive items which do not become a part of the
final product but instead are used up over many years. They represent major
expenditures for the firm and are depreciated over a long period. In addition
then are bought directly from the producer. Examples of installations include
buildings (e.g. factories, offices) and fixed equipment's (e.g. generators, drill
presses, large computers, elevators)
Accessory equipment like their instal ation counterparts do not become a

part of the final product. They are usual y less expensive and shorter-lived
than installations. Products in this category include tools and equipment which
facilitate production or office activities. Examples include potable dril s, lift
trucks, typewriters, fax machines, desks, filing cabinets wheel barrows etc).
3.4.2.3 SUPPLIES AND SERVICES
These are industrial products that do not enter the fmished product at al . Supplies
include operating supplies (e.g. lubricants, coal, computer paper, pencils) and repair
and maintenance items (e.g. brooms,. nails, paint etc.). In some respects, supplies are the
convenience products of the industrial field because they are usually purchased with a
minimum of efforts and comparison.
Services are frequently necessary or desirable to plan, facilitate or support operation.

Business services include maintenance and repairs services (e.g. window cleaning,
computer and machinery repair etc) and business advisory services (legal, management
consulting, advertising etc. ).
4.0 CONCLUSION
Production is the first and the most important element in the marketing mix. A product
can be defined as a set of tangible and intangible attributes, including packaging, colour,
price, quality and brand, plus the sel er's services and reputation. A product may be a
good, service, place, person or idea. In essence, then, consumers are buying much more
than a set of physical attributes when they buy a product. They are buying want satisfaction
in the form of the benefits they expect to receive from the product.
5.0 SUMMARY
To manage its products effectively, a firm's marketers must understand the full
meaning of a product, which stresses that consumers are buying want satisfaction.
Products can be classified into two basic categories i.e., consumer products and industrial
products. Each category is then subdivided, because a different marketing program is
required for each distinct group of product.
Self -Assessment Exercise
1.Compare the elements of a producer's marketing mix for a convenience good with those
of the mix for a specialty good.
2.In which of the five categories of business goods, should each of the fol owing be
included? And which products may belong in more than one category?
(a)Trucks
(b )M ed i cal X -ra y eq u i p men t
( c ) T yp i n g p a p e r
(d)copper wire
(e)printing paper
Question:
Analyse two primary functions of packaging.
7.0 FURTHER READING

Boyce, C.L. and J.V. Thill (1992): Marketing New York,: McGraw — Hill, Inc.
Stanton, W.J. M.J. Etzal and B.J. Wal cen (1994): Fundamentals of marketing.
5th ed. New York.; McGraw — Hill, Inc.
MODULE 3
Unit 1 New Product Development

Unit 2 Pricing Decisions
Unit 3 Marketing of Services
Unit 4 Sports Marketing
Unit 5 Online Marketing
Unit 6 Guerilla Marketing
UNIT 1: NEW PRODUCT DEVELOPMENT

Table OF Content
1. O Introduction
2.0. Objectives
3.0 Main Content
4.0 Conclusion
5.0 Summary
6.0 Tutor- Marked Assignment
7.0 References/Further Reading
3 .1 What is a New Product?

3.2 The New Product Development Dilemma
3.2 .1 Reasons for New — Product Failure
3.3 Organising New Product Development

3.3.1 Effective Organisational Arrangement
3.3.2 Establishing a Workable Organisational Structure
3.4 Product Development Objectives

3.4.1 Product-Line Modification Programme
3.4.2 Product-Line Extension Programmes

3.4.3 Complementary-Product Programmes
3.4.4 Diversification Programme
3.5 The Product-Development Process

3.5.1 Consumer-Goods Market Testing
3.5.2 Industrial-Goods Market Testing
4 .0 Conclusion
5 .0 Su mmary
7.0 Further Reading
1.0 INTRODUCTION
In our previous discussions, a product was defined as anything that can be offered to a
market for at ention, acquisition, use or consumption that might satisfy a want or need. In
this regard, a product might be said to include physical objects, services, persons, places,
organisations, and ideas. In addition, every product should be seen as the packaging of a
problem-solving service.
Again, we have also stressed that, every product seems to go through a life
cycle i.e. it is born, goes through several phases, and eventually dies. Newer
products show up in the market to serve the consumer better than the dead
one. These new products would also suffer the same fate as the previous
ones, and another cycle begins.
This product life cycle poses one important chal enge to organisations: since
al product eventual y decline (in sales or acceptance), the firm must find new products
to replace aging ones. The focus of this unit therefore is on new
product development.
2 .0 OBJ ECTIVES
(i)define a new product

(ii)explain why new products are important to firms
(iii)discuss the major reasons for new product failures
(iv)outline the steps in the new product development process.
3.1 WHAT IS A NEW PRODUCT?
Any product that consumers treat as an addition to the available choices could
be considered a new product. From the viewpoint of the firm, however, new
products are those products that are new to the company.
Firms can obtain new products in two ways: (a) acquisition (b) new product
development.
The acquisition route can take three forms:

(i) the firm can pursue a corporate-acquisition programme involving the
search for smal companies that have at ractive product lines;
(i ) the firm can pursue a patent-acquisition programme, in which it buys the
rights to new products from their patent holders.
(iii) the firm can pursue a license-acquisition programme for manufacturing
various products.It should be observed from al the three cases above
that the firm does not develop any new products, but simply acquires the
rights to existing ones.
The new product route can take two forms:
(i) the firm can pursue internal product development by operating its own
research and development (R&D) department.
(i ) the firm can pursue contract-new product development. This involves
hiring independent researchers or new product development agencies to
develop specific products for the firm.
3.2 THE NEW PRODUCT DEVELOPMENT DILEMMA
Firms are often free to select any one or a combination of these strategies for
their development. General y, new products account for a high proportion of
growth in many firms and are usual y major contributors to overal profits for
these businesses. Under modern conditions of competition, firms that do not
develop new products are merely exposing themselves to risks of business
closure. Such firms wil find their products fal ing victim to changing consumer
needs and tastes, new technologies, shortened product life cycles, and increased
domestic and foreign competition.
On the other hand, new product development can be very risky. A variety of researchers
have investigated the rate of failure associated with new products. It has been reported
that between 33% to 98% of the new products introduced fail to achieve commercial
success.
3.2.1 REASONS FOR NEW — PRODUCT FAILURES Several factors

have been found to be responsible for new product failures:
(i) Dictatorial tendencies of top management: some high-level executive might push a
favourite idea through in spite of negative marketing research findings.
(i ) Over-estimating of market size: The project idea might be good, but the market
size may be over-estimated.
(i i) Product deficiencies: The actual product might not be properly designed to fit
the needs and wants of prospective consumers. This often results in poor quality and
performance. The product may turn out to be too complicated and might not offer
any significant advantage over competitive products already on the market.
(iv) Lack of effective marketing effort: There could be failure to provide sufficient
fol ow- through effort after introductory programme, and failure to train
marketing personnel for new products and new markets. In addition, the product
might be incorrectly positioned in the market, or even overpriced.
(v) Higher costs than anticipated: This often results to higher prices, with the
at endant lower sales volume than projected.
(vi) Competitors' strength/reaction: The competitors might fight back harder than
expected. In addition, the speed and ease of the copying an innovation may
overcrowd the market sooner than expected.
(vii) Poor timing of introduction: The new-product might make a premature entry into the
market. In some other instances, the product might be introduced too late
(vi i) Technical or production problems: The firm might not be able to produce
sufficient quantities to meet demand. In the process, competition might
gain an unanticipated share of the market.
To compound the problems faced by firms, it has been speculated that successful
new products may even be more difficult to achieve in the future for the reasons given
below:
(a) Shortage of important new-product ideas in certain areas. For instance,

some scientists claim that there are too few new technologies of the
investment magnitude of the automobile,
television, computers, xerography, and wonder drugs.
(b) Fragmented markets. The intense competition being witnesses is leading to
rapid fragmentation of markets. Hence, companies have to aim new products
at smal er market segments rather than the mass market with the resultant
lower sales and profits for each product.
(c) Social and governmental constraints. New products have to satisfy public
criteria such as consumer safety and ecological compatibility.
(d) Costliness of the new-product-development process. A company
typical y has to generate many new-product ideas in order to finish with a
few good ones. It should be noted that each product costs more to develop
and launch due to the effect of the recent inflation on manufacturing,
media, and distribution costs.
(e) Capital shortage. Many companies cannot afford or raise the funds needed
to research true innovations. Thus, they emphasize new product modifications
and imitations instead of true innovation.
(f) Shorter growth periods for successful product. When a new product is
successful, rivals quickly jump into the arena to imitate the product, so much that its
growth stage is shortened.
3.3 ORGANISING NEW PRODUCT DEVELOPMENT
Faced with the above problems how then can we have successful new-product
introductions?. There are two sides to this. In the first place, the organisation must
improve its organisational arrangements for handling the new-product development
process. Secondly, the organisation needs to handle each step of the process
with all seriousness, including using the best available techniques.
3.3.1 EFFECTIVE ORGANISATIONAL ARRANGEMENT Since
top management bears the ultimate responsibility for the quality of the new-product-
development work, it must start with a clear definition of company growth strategy that
specifies the business domains and product categories in which the company wants
to do business.
Apart from this, top management should also set specific criteria for new product-
idea acceptance. The criteria can vary with the specific strategic role the product is
expected to play. Such roles may include:
Maintaining position as a product innovator

Defending a market-share position
Establishing a foothold in a future new market Pre-
emptying a market segment
Exploring technology in a new way

Capitalising on distribution strengths.
The consideration of the acceptance criteria may be based on the fol owing:
A specified period within which the product can be introduced e.g five years
A stated minimum market potential and growth rate e.g at least 30 million and a 10
percent growth rate
Expected returns e.g. at least 25 percent return on sales and 35 percent on
investment
Technical/market leadership.
Furthermore, top management must determine the budget outlay for new product-
development; since R&D outcomes are so uncertain, it becomes a little bit difficult to
use normal investment criteria for budgeting. A number of alternative ways exist
towards finding a useful solution to this problem. These include:
(i) encouraging and financing as many project proposals as possible, hoping to hit a
few winners;
(ii) set ing R&D budgets by applying a conventional percentage-to-sales figure;
(iii) spending what competition spends
(iv) working backwards to estimate the required R&D investment after keeping the
number of successful products needed.
3.3.2 E STABLISHING A WORKABLE ORGANISATIONAL STRUCTURE
Another important factor in effective product-development work is to establish workable
organisational structures. The fol owing are some of the ways being adopted by different
organisations:
Product managers. Some firms entrust new-product development to their product

managers. Two notable faults have been detected in this system. Firstly, product managers
are usual y so busy managing their existing/current product lines that they give little
attention to new products other than brand modifications or extensions. Secondly,
product managers have been found to lack the specific skil s and knowledge needed to
develop new products.
New-product managers. This system professionalises the new-product function.
However, new-product managers tend to think in terms of product modifications and
line extensions limited to their product market.
New-product department. In order to support new-
productdevelopment as a full-time activity, some manufacturers usual y set up a
new-product department. This small department is headed by a manager who has
substantial authority, as wel as access to top management. Typically, these
departments are responsible for generating and screening new ideas, directing and
controlling R&D work, and carrying out field testing and pre-
commercialisation work. When a product is ready for ful -scale commercial
marketing, it is turned over to the appropriate operating department.
Product planning committee. Organisations that make use of this approach
often have a high-level management commit ee charged with reviewing new-
product proposals. The commit ee is usually made up of representatives from
marketing, manufacturing, finance, engineering, and other relevant departments. After
the product has successfully passed through the introductory stages of development,
the marketing responsibility for it is then taken over by another unit - e.g a product
manager or a new-product department. The advantage here is that, in a committee, the
ideas and wisdom of several executives can be pooled. In addition, any new
product resulting from the committee's work is likely to win the approval of the
administrators who took part in its development. However, one major
disadvantage of this system is that committee activity takes much valuable
executives time and slows the decision-making process.
Venture Team. This is a relatively new, rapidly growing organisational concept for
managing product innovation from idea stage to ful -scale marketing. The
venture team is designed to avoid the product-development problems in traditional
organisational structure. Such problems include bureaucratic operation,
reluctance to change, and lack of authority to move a product through the
developmental stages. General y, a venture team is a smal , multidisciplinary group,
organisational removed from the main stream of the firm. This team is made up of
representatives from engineering, production, finance and marketing research. The
main goal of the venture team is to enter a new market profitably. The group is
able to work in an entrepreneurial environment since it sees itself as a separate
smal business entity. It is usual for the group to report directly to top
management. Immediately the new product reaches the stage of being
commercially viable, it is typically turned over to another division, such as an existing
unit, a new division, or even a new subsidiary company. The venture team is then
disbanded. In some cases however, the team may be allowed to continue as the
management nucleus when a new company is established.
3.4 PRODUCT DEVELOPMENT OBJECTIVES

It is very important to clearly state the objective of the product-development
effort in order to provide direction for product-development decisions.
General y, product-development programmes may be designed to implement
the corporate marketing plan or to implement the marketing strategy for a given
product or product line.
There are four basic types of product-development programmes, each of which is
designed to fulfil specific objectives. These programmes include:
(i)Product-line modification programmes

(ii)Product-line extension programmes
(iii)Complementary-product programmes
(iv)Diversification programmes.
An organisation may employ any one or a combination of these programmes to
achieve different product-development objectives.
3.4.1 PRODUCT-LINE MODIFICATION PROGRAMMES These
programs are generally employed with the primary objective of enhancing sales of
the present line.
They may be useful in implementing a customer-retention marketing strategy for the
purposes of:
meeting changing buyer needs meeting
new competitive offerings or improving
satisfaction with the product.
This objective of enhancing sales of the present line can be achieved by:
redesigning or reformulating the product to provide new benefits or
to improve product quality; OR
by using multiple packaging in order to reduce competitors'
We may note that product modification programmes may enhance sales just
by stimulating primary demand through increasing the rate of purchase. For
instance, major design changes may result in a faster replacement rate for
durable goods. In particular, modest packaging changes can lead to more rapid
consumption of the product.
3 .4 .2 PRODUCT-LINE EXTENSION PROGRAMMES The primary
objective of product-line extension programmes is to reach a
new segment of a market. Basically, these programmes may be employed to:
acquire competitors' customers in segments where a firm presently does not have
an offering, OR
stimulate demand among current nonusers of a product form.
In these two situations above, an entirely new product must be created with product
features distinguishing it from the current offering.
3.4.3 COMPLEMENTARY-PRODUCT PROGRAMMES

Complementary product programmes seek to introduce products that can be
general y used with existing products. The objectives of these programmes may
be two -fold: either to enhance sales of existing products or to establish sales
growth in related markets.
Complementary products have been found to enhance the sales of existing
products. For example, a flash at achment to a camera will enable the customer to
use the product in more situations, and wil thus enhance the quality of the
photographs taken. In another way, a complementary product may be introduced simply
to take advantage of a company's brand name, image, or sales force. For example,
a tyre manufacturing firm may add the production of tubes as complementary
products.
3.4.4 DIVERSIFICATION PROGRAMMES

Diversification programmes are designed to establish a firm in new markets in
order to achieve objectives such as new growth opportunities OR sales stability.
Generally, diversification is a policy of adding new products to serve new markets.
3.5 THE PRODUCT-DEVELOPMENT PROCESS

The specific process used in implementing product-development programmes varies
among organisations. However, it is important that they employ logical, sequential
processes with ful recognition of the role that product is expected to play in
corporate and marketing strategy. The advantage of having such a structured
approach is to provide some mechanism for evaluating a new product idea at several
points in time as additional information is developed. Hence in each stage,
management must decide whether:
(i)to move to the next stage; (ii)to

abandon the product; or (iii)to
seek additional information
This evaluation process is wel il ustrated by Figure 1.
Source: Stanton, W.I. (1978): Fundamentals of marketing. New York, McGraw-Hil ,
Inc. p. 186.
We next describe the following eight stages in the product-development
process:
1.Idea generation
2.Screening
3.Concept development and testing
4 .M ark et i n g s t r at eg y
5 . B u s i n e s s a n a l ys i s
6 .Produ ct d evelop ment
7 .M ark et t es t i n g an d
8 .Co mme r ci al i s at i o n.
State 1: Idea Generation

New-product development starts with an idea. Generally, ideas can come from a
variety of sources, it is however desirable to establish a formalised approach to
generating new-product alternatives. This entails incorporating the firm's product-
development objectives. In other words, a systematic approach should be
established to search for ideas that will meet current primary objectives. In
addition, top management should define the product and markets to
emphasise. Furthermore, it should state how much effort should be devoted to
developing original products, modifying existing ones, and imitating
competitors' products.
Sources of New-Product Ideas
New-product ideas often come from many sources including the following:
(i)Customers: Our earlier understanding of the marketing concept suggests that

customers' needs and wants should be the logical places to start in the search for
new-product idea. In this sense, films can identify customers' needs and wants
through direct customer surveys, projective tests, focus group discussions, as
wel as suggestions and complaints let ers from customers.
(i )Scientists: Many organisations in the chemical, electronics and
pharmaceutical industries rely on their scientists for new product ideas.
(i i)Competitors' product: New product ideas can also be generated by monitoring
competitors' products. For instance, firms can listen to distributors, suppliers and sales
representatives in order to know the position of things in the market. In addition, firms can
assess who is buying competitors' new products together with the particular reasons for
making the new purchase. Furthermore, firms can buy competitors products, dismantle them,
and build bet er ones. This is known as product imitation and improvement rather than product
innovation.
(iv)Firm's sales representatives and dealers: These are important sources of new
product ideas. Their activities on the field usually endow them with firsthand exposure to
customers' needs and complaints. They are usual y the first to learn of competitive
developments.
(v)Top management: This is another major source of new-product ideas. However, as we
already observed (under reasons for product failures) this might not be good enough, since a
top executive may push through a pet idea without thoroughly researching market size or
interest.
(vi)Miscel aneous sources: Other sources include investors, patent at orneys,
university and commercial laboratories, industrial consultants, advertising agencies,
marketing research films, and industrial publications.
Stage 2: Idea Screening
The purpose of this stage is to reduce the large number of ideas generated from the
previous stage (i.e idea generation)". Basical y, idea screening rates the general desirability
of the new product concept to the firm. For instance, even when a concept is being viewed as
marketable, the same concept may be seen as inappropriate for a firm that lacks the specific
resources needed to produce and market it successful y.
The following aspects are usual y given proper considerations in the rating scheme for
evaluating new product ideas: marketability, durability, productive ability and growth potential
(See Table 10.1)
Table 10.1: Major considerations in Idea Screening
Aspect Considerations
1. (a) Relation to present distribution

Marketability (b) channels Relation to present
) product lines
(c) Quality-price relationship
(d) Number of sizes and grades

2. Durability
(f) Stability
(g) Breadth of market
(h) Resistance to cyclical
(i) fluctuations Resistance to
(j)
3. (k) Equipment necessary
Producti (l) Production knowledge and personnel
ve
(m)
4. (n) Place in market
Growt (o) Expected competitive situation-value
h (p) added Expected availability of end
Potenti
It should be clear from Table 1 that a variety of market-based internal and
external factors are often considered. Therefore, screening must generally be
carried out by a multifunctional group such that relevant inputs might be
col ected from production, finance, R&D, and marketing.
Apart from the four general aspects contained in Table 10.1, it is also important to
check whether the product idea is consistent with the current product-
development objectives. In this regard, a good idea that has scaled al the
hurdles of the screening factors may be rejected or stepped down, if it will
absorb resources needed to achieve the top priority objectives.
In this screening stage, the firm must avoid two types of errors: a DROP-error
or a GO-error.
A DROP-error occurs when the company dismisses an otherwise good idea.
It is often said that if a firm markets too many DROP-errors, its standards are too
conservative.
A GO-error occurs when the company permits a poor idea to move into development and
commercialisation. There are three types of product failures that can arise from this error:
(i) An absolute product failure. This loses money, and its sales do not cover variable costs.
(ii) A partial product failure This also loses money. However, its sales cover al the
variable costs and some of the fixed costs.
(i i) A relative product failure: This yields a profit that is less than the firm's normal rate
of return.
In summary, the major objective of the idea screening stage is to spot and drop poor ideas
as early as possible. The justification for this is premised on the fact that product-
development costs rise substantial y at each stage. It is thus, a case of "a stitch in time saves
nine".
Stage 3: Concept Development and Testing
The purpose of concept development and testing is to ensure that the proposed
product is devoid of all kinds of problems when it eventually gets to the market.
After the elimination of al the poor product ideas at the screening stage, the surviving ideas
must now be developed into product concepts. It will be necessary to distinguish between
a product idea, a product concept, and a product image: A product idea is just an idea for a
product that the firm can think of offering to the market. A product concept is an elaborated
version of the idea expressed in meaningful consumer terms. A product image is the
particular picture that consumers acquire of an actual or potential product.
Concept Development
Concept development can be illustrated with the case of a food processor, who has an idea
of producing a powder to be added to milk for the purposes of increasing its nutritional level and
taste. At this point, this is merely a product idea. However, customers do not buy product
ideas, but product concepts.
General y speaking, any product idea can be turned into several product concepts. Firstly,
we start with the persons or group(s) of persons who are likely to benefit from the use of the
product. For instance, the proposed powder can be aimed at infants, children, teenagers, middle-
aged adults, or the elderly. Secondly, the primary benefits to be derived from the
consumption of the powder are considered. This could be taste, nutrition, refreshment or
energy. Thirdly, the primary occasion for the drink is next considered. For instance, should it
be for breakfast, mid-morning, lunch, mid-afternoon, dinner or late evening?. By properly
given adequate considerations to the issues raised above,a firm can develop several product
concepts. For example, the following three concepts can be generated from the issues
already raised:
Concept 1: An instant breakfast drink for working-class adults who want a
quick nutritional breakfast without preparing a breakfast.
Concept 2: A tasty snack drink for school children to drink as a midday
refreshment
Concept 3: A health supplement for the elderly to drink in the late evening
before going to bed.
Concept Testing
The purpose of concept testing is to develop a more refined estimate of market
acceptance for the new product concept, or to compare competing concepts in
order to determine the most appealing one (or two), or both.
Concept testing is particularly designed to obtain the reaction of potential

consumers or buyers to one or more hypothetical product concepts. What is
usually done is to present the product features and benefits in verbal form or
explained through visual aids. Potential users are then interviewed to obtain
comments about the advantages and shortcomings of each concept.
Alternatively they may be asked to rate the products in various ways.
Stage 4: Marketing-strategy Development

What goes on at this stage, is the development of a preliminary marketing-
strategy. This is refined appropriately in subsequent stages.
The marketing-strategy statement often consists of three parts: In the first

part, the description of the size, structure, and behaviour of the target market are
given. Furthermore, the planned product positioning and the sales, market share,
and profit goals sought in the first few years are similarly stated.
In the second part of the marketing-strategy statement, the proposed product's

planned prices, distribution strategy, as wel as the marketing budget for the
first year are outlined.
The descriptions of the planned long-run sales and profit goals and the
marketing-mix strategy over time are presented in the third part of the
marketing-strategy statement.
Stage 5: Business Analysis

The business at ractiveness of the new-product proposal is evaluated here.
Essentially, the proposal is expanded into a concrete business proposal in which
management
( a ) e s t i ma t e s s a l e s ;
(b)estimates costs and profit projections.
These are done in order to determine whether such projections satisfy the firm's
objectives.
One major purpose of estimating sales is to check if it will be high enough to return a
satisfactory profit to the firm. The best approach for the sales estimation is to examine the sales
history of similar products. Additional y, a survey of market opinion should also be
undertaken. From these, management should then prepare estimates of minimum and
maximum sales to learn the range of risk.
After the preparation of sales forecast, management goes on to estimate the expected costs
and profits of the proposal. The costs are estimated by the R&D, manufacturing, marketing
and finance departments. Several techniques are then used to determine whether the
proposed project meets the firm's minimum profitability standards. Among the most widely
used methods are the net present-value and the payback approaches.
Stage 6: Product Development

If the business analysis for the proposal turns out to be favourable, the product concept moves
to R&D and/or engineering, where it is developed into a physical product. It is at this stage
that the "idea-on-paper" is converted into a physical product.
As would be expected, this stage calls for huge investment which is far beyond what was spent in
earlier stages. This stage often determines whether the product idea can be translated into a
technical y and commercial y feasible product. Otherwise, the firm's accumulated investment
wil be lost, safe for any useful information gained in the process.
While developing one or more physical versions of the product concept, the R&D
department strives to find a proto-type that satisfies the fol owing criteria:
(1) consumers views it as possessing the key attributes described in the product-concept
statement;
(2) the proto-type performs safely under normal use and conditions;
(3) the proto-type can be produced for the budgeted manufacturing costs.
It usual y takes considerable length of time to develop a successful prototype. There is the
need for the lab scientists to design the required functional characteristics. They should also
know how to communicate the psychological aspects through physical cues. For example, in
order to support the claim that a lawnmower is powerful, the lab people have to design a
heavy frame and a fairly noisy engine!. It will also be necessary for the marketing team to
work closely with the lab people so as to let them understand how consumers judge product
qualities they have in mind.
When a proto-type has been developed, it must be put through rigorous
functional and consumer tests. The functional tests are conducted under
laboratory and field conditions to make sure that the product performs safely and
effectively. The functional tests are essential y technical. They are meant to
provide information on:
(i)Product shelf life

(ii)Product wear-out rates
(iii)Problems resulting from improper usage or consumption
(iv)Potential defects that will require replacement
(v)Appropriate maintenance schedules.
As earlier pointed out, it is also necessary to examine the product performance from
the buyers' perspective. Such consumer testing can take a variety of forms,
ranging from bringing consumers into a lab to test the product versions to giving
them samples to use in their homes. The degree to which the new product is likely
to acquire new customers rather than simply "cannibalizing" the sales of any
existing products can be established. In addition, consumer product testing can
provide a check on whether or not the concept has been implemented. If
consumer descriptions of the product do not match the intended concept, then
reformulation may be necessary.
Stage 7: Market Testing
If the product's functional performance is satisfactory, the product is deemed fit to

be dressed up with a brand name, packaging and a preliminary marketing programme,
to test it in more real-life consumer set ings. The purpose of market testing is to
learn how consumers and dealers react to handling, using, and repurchasing the
actual product and how large the market is.
Market testing can yield valuable information about buyers, dealers, marketing
programme effectiveness, market potential etc.
The amount of market testing is influenced by the investment cost and risk on one
hand, and the time pressure and research cost on the other hand. Normally, high
investment/risk products deserve to be market-tested so as not to make costly
mistakes. Here then, the cost of the market tests wil be an insignificant percentage of
the cost of the project itself. In addition, high-risk products i.e those that create
new-product categories or have novel features, require more market testing than
modified products. However, the amount of market testing may be seriously limited
if the firm is under intense pressure to introduce its brand probably because the
season is just starting, or competitors are about to launch their brands. In some
instances, the firm may prefer the risk of a product failure to the risk of losing
distribution or market penetration on a highly successful product. Final y, the
cost of market testing wil affect how much is done and what kind.
There are differences in the market-testing methods between consumer and industrial
products.
3.5.1 CONSUMER-GOODS MARKET TESTING

The main purpose of testing consumers is to estimate the main determinants of sales i.e
trial, first repeat, adoption, and purchase frequency. Ordinarily, most firms want to find al
of these at high level. However, a firm might find many consumers trying the product but not
re-purchasing it, thus indicating a lack of product satisfaction. Yet, another firm might find
high first-time repurchases but only to experience a rapid wear-out effect. In another
instance, a firm might find high permanent adoption but low frequency of purchase because
the buyers use the product only on special occasions.
Furthermore, the firm wants to understand how many and what types of dealers will handle the
product, under what terms, and with what shelf-position commitments.
There are four main methods of consumer-goods market testing. These are (a) sales-wave
research (b) simulated store technique (c) control ed test marketing (d) test marketing.
(a) Sales-wave research

This is an extension of the ordinary home-use testing in which consumers who initial y
try the product at no cost are re-offered the product, or a competitor's products, at
slightly reduced prices. These consumers may be re-offered the product as many as three to
five times. During these periods of offer, the firm records how many consumers selected its
own product again, together with their reported level of satisfaction.
Apart from under-studying the repeat purchase of products, sales-wave research can also be
used to monitor the impact of advertising exposure on repeat purchase. This is done by
exposing consumers to one or more advertising concepts in rough form and then recording
the effect.
Sales-wave research has been found to possess some advantages. Firstly, it enables the firm to
estimate the repeat-purchase rate under conditions where consumers spend their own money
and choose among competing brands. Secondly, the firm can also measure the impact of
alternative advertising concepts on producing repeat purchases. Thirdly, sales-wave research
can be implemented quickly, conducted under relative competitive security, and carried out
without needing to develop final packaging and advertising.
This method however has two limitations: It does not indicate the trial rates
that would be achieved with different sales promotion incentives, since the
consumers are pre-selected to try the product. Neither does it indicate the
brand's power to gain distribution and favourable shelf position from the trade.
(b)Simulated store technique

This is also variously known as "laboratory-test-markets"; "purchase
laboratories" or "accelerated test-marketing". Here, about thirty to forty
shoppers at a shopping centre or elsewhere are invited to a brief screening of
some television commercials.
What is shown to this audience contains a number of wel -known commercials
and some new ones, and they usually cover a range of products. Within the
period of screening, one commercial advertises the new product, but this is
not singled out for at ention.
The consumers are later given some smal amount of money, as wel as invited
to a store, where they may use the money to buy any item or keep the money.
The researchers record how many consumers buy the new product and
competing brands. This definitely provides a measure of trial of the commercial
effectiveness against competing brands. The consumers are made to
reconvene in order to know the reasons for their purchases or non-purchases.
Some weeks later, the same sets of consumers are re-interviewed by telephone
to determine product at itudes, usage, satisfaction, and re-purchase intention
and are offered another opportunity to repurchase any products.
The simulated store technique has several advantages. These include the
measuring of trial rates, as well as repeat rates, advertising effectiveness, speedy
results, and competitive security. The results of the exercise are often
incorporated into mathematical models in order to project ultimate sales
levels. The outcomes of such prediction have been found to be very accurate.
(c) Control ed test marketing

This is also cal ed "mini-market testing". The method often requires the
marketing research firm conducting the test to make some arrangement with a
controlled panel of stores. Such stores must have agreed to carry new products
for a given amount of money. The firm with the new product specifies the
number of stores and geographical locations it wants. The marketing research
firm then delivers the product to the participating stores and subsequently
controls shelf location, number of facings, displays and point-of-purchase
promotions, as wel as pricing according to pre-specified plans. Sales that
result from this arrangement can be audited both from shelf movement and
from consumer diaries. In addition, the firm can test smal -scale advertising
in local newspapers during control ed test marketing.
This method has a special advantage since it allows the firm to test the impact of in-store
factors and limited advertising on consumers' buying behaviour without involving
consumers directly. A sample of consumers can be interviewed later in order to obtain
their impressions of the product. Another advantage inherent in the control ed test marketing
method is that the firm does not have to use its own sales force, give trade al owances, or
take the time to buy into distribution.
However, this method does not provide experience in trying to sel the trade on carrying the
new product. In addition, the technique also exposes the product to competitors.
(d) Test marketing
This is the costliest and the best way of testing a new consumer product. Under the
method, a firm offers a product for sale in a limited geographic area that is as representative
as possible of the total market in which the product wil eventual y be sold. Test marketing has
several distinguishing features relative to other approaches:
(i) Test marketing lowers the risk of national failure, which could endanger channel
relationships, reduce confidence, and morale of employees, and have a negative impact
upon present
customers' images of other products.
(i ) No special benefits are offered to induce purchasing other than those that would later
be available on a national basis.
(iii) The product competes with other competitive products in a real sales environment.
Any firm using test marketing usually works with an outside research firm to locate a smal
number of representative test cities in which the company's sales force wil try to sel the
trade on carrying the product and exposing it effectively on the shelves. Moreover, the firm
needs to put on a frill advertising and promotions campaign in these markets as would be done
in frill national marketing.
As would be expected, test marketing costs money. The actual amount to be spent however
depends on the consideration given to the fol owing:
(a) The number of cities:
It has been found that most tests use between two and six cities, with an average of four. Again,
it has been further suggested that a larger number of cities should be employed if:
(i) there is the probability of loss from going national or the maximum possible loss is
very great;
(i ) there is substantial number of contending/marketing strategies or the level of
uncertainty is very high;
(iii) there are wide regional differences; and
(iv) there is high chance of calculated test-market interference by
competitors.
(b)Type of cities:
Though no one city is a perfect replica of the nation as a whole, some cities
often typify aggregate national or regional characteristics bet er than others.
Such cities may be included in the study. Firms are of course, free to develop
their own test-selection criteria.
(c)Length of test:
General y, the length of test markets ranges from a few months to several
years. The longer the product's average re-purchase period, the longer the
test period necessary to observe repeat-purchase rates. However, if
competitors are rushing to the market, the period should be shortened.
(d)Nature and amount of information:

The type of information to be col ected has bearing with its value and cost.
The following can be used to il ustrate the variations in the amount of details
contained in different types of information:
(i) Warehouse shipment data shows gross inventory buying, but fails to
indicate weekly sales at retail
(ii) store audits will give actual retail sales and competitors' market
shares but wil not indicate the characteristics of the buyers of the
different brands.
(i i) Consumer panels will show which people are buying which brands
together with their loyalty and switching rates
(iv) Buyer surveys give in-depth information about consumer attitudes,
usage, and satisfaction.
Other things that can be re-searched here include trade attitudes,
retail distribution, and the effectiveness of advertising,
promotion, and point-of-sale material.
Many benefits are derivable from test marketing. Firstly, it yields a more
reliable forecast of future sales. For instance, if product sales fall below
target levels in the test market, the firm may have to drop or modify the product.
Secondly, the method al ows the pre-testing of alternative marketing plans. A
different marketing mix can be employed in each of the test cities. From
these, the optimum mix that results in the best profit level can be detected.
Thirdly, a firm may discover a product fault that escaped its at ention in the
product-development stage. In additi on, the firm may discover important
clues to distribution-level problems, and through this, it may gain bet er insight
into the behaviour of different market segments. It has been observed that the
main value of test marketing's does not lie in sales forecasting, but in learning
about unsuspected problems and opportunities connected with the new product.
Though test marketing has lots of advantages, a number of problems have been
identified as limiting its effective application. These concern the problems
of:
(i) obtaining a set of markets that is reasonably representative of the country as a
whole
(ii) translating national media plans into local equivalents
(iii) estimating what is going to happen in the coming year, based on what has happened in
this year's competitive environment
(iv) competitive knowledge of appropriate test(s) and of deciding whether any local
counter activities are representative of what competition wil do national y in the
future.
(v) extraneous and uncontrollable factors such as economic conditions and weather
3.5.2 INDUSTRIAL-GOODS MARKET TESTING
In the past, it is usual for new industrial goods to undergo extensive product testing in the
laboratories in order to measure performance, reliability, design and operating cost.
With satisfactory results, many firms wil commercialise the product by listing it in the
catalogue and turning it over to the sales force. In modern-day business however, a large
number of firms are changing to market testing as an intermediate step. Firms stand to gain
substantial benefits in the process, since market testing can indicate:
(i) the product's performance under actual operating conditions;
(ii) the key buying influences;
(iii) how different buying influences react to alternative prices and sales approaches;
(iv) th e market pot ential; and
( v ) t h e b e s t ma r k e t s e g me n t
Due to certain reasons, test marketing is not typically used for industrial products.
Firstly, it is too expensive to produce their samples, not to talk of put ing them up for
sale in a select market, just to see how wel they sel . Secondly, industrial buyers wil
want to be sure of the availability of spare parts and after-sales services before buying
durable goods. Thirdly, marketing research firms are yet to develop the test-market
systems that are found in consumer markets. Hence, industrial-goods manufacturers
have to use other methods that can be employed in researching the market's interest in
new industrial products. Four of such methods are in use. These are (a) product-use
test (b) trade shows (c) distributor and dealer display and (d) controlled or test
marketing.
(a) Product-use test
This is the most common method, and it is similar to the in-house use test for
consumer products. Here, the manufacturer selects some potential customers who
must have agreed to use the product for a limited period. The technical team from
the firm monitors how these customers use the product. The outcome of this
exercise often exposes unanticipated problems of safety and servicing. It also gives
the manufacturer clues about customer training and service requirements. At the
end of the test, the customer is asked to express purchase intent and other reactions.
(b)Trade shows
Another common market-test method is to introduce the new industrial product at
trade shows. Trade shows usually draw a large number of buyers, who view new
products in a few concentrated days. During the exposure, the manufacturer
wil be able to see how much interest buyers indicate in the new product, how they
react to various features and terms, and how many of them actually express purchase
intentions or place orders. One major disadvantage inherent in this method is that it
reveals the product to competitors. Hence, the manufacturer should be ready to
launch the product once it has been displayed at trade shows.
(c)Distributor and dealer display rooms
Manufacturers can also market-test new products in distributor and dealer display
rooms, where such products may be placed next to the manufacturer's other
products and possibly competitors' products. This method makes it possible to
obtain preference and pricing information in the normal selling atmosphere for the
product. It however has some shortcomings. For instance, the customers may want
to place order that cannot be met. In addition, the customers who come in might
not be representative of the target market.
(d)Controlled or test marketing
Although it was mentioned earlier that test marketing is not typically used for
industrial products, some manufacturers have been found to make use of it. In this
case, they produce a limited supply of the product and give it to the sales force to sell
in limited geographical areas with adequate promotional support, printed catalogue
sheets etc. Through this process, the firm can have a fore knowledge of what might
happen under full-scale marketing and thus get wel prepared for the launching.
Stage 8: Commercialisation
At this stage, full-scale production and marketing programmes are planned, and
then the product is launched. There are a number of important decisions to make
before the product is final y launched.
First, the timing of the introduction should be careful y evaluated. In general, it Is more
appropriate to introduce the new product during peak periods if demand is seasonal. This
wil allow the firm to obtain a high rate of trial and early sales, helping to offset the high costs
of introduction. It is also necessary to time the introduction appropriately, so that distributors
will have adequate levels of inventory by the time the introductory promotional campaign
starts. If the new product is being proposed to replace another product, it might be necessary to
delay its introduction until the old product's stock is drawn down, through the normal sales.
Second, the firm should properly consider its geographical strategy. In particular, it
should decide whether to launch the new product in a single locality, a region, several
regions, the national market, or the international market. It has been observed that only few
firms have the confidence, capital, and capacity to launch new products into ful national
distribution. They therefore tend to develop a planned market rollout over time. For
smaller companies, this approach entails the selection of an at ractive city with
aggressive promotional campaign to enter the market. Larger companies on their part often
introduce their new products into a whole region and then enter others, one at a time.
Under rol out marketing, firms have to assess the alternative markets for their new products,
using such criteria as market potential, firm's local reputation, cost of fil ing the pipeline,
quality of research data available in the particular area, influence of area on other areas, and
competitive penetration. The outcome of the assessment wil al ow the firm to determine the
prime markets and develop a geographical rollout plan.
Third, with respect to the rollout markets, the firm must target its distribution and promotion
to the best prospect groups. It is expected that prime prospects should have been identified
during the market testing stage. Ideal y, prime prospects for new consumer products have
been found to be:
(i )e arl y ad o p t ers
(ii)heavy users
(iii)opinion leaders who talk favourably about the product
(iv)reached at lo w cost .
We should note that very few groups of prospective customers possess al of the above
characteristics. The best thing is for the firm to rate the various prospect groups on these
features, and then target the best one. The purpose of doing this is to generate high sales as
soon as possible to motivate the sales force and at ract other new prospects.
Fourth, other programme decisions, with respect to price, advertising, sales

promotion, and sales and distribution activities need to be developed and
coordinated. These programmes are very important since they influence the sales and profit
results of any new products.
4.0 CONCLUSION
You have learned in this unit that every company needs to develop new products. This
is because new-product development shapes the company's future.
Replacement products must be created to maintain or build sales. Customers want
new products, and competitors will do their best to supply them. Therefore companies
that fail to develop new products are putting themselves at great risk.
5.0 SUMMARY
Once a company has segmental the market, chosen its target customer groups,
identified their needs and determined its desired market positioning, it is ready to
develop and launch appropriate new products. Successful new product
development requires the company to establish an effective organisation for
managing the development process. Eight stages are involved in the new-product
development process idea generation, screening, concept development and testing,
marketing strategy development, business analysis, product development,
market testing, and commercialisation. The purpose of each stage is to determine
whether the idea should be dropped or moved to the next stage.

Outline and discuss the steps in the new — product development process.
6.0 TUTOR — MARKED ASSIGNMENT

1 (a) Discuss the reasons for new-product failures
(b) It has been speculated that successful new-products may even be more
difficult to achieve in the future. What are the likely reasons for this ascertain?
7.0 FURTHER READING
Kotler, P (2000): Marketing Management. The Mil ennium Edition . New Delhi,
Practice Hall, India.
Stanton, W.J, M.J Etzeland , B. J Walker (1994)
Fundamentals of Marketing 10th Ed. New York, Mc Graw-Hill, Inc

UNIT 2: PRICING DECISIONS
Table of Contents
1.0 Introduction
2.0 Objectives
3.1 The Meaning and Importance of Price
3.1.1 Importance of Price to the Economy
3.1.2 Importance of Price to the Individual Firm
3.1.3 Importance of Price in the Consumer's Mind
3. The Role of Price in the Marketing Mix
3.3 Factors to Consider When Setting Prices
3.3.1 Internal Factors Affecting Pricing Decisions
3.3.1.1 Marketing Objectives

3.1.1.2 Marketing-Mix Strategy
3.1.1.3 Costs
3.1.1.4 Organisational Consideration
3.3.2 External Factors Affecting Pricing Decisions
3.3.2.1 The Market and Demand

3.3.2.2 Competitors' Costs, Prices, and Offers
3.2.2.3 Other External Factors

3.3.3 General Pricing Approaches
3.3.3.1 Cost-Plus or Ful -Cost Pricing

3.3.3.2 Pricing for a Rate of Return
3.3.3.3 Marginal Cost Pricing
3.3.3.4 Going-rate Pricing

4.0 Conclusion
5.0 Summary
7.0 Further Reading
1.0 INTRODUCTION
In this unit, we shal be covering the role of price in the marketing mix, for instance,
what price is, how it can be used, and how it is set relative to such factors as product
costs, market demand, and competitors' prices. In particular, we wil examine three major
pricing — decision problems facing selers. These involve how to: (a) set prices for the
first time, (b) modify a product's price over time and space to meet varying
circumstances and opportunities, and (c) initiate and respond to price.
2.0 OBJECTIVES
(i) Explain the meaning of price and its roles in the marketing mix:
(ii) Analyse the pricing process
(iii) List major pricing objectives and explain the purpose behind each type.
(iv) Describe demand curves and elasticity and discuss how marketers use
these concepts to establish ranges of possible price points.
3.1 THE MEANING AND IMPORTANCE OF PRICE
Price is the amount of money and/or other items with utility needed to acquire a
product (utility is an attribute that has the potential to satisfy wants). In this instance,
therefore, price may involve more than money. Note that exchanging goods and/or
services for other products in termed barter.
Prices can take on a number of assumed names as indicated in Table 1 below:

138
Table 11.1: Other Names Assumed By Price

Assumed name Where applied or operational
Tuition Education
Interest Use of money
Rent Use of living quarters, or a piece of equipment for a
period of time.
Fare Taxi ride or airline flight
Fee Services for a physician or lawyer
Retainer Lawyer's or Doctor's
Services over a period of time
Toll Travel on some high-ways
Salary Services of an executive or other white — col ar worker
Wage Services of blue — col ar worker
Commission Sales person's services
Dues Membership in a union or a club
Premium Services of insurance companies
Rate Services of utilities
Honorarium Service given by professionals.
From the various assumed price names in Table 11.1, you can see that price is significant to an
economy, to an individual firm and in the mind of the consumer. We shal briefly examine
each of these situations.
3.1.1 IMPORTANCE OF PRICE TO THE ECONOMY
A product price influences wages, rent, interests, and profits. This means that a product's
price influences the amounts paid for the factors of production, such as land, capital, and
entrepreneurship. We can therefore say that price is a basic regulator of the economic
system since it influences the al ocation of the factors of production. For instance, high
wages attract labour, high interest rates at ract capital etc. As an al ocator of resources,
price determines what wil be produced (i.e. supply), as well as who wil get the goods and
services produced (i.e. demand).
3.1.2 IMPORTANCE OF PRICE TO THE INDIVIDUAL FIRM The last

sentence of 3.1.1 above clearly shows that a product's price is a major determinant of the
market demand for it. Hence price affects a firm's competitive position and its
market share. Consequently, price has a considerable bearing on a company's revenues
and net profits. For example, it is through prices that money comes into an organization.
However, several factors can limit how much effect pricing has on a company's marketing
programme. For instance, factors such as differentiated product features, a favourable
brand, high quality, convenience, or some combination of these may be more
important to consumers than price.
3.1.3 IMPORTANCE OF PRICE IN THE CONSUMER'S MIND In

some cases, some consumers' perceptions of product quality has a direct relationship
with price. Hence, the higher the price, the better the quality is perceived to be. In
actual fact a lot of people hold this view, especial y when they are economical y
okay. This is the reason why some shoppers make price — quality judgments
particularly when they lack other information about product quality. In addition,
consumers' quality perceptions can also be influenced by such factors as store
reputation and advertising.
3.2 THE ROLE OF PRICE IN THE MARKETING MIX
Price is the only element in the marketing mix that produces revenue. Al
other elements—product, promotion, and distribution are concerned with delivering

value to the customer, and by so doing, they represent costs. Price is also one of the
most flexible elements in the marketing mix. Unlike product features and channel
commitments, price can be adjusted quickly. At the same time, pricing and price
competition is the number one problem facing many firms. Observations have shown
that many firms do not handle pricing well enough. The most common mistakes
include:
(i) Pricing that is too cost oriented;
(ii) Prices that are not revised often enough to reflect market changes;
(iii) Pricing that does not take the rest of the marketing mix into account; and
(iv) Prices that are not varied enough for different products, market segments, and
purchase occasions.
We shall be looking at the factors that must be considered when setting prices and at
general pricing approaches.
3.3 FACTORS TO CONSIDER WHEN SETTING PRICES A

company's pricing decisions are affected both by internal company factors and
external environmental factors. This is il ustrated by figure 11.1
Figure 11.1: Factors Affecting Price Decisions

Internal factors: Marketing objectives Marketing mix strategy Costs
Organizational
Considerations
External factors
Nature of the Market and demand Competition
Other environmental factors (e.g. economy re-sellers,
government)
Pricing
Decisions
33.1 INTERNAL FACTORS AFFECTING PRICING DECISIONS As already shown

in Figure 11.1, the internal factors affecting pricing include the company's marketing
objectives, marketing — mix strategy, costs, and organization. Let us examine each of
these.
3.3.1.1 MARKETING OBJECTIVES
The first thing to be done by a company is to decide what it wants to accomplish with the
particular product. For instance, if the company has selected its target market and market
positioning carefully, then its marketing — mix strategy, including price, wil be somehow
straightforward. For example, if the Nigerian Bottling Company wants to produce a special
fruit drink for the affluent — customer segment, this implies charging a high price. In this
instance, pricing strategy is largely determined by the prior decision on market
positioning. The company may simultaneously seek additional objectives. The clearer these
objectives are, the easier it is to set price. Each possible price will have a different impact
on such objectives as profits, sales revenue, and market share. Examples of common
objectives are survival, current profit maximization, market — share leadership, and product
— quality leadership.
Let us look at these objectives, one by one:
Survival: Firms set survival as their major objective if they are troubled by over-capacity,
stiff competition, or changing tastes of consumers. For instance, in order to keep a factory
going, a firm may set a low price, with the hope that demand will subsequently increase.
Thus, profits are less important than survival. In — as — much their prices cover variable
costs and some fixed costs, the firm can stay in business. However, you should note that
survival is only a short — term objective. The firm must learn how to add value in the long run,
otherwise it would close shop.
Current Profit Maximsation: Many firms use current profit maximisation
as their pricing goal. What they usual y do, is to estimate what demand and
costs will be at different prices and choose the prices that will produce the
maximum current profit, cash flow, or return on investment. Thus, the firms are
emphasizing current financial performance rather than long-run
performance.
Market — Share Leadership. Some other firms set market-share leadership as
their objective. The belief here is that the firm with the largest market share
wil enjoy the lowest costs and highest long-run profit. Hence, in order to
become the market-share leader, these firms set prices as low as possible. Product
— Quality Leadership: A firm might adopt the objective of being the product
— quality leader in the market. As should be expected, this normal y cal s for
charging a high price to cover the high product quality and high cost of research
and development (R & D).
Firms might also use price to achieve other more specific objectives. For
instance, a firm can set Prices low to prevent competition from entering the
markets, or set prices at competitor's level in order to stabilize the market. In
addition, prices can be set to keep the loyalty and support of re-sel ers or to avoid
government intervention. Prices can be reduced temporarily to create excitement
for a product or to draw more customers into a retail store. Furthermore, one
product may be priced to help the sales of other products in the firm's line. It is
thus very clear that pricing plays an important role in helping to accomplish the
firm's objectives at several levels.
3.1.1.2 MARKETING — MIX STRATEGY
You should realize that price is just one of the marketing — mix elements that
firms uses to achieve its marketing objectives. Price decisions must be
coordinated with the remaining three elements to form a consistent and
effective marketing programme. Decisions made for other marketing — mix
variables may affect pricing decisions. For example, producers using many re-
sellers who are expected to support and promote their products may have to
incorporate larger re-seller margins into their prices. In addition, the decision
to position the product on high performance quality will mean that the sel er
must charge a higher price to cover higher costs.
It is common for firms to make their pricing decisions first and then base other
marketing — mix decisions on the prices they want to charge. In this case, price
is a crucial product positioning factor that defines the product's market,
competition, and design. Therefore, the intended price determines what product
features can be offered and what production costs incurred.
Some firms often support such price — positioning strategies with a technique called
target costing, which is a potent strategic weapon. What is done in target costing is to
reverse the usual process of first designing a new product, determining its cost,
and then arriving at an appropriate price. Instead, it starts with a target cost and
works backward.
Other firms may decide to de-emphasize price and use other marketing — mix tools to create
non-price position. Often, the best strategy is not to charge the lowest price, but rather to
differentiate the marketing offer to make it worth a higher price.
Generally, the marketer needs to consider the total marketing mix when setting prices, for
instance if the product is positioned on non-price factors, then decisions about quality,
promotion, and distribution will strongly affect price. If it so happens that price is a crucial
positioning factor, then price wil strongly affect decisions made about the other marketing
— mix elements.
3.1.13 COSTS
Costs basically set the floor for the price that the firm can charge for its product.
Normal y, a firm wil want to charge a price that both covers al its costs for producing,
distributing, and sel ing the product and delivers a fair rate of return for its efforts and risks.
Hence, a firm's costs may be an important element in its pricing strategy. Usual y, most firms
struggle to become the "low-cost producers" in their industries. This is based on the
fact that companies with lower costs can set lower prices, which then results in greater sales
and profits.
A firm's costs general y take two firms, fixed and variable. Fixed costs (or overhead) are
costs that do not vary with production or sales levels. For example, a company must pay
monthly bills for rent, interest, salaries, whatever the company's output.
Variable cost varies directly with the level of production. These costs tend to be the same
for each unit produced.
Total costs are the sums of the fixed and variable costs for any given level of production.
Usually, management wants to charge a price that wil at least cover the total production
costs at a given level of production. The firm needs to watch its costs carefully. For
instance, if it costs the firm more than competitors to produce and sel its product, the
firm wil have to charge a higher price or make less profit, thus put ing it at a competitive
disadvantage.
3.1.1.4 ORGANISATIONAL CONSIDERATION
It is the responsibility of a firm's management to decide who within the organization
should set prices. Finns handle pricing in a variety of ways. In smal companies, for
example, prices often are set by top management rather than by the marketing or sales
department. In larger companies, however, pricing is general y handled by divisional or
product line managers. In the case of industrial markets, sales people may be allowed to
negotiate with customers within certain price ranges. Even then, top management sets the
pricing objectives and policies, and it often approves the prices proposed by lower— level
management or sales people.
3.3.2 EXTERNAL FACTORS AFFECTING PRICING

DECISIONS
As earlier mentioned under section 3.3, apart from factors within a company,
external factors also affect a firm's pricing decisions. Such factors include the
nature of the market and demand, competition, and other environmental elements.
We shall be looking at each of the factors in the sections that fol ow.
3.3.2.1 THE MARKET AND DEMAND

You were made to understand in section 3.3.1.3 that cost set the lower limit (or
the floor) of prices. The market and demand set the upper limit (or the ceiling).
Both consumer and industrial buyers balance the price of a product or service
against the benefits of owning it. In this regard therefore, the marketer must
understand the relationship between price and demand for its product. It wil thus
be necessary to explain how the price — demand relationship varies for different
types of markets and how buyer perceptions of price affect the pricing decision.
We shal also be discussing the methods for measuring the price — demand
relationship.
Pricing In Different Types of Markets

The pricing freedom of sellers actually varies with different types of markets. There
are four types of markets recognized by economists, and each poses a different
pricing chal enge.
Under pure competition, for example, the market consists of many buyers and
sel ers trading in a uniform commodity such as cocoa, maize, banking, or telephone
services. No single buyer or sel er has much effect on the ruling market price.
For instance, a seller cannot charge more than the ruling price because buyers can
obtain as much as they need at the going price. Neither would sellers charge less
than the market price because they can sel al they want at the current ruling
price. If price and profits rise, new sellers can easily enter the market. In a purely
competitive market, marketing research, product development, pricing, advertising,
and sales promotion play very little or no role. Hence, sellers in these markets do
not spend much time on marketing strategy.
In the case of monopolistic competition, the market consists of many buyers and
sellers who trade over a range of prices rather than a single market price. This is
because sel ers can differentiate their offers to buyers. For instance, the
physical product can be varied in quality, features, or style, or the
accompanying services can be varied. Since buyers can clearly see differences in
sellers products, they will be ready to pay different prices for them thus, sel ers
try to develop differentiated offers for different customer segments and, in
addition to price, often use branding, advertising, and personal selling to set
their offers apart.
Under Oligopolistic competition, the market consists of a few sel ers who are highly
sensitive to each other's pricing and marketing strategies. The product can be uniform or non-
uniform. There are few sel ers because it is difficult for new sel ers to enter the market.
Each sel er is typical y alert to competitors' strategies and moves. If a seller cuts its price by,
say 10 percent, buyers wil quickly switch to this supplier. The other suppliers must also
respond by lowering their prices or increasing their services. You should note that an
oligopolist is never sure that it will gain anything permanent through a price cut. On the
other hand, if an oligopolist raises its price, its competitors might not fol ow this lead. In this
instance therefore, the oligopolist might have to withdraw its price increase or risk losing
customers to competitors.
In a pure monopoly, the market consists of just one sel er. The sel er may be a
government monopoly, a private regulated monopoly, or a private non — regulated
monopoly. In each of these, pricing is handled differently. For instance, a government
monopoly can pursue a variety of pricing objectives. It might set a price below cost because the
product is important to buyers who cannot afford to pay ful cost. Alternatively, the price
might be set either to cover costs or to produce good revenue. It can even be set quite high to
slow down consumption. In a regulated monopoly, the government permits the company to
set, one that will allow the firm maintain and expand its operations as needed. Non-regulated
monopolies are free to price at what the market will bear. Usually, they do not want to charge
ful price for a number of reasons: a desire not to at ract competition, a desire to penetrate
the market faster with a low price, or a fear of government regulation.
Consumer Perceptions Of Price And Value

At the end of the day, the consumer will decide whether a product's price is right. Therefore,
when setting prices, the company must consider consumer perceptions of price and how
these perceptions affect consumers' buying decisions. You should remember that pricing
decisions, like other marketing-mix decisions, must be buyer oriented.
Why consumers buy a product, they exchange something of value (the price) to get
something of value (the benefits of having or using the product). This situation can be
represented by a value equation
V = B/P
Where: V = Value
B = Benefits, and
P = Price.
Based on this consideration, an effective, buyer — oriented pricing should therefore involve
understanding how much value consumers place on the benefits they receive from the
product and setting a price that fits this value. Analysing the Price — Demand Relationship
Each price a firm charges will lead to a different level of demand. The relationship between the
price charged and the resulting demand level is il ustrated in the demand curve in Figure 11.2
Figure 11.2 Demand Curves
P R IC E P 2
Fl
Quantity demanded per period Quantity demanded per period

A. Inelastic Demand B. Elastic Demand
The demand curve shows the number of units the market wil buy in a given time
period, at different prices that might be charged. For normal goods, demand and
price are inversely related — the higher the price are inversely related — the higher
the price, the lower the demand. For example, the firm would sel less if it raised its
price from Pi to P2. In the case of luxury goods, the demand curve sometimes slopes
upward.
Price Elasticity of Demand

It is also necessary for marketers to know price elasticity of demand (PED), which
refers to the responsiveness of quantity demanded to price changes. Let us look at
our Figure 11.2 again. In Figure 11.2 (A), a price increase from Pi to P2 lead to a
relatively smal drop in demand from Qi to Q2. In Figure 11.2 (B) however, the same
price increase leads to a large drop in demand from Qi to Q2. If demand hardly
changes with a smal change in price, we say the demand changes greatly, we it is
said that demand is elastic.
The price elasticity of demand is given of the fol owing formula:
Price Elasticity of Demand = %Change in Quantity Demanded
% Change in Price
If we assume that demand fal s by 14 percent when a sel er raises its price by 2
percent, the PED is calculated to be — 7 (the minus sign confirms the increase relationship
between price and demand) and demand is elastic. If demand falls by 3 percent with a
3 percent increase in price, then PED is — 1. In this case, the sellers total revenue
stays the same. The sel er sells fewer items but at a higher price that preserves the
same total revenue. On another occasion, if demand fal s by 2 percent when price in
increased by 4 percent, then PED in -1 and demand is inelastic. The less elastic the
demand, the more it pays for 2 'the sel er to raise the price.
What determines PED? Demand is likely to be less elastic under the following conditions:
(i)There are no substitutes or competitors:
(ii)Buyers don't readily notice the higher price:
(iii)Buyers are slow to change their buying habits and search for lower prices:
(iv)Buyers think the higher prices are justified by quality improvements, normal inflation
etc.
If demand is elastic rather, than inelastic, sellers will consider lowering their price. A lower
price will produce more revenue. This practice makes sense as long as the extra costs of
producing and selling more do not exceed the extra revenue.
3.3.2.2 COMPETITORS' COSTS, PRICES, AND OFFERS
The second set of external factors affecting the firm's pricing decision is competitors'
costs and prices, and possible competitor reactions to the firm's own pricing moves. For
instance, a consumer who is considering the purchase of a GSM phone from NITEL wil
evaluate NITEL price and value against the prices and Value of comparable products from
ECONET and MIN. In addition, the firm's pricing strategy may affect the nature of the
competition it faces. For example if a particular firm follows a high-price, high margin
strategy, it may atract competition. However low — price, low- margin strategy may stop
competitors, or drive them out of the market.
It is necessary for companies to benchmark their costs against competitors' costs so as to

learn whether they are operating at a cost advantage or disadvantage. You should
remember that costs typical y set the floor for the price a firm can charge (see section 3.1.1.3
again).
Companies also need to learn the price and quality of each competitor's offer. This can be
done in several ways. For instance, a firm can:
(i) Send a comparison shoppers to price and compare competitors' products

(i ) Get competitors' price lists and buy competitors' products and dismantle it for the
purposes of thorough examination of the features they contain
(iii) Ask buyers how they view the price and quality of each competitor's products.
Once a company is aware of competitors' prices and offers, it can use them as starting
point for its own pricing. For instance, if its products are similar to those of a particular
competitor, it will have to place its price close to that competitor‘s price otherwise it will lose
sales. If the company's products are not as good as those of the particular competitor in
question, the company wil not charge less, then it can charge more. In essence, a company
should use price to position its offers relative to the competition.
3.3.2.3 OTHER EXTERNAL FACTORS
Companies also need to consider other factors in its external environment when
set ing prices. Economic conditions can have a strong impact on a firm's pricing strategies.
For instance, economic factors such as boom, or recession, inflation and interest rates
affect pricing decisions because they affect both the costs of producing a product,
as well as consumer perceptions of the product's price and value.
It is also very necessary for the marketer to consider what impacts its prices will
have on other parties in its environment. Of particular importance is the way re-sel ers
or marketing intermediaries wil react to the company's various prices. In actual fact, the
company should set prices that give these intermediaries a fair profit, encourage their
support and loyalty, and help them to sell the product effectively. Finally, the
company must also take social concerns into serious consideration. Hence, when
selling prices, a company's short — term sales, market share, and profit goals may have
to be tempered by broader societal considerations.
3.3.3 GENERAL PRICING APPROACHES

After discussing the various considerations affecting pricing policies, it would be
useful to discuss the alternative pricing methods most commonly used. These
methods are:
Cost-plus or Full-cost pricing
Pricing for a rate of return, also called target pricing
Marginal cost pricing
Going rate pricing, and
Customary prices.
The first three methods are cost-oriented as the prices are determined on the basis of
costs. The last two methods are competition-oriented as the prices here are set on
the basis of what competitors are charging.
3.3.3.1 COST-PLUS OR FULL-COST PRICING
This is most common method used in pricing. Under this method, the price is set to
cover costs (materials, labour and overhead) and a predetermined percentage for
profit. The percentage differs strikingly among industries, among members — firms
and even among products of the same firm. This may reflect differences in competitive
intensity, differences in cost base and differences in the rate of turnover and risk.
In fact, it denotes some vague notion of a just profit.
What determines the normal profit? Ordinarily margins charged are highly sensitive to
the market situation. They may, however, tend to be inflexible in the fol owing cases: (i)
they may become merely a matter of common practice, (ii) mark-ups may be determined
by trade associations either by means of advisory price lists or by actual lists of mark-ups
distributed to members, (iii) profits sanctioned under price control is discontinued.
These margins are considered ethical as wel as reasonable. Its inadequacies are:
1. It ignores demand — there is no necessary relationship between cost and what

people wil pay for a product.
2. It fails to reflect the forces of competition adequately. Regardless of the
margin of profit added, no profit is made unless what is produced is
actual y sold.
3. Any method of allocating overheads is arbitrary and may be unrealistic. Insofar as
different prices would give rise to different sales volumes, unit costs are a function of
price, and therefore, cannot provide a suitable basis for fixing prices. The situation
becomes more difficult in multi-product firms.
4. It may be based on a concept of cost, which may not be relevant for the pricing
decision.
(a) To illustrate marking pricing, suppose a jug manufacturer had the following
costs and expected sales:
Variable cost N10

Fixed cost N300,000
Expected unit sale 500,000
Then the manufacturer's cost per jug is given by:
Fixed Cost N 3 0 0 , 0 0 0
UnitCost=VariableCost+ — -MO +
Unit Sal e 50,000

=N16
Now,supposethemanufacturerwantstoearna20percentmarketingonsales.The
manufacture'smarkingpriceisgivenby:
Marking Price = Unit Cost = 1416
I—DesiredReturnonSales 1 — 0.2
=N20
ThemanufacturerwouldchargedealersN20ajugandmakeaprofitofN4 per
unit. The dealers,in turn, wil mark upthe jug.For instance, ifdealerswant to
earn 50 percent on sales price, they wil mark up the jug to N40 (N20 +50%
ofN40).Thisnumberisequivalenttoamarkingoncostof100percent(N20/N20)
Explanation for the Wide spread use of Full-cost Pricing

A clear explanation cannot be given for the widespread use of full-cost pricing, as
firms vary greatly in size, product characteristics and product range, and face
varying degrees of competition in markets for their products. However, the
fol owing points may explain its popularity:
1. Prices based on full-cost look factual and precise and may be more
defensible on moral grounds than prices established by other means.
2. Firms preferring stability, use full-cost as a guide to pricing in an uncertain
market where knowledge is incomplete. In cases where coasts of get ing
information are high and the process of trial and error is costly, they use it to
reduce the cost of decision-making.
3. In practice, firms are uncertain about the shape of their demand curve and bout
the probable response to any price change. This makes it too risky to move
away from full-cost pricing.
4. Fixed costs must be covered in the long-run and firms feel insecure that if they
are not covered in the long-run either.
5. A major uncertainty in setting a price is the unknown reaction of rivals to that
price. When products and production processes are similar, cost-plus pricing
may of er a source of competitive stability be setting a price that is more likely to
yield acceptable profit to most other members of the industry also.
6. Management tends to know more about products costs than other factors which are
relevant to pricing.
7. Cost-plus pricing is especially useful in the following cases:
(a) Public utilities such as electricity supply, transport, where the objective
is to provide basic amenities to society at a price which even the poorest
can afford.
(b) Product tailoring, i.e. determining the product design when the selling
price is predetermined. The sel ing price may be determined by
government, as in case of certain drugs, cement, and fertilizers. By
working back from this price, the product design and the permissible cost
is decided upon. This approach takes into account the market realities by
looking from the viewpoint of the buyer in terms of what he wants and
what he will pay.
(c) Pricing products that are designed to the specification of a single buyer as
applicable in case of a turnkey project. The basis of pricing is
estimated cost plus gross margin that the firm could \have got by
using facilities otherwise. ,
(d) Monophony buying — where the buyers know a great deal about
suppliers' costs as in case of an• automobile buying, components from its ancil ary
units. They may make the products themselves if they do not like the price. The more
relevant cost is the cost that the buying company, say, the automobile manufacturer,
would incur if it made the profit itself.
3.3.3.2 PRICING FOR A RATE OF RETURN
An important problem that a firm might have to face is one of adjusting the prices to changes
in costs. For this purpose the popular policies that are often followed are as under:
1.Revise prices to maintain a constant percentage mark-up over costs.

2.Revise prices to maintain profits as a constant percentage of total sales.
3.Revise prices to maintain a constant return on invested capital. The use of above
policies is illustrated below:
Il ustration
A firm sel s 1,00,000 units per year at a factory price of N12 per unit. The various costs are
given below:
Variable Costs N 3,60,000
Labour N 4,20,000
Fixed Costs N1,20,000
Selling & Administrative N1,80,000
Total investment in cash,Inventory and equipment N8,000,000
Suppose the labour and materials cost increases by 10 per cent. The question is how to
revise price according to the three policies discussed above.
The above data reveal that costs are N10,80,000. The profits as percentage of costs, sales and
capital employed (according to the three policies are):
1.P er cen tage over cos ts 1,20,000

= 11.1
10,80,000
2.P er cen tag e o n s a les 1,20,000

=10
12,00,000
3.Percentage on capital employed 1,20,000
8,00,000
The revised costs are 1411,58,000
(N10,80,000 + 36,000 + 42,000)
=15
According to the first formula, we have to earn a profit of 11.1 per cent on
costs. Our revised profits should be N1,28,667 and sales volume on this basis
would be N12,86,667. The sel ing price would, therefore, be N12.87 per unit.
Under the second formula, the profit should be 10 per cent on sales. If sales are
S.
the profit would be S/10 and cost would be 95/10. The cost is known to us and
we have to find out the sales.
If 9S/10 =N11,58,000 than S =3/412,86,667
Therefore, the price per unit is N12.89.
Under the third formula, we assume that the capital investment is the same.
Therefore, the required profit is Ni, 20,000 (15 percent on 3/48, 00,000). The
sales
value would then be ?i12,78,000 and the sel ing price per unit would be N12.78.
Rate of return pricing is a refined variant of full-cost pricing. Natural y, it has the
same inadequacies, viz., it tends to ignore demand and fails to reflect
competition adequately. It is based upon a concept of cost, which may not be
relevant to the pricing decision at hand and overplays the precision of
allocated fixed costs and capital employed.
3.3.3.3 MARGINAL COST PRICING

Both under full-cost pricing and the rate-of-return pricing, prices are based on
total costs comprising fixed and variable costs. Under marginal cost pricing, fixed
costs are ignored and prices are determined on the basis of marginal cost. The
firm uses only those costs that are directly attributable to the output
of a specific product.
With marginal cost pricing, the firm seeks to fix its prices so as to maximize its
total contribution to fixed costs and profit. Unless the manufacturer's products
are in direct competition with each other, this objective is achieved by
considering each product isolation and fixing its price at a level which is calculated
to maximize it total contribution.
Advantages:
1.With marginal cost pricing, prices are never rendered uncompetitive merely because
of a higher fixed over-head structure. The firm's prices will only be rendered
uncompetitive by higher variable costs, and these are control able in the short-run
while certain fixed costs are not.
2.Marginal cost pricing permits a manufacturer to develop a far more aggressive
pricing policy than does full-cost pricing. An aggressive pricing policy should lead to
higher sales and possibly reduced marginal costs through increased marginal physical
productivity and lower input factor prices.
3.Marginal cost pricing is more useful for pricing over the life-cycle of a product, which
requires short-run marginal cost and separable fixed cost data relevant to each particular
state of the cycle, not long-run full-cost data. Marginal cost pricing is more effective
than ful -cost pricing because of two characteristics of modem business:
a) The prevalence of multi-product, multi-process and multi-market concerns
makes the absorption of fixed costs into product costs absurd. The total costs
of separate products can never be estimated satisfactorily, and the optimal
relationships between costs and prices will vary substantial y both among
different products and between different markets.
b) In many businesses, the dominant force is innovation combined with
constant scientific and technological development, and the long- run
situation is often highly unpredictable. There is a series of short-run. When
rapid developments are taking place, fixed costs and demand conditions may
change from one short-run to another, and only be maximizing contribution in
ach short-run wil profit be maximized in the long-run.
Limitations
1.The encouragement to take on business which makes only a smal contribution may
be so strong that when an opportunity for higher contribution business arises, such business
may have to be foregone because of inadequate free capacity, unless there is an
expansion in organization and facilities with the attendant increase in fixed costs.
2.In a period of business recession, firms using marginal cost pricing may lower prices in
order to maintain business and this may lead other firms to reduce their prices leading
to cut-throat competition. With the existence of idle capacity and the pressure of fixed
costs, firms may successively cut down prices to a point at which no one is earning
sufficient total contribution to cover its fixed costs and earn a fair return on capital
employed.
In spite of its advantage, due to its inherent weakness of not ensuring the coverage of
fixed costs, marginal cost pricing has usually been confined to pricing decision relating to special
orders.
3.3.3.4 GOING-RATE PRICING
Instead of the cost, the emphasis here is on the market. The firm adjusts it own price
policy to the general pricing structure in the industry. Where costs are particularly
difficult to measure, this may seem to be the logical first step in a rational pricing
policy. Many cases of this type are situations of price leadership. Where price
leadership is well established, charging according to what competitors are charging
may be the only safe policy.
It must be noted that 'going-rate pricing' is not quite the same as accepting a price
impersonal y set by a near perfect market. Rather it would seem that the firm has
some power to set its own price and could be a price maker if it chooses to face al
the consequences. It prefers, however, to take the safe course and conform to the
policy of others.
Customary Pricing
Prices of certain goods become more or less fixed, not by deliberate action on the
sellers' part but as a result of their having prevailed for a considerable period of time.
For such goods, changes in costs are usually reflected in changes in quality or
quantity. Only when the costs change significantly the customary prices of these
goods are changed.
Customary prices may be maintained even when products are changed. For example,
the new model of an electric fan may be priced at the same level as the discontinued
model. This is usually so even in the face of lower costs. A lower price may cause an
adverse reaction on the competitors leading to a price war so also on the consumers
who may think that the quality of the new model is inferior. Perhaps, going along
with the old price is the easiest thing to do. Whatever be the reasons, the maintenance
of existing prices as long as possible is a factor in the pricing of many products.
If change in customary prices is intended, the pricing executive must study the
pricing policies and practices of competing firms and the behaviour and emotional
make-up of his opposite number in those firms. Another possible way out, especially
when an upward move is sought, is to test the new prices in a limited market to
determine the consumer reaction.
4.0 CONCLUSION
You have learned in this unit that in spite of the increased role of non-price factors in
the modern marketing process, price remain an important element in the marketing
mix.
5.0 SUMMARY
Pricing is an important element of the marketing mix. Pricing is affected not only by the cost
of manufacturing the product, but also by (i) the company's objectives in relation to market
share and sales (i ) the marketing-mix strategy (iii) the nature and intensity of competition;
(iv) consumer perceptions and value; and (v) economic factors. Hence, before making any
pricing decision, it is important to understand al these factors.
There are various methods of pricing. The four most commonly used methods are full cost
pricing, pricing for a rate of return, going rate pricing, and customary pricing. While the
first two methods are based on the costs incurred, the latter methods are based on
competition's pricing.

—
1.Explain the meaning of price and its role in the marketing mix.
2.describe demand curves and elasticity and relate how marketers use these concepts to establish
ranges of possible price points.
• 6.0 TUTOR-MARKED ASSIGNMENT
Questions:
Identify the constraints that affect pricing decision and the effects that each constraint can
haveon the pricing process.
7.0 FURTHER READING

Bovee, C.L. and IV. Thill (1992): marketing. New York, McGraw-Hill, Inc.
Kotler, P (2000): Marketing Management. The Milennium Edition. New Delhi, Prentice —Hall
of India Stanton, W.J.; M.J. Etzel and B.J. Walker (1994): Fundamentals of Marketing. 10'h
ed. New York, McGraw-Hill, Inc.
UNIT 3: MARKETING OF SERVICES
Table of Contents
1.0 Introduction
2.0 Objectives
3.1 Nature of Service
3.2 Characteristic of Service

3.2.1 Intangibility
3.2.2 Inseparability Variability (heterogeneity)
3.2.3 Perish ability and Fluctuating Demand
3.3 Marketing Strategies for Service Firms
3.3.1 Internal Marketing

3.3.2 Interactive Marketing
3.3.2.1 Managing Differentiation
3.3.2.2 Managing Service Quality
3.3.2.3 Managing Productivity

4.0 Conclusion
5.0 Summary
7.0 Further Reading
1.0 INTRODUCTION
In this unit, you wil learn that marketers of services face a special marketing challenge
because of the nature of service products. Most of the marketing concepts you have learned
so far apply to services, but there are some additional considerations that are unique to
services. These shal be our main focus here.
2.0 OBJECTIVES
( i) explain what s erv ice ar e

(i ) highlight the unique characteristics of services, and the marketing implications in
these characteristics.
(i i) Identify and define strategies for marketing services, including differentiation,
service quality, and productivity.
3.1 NATURE OF SERVICE

A service is any activity or benefit that one party can offer 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.
General y, a product is anything that can be offered to a market to satisfy a need or

want. Usual y, the word "product" suggests a physical object such as a car, telephone
set etc. However, the concept is not limited to physical objects. Anything capable of
satisfying a need can be called a product. The importance of physical goods lies not
so much in owing them as in the benefits they provide. For instance, we don't buy
food to look at it, but because it satisfies our hunger. We don't buy a microwave
oven to admire, but because it cooks our food.
Actual y, a service is a performance that delivers some combination of benefits to the

buyers. A service can be provided by a machine (e.g automatic teller), a person (e.g.
consultant), or a combination of both (e.g. mechanic). A service can be directed
toward the buyer (e.g dental check-up) or toward the buyer's possessions (e.g. roof
repair). Al government agencies are service providers, as are schools, hospitals,
and transportation systems.
As you already learnt in units 1 and 8, most products are actually a combination of
tangible good and intangible service, Goods dominant products rely primarily
—
on the exchange of physical goods to fulfil customer needs. However, with service —
dominant products, the majority of the exchange is a service. Although we talk about
"goods" and "services" as separate categories, you can see that many products
include elements of both.
Activities such as renting a hotel room, depositing money in a bank, taking an insurance
policy, traveling on an airplane, visiting a medical doctor, getting a haircut, having a
car repaired, watching a professional sport, seeing a movie, having clothes cleaned at
a dry cleaner, and get ing advice from a lawyer al involve buying a service.
3.2 CHARACTERISTICS OF SERVICES

Services have a number of distinctive characteristics, which create special
marketing challenges and opportunities. These characteristics are summarised in
Figure 16.1
Figure 1: Four Service Characteristics

Inseparability Services cannot be separated from their providers
Intangibility Services cannot be seen, tasted, felt, heard, or smelled before purchase
Perishability
Service cannot be stored for later sale or use.
Variability
Quality of services depends on who provides them and when, where, and how
3.2.1 INTANGIBILITY:
This means that services cannot be seen, tasted, felt, heard, or smel ed before they are
bought. For example, people undergoing cosmetic surgery cannot see the result before
the purchase, and airline passengers have nothing but a ticket and the promise of safe
delivery to their destinations.
To overcome intangibility, buyers usually look for "signals" of service quality. They draw
conclusions about quality from the place, people, price, equipment and communication
material that they can see. Therefore, the service provider's task is to make the service
tangible in one or more ways.
Intangibility also leads to a special implementation and control chal enges. For instance,
whereas product marketer try to add intangibles to their tangibles offers, service marketers
try to add tangibles to their intangible offers. For instance, a bank that wants to convey
the idea that its service is quick and efficient must make this positioning strategy tangible
in every aspect of customer contact. The bank's physical setting must suggest quick and
efficient service: its exterior and interior should have clean lines, internal traffic flow should
be planned carefully, waiting lines should seem short at tel er windows and Automatic Tel er
Machines (ATMS), and background music should be light and upbeat. The bank's staff
should be seen to be busy and properly dressed.
The equipment— computers, copy machines, current counters, desks etc. should
look modern. The bank's advertisement and other communications should
suggests efficiency, with clean and simple designs and carefully chosen words
and photos that communicate the bank's positioning.
Consequently, a company's promotional programme must portray the benefits to be

derived four the service, rather than emphasizing the service itself. From promotional
strategies that may be used to suggest service benefits are:
(i) Visualization - depicting benefits with advertisement that show many features
(i ) Association, that is, — connecting the service with a tangible good, person, object, or
a place. For example, the following animals listed in Table 16.1 are usual y employed
to depict the services offered by some service firms:
Table 16.1: Connection between some animals and service
delivery
Animal Perception
Elephant The strongest animal
Dolphin The smartest animal
Tiger The most dynamic animal
Eagle The sharpen eyes sight
Rhinoceros The most Volatile animal
(iii)Physical representation. For example, some banks use colour — gold or

platinum — for their credit card services to symbolize wealth and prestige Fast
food chains, telephone companies,etc. dress their service representatives in
clean, distinctive uniforms to stress visibility, cleanliness, and dependability.
(iv)Documentation i.e. citing facts and figures in advertisements to support claims
of dependability, performance, care etc. For instance, insurance firms should always
publicise claims already set led. In addition, services marketers cannot rely on
normal measures of product quality to make sure they are offering the right level
of performance. Instead, service marketers often we customer satisfaction surveys to
monitor and maintain control over product quality.
3.2.2 INSEPARABILITY, VARIABILITY (HETEROGENEITY)
Service inseparability means that services cannot be separated from their
providers, whether the producers are people or machines. If a service employee provides
the employee service, then, the employee is a part of the service. Because the
customer is also present as the service is produced, provider — customer
interaction is a special feature of services marketing. Both the provider and
the customer affect the service outcome. Consequently, customers' opinions
regarding a service are frequently formed through contacts with the production
— marketing personnel and impressions of the physical surroundings in the
factory.
Inseparability has a special meaning in many service industries. In some cases, a particular
provider is so closely identified with a service that substitute providers will simply not
suffice. For example, in the case of entertainment and professional services, buyers care a
great deal about who provides the service. For example, it is not the same service at a
Sunny Ade concert if Sunny gets sick and is replaced by one of his band boys. A legal
defense supplied by Rotimi Wil iams differs from one supplied by Festus Keyamo.
Hence, when consumers have strongly provider preference, price is used to ration the limited
supply of the preferred provider's time.
From a marketing point of view, inseparability frequently means that direct sale is the
only possible channel of distribution, and an individual seller's services cannot be sold in
very many markets. This characteristic limits the scale of operation in a services firm. As
an exception to the inseparability feature, service may be sold by a person who is
representing the creator — seller. For example a travel agent, insurance broker, etc. may
represent and help promote services that will be sold by the institution producing them.
Variability (Heterogeneity)
Service variability means that the quality of services depends on who promotes them as well
as when, where, and how they are provided. For example, some hotels such as Sheraton
have reputations for promoting better service than others, and, within these good ones, one
registration — desk employee may be cheerful and efficient whereas another standing just a
few feet away may be unpleasant and slower. Even the quality of a single Sheraton's employee
service varies according to his/her energy, and frame of mind at the time of each
customer encounter.
Service firms can take several steps to help manage service variability. They can select and
carefully train their personnel to give good service. They can provide employee incentives
that emphasize quality, such as employee of—the — month awards or bonuses based on
customer feedback. A firm can check customer satisfaction regularly through suggestion and
complaints systems, customer surveys, and comparison shopping.
3.2.3 PERISHABILITY AND FLUCTUATING DEMAND

Service perishability means that services cannot be stored for later sale or
use. For instance, unused telephone time, empty seats in a stadium or airplane
and idle mechanics in a garage al represent business that is lost forever.
Furthermore the market for services fluctuates considerably by season, by
day of the week, and by hour of day. There are exceptions to this generalization
regarding the perishability and storage of services. In health and life insurance,
for example, the service is purchased by a person or a company. Then, it is
held by the issuance company until needed by the buyer or the beneficiary.
This is holding constitutes a type of storage.
The combination of perishability and fluctuating demand offers product —

planning, pricing and promotion challenges to service executives. Some
organizations have developed new uses for idle plant capacity during off-season.
Advertising and creative pricing are also used to stimulate demand during slack periods.
Some hotel offer lower process and family packages on weekends. Telephone service
providers charge lower rates for long — distance cal s during nights and weekends.
3.3 MARKETING STRATEGIES FOR SERVICE FIRMS
Good service firms should always use marketing to position themselves strongly
in chosen target markets. However, because services differ from tangible products,
they often require additional marketing approaches. In a product business, products
are fairly standardized and can sit on shelves waiting for customers. But in a service
business, the customers and frontline service employee interact to create the service.
Thus, service providers must work to interact effectively with customers in order to
create superior value during service encounters. Effective interaction, in turn,
depends on the skills of frontline service employees, and on the service
production and support processes backing these employees.
Hence, successful service companies focus their attention on both their

employees and customers. They usually employ the service — profit chain, which
links service firm‘s profits with employee and customer satisfaction. This chain
consists of five links.
Internal service quality i.e. supervisor employee selection and training, a

quality work environment, and strong support for those dealing with
customers. This results in:
Satisfied and productive service employees i.e. more satisfied, loyal, and
hard working employees. Thus leading to:
(i i) Greater Service values i.e. more effective and efficient customer
satisfied loyal customers i.e. satisfied customer, who remain loyal, repeat purchase, and
refer other customers, hence leading to:
(iv) Healthy service profits and growth i.e. superior service firm performance.
Therefore, reaching service profits and growth goals, begins with taking care of those who
take care of customers. Evidently, service marketing requires more than just traditional
external marketing using the 4PS
Service marketing also requires both internal marketing and interactive marketing.
Company
External Marketing
Employees
Interactive marketing
3.3.1 INTERNAL MARKETING

Means that the service firm must effectively train and motivate its customer
contact employees and al the supporting service people to work as a team to
provide customers satisfaction. In order for the firm to deliver consistently

high service quality, everyone must practice a customer orientation. Internal marketing
usual y precedes external marketing.
3.3.2 INTERACTIVE MARKETING
Means that perceived service quality depends heavily on the quality of the
buyer — seller interaction during the service encounter. The customer judges
service quality not just on technical quality (e.g success of a surgery) but also
on its functional quality (whether the doctor showed concern and inspired
confidence). Thus, professionals cannot assume that they will satisfy the
customer singly by providing good technical service. They need to master interactive
marketing skills or function as well.
Today, as competition and costs increase, and as productivity decreases, more
marketing sophistication is needed. Hence, service companies face three major
marketing tasks: They want to increase their competitive differentiation, service quality, and
productivity. Let‘s examine each of these.
Customers
Internal Marketing
3.3.2.1 MANAGING DIFFERENTIATION
Many service firms experience the difficulty of differentiating their services from
those of competitors, especially in these days of intense price competition.
This is even made worse by the attitudes of customers who view the service of
different providers as being similar. They therefore care less about the provider
than the price.
Price competition is can be tackled by developing a differentiated offer,

delivery, and image. For instance, the offer can include innovative features that set
one company's offer apart from competitors' offers. eg. Airlines have introduced such
innovation as in — flight movies, advance seating, air — to — ground telephone
service, and frequent — flyer award programmes to differentiate. Some airlines
also provide sleeping compartments hot showers, and cooked — to — order
breakfasts.
The unfortunately thing here is that most service innovations are copied easily. This
notwithstanding, the service company that innovates regularly will gain a
succession of temporary advantages and an innovative reputation that may help it
keep customers who want to go with the best.
It is possible for service companies to differentiate their service delivery in three

ways — through people, physical environment, and process. The company can
distinguish itself by having more able and reliable customer — contact people than
its competitors have. Or it can develop a superior physical environment in which
the service product in delivered. Finally, it can design a superior delivery process. (eg.
Electronic home banking). Service companies also can work on differentiating their
image through symbols and branding. e.g Lions/Elephant as a image of strength. (you
may have a look at Table — 1 again).
3.3.2.2 MANAGING SERVICE QUALITY

One of the major ways a service firm can differentiate itself is by delivering
consistently higher quality than its competitors do.
To this end, many service firms have now joined the total quality movement, having
observed that outstanding service quality can give them a potent competitive
advantage that leads to superior sales and profit performance.
The key is to exceed the customers' service — quality expectations. As one chief
executive puts it, "promise only what you can deliver and deliver more than you
promise!". These expectations are based on past experiences, word of mouth, and
service firm's advertising. If perceived service of a given firm exceeds expected
service, customers wil want to use the provider again. Customer retention is
perhaps the best measure of quality, therefore, a service firm's ability to hang onto
its customers depends on how consistently it delivers values to them. Hence,
the service provider's quality goal should be "zero customer defections"
The service provider needs to identify the expectations of target customers concerning
service quality. Unfortunately, service, quality is harder to define and judge than product
quality. Moreover, although greater service quality results in higher costs, stil ,
investments in service quality usual y pay off through increased customer retention and
sales. Whatever the level of service provided, it is important that the service provider
clearly define and communicate that level so that its employees know what they must
deliver and customers know what they wil get.
Service providers should always take steps that will offer good service every time.
They must also take steps that wil al ow them recover from service mistakes when they occur.
In these regards, the first step to take is to empower frontline service employees — to give
them the authority, responsibility and incentives they need to recognize, care about, and
tend to customer needs.
Studies of wel — managed service companies show that they share a number of
common virtues regarding service quality:
(i) Top service companies are "customers obsessed. They have distinctive strategy for
satisfying customer needs that wins enduring customer loyalty.
(ii) Well-managed service companies have a history of top management commitment
to quality i.e. apart from financial performance, service performance are looked
into.
(iii) The best service providers set high service quality standards
(iv) The top service firms watch service performance closely, i.e. both their own and that
of competition. For example they use methods such as comparison shopping,
customer surveys, and suggestion and complaint forms. Some service providers
also take regular measure of "ART" (an acronym for Accuracy, Responsiveness,
and Timeliness)
(v) Good service companies also communicate their concerns about service quality to
employees and provide performance feedbacks.
3.3.2.3 MANAGING PRODUCTIVITY
Service firms are under great pressure to increase productivity, especially with their
costs rising rapidly. This can be done in several ways:
(i) The service providers can train current employees better, or they can hire new
ones who will work harder or more skillful y for the same pay. OR they can increase the
quantity of their service by giving up some quality eg. Some doctors who work in health
maintenance organization have moved towards handling more patients and giving less
time to a patient. The provider can "industrialise the service" by adding equipment
and standardizing production.
However, companies must avoid pushing productivity so hard that doing so reduces
perceived quality. Some productivity steps help standardizes quality, increases
customer satisfaction. But other productivity steps lead to too much standardization
and can rob customers of customised services.
4.0 CONCLUSION
You have learned in this unit that conceptually, services are marketed in the same
way as tangible goods. In practice, however, the characteristics that differentiate
services from goods lead to different marketing programmes.
5.0 SUMMARY
Most product offerings are a mix of tangible goods and intangible services,
somewhere between mostly goods and mostly services. Services are separately
identifiable, intangible activities that are the main object of a transaction designed
to provide want —satisfaction. The characteristics that differentiate services from
goods require different marketing programmes. Marketers have to find ways to make
the service more tangible; to increase the productivity of providers who are inespable
from their products; and to improve demand movements and supply capacities in
the face of service perishability.

—
Highlight the unique aspects of service marketing.

Question:
Enumerate and explain the four service Characteristics
7.0 Further Reading

Kotler, P and G Armstrong (1976): Principles of Marketing. 7th ed. London,
Prentice—Hall international (UK) Ltd.
Unit 4: Sports Marketing
Table of Contents
1.0Introduction
2.0Objectives
3.0Main Content
3.1Definition and Meaning of Sports Marketing
3.2Sports Product versus Non-sports products
3.3Benefits of Sport Marketing
4.0Conclusion
5.0Summary
6.0Tutor-Marked Assignment
7.0References / Further Reading
1.0 INTRODUCTION
Sports has become an important agent of globalisation, transversing various
nations of the world and bringing different people of the world to speak one
language either in the game of football, basket ball, Lawn tennis etc. Due its
general acceptance by all races and religions of the world and its importance in
peoples’ lives, especially the game of football, sports is considered a profitable
and sustainable marketing source.
This unit introduces you the concept of sport marketing and the three
dimensions of sports marketing. The unit also distinguishes sports products
from non- sports products and also explains the various benefits derived from
sports marketing
2.0 OBJECTIVES
By the end of this unit, you should be able to:
1. Define the concept of Sports Marketing

2. Explain the different dimensions of Sports Marketing
3. Differentiate Sports products from Non-Sport Products
3.0MAIN CONTENT
3.1Definition and meaning of Sports Marketing
Sport marketing is the use of marketing principles for or within sports related
environments. It is a subdivision of marketing which focuses both on the
promotion of sport events and teams as well as the promotion of other
products and services through sporting events and sport teams.
Sport Marketing is a service in which the elements promoted can be a physical
product or a brand name. The goal is to provide the client with strategies to
promote the sport or to promote something other than sports through sports.
One element that sport marketing takes advantage of is that athletes
tend to be brand loyal and fans tend to be loyal to their favourite athlete and
teams. This can be recognized through the contracts players and athletes sign
with sports companies in which they get paid to wear or use their products in
each game or sporting event. By doing so, the players and athletes and also
their fans develop a loyalty to the products for a longer time.
There are three dimensions to sport marketing and these are:
1. Marketing of Sports
This involves designing or developing a “live” themed activity, occasion, and
display or exhibit sporting event to promote a product , a team, cause or
organization. It is a marketing strategy
This kind of marketing strategically aims at marketing the pure sports goods
to the target market. This involves the advertising of sports events and
sports teams or association such as the champions’ league, the Olympics,
the world cup, National Football League, through different media channel.
In this type of marketing, the promotion is related to sports.
2. Marketing through Sports

This concept has been in use since the 80s but has gained more popularity
in the last two decades due to the growth and expansion that the different
types of sports have enjoyed
This kind of marketing and promotion can be carried out through (i) the
sport or (ii) through the sports club. When the marketing is done through
the sport, it is under the responsibility of the different sporting associations
and when it is done through the sports club, the responsibility falls on the
different sports clubs.
Marketing through sports involves the marketing of non sports products or
the promotion of various products through sports related channels like
sporting events, sporting teams and individual athletes, for example,
Master Card sponsorship and advertisements in the champions’ league and
the world cup is a well known advertisement.
In marketing through sports, the promotion is not about the sports; to

promote their products or services, companies and associations use
different channels such as sponsorships of teams, or athletes, television or
radio advertisement during the different broadcast sports events and
celebrations and or advertisements on sporting venues.
3. Grassroots Sport Marketing

Grassroots Sport Marketing is a part of the field of marketing known as
Social Marketing. It involves the promotion of sport to the public in order to
increase participation. It is normally done with a much smaller budget than
marketing of sports teams and event or marketing of products through
sports, as it does not bring any direct financial benefit. Although this type of
marketing normally drives people to clubs where they will pay to play sport;
however, it stil needs to be subsidized in order to be run.
Street Marketing is an offshoot of grassroots marketing. It involves

promoting of sports through billboards on the street and also through
urban elements like street lighter, sidewalks etc to gain publicity during
major worldwide sporting events such as football World Cup, Olympic
Games etc.
3.2Sports Products versus Non-sports products

In establishing a strategic environment for any dimension of sports
marketing, it is necessary to make clear distinctions between sports and
non-sports products.
A. Sports Products
There are three main categories of sports products and these are:
i. Spectator Sports
The main marketing objective in this category is to increase the ticket
sales or general y, to increase the ratings of the broadcasting of
sports events.
ii. Participation Sports

Unlike spectator sports, participation sports lacks the feeling of
competition and involves the individuals into the sports experiences,
hence the term, “participation sports”.
iii. Sporting goods, Apparel, Athletic Shoes and Sports-Related

Products
Sporting goods are tangible products created for specific sport
activity.
Apparel is a type of sports-related clothing. It may be either to
facilitate participation, support or for fashion reasons.
Athletic shoes form a distinguished category due to its various
designs and being in everyone’s wardrobes.
Sports –Related Products may be referred to as souvenirs or any
type of good that may be purchased during the participation in a
sports activity for example beer.
What do you consider to be the major marketing advantage for sports

marketing?
B. Non-sports Product
Marketers of non sports products benefit from the sports environment
using different levels of sponsorship strategies and these are:
i. Traditional Sponsorship
Here, the aim is to be able to use the logos and the trademarks of
the sports property and to settle a relationship in the customers’
minds of the target market of that sports property.
ii. Venue Naming Rights

Though this may be similar to traditional sponsorship, venue
naming rights represent a special form of sponsorship because it
is claimed that the sponsors receive a remarkably high value from
naming values.
iii. Endorsement
This can be described as personal sponsorship for example;
adidas is the personal sponsor of Lionel Messi while Nike is the
personal sponsor for Cristiano Ronaldo
iv. Licensing
In this type of sponsorship, the licensor gets only the rights to use
sport property’s logos and trademarks during it’s on marketing
efforts. Official supplier is one of supplier is one of the most
common categories of licensing. A popular example in recent
times is that of Turkish Airlines being the official supplier of FC
Barcelona.
3.3. Benefits of Sport Marketing
./ Sport marketing drives memberships, sales and recognition.

These are the major factors that are of immense benefit to the
companies the athletes, the associations, the leagues and sport
event manager.
./ When properly planned, effective marketing helps to understand

the customer and the market place.
./ Informed marketing decisions help increase the company’s, club’s

or association’s performance.
./ Due to the status and importance in people’s lives, sport is

considered a profitable and sustainable marketing source.
4.0 Conclusion
Sports as an important agent of globalization, a very lucrative occupation , a form

of leisure / relaxation and its general acceptability by people of all races and
religion has become an important avenue for promoting not only sports but
almost everything other thing that can impact or affect the human life. This is
essentially the goal of sport marketing.
5.0 Summary
Sport marketing is a science in which the elements promoted can be a physical

product or a brand. The goal is to provide client with strategies to promote the
sport or to promote something other than sports through sports. There are three
dimensions to sports marketing and these are: marketing of sports, marketing
through sports and grass root marketing. To establish strategic environment for
any dimension of sports marketing, there is need to distinguish sports from non-
sports products i.e. spectacular sports, participation sports and sporting goods
from endorsement, licencing and venue naming rights. The various benefits of
sport marketing include enhancing the performance of the company, club and
association.

1. Mention and explain the different aspects of sports marketing.
2. How would you distinguish sports products from non sports products?
7.0 References/ Further Reading
Beech, John, Chadwick, Simon (2006) The Marketing of Sports. Prentice

Hall and Financial
Times.
Unit 5: On line Marketing
Table of Content
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1Definition of Online marketing and different types of online marketing
3.1.1 Types of internet usage among companies
3.1.2 Business Models
3.2Benefits and limitations of Internet Marketing
3.2.1 Benefits derived from internet marketing
3.2.2 Limitations of internet marketing
4.0Conclusion
5.0Summary
6.0Tutor-Marked Assignment
7.0 References / Further Readings
1.0 Introduction
We are in the age and times of “here” and “now”; Individuals and
organizations seem to be in hurry and everyone wants to obtain quick and
immediate results. There is also the issue of tight schedules and very busy
lifestyles, so everyone is looking for the quickest and the most convenient
medium through which to transact business, to share information, to socialize
etc., the internet is that medium. Internet marketing is the cheapest and the
quickest way for companies to reach a wide target audience and it is also the
most convenient way for consumers to purchase products and services.
This unit introduces you to online marketing and the different types of online
marketing, the different business models that internet marketing is associated
with and then the benefits and limitations of internet marketing.
2.0 Objectives
1. Identify and define the different types of on-line marketing

2. Identify types of internet usage among companies
3. Acquaint yourself with some of the benefits and the limitations of internet
marketing.
3.0Main Content
3.1On-line Marketing and the different types of online marketing

On line marketing, also known as internet marketing, web marketing or e-
marketing is the marketing or promotion of products or services using the
internet as a medium. In order to benefit from the new technologies in
today’s global environments, marketers are developing strategies which
suit the digital world.
Internet marketing is considered to be broad in scope because it not only

refers to marketing on the internet, but also includes marketing done
through e-mail and wireless media.
Customer relationship management system and digital customer data are
considered to be sub divisions of internet marketing.
Internet Marketing ties together the creative and technical aspects of the
internet including design, development, advertising and sales.
Internet marketing refers to the placement of media along many different

stages of the customer engagement cycle through the following types of
internet marketing;
i. Search engine optimization
This is the process of improving the visibility of a website or a web
page in search engines through the natural or unpaid search results.
ii. Search engine marketing

This is a form of marketing that seeks to promote websites by
increasing their visibility in search engines result pages through the
use of paid placement, contextual advertising and paid inclusion or
through the use of free search engine optimization technique.
iii. Display advertising

This is the use of web banners placed on a third party website or blog
to drive traffic to a company’s own website and increase product
awareness.
iv. Social media marketing

This is the process of gaining traffic or attention through social media
websites such as face book, twitter and linkedln.
v. Email marketing
This involves directly marketing a commercial message to a group of
people using electronic mail.
vi. Referral marketing

This is a method of promoting products or services to new customers
through referrals, usually by word of mouth.
vii. Affiliate marketing
This is a marketing practice in which a business rewards one or more
affiliates for each visitor or customer brought about by the affiliate’s
own marketing efforts.
viii. Inbound marketing

This involves creating and freely sharing informative contents as a
means of converting prospects into customers and customers into
repeat buyers.
ix. Video marketing

This type of marketing specializes in creating videos that engage the
viewer into a buying state by presenting information in video form
and guiding them to a product or service. Online video is gaining
wide popularity among internet users and companies see it as a
viable method of attracting customers.
3.1.1 Types of internet Usage among companies

Brick and Mortar Company
This operates in a real life only and uses internet to provide
information. Organisations like universities are example of this.
Click and Mortar Company

This type provides both in real life and through internet. Vatan
computer is an example of this.
Click-only Company
This operates only online and you cannot contact in real life with
such company, you can only buy those items online.
Mention the different styles of placing media during the different stages of
the customer engagement cycle in internet marketing?
3.1.2 Business Models

A business model describes the rationale of how an organization
creates, delivers and captures value, whether economic, social or any
other form of value. The purpose of business model construction is part
of business strategy.
Internet marketing is associated with several business models and
these include:
i. E-commerce
This is a model whereby goods and services are sold directly to
consumers, businesses or from consumer to consumer using
computers connected to a network.
ii. Lead-based websites

This is a strategy whereby an organization generates value by
acquiring sales leads from its website. It is similar to walk in
customers in retail world. These propects are often referred to
as organic leads.
iii. Affiliate marketing
This is a process where a product or service developed by one
entity is sold by other active sellers for a share of profits. The
entity that owns the product may provide some marketing
material for example, sales letters, affiliate links, tracking
facilities etc. however, the vast majority of affiliate marketing
relationships come from e-commerce business that offer affiliate
programmes.
iv. Local Internet Marketing

This is a strategy through which a small company utilizes the
internet to find and to nurture relationships that can be used for
real-world advantages. Local internet marketing uses tools such
as social media marketing, local directory listing and targeted
online sales promotion.
3.2Benefits and limitations of Internet Marketing
3.2.1 Benefits derived from internet marketing

i. Internet marketing is relatively inexpensive when examining the
ratio of cost to the reach of the target audience. Companies can
reach a wide audience for a small fraction of advertising budget
ii. The nature of the medium allows consumers to research and to
purchase products and services conveniently. Therefore
businesses have the advantage of appealing to consumers in a
medium that can bring results quickly.
iii. Internet marketers have the advantage of measuring statistics
easily and inexpensively, almost all aspects of an internet
marketing campaign can be traced, measured and tested in many
cases through the use of an adserver.
3.2.2 Limitations of internet marketing
i. One major challenge of internet marketing is the problem of
scam. Many internet products are promoted with deception and
this makes it difficult for one to know what one is buying. This is
very common with products that are supposed to train or aid
internet marketers in making money. Most of these products are
empty boxes, in which there is essentially nothing there, yet a
buyer is to make money by reselling this empty box to others.
ii. The inability of the consumers to physically feel or try out the
product can be a limitation for certain goods.
iii. Internet marketing is completely based on the advertisement and
the information that the advertisement and the information that
the advertisement might lead to i.e. websites, blogs etc. , this
makes it impossible for marketers to use the x-factor/personal
touch factor/human touch factor to influence the audience.
4.0. Conclusion
Online marketing or e-marketing has registered its presence in this contemporary

society as it has proven to be an inexpensive, convenient and a fast approach of
exchanging goods and services. However, swindlers have taken advantage of its
lack of personal touch or human touch factor to swindle unsuspecting customers
of their money. This however has not hampered the wide spread and the
popularity of online marketing.
5.0. Summary
Online marketing is broad in scope as it involves not only marketing in

the internet but also includes marketing via email and wireless media. There are
different types of online marketing and these include display advertising, search
engine marketing, email marketing, affiliate marketing etc. There are several
benefits of online marketing as well as limitations which include the ability of
businesses to appeal to consumers through a medium that can bring results
quickly and the inability of the consumers to physically feel or try out the product
respectively.
1. What is a business model? Explain the several business models

associated with internet
Marketing?
2. Describe the different types internet usage among companies?
3. What are some of the limitations and benefits of internet marketing?
7.0 References/ Further Reading
Beech, John, Chadwick, Simon (2006) The Marketing of Sports. Prentice Hall
and Financial Times.
Unit 6: Guerilla Marketing
Table of Contents
1.0Introduction
2.0Objectives
3.0Main Content
3.1 Concept and Definition of Guerilla Marketing
3.2 Principles of Guerilla Marketing
3.3 Risks involved in Guerilla Marketing
3.4 Associated Marketing Trends
4.0Conclusion
5.0Summary
6.0Tutor Marked Assignment
7.0References /Further Reading
1.0 Introduction
The term Guerilla marketing is easily traced to guerilla warfare which utilizes
unusual tactics to achieve a goal in a competitive and callous environment. The
term, “Guerilla marketing” was coined by Jay Conrad Levinson (1983) in his
book, “Guerilla Marketing”,. The term has since entered the popular
vocabulary and marketing textbooks.
The business environment is highly competition and in recent times marketers
have evolved several approaches and strategies to stay above board. Guerilla
marketing is one of such strategies. The aim of guerrilla marketing is to reach
more people with limited budget and a more effective message.
This unit introduces you to the concept of Guerilla marketing, some of the key
elements of gueril a marketing, the principles of guerilla marketing, the risks
involved and the associated marketing trends.
2.0 Objectives
1. Illustrate the strategy of guerilla marketing

2. Identify the key elements of guerilla marketing
3. Enumerate the principles of guerilla marketing
4. Identify the risks involved in guerilla marketing
3.0 Main Content
3.1 The Concept and Definition of Gueril a Marketing
The concept of Guerilla Marketing was invented as an unconventional system of

promotion that relies on time, energy and imagination rather than a big
marketing budget. Typically, guerrilla marketing campaigns are unexpected and
unconventional, potentially interactive and consumers are targeted in unexpected
places.
Guerilla marketing is an advertising strategy in which low-cost unconventional
means for example graffiti, sticker bombing and flash mobs are used, usually in
localized fashion or large network of individual cells to convey or promote a
product or an idea. Customers are shocked and surprised in guerilla marketing as
it involves unusual approaches such as intercept encounters in public places,
street giveaways of products, PR stunts or any unconventional marketing
intended to get maximum results( by way of reaching more people) from minimal
resources. With this type of advertising strategy, customers are able to remember
the things that surprised them.
The main objective of guerilla marketing is to create a unique engaging
and thought provoking concept to generate buzz and consequently turn viral.
Viral (Buzz) Marketing is a marketing technique that encourages people to spread
your message to others to make a difference in a short time. The message quickly
spreads like a virus from one person to another.
Some key elements of guerilla marketing are
i. Creativity
ii. Unexpectedness
iii. More for less
The pictures below, Figures 3.1.1 and 3.1.2 are perfect examples of guerilla
marketing, the firs t is that of pasta firm and the other, a beverage firm. In order
to keep a place in the mind of its customers, the pasta company created a huge
sticker of a faces turned ships into permanent pasta nibblers. The Beverage
Company also created replicas of ice cream and coffee on the roundabout in the
high ways.
This technique of marketing breaks the traditional marketing rules; it is
unique, highly visible, unexpected and sort of shocking. It is very successful in
attracting a lot of attention as evident in the pictures of figures 3.1.2 and 3.1.2b of
guerilla marketing by the Beverage Company.
Examples of Guerilla Marketing
Figure 3.1.1
Figure 3.1.2 Figure 3.1.2b
3.2 Principles of Guerilla Marketing
Levinson (1983) identified the following principles as the foundation of
guerilla marketing and these are:
i. The first principle is that guerilla marketing is specifically geared for
the small business and entrepreneur- who need to make an
impression in the industry as there are already existing players in the
industry.
ii. It should be based on human psychology rather than experience,
judgment and guess work
iii. The primary statistic to measure your business is the amount of
profit, not sales
iv. The marketer should also concentrate on how many new
relationships are made each month
v. Create standard of excellence with an acute focus instead of trying to
diversify by offering too many diverse products and services.
vi. Instead of concentrating on getting new customers, aim for more
referrals, more transactions with existing customers and larger
transactions
vii. Use current technology as a tool to build your business
viii. Messages are aimed at individuals or smal groups, the smaller the
better.
What do you consider to be the basics of guerilla marketing?
3.3 Risk involved in Gueril a Marketing

i. There is the risk of misrepresentation of the brand image intended to
be promoted as word of mouth does not always present the brand
image decided.
ii. In many situations, Guerilla marketing is not very definitive if it tries
to promote brand image thoroughly and creates false rumours about
the brand.
iii. There are also times that the devises used might be misunderstood,
for example, in a particular case of guerilla marketing around Boston,
USA, several magnetic boxes used to promote animated series of
teen Aqua Hunger Force were mistaken for possible explosives and
this led to the closure of bridges, several subway station as the police
examined, removed and destroyed the devices.
3.4 Associated Marketing Trends

The term Gueril a Marketing is now often used more loosely as a description
for non-traditional media such as :
1. Live-in Marketing- This involves real life product placement
2. Undercover Marketing- This involves subtle product placement
3. Experiential Marketing- This occurs when a customer meets with a product

and uses it. They play a vital role while making the purchase decision. They
provide greater interaction between firm and consumer
4. Tissue-pack Marketing- This involves hand to hand marketing.
5. Reverse Graffiti- This refers to clean pavement adverts
6. Undercover Marketing- This involves subtle product placement
7. Viral Marketing- This is done through social networks
8. Grassroots Marketing- This involves tapping into the collective efforts of

brand enthusiasts
9. Buzz Marketing- This is word of mouth marketing (refer to 3.1 Concept
and Definition of Guerilla Marketing above)
4.0 Conclusion
Guerilla Marketing is an inexpensive but non conventional way of
promoting goods and services. It is highly visible, spontaneous and
highly successful for attracting a lot of attention. It is highly
recommended for small businesses or new entrants into any industry
as a way getting attention from people or customers.
5.0 Summary
Guerilla Marketing was initially used by small and medium size (SMEs)
businesses, but it is now increasingly adopted by large businesses.
Guerilla marketing relies on time, energy and imagination rather than
big marketing budget. Its main objective is to create a unique
engaging and thought provoking concept to generate buzz. Guerilla
marketing is founded on several principles; however the fundamental
elements of guerilla marketing are creativity, unexpectedness and
more for less. Though it generally considered to be an inexpensive
advertising strategy, there several risks involved with guerilla
marketing.
1. Guerilla Marketing is founded on several principles. List six of

these principles.
2. What are some of the risks associated with Guerilla Marketing?

3. Write short notes on (i) Buzz Marketing and (ii) Experiential
Marketing
7.0 References / Further Reading
Beech, John, Chadwick, Simon (2006) The Marketing of Sports.

Prentice Hall and Financial Times.

MKT 730fundamentals of Marketing

Uploaded by

Copyright:

Available Formats

MKT 730fundamentals of Marketing

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

MKT 730fundamentals of Marketing

Uploaded by

Copyright:

Available Formats

NATIONAL OPEN UNIVERSITY OF NIGERIA

FACULTY OF MANAGEMENT SCIENCES

COURSE CODE:MKT 730

COURSE TITLE: FUNDAMENTALS OF MARKETING

Course Title: FUNDAMENTALS OF MARKETING

Course Developer/Writers: DR. K.O. OSOTIMEHIN

Course Editor: DR MANDE SAMAILA

Head of Department: DR LAWAL KAMAL

Dean of Faculty: DR TIMOTHY ISHOLA

you will learn in this course……………………………. Course

What you will learn in this course

This course focuses on the appreciation of functions and channels of marketing

Working through the course material

The study units

Unit 2 Marketing Management and Demand

Unit 4 Market –oriented Strategic Planning

Unit 1 Consumer Buying Behaviour

Unit 3 Business Buying Behaviour

Unit 1 New Product Development

Unit 2 Pricing Decisions

Unit 3 Marketing of Services

Unit 5 Online Marketing

(i) Tutor-Marked Assignment

How to get the best from this course

1. Read the guide thoroughly.

MKT 730, Fundamentals of Marketing focuses on the essential functions of

Course Developer Dr. K.O. Osotimehin

Obafemi Awolowo University, Ile-Ife

Unit Writers Dr. K. O. Osotimehin

Obafemi Awolowo University, Ile-Ife

National Open University of Nigeria, Lagos

Mrs. Ihuoma Ikemba- Efughi

National Open University of Nigeria, Lagos

Course Coordinator Mrs. Ihuoma Ikemba-Efughi

National Open University of Nigeria

Unit 1 Introduction to Marketing…………………………………..

Unit 2 Marketing Management and Demand………………………

Unit 3 Forces Operating in the Marketing System…………………

Unit 4 Market-oriented Strategic Planning…………………………

Unit 5 Market Segmentation and Target Market Strategies………..

Unit 2 Consumer Relationship Management……………………….

Unit 3 Business Buying Behaviour…………………………………

Unit 4 Ethical Issues in Business…………………………………...

Unit 2 Pricing Decisions…………………………………………….

Unit 3 Marketing of Services………………………………………..

Unit 4 Sports Marketing…………………………………………….

Unit 5 Online Marketing…………………………………………….

Unit 1 Introduction to Marketing

Unit 2 Marketing Management and Demand

Unit 3 Forces Operating in the Marketing System

Unit 4 Market-Oriented Strategic Planning

Unit 5 Market Segmentation and Target Market Strategies

However, as the society advances to successively higher stages of economic

Furthermore, in an economy of plenty, most people have to satisfy their material

3.2 DEFINITION AND MEANING OF MARKETING

'Marketing is a total system of business activities designed to plan, price,

This definition given by Stanton has some significant implications. Firstly, it

3.3 THE BUILDING BLOCKS OF MARKETING

Figure 1: The Inter-connected Platforms Of Marketing