The key aspects of the product as a marketing function can be summarised as follows:
1 Product planning
(a) Product/market decisions - to whom, where and in what quantity?
(b) New product decisions, research and development programmes, marketing research studies.
2 Product management
(a) Organisational decisions relating to human accountability for the success of the product.
(b) Marketing decisions relating to the numbers and types of product on offer. These are product line and product mix elements.
3 The physical product
(a) Design decisions.
(b) Quality/image decisions.
(c) Packaging decisions.
In service industries, it should be recognised that the service is, in effect, the product, and marketing practitioners often refer to their individual services as ‘products’ (e.g. banking and insurance).
Price
Price is a particularly potent element of the marketing mix because of its direct impact on the customer, the company and the economy. To the consumer, price is a major indication of quality and an important factor in the decision-making process. For the company, the price at which a product or service is sold represents the sole means of recouping costs and making a profit.
The price that customers are prepared to pay for a product determines the level of demand for that product, which will affect the overall prosperity of the marketing company and may have a bearing on the company’s competitive position in the market place. Price levels in general have far reaching implications for the national economy. They influence wages, interest rates and Government policy.
Sales people sometimes claim that price is the only factor of importance in their particular market. It is true that in some commodity markets, various companies have achieved similar levels of service, product quality and promotional support so that price has become the major method of product differentiation. However, we should not overlook the major marketing efforts that these companies have made in order to reach such a state of similarity. We should also be aware that if one company is able to differentiate its product on a non-price basis, or conversely, if a company fails to maintain the standards of its competitors, then price will decrease in importance as the major determinant of product choice. Certainly, price must be regarded as important, but never all-important.
Marketing management faces a particular problem when attempting to arrive at a specific price level. The problem is complicated because price is difficult to define. Whilst it is possible to think of the price of a product as the monetary value given in exchange, this definition is simplistic if we wish to consider price in relation to the other elements of the marketing mix.
The buyer and seller have different views of the price of an item. Whatever the buyer’s actual motive for purchasing, the economic consideration of price as an opportunity cost cannot be ignored. As levels of affluence continue to rise, it remains true that the decision to spend a certain amount of money on one product leaves the purchaser with less to spend on other products or services. Whilst price is often thought of as an indicator of quality and prestige in the minds of consumers, it is also a negative aspect of the product. If the quality of two products is perceived to be equal, buyers will naturally tend to choose the one that bears the cheaper price. Whilst there is ample scope for product differentiation by the seller, price remains an important, albeit imperfect, yardstick that buyers use in reaching a purchase decision.
Initially, the seller considers price as the mechanism for making profit. There is often a close relationship between the selling price of a product and the cost of production. The marketer does not, however, view price as being something that is ‘attached’ to the product after all the other components (tangible and intangible) have been assembled. Rather, the marketing orientated seller hopes that price will be considered as a product feature, viewed by the buyer in conjunction with a variety of other product attributes. In this way, the marketer never loses from sight the reality that price is but one, albeit very important, element of overall marketing effort.
The pricing decision is further complicated by the fact that it can create conflict within the firm, within marketing channels and within the competitive environment. Marketing management may arrive at a price which fits perfectly with total marketing effort and at a price they believe will be considered to be optimal by the customer. The application of this price may be frustrated by other members of management who consider it to be impractical in terms of the immediate rate of return. Distributive intermediaries may consider the price to be unfair or disagree with the manufacturer’s pricing policy. Finally, the most effective pricing strategy can be disrupted by competitive action.
If any element of the marketing mix strategy is mismanaged or ill-conceived, the consequences for the company can be grave. Where errors of judgement occur outside the realm of pricing, the company can face major setbacks.
Although the cost (not just the financial cost) to the company can be severe, remedial action can usually be taken. Where pricing is concerned, the effects of misjudgment are more immediately apparent in terms of their influence on the financial well being of the organisation. It is a simple economic reality that companies cannot survive unless the value of sales is in excess of costs. A price that is pitched too high may destroy the effectiveness of an otherwise well conceived marketing mix strategy. If a price is set too low and the volume of sales cannot offset this disparity, it is unlikely that a subsequent increase in price will be readily acceptable to the marketplace. The financial or survival implications associated with pricing strategy make this functional area one of key importance that must be approached with caution.
Promotion
The promotion of a product is perhaps the element of the marketing mix that is most subject to variation according to the type of product or service on offer. For some products, promotion may only play a minimal role in the marketing effort; for others, marketing strategy may be almost solely based on this mix element.
No product can be sold if the target market is unaware of its existence. It is also undeniable that no amount of promotion will help to sell a product that is not acceptable to the market. This is a major defensive argument against critics who claim that advertising is over persuasive and over pervasive.
In consumer markets particularly, promotion often has the highest budget allocation of all mix elements, especially after the product has been launched. For this reason promotion receives a great deal of attention as a marketing function. However, the effects of promotional expenditure are particularly difficult to measure, and although recognised procedures exist for measuring its effectiveness, the task remains complex.
Lord Leverhulme of washing detergent fame is quoted as saying: ‘Half the money I spend on advertising is wasted. The problem is I don’t know which half!’
One of the main reasons why promotion is so difficult to evaluate is that promotional expenditure does not create immediately tangible success. Correctly viewed, promotion is an investment, but problems often arise when fixing a company's promotional budget. Unlike the purchase of machinery, the recruitment of extra staff or improved warehousing facilities, the promotional budget provides nothing that can be readily perceived as ‘value for money’. This is a recurrent source of dispute and confusion in companies where budgets are allocated by managers who are not altogether convinced about the value of ‘promotion’. This can be overcome by ensuring that promotional strategy is preceded by the setting clear, well-defined objectives. By so doing, one can then attempt to make judgements about a strategy’s effectiveness.
The term ‘promotion’ traditionally covers four basic activities: advertising, personal selling, public relations and specialised sales promotion techniques. An element of overlap occurs, but there are definitions that help to clarify the respective roles of each area:
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Advertising is concerned with communicating messages to selected segments of the public in order to inform and influence them in a manner which leads them to perceive favourably those items that the advertising features. Advertising is always clearly identifiable in terms of the product being promoted. It is also a commercial transaction between the advertiser and the management of the chosen media.
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Whilst advertising tends to be aimed at a group, personal selling (as the description implies) tends to be tailored towards individuals. The seller may convey the same basic messages that are included in advertising, but the presentation can be modified where necessary to suit specific situations and potential customers.
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Public relations is a broad set of communicational activities through which an organisation creates or maintains a favourable image with its various ‘publics’. These publics range from customers, company employees, shareholders and even the Government. Public relations thus has its major role as a marketing activity, but it also extends to other aspects of an organisation.
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Sales promotion involves those activities and elements of promotion not already mentioned. Temporary price reductions, displays, coupons and free sample distributions are only a few of the many sales promotional techniques available.
The purpose of promotion is to create and stimulate demand. Most promotional strategies are likely to involve all four of the activities discussed. How they are ‘blended’ together is referred to as the promotional mix or, more correctly, the communications mix. Just as the basic marketing functions go to make up the overall marketing mix, communications functions can be employed to form an intra-functional mix. Again, integration is the key word: sales are made easier when consumers are informed and made interested by prior advertising. The effectiveness of advertising is in turn increased when it is co-ordinated with specific sales promotional techniques.
The other elements of the marketing mix - price, product and place - are all indispensable. In contrast, advertising, public relations and sales promotion, although not personal selling, is a more abstract activity that can sometimes be omitted from a marketing programme without any immediate detrimental effects. Harm would occur over a period of time, either sooner or later, depending on the nature of the product being marketing (e.g. branded foodstuffs would be more quickly affected than quality furniture because of the former’s shorter purchasing cycle). Management who are not marketing-orientated have a tendency to treat advertising, public relations and sales promotion as the ‘poor relations’ among the marketing mix elements. In times of entrenchment, this is these areas that are more readily cut back.
While the assessment of advertising effectiveness can be difficult, it is also well established that a good product, an efficient distributive system and an appropriate price are insufficient to provide overall success without the aid of promotion. A marketing mix without advertising and sales promotion might appear dull when compared to the efforts of competitors, and such a strategy would be vulnerable to competition.
The importance of promotion is made clear when we consider that its task is to stimulate demand by constant communication which, if effective, should convince buyers that the featured products are ‘right’ for their particular needs. Even when the buying decision has been made, promotional communication is necessary to convince the buyer that the correct decision has been made, so that positive attitudes are reinforced and repeat purchases are made.
Promotion is a communication process whose basic objectives are to modify behaviour, to inform, to persuade and to remind.
Place
This function is concerned with all those activities needed to move the product or service from the seller to the buyer and its origin is in the word ‘placement’. To understand place (usually referred to as distribution) as a function in itself and as part of the marketing mix we must divide the function into two categories:
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A structure or network through which transactions can be made so that the product is made available and accessible to the final user. This structure is referred to as a distribution channel.
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Once the channels of distribution have been established, the company must turn its attention to the problem of how its products are to be physically moved through the distributive system. This is called physical distribution management (PDM) or logistics.
Distribution channels
Although changes in retail trends during the past thirty years have increased the number of goods that flow directly from manufacturers to retailers (in the form of super- and hyper-markets) the use of intermediaries still remains quite significant for the movement of many goods. Manufacturers themselves feature in the channel system as they are the recipients of goods (raw materials and components) from their own suppliers.
The use of intermediaries in a channel system has a number of advantages.
- The sheer number of transactions that must be made is dramatically reduced when sales are effected through intermediaries or middlemen. Instead of a manufacturer selling to numerous retail outlets or other manufacturers, distributors or wholesalers can assume this task, reducing the manufacturer’s transactions to more easily manageable proportions.
- Middlemen relieve some of the financial burden that manufacturers need to bear when marketing directly to the end user.
- The manufacturer’s costs of transport, storage and stock levels are reduced, as these are ‘broken up’ (the wholesaler’s function is technically known as ‘breaking bulk’) and shared throughout the channel network.
- Channel members possess skills and knowledge of their localised markets that would be impractical for the producer to possess.
- Middlemen also market a variety of related (and sometimes competing) products and have established contacts and means of entry into local markets that the producer might find difficult to approach if acting independently. They may promote the product and employ a sales force with an intimate knowledge of the local market. Only the very largest manufacturers would be able to field a sales force equivalent in both number and knowledge to the combined sales teams of a group of middlemen.
The advantages of the channel system can be summarised by describing the utilities that channels create:
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Time utility: Distribution is coordinated so products reach the user or consumer when they are demanded.
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Place utility: This describes the physical movement of goods from one place to another.
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Possession utility: Intermediaries ensure that possession is facilitated. The financial risks and burdens are reduced with the changes of title (ownership) that occur as goods move down the channel towards the ultimate consumer.
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Form utility: Goods are progressively changed into a more usable form as they proceed downwards along the chain of distribution.
While the benefits of channel systems are clear, these cannot be enjoyed without an element of cost. When responsibilities are shared or passed on, the company must pay a cost in terms of loss of control. Ideally, the channel structure should operate to the mutual satisfaction of all members. In reality, there is always a tendency for the behavioural dimensions of the channel to cause power struggles and conflict. Channel members may attempt to disrupt the status quo if they perceive that the actions of others are working to the detriment of their own interests. To protect themselves from such action, channel members might attempt to establish positions of power to regain control over their products which was lost when responsibility was delegated.
The main sources of power are financial strength and strong brand leadership. For example, Kellogg Company has successfully retained power over the supermarket chains by refusing to supply ‘own label’ products. The Kellogg brands are strong enough for the company to control its distribution and production, as indicated by one of their consistent advertising themes: ‘We do not make cereals for anyone else’.
Physical distribution management
Physical distribution management (PDM) is concerned with transporting finished goods to the customer, stock control, warehouse management and order processing. It is also referred to as logistics. The key task of this element of the place function is to ascertain the level of service that the customer requires, then to ensure that this is adhered to and that the product arrives with the customer in an acceptable condition. Physical distribution, like promotion, represents a financial cost to the company. The art of PDM is to achieve a preordained level of service at a cost that is acceptable to the profit objectives of the company. This is a critical area of marketing because failure to deliver on time not only negates the rest of the marketing effort, but it can irrevocably lose customers. PDM is important in two other ways:
- Depending on the nature of the product, physical distribution costs can represent as much as 30 per cent of the cost of sales (mostly the cost of transportation). Clearly, if distribution savings can be effected, the company can have a competitive advantage in terms of pricing.
- If a company is able to offer a particularly efficient service to its customers, this can reduce the customer’s sensitivity to price.
Distribution is, therefore, a most valuable weapon for those companies whose strategy is one of non-price competition.
The usual measure of a company's distribution efficiency is in the order cycle or lead-time i.e. the length of time that elapses between receipt of an order and delivery of the goods. Although always a critical factor, this lead-time has increased in importance over the past 25 years as economic pressures have forced companies to reduce stock levels in order to save on working capital, which helps to finance stockholding. In most industries, the onus of stockholding is placed on the supplier. Automotive manufacturers have now taken this practice to such an extreme that in some cases they only take receipt of goods literally hours before they are required. Such manufacturers operate a production technique known as ‘just-in-time’ manufacturing (JIT). The technique is more correctly termed ‘lean manufacturing’. The theory is that components are offloaded from transport and directly marshalled to the production line. Sophisticated statistical techniques are employed in order to arrive at optimum order quantities and to ensure logistical coordination between raw material supply, production and distribution.
Management is faced with two particular problems when dealing with physical distribution:
- It must ensure that the efforts of all concerned are optimised. This means that effort and efficiency should be judged upon the end result and not upon the individual results of separate departments.
- The other consideration is known as the total cost approach to distribution. If a lead-time of 5 days is the distributive objective, this might involve maintaining high stock levels or using an expensive transport mode. Other managers in the company may strive to reduce costs in their own areas of activity, but it must be ensured that these efforts are not detrimental to achieving the overall distribution objectives that end customers have been promised.
It is sufficient at this stage to suggest the following guidelines for PDM:
- Managers must decide the level of service that the company wishes to achieve, using the overall distribution mix strategy.
- When the service level has been decided, the company can examine the most economic method of achieving this.
- The costs involved must be realistic, but at no time should the service objective be sacrificed in the interest of cost saving.
We can draw the conclusion that it is not possible to both maximise service and minimise costs.
Personal selling
Personal selling has already been described in its context as a function of the promotional or communications mix. Selling is, however, important enough to be considered as a function of marketing in its own right, even though it is not included separately as one of the ‘Four Ps’ of the marketing mix. In its promotional role, selling contributes to the overall effectiveness of the marketing effort, but it also has a more fundamental role to play, in that the act of selling is the end result of all marketing activity.
Whatever functional aspects of marketing an individual may be involved in, one should never lose sight of the fact that the process of making sales is the means of perpetuating the life of the company.
Sales personnel are frequently (and quite properly) requested to perform marketing tasks in addition to those of selling.
These may include gathering marketing information or carrying out public relations activity. These are valuable duties, but they should never detract from the primary role of the salesperson: that of selling the company’s products or services.
Selling is a process of communication. Companies promote a particular image. This may be one of a small family firm whose strong point is personal service. Others may wish to emphasise their size and ability to provide expert service. A company’s philosophy of business and its particular merits combine to form a company message. It is the job of the salesperson to communicate this message to customers. Buyers usually require more than the physical product when they consider potential suppliers. In the same way, the salesperson is helped by being able to talk about the company in addition to the products on offer. As well as selling skills, it is important when recruiting sales personnel, that companies take into account how well the applicant ‘fits in’ with the desired company image and how well the company image will be transmitted.
The salesperson relies heavily upon the company for basic support in meeting delivery times or providing satisfactory levels of quality. The company’s marketing effort may only go part of the way in reaching the customer. The efficient projection of the company message provides a ‘backcloth’ in front of which the salesperson can carry out his or her role. Between the company and customer a ‘communication gap’ might exist. This can be filled to a limited extent by advertising, but this is not an easy form of two-way communication. Personal selling fills the gap and completes the company’s marketing efforts, reinforcing the company message by providing an interpretation that is personally and specifically tailored to the customer.
In addition to the communication process, the salesperson’s role requires physical sales to be made. The salesperson must utilise communication as a means to ‘persuade’ customers that the company’s products can offer something that is superior to competitive products. Buyers arrange their needs and requirements according to a scale of preference that is linked (consciously or subconsciously) to a budget. Where this scale already includes the products a particular salesperson is offering (as is usually the case) the selling task requires that a competitive preference scale that is not merely one of financial negotiation, be considered. The word ‘persuasion’ should be interpreted with caution. It does not imply that to sell is to encourage buyers to purchase items that they do not really want or which offer no advantage. Rather, persuasion implies that the buyer should be convinced of the advantages that the proposed product can provide.
Sales personnel are employed to further the communications process, but the level of direct persuasion required varies according to the particular sales task. During the process leading up to a sale (which can vary from minutes to weeks, months or even years) the salesperson is likely to be required to adopt different approaches according to the stage in the buying process that has been reached or to the type of customer being canvassed.
The typical caricature of the ‘salesman’ usually refers to the cold canvass or lead seller. The prominence of such salespersons has declined because of changing retail structures, but has re-emerged with the advent of products and services such as double glazing, cavity-wall insulation, prefabricated home extensions and life insurance policies that are ‘one-off’ purchases. The seller, in many such circumstances has little or no prior knowledge of his or her customers and relies heavily upon persuasion. This mode of selling is unsuitable in industrial situations. Lead selling is similar, but in this case the seller is supplied with lists of customers who have expressed at least a potential interest in the product. Such lists might be compiled from replies to advertisements or names that have been gathered as a result of a ‘survey’ purporting to be a market research survey. The real intention of many such ‘surveys’ is to gain names and addresses as ‘leads’ for potential canvassing (this practice is called ‘sugging which is short for ‘selling under the guise of market research’).
‘Canned selling’ is a method by which the salesperson is allowed very little deviation from an ‘approved presentation’ which has been based on careful research of customer reactions, needs and objections and is a method of presentation that has been proved to be effective in certain situations. Whenever a customer objection is voiced, the ‘canned sales’ approach attempts to overcome this by a rote learned presentation of an answer to the objection. In addition, salespersons are trained to ask question that will produce assenting answers, so it will then be more difficult for the customer to say ‘No’ at the end. This method is often used when selling goods direct to the public in the retail or home environments. The level of creativity required of the individual salesperson is low, although his or her personality is important in ensuring success.
The types of selling discussed represent the negative image of selling which has done much to diminish the importance and standing of selling as a profession and as an essential element of marketing. The vast majority of salespersons are employed selling on a business-to-business or development sales basis. They are involved in competitive selling. A high degree of product knowledge is required as well as skill in the techniques of selling. The salesperson is attempting to achieve a sale in the face of direct competition with other products. Much emphasis is placed on building up a basis for cooperation and trust. The persuasion element is concerned with convincing the buyer that the correct company has been chosen with which to make the business development. The missionary salesperson performs a similar function to that just described except that where development sales are usually concerned with established products, missionary selling is more concerned with communicating the company and product message in new markets than in securing actual sales. The salesperson in this context visits customers to inform and influence rather than to sell; such selling will then be the task of a competitive seller. Many large companies employ different personnel to perform development, missionary and competitive selling, and indeed it is easy to see that each task requires a different personality type. In fact missionary salespeople have sometimes been dubbed ‘commando salesmen’. In industrial markets it is common for the salesforce to carry out all of these tasks and a variety of skills and extensive product knowledge is required.
Marketing information
From the customer’s point-of-view, the information process is the least visible of all marketing functions. It is, nevertheless, fundamental to all marketing activity. If the product is the cornerstone of marketing, then it must be remembered that good products accurately reflect the needs and wants of customers which can only be ascertained by gathering information. Information provides the means for a company to fulfil the marketing concept.
Figure 4.4 illustrates how the information process works. To be of value, it should be a constant process. Firstly, market requirements are established and then translated into products and action. The reaction of the market is then assessed. This provides feedback and guidance as to whether customer needs have been correctly interpreted and suggests any remedial action that may be required.
COMPANY
Formulation
Feedback
Interpretation
Search Action Modified
action
MARKET
The Information Process
The primary need of any company is to assess the requirements of the market and then act accordingly. In order to function efficiently a company must augment its information requirements beyond this basic need.
Looking at the figure above we should interpret ‘market’ in a much wider sense than simply consumers or customer needs. An examination of the market should also encompass the macro-environment, competitive and public environments. The company should also address itself to information that can be made available from its internal management systems. The sum of all such information and activity is grouped together to constitute a formal system designed to collect, process and report. This is known as a marketing information system (MkIS). The components of the MkIS are shown in the figure below. The diagram shows that the information sources are fed into an analytical process that guides decision making and provides feedback which can then suggest modifications to the original course of action.
Internal marketing Market intelligence
information
Marketing research
Marketing analysis
Marketing decisions
The marketing information system (MkIS)
Marketing research is the best known function of the information process. It is directly concerned with discovering the needs of customers and subsequent testing to ensure these needs have been correctly interpreted. Techniques exist for pre- and post-testing specific elements of the marketing mix such as advertising research and sales research. The pre-testing of products and the prediction of their penetration into the market also come under these headings. The activities mentioned so far are categorised as consumer research. This is in contrast to market research that focuses on the marketplace itself, including market size and market share analysis. These are but some elements that come under the broader description of marketing research. Marketers should view the research process as a continuous and comprehensive activity that involves fact finding, monitoring and problem solving.
Market intelligence is concerned with wider issues that affect the company as well as monitoring a particular market. The monitoring of environmental factors is the responsibility of the intelligence system. Its role is to provide information that precedes action and also to forewarn management of any tendencies that might significantly alter the market.
A lot of marketing information exists within the organisation itself. Utilising such information depends on liaison between the various company departments so that information is presented in a useful form for the purposes of marketing analysis. Financial and sales data form the basis for customer and profit analysis. Analysis of the performance of individual products builds up a picture of company performance and provides an indication of market trends. Such information can also provide the basis for desk research
The various information functions have been described separately, but are indivisible in terms of managerial reliance on them in the decision making process. Information does not make the decisions; it provides the basis for making them. The most comprehensive MkIS cannot guarantee that the correct decisions will be made and that successful marketing action will result.
Summary
Marketing functions combine together to form a single strategy. Functional specialists provide a convenient and practical method for operating the marketing mix, but this does not detract from the integral nature of marketing mix management.
It is one of the functions of senior management to ensure that this integration takes place. Synergy is a word that is sometimes used to describe the value and the total effect of the marketing mix. Synergy implies that the combined value of a group of activities is greater than the sum of their individual values.
Most people develop a specific interest in a particular marketing function. The aim of this chapter has been to ensure that specialisms are always approached in the context of the total marketing mix.
QUESTIONS
1 Marketing concept
(a) ‘Marketing is satisfying customer needs at a profit.’
(b) ‘Marketing is the process of creating unnecessary needs and wants’.
Discuss the issues to which the above two statements give rise.
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Marketing mix
Consider which of the marketing mix variables is most important in:
(a) Consumer goods marketing.
(b) Industrial goods marketing.
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Product
Product is generally regarded as being the most important of the ‘Four Ps’. Why is this?
4 Promotion
Does the fact that selling is included as part of the promotional mix weaken its role as a sub-element of marketing?
5 Place
Do you feel that channels of distribution and physical distribution management are sufficiently linked to warrant their combined grouping under ‘place’?
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Marketing information
Why are companies increasingly seeking to establish marketing information systems, when in the past marketing research has been sufficient for a company’s information needs?
Further reading.
G Armstrong and P Kotler, Marketing an Introduction, (Fifth Edition),Part 3,Developing Marketing Strategy and the Marketing Mix, (Prentice Hall, Inc. 2000).
J Blythe, Essentials of Marketing, Chapter 1, What Marketers Do, (Person Educational Ltd. 2001).
A Plamer, Principles of Marketing, Part 3, Developing the Marketing Mix, (Oxford University press, 2000).
Davies, M, Understanding Marketing, Chapter 1, Introduction to Marketing, (Prentice Hall, 1998)
Keegan, WJ and Green, MS, ‘Global Marketing’, 2nd Edition, Part 4, The Global Marketing Mix, Prentice Hall Inc, 2000.
Cateora, PR and Ghauri, PN ‘International Marketing: European Edition’, Chapter 1, The Scope and Challenge of International Marketing, Mcgraw Hill, 2000.
Lancaster, GA and Reynolds, PL, Introduction to Marketing: A Step by Step Guide to All The Tools of Marketing, Chapter 1, ‘Marketing Defined’, Kogan Page Ltd, 1999.
