Principles of Marketing (MM101)

Definition of Marketing

Kotler (1972) defines marketing as a social and managerial process by which individuals and or
groups obtain what they need and want through creating and exchanging products and value with
others.

Key terms in the definition

Social process – marketing involves interactions of human beings during the exchange

Managerial – it involves fundamentals of management which include planning, organising, leading,

implementation and control

Process – ongoing activity, never ending, not sporadic

Individuals and groups – marketing activities take place involving parties either as individuals or
groups

Needs – state of felt deprivation, drive which propels action towards achieving a certain objective, a
need is usually expressed in a general mode

Wants – a want is expressed in a more specific way and usually in a luxurious mode

Value – refers to how something is worthy usually expressed in monetary terms. It also refers to the
amount of benefits that accrue to the parties less expenses incurred in obtaining such benefits.

CIM – defines marketing as a management process responsible for identifying, anticipating and
satisfying customer requirements profitably.

Identify key terms in the CIM’s marketing definition.

Role of Marketing

• Identifying customer needs and wants

• Providing market information on product development projects
• Providing interface between the organisation and the market
• Gathering information about market dynamics (competitor activities)
• Distribution of products from where they are produced to places convenient for the
consumers
• Promotional activities

Evolution of Marketing

• It evolved from the primitive bartering process

• Barter trade involved exchanging products for other products of equal or equivalent value
 Conditions for Bartering process

• There must be at least two participants

• Each party must have something desired by another party
• Items exchanged must be of equal or equivalent value

Production era

• Began around 1900

• Marketing was disregarded and mg believed that consumers would on their own accord look
for products and services they needed
• Adam Smith (1776) criticised this approach in his book the Wealth of Nations, when he said
“Consumption is the sole end and purpose of production”
• This approach was ignored until much later
• Before mechanization families could produce goods for consumption
• Certain families started developing skills to specialise producing specific goods on order and
for bartering process
• Only products needed could be produced, a clear indication that the process was market
driven, However after the industrial revolution this attitude was abandoned as goods were
produced in mass by machines.
• Management was concerned with production problems and all management efforts were
dedicated towards this.
• Supply eventually exceeded demand
• Gradually, stocks of goods began piling and accumulating bringing mgt to realise the
importance of getting rid of accumulated stocks

Selling approach

• It began around 1900

• Mgt realised that something had to be done to get rid of the piling stocks
• During this time seller’s market became a buyer’s market
• Ads were placed to inform consumers on the availability of products
• Sales reps were employed to push products to the market
• However much producers tried to push the products, goods could not sale fast and
management instituted unethical selling strategies.
• Camels were used in transporting goods to far and near places
• Growing complaints emanating from unethical selling practices led to the birth of
consumerism in the USA

Product Concept
Market Segmentation, Targeting and Positioning

Unit objectives

• To explain the concept of market segmentation

• To highlight prerequisites for effective market segmentation
• To explain the bases for market segmentation
• To highlight the merits and demerits of segmentation
• To explain the term “target marketing”
• To outline factors considered when selecting a target market

Introduction

The marketing concept calls for marketers to develop a market offering that is capable of satisfying
customer needs, demands AND PREFERENCES. In an ideal situation, marketers are expected to
provide a customized product, a separate price and unique promotion and an exclusive place for
every potential customer in the market. However, this is not feasible as it becomes far too expensive
and demanding especially in a highly heterogeneous market. Marketers realised that trying to satisfy
each and every customer in the market is very costly and unrealistic, therefore they decided to
generalise the needs of the heterogeneous market. Moreover, marketers realised that they cannot
be “all things to all people” but they have to focus on satisfying specific customer needs and to
concentrate on what they do best for them to remain competitive on the market.

The Aggregate market

Before the concept of market segmentation, most companies were pursuing a market aggregation
strategy. In this approach, companies would develop one product and supplied to the market hoping
that such a product would appeal to every consumer in the market place. Henry Ford pursued this
strategy where he manufactured one standard model car the ‘T Model’ and the pay off line was “you
can get it as long as it is in black”. This strategy completely ignores the differences exhibited by
different consumers in the market. Before 1950, Coca Cola also pursued a market aggregation
strategy by offering one standard product to all the masses of consumers throughout the world.
Before 1980, banks throughout the world were also offering one or few banking services believing
that these could appeal to the customers. Today the situation is different as banks are now offering
a variety of services appealing to the babies, school children, pensioners, professionals and investors
among others. Taking a Zimbabwean perspective, identify companies that were as well as those that
are still pursuing a market aggregation strategy.

Segmentation defined.

Van Der Walt (1996) defines market segmentation as a process of dividing a heterogeneous market
into fairly homogeneous subsets of customers. Each segment is assumed to have homogeneous
needs and will respond in a similar fashion to the marketing strategy. Delta beverages market can be
segmented into the following segments:-
 • Lager segment
• Carbonated soft drink segment
• Sorghum or Chibuku segment

NB above segments can still be subdivided into small subsets e.g the lager segment can be
subdivided into premier lager market (bohlingers, Pilsener, Zambezi, etc.) and low cost lagers (Eagle,
Lion, Castle, Black label)

Merits of segmenting the market

• Allows marketers to focus more accurately on customer needs

• The differences exhibited on the market can easily be identified and respond accordingly
• A greater degree of customer satisfaction can be realised
• Easy to identify opportunities in the market
• Allows for customisation of the market offering
• Facilitates resource allocation
• Choice of promotional tools is facilitated

Demerits of segmenting markets

• Developing products for each segment and separate marketing strategies becomes
expensive
• Limited market coverage
• Excessive differentiation may lead to proliferation of products and services resulting in
cannibalisation (This is a situation where one product takes away the market share for
another existing product of the same firm.)

Requirements for effective for effective segmentation

It must be borne in mind that market segmentation should satisfy mainly two stakeholders i.e
customers - offering products that create satisfaction and shareholder (through profitability). When
segmenting markets, consideration should be given to the criteria suggested by Kotler (1992) in Van
Der Walt (1996). Requirements include:-

(1). The market must be measurable – consider factors such as market size, purchasing power,
potential profit and profile of the market must be measurable.

(2). It must be large enough – Normally a segment that is too small may not be profitable as
compared to a large market.

(3). It must be accessible – the marketer must be able to reach the segment either through physical
or electronic means. Also think of the promotional tools that can be used to communicate with the
target audience, e.g people in the rural areas in Zimbabwe may not be accessible through internet or
online advertising

(4). It must be actionable – it must be possible to develop separate products for each segment. The
firm must have staff and resources to serve the segment
(5). It must be differentiable – customers in different segments must exhibit different needs and
desires. For example, married women and unmarried woman must respond differently to the
marketing strategy (Sale of perfume) if otherwise it can be treated as one segment

Q. Africa Sun wants to segment its hotel market into five sub markets. State and describe the
submarkets. Discuss the steps that are followed when a marketer wants to segment a market. What
are some of the weaknesses of the multiple segmentation approach?

Segmenting Consumer markets

Geographic segmentation

The market is divided according to geographic variables such as nations, regions, states countries or
locations. This is important because consumers in different locations exhibit different needs and
wants. For instance consumers in hot countries require motor vehicles with cooling system while
those in hot countries require vehicles with warm facilities. With segmentation marketers can
customize the marketing mix and marketing strategies.

• Size of the city or town (under 10 000, 10 000-20 000, under 1000000, 1000 000 etc
• Density (urban, rural, suburban
• Climate summer rainfall, winter rainfall, very hot, humid, very hot and dry

Demographic segmentation

Market is divided on the basis of variables such as age, sex, gender, family size, income, occupation,
education, religion, race, generation, and nationality. These variables are believed to be the most
popular variables employed by marketers in segmenting consumer markets.

• Gender (female/males)
• Age (youth, teenagers, middle aged, elderly, etc)
• Family size (under five children, above 5 and below 10, ten plus)
• Family life cycle (young, married, without children, young married with children, older
married with children , empty nest)
• Income less than US$500, Below $1000, US$1500-$2000, $5000 and more
• Occupation (professional, managerial, clerical, white colour, farmers, students, house wives,
unemployed, retired
• Religion (Hinduism, Budhaism, Christianity, Shintoism, Jewish
• Race (black, coloured, white, Asian)
• Education (professors, doctorate holders, masters degree, First degreed, diplomas, none)

Psychographic segmentation

Divides the market based on variables such as

• Social class (upper class, upper middle class, lower middle class, lower class
• Lifestyle – trend seekers, status, casual, air travellers, holiday makers
 • Personality – dependant, independent, authority, gregarious, ambitious

Behavioural segmentation

Market is divided on the basis of variables such as

• Purchase occasion regular use, special occasion)

• Benefits sought (economy, convenience, prestige,, speed
• User status – non user, ex-user, potential, user, regular user)
• Usage rate (heavy user, light user, medium user)
• Loyalty status, (none, medium, strong, absolute)
•

Sensitivity segmentation

• Quality, price, service

Bases for segmenting industrial markets

Q. State and outline three bases that companies use when segmenting industrial markets.

Target marketing

In selecting which segment to enter the marketer has to examine opportunities and threats in the
various segments. The firm has to decide the number of segments it can serve and this is done after
an assessment of the attractiveness of the segment. The following factors must be considered before
qualifying a segment

• Segment size
• Growth potential of the segment
• Segment structural attractiveness (level of competition in the segment, existence of potential
substitutes may limit price freedom, and profits that can be earned from that segment, relative
power of buyers affects segment attractiveness, will try to force prices down)
• Company resources and objectives
• Expected profitability
Assessing the attractiveness of segment

Attractiveness factors Rating* Weight** Score

Large Market size 5 8 40

Growth rate of segment 4 9 36

Good Access to raw materials 5 8 40

Favourable Regulatory climate 4 6 18

Fewer competitors 4 7 28

High prospects of Profit potential 5 8 40

Investment intensity 2 4 8

Total score

*Rating is on a 5 point scale, 5 = very attractive

**Weight on a 10 point scale, 10 = very important

Selecting the target market

There are basically 3 broad approaches namely concentrated, differentiated and

undifferentiated marketing

(1). Concentrated marketing / Niche marketing

• Most suitable when a company has limited resources

• Concentrating one offering to the segment or niche(s)
• Greater knowledge of consumer needs
• A company targets one or few segments which it can fully serve in terms of customising
products, and other marketing mix variables
• This is predominantly a strategy followed by smaller firms
• Firm can achieve greater customer satisfaction
• The challenge is that a firm’s eggs are all in one basket
• The strategy leads to greater expertise in production, distribution and promotion
• Risk of product failure is high
• If competitors enter that market the market can finds itself in the cold

Q. Identify a company in Zimbabwe that pursues niche or concentrated marketing strategy and discuss
the merits and demerits of this strategy

(2). Differentiated Marketing

• Enterprise selects two or more segments developing separate strategies for each segment
• Allows the firm to cater for specific diverse needs of the different segments
• General Motors follows this strategy and is developing cars for each ‘
 purse, personality and purpose’
• Expensive strategy since the firm has to develop separate strategy for each segment
(production costs, admin costs, promotion costs, inventory costs since a greater variety of
products have to be maintained.)

Undifferentiated marketing/mass marketing

• A firm disregards differences on the market and targets the whole market with one offer
• Strategy focuses on what is common rather than on what is different
• Firm develops a product and strategies that will appeal to the majority
• A firm may have problems in competing with firms that focuses on particulars segments with
specific marketing mix strategy

Micro marketing

• Is the practice of tailoring products and marketing programs to suit the tastes of specific
individuals and locations
• It includes local marketing and individual marketing
• Local marketing involves tailoring products and services to the needs and wants of local
customers (customers in different cities may require different services and attention)
• LM can drive up marketing costs and reduce economies of scale
• A brand’s overall image might be diluted if the product message vary greatly in different
locations
• Helps the firm to market effectively in the face of pronounced regional and local differences
in demographics and lifestyles
• Helps the company to meet the needs of first line customers (trade)

Individual marketing

• Also known as mass customization/ markets of one/one to one marketing

• Involves customising products and marketing strategies to suit specific needs of the individual
customers
• Dell manufactures custom-configured products

Q1. Identify companies in Zimbabwe that pursue this strategy and discuss whether the strategy
enables such companies to command a market leadership position.

Q2. Explain how companies identify attractive market segments and choose a target marketing
strategy

Product Positioning

• Refers to the way consumers perceive a product in terms of its characteristics relative to
competition
• It has to do with competitive differentiation
• It involves implanting the brand’s unique image, benefits and differentiation in the minds of
consumers
•
Positioning methods

Attribute positioning e.g Benson and hedges position their cigarettes in terms of lightness and taste

Benefit positioning – emphasizes unique benefits consumers get from using a product .eg Gillett
blades promise an even closer shave

User/application positioning- position in terms of product use e.g Grac’a wine position wine as a
wine to be enjoyed at all kinds of occasions

User positioning – position products with users in mind, e.g thrill seekers, fun seekers, status seekers

Competitor positioning – against competitor offerings, Kana usina drosky hauna chigayo, car rental
USA “we are number two”

Quality/price positioning – affordability, exceptional quality through high price, unbeatable prices.
Payless at payless.

Product Mix

• Refer to all the products which the enterprise offers to its target markets in order to satisfy
their needs
• It is also known as the product offering/ product portfolio
• Includes all the product ranges, product items and product lines

Product

• Anything that can be offered to a market for attention, acquisition, use or consumption that
might satisfy a want or need
• A product can also be known as a 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

Levels of product

Formal product

• Refers to a physical object or service offered to the market place e.g a television set, a motor
car, educational programme.
• All formal products are characterised by certain technical attributes, material composition,
level, packaging, trade marks

Core product

• Refers to the actual essential benefit or need satisfaction that consumer get from using a
product
• A mother buys a detergent not because of its chemical composition or other attributes but she
buys hygiene and praise from friends.
• Similarly a lady who buys Revlon products is actually buying product
Augmented product

• Includes all the benefits that consumers receive experience in perceiving, utilising , obtaining
and applying the formal product
• All after sale services such as packaging, customer advice, delivery , warehousing and other
extras that converts a formal product into an augmented product
• Installations
• Warranties – guarantee, a written assurance that some product or service will be provided or
meet certain services

Expected product

• What a product is capable of satisfying in the future

• Capable of modification

Product and Service classifications

• Products can be classified broadly into consumer products and industrial products

Consumer products

• Refer to products or services bought by final consumers for personal usage

• Can be classified as convenience, shopping, speciality and unsought goods

Classification of consumer products and their marketing considerations

Marketing Convenience Shopping Speciality Unsought
considerations
Customer buying Frequent, little Less frequent Strong brand Little product
behaviour planning, purchase, much preference, awareness,
shopping effort, planning and special purchase knowledge, little
low customer shopping effort, effort, little or negative
involvement lot of comparison comparison of interest
on price, brands, brands, low price
quality, style sensitivity

Price Low price High price High price Varies

Distribution wide spread Selective Exclusive Varies
distribution, distribution in distribution
convenient fewer outlets
locations
Promotion Mass promotion Advertising and Targeted Aggressive ads,
by the producer personal selling promotion personal selling
by both producer
and retailers
Examples

Examples of convenience

• Toothpaste
 • Magazines
• Laundry

Shopping products

• Major appliances
• Televisions
• Furniture
• Clothing

Specialty products

• Luxury goods

Unsought goods

• Life assurance, red cross,

• Blood donations

Industrial products

• Products which are purchased for further processing or use by organisations to produce other
products
• Distinction between consumer products and industrial products is on the purpose for which
the product is bought

New product Development strategies

Objectives

• To show the meaning of a new product

• To identify different sources of new product ideas
• To explain why firms introduce new products
• To explain the new product development process through 8 stages
• To explain challenges faced companies when developing new products

What is a new product?

A new product refers to:-

• A product that is original which represents a complete innovation (new to the world)
• Product improvements
• Product line extensions
• A product that is new to the company e.g acquisitions of a company or product
• A product that is new to the market

Examples of new products developed over the past 40 years

• Computer
• CDs
• DVDs
 • Television
• Calculator
• Soft ware products

Sources of new product ideas

According to Gustav and Larson (1950) the following constitute sources of new product ideas

Internal sources

• Research and development programmes

• Employees
• Management

External sources

• Competitors e.g reverse engineering

• Customers
• Suppliers
• Distributors

Why firms introduce new products?

Developing new products is a part of the firm’s marketing strategy to achieve the following:

• Firms introduce new products in order to increase market share

• To enhance the firm’s competitive edge
• Firms may introduce new product as a response to customer demands, preferences and needs
• Firms introduce new products as part of the firm’s innovation strategy to remain pioneering in
the industry

Why new products fail?

• Market size having been over estimated

• Failure to incorporate customer needs during the design state
• Delay in time to market
• Improper product positioning
• Wrong prescription and manipulation of marketing variables (mix) e.g high price, too low
price, inappropriate promotional strategies

The new product development process

There are several stages that firms follow in the process of coming up with new products. The
following are common stages

Idea generation

• This involves generating ideas for the development of new products

 • Brainstorming of ideas is done in tying to gather as many ideas as possible
• Method and madness normally allow companies to generate as many ideas as possible
• Firms get ideas for new products from both the internal and external sources
• Employee empowerment normally encourages innovation and creativity
• Bootlegging – working on projects of personal interest

Idea screening

• Involves dropping unprofitable ideas and adopting those that are worthwhile
• Technical feasibility is considered when screening ideas
• On generating ideas, a firm may have over a thousand ideas and these have to screened
• Firms normally establish a new product development steering committee and the committee
can be mandated to evaluate the ideas generated
• For ideas to be adopted they have to be consistent with company resources and objectives

Concept development and testing

• Attractive ideas that survive the screening process have to be developed into a product
concept
• A product concept is a detailed version of the product idea which is normally expressed in
consumer terms
• A low fuel consumption car appealing to the low income people
• A four wheel drive land rover suitable for mountainous terrains
• Groups of consumers will then be invited and asked about what they think about a prospective
product. The concepts are presented to the consumers either symbolically or physically.
Consumers can be shown the pictures of the proposed cars, the size, colour, and make.
Consumers are expected to give their inputs on what they think is good on that product. It is
important for a number of concepts to be tested so that consumers have wide choice.

Marketing strategy development

• After concept development comes marketing strategy development.

• This stage consists of 3 parts namely
(1) description of the market – e.g professionals, high income individuals, large families e.t.c
(2) The planned positioning e.g economical to operate, fun to drive.
(3) The projected sales e.g Toyota is expected to sell 2000 units of Fortuna in the first quarter
of 2011of which US$500 million can be realised. In the second year Toyota is expected to sell
200 000 of Fortuna CARS and a profit of US$50 million is expected to be generated.

Other strategies can relate to distribution, promotional strategies e.g heavy advertising budget for the
cars.

Business analysis

• This involves a review of sales, expected costs (cost of production, costs, storage costs,
distribution costs, promotional costs, cost of labour e.t.c, pofit projections
• Review of sales history of like products of the company is also made
• Forecasting of sales, profits and cost projections
• Opportunity and risk assessment
 • Assessing the general expected attractiveness of the product on the market is also done at this
stage.

Product development

• Here a product concept is translated into a prototype

• A physical product is produced
• Actual engineering takes place where attributes spelled out during morphological analysis are
incorporated