Marketing

TOPIC 2
MARKETING
FOCUS AREA
The focus of this topic is the main elements involved in the development and
implementation of successful marketing strategies.
OUTCOMES
Students should be able to:
critically analyse the role of business in Australia and globally
evaluate management strategies in response to changes in internal and
external inuences
discuss the social and ethical responsibilities of management
analyse business functions and processes in large and global businesses
explain management strategies and their impact on businesses
evaluate the effectiveness of management in the performance of businesses
plan and conduct investigations into contemporary business issues
organise and evaluate information for actual and hypothetical business
situations
communicate business information, issues and concepts in appropriate formats
apply mathematical concepts appropriately in business situations.
Role of
marketing
Marketing
strategies
MARKETING
Marketing
process
126
TOPIC 2 Marketing
Influences on
marketing
Surfs up for inventor

Featured on the TV show The new inventors, the interchangeable surfboard was
invented by Jared Smith when he was 19 years old.
Jared, a keen surfer, found it difcult to transport multiple surfboards designed for
different conditions. He decided to solve this problem for his Year 12 Design Project
and invented a smarter surfboard one that could change its shape to suit the
surf. The innovative carbon bre joining mechanism enables the surfboard to be
separated into two parts for easy transportation and storage. It also allows different
tail pieces to be slotted securely into place to suit variable surng conditions.
As is the case for most contestants, that program was the rst time Jareds product
was exposed and critically examined, rated and promoted in the public arena. The
objective is not only to win the contest, but also to gain support to manufacture
the invention, and its subsequent promotion and distribution to the domestic and
overseas markets.
A great invention like Jareds is of little value if it has not been effectively
marketed brought to the attention of the general public and targeted towards
those who would be most interested in putting it to use.
A great invention
like Jareds is of little
value if it has not been
effectively marketed . . .
TOPIC 2 Marketing
127
CHAPTER 5
Role of marketing
5.1 Introduction
BizWORD
th
a
scer
n
io
are the actions that a
Strategies
business takes to achieve specic
goals.
At the beginning of the last summer holiday, two Year 12 students placed
advertisements in their local paper announcing a gardening service they had
just started. They also conducted a letterbox drop of selected streets within their
neighbourhood and posted a message on the local community e-notice board. The
students wanted to inform potential customers about their business. These two
young businesspeople were involved in marketing, whether they realised it or not.
Meanwhile, at the Coca-Cola 2020 Vision conference, the companys Chief
Executive Ofcer (CEO), Muhtar Kent, was outlining changes to the companys
marketing strategies. Coca-Cola would increase its product range, be more
innovative with its emerging brands especially active lifestyle, or enhanced
water drinks and more responsive to the needs of its customers.
Both of these examples show that marketing is undertaken by businesses
regardless of size with the intention of generating sales by satisfying
customers needs and wants.
FIGURE 5.1 Coke is one of the most

successfully marketed products in
history. The name Coca-Cola was
registered in 1893 and Coke was
registered in 1945, but the familiar
Coke bottle shape was not trademarked
until 1977.
As consumers, we are constantly exposed to all aspects of the marketing

process. For example, as you were travelling to school today you probably did
not realise that you were observing many different features of marketing. You
almost certainly observed many types of advertisements. Your mobile phone may
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TOPIC 2 Marketing
have registered a message regarding a stores special offer. You perhaps noticed
delivery vans transporting goods to retailers or customers. Distinctive company
logos such as McDonalds golden arches or Nikes swoosh were possibly
conspicuous. You may have even bought something. Similar to the students
at the beginning of this section, you have been participating in the process of
marketing whether or not you were aware of it.
Certain aspects of the marketing process are easily identiable, and our
culture has become immersed in product promotion, especially advertising (see
gure 5.2).
BizFACT
The average consumer is exposed
to an estimated 600 marketing
strategies (mainly some form of
promotion) every day.
FIGURE 5.2 Contemporary society

is bombarded by many marketing
strategies. The most conspicuous
strategy is advertising, which is used
to attract potential customers by
creating a desire for the product and
communicating essential information.
Marketing fundamentals
Marketing is vital to the existence of the business. Just because someone invents
a new product or improves an existing one does not guarantee customers will
buy it. Without some form of marketing, customers may not even be aware of
a products existence regardless of how record breaking, new and improved or
revolutionary it may be.
In the interchangeable surfboard story, Jared had developed his new product
and, by appearing on a national television broadcast, he had begun the life cycle
of the product. If he wished to achieve his nancial goals and make a prot, his
product would soon have to generate sales, which would require him to develop
a marketing plan detailing the strategies that he would need to put in place to
sell his product.
Statistics reveal that more than 70 per cent of new products launched on the
market fail in the rst year of operation, mainly as a result of poor marketing.
Businesses make few sales if they do not market their products successfully,
eventually ending in failure. At the same time, many products that would seem
insignicant and unimportant have become best-selling essential items as a
result of a well-managed and professional marketing plan. Who would have ever
thought that brown, sugary, zzy water with addictive qualities would become
the universal product it is today (see the following Snapshot).
BizFACT
In Australia, Coca-Cola Amatil
presently has about 60 per cent
of the $1.8 billion carbonated
soft-drink market, compared to
PepsiCos 10 per cent share.
Role of marketing CHAPTER 5
129
Coke a successfully marketed product
SNAPSHOT
. . . Coca-Cola has
become Australias
(and the worlds)
market leader in the
soft-drink market.
Coca-Colas Coke soft drink was released onto the Australian market in 1938,
50 years after its release in the United States. The rst distinctively shaped bottles
themselves part of Coca-Colas overall marketing strategy were produced in
that year by one of Sydneys oldest soft-drink factories. Australian consumption of
soft drink was growing, but that did not guarantee the Coke product immediate
success. Early sales representatives for Coca-Cola were lucky if a store owner
bought a single bottle, let alone a case.
The spread of World War II to the Pacic region in the early 1940s was the
impetus needed by the Australian producers of the soft drink. With the US
armed forces established in Australia and the region, a ready-made market was
in place and production greatly increased to satisfy this demand. Conditions
were right for a post-war boom in sales. It was time for the marketing plan to be
fully implemented, with advertising campaigns being the most visible marketing
strategy.
Coca-Cola largely owes its popularity to successful advertising. Advertisements
for Coke were initially aimed at older age groups a reection of the main target
market selected in the US. Coca-Colas advertising has always adopted a message
that Coke is a part of life, associated with fun and pleasure (as the advertisements
on these pages, spanning many decades, demonstrate).
Over the years, the target market was modied to concentrate on teenage and
young adult consumers. The companys marketing plan was so successful that
Coca-Cola has become Australias (and the worlds) market leader in the soft-drink
market.
Snapshot questions
1. Identify the external environmental factors that provided the impetus for
Coca-Cola to increase sales in the Australian market.
2. Outline how Coca-Colas target market has changed over time.
3. Cokes successful formula is not the ingredients of the drink but its superior
marketing strategies. Justify whether you agree or disagree with this
statement.
5.2 What is marketing?

BizWORD
Marketing
isth
cf
ro
ep
is the process of
planning and executing the
conception, pricing, promotion
and distribution of ideas, goods
and services to create exchanges
that satisfy individual and
organisational objectives (American
Marketing Association).
A more simplied denition is
that marketing is a total system of
interacting activities designed to
plan, price, promote and distribute
products to present and potential
customers.
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TOPIC 2 Marketing
There are many denitions used to describe marketing. The most commonly
accepted denition comes from the American Marketing Association: Marketing
is the process of planning and executing the conception, pricing, promotion
and distribution of ideas, goods and services to create exchanges that satisfy
individual and organisational objectives.
A more simplied denition is that marketing is a total system of interacting
activities designed to plan, price, promote and distribute products to present
and potential customers. At the heart of these activities is the most fundamental
question all businesses should continually ask: What do customers want to
buy now and in the future? This is the essence of marketing nding out
what the customers want then attempting to satisfy their needs.
These denitions reveal the four main features of marketing. Marketing:
involves a wide range of activities
is directed at a wide range of goods, services and ideas
stresses the importance of satisfying exchanges that is, something in
return
is not limited to the activities of businesses.
Many people when asked which word they associate with the term marketing
respond with selling. They think that marketing is just a fancy name for
selling. However, the two words have different meanings. Selling involves
a set of activities that salespeople undertake to assist the customers buying
decisions. In this sense, selling is part of the marketing process, but marketing
takes a much broader view and is more involved than selling. Actually, the
current view of marketing is such that it does not even have to involve the
selling of a good or service for example, not-for-prot organisations such
as community activist groups and charities attempt to market certain ideas or
causes (see gure 5.3).
BizFACT
If all the bottles of Coca-Cola
were loaded on to delivery trucks
travelling bumper to bumper at
90 kilometres per hour, it would
take more than three years for the
trucks to pass a given point!
FIGURE 5.3 Amnesty International

is a worldwide movement of people
campaigning to protect human rights. It
uses marketing to inform, persuade and
remind.
Many people also mistakenly believe that marketing is the same as advertising.
This is because advertising is highly visible and everywhere, which makes it
easy to associate the two. The denitions reveal, however, marketing to be a
far more multifaceted activity. As you will discover in chapter 8, advertising,
though highly inuential, is just one part of the promotion strategy, which in
itself is one of a number of marketing strategies.
5.3 Strategic role of marketing

goods and services
A common nancial business goal is prot maximisation. The strategic role
of marketing is to translate this goal into reality. A business will develop and
implement a marketing plan that sets out a series of actions or strategies that can
be used to attain greater sales, and in so doing be able to achieve this nancial
goal. For example, through its sophisticated marketing plan, Coca-Cola has built
on its highly recognisable brand name (see the BizFact on the top right). In its
BizWORD
Prot maximisation
en
h
rsw
cu
o
occurs
when
there is maximum difference
between the total revenue coming
into the business and total costs
being paid out.
131
rst year, about 10 servings of Coke were sold per day. Today, Coca-Cola is sold
in over 200 countries with 1.6 billion servings consumed every day. Marketing
is therefore a powerful strategy available to help achieve a businesss goals.
Marketing today places a strong emphasis on viewing the business through
the customers eyes, or customer-oriented marketing. The business needs to see
itself as a customer-satisfying process rather than a production process (see the
following Snapshot).
Put the customer first
SNAPSHOT
. . . view your
business in terms of
the needs and wants
of your customers.
Marketing is much more than placing an advertisement in the local media. It is a way
of thinking. Everything you do in your business should be directed towards putting
the customer at the centre of your thinking. To do this successfully requires adopting
a customer-oriented approach to marketing. You need to view your business in terms
of the needs and wants of your customers. As competition intensies, it will be your
marketing philosophy that will help your business face the competition and succeed.
This is because a customer-oriented business will want to create goods and services
that customers want to buy.
Customers are the lifeblood of any business, so they must be encouraged to stay
loyal to the business. This means that, at every level of the business, employees
should work towards customer satisfaction by establishing positive relationships with
customers.
Seven tips to becoming a marketing driven business:
1. Place your customers, not your goods or services, at the centre of all you do.
2. Talk to your customers. Ask them what could be improved, what they like and
dislike.
3. Think about ways to build loyalty with your customers.
4. Differentiate your product in ways that will make them special in the eyes of your
customers.
5. Regularly communicate with your current and potential customers.
6. Develop a unique and recognisable brand or image that reects the special
qualities of your business.
7. Always deliver your promises.
Snapshot questions
1. Clarify what is meant by a customer-oriented approach to marketing.
2. For businesses that adopt a customer-oriented approach, the customer
relationship does not end with the sale; it begins there. Discuss.
3. Which of the seven tips do you think is the most important? Justify your
selection and share your answer with other class members.
Without a marketing strategy, nancial disaster is inevitable. As was explained

previously, many new inventions become commercial failures because they have
not been marketed adequately. To develop customer awareness and demand,
and thus form a customer base, an organised marketing campaign is necessary,
starting with the development of a marketing plan.
The marketing plan

In the opening story, Jared was totally absorbed in developing a new product,
his interchangeable surfboard. He was product-focused. He gave no thought to
a marketing plan. It was not until the product was patented that he started to
think about how it could be sold. If he wished to achieve his nancial goal of
132
TOPIC 2 Marketing
making a prot, his product would soon have to generate sales, which would
require him to develop his marketing plan detailing the strategies that he would
need to put in place to sell his product.
To achieve the goal of prot maximisation, the marketing plan should be the
focus of both short-term and long-term planning for three reasons:
1. The marketing plan outlines the strategies to be used to bring the buyer and
seller together. The business needs to be able to identify:
where the market is
who will buy the product
why they will buy the product
how often they will buy the product.
2. The core of marketing is satisfying existing customer wants, which should
lead to repeat sales.
3. Marketing is the revenue-generating activity of any business. Nothing is
achieved until a sale is made.
A successful business develops a marketing plan based on careful research and
design. The customer should always be the central focus of the marketing plan.
Any business that does not develop and maintain a customer base soon goes out
of business. It is the role of the marketing plan to make sure a customer base is
created and maintained.
The marketing plan, therefore, plays a crucial strategic role in the overall
success of the business. If the business plan is the road map, then the marketing
plan contains the signposts showing which direction to take (gure 5.4).
BizWORD
t marketing plan is a document
en
m
cu
o
d
isa
The
that lists activities aimed at
achieving particular marketing
outcomes in relation to goods
or services. The plan provides a
template for future action aimed
at reaching business goals, such as
prot maximisation.
FIGURE 5.4 The marketing plan shows

which direction to take and which
strategy to implement, so as to bring
the buyer and seller together.
Summary
Marketing is undertaken by businesses with the intention of generating sales

by satisfying customers needs and wants.
As consumers, we are constantly exposed to all aspects of the marketing
process.
133
Statistics reveal that more than 70 per cent of new products launched on the
market fail in the rst year of operation, mainly as a result of poor marketing.
Marketing is the process of planning and executing the conception, pricing,
promotion and distribution of ideas, goods and services to create exchanges
that satisfy individual and organisational objectives.
A more simplied denition is that marketing is a total system of interacting
activities designed to plan, price, promote and distribute products to present
and potential customers.
Marketing is a multifaceted activity involving much more than merely selling
or advertising.
A common business goal is prot maximisation. The strategic role of marketing
is to translate this goal into reality.
Marketing today places a strong emphasis on viewing the business through
the customers eyes, or customer-oriented marketing.
To develop customer awareness and demand, and thus form a customer base,
an organised marketing campaign is necessary, starting with the development
of a marketing plan.
The marketing plan is a document that lists activities aimed at achieving
particular marketing outcomes in relation to a good or service.
A successful business develops a marketing plan based on careful research
and design.
The customer should always be the central focus of the marketing plan.
EXERCISE 5.1
Revision
1 Recall the intention of the marketing undertaken by the Year 12 students and
Coca-Cola.
2 Identify three marketing strategies that may have inuenced you to purchase a good
or service.
3 Clarify what the main reason is for approximately 70 per cent of all new products
failing shortly after their launch.
4 Dene the term marketing.
5 State the four main features of marketing.
6 Distinguish between selling, advertising and marketing.
7 Outline how the denition of marketing provided in this chapter differs from your
previous understanding of the term.
8 (a) Identify a common nancial business goal.
(b) Explain the role marketing plays in achieving this goal.
9 State the main role of the marketing plan.
10 Recall the correct term from the list below and complete the following sentences.
marketing
nancial
customer
maximisation
strategies
generate
satisfy
wants
(a) The main emphasis in marketing today is the _____-oriented approach.

(b) This means the business wants to _____ customers needs and _____ rather than
merely produce products.
(c) To achieve the _____ goal of prot _____, a business needs to _____ sales.
(d) A _____ plan details the _____ that a business needs to put in place to sell its
goods or services.
11 (a) Explain why Jared Smith must develop a marketing plan for his interchangeable
surfboard invention.
(b) Determine who will buy the interchangeable surfboard. Give three sound reasons
for your opinion.
(c) Predict what will become of Jared Smiths interchangeable surfboard.
134
TOPIC 2 Marketing
Extension
1 Businesses that neglect the importance of marketing will experience diminished sales
and reduced prots. Discuss.
2 Use the library and the internet to examine and create a 300-word report on the
marketing of Pepsi. Mention similarities and differences between the marketing of
Pepsi and that of its main rival, Coca-Cola. To help you, use the PepsiCo and
Coca-Cola weblinks in your eBookPLUS.
3 Selling is merely getting rid of existing stock, whereas marketing takes a much
broader view. Successful marketing involves bringing the buyer and seller together
and making a sale. Assess the accuracy of this statement.
4 Create a report containing 10 dot points that reect key features of your new
understanding of marketing.
Weblink
PepsiCo
Coca-Cola
5.4 Interdependence with other

key business functions
During the 1950s, businesses began to slowly accept that they were not solely
producers or sellers, but in the business of satisfying customers wants. This
shift in focus to a customer-oriented approach brought about signicant changes
to marketing, especially the need to undertake market research and develop a
marketing concept.
p business
co
g
rketin
a
The marketing concept is a philosophy that states all sections of the
are involved in satisfying a customers needs and wants while achieving the
businesss goals. The business should direct all its policies, plans and operations
towards achieving customer satisfaction. The marketing plan, therefore, needs
to become integrated into all aspects of the business (see gure 5.5), with
marketing strategies playing a major role in all business activities.
BizWORD
The m
marketing
sa
concept iis a
business philosophy that states
that all sections of the business are
involved in satisfying a customers
needs and wants while achieving
the businesss goals.
FIGURE 5.5 At every level of the

business, employees should have as
their primary focus the satisfaction
of the customer. This requires the
integration of the marketing plan
in the four key business functions
operations, nance, human resources
and marketing in order to achieve
the businesss main goal of prot
maximisation.
135
To be effective, therefore, the marketing concept must be embraced by all

employees of the business, not only by those involved in marketing activities.
The marketing manager cannot work in isolation and often has to work with
other managers in the business to ensure the success of the marketing plan.
For example, if the success of the marketing plan means having a good or
service ready by a certain date, the operations plan will need to be in place to
make sure that happens. If, for example, a business makes Christmas puddings,
it is no good delivering the puddings after 25 December! Financial planning
must also connect with the marketing plan. It is important to remember
that marketing costs money; and nances must be available if, for example,
the business wishes to embark on an expensive advertising campaign. The
marketing manager will also have to work with the human resource manager
to ensure that the right staff are employed to create the good or service that is
desirable to customers.
BizFACT
All businesses should focus on
satisfying the needs of their
customers.
5.5 Production, selling, marketing

approaches
The focus of businesses today is to develop a marketing plan based on the
marketing concept that is, an emphasis placed on customer satisfaction.
However, marketing did not always have this as its main aim. As gure 5.6
shows, the focus of marketing strategies has changed dramatically over the
years.
Marketing
approach
Research customers
needs and wants
Sales
approach
Advertise
Advertise
Train sales force
Train sales force
Take orders
Take orders
Take orders
Deliver goods/
perform services
Deliver goods/
perform services
Deliver goods/
perform services
Production
approach
FIGURE 5.6 The evolution of
marketing. Marketing has changed
dramatically, evolving from the
old-fashioned concept of simply
producing goods and performing
services and making them available
for customers, to todays highly
sophisticated and competitive
marketing strategies, which involve
aggressively seeking specic markets
and customer needs to ll.
Adopt the marketing

concept
Industrial
revolution
1920s
1960s
Present
The idea of the marketing concept evolved in the early 1960s. Prior to this,
there were two different approaches to marketing: production and sales.
BizWORD
The p
production
sed
cu
fo
approach focused
businesses on the production of
goods and services.
136
TOPIC 2 Marketing
The production approach 1820s to 1920s

The production approach focused businesses on the production of goods and
services. Consequently, until the 1920s, most businesses considered marketing
simply as a spin-off of production. The attitude towards marketing is best
explained by a catchphrase common during this time: If we make it, they will
buy it.
The Industrial Revolution created a tremendous burst of industrial output,
which saw demand for goods (and some services) exceed the production
capabilities of many businesses. Up until World War I, businesses concentrated
their efforts on the production of goods and services (see gure 5.7). Businesses
were usually able to sell all their output. Production design was based more
on the demands of mass production techniques than on customer needs and
wants. Business was production-oriented. Henry Ford, for example, focused
on ways to produce motor vehicles more quickly and cheaply, condent that
the people would buy them. Marketing consisted of simply taking orders and
delivering the products.
FIGURE 5.7 The assembly line, mass

production and the division of labour
made it possible to produce goods
(and services) more efciently. This
reinforced the belief during the
production approach era If we build
it, they will buy it.
The sales approach 1920s to 1960s

After World War I, production became more efcient and productivity increased.
Slowly the output of businesses started to catch up with demand. High-quality,
mass-produced products came on to the market, and competition between
businesses increased. No longer could a business rely on selling all it produced.
Because customers basic needs were satised, businesses had to develop a new
marketing approach one that was sales-oriented in an attempt to beat the
competition and gain new customers.
The sales approach emphasised selling because of increased competition.
To stimulate demand for their goods and services, businesses increased
their spending on advertising, making use of newly developed electronic
communications systems such as radio and lm. Businesses faced the challenge
of persuading customers to buy a specic brand. Sales representatives were hired
and trained (see gure 5.8). Salespeople personally reached thousands of people
and, in some instances, used high-pressure tactics to convince consumers to buy
products. However, marketing still continued to play a secondary role to other
functional areas such as production and nance.
BizWORD
sid approach emphasised
a
h
p
em
The sales
selling because of increased
competition.
BizFACT
Throughout the sales approach
era, the manager of the marketing
department was usually given the
title of sales manager.
137
Even though marketing was becoming more rened, most businesses were still
neglecting the needs of the customer. Instead of researching what the customer
wanted, they were producing what the company could make and getting their
sales representatives to create demand. It was not until about the 1960s that
businesses started to consider the customers needs.
FIGURE 5.8 The use of door-to-door

sales representatives became common
practice for many businesses during the
sales approach era. It was the equivalent
of todays online marketing: the
business comes to where the customer is
located and makes a sales pitch.
The marketing approach: stage one

1960s to 1980s
BizWORD
The marketing approach focuses
on nding out what customers
want through market
research and then satisfying
that need.
Discretionary income refers to
disposable income that is available
for spending and saving after an
individual has purchased the basic
necessities of food, clothing and
shelter.
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TOPIC 2 Marketing
The marketing approach began with the economic boom after World War II,
as businesses began to practise marketing in its current form. The method of
achieving business success changed from focusing on production or pushing
goods and services on customers, to placing the customer at the centre of all
marketing activities. The marketing approach focuses on nding out what
customers want through market research and then satisfying that need.
For the rst time, most Australian families had discretionary income, more
income than what was needed to obtain the necessities of life. They used this
extra income to satisfy their needs and wants with different kinds of goods
and services. For example, consumers started spending more on travel and
recreation. Producers now had to learn how to satisfy wants as well as needs;
something else was needed if products were to sell as well as previously. The
emphasis shifted to the development of a marketing concept. As was outlined
in the previous section, the marketing concept is based on four principles. It
must be:
customer-oriented
supported by integrated marketing strategies
aimed at satisfying customers
integrated into the business plan so as to achieve the businesss goals.
As a result, the marketing approach is characterised by the importance placed
on identifying and satisfying customer needs and wants prior to producing the
goods or services the motivation being that the business would produce what
the customer desired, and the customer would then buy the good or service.
Marketing now became central to all aspects of a business, and satisfying
customer needs became the responsibility of all employees, regardless of whether
employees were nancial controllers, operations specialists, human resource
ofcers or sales representatives/consultants.
The marketing approach: stage two

1980s to present
Changing economic and social conditions over the last three decades have seen
a modication to the marketing approach.
Corporate social responsibility (CSR)

With growing public concern over environmental pollution and resource
depletion came a shift in the emphasis of marketing plans. Marketing managers
now realise that businesses have a corporate social responsibility (CSR).
External pressure from customers and environmental organisations, as well as
political forces, is presently inuencing the marketing plans of many businesses.
One major change has been the increase in demand for ecologically sustainable
products.
FIGURE 5.9 The growing consumer

expectation that goods and services
should be clean, green and safe is
changing marketing practices. By
producing new and better goods and
services in an ecologically sustainable
manner, the business focus coincides
with customer expectations.
Customer orientation
If you purchased a digital television today, there is a one in three chance it was
made in South Korea and a 25 per cent chance it was made by Samsung. The
secret to Samsungs phenomenal success is that it is a business with a strong
customer orientation: collecting information from customers and basing
marketing decisions and practices on customers wants and interests.
For businesses that adopt a customer orientation approach, the customer
relationship does not end with the sale; it begins there. Companies such as
Samsung will strive continuously to not only simply meet but also exceed
customer expectations. Samsung, similar to many other businesses, constantly
strives towards achieving and maintaining high levels of customer satisfaction.
BizWORD
Customer orientation refers
to the process of collecting
information from customers and
basing marketing decisions and
practices on customers wants and
interests.
Customer satisfaction measures
how goods and services supplied
by a business meet or exceed
customer expectation.
139
FIGURE 5.10 A market-focused

business such as Samsung wants to
create products that customers want to
buy. Samsung sees itself as a customersatisfying business rather than a
production business.
Relationship marketing
BizWORD
Relationship marketing is the
development of long-term and
cost-effective relationships with
individual customers.
SNAPSHOT
140
TOPIC 2 Marketing
It is no longer sufcient for a business to just market its goods and services in
the hope of attracting new customers. What is also required is a business to keep
its existing customers satised. Relationship marketing is the type of marketing
that does this. It places a high priority on customer retention and continual
satisfaction. The core of relationship marketing is customer loyalty so as to
generate repeat sales and which can be achieved through reward programs,
customer care or good after-sales service (see the following Snapshot). If, for
example, you purchased a mobile phone plan and the telecommunications
provider gave you excellent pre- and after-sales service, and also a customer
reward program, you would probably continue purchasing the service from the
provider. You may even recommend the service provider to your friends.
Relationship marketing will be discussed in more detail in chapter 8.
Brooke McPherson: Marketing Manager for

Goulburn First National Real Estate
The main role of marketing in a service-oriented business such as ours is to
make sure the company is presenting a consistent image of quality, service and
professionalism to its customer base. Marketing must be the central core of all the
businesss activities, including such things as signage and logos, staff appearance,
brochures, website, client follow-up, and billing. Of course, all of this is undertaken
with the needs and expectations of our customers clearly in mind.
My main responsibility is to develop, implement and modify a fully integrated
marketing plan. The plan contains the strategies the business will use to achieve
its visions and goals. In real estate, creating and maintaining a customer base is
crucial for long-term success, especially the permanent listing inquiry (properties
for sale). Therefore, the business has to run marketing campaigns to generate new
listings and complete more sales. Regularly updating the customer database, which
contains information regarding customer details, is of utmost importance.
The real estate industry is a highly competitive market. Consequently, it is crucial

for us to build and maintain long-term relationships with new and existing customers
relationship marketing so we can provide an individualised service suited
to their specic needs. This guarantees customer loyalty and consequently repeat
business. Servicing existing customers is much more cost effective (cheaper) than
generating new clients. A good customer relationship also has the added advantage
of generating positive word-of-mouth advertising, which is priceless.
To maintain customer loyalty we rstly must provide a high-quality service
tailored to the individual needs and expectations of each client. We also keep
in regular contact with clients through newsletters, phone calls or our website.
It is important to gather feedback from the clients to gain an insight into their
perception of the business. Regardless of what you may think, if the customers
perceive your product to be over priced or the service poor, you will lose sales.
Perception is reality when it comes to your clients. Based on this feedback, the
marketing plan may need to be modied.
We are starting to use social media marketing, mainly Facebook, as it can be
effective when marketing to specic target markets such as young rst home buyers
or retirees. It is an inexpensive form of advertising and it allows us to control the
content, frequency and timing of the message. We are still in the developmental
stages of deciding how to use Twitter as a promotional tool. However, as with all
forms of promotion, social media marketing needs careful planning to get it right.
Marketing must
be the central core
of all the businesss
activities . . .
Snapshot questions
1. State what Brooke considers to be the main role of marketing in a serviceoriented business.
2. Identify Brookes main responsibility as a marketing manager.
3. Outline why Brooke considers it important to use relationship marketing.
4. Explain the importance of customer feedback.
5. Determine a social media marketing strategy Brooke could use for a specic
target market.
Summary
The shift to a customer-oriented approach brought about signicant changes

to marketing.
The marketing concept is a philosophy that states all sections of the business
are involved in satisfying a customers needs and wants while achieving the
businesss goals.
The marketing plan needs to become integrated into all aspects of the business,
with marketing strategies playing a major role in all business activities.
The production approach (1820s1920s) focused businesses on the production
of goods and services.
Production design was based more on the demands of mass production
techniques than on customer needs and wants.
The sales approach (1920s1960s) emphasised selling because of increased
competition.
Businesses faced the challenge of persuading customers to buy specic brands.
The marketing approach (1960 to present) focuses on nding out what
customers want through market research and then satisfying that need.
The emphasis shifted to the development of a marketing concept based on
four principles:
customer-oriented
supported by integrated marketing strategies
aimed at satisfying customers
integrated into the business plan so as to achieve the businesss goals.
141
Changing economic and social conditions over the last three decades have
seen a modication to the marketing process including:
social responsibility: especially in regards to ecological sustainability
customer orientation: the process of collecting information from customers
and basing marketing decisions and practices on customers wants and
interests
relationship marketing: the development of long-term and cost-effective
relationships with individual customers.
EXERCISE 5.2
Revision
1 Dene the term marketing concept.
2 The marketing manager cannot work in isolation and often has to work with other
managers in the business to ensure the success of the marketing plan. Discuss
3 The marketing concept is a business philosophy adopted by many modern businesses.
Read the following three pairs of statements and write into your notebook the
statement that represents the business that has adopted the marketing concept
philosophy. Justify your selection.
(a) Business A: Perhaps we should start stocking Clear View Mineral Water again. A
lot of customers are asking for it.
Business B: We will only stock Clear View Mineral Water when it decides to give us
a better deal than Natural Springs.
(b) Business A: Our sales are falling. We will have to think about laying off someone.
Business B: Our sales are falling. We will have to undertake some market research
to nd out why.
(c) Business A: Please give generously with your donations, no matter how small. You
never know when you or your children may need some help.
Business B: Please help with your donations. Our charity is short of money.
4 Construct a concept map (started on the next page) summarising the three
marketing approaches.
MARKETING APPROACH
Production
1820s1920s
Focus on production
Marketing a spin-off of
production
Sales
Marketing
5 To disregard the quality of life issues when developing a marketing plan could lead
to a customer backlash. In small groups, use the brainstorm technique to analyse this
statement. Share your groups answer with the rest of the class.
6 Distinguish between the terms customer orientation and customer satisfaction.
7 Account for why a business would want to adopt a customer-oriented approach to
marketing.
8 Recall the aim of relationship marketing.
9 Conduct a class survey to establish the number of loyalty programs that class
members belong to. Discuss their effectiveness from the customers viewpoint.
Create a 100-word report of the discussion.
142
TOPIC 2 Marketing
Extension
1 Investigate why the marketing concept is difcult for some businesses to implement.
2 Marketing is not the sole responsibility of the marketing manager, but all managers.
Assess the accuracy of this statement.
3 Relationship marketing is only successful if the business has access to detailed
information about its customers. Explain.
5.6 Types of markets

For the purposes of this topic, a market is dened as a group of individuals,
organisations or both that:
need or want a product (goods or service)
have the money (purchasing power) to purchase the product
are willing to spend their money to obtain the product
are socially and legally authorised to purchase the product.
A group that does not have these four features is not considered to be a
market.
In general use, the term market usually refers to the total population, or mass
market, that purchases products. Our denition is more specic and refers to
individuals or groups who wish to buy specic products. There are many markets
in an economy. Based on the characteristics of the individuals and groups that
make up a specic market, it is possible to divide markets into four main types of
markets: resource, industrial, intermediate and consumer. The consumer market
can be sub-divided into mass market and niche market. (See gure 5.11.)
Because marketing plans and strategies vary depending on the intended
market, marketing managers need to understand the main characteristics of
these six different types of markets.
BizWORD
A market is a group of individuals,
organisations or both that:
need or want products (goods or
services)
have the money (purchasing
power) to purchase the product
are willing to spend their money
to obtain the product
are socially and legally
authorised to purchase the
product.
Industrial
Intermediate
Resource
Intermediate
TYPES OF MARKET
Consumer
Intermediate
Niche
Mass
FIGURE 5.11 The six different types
of markets. The consumer market can
be divided into the mass market and
niche markets.
143
sitf
n
co
BizWORD
Resource market
The resource market consists of

those individuals or groups that
are engaged in all forms of primary
production, including mining,
agriculture, forestry and shing.
The resource market consists of those individuals or groups that are engaged
in all forms of primary production, including mining, agriculture, forestry
and shing. As a group, this market in Australia is made up of approximately
116 000 enterprises or customers and has a large purchasing power. Farmers, for
example, purchase machinery, seed and fertiliser.
The industrial market includes

industries and businesses that
purchase products to use in the
production of other products or in
their daily operations.
Industrial market
An intermediate market consists

of wholesalers and retailers who
purchase nished products and
resell them to make a prot.
In Australia, there are more than 932 000 businesses in the industrial market;
these businesses are either secondary or tertiary. An industrial market includes
industries and businesses that purchase products to use in the production of
other products or in their daily operations. Tip Top Bakery, for example, buys
our to make bread, and Sony buys plastics and metals to produce televisions.
Intermediate market
The intermediate market consists of wholesalers and retailers who purchase
nished products and sell them again to make a prot. The vast majority
of goods sold to consumer markets are rst sold to an intermediate market.
Resellers are an intermediate market.
In Australia, the total intermediate market is made up of approximately
168 000 retailers and 40 000 wholesaling intermediaries. Subway, for example,
is a retailer that buys goods to make into sandwiches and salads for sale to
consumers.
Consumer market
BizWORD
Consumer markets consist of
individuals that is, members of
a household who plan to use or
consume the products they buy.
FIGURE 5.12 The consumer market

consists of buyers and/or individual
household members who intend to
consume or benet from the purchased
goods or services and who do not buy
goods or services to make a prot.
144
TOPIC 2 Marketing
Consumer markets are the markets with which we are most familiar. Each time
we go shopping at the local supermarket, we are part of the consumer market.
Consumer markets consist of individuals that is, members of a household
who plan to use or consume the products they buy. Consumers do not intend
to use the products to make other goods and services. Each of us is part of
numerous consumer markets for products such as housing, clothing, food,
entertainment, appliances, music recordings, cars and personal services.
Marketing managers examine closely the behaviour of consumers so they can

better understand what motivates an individual to purchase a particular product.
They also try to inuence consumer buying behaviour by developing a mix of
marketing strategies.
The consumer market can be divided into the mass market and niche
market.
Mass market
Fifty years ago, marketing managers commonly spoke about the mass market. In
other words, there was a large demand for a standard product. In mass markets,
the seller mass-produces, mass-distributes and mass-promotes one product to all
buyers. The business does not target its products to a specic group of buyers.
The assumption is that all customers in the market have similar needs and
wants. The Model T Ford was the rst motor vehicle to be mass-produced and
sold to the mass market (see gure 5.13).
When the Model T Ford was rst released onto the American market in
1908, production could not keep up with demand. Henry Ford changed the
production methods so that the assembly process was cut from 12.5 hours to
93 minutes. Henry Fords famous marketing slogan was that the customer could
have the car in any colour he or she wished, as long as it was black. This meant
customers wishes were not considered. A business could adopt this attitude in
the early periods of industrialisation because consumers wants could not be
fullled; most items that were produced could easily be sold. (The production
approach philosophy was dominant at this time.)
Very few products today are marketed to the mass market. Basic food items,
electricity and water are three current examples. Due to greater choice, higher
personal incomes and customers seeking more individualised products, the mass
market has been replaced by segmented or niche markets.
BizWORD
In mass markets, the seller massproduces, mass-distributes and
mass-promotes one product to all
buyers.
FIGURE 5.13 Using mass production

techniques, Henry Ford offered cars at
affordable prices to the general public.
Earlier cars were hand made, and only
the wealthy could afford them. The
public willingly bought all the Model
T Fords that the Ford Motor Company
could produce.
145
BizWORD
wmarket,, also known as a
kn
lso
A nichea
concentrated or micro market, is
a narrowly selected target market
segment.
Niche market
At the other end of the spectrum to the mass market is a niche market, also
known as a concentrated or micro market. The mass market is divided into
smaller market segments consisting of buyers who have specic needs or
lifestyles. This smaller group of consumers becomes the target market, towards
which marketing managers aim their marketing efforts. For example, in any
newsagent you will see row upon row of magazines, each appealing to a specic
niche market male, female, young, old, high income, low income, urban,
rural, outdoor lifestyle, indoor lifestyle and so on. Market segmentation is
discussed in more detail in chapter 7.
FIGURE 5.14 A magazine for every

interest. In a niche market there is a
limited and clearly dened range of
products sold to a specic group of
customers.
Summary
A market is a group of individuals, organisations or both that:

need or want a product
have the money to purchase the product
are willing to spend their money to obtain the product
are socially and legally authorised to purchase the product.
Marketing plans and strategies vary depending on the intended market.
Marketing managers need to understand the main characteristics of these six
different types of markets.
There are six main types of markets:
Resource market: agricultural businesses
Industrial: secondary and tertiary businesses
Intermediate: wholesalers and retailers
Consumer: individuals and households
Mass: vast numbers of individuals
Niche: small target market.
146
TOPIC 2 Marketing
Revision
EXERCISE 5.3
1 Dene the term market.

2 State how this denition of market differs from the general use of the term.
3 Identify the six different types of markets.
4 Distinguish between the resource and industrial markets.
5 Clarify why Subway is considered to be part of the intermediary market.
6 Recall the correct word to complete the following sentences. The words can be found
by reading the Consumer market section on page 144.
(a) Each time we go shopping at the local __________, we are part of the __________
market.
(b) Consumer markets consist of __________ that is, __________ of a household
who plan to use or __________ the products they buy.
(c) Marketing managers examine closely the __________ of consumers so they can
better understand what __________ an individual to purchase a particular product.
(d) Marketing managers also try to __________ consumer buying __________ by
developing a mix of marketing __________.
Digital doc:
Use the Chapter summary
document in your
eBookPLUS to compile your
own notes for this chapter.
Searchlight: DOC-5991
7 Demonstrate the difference between the mass market and a niche market.
8 Indicate, using an M or N, whether the following products are sold in a mass or
niche market. Justify your selection.
(a) Rolls Royce cars
(b) Coca-Cola soft drink
(c) BRW magazine
(d) Fruit and vegetables
(e) BP petrol
(f) Billabong wetsuits
(g) PlayStation games
(h) Sunbeam shearing combs
Extension
Digital doc:
Test your knowledge of key
terms by completing the
Chapter crossword in your
eBookPLUS.
1 Regarding purchasing power, organisational buyers such as businesses and

government departments are generally considered to be more rational than ultimate
consumers. Propose reasons why this is so. Compare your answers with other
members of the class.
2 Compare and contrast the main features of a mass market and a niche market.
3 Determine whether a furniture manufacturer would need a different marketing
strategy for a large retail chain such as Myer than for a single furniture store owned
and operated by one person. Justify your answer.
147
CHAPTER 6
Influences on marketing
6.1 Introduction
BizWORD
C
Customer
choice (buying
behaviour) refers to the decisions
and actions of customers when
they search for, evaluate, select and
purchase goods and services.
Marketers closely examine the behaviour of customers (consumers) to

understand what motivates an individual to purchase a particular product
customer choice (buying behaviour). They want to know why the customer
selects one product and rejects another. As well, businesses try to inuence
customer choice by modifying their marketing strategies to appeal to the
customers motives.
While market research asks questions such as Who are our customers?, What
do they buy?, When do they buy? and How often do they buy?, customer
behaviour asks Why do they buy?.
FIGURE 6.1 Consumer trends change

with changing conditions. For example,
concerns about global warming and
a world oil price increase inuence
car buyers behaviour. In the past few
years there has been a steady increase
in the sale of more economical and
environmentally responsible cars such as
electric vehicles.
If businesses are aware of the factors that inuence customer choice, they can
predict customer trends and how they may react to particular marketing strategies.
BizFACT
Successful marketing begins with
understanding why and how
customers behave as they do.
148
TOPIC 2 Marketing
6.2 Factors influencing customer

choice
Have you ever stopped to consider what inuences your buying decisions? Why
do you purchase certain products and not others? Over the years, marketers have
suggested numerous theories to explain what it is that persuades individuals to
buy products. One of the most common ways is by examining the four main
factors which inuence customer choice (see gure 6.2).
Psychological
influences
Sociocultural
influences
Economic
influences
Government
influences
FIGURE 6.2 The four main factors

inuencing customer choice
Psychological influences
Psychological factors are inuences within an individual that affect his or her
buying behaviour. Five main psychological factors inuence customer choice.

These are perception, motives, attitudes, personality and self-image, and learning.
re
a
Even though these psychological factors operate internally, they are also very
much affected by sociocultural forces outside the individual.
BizWORD
Psychological factors are
inuences within an individual that
affect his or her buying behaviour.
Perception
What an individual perceives may be very different from reality; people see and
hear the same things differently. For example, one person sees a Ferrari motor
vehicle as a sign of achievement; another
BizWORD
sees it as ostentatious. This is the result
Perception
g
cu
ro
ep
isth
is the process through
of perception. Perception is the process
which people select, organise and
through which people select, organise and
interpret information to create
interpret information to create meaning.
meaning.
Usually there is a range of perceptions
across different individuals.
As individuals we often act on our
perceptions of reality rather than reality
itself. Consequently, marketing managers
are extremely aware that they must create
a positive or favourable perception about
their product in the mind of the customer.
Customers will not normally purchase a
product that they perceive as inferior. The
FIGURE 6.3 One image two
perception customers have of a product is
perceptions. People often hold quite
often the result of some type of advertising
different views about the same thing,
that attempted to create a certain image
whether it is a product, a person, a
movie or an experience they share
of the product images such as trendy,
because they perceive it differently.
luxurious, classy, fun and rebellious. In
Although businesses cannot control
reality, the product may not necessarily
peoples perception, they do try to
have such qualities. It may be more to do
inuence them.
with how consumers perceive the product.
Influences on marketing CHAPTER 6
149
Motives
BizWORD
A motive is the reason that makes
an individual do something.
An attitude is a persons overall
feeling about an object or activity.
A motive is the reason that makes an individual do something. The main motives
that inuence customer choice include comfort, health, safety, ambition, taste,
pleasure, fear, amusement, cleanliness and the approval of others. As with the
customers perception of the product, advertising also attempts to inuence an
individuals motives (for instance, the desire to emulate a sporting hero). That
is, advertising attempts to motivate the customer to buy the product.
Attitudes
An attitude is a persons overall feeling about an object or activity. Customer
attitudes to a business and its products generally inuence the success or failure
of the businesss marketing strategy. Negative attitudes to a business or its
products often force the business to change its strategies.
BizWORD
Personality and self-image
is the
An individuals
lity
a
n
erso
p
personality
e
isth
collection of all the behaviours and
characteristics that make up that
person.
An individuals personality is the collection of all the behaviours and

characteristics that make up that person. To some extent, personality will
inuence the types and brands of product a person buys. For example, the style
of car, clothing or jewellery that a person buys may reect their personality.
Coupled with personality is an individuals self-image: how a person views
himself or herself. Self-image is a major determinant of what products we buy.
We all have an image of who we are, and we reinforce this image through
our purchases. The tendency to believe you are what you buy is widespread
among certain types of individuals, especially young people. Marketers will
make the most of an individuals desire to express their identity through
what they buy by highlighting the image value of their products. This is why
celebrities and sportspeople are regularly used to endorse a product; people
want their self-image to be a reection of those who they regard as important
and inuential (see gure 6.4).
An individuals self-image relates

to how a person views himself or
herself.
FIGURE 6.4 People buy products that

suit their personalities and reinforce
the self-image they want to create for
themselves.
150
TOPIC 2 Marketing
Learning
Customers have direct experience of many new products. When they do,
they are also learning. Consequently, much of customer behaviour is learned.
Learning refers to changes in an individuals behaviour caused by information
and experiences. For example, learning occurred the rst time a customer tasted
Coca-Cola! Learning may also be based on indirect experiences. If a customer
sees an advertisement for Coca-Cola that shows other people enjoying a new
avour, the customer might assume that they would like it also.
To market products successfully, a business must assist customers to learn
about them. Therefore, successful marketing strategies may assist customer
learning that encourages brand loyalty (see the following Snapshot).
Brand loyalty Keep them coming back

for more
According to Yasmin Sagha, marketing manager for Tricon Consultancy, marketers
can successfully use positive learned experiences to build brand loyalty. Behaviour
that results in a satisfying or pleasing outcome will tend to be repeated she says.
For example, when a customer buys a packet of Tim Tam biscuits and likes them, he
or she is more likely to buy Tim Tam biscuits again. Yasmin explains that this type of
experience (learning) relates to habit formation and that there is a close link between
habits and brand loyalty. Actually, the customer will keep buying the brand because
of the positive reinforcement of previous actions.
Yasmin outlines that customers will continue purchasing a particular brand until
it no longer provides satisfaction, at which point they will either switch to another
brand or, in the case of Tim Tams, stop eating chocolate biscuits altogether. Brand
loyalty cannot be taken for granted, she reinforces. Customers have become less
brand loyal than they once were because brands have become increasingly similar,
thereby making it easier for customers to switch among brands.
BizWORD
Learning
i
g
n
a
ch
refsto
refers to changes in an
individuals behaviour caused by
information and experiences.
Brand loyalty occurs when a
favourable attitude towards a
single brand results in repeat sales
over time.
SNAPSHOT
Snapshot questions
1. Dene the term brand loyalty.
2. Explain the relationship between positive learned experiences, habits and
brand loyalty.
3. Identify a brand that you are loyal to and account for your loyalty.
4. Recall why customers have become less brand loyal than they once were.
5. Determine why marketers need to understand how learning inuences brand
loyalty.
marketers can
successfully use positive
learned experiences to
build brand loyalty.
Sociocultural influences
Whereas psychological inuences are internal forces, sociocultural inuences
are forces exerted by other people and groups that affect customer behaviour.
cs
en
cs
refo
There are four main sociocultural factors. They are social class, culture
and
subculture, family and roles, and reference (peer) group.
Social class
In our society, the factors generally used to determine a persons social class
often referred to as socioeconomic status are education, occupation and
income. Social class inuences the type, quality and quantity of products a
customer buys. People from a high socioeconomic status background, for
BizWORD
Sociocultural inu
uences a
are forces
exerted by other people and groups
that affect an individuals buying
behaviour.
Social class or socioeconomic
status refers to a persons relative
rank in society, based on his or her
education, income or occupation.
151
example, are usually willing to buy products that are perceived to be prestigious.
Higher income earners may purchase luxury cars that symbolise their status,
and are more likely to shop in upmarket retail stores.
FIGURE 6.5 Marketers realise that

socioeconomic status plays a signicant
role in customer behaviour. Luxury
automobiles such as Mercedes-Benz
symbolise luxury, status and nancial
comfort.
Culture and subculture

Culture is all the learned values, beliefs, behaviours and traditions shared by a
society. Culture inuences buying behaviour because it inltrates all that we do
in our everyday life. It determines what people wear, what and how they eat,
and where and how they live. For example, in response to the greater desire
for nutritious and healthy foods, many low-fat, sugar-free and bre-enriched
processed food products are now marketed.
BizFACT
Family and roles
A research company, Brainchild,

found that 30 per cent of the
600 children it surveyed said their
parents asked them for advice
when choosing the family car.
All of us occupy different roles within the family and groups within the wider
community. These roles inuence buying behaviour. For example, although
womens roles are changing, market research shows that most women still make
buying decisions related to healthcare products, food and laundry supplies. Also,
children are making and inuencing many household purchasing decisions. It is
estimated that young people between the ages of 8 and 12, who marketers refer
to as tweens, have an income of about $1.8 billion; spend $550 million; and
inuence 70 per cent of all household spending each year.
BizWORD
isa
peer group is a
A reference or p
group of people with whom a
person closely identies, adopting
their attitudes, values and beliefs.
152
TOPIC 2 Marketing
Reference (peer) groups

A reference or peer group is a group of people with whom a person closely
identies, adopting their attitudes, values and beliefs. A customers buying
behaviour may change to match the rest of the groups beliefs and attitudes.
For example, if a close friend tells you of a bad experience at a particular shop,
you will probably change your buying behaviour based on this information.
Alternatively, if your peer group wears distinctive clothing, you probably make
clothing purchases based on this inuence.
Economic influences
Economic forces have an enormous impact on both businesses and customers.
They inuence a businesss capacity to compete and a customers willingness and
ability to spend. Economies do not always experience constant growth. Rather,
the level of economic activity uctuates from boom to recession. Each of these
two distinct phases inuences the marketing environment in the following ways.
Boom
A boom is a period of low unemployment and rising incomes. Businesses and
customers are optimistic about the future. Businesses increase their production
lines, and attempt to increase their market share by intensifying their promotional
efforts. Customers are willing to spend because they feel secure about their jobs
and source of income.
The marketing potential during such a phase is large, with sales responding to
all forms of promotion.
FIGURE 6.6 During a boom period,

the level of spending by consumers
increases as they have more condence
in the economy.
Recession
A recession sees unemployment reach high levels and incomes fall dramatically.
Customers and businesses lack condence in the economy and if this phase
lasts for a long time, a mood of deep pessimism persists. Customer and business
spending reach very low levels. Such caution and pessimism result in customers
reducing their spending. Customers become more price-conscious. They look for
value and products that are functional and long-lasting. Marketing plans should,
therefore, stress the value and usefulness of a product. As well, marketing plans
during this time should concentrate on maintaining existing market share.
Survival becomes the main business goal.
Government influences
Governments use a number of economic policy measures to inuence the
level of economic activity. Depending on the prevailing economic conditions,
the government will put in place policies that expand or contract the level of
153
BizFACT
The Australian Competition and
Consumer Commission (ACCC)
and the Australian Securities and
Investments Commission (ASIC)
are two important government
regulatory authorities.
economic activity. These policies directly or indirectly inuence business activity

and customers spending habits, and therefore will inuence the marketing plan.
The inuence of government regulations has a more direct and immediate
impact on the marketing plans of a business. Regulatory forces consist of laws
(statutes) and regulatory bodies that can inuence business behaviour. Such
regulatory forces exert a signicant inuence over the marketing activities
of businesses because the breaking of these laws or regulations may result in
nancial penalties.
A number of laws, such as the Competition and Consumer Act 2010 (Cwlth)
(formerly the Trade Practices Act 1974), Sale of Goods Act 1923 (NSW) and
the Fair Trading Act 1987 (NSW), have been passed that inuence marketing
decisions.
Summary
Marketers closely examine the behaviour of customers (consumers) to
understand what inuences customer choice.
Customer choice is inuenced by four main factors:
Psychological:
inuences within an individual that affect his or her buying behaviour
psychological factors include the buyers perceptions, motives, attitudes,
personality and self-image, and learning.
Sociocultural:
inuences exerted by other people and groups that affect an individuals
buying behaviour
sociocultural factors include the buyers social class, culture and
subculture, family role, and peer groups.
Economic:
economic forces inuence a businesss capacity to compete, and a
customers willingness and ability to spend
the level of economic activity uctuates from boom to recession.
Government:
policies directly or indirectly inuence business activity and customers
spending habits
laws such as the Competition and Consumer Act 2010 (Cwlth), Sale of
Goods Act 1923 (NSW) and the Fair Trading Act 1987 (NSW) inuence
marketing decisions.
EXERCISE 6.1
Revision
1 Dene the term customer choice.
2 Of the ve psychological inuences that affect customer choice, select which you
think is the most important. Justify your answer.
3 Clarify how an individuals perception of a product will inuence their buying
behaviour.
4 Recall how and why marketing managers attempt to alter consumer perception.
5 The tendency to believe you are what you buy is widespread among certain types
of individuals, especially young people. Interpret what is meant by this statement.
6 Outline how an understanding of customers learning processes might affect a
marketing plan. Provide an example.
7 Distinguish between the sociocultural and psychological factors that inuence
customer choice.
8 Demonstrate in what ways social class affects a customers choice.
154
TOPIC 2 Marketing
9 Describe a subculture to which you belong. Identify purchases that are unique to
your subculture.
10 Explain how family roles such as carer or provider affect customer choice.
11 Identify some of your own reference groups. Outline how reference groups
inuence customer choice.
12 Collect a number of print advertisements from a magazine. Identify the psychological
and/or sociocultural inuence to which each advertisement is appealing.
13 Summarise the impact that economic conditions may have on business, consumers
and the marketing plan.
14 Demonstrate how government policies and regulations inuence the marketing
environment.
Weblink
15 Use the NSW Ofce of Fair Trading weblink in your eBookPLUS and then answer
the following questions.
(a) State the main requirement of the Fair Trading Act.
(b) Outline the role of the Ofce of Fair Trading.
NSW Ofce of Fair Trading
Extension
1 Through knowledge of customer buying behaviour, marketing managers can learn
to manipulate customers to purchase their products. Assess the validity of this
statement.
2 Perception is reality; what we think is true about a product does not matter.
Critically analyse this statement.
3 Suppose research at Apple reveals that potential customers are apprehensive about
buying an iPad for home use. Determine what strategies you might recommend to
Apple to reduce customer apprehension.
6.3 Consumer laws

Since the 1960s, the broad area of business law that relates to dealings between
consumers and businesses has been subject to radical and fairly continuous
change. Governments, both federal and state, have introduced laws to
improve the protection and rights of consumers, and to clarify the rights and
responsibilities of businesses.
FIGURE 6.7 The majority of

businesses are trustworthy and honest.
Occasionally, however, Australian
consumers are not given a fair go in the
marketplace. It is for this reason, state
and federal governments have passed
laws that are designed to protect
consumers.
155
The Australian Consumer Law

BizFACT
The ACL will benet the Australian
community by giving Australian
consumers the same rights and
protections wherever they are in
Australia.
In 2011, a single, national consumer law the Australian Consumer Law

(ACL) was introduced, which replaced 17 existing national, state and
territory consumer laws (see gure 6.8). The ACL applies in the same way to all
Australian consumers and businesses regardless of where the business operates
or where consumers shop. At the same time, the name of the Trade Practices Act
1974 was changed to the Competition and Consumer Act 2010.
Implemented by
the Competition
and Consumer
Act 2010
Mirror
protections in
the ASIC Act
enforced by ASIC
Enforced by the
ACCC as a law of
the Commonwealth
FIGURE 6.8 From 2011, the

Australian Consumer Law (ACL)
replaced different national, state and
territory laws that set out consumer
rights and business obligations when
selling goods and services with a
single, national set of rules. The ACL
is an application law, which will be
applied and enforced as a law of each
jurisdiction in Australia.
Applied by the
Competition and
Consumer Act 2010
as a law of the
Commonwealth
AUSTRALIAN
CONSUMER
LAW
Enforced by the
State and
Territory consumer
agencies as State
and Territory laws
Applied by each
State and Territorys
application Act as a
law of each State
and Territory
Marketers do not have to be skilled lawyers, but they should be familiar

with the laws that regulate their activities. Ignorance of the law is no defence.
Marketers must also ensure they are aware of any changes to the laws as those
changes apply to their particular business. Their responsibility is to understand
and apply laws within their businesses where needed. They may need to
introduce changes, such as an alternative advertising promotion, a repackaging
of a product or a change in the credit policy for customers. Whatever the change,
a business must ensure it is up to date with the current laws and that it applies
them to all marketing practices.
BizFACT
In 2004, the Spam (Consequential
Amendments) Act 2003 (Cwlth)
was passed. This law regulates
marketing that uses the internet
by banning unsolicited commercial
messages (spam), including
emails, SMS and MMS, with an
Australian link.
156
TOPIC 2 Marketing
Competition and Consumer Act 2010

The Competition and Consumer Act 2010 (Cwlth) formerly the Trade Practices
Act 1974 (Cwlth) is one of the most important pieces of legislation affecting
marketing and business practices in Australia. The Act has two major purposes:
1. to protect consumers against undesirable practices, such as misrepresenting
the contents of products, their place of production, and misleading and
deceptive advertising
2. to regulate certain trade practices that restrict competition. The government
also wants to ensure a number of businesses are operating at any one time in
the same market to encourage competition.
The Competition and Consumer Act (CCA) applies to virtually all businesses
in Australia, including the commercial activities of government. The CCA is
enforced and administered by the Australian Competition and Consumer
Commission (ACCC), each state and territorys consumer agency, and the
Australian Securities and Investments Commission (ASIC) in respect of nancial
services.
Breaches of the Act

A breach of any of the consumer protection provisions of the Competition
and Consumer Act can result in the ACCC or the relevant consumer
agency taking civil or criminal proceedings against the business or individual
concerned. The CCA allows the courts to impose penalties of up to $1.1 million
t
u
led
b
sia
co
n
y
n
isa
for companies and $220 000 for individuals for unconscionable
conduct and
other breaches of the Act. In addition, the consumer can sue the business for
compensation. When legal fees and the damage to the businesss reputation are
included, the cost of breaching the CCA can be substantial.
The ACCC now has the power to issue an on-the-spot infringement notice
(ne) to manufacturers making false claims about their products. The changes
mean that the ACCC can ne a company up to $6600 and an individual up to
$1320 for each infringement of the CCA without having to undertake court
action.
The ACCC can also now issue public warning notices to warn consumers of
suspected illegal activity. Previously, the ACCC had to gather evidence and then
seek a temporary court injunction (ban), while the suspected illegal activity
continued.
BizWORD
U
Unconscionable
conduct is any
practice by a business that is just
not reasonable and often illegal.
FIGURE 6.9 Through the Competition

and Consumer Act, the Australian
Competition and Consumer Commission
can initiate court proceedings against
companies and individuals who engage
in unconscionable conduct.
157
6.4 Consumer laws and specific

marketing practices
Businesses must ensure that they are up to date with the current laws and
that they apply them to all marketing practices. The following are some of the
undesirable and misleading practices that are illegal under the Competition and
Consumer Act.
Deceptive and misleading advertising
BizFACT
Businesses cannot rely on small
print and disclaimers as an excuse
for misleading and deceptive
conduct.
Of all the unfair trading practices, false or misleading advertising can be the
most serious because of the inuential nature of advertising. Even though the
Competition and Consumer Act makes deceptive or misleading advertising illegal,
a number of methods are still used by some businesses. Examples of deceptive
and misleading advertising under the Competition and Consumer Act include:
ne print. Important conditions are written in a small-sized print and are
therefore difcult to read.
before and after advertisements. Consumers may be misled by before and after
advertisements, where the comparison is distorted so that before images are
worsened and after images enhanced.
tests and surveys. Some advertisements make unsubstantiated claims; for
example, stating 9 out of 10 people prefer a product when no survey has
been conducted.
country of origin. Accuracy in labelling is important; for example, made in
Australia and product of Australia have two distinct meanings.
packaging. The size and shape of the
n
resio
p
m
iimpression
package may give a misleading
of the contents (see gure 6.10).
special offer. Advertisements may
be misleading or deceptive if
they imply that a special offer
is available for only a limited
period, when in fact the offer is
continuously available.
FIGURE 6.10 The container can

sometimes mislead the consumer about
the nature of the contents.
BizWORD
Bait
B and switch advertising
involves advertising a few products
at reduced and, therefore, enticing
prices to attract customers.
158
TOPIC 2 Marketing
Two of the most common deceptive and misleading advertising techniques

are:
bait and switch advertising. This involves advertising a few products at
reduced and, therefore, enticing prices to attract customers. When the
advertised products quickly run out, customers are directed to higher priced
items.
dishonest advertising. Advertisements must not use words that are deceptive
vrg
d
eta
n
o
ish
or claim that a product has some specic quality when it does not. Such
actions convey a false impression of the exact nature of the product (see the
following Snapshot). As well, price reduction, specials or free-gift offers must
all be genuine. Advertisements that could deceive, even though no one may
actually be deceived, are also to be avoided.
BizWORD
D
a
en
h
isw
Dishonest advertising
is when an
advertisement uses words that are
deceptive or claims that a product
has some specic quality when it
does not.
LG found misleading
When customers purchase electronic whitegoods, the energy consumption the
six-star rating system is often used to differentiate between brands. An appliance
with a high star rating uses less power and is therefore more environmentally
friendly. As customers have become more environmentally aware, an appliances
energy consumption is a powerful advertising feature and must be accurate.
In late 2010, the Australian Competition and Consumer Commission (ACCC)
ruled against the South Korean electronics manufacturer LG for apparently
misrepresenting the energy consumption of two models of refrigerators. An
investigation found that the fridges were installed with a circumvention device
banned since 2007 which switches the fridge to a storage (power-saving)
mode when test conditions are detected. This gives a lower and inaccurate energy
consumption reading.
LG did not admit guilt nor was the ACCCs ruling a conviction. Instead, the
ACCC and LG reached a negotiated settlement, which includes:
until 2013 LG must submit each new model of television, washing machine,
dryer, dishwasher and air-conditioner for independent testing. All current and
future models of fridges must also be tested.
pay compensation to affected customers (to September 2010 it had paid out
about $500 000)
offer affected customers a refund or exchange.
This is not the rst time LG has been accused of greenwashing. In 2005, it
was caught making misleading claims about the water efciency of its washing
machines and, in 2006, it was ordered to pay about $3 million compensation to
buyers of air-conditioners that advertised false energy consumption details.
Snapshot questions
1. Clarify the purpose of the six-star energy rating system.
2. Explain how the energy rating system can be used as a marketing strategy.
3. State why LGs energy rating information for these particular fridges was
considered to be misleading and deceptive.
4. Summarise the main undertakings LG agreed to in the negotiated agreement
it reached with the ACCC.
5. The consumer advocacy group Choice argues that because LG is a serial
offender, it should have been given harsher penalties. Justify whether you
agree or disagree with Choices opinion. Share your answer with the rest of
the class.
Price discrimination
Price discrimination is the setting of different prices for a product in separate
SNAPSHOT
This is not the first time

LG has been accused
of greenwashing .
BizWORD
f Greenwashing is the practice of
co
ra
ep
isth
making a misleading or deceptive
claim about the environmental
benets of a product, business
practice or technology in order to
present a positive public image.
Price discrimination is the setting
of different prices for a product in
separate markets.
markets. The difference in price is possible because:

the markets are geographically separated, for example city and country prices
there is product differentiation within the one market, for example different
electricity prices for domestic and business users.
The Competition and Consumer Act prohibits price discrimination if the
discrimination could substantially reduce competition. This prohibition also
159
applies to discounts given, credits, rebates, services and payment arrangements.

This means that a business cannot give favoured treatment to some customers
while denying it to others.
BizWORD
Implied conditions consumer guarantees
Consumer
guarantees
are a
tes
rn
a
u
g
re
a
comprehensive set of rights and
remedies for defective goods and
services.
With the introduction of the Australian Consumer Law (ACL), a single set of
statutory consumer guarantees was established, which replaced the previous
system of implied conditions and warranties of the Trade Practices Act. This
changed the structure, but not the aim, of the law that applies to consumer
purchases of goods and services.
Implied conditions are the unspoken and unwritten terms of a contract.
These conditions are assumed to exist regardless of whether they were especially
mentioned or written into a contract. The most important implied term relating
to customer purchases refers to the products acceptable quality. Previously
under the Trade Practices Act, businesses have had to ensure their products
are of merchantable quality. This has been changed by the ACL to acceptable
quality. A product is of acceptable quality if it is t for the purpose for which
it is being sold (see gure 6.11), acceptable in appearance and nish, free from
defects, safe, and durable.
It is a breach of the law to suggest that a product has a particular characteristic
that it does not have. It is illegal, for example, to state that a motor vehicle has
a certain fuel-consumption performance, when it does not.
Implied conditions are the

unspoken and unwritten terms of
a contract.
Acceptable quality means
that the product is t for the
purpose for which it is being sold,
acceptable in appearance and
nish, free from defects, safe, and
durable.
FIGURE 6.11 In a landmark decision in

2010, Federal Court judge Christopher
Jessup ruled that the arthritis drug
VIOXX manufactured by the US
pharmaceutical corporation Merck
was unt for its purpose and not
of merchantable quality and had
breached the existing Trade Practices
Act. The drug was found to double the
risk of heart attack.
Warranties
All businesses have certain obligations with regard to the products they sell.
These obligations are designed to offer a degree of protection to the customer if
the good is faulty or if the service is not carried out with due care and skill. One
important obligation is to provide a warranty. A warranty is a promise by the
business to repair or replace faulty products.
In recent years, government legislation has made it necessary for businesses
to state, clearly and simply, the terms and conditions of the warranty. A warranty
assures the customer that the business has condence in the quality of its
160
TOPIC 2 Marketing
product and will repair or replace any faulty

items. A warranty can be used as an aggressive
marketing tool if it includes superior options to
those of a competitive product.
False or misleading statements concerning the
existence, exclusion or certain conditions of the
warranty are prohibited under the Competition
and Consumer Act. In particular, the legislation
clearly outlines the rights of consumers with
regard to refunds and exchanges.
Refunds and exchanges (returns)

A business is required by law to offer a refund:
if the products provided are faulty
do not match the description or a sample
fail to do the job they were supposed to do.
There is no obligation to offer a refund if the
customer has simply changed their mind, has
found the same product at a cheaper price in
another store, or damage has occurred after the
purchase was made.
It is also important that accurate signs
regarding refunds and exchanges are
displayed. Signs such as no refunds given or
no refunds on sale items are meaningless.
The Competition and Consumer Act gives
consumers certain rights and remedies. A more
accurate sign would read either no refunds
given if you change your mind or no refunds
or exchanges unless your purchase is defective
(see gure 6.12).
Refund policy
We do not have to give a refund if you
change your mind.
You are entitled to a refund if the item you
purchased:
is faulty or becomes unsafe through no fault
of your own
does not match our description or sample
does not do what we said it would
does not do what you asked for.
However, the item must be returned within a
reasonable time and with proof of purchase.
If
you prefer an alternative to a refund, we can:

exchange the item
arrange for the item to be repaired
offer a store credit.
Please keep your receipt as proof of purchase.
FIGURE 6.12 A sample refund poster for businesses
Summary
In 2011, a single, national consumer law the Australian Consumer Law
(ACL) was introduced.
The Competition and Consumer Act 2010 protects consumers against undesirable
business practices and prohibits various unfair (restrictive) business practices.
The Competition and Consumer Act is administered and enforced by the
Australian Competition and Consumer Commission (ACCC) and relevant
state and territory consumer agencies.
Breaches of the Competition and Consumer Act can result in the ACCC taking
civil proceedings against the business or individual engaged in unconscionable
conduct.
The main restrictive trade practices are:
deceptive and misleading advertising creating a false impression in an
attempt to inuence customers
price discrimination the setting of different prices for a product in
separate markets.
The Australian Consumer Law introduced a single set of statutory consumer
guarantees that replaced the previous system of implied conditions and
warranties.
161
Consumer guarantees are a comprehensive set of rights and remedies for

defective goods and services.
Implied conditions are unspoken and/or unwritten terms of a contract. The
most important implied term relating to consumer purchases refers to the
products acceptable quality.
A warranty is a promise to repair or replace faulty products.
A business is required by law to offer a refund if the products provided:
are faulty
do not match the description or a sample
fail to do the job they were supposed to do.
EXERCISE 6.2
Revision
1 Clarify why marketers should be familiar with consumer laws.
2 State the two main aims of the Competition and Consumer Act.
3 Recall the federal government authority that administers and enforces the
Competition and Consumer Act.
4 Dene the term unconscionable conduct.
5 Summarise the penalties that can be applied for breaches of the Competition and
Consumer Act.
6 Discuss the advantages of the ACCC being able to issue on-the-spot infringement
notices and public warning notices.
7 Explain why it is important for a marketer to comply with the consumer protection
provisions of the Competition and Consumer Act.
8 In small groups:
(a) discuss whether the nes for business owners who breach the Competition and
Consumer Act are adequate.
(b) propose some alternative punishments.
Select a spokesperson to present your responses to the rest of the class.
9 Select what you consider to be the two most serious examples of deceptive and
misleading advertising. Justify your selection.
10 In each of the following examples, state whether there has been a breach of the
Competition and Consumer Act. If so, describe the type of breach found.
(a) A company advertises a particular brand of television and states that it is at a
cheaper price than a competitor. This statement is false.
(b) A company advertises jumpers and claims that they are made in Australia, when in
fact they are made in Hong Kong.
(c) A company offers its customers a 10 per cent discount if they provide the names
and addresses of ve potential customers for the company.
(d) A company advertises that the special deal is for one week only, when in fact it
plans to extend it to two months.
(e) A company advertises a motor vehicle as having low mileage, when in fact it has
travelled 200 000 kilometres.
11 State under what circumstances price discrimination is considered a breach of the
Competition and Consumer Act.
12 (a) Dene the term consumer guarantees.
(b) Identify the features a product must possess to be considered of acceptable
quality.
13 Distinguish between a warranty and a refund.
14 Identify under what circumstances a business is required to offer a refund.
15 Determine why disagreements over warranties and refunds are a common source of
consumer complaints.
162
TOPIC 2 Marketing
Extension
1 Arrange for a representative from the Consumer Claims Tribunal or the New South
Wales Department of Fair Trading to address your class about the role of consumer
laws and their impact upon marketing strategies. Create a list of interview questions
and send them to the representative before the visit. After the visit, construct a
report and arrange for a copy to be sent to the representative.
2 Use the ACCC (Australian Competition and Consumer Commission) weblink in
your eBookPLUS to answer the following questions.
(a) Summarise the role and major activities of the ACCC.
(b) Select a recent news release that interests you and evaluate the response of the
ACCC.
3 You have been employed as a business reporter with the local newspaper. Your editor
has asked you to create a 300-word article about bait and switch advertising scams.
The headline of your article is Dont get hooked the bait and switch scam. To help
you commence your investigation, use the NSW Department of Fair Trading
weblink in your eBook PLUS to examine a case study of bait and switch advertising.
Share your article with other class members.
Weblink
ACCC (Australian
Competition and
Consumer Commission)
and NSW Department of
Fair Trading
6.5 Ethical influences

In marketing, as with all business practices, there are ethical and legal dilemmas
involved. Although the many laws regulating marketing strategies prescribe
legal standards, ethical standards are more difcult to dene.
Ethical criticisms of marketing

Critics of marketing argue that the industry does not always adopt ethical
practices. They believe it lacks a strong code of professional conduct and
sometimes blurs the lines between what is ethically right and wrong. The main
BizWORD
ethical criticisms of marketing include:
1. Creation of needs materialism. Materialism is an individuals desire to sanidvul Materialism is an individuals
constantly acquire possessions. Critics of product promotion feel that most desire to constantly acquire
businesses, especially large businesses, use sophisticated and powerful possessions.
promotional strategies (particularly advertisements) to persuade and Product placement is the
manipulate customers to buy whatever the rm wants to sell.
inclusion of advertising in
2. Stereotypical images of males and females. In most advertisements it tends to entertainment.
be the male who uses the power tools, or who watches sport with his mates.
Females, on the other hand, are portrayed preparing meals, cleaning the
house or caring for the children.
3. Use of sex to sell products. There is often an overuse of sexual themes and
connotations to sell products. Unrealistic images are portrayed as attainable.
Advertisers use sex appeal to suggest to consumers that the product will
increase the attractiveness or charm of the user. Although many people are
sceptical of such claims, advertisements that use sex appeal can have subtle
and persuasive impacts.
4. Product placement. The inclusion of advertising in entertainment is a BizFACT
promotion strategy referred to as product placement. Generally, the insertion Some marketing managers still
of these products is subtle: an Omega watch on the celebrities arm (see believe that there is conict
gure 6.13) or a can of Coca-Cola seen when a refrigerator door is opened; between ethics and prots.
while at other times they are prominently displayed. Businesses are keen to However, more research suggests
use this promotional technique because it allows them to reach savvy, but the opposite. Adopting ethical
advertisement-weary, consumers. However, critics of product placement argue practices actually improves the
that, because of its concealed nature, this type of advertising blurs the line bottom line.
between what is advertising and what is entertainment.
163
Ultimately, marketing managers should never forget that the business exists
because of its customers. By satisfying customers a business may operate
protably. Dishonest or unethical marketing strategies eventually drive
customers away.
FIGURE 6.13 In the movie Quantum of

Solace, James Bond is seen using Sony
Ericsson cell phones, Sony electronics,
Omega watches, Heineken beer, Aston
Martin, Smirnoff vodka and Virgin
Atlantic ights. Various companies
spent approximately $79 million placing
their products in the lm.
Truth and accuracy in advertising

BizWORD
o
,n
d
p
isa
-erl Advertising is a paid, non-personal
message communicated through a
mass medium.
Advertising can represent real ethical dilemmas for marketers. False or
misleading advertising is not only unethical, it is also illegal. However, the use
of terms such as special, great value, low fat, light and once in a lifetime
offer can be interpreted in many different ways. For example, what precisely
does the word special mean when it is displayed above a product for sale? Most
customers would take this to mean the item is for sale at a cheaper than normal
price. However, this may not necessarily be the case. The marketer may interpret
the word special to mean that the product has a distinct or particular character,
that it can perform a particular function or it is different from what is ordinary
or usual. The two interpretations can easily be confused. If the marketer uses
this word, attempting to knowingly mislead customers, this would be classied
as unethical behaviour. If the marketer wants to advertise the fact that the
product is available at a bargain price then the words on special would have a
clearer meaning.
The main unethical marketing practices include untruths due to concealed
facts, exaggerated claims, vague statements and invasion of privacy.
Untruths due to concealed facts

Many customers are aware that advertising takes liberties with the truth;
they do not perceive advertisements to be believable or honest. An advertised
product may not make a consumer more successful, glamorous, sexy, happy,
healthy or wealthy. However, the unethical practice of concealed facts pieces
of information purposefully omitted form an advertisement can severely
harm the trust customers have in a product or a business (see the following
Snapshot).
164
TOPIC 2 Marketing
Coca-Cola advertisement withdrawn

The television program The Gruen transfer recently discussed an advertisement
by Coca-Cola. Actress Kerry Armstrong was hired to bust myths about Coke.
According to the advertisement, Coke doesnt rot your teeth (if you brush after
drinking it), it isnt highly caffeinated and it doesnt make you fat. Coca-Cola
eventually withdrew the advertisement and made a public statement saying: We
recently published some myth busting advertisements featuring Kerry Armstrong
for Coca-Cola. The feedback we received from the Australian Competition and
Consumer Commission and others is that the overall impression we created by those
ads may have been misleading. What we meant to convey is that there can be a
place for Coca-Cola in a balanced, sensible diet and active lifestyle.
Snapshot question
1. Use the library, internet or magazines to nd out more about
Coca-Colas controversial advertising campaign. Clarify whether you
think the advertisement was misleading.
2. Discuss what you think of the companys response to the allegations that the
advertisement might have been misleading.
SNAPSHOT
. . . the
overall
impression
we created
by those
ads may
have been
misleading.
Exaggerated claims
s referred to as
a
Exaggerated claims
r
o
F
puffery cannot
be proved. For
o
p
am
h
example, a claim
that a certain sshampoo
eris superior to any o
or toilet paper th
other
ed cannot be conrrmed
on the marketm
le,
p
am
x
by consumers.
In a recent eexample,
ater
a brand of sparkling
mineral w
water
les fact that the b
b
u
advertised the
bubbles
e. bottled at source.
c
were natural and
rto be misleading ffor
This was shown o
g
rin
u
the bubbles were
added later d
during
the bottling process.
z
feryu
tery
seh
u
lp
a
tin
m
ro
tk
d
u
rw
lp
b
n
so
ea
l.
ctu
a
Bi
BizWORD
is exaggerated praise or
Pisexa
o
p
rtd
g
Puffery
attery,
especially when used for
a
promotional
purposes that no
p
reasonable
person would take as
r
factual.
f
Vague statements
Another
type
of
unethical
advertising practice involves the use
of vague statements statements
using words so ambiguous that the
consumer will assume the advertisers
intended message. These weasel
words deliberately misleading or
ambiguous language are by their
nature vague and allow the marketer
to deny any intention to mislead
or deceive. For example, helps is a
common weasel word, as in helps
ght against, helps restore or helps
to make you feel. Although some
marketers regard such statements as
acceptable, others do not.
Weblink
Advertising campaigns
FIGURE 6.14 Are the bubbles natural

or articial? It is difcult for consumers
to verify the accuracy of statements
or claims made in advertisements.
To either inadvertently mislead or,
worse still, intentionally lie will result
in consumer backlash and negative
publicity.
165
Invasion of privacy
BizFACT
In 2010, BlueKai, the worlds
largest data exchange company,
joined with the advertising
network Adconian to operate in
Australia. At the time, BlueKai
had the computer addresses and
purchasing intent for about
eight million Australians who
used the internet to search for
information about holidays, motor
vehicles and online shopping.
The recent growth in online advertising is raising a number of ethical issues

with the most serious being the tracking of web users and using this information
to target them with advertisements. Collection of data in this way may breach
consumer privacy.
Presently, because most websites infer consent (the consumer agrees to their
web searches being tracked unless the person opts out by ticking a box), many
consumers are unaware that data is being collected on them. This behavioural
data is collected and resold by data exchange companies such as the Californian
based organisation BlueKai (see the BizFact at left) and then used by businesses
for target advertising purposes.
FIGURE 6.15 There is increasing

pressure for consumers to be informed
when their internet browsing details are
being collected and resold in order to
provide protection for online privacy.
Good taste in advertising

What is considered to be in good taste is highly subjective. Some consumers may
regard an advertisement as offensive, while others might view it as inoffensive.
For example, Italys largest clothing manufacturer, The Benetton Group, prides
itself on creating advertisements and advertising campaigns that are unique,
artistic, occasionally confronting and centred on passing a comment about a
contemporary issue. There is usually common agreement as to what society
considers acceptable and marketers must be aware of community sensitivities.
Many consumers would regard The Benetton Group advertisements as highly
creative and inoffensive.
FIGURE 6.16 The Benetton Group:

The Benetton Groups campaigns
have gathered awards and acclaim
worldwide; by the same token, they
have aroused strong reactions at
times ferocious, at times simply curious,
conrming once again that they are
always a focal point of discussion and of
confrontation of ideas.
166
TOPIC 2 Marketing
However, as with many creative pursuits, and advertising is no exception, there

are always some marketers wanting to push the boundaries. The Italian luxury
goods manufacturer Dolce & Gabbana used a scene in one of its advertisements
evoking a gang rape that reeked of violence against women. It was widely
condemned by many marketers and consumers. Not only was it regarded as
being in poor taste, it was severely criticised for the way it degraded women.
The advertisement was eventually withdrawn after considerable worldwide
public and government pressure.
Within society, there is recognition of the growing role that mass media is
playing in childrens lives, and the fact that advertisers and marketers are now
targeting children more than ever. One area of marketing to children that has
received widespread publicity in Australia in recent years is the sexualisation
of children in advertising. According to the Australia Institute, a leading
progressive Australian think tank, sexualisation of children in the media leads
to a range of risks for children. In their report Letting Children be Children, they
highlight that premature sexualisation of children can result in increased risk
of depression, self-esteem and identity disorders, and premature sexual activity.
Advertising Standards Bureau

In Australia, the role of the Advertising Standards Bureau (ASB) is to ensure
that acceptable advertising standards are followed. The ASB does this by
administering a national system of advertising self-regulation through the
Advertising Standards Board and the Advertising Claims Board. Both of these
boards are part of the dispute resolution mechanism that deals with consumer
complaints about most forms of advertising.
Many consumer organisations argue that a self-regulatory system for
advertising standards is ineffective because the ASB lacks the authority to
enforce the guidelines. The critics believe that advertising standards should be
regulated by the government, otherwise there may be a temptation by marketers
to ignore industry-established guidelines.
Products that may damage health

The marketing of junk food, which is often portrayed as an essential part of a
balanced diet (see gure 6.17), is an area presently being criticised by nutritionists
and health advocates, especially as childhood obesity rates approach epidemic
proportions.
BizWORD
b
ytem
isa
is a system by
Self-regulation
which a business or industry
controls its own activities rather
than being publicly regulated by an
outside organisation such as the
government.
BizFACT
In 1976 the Australian government
banned all forms of electronic and
print advertising of cigarettes.
FIGURE 6.17 In Australia, one in three

TV advertisements during childrens
program times is for food that is high
in fats, sugars and salt. Some members
of the community see these ads as
unethical as they encourage children to
want food that is not good for them.
167
d
o
eth
m
isa
BizFACT
Coca-Cola, Cadbury and Mars,
which are signatories to the
Responsible Childrens Marketing
Initiative, set their own nutritional
standards that make it difcult for
consumers to understand.
Nutritionists argue that the self-regulatory advertising codes, such as the

Responsible Childrens Marketing Initiative and the Quick Service Restaurant
Code (which allow fast food companies to advertise certain products in
childrens television programs only if they meet specic nutritional guidelines)
aimed at reducing junk-food marketing, are not working. For example, only
advertisements screened during designated childrens programs or designed for
children are covered by the code of nutritional guidelines. It does not, however,
cover television programs popular with children, such as Neighbours and Home
& Away, and fast food companies.
As well as industry established codes, the federal government sets restrictions
on childrens advertising. In Australia, no advertising is allowed during programs
for pre-school children.
Digital advertising of junk food to children

The proliferation of social-networking sites such as Facebook, Bebo, Twitter
and MySpace provide marketers with new and largely unregulated ways of
advertising junk food to children. This form of advertising raises new ethical
issues (see the following Snapshot).
SNAPSHOT
BizWORD
Viral marketing is a method
of promotion that involves the
spreading of messages from person
to person without the involvement
of the originator. This is commonly
achieved through the use of digital
word-of-mouth advertising.
168
TOPIC 2 Marketing
Show and tell: food firms get kids to do the

talking
The latest scam: getting children to do the talking
Health advocates have raised concerns about a new trend in which children are
recruited to market products ranging from junk food to MP3 players to their
friends through word-of-mouth advertising.
Australian authorities have focused on restricting junk food ads during childrens
television programs, but digital advertising to young people is not strongly
regulated.
A founding member of the Coalition on Food Advertising to Children, Kaye
Mehta, describes digital peer-to-peer marketing as potentially a bigger problem
than television advertising.
Marketing has been going on for a long time but its getting more and more
aggressive and more and more sophisticated, she said.
Marketers are using children through the alpha peer process to promote
products and inuence other children. Social media sites make this very easy
to do.
If we thought that the traditional form of marketing through the TV was
bad, well marketing in the digital media is even more sophisticated and allows
marketers more innovative techniques to get to children.
The process of viral marketing and children promoting products to other
children, its clever but its insidious.
Ms Mehta, a dietician-nutritionist at Flinders University, said childrens exposure
to unhealthy food messages was increasing, within a context of high levels of
childhood obesity.
She has researched how food and beverage companies use social-networking
sites to get to children.
Its cheap to reach children through social-networking sites, she said.
In terms of market research, they get feedback on their products, they can ask
children to suggest new avours and new products.
Children think its fun and engaging but they are being used. They are being
used to do the work of corporations and make corporations prots.
. . . digital
peer-to-peer
marketing is
potentially a
bigger problem
than television
advertising.
Sharyn Smith, the chief executive of Australias largest word-of-mouth agency,

Soup, said it was unethical for marketers to recruit young children for campaigns.
Soup does not recruit anyone younger than 16, she said.
Word-of-mouth at the end of the day is about the authenticity of someone
genuinely believing in the product, she said.
We certainly stay on the side of genuine, authentic recommendation. . . paying
children to provide positive word-of-mouth is just wrong.
She has been alarmed to see an increase in companies paying people to post
positive product reviews on Twitter.
It undermines trust and ultimately undermines condence in the brand,
she said.
A spokesman for regulatory body, the Australian Communications and Media
Authority, said it monitors television advertising but was not looking at digital
advertising.
Source: Rachel Brown 2010, The Sydney Morning Herald, 10 October 2010.
BizFACT
Snapshot questions
Kelloggs Nutri-Grain, promoted

as an iron man food, contains
32 grams of sugar for every
100 grams. Coco-Pops Os,
promoted as a source of bre
and made with 47 per cent
wholegrains, no preservatives
and eight essential vitamins and
minerals, has 33.4 grams of sugar
for every 100 grams.
1.
2.
3.
4.
Describe the process of digital peer-to-peer advertising.

Summarise Kaye Mehtas concerns regarding digital peer-to-peer marketing.
Examine how the alpha peer process can inuence others.
(a) Dene the term viral marketing.
(b) Explain why viral marketing is considered to be insidious.
5. Identify the organisation Sharyn Smith represents.
6. State why Sharyn Smith considers it to be unethical for companies to pay
people to post positive product reviews on Twitter.
7. In small groups, propose three regulations that you consider should be
implemented to regulate digital advertising of junk food to children. Justify
each regulation. Share your answer with the rest of the class.
Engaging in fair competition

Competition in the marketplace is a fact of life. Businesses compete against
each other to attract the greatest number of customers. Those businesses that
compete successfully will usually increase their sales revenue and prot.
Weblink
Coalition on Food
Advertising to Children
FIGURE 6.18 Competition between

businesses to be the market leader
or to win customer loyalty can be
intense. However, in the competitive
race, marketers should not engage
in unethical tactics to gain an unfair
advantage.
169
erth
d
BizWORD
m
su
n
ita
lo
erxp
occurs
C
rs
cu
o
Consumer exploitation
when the rights of consumers are
ignored.
Because the amount of competition in the marketplace can be intense, there is

a temptation for some businesses to engage in unfair marketing strategies, which
ultimately result in consumer exploitation. Some common exploitative practices
include advertisements that make false promises or are highly exaggerated,
incomplete product descriptions; or manipulative, high-pressure selling methods.
Such strategies are not only unethical, but they are also unlawful. When
consumers discover that advertisements are untrue or inaccurate, they may feel
cheated and stop buying the product. They may also decide to complain to the
relevant government agencies, in which case the bad publicity this generates can
do untold long-term damage to a businesss reputation. Therefore, marketers
should take care to provide all the important details and avoid making claims
that cannot be veried.
Of course, businesses need to monitor the actions of their competitors and
assess the changes their competitors are making. For example, a marketing
manager should determine if and why competitors are changing promotional
factors such as advertising, product design, prices, warranties or packaging.
This information can be gained fairly and ethically from direct observation,
trade journals, media, market research and sales consultants. Knowledge of such
changes enables the marketing manager to decide if any adjustments need to be
made to the current marketing plan.
In order to engage in fair competition, a business should develop and adopt
an ethical marketing policy.
Ethical marketing policy

Maintaining an ethical approach towards competitors can sometimes present
many challenges to marketers. There is no one easy solution to solving the
dilemmas. However, marketers can plan for such challenges by designing an
ethical marketing policy that acts as a standard against which to assess the
businesss ethical performance. Sacha Ansberry, marketing manager for United
Technologies Australia, used the following questions when she designed her
companys ethical marketing policy.
Do we conduct our marketing activities in a way that is ethical and fair?
Are we being socially responsible in all that we do?
Do we respect and obey the governments legislation and regulations?
Are we responsive to the emerging social and ethical issues within our
society?
Are all employees aware of, and following, the businesss ethical marketing
policy?
Sugging
BizWORD
the gu
guise
seiSugging, selling under
n
of a survey, is a sales technique
disguised as market research.
170
TOPIC 2 Marketing
Have you ever been approached by someone in a shopping centre and asked
to complete a short survey? Perhaps you have been contacted by telephone
and surveyed about a particular product only to discover the person was really
trying to sell you something? If so, then you have just been sugged. Sugging,
selling under the guise of a survey, is a sales technique disguised as market
research.
Although this technique is not illegal, it does raise several ethical issues,
including invasion of privacy and deception.
Sugging also has long-term negative consequences for market research. The
cooperation of consumers is becoming more difcult with response rates to
surveys and questionnaires steadily declining. Current indications are that
about one-third of individuals now refuse to participate in telephone, online

and personal surveys because of suspicion that the survey is really a case of
sugging.
FIGURE 6.19 We are just conducting a short survey of people in your local area . . . What
starts as an invitation to complete a survey can sometimes end in a direct sales pitch. Sugging
is a highly unethical practice and is essentially deceptive to the consumer.
Summary
Critics of marketing argue that it lacks a strong code of professional conduct
and sometimes blurs the lines between what is ethically right and wrong.
The main ethical criticisms include:
creation of needs materialism
stereotypical images of males and females
use of sex to sell products.
product placement
Dishonest or unethical marketing practices ultimately drive customers away.
False or misleading advertising is not only unethical, it is also illegal.
Unethical marketing practices can range from:
untruths due to concealed facts
exaggerated claims puffery
vague statements
invasion of privacy.
In Australia, the role of the Advertising Standards Bureau is to ensure
acceptable advertising standards are followed. This is a self-regulating system.
Marketers have been heavily criticised by consumer and health groups for
promoting products that damage health, especially junk food.
Social-networking sites are used by marketers to digitally advertise junk food
to children.
Much of this digital advertising is presently unregulated.
There may be a temptation for marketers to engage in unfair strategies, which
ultimately result in consumer exploitation.
171
Marketers can use a corporate ethical marketing policy to help ensure the
business is engaging in fair competition.
Sugging selling under the guise of a survey is not illegal, but it raises
several ethical issues including invasion of privacy and deception.
EXERCISE 6.3
Revision
1 In a recent survey of 350 Australian and overseas marketing managers, 64 per cent
responded yes to the question: Is it reasonable behaviour to bend the law if you do
not actually break it? Propose how you would answer this question.
2 Dene the term materialism.
3 As a class, discuss whether advertising creates unrealistic expectations that many
consumers can never attain. Record the main points on the board. Write a paragraph
in your notebooks summarising the points recorded.
Digital doc:
document in your
4 Discuss whether you think advertising:

(a) leads or reects the change in gender roles
(b) could be criticised for over-emphasising sex to sell products.
5 Outline why businesses are keen to use product placement.
6 Justify whether you consider product placement an ethical or unethical marketing
strategy. Compare your answer with that of other class members.
7 Demonstrate how the following advertising strategies may mislead consumers.
(a) Before and after advertisements
(b) Puffery
(c) Weasel words.
8 Propose three reasons why the collection of consumer behavioural data, by tracking
web users, could be considered unethical.
Weblink
Australian Standards
Bureau
9 The Dolce and Gabanna advertisement based on a suggestion of a gang rape was
clever marketing. Even though the advertisement was withdrawn, it created a great
deal of attention; one of the main purposes of advertising. Justify whether you
agree or disagree with this statement.
10 Use the Australian Standards Bureau weblink in your eBook PLUS to outline the
steps involved if a consumer wants to make a complaint about an advertisement they
nd offensive.
11 (a) Using the format shown in the following table, examine ve advertisements and
record your observations. Choose two advertisements that you think were the
most effective. Justify your selection.
Name of
company
Product
Marketing strategy
used
Effectiveness
rating 15
(b) Determine whether any of the advertisements you viewed were unethical. Give
reasons for your answer.
12 In small groups, use the brainstorm technique to critically analyse the ethical issues
involved in:
(a) advertising to young children during morning television programs
(b) using sexual overtones and imagery in advertisements.
Weblink
Marketing Association
of Australia and New
Zealand (MAANZ)
172
TOPIC 2 Marketing
13 Digital advertising to children should remain unregulated and allow the fast-food
industry to develop its own set of guidelines. Discuss.
14 Use the Marketing Association of Australia and New Zealand (MAANZ) weblink
in your eBookPLUS to examine the associations marketing code of ethics and then
answer the following questions.
(a) Clarify the purpose of a code of ethics.
(b) Identify the four guiding principles of the code of ethics.

(c) State the penalty for any MAANZ member found to be in violation of the code of
ethics.
(d) Summarise the four rights and duties of parties.
15 Outline the purpose of an ethical marketing policy.
Extension
1 Examine what advertising standards must be met before an advertisement can
be aired on television. Discuss why we have advertising standards and determine
whether there are any areas where advertising certain types of products should be
subject to stricter regulation.
2 You have been asked by your manager to place a special sign on a number of items,
but the price is not to be lowered. Assess whether this is an ethical or unethical
practice. As an employee, determine what you could do. Compare your answer with
that of other class members.
3 Use the Australian Competition and Consumer Commission (ACCC) weblink in
your eBookPLUS to answer the following questions.
(a) Outline what information the ACCC provides about advertising.
(c) Propose how a knowledge of this information would inuence marketing
promotion practices.
4 Discuss whether a marketing manager should refuse to produce a product that
could have harmful side effects, even though consumers are demanding the product.
Compare your answer with that of other class members.
5 If you were the marketing manager for a food company account, investigate
which you would prefer: government regulation of food additives or a voluntary
industry code. In your answer provide advantages and disadvantages for each
alternative.
Weblink
Australian Competition
and Consumer
Commission (ACCC)
Digital doc:
eBookPLUS.
173
CHAPTER 7
Marketing process
7.1 Introduction
BizFACT
The acronym SMEIDI will help you
remember the steps involved in
developing a marketing plan.
Situational analysis
Market research
Establishing marketing objectives
Identify target markets
Develop marketing strategies
Implementation, monitoring and
controlling
FIGURE 7.1 Steps involved in

developing a strategic marketing
plan. Strategic marketing planning
provides a mechanism for businesses
to gain a clear picture of where the
business is at present, and where it
could be in the future. In this sense,
it is the road map for marketing.
As outlined in chapter 5, a marketing plan gives a purpose and direction to all

the businesss activities. Everyone in the business needs to know the plan, so
all departments are working towards achieving the goal. For this reason, it is
referred to as an integrated marketing plan. The marketing plan needs to mesh
with the businesss operational plan, nancial plan and human resources plan.
The steps involved in developing a marketing plan are shown in gure 7.1.
1. Situational analysis
(What is the present state
of the business?)
6. Implementation, monitoring
and controlling
2. Market research
Developing a financial forecast

(How much is the marketing
plan going to cost?)
Comparing actual and planned
results (Is the business achieving
what we thought it would?)
Revising the marketing strategy
(Is the plan working? Does it
need changing?)
(What products do customers

want? Who are the businesss
main customers? What are our
customers like?)
5. Develop marketing strategies
3. Establish market objectives
(How is the business going

to achieve these objectives?)
(What do we want the business

to achieve?)
4. Identify target markets

(To whom does the business
presently sell? To whom could
the business sell?)
There is no set format for developing a marketing plan. Each plan will reect
the individual characteristics of the business. However, all marketing plans
should have two features in common. They should be:
realistic in the light of the situational analysis
achievable within the businesss resources and budgets.
174
TOPIC 2 Marketing
7.2 Situational analysis SWOT

analysis and product life cycle
The most crucial step of the marketing plan is that management has a precise
understanding of the businesss current position and a clear picture of where it is
heading. That is, a situational analysis must be undertaken based on meaningful
market research.
SWOT (strengths, weaknesses, opportunities

and threats) analysis
Changes in the external environment can dramatically alter the course of a
business. For this reason, a business must constantly monitor these changes,
looking for any opportunities to exploit and any threats to avoid.
Internal forces operate from inside the organisation and are largely within the
control of the business. These internal forces are unique to each business and,
by analysing them, management can assess the strengths and weaknesses of the
business.
To develop a clear understanding of both the external and internal
environments, a SWOT (strengths, weaknesses, opportunities and threats)
analysis should be conducted. A SWOT analysis involves the identication
lesth
vo
n
and analysis of the internal strengths and weaknesses of the business, and the
opportunities in, and threats from, the external environment (see gure 7.2). It
provides the information needed to complete the situational analysis and gives
a clear indication of the businesss position compared with its competitors. The
marketing plan should be modied to reect this information.
Internal assessment
BizWORD
A SWOT analysis involves
the
i
identication and analysis of the
internal strengths and weaknesses
of the business, and the
opportunities in, and threats from,
the external environment.
External assessment
Strengths
Weakness
Opportunities
Threats
What are our strengths?

What is the business
good at?
Is our product popular?
Are our customers loyal?
Do we have a skilled and
motivated workforce?
Do we function efficiently?
Are we in a solid
financial position?
Is our equipment state
of the art?
What are our weaknesses?

Do we have competent
managers and staff?
Is our computer system
obsolete?
Have we experienced
past failures?
Have we been upgrading
our facilities to keep pace
with others?
What are our opportunities?

What will new
technology bring for us?
Is the national economy
strong?
Are interest rates low?
What are our possible
new markets?
What other businesses
can we acquire to
expand the organisation?
What are our threats?

What trends have
been evident in our
markets?
Are there new laws
regulating what we do?
Are there new
competitors?
Are current competitors
taking over our market
share?
FIGURE 7.2 A SWOT analysis is a powerful tool that can be used at all stages of the
marketing planning process.
Marketing process CHAPTER 7
175
Once the SWOT analysis has been conducted, an assessment of the products
position on the product life cycle should be carried out. This is necessary
because different marketing strategies will need to be used at different stages of
a products life.
BizWORD
sit product life cycle consists
n
co
The
of the stages a product passes
through: introduction, growth,
maturity and decline.
Product life cycle

The product life cycle consists of the stages a product passes through:
introduction, growth, maturity and decline (see gure 7.3). Many businesses
start because of someones great idea to produce a product (a good or service)
that is new and perhaps superior to what is available. From that tiny seed,
a successful business may grow; but like all good things, there is eventually
an end to the cycle. Your parents and grandparents were familiar with many
products that you would consider old-fashioned relics from the past, such as
black and white television sets or cut-throat razor blades. Products such as these
experienced the same cycle of introduction, growth, maturity and decline that
products continue to experience today.
Growth
stage
Maturity
(saturation)
stage
Decline
stage
Sales ($)
Introduction
stage
FIGURE 7.3 Stages of the product

life cycle. A business must be able to
launch, modify and delete products
in response to changes in the product
life cycle. Failure to do so will result in
declining sales and reduced prots.
Time
At each stage of the products life cycle a different marketing strategy is

necessary.
Introduction stage
The business tries to increase consumer awareness and build a market share for
the new product.
Product brand and reliability are established.
Price is often noticeably lower than competitors prices in order to gain a
market foothold.
Promotion directed at early buyers and users occurs, and communications
seek to educate potential customers about the merits of the new product.
Distribution is selective, which enables consumers to gradually form an
acceptance of the product.
Growth stage
Brand acceptance and market share are actively pursued by the producers of the
product.
Product quality is maintained and improved and support services may be added.
Price per unit of production is maintained as the rm enjoys increased
consumer demand and a growing market share.
Promotion now seeks a wider audience.
Distribution channels are increased as the product becomes more popular.
176
TOPIC 2 Marketing
Maturity phase
Sales plateau as the market becomes saturated:
Product features and packaging try to differentiate the product from those of
competitors.
Price may need to be adjusted downwards to hold off competitors and
maintain market share.
Promotion continues to suggest the product is tried and true its still the
best.
Distribution incentives may need to be offered to encourage preference over
rival products.
Decline stage
Sales begin to decline as the business faces several options:
Product maintained with some improvements or rejuvenation. Cut the losses
by selling it to another business.
Price is reduced to sell the remaining stock.
Promotion discontinued.
Distribution channels reduced and product offered to a loyal segment of the
market only.
Why do some products decline?

Products end for various reasons (see the Snapshot on page 178). These include
the changing public perception of what is fashionable at certain times. New
technologies are constantly being introduced and with them come new products
replacing old ones. New products also sometimes reduce demand for older
ones. Fluctuations in the level of economic activity constantly result in shifts in
customer spending habits.
Presently, consumer behaviour is dramatically changing as a result of the
need to reduce carbon emissions and greenhouse gases to prevent even more
devastating climate change. Today, for example, car manufacturers are a good
example of large-scale manufacturers throughout the world that are confronted
with the unpleasant reality that consumers are more globally aware. They will no
longer continue buying unsustainable products the way they once did.
BizFACT
The marketing of a new product
must be carefully planned because
markets are constantly changing.
FIGURE 7.4 Consumers expect

products to be more environmentally
friendly. Some businesses will grasp this
opportunity to create new, greener and
more ecologically sustainable products,
while other products will disappear.
177
SNAPSHOT
. . . went on to
become the longest
running, most
produced, single
design production
motor vehicle in
history.
The Volkswagen Beetle product life

cycle, 19332003
Today, the VW Beetle is considered fondly as a highly successful product from a
bygone era. The rst Beetles were far too noisy, inefcient and uncomfortable
for the current vehicle consumer. However, it was possibly one of the most
successfully marketed and most famous cars ever built.
In 1933, Adolf Hitler ordered Ferdinand Porsche to develop a German
volkswagen, which means peoples car. The car was rst built by Porsches
chief designer and went on to become the longest running, most produced,
single-design production motor vehicle in history.
During the introduction phase, the car was a basic vehicle capable of
transporting two adults and three children at 100 kilometres per hour. The car
was to cost about the same as a small motorcycle. After World War II, in 1945,
the VW factory was handed over to the British to control.
The car was called a kafer (meaning beetle) by the Germans, which explains
its popular English nickname. The British army ordered 20 000 Beetles and
production rose to 1000 per month. Unlike other cars at the time, the Beetle
was cheap to maintain and run. In 1957, a new larger rear window proved to be
very popular with consumers. Sales continued to climb.
During the growth phase, there were small improvements made to road
handling and engine power and, in 1955, the one-millionth Beetle was made
at the German plant. The Beetle was far superior in performance and reliability
to its competitors in the compact car market. These included the famous British
Morris Minor and the French Citron. The VWs market share expanded in
Europe.
The maturity phase began in the early 1960s when side and front windows
were enlarged. A newer, more powerful 1300 cc engine was added to
distinguish the Beetle from competitors such as the Morris Mini Minor.
In 1973, the Super Beetle was given a curved windscreen. Innovative
advertising campaigns and a reputation for toughness and reliability helped the
Beetle surpass the production levels of the famous Model T Ford. The Beetle was
now being produced in factories all over the world, including Australia, where
they were considered among the best VWs in the world. By 1973, production
had passed 16 million cars with huge sales on every continent. Incredibly, by
1992, 21 million Beetles had been built.
The popularity of the VW Beetle began to decline as rival small car
manufacturers from Japan and the US eventually overtook the Beetle in terms of
technology. Attempts by VW engineers to improve the models popularity had
failed and the Beetles worldwide sales began to fall. Other VW cars like the Golf
became more popular with consumers.
In 1978, production stopped in Germany, but was continued in Brazil and
Mexico. Parts were exported from South America even after full production
ceased in 2003. However, a car that resembles the old Beetle is now on the
market and referred to as the new Beetle. The Volkswagen logo is still world
famous and the company remains Germanys largest car maker to this day.
Snapshot questions
1. Use the stages of a products life cycle (introduction, growth, maturity and
decline) as your headings and under each heading write a brief sentence to
summarise how the VW Beetle passed through each stage.
2. Describe the key strategies VW used to enable the Beetle to sell so
successfully over such a long life cycle.
3. Explain how the Beetles competitors eventually ended its reign.
178
TOPIC 2 Marketing
Summary
A marketing plan gives a purpose and direction to all the businesss activities.
The steps involved in developing a marketing plan are:
situational analysis
market research
establish marketing objectives
identify target markets
develop marketing strategies
implementation, monitoring and controlling.
A situational analysis provides a precise understanding of the businesss
current position and where it is heading.
A SWOT (strengths, weaknesses, opportunities and threats) analysis provides
the information needed to complete the situational analysis and assesses the
businesss position compared with its competitors.
The product life cycle consists of the stages a product passes through:
introduction, growth, maturity and decline.
At each stage of the products life cycle a different marketing strategy is
necessary.
Revision
EXERCISE 7.1
1 Clarify why everyone in the business needs to know the marketing plan.
2 Identify the two features all marketing plans should have.
3 Examine gure 7.1 (page 174), then copy the table below into your notebook.
Complete the table by recalling and then writing against each step the appropriate
statement from those given below. The rst step has been completed for you.
Developing a marketing plan
Statement
Step 1: Situational analysis
The business currently has a market share

of 28 per cent. The market is growing but
new competitors are likely to enter the
market.
Step 2: Market research

Step 3: Establish market objectives
Step 4: Identify target markets
Step 5: Develop marketing strategies
Step 6: Implement, monitor and control
the plan
Statements
(a) The business will design a new promotional campaign featuring younger women.
Direct selling methods will also be introduced.
(b) The market share percentage will be examined every three months. If the results
are negative, then the objectives will be reviewed.
(c) The business is to increase its market share to 35 per cent within the next
12 months.
(d) The business presently sells to 35- to 45-year-old females across all income groups.
However, the product could be made to appeal to the 25 to 35 age group.
(e) The business needs to collect information about existing and potential customers.
4 State what the acronym SWOT represents.
5 Outline the value of a SWOT analysis when reviewing the businesss situation.
6 Dene the term product life cycle.
179
7 Recall the four stages of the product life cycle.

8 Identify at which stage of the product life cycle the following products are located.
(a) Video tape recorder
(b) Electrically-powered motor vehicle
(c) MP3 player
(d) LCD television.
9 Explain why the marketing strategies should change as a product advances through
the stages of its life cycle.
10 Compare the marketing strategies for a product in the growth stage with one in the
decline stage.
11 State the main reasons why the sale of many products eventually decline.
Extension
1 With a partner to share the task equally, create an exciting visual presentation on the
life cycle of a product of your choice. You must present your work to the rest of the
class (maximum time for presentation: 5 minutes).
2 Knowledge of the products life cycle can provide valuable insights into ways the
product can be managed to enhance sales and protability. Assess the accuracy of
this statement.
3 Interview a person born in the two decades after 1945. Ask them these questions:
(a) What is a product you fondly recall that no longer exists?
(b) What was the logo used to promote the product?
(c) Can you describe the advertisements?
(d) Was the product useful to you?
(e) Was the product expensive?
(f) What became of it? Why did it decline?
Construct a brief report (approximately 250 words) on the interview. Alternatively,
use the interview to create a 5-minute PowerPoint or visual presentation to the rest
of the class.
7.3 Market research
BizWORD
is the process of
cf
ro
ep
isth
Market research
systematically collecting, recording
and analysing information
concerning a specic marketing
problem.
BizFACT
For every successfully launched new
product, there are at least four
that fail.
180
TOPIC 2 Marketing
Imagine you have just been given an assessable task for your Business Studies
class. If you want to achieve satisfactory results, it is important that you
undertake some type of research. The research could consist of reading books
and magazines, conducting surveys, accessing internet sites, carrying out
experiments and talking to people. Marketing managers also have to undertake
research of their market.
Market research is the process of systematically collecting, recording and
analysing information concerning a specic marketing problem.
Just as a well-researched assessable task will lead to better results, marketing
strategies perform best when they are based on accurate, up-to-date, detailed
and relevant information. Being well-informed about all aspects of the market,
especially the buying behaviour of existing and potential customers, places the
business in a stronger position.
Releasing a new product onto the market is risky. Minimising the risk is the
main purpose of market research. By collecting and assessing information about
the needs and wants of consumers, a more accurate and responsive marketing
plan can be designed and, therefore, reduce the risk of market failure. Market
research attempts to identify and outline both marketing opportunities and
problems as well as evaluating the implementation of the marketing plan.
Without adequate, reliable and correct information, businesses expose
themselves to market embarrassments, which could result in the product failing
to sell.
FIGURE 7.5 Surveying customers can

enable a business to gather valuable
information about customer buying
behaviour.
The three steps of the market research

process
To obtain accurate information, marketing managers usually follow a three-step
approach (see gure 7.6).
Step
Explanation
1. Determining
information
needs
The problem is clearly and accurately stated to determine

what needs to be measured and the issues involved. This
is a crucial step.
2. Collecting data
from primary
and secondary
sources
At this stage, the researchers know the facts that are

needed and those that are already available.
Plans must be made to gather missing data.
Information may be collected by mail, telephone
and personal surveys, as well as by personal observation
or from private data sources.
3. Analysing and
interpreting
data
Facts by themselves do not always provide a solution to

the marketing problem. They need to be analysed and
interpreted to determine what they mean.
FIGURE 7.6 The three steps of the

market research process
You will probably be familiar with this process as it uses similar steps to those
needed to complete a research assignment.
BizFACT
Determining information needs

The information collected must be relevant to the issue or problem being
investigated. The best method to determine the relevance of data is to constantly
ask questions concerning its ultimate use. Information is useful if it:
results in marketing strategies that meet the needs of the businesss target market
assists the business to achieve its marketing objectives
may be used to increase sales and prots.
Many businesses choose to

outsource their marketing research
to companies such as ACNielsen
Company and AGB McNair.
181
Ideally, marketing managers should treat information in the same way as other
resources within the business, and weigh up the costs of collecting information
against the benets it provides.
ferh
st
o
BizWORD
Data collection primary and secondary sources
Marketing data refers to the

information relevant to the dened
marketing problem.
Marketing data refers to the information usually facts and gures
Primary data are the facts and

gures collected from original
sources for the purpose of the
specic research problem.
Primary data
relevant to the dened marketing problem. Normally, market researchers use a

combination of two types of data: primary and secondary data (see gure 7.7.)
Primary data are the facts and gures collected from original sources for the
purpose of the specic research problem. This information can be collected by

the business itself, a process that may be time consuming and expensive. Many
businesses outsource this activity.
The main advantage of primary data is that their collection is directed at
solving a specic marketing problem. Their main function is to nd out exactly
what the customer is thinking.
Data
Facts and figures relevant to
the marketing problem
Primary data
Secondary data
Facts and figures collected

from original sources for the
purpose of the specific
research problem, for example
surveys and focus groups
Facts and figures already

collected by some other
person or organisation, for
example research reports and
Australian Bureau of Statistics
FIGURE 7.7 Two types of marketing data: primary and secondary
BizWORD
Conducting
s
n
ea
m
a survey means
gathering data by asking or
interviewing people.
BizFACT
The use of sugging selling
under the guise of market
research has contributed to
increased consumer reluctance to
respond to surveys.
182
TOPIC 2 Marketing
There are three main methods used to gather primary data.

1. The survey method. Conducting a survey means gathering data by asking or
interviewing people. Surveys may be carried out by:
personal interviews face-to-face interviews conducted in public places
focus groups small groups of people who meet with the researchers
electronic methods of collection telephone, mail and internet
questionnaires a set of specic questions requiring a response from the
person.
The main benet of a survey is that it gathers rst-hand information that
provides details of customers opinions. However, gathering information
through surveys is becoming more difcult because respondent rates are
declining. To overcome this problem, marketing companies are using
electronic methods of collecting information about consumer behaviour, as
outlined in the previous chapter.
2. The observation method. Observation involves recording the behaviour of
customers. No interviews are involved and direct contact with respondents
is avoided. Instead, the actions of the customers are systematically observed.
Such methods can raise serious ethical issues, especially with regard to
privacy.
Information may be gathered through:

personal observation, such as when a researcher poses as a customer in a
store
electronic observation, using camera or counting machines. For example,
the scanner and cash register at a store checkout counter can record data
on sales and customers purchase patterns.
This method of data collection has become very popular over recent
years, especially with the development of computerised technology. It is
now possible for a business to access its loyalty program, customer spending
habits and customer database all at once, through the use of smart cards and
bar coding (see gure 7.8).
BizFACT
The Queen Victoria Building
shopping precinct uses security
monitors to evaluate foot trafc
into and past shops at different
times of day.
FIGURE 7.8 The development of

computerised technology has greatly
assisted marketing managers in
organising direct marketing and loyalty
programs.
Such observation methods can be highly accurate, but their main limitation
is that they explain only what happens, not why it happens.
3. The experiment method. Experiments involve gathering data by altering
factors under tightly controlled conditions to evaluate cause and effect.
Market researchers do this to determine whether changing one of the factors
(a cause) will alter the behaviour of what is being studied (the effect).
Experiments carried out in the eld are called test marketing.
Secondary data
BizWORD
Secondary data comprises information that has already been isn

tcollected by
a
rm
fo
some other person or organisation. It is referred to as secondary because it is
information that has been collected for some other purpose; for example, census
data and household expenditure surveys gathered by government and private
organisations (see gure 7.9).
Secondary data is information

that has already been collected by
some other person or organisation.
183
BizFACT
The Ray Morgan Research Centre
monitors what a targeted group
of customers read, when and what
they watch on television, what they
buy, where they buy, and what they
think of the different products.
FIGURE 7.9 Secondary data market

research. With the advent of computer
databases, there is an abundance of
secondary data available to market
researchers.
BizWORD
refstoInternal data refers to
information that has already been
collected from inside the business.
External data refers to published
data from outside the business.
Statistical interpretation
analysis is the process of focusing
on the data that represents
average, typical or deviations from
typical patterns.
FIGURE 7.10 How do you nd

out which are the most popular
new ice-cream avours? You
have to give out free samples!
Trampoline Gelato, a rapidly
expanding business, conducts
research outside Luna Park to
gauge the success of potential
new avours.
184
TOPIC 2 Marketing
There are two types of secondary data. These are:

internal data. This is information that has already been collected from
internal sources that is, from inside the business. Such data include
customer feedback, sales and management reports, and research reports.
external data. This is published data from sources outside the business.
Examples include magazines, industry association newsletters, internet
sources and private data collection agencies. Probably the best known are the
numerous reports produced by the Australian Bureau of Statistics (ABS).
Data analysis and interpretation

Once the data has been gathered, conclusions
need to be drawn. Raw data is of little value until
it has been analysed and interpreted. Statistical
interpretation analysis is the process of focusing
on the data that represents average, typical or
deviations from typical patterns.
The rst step in drawing conclusions (analysis
and interpretation) is to tabulate the data that is,
display the information in table format. The use of
a spreadsheet computer program greatly simplies
this task. Cross-tabulation will allow comparisons
to be made between individual categories. For
example, cross-tabulation could show how men
and women display different shopping habits, or
the differences between the purchasing behaviour
of high- and low-income earners.
This interpretation will largely be based on the
marketing managers judgement, experience and
intuition. For this reason, it is preferable to involve
a number of people in the interpretation of data so
as to gain a wider perspective and, therefore, avoid
the error of personal bias.
Summary
Market research is the process of systematically collecting, recording and
analysing information concerning a specic marketing problem.
To obtain reliable and accurate information; marketers follow a three-step
approach:
Step 1: Determining information needs. The problem is clearly stated to
determine what needs to be measured and the issues involved.
Step 2: Collecting data from primary and secondary sources. Data collected
by mail, telephone and personal surveys, personal observation or from
private data sources.
Primary data: information from original sources. Example: interviews
and surveys.
Secondary data: information collected by other organisations. Example:
industry reports and Australian Bureau of Statistics.
Step 3: Data analysis and interpretation. Determine what the data means.
Statistics are processed to determine if responses show trends or patterns
that can be used in the business.
Revision
EXERCISE 7.2
1 Dene the term market research.

2 Explain why it is important for businesses to undertake market research.
3 Identify the three steps of the market research process.
4 Complete the following sentences by recalling the correct term from the
following list.
resources
investigated
data
relevant
information
questions
(a) Information collected must be _______ to the problem being ______.

(b) The best method to determine the relevance of the ______ is to constantly ask
________ concerning its ultimate use.
(c) Marketers should treat _______ in the same way as other ______ within the
business.
5 Dene the term marketing data.
6 Distinguish between primary and secondary data.
7 Identify the four methods used for gathering survey data. State under what
circumstances each should be used.
8 Account for the increased use of electronic scanners to collect data.
9 Distinguish between the survey, observation and experiment methods of data
collection.
10 Compare internal and external secondary data.
11 Explain the purpose of analysis and interpretation of data.
Weblink
12 Use the The Realise Group weblink in your eBookPLUS to identify the services
this market research and mystery shopping company offers its clients. Select and
summarise one of the companys services.
The Realise Group
Extension
1 Choose a business partner in your class. Assume both of you are managers in an icecream manufacturing business. Analyse how you might use different types of market
research (surveys, focus groups, observations and experiments) to determine customer
reaction to a new kind of ice-cream.
185
2 Think about your school, or a business for which you work part-time.
(a) Outline how the organisation collects and processes marketing information.
(b) Explain what the information is used for.
(c) Propose what secondary sources could be used to supplement this data.
3 As the owner of a supermarket, you believe you could sell more strawberries by
displaying them loose on a tray, rather than packaging them in punnets.
(a) Describe an experiment to test this idea.
(b) Determine the difculties in conducting the experiment.
7.4 Establishing market

objectives
BizWORD
reth are the
a
Marketing objectives
realistic and measurable goals to
be achieved through the marketing
plan.
BizWORD
Market
h share refers to the
refsto
businesss share of the total
industry sales for a particular
product.
BizFACT
Over the past few years, Coles
has lost about 1.7 per cent of its
market share to Woolworths.
While the percentage of market
share lost by Coles may seem small,
if Coles is successful in regaining
this market share then sales will
rise by around $1.3 billion, with
almost half ($620 million) taken
from Woolworths.
186
TOPIC 2 Marketing
The next step in marketing planning is the formulation of marketing

objectives. Marketing objectives are the realistic and measurable goals to be
achieved through the marketing plan. It is of little value for a business to plan
and implement a marketing strategy without rst deciding what it wants to
achieve. This decision is considered the most important step in the marketing
planning process. The marketing objectives should be closely aligned to the
overall business goals, but more customer-oriented than the goals for the entire
business. They are also concerned with products and markets.
Three common marketing objectives include:
increasing market share
expanding the product range
maximising customer service.
Such objectives can be measured, and should include specic targets to be
met for example, increase market share by 10 per cent within the next
12 months.
Increasing market share

All marketing plans aim to achieve a specied market share. Market share
refers to the businesss share of the total industry sales for a particular product.
Businesses often develop an extensive product range, using many different brand
names to gain an extra few percentage points of market share. The metropolitan
free-to-air (FTA) commercial television broadcasters Nine Network, Seven
Network and Network Ten, for example, are constantly trying to increase their
market share of the viewing public as measured by the rating of a program. The
rating is an estimate of the number of television sets tuned in to a program. The
network with the highest ratings for any program can charge advertisers more
for a commercial spot. Consequently, each network is constantly battling for
the largest share of the total viewing audience. To achieve this, networks offer a
range of products (television programs) to attract the largest number of viewers.
With the development of digital television broadcasting in Australia in recent
years, the FTA television stations created sub-brands of their primary channels.
Consequently, they have been able to divide (segment) the TV viewing audiences
into more narrowly divided market groups. The motive behind offering these
different sub-brands is to broaden the appeal, attract new customers (viewers)
and consequently increase market share.
Increasing market share is an important marketing objective for businesses
that dominate the market, because small market gains often translate into large
prots (see the BizFact at left).
FIGURE 7.11 Recently, the battle

between commercial television
networks to gain a larger share of the
total viewing audience market share
has become very intense. Networks
are increasingly choosing programs they
believe will attract the highest ratings.
Expanding the product mix

The total range of products offered by a business is referred to as the businesss
product mix (see gure 7.12). Businesses are usually keen to expand
their
f
g
lrn
a
eo
isth
product mix, as this will increase prots in the long term. The same product
mix will not remain effective for long because customers tastes and preferences
change over time, and demand for a particular product may decrease.
To develop the ideal product range, businesses must understand customers
needs. Each item in a product line should attempt to satisfy the needs of different
target markets.
BizWORD
Product mix is the total range of
products offered by a business.
FIGURE 7.12 The product mix of

Beaus Floral Studio. While oral
arrangements are the main product,
most orists have expanded their
product mix to include gifts, vases,
aromatherapy oils, helium party
balloons, caneware and scented candles.
187
Maximising customer service

BizWORD
m
ea
s
n
Customer service means

responding to the needs and
problems of the customer.
BizFACT
As examples of companies that
have increased their product mix,
Procter & Gamble introduced
Pampers nappies, Continental
launched its Lite Cup-a-Soup,
and Yamaha successfully brought
onto the market its home theatre
ampliers and receivers.
Of all the objectives examined so far, maximising customer service is perhaps

the most important. Customer service means responding to the needs and
problems of the customer. High levels of customer service will result in
improved customer satisfaction and a positive reaction from customers towards
the products they purchase. This establishes a sound customer base with the
possibility of repeat purchases. The old saying the customer is always right is
still correct today. Customers are the lifeblood of any business. To keep existing
customers and attract new ones, the business needs to talk and listen to the
customers research has shown that one dissatised customer usually tells
eleven others, who in turn will each tell another ve.
Customer service can no longer be regarded as merely explaining the refund
policy or providing a complaints department. Rather, it is an attitude that should
be adopted by everyone within the business.
The strategies a business can use to maximise customer service include:
asking customers what they want
training employees and rewarding them for excellent customer service
anticipating market trends by conducting research
nding out what competitors are offering and then reviewing the product mix
establishing and maintaining long-term relationships with customers
encouraging employees to focus their attention on the customers needs
(customer-oriented) and not just on making a sale (sales-oriented).
FIGURE 7.13 Newstead Financial

Plannings philosophy is to exceed the
customers expectations by providing
outstanding levels of service. It trains its
employees in the above and beyond
principle of customer service do those
extra things to show the customer the
business cares about them.
Summary
Marketing objectives are the realistic and measurable goals to be achieved

through the marketing plan.
The marketing objectives should be more customer oriented than the goals
for the entire business, and should include specic targets to be met for
example, Increase market share by 5 per cent over 12 months.
188
TOPIC 2 Marketing
Marketing objectives include:

Increase market share. Market share refers to the businesss total share of the
total industry sales for a particular market.
Expand the product range. Product mix is the total range of products offered
by a business.
Maximising customer service. Customer service means responding to the
needs and problems of the customer.
Revision
EXERCISE 7.3
1 Construct a concept map (started below) summarising the three main marketing
objectives.
Increase market share
Market share refers to the
businesss share of the total
industry sales for a particular
product.
Expand the product mix
MARKETING OBJECTIVES
Maximise customer service
2 In the following examples, identify which marketing objective the business is trying
to achieve.
(a) The business introduces a customer feedback form to measure the level of
customer satisfaction.
(b) The business decides to undertake an extensive promotional campaign in an
attempt to attract new customers.
(c) The business decides to offer a wider variety of products.
3 Explain why businesses wish to increase their market share.
Weblink
Coca-Cola Amatil
4 Use the Coca-Cola Amatil weblink in your eBookPLUS to:

(a) Identify the ve products that have the greatest market share.
(b) Discuss why Coca-Cola Amatil wants to increase its market share for each of its
products.
5 Use the Think TV weblink in your eBookPLUS to access a case study that interests
you.
(a) Examine how the advertising campaign was developed.
(b) Determine the impact of the advertising campaign on the products market
share.
Weblink
Think TV
6 (a) Dene the term product mix.

(b) Explain why businesses are usually keen to increase their product mix.
7 Explain the relationship between customer satisfaction and prots.
189
f
p
u
ro
g
isa
Extension
1 The most important step in the marketing plan process is the formulation of the
marketing objectives. Evaluate the accuracy of this statement.
2 Develop a strategic marketing plan for your schools canteen. Explain how it could
maximise its customer service. Predict what major problems it would face in trying to
expand off campus.
3 There are only two ways to create and maintain outstanding business performance.
First, take exceptional care of the customer and, second, develop new products. It is
that simple. Analyse the relationship between customer service, product mix and
market share.
BizWORD
A target market is a group of
present and potential customers to
which a business intends to sell its
product.
The primary target market is the
market segment at which most
of the marketing resources are
directed.
A secondary target market
is usually a smaller and less
important market segment.
FIGURE 7.14 Customer research

conducted by the fashion retailer
Sportsgirl revealed a primary target
market of 18- to 25-year-old females
and a secondary target market of
26- to 40-year-old females.
190
TOPIC 2 Marketing
7.5 Identifying target markets

Because you are a senior high school student, youre part of a major target
market the teenager/young adult market. A target market is a group of
present and potential customers to which a business intends to sell its product.
The customers within the target market share similar characteristics such as
age, income, lifestyle, location and spending patterns. The teenage/young adult
market, for example:
consists of people between 15 and 19 years of age
has more disposable income than in the past
is more willing to spend on themselves especially designer brands and
electronic devices
makes up only 5 per cent of the Australian population but purchase
approximately 25 per cent of all takeaway food
has spent about $950 million on clothing in the past year.
Consequently, marketers want to tap into this highly protable target market.
Sometimes a business may be able to identify a primary and a secondary
target market. A primary target market is the market segment at which most
of the marketing resources are directed. A secondary target market is usually a
smaller and less important market segment (see gure 7.14).
Why identify and select a target market?
BizFACT
A business identies and selects a target market so it can direct its marketing
strategies to that group of customers. This allows the business to better satisfy
the wants and needs of the targeted group. This occurs because the business is
able to:
use its marketing resources more efciently, which is likely to result in the
marketing campaigns being more cost effective and time efcient
promotion material is more relevant to the customers needs, and is more
likely to be noticed
better understand the consumer buying behaviour of the target market
collect data more effectively and make comparisons within the target market
over time
rene the marketing strategies used to inuence customer choice.
Businesses can choose one of three approaches to identifying and selecting a
consumer target market: the mass marketing approach, the market segmentation
approach or the niche market approach (see gure 7.15).
Segment
Segment
11
Segment 2
One of the main objectives of

conducting market research is
to identify the businesss target
market for its products.
Segment 1
Segment 2
Total market
Segment 3
Mass marketing approach
Market segmentation approach
Segment 3
Niche marketing
approach
FIGURE 7.15 Identifying and selecting a market to be the target market
Mass marketing approach

As outlines in chapter 5, fty years ago, marketers commonly spoke about mass
market. In other words, there was a large demand for a standard product. In a
mass market, the seller mass-produces, mass-distributes and mass-promotes one
product to all buyers. The Model T Ford, for example, was the rst motor vehicle
ch
o
p
g
rketin
sm
a
approach seeks
to be produced and sold to the mass market. A mass marketing
a large range of customers.
The mass marketing approach assumes that individual customers in the target
market have similar needs. The business therefore develops a single marketing
mix and directs it at the entire market for the product. This means there is one
type of product with little or no variation, one promotional program aimed at
everyone, one price, and one distribution system used to reach all customers.
BizWORD
Am
mass marketing approach
seeks a large range of customers.
Market segmentation approach

Few businesses can sell their products to the entire market the market is
just too big. Therefore, a business will divide the market into distinct segments.
A business that is marketing motor vehicles, for example, would not direct
191
BizWORD
occurs
M
rs
cu
o
Market segmentation
when the total market is
subdivided into groups of people
who share one or more common
characteristics.
its marketing efforts towards every person in the total vehicle market. Some
people might want only a sports car; others might want a four-wheel drive. The
business would thus direct its efforts towards a particular segment of the total
market for motor vehicles.
Market segmentation occurs when the total market is subdivided into
groups of people who share one or more common characteristics. Once the
market has been segmented, the business selects one of these segments to
become the target market. Segmenting a market enables a business to design a
marketing plan that meets the needs of a relatively uniform group. Marketing
segmentation is explained in more detail in chapter 8.
Niche market approach

An extension of the market segmentation approach is that of the niche market,
which is a narrowly selected target market segment. In a sense, it is a segment
within a segment, or a micro-market. For example, an exclusive fashion
boutique can carve out a niche market and, therefore, avoid direct competition
with large department stores. In the last few years, some hotels have developed
a niche market for their own boutique beers, brewed on the premises. Such
businesses market to a narrow, specic customer base (see gure 7.16).
The needs of customers in these markets are often neglected by large
businesses because it is rarely protable for them to alter their marketing mix to
cater for very small groups.
FIGURE 7.16 Beauwood Stud is a

boutique stud devoted to the breeding,
raising and the education of horses and
ponies to carriage driving. The business
uses niche marketing strategies to
target its customer base.
Summary
A target market is a group of present and potential customers to which a

business intends to sell its product.
Sometimes a business may be able to identify a primary and a secondary
target market.
A business identies and selects a target market so it can direct its marketing
strategies to that group of customers.
192
TOPIC 2 Marketing
Businesses can choose one of three approaches to identifying and selecting a

consumer target market:
mass marketing approach the seller mass-produces, mass-distributes and
mass-promotes one product to all buyers
market segmentation approach the total market is subdivided into groups
of people who share one or more common characteristics
niche market approach a narrowly selected target market segment.
Revision
EXERCISE 7.4
1 Explain why marketers want to target the teenage/young adult market.

2 Complete the following sentences by recalling the correct word from the list below.
3
4
5
6
7
8
customers
primary
segmentation
niche
characteristic
narrowly
target
subdivided
present
(a) A __________ market is a group of __________ and potential __________ to which

a business intends to sell its product.
(b) Sometimes a business may be able to identify a __________ and a secondary target
market.
(c) Market __________ occurs when the total market is __________ into groups of
people who share one or more common __________.
(d) An extension of the market segmentation approach is that of the __________
market, which is a __________ selected target market segment.
Distinguish between primary and secondary target markets and give an example of
each.
Summarise why businesses identify and select a target market.
Compare the mass marketing approach with the segmented marketing approach.
Recall why market segmentation is the most common marketing approach used by
businesses today.
State how market segmentation and target market are linked.
Explain the relationship between market segmentation and niche market.
Extension
1 In pairs, conduct a survey of 30 people to nd out what types of movies they watch at
the cinema. Using a database, classify the respondents by age and gender. Analyse
your results and present them to the rest of the class.
2 Examine a business of your choice and answer the following:
(a) Identify the primary and secondary target markets of the business you have chosen.
(b) Calculate the importance of these markets to the business.
(c) Identify the variables the business owner uses to segment the target market.
(d) Determine how market segmentation helps the owner to achieve long-term goals.
7.6 Developing marketing

strategies
Once the business has undertaken a situational analysis, conducted market
research, established the marketing objectives, and identied and selected aare
target market, the next process of the marketing plan is to develop marketing
strategies to achieve the marketing objectives. Marketing strategies are
actions undertaken to achieve the businesss marketing objectives through the
marketing mix.
BizWORD
Marketing strategies are
actions undertaken to achieve the
businesss marketing objectives
through the marketing mix.
193
BizWORD
th
erfso Marketing mix refers to the
combination of the four elements
of marketing, the four Ps
product, price, promotion and
place that make up the
marketing strategy.
Marketing mix the four Ps

One of the most useful ways of understanding how to develop a marketing
strategy is to examine each of the elements of the marketing mix. The marketing
mix refers to the combination of the four Ps product, price, promotion and
place/distribution. A business has control over the four Ps and uses them to
reach its target market. As well, the business has control over other business
resources such as information, nances and employees that may also be
used to achieve marketing objectives.
Marketing mix
Product
Price
Promotion
Place
FIGURE 7.17 The four Ps, also known as the marketing mix, is probably the most well-known
term in marketing and considered to be the essential elements for any marketing campaign.
BizFACT
A business may vary its marketing
mix when it wants to reach
different target markets.
Once the four Ps have been established, the business must then determine the
emphasis it will place on each of the variables. This will largely be determined
by where the product is positioned or its stage in the product life cycle. For
example, a product that is being marketed with an image of exclusivity and
prestige will require a marketing mix totally different from a no-frills, generic
item. A different marketing mix will also be required for a product in its
introductory stage than when it reaches the decline stage.
The following section will provide a brief introduction to the main marketing
strategies based on the four Ps of marketing. This information will be examined
in greater detail in chapter 8. Also in chapter 8, you will be introduced to
the extended marketing mix, which includes people, processes and physical
evidence the seven Ps of marketing.
Products (goods and/or services)

BizFACT
See also chapter 8, page 238, for
coverage of product.
194
TOPIC 2 Marketing
This element of the marketing mix involves much more than just deciding
which product to make. The business also needs to determine such features as
the products quality, packaging/labelling, design, brand name and guarantee.
The product is a combination of all these variables. Therefore, when Eagle
Boys Pizza decides on brand names, package designs, sizes of orders, avours of
toppings and recipes, these are all part of the product element.
Customers will buy products that not only satisfy their needs and wants but
also provide intangible benets such as a feeling of security, prestige, satisfaction
or inuence. Much careful planning needs to be undertaken when developing
the product strategy.
Price
Selecting the correct price the amount of money a customer is prepared
to offer in exchange for a product can sometimes be difcult. The major
pricing decision is whether to set a price above, below or about even with the
competitors price. Of course, a business must consider other factors too, such
as the costs of production and level of consumer demand.
BizFACT
See also chapter 8, pages 22225,
for coverage of price.
Promotion
A promotion strategy details the methods to be used by a business to inform,
persuade and remind customers about its products. The main forms of
promotion include advertising, personal selling and relationship marketing,
sales promotion, publicity and public relations.
FIGURE 7.18 An example of promotion

advertising. Posters, billboards and
signs comprise outdoor advertising. A
typical message is usually brief and easy
to comprehend. Outdoor advertisements
are often quite effective in reaching
customers who live close to where the
product is being offered for sale.
Changes in technology, especially advances in information and communication

technology (ICT), are having a signicant impact on how businesses promote
their products. The internet, for example, has become an effective advertising
tool used by businesses to deliver specic messages to its target market.
Place/distribution
BizFACT
Promotion and place are
also discussed in chapter 8,
pages 22733.
This element of the marketing mix deals with the channels of distribution: the
ways of getting the product to the customer. This process usually involves a
number of intermediaries or go betweens, such as the wholesaler or retailer.
Apart from the retailer, the other intermediaries are often invisible; that is, the
customer knows little about their role and operation.
The number of intermediaries chosen will determine how widely the
product will be distributed. The business may wish to keep supply of the
product restricted to a few specialised outlets, which is the distribution method
usually selected by expensive products. For example, Gucci and Louis Vuitton
fashion accessories are available in only a few selected locations. Alternatively,
distribution may be as wide as is practically possible, which is the method used
195
by Coca-Cola. Its distribution channels include retail stores, supermarkets,

vending machines, restaurants, clubs, hotels, cafes and fast-food outlets. Today,
you can buy a Coca-Cola product anywhere from London to Beijing, Cape Town
to Santiago.
Summary
Marketing strategies are actions undertaken to achieve the businesss

marketing objectives through the marketing mix.
The marketing mix refers to the combination of the four Ps product, price,
promotion and place/distribution.
Once the four Ps have been established, the business must then determine the
emphasis it will place on each of the variables.
A product is a good or service that can be exchanged for money.
The price is the amount of money a customer is prepared to offer in exchange
for a product.
Promotion describes the methods used to inform, persuade and remind
customers about a businesss products.
Place is the element of the marketing mix that deals with the channels of
distribution: the ways of getting the product to the customer.
EXERCISE 7.5
Revision
1 Explain the link between marketing strategies and marketing mix.
2 Recall the four Ps of the marketing mix.
3 State what determines the emphasis a business places on each of the four Ps of the
marketing mix.
4 Summarise briey the four Ps of the marketing mix by completing the table below.
The rst one has been started for you.
Marketing mix element
Key features
Product
Goods or service exchanged for money
Price
Promotion
Place
Extension
1 The four Ps are the variables that marketing managers can control, unlike the
variables in the marketing environment. Discuss.
2 Referring to a business you are familiar with, examine and evaluate the promotion
methods used for one of their products.
BizWORD
isth
cf
ro
ep
Implementation
is the process of
putting the marketing strategies
into operation.
196
TOPIC 2 Marketing
7.7 Implementing the marketing

plan
A marketing plan is a meaningless piece of paper until the plan is implemented.
Implementation is the process of putting the marketing strategies into operation.
Implementation involves the daily, weekly and monthly decisions that have to
be made to make sure the plan is effective.
The previous elements of the marketing plan outlined what had to be done
and why it had to be done, whereas the implementation stage is the how, where
and when it is to be done. This is a crucial part of the process.
To implement the marketing plan effectively, a number of basic questions
need to be answered:
Is the plan fully integrated with all other sections of the business?
How should the business be structured and organised?
Have effective lines of communication been established between the marketing
department and all other departments?
Who are the best people for the various tasks needed to implement the plan?
Are the marketing personnel motivated and focused on achieving the
marketing objectives?
Are all other employees familiar with the marketing objectives and marketing
strategies?
The implementation stage is quite difcult, especially as unforeseen situations
may arise that put in jeopardy the success of the entire marketing plan.
7.8 Monitoring and controlling the

marketing plan
Once the marketing plan has been implemented, it must be carefully monitored
and controlled. Monitoring means checking and observing the actual progress
d
kig
sch
n
ea
of the marketing plan. This requires the marketing department personnel, as
well as other employees, to gather information and report on any important
changes, problems or opportunities that arise during the life of the marketing
plan (see gure 7.19).
BizWORD
means checking and
Monitoring m
observing the actual progress of
the marketing plan.
FIGURE 7.19 Media Monitors observes

our media channels 24 hours a day,
providing daily reports that help
businesses compare their media success
to that of their competitors. This kind
of information helps businesses to
evaluate the success of marketing
strategies such as their advertising
campaigns.
The information collected during the monitoring stage is now used to control
the plan. Controlling involves the comparison of planned performance against
actual performance and taking corrective action to make sure the objectives
are attained (see gure 7.20). To achieve this, the marketing manager needs to
constantly ask two questions regarding the marketing plan:
197
1. What does the business want the marketing plan to achieve; that is, what are
the objectives?
2. Are these objectives being achieved?
Establish marketing
objectives
7hat do We Want
to achieVe
Monitor performance
7hat is actually
happeninG
Take corrective action

7hat should be
done about it
Evaluate performance
)s What is happeninG
Good or bad
7hy is it happeninG
FIGURE 7.20 Once marketing objectives have been established, they must be monitored to
ensure they are being met; otherwise corrective action must be taken.
The rst step in the controlling process requires the business to outline what
is to be accomplished; that is, to establish a key performance indicator (KPI). A
KPI is a forecast level of performance against which actual performance can be
compared. For example, a KPI could be:
increase monthly sales by 5 per cent
improve sales revenue per salesperson by 10 per cent over the next six
months.
The second step in the controlling process is to compare or evaluate actual
performance against the KPI. Budgets, sales statistics and cost analyses can be
used to evaluate results. For example, a marketing manager could compare each
salespersons results with his or her sales quota. It is only by establishing KPIs
and then comparing them with actual performance that a marketing manager
can evaluate the effectiveness of the marketing plan.
Developing a financial forecast
BizFACT
Research costs will include
researcher, executive personnel
and support staff time, computer
usage, interviews, printing,
testing, special equipment and
any incentives to be offered to
interviewees.
198
TOPIC 2 Marketing
When evaluating alternative marketing strategies, a business must develop

a nancial forecast that details the costs and revenues for each strategy. By
measuring the sales potential and revenue forecasts (benets) for each strategy,
and comparing these with the anticipated expenditures (costs), a business is in
the best position to decide how to allocate its marketing resources. Once this
information has been gathered, it is possible to determine the most appropriate
course of action using a costbenet analysis.
Although nancial forecasting allows the marketing manager to undertake a
costbenet analysis, the results are always open to individual interpretation.
Until a detailed analysis of the forecast cost and revenue is undertaken, a
business is making decisions based merely on gut feelings, which is an
inappropriate approach in todays competitive environment.
Developing a nancial forecast requires two steps:
1. Cost estimate. How much is the marketing plan expected to cost? Costs of the
marketing plan can be divided into four major components: market research;
product development; promotion, including advertising and packaging; and
distribution.
2. Revenue estimate. How much revenue (sales) is the marketing plan expected
to generate? Forecasting revenues will be based on two major components:
how much consumers are expected to buy and for what price, and what sales
staff predict they will sell. As time goes by, actual revenue can be compared
with the forecast revenue data to determine the effectiveness of the marketing
strategy.
Marketing costs are easier to forecast than revenue, because these activities are
largely controlled by the business. Calculating the projected marketing revenue
is much more difcult because of changes in the external environment, over
which the business has little or no control. However, being able to accurately
analyse both projected costs and revenues allows the business to forecast prot
levels.
Comparing actual and planned results

Three key performance indicators used to measure the success of the marketing
plan are:
1. sales analysis
2. market share analysis
3. marketing protability analysis.
Sales analysis
BizWORD
A sales analysis uses sales data to evaluate a businesss current performancesthecom

f
g
rin
a
p
and the effectiveness of a marketing strategy. The more the sales gures are
broken down, the clearer the picture becomes, as can be seen by examining
gure 7.21.
Sales analysis iis the comparing of

actual sales with forecast sales to
determine the effectiveness of the
marketing strategy.
Sales revenue by territories 1st quarter
Sales territory
Sales quota ($) Actual sales ($)
Difference ($)
% change
(- decrease
+ increase)
50 000
58 000
8 000
+16.0
80 000
85 000
5 000
+6.3
70 000
76 000
6 000
+8.6
65 000
72 000
7 000
+10.8
90 000
94 000
4 000
+4.4
Total sales revenue
355 000
385 000
30 000
+8.4
BizFACT
FIGURE 7.21 Sales analysis
A cursory glance at the bottom line of gure 7.21 shows that the total sales
revenue has increased by $30 000 or 8.4 per cent above the quota a pleasing
result and conrmation that the marketing plan is a success.
The main strength of sales analysis is that sales gures are relatively
inexpensive to collect and process. Their main weakness, however, is that data
for sales revenue do not reveal the exact prot level; such information can
only be gleaned from further investigations of total expenditure.
The use of computerised sales

has made the collection, storage,
retrieval and analysis of sales data
much easier. Computerised sales
reports can be prepared, showing:
daily, weekly, monthly, quarterly
and yearly sales reports
product line sales
credit as opposed to cash sales
analysis
sales reports for individual sales
representatives
company division sales reports
any combination of the above.
199
Market share analysis/ratios

Just as sales can be analysed, so too can a businesss market share. By
undertaking a market share analysis, a business is able to evaluate its marketing
strategies as compared with those of its competitors. This evaluation can reveal
whether changes in total sales, either increases or decreases, have resulted from
the businesss marketing strategies or have been due to some uncontrollable
external factor. For example, if a businesss total sales revenue declined but its
market share remained stable, then the marketing manager can assume that
overall industry sales have fallen, perhaps due to a downturn in the economy.
However, if a businesss total sales revenue and market share have declined, then
the marketing strategies need to be reviewed. Businesses place a great deal of
importance on analysing market share statistics a 1 per cent fall in market
share can represent millions of dollars in lost sales.
Marketing profitability analysis

BizWORD
Marketing
s prottability analysis
iltyn
b
a
is a method in which the business
breaks down the total marketing
costs into specic marketing
activities.
Sales and market share analyses, while useful, do not present the full picture.
This can only be done by analysing the marketing costs involved with each
marketing strategy. Using a marketing protability analysis, the business
breaks down the total marketing costs into specic marketing activities, such as
advertising, transport, administration, order processing and so on.
By comparing the costs of specic marketing activities with the results achieved,
a marketing manager can assess the effectiveness of each activity. This evaluation
also helps in deciding how best to allocate marketing resources in the future.
Revising the marketing strategy

Once the results of the sales, market share and protability analysis have been
calculated, the business is now in a position to assess which objectives are being
met and which are not. Based on this information, the marketing plan can be
revised (modied). Revision of the marketing plan is as equally important as all
the other steps involved in creating successful marketing strategies.
BizFACT
Changes in the marketing mix
If a rm wants to achieve longterm growth, it must continually

introduce new products.
Because the marketing plan is operating in a dynamic business environment,

the marketing mix will constantly need to be revised. Changes that could be
introduced include the following:
Production modications. No product is perfect. Businesses that continually
upgrade their products will be able to maintain a competitive advantage.
Price modications. Prices uctuate due to a variety of reasons. Therefore, the
price component of the marketing mix will need to be revised in response to
changes in the external business environment.
Promotion modications. Promotion costs will be high when a new product
is rst launched onto the market. During the later stages of the products life
cycle, promotion costs may stabilise and even fall during the decline stage.
Promotion strategies will, therefore, need to change over time corresponding
to the life cycle of the product.
Place modications. As a products success increases, the distribution
channels will need to be expanded to cater for the growing market. New
overseas markets may be tapped, while old markets may decrease due to
demographic changes. With the development of electronic communications,
new distribution channels, such as the internet, may be used.
200
TOPIC 2 Marketing
New product development

The product life cycle tells us that all products have a life span of somewhere
between ve to 10 years. Therefore, if a business wants to achieve long-term
growth, it must continually introduce new products. For example, if Sony had
stopped product development at the transistor radio, it would probably be out
of business today. However, Sony, like many other large businesses, spends vast
amounts on research and development to stay at the forefront of technology and
introduce new products (see gure 7.22).
FIGURE 7.22 Sony builds its success

on developing innovative products.
Recently, Sony introduced an extensive
range of 3D entertainment products
and produced the worlds rst compact
digital still cameras with 3D capability.
Product deletion
To maintain an effective product mix, a business will have to eliminate some
lines of products. This is called product deletion. Outdated products may create
an unfavourable image and this negativity may rub off on other products sold by
the business. Most businesses nd it difcult to delete a product, especially if it
has been successful for a long time. However, when a product is in the decline
stage, a decision will eventually have to be made to either delete or redevelop
the product.
BizWORD
e
sth
iis the
Product deletion
elimination of some lines of
products.
Summary
Implementing the marketing plan means putting the marketing strategies

into operation.
Once the marketing plan has been implemented, it must be carefully monitored
and controlled.
Monitoring means checking and observing the actual progress of the
marketing plan.
Controlling involves the comparison of planned performance against actual
performance and taking corrective action to make sure the objectives are
attained.
When evaluating alternative marketing strategies, a business must develop a
nancial forecast that details the costs and revenues for each strategy
201
Developing a nancial forecast requires two steps:

Step 1: Estimate the cost of the marketing plan.
Step 2: Estimate the revenue (sales) the marketing plan expected to
generate.
Three key performance indicators used to measure the success of the marketing
plan are:
sales analysis
market share analysis
marketing protability analysis.
The marketing plan can be revised by either:
changes in the marketing mix
new product development
product deletion.
EXERCISE 7.6
Revision
1 Explain why the implementation stage is as important as developing marketing
objectives.
2 (a) Distinguish between monitoring and controlling.
(b) Describe how the two processes are linked.
Weblink
Media Monitors
3 Use the Media Monitors weblink in your eBookPLUS to examine its function.
(a) Outline the role of Media Monitors.
(b) State Media Monitors mission.
(c) Select a Products and Services that interests you and explain how a business
would use this product or service.
4 Recall the two questions a marketing manager needs to ask in the controlling
process.
5 Summarise the two steps involved in developing a nancial forecast.
6 Clarify why it is easier for a business to forecast marketing costs than revenue.
7 A business has a sales potential of $90 000 but achieves actual sales of only $25 000.
(a) Deduce what this signies.
(b) Propose what the business should do next.
Digital doc:
document in your
8 Any business that fails to conduct a sales analysis will not be able to assess the
effectiveness of its marketing strategies. Discuss.
9 Examine the following market share results for Electronic Appliances Ltd.
Year
Sales revenue ($ million)
Market share (%)
2012
28
18
2013
25
18
2014
33
14
(a) Explain how it is possible for sales revenue to decrease between 2012 and 2013
but market share to remain the same.
(b) If you were the marketing manager, calculate with which years results you would
be most pleased. Justify your answer.
10 Distinguish between sales analysis and market share analysis.
11 Clarify the importance of a marketing protability analysis.
12 Summarise four changes that could be made to revise the marketing mix.
13 Distinguish between new product development and product deletion. Provide
examples in your answer.
202
TOPIC 2 Marketing
Extension
1 Account for why a businesss marketing performance should be constantly evaluated.
Investigate some methods that can be used to measure the effectiveness of a
marketing plan.
2 You have just been appointed marketing manager for Apollo Tracksuits Pty Ltd. One
of your rst tasks is to analyse total industry sales and product line sales revenue
breakdown, as shown in tables 7.1 and 7.2.
Apollo sales
($ millions)
Industry sales
($ millions)
2012
38
2013
44
2014
10
81
2015
70
2016
12
89

eBookPLUS.
TABLE 7.1 Apollo Tracksuits Pty Ltd company sales and total industry sales, 20122016
Year
Digital doc:
Apollo market share

(%)
TABLE 7.2 Apollo Tracksuits Pty Ltd product line sales, 2012
Product
Sales quota
($ millions)
Actual sales
($ millions)
Techno Tracks
Weekenders
1.5
Sports Plus
Image Track
2.5
No Sweat Tops
Difference ($)
(%)
(a) Calculate a market share analysis by completing table 7.1. Create a report on your
results.
(b) The actual sales and sales quota gures for each product are shown in table 7.1.
Complete the table. Deduce what these gures indicate.
(c) Determine what suggestions you would make to improve the actual sales
performance.
203
CHAPTER 8
Marketing strategies
8.1 Introduction
BizWORD
The eextended marketing mix
refers to the combination of
people, processes and physical
evidence with the four main
elements of the marketing mix.
As mentioned in chapter 7, the marketing mix consists of four major elements:

product, price, promotion and place. Reference was also made about the three
Ps of marketing which when combined with the original four Ps creates the
extended marketing mix. The three Ps have become increasingly signicant due
to the expansion of service-based businesses within the economy.
Together, these four Ps (see gure 8.1) make up the strategies of marketing
and become the centrepiece of the marketing plan.
PRODUCT
PEOPLE
PRICE
PROMOTION
PROCESSES
LACE
(DISTRIBUTION)
PHYSICAL
EVIDENCE
EXTENDED MARKETING MIX
FIGURE 8.1 The seven Ps of the

extended marketing mix. The
marketing mix may be varied when
a business wants to reach different
target markets.
TARGET MARKET
As gure 8.1 shows, there are many possible ways to satisfy the needs and
wants of target customers. A product can have many different features and quality
levels. The packaging can be of different colours or materials. Service levels can
be altered. The brand name can be modied. Various promotional methods may
be used. Different prices can be charged and price discounts offered. Various
distribution channels can be used ranging from a single outlet to intensive
coverage of the entire market.
The main goal of a marketing manager is to develop and maintain a marketing
mix that precisely matches the needs of the customers in the target market.
8.2 Market segmentation

As was outlined in chapter 7, marketing segmentation involves dividing the
total market into segments. Once the market has been segmented, the marketing
204
TOPIC 2 Marketing
manager selects one of these segments to become the target market (see
gure 8.2). Often a business will implement a specic marketing mix to each
target market that the business wants to sell to.
Segment 1
MARKETING MIX
Segment 2
Target market
Total/mass
market
Segment 3
FIGURE 8.2 Selecting a market
segment to be the target market
The ultimate aim of market segmentation is to increase sales, market share

and prots by better understanding and responding to the desires of the different
target customers (see the following Snapshot).
Holden shifts gear and goes all girly

Forget about the bloke, his dog and their ute, Australias second-largest car
manufacturer wants to sell small cars to young, mainly female drivers and is turning
to social media to do it.
Holden, best known for the top-selling Commodore, has begun its biggest digital
marketing campaign to launch the Barina Spark, in what the company says is the
beginning of a signicant change.
Andrea Matthews, who has taken the newly created position of social media and
digital communications manager, said consumer preferences were changing and the
company would deliver a selection of cars that matched that demand.
Youre going to see a signicant change from us. Barina Spark is the rst in a
number of products that well be introducing . . . its a new market segment for
Holden and youll continue to see us do things very differently, she says.
Holden has also had success recently with the small Cruze, one of the countrys
top ve bestselling cars.
Ms Matthews says Holden is leaning towards digital advertising for the Spark to
better engage the demographic most likely to buy it younger people, women and
rst-car buyers. The fuel-efcient Spark is priced from $12 490 (plus on-road and
dealer costs).
Theres a lot of appeal to younger, often female car buyers, Ms Matthews
said. What we decided to do was take a different approach in reaching out to
those consumers. We have a traditional advertising campaign as well but a large
component of the marketing is our social media and digital strategy. These are
people who arent necessarily reading the car pages. They want to nd out about
what their peers are saying. The campaign allows people to design their car online
and share this with friends via Facebook or Twitter. People can vote on which cars
they like best, with prizes awarded fortnightly. The grand prize will be a Barina Spark.
SNAPSHOT
. . . its a new market

segment for Holden
and youll continue to
see us do things very
differently.
Source: Clare Kermond 2010, Holden shifts gear and goes all girly, Sydney Morning Herald, 22 October.
Snapshot questions
1. Identify Holden Sparks target market.
2. Recall why Holden decided to offer a new selection of cars.
3. Explain why Holden decided to use social media and digital marketing as part
of its marketing mix.
4. Assess the marketing value of customisation and personalisation for a
product such as a motor vehicle. Share your answer with the rest of the class.
Marketing strategies CHAPTER 8
205
t
icsn
h
p
ra
g
o
em
BizWORD
A ssegmentation
e
isth
variable is the
characteristics of individuals or
groups that are used by marketing
managers to divide a total market
into segments.
BizWORD
D
Demographic
segmentation
is
is
the process of dividing the total
market according to particular
features of a population, including
the size of the population, age, sex,
income, cultural background and
family size.
FIGURE 8.3 Coca-Cola offers a range

of sparkling and still beverages for
different target markets segmented
primarily according to age and gender.
In other markets, including clothing,
magazines, books, alcoholic drinks and
even motor vehicles, gender has also
been a key demographic variable.
206
TOPIC 2 Marketing
Segmenting consumer markets

A segmentation variable is the characteristics of individuals or groups that
are used by marketing managers to divide a total market into segments.
The consumer market can be segmented according to four main variables:
demographic, geographic, psychographic and behavioural (see table 8.1).
Table 8.1 Common variables for segmenting customer markets
Demographic
Geographic
Psychographic
Behavioural
Age
Gender
Education
Occupation
Income
Social class
Religion
Ethnicity
Region
Urban
Suburban
Rural
City size
Climate
Landforms
Lifestyle
Personality
Motives
Socioeconomic group
Consumer opinions
and interests
Purchase occasion
Benets sought
Loyalty
Usage rate
Price sensitivity
Demographic segmentation
Demographic segmentation is the process of dividing the total market according
to particular features of a population, including the size, age, sex, income, cultural
background and family size. Due to the ease with which these demographic
variables can be measured, their use is widespread amongst marketers.
Age and gender are two of the most widely used demographic variables for
segmentation purposes. The marketing of sparkling and still beverages is typical
of this (see gure 8.3). Coca-Cola, for example, targets 15- to 35-year-old males
with the energy drink Mother. The more health conscious adult market is served
with Diet Coke, Deep Springs Natural Mineral Water or Nestea Iced Tea. Fanta
has as its primary target market 13- to 16-year-old teenagers. Mount Franklin
is aimed at younger females and families, whereas Powerade and Pump have as
their core market 18- to 24-year-old males who are engaged in athletics: the
active consumer.
Geographic segmentation
Geographic segmentation is the process of dividing the total market according
to geographic locations. Businesses may divide the consumer market into regions
because consumers in different geographical locations have different needs,
t mix may differ from one
n
icsm
h
p
ra
g
e
isth
tastes and preferences. Consequently, the marketingeo
geographic region to another. The leading agribusiness company Landmark, for
example, operates a national network offering rural supplies in around 400 rural
locations. Although most of its marketing mix elements will be common across
all locations, regional variations require modications to suit the particular rural
activities.
Sometimes the city size can be an important segmentation variable. One
franchise fast-food business will not locate in cities of less than 25 000 people.
Climate also has an impact on segmenting markets for businesses selling heating
and cooling systems as well as clothing. Consumers in Jindabyne will need snow
chains and heavy outdoor clothing, but consumers in Port Macquarie are more
interested in lightweight clothing.
BizWORD
Psychographic segmentation
BizWORD
G
Geographic
segmentation is the
process of dividing the total market
according to geographic locations.
tdividing the total market is Psychographic

n
iem
p
ra
g
o
P
segmentation is
Psychographic segmentation is the process of sych
the
process
of
dividing
the total
according to personality characteristics, motives, opinions, socioeconomic group
market
according
to
personality
and lifestyles. When segmenting a market according to physiographic variables,
a business would research a consumers brand preferences, favourite music, characteristics, motives, opinions,
radio and television programs, reading habits, personal interests and hobbies, socioeconomic group and lifestyles.
and values.
BizFACT
Personality and self-concept
have been found to inuence the
clothes, hair styles, make-up,
entertainment and motor vehicles
that individuals will purchase.
FIGURE 8.4 Psychographic

segmentation groups people according
to how they spend their time, activities,
interests, opinions and attitudes.
Psychographic variables focus on why people behave the way they do. An
average Toyota Corolla owner compared with an average Porsche Cayman S
owner, for example, will respond quite differently about the cost of vehicle
maintenance, insurance and accessories.
207
Psychographic variables can be used by themselves to segment a market, or

they can be combined with other types of segmentation variables. However,
unlike demographic variables, physiographic variables can sometimes be difcult
to accurately measure, especially personality characteristics and lifestyle.
BizWORD
Behavioural segmentation
B isth
e
Behavioural
segmentation is the
process of dividing the total market
according to the customers
relationship to the product.
Behavioural segmentation is the process of dividing the total market
according to the customers relationship to the product. This includes

customers knowledge of, attitude towards, use of, or benets sought from
the product. A total market, for example, may be divided into users and
nonusers. Users can then be classied as heavy, moderate or light. To
encourage light and moderate users to purchase more of its products, a
business may have to redesign the product, set special prices and implement
special promotion activities.
Identifying what the customers want from the product the benets
sought is an important aspect of behavioural segmentation. By determining
the benets desired, marketers can design products that directly satisfy these
desires. For example, in an attempt to satisfy customers desire for convenience
foods that are also low in fat, Lean Cuisine has developed an extensive range of
frozen meals (see gure 8.5).
FIGURE 8.5 Lean Cuisine offers highquality, healthy, nutritious, low-fat

frozen meals that are free from articial
avours, colours and preservatives.
These characteristics are the main
benets sought by the customers who
purchase these products.
8.3 Differentiation and

positioning of product/service
BizWORD
P
Product/service
differentiation,,
in its broadest sense, is the process
of developing and promoting
differences between the businesss
products or services and those of
its competitors.
208
TOPIC 2 Marketing
Walk into any supermarket to buy a loaf of bread and you are faced with a wide
selection from which to choose: white, wholemeal, sliced, unsliced, gluten-free,
vitamin enriched, thick for toasting and so on. Providing so many different types
of breads is a deliberate marketing strategy and is an example of product/service
differentiation. This occurs when products that are the same or similar are
made to appear different from and/or better than those of their competitors. By
achieving this, the seller is able to gain a little more control in the marketplace,
especially with price.
Points of differentiation
The difference could be as simple as changes to the packaging or labelling;
or more complex, such as offering top-quality service, greater convenience,
more features and better value for money, or products or services that are
environmentally friendly. These factors all play a part in persuading consumers
to perceive the product or service as being superior to all similar products or
services and, therefore, inuencing them to buy it. Examples include jeans with
designer labels, washing detergent with brightener additives and an exclusive
restaurant that offers full-table service.
Four important points of differentiation are customer service, environmental
concerns, convenience, and social and ethical issues.
Customer service
Consumers expect a high level of customer service. Pre-sales and after-sales
service are very important to consumers purchasing expensive items such as
cars or electrical appliances.
Customer service may also include the presentation of the premises, the
atmosphere, or the range of products that set a business apart and capture the
consumers interest.
BizWORD
Valueisth
rofor money is the desire to
ed
obtain the best quality, features
and performance for a given price
of a product.
BizFACT
A continual ow of differentiated
products such as Diet Coca-Cola,
Coca-Cola Zero, Mother and
Vanilla Coke has kept the
Coca-Cola Company number one
in the Australian soft-drink market
in recent years.
Environment concerns
People are becoming more concerned with quality of life issues, especially
the physical environment. Businesses that create pollution may risk losing
customers; whereas businesses that adopt a green philosophy and produce
environmentally friendly products may see their sales increase (see gure 8.6).
FIGURE 8.6 The Body Shop is

committed to producing products that
are sensitive to environmental concerns.
It sells all its products in reusable or
recyclable containers, many of which
are rellable.
Convenience
Because todays consumers are busy, they will often select products that are
convenient to use. For example, many consumers do not have a lot of time
for meal preparation. In response, food manufacturers have developed a range
of convenience food products. The packaging and cooking requirements are
designed to make the preparation as convenient as possible.
209
Social and ethical issues
BizWORD
les
vo
in
Ethical
consumerism involves
buying products that are not
harmful to the environment,
animals and society.
Fair Trade movement is
an alternative method of
international trade that promotes
environmentalism, fair wages,
alleviation of global poverty and a
fair price for growers.
A growing number of consumers are becoming more ethically minded and will
actively purchase products or brands that they believe do not exploit workers,
producers or the environment. These consumers want to know more about the
way goods are made, including the conditions in the factories and where they
come from.
Ethical consumerism provides businesses with opportunities to satisfy the
demands of this growing number of consumers. For example:
In response to the dislike of genetically modied (GM) foods by some
consumers, various producers are labelling their products as GM-free.
The Fair Trade movement (see gure 8.7) is gaining in inuence with
consumers increasingly prepared to pay more for guarantees of fair labour
practices and sustainable, organic products.
The cosmetic industry is delivering more natural products that are not tested
on animals.
FIGURE 8.7 The FAIRTRADE Label

guarantees that disadvantaged
producers in the developing
world receive a fair price for their
commodities.
Product/service positioning
BizWORD
t/serd
cvio
u
p
g
n
Product/service positioning
P
refers to the technique in which
marketers try to create an image
or identity for a product compared
with the image of competing
products.
eLesson:
Innovation and Smiggles
Searchlight: ELES-1053
210
TOPIC 2 Marketing
Closely tied to product/service differentiation is the practice of product/service

positioning. This refers to the technique in which marketers try to create an
image or identity for a product/service compared with the image of competing
products or services.
Product/service positioning is something that is done in the minds of the
target market: it is how potential buyers perceive the product. Some brand
names, such as Rolex, Ferrari, No Frills and Trax, can immediately evoke an
image of the products quality. This image gives the product its position within
the market.
In highly competitive markets, sales may be difcult to secure. For this
reason, a business will attempt to create an image that differentiates its product/
service from the others. Many businesses invest considerable resources in the
positioning of their product/service. The business will decide on the image
it wishes to create for a product/service and will use other elements of the
marketing mix to shape and maintain this image.
Whenever a new product is launched, the marketing manager needs to have
clearly determined the desired positioning of the product/service. This will be
achieved through the product/services name, price, packaging, styling, promotion
and channels of distribution. Combined, these individual characteristics create
the image of the product/service (see gure 8.8).
FIGURE 8.8 A business will decide

on the image it wishes to create for a
product/service and will use the other
elements of the marketing mix to
create and maintain this image. Prada,
for example, portrays an image of
sophistication and luxury.
Summary
The marketing mix consists of four major elements: product, price, promotion
and place.
Combined with these four Ps are people, processes and physical evidcence to
create the extended marketing mix.
Together, these seven Ps make up the strategies of marketing and become the
centrepiece of the marketing plan.
The main goal of a marketing manager is to develop and maintain a marketing
mix that precisely matches the needs of the customers in the target market.
Marketing segmentation involves dividing the total market into segments.
A business selects one of these segments to become the target market.
The ultimate aim of market segmentation is to increase sales, market share
and prots by better understanding and responding to the desires of the
different target customers.
The consumer market can be segmented according to four main variables:
demographic features of a population
geographic urban, regional and rural locations
psychographic personality characteristics
behavioural customers relationship to the product.
Product/service differentiation, in its broadest sense, is the process of
developing and promoting differences between the businesss products or
services and those of its competitors.
Product positioning refers to the technique in which marketers try to create an
image or identity for a product/service compared with the image of competing
products/services.
Revision
EXERCISE 8.1
1 Identify the seven marketing elements that make up the marketing mix.
2 State the link between market segmentation and target market.
3 Recall the ultimate aim of marketing segmentation.
4 Summarise the four main ways of segmenting consumer markets.
211
5 Here are ve different market segments:

(a) Young married couple, no children
(b) Female teenager, part-time worker
(c) Older single person, female, retired
(d) Younger single person, male, working
(e) Male teenager, full-time student.
Listed below are 10 products/services. Copy the list into your notebook and, beside
each item, determine the most appropriate market segment letter (ae) for that
product/service. In some cases, you may want to write more than one letter. Compare
your answers with those of the rest of the class.
(a) Financial advice ___________
(b) Ballet tickets ___________
(c) Bus tour ___________
(d) Dolly magazine ___________
(e) Health insurance ___________
(f) Apple iPad ___________
(g) Rover lawnmower ___________
(h) School textbook ___________
(i) Smartphone ___________
(j) Furniture ___________
6 Outline the purpose of product/services differentiation.
7 For two specic products/services with which you are familiar, describe how they are
differentiated from their competitors.
8 Environmentally friendly products are just a clever promotional strategy to make
purchasers feel good. Justify whether you agree or disagree with this statement.
Weblink
Fairtrade
9 Examine the ways the FairTrade movement is committed to selling and production
practices that are ethically responsible. For help, use the Fairtrade weblink in your
eBookPLUS.
10 In small groups, choose a product/service with which you are familiar and
demonstrate the types of positioning strategies used to promote it. Share your
answer with the rest of the class. You may wish to prepare this as a PowerPoint
presentation.
Extension
1 Determine why the mass marketing approach has declined in recent years. Discuss
whether this means there is no place for mass marketing. Justify your answer.
2 Once the total market is segmented, a business selects a target market.
Demonstrate the different ways in which a market may be segmented. Explain
why having a clear understanding of the target market improves the efciency of
the marketing plan.
3 Create an A4 print advertisement for a new model mobile phone that highlights its
exclusive features. You may wish to use desktop publishing software to present the
advertisement with text and graphics.
8.4 Products goods and/or

services
BizWORD
Products
svic
d
o
reg
a
are goods or services
that can be offered in an exchange
for the purpose of satisfying a need
or want.
212
TOPIC 2 Marketing
When you buy a book or digital camera you are purchasing a good. They are
real, physical objects that can be touched and owned; they are tangible. Financial
advice, television programs and sporting events provide an intangible service for
our use or enjoyment, not for our ownership. However, services are products
just the same. Products are goods or services that can be offered in an exchange
for the purpose of satisfying a need or want.
Tangible and intangible products total

product concept
It is convenient to group products as tangible goods or intangible services. In
reality, it is not quite so simple. Most products are combinations of tangible and
intangible components. Dinner at an expensive restaurant, for example, provides
tangible elements (food and drinks) and intangible elements (efcient service,
live music and a pleasant atmosphere). Consequently, when customers purchase
products, they buy both the tangible and intangible benets (attributes) a
e
cn
u
rd
lp
ta
o
total product concept. In other words, a product is a collection of satisfactions,
which might include a variety of things such as the package, the brand name,
the warranty and the after-sales service.
The term product, therefore, is a much broader concept than most people
understand. Usually when people talk about products, they refer to what a
company produces, such as motor vehicles or entertainment. And yet the
intangibles that come with these products are also important. They can be used
to differentiate one businesss product from that of its competitor.
Often, with mass-produced products, it is on the differences in the intangible
benets that product competition is based. For example, cars are basically
a means of transportation used to get from one place to another. If this was
all they were, then there would be only one model. But a car contains a vast
array of intangibles that are used to differentiate each model, such as image,
reputation, style and safety record. Viewing the car in terms of a total product
concept clearly shows that no two cars are exactly the same (see gure 8.9). All
products, then, are a combination of tangible and intangible attributes.
BizWORD
The ttotal productrefs concept refers
to the tangible and intangible
benets (attributes) a product
possesses.
BizFACT
The relationship between a
business and its customers is based
mainly on the product goods
and/or services.
FIGURE 8.9 Purchasers of a Jaguar

C-X75 will buy this product because it
not only satises their needs and wants
but also provides intangible benets
such as a feeling of prestige, importance
or inuence.
Product branding
Read the list of brand names in gure 8.10 and test yourself: what products do
you associate with each brand name? Your score was probably 20 out of 20. You
have just experienced the power of brand name recognition. The 20 businesses
213
e
a
sth
BizWORD
A brand is a name, term, symbol,
design or any combination of these
that identies a specic product
and distinguishes it from its
competition.
that market these brands have spent a lot of money making sure customers
instantly recognise their brand name and the products associated with them.
A brand is a name, term, symbol, design or any combination of these that
identies a specic product and distinguishes it from its competition. A brand
name is that part of the brand that can be spoken. It may include letters (BMW
motor vehicles); numbers (4711 perfume); numbers and letters (3M tapes); or
pronounceable symbols, such as the ampersand in Johnson & Johnson.
A brand name is that part of the

brand that can be spoken.
BizFACT
A brand name should be easy
for consumers to say, recall and
spell. Short names such as Omo,
Apple, Sony and Ford satisfy this
requirement.
BizWORD
A trademark signiees that the
brand name or symbol is registered
and the business has exclusive right
of use.
A brand symbol or logo is a
graphic representation that
identies a business or product.
BizFACT
Brand counterfeiting is especially
detrimental because the usually
inferior counterfeit product
weakens the consumers trust in
the brand and their loyalty to it.
214
TOPIC 2 Marketing
Levis
Kelloggs
McDonalds
Coca-Cola
Vegemite
Uncle Tobys
Arnotts
Mars
Reebok
Weet-Bix
Holden
Sorbent
Telstra
KFC
Speedo
Colgate
Cadbury
Qantas
Mambo
Sony
FIGURE 8.10 Examples of brand names
Benefits of branding
Branding provides benets for both buyers and sellers. Branding helps
consumers:
identify the specic products that they like. Without branding, a consumer
selection would be quite random because buyers could have no guarantee
that they were purchasing what they preferred.
evaluate the quality of products, especially when a consumer lacks the
expertise to judge a products features.
reduce their level of perceived risk of purchase. A respected and trusted brand
will provide reassurance that the consumer is making the right choice.
gain a psychological reward that comes from purchasing a brand that
symbolises status and prestige.
Branding helps businesses:
gain repeat sales because consumers recognise the businesss products
introduce new products onto the market because consumers are already
familiar with the businesss existing brands
with their promotional activities because the promotion of one product
indirectly promotes all other similarly branded products
encourage customer loyalty. This has the added benet to the business of
being able to charge a higher price for the product.
For these reasons, a brand name can be a powerful marketing tool. It is
also why businesses spend a great deal of time, money and effort creating and
protecting their brand name. McDonalds, for example, is one business that
aggressively protects its brand name which is a registered trademark
against infringement. It has brought legal proceedings against a number of
businesses with Mc names because it fears that the use of the Mc will give
consumers the impression that these businesses are owned or endorsed by
McDonalds. The symbols, , TM or R at the end of a brand name signify that
the name or symbol is copyright protected or a registered trademark.
Branding symbols and logos

A brand symbol or logo is a graphic representation that identies a business or
product, as shown in gure 8.11.
FIGURE 8.11 Brand symbols or logos

assist in the easy recognition of a
product.
A brand symbol does not have to duplicate the words in the brand name.
The three-pointed star of the Mercedes-Benz and Coca-Colas distinctive
narrow-waisted bottle are famous brand symbols. Some businesses encourage
the instant recognition of their brand symbol rather than their brand name.
Perhaps the most famous example of this technique is the golden arches
symbol used by McDonalds. Nikes swoosh symbol has also become a brand
symbol with a high recognition value. Notice how in some advertisements the
brand name does not appear at all, only the brand symbol. This is a clever and
subtle method used to reinforce the meaning of the symbol and associate it
with a brand name.
BizFACT
If the brand name becomes well
recognised, the business will also
enjoy a carry-over effect when new
products are introduced. This gives
it a distinct competitive advantage.
Branding strategies
Brands are usually classied according to who owns them. When a manufacturer
owns a brand name it is referred to as a manufacturers brand or national brand.
d
n
Common examples of manufacturers brands include Sunbeam appliances, Kraftra
foods and Billabong clothing. These brands have high appeal with customers
because they are recognised across the country, are widely available and offer
reliability with constant quality.
A private or house brand is one that is owned by a retailer or wholesaler.
These products are often cheaper because the retailer or wholesaler can buy
at lower costs. For example, Myer sells products from its own label, including
Reserve, Basque, Urbane, Blaq, Bauhaus, Wild Rhino and Miss Shop.
Generic brands are products with no brand name at all. Carrying only the
name of the product and in plain packaging; these generic brands have been
available in supermarkets since the mid 1970s. Examples include Black and Gold
(Davids Holdings), No Frills (Franklins), Home Brand, Select, (Woolworths),
Farmland (Coles) and Just Organic (Aldi).
BizWORD
Manufacturers
r
o
b
brand or
national brands are those owned
by a manufacturer.
A private or house brand is one
that is owned by a retailer or
wholesaler.
Generic brands are products with
no brand name at all.
215
FIGURE 8.12 Woolworths generic

brand, Home Brand, provides products
within the budget price category. The
label has been popular with consumers
for over two decades and is Australias
largest single brand of groceries.
In 2005, Woolworths introduced its
premium private label, Select, which
offers a range of quality products.
BizWORD
Packaging involves the
development of a container and
the graphic design for a product.
BizFACT
The Root Glass Company of Indiana
created the famous Coca-Cola
contoured bottle in 1915. It was
designed to help Coca-Cola stand
out from other drinks at the time,
and the design brief was to ensure
that the bottle was recognisable
even in the dark.
216
TOPIC 2 Marketing
Packaging
Packaging involves more than simply putting the product in a container or
placing a wrapper around it. Packaging involves the development of a container
and the graphic design for a product.
To assist sales, the packaging of a product is sometimes as important as the
product itself. Well-designed packaging will give a positive impression of the
product and encourage rst-time customers. For example, tasteful packaging
can create an image of luxury, sensuality and exclusiveness, helping to promote
the product. In addition, packaging:
preserves the product
protects the product from damage or tampering
attracts consumers attention
divides the product into convenient units
assists with the display of the product
makes transportation and storage easier (see gure 8.13).
Apart from performing these practical functions, packaging also acts as a form
of communication. Consumers see certain colours and draw conclusions about
the product even before they read the label. For example, a red soft-drink can
means cola; green means lemon-lime. Dishwashing liquid in a yellow container
is considered lemony and a household cleaner in a green package is associated
with an environmentally-friendly product. Many products packaged in black or
gold portray an image of luxury and sophistication.
Sometimes, the shape of the packaging can become part of the product itself.
That is, consumers readily associate a unique shape with a specic product. For
example, one of the most easily recognised shapes in the soft-drink market is
the distinctive pinched in at the waist Coke bottle. In 1977, Coca-Cola gained
trademark protection by the United States Patent Ofce. Coca-Cola argued that
the distinctively shaped contour had become so well known that it had taken
on a trademark status. Coca-Cola is also the registered owner of a number of
Australian trademarks for its famous Contour Bottle.
FIGURE 8.13 It takes 2.6 seconds for

a customer to choose one product
instead of another, so the packaging
has to be right. Darren Wee, a Year 11
student from Wesley College, Western
Australia, won a national prize in the
National Schools Packaging Design
Challenge conducted by the Packaging
Council of Australia. His creative design
incorporated clear graphics that met
all mandatory labelling requirements,
an innovative tamper evidence device
and an aesthetically pleasing logo and
colour scheme.
Due to the strong consumer association with the unique bottle design,
Coca-Cola has aggressively protected its trademark shape (see the following
Snapshot).
Shaping up to the competition

Over the years, the marketing battle between the two big soft drinks Coca-Cola
and Pepsi has been relentless and usually centres on advertising bombardments,
marketing stunts, celebrity endorsements and taste tests. However, this time the
battle has shifted to the courtroom. Recently, The Coca-Cola Company commenced
legal proceedings against Pepsico Inc. and its Australian subsidiary Pepsico Holdings
Australia claiming that Pepsi had been selling Pepsi and Pepsi Max in a similarly
shaped contour bottle.
The Coca-Cola Company believes that only it has the right to use such a particular
shape. It argues that it has been using this shape since 1915 in the United States and
since at least 1938 in Australia. The Coca-Cola Company alleged that Pepsico Inc.
had infringed copyright and wanted the Pepsi bottles handed over for destruction.
In taking this case to court, The Coca-Cola Company is attempting to protect its
intellectual property, which it argues is one of its most valuable assets.
Intellectual property is an intangible asset that consists of an individuals ideas,
knowledge and concepts. Some examples are patents, copyrights, trademarks and
software.
Snapshot questions
1. Identify the traditional methods used by The Coca-Cola Company and Pepsico
Inc. to compete in the marketplace.
2. Summarise the arguments put forward to the court by The Coca-Cola
Company.
3. Explain why The Coca-Cola Company would want to protect its intellectual
property.
4. Predict the arguments Pepsico Inc. could use to defend its actions. Share your
answer with the rest of the class.
SNAPSHOT
The
Coca-Cola
Company
alleged that
Pepsico Inc.
had infringed
copyright and
wanted the
Pepsi bottles
handed
over for
destruction.
217
Labelling
BizWORD
Labelling is the presentation of
information on a product or its
package.
A label is that part of the package
that contains information.
Another important part of a products package is labelling. Labelling is the

presentation of information on a product or its package. A label is that part of
the package that contains this information. Marketers can use labels to promote
other products or to encourage proper use of products and therefore greater
consumer satisfaction with products. Usually the label will provide information
about ingredients, operating procedures, shelf life, package size or country of
origin (see gure 8.14).
FIGURE 8.14 The Australian Made,

Australian Grown (AMAG) labels show
consumers when a product is made
or grown in Australia. It often also
indicates if a company is Australian
owned. The famous logo can now be
found on more than 10 000 products
sold here and around the world.
BizFACT
Food labels must identify the:
name or description of the food
batch number
name and Australian address of
the supplier
list of ingredients
date mark
nutrition information panel
country of origin.
218
TOPIC 2 Marketing
All labels must be truthful. In Australia, there are number of statutes (laws)
and government regulations specifying information that must be included in the
labelling for certain products (see the BizFact at left).
These regulations are aimed at protecting the consumer from misleading or
deceptive claims and the unsafe use of products. They also make it easier for
consumers to compare products.
Summary
A product is a good or service that can be offered in an exchange for the
purpose of satisfying a need or want.
Most products are combinations of tangible and intangible benets the
total product concept.
With mass-produced products, it is often on the differences in the intangible
benets that product competition is based.
A brand is a name, term, symbol, design or any combination of these things
that identies a specic product and distinguishes it from its competition.
A brand name is that part of the brand that can be spoken.
A brand symbol or logo is a graphic representation that identies a business
or product.
To guard against other businesses using its brand name or symbol, a business
can apply to have the name registered.
Manufacturers or national brands are those owned by a manufacturer.
A private or house brand is one that is owned by a retailer or wholesaler.
Generic brands are products with no brand name at all.
To assist sales, the packaging of a product is sometimes as important as the

product itself.
Marketers can use labels to promote other products or to encourage proper
use of products and therefore greater consumer satisfaction with products.
Revision
EXERCISE 8.2
1 Think of a product you have recently purchased. Identify the tangible and intangible
benets you gained from the product.
2 Explain why marketing managers prefer to use the term total product concept
rather than simply product.
3 Explain what is meant by imagining a product as a collection of satisfactions.
4 Account for why businesses spend so much money attempting to establish a brand
name and brand symbol.
5 Create a T table to summarise the benets of branding for (a) consumers and
(b) businesses. The T table has been started for you.
Benets of branding
Consumers
Identify favourite products
Businesses
6 Select which benet of branding you consider to be the most important for the
(a) consumer and (b) business. Justify your selection.
7 When deciding on a brand name and brand symbol, outline some of the
considerations that a marketer must take into account.
8 Evaluate each of the following brand names. Indicate the strong points of each
name.
(a) Nokia mobile phones
(b) Apple computers
(c) LG electronic products.
9 Summarise the different types of branding strategies a business can use. Provide an
example of each.
10 Explain why packaging is critical to the success of a product.
11 Select three differently packaged goods and explain why you think the
manufacturers chose to package the goods in such a way.
12 Demonstrate how packaging and labelling can be used as marketing strategies.
Weblink
13 Use the Packaging Council of Australia weblink in your eBookPLUS to look at past
winners of the packaging awards, both student and commercial sections. Analyse
two of the designs and, for each one, write a 150-word paragraph on how these
address a marketing plan.
Packaging Council of
Australia
Extension
1 With mass-produced products, it is often on the differences in the intangible benets
that product competition is based. Evaluate the accuracy of this statement. Provide
examples to support your answer.
2 Use the Australian Made weblink in your eBookPLUS to:
(a) Distinguish between Product of Australia, Australian Made and Australian
Grown.
(b) Download the Fact Sheet for Secondary School Students to summarise how the
Australian Made, Australian Grown (AMAG) campaign operates.
Weblink
Australian Made
3 Branding, packaging and labelling combine to create a powerful set of marketing

strategies. Use examples to evaluate the accuracy of this statement.
219
BizWORD
Price refers to the amount of
money a customer is prepared to
offer in exchange for a product.
8.5 Price and pricing methods

Price refers to the amount of money a customer is prepared to offer in exchange
for a product. Many businesses have difculty selecting the correct price
for their products. A price set too high could mean lost sales unless superior
benets are offered. A price set too low may give customers the impression that
the product is cheap and nasty. Somewhere between these extremes is a correct
price for a product.
FIGURE 8.15 Of all the marketing mix

elements, price is probably the most
exible. Businesses can adjust prices
much more easily than they can modify
the product, redesign the promotional
campaign or change the distribution
system. Price can be adjusted quickly
in response to competitors actions or
changes in the marketplace.
In any market, businesses will attempt to gain some control over the price
by differentiating their products. Once this happens, the business has more
leverage over the price. For example, clothes with designer labels, such as Levis,
Country Road and Billabong, are the result of product differentiation strategies.
These labels can set higher prices for their garments than clothing sold under
the Target or Kmart brand labels.
Pricing methods
BizWORD
g Cost-based
)icn
p
rk-u
(m
sed
a
b
(mark-up)is pricing is
a pricing method derived from the
cost of producing or purchasing
a product and then adding a
mark-up.
220
TOPIC 2 Marketing
Overall, a businesss pricing decisions are inuenced by a variety of internal and

external factors. As a starting point, the businesss marketing objectives and costs
of production provide an indication of what it should charge for its products.
Then, the business must consider such factors as the amount of competition in
the marketplace, government regulations, the location of the product on its life
cycle and the level of economic activity.
There are three main pricing methods: cost-based, market-based and
competition-based. These pricing methods provide a basic price for each
product. Pricing strategies are then used to adjust the basic price, depending on
the marketing objectives and conditions within the marketplace.
Cost-based (mark-up) pricing

Cost-based (mark-up) pricing is the simplest of the three methods. As a starting
point, the business determines the total cost of producing (or purchasing) one
unit of the product. The business then adds an amount to cover additional costs
(overheads such as interest payments, insurance, transport) and to also provide
an adequate prot margin. That amount is referred to as the mark-up and is

usually expressed as a percentage. The total of the cost plus the mark-up
is the
n
tm
red
p
isa
selling price of the product. The formula is:
Cost + (Cost Mark-up percentage) = Price
For example, if a manager of a clothing store buys 100 blouses at $50 each and
applies an 80 per cent mark-up on cost, the price to the consumer will be $90 per
item. This same percentage mark-up might be applied to all products in the store.
Cost-based pricing is a very simple and straightforward pricing policy and is
used mainly by wholesalers and retailers. However, it has two major drawbacks.
1. Difculty in accurately determining an appropriate mark-up percentage. If
the percentage is too high, the product will be overpriced and possibly not
sell. If the mark-up is too low, the business is losing prot they could have
easily obtained.
2. The product is priced after production and associated costs are incurred
without taking into account the other elements of the marketing mix or the
state of the market.
Market-based pricing
Instead of using costs to determine price, businesses sometimes set prices
c the market is
rd
fp
yo
n
a
u
eq
isth
according to the level of supply and demand whatever
prepared to pay. Market-based pricing is a method of setting prices according
to the interaction between the levels of supply and demand. When demand
for a product is greater than its supply, there will be a shortage in the market.
This will force up the price of the good. For example, if 100 prospective buyers
attend an art auction but there is only one particular type of painting (product)
offered for sale, the price will rise. As the price rises, buyers will progressively
drop out of bidding until the nal buyer is successful. Conversely, when the
supply of a product is greater than its demand, a surplus will exist in the market.
The price of the product will consequently fall. This is why bananas are cheaper,
for example, during the summer months.
BizWORD
Mark-up is a predetermined
amount (usually expressed as
a percentage) that a business
adds to the cost of a product to
determine its basic price.
BizFACT
A breakeven analysis can assist a
marketing manager to determine
the appropriate mark-up
percentage.
BizWORD
Supply is the quantity of a product
businesses are willing to offer for
sale at a particular price.
Demand is the quantity of a
product consumers are willing to
purchase at a particular price.
Market-based pricing is a method
of setting prices according to the
interaction between the levels of
supply and demand whatever
the market is prepared to pay.
FIGURE 8.16 Levels of supply and

demand for accommodation in the
snow elds, for example, uctuate
dramatically between summer and
winter seasons, and prices rise and fall
accordingly.
221
The prices of products, therefore, are constantly changing in relation to

uctuations in the levels of supply and demand. Market-based pricing is
critically important not only as a pricing method in itself but also as a basis
for the other pricing methods. However, this method can be difcult to apply
because the levels of supply and demand will constantly change.
BizWORD
is
Competition-based
pricing is
C
where the price covers costs (cost
of raw materials and the cost of
operating the business) and is
comparable to the competitors
price.
A price leader is a major business
in an industry whose pricing
decisions heavily inuence the
pricing decisions of its competitors.
Competition-based pricing
Most products are available from more than one business. When making a
major purchase, many consumers compare prices. Businesses, therefore, need
to consider the competition when making their pricing decisions. Competitionbased pricing is where the price covers costs (cost of raw materials and the cost
of operating the business) and is comparable to the competitors price.
Competition-based pricing is often used when there is a high degree of
competition from businesses producing similar products. Once a business has
established a base price, it can then decide to choose a price either:
below that of competitors. This policy of undercutting the competition is
often used as a way of breaking into an established market.
equal to that of competitors. Following the price established by a price leader
is an easy option for a business because it avoids having to undertake market
research to nd out what the consumer would actually pay. As well, it also
avoids the risks of price competition/war.
above that of competitors. This is a favoured practice by businesses who wish
consumers to perceive the product as superior, which appeals to the statusconscious buyer.
Pricing strategies
BizWORD
Bundleisw
m
to
ercu
h
pricing is where customers
gain a package of goods and
services in addition to the tangible
good they purchased.
Price skimming occurs when
a business charges the highest
possible price for the product
during the introduction stage of its
life cycle.
222
TOPIC 2 Marketing
Once the basic price has been set using the preferred pricing method(s), the
business then ne-tunes this price in line with its pricing strategy. Various
pricing strategies can be used, and it is common for a business to use several at
once, even for the same product. The extent to which a business uses any of the
following strategies depends primarily on:
its marketing objectives
the life cycle of the product
the market for the product
the degree of product differentiation
the level of economic activity.
Of course, as with all areas of business, the pricing strategies used by marketers
will have to be modied depending upon changes within the external business
environment, especially the inuence of technology. For example, the growing
inuence of the internet and the expansion of e-commerce have weakened some
businesss control over prices. Consequently, marketers have been forced to
modify their traditional pricing strategies. One example is the widespread use of
bundle pricing common with the telecommunications businesses, as evidenced
by the advertisements from mobile phone companies, internet providers and
cable television operators offering all kinds of packages.
Price skimming
Price skimming occurs when a business charges the highest possible price for
the product during the introduction stage of its life cycle. Some consumers
are willing to pay a high price for a products novelty features because of the
prestige or status that ownership gives. Early purchasers (adopters) of innovative

electronic equipment fall into this category. The business essentially skims the
cream off the market. The objective is to recover the costs of research and
development as quickly as possible, before competition enters the market.
Price skimming, as Apple discovered, can sometimes not go as planned. Within
twelve weeks of its introduction, Apple dropped the price of its 8GB iPhone by
$200. The situation resulted in a negative backlash from early adopters. Apple
subsequently tried to make amends by offering a $100 Apple Store credit for
those who paid the higher price.
BizFACT
Sometimes consumers resist
bundle pricing, claiming that they
are forced to pay for goods or
services they do not want in order
to receive the ones they do.
Price penetration
At the opposite extreme to price skimming is price penetration. Price
penetration occurs when a business charges the lowest price possible for a
product. The strategy aims to quickly achieve a large market share for a product
sometimes called mass-market pricing. The objective is to sell a large
number of products during the early stages of the life cycle and thus discourage
competitors from entering the market or from taking market share from existing
businesses. The main disadvantage of this strategy is that it is more difcult to
raise prices signicantly than it is to lower them. Consequently, a business may
be locked into a low sales revenue until it substantially modies the product at
a later stage.
BizWORD
oPrice penetration occurs when a
a
en
h
rsw
cu
business charges the lowest price
possible for a product or service so
as to achieve a large market share.
A loss leader is a product sold at
or below cost price.
Loss leader
A loss leader is a product sold at or below cost price. For a special promotion,
many businesses, especially retail stores, deliberately sell a product at a loss
to attract customers to the shop. Although the business makes a loss on this
product, it hopes that the extra customers will buy other products as well. The
psychology behind this strategy is that once the consumers are in the store, they
will usually buy other products and spend more than what attracted them into
the store to begin with. The business can recover the loss on the low-price item
from the sale of the other items or services that the consumer buys.
FIGURE 8.17 Supermarkets frequently

use the loss leader pricing strategy as
evidenced by the promotion of weekly
specials. Often these heavily discounted
items are located next to higher priced,
more appealing products.
223
This successful pricing strategy is often used when the business:

is overstocked or a product is slow to sell.
wants to increase the trafc ow in the expectation of gaining new customers
wants to build a reputation of having low prices.
However, the main danger of this practice is that if it is done incorrectly the
business can actually lose money.
rp
(o
iceln
g
)s
BizWORD
Price points
Price points (or price lining) is

selling products only at certain
predetermined prices.
Price points (or price lining) is selling products only at certain predetermined
prices. This pricing strategy is used mainly by retailers, especially clothing stores
and boutiques. The business chooses a limited number of key prices or price points
for selected product lines. For example, a jeweller may offer a line of watches
priced at $55, $75 and $95 regardless of how much they cost at wholesale. In
practice, this means the store would not apply a xed mark-up to the products.
Using this pricing strategy makes it easier for the customer to nd the type
of product they need. It also makes it easier for the business to encourage the
customer to trade up to a more expensive model.
Price and quality interaction
BizWORD
premium pricing is a
Prestige
isa
or p
pricing strategy where a high price
is charged to give the product an
aura of quality and status.
FIGURE 8.18 Cartier, the renowned

French luxury jeweller and watch
manufacturer attracts quality- and
prestige-conscious customers. The
business prides itself on its renowned
history of including royalty and
celebrities among its main customers.
Cartier products are sold at prestige
prices.
224
TOPIC 2 Marketing
You have probably heard the expression You get what you pay for. To marketing
managers, this saying describes the pricequality relationship. Normally,
products of superior quality are sold at higher prices. This is usually due to the
higher manufacturing cost involved in producing them.
This perceived pricequality relationship helps determine the image customers
have of products or brands. Therefore, if a business charges a low price for a
product, customers may perceive the product as cheap. Charge a high price
and the product develops an aura of quality and status (see gure 8.18). This
pricing strategy is referred to as prestige or premium pricing and is designed to
encourage status-conscious consumers to buy the product. Premium or prestige
pricing is based on the tendency for consumers to assume that expensive
products are of superior quality and distinction. If a business that uses premium
pricing lowered their prices dramatically, it would damage their reputation
because it is inconsistent with the perceived images of such products.
This pricequality relationship does not apply to all products. Usually, highpriced and infrequently purchased items such as cars, homes and furniture
display a stronger pricequality relationship than frequently purchased products
such as grocery items. As well, consumers may believe that high prices reect
either expensive packaging or market exploitation. This may lead to a reduction
in sales because the consumer perceives there to be little actual difference
between the quality of a low- and high-priced item. Sometimes, a premium price
is set articially high to imply a prestigious or quality image when, in reality, the
quality may not be much superior to cheaper alternatives.
BizFACT
Premium pricing is common
for service industries, where the
consumer cannot see the product
in advance and relies on price for
its quality.
Summary
Price refers to the amount of money a customer is prepared to offer in exchange

for a product.
There are three main pricing methods:
Cost-based (mark-up) pricing is a pricing method derived from the cost of
producing or purchasing a product and then adding a mark-up.
Market-based pricing is a method of setting prices according to the
interaction between the levels of supply and demand.
Competition-based pricing is where the price covers costs (cost of raw
materials and the cost of operating the business) and is comparable to the
competitors price. A business can select a price that is below, equal to or
above that of the competitors.
Once the basic price has been set using the preferred pricing method, the
business then ne-tunes this price in line with its pricing strategy.
The four main pricing strategies include:
price skimming, which occurs when a business charges the highest possible
price for the product during the introduction stage of its life cycle
price penetration, which occurs when a business charges the lowest price
possible for a product or service so as to achieve a large market share
loss leader, which is a product sold at or below cost price. Although the
business makes a loss on this product, it hopes that the extra customers will
buy other products as well.
price points (or price lining), which is selling products only at certain
predetermined prices.
Normally, products of superior quality are sold at higher prices.
Prestige or premium pricing is a pricing strategy where a high price is charged
to give the product an aura of quality and status.
Revision
EXERCISE 8.3
1 Complete the following sentences by recalling the correct term from the following
list. The answers can be found in the introduction to this section.
exchange
money
correct
customers
high
selecting
low
sales
Price refers to the amount of

a customer is prepared to offer in
for a product. Many businesses have difculty
the
correct price for their products. A price set too
could mean low
unless superior benets are offered. A price set too
may
give
the impression that the product is cheap and nasty. Somewhere
between these extremes is a
price for a product.
2 Identify the three main pricing methods.
225
3 Clarify why a retailer is likely to adopt the cost-based method to pricing.

4 State the formula used to calculate the price using the cost-based method.
5 As the managers of a furniture store, you have just received a shipment of new media
units. The units cost you $385 each and your usual mark-up is 75 per cent.
(a) Calculate the nal selling price.
(b) Explain what you would do to the price if your business has exclusive distribution
of this highly fashionable product.
6 Outline the two major drawbacks of cost-based pricing.
7 Demonstrate how market-based pricing is determined.
8 Recall the three alternatives that are available to businesses that adopt the
competition-based method of pricing.
9 Explain why a business would use competition-based pricing.
10 Outline why some businesses use bundle pricing.
11 State what motives might lead a business to adopt a price skimming strategy.
12 Identify a possible problem with using price skimming.
13 Deduce under what conditions a digital camera manufacturer would adopt (a) a price
skimming approach and (b) a price penetration approach for a new product.
14 Recall the main disadvantage of price penetration.
15 Account for why a business would use the loss leader pricing strategy.
16 Demonstrate how buyers perceptions of price might inuence pricing decisions.
17 Discuss whether you agree with the statement You get what you pay for. Provide
example to justify your answer.
18 Imagine you are a marketing consultant. A client has asked you to make
recommendations regarding the price of ve, as yet, unbranded new products. You
are trying to decide whether to recommend price skimming, price penetration, loss
leader or price points pricing strategies. Complete the following table and justify
your recommendation.
Unbranded new
product
Recommended pricing
strategy
Justication for this

strategy
1. Imported leather
lounges
2. A range of costume
jewellery
3. Bottled water
4. Mobile phone
5. T-shirts
Extension
1 Dene the term non-price competition. Compare the characteristics of price and
non-price competition. Predict under what conditions a business would be most
likely to use non-price competition.
2 Explain why some customers are prepared to pay a high price for a product,
although other customers would not buy the product even if the price was low.
Extrapolate what this tells you about the relationship between price and customer
tastes and preferences.
3 Determine why many department stores use a mark-up of about 50 per cent, when
some discount variety stores operate on a mark-up of 20 per cent.
226
TOPIC 2 Marketing
4 Compare the prices of ve identically branded electronic products in three competing

stores.
(a) State whether the prices are the same or different.
(b) Account for the similarities and/or difference.
8.6 Promotion
To sell more of its products, a business has to change customers behaviour
through information or persuasion. This is achieved through promotion.
opersuade and
m
th
escrib
Promotion describes the methods used by a business to inform, d
remind a target market about its products.
Promotion attempts to:
attract new customers by heightening awareness of a particular product
increase brand loyalty by reinforcing the image of the product
encourage existing customers to purchase more of the product
provide information so customers can make informed decisions
encourage new and existing customers to purchase new products.
Elements of the promotion mix

Many people confuse promotion with advertising because of its visibility and
frequency. However, advertising is just one of the four elements of the promotion
mix. A promotion mix is the various promotion methods a business uses in its
promotional campaign (see gure 8.19).
BizWORD
Promotion describes the methods
used by a business to inform,
persuade and remind a target
market about its products.
Promotion mix is the various
promotion methods a business
uses in its promotional campaign.
Methods include:
advertising
personal selling and relationship
marketing
sales promotions
publicity and public relations.
PROMOTION MIX
Advertising
Personal selling
and relationship
marketing
Sales promotion
Publicity and
public relations
FIGURE 8.19 Depending on the type of product and target market involved, two or more of
these elements are combined to form the promotion mix.
Advertising
Which current advertisement has most impressed you? What product is
it advertising: soft drink, food, clothes, a car or something else? Why did it
impress you? You can probably answer these questions without too much
thought. This is because you have been inuenced by advertising. Everywhere
you look businesses are trying to sell consumers their products.
As previously explained, advertising is a paid, non-personal message
communicated through a mass medium. Because of the myriad of products
available, advertising is an essential tool for successful marketing. A successful
advertising campaign can result in increased sales and prot for a business. The
form and presentation of advertisements have changed over time (see gure
8.20), but the purpose of advertising to inform, persuade and remind has
remained constant.
The main advantage of advertising is that it provides businesses with the
exibility to reach an extremely large audience or to focus on a small, distinct
target market segment.
BizFACT
In Australia, businesses spend
approximately $12 billion a year on
various forms of advertising.
227
FIGURE 8.20 Your grandparents

may have been inuenced by this old
Colgate advertisement. Compared
to a recent Colgate advertisement,
although the style may have changed,
the purpose remains the same: to entice
the customer into buying a particular
product or brand.
BizWORD
erfs
h
to
Advertising media refers to the

many forms of communication
used to reach an audience.
BizFACT
Choosing the most appropriate
advertising media for the message
is critical.
228
TOPIC 2 Marketing
Advertising media
Advertising may take many forms, from buying time on national television,
to inexpensive leaets or posters, to internet banner advertisements. All
businesses need to develop the most cost-effective means to advertise their
products. Advertising media is a term for the many forms of electronic and
print communication used to reach an audience. The six main advertising media
includes:
mass marketing television, radio, newspapers and magazines
direct marketing catalogues catalogues mailed to individual households
telemarketing the use of the telephone to personally contact a customer
e-marketing the use of the internet to deliver advertising messages
social media advertising online advertising using social media platforms
such as Facebook and Twitter
billboards large signs placed at strategic locations.
Which type of advertising media a business selects depends on a number of
variables including the:
type of product and its positioning
size of the target market and its characteristics
businesss marketing budget
cost of the advertising medium
products position on the product life cycle.
If Covergirl, for example, wants to advertise a new range of cosmetics to
young female teenagers, it might select Dolly or Girlfriend magazines. Nerada
Tea, however, uses the popular Nature & Health magazine to promote its Organic
Tea Range (see gure 8.21). Sometimes a business will undertake an extensive
advertising campaign that involves a number of advertising media in order
to create a saturated coverage of a wide target market. This is the advertising
strategy used, for example, when a new movie is released. There will be celebrity
publicity events, electronic and print advertisements, billboards and e-marketing
using pop-up banners and social media advertising.
FIGURE 8.21 Nerada Tea, manufacturer

of a wide range of pesticide-free and
organic tea products, uses advertising to
increase public awareness of a new or
existing product; to educate consumers
about product features or to sustain
interest in established products.
Personal selling
Personal selling involves the activities of a sales consultant directed to a customer
in an attempt to make a sale; it involves the human aspect of promotion.

lesth
vo
in
For some businesses such as those offering expensive, complex or highly
individual products personal selling is the main promotional strategy. These
products in particular require the personal contact of a sales representative to
familiarise the customer with the product.
Although personal selling is an expensive promotional method, businesses
are willing to spend the money on it because it offers three unique advantages.
They are:
The message can be modied to suit the individual customers circumstances.
The individualised assistance to a customer can create a long-term relationship
resulting in repeat sales.
The sales consultant can provide after-sales customer service in relation to
product features, installation, warranties and servicing.
The success of the marketing plan often depends on the competency of the
businesss sales force, without which sales and revenue would soon decrease.
BizWORD
Personal selling involves the
activities of a sales representative
directed to a customer in an
attempt to make a sale.
FIGURE 8.22 The sales consultant

develops a relationship with the
customer. By listening to the customers
needs and then offering informed
recommendations, customer satisfaction
is increased, resulting in repeat business
and building a good reputation for the
business.
229
Relationship marketing
BizWORD
marketing is the
eiRelationship
sth
R
development of long-term, costeffective and strong relationships
with individual customers.
Customers want more individualised treatment. In response, businesses are

looking for ways to develop long-term, cost-effective and strong relationships
with individual customers, a process known as relationship marketing. The
ultimate aim is to create customer loyalty by meeting the needs of customers
on an individual basis thereby creating reasons to keep customers coming back.
A highly successful relationship marketing strategy introduced during the
early 1990s was the Fly Buys loyalty reward program operated by the Coles
Group. This was followed in 2007 by the Woolworths Everyday Rewards scheme
(see gure 8.23). These schemes offer rewards to those loyal customers who
spend specied amounts or make repeat purchases. Relationship marketing can
provide a business with a competitive advantage (see the following Snapshot).
BizFACT
The 8020 principle says that
80 per cent of sales come from
20 per cent of a businesss
customer base. Therefore, a strong
relationship with this loyal group
of customers should be developed
and maintained.
FIGURE 8.23 Loyalty programs, such

as the Woolworths Everyday Rewards
scheme, help maintain a customer
relationship.
Maintaining the relationship: its personal
SNAPSHOT
. . . providing
service above and
beyond customer
expectations.
230
TOPIC 2 Marketing
Enticing new customers to purchase our product is about ve times more expensive
than maintaining our existing customers. Consequently, at Stellar Media Productions
Ltd, we work hard at establishing and maintaining good relationships with our
existing clients. We have implemented a customer relationship marketing (CRM)
program to monitor the long-term relationship with individual customers to evaluate
their lifetime value to our business.
Stellar uses three elements to implement the CRM program successfully:
1. Personalised service. By focusing on satisfying our customers needs and
delivering more personalised service, we have been able to maintain our
competitive edge. Our sales representatives are encouraged to build long-term
relationships with their clients by providing service above and beyond customer
expectations.
2. Personalised communication. We use innovative media to communicate with
our customers on a one-on-one basis. Salespeople distribute letters, emails and
reports to their customers. Customers are invited to conferences and trade shows
where relationships can be renewed and extended.
3. Customer database. We continuously update our database to store relevant
information about current and potential customers. This provides us with
important information about customer buying behaviour, including repeat sales
and value of transactions.
Snapshot questions
1. State the objective of the CRM program.
2. Outline how information technology supports the CRM program.
3. Explain why it is important to provide personalised service and personalised
communication as part of a CRM program.
4. Determine how a CRM program can provide a business with a competitive
advantage.
Sales promotion
A business may decide to offer a direct inducement to customers in an attempt to
sell more of its product. This type of promotion is referred to as sales promotion
and aims to:
entice new customers
encourage trial purchase of a new product
increase sales to existing customers and repeat purchases.
Sales promotion techniques are used primarily to increase the effectiveness
of other promotion activities, especially advertising. Examples of special
promotions include:
1. Coupons. These offer discounts of a stated amount on particular items at the
time of purchase. Coupons work best for new or improved products.
2. Premiums. A premium is a gift that a business offers the customer in return
for using the product. For example, a food producer may offer customers a
cookbook as a premium.
3. Refunds. Part of the purchase price is given back to those customers who send
in a voucher with a specic proof of purchase. In recent years, refunds have
become widely used on power tools and kitchen appliances.
4. Samples. A sample is a free item or container of a product. For example, when
you visit a supermarket, you will often nd a sales representative encouraging
you to taste a product such as cheese, fruit, biscuits or cake (see gure 8.24).
5. Point-of-purchase displays. Special signs, displays and racks are supplied and
installed by the manufacturer in retail outlets. They are usually located at
the end of aisles in supermarkets to gain consumer attention and make more
efcient use of oor space.
BizWORD
fiSales promotion is the use of
o
eu
sth
activities or materials as direct
inducements to customers.
A premium is a gift that a business
offers the customer in return for
using the product.
FIGURE 8.24 Free samples an

example of sales promotion. Although
sampling ensures that customers will
try the product, it is an expensive form
of promotion. It gives best results when
used with new products.
231
Publicity and public relations

BizWORD
toPublicity is any free news story
yfrew
n
isa
about a businesss products.
Public relations (PR) are those
activities aimed at creating and
maintaining favourable relations
between a business and its
customers.
BizFACT
It is the role of public relations
personnel to design, implement
and manage the publicity events of
the business.
Whats worse than being talked about? Not being talked about! Businesses rely
on being in the public eye. Most businesses use publicity and public relations
as a means of increasing sales and, therefore, prots. Publicity is any free news
story about a businesss products. It differs from advertising in that it is free and
its timing is not controlled by the business. The main aims of publicity are to:
enhance the image of the product
raise awareness of a product
highlight the businesss favourable features
help reduce any negative image that may have been created.
Public relations (PR) are those activities aimed at creating and maintaining
favourable relations between a business and its customers. PR exposes a
business or idea to an audience by using often unpaid third parties as outlets.
This can be done by working with the media, by making speeches on special
occasions (see gure 8.25) or by some attention-seeking gesture such as a
donation or a give-away sale that is reported by others. This means that PR is
often more effective than paid advertising. Sometimes PR can even work out
to be cheaper.
FIGURE 8.25 Publicity and public

relations in business is all about
trying to create a favourable image
or minimise negative perceptions of a
product. Publicity and public relations
uaually combine a number of marketing
strategies to present one consistent
public image that has long-term
benets.
There are four main ways in which public relations activities can assist a
business in achieving its objective of increased sales:
1. Promoting a positive image: reinforcing the favourable attitudes and perceptions
consumers have regarding the businesss reputation
2. Effective communication of messages: using advertising, sales promotions,
publicity and personal selling to convey information about the business and
its products
3. Issues monitoring: protecting sales by providing an early warning of public
trends that could affect the businesss sales. Remedial action can be taken
before much harm is done to sales.
4. Crisis management: protecting a businesss reputation as a result of negative or
unfavourable rumours and adverse publicity, which, if left unchecked, might
result in a loss of sales (see the following Snapshot).
232
TOPIC 2 Marketing
US Airways Flight 1549 crash
SNAPSHOT
Six minutes after takeoff, the passengers on board US Airways Flight 1549 found
themselves in the Hudson River in New York. The Airbus was struck by a ock of
Canada geese that fateful day, 15 January 2009, causing damage to both engines.
The pilot miraculously landed the plane in the river with no passenger fatalities.
It had been a long, hard road for US Airways the company had experienced
seven fatal accidents since 1989, severely affecting its image as a safe and
competent airline. The airlines maintenance and the cockpit crew of Flight 1549
were not at fault, however, and the company had emergency procedures in place
to handle the crisis. These procedures included:
It responded quickly to the crisis. Within 69 minutes of the plane being ditched
in the river, a toll-free number for concerned relatives was set up and visitors to
the company website could nd updated information on this ight.
A US Airways Care team was established to assist passengers and families.
Hero stories were fed to the media and soon everyone was talking about the
outstanding aviation professionals on board. The captain had apparently walked
the length of the sinking plane twice to ensure no passengers were stranded
before he exited. The pilot was the last to exit.
It might seem distasteful to brand the ditching of a plane in a river as a public
relations triumph, but, in actual fact, the publicity on the way the company
handled the crisis was so good that a favourable image of the company was
restored.
The pilot
miraculously landed
the plane in the river
with no passenger
fatalities.
Snapshot questions
1. Outline the steps taken by US Airways to ensure the potential crisis was
handled effectively.
2. Propose what you think was the key to handling this crisis well.
The communication process

Marketing managers must be able to communicate clearly, efciently and
succinctly to their target markets. If the communication process becomes
distorted or inefcient, the message becomes distorted. The resulting
miscommunication may mean lost sales. Without effective communication,
promotion is wasted.
Marketing managers can use a variety of channels to communicate a message.
A channel is any method used for carrying a message. Two of the most common
channels used for promotional communication include print and electronic
media advertising. Any interference or distraction that affects any or all stages
in the promotional communication process is referred to as noise. Examples
of noise include faulty printing, competing messages, inappropriate language
or images, jargon, misinterpretations or perhaps one of the most common
fr
u
d
o
eth
ym
n
isa
people having conversations and fetching refreshments during commercial
breaks.
Often customers may be more willing to purchase a product if the message is
communicated via a respected and trusted channel, such as an opinion leader,
or by word of mouth.
Opinion leaders
An opinion leader is a person who inuences others. Their opinions are
respected, and they are often sought out for advice.
BizWORD
A channel is any method used for
carrying a message.
Noise is any interference or
distraction that affects any or
all stages in the communication
process.
An opinion leader is a person who
inuences others.
233
Marketing managers use opinion leaders as information outlets for new

products or to endorse an existing one. Actors, athletes, musicians and models
are regarded by some groups as opinion leaders and many businesses use
celebrity endorsement as part of their marketing strategies (see gure 8.26).
FIGURE 8.26 SOLO, the original pub

squash soft drink, manufactured by
Schweppes, recently became a partner
of Football Federation Australia, as well
as sponsors of the Socceroos and the
Hyundai A-League. Schweppes recent
advertisement features Socceroo Harry
Kewell promoting can football to show
that Solo and football are intrinsically
linked.
Word of mouth
BizWORD
o
Word-of-mouth
communication
occurs when people inuence each
other during conversations.
Consumers tend to trust word-of-mouth communication more than businesssponsored commercials, especially if the message is being communicated by
a friend or opinion leader. This is because the receiver places more trust in
someone they know as opposed to a business advertising its products. When
people inuence each other during conversations it is called word-of-mouth
communication.
Businesses are increasingly using social media platforms such as Facebook
and Twitter to engage in a form of word-of-mouth communication. Friends
recommendations can be a powerful inuence, especially when there are many
competing products from which to choose.
Summary
Promotion describes the methods used by a business to inform, persuade and

remind a target market about its products.
Promotion mix is the various promotion methods advertising, personal
selling and relationship marketing, sales promotions, and publicity and public
relations a business uses in its promotional campaign.
Advertising is a paid, non-personal message communicated through a mass
medium. The purpose of advertising is to inform, persuade and remind.
Personal selling involves the activities of a sales representative directed to a
customer in an attempt to make a sale.
Relationship marketing is the development of long-term and cost-effective
relationships with individual customers.
Sales promotion is the use of activities or materials as direct inducements to
customers.
Publicity is any free news story about a businesss products.
Public relations (PR) are those activities aimed at creating and maintaining
favourable relations between a business and its customers.
Marketing managers can use a variety of channels to deliver a message
including print and electronic media advertising.
234
TOPIC 2 Marketing
Often customers may be more willing to purchase a product if the message

comes via a respected and trusted channel, such as an opinion leader, or by
word of mouth.
Revision
1
2
3
4
5
6
7
8
10
11
12
13
14
15
16
17
18
19
20
21
22
EXERCISE 8.4
Dene the term promotion.

Recall what promotion attempts to achieve.
Identify the four elements of the promotion mix.
Recall the main advantage of advertising.
Identify the ve main types of advertising media.
Select which advertising media you consider to be the most effective if a business
wants to communicate with (a) a mass market and (b) a niche market. Justify your
selection.
Account for why it is important to identify the target market when designing an
advertising program.
Use the Nerada Tea weblink in your eBookPLUS to view the latest Nerada Tea
commercial. Assess the advertisement in terms of communicating with its target
market.
Propose which form of advertising media you would choose for the following
products. Justify your choices.
(a) Nike sports shoes
(b) School textbooks
(c) A hairdressing salon
(d) Toys for children
(e) Dell computers
Recall why some marketers prefer to use personal selling as a promotional strategy.
Clarify why personal selling can be much more persuasive than advertising.
In small groups, use the brainstorm technique to:
(a) account for the recent popularity with consumers of loyalty reward programs.
(b) determine the benets to a business of this type of relationship marketing.
State the aims of sales promotion.
In your opinion, select the two most effective sales promotion techniques for sales
promotion. Justify your answer.
Distinguish between publicity and public relations.
Advertising is what you pay for and publicity is what you pray for. Explain what this
statement means.
Summarise the four main ways in which public relations can assist a business to
increase its sales.
Public relations should be viewed as a two-way communication process. Explain the
meaning of this statement.
In small groups, identify the different public relations activities your school uses to
communicate with parents. Choose a spokesperson to share the groups answers
with the rest of the class. The rst items on your list can be newsletters and formal
assemblies.
Explain why efcient communication is important to marketing managers.
Account for the use of opinion leaders in the promotion of a product. Provide three
examples from current promotional campaigns.
Propose what you think are the strengths and weaknesses of the following
promotion strategies. Share your answer with the rest of the class.
(a) A manufacturer of a new type of disposable razor gives out thousands of free
razors at a football grand nal.
(b) A lifestyle magazine runs its own lottery-style promotion for ve weeks in which
rst prize is $20 000 worth of furniture.
(c) To boost sales, a computer manufacturer relies on word-of-mouth communication.
Weblink
Nerada Tea
235
Extension
1 Recently, you were elected to serve as a promotional organiser for a soccer
tournament. The tournament will match several well-known celebrity teams from
New South Wales against the best local players. Tickets will sell for $30 per person
and your goal is to attract a large number of supporters. All proceeds will be given
to a local charity. As you create a promotional plan, determine what segmentation
variables will be most important. Propose the buying motives you will use to appeal
to your target market.
2 In small groups, create a media release to advertise the opening of a new music store
in your local area. Include the following details:
name, telephone number and address of the store
date of opening
hours of business
range of stock
any opening special
store logo.
3 Referring to a business you are familiar with, analyse and evaluate the promotion
methods used for one of its products.
BizWORD
rectivs Place or distribution are activities
a
that make the products available
to customers when and where they
want to purchase them.
8.7 Place/distribution
The fourth P of the marketing mix is place or distribution. Once a business
manufactures a product, it must see that the product gets into the customers
hands. For this to happen successfully, an efcient distribution system is
required. Distribution is necessary because most products are not used by the
same business that makes them. This textbook, for example, was transported
and warehoused a number of times between the authors, publisher, printer,
wholesalers and retailers before it reached you, the consumer.
FIGURE 8.27 The delivery of a product

to a customer is the nal stage in the
distribution process. Every business must
undertake some form of distribution.
BizWORD
r
o
C
Channels
of distribution or
marketing channels are the
routes taken to get the product
from the factory to the customer.
236
TOPIC 2 Marketing
Distribution channels
Channels of distribution or marketing channels are the routes taken to get
the product from the business to the customer. This process usually involves
a number of intermediaries, such as the wholesaler, broker, agent or retailers.
Apart from the retailer, the other intermediaries are often invisible, with the
customer knowing very little about their role and operation.
Traditional distribution channels

The four most commonly used channels of distribution are described below.
1. Producer to customer. This is the simplest channel and involves no
intermediaries. Virtually all services, from tax advice to car repairs, use this
method.
2. Producer to retailer to customer. A retailer is an intermediary who buys from
producers and resells to customers. This channel is often used for bulky or
perishable products such as furniture or fruit.
3. Producer to wholesaler to retailer to customer. This is the most common method
used for the distribution of consumer goods. A wholesaler is an intermediary
who buys in bulk, from the producer, then resells in smaller quantities to
retailers.
4. Producer to agent to wholesaler to retailer to customer. An agent distributes
products to wholesalers but never owns the product. Agents are paid a
commission by the producer. Usually agents are used for inexpensive, frequently
used products. A business that does not have any sales representatives will
often use an agent instead.
BizFACT
Different channels of distribution
are used to get the right product
in the right quantity to the right
location at the right time
Innovative distribution methods non-store retailing

Businesses are always looking for different ways to distribute their products.
The purchasing of products from a store or a supplier is the oldest and most BizWORD
g
ln
isreta
retailing is retailing
common form of distribution. Non-store retailing that is, retailing activity Non-store
conducted away from the traditional store is gaining in popularity. Methods activity conducted away from the
such as door-to-door selling, mail-order catalogues, party-plan merchandising traditional store.
and vending machines have been used for a number of years. However, with
rapid changes in electronic communication, businesses are beginning to exploit
types of electronic marketing (e-marketing) as alternative methods. Two of the
most rapidly developing methods are telemarketing and internet marketing.
1. Telemarketing. But wait, if you ring
this number in the next 15 minutes
well throw in a set of steak knives
absolutely free. Does this sound
familiar? This is just one example of
telemarketing, which is the use of a
telephone to make a sale. The logical
extension of telemarketing is the area
of interactive technology, which will
allow customers to purchase via their
television or personal computer.
2. Internet marketing. There is a current
rush by businesses to use the internet
as a promotional tool. US research
suggests that businesses are moving
away from the telephone and onto the
internet for product communication.
It is now relatively easy for any
business to obtain a domain name
and a website and begin marketing
8.28 The web is revolutionising the way consumers shop. Those shoppers
its products via the internet (see FIGURE
who are time poor prefer the convenience of shopping online. Other consumers
gure 8.28). This will be discussed in like being able to shop around for the cheapest price or have the opportunity to
select from a wide range of products at a time that suits them.
more detail in section 8.11.
237
As more people use the internet for shopping, the traditional distribution
channels will be modied. Some retailers and wholesalers may be bypassed as
customers deal directly with manufacturers. Electronic post and parcel delivery
channels will be used more extensively to meet the increasing demand.
Channel choice including intensive,

selective and exclusive
BizWORD
Market
h coverage refers to the
refsto
number of outlets a rm chooses
for its product.
How a business chooses the channel of distribution best suited to its product
depends largely on the location of the businesss market or market coverage.
Market coverage refers to the number of outlets a rm chooses for its product.
A business can decide to cover the market in one of three ways as follows, the
difference being the intensity of coverage.
1. Intensive distribution. This occurs when the business wishes to saturate the
market with its product. Customers can shop at local outlets and be able
to purchase the product. Many convenience goods, such as milk, lollies and
newspapers, are distributed this way.
2. Selective distribution. This involves using only a moderate proportion of
all possible outlets. Clothing, furniture and electrical appliances are often
distributed using this method. The customer is prepared to travel and seek
out a specic retail outlet that stocks a certain brand.
3. Exclusive distribution. This is the use of only one retail outlet for a product
in a large geographic area. This method of distribution is commonly used for
exclusive, expensive products.
Figure 8.29 illustrates the three levels of market coverage.
Intensive distribution
Selective distribution
Exclusive distribution
FIGURE 8.29 The boxes here represent the different customer groups that make up a
market. The coloured shapes within the boxes represent the type of distribution method used
to achieve market coverage. The square shape appears in many of the boxes because this
distribution of product reaches a range of different customers.
BizWORD
Physical distribution is all those
activities concerned with the
efcient movement of the products
from the producer to the customer.
238
TOPIC 2 Marketing
Physical distribution issues

Physical distribution is all those activities concerned with the efcient movement
of the products from the producer to the customer. Physical distribution is

therefore the movement of the products themselves through their channels of
distribution. It is a combination of several interrelated functions, including
transportation, warehousing and inventory control.
Transport
An intricate network of transportation is required to deliver the
vast array of products on supermarket shelves. Developments in
packaging and transportation now permit Australian native owers,
for example, to be picked then sold in Tokyo within 24 hours.
The method of transportation a business uses will largely depend
on the type of product and the degree of service the business wishes
to provide. The four most common methods of transportation are
rail, road, sea and air.
Warehousing
Warehousing is a set of activities involved in receiving, storing and
dispatching goods. A warehouse acts as a central organising point
for the efcient delivery of products.
Inventory
Customers nd it frustrating when a product they wish to purchase
is out of stock, and a business that repeatedly allows this to
happen will lose sales and market share. To avoid this, businesses
may implement an inventory control system. If a business carries
too much stock on its inventory, it will experience high storage
costs. However, too little stock results in lost sales or stock-out
costs. The goal of inventory is to nd the correct balance between
these two situations.
FIGURE 8.30 Transporting and warehousing are

important aspects of the physical distribution process.
Summary
Place or distribution are activities that make the products available to

customers when and where they want to purchase them.
Channels of distribution or marketing channels are the routes taken to get the
product from the factory to the customer.
The four most commonly used channels of distribution are:
producer to customer
producer to retailer to customer
producer to wholesaler to retailer to customer
producer to agent to wholesaler to retailer to customer.
Non-store retailing is retailing activity conducted away from the traditional
store, including telemarketing and internet marketing.
Market coverage refers to the number of outlets a rm chooses for its product.
A business can decide to cover the market in one of three ways:
intensive distribution: when the business wishes to saturate the market with
its product
selective distribution: using only a moderate proportion of all possible
outlets
exclusive distribution: only one retail outlet for a product in a large
geographic area.
Physical distribution is all those activities concerned with the efcient
movement of the products from the producer to the customer.
Warehousing is a set of activities involved in receiving, storing and dispatching
goods.
Inventory control is a system that maintains quantities and varieties of
products appropriate for the target market.
BizWORD
h
ytem
isa
Inventory
control is a system that
maintains quantities and varieties
of products appropriate for the
target market.
239
EXERCISE 8.5
Revision
1 Dene the term place.
2 Clarify the importance of distribution in the marketing process.
3 Propose a distribution channel for the sale of:
(a) a daily newspaper
(b) a washing machine
(c) an imported motor vehicle
(d) ofce furniture.
4 Traditional shopping transactions involve a number of organisations in the supply
chain: producer to warehouse to wholesaler to retailer to consumer.
Create a owchart to show how an e-commerce transaction could take place.
5 In small groups, use the brainstorm technique to identify the advantages and
disadvantages to a business of selling via the internet. Select a spokesperson to share
the groups comments with the rest of the class.
6 From the following products, determine those that are intensively, selectively or
exclusively distributed.
(a) Coca-Cola
(b) Ferrari motor vehicles
(c) Billabong clothing
(d) Streets ice-cream
(e) Samsung televisions
(f) rare coins
7 Account for why a business would select an exclusive rather than an intensive
distribution strategy.
8 Determine which method of transportation would be most appropriate for the
following products: road, rail, air or boat. Justify your answer.
(a) Coal to Japan
(b) Wheat to the silo
(c) Sheep to the market
(d) Fresh fruit to Tokyo
(e) Iron ore from the mine to the port
(f) Pepsi to the supermarket
9 Identify the activities involved in warehousing.
Weblink
Yahoo! Australia and New
Zealand Shopping Mall,
Amazon and ninemsn
Shopping
Extension
1 To investigate the operation of an online retailer (e-tailer) use the Yahoo! Australia
and New Zealand Shopping Mall, Amazon and ninemsn Shopping weblinks in
your eBookPLUS. Evaluate the three sites visited, reporting on:
(a) ease of navigation
(b) layout of the home page
(c) methods of payment
(d) ease of product selection
(e) return and refund policy
(f) delivery charges and options.
2 (a) Holding either too little or too much stock is to be avoided. Discuss.
(b) Propose a system a business can adopt to prevent either situation.
8.8 People, processes and

physical evidence
So far we have discussed the four Ps of the marketing mix, which is considered
the basic cornerstone of marketing. This traditional approach was developed in
the age of marketing dominated by the rapid growth in manufacturing during
240
TOPIC 2 Marketing
the 1950s to 1960s. Consequently, these four Ps are considered appropriate for
tangible products (goods) such as clothing, electronic appliances, perfumes and
motor vehicles. However, as the service sector within the economy expanded,
this traditional approach to marketing was viewed as somewhat outdated.
Therefore, three more Ps have been added people, processes and physical
evidence (see gure 8.31) which apply especially to intangible products
(services) such as tourism, entertainment and hospitality.
BizFACT
It is important to acknowledge
that even goods have a service
component surrounding them such
as after-sales service.
THE 3Ps APPLICABLE

FOR SERVICES
People
Processes
Physical
evidence
FIGURE 8.31 The three extra Ps of the extended marketing mix. Although the three Ps role
in the success of the marketing process may not be as obvious as the original four Ps, they
play an unassuming yet important role in ensuring the success of the product.
People
As services are performed by people, it is essential that the business use
appropriately recruited, qualied and trained employees. The people element
refers to the quality of interaction between the customer and those within the
business who will deliver the service.
BizWORD
The people
h
trfso
n
elm
element refers to the
quality of interaction between
the customer and those within
the business who will deliver the
service.
FIGURE 8.32 People are the most

important element in any service or
experience. The interaction between
the employees, especially frontline or
customer service staff and customers,
can determine the success of any
marketing campaign.
241
Consumers base their perceptions and make judgements about a business

based on how the employees treat them (see the following Snapshot). For
example, in a hotel or restaurant, the employees are actively involved in
delivering the marketing message because they are the human face of the
business. How the staff speak to customers, deal with enquires and handle
complaints are all part of the marketing experience and of critical importance.
Consequently, all businesses should develop a culture of customer focus and
put it into practice. Of course, the customers experience must match reality. A
large telecommunications business, for example, which claims to be customer
focused, will not succeed if the reality is that it takes 30 minutes to speak to a
consultant at a call centre and the consultant then displays no interest.
Moment of truth
SNAPSHOT
Recent research
on consumer
buying behaviour
suggests that the
moment of truth
is approximately
15seconds.
Everything you do in your business should be directed towards putting the

customer at the centre of your thinking. To do this successfully requires that,
at every level, the employees should work towards customer satisfaction by
establishing positive relationships with customers.
For example, Scandinavian Airway Service (SAS) adopted a total marketing
philosophy. Jan Carlzon, the CEO of the business, encouraged all staff to
make decisions that would improve the service offered to customers. He said
that every time a customer comes into contact with the airline or one of its
representatives, it is a moment of truth that is, an opportunity for a customer
to make judgements about the airline. Jan wanted all moments of truth (the
term popularised by him) to be positive, so he empowered all staff with the
responsibility to ensure they were. SAS implemented customer-oriented business
and marketing practices. In doing so, the business went from near bankruptcy to
protability within two years.
Recent research on consumer buying behaviour suggests that the moment of
truth is approximately 15 seconds. Within this brief time, most of your customers
will make a judgement about your business. This judgement will generally be either
positive or negative, and will inuence whether or not the customer purchases
the product from your business. In this case, rst impressions often count. If the
customer perceives your business to be interested in meeting their specic needs,
then a positive impression is generated. This often translates into greater customer
loyalty, a strengthened customer base and repeat sales.
Snapshot questions
1. Recall what the statement moment of truth means.
2. Outline its importance to the marketing plan.
3. Propose reasons for a business wanting to adopt a customer-oriented
approach to marketing.
4. Marketing is not the sole responsibility of the marketing manager, but all
employees. Discuss.
Processes
BizWORD
Processes refers to the ow of
activities that a business will follow
in its delivery of a service.
242
TOPIC 2 Marketing
When you order a meal from a McDonalds restaurant it will be delivered within
a few minutes. Behind this efcient delivery system is a set of well-planned and
well-organised processes. When employees provide a service, such as McDonalds
employees, they rely on a delivery system a set of processes to perform
their task. Processes refers to the ow of activities that a business will follow in
its delivery of a service.
Without a tangible product, the processes must be highly efcient to achieve

customer satisfaction. Consider all the processes involved in booking a ight
online. The airlines website is used to enter the details. A conrmation email
will be automatically generated providing a booking reference. An electronic
boarding pass can be downloaded and printed. A day prior to the ight, a seating
allocation can be done online. The delivery system that allows this to happen is
part of the process element of marketing.
Any business that has inefcient processes will lose customers and damage its
reputation. A pizza delivery business, for example, must not deliver cold pizza;
a restaurant should not keep customers waiting for hours between courses;
gas and electricity accounts should be set on time; a bank statement must be
accurate.
BizFACT
Sometimes the process element is
referred to as easy to do business
with.
Physical evidence
Imagine you go to a restaurant. You are very satised with the product, price,
people and process, but the cutlery was dirty, the chairs were uncomfortable and
the menu was difcult to read. You would probably not eat there again because
of this physical evidence. Physical evidence refers to the environment in which
the service will be delivered. It also includes materials needed to carry out the
service such as signage, brochures, calling cards, letterheads, business logo and
website.
Unlike tangible goods, it is difcult for a businesss marketing services
to provide customers with a try before you buy sample unless a free trial is
offered. Customers initially buy services on trust. Consequently, a business
should provide high-quality physical evidence to create an image of value and
excellence (see gure 8.33).
BizWORD
Physical
h
refsto
evidence refers to the
environment in which the service
will be delivered. It also includes
materials needed to carry out the
service such as signage, brochures,
calling cards, letterheads, business
logo and website.
FIGURE 8.33 A luxury hotel uses

material cues physical evidence so
that the customer will form a good
impression of the business.
Summary
Three more Ps have been added that apply especially to intangible products
(services): people, process and physical evidence.
The people element refers to the quality of interaction between the customer
and those within the business who will deliver the service.
Consumers base their perceptions and make judgements about a business
based on how the employees treat them.
243
Processes refers to the ow of activities that a business will follow in its

delivery of a service.
Without a tangible product, the processes must be highly efcient to achieve
customer satisfaction.
Physical evidence refers to the environment in which the service will be
delivered. It also includes materials needed to carry out the service such as
signage, brochures, calling cards, letterheads, business logo and website.
A business should provide high-quality physical evidence to create an image
of value and excellence.
EXERCISE 8.6
Revision
1 Identify the three extra Ps of the extended marketing mix.
2 Outline why it is important to extend the marketing mix in the current business
environment.
3 Deduce whether the extension of the marketing mix means that some of the
traditional Ps are less relevant today.
4 Explain why all businesses should develop a culture of customer focus and put it into
practice.
5 Select which of the traditional Ps of the marketing mix you consider most likely
associated with customer service. Justify your answer.
6 Think of a business where the people element was outstanding. Clarify what made
the interaction so positive.
7 Dene the term processes.
8 Investigate the main processes involved with the following businesses:
(a) M and S Davidson Accountant
(b) Billabong caf
(c) Theatre Royal
(d) Excelsior Hotel.
9 Identify six elements an airline could use as physical evidence to create a positive
image.
10 Explain why it is important for a business to display favourable physical evidence.
Extension
1 In small groups, use the brainstorm technique to determine the (a) people and
(b) processes involved in a business that offers inclusive tours of Europe.
2 Recommend a set of ve processes a business would need to adopt to resolve issues
when customers complain about a faulty product.
3 Most goods have a service component surrounding them. Consequently, businesses
selling goods such as motor vehicles or electrical appliances must take into
consideration the extended marketing mix. Evaluate the accuracy of this statement.
Provide examples in your answer.
8.9 E-marketing
BizWORD
tro
icel
n
((electronic
E-marketing
marketing) is the practice of using
the internet to perform marketing
activities.
244
TOPIC 2 Marketing
Technology has driven the push to market products to customers worldwide.

Businesses now have access to global markets through setting up websites that
can promote products and then dispatch them to the other side of the globe
within 24 hours of ordering. With rapid changes in electronic communication
and the development of the information superhighway, marketers are beginning
to exploit all types of e-marketing. E-marketing (electronic marketing) is the
practice of using the internet to perform marketing activities.
FIGURE 8.34 Do you ever shop online?

A recent national survey found that
while about 21 per cent of consumers
regularly shop using the internet, this
rises to over 33 per cent at Christmas
time.
Recent surveys have shown that Australian businesses, especially retailers,

have been slow to adopt e-marketing, with many offering product information,
but no opportunity for customers to actually purchase online (see the following
Snapshot). The big risk for Australian businesses is that consumers seeking
the convenience of online shopping will purchase from overseas retailers and
completely bypass local businesses. Australia is now the worlds third biggest
per capita online consuming nation, and customers are increasingly expecting
businesses to have an online component. Technology not only provides a faster,
more efcient way of doing business, it can also be a very effective way of
attracting new customers.
Time to get online

A recent opinion poll shows that, while half of Australian businesses actively
utilise e-marketing, the other half simply dont understand it although
many expect they will have to start using it soon. Of the businesses that do use
e-marketing, half read blogs and contribute to online forums and about 15 per
cent are writing blogs.
Some businesses are also using the web to build relationships. They say it has
changed the way they deal with their customers and suppliers. For example, some
restaurant owners are using social networking sites such as Twitter to contact their
customers. Others post their daily specials online hoping to tempt diners.
Until recently, many businesses advertised their products only in printed
catalogues, but these are no longer enough for most consumers. Customers might
browse through a catalogue or yer, but then they like to compare prices and
services online another reason to make sure of an online presence.
BizFACT
Internet marketing, web marketing
and online marketing are
frequently interchanged and can
often be considered synonymous.
SNAPSHOT
Snapshot questions
1. Identify the main types of e-marketing technologies presently used by
businesses.
2. State how the web can be used to build relationships with customers.
Some businesses are

also using the web to
build relationships.
245
E-marketing technologies
BizWORD
lyo
ip
d
sa
fA web page is a display of
information accessible on the web
through a web browser.
A website is a collection of related
web pages, usually associated
with a particular business or
organisation.
The main technologies presently available for e-marketing include web pages,
podcasts, SMS, blogs and Web2.0.
Web pages
A web page makes use of the world wide web to convey information in the
form of a combination of text, graphics, animation and video. A number of
related web pages linked together form a website. When searching for the
website of a particular business, the user will normally be directed rst to that
businesss home page. This contains basic information about the business and a
number of links to other web pages within the website that can provide detailed
information about the location of the business premises (including maps and
photographs), available products and online ordering facilities. A well-designed
home page is a powerful marketing tool.
FIGURE 8.35 Over the last decade

there has been an explosion in
e-marketing, largely brought about
by the development of the world
wide web. It has opened the door
to businesses to market direct to
consumers across national borders.
Podcasts
BizWORD
Podcasting
in
lesth
vo
involves the
distribution of digital audio or
video les over the internet.
Short message service (SMS) is
the means by which text messages
can be sent between mobile
phones.
Podcasting involves the distribution of digital audio or video les over the
internet. As a general rule, a podcast is directed to a number of users who
subscribe to that particular podcasting service, and who receive regular updates.
Businesss main use of podcasts is for marketing and advertising purposes.
Many independent podcasters sell advertising time in the same way as
commercial radio stations. If a particular podcast is aimed at the same audience
as the target customers of a business, podcast advertising can be a very effective
way of reaching those customers. For example, a sporting goods store may
choose to advertise through a podcaster aiming at triathletes; a specialist food
store owner could look at advertising on a podcast aimed at vegetarians and
vegans.
SMS
Short message service (SMS) is the means by which text messages can be sent
between mobile phones. SMS has distinct advantages over email in that messages
are delivered automatically to one or more recipients without the need for them
to dial in or log on. Text messages can also be used to alert regular customers of
any special deals on offer and notify suppliers of the arrival of a goods shipment.
246
TOPIC 2 Marketing
Blogs
The word blog is an abbreviation of weblog, and refers to an online diary
or journal. It is usually possible to add comments, ask questions, provide
feedback or share opinions on a blog. A business can use blogs in a number
of ways.
Many businesses set up external blogs, which allow for communication
between the business and its existing and potential customers. A blog of this
type can be used to announce new products or changes in trading hours, and
to gather feedback and comments from a variety of stakeholders. As a public
relations exercise, an external blog can have the following advantages for a
business:
1. It allows the business owner and employees to establish a reputation for
expertise, by providing detailed information on products and services.
2. New ideas for products and services can be put to the public to gain comment
and feedback.
3. A blog by its nature is informal, so it can present a human face to the public
and build trust with customers.
BizWORD
e
n
isa
lg
rb
o
or blog is an online
A weblog
journal that can be added to by
readers.
Web2.0
The term Web2.0 refers to the transformation of the world wide web into a
more creative and interactive platform for information sharing, rather than
just a means of retrieving information. The development of social networking
sites such as Twitter and Facebook, video sharing sites such as YouTube
and information sharing sites such as Wikipedia have made it easier for
individuals and businesses to create and share many different types of content
on the web.
FIGURE 8.36 Web2.0 views the

internet as a medium that allows
interactive experiences, such
as blogs and wikis, and plays a
more important role than just
accessing information. Marketers
are starting to realise the potential
this interactivity can deliver.
Just as businesses can make use of blogs to enhance their relationship with
stakeholders, networking sites can provide a powerful public relations tool.
The key benet is the low cost. Rather than hire a web-page designer, the
technology allows an amateur to upload home video footage, photographs and
other graphics on to a networking site, where it can be viewed by existing and
potential customers. Networking sites also accept paid advertising that links
to the sites search engine, and so can be used for social media advertising.
247
Social media advertising (SMA)

BizWORD
tisn
r)M
(S
g
eA
vd
lm
c
o
a
S
Social media advertising (SMA)
is a form of online advertising
using social media platforms such
as Facebook, YouTube and Twitter
to deliver targeted commercial
messages to potential customers.
The reach of an advertisement
measures the number of people
exposed to the message.
The frequency of an advertisement
measures the average number of
times someone is exposed to the
message.
Over the past few years, businesses have been increasingly using social media
to advertise their products. Dell Computers, for example, was one of the
rst businesses to have a dedicated Twitter account. It also operates a social
networking site for users to share their experiences.
Businesses are becoming increasingly aware that social media advertising
(SMA) can have positive results, especially when used in combination with
traditional advertising methods. The main advantages of SMA are that it is:
inexpensive in comparison to traditional advertising methods
easy to use and monitor
an effective method to gain exposure.
However, SMA does have two main disadvantages:
A marketer does not have control over what online consumers write about
the businesss product. Bloggers have the freedom to discuss, review, criticise
and even ridicule a product or a specic business.
Unlike more traditional online advertising, it is difcult for a marketer to
accurately measure the reach (the number of people exposed to the message)
and frequency (the average number of times someone is exposed) of SMA.
FIGURE 8.37 SMA allows a business to

communicate instantly with customers.
The reason for this not-so-quiet revolution in marketing and advertising is

that marketers realise they must go to where the customers are to be found.
Facebook, for example, reaches over 500 million people.
In 2010, Twitter unveiled a new platform making Twitter.com more
advertisement friendly. The new platform started carrying sponsored tweets from
advertisers at the top of some of its pages, creating a richer media experience.
In the rst 24 hours after Coca-Cola sent out a sponsored tweet promoting a
248
TOPIC 2 Marketing
product, the tweet was seen 86 million times. This produced a frequency rate of
approximately 6 per cent compared with the average of 0.02 per cent of users
with a standard online advertisement.
In the early days, online advertising was very much like an outdoor
billboard. Now, due to the rapid advances in technology, SMA is more engaging
and inclusive. Businesses are getting customers they have reached via a social
network platform to, in turn, reach out to other potential customers. Online
customers are not simply being targeted for advertising; in many cases they
are contributors in the creation and distribution of advertising. In this way,
the SMA enables businesses to constantly build relationships with their
customers.
Of course, as with traditional advertising, SMA raises concerns including
issues of privacy, accuracy, honesty and consumer trust. A number of legal issues
are presently evolving, such as establishing age limits for users Facebook and
YouTube specically prohibit use by children under the age of 13 and the
proliferation of fake and unofcial fan pages.
It is expected that SMA will expand rapidly over the next few years as new,
highly interactive mobile platforms and networks increasingly gain consumer
acceptance.
BizFACT
The social media platform
generating most of the growth in
SMA is Facebook, with businesses
currently spending an estimated
$1.3 billion worldwide to reach its
over 500 million users.
Summary
With rapid changes in electronic communication and the development of the
information superhighway, marketers are beginning to exploit all types of
e-marketing.
E-marketing is the practice of using the internet to perform marketing
activities.
Technology not only provides a faster, more efcient way of doing business, it
can also be a very effective way of attracting new customers.
The main technologies presently available for e-marketing include web pages,
podcasts, SMS, blogs and Web2.0.
A web page is a display of information accessible on the web through a web
browser and is a powerful marketing tool.
Podcasting involves the distribution of digital audio or video les over the
internet.
Businesss main use of podcasts is for marketing and advertising purposes.
Text messages can also be used to alert regular customers of any special deals
on offer and notify suppliers of the arrival of a goods shipment.
Many businesses set up external blogs, which allow for communication
between the business and its existing and potential customers.
The development of social networking sites has made it easier for individuals
and businesses to create and share many different types of content on the web.
Social media advertising (SMA) is a form of online advertising, using social
media platforms such as Facebook, YouTube, and Twitter to deliver targeted
commercial messages to potential customers.
SMA enables businesses to constantly build relationships with their customers.
Revision
EXERCISE 8.7
1 Dene the term e-marketing.

2 As a class, use the brainstorm technique to propose reasons why (a) large Australian
retailers have been slow to adopt e-marketing (b) online shopping is very popular with
Australian customers.
249
3 Recall the most appropriate word from the list below to complete the following
sentences.
SMS
blog
Web2.0
world wide web
websites
home pages
podcast
The
is the total of all publicly accessible
and
. The
, while an
use of the internet to distribute audio or digital les is known as a
. The
online journal that can be accessed and added to by readers is called a
transformation of the internet into a more interactive form has led to the use of the
. A business can easily communicate with customers about delivery of
term
.
orders by the use of
4 Explain how each of the following could be used in e-marketing.
(a) Web pages
(b) Podcasts
(c) SMS
(d) Blogs
(e) Web2.0
5 Select one of the ve technologies listed in question 4, and examine it in more detail
using the internet. Prepare a short report (200300 words) for presentation to the
class. Your report should include:
origins of the technology
changes that have occurred in the availability and use of the technology
examples of e-marketing use by at least two businesses.
6 Dene the term social media advertising (SMA).
7 (a) State the main (i) advantages and (ii) disadvantages of SMA.
(b) Justify which you consider to be the more important: the advantages or
disadvantages.
8 Outline how SMA enables businesses to constantly build relationships with their
customers.
Weblink
Coca-Cola Facebook,
Twitter and Australian
Communication and
Media Authority
9 In small groups, use the brainstorm technique to predict the future of SMA.
10 Use the Coca-Cola Facebook and Twitter weblinks in your eBookPLUS to
investigate the potential of SMA to achieve the marketing objective of increasing
market share.
11 Use the Australian Communication and Media Authority weblink in your
eBookPLUS to answer the following questions about the e-marketing code of
practice.
(a) Clarify what the code of practice aims to do.
(b) Identify who the code applies to.
Extension
Weblink
E-commerce research
1 It is clear that e-marketing is growing rapidly, and more and more businesses are
embracing it. A successful online presence goes beyond simply setting up a website.
Imagine you are a business consultant and a number of your clients want assistance
with how to operate a successful online business. Create a booklet that could be
used by a number of different types of businesses, and which includes advice on the
following:
setting up, maintaining and improving a website
promoting the website
improving online market share
establishing online payment options.
Use the E-commerce research weblinks in your eBookPLUS to help you prepare your
booklet.
2 Demonstrate why it is important to preserve condentiality of customer information
gathered through e-marketing strategies.
3 Technology has opened up a whole new channel for marketers to market products to
consumers that they dont really need. Evaluate the accuracy of this statement.
250
TOPIC 2 Marketing
8.10 Global marketing

A businesss marketing plan must be modied and adapted to suit overseas
markets. Within each foreign market, the business will be faced with a
marketing environment and target markets that differ from the domestic
lcp scene.
stio
n
ra
The extended marketing mix needs to be adapted accordingly.
Many transnational corporations (TNCs) adopt a global marketing approach
that involves developing marketing strategies as if the entire globe were one
large market a standardised approach (see gure 8.38). Alternatively, some
businesses believe the marketing mix should be customised to take into account
differences among countries cultures, religion and tastes. Despite the process of
globalisation, most businesses still view overseas markets as different in some
way to domestic markets. This results in a degree of uncertainty and increased
risk in developing global marketing strategies.
BizWORD
A ttransnational corporation
(TNC) is any business that has
production facilities in two or more
countries and that operates on a
worldwide scale.
BizFACT
General Electric once had a
shipment of electrical goods
refused entrance to Saudi Arabia
because the electrical cords were
six feet long instead of the required
6.6 feet (2 metres).
FIGURE 8.38 Coca-Cola has a

marketing plan that operates across
many nations, cultures, distribution
channels and targets diverse markets.
Coca-Cola is sold in every one of Africas
countries. However, the one constant is
the uniform signage and colour.
Irrespective of which approach is adopted, all businesses marketing on a global

scale need to rely on market research to understand the complexities of the
global marketing environment before they can design the marketing mix. It is
essential to analyse overseas markets to an even greater depth than is necessary
for domestic markets. Many businesses have failed because they entered global
markets without rst gathering adequate market intelligence.
What should a business know before it decides to engage in global marketing?
First, it needs information to make specic marketing decisions, such as the
price to charge, the type of packaging necessary, the distribution channel to
use and any product characteristics needing modication. Second, information
about the countrys economic, political, social and cultural features should be
gathered.
Global branding
We are surrounded by global products all carrying global brand names. Global
branding is the worldwide use of a name, term, symbol or logo to identify the
sellers products.
BizWORD
Global branding
rld
o
ew
isth
is the worldwide
use of a name, term, symbol
or logo to identify the sellers
products.
251
FIGURE 8.39 In 1990, McDonalds opened its rst store in Russia.

The appearance of the golden arches in Moscows Pushkin Square
is an example of global branding.
Businesses are increasingly using global branding for a

number of reasons:
It can be cost effective because one advertisement can
be used in a number of locations.
It provides a uniform worldwide image.
The successful brand name can be linked to new
products being introduced into the market.
A successful brand is one of the most valuable resources
a company has. For example, the value of Nokia, Sony,
McDonalds, Coca-Cola, Mercedes Benz, Kellogs and
Nike is indisputable. Global branding equates to global
recognition, irrespective of the language barrier (see
gure 8.39).
Once a business has established its name, it will
usually attempt to market the brand globally. Even
if the business has to modify the product to suit local
conditions, such as when Fuji Xerox changes the
language keys on the control panel of their photocopiers
or when Ford modies the steering wheel from left- to
right-hand drive, the companies will not alter the brand
name on their products.
Standardisation
BizWORD
isaA sstandardised approach is a
global marketing strategy that
assumes the way the product is
used and the needs it satises are
the same the world over.
A customised or local approach
is a global marketing strategy that
assumes the way the product is
used and the needs it satises are
different between countries.
As global marketing increases, businesses are faced with a difculty: should they
use a standardised or customised marketing strategy, or a combination?
A standardised approach is a global marketing strategy that assumes the
way the product is used and the needs it satises are the same the world over.
Therefore, the marketing mix will be the same in all markets a globalisation
of the marketing mix. It is a case of one marketing plan ts all. Examples of
standardised products are electrical equipment, mobile phones, soft drinks,
music, cosmetics, movies and fast foods.
This strategy has obvious cost savings for businesses. Production runs can
be longer, thereby achieving economies of scale; research and development
costs are reduced; spare parts and after-sales service are simplied; promotion
strategies can be standardised; and any evaluation and modication of the plan
is a much simpler task.
Customisation
BizFACT
PepsiCo makes local soft drinks
like Shani, a blackberry- and
current-avoured soda, which is
popular in the Middle East during
Ramadan, the Moslem holy month.
252
TOPIC 2 Marketing
In spite of the advantages of a standardised approach, when entering an overseas

market, many businesses nd it necessary to either modify the existing marketing
mix or develop a new one. In doing so, they are adopting a customised approach.
A customised approach (also called a local approach) is a global marketing
strategy that assumes the way the product is used and the needs it satises are
different between countries.
Adopting this philosophy requires the marketing plan to be customised
according to the economic, political and sociocultural characteristics of the
target country (see the BizFact at left).
Of course, it is possible for a business to adopt a middle path that is, a
combination of the two approaches. One company to successfully achieve this
is McDonalds. Although it has standardised its name, logo, production methods
and much of its menu, there are local variations. For example, McDonalds serves
beer in France and Germany, sake in Japan and noodles in the Philippines.
Over the last decade, as the scale of globalisation has intensied, it has become
apparent that the standardisation approach is being used more frequently than
the customised approach.
Global pricing
BizWORD
One of the major challenges facing transnational corporations is global pricing:

how to coordinate their pricing policy across different countries. It is one of
the most critical but complex issues that global businesses have to deal with
because price is the only element of the marketing mix that generates revenue.
All other elements involve costs. Therefore, a businesss global pricing strategy is
a major determinant of prots. Accurate pricing decisions must be made if the
businesss overseas expansion is to be successful.
A global business can implement one of three global pricing strategies.
epricing is how businesses

n
u
b
w
o
Global ish
coordinate their pricing policy
across different countries.
Customised pricing occurs
whenever consumers in different
countries are charged different
prices for the same product.
A tariff is a tax on an imported
product.
Customised pricing
Customised pricing occurs whenever consumers in different countries are
charged different prices for the same product. In determining the price for
an overseas market, many global businesses practise the cost-plus method to
cover the added costs of exportation. Such costs include transportation, taxes,
warehousing and tariffs. A cost-plus method to pricing products for global
markets is usually the most commonly used method because of the added
expense associated with exporting.
FIGURE 8.40 When setting a price in

an overseas market, a global marketer
must take into account the same factors
as for a domestic market.
BizWORD
Market-customised pricing
This strategy allows for even more exibility than the customised pricing strategy.
Market-customised pricing sets prices according to local market conditions. To
avoid competition from a domestic business, the global business may need to
g Market-customised
rn
p
ied
m
sto
cu
set pricing sets
prices according to local market
conditions.
253
BizFACT
The exchange rate tells us how
much a unit of one currency is
worth in terms of another. For
example, if A$1 = US$0.70 that
means one Australian dollar is
worth 70 US cents. Conversely, one
US dollar would be worth A$1.43.
BizWORD
Standardised
e pricing is the
isth
practice of charging customers the
same price for a product anywhere
in the world.
Competitive positioning relates
to how a business will differentiate
its products.
adopt a market-customised pricing strategy that allows marketers to vary the

price depending on the level of demand and competition within the overseas
market. In a competitive market, for example, the price charged may have to be
lower than in a market where the business has a monopoly.
Additionally, the price charged in other countries is also inuenced by foreign
currency exchange rates (see the BizFact at left). Fluctuations in the exchange
rate can change the prices charged across countries and is a major risk for global
businesses.
Standard worldwide price

Standardised pricing is the practice of charging customers the same price for
a product anywhere in the world. It will only succeed if the foreign marketing
costs remain low enough not to affect overall costs. There are two major risks
associated with this strategy:
1. A domestic business may undercut the standardised price.
2. Changes in the exchange rate may negatively impact on the exported price.
Competitive positioning
Competitive positioning relates to how a business will differentiate its products.
It centres on how a business will carve out a place in the competitive marketing
environment. As in a domestic market, a global business must clearly show how
its products are better than the competitors products. Without differentiation, it
takes more time, money and effort to encourage potential customers to purchase
a businesss products. To differentiate successfully, and avoid competing on
price only a difcult situation to sustain over the long term the business
should strive to develop product leadership, positive customer relationships and
operational excellence.
Ultimately, to develop and maintain a competitive position in an increasingly
challenging environment, businesses must gain a deep understanding of
their dynamic environments in which they operate, and form their strategies
according to evolving conditions. This is exactly what the Volkswagen Group
has done over the past few years, gaining a world market share of about 12 per
cent.
Summary
A businesss marketing plan must be modied and adapted to suit overseas
markets.
All businesses marketing on a global scale need to rely on market research to
understand the complexities of the global marketing environment before they
can design the marketing mix.
Global branding is the worldwide use of a name, term, symbol or logo to
identify the sellers products.
A standardised approach is a global marketing strategy that assumes the way
the product is used and the needs it satises are the same the world over.
A customised approach is a global marketing strategy that assumes the way
the product is used and the needs it satises are different between countries.
It is possible for a business to adopt a middle path that is, a combination of
the two approaches.
Global pricing is how businesses coordinate their pricing policy across
different countries.
254
TOPIC 2 Marketing
Customised pricing occurs whenever consumers in different countries are

charged different prices for the same product.
Market-customised pricing sets prices according to local market conditions.
This strategy allows for even more exibility than the customised pricing
strategy.
Standardised pricing is the practice of charging customers the same price for
a product anywhere in the world. It will only succeed if the foreign marketing
costs remain low enough not to affect overall costs.
Competitive positioning relates to how a business will differentiate its
products. It centres on how a business will carve out a place in the competitive
marketing environment.
Revision
EXERCISE 8.8
1 Identify the two approaches a business can take towards its global activities.
2 Recall what a business should know before it decides to engage in global marketing.
3 Dene the term global branding.
4 State the three main reasons why businesses use a global branding strategy.
5 Distinguish between a standardised and customised global marketing strategy.
Provide examples in your answer.
Digital doc:
6 Account for why McDonalds would use a combination of a standardised and a

customised marketing strategy.
7 A business recently exported margarine packaged in a green container to a nation in
the Far East. The product failed because it was associated with jungle fever. Deduce
how this mistake could have been avoided.

document in your
8 Summarise the three global pricing methods.

9 Explain which global pricing method you consider to be the most exible.
10 Clarify how competition in the overseas market affects global pricing.
11 Consumers are not standardised globally; therefore, with global brands, you either
get lowest common denominator advertising or you get advertising thats right
somewhere, but wrong elsewhere. Discuss this statement.
Digital doc:
Extension
1 Standardisation of production is of greater benet to the producer than the
consumer. It allows transnational conglomerates to treat the world as one single
market, irrespective of social and cultural differences. Evaluate the accuracy of this
statement. Provide examples to support your answer.
2 Proctor & Gamble (P&G) is a large United States company that provides consumer
products of more than 80 brands worldwide. Its main products include cleaning
products, detergents, pet supplies, pharmaceutical and personal care products.
Use the Proctor & Gamble weblink in your eBookPLUS to examine its corporate
structure. Determine the benets to Proctor & Gamble of adopting global business
units (GBUs) and market development organisations (MDOs).
3 A manufacturer of shoes has decided to export to China. The marketing manager
assumes that with such a large population a lot of shoes can be sold. Assess whether
China might be a good or bad market opportunity.

eBookPLUS.
Weblink
Proctor & Gamble
255
CASE STUDY
Billabong case study

MARKETING
Billabong is now a global brand appealing to the young, trendy, outdoor cool market
involved in outdoor activities. Interbrand rated Billabong eighth in 2009 in the highest
ranked Australian brands, with a brand value of A$2.2 billion. Billabong pursues a
multi-brand strategy, with its marketing strategies focused on its core target market
for whom it provides consistently high-quality, functional, contemporary, innovative
and durable products supported by a range of other popular brands it owns. This
minimises the opportunities for brand fatigue, which could be associated with a mass
marketing strategy.
All of Billabongs marketing strategies constantly reinforce and enhance the value
of its brands. The major marketing strategies include athlete sponsorship, and event
staging and publicity generated through support of industry bodies.
Billabongs target markets include:
Primary
Teenagers and young adults engaged in active outdoor or extreme boardsports,
particularly surng, skateboarding, snow activities and other water-based
activities. This market is brand focused.
Secondary
Teenagers and young adults who want to look cool, wearing trendy outdoor
leisurewear that has credibility with teens.
Tweens, and children, are the next generation of consumers.
Competitors
Globally, Billabongs major competitors in the outdoor leisure and extreme sports
apparel and hardware market are Ripcurl and Quiksilver. Ripcurl has more of an
Australian focus and remains a private company, so licensing has been a key strategy
in its expansion. Quiksilver has now moved out of Australia and is now US owned
and based. Others include specialist extreme sports manufacturers like Globe
International, Nike, Burton Snowboards, Gotcha International, Hurley International,
Rusty International and department stores such as Myer, Target and KMart who retail
outdoor apparel for the market segments seeking lower prices. In the Australian
clothing market, the major competitors are Yakka, Country Road, Millers and Bonds.
256
TOPIC 2 Marketing
A major inuence on Billabongs future success is its ability to manage in an

increasingly competitive market, with many competitors, both in niche markets, and
through mass market competitors, supplying retailers such as Myer, KMart and Target.
Marketing strategies
Product
Billabong has around 2200 product lines in Australia, and more than 1000 in Europe
and America. Boardshorts are a core product and are considered to be the killer
product in the beachwear market. Billabongs product lines include swimwear,
watches, jewellery, wetsuits, neoprene gloves and boots, surf caps, bags and
backpacks, snow gear, travel bags, beach bags, shoulder bags, wallets, belts, caps,
thongs, towels, CD holders, beach mats, surfboard covers, body board covers, Von
Zipper sunglasses, Element skateboards, and many other accessories. The most
popular lines are T-shirts, boardshorts, backpacks, and swimwear. Its more recent
collections include shorts, rash guards, shirts, vests, hats, pants, skirts and dresses.
Technology plays a key role in the design and manufacture of new products.
Billabong is proud of its use of the latest bres and polymers, such as the Maya
Gabeira Signature Swimsuit designed with Xtra Life LYCRA bre Billabong works
closely with its surfers, snowboarders, skaters and its suppliers to develop fabrics that
can cope with the pounding of surf, wind, snow and long hours in the sun or cold to
meet the needs of its customers.
Reecting consumer interest in sustainability, Billabong is also making inroads
in developing a line of clothing out of recycled materials, such as polyethylene
terephthalate (PET) bottles.
Price
Billabong products are designed to be affordable yet represent and cover the costs
of manufacturing a high-quality product that must be durable in tough physical
conditions. A range of price points are used that reect the market price and quality
of materials and design used. Competition on pricing is limited in many markets and
Billabong, like its competitors, uses other marketing strategies successfully to attract
the customer. Discounting is limited.
Like Ripcurl and Quiksilver, Billabong works hard to develop economies of scale
in design and production to limit the cost of production, while still allowing labour
standards to be achieved. Management of exchange rate uctuations in order to
maintain competitiveness is important for companies like Billabong.
BizFACT
Promotion
Billabong is considered the leading brand in Australia and one of the top three in
the US. A range of successful strategies, relevant to its target markets, are used to
communicate and promote the range of products marketed by Billabong.
Billabong uses a global branding strategy to satisfy the desire of its youth market for
a consistent image. Its major brands include:
Billabong apparel and sports goods
Element a key skate brand
Nixon watches and accessories
Tigerlily swim and clothing wear
DaKine technological products in surf, snow, bike and skate
Xcel wetsuit products, most recently innovative and environmentally friendly
bamboo and recycled polyester or limestone neoprene lining wetsuits
Sector 9 long boards
Von Zipper eyewear
Honolua and Kustom surf products.
High-prole athletes are sponsored and publicity arising from their involvement
in major events is a key promotion strategy. Promotion through major surfers and
opinion leaders such as Mark Occhilupo, Luke Egan, Shane Dorian, Joel Parkinson and
Taj Burrow has generated major support for the Billabong brand internationally.
The United States athletic apparel

market is the worlds largest
sportswear market, accounting for
41 per cent of total sales, followed
by the European Union, which
accounts for about 38 per cent of
total sporting apparel turnover.
Source: Business Wire, July 23, 2007
257
Billabong sponsors some of the worlds biggest surf, snow and skate contests,
including:
the Billabong Pro contests in Teahupoo in Tahiti, Jeffreys Bay in South Africa, and
Brazil in South America
the Billabong Pipeline Masters in Hawaii, with elds comprising the worlds top
ranked professional surfers
the Billabong Ante Up Competition in the Five Star Swatch TTR World Snowboard
Tour at the Whistler Backcomb ski resort in Canada. It has been keenly contested by
snowboarders and the competition featured a 75-foot gap jump and a prize purse
of $50 000.
Billabong XXL Global Big Wave Awards held annually and webcast globally. These
awards are equivalent to the Oscars in surng and recognise those who have
documented their experience riding the largest waves over the previous year,
in the eyes of their peers. The judging panel includes 400 surfers and industry
and media representatives. Over $130 000 is awarded in cash and prizes to the
winners. Billabong offers A$1000 per foot of face height to the surfer who rides
the biggest wave each year and a A$500 000 prize to any surfer who rides a
100-foot wave.
Billabong Pro in Brazil to support women in surng.
Community programs are extensively used by Billabong to reach its target
markets and build longer term commitment to the brand. Sponsorship of the
charity event Billabong Art of Shaping Event is undertaken to showcase and
support creative surfboard shapers and craftsmen. The winner of the competition
receives a prize of $2000, and features in Surng Magazines Board Builders
Issue. Boards entered are auctioned off for charity and the shaper of the board
that brings in the highest auction price is the winner. Funds raised support a
range of Billabong charities such as Project Wipeout, Surf Aid International and
Sumba Foundation.
258
TOPIC 2 Marketing
Smart media strategy uses athlete developed footage, professional media and live
coverage of major events to rework material for store videos, mobiles, and its website
to engage switched on teens and young adults. Active sales teams with skills and
experience in aggressively chasing sales are set clear targets and developed through
ongoing recruitment.
Use of e-commerce and internet-based promotions, including webcasting of major
events, has been a successful communications strategy for Billabong in the teen market.
Specic target market strategies

To attract the tween market, Billabong supports Surf Camp programs in partnership
with providers such as the Ocean Lakes Family Campground. These camps give Billabong
access to the brand aware tween and teen markets, in a three day camp that includes
learning to surf, coastal and marine ecology and board shaping programs.
Competitions supported by live webcasts, such as the annual Billabong Grom
Competition, are run for skateboarders, surfers and snowboarders under 12 years of
age. The Annual Billabong Grom Competition is sponsored by:
Billabong Camps
Ride On Surf School
Billabong Grand Boulevard
Meyer Skimboards
Global Surf Industries
Dakine
Aloha Surf Company.
Place/distribution
Billabong uses a range of selective distribution strategies to maximise the sales of its
lifestyle products, particularly its iconic boardshorts.
Currently, it sells globally through more than 11 000 specialty surf and outdoor
apparel retail outlets. Additional outlets have also opened in Asia, most recently
in China, to build new markets for sports products. It will also offer much needed
employment and investment in the region.
Retail outlets in areas of high tourist concentrations, such as coastal and mountain
resorts, and airport hubs, are selected to grow the brand further internationally.
Billabong limits its outlets to protect the product from being discounted, which would
occur with a mass marketing strategy.
All its stores are designed to promote a wide range of brands using engaging, highimpact advertising, music, surf and skate videos, and enthusiastic and energetic staff
who are authentic outdoor sports enthusiasts.
Online sales are available for its online teen users.
Questions
1 Identify and describe four target markets for Billabong products.
2 Identify and classify Billabongs competitors as to whether they are a major or minor
rival.
3 Explain how marketing strategies may need to be modied in different countries.
4 Discuss three major issues that may arise in selling through so many overseas outlets.
5 Justify Billabongs decisions to move into a range of snow, extreme sport and
accessory product lines.
6 Explain how technology is being used by Billabong to attract the youth market.
7 Outline the main factors inuencing Billabongs pricing strategy.
8 Recall Billabongs range of promotional strategies.
9 Demonstrate how Billabongs promotional strategies reect their primary target
market.
10 Summarise Billabongs distribution strategies.
11 Evaluate the importance of online marketing for a company like Billabong.
12 Identify and justify an alternative marketing strategy for Billabong.
259
TOPIC 2
HSC PRACTICE QUESTIONS:

Marketing
Multiple choice questions
1 Which of the following statements most completely denes the term marketing?
(a) Marketing is the distribution of goods and services from the wholesaler to the
retailer so that they are available when the customer wants them.
(b) Marketing is a total system of interacting activities designed to plan, price, promote
and distribute goods and services to present and potential customers.
(c) Marketing includes all those activities involved in the production and promotion of
goods and services to the end customer.
(d) Marketing is any set of activities undertaken to produce and promote a range of
goods and services to satisfy customers needs.
2 Marketing managers are concerned with consumer behaviour because
(a) consumers always behave in a rational and predictable manner.
(b) the way consumers behave is easily controlled by marketing strategies.
(c) the way consumers behave is always unpredictable.
(d) the way consumers respond to a businesss marketing strategies has a large impact
on the businesss success.
3 Market research can collect data
(a) only from primary sources.
(b) only from secondary sources.
(c) from both primary and secondary sources.
(d) any of the above.
4 Question 4 refers to the following information. Techtronics Limited is a producer
of computers and consumer electronics. Updating technology is the main business
strategy at Techtronics with most employees having an engineering orientation.
Management spends a great deal of time on design and manufacturing processes
rather than on researching customers needs.
Which of the following statements is true?
(a) Techtronics is practising the marketing approach.
(b) Techtronics is not practising the marketing approach.
(c) Techtronics is practising the selling approach.
(d) Techtronics is not practising the production approach.
5 Penetration pricing occurs when a business
(a) charges the lowest price possible so as to achieve a large market share
(b) charges a high price to provide a certain image
(c) charges a price above that of its competitors
(d) is forced to charge a high price to cover the costs of distribution
6 A market niche
(a) is a broadly selected target market segment
(b) involves a business directing its marketing efforts to two or more target market
segments
(c) is a narrowly selected target market segment
(d) involves a business directing its marketing efforts to an international target market
7 As the service sector within the economy expanded, three more Ps have been added,
which apply especially to intangible products (services). These three Ps are
(a) people, processes and physical evidence
(b) people, purpose and physical evidence
(c) people, purpose and product differentiation
(d) people, processes and product differentiation
8 Global branding is the worldwide use of a name, term or logo to
(a) identify products of one buyer and to differentiate them from those of other buyers
(b) identify non-specic goods and services across a global market
(c) identify the difference between domestically and globally produced goods and
services
(d) identify products of one seller and to differentiate them from those of competitors
260
TOPIC 2 Marketing
9 All of the following are ethical criticisms of marketing EXCEPT

(a) advertising often uses puffery about products which cannot be proved
(b) marketing strategies exaggerate the importance of societys cultural and ethical
values
(c) sophisticated product promotion strategies persuade customers to purchase
products they do not need
(d) product placement advertising blurs the lines between what is advertising and what
is entertainment
10 Businesses are becoming increasingly aware that social media advertising can have
positive results because it is
(a) an effective method to gain exposure that is easy to use and monitor
(b) easy to accurately measure the advertisements reach and frequency
(c) inexpensive in comparison to traditional advertising methods
(d) only (a) and (c)
Short response questions

2 marks
1 (a) Dene the term marketing.
(b) Explain why marketing needs to be an evolutionary process.
4 marks
(c) The marketing concept should be integrated into all key business functions.
Evaluate the accuracy of this statement.
10 marks
2 marks
2 (a) Identify the stages of the product life cycle.
(b) Demonstrate why a business must be able to launch, modify and delete products
in response to changes in the product life cycle.
6 marks
3 (a) Outline how a marketing plan would reect a businesss socially responsible
philosophy.
3 marks
(b) Discuss whether a marketing manager should take into account any social
consequences of a marketing campaign.
5 marks
(c) Viral marketing is particularly insidious and open to unethical marketing practices.
Critically evaluate the accuracy of this statement. Provide examples in your answer.
10 marks
4 (a) Briey describe the three Ps of the extended marketing mix.
3 marks
(b) Examine why the extended marketing approach is important in the current
business environment.
6 marks
Extended response questions

1 Recently, you were elected to serve as promotional organiser for a touch football
tournament. The tournament will match several well-known celebrity teams from New
South Wales against the best local players. Ticket sales will sell for $30 per person and
your objective is to attract a large number of supporters. All proceeds will be given to a
local charity. Develop a promotional plan by actioning the following:
(a) Identify what market segmentation variables would be most important.
(b) Investigate the buying motives to which you would appeal.
(c) Determine how you would use each element of the promotion mix.
2 Once the basic price has been set using the preferred pricing method, the business
then ne tunes this price in line with its pricing strategy. A business also uses a number
of non-price competition strategies to achieve its marketing objectives. Explain.
3 Through knowledge of consumer behaviour gained by in-depth market research,
marketing managers can manipulate the consumer to buy their products. Critically
evaluate this statement.
4 Marketing is a system of business activities designed to plan, price, promote and
distribute something of value for the benet of the customer at a prot. With
reference to a business you have studied, assess the accuracy of this statement.
261

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TOPIC 2

Surfs up for inventor

FIGURE 5.1 Coke is one of the most

As consumers, we are constantly exposed to all aspects of the marketing

FIGURE 5.2 Contemporary society

Role of marketing CHAPTER 5

Coke a successfully marketed product

5.2 What is marketing?

FIGURE 5.3 Amnesty International

5.3 Strategic role of marketing

Role of marketing CHAPTER 5

Put the customer first

Without a marketing strategy, nancial disaster is inevitable. As was explained

The marketing plan

FIGURE 5.4 The marketing plan shows

Marketing is undertaken by businesses with the intention of generating sales

(a) The main emphasis in marketing today is the _____-oriented approach.

5.4 Interdependence with other

FIGURE 5.5 At every level of the

Role of marketing CHAPTER 5

To be effective, therefore, the marketing concept must be embraced by all

5.5 Production, selling, marketing

Train sales force

Train sales force

Adopt the marketing

The production approach 1820s to 1920s

FIGURE 5.7 The assembly line, mass

The sales approach 1920s to 1960s

Role of marketing CHAPTER 5

FIGURE 5.8 The use of door-to-door

The marketing approach: stage one

The marketing approach: stage two

Corporate social responsibility (CSR)

FIGURE 5.9 The growing consumer

Role of marketing CHAPTER 5

FIGURE 5.10 A market-focused

Brooke McPherson: Marketing Manager for

The real estate industry is a highly competitive market. Consequently, it is crucial

The shift to a customer-oriented approach brought about signicant changes

5.6 Types of markets

Role of marketing CHAPTER 5

The resource market consists of

The industrial market includes

An intermediate market consists

FIGURE 5.12 The consumer market

Marketing managers examine closely the behaviour of consumers so they can

FIGURE 5.13 Using mass production

Role of marketing CHAPTER 5

FIGURE 5.14 A magazine for every

A market is a group of individuals, organisations or both that:

1 Dene the term market.

1 Regarding purchasing power, organisational buyers such as businesses and

Role of marketing CHAPTER 5

Marketers closely examine the behaviour of customers (consumers) to

FIGURE 6.1 Consumer trends change

6.2 Factors influencing customer

FIGURE 6.2 The four main factors

buying behaviour. Five main psychological factors inuence customer choice.

Personality and self-image