marketing third edition

Elliot t Rundle-Thiele Waller

marketing third edition

Title page to come

marketing
Greg Elliott third Edition
Shar yn rundlE-thiElE
david WallEr
Third edition published 2014 by
John Wiley & Sons Australia, Ltd
42 McDougall Street, Milton Qld 4064

First edition published 2010

Typeset in 10/12 pt ITC Velojovic Std

© John Wiley & Sons, Australia, Ltd 2010, 2012, 2014

The moral rights of the authors have been asserted.

National Library of Australia

Cataloguing-in-Publication entry

Author: Elliott, Greg.

Title: Marketing/Greg Elliott, Sharyn Rundle-Thiele,
David Waller.
Edition: 3rd edn.
ISBN: 978 1 118 624173 (pbk.)
Notes: Includes bibliographical references and index.
Subjects: Marketing.
Other Authors/Contributors: Rundle-Thiele, Sharyn. Waller, David.
Dewey Number: 658.8

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10 9 8 7 6 5 4
Brief contents
1 Introduction to marketing 1

2 The marketing environment and market analysis 41

3 Market research 77

4 Consumer behaviour 115

5 Business buying behaviour 151

6 Markets: segmentation, targeting and positioning 183

7 Product 219

8 Price 257

9 Promotion 305

10 Distribution (place) 353

11 Services marketing 395

12 Digital marketing 427

13 International marketing 463

14 Social marketing and not-for-profit marketing 499

15 Marketing planning, implementation and evaluation 527

Appendix  Marketing plan 559

Chapter 1  Introduction to marketing v

Contents
About the authors xix
Applications at a glance xx
How to use this book xxiv
Additional resources xxviii
Acknowledgementsxxix

CHAPTER 1: Introduction to marketing 1

OPENING CASE: Do you see what I see? 2
Introduction3

What is marketing? 3
The marketing approach to business 6
The marketing process 8
Spotlight: USM Events and the multi-sport market10

The exchange of value 11

The market 12
Customers13
Clients13
Partners13
Society13
Spotlight: Telstra: the challenge of delivering value over time14

Ethics, corporate social responsibility and

sustainable marketing 15
Ethics15
Corporate social responsibility 17
Sustainability20
Implementation of CSR and sustainability 22
Spotlight: ACCC versus Dulux23

The marketing mix 24

Product25
Price26
Promotion27
Distribution (place) 27
People28
Process28
Physical evidence 28
Spotlight: Naturally! Sunny Queen Eggs29

Why study marketing? 29

Improve business performance 30
Higher quality of life 31
Contribute to a better world 31
Be a better customer 32
 A rewarding career 32
Spotlight: Changing skin protection behaviour: the
Wes Bonny Testimonial Campaign33
Summary35
CASE STUDY: Hero Rewards: building on program success 37
Advanced activity 39
Marketing plan activity 39

CHAPTER 2: The marketing environment and market analysis 41

OPENING CASE: Downsizing: coming to a product bought by you 42
Introduction43

The marketing environment 43

Spotlight: Looking for a clean solution45

Internal environment 46
Internal marketing 48
Spotlight: Please hold49

Micro environment 51
Customers and clients 51
Partners51
Competitors52
Spotlight: Woolworths and Coles killing the competition54

The macro environment 55

Political forces 55
Economic forces 57
Sociocultural forces 57
Technological forces 58
Environmental forces 58
Legal forces 59
Macro-environmental complexity 59
Spotlight: Spending is going online60

Situation analysis and marketing planning 61

Marketing metrics 65
SWOT analysis 67
Spotlight: Walk to School69
Summary71
CASE STUDY: Checking the pulse: are we satisfying our employees? 73
Advanced activity 75
Marketing plan activity 76

CHAPTER 3: Market research 77

OPENING CASE: Big Brother is watching every dollar you spend 78
Introduction79

The role of market research in marketing decisions 79

Marketing information systems 81
Overview of the market research process 82

viii Contents
 When market research is appropriate 83
Ethics in market research 84
Spotlight: Extending the baby care philosophy85

Defining a market research problem 86

Preparing a market research brief 86
Spotlight: CityCycle: what’s the problem?89

Key research design issues 90

Types of research 90
Types of data 91
Spotlight: What are the issues faced by
people with arthritis?99

Data collection, analysis and reporting 100

Managing data collection 100
Data analysis 101
Drawing conclusions 103
Reporting the findings 104
Responding to the research problem 105
Spotlight: Television audience measurement in Australia106
Summary108
CASE STUDY: Weighing in to get people more active 110
Advanced activity 113
Marketing plan activity 114

CHAPTER 4: Consumer behaviour 115

OPENING CASE: Online shopping: the new frontier 116
Introduction117

What is consumer behaviour? 117

Influences on consumer behaviour 118
Spotlight: Role models119

Group factors 120

Cultural factors 120
Social factors 124
Spotlight: Facebook: chit-chat or marketing
communications?129

Individual factors 130

Personal characteristics 130
Psychological characteristics 134
Spotlight: Why we all need to feel good about ourselves139

Consumer involvement and the

decision-making process 140
Spotlight: Size does matter, apparently144
Summary146
CASE STUDY: Anyone for bubble tea? 148
Advanced activity 150
Marketing plan activity 150

Contents ix
 CHAPTER 5: Business buying behaviour 151
OPENING CASE: The pharmaceuticals goldmine 152
Introduction153

Business markets 153

Reseller markets 154
Producer markets 155
Government markets 156
Institutional markets 157
Spotlight: WesTrac on track158
Marketing to business customers 159
High-value/high-volume purchases 159
Price competition and negotiation 160
Number of buyers and sellers 160
Formal assessment of purchase alternatives 161
Ongoing relationships 161
Demand characteristics 162
Spotlight: B2B ‘mega’ brands163
Characteristics of business demand 164
Derived demand 164
Joint demand 165
Pricing and demand 165
Spotlight: AMD’s perfect storm166
Business buying behaviour 167
The business decision-making process 170
Environmental influences 172
Spotlight: Social media for B2B174
Summary176
CASE STUDY: The heat is on 178
Advanced activity 180
Marketing plan activity 181

CHAPTER 6: Markets: segmentation, targeting and positioning 183

OPENING CASE: Target marketing and marketing Target 184
Introduction185

Knowing the market 185

Spotlight: Toyota first, daylight second186

Target marketing 187

Mass marketing 189
One-to-one marketing 189
Target marketing based on segments 189
The target marketing process 191
Spotlight: Ten off target?192

x Contents
 Market segmentation 193
Identify segmentation variables 193
Profile market segments 202
Spotlight: Geodemographic segmentation203

Market targeting 204

Evaluate potential segments 205
Select target markets 206
Spotlight: The death of the mass market207

Positioning208
Determine positioning for each segment 210
Determine the marketing mix for each segment 211
Spotlight: Opel Leben Autos212
Summary213
CASE STUDY: Generation Z defined: global, visual, digital 215
Advanced activity 216
Marketing plan activity 217

CHAPTER 7: Product 219

OPENING CASE: 7-Eleven Slurpees — what’s your flavour? 220
Introduction221

Products: goods, services and ideas 221

The total product concept 222
Product relationships 224
Product classification 224
Spotlight: Harley-Davidson — exclusive product
and dealer227

Product life cycle 228

Overview of the product life cycle 228
New product development 229
Product adoption process 231
Spotlight: Samsung’s Galaxy camera234

Product differentiation 235

Spotlight: Adopt a Pet237

Branding238
Brand name 239
Brand equity 239
Brand strategies 240
Spotlight: McDonald’s rebrands as Macca’s243

Packaging244
Labelling245
Spotlight: Coke label change: a personal success246

Contents xi
 Managing products 247
Approaches to management 247
Product/market growth strategy matrix 248
Managing products through the life cycle 248
Spotlight: VB: a mistake in changing product252
Summary253
CASE STUDY: Is the PC a product in decline? 255
Advanced activity 256
Marketing plan activity 256

CHAPTER 8: Price 257

OPENING CASE: The ‘true’ price of discount air fares 258
Introduction260

Pricing objectives 260

Determining pricing objectives 261
Not-for-profit pricing 265
The legal environment 266
Selecting the pricing method 268
Spotlight: The cost of prescription pharmaceuticals269

Demand considerations 270

The demand schedule and demand curve 271
Price elasticity of demand 273
Spotlight: ‘Penny’ auctions: buyer beware275

Cost and revenue analysis 276

Break-even analysis 277
Marginal analysis 279
Pricing based on costs 280
Spotlight: Pricing and economies of scale280

Competition considerations 281

Understanding competitors’ pricing 283
Alternatives to competing on price 285
Spotlight: Grange on special (at $645!)286

Business-to-business pricing 287

Pricing for intermediaries 287
Pricing for distribution 288
Spotlight: Discount trade terms289

Price management 290

The psychology of pricing 290
Pricing throughout the product life cycle 292
Setting and managing the final price 294
Spotlight: Pricing and product innovation297
Summary299
CASE STUDY: Supermarket milk pricing 301
Advanced activity 302
Marketing plan activity 303

xii Contents
CHAPTER 9: Promotion 305
OPENING CASE: Tim Tam Treat Packs 306
Introduction307

What is promotion? 307

A model of communication 308
Objectives of promotion 310
Spotlight: iSentia: monitoring media feedback312

Integrated marketing communications 313

The promotion mix 313
Integrating promotion mix elements 316
Spotlight: Deals Direct: online needs integrated campaign317

Advertising319
Creating an advertising campaign 319
Legal issues in advertising 326
Spotlight: Distorting the truth in advertising329

Public relations 330

Approaches and methods 330
Public relations as a profession 331
Spotlight: Killing off Louie: a PR stunt332

Sales promotion 333

Consumer sales promotions 333
Trade sales promotions 336
Spotlight: Shop-A-Docket337

Personal selling 338

A model of personal selling 338
Managing a sales force 339
Spotlight: What does a sales ‘rep’ do?340

Additional forms of promotion 341

Ambush marketing 341
Guerilla marketing 342
Product placement 342
Viral marketing 344
Permission marketing 344
Sponsorship345
Spotlight: Swatch Girls Pro China346
Summary347
CASE STUDY: Cold brewed coffee from the Antz nest 349
Advanced activity 351
Marketing plan activity 351

Contents xiii
 CHAPTER 10: Distribution (place) 353
OPENING CASE: Live abalone in China 354
Introduction355

Distribution channels 355

Consumer product distribution channels 357
Business-to-business product distribution channels 359
Supply-chain management 360
Spotlight: Ben & Jerry’s363

Distribution of goods 364

Order processing 364
Inventory management 365
Warehousing366
Transportation367
Technology in physical distribution 369
Spotlight: Road transport — watch out for triple Bs369

Distribution of services 370

Physical inputs 371
Delivery infrastructure 371
Scheduling371
Spotlight: Hoyts: increasing entertainment formats372

Retailing373
Retailing strategy 373
Benefits of retailers 375
Types of retailers 376
Spotlight: David Jones: from mail to online catalogues382

Agents and brokers 384

Agents384
Brokers384
Spotlight: Elders: rural agents385

Wholesaling386
Major wholesaling functions 387
Types of wholesalers 387
Spotlight: Fish markets: seeing marketing in action388
Summary390
CASE STUDY: Linfox growing businesses across Asia 392
Advanced activity 394
Marketing plan activity 394

CHAPTER 11: Services marketing 395

OPENING CASE: Aussie! Aussie! Aussie! 396
Introduction397

Service-dominant economies 397

‘Services’ and ‘service’ 398

xiv Contents
 Service product classification 399
Spotlight: Super profits, super service?401

The services marketing mix 402

Unique characteristics of services 402
The extended services marketing mix 411
Spotlight: It’s your funeral!414
Services marketing challenges 415
Managing differentiation 416
Developing profitable customer relationships 417
Delivering consistent customer service quality 417
Spotlight: Marketing services: is franchising the answer?421
Summary423
CASE STUDY: Airbnb and the sharing economy 424
Advanced activity 426
Marketing plan activity 426

CHAPTER 12: Digital marketing 427

OPENING CASE: Dumb ways to die 428
Introduction429

Digital marketing 429

Spotlight: Online shopping study431

Characteristics of digital marketing 432

Profiling432
Interaction and community 433
Control434
Accessibility and comparability 435
Digitalisation435
Spotlight: Game of illegal downloads436

Digital marketing methods 437

Banner and pop-up advertisements 437
Brochure sites 438
Social media 438
Viral marketing 439
Portals440
Search engine optimisation 440
Search engine marketing 441
Email, SMS and MMS marketing 442
Apps442
QR codes 443
E-commerce443
Spotlight: Banking on Facebook443

Ethical and legal issues 444

Privacy445
Misleading or deceptive conduct 446
Spam447

Contents xv
 Intellectual property 448
Consumer protection 449
Technology burnout 449
Legal enforcement 449
Spotlight: Regulating ads online: a new frontier450

Digital marketing and marketing strategy 451

Target markets 451
Customer relationship management 452
The marketing mix 452
Evaluating digital marketing effectiveness 454
Electronic business 455
Spotlight: Smart shopping with smartphones456
Summary458
CASE STUDY: Sight for All 460
Advanced activity 462
Marketing plan activity 462

CHAPTER 13: International marketing 463

OPENING CASE: Cancer Council: taking on the world 464
Introduction465

International marketing fundamentals 466

A global village? 466
Standardisation versus customisation 467
Global trade 469
Spotlight: Havaianas: a fashion icon470

The international marketing environment 471

Political forces 473
Economic forces 476
Sociocultural forces 478
Technological forces 479
Environmental forces 480
Legal forces 480
Spotlight: Moneypenny: crossing borders to offer 24-7 service481

Why and how organisations go international 482

Selecting overseas markets 483
Methods of market entry 484
Born global 487
Spotlight: Futuris: if you can’t beat them, join them487

The international marketing mix 488

Spotlight: Taking Australian food to the world492
Summary493
CASE STUDY: A duck out of water: Disney’s Hong Kong adventure 494
Advanced activity 497
Marketing plan activity 497

xvi Contents
CHAPTER 14: Social marketing and not-for-profit marketing 499
OPENING CASE: Syke: targeting high-risk youth 500
Introduction501

What is social marketing? 501

Spotlight: Providing connections to support breastfeeding504

Benchmark criteria for social marketing 505

Behaviour change 507
Audience research 507
Segmentation508
Exchange508
Marketing mix 509
Competition511
Spotlight: Think before you supply511

Three social marketing streams 512

Downstream social marketing 513
Midstream social marketing 513
Upstream social marketing 513
Spotlight: Implementing a consumer-oriented approach
to water saving514

What is (and is not) social marketing? 515

Spotlight: Are you ‘Sun sound’?517

Not-for-profit marketing 518

Spotlight: Young people deserve young lives520
Summary521
CASE STUDY: Obesity Prevention and Lifestyle (OPAL) program 523
Advanced activity 525
Marketing plan activity 525

CHAPTER 15: Marketing planning, implementation and evaluation 527

OPENING CASE: Understanding the effectiveness of industry
self-regulation efforts 528
Introduction529

The marketing cycle 529

Understanding, planning, implementation and evaluation 530
Spotlight: Triumphantly reshaping women531

Marketing planning 533

Marketing objectives 536
Spotlight: Sales flow on .  .  .540

Marketing implementation 541

Potential internal barriers 541
Environmental factors 543
Maximising success 543
Spotlight: Game, set and match!546

Contents xvii
 Evaluating marketing performance 547
Measuring performance 547
Spotlight: Chilling out551
Summary552
CASE STUDY: Lovedale Long Lunch 553
Advanced activity 556
Marketing plan activity 556

Appendix: Marketing plan 559

References and notes 572

Glossary586
Index594

xviii Contents
 About the authors
Professor Greg Elliott Today, Sharyn focuses on social marketing (using
Greg Elliott is Professor of Business (Marketing) in the marketing principles to change behaviours). Sharyn’s
Faculty of Business and Economics at Macquarie Uni- current research projects focus on reducing alcohol
versity, a position he has held since 2005. Prior to this, consumption, increasing physical activity, healthy
he was a Professor of Management in the Macquarie eating and changing attitudes towards alcohol. She
Graduate School of Management. serves on SA Health’s OPAL Social Marketing Advisory
Greg has extensive experience in teaching ­marketing Committee, and is research advisor to the VicHealth
in Australia and overseas, and in course program Social Marketing Practice Fellow. Sharyn regularly pro-
­management in South-East Asia. Before joining Mac- vides tailored social marketing and statistical training
quarie University, he held academic appointments at to external clients in government and the public health
the University of Technology, Sydney, the University sector, as well as consulting services.
of Western Australia and the University of Melbourne;
Dr David Waller
and visiting appointments at Trinity C ­ollege and
David Waller is a Senior Lecturer in the School of
­University College, both in Dublin, Ireland.
Marketing, University of Technology, Sydney. David
Greg has published extensively in the academic
received a Bachelor of Arts from the University of
marketing literature and his current research inter-
­
Sydney, a Master of Commerce from the ­ University
ests are in the fields of services marketing, ­financial
of New South Wales and a PhD from the University of
services and international marketing. Prior to his
Newcastle, Australia. He has over 20 years of experience
academic career, Greg spent over a decade in the
­
teaching marketing subjects at several universities,
marketing research and marketing planning area
­
including the University of Newcastle, the University
of the banking industry. More recently, his con-
of New South Wales and Charles Sturt ­University. He
sulting  activities have  been concentrated in the
has taught offshore programs in Malaysia and China.
banking, financial services and professional services
Prior to his academic career, David worked in the film
sectors.
and banking industries.
Professor Sharyn Rundle-Thiele His research has included projects on marketing
Sharyn Rundle-Thiele is an internationally communications, advertising agency–client relation-
renowned  marketing expert who has worked in ships, controversial advertising, international adver-
universities in Australia, Canada, Hong Kong and
­ tising, marketing ethics and marketing education. He
Sweden. She has published over 100 refereed papers, has published over 60 refereed journal articles in pub-
teaches marketing courses and has led projects lications including the Journal of Advertising, Journal
valued at over $1.5  million. Prior to joining aca- of Advertising Research, European Journal of Marketing,
demia, Sharyn worked in the fast-moving consumer Journal of Consumer Marketing, International Journal
goods (FMCG) industry in Australia before moving of Advertising and the Journal of Marketing Communi­
into the ­ strategic  consulting and market research cations. David has also authored or co-authored several
industry, where she completed projects in the ­property books and workbooks that have been used in countries
services, logistics,  durable goods and infrastructure in the Asia–Pacific region, and is a regular presenter at
industries. local and international conferences.

About the authors xix

FMPrelims.indd 19 01/06/15 2:09 PM

 Applications at a glance

Chapter Opening case Spotlight features

1 Introduction to marketing Do you see what I see? USM Events and the multi-sport market
Telstra: the challenge of delivering value over time
ACCC versus Dulux
Naturally! Sunny Queen Eggs
Changing skin protection behaviour: the Wes Bonny
Testimonial Campaign

2 The marketing environment Downsizing: coming to a Looking for a clean solution

and market analysis product bought by you Please hold
Woolworths and Coles killing the competition
Spending is going online
Walk to School

3 Market research Big Brother is watching Extending the baby care philosophy
every dollar you spend CityCycle: what’s the problem?
What are the issues faced by people with arthritis?
Television audience measurement in Australia

4 Consumer behaviour Online shopping: the Role models

new frontier Facebook: chit-chat or marketing communications?
Why we all need to feel good about ourselves
Size does matter, apparently

5 Business buying behaviour The pharmaceuticals WesTrac on track

goldmine B2B ‘mega’ brands
AMD’s perfect storm
Social media for B2B

6 Markets: segmentation, Target marketing and Toyota first, daylight second

targeting and positioning marketing Target Ten off target?
Geodemographic segmentation
The death of the mass market
Opel Leben Autos

7 Product 7-Eleven Slurpees — Harley-Davidson — exclusive product and dealer

what’s your flavour? Samsung’s Galaxy camera
Adopt a Pet
McDonald’s rebrands as Macca’s
Coke label change: a personal success
VB: a mistake in changing product

xx Applications at a glance
 Closing case

Type of
Topic organisation Type of market Type of product

Hero Rewards: Not-for-profit Consumer Idea

building on program
success

Checking the pulse: Not-for-profit SME/MNC Service

are we satisfying our
employees?

Weighing in to get Government Consumer Idea

people more active

Anyone for bubble SME/MNC Consumer Goods

tea?

The heat is on SME/MNC Business Goods and services

Generation Z SME/MNC Consumer Goods and services

defined: global,
visual, digital

Is the PC a product SME/MNC Consumer and Goods

in decline? business

continued

Applications at a glance xxi

 Applications at a glance (continued)

Chapter Opening case Spotlight features

8 Price The ‘true’ price of discount The cost of prescription pharmaceuticals

air fares ‘Penny’ auctions: buyer beware
Pricing and economies of scale
Grange on special (at $645!)
Discount trade terms
Pricing and product innovation

9 Promotion Tim Tam Treat Packs iSentia: monitoring media feedback

Deals Direct: online needs integrated campaign
Distorting the truth in advertising
Killing off Louie: a PR stunt
Shop-A-Docket
What does a sales ‘rep’ do?
Swatch Girls Pro China

10 Distribution (place) Live abalone in China Ben & Jerry’s

Road transport — watch out for triple Bs
Hoyts: increasing entertainment formats
David Jones: from mail to online catalogues
Elders: rural agents
Fish markets: seeing marketing in action

11 Services marketing Aussie! Aussie! Aussie! Super profits, super service?

It’s your funeral!
Marketing services: is franchising the answer?

12 Digital marketing Dumb ways to die Online shopping study

Game of illegal downloads
Banking on Facebook
Regulating ads online: a new frontier
Smart shopping with smartphones

13 International marketing Cancer Council: taking on Havaianas: a fashion icon

the world Moneypenny: crossing borders to offer 24-7 service
Futuris: if you can’t beat them, join them
Taking Australian food to the world

14 Social marketing and not-for- Syke: targeting high-risk Providing connections to support breastfeeding
profit marketing youth Think before you supply
Implementing a consumer-oriented approach to water saving
Are you ‘Sun sound’?
Young people deserve young lives

15 Marketing planning, Understanding the Triumphantly reshaping women

implementation and effectiveness of industry ­ Sales flow on .  .  .
evaluation self-regulation efforts Game, set and match!
Chilling out

xxii Applications at a glance

 Closing case

Type of
Topic organisation Type of market Type of product

Supermarket milk SME/MNC Consumer Goods

pricing

Cold brewed coffee SME Consumer Goods

from the Antz nest

Linfox growing SME/MNC Business Service

businesses across
Asia

Airbnb and the SME/MNC Consumer Service

sharing economy

Sight for All Not-for-profit Consumer Service

A duck out of water: MNC Consumer Goods and service

Disney’s Hong Kong
adventure

Obesity Prevention Government Consumer Idea

and Lifestyle (OPAL)
program

Lovedale Long SME Consumer Goods

Lunch

Applications at a glance xxiii

 How to use this book
The fine print on the Dulux website, prior to its removal in early January 2013, stated that the evidence
upon which the claims were based was a result of a comparison of two identical buildings. The test
1 done using highly reflective white paint on one roof and original dark coating on the other. It
CHAPTER was
further detailed that the results were subject to a long list of variables, such as house type, location,
building design, window placement, occupancy use and ventilation. The small sample size on which
the claims were based was also of concern. The ACCC allege that the company did not have adequate

n
Introduc tio g
or reasonable basis to make those claims, and therefore has breached the Australian Consumer Law.

Question
in
to market
What actions would you take if you were the CEO of DuluxGroup Australia?

Concepts and applications check

learning objective 3 discuss the importance of ethics and corporate social responsibility in
marketing
jec tives
Le arning ob able to: 3.1 Distinguish between ethics, sustainable marketing and corporate social responsibility.
should be
pter, you s
ng this cha ting proces
After studyi the marke 3.2 Conduct an audit on a product or service that you are familiar with using the sustainability
w of ma rketing and
overvie of value checklist (table 1.1).
provide an efi cia l exchange
tually ben
olves a mu 3.3 Visit
ting the website of a business that you have dealings with (e.g. your university, your bank or your
tha t ma rketing inv ilit y in marke
recognise responsib supermarket) and identify the key elements of its approach to corporate social responsibility.
ate social
and corpor
e of ethics
importanc 3.4 To what extent do you think businesses adopt corporate social responsibility as ‘the right thing
discuss the
rketing mix to do’ versus seeking some type of public relations benefit? Find an example of a business
of the ma
elements society and
undertaking some type of philanthropic activity. How might the business benefit from this
explain the , benefits
performance activity?
rov es business
imp
s how marketing .
discus of life 3.5 If a marketing campaign operates entirely within the law, has the marketing organisation
s to quality
contribute necessarily fulfilled its obligations to its stakeholders?

Colour-coded Learning THe MaRKeTING MIX

objectives learning objective 4
explain the elements of
The marketing mix is the term given to a set of variables that a marketer can exer-
cise control over in creating an offering for exchange. Various frameworks for the
the marketing mix
Colour-coded learning objectives guide marketing mix A set of
marketing mix have evolved over time, including:
• the 4 Ps framework — product, price, promotion and place (place is more easily

you through the key concepts of each variables that a marketer can
exercise control over in creating
understood as distribution). The 4 Ps framework was the first approach to the
marketing mix.

chapter’s topic. • the 5 Ps framework which evolved from the 4 Ps model by adding a fifth P, ‘people’,
an offering for exchange.
to the 4 Ps framework.
• the 6 Ps framework which added ‘process’ to the 5 Ps framework
• the 7 Ps framework which added ‘physical evidence’ to the 6 Ps framework.
To frame their thinking, marketers often choose to target certain types of cus-
tomers. Markets are9:30heterogeneous
13/11/13
AM
— they are made up of many different people
target market A group of with many different needs and wants. A target market is a group of customers with
customers with similar needs and similar needs and wants. Not all customers in a target group will have exactly the
wants.
same needs and wants but they are more similar than different. By narrowing their
uctionToM
arketing.indd
1
thinking to a target group, marketers can think about how they can best communi-
c01Introd
cate, deliver and exchange their offerings with customers. For example, the target
market of this book is first-year undergraduate marketing students. A  business

24 Marketing

c01IntroductionToMarketing.indd 24 13/11/13 9:30 AM

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Each chapter opens with a real-world vote on the  
people for
nominate love people have for
the bus to
Tim Tam bis
cuits’.
introduced
example, providing an overview of its
al
the magic n com mercials rame
sio p-f
cond televi tour using fun, sto
The 30-se the song
and the bus h the packs, and
theme and an opportunity for students the packs
animatio n of peo ple wit
dy?’ by Ka
te Mi lle r-H eid ke. At the
-second adv
end
ertise-
‘Are you rea gn, there were 15 to try all eight
to briefly reflect on their current level of Advanced activity t
pai
ments tha during top-rating sho
ers
of the cam encouraged custom ws, including The
cked to the
les and Pa
understanding of the topic. This Opening were screen
ertisements ck: All Stars, My
ed
Kitchen Ru
Now that you have studied this chapter, look back at the Arnott’s Tim Tam opening
Th e adv
that cus-
varieties. Ab bey, The
Blo
is hop ing
case is revisited at the end of each chapter wn ton Arnott’s
Voice, Do
Rafters.
case and think about all the issues that relate to the concept of promotion. Imagine
bud get behind 1the
campaign,
dollar p at one.
ltimillion
as an Advanced activity, where students you were the marketing manager of Tim Tams and evaluate the strengths and
With a mu definitely not just sto
l
tomers wil
weaknesses of the various promotional methods available from their perspective.
are provided with the opportunity to media to
communic
ate to the
target
be
QuesBroadly
tion outline
nott’s used
an
dif integrated
ferent
combinati
marketing
on of the se media communications strategy that may be
demonstrate higher order thinking skills y outlin e
Brieflappropriate
how
for its cam
Ar
How wo
paigns. for Tim
uld the
Tams
nch cam
tify you r ans wer.
as it strives to position itself in the competitive biscuit
paign? Jus
audience e of pro duct lau
by applying key concepts that have been ive for thi
effectmarket.
s typ

outlined in the chapter.

8:18 AM

Marketing plan activity

15/11/13

xxiv How to use this book For your marketing plan, think about the promotion (marketing communication)
c09Promo
tion.indd
306
issues that will help you to efficiently communicate a message about your product
to the marketplace, and particularly potential customers. Who is best to send the
message that will gain the target markets’ attention? What is the best message/
 tribute towards achieving the organisation’s marketing goals. This will be captured by
marketing metrics such as brand awareness, customer satisfaction and sales.
The market research process itself should also be measured for effectiveness. For
example, as discussed in this chapter, market research projects have set objectives and
specific resources allocated to them based on a cost–benefit analysis. Suitable measures
of the effectiveness of the market research process include, therefore, whether the
project was completed within the specified budgets and timelines, the quality of the
information generated, the depth of the analysis, and whether senior management
felt they could confidently make a decision based on the research findings.

Spotlight Television audience measurement in Australia

OzTAM manages and markets the television ratings data for the free-to-air viewing habits of households
in Sydney, Melbourne, Brisbane, Adelaide and Perth, as well as subscription TV customers across the
country. The ratings are ‘audience estimates based on actual viewing habits’, which are collected and
produced by Nielsen TAM, which collects and produces the data on
behalf of OzTAM.
OzTAM recruits 3500 households across the country into a ‘panel’,
and then monitors viewing habits via a metering system attached to the
television. Members of each household also report on the number of
residents and guests that may be viewing. This data is then collected
each night, after which the system ‘collates, reports, validates, weights
and produces a final report of each household’s viewing’.
Of course, such a system may be open to manipulation. For
example, a former household participant admitted to manipulating the
ratings when the ratings for Big Brother dipped. In addition to reporting
the presence of actual household viewers, he would also ‘fabricate’
additional guests (sometimes a dozen or more) in order to try and
keep the show on air. OzTAM can exclude data from up to 10 per cent
of participating households each night — either due to suspicious
behaviour or technical failure.
Beyond reporting just television viewing habits, OzTAM also publishes the Australian multi-screen
report, which provides the data for ‘trends in video viewership beyond conventional television sets’.26

Questions
1. Conduct your own research and find another example of a regular ratings system such as OzTAM that
marketers can use for decision making.
2. In your own words, explain how marketers would use the Australian multi-screen report produced by OzTAM.

106 Marketing
Spotlight Implementing a consumer-
consumer-oriented
most obvious examples. Only a few decades ago, toapproach
withdraw cash from a bank
required the customer to take a passbook to a teller during opening hours and be
to water saving
handed cash over the counter, with the transaction handwritten and stamped in the
c03MarketResearch.indd 106 passbook. Today, customers can withdraw cash2:34from
13/11/13 PM an automatic teller machine
According to the World Health Organization, Jordan is the fourth water-poorest country in the world.
By the24 hours
year 2025, ifa current
day ortrends
move their per
continue, money around
capita water using
supply creditto cards,
is expected fall from EFTPOS
the and internet
currentbanking
200 cubic more
metres peror person
less as they
to only 91 please.
cubic metres,There are
putting quite
Jordan clear
in the advantages
category of having in terms of
an absolute water shortage.
convenience forInthe
timesconsumer,
of drought, Jordanians
although have been faced
some with water restrictions.
consumers, particularly some older
Basedpeople,
on the assumption that the people of Jordan were wasting water, the Jordanian
prefer personal service rather than dealing with technology. There are also government had
planned to add a water tax as a means to further reduce household water consumption. This proposal
very big advantages for the outraged banks.the For example, a banking transaction performed
local people. Formative research revealed
by a consumer using internet thatbanking costsnotabout
the people were to blame,20because
cents.it The
was thesame transaction
performed in a bank branch municipal costs $3. 7
Considering
buildings, banks
private clubs conduct
and certain privatemillions of trans-

Colour-coded Spotlights
actions a day, this is a veryproperties that were
significant the big The
saving. users of water. Water
banks found auditing
though that con-
also revealed that the high consumption of water was
sumers still generally prefer to deal with bank personnel when it comes to more
caused by water lines that were old or had been badly
complex matters such as discussing assembled.investments, loans and insurance. Some of the
larger banks experienced a consumer
rural and regional centres, forcing conservation
backlash
‘Yalla nwaffer
campaign, was
consumers
when
mai’ (or ‘Let’s savethey
launched
to use
began
water’), a water
by the Jordan
technology
closing branches in
or to travel if they
Throughout each chapter, several
wanted personal service. Water Company (Miyahuna), HSBC Bank, and USAID to
fight water waste and create awareness about the need
to conserve water in Jordan. The campaign aimed to
real-world examples are provided with
distribute and install free water saving devices in order to
reduce consumption in areas known for consuming large accompanying applied questions.
quantities of water. Since western Amman consumes
Online shopping study over 20 per cent of the country’s water allocation, the
campaign focused on that region.
Spotlight Each Spotlight is colour-coded to
The installation of water saving devices was expected

Shepherds and their

A major study by research company Roy Morgan has found some interesting points about online
to cut household water consumption by 30 per cent. In
shopping. The 2013 ‘State of the nation report’ (no. 15) identifies social trends across society,
the 12 months following the launch of ‘Yalla nwaffer mai’, a total of 1200 houses had been equipped
match its corresponding chapter
including an examination of internet purchasing
plannedtrends.
to equipThe
2500study found thatdevices,
over the last 10 years,
learning objective.
flocks gather by a stream with the devices. The campaign organisers originally homes with the
on Amman’s outskirts. there
but then hasthat
stated been consistent
the numbers hadyear-on-year
been reducedgrowth in internet
since standard shopping.
houses Further,
in the target areasthere
neededwas a 12 per cent
growththan
more devices in online retail
originally over the
expected. Atpast yeartime,
the same and,the
forgovernment
the first time, moreitsthan
renewed waterhalf (50.3and
policies, per cent) of
new laws required all
Australians newshopped
had houses toonline.
be built with water saving devices. Following this social marketing
campaign, Thethe Australian
unpopular tax was avoided
Bureau and water
of Statistics consumption
(ABS) claims thatdecreased.40
$258 billion is being spent yearly on retail, with Roy Morgan
estimating that $24.3 billion — or 9 per cent of that — is
Question
spent online, with the average weekly online expenditure
Use the information provided to explain which social marketing streams were involved in the ‘Yalla mwaffer mai’
being $285 per person. As for where the online dollar is being
campaign.
spent, travel, entertainment and leisure, electronics, fashion,
and food and beverages were the top five categories. The
most popular online purchases were in leisure and travel,
Concepts
making up and applications
45 per cent check
of online purchases, followed by
fashion with 23.4 per cent. Also, those who shopped online
learning objective 3 understand the three streams of social marketing
were increasingly less likely to go to an actual store, as 23 per
3.1 The Australian National Preventative Agency has developed a priority-driven research agenda for
cent of online shoppers said they go to stores less often now,
tobacco control (see www.anpha.gov.au). Download the document titled ‘A priority-driven research
compared to 10 per cent in 2003.
agenda for tobacco control in Australia, and identify one research question that will generate
Based
evidence foron thesocial
each results, Roy Morgan
marketing stream. Research CEO Michele
Levine believes that online shopping is becoming increasingly
3.2 Find an exampleand
mainstream, of an upstream
that socialretailers
traditional marketing campaign.
need to adjust to
existone
3.3 Find alongside
example online shopping,
of a social attributing
marketing thethat
intervention surge to all
targets thethree marketing streams.
growth in smartphone use:
3.4 Review the ‘Think before you supply’ case. Which social marketing streams were evident in the case?
Within just a few years, smartphones have added another layer of complexity to the scene. While over half
of Australians now own a smartphone, less than 7 per cent of them bought online using the phone in the
514 Marketing last four weeks — nevertheless, this is double the proportion a year ago.

What the smartphone does is it means they don’t have to go home, they can do all of those things
wherever they are, any time they like. What we’re seeing is people are using them to check prices, explore
the availability of goods and doing research.
c14SocialMarketingAndNot-For-ProfitMarketing.indd 514 20/11/13 12:57 AM

Chapter 12 Digital marketing 431

c12DigitalMarketing.indd 431 19/11/13 7:11 PM

Colour-coded Concepts and

applications check
At several appropriate points
Concepts and applications check
throughout the chapter, questions
Learning objective 4 outline the role of public relations in promotion
4.1 What are some examples of public relations activities?
and activities are provided to review
4.2 Prepare a marketing argument for and against this statement: ‘Any publicity is good publicity.’
and apply key concepts. These
4.3 What steps can companies take to counter the effects of negative publicity and/or manage a crisis?
activities are colour-coded to match
4.4 Richard Branson from Virgin has been described as a ‘master of PR’. Why do you think he would
corresponding chapter learning
be described in this way? What activities does Virgin undertake to generate publicity? objectives.

How to use this book xxv

 INTRODUCTION
Through accident or intent, the most successful businesses throughout history
have been those built around and focused on making their customers happy — and
doing it better than their competitors can. Every person, thing and process within a
market-oriented organisation strives to create value for the organisation’s customers.
It is the creation of a mutually beneficial exchange of value between one party and
How to use this book (continued) another that is the purpose of all marketing efforts.
Recognising the importance of a market orientation to success, this chapter intro-
duces the concept of marketing as a philosophy of how to do business. It explores
the formal definition: ‘the activity, set of institutions, and processes for terms and
Key creating,
communicating, delivering and exchanging offerings that have value for ncepts
cocustomers,
marke tin g
g and the brand 25
RY at large’6 and explains of marketinhow this definition refl
tes 25
SUMMa jective 1 provide an overview
clients, partners and society bundleectsof attributhe
rket — the clients 13
reality of marketingletoday.
ar ning ob tha t pu ts the ma sin ess co- cre ation 6
business all bu
heartisof purely ers 13
A lot of people haveprocess the misconception y of doing that marketing
— at the dingabout consumselling.
hy or a wa and competitors understan corporate
social
a philosop society, d involves e. Marketers ility 17
Marketing is most ting is
Markedefi nitely
cli en t, partnnot er andwell
ss is
described
cy clical in
natur aseerian‘the
ng arthang
for exc of sellingntl y sit u- products responsib
13
to
customer, ting pro ce liver an off y are cu rre customers
customers’. Not-for-profi
decisions.
Tht organisations,
e ma rke
, co mmunica
te an d community
de
ma rket and
ho w groups,
the
d wi th creati governments
ng sol u-
demand 25 and
ate , the next tas ke an d n 27
even individuals the use
marke t to cre
marketing the consumers For
practices. ter example,
s are the
ng it a time
Council
at of distributio
Australian
g rke eri
derstandin anding, ma market, and deliv ethics 15
start by un with this underst 11
Governments (COAG) Healthy
d Communities
ated. Arme unicating the offeri stomer.
ng to the Initiative is an Australian government exchange
beneficial within goods 26
initiative that aims to, co
tions mm
reduce the
en ien t for the cu
prevalence of overweight a muandtua lly obesity
greenw target
ashing 22
t is conv es
place tha t ma rke ting involv isti cs 28
tha log
populations. The target populations recognise of individuals at high risk
e 2 consist ofge developing
g objectiv e. Exchan market 12
lear ninare neficia l exchang st under- ting 3
chronic disease and who exchang e of val not
ue predominantly lop mu tua in
lly bethe paid
Marke ter workforce.
s mu For markemore
mix 24
is to deve to the exchange. ividual to marketing
process 8
information about the ess campaign, markego ting to www.healthyactive.gov.au. m one ind marketing
ence of parties s vary fro
The cre ati on for all . Va lue perception s are nee d 25
Marketing, doneinvwell, olves vais lue an approach
me rs pe rce ive valueto business that cce
su
infl
ssf uences
ul marke ter and informs
par tne rs 13
how custo changing. s and nts. dence 28
every activity of the standbusiness orever organisation. rketing As activitieyou me read s and wa
r needthrough this chapter,physical evi
d they are us of all ma eting custo
another an r is the foc cts in terms of me ial
place 27
think about how theThideas e custome discussed
w the ir produ can be applied toicsthe an d cothings
rporate socyou encounter process 28
25
who vie e of eth produc t
in your everyday life. those You will realise that importancare some common elements
ss thethere to27
e 3 discu It is promotion
lear ninsuch g objectiv for theplaceir owners. the service 26
each instance of marketing, ns ibi
as product,
lity in marke
ting price, fi ts
promotion,
an d wealth ati on to act(distribution),
in
soc
31
ial marketing pment 20
res po nerate pro ob lig ,
people, processes and physical arily to ge How these
evidence. have an t ethically sustainabl
e develo
sinesses factors are oblig
comeed to actogether may to pro- ting 21
exist prim however, that bu able marke
Key terms and concepts ess es Th ey ts, wh ich sus tain
vide a complete marketing Busin recognised
, them. uiremen marketing t
glyexperience is t what
sustains differentiates ibility req one ducts tha effort
stakehold
ers 17
increasin of the society tha te social respons nt, pro viding pro to be ply cha in 28
erests rpora failed vironmeand having need sup
from another; successful best intorganisations to fulfil cofrom ones; esses also loyal, m-satisfi ed t 24
Key terms and concepts in customers from having within the
law, and
no customersilanthrop
y, protec
ating
ting the
all.employm
natural en alth. Busin
ent and we s of the present
without co target marke
value 11
include ph need
d generat eting the
each chapter are highlighted benefit soc
iety an
to ensure
our futur
e by me wa nt 25

sustainable ure generations. rketing mi

x
and defined in both the WHaT IS MaRKeTING? promisin
g fut
objective
4 explain
the ele me nts of the ma
ments tha
t marketer
s ne ed to con-
rs to teach
lear ning ferent ele ting schola lude the
body text and the margin Marketing is everywhere andtinmuch
rke g mix de
scr s the dif youendo
ofibewhat
wo rks have be mo
by markedaywois
usedevery
rab le. Frame
in some way
rks inc learning objective 1
The ma frame to be me provide an overview
affected by it. Marketing different
is annyevolving discipline
designed and each marketer willstohavemers, their
of each relevant page. A sider. Ma d all
g anSome Ps
ha ve been
hanged ha ve va lue for cu
person. Pr od - of marketing and the
own take on exactly what marke ittinis.
, 6 Ps and
7 people
. — mistakenly
utes that
when exc — think
an idea or
even athat marketing
ents, while
page reference for each is is selling; some that marketing4 P s, 5 Ps
is a bund
A product is advertising;
le of
A product
att rib
can beand
,
a goodsome a ser vic e,
o-dthat
ay survi itvaisl req
uir em
making sures. your
marketing process
soc iet y. . Ne ed s are day-t off eri ng
included in the end-of-chapter or every Google its
business is listed at the top clientsof
to ne ed s and wantssearch
ed for su that
rvi val. in some
s in exc way
ha ng e forrelates
ny fac to
tor s, your
ucts cater sired but not requir a business demand unt of ma ility,
product. No doubt, you already have your
de own ney ideastha about take accomarketing
t must what ed profitab is.
wants are
summary material. For ease The most recent formal Pr ice is
defi the amou
nition
a co mp of
nt of mo
lex ma rketing de
marketing ica
cision
tio n is:
and distri
bution co
sto me
sts, requir
rs’
to pay. Ma
willingness understand
r-
marketing The activity, set
Pricing is commun and cu ality to
of reference, key terms and the activity, set of institutions,
inc
duction,
luding pro ements, competitor
andrequirprocesses
s’ prices,
forrelcreating,
ation sh ip be tween pr
ice and qu
communicating,
ed to un de rstan d what cu
stomers of institutions and processes
delivering and for creating, communicating,
partners’ derst an d the rke ter s ne
retur n.
ting 35
concepts for all chapters exchanging offerings that ke have
ters ne ed to un
value for
a custome
value from receive and what
customers, view. Ma
r’s point of y clients,
the are
prepared
to give in and society at large. 7 uctio
partners
Chapter 1
n to marke
Introd delivering and exchanging
offerings that have value for
are explained and page would lik
e to
Figure 1.1 (overleaf ) expands on this definition and begins to explain what each customers, clients, partners
9:31 AM
and
part of it means. society at large.
13/11/13

referenced in the end-of-book The definition refers to ‘activity, set of institutions and processes’, recognising the
glossary. broad scope of marketing — that it is not just a function that exists as a ‘marketing
department’ within an organisation, and that marketing is about much more than
tionToMarke
ting.indd
35
c01Introduc
advertising.

Chapter 1 Introduction to marketing 3

c01IntroductionToMarketing.indd 3 13/11/13 9:30 AM

SUMMaRY Key terms and

learning objective 1 provide an overview of marketing and the marketing concepts
process brand 25
bundle of attributes 25
Marketing is a philosophy or a way of doing business that puts the market — the
clients 13
customer, client, partner and society, and competitors — at the heart of all business co-creation 6
decisions. The marketing process is cyclical in nature and involves understanding consumers 13
the market to create, communicate and deliver an offering for exchange. Marketers corporate social
start by understanding the consumers, the market and how they are currently situ- responsibility 17
ated. Armed with this understanding, marketers are next tasked with creating solu- customers 13
tions, communicating the offering to the market, and delivering it at a time and demand 25
place that is convenient for the customer. distribution 27
ethics 15
exchange 11
learning objective 2 recognise that marketing involves a mutually beneficial
goods 26
exchange of value greenwashing 22
The essence of marketing is to develop mutually beneficial exchange. Exchange logistics 28
involves value creation for all parties to the exchange. Marketers must under- market 12
marketing 3
stand how customers perceive value. Value perceptions vary from one individual to
marketing mix 24
another and they are ever changing. marketing process 8
The customer is the focus of all marketing activities and successful marketers are need 25
those who view their products in terms of meeting customer needs and wants. partners 13
physical evidence 28
learning objective 3 discuss the importance of ethics and corporate social
Colour-coded responsibility in marketing
place 27
process 28
chapter summaries Businesses exist primarily to generate profits and wealth for their owners. It is
product 25
promotion 27
A concise summary of each increasingly recognised, however, that businesses have an obligation to act in the service 26
best interests of the society that sustains them. They are obliged to act ethically, social marketing 31
learning objective is provided within the law, and to fulfil corporate social responsibility requirements, which may sustainable development 20
at the end of each chapter. include philanthropy, protecting the natural environment, providing products that sustainable marketing 21
stakeholders 17
benefit society and generating employment and wealth. Businesses also need to be
supply chain 28
sustainable to ensure our future by meeting the needs of the present without com-
target market 24
promising future generations.
value 11
want 25
learning objective 4 explain the elements of the marketing mix
xxvi How to use this book The marketing mix describes the different elements that marketers need to con-
sider. Many different frameworks have been used by marketing scholars to teach
marketing and all have been designed to be memorable. Frameworks include the
4 Ps, 5 Ps, 6 Ps and 7 Ps.
 Lovedale Long Lunch Case study
Margurite Hook and Philip J. Rosenberger III, University of Newcastle

Planning is an integral part of a successful

marketing campaign, particularly for the Enjoy an entire
weekend of fine wine,
marketing of an event. Objectives, goals and an gourmet food and
overall marketing strategy are key factors in the live entertainment
across seven Lovedale
planning phase. An effective planning phase wineries, with Saturday
entry packages including
ensures that implementation and evaluation of re-admission on Sunday.
an organisation’s marketing happens easily and Bookings essential for groups
of 20 or more people.
smoothly.
Celebrating its 20th anniversary in 2013, Visit www.lovedalelonglunch.com.au for event information and ticket purchases.
the Lovedale Long Lunch is a weekend-long
event held in May each year. During the event,
patrons are treated to gourmet meals and wines from seven Lovedale wineries in the Hunter Valley
region of New South Wales. In 2013, over 25 000 meals were served to around 17 000 patrons across
the wineries involved. The seven wineries involved in the event are Allandale Winery, Emma’s Cottage,
Gartelmann Hunter Valley, Saltire Wines, Sandalyn Estate, Tatler Wines and Wandin Hunter Valley.
The critically acclaimed event has received awards for excellence in tourism, showing the high status
the event has achieved over its 20 years.21 Figure  15.3 presents the patronage figures for the past
eight years.

25 000

20 000

15 000 Case study

At the end of each
3. support health services to introduce a model of care that improves coordination of care for
10 000
Aboriginal and or Torres Strait Islander people chapter, a case study is
4. promote relevant health promotion and allied health service focused programs. For example, the
phase two campaign provides ‘Good Quick Tukka’ recipes (see www.herorewards.com.au) and provided for more in-depth
cooking classes to promote healthy eating.
5000
FIGURe 15.3 student analysis, further
Hero Rewards . . . The Choice is Yours
A comprehensive suite of resources was developed to support staff and services to promote recall Patronage for the Lovedale
encouraging the application
0 and refer patients to allied health services and health promotion programs. These included:
• workshops and training for community controlled health service professionals Long Lunch of key concepts to a real-life
2006 2007 2008 2009 2010 2011 2012 2013
• two television community service announcements (30-second commercials)
• a press ad template marketing situation.
• resources for health workers to use within their practice, such as postcards, notepad, pens and
Patrons have the option of attending thetear-off
event on either the Saturday or Sunday, or the full
brochures
weekend. To attend, an entry package must • resources for community The
be purchased. awareness, such asentry
Saturday A2 posters, banners,at
package, point-of-entry
$85, window labels
and desktop calendars
entitles the holder to receive two meal tickets, one dessert/cheese
• promotional ticket,
materials, such as bottled water,one tasting
bucket glass,
hats, jerseys andten tasting
stress footballs.
tokens and re-admission on Sunday. Each By of30the
Junetasting
2012, 22 tokens can
community be used
controlled toservices
health sample had wines
received at
thethe
start-up resource kits
and attended the initial introductory workshop outlining the campaign and implementation plan. An
seven wineries, and the holder can choose at which wineries they wish to use their
ix tickets for the
end the effective qualities of the campaign, and also
external evaluation strategy was developed appto identify
gourmet meals and dessert/cheese. There are two
to highlight theoptions for entry
overall outcomes on thewill
the campaign Sunday only:
have on both thepackage
services that are being delivered
and the uptake of health services by Aboriginal and Torres Strait Islander people.58
one ($65), which includes one meal ticket, one dessert/cheese ticket, a tasting glass and five tasting

p l an
tokens; or package two ($85), which includes
Questionsthe same features as the Saturday entry package
for discussion

Marketing
excluding readmission. In addition, patrons can purchase
1. Describe the marketingsupplementary meals
process using the Hero Rewardsand. . . desserts
The Choice isifYours campaign. Refer
to the marketing framework presented in figure 1.3.
desired.22 2. Go to the Hero Rewards website (www.herorewards.com.au) and look at the Hero Rewards Health Tool.
To ensure that the event runs smoothly and thecould
What else marketing is toused
a marketer do effectively,
encourage an
better health extensive
among Aboriginalplanning
and Torres Strait Islanders?
3. Outline
phase is implemented for the event. Planning forhow younext
the wouldyear’s
evaluate event
phase two of the Hero Rewards
commences very. .early,
. The Choice
withis Yours campaign.
meetings starting the week after the current year’s event is held. In wh other ws how the
words,
ich sho the planning is a
tin g pla n, use ful
continuous process with no distinct end, evenexam after the
ple of
rke has takenmoplace.
event
a ma del is a The seven wineries
ing is an nted. This pleme
The follow uld be im
process co
marketing
planning
Advanced ting plan.
activity
marke
have to prepare a
u
guide if yo Think of all the productsChapter
and services you consumed planning,
15 Marketing today. Which implementation
products have and evaluation 553
negative social and economic consequences?
Marketing plan activity/
Sample real-world
c15MarketingPlanningImplementationAndEvaluation.indd 553
Marketing plan activity 20/11/13marketing
1:19 AM plan
Think of an organisation that you would like to be the focus of a marketing plan
that you will prepare during this semester. Collect some background information Students are encouraged
on this organisation and its products (goods and/or services). Each week you will
have the opportunity to develop and refine a draft of this plan as your marketing
to progressively develop a
knowledge increases. By the end of the semester, by following the steps outlined in marketing plan for a product
each chapter of the text, you will have developed a professional ‘industry standard’
marketing plan, and enhanced your practical marketing skills in the process. of their own choosing, via
A sample marketing plan has been included at the back of this book to give you
an idea where this information fits in an overall marketing plan.
an activity at the end of
each chapter. A real-world
of the fina
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res are not
disclosed
nelise Bea
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rd from Chapter 1 Introduction to marketing 39 marketing plan is provided at
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through this process.

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How to use this book xxvii

 Additional resources
This textbook is just one part of a total Introductory Marketing resource package.
Additional resources are as follows.

iStudy Marketing. This digital study guide contains a range of interactive modules and
local videos to enhance student understanding and application of key marketing concepts.

Wiley Interactive E-Text. An interactive, electronic version of the full text is available as a
cheaper alternative to the printed text. The E-Text is perpetual, runs on all devices and is
accessible both online and offline.

Blackboard, WebCT and Moodle resources for Marketing, 3rd edition, are available for
online teaching and learning designs supported by these systems. Your John Wiley & Sons
representative can provide instructors with a demonstration of the rich resources available to
enhance course delivery and student learning.

PowerPoint teaching slides, prepared by Martyn Gosling, Victoria University of Wellington.

These visually appealing PowerPoint presentations are an easy-to-use instructor’s tool,
bringing both marketing theory and real-world applications to the classroom. Numerous
media slides featuring topical marketing-themed videos are provided to stimulate lecture or
tutorial discussion and analysis of key marketing concepts.

Video case studies. Local organisations and issues are featured, complete with
accompanying student activities/thought-provoking questions that encourage the
application of key marketing concepts.

Instructor’s test bank, prepared by Sandra Smith, University of Auckland. The test bank
provides an extensive range of multiple-choice questions to test student understanding,
as well as short answer/mini-essay style questions to test higher order thinking skills.
Questions are arranged by chapter learning objective and are identified as requiring factual,
applied or conceptual knowledge. Each question includes a correct/suggested answer, a
textbook page reference and a brief answer description.

Instructor’s Resource Guide, prepared by Sebastian Krook, Australian Catholic University.

The Instructor’s Resource Guide offers a number of methods to facilitate course preparation
and student assessment. Conveniently organised by chapter learning objective, these
resources include suggested responses for in-chapter ‘spotlight’ questions; responses for
in-chapter ‘Concepts and applications check’ questions; answers for end-of-chapter case
study questions; and suggested responses for each end-of-chapter Advanced activity.

xxviii Additional resources

Acknowledgements
The authors and publisher would like to thank the numerous academics who have provided
constructive feedback to help shape this edition, and also those who have provided case
study contributions. In addition the authors and publisher would like to thank the following
copyright holders, organisations and individuals for their permission to reproduce copyright
­material in this book.

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xxx Acknowledgements
 CHAPTER 1

Introduction
to marketing
Learning objectives
After studying this chapter, you should be able to:

provide an overview of marketing and the marketing process

recognise that marketing involves a mutually beneficial exchange of value

discuss the importance of ethics and corporate social responsibility in marketing

explain the elements of the marketing mix

discuss how marketing improves business performance, benefits society and

contributes to quality of life.
Do you see what I see?
For many, marketing has a bad reputation. It is important for any aspiring marketing
professional to understand the views of marketing that are widely held in the broader
community. Marketing is viewed by many people as an evil force; for some, it is viewed
as a business function that causes people to buy many things they don’t really need with
money they don’t have. For others, the marketing function is blamed for flawed products
that are sold in the marketplace. Finally, others are concerned about the messages that
are communicated by marketers. Many marketing messages include false or overstated
claims, and others fail to include complete information — leaving consumers largely in
the dark about the (short and long) effects of a product. These are but a few of the con-
cerns expressed by members of the broader community about the marketing profession.
Let’s take a brief look at alcohol. Australia, like many
developed nations, has a drinking problem, with an
estimated cost to the community of $36 billion a year1
and consequences for society that include alcohol-
related violence, the harmful effects of chronic dis-
ease or accident or injury.2 According to the ­Australian
­Institute for Health and Welfare, 1 in 5 Australians
aged 14  years or older consumed alcohol at a level
that put them at risk of harm from alcohol-related dis-
ease or injury over their lifetime.3 Australian research
shows that many ­Australian adults are not adequately
informed, and many do not enjoy alcohol responsibly as
a result.4 UK ­statistics reported in 2011 ­demonstrate
that industry-funded efforts to p­ romote safer drinking
(US$  104 million) are greatly out-gunned by alcohol
advertising (US$ 4.9  billion).5 As a result, young people are 239  times more likely
to see an alcohol advertisement than an advertisement promoting safe drinking
­(moderate drinking or abstinence).
Society as a whole is demanding that marketers work for the benefit of all of society
and minimise any adverse effects of marketing activities. Marketing is becoming a
discussion between marketers, customers and society that seeks to negotiate the best
­possible value for all the stakeholders in the marketing process. At this point in time, it
is ­important — more than ever before — for marketers to fully understand the products
they are marketing and the possible social and economic consequences of the misuse
of products. For marketing’s reputation to improve, the number of socially responsible
messages will need to increase (remember, only 1 in every 239 messages about alcohol
promotes safe drinking). To achieve a long and fulfilling career in marketing, it is
best to align with socially responsible organisations that have the broader community
interests and not purely profit motives at heart. Many examples where marketing is
contributing positively to society can be found. It is surely best to market a product or
service that is needed, improves health and contributes positively to society.

Question
Find one marketing message that concerns you. Why is this message concerning?
INTRODUCTION
Through accident or intent, the most successful businesses throughout history
have been those built around and focused on making their customers happy — and
doing it better than their competitors can. Every person, thing and process within a
market-oriented organisation strives to create value for the organisation’s customers.
It is the creation of a mutually beneficial exchange of value between one party and
another that is the purpose of all marketing efforts.
Recognising the importance of a market orientation to success, this chapter intro-
duces the concept of marketing as a philosophy of how to do business. It explores
the formal definition: ‘the activity, set of institutions, and processes for creating,
communicating, delivering and exchanging offerings that have value for customers,
clients, partners and society at large’6 and explains how this definition reflects the
reality of marketing today.
A lot of people have the misconception that marketing is purely about selling.
Marketing is most definitely not well described as ‘the art of selling products to
customers’. Not-for-profit organisations, community groups, governments and
even individuals use marketing practices. For example, the Council of Australian
Governments (COAG) Healthy Communities Initiative is an Australian government
initiative that aims to reduce the prevalence of overweight and obesity within target
populations. The target populations consist of individuals at high risk of developing
chronic disease and who are not predominantly in the paid workforce. For more
information about the campaign, go to www.healthyactive.gov.au.
Marketing, done well, is an approach to business that influences and informs
every activity of the business or organisation. As you read through this chapter,
think about how the ideas discussed can be applied to the things you encounter
in your everyday life. You will realise that there are some common elements to
each instance of marketing, such as product, price, promotion, place (distribution),
people, processes and physical evidence. How these factors come together to pro-
vide a complete marketing experience is what differentiates one marketing effort
from another; successful organisations from failed ones; and having loyal, satisfied
customers from having no customers at all.

WHAT IS MARKETING?
Marketing is everywhere and much of what you do every day is in some way Learning objective 1
affected by it. Marketing is an evolving discipline and each marketer will have their provide an overview
of marketing and the
own take on exactly what it is. Some people — mistakenly — think that marketing
marketing process
is selling; some that marketing is advertising; and some that it is making sure your
business is listed at the top of every Google search that in some way relates to your
product. No doubt, you already have your own ideas about what marketing is.
The most recent formal definition of marketing is: marketing The activity, set
of institutions and processes
the activity, set of institutions, and processes for creating, communicating, delivering and for creating, communicating,
exchanging offerings that have value for customers, clients, partners and society at large.7 delivering and exchanging
offerings that have value for
Figure 1.1 (overleaf ) expands on this definition and begins to explain what each customers, clients, partners and
part of it means. society at large.
The definition refers to ‘activity, set of institutions and processes’, recognising the
broad scope of marketing — that it is not just a function that exists as a ‘marketing
department’ within an organisation, and that marketing is about much more than
advertising.

Chapter 1  Introduction to marketing 3

 Marketing
is

the activity, set of the adoption of a way of doing business that

institutions and processes puts the market at the heart of decisions

for

developing a good, service or idea that is

creating, communicating,
promoted and distributed to customers in
delivering
the right place at the right time

and

exchanging offerings
a mutually beneficial exchange
that have value

for

individuals and organisations that benefit

customers from the products of:
– businesses and/or
clients – not-for-profit organisations
individuals and organisations that are part of
partners the marketer’s supply chain
FIGURE 1.1 the creation of employment, wealth and
society at large social welfare
Marketing defined

‘Creating, communicating, delivering and exchanging offerings that have value’

recognises that marketing must involve an exchange that benefits both the customer
who buys the product (a good, service or idea) and the organisation that sells the
product (a good, service or idea).
‘Customers, clients, partners and society at large’ recognises that organisations
need to conduct their marketing in such a way as to provide mutual benefit, not just
for the users of their products, but also for partners in the supply chain, and that
marketers must consider their impact on society. Marketing brings many benefits to
societies, including employment and the creation of wealth. With careful planning,
some marketing activities can be good for customers, people in the supply chain and
the environment. Consider McDonald’s — one of many major coffee purchasers that
changed their coffee buying practices in 2008. Today, McDonald’s serves only Rain-
forest Alliance coffee. Rainforest Alliance coffee guarantees farms that meet specific
and holistic standards balancing all aspects of production — including protecting the
environment, the rights and welfare of workers, and the interests of coffee growing
communities.8 Marketers must be aware of the impact that products and services
sold have on society — and they must work towards minimising the negative impacts
and maximising the positive impacts. This is referred to as corporate social responsi-
bility or sustainability. Corporate social responsibility is a commitment to behave in
an ethical and responsible manner, to ‘minimise the negative impacts and maximise
the positive impacts’.9
Marketing is a relatively new discipline, which came into its own in the 1960s.
Many of the ideas that underpin marketing theories draw on other disciplines,

4 Marketing
including psychology, sociology, economics and management. Many definitions of
marketing have been proposed over the years and marketing, like any new disci-
pline, continues to evolve today. Figure 1.2 describes how our understanding of
marketing has changed in recent history, including the increasing importance of
service-dominant logic in the progression of marketing thinking.

FIGURE 1.2
TRADE
Throughout history people have exchanged what they have for what they have wanted. The evolution of marketing
While some core marketing ideas (such as mutually beneficial exchange) were at play, formal
definitions of marketing did not exist.

LATE 1800S/EARLY 1900S

As technology and infrastructure were developed and built, businesses were able to
produce greater volumes of an ever-increasing range of products. Demand for these goods
was strong. Marketing at this time could best be described by the concept of a ‘production
orientation’. Marketers’ offerings were largely determined by what could be made, and what
people bought was largely determined by what was available. This is summed up in the
famous quotation of Henry Ford, ‘Any customer can have a car painted any colour that he
wants so long as it is black.’ (Black paint dried faster than any other colour, so it was the
most efficient colour to produce.)

1930S
As competition increased, companies could no longer rely on consumers to want and buy
everything they could make. This led to the ‘sales orientation’, which focused on increasing
profits through advertising and one-to-one selling. Consider the American Marketing
Association marketing definition in 1935: ‘Marketing is the performance of business activities
that direct the flow of goods and services from producers to consumers.’10

MID TO LATE 1900S

In the second half of the 20th century, customers had so many products to choose from
that they could not buy them all. When they did want to buy a particular product, they could
choose from many similar items. In a new era of increased competition, businesses realised
that customers would not automatically buy any product that a business happened to
devise. The approach to marketing changed to a ‘market orientation’ in which businesses
worked to determine what potential customers wanted and then made products to suit.
Marketing became mainstream business practice. Successful businesses in the late 1900s
were those that adopted a market orientation throughout their operations and responded to
the market’s needs and wants.

THE 2000S
Today businesses are increasingly faced with not only satisfying customer wants but
ensuring they are socially responsible corporate citizens. Businesses face well-informed
customers with an enormous number of competing products vying for their attention.
Marketers have broadened the concept of market orientation to view the market as not just
their customers, but also broader society. This view is reflected in marketers’ consideration
of issues such as the sustainability of their products and the benefits their products might
bring to society generally. This is known as a ‘societal market orientation’. Examples of
a societal market orientation in action include supermarkets offering to pack groceries in
reusable bags, potato chip marketers developing chips cooked in lower-cholesterol oils and
health clinics offering free vaccinations. Companies with a societal market orientation have
practices and policies that seek to minimise their negative impact on society and maximise
their positive impact.
(continued)

Chapter 1  Introduction to marketing 5

 FIGURE 1.2
WHERE NOW/WHERE NEXT?
(continued) The most recent advancement in marketing is the idea of service-dominant logic. service-
dominant logic represents a move away from a goods-dominant mentality. Marketing
inherited a model of exchange from economics, and traditional definitions of marketing
refer to the exchange of ‘goods’, or manufactured output. Examples include cars, orange
juice, tennis rackets — the list goes on. The traditional or goods dominant logic focused on
tangible resources (things that you can see and touch), embedded value and transactions.
Over the past several decades, as technology has improved and goods can be rapidly
copied by competitors, new perspectives have emerged. In 2004, Steve Vargo and Robert
Lusch published a paper in the Journal of Marketing introducing the idea of service-
dominant logic. This idea has rapidly gained popularity in marketing worldwide.
co-creation The process Service-dominant logic focuses on intangible resources, the co-creation of value, and
whereby consumer experiences relationships. Today the dominant logic for marketing is that service provision, rather than
are used to drive organisation a traditional goods focus, is fundamental to marketing exchange. Service-dominant logic
improvement and change, embraces concepts of value-in-use and the co-creation of value, rather than the value-
resulting in enhanced market
in-exchange and embedded-value concepts that were characterised in more traditional
performance drivers for the firm
marketing. Thus, instead of firms being informed to market to customers, they are instructed
(loyalty, relationships, customer
word of mouth). to market with customers, as well as other value-creation partners in the firm’s value
network. Companies following service-dominant logic have co-created product flavours,
improved software, advertisements and marketing campaigns with their customers. In
2012, the Stand For Japan contest initiated by the Japanese agency Asatsu-DK (ADK) was
created and implemented to source insights from foreigners about what they see as truly
unique to Japanese culture. Some of the artwork and videos were later exhibited at the
underground square of Tokyo Station from July to October 2012, and at Ad:Tech in Tokyo
on 7 November 2012.11

As you study this book you will develop a deeper understanding of just what is
meant by each component of the definition that we have described and, more impor-
tantly, your own understanding of what marketing is. Most importantly, though, you
will understand that for successful organisations marketing is a philosophy or a way of
doing business.

The marketing approach to business

Marketing is an approach to business that puts the customer, client, partner and
society at the heart of all business decisions. Marketing requires customers to be
at the core of business thinking. Rather than asking which product should we offer,
marketers who adopt best practice marketing thinking ask which product would our
customers value or like us to offer.
We are using the word ‘business’ in a broad sense. Remember that marketing is
used by:
• small businesses and large multinational corporations
• businesses selling goods and businesses selling services
• for-profit and not-for-profit organisations
• private and public organisations, including governments.
As mentioned previously, it is important to recognise that marketing is not just
about selling products to customers. In fact, for many organisations, that is not what
marketing is about at all. Think about the following examples. They all involve
marketing.
Cancer is a leading cause of death in Australia. An estimated 120  710 new cases of
cancer will be diagnosed in Australia in 2013, with that number set to rise to 150  000

6 Marketing
by 2020. One in two Australian men and 1 in 3 Australian women will be diagnosed
with cancer by the age of 85. Cancer Council Australia, a leading not-for-profit
organisation, and its members undertake a broad range of activities, including
­
funding cancer research in Australia. In 2011, the Cancer Council granted more than
$50 million to fund cancer research, and the organisation provides evidence-based
up-to-date information to patients and healthcare professionals.
Other activities include marketing a range of skin care products
and raising funds to support cancer patients.12
Breast cancer is a major health issue, being the second most
common cause of cancer-related death in Australian women. In
2007, 2680 Australian women died from breast cancer. The lifetime
risk of women developing breast cancer before the age of 75 years is
1 in 11. In June 1990, the ministers responsible for health in all states
and territories joined the federal government in jointly funding a
national mammography screening program. The national program
now known as BreastScreen Australia was established in 1991, and
is recognised as one of the most comprehensive population-based
screening programs in the world. BreastScreen Australia is tar-
geted specifically at well women without symptoms aged 50–69,
although women aged 40–49 and 70 years and older are also able
to seek screening. Today, BreastScreen Australia operates in over
500 locations nationwide via fixed, relocatable and mobile screening
units. Screening has increased significantly since commencement
of BreastScreen Australia in 1991, with a total of 1.6 million women
screened across Australia in 2007–08. Of these women, 1.2 million
(78 per cent) were in the screening program target age group of
50–69 years. The program’s aim is to achieve a participation rate of
70 per cent among women in the target age group. As of 2013, the
program was screening 54.9 per cent of women in this age group.13
In 2011, a research report uncovered that consumers love their
large, sleek, flat-screen televisions, but are becoming increasingly frustrated with
their dusty and dirty screens. The 2012 Australian Marketing Institute (AMI) Brand
Revitalisation Award Winner Kimberley-Clark launched Viva TV & Computer Wipes
in response.14 The wipes are cleaning products that have been specially designed to
safely remove dust, dirt, fingerprints and marks from a range of multimedia screens
— from TVs and computers to phones and tablet. It was the first TV screen cleaning
product made available in Australian supermarket cleaning aisles. At the time of
winning the AMI award, the brand was forecast to deliver $4 million to the cleaning
category in its first 12 months.15
Marketing is a science, a learning process and an art. Marketers need to learn
what customers, clients, partners and society want. This is an ongoing process as
customer preferences are continually evolving. Customers’ needs and wants change
with each product purchased, magazine read, conversation had or television pro-
gram watched. Marketers must use information to maintain their understanding.
Marketers must be creative and able to develop new ideas. Markets are cluttered and
there are many options available to consumers. The best marketers are able to offer
something that is unique or special to consumers.
In January 2013, Maria Sharapova — ranked second worldwide in women’s tennis —
launched a line of premium sweet and sour lollies called ‘Sugarpova’. With 12 flavours
and lollies shaped as high heels, purses and tennis balls, Sugarpova is a premium lolly
brand with a story about reward for success. The brand story is that Sharapova was

Chapter 1  Introduction to marketing 7

 awarded a lollipop after a good practice. It seems this is a product range
that has been created specifically with girls in mind, with more than
1 ­million bags predicted to sell worldwide in 2013. Sharapova has a long
history of working with brands — she’s been the face of brands like TAG
Heuer, Samsung, Evian and Head — and she has worked closely with Nike
and Cole Haan to design product lines for their brands. Her choice to align
with a lolly was immediately criticised as irresponsible and inappropriate,
with a whopping 21 grams of sugar per serving (five pieces). Following the
launch, there were many questions about whether lollies were the kind of
thing sport stars should be promoting. In late 2013, Sharapova announced
that she planned to officially change her name to ‘Sugarpova’ for the two-
week duration of the US Open, so that commentators would be required to
refer to her by the brand name.16
Mobile technology has opened up a huge opportunity for companies to
collect information and data. Marketers can use ‘active’ data collection —
asking mobile users to answer surveys or ‘like’ something on Facebook —
or they can collect ‘passive’ information. Our devices are collecting data
about us all the time. The GPS feature on most smartphones offers one
example. Apps such as FourSquare or our navigation apps track our where-
abouts passively, and this information can be used by marketers to track
the habits of consumers.

The marketing process

marketing process A process The marketing process involves understanding the market to create, communicate
that involves understanding the and deliver an offering for exchange. The marketing process is an ongoing cycle and
market to create, communicate often marketers will be undertaking multiple tasks simultaneously. However, when
and deliver an offering for
exchange.
you start your first marketing job, you will have to start with ‘understanding’, and,
for this reason, we will look at the marketing process sequentially. Marketers start
by understanding the consumers, the market and how they are currently situated.
This may involve undertaking some market research to gain insights into a problem
the marketer currently faces or reviewing sales data to understand how the com-
pany is currently performing. Marketers need to undertake a situation assessment to
understand how their company is positioned relative to the competition.
The understanding phase of the marketing process involves an analysis and
assessment of the marketing environment and markets (local and/or international),
as well as consumer and business buying behaviour. Marketers must start by under-
standing the situation they currently face, including both internal and external
factors, in order to create a solution to meet the needs and wants of customers. Mar-
keters use market research to understand consumer motivations, abilities and oppor-
tunities to act. For example, wine marketers can access market insight reports from
a market research company, such as the Nielsen Company, in order to understand
which wines they should range in their stores, how their wines should be branded
and which consumers they should target with promotions. For example, a recent
Nielsen report revealed that buyers of New Zealand wine are:
• more likely to be in their thirties
• more likely to live in metropolitan areas
• more likely to have a household income of over A$100  000 per annum
• more likely to experiment within the wine category
• less likely to be brand loyal.17
Armed with this knowledge, marketers would understand that placing several var-
ieties under one umbrella brand might be the best way to generate brand loyalty for

8 Marketing
New Zealand wines in Australia, and they could take steps to create, communicate
and deliver such an offering to the market.
Let’s take another example to illustrate the marketing process. Imagine that a food
marketer, based on research and an understanding of current trends, determines
that his company needs to create a new flavour of yoghurt in order to maintain
or grow sales in this product category in the dairy aisles of supermarkets relative
to competitors. Once testing and creation of the new flavour variant is complete,
the food marketer needs to communicate the offering to the market. This could be
achieved, perhaps, via mass media advertising and/or a point-of-sale campaign, in
order to change the way a group of target customers think and purchase. The food
marketer must constantly ensure their product is delivered and available at a time
and place that is convenient for the customer. The new flavour yoghurt variant in
this example has therefore progressed from the food marketer’s initial understanding
of market requirements through the production process and distribution chain —
ultimately ending up on supermarket shelves, with target customers hopefully being
fully aware of the new product offering. Marketers need to constantly monitor and
understand their effectiveness in all aspects of this process, as this cycle is ongoing.
Figure 1.3 visually represents these four broad components of the marketing process
and the interrelationships between each.

Understand

Deliver Create

FIGURE 1.3
Communicate The marketing process
involves understanding,
creating, communicating
and delivering an offering
for exchange of value.

It is important to note that delivery in the process outlined in figure 1.3 is also con-
cerned with quality and satisfaction. Marketers need to ensure the offering (product,
service or idea) satisfies the customer. Customers want products and brands that are
reliable and services that fulfil promises. Many companies track quality to ensure
they are delivering a product that is consistent, and which meets consumers’ expec-
tations. Marketers that are able to consistently satisfy their customers can build
loyalty and, in turn, this can lead to word-of-mouth. It is commonly accepted in
marketing that keeping customers loyal is cheaper than gaining new customers and
that brands with a loyal base of customers have a value that is an asset for a com-
pany. For this reason, branding is studied by many marketing academics to under-
stand how to build and maintain brands.

Chapter 1  Introduction to marketing 9

 Spotlight  USM Events and the multi-sport market
Timo Dietrich, Griffith University

USM Events has over 30 years of experience in managing triathlon and multi-sport events. Founded
in 1982 with the legendary Noosa Triathlon, USM Events has grown into an international company
that develops and manages mass-participation sporting events throughout the Asia–Pacific region. The
company manages 18 events; attracts 50  000 competitors each year; and operates from four offices
based in Melbourne, Brisbane, Noosa and Auckland.
Recent decades have seen a massive increase in the triathlon customer base, along with other
endurance sports such as running and swimming. Since their beginnings in the early 1980s, triathlons
have blossomed, with a range of events hosting over 200  000 participants in 2012, and Australian
running events are now seeing participation numbers over 85  000 at
some events. Going forward, there is a great opportunity to produce
multi-sport events that cater for a wider audience. As the industry of
multi-sport has grown, so has the knowledge base of customers
participating in these events. Today, customers have the luxury to
choose an event that best fits their interests.
USM recognised that it would need to expand its product offerings
to maintain its leadership position in the Australian and New
Zealand market. As a result, in 2012 the integration of the highly
successful Ironman and Ironman 70.3 events into USM’s portfolio
was announced. The appeal for USM of adding events stemmed
from opening up the multi-sport world to a larger customer base.
Most Ironman festival weekends feature a pinnacle triathlon event,
five kilometre fun runs, one kilometre ocean swims and children-only
events. This allows triathlons to be introduced to participants in a
fun manner, and provides opportunities for the entire family to get
involved on race weekend.
One of the key success factors for USM Events is a young and dynamic team that is close to its
stakeholders and listens to the market forces. Stakeholder insights are important, as they enable USM
to competitively and strategically align itself with the needs and expectations of participants, spectators,
officials and event partners. The company places high priority on listening to what its customers would
like out of a multi-sport event. For example, online surveys are emailed out after every event to provide
participants the chance to critique the event. Local surf clubs, sponsors and sporting communities
are consulted in each event market to ensure the existing stakeholders are satisfied with the event
production.18

Question
Visit the USM Events website (www.usmevents.com.au). In terms of what you have read in the chapter so far,
how would you describe USM Events’ approach to business and the marketing process?

Concepts and applications check

Learning objective 1  provide an overview of marketing and the marketing process
1.1 Find an example of marketing in action and analyse the extent to which you think the marketer
has adopted ‘marketing thinking’.
1.2 Find an example of a socially responsible company. Explain why you feel this company is socially
responsible.
1.3 Find an example of a company that is co-creating with customers. Explain why you feel this is an
example of co-creation.

10 Marketing
1.4 Define marketing in your own words. How has your understanding of marketing changed after
reviewing the first part of this chapter?
1.5 Explain how marketing can be used by not-for-profit organisations. Discuss an example in your
answer.

THE EXCHANGE OF VALUE

The aim of marketing is to develop mutually beneficial exchanges. Consider this Learning objective 2
example. A customer buys an 84 inch, ultra high-definition 3D television for $15  999. recognise that marketing
involves a mutually
The retailer and manufacturer receive money for the purchase and clear one stock
beneficial exchange of
unit, which contributes to their profits. The customer receives their much-wanted value
television, which they hang on their wall at home. The customer enjoys better
quality sound and picture and a more aesthetically pleasing television, along with
many other benefits. Both parties have received a benefit and both parties had to
give something up to receive something in return.
To be considered a successful marketing exchange, the transaction must satisfy exchange The mutually
the following conditions: beneficial transfer of offerings
of value between the buyer and
• two or more parties must participate, each with something of value desired by the
seller.
other party
• all parties must benefit from the transaction
• the exchange must meet both parties’ expectations (e.g. quality, price).
Once again, exchange can occur for all different types of organisations: large and
small, for-profit and not-for-profit, and private and public. Consider the following
examples of exchange:
Electricity is sold to an electricity retailer. A wholesaler sells electricity to an elec-
tricity retailer for $40 per megawatt hour.19 Wholesale electricity prices are impacted
by weather, demand for power by manufacturers, energy use levels by households and
electricity supply. The electricity retailer operates a network that is used to supply
and sell electricity to households and/or manufacturers for a profit.
Sales of Snickers bars surged globally from $3.3 billion in global sales in 2011 to $3.6 billion
for 2012, capturing a 1.8 per cent share of the global candy market, according to Euromon-
itor. The brand — supported by the BBDO developed ‘You’re not you when you’re hungry’
advertising campaign that first featured Betty White being crash-tackled in a Super Bowl
advertisement — has brought Snickers back to the top of consumers’ minds.20
Both parties need to feel the exchange will leave them better off. Without this,
exchange will not take place. Think about our first example again. The customer
was quite happy to spend $3299 on a 127 centimetre, 3D television because the ben-
efits received (3D picture, sound and aesthetics) outweighed the cost of purchasing
the television. Further, the retailer only sold the television because it could make a
profit that could be paid to the business’s owners. Exchange is a value-creating pro-
cess because it leaves both parties better off.
Like exchange, value is a core marketing concept. Value is a customer’s overall value A customer’s overall
assessment of the utility of an offering based on perceptions of what is received assessment of the utility of an
offering based on perceptions
and what is given.21 Some marketers view this simply as a ratio between quality
of what is received and what is
and price. This is the economic view of value. According to this view, value is a given.
­comparison between what a customer gets and what a customer gives; in other
words, the benefits a customer receives from a product in relation to its price. Other
marketers view value as unique and determined by the beneficiary. According to
this view, value is idiosyncratic, experiential, contextual and meaning laden. When

Chapter 1  Introduction to marketing 11

 value is viewed this way, it is not thought of in terms of one transaction. Rather,
value is thought of in a way that helps to promote customer loyalty and to consider
the lifetime value of the customer to the firm.
The idea that value is a ratio between quality and price is a simple view of value to
help you to understand the concept. Marketers know that the idea of value is more
complicated. Value refers to the ‘total offering’. This includes all aspects, from the
reputation of the organisation to how the employees act, the features of the prod-
ucts, the after sales service, quality and price. Most companies have competitors
and value is relative to the competition as the competing offerings influence how a
customer perceives value. For example, say two different brands of diet yoghurt are
available for purchase this week at Coles Online Supermarkets. Nestlé Diet Apricot
Yoghurt 2 × 200 gram packs sell for $2.58 while Yoplait Forme Yogurt Banana Honey
2 × 175 gram packs sell for $2.91. It is likely that Nestlé will be perceived as offering
more value with a cheaper price and larger pack size than Yoplait.
Value evolves continually. Value changes with each purchase, experience and con-
versation that a person has. For example, a student purchases a laptop online and
tells her friend that by purchasing online she saved $100. Her friend had purchased
the same model laptop at the recommended retail price at a department store near
campus. She chose the department store because it was convenient and she does not
have a credit card. While she was happy with her purchase at the time because it
was quick and convenient, she no longer feels satisfied with her purchase because
her perception of value has changed. Going back to the yoghurt example, the Nestlé
yoghurt was on sale this week. It usually retails for $3.15. The Yoplait yoghurt may
now be perceived to be better value.
Value means different things to different people. Value is unique for each indi-
vidual.22 Some customers perceive value when there is a low price while others per-
ceive value when there is a balance between quality and price.23 Going back to the
flat screen television example used earlier, the customer paid $3299 for a 127 centi-
metre, 3D television. Another person might think that $3299 is an outrageous price
for a television. It is clear then that value is a matter of individual perception. This
is where marketing becomes a little more complicated, because marketers have to
understand the perceptions of the market.

The market
market A group of customers A market is a group of customers with different needs and wants. Markets cover
with heterogeneous needs and varying groups of customers from geographic markets (e.g. the Malaysian market),
wants.
product markets (e.g. the smartphone market) and demographic markets (e.g. sen-
iors), to name a few.
Markets can also cover different types of customers. Remember from our defi-
nition of marketing that marketing is aimed at ‘customers, clients, partners and
society at large’. The term ‘customer’ is used most frequently in this text to help you
to better understand marketing because you are a customer. You are a customer who
buys goods and services for your own and maybe others’ use and you are already
able to understand marketing from a customer’s point of view. Our aim in this text is
to teach you to understand marketing from a marketing organisation’s or manager’s
point of view. While there are different groups that marketers cater to, the under-
lying principles of marketing remain the same.
Different marketers have to market to different groups. Some have to market to
customers or consumers, others market to businesses or clients, while other mar-
keters have to consider the needs and wants of society in general. The group that
the marketer has to market to is the focus of all marketing activities.

12 Marketing
 Successful marketers are those who view their products in terms of meeting cus-
tomer needs and wants. For example, a company that operates vending machines
that serve hot drinks should view its business as one that quenches people’s thirst,
warms them when out on chilly winter nights and gives them a caffeine boost when
they are feeling tired; not as a business that places machines on train station plat-
forms and mixes lukewarm water with powdered flavouring in a cardboard cup.
We will now discuss each group — customers, clients, partners and society — in turn.

Customers
Customers are those people who purchase products for their own or someone else’s customers People who
use, while consumers are people who use the good or service. For example, a mother purchase goods and services for
their own or other people’s use.
buys hair shampoo and conditioners for her own use. Her two children also use the
hair shampoo and conditioner when they need to wash their hair. The children use consumers People who use the
good or service.
or consume the products but they did not purchase them.

Clients
In the general sense, the word ‘client’ is often used as a synonym for ‘customer’,
especially with regards to professional services such as those provided by lawyers,
accountants and architects. In the formal definition of marketing, however, clients clients ‘Customers’ of the
refers specifically to ‘customers’ of not-for-profit organisations or social marketers products of not-for-profit
organisations.
(i.e. those seeking to encourage social changes), thus serving as a differentiator from
customers of businesses. ‘Customers’ of Medicare, Centrelink or a public hospital
and the viewers of anti-drug advertisements are all examples of clients.

Partners
Partners are organisations or individuals who are involved in the activities and partners Organisations or
processes for creating, communicating and delivering offerings for exchange. For individuals who are involved in
the activities and processes for
example, a partner may be an advertising consultant who is hired to develop mar-
creating, communicating and
keting communications to raise awareness for a sports club that wants to recruit new delivering offerings for exchange.
players for next year. A partner might be a supplier of raw materials or a retailer
in the distribution channel. Thinking back to our flat screen television example,
partners of the flat screen television manufacturer would include the retailer who
sells the flat screen televisions to customers and the manufacturing company that
supplies television screens to the television manufacturer. Marketers need to under-
stand how their partnership will benefit the partner. For example, say a wine mar-
keter wants retailers to stock their new wine. Before agreeing to stock the new range
of wine, the retailer needs to be convinced by the wine marketer that including this
wine in their product range will benefit their business.

Society
Society is a body of individuals living as members of a community. A society is a
highly structured system of human organisation for large-scale community living that
normally furnishes protection, continuity, security and an identity for its members.
Marketers must understand the needs of the societies in which they operate. For
example, Toyota developed the Prius (a hybrid car that generates its own electrical
power, thus reducing the amount of petrol it consumes) in response to growing con-
cerns about the environmental impact of cars. Successful marketers demonstrate an
awareness of community concern about the natural environment, responsible use
of resources, sustainable practices and social equity. Studies suggest that companies
that demonstrate social responsibility have higher profits and market capitalisation.24

Chapter 1  Introduction to marketing 13

 Spotlight  Telstra: the challenge of delivering value
over time
Marketing is an approach to business that puts the customer at the heart of all business decisions.
The world is rapidly changing, placing many businesses at risk as customers adapt to advancing
technology. Telstra is one major Australian business that needs to undergo a rapid transformation to
remain as relevant to customers today as it was in the 1990s when every Australian house had a fixed
Telstra telephone line.
Telstra shareholders face a problem. With industry competition increasing and technologies
rapidly evolving, Telstra’s ability to continue delivering its 28-cent-per-share dividend is under
threat. When the company was floated in 1997, it enjoyed a near monopoly of the Australian
telecommunications industry. Much has changed since. The mobile business, once Telstra’s
dominant business, is characterised today by cut-throat competition. Alan Kohler sums up
the challenges facing Telstra well.
One of my daughters moved out last week. The little house she’s now living in doesn’t have the
phone on and she and her housemate have absolutely no intention of putting it on.

The rise of mobile, coupled with an evolving, more web-like TV market, will present a vastly
different communications landscape. Rising to the challenge will entail many changes to old
business processes and networks for companies such as Telstra. Forecasts suggest that by
2017, 85 per cent of the world will be covered by 3G mobile internet, and half will have 4G
coverage. Three billion smartphone users will contribute to data traffic that’s 15 times heavier
than today’s. The trend is clear. Communication technologies are moving almost exclusively to
the internet. Landlines are steadily being replaced by VoIP services and mobiles, and online
TV streaming is gaining ground.
Rather than text or call, research by Nielsen shows that younger users increasingly
communicate online through Facebook and Twitter. This has already eroded Telstra’s pricing
power. Text messages, once charged at 25 cents a pop, are now effectively free on most
mobile plans.25

Question
How can Telstra deliver value to customers while increasing shareholder value?

Concepts and applications check

Learning objective 2  recognise that marketing involves a mutually beneficial exchange of value
2.1 Provide three examples of products for which the customer may not necessarily be the consumer.
Briefly outline how this would affect the marketing of each product.
2.2 In your own words, define ‘value’.
2.3 Our perceptions of value are constantly changing. Describe the last time that your perception of
value changed for mobile phone packages (either pre-paid or plan). To answer this question you
might want to describe your most recent mobile phone plan, the factor(s) that led to your change
in perception and how your perception changed.
2.4 You are applying for a graduate marketing job. How is a graduate marketing job mutually
beneficial (for you and your new employer)?
2.5 Go to the Apple website. Print a picture and the specifications of the latest iPad or iPhone release.
Interview two people, showing them the information you have obtained and the picture. What are
their perceptions of value? Do they view value as an economic function, or is value viewed differently?

14 Marketing
ETHICS, CORPORATE SOCIAL RESPONSIBILITY
AND SUSTAINABLE MARKETING
In the first two sections of this chapter, we have learned that a marketing transaction Learning objective 3
is an exchange of value that benefits the marketer, customers, clients, partners and/or discuss the importance
of ethics and corporate
society at large. Today’s managers face volatile economic forces, differences in organ-
social responsibility in
isational and cultural values, cultural diversity among customers, rapidly changing marketing
technology, environmental issues and finite resources. Humanity is facing a variety
of serious sustainability challenges. The crises that we are facing globally include: cli-
mate change; rising sea levels; peak oil; ocean acidification; loss of biodiversity and
forests, fisheries, soil and fresh water; and extreme poverty and inequity.26
Standards such as those published by the UK’s Marketing and Sales Standards Set-
ting Body (MSSSB) suggest that a principal activity that marketers must undertake
is ‘to ensure that an organization’s strategies and policies are centered upon cus-
tomers and an organization’s corporate social responsibilities’.27 As noted by the UK
Chartered Institute of Marketing (CIM), marketers have a key role to play in shaping
the sustainable agenda. Marketers are the employees that are closest to the cus-
tomer, and much of the growing interest in social responsibility and sustainability
is coming from consumers. Consumers want to know where a product is coming
from and who made it. Consumers want to know what is behind the brand. Cus-
tomers want to know how to safely dispose of a product when used, and whether
the product can be recycled. In this section of the chapter we will explore these con-
cepts in more detail.
The primary purpose of a business is to generate profits and long-term wealth for
the owners. Businesses do, however, have many secondary purposes, including pro-
viding products and creating employment; and have many secondary stakeholders,
including employees, customers and the community at large. Many organisations
exist in which the profit motive is not the primary consideration. Public sector
organisations and charities are examples of these. For businesses, it has long been
debated just where the balance should be between profit-motivated activities and
secondary purposes — and whether it is appropriate to consider them ‘secondary’
at all. To explore this problem, we will look at ethics, law, corporate social responsi-
bility and sustainable marketing.

Ethics
Ethics refers to a set of moral principles that guide attitudes and behaviour. More ethics A set of moral principles
simply, ethical behaviour involves doing what is ‘right’. It is clear then that what is that guide attitudes and
behaviour.
ethical cannot be summarised in a simple set of rules. Rather, ethics is subjective
and depends on social, cultural and individual factors.
Many marketing decisions involve ethical issues, in which a choice must be made
between multiple possible courses of action, which each involve different ethical,
legal, social, economic and environmental considerations. Competing priorities are
the source of many ethical dilemmas in business. Some of the most common that
arise in marketing are truth in advertising, the marketing of products that may be
dangerous or contribute to poor health, and engaging in fair competition with rival
businesses.
Responsible businesses often implement a code of ethics or code of conduct to
help govern their actions and guide the decisions of those who work in the busi-
ness. The Australian Marketing Institute, a peak body representing marketers, has
developed a code of conduct to guide marketing activities. The code is represented
in figure 1.4 (overleaf ).

Chapter 1  Introduction to marketing 15

 CODE OF PROFESSIONAL CONDUCT
1. Members shall conduct their professional activities with respect for the public interest.
2. Members shall at all times act with integrity in dealing with clients or employers, past
and present, with their fellow members and with the general public.
3. Members shall not intentionally disseminate false and misleading information, whether
written, spoken or implied nor conceal any relevant fact. They have a duty to maintain
truth, accuracy and good taste in advertising, sales promotion and all other aspects of
marketing.
4. Members shall not represent conflicting or competing interests except with the express
consent of those concerned given only after full disclosure of the facts to all interested
parties.
5. Members, in performing services for a client or employer, shall not accept fees,
commissions or any other valuable consideration in connection with those services from
any other than their client or employer except with the consent (express or implied) of
both.
6. Members shall refrain from knowingly associating with any enterprise which uses
improper or illegal methods in obtaining business.
7. Members shall not intentionally injure the professional reputation or practice of another
member.
8. If a member has evidence that another member has been guilty of unethical practices it
shall be their duty to inform the Institute.
9. Members have a responsibility to continue the acquisition of professional skills in
marketing and to encourage the development of these skills in those who are desirous
of entry into, or continuing in, the profession of marketing management.
10. Members shall help to improve the body of knowledge of the profession by exchanging
information and experience with fellow members and by applying their special skill and
training for the benefit of others.
11. Members shall refrain from using their relationship with the Institute in such a manner as
to state or imply an official accreditation or approval beyond the scope of membership
of the Institute and its aims, rules and policies.
FIGURE 1.4 12. The use of the Institute’s distinguishing letters must be confined to Institute activities,
or the statement of name and business address on a card, letterhead and published
The Australian Marketing
articles.
Institute code of
13. Members shall co-operate with fellow members in upholding and enforcing the Code.
professional conduct

Most marketing situations do not involve a simple choice between one ethical
and one unethical path. The very nature of ethics is imprecise. In addition to codes
of conduct and other guiding principles that a business may adopt, society imposes
laws to govern the conduct of individual and organisational behaviour. The law’s
relationship to ethics is discussed next.
Law
In addition to ethics, the way individuals and organisations conduct themselves
in society is governed by law. Most law is derived from ethics, but it is quite
­possible to act unethically within the law, and — many would argue — to act ille-
gally but  ­
nonetheless ethically. Laws represent society’s attempt to ensure indi-
viduals and organisations act in a way that the society deems beneficial, or at least
acceptable.
In Australia, business conduct is governed by numerous laws, including, for
example, the Competition and Consumer Act (formerly the Trade Practices Act)
and the Privacy Act. In addition, there are regulatory bodies at the state and fed-
eral levels; for example, the various state Offices of Fair Trading, and, federally, the

16 Marketing
Australian Competition and Consumer Commission. New Zealand has similar laws
and regulatory bodies. The main New Zealand laws governing business conduct are
the Sale of Goods Act, the Fair Trading Act, the Consumer Guarantees Act and the
Commerce Act.28 The New Zealand regulatory body equivalent to the Australian
Competition and Consumer Commission is the Commerce Commission.29

Corporate social responsibility

The concept of corporate social responsibility is simply that businesses have an obli­ corporate social
gation to act in the interests of the societies that sustain them. This is an over- responsibility The obligation of
businesses to act in the interests
arching responsibility that affects all aspects of a business’s operations and involves
of the societies that sustain them.
all of its stakeholders, including:
stakeholders Individuals,
• owners: the business must generate long-term wealth by acting profitably and organisations and other groups
sustainably that have a rightful interest in the
• employees: businesses and not-for-profit organisations provide jobs that ensure activities of a business.
wealth is shared among members of society, and provide employees with reason-
able working conditions
• customers (and clients): the business must attract and retain customers by offering
products of value
• partners: the business must act in such a way towards its partners that those part-
ners can achieve their own business aims and meet their own corporate social
responsibilities
• government: the business must abide by laws and regulations.
At the heart of corporate social responsibility is a business’s obligation to act
ethically, lawfully and in the best interests of all of its stakeholders, including the
society — increasingly the global society — in which it operates. We should ask what
motivates ‘good corporate citizenship’. Is it to create benefits that ultimately serve
the primary goal of generating profits and wealth, or is it a goal in its own right? We
should also ask ourselves to what extent it matters.
Many businesses place a great deal of importance on being — and being seen to be —
a ‘good corporate citizen’ and, increasingly, are devoting resources to ensure their
operations act in the interests of all stakeholders. A business
that meets its corporate social responsibilities can expect
benefits from good public relations and the absence of
restrictive regulations. In January 2013 ex-­tropical cyclone
Oswald caused destruction along the Queensland coast with
damaging winds, heavy rain, flooding, tidal surges and
tornadoes. After the devastating flooding that followed,
­
many businesses made generous financial contributions to
the Australian Red Cross Queensland Floods Appeal to assist
with the rebuilding effort. The appeal brought in more than
$7.8 million through donations and pledges to help those
who were hit the hardest. One corporate donor, Westpac, set
up a corporate social responsibility program and encouraged
customers to make deposits to assist the flood and tornado
recovery effort.30
Involvement with such activities can also help companies to attract high-quality
employees — particularly high-quality younger employees. This is because indi­
viduals have come to ask not just what their employer can offer them, but also
whether they can believe in what their employer does. Such activities extend phil-
anthropic (i.e. giving) actions to make them of strategic benefit to the business —
the voluntary acts benefit parts of society and benefit the business.

Chapter 1  Introduction to marketing 17

 Conversely, a business that acts with disregard for its society can expect a cus-
tomer backlash and the imposition of rules to force it to comply with society’s expec-
tations. This is demonstrated by the ongoing public debate about food advertising
during children’s television programming. Current regulation does not protect chil-
dren from being bombarded with ads for junk food. Around 54 per cent of TV food
ads aired between 6 am and 9 pm are for unhealthy foods. The volume of unhealthy
food ads increases when children are most likely to be viewing television — early in
evenings and on Saturday mornings. Australia has the world’s highest rate of junk
food advertising on children’s television and one of the highest rates of childhood
obesity.31 The marketers of food aimed primarily or partly at children (a very broad
range of products, including fruit juice, biscuits, hamburgers, pizza, muesli bars, lol-
lies and bread) argue that it is important to advertise their products to their target
market (which is not only the children, but also the likely purchaser — their parents
or guardians). Some healthcare organisations, however, argue that advertising high-
fat, high-calorie foods to children is a major contributor to the increasing rate of
childhood obesity evident in most Western societies. Various organisations are, thus,
lobbying governments to introduce regulations that restrict or ban the advertising of
certain types of food during children’s television broadcasts.
Most businesses have more power and resources than the customers and many of
the other stakeholders with which they interact. As a result, the business tends to
be the more powerful party in any marketing exchange. In a bid to create more of a
level playing field and ensure consumers are not taken advantage of, various groups
have been formed to play the role of consumer watchdogs or consumer advocates.
The best known in Australia is CHOICE, which reviews and compares products,
aims to educate consumers about their rights, and campaigns in consumers’ inter-
ests. It publishes a magazine by the same name. In New Zealand, a similar organ-
isation known as Consumer NZ acts on consumers’ behalf. It publishes a magazine
titled Consumer.
A popular way of thinking about good corporate citizenship is the Triple Bottom
Line, which is comprised of social, environmental and profit considerations. There
are many avenues available for companies to increase their Triple Bottom Line, and
some are outlined in figure 1.5.32 Good corporate citizenship involves looking after
the environment and employees; this approach, if taken, can assist a company to
maintain or increase profits.
A key issue faced by any manager in the 21st century is potential for corporate
greed. Some executives are accused of being paid excessive amounts of money
that are difficult to justify. Consider Westpac CEO Gail Kelly, who receives a salary
package of $9.6 million each year, or Commonwealth Bank CEO Ralph Norris, who
earned $63  000 per day in the last year before retiring in November 2012.33 Given
that $63  000 is more than the average Australian earns each year, these amounts of
money are difficult for consumers to accept when they are faced with increasing
fees on their banking accounts year in and year out. While it is acceptable to make
profit as a return for the risk of investing capital in a business, companies need to
operate in a transparent way to avoid consumer cynicism. Let’s stay with banking
for the moment. Interest rate movements by the Reserve Bank of Australia (or
New  ­Zealand) are usually the precursor to interest rate movements by the major
banks in both countries. When banks such as the Commonwealth, NAB, Westpac or
ANZ increase the interest rates on home loans by more than any increase announced
by the Reserve Bank, there is usually a media and public outcry of corporate greed.
The accusation is generally that the banks are putting profits and the interests of
shareholders ahead of their borrowing customers.

18 Marketing
 Environmental

• Reduce the ‘footprint’ that

negatively impacts on environment
• Lower pollutants and emissions
• Reduce energy wastage
• Reduce usage of non-renewable
energy
• Minimise climate change agents
• Use sustainable packaging (e.g.
wood pulp from managed forests)
• Recycle
• Source produce locally

Social Economic

• CSR initiatives • Ensure future economic

• Fair trading development of company
• Support local suppliers • Create sustainable financial
• Reduce promotion of addictive bottom line
substances and foods that • Minimise negative impact on other
contribute to obesity, and focus countries’ economics
on healthier alternatives • Save money by reducing energy
use

FIGURE 1.5
The Triple Bottom Line

Business models are built on constant growth, and it is this very model that is now
being questioned in some quarters. From an economic perspective, the continual
strive for greater efficiency is based on increasing production, profits and standards
of living. But is it always realistic for businesses to expect to grow year in and year
out? Can marketers increase prices each year to meet ever larger budget targets that
are forced on them by managers who want more growth in profit? Can governments
continue to raise taxes over time? Can you continue to gain more and more credit?
The answer should be ‘no’, without a rising income! People generally have a fixed
income level that, in time, rises with inflation or a job promotion. It is not possible
for a person or a household to continually absorb more and more and more. There
is a finite limit for consumption. Individuals are increasingly beginning to question
companies and whether the values of their employer are consistent with what they
want for their children, grandchildren and so forth. In order for future generations
to live in the same style as we do today, traditional business practices and ways of
thinking may need to be challenged to ensure that we can continue to survive —
and indeed thrive — in a world of finite resources.

Chapter 1  Introduction to marketing 19

 Sustainability
Sustainability is currently being widely debated as a business philosophy that is
needed to ensure our future. According to sustainability experts the Earth needs
our help. With a growing human population and a shrinking resource base, the
planet simply cannot supply the materials demanded by our consumption-oriented
society. During the last century, there was rapid growth in the Earth’s human popu­
lation, quadrupling to 6.4 billion and placing other animal species and habitats
in jeopardy. Today, the human population is growing at the rate of a quarter of a
­million people each day,34 and along with this growth comes an increase in the
global material consumption. The 1990s and 2000s were a time of consumption
growth for nearly every standard household. Growth in consumption is a leading
factor in human-induced environmental change. The ever-growing industrial and
social metabolism requires increasing amounts of raw materials to support the con-
sumer demand. In past decades consumers have shifted towards home luxuries,
vehicles, televisions, refrigerators and other products that require greater amounts
of energy and materials to make, operate and maintain.35 For example, ­Australians
expect their homes to contain a variety of standard features that were once consid­
ered to be luxuries, such as en suite bathrooms in every bedroom, double garages
and media rooms.36
sustainable development  Sustainable development is defined by the Brundtland Report as ‘development
Development that meets the that meets the needs of the present without compromising the ability of future gen-
needs of the present without
erations to meet their own needs’.37
compromising the ability of
future generations to meet their Achieving sustainable development includes strategies to reach economic (profit),
own needs. social (people) and environmental (planet) goals. These include factors such as a
reduction in consumption (purchasing less), changing purchasing (e.g. moving from
finite energy resources to renewable energy resources), downsizing of the products
consumed (e.g. purchasing smaller homes and smaller cars), the reuse of materials
(e.g. recycling shopping bags into furniture) and the marketing of green products.
In countries such as Australia and New Zealand, it is difficult to find a recent policy
or strategic government plan that does not include the concept of sustainability.
­However, continued unchecked non-sustainable growth in consumption will inhibit
our ability to guarantee that future generations will be able to enjoy the same life-
styles as we do today. Consumers who practise green or ethical consumerism can
help achieve sustainability. The ability of consumers to choose responsibly pro­
duced or environmentally friendly products is seen as a ‘promising means’ to help
persuade companies to change their production methods to be more environmen-
tally friendly. Of course, businesses and marketers can proactively change cur-
rent marketing practice ensuring that, in the future, some (if not all) marketing is
sustainable.
Until recently, sustainability was the primary focus of a company’s CSR (corporate
social responsibility) department. But as the global community struggles with the
issues of over population, increasing energy demands, loss of bio-diversity and the
wide-ranging impacts of climate change, the sustainability issue is now a priority
across boundaries — political, cultural and professional. Examining ways in which
our marketing practices can become more sustainable is an industry issue of key
importance, and one which all organisations, large and small, must tackle if they
want to thrive. Pioneering companies have proved that moving towards more sus-
tainable marketing practices can be a shrewd business move. For many, operating
in an ethically and environmentally responsible way is proving to be a cost-effective
hit with customers.38

20 Marketing
Sustainable marketing
As influencers, communicators and shapers of culture, marketers can ensure that
they make a significant difference both to their customers, the planet and to the
bottom line. The concept of sustainable marketing refers to the marketing pro- sustainable marketing The
fession’s obligation to change marketing processes in which the exploitation of ‘way and means’ for combining
ecological and economic
resources, the direction of investments, the orientation of technological develop-
elements through innovative
ment and institutional change are made consistent with future as well as present products and systems.
needs. In practice, sustainable marketing is simply about looking at your products
and/or services, assessing how your products and/or services impact the environ-
ment, and then taking steps to minimise those impacts.
News Limited has implemented a sustainability program called ‘1 Degree’, which
focuses on factors such as carbon emissions, energy and water use reduction, and
increases in recycling. The program was started by News Limited in 2007 with a
singular commitment to reduce the corporation’s carbon footprint by 20 per cent
by 2010. News Limited audited over 86 per cent of its operations, identifying 206
carbon reduction projects. In the year to June 2006, News Limited’s carbon footprint
was 147  133 tonnes of carbon dioxide (or carbon dioxide equivalents). By June 2011,
its annual emissions had fallen to 131  875 tonnes of CO2 equivalent. By investing in
energy efficiency measures across the News Limited business, News Limited also
benefited by saving money.
Dell (a leading global computer manufacturer) employs a variety of sustainable
marketing practices, including the use of an average of 50 per cent recycled paper
for its publishing needs in marketing materials, and up to 90 per cent in some cases.
According to Dell, this strategy avoids using about 35  000 tonnes of virgin fibre annu-
ally. In its offices, Dell now defaults to double-sided printing where possible. Finally,
the company reduced the size of its product packaging by 10 per cent by 2012, and
increased the amount of recycled content inside.39
There are many ways that marketers can implement sustainable practices (see
the sustainability checklist in table 1.1). Examples include printing using only envi-
ronmentally friendly inks and recycled paper; reducing the use of direct mail and
increasing the use of online communications; creating online catalogues instead of
printed catalogues; and using virtual communications such as skype, video confer-
encing and webinars where possible to replace personal travel.

Table 1.1  Sustainability checklist40

Product Reduce Reuse Recycle

What is it made from?

Who makes it?

How is it packaged?

Is the packaging reusable?

What is its lifespan?

Can the product be repaired/reused?

How will the product be disposed of?

(continued)

Chapter 1  Introduction to marketing 21

 TABLE 1.1  (continued)

Place/distribution Reduce Reuse Recycle

Where is it made?

How is it transported?

Is the transportation as efficient as possible?

Is packaging used for transportation reusable or recyclable?

Where/how is the product sold to the consumer?

How does the product finally reach the consumer?

Price Reduce Reuse Recycle

Does the price include a warranty for repair or replacement?

Does pricing reflect the sustainability values of the

organisation?

Are pricing incentives being used to stimulate

over-consumption?

Promotion Reduce Reuse Recycle

What resources are being used to communicate?

Are the products accurately and honestly communicated?

Business partners Reduce Reuse Recycle

Business partners should also be audited using the

questions above. Business partners that are aligned to your
sustainability goals help you to better reach your goals.

Implementation of CSR and sustainability

The idea that a business should act in such a way that it creates the most benefit
possible for society and meets today’s needs without compromising the ability of
future generations to meet their own needs sounds simple — but in practice it can
be very complex. Once management decides to commit to an ethical and responsible
way of conducting business that is sustainable, it should implement policies and pro-
cesses. It should also seek to build a culture guided by ethics and consideration of
all stakeholders that understands how to meet today’s needs without compromising
the ability of future generations to meet their own needs. As discussed earlier, some-
times the policies and culture can be embodied in a formal code of conduct.
A business must also ensure that it empowers its stakeholders to achieve the
greenwashing The
ideals included in its policies, processes and codes. For example, a business that
dissemination of questionable or
potentially misleading information commits that it will not exploit workers but then sets production targets that require
by an organisation in relation excessive overtime is not meeting its corporate social responsibilities. A business
to its products, in order for the must not send mixed messages, nor adopt codes or policies that are no more than
organisation and its products to public relations tools. Marketers are often accused by consumer rights groups of
be perceived as environmentally
greenwashing. Greenwashing is the dissemination of questionable or potentially
friendly.
misleading information by an organisation in relation to its products, in order for

22 Marketing
the organisation and its products to be perceived as environmentally friendly. This
practice should be avoided at all costs. International standards are in place for mar-
keters seeking to make environmental claims (such as compostable, recyclable,
reduced energy consumption, reusable and refillable). The International Organ­
ization for Standardization (ISO) develops such guidelines. For example, ISO14012
specifies requirements for self-declared environmental claims, including statements,
symbols and graphics regarding products. ISO14012 further describes selected terms
commonly used in environmental claims and gives qualifications for their use. This
standard also describes a general evaluation and verification methodology for self-
declared environmental claims, and specific evaluation and verification methods for
the selected claims in this standard.41

ACCC versus Dulux Spotlight 

Janet Palmer, Griffith University

The Australian Competition and Consumer Commission (ACCC) is an independent statutory authority.
Formed in 1995, the main role of the body is to administer the Trade Practices Act 1974 (renamed
the Competition and Consumer Act 2010 on 1 January 2011). The ACCC promotes competition
and fair trade in the marketplace to benefit consumers, businesses and the community. Its primary
responsibility is to ensure that individuals and businesses comply with the
Commonwealth’s competition, fair trading and consumer protection laws,
including environmental claims.42
As well as education and information, the ACCC promotes dispute
resolution when possible as an alternative to litigation, and oversees
anti-competitive conduct and takes legal action when necessary. The
commission provides a range of guides and publications to assist
businesses. In particular, the Green Marketing and the Australian
Consumer Law Guide educates businesses about their obligations
regarding environmental claims under the Competition and Consumer
Act 2010.43 It aims to assist manufacturers, suppliers, advertisers and
others to assess the strength of any environmental claims they make and
to improve the accuracy and usefulness of these claims to consumers
through their labelling, packaging and advertising. The guide aims to help
companies and individuals avoid false and/or misleading environmental
claims.
In early December 2012, the ACCC issued Federal Court legal proceedings against DuluxGroup
Australia for alleged misleading and deceptive advertising of paints. The focus of the proceedings was
on two paint products — Dulux InfraCOOL and Dulux Weathershield Heat Reflect — that claimed to
substantially reduce the temperature inside a house. According to Dulux, InfraCOOL would lead to
lower CO2 emissions and lower energy bills for a house painted with the new product using ‘InfraCOOL
Technology’. The Dulux website promoted InfraCOOL as a ‘sustainable solution that reflects and emits
the sun’s solar radiation to provide a cooler surface’. The ACCC accused Dulux of falsely representing
that when compared to standard house paint of the same colour:
Dulux InfraCOOL roof paint can and will reduce the interior temperature of the living zones of a house
by 10 oC, and significantly reduce energy consumption costs and the carbon footprint of homes. Dulux
Weathershield Heat Reflect exterior wall paint can and will reduce the surface temperature of the external
walls by up to 15 oC, and significantly reduce indoor temperature; and significantly reduce energy costs.44

DuluxGroup Australia promoted the products nationwide on its website and Facebook page; in
print and television advertisements; and on colour cards and the paint tins. The Chair of the ACCC,
Rod Sims, stated that DuluxGroup has a corporate responsibility to ensure its claims are accurate and
backed by science and/or technical evidence.

Chapter 1  Introduction to marketing 23

 The fine print on the Dulux website, prior to its removal in early January 2013, stated that the evidence
upon which the claims were based was a result of a comparison of two identical buildings. The test
was done using highly reflective white paint on one roof and original dark coating on the other. It
further detailed that the results were subject to a long list of variables, such as house type, location,
building design, window placement, occupancy use and ventilation. The small sample size on which
the claims were based was also of concern. The ACCC allege that the company did not have adequate
or reasonable basis to make those claims, and therefore has breached the Australian Consumer Law.

Question
What actions would you take if you were the CEO of DuluxGroup Australia?

Concepts and applications check

Learning objective 3  discuss the importance of ethics and corporate social responsibility in
marketing
3.1 Distinguish between ethics, sustainable marketing and corporate social responsibility.
3.2 Conduct an audit on a product or service that you are familiar with using the sustainability
checklist (table 1.1).
3.3 Visit the website of a business that you have dealings with (e.g. your university, your bank or your
supermarket) and identify the key elements of its approach to corporate social responsibility.
3.4 To what extent do you think businesses adopt corporate social responsibility as ‘the right thing
to do’ versus seeking some type of public relations benefit? Find an example of a business
undertaking some type of philanthropic activity. How might the business benefit from this
activity?
3.5 If a marketing campaign operates entirely within the law, has the marketing organisation
necessarily fulfilled its obligations to its stakeholders?

THE MARKETING MIX

Learning objective 4 The marketing mix is the term given to a set of variables that a marketer can exer-
explain the elements of cise control over in creating an offering for exchange. Various frameworks for the
the marketing mix
marketing mix have evolved over time, including:
• the 4 Ps framework — product, price, promotion and place (place is more easily
marketing mix A set of
variables that a marketer can understood as distribution). The 4 Ps framework was the first approach to the
exercise control over in creating marketing mix.
an offering for exchange. • the 5 Ps framework which evolved from the 4 Ps model by adding a fifth P, ‘people’,
to the 4 Ps framework.
• the 6 Ps framework which added ‘process’ to the 5 Ps framework
• the 7 Ps framework which added ‘physical evidence’ to the 6 Ps framework.
To frame their thinking, marketers often choose to target certain types of cus-
tomers. Markets are heterogeneous — they are made up of many different people
target market A group of with many different needs and wants. A target market is a group of customers with
customers with similar needs and similar needs and wants. Not all customers in a target group will have exactly the
wants.
same needs and wants but they are more similar than different. By narrowing their
thinking to a target group, marketers can think about how they can best communi-
cate, deliver and exchange their offerings with customers. For example, the target
market of this book is first-year undergraduate marketing students. A  business

24 Marketing
can also aim for multiple target markets. For example, Subaru targets different
groups with various cars: its Outback range of station wagons is aimed at families
and couples who value comfort, safety and life in the great outdoors, while its
Impreza WRX STi hatch is aimed at performance car enthusiasts (with a lot of
money).
Marketers cannot act with complete freedom in determining their marketing mix.
They are governed by the costs of implementing the various marketing mix options,
as well as the forces at play in the marketing environment. They are also governed
by the people in their organisation. There is little point creating something that is
simply not possible to implement.
We will now examine each of the elements of these various marketing mix frame-
works. It is important to remember that marketing — whatever marketing mix
framework you apply or consider — is ultimately about a total focus on servicing the
needs and wants of the customer.

Product
A product is anything offered to a market. It can be a good, a service, an idea or product A good, service or
even a person. Marketers have to market goods such as batteries, milk and shoes. idea offered to the market for
exchange.
Marketers can market services such as hairdressing, legal representation, air travel
and beauty therapy. Some marketers have to market ideas such as ‘Quit’ smoking
while others have to market people such as celebrities and politicians.
Some products are branded and others are not. A brand is a collection of symbols brand A collection of symbols
such as a name, logo, slogan and design intended to create an image in the custom- such as a name, logo, slogan
and design intended to create
er’s mind that differentiates a product from competitors’ products.
an image in the customer’s mind
Products can be best understood as a ‘bundle of attributes’ that when exchanged that differentiates a product from
have value for customers, clients or society. Bundle of attributes refers to the features competitors’ products.
and functions of a product, which benefit the customer. In the marketing mix, the bundle of attributes The
product variable is concerned with creating an offering that anticipates and meets features and functions of
the needs and wants of customers. a product that benefit the
To help you to understand what is meant by a bundle of attributes, think about an customer.
Apple iPhone. It is a handset that is designed to look good. It has a battery, which
means you can use the phone anywhere for a certain period of time. Features on
the mobile phone include a camera, music, maps, internet, notes pages, a calendar
and, of course, a phone. These features mean you can talk to friends, send messages
and photos to your friends, find your way and listen to music. Some of the benefits
that you receive from your mobile phone include staying connected with friends,
the ability to communicate whenever and wherever you want, entertainment, and
prestige if you own the latest phone. The Apple brand name might mean that you
feel you have purchased a mobile phone that will be reliable.
Marketers understand that customers have needs and wants, and this thinking is
based on economics. You will study needs and wants in both economics and mar-
keting. Needs are day-to-day survival requirements. People need food, shelter and need A day-to-day survival
clothing, personal growth and the social need of a sense of security. People also requirement: food, shelter and
clothing.
have wants. Wants are desires, and are not necessary for day-to-day survival. Wants
cover products such as new television sets, iTunes playlists and perfume. Marketers want A desire, but not necessary
for day-to-day survival.
provide products to satisfy customer needs and wants. People have unlimited wants
and they do not have the resources to satisfy them all. They must therefore make a
choice between competing alternatives. When a consumer has the ability (money)
to buy something they want, the want is said to be a demand. Consumers choose demand A want that a
consumer has the ability to
among demands by finding the product that offers the most value in exchange for
satisfy.
their money.

Chapter 1  Introduction to marketing 25

 Products can also be categorised as either goods or services. Goods are phys-
good A physical (tangible)
offering capable of being ical (tangible) offerings that are capable of being delivered to a customer. The
delivered to a customer. ­purchase of goods typically involves transfer of ownership from business to cus-
service An intangible offering tomer. You  can see, smell, touch and sometimes taste goods. To buy a good you
that does not involve ownership. often become the  owner of a good. You own the orange juice before you drink it.
­ ervices are ­intangible offerings. If you think about a hair cut or travel advice, you
S
realise you cannot hold it; nor can you own it. You experience service. We will go
into more detail about goods and services in the chapters on product and service
marketing.
For exchange to occur, marketers must develop new products and modify their
existing offerings so that they have value for customers, clients, partners and society
at large. They must also know which products are not mutually beneficial. This
means that marketers must be prepared to discontinue offerings because consumers
no longer value them, because they are not profitable or because they have a nega-
tive impact on society. What is important to remember is that marketers need to
understand value through a customer lens. Marketers need to understand where
the value comes from. Does the value come from owning the offering, using the
offering, or does the value come from both ownership and use of the offering? Con-
sider any typical product. If you purchase it, do you get value simply by owning it?
Do you get value from just sitting and looking at it? Your answer is likely to be no.
You can only get value from using the product.
While this may sound simple it is often not applied well in practice. Too many
marketers remain product rather than customer focused. It is important to under-
stand that marketing thinking starts with the customer and ends with the customer.
Marketers must consider offerings from a customer’s point of view. For example, a
marketer of the Master of Business Administration (MBA) course at your university
should be able to tell graduates about the MBA (the offering) and importantly how
the MBA can help them (how the offering has value for graduates); for example, by
leading to a higher income.

Price
Price is the amount of money a business demands in exchange for its offerings.
Pricing is a complex marketing decision that must take account of many factors,
including:
• production, communication and distribution costs
• required profitability
• partners’ requirements
• competitors’ prices
• customers’ willingness to pay.
Remember that marketing is about creating and exchanging offerings that have
value for customers, clients, partners and society at large. While price plays an
important role in value, it is not alone in creating value perceptions. Marketers need
to understand the relationship between price and quality to understand value from
a customer’s point of view. They need to understand what customers would like to
get and what they are prepared to give in return. For example, car marketers under-
stand that customers are concerned about rising fuel costs and exhaust emissions
and this is reducing their interest in buying larger cars. To overcome concerns about
rising fuel costs, some car marketers offer customers one year of fuel for free, over-
coming customer concerns about the expense of fuel.
Consider another pricing decision. In a brave move, alternative rock group
­Radiohead chose to make their In Rainbows album available for download from their

26 Marketing
website, giving fans the choice of how much to pay — or whether to pay at all.
Essentially fans were able to decide just what the new album was worth to them
(although they would not have heard the album until they had paid for it). This
move helped Radiohead to gain a lot of publicity and media sources report that it
helped them to gain $6–$10 million in sales, with 1.2 million people downloading
the album from their website at an average of $8 per album.45 This is reflective of
a growing trend for value and the marketing mix to be negotiated more and more
closely between marketers and customers. Price will be discussed in more detail in
a later dedicated chapter.

Promotion
Promotion describes the marketing activities that make potential customers, promotion The marketing
­ artners  and society aware of and attracted to the business’s offering. The product
p activities that make potential
customers, partners and society
might be:
aware of and attracted to the
• already established — such as Fernwood, where the aim of promotion is to remind business’s offerings.
customers that Fernwood is a female-only fitness centre
• modified — such as a new variation of Coke, where the aim of promotion is to
inform existing customers about the improvement or new variety and to attract
potential new customers
• new — such as a new-release movie, where the aim is to make customers aware of
the product for the first time
• information or education — such as advertisements designed to persuade youth not
to take illegal drugs.
Promotion should not be thought of merely as advertising. While advertising is an
important component of promotion, many organisations use other methods to pro-
mote products as well. For example, some businesses use loyalty schemes to try to
encourage repeat business and word-of-mouth to gain new customers. Others may
give away trial packets of new products when an existing customer makes a pur-
chase of one of their other products. Promotional activities include such sales pro-
motions, as well as personal selling efforts and public relations campaigns. Online
communications such as blogs, YouTube and Twitter are also used by marketers to
increase awareness. Of course, there are many other interesting ways to communi-
cate, including ambient forms of advertising such as a painting on a building or a
display in a town square. Marketers have to think of ways to stand out in a cluttered
market to raise awareness. Often, a combination of promotional methods is used,
and in such cases it is crucial that they be carefully combined and coordinated to
achieve a consistent message. Promotion will be discussed in detail in a later dedi-
cated chapter.

Distribution (place)
Distribution (or place) refers to the means of making the offering available to the distribution (or place) The
customer at the right time and place. It is largely a logistics function and marketers means of making the offering
available to the customer at the
need to understand how logistics impact their ability to deliver a product at a time
right time and place.
and place that suits customer needs or wants. The marketer must ensure products
are available to the target market in the right amount and at the right time while
managing the costs of making the products available. Such costs include inventory,
storage and transport. Many businesses sell their products directly to the public
through catalogues, a shop front or a website, but distribution, especially for larger
businesses, usually also involves partners such as wholesalers and retailers. Tech-
nology, particularly the internet and associated communications innovations, has

Chapter 1  Introduction to marketing 27

 dramatically changed distribution, particularly for products that have been digitally
enabled, such as recorded music. Not so long ago, the only option to purchase music
was as a physical product on CD, cassette or vinyl. Now, consumers can download
their favourite songs to a device such as an iPod. Nevertheless, physical distribution
remains a key element in the marketing of many products. The science (or art) of
ensuring products are in the right place at the right time in the right quantity is
logistics That part of the known as logistics and the various partners that contribute to the process make up
marketing process concerned what is called the supply chain. Distribution is discussed in more detail in a later
with supply and transport.
dedicated chapter.
supply chain The parties
involved in providing all of the
raw materials and services that People
go into getting a product to the Marketers must think about people, including employees and other customers. In
market. the marketing framework, people refers to any person coming into contact with cus-
tomers who can affect value for customers. For example, customer experiences with
services are affected by the people who deliver the service. Think about the last
time someone served you and they were not friendly. How did you feel? You would
most likely have judged the offerings based on the employees you interacted with.
Successful organisations that want to create and maintain a competitive advantage
must recruit and retain the right staff. They must have the appropriate interpersonal
skills, aptitude and knowledge to deliver offerings that customers value. Fellow cus-
tomers can also affect the customer’s service experience. For example, crowd behav-
iour at a sporting event or complaining customers who loudly voice their opinion
can put off others who are waiting in a service queue.
You will study employee issues in human resources and management courses. The
concepts studied in these courses are also important for marketers. For example, for
services, highly motivated staff are important because in the customer’s eyes they
are inseparable from the total service.

Process
process The systems used to Process refers to the systems used to create, communicate, deliver and exchange an
create, communicate, deliver and offering. Marketers must understand the systems that are used to create, commu-
exchange an offering.
nicate and deliver offerings for exchange. This understanding is needed to under-
stand how the systems affect value for customers. Imagine that you walk into Eagle
Boys and order a Super Supremo pizza and it is handed to you three minutes later.
What was the system that enabled such efficient service delivery? The motor reg-
istry mails out a vehicle registration renewal form about a month before a driver’s
registration expires. Efficient systems ensure the driver has time to budget for and
pay their renewal. Processes can also be viewed more broadly to take into account
almost everything the marketing organisation does, from market research to inno­
vation to mailing out catalogues.

Physical evidence
physical evidence Tangible Physical evidence refers to the tangible cues, including the physical environment,
cues that can be used as a that customers use to evaluate products, particularly services. Because services are
means to evaluate service quality
intangible, it is difficult to assess their quality and suitability until they are con-
prior to purchase.
sumed. Marketers can use physical evidence to reassure potential customers as to
the quality of the service. Tangible cues should inspire confidence in the likely ser-
vice product. Physical evidence includes architectural design, furniture, décor, shop
fittings, colours, background music, staff uniforms, brochures, service or delivery
vehicles and stationery.

28 Marketing
Naturally! Sunny Queen Eggs Spotlight 
Sunny Queen Australia is an Australian farmer-owned company specialising in quality farm-fresh egg
products from across the country. Sunny Queen has farms located throughout Queensland, New South
Wales and Victoria, and is committed to providing eggs that are fresh, safe, wholesome and quality
guaranteed.
Sunny Queen Australia partnered with BCM, a leading Queensland integrated marketing
communications agency, to build its egg business. The aim was to launch Sunny Queen Eggs in
Victoria and to gain national distribution in Coles and Woolworths, who together represent over
80 per cent of the national grocery retail market in Australia.
BCM commenced with market research, identifying a significant
market opportunity — a strong and growing interest in natural
foods for young women with kids.
The solution that BCM found was already available in the
Sunny Queen Australia egg portfolio — the ‘vegetarian egg’.
Hens laying Sunny Queen Natural Grain Eggs are fed a diet
of wholesome, Australian-grown grains, resulting in delicious
eggs with rich golden yolks. At only around 5 cents more per
egg, Natural Grain Cage Free eggs offer value for money for
people seeking natural foods for their children. The product
was renamed, packaging was updated, and an integrated
marketing communication was developed to coincide with
the Victorian launch of Sunny Queen Eggs. According to Julie
Proctor, National Marketing and Innovation Manager, before the
BCM campaign sales of Sunny Queen Eggs were 59  000 dozen
per month, and after the campaign sales were 300  000 dozen
per month.46

Question
Analyse Sunny Queen Natural Grain eggs in terms of as many of the elements of one of the marketing mix
frameworks as possible.

Concepts and applications check

Learning objective 4  explain the elements of the marketing mix
4.1 Describe a business class return airfare from Sydney to Los Angeles as a bundle of attributes.
4.2 Describe Sunny Queen’s broad product offering in terms of a bundle of attributes that benefit
customers. Refer to the difference between needs and wants in your answer.
4.3 Find one example of an advertisement that is product focused and one example of an
advertisement that is customer focused. Explain how the focus is evident.
4.4 Think about the last time you went to a restaurant and describe the process. How could this
process be improved to offer better value to customers?

Learning objective 5
WHY STUDY MARKETING? discuss how marketing
improves business
Marketing is an interesting and rapidly changing field that has an enormous influ- performance, benefits
ence on the world. Marketing improves business performance, benefits society and society and contributes to
contributes to a higher quality of life. It can also be a rewarding career choice. quality of life

Chapter 1  Introduction to marketing 29

 Improve business performance
Since Theodore Levitt proposed a link between a market orientation and business
survival in a paper called ‘Marketing Myopia’,47 marketing has, indeed, become the
driving force in many successful organisations. Firms with a market orientation per-
form better than firms without a market orientation.48 Research shows that com-
panies who have a well-defined marketing strategy perform better than companies
that do not have a well-defined marketing strategy.49
A range of marketing practices have been linked to company performance. Specifi-
cally, research shows that companies using certain marketing practices have better
profits, sales volumes, market share and return on investment when compared to
their competitors. Organisations that undertake the following marketing practices
perform better than companies that do not:
• conduct formal marketing planning
• undertake comprehensive situation analysis
• adopt a proactive approach to the future
• conduct frequent market research studies
• set more aggressive marketing objectives
• offer superior products and services at comparable or higher prices than their
competitors
• introduce new ways of doing business
• innovate
• use a market intelligence gathering system to monitor changes in competitive and
customer behaviour, technology and general trends.
You will be introduced to all of these key practices in this textbook. While the
implementation of marketing practices has been linked to business performance,
many companies do not implement these performance-enhancing marketing prac-
tices. Research shows that nearly half of all businesses in New Zealand undertake
little or no formal marketing planning and over half attach little importance to a
comprehensive situation analysis.50 Market research is mainly outsourced.
The marketing department does not work in isolation in any organisation. The dif-
ferent business functions are closely interwoven to assist the organisation to reach
its goals. For example:
• human resources is responsible for attracting, recruiting and retaining the right
people to reach the organisation’s objectives
• finance supports marketing with the funds required to achieve the organisation’s
objectives
• accounting provides marketing with some of the information (e.g. sales, costs)
needed to analyse the current situation to inform strategy development
• logistics assists in delivering the offering to the customers.
In order to reach their goals, marketers must be able to work with all facets of
an organisation. The foundation courses that you take in your business or com-
merce degree are interlinked in business practice. If you are fortunate enough to
gain employment in an employer graduate program that provides experience in
each area in your first 12 months, you will quickly gain an appreciation of the links
between the different business disciplines.
Ultimately, every employee is a stakeholder in the success of their organisation.
They influence its success by working toward providing value to the market — and
its success or otherwise has consequences for both the individual and the organ-
isation. A salesperson can only successfully sell products if the production depart-
ment is focused on providing the salesperson with the right products at the right
time. In a market-oriented organisation, the production department will be focused

30 Marketing
on doing just that. The production department can only service the sales force well
if its suppliers provide raw materials of the right quality in the right quantity. By
examining the relationships such as these that exist throughout organisations, it
can be seen that the entire marketing effort is made up of numerous networks of
internal and external stakeholders, all coordinated and focused on exchanging offer-
ings that have value.

Higher quality of life

As explained earlier in the book, marketing is often criticised and is viewed nega-
tively by many people. This is because marketing is a high-profile business function.
Marketing creates, communicates and delivers an organisation’s offering. Marketing
does not achieve this alone and all other business functions are involved, from
human resources, to accounting and finance, production, and logistics. Marketing
often bears the brunt of criticism for bad company practices.
It is easy for people to criticise marketing and brands. As consumers we are
exposed to advertisements every day, and some more credible than others. As con-
sumers we see brands whenever we shop in a supermarket, pharmacy or clothing
store. While marketing’s role is to create, communicate and deliver offerings that
have value for customers, consumers and a purchase are needed for exchange to
take place. Marketers cannot buy products for their customers; they can only offer
products that consumers may consider and purchase. While there is definitely bad
practice, marketing is not an evil force. Let’s take a brief look at how marketing has
benefited society.
Marketing has helped to drive economic growth. Consumer demand is a key driver
of economic growth, and marketers play a role in stimulating consumer demand.
Economic growth creates employment and wealth for the benefit of individuals
and society as a whole. Marketing can play a role in improving people’s quality
of life through providing better or safer products and the promotion of consumer
and social welfare. Consider McDonald’s, which provides some healthy meal options
today in response to public criticism linking fast-food restaurants to the obesity epi-
demic being experienced in many Western nations.

Contribute to a better world

Marketing is often criticised for its role in stimulating excessive and often unneces-
sary consumption, and the consequent social issues that arise. The global financial
crisis provided a stark reminder that sustainable models are required for business
practice. The marketing discipline has much to offer to the social arena. Marketing
seeks to understand what customers want, in order to deliver a solution that meets
their needs and wants. Marketers make alternatives available for consumers to pur-
chase. Marketing can, therefore, be viewed as part of the solution, rather than as the
problem.
Indeed, many marketers work in the not-for-profit sector and/or in social social marketing A process
marketing, where their work is directed towards social good. For example, there that uses commercial marketing
principles and techniques
are more than 35  000 registered not-for-profit organisations in Australia that employ
to influence target audience
staff, many of whom are engaged in marketing activities or roles to raise funds and behaviours that will benefit
awareness for a host of worthy causes.51 Social marketing will be explained in full in society, as well as the individual.
a dedicated chapter. Central elements of social marketing include:
• behaviour–change as the benchmark for designing and evaluating interventions
• the development of attractive and motivational exchanges to encourage desired
behaviours of the target audience

Chapter 1  Introduction to marketing 31

 • formative research to understand the characteristics and the behaviours of the
target audience
• the segmentation of the target audience to guide the development of intervention
elements
• pre-testing and monitoring these elements during implementation.52

Be a better customer
By studying marketing you can become a better customer. By understanding the
activities and processes for creating, communicating, and delivering offerings, you
can make better decisions as to the relative value of products offered to you. For
example, Aldi customers understand that products offered in Aldi supermarkets are
cheaper than those offered by Woolworths or Coles because of Aldi’s processes. Aldi’s
philosophy is that all people, wherever they live, should have the opportunity to buy
everyday groceries of the highest quality at the lowest possible price. The products
available for sale under the Aldi brand are manufactured by leading food manufac-
turers. Aldi keeps prices low by selling products under the Aldi brand wherever
possible, and by limiting the product range to reduce costs associated with logistics.
Other activities assist to achieve low prices.
Having studied marketing you will understand that companies that are serious
about marketing welcome customer feedback. After studying marketing if you have
a poor experience with a product or a service, you will know that by giving feedback
you may help to persuade the marketer to do something to address your concerns,
which may benefit yourself or other future customers.

A rewarding career
Marketing can be a rewarding career path. Marketing offers a wide range of specialist
areas including advertising, public relations, market research, product development,
personal selling and market analysis. Marketers can work in the business sector
or for not-for-profit organisations such as charities, governments and cultural insti-
tutions. Marketing skills are transferable overseas, and many marketing graduates
travel and work abroad.
Marketers need good analytical, communication and negotiation skills, and the
power of persuasion. Those who want to work in a professional marketing p ­ osition
will usually also require a degree in marketing, or in a related area with a major
in marketing. The recruitment process has lengthened, with many companies now
asking candidates to make presentations as part of the interview process. There
is  a  very competitive candidate market for marketing roles. Looking to the future,
key areas with strong potential for growth include online marketing and digital
­marketing.53 About 40 per cent of people employed in marketing in Australia and
New Zealand are women. The average age is 40, which suggests marketing is a pro-
fession of younger people.54
The Australian Graduate Survey suggests half of all marketing degree graduates
who secured a full-time sales or marketing position in Australia were being paid an
average of $47  000 per year. With more experience, marketing managers can pro-
gressively expect to earn as much as $200  000 per year.55 In New Zealand, depending
on the industry and type of organisation (i.e. small- to medium-sized enterprise or
larger multinational), the salary figures are generally comparable with those for
similar roles in Australia. Product managers may earn up to $145  000 per year.56
While marketing can be a lucrative career, it requires dedication and hard work.
Marketers often have specific targets that must be met. The measurement of such

32 Marketing
targets involves ‘marketing metrics’. Marketing metrics are discussed regularly
throughout the text and in more detail in the chapter on marketing planning, imple-
mentation and evaluation. For example, a marketer responsible for an organisation’s
advertising strategy will need to achieve a certain level of brand awareness among
the target market. A salesperson will usually have a specific level of sales revenue
that they must meet. A production department will have quality and quantity stan-
dards that they must maintain.
Marketing yourself
An understanding of marketing can assist you in your own life. When you apply
for your next job you can apply the principles of marketing. Rather than simply
telling your employer how good you are and the experience that you have (a product
focus) you can tell your future employer how employing you will deliver value for
them. You may do this by outlining successes achieved in recent marketing cam-
paigns. For example, you might explain how a $1 investment in your marketing
­campaign returned $4 to the company, or how your marketing communications
campaign increased customer enquiries by 50 per cent and sales volume by
­
20  per  cent. The principles of marketing can help you to consider how you are
unique from the other people who would be applying for the same job. Let’s con-
sider your first graduate job application. There are 300 students enrolled in your
degree and 150 of them have the same major as you. There are also many other
­universities offering the same degree in your country and abroad. Everyone has
a degree, 20  per  cent of students have the same grades as you. There could be
300 people with the same degree and performance in their degree as you. How can
you show that you are different? How can you make yourself stand out from the
crowd? The principles of marketing teach you how to do this. Marketing thinking
can help you. It is important that you keep evidence of success from now on.

Changing skin protection behaviour: the Wes Spotlight 

Bonny Testimonial Campaign
Skin cancers, including melanoma and non-melanoma varieties, are the most common cancers in
Australia, with melanoma the most common in people aged 15–39 years. According to the Cancer
Institute of New South Wales, approximately 95–99 per cent of skin cancers can be prevented
through reduced exposure to ultra-violet radiation (UVR) using five well-established sun protection
measures: seeking shade and wearing protective clothing, a broad-brimmed hat, sunglasses
and sunscreen. Cancer Institute research suggests that adolescents
have the poorest sun protection and sun exposure behaviours in New
South Wales.
The Wes Bonny Testimonial Campaign was a mass media social
advertising campaign developed by the Cancer Institute in 2010. The
campaign told the true story of Wes Bonny, a young man who was
diagnosed and subsequently died from melanoma at the age of 26.
The campaign was implemented in New South Wales in 2010 and
2011. The campaign objectives were to:
1. reduce pro-tan attitudes
2. increase understanding of the severity of melanoma
3. increase the personalisation of the health consequences of over-
exposure to UVR
4. increase knowledge of the link between overexposure to UVR and
melanoma
5. increase intentions to improve sun protection behaviours.

Chapter 1  Introduction to marketing 33

 Formative research highlighted several key insights. Firstly, young people perceived melanoma as a
severe disease, and they believed they could prevent melanoma. (Those aged 13–24 were the target
of the campaign.) Interestingly, while young people knew the five sun protection measures they did not
perceive themselves as susceptible to melanoma, and for some a tan was still desirable.
The mass media campaign used a variety of media, including television, cinema and radio. The
campaign highlighted places where exposure to UVR is most likely to occur amongst the target
audience. The Wes Bonney Testimonial Campaign was evaluated by approximately 150 people per
week for 10 weeks. In total:
• 79 per cent agreed that the campaign was believable
• 73 per cent agreed that the campaign was sad
• 85 per cent aged 30 years and younger agreed that the ad made them think that someone their age
can get melanoma
• 74 per cent agreed that the ad made them think that by protecting themselves from the sun that
they can avoid melanoma.57

Question
Research the Wes Bonny Testimonial Campaign online. Explain how the marketing campaign improves
business performance for the Cancer Institute, benefits society and contributes to quality of life. What other
measures could the Cancer Institute use to evaluate the campaign?

Concepts and applications check

Learning objective 5  discuss how marketing improves business performance, benefits society and
contributes to quality of life
5.1 Find one case study that explains how marketing has improved business performance.
5.2 Find and discuss one example that illustrates how marketing contributes to quality of life.
5.3 Research the history of razors. How was demand for razors stimulated? Explain how they did it.
5.4 Marketing is often criticised and is viewed negatively by many people. What was your view of
marketing prior to starting this course? Has your view changed? Why? Why not?
5.5 Using company annual or corporate social responsibility reports, find an example of a company
that has improved its business performance both economically and socially. (Note: annual reports
or summaries are usually found in the investor section of corporate websites.)

34 Marketing
SUMMARY Key terms and
Learning objective 1  provide an overview of marketing and the marketing concepts
process brand  25
bundle of attributes  25
Marketing is a philosophy or a way of doing business that puts the market — the
clients  13
customer, client, partner and society, and competitors — at the heart of all business co-creation  6
decisions. The marketing process is cyclical in nature and involves understanding consumers  13
the market to create, communicate and deliver an offering for exchange. Marketers corporate social
start by understanding the consumers, the market and how they are currently situ-  responsibility 17
ated. Armed with this understanding, marketers are next tasked with creating solu- customers  13
tions, communicating the offering to the market, and delivering it at a time and demand  25
place that is convenient for the customer. distribution  27
ethics  15
exchange  11
Learning objective 2  recognise that marketing involves a mutually beneficial
goods  26
exchange of value greenwashing  22
The essence of marketing is to develop mutually beneficial exchange. Exchange logistics  28
involves value creation for all parties to the exchange. Marketers must under- market  12
marketing  3
stand how customers perceive value. Value perceptions vary from one individual to
marketing mix  24
another and they are ever changing.
marketing process  8
The customer is the focus of all marketing activities and successful marketers are need  25
those who view their products in terms of meeting customer needs and wants. partners  13
physical evidence  28
Learning objective 3  discuss the importance of ethics and corporate social place  27
responsibility in marketing process  28
product  25
Businesses exist primarily to generate profits and wealth for their owners. It is promotion  27
increasingly recognised, however, that businesses have an obligation to act in the service  26
best interests of the society that sustains them. They are obliged to act ethically, social marketing  31
within the law, and to fulfil corporate social responsibility requirements, which may stakeholders  17
include philanthropy, protecting the natural environment, providing products that supply chain  28
benefit society and generating employment and wealth. Businesses also need to be sustainable development  20
sustainable to ensure our future by meeting the needs of the present without com- sustainable marketing  21
target market  24
promising future generations.
value  11
want  25
Learning objective 4  explain the elements of the marketing mix
The marketing mix describes the different elements that marketers need to con-
sider. Many different frameworks have been used by marketing scholars to teach
marketing and all have been designed to be memorable. Frameworks include the
4 Ps, 5 Ps, 6 Ps and 7 Ps.
A product is a bundle of attributes that when exchanged have value for customers,
clients or society. A product can be a good, a service, an idea or even a person. Prod-
ucts cater to needs and wants. Needs are day-to-day survival requirements, while
wants are desired but not required for survival.
Price is the amount of money a business demands in exchange for its offerings.
Pricing is a complex marketing decision that must take account of many factors,
including production, communication and distribution costs, required profitability,
partners’ requirements, competitors’ prices, and customers’ willingness to pay. Mar-
keters need to understand the relationship between price and quality to understand
value from a customer’s point of view. Marketers need to understand what customers
would like to receive and what they are prepared to give in return.

Chapter 1  Introduction to marketing 35

 Distribution or place refers to the means of making the offering available to the
target market at the right time and place while managing the costs of making the
products available. Many businesses sell their products directly to the public, but
distribution usually also involves partners such as wholesalers and retailers.
Promotion describes the marketing activities that make potential customers, part-
ners and society aware of and attracted to the benefits of a business’s products. The
product might be already established, modified, new, or information designed to
persuade. Promotional activities include advertising, direct selling, sales promotions
and loyalty schemes.
In the marketing framework, ‘people’ refers to all the people that may come into
contact with the customer and affect their experience of the product. Like the other
factors, the people must be managed to maximise value for the customer.
Process refers to the systems used to create, communicate, deliver and exchange
an offering.
Physical evidence refers to the tangible cues and physical environment a mar-
keter can provide to help potential customers evaluate service quality.

Learning objective 5  discuss how marketing improves business performance,

benefits society and contributes to quality of life
Organisations with a market orientation perform better than other organisations.
Marketing creates employment and wealth for the benefit of individuals and society
as a whole. It improves people’s quality of life through better products and the pro-
motion of consumer and social welfare. An understanding of marketing helps you
make better decisions as to the relative value of products offered to you. Marketing
can be a rewarding career path. While it can be lucrative work, it requires dedication
and effort. Marketers need good analytical, communication, and negotiation skills,
the power of persuasion, and often a tertiary qualification in marketing or a related
discipline.

36 Marketing
Hero Rewards: building on program Case study
success
David Hodgson and Pele Bennet, Queensland Aboriginal and Islander Health Council

Queensland Aboriginal and Islander Health Council (QAIHC) is the peak body for the Aboriginal and
Islander Community Controlled Health Sector and provides support to the 28 member services and
associate members scattered throughout Queensland. The Preventative Health Unit was established
by QAIHC in 2007 to build effective multidisciplinary primary prevention capacity within the Aboriginal
and Torres Strait Islander Community Controlled Health Sector.
The Preventative Health Unit aims to contribute to improving population health within Aboriginal
and Torres Strait Islander communities by:
•• forging partnerships and developing strong working relationships across different elements of the
health sector (including multi-level government and non-government bodies)
•• building capacity within both the Indigenous and mainstream health sector to address and respond
to Aboriginal and Torres Strait Islander health priorities
•• supporting Aboriginal Community Controlled Health Services in Queensland to deliver best practice
primary health care services, including preventative health strategy activities
•• integrating emerging national development and strategies in Indigenous primary health care delivery
•• raising collective knowledge and awareness of emerging issues and trends in Indigenous health
•• working with non-health related sectors and promoting Indigenous health as a key priority when
making executive decisions — making Indigenous health everyone’s business.
Since 2010, the Queensland Aboriginal and Islander Health Council Preventative Health Unit
has used social marketing to change health behaviour in Aboriginal and Torres Strait Islanders in
Queensland. While the majority of the state’s general population lives in major cities, 22 per cent of
Indigenous Queenslanders live in remote or very remote areas, and only 28 per cent live in major
cities (compared to 60 per cent of non-Indigenous people in major cities). The health gap between
Indigenous and non-Indigenous Australians is well reported. For example:
•• rates of overweight and obesity are higher for Indigenous than non-Indigenous Queenslanders, with a
20 per cent difference in overweight and obesity between Indigenous and non-Indigenous Australians
•• smoking rates for Indigenous Queenslanders are at unacceptable levels, with daily smoking rates
more than twice that of the population as a whole
•• smoking after 20 weeks gestation among Indigenous mothers is 3 times higher than for non-
Indigenous mothers (53 per cent compared with 17.3 per cent).
The Hero Rewards campaign was officially launched in May 2010 with the commencement of
the Australian Government’s Indigenous Chronic Disease Package. The phase one Hero Rewards
campaign gained strong community response, with the call to action having a significant impact
on demand for Aboriginal and Torres Strait Islander adult
health checks. The Hero Rewards social marketing campaign
was underpinned with an incentive-based strategy targeting
Aboriginal and Torres Strait Islander communities. The
campaign encouraged the target audience to approach a
community controlled health service for an adult health check.
Resources developed for the initial campaign included:
•• a television and radio community service announcement,
with NRL football legend Steve Renouf as the ambassador.
The advertisements were aired on television (SBS, ABC, NITV
and Imparja TV), through Indigenous radio and print media
•• a website for the community to ‘register’ for a health check and
be referred to their local community controlled health service.
•• over 1200 incentive gift cards (IGA or Wish Card) for patients
who attended and completed an adult health check, which
were provided to 18 Community controlled health services.

Chapter 1  Introduction to marketing 37

 Key outcomes from the Hero Rewards campaign included:
1. attracting new clients for health assessment. There was a year-on-year increase of 1833 health
checks in Queensland. Health assessments have identified treatable medical conditions before
they develop into chronic medical conditions.
2. existing clients nominating themselves to have a health assessment. Some clients are attending
member services following a lapse of up to 20 years.
3. program continuation. Almost two years after the initial commencement, services are still
continuing to provide the incentive to patients, through their own financial capacity.
The outcomes and successes of phase one of the campaign highlighted that the campaign
strategy had a significant influence on Aboriginal and Torres Strait Islander people. In October 2010,
the opportunity to extend the campaign and build a second phase came about through funding
that was provided by Queensland Health under the National Partnership Agreement on Social
Marketing. Phase two planning and creation commenced in April 2011. The main aim for the phase
two campaign was to build on the momentum and extend the campaign to include messages that
promote follow-up health care services provided by community controlled health services.
In 2012, the second phase of the campaign was launched — Hero Rewards .  .  . The Choice
is Yours. The theme follows on from the 2010 campaign and seeks to encourage Aboriginal and
Torres Strait Islander people to seek assistance for follow-up care via existing programs and allied
health services, including GP management plans and team care arrangements. The 2010 campaign
focused on initial appointments, while the phase two campaign dovetails with other national strategies
aligned with ‘closing the gap’ and improving lifestyle risk factors that contribute to chronic disease —
including the Practice Incentive Program Indigenous Health Incentive measure, the PBS Copayment
Measure initiatives, the Tackling Indigenous Chronic Disease initiatives, and the Swap It, Don’t Stop
It campaign. Hero Rewards .  .  . The Choice is Yours is about letting the community know about the
services and support available through their local Aboriginal and Islander Community Controlled
Health Service.

Lessons learned in phase one

Implementing phase two built on the learnings from phase one. Changes that were made included:
•• developing resources with background information collected about what support services require
and what programs and projects services provide
•• providing resources only once workshops had been conducted
•• identifying that a local ‘champion’ would be a more appropriate ambassador
•• maintaining the small incentive (introduced in phase one), which had a sustained impact on
people attending health services for a health check. Some services identified that patients were
returning for their health check the following year and seeking the incentive.
The overall aim of the Hero Rewards campaign was to improve the health of Aboriginal and Torres
Strait Islander people by increasing the number who are receiving and are engaged in follow-up
healthcare services through community controlled health services. The phase two health messages
came under the broader message ‘Come be a hero’, again encouraging individuals and families to
join the movement of looking after their own health, and highlight that health is its own reward. The
campaign focused on eight key health messages:
•• men come together to talk about men’s business
•• heroes don’t just talk, they walk and ‘get active’
•• heroes can do anything, and choose to be smoke free
•• choose to have regular eye checks for healthy eyes
•• heroes eat ‘Good Quick Tukka’
•• heroes get regular check-ups, how’s your sugar?
•• help look after the heroes of tomorrow, today
•• protect our littlest heroes!
The campaign objectives for phase two included:
1. continue to build awareness of the importance of health assessments among the target community
2. maximise opportunities available through PIP Indigenous Health Incentive and PBS Copayment
Measure

38 Marketing
3. support health services to introduce a model of care that improves coordination of care for
Aboriginal and or Torres Strait Islander people
4. promote relevant health promotion and allied health service focused programs. For example, the
phase two campaign provides ‘Good Quick Tukka’ recipes (see www.herorewards.com.au) and
cooking classes to promote healthy eating.

Hero Rewards .  .  . The Choice is Yours

A comprehensive suite of resources was developed to support staff and services to promote recall
and refer patients to allied health services and health promotion programs. These included:
•• workshops and training for community controlled health service professionals
•• two television community service announcements (30-second commercials)
•• a press ad template
•• resources for health workers to use within their practice, such as postcards, notepad, pens and
tear-off brochures
•• resources for community awareness, such as A2 posters, banners, point-of-entry window labels
and desktop calendars
•• promotional materials, such as bottled water, bucket hats, jerseys and stress footballs.
By 30 June 2012, 22 community controlled health services had received the start-up resource kits
and attended the initial introductory workshop outlining the campaign and implementation plan. An
external evaluation strategy was developed to identify the effective qualities of the campaign, and also
to highlight the overall outcomes the campaign will have on both the services that are being delivered
and the uptake of health services by Aboriginal and Torres Strait Islander people.58

Questions for discussion

1. Describe the marketing process using the Hero Rewards .  .  . The Choice is Yours campaign. Refer
to the marketing framework presented in figure 1.3.
2. Go to the Hero Rewards website (www.herorewards.com.au) and look at the Hero Rewards Health Tool.
What else could a marketer do to encourage better health among Aboriginal and Torres Strait Islanders?
3. Outline how you would evaluate phase two of the Hero Rewards .  .  . The Choice is Yours campaign.

Advanced activity
Think of all the products and services you consumed today. Which products have
negative social and economic consequences?

Marketing plan activity

Think of an organisation that you would like to be the focus of a marketing plan
that you will prepare during this semester. Collect some background information
on this organisation and its products (goods and/or services). Each week you will
have the opportunity to develop and refine a draft of this plan as your marketing
knowledge increases. By the end of the semester, by following the steps outlined in
each chapter of the text, you will have developed a professional ‘industry standard’
marketing plan, and enhanced your practical marketing skills in the process.
A sample marketing plan has been included at the back of this book to give you
an idea where this information fits in an overall marketing plan.

Chapter 1  Introduction to marketing 39

 CHAPTER 2

The marketing
environment and
market analysis
Learning objectives
After studying this chapter, you should be able to:

describe the marketing environment and the purpose of environmental analysis

explain the factors at work in the organisation’s internal environment

understand the importance of the different micro-environmental factors

outline the different types of macro-environmental forces

conduct a preliminary situation analysis.

Downsizing: coming to a
product bought by you
When shopping yesterday, Leah noticed that Rexona, her favourite deodorant brand,
had changed. One question went through her mind — was this change for the better?
The  reason she noticed this simple change was one of the old packages was still on
the shelf. If she had already thrown out the old package, the switch made by the mar-
keters of Rexona might very well have gone unnoticed by Leah.
On closer inspection of the two packaging alternatives Leah noticed that Rexona was
now offering her (and all of its regular customers) a ‘Dry motion sense system’, which
according to the packaging contained microcapsules that are activated when people
move. The microcapsules release little bursts of freshness throughout the day. Another
clear difference was noticeable — the new and improved packaging version was
offered in a 250mL hourglass-shaped can, and this was smaller than the previous
254mL can size. Both cans cost $6.62. It seems that Leah was receiving a decrease in
size for the very same price of $6.62.
Rexona is one of many brands marketed by ­Unilever, which makes and sells prod-
ucts under more than 1000 brand names worldwide. Two billion people use them
on any given day. A quick search on the internet will show you that Unilever is not
the only company downsizing their consumer goods. From toothpaste to canned tuna,
hamburger rolls to hand soap, companies and the marketers responsible have been
shaving grams and centimetres from fast-moving
consumer goods (FMCGs) for decades, blaming the
reductions on rising costs for ingredients and the
energy that is needed to transport the goods from
factory to retail store.1 Downsizing is a marketing
tactic employed by thousands of brand managers
whose bonuses are tied to delivering higher profit
returns. The impact of this tactic on the consumer,
who is supposed to be at the heart of any brand
manager’s decision, is they receive less for the
same amount. By the time you multiply this down-
sizing effect across the many products purchased
each week, you are left wondering just how long
this tactic can last.

Questions
Find one example of a product that has been downsized recently. Survey five
different people. Ask each person if they have used Rexona deodorant.
1. For those who have, ask the following:
(a) Were you aware of a change in size?
(b) If so, did this change your purchasing?
2. For those who haven’t purchased the product, ask them how they feel about
the practice of downsizing.
INTRODUCTION
In the introduction to marketing chapter we learned that marketing is ‘the activity,
set of institutions, and processes for creating, communicating, delivering and
exchanging offerings that have value for customers, clients, partners and society at
large’.2 Successful marketing must therefore be based on understanding the market.
Marketers are also faced with internal pressures, which often include the economic
imperative to grow the bottom line. Many marketers are offered incentive schemes
that deliver pay increases and/or bonuses to the marketers who can meet growth
targets. Growth can be gained by selling more, increasing prices or — as outlined in
the opening vignette — reducing product costs. This puts marketers in a situation
where they need to balance the customers’ needs with the companies’ expectations.
In addition to understanding the needs and wants of their customers and clients,
and balancing these against the organisation needs, marketers need to understand the
wider environment in which they operate. They need to understand their products
in light of what competitors currently offer and what they expect to offer in future.
Marketers cannot expect to succeed by devising one strategy and sticking with it; nor
will they succeed by simply copying a competitor. In many ways, then, marketing can
be likened to a game of sport. Like a sports team, organisations need to develop and
implement a strategy to win, and they must be prepared to change their strategy to
outfox their competition. Again like a sport, if you are ten points behind at half-time,
there is little point carrying on with the same approach. If you are ten points ahead,
you need to ensure you maintain and increase that margin. To achieve this, marketers
need to understand and be attuned to their customers and society at large. Marketers
need to plan and think of ways to stay one step ahead of the competition. Apple might
be a good example of a company that can do this. Can you think of another?
As one means of staying ahead of the competition, marketers need to keep their
‘fingers on the pulse’. To better meet customer needs — and to devise ways they
can convince employees and/or partners to change if necessary — marketers need
to understand both who they are competing with, and what barriers to change cur-
rently exist in their own organisation and in partner organisations.
This chapter is about understanding the environment in which organisations exist.
In addition to their own internal environment, organisations operate within a micro
environment (comprising the various players in the industry such as suppliers and
competitors) and a macro environment (comprising broader forces such as social
values and laws). Marketers must be able to analyse the environment in which they
operate to obtain a comprehensive understanding of the situation they face. This
understanding, together with management’s objectives, is used by marketers to for-
mulate a strategy to compete in the marketplace.

THE MARKETING ENVIRONMENT Learning objective 1

describe the marketing
The marketing environment refers to all of the internal and external forces that environment and the
affect a marketer’s ability to create, communicate, deliver and exchange offerings purpose of environmental
analysis
of value. The factors and forces within the marketing environment can be classified
as belonging to the internal environment, the micro environment, and the macro
environment (see figure 2.1, overleaf). The internal environment refers to the marketing environment All of
organisation itself and the factors that are directly controllable by the organisation. the internal and external forces
The micro environment comprises the forces and factors at play inside the industry that affect a marketer’s ability to
create, communicate, deliver and
in which the marketer operates. M ­ icro-environmental factors affect all parties in the
exchange offerings of value.
industry, including suppliers, distributors, customers and competitors. The macro

Chapter 2  The marketing environment and market analysis 43

 environment comprises the larger-scale societal forces that influence not only the
industry in which the marketer operates, but all industries. Macro-environmental
factors include political forces, economic forces, sociocultural forces, technological
forces, environmental forces and legal forces. This macro-environmental framework
has been called the PESTEL (for ­political, economic, sociocultural, technological,
environmental, legal) framework. Micro-­ environmental and macro-environmental
forces are outside of the organisation and, while they can be influenced, they cannot
be directly controlled.
Marketers seek to monitor, understand, respond to and influence their e
­ nvironment.
environmental analysis  This is a complex task and encompasses all of marketing. ­Environmental ­analysis
A process that involves breaking is an analytical approach that involves breaking the marketing environment into
the marketing environment into
smaller parts to better understand it. This chapter introduces key considerations for
smaller parts in order to gain
a better understanding of it. an environmental analysis in order to provide you with insights into some of the
things that effective marketers need to understand.

ro environmen
Mac t
political

icro environmen
M t

te
ndustry
the i
tal

ch
en

no
nm

environ

log
rnal m
e
enviro

ical
the
Int

en
organisation

customers
t
partners

people
processes
soc

ic
om
ioc

on
c o m p it o r s
ult

et
ec
ur

l
a

le g al
FIGURE 2.1
The marketing environment

In the course of your degree you may study economics, business law, management,
logistics, human resources and other areas. Each subject is relevant to marketing.
Studying these subjects will provide you with a more detailed understanding of each
area. This will help you conduct an environmental analysis, which will in turn help

44 Marketing
you to build a more comprehensive picture of some of the environmental influences
that marketers need to understand. The rest of this chapter provides an overview of
the key considerations in the marketing environment. Successful marketers need
a detailed understanding of each and every factor that we discuss. We will discuss
the internal and external environments and conclude with an explanation of how
to conduct a situation analysis of the organisation’s overall marketing environment.
The situation analysis and the organisation’s objectives form the basis of marketing
planning.

Looking for a clean solution Spotlight 

A party work report delivered by outgoing premier Wen Jiabao on 5 March 2013 demonstrated a clear
awareness among China’s leaders that the country faces major challenges. The Chinese economy was
portrayed as favouring inefficient state enterprises over the private sector; favouring economic growth
over population health; and facing in many industries what Wen termed ‘blind expansion’ that has led
to overcapacity, pollution and financial risks.
One example of expansion in China is the building of coal-powered energy plants, which are the most
polluting of all power stations. The World Resources Institute identified that China was planning to build
a further 363 plants over 12 months. The capacity of the new plants adds approximately 500 GW to
global greenhouse gas emissions — the equivalent of adding 50 per cent more to China’s current state.3
Given that reports of hazardous and harmful smog levels in large Chinese and other Asian cities are
increasing in frequency, the addition of new coal-powered energy plants is concerning. In February 2013,
Beijing residents were urged to stay indoors as pollution levels soared in China’s capital. According to global
news reports, a thick blanket of smog covered large swathes of China, causing residents to dig out face
masks. This was not the first occasion of intense smog during the 2012–13 winter period. In this particular
instance, the United States embassy’s air quality index reading
for Beijing hit 516 at 6 am, signalling air quality worse than the
highest classification of ‘hazardous’.4
While China grapples with balancing economic growth with
the needs of its people, an issue for many Chinese households
is reducing exposure to PM2.5 air pollution. PM2.5 air
pollution refers to particles that can penetrate deep into
human tissue, causing serious health problems.5 Particles in
the PM2.5 size range are commonly present in air and may be
drawn into the body with every breath. In the lungs, particles
can have a direct physical effect and can be absorbed into
the blood. Airborne particles, not only the PM2.5 fraction,
may also be deposited in the mouth, throat or nose and be
ingested. Companies such as Sharp and Panasonic have
been experiencing rapid growth in China by selling electronics
that help purify the air. Sales of Sharp’s air purifiers — which
China certifies ‘remove 99 per cent of PM2.5’ — tripled in
January 2013 compared with the same month of 2012.6

Questions
1. From the brief overview of the marketing environment provided in the chapter so far, outline some
factors that you believe would particularly affect Sharp air purifiers. Categorise these factors as being
part of Sharp air purifiers’ internal, micro or macro environment.
2. Why would environmental analysis be useful for a company like Sharp?

Chapter 2  The marketing environment and market analysis 45

 Concepts and applications check
Learning objective 1  describe the marketing environment and the purpose of environmental
analysis
1.1 Describe the factors in the marketing environment.
1.2 Which environmental factors can an organisation control or influence?
1.3 Name the six key forces in the PESTEL model of the macro environment.
1.4 What is an environmental analysis and why is it important to marketing?

INTERNAL ENVIRONMENT
Learning objective 2 The internal environment refers to the parts of the organisation, the people and the
explain the factors at processes used to create, communicate, deliver and exchange offerings that have
work in the organisation’s
value. The internal environment is directly controllable by the organisation. A thorough
internal environment
­understanding of the internal environment ensures that marketers understand the
organisation’s strengths and weaknesses. Strengths and weaknesses are internal factors
internal environment The
parts of the organisation, the that positively and negatively affect the organisation’s ability to compete in the market-
people and the processes used place. Typically marketers seek to minimise weaknesses and maximise strengths.
to create, communicate, deliver As discussed in the introduction to marketing chapter, the most successful
and exchange offerings that ­organisations are those with a market orientation. This means that all parts of the
have value. The organisation
organisation are focused on creating and delivering value for the market. While this
can directly control its internal
environment. may seem simple, it is often very difficult in practice. Organisations consist of people,
groups, departments and complex interrelationships. At times these can work against
each other, rather than with each other. In reality, the internal ­environment of any
organisation is affected by the personal and political natures of the people who make
it up. It is important to be aware that as organisational ­complexity increases, so does
the potential for conflict. Marketers need to u­ nderstand the parts of the organisation
and the processes that are in place. The main parts of a typical organisation include:
• senior management — responsible for making decisions about the overall objectives
and strategy of the organisation.
• middle management — typically responsible for a department or a geographic
region. Middle management makes decisions about the overall objectives and
strategy of the department or geographic region for which they have responsi-
bility. Their aim is to make sure the objectives for their department or region are
aligned with the objectives of the organisation as a whole.
• functional departments — organisations can be structured around functional depart-
ments and/or regions. If you are a business student you will study many of these
functions during your degree. Functional departments may include:
–– marketing
–– sales
–– research and development
–– customer service
–– distribution/logistics
–– manufacturing
–– finance
–– human resources
–– administration.
Functional department managers make decisions about the overall objectives and
strategy of their department. Their aim is to make sure the objectives for their

46 Marketing
 department are aligned with the broader objectives of the organisation and to
manage their departments to ensure the departmental objectives are achieved.
• employees — employees are responsible for carrying out the work required to meet
departmental objectives. Most corporations talk about their people being ‘their
most important asset’. Employees are also the ‘face’ of the organisation and mar-
keters need to understand and manage the attitudes and behaviours of employees
who come into contact with customers and clients.
• external vendors (outsourcing) — organisations often outsource functions and
roles if they can be done more efficiently by specialist external providers. This
represents a shift of the function from the internal environment to the micro
environment and thus reduces the level of control. The organisation doing the
outsourcing must, however, manage the service relationship with the external
provider, and so outsourced functions still very much affect the organisation’s
internal environment. An organisation needs to ensure that the outsourced ser-
vices remain consistent with its own objectives and do not adversely affect its
market perception. This does not always occur, however, as Telstra discovered
when one of its offshore information technology vendors, Satyam, was engulfed in
a corporate fraud scandal. The India-based company overstated its cash reserves
by $1 billion. The scandal, along with performance issues, led to the cancellation
of Telstra’s $32 million contract with the company.7
The structure of any organisation can be summarised in an ‘organisation chart’.
Most large organisations have a formal chart that illustrates the relationships
between different parts of the organisation and the management hierarchy, but even
the smallest businesses can be charted. Figure 2.2 is an extract of a typical example.
An organisation chart can be a very useful tool to help analyse the internal environ-
ment. It gives an indication of the focus of the organisation’s operations, how dif-
ferent areas relate to each other and where the power rests in the organisation.

CEO

Manager, Manager, Manager, Manager,

Manager, Manager,
Sales, Human Accounting & Information
Operations Marketing
Asia–Pacific Resources Finance Technology

Product Product
National Sales National Sales National Sales
Advertising Brand Manager Manager
Manager, Manager, Manager,
Manager Manager (products (products
Australia New Zealand Malaysia
A, B & C) D, E & F)

FIGURE 2.2
Sales Sales Sales Sales Sales
Representative, Representative, Representative, Representative, Representative, An example of an
NSW QLD VIC & TAS SA & NT WA organisation chart (extract)

Chapter 2  The marketing environment and market analysis 47

 Marketers need to understand the objectives for each part of the organisation
and how the objectives are being met. They need to understand whether the objec-
tives align between the various parts of the organisation and whether the objec-
tives are consistent with the overall marketing goals of the organisation. Employees
are individuals and may perceive objectives differently. Consider the following
case.8 Senior management in two Australian financial institutions each decided to
shift the emphasis of financial service staff from a service focus to a sales focus.
Under this new strategy employees were given new titles. According to manage-
ment, employees who previously had a service role were now called ‘sales con-
sultants’ or ‘sales officers’. Employees resisted the management initiative, however,
and continued to refer to themselves as ‘customer service officers’. One employee
commented:
Basically I still think of myself as a customer service officer because I would rather
service customers than sell them products. I think it is a much nicer title.
For many of the employees, their identification as caring service people had
developed early in their careers, and they were unwilling to make a transition from
service to sales. Resistance to management’s objectives from the employees would
have reduced the ability of the organisation to meet its objectives.
To be successful, all of the parts of the internal environment should work together
towards one common goal. This is most likely to occur when each person and depart-
ment understands their contribution and the contribution of other departments.

Internal marketing
internal marketing A cultural Internal marketing is a cultural framework and a process to achieve strategic align-
framework and a process to ment between front-line employees and marketing. More specifically, internal
achieve strategic alignment
marketing is a collection of activities, processes, policies and procedures that treat
between front-line employees
and marketing. employees as members of an internal market who need to be informed, educated,
developed and motivated in order to serve clients more effectively. Companies that
provide and practise internal marketing are more likely to satisfy their employees.
In turn, satisfied employees are more likely to deliver to a customer’s satisfaction
and be more productive. Research suggests that if carried out effectively, internal
marketing would be expected to positively influence employee attitudes and
behaviours.
Internal marketing is practised in three main ways. First, the primary role of
internal marketers is to manage internal communications to ensure that employees’
actions are aligned with company goals (internal communications). Second,
internal marketing managers use market research to understand employees’
needs and demands (internal market research). Then, they provide the training
needed by employees to reach the company’s goals. The three activities assist
­marketers  to  ensure that all members understand their role in creating, commu-
nicating, ­delivering and ultimately exchanging offers that have value for the target
audience.
The marketing department is best positioned to understand what customers
value. It is the marketing department’s role to collaborate with the human resources
department to ensure that all members within an organisation understand their role
in creating, communicating, delivering and exchanging offerings that have value. It
is then up to the other departments to use their own expertise to deliver that value.
With the increasing focus on a market orientation in many organisations, mar-
keters have generally gained more influence and have been allocated more resources
for their activities in recent decades. With this, however, has come an increasing

48 Marketing
expectation of results and an increasing need for marketers to be able to demon-
strate and quantify their achievements. Marketing, like all other parts, processes and
people in an organisation, must work to achieve the overall organisational objec-
tives and must always demonstrate how it does so. This is discussed further in the
chapter on marketing planning, implementation and evaluation.
In many organisations, the severe squeeze on profits brought about by the global
financial crisis resulted in tighter marketing budgets (particularly in the areas of
new product development and advertising) and even more pressure for marketers
to justify their organisation’s investment in marketing. In general, during economic
downturns, organisations tend to make drastic cuts to marketing budgets.9 Marketing
is viewed by many organisations largely as a cost, rather than as an investment.
However, companies choosing to grow their marketing investment in economic
downturns fare much better when economic recovery commences. Some companies
were too swift to let staff go in the recent downturn in Australia, making it subse-
quently difficult to attract good staff when the economy recovered. Whatever the
economic conditions, marketing can help influence consumer behaviour, set prices
effectively, create value for marketing expenditure and take advantage of emerging
opportunities.
It should be clear from the previous discussion that the internal environment is
not an isolated entity. Much of what happens in an organisation’s internal environ-
ment is affected by what happens in the less controllable external environment.
The external environment is concerned with things that are outside of the organ- external environment The
isation. The external environment encompasses the people and processes that the people and processes that are
outside the organisation and
organisation cannot directly control. Marketers can only seek to influence the external
cannot be directly controlled.
environment. For example, movie studios cannot prevent people from copying
or file-sharing movies and TV shows with their friends. They do, however, lobby
governments to introduce legal penalties for doing so, and they include warnings
about piracy on DVD and Blu-ray packaging, and on the films themselves. Hence,
they cannot control the factors in their external environment, but they do seek to
influence them. The process of outsourcing (transferring an internal function to an
external provider) has gone through waves of popularity over the past few decades.
It represents a blurring of the line between the internal and external environment.
A thorough understanding of the external environment ensures that marketers
understand the opportunities and threats that may arise. Opportunities and threats
are external factors that positively and negatively affect the organisation’s current
and future ability to successfully serve the market. Typically marketers seek to
make the most of the opportunities identified and minimise the threats arising in
the external environment. The external environment includes the micro environ-
ment and the macro environment. We will look at each in turn to provide you with
an understanding of the types of external factors that marketers need to understand.

Please hold Spotlight

Call centre customers get frustrated at the long waiting times, hang ups, automated responses and
lack of information. How many times have you been left on hold for more than 20 minutes by leading
service providers? While it is easy to criticise call centres as consumers (given that we all have a horror
story or two to share), it is a different case when you are a marketer for a call centre. As marketers
we need to not only understand the customer’s experience — we need to experience working in a
call centre to understand the technical support and training required for the teams operating in that
environment.

Chapter 2  The marketing environment and market analysis 49

 Picture a call centre. The employees are under pressure to
answer calls within the shortest number of rings; answer each
call in the correct way (‘Good morning, my name is .  .  . how
can I help? Can I have your account number?’); ask the right
questions; listen; provide the right answers or advice
(sometimes within a tight timeframe); log the conversation on
an ever-slow computer system; be polite; and close the call.
This list is an over-simplified view of the call centre process
that employees are meant to adhere to hundreds of times
each day.
Now, think about the environment that call centre
employees are working in. Employees work in a small, open
space with noise all around them. Their calls are monitored
for training and quality assurance processes. There might
even be a screen installed by management on the wall to
constantly display call volume and response time data. All of
these things make it hard to concentrate, and the big screens
remind employees there are more angry customers waiting. How can you motivate employees to deliver
a quality service experience in this environment?

Question
Ray White real estate offers a Concierge service (see www.raywhiteconcierge.com.au), which has
been designed to take the hassle out of moving house. With just one phone call, they take care of
everything — including arranging all connections and disconnections, insurance and even home loans
for people selling or buying their home through Ray White. Imagine you are the marketing manager for
Ray White Concierge’s call centre. Name one thing you could do to improve the service experience
for a consumer.

Concepts and applications check

Learning objective 2  explain the factors at work in the organisation’s internal
environment
2.1 How can a marketing manager motivate an employee to deliver improved customer
service?
2.2 Find your bank’s annual report to shareholders (usually available in the investor section of
its corporate website), and locate the bank’s objectives for the next financial year. Were the
behaviours of the staff who provided you with service consistent with management’s objectives?
If so, how were they consistent? If not, what improvements are needed for management’s
objectives to be reached?
2.3 Find an organisational chart for a business. Identify the areas of possible conflict that may
arise from the structural organisation of the business. You should consider the number of
different levels of management, the number of different departments and the number of
employees in the organisation. How can marketers ensure that all employees understand
their contribution and the contribution of other departments to providing value to customers
and clients?
2.4 Outsourcing leads to improved service delivery — true or false? Search the internet and find an
example from Qantas airlines to defend your point of view.

50 Marketing
MICRO ENVIRONMENT
The micro environment consists of customers, clients, partners and competitors. Learning objective 3
Unlike, the internal environment, the micro environment is not directly controllable understand the
importance of the
by the organisation. The organisation can, however, exert some influence on the
different micro-
customers, clients, partners, competitors and other parties that make up its industry. environmental factors
For example, a recent survey by CHOICE found that 60 per cent of Jetstar customers
were satisfied with the airline. Jetstar’s customer relationship management has been micro environment The
overhauled and call centre practices have been changed, allowing the airline to cut forces within an organisation’s
complaint resolutions from 90 to 10 days; also, instead of having to make a formal industry that affect its ability
to serve its customers and
complaint in writing, customers can now do it over the phone. While Jetstar can’t
clients — target markets,
directly control a customer, it can influence satisfaction by improving its complaint partners and competitors.
handling procedures.10
In one way or another, all of the factors in the micro environment affect the mar-
keter. In analysing the micro environment, marketers need to consider customers
and clients; partners, including suppliers; and competitors. We will discuss each of
these in turn next, and will look at how to conduct such an analysis later in the
chapter.

Customers and clients

Marketers must understand the current and future needs and wants of their target
market. They must:
• understand what their customers value now
• be able to identify any changes in customer preferences
• be willing and able to respond to changes
• anticipate how needs and wants might change in the future
• be able to influence customer preferences.
Consider, for example, how downsizing products (a macro-environmental factor)
discussed at the start of the chapter has affected customers and clients (in the
micro environment). Marketers that can respond to these trends in order to sat-
isfy changing consumer preferences will view this as an opportunity and tailor
their  marketing mix accordingly. Consumer behaviour is explained in detail later
in the text.
In the business-to-business market (i.e. where businesses market their products
to other businesses), marketers need to be similarly aware of the current and future
needs of their target market. For example, changes in economic conditions (another
macro-environmental factor), such as movements in interest rates, will likely have
an impact on business investment and spending patterns. Astute marketers keep
abreast of such developments, assess their likely impact and implement marketing
strategies accordingly. Business-to-business marketing is explained in detail in the
chapter on business buying behaviour.

Partners
Marketers need to understand their partners, how each partner’s processes work and
how their partnerships benefit each party. Partners include the following.
• Logistics firms. Logistics is the term used to describe all the processes involved in
distributing products; it includes storage and transport.
• Financiers. Financiers provide financial services such as banking, loans and
­insurance, and the financial system’s infrastructure facilitates electronic payment
transactions with partners and customers.

Chapter 2  The marketing environment and market analysis 51

 • Advertising agencies. Small businesses tend to devise their own advertisements,
often with the help of the publication, radio station or other medium they are
advertising with. Larger businesses can hire the services of advertising agencies.
When they do so, they put an enormous amount of faith in the agency to attract
the attention of potential customers and encourage them to actually engage in a
marketing exchange with the organisation.
• Retailers. Retailers are the businesses from which customers purchase goods and
services. Many retailers, such as corner shops and supermarkets, sell mainly
products made by others. Other businesses make and retail their products, par-
ticularly small boutique businesses, service businesses and businesses with an
online shop.
• Wholesalers. Wholesalers are an intermediary acting between the producer and the
retailers to provide storage and distribution efficiencies to both.
• Suppliers. Suppliers provide the resources that the organisation needs to make its
products. Suppliers are a crucial business partner and they must be monitored for
continuity of supply and price.
While the word ‘partner’ suggests a mutually beneficial relationship, there are
also many risks involved in working with partners and often the balance of power
between partners can be skewed towards one at the expense of the other. For
example, Woolworths and Coles often sell Coca-Cola at a loss during price pro-
motions. They do this because Coca-Cola specials draw customers to the store and
these customers often then purchase other products as well. The Coca-Cola Com-
pany does not need to discount Coca-Cola in order to sell it and so does not offer
a rebate to the supermarkets when they put it on special. This is rare in the food
retailing business. Marketers need to know the missions and strategies of their part-
ners. Ideally their strategies should be aligned and complementary. Marketers need
to understand their partners’ cost structure to enable them to price their offerings
appropriately. Marketers need to understand how partners promote their offerings,
if at all.
Suppliers
Marketers need to know their existing and potential suppliers’ costs, availability,
time frames and planned innovations to determine how they can best create value.
They also need to know and manage the risks involved in their dependency on their
suppliers. Organisations need to be aware of and pre-empt any problems (e.g. labour
strikes and stock shortages) with the supply of the resources they need to ensure
they can fulfil demand. In summary, marketers must identify, assess, monitor and
manage risks to supplies and risks to the price of supplies.

Competitors
As stated in the introduction to marketing chapter, the most successful businesses
throughout history have been those built around and focused on making their cus-
tomers happy — and doing it better than their competitors can. To succeed, mar-
keters must ensure their offerings provide their target market with greater value
than their competitors’ offerings. Marketers seek to understand their competi-
tors’ marketing mix, sales volumes, sales trends, market share, staffing, sales per
employee and employment trends. They do this through casual and formal analysis,
as we will describe later in the chapter.
Marketers exist in competitive markets and there are many different types of
market competition. Table 2.1 summarises the types of competitive market and
gives an example of each.

52 Marketing
 Table 2.1  Types of competition

Competitive structure Description Example

Pure competition Numerous competitors offer Markets for agricultural goods such as sugar and for financial securities
undifferentiated products. such as shares are the closest real-world approximations to pure
No buyer or seller can exercise competition. In reality, pure competition does not exist.
market power.

Monopolistic Numerous competitors offer products The market for laptop computers exhibits monopolistic competition.
competition that are similar, prompting the Acer, DELL, Lenovo, Apple, Toshiba and many others all sell versions
competitors to strive to differentiate of essentially similar products, though the products are differentiated by
their product offering from others. colour packaging, price, memory, processing speed and so on.

Oligopoly A small number of competitors offer The Australian airline industry is an example, with Qantas and Virgin
similar, but somewhat differentiated, Australia selling over 80 per cent of all domestic flights in Australia.
products. There are significant Smaller operators, such as Jetstar and Tiger Airways, also exist.
barriers to new competitors entering
the market.

Monopoly There is only one supplier and Many government services are essentially monopoly industries, such as
there are substantial, potentially the provision of roads and rail. These are maintained as monopolies when
insurmountable, barriers to new it is considered inefficient or somehow undesirable to have competition.
entrants. This position can change, however, with some governments choosing
to open up some of their monopoly markets to private competition
(e.g. electricity supply in Queensland).

Monopsony The market situation where there is The Federal government of Australia is the only buyer of submarines
only one buyer. manufactured in South Australia.

When thinking about competition, marketers need to think broadly. There are
many different levels of competition that marketers face. Table 2.2 summarises the
different levels of competition and provides an example of each. While marketers
often think in terms of brand competition, a broader definition of competition can
place marketers in a better position to create, communicate, deliver and exchange
offerings that have value.

Table 2.2  Levels of competition

Level of competition Description Example

Total budget Consumers have limited financial resources A university student would like to attend a concert and the
competition and therefore must make choices about which tickets are $120. The concert is competing with all other
products to consume and which to forgo. In this possible uses of the student’s $120 — refuelling the car, weekly
sense, organisations are competing against all rent, food and other bills, leaving it in the bank, and so on.
alternative ways the consumer can engage in an
exchange of value.

Generic competition Consumers often have alternative ways to meet Sydney Buses competes with CityRail and Black and White
their product needs. The same want or need can Taxis for the business of consumers needing to get from
be satisfied by quite different products. This is A to B. Bus, train and taxi rides are quite different, but meet
known as substitutability. the same need.

Product competition Some products are broadly similar, but have Soft drinks, water, alcohol, coffee and juice are all beverages
different benefits, features and prices that that people could purchase to drink.
distinguish them from competing products.

Brand competition Some products are very similar, offering the Westpac, ANZ, the Commonwealth Bank and the National
same benefits, features and price to the same Australia Bank all offer savings accounts with similar minimum
target market. balances, interest rates, internet banking facilities, distribution
of ATMs, fees and so on. There is not a lot to intrinsically
distinguish these products from each other. This is in contrast
to other options for investing savings, such as buying shares,
debentures, real estate or artworks.

Chapter 2  The marketing environment and market analysis 53

 Spotlight  Woolworths and Coles killing
the competition
The Australian grocery market is a mature market and one of the most concentrated grocery sectors in
the world. Two major grocery chains, Woolworths and Coles, dominate the market, together accounting
for 80 per cent market share of an industry valued at $80 billion. To put this into context, in the
United Kingdom, the two major chains of Tesco and Sainsbury have 48 per cent market share; and
the United States equivalent supermarket chains have a
20 per cent share.
Woolworths and Coles are opening stores in growth areas
and rural centres — killing off competition, obliterating local
small business, and leaving many independent and smaller
retailers fighting for survival. At present, Coles and Woolworths
plan to expand store floor space by more than 5 per cent a year
in coming years — a rate almost three times that of Australia’s
current levels of population growth — suggesting that any
gains made by Coles and Woolworths are at the expense of
small, independent retailers.
In 2012, Master Grocers Australia, an association
representing independently operated supermarkets
and liquor stores, released a report titled Let’s have fair
competition. Master Grocers Australia says Coles and
Woolworths are saturating the market and opening oversized
and unprofitable supermarkets to squeeze out local
competition in growth areas and rural centres, leaving no
room for independently owned supermarkets to continue operations. Among the stores, both opened
and proposed, identified as ‘oversized’ by the Master Grocers are:
• Seville (population 1800), a proposed 3100-square-metre Woolworths store plus 17 shops
• Koo Wee Rup (population 2803), a 2660-square-metre Woolworths store
• Bright (population 2100), a 2383-square-metre Woolworths store plus liquor store.
If the claims are true that stores are oversized and unprofitable, the independently owned
supermarkets simply cannot compete. The report called for the Australian Consumer and Competition
Commission (ACCC) to investigate, and for changes in laws to protect smaller competitors in the
Australian grocery industry.11

Questions
1. Imagine you are the marketing manager for an independent supermarket in a town such as Seville or
Bright. From a marketing perspective, how would you attempt to beat larger competitors like Coles and
Woolworths?
2.  Look back to table 2.1. What type of competition occurs in Australian grocery retailing?

Concepts and applications check

Learning objective 3  understand the importance of the different micro-environmental factors
3.1 What aspects of competitors’ operations must an organisation understand as part of its micro-
environmental analysis?
3.2 What risks are involved in entering an oligopoly market?
3.3 An organisation cannot directly control its micro environment. It can, however, exert influence.
Look at the 2012 Master Grocers Australia report (Let’s have fair competition). Describe one way
that independent retailers were trying to influence their environment in 2012.

54 Marketing
3.4 Review the different levels of competition outlined in table 2.2. Imagine that you are the marketing
manager for movie theatres. Outline two examples of competition that your movie theatre faces for
each level of competition outlined in table 2.2.
3.5 Imagine you are the marketing manager of an independently owned grocery retail outlet. Outline
all of the micro-environmental factors that you should analyse when making marketing decisions
for the business.

THE MACRO ENVIRONMENT

The organisation itself and all of the forces within the micro environment operate Learning objective 4
within a larger environment known as the macro environment. The macro outline the different types
of macro-environmental
­environment encompasses the factors outside of the industry that influence the sur-
forces
vival of the organisation. In practice, the macro environment can be at any geo-
graphic level including local, state, country or regional (e.g. the Asia–Pacific or the
macro environment The
European Union). factors outside of the industry
In some cases it is possible for marketers to influence macro-environmental factors. that influence the survival of
However, these factors will always remain beyond a marketer’s control. For example, the company; these factors are
a company can lobby government to reduce the tax on wine, but they cannot directly not directly controllable by the
organisation.
control the rate set by the government.
Failure to plan based on emerging trends can lead to business closure. Effec-
tive marketers continually monitor the environment, adapting and changing offers
where necessary in response to changes in the macro environment.
News services, business and investment media, libraries, the internet and industry
associations are all avenues to inform marketers of developments in the macro
environment. Key environmental factors that marketers need to consider when
­
analysing the marketing environment include political, economic, sociocultural,
­
technological, environmental and legal forces. (This view of the macro environment
is commonly abbreviated to ‘PESTEL’.) The key considerations are summarised in
figure 2.3 (overleaf) and each factor is discussed in the following sections.
Economic factors are the focus of economics courses and students intending to
major in marketing should seek to take an introductory economics course if it is
not a core degree requirement. An understanding of the political environment is
also encouraged. Students intending to major in marketing should seek to take one
course in politics and law to gain a broad understanding of the political and legal
environments. Students choosing to continue in marketing studies will explore socio­
cultural factors in detail in consumer behaviour courses.

Political forces
Political forces describe the influence of politics on marketing decisions. Politics is political forces The influence
directly relevant to the marketing organisation through: of politics on marketing
decisions.
• lobbying for favourable treatment at the hands of the government
• lobbying for a ‘light touch’ approach to regulation
• the very large market that the government and its bureaucracy comprise
• the ability of political issues to affect efforts at international marketing.
Many organisations, particularly smaller ones, monitor political issues, but do not
actively engage in politics. Larger organisations, or the bodies created to represent
smaller ones, can engage directly in politics by seeking to influence lawmakers.
Every time there is a federal election, the sources of large donations to one or other
of the major political parties become headline stories in the media. Organisations

Chapter 2  The marketing environment and market analysis 55

 can also campaign for legal or policy changes that can have a ­fundamental impact
on their operating environment. The extensive changes to A ­ ustralia’s workplace
relations system made by the federal government in recent years are an example
of how political forces can change an organisation’s operating environment.

The political arena has a huge influence upon businesses and the spending
power of consumers. Marketers must consider:
1. the stability of the political environment
Political
2. the influence of government policy, laws and regulation
3. government trade agreements such as ASEAN
4. taxation and government rebate policies.

Marketers need to understand the economy in the short and long terms.
Marketers must consider:
1. interest rates, economic growth (gross domestic product) and consumer
Economic confidence
2. income levels, savings, credit and spending levels
3. the level of inflation, employment and unemployment
4. exchange rates and balance of trade.

Social and cultural influences have a large influence on businesses.

Marketers must understand:
Sociocultural 1. religion, culture, subcultures, values, attitudes and beliefs
2. population trends including age, household size and composition, marriage
and divorce trends, places lived, ethnicity and health.

Technology is vital for competitive advantage. Marketers must consider:

1. whether offerings can be made more cheaply and to a better standard of
Technological quality using new technologies
2. whether technology can be used to innovate
3. whether distribution or communication can be improved using technology.

Marketers need to understand environmental influences including ecological

Environmental
and environmental aspects such as weather, climate and climate change.

Marketers need to understand legal and regulatory influences such as:

Legal 1. laws including the Competition and Consumer Act, The Privacy Act,
FIGURE 2.3 The Spam Act, The Sale of Goods Act and the Prices Surveillance Act
2. regulations from industry bodies such as the Advertising Standards Bureau.
The macro environment

It is worth noting too that political parties, governments and the public service
themselves undertake a lot of marketing activities. For example, the federal govern-
ment’s Department of Foreign Affairs and Trade runs advertising campaigns and

56 Marketing
maintains its www.smarttraveller.com.au website to inform Australians travelling
overseas about laws, customs, health issues and other matters that might affect their
travel decisions.

Economic forces
Economic forces refer to all of those factors that affect how much money people economic forces Those factors
and organisations can spend and how they choose to spend it. The obvious com- that affect how much people and
organisations can spend and how
ponents of this are income, prices, the level of savings, the level of debt and the they choose to spend it.
availability of credit. Many of these factors are discussed in the chapter on segmen-
tation, targeting and positioning, as they are fundamental defining characteristics of
the market.
Economic forces and conditions can change quickly and dramatically, and mar-
keters can find themselves facing a very different economic environment within
a short period of time. Currency fluctuations, for example, affect the prices of
exports and imports. A devaluation of the Australian dollar makes exports cheaper
and imports more expensive. The reverse applies when the currency appreci-
ates on ­ international markets (i.e. exports become more expensive and imports
cheaper). Interest rates are another economic force. Increases or decreases in
interest rates can have a significant impact on both consumer and business confi-
dence, and ­subsequent spending and investment patterns. The global financial crisis
served to highlight an  important aspect of the macro environment: it is made up
of global  forces that  are beyond the control of any individual organisation or even
government.

Sociocultural forces
Sociocultural forces is a term used to describe the social and cultural factors that sociocultural forces The
affect people’s attitudes, beliefs, behaviours, preferences, customs and lifestyles. social and cultural factors that
affect people’s attitudes, beliefs,
They comprehensively and pervasively influence the value people put on different behaviours, preferences, customs
product offerings. ‘Demographics’ describe statistics about a population. A popu- and lifestyles.
lation can be characterised by its demographic characteristics: age, gender, race,
ethnicity, educational attainment, marital status, parental status and so on. These
­characteristics influence the behaviour of society as a whole and the individuals
within it. Changes in demographic characteristics should be expected to result
in changes in the behaviour of individual consumers and society generally. This
topic is explored in detail in the chapter on market segmentation, targeting and
positioning.
One of the sociocultural themes to become a key issue for marketing organ-
isations over the past couple of decades is the natural environment. Society (par-
ticularly the younger members of society) has become more and more concerned
about the sustainability of humankind’s lifestyle — the effect our activities have
on the world that supports us. Think about how many issues related to the natural
environment appear in the headlines every day: sustainability, corporate social
responsibility, global warming, pollution, deforestation, salinity and carbon trading.
Marketers need to be aware of these issues and society’s expectations of how busi-
nesses and other organisations need to respond. Some marketing organisations have
already capitalised on the growing environmental concern of society; others have
responded to it; others are slow to respond and potentially risk destroying their
businesses.

Chapter 2  The marketing environment and market analysis 57

 Technological forces
It is important, when considering technological forces, not to fall into the trap
of viewing technology just in terms of iPhones, satnavs and hybrid-electric cars.
Rather, technology is a broad concept based on finding better ways to do things.
That is, the electronic gadgetry of a satnav device is not really the technology;
the technology is that a satnav is a better way (than a map) to navigate to your
destination.
Technology is advancing at an unprecedented rate. Our daily lives are touched by
technology almost all of the time. It is similarly common to be touched by techno-
logical change. Think about how often you change to a newer, better, brighter model
of mobile phone (or at least how often you would like to). While email, Web 2.0,
mobile phones, mobile internet and e-commerce are an everyday part of your life,
they all represent major technological changes that your lecturers have had to learn
to adapt to (with varying degrees of success!).
In a wired world, we are connected most of the time, be it to the internet via a PC,
laptop or mobile phone, to our friends via Twitter, or to our work via a BlackBerry
device. Never before have marketers been able to interact with the market as often,
as intimately, and as extensively as they can today. For example, it is reasonably
common today for a survey to pop up online seeking your feedback when you first
enter a website.
Technology does not just change the expectations and behaviours of customers
and clients. Technological change can have huge effects on how suppliers work.
Today manufacturers, suppliers and distributors are likely to be in constant elec-
tronic exchange with marketing organisations, ensuring stock levels are automati-
cally monitored and maintained, tracking goods in transit down to the nearest
kilometre. Increasingly the customer can see how many goods are in stock or how
long they will have to wait to have an item delivered. Consider the efficiencies
brought about by electronic payment systems. How many more shoes can Mathers
sell given a customer can whip out a credit card to purchase a pair that take their
fancy, rather than have to go to a bank, fill out a paper form, stand in line and be
handed some crumpled paper currency to carry back to the shop?
Technology, while enabling many advances, can also pose a threat to mar-
keters. Kodak, long-established as a leading photography brand, suffered massive
downsizing  and its business was severely threatened by the advent of digital
­
­cameras in the 1990s. The mass market for photographic film disappeared in a few
short years.

Environmental forces
environmental forces The Environmental forces is a term used to describe the environmental factors that affect
environmental factors that affect individuals, companies and societies. There is a wide range of environmental factors
individuals, companies and
that companies need to be mindful of, including ecological and environmental
societies.
aspects such as weather, climate and climate change. For example, natural disas-
ters can directly impact companies. Consider the 2011 and 2013 Queensland floods,
which closed flood-affected businesses for periods of time and impacted the profit-
ability of insurance companies. Consider Jellyfish, a restaurant located on flood-
affected Eagle Street Pier, whose business was closed for weeks following the January
2011 flood that affected Brisbane; Suncorp Metway, who received over 4500 claims
in the week following the January 2013 flood12 or the small business in Gympie
that had been flooded up to 4 times in just over 2 years. Environmental factors can
have more influence in certain industries, and marketers need to be mindful of the

58 Marketing
factors likely to influence their particular industry (e.g. tourism, farming and insur-
ance). As discussed in the introduction to marketing chapter, growing awareness
of the potential impacts of climate change is affecting how companies operate and
the products they offer, both creating new markets and diminishing or destroying
existing ones.

Legal forces
Laws and regulations are intimately tied to politics. Elected officials and the bureauc- laws Legislation enacted by
racy that works for them are ultimately responsible for making legislation; that is, elected officials.
for creating and changing laws. Regulations are made under conditions established regulations Rules made under
by legislation and tend to deal with more minor or more specific issues than legis- authority delegated by legislation.
lation. They are by no means unimportant.
Laws and regulations govern what marketing organisations can and cannot legally
do. They spell out their obligations to consumers, partners, suppliers, government
authorities and society as a whole. The most significant laws and regulations fall
into the following categories: privacy, fair trading, consumer safety, prices, contract
terms and intellectual property.
In a bid to forestall legal regulation, many industries have adopted codes of con-
duct as a self-regulatory device. Self-regulation is usually cheaper, and more attuned
to industry needs and actual practice. For example, Australian advertisers estab-
lished the Advertising Standards Bureau to establish and uphold certain standards in
advertising.
As mentioned earlier in the chapter when describing the impact of political
forces on an organisation’s macro environment, larger organisations (and industry
lobby groups) can attempt to influence government lawmakers. An example of
this occurred in 2011, when a group of high-profile Australian retailers (such as
David Jones, Myer, Harvey Norman and Target) banded together in an orchestrated
­advertising campaign. This campaign was designed to highlight what ­Australian
retailers perceived as an inequity in the market, where offshore retailers are not
required by the Commonwealth Government to pay import duty or GST (goods
and services tax) on sales to Australia under the value of $1000. The group of
Australian retailers (which employ Australians and are required to pay 10 per cent
GST on all  purchases) argue that this inequity places them at a price disadvan-
tage compared  to offshore online retailers. The Commonwealth Government
countered by saying it wouldn’t be pressured into making a decision; while local
consumer ­advocacy group CHOICE argued that the Australian retailers’ campaign
was ­motivated by self-interest, and would only result in higher prices for local
consumers.13

Macro-environmental complexity
There are numerous ways to view the macro environment. The PESTEL frame-
work we have outlined in this section of the chapter is just one. It is intended to
help focus on some particular issues of importance for marketers, but it must be
remembered that none of these factors act in isolation. Rather, they are all inter­
dependent, and  a  change in one will almost always have consequences for the
others. For example, the development of internet technology created a need for new
laws to regulate online conduct; an entire online economy developed; the provision
of internet infrastructure and the regulation of internet content has become a major
political issue; the nature of relationships and how people spend their days has been
fundamentally changed by the online world.

Chapter 2  The marketing environment and market analysis 59

 Let’s consider another example. Over the past two decades, the world as a whole
has become more aware of the need to minimise the impact of human behaviour
on the natural environment. Amid warnings from scientists of global warming, pol-
lution, the exhaustion of fossil fuels and the extinction of flora and fauna species,
individuals, businesses and governments have begun to give much more weight to
the need for business activities to be responsible and sustainable. Options put for-
ward to encourage such behaviour include proposals for emissions trading schemes
and/or carbon taxes. New Zealand introduced a government-run emissions trading
scheme in 2008, while Australia introduced a carbon tax on 1 July 2012, with a cost
initially set at $23, increasing gradually until 2015. The role of carbon taxes con-
tinues to be debated across the globe, and many in the general population hold
conflicting views. Emissions trading schemes and carbon tax proposals are designed
to encourage market forces to reduce carbon pollution, which is one of the main
contributors to global warming. In 2013 it is estimated that 33 countries and 18 sub-
national jurisdictions will have a carbon price in place. According to the Climate
Commission report titled Critical decade: international action on climate change, these
schemes cover around 850 million people, or 30 per cent of the global economy, and
around 20 per cent of global emissions.14
Emissions trading schemes and carbon tax proposals are generally based on the
theory that the price of products that generate more carbon pollution will increase
as a result of the scheme/proposal, reducing demand; whereas carbon-friendly prod-
ucts will fall to be relatively low in price, increasing demand. Over time, those pro-
ducers that are larger greenhouse gas emitters will be less able to compete in the
market with those who can produce in a more carbon-friendly manner.

Spotlight  Spending is going online

Many older Australians will remember shopping in suburban strips. This is now a distant memory,
with shopping centres (like Westfield) becoming the favoured retail landscape over the past few
decades. Today, statistics show the proportion of Australians spending money in bricks and mortar
shops is declining. Consider Dayle who went to the Mountain Design shop to look at travel backpacks
ahead of her eight week trip to Europe. Dayle tried on the various
backpacks in the store before deciding on the backpack that best
suited her needs. She then went home and spent time surfing the
internet, finding the backpack online for $150 cheaper than the
in store retail price. She went ahead and ordered the backpack
online, which was delivered free of charge to her front door
48 hours later.
The retail landscape in Australia (and around the world) is
changing dramatically. More than half of Australian shoppers aged
over 15 now shop online, causing major concern to traditional
bricks and mortar Australian retailers. PricewaterhouseCoopers and
Frost & Sullivan research shows that online shopping in Australia
increased 17.9 per cent in 2012 to reach $16 billion. To put this
into perspective, retail spending in Australia in January 2013 was
estimated by the Australian Bureau of Statistics to be $21.5 billion
in a single month. Of even greater concern to Australian retailers,
growth in internet sales is expected to continue, and it is predicted
to grow to $26.9 billion by 2016 at a compound annual growth rate
of 14.1 per cent. This is much higher than Australia’s average retail
growth — which, according to the Australian Bureau of Statistics,
is 2.5 per cent.

60 Marketing
 A key point to note is that the PricewaterhouseCoopers and Frost & Sullivan report excluded
spending on such items as travel and accommodation, event ticketing, financial services products and
media downloads (such as Apple’s iTunes store). This suggests that the true figure of Australian online
spending is much higher, and that the retail landscape is shifting.15

Question
Identify as many macro-environmental forces as possible that would impact Lorna Jane (a fitness clothing
retailer), and categorise them under the PESTEL model.

Concepts and applications check

Learning objective 4  outline the different types of macro-environmental forces
4.1 Identify six macro-economic factors and explain their relevance to marketers.
4.2 You are a marketer for Salt, a resort at Kingscliff in New South Wales. Identify two environmental
and two political trends that will affect your business in the next financial year.
4.3 You are marketing new houses and understand that the trends towards environmentalism and
smaller families are beginning to reduce demand for large homes. How would you respond to
these changes?
4.4 Identify two major consumer laws in your country. Explain their relevance to marketers.
4.5 The Australian Competition and Consumer Commission and the Commerce Commission are key
regulatory bodies in Australia and New Zealand respectively. Choose one and locate a recent
decision made. How did this decision impact a company?

SITUATION ANALYSIS AND MARKETING Learning objective 5

conduct a preliminary
PLANNING situation analysis

Before marketers can create an offering for exchange they must understand their cur-
situation analysis An analysis
rent position or situation. Situation analysis involves assessing the current situation
that involves identifying the key
in order to clearly state where the company is now. Together with organisational factors that will be used as a
objectives, situation analysis is used as the platform for marketing planning, as illus- basis for the development of
trated in figure 2.4. marketing strategy.

Situation Organisational Marketing

analysis objectives planning

Where we are now. + Where senior management

thinks we should be.
How we plan to get
to where management
FIGURE 2.4
wants us to be. Marketing planning

Consider the following example. A marketer is informed by top management that

their objective for the next financial year is to achieve the number two position in
marketing planning An
terms of market share for a product that was launched 12 months ago (it is currently
ongoing process that combines
at number four out of six products in the market). Since the launch the product organisational objectives and
has achieved 17 per cent market share. To gain the number two position, the mar- situation analyses to formulate
keter needs to increase market share by a further 10 per cent, to achieve a total of and maintain a marketing plan
27 per cent market share. If successful, the marketer will receive bonuses. In prac- that moves the organisation from
where it currently is to where it
tice, where competition exists, this is a difficult — but not impossible — objective to
wants to be.
achieve. The marketer needs to gain a comprehensive understanding of the current

Chapter 2  The marketing environment and market analysis 61

 situation, viewed through the eyes of customers, clients, partners and the society at
large, in order to develop a marketing plan to reach the target.
Marketers need to be able to analyse their current situation, understanding not only
their own business, but also their competitors’ businesses and the marketing environ-
ment. As stated earlier, situation analysis leads to an assessment of where we are now.
In addition to giving consideration to trends in the internal and external marketing
environment, marketers must understand their past performance. Figure 2.516 outlines
key factors that should be evaluated in a thorough situation analysis.

Company analysis Market analysis

• The firm’s goals and objectives • Size

• Market share • Growth
• Service quality • Customer segments
• Positioning • Customer needs
• Operations and resources • Buyer behaviour
• Marketing mix strategies • Intermediates
• HR policies and procedures
• Financial status

Situation analysis

Environmental analysis Competitive analysis

• Political • Major competitors

• Economic • Their goals and objectives
• Social • Marketplace behaviour
• Technological • Market share
• Legal/regulatory • Growth
• Service quality
• Positioning
• Operations and resources
FIGURE 2.5 • Marketing mix and strategies
• Indirect competitors
The situation analysis

As illustrated earlier in figure 2.4, the situation analysis, together with the organ-
isation’s objectives, should form the basis for developing the marketing plan. Essen-
tially, a marketing plan communicates how marketers plan to get from the current
situation to where top management thinks their company should be. Marketing plans
are detailed documents, as can be seen by the example included as an appendix at
the back of this book. Although the format and structure of marketing plans vary,
the major components and types of information contained in a typical marketing
plan are outlined in figure 2.6. At the end of each chapter in this text is an activity
that allows you to gather information on a product for each of the major components
of the marketing plan listed in figure 2.6. This will enable you to build a detailed
marketing plan as you work through this textbook.

62 Marketing
 FIGURE 2.6
Executive summary
The marketing plan
The executive summary provides a brief overview of the marketing plan. The purpose
is to outline the main features of the marketing plan that will help the organisation to
achieve its objectives. The executive summary is often the only part of a report that
decision makers read, so it needs to effectively communicate the key issues.

Introduction
Brief details on the internal environment of the organisation are provided in this
section — its history, size, locations, number of employees, revenue, profitability and
so on.

Situation analysis
This is a more detailed section of the marketing plan. It includes a thorough analysis
of the macro-and micro-environmental factors. This situation analysis will typically
be synthesised into a capstone SWOT analysis for the organisation (an acronym for
Strengths, Weaknesses, Opportunities and Threats). The SWOT analysis is explained
in more detail later in this chapter, including via a visual representation in figure 2.8.

Objectives
The organisation’s overall objectives and mission statement are included in this
section, along with the marketing objectives that are intended to help achieve the
organisation’s overall objectives. All objectives should be:

• Specific
• Measurable
• Actionable
• Reasonable
• Timetabled.

Target market
The marketing plan should contain a description of the organisation’s target
market segments, their characteristics and how the target market and market
segments were selected. It is important that the description of the target market/
segment is as specific as possible. For example, if it has been determined by the
situation analysis that the target market is urban 25–30-year-old single males, this
needs  to  be what is stated, as opposed to a more general description such  as
(continued)

Chapter 2  The marketing environment and market analysis 63

 FIGURE 2.6 ‘young single men’. Information on how to effectively segment markets is contained
(continued) in chapter 6 of this text.

Marketing mix strategy

Product
The product component of the strategy needs to be outlined, including an explanation
of how the product offers value to the target market. A discussion of branding should
also be included. While you might not include a total product concept analysis of the
product in your marketing plan (see chapter 7 of this text), it may be a useful exercise
to inform the product strategy that is outlined in the plan.

Price
Pricing objectives (e.g. cash flow, positioning and market share) and the pricing
method(s) used to determine prices for your product/s should be stated as part of
the marketing mix strategy. Competitors’ pricing should also be discussed. Pricing
is discussed in chapter 8 of this text.

Promotion
The promotion mix (advertising, public relations, sales promotions and personal selling)
that the organisation wishes to pursue should be explained as part of its marketing
strategy. Consideration should also be given to additional marketing communication
options, such as guerrilla marketing, sponsorship and viral marketing, if appropriate
for  the organisation. Chapter 9 of this text explains the various elements of the
promotion mix.

Distribution (place)
Distribution is a further aspect of the marketing mix strategy that should be outlined
in order to explain how the organisation’s products will be available to customers
where and when they want them. The distribution discussion should address the
use of marketing intermediaries, if applicable. Chapter 10 of this text explains key
distribution issues that need to be considered by organisations.

People
For services products, a people strategy should be discussed as part of the marketing
mix strategy, including how the organisation will address the specific service product
characteristics of intangibility, inseparability, heterogeneity and perishability. These
characteristics are explained in chapter 11. The people strategy should also outline
how the organisation will ensure that its staff are technically competent, able to
deliver high standards of customer service and able to promote products through
personal selling.

64 Marketing
 FIGURE 2.6
Process
(continued)
The systems and procedures, particularly for services products, that will be
used to  create the organisation’s product offering should be discussed in the
marketing plan.

Physical evidence
For service products, the organisation should provide tangible cues as to the quality
it offers. The organisation’s physical evidence strategy may address issues such as
shop fittings, background music and staff uniforms.

Budget
It is important that the budgetary requirements of the marketing plan be outlined in
detail, to demonstrate how the plan can be implemented with available resources.

Implementation
How the marketing plan will be put into practice should be explained, including
specific steps and milestones, as well as control mechanisms to ensure the
implementation phase proceeds in accordance with the plan.

Evaluation
The plan needs to outline specific metrics (e.g. return on investment, market share)
that will be used to evaluate its success. These metrics can also be used by the
organisation to inform both the refinement of the current plan if necessary and the
development of future marketing plans.

Conclusion/future recommendations
A brief summary/conclusion of the report should be provided, including recom­
mendations for approval and/or action (e.g. that the marketing plan be accepted by
senior management for implementation, in order to exploit market opportunities for
growth).

Marketing metrics
Marketing metrics are measures that are used to assess marketing performance. The marketing metrics Measures
Australian Marketing Institute offers a framework to guide marketers’ choice of metrics. that are used to assess marketing
performance.
The framework’s underlying principles are that metrics should be linked to strategy and
should include, as a minimum, four key elements: return on marketing investment,
customer satisfaction, market share in targeted segments and brand equity.

Chapter 2  The marketing environment and market analysis 65

 To give you an idea of the many different ways that marketers can measure per-
formance, key marketing metrics are summarised in figure 2.7.17

Return on • Sales (volume, or number value, ($), % to plan)

investment • Marketing investment (costs, share of voice)
• Bottom line (profit, share of industry profit)

• Churn — % of customers lost

Customer • Number of complaints received/resolved
satisfaction • % on-time delivery
• Retail queue waiting times

• % market share
Market
• % market share growth/decline
share
• Performance relative to competitors

• Awareness — % of target market

Brand
FIGURE 2.7 equity
• Preference — % of target market
• Loyalty — share of category purchases
Best practice marketing
metrics

It is important to remember that there is no one best marketing metric. In prac-

tice, different strategies require different metrics and marketers need to select met-
rics accordingly. For example, Kellogg’s objective was to revamp the way it used
trade promotions in its overall marketing strategy. In trade promotions, manufac-
turers such as Kellogg’s make payments known as rebates to grocers to display,
advertise and offer reduced prices on certain products at specified times. Kellogg’s
knew almost nothing about the effectiveness of the thousands of sales promotions
that took place in the supermarkets every year. The annual cost of Kellogg’s trade
promotions was $600 million. Using marketing metrics such as the sales uplift from
the trade promotions, Kellogg’s found that 59 per cent of its trade promotion events
lost money for the company. Further, the profit generated by the other 41 per cent
was almost entirely eaten away by the events that lost money.18
While the use of the sales promotion metric (sales uplift from the trade promotion)
was ideal for Kellogg’s purposes, it would not be relevant for others. Let’s consider
another example. A telecommunications company wanting to increase the profit-
ability of its business customers would require a different metric. Telecommuni-
cations business customers include small- to medium-size businesses with up to
200 phone lines. A telecommunications company that wants to increase the profit-
ability of its business customers can conduct an experiment where some customers

66 Marketing
are offered specially designed calling plans with unique pricing arrangements, while
others are left the same. The success of this experiment can be tracked using two
marketing metrics — the customer’s ‘change in spend’ and the customer’s ‘churn
rate’ (proportion of customers choosing to change to another telecommunications
company). Customers participating in the experiment can be compared to a control
group of customers who are continuing to use existing calling plans. The change
in spend and customer churn can help marketers to assess whether the specially
designed calling plans increase the profitability of business customers.
Marketing metrics are vital for marketers. Marketers need to be able to articu-
late the return on investment for a host of reasons. First, the ability to articulate
a return on investment can provide a solid rationale for continued funding for suc-
cessful marketing programs — programs that might otherwise be cut if perceptions
are that a program is too costly or is a large budget item. For example, a marketing
director could potentially address or avert tough budget questions from a board of
directors if they can demonstrate that their $3 million program contributed more
than $6 million in sales. Second, return on marketing investment metrics can help
marketers allocate resources where they are most effective. Third, marketers can
build and share a database of returns on investment that should assist in evaluating
the relative effectiveness of various programs.
Once marketers have gained a thorough understanding of their past performance
they need to look forward. Marketers need to predict what they think is likely to
occur in order to plan how they will compete in the market. A comprehensive
understanding of the marketing environment is used to identify the key factors that
are likely to impact in the foreseeable future.

SWOT analysis
As we have explored earlier in this chapter, a multitude of factors are likely to impact
a business. When marketers conduct a situation analysis, they will always find that
there are more factors that need attention than they can possibly address within
the constraints of the available time, money and other resources. Marketers need
to be able to isolate the key, or most important, factors that need to be addressed to
continue to compete effectively in the market. For example, while a garden nursery
will identify that drought and government-imposed water restrictions will both have
a large impact on its business, government-imposed water restrictions that do not
allow people to water outdoor plants will have a more immediate impact. Marketers
need to be able to prioritise or rank the factors to determine which factors will be
used to inform their decision making. Factors included in a situation analysis are
expected to have an immediate and sufficiently large impact on the business. A situ-
ation analysis must use insights from customers, partners, suppliers and other areas
of the organisation.
Situation analysis involves identifying the key factors that will be used as a basis
for the development of marketing strategy. Marketers must be able to understand SWOT analysis An analysis
that identifies the strengths
the current opportunities that are available in the market, the main threats that and weaknesses and the
business is facing and may face in the future, the strengths that the business can opportunities and threats in
rely on and any weaknesses that may affect the business performance. Not surpris- relation to an organisation.
ingly the method used to identify these factors is known as a SWOT analysis. SWOT strengths Those attributes of the
is short for strengths, weaknesses, opportunities and threats. organisation that help it achieve
Strengths are those attributes of the organisation that help it achieve its objectives: its objectives.
competitive advantages and core competencies. Weaknesses are those attributes of weaknesses Those attributes of
the organisation that hinder it in
the organisation that hinder it in trying to achieve its objectives. Strengths and weak-
trying to achieve its objectives.
nesses are considered to be internal factors and therefore directly controllable by the

Chapter 2  The marketing environment and market analysis 67

 organisation. Opportunities are factors that are potentially helpful to achieving the
opportunities Factors that are
potentially helpful to achieving organisation’s objectives. Note the emphasis on the word ‘potentially’ in the previous
the organisation’s objectives. sentence. Opportunities are only of benefit if the organisation responds effectively
threats Factors that are to them. Opportunities are factors that are beyond the organisation’s direct control,
potentially harmful to the though the organisation may be able to have some influence over them. Threats
organisation’s efforts to achieve are factors that are potentially harmful to the organisation’s efforts to achieve its
its objectives. objectives. Like opportunities, threats are beyond the organisation’s direct control,
but require an effective response by the organisation. Opportunities and threats can
arise from many different factors in the organisation’s environment.
A SWOT analysis is often used to help frame marketing thinking. A SWOT analysis
can help marketers to identify ways to minimise the effect of weaknesses in their
business, while maximising their strengths. Ideally, marketers will seek to match
their strengths against market opportunities that result from competitors’ weak-
nesses or voids. A potential framework for conducting a SWOT analysis, along with
key factors to be considered, is outlined in figure 2.8.

Favourable Unfavourable

Strengths Weaknesses
(Can be directly controlled

• What does your company • What doesn’t your company

by the company)
Internal factors

do well? do well?
• What do your customers • What do your customers
compliment you on? complain about?
• What makes your company • What are the unmet needs
stand out from competitors? of your sales force?
• What advantages does your • What disadvantages does
company have when your company face?
compared with others?

Opportunities Threats
(Cannot be directly controlled

influenced by the company)

by the company — may be

• Are there emerging trends • What do your competitors

External factors

that fit with your company’s do better than you?

strengths? • Are there emerging trends
• Are there things that your that threaten your business?
competitors don’t do well?
• Are customer and client
FIGURE 2.8 tastes changing?

A potential framework for a

SWOT analysis

Figure 2.9 shows a very basic example of a SWOT analysis for a retail shop. This
SWOT analysis, combined with an evaluation and understanding of the effective-
ness of past marketing and business approaches, provides the retail shop with the
information it needs to consider possible actions. For example, given its strengths,
the retailer could concentrate its marketing efforts on current customers, adjusting
stock on hand to meet current customer needs. This strategy would reduce stock
costs, increase cash flow and improve business performance. However, given one of
its identified threats is the trend towards increased competition, it may also consider

68 Marketing
the possibility of adding a second, high-traffic location to counter the competitors’
moves. Further, the SWOT analysis identified an increase in leisure time and a
change to working hours. The retail shop could consider changing opening hours to
grow retail shop revenue. These are just three possible responses to the strengths,
weaknesses, opportunities and threats identified. There are many others that would
need to be considered. Armed with this SWOT information, the organisation can
begin to shape its marketing plan.

Favourable Unfavourable

Strengths Weaknesses

• Excellent sales staff with strong • Currently struggling to meet

Internal factors

knowledge of existing products deadlines. Too much work? Not

• Good relationship with customers enough people?
• Good internal communications • High rental costs
• High traffic location • Market research is out of date
• Successful marketing strategies • Cash flow problems
• Reputation for innovation • Holding too much stock
• Poor record keeping

Opportunities Threats

• Growing customer base • Competitors have a similar

External factors

• Increased flexibility in working product

hours, more time to go shopping • Competitors have launched a
in trading hours new advertising campaign
• Increased leisure time means • Competitor opening a shop
more shopping time nearby
• Downturn in economy may mean
FIGURE 2.9
people are spending less
An example of a SWOT
analysis for a retail shop

Walk to School Spotlight 

Physical activity and the consumption of a nutritious diet are two key components for health and
wellbeing, and both are important factors in the prevention of many chronic disease conditions. The
combination of energy-dense but nutrient-poor diets and more sedentary lifestyles is contributing to the
growing obesity and poor health in Australia and worldwide.
Children who actively walk to and from school have higher levels of physical activity and improved
cardiovascular fitness compared to children who do not. Studies indicate that the number of children
walking to and from school — a general indicator of levels of active travel — has declined dramatically
over the years. Market research undertaken prior to the launch of Walk to School Day uncovered some
reasons why parents may not have been letting their children walk to school, including perceptions
of stranger danger, traffic concerns and neighbourhood crime. Market research also highlighted that
walking offered parents a way to connect with their kids and to de-stress.

Chapter 2  The marketing environment and market analysis 69

 Between the years 2006 and 2011, VicHealth funded an
annual Walk to School Day to raise awareness of the need for
children to make walking part of their daily routine to improve
fitness, friendships, the environment and their confidence. In
2011 a reported 60  000 students from 380 Victorian primary
schools took part in Walk to School Day.
In 2012, the program was changed. One key change
was that Walk to School became a longer event starting on
8 October aimed at encouraging kids to walk to school for
the 18 school days in October 2012. Second, competition
was thrown into the campaign. A Walk to School iPhone app
was introduced to help families and teachers keep track of
how far, and how often, kids have walked. The data collected
allowed VicHealth to determine that students and families
who took part in Walk to School 2012 walked more than
241  000 kilometres — six times around the world!19

Questions
1. Use the information in this Spotlight, and any other necessary research, to develop a SWOT analysis for
Walk to School.
2. Walk to School is a not-for-profit cause to promote awareness and behaviour change. What marketing
metrics would you use to evaluate its effectiveness as a marketing campaign?

Concepts and applications check

Learning objective 5  conduct a preliminary situation analysis
5.1 You are a marketer responsible for encouraging children to walk to school. You have enjoyed
considerable success in this role, but you need to pinpoint the specific marketing tactics that
encouraged children to walk to school. What marketing metric will you use to understand which
tactics were effective in achieving that goal?
5.2 You have a new employee in your marketing department and you need them to undertake a
situation analysis. In your own words, explain to your new employee how they should approach a
situation analysis.
5.3 Review the retail shop SWOT analysis in figure 2.9 and the surrounding discussion. Imagine you
are the marketing manager for the retail shop. How would you respond in order to effectively
manage the identified strengths, weaknesses, opportunities and threats?
5.4 You are the marketing manager for Snickers bars. Analyse two competitors. What are their
strengths and weaknesses?

70 Marketing
SUMMARY Key terms and
Learning objective 1  describe the marketing environment and the purpose of concepts
environmental analysis economic forces  57
environmental analysis  44
The marketing environment refers to all of the internal and external forces that
environmental forces  58
affect a marketer’s ability to create, communicate, deliver and exchange offerings of external environment  49
value. Marketers seek to understand, respond to, and influence their environment. internal environment  46
They use environmental analysis to break the marketing environment into smaller internal marketing  48
parts in order to better understand it. laws  59
macro environment  55
Learning objective 2  explain the factors at work in the organisation’s internal marketing environment  43
environment marketing metrics  65
marketing planning  61
The internal environment refers to its parts, people and processes. An organ- micro environment  51
isation is able to directly control the factors in its internal environment. A thorough opportunities  68
understanding of the internal environment ensures that marketers understand the political forces  55
organisation’s strengths and weaknesses, which positively and negatively affect the regulations  59
organisation’s ability to compete in the marketplace. situation analysis  61
sociocultural forces  57
Different parts of organisations often have different goals. The most successful
strengths  67
organisations manage to align the goals of each part of the organisation to the
SWOT analysis  67
overall market orientation of the business. This is most likely to occur when each threats  68
person and department understands their contribution and the contribution of other weaknesses  67
departments.

Learning objective 3  understand the importance of the different micro-

environmental factors
The micro environment consists of customers, clients, partners, competitors and
other parties that make up the organisation’s industry. The organisation cannot
directly control its micro environment, but it can exert some influence over it.
Marketers must understand and respond to the current and future needs and wants
of their target market. They must understand how each of their partners’ processes
work and how their partnerships benefit each party. They must also understand the
risks involved in working with partners and the relative power balance between the
organisation and each partner. Suppliers are a particularly crucial partner. Marketers
must identify, assess, monitor and manage risks to supplies and risks to the price
of supplies. To succeed, marketers must ensure their offerings provide their target
market with greater value than their competitors’ offerings. Thus, marketers seek
to understand their competitors’ marketing mix, sales volumes, sales trends, market
share, staffing, sales per employee and employment trends. Marketers should ana-
lyse total budget competition, generic competition, product competition and brand
competition.

Learning objective 4  outline the different types of macro-environmental forces

The macro environment encompasses uncontrollable factors outside of the industry:
political, economic, sociocultural, technological, environmental and legal forces.
Political forces describe the influence of politics on marketing decisions. Economic
forces affect how much money people and organisations can spend and how they
choose to spend it. Sociocultural forces affect people’s attitudes, beliefs, behaviours,
preferences, customs and lifestyles. Technological forces are those arising from
the search for a better way to do things. Technology changes the expectations and

Chapter 2  The marketing environment and market analysis 71

 behaviours of customers and clients as well as how organisations work with their
partners and within society. There is a wide range of environmental factors that
­companies need to be mindful of, including ecological and environmental aspects
such as weather, climate and climate change. Laws and regulations are closely tied
to politics and establish the rules under which organisations must conduct their
activities. The most significant laws and regulations for marketers are related to
privacy, fair trading, consumer safety, prices, contract terms and intellectual
­
property.

Learning objective 5  conduct a preliminary situation analysis

Situation analysis involves assessing an organisation’s current position and situation.
Together with organisational objectives, situation analysis is used as the platform
for marketing planning. Essentially, a marketing plan communicates how marketers
plan to get from the current situation to where senior management thinks their
organisation should be.
Marketing metrics are used to measure current performance and the outcomes
of past activities. A SWOT analysis is used to identify strengths (those attributes of
the organisation that help it achieve its objectives), weaknesses (those attributes
of the organisation that hinder it in trying to achieve its objectives), opportunities
(factors that are potentially helpful to achieving the organisation’s objectives) and
threats (factors that are potentially harmful to the organisation’s efforts to achieve
its objectives).

72 Marketing
Checking the pulse: are we satisfying Case study
our employees?
Yu-Ting Huang, Griffith University (co-author)

Consider the following scenario. A marketing manager produces a 100-page marketing plan outlining
how employees will be motivated to implement the company’s marketing strategies. The plan is
emailed to all company employees with one sentence: ‘Here’s the
plan’. On the distribution list are employees from the production
line to employees in the call centres. The email is sent once, and
there is no follow up. Weeks pass and management wonders why
employees aren’t changing their behaviour.
The marketers in charge of the planning process failed to
clearly communicate the plan internally, lobby support and
provide helpful short-hand reminders about the strategy to ensure
that the larger team (e.g. company employees) responsible for
its implementation understood it. The good news is that this can
easily be avoided. Internal marketing is the function used to
implement such a plan. The following section outlines one
example of an internal marketing audit conducted recently for a
service organisation. Recall that internal marketing is comprised
of three main business functions — namely, communications,
training and market research — that marketers can use to
encourage employees to work together towards one common goal.

The internal marketing audit

A survey was developed to understand the perceptions of employees of a service company as to
what improvements could be made to the internal marketing program. Each internal marketing item
(summarised in table 2.4) was measured on a five-point scale, where five represented ‘strongly agree’
and one represented ‘strongly disagree’. The survey was collected online, allowing employees the
freedom to complete the survey at a time and place that was convenient to them.
Responses were anonymous and employees could not be individually identified in any way. The
effective respondent rate was 24.8 per cent, and data collected in the survey was analysed using
statistical software (SPSS). Descriptive statistics (see table 2.3) or frequencies were used to understand
the employees’ demographic characteristics (see table 2.4, overleaf) and employee’s perceptions of
current internal marketing practice in the organisation. A mean (arithmetic average) score and standard
deviations were calculated for each internal marketing item, and the proportion of employees agreeing
and disagreeing with each item was also calculated so that an assessment of the organisation’s internal
marketing could be made. Higher standard deviations indicate higher degrees of heterogeneity. In
simple terms, higher standard deviations would indicate that while some employees agreed with a
statement, there were some others who disagreed with the statement. Considering both the mean and
the standard deviation provides market researchers with more information to diagnose the situation.

Table 2.3  Respondent characteristics

Item Female (n = 147) Male (n = 68)
Number % Number %
Age
21–30  86 58.5 20 29.4
31–40  30 20.4 26 38.2
41–50  26 17.7 11 16.2
51 & over   5  3.4 11 16.2
(continued)

Chapter 2  The marketing environment and market analysis 73

 Table 2.3  (continued)
Item Female (n = 147) Male (n = 68)
Number % Number %
Marital
Married  44 29.9 24 35.3
Not married 103 70.1 44 64.7
Degree
High school   7  4.8  4  5.9
Bachelor degree 133 90.5 61 89.7
Post-graduate degree   7  4.8  3  4.4

The vast majority of the employees were non-married female (68.4 per cent). A majority of
employees (59.1 per cent) held a bachelor degree. The majority of female respondents (86 per
cent) were between the ages of 21 and 30, and the majority of male respondents (46 per cent)
were between the ages of 21 and 40.

Table 2.4  Internal marketing employee perceptions

% strongly % strongly
agree & disagree &
Items Mean (SD) agree (n) disagree (n)

Internal communication

My organisation communicates a clear brand image 3.5 (1.1) 55% (113) 19% (38)
to me.

There is an internal communication program for all 3.2 (1.1) 44% (90) 29% (60)
employees in my organisation.

All communication materials reflect a consistent style in 3.2 (1.0) 45% (92) 28% (57)
my organisation.

Employees at all levels understand the direction and key 3.0 (1.0) 38% (77) 35% (72)
priorities of my organisation.

In my organisation, communications are appropriate. 3.3 (1.1) 50% (102) 22% (46)

Messages that I receive are aligned with business-wide 3.3 (0.9) 48% (99) 30% (40)
communication.

Training

My organisation focuses efforts on training employees. 3.5 (1.0) 57% (117) 42% (43)

My organisation provided an orientation program for me. 3.4 (1.2) 56% (115) 26% (53)

The training in my organisation has enabled me to do 3.3 (1.1) 47% (96) 23% (48)
my job well.

My organisation teaches me why I should do things. 3.1 (1.1) 40% (81) 29% (59)

Skill and knowledge development happens as an 3.6 (1.1) 69% (141) 15% (31)
ongoing process in my organisation.

My organisation provides support to develop my 3.2 (1.1) 47% (95) 30% (61)
communication skills in order to achieve organisational
goals.

74 Marketing
 % strongly % strongly
agree & disagree &
Items Mean (SD) agree (n) disagree (n)

Internal market research

My organisation gathers employee feedback. 3.1 (1.1) 44% (90) 29% (60)

My organisation regularly seeks employee suggestions. 3.1 (1.2) 39% (82) 32% (65)

My organisation collects data on employee complaints. 2.9 (1.0) 30% (61) 27% (45)

My organisation does a lot of internal marketing 2.7 (1.0) 29% (39) 40% (81)
research.

My organisation talks with me to identify issues that 2.9 (1.1) 30% (62) 38% (77)
I may have.

My organisation surveys employees at least once a year 2.8 (1.1) 27% (55) 39% (80)
to assess the quality of employment.

On average, the mean (or arithmetic average) item scores were between 2.9 and 3.5, and
standard deviations were above 1 for the majority of items. Standard deviation scores above
1 suggest that employees hold different perceptions about the same item. Closer examination of
the data is needed to understand the proportion of employees agreeing and disagreeing with each
statement.
An examination of the proportion of employees disagreeing showed that as few as 15 and as
many as 42 per cent of employees disagreed with some items, suggesting there was considerable
room for improvement for the service organisation. For example, 40 per cent of employees
disagreed or strongly disagreed with the statement ‘My organisation does a lot of internal marketing
research’.

Questions for discussion

1. Critically explain the results obtained in this study.
2. What are the current strengths and weaknesses of internal marketing?
3. How can internal marketing be improved in this service organisation?
4. Should future monitoring of employee perceptions occur? Why/why not?

Advanced activity
Using the measures provided in the case study, conduct an internal market audit
for a service organisation. You should collect the perceptions of five employees.
Average scores can be calculated in Excel.

Chapter 2  The marketing environment and market analysis 75

 Marketing plan activity
Look back through the background information that you collected in week one for
your chosen organisation and product. In terms of a preliminary situation analysis
for your product, use figure 2.5 as a guide for questions that may help you identify
the most important factors to consider. Conduct some additional research to
identify more environmental (internal, micro environment and macro environment)
factors that may affect your chosen organisation and product. Your aim is to develop
a comprehensive list that will be further researched and refined as you develop
your marketing plan.
Next use a SWOT analysis framework (see figure 2.8) to synthesise the
information you compile. Make sure that you put factors into the correct category
(strengths, weaknesses, opportunities and threats). Remember, strengths and
weaknesses can be controlled by the company.
Finally, outline some preliminary marketing objectives that your marketing plan
will be designed to achieve, using this initial situation analysis as a guide.
Typical components of a marketing plan have been included in this chapter
(figure 2.6), and a sample marketing plan has been included at the back of this
book. These should give you an idea about where the information for this chapter’s
activity fits in an overall marketing plan.

76 Marketing
 CHAPTER 3

Market research
Learning objectives
After studying this chapter, you should be able to:

discuss the importance of market research as a basis for marketing decision

making

clearly define a research problem to guide a market research project, and

prepare a research brief

outline the issues in research design, including the role of primary and
secondary data, and the uses of quantitative and qualitative research

understand the key principles of data collection and analysis, and the
subsequent reporting of market research findings to inform marketing decisions.
Big Brother is watching every
dollar you spend
You are walking past a shop and your phone sends you an alert. You find a text mes-
sage offering you a discount to buy something in the next 15 minutes. Does the offer
appeal to you? Or is the offer an unwelcome intrusion?
Consumers are creatures of habit. In fact, habits
and routines influence more than 45 per cent of
our daily lives. Marketers and researchers have the
power to capture these unconscious and habitual
behaviours. Advances in technology allow marketers
to capture data through scanners in retail stores,
credit and debit card swipes, mobile telephones and
the internet. Every time we click, swipe or move
we create data that can be used by marketers and
market researchers.
From consumers to manufacturers to retailers,
market research is key in today’s marketplace.
Market insights can make or break a product, ser-
vice or idea. To gain a competitive advantage, mar-
keters rely on purchasing information. Every day,
the National Australia Bank (NAB) records details of two million electronic transac-
tions. The information — stripped of any material that would identify individuals — is
passed to a joint venture that NAB set up with Sydney-based data analytics com-
pany Quantium. Quantium uses client data that includes customer profiles, product
holding and behaviour to provide insights into wider customer behaviours, needs and
wants. NAB data is used to provide the NAB Online Retail Sales Index. A recent NAB
snapshot revealed that online retail continues to shape the Australian marketplace.
According to the snapshot, online retail is growing rapidly and is now equivalent to
5.8 per cent of traditional bricks and mortar sales (excluding food).
Big brother is watching your transactions and the information is being used to design
marketing offers that match your purchasing patterns to entice you to buy more prod-
ucts on more occasions.1

Question
Go online and find one example demonstrating how marketers are using your
information to design product offerings that appeal to you.
INTRODUCTION
So far we have learned that successful marketing requires the marketer to know
their market. Successful organisations put their customers’ wants and needs at the
heart of marketing and business decisions. To put it simply, in order to create, com-
municate, deliver and exchange offerings that have value for customers, clients,
partners and society at large, marketers need to first understand what is of value.
Market research is an essential component of understanding the market. It can be
used for many things, including solving problems, identifying future opportunities
and threats, ­generating ideas about how greater value can be offered to customers,
determining how to create offerings, understanding how to communicate offer-
ings and evaluating the effectiveness of marketing initiatives. Market research is
used by marketers to stay in tune with their customers, clients, partners and society
at large.
We start the chapter by discussing how market research is used in marketing
for decision making. While there is no doubt that marketing managers make
some decisions based on hunches or intuition, these decisions usually come
from ­ knowledge of the market. One of the most important sources of infor-
mation is market research. We then consider how marketers define research
problems. Clearly ­
­ specified p ­roblems are needed to guide specific market
research p ­rojects. In  ­
practice, market  research is often outsourced and under-
taken by research s­pecialists. M­ arketers often need  to  provide a brief for market
research ­agencies, and so we will ­provide an overview of the briefing process. We
then  ­continue to examine  the  ­processes that occur in a typical market research
project.
Remember as you study the chapter that market research is only of value if the
information it provides can contribute to improved performance.

THE ROLE OF MARKET RESEARCH

IN MARKETING DECISIONS
Every aspect of day-to-day marketing requires information. Market research gener- Learning objective 1
ates much of the information and knowledge to enable marketers to make marketing discuss the importance
of market research as
decisions and develop marketing strategy. Formally defined, market research is a
a basis for marketing
process that ‘links the consumer, customer, clients, partners and public to the mar- decision making
keter through information — information used to identify and define marketing
opportunities and problems; generate, refine, and evaluate marketing actions; mon-
itor marketing performance; and improve understanding of marketing as a process’.2
In essence, market research is a business activity that discovers information of use market research A business
in making marketing decisions. activity that discovers information
of use in making marketing
Market research informs many different types of decisions, including decisions
decisions.
about the following.
• Market segmentation. What is the segment’s profile? What does each segment most
value? Which segment should we target?
• Sales performance. Why did we fail to meet our sales targets last financial year?
How can we improve sales?
• Product. What features should be included in our products? How should we
package our product? How should we brand our product? How should we position
our product?

Chapter 3  Market research 79

 • Distribution. What type of retailer should be used? What geographic region should
we sell in? Should we sell directly to consumers online? How should we distribute
products? What do our partners require?
• Promotion. How much should we spend on advertising? In which media should
advertising be placed? What advertising appeals should be used? Should we use
sales promotions? When?
• Pricing. What price should be charged? What response should be made to a com-
petitor’s pricing?
• Attitudes and behaviours. What do our customers and clients think? What do
our customers and clients know about our product? How do they feel about
our  ­competitors’ products? What do they buy? When? Where? Who are our
customers?3
This is by no means an exhaustive list of the types of issues that marketers face
on a daily basis. In practice there are many more decisions. As you work your way
through this textbook, you will be exposed to many of the issues that marketers
must manage and it will become clear how important market research can be to
marketing decisions. Figure 3.1 shows where market research sits in the overall
marketing model.

Understand

Market Research Market Research

Market Research Market Research
Market Research Market Research Market Rese
Deliver Create
Market Research Market Research
Market Research
Market Research Market Research
FIGURE 3.1
Market Research Market Research
Market research informs
Communicate
Market Research Market Research Market Resea
all aspects of the
marketing process, with
an organisation needing

Market Research Market Research

to thoroughly understand
the needs and wants of its
target market.

Figure 3.24 shows a market research project from Virgin Australia that discusses
background information and research objectives for the company.

80 Marketing
 BACKGROUND
Colmar Brunton had been conducting brand tracking research with Virgin since 2006. Within
a few years, a significant quantitative knowledge bank about consumer perceptions of the
Virgin brands, the competitor brands and airline traveller behaviour in general was built.
Virgin had evolved from a budget leisure carrier to a carrier that caters for both business and
leisure travellers. Virgin had a need for greater flexibility in understanding market changes
and influences. They wished to explore communications and brand issues in more depth to
gain a deeper understanding of the changing market.

RESEARCH OBJECTIVES
• Identify the impact of marketing activity of Virgin and its competitors. FIGURE 3.2
• Evaluate Virgin’s advertising effectiveness.
Example of a market
• Understand the key impact of market events throughout the year.
research project from
• Identify broader market trends as they are happening.
Virgin Australia

Marketing information systems

In addition to specific market research projects, organisations continuously collect
data as part of everyday activities, such as sales, purchases, enquiries and accounting.
Well-organised marketing organisations systematically collect and organise this infor-
mation so that it can be used for future marketing decisions. A marketing ­information marketing information
system (MIS) is the structure put in place to manage information gathered during the system (MIS) The structure put
in place to manage information
usual operations of the organisation. In large organisations, the MIS can comprise
gathered during the usual
considerable infrastructure and dedicated staff. Think about a major telecommuni- operations of the organisation.
cations company like Telstra and the amount of information it has on the mobile
phone transactions made by its customers. Australia Post conducts the Australian
Lifestyle Survey. The survey is distributed to households all over Australia, and indi-
viduals who want to receive relevant offers and information provide their responses
on a voluntary basis. Using the information obtained voluntarily from the survey
results, a database of 2 million consumers is maintained by Post Connect, a division
of ­Australia Post. This information can be purchased by marketers wishing to target
audiences for their campaigns. For example, the Post Connect database can be used
to find consumers according to certain lifestyle characteristics. A charity is planning
to use the data for a campaign to create awareness around their organisation, aimed
at young people likely to donate to causes. The charity’s criteria are people who:
• are aged 25–45 years
• indicate they go to church, or
• donate to organisations representing children’s health and welfare, disability,
mental health or disaster relief/trauma.5
Marketing information systems play a vital role in linking the customer to the
marketer. For example, Myer, a leading Australian department store, used its MIS
to understand that for every $50 voucher given, $125 of sales result.6 Armed with
this knowledge, Myer could respond by promoting its gift vouchers more, particu-
larly around traditional gift-giving times such as Christmas and Mothers’ Day, in the
expectation that gift recipients will then be drawn into the store and will make a
substantial purchase.
In small organisations, the MIS — to be generous in our definition — might just be a
file or notepad of observations. Regardless of the complexity or size of the MIS, it will
feature information from internal records, market intelligence and market research,
and some way of accessing and structuring that information so that it can be used to
help make marketing decisions. Figure 3.3 (overleaf) shows the basic parts of an MIS.

Chapter 3  Market research 81

 Of course, just as market research is not always necessary or appropriate, not
every marketing decision is made based on information stored in an MIS. Marketing
managers also rely on intuition, insight and ‘gut feel’. It is not an approach that can
be wholly recommended, but is an important part of the reality of marketing. An
MIS and market research can help support or invalidate such decisions.

Market intelligence

• Sales representative reports

• Customer service reports
• Customer complaints/compliments
• Competitor actions Query
• Environmental changes

Market research
Query Query
• Problem (opportunity/threat/issue) Decision Marketing
• Research design Outcomes
support system managers
• Data collection Plans
Information Information
• Data analysis Strategies
• Findings Decisions

Internal reports Information

FIGURE 3.3
• Accounting reports
• Sales reports The components of a
• Production reports marketing information
• Distribution reports system

Overview of the market research process

Market research involves five major components:
1. defining the research problem
2. designing the research methodology
3. collecting data in accordance with the research design
4. analysing data and drawing conclusions
5. presenting the results and making recommendations.
The stages in the market research process are designed, of course, to lead to
marketing decisions; that is, market research should result in a course of action. In
large organisations, a formal presentation of the findings and recommendations to
senior management for approval is likely to be necessary before implementation.
Upon implementation of any market research recommendations, careful monitoring
is necessary to ensure the organisation’s marketing goals are being achieved as a
result.
Market research is an ongoing process and is constantly evolving. In practice, a
market research project does not always occur in a strict sequence. At any point, new
ideas or insights can occur that require a change in the project. For example, just
the process of defining the purpose of the research can sometimes answer the ques-
tion that is being asked; and in the data collection stage of the project, people being
surveyed might offer a response that opens up new avenues for investigation that
require the research to be redefined. It is important to understand the components

82 Marketing
of market research. However, it is also important to understand that the sequence
can vary in individual market research projects. At every stage, the effectiveness of
the market research process and how it is being conducted should be monitored and
assessed, not just at the end.

When market research is appropriate

The previous discussion makes it clear that market research is a valuable tool that
is frequently used in day-to-day marketing. Before a marketer decides to use market
research, some decisions must be made regarding the benefit of conducting the
research. Marketers are faced with limited resources — a budget — that governs all
activities.
Before undertaking a market research project, the following should be considered:7
• Relevance. Market research must be able to address the problem at
hand. In 2012, George Patterson Y&R won the Consumer Insight
award for its work. Cadbury Favourites was a mature brand that was
relevant once a year at Christmas time. The ‘Thinking outside the
box’ campaign offered a compelling brand proposition for Cadbury
Favourites by offering these goodies up as the perfect ‘thing to bring’
to casual social get-togethers when you’ve been told ‘not to bring a
thing’. This repositioned Cadbury Favourites from a brand that was
relevant once a year to one that has the potential to play a role in
people’s lives almost every weekend.
• Timing. Market research is only of use if the information it ­generates
can be analysed ahead of the time at which the marketing decision
needs to be made. There is no point conducting market research
if  the information will not be used. Market research is often con-
ducted under time pressure, arising from the need to make a prompt
marketing decision; for example, when confronted by competitive
pressures that require the marketing organisation to act quickly.
• Availability of resources. Depending on the type of information
needed, the market research process can consume considerable time
and money. Larger organisations track brand health via engaging the
services of professional market research companies. Virgin Australia,
for example, commissioned Colmar Brunton to monitor brand usage, loyalty and
advocacy towards the Virgin Blue and Velocity brands. Such brand tracking studies
cost approximately $250  000.8 Market research should only be undertaken if it can
provide reliable and valid results, which can occur only if adequate resources are
devoted to the process. Results from rushed, poorly planned and executed research
or research undertaken by people without the necessary skills will not truly reflect
the market and will, in all likelihood, lead to poor marketing decisions.
• Need for new information. Market research should not be conducted if the
information needed is already available or the decision to be made does not
­
require or will not benefit from the type of information that market research can
provide.
• Cost–benefit analysis. As with many business decisions, the costs of market
research should be assessed against the resultant benefits. The decision to invest
in market research can only be justified if the potential outcomes are more valu-
able. In c­ onsidering whether market research should be conducted, the marketer
must make a preliminary judgement about how valuable the research findings are
likely to be.

Chapter 3  Market research 83

 Ethics in market research
As we point out throughout this textbook, customers, clients, partners and society
expect marketers to act ethically. Market researchers have an ethical responsibility
to their clients or employers and to those who participate in the research (just as
clients, employers and participants have an ethical responsibility to researchers).
The market research industry attempts to self-regulate its activities in Australia
through the Australian Market and Social Research Society (AMSRS). The AMSRS has
a detailed code of practice in place to govern the activities of market researchers.
In New Zealand, the market research industry’s peak body is called the Market
Research Society of New Zealand (MRSNZ). The MRSNZ has a similar code of prac-
tice. The main principles of the codes are common to both countries and are out-
lined in figure 3.4. The full codes can be obtained from the AMSRS website at www.
mrsa.com.au and the MRSNZ website at www.mrsnz.org.au.
The codes of practice are aimed at professional market researchers, but the prin-
ciples apply to anyone who conducts market research. You should, of course, observe
your ethical responsibilities when conducting market research in your future career,
and this should start now as part of your marketing course. You have a duty to con-
duct research for university projects in an ethical manner and need to inform your-
self about the requirements for conducting ethical market research.

GENERAL RULES
Research must be objective, based on scientific methods, and conducted in compliance
with the law.

RESPONSIBILITIES TO RESPONDENTS
• Respondents’ identities must not, without their consent, be revealed to anyone not
directly involved in the market research project or used for any non-research purpose.
• Nobody shall be adversely affected or harmed as a direct result of participating in a
market research study.
• Respondents must be able to check without difficulty the identity and good faith of
researchers.
• Respondents’ cooperation in a market research project is entirely voluntary at all stages;
they must not be misled when being asked for their cooperation.
• No child under 14 years shall be interviewed without parents’/guardians’/responsible
adults’ consent.

FIGURE 3.4 RESEARCHERS PROFESSIONAL RESPONSIBILITIES

• Researchers must not, whether knowingly or negligently, act in any way that could bring
Main principles of the discredit on the market research profession or lead to a loss of public confidence.
AMSRS and MRSNZ codes • Researchers must always strive to design research that is cost-efficient and of adequate
of practice for market quality, and then to carry this out.
research • Researchers must not undertake non-research activities (e.g. telemarketing or list
Source: AMSRS, www.mrsa.com.au;
building) and research activities simultaneously.
MRSNZ, www.mrsnz.org.au.

Many countries have professional associations with codes of practice for their
market research industries. Many of the codes, including the Australian and New
Zealand codes, are derived from the code of the World Association of Opinion and
Marketing Research Professionals.9
So far we have looked at the use of market research in day-to-day marketing. In
the next part of this chapter, we consider how marketers define research problems.
This is followed with an overview of the briefing process, as marketers often need to
provide a brief for market research agencies.

84 Marketing
Extending the baby care philosophy Spotlight 
A not-for-profit health provider — employing 7500 staff and providing care to over 500  000 patients
each year — in a major Australian capital city welcomes almost 10  000 babies at its hospitals each
year. In addition to operating seven hospitals, the health provider is responsible for a medical research
institute, pathology and a pharmacy business. The hospitals welcome a new baby into the world for
every 32 births in Australia. Over a three-year period, the organisation has undertaken a collaborative
research partnership with external market research consultants to understand whether its brand
could be extended into baby care products. This research culminated in the decision to commence
marketing its first baby care product.
The health provider and research consultants undertook
a series of market research projects throughout the new
product development process. Market research was used
to understand how the brand could best be extended in a
meaningful way.
• The first study involved secondary market research and
an online survey with 600 new and expecting mothers to
identify market opportunities and to explore whether the
brand could be extended into baby care.
• Extending on the first study, the second study sought to
establish consumer preferences in four product categories
to gain insights into the attributes that impact consumer
preferences. Over 2100 respondents participated in one of
four online studies. This data was later used to understand
willingness to pay for midwife-endorsed products.
• Branding alternatives were next tested in an online survey
on a sample of over 700 respondents to explore branding
preferences for the proposed products.
• Midwives were examined in a market research project involving an online survey and a focus group
to understand willingness to endorse (or not) branded baby care and maternity products.
• Finally, co-creation groups were undertaken to test sourced products and proposed marketing
Question
communications with new mothers. Explain how market
research informed the
Key insights gained from market research included that:
health services provider’s
• the branded care products would be accepted Australia wide
new product development.
• acceptability was higher for branded products in the health provider’s own state
• given equivalent pricing, the branded products would be chosen over other options
• midwife endorsement increases acceptability, and people are willing to spend 2.1 per cent more for
the branded baby care products
• midwives were willing to endorse selected maternity and baby care products in a scenario where the
profits received would be returned to the hospital for care provision and to support research.

Concepts and applications check

Learning objective 1  discuss the importance of market research as a basis for marketing decision
making
1.1 Define ‘market research’ in your own words and list the major steps in a market research project.
1.2 Give ten examples of marketing decisions for a hotel chain that are likely to require market research.
1.3 Find one example of how marketers are using a marketing information system to guide brand
management.
1.4 Why is market research important?
1.5 Find one unethical example of market research in practice. Refer to the AMSRS or MRSNZ code
of ethics to identify how your example breached the code.

Chapter 3  Market research 85

 DEFINING A MARKET RESEARCH PROBLEM
Learning objective 2 Marketers need all sorts of information to understand how they can better meet
clearly define a research customer, client and society needs and wants to improve their marketing perfor-
problem to guide
mance. Marketers use information to identify and define marketing opportunities
a market research
project, and prepare a and threats; generate, refine, and evaluate marketing actions; monitor marketing
research brief performance; and improve understanding of marketing as a process.10
Before starting a market research project, it is crucial to know — and be able
to communicate — precisely what the purpose of the research is. The thing the
research problem The market research is intended to address is often referred to as the research problem.
question that the market research A poorly  defined research problem will lead to research that does not generate
project is intended to answer.
the ­information required to enable the marketing organisation to make marketing
decisions.
Usually there will be some trigger that prompts a market research project. For
example, a home builder might notice that increasing numbers of prospective cus-
tomers are asking about the environmental credentials of the builder’s home designs.
The builder might want to know whether it would be worthwhile to improve the
environmental sustainability and performance of his or her houses. That seems
a straightforward question, but it is important in the initial stage of the market
research process to properly define what the research project is meant to find out.
For example, what does ‘worthwhile’ mean? Does it mean of benefit to society
generally, that it will create more business for the builder, that it will allow the
builder to charge a higher margin, or that it will reduce or increase enquiries from
the public if the builder includes the environmental aspects of his or her houses
in advertising messages? The builder needs to know this and certainly needs to
communicate it clearly to the market researcher. This step is about ensuring the
research has a clear purpose and that the purpose is clearly defined. A clearly speci-
fied research problem will ensure that the research will actually answer the ques-
tion asked of it.
In practice, as the research proceeds, the original questions asked may be rede-
fined as further information comes to light or new questions or issues arise.
Once the purpose for the research is known, it is necessary to write a market
research brief to specify the information needed. The next section provides an over-
view of the requirements for a market research brief.

Preparing a market research brief

market research brief A set A market research brief outlines the research problem and describes the specific
of instructions and requirements information required from the market research project. A market research brief
that generally states the research
generally states the research problem and the information required, and specifies
problem and the information
required, and specifies the the timeframe, budget and other conditions of the project.
timeframe, budget and other A typical market research brief will include the following.
conditions of the project. • Executive summary. An executive summary provides an overview of the market
research brief. It outlines the research requirements and includes sufficient infor-
mation to enable the reader to have a basic understanding of the proposed project.
The executive summary is often the only part of a written document that senior
managers read. It is important in obtaining approval for the research project from
management and for enabling potential researchers to determine whether the
project is a suitable one for them (and hence that they should read and consider
the brief in full).
• Introduction. The introduction explains why the research needs to be conducted
and who is proposing the research.

86 Marketing
• Background. The background details the marketing problem that is currently faced,
providing all known facts and referencing related research projects that are known
to the organisation.
• Problem definition. Effective research briefs clearly state the question that is to be
addressed, including any objectives that have been set for the market research
project. The information in the research brief is used by market researchers to
design the research project. Taken together, the introduction, background and
problem definition sections need to provide sufficient information to inform the
research design.
• Time and budget. The section on time and budget details the amount of money the
marketer is able to spend on the market research project and when the results
are needed. For complex market research projects, various milestones may be
specified. It is also wise to include information on how contingencies are to be
handled (e.g. if an unforeseen issue arises during the research and needs further
investigation).
• Reporting schedule. The reporting schedule specifies the precise dates on which
preliminary, interim and final reports are required. It may also include details
about the format of the reports.
• Appendices. Appendices may be included to provide additional detailed background
information to further assist the design stage for the market research project.
Some research briefs include further details, such as the appropriate format for
the research proposal, in-house resources that the researcher may be able to draw
on, what selection criteria the organisation will use in choosing a market research
provider and confidentiality requirements. Figure 3.5 shows an example of a typical
market research brief. (This brief is relatively simple and short. In practice, many
briefs are more detailed.)

FIGURE 3.5
EXECUTIVE SUMMARY
1. Background A typical market research
The XYZ cardiovascular business encompasses a broad range of medical devices brief
used within healthcare specialties such as interventional cardiology and cardiac
surgery. As the competitive environment continues to tighten and product differentiation
becomes more challenging, the organisation must identify new areas of strategic
advantage.
The consumers in these specialties in the Australian and New Zealand healthcare
markets are mature, sophisticated and well educated. Growth expectations will be
delivered by market share gains, rather than by an increase in clinical interventions.
Within healthcare, both Australia and New Zealand are recognised as global leaders
in new technology adoptions and clinical research, resulting in sophisticated and
knowledgeable consumers in these markets. In addition, the competitive landscape is
highly evolved and is served by companies with significant human resources. Messaging
thus tends to be complex, in a space that is crowded and ultimately overloaded by
information. These factors have contributed to the differentiation challenges faced by
suppliers.
XYZ recognises that in order to gain market share, it needs to gain a higher level of
understanding of its customers. To gain the necessary level of insight, XYZ will commission
market research into the Australian and New Zealand cardiovascular market. Research
outcomes will assist in the shaping of future sales and marketing initiatives, as well as
(continued)

Chapter 3  Market research 87

 FIGURE 3.5
messaging and customer activities. This will help XYZ to gain market share and to take
(continued) business away from its competitors. This information will be used by the leadership group
and the sales and marketing teams at the company.

2. Business and research objectives

The proposed research project can be categorised into three key areas: buyer behaviour;
customer perceptions; and other market-influential factors. The research objectives have
been identified as follows:
• to determine the key decision criteria when an implanting physician is selecting a medical
device and the patient is ‘on the table’
• to determine the market’s perceptions of the major suppliers and rank the major suppliers
against key attributes
• to determine the influence of other market factors, such as clinical data sources,
conferences, speaker tours, training and education.

3. Target market
The research target audience has been defined by the following medical specialists:
• interventional cardiologists
• cardiothoracic surgeons.
A sample of customers from all three specialties should be gathered from a broad
range of public and private institutions throughout Australia and New Zealand. The
institutions should also represent the geographical (city and country) spread of these
customers. XYZ will provide the names and email addresses of customers in the
target market.

4. Reporting requirements
The reporting requirements for the research project are threefold, and include a top-line
report, a PowerPoint presentation of the research outcomes and a final written report.

5. Timing
The expected timeframe for the research is as follows:
• scoping and preparation of the online survey to be completed by 15 November 2011
• online survey to be completed by 5 December 2011
• top-line report to be provided by 5 January 2012
• PowerPoint presentation and final written report to be delivered by 31 January 2012.

6. Available budget
We have allocated between $45  000 and $55  000 for the project.

It is important to realise that the market research brief will not necessarily pro-
pose a methodology or approach for the market research. Rather, it can communi-
cate the marketer’s needs to the market researcher, leaving the market researcher
to bring their own expertise as to how to best obtain the information needed by the
marketer. The more complex the research project, the more important this becomes.
For example, international market research is often too complex and expensive to
conduct in-house. International market research is research conducted in more than
one country. The researcher encounters issues such as ensuring equivalence across
different cultures and languages.
We have already detailed how marketers need to clearly communicate the
research  problem to help market research professionals design a market research
project that can address the research problem at hand. An answer is only as good
as the question asked. The more specific the problem, the more specific the answer
will be.

88 Marketing
CityCycle: what’s the problem? Spotlight 
Encouraging active transport is all part of Brisbane City Council’s approach to reducing Brisbane’s
traffic congestion, and it’s a great way for residents to stay active and healthy. Bike hire schemes have
been introduced around the world as one means to encourage people to become more active.

Table 3.1  Public bike hire schemes worldwide11

City Total bikes Compulsory helmets Daily trips per bike
Dublin 450 No 9
Barcelona 6  000 No 8
Mexico City 1  200 No 8
Paris 20  600 No 6
Hangzhou 61  000 No 5
Montreal 5  000 No 3.6
London 6  000 No 3.3
Toronto 1  000 No 2.2
Washington DC 1  100 No 1.9
Brisbane 1  000 Yes 0.3
Melbourne 600 Yes 0.3

CityCycle was introduced in Brisbane in 2010 and is operated

by JCDecaux, who receive a $73  000 quarterly payment. CityCycle
operates 150 stations from St Lucia to Newstead, and each station
is open from 5 am until 10 pm, 7 days a week (although bikes
can be returned to any station 24 hours a day). Once a CityCycle
subscription is purchased, people can hire and return a bike at any
CityCycle station within the network. According to the Brisbane City
Council, in its first two years CityCycle exceeded 280  000 trips.
Feedback from the general public has suggested that subscription
costs, access to helmets and the subscription process itself are
barriers to further uptake of the CityCycle program. However, cost and
the need to wear a helmet may not be the only reasons why usage
remains low. For Brisbane, the weather (hot and humid), lack of
dedicated bike lanes and the fact that the CBD is ‘hilly’ have all been
offered as reasons that limit appeal of riding a bike around the city.
The scheme operators, Brisbane City Council and JCDecaux, have taken issues on board over the
past two years. For example, in 2011 the subscription fees were reduced substantially — from an
initial $11 per day charge to $2 per day (with annual subscriptions currently costing $62). In 2012,
helmets were made available in an attempt to improve the scheme. However, given that most of them
have gone missing, it is unlikely that the introduction of helmets will improve patronage. Council figures
show that 1500 yellow CityCycle helmets have gone missing, costing up to $13  500 and leaving only
650 helmets left circulating in the program.12

Question
Imagine you are the marketing manager for CityCycle. You have been set an objective of increasing the
number of trips to 300  000 per annum. Prepare an effective market research brief to gather information on
how greater use of the CityCycle scheme could be achieved.

Chapter 3  Market research 89

 Concepts and applications check
Learning objective 2  clearly define a research problem to guide a market research project, and
prepare a research brief
2.1 Why should marketers use a market research brief for a market research project?
2.2 Read the CityCycle Spotlight. Define the research problem for CityCycle.
2.3 Why do research problems need to be clearly defined?
2.4 Obtain a survey online. What research problem is likely to underpin this survey?

KEY RESEARCH DESIGN ISSUES

Learning objective 3 Most of us are familiar with surveys. Market research has moved beyond surveys.
outline the issues There is a multitude of market research methods, with many new and emerging
in research design,
technologies such as online communities, social media analytics, apps-based
including the role of
primary and secondary research, virtual environments, research gamification and crowdsourcing.13
data, and the uses Today, the global market research industry is witnessing a decline in the use of
of quantitative and traditional techniques such as surveys and interviews. According to a 2013 Green-
qualitative research book research industry trends report,14 which surveyed over 1300 market research pro-
viders globally, social media and mobile surveys are two of the top three techniques
researchers plan to use in the future. While market researchers want to use social
media, they feel they face challenges when using these techniques today. Thirty-
nine respondents reported feeling constrained in using social media monitoring
currently. The main issues holding them back are a lack of knowledge about the
technique (44 per cent) and lack of proof that social media works (41 per cent).
The method to be used by a market researcher depends on the information
required and the information already contained within the organisation. Different
problems require different methods. The way that you frame your question will
determine the type of method that will be needed to provide the information that
you require; for example, research into a highly sensitive topic seeking to under-
stand why consumers behave in the manner they do can only be obtained through
interviews. In other instances, though, more than one method may be used to
answer the chosen question. Let’s consider a marketer who wants to understand
what people are saying about their brand. This marketer could use information
posted on the internet and/or on social media sites such as Twitter and Facebook
to understand consumers’ sentiment towards their brand. Marketers need to under-
research design The detailed stand which techniques apply, and their strengths and limitations, in order to
methodology created to guide the ­determine how best to design the research project to address the research problem
research project and answer the
research question.
at hand.
The research design must include a research question or hypothesis for testing
exploratory research
Research intended to gather and a description of the type(s) of research to be used.
more information about a loosely
defined problem.
descriptive research 
Types of research
Research used to solve a Market researchers conduct three different types of research:
particular and well-defined 1. exploratory research. Exploratory research, as its name suggests, is research
problem by clarifying the intended to gather more information about a loosely defined problem.
characteristics of certain
2. descriptive research. Descriptive research is used to solve a particular and
phenomena.
­well-defined problem by clarifying the characteristics of certain phenomena.

90 Marketing
3. causal research. Causal research assumes that a particular variable causes a
causal research Research that
specific outcome and then, by holding everything else constant, tests whether the assumes that a particular variable
variable does indeed effect that outcome. causes a specific outcome and
The degree of knowledge about the research problem at hand affects the type then, by holding everything
and the amount of research that is required. Exploratory research is required when else constant, tests whether the
variable does indeed effect that
management is uncertain about what actions should be taken and has little knowl- outcome.
edge about the research problem. Exploratory research is used in these situations to
generate ideas to help management decide on an appropriate form of action and to
increase management’s knowledge. When management is aware of the problem but
lacks some important piece of knowledge, descriptive research is undertaken. Causal
research is used for sharply defined problems. In causal research, a hypothesis is
generated for testing. A hypothesis is a tentative explanation that can be tested. The hypothesis A tentative
hypothesis is generated from existing knowledge and from expectations about what explanation that can be tested.
the research project will discover; for example, a marketer expects increased adver-
tising expenditure to lead to greater brand awareness and conducts research to test
their hypothesis.
More complex research projects may combine approaches. For example, a market
research project might start with exploratory research to identify reasons for a fall in
sales that has occurred for no apparent reason. After discovering possible reasons for
the decline in sales, the market research project may continue by undertaking des-
criptive research to confirm which factors have contributed towards the decline in
sales. An outcome may be that the packaging and advertising have contributed to the
decrease in sales. Finally, causal research may be used to test whether consumers
will buy more if the packaging is larger, and to determine which of two potential
advertising campaigns will be more effective. The use of combined approaches is
represented in figure 3.6.

Descriptive
research

Possible
Exploratory Probable
Problem causes of
research cause
the problem

Causal
research

FIGURE 3.6
Types of data Using multiple research
Two main types of data are available for marketers. Insights can be gained from approaches for complex
information that is already available. This is termed secondary data. Where infor- research problems
mation is not already available or is not up to date, marketers will need to turn to
primary data. We will now briefly consider these two types of data.
Secondary data are data that already exist. Secondary data comprise information secondary data Data originally
originally gathered or recorded for some purpose other than to address the current gathered or recorded for some
market research problem. The information may be held by the organisation (e.g. purpose other than to address
the current market research
sales records or customer profiles generated from business documents) as part of
problem.
its MIS (discussed earlier), or by some external organisation (e.g. a market research

Chapter 3  Market research 91

 company such as the Nielsen Company or a statistics organisation such as the
­Australian Bureau of Statistics or Statistics New Zealand).
primary data Data collected Primary data are data observed or collected directly from respondents as part
specifically for the current market of the current market research project (e.g. responses given on a questionnaire).
research project.
You may be wondering why we discussed secondary data first and primary data
second  — because it already exists, secondary data is cheaper, more quickly avail-
able and readily accessible, and often all that is required. Primary data only comes
about through a dedicated market research effort. Marketers should always assess
whether their research questions can use secondary data before embarking on pri-
mary data collection. With electronic records, the existence of large market research
companies and the opportunity to obtain and share data provided by the internet,
much contemporary market research now has the potential to come from secon-
dary sources. In drawing on a secondary source, the researcher must be able to
assure themselves that the source is trustworthy. This is particularly important in
the online world, where published information may not have been obtained using
FIGURE 3.7 valid techniques. Figure 3.7 lists some of the most useful sources of secondary data
for the market researcher.
Secondary data sources

GOVERNMENT AGENCIES AND • Organisation for Economic Co-operation and

INTERNATIONAL ORGANISATIONS Development (OECD), www.oecd.org
The governments of most countries have central statistics • United Nations, www.un.org
agencies that collect and analyse data for the use of the • World Bank Group, www.worldbank.org
public service in making decisions in the best interests of • World Trade Organization, www.wto.org.
the governance of the country. Much of the data collected
by these agencies is available to the public, sometimes for MEDIA
free and sometimes at a cost. Examples include: The mass media (television, radio, newspapers,
• Australian Bureau of Statistics, www.abs.gov.au magazines) provide a wealth of information about all sorts
• Statistics New Zealand, www.stats.govt.nz of topics. Examples include:
• Hong Kong Census and Statistics Department, • BRW, www.brw.com.au
www.censtatd.gov.hk • B&T Weekly, www.bandt.com.au
• Malaysia Statistics Department, www.statistics.gov.my • The Australian, www.theaustralian.news.com.au
• Statistics Singapore, www.singstat.gov.sg. • New Zealand Herald, www.nzherald.co.nz
• NZ Business, www.nzbusiness.co.nz.
Most governments and many international organisations
also have departments or agencies devoted to promoting MARKET RESEARCH PROVIDERS
industry. They undertake research or data collection Market research is big business in itself. Australia’s
for the express purpose of providing information first market research study was undertaken by the
to marketing and other organisations. Examples include: J Walter Thompson advertising agency more than
• Austrade, www.austrade.gov.au 80 years ago.
• New Zealand Trade and Enterprise, www.nzte.govt.nz
Today, more than 300 businesses in Australia
• MATRADE (Malaysia External Trade Development
provide market research services.15 Examples
Corporation), www.matrade.gov.my
include:
• SPRING Singapore (Standards, Productivity and
• The Nielsen Company, http://au.acnielsen.com and
Innovation Board), www.spring.gov.sg.
http://nz.acnielsen.com
A number of international bodies exist that collect • Roy Morgan Research, www.roymorgan.com.au
enormous amounts of data as part of their activities. • Euromonitor, www.euromonitor.com
Examples include: • OzTAM, www.oztam.com.au
• Association of Southeast Asian Nations, www. • BISWorld, www.ibisworld.com.au
aseansec.org • Hitwise, www.hitwise.com
• International Market Research Information, www. • Colmar Brunton Research, www.colmarbrunton.com
imriresearch.com • TNS, www.tnsglobal.com.

92 Marketing
 MARKETING INFORMATION SYSTEMS INDUSTRY BODIES
Efficient marketing organisations capture information from Most industries have a peak body that works in the
many sources within the organisation in order to inform interests of the industry and pools resources from
later marketing decisions: members of the industry to conduct research and
• raw data from sales reports
provide information for the benefit of the industry
• processed data from sales reports (e.g. data filtered by
region, season, salesperson, product type, customer overall. This can be provided via the internet, directly
characteristics, price) upon request or through regular industry publications.
• accounting information Examples include:
• written reports by sales representatives and customer • Association of Superannuation Funds
service officers. of Australia
DATABASES • Australian Pharmaceutical Manufacturers
Most organisations, often as part of the MIS, have Association
databases holding vast quantities of information about • Internet Industry Association
their operations and market. • Seafood Services Australia.

As discussed in relation to the MIS, the secondary data held needs to be structured
and analysed if it is to be of use in addressing the research problem at hand. While
large corporations and governments have long collected enormous amounts of data,
it has only been in the past 20 years or so that technology has allowed databases to
be quickly and efficiently interrogated to provide useful information. A technique
known as ‘data mining’ involves processing large data sets to identify patterns and
trends that would not be obvious or even discernible upon observation.
Despite the exponentially increasing amounts of information available, secondary
data cannot always answer every marketing problem. In many cases it is necessary
to collect primary data. Primary data collection tends to be more time-consuming,
expensive and difficult than using secondary data. Sometimes marketing organ-
isations, depending on the skills and resources they have available and the com-
plexity of the market research project, undertake primary data collection themselves;
others contract specialist research organisations such as Roy Morgan, the Nielsen
Company or CoreData to undertake the research.
Quantitative and qualitative research methods
There are two main types of research methods: qualitative research and quantitative
research.
According to a Greenbook research industry trends report,16 which surveyed over
1300  market research providers globally, market research recently has shifted
towards quantitative methods. For example, 5 per cent of respondents reported con-
ducting ‘a lot more quant’, compared to 1 per cent who reported conducting ‘a lot
more qual’. Respondents were more likely to report a decline in qualitative research
in the past year when compared to quantitative research. Global trends suggest
there are opportunities for graduates with expertise in social media and emerging
­technologies. If you are good with numbers, specialising as a quantitative market
researcher may assist you to gain employment on graduation.
Each methodological approach offers many alternatives for market researchers to
use. Quantitative research focuses on collecting data that can be represented numer- quantitative research 
ically and analysed statistically. It often collects data by asking questions about ‘how Research that collects
information that can be
much’, ‘how many ‘and ‘how often’, usually via online, telephone, mail or in-person
represented numerically.
surveys. Generally, if you respond to the researcher by providing a number, ticking
a box, or circling an option in a list or scale, you are participating in quantitative

Chapter 3  Market research 93

 research. A 2013 Greenbook research industry trends report outlines the popular quan-
titative methods used by market researchers globally (see figure 3.8).17

70.0

60.0

50.0

40.0

30.0

20.0

10.0

0.0
Computer-assisted
telephone interviews (CATI)

Computer-assisted
personal interviews (CAPI)

Online surveys

Interactive voice response

(e.g. call centre)

Mail

Face-to-face

Mobile surveys

Biometrics

Automated measures/
people metres
FIGURE 3.8
Popular quantitative
methods used by market
researchers
Source: ‘Quantitative research’
(2013), Greenbook research industry
trends report, winter, p. 21.

Quantitative research is useful for:

• assessing market size
• identifying market segments
• predicting the success of proposed marketing campaigns
• finding out about customer perceptions of existing products.
Quantitative approaches are usually used for descriptive or causal research. As
shown in figure 3.8, surveys remain the most common quantitative research tool.
Most survey techniques have similar characteristics. Surveys rely on the researcher
to formulate questions that can elicit a relatively closed answer. One of the major
distinguishing features between different survey approaches is whether the research
participant completes the survey themselves or whether it is administered by an
interviewer (see table 3.2). This difference has important consequences for the
survey results. For example, interviewer-led surveys can probe the participants for
more information on their responses, but at the same time, the presence of an inter-
viewer can influence the responses given and can make it difficult to get honest
responses to questions about sensitive topics such as sex. All surveys are more or

94 Marketing
less prone to distortion because most people’s reported behaviour does not precisely
match their actual behaviour. For example, a study designed to compare the results of
different research techniques found that consumers reported significantly different
behaviour than their actual behaviour when it comes to buying alcoholic beverages.
Among other differences, consumers said in interviews that they would spend more
than ten minutes deciding which beverage to choose and reading labels and so on,
whereas actual behaviour that was observed suggested they took less than three
­minutes to enter the store, find a drink, go to the counter, pay for it and leave.18 The
advantages and disadvantages of various survey methods are described in table 3.2.

Table 3.2  Quantitative research methods: surveys

Method Description Major advantages Major disadvantages

Interviewer-led survey

Computer-assisted In-person survey • Comparatively high • Lack of anonymity

personal interviews administered by an response rate can distort responses,
(CAPI) interviewer, e.g. door- • Interviewer can ask more e.g. respondents may
to-door, shopping questions based on the be reluctant to honestly
centre. responses given answer questions about
Computer-assisted Administered by an • Props and visual aids sensitive topics
telephone interviews interviewer over the can be used (when • There is potential
(CATI) telephone. survey is conducted for interviewer and
in-person) respondent bias
• May be the best option • Comparatively expensive
for long or detailed
surveys
• Speed

Self-response survey

Mail surveys A survey form is • Comparatively cheap • Poor response rate —

mailed to potential • May provide a lot of easy for potential
respondents along information respondents to ignore
with instructions on • Suited to obtaining • Delay in receiving
how to complete and closed responses, responses (for mail
return the form. e.g. yes/no surveys)
Online surveys Email or web-based • Potential anonymity can • Email surveys may be
surveys, completed lead to less respondent intercepted by spam
and returned online. bias filters
• Wide geographic reach • Poor response
Mobile surveys Android, Blackberry • Convenient for rate can lead to an
or iPhone survey, respondents unrepresentative sample
completed and • Speed of response • Mobile surveys have to
returned on a (for online surveys be short
handheld device. and mobile surveys).
A consumer can be sent
a mobile survey as they
leave the bank.

Table 3.3 (overleaf) summarises some other quantitative market research

approaches: experimentation, observation (in person or automated response/people
metrics) and biometrics. The chosen technique depends on the nature of what is
being studied. For example, observation is used to study television viewing habits
(a rating device in the person’s home reports what the household was watching and
when — or at least what the television was showing when it was on). Departments
of main roads use observation to determine how many vehicles use particular roads
at specific times of the day, using either automated counters or employing con-
tractors to actually count if more specific details are required (such as the type of
vehicle or number of passengers).

Chapter 3  Market research 95

 Table 3.3  Other quantitative research methods
Method Description Major advantages Major disadvantages
Experiments Manipulation of variables of interest while • Allows researchers to • The artificial setting may not truly reflect
holding everything else constant in a bid to establish cause and effect real-life settings
determine just what and how particular things • Tracks actual behaviour • Variables other than the one being
affect behaviour. (e.g. what people do) studied could be influencing the
The variable of interest is known as the rather than relying on outcome
independent variable and the variable it consumers’ self-reports
influences is known as the dependent variable.
Observation Studying people’s behaviour and the • Measures actual • Can be expensive
circumstances surrounding it. behaviour as opposed • Results can be significantly affected by
to intended or reported the subjectivity of the observer
behaviour • May provide ‘shallow’ data (e.g. it may
reveal a lot of descriptive information,
but little about the motivation or cause of
observed behaviours)
Biometrics Determining a participant’s physiological • Measures actual response • Cannot explain ‘how’ a consumer thinks
response to certain stimuli. Examples include as opposed to intended or what they remember
heart rate, respiration (breathing), muscle or reported behaviour. • The science is still evolving
activity, brain activity (e.g. neuromarketing), • Very expensive
and oculometric (e.g. eye tracking) activity. • Can be uncomfortable for respondents

qualitative research Research Qualitative research focuses on obtaining rich, deep and detailed information
intended to obtain rich, deep through techniques such as interviews and focus groups. A 2013 Greenbook research
and detailed information about
industry trends report outlines the popular quantitative methods used by market
the attitudes and emotions that
underlie the behaviours that researchers globally (see figure 3.9).19
quantitative research identifies. %

40.0

30.0

20.0

10.0

0.0
Traditional (in person) focus groups

Chat (text) based online focus groups

Online focus groups with webcams

Telephone focus groups

Traditional (in person) in-depth interviews

Chat (text-based) online in-depth interviews

Online in-depth interviews with webcams

Telephone in-depth interviews

Bulletin board studies

Interviews/groups using online

communities

Monitoring blogs

In-store/shopping observations

Mobile (diaries, image collection etc.)

FIGURE 3.9
Popular qualitative
methods used by market
researchers
Source: ‘Qualititative research’ (2013),
Greenbook research industry trends
report, winter, p. 20.

96 Marketing
 Rather than identifying numerical patterns, qualitative research aims to get to
the reasons behind behaviour. It looks to identify the attitudes and emotions that
underlie the behaviours that quantitative research identifies. Qualitative research
is particularly useful for investigating the reasons behind behaviours — it provides
the ‘why’ that can be missing from the ‘how much, how many, how often’ questions
answered by quantitative methods. Qualitative research is useful for:
• understanding customer needs
• evaluating potential new products
• testing promotional campaigns
• understanding customers.
Qualitative research approaches are usually used for exploratory research.
Because they involve in-depth discussion, a skilled researcher can elicit detailed
responses from participants. Table 3.4 summarises some qualitative market research
approaches. The quality of data from the various approaches depends on the skill of
the researcher. Conducting research via depth interviews and focus groups, in par-
ticular, is part-art and part-science. The best results are obtained by engaging highly
skilled and experienced people to lead qualitative research.

Table 3.4  Qualitative research methods

Method Description Major advantages Major disadvantages

Depth interview Researcher driven with • Elicits rich, deep and • Expensive
questions to guide the detailed information • Can be difficult to obtain
interview. • The interviewer can participants
explore responses with • Time-consuming
further questioning • Difficult to use for sensitive
to ensure as much topics
information is gained • Interviewer can bias
from the process as results
possible • Cannot necessarily
generalise results to the
wider population

Focus group A group of respondents • Provides multiple • Expensive

are brought together, perspectives • Can be difficult to obtain
introduced to an idea, • Elicits rich, deep and participants
concept or product, detailed information • Time-consuming
and their interactions • Focus groups • Group setting makes it
observed. often give rise to difficult to use for sensitive
responses or issues topics
not foreseeable in • Researcher/moderator can
survey design — the bias results
researcher/mediator • Cannot necessarily
can explore these generalise results to the
issues by asking wider population
additional questions

Observation Recorded notes • Potentially higher • Expensive

describing actual events. insight into actual • Time-consuming
behaviour patterns • Can be difficult to
• Can be unobtrusive implement ethically
(e.g. privacy concerns)

Chapter 3  Market research 97

 In addition to deciding the appropriate method for a research project, the market
researcher must decide on the participants. This is done through a process known
as sampling.
Sampling
population All of the things
(often people) of interest to the In market research the word population means all of the things (often people) of
researcher in the particular interest to the researcher in the particular research project. It is rarely possible to
research project. conduct market research directly on the entire population,20 so market researchers
sample The group chosen for try to study a smaller number of representative members of the population using a
the study. statistical principle known as sampling.
probability sampling  Sampling is the process of choosing members of the total population. The group
A sampling approach in which chosen for the study is known as the sample. There are various approaches to sam-
every member of the population
pling to try to achieve a sample that will give results that closely match the results
has a known chance of being
selected in the sample that will that would be obtained were the entire population studied. The approaches can be
be studied. broadly classified as probability sampling or non-probability sampling.
non-probability sampling  There are two main types of samples — probability and non-probability samples.
A sampling approach that Probability sampling ensures that every member of the population has a known
provides no way of knowing the chance of being selected in the sample that will be studied. Results obtained
chance of a particular member using  probability sampling can be considered to represent the entire population.
of the population being chosen
as part of the sample that will be
Non-probability sampling provides no way of knowing the chance of a particular
studied. member of the population being chosen as part of the sample. Samples obtained
using non-probability samples are unlikely to be representative of the population.
Non-probability samples can allow quicker data collection and hence lower costs.
The main sample types are described in table 3.5.

Table 3.5  Sampling methods

Sample method Type Description Example

Random sampling Probability Each member of the entire population to be If the population of interest is the members of your
studied has an equal opportunity of being marketing course, then a random sample of every
selected for the sample. 10th student from an alphabetical list of all students
enrolled in the course is needed.

Stratified Probability The population is divided into different groups If you were conducting research on your marketing
sampling based on some characteristic (e.g. age, sex, class to find out whether tutorials should be held
home state) and then from each of those during the middle of the day or in the evening, you
groups a random sample is chosen. Stratified might expect that opinions would differ between
sampling is used when you expect there to be those members of the class that have children
variations in characteristics between groups and those that do not. Therefore you could divide
within the population. the class according to whether the members have
children and then choose a sample from each
group, thus ensuring that the opinions of population
members with those characteristics are included in
the sample.

Quota Non-probability Divides the population into groups based on a A study seeks 50 female and 50 male participants.
number of characteristics and then arbitrarily People are approached to participate in the study
chooses participants from each group. The until the quota is reached.
findings cannot be generalised.

Convenience Non-probability Participants are selected on the basis of Fans at a cricket game are surveyed on their
convenience. The simplicity of this approach beverage preference.
makes it a tempting option, but the findings
cannot be generalised.

It is important to note that all market research involves some degree of error.
Some of these errors arise from problems such as recording a response incorrectly or
a poorly designed question. These types of errors are known as non-sampling errors.

98 Marketing
Sampling error is a measure of the extent to which the results from the sample differ
sampling error A measure of
from the results that would be obtained from the entire population. Because sam- the extent to which the results
pling error is directly related to the extent to which findings from a sample can be from the sample differ from the
generalised to the population of interest, marketers must take steps to ensure that results that would be obtained
from the entire population.
sampling error is minimised.

What are the issues faced by people

Spotlight 
with arthritis?
In October 2011, a state branch of Arthritis Australia commissioned data entry and analysis for its
Advocacy Survey. The objectives of the research project were:
1. to understand current musculoskeletal conditions
2. to identify the areas/issues that people of varying ages and gender feel should be addressed.

Method
The organisation mailed a survey to its supporter database, which
sought to identify whether the respondent was directly or indirectly
affected by a musculoskeletal condition. Survey questions focused
on understanding the musculoskeletal conditions experienced
by respondents, whether they had applied for disability support,
the issues they felt should be addressed, along with their age and
gender. The survey was mailed to a total of 6789 supporters, and a
total of 785 surveys were returned. Some surveys contained multiple
identity numbers, and these were excluded from analysis. A total
of 779 unique surveys were data entered, representing an effective
response rate of 11.5 per cent. Both quantitative and qualitative
analysis were then undertaken.

Results
The results of the survey data indicated that the four main musculoskeletal conditions sufferers had
were osteoarthritis, osteoporosis, rheumatoid arthritis and fybromyalgia. Four key concerns faced by
people with arthritis were government health policy, health and medical service issues, management
of the condition, and lifestyle factors. The analysis demonstrated very few differences between gender
and age groups on these key concerns.
The qualitative analysis revealed the primary and secondary concerns of people with arthritis to be
similar. Seven key themes were uncovered in total:
• pain and impairment
• lack of quality of life
• lack of government funding and focus
• the need to improve medical services and the need to improve ancillary support services or
products
• the experience of psychological or emotional distress
• the need to increase public understanding and awareness
• the need to improve ways to manage the condition.

Questions
1. Outline the research design used by the state branch of Arthritis Australia and identify the type of data
that would have been collected.
2. Outline the advantages and disadvantages of the survey used by the state branch of Arthritis Australia as
they relate to the requirements of the research project.

Chapter 3  Market research 99

 Concepts and applications check
Learning objective 3  outline the issues in research design, including the role of primary and
secondary data, and the uses of quantitative and qualitative research
3.1 You have been asked to examine brand sentiment on Twitter. How might your results be biased?
3.2 Find one primary research method that interests you. What are the advantages and disadvantages
of this method?
3.3 Find two studies that describe their sampling method. Was a probability or non-probability sample
drawn? Make sure that you think carefully about the population of interest and whether every
person had an equal chance of selection.
3.4 Biometrics are increasing in popularity in market research. Find an example of a biometric
study and prepare a summary of the study for class. Your summary should outline the
research problem, the research design, the research findings and the conclusions drawn by
the authors.

DATA COLLECTION, ANALYSIS

AND REPORTING
Learning objective 4 Data must be collected according to the methods specified in the research design.
understand the key The goal of this part of the research process is to ensure the research design is prop-
principles of data
erly followed, responses are recorded correctly and errors are not introduced.
collection and analysis,
and the subsequent The whole market research process needs to be managed according to project
reporting of market management principles to ensure the market research is delivered in accordance
research findings with the research brief, as well as on time and on budget; and provides value to the
to inform marketing marketing organisation. The data collection process can be conducted in-house or
decisions
it can be outsourced, with a market research or advertising agency taking on the
responsibility of the data collection process (and often the analysis and reporting as
well). A full discussion of project management is outside the scope of this textbook,
but the basic principles are now briefly outlined.

Managing data collection

Given that time and financial resources are limited, budgeting and scheduling need
to be planned and managed to ensure the most benefit is derived from the invest-
ment in market research. The market research project should proceed efficiently
and effectively.
Budgets can be determined by estimating the likely actual cost of each phase of
the project or determining the amount of time that each phase is likely to take
and then applying a standard cost estimate to the hours. A market research project
seeking to capture consumer preferences using an online questionnaire for a sample
of 500 customers will cost around $20  000. A study involving 15 depth interviews
and a 20-minute online questionnaire offering incentives for business professionals
to participate will cost around $50  000. It is clear a market research project is a sub-
stantial investment.
During a project, some phases must be completed before others can begin. For
example, researchers will often conduct depth interviews to generate items for a
survey. The depth interview phase has to be completed prior to the implementation
of the survey phase. Careful coordination and management are required to ensure
each phase can proceed as planned.

100 Marketing
 It is important to note that the project must also be able to accommodate revisions
as it proceeds. The market research process is not always a straightforward, linear
path from start to finish.
• An initial survey of secondary data may prompt the marketing organisation to
reassess the research problem definition.
• A focus group might similarly prompt a reassessment of the problem or suggest
some other piece of data to analyse that was not included in the original brief.
• The initial data analysis might suggest some revision to the methodology for data
collection requiring that part of the process to be reviewed.
All of this is part of the dynamic nature of market research. A research project
that cannot or does not take the opportunity to refine itself when it is in progress is
almost certain to result in less than optimal value.
A number of tools exist to help project managers maintain control of projects. The
most commonly used are Gantt charts and the critical path method. Gantt charts are a
visual representation of who is doing what and when. A simplified example is shown in
figure 3.10. The critical path method involves dividing the research process into parts,
estimating the time to complete each and arranging them so that a stage cannot proceed
until all of the prerequisite parts are complete. This method is very useful for seeing
the effect of a delay in one part of the project on the overall progress of the project.

Time
Task Start End (days) 22-Jan 29-Jan 5-Feb 12-Feb 19-Feb 26-Feb 5-Mar 12-Mar 19-Mar
Prepare survey 22-Jan 24-Jan 3
Determine sample 22-Jan 25-Jan 4
Distribute survey 29-Jan 31-Jan 3
Receive responses 5-Feb 23-Feb 15
Filter responses 12-Feb 2-Mar 15
Analyse responses 19-Feb 9-Mar 15
Prepare report 12-Mar 16-Mar 5
Report findings 19-Mar 19-Mar 1

Project management also assigns accountabilities for the various aspects of the FIGURE 3.10
market research project: who is responsible for what. If the market research pro-
ject or part of it is outsourced, this aspect takes on extra importance and should be A simplified Gantt chart
included in the contract. (data collection, analysis,
reporting)
Data analysis
Once data has been collected, it needs to be filtered and organised. Depending on
how the data was collected, it may be necessary to perform some quality control
techniques to eliminate invalid data (e.g. where the interviewer recorded a res-
ponse incorrectly or a respondent gave a nonsensical answer). Once cleaned up,
the results need to be analysed. A wide range of analytical techniques are available
and marketers need to understand which analytical techniques are appropriate for
the data they have. They need to know how to condense a large pile of information
into a more user-friendly form. A sound knowledge of data analysis is also essential
if marketers are to properly evaluate and interpret the findings presented in market
research reports. Without a working knowledge of data analysis, a marketer will not
be capable of understanding if the analysis was appropriate and therefore if the find-
ings and recommendations are valid. Market research, data analysis and business
statistics courses will all help equip you with these essential skills.

Chapter 3  Market research 101

 The data analysis technique to be used will have been planned as part of the
research design. For example, some methods require minimum sample sizes and this
must be planned prior to data collection. As data is collected, a preliminary analysis
can be conducted and the results of this analysis can be fed back into the ongoing
data collection process, particularly if an unexpected issue or finding emerges that
requires further probing.
Generally analysis will be quantitative or qualitative in nature. Both approaches
can be applied to the same data in some cases.
Quantitative analysis
Recall that quantitative research generates data that can be represented numeri-
cally. To be converted into knowledge that can be used to inform decision making,
the quantitative data that has been collected must be analysed and understood.
Figure 3.11 is a chart created from analysis of stated choice preference data col-
lected in a study for nappies. This graph shows the number of time each product
(in red) was chosen as best (>0<3) and worst (>–3<0) by consumers participating
in the study.

Standard deviation
2.500
P5 P8
2.000
P1 P4 P2 P11
P10
1.500
P3 P12
P6 P7
P9
1.000

0.500
FIGURE 3.11
Consumer preference
heterogeneity21 –3.00 –2.00 –1.00 0 1.00 2.00 3.00

For example, product 8 (an endorsed product) was, on average, chosen as best on
more than one occasion, with some consumers choosing product 8 as best on all
3 occasions (SD>2.0). While some consumers may always have chosen product 8
as best, others may have chosen product 8 as worst at least once when the brand
appeared in a choice set. In other words, some consumers may choose the product
as best, while others will chose the same product as worst. This graph was con-
structed from a questionnaire in which respondents were asked to make a best and
a worst choice for each of the 12 choice scenarios presented (each scenario offered
respondents a choice of 3 products). A total of 12 different products were tested.
Quantitative data is typically fed into software designed specifically for statistical
analysis, such as SPSS,22 or into more general purpose software that has some stat-
istical analysis features such as Microsoft Excel. Software can analyse statistics based
on one, two, or more variables (known respectively as univariate, bivariate and mul-
tivariate analysis), showing trends and patterns in the mass of data, often presenting
them in easy to understand graphs, charts or tables. The analysis will support or
refute the research hypothesis (or indeed it could be inconclusive). Even the most
sophisticated statistical software will not generally identify patterns automatically.
A skilled analyst needs to use the original research question to determine how to
interrogate the data in order to identify patterns.

102 Marketing
Qualitative analysis
Qualitative data is not usually represented numerically. Indeed, the whole purpose
of qualitative research is to gain richer and deeper information than can be obtained
by quantitative techniques. Qualitative data will usually be in the form of interview
transcripts, video recordings, observation record sheets and lengthy narrative res-
ponses to questions. Figure 3.12 shows qualitative data extracted from a transcript of
a focus group that was part of a study on drinking during pregnancy.

Interviewer: What about other people around you? Have you got friends who drank during
pregnancy and can you comment a little bit on that?
Participant 3: I’ve had a friend who drank very heavily and she was trying to get pregnant
and did get pregnant and that continued until she found out she was pregnant. And she did
stop, or significantly reduced drinking during pregnancy.
Interviewer: Anyone else?
Participant 4: I had a friend who had one drink a week the whole way through her
pregnancy. She decided she couldn’t give up drinking entirely and she just every Friday night
had a fairly big glass of wine, but she got a lot of flak from it from people who didn’t know
her, you know if she wanted to have her glass of wine while she was out with her friends at
the pub, people would be fairly nasty to her.
Interviewer: What did they do?
Participant 1: They just sort of made snide comments, like they didn’t necessarily say
anything to her but they’d be sitting at the next table and commenting. But she decided to
keep drinking and do it in public so I suppose it’s going to happen.
Participant 2: Yeah I’ve probably known people who have one say every now and again or
one maybe not even on special occasions, but people that would drink one or two every now
and again, and I think the reactions from other people are pretty judgmental about what are
you doing. And so I suppose it’s up to the person and they have obviously satisfied themselves FIGURE 3.12
that what they are doing, I hope, is reasonable and not going to impact on the health of the
Sample data from a focus
child, but yeah I’ve noticed people are pretty quick to jump in and say ‘What are you doing?’
group

Procedures such as reduction and coding are available to interpret and organise
qualitative data to allow meaningful conclusions to be drawn. Researchers reduce qual-
itative data by categorising concepts and key variables in the study according to their
properties or dimensions. Coding involves developing a series of propositions about the
relationships between key concepts identified in the study. Diagrams are often used by
researchers to illustrate relationships between key concepts in the study. It is impor-
tant to remember, though, that treating qualitative data too much like quantitative data
will lose much of the richness of information that makes qualitative data so valuable.

Drawing conclusions
Once the data has been analysed and patterns or trends identified, conclusions must
be drawn and recommendations made. The conclusions should state what the data
has shown in terms of the original research question. For example, if a supermarket
conducted research into how customers were likely to react to the introduction of a
levy on plastic bags, the conclusion should state what the data suggests will be the
reaction, such as:
• 40 per cent of customers will start bringing their own bags to use most or all of
the time
• 20 per cent of customers will happily pay the levy

Chapter 3  Market research 103

 • 10 per cent of customers will switch to a supermarket that does not charge the levy
• 30 per cent of customers already use their own bags.
The set of conclusions from the data will suggest one or more courses of action.
The alternatives will usually be formulated by drawing on more information than just
that generated by the market research process. In the previous scenario, the possible
courses of action include introducing a levy or not introducing it; setting the levy at
cost or higher or lower than cost; and perhaps not offering plastic bags at all. The
recommendations will need to draw on information about the cost of the bags, the
existence of nearby competitors, the possibility of government regulation, and so on.

Reporting the findings

Once data is analysed and conclusions drawn, the findings must be presented in a
format that will enable the marketing decision makers to use the information. In
practice this involves a written report and/or a presentation to the decision makers.
Reporting should be concise and to the point. Market researchers often report the
key findings in PowerPoint or Presi presentations, with more detail provided in a
formal written document.
The executive summary in the written report may well be the only part of the
report that executives will read. A written report should include the detail of how
the study was conducted and how the analysis was performed. This detail will be
required by the person commissioning the market research. Decision makers might
choose not to read that detail, but it must be available to them should they decide
they want more background or a deeper understanding of how the conclusions or
recommendations were reached.
A written research report should include:
• a cover page, noting the title of the study, the date the report was prepared, the
marketing organisation and the name of the researcher
• an executive summary, noting the research objectives, findings, conclusions and
recommendations (an executive summary must summarise the entire report)
• a table of contents, enabling readers to easily find areas of interest in the report
• an introduction or background section, stating the marketing issue being studied
and the research problem addressed by the project
• a methodology section, summarising the research plan, any variations from the
plan in the implementation and the rationale for the approach taken (a copy
of the  actual surveys, interview questions and so on should be included as an
appendix)
• findings, which make up the main body of the report, supported by tables and
graphics as required, and making clear how the research has answered the
research questions
• a statement of limitations, so that the research findings can be assessed in context
of any limitations that arose during the course of the research
• conclusions and recommendations, concisely stating what has been concluded from
the findings and recommending possible courses of action
• appendices, to present detailed, often technical information.
An oral presentation of the written research report needs to be planned and deliv-
ered carefully. It is a mistake (and pointless) to simply read from the written research
report. An oral presentation should focus on the main findings and recommendations,
and the use of audiovisual aids (e.g. PowerPoint slides summarising key information
and visuals) can help considerably in getting key messages across to the target audi-
ence. Audiovisual aids can also enhance the chances of audience message recall at a
later date. Research has shown that audiences remember only about 30 per cent of

104 Marketing
what they hear and only about 20 per cent of what they see. However, retention of
information rises to approximately 50 per cent of what they both hear and see.23
Care needs to be taken, though, that the use of audiovisual tools such as Power-
Point is not overdone in an oral presentation. Such slides should be used for impact
and the effective presentation of information, not just for the sake of it. Figure 3.13
is a visual example that shows research about people’s intentions towards different
types of physical activity.24
60.0
Key
Decrease Increase
50.0 (n = 1413)
Percentage of respondents

40.0

30.0

20.0

10.0

0.0
Walking

Aerobics/fitness

Swimming

Weight training

Cycling

Running

Yoga

Other

Golf

Tennis

Netball

Football (soccer)

Cricket

Basketball

Australian rules football

FIGURE 3.13
Intentions towards physical
activity participation25

Responding to the research problem

Earlier in the chapter, we noted that market research is usually undertaken to solve
a problem — an issue, opportunity or threat that demands a response that requires
information. Our discussion of market research would be incomplete if we did not
consider the ultimate outcome of the market research process: marketing decisions
that lead to marketing outcomes. Look back to figure 3.3. An organisation that is
using information effectively draws on the results of market research and all other
sources of relevant information to make decisions that take the form of marketing
plans and strategies. As discussed in chapters 1 and 2, these plans are then imple-
mented by the various parts of the organisation to achieve the organisation’s goals.
The results are represented in figure 3.3 as ‘outcomes’.
Ideally, of course, the marketing outcomes align with the marketing goals of the
organisation. An ideal market research project begins with an issue, discovers infor-
mation about the issue, results in decisions about how to respond to the issue, and
ultimately results in outcomes that match the marketing goals. For example, if the
marketing ‘problem’ is ‘How can we increase revenue by 8 per cent next financial
year?’, the ideal market research will discover how the marketing outcome will
indeed be 8 per cent revenue growth. Of course, the ‘real world’ issues facing organ­
isations are far more complex than this simple statement suggests, and marketing

Chapter 3  Market research 105

 outcomes are the results of a multitude of decisions taken within an organisation.
High-quality market research helps makes these decisions better informed.
Assessing the effectiveness of the market research
In order to create, communicate, deliver and exchange offerings that have value for
customers, clients, partners and society at large, marketers need to understand their
market. Without market research, marketers would face crucial decisions without the
necessary knowledge. Those decisions would be an educated guess at best.
It is essential that marketers evaluate the effectiveness of each and every market
research project that is undertaken. As with all aspects of marketing, those marketers
engaged in market research need to be able to assess and demonstrate the effec-
tiveness of their work in order to prove a return on investment. The ultimate test is
whether the research answers the research problem and leads to decisions that con-
tribute towards achieving the organisation’s marketing goals. This will be captured by
marketing metrics such as brand awareness, customer satisfaction and sales.
The market research process itself should also be measured for effectiveness. For
example, as discussed in this chapter, market research projects have set objectives and
specific resources allocated to them based on a cost–benefit analysis. Suitable measures
of the effectiveness of the market research process include, therefore, whether the
project was completed within the specified budgets and timelines, the quality of the
information generated, the depth of the analysis, and whether senior management
felt they could confidently make a decision based on the research findings.

Spotlight  Television audience measurement in Australia

OzTAM manages and markets the television ratings data for the free-to-air viewing habits of households
in Sydney, Melbourne, Brisbane, Adelaide and Perth, as well as subscription TV customers across the
country.  The ratings are ‘audience estimates based on actual viewing habits’, which are collected and
produced by Nielsen TAM, which collects and produces the data on
behalf of OzTAM.
OzTAM recruits 3500 households across the country into a ‘panel’,
and then monitors viewing habits via a metering system attached to the
television. Members of each household also report on the number of
residents and guests that may be viewing. This data is then collected
each night, after which the system ‘collates, reports, validates, weights
and produces a final report of each household’s viewing’.
Of course, such a system may be open to manipulation. For
example, a former household participant admitted to manipulating the
ratings when the ratings for Big Brother dipped. In addition to reporting
the presence of actual household viewers, he would also ‘fabricate’
additional guests (sometimes a dozen or more) in order to try and
keep the show on air. OzTAM can exclude data from up to 10 per cent
of participating households each night — either due to suspicious
behaviour or technical failure.
Beyond reporting just television viewing habits, OzTAM also publishes the Australian multi-screen
report, which provides the data for ‘trends in video viewership beyond conventional television sets’.26

Questions
1. Conduct your own research and find another example of a regular ratings system such as OzTAM that
marketers can use for decision making.
2. In your own words, explain how marketers would use the Australian multi-screen report produced by OzTAM.

106 Marketing
Concepts and applications check
Learning objective 4  understand the key principles of data collection and analysis, and the
subsequent reporting of market research findings to inform marketing decisions
4.1 Explain the key differences between quantitative data and qualitative research.
4.2 Find a research market research report online. Evaluate this report using the explanation provided
in the ‘Reporting the findings’ section.
4.3 Imagine you are a market researcher. Interpret the results of the study for figure 3.13.
4.4 It is essential that marketers evaluate the effectiveness of market research projects they
undertake or commission. Market research effectiveness awards are run annually by professional
associations such as the Australian Market and Social Research Society (www.mrsa.com.au) and
the Market Research Society of New Zealand (www.mrsnz.org.nz). Choose a winner from the most
recent market research awards in your city, state or country. Briefly outline the case (using the
research components presented in this chapter) and discuss why this is an example of effective
market research.

Chapter 3  Market research 107

 Key terms and SUMMARY
concepts Learning objective 1  discuss the importance of market research as a basis for
causal research  91 marketing decision making
descriptive research  90
Market research links customers, clients, partners and society at large with the mar-
exploratory research  90
keter through information. Information obtained from market research — along with
hypothesis  91
market research  79 information from other sources — is used to inform marketing decisions on a wide
market research brief  86 range of issues, including those that are fundamental to the organisation’s marketing
marketing information mix. The results of market research are fed into a marketing information system,
  system (MIS)  81 which holds and organises all of the organisation’s marketing information.
non-probability sampling  98 In deciding to undertake a market research project, the organisation should first
population  98 consider whether the market research will be relevant, timely, feasible given avail-
primary data  92 able resources, necessary, and result in sufficient benefits to justify the costs.
probability sampling  98 Market research must be conducted ethically, respecting the rights of clients,
qualitative research  96
employers and research participants.
quantitative research  93
research design  90
research problem  86
Learning objective 2  clearly define a research problem to guide a market
sample  98 research project, and prepare a research brief
sampling error  99 Before beginning a market research project, it is crucial to know precisely what
secondary data  91
the research is intended to achieve. The question that the research is intended to
answer is known as the ‘research problem’. As the research project proceeds and
more information is gathered, the research problem may need to be redefined.
Whether the market research project is undertaken in-house or outsourced to a
specialist provider, a market research brief should be prepared to guide the project.
A market research brief specifies the research problem, the information required,
the timeframe, the budget, and any other conditions relevant to the project.

Learning objective 3  outline the issues in research design, including the role of
primary and secondary data, and the uses of quantitative and qualitative research
The research problem needs to be analysed in order to create a methodology that
will provide an answer to the problem. This detailed methodology planned to answer
the research problem is known as the ‘research design’.
Depending on the nature of the research problem, market research usually takes
the form of exploratory research, descriptive research or causal research. Explora-
tory research is intended to gather more information about a loosely defined
problem. Descriptive research is used to solve well-defined problem by discovering
more about certain phenomena. Causal research tests whether a particular variable
affects a specific outcome.
Market research can draw on two types of data. Secondary data is data that already
exists. Primary data is collected specifically for the purposes of the current research
project.
Research methods can be broadly classified as quantitative research or qual-
itative research. Quantitative research collects data that can be represented numeri-
cally and analysed using statistical techniques. Experimentation, observation and
biometrics are among the quantitative research methods. The most commonly
­
used ­quantitative  research tool is the survey, with online being the most popular
current form.
Qualitative research obtains rich, deep and detailed information and is often
used when the market researcher needs to know about the beliefs and attitudes
that underlie observable behaviour. Interviews and focus groups are among the most

108 Marketing
commonly used qualitative research methods, but they are time-consuming and
expensive. Both can be conducted in person, over the phone or online.
Market research tries to find out about the population by studying a small part of
it and then generalising the results. The smaller part is known as a ‘sample’. Proba-
bility sampling ensures every member of a population has a known chance of being
selected in the sample that will be studied. Non-probability sampling provides no
way of knowing the chance of a particular member of the population being chosen
as part of the sample.

Learning objective 4  understand the key principles of data collection and

analysis, and the subsequent reporting of market research findings to inform
marketing decisions
Once a research project has been designed, it must be implemented in compliance
with the design. This requires careful project management. Data must be collected,
filtered and organised so that it can be efficiently analysed. Quantitative data can be
statistically manipulated to identify trends and patterns in the data. Qualitative data
can be reduced to allow statistical analysis, but much of the rich detail can be lost.
Often qualitative data analysis leads to further research in the form of quantitative
research.
Data analysis allows conclusions to be drawn and recommendations formulated.
The findings and recommendations of the market research project should be pre-
sented in a concise and clear manner. The underlying detail should also be provided
to support the recommendations.
The recommendations ultimately lead to a marketing decision, which in turn will
lead to marketing outcomes. Ideally, the outcomes are a successful response to the
research problem that triggered the market research process.

Chapter 3  Market research 109

 Case study Weighing in to get people more active
Sharyn Rundle-Thiele, Krzysztof Kubacki, Janet Palmer and Naomi Gruneklee,
Griffith University

The prevalence of overweight and obesity in Australia has been steadily increasing over the past
30 years. National Preventative Health Taskforce statistics indicate that from 1990 to 2005, the
number of overweight and obese Australian adults increased by 2.8 million.27 Current projections
suggest nearly three-quarters of the Australian population will be overweight or obese in 2025.
According to the World Health Organization, the fundamental cause of obesity and overweight
is an energy imbalance between calories consumed and calories expended. This imbalance
is caused by two factors. Firstly, there is an increased intake of energy-dense foods that are
high in fat; and, secondly, there is an increase in physical inactivity due to the increasingly
sedentary nature of many forms of work, changing modes of transportation and increasing
urbanisation.28
The Australian Sporting Commission suggests an estimated 8.4 million
Australian persons, or 47.9 per cent, of the population, participated in physical
activity for two hours or more per week (recommended levels are 3.5 hours per
week). The Australian Sporting Commission defines ‘any physical activity’ as
physical activity for exercise, recreation or sport. It includes those activities that
were organised by a club, association or other type of organisation, and those
activities that were non-organised. It excludes those activities that were part of
household or garden duties, or were part of work.29
As part of VicHealth’s five-year Research Practice Fellow program, they
commissioned university market research consultants to undertake an online
survey in March 2013. The finalised survey consisted of 180 questions divided
into six sections. This case study reports a sub-section of the larger study.
Respondents were asked:
•• 14 questions to understand the perceived barriers and benefits of physical
activity
•• to report the hours spent on physical activity in the past week and the past
24 hours
•• 12 questions to understand their knowledge of healthy living
•• to declare their weight and height. This allowed their body mass index (BMI)
to be calculated.
According to the Better Health Channel, BMI scores fall into one of four
categories. A BMI of 18.5 to 24.9 is considered the healthy weight range for
young and middle-aged adults; 25.0 to 29.9 is considered overweight; and over
30 is considered to be obese.30
The population targeted in the study was comprised of 106  828 people
residing within 20 kilometres of the Melbourne central business district (CBD)
aged 18 and over. Email invitations were issued by Post Connect, a division
of Australia Post, to people who had previously indicated their willingness to
be contacted for marketing and market research purposes. Participation in the online survey was
voluntary and anonymous. Of the 8033 people who opened the email, a total of 25.18 per cent
(2023) clicked the survey link. A total of 1459 people participated in the online survey, giving a
70 per cent conversion rate for those people viewing the survey home page.
Table 3.6 shows the healthy living knowledge questions and the percentage of respondents
who answered each knowledge item correctly. The results are also broken down by gender for
comparison. The majority of respondents were incorrect for the following sentences: that one serve
of vegetables is equal to 1 cup of cooked vegetables (60.6 per cent); that adults need 5 serves of
vegetables each day (62.9 per cent); and that adults need at least 150 minutes of moderate-intensity
physical activity a week for good health (70.6 per cent).

110 Marketing
 Table 3.6  Healthy living knowledge: percentage of respondents who answered correctly
by gender

Health knowledge measure Number Total Male Female Sig.*

True or false questions

Exercise doesn’t need to be all in one go. 1320 90.8% 96.3% 97.6%

One serve of vegetables is equal to one cup of 1311 39.4% 40.4% 42.8%
cooked vegetables.

Exercising a few times every week increases blood 1312 88.1% 93.8% 94.2%
pressure.

Exercise reduces your risk of coronary heart 1317 89.2% 94.6% 96.2%
disease.

People who do regular physical activity have lower 1312 72.6% 74.8% 79.5%
risk of colon cancer.

96 per cent of Australians engage in leisure-time 1316 69.4% 75.5% 73.5%

activity.

Fill in the blank questions

Adults need at least 5 serves of vegetables 1316 37.1% 22.9% 50.1% *

each day.

For adults, at least 30 minutes of moderate-intensity 1310 73.7% 74.4% 82.2% *

physical activity on most days of the week is
needed for good health.

Adults need to eat at least 2 serves of fruit 1310 81.9% 79.8% 92.5% *
each day.

For adults, at least 150 minutes of moderate- 1296 29.4% 31.3% 32.8%
intensity physical activity a week is needed for good
health.

One serve of vegetables is equal to 1 cup of salad 1284 87.5% 93.0% 94.1%
vegetables.

On average, participating in moderate to vigorous 1282 83.9% 88.5% 90.8%

levels of physical activity throughout our life can add
2.5 years to the total life expectancy.

*Sig. = statistically significant, which indicates there are group differences.

A higher percentage of females answered each question correctly when compared to males,
with the exception of one true/false question (96 per cent of Australians engage in leisure-time
activity). Analytical tests (specifically chi-square tests) were performed to determine if knowledge
score differences existed between groups. There were statistically significant differences in
health knowledge for males when compared with females. Overall, females (average correct
answers = 9.3) had a higher knowledge score than males (average correct answers = 8.7). Females
scored significantly higher than males on questions about the daily requirement of vegetables, daily
requirement of fruit and daily requirement of moderate-intensity physical activity.

Chapter 3  Market research 111

 The mean score is the arithmetic average score or halfway point in the data. By reviewing the
mean scores, we can see that on average respondents agreed there were many benefits of physical
activity (see table 3.7). Respondents agreed that physical activity helps to cope with stress, keep in
shape and to give energy (M > 3.9).

Table 3.7  Perceived benefits and barriers of physical activity

‘If I were to be physically active on most days .  .  .’ (1 = strongly disagree Mean
and 5 = strongly agree) (Standard deviation)

Perceived barriers of physical activity 2.6 (0.8)

.  .  . it would be painful 2.7 (1.1)

.  .  . it would be difficult 2.7 (1.1)

.  .  . it would be embarrassing 2.0 (1.0)

.  .  . it would make me feel uncomfortable 2.3 (1.0)

.  .  . it would make me tired 2.9 (1.1)

.  .  . it would make me sore 3.0 (1.1)

.  .  . it would be a hassle 2.6 (1.1)

.  .  . it would take too much time 2.7 (1.1)

Perceived benefits of physical activity 3.7 (0.6)

.  .  . it would help me cope with stress 3.9 (0.9)

.  .  . it would help me to make new friends 3.2 (1.0)

.  .  . it would get or keep me in shape 4.3 (0.8)

.  .  . it would make me more attractive 3.4 (1.0)

.  .  . it would give me more energy 4.0 (0.8)

.  .  . it would make me better in sports, dance and other activities 3.7 (0.9)

Understanding the barriers and benefits perceived by adults towards physical activity and their
knowledge of healthy living is important to gain insight into individuals’ physical activity behaviours.
The midpoint in the data (median score) was used to split respondents into high and low groups
to examine the perceived barriers (median = 2.6) and benefits of physical activity (median = 3.8).
Respondents were then categorised into four groups (high benefits/high barriers, low benefits/high
barriers, high benefits/low barriers, low benefits/low barriers) to allow the testing of physical activity
behaviours to be explored further. Refer to figure 3.14 for an overview of the self-reported physical
activity levels, knowledge and BMI by attitude group.
Analysis of variance (ANOVA) was the analytical statistical technique used to compare benefit and
barrier groups. Significant differences were found for all variables tested. People with low perceived
barriers to exercise reported undertaking more physical activity in the past week and past 24 hours,
generally have higher healthy living knowledge and report having a lower BMI than people who have
high perceived barriers to exercise.31

112 Marketing
 Perceived benefits

Low High

• Low interest (n = 143) • Likely exerciser (n = 406)

• 7.0 hours per week • 7.2 hours per week
• 1.8 hours in past 24 hours • 1.6 hours in past 24 hours
Low

• BMI = 26.7 • BMI = 26.5

• Knowledge score = 9.0 • Knowledge score = 9.3

Need to increase positive Cognitive intervention not

Perceived barriers

attitudes — make physical necessary

activity more fun

• Likely non-exercisers (n = 283) • Ambivalent (n = 336)

• 4.5 hours per week • 5.4 hours per week
• 1.1 hours in past 24 hours • 1.2 hours in past 24 hours
• BMI = 28.6 • BMI = 28.2
• Knowledge score = 8.3 • Knowledge score = 9.0
High

Require marketing campaigns to Need to decrease negative

both increase positive and attitudes by reducing obstacles FIGURE 3.14
decrease negative attitudes and
increase knowledge Self-reported physical
activity levels, knowledge
and BMI by attitude group

Questions
1. Explain the market research method used in the VicHealth study.
2. Marketers need to understand their target audience to gain insights that can be used to develop a
marketing campaign.
(a) What are the perceived barriers of physical activity?
(b) What are the perceived benefits of physical activity?
(c) What are the healthy living knowledge gaps?
3. You have been invited by VicHealth to submit a proposal for a social marketing campaign to
improve physical activity. Use the data provided to create a social marketing campaign idea to pitch
to VicHealth.

Advanced activity
Review the opening chapter example of the NAB Quantium joint venture.
(a) Describe the research design for the type of data drawn from credit card purchases
in as much detail as possible, referring to concepts explained in the chapter.
(b) What are some data analysis, collection and reporting issues that NAB
Quantium would need to be aware of?

Chapter 3  Market research 113

 Marketing plan activity
Market research is an important basis for marketing decision making. For the
organisation you have chosen for your marketing plan (chapter 1), your SWOT,
environmental and situational analyses (chapter 2) may have identified market
research information that needs to be obtained. Clearly define your research
problem(s) and prepare a simple market research brief(s) using figure 3.5 from the
chapter as a guide.
Next, propose a methodology or approach for the market research. In the coming
weeks, you will need to collect and analyse the information, making any necessary
adjustments to your situation, environmental and SWOT analyses from chapter 2.
You should also regularly reassess your preliminary marketing objectives and revise
as required in light of the market research information you obtain.
This market research will be ongoing as you develop and refine your plan and
progress on to target market analysis, marketing mix decisions and strategies in
later chapters.
A sample marketing plan has been included at the back of this book to give you
an idea where this information fits in an overall marketing plan.

114 Marketing
 CHAPTER 4

Consumer
behaviour
Learning objectives
After studying this chapter, you should be able to:

explain why marketers require a thorough understanding of consumer behaviour

and its major influences

understand the major group factors that influence consumer behaviour

analyse the major individual factors that influence consumer behaviour

explain the general steps in the consumer decision-making process.

Online shopping: the new
frontier1
In 2012, more people shopped online for consumer products than ever before. Using
home computers, smartphones and tablets, online shoppers are ready to find the bargains
that online shopping promises. Online shopping is no longer a ‘niche market’ — the
internet is now a part of our lives and is well integrated into our work and home lives.2
‘Time poor’ is the cry of most of us, and online shopping provides the attraction of
a quick and easy research and purchase alternative to the time-consuming retail
brick and mortar outlets — giving us back the time we seek for other uses. We can
buy from almost anywhere in the world without
leaving the comfort of our homes or offices, often
at a fraction of the price that we can buy things for
locally. Australians aged between 25 and 44  years
had the highest rate of buying goods online, with
82  per  cent of those aged 25–34 and 79  per  cent
of those aged 35–44 making such purchases.
Internet users cited convenience, lower prices and
a wider availability of products and services as their
main reasons for shopping online. Research by the
­Australian Bureau of Statistics found that around
30  per cent of r­espondents overall had purchased
CDs, DVDs and computer software online in the
previous six months.3
According to the 2012 Australian Retail Adop-
tion Plans for Online Advertising and E-tailing,
75 per cent of Australian retailers with more than one store have an online presence
(although, increasingly, some bricks and mortar stores are struggling and adapting
their business models to cater for an exclusively online environment). Australian busi-
nesses generally take a proactive approach to online retailing, but don’t always fare well
against the international competitors (primarily for reasons of price and product range). 4
There are a number of approaches that Australian businesses can take in order to ‘woo’
customers to their websites. Many sites offer free delivery, or a flat postage rate that
doesn’t change regardless of the value, quantity or size of products purchased. Other
stores offer loyalty points in an effort to satisfy and keep purchasers coming back.
Research in 2012 into consumer shopping trends in Australia identified some of the
strategies that would influence people to spend more money. Unsurprisingly, the results
showed that 18 per cent of customers want free shipping. Most online consumers are
familiar with the dreaded scenario of finding a ‘bargain’, only to be slugged almost the
same amount in postage, and often this can lead people to cancel the order altogether.5

Question
How do you think ‘bricks and mortar’ retailers can best fight back against the
time and cost advantages offered by online retailers?
INTRODUCTION
In the introduction to marketing chapter, we defined marketing and introduced
the concept that those organisations that adopt a market orientation tend to be
more successful than organisations that do not. In the chapter on the marketing
environment and market analysis, we looked at the marketing environment and
how organisations can analyse it. The chapter on market research involved a more
­in-depth ­examination of how organisations go about understanding the environment,
including the individuals and groups within it. By now we understand something
about marketing, the marketing environment, and the individuals and organisations
that make up the marketplace. This begs the question, ‘How do we formulate a
marketing mix to best serve our potential customers?’ Clearly, we need to know the
reasons behind the decisions buyers and consumers make — the what, why, how,
when and where of their behaviours. This is the focus of our study of buyer, or con-
sumer, behaviour.
Consider the example of consumers and online shopping, discussed in the chapter
opener. The associated opportunities and challenges this presents to modern mar-
keters is just another instance of the changes that have swept across modern societies
in recent years. For individual firms, such changes may have a positive, negative or
neutral effect. The challenge to the marketer is to understand such changes, and
how they might affect the firm’s established business model — the products that
it creates, how it communicates with the market, and the distribution channels
through which buyers will access the product. The modern marketing concept sug-
gests that the customer should be at the heart of the business. Consequently, under-
standing customers and their behaviour is at the heart of modern marketing.
In this chapter we will focus on consumer buying behaviour; not business buying
behaviour. It is often assumed that consumer buying behaviour is different from,
and perhaps less rational than, business (or industrial) buying behaviour. While this
sweeping statement is difficult to test, it will be explored further in the chapter on
business buying behaviour.
In this chapter, we will examine the influences on the buyer and how these influ-
ences might impact the buyer’s choice of product category, brand, price, distri-
bution outlet and their response to advertising messages. Taken together, the buyer’s
decision processes, their choices and how they manifest themselves in actual pur-
chase and product usage behaviours constitute the field of consumer behaviour, the
core topic of this chapter. The chapter explores a range of models of buyer behav-
iour, based on varying levels of consumer involvement.

WHAT IS CONSUMER BEHAVIOUR?

To formulate a marketing mix that best serves our potential customers, we need to Learning objective 1
know the reasons and motivations behind the decisions consumers make. Consumer explain why marketers
require a thorough
behaviour is the term used to describe the analysis of the behaviour of individuals
understanding of
and households who buy goods and services for personal consumption. As men- consumer behaviour
tioned earlier, it is the what, why, how, when and where of consumers’ behaviours. and its major influences
Recall that the marketing mix refers to all the elements of the offering that the
organisations makes to potential customers. An understanding of consumer behav- consumer behaviour The
iour informs every decision made about the marketing mix, including: analysis of the behaviour of
• what product attributes will appeal to customers individuals and households
who buy goods and services
• how much value a product has for consumers and hence how much they will be
for personal consumption.
willing to pay for it

Chapter 4  Consumer behaviour 117

 • the likely response to various promotional options
• where the consumer is likely to want to purchase the offering
• how the consumer evaluates the purchase
• what the consumer expects from dealing with the organisation.
Generally speaking, consumers purchase products to satisfy their needs and
wants. These needs and wants vary in nature and the ways that consumers go about
satisfying them varies as well. The range of possible consumer behaviours is almost
limitless; however, we can identify a range of consumer decision-making behaviour
along a continuum from simple habitual decision-making behaviours at one end to
highly complex extended decision-making behaviours at the other. For example, few
consumers devote much time to choosing their next tube of toothpaste, but most
consumers spend a lot of time deciding on a destination and itinerary for an over-
seas holiday. The ways in which consumers recognise their needs and wants, find
out about how to satisfy them, choose among the options, and think and feel about
their decision are subject to numerous influences.

Influences on consumer behaviour

The range of factors that may influence a consumer is virtually limitless and stud-
ying them systematically and comprehensively is a mammoth task. The key to this
task is to develop an awareness and sensitivity to the range of issues that may influ-
ence an organisation’s target buyers. These influences may be:
• specific to a situation in which the consumer finds themself
• related to group (social or cultural) factors
• unique to the individual.
These broad categories of influences and some of the contributing factors are
summarised in figure 4.1 and discussed in detail throughout this chapter.

Situational Group Individual

Cultural Social Personal Psychological

Physical
Social
Cultural Reference Demographics: Motivation
Time
Subcultural groups • age Perception
Motivational
Social class Family • occupation Beliefs and
Mood attitudes
Roles and status • income
FIGURE 4.1 Lifestyle Learning
Personality and
Factors influencing
self-concept
consumer behaviour

situational influences The Situational influences on consumer behaviour are perhaps the easiest to under-
circumstances a consumer stand. They are simply the circumstances consumers find themselves in when they
finds themself in when making
are making purchasing decisions and/or consuming the product. Some circum-
purchasing decisions.
stances prompt immediate purchasing decisions; for example, a person who finds
themself with a headache will often respond by purchasing Nurofen, Panadol or
Herron Paracetamol. Situational influences can also prompt people to decide not to
make a purchase; for example, a couple who decide at the last minute to go to their
favourite restaurant for a romantic, candle-lit dinner may change their minds if they
see that the restaurant is crowded and noisy.

118 Marketing
 The principal situational influences may be classified as:
• physical — the characteristics of the location in which the purchase decision is
made (e.g. fashion retailers should install flattering lighting in the fitting rooms)
• social — the interactions with others at the time the purchase decision is made
(e.g. the product knowledge and/or persuasiveness of a salesperson or ‘compe-
tition’ with other shoppers during post-Christmas sales); not to be confused with
social influences on consumer behaviour, discussed later in this chapter
• time — the time available for a purchase decision (e.g. a person who has left all of
their Christmas shopping until Christmas Eve may not have the time to contem-
plate many options)
• motivational — the reasons for the purchase (e.g. a person choosing a bottle of wine to
bring to a dinner party is likely make a different decision based on different criteria
than when choosing a bottle to consume at home over the evening meal)
• mood — the mood of a person at the time of the purchase decision (e.g. a person
in a tired or emotional state may make a more impulsive decision).
In the following sections, we will turn our attention to the group and individual
factors that influence consumption decisions.

Role models Spotlight 

In early 2013, cyclist Lance Armstrong made headlines around the world when he admitted to
using performance-enhancing drugs (after refuting drug-use allegations in previous years). As the
melodrama of Armstrong’s confessions to Oprah Winfrey played out on prime time television, viewers
could be forgiven for their sense of displeasure and déjà-vu. Following
the tawdry soap opera of Tiger Woods’s fall from grace a few years
earlier, a question that will interest professional marketers is ‘What
does this say about the value of celebrity endorsements?’ Of course,
the risk of using celebrity sports and entertainment figures has always
carried with it a risk — that the private behaviour of the celebrity may
not always match the public persona portrayed in the ads. In the
case of sports and entertainment celebrities, the risks are amplified,
although the returns may also be sufficient justification, and Nike
must be fervently praying that sponsored golfer Rory McIlroy doesn’t
follow in his predecessors’ footsteps.
More generally, few people would seriously believe that professional
footballers, actors or musicians would always be model citizens and
appropriate role models. Beyond that, it could be argued that the very
concept of the ‘role model’ should be closely scrutinised, especially
when we are dealing with the behaviour and attitudes of ‘responsible’
adults (and even young adults, who may not always act responsibly).
As Dr Rebecca Huntley of the Ipsos Mackay Report argues:
According to our latest research on 21-year-olds, the role models of young
Australians aren’t musicians or reality TV stars or sports people. In fact
they tend to reject the relevancy of the role-model concept altogether, as
this exchange between two 21-year-old women illustrates:

Woman 1: ‘I think the term “role model” is so over-rated. You need people to look up to but you should
never model yourself on only one person.’

Woman 2: ‘Like sportspeople, I admire their drive and I wish I could be like that, to have that focus, but
they’re not a role model.’

Chapter 4  Consumer behaviour 119

 If pushed to talk about someone they do admire or who inspires them to be a better person, they look away
from the TV screen and across the couch at someone they know, warts and all — a friend, a sibling, a parent or
grandparent. Typically, mum provides the example for the young woman, dad the example for the young man.6

Huntley argues that the role model concept is both old-fashioned, but also unrealistic in a world
saturated with instant mass communication.
The 21-year-olds we encounter in our research are a group that looks up to the people they know rather
than people they observe from afar through the paparazzo’s lens. And they are more interested in being
the best version of themselves rather than a pale imitation of a celebrity.7

And so, on one level, Nike’s support of Tiger Woods or Rory McIlroy makes abundant sense,
at least potentially, while the brand is seeking to expand and establish its reputation in golf.
Somewhat controversially in 2013, Nike launched its Tiger Woods ‘Winning takes care of everything’
campaign (despite knowing that some would be offended by interpreting the slogan as Woods
‘thumbing his nose at critics who have focused on his extramarital affairs’). The measure of success
will be Nike’s sales in the golf category (although whether the incremental profits will be sufficient
to exceed the estimated US$250m that McIlroy is set to receive seems problematic). At the same
time, brands need to recognise the potential pitfalls in celebrity endorsements, as well as question
the very relevance of the ‘role model’ concept — especially among adult consumers, young and old.8

Question
Do you think the reported US$250 million to sponsor Rory McIlroy represents good value for money for
Nike? Why/why not?

Concepts and applications check

Learning objective 1  explain why marketers require a thorough understanding of consumer
behaviour and its major influences
1.1 In your own words, define consumer behaviour.
1.2 Recall four purchases you have made in the past month. Try to include goods and services in your
list and, ideally, choose different types of product (e.g. having a haircut, buying petrol or some
clothes, subscribing to a magazine). Add to your list the biggest purchase you have ever made.
Describe how you made the decision to purchase each product. (Be specific — for example,
you may have purchased new clothes because you had been invited to a party, but how did you
actually make the decision about the clothes you ended up buying?)
1.3 Ask a friend about what they have bought in the past week. Take some time to try to work out the
reasons behind their purchases. Now ask them their reasons. How accurate were your assumptions?
1.4 Describe an example of how each of the five situational influences on consumer behaviour has
affected a purchase decision you have made.

GROUP FACTORS
Learning objective 2 Consumers’ purchasing decisions are profoundly affected by group factors, or influ-
understand the major ences from groups with which the individual interacts. Group influences comprise
group factors that
social factors (the influence of other people) and cultural factors (the influence of
influence consumer
behaviour the values, beliefs and customs of the person’s community).

Cultural factors
Cultural factors are those influences on behaviours that operate at the level of
the  whole society or of major groups within society. In this sense, they represent
the broadest of group factors. In studying cultural factors, we seek to understand

120 Marketing
how large social groups — and, by extension, the individual members within
them  —  behave. From a marketing perspective, this level of analysis corresponds
with that of the mass market, in which the marketer is concerned with the aggregate
behaviour of markets as a whole. The study of human behaviour at the cultural level
has traditionally been the focus of sociology and anthropology, and a number of the
key concepts used by marketers and behavioural researchers were originally discov-
ered and studied by sociologists and anthropologists. Concepts such as social class
are of interest to marketers where they can be demonstrated to explain or reliably
predict differences in buyer or consumer behaviour.
Culture
The broadest group influence on behaviour is arguably that of culture, although a pre-
cise definition of what constitutes ‘culture’ is perhaps debatable. For our purposes, we
shall define culture as the system of knowledge, beliefs, values, rituals and artefacts by culture The system of
which a society or other large group defines itself. Clearly, from this definition, culture knowledge, beliefs, values, rituals
is multidimensional and includes both tangible and intangible elements: and artefacts by which a society
or other large group defines itself.
• tangible elements include housing, technology, clothing, food and artworks
• intangible elements include laws, beliefs, customs, education and institutions.
It is also important to recognise that culture operates at both the immediate experi-
ential level — through such things as our tastes in food, music and e ­ ntertainment —
and at a deeper, and arguably more influential, level — through cultural values.
While it is easy to appreciate the visible, tangible aspects of culture (such as prod-
ucts), this may lead to the more profound, pervasive, influential and intangible
aspects of culture being overlooked.
It has been popular over the past 20 years to argue that our traditional cultural
values are being rapidly eroded and a global culture is emerging as a result  of
modern information and communications technology, as well as the influence  of
modern marketing, particularly through the creation and influence of global brands.
(For  example, Starbucks has arguably created a new international ‘coffee ­culture’
in  many countries of the world, particularly those countries that have had little
prior exposure to mass consumption of coffee, such as Japan.) It must be r­ecog­
nised,  ­however, that core cultural values are much more pervasive, influential and
resistant to change than some would have us believe. Consumers the world over
may wear similar clothes with familiar brands, drive the same cars and buy the
same consumer electronics products, and want to live in similar, modern housing —
however, at the level of core cultural values, they may differ markedly.
Differences in national cultures have been measured by a number of researchers.
Hofstede, in his original landmark studies, found that national cultures could be dis- power distance The degree
tinguished by variations across four core dimensions that he described as follows.9 of inequality among people that
• Power distance — the degree of inequality among people that is acceptable within a is acceptable within a culture.
culture. Western societies tend to score low on ‘power distance’, reflecting their rela- uncertainty avoidance The
tively egalitarian cultures, whereas Asian societies score high in ‘power distance’, extent to which people in
a culture feel threatened
reflecting the greater extent of social inequality and the traditions that maintain this.
by uncertainty and rely on
• Uncertainty avoidance — the extent to which people in a culture feel threatened mechanisms to reduce it.
by uncertainty and rely on mechanisms to reduce it. individualism The extent to
• Individualism — the extent to which people focus on their own goals over those of which people focus on their own
the group. Western societies are generally ‘individualistic’, whereas Asian societies goals over those of the group.
are more ‘collectivist’. masculinity The extent to
• Masculinity — the extent to which traditionally masculine values (e.g. assertiveness, which traditionally masculine
status and success) are valued over traditionally feminine values (e.g. solidarity, values are valued over
quality of life). Australia, New Zealand and the United Kingdom are examples of traditionally feminine values
within a culture in Hofstede’s
more ‘masculine’ cultures, while the Scandinavian countries and Thailand are
cultural dimensions.
examples of more ‘feminine’ (caring and nurturing) societies.

Chapter 4  Consumer behaviour 121

 Follow-up research in Asia identified a fifth dimension of long-term orientation —
long-term orientation The
extent to which a pragmatic, the extent to which a pragmatic, long-term orientation is valued over a short-term
long-term orientation is valued focus.10
over a short-term focus. More recently, Hofstede and Minkov have added a sixth dimension: indulgence
indulgence The extent to which versus restraint.11
a relatively free gratification of Figure 4.2 plots various countries’ cultures on the five original dimensions.12
basic and natural human drives
related to enjoying life and having
fun is allowed.

WORLD AVERAGE
WORLD AVERAGE
Germany Germany

South Africa South Africa

India India
United States Hong Kong United States
Hong Kong
United Kingdom Thailand United Kingdom Thailand
Malaysia

New Zealand Japan Malaysia Singapore Japan

Australia
Australia Singapore New Zealand

0 10 20 30 40 50 60 70 80 90 100 110 0 10 20 30 40 50 60 70 80 90 100 110

Power distance Uncertainty avoidance

WORLD AVERAGE WORLD AVERAGE

Germany Germany

South Africa South Africa

India India
United States Hong Kong United States
Hong Kong

Thailand United Kingdom Thailand United Kingdom

Malaysia Japan Malaysia Japan

Singapore New Zealand Australia Singapore Australia
New Zealand

0 10 20 30 40 50 60 70 80 90 100 110 0 10 20 30 40 50 60 70 80 90 100 110

Individualism Masculinity

WORLD AVERAGE
Germany

South Africa
India
United States Hong Kong
United Kingdom
Thailand

Australia Japan
FIGURE 4.2 New Zealand Singapore

Hofstede’s dimensions 0 10 20 30 40 50 60 70 80 90 100 110

of culture Long-term orientation

122 Marketing
 While the validity of Hofstede’s dimensions continues to be the subject of intense
restraint The extent to
academic debate, marketers must nevertheless be sensitive to cultural differences which gratification of needs is
among consumers and in workplaces when they seek to market their products over- suppressed and regulated by
seas. They must not assume that consumers in foreign countries perceive their means of strict social norms.
products and communication messages in the same way as they are seen in their
home markets.

Subcultures
Just as we can identify a national culture that exists across a society as a whole,
so too we can identify distinctive subcultures that display differences from the
dominant national culture along some of the key dimensions. A subculture is a subculture Groups of
group of individuals who differ on some influential dimensions from the broader individuals whose members
share common attitudes, values
culture in which they are immersed. Subcultures are usually identified based on
and behaviours that distinguish
differences in key demographic characteristics such as age, ethnicity, geographic them from the broader culture in
location or religious affiliation. In this context, Australia displays a high level of which they are immersed.
multiculturalism, which reflects the ethnic, religious and geographic diversity of a multiculturalism The
high proportion of its resident population. Subcultures are important to marketers existence of diverse cultures
when their shopping and purchasing behaviour are significantly different from the within a society.
remainder of the population, and they represent a distinct and commercially signifi-
cant marketing opportunity. For example, Asian consumers in Australia potentially
represent a major opportunity for marketers when their purchases of food, fashion,
information technology, education, motor vehicles or real estate differ significantly
from the Australian population as a whole. Similarly, Australia is famous world-
wide for its beach and surf culture, which has spawned highly successful global surf
brands such as Billabong and Rip Curl.
Within subcultures, members share common attitudes, values and behaviours that
distinguish them from the broader culture. Relative to other subcultures, members
may, for example, display clear preferences for specific clothing, entertainment
and food. At the same time, it is worth remembering that subcultures are them-
selves subject to frequent change in response to changes in the broader society and
in their internal membership. Nevertheless, subcultures can be very important to
marketers, as they represent large potential market segments, often with distinctive
preferences and behaviours and strong group loyalty. Astute marketers will always
be on the lookout for changes in subcultures, or the emergence of new subcultures,
which can create opportunities for new products and threats to existing product
categories.

Social class
Most societies exhibit a social hierarchy, organised into social classes. A social class social class A group comprising
comprises individuals of similar social rank within the hierarchy. Social ranking individuals of similar rank within
the social hierarchy.
forms the basis of social prestige and respect in most countries. In Australia and
New Zealand, the social class system is regarded as ‘open’ because individuals are
able to move from one class to another relatively easily. In some other countries,
perhaps most notably India, individuals are seen to be born into their social class,
and in which they remain throughout their lives. The system is, thus, relatively rigid
and closed, and it is difficult, if not impossible, for individuals to move to another
social class. In Australia and New Zealand, an individual’s social class is defined by
values and lifestyles, but often rests on indicators such as income, occupation and
education. In India, social class is based on tradition, history, cultural heritage and
family background. While discrimination on the basis of social class has been made
illegal in India, it continues to exert a pervasive influence, particularly outside the
major cities.

Chapter 4  Consumer behaviour 123

 In Australia and New Zealand, some aspects of consumer behaviour can be attrib-
uted to social class, but often those behaviours are better attributed to more specific
underlying indicators of social class. For example, marketers would often be better
served paying attention to the economic indicators of purchasing power such as
income and perhaps occupation or educational background. For products such as
entertainment, travel and cars, income is most important; whereas for products such
as fashion, restaurants and real estate, occupation may be a more important deter-
minant of purchasing behaviour.
For this reason, socioeconomic status can often be a useful concept for marketers
studying consumer behaviour, where the primary focus is on ‘purchasing power’.
For example, marketers of high fashion, consumer durables, prestige products and
many financial services will be more concerned with the ability of the target market
to purchase. In this sense, it is income that is the primary concern, and not the
source of income, which is implied in the social class construct; and sales of high-
end products are especially sensitive to changes in annual incomes brought about by
macroeconomic business cycles. Conversely, social marketers often need to under-
stand the behaviour of people at lower levels of socioeconomic status as this has
been identified as a reliable predictor of individuals or groups who engage in high-
risk social behaviours such as smoking, crime, violence, alcoholism, drug abuse and
gambling.13 Social marketers in the government and not-for-profit sectors will often
use low socioeconomic status as a ‘marker’ and will target those groups in their
­service delivery and mass communication campaigns.

Social factors
Studying consumer behaviour at the social level is concerned with developing an
understanding of the behaviour of the individual within the wider group. This is
the traditional domain of ‘social psychology’ and is focused on understanding how
the group influences the behaviour of its individual members, typically through
group pressures on the individual to conform with group norms. Such influences are
­collectively known as social factors.
Reference groups
reference group Any group A reference group is any group to which an individual looks for guidance as to what
to which an individual looks for are appropriate values, attitudes or behaviours. The influence of reference groups
guidance.
is particularly strong when the individual lacks previous experience as a guide for
social risk The belief by a behaviour, and where that behaviour carries a level of social risk. In this context, the
consumer that a particular choice
of product may have potentially
individual will seek the approval of the group and will thus be concerned to conform
negative social consequences. with the expectations of the group. In a marketing context, if a consumer is contem-
plating purchasing a product for the first time, and where that product is socially
conspicuous (e.g. clothing), the individual will often look to the reference group to
suggest and endorse the appropriate choice. Reference groups can be large or small,
and an individual may be a member of several reference groups, depending upon
the circumstances and the behaviours in question. For example, an individual may
look to family, work or professional groups, sporting clubs, religious groups or civic
organisations depending upon the particular behaviour or product category.
Three major types of reference groups have been identified:
membership reference • membership reference groups — groups to which the individual belongs. Individuals
groups Groups to which the will commonly identify strongly with membership reference groups and take on the
individual belongs.
values, attitudes and behaviours that define members of the group. For example, an
individual who considers themself an ‘Emo’ would adopt the characteristic appear-
ance, clothing, attitudes and music of that group. Similarly, most individuals will
seek to conform to the expectations of their employer or professional group.

124 Marketing
• aspirational reference groups — groups of which the individual would wish to be
aspirational reference
considered a member. In these circumstances, the individual is likely to mimic the groups Groups to which the
values, attitudes and behaviours of the aspirational group. Such groups can there- individual would like to belong.
fore become important role models and marketers may seek to have their products dissociative reference
adopted by members of aspirational groups, especially where the product is new groups Groups with which the
and socially conspicuous, such as fashion, cars, information technology or drinks. individual does not wish to be
• dissociative reference groups — groups with which an individual does not wish to be associated or which the individual
may wish to leave.
associated or which the individual may wish to leave. An individual may not wish
to be seen or to be known as a ‘bogan’ and so may choose to buy clothing, food and
beverages which might set the individual apart.
A reference group can therefore help the individual in their
purchase behaviour through suggesting information sources, the
range of product alternatives and appropriate ways of evaluating
and choosing between alternative products. For example, Globe
footwear has become highly accepted among the surfing and skate-
board community, reinforced by Globe’s sponsorship of surfing
and skateboard contests. Understanding the identity, dynamics,
attitudes and purchase behaviour of such reference groups is a
challenging task for market researchers since the groups are fre-
quently difficult to identify; their group norms are often arcane;
and their dynamics are constantly changing.
The extent to which a reference group influences purchase
behaviour depends, in part, on the visibility or conspicuousness of
the product and the familiarity of the purchase category. The pur-
chase of highly visible products such as clothing, cars, information
technology and beverages is often strongly influenced by refer-
ence groups. Reference groups can affect whether or not a person
chooses to buy a product at all, to buy a particular product within
a product category, or to buy a particular brand. For example, in
certain reference groups, it is important both that you are buying
a smartphone and which brand of smartphone. At the same time,
it is not important that you are buying a pair of shoes, but rather
which brand of shoes you will buy. Equally, it may be important
to some groups that you are air-­conditioning your home, although
the brand of air-conditioning may be unimportant.
Opinion leaders
In many reference groups, some individuals occupy the role of opinion leader. These
individuals will be consulted, formally or informally, as being reliable sources of infor-
mation about the values, attitudes and behaviours of the group. An opinion  leader opinion leader A reference
is a reference group member who provides relevant and influential advice about a group member who provides
specific topic of interest to group members. Opinion leaders are regarded by other relevant and influential advice
about a specific topic of interest
group ­members as experts in a particular field or topic, such as politics, music, sport to group members.
or community values. In a marketing context, opinion leaders often influence group
members in relation to appropriate purchases of such products as technology, cars,
houses, holidays, education, fashion, food and beverages. ­Marketers will often attempt
to identify opinion leaders and to influence them in their product attitudes and pur-
chase behaviour. For example, Microsoft or Nintendo might seek to identify elite com-
puter gamers whose opinions on games and game consoles might be sought by other
members of their reference group at school. At the same time, the concept of opinion
leadership is often difficult to work with in practice because opinion ­leadership is typi­
cally situation- and product-specific. Within the same reference group, members may

Chapter 4  Consumer behaviour 125

 choose to consult different ­individuals for opinions on cars, information ­technology,
sport or politics. An opinion leader, however, is likely to be of greatest influence in
product categories where individuals are highly involved, but in which they lack
knowledge and/or experience, although they share the opinion leader’s values and
attitudes.
For example, beyond their undoubted altruistic credentials, community service
clubs such as Rotary, Lions and Zonta are popular with members because of the
opportunities they provide to members to network with local professionals, experts
and dignitaries. Thus, many members of such groups would regard themselves as
experts in their fields. They would expect to give and receive valued opinions and
business contacts to and from other members, in professional fields such as real
estate and property development, local government affairs, politics, information
technology, law, economics, architecture and education, and in social pursuits such
as golf, sailing and fine dining. Local professional service individuals and organ­
isations might, therefore, target these organisations as a valuable source of clients
and service providers. Similarly, medical practitioners will seek out their pro­
fessional colleagues at regular meetings, and especially at annual conferences of
various professional societies. Pharmaceutical companies typically seek to identify
the opinion leaders in such groups by sponsoring research or conference sessions
of recognised authorities in particular medical fields — such as cardiology, oncology
and gastroenterology.
New products take time to develop popularity in the market. The way in which
innovations are adopted can be described by the theory of diffusion of innovations.14
The theory suggests that the influence of social groups on the decisions made by indi-
viduals determines the way and the rate at which new products and ideas are adopted
and spread. Innovations are introduced and used by ‘innovators’, who make up only
2.5 per cent of the total population. Because they are often seen as ‘outsiders’, they do
not generally influence the adoption of innovations by the rest of society. Rather, con-
sumers known as ‘early adopters’, who represent about 13.5 per cent of the population,
tend to drive widespread adoption. (The ‘early adopters’ will have typically learnt of the
new product or idea from the ‘innovators’.) The early adopters group typically includes
the opinion leaders. Adoption by the opinion leaders then drives adoption by the ‘early
majority’, who adopt the innovation earlier than average. The ‘late majority’ adopts the
innovation later than average, reflecting their cautious and sceptical nature. The last
group to adopt is known as the ‘laggards’, who are driven by tradition. (Of course, there
may also be a residual group of ‘non-adopters’.)
The diffusion of innovations process is primarily driven by social networks and
communications. Because the role of the opinion leader is so important, the model
suggests the existence and logic of a two-step flow of communication: in which infor-
mation can be directed to and focused on the opinion leader who, after adopting the
innovation, will communicate the information to the broader population. From a
marketing communications perspective, this model implies that it is not necessary
to direct a marketing message to the entire population; rather it is more effective
to address communication directly to the opinion leader in the expectation that the
idea will spread from them to the wider target population. The theory of diffusion of
innovations is examined in more detail in the product chapter.
Family
For most people, the social group with the most influence over their behaviour is the
family. In particular, from a marketing perspective, the ‘nuclear’ family — parents
and siblings — teach the individual appropriate behaviours relating to purchasing
and consuming products. This process starts when children are very young.

126 Marketing
 The stage of the family in the family life cycle is also an important influence on con-
sumption behaviour. The family life cycle describes the stages through which most family life cycle A series of
families pass. It is summarised in table 4.1. Of course, not all families go through all characteristic stages through
which most families pass.
five stages in the family life cycle model, and the incidence of divorce and remarriage
and consequent ‘blended families’, single parents, and same-sex households are all sig-
nificant and increasingly common alternative family arrangements. In this sense, it is
perhaps misleading and dangerous to stereotype; nevertheless, marketers should be
aware of traditional family patterns, and the significant alternative family groups.

Table 4.1  The family life cycle

Example of marketing
Stage Description consequences

Stage 1 Young singles Single person living apart Important target market for home
from parents furnishings, cars and entertainment
products

Stage 2 Young marrieds Young married couple Target market for new home
without children construction, functional furniture
and whitegoods

Stage 3 Parenthood A married couple with Heavy consumers of household

children at home products such as detergents, food
and pharmaceuticals

Stage 4 Post-parenthood An old married couple with Important buyers of luxury goods,
no children at home packaged tours, investment products
and health care products

Stage 5 Dissolution A single surviving spouse Buyers with a focus on health,

physical security and continuing
financial independence

A further important way in which the family influences consumer behaviour is

through the family decision-making roles and the influence of family members in
decision making. While family roles are changing, family consumption decisions can
still largely be categorised into four types.
• Autonomic decisions. Most household products are typically purchased by either
the husband or wife, including products such as the husband’s clothing, furniture,
cosmetics, pharmaceuticals, household appliances, cars and holidays.
• Wife-dominant decisions. Although the role of women has changed significantly in
recent decades, women still make the majority of household purchasing decisions
related to food, health care, laundry and bathroom products, children’s clothing
and kitchen products.
• Husband-dominant decisions. A small range of products are traditionally purchased
by men, including hardware and garage products, such as lawnmowers (although
women represent the fastest growing market for many hardware products —
­typically those associated with home decoration, renovation and gardening).
• Syncratic decisions. Some products are purchased by husband and wife acting
jointly. Typically such decisions would be the major household purchasing
­decisions, such as purchasing a home and mortgage, choosing a superannuation
fund, booking a holiday, buying an entertainment product, selecting children’s
education, or other significant investments.
Note that ‘wife-dominant’ and ‘husband-dominant’ are traditional terms. The
­category refers to the adult female and male decision makers respectively.

Chapter 4  Consumer behaviour 127

 Beyond these four decision patterns, different family members may play d ­ ifferent
roles in household purchase decision making, depending upon the nature of the
product and the role expertise of individual family members. For example, the d ­ ecision
to purchase a broadband internet or cable television contract may be initiated by
the children. The information search may be conducted by the older siblings, and
the evaluation of alternatives may involve the entire family, while the actual purchase
decision may be made by the father or mother.
Sometimes the role of children in purchasing decisions is a lot less civilised. The
pester power The influence phenomenon of pester power can be a powerful influence on family consumption
of children on their parents’ decisions. Pester power is the term used to describe children’s influence over their
purchasing decisions.
parents’ purchasing decisions. About one-quarter of parents take their children with
them when they shop, so it is very common for children to be present when pur-
chasing decisions are being made. The most common purchases made in response
to pester power are fairly small (e.g. chips, biscuits and a preferred brand of tooth-
paste), but children can also influence or indeed initiate major purchases as well,
such as gaming consoles, home swimming pools and holidays.
For many marketers, children — even if they
are not making the purchase — are a substantial
target market. They are the focus of many adver-
tising campaigns. The most successful advertise-
ments targeted at children also include messages
that appeal to parents. While the expression ‘pester
power’ conjures images of children annoying their
parents into giving in over a purchase, the term
is widely used to include all child influence over
purchasing.15
The important conclusion here is that a large
proportion of household purchase decisions are
not made solely by an individual. In these cir-
cumstances the dynamics of household decision
making can be quite complex and vary according
Children can have a to the product category, and between families. Similarly, marketers need to consider
powerful influence over the potential influence of the group on purchasers, particularly in devising their
their parents’ purchasing marketing communications and advertising programs.
decisions. What are the
chances that this young Roles and status
boy’s parents will give in Each individual in a society plays a number of roles, each of which entails a com-
to his request to buy a plex set of expectations — parent, child, neighbour, employee, employer, customer,
toy car? friend and so on. We understand that as part of our roles we are expected to engage
in certain behaviours and actions. These roles may have a formal, even legal, defi­
nition, such as the role of parents or of officeholders in social or volunteer organ­
isations. In other groups, individuals’ roles may be less formally defined but may still
be equally influential in the purchase decision. Such roles will frequently be based
on perceived expertise, where the role is that of opinion leader (discussed earlier in
the chapter). Again, this perception of expertise may be specific to a narrow product
category, such as computers, music, food, wine, fashion or politics. Within the social
group an individual may occupy multiple roles and roles may be shared among
members of the group. Because such roles are difficult to generalise, it is equally
­difficult for marketers to identify in advance how individuals in the group will make
its decisions, and who in the group would be most influential.
The influence of individuals within the ­ decision-making social group will fre-
quently be based on the perceived status of the individual, which reflects the position

128 Marketing
­ ccupied by an individual in a notional hierarchy of group members. Such status
o
can be based on a range of criteria, including formal role, age, length of group mem-
bership, technical competence, access to resources or social popularity. Under such
circumstances, the usual challenges for the marketer are to identify group leaders
and to seek to influence their behaviours, although the criteria for group leadership
and the identity of group leaders remain as challenges. The combination of roles
and status typically shape the expectations of group members, which exert an impor-
tant influence on the buyer’s final decision.

Facebook: chit-chat or marketing Spotlight 

communications?
The attractions of social media (like Facebook) to both its social and commercial users are, by now,
widely appreciated. To its social users, it offers an unprecedented opportunity to interact with a larger
and more diverse network of friends and acquaintances than ever before (although what constitutes
a Facebook or other social media ‘friend’ often differs from the traditional meaning of the term). The
ability to hold a virtual conversation with hundreds or thousands of people simultaneously is clearly
attractive, and addictive, to large sections of the population (especially the young). For advertisers, the
opportunity to join those conversations and social networks is seemingly irresistible, and so marketers
attempt to penetrate and influence these networks — especially when their product is highly regarded
by, and relevant to, a particular social group.
However, the attractions of social media in combining the potential influence of social groups
with the commercial exposure of products creates a new series of challenges relating to the
commercial and legal status of social media discussions.
A recent decision by the Advertising Standards Board
(ASB) that companies are accountable for user-generated
comments on their pages complicates matters further. In
that decision, Foster’s Group was found to have breached
the advertising code because comments made by ‘fans’
on the VB Facebook page were derogatory to homosexuals
and breached the advertising code decency standards
with coarse language and explicit references to sex. The
Australian Competition and Consumer Commission (ACCC)
subsequently signalled it would take a similar approach,
holding companies responsible for user-generated comments
that make misleading claims about a product or service.
In this sense, the regulatory authorities are making it clear
that they view social media not as an extended social
conversation or discussion, but, rather, in much the same
way as they view commercial advertising.
This has created widespread alarm about how closely companies need to monitor social media,
especially when they try to introduce their brands into the social conversation. Fosters argued
that the ‘light-hearted’ comments from members of the public were akin to conversations in a
pub and did not count as advertising. However, the board rejected that argument, saying that
the Facebook page was intended to promote the company’s product and it was a ‘marketing
communication tool over which the advertiser has a reasonable degree of control’. A further
consideration was the fact the user comments identified in the complaint were posted in reply
to questions posed by the advertiser.
While the ruling represents a significant impost on the industry in potential compliance costs
involved in monitoring social media content, it is nonetheless unsurprising (although yet to be tested
in the courts). For both social and commercial users of Facebook and other social media, the same

Chapter 4  Consumer behaviour 129

 guiding principle applies: don’t say, or tolerate, anything on Facebook that you would not say, or
tolerate, when talking to your own personal friends — and remember that anything you say, or read,
can potentially be read by anyone.16

Question
Provide examples of companies that use Facebook well, and explain why.

Concepts and applications check

Learning objective 2  understand the major group factors that influence consumer behaviour
2.1 ‘In Australia and New Zealand, some aspects of consumer behaviour can be attributed to
social class, but others are better attributed to specific underlying indicators of social class.’
Discuss.
2.2 What are the three types of reference groups? For each, provide two examples of groups relevant
to you.
2.3 Explain how opinion leaders influence group behaviours. Choose five products (ideally a mix of
goods and services), and explain who you would consider an opinion leader in your decision to
purchase each. Explain your choice.
2.4 Describe each of the five dimensions of culture according to Hofstede’s model. Choose a product
(a good or a service) and briefly explain the issues a marketer should address when marketing it
in cultures at opposite extremes of the cultural dimensions.
2.5 Critique the four family decision-making types. Do they reflect your personal experiences?
2.6 Find an advertising campaign that is designed to invoke pester power. Analyse the campaign in
terms of which elements are aimed at children and which elements are aimed at the purchaser
(most likely a parent).

INDIVIDUAL FACTORS
Learning objective 3 So far we have discussed how situational influences and group factors affect con-
analyse the major sumer behaviour. A third range of factors influence the consumer’s behaviour and
individual factors that
operate independently of social circumstances. These are known as individual
influence consumer
behaviour ­factors and relate to personal and psychological characteristics. These factors can be
measured for an individual and are presumed to differ significantly between indi-
viduals — in large part, they explain the individual’s purchase process and final
product choice.

Personal characteristics
At the level of individual buyer or consumer, we can identify a range of personal
characteristics that have been shown to exert a significant influence on consumers’
choice processes and ultimate purchase decisions. These personal characteristics, in
some ways, constitute an individual’s identity and, in this sense, are objective and
relatively stable in the short term (although they will inevitably change as the indi-
vidual ages and develops). This short-term stability is attractive to marketers in that
these characteristics are relatively easy to observe and measure. They can therefore
form the basis of ongoing marketing campaigns.

130 Marketing
Demographics
Demographic factors describe the general make-up of the population in terms of demographic factors The
existing objective, measurable characteristics that are either assumed or demonstrated vital and social characteristics
of populations, such as age,
to be related to the purchase or consumption of products. In a strict sense, demo-
education and income.
graphic characteristics do not cause shopping or choice behaviour (since the ­individual
will always have free will and choices), but rather they vary systematically and predict-
ably with the observed behaviour. It is this systematic, and therefore predictable, vari-
ation that is attractive to marketers. This, combined with their ready accessibility from
organisations such as the Australian Bureau of Statistics and Statistics New ­Zealand,
has made them useful and reliable predictors of shopping behaviour. They are
­commonly used in the description and explanation of consumer behaviour.
As a rule, demographic factors should always be used as part of the description
and explanation of consumer behaviour and, in many cases, these demographic
characteristics will be sufficient for the marketer’s purposes. Their use enables mar-
keters and researchers to establish the relationship between the causal explanation
for behaviour and the likely observable distribution of that behaviour. For example,
there is a strong, measurable relationship, or correlation, between the consumption
of alcohol and age. While age alone does not explain the consumption of alcohol, a
knowledge of age distribution of the population enables marketers to understand the
likely incidence and geographic distribution of alcohol consumption, on the one
hand, and of age-related alcohol abuse such as chronic alcoholism and binge
drinking, on the other. Aimed with this knowledge, marketers of alcoholic beverages
can tailor their marketing efforts accordingly. Government bodies and health advo-
cacy groups can also craft social marketing campaigns to best target those groups
and individuals most likely to be at risk of alcohol misuse.
Similarly, occupation is a strong predictor of computer, mobile phone and internet
usage. Marketers of these products seek to identify variations in occupational distri­
bution across the population and across specific geographic markets. Likewise,  in
financial services markets, income is a leading indicator of customers’ needs for soph­ Consumers regularly
isticated financial products such as investment funds, mortgage and investment loans, make purchases that
wealth management, and so on. Financial service organisations such as AMP find it are aspirational and
profitable to target so-called ‘high net worth individuals’ who are always looking for that reflect a preferred
better financial returns from their investments, and lower costs and charges on their lifestyle. This couple’s
loans. While income does not strictly explain the demand for financial services prod- willingness to drive a
ucts, it is a very reliable ‘surrogate’ or ‘proxy’ indicator of likely customer demand. sports car may reflect
their desire for glamour.
Conversely, low income levels are a reliable indi-
cator of demand for charity, emergency loans and
financial counselling.
Lifestyle
A person’s lifestyle is defined by how they spend
their time and how they interact with others.
There may be a significant difference between an
individual’s actual lifestyle and their preferred life-
style. For many of us, our actual lifestyle (which
might involve work, study, shopping for groceries
and the occasional party) is much more predict-
able and staid than our preferred lifestyle (which
might involve glamour, excitement, travel, and
luxury cars and yachts). Consumers regularly pur-
chase products that play a role in their lifestyle.
They also often purchase products to enhance or

Chapter 4  Consumer behaviour 131

 express their preferred lifestyle. Such products are aspirational or symbolic in nature.
Consumers often choose to express their preferred lifestyle through such products as
fashion, motor vehicles, holidays, recreational equipment and activities, and entertain-
ment. Marketers of lifestyle-oriented products should therefore devote considerable
effort to understanding the preferred lifestyles of their target customers and how those
lifestyles might be changing.
Lifestyle is partly a choice. For example, some people choose to spend their week-
ends surfing and their weekdays studying; others choose to work during the week
and spend the weekend pursuing some creative hobby; and others choose to be
politically active in their communities. Lifestyle is, however, also influenced by per-
sonality and demographic characteristics such as age, income and education. Life-
style is typically measured through a lengthy series of questions, the outcome of
which is frequently used in psychographic (or lifestyle-based) market segmentation
(see the chapter on markets: segmentation, targeting and positioning). Table  4.2
presents a psychographic (lifestyle) market segmentation scheme from Nielsen
­
Consumer and Media View.17
Personality
Personality is perhaps the most distinctive characteristic that defines an individual’s
behaviour, yet it is notoriously difficult to measure reliably. We can define person-
ality as the set of unique psychological characteristics and behavioural tendencies
that characterise an individual. While it is relatively easy to describe someone’s
personality (with words such as ‘positive’, ‘intense’ or ‘competitive’), attempts by
researchers to establish a reliable relationship between personality and behaviour
have met with limited s­ uccess. It is formed through a complex combination of gen-
etics and experiences. While ­personality is relatively consistent and enduring, it
does change throughout life in r­esponse to social and environmental influences and
personal experiences.

Table 4.2  PALS (Personal Aspiration Lifestyle Segments) psychographic data

Balance seekers • More likely to have a young family

Representing 19 per cent of the population, they actively aspire to • Lead healthy lifestyle
a balanced lifestyle, and are more likely to be middle-aged, with • Not too concerned about how others see them in terms of
those in the workforce more likely to be found in managerial or appearance
professional roles. • Less attracted than most to new ideas and technology
• Only slightly motivated by success, but family very important — it’s
all about balance
• Medium to heavy viewers of commercial TV
• Medium to heavy listeners of commercial radio

Health-conscious • Heavily skewed to couples with no children

Representing 29 per cent of the population, their priorities are health • All about healthy living, exercising and eating
and fitness. They avoid unhealthy foods and exercise regularly to • Least likely to try out new technology
maintain their fitness, although they are less likely to be concerned • Less likely to be driven by success vs. other PAL segments
about their image. Definitely not early adopters of new technology. • Heavy commercial TV and pay-TV viewers
• Medium to heavy non-commercial TV viewers
• Light to medium use of the internet
• Print heavy (magazines/newspapers)

Harmony seekers • Singles/couples, no children in the household

Representing 13 per cent of Australian consumers, these people • Not particularly concerned about health
are older; they have arrived and are now concerned about giving • Less likely to try to impress others
and sharing through community work. They are actively involved • Career and goals do not dominate their thinking
in hobbies and indulge in luxuries afforded by their achievements. • Heavy viewers of commercial and non-commercial TV
They are not concerned about physical fitness or health, and are • Heavy viewers of pay-TV
not quick to embrace new ideas or technology. • Medium to heavy use of internet

132 Marketing
 Individualistic • No children in the household; heavy skew towards singles
Constituting 18 per cent of Australian consumers, these are ‘me • Like to wear clothes noticed by others and be stylish
first’ people who consider family a low priority. Life is really all about • Early adopters of new technology and new ideas
themselves; they are image and fashion conscious, heavily oriented • Conscious about health
to success and goal achievement. They are also big new technology, • Success and goal oriented
media and internet users. • Light commercial TV viewers
• Medium to heavy non-commercial TV viewers
• Heavy internet users
• Heavy cinema goers

Fun seekers • A sense of fun in their life is their main priority

Representing 4 per cent of Australians, they are heavy consumers • Skewed towards families with a heavy skew towards young
of commercial media and while responsible concerning family and families
financial security, they aspire to add more fun so as to improve • Like to look good and be fashionable
their fairly structured lifestyles. Their escapist attitude makes them • Most likely to agree that technology/computers makes life easier;
ideal candidates for holiday/entertainment and lifestyle improvement willing to try new products
products and services. • Medium commercial TV viewers
• Less likely to watch non-commercial TV
• Heavy listeners of commercial radio

Success driven • Career is a top priority

Representing 17 per cent of Australians, they consider their career • Very goal and success oriented
a top priority, so success and visible signs of success are important • Skewed towards families, especially older families
to them. While families play a role in life, they are strongly oriented • Health is not on the forefront of their mind
to personal goal achievement. They are early adopters of technology • Very conscious regarding their image — strive always to look
and new ideas and heavy consumers of media to stay in touch. stylish
• Early adopters of technology and new ideas
• Light viewers of commercial and non-commercial TV
• Heavy internet users
• Heavy cinema goers

Source: Nielsen Consumer and Media View

Marketers are interested in understanding those aspects of personality that are

linked to an individual’s purchasing behaviour. A number of measuring instruments
exist to measure personality, but research has not adequately established consistent
links between particular personality attributes and consumer behaviour. It is quite
possible that the absence of proven links is more to do with the limitations of the
research methods and the measuring ‘instruments’ (questionnaires) than with
the absence of a link between personality and buying behaviour. Even without reli-
able scientific evidence, many marketers are convinced of the relationship between
personality types and certain purchases and devote considerable resources to aiming
marketing campaigns at particular personality types. For example, Lowes mens-
wear’s marketing campaigns are clearly aimed at the ‘man’s man’ (or ‘blokey bloke’).
Often, as with lifestyle, individuals choose to purchase products as an ­expression
of their personality (for example, fun-loving and impulsive). This is related to the
individual’s self-concept, which is a combination of how they see themselves and
how they wish others to see them. Purchase decisions are both a cause and effect of
self-concept. For some individuals, purchases related to self-concept are those that
reflect things such as individual achievement and material success. Many would
argue this is a driving factor behind the purchase of a Porsche sports car or a Rolex
watch, besides the functional and other benefits the products provide. For other
individuals, their self-concept may be tied to being socially and environmentally
responsible and fashionable, prompting the purchase of organic food, a bicycle
or motor scooter, bed linen made from hemp or bamboo, and canvas shoes. Self-­
concept, then, can be linked to most aspects of an individual’s purchasing ­behaviour.
Again, while the rationale for the use of self-concept is undoubtedly sound, its
­reliable measurement, and subsequent management, is more problematic.

Chapter 4  Consumer behaviour 133

 Psychological characteristics
psychological Psychological characteristics describe internal factors that shape the thinking,
characteristics Internal factors, aspirations, expectations and behaviours of the individual. These characteristics
independent of situational and
are particular to the individual and independent of their situational and social
social circumstances, that
shape the thinking, aspirations, circumstances.
expectations and behaviours Motivation
of the individual.
The term motivation is used to describe the individual’s internal drive to act to sat-
motivation An individual’s
isfy unfulfilled needs or achieve unmet goals. This internal force prompts behaviours
internal drive to satisfy unfulfilled
needs or achieve goals. that seek to move from an actual, current state to a more desired state. Motivation is
often made up of individual motives. A motive is specific to a particular drive, such
as hunger. Behaviours are usually the result of a combination of motives.
While motivation is often specific to the individual and situation, some motives are
consistent over time and across the population. For example, marketers can predict
that consumers will be motivated by hunger at breakfast time and that breakfast will
usually be within a range of a few hours for almost all of the population. Similarly,
many people will feel a need for companionship and fun on Friday and Saturday
nights and holidays in summer. Understanding motives presents an opportunity for
marketers who wish to promote consumption of their products and brands, and also
to social marketers, who are interested in discouraging consumption; for example, the
misuse of drugs, gambling or alcohol. The link between motivation and behaviour is
direct, immediate and powerful. The challenge to marketers, however, is in being able
to consistently identify the particular motives at both the individual and group levels.
Maslow’s hierarchy of The most widely recognised theory of motivation is Maslow’s hierarchy of needs
needs A theory of motivation which suggests that people seek to satisfy needs according to a hierarchy that places
that suggests that people seek
lower order needs before higher order needs. Only once lower order needs are met will
to satisfy needs according to a
hierarchy that places lower order an individual seek to satisfy higher level needs.18 The hierarchy is shown in figure 4.3.
needs before higher order needs. Lower order, physiological, needs are the most basic: food, water, shelter, clothing,
sleep and sex. They are the fundamentals of survival. Marketers of fast food, drinks
and condoms seek to capitalise on these needs. Once these needs are reasonably sat-
Websites like Amazon
isfied, then the need for physical and emotional safety and security will come to the
and iTunes make product
suggestions based on fore. Marketers of medical and property insurance are most commonly responding
past purchases, or to these needs. In turn, once the individual feels safe and secure, social needs such
recommend similar as the desire for love, affection and belonging will be dominant. Marketers of hol-
products that other users idays, internet dating sites, night clubs, entertainment, restaurants, champagne and
have bought. perfume typically target these social needs, often by portraying that purchasing or
patronising these products will bring popularity
and social success. Social networking sites such
as Twitter and Facebook also capitalise on indi-
viduals’ social needs. Beyond social needs are the
ego or esteem needs, which relate to self-esteem
and the individual’s need to be recognised and
respected by others. Owning a prestige car, living
in a ‘ritzy’ suburb, dining in a ‘fashionable’ res-
taurant, holidaying in a luxurious resort, being a
member of an exclusive club, or winning a recog-
nised public award may all contribute to satis-
fying an individual’s esteem needs. At the top of
the hierarchy, self-actualisation needs refer to an
individual’s need for self-improvement, achieve-
ment, fulfilment and success. Individuals pursuing

134 Marketing
self-actualisation may choose to travel extensively, learn another language, join par-
ticular religions, purchase services such as further and higher education, personal
coaching, meditation and even yoga.

Self-actualisation
(e.g. creative art,
service to others)

Esteem
(e.g. respect from peers)

Love or belongingness
(e.g. intimacy)

Safety
(e.g. housing, money)
FIGURE 4.3
Physiological Motivation: Maslow’s
(e.g. hunger, thirst) hierarchy of needs

Maslow’s theory has been widely accepted, in part because of its logic and sim-
plicity. It is particularly widely recognised and used to explain motivation in the
workplace, and in understanding an individual’s attitudes to their work and their
employer. In marketing, the track record of Maslow’s theory is perhaps less con-
vincing. While the motives identified by Maslow are universal, it is the ordinal and
hierarchical structure and logic of the model that are often criticised. The presump-
tion that consumers will only pursue higher order needs when all their lower order
needs are satisfied is clearly questionable. In practice, a consumer’s behaviour, at
any one time, is likely to be driven by a range of motives.
Motives are of immediate interest and importance to marketers, as they can
explain the reasons for some key consumer behaviours, including:
• choosing to buy a particular product
• choosing to buy a particular brand
• being willing to pay a particular price
• preferring to shop through particular outlets.
Knowledge of these patronage motives is crucial to understanding and predicting
consumer behaviour. For example, the marketers employed by a supermarket will
seek to understand who among their customers are motivated by location; who are
shopping for the lowest price; and who are motivated by convenience, the weekly
shopping ritual or an enjoyable social experience.
Perception
A widely held view among marketers is that ‘perception is reality’. This r­ecognises
the central importance of perception in shaping a consumer’s behaviour. It also
acknowledges that there is an objective world of ‘facts’ and a subjective world of
‘perceptions’. Perception is the psychological process that filters, organises and attri­ perception The psychological
butes meaning to external stimuli. Perception is particular to the individual, so, for process that filters, organises and
attributes meaning to external
example, a television commercial may be interpreted by viewers to mean something
stimuli.
quite different to that which the advertiser intended. Further, different viewers may
perceive the same commercial in different ways.
An individual is exposed to a potentially limitless array of stimuli via their
senses  — sight, hearing, touch, taste and smell. The first stage of the process of

Chapter 4  Consumer behaviour 135

 ­ erception — filtering — enables the individual to deal with only those inputs that
p
are relevant to their particular needs and circumstances. In this sense, perception is
selective and can result in the following.
• Selective exposure — the tendency to actively seek out messages with which the
audience already agrees or those that are pleasant and to avoid messages that are
threatening or disagreeable. Consumers may, for example, actively shut out mes-
sages from political parties with which the individual disagrees, or from brands
that the consumer dislikes.
• Selective attention — the process by which an individual chooses to take in only
those messages which are relevant to their needs. Some consumers will only be
interested in particular brands; some only in price; some in appearance; and some
in social acceptability. In these circumstances, messages that do not feature the
particular brand, price, imagery, appearance or social success will be disregarded.
• Selective distortion — an individual’s tendency to perceive messages that are incon-
sistent with existing beliefs or attitudes in such a way as to reduce the inconsist-
ency. For example, an individual who is highly loyal to a particular brand will
seek to deny information that suggests the brand is inferior.
• Selective retention — the tendency to remember only that information which is
consistent with other beliefs and which is relevant to an individual’s needs. An
individual will tend to remember information which supports prior beliefs and
feelings and to forget information which is not consistent with these prior feelings
or that is not relevant. It is natural to ‘only remember the good times’ and mar-
keters of ‘heritage brands’ such as Vegemite, Mortein, Heinz and Johnnie Walker
can capitalise on our selective retention of brand names.
The second stage in the process of perception involves organising new infor­­
mation and integrating it with existing knowledge. This process often involves con-
necting new information with existing memories via familiar expressions, sights and
sounds. Advertisers often seek to capitalise on this process by leaving ‘gaps’ in their
advertisements in a bid to have the audience connect the product on offer with posi-
tive information they already have in memory. Commercial slogans, such as Nike’s
‘Just do it’, seek to link the brand with the context of the problem and the appli­
cation of the product.
The ultimate outcome of the perceptual process is the assigning of meaning. In
general, an individual will interpret new information in a way that is consistent with
their expectations or with their existing knowledge or beliefs. Individuals strive for
cognitive consistency, so messages that are unexpected or with which the individual
disagrees are likely to be distorted or disregarded. An organisation that changes a
familiar product, logo, package or taste does so at its peril, especially when the old
product is highly recognised and regarded by loyal customers. Recently VB (Victoria
Bitter) came under fire from consumers for reducing the alcohol content of its prod-
ucts. The company also changed its ‘for a hard-earned thirst’ tagline to ‘the drinking
beer’ (including changing the product’s label). Customers campaigned against the
change, with VB later reverting to its original packaging and slogan.19 This particular
example is discussed in more detail in the chapter on product.
Unless a product or package change is accompanied by an educational and pro-
motional program that makes customers aware of the change and the reasons, valu-
able brand equity and customer loyalty may be lost. This consideration is one of the
reasons organisations tend to maintain existing branding when they buy a portfolio
of products from another company. Similarly, organisations should be careful when
changing familiar packaging, unless the new package offers obvious benefits to the
consumer (and not a ‘disguised price rise’).

136 Marketing
Beliefs and attitudes
Beliefs and attitudes make up the ‘mental map’ that a consumer relies upon when
making judgements about problems that require solutions (e.g. the need to purchase
appropriate clothing and equipment for an overseas skiing holiday) and products
for which there are no readily apparent need (e.g. new high-technology products for
which consumers do not generally perceive an immediate need). The mental map
provides the context in which decisions are made. This positive, neutral or negative
context has significant implications for marketing campaigns and initiatives trying
to introduce new products or communication concepts.
Beliefs comprise descriptive or evaluative thoughts that an individual holds
regarding their knowledge or assessment of a person, idea, product and so on.
Beliefs may be based on objective knowledge, opinions or faith. They may be accu-
rate or inaccurate. When they involve a judgemental or emotional component, they
can form the basis of a strong brand image.
An attitude describes an individual’s relatively stable and consistent thoughts,
feelings and behavioural intentions towards an object or idea. People hold attitudes
regarding politics, ideas, food, clothing, art, music, religion and other people — in
fact, almost everything. Attitudes, along with beliefs, therefore form the background
against which new products or ideas are evaluated. Attitudes clearly relate to repu­
tation, brand image and brand equity and negative attitudes can destroy reputation,
brand image and brand equity, especially through negative word-of-mouth.
Attitudes and beliefs also display inertia — they do change, but usually only gradu-
ally. They also exist as, and within, a gestalt (i.e. as a sum total or configuration), and it is
natural for individuals to strive for consistency in the
pattern of their attitudes and beliefs. This instinct
for consistency will often lead consumers to reject
new ideas that are not consistent with their existing
beliefs or attitudes. In this sense, new products need
to overcome this i­nstinctive defence against new
ideas. Brand loyalty is a ­particular, and important,
­manifestation of this generalised psychological ten-
dency. Apple, for example, is a brand that inspires
significant brand loyalty among many consumers,
and the organisation has managed to capitalise on
this by extending its product range from its initial
offering of desktop computers to portable devices
such as iPods, iPhones and iPads. Many loyal cus-
tomers own multiple Apple products, and upgrade
regularly as new models and versions become
available. Apple is a brand that
The three components that make up an attitude are: inspires significant brand
• the cognitive component, which comprises the person’s awareness of and knowl- loyalty among consumers.
edge about the object or issue
• the affective component, which refers to feelings towards, or approval of, the object
or issue
• the behavioural component, which reflects the individual’s actions or intentions
towards the object or issue.
It is important that marketing campaigns address all three components of atti-
tudes in a strong and positive way. It is also too easy to create a campaign that
changes just one component of an attitude. An advertising campaign that creates
very high levels of awareness regarding a new product will leave the advertiser

Chapter 4  Consumer behaviour 137

 very disappointed if the cognitive change is not accompanied by an affective and,
especially, behavioural change. Even some award-winning advertising campaigns
suffer this fate.
To effectively manage attitudes towards an organisation’s product, marketers
need to use marketing metrics related to all elements of their marketing mix. Data
for metrics related to issues such as brand awareness is commonly gathered through
consumer surveys in which respondents indicate their degree of awareness of, and
agreement with, attitudinal statements about the organisation and its products. For
example, a bank might ask its customers to indicate the extent to which they believe a
bank is modern, friendly, efficient or ethical. Tracking studies ask the same set of ques-
tions regularly over an extended period, enabling organisations to measure long-term
changes in consumer attitudes and to ‘benchmark’ these attitudes against competitors.
Because attitudes are relatively stable, it is difficult to change attitudes towards an
organisation in the short term, especially when that company or brand is already
very familiar. For example, Australia Post has succeeded in improving and updating
its image, but this process has taken over 20 years. In so doing, they resisted the
temptation to ‘over promise and under deliver’, a shortcoming common among long-
established companies. Changing attitudes successfully therefore typically requires a
heavy investment in information campaigns directed at all three aspects of attitudes,
by creating high levels of awareness and positive images of the product or brand,
and by offering customers or consumers a reason why they should try, buy or return
to a brand.
Learning
Learning is the process by which individuals acquire new knowledge and experi-
ence that they can apply to future problems, opportunities and behaviour. In the
context of consumer behaviour, learning relates to acquiring knowledge about new
products, ideas or problems that have some potential application to fulfilling a need
or want. The topic of learning theories is as extensive as the theories are complex.
In general, however, we can distinguish two major schools of learning theory:
• behavioural learning theories
• cognitive learning theories.
Behavioural learning theories stress the role of experience and repetition of behav-
iour. At the simplest level, ‘classical conditioning’, originally identified by Russian
physiologist Ivan Pavlov, describes learning in which behaviour that results in a
pleasant experience is likely to be repeated. If a brand can be consistently associ-
ated with a pleasant experience in the mind of the consumer over an extended
period of time, then, eventually, the brand itself will provoke a pleasant experi-
ence. For example, Coca-Cola has established an indelible place in the minds of con-
sumers by being regarded as synonymous with good times. In this way, drinking
Coke itself comes to be regarded by its loyal consumers as the essence of good
times. For classical conditioning to be effective, long-term repetition of a consis­
tent, simple message is required. In this sense, response to advertising takes on the
nature of a ‘knee-jerk’ reaction. Classical conditioning is therefore most relevant in
low-involvement purchases; that is, where the product is relatively unimportant to the
consumer and the cost of being wrong is equally minimal. With products like ice
creams or soft drink, there is little risk involved, and the consumer is often willing
to ‘try anything once’ and to buy on the basis of ‘trial and error’, although ‘force
of habit’ make it less likely that they would contemplate changing long-established
and satisfying consumption behaviour. Beyond classical conditioning, ‘operant’ or
‘instrumental’ conditioning, pioneered by American psychologist B.F. Skinner, is
distinguished by the overt use of reward and punishment to stimulate appropriate

138 Marketing
behaviour. In  behavioural learning, consumers learn from experience, frequently
with very little deliberate thought or reflection. Nevertheless, learning occurs when
the consumer associates a rewarding experience with the product. This rewarding
experience is likely to be physiological in nature, such as through a rewarding taste,
smell, sight, emotion or experience. Such immediate gratification can lead to long-
term loyal consumption behaviour, such as among loyal beer drinkers, for whom the
ritual of a cold beer after a hard day’s work can become a lifelong habit. Beer brands
such as VB (Victoria Bitter) have built their success on such operant conditioning.
In contrast, cognitive learning theories describe learning that takes place through
rational problem solving, and that emphasises the acquisition and processing of new
information. As such, cognitive learning theories are generally more relevant in the
case of complex problems for which the consumer needs to develop a rational solu-
tion. Cognitive learning theories therefore place a high reliance on the provision
of information and guidance to enable the consumer to arrive at his or her desired
solution. In cognitive learning theories, the emphasis is on reasoning (rather than
experience), and so decision making is likely to be protracted, deliberate, rational
and well informed. Cognitive learning is generally more relevant in high-involvement
purchasing decisions, which are typically for high-cost, important and infrequent
purchases that involve significant levels of uncertainty and risk for the consumer
in the event of making a wrong decision. For example, the consumer decision
regarding a new mortgage, superannuation or investment product, purchase of a
new car or home, or choice of school or university are all typically high-involvement
decisions with high levels of attendant risk. Marketers of such products should seek
to develop a dialogue with potential purchasers to provide them with adequate infor-
mation and advice to enable or assist the buyer to arrive at a satisfactory resolution
of the problem. Such purchases place a heavy emphasis on provision of information
through such means as brochures, newspaper and magazine advertising, websites
and personal selling.

Why we all need to feel good about ourselves Spotlight 

When did you last purchase a product not because you needed it, but instead out of a
sense of embarrassment or, worse, shame? Does your personal or your social life suffer
because your skin is blemished, your hair is thinning, your weight is excessive or your
breath is less than fresh? Would your problem be immediately solved with the purchase
of a (usually) expensive consumer product sold in the ‘health and beauty’ section of
your local supermarket? This is arguably a common tactic used by many marketers and
advertisers who see the consumer’s self-concept as something to be manipulated and
exploited.
In his book Winning the story wars, Jonah Sachs talks about inadequacy marketing —
the tactic of creating anxiety in a consumer and then introducing a solution through
consumption of a product. Sachs gives the example of advertising for Listerine in the
1920s, which featured a miserable woman, who we are told at age 30 had often been
a bridesmaid but never a bride. The ad warned that if you had halitosis you wouldn’t
know — and, clearly, nobody with bad breath ever got married (unless, of course, they
used Listerine).
In the almost century since, little appears to have changed, especially when it
comes to appealing to women’s feelings of inadequacy. Think about current advertising
campaigns for wrinkle creams that commonly feature glamorous celebrities. Such
campaigns clearly exploit the anxiety that we all feel in ageing. The most recent version
of inadequacy marketing assumes that we’re so well used to having our anxieties

Chapter 4  Consumer behaviour 139

 solved by brands that the brands themselves become the most important thing, Sachs says. The
tactic is to portray the target consumer as a ‘loser’, and is so ubiquitous that we rarely think about
it (much less, take offence). Think about how advertising frequently targets women (and men, but
to a lesser degree) in these ways — often they serve up impossible-to-achieve images. When they
don’t (for instance in the case of Dove’s ‘Campaign for real beauty’), it’s seen as controversial and
revolutionary.
The issue will continue to be debated, but Sachs argues that marketing messages relying on
making people feel bad about themselves will increasingly be scrutinised and criticised in the
online world in which consumers will share opinions — both good and bad — about products that
are important to them. ‘If your message isn’t delivered in the form of a positive empowering story,
people will be less motivated to share it.’ And, if they share it, social media can, just as easily, work
against you.
The two-way online world, in this sense, is fundamentally different to the old world of conventional
advertising — in which messages were scripted and delivered to anonymous, passive, compliant
audiences. Social media, at its best, is honest and trustworthy, and designed to mimic personal social
groups.20

Question
Provide an example of a current advertising campaign that relies on ‘inadequacy marketing’. Do you think
the ad is likely to be successful, and why (or why not)? How could the product be portrayed differently,
or better?

Concepts and applications check

Learning objective 3  analyse the major individual factors that influence consumer behaviour
3.1 Briefly describe how your actual lifestyle and your preferred lifestyle differ. Identify which
aspirational purchases you might make to express your preferred lifestyle.
3.2 Critically discuss the PALS psychographic (lifestyle) market segmentation scheme presented
in table 4.2. Do you think it is a useful approach? What are its strengths and shortcomings?
3.3 Discuss how accurately Maslow’s hierarchy of needs reflects your own consumer decisions. Can
you identify examples in your own life, the lives of your friends or through media reports where
individuals appear to have chosen to satisfy a higher order need before lower order needs have
been met? How do you explain this?
3.4 Briefly explain the three stages in the process of perception. Choose an advertising campaign and
analyse how it has taken into account the perceptual process of its target market.
3.5 Research a marketing campaign that effectively appeals to the three components of attitude.
Explain the appeal to each component.

CONSUMER INVOLVEMENT AND THE

DECISION-MAKING PROCESS
Learning objective 4 Now that we have discussed the broad influences on the consumer, we will examine
explain the general steps a general model of consumer decision-making behaviour. The consumer decision-
in the consumer decision-
making process involves five stages, illustrated in figure 4.4. These stages are typi­
making process
cally present in all consumer buying decisions, but the relative importance and
duration, and in some instances, the sequence of each varies considerably from one
decision to another.

140 Marketing
 • Consumer is aware of unsatisfied needs or wants
Need/want
• Marketer stimulates or creates awareness
recognition
of a new need or want

Information • Seek information from known, trusted sources

search • Seek information from all convenient sources

• Develop evaluative criteria

Evaluation of
• Rank alternatives
options
• Consider not purchasing/other uses of money

• Choose product and brand

Purchase • Decide to purchase (or not purchase)
• Purchase

• Continue to evaluate product FIGURE 4.4

Post-purchase • Deal with post-purchase cognitive dissonance
evaluation • Assess attitude towards product, brand and The consumer decision-
seller in relation to future purchases making process

consumer decision-making
process The process of need/
As has been suggested earlier, consumer decisions can involve varying levels of
want recognition, information
involvement. They can be categorised as falling along a continuum from habitual at search, evaluation of options,
one end to extended decision-making behaviours at the other. purchase and post-purchase
• Habitual decision making involves little involvement with the purchase. Typi- evaluation that are common to
cally, the consumer minimises search and shopping efforts for purchases that most consumer buying decisions.
are routine and habitual; for example, many supermarket and convenience store involvement The level of
purchases. engagement undertaken by
a consumer when considering
• Limited decision making involves seeking limited information to evaluate options perceived consequences of
for infrequent purchases within familiar product categories such as clothing, a purchase.
books, music, inexpensive appliances and restaurants. habitual decision
• Extended decision making involves a high level of involvement with the pur- making Low-involvement
chase decision in a protracted, deliberate and detailed way. In such purchases, purchasing decisions, usually
consumers will seek to gather comprehensive information concerning the nature involving small, routine, low-risk
products.
of their need or want, the product category, the available brands, their relative
merits and the specific details of the purchase. Such decision making is typical limited decision
making Limited-involvement
for high-involvement products, which are usually those that are high priced and purchasing decisions, usually
infrequently purchased. Examples include cars, prestige home furniture and involving infrequently bought,
decor­ation, holidays, home entertainment systems, new information technology, but familiar, products.
mortgages and investment products. extended decision
A further category of decisions — namely, impulse purchases — are made with very making High-involvement
little involvement and, arguably, no planning or even forethought. In such instances, purchasing decisions involving
high-price, high-risk and/or
the purchase decision is taken before the buyer has even recognised a need. For
infrequent, unfamiliar products.
example, the purchase of a snack, fast food or a magazine may be triggered solely

Chapter 4  Consumer behaviour 141

 by a passing smell or the ready availability of a product at a supermarket checkout.
Such purchases are generally driven by low prices and ready availability.
The level of involvement is fundamentally important to the type of marketing
that will be effective. The following paragraphs describe each of the five stages of
the decision-making process, recognising that the process can vary according to the
nature of the product, the circumstances of the purchase and the individual con-
sumers involved.

Need/want recognition
Consider a jaded young professional lawyer or investment banker whose work has
demanded long hours, punctuated by regular and ‘impossible’ deadlines and a per-
sonal responsibility for ambitious revenue and billings targets. She may arrive at
the conclusion that she cannot indefinitely maintain this pace of living or normal
personal relationships in these circumstances. She might become aware that she
has become physically and emotionally run down, is lacking a close relationship
partner, and needs a change or a break. The young professional has thus recognised
a problem.
Need/want recognition typically occurs when a buyer becomes aware of a discrep-
ancy between a desired state and the actual state. It can occur in a range of ways.
Often, an individual, like our professional, will become aware of an unsatisfactory
state of affairs such as poor physical or emotional wellbeing. Alternatively, mar-
keters can stimulate recognition of the need or want by highlighting the incidence of
the problem in the population; for example, loneliness or hypertension (high blood
pressure). Marketers can use advertising, public information campaigns, salespeople
or packaging to highlight the problem in the minds of the public. (Of course, such
campaigns might also be partly responsible for adverse social consequences, such
as the increasing incidence of depression and eating disorders. Marketers need to
closely monitor the effects of such campaigns.) According to research by Double-
Click, awareness is driven principally by:
• websites in the travel sector
• direct mail in the credit card and retail banking sector
• internet ads in the mortgage and investment business
• print ads in the personal and home products sectors.21

Information search
Having recognised the problem, the buyer searches for information about how to
solve the problem. Our young professional will search for information that will help
her overcome the problems of being tired and lonely. Typically, an information
search will begin with the individual examining their knowledge and memory for
appropriate solutions. The young professional may resolve to investigate an internet
dating site or to take a holiday in western Europe. Because of the potential of embar-
rassing or unhappy dating experiences, she may reject the internet dating option
and, because she wants to retain her job position, she may conclude that an organ-
ised tour would enable her to make best use of her available leave time. She might
also resolve to further explore internet dating sites (unless, of course, she meets a
suitable companion or partner in her travels).
Once this first stage of the information search has been done, decision makers
look externally for more information. For example, if our young professional does
not know of any suitable tours or tour operators, she will search for information
from external sources, which may involve communication with friends, relatives or
colleagues, use of an internet search engine or the reading of travel magazines. In
engaging in an external search, the consumer will prefer sources that are reliable

142 Marketing
and efficient. In this sense, friends, family members and associates are the most
highly valued sources, as the person trusts or respects them. This explains why
‘word-of-mouth’ is highly influential and so appealing to marketers, but is not easy
to manage. On the other hand, the internet has become the most preferred infor-
mation source for many categories of purchases such as expensive consumer dur-
ables and travel. In this case, the young professional searches local travel agents
and the internet for a range of suitable tours to her preferred travel destinations.
(Although she has travelled overseas before, she is more interested, on this occasion,
in visiting more exotic and out of the way destinations.) She also discusses her pro-
fessional and personal situation with her work colleagues and social acquaintances
to identify tour companies and destinations which might match her needs.

Evaluation of options
A successful information search will usually yield a range of alternative solutions
for consideration. For example, following her enquiries, the young professional may
identify three tours that seem to match her requirements. To evaluate the options,
the buyer uses a combination of objective criteria, such as price, and subjective
criteria, such as style, image or feeling about a product. In the case of an organ-
ised (‘package’) tour, a critical consideration will be a judgement about the kinds of
people  who will also be taking the same tour. These criteria will likely vary in
importance. For example, destination, duration and the standard of hotel rooms may
be more important to our young professional than price. From the range of evalua-
tive criteria, the potential buyer rates and eventually ranks the alternative solutions.
From her list of three tours, the young professional may reject one tour because
it mostly stays at camping sites and youth hostels, or because the price does not
include hotel breakfasts, side tours and/or evening meals.
Marketers can influence consumers’ evaluations by presenting their products’ fea-
tures and benefits in a way that reflects consumers’ needs and evaluative criteria,
and hence influences their decision making. Marketers tend to feature those attrib-
utes of their products that are strongest and seek to convince the consumer that
those features are the most important. In this way, marketers can shape the con-
sumer’s decision, particularly in unfamiliar needs, wants or product categories.
It is important to remember that the consumer is also likely to consider com-
pletely different uses of their money. Because consumers have limited resources,
not only will they compare a few different brands and styles when choosing a new
dining room suite, for example, but they will also make a judgement as to whether
a new dining room suite offers more value than other possible uses of their money,
such as a holiday or just saving the money.

Purchase
Once the evaluation of options is complete and the decision to purchase is made,
the  consumer moves to the purchase stage, in which the particular product and
­specific brand are chosen. It is important to recognise, of course, that the purchasing
­decision may, in fact, be to not purchase. At the purchase stage, our young pro­
fessional may choose to purchase from a local travel agent after discussing her needs
with a travel consultant. She may be influenced by the personal style, expertise or
charm of the consultant. It is also likely that she will choose the tour package which
offers the mix of destinations, attractions, facilities and inclusions that best meet
her needs, is available over a suitable starting date and duration, and for which the
price is reasonable. The actual purchase takes place when she chooses an individual
tour and the travel agent accepts her credit card payment (which is linked to her
­frequent flyer card, and so she receives frequent flyer miles, which she regards as a

Chapter 4  Consumer behaviour 143

 minor but worthwhile bonus). Product availability (in the form of a suitable depar-
ture date and location) can often make a crucial difference at this stage, ­particularly
when ­consumers are undecided between brands of packaged tours.
Post-purchase evaluation
It is a common mistake for marketers to assume that the consumer decision-making
process ends with the purchase. This is rarely the case for the consumer. After the
purchase, the buyer continues to evaluate their purchase decision. In fact, once the
purchase is made, the consumer is in a much better position to evaluate their choice,
and so they will continue to assess whether the product matched their expectations.
Our young professional, for example, is conscious that in choosing one tour, she
has rejected other — possibly better — alternatives, and she needs to be reassured
that she has made the right choice. She is also uncertain about her choice of travel
destinations, and she is nervous, because a number of tour companies have ‘folded’
in the past, leaving members who have prepaid without a service. The young pro-
fessional also needs to be reassured that she is receiving good value for money.
Under such circumstances, like many buyers of expensive products, she may experi-
ence post-purchase or cognitive dissonance.
cognitive dissonance  Cognitive dissonance occurs when a purchaser has second thoughts or doubts
A purchaser’s second thoughts about the wisdom of the purchase. It is most probable when a person has recently
or doubts about the wisdom of a
purchased an expensive, high-involvement product, the features of which are shared
purchase they have made.
with other acceptable alternatives. In these circumstances, there is a danger that
the buyer may feel they have made the wrong choice. Consequently, a buyer will
actively seek out information from personal or commercial sources, which will
reassure them about their decision.
In these circumstances, marketers may seek to communicate with their recent
customers to ensure their experience has been satisfactory and they have no regrets.
For this reason, car companies and dealers write to their new customers to receive
feedback on the purchase and service experiences and to provide evidence to cus-
tomers that they have made a wise choice. In the case of the car companies, travel
agents and tour companies, the objective in the post-purchase phase should be
the  same; that is, to ensure the customer is satisfied and is likely to continue the
relationship by their loyalty to the tour company and the local travel agency when
the consumer next purchases, or by recommending them to others who are contem-
plating travel. This forms the basis of a continuing, profitable customer relationship.
Another strategy for reducing cognitive dissonance is the use of bonuses or rebates
via redemption, which provide the consumer with additional value at some time
after the purchase. Apple regularly uses this approach, inviting buyers of its com-
puters to send in a form and their barcode to receive cash back or a bonus product,
such as an iPod.

Spotlight  Size does matter, apparently

If you are a regular Subway customer, you might feel as unhappy as the Subway customer who was
served a so-called ‘footlong’ that was only 11 inches (or approximately 27.5 centimetres) — not the
promised ‘foot’ (30 centimetres). The customer took a photo of his sandwich alongside a measuring
tape, and published it on Subway’s Facebook page.
Within 48 hours, the post had more than 127  000 ‘likes’ and had been shared over 3500 times.
More than 5600 people commented on the post — ranging from the outraged, to the obvious sexual
allusions, to explanations (such as the bread having been frozen and not pulled back into shape when

144 Marketing
thawed). Subway replied in a very polite, professional (but
somewhat unconvincing) tone:
Hi, Matt. Thanks for writing. Looking at this photo, this bread is
not baked to our standards .  .  . We have policies in place to
ensure that our fresh baked bread is consistent and has the
same great taste no matter which Subway restaurant around the
world you visit. We value your feedback and want to thank you
again for being a fan.

At one level, this story is intriguing given that someone

noticed the discrepancy, and then took the time to effectively
complain. After all, the customer still received the promised,
standard ingredients (albeit with less than a ‘foot’ of bread).
Of course, the issue is trivial in the overall scheme of things
(and marketing is about much bigger issues than this). What
is interesting, however, is that the customer who Facebook
and Subway regarded as a ‘fan’ was acting as anything but
a fan, and the 127  000 ‘likes’ would obviously comprise
a significant proportion of critics of the brand. In this particular instance, it’s worth questioning the
short-term benefits of Facebook to Subway. Does the old adage that ‘any publicity is good publicity’
still ring true?22
More generally, this anecdote highlights the often unseen and unstated risk of social media to
advertisers who seek to involve themselves in consumers’ everyday social conversations. It’s worth
noting that the old adage ‘good news travels fast, but bad news travels faster’ particularly applies
in customer relationships, but its effect is amplified when seeking to exploit the promises of social
media.23

Question
In view of Subway’s experience, what are the risks to commercial advertisers that use Facebook, and how
can they best be minimised?

Concepts and applications check

Learning objective 4  explain the general steps in the consumer decision-making process
4.1 Briefly explain the five stages in the consumer decision-making process.
4.2 Outline two examples of habitual, limited and extended purchasing decisions you have made.
4.3 To what extent do you think ‘need/want recognition’ is generated internally versus externally?
Explain your answer using a variety of examples.
4.4 Imagine you are about to purchase a new smartphone (e.g. an iPhone or a BlackBerry). Explain
how you would progress through the stages of the decision-making process. Which stages were
more or less important?
4.5 Choose a recent non-habitual purchase that you have made. Analyse the situational, group and
individual factors that affected your decision-making process. Map the factors to each stage of the
decision-making process. How important were the various factors to your decision?

Chapter 4  Consumer behaviour 145

 Key terms and SUMMARY
concepts Learning objective 1  explain why marketers require a thorough understanding of
aspirational reference consumer behaviour and its major influences
groups  125
‘Consumer behaviour’ is the study of the behaviour of individuals and households
cognitive dissonance  144
who buy products for personal consumption. It forms the basis of an understanding
consumer behaviour  117
consumer decision-making of the reasons behind the decisions consumers make, which is central to creating an
process  140 effective marketing mix. Consumer behaviour is influenced by situational factors,
culture  121 group factors and individual factors.
demographic factors  131 Situational factors are simply the circumstances in which a person finds
dissociative reference ­themselves when making a consumption decision. They relate to the influence of
groups  125 physical, social, time, motivational and mood factors.
extended decision
making  141 Learning objective 2  understand the major group factors that influence
family life cycle  127
consumer behaviour
habitual decision
making  141 Group factors comprise cultural influences and social influences. Cultural influ-
individualism  121 ences affect behaviours that operate at the level of the whole society or of major
indulgence  122 groups within society, and include culture, subculture and social class. Culture is
involvement  141 the system of knowledge, beliefs, values, rituals and artefacts by which a society
limited decision making  141
or other large group defines itself. National cultures can be described according to
long-term orientation  122
Hofstede’s cultural dimensions: power distance, uncertainty avoidance, individu-
masculinity  121
Maslow’s hierarchy of alism, masculinity and long-term orientation. A subculture is a group of individuals
needs  134 who share common attitudes, values and behaviours that distinguish them from the
membership reference broader culture in which they are immersed. A social class is a grouping defined by
groups  124 similar social ranking within the social hierarchy.
motivation  134 Social influences are those that impinge on the individual to behave in a way that
multiculturalism  123 reflects group norms. A reference group is any group to which an individual looks
opinion leader  125 for guidance, including membership, aspirational and dissociative reference groups.
perception  135 Within a reference group, some individuals take on the role of opinion leader
pester power  128
on issues about which they are particularly knowledgeable. Opinion leaders are
power distance  121
­influential over the attitudes and behaviours of other group members. Family influ-
psychological
characteristics  134 ences are also important in consumer behaviour and many consumption decisions
reference group  124 are traditionally made by particular members or combinations of members of the
restraint  123 household.
situational influences  118
social class  123 Learning objective 3  analyse the major individual factors that influence
social risk  124 consumer behaviour
subculture  123
uncertainty avoidance  121 Personal and psychological factors influence consumer behaviour independently
of social circumstances. Personal characteristics include demographic, lifestyle and
personality factors. Marketers consider all of them to have a close link to consumer
behaviour, but it has proven notoriously difficult to demonstrate a reliable and pre-
dictable link between particular personal characteristics and consumer behaviour.
Psychological characteristics are internal factors that shape the thinking, aspir­
ations, expectations and behaviours of the individual. They include motivation,
which is the internal drive to satisfy unfulfilled needs. According to Maslow’s hier-
archy of needs, individuals, generally, try to satisfy lower order needs such as food
and sleep ahead of higher order needs such as learning. Another psychological char­
acteristic is perception, which describes how an individual filters, organises and attri­
butes meaning to external stimuli, including marketing communications. Beliefs and
attitudes are also an important personal influence on consumer behaviour, as they

146 Marketing
determine the context in which product evaluations are made. Effective marketing
needs to appeal to the cognitive, affective and behavioural components of consumer
attitudes. A final personal influence is the way in which an individual learns. Mar-
keters can ‘teach’ individuals to have particular awareness of and attitudes towards
their products using cognitive and behavioural learning approaches.

Learning objective 4  explain the general steps in the consumer decision-making

process
The consumer decision-making process typically comprises need/want recognition,
information search, evaluation of options, purchase and post-purchase evaluation.
These steps are common to most purchase decisions, but the extent to which each
is used depends on the level of involvement in the purchase. Habitual purchases are
made with little decision-making involvement; infrequent, but familiar, purchases
are made with limited involvement; and rare, large, important or risky purchases are
made with extensive involvement.
It is a common mistake for marketers to overlook the last stage of the decision-
making process: post-purchase evaluation. It is after the purchase that the consumer
can evaluate whether or not they made a wise choice. Effective marketers take steps
to ensure they continue to build their relationship with consumers after the pur-
chase to reduce cognitive dissonance (second thoughts about the purchase) and
increase the likelihood of repeat purchase and brand loyalty in the future.

Chapter 4  Consumer behaviour 147

 Case study Anyone for bubble tea?
Since the beginning of European settlement, Australian culture has been shaped by the successive
waves of immigration, and our culinary culture is much the richer for it. From the stodgy and
predictable Anglo cuisine that dominated our eating habits well into the 1960s, Australians now enjoy
some of the most diverse, exotic and interesting food and beverage choices available anywhere in the
world — and the options are continually expanding. One of the interesting beverage options available
are Asian ‘bubble’ teas (so-called because the fruit- and milk-based drinks are recognisable by the
chewy tapioca ‘pearls’ or ‘bubbles’). Originating in Taiwan, the bubble tea craze spread throughout
Asia before arriving in Australia. Among the fastest growing of the competing franchises is Chatime.
Founded in Taiwan in 2003, Chatime is an international franchise with over 800 stores worldwide.
From its launch in Australia in 2009, the chain has grown to over 45 stores across Australia, with
further ambitious growth planned. Chatime is not alone in this regard — the market leader in the
Asian tea market is EasyWay, but other brands such as GongCha have recently opened stores.
Chatime’s local master franchisor Charlley Zhao would be happy for the company to emulate the
Australian success of Boost Juice and the international success of Starbucks. Chatime’s business
model and its success have much in common with the Starbuck’s and Boost approaches:
Chatime tea is brewed fresh in store using the highest quality natural ingredients with no
added preservatives. It is against the company’s policy to use pre-made tea or tea p
­ owders
and we are proud to support Australian Farmers, with fresh milk delivered to Chatime
stores daily by Daily Farmers and Pura. Freshly brewed tea has more flavour and fragrance.
­Chatime draws from traditional Taiwanese tea concepts to create their delicious fusion of
flavours and continuously develop many new and innovative drinks, while keeping true to
the delicious Taiwanese tea flavour.24
To date, Chatime has concentrated its marketing on Asian–Australians and focused in geographic
locations with high concentrations of Asian residents. The first store opened in the Sydney suburb of
Hurstville, which has a population of 47.5 per cent Chinese according to the 2011 Census. Chatime’s
marketing has focused on Mandarin-language media and sponsoring concerts by Chinese pop stars.
Zhao has also targeted Asian franchisees. ‘Obviously if we were targeting mainstream in the beginning,
it would be a lot harder than targeting Asians. We used the strategy to go that way’, he says.25
For Chatime, however, there are currently limitations and challenges typical of any business that
has expanded to the practical limits of its ‘natural’ market niche. Now Zhao wants to open more
outlets — but he needs to expand beyond the traditionally Asian suburbs populated by first- and
second-generation immigrant families together with international (mostly Chinese) students. He is
confident that a ‘mainstream’ audience will embrace the tea brand, but the franchisees are not easily
convinced. Many of the 29 franchisees are keen to open additional outlets but are not convinced that
Anglo–European suburbs and towns are ready for the product. Zhao says:
We do all the research to tell them that the other
areas may be good but . . . they’re maybe not confi-
dent in thinking that local mainstream markets will
love this drink.26
For Chatime, the current limits to growth are the size
and geographic concentration of the Chinese–Australian
population and the issue is whether this niche will provide
sufficient revenue and growth to satisfy the aspirations of the
parent company, Zhao and franchisees. To expand beyond
the current customer base will inevitably require Chatime to
capture a viable share of the ‘mainstream’ (predominantly
Anglo–European) Australian market. The challenge is not
insurmountable, however. After all, no Australian suburb or
town would be complete without its local Chinese restaurant,
although this assimilation occurred over decades, which
wouldn’t suit Zhao’s ambitious plans. Australian appetites

148 Marketing
for introduced and exotic cuisines and beverages give encouragement that ‘pearl teas’ will eventually
become as much a part of the vernacular as ‘skim caramel mochacino latté’ (if such a drink exists!).
Zhao is confronting three common, and related, problems:
First, he needs to ensure Chatime’s product fits the local, mainstream market. Then he
needs to focus on an educative marketing campaign that changes consumers’ perceptions
about the brand. Finally, he needs to persuade franchisees to open outlets outside the
Asian-heavy suburbs.27
In relation to the first issue, the challenge is in recognising the distinctive characteristics of the
local market and in deciding how far the local product should be adapted to local tastes. Zhao says:
Just as McDonald’s introduced the Aloo Tikki burger when it expanded to India, catering
to locals’ taste for the spiced potato patty snack of the same name, franchises need to be
prepared to adjust their products to fit new markets. Chatime has introduced skim and soy
milk and also allows consumers to customise their sugar levels.28
Although premium pearl milk tea is Chatime’s bestseller globally, fruit-based teas and smoothies
perform more strongly in Australia than they do in Taiwan. This is because the Australian marketplace
likes ‘more fresh and more healthy’ products, Zhao says. Of course, modifying mass-market fast foods
and beverages to suit the tastes of local markets is both sensible and widely practiced. McDonald’s,
Hungry Jack’s (Burger King), KFC and Pizza Hut have all specially developed and marketed ‘Aussie’
versions of their staples, although typically only for brief promotional periods (such as leading up to
Australia Day).
In a move that is similar to Australian fresh juice providers and taps into a broad-base perception
of ‘freshness’, Zhao has overhauled the look of Chatime. A bright, cartoonish purple was the launch
colour, but now the store interiors are a pale green with bamboo details. ‘Purple doesn’t give people
any feeling of fresh’, he says. Tea leaves are on display to show the ‘natural’ side of the brand. Zhao
wants to court a mature customer and leave the teenagers to his competitors, so he avoids the
moniker of ‘bubble tea’. He also wants Chatime to be known as the ‘tea experts’. ‘We really want to
focus on people who are well educated, who know the benefits of drinking tea’, he says. ‘That’s why
our branding and wording is quite mature and serious. We’re trying to tell people, “Yes, we are the
experts, trust us, drink our tea, you’ll get healthy”.’
This repositioning should see Chatime better attuned to both its original Chinese and local non-
Chinese customers. At the same time, Chatime must be careful not to radically adapt its core ‘bubble
tea’ product offering and service experience so that it alienates its core customer groups. After all,
these customers have several alternative providers such as EasyWay and GongCha, who can still
provide the ‘authentic’ product. It’s a juggling act that often challenges companies seeking to capture
more of the mainstream market.
Expert marketing opinion, however, is not universally in favour of the logic of broadening and
adapting niche products to meet the needs of ever-wider markets. Rod Young, franchise guru and
managing director of DC Strategy, has sober advice for such plans. ‘I think that these niche markets
are creating terrific opportunities and I would encourage any organisations to not be all things
to all people’, he says. ‘There’s nothing invalid about focusing on a particular ethnic market and
maximising the market penetration in those markets.’29
Having resolved the issues of product adaptation, there is clearly also a need to create product
awareness, particularly among the new mainstream Australian target customers who may have
noticed the new stores at their local shopping malls but are unaware of the pleasures and health
benefits of ‘pearl teas’. This suggests the need for a product and brand awareness campaign, which
may demand an increased marketing communications budget to capture the attention of the targeted
new users. Of course, word of mouth, enhanced by social media, can also play a central role in this
campaign.
Expanding beyond major Australian cities and suburbs with large Chinese populations will be
central to the aspirations of Chatime, who wants to become the ‘Starbucks of tea’. However, the
Starbucks experience in Australia, and elsewhere, also demonstrates that such aspirations are
not always enough, and that competition and the diverse tastes of the local market can frustrate
ambitious and optimistic plans. The challenge for Chatime and its competitors is to move the product
from being a fad and a craze — albeit an exotic and pleasurable one — to being a product of

Chapter 4  Consumer behaviour 149

 universal appeal and a permanent fixture in the Australian beverage landscape. The keys to success
will be the attractive idea, a sufficient budget, excellent execution and patience.

Questions
1. What are the key elements that have contributed to Chatime’s success in Australia to date?
2. What issues might limit the appeal of ‘bubble tea’ to non-Chinese Australians. (You might like to
sample the product at your local shopping centre or mall.)
3. What product attributes should Chatime emphasise in its promotion to maximise its appeal?
4. Beyond their current penetration of Australian suburbs with a high proportion of Chinese residents,
where might you expect to find additional Chatime outlets?
5. Do you believe Chatime should target ‘non-Chinese’ locations in this stage of its development,
or should it stick to its existing location strategy? Why/why not?

Advanced activity
Having read this chapter, research and describe the likely group and individual
influences on the consumer behaviour of online shoppers. Then, choose a product
that is likely to be suited to online purchase and outline how each of these
influences could potentially impact on the consumer decision-making process.

Marketing plan activity

Based on this chapter and the information you have been compiling for your chosen
organisation’s marketing plan in chapters 1 to 3 (situation analysis, SWOT analysis
and any market research you have or will be conducting), outline the buying
behaviour of potential purchasers of your product that you will need to understand.
Be as specific as you can at this stage in relation to the following, bearing in
mind that you will be refining and revising this information as you gather market
research and your marketing knowledge increases in subsequent chapters:
• the major group/sociocultural factors that may influence the buying behaviour of
potential purchasers of your product
• the major individual — personal and psychological — factors that may influence
the buying behaviour of potential purchasers of your product
• the level of involvement a potential purchaser may have with your product
• the stages of the decision-making process a potential purchaser may go through
in relation to your product, including how much time and effort may be spent at
each stage.
As with the marketing plan activities in previous chapters, the above analysis
is likely to inform your overall and ongoing market research requirements. Such
detailed analysis and understanding of consumer behaviour in relation to your
chosen product will be crucial to the marketing strategies you will be developing in
later chapters for your marketing plan.
A sample marketing plan has been included at the back of this book to give you
an idea where this type of information fits in an overall marketing plan.

150 Marketing
 CHAPTER 5

Business buying
behaviour
Learning objectives
After studying this chapter, you should be able to:

explain the characteristics of different types of business markets

understand the major issues involved in marketing to business customers

discuss the characteristics of demand in business markets

analyse business buyer behaviour and decision making.

The pharmaceuticals goldmine
The global pharmaceutical industry is one of the biggest and most profitable sectors of
the world economy, with annual sales in excess of US$ 800 billion. The industry is
expected to experience continued solid growth in the next few years and to be worth
a staggering US$ 1.1 trillion by 2014. The industry is dominated by the developed
economies, led by the United States with approximately 38 per cent of industry sales;
followed by Europe with approximately 31 per cent; while Asia, Africa and Australia
combined account for only 12 per cent of the world market. In Australia, the industry
still contributes approximately $8 billion to the national economy, and is responsible
for keeping about 14  000 Australians employed. More than 260 million prescriptions
are dispensed annually. The medicinal and pharmaceuticals sector  recently became
Australia’s largest manufactured export sector, contributing over $4.1 billion in annual
export earnings.
Throughout its history and especially over recent dec­
ades, the industry has been a veritable goldmine in
terms of sales and profits and has supported a very
large number of companies. Companies such as Pfizer
and Novartis have secured almost ‘monopoly’ profits
based on worldwide patents on ‘blockbuster’ drugs —
especially those for chronic medical conditions and
those associated with heart and blood pressure con­
ditions. The biggest selling drug in the world is Lipitor
(or atorvastatin, used to lower cholesterol levels), which
is a Pfizer product. It alone accounts for more than
25 per cent of Pfizer’s sales in dollar terms and explains
Pfizer’s position as the world’s largest pharmaceutical
company. In a recent year, there were nearly ten million
prescriptions for Lipitor in the Australian pharma­
ceutical industry alone, and more than US$ 13 billion
worth of sales of Lipitor was recorded globally.
At the same time, however, there is evidence that, like all goldmines, the industry may
be entering a period of declining returns. Just as the patent for Lipitor expired in 2011,
so too have other formerly lucrative patents such as Plavix, Singulair and Lexapro. At
the same time, there are very few replacement ‘blockbusters’ in the patent pipeline,
leading to the recognition that the industry faces a ‘patent cliff’ that is expected to
cost the industry around US$ 148 billion in revenue over the next five years.
The Australian government is reviewing the pharmaceutical patent act to see whether
the current laws fairly balance competition with innovation. In submissions to the
review, ‘big pharma’ companies have lobbied for restraint on reducing patent lengths.
The government will also be acutely concerned about saving costs of the Pharma­
ceutical Benefits Scheme.
Finally, in addition to the ‘patent cliff’, the established multi-national ‘big pharma’
companies will be very aware of the threats posed by low-cost producer countries
(such as India), which are entering the market as suppliers of formerly patented, but
now ‘­generic’, drugs. Just as many countries and cities — such as Australia and San
­Francisco — owe their current prosperity, in part, to the original ‘gold rushes’, so
too does the pharmaceutical industry today enjoy such economic significance — and,
­ideally, a ­prosperous and sustainable future.1

Question
Do you think prescribing doctors can be better regarded as a business or a
consumer market? Why?

INTRODUCTION
The decision by a medical practitioner to prescribe either a patented or a generic
drug to a patient is, arguably, fundamentally different from the decision of a patient
to seek a general practitioner, and even further removed from the decision to pur-
chase ‘over the counter’ pharmaceuticals.
Business markets (also referred to as ‘business-to-business’ or ‘B2B’ markets) have
distinctive characteristics that make them different from consumer markets. In par-
ticular, business markets frequently have a small number of large competitors. Pur-
chases are often for large amounts. In such circumstances, it makes sense for sellers
to seek to build close relationships with their business customers, which may extend
to formal partnerships. Close relationships also help all parties to manage the inevit­
able fluctuations in demand that occur in business markets.
It is also worth noting that business markets are much larger in revenue terms
than the consumer markets they service. This is partly explained by the fact that all
business markets ultimately contribute to consumer markets. Consumer markets,
however, represent only the last step in the value chain. All the earlier steps in the
chain are, by definition, business-to-business transactions. It is also true, therefore,
that, excluding those in retailing and customer service, the majority of marketing
jobs are involved with business-to-business markets.
In this chapter we will examine business markets and business buying decision
processes. We will first examine different kinds of business markets and the sup-
pliers that make up these markets. Next we will explore defining characteristics
of business buying, such as the kinds of transactions, attributes and concerns of
buyers, different methods of buying and the distinctive demand characteristics for
products sold to business purchasers. Finally, we will examine models that can be
used to analyse and understand business buying decisions.

BUSINESS MARKETS
Business markets are made up of individuals or organisations that purchase products Learning objective 1
for one or more of the following three purposes: explain the characteristics
1. to resell the product of different types of
business markets
2. to use the product in the production of other products
3. to use the product in their daily business operations.
business markets Individuals
The overall business market comprises four major categories:
or organisations that purchase
1. reseller markets products for resale, use in the
2. producer markets production of other products,
3. government markets or for use in their daily business
4. institutional markets. operations.
The basic features of these markets are summarised in figure 5.1 (overleaf) and
each is discussed in more detail in the following sections.

Chapter 5  Business buying behaviour 153

 Business markets

Reseller markets Producer markets Government markets Institutional markets

Intermediaries that buy Business organisations and Governments that buy Not-for-profit
products in order to sell professionals who purchase and sell products to organisations
or lease them to another products for use in the provide services for
party for profit production of other products or their citizens
in their daily business operations

Primary
Secondary
Industrial industries Federal State Religious
Wholesalers industries Charities
distributors (agriculture (Commonwealth) (provincial) organisations
(manufacturing)
and mining)

Local
Retailers Retailers Clubs
(municipal)

FIGURE 5.1
Business markets
Reseller markets
Reseller markets comprise intermediaries, such as wholesalers and retailers, who
buy products in order to sell or lease them to other parties for profit. Generally, the
reseller markets The market of reseller does not make any substantial change to the products. For the most part
retailers, wholesalers and other they act, essentially, as a distribution mechanism. As we will see in the chapter
intermediaries that buy products
on distribution, the distribution of products usually involves various marketing
in order to sell or lease them to
another party for profit. intermediaries:
• Wholesalers purchase products from suppliers and producers for resale to other
intermediaries, including retailers (and sometimes directly to organisational
buyers and consumers).
• Industrial distributors purchase products from producers and sell them on to organ-
isational buyers (retailers, producers, governments and institutions).
• Retailers purchase products from suppliers, manufacturers or other intermediaries
(including wholesalers and distributors) for resale to consumers.
Of course, some producers sell directly to consumers as well. For example, Dell
computers sells its extensive range of computer hardware through mass merchan-
dise and discount retailers such as Harvey Norman and Bing Lee, but it also sells
directly to the public through its website and via mail order. Producers of fresh food
and wine also commonly sell directly to consumers at the ‘farm gate’ or ‘cellar door’.
Most producers, however, sell their products through intermediaries, largely because
they do not have the financial resources to maintain their own retail outlets.
Resellers and producers share a common interest in developing successful partner-
ship arrangements in which both parties’ sales and profit objectives can be met. At
the same time, the profit of both parties is ultimately derived from the price paid
by the consumer, so each member of the partnership is essentially competing to
maximise its share of the available profit margins. These circumstances can lead to
tough negotiations over price, volumes and other trading conditions. Both resellers

154 Marketing
and their suppliers seek to minimise ordering, transport and storage costs. Suppliers
look to resellers to provide wide distribution, customer service and after-sales sup-
port services.
Purchasing, or ‘procurement’, is a crucial role in resellers’ businesses. Larger
resellers (and large retailers in particular) often employ specialist buyers to
source  suppliers, often globally, and secure the best purchasing arrangements.
The  procurement role is becoming increasingly specialised as resellers source
more  and more supplies from offshore, leading to the establishment of so-called
e-procurement specialists, such as Ariba and (perhaps confusingly) Alibaba. These
have become large and successful businesses as they allow small companies to
access a wide range of global potential suppliers from countries such as China and
India. Another important trend in recent years has been the growth in volume
of products sold under retailers’ own brands, such as Woolworths’ ‘Select’ brand.
This has placed the retailers in direct competition with their suppliers, and has the
potential to fundamentally change the mix of manufacturers’ and retailers’ branded
products in retail stores.
In Australia, the reseller markets are dominated by familiar large retail chains,
such as Woolworths, Coles, Myer, David Jones, Target, KMart, Big W, Harvey
Norman, JB Hi-Fi and Bunnings. In New Zealand, the major retailers are The
Warehouse, Farmers, New World, PAK’nSAVE, Woolworths, Countdown, Fresh
Choice, Mitre 10, Placemakers, Harvey Norman, Noel Leemings, and Bond and
Bond. With the growth in size and market power of the major retail chains, the
importance of wholesalers has declined. Increasingly, large retailers buy directly
from producers and sell directly to consumers, bypassing the wholesaler and
other intermediaries.
On the demand side, resellers estimate the level of demand for a product in order
to determine whether to deal in it, the likely volume and the appropriate resale price.
The level of demand can vary significantly with the time of year (e.g.  few  bikinis
are sold in winter in the southern parts of the country). Retailers have limited floor
space to store and display products. To maximise the return on their investment in
floor space, they assess the amount of space a product will need relative to its sales
and profit potential — and relative to the sales and profit potential of other poss-
ible stock items. Retailers often charge suppliers for prized floor locations in super-
markets and department stores. At the same time, retailing and wholesaling profit
margins can be very low. Making an acceptable profit relies on carefully managing
costs and prices to achieve sufficient sales volumes and revenue.

Producer markets
Producer markets — sometimes known as ‘industrial markets’ — are those in producer markets The
which business organisations and professionals purchase products for use in the markets in which business
organisations and professionals
production of other products or for use in their daily business operations. They
purchase products for use in the
operate across all sectors of the economy — primary, secondary and tertiary (ser- production of other products or in
vices) industries. The following are all examples of transactions that take place in their daily business operations.
the producer markets:
• buying raw materials to make other products (e.g. farmers purchase herbicides,
pesticides and fertilisers to promote maximum production yields of their crops)
• buying component parts to include in other products (e.g. a high-end racing bike
manufacturer buys carbon fibre wheels from manufacturers such as 3 Sixty or
X-treme)
• buying finished and semi-finished items to produce other products (e.g. B&D pur-
chases Colorbond® steel from BlueScope Steel to make roller doors)

Chapter 5  Business buying behaviour 155

 • buying professional services to aid the production of other products (e.g. pro-
ject home builders such as Clarendon Homes engage engineers and architects to
design the houses they will build)
• buying office supplies to use in daily operations (e.g. a plumber buying a com-
puter, MYOB accounting software, an inkjet printer and paper for invoices and
other records).
The share of gross domestic product generated by manufacturing in Australia and
New Zealand has been steadily declining for years as manufacturing has moved to
lower-cost countries, especially in Asia. More recently, many service roles have
also been ‘offshored’. The highest profile example is call centre services for banks,
insurers and telecommunications businesses. Other producer markets depend
heavily on geographic proximity between producers and buyers, so in Australia
and New Zealand most of the producer markets are centred in the major cities of
Sydney, Melbourne, Brisbane and Auckland.

Government markets
The purpose of government is to serve the will of the people. A significant part
of this role is fulfilled through the provision of services, which can range from
national security (through the defence force) to social welfare (through Centrelink
in ­Australia or Work and Income in New Zealand) to the weekly rubbish collec-
tion. In order to provide these services, national (Commonwealth), state (provincial)
and local (municipal) governments purchase an enormous volume of products in
government markets The that part of the business markets known as the government markets. The govern-
market for selling products to ment sector therefore represents a substantial provider and purchaser of goods and
national (Commonwealth), state
services, and governments are a major target for business marketers. Government
(provincial) and local (municipal)
governments for use in providing spending accounts for hundreds of billions of dollars a year, funded by a complex
services for citizens. system of taxation. In response to the onset of the global economic crisis, many
governments increased their spending on major infrastructure projects in order
to stimulate their economies and maintain employment, running up large budget
deficits in the process. More recently, the challenge of lowering budget deficits has
become more urgent, leading to a significant contraction in government demand in
particular sectors. Government demand, therefore, can fluctuate widely as ‘fiscal’
policy is used to attempt to smooth macroeconomic fluctuations.
The large scale and ongoing nature of many government projects often leads to the
development of close and complex relationships between government agencies and
their chief suppliers. In extreme cases, these relationships take on the characteristics
of partnerships, where both parties are exposed to some financial uncertainties. For
example, when a state government chooses to develop new transport infrastructure,
the financial commitment may total billions of dollars, the planning period may
be longer than ten years, and a successful outcome is certainly not always guaran-
teed (as many developers of toll roads have discovered over the past decade). In
this sense, partnership relationships with government can take on the same risks
and ­difficulties as those involved in commercial business-to-business marketing. Of
course, some business with government is more conventional in nature; for example,
ITW Fastex New Zealand supplies plastic buckles to the ­Australian Defence Force for
use on military equipment.
Because governments have such an enormous responsibility for the wellbeing of
their citizens, government markets are subject to extensive rules and regulations
designed to ensure that government business is conducted ethically and legally. In par-
ticular, government purchases are closely monitored by government financial author­
ities, which are formally responsible for ensuring transparency and contestability so

156 Marketing
that the government achieves the best value for the taxpayer. These requirements
often impose additional compliance costs on businesses seeking to sell to government.
Aware of this, the government sector has been at the leading edge of the implemen­
tation of e-commerce and e-tendering, which have proved to be among the most
­efficient ways of guaranteeing that sellers have every opportunity of competing for
sales to government, and that the taxpayer receives the best value. Purchases by gov-
ernment agencies above a threshold value are typically required to be made by public
tender. Companies which aim to secure major contracts for the supply of capital goods,
supplies and services to government need to invest significant time in preparing com-
petitive tenders in which the successful bidder may not necessarily be the one with the
lowest price. For example, several companies and consortia spent millions of dollars
tendering to build and operate the Australian government’s proposed national broad-
band network. Telstra’s tender was ruled to be non-complying and therefore ineli­
gible, and the other tenders, from groups including Acacia, Optus and Axia NetMedia,
were all considered unsatisfactory. Instead, the Australian government established a
government business enterprise, NBN Co Limited (known as NBN Co), to design, build
and operate the network for a period of ten years, at an initial estimated cost of up to
$43 billion.2 The network will be built as a public–private partnership in which the
Australian government will hold a 51 per cent share (with the remaining 49 per cent
available to companies such as Telstra and Optus) and will operate the network for
ten years after completion, before selling down their stake. Most recently, Telstra has
agreed to participate in the National Broadband Network rollout.3
Because of the time, cost and uncertainty involved in government tenders, many
companies are reluctant to do business with government, regardless of the potential
sales revenues. While not all government supply contracts are worth billions of
dollars, the government represents a valuable commercial opportunity, both in
terms of sales revenue and the prospect of a relatively stable supplier–customer
relationship. Under these circumstances, it makes abundant business sense for
organisations to invest the time and resources required to understand government
purchasing procedures to develop close working relationships with government and
to invest in the capability to compete for government business.

Institutional markets
There are many organisations that are neither public nor for-profit. Such organ-
isations commonly have charitable or social objectives and include many schools,
religious organisations and hospitals, as well as charities. The markets in which
these organisations buy and sell products are known as institutional markets. institutional markets 
Non-public, not-for-profit organisations face many of the same marketing chal- Business markets in which non-
public, not-for-profit organisations
lenges confronting businesses, including recruiting members and contributors, and
buy and sell products.
publicising their activities and achievements. In essence, they compete with other
community service organisations for ‘share of market’ and ‘share of mind’. Not-for-
profit organisations also typically have different goals and fewer resources than com-
mercial organisations. They often rely on volunteer members, public donations and
bequests. Many such organisations are increasingly used by government to deliver
‘frontline’ welfare services, usually as a result of competitive tendering processes.
Marketing to such organisations will often be less financially profitable, but overall
the not-for-profit sector still comprises a very substantial market. In recent years,
many organisations have recognised the financial opportunities in co-branding
their organisations or their programs with commercial partners. For example,
Scouts A­ ustralia has participated in co-branding activities with organisations such as
Qantas, Woolworths and Dick Smith Foods. Under such circumstances, it is essential

Chapter 5  Business buying behaviour 157

 that both the non-profit and commercial organisations are seen to be combining for
the benefit of their members and the community. As another co-branding example,
Coles partners with the Cancer Council, donating the proceeds from the sales of a
range of Daffodil Day merchandise. Coles also accepts customer donations on behalf
of the Cancer Council. Since 1996 the Coles Group has raised in excess of $9 million
for the cancer cause.4

Spotlight WesTrac on track

For evidence of the benefits of the mining boom, people need look no further than the new WesTrac
facilities that have recently opened at Tomago in the Hunter Region of New South Wales. Designed
as a long-term investment of service and support to the booming coal industry of the Hunter Region
and the community of Newcastle, the 23-hectare site is comprised of 12 major purpose-built facilities,
interconnected with a circulation spine, security buildings and extensive hardstand areas and
landscaping. Key features of the facility include:
• WesTrac Institute, a comprehensive training centre for those looking to enter the heavy equipment
industry
• a 12  000 m2 parts distribution centre, including a 500 m automated conveyor system designed to
increase picking efficiency and warehouse management
• a sales and administration building, holding over 100 staff and boasting more than 15 meeting areas
and a 45-seat theatre, plus a large Cat merchandise store
• a highway truck centre, dedicated to servicing the Cat® Truck and featuring a state-of-the-art
driver’s lounge, dedicated sleeping quarters and first-class amenities
• a component rebuild centre, housing up to 150 people with the ability to
complete the entire overhaul process under the one roof
• an onsite cafeteria and first-class staff amenities, capable of servicing the more
than 400 staff expected to be employed at the site.
WesTrac is a supplier of Caterpillar equipment (in New South Wales, the
Australian Capital Territory, Western Australia and north-eastern China) with
extensive parts and service supporting over 14  500 customers in the mining,
transport and infrastructure sectors. The company employs around 5000 people
across Australia, including contractors and 624 apprentices. In 2012, strong
demand from the mining and resources sector resulted in WesTrac’s increasing
trading revenue by 42.8 per cent to $2.607 billion. WesTrac is a division of Kerry
Stokes’ Seven Group Holdings.
The size of the facility and the accompanying investment represent major
commitments to the Hunter Region and to coal mining at a time when Chinese
demand for coal is softening. This trend is expected to continue as China
expands its own coal production capacity and seeks to move towards less
dependence on coal for power generation. Certainly, the Hunter Region and all of
Australia hope that investments — such as WesTrac’s Newcastle headquarters —
represent a permanent, and sustainable, contribution to the local economy.
The optimism that surrounded the opening of the Tomago facility, however,
was perhaps exaggerated as, more recently, WesTrac announced job cuts of
350 around the country. Of these job cuts, 200 would come from Tomago —
highlighting the fickle and transitory nature of mining and its dependent capital
equipment market.5

Question
What do you believe will be the major challenges facing WesTrac in selling to the coal mining and
construction industries over the coming years?

158 Marketing
Concepts and applications check
Learning objective 1  explain the characteristics of different types of business markets
1.1 Explain what is meant by the broad term ‘business market’.
1.2 Using an example for each, explain the four categories of business markets.
1.3 Outline the similarities and differences of the marketing challenges faced by a not-for-profit
organisation (such as a charity) compared with a commercial organisation.
1.4 Research a recent decision that has been made in your city or state that provides an opportunity
for a commercial organisation to supply the government with goods or services. Outline some
organisations that could potentially capitalise on this marketing opportunity.

MARKETING TO BUSINESS CUSTOMERS

Marketing to business customers is distinctly different to marketing to consumers. Learning objective 2
Some of the key differences include the following. understand the major
issues involved in
• Many business market transactions are for very high-value purchases, particularly
marketing to business
in the producer, government and institutional markets. customers
• Many business-to-business purchases involve high volumes and regular repeat
purchases, particularly in the reseller markets.
• Price and other conditions of the sale are much more open to negotiation than is
typical in consumer markets.
• There are far fewer buyers and sellers in business markets.
• Alternative products being considered for purchase are often subject to extensive
formal evaluation, with decisions, particularly in the government and institutional
markets, typically made by committees or subject to multiple levels of approvals.
• The relationships between buyers and sellers tend to be very long term and
involve extensive after-sales support.
• Demand fluctuations have different drivers and consequences.

High-value/high-volume purchases
Business purchasing decisions frequently involve very large sums of money (poten-
tially billions of dollars) for high-value products or high-volume purchases. High-
value products are relatively common in the producer, government and institutional
business markets. For example, a regional area health service may purchase one
magnetic resonance imaging (MRI) scanner for each of its five largest hospitals.
An MRI scanner, depending on its specifications, costs between $1 million and
$3.5  million, with a further $1 million required to cover installation costs. The
expected life would be about seven to ten years, by which time the technology has
progressed far enough that it is clinically unsound not to upgrade to a new model.
High-volume purchases are common in the reseller market. For example, an
office stationery store would purchase dozens of reams of photocopier paper every
week; a university would purchase hundreds. Supermarkets such as Coles and Wool-
worths, through centralised buying arrangements, would purchase many thousands
of packets of toilet paper every week. Because of the total value of their purchases,
they can negotiate significant volume discounts on prices. Many producers and
warehouses, in fact, are not set up to handle small purchases.
High-volume purchases are also relatively common in the producer market. For
example, while a home handyman might need to purchase less than a hundred

Chapter 5  Business buying behaviour 159

 bricks to build a backyard barbecue, a project builder will typically expect to pur-
chase millions of bricks from a single supplier over a year.
Of course, not all business-to-business transactions are high volume or high value.
For example, a local doctor’s purchase of new waiting room furniture is more akin
to a consumer purchase than the high-value and high-volume purchases we have
discussed.

Price competition and negotiation

Prices directly affect business costs and, ultimately, profitability. As such, price is,
of course, a dominant consideration when making business purchase decisions. This
is especially the case when suppliers are selling comparable products. For example,
car fleet purchases will often be based on prices for similar alternative products,
such as the Holden Commodore and the Ford Falcon. In such circumstances, price
competition will be intense and sellers’ profit margins will be minimal (although
this will be offset by the very high purchase volumes, making such sales potentially
very profitable and strategically important to suppliers).
Price is often much more open to negotiation than in consumer markets, par-
ticularly based on purchase volumes. For example, a university that purchases 1000
computers every year can negotiate a much lower unit price than a small accounting
partnership that purchases a couple of computers every odd year.
Beyond the initial purchase price, business purchasers consider other factors
related to the lifetime cost of the purchase, including service costs, running costs,
‘consumables’ and depreciation. Business purchasers will often prefer to continue to
repurchase their current brands through existing suppliers rather than switch brands
and suppliers, especially when such products require ongoing service, maintenance
and supplies (such as for computers and photocopier/printers). Consideration of
price also takes place in the context of other matters related to the purchase. For
example, a purchase might take into account business image. This has been evident
in the decision by a number of major companies and local councils to switch their
car fleets from the traditional Holden Commodore and Ford Falcon to more environ-
mentally friendly and economical cars, such as Toyota’s bestselling Corolla, Camry,
and ‘hybrids’ (Prius and Camry); Honda’s Civic Hybrid; and European-made diesels
as part of improving the public perception of their green credentials. Of course, there
is also a price factor involved in this decision, with increasing petrol prices and the
overall lower purchase prices, depreciation and maintenance costs of smaller cars
contributing to the decision, particularly in the context of organisational cost-cutting
brought on by the global economic crisis.

Number of buyers and sellers

There are far fewer buyers and sellers in business markets than in consumer
markets. For example, the market for MRI scanners in Australia comprises the state
departments of health and a handful of large private hospitals and medical prac-
tices. The machines are sold by only a few large multinational companies: Siemens,
Toshiba, Phillips Medical Systems and GE Medical.
The smaller number of buyers and sellers makes long-term and stable relation-
ships crucial. The nature of these relationships is discussed shortly. The smaller
number of players can also give some organisations enormous market power. For
example, there are only a handful of large dairy product companies in Australia,
which means dairy farmers have little negotiating power over the price they are
paid for milk. Conversely, BlueScope and Arrium (formerly OneSteel) are the only
real options for businesses seeking steel for use in producing their own products.

160 Marketing
 Another consequence of the small number of buyers and sellers is that business
markets tend to be concentrated in major centres such as Sydney, Melbourne and
Auckland. This provides advantages and disadvantages to the buyers and sellers
located in those markets and those located far from them. For example, a buyer
located in a business market hub in Sydney may be able to access and deal with
numerous suppliers, all competing for the buyer’s custom. A buyer located in a
regional area may have to actively seek suppliers and then is likely to face higher
transport costs. This can affect their ability to compete against businesses located
closer to their suppliers.

Formal assessment of purchase alternatives

Business customers often demand extensive and detailed information about product
features and specifications to ensure that the products fully meet the o­ rganisation’s
needs. Businesses use this information, along with price, distribution and pro­
motional factors to more thoroughly and formally compare the relative strengths
and weaknesses of alternatives. For example, the purchase of an MRI scanner would
involve the comparison of hundreds of pages of technical data and a visit to an
existing facility (possibly overseas).
The exhaustive evaluation that accompanies many business purchases has led
to the assumption that business purchasing is more rational than consumer pur-
chasing. However, the personal goals and opinions of procurement personnel may
still tend to intrude on their decision making. While the image and reputation of
business brands such as General Electric, IBM, Siemens and Boeing give them a
strong advantage in the minds of business buyers, many purchasing agents make
decisions based on how their choices will be perceived within their organisations.
This has significant consequences for brand loyalty in business markets. Selling
organisations therefore need to consider the professional roles and the personal
motivations of the purchasing agents within customer organisations.
It is common in business markets for discussions and negotiations between buyers
and sellers to take place over an extended period of time and to involve considerable
marketing effort. For example, when a bank contemplates installing new computer
equipment across its branch network, it will spend considerable time in researching
its future needs, and the available and emerging technology, before clarifying its
technical expectations and available investment. The final purchase decision is
likely to be arrived at by a group of senior managers or, quite commonly, by a com-
mittee, usually involving several departments.

Ongoing relationships
Organisational buyers and their suppliers often seek to develop very close and
ongoing relationships. In some cases, this develops into a formal partnership or joint
venture. For example, Sony and Ericsson have combined to develop and market
new-generation mobile phone and communications technologies. To continue our
MRI example, the buyer of an MRI scanner would typically enter a contract for
maintenance and service worth about $200  000 a year and for consumables worth
about $150  000 a year.
To ensure ongoing quality of products in long-standing purchasing arrangements,
buyers and sellers often establish statements of minimum levels of performance,
particularly in relation to high-volume and high-value purchases. These standards
relate to both the products and the customer service provided. Failure to deliver to
those standards can lead to penalties or termination of the supply arrangements.

Chapter 5  Business buying behaviour 161

 Long-term supply agreements are often best incorporated into ‘preferred supplier’
and ‘preferred customer’ arrangements that offer a degree of certainty to both parties.
The cost, volume, complexity and core importance of business purchases make
business buyers place especially high importance on the ongoing service they receive
from suppliers. As in consumer markets, service often involves a warranty. There
are often numerous additional aspects of ‘after sales’ service in business markets,
including:
• transport
• just-in-time delivery
• returns
• repairs
• technical help desk support
• dedicated account and relationship managers.
Businesses often cannot carry out their operations if their suppliers fail to meet
expectations. For example, a public swimming pool operator cannot open for busi-
ness if it does not receive its order of chlorine and other water treatment chemicals.
On a bigger scale, Rolls-Royce needs to ensure it can quickly supply airlines with
spare jet engine parts and technical advice at every aircraft maintenance location
around the world. As explained in the chapter on the marketing environment and
market analysis, businesses need to manage the risks associated with their suppliers
and other partners. Stable, cooperative relationships are a key to managing these
risks and, indeed, to containing the repercussions of any supply problems. Open
communication, both interpersonally and using information and communication
technologies, is a crucial concern of business. Today, real-time communication
between suppliers and buyers via the internet is helping to lower costs to customers
and to build closer relationships with suppliers. For example, Philips Australia and
Philips New Zealand adopted a communication system that replaced paper-based
procedures with an online claim validation, invoice and payment process.6 These
issues are discussed in more detail in the chapter on distribution.
There are some limitations on the relationships that can be built. If an arrange-
ment becomes so extensive as to be anti-competitive (i.e. it makes it unreasonably
difficult for other competitors to operate), it could be deemed illegal. Competition
is monitored in Australia and New Zealand by the Australian Competition and Con-
sumer Commission, and the Commerce Commission,7 respectively. For example,
the Commerce Commission forced Real Estate Network to abandon an agreement
that set minimum commissions payable between its members (comprising almost
all real estate agents in Christchurch).8 A particular problem occurs when businesses
begin to exchange products and services, rather than conduct financial transactions.

Demand characteristics
The demand characteristics in business markets are quite different to those in con-
sumer markets. Because any particular product a business purchases is usually just
one of many, businesses tend not to adjust their consumption of it in relation to price
changes. Rather they pass the cost on to their customers or, over time, seek to identify
substitute products. In business markets, demand is much more likely to be affected
as a consequence of some change in demand of the buyer’s products. For example,
over the past several years, the consumer market has become much more sensitive to
the use of battery cage hens to produce eggs. This has resulted in increasing demand
for free range eggs. This change in the consumer market has a significant effect on
demand in the business market for battery and free range eggs. Generally, changes
in demand tend to be much more volatile in business markets than in consumer

162 Marketing
markets. A small change in the consumer demand for a business’s product can lead
to much greater changes in demand for the business’s inputs. The demand charac-
teristics found in business markets are discussed in more depth in the next section.

B2B ‘mega’ brands Spotlight

What do the names IBM, GE, Intel, Cisco and Oracle have in common? Fairly obviously, apart from GE,
they are all players in (and derive most of their revenues from) the information technology industry. GE
is perhaps alone in being more highly diversified. In addition, they are all US-owned global companies.
Furthermore they are all in the top 20 of Interbrand’s ‘best global brands’. Their 2012 rankings and
values, according to Interbrand, are as follows:
• IBM, 3rd — US$ 75.5 billion
• GE, 6th — US$ 43.7 billion
• Intel, 8th — US$ 39.4 billion
• Cisco, 14th — US$ 27.2 billion
• Oracle, 18th — US$ 22.1 billion.
However, a further common characteristic of these brands is that they compete (very successfully)
predominantly in business-to-business (B2B) markets. While they may not be as valuable as Coca-Cola
(US$ 77.8 billion) and Apple (US$ 76.6 billion), they are nevertheless among the most valuable brands
and, by extension, corporations in the world. These valuations primarily reflect the long-term sales
revenues associated with the brands, but there is more to it than simple sales revenues.
Interbrand’s methodology looks at the ongoing investment and management of the
brand as a business asset. This means that (their) methodology takes into account
all the many ways in which a brand touches and benefits its organization — from
attracting and retaining talent to delivering on customer expectations. The final
value can then be used to guide brand management, so businesses can make
better, more informed decisions. There are three key aspects that contribute to the
assessment: the financial performance of the branded products or services; the
role of brand in the purchase decision process (and) the strength of the brand.

These estimates and the underlying calculations reflect Interbrand’s unique

methodology, but their estimates have widespread industry recognition (although
the methodology might not be universally accepted by the international
accounting bodies). Equally, the Interbrand valuations might not always closely
correspond to more volatile, traditional financial share market valuations of the
parent companies. One challenging question can be asked: do the brand values
drive the sales revenues or is it vice versa? (Certainly they are highly correlated.)
A similar question might be: are they a cause or are they an effect of successful
marketing? Regardless of the true answer, they do seem to demonstrate that
brands are very important in B2B markets and that business buyers place just as
much reliance on well-known and well-regarded brands as consumers in mass
markets.
Similarly, it’s also clear that B2B companies need to be aware of, and consciously manage the value
of, their brands, as it is widely recognised that such successful and well-managed brands may be more
valuable than the more easily calculated value of assets such as office buildings, manufacturing plants
and patents. Furthermore, it could be argued that brand values are really only another expression, and
proxy value, of reputation. In any case, in B2B markets such reputations are critically important, if not
invaluable.9

Question
What do you think are the common characteristics of leading B2B brands, and how were these achieved
or acquired?

Chapter 5  Business buying behaviour 163

 Concepts and applications check
Learning objective 2  understand the major issues involved in marketing to business customers
2.1 Describe the key differences between business customers and households who purchase goods
and services for personal consumption.
2.2 Imagine you are the marketing manager for a company that markets PABX network telephone
systems for large and medium-sized businesses. The company targets larger organisations
(those it defines as having 50 office-based staff or more in one geographic location) as its most
lucrative potential market. Outline some of the needs or concerns you think you may encounter
from business buyers in such organisations, and how you would attempt to meet these from a
business-to-business marketing perspective.
2.3 Outline how the marketing mix may differ for a company that offers building supplies to each of
the following markets:
(i) home handymen for ‘do-it-yourself’ backyard projects
(ii) professional building companies.

CHARACTERISTICS OF BUSINESS DEMAND

Learning objective 3 As mentioned in the previous section, demand operates differently in business
discuss the c­ haracteristics markets compared to consumer markets. Unlike typical demand for consumer prod-
of demand in business
ucts, demand for business products can display a range of distinctive characteristics
markets
that are now discussed.

Derived demand
Consumers typically buy products for their own (or their family’s) personal con-
sumption. The demand for domestic refrigerators is determined purely by how
many refrigerators consumers or households want to buy. The demand for thermal
insulation in the business market depends on the demand for refrigerators and on
the construction of new and renovated homes in the consumer market. In turn, the
demand for polyurethane foam in the business market depends on the demand for
thermal insulation that will ultimately end up inside the door and walls of refriger-
ators and new and renovated homes. It is clear then that demand in business markets
derived demand Demand in is derived demand. Derived demand has a ‘knock on’ (or even ‘snowball’) effect at
business markets that is due to all levels of the value chain. For example, if consumers change their purchasing
demand in consumer markets.
habits in favour of Fairtrade coffee (i.e. coffee that is grown, harvested and traded
under terms and conditions that are not exploitative of workers or developing econ-
omies), that change in demand will have immediate effects in supermarkets and
coffee shops. Shortly thereafter, these effects will be felt by coffee wholesalers, and
ultimately — hopefully — in sales of coffee by small farmers in countries such as
Kenya, Papua New Guinea, Colombia and Brazil. Business buyers of coffee, such as
Gloria Jean’s and Dôme, therefore need to understand and respond to changing con-
sumer tastes and preferences. Any number of similar examples of derived demand
can be found. Micro-processor manufacturers Intel and AMD, for example, are
dependent on demand in the consumer market for computers and games consoles.
Demand fluctuations
Business products are prone to fluctuating demand much more so than products in
consumer markets. Consider the airline industry. While airlines may renew their
fleets on average every 20 years, shorter-term demand for aircraft depends on the

164 Marketing
growth of airlines, which can be acutely affected by fluctuations in the economy that
cause changes in consumer air travel intentions. Airlines will usually place orders
for aircraft for delivery up to ten years in the future, but they are prone to cancelling
these orders when they sense a downturn in travel intentions, such as the down-
turn that occurred as the global financial crisis unfolded. In this way, even a small
decline in consumer demand for air travel can lead to a massive fall in demand for
new aircraft. Conversely, when demand for air travel subsequently recovers after an
economic downturn, airlines seek new aircraft to ensure they can service increasing
customer numbers.
A similar argument applies to most capital equipment, such as heavy transport
machinery, mainframe computers, manufacturing facilities and medical equipment.
Manufacturers of earthmoving equipment, such as Caterpillar and Komatsu, are sub-
ject to extreme fluctuations in demand in industries such as mining and construc-
tion. Business customers usually make purchase decisions based on expectations of
long-run demand. When combined with the long economic life of such products and
the volatility of demand, this results in purchase decisions occurring infrequently,
and also being subject to reversal or deferment.

Joint demand
Many business products, particularly in the producer market, use numerous com-
ponents — and sometimes even thousands. This results in interdependent demand
for multiple products. This situation is known as joint demand. In manufacturing joint demand Interdependent
operations, such as those that might be found in the computer or car manufacturing demand for products that are
used together in the production
industries, the dozens of components that are necessary to make the product are
of another product.
jointly demanded and all suppliers to the manufacturer need to be able to meet rigid
production schedules. They are commonly also required to provide ‘just in time’
supply so that the manufacturer does not have to hold a large inventory of parts.
Under these conditions, failure by one supplier, due to, say, a shortage of vital com-
ponents or industrial action, can lead to the shutdown of a whole production process.
For marketers, joint demand provides an opportunity to generate sales. For example,
when Siemens installs an MRI machine in a hospital, it will also try to secure the
maintenance and supplies contracts that are essential to keep the machine in ser-
vice. In such circumstances, business buyers usually make purchasing decisions
based on the total purchasing and running costs and benefits, rather than evaluating
the individual items.

Pricing and demand

In many parts of the business market, demand is inelastic. Inelastic demand is an inelastic demand Demand
economic concept that describes demand that is relatively insensitive to changes in that is relatively independent of
price, a common characteristic
price. In other words, a large change in price will result in only a small change in
of demand within industries in
demand. Consider the computer industry. If the microprocessor in a laptop com- business markets.
puter represents 10 per cent of the total production cost of the laptop, then even
a 20 per cent rise in the cost of the microprocessor will result in only a 2 per cent
rise in the cost of the finished manufactured product. Assuming this is passed on
to the consumer, a $1500 laptop will rise in price to about $1530 and consumer
demand for the laptop is unlikely to significantly change. Under these circum-
stances, it is unlikely that a computer manufacturer would immediately terminate
a long-term relationship with its current supplier. It is, however, likely that such a
price rise would have implications in the longer term, particularly if it is out of step
with alternative suppliers. Similarly, a 10 per cent increase in the price of concrete

Chapter 5  Business buying behaviour 165

 will only have a minimal, if any, effect on the price of and demand for a finished
home. At the same time, a 10 per cent increase in the price of concrete from the
usual supplier is likely to lead a builder to obtain prices from competitive suppliers.
Under these circumstances, the demand facing individual concrete suppliers will be
highly elastic, especially since concrete is an undifferentiated commodity product.
Generally speaking, industry demand tends to be price inelastic in business markets,
while company demand can be highly elastic. Elasticity of demand is discussed in
detail in the chapter on price.

Spotlight AMD’s perfect storm

Organisations who supply microprocessors for use in the manufacture of computers provide
‘textbook’ examples of the (sometimes fierce) challenges of operating in B2B markets. Because the
microprocessor is inextricably linked to its parent computer (and further to its operating software), it
was natural for software company Microsoft and computer and microprocessor manufacturer Intel to
enter into very close long-term strategic relationships which were, in effect, formal partnerships. In
particular, the Intel–Microsoft axis dominates the computer market, and Intel enjoys 80 per cent of
the worldwide market for PC chips and 90 per cent of revenue. This dominance of Intel has led to the
common practice of ‘sole sourcing’ by PC manufacturers, the majority of whom will purchase only Intel
chips. This is common practice business-to-business marketing, but underneath the polite, value-
neutral, ‘textbook’ discussion, there can exist ferocious competition and battles for survival in which the
rules for fair and free competition are constantly tested.
This situation is certainly true for Advanced Micro Devices Inc. (AMD),
who has attempted to survive in the PC market as a viable competitive
alternative to Intel. One plank of AMD’s competitive strategy is to seek
to ‘leapfrog’ each successive generation of Intel chips with their own
chips which promise better performance at each of the comparable
Intel performance/price points. (AMD also holds a strong position in the
graphics chip market.) The second plank in the strategy is to seek to build
brand recognition for the AMD family of microprocessor chips through
an advertising and promotion program, which seeks to raise the visibility
of the brand against the dominance of Intel. The third plank in the AMS
survival strategy is to adopt an aggressive litigation program against what
AMD perceives to be Intel’s anti-competitive behaviour. In 2005, AMD won
an antitrust suit against Intel in Japan, and in June 2005 sued Intel in the
United States for monopolisation and antitrust (anticompetitive) behaviour.
In November 2009, Intel agreed to pay AMD US$1.25 billion and renew
a five-year patent cross-licensing agreement as part of a deal to settle all
outstanding legal disputes between them.10
Most recently, AMD’s revenues have fallen as a result of the weak global
economy and as the growing preference for tablets threatens the PC
industry. The AMD workforce has also shrunk by around 25 per cent over
the last two years as a consequence. AMD’s misfortunes are reflected at
Intel. Tablets (such as Apple’s iPad) and smartphones — with their greatly
enhanced functionality — have fast gained consumer acceptance and
eaten into the sales of laptops and desktop computers, while a slowing
global economy is dampening spending in general. For AMD, the ‘perfect
storm’ shows no sign of abating.11

Question
Discuss why ‘derived demand’ is adversely affecting AMD. How can AMD fight back?

166 Marketing
Concepts and applications check
Learning objective 3  discuss the characteristics of demand in business markets
3.1 Explain the following aspects of business demand, using your own examples:
(a) derived demand
(b) joint demand
(c) inelastic demand.
3.2 Choose a product (a good or service) for which consumer demand tends to rise (or fall) depending
on prevailing economic conditions. Trace the product back through the business market, using
the concept of derived demand to explain how demand is affected at each stage of production.
3.3 Find an example of a product for which a small increase in consumer demand could generate a
large increase in business demand.

BUSINESS BUYING BEHAVIOUR

Business buying behaviour shares some characteristics with consumer buying Learning objective 4
­behaviour (discussed in the chapter on consumer behaviour). Business buying behav- analyse business buyer
iour, however, also has some unique characteristics that affect the buying decision behaviour and decision
making
process.
Business purchases usually take the form of a straight rebuy, a modified rebuy or
a new task purchase. The form depends on the business’s purpose for the purchase
and reflects the level of involvement the business has with the purchase decision.
The level of involvement is also reflected in the buying approach the business takes,
which may involve some or all of negotiation, description, inspection or sampling.
A straight rebuy is typical of the majority of business purchases and occurs straight rebuy The low-
when buyers purchase the same products routinely from established vendors under engagement purchase of the
same products as previously
already-established terms of sale, often through an automated or semi-automated
purchased from established
ordering system. Businesses generally want straight rebuys to be efficient and con- vendors under established terms.
venient. For suppliers, straight rebuys can offer a relatively reliable source of income,
provided they offer that convenience and efficiency. For example, Yellow Cabs and
Black and White Cabs both try to become the preferred suppliers of taxi services
to businesses. When this happens, the business adopts one service and, in return,
the person booking the fare does not have to provide any details about the pick-up
location. For many routine business purchases, the internet is proving to be a cost-
effective medium. For example, a components supplier can go to TNT’s or Australia
Post’s website and book a courier to pick up products from their dispatch centre
to freight them to business customers. Similar specialist e-business portals exist
for many products. In Australia, the most recent data from ABS shows that almost
50 per cent of businesses place orders over the internet, while about 27 per cent or
193 000 businesses receive orders over the internet. These order placement numbers
are growing at an annual rate of 15 per cent, while the revenue accompanying them
is growing annually by more than 50 per cent. In New Zealand, 60 per cent of busi-
nesses place orders online, and 37 per cent of businesses receive orders online.12
Straight rebuys occur when a business has found a satisfactory product and its modified rebuy The purchase
needs are stable. A change can be triggered by the development of new product of a product that is similar, but
features or the need for different performance characteristics from the product. In not identical, to one a business
such an instance, the business chooses a similar, but not identical, product to one it has previously purchased, after
evaluating a small range of
has previously purchased. This is known as a modified rebuy and usually involves
alternatives.
some degree of evaluation of alternative product options. For example, when it

Chapter 5  Business buying behaviour 167

 comes time for a chartered accountant’s office to replace its photocopier, the prac-
tice manager will usually evaluate a small range of alternative products from the
current and other suppliers. The latest models are likely to have some additional
features, such as networked and online printing, faster copying speed and lower
toner usage. Companies hoping to supply such equipment need to ensure that their
brand is well known and that their sales representatives make regular contact with
existing and potential customers.
When a business identifies a new problem or introduces a new process or product,
it will often need to make a purchase in a product category for the first time. This is
new task purchase A first known as a new task purchase. For example, when a newsagency makes the decision
purchase in a product category to offer a digital photo printing service, it is aiming to offer a completely new service
in response to a new problem,
in a new product category, with which it has no previous experience and no knowl-
process or product.
edge of the alternative products or suppliers. In installing a digital photo printing
kiosk, the business will need to engage in an extended information search to develop
an understanding of technical alternatives, product specifications, possible vendors
and likely price, including consumables and servicing arrangements.
Each form of business purchase we have just described — straight rebuy, modified
rebuy and new task purchase — involves a progressively increased level of involve-
ment, which, along with the complexity of the purchase, nature of the product and
how crucial the product is to the purchasing business, affects how the business
goes about making its purchasing decision. Typically, business purchasing decisions
involve one or more of the following.
1. Negotiation. Business purchases that involve large volumes of products, high-value
products, infrequently purchased products or custom-built products are often
subject to extensive negotiation between the buyer and the seller. For example,
a business seeking to have a new warehouse built and fitted out would usually
invite potential suppliers to submit bids on the tender for the warehouse. Based
on the tender responses, the buyer may shortlist certain builders and sup-
pliers and then negotiate specific aspects of the deal with them, before making
a decision on the successful tenderer and the exact design and specifications of
the final purchase. In other cases, it may not be appropriate or possible for the
buyer to specify their requirements in detail. This situation is common in the
purchase of professional services such as legal counselling, architecture, market
research or management consulting. For these purchases, the buyer may prefer
to evaluate the best proposal from potential suppliers and then negotiate further
details, including price.
2. Description. Some products can be described by a set of technical specifi-
cations and, given a level of trust between the buyer and seller, this may be
­sufficient to form the basis of a business purchase. For example, concrete can
be ordered simply by specifying volume, strength and water content. Structural
and reinforcing steel, used in construction, can be ordered by dimension and
strength.  Construction timber is ordered by botanical variety, dimensions and
quality grade.
3. Inspection. Some products do not lend themselves to description or specification.
For example, a business looking to lease new office premises would always need
to inspect the site, the facilities and the surrounds in order to properly evaluate
what is on offer. As technology continues to advance, it is becoming increasingly
possible to conduct a virtual inspection of products through complex multimedia
presentations, often via the internet.
4. Sampling. For high-volume, standardised purchases a sample of the product may
be inspected or analysed. The sample is taken to be representative of the quality

168 Marketing
 of the product. This method is appropriate for bulk purchases of commodities,
such as sugar, or mass manufactured items, such as garments, shoes, office paper
and lightbulbs.
The organisational buyer
In most organisations, important business purchasing decisions are made by groups
or must be approved by a number of levels in the organisational hierarchy. It is
therefore appropriate to view most business buying as a group decision-making pro-
cess. The groups and structures within an organisation that make business buying
decisions are collectively known as the buying centre. Of course, in some organ- buying centre The groups and
isations, particularly small businesses, purchasing decisions may be made solely structures within an organisation
that make business buying
by an individual — usually a manager or the proprietor. By contrast, in large
decisions.
­organisations — and especially government organisations — large purchases may
involve buying centres with dozens of people working on the purchase decision for
months, or even years. For example, the purchase of defence equipment involves
billions of dollars, years of development and extraordinary consequences. Suppliers
of such products need to invest considerable time, people and financial resources to
maximise their chances of success in a competitive purchasing process.
Marketers that wish to sell to organisations need to identify the members of the
buying centre and its structure. The various roles undertaken by members of the
buying centre are as follows.
• Initiators. Initiators are those who recognise the need for the purchase. For
example, a sales manager may decide that field sales representatives will be able
to better serve their customers if they can access information and specifications
from the company’s website and intranet during sales visits. The manager may
decide there is a need for each sales representative to have a wireless internet
access service provided for their laptop.
• Users. Users are those for whom the product is being purchased. To continue the
example, if the business proceeds with the purchase of wireless internet access,
then the field sales representatives will be the users. After a purchase has been
made, users will be the ones who evaluate the product performance relative to
expectations.
• Influencers. Those who develop the product specification and who are respon-
sible for formally evaluating alternatives. They are often technical experts. For
example, information technology personnel will be involved in developing the
specifications for the wireless internet access and evaluating the offerings by pro-
viders such as Telstra, Vodafone, Optus and Virgin.
• Deciders. Deciders are those with the authority to make the final decision to
­purchase. For the wireless internet access, this could, for example, be the sales
manager, their manager or the information technology manager, depending on
how responsibilities and authorities are arranged within the organisation.
• Buyers. Buyers are those in the organisation that ultimately make the purchase.
They — in collaboration with the other members of the buying centre — choose
between suppliers, deal with the seller, and negotiate purchase terms and con-
ditions. For example, the buyer of the wireless internet access could be the sales
manager, or a member of the information technology, administration, finance or
office services teams. Buyers are often referred to as purchasing managers and,
in some larger organisations, buyers are members of purchasing departments. In
reseller markets, particularly among larger retailers, buyers perform an important
marketing function and the buying role is highly specialised. In large department
stores and supermarket chains, buyers will be responsible for product categories
and will develop close relationships with a wide range of potential suppliers.

Chapter 5  Business buying behaviour 169

 • Gatekeepers. Gatekeepers are those who control information relevant to a pur-
chasing decision. Gatekeepers can be very powerful in purchasing decisions and
in organisations generally. For example, for complex purchases, businesses often
have to rely on the advice of information technology specialists and engineers.
The inability of people without specialist knowledge to interpret technical docu-
mentation makes gatekeepers important and influential. This role often overlaps
with the buyer and influencer roles. Similarly the finance manager or director is
often crucial in any major purchase decision.
Each role may be undertaken by one person or several people, and some people may
fulfil multiple roles. For example, it is relatively common for the buyer and decider
to be the same person. The size, composition, degree of formality and structure of
the buying centre will vary according to its size, market position, business activity,
the volume and kinds of products being purchased and the company’s structure and
operational practices. In the cases of new task purchases, the buying centre is likely
to be large, while routine repurchases are more likely to be made by an individual.
The crucial tasks for the potential supplying organisation are to identify:
• those individuals who play the key roles, such as the decider and gatekeeper
• the stages in the decision process
• the criteria upon which the decision is likely to be made.
For supplier organisations, it is crucial to establish personal relationships with key
members of the buying centre. Not all members will be accessible, but some typi-
cally are. In our example, at least some of the gatekeepers, buyers and influencers
would likely be identifiable and accessible to a telecommunications services mar-
keter. The marketer, of course, must determine the criteria upon which the ultimate
purchase decision is likely to be based (how to go about this is discussed in detail in
the chapter on promotion).

The business decision-making process

Broadly speaking, the business decision-making process involves the same basic
stages as the consumer decision-making process, but for business purchases most
stages are more protracted and formalised. (While impulse purchases are common
in consumers’ decision making, they are, and should be, quite rare in business mar-
kets.) The process is illustrated in figure 5.2.
Just as the consumer decision-making process varies depending on the nature
of the purchase (e.g. habitual purchases versus extended decision purchases), the
business decision process, and the extent to which it follows this model, will vary
between straight rebuys, modified rebuys and new task purchases. (In this sense,
straight rebuys can be seen as ‘habitual’ purchases for businesses, and new task pur-
chases arguably resemble consumers’ extended decision purchases.)
Problem/need recognition
Business purchase decisions begin when a problem or unfulfilled need is recog-
nised. In the business buying centre model, the person who recognises the problem
is known as the initiator. A problem or need may arise for any number of reasons.
For example, a small manufacturer wishing to move into exporting may encounter a
need for specialist consulting services or for an export agent. On a smaller scale, if
an office photocopier runs out of toner, it triggers the need to purchase more toner.
It is also common for problem/need recognition to be stimulated by changes in
the company’s external relationships with customers, distributors or suppliers. For
example, if an accounting firm decides to close a regional office, then the business
might find itself needing a new accountant.

170 Marketing
 • Initiator becomes aware of a problem or
Problem/need
unsatisfied need
recognition
• External party creates a new problem or need

• Seek information about the problem and

Information search possible solutions
and specification • Develop a product specification to describe the
development features required of the solution

• Identify potential vendors and invite proposals

Evaluation of • Analyse and evaluate each characteristic of the
options proposed solution
• Analyse and evaluate each potential vendor

• Choose one or more suppliers based on the

evaluation of the solutions and the vendors
Purchase • Decide to purchase (or not purchase)
• Purchase

• Evaluate product FIGURE 5.2

Post-purchase • Evaluate supplier
evaluation • Assess attitude towards product, brand and The business decision-
seller in relation to future purchases making process

Information search and specification development

The second stage of the business decision-making process involves seeking infor-
mation on the problem/need and possible solutions, and formalising the product
requirements. The product requirements are usually detailed in a written product
specification. This is a distinguishing feature from the consumer information search
process, in which consumers usually use less formal processes and are limited in
their ability to demand customised solutions from potential suppliers.
This stage of the decision-making process requires extensive input from the
members of the buying centre, especially the users and influencers, who are often
best placed to describe how the product can meet their needs.
Evaluation of options
Once the product specification has been developed, the buying centre searches
for potential suppliers and specific product solutions. The buying centre may be
aware of some possible suppliers through existing relationships or the promotional
efforts of those and other suppliers. It can locate further possibilities through trade
directories and the internet, which is particularly useful for identifying suppliers
based abroad. The internet has led to the emergence of ‘e-procurement’ specialists,
which are organisations that specialise in locating potential suppliers and facili-
tating relationships, production and delivery arrangements between purchasers in
­Australia and New Zealand and suppliers in countries such as China and India.
New task purchases are likely to involve extensive evaluation of potential sup-
pliers and solutions. This will often involve inviting ‘expressions of interest’ or more
formal proposals from potential suppliers. Government organisations often invite

Chapter 5  Business buying behaviour 171

 expressions of interest to help them clarify their long-term needs and identify panels
of potential suppliers and, often, to help promote and support local businesses.
Once potential suppliers have been identified and details of their proposed offer-
ings have been received, the purchasing organisation systematically analyses and
evaluates all important aspects of the potential purchase, including materials,
technological features, designs, customised features and supporting service. Many
organisations also formally analyse each potential supplier on characteristics such
as price, delivery, product availability, resale value, reputation, reliability and com-
pliance with government statutory requirements (e.g. employment practices and
environmental safeguards). Potential vendors may be excluded under this process if
there is any uncertainty regarding their ability to meet the required standards.
Purchase
The detailed evaluation of suppliers and their offerings leads to a decision about
whether to purchase, which product to purchase and which supplier to choose. It is
common for businesses to choose multiple suppliers, with each providing some part
of the total solution. For example, a business building a new e-commerce website
may choose one business to create the information architecture of the site, another
to build the software for the site and yet another to host the site. These choices are
made based on the systematic analysis of each important aspect of the potential pur-
chase that takes place in the previous step. Government organisations, in particular,
often take this approach. Many businesses prefer to spread their purchasing over
multiple parties to avoid becoming too dependent on any one supplier.
In this fourth stage of the business decision-making process, the chosen product
is specified; delivery, pricing terms and conditions, and any post-sale servicing
arrangements are explicitly agreed upon; and an order is placed.
Post-purchase evaluation
Following purchase, the organisation — especially the users within the organisation —
can fully evaluate whether the product meets expectations. For example, in the
­wireless internet access example discussed earlier, post-purchase evaluation would
be based on speed, number of connection drop-outs and whether the actual coverage
lived up to the promises of the vendor. Many capital equipment suppliers guarantee
that the equipment will be operational for a minimum percentage of the time (e.g.
that in any one period, a piece of machinery, such as an industrial robot, will be
available and working 95 per cent of the time). Beyond conformance with tech-
nical requirements, a chosen product may not adequately solve the problem or sat-
isfy the need that initiated the purchase decision. This is a common problem in
purchase and implementation of computer software and hardware systems. If the
performance of the product or of the supplier is below expectations, the business
purchaser may choose to seek corrective action or compensation from the supplier.
Alternatively, they may choose to search for a new supplier, particularly for recur-
rent or service product purchases. The results of the evaluation process become
feedback and input in subsequent purchase cycles, both in terms of the product and
the supplier.

Environmental influences
Business purchasing decisions are influenced by the organisation’s internal environ-
ment (the nature of the organisation, and the power structures and individuals within
it) and the external environment (the micro or industry environment and the macro
environment) (see the chapter on the marketing environment and market analysis).

172 Marketing
Internal environmental factors
Internal environmental factors can explain why each organisation may make dif-
ferent purchasing decisions in different ways. The key, closely related, organ-
isational factors are as follows.
• The nature of the organisation — its size, location, industry, objectives and resources.
These characteristics are fundamental to the types of products the business will
require.
• The structure of the organisation and its buying centres — how responsibilities
and authorities are arranged within the organisation and, more specifically, the
buying centres. The complexity of the buying centre, purchasing processes and
organisational policy can influence an organisation’s willingness and ability to
respond to purchasing demands or opportunities. For the marketer, it is impor-
tant to understand status, roles and the relative influence of members of the
buying centre. (These may also change over the period of the purchase decision
process.) While these may not be immediately obvious, successful business sup-
pliers will usually devote significant time and resources to better understanding
them and then building relationships with individual members of the buying
centre.
• The individuals within the organisation and its buying centre — those personal charac-
teristics of members of the buying centre that may affect their decisions, including
their personality and status within the organisation. Marketers, generally, might
expect younger members of the buying centre to be more technologically informed
and more open to innovative products, but to encounter resistance from older
members who might be more risk averse. Similarly, information technology and
engineering specialists will be preoccupied with performance; while accounting
and finance people will be concerned with price. Individual factors are a powerful
influence on business purchasing decisions. They make developing trust and con-
fidence between customers and suppliers — which is the key to success in long-
term business-to-business relationships — extremely challenging.
External environmental factors
As discussed in the chapter on the marketing environment and market analysis, the
external marketing environment includes the macro environment (political, econ-
omic, sociocultural, technological and legal forces) and the micro environment (the
industry, customers and competitive situation). External environmental factors are
not directly controllable by the organisation. This means there is a greater level of
risk involved in decisions made in relation to the external environment. This can, in
turn, lead to organisations deferring or avoiding business purchasing decisions, par-
ticularly in times of uncertainty. Sometimes decisions not to purchase can involve
high penalty costs.
The recent decision of the New South Wales government to abandon the $5.3 billion
Sydney Metro rail project, just months before work was due to start, is a case in
point. The project was to construct a seven-kilometre underground rail line between
Central Station and the city’s inner-western suburbs. The cancellation was in res-
ponse to widespread community anger from individuals and businesses that would
have seen their properties and jobs affected by the line’s construction. The project’s
extremely late cancellation put the New South Wales government in the position of
having to offer substantial compensation payouts to construction and engineering
businesses that had successfully tendered for the work and planned accordingly.13
More recently, the New South Wales government has committed $4  billion to the
North-West Rail Link, which is due for completion in 2019 and was an important
­pre-election promise.14

Chapter 5  Business buying behaviour 173

 Conversely, economic optimism, which follows after a period of sustained econ-
omic growth, may encourage organisations to make ambitious long-term purchasing
decisions. Technological breakthroughs or improvements, such as the introduction
of broadband, internet and fibre-optic telecommunications technology, can also
stimulate purchase decisions.
Competitors’ actions are also, of course, crucial influences on how businesses may
go about making purchasing decisions. For example, a business that sources com-
ponents locally may decide to source them from a cheaper international supplier in
order to remain competitive with other businesses that have already made the same
decision.

Spotlight  Social media for B2B

Richard Spencer is director of Two Social, a Sydney-based agency providing social media
services from strategy through content creation to community management.

Customers who engage with companies using social media applications spend up to 40 per cent
more than other customers, yet B2B marketers are still not sure how to use the channel to best effect.
There are three million Australian professionals on LinkedIn alone. If you were to offer a B2B marketer
an ostensibly free database of three million potential buyers they would bite your hand off. But call it
LinkedIn and all of a sudden we’re not quite so sure.
As B2B marketers, we’re either yet to be completely convinced our
buyers use social media to influence business decision making, or we’re
convinced but not sure how to leverage a return against social media
promotions. But 65 per cent of business buyers believe that information
about a business is credible if it comes from ‘someone like me’, the same
level of credibility attributed to ’a technical expert in the company’.
We understand the connections between consumer marketing and
peer group recommendation. But B2B marketers hesitate when it comes
to social media because it’s harder to make the same logical connection
between B2B and peer to peer. What application your organisation
uses to converse through the social channel is dependent on two
things — your target audience and how they like to consume information.
Facebook is not the answer to every question and neither is written
content. One of the most significant effects of the wider use of social
channels, as well as mobile devices to access content on the move, has
been a shift away from written content to video, audio and image based
engagement. Your content may well be easier to communicate as a video, for example, and creating
video content for distribution through a social application is often more cost effective than print.
In order to determine how and where your organisation should engage through social channels you
need to determine answers to the following:
• What do we want to achieve through our social media channels?
• What content could we create or curate that would be of interest and value to our audience?
• Where do our audience spend their time on social media?
• Through what format do our audience prefer to consume information?
The first of these points is the most important, yet often the least considered. An effective set of
social media objectives should include at least one in each of the following categories:
• reach: for example, how many views, page views, or impressions you are aiming for
• engagement: for example, how many subscribers, likes or followers you are keen to reach and at
what target percentage of engagement
• referral: what percentage of website referrals or sales enquiries do you want to develop from your
social media engagement rate?
• conversion: what conversion to sale do you anticipate from your social media referrals?

174 Marketing
 If B2B marketers use social media in this way, they are likely to experience the positive benefits
available through deeper customer engagement without the potential risks involved in jumping into a
conversational medium without proper consideration.

Source: Richard Spencer (2013), ‘Social media for B2B’, Professional Marketing, January–March, p. 13.

Question
What do you think would be the advantages and disadvantages of using social media in B2B marketing?

Concepts and applications check

Learning objective 4  analyse business buyer behaviour and decision making
4.1 Describe business marketing situations that would best suit each of the following purchase
methods:
(a) negotiation
(b) description
(c) inspection
(d) sampling.
4.2 Imagine you are the marketing manager for a telecommunications company that provides phone
and internet services to the corporate sector and that you have business purchasers in each of the
following three categories:
(a) new task purchase
(b) modified rebuy
(c) straight rebuy.
How would you tailor your marketing mix to suit each situation?
4.3 Explain the concept of a buying centre in the context of business marketing and outline the
potential members of an organisation’s buying centre.
4.4 What environmental influences may affect business buying decisions and which of these can
potentially be influenced by marketers?
4.5 Draw up a summary table and list the major similarities and differences between business and
consumer markets.

Chapter 5  Business buying behaviour 175

 Key terms and SUMMARY
concepts Learning objective 1  explain the characteristics of different types of business
business markets  153 markets
buying centre  169
The overall business market can be subdivided into reseller markets, producer
derived demand  164
government markets  156
markets, government markets and institutional markets. Reseller markets comprise
inelastic demand  165 marketing intermediaries that buy products in order to sell or lease them to another
institutional markets  157 party for profit. Producer markets comprise businesses and professionals that pur-
joint demand  165 chase products for use in the production of other products, or in their daily business
modified rebuy  167 operations. Government markets comprise the markets made up of federal, state
new task purchase  168 and local governments, which buy products for use in providing services for citi-
producer markets  155 zens. Institutional markets comprise non-public, not-for-profit organisations that buy
reseller markets  154 and sell products.
straight rebuy  167
Learning objective 2  understand the major issues involved in marketing to
business customers
There are some fundamental differences in the characteristics of business markets
compared to consumer markets. Many business market transactions are for very
high-value purchases. Many business-to-business purchases involve high volumes
and regular repeat purchases. Price and other conditions of the sale are often open
to negotiation. There are far fewer buyers and sellers in individual business markets.
Product alternatives are often subject to extensive formal evaluation, with decisions
made by committees or subject to multiple levels of approvals. The relationships
between buyers and sellers tend to be very long term and involve extensive after-
sales support.

Learning objective 3  discuss the characteristics of demand in business

markets
Demand in business markets is typically driven by demand in consumer markets
and so is known as ‘derived demand’. Demand for business products tends to fluc-
tuate much more than demand in consumer markets. Many products exchanged
in business markets are used together in the production of another product. This
creates a situation of joint demand, where demand for one product is the same as
or directly related to the demand for another product. Because products in business
markets are often just one of many used in the production of other products, demand
for them tends to be relatively unresponsive to changes in price. This is known as
inelastic demand. Demand tends to be relatively inelastic within an industry, but
can be elastic in relation to individual companies.

Learning objective 4  analyse business buyer behaviour and decision making

Business purchases take the form of a straight rebuy, a modified rebuy or a new task
purchase, each of which leads to different levels of involvement in the purchase
­decision-making process. Most business purchasing decisions are group decisions.
The group of people involved in the decision is known as the buying centre. A buying
centre is made up of initiators, users, influencers, deciders, buyers and gatekeepers.
Marketers need to identify and understand the structure and membership of the
buying centre in target organisations and build relationships with those members
of the buying centre who are accessible and influential. Marketers must also under-
stand the stages in the buying centre’s decision process and the criteria upon which

176 Marketing
the decision is likely to be made. The business purchasing decision-making process
comprises five stages: problem/need recognition, information search and specifi-
cation development, evaluation of options, purchase and post-purchase evaluation.
The decision-making process is influenced by internal and external environmental
factors, including the nature of the organisation, its structure and its people; pol-
itical, economic, sociocultural, technological and legal forces; and the actions of
competitors and customers.

Chapter 5  Business buying behaviour 177

 Case study The heat is on
Australia’s business-to-business sector (B2B) is experiencing immense change. Now is a time of
intense competition as budgets tighten and generating leads becomes harder as B2B buyers have
the power to do their own research and find the best deals for themselves. The proliferation of new
media channels, particularly digital media, has further muddied the waters. Chief executives and
boards are also demanding greater return on investment and accountability for their dollars spent on
marketing. Many B2B marketers are having to revolutionise their marketing approach, a departure
that some are finding difficult, while others are extremely reluctant to head down that path. But
change stops for no one, and the B2B marketing industry is facing an ultimatum of ‘evolve or die’ as
it reinvents itself for the modern age.
‘What B2B marketing tends to do is not have much of a personality’, Sharon Williams, founder and
CEO of Taurus Marketing, says. ‘Business-to-consumer (B2C) tends to be more exciting, more money
is thrown at advertising, it tends to be sexier. B2B tends to be a little more dry.’ Dry and unsexy or
not, B2B marketing is big business. No exact figures exist of the exact size of the Australian B2B
sector because of its wide-ranging scope, which includes parts of virtually every industry. Many
companies exist in both the B2C and B2B worlds, which makes it difficult to pinpoint accurate total
revenue levels or marketing spends.
There are lots of similarities between B2C and B2B marketing, and usually trends from the
consumer-focused discipline eventually trickle down to the business-targeted profession. ‘A very
simple analogy, you’ve got B2C which is machine gun marketing, just spray it out there and see
where it hits’, Williams says. ‘And you’ve got rifle marketing with B2B because you know who you
want to get to, because you can find the businesses quite easily.’ The drift to spending more online,
with more use of digital platforms, is happening in both sectors. This is one of the trends revealed in
the 2012 B2B Marketing Outlook research survey, conducted by B2B marketing consultancy Green
Hat in conjunction with the Australian Marketing Institute (AMI) and the Australian Direct Marketing
Association (ADMA).
Andrew Haussegger, managing director of Green
Hat, predicts that from 2014 B2B marketers will
spend more money online than on advertising and
traditional demand generation — such as events,
telemarketing, direct marketing and surveys. ‘The key
driver to that is B2B buyers who have been flocking to
the B2B world’, Haussegger says. ‘Buyers are doing the
research [now].’
For Vivienne Arnold, head of marketing at the Australian
Export Finance and Insurance Corporation (EFIC), which
helps Australian exporters by providing insurance and
finance services, digital is key in her marketing strategy.
‘I’m passionate about having a digital dialogue with
customers’, Arnold says. ‘We’re demonstrating we know
their business and understand their needs by sending our
clients and prospects targeted, relevant content based on
where their business is heading.’
According to Green Hat’s research, the usage of social media by B2B marketers continues to grow.
Roughly 75 per cent of B2B marketers surveyed had a LinkedIn strategy or planned to start one,
while 59 per cent are incorporating Twitter, 58 per cent blogging and 47 per cent Facebook into their
marketing strategy.
‘B2B marketers need to take advantage of things like LinkedIn’, Taurus Williams believes. ‘It’s a
no-brainer and an absolute no-excuse for a company not to use. B2B is slower [moving online]; it is
happening but it needs to be faster.’
Michael Keam is the marketing and product manager of commercial flooring for Armstrong World
Industries, a company that manufactures floor coverings. Keam says he does not currently use

178 Marketing
social media in his role in the Australian market as ‘our parent company has extensive coverage via
Facebook, YouTube, Twitter and blogs. Like many other things for us it is on “the list”’.
Andrew Mashman, proprietor of Liberated Vision, believes the successful employment of social
media is one of the main issues facing B2B marketers. ‘People feel guilty not being on it but few
have the resources to do it’, he says. ‘Many are having a toe in the water and not doing well.’
Williams’s advice to B2B marketers is to not view social media as an alternative for established
online marketing, and to not use social media as a standalone sales or marketing tool. ‘Define
your goals, audience and guidelines for social media use just the same as you would traditional
campaigns’, Williams says. ‘Measure the results and tailor them to future campaigns.’
Social media isn’t the only area that is challenging B2B marketers. The problem of generating and
nurturing leads is also causing headaches. Liberated Vision’s Mashman says a lot of B2B companies
are forging headstrong into the arena of customer relationship management (CRM) to improve their
nurturing process. ‘If you leave a prospect cold for any period of time you’ll lose them’, Mashman
says. ‘You have to follow up with more hands-on follow ups.’
Williams concurs. She feels the trend to CRM is a new focus, not a new concept. ‘This is B2B
marketing 101’, Williams says.
It’s always been that way that we need strong relationships with our customers. It’s just
increasingly more competitive these days and we have less money and we’re fighting for
their attention. We’re having to move to a more direct approach through database marketing
and relationship building and B2B has always been about that. People should be redirecting
their dollars into their CRM and database strategies.
Other trends are conspiring to turn up the heat on the B2B marketing sector. Mashman believes
there is a transition going on from businesses who previously just dealt with other businesses
now having to deal with their customers’ customers. Mashman also sees more businesses setting
up strategic partnerships or groups with other businesses to create better outcomes. ‘Companies
are pooling resources together, leveraging their network’, he says. ‘They’re taking a collaborative
approach. [But] networks take time to develop, they definitely don’t happen overnight.’ Mashman also
says B2B marketers aren’t looking and planning further in the future. ‘They’re looking next week or
next month’, he says. Mashman believes B2B markets must be less risk averse, an opinion shared
by Taurus’ Williams. ‘B2B marketers must be more creative’, Williams says. ‘They need to be more
focused on their activities.’ The use of content in marketing strategies and content-led campaigns is
another growing factor. Mashman says content is ‘critically important’ as B2B marketers must change
from what they were doing five and ten years ago. ‘YouTube is great for product and client displays’,
he says. ‘It’s exciting times, but many B2B marketers would be uncomfortable with this.’
With an uncertain global economic climate and a greater impetus on return on investment,
all marketers are being urged to make their marketing dollars work harder. B2B marketers are
no different, but Keam says ‘While digital media does demand more accountability it also offers
measurable return on investment’. Armstrong’s main target audience is the commercial construction
industry, and it targets the ‘influencers’ within the industry — commercial end users, facility
managers, architects, interior designers, builders and specifiers — to facilitate specifications of its
products. Armstrong does not always deal directly with the final purchases so it must provide the
influencers with compelling reasons to choose its products.
Keam says he does this in a number of ways:
By using industry data and networking to track and maintain contact with stakeholders
in relevant construction projects. We promote our Australian manufacturing capabilities —
we are Australia’s only manufacturer or commercial vinyl flooring products, environmental
initiatives and our abilities to create custom products for specific projects. We market via
a mix of feet on the ground, hard sampling, trade shows, industry events, electronic direct
marketing, print and electronic media.
Keam feels there are four main challenges facing B2B marketers in Australia at the moment:
•• the age-old adage of keeping your customers happy so they are returning to your business and not
looking for alternatives
•• keeping pace with the rapidly changing electronic media

Chapter 5  Business buying behaviour 179

 •• not burdening your customers with endless streams of irrelevant information
•• the continued and growing sourcing of foreign products and services.
The message is loud and clear — B2B marketers can no longer play it safe. They need to adapt to
the changing media landscape and move away from their traditional marketing methods.
‘Marketing has been the last bastion of organisations from a return on investment point of view’,
Green Hat’s Haussengger says. ‘Boards are saying “I need more accountability”. There is more
pressure on B2B marketers. It’s an interesting time.’ Haussengger believes there is a need for new
skills sets in the marketing department, a belief shared by Mashman who advocates more training for
B2B marketers.
Now, more than ever, B2B marketers must be ready to take risks and put themselves in potentially
uncomfortable and unusual positions. Haussengger says the balance of power has shifted to the
buyers, and B2B markets must catch up. ‘Buyers are everywhere, there are so many places buyers
can be found on the internet. It’s hard to find them. [Now] buyers invite sellers later in their buying
process.’
Haussengger feels that B2B marketers must get their back-end processes sorted and their data
management structures right, but the current period remains a period of opportunity. ‘They’re going
to get a rude shock soon’, he says. ‘[But] it’s an exciting time too. You can’t sit still.’

Source: John Davidson, ‘The heat is on’, Professional Marketing, April–June, pp. 28–31.

Questions
1. Why might social media be especially useful to B2B marketers?
2. Why, then, do you think they have been slower to adopt it than B2C marketers?
3. What are some of the likely problems in using social media in a B2B context?
4. Why is ‘generating and nurturing leads’ likely to be a problem, and how can CRM help better
manage the problem?

Advanced activity
Refer back to the pharmaceutical industry story at the start of the chapter. Now
that you have a more detailed understanding about business-to-business markets
after reading the chapter, describe the following in relation to Pfizer:
• the type of business market(s) in which the company competes
• likely characteristics of the market(s)
• the type of demand that is likely to exist for Pfizer’s product (derived, joint,
inelastic)
• how knowledge of the business decision-making process would be beneficial for
Pfizer and its various international distributors.

180 Marketing
Marketing plan activity Case study
For your marketing plan, consider whether your product has a business-to-business
market. Some products have both a business-to-consumer and a business-to-
business market, while others will be specifically aimed at one or the other. If your
product has any business-to-business market potential you will need to research
and analyse the following in relation to your marketing plan:
• the type(s) of business market(s) that exist or potentially exist for your product
(e.g. reseller, producer, government or institutional markets)
• the needs of the business market(s) for your product identified in the first point
and how your product meets those needs
• the factors that drive business demand for your product
• the ways in which buying decisions are made by potential business buyers of
your product.
As with the marketing plan activities in previous chapters, this analysis is likely
to inform your overall and ongoing market research requirements. Such detailed
analysis and understanding of business buying behaviour, if relevant in relation
to your chosen product, will be crucial to the marketing strategies you will be
developing in later chapters for your marketing plan.
A sample marketing plan has been included at the back of this book to give you
an idea where this information fits in an overall marketing plan.

Chapter 5  Business buying behaviour 181

 CHAPTER 6

Markets: segmentation,
targeting and positioning
Learning objectives
After studying this chapter, you should be able to:

explain the broad concept of a ‘market’

understand the target marketing concept

identify market segmentation variables for consumer and business markets,

and develop market segment profiles

select specific target markets based on evaluation of potential market segments

understand how to effectively position an offering to a target market in relation

to competitors, and develop an appropriate marketing mix.
Target marketing and
marketing Target
Australian retailers have been doing it tough as they struggle to come to terms with the
challenging global economic environment, combined with the continued strong growth
of online shopping. There are conspicuous exceptions, such as the large supermarket
chains — especially Coles and Woolworths, which seem to be relatively immune from
these ‘macro-­environmental’ threats. In addition, there are retailers, such as JB Hi-Fi,
whose cost structures and business models allow
them to compete successfully on price against local
and online retailers.
For many established retailers, however, the pos-
ition is less rosy. In particular, traditional depart-
ment stores such as David Jones and Myer face
a seemingly perpetual challenge to remain com-
petitive with their high cost structures, combined
with diminished levels (and public perceptions) of
customer service. In particular, the cost to provide
‘traditional’ department store customer service is
clearly prohibitive in the face of discounted prices
offered by ‘big box’ retailers like Harvey Norman
and Bing Lee, and the familiar d­ iscount department
stores like KMart and Big W.
However, even among the discount department stores, the news is not all good. Kmart
has pushed its prices down and introduced a house brand for most products. Big W and
Target have both sustained damage from this new approach. Like all retailers, Big W
was stung by discounting in the home entertainment segment, and Target is ‘viewed
neither as a value proposition nor an upmarket brand-centric department store’. Some
have suggested that parent company Wesfarmers would be wise to close some Target
stores and rebrand them as KMart.
Clearly, Australian shoppers are benefiting from the intensity of the competition and
the resulting price competition. Just as is the case in the ‘traditional’ department
sector, we may soon witness the creation of another ‘duopoly’, as either Woolworths or
Wesfarmers decides that enough is enough.1

Questions
1. Based on your own perceptions and shopping experience, where are you
more likely to shop? In Target, KMart or Big W?
2. Where do you think Target is going wrong, and what should it be doing to
win you as a customer?
INTRODUCTION
The challenges faced by Target are difficult and will require brave and expensive
strategies. Target’s problems may be partially of its own making, but it must also
be understood in the context of a highly crowded and competitive market in which
shoppers are ‘spoilt for choice’. For Target, the challenge is to carve out a viable
market. As for all businesses, identifying potential customers and understanding the
needs of those potential buyers is fundamental to market success.
We already know from the chapters on consumer behaviour and business buying
behaviour that there are consumer markets (also known as business-to-consumer
or B2C markets) and business markets (business-to-business or B2B markets). Con-
sumer markets consist of households and individuals that buy products for private
consumption. We are all members of consumer markets for an almost unlimited range
of products that we use in our daily lives. Business markets consist of individuals and
organisations that purchase products to resell, to use in production or to use in busi-
ness operations. In this chapter, we will explore this broad categorisation further and
examine how we can better describe and segment the market. Because consumers and
businesses have different needs, wants and demands, it is impossible for most organ­
isations to successfully appeal to the entire market. Instead, the organisation typically
identifies those parts of the total market to which it can offer the most value. Market
segmentation enables the organisation to form a strategy for a group, or segment, that
has common features, rather than try to market to everyone. The organisation makes
use of its knowledge of these market segments to develop the most effective marketing
mix for each. This approach is known as the target marketing concept and it is fun­
damental to marketing — identifying smaller, more targetable market segments, then
tailoring the marketing mix to best appeal to those segments.
We discuss how businesses can best segment consumer and business markets for
their particular purposes. Once the market has been segmented based on ­relevant
variables, the organisation assesses the potential of each segment in order to decide
which segments to target. We conclude the chapter with a discussion of how to
­position products relative to competitors in each target market.

KNOWING THE MARKET

In the introduction to marketing chapter, we defined a market as a group of cus- Learning objective 1
tomers with heterogeneous needs and wants. This is a very broad definition. In the explain the broad concept
chapters on consumer behaviour and business buying behaviour, we saw that the of a ‘market’
overall market could be broken down into consumer markets and business markets.
Business markets could then, for example, be further broken down into reseller market A group of customers
with heterogeneous needs and
markets, producer markets, government markets and institutional markets.
wants.
These distinctions between markets are useful. As we shall come to understand as
we work through this book, there are many marketing issues specific to organisations
that market to consumers and those that market to particular types of organisations.
Many organisations target both consumers and businesses, and usually apply different
strategies to each sector. However, the concepts of the consumer market and the busi-
ness market are so general that they can only be used in the broadest sense to help an
organisation formulate a marketing strategy to target potential customers. Consumers
and businesses vary considerably in their needs, wants and demands, and it is virtually
impossible for an organisation to successfully appeal to every consumer or business.
To overcome this problem, the marketer seeks to identify and understand those
parts of the total market to which it can offer the most value. The organisation then

Chapter 6  Markets: segmentation, targeting and positioning 185

 makes use of its knowledge of these market segments to develop the most e ­ ffective
marketing mix, or offer, for each segment it chooses to target. This approach is
known as the target marketing concept — identifying smaller, more targetable market
­segments, then tailoring the marketing mix to best appeal to those ­segments. This
process involves understanding the organisation’s micro environment (­discussed in
the chapter on the marketing environment) and will almost always draw on market
research and existing market information (discussed in the chapter on market
research). It also requires a thorough understanding of how buyers make purchasing
decisions (the chapters on consumer behaviour and business buying behaviour).
Understanding the market is a fundamental prerequisite for effective marketing. In
this chapter, we will develop our understanding from the broad view outlined above
to a deeper, more specific understanding of target market segments. The under-
standing created by this detailed analysis is crucial to creating, c­ ommunicating and
delivering product offerings of value (see figure 6.1).

Understand

Deliver Create
FIGURE 6.1
Understanding target
market segments is crucial
to creating, communicating
and delivering product
Communicate
offerings of value.

Spotlight  Toyota first, daylight second

The Australian passenger vehicle market (which includes cars and light commercial vehicles) has
proven to be rather resilient of late, with recent annual sales figures of 1  112  032 new passenger
cars, SUVs and commercial vehicles. Of course, this is at a time of a depressed global market and a
restrained Australian domestic economy. Australians, it seems, are very reluctant to invest in residential
real estate, but they are much more relaxed about buying new cars.
While the overall market is buoyant, market shares are highly volatile, and there are also significant
changes occurring in the mix of total industry sales with some product categories growing strongly —
notably, SUVs and light commercials. In fact, three of Australia’s top five selling vehicles have recently been
light commercials — Toyota Hi-Lux, Nissan Navara and Mitsubishi Triton — according to data published by
the Federal Chamber of Automotive Industries (FCAI). Mazda3 was the top selling vehicle, followed closely
by Toyota Hi-Lux.2 The biggest losers in this dynamic market continue to be the large, Australian-built
passenger cars, with Holden Commodore and Ford Falcon continuing their long-run decline. In 2013, Ford
announced that it would phase out Australian production by 2016, and Holden has asked its Australian
manufacturing staff to accept pay cuts in order to try and keep the company afloat.3
The clear overall winner in the Australian marketplace continues to be Toyota, with recent annual sales
of 218  176 and a market share of 19.6 per cent.4 Its success is built upon its core values of putting the
customer first, having respect for people, having an international focus, and its continuous innovation
and improvement.5 Toyota’s successful marketing is based on a strategy of ‘differentiated targeting’. The
brand is represented in almost every conceivable product category and corresponding market segment,

186 Marketing
with models such as Camry/Aurion, Corolla, RAV4, Yaris, LandCruiser and its
‘hybrid’ models led by Prius. Toyota also competes in the truck market with
Hino and in the prestige car market with Lexus. Its most recent significant
new product is the 86 sports car, which is expected to become market
leader in the ‘niche’ category of small, traditional ‘sports cars’ — a category
previously dominated by the Mazda MX5.
Toyota has become market leader without necessarily dominating,
or even leading, individual product categories or market segments.
Instead, it has established its dominant position through an approach
in which — regardless of age, gender or lifestyle group — Toyota has
a specific offering designed to meet the needs and expectations of the
‘middle majority’ members of each market segment. To each of these
market segments, Toyota makes a common offer of a satisfying, trouble-
free ownership experience. (‘Oh! What a feeling!’) While it took over
40 years to achieve it, Toyota’s strong market leadership in Australia is
clear vindication of its target marketing strategy.

Questions
Concepts and applications check 1. In a competitive sense,
Learning objective 1  explain the broad concept of a ‘market’ what are the strengths
of the Toyota brand?
1.1 Explain the difference between consumer markets and business markets.
2. What are the
1.2 Why is it unlikely that an organisation could successfully target an entire market with its offering? disadvantages, or risks,
of Toyota’s strategy of
1.3 Choose five products. For each, think of someone you know that might be an ideal target offering a product for
consumer for the product and someone who would be unlikely to be interested in the product, every significant market
outlining your reasons in each case. segment? Where is
Toyota vulnerable?

TARGET MARKETING
There are various ways to view the market and the particular perspective an organ­ Learning objective 2
isation takes has a pervasive influence on all of its marketing activities. Consider the understand the target
marketing concept
following three different perspectives.
1. Buyers have common wants, needs and demands.
2. Buyers have unique wants, needs and demands.
3. The market contains subgroups — known as market segments — who share common market segments Subgroups
or similar needs in regards to certain characteristics. within the total market that are
relatively similar in regards to
These perspectives suggest fundamentally different approaches to marketing. If
certain characteristics.
all potential buyers are similar, then it should be possible to take an undifferentiated
approach to the marketing mix; that is, the organisation makes the same offer to
everyone. If all buyers have unique needs, then the organisation will be more successful
if it differentiates its products to match the individual needs of potential customers.
If buyers differ, but have some shared needs and defining characteristics, then
it should be possible to use an undifferentiated marketing mix for any one group,
while differentiating the offering between groups.
• The marketer can make an undifferentiated offer to the market as a whole (mass
marketing).
• The marketer can make a differentiated offer to each individual buyer (one-to-one
or customised marketing).
• The marketer can make an undifferentiated offer to groups of buyers with common
wants or needs, but differentiate the offerings it makes to different groups.
Individuals and organisations in a market have different wants, needs and demands.
The choice of marketing strategy typically involves a degree of compromise between

Chapter 6  Markets: segmentation, targeting and positioning 187

 the necessity to respond to the particular desires of potential customers and the
objective of achieving the lowest possible production and marketing costs, princi-
target marketing An pally through economies of scale. Hence, most marketers practise target marketing
approach to marketing based on in identifying and responding to the needs, wants and demands of individual buyers
identifying, understanding and
or groups of buyers. Target marketing is based on three premises:
developing an offering for those
segments of the total market that 1. individual buyers or groups of buyers can be identified
the organisation can best serve. 2. sellers understand the needs of buyers
3. sellers will seek to shape their offer to meet the needs of target buyers.
Examination of these three premises shows that they reflect a market orientation,
as discussed in the introduction to marketing chapter. (In this case, however, the
focus is on groups of buyers.) They are important factors in understanding, creating,
communicating and delivering offerings of value. The decision to address them
through target marketing reflects the difference between a market orientation and a
production orientation, as illustrated in figure 6.2.

FIGURE 6.2
Production-oriented and Production-oriented Market-oriented
marketing-oriented views organisations see everyone organisations see everyone
of the market as basically similar and as different and practise
practise mass marketing. target marketing.

We will now discuss the key differences between mass marketing, one-to-one
marketing and target marketing based on market segments, before moving on to a
detailed discussion of the target marketing process. The different approaches to the
market are illustrated in figure 6.3.

FIGURE 6.3 Marketing mix Market

Three market strategies

(a) Mass marketing (undifferentiated)

Customer 1
io n
isat
m
sto
Cu
Marketing mix Segment 1
Customisation
Marketing mix Customer 2
Cu
sto
m Marketing mix Segment 2
isa
tio
n

Customer 3 Marketing mix Segment 3

(b) One-to-one marketing (differentiated) (c) Target marketing

188 Marketing
Mass marketing
A mass marketer sees buyers as having common wants, needs and demands. Under
such circumstances, it is possible to create, communicate and deliver a single
product offering to meet the needs of most people in the market. This represents
an undifferentiated approach to marketing. This undifferentiated offering, ideally,
can be produced in large volumes and at a low cost per unit (by taking advantage of
‘economies of scale’). The low unit cost makes it possible (although not essential) to
sell at a low price, further expanding the market and driving costs lower again. In
this way, organisations that practise mass marketing can capture very large markets
at very low cost per unit, ensuring high levels of profitability. This strategy is char-
acteristic of commodity products such as salt and of global mass market products
such as blank CDs, bandages and pharmaceuticals. The market for government ser-
vices also displays a high level of homogeneity, in that all citizens are entitled to a
common, minimum level of service and benefits such as public transport. As long as
all consumers have homogeneous needs, this model can be extremely successful and
profitable. It is the model for many iconic, market leading consumer products, such
as Coca-Cola and Nescafé (who also charge premium prices). However, it is common
for markets to evolve as consumer preferences become increasingly diverse, with
the result that only one version of the product no longer satisfies consumers’ wants.

One-to-one marketing
The one-to-one marketer seeks to appeal to each customer by providing a unique, custom-
ised offering that will meet their individual needs. In closely meeting their needs, the
seller seeks to build a very close relationship with a customer in the expectation that the
customer will reward them with loyalty and repeat purchasing, as well as positive word-
of-mouth to friends and colleagues. Many small services businesses take a one-to-one
marketing approach. For example, when a family engages an architect to design their new
home, the architect will discuss their needs and preferences, study their land, assess their
budget, and create and refine draft designs based on their feedback. A simpler example
is a hairdresser who — usually — styles each customer’s hair the way the customer (or
client) wants. One-to-one marketing is also common in industrial business markets,
where the size of purchases often dictates customisation of the marketing mix for each
potential customer. A one-to-one approach usually results in higher unit costs and a more
restricted market. These conditions typically form the basis of a focus or niche strategy.

Target marketing based on segments

Markets made up of buyers with diverse needs are said to be heterogeneous. Not
everyone wants to dress the same, drive the same car, eat the same food or watch the
same television shows. In this sense, most consumer markets can be said to be hetero-
geneous. Even so, most buyers or consumers can be grouped into segments: the
­segment has distinctive needs, but the members of the segment have similar needs.
The third marketing option — market segmentation — is the logical and common
choice for many organisations that want to meet the needs of large numbers of
­customers more closely, but that lack the resources to address each customer as an
individual. In choosing a market segmentation strategy, the focus of the organisation
shifts from the individual buyer to the target market segment. The opportunity for the
organisation becomes that of identifying groups of buyers (market segments) who have
wants or needs in common that match well with the organisation’s capabilities. The
key task of the organisation is to develop marketing programs to reach those market
segments that have been identified, typically following marketing research. For many

Chapter 6  Markets: segmentation, targeting and positioning 189

 organisations, it is therefore common to view the target customers not as individuals,
but as a market segment — and to design the organisation’s offer to meet the needs of
that market segment. In this way, market segmentation forms the basis of the target
marketing concept, implemented through the target marketing process.
When choosing target markets, the organisation will generally consider three factors.
1. Its own resources — does the organisation have the financial, marketing and other
resources required to cover the entire market?
2. Market demand — do all customers look for the same attributes and benefits in
the product?
3. Competition — have competitors already segmented the market or are they selling
to all buyers as a group?
differentiated targeting With a differentiated targeting strategy, an organisation identifies a range of target
strategy A marketing approach market segments, covering the majority of the total market, and for each market seg-
that involves developing a ment develops a tailored marketing mix. This approach is favoured by most market
different marketing mix for each
leaders, which are able to serve almost all viable market segments with a product
target market segment.
and offer designed specially to meet their needs. For example, Westpac offers a com-
plete range of financial services designed to meet the needs of all consumer and
business and government market segments. IBM offers computer hardware, soft-
ware and consulting services for all business users. A market leadership position
is often accompanied by premium prices in each market segment and product
category, enabling high total revenues and profits. At the same time, it should be
recognised that a differentiation strategy also entails higher costs. Achieving high
profits through this strategy generally requires a combination of higher retail prices,
high volume sales, strong market share and strong customer loyalty.
Product and market specialisation
product specialisation A Small organisations with limited financial resources frequently adopt one of the
target marketing strategy in following specialised approaches to target marketing.
which all marketing efforts are
• Product specialisation, in which all efforts are concentrated on a single product
concentrated on offering a single
product range to a number of range offered to a number of market segments. Hasselblad, for example, competes
market segments. by concentrating solely on cameras. Stihl focuses on chain-saws.
market specialisation A • Market specialisation, in which all efforts are concentrated on meeting a wide
target marketing strategy in range of needs within a single market segment. For example, Elders provides a
which all marketing efforts are comprehensive range of goods and services to farmers. Similarly, credit unions
focused on meeting a wide range provide a wide range of financial services to members who live in particular local
of needs within a particular
market segment.
communities or who are employed in particular industries. Apia (a Suncorp brand)
targets seniors (over 50) and the retired community. The differences between
product–market
specialisation A target product specialisation and market specialisation are summarised in figure 6.4.
marketing strategy in • Product–market specialisation, in which the product and market specialisation
which marketing efforts are approaches are combined to offer a single product to a single market segment.
concentrated on offering a Micro businesses (e.g. local trades and professional services businesses) com-
single product to a single market
monly adopt this approach. For example, restaurants will choose to offer a narrow
segment.
menu, often based on a national cuisine, to a local market from a single location.

Segment 1 Marketing mix 1

Product mix Segment 2 Marketing mix 2 Segment n

FIGURE 6.4
Segment 3 Marketing mix 3
Product and market
specialisation (a) Product specialisation (b) Market specialisation

190 Marketing
 Specialisation approaches usually only succeed if the following five conditions
are met.
1. The market is characterised by a wide range of needs and product preferences.
2. Clear market segments, or product categories, are identifiable, each with its own
distinctive preferences or characteristics.
3. The market is clearly divisible into segments so that each can be evaluated and
compared.
4. Individual market segments, or product categories, are sufficiently large to rep-
resent profitable sales volume.
5. The organisation is able to reach individual market segments with a particular
marketing offer and mix.
Organisations that pursue a specialisation strategy seek to establish a dominant
position in their chosen market niche. Such organisations run the risk of putting
all their eggs into one basket, but, if successful, they establish a strong, deep and
long-lasting position. Such an approach enables an organisation to concentrate all
its limited financial and other resources while achieving a strong market reputation
and a secure position among its loyal customers. At the same time, such an approach
clearly limits a company’s growth potential in the longer term. This was the situ-
ation facing car maker Porsche when it expanded beyond its sports cars focus into
the large four-wheel-drive market.

The target marketing process

The target marketing process is a fundamental component of marketing strategy
for any organisation. The process involves three main stages, with each requiring
detailed analysis and decision making. This process is illustrated in figure 6.5 and is
discussed in detail throughout the rest of the chapter.

FIGURE 6.5 Positioning

The target marketing

process Segment A
• Determine positioning for segment A
• Determine the marketing mix for segment A

Segmentation Targeting Positioning

• Identify segmentation variables • Evaluate potential segments Segment D

• Profile market segments • Select target segments • Determine positioning for segment D
• Determine the marketing mix for segment D
Segment A

Segment B

Segment C Positioning

Segment D Segment E
• Determine positioning for segment E
Segment E
• Determine the marketing mix for segment E

Chapter 6  Markets: segmentation, targeting and positioning 191

 Spotlight  Ten off target?
The Ten television network has been struggling under pressure from a depressed share price and poor
ratings. At the heart of poor audience figures are questions around Ten’s focus on the youth market.
More than any of its commercial network competitors, Ten has directed its programming at capturing
and owning the youth market. In adopting this targeted strategy, it could be arguably seen to be
mimicking the very successful approach of the Triple M radio station which, for many years, has
offered a consistent (and persistent) appeal to the youth market with very ‘mainstream’ music and
entertainment tastes (unlike its youth market competitor Triple J, which has a more ‘alternative’ focus).
In contrast, the Seven and Nine television networks have pursued a less focused, mass market
approach, with the familiar combination of broad-based programs of Australian news, current affairs
and ‘soaps’; US sitcoms and dramas; ‘reality’ programs; and sports including the major football codes,
motor racing and ‘blockbuster’ events like the Olympics.
As a result of its ‘tanking’ share price, audience ratings and profits, Ten’s CEO Hamish McLennan
announced that the network has dropped its ‘extreme youth’ focus, flagging it won’t target the ‘young’
and ‘promiscuous’ audience that saw it produce failures like Being Lara Bingle and The Shire. Of
course, there are likely to be many and complex explanations for Ten’s difficulties but, at its heart, the
problem appears to be the result of targeting gone wrong in a number of possible ways.
Firstly, there may be a mismatch between Ten’s positioning
and its programming. This explanation would be consistent
with the failures of Being Lara Bingle and The Shire. A second
explanation is that the chosen market segment is either
insufficiently large or, indeed, that it is ‘promiscuous’ and not
as loyal as theory would suggest. A third explanation is that
competitors, deliberately or otherwise, may be stealing a large
chunk of Ten’s target audience. A fourth explanation is that the
target audience is less interested in ‘free-to-air’ television, and
that their interests are diverse and satisfied by a wide array of
alternatives including social activities, live entertainment, ‘niche’
pay TV channels, social media and radio. In 2011, Ten launched
its digital channel, 11, with programming aimed at the under-30s
market, albeit with only limited success.
Regardless of the true explanation, Ten’s difficulties highlight
the potential downside of a single-minded targeting strategy in a
mass market dominated by a small number of large players, and
the risks of placing all your eggs in one basket.6

Question
How would you test each of the above explanations using audience or other market research data?

Concepts and applications check

Learning objective 2  understand the target marketing concept
2.1 Outline the difference between how mass marketers and one-to-one marketers would view
a market.
2.2 In your own words, describe the concept of market segmentation.
2.3 Use an example to demonstrate your understanding of a differentiated targeting strategy.
2.4 Outline the three main stages of the target marketing process.

192 Marketing
MARKET SEGMENTATION Learning objective 3
identify market
The first stage of the target marketing process is market segmentation. As shown in segmentation variables
figure 6.6, there are two steps in the market segmentation phase: identifying variables for both consumer and
business markets, and
that can be used to define meaningful market segments; and profiling the market
develop market segment
segments so they can be assessed in the second stage of the target marketing process. profiles

Positioning

Segmentation Targeting Positioning

• Identify segmentation variables

• Profile market segments Positioning

Segment A

Segment B

Segment C
FIGURE 6.6
Segment D
The target marketing
Segment E process stage 1: Market
segmentation

Identify segmentation variables

The target marketing process aims to identify groups of buyers (market segments)
who have wants or needs in common that are a good match with the organisation’s
ability to deliver products of value. This begs the question: On what bases can the
total market be segmented? Segmentation variables are characteristics that buyers segmentation variables 
(i.e. individuals, groups or organisations) have in common and that might be closely Characteristics that buyers have
in common and that might be
related to their purchasing behaviour. Age, gender, income and occupation, for
closely related to their purchasing
example, can all be linked to the purchase or consumption of particular products. behaviour.
The key to effective segmentation is to choose segmentation variables that are:
• easy to measure and readily available (e.g. demographic data made available from
the national census)
• linked closely to the purchase of the product in question (e.g. consumers’ ethnicity
will be an accurate predictor of their choices of food, restaurants and entertainment).
Market research plays a crucial role in the process of understanding the link
between segmentation variables and consumers’ purchasing behaviour. To be effec-
tive, market segmentation must be based on an in-depth, accurate and up-to-date
understanding of the needs and buying behaviours of potential customers, and how
those needs and behaviours might be changing.
Having identified appropriate segmentation variables, it is then important to
understand how many possible segments an organisation might choose to pursue.
An organisation cannot market to all potential customers, unless it is a market leader
with virtually limitless market coverage and marketing resources. Of course this
is rare, and so market segmentation and target marketing typically involve organ-
isations making difficult choices about which target markets to select (and which
market segments to ignore).

Chapter 6  Markets: segmentation, targeting and positioning 193

 For most organisations, therefore, the question is not whether or not to segment
the market; it is — given that we must segment the market — which variables
­represent the best variables for identifying relevant target markets? The choice of
segmentation variables is discussed in the remainder of this section.
Segmenting consumer markets
The range of possible variables for segmenting consumer markets is almost limit-
less. They fall into four broad categories: geographic, demographic, psychographic
and behavioural variables.
Geographic segmentation
geographic Geographic segmentation is market segmentation based on geographic variables.
segmentation Market Geographic variables are reliable predictors of customer needs and purchasing
segmentation based on variables
behaviours for a wide range of products. Useful geographic variables include:
related to geography, such as
climate and region. • climate
• local population
• region
• topography
• urban, suburban and rural location.
Geographic segmentation is particularly relevant to a country that is both large
and diverse, such as Australia. The provincial regions of New Zealand also suit seg-
mentation on this basis. Producers of building materials, for example, need to know
how customers’ needs and purchase behaviours differ by geographical region (e.g.
lightweight timber construction is more popular in tropical regions; whereas brick,
stone and concrete construction is more popular in colder climates). Similarly, pur-
chase of certain product categories may depend upon the geographical terrain or
topography of a given area. Toyota’s LandCruiser is the preferred motor vehicle for
those living in rugged inland and remote areas of Australia and Subaru built its early
reputation in Australia among visitors to, and residents of, the snow country.
The number of buyers or potential buyers in any given geographical area is an
important measure of market potential. Targeting geographic areas with lots of
potential customers also creates efficiencies in advertising and distribution (using local
press, radio and TV stations, for example), compared to areas with a smaller number of
potential buyers. In the latter case, less intensive promotional media (e.g. direct mail)
or less intensive distribution through agents may be more financially effective.
An emerging trend in segmentation is geo-demographics, which combines demo-
graphic variables and geographic variables to profile very small geographical areas
(such as a suburb). Geo-demographic segments enable intense and specific targeting
of small groups. Organisations such as Pacific Micromarketing have developed analysis
tools based on publicly available data such as the census, which, when combined with
proprietary analysis tools, enable them to produce precise profiles of the residents
and businesses located in closely identified geographical areas. Such analyses are
particularly useful to retail businesses that could choose to vary their product offer-
ings based on the distinctive demographic characteristics of these areas. For the large
supermarket chains, there is an opportunity to vary their product range based on, for
example, the ethnic characteristics of the local customers. This may be necessary to
demographic compete with local retailers, such as delicatessens, that may have established market
segmentation Market share based on their particular appeal to these ethnic market segments.
segmentation based on
demographic variables, which are Demographic segmentation
the vital and social characteristics Demographic segmentation is market segmentation based on demographic variables,
of populations, such as age,
which are related to the quantifiable social characteristics of populations. They are
education and income.
the most commonly used variables for market segmentation. Consumer behaviour

194 Marketing
is often closely linked to demography, and ongoing studies by organisations such as
the Australian Bureau of Statistics and Statistics New Zealand ensure demographic
information is readily available, up-to-date and comprehensive. We will discuss a few
of the demographic variables most frequently used by marketers to illustrate how
they form the basis for market segmentation.
Age is one of the most commonly used segmentation variables and can be linked
to the emergence of market segments such as Generation Y, Generation X and the
grey nomads. It has become very popular to refer to different age bands in the popu-
lation as a ‘generation’. The most commonly used groupings are.
• The Baby Boomer generation. Baby Boomers were born in the prosperous years after
World War II (1946–64) and are now beginning to retire from the workforce. Overall
the Baby Boomers have been one of the most powerful generations: relatively
wealthy; in positions of power in society, politics and the workplace — and willing
and able to stay active as prominent members of society in their older years.
• Generation X. This term was coined by Douglas Copeland in his book, Generation X,
to describe a group of self-indulgent slackers. The term has been redefined (by
marketers!) to mean the people born between 1965 and 1980. Their formative
years in Australia were during a period of high unemployment, high inflation and
high interest rates. The generation is characterised by a strong work ethic, loyalty
and quite a lot of frustration with Baby Boomers.
• Generation Y. This generation, born from 1980 to 2001 and sometimes also known
as the ‘Nintendo Generation’, is characterised by comfort with technology; strong,
almost tribal, friendships and loyalties; and high expectations in all spheres of
their lives.
• Generation Z. This generation, born after 2001, was born digital. The internet,
video games, mobile phones, wireless networks, social media and ‘friends’ they’ve
never met are all second nature to Generation Z.
It is important that marketers remain aware that these classifications are broad,
but they can be very useful. For example, television networks use age as a segmen-
tation variable for their range of programs (e.g. Law & Order and NCIS are aimed at
Generation X; Better Homes and Gardens and Getaway are aimed at Baby Boomers)
and to identify opportunities for new formats such as reality television (aimed
mainly at Generation Y).
Ethnicity is a useful segmentation variable for marketers of some products (e.g. food
and travel during the Chinese New Year festival). Australia and New Zealand have eth-
nically diverse populations that present opportunities for marketers to identify direct
links between ethnicity and the purchase of particular products. For example, descen-
dants of European immigrants may still display strong loyalty and preferences for tra-
ditional wine and food from their native countries. Similarly, restaurant proprietors
may target local consumers who share the same ethnic origins as the proprietor. At
the same time, restaurateurs usually prefer to market to a larger, more diverse local
­population that includes customers who are attracted to the ‘multicultural’ experience.
Household composition is an umbrella variable that is influenced by a number of
other demographic variables, including age, income, marital status and the number
of members in the household. Segmentation on such variables is complicated by the
changes occurring in household composition, including increasing divorce rates,
increasing numbers of single-parent households, increasing numbers of people
choosing not to have children, and even trends such as friends sharing housing to
make renting or buying a home more affordable. Household composition has ­profound
effects on consumer behaviour. To varying extents, married couples live different life-
styles to single people; adults living with their parents spend their money differently

Chapter 6  Markets: segmentation, targeting and positioning 195

 to adults living in shared rental accommodation; and parents have needs for various
services that are not so important for childless people. Household composition can
be a particularly useful segmentation variable for marketers of financial services
­products, such as personal loans and mortgages, credit cards, and superannuation and
­investment products, all of which are closely linked to stages in people’s lives.
Income is, of course, a strong determinant of what people can buy. Not only does
it determine what they can afford to buy in absolute terms, but it is also significantly
linked to the types of products they prefer. As discussed in the chapter on consumer
behaviour, many purchases are aspirational in nature — reflecting the lifestyle a
person would like to have as much as the one they can actually afford. It is important
that marketers do not make the mistake of simply targeting high-income earners —
while they have more money to spend, marketers should be more concerned with
identifying those market segments to which they can offer the most value.
Sex is another segmentation variable that has obvious implications for marketers
of clothing, beverages, pharmaceuticals and magazines. For example, males con-
stitute the heaviest consumers of beer. In contrast, females represent the heaviest
users of ‘alcopops’ and, more recently, cider.
Of course, there are many other demographic variables that marketers can use for
segmentation — occupation, level of education attained and so on. The appropriate
demographic variables to use will vary depending on the type of product. While demo-
graphics are rarely advocated as the sole basis for market segmentation, there is a strong
case for their use as an integral part of the segmentation process: the data are freely
available and, for many goods and services, demographics have proven to be reliable
predictors of purchase and use. The need for consumption of government services such
as health, education, police and social welfare is best predicted by demographics.
Psychographic segmentation
Like demographic and geographic variables, psychographic (psychology plus
psychographic demographics) variables are based on consumer characteristics. Psychographic
segmentation Market ­segmentation is based on differences in:
segmentation based on the
• psychological traits (personality attributes and motives)
psychographic variables of
lifestyle, motives and personality • key demographics
attributes. • lifestyles (the expression of the two former categories).
In contrast to using demographics (e.g. age, gender and education) alone to explain
who consumers are, psychographics seeks to understand consumers by identifying
their mind-sets and how they are expressed in their lifestyles. Psychographics com-
bines insights of psychology with demographics to give a more precise description of
consumer groups. People who share common demographics may lead very different
lifestyles. Consider, for instance, 20-year-old women who have just completed their first
year of university. It is easy to imagine that within this demographic group there are
women who love university for the subjects they are studying, the realm of ideas they
are being exposed to, and the satisfaction that self-discipline brings as they study instead
of party. It is also easy to imagine there are other women in the same group who love
university more for the parties and the heightened sense of stimulation than for the love
of knowledge. Psychographics brings out differences like these that demographics miss.
It is details like these, as well, that can make or break a marketing campaign.
Two psychographic segmentation models are the Roy Morgan Values Segments
and VALS™ (see figures 6.77 and 6.88 respectively). VALS is owned and operated by
Strategic Business Insights in California. Advocates of psychographics believe that
particular psychological traits (e.g. excitement-seeking, curiosity, achievement) in
combination with key demographics are more powerful predictors of behaviour and
lifestyle than demographics alone. For example, VALS Achievers share psychological

196 Marketing
traits of achievement, self-discipline, duty and responsibility, and lack traits of spon-
taneity, creativity and change for change’s sake. Survey research, carried out year
after year, confirms that people with these traits tend to buy particular products
and services that enhance their productivity, serve as rewards for their hard work
and demonstrate success to their peers. Achievers are likely to buy online-banking
­services, giant-screen televisions and domestic holidays.

Life satisfaction
Quality expectation
Individualism Visible
achievement ©

Something
better ©
Maintain the
Innovation
status quo

Traditional
family life ©
Basic Real Young Socially
needs © conservatism © optimism © aware ©
Conventional
family life ©

Old and New and

familiar different
Look
at me ©

A Fairer
deal ©

Price expectation FIGURE 6.7

Attractiveness to innovation
Perceived progressiveness Roy Morgan Values
SegmentsTM

The Roy Morgan Values Segments framework was used to discover the grey
nomads, who emerged in response to the combined influences of the ageing of
the Baby Boomer generation and their transition to retirement. The emergence of
this segment has created, in turn, a boom for products and services — such as lux-
urious, recreational vehicles and internet-based communication — to suit an active
but nomadic lifestyle. (More recently, this group has been adversely affected by the
decline in the share market and the resultant decline in the value of their retire-
ment ‘nest eggs’. In turn, this has led to an increased interest in part-time employ-
ment and internet-based recruitment services.)
Both VALS and Roy Morgan Values Segments are appealing to marketers, as they
have been developed and proven across a wide range of product categories in various
countries (e.g. SBI operates VALS in the US, the UK, Japan, Venezuela, the Domin-
ican Republic, Nigeria and China, all of which are based on the same ­principles, but
optimised to the specific cultures). The framework shown is for use in the United
States and Canada only; individuals from other countries who take the survey will
not be typed accurately.

Chapter 6  Markets: segmentation, targeting and positioning 197

 INNOVATORS
Enjoy the ‘finer things’.
Are receptive to new products,
US VALSTM Framework
technologies, distribution. Are
sceptical of advertising.
Are frequent readers of a wide High Resources
variety of publications. High Innovation
Are light TV
viewers.

Primary Motivation
Ideals Achievement Self-Expression

THINKERS ACHIEVERS EXPERIENCERS

Are not interested in Are attracted to Follow fashion and
image or prestige. Are premium products. Are fads. Spend much of
above-average consumers of prime target for variety of income on socialising. Buy on
products for the home. Like products. Average TV watchers. impulse. Are heavy users
educational and public Read business, news of packaged
affairs programming. and self-help and electronic
Read widely publications. media.
and often.

MAKERS
BELIEVERS STRIVERS
Shop for comfort,
Are slow to change Are image conscious.
durability, value.
habits. Look for bargains. Have limited discretionary
Are unimpressed by Iuxuries.
Watch TV more than average. incomes, but carry credit
Buy the basics. Listen to radio.
Read retirement, home balances. Spend on clothing
Read auto, home
and garden, and and personal-care
mechanics, fishing,
general-interest products. Prefer TV
and outdoor
magazines. to reading.
magazines.

SURVIVORS
Are brand loyal. Use Low Resources
coupons and watch for Low Innovation
FIGURE 6.8 sales. Trust advertising.
Watch TV often. Read
VALSTM consumer tabloids and
women’s
segments magazines.
© Strategic Business Insights, www.
strategicbusinessinsights.com/vals.

While some psychographic systems suffer because they are conceptual in nature, do
not reliably measure personality or do not effectively link relevant personality traits
with consumer behaviour, other psychographic systems are grounded in empirical
research and do effectively measure and link personality to purchase decisions. The
VALS approach, for example, provides distinctive insights into consumer behaviours,
preferences and attitudes on the basis of a validated two-year research and devel-
opment effort. Ongoing research is conducted through client proprietary surveys

198 Marketing
and GfK/MRI’s national Survey of the American consumer, in which the VALS survey
is included. An individual’s VALS type is determined by their answers to a short list
of attitude items and four demographics known as the ‘VALS questionnaire’. VALS
explains why groups differ in their behaviours and why different groups often exhibit
the same behaviour for different reasons. For example, a recent study for an electric
utility found one VALS type was open to paying extra dollars on their monthly bill to
support development of renewable energy sources. Another VALS type with com-
parable demographics, including income, said, ‘Absolutely not!’ and was substantially
less likely to even worry about global warming. Marketers with this insight will select a
more focused target, will be able to isolate the features and benefits the target desires,
and will develop communications that motivate the target to action.
Behavioural segmentation
Geographic, demographic and psychographic segmentation are all based on ‘con-
sumer characteristics’. These consumer characteristics are relatively unchanging
over time or between product categories. As such, they are reliable, but they may
not provide the most useful insights or provide timely evidence of emerging trends
in purchase behaviours or the consumption of particular products.
In contrast, behavioural segmentation is not based on consumer characteristics; behavioural
rather, it is based on actual purchase and/or consumption behaviours, typically segmentation Market
segmentation based on actual
towards particular products. It is therefore likely to be a better indicator of market
purchase and/or consumption
segments and their purchasing behaviour than segmentation based on generalised behaviours.
consumer characteristics. Behavioural variables include:
• benefit expectations
• brand loyalty
• occasion
• price sensitivity
• volume usage.
Segmentation based on expected benefits represents perhaps the most convincing
basis for market segmentation, in that it is based upon the marketer’s concern with
a deep understanding of purchase and consumption motivations. It is a means to
better understand why consumers purchase particular products and brands, and to
base market segmentation around this understanding. Such an approach to segmen-
tation is likely to prove rigorous, but time-consuming and expensive, as the consumer
benefits sought for any particular purchase are likely to be specific to that particular
product or product category. For example, consumers’ choice of toothpaste may be
variously motivated by concern with fresh breath, whiteness, pleasant taste, or by
the need to minimise plaque or the discomfort associated with brushing. Similarly,
consumers of breakfast cereal might be motivated by the preferred taste or perceived
benefits of elevated levels of vitamins, minerals, fruit, roughage, or even lower
levels of sugar, salt, carbohydrates and fats. Effective benefit segmentation therefore
generally requires thorough research among users of a product category, in order
to understand underlying purchase and consumption motivations. N ­ otwithstanding
the additional time and expense required to develop benefit segmentation, there are
good grounds for the belief that the effort is worthwhile, especially for marketers
undertaking such segmentation for the first time. With additional experience, it may
prove that less complex means of segmentation, such as using ­demographics, pro-
vide equivalent insights and guidance for less effort and at less cost.
Occasion is also an important segmentation variable in products such as entertain-
ment, wine, travel and high-fashion. The assumption behind occasion-based seg-
mentation is that it is the occasion that dictates the decision to purchase and the final
choice of product. Wine purchasers may choose different wines based on the occasion

Chapter 6  Markets: segmentation, targeting and positioning 199

 for which it is purchased (e.g. as a gift, for the evening meal, for a celebration, or for
‘­cellaring’). For Chinese people around the world, the occasion of Chinese New Year
represents a time of optimism, extravagance, gift giving, enjoyment and travel.
Segmentation based on volume usage seeks to identify heavy, medium and light
users of a product category, helping an organisation identify and target, for example,
the 20 per cent of buyers who typically account for up to 80 per cent of profits,
purchase volume or value. In this context, middle-aged males represent the biggest
purchasers of high-end analogue watches. Notice, however, that this segment is also
described in standard demographic terms, demonstrating that volume usage, by
itself, is insufficient as a market segment descriptor.
The behavioural variables of brand loyalty and price sensitivity are complex topics
and are discussed in detail in the chapters on product and price respectively.
Segmenting business markets
Business markets are often characterised by a small number of buyers, each of which
might display a very close relationship with the seller. Under such circumstances, tra-
ditional market segmentation variables may be less relevant, and ‘customised’ or ‘one­-
to-one’ marketing may be the most logical approach. For example, chartered accountants,
architects and business consultants deal with their business clients personally and
individually. Fujitsu and IBM work closely with their major banking clients to develop
­‘tailored solutions’. At the same time, many business markets do have a large number of
buyers and market segmentation is a necessary approach to dealing with buyer diversity.
When a large organisation, such as Telstra, addresses itself to business markets,
it is potentially dealing with all businesses in the country. It therefore needs to seg-
ment these businesses in a meaningful way to enable it to concentrate its marketing
resources and maximise its marketing effectiveness. Under such circumstances, busi-
nesses of the size of Telstra and IBM will investigate how best to categorise their buyers
in such a way that they have common hardware, software and service needs and are
likely to respond in a common way to marketing programs. For example, Telstra could
meaningfully segment its business market customers based on whether they are a
small business, a medium-sized business, a large business or a multinational corpor-
ation. The organisation’s size — in terms of employees or revenues — naturally affects
its purchase volumes, purchasing procedures and the closeness of its relationship
to the seller. Very large business customers will typically purchase directly from the
seller and will expect advantageous volume, delivery and credit arrangements. They
might have contracts with Telstra for thousands of landlines and mobiles, very large
internet bandwidth and international roaming arrangements for some of their mobile
services. Conversely, small business buyers may purchase through intermediaries and
may be virtually indistinguishable from private buyers, with just a phone line, a couple
of mobiles and a broadband internet connection. Officeworks, for example, does not
­distinguish between small business and retail consumer buyers in its retail stores.
Segmenting based on factors such as the size of the business customer is roughly
equivalent to the demographic segmentation approaches that were described for
consumer markets. Another ‘demographic’ type of approach in business markets
relates to industry (sometimes known as vertical markets or segments). IBM, for
example, would identify different markets in education, health, manufacturing and
distribution industry ‘verticals’. Australian and New Zealand businesses seeking to
segment their markets in this way can access the Australian and New Zealand Stan-
dard Industrial Classification System (ANZSIC), which is produced by the Australian
Bureau of ­Statistics and Statistics New Zealand. This system divides all business
enterprises into 19 standard industry groups (e.g. manufacturing construction, trans-
port and storage). These, in turn, are broken down further into 53 subdivisions. The

200 Marketing
subdivisions, again, are broken down into more
specific categories. ANZSIC provides a comprehen-
sive overview of the industry structure and partici-
pants. The information from ANZSIC can help an
organisation to identify its potential customers and
its competitors in terms of size, growth, profitability,
sales and potential purchase activity. For example,
polystyrene is used in a vast range of industrial
applications in the manufacture of motor vehicles,
toys, electronics, furniture, bedding and insulation.
Each of these product applications typically rep-
resents major and distinct customer groups, each
with their own purchase requirements and with
varying needs for specialist technical support from
their chemical suppliers. Segmentation based on
the use of the product, or ‘product application’, is A commonly used
therefore a useful approach in business markets. For example, a polystyrene manu- method of segmentation
facturer will treat car and car parts manufacturers, refrigerator, ­bedding and insu- in business markets is
lation manufacturers as separate segments. based on geography.
One final commonly used method of segmentation in business markets is based on Marketers of pesticides
geography. In large countries such as Australia and geographically diverse countries and herbicides, for
such as Australia and New  Zealand, geography can be highly relevant in business example, need to
markets. For example, marketers of agricultural chemicals, fertilisers and pesticides consider the unique
would often segment the market according to the location of the buyer. Farmers — requirements of
farmers — including
the largest buyers of pesticides and herbicides — differ in their purchases according
the location and climate
to location and climate, be they coastal, inland, dry, cold or tropical, and to the crops
of their properties — in
or livestock suited to these areas. Similarly, geographic location may be an important order to maximise the
indicator of buyers in particular industries. For example, Caterpillar will focus much appeal of their products.
of its marketing of heavy mining equipment in Western ­Australia, ­Queensland and the
Hunter region of New South Wales, as these are the country’s ­primary mining areas.
While the segmentation approaches we have described are commonly used, much
of business-to-business marketing depends on individual relationships, and so it is
necessary to develop a system for identifying individual potential customers. To enable
an organisation to ‘drill down’ to the level of individual customers requires more
detailed information. Commercial industrial directories provided by commercial organ-
isations such as Compass, BIS Shrapnel and Dunn and Bradstreet contain information
on individual companies, such as the name, industrial classification, address, phone
number, types of products and annual sales, the names of chief executives and other
details. This enables business marketers to isolate business customers and to develop
targeted marketing campaigns to each individual potential business customer.
Effective segmentation criteria
An almost limitless number of segments can be created using segmentation vari-
ables. It is crucial, of course, that the segments are of use in formulating a marketing
approach. To ensure that segmentation is effective, the segments should be evalu-
ated against the following criteria.
• Measurability. The variables used to define the market segment must lend them-
selves to accurate and comprehensive measurement. Segmentation variables based
on demographic variables are highly measurable and extensive data are available
through commercial databases and organisations such as the Australian Bureau of
Statistics and Statistics New Zealand. More abstract variables, such as personality,
can be notoriously difficult to measure.

Chapter 6  Markets: segmentation, targeting and positioning 201

 • Accessibility. Segments must be able to be clearly identified, reached and served
through distribution and communication channels. In this sense, opinion leaders
are attractive to marketers but very difficult to identify and communicate with.
• Substantiality. Market segments must be of sufficient size and purchasing power to
make them a profitable target market. Ideally segments should be as large as poss-
ible, but still be homogeneous in their purchase preferences and behaviour. In this
sense, market segments in New Zealand may not be viable in sales revenue terms,
where they may be in a country like the United Kingdom. While manufacturing tech-
nology is advancing and mass customisation is increasingly possible, it is still true
that aggregate sales volumes represent a vital constraint on industry profitability.
• Practicability. Segments are only of use if marketing programs can be formulated
to identify, communicate with and service those chosen market segments. Seg-
mentation based on personality or psychological variables, while theoretically
sound, might be incapable of easy or successful implementation, particularly if
no relevant and recent data are available. In particular, the chosen target markets
should be large enough, clearly identifiable and able to be communicated with,
and distributed to, in order to be viable.

Profile market segments

Having identified the range of ways in which market segments can be described, the
market segment profile A next task is to develop a market segment profile. Such a profile describes the typical
description of the typical potential potential customer in the market segment; that is, it describes the common features
customer in the market segment;
shared by members of market segments and how they differ between market seg-
that is, a description of the
common variables shared by ments. Segment profiles will typically be described in terms of a number of segmen-
members of market segments tation variables. Individual segments will be uniquely described by a combination
and how the variables differ of segmentation variables, such as gender, age, occupation and lifestyle. With all the
between market segments. range of possible segmentation variables that can be used, it is usual for segments to be
constructed in a multivariate and hierarchical fashion. For example, consider how the
total market for athletic shoes in Australia could be segmented. A multivariate market
­segment profile within the overall athletic shoe market could be built as follows:
• segment initially on demographic grounds (e.g. gender and people aged 7 to
12 years, 13 to 18 years, 19 to 30 years, 31 to 50 years, and over 50)
• then segment on usage variables (e.g. casual walkers, joggers, cross-trainers,
serious amateur athletes, full-time elite athletes)
• as well as benefits (e.g. active, comfortable, supportive, durable, fashionable,
­performance enhancing).
As with this example, it is important to understand that the number of possible
segments grows by multiples when an additional segmentation variable is added.
Thus, adding gender doubles the number of market segments. This may also explain
why there are literally hundreds of different types of sports shoes available, most
targeting narrow, specialised segments. With such diversity of market segments, an
important requirement of effective segmentation is to understand the target market
segments completely: the insightful and creative marketer will know such target
market segments implicitly — as if they were close friends. To develop such an
intimate understanding of market segments will usually require comprehensive
qualitative and quantitative market research (as discussed in the chapter on market
research).
It is also important that market segments are sufficiently different from each
other, so that a distinctive offer and message can be created for each target market
segment without the risk of overlapping segments and/or sending confusing images
and messages.

202 Marketing
 Having developed rich and vivid profiles of the range of possible market s­ egments,
it is important to determine how closely the organisation’s current or potential
product offerings might match the needs of these market segments. We will examine
this next stage in the target marketing process in the next section.

Geodemographic segmentation Spotlight 

We are all aware of conspicuous differences between the geographic locations in which we live. We
all know where the best restaurants are located, where younger age groups prefer to live, where
older people move to retire and where people would prefer to live if they won Lotto. Geodemographic
segmentation is a technique for identifying such geographical
areas, usually based on suburbs, postcodes, electorates or local
government areas. The aim of geodemographic segmentation is to
discover distinctively different behaviours (usually purchasing or
lifestyle behaviours) between groups based on geographic locations
(usually where people live).
Why is geographic location so important? In simple terms,
assuming that the differences between the populations in
geographic locations are significantly different, marketers will
direct their distribution and promotional resources where target
customers are most concentrated. Such groups are identified and
quantified, and promotion and distribution can be directed to these
geographical locations for the most effect.
Geodemographic segmentation is based on two simple principles:
• people who live in the same area are more likely to have similar
characteristics than are two people chosen at random
• geographical areas can be categorised in terms of the ­
charac­teristics of the population which they contain. Any two
areas can be placed in the same category (i.e. they contain
similar types of people, even though they may be widely
separated).
Two geodemographic segmentation systems used in Australia
include Mosaic and geoSmart. The Mosaic system is Experian’s
people classification system, and covers 29 countries including most
of Western Europe, the United States, Australia and the Far East. In
Australia, Mosaic is marketed by Pacific Micromarketing. Mosaic Global is Experian’s global consumer
classification tool, covering 400 million households worldwide. It is based on the simple proposition
that the world’s cities share common patterns of residential segregation. It has identified ten types of
residential neighbourhood that can be found in each of the countries.
The geoSmart system is based on the principle that people with similar demographic profiles and
lifestyles tend to live near each other. It is developed by an Australian supplier of geodemographic
solutions, RDA Research. geoSmart geodemographic segments are produced from Australian Bureau
of Statistics Census data, and the system is updated for recent household growth. The geoSmart
system has 54 segments and 7 groups organised on the two dimensions of ‘socioeconomic status’
and ‘family orientation’. geoSmart geodemographic segments provide valuable insights into the needs,
resources and lifestyles of customers for a diverse range of products and services.9

Questions
1. List some product categories for which consumption will differ significantly based on suburban locations.
2. Conversely, can you suggest product categories that might not lend themselves to geodemographic
segmentation?

Chapter 6  Markets: segmentation, targeting and positioning 203

 Concepts and applications check
Learning objective 3  identify market segmentation variables for consumer and business markets,
and develop market segment profiles
3.1 Briefly outline the major categories of segmentation variables in (a) consumer markets, and
(b) business markets.
3.2 Why are behavioural variables a better indicator of purchasing behaviour than other consumer
market segmentation variables?
3.3 Explain the four main criteria that can be used to assess whether an identified market
segmentation scheme can be effectively implemented.
3.4 What is a market segment profile?
3.5 Choose a product (a good or service) and think of ten people that you know. Using your
knowledge of those people, build a meaningful market segment profile based on appropriate
segmentation variables relevant to the product you have chosen.

MARKET TARGETING
Learning objective 4 Having identified and described the range of possible market segments to which an
select specific target organisation might direct its offer, the second stage in the process is that of market
markets based on
targeting (see figure 6.9). This stage involves a systematic examination of the range
evaluation of potential
market segments of possible market segments, their potential sales volume and revenues, and the
relative ability of the organisation to satisfy the expectations of members of these
market segments. This step also requires a close understanding of competitors, and
how their offerings are seen by potential target market segments. In this context,
it is important to realise that no company or brand can be all things to all people,
especially when considering the vast array of potential customers and their diverse
needs, wants and demands.

Positioning

Segmentation Targeting Positioning

• Evaluate potential segments

FIGURE 6.9 • Select target segments Positioning

The target marketing

process stage 2: Market
targeting Each of the strategies of undifferentiated marketing, differentiated marketing and
specialised marketing (described in the second section of this chapter) offers advan-
tages and disadvantages, which make the choice of target marketing strategy crucial
for long-term survival and profitability. The choice of appropriate targeting strategy
ultimately depends on:
• an understanding of the size and attractiveness of the market segments that have
been identified
• an assessment of the organisation’s ability to service and compete for the chosen
market segments.
We will discuss these issues over the following few pages.

204 Marketing
Evaluate potential segments
The evaluation of potential market segments involves detailed and rigorous analysis
of sales potential, the competitive situation and cost structures. We will discuss each
of these in turn.
Sales potential
Market potential is the total volume of sales of a product category that all organ- market potential The total
isations in an industry are expected to sell in a specified period of time, assuming sales of a product category that
a specific level of marketing activity. For example, the market potential for new car all organisations in an industry
are expected to sell in a specified
sales in Australia is around one million cars a year. An organisation’s sales revenue period of time assuming a
is equal to its total volume of sales multiplied by the average selling price. The specific level of marketing
total volume of sales is determined by the organisation’s market share. For example, activity.
Toyota’s market share is around 20 per cent. Therefore Toyota’s total volume of sales sales revenue Total volume
will be about 200  000 units (20 per cent of one million) and its total sales revenue of sales multiplied by the average
will be 200  000 multiplied by the average price of its cars. selling price.
While the overall sales and level of marketing activity for new cars (a well-­ market share The proportion
established and well-defined product) can be predicted with some certainty, allowing of the total market held by the
organisation.
for varying economic conditions, it can be difficult to determine the likely marketing
activity and sales relating to new products or product categories, such as apps for
use with smartphones and tablet computer devices. Market size can be measured at
several levels, including product category or geographical area. It is important, of
course, that the organisation analyses the size of the market it can actually reach.
Company sales potential is an estimate of the maximum sales revenue and market
share that an organisation can expect to achieve for a specific product. Several
factors influence the organisation’s ability to achieve its sales potential in a given
market segment:
• the market potential (i.e. the maximum possible sales in the total market for a
product category)
• the organisation’s ‘served market’ (i.e. those segments of the market for which the
organisation chooses to compete)
• the level of industry marketing activity, which directly influences the market potential
• the effectiveness of an organisation’s promotional spending, which depends on
the organisation’s ‘share of voice’ (i.e. the organisation’s promotional spending
relative to total industry promotional spending) and the use of effective ‘tactical’
promotional spending designed to maximise impact.
As we saw earlier in this section, one approach to estimating sales potential is to
look at total market size, current market share, planned marketing activities and
environmental factors. For example, project home builders typically use Australian
Bureau of Statistics data on the aggregate level of ‘housing commencements’ and
Reserve Bank data on aggregate bank housing lending to estimate the size of the
total market. Next they would calculate their likely market share of that market, and
then calculate the company sales potential in volume (units) and revenue ($) terms.
The use of historical data (and sometimes even current figures) in isolation can,
however, be misleading. For example, the project home builder looking at housing
construction data over the past several years may have seen dramatic fluctuations
brought about by changes in interest rates, the unemployment rate and government
first-home buyer grants and subsidies. In addition, buyer ‘confidence’ is also crucial
in this market. Forecasting is a complex process subject to numerous uncertainties.
Another approach to estimating sales potential is to examine individual parts of the
market (e.g. sales territories), take into account the size or population of each terri-
tory and the organisation’s relative share of total marketing activity, and then sum
each territory’s estimates to produce a sales figure for the total market.

Chapter 6  Markets: segmentation, targeting and positioning 205

 Competitive situation
Any estimate of sales potential must be conducted in the context of a thorough
assessment of the organisation’s competitive situation — the activities of competi-
tors already in the marketplace and their relative market shares. This is usually
done as part of a situation analysis, as described in the chapter on the marketing
environment and market analysis.
Without a competitive assessment, sales estimates can be misleadingly optimistic,
especially where an organisation is entering an established competitive market. Under
such circumstances, it is important to evaluate the level of competitive activity and
the strengths and weaknesses of individual competitors before estimating the organ-
isation’s likely market share. To increase market share, it may be necessary to allocate
a larger than normal promotional budget. It is safe to assume that competitors will
take steps to defend their market shares when an organisation enters a new market.
This can lead to promotional warfare, which can depress profits through higher costs
and lower margins, even though sales volumes may be at the expected level. This
has been the experience of the Masters hardware venture of Woolworths, which has
achieved ­disappointing results in its attempt to disrupt Bunnings’ dominant position.
Cost structure
The organisation needs to consider the costs involved in creating, communicating
and delivering an offering to meet the needs of each potential market segment.
Costs directly affect the price the organisation will need to charge for its products,
its price competitiveness and its profitability given any particular sales volume. The
organisation’s cost structure includes production costs, administrative overheads and
all associated promotion and distribution costs. Knowledge of sales potential, the
competitive situation and the organisation’s cost structure combine to give a good
indication of expected profit. Of course, in many cases the organisation may decide
that the financial returns do not outweigh the expected costs. When considering an
organisation’s cost structure, it is important to distinguish between fixed and vari-
able costs. Fixed costs are constant, regardless of production and sales volumes. If
they are high they serve as an ‘entry barrier’, and an organisation may choose not
to enter a market even though revenue and volume expectations may be attractive.

Select target markets

With a detailed evaluation of potential market segments based on sales potential,
the competitive situation and the organisation’s cost structures, the organisation can
proceed to decide which market segments it will target and which it will disregard.
Also, from an understanding of its chosen target market strategy (i.e. undifferen-
tiated, differentiated or specialised), the organisation will now better understand
how it needs to tailor its offer to best meet the needs of each segment. With an
understanding of the opportunities and costs of serving each potential target market
segment, the next stage is for the organisation to choose particular target market
segments, recognising that this will require ignoring some market segments, which
may not offer sufficient sales potential or for which the organisation may lack the
resources or may not be well placed to compete.
Having identified a range of potential target market segments, the organisation needs
to undertake a rigorous analysis to choose between the range of possible segments. If
segmentation has been done effectively, then it is likely that there will be little overlap
in the demands of key target markets. On the other hand, if the range of demands is
relatively homogeneous, then the organisation may be able to cover several market
segments with a single product offer and marketing mix. The organisation could use
an undifferentiated approach, and in so doing capture larger sales volumes at lower

206 Marketing
incremental cost. However, such a position may leave the ­organisation vulnerable to
attack by competitors that target each segment individually.
Assuming that several segments offer sufficient revenue opportunities, the organ­
isation must decide which and how many of these segments to target. This decision
will be based on the revenue opportunities identified in the previous step, together
with an understanding of the organisation’s costs, resources and capabilities and the
likely response of competitors. The size of the available market will be a prime
consideration in deciding how many segments to target. Consider, for example,
the rapidly growing energy drink category in Australia. Tackling mainstream brands
such as Red Bull, V and Mother is an enormous challenge for new entrants in the
market, but the identification of particular segments that are less well-served can
provide a profitable niche for new competitors. This has been proven by entrants
into the health-conscious beer drinking segments, including BlueTongue Brewery’s
Bondi Blonde. In New Zealand, boutique brewers have targeted particular segments
to try to find a niche. For example, the Epic Brewing Company targets its pale ale at
drinkers with a preference for a strongly flavoured beer and a rebellious image. Of
course, once they do establish a successful niche, they should expect large competi-
tors to introduce their own products targeting those segments.
Estimating market potential in each target market segment is important in
determining whether the chosen target market strategy will lead to healthy sales
­volumes and sustainable profitability. This step requires estimation of market potential
for individual market segments and, in this process, it is important that the organisation
develops sales forecasts based on systematic, objective and reliable methods, and that the
forecasts are sufficiently accurate. A range of methods are available, including market
research (particularly surveys), analysis of historical trends, statistical analysis to identify
underlying purchasing patterns, test marketing results and indeed just the intuition of
decision makers. In such circumstances, it is important that the decision to launch should
be supported by the market estimates under the most conservative of assumptions, thus
avoiding the common error of basing launch decisions on ‘wishful thinking’.
Selecting particular market segments (and deciding to ignore others) is therefore
at the heart of the marketing concept. The organisation is no longer referring to an
individual buyer or the entire mass market — it is now a target market segment or
segments (although the organisation may describe such target market segments as if
they were individuals).

The death of the mass market Spotlight 

While the logic and advantages of mass marketing have been
long recognised, some marketing commentators believe that
the days of the mass market may be numbered. While they
acknowledge the cost advantages which accrue from economies
of scale in mass marketing, they point to the fragmentation
of mass markets into micro markets. This fragmentation is
seemingly inevitable and results from the combined effect of
the increasing diversity in consumer tastes and the advent of
mass customisation, which enables manufacturers to tailor their
products to the preferences of individual buyers.
BMW, for example, can produce thousands of different
versions of its most popular ‘3 series’ cars. Production
technology, together with developments in information
technology and database marketing, makes it technologically
feasible to talk of ‘marketing to a segment of one’. This is

Chapter 6  Markets: segmentation, targeting and positioning 207

 especially attractive to organisations such as banks that are seeking to build long-term relationships
with every individual customer and in particular to build stronger and more profitable relationships with
high-value customers. Combined with the interactive capabilities of the internet, the marketer has the
opportunity to develop a closer and more mutually satisfying relationship with the customer.
An important consideration, however, is whether the customer truly wants a unique offer. And, if so,
are they willing to pay a premium price for it?
Of course, the mass market will still enjoy a profitable future, especially where the mass marketing
approach delivers customers real benefits through lower prices or through some psychological need,
such as their identification with the collective (such as is provided by global brands such as Levis, Nike
and Harley-Davidson).

Questions
1. Choose a product (a good or a service) and discuss how market fragmentation into micro markets affects
the marketers of that product.
2. Discuss the pros and cons of ‘marketing to a segment of one’ from (a) the perspective of the marketer,
and (b) the perspective of the customer.

CONCEPTS AND APPLICATIONS CHECK

Learning objective 4  select specific target markets based on evaluation of potential market segments
4.1 Recall the most recent item of clothing that you purchased. Describe the market segment(s)
at which you think it is targeted.
4.2 What factors should form the basis of an organisation’s evaluation of potential market segments?
4.3 Choose a magazine that you read at least occasionally. List all of the possible market segments the
magazine could target, and outline the competitive situation that the publication potentially faces
in each. Which segment do you believe would be the most attractive for the magazine to target?
Justify your answer.

POSITIONING
Learning objective 5 The market targeting stage will provide organisations with a clear understanding of
understand how to their best prospective market segments, and of their ultimately chosen target market
effectively position an segments. The issue then arises as to the offer to be made to each segment, and how the
offering to a target market
in relation to competitors,
organisation wants to be perceived by its target markets. The organisation must deter-
and develop an mine how its offer is ‘positioned’ in the minds of each of its target market segments
appropriate marketing mix and develop its marketing mix accordingly. Positioning describes how target markets
perceive the organisation’s offer relative to competing offers. It is how customers dis-
positioning The way in tinguish the organisation, its products and its brands from competitors when they are
which the market perceives an selecting from among the available alternatives. Notice that positioning is based on
organisation, its products and its customer perceptions which may or may not closely correspond with the product’s
brands in relation to competing objective characteristics. For example, Penfold’s Grange Hermitage wine is strongly
offerings. positioned as Australia’s premier wine in the minds of customers, even though some
of its close competitors may be judged above it from year to year. The important issue
is how potential buyers perceive the brand, and this requires that the marketing organ-
isation undertakes regular qualitative and quantitative market research to obtain an
accurate understanding of the position it occupies in the minds of its target customers.
The organisation can pursue positioning to manage:
• how it, as a whole, is perceived relative to competitors in the minds of its ­stakeholder
groups. Virgin, for example, seeks to position itself as the most friendly, casual and
perhaps even ‘irreverent’ competitor across its range of businesses
• how its brands are seen, typically focusing on distinguishing product attributes.
For example, Apple focuses on simplicity, breakthrough design and the wide range
of applications (apps) for its iPad and iPhone

208 Marketing
• how the market distinguishes its offering from those of closely competitive brands.
For example, Audi competes closely with BMW and Mercedes for the same target
markets with closely comparable prices and product features.
Position is fundamentally important for organisations, because it describes how
the organisation is perceived by the market, relative to its competitors on the attri-
butes that customers regard as important in their decision making. In this way,
positioning describes how customers make sense of the complex, crowded market-
place and make their brand choice decisions in an efficient way. Positioning enables
buyers to take a ‘shortcut’ and arrive at decisions without an excessively complex or
confusing process. When it is done successfully, positioning is generally based on
simple propositions, with which customers agree and which can be easily retained
in memory. In this sense, Qantas’ positioning around the theme ‘I still call Australia
home’ is believable, memorable and unique.
While communicating a product’s attributes through advertising and other pro­
motional campaigns is crucial in establishing an initial market position in the minds of
target customers, it is important to understand that such promotion and communication
can only attract ‘first-time’ buyers to the brand. Once customers have sampled the
brand, the brand’s positioning will subsequently depend very largely on the customer’s
experience of the brand. In this sense, the crucial question for positioning is ‘Does
the customer’s experience match the promise?’ It is easy for an organisation such as
an airline or a bank to promise ‘friendly and efficient service’ in seeking to attract new
­customers. The crucial and more difficult question for the long term is whether or not
the organisation’s performance corresponds with its promise and its market positioning.
Positioning involves two steps: firstly, determining the position that the company
wishes to occupy in the minds of buyers; and secondly, developing a marketing
mix to reflect the expectations of the target market segment and which reflects that
­positioning. This is shown in figure 6.10.

Positioning

Segment A
• Determine positioning for segment A
• Determine the marketing mix for segment A

Segmentation Targeting Positioning

Segment D
• Determine positioning for segment D
• Determine the marketing mix for segment D

Positioning
FIGURE 6.10
Segment E
The target marketing
• Determine positioning for segment E
process stage 3: Market
positioning • Determine the marketing mix for segment E

Chapter 6  Markets: segmentation, targeting and positioning 209

 Determine positioning for each segment
To determine the appropriate positioning for its products, an organisation needs
to undertake detailed market research to understand its current position in the
minds of its target market segments. As outlined in the chapter on market research,
a common technique for determining positioning is called perceptual mapping,
which typically produces two-dimensional maps showing how each of the com-
peting brands relate to each other in terms of a range of product attributes. This,
of course, assumes that consumers in the target segment are already familiar with
the brand and its competitors and are able to subjectively or objectively compare
them on attributes that they believe to be important. In a familiar product category
like toothpaste, consumers will generally have little difficulty in describing how
they distinguish between competing brands such as Colgate and Maclean’s in
terms of a range of attributes such as fresh breath, cavity protection, pleasant taste
and ­ suitability for sensitive gums. Under such conditions, familiar brands such
as ­Colgate  Total occupy clear and strong positions, which is paradoxically both
a strength and a limitation. It  represents a strength in that existing consumers
are in no doubt about the b ­ enefits and features of the product. At the same time,
such a strong position is difficult to change in the short term. Conversely, new
brands in the market are better able to establish new positions based on new ben-
efits as  ­
consumers  develop  ­ awareness  of  newly discovered issues (for example,
gingivitis).

Analysing current positioning

The process of establishing an organisation’s current positioning is clearly of
­strategic importance and, as such, should be undertaken based on rigorous analysis
and market research. Furthermore, positioning is a long-term strategy and, as
such, should not be changed frequently unless it is demonstrably necessary. The
first step in determining the current positioning of a brand is to identify those
product  ­attributes that consumers use to distinguish between competing prod-
ucts or brands (‘salient’ product attributes). For example, consumers differen-
tiate between home and contents insurance products based on price and extent
of coverage. Qualitative research methods such as focus group studies (see the
chapter on market research) are commonly used to ascertain the relevant, salient
attributes.
Once the product attributes responsible for creating consumers’ different percep-
tions have been identified, the organisation needs to assess how its own product
or brand, and competitors’ products or brands are positioned in relation to those
attributes. This is typically done through quantitative survey research, using rating
scales to establish how each competing brand scores on each of the product attri-
butes within each of the target market segments. Based on the results of these rating
scales, a perceptual map can be constructed. Figure 6.11 shows a perceptual map
for the Australian surfwear industry. The perceptual map shows how the different
brands are currently positioned relative to each other on those attributes that con-
sumers use to distinguish between their offerings.
The next step is to devise some concept of the ideal position of the organisation’s
product or brand. This may need to be adjusted on the grounds of practicability —
the desired position may not be technically feasible or attainable given the resources
available. (For example, electric cars are currently hampered by modest cruising
range due to limitations in battery technology.)
Finally, the organisation needs to develop a plan to move to the desired position.

210 Marketing
 A genuine surf brand
Is becoming more popular
Is more about comfort
Billabong than fashion Quiksilver
Roxy Sets trends for youth
Is one of my preferred brands Is here to stay not just a fad

Is mostly about status and

Innovative products and
peer group
styles

Don’t know much about

Rusty
them

FIGURE 6.11

Is about independence and A perceptual map of

individuality the Australian surfwear
industry

Competitive positioning and repositioning

Refer back to figure 6.11. Having established its current position, Rusty, for example,
might feel that its position as an individual and independent choice is holding it back
from securing more market share. It might want to move towards a position related
to peer status. For Rusty, the question would be ‘How might we reposition?’ One
option would be to pay celebrities to wear the brand. Secondly, Rusty could change
its advertising appeals to try to persuade the public that it is more ‘mainstream’ and
not so representative of independence. A further attribute which is not represented
in this perceptual map, but which is present in almost all consumers’ mental maps,
is price. Generally price is relatively independent of other product attributes, and all
competing brands will be evaluated on price (see the chapter on price).
It should now be clear that positioning is fundamentally important in the marketing
of individual brands and in the organisation’s long-term competitive success. It should
also be apparent that, once established, a competitive position should be protected
and nurtured for the long term. This involves communicating a consistent message
and delivering a consistent product and service offering over the long term. In this
sense, positions should not be chopped and changed, but rather should be created,
nurtured and consistently reinforced.

Determine the marketing mix for each segment

With knowledge of the optimal, practicable positioning of our brand, the final step in
the target marketing process is to determine an appropriate marketing mix for each
target market segment. The marketing mix describes the overall offer the organ-
isation makes to its target customers. The marketing mix for each segment should:
• be consistent with the desired positioning
• be internally consistent — each element of the marketing mix should be coordi-
nated and supportive of the other elements
• be sustainable in the long term.
Developing the appropriate marketing mix for target market segments is the focus
of the rest of this textbook and will be central to all of your work in marketing.

Chapter 6  Markets: segmentation, targeting and positioning 211

 Spotlight  Opel Leben Autos
When Opel launched in the Australian market in 2013, it could hardly have been called ‘young’ —
Opel has been building cars since 1899. Nor were Opel products entirely unfamiliar to the Australian
market, as cars such as the Corsa, Kadett, Vectra and Zafira have been marketed as Holden Geminis,
Barinas, Vectras and Zafiras since the 1970s. Even the quintessentially Australian Holden Commodore
was originally derived from the Opel Commodore. Today, beyond the Commodore, General Motors
Holden sources its small cars from General Motors’ Korean operations as part of its global branding
and production programs.
The decision of General Motors to belatedly introduce the
Opel brand to Australia could be seen as a response to the
strong Australian dollar, which has made European brands —
especially Volkswagen and the European Fords (Mondeo,
Focus and Fiesta) — much more price competitive. The
long-term success, or otherwise, of Opel would depend on its
continued competitive costs (determined largely by the Euro/
AUD exchange rate), and therefore its pricing; but it would
also fundamentally depend on the success of its positioning
in a very crowded and competitive marketplace. Opel’s
launch positioning strongly emphasised its German origins,
and Volkswagen was its obvious immediate competitor, together
with the European Fords, Renault, Peugeot and Volkswagen’s
other European brand Škoda. The Opel brand and range of
Corsa, Astra and Insignia (which were to be joined by Zafira
and Mokka) was positioned as strongly German, while offering
a value package of enhanced product features at a comparable
price to Volkswagen (or a lower price when comparing ‘like for like’).
However, as several European brands (for example, Alfa Romeo, Fiat, Lancia, Seat and Škoda) have
already discovered, a proud heritage and strong European market presence do not guarantee success
in Australia. Opel’s entry strategy and positioning was a ‘work in progress’. To everybody’s surprise
(including staff and dealers), on 2 August 2013 Opel Australia announced it was withdrawing from the
market immediately, citing the current $19  990 price point of comparable products to its Astra as
being prohibitively low. Clearly, the recent slide in the Australian dollar was a contributing factor. One
of Opel’s dealers claimed that the company had been ‘perhaps a little naive’ in its Australian market
strategy. For example, Škoda (a minor European brand also owned by Volkswagen) had been operating
in Australia for over five years, and had only recently been making headway.10

Questions
1. Construct a perceptual map showing the positioning of Opel together with its immediate competitors
(e.g. European Fords, VW, Renault, Peugeot) in the Australian market.
2.  Based on the map, what positions do you think Opel could and should have feasibly adopted?

Concepts and applications check

Learning objective 5  understand how to effectively position an offering to a target market in
relation to competitors, and develop an appropriate marketing mix
5.1 Explain the concept of market positioning.
5.2 Choose five different products (goods or services) and list those attributes of each that would be
used by consumers to distinguish between competing brands.
5.3 For the five products in question 5.2, describe the relative positioning of three different brands.
5.4 Why is it important for a marketer to take a long-term view of positioning and the marketing mix?

212 Marketing
SUMMARY Key terms and
Learning objective 1  explain the broad concept of a ‘market’ concepts
A market is a group of customers with heterogeneous needs and wants. Marketers behavioural
 segmentation 199
seek to identify and understand those parts of the market that they can offer the
demographic
most value. These parts of the total market form the organisation’s target market.
 segmentation 194
differentiated targeting
Learning objective 2  understand the target marketing concept  strategy 190
Market segments are subgroups within the total market that are relatively similar in geographic
 segmentation 194
regards to certain characteristics. Marketers can choose to make an undifferentiated
market  185
offer to the market, to customise the offering for each individual customer, or to market potential  205
make offers that are tailored to the needs of market segments, but not further differ- market segment profile  202
entiated within each segment. Target marketing is an approach to marketing based market segments  187
on identifying, understanding and developing an offering for those segments of the market share  205
total market that an organisation can best serve. Small organisations with limited market specialisation  190
resources often choose to specialise their offering to a particular market segment, positioning  208
focus on one product, or combine both approaches. The target marketing process product specialisation  190
involves market segmentation, market targeting and market positioning. product–market
 specialisation 190
psychographic
Learning objective 3  identify market segmentation variables for consumer and
 segmentation 196
business markets, and develop market segment profiles
sales revenue  205
Market segmentation involves identifying variables that can be used to define mean- segmentation variables  193
ingful market segments and then creating profiles of the market segments. The ideal target marketing  188
market segmentation variables are those that are likely to be closely linked to pur-
chasing behaviour. In consumer markets, geography, demographics, psychographics
and behavioural variables are useful for segmentation. In business markets, organ-
isation size, product use and geography are typically used. Whatever the segmenta-
tion variables, the defined segments should be measurable, accessible, substantial
and practicable. Based on market segments, the marketer can develop a market seg-
ment profile, which is a description of the typical customer in the market segment
in relation to their shared characteristics and the characteristics that distinguish
them from other segments.

Learning objective 4  select specific target markets based on evaluation of

potential market segments
Market targeting is the selection of target markets resulting from the evaluation of
the market segments that have been identified. The choice of target markets will be
made upon thorough assessment of the market segment’s sales potential, the com-
petitive situation in the market, and the organisation’s cost structures. Once these
factors are known for each segment, the most appealing segment or segments will
emerge as the clear targets for the organisation’s marketing strategy.

Learning objective 5  understand how to effectively position an offering to a

target market in relation to competitors, and develop an appropriate marketing mix
Market positioning refers to how target markets perceive an organisation’s offering
in relation to its competitors’ offerings. Market positioning is fundamental to how
customers choose between competing products. Organisations may choose to under-
take positioning at the company or brand level, or to focus on differences with close
competitors. To implement a positioning strategy, the organisation must determine

Chapter 6  Markets: segmentation, targeting and positioning 213

 how it wishes to be perceived by the market and then develop a marketing mix that
will produce that perception. The first step in analysing positioning is to determine
which product attributes consumers use to distinguish between competing offerings.
The organisation then assesses how it and its competitors are positioned against
those attributes. Once the current market position is known, the organisation can
develop a concept of where it would like to be positioned. Finally, it must develop a
plan to move to the desired position. The marketing mix developed for each target
market segment must be fully consistent with the desired position.

214 Marketing
Generation Z defined: global, visual, Case study
digital
With the oldest Generation Zs having reached adulthood, and
the youngest having started school, here’s an analysis of what
defines this global, 21st-century generation.
The world is changing at a rapid pace, and has been
transformed in the lifetime of our Gen Zs. Just five years ago if
you said ‘Do you have the latest app?’, ‘Did you read that tweet?’,
‘Make that your status update’ or ‘Oh, you have an android’,
people would wonder what planet you are from. Such is the
speed of technological change that while it took almost ninety
years for there to be one car in Australia for every person, it’s
taken just five years for smartphones to have the same reach!

Generation Z: growing up in shifting times

Generation Z are the children and teenagers growing up in
these fast-moving, complex times. Born between the mid 1990s
and around 2010, the youngest of this cohort are just entering
primary school, while the oldest have put down their pens and
exam papers after finishing their final school exams. There
are currently 4.6 million Gen Zs in Australia, and with this generation the learners of today and the
employees of tomorrow, understanding what has shaped them, as well as what motivates them, is
critical. In light of that, here are seven top trends shaping Generation Z.

7 trends defining Generation Z

1. Demographically changed. Australia is experiencing both an ageing population and a baby boom,
with over 300  000 babies born each year. Since 1966, Australia’s population has doubled and is
now growing by a new Canberra every year. Not only is the population growing, but our households
are changing. The nuclear family (parents and children) is still the most common household form
(33 per cent of all households). However, within a few years, the couple-only household will be the most
common, and with our ageing population, the lone person household has been the fastest growing.
2. Generationally defined. Generations are comprised of people who share a similar age and life
stage, have been shaped during their formative years by similar conditions and technologies
and have lived through the same events and experiences which have impacted them. For
Generation Z, coming of age in the 21st century has created a unique generation — from the
global financial crisis to growing cultural diversity, from global brands to social media and a digital
world. Generation Z are the most materially endowed, technological saturated, formally educated
generation our world has ever seen.
3. Digital integrators. While all age groups have embraced the digital technologies of the 21st century,
the age at which they first utilise the technology determines how embedded it becomes in their
lifestyle. We refer to adults as the digital transactors who use technology in a practical, functional,
structural way, using the new technology to achieve tasks that they previously used old technology
to achieve. However, Generation Z are digital integrators in that they have integrated technology
seamlessly into their lives and, having used it from the youngest age, it is almost like the air that
they breathe, permeating almost all areas of their lifestyle and relationships. A recent study showed
that more than half of Australian young people don’t wear a wristwatch because the smartphone
has become the primary device used to tell the time (in addition to being the primary device for
getting directions, checking the weather and taking a photo).
4. Globally focused. Generation Z is the first generation to be truly a global one. Not only are the
music, movies and celebrities global for them as they have been for previous generations, but
through technology, globalisation and our culturally diverse times, the fashions, foods, online

Chapter 6  Markets: segmentation, targeting and positioning 215

 entertainment, social trends, communications and even the ‘must-watch YouTube videos and
memes’ are global as never before.
5. Visually engaged. At 4.7 billion searches per day, Google is the number one search engine, but
with 4 billion YouTube searches a day, YouTube is a close number two. We have an emerging
generation, many of whom are opting to watch for a video summarising an issue rather than
read an article discussing it. In an era of information overload, messages have increasingly
become image based and signs, logos and brands communicate across the language barriers
with colour and picture rather than words and phrases. Analysis of learning styles has shown the
dominance in the visual and hands-on learning styles above that which traditionally dominated the
classroom — the auditory delivery format.
6. Educationally transformed. While the Australian federal government has a target of 90 per cent
of students completing year 12 by 2015, many schools have already surpassed this. And while
the average young person is spending more years in formal education than ever before, with
tertiary education rates similarly increasing, for today’s students, education is no longer life stage
dependent (i.e. before the career commences), but a lifelong reality. Not only have students
changed, but also their schools, with a shift from teacher centred to learner adaptive, from content
driven to engagement focused, and from formal delivery to more interactive environments.
7. Socially defined. More than any other generation, today’s youth are extensively connected to and
shaped by their peers. In a recent study by McCrindle Research, it was found that while nearly
all the generations had the same amount of close friends (an average of 13), Generations Y and
Z had almost twice as many Facebook friends than the older generations. And so, the network
that influences them is greater numerically and geographically and, being technology based,
is connected 24/7. This technology, while helping to facilitate their relational world, can also
negatively impact it, with research showing that a third of students have been bullied via social
networking websites (such as Facebook), instant messaging, texts or email.
Australia’s Generation Z, coming of age in the 21st century, are alive at an amazing time in
human history, living in one of the most amazing places in the world and — being at the start of their
lives — have amazing opportunities, unimaginable just a generation ago. Understandably, very few
Generation Zs would swap their lives with any other generation at any other time and in any other
place. The challenge for the older generations is to offer the wisdom, guidance and support so that this
emerging generation can make a positive difference in their era and for the generations of the future.

Source: ‘Generation Z defined: global, visual, digital’ (2012), The McCrindle Blog, 20 December, www.blog.mccrindle.com.au.

Questions
1. What are the key distinguishing characteristics of Gen Z that set them apart from previous
generations?
2. In what markets do Gen Z represent an important opportunity for marketers?
3. How will marketing to Gen Z be different to marketing to previous generations?
4. What will be the key challenges in marketing to Gen Z?

Advanced activity
The opening case at the start of the chapter highlighted the pricing competition
between discount department stores. Apart from discount department stores,
make a list of five other sectors of the consumer market that might be expected to
experience a similar level of competition intensity. Choose one of these sectors, and
outline what cost structures and business models you would implement to allow a
business to compete successfully on price against local and online retailers.

216 Marketing
Marketing plan activity
Based on the information you have been compiling for your chosen organisation’s
marketing plan (the situation analysis, SWOT analysis, any market research you
have or will be conducting, and your understanding of how consumers and/or
businesses make purchasing decisions), identify your potential target market or
markets. Be as specific as possible, outlining the following for each target market
segment that you identify:
(a)  demographic characteristics
(b)  geographic characteristics
(c)  psychographic characteristics
(d)  behavioural characteristics.
Finally, analyse the needs of each target market segment, explaining the
following:
(a) the current (and potential future) needs of each target market segment
(b) how your chosen organisation’s current product offerings meet these needs
(or will be able to be positioned to meet these needs)
(c) how competing product offerings currently meet these needs (or will likely
be positioned in future to meet these needs).
This needs analysis may require additional market research to be conducted and
prompt you to modify the market research brief you prepared at the conclusion of
the chapter on market research.
A sample marketing plan has been included at the back of this book to give you
an idea where this information fits in an overall marketing plan.

Chapter 6  Markets: segmentation, targeting and positioning 217

 CHAPTER 7

Product
Learning objectives
After studying this chapter, you should be able to:

define ‘product’ and understand different ways to view and analyse products
and product attributes

describe the product life cycle, new product development and the product
adoption process

outline how an organisation can differentiate its products to obtain a

competitive advantage

explain the value of branding and the major issues involved in brand
management

describe the functional and marketing roles of packaging

explain key aspects of product management and positioning through the

product life cycle.
7-Eleven Slurpees — what’s
your flavour?
Everybody loves a frozen Slurpee on a hot summer’s day. Slurpees were first sold at
7-Eleven stores in the United States in 1967, and have become a favourite drink to
cool down. Even in The Simpsons they enjoy ‘Squishees’ at the Kwik-E-Mart! With
7-Eleven convenience stores located in 16 countries, including the US, Canada, Japan,
Hong Kong, Malaysia, Thailand and the Philippines — totalling over 48  000 outlets —
a lot of Slurpees are sold. In Australia alone, over 6.6 million of the drinks are sold
each year!
The Slurpee machine is a common sight at convenience stores, although originally it
was located away from customers and behind the counter, so it was the sales assistant
who poured the frozen product. With the machine having a separate spout for each
flavour and being very easy to operate, customers were soon able to enjoy the fun of
pouring their own Slurpees and mixing flavours.
For many years, the frozen treat usually consisted of two basic flavour options —
raspberry and cola. However, in recent times the basic Slurpee has been changing
its flavour as a way to revitalise the product and promote 7-Eleven stores. In early
2012, a new ‘Flavours of Summer’ range was launched, which included lemon, lime
and bitters; orange mandarin; passionfruit; and ginger beer. With the success of the
new flavours (which were available for only a limited time), 7-Eleven followed with
the ‘13 Flavours/13 Weeks’ campaign. A different flavour was available every week for
13 weeks, including sour apple, margarita, orange spider and bubblegum, with prizes
also on offer. 7-Eleven also runs regular Slurpee promotions throughout the year, such
as ‘Bring your own cup day’, and free Slurpees are handed out on 7 November  —
known as ‘7-Eleven day’ (7th day/11th month).
Offering the same product all the time can become boring. By changing its Slurpee
flavours and encouraging customers to try them, 7-Eleven has established a s­ uccessful
product strategy.1

Question
From a marketing perspective, is it a good idea for 7-Eleven to have so many
different Slurpee flavours? Why/why not?
INTRODUCTION
In the chapters on consumer behaviour and business buying behaviour, we explored
the reasons behind the purchasing decisions made by consumers and businesses,
and how they go about making those decisions. Combined with the ability to divide
the market into target segments, this information helps us begin to answer the ques-
tion we posed at the start of the chapter on markets: ‘How do we formulate the
marketing mix to best serve our potential customers?’ In this and the following
­
chapters, we will examine the key components of the marketing mix — product,
pricing, promotion and distribution (place) (as well as people, processes and physical
evidence). Unlike factors in the micro environment and macro environment, the
marketing mix can be directly controlled by the organisation.
We will first examine product decisions. As we learned in the introduction to mar-
keting chapter, a product can be a good, service or idea. In this chapter, we will
examine the broad decisions that need to be made about the product in the marketing
mix. In the services marketing chapter, we will look in more detail at some of the
­considerations demanded by the special nature of products that are services.
The product is, essentially, what the marketer takes to the market in an attempt
to get consumers to buy or engage in some type of exchange, in order to achieve
the organisation’s objectives. A product can be relatively simple, like a potato chip;
much more complex, like an aircraft; or even a game that provides entertainment,
like Just Dance. Also, products rarely stay the same, and will change to suit new
technology and changing tastes. Even a company like 7-Eleven, as we saw in the
opening case, will create new Slurpee flavours. Developing, launching and pos-
itioning products can be difficult and uncertain. In this chapter we will be dis-
cussing what a product actually is, the types of products available, the product life
cycle, branding, packaging, product development, management and positioning.
With this knowledge, the marketer is better placed to manage the product aspect of
the ­marketing mix.

PRODUCTS: GOODS, SERVICES AND IDEAS

In chapter 1, the marketing process was shown to comprise creating, communi- Learning objective 1
cating, delivering and exchanging offerings that have value for customers. A product define ‘product’ and
understand different
is defined as a good, service or idea offered to the market for exchange. Clearly,
ways to view and analyse
product plays a vital role in the marketing process. Without a product, a marketer products and product
has nothing to offer. On the other side of the exchange, potential customers require attributes
products to satisfy functional, social and psychological needs, wants and demands.
The core concept is that both parties must gain value from the exchange.
Goods are physical, tangible offerings that are capable of being delivered to a cus- product A good, service or
tomer. Because it is tangible, you can see, touch, taste and smell a good (depending idea offered to the market for
exchange.
on what it is). The purchase of a good usually involves the transfer of ownership
from marketer to customer; when the customer buys a good, they usually become
the owner of the good. Examples of goods include toothpaste, shoes and cars. Ser-
vices are intangible offerings to the market. As they are intangible, a service cannot
be touched or tasted and does not involve ownership; instead, you experience a ser-
vice. Haircuts, legal representation and massages are all examples of services. An
idea can also be offered to the market in the form of a concept, issue or philosophy.
Ideas are often the products of community organisations, charities and political par-
ties. Examples of ideas include Quit for Life; Slip, Slop, Slap; and Clean Up Australia
or Keep New Zealand Beautiful.

Chapter 7 Product 221

 The total product concept
Products have many different features that can provide value for customers, clients,
partners and society at large. In chapter 1 we described the features of a product as a
‘bundle of attributes’. At the most basic level, marketers must ensure that the product
attributes satisfy the needs and wants of potential buyers. It is this ability to satisfy
a need or want that makes the product of value to potential customers. To make a
product of more value than competing offerings, the marketer must take a more com-
prehensive view of the product. To understand how the product’s value is perceived
by potential customers, it is useful to describe the product in terms of its four levels:
core product, expected product, augmented product and potential product. This view
total product concept A view of the product is known as the total product concept and is illustrated in figure 7.1.2
of the product that describes the It is crucial for marketers to understand that when customers choose a product,
core product, expected product,
they do not purchase some ‘thing’; rather, they buy a solution to a problem. For
augmented product and potential
product in order to analyse how example, a company that operates vending machines that serve hot drinks should
the product creates value for the view its business as one that quenches people’s thirst, warms them when out on
customer. chilly winter nights and gives them a caffeine boost when they are feeling tired; not
as a business that places machines on train station platforms and mixes lukewarm
water with powdered flavouring in a cardboard cup. The total product concept is a
way of viewing a product as the totality of value and benefits it provides to the cus-
tomer. Products are offered to the market to be an answer to the customer’s problem
of an unsatisfied need or want.

Core product

Expected product

Augmented product

FIGURE 7.1
The total product concept
Potential product

The core product

The core product comprises the fundamental benefit that responds to the ­customer’s
problem of an unsatisfied need or want. So what is it that will satisfy a customer’s
need? What is the key benefit they want from a product? For a marketer, under-
standing these questions will greatly assist in providing the right product to the
market, and make sure customers purchase from you and not a competitor. For a
mobile phone, the core benefit is reliable, accessible communications; for a credit
card, it is the ongoing provision of credit; for a coffee, it is satisfaction of thirst. Regard-
less of other changes made to a product, the core product generally remains the same.
The expected product
The expected product describes those attributes that actually deliver the benefit that
forms the core product. They are the attributes that fulfil the customer’s most basic
expectations of the product. Marketers generally try to differentiate their offering
using fundamental characteristics such as branding, packaging and quality standards
at the expected product level. For a mobile phone, an expected product could be a
conveniently sized phone with easy-to-read screen and keypad; for a credit card, it

222 Marketing
could include a plastic card with the card number and a signature panel that can
easily fit into a wallet or purse.
The augmented product
At the augmented product level, the product delivers a bundle of benefits that the
buyer may not require as part of the basic fulfilment of their needs. The augmented
product level enables marketers to significantly differentiate their offerings from
those of competitors. It is often the augmented product features that form the main
reason for choosing a particular brand. This can include support services, such
as guarantees. For mobile phone companies, augmented product features include
access to a variety of downloadable apps. For a mobile phone, product augmentation
may extend to superior sound quality or the ability to use the device for ‘virtual’
tickets (e.g. Apple’s Passbook application enables the ability to store event and travel
tickets). For a television, it could be the expansion of smart TV capabilities, with an
increased convergence of television and the web. Over time, features that form part
of the augmented product level can become so widely incorporated into the product
that they become part of the expected product layer.
The potential product
The potential product comprises all possibilities that could become part of the
expected or augmented product. This includes features that are being developed,
planned or prototyped, as well as features that have not yet been conceived. Over
time, many potential product features become part of the augmented product or
even the expected product. For example, in the early days of mobile phones, SMS
was an idea for a potential product feature. Within a few years, SMS capability
became an augmented product feature and, ultimately, an expected product feature.
Today, potential product features of a mobile phone could include digital television
or contactless payment capability (i.e. the ability to ‘swipe’ the phone in much the
same way as a contactless credit card). Potential product features are attractive to
marketers as they offer new ways to differentiate their product and increase the
value for customers. Figure 7.2 shows how a product (a mobile phone) can be ana-
lysed using the total product concept.

• Provision of communications Core

• Conveniently sized phone

• Clear screen
• Easy-to-use keypad
Expected
• SMS capability
• Reliable service
• Long-lasting battery
• Web connection (4G compatible)
• Camera/video
• Ability to download apps
• GPS maps
• Language translator
• Wi-fi connectivity
Augmented
• Infrared LED to replace remote controls
• eBooks
• Image, music and video storage
• Beats audio (superior sound) FIGURE 7.2
• Expandable memory
• ‘Passbook’ ticketing application Analysing a mobile phone
• Digital television using the total product
Potential concept
• Contactless payment capability

Chapter 7 Product 223

 Product relationships
Many organisations produce multiple products or several different styles of a
product. The relationships between the organisation’s products can be described as
follows.
product item A particular • Product item — a particular version of a product that can be differentiated from
version of a product. the organisation’s other product items by characteristics such as brand, ingredi-
ents, style or price. For Bonds, a product item in their men’s underwear range is
Bonds Boxers.
product line A set of product • Product line — a set of closely related product items. The close relationship is
items related by characteristics usually in terms of end use, target market, technology or raw materials. Using
such as end use, target market,
the Bonds example, the product line for Bonds men’s underwear includes trunks,
technology or raw materials.
Y-fronts, boxers and hipsters.
product mix The set of all
products that an organisation
• Product mix — the set of all products that an organisation makes available to
makes available to customers. ­customers. For Bonds, it is underwear, singlets, shorts, track suits, hoodie jackets,
socks, and T-shirts, as part of their men’s, women’s and children’s wear.3 The
product mix can be described by its width and depth. Product width refers to the
number of product lines offered by a company. Product depth is the number of
different products available in each product line.

Product classification
Products can be classified into consumer products and business products according
consumer products Those to the circumstances in which they are bought and their intended use. Consumer
products purchased by ­products are those products purchased by households and individuals for their own
households and individuals for
private consumption. Business-to-business products are those products purchased
their own private consumption.
by individuals and organisations for use in the production of other products or for
business-to-business
products Those products
use in their daily business operations. Some products are both a consumer and a
purchased by individuals and business product. Reflex photocopy paper, for example, can be purchased as a con-
organisations for use in the sumer product at a discount store to be used for a home inkjet printer, or as a busi-
production of other products or ness product from a wholesaler by the pallet to be used by an organisation’s office
for use in their daily business
printers and photocopiers.
operations.
The classification of products into consumer products and business-to-business
products is a helpful first stage in understanding the different circumstances in
which products are bought and the different uses customers have for them. It is
useful, however, to develop the classification further as discussed in the following
two sections of the chapter.

Consumer products
It is useful to further subclassify consumer products into one or more of the following
main categories:
• shopping products
• convenience products
• specialty products
• unsought products.
shopping products Consumer Shopping products are irregularly purchased items that involve moderate to high
products that involve moderate engagement with the decision-making process: consumers will often visit a number
to high engagement in the
of stores, looking at the range and comparing items based on features, quality and
decision-making process, in the
purchase decision being based price. Shopping products exhibit the following characteristics:
on consideration of features, • they are expected to last a long time
quality and price. • they are purchased relatively infrequently
• they are stocked by a small number of retail outlets

224 Marketing
• they sell in low volumes
• they have reasonably large profit margins.
Examples of shopping products include electrical appliances, furniture, cameras
and clothing.
Convenience products, also known as fast-moving consumer goods, are inexpen- convenience products
sive, frequently purchased consumer products that are bought with little engage- (fast-moving consumer
goods) Inexpensive, frequently
ment in the decision-making process. Convenience products are usually available
purchased consumer products
from a wide range of retailers, including supermarkets, corner stores and petrol that are bought with little
­stations. Being cheap, they usually depend on a high volume of sales to generate engagement with the decision-
a reasonable profit. They are often self-service products and so packaging plays a making process.
major role in grabbing consumers’ attention. Convenience products can be further
broken down into three main categories.
1. Staple products — products that are bought and used by consumers regularly, such
as milk, bread, rice and soap. Usually, there is not much promotion for branded
staple products.
2. Impulse products — products that are bought with little planning, often purchased
only after seeing the item at the retail store. Impulse products include magazines,
chocolate and chewing gum. They are often positioned immediately next to the
cash register in a store.
3. Emergency products — products that are bought when the product is needed in an
‘emergency’; for example, an umbrella when you are caught in the rain or the ser-
vices of an electrician if the power goes off.
Specialty products have unique characteristics that are highly desired by their specialty products Highly
buyers. The purchaser of a specialty product usually knows exactly what they desired consumer products
with unique characteristics
want — they are not interested in comparing brands or considering alternatives. As
that consumers will make
such, consumers are willing to expend considerable effort to obtain specialty prod- considerable effort to obtain.
ucts. If someone is interested in purchasing a BMW car they will go to a BMW dealer
and they will be prepared to travel some distance to get there if necessary. The main
characteristics of specialty products are:
• they are pre-selected by the consumer
• there are no close substitutes or alternatives
• they are available in a limited number of outlets
• they are purchased infrequently
• they sell in low volumes
• they have high profit margins.
Unsought products are those goods or services that a consumer either: unsought products Goods or
(a)  knows about but doesn’t normally consider purchasing services that a consumer either
knows about but doesn’t normally
(b)  doesn’t even know about.
consider purchasing, or doesn’t
A fundamental challenge for marketers with any product is to make consumers aware even know about.
of the product’s features and benefits, and the needs it satisfies. This is especially
the case for unsought products, and marketing communication efforts are crucial.
For unsought products in category (a), a sudden, unexpected need may arise for
consumers. For example, although most consumers will know that various home
security products exist, it may take a spate of burglaries in their neighbourhood to
prompt the consideration of purchasing such products. An actual break-in, of course,
would prompt the engagement of police services. In such situations where unex-
pected needs arise, prior marketing communication efforts are likely to be crucial
in order for a particular product or brand to be ‘top of mind’ for the consumer.
For example, the consumer may be aware that ‘Crimsafe’ is a popular brand of
home security products, due to concerted marketing communications efforts by the
­company over a number of years.

Chapter 7 Product 225

 For unsought products in category (b), marketing communication is again ­crucial in
terms of making consumers aware that the product is available, and that its features
and benefits satisfy needs. Only then will demand for the product potentially be
­generated, in order for it to move out of the less desirable ‘unsought’ category and into
one of the other consumer product classification categories (shopping, convenience
or specialty).
In closing our discussion of consumer product classification categories, it is impor-
tant to note that a product can be purchased as a different product class, depending
on the customer’s usual purchase behaviour or the reason for purchasing the item.
For example, an umbrella may be especially purchased as a shopping product as a
gift for someone, while an umbrella may also be bought as a convenience product if
you are stuck outside in the rain.
Business-to-business products
As we learned in the chapters on business buying behaviour and markets, not
all  products are intended for purchase by consumers. Business-to-business prod-
ucts are purchased by individuals and organisations for use in the production of
other products or for use in their daily business operations. It is important not
to confuse business-to-business products with the concept of business markets.
Business markets include many transactions in which products are sold from  one
business to another for the purposes of then reselling to consumers. The fact
the transaction takes place in business markets does not make the product a
­busi­ness-to-­business product. It is the intention to use the product as part of busi-
ness operations that defines business-to-business products. Business-to-business
products can be classified into three categories: parts and materials, equipment,
and ­supplies and services.
parts and materials Business- Parts and materials are business-to-business products that form part of the
to-business products that form ­purchasing business’s products. They include:
part of the purchasing business’s
• raw materials — unprocessed natural materials that are used in the production pro-
products.
cess to form part of the business’s products. Raw materials can be farm products
(e.g. fleece, used in the production of woollen yarn) or natural products (e.g. iron
ore, used in the production of steel).
• components — processed items that form part of a business’s product. Components
are usually incorporated into the business’s product through an assembly process.
Components may be materials (e.g. yarn, used in the production of jackets) or
parts (e.g. brakes, used in the production of bicycles).
equipment Capital equipment Equipment refers to those business-to-business products that are used in the pro-
and accessory equipment used in duction of the business’s products. Equipment may be:
the production of the business’s • capital equipment — installations such as buildings (e.g. offices, factories and ware-
products.
houses) and machinery (e.g. generators, furnaces and conveyor belts)
• accessory equipment — smaller items that support the production of a product but
that do not form part of the product (e.g. fork-lifts, drills, computers and filing
cabinets).
services and supplies  Services and supplies are business-to-business products that are essential to busi-
Business-to-business products ness operations, but that do not directly form part of the production process. S­ ervices
that are essential to business
and supplies include:
operations, but do not directly
form part of the production • business services — specialised services, such as financial, legal, market research
process. and office cleaning services, that support the company’s operations and are often
provided by external suppliers, such as banks and solicitors
• maintenance, repair and operating (MRO) supplies — items that assist in the ­company’s
production and operations but do not form part of the product, including engine
oil (for maintenance), rivets (for repair) and paper (for operations).

226 Marketing
Harley-Davidson — exclusive product Spotlight
and dealer
For motorbike riders, there is something very special about Harley-Davidson. It is one of the most
recognised brand names in the world and evokes images of history, quality, confidence, power and
passion. Those who love the Harley-Davidson brand certainly have a passion for it.
So if you wanted to purchase a new
Harley-Davidson motorbike, where would you
go? You wouldn’t go to a department store, or
even the local used car dealer to buy it. As it
is a specialty product, you would make the
effort to find the exclusive authorised dealer.
One such authorised dealer is Trivett Harley-
Davidson.
John Trivett founded the Trivett Group in
1984 and developed the business into a
specialist luxury car dealer, now representing
17 major international automotive brands,
employing more than 600 people and selling
over 9000 vehicles a year. Trivett Classic
owns dealerships in brands including Rolls
Royce, Aston Martin, BMW, Bentley and
Porsche. In addition to its operations in
Australia and New Zealand, Trivett also has
showrooms in China and India. In 2006,
Trivett Harley-Davidson officially began
trading, and now has a state-of-the-art
showroom in Sydney. The showroom has a
range of Harley-Davidson motorcycles, parts,
accessories, collectibles, clothes, and offers
service work, modifications and advice. It is a heaven for Harley-Davidson enthusiasts.
The showroom displays a range of Harley-Davidson models, enabling potential customers to
compare the attributes (and price tags) of the different bikes. One of the most popular styles is the
Questions
1. Harley-Davidson makes
Softail Fat Boy, which has a similar style to the famous Harleys of the 1960s and 1970s, and sells for
a range of motorbikes
around $30  000. Although, if you want something different, a Super Low Sportster is worth around
and collectibles. If
$14  000 while a CVO Ultra Classic Electra Glide is available for almost $50  000. If you have the money the brand is so loved
and a passion to ride a Harley down the highway, the best place to start is at an exclusive dealership to by its customers, why
analyse the model options and their individual attributes.4 doesn’t it make its
products available at
a lower cost and sell
in a larger number
Concepts and applications check of dealerships? What
Learning objective 1  define ‘product’ and understand different ways to view and analyse products might the rationale
and product attributes be for promoting
the motorbikes as
1.1 A product can be tangible, intangible or a combination of both. Give examples of tangible and ‘specialty products’?
intangible products.
2. Find out as much as
1.2 Consumers give little thought to unsought products until the need for them suddenly arises. you can about Harley-
How would you market an unsought product? Illustrate your answer with an example. Davidson motorbikes,
and then classify their
1.3 How would you define the four levels of a product in the purchase of a mobile phone? features under the
1.4 Using an example of your own, differentiate between an organisation’s product line and its four levels of the total
product mix. product concept.

1.5 Outline the three major types of business-to-business product.

Chapter 7 Product 227

 PRODUCT LIFE CYCLE
Learning objective 2 In the introduction to this chapter, we stated that the product is what the marketer
describe the product takes to the market in an attempt to get consumers to buy or engage in some type
life cycle, new product
of exchange, in order to achieve the organisation’s objectives. Clearly products are
development and the
product adoption process central to the organisation’s marketing mix. An organisation needs to be adept at
developing new products and successfully launching them in to the marketplace.
The products must then be effectively managed to ensure their ongoing profitability
in the context of environmental changes, including technological changes, changes
in fashion and the actions of competitors.
Just as people go through a life cycle, beginning with conception and ending with
death (with many experiences in between), products, brands and, indeed, industries
also go through a life cycle. The product life cycle has five stages: new product
development, introduction, growth, maturity and decline. The way products pro-
gress through the life cycle varies with the product and the marketing environment.
We will begin by outlining the characteristics of each stage of the product life
cycle and establishing the marketing challenges they present. We will then look in
more detail at the development of new products and how those products are sub-
sequently adopted in the marketplace. The last section of the chapter is devoted to
explaining how marketers can manage various aspects of products throughout the
product life cycle in order to achieve optimal profitability.

Overview of the product life cycle

Very few products remain the same from their introduction through to their eventual
removal from the marketplace. Think of your favourite movie. Though it is tempting to
think of it as an unchanging product, chances are it has been repackaged several times
on film, DVD, Blu-ray, and downloaded MP4, mobile phone, or games console format.
There might be multiple versions — the original theatrical release and a director’s
cut; if it is an older movie, then it may have been digitally remastered, recoloured, or
remixed for surround sound; and perhaps there have been sequels or spin-offs.
People usually make judgements about an individual’s stage in life based on their
age. Products, however, are not simply classified based on the number of years they
have been in the market. For example, despite being around for thousands of years,
bread would not be classed as being in the final stage of its life cycle. Rather, the
stages in the product life cycle reflect the product’s current place in the market and
its sales and profitability, as shown in figure 7.3.

Sales
Dollars

Profit
0 Time
Loss

FIGURE 7.3
New product Introduction Growth Maturity Decline
The product life cycle development

228 Marketing
 The product life cycle (PLC) has five stages.
product life cycle The
1. New product development. The first stage of a product’s life cycle occurs when the typical stages a product
organisation develops the idea, undertakes research, prepares prototypes, pre-tests progresses through: new product
the product, and makes modifications before the product launch. All of this, of development, introduction,
course, occurs before the product becomes available to the market. During new growth, maturity and decline.
product development, faults and problems can be eliminated and positive features
can be refined and improved. New product development can involve substantial
costs for a business and these are not offset by sales until later in the product
life cycle. New production development will be discussed in greater detail in the
following section.
2. Introduction. This stage marks the first appearance of the product in the market-
place. The market is likely to know little or nothing about the product, and so the
organisation must often make a considerable investment in promotional activities
in order to build awareness of, and interest in, the product — in turn to trigger
potential customers to evaluate, trial and purchase the new product. Even with
a successfully launched product, there is often a lag between introduction and
the building of substantial sales. Sales start at zero in the introduction stage and
must offset promotional costs associated with the product launch and recoup the
research and development costs incurred in the new product development stage.
Only then does the product begin to generate profits.
3. Growth. The growth stage sees increasing popularity, sales and profits. It depends,
of course, on the product being welcomed by the marketplace and potential cus-
tomers deciding to actually purchase the product. This is an exciting period for the
organisation. At some point during this period, competitors enter the market with
similar products, so while sales overall continue to increase, the rate of growth of
a particular organisation’s profits is likely to slow.
4. Maturity. As competitors enter the market with similar products, the novelty of the
product wears off, alternative — potentially superior — products become available,
and the product’s sales and profitability peak and start to fall. This occurs during
the maturity stage of the product life cycle. In the maturity stage, the ­organisation
must determine its future approach to the product. Organisations that want to
continue in the market will often make some change to the marketing mix with
the expectation that this will increase profits and move the product into a growth
stage again. New strategies could be to change the product, lower the price, expand
the distribution or differ the promotional activities. Alternatively, a marketer may
decide to leave the market and allow the product to enter the decline stage.
5. Decline. The decline stage of a product’s life cycle sees sales and profits fall. New
products may be entering, and there may be little interest in the current product.
In the decline stage, the marketer must decide whether to reduce its investment
in the product, drop the product from its product mix, or change the product
and hope that it will enter a new growth stage. For products that the market per-
ceives as old or of little interest, changes in the marketing mix, such as cuts in the
price, will have little effect in increasing its sales. Eventually, a product left in the
decline stage will be withdrawn from the market.

New product development new product development 

No product or brand remains the same. Markets are in a perpetual state of change, When the organisation develops
and organisations find it necessary to enhance the product characteristics or product the idea, undertakes research,
mix to meet the changing needs of their customers. The first stage of the product life prepares prototypes, pre-test the
product, makes modifications
cycle involves new product development, commonly abbreviated to ‘NPD’. This is a
before the product launch.
crucial time for the product as it is the stage at which the product benefits can be

Chapter 7 Product 229

 maximised and faults and problems minimised. There are also several ways that a
new product can be viewed depending on the organisation and the technology. What
may be classified as a new product includes:
1. new to the market — a new technology that has never been seen before
2. new to the company — a product already in the marketplace but this is the first
time it has been produced by a certain company
3. new to the product line — a product that is an extension of whatever the company
currently produces
4. new to the product — modifications, enhancements and improvements to
a ­specific product that will revitalise it and move it into a growth stage in the
product life cycle.
Although research and development can be expensive, the organisation should
make the appropriate investment. Achieving the organisation’s goals depends
on  successful new products. A poor or unappealing product will fail to generate
profits and may even damage the organisation’s reputation and brand. According
to one study, less than 3 per cent of new products survive on the market for more
than five years.5 It is, therefore, extremely important to undertake research to test
the suitability of the new product with the target market in the current market
environment. Clearly, the new product development process is crucial to marketing
success.
The new product development process sets out eight phases for introducing
products.
1. Idea generation. Idea generation is the phase in which ideas for new products are
created. Most new product ideas are the result of a planned approach to gen­
erating innovations. The approach should be open to ideas from internal sources
(employed scientists, engineers, marketers and so on) and external sources
(customers, competitors and partners). Of increasing interest is the area of con-
sumer co-creation, where consumers play a great role in the value creation pro-
cess, thereby playing a greater role in new product development.6 Techniques
specifically aimed at generating ideas, such as brainstorming and focus groups,
are also a worthwhile investment. Of course, only a very small proportion of
new product ideas become part of the organisation’s product mix.
2. Screening. No organisation has sufficient resources to pursue every product idea.
Even if it was possible, it would not be a good approach to business. Instead, the
organisation must undertake a screening process to eliminate those ideas that are
not feasible, and to help identify the most promising of those that are. Screening
may involve analysing the organisation’s ability to produce the product, the target
markets’ potential interest, the market size, the product cost, the break-even point
and so on. Any product idea that does not do well at this stage should be rejected.
Screening is also an appropriate time for market researchers to look for what can
best differentiate the product.
3. Concept evaluation. Once a new product idea has passed the screening phase, it
should be more thoroughly tested. The idea should be developed into a product
concept that customers, management and other stakeholders can evaluate. The
product concept is usually presented to potential customers as a description or
drawing of various options for the product. This process is designed to deter-
mine whether the product could satisfy a customer need or want and to identify
those attributes that could provide the most value to potential customers.
4. Marketing strategy. A positive concept evaluation would suggest there is a market
for the product. On this basis, management can start planning a marketing strategy.

230 Marketing
 This includes describing the projected sales and profits, market ­ positioning,
­potential target market, marketing mix strategies and long-term goals.
5. Business analysis. Once the marketing strategy has been planned, the organisation
should undertake a business analysis to determine whether the strategy will be a
good fit with the company’s current offerings and its overall business objectives. A
business analysis reviews how the new product will affect the organisation’s costs,
sales and profit projections.
6. Product development. If the business analysis finds the new product to be a good
fit with the business’s overall objectives, the next stage is to convert the product
concept into an actual product. This often means developing a working proto-
type, along with additional investment in research and development to ensure the
design, materials and so on will result in the optimum product.
7. Test marketing. Once a prototype has been produced, the product should be tested
in a market setting. Test marketing activities enable a ‘real world’ assessment of
the entire marketing mix that supports the product. This is an important step
before proceeding with full commercialisation. It is better to work out any prob-
lems with the marketing mix in a smaller test market than to need to take cor­
rective action nationwide.
8. Commercialisation. If all has gone well for the previous phases, it is time to launch
the new product into the market. Costs will be high at this stage, but, if the new
product development process has been thorough, there is a solid chance that the
new product will succeed.
The new product development process is a logical step-by-step approach that
many organisations use to move a product from an idea to being available in the
marketplace. Some large organisations will have a separate ‘new product depart-
ment’ under the control of a ‘new product manager’, while other companies will
systematically research and develop new products within the existing organisational
structure. However, in a fast-paced, ever-changing marketing environment, such a
process can be slow, cumbersome and not always practical, especially if there is an
urgency to get a new product on the shelves.
Therefore, many orgnisations will adapt the process to their own situation. For
example, if a company wants to do a product line extension, it already has a lot of
knowledge about the product, its customers and the marketplace, and does not have
to be as detailed in all of the stages. An online company may skip steps and quickly
test gaming products on the web directly to customers, knowing that this would be
inexpensive to do and a good source of feedback. This would usually be done when
there is less of a risk involved with developing the new product.

Product adoption process

Consumers have an enormous range of products and brands competing for their
attention and their limited spending money. New products — whether a variation
of an existing product or a totally new innovation — are regularly launched into the
marketplace. Most of them fail. They do not achieve sufficient sales to survive.
product adoption process 
To give an organisation the best chance of developing and marketing products The sequential process of
that can succeed, marketers need to understand how a consumer perceives a new awareness, interest, evaluation,
product, learns about it, and decides to adopt it. This typically entails five sequential trial and adoption through which
stages, which form the product adoption process: awareness, interest, evaluation, a consumer decides to purchase
a new product.
trial and adoption. The process is summarised in figure 7.4 (overleaf).

Chapter 7 Product 231

 • The consumer becomes aware of the new product
• Created by promotional activities, word-of-mouth,
Awareness incidental exposure to the product
• At this stage, the consumer knows little about the
product, how it works or how it can benefit them

• The consumer experiences interest in the product

Interest • The consumer seeks information to learn more
about the product

• The consumer evaluates the information

Evaluation • The consumer decides whether or not they
should try the product

• The consumer examines and tries out the product

Trial • The consumer decides whether the new product
can satisfy a need or a want

• The consumer decides to purchase the product

FIGURE 7.4 • The consumer evaluates the product and
Adoption
determines whether they will re-purchase it in
The product adoption the future
process

The process appears relatively straightforward, but a product can fail at any
stage.  For example, without appropriate and targeted promotional activities, it is
quite possible for consumers to never become aware of the existence of a product
that could meet some want or need. Once a potential customer is aware of a new
product, the product and its marketing must generate interest if the customer is to
proceed further into the product adoption process. Similarly, if initial evaluation of
the new product suggests it will not satisfy the potential customer’s needs or wants
better than their current product, then they will not consider trying it. An example
is Sony’s PlayStation Network, whereby users can sign up for free and make their
PlayStation system into an entertainment hub, where they can connect to the web
and download games; music; movies; and TV programs from sites like ABC iView,
Yahoo!7, PLUS7 and SBS On Demand. This service, however, is competing with estab-
lished download services such as Microsoft’s Xbox, TiVo and Apple’s iTunes store.7
For marketers, it is important to determine where potential customers are situated
in the product adoption process and then aim to help them move to the next stage.
This may take the form of promotional material that explains the product in detail
and its advantages over competing products or activities, such as sampling, whereby
potential customers are given a sample of the product to try.
The diffusion of innovation
The launch of a product into the marketplace does not simply trigger all consumers to
uniformly progress through the product adoption process. The behaviour of consumers

232 Marketing
in relation to the same product can vary a great deal. This is often a reflection of the
individual’s personality. Some people love new products and new technology. They
want to be the first person they know to own it. Others have little interest in new prod-
diffusion of innovations 
ucts and prefer familiar things. They may take a long time to decide to investigate The theory that social groups
and purchase it. We introduced this concept in the chapter on consumer behaviour influence the decisions made by
as the theory of diffusion of innovations.8 The theory describes how innovations are individuals in such a way that
adopted by the market over time and suggests that the influence of social groups on the innovations are adopted by the
market in a predictable pattern
decisions made by individuals determines the way in which new products and ideas are
over time.
adopted. The adoption of innovations over time is shown in figure 7.5.
34% 34%
Early Late
majority majority

13.5%
Early
adopters 16%
Laggards
FIGURE 7.5
2.5%
Innovators The adoption of innovations
over time

The categories of product adopters shown in figure 7.5 are defined both by their
product adoption behaviour and the characteristics that lead them to that behaviour.
• Innovators. Innovators are the first adopters of new products. People in this group
are usually adventurous, interested in new technology and ideas, and willing to
take risks.
• Early adopters. Early adopters are the next group to adopt. They are likely to be
careful choosers of new products and are often opinion leaders, respected by peers
and people in the other categories.
• Early majority. The early majority tend to be more deliberate in their choice of
new product and try to avoid taking risks. However, they usually adopt the new
products before the average person.
• Late majority. The late majority are more cautious and sceptical about new prod-
ucts and technologies but will eventually adopt the new product after most people
have purchased it, and due to economic necessity or social pressure.
• Laggards. Laggards are the last adopters. They are often wary of new products and
ideas, and generally prefer products that are familiar.
The speed and pattern of market penetration for a new product innovation
­usually  differ substantially between markets. New products that are successful  in
one country or region may not necessarily be successful in others. In the ­consumer
behaviour chapter, which is about consumer behaviour, Hofstede’s model of distin­
guishing cultures across different dimensions is outlined. In terms of the ­diffusion
of innovation of new products in different cultures, research has shown that ­Hofst­ede’s
dimensions of uncertainty avoidance and individualism have the potential to
­significantly affect the rate of diffusion. Many consumers from Asian cultures, for
example, display behaviour that is characteristic of uncertainty avoidance. These
­consumers are unlikely to take the social risk of being innovators. Instead, they are
likely to display high social risk aversion in their purchasing decisions. In contrast,
consumers from Western cultures are more likely to display high levels of individu-
alism in their purchasing decisions. Figure 7.6 (overleaf) shows the shorter diffusion
of innovation curve in Asia (compared with the curve in figure 7.5).

Chapter 7 Product 233

 Early majority
Late majority

Early
adopters Laggards

Innovators

FIGURE 7.6
Introduction Growth Maturity Decline
The diffusion of innovation
curve in Asia
Life cycle

High versus low context is another factor that can influence the rate of diffusion.
A low-context society is one that desires explicit information; whereas a high-context
society relies more heavily on implicit and observed information from the environ-
ment. As such, consumers in high-context societies tend to gather information by
observing how a product benefits other consumers, and consumers in low-context
societies prefer to be given clear information about a product’s benefits. The chal-
lenges of marketing new products to different cultures are explored further in the
international marketing chapter.

Spotlight Samsung’s Galaxy camera

Cameras have been recording images since the 1800s and, like most products, as technology changes
so does the product. The early camera often consisted of two nested boxes — one holding a lens and
the other a removable glass focusing screen. When the desired image was in focus the lens was
covered, the glass was replaced with light-sensitive material, and then the lens was uncovered for a
period of time until the exposure created a permanent image. Over the years, the exposures were
made by a shutter system; and glass was replaced by copper
plates, then wet plates, followed by film and (most recently)
digital images. These days, instead of the photographer
waiting days or weeks to see the images, digital cameras
make them available within a split second. There have been
many different camera styles and designs over the years so,
as a product, they have been constantly changing.
In 2012, Samsung launched what it claimed was ‘a new
product category’ when it introduced the Samsung Galaxy
camera. This new product combines a digital compact
camera providing high performance photography with the
latest Android platform and a tablet-like wireless network
connectivity. Samsung believes that it is ‘creating a brand
new type of device’ that ‘easily outperforms any smartphone
camera’. Some of the main features of the Samsung
Galaxy are:
• Android 4.1 jelly bean OS
• 16-megapixel CMOS sensor

234 Marketing
• 21x optical zoom, from 23-481mm, with optical image stabilisation
• touch-screen camera functions operated on a 4.8-inch, 308dpi LCD
• a voice-control option that allows the user to initiate a number of functions such as ‘zoom in’
and ‘shoot’
• 35 editing features for photos and videos
• a ‘Smart content manager’ that creates folders, tags faces and suggests picture deletions when they
don’t come out as desired
• auto Cloud back-up to save photos on a Samsung server the instant they are taken
• the ability to share photos at the same time as they are taken
• connection to 3G or 4G networks, allowing photo sharing and browsing anywhere.
The camera may have many ‘smartphone-like’ features, but it doesn’t make telephone calls. It will
be interesting to see if the product develops further to include a mobile phone in the future. However,
such product development may take business away from Samsung’s Galaxy III smartphone.
While Samsung is understandably excited by its camera, other companies have similar products in
the market. For example, Polaroid has the SC1630 ‘smart camera’ that also has a 16-megapixel sensor
and runs on Android. Therefore, Samsung’s claims that it has created ‘a new product category’ are
questionable. Despite this, the product does demonstrate that the camera has changed significantly
over the past 150 years.9

Questions
1. Samsung has said that with the Galaxy camera it has created ‘a new product category’. Do you agree?
Give reasons for your answer.
2. Discuss how changes in camera design and technology over the years has resulted in ‘new products’ in
the marketplace.

Concepts and applications check

Learning objective 2  describe the product life cycle, new product development and the product
adoption process
2.1 Explain the stages of the product life cycle, using your own examples. In general terms, how would
you suggest marketing strategies may differ depending on the stage of a product’s life cycle?
2.2 Discuss how sales and profits change across the stages of the product life cycle.
2.3 Imagine you are marketing a new technology. How would an understanding of the new product
adoption process assist in the development of your marketing strategies?
2.4 Briefly explain the phases for introducing new products.
2.5 According to one study, fewer than 3 per cent of new products last for more than five years in the
marketplace. From a marketing perspective, why do you think this may be the case?
2.6 Using an example from your own experience, explain how you progressed through the stages
in the product adoption process for a relatively new product. Under which category of product
adopter would you be classified for this particular example?

PRODUCT DIFFERENTIATION
As we discussed earlier, a product is a complex concept with a number of char- Learning objective 3
acteristics and attributes that can provide value to the customer and assist them outline how an
in making their final purchase decision. The marketer, therefore, must decide on organisation can
differentiate its products
which product characteristics to include in the product offering that would best ben- to obtain a competitive
efit and satisfy their customers’ needs and wants and contribute to the organisation’s advantage
objectives. Deciding on the right characteristics is not always an easy decision and it

Chapter 7 Product 235

 is recommended that marketers regularly undertake some type of market research
to determine potential customers’:
• desires in relation to the product category
• attitudes towards the product offering
• attitudes towards the product’s features.
When making decisions about a product, it is important to decide on the char-
product differentiation The acteristics that will make the product different to competitors’ offerings. Product
creation of products and product ­differentiation is the creation of products and product attributes that distinguish one
attributes that distinguish one
product from another. If customers perceive there to be a difference between com-
product from another.
peting products, they will examine the specific product characteristics (as well as
the other elements of the marketing mix) to assist them in making the final pur-
chase choice. In terms of the product, most of the differentiating features are part
of the augmented product layer of the total product concept. Some of the charac-
teristics that customers may perceive to be differentiators include design, brand,
image, style, quality and features. Any of these can potentially give the company a
competitive advantage in the marketplace. These characteristics can also be used in
the product’s promotional activities to emphasise the value of the product and differ-
entiate it from competitors. To better understand the creation of competitive advan-
tage through product differentiation, let’s look at some examples.
The Swedish furniture company IKEA focuses on simplicity and minimalism in
its furniture designs. Most of its furniture is plastic or light-weight, laminated wood,
held together by screws and other fasteners. It offers coordinated pieces that enable
an entire room or house to be furnished. It also sells most of its furniture flat-packed.
This lets IKEA keep more stock on hand and achieve cheaper prices, but requires
customers to transport and assemble the furniture themselves. Contrast IKEA’s
product offering with another furniture company, Jimmy Possum.10 Jimmy Possum
sells solid, handcrafted, fine furniture, made from handsome timbers using tra­
ditional techniques. Its products require careful upkeep, such as polishing and oiling
to preserve the wood. While both companies sell dining tables that are the same at
the core and expected product levels (see the discussion earlier in the chapter), the
product attributes at the augmented product level are substantially differentiated in
terms of appearance, quality, branding and positioning. In addition to product dif-
ferences, they also vary significantly in terms of pricing, promotion and distribution.
Product attributes that serve to differentiate competing offerings are not always as
dramatic as the difference between IKEA and Jimmy Possum. Consider Kiwibank,
a bank operated by New Zealand Post.11 Kiwibank was established to compete
with ANZ, ASB, BNZ, National Bank and Westpac, which have long dominated the
New Zealand banking sector. It offers the standard range of services, such as sav-
ings accounts and loans, but Kiwibank has successfully differentiated its offerings
through product attributes including New Zealand ownership, longer opening hours
(including weekends at many branches), lower fees and interest rates, and inno­
vative online banking services. In less than a decade, it has secured more than
15 per cent of the New Zealand population as customers.
Warranties, installation, in-home training and free phone help lines are all
­examples of add-on services that some organisations use to differentiate their prod-
ucts from competitors. For some customers, certain extra services may be an essen-
tial product requirement. For example, those who are not computer literate may
only choose to buy computer products that are backed with a reliable customer ser-
vice help desk in a store or a toll free telephone support service. Apple has built
a reputation on good after sales service and customer relations. Support does not
necessarily mean a response to a problem; it can mean satisfactorily dealing with

236 Marketing
requests, complaints, suggestions and maintenance. Such services can encourage
repeat purchases, positive ‘word-of-mouth’ promotion and customer loyalty.
Products can also be differentiated within an organisation’s product mix; for
example, when purchasing a new car, a luxury or sports model may include specific
features (such as air-conditioning, air-bags and leather seats) that are not included
in the base model. Of course, the luxury model will also feature a higher price.
Similarly, the base model of a Dell computer is worth a certain amount of money;
however, if you purchase it with a scanner/laser printer, high-quality speakers and
a wide-screen monitor, then the price will be higher. Further into a product’s life,
such features are often added while the price remains unchanged. In this way, the
marketer can maintain sales volumes, but will sacrifice some profit.
From these few examples, it should be clear that, in seeking a competitive advantage,
organisations commonly differentiate their products based on design, quality, function-
ality and add-on services, as well as on the other elements of the marketing mix. These
differences serve to create a unique value offering to the market and influence how the
product is positioned (i.e. how customers perceive it relative to competing offerings).
Product differentiation based on product attributes is intimately linked with product
positioning. Consider power tools as an example. The German power tool manufacturer
Bosch divides its product line and promotional efforts into a ‘DIY enthusiast’ sector and
a ‘professional’ sector. The DIY line focuses on affordability and features that make the
tools easier to use. The professional line focuses on durability (including the warranty
offered) and power. Customers in each sector have significantly different definitions of
the features, price and quality that constitute value. Bosch takes this a step further by
offering several variations within each sector. For example, within the DIY line, it offers
several models of jigsaw that vary on power, accessories (such as laser guides), aes-
thetics, size and packaging. Even a government-owned organisation like Australia Post,
which is usually identified as a nationwide postal service, has been differentiating its
services. With the growth of courier companies, and the rise in popularity of paying bills
online, there has been a decline in its traditional businesses. In a recent year ­Australia
Post expanded into the insurance market, offering car insurance. The organisation also
has plans to expand into other areas, like travel, home and contents insurance.
Product differentiation must not be viewed as a static concept. Marketers usually
modify, upgrade and reposition products during their life cycle to try to ensure their
competitive advantage is maintained or improved. We will return to this concept in
the last section of the chapter.

Adopt a Pet Spotlight 

Getting a new pet is a major decision for a household. While the decision to buy could be full of good
intentions, there have been many impulse purchases of animals resulting in large numbers of animals
being dumped — especially after Christmas. It is estimated that 150  000 dogs and cats are euthanised
each year in Australia, many being unwanted pets from pet shops.
There has been a growing criticism of pet shops for animal cruelty and for encouraging ‘puppy
farms’ (where hundreds of dogs are bred in poor conditions). Unwanted animals often end up at the
RSPCA (Royal Society for the Prevention of Cruelty to Animals), where the organisation aims to find
them new homes. The RSPCA runs an ‘Adopt a Pet’ program to differentiate RSPCA animals from
those available in pet stores. Rather than just buying a dog, cat, guinea pig or bird, the RSPCA focuses
on the adoption of what will be a ‘new family member’ to love. Sometimes even farm animals like goats
and cows are available for adoption!
The RSPCA Adopt a Pet website (www.adoptapet.com.au) offers a ‘pet matchmaker’ feature, where
potential pet owners can select from certain criteria (such as animal type, age and temperament) and are

Chapter 7 Product 237

 matched with suitable animals available for adoption. It is a
national website, allowing visitors to view some of the (abandoned or
stray) animals waiting adoption at RSPCA shelters and adoption
centres right across Australia. Therefore, rather than an impulse buy
of a cute dog at the pet store or an emotion-charged visit to a shelter
to look at a large number of sad-faced animals, Adopt a Pet allows
you to search for your perfect pet from home.
Importantly, all animals have undergone health and temperament
checks to ensure their suitability to the potential adopter, and
have been ‘desexed, microchipped, treated for internal and
external parasites (such as worms and fleas), and had their initial
vaccination. Dogs are also heartworm tested and treated’. The
RSPCA also offers experienced staff and vets to provide information
and advice to potential adopters.
As a product, a pet is unlike toothpaste or soap — it should not
be returned or thrown away if it does not meet initial expectations.
A pet will become an important member of the family, so great care is needed to decide on the right
animal. By using Adopt a Pet, customers can bypass the negative aspects of local pet stores and
puppy farms, and ‘adopt’ a new family member — thereby giving it a life-changing second chance.12

Questions
1. What are the differences between ‘puppy farm’ pets and those from an RSPCA shelter? Describe the
advantages and disadvantages of each.
2. Why do you believe the RSPCA has differentiated its ‘product’ the way it has? Do you think it is a good
strategy for the RSPCA?

Concepts and applications check

Learning objective 3  outline how an organisation can differentiate its products to obtain a
competitive advantage
3.1 For one type of product, explain the concept of product differentiation using examples other than
those discussed in the chapter.
3.2 Prepare arguments for and against this statement: ‘In today’s highly competitive marketplace,
developing a sustainable competitive advantage through product differentiation is impossible.’

BRANDING
Learning objective 4 The brand name can be one of the most important aspects in a customer’s purchase
explain the value of decision. Brand refers to a collection of symbols, such as the name, logo, slogan
branding and the major
and design, intended to create an image in the customer’s mind that differentiates
issues involved in brand
management a product from competitors’ products. A brand can identify one item, a family of
items, or all the items of a seller. Brands play a particularly important role in high-
involvement purchase decisions. Most consumers will prefer a well-known, reputed
brand A collection of symbols
such as a name, logo, slogan
brand over a cheaper, unknown brand when making high-involvement purchases.
and design intended to create For consumers, the brand helps speed up consumer purchases by identifying specific
an image in the customer’s mind preferred products. The brand can provide a form of self-expression and status, as
that differentiates a product from well as denote product quality. It can also arouse a collection of images in the cus-
competitors’ products. tomer’s mind. Brand image is the set of beliefs that a consumer has regarding a par-
brand image The set of beliefs ticular brand. People can have a positive or negative brand image for a given brand,
that a consumer has regarding a
depending on things like past experience or word-of-mouth, which can substantially
particular brand.
influence whether they would be willing to buy the product or not. When marketers

238 Marketing
make decisions about products, the decisions must relate to the product’s brand and
brand image.

Brand name
Organisations with a well-known brand name are very protective of it and will be
willing to spend large amounts of money ensuring it is not used or abused by other
individuals or organisations. A brand name is part of a brand that can be spoken and
can include words, letters and numbers. Coca-Cola, IBM and 2Xist are all examples
of brand names. The Nielsen Company’s ‘Australian Online Landscape Review’
report has found Google to be the number one online brand in Australia, followed by
Facebook, NineMSN and YouTube.13 A brand mark is the part of a brand not made
up of words — it often consists of symbols or designs. McDonald’s ‘Golden Arches’,
Qantas’ ‘Flying Kangaroo’ and the International Olympic Committee’s ‘Olympic
Rings’ are among the most recognisable brand marks.
Selecting a brand name is not easy, but it can make a crucial difference to the success
of an organisation. A name that might sound good at first could give rise to unintended
problems, particularly if you are going to sell your product in another country. For
example, XXXX (pronounced 4X) is a beer from Queensland with a strong brand name
in Australia, but in the UK the name XXXX is a brand of condoms. The ideal brand is
distinctive, easily recognisable and relevant to the products it represents. Accordingly,
brand recognition (both prompted and unprompted) is a key marketing metric.
Once the brand has been chosen, an organisation should guard its brand from
misuse; for example, from competitors that might want to use it or a similar name.
To protect the brand, an organisation can register it as a trade mark with the relevant trade mark A brand name
body (e.g. IP Australia, or the Intellectual Property Office of New Zealand).14 Once or brand mark that has been
legally registered so as to secure
­registered, organisations have legally enforceable rights to the exclusive use of the
exclusive use of the brand.
name. Applications to register trade marks are carefully assessed against numerous
rules and guidelines. A brand should be chosen so that it can be protected easily; for
example, it should be distinctive and consist of more than a description of the products.

Brand equity
A well-known brand can be very valuable to an organisation in both financial and
non-financial terms. Table 7.1 lists the ten most valuable global brands.15 The list
was compiled by Brand Finance Australia, and measures the strength, risk and
future potential of a brand relative to its competitors.

Table 7.1  The most valuable brands in Australia

Rank Brand Sector Brand value (A$ millions)
1 Woolworths Retail 7086
2 Telstra Telecommunications 5129
3 Coles Retail 4731
4 Commonwealth Bank Banking/Financial Services 4120
5 NAB Banking/Financial Services 4039
6 Westpac Banking/Financial Services 3466
7 ANZ Banking/Financial Services 3333
8 Optus Telecommunications 2455
9 Macquarie Bank Banking/Financial Services 1852
10 St. George Banking/Financial Services 1481

Chapter 7 Product 239

 For marketers, the brand:
• identifies the organisation’s products
• differentiates the organisation’s products from competing products
• attracts customers
• helps introduce new products
• facilitates the promotion of same-brand products.
The value of a brand is found in the influence it has over purchase decisions. The
brand equity The added value added value that a brand gives a product is known as brand equity. All of the value in
that a brand gives a product. products arises from the choices that consumers make among those brands offered
to them for purchase; brand equity is therefore a consumer-based concept.
Brand loyalty
brand loyalty A customer’s The underlying factor in brand equity is brand loyalty. Brand loyalty exists when the
highly favourable attitude and customer:
purchasing behaviour towards a
• shows a highly favourable attitude toward a specific brand
certain brand.
• would prefer to buy a specific brand over any other brand in the market.
Brand-loyal customers are highly valued by organisations and represent a core
segment for product sales. Some firms encourage brand loyalty by having a loyalty
program, whereby customers are given an incentive to continue to make repeat
purchases of a particular brand or product. For example, Gloria Jeans has a ‘Fre-
quent Sipper Club’ card that entitles regular customers to a free drink after every
ten purchased drinks. Brand loyalty exists on a continuum. At one end are fiercely
loyal customers who will go to great lengths to obtain their preferred brand. They
may be completely unwilling to accept a substitute. This degree of loyalty tends
to be found for football codes and for specific clubs (i.e. brands) within each code.
At the other end of the scale are consumers who have no brand preference for a
particular product type. In such cases, purchasing decisions are likely to be based
on other factors, such as price and convenience. In the middle are customers
who prefer a particular brand, but will choose an alternative if their favourite is
unavailable.
Brand metrics
To measure the value of brands is extremely useful to organisations. Brand equity
metrics include:
• brand assets (e.g. trade marks and patents)
• stock price analysis
• replacement cost
• brand attributes
• brand loyalty
• willingness-to-pay analysis.
High brand equity can be a valuable asset for a company and provide a strong
competitive advantage.

Brand strategies
When developing brands within a product mix, an organisation may decide to
pursue the following possible strategies: individual brands, family brands or brand
extension.
individual branding  Individual branding uses a different brand on each product, giving each its own
A branding approach in which specific identity. Individual branding can:
each product is branded
• help position a product in the marketplace
separately.
• help reach a different market segment
• avoid confusion with existing branded products.

240 Marketing
 For example, Smith’s Snackfood Company has a number of brands in addition to
Smith’s in its product mix, including Doritos, Twisties, Parker’s, Nobby’s, Grain Waves,
Cheetos and Burger Rings, yet these are all known by their individual brand and not by
the parent company name of Smith’s. This does, for example, let Smith’s build its Grain
Waves brand around an image of sophisticated flavours and textures, while building
its Cheetos brand around a fun, rather unsophisticated, snack for children. Addition-
ally, Smith’s is owned by Frito-Lay Brands, itself in turn part of PepsiCo.16 Goodman
Fielder also pursues an individual branding strategy for its New Zealand bread prod-
ucts: Nature’s Fresh, Vogel’s Molenberg, Freya’s, Country Split and Sunny Crust.17
Family branding uses the same brand on several of the organisation’s products. family branding A branding
A family branding strategy can be an effective way to introduce new products when approach that uses the
same brand on several of the
a brand has an established reputation. The new product entering the market with
organisation’s products.
the family brand connection will immediately benefit from the customer’s existing
association of that brand with quality or value. This can also assist in reducing the
cost of promoting the new product. Pacific Brands’ ‘Bonds’ is a well-known brand
that has been used for a number of its products, including men’s and women’s
underwear, track suits and shirts.
Brand extension gives an existing brand name to new product in a different brand extension Giving an
category. For example, Redheads, a company that was only known for making
­ existing brand name to new
matches, relaunched itself with an expansion into a range of BBQ products including product in a different category.

firelighters, fuel, cleaners and scourers.18 The Virgin Group has demonstrated
one of the best uses of brand extension, with the same brand proving successful
across music, air travel, mobile phones and credit cards. While using a well-known
brand can have the advantages mentioned with family brands, it can also be a risky
strategy. If the product extension is not successful, it may affect the image of the
brand in general. Additionally, if the products are unrelated, there is potential for
confusion or even rejection.
Brand ownership
Brands may be owned by and identified with either the manufacturer or the reseller.
Alternatively, in some cases, where branding is not a factor in the purchase ­decision,
the seller may choose not to brand the product at all.
Manufacturer brands are owned by producers and are the most common type of manufacturer brands Brands
brand. Products sold under manufacturer brands are clearly identified with the pro- owned by producers and clearly
identified with the product at the
ducer at the point of sale. As such, the producer is involved in the entire marketing
point of sale.
process: production, pricing and distribution decisions, and promotional activities.
The brand is an important asset to the producer, and brand loyalty is encouraged
with customers. The Murray Goulburn Co-operative Co. Ltd, for example, manufac-
tures cheese, butter and other dairy products branded as ‘Devondale’ in both con-
sumer and business markets. In consumer markets, Devondale-branded products
are available through supermarkets and convenience stores. In business markets,
bulk Devondale-branded products are available directly from Murray Goulburn
­Co-operative’s Devondale Foodservice division.19
Private label brands are owned by resellers, such as wholesalers or retailers, and private label brands Brands
are not identified with the manufacturer. They are also known as private brands, owned by resellers, such as
wholesalers or retailers, and not
dealer brands, house brands or store brands. Private label brands are becoming more
identified with the manufacturer.
popular as wholesalers and retailers seek increased exposure and increased turn-
over. Private label brands can provide better economies of scale through more
­efficient distribution and promotion. David Jones, for example, has the ‘St James’
and ‘David Jones’ brands, and Coles has its ‘Farmland’ and ‘Savings’ brands. Private
label brands are often cheaper than similar products sold under manufacturer
brands, but they usually enjoy little brand loyalty. The growing competition between

Chapter 7 Product 241

 manufacturer brands and private label brands has
prompted the industry to dub it the ‘battle of the
brands’. While private label brands have a competi-
tive advantage with distribution, the manufacturer
brands have an advantage with brand reputation
and image. Private label brands are often made by
manufacturers that have their own manufacturer
brands in the same product category. The under-
lying product is often very similar. Woolworths has
been expanding its private label brands (Wool-
worths Fresh, Woolworths Select, Woolworths
HomeBrand and Macro Wholefoods Market) and
substantially reducing the shelf space given to
manufacturer brands.
Generic brands are those products that only indi-
Woolworths has expanded cate the product category. These products do not promote a specific brand name,
its range of private label but state what the product is. They are sold in plain packaging at lower prices than
brands in recent years. branded items, and are usually found in supermarkets. They are also common in
business markets, especially in relation to components parts and raw materials.

Licensing
generic brands Products
Some organisations want to avoid the time and expense of establishing their own
that only indicate the product
category. special brand name. Such organisations can enter a licensing agreement to use
the names and symbols of other brands for a fee. This has been a very successful
strategy for some companies, especially where there is a clear marketing oppor-
licensing An agreement in
which a brand owner permits tunity for two organisations to combine their relative abilities. For example, a toy
another party to use the brand on manufacturer can become the licensee in a licensing agreement with the owners
its products. of the ‘Star Wars’ or ‘The Simpsons’ brand names and thus sell merchandise such as
plush toys, figurines, clothes or school stationery branded with the licensor’s brand.
Successful licensing can benefit both parties greatly. The Cancer Council licenses
its brand to manufacturers of sunscreen, glasses, clothing and tents, which helps
raise money for the charity. The licensee capitalises on the brand equity of a brand
it does not own and the licensor receives income from a product line it could not
itself produce. Both parties also take risks. The licensee bears all financial costs if
the product fails and the licensor risks its brand equity if the licensee’s product is so
poor as to damage the brand.

Franchising
Gloria Jeans, New Zealand Natural, Michel’s Patisserie, Sumo Salad and Oporto are
all well-known brands. They are also all franchises. Franchising has many parallels
with licensing. In a franchise agreement, the franchisor permits the franchisee to use
its business model, including products, brands, processes and suppliers, and to ben-
efit from co-ordinated promotional activities. The franchisee pays fees to the fran-
chisor, agrees to abide by the systems and rules set out in the franchise agreement
and assumes the responsibility for the success of the individual franchise. The risk
to the franchisor is similar to the risk involved in brand licensing. If the franchisee
operates its business poorly, the entire franchise can suffer damage to its brand.
Franchising is a very popular business model. It provides franchisors a way to
quickly expand their business without taking on all of the financing and risk res-
ponsibilities and it enables people who want to begin their own business to pur-
chase an ‘off-the-shelf’ business model, which can greatly reduce the risk and effort
involved in beginning a business.

242 Marketing
Co-branding
Co-branding is the use of two or more brand names on the same product. The use co-branding The use of two or
of co-branding has grown recently as organisations try to: more brand names on the same
product.
• capitalise on the brand equity of multiple brands
• improved the perceived value of a product
• maintain existing branding after another organisation’s brands are acquired.
Domino’s Pizza and The Biggest Loser is an example, forming an unlikely co-branding
alliance in recent times to launch a ‘Good Choice Range’ of individual meals. Domino’s
introduced the co-branded meals, which each had less than 400 calories per serve, to
capitalise on the popularity of The Biggest Loser television show and in recognition of
the need to offer healthy eating options on its menu to attract more health-conscious
consumers.20
Often the co-branding is done by established brands, and there is some complemen-
tary fit in the minds of consumers. Many credit card companies, for example, have
teamed up with well-known retail, airline or charity partners so that purchases with
the credit card benefit all parties involved. For example, the David Jones A ­ merican
Express Credit Card has a rewards program in which cardholders receive ‘Bonus
Gift Points’ when purchasing goods at David Jones or associated stores worldwide
(including Selfridges, Harrods, Harvey Nichols, Nordstrom and Galeries Lafayette).
With any co-branding ventures, neither brand should lose their individual
­identities, although one may be the dominant brand. Co-branding can be source of
competitive advantage in assisting the product to increase distribution, reputation
and differentiation.

McDonald’s rebrands as Macca’s Spotlight 

Australians love to abbreviate and shorten words and names. For example, mosquitoes are ‘mozzies’,
swimming costumes are ‘cossies’, someone called Barry is ‘Baz’ (like Baz Luhrmann). And, even
though they may be sometimes called ‘the Golden Arches’,
McDonald’s is ‘Macca’s’. The name is unofficial, of course —
at least it was until McDonalds decided to rebrand some of its
stores as part of an Australia Day campaign.
Since McDonald’s, a US-based global organisation, first
began operating in Australia in the Sydney suburb of Yagoona in
1971, it has been a massive success. It currently has 780 outlets
and employs 85  000 people, and is a popular choice for quick,
convenient food. For many, it is known as Macca’s. In fact,
McDonald’s has submitted the word ‘Macca’s’ to be considered
for inclusion in the next edition of the Macquarie Dictionary.
According to McDonald’s Chief Marketing Officer Mark
Lollback:
We’ve been a part of Australia for over 40 years now and we’re
incredibly proud to embrace our ‘Australian-only’ nickname.
What better way to show Aussies how proud we are to be a part
of the Australian community than change our store signs to the
name the community has given us?

From 8 January to 4 February 2013, 13 McDonald’s stores across Australia had new signage and
were rebranded as ‘Macca’s’. However, it wasn’t just a matter of changing a few signs. All stores also
offered an Aussie range of products, including the McOz, Aussie BBQ Lamb Burger, Aussie BBQ
Brekkie Roll and Pavlova McFlurry. The campaign was also supported by digital, print, outdoor and
social media advertising.

Chapter 7 Product 243

 With such a strong existing brand name and brand image, McDonald’s was able to have fun
rebranding itself for a particular campaign, resulting in more positive attitudes from customers.21

Questions
1. McDonald’s nickname is Macca’s. What other well-known brands have nicknames? Why do you think
that it would be special for a company to have a nickname for its brand?
2. Do you believe that this was a good idea for McDonald’s? What are the risks of rebranding, even for a
short campaign?

Concepts and applications check

Learning objective 4  explain the value of branding and the major issues involved in brand
management
4.1 How can a well-known brand name help a consumer make a purchase decision?
4.2 Write down the first ten brand names you can think of. What do you associate with each? Why do
you think each one was more readily recalled than brands that do not appear on your list?
4.3 What is brand equity? How can this be good for a company wanting to expand its product mix?
4.4 Outline a situation where individual branding would be preferable to either family branding or
brand extension branding.
4.5 Think of your own example of a co-branded product. What are the benefits for each organisation?

PACKAGING
Learning objective 5 Most products are sold in packaging — a bag, wrapper or container for the product.
describe the functional Many products need some kind of packaging to make them more convenient to
and marketing roles of
store and use, and to protect them from waste, damage or spoilage. For example, it
packaging
is difficult to imagine storing and selling lemon sherbet without packaging. As well
as its functional features, packaging also plays an important role in promoting the
product. It can gain people’s attention at the retailer, make customers aware of the
product and/or its contents, differentiate it from competitors’ offerings and help
build a particular message or image about the product. For example, Potatopak, a
New Zealand company, has won awards by developing a takeaway container made
from waste potato starch. The alternative packaging is suitable for meat and hot/wet
foods, microwaveable, able to hold coffee, and 100 per cent compostable.22
For some products, the packaging may be more expensive than the cost to actually
produce the product. This is the case for most perfumes and many food items. For
other products, the distinct packaging is totally integrated into the product’s brand
image, which helps to differentiate it from the competitors’ product. Many alcoholic
drinks are packaged in distinctive bottles (e.g. Frangelico’s bottle is shaped like a
monk’s robes, and Galliano’s bottle is exceptionally tall). Packaging can also provide
extra functionality to a product. For example, pump bottles of shampoo and mois-
turiser change the way the consumer uses the product compared to squeeze bottles.
The snap-out nozzle design on sports drink bottles has added extra convenience for
customers, particularly those who actually use the bottles during sporting activities,
in that they no longer have to bother removing and replacing a screw-top cap. In
summary, effective packaging should be designed to ‘protect what it sells and to sell
what it protects’.23

244 Marketing
 Packaging can become an important recognisable way for customers to
identify a particular product, much like a brand. On the other hand, as a form
of marketing tool, packaging can be changed. Marketers may want to change
the package to:
• express to customers that the product has changed in some way, such as
shape, size or ingredients
• update the style of package or logo to broaden the customer appeal
• emphasise certain elements to further differentiate it from the competition.
There are three main types of packaging.
1. The primary package holds the actual product, such as the curve-shaped
plastic bottle for S.C. Johnson’s Toilet Duck cleaning product.
2. The secondary package is the material used to hold or protect the product. It
can be removed and discarded after purchase. For example, the seal on the
Toilet Duck bottle that prevents the product leaking.
3. The shipping package is the packaging used to carry the product out of
the factory, and through the channel of distribution (e.g. wholesalers and
transporters), to the retailer. For example, several bottles of Toilet Duck are
packed together in standard cardboard boxes that can be more easily and
safely transported to retailers. Retailers then discard the boxes, placing the
individual products on display on their shelves.
If a company wants to show that it is socially aware or eco-friendly, it
can reduce the amount of secondary packaging that has to be thrown away,
ensure that no dangerous or eco-damaging material is used in the packaging,
or use recyclable b ­ ottles or containers. According to one international survey,
90 per cent of eco-aware consumers would be willing to give up an aspect
of packaging if it meant it would help the environment. Of those surveyed,
49 per cent said they would give up packaging that makes the product easier
to stack and store if it would help the environment. Consumers were less
likely to give up packaging if it affected more crucial factors such as hygiene
and protection.24

Labelling
Labelling usually forms part of the package and provides identifying, promotional, Packaging performs both
functional and marketing
legal and other information. This information can be an important factor in a cus-
roles, like Frangelico’s
tomer’s decision whether to purchase the particular product. At its most basic level,
bottle, which is shaped
the label would identify the product and display the brand name. Labels can, how- like a monk’s robes.
ever, provide a lot more useful information to the potential purchaser. For example,
labels on cleaning products usually include instructions for use, as do labels on
pharmaceuticals.
Some of the information provided on labels is compulsory. For example, certain
information must be presented on food labels under legal requirements monitored
by the Australia New Zealand Food Standards Council (ANZFSC). Depending on the
product category, some of the information required by legislation includes:
• brand name and logo
• product name
• size of packaging
• statement of quantity
• origin of goods
• name and address of packer or manufacturer
• representations
• nutritional information

Chapter 7 Product 245

 • ingredients list
• use-by date or date of packaging
• bar code.
In recent years, public health experts, consumer groups, representatives from the
food and retail industries, and various governments in Australia and New Zealand
have discussed the introduction of an easy-to-understand front-of-pack food l­abelling
system that could help customers make healthier food choices. These discussions
have included a ‘traffic light’ or a star-rating system, but any scheme would be
­voluntary and based on the goodwill of the industry.25

Spotlight  Coke label change: a personal success

The soft drink market is a very competitive one, with changing tastes, healthy alternatives and
new flavour variations having an influence on sales. Coca-Cola has introduced a number of variations
of its product, such as Diet Coke, Caffeine-Free Diet Coke, Coke Zero and Coke with Lemon, but
what about changes to the original Coca-Cola product? While Coke did not change the flavour
of its standard drink, it embarked on a highly successful campaign with personalised bottles and cans.
The marketers felt that if Coca-Cola was about ‘bringing
people together, then we needed to encourage this on a more
personal level and what better way to spark this connection
than using the first name’. To do this, the company replaced
the logo with 150 popular names, inviting people to ‘Share a
Coke’ with Matt, Sarah, Jess, Kate, Kevin, and so on. The idea
was that people could share a Coke with friends by finding a
can or bottle with their names on it.
However, not wanting those with an unusual name to feel
left out, Coke offered the opportunity for shoppers to create
a custom can with their name on it at various Westfield
Shopping Centres. People could also go online and send a
‘virtual Coke’ to their friends via Facebook. Even the famous
Coca-Cola sign at Sydney’s Kings Cross was handed over to
consumers to broadcast their own names via text messages
for three days during the campaign. In addition to the
30-second television campaign advertisements, people were
© Coca-Cola Australia
able to create and share their own Coke commercials on
YouTube and Facebook.
Coca-Cola allocated 268 million bottles and cans for personalisation during the campaign, at an
estimated cost of $5 million. From all reports, it was a huge success and the campaign won several
marketing industry awards — and it did not involve a change to the basic product.
In a follow-up campaign, ‘Share a Coke and a song’ integrated the product with the Spotify music
streaming website. Selected bottles featured a year between 1938 and 2012 and an accompanying
QR code. By scanning the QR code on their smartphones, customers were able to ‘unlock’ 50 songs
associated with the year printed on the bottle.26

Questions
1. There have been a number of campaigns in which beverage manufacturers have varied the product
flavour, but in this campaign Coca-Cola varied the labelling of its product to make it personal to the
customer. What are some of the potential advantages and disadvantages of this strategy?
2. The campaign involved actual cans and bottles available in the stores, as well as ‘virtual cans’.
Do you believe that the online aspect of the campaign was justified or a waste of effort? Give reasons for
your answer.

246 Marketing
Concepts and applications check
Learning objective 5  describe the functional and marketing roles of packaging
5.1 Using your own examples, outline the two main functions that product packaging can perform.
5.2 Analyse the type of information required on food product labels. How could a marketer use this
information as part of their marketing strategy?
5.3 Explain the role that packaging plays in marketing strategies for products like perfumes.

MANAGING PRODUCTS
The foregoing discussion makes it clear that product strategy is a central and com- Learning objective 6
plex part of the organisation’s marketing mix. From the new product development explain key aspects of
product management and
process discussed earlier in this chapter through the remaining parts of the product
positioning through the
life cycle, there are many decisions to be made which affect the success of the product life cycle
product and its contribution to the organisation’s overall marketing objectives. As
we emphasise throughout this book, these decisions are not simply made once and
implemented; rather, product strategy consists of ongoing evaluation and responses
to the changing marketing environment.

Approaches to management
We examined the internal environment of the marketing organisation in the chapter
on the marketing environment and market analysis. The internal environment
includes the structure of the organisation — who is responsible for what. Decisions
about how marketing is managed and how products are managed within an organ­
isation can have a significant influence on the success of the organisation.
The traditional approach to organisational structure allocates different business
functions to different groups within the business; for example, a human resources
department, a sales department, a distribution department, a finance department,
a production department and a marketing department. While such a structure can
be appropriate for many businesses, the complexity of product development and
management means specialists from across many areas of the business need to be
involved. At the same time, managing the product may require coordination and
cooperation across different business departments, which can be difficult to achieve
in a traditional organisational structure.
A business may choose to employ one or more managers to take responsibility
for the management of particular products or product lines, or the management of
a particular brand within the organisation’s portfolio of brands. The first is known
as a product manager, and the second is known as a brand manager. With both
approaches, the manager has the authority to coordinate aspects of the operation of
various business departments. This approach is designed to ensure that the various
areas of the business are all working toward achieving the organisation’s ultimate
marketing objectives.
Another alternative is to appoint a market manager who will be responsible for
managing the marketing activities aimed at a particular part of the target market.
For example:
• a car dealer may appoint a consumer market manager and a business market
manager
• a motel chain may appoint a market manager to manage the marketing activities
directed toward holidaymakers and another market manager to target business
travellers and conferences

Chapter 7 Product 247

 • a charitable institution may appoint one market manager to focus on corporate
donations and another to focus on raising money from the general public.
Regardless of the organisational structure, the most important objective for the
organisation is to ensure that all activities related to its products are coordinated
across the organisation. Of course, a product cannot be seen as a simplistic, one-
dimensional offering to the marketplace. There are many complex issues and
­decisions to be made relating to the product in the marketing mix. In later chapters
we will be looking at pricing, promotion and distribution considerations. These must
also all be managed in a coordinated way across the organisation. In other words,
the organisation must have a marketing orientation.

Product/market growth strategy matrix

A management planning tool that can help a business determine its growth strategy
is the product/market growth strategy matrix, or the Ansoff matrix (named after its
developer Igor Ansoff). The matrix suggests that a business’s attempts to grow will
depend on whether it markets its current or new products in the current or new
markets (see table 7.2). This can assist managers to understand the different growth
strategies and assess their degree of risk.

Table 7.2  Product/market growth strategy matrix

Increasing risk

Increasing risk
↔
Current products New products

↔
Current markets Market penetration Product development
New markets Market development Diversification

The matrix presents four different growth strategies.

Market penetration occurs when a business increases market share within the
existing marketplace. This involves selling more of the current product/service to
the existing customers, or finding new customers within the current markets. In
many ways, this can be a less risky option.
Product development involves developing new products for the current markets.
This can mean the development of new capabilities, modifications or an entirely
new product. Such a strategy requires the business to emphasise research and devel-
opment, innovation and customer insights, and be first in the marketplace. It is a
risk that the new product may not be accepted by the market.
Market development is when a business finds new markets for its existing products.
This strategy can involve market research and segmentation of potential markets
to identify new customers. This can be from new geographical markets, different
priced markets, and new distribution channels such as expanding from retail to
online. It is more risky than market penetration, as there is uncertainty regarding
how the new market will react to the product.
Diversification is when a business introduces new products into new markets. This
is the most risky strategy in the matrix, as the business is moving away from what it
has done in the past and into new areas where it has little or no experience. There
is a lot of uncertainty — but if it is undertaken successfully, it can be very profitable.

Managing products through the life cycle

We discussed new product development in some detail earlier in the chapter. We
will briefly revisit this concept and look at its role in managing the organisation’s
product strategy as its products move through the product life cycle. Markets change

248 Marketing
constantly and organisations need to introduce new products and revise existing
product characteristics to meet the needs of their customers and achieve the organ­
isation’s goals. New product development involves idea generation, screening, con-
cept evaluation, marketing strategy, business analysis, product development, test
marketing and commercialisation.
Some new product ideas are found by chance. Most are a logical or inspired
response to some change in the marketing environment that brings about new
­
opportunities or threats (including the products developed by competitors). For
­
example, the past decade has been marked by ever-increasing public awareness of
the potential threat of global warming. In response, numerous products have been
developed that in all likelihood would not have had a viable market before. These
include compact fluorescent lightbulbs, in-home electricity monitors and ethanol-
based fuels. In addition to responding directly to changes in the marketing environ-
ment, organisations must develop new products to replace those that are nearing
the end of their life cycle. Organisations cannot afford to have a product mix with
many products in decline and few being introduced. The world’s biggest oil com-
panies are an example of organisations trying to avoid this situation. While BP is
an organisation built on selling oil and petrol, it has been working for decades to
expand into new areas with other energy products (such as solar energy panels).
By understanding the product life cycle, the marketer can determine which stage
their product is in and decide on appropriate decisions for the next stage, be they
related to packaging, pricing, advertising, positioning or some other element of the
marketing mix. When a marketing manager uses the product life cycle concept, vari-
ations in the marketing mix will be timed to coordinate with the product’s market
situation and effort will not be wasted on unprofitable products. A well-timed change
in strategy can move a product from the maturity stage back into a growth stage,
resulting in a resurgence of sales and profits.
If a product is seasonal in nature, then it may enter a natural decline stage: no
matter what a marketing manager does in terms of advertising, the product will
still decline in sales. For example, in the months after the football grand final, it is
very difficult to sell team merchandise, because people become more interested in
cricket and other summer sports. Further, some ‘fad’ products would have a short
planned life cycle, as the product may only be intended to be sold for a short time;
for example, The Hobbit merchandise proceeds very quickly through the product life
cycle while a new film is screening at the cinema.
The product life cycle concept can also be used to analyse a brand in the market-
place. For example, while a product category as a whole may be in the growth or
maturity phases of its life cycle, particular brands within the product category may
be in the introductory or decline phases. This is most easily seen in relation to prod-
ucts subject to fashion, such as clothes.
Recall the idea of the ‘augmented product’ layer from our discussion of the total
product concept earlier in the chapter. Branding is one of the key ways in which
competing organisations differentiate their offerings at the augmented product level.
Other approaches include product benefits, design, add-on services and packaging.
The crucial aspect is to maintain a competitive advantage through the product life
cycle. This is often done by modifying a product or creating a new variation of an
existing product. While products created through such processes are thought of as
‘new’, the creation of a genuinely new product is relatively rare. Often the term ‘new
product development’ is used to describe products that are not really new, but that
are significantly different from the existing product they are based on. For example,
Paul’s offers a range of organic milk that is not a completely new product; rather, it

Chapter 7 Product 249

 is a variation on the existing product of milk, but certified organic, free from pesti-
cides and preservatives, and not diluted by permeate (which is a milk by-product).27
If a product is already in the market, an organisation can capitalise on the existing
product and its knowledge of the market by modifying existing products or creating
line extensions.
One or more characteristics of a product may be modified so that the resultant
‘new’ product supersedes the earlier one. This is frequently seen in high-technology
products; for example, each generation of game console from Nintendo and Sony
tends to supersede the previous one. Even if the older products remain, their popu-
larity and sales decline because they are not as desirable as the new version. Product
modifications usually improve the product’s performance, convenience or versatility
(e.g. the introduction of screw-tops for wine bottles), quality or durability (e.g. a
seller of blue suede shoes could make Scotchguard treatment a standard feature to
better protect customers like Elvis against scuffing and damage) or sensory appeal
(e.g. the Mother energy drink’s flavour was completely changed because the orig-
inal flavour did not appeal to many customers; the change in flavour was promoted
through a multimillion dollar advertising campaign).
Sometimes a variation or derivative of an existing product can be added to the
line extension A new product product line, rather than superseding the original product. This is known as a line
that is closely related to an extension. The development of line extensions is a less risky and less expensive way
existing product in a product line.
to introduce a product. Line extensions are the most common form of ‘new’ product.
A line extension product is, by definition, similar to existing products, but can focus
on a different market segment or segment needs. For example, the introduction of
mini cheeseburgers at Hungry Jack’s was so successful that it planned to expand the
‘mini ‘concept to other Hungry Jack’s products, like chicken minis.28
In early 2013, Schweppes Australia relaunched its Mountain Dew drink as Moun-
tain Dew Energised with added caffeine (caffeine had been a standard ingredient in
the drink in the United States for some time). Rather than simply adding the ‘ener-
gised’ drink as a line extension, Schweppes took a risk by removing the ‘original’
product from the market altogether. Given the increased success of energy drinks
(such as Mother, V and Red Bull), the decision may well prove to be a successful one.29
Modifying a product or creating a line extension can breathe new life into an
existing product. Even if the ‘new’ product does not enjoy the rapid growth of the
introduction and growth phases of the life cycle, it can result in an existing product
moving from maturity or decline back to the growth phase. In addition to modifying
existing products to create new ones, repositioning can reinvigorate a product that is
well into its life cycle.
Repositioning
We introduced the concept of positioning in the chapter on markets. When making
decisions about a product, the marketer must understand the current positioning of
product positioning The way the product. Product positioning is the creation and maintenance of a certain per-
in which the market perceives a ception of a product in the customers’ minds in relation to competitors. The position
product in relation to competing
is usually based on purchase criteria relevant to the customer’s decision making,
offerings.
such as price, performance, quality and safety. For example, in the tea market, Twin-
ings may be positioned at a higher price and quality than Lipton.
Operating in a market against a strong competitor can be daunting, but there are
various positioning strategies an organisation can take. It can choose to compete
head-to-head with the competitor. This may be appropriate if performance is similar
and it is possible to compete with a lower price. This can be particularly effective
during tough economic times, when consumers seek value for money. Alternatively,
a company can position its products away from the competition. This approach is

250 Marketing
appropriate if there is a dominant feature that makes it stand out from the com-
petition, and that can entice customers to purchase the product specifically for
that feature. Such a strategy can use the information gained from market research
activities of the type that inform the development of a perceptual map, such as that
for the surfwear industry presented in figure 6.11.
For some organisations there may be the need to change an aspect of the marketing
mix to reposition themselves in the market. This might be to stay relevant to the
changing needs of customers, or in reaction to changes by a competitor. An organ-
isation can physically change a product, its design, packaging or add-on services,
and its price, distribution or promotional activities, in order to reposition it in the
eyes of the customers. This can help rejuvenate an old image and expand into new
markets, as seen by Adidas, which has repositioned from a shoe worn by athletes to
a shoe worn by pop stars to become a cool brand for a whole new generation.30 It
can also be a risky strategy when the brand is well-known with an internationally
recognised image, such as Yves Saint Laurent, which announced that it will rebrand
itself ‘Saint Laurent’.31 An achievement such as this can move a product from the
maturity stage of the product life cycle back into a new phase of growth.
Product obsolescence
Eventually products may become obsolete. Obso-
lescence may be either planned or unplanned. For
example, most companies that market business
software (e.g. Microsoft, Apple, Adobe and Sun)
release a version of the software with the intention
of replacing it after a year or two with an upgraded
version that offers more features to the customer.
This is known as planned obsolescence and enables
the marketer to generate repeat business from the
same customers. They need to be sure that the
newer version offers enough value to prompt cus-
tomers to upgrade. Another type of planned obso-
lescence relates to products that break down or
wear out. While most products are created with a reasonable expectation of durability, The ‘Diana’ film camera
this is often moderated by price considerations and so on. Unplanned obsolescence appeals to a niche market
occurs when a product becomes superseded by another, often through technological of young photographers.
or social change. For example, photographic film for consumer cameras has largely
become obsolete due to the invention of digital cameras, although not all analogue
cameras have ceased in the marketplace. The ‘Diana’ camera is a plastic-bodied box
camera which uses 120 roll film and is used by photographers to take soft-focus, retro-
style pictures. More recently, a niche market of young photographers and ‘hipsters’ has
emerged, as new versions of the Diana camera have been made available by Lomog-
raphy in different colours and styles.32
Even if a product does not become obsolete, if it is in significant decline, it may be
taking valuable resources away from other, more worthwhile, opportunities. It may
not be worth trying (or indeed possible) to reposition the product in the market.
Product deletion is the process of eliminating a product from the product mix. product deletion The process
Deleting a product may be a good business decision, but it can also disappoint or of removing a product from the
product mix.
alienate some customers, and needs to be managed. It could damage sales of other
products and product lines, as customers show their annoyance. On the other hand,
product deletion should usually be the preferred option over trying to sell a failed
or superseded product. For example, in 2008, JVC ceased production of stand-alone
VHS video cassette recorders, and in 2012 Brother produced its last typewriter.33

Chapter 7 Product 251

 Spotlight  VB: a mistake in changing product
When it comes to brands, beer drinkers can be very parochial. Queenslanders often drink XXXX,
Tasmanians Boags and Cascade, New Zealanders Steinlager, and Victorians VB (Victoria Bitter).
VB was Australia’s top selling beer for many years, until
they changed the product formula. In 2009, Carlton United
Breweries (CUB) reduced the alcohol content of VB from
4.9 per cent to 4.6 per cent — not because of customer
feedback, but purely as a management decision to save
millions of dollars in excise tax. The decision was one CUB
came to regret.
As part of the change, VB’s famous tagline ‘for a
hard-earned thirst’ was changed to ‘the drinking beer’.
Unfortunately the change was not greeted well by the loyal
VB customers, with some campaigning to return the product
to full strength. Sales began to fall and, in 2012, VB was no
longer Australia’s best selling beer as it was overtaken by
XXXX Gold. CUB realised that the brand was in decline and
had to take action.
CUB’s chief executive, Ari Mervis, wrote a full-page
apology letter to beer drinkers, admitting that they ‘had got it
wrong’ with the changes. Richard Oppy, general manager of
marketing for VB, said that the change back to full strength was a decision to put the beer back at the
heart of the brand. He said:
We have listened to our Victoria Bitter drinkers and they have been very vocal in the past and they have
told us — in no uncertain terms — that they didn’t like it when we tinkered with their brew. One person
walking away from this brand, as far as we are concerned, is one too many. We don’t have the exact
amount of numbers that have walked away but it’s no secret that VB has been in decline.

To relaunch the VB brand, CUB ran a $10 million campaign, brought back the ‘for a hard-earned
thirst’ tagline and returned to the original VB label. It is a big step for a company to change the recipe
for its popular product, but an even bigger one to admit that it was a mistake and revert to the original.
Clearly some marketing decisions can have unintended consequences that need to be fixed.34

Question
In terms of managing a product through the life cycle, describe what happened after Carlton United Breweries’
decision to change the alcohol content of VB. Why do you think customers reacted the way they did?

Concepts and applications check

Learning objective 6  explain key aspects of product management and positioning through the
product life cycle
6.1 Outline the differences between functional manager, product manager, brand manager and
market manager approaches and their consequences for product management.
6.2 Why do you think most ‘new’ products are actually modified versions of existing products?
6.3 Choose a product that is in the mature phase of its life cycle. Outline a product repositioning
strategy for the product.
6.4 Identify two products that have been deleted from the market over the past few years. Why did
their marketers decide product deletion was appropriate?

252 Marketing
SUMMARY Key terms and
Learning objective 1  define ‘product’ and understand different ways to view and concepts
analyse products and product attributes brand  238
brand equity  240
A product is a good, service or idea offered to the market for exchange. It can be
brand extension  241
tangible, intangible or a combination of both. Marketers can better understand and
brand image  238
analyse products using the total product concept, which describes four levels of a brand loyalty  240
product: core product, expected product, augmented product and potential product. business-to-business
Products can be classified as consumer products (products purchased by individuals  products 224
to satisfy personal and household needs) and business products (products bought by co-branding  243
an organisation to be used in its operations or in the production of its own products). consumer products  224
convenience products  225
Learning objective 2  describe the product life cycle, new product development diffusion of innovations  233
and the product adoption process equipment  226
family branding  241
The concept of product life cycle proposes that a product passes through five stages: fast-moving
new product development, introduction, growth, maturity and decline. Products must   consumer goods  225
be managed throughout the product life cycle to maximise their contribution to the generic brands  242
organisation’s marketing objectives. individual branding  240
New product development has eight stages: idea generation, screening (eliminating licensing  242
unviable ideas), concept evaluation, marketing strategy, business analysis (how the new line extension  250
product will affects costs, sales and profits), product development, test marketing and manufacturer brands  241
new product
commercialisation.
 development 229
The product adoption process describes the stages through which a potential
parts and materials  226
customer passes, from first becoming aware of the new product right through to private label brands  241
deciding to adopt, or buy, the product. In this process the consumer who accepts product  221
a new product passes through five stages: awareness, interest, evaluation, trial and product adoption
adoption.  process 231
product deletion  251
Learning objective 3  outline how an organisation can differentiate its products product differentiation  236
to obtain a competitive advantage product item  224
product life cycle  229
Product differentiation is the creation of products and product attributes that dis­ product line  224
tinguish one product from another. Most of the differentiation of products occurs product mix  224
in the augmented product layer of the total product concept. Design, brand image, product positioning  250
style, add-on services, quality and features are the major product attributes that can services and supplies  226
be used to differentiate offerings from competitors’ products. shopping products  224
specialty products  225
Learning objective 4  explain the value of branding and the major issues total product concept  222
involved in brand management trade mark  239
unsought products  225
Brand refers to a collection of symbols, such as the name, logo, slogan and design
intended to create an image in the customer’s mind that differentiates a product
from competitors’ products. Brands can play a major role in a consumer’s choice of
a product, particularly for high-involvement products, as a well-known brand with a
good reputation will more likely be chosen than a cheaper, unknown brand. A brand
can help speed up consumer decision making by identifying specific preferred prod-
ucts, and can provide a form of self-expression and status, as well as denoting product
quality. Brand equity is broadly defined as the added value that a brand gives a product.
It is underpinned by brand loyalty. Brand equity metrics include brand assets (e.g.
trade marks and patents), stock price analysis, replacement cost, brand attributes,
brand loyalty and willingness-to-pay analysis. A high brand equity can be a valuable
asset for a company and provide a strong competitive advantage.

Chapter 7 Product 253

 Learning objective 5  describe the functional and marketing roles of packaging
Packaging can be a very important part of a product. The main functions of a package
are to protect the product and promote the product. Many products need some kind
of packaging to make it more convenient to store and use while protecting it from
waste, damage or spoilage. However, as well as its functional features, a package is
also used as a marketing tool to gain people’s attention at the retailer, make cus-
tomers aware of the product and/or its contents, differentiate it from competitors’
offerings and help build a particular message or image about the product. As a form
of marketing tool, the package can be changed. Marketers may want to change the
package to express to customers that the product has changed in some way such as
in terms of shape or ingredients, update the style of package or logo to broaden the
customer appeal, or emphasise certain elements to further differentiate it from the
competition.

Learning objective 6  explain key aspects of product management and

positioning through the product life cycle
Within an organisation, the marketing issues surrounding products can be managed
through a functional approach or by using product managers, brand managers or
market managers. The last three approaches are often better able to coordinate all of
the activities across the organisation to ensure the product strategy is implemented
well. In addition to introducing new products, an organisation can capitalise on
existing products by modifying products or creating line extensions.
The organisation needs to manage the positioning of the product in the mar-
ketplace, and it may sometimes be necessary to reposition the product during the
product life cycle. Line extensions, product upgrades and repositioning can all help
keep a product out of the decline phase. For some products, these approaches can
move the product back in the life cycle to enjoy a new phase of growth.
Many products eventually become obsolete. A product in decline may be taking
valuable resources from away from other opportunities. Product deletion is the
process of eliminating a product from the product mix. Product deletion must be
managed in such a way as to minimise discontent among customers of the deleted
product. Otherwise the discontent can affect sales of continuing products.

254 Marketing
Is the PC a product in decline? Case study
As technology changes, so do customer requirements — as well as the products available in the
marketplace. Over the years, there have been many popular products, brands and technologies that
have lost their market position and left the market altogether — for example, typewriters, vinyl records
and video tapes. In the IT industry, there has been discussion that with the growth in tablet sales (like
Apple iPads) and smartphones, personal computers such as laptops and desktops will soon become
products of the past. Or will they?
In 2013, two industry studies showed falls in the PC market. Research company Gartner reported
that global shipments of PCs were down 10.9 per cent, which resulted in ‘one of the worst declines in
its recent history’ with falls in five consecutive quarters. Principal analyst at Gartner, Mikako Kitagawa,
said:
We are seeing the PC market reduction directly tied to the shrinking installed base of PCs,
as inexpensive tablets displace the low-end machines used primarily for consumption in
mature and developed markets.
In Asia, the decline was greater at 11.5 per cent, and Kitagawa attributed this to the fact that in
emerging markets, the less expensive tablet option has become the first computing device for many
people (who may simply be deferring the purchase of a PC down the track).
The second report by International Data Corporation
(IDC), using a different methodology, came to the same
conclusion, although produced a slightly smaller decline than
expected. IDC said the numbers ‘reflect a market that is still
struggling with the transition to touch-based systems running
Windows 8’.
At the same time as the PC market is declining, the tablet
market is growing, with IDC predicting a nearly 60 per cent
increase in tablet sales, and for tablets sales to surpass
those of portable PCs. According to Ryan Reith at IDC, ‘What
started as a sign of tough economic times has quickly shifted
to a change in the global computing paradigm with mobile
being the primary benefactor’.
Does this mean an end to the PC market? IDC believes
that PCs will have an important role in this new era of
computing, particularly for businesses. However, for many
consumers, tablets provide a simple solution for those
wanting the basic capabilities of a PC.
Further, Loren Loverde, program vice president at IDC said:
Many users are realizing that everyday computing, such as accessing the Web, connecting
to social media, sending emails, as well as using a variety of apps, doesn’t require a lot
of computing power or local storage. Instead, they are putting a premium on access from
a variety of smaller devices with longer battery life, an instant-on function, and intuitive
touch-centric interfaces. These users have not necessarily given up on PCs as a platform
for computing when a more robust environment is needed, but this takes a smaller share of
computing time, and users are making do with older systems.
It could be argued that the PC market would decline anyway, despite the growth in tablets and
smartphone sales, as PC sales have achieved a sort of equilibrium. The processing power of PCs
already meets the needs of most users, so any small improvements in newer models are not enough
to result in the purchase of a new PC.
While industry people, researchers and journalists debate the different views, it is always important
to observe the views of the users or customers. One way is to review online consumer comments.
Following an online story on the decline in sales of PCs in The Age, readers left a range of views on
the topic. Most agreed that lightweight tablets are great for web browsing, watching movies and social
media. Many commenters stated that they owned both a tablet and a PC or laptop, acknowledging

Chapter 7 Product 255

 Case study that the capabilities of tablets are still very limited (unable to complete more complex word
processing, gaming and photo editing tasks). Most commenters still used PCs or laptops for work
purposes where applicable, so it seems unlikely that consumers will ditch the PC altogether any time
soon. Some consumers even looked to the future, envisioning a hybrid device using both tablet and
PC technology — a device that docks to a larger monitor with a keyboard and mouse, but able to be
easily transported to meetings or on business trips.
Journalist and commentator Tony Bradley stated his view:
Ultimately, PCs aren’t dying, they’re evolving. One form of PC is in decline, but another form
is growing exponentially. The tablet market is expanding much faster than the traditional PC
market is shrinking, and combining the two for a more comprehensive perspective on per-
sonal computers in general shows that the PC market is still growing.
Clearly, there is not one view about the decline in PC sales, and only time will tell which is
correct.35

Questions
1. Evaluate PCs and tablets in terms of the total product concept.
2. What marketing strategies do (or could) PC manufacturers use to progress potential consumers
through the stages of the product adoption process and increase sales?
3. Review the customer opinions about what is happening to the PC and tablet markets, and suggest
your own opinion on what is happening, and what will happen in the next few years.

Advanced activity
Now that you have studied this chapter, re-read the opening feature on 7-Eleven
Slurpees and think about all the issues that relate to the concept of product
(such as the total product concept, product life cycle, product differentiation and
branding). Imagine you were in charge of making the decision whether or not to
launch new Slurpee flavours in the future. What issues would you take into account
in making your decision?

Marketing plan activity

Think about the product (good or service) for which you are preparing your
marketing plan. What is the product? What are its main features? Why would
the target market want to buy this product compared to the competition? Once
you have thought about these questions, outline and evaluate potential product
strategies that will likely meet the needs of the target market.
A sample marketing plan has been included at the back of this book to give you
an idea where this information fits in an overall marketing plan.

256 Marketing
 CHAPTER 8

Price
Learning objectives
After studying this chapter, you should be able to:

understand the objectives that guide pricing strategies

analyse demand to inform the development of an appropriate pricing strategy

describe the principles of pricing based on cost and revenue analysis

explain the role of competitive analysis in determining pricing

appreciate the issues involved in pricing for business markets

understand how to manage prices as part of the marketing mix.

The ‘true’ price of discount
air fares
Across the world, we are witnessing the seemingly relentless rise of low-cost air
carriers, both domestically and internationally. While low-cost carriers have been
­
operating since the 1970s, with Southwest Airlines arguably the first significant car-
rier and Laker Airways the first trans-Atlantic carrier a few years later, the market
has rapidly expanded more recently with the emergence of Ryanair in Europe,
­JetBlue in the United States and AirAsia in the Asian region as market leaders.
While each low-cost carrier will have its own price/service trade-off, common features
include:
• a standardised fleet from bulk purchasing, which results in lower training and
maintenance costs
• no non-essential features — resulting, for example, in no window blinds and non-
reclining seats
• no frequent flyer schemes
• the use of secondary airports for lower landing fees and less on-ground customer
service
• rapid turnaround, resulting in more flights per day
• online ticket sales with no call centres or agents
• online check-in with fewer check-in desks
• restrictive baggage limits and specific baggage charges
• no use of jetways to minimise airport charges
• multiple jobs for staff (for example, cabin crew also check tickets at the gate and
clean aircraft)
• charges for all services, including meals, drinks,
entertainment and blankets
• no reserved seating, which slows down the loading
of the aircraft
• point-to-point trips, so that passenger transfers to
other flights are not accommodated.
Australians have, by now, become accustomed to
the presence and benefits of low-cost carriers such
as Jetstar, the former Compass and, more recently,
Tiger Airways (which was recently absorbed by
Virgin, but will continue to trade under the Tiger
brand). An obvious key to the success of these air-
lines is the discount ‘headline’ or advertised pricing,
which is consistently and substantially lower than
the prices of ‘full-service’ airlines, such as Qantas and Virgin Blue. At the same time,
pricing should also recover the full marginal cost of services which are optional or
discretionary. In Jetstar’s case, this can mean an extensive list of optional additional
services. As airline economist and consultant Tony Webber observed:
I’ve travelled on numerous low-cost carriers all over the world, so I am quite familiar
with the seemingly endless array of add-ons that one can purchase, but even I was
surprised by the extent of the extras available at Jetstar. I counted up to 20 add-on
services, including those that have been a part of air travel for a number of years
such as the purchase of a more flexible ticket, upgrades and the purchase of extra
checked-in baggage.1
According to Webber, Jetstar also offers more ‘exotic’ services, such as hot meals,
entertainment units, comfort packs, frequent flyer points, online check-in of b­ aggage,
SMS itineraries, seat selection, seats with extra leg room, seats closer to the front of
the aircraft, travel insurance, car hire, tourist activities, carbon offsets, charity do­­
nations .  .  . the list goes on! The default purchasing option often automatically selects
these add-on services, so customers must uncheck them to avoid the additional pay-
ment. Despite this, unbundled pricing can be considered a fairer system, as it allows
passengers to avoid paying for services that they don’t use — thereby, according to
Webber, ‘stopping one set of passengers cross-subsidising others’.2

Questions
1. Who do you think are the target customers of the discount carriers such as
Tiger and AirAsia?
2. How satisfied do you think ‘first time’ customers will be?
3. The appeal of discount carriers is the extent of the discount. If you were
setting prices for a discount carrier, how would you calculate the minimum
price savings necessary to compete with full-service carriers?
4. Do you think the discount model will become a permanent feature of airline
ticketing?

Chapter 1  Introduction to marketing 259

 INTRODUCTION
Price is a constant, fundamental concern in both consumer and business markets.
We can distinguish between price (which can be influenced by economic factors
such as the relationship between the supply of a product and demand) and pricing
(which is a conscious, explicit management activity). In terms of the air fare ticket
price at the start of the chapter, some consumers may be prepared to pay a high
price for a ‘full service’ economy class air ticket because they can afford it (or per-
haps because someone else, such as their employer, is paying for it). On the other
hand, some consumers will regard the lowest possible price as the most important
consideration, above comfort or convenience, and so will choose to fly with a dis-
count carrier. Thus, the choice of target markets will be one factor that airlines will
take into consideration in pricing tickets, along with many others, such as the costs
associated with providing in-flight and on-ground services.
Price is a measure of value to both buyers and sellers. Buyers judge price as a
measure of the benefit they derive, or are likely to derive, from the consumption of
a product, whether it be a good, a service or an idea. Price also serves as a means for
buyers to allocate their scarce financial resources between purchases. For example,
a buyer may want a holiday and a new home entertainment system, but can only
afford one or the other. To choose, buyers compare the prices and the utility or satis-
faction derived from the alternative purchases.
Sellers need prices to cover their costs and provide sufficient profit margin to jus-
tify the risk they take by engaging in business activities. For example, a business
supplying tangible goods will charge a price that covers the costs of developing, pro-
ducing and supplying their products, and still provides a reasonable profit. Services
businesses will charge a price based on several factors, including:
• the time involved in providing the service
• the time involved in obtaining a reasonable return for the years of specialised
training undertaken by the service provider
• any standardised price levels prescribed by an industry professional body or
government
• the customer’s perception of the value of the service
• the customer’s ability to pay.
It goes almost without saying that if a buyer and seller cannot agree on the value
expressed in the price, the transaction is unlikely to proceed.
In this chapter, we will examine the role of price and pricing in the marketing
mix, including a discussion of how demand, costs and ­ competitors ­ influence
pricing strategy. We will also examine the issues involved in pricing for ­business
markets. Finally, we will discuss how to manage prices as part of the overall
marketing mix.

PRICING OBJECTIVES
Learning objective 1 As we learned in chapter 1, the key to successful marketing lies in the creation of a
understand the objectives mutually beneficial exchange of value between one party and another:
that guide pricing
• For the buyer, the benefit is the satisfaction derived from the consumption or own-
strategies
ership of the product. In normal circumstances, a buyer will only engage in an
exchange if that benefit is in excess of what they must give for the product.
• For the seller, the benefit is primarily the revenue derived from purchases. In
normal circumstances, a seller will only engage in an exchange if that benefit is in
excess of the cost of creating and delivering the product.

260 Marketing
 Price serves as a visible expression of the value of the product to be exchanged
and enables buyers and sellers to negotiate and agree on that value.
In financial terms, this concept is straightforward. Someone buying a bag of
apples pays a price of a few dollars. While an exchange of money and a product
between the buyer and seller is the usual method, it is important to recognise that
not all exchanges of value involve a financial transaction (and therefore not all
involve a monetary price). Exchange may take place through bartering (the direct
exchange of goods and services in payment for other goods and services). In this
case, the goods and services given actually constitute the price. While it may seem
old-­fashioned, bartering remains common in many parts of the world and it is still
an important method of exchange in business markets. In fact, the Bartercard busi-
ness was established to help businesses trade goods and services. Its system works
on ‘points’ earned and spent by members through the exchange of goods and ser-
vices with other members. Its key advantage is that it removes the need to directly
exchange one product for another. It also helps businesses administer their bartering
activities, which can otherwise be complicated by tax and legal issues (discussed fur-
ther later in the chapter).
When the product is an ‘idea’ rather than a good or service, the ‘seller’ is typically
seeking to influence the opinions (e.g. through political campaign advertising) or the
behaviours (e.g. through anti-smoking ‘Quit’ campaigns) of ‘buyers’. The exchange of
value may therefore occur in the ideas or behaviours exchanged by both parties. The
astute social marketer will be mindful that, for the ‘buyer’, the required behaviour is
the price of the transaction.

Determining pricing objectives

The management of price is known as ‘pricing’. Pricing objectives are typically
derived from the organisation’s marketing objectives, which are, in turn, based on
the overall organisational — and particularly financial — objectives, as discussed
in the chapter on the marketing environment and market analysis. For example,
Qantas established Jetstar with the aim of penetrating the holiday and family trav-
eller markets through a relatively low-cost, ‘low frills’ service offering that would
enable aggressive pricing. Qantas also operates its main business in the economy
and holiday traveller market segments, but at significantly higher price points. Both
Qantas and Jetstar need to ensure that, as far as possible, their pricing does not
result in their competing directly for the same customers.
It can be tempting to dismiss the question of pricing objectives by simply assuming
that pricing should aim to maximise profits. While this is typically a fundamental
objective of all for-profit marketing activities, it does not help the marketer formu-
late specific strategies to achieve specific outcomes (and it is also nearly impossible
to achieve in practice). More specific pricing objectives tend to focus on various
combinations of the following issues:
• profitability
• long-term prosperity
• market share
• positioning
• what the customer is prepared to pay.
Pricing objectives guide the remainder of the pricing process. Pricing objectives
(like all objectives) should be specific, measurable, actionable, reasonable and time-
tabled. The choice of pricing objectives adopted by a marketer will have immediate
implications for the determination of prices. For example, the objective of a hotel to
establish a high-quality, prestige image naturally implies setting prices at, or above,

Chapter 8 Price 261

 the top of the range for the industry. Conversely,
an organisation which is new to a market, or is
launching a new product, may set a low price in
order to penetrate the market and achieve a reason-
able sales volume. For example, when Chinese
manufacturer Great Wall entered the Australian
market, it set prices significantly below those of its
nearest Japanese and Korean competitor brands
and effectively established new price categories for
the car industry. At the same time, by selling at
very low prices, it also created a potential quality
issue in the minds of buyers with consequent
brand image questions. An organisation must
ensure that its pricing strategy serves all aspects of
its marketing goals, both qualitatively (e.g. in com-
Chinese car municating a high-quality image) and quantitatively (e.g. achieving market leader-
manufacturer Great Wall ship in sales revenue). While raising the price might contribute to communicating a
set its prices well below high-quality image, it may also lead to a loss in total revenue (if there is a significant
its competitors when it sales decline).
entered the Australian Organisations’ objectives are, of course, complex and so any one organisation is
market. likely to be pursuing multiple pricing objectives at the same time. Similarly, the par-
ticular mix of objectives is likely to change over time.
Profitability
All for-profit organisations seek to make a profit to reward the business’s owners
for the risk they take in investing in the business. Profits are generated when total
revenues exceed total costs. Thus, at the simplest level, on average, prices must
exceed costs over the long term.
The profit required to justify the investment in a particular product or project
is known as the target return on investment, or ROI, and it is a common basis
for pricing decisions. For example, return on investment is used to determine the
minimum acceptable level of profitability for new products, thus ensuring that the
company invests its working capital in new products wisely. Of course, return on
investment calculations can only be based on projections of sales revenue and
associated costs. Nevertheless, they do provide an objective measure to guide
pricing strategy.
Price and sales volume combine to form revenue, which is of course an integral
component of profit. At the same time, price directly influences sales volume. In
turn, sales volume influences costs (both in terms of the cost per unit sold and in
the extent to which the organisation can achieve ‘economies of scale’ — in which the
more units produced, the cheaper the production cost of each unit). Pricing is there-
fore directly and immediately linked to organisational profitability.
Price can be extraordinarily flexible in the short term. The active negotiation of
price between buyers and sellers can make pricing a demanding, volatile and chal-
lenging activity. The minute-to-minute fluctuations in the prices of shares and other
financial instruments provide a stark example of this. Beyond the volatility of pricing
is the management of profit margins as the key to the long-term prosperity of the
selling organisation. It is important to recognise that sales volume and satisfied cus-
tomers alone do not guarantee profitability; pricing must reflect the long-term costs
of production and distribution, as well as contribute to an adequate return on the
firm’s invested capital.

262 Marketing
Long-term prosperity
Ongoing survival is a fundamental goal of all businesses and brings a long-term per-
spective to the setting of pricing objectives. Well-run businesses put their survival
ahead of short-term profit considerations. The rationale for this is simple: profit-
ability over the long term leads to greater total wealth for business owners than
does maximising short-term profits at the expense of the future of the business. For
example, in an economic downturn in which consumers decrease their spending,
many businesses lower their prices in order to ensure sales volumes are sufficient
to generate enough cash flows for the business to meet its financial obligations, such
as paying staff, meeting loan repayments and paying suppliers. A similar approach
is taken to generating cash flow during potentially slow periods of the year (e.g. just
after Christmas). At these times, major retailers promote annual and seasonal sales
to stimulate higher than normal sales volumes. The risk in this approach is that cus-
tomers learn to anticipate the annual sales and to defer their purchases until they
can buy at reduced prices. This seems to be increasingly true of the regular seasonal
sales.
During an economic downturn or recession, an organisation’s immediate pricing
objective may simply be to generate enough cash flow for the organisation to sur-
vive, but at the same time astute marketers will be aware of the danger of beginning
a downward spiral, leading to ever lower prices and margins. They must also be
aware of the risk of long-term damage to the organisation’s reputation and brands —
consumers may begin to associate the brand with permanently or regularly low
prices, which they may equate with low quality (see the discussion of positioning
that follows shortly). This can create difficulties in raising prices again when the
economy recovers. Pricing strategy during an economic downturn needs to take
proper account of the need to maintain sales revenue and cash flow, and to remain
price competitive in the short term, while at the same time ensuring that any price
discounting is seen by customers as temporary and a genuine bargain. In this way,
the company can protect the value of its brands and prepare to rebuild during an
ensuing economic recovery.
Market share
Pricing objectives may be formulated to achieve particular market share outcomes.
Many businesses use aggressive pricing in an effort to increase or defend market
share. Major car companies such as Toyota, Holden, Ford and Mazda use aggressive
pricing to increase and defend market share in particular market categories, as well
as overall market share. Higher sales volumes and market leadership generate a
number of benefits for a business, including high levels of customer awareness and
preference, and economies of scale in selling, marketing, distribution and adminis-
tration. Increasing market share is, of course a legitimate business objective that
can be achieved through pricing, but the pricing strategy must consider the effect
on profit margins and the overall profitability of the business. For example, the low-
cost airline operators have used aggressive pricing to grow sales volumes, but the
approach has led to low profit margins — which, in the long term, threaten the
viability of the discount airlines. Tiger Airways, for example, is still yet to declare a
profit in Australia after its launch in 2007.
Positioning
Pricing is a fundamental tool of positioning (see the chapters on product and price).
Consumers often compare competing products based on price, and to some extent
this assessment can occur relatively independently of other product attributes
(such as style and quality) and of the other elements of the marketing mix. Price

Chapter 8 Price 263

 is therefore crucial in how the organisation’s offering is positioned in the minds of
each of its target market segments, and of individual customers.
Customers interpret price differently. The same price may convey quite different
meanings to different customers. Marketers can therefore use price symbolically.
Some customers are motivated by higher prices in the belief that such prices reflect
higher quality and even prestige. In some instances, as in the case of fine wines,
quality may be difficult to judge accurately or objectively and so a high price may be
used as a ‘surrogate’ measure of quality. Conversely, social marketers have come to
learn that when information and services are dispensed free of charge, consumers
are likely to place a low value on them and may therefore be inclined to reject
messages to change their behaviour. In other words, consumers are accustomed to
equating value with a financial price; goods or services with no (or very low) prices
are thus often seen to have little value.
Prestige pricing involves setting prices high to convey an image of prestige, quality
and exclusivity. As mentioned, this is also effective when consumers cannot objec-
tively evaluate the quality of the product, and therefore use the high price as a proxy
measure of high quality. This is the case with products such as pharmaceuticals
(where consumers might regard high price as a measure of high potency and effi-
cacy), rare wine, whisky and cognac, motor vehicles, Swiss watches, haute couture
and fine art. Prestige brands such as Chanel, Ferrari, Brietling and Ermenegildo
Zegna rarely advertise their prices at all, let alone advertise a price reduction. Organ-
isations that have built their marketing strategy around high product quality and
brand image will rarely, if ever, seek to compete on price. Such businesses invari-
ably have higher cost structures, based on high development, manufacturing,
marketing and selling costs, and expensive distribution channels. The prices they
charge are also part of the product’s appeal — customers would likely regard price
cuts as contrary to the high-quality, prestige image. Such an approach can be diffi-
cult to sustain during an economic downturn, when consumers tend to search for
value for money and avoid conspicuous consumption. (Fine dining restaurants typi-
cally suffer in such periods.) In contrast, other customers will seek lower prices in
the expectation that they will receive greater value. Organisations such as Aldi and
Costco use pricing to create the perception of affordability and value for money in
their supermarkets.
Rarely — if ever — will an organisation be in a position to have all the necessary
information from which to make perfectly informed and optimal pricing decisions.
As always, detailed understanding of the customer base is an important priority.
This chapter will therefore discuss a range of
issues, which will enable the sellers to make better
informed pricing decisions, which complement the
other elements of the organisation’s marketing mix.
No part of the marketing mix can be set in isolation
from the other parts. Pricing needs to be consistent
with the product, promotion, distribution and cus-
tomer service strategies. In particular, it is essential
that pricing does not undermine the positioning
of the product in relation to its target market and
competitors. The product itself, its relationship to
other products in the mix, distribution, promotion
and customer service must all work together with
pricing. Marketers must ensure that the positioning
suggested by their pricing is consistent with the

264 Marketing
positioning projected by other elements of the marketing mix. For example, a high
price cannot be matched with a product that is of low quality, that is d ­ istributed
through discount stores or that is advertised through the ­ newspaper classifieds.
Only when the positioning achieved by the price is consistent with the rest of the
marketing mix and the offering has been targeted at the correct market segment will
consumers purchase the product in significant numbers.
Low prices may generate high sales volume, but may also conflict with a high-
quality, differentiated positioning approach. Conversely, a high price may lead
to a loss in sales volume and market share, and may be resisted by distribution
­partners. At the same time, frequent price cuts advertised by distribution p ­ artners
will erode the perceived value and quality in the brand. Strong brands, such as
Apple and Louis Vuitton, generally attract premium prices. Price and distribution
channels are ­
­ commonly linked, in that low-priced, high-volume products, such
as bread, ­beverages and grocery products are sold through intensive convenient
distribution, while high-price, high-margin specialty brands are sold through
­
­selective, or e
­ xclusive, retail distribution. The organisation’s partners in the distri-
bution channel expect pricing to be managed in such a way that they can achieve
reasonable sales volumes and profits from their participation. Pricing is also linked
to promotion, in that bargain prices need to be widely advertised; whereas pre-
mium prices are less likely to be featured in advertising copy. Similarly, higher-
priced products tend to rely on personal selling, and complex pricing structures
usually require detailed p ­ersonal  selling, whereas simple discount pricing can
be promoted  using  mass  media press, radio, television and in-store and internet
promotions.
Marketers may be able to offer different versions of a product from budget to pre-
mium levels, with prices to match. For example, VW’s Golf models range in price
from around $25  000 to over $50  000.3 This enables the organisation to appeal to
customers across a range of price preferences. In addition, a product-line pricing product-line pricing Setting
approach such as this seeks to maximise total sales and may also succeed in con- a range of prices in a product
line based on differences in
vincing consumers to trade up from cheaper alternatives to a premium model. This
manufactured costs, customer
is an effective strategy when overall consumer confidence is strong and enables the perceptions of product features
marketer to de-emphasise price in initially attracting consumers. When consumer and competitors’ prices.
sentiment is weak, consumers tend to emphasise value, and premium pricing is less
likely to be effective.

Not-for-profit pricing
While not-for-profit organisations, by definition, do not seek to make profits, they do
generally seek a return on their activities and many charge for their products. Their
pricing objectives may be to generate enough funds to sustain their activities. For
example, the prices charged for donated goods at charity ‘op-shops’, such as those
operated by Vinnies and the Salvos, are intended to simply cover the costs of sup-
plying their services, including paying rent and utility charges and the salaries of
the small number of employed and professional staff. Alternatively, a not-for-profit
organisation may price its products in such a way as to make them appealing to
their target market. For example, most public buses operate at a loss, but to charge
passengers the full price necessary to cover costs would deter people from choosing
public transport over private transport.
As mentioned earlier in the chapter, the price of a not-for-profit product may also
be a change in attitude or behaviour among the target market (e.g. the price of
‘buying’ the ‘Quit smoking’ message is the effort the consumer must make to beat
the habit of smoking).

Chapter 8 Price 265

 The legal environment
Regardless of the particular objectives adopted by an organisation, its approach
to pricing must comply with various legal restrictions. Governments have always
imposed laws and regulations on pricing in a bid to ensure that organisations
do not take pricing measures that are against the public interest. All organ-
isations are subject to laws and regulations when establishing prices. The areas
subject to  legal  restrictions include essential services, misleading and deceptive
conduct,  price collusion, comparability of prices, clarity in pricing and price
discrimination.
At various times, governments have chosen to intervene directly in markets to
control prices for such products as pharmaceuticals and services such as public
transport, hospital and medical care. In other instances, government approval is
necessary when setting prices, such as for local government, water and electricity
charges.
The Competition and Consumer Act (formerly the Trade Practices Act) in
­Australia and the Fair Trading Act in New Zealand prohibit misleading and decep-
tive a­dvertising. For example, comparison discounting is the practice of explicitly
quoting a discounted price and the regular higher price together. An organisation
advertising a sale must base the advertised price savings on realistic, recent and
comparable selling prices. Marketers using comparison discounting should also bear
in mind that over the longer term there is a danger that the customers will not
believe that the higher price is the regular price. The law also imposes restrictions
on bait pricing, which involves establishing an artificially low price for one item in
a product line to attract potential buyers, then trying to sell them a higher-priced
item in the product line. Bait pricing is often implemented through advertisements
such as ‘Brand-name jeans for only $10’. While such an approach is legitimate if the
retailer maintains sufficient stock of the low-priced product and is willing to sell it,
bait and switch pricing is often illegal. Bait and switch pricing occurs when the seller
has no intention of selling the lower-priced item and merely uses the ‘bait’ price as
a pretext to lure shoppers into the store, after which to ‘switch’ them to the more
normally priced items.
A number of government regulations and laws seek to prevent activities
aimed at controlling or manipulating prices.4 The courts have, in recent years,
ruled against major companies that have colluded to fix prices. For example,
an ­Australian ­Competition and Consumer Commission investigation led to the
charging of the  late Richard Pratt, then chairman of packaging business Visy
Industries, with  price fixing, resulting in a $36 million fine. Visy and competitor
Amcor have since faced lawsuits by aggrieved business customers such as Cadbury
Schweppes.
A recent development in the regulation of the Australian market is the commit-
ment by the federal government to mandate ‘unit pricing’ for products that are
sold through supermarkets. This move was in response to a key recommendation
made by the Australian Competition and Consumer Commission’s inquiry into the
competitiveness of retail grocery prices. Unit pricing requires product price tags to
show the price per kilogram, litre or some other unit alongside the full retail price
of the product, making it much easier for consumers to compare prices for com-
peting products sold in varying quantities (e.g. a 400 gram bottle of tomato paste
selling for $1.95 would be displayed as 49 cents per 100 grams, and a 425 gram
bottle selling for $2.20 would be displayed as 52 cents per 100 grams). A number
of retailers, including Aldi, moved to implement unit pricing ahead of any legal
requirement.5

266 Marketing
 Amendments have also been made to the Competition and
Consumer Act in recent years in an attempt to make price com-
parisons easier for consumers and to help them know the ‘real’
price of products. The ‘clarity in pricing’ amendment applies to
the automotive, travel and tourism industries, and requires
sellers to indicate the full price of the products. For example,
traditionally, many car dealerships have advertised the base
price of a car ‘plus dealer delivery and on-road costs’. This is
known as ‘component pricing’. For an average car, dealer
delivery and on-road costs can add more than 10 per cent to the
actual drive-away price, so the clarity in pricing initiative should
give consumers a much more realistic idea of what they will
actually need to pay. The car industry, on the other hand, has
countered that different delivery costs to different regions, dif-
ferent state taxes, different competitive pressures at individual
dealers and so on mean that a single all-inclusive price across
the entire market is inappropriate. It is expected that adver-
tising will move to a more local and regional basis. For example,
Mercedes Benz and other brands have removed pricing details from their websites, Unit pricing requires
advising potential customers to contact their local dealer instead. The clarity in price tags of
supermarket products
pricing legislation does not make captive pricing illegal. Captive pricing involves
to show the price per
offering a low entry price for a basic product, then charging more for desirable unit. In these examples,
additional parts or functions. Car manufacturers often employ headline pricing for the price of each brand
a basic model and then charge premium prices for commonly desired add-ons, and size of cornflakes is
such as air-conditioning and ‘premium’ paint. Photocopier and printer shown per 100 grams.
­manufacturers commonly set low initial purchase prices, then charge premium It is clear that the
prices for replacement toner cartridges. Captive pricing enables the marketer to 1.5 kilogram pack of
extract a bigger sale than the headline price would suggest and, in the case of Brand One Cornflakes
ongoing services and supplies, provide the manufacturer with a substantial revenue is the best value
for money.
stream. On the other hand, customers may feel exploited by captive pricing
approaches.6
As we will read later in the chapter, it is routine practice in business markets
for buyers and sellers to negotiate on price. While price discrimination is no longer
separately prohibited in Australia, in certain circumstances price discrimination
may contravene section 46 of the Competition and Consumer Act, which prohibits
misuse of market power.7 Price discrimination can occur when price differentials
between business customers give one business customer an unfair advantage over
another, thus reducing competition. Such price differentials can and do occur legally
in a number of ways. In summary, price differentials are generally defensible under
the following circumstances:
• when they do not adversely affect competition
• when they arise because of differences in the costs of selling or transportation to
various customers
• when they arise because a supplier has to cut its price to a particular buyer to
meet a competitor’s prices
• when they relate to volume discounts.
Price differentials can amount to price discrimination in consumer markets, but
they are rarely the subject of litigation because consumers usually have a choice of
whether or not, and from whom, to buy. However, under Australian Consumer Law,
which commenced in January 2011,8 there is a clear intention and expectation that
pricing to consumers should be explicit and transparent, that consumers should not

Chapter 8 Price 267

 be the subject of deception or discrimination, and that they should know clearly the
total price before purchasing.
Price differentials may, however, arise legally between sales to individual con-
sumers or to groups of consumers. For example, the practice of secondary-market
pricing involves setting different prices for different target markets. Senior citi-
zens are offered discounts by many retailers and service providers, based partly
on their reduced capacity to pay. Apple charges university students a lower
price for its products than it charges general consumers (in the hope of win-
ning repeat purchases after the students graduate). Secondary-market pricing
also enables the organisation to set prices that reflect the different costs involved
in serving d ­ ifferent markets. On the other hand, such an approach can involve
ethical issues,  administration complexities and, in the case of business markets,
legal issues.

Selecting the pricing method

Pricing is a key to profitability and it can be among the most complex decisions
facing a marketer. Like all marketing decisions, pricing decisions should be based
on an understanding of the customer. As we noted at the start of the chapter, suc-
cessful marketing involves the creation of a mutually beneficial exchange of value
between one party and another. It follows, then, that prices should reflect the value
of the product to the customer. The customer’s perception of value is determined
by all of the factors in the marketing mix that go towards creating the organisation’s
offer. The value of the product to the customer places a ceiling on prices — potential
customers will not rationally give more than they receive. On the other hand, the
organisation will forgo potential profits if it sets prices far below the value of the
product. Of course, the value of any given product will be potentially unique for
each customer. The extent to which the market as a whole will buy products at a
particular price is described by the economists’ concept of demand and the ‘demand
curve’.
The organisation must also ensure it obtains value from the marketing exchange.
The organisation’s costs place a floor on prices — like customers, the organisation
will not usually give more than it receives. Competing offerings are also crucial
in pricing decisions. Competing offerings enable customers to compare the rela-
tive value of different purchase options. Organisations must therefore make pricing
decisions that make their products competitive in the marketplace.
It is clear then that pricing decisions need to consider both internal organ-
isational factors and external environmental and situational factors (which we dis-
cuss throughout this chapter). In the following sections of the chapter we will
discuss the three major considerations of customer demand, costs and competition.
The relative importance of demand, costs and competition issues will vary between
organisations, markets, products, competitors and over time. While in theory it is
impossible to set optimal prices across the three pricing dimensions (i.e. demand,
costs and competition), in practice, it is important to seek a price which yields
a satisfactory outcome (or compromise) across all three. That is, prices generally
need to appeal to target customers, yield acceptable profit margins and result
in  a  ­competitive market offer. Focusing solely on one dimension will almost cer-
tainly lead to unattractive, uncompetitive or unprofitable prices. In the final sec-
tion of the chapter, we will examine how the marketing organisation can manage
prices to ensure the marketing offer provides value to both the organisation and
the customer.

268 Marketing
The cost of prescription pharmaceuticals Spotlight 
As Australia confronts the seemingly insoluble macro-environmental challenges of an ageing
population, as well as weathering the world’s turbulent economic conditions, the cost of prescription
pharmaceuticals to patients and taxpayers looms as a chronic problem. Ironically, the ageing
population ‘problem’ is largely attributable to the benefits of improved drugs used in the treatment
of chronic medical conditions such as hypertension, diabetes, ulcers, arthritis, asthma, bronchitis,
emphysema, Alzheimer’s and Parkinson’s. We are living longer, so it is inevitable that we will be
afflicted with chronic diseases, and the costs to patients and the taxpayers who subsidise these costs
through the Pharmaceutical Benefits Scheme (PBS) are considerable.
New drugs and more demand for existing medicines are the main drivers for increased spending on
the PBS. A government report co-authored with Medicines Australia, Trends in and drivers of
Pharmaceutical Benefits Scheme expenditure, shows PBS spending rose by $500 million a year to
reach $8.9 billion in the 2010–11 financial year. The report showed the ageing population and
increasing numbers of people with chronic disease were placing pressures on spending for subsidised
prescription drugs to Australian residents.9
At the same time, the government has been criticised for not
negotiating hard enough with the pharmaceutical companies,
with the result that Australian taxpayers are paying significantly
more than comparable countries with government-
subsidised pharmaceutical schemes. Health economists and
consumer groups recently argued that the government is
wasting $260 million every year because it is ignoring advice
that it is paying too much for the most commonly prescribed
drug in Australia, the cholesterol-busting drug atorvastatin
(commonly sold under the name Lipitor). To date, the drug has
remained far above the upper limit set by the Pharmaceutical
Benefits Advisory Committee. Professor Philip Clarke at the
Centre for Health Policy, Programs and Economics at the
University of Melbourne said the committee made the decision
that the government should not pay more than 12.5 per cent
more for atorvastatin than it does for a competitor drug.
It is hard to understand why an evidence-based recommendation
of the committee has been ignored. Why should Australian taxpayers pay $38 per month, when
governments in England or New Zealand pay less than $3 for the same drug?10

All the present indications are that, while we can all expect to live longer, the pricing of prescription
pharmaceuticals will remain a constantly challenging issue for all stakeholders — consumers, the
government, taxpayers and the pharmaceutical industry.

Question
Australian consumers of prescription pharmaceuticals have generally proven to be less willing to purchase
‘generic’ versions of formerly patent-protected branded drugs, despite often substantial price differences.
How might you explain this reluctance to purchase generics?

Concepts and applications check

Learning objective 1  understand the objectives that guide pricing strategies
1.1 We are most familiar with the concept of monetary prices. Explain how goods, services, attitudes
and behaviours can also be considered a price in certain circumstances.
1.2 Jetstar Airways is a low-priced subsidiary of Qantas. For each of the broad pricing objectives
discussed, outline how the existence of Jetstar could potentially benefit the Qantas organisation as
a whole.

Chapter 8 Price 269

 1.3 Imagine you are a marketing manager in a fast-moving consumer goods company and your
products are mainly sold through supermarkets. What impact would unit pricing have on your
marketing strategy?
1.4 The Australian government has enacted legislation to promote ‘clarity in pricing’. How does this
legislation benefit consumers? Can you identify any downsides to this legislation for consumers
or marketers?
1.5 Outline the circumstances in which price differentials are legal.
1.6 Explain the concept of value from both a customer’s and an organisation’s perspective.

DEMAND CONSIDERATIONS
Learning objective 2 Demand exists when consumers are willing and able to buy a product. Demand for
analyse demand to a product arises when it can fulfil an unsatisfied need or want of a consumer and is
inform the development
available at a price consumers are willing to pay. Demand can be affected by many
of an appropriate pricing
strategy factors, including economic conditions and associated consumer and business confi-
dence. In good economic times when consumers generally have high job security,
their confidence and spending on ‘discretionary’ products can usually be expected
to increase. Resulting from this increased demand for products are usually either
actual or expected increases in sales revenue, business profits and associated invest-
ment in their operations. Conversely, in economic downturns or recessions, such as
the downturn experienced in economies around the world after the global financial
crisis, consumer and business confidence and the associated demand and invest-
ment generally decrease. While price and value are always factors in any exchange
between a buyer and seller, regardless of general economic conditions, price in par-
ticular is likely to be a more sensitive issue for buyers during economic downturns
or recession periods.
It is also important to remember that the broad demand trends outlined are
general statements. The demand for some products will not significantly rise or fall
according to economic conditions, and we will explore this concept in greater detail
later in this section. Demand for some products may actually increase during an
economic downturn. For example, for some products, such as groceries, consumers
may switch from more expensive to cheaper brands.
Formally defined, demand is the relationship between the price of a particular
product and the quantity of the product that consumers are willing to buy. Under-
standing the nature and extent of consumer demand for a product is central to the
formulation of pricing strategy. Demand analysis is typically based on historical
data and estimates of sales potential, price–volume relationships and price sensi-
tivity. Such data shows the historical and likely future relationship between a prod-
uct’s price and the volume sold. These data can be used to construct the product’s
demand schedule and demand curve, which provide the theoretical foundation for
the development of pricing strategy and tactics.
demand-based pricing The Demand-based pricing sets prices according to the level of aggregate or individual
influence of demand on pricing customer demand in the market. Demand-based pricing requires a thorough under-
decisions.
standing of how demand is likely to be affected by changes in price for the product
in question and an understanding of how consumers’ sensitivity to prices varies
over time, between customers and in different circumstances. Accommodation pro-
viders in the snow country, for example, charge higher prices during winter when
they experience peak demand and can be confident of filling all of their rooms, and

270 Marketing
much lower prices during summer when there is no snow and tourist numbers are
at a low. Similarly, at the individual consumer level, a car salesperson will seek to
sell a car at the maximum price that they believe the customer is willing to pay.
While demand analysis is based on the overall or aggregate demand in the target
market, at the individual level, the organisation can implement negotiated pricing,
in which the price is negotiated between the buyer and seller, thus more accurately
reflecting the relative value to each party. This is common in consumer real estate
and car purchases. Similarly, internet auction sites such as eBay are a popular and
efficient negotiation tool for both buyers and sellers. Negotiated pricing is extremely
common in business markets, where prices are negotiated based on differences in
the costs of selling or transportation to various customers, the strategic importance
of the transaction to either party, the need to match a competitor’s prices for a par-
ticular buyer, or volume discounts.
The success of demand-based pricing fundamentally depends on the organisation’s
ability to accurately forecast fluctuations in demand and to accurately predict con-
sumers’ price sensitivity.

The demand schedule and demand curve

A demand schedule is simply a table that shows the actual or estimated quan- demand schedule A table
tity demanded for a particular good at particular prices. An example is shown in showing actual or estimated
quantity demanded for a
table  8.1. If we plot the data, we obtain the graph presented in figure 8.1. This is
particular good at particular
known as the demand curve. For the vast majority of products, there is an inverse prices.
relationship between price and quantity sold; that is, as price rises, the quantity sold demand curve A graph
falls, and vice versa. Hence the demand curve has a downward, or negative, slope. showing the relationship between
For example, if Toyota advertises that it has cut $2000 from the recommended retail price and volume sold.
price of its Corolla model, it would confidently expect sales volumes to increase. If
Jetstar advertises half price tickets, it would expect to sell significantly more tickets
than at the usual price.

Table 8.1  A demand schedule for jet skis $30 000

Price Quantity demanded (per week) $25 000

$16  000 80 $20 000

Price

$18  000 64 $15 000

Demand curve
$10 000
$20  000 52
$5 000
$22  000 44 FIGURE 8.1
0
$24  000 36 A demand curve for a
0 20 40 60 80 100
product (jet skis)
$26  000 28 Quantity demanded

As stated, the typical demand curve is downward sloping. Prestige products are an
exception. Consumer behaviour in relation to prestige products is influenced by
perceptions of status and exclusivity. For example, a Breitling wristwatch may be
beautifully designed and finely crafted, but most owners are just as interested in
the prestige and exclusivity that comes from wearing a watch that costs several
thousand dollars. In addition, it can sometimes be difficult for buyers to objectively

Chapter 8 Price 271

 Price evaluate the quality of a product (especially a service) and so
they may use price as a surrogate indicator — a higher price sig-
P3 nifies higher quality. As such, for some consumers, a high price
makes a product more desirable and demand may actually
increase at higher prices. A  demand curve for prestige products
P2
is shown in figure  8.2. For a price increase from P1 to P2, the
quantity demanded rises from Q 1 to Q 2. There are, however,
P1 limits on this pattern. In figure 8.2, prices above P2 exceed the
benefits of prestige and exclusivity conferred by ownership of the
product and the demand curve reverts back to the traditional
downward slope. At some point (shown as P3), the quantity
demanded will fall back to Q 1, the quantity demanded at P1. For
Quantity demanded makers of ­ prestige products such as fine wines, cognacs, rare
Q1 Q2
whiskies, works of art and handmade Swiss watches, or for
suppliers of highly  ­
­ specialised services such as fine dining,
FIGURE 8.2 ­surgery or complex legal or financial advice, it can make sense to charge very high
prices.
A demand curve for The relationship between price and quantity demanded shown on a demand
prestige products curve  is based on the assumption of all else remaining constant. This condition
(known as ceteris paribus) means the demand curve represents only changes in
demand related to changes in price, without being confounded by other factors. A
change in demand due to a change in price alone is known as a movement along the
demand curve.
If some other factor changes, it will alter the relationship between price and quan-
tity demanded and thus create a new demand curve. The demand curve for bicycles
is shown again as D1 in figure 8.3. Assume some non-price factor improves (such as
increased availability of bicycle lanes, coupled with increased bus fares, or increased
publicity of the Tour de France or the Giro d’Italia). This could be due to a wide range
of product attributes, promotional activities, distribution or some factor  external to
the marketing mix, such as consumer preferences, incomes, the size of the market,
competitive conditions, consumer sentiment or the price of substitute products. An
improvement in any of these factors creates a new demand  curve, D2, to the right
of the initial demand curve. Notice in figure 8.3 that, with the shift  in the demand
curve from D1 to D2, the quantity sold at price P1 increases from
Price
Q 1 to Q 2. A shift of the demand curve to the right means greater
P1 quantities will be demanded at all prices than was previously the
P1
case. A deterioration in a non-price factor, such as  may occur
with falling consumer sentiment during an ­economic downturn,
D2 will result in a shift in the demand curve to the left, meaning less
will be demanded at all prices than before.
D1
The relationship between price and quantity demanded can
change in the short and long term. Short-term changes are known
as fluctuations in demand. To the extent that these fluctuations
can be predicted, they can be incorporated into the organisation’s
Quantity demanded pricing strategy. For example, airlines and hotels have a reason-
Q1 Q2 ably accurate knowledge of the likely fluctuations in demand for
their services on a daily and seasonal basis, and they are able to
FIGURE 8.3 adjust their prices to ensure that they can sell the maximum number of ‘seats’ (in
aircraft) and ‘bed nights’ (in hotels) ­respectively. Changes in demand for some prod-
A shift in the demand
ucts, such as fashion clothing, may be less predictable, and pricing such products
curve
may therefore be more problematic.

272 Marketing
Price elasticity of demand
Our recent discussion emphasised that the quantity demanded is directly related to
the price of the product. The sensitivity of the quantity demanded to changes in price
is known as the price ­elasticity of demand. Only with a thorough ­understanding of price elasticity of demand 
the price elasticity of demand can a marketer effectively manage pricing. The sensitivity of quantity
demanded to changes in price.
The price elasticity of demand is a quantitative measure of the relationship
between the size of a price change and the resultant size of the change in sales
volume. (Note that the fluctuations in price and demand are in the ‘opposite’ direc-
tion. That is, as price rises, quantity falls, and vice versa.) In numerical terms, it is
the percentage change in quantity demanded relative to a given percentage change
in price:

percentage change in quantity demanded

price elasticity of demand (ed) =
percentage change in the price

Price elasticity of demand varies from product to product and industry to industry.
Some of the principal influences on elasticity are the availability of substitute prod-
ucts, the price of the item relative to incomes, and whether the price change is
perceived as temporary or permanent. If marketers can accurately estimate price
elasticity of demand, then management of pricing is much more accurate and poten-
tially profitable:
• Demand is said to be price elastic if ed is greater than 1 (i.e. if the percentage price elastic Demand for which
change in the quantity demanded exceeds the percentage change in the price). price elasticity is greater than 1
(i.e. the percentage change in
For example, if a 10 per cent decrease in price leads to a 20 per cent increase in
quantity demanded exceeds the
sales volume (ed = 20/10 = 2), then demand is price elastic. In this situation, a percentage change in price).
change in price causes the opposite change in revenue, so it is generally logical to
cut prices (i.e. a price reduction leads to an increase in revenue).
• Demand is said to be price inelastic if ed is less than 1 (i.e. if the percentage price inelastic Demand for
change in the quantity demanded is less than the percentage change in price). For which price elasticity is less than
1 (i.e. the percentage change in
example, if a 10 per cent increase in price leads to only a 5 per cent decrease in
quantity demanded is less than
sales volume (ed = 5/10 = 0.5), then demand is price inelastic. In this situation, a the percentage change in price).
change in price causes the same directional change in revenue, so it is generally
logical to increase prices (i.e. a price increase leads to a revenue increase).
Of course, while price elasticity of demand is the starting point for setting prices,
it is also necessary to take account of the costs associated with varying sales vol-
umes in order to calculate the impact of price changes on profits. Thus, a price cut
will usually lead to higher sales volume which, in turn, may result in lower unit
costs, due to economies of scale in production, distribution and marketing.
As can be seen in figure 8.4(a) (overleaf  ), a price elastic demand curve is relatively
horizontal, illustrating that a small change in price leads to a proportionally larger
change in volume. Figure 8.4( b) (overleaf  ) shows that a price inelastic demand curve
is relatively vertical, illustrating that a large change in price leads to a proportionally
smaller change in quantity.
Demand for discretionary products such as cinema tickets and confectionery,
for example, is usually relatively elastic, and a price fall from P1 to P2 results in a
­proportionally larger volume increase, from Q 1 to Q 2 as shown in figure 8.4(a). In
contrast, demand for the basic necessities of modern life such as water, electricity
and petrol is relatively inelastic. In figure 8.4( b), a price rise from P1 to P2 results
in a proportionally smaller fall in quantity demanded, from Q 1 to Q 2. It may seem
natural for the producers of water, electricity and petrol to raise the price at every

Chapter 8 Price 273

 opportunity, but other factors such as competition, consumer criticism and govern-
ment regulation can work to prevent this.
Knowledge of the price elasticity of demand is potentially invaluable in managing
prices. Estimating price elasticity of demand or price sensitivity is fundamental to
establishing pricing strategy and ongoing price management. By assessing the target
market’s price sensitivity, the marketer is in a better position to manage price in
relation to the other elements of the organisation’s offer. Accurately estimating price
elasticity, however, is very difficult. In addition, the assumption that all factors other
than price are known and remain equal is rarely valid. Price sensitivity will vary
from buyer to buyer, product to product, market to market, and over time. Neverthe-
less, organisations should examine the historical relationship between changes in
prices (with adjustments for any inflation and/or competitors’ reactions) and sales
volumes, as this will provide the basis for any assumed or explicit understanding of
price elasticity of demand.
In this section, we examined the relationship between price and demand and
how pricing decisions could be made based on an analysis of the price elasticity of
demand. We also noted, however, that other factors play an important role in pricing
decisions. We will discuss these factors in the following pages and return to them in
the last section of the chapter when we look at how the organisation integrates all of
the various influences in order to construct a pricing strategy.

(a) Price
Quantity demanded is very
sensitive to the price

P1
P2
A small decrease
in price A larger increase in
quantity demanded

Quantity demanded
Q1 Q2

(b) Price
Quantity demanded
is not very sensitive
to the price
P2

P1
A moderate
increase in
FIGURE 8.4 price
A proportionately
smaller fall in
Comparing price elasticity quantity demanded
of demand: (a) price elastic
demand (b) price inelastic
Quantity demanded
demand Q2 Q1

274 Marketing
‘Penny’ auctions: buyer beware Spotlight 
Online auctions were pioneered by eBay, which continues to dominate the field, although a number
of specialised and local competitors have inevitably emerged to dilute its dominance. Recently, online
auction websites advertising on TV in Australia have offered iPads for $24, 50-inch Samsung TVs for
$85, and even a Honda Civic car for $1800. However, consumers should be cautious, as they could
end up spending way more than they bargained for — especially if they don’t read the fine print.
Some users of the sites, which claim to offer up to 95 per cent off the retail price, have reported that
they maxed out their credit cards within minutes, while another user said they churned through
$50  000 in a fruitless effort to grab a bargain. These so-called ‘penny auction’ sites aren’t your
run-­of-the-mill auction platforms like eBay. The key difference
is that you have to pay about 60 cents per bid and, while
the last bidder gets the goods — often at the impossibly low
price — everyone else loses money. The higher value the
item, the more frenetic the bidding. There are a slew of penny
auction sites, including quibids.com.au, bidking.com.au,
bidrivals.com.au and pennyauctiononline.com. The internet
is littered with reports from consumers who believe the sites
are elaborate scams, while others say they are essentially an
unlicensed form of online gambling.11
On Quibids, for instance, each bid costs 60 cents, and
users are able to buy packs of 45 to 800 bids. Users then bid
on the items, and the last person to place a bid before the
auction expires gets to buy it at the listed price. Every time a
person bids, the auction price goes up in small increments,
but only one person gets to buy the item for that cheap
price. All the others who have bid lose their money. Quibids
allows people who miss out on the item to buy it at full retail price minus the amount they have spent
on bidding so far. But most don’t do this, and Quibids is able to make thousands of dollars from one
relatively low-value item just from all the losing bids.
Australian fair trading authorities advise people using the sites to carefully read all the terms and
conditions applying to participation, including upfront fees and the costs of losing bids. As always, the
common law presumption of caveat emptor (‘let the buyer beware’) applies, unless there is evidence of
deliberate deception. If it sounds too good to be true, it probably is!

Questions
1.  To what extent do you believe penny auction customers are well informed?
2. Do you think penny auctions will become a permanent feature of the internet retailing environment (like,
for example, eBay)? Why/why not?

Concepts and applications check

Learning objective 2  analyse demand to inform the development of an appropriate pricing strategy
2.1 Explain the typical demand curve, including the relationship between price and sales, in your own
words.
2.2 Using your knowledge of consumer behaviour, how would you explain a ‘backward sloping’
demand curve that can occur for some prestige products?
2.3 Would price competition be an effective strategy for a product whose demand could be
categorised as inelastic? Justify your answer.
2.4 List five products with elastic demand and five with inelastic demand.

Chapter 8 Price 275

 COST AND REVENUE ANALYSIS
Learning objective 3 Profits represent the difference between total revenues and total costs. Profitability
describe the principles of and prosperity require that, on average, over the long term, revenues exceed costs.
pricing based on cost and Therefore, to set prices primarily based on costs and (presumed) sales revenues will
revenue analysis
result in satisfactory profit margins (if the presumed sales volumes are achieved).
In this way, pricing will be ‘driven’ by financial and accounting considerations and,
if correctly employed, will ensure that the organisation will meet its profit expec­
tations. This may be a primary pricing consideration, particularly in difficult econ-
omic conditions. At the same time, it is necessary to recognise that a preoccupation
with (internal) costs will potentially result in the neglect of other, and equally impor-
tant, external considerations — most notably, the likely reactions of customers and
competitors. These external considerations will also be more difficult to estimate
accurately, which may lead the organisation to place a disproportionate emphasis on
costs. While financial projections may be good or at least acceptable, in the absence
of consideration of customers and competition, this will not guarantee that they will
be achievable.
To effectively manage pricing based on costs, organisations must understand the
composition of their total costs. The cost mix includes fixed costs, which do not vary
with changes in output, and variable costs, which do vary with changes in output.
Variable costs may also be viewed in terms of marginal costs, which is simply the
variable cost expressed in terms of the cost per extra unit of production. Some costs
may be shared across different products and these are known, logically enough, as
shared costs. Shared costs may include advertising, selling, distribution, and research
and development.
price floor A minimum price Costs establish a price floor, below which prices are not sustainable for a for-
that must be charged to cover profit organisation. Even though a business may sell at a loss for a short period of
costs.
time (e.g. to generate cash flow, attract customers to trial a new product or achieve
some other pricing objective), it cannot sustain such an approach over the long
term. During an economic downturn, organisations need to closely manage their
costs as their prices come under pressure from intense competition and softening
consumer demand.
As products approach the maturity phase of the product life cycle (see the
chapter  on product), it can become increasingly difficult to increase sales vol-
umes  and so pressure mounts to lower prices, which requires a lowering of costs.
The need to lower costs is one of the reasons behind the trend to ‘offshore’ various
aspects of production to lower cost countries, including China, India, Bangladesh
and Mexico.
To properly manage pricing, it is necessary to develop a detailed understanding
of the relationships between price, demand and costs, and the resultant link to
profits. In the absence of such an understanding, organisations that pursue sales
volume and market share as pricing objectives may find themselves unprofitable.
This is a common mistake made by low-cost operators. They may achieve their
price leader A high-volume sales volume and market share goals, but the failure to cover all their costs will
product priced near cost to
attract customers into the store,
force them out of business, or at least force them to revise their pricing. On the
where it is expected they will buy other hand, pricing a small number of key, high-volume products below the usual
other, normally priced, products. retail price, near or below cost can be an effective way to encourage trial purchases
loss leader A high-volume and quickly e ­ stablish market share. If priced near cost, a product is called a price
product priced below cost to leader; if priced below cost, it is called a loss leader. Such pricing is typically
attract customers into the store, designed to attract customers into the store (to generate ‘store traffic’) and make
where it is expected they will buy
the organisation’s pricing more competitive. Within the supermarket, department
other, normally priced, products.
store and restaurant sectors in which it is most used, the organisation expects that

276 Marketing
customers drawn to the store will also purchase other products to offset any loss
of margins in the price leader  products. The sale of loss leader products to gen-
erate  store  ‘traffic’  will usually be partly subsidised by both the supplier and the
retailer.
Price-sensitive, value-conscious customers can force retailers and service pro-
viders to provide enhanced value, often at unchanged or even lower prices. For
example, the supermarket business in Australia and New Zealand operates on very
small profit margins (frequently less than 5 per cent). In these circumstances, it
is crucial for marketers to understand the relationship between retail prices, sales
volume, costs and, ultimately, profits. Economics provides marketers with two
useful approaches to understanding these relationships: break-even analysis and
marginal analysis.

Break-even analysis
A break-even analysis determines the volume of unit sales at which total break-even analysis An
costs equals total revenue. This is known as the ‘break-even point’. Estimating analysis designed to estimate the
volume of unit sales required to
the break-even point is a crucial starting point for pricing, especially for new
cover total costs.
­products.  ­Obviously,  if the expected sales volume will not meet the break-even
point over the life of  a product, then the product should not be launched. Break-
even analysis can be c­onducted for a specific period, a project or the life of a
product.
A break-even analysis requires an understanding of total costs and total revenues.
As we learned earlier, total costs comprise:
• fixed costs — costs that do not vary with changes in the volume of production or
sales; for example, research and development, office rent payments (sometimes
referred to as overheads)
• variable costs — costs that vary directly with changes in the volume of production
or sales; for example, money paid for raw materials, manufacturing, packaging,
delivery and sales commissions.
Assume that a small snowboard manufacturer has fixed costs of $80  000 a year
(including rent, insurance and ongoing magazine advertisements) and variable costs
of $250 per snowboard manufactured and sold (including raw materials, labour,
packaging and transport). We can plot these costs on a break-even chart, as shown in
blue in figure 8.5. It can be seen that if 100 snowboards are manufactured and sold,
total costs are:

$80 000 (fixed costs) + 100 × $250 (variable costs) = $105 000

For 500 snowboards, total costs are $205  000 (i.e. $80  000 × 500 × $250) and so on.
Total revenue is the product of:
• total sales volume — the number of units sold
• unit price — the price charged per unit.
Assume our snowboard manufacturer sells its snowboards for $450. This is plotted
in green on the break-even chart in figure 8.5 (overleaf  ). It can be seen that
­eventually the total revenue line and the total cost line intersect. This is the break-
even point. For this example, the break-even point is at 400 units (when total costs
and total ­revenues  equal $180  000). For volumes below 400 units, the snowboard
­manufacturer’s total costs exceed its total revenues. At such volumes it will make
a loss (or  be  ‘in the  red’). Beyond 400 units, the snowboard manufacturer will be
­profitable (or be ‘in the black’).

Chapter 8 Price 277

 The break-even point can also be derived mathematically using the equation:

fixed costs
break-even point (volume) =
price per unit − variable costs per unit

For the snowboard example:

$80 000
break-even point (volume) =
$450 − $250
$80 000
=
$200
= 400 units

The difference between the price and the variable cost per unit is known as
‘­contribution margin’. In the snowboard example, the contribution margin is
$450 − $250 = $200. The contribution margin is the amount per unit sold that
­contributes to offsetting the fixed costs and, once the break-even point has been
reached, c­ontributes to profits. (Prior to the break-even point, the gap between
the  revenue line and total cost line represents losses; after the break-even point,
the  gap ­represents profits). In the break-even chart and the equation, we have
assumed a price of $450, but the chart and equation allow the marketer to examine
different ­possible prices and volumes. In the chart, the price is represented by the
slope of  the revenue line. Higher prices result in a steeper line and thus a lower
­break-even volume; lower prices result in a flatter line and thus a higher break-
even volume.
Break-even analysis is therefore the starting point to understanding the relation-
ship between costs and selling price. In using break-even analysis, it is important to
test the price and volume sensitivity to ensure that the break-even volume is feas­
ible (i.e. price is not set so high that it will deter sales volume; nor is it set so low
that the required sales volume and revenue can never be achieved).

Total revenue

Break-even
fit
point Pro
Total costs
Dollars

ss
Lo Fixed costs
$80 000

0 100 200 300 400 500 600 700 800

FIGURE 8.5 Units

A break-even chart Loss Profit

278 Marketing
 While break-even analysis is undoubtedly important, and relatively easy to
c­alculate, it is also important to recognise that break-even analysis is focused
only on establishing the volume of sales necessary to cover costs. Clearly, it is
desirable  that break even can be achieved at low, or conservative, sales levels.
­
There is no guarantee that this volume can, or will, be sold. The focus is there-
fore solely  on breaking even; and not on establishing desirable or attainable sales
objectives.

Marginal analysis
Marginal analysis is concerned with understanding the effect on costs and revenue marginal analysis An analysis
when a company produces and sells one more unit of product. As long as the designed to determine the effect
on costs and revenue when an
additional revenue earned from selling one more unit exceeds the cost of sup-
organisation produces and sells
plying that additional unit, then that single sale contributes positively to the organ- one more unit of product.
isation’s profits. Conversely, if the marginal cost to supply one more unit exceeds
the ­marginal revenue, then that sale is unprofitable and total profits decline. As
such, marginal analysis allows the organisation to identify the combination of price
and output that will maximise total profit.
Marginal analysis can be useful in pricing individual units of output or to indi-
vidual buyers. For example, it can be used in pricing individually negotiated sales or
supply transactions, such as when a car manufacturer or distributor agrees to supply
a government department or a large corporate customer.
To undertake marginal analysis, an organisation needs to understand and evaluate
its costs and revenues. Costs must be examined in terms of the following.
• Average cost. Average cost is the total cost divided by volume of production. The
average cost for a product initially falls as production is increased and economies
of scale are realised; eventually, however, average cost increases as production
exceeds the maximum volume at which it is most efficient.
• Marginal cost. Marginal cost represents the cost to produce and sell one more unit
of output. Just as for average costs, marginal costs initially decline with increases
in output, but eventually rise.
Revenues must be examined in terms of the following.
• Average revenue. Average revenue is the total revenue divided by unit sales volume.
• Marginal revenue. Marginal revenue is the revenue obtained by selling one more
unit of the product.
Profit is maximised by selling the quantity at which marginal cost equals marginal
revenue. Before this point (i.e. where marginal cost is less than marginal revenue),
the organisation can increase its profits by selling more units. Beyond this point (i.e.
where marginal cost exceeds marginal revenue), each additional unit sold actually
incurs a loss for the business.
Clearly, marginal analysis is potentially very useful. Such an analysis, however,
requires detailed data on actual and estimated costs and revenues at all volumes
and prices. Marginal analysis is therefore difficult to implement precisely. A further
challenge in this sort of analysis is that it is even more difficult to estimate marginal
cost and marginal revenue when launching new products, before costs and demand
patterns have been clearly established.
Nevertheless, marginal analysis is a useful tool to assist in pricing decisions,
especially in industries characterised by high fixed and low variable (and mar-
ginal) costs, such as hotels, airlines, telecommunications, education and mass enter-
tainment. In these industries, it is important for organisations to maximise their
revenue by ensuring that each unit of output is actually sold. For example, for an
airline to fly a plane from Auckland to Sydney, it involves a large fixed cost and

Chapter 8 Price 279

 only a small marginal cost per passenger. It is important, therefore, that pricing is
set to fill as many vacant seats on the aircraft as possible, at the highest possible
price per seat, so long as marginal revenue exceeds the marginal cost. With enter-
tainment products like concert tickets, a key to such pricing is to ensure that all
tickets are sold, that each customer pays the highest price that they are willing to
pay and that individual customers do not establish a ‘black market’ — which occurs,
for example, when concert tickets are illegally ‘scalped’. There are also potential
ethical implications in the assumption that all customers will be prepared to pay the
maximum price, and also that individual customers may pay very different prices
for the same product.

Pricing based on costs

Pricing approaches based on costs are concerned primarily with achieving target
cost-based pricing An profit margins and aggregate profits. In cost-based pricing, the selling organisation
approach to pricing in which a adds a percentage or dollar amount to the cost of the product. The amount added is
percentage or dollar amount is
the organisation’s profit. Cost-based pricing approaches are usually either cost-plus
added to the cost of the product
in order to determine its selling pricing or markup pricing.
price. Cost-plus pricing is often used when it is difficult or impossible to determine the
costs of the product until it has been made or completed. This is often the case for
large, complex projects such as roads, commercial building construction, defence
equipment and information technology installations, or for complex services such
as architectural services, medical and legal advice, and dispute resolution. In such
cases, the seller adds their required profit margin as a dollar amount or percentage
to the costs once the project is complete. The disadvantage for the buyer, of course,
is that they cannot be assured of the final price they will pay; nor is there an incen-
tive for the seller to minimise costs.
Markup pricing is used by wholesalers and retailers and involves adding a per-
centage of their purchase cost to determine the resale price. The more parties there
are in the chain between producer and consumer, the more times markup is added
to the product. Markup percentages are usually fairly similar, if not standardised,
within a particular retail sector. For example, markup on food and groceries is about
10–20 per cent, and markup on high fashion is about 100 per cent. Most retailers
adopt a consistent markup for ease of administration. Markup can be expressed in
two ways: percentage of cost and percentage of selling price (or ‘margin’). If a retailer
buys a pair of jeans for $75 and sells them for $150, the markup ($75) expressed as a
percentage of cost ($75) is 100 per cent. The markup ($75) expressed as a percentage
of selling price ($150) is 50 per cent.
Cost-based pricing using a markup is attractive in its simplicity and its guarantee
that all units sold will be profitable. However, there is no guarantee that a cost-based
pricing approach will result in a price which is competitive and which customers are
willing to pay. Consequently, fashion retailers, for example, will frequently be left
with unsold stock at the end of each season.

Spotlight  Pricing and economies of scale

Business buyers are aware that a short-term, high-percentage price discount for their customers will
result in a massive uplift in sales. In order to satisfy the increased demand, the buyer will place a much
larger than ‘normal’ order. As such, the manufacturer will be able to use economies of scale to produce
the items at a cheaper per unit cost. The business buyer can therefore negotiate a cheaper buying
price for those items.

280 Marketing
 For example, if blocks of chocolate usually retail for $4, by reducing the price to
$2 per block, the retailer can expect sales for the promotional period to increase
around 8 times (i.e. if they normally sell 100 blocks per week, they can expect to sell
800 blocks of the highlighted brand in the promotional week). Such promotions
usually coincide with periods of expected high sales, often due to seasonal conditions
(e.g. chocolate sales peak in the winter months; beer and ice-creams in summer).
Orders will be placed for more than 800 blocks to ensure that there is enough stock
to cover the promotional period. When placing this large order, the buyer can expect
to receive a discount of up to 50 per cent. The price promotion can increase sales of
the item and category without eroding aggregate profit for either the manufacturer or
the retailer.
For both the manufacturer and the retailer, the frequency of these types of
promotions needs to be carefully managed to ensure that they will remain effective
and have no long-term negative impacts. In particular, both the manufacturer and the
retailer need to ensure that such discounting grows overall sales volumes and revenues,
and that consumers don’t develop an expectation of permanently — or regularly and
predictably — discount prices (which is indeed the case for supermarket milk pricing,
for example).

Question
Often, it appears that, like milk, cartons of Coca-Cola cans are almost permanently heavily discounted at
major supermarkets — sometimes at a third of the cost per individual can from a corner store. What effect
do you think this pricing has on Coke’s and the supermarkets’ total profits?

Concepts and applications check

Learning objective 3  describe the principles of pricing based on cost and revenue analysis
3.1 Generally, costs establish a price floor. Explain why prices may sometimes be set below cost.
3.2 Under what circumstances would a ‘loss leader’ pricing strategy be appropriate for an organisation?
3.3 Explain break-even analysis, using your own example.
3.4 ‘Marginal analysis is especially relevant for organisations with high fixed costs and low variable
costs.’ Prepare an argument to support this statement.

COMPETITION CONSIDERATIONS
Organisations that engage in price competition seek to match or better their competi- Learning objective 4
tors’ prices. Price competition usually emerges when competitors’ offerings are not explain the role of
competitive analysis in
significantly differentiated in the minds of consumers. In this situation, consumers
determining pricing
naturally seek the lowest price. They will readily switch suppliers, often for minimal
savings. While all markets will contain price-sensitive customers (usually in the
vicinity of 25 to 30 per cent of customers), it is usually difficult to build a long-term
sustainable strategy based on targeting these customers, unless the organisation has
a sustainably lower cost structure. Price competition is undesirable from a seller’s
point of view, unless the seller has a cost advantage. A cost advantage arises when
the organisation is the lowest cost supplier in the industry. It can arise through:
• economies of scale in purchasing. For example, Bunnings hardware advertises that it
will refund in full, plus add 10 per cent of the purchase price, if it fails to match

Chapter 8 Price 281

 the price of its competitors (under specified conditions). For Bunnings to make
such an offer, it needs to be confident that it is the lowest cost supplier, which is
plausible, given its sales volumes and its economies of scale. Given its lowest cost
position, Bunnings is still likely to be the most profitable — even if its competitors
match its prices.
• low-cost production, often based on the country of origin. For example, the Korean
car manufacturer Hyundai (which also owns Kia) has enjoyed lower costs than its
European, Australian or Japanese competitors. Previously, this position enabled
Hyundai and Kia to achieve a strong share of the new car market based on price
competition. The emergence of Chinese manufacturers was expected to be one
factor threatening Korean manufacturers’ cost advantage. Hyundai has more
competition-based pricing  recently repositioned its brand, creating differentiation with a premium dimen-
An approach to pricing based sion, rather than heavily emphasising price. Today, the company differentiates
on the prices charged by
competitors or on the likely its brand on the basis of design, safety and quality — as well as affordability. This
response of competitors to the positioning is clearly working for the brand, as Hyundai is a regular winner of
organisation’s prices. ‘best car’ awards in its class and price categories.12
Approaches to pricing based on competition are appropriate in highly competitive
markets in which consumers base their purchasing decisions pri-
marily on price. Competition-based pricing involves setting prices
based on the prices charged by competitors or on the likely res-
ponse of competitors to the organisation’s prices. Competition-based
pricing serves to ensure that an organisation maintains its sales
volumes and market share, but it does not guarantee profitability.
Supermarkets, hardware stores, electronics retailers and discount
department stores all rely heavily on competition-based pricing.
Businesses using competition-based pricing can choose to set their
prices at a level above, the same as, or below the prices charged
by their main competitors, depending on the other aspects of the
marketing mix. The major supermarket chains, for example, closely
scrutinise the prices charged by their main competitors, especially
on high-volume items such as milk, bread, bananas, laundry deter-
gent and soft drinks. Companies adopting competition-based pricing
must also decide whether they should ‘lag’ or ‘lead’ the market in
price changes. An organisation that ‘leads the market going up’ or
‘lags the market coming down’ can improve its profit margins rela-
tive to the competition.
Price competition can result in price volatility, as is the case in
petrol retailing, where prices can move more than 10 per cent in
a day. If one organisation seeks to achieve an advantage through
lower prices, it is inevitable that competitors will respond quickly.
Under such circumstances, ‘price wars’ can break out. If they con-
The entry of Woolworths tinue for a substantial period of time, they may ultimately force weaker competitors
and Coles into the from the market. Price competition is therefore a difficult strategy to sustain over
petrol retailing market the long term unless an organisation enjoys clear market or cost advantages. For
in Australia has made it
other organisations, the lack of a cost advantage usually implies that price compe-
difficult for independent
operators to survive, tition should only be initiated in very rare cases, and then for only brief periods.
as they are less able to The entry of Woolworths and Coles into the petrol retailing market in Australia has
sustain low prices. made it difficult for independent service station operators to survive, as they are less
able to sustain heavily discounted prices.

282 Marketing
Understanding competitors’ pricing
A business should almost always consider prices set by its competitors, although
the importance of competitors’ prices will vary with the number and intensity of
competitors in a market and with the degree of perceived uniqueness of the busi-
ness’s products. In price-sensitive industries (e.g. the supermarket, liquor and petrol
sectors), organisations monitor their competitors’ prices on a daily or even more
frequent basis. In responding to competitors’ prices, a business can choose to price
above or below them, or to closely match their prices.
The likely response of competitors to the organisation’s pricing will in part be
determined by the competitive structure of the industry. Within the Australian and
New Zealand marketplaces, there is a growing tendency towards greater levels of
economic concentration; that is, where particular industry sectors are dominated
by fewer, but larger players (e.g. in the banking sector through acquisitions such as
Westpac’s purchase of St George and the Bank of Melbourne). As discussed in the
chapter on the marketing environment, under such circumstances, oligopolies may
arise in which there are only a small number of large players selling a relatively
undifferentiated product. This is true in banking, airlines, petrol retail, and steel and
concrete production. In such industries, any price move by one company is likely
to be reflected quickly in the pricing of its competitors. In particular, if a business
lowers its prices, its competitors will quickly lower theirs. On the other hand, if one
business raises its prices, competitors may take the opportunity to raise theirs as
well; if they do not, the first business is likely to be forced to lower its prices again,
as it will not be c­ ompetitive. It is clear, then, that there is very little likelihood of
securing a competitive advantage through price ­competition in an oligopoly. Organ-
isations in oligopolies tend to compete on a non-price basis through variables such
as service quality, customer relationships or branding.
An organisation that operates as a monopoly (traditionally gas and electricity
suppliers and telecommunications companies) can, by definition, determine price
without regard for competition. This suggests monopoly organisations have consider-
able ability to maximise profits through pricing since, regardless of price, consumers
have no alternative supplier. However, to exploit their monopoly position in this
way will invite government intervention. Governments are intolerant of monopoly
actions, including pricing, that are against the overall public interest. Government-
owned monopolies, such as bus and rail operators, often price products below cost
to encourage their use and to ensure the community can access them. For example,
most public health care is provided well below cost. Government-owned monopolies
might also choose to set high prices in order to limit demand for scarce resources
such as parking spaces in beachside tourist towns (thus encouraging people to walk
or use public transport). Most recently, the major airports in Australia have all been
privatised, putting virtual monopolies in private hands. Under such circumstances,
the temptation to raise prices or lower service levels to maximise returns to share-
holders will inevitably arise at the expense of airport users, who effectively have no
alternative.13
At the other end of the scale, in a perfectly competitive market, a large number
of buyers and sellers sell undifferentiated (commodity) products, such as fruit and
­vegetables, wheat, flour and rice. Under such market conditions, the individual
seller has no control over the price. The lowest price a seller is willing to sell
for becomes the market price at which all of the products are bought and sold.
­Organisations operating in such perfectly competitive markets are therefore ‘price
takers’ and,  under such circumstances, the individual business should endeavour
to find some way to differentiate its products. For example, the growers of Sunkist

Chapter 8 Price 283

 oranges have successfully created a brand for an otherwise undifferentiated
product. The brand has a reputation for high-quality, flavoursome oranges, and the
Sunkist  brand enjoys  global market leadership and higher than average prices as
a result.
Organisations operating in markets characterised as monopolistic competition have
numerous competitors, whose product offerings are differentiated by design, quality,
brand image and/or product features. To the extent that a company’s product is per-
ceived to be unique, the organisation enjoys considerable flexibility in its prices.
The recent success of the Apple brand and product range is attributable to their
perceived unique features, loyal customers and premium pricing. In general, how-
ever, organisations operating in monopolistic competition will seek to differentiate
themselves and to compete on factors other than price. In this sense, the exist-
ence of intense price competition is evidence of the lack of meaningful product
differentiation.
The extent to which consumers base their decisions on price comparisons between
competitors is also influenced by purchasing costs, including time, travel and incon-
venience, and their ability to actually compare prices. Some organisations provide a
price guarantee to their customers that they will beat competitors’ advertised prices.
Some online stores can charge higher prices and delivery charges because of the
convenience they provide. The internet has also made price comparisons much
easier for consumers. They can ‘visit’ multiple outlets without leaving their home
or use an online service such as WebJet (for airfares) and iSelect (for health insur-
ance) to find the cheapest prices for their desired product. The state motoring organ-
isations such as NRMA, RACQ and RACV also monitor and publish fuel prices on
their websites.
In competitive industries, it is important to develop a close understanding of com-
petitors’ prices and how competitors are likely to react to the organisation’s prices
or price changes. In highly price-sensitive sectors such as supermarkets, systemati-
cally checking on the prices of competitors is a daily activity. In business-to-­business
markets, it can be very difficult to establish competitors’ prices, since they are
unlikely to be published publicly and unlikely to be disclosed by customers. In many
markets, prices are negotiated and the final price may not be publicly declared. In
other markets, major customers can negotiate purchases at extremely advantageous
terms, especially when they purchase in large volumes. Such prices may not be avail-
able to competitors, and therefore large intermediaries have a distinct advantage in
reselling these products. For example, electronic retailers such as Harvey Norman
and Bing Lee compete to secure advantageous purchase prices from their suppliers,
which they can pass on to their retail customers. Under such circumstances, retailers
do not compete directly item by item, but rather seek to draw in-store traffic through
low ‘headline prices’.
This hints at the importance of also understanding competitors’ costs, of which the
‘buy price’ is the basis of profit margin and the competitor’s willingness and ability to
cut price. By understanding individual competitors’ fixed and variable costs, it is
possible to anticipate the competitor’s likely response to the o
­ rganisation’s price or to
price changes. In general, competitors with higher fixed and lower ­variable costs will
find it difficult to lower their prices to defend their market share from any loss in
sales volume. Conversely, competitors with lower fixed and higher variable costs
will suffer and fight to defend any loss in profit margins. How competitors’ costs and
prices are affected by the organisation’s prices can vary from indifference through
to aggressive price wars to defend market shares. The organisation therefore needs
to clearly analyse the likely response of competitors to its pricing strategy or tactical

284 Marketing
pricing decisions. In particular, the marketer should avoid provoking a competitive
retaliation by larger competitors.

Alternatives to competing on price

As explained in the chapter on the marketing environment and market analysis,
marketing strategies need to be based on a thorough understanding of the competi-
tive environment. In general, most organisations seek to compete using a strategy
of ‘differentiation’, which emphasises the uniqueness of the organisation’s prod-
ucts. To the extent that the organisation’s products are perceived to be unique, the
organisation can distance itself from direct price competition and thus charge higher
prices. Organisations with a strategy of differentiation focus on product attributes
such as uniqueness, quality, brand, image or service. When it is feasible, non-price
competition is clearly preferable to price competition as it gives the organisation
greater power to decide on the profit margin per unit sold.
Therefore, for most organisations, non-price competition should form the basis of
the competitive strategy. Organisations that engage in non-price competition focus
on differentiating their offer from competitors’ offers through product, service, pro-
motion and distribution factors. It is generally not feasible for organisations to totally
ignore the prices charged by their competitors, but the greater the extent to which
they can achieve uniqueness, or at least the perception of uniqueness in the minds
of consumers, the greater the freedom they will have in setting prices. In this sense,
strong brands enjoy a sustainable advantage and higher profits through their higher
prices.
A strategy of non-price competition requires the organisation to develop in cus-
tomers a preference for the organisation’s products based on factors other than price.
To be effective, the organisation must successfully differentiate itself from competi-
tors by the provision of unique product attributes such as:
• product quality (e.g. Lexus)
• innovation (e.g. Apple)
• brand image (e.g. Mont Blanc)
• styling (e.g. Bang & Olufsen)
• customer service (e.g. Singapore Airlines)
• distribution coverage (e.g. Commonwealth Bank)
• local convenience (e.g. Baker’s Delight).
Ideally, competitive strategy should be based on differentiation which is substan-
tial, recognised and valued by customers, and which cannot be easily replicated by
competitors. This enables an organisation to build loyalty among its customers and
that loyalty can, to a certain extent, insulate the organisation from the price offers
of its competitors. For example, Bob McTavish was an early pioneer of surfing in
­Australia. Over 40 years later, McTavish Longboards, which are priced at a premium,
remain a board of choice, particularly among older surfers.
Pricing can also be used to promote stability in the marketplace. Pricing for
stability places a greater emphasis on non-price competition among industry
­participants. When an organisation is satisfied with its position in the market, it
can use pricing to maintain market share, achieving price and competitive stability,
maintain a f­avourable market image, or preserve existing relationships with cus-
tomers and ­partners. Stability can be an important pricing objective for a market
leader, as it can reinforce its market position and stabilise its sales revenues while
minimising  costs. At the same time, smaller market competitors may choose to
pursue stability to avoid provoking price wars or the competitive attentions of a
market leader.

Chapter 8 Price 285

 Spotlight  Grange on special (at $645!)
In early 2013, a price war broke out between retailers hoping to lure buyers with the lowest price of the
‘perfect’ 2008 Penfolds Grange. In a bid to match the lowest price of US discount supermarket Costco,
Dan Murphy’s cut its price from $669 to $645. Independent Sydney retailer Kemenys also dropped its
price to match Costco, while Coles’ First Choice Liquor matched the original Dan Murphy’s price of
$669. The recommended retail price of the wine: $785.14
The ‘discounted’ price arguably represents very good value, as the 2008 vintage received a perfect
score of 100 from influential magazine Wine Advocate — the first Grange to achieve a perfect score in
40 years. While wine connoisseurs and investors may rejoice,
the critics will have a ‘field day’. Huon Hooke, a Fairfax wine
critic, is, at least, impressed:
Penfolds Grange is regarded as Australia’s greatest wine, and
the 2008 vintage is one of the best, alongside 2006, 1996
and 1990. The impressive things about Grange are its power
and its ability to build great complexity of flavour over many
years of cellaring. The top vintages age well for 50 years, and
the ‘08 will be one of those. The full payoff is the wonderful
aroma and flavour nuances that build over time, and this one
needs 15 to 20 years, minimum .  .  . But is it worth $785 —
25 per cent more than the previous vintage? Of course not.
But, at the sharp end, wine price is about many things other
than what’s in the bottle, and Grange is merely keeping up
with the rest of the world.15

The rest of the world is also competing for online sales,

with Hong Kong website Slurp (www.slurp.asia) leading a
pack of international sites with a price of $525.89 per bottle. A Californian retailer also has an online
deal of $584.20 for a bottle, followed by two German sites and an online retailer in Switzerland offering
a price of about $600.16
While most wine consumers will probably never have the chance to judge whether or not Grange
2008 is the perfect wine, the publicity surrounding the vintage has likely enhanced the Penfolds brand
and Grange sub-brand. And, while it’s being sold at a ‘discount’, no doubt its purchasers will feel
they’ve bagged a real bargain.

Questions
1. Why would a discount supermarket such as Costco choose to sell a prestige wine such as Grange at a
discount (apart from the marginal revenue)?
2. Do you think the publicity is good for Penfolds, especially the fact that their iconic label is being
substantially discounted?
3.  What impact do you think the discounting will have on the long-term ‘investment’ prices of Grange?

Concepts and applications check

Learning objective 4  explain the role of competitive analysis in determining pricing
4.1 What are some risks for an organisation in engaging in price competition?
4.2 Explain how the competitive structure of an industry can impact on price.
4.3 Provide an example of a product where price competition is an effective marketing strategy, and
justify your answer.
4.4 Explain why most organisations would prefer to engage in non-price competition.

286 Marketing
BUSINESS-TO-BUSINESS PRICING
As we learned in the chapter on business buying behaviour, business markets c­ onsist Learning objective 5
of individuals and organisations that purchase products for use in the ­production of appreciate the issues
involved in pricing for
other products, for use in their daily business operations, or for resale. In the first
business markets
two circumstances, a seller is often dealing directly with the end user of the product;
for example, an office equipment manufacturer often deals directly with organ-
isational purchasers. In the case of resale, however, the seller may be distributing
via intermediaries such as agents, brokers, wholesalers and/or retailers; for example,
another office equipment manufacturer may choose to distribute their products via
retail outlets. Regardless of the size and complexity of the distribution channel, the
factors of demand, costs and competition discussed in this chapter are common to
both consumer and business markets.
Business-to-business marketing relationships between suppliers and organisational
buyers tend to be close, long-term and formal in nature. This leads to pricing prac-
tices that are more formal than those in consumer markets. At the same time,
pricing is more complex in business markets — differences in the size of purchases,
the frequency of purchases, geographic factors, costs involved in warehousing and
transport, post-sale ‘consumables’ and servicing, and other considerations often
require sellers to adjust prices for individual customers and individual transactions.
Thus, price is often much more open to negotiation than in the consumer market,
particularly based on purchase volumes. For example, a hospital that purchases
10  000 boxes of latex gloves every year can negotiate a much lower unit price than
a small veterinary practice that purchases 50 boxes a year. Business purchasers are
also more likely than private consumers to consider lifetime costs involved in a pur-
chase; for example, service costs, running costs and depreciation.

Pricing for intermediaries

Organisations will only choose to deal with intermediaries who can add value to the
organisation’s offering. There can be many steps involved between the producer and
the consumer. Figure 8.6 shows a typical distribution channel for a consumer product.
The transactions between producer, agent/broker, wholesaler and retailer are all busi- FIGURE 8.6
ness-to-business transactions and involve business-to-business pricing decisions.
Intermediaries in the
distribution chain for
Producer Agent/broker Wholesaler Retailer Consumer consumer products

Figure 8.7 shows a typical distribution channel for a business-to-business product

that will be used in business operations or as an input to some other product (and
will not be resold to consumers). All of the transactions in figure 8.7 involve busi-
ness-to-business exchanges and therefore business-to-business pricing.
As we will see in the chapter on distribution, the distribution channel may com-
prise one, some or all of these intermediaries. For example, the operator of a fishing
trawler might use a fishermen’s cooperative to sell their catch to wholesalers, who in
FIGURE 8.7
turn sell to retailers, who finally sell to consumers. An electrician on the other hand
might deal directly with a landlord or via the landlord’s managing agent. Intermediaries in the
distribution chain for
Industrial Organisational business-to-business
Producer Agent/broker
distributor buyer products

Most producers recommend a final retail price or ‘list price’ that consumers
should pay, but each intermediary needs to make a profit. To ensure the profitable

Chapter 8 Price 287

 operation of the various partners involved in getting products from the producer
to the consumer or organisational buyer, various discounts apply to transactions in
business markets.
• Functional discounts. Functional (or trade) discounts are a percentage reduction off
the list price and are provided by suppliers to marketing intermediaries or busi-
ness customers in return for the various functions they perform such as retailing,
transport and providing credit (see the chapter on distribution). The trade dis-
count forms the basis of the intermediary’s profit margin and needs to be competi-
tive with the discounts offered by alternative suppliers.
• Quantity discounts. Quantity discounts are provided to business customers that pur­
chase large volumes. Quantity discounts are funded by the economies of scale
that the seller achieves by supplying in bulk quantities. Quantity discounts can
be based on single transactions (non-cumulative discounts) or on the total pur-
chase volume in a specified period (cumulative discounts). Cumulative discounts
are sometimes paid as a rebate — an amount of money refunded to the customer
based on the purchase volume in the specified period. Quantity discounts result in
larger customers receiving lower prices. Cumulative quantity discounts encourage
customers to build an ongoing relationship with one supplier rather than to spread
their purchases across suppliers.
• Seasonal discounts. Seasonal discounts are provided to buyers who purchase prod-
ucts outside the peak selling period of the year. Such discounts are designed to
smooth manufacturing, sales, inventory and distribution costs across the year. For
example, hotels and conference venues offer seasonal discounts in off-peak and
‘shoulder’ periods when bookings would otherwise be low.
• Cash discounts. Cash discounts are offered to customers who pay promptly and
who thus save the supplier time and money in managing and collecting accounts
receivable. Discounts are based on cash payments made within the stated time.
For example, ‘2/10 net 60’ means a 2 per cent discount will be applied if the
account is paid within 10 days; the total balance is due within 60 days; and beyond
60 days interest or penalties may be charged.

Pricing for distribution

The costs of shipping products can vary greatly, particularly in a geographically
large country such as Australia. Transporting cartons of frozen fish from one side of
Darwin to the other is obviously much cheaper than transporting the same cartons
to Launceston or an international market. Businesses deal with these issues through
geographic pricing A pricing a geographic pricing strategy, which includes price differentials that reflect the dif-
strategy that includes price ferent costs involved in selling to buyers in different locations.
differentials based on those costs
A seller may charge:
that vary with distance between
the buyer and seller. • a ‘freight on board destination’ (FOB destination) price, which means the seller
has built the transport costs in to the price
• a ‘freight on board origin’ (FOB origin) price, which means the price excludes the
delivery costs, which must then be met by the buyer.
The more complex the price differentials built in to a geographic pricing strategy,
the more difficult and expensive it is to administer. Some organisations simply adopt
uniform geographic pricing in which the transport costs for all buyers are averaged
out and built in to the price charged to all customers. A level of sophistication can
be added to this approach to devise zone pricing, in which price differentials are
charged based on geographical regions (e.g. the states of Australia). For example,
customers in South Australia may be required to pay higher transport costs from a
supplier in Sydney than customers in Victoria.

288 Marketing
Discount trade terms Spotlight 
While conventional wisdom would argue that your suppliers should always be seen as your partners
and that retailers and their suppliers should together strive for a ‘win–win’, circumstances may, at times,
suggest otherwise. Nowhere is this truer today than in the relationships between the major supermarket
chains of Coles and Woolworths and their manufacturer and
wholesale suppliers, in which there are constant negotiations
over suppliers’ prices and retailers’ margins. An additional
dimension to this testy relationship is the recent expansion
in the range of supermarkets’ ‘private label’, products which
compete directly with the manufacturers’ branded products.
In the supermarket sector, retailers’ profit margins are
already very slim and, in these circumstances, the retailers
will negotiate hard on trading terms with their suppliers in
return for large orders and annual purchase volumes. From
the suppliers’ perspective, being stocked by Coles and
Woolworths will almost guarantee strong market shares.
Wholesalers and retailers make profits by selling goods at a
price higher than their total costs — their trading margins.
Additional profits can be made through the negotiation of
terms and conditions, such as listing fees and payment terms.
For example, if a retailer negotiates to buy a product at a
unit price of $4 with terms of 21 days, this means that the
retailer has 3 weeks from when they receive the product until
they have to pay for it. Using just-in-time ordering techniques
(discussed in further detail in the chapter on distribution),
most fast-moving consumer goods can be sold within 2 or
3 days. Therefore, an item received on day 1 will be sold by
day 3 leaving the retailer another 18 days before the item has
to be paid for. If the item is sold for $6, regardless of the profit
margin (which may be as low as just a few cents), the retailer
now has 18 days to re-invest the $6, before having to pay the $4.
At the item level, the potential return may seem
insignificant, but considering that Australia’s major retailers
sell thousands of items each day, through hundreds of stores,
the cents quickly add up — and this is where a high
percentage of company profits are made.

Question
Why would a national brand manufacturer supply retailer ‘home brand’ products to Coles or Woolworths to
compete with its own brands?

Concepts and applications check

Learning objective 5  appreciate the issues involved in pricing for business markets
5.1 Why might a business marketer be prepared to offer a trade discount?
5.2 Provide your own examples of a product or industry in which the following price discounting
methods may be an effective business-to-business pricing strategy:
(a) quantity discount
(b) seasonal discount.
5.3 Prepare an argument for and against this statement: ‘Marketing intermediaries increase the price
of products to consumers.’

Chapter 8 Price 289

 PRICE MANAGEMENT
Learning objective 6 Having considered both the underlying economic principles of pricing and the
understand how to range of issues which an organisation should consider when developing its pricing
manage prices as part of
strategy, our attention now turns to the important issue of determining and man-
the marketing mix
aging prices.
The attitudes and likely behaviours of customers are clearly at the heart of all
marketing decisions. For marketers, a crucial question is ‘How do our current and
target customers perceive our price?’ Customer perceptions are of course subjective
and particular to each individual, but it is important that marketers try to match
pricing as closely as possible to customers’ expectations. Prices above customers’
expectations will result in the loss of potential sales — and all other marketing
activities will have been wasted. Prices below customers’ expectations sacrifice
revenue and profits, as well as potentially destroying the product’s image and the
organisation’s brand equity.

The psychology of pricing

Consumer purchasing behaviour is usually based on a rational evaluation of value.
The relative importance of price varies between individual consumers, however. For
example, consumers who are particularly price conscious may concern themselves
primarily with price when making purchasing decisions. Other consumers, however,
may be more concerned with prestige; for them, price is only relevant in so far as
it contributes to that sense of prestige. An important indicator of the importance of
price in consumers’ purchasing decisions is the perceived uniqueness or differen-
tiation of the product. For example, Apple has enjoyed considerable success with its
iMac, MacBook, iPod, iPhone and iPad products by creating the perception that its
products are technologically advanced, very user-friendly and uniquely styled. This
perception enables Apple to charge premium prices, while maintaining very high
levels of customer satisfaction and loyalty.
Different market segments will have varying levels of sensitivity to price.
For example, David Jones and Kmart customers will respond differently to price
changes. In general, however, it can be assumed that a proportion of consumers
in many markets can be characterised as ‘price shoppers’ and businesses need to
decide if these customers will be included in their target markets. While all cus-
tomers will ultimately be concerned with value, what customers regard as value is
personal and, at times, idiosyncratic. Some customers will regard value in terms of
low price, while others will see value as high quality at reasonable prices. At the
same time, these perceptions will vary across product categories, and over time,
especially over economic cycles between booms and recession.
Customer value perceptions
Customers’ attitudes to price can be extremely variable and predicting customers’
responses to particular prices can prove difficult. All customers will have a notional
price range or specific price in mind when contemplating a purchase. When the
retail price falls outside that price range, buyers might experience ‘price tag shock’.
Some approaches to pricing attempt to influence how buyers perceive prices. The
seller may, for instance, implement pricing based on ‘trigger points’; that is, prices
at which buyers’ resistance is appreciably lower. For example, a product priced at
just under $100 (even $99.95) may psychologically be significantly more attractive
than a price of just over $100 (e.g. $104.95) to certain market segments. Specific
forms of psychological pricing that attempt to manage customers’ perceptions of
value are summarised in table 8.2.

290 Marketing
 Table 8.2  Managing customers’ perceptions of value and price
Approach Description Example Advantages Disadvantages
Odd–even pricing Pricing based on the Prices are often set Manages customers’ Research on the
theory that odd prices are to $19.95 or $99.95 perceptions of price and effectiveness of this
perceived as significantly rather than $20 or $100 value technique is inconclusive
cheaper than even prices respectively
The use of idiosyncratic Prices such as $17.58 are
prices to attract attention unusual
and create the perception
that the price is discounted
to the lowest amount
possible
Reference pricing Pricing a product at ‘Upsize’ deals at fast food The customer may use the Upsize deals have drawn
a moderate level and restaurants higher price as a relevant criticism from health groups
positioning it next to a Real estate agents comparison; that is, as an for contributing to obesity
more expensive model frequently show buyers external reference price
properties outside their The customer may choose
price range before showing to ‘trade up’ to the more
the most suitable property expensive product
Multiple-unit pricing Multiple units of a product Ice creams are sold in six Customers save by buying Margin per product may
are sold for a single price, packs in supermarkets at a low unit price be lower
usually significantly lower Batteries are offered in a Customers benefit from
per unit than the individual range of pack sizes, from convenient bulk packaging
price single batteries to several Retailers gain from higher
dozen aggregate sales
Wine and beer are available Consumption of products
per case or per carton may increase, due to the
respectively ready availability of the
product at home
Bundle pricing Selling a combination of Fast food ‘meal deals’ Offers extra value to the May undermine pricing of
complementary products ‘Run out’ deals on cars, in customer unbundled products
for a single price, which is which the manufacturers Can increase the overall
less than the sum of the bundle popular sale
individual product prices combinations of extras at
a lower incremental price
than if the extras were
purchased separately

As explained at the start of this chapter, customers assess value by comparing

expected product benefits with the price. Of course, this is often difficult to do
prior to purchase. Customers thus often use reference prices to help them form an
impression of value and price. For familiar products such as beer, soft drinks and
petrol, consumers have clear expectations about an acceptable price range based
on past experience. In other words, they have an internal reference price for the internal reference price The
product. For less familiar products, however, consumers are more likely to rely on price expected by consumers,
largely based upon their actual
an external reference price, such as a comparison price provided by retailers, adver-
experience with the product.
tisers or salespersons. For example, during a stocktake sale, a retailer may claim that
external reference price A
the usual price for an LCD television is $3995, but is on sale now for $2495. It is price comparison provided by the
important that manufacturers and retailers ensure that this external reference price manufacturer or retailer.
is realistic; otherwise potential buyers will reject the message. Consumers’ reference
prices are also influenced by their most recent purchases and their expectations of
prices in the future. For example, buyers of imported products such as most cars and
premium electronic equipment may base their reference prices and purchases on
the likely future exchange rate. Consumers will also consider their purchasing costs
including time, travel, inconvenience and uncertainty.

Chapter 8 Price 291

 As discussed earlier, a marketing exchange is unlikely to take place unless both
parties gain value from it. In some cases, however, one party may feel it has no
choice; for example, a person who loses their job and cannot meet their mortgage
repayments may have to sell their house and accept whatever price they can get
for it. Even in less drastic circumstances, a person seeking to sell their home may
be forced to accept less than they had hoped for if they want to complete the trans-
action. In such circumstances, where sellers feel they have little choice but to sell
at the offered price, they will experience dissatisfaction in the sale and will try to
avoid engaging in a similar transaction in future. Similar dissatisfaction can arise
whenever a purchaser or seller feels they have not benefited from the marketing
exchange. In this sense, both buyers and sellers will look beyond the current trans-
action to consider it in the context of the longer term relationship. Against this back-
ground, such dissatisfaction with the current transaction is highly unlikely to result
in lasting relationships between buyers and sellers.
For many organisations, it can be advantageous to set prices for groups of prod-
ucts rather than to set a price for each individual product. This approach is known
as product-line pricing. It ensures consistency in pricing over a product line, while
enabling the prices of individual products to be adjusted to meet the needs of par-
ticular market segments. For example, when Sony prices its Bravia LCD televisions,
there are clear price steps between different sizes of screens and different levels of
features. Sony is therefore able to cover the entire spectrum from entry-level to high-
end products, and to provide a progressive transition to enable customers to con-
sider taking the next step up in price. An example of product-line pricing is setting a
limited number of prices for selected groups or lines of merchandise. This approach
is known as price lining. For example, a computer retailer may sell notebook com-
puters in three price ranges: $1000, $1500 and $2000. Such an approach reduces
the importance of price differences in consumers’ decisions once the price range is
chosen. Within the price range, the greater emphasis is on factors other than price.

Pricing throughout the product life cycle

Pricing decisions should be systematic and rigorous, following a methodical and log-
ical process that ensures all relevant issues and options are considered. It should be
noted, however, that pricing is not an exact science. Many pricing decisions will be
made without going through a formal sequence of steps. Even when a formal pro-
cess is followed, a marketer should not expect to derive the optimal or ‘correct’ price.
Rather, pricing in practice usually involves a trade-off between the competing and
conflicting considerations of the organisation’s costs (and its profit objectives), the
activities of competitors, and the attitudes and price sensitivity of customers. In this
sense, pricing could be argued to be ‘an exercise in compromise’.
With an understanding of customer perceptions of value, demand, costs and
competition, the organisation must identify its preferred pricing tactics in order to
implement pricing. In addition to providing a path for implementing pricing, pricing
tactics allow the organisation to manage its responses to situational opportunities
and threats, such as unexpected fluctuations in industry supply (e.g. worldwide fluc-
tuations in supplies of oil, food, minerals or raw materials) or the unexpected behav-
iour of competitors (e.g. when a competitor ‘dumps’ product in the local market).
Pricing new products
Setting the initial price for the launch of a new product is a crucial aspect of product
life cycle strategy (see the chapter on product). While prices can, and will, be
adjusted after a product launch, the initial launch price can fundamentally influence

292 Marketing
the success of the entire marketing strategy. In settling the launch price, beyond
considering the cost of manufacture and supply and the need to recover the invest-
ment in research and development, the marketer should consider consumers’ likely
response to the new product, its perceived uniqueness and the likelihood that com-
petitors will follow into the market (i.e. the organisation needs to consider value,
demand, costs and competition). Two broad pricing strategies for new products are
‘skimming’ and ‘penetration’ pricing.
Penetration pricing uses a low launch price in order to gain maximum sales penetration pricing A pricing
volume, rapid market share and turnover of a new product. The low price also tactic based on setting a low
price in order to gain rapid
encourages consumers to at least trial the product. Penetration pricing is commonly
market share and turnover for a
used in grocery product launches. The low-price, high-volume strategy may also new product.
serve to deter competitors from launching similar products. price skimming Charging the
Price skimming involves charging the highest price that customers who most highest price that customers
desire the product are willing to pay. Over time, the price is lowered to bring in who most desire the product
larger numbers of buyers, again at the highest prices that these buyers are willing to are willing to pay, and then later
pay. Price skimming allows an organisation to generate cash flow quickly to offset lowering the price to bring in
larger numbers of buyers.
product development and launch costs. Price skimming also serves to temporarily
limit demand, enabling the organisation to better balance demand with limited supply
capacity. Both Sony and Microsoft adopt price skimming strategies when they respec-
tively launch their most recent PlayStation and Xbox game consoles. The high prices
and higher margins produced by price skimming may attract competitors, who will
seek to replicate or undercut prices charged by the innovator businesses. There is also
a risk that the organisation will damage its relationship with its most loyal customers
by always charging them higher prices as they rush to buy newly released products.
Developing an appropriate pricing approach for new products is complex,
especially given that the response of customers and competitors often cannot be
accurately predicted. Nevertheless, in general terms, if demand for the new product
is expected to be inelastic, then it is logical to initially employ a high-price, low-
volume price skimming strategy. Conversely, if demand for the new product is
expected to be elastic, then a low-price, high-volume market penetration strategy
is advisable. Which of these two demand conditions applies can, of course, vary,
although it is likely that genuinely innovative high-value products (such as the latest
generation televisions or computers) are more suited to price skimming. Conversely,
high-volume, low-value consumer non-durables such as food and grocery products
are more suited to penetration pricing.
Pricing established products
An organisation may choose to charge each customer the same price. This approach
is simple to administer and avoids the need to negotiate with customers, but it also
ignores the different value that the product represents for each customer and the
different price sensitivity that each customer may have toward the product. In doing
so, it may result in lost revenue from customers who cannot afford the set price and
from those who would be willing to pay a higher price.
Differential pricing is the practice of charging different buyers different prices for differential pricing The
the same (or equivalent) product. For differential pricing to be effective, the organ- practice of charging different
isation must be able to: buyers different prices for the
same product.
• identify market segments that have different price sensitivities
• administer the differential pricing in such a way as to avoid confusing or antag­
onising customers
• prevent the development of a ‘secondary’ market, in which low-paying customers
resell the product to customers who would have been charged a higher price by
the organisation.

Chapter 8 Price 293

 A common approach to differential pricing is to
use discounts to vary the price of a product over time.
For example, an organisation may offer periodic dis-
counts by temporarily reducing prices for Christmas
sales, post-Christmas sales, ‘cheap T­ uesdays’ or some
other predictable occasion. Periodic discounting can
attract customers and help manage demand fluctu-
ations, but it can also lead to customers deferring
purchases until discounts are offered, especially
when such ‘sales’ are frequent and offered at regular,
predictable intervals. A related approach is special-
event pricing. This approach links discounted prices
across an organisation’s entire product range with
some special or seasonal event, such as Mothers’
Day, the end of the financial year, New Year’s Day. Special-event pricing is designed to
increase total sales volumes. Such a campaign requires the pricing strategy to be com-
promotional pricing The bined with promotion. Such an approach is called promotional pricing. Special event
combination of a pricing pricing typically requires intensive advertising, discount pricing and special arrange-
approach with a promotional
ments such as extended trading hours, entertainment or other attractions.
campaign.
The danger in linking special pricing to regularly occurring events — as with any
approach to periodic discounting — is that customers may become conditioned to such
special occasions, and may defer their regular purchasing patterns in anticipation of
the lower prices. To overcome this last problem, an organisation may prefer random
discounting in which temporary price reductions are implemented in an unpredictable
fashion. Some of the major supermarket chains randomly discount products on a daily
basis. Such an approach creates a consumer perception that at least some products are
always on special, but they are not able to reliably predict when any particular product
will be available for a lower price. Some organisations avoid discounting altogether,
instead adopting everyday low prices (EDLP). Such an approach forgoes the advantages
of differential pricing through discounts, but offers easier administration, more pre-
dictable sales volumes and lower inventory and promotional costs.
Differential pricing is extremely common in business markets. For example, a busi-
ness buying a motor vehicle will usually pay substantially less than a private consumer
for the same car. Further, a seller is likely to charge a lower price if an organisation
buys a large fleet of vehicles or has a long-term established relationship with the seller.
Differential pricing may also be implemented through trade-in allowances, which are
discounts based on a customer returning used products when buying new products.
Trade-in allowances are used when second-hand products maintain considerable value
(e.g. motor vehicles in consumer markets and office equipment in business markets).
In business-to-business pricing, a seller may offer a promotional allowance discount to
customers and intermediaries in return for participating in marketing campaigns.
Regardless of the approach, differential pricing must be implemented in such
a way that it does not expose the seller to accusations of price discrimination. In
general, price discrimination is illegal in business markets if it limits competition,
although differential pricing can be justified on a number of grounds, including
volume discounts and differences in costs in serving different customers, or in cut-
ting prices to meet competition.

Setting and managing the final price

Consideration of all of the issues discussed in this chapter will indicate a market
launch price for the organisation’s product and how that price may be managed over

294 Marketing
time. Once implemented, the price must always be monitored in relation to all of
the factors we have discussed in this chapter. All of these factors can change over
time. In addition, it is essential that the final price should be perceived by potential
customers as consistent with all elements of the organisation’s offer, so that con-
sumers believe they are receiving fair value for the price.
Pricing is perhaps the most flexible element of the marketing mix. Airlines, for
example, maintain a highly complex array of prices, even though they sell, at most,
only a few classes of seats. Individual airline passengers will pay differing prices
depending upon the class of seat, the flight, the day of the week, the month of
the year, the method of booking and payment, and other conditions of the ticket
including cancellation and changes — for thousands of seats, every day. In addition,
the internet has made prices more visible, more flexible and, consequently, more
competitive than ever before. This flexibility ensures that pricing is the most
dynamic element of the marketing mix and its direct relationship to profitability
makes its effective management an essential marketing capability.
There are, however, some legal provisions that restrict pricing, and organisations
must be mindful that their pricing practices are in accordance with these. We have
already discussed price discrimination earlier in the chapter. Additionally, the Com-
petition and Consumer Act in Australia and the Commerce Act in New Zealand
prohibit manufacturers from forcing their distributors and retailers from reselling
the product at a particular price (this illegal practice is known as resale price
maintenance).17
From the discussion in this chapter, it should be clear that price management
is a dynamic area of marketing. Franchise businesses can face special advantages
and disadvantages in pricing because of their ‘dependent’ relationship with the
franchisor. In some franchises, the franchisor sets prices that are to be consistently
applied across the franchises in order to maintain a consistent customer experience
and to facilitate the use of standardised national or regional price advertising. The
disadvantage to the franchisor and franchisee is that pricing may not reflect local
conditions, which may be important across the entire range of factors discussed in
this chapter.
Table 8.3 summarises the various specific pricing tactics explored in this chapter.

Table 8.3  Pricing tactics — a summary

Tactic Description Example Advantages Disadvantages
Prestige Setting prices high to Pharmaceuticals (where consumers Effective when consumers Can be difficult to sustain
pricing convey an image of might regard high price as a cannot objectively evaluate during an economic
(p. 264) prestige, quality and measure of high potency and the quality of the product, downturn
exclusivity efficacy), rare wine, whisky and and therefore use the high
cognac, motor vehicles, haute price as a proxy measure of
couture and fine art high quality
Comparison Quoting a discounted A stocktake sale Attract customers Legal restrictions — must be
discounting price and the regular a genuine comparison
(p. 266) higher price together Customers may be sceptical
about whether the ‘usual
price’ is authentic
Periodic Temporarily Christmas sales Attract customers Customers may defer
discounting reducing prices on a Post-Christmas sales Smooth demand purchases in expectation
(p. 294) predictable, regular or of a discount at a known
periodic basis Cheap Tuesdays future time
Usually requires extra
promotional efforts
(continued)

Chapter 8 Price 295

 Table 8.3  (continued)
Tactic Description Example Advantages Disadvantages

Random Temporarily reducing Major supermarket chains randomly Consumers cannot predict Difficult to administer
discounting prices in a pattern discount different products on a when discounts will apply to May not attract additional
(p. 294) which is difficult for daily basis particular products customers
consumers to predict Preserves average retail
margins
Creates a consumer
perception that something is
always on special

Bait pricing Establishing an Advertisements such as ‘Brand- Attracts customers Bait and switch approaches
(p. 266) artificially low price for name jeans for only $10’ Legitimate if the retailer are unethical and in some
one item in a product maintains sufficient stock of circumstances illegal. Bait
line to attract potential the low-priced product and and switch pricing occurs
buyers, then trying to is willing to sell it when the seller has no
sell them a higher- intention of selling the lower-
priced item in the priced item and merely uses
product line the ‘bait’ price as a pretext
to lure shoppers into the
store, after which to ‘switch’
them to the more normally
priced items
Customers may feel
manipulated

Captive Offering a low entry Car manufacturers frequently Enables marketer to extract Customers may feel
pricing price for a basic employ headline pricing for the a bigger sale than the exploited
(p. 267) product to attract basic model, and charge premium headline price suggests
consumers, then prices for desirable options such Makes it easier for
charging more for as air-conditioning and side-curtain customers to make the initial
desirable or necessary air bags purchase
additional parts or Photocopier manufacturers set low
functions In the case of ongoing
initial purchase or lease prices, then services and supplies,
charge premium prices for toner provides manufacturer a
cartridges revenue stream

Negotiated Negotiation of the In the consumer markets, cars and Price can more accurately Difficult and time-consuming
pricing selling price between real estate purchase prices reflect the relative value to to administer
(p. 271) buyer and seller In the business markets, prices are the buyer and seller
negotiated based on differences in
the costs of selling or transportation
to various customers, the need
to match a competitor’s prices
for a particular buyer, or volume
discounts

Secondary- Setting different prices Senior citizen discounts Makes product affordable to Ethical issues
market pricing for different target Apple charges university students a greater range of customers More complex to administer
(p. 268) markets a lower price for its products than Enables prices to reflect
it charges general consumers different costs involved in
(in the hope of winning repeat serving different markets
purchase after the students
graduate)
Higher prices charged in rural and
remote areas

Price lining Setting a limited A computer retailer may sell Price differences become Limited flexibility in setting
(p. 292) number of prices for notebook computers in three price less of a factor in consumer prices
selected groups or ranges: $1000, $1500 and $2000 decisions once the price
lines of merchandise range is chosen
Emphasises factors other
than price

296 Marketing
 Tactic Description Example Advantages Disadvantages
Premium Offering different VW’s Golf models range in price Higher profits from the Relies on the willingness
pricing versions of a product from $28  000 to $57  000 premium model of consumers to ‘trade up’
(p. 265) from budget to In times of strong consumer from cheaper alternatives
premium levels, with confidence, it is an Unattractive when consumer
prices to match effective form of non-price sentiment is weak, as
competition consumers emphasise value
for money
Value-based Attempts to Odd–even pricing May increase the perceived Research on the
pricing manage customers’ Reference pricing value of one product relative effectiveness of some
(p. 290) perceptions of value to another of these techniques is
versus price Multiple-unit pricing inconclusive
May offer a saving to
Bundle pricing consumers Margin per product may be
May result in higher levels of lower
consumption May undermine products
not priced on one of these
approaches
Everyday low Setting a low and Used by supermarkets and Easy to administer Lower average price over
prices (EDLP) relatively fixed price for packaged goods retailers such as Predictability of sales the long term
(p. 294) products hardware chains volumes Customers have grown to
Lower transport and stock expect discounts
holding costs
Price leader A high-volume product Supermarkets often discount some Attracts customers into Low profit on price leader
(p. 276) priced near cost products to use as price leaders the store, where they may products
buy other, normally priced Customers may not
products purchase anything else
Loss leader A high-volume product Supermarkets often discount some Attract customers into the Financial loss on loss leader
(p. 276) priced below cost products to use as loss leaders store, where they may products
buy other, normally priced Customers may not
products purchase anything else

Pricing and product innovation Spotlight 

In order to grow their businesses, manufacturers and retailers
target other markets with product offerings similar to their
current offers. In order to target these new market segments,
competitively priced products need to be created. As such, it
is often the price driving the creation of new products.
For example, Australian males traditionally drink beer,
with wine and spirit-based alcoholic drinks often regarded
as drinks for ‘after dinner’ or ‘special occasions’. The
beer market is very competitive, and profit margins for
manufacturers and retailers are very low (only a few cents per
case). Manufacturers and distributors of spirits recognised
the potential sales increases that could be made by tapping
into this market, and retailers were keen to shift sales out of
beer and into the more profitable spirits category. The most
logical step was to shift beer drinkers into pre-mixed ‘ready to
drink’ spirit products. The problem was that while a case of
premium beer would retail for about $35 per case, a case of
pre-mixed sprits (such as bourbon and cola) was retailing for

Chapter 8 Price 297

 about $85 per case. Australian males were only going to change their drink of choice if they saw value
in the alternative, so the price of pre-mixed spirits had to be reduced. By cutting the costs out of the
product and understanding the savings that would be made through economies of scale, the market
was offered a range of products selling for about $40 a case. Modifications to reduce costs included:
• reducing the product alcohol content (to be comparable to beer)
• using cheaper, thinner aluminium cans (primary packaging) with cheaper printing (reduced quality)
• using cheaper, thinner cardboard packaging with cheaper printing (secondary packaging)
• using cheaper plastic wrap on the pallets (shipping packaging).
Minimum order quantities were also increased to ensure that retailers would have big stock displays
(which creates awareness and increases product sales), and to ensure that manufacturers could
generate cost savings by producing larger quantities (economies of scale). The market saw value at the
price point of $40, resulting in a big increase in the sales of pre-mixed spirits.

Question
What are the ‘down sides’ to retailers in the shift from traditional beers to spirit-based ‘mixers’?

Concepts and applications check

Learning objective 6  understand how to manage prices as part of the marketing mix
6.1 Outline some ways in which a marketer can influence a customer’s perception of price.
6.2 Explain the difference between price skimming and penetration pricing, using an example to
illustrate when each pricing strategy would be appropriate.
6.3 Choose a product and outline one or more pricing tactics from table 8.3 that could form the basis
of an effective pricing strategy. Justify your answer.

298 Marketing
SUMMARY Key terms and
Learning objective 1  understand the objectives that guide pricing strategies concepts
Price is a visible expression of the value of the product to be exchanged and enables break-even analysis  277
competition-based
buyers and sellers to negotiate and agree on that value. Pricing objectives are derived
 pricing 282
from the organisation’s broader marketing objectives. Pricing objectives tend to focus cost-based pricing  280
on the issues of profitability, long-term prosperity, market share and positioning. demand curve  271
The pricing strategy and specific tactics an organisation chooses must comply with demand schedule  271
laws and regulations that govern issues such as misleading and deceptive conduct, demand-based pricing  270
price collusion, comparability of prices, clarity in pricing and price discrimination. differential pricing  293
Ultimately, pricing decisions must be based on an understanding of demand, costs external reference price  291
and competition in order to deliver value to the customer and the marketer. geographic pricing  288
internal reference price  291
loss leader  276
Learning objective 2  analyse demand to inform the development of an
marginal analysis  279
appropriate pricing strategy penetration pricing  293
Demand is the relationship between the price of a particular product and the quan- price elastic  273
tity of the product that consumers are willing to buy. Demand analysis is based on price elasticity of
 demand 273
historical data, estimates of sales potential, and estimates of price–volume relation-
price floor  276
ships and price sensitivity. The data enable the marketer to construct a demand
price inelastic  273
curve. The traditional demand curve slopes downwards, indicating that as prices price leader  276
rise, quantity sold falls, and vice versa. Prestige products have a unique demand price skimming  293
curve in which, up to a threshold point, increasing prices actually increases demand product-line pricing  265
due to the perceived quality, prestige and exclusivity conveyed by the product’s promotional pricing  294
price. The sensitivity of consumer demand to price changes is known as the price
elasticity of demand. In instances of price elastic demand, a particular percentage
change in price will cause a greater percentage change in quantity demanded. In
price inelastic demand, a particular percentage change in price will cause a smaller
percentage change in quantity demanded.

Learning objective 3  describe the principles of pricing based on cost and

revenue analysis
Costs determine a price floor, below which the business cannot survive in the long
term. It is crucial for marketers to understand the relationship between retail prices,
sales volume, costs and ultimately profits. Break-even analysis estimates the volume
of unit sales required to cover total costs. Marginal analysis determines the effect
on costs and revenue when an organisation produces and sells one more unit of
product. Cost-based pricing involves adding a percentage or dollar amount to the
cost of a product in order to determine its selling price. Cost-plus pricing is used by
producers when it is difficult to determine the costs of the product until it has been
completed. In such cases, the seller adds their required profit margin as a dollar
amount or percentage to the costs once the project is complete. Markup pricing is
used by wholesalers and retailers and involves adding a percentage of their purchase
cost to determine the resale price.

Learning objective 4  explain the role of competitive analysis in determining

pricing
Price competition usually emerges when competitors’ offerings are not significantly
differentiated in the minds of consumers. Price competition is undesirable from a
seller’s point of view, unless the seller has a cost advantage through economies of

Chapter 8 Price 299

 scale in purchasing or low-cost production. Competition-based pricing is based on
the prices charged by competitors or on the likely response of competitors to the
organisation’s prices. When it is feasible, competition on factors other than price is
preferable as it gives the organisation greater power to decide on the profit margin
per unit sold. Most organisations seek to compete using a strategy of ‘differentiation’,
which emphasises the uniqueness of the organisation’s products in terms of product
quality, innovation, brand image, customer service, distribution coverage and local
convenience.

Learning objective 5  appreciate the issues involved in pricing for business

markets
Business-to-business marketing relationships tend to be close, long-term and formal.
This leads to more formal pricing practices than those in consumer markets. At the
same time, pricing is more complex in business markets — differences in the size
of purchases, the frequency of purchases, costs involved in transport and other con-
siderations often require sellers to adjust prices for individual customers and indi-
vidual transactions.

Learning objective 6  understand how to manage prices as part of the

marketing mix
Customer perceptions are subjective and particular to each individual, but it is
important that marketers match pricing as closely as possible to customers’ expec-
tations. These expectations are based partly on the customer’s internal and external
reference prices. Tactics such as odd–even pricing, reference pricing, multiple-unit
pricing and bundle pricing can be used to manage customer perceptions of value.
In launching a new product, an organisation may choose a penetration pricing or
price skimming strategy to maximise volume or margin respectively. For established
products, an organisation may seek to implement differential pricing or promo-
tional pricing. Pricing should always be consistent with the other elements of the
marketing mix.

300 Marketing
Supermarket milk pricing Case study
Natalina Zlatevska, Bond University

In early 2011, Coles supermarkets (owned by Wesfarmers Limited) introduced its new milk pricing
strategy — lowering the price of its private label brand to $1 per litre. At the time, it was widely
thought that the purpose of the strategy was to cause discomfort to its major competitor, Woolworths.
As a result, Woolworths quickly followed suit with a decrease in price of its own private label milk
brand to match that of Coles. The strategy was largely considered a controversial move, with
investigations from the Australian Dairy Farmers Association and an inquiry into supermarket pricing
decisions and their impact on the dairy industry by the Senate Economics Committee. Before 2000,
state and federal governments set the price of milk in Australia. However, deregulation of the industry
combined with a greater emphasis on private label branding
by Australia’s two large grocery chains (Woolworths and
Coles) paved the way for the introduction of competitive
pricing strategies in the milk market.
According to a 2011 report by PricewaterhouseCoopers,
Australians consume on average 102 litres of milk per
person each year. So, what effect did such a drastic price
cut have on the Australian market? At the peak of the price
war in 2011, more than 72 per cent of the milk sold in
Coles supermarkets was at $1 per litre. Coles’ returns on the
investment saw 64 million litres of their branded milk sell
between 2011 and 2012. Woolworths gained 10 million litres
in extra sales of their branded milk only during their first
year after implementing the strategy in 2011. Overall,
the market saw a 100–million litre increase in milk sales.
However, there is speculation that the increase in sales was
purely a reflection of changes in population growth, rather
than as a direct by-product of the adjustment in price.
Furthermore, despite a growth in sales volume of milk for Coles of 11 per cent, the value of sales
declined by 2 per cent. Similarly, for Woolworths the growth in sales volume increased by 3.7 per
cent, but the value of sales decreased by 2 per cent. This decrease in value was thought to occur
due to the cost-based pricing approach adopted by the supermarkets. Profit margins were tight,
ranging between 2 and 3 per cent. Currently, Woolworths is the overall market leader in milk sales,
with 2012 seeing 498 million litres of fresh milk sales compared to Coles at 424 million. Despite
volume share peaking at more than 72 per cent, Coles’ private label share of the milk sales dollar
peaked at just above 56 per cent in late 2011, and fell to 50.7 per cent in the three months to
February 2013 — almost where it was before the milk wars began, although its volumes would
have been much higher. Woolworths’ private label share by value of sales barely increased from the
50.3 per cent it had before the price war, and the small volume gains meant it fell to 44.6 per cent
in 2012.
The reduction adversely affected Australian dairy farmers, with many farmers having to cease
operations due to an inability to keep up with the drastic cut in price. It is believed that in some
circumstances a farmer receives as little as 5 per cent of what the consumer is charged at the
check-out. The pricing strategy adopted by the leading supermarkets has been described as
unsustainable over the longer term. However, not all farmers were adversely affected. In some cases,
the price war increased demand for more expensive farmhouse milk. For example, Red Cow Dairies,
based in Tasmania, has seen a dramatic increase in sales following the price cuts by major retailers.
From 150 litres a week, they are now selling in excess of 2000 litres a week of milk. Similarly, A2
milk, with its clear, differentiated positioning in the market as assisting ‘digestive well-being’ has seen
an increase in its sales figures.
Based on market figures it seems as though the reduction in milk prices in Australia has had a
generally negative impact, bar some exceptions, for the key players involved, including Australian

Chapter 8 Price 301

 dairy farmers and the major supermarket chains. Given its seemingly negative impact, why was
Coles so keen to adopt the $1 per litre pricing strategy, and why did Woolworths follow suit? Part of
the explanation revolves around using the lower priced milk as a bait to encourage consumers to
visit supermarket stores more often. It was expected that these trips would result in the purchase
of additional grocery items while in store. The strategy would also discourage consumers from
purchasing milk at other locations, such as convenience stores. However, some believe that the key
reason behind the strategy was a longer term vision of cutting out secondary milk suppliers and
partnering directly with farmer-owned groups; for example, the Great Ocean Road brand of milk,
Tamar Valley Dairy in Tasmania, and Norco in Western Australia. Given that over 70 per cent of all
groceries purchased in Australia are obtained from either Coles or Woolworths, there is fear in the
marketplace that this strategy of the leading supermarkets dealing directly with farmer-owned groups
may allow them to re-adjust prices, and subsequently grow their profit margins.18

Questions
1. Would you describe the demand for milk in Australia as elastic or inelastic? Why?
2. What pricing strategy would be used to best describe the reduction in the price of milk to $1 per litre?
3. What pricing adjustments do you foresee being carried out in the future by Coles and Woolworths?
4. Do you think that the strategy implemented by Coles has been successful? Why/why not?
5. What ethical concerns should be considered by marketers when setting a pricing strategy?

Advanced activity
Research the current domestic premium hotel pricing environment. Imagine you
are an international conference promoter and choose three major hotels that would
cover a wide pricing range, so as to maximise the attractiveness of your conference.
Compare and contrast the likely pricing variables you would consider when
selecting the three hotels. In your analysis, outline the similarities and differences
in terms of the following:
(a) pricing objectives
(b) demand considerations (including the concept of elasticity) for various market
segments
(c) cost considerations
(d) competition considerations (including different ways your target market may be
able to potentially spend their entertainment dollar)
(e) business-to-business pricing issues (including your ‘commission’ from the hotels)
(f) the psychology of pricing.

302 Marketing
Marketing plan activity
For your marketing plan, consider the following four pricing issues in relation to
your chosen product:
1. Is the industry predominantly characterised by price competition or other forms
of competition?
2. Is your product demand elastic or inelastic? If elastic, construct a demand curve
for it at varying prices, based on realistic sales estimates. You may need to
conduct some market research to determine this.
3. Outline what would be the main internal and external influences on your pricing
decision.
4. Explain how you would determine prices based on the four main objectives for
setting prices. For each objective, provide examples of specific issues that would
need to be considered in making pricing decisions for your product.
A sample marketing plan has been included at the back of this book to give you an
idea where this information fits in an overall marketing plan.

Chapter 8 Price 303

 CHAPTER 9

Promotion
Learning objectives
After studying this chapter, you should be able to:

explain promotion (marketing communication) and its role in the marketing mix

understand the integrated marketing communications approach to marketing

promotion and the major elements of the promotion mix

describe different types of advertising and the steps in creating an advertising

campaign

outline the role of public relations in promotion

explain how sales promotion activities can be used

understand the nature of personal selling

discuss a range of marketing communication options additional to the

traditional promotion mix.
Tim Tam Treat Packs
Everybody loves Arnott’s Tim Tams, and it is hard to stop eating after one. This was the
theme of an integrative and interactive campaign for the launch of Tim Tam Treat
Packs — ‘Tim Tam: love more than one’. The campaign combines traditional and social
media, including television advertisements; sampling (with over 200   000 in eight
flavours being given away); point-of-sale displays; interactive games; and a bus across
regional Australia, which people could follow on the Tim Tam Facebook page.
Tim Tams are one of Australia’s most popular biscuits, with 35 million packs sold each
year — which means around 400  000 biscuits. As well as the normal-sized packs,
Arnott’s launched a new campaign to introduce small packs. The Treat Packs are
aimed at light consumers of Tim Tams who would prefer a smaller pack, and would
like to try different flavours. The flavours in the new packs are original, double choc
vanilla, choc orange, white, Turkish delight, honeycomb, dark chocolate mint, and dark
chocolate rum and raisin. The campaign launch is said to have cost $4 million.
A highlight of the campaign was the ‘Tim Tam: love
more than one’ bus that travelled across the country
delivering free Tim Tams to people. Starting in
­Melbourne, the bus travelled around Victoria, South
Australia and New South Wales. Fans could also
access Facebook (www.facebook.com/TimTams) to
vote on the  route the bus could travel, as well as
nominate people for the bus to visit to ‘celebrate
the magical love people have for Tim Tam biscuits’.
The 30-second television commercials introduced
the packs and the bus tour using fun, stop-frame
animation of people with the packs, and the song
‘Are you ready?’ by Kate Miller-Heidke. At the end
of the campaign, there were 15-second advertise-
ments that encouraged customers to try all eight
varieties. The advertisements were screened during top-rating shows, including The
Voice, Downton Abbey, The Block: All Stars, My Kitchen Rules and Packed to the
Rafters.
With a multimillion dollar budget behind the campaign, Arnott’s is hoping that cus-
tomers will definitely not just stop at one.1

Question
Briefly outline how Arnott’s used different media to communicate to the target
audience for its campaigns. How would the combination of these media be
effective for this type of product launch campaign? Justify your answer.
INTRODUCTION
The last two chapters have looked at the concepts of product and price. This chapter
will focus on another part of the traditional marketing mix: promotion (or marketing
communications). Promotion is a fundamental part of marketing that is designed to
make consumers aware of products. Imagine for a moment a world without marketing
promotions: you would not know where your favourite band is playing, when they
release their new album, what is on television tomorrow, what options are available
for places to eat, what health symptoms require a visit to a doctor and so on.
Promotion is an extremely important part of the marketing mix. After all, no-one
will rush to buy your product if they don’t know it exists! It is crucial to effectively
and efficiently communicate your message about your product to the marketplace.
Remember that a product can be a good, service or idea. In fact, promotion is often
the main element of the marketing mix for ‘ideas’. For example, when the federal
government runs a multimillion dollar advertising campaign on television to dis-
courage young people from using drugs such as ice, it is essentially promoting the
idea that drugs are detrimental to health (and illegal). Promotion is often worked
out after other parts of the marketing mix, and part of the message sent by the pro-
motion can be that we are selling the ‘right’ product, at the ‘right’ price, at the ‘right’
place — thereby sending messages about other parts of the marketing mix.
Think about how Arnott’s has used marketing communications activities to
encourage people to consider buying their brand of biscuit. There is a particular
image that Arnott’s wants to associate with them. Further, Arnott’s does not just
want you to know the brand name (as most people would be aware of Tim Tams),
but wants to build a relationship so that customers can actually engage with the
brand, whether it be with the advertisement, website, Facebook or the bus. For many
companies, it is a growing aim that people become more engaged with their brand
so that they will not only know about it, but like it, connect with it, have a relation-
ship with it and want to buy/use it. In this chapter we will first discuss what pro-
motion (marketing communications) is, and then relate it to integrated marketing
communications, or IMC. Each part of the promotion mix will be discussed, and
finally we will look at some special topics in promotion.

WHAT IS PROMOTION?
Promotion is the creation and maintenance of communication with target markets. Learning objective 1
In marketing, promotion is usually thought of as comprising a strategic mix of adver- explain promotion
(marketing
tising, public relations, sales promotions and personal selling. As promotion is basi-
communication)
cally about communicating a message to the marketplace, a term for promotion that and its role in the
is growing in popularity is ‘marketing communication’. Further, when carefully com- marketing mix
bined and coordinated to achieve a consistent and effective message, the promo-
tional approach is known as integrated marketing communications (IMC). Much of
this chapter is dedicated to explaining IMC. The idea behind IMC is that the planning promotion The marketing
activities that make potential
of each part of the promotion mix — advertising, public relations, sales promotions
customers, partners and society
and personal selling — should not be done in isolation; rather, strategies should be aware of and attracted to the
planned so that they work together to achieve greater clarity and consistency, and a business’s offerings.
better overall result. When everything is working effectively, other elements, such
as word-of-mouth communication, can have a strong influence on consumers in
some product markets (especially in relation to services such as movies, restaurants,
doctors and accountants, but also in relation to some products, such as books). These
other elements also need to be managed by the marketing organisation.

Chapter 9 Promotion 307

 A model of communication
Given that promotion is about communicating with target markets, it is important
to discuss how communication works. The model presented in figure 9.1 describes
the communication process: a message is encoded and sent by a sender or source,
via a message channel or medium, to a receiver or target audience, who decodes
the message and responds by some form of feedback.2 Anything that interferes with
the effectiveness of the communication process is referred to as ‘noise’. The com-
munication process is also influenced by the ‘fields of experience’; that is, what the
participants in the communication process know about each other and how that
influences the way they encode and decode messages.

FIELDS OF EXPERIENCE

NOISE NOISE NOISE NOISE

Sender MEDIA Receiver
Encoding MESSAGE Decoding
(Source) CHANNEL (Audience)

NOIS
NO ISE
ISE

NOISE NOISE
NOISE

NOISE
NOISE NOISE
NOIS
NOISE
IS E NOIS
NO ISE
ISE
Sender Receiver
Decoding FEEDBACK RESPONSE Encoding
(Source) (Audience)

NOISE NOISE NOISE NOISE

FIGURE 9.1
A model of communication

Many researchers have analysed communication processes, building on the basic

communication model, examining different aspects of the process and applying it
to different situations, from interpersonal communication to mass communication.
Nevertheless, the basic ideas of ‘sender’, ‘message’, ‘receiver’ and ‘feedback’ remain
constant.
As shown in figure 9.1, the sender initiates the communication message. In many
situations this would involve an individual, but in the case of promotion it is an organ-
isation intending to communicate a specific message about its market offering. The
sender aims to ensure that a clear and concise message is developed, which is then
sent to the target audience (and possibly the marketplace in general) through adver-
tising or other promotional activities. It is important that all activities involved with
communicating to the target audience are coordinated and consistent. Any inconsist-
ency or incongruity involved in the communication process could result in sending
mixed messages, which could affect the successful transmission of the message.
The planned message is then encoded for the target audience. There is a poss-
ibility that the encoding of the intended message results in a message that is in some

308 Marketing
way different to what was planned. Encoding is done by the use of words (a script in
the case of broadcast media and copy in print media), music (such as jingles), and
many other verbal and non-verbal communication cues.
The message channel can vary depending on the type of communication being
undertaken and the target audience. Message channels include the various mass
media, such as television, radio, newspapers and magazines. For example, the media
choice for a product aimed at young people could be a television commercial during
The Simpsons; the choice for a product aimed at young girls could be a half-page
advertisement in Dolly or Girlfriend magazine.
At times, the message channel may not encode the message correctly. This is
especially true when the marketing organisation does not control the message
channel. For example, when using a public relations approach, such as issuing a press
release, it is up to news media to interpret, present and relay that information to the
target audience. While organisations attempt to prepare comprehensive press mat-
erials, there is no guarantee that the information will get ‘passed on’ in the desired
way. The media’s editorial independence not only means they cannot be controlled,
but each intermediary may present the same information in a different way. Even
when the firm does control the message channel, such as with paid advertisements,
there are sometimes problems. This can occur when organisations advertise inter-
nationally, with the intended message sometimes being ‘concussed’ in the encoding
process due to mistranslations. Communication is only ‘successful’ if it passes on the
undistorted message to those intended to receive it.
The target audience can include potential and past customers. In a complex mar-
ketplace, it is virtually impossible to perfectly target a particular group without
members of other groups also receiving the message. One message may be designed
to relay different messages to each group or the same message can be targeted at
multiple groups. For example, when charities like World Vision advertise, they may
have several different target audiences — such as the general public to make people
aware of what they do; past supporters to confirm their donation was a good decision;
potential donors to tell them their donation will be well spent; and potential volun-
teers tell them the charity is worth spending time to help in the future.
While organisations can provide broad-based communication, the information
designed for Target A may, in fact, distort the message designed for Target B. For
example, when trying to attract guests, a hotel may promote (communicate) that
it has a ‘wild’ nightlife. While this information may be appropriate for the young
singles market, it may discourage family holidaymakers from staying there. Com-
munication targeting each group specifically may be more effective than using mass
communications and reduces the risk of distortion of the message.
Of course, just as the way that the sender encodes the message can result in the
‘wrong’ message being sent, the way in which the receiver or audience decodes
the message is subject to their individual characteristics and circumstances. One of
the results of this is that different audience members can interpret the ‘same’ mes-
sage in quite different ways, or even just subtly different ways.
Once the message has been received, to complete the flow of communication
the receiver responds in the form of feedback. Feedback may be in the form of
behaviour or communication. If it is via communication, then that communication
is subject to the same processes we have described for the original message. The
extent to which the market communicates with marketers through feedback has
increased enormously over the past few years, due to the opportunities offered by
information and communications technology. The behavioural response from the
receiver can depend on the type of communication originally sent and the objective

Chapter 9 Promotion 309

 of the communication. For example, if the objective is to change the behaviour
of customers, then a mechanism should be introduced to measure the change in
­customers’ behaviour. Likewise, if the managerial objective is to increase sales, the
feedback to be measured is whether there has been an increase in sales during the
time of the communication or promotional campaign.
It is very important for management to implement a control mechanism and keep
track of all feedback to determine whether the communication being sent is suc-
cessful. Monitoring feedback is a complex process, not only requiring a company
to monitor changes in sales (i.e. customer feedback), but also including monitoring
media, publicity and editorials related to organisational activities (e.g. using a com-
pany such as iSentia3). Unwanted responses from the receivers may indicate that
there should be some correction of the original message being communicated.
The messages sent and received in the communication process may be distorted
by ‘noise’. Noise is any factor that creates a barrier to communication. Measures such
as creating interesting advertisements may be needed to decrease the effect of noise.
Noise may also be produced by negative or sceptical attitudes towards ­promotional
activities. For example, many people believe promotion encourages inappropriate
and excessive consumption by constantly exposing people to products they do not
need. For target market members with this critical attitude, there will be s­ ignificant
‘noise’ affecting the marketer’s message.

Objectives of promotion
The main objective of promotion is to support the organisation’s overall marketing
objectives. Promotional activities do this by influencing the consumer and business
decision-making processes that were discussed in the chapters on consumer behav-
iour and business buying behaviour. This involves influencing the target market’s
(existing and potential customers) awareness, attitudes and behaviours towards the
organisation’s offerings (existing and new products).
In competitive marketplaces, promotion aims to demonstrate that the features
and benefits of the organisation’s products offer more value than competing offer-
ings. The organisation tries to persuade potential customers to trial its product
through ­persuasive information or perhaps by providing a sample of the product.
For example, Gardening Australia magazine sometimes has a Dilmah teabag or
Mr  Fothergills seed packet attached to the front cover as a strong inducement for
its readers to try the products of the businesses that advertise within the magazine.
Many fashion magazines give away sample cosmetics for the same reason.
Marketing communications aimed at existing customers reinforce the product or
brand and encourage repeat purchases or the purchase of other products offered by
the organisation. For example, Coca-Cola is one of the major brand names in the world
and does not need to advertise to say that it is a carbonated cola drink, but it adver-
tises to make sure that awareness is maintained and that it translates into sales. Some
seasonal products need promotional campaigns that refresh awareness; for example,
swimwear manufacturers, such as Tiger Lily, start to promote their products in late
winter and spring as they have been largely out of mind during the colder seasons.
Loyalty programs are another common approach to retaining existing customers.
For example, in promotions such as the Qantas Frequent Flyer program and the petrol
discount vouchers offered by the major supermarkets, the more a consumer engages
with one brand, product or company, the more they are ‘rewarded’ with discounts,
gifts and special offers. As brand loyalty decreases in general, many organisations
want to increase customer engagement with their brand, and so building a relation-
ship between the customer and the brand becomes an important strategic objective.

310 Marketing
 For a genuinely new product that is unfamiliar to the market, the marketer will
first need to create demand for the product itself, rather than its brand specifically.
For example, when it introduced its Blu-ray player, Sony focused on promoting
the concept of the Blu-ray technology more than promoting the brand itself. New
product innovations are often a prompt for promotional efforts designed to make
the most of a competitive advantage. Being first to market with some innovation
gives what is known as a first mover advantage. Once successfully built, competitors
can find it very difficult to overcome a business’s first mover advantage. Promoting
the product rather than the brand is not limited to new products. Surfwear com-
pany Roxy, like most of the surfwear companies, promotes surfing as a sport and a
lifestyle, believing that increasing the popularity of surfing generally and building
an association between the surfing lifestyle and its brand will flow through to more
demand for its products. The promotional efforts run by industry associations
are also aimed at creating demand for a particular type of product. For example,
­Australian Pork Limited is a producer-owned organisation that supports the pork
industry and p ­ romotes eating pork by encouraging people to ‘Put pork on your fork’.
In addition to promoting products, marketing communications can be designed to
increase general awareness about and goodwill towards an organisation. These efforts
usually involve some degree of philanthropy. When such promotional efforts
are ­actually tied to the purchase of a product, they become part of what is known as
cause-related marketing. Brands like Meadow Lea, Kit Kat, Dunlop Volleys and cause-related marketing 
­QantasLink have been associated with connecting with the National Breast Cancer Philanthropic activities tied to the
purchase of a product.
Foundation and the ‘pink ribbon’, and have all achieved sales spikes as a result.4 Cause-
related marketing can be a very powerful promotional tool — many consumers, buying
a largely substitutable product, will opt for the one that supports a good cause.
Sponsorship is another way that a business can build
awareness and positive associations with its products. For
example, Qantas and KooGa sponsor the Australian Rugby
Union’s Wallabies, while Adidas and AIG sponsor the
New  Zealand All Blacks. As these examples suggest, the
sponsoring brand or product does not necessarily have to
directly relate to the sport or event being sponsored (indeed
alcohol and, in the past, cigarettes were often associated with
sport, though they are detrimental to performance) — it is
the overall association that counts. Westpac sponsors search
and rescue helicopters in Australia and New ­Zealand. Search
and rescue is in no way directly related to Westpac’s core
business — banking and financial services — but its sponsor-
ship of the helicopters exposes its brands to the community
and associates it with a good cause. Sponsorship is discussed
in more detail later in the chapter.
Effective promotional efforts can increase the level of support offered by retailers.
For example, making a product highly desirable through effective advertising will
often lead to the product featuring more prominently in shelf displays in retail stores
and the more intense direct selling of the product by retail staff. This is a win–win
situation for the product manufacturer and the reseller as both experiences increase
sales. Such campaigns are often carefully coordinated and the parties share in the
cost of some advertising activities, known as cooperative advertising.
Regardless of the specific objectives of marketing communications, the implemen-
tation of p
­ romotional activities should be consistent with the rest of the marketing mix
and different elements of the promotional mix must be consistent with each other.

Chapter 9 Promotion 311

 Spotlight  iSentia: monitoring media feedback
Organisations that spend a lot of money on promotional activities want to have some feedback
processes in place. This helps them to make sure that the intended messages are successfully being
received, or highlights any problems about the marketing environment that need attention. One way
to obtain feedback about a brand is to employ a company to do it for you. One of the leading
companies in media intelligence is iSentia, probably better known by its previous name of Media
Monitors, which provides various media monitoring services — including the tracking and monitoring
of news published from newspapers, magazines, journals, television, radio and the internet (including
social networking sites).
As part of their information services, iSentia provides clients with access to a Mediaportal,
Media Alerts, Transcripts, Daily Briefings, BuzzNumbers (social media) and Slice (news tracking).
The company has over 6000 clients in 15 countries using 16 languages across the Asia–Pacific,
including Walt Disney, Vis, Starbucks, Samsung, HSBC and Nike. Some of the feedback from
their clients highlights the valuable data provided by iSentia. Dominic Ng of CISCO Systems stated:
‘I firmly believe that their physical “listening” centers set up are critical to bring social media
monitoring beyond branding needs’. Nikolaus Ong of MRM
Worldwide (McCann Worldgroup) says that it:
.  .  . provides highly relevant intelligence for various business
and marketing requirements. Their technology is nothing
short of impressive as their system’s data mining capabilities
provided very current data from which we could draw
impactful insights .  .  . This results in a more efficient and
effective development of insights, propelling customer
engagement models beyond traditional marketing approaches.

Nguyễn Khoa Hồng Thành Emerald Digital Marketing

Agency says that the insights provided by iSentia ‘are
essential for us to build the marketing and PR strategies we
plan for our clients’.
iSentia’s clients across Australasia have the
opportunity to monitor their brand name in the media
and gauge feedback that can be very important for future
marketing communication activities. In fact, chances
are the institution you are studying at is probably a client
of Sentia.5

Questions
1. Why do you think
companies would
spend money to obtain
the services offered Concepts and applications check
by iSentia? In your Learning objective 1  explain promotion (marketing communication) and its role in the
answer, refer to the
marketing mix
communication model
in figure 9.1. 1.1 What is meant by ‘promotion’? How do marketing communication activities assist the other
2. Give an example of elements of the marketing mix in an organisation’s marketing strategy?
how media tracking 1.2 How does the model of communication help in explaining how an advertisement works? Analyse
can help organisations
a current advertising campaign in your answer.
in developing their
promotional activities in 1.3 What are the main objectives of promotion? Provide an example of a campaign that would appear
the future. to have awareness as its objective.
1.4 Using an example of your own, explain why an organisation may aim to create demand for a
product type rather than its specific brand.

312 Marketing
INTEGRATED MARKETING COMMUNICATIONS
Just as the different elements of the marketing mix need to be carefully coordinated Learning objective 2
to achieve the best possible effect, promotional efforts also need to be constructed understand the
integrated marketing
to maximise the return on what is often a large investment. Integrated marketing
communications
communications (IMC) is the term given to the coordination of promotional efforts approach to marketing
to maximise the communication effect. promotion and the
The goal of IMC is to consistently send the most effective possible message to the major elements of the
target market. The four main components of IMC are advertising, public relations, promotion mix
sales promotion and personal selling. As you will discover in this chapter, these
categories overlap and some promotional activities do not fall neatly into any of integrated marketing
the main components. Nevertheless, they provide us with a useful framework for communications (IMC) The
coordination of promotional
­analysing and designing IMC.
efforts to maximise the
As advertising, public relations, sales promotion and personal selling approaches communication effect.
have become more sophisticated, personalised, targeted and specialised, they have
also become more expensive. In response, management in marketing organisations
has placed greater emphasis on evaluating marketing efforts and demonstrating the
return achieved on the investment in promotion. The best return on promotional
efforts is achieved when there is a high degree of consistency, and hence synergy,
across the four areas of promotion. This possible high return on promotional efforts
has led to the growing popularity of IMC approaches.

The promotion mix

Various combinations of promotional methods are used to promote a specific product
(good, service or idea). The four main elements of a promotion mix — advertising,
public relations, sales promotion and personal selling — are discussed in detail in
the following sections of this chapter, but first we will provide an overview of the
relative strengths and weaknesses of each to provide a basis for understanding how
to establish, monitor and adjust the appropriate promotion mix.
Advertising
Advertising is the transmission of paid messages about an organisation, brand or
product to a mass audience. Advertising is a big business, worth over $13 billion a
year in Australia, with many large organisations spending millions each year on tra-
ditional media advertising. Table 9.1 (overleaf ) lists the top advertisers in Australia,
while table 9.26 (overleaf ) shows the corresponding percentage of media expenditure.
The main benefit of advertising is the ability it offers to reach a lot of people at
a relatively low cost per person. While advertising is expensive, its ability to reach
a lot of people makes it cost effective based on price per exposure. It is also poss-
ible to aim advertising at particular target markets by choosing appropriate media.
For example, high-end watch companies tend to advertise in GQ and BRW, whereas
makers of baby formula tend to advertise in New Idea. The choice of the right media
can add to the brand image of the product, so if a perfume advertises in Vogue or
Harper’s Bazaar it is perceived as a high-quality product.
The main limitations of advertising are the difficulties in measuring its effective-
ness (one of the most famous quotes in advertising, attributed to US retail pioneer
John Wanamaker, is that ‘Half the money I spend on advertising is wasted; the trouble
is I don’t know which half’). Because of its mass market approach, there is very limited
presentation and personalisation of the marketing message carried by advertising.
TV commercials are often only 30 seconds in length, which can limit the content pre-
sented. Even the most sophisticated personalisation approaches in direct mail usually
do little more than include the reader’s name along with a standard message.

Chapter 9 Promotion 313

 Table 9.1  Top 10 advertisers — Australia

Advertiser group/ Annual expenditure

Rank Advertiser A$ (millions) Key brands

 1 Wesfarmers 215–220 Coles supermarkets, Kmart, Target,

Officeworks, Liquorland

 2 Woolworths Limited 155–160 Woolworths supermarkets,

Big W, Dick Smith

 3 Commonwealth Government 150–155 Defence, Health & Ageing, Medibank

Private, Environment & Water
Resources

 4 Harvey Holdings 145–150 Harvey Norman, Domayne

 5 Telstra 90–95 Telstra Corp Ltd, Trading Post Group,

Universal Publishers

 6 Reckitt Benckiser 80–85 Nurofen, Finish, Airwick, Mortein,

Dettol, Strepsils, Harpic

 7 Toyota Motor Corporation 75–80 Toyota, Lexus

 8 Victorian Government 75–80 Transport Accident Commission,

Transport, Sustainability &
Environment

 9 Westpac Banking Corporation 70–75 Westpac, St George, BT Financial,

RA MS, BankSA

10 McDonald’s Family 70–75 McDonald’s Family Restaurants,

Restaurants McCafé

Source: Nielsen Top Media Groups/Advertisers 2011.

Table 9.2  Advertising by media sector — Australia

Sector Percentage

Internet 28.6

Free-to-air TV 26.9

Metropolitan/national daily newspapers (including inserted magazines) 21.9

Radio  7.9

Magazines  7.1

Outdoor  3.8

Pay TV  3.2

Cinema  0.6

Source: Phil Ruthven (2013), ‘Internet ads surge ahead’, BRW, 21 March, www.brw.com.au.

Public relations
Public relations refers to communications aimed at creating and maintaining relation-
ships between the marketing organisation and its stakeholders. Stakeholders include
customers, suppliers, owners, employees, media, financial institutions and those in
the immediate and wider environment. ­Effective public relations are ­created when

314 Marketing
the public relations messages are timely, engaging,
accurate and in the public interest.
The main benefits of public relations promotions
are credibility (as public relations efforts do not
appear to be advertising), the significant word-­
of-mouth communications that can result, their
low or no cost nature, and their effectiveness in
combating negative perceptions or events. For
­
example, McDonald’s runs the annual McHappy
Day, one of Australia’s longest running charity
days,  which raises over $3  million for Ronald
McDonald House Charities (RMHC). More than
800  ­celebrities and local VIPs donned aprons and
took drive-thru orders at close to 800  ­McDonald’s
restaurants across Australia, including Delta
Goodrem (singer and judge on The Voice on
Channel Nine) and actress Melissa George.7
Public relations strategies have some limitations, however, including that many
efforts are seen by the news media as attempts to obtain free advertising and are
thus rejected. This can result in poor exposure of the organisation’s public relations
message. Another limitation is that a marketing-savvy public is increasingly cynical
about the motivations of businesses when they involve themselves in activities other
than the direct marketing of their products. Many consumers, rightly or wrongly,
now view sponsorship of a concert as an effort to sell something, rather than as a
philanthropic effort to bring the arts to the public. Nevertheless, the consumers are
still exposed to the marketer’s message and branding.
Sales promotion
Sales promotions offer extra value to resellers, salespeople and consumers in a bid
to increase sales. They are often used on an irregular basis to smooth demand. For
example, businesses that install home air-conditioning offer sales promotions (such
as price discounts, a bonus remote control or free ceiling insulation) in winter in hot
areas and in summer in cold areas.
The main benefits of sales promotions are to smooth out sales in periods of low
demand and to facilitate retailer support. While sales promotions targeted at ­consumers
are familiar and obvious, many sales promotions are aimed at the resellers and sales-
people, rewarding them for selling the company’s products or particular volumes of
products. Motor dealers almost universally get bonus payments from car manufac-
turers based on exceeding certain threshold levels in sales each month or quarter. This
is why car buyers can often negotiate a better price on a car towards the end of a month
or quarter than right at the start of a new trading period. If you go into a mower store,
you might find the staff wearing shirts with Stihl branding or Honda branding, even
though the store sells both brands (and others besides). This is both a promotion aimed
at the salespeople and at customers who go into the store.
The main limitations of sales promotions are that they can lose effectiveness if
overused (in particular, customers can come to expect some bonus or price discount
and simply wait en masse for a promotion to begin before they buy a product), they
are easily copied (particularly price discounts and bonus offers), and the public is
becoming increasingly cynical about whether they offer any real value or whether
they just highlight that the usual price and conditions under which a product is pur-
chased has a great deal of extra margin built in.

Chapter 9 Promotion 315

 Personal selling
Personal selling refers to personal communication efforts that seek to persuade
consumers to buy products. Certain industries or types of products tend to favour
personal selling as a promotional activity, such as expensive, high-involvement or
industrial products.
Personal selling benefits include that the message can be very specifically and
personally tailored to the individual consumer — thus having greater influence than
less personal advertising, sales promotions and public relations strategies. Personal
selling also enables the marketing message to be adjusted based on feedback given
by the target of the selling effort.
Personal selling also has limitations, including that it is expensive and has
a limited reach. During personal selling, the potential customer consumes all of
the s­alesperson’s time and effort. Personal selling is labour intensive and time
consuming. Additionally, as consumers become more and more educated and
­
informed — often having done considerable research online before entering a
store — efforts at ­personal selling are viewed with increasing cynicism. At its worst,
the customer can know much more about the product they are interested in than
does the salesperson.

Integrating promotion mix elements

Armed with a basic understanding of each component of the promotion mix and
some of their relative strengths and weaknesses, we will now consider how they are
chosen and combined to form an effective IMC strategy. The most effective choice
and mix of promotion elements will vary with the specific goals of the marketing
effort, individual product characteristics, individual target market characteristics,
the nature of the marketing organisation itself, and the resources and budget avail-
able to the marketer.
All marketing organisations have different promotional needs and finite financial
and other resources, and so must choose from competing options in the promotion
mix. Marketing organisations with very large promotion budgets will usually use
multiple promotional strategies, while those with smaller budgets will rely on fewer
and simpler strategies, often executed on a smaller scale (e.g. advertising in the free
local newspaper or sponsoring the local under-10s cricket team as opposed to adver-
tising on television and sponsoring the Olympic swim team).
Consider the promotions mix of the Myer department store:
• advertising through expensive large, glossy catalogues delivered by mail and
inserted in newspapers (and available online); television commercials, multiple-
page newspaper and magazine advertisements; website
• sales promotions, including offering ‘sales’ (discounts on normal pricing), interest-
free credit terms (pay nothing for three months), and bonus products (e.g. two
shirts for the price of one)
• personal selling in-store by staff working on commission in departments run as
independent businesses
• public relations by hosting book signings, fashion shows and product launches in
selected stores; for example, with Jennifer Hawkins, Jamie Oliver, Harry Kewell
and the Bondi Rescue team.
Contrast this with a smaller operator such as a Rivers store:
• advertising through television and radio commercials, small advertisements in
newspapers; and a website
• sales promotions, including offering ‘sales’

316 Marketing
• personal selling in-store by expert staff.
Now consider a very small operator such as local dress shop:
• advertising through the Yellow Pages and a website
• personal selling in-store by expert staff.
The appropriate promotion mix is likely to change over time as each of those
characteristics changes and as the effectiveness or otherwise of the current promo-
tional mix is evaluated. Formulating an appropriate promotion mix can be a complex
undertaking. In the case of franchises, franchisors usually hand most of the pro-
motion mix to the franchisees. This concentrates the strategic work and ensures a
consistent promotional message. It does, however, limit franchisees from responding
to local conditions.
Pull policies and push policies
In addition to choosing a mix of promotional tools, marketing organisations must
choose whether to primarily aim their promotions at consumers or at marketing
partners such as retailers, or both. A pull policy is an approach in which the pull policy An approach in
­producer promotes its product to consumers, usually through advertising and sales which a product is promoted to
consumers to create demand
promotion, which then generates demand upward through the marketing distri-
upward through the marketing
bution channel. For example, the consumer becomes interested in a product through distribution channel.
the producer’s television advertisement and then enquires at a retailer. The retailer
asks its ­suppliers about the product and the suppliers seek out the producer. This
approach often reflects the business-to-consumer (B2C) relationship, as the main
promotional effort goes directly from the producer to the potential consumer. By
contrast, a push policy is an approach in which the product is promoted to the next push policy An approach in
organisation down the marketing distribution channel. For example, a producer pro- which a product is promoted to
the next organisation down the
motes its product to a wholesaler, which in turn promotes the product to a retailer,
marketing distribution channel.
who finally promotes the product to consumers. Of course, many products are pro-
moted via both techniques. Additionally, producers and retailers may undertake a
cooperative advertising campaign where both the producer and the retailer are pro-
moting the product to its target market. This approach emphasises a business-to-
business (B2B) relationship as the promotional effort moves down the channel of
distribution.
Often the guide to which strategy to use is based on discovering where the con-
sumer decides on obtaining more information or buying the product. For example,
if the consumer is more likely only to think about purchasing the product at the
retail outlet, a push strategy would be favoured; whereas, if consumers are more
likely to think about the product independently (i.e. away from the store environ-
ment), a  pull strategy may be more appropriate. Elements of a pull strategy are
often ­evident in producers’ websites.

Deals Direct: online needs integrated Spotlight 

campaign
The ease of setting up an online business has resulted in a massive number of digital companies trying
to get the attention of potential customers. But how does a little-known virtual company get people to
come to its website? An easy answer is to use online media; however, this can be difficult if the target
market is not always online, and many companies may need to drive people to the website. Therefore,
an integrated campaign that includes traditional media is a strategy being followed by companies like
Deals Direct.

Chapter 9 Promotion 317

 Beginning in 2004, Deals Direct was an Australian pioneer in
e-business, and has grown to offer a range of brands across
21 departments and with 15  000 products online. Over the years,
it has delivered four million parcels to over one million customers.
However, until recently, there was still some uncertainty about Deals
Direct’s image. Deals Direct’s chief marketing officer David
Fernandez said:
Our research showed that there was a lot of confusion about exactly
what Deals Direct stood for, particularly with the proliferation of
‘daily deals’ sites. Once we reframed Deals Direct as an Online
Department Store to customers, it resonated strongly.

To better position itself, Deals Direct, with retail specialist

agency IdeaWorks, launched a multichannel, integrated marketing
campaign repositioning it as ‘Australia’s #1 online department store’.
The campaign included ‘every touchpoint from television and digital
executions to the wrapping paper on products shipped from the warehouse’. Its television commercials
were 30-second spots that could also be seen on YouTube.
Chief executive of IdeaWorks Jon Bird said of the campaign:
Online retailing is an increasingly crowded territory, and the department store metaphor generates an
image instantly in customers’ minds. By bringing the proposition to life via a simple, clean animated style,
the brand’s personality will cut through.

By using an integrated marketing approach, Deals Direct aimed to clarify its brand image and
present a consistent message that it is the #1 online department store in the marketplace across
several media, both online and offline. Therefore, in a changing world, traditional media can still have a
place for online retailers.8

Questions
1. Describe how Deals Direct’s integrated marketing communications campaign could help sell the
company’s brand image to customers.
2. Do you think that some online companies would be hesitant to use traditional media in an integrated
marketing communications campaign? Why/why not?

Concepts and applications check

Learning objective 2  understand the integrated marketing communications approach to
marketing promotion and the major elements of the promotion mix
2.1 Explain what is meant by the term ‘integrated marketing communications’ and the advantages
of an IMC campaign for a company. How can a company combine promotional mix elements to
achieve more communication impact?
2.2 Analyse the major elements of the promotion mix, explaining the advantages and limitations
of each.
2.3 Outline how each major element of the promotion mix could be used in an integrated marketing
communication campaign for a product of your own choosing.
2.4 How can knowing about ‘pull’ and ‘push’ marketing channel strategies assist in planning
promotional campaigns? Describe some ‘push’ examples at a retail outlet of your own
choosing.

318 Marketing
ADVERTISING
You are already familiar with advertising. Almost every time you watch television, Learning objective 3
read a magazine, listen to the radio, drive along a highway or visit a website, you are describe different types of
advertising and the steps
targeted by advertising. Formally, advertising is the paid promotion of a business,
in creating an advertising
product or brand to a mass audience. It can involve the traditional mass media — campaign
television, radio, newspapers and magazines — or other media such as billboards,
direct mail, the internet, email, SMS, and displays and signs on trucks, buses and
advertising Paid promotion of
taxis. We are again using ‘products’ in a broad sense that includes ‘ideas’. Political
a business, product or brand to a
parties, charities, medical research institutes and celebrities are among the enor- mass audience.
mous range of ‘non-business’ organisations and individuals that use advertising to
promote their product, idea, message and themselves.
Advertising can be designed to promote either a product or an organisation.
Product advertising includes advertisements for goods and services such as Tim
Tams or a holiday in the Bay of Islands, New Zealand. Product advertising usually
aims to demonstrate the features and benefits of the product and to promote the
product or group of products above competitors’ products. When this is taken a step
further and the advertisement specifically compares products with a competitor’s
products, it is known as comparative advertising. Com-
parative advertising can be particularly useful in winning
market share from a relatively established strong com-
petitor. It is often used in low-value items such as groceries
and in particularly competitive sectors such as the auto-
motive and housing industries. It is, however, subject to
legal restrictions (essentially the advertiser must be
truthful in their comparisons) and is in fact illegal in some
countries, principally in Asia.
Organisational or institutional advertising is aimed at
promoting ideas and images. Banks, insurance companies
and travel centres often use this type of advertising to
promote the nature of the service you can expect (e.g.
short queues, experienced and friendly staff) rather than
specific products you can buy. Insurer AAMI takes this to
an extreme, personifying its name by featuring a charming
call centre worker called ‘Amy’ in its advertising. Such
advertising can also be combined with public relations
campaigns to foster a particular image of the organisation
or for it to push its agenda. Trade unions, employer groups,
political parties and many other organisations often use
this type of advertising. In the case of governments, adver-
tising is sometimes used to persuade the public to act in
a particular way (e.g. to report suspicious ­behaviour that
might be linked to terrorism, ‘Be Alert  — Not Alarmed’,
or to obey road rules). The Commonwealth Government
used this type of advertising as part of its National Drugs
Campaign and the ‘Shape up Australia’ healthy lifestyle
campaign.

Creating an advertising campaign

Within the IMC strategy, the overall advertising plan is known as the advertising
campaign. Putting together an effective advertising campaign can be relatively

Chapter 9 Promotion 319

 straightforward, consisting of a block advertisement in the classified pages of the
local newspaper, signage on a store and a Yellow Pages entry, or unimaginably com-
plex, with customised television spots in multiple countries, interactive context-­
sensitive advertisements on websites that link to a more extensive product website,
signage at major sporting events and product placement in films or TV programs.
Any decisions about advertising should be made in the context of an IMC approach.
This will help determine whether advertising is the appropriate promotional
approach, how much of the budget it should get and what it needs to do to com-
plement the other promotional approaches used. The more complex and ambitious
the campaign, the more likely it is the marketing organisation will engage the ser-
vices of a specialist advertising agency to assist in the creation, production or place-
ment of an advertising campaign.
The key steps in creating an advertising campaign are:
• understand the market environment
• know the target market (audience)
• set specific objectives
• create the message strategy
• allocate resources
• select media
• produce the advertisement
• place the advertisement (in the media)
• evaluate the campaign.
We will discuss each of these in turn in the following sections.

Understand the market environment

Marketing organisations should not view advertising in isolation, so before major
decisions are made on the advertising campaign it is important to review the
marketing environment. Emerging issues in the marketing environment may affect
the advertising campaign. If they are not anticipated, changes in the marketing
environment, such as a new technology launched by a competitor, can make a
campaign ineffective. An understanding of the market environment can be built
by preparing, or reviewing, a situation analysis. This briefly reviews the success
or otherwise of the organisation’s current marketing mix and presents an analysis
of the various internal and external factors which will influence how the firm will
undertake its planned campaign. Some of the internal issues include a marketing
mix analysis and company analysis, to assess the organisation’s current marketing
­position. The external factors may include a customer analysis, competitor analysis
and a macro-environmental analysis (which refers to the various uncontrollable
factors that can affect how marketing and promotion activities are undertaken).
A macro-environmental analysis examines political, economic, social, t­echnological
and legal factors (see the chapter on the marketing environment and market
analysis).

Know the target market (audience)

A solid knowledge of the target market underpins all of the decisions to be
made in formulating an advertising campaign (and indeed any marketing effort).
Simply, if you are sending a message, it is important to know about who you
are sending the  message to. The marketing organisation must identify its target
market, existing customers, potential customers, or both. It must then analyse
the target market to determine what choice of advertising is most likely to reach
and persuade the members of that market, or the specific target audience for the
message.

320 Marketing
 Identifying the target market includes researching:
• demographic factors (such as age, income, education)
• its geographic location
• consumer attitudes
• the current level of knowledge of the organisation and its products.
Marketing organisations that run advertising campaigns that are not built on
knowledge of the target market set themselves up to fail. Consider the target market
for the following range of products and messages. As you do, think about how impor-
tant it is to the success of each to reach the right target market with the right message.
• The Big Day Out music festival — The target market is music lovers generally, and
in particular younger people with an interest in popular and alternative music.
• Absolut Raspberri Vodka (a sweet, fizzy raspberry-flavoured alcoholic vodka
drink) — The target market is young (20 to 29) females looking for alcoholic bev-
erages that are easier to drink and more feminine and ‘fun’ than the traditional
spirits, beer and wine. They are available in
multi-packs aimed at both home/party drinking
and at single-bottle drinking in clubs.
• The New South Wales Teachers Federation
(the  trade union of public school teachers in
NSW)  — The federation has two target markets:
(1) public school and TAFE full-time, part-time,
casual and unemployed teachers, to which it
advertises itself, its mission and its services;
(2) stakeholders in school and TAFE education,
such as parents, students, the NSW Department
of ­Education (i.e.  the employer), the Federal
Department of Education, the wider community,
textbook p ­ ublishers and so on.
• Cervical cancer screening — The target market
is sexually active women, as well as health pro-
fessionals who have a direct role in promoting
screening to women.
• Sumo Salad outlets — The target market is semi-health conscious shoppers in
major  shopping centres and workers from businesses located near to shopping
centres. Quick salads and healthy rolls have become fast foods of interest to young
women in particular.

Set specific objectives

A marketing organisation contemplating an advertising campaign will probably know
the overall aim of the campaign — often simply to increase sales — but a s­ uccessful
advertising campaign needs to be based on narrower specific ­ communication
­objectives that will help contribute to the broader overall goal. For example, if Cancer
Council Australia wants to increase the percentage of women who have regular pap
smears, its more specific advertising objectives might be any or all of: to increase
the percentage by 15 per cent; to raise awareness among the general community
about the disease; to raise awareness about the role of screening; to encourage safe
sex to reduce the risk of contracting HPV (a virus that increases the risk of con-
tracting cervical cancer); to let women know who to contact to arrange  testing; to
inform healthcare workers about their role; or to reach populations with known low
rates of screening (e.g. Indigenous peoples). Once the objectives are more precisely
defined, the next steps in planning the campaign can be taken.

Chapter 9 Promotion 321

 Specific objectives also facilitate evaluation of the campaign once it is under
way. The more specific the objective, the more measurable its achievement will be.
For example, the success or otherwise of a Cancer Council Australia campaign to
increase screening rates can be measured by comparing screening rates before and
after the advertising campaign.
Therefore, not all advertising campaigns are designed to immediately increase
sales. Some are designed simply to improve brand awareness or positive attitudes
towards the marketing organisation. Others may be designed to start a word-of-mouth
or viral marketing campaign, and pass on advertisements or websites to family or
friends. Television stations sometimes use this approach with teaser campaigns, by
showing abstract representations of a new show without giving any details, which
generates discussions of what the show is or is about.
Create the message strategy
The creation of the main message or issue to be presented in the advertising cam-
paign is intimately linked to knowledge of the target market and to the specific
objectives of the advertising campaign. To check that the message strategy is on
target and likely to be effective, many organisations pre-test their campaigns using
focus groups before committing any further resources.
For example, participation by famers in conservation programs is vital for
achieving many environment goals, but there are different types of famers and some
can be difficult to contact, or are not interested in being informed or participating in
relevant programs. One study analysed the different farmer, or landholder, groups
and analysed the types of messages and media that are most effective for reaching
landholders. This includes the importance of channels involving personal contact
for reaching lower sociodemographic mainstream farmers, together with messages
linked to how programs will have economic benefits for their farms; for smaller
hobby farmers, more general media was recommended with more ­information-based
messages; and for absentee landowners, the importance of reaching farm managers
was identified.9
Allocate resources
A marketing organisation will determine a budget for its advertising campaign based
on its financial and other resources, the objectives of the campaign and what it
expects the return on the investment to be (which should be achievement of the
objectives). The marketing organisation also needs to allocate human resources and
time to the advertising campaign. It is difficult to predict the success of an adver-
tising campaign so there is never an answer to ‘What is the right amount of time and
money to spend?’ Instead, ensuring it remains within the resources it has available,
a business can choose to:
• match its competitors’ advertising expenditure
• set a certain percentage of sales or revenues aside for advertising (sometimes
5–10 per cent based on the previous year’s figures)
• make an educated guess
• work backwards from the objectives to determine what will be required to pro-
duce the appropriate advertising, then calculate the cost of all of those tasks
(which may  then require revision of the plan if the cost is beyond the organ-
isation’s means).
Select media
Marketing organisations can choose among a variety of media, each with their own
special characteristics. Table 9.3 outlines the advantages and disadvantages of the
principal media options.

322 Marketing
Table 9.3  Advertising media options
Media Subtype Advantages Disadvantages

Television Free-to-air Mass audience (in the millions) Very expensive to produce and air in
Low cost per person reached total
Advertising content can be Carries a lot of advertising competing
presented as part of the program for attention of viewers
Viewers increasingly immune to
advertising or using technology to
skip ads
Impossible to customise message

Pay TV Large audience, or a specialised or Very expensive to produce and air

niche audience, depending on the Viewers increasingly immune to
station advertising or using technology to
Advertising content can be skip ads
presented as part of the program Impossible to customise message

Community Cheap total cost to air Can be expensive to produce

Audience open to alternative Small audience
products Low production values
Advertising content can be Impossible to customise message
presented as part of the program

Radio AM, FM, digital Mass audience Radio and podcasts are often played
radio/podcasts Potentially low production costs while doing some other activity, so
attention may be low
Advertising content can be
presented as part of the program

Internet Brand or Can be cheap to produce Need to attract audience to website

product Easily updated
website
No competing messages on site
Can be tailored/interactive

Company Can be cheap to produce Need to attract audience to website

website Easily updated Website often performs multiple
No competing messages on site other purposes, e.g. information for
shareholders
Can be tailored/interactive

Advertising on Can be cheap Difficult to measure effectiveness (even

other sites Can reach a large audience with technology)
Can be tailored/interactive Often presented alongside competitors
Cannot control context

Search engine Requires constant vigilance/ Public and search engine operator
optimisation monitoring/refinement resistance to search engine optimisation
Can reach a large, specific tactics
audience Difficult to measure effectiveness (even
with technology)

Email Subscription Cheap Very easy to ignore

newsletters Specific, opt-in audience Very difficult to measure effectiveness

Spam Very cheap Very easy to ignore

Very large potential audience Spamming is illegal in Australia

(continued)

Chapter 9 Promotion 323

 Table 9.3  (continued)
Media Subtype Advantages Disadvantages
Newspaper Major Large audience, mostly Very short life (time reader is on the
metropolitan geographically concentrated page)
daily and Can change message daily Easy for reader to ignore
weekend
Relatively cheap
Regional Geographically concentrated Very short life
audience Easy for reader to ignore
Can change message daily
Cheap
Community Geographically concentrated Short life (often a week — readers
weekly audience retain the paper for the weekly television
Can change message weekly guide)
Cheap Easy for reader to ignore or discard
entire publication
Readers often specifically consult
these newspapers to find ads for Usually low production values
services, local events etc.
Magazine Consumer Large audience, often with Expensive
particular demographic features Easy for reader to ignore (competing for
High production values attention with competitors and content)
Prestige
Reasonably long life (magazines are
retained and revisited over days,
weeks or longer)
Niche Audience has an inherent interest in Can be expensive
products related to the magazine’s Almost certainly appear next to
focus competitors’ ads
Prestige
Long life (often read over weeks
and retained indefinitely)
Business/ Very specific audience with an Can be expensive
trade/ inherent interest in products related Almost certainly appear next to
professional to the magazine’s focus competitors’ ads
Direct mail Letters High level of control over circulation Expensive
Personalised appeals Easily discarded
Can be combined with sales Can generate ill will
promotions, coupons and samples
Catalogues/ High level of control over circulation Expensive
brochures Often considered away from Easily discarded
competitors’ advertising Seen as damaging to environment
Outdoor media Public Cheap Easy to ignore
transport and Potentially large audience Not prestigious
taxis

Billboards Cheap Not prestigious

‘Always on’ when people are Easy to ignore
passing by Subject to complaints about visual
Can be used near store to draw pollution/driver distraction
customers
Shop signage Cheap Only visible to people in immediate
‘Always on’ when people are vicinity
passing by

324 Marketing
 Two of the most important considerations in choosing media are reach and fre-
quency. Reach measures what proportion of the target audience is exposed to the reach The proportion of the
advertisement at least once. Frequency measures how many times each target target audience exposed to the
advertisement at least once.
market member is exposed to the advertisement. Reach and frequency should be
considered in terms of each media option as well as the combination of media frequency The number of times
each target market member is
chosen. However, there can be a trade-off between reach and frequency as both cost exposed to the advertisement.
money to increase. Therefore, if you increase the reach of your advertising, you
may have to decrease the frequency, and vice versa.
In selecting the media, the marketing organisation will often start with a broad
plan and gradually narrow it down until they have selected particular media to use.
For example, they might begin with the idea that they should publish print adver-
tisements and eventually reach the conclusion on the specific media vehicle, such
as advertising in Vogue magazine.
It seems a reasonable assumption that advertising online would be the most envi-
ronmentally friendly approach. In fact, a survey by outdoor advertiser Ooh Media
found that 54 per cent of media buyers did indeed believe this to be so. However, in
reality, advertising online generates more carbon emissions than any other adver-
tising medium. Ooh Media’s billboards and shopping centre signs use lots of PVC
plastic and consume large amounts of electricity, prompting the company to initiate
a program to try to reduce the amount of carbon dioxide related to its products. One
move was to introduce LED floodlights to replace existing lighting, which would
save 2600 tonnes of carbon dioxide a year — the equivalent of taking 500 cars off the
road. The company also moved to green power — offered by electricity companies
and representing electricity that is generated sustainably.10
While direct mail might seem old-fashioned, Australia Post has reported that direct
mail is growing. According to Australia Post mail marketing manager Mark Roberts,
‘It is not cool, but it works’. Roy Morgan Research has found that 80 per cent of promo-
tional mail is read, filed or passed on (only 20 per cent being completely discarded).11
In addition to choosing media, marketing organisations need to choose how long
to advertise for and when to run or place the advertisements. This is a complex task
and aims to maximise the exposure of the message and the effectiveness of the mes-
sage. If the advertisement runs for too long, however, it can become annoying and
the message impact may ‘wear out’, making the campaign ineffective.
Produce the advertisement
In creating and producing an advertisement, the marketing organisation must create
content (based on the message strategy) and then work out how best to present that
content. Small organisations with limited resources may undertake the decisions
and creative processes themselves. Sometimes their chosen media may be able to
provide advertisement design services (this is particularly common for radio stations
and newspapers). For large-scale advertising campaigns, it is common to engage
the services of an advertising agency. The creative services required to produce an
advertisement may include copy writing, graphic design, illustration, scripting and
photography. In addition to the creative aspects of the advertising campaign, some
advertising agencies provide full advertising services, including market research,
pre-testing and media placement. The obvious advantage of engaging an adver-
tising agency is access to specialist expertise. The disadvantages include the cost
and some loss of control. Some of the highest profile advertising agencies operating
in ­Australia are Clemenger BBDO, DDB and Leo Burnett; while in New Zealand are
DDB, Barnes Catmur & Friends and Ogilvy.12
Advertisements should aim first to grab the potential customer’s attention. They
then aim to arouse some interest in the product, service or brand by demonstrating

Chapter 9 Promotion 325

 the benefits and advantages, which can create a desire in the customer to want the
product, and finally lead to action whereby the customer is invited to purchase the
AIDA model A simple model product. This follows the AIDA model (Attention > Interest > Desire > Action),
that represents the response which represents the response a customer can take when engaging with an adver-
a customer can take when
tisement that leads to a purchase.
engaging with an advertisement:
Attention > Interest > Desire > Place the advertisement
Action.
The implementation of the advertising campaign involves the buying and placement
of media space and time (i.e. securing television advertising spots or column space
in newspapers and magazines according to the desired schedule), dedicating people
and other resources to ensuring the campaign proceeds (e.g. appointing someone to
liaise with Australia Post for direct mail campaigns), and monitoring the effective-
ness of the campaign so that it can be improved based on initial feedback. In some
cases, an advertising campaign might be ended early if it receives a negative res-
ponse and it is not successfully getting its message to the target audience. In others,
it may receive such a good initial response that it is run less often. Carlton & United
did this with its well-known ‘Big ad’ advertisements promoting Carlton Draught
beer — after its web-based campaign was so successful, it cut back significantly on
the planned television time for the advertisement. In others, the advertisement
itself might be changed (e.g. if it pushes the boundaries of public taste too far and
elicits complaints).
Evaluate the campaign
Advertising campaigns can be evaluated before (pre-tests), during and after (post-
tests) the campaign is run. Just like Hollywood movies, many advertisements are tri-
alled before general release to determine whether they will be well received. Based
on feedback from the participants in the ‘advanced screening’, the advertisement
may be revised. As mentioned in relation to the message strategy, focus groups are
often used by advertising agencies to test different concepts, creative techniques,
audience comprehension and attitudes towards the advertisement.
During the campaign, its effectiveness can be monitored by measuring changes
in sales and enquiry levels, and any extra publicity generated by the campaign (e.g.
some advertisements, especially controversial ones, are discussed on radio and tele-
vision programs). Where multiple media are used, the relative effectiveness of each
can be compared. For example, it is possible to count exactly how many people
exposed to an advertisement on a newspaper’s website actually click through to
the advertiser’s website. After the campaign, its effectiveness can still be meas-
ured through changes in sales and enquiry levels, as well as by conducting market
research to assess the level of attention or awareness, such as brand recognition
or brand recall, the advertisement generated and whether it changed consumers’
behaviour. Advertising agencies often undertake evaluation of the campaigns they
run for clients in order to demonstrate the return on their clients’ (usually consider-
able) investment.
Marketing organisations need to be careful in attributing any or all changes in cus-
tomer behaviour during an advertising campaign to the advertisements. There are
always confounding factors such as changing seasons, the acts of competitors and
changes in economic conditions and audience sentiment.

Legal issues in advertising

While the advertising sector is largely self-regulating, there are a number of legal
restrictions on what can be advertised and how. The main regulatory issues relate
to the need to be truthful and honest in all forms of advertising and promotion, and

326 Marketing
come under the jurisdiction of the key provisions of the Competition and Consumer
Act (2010) in Australia and the Fair Trading Act (1986) in New Zealand.
While some promotions undoubtedly stretch the truth or add ‘puffery’ (exagger-
ation), outright lying is not only illegal, but damaging to customer relationships. The
promotion of therapeutic goods is highly regulated. One example of this is the com-
pany Nature’s Child, which was told to withdraw its internet advertisement about
the products Amber Necklace, Amber Bracelet, Wonder Balm and Bottom Balm, as
they breached Regulation 9 of the Therapeutic Goods Regulations 1990 (under the
Therapeutic Goods Act 1989). Specifically, it was found that the internet advertise-
ment provided:
.  .  . representations that the Wonder Balm and Bottom Balm had benefits in relation
to inflammation, bites, burns, haemorrhoids and had ‘healing properties’ would foster
unrealistic, unwarranted expectations of the products’ effectiveness and were likely to
mislead consumers.13
The company was ordered to withdraw the advertisement, which they indicated
they have complied with.
As mentioned earlier, the advertising industry also attempts to self-regulate.
Figure  9.2 (overleaf ) presents the Code of Ethics of the Australian Association of
National Advertisers.14 New Zealand’s Advertising Standards Authority has a similar
code of ethics.15 Most companies comply with orders from the regulatory bodies,
although some have a strategy of being controversial and may ignore rulings — such
as Wicked Campers, which has been the subject of a long history of complaints to
the Advertising Standards Bureau about some of the slogans it has on its campers.
Advanced Medical Institute (AMI) had a novel response to the Advertising Standards
Bureau’s ruling against its ‘Want longer lasting sex?’ billboards. The business kept
its advertisements, but plastered a ‘censored’ sign over the word ‘sex’ on its 140 bill-
boards around Australia.
Some industry bodies have guidelines for their members, such as for the alcohol,
health and financial sectors. Recently, there has been growing pressure for greater
regulation of advertising. For example, in recent years there have been growing calls
for junk and snack food advertisements to be banned or at least strictly limited
during children’s programming. A parliamentary inquiry into obesity recommended
that research be commissioned into this issue, but that self-regulation should
be ­ maintained rather than pursuing legal regulation of advertising food during
­children’s  programming. In response, parts of the fast food industry undertook to
self-regulate their advertising aimed at children. It is a matter of contention how
much children are able to correctly distinguish between editorial and advertising
content.16
Subliminal advertising on television is banned by the Australian ­Communications
and Media Authority’s Commercial Television Industry Code of Practice. S­ ubliminal
advertising is a technique that flashes images momentarily on a screen. The idea
is that the image is at the edges of people’s perceptive abilities. They subconsciously
process the image without registering that they have seen it. Channel  10 was
found guilty of breaching this aspect of the code during an Aria Awards broadcast.
Channel 10 broadcast single-frame images of the logos of the broadcast s­ ponsors —
Chupa Chups, Big W, Olay, Telstra, BigPond, KFC and Toyota. It argued that the
presentation was just in keeping with the rapid-cut nature of the broadcast, but
its argument failed and it was ordered by the Australian Communications and
Media Authority to educate its production staff about the issue to avoid any similar
­incidents in the future.17

Chapter 9 Promotion 327

 AANA CODE OF ETHICS
This Code has been adopted by the Australian Association of National Advertisers
(AANA) as part of advertising and marketing self regulation. Its object is to ensure that
advertisements and other forms of marketing communications are legal, decent, honest and
truthful and that they have been prepared with a sense of obligation to the consumer and
society and a sense of fairness and responsibility to competitors.
This Code comes into effect on 1 January 2012. It replaces the previous AANA Code of Ethics
and applies to all advertising and marketing communications on and from 1 January 2012.
1. SECTION 1: COMPETITOR COMPLAINTS [1]
1.1 Advertising or Marketing Communications shall comply with Commonwealth law and
the law of the relevant State or Territory.
1.2 Advertising or Marketing Communications shall not be misleading or deceptive or be
likely to mislead or deceive.
1.3 Advertising or Marketing Communications shall not contain a misrepresentation, which
is likely to cause damage to the business or goodwill of a competitor.
1.4 Advertising or Marketing Communications shall not exploit community concerns
in relation to protecting the environment by presenting or portraying distinctions in
products or services advertised in a misleading way or in a way which implies a benefit
to the environment which the product or services do not have.
1.5 Advertising or Marketing Communications shall not make claims about the Australian
origin or content of products advertised in a manner which is misleading.
2. SECTION 2: CONSUMER COMPLAINTS [2]
2.1 Advertising or Marketing Communications shall not portray people or depict material in
a way which discriminates against or vilifies a person or section of the community on
account of race, ethnicity, nationality, gender, age, sexual preference, religion, disability,
mental illness or political belief.
2.2 Advertising or marketing communications should not employ sexual appeal in a manner
which is exploitative and degrading of any individual or group of people.
2.3 Advertising or Marketing Communications shall not present or portray violence unless it
is justifiable in the context of the product or service advertised.
2.4 Advertising or Marketing Communications shall treat sex, sexuality and nudity with
sensitivity to the relevant audience.
2.5 Advertising or Marketing Communications shall only use language which is appropriate
in the circumstances (including appropriate for the relevant audience and medium).
Strong or obscene language shall be avoided.
2.6 Advertising or Marketing Communications shall not depict material contrary to Prevailing
Community Standards on health and safety.
3. SECTION 3: OTHER CODES
3.1 Advertising or Marketing Communications to Children shall comply with the AANA’s
Code of Advertising & Marketing Communications to Children and section 2.6 of
this Code shall not apply to advertisements to which AANA’s Code of Advertising &
Marketing Communications to Children applies.
3.2 Advertising or Marketing Communications for motor vehicles shall comply with the
Federal Chamber of Automotive Industries Code of Practice relating to Advertising for
FIGURE 9.2 Motor Vehicles.
3.3 Advertising or Marketing Communications for food or beverage products shall comply
The Code of Ethics of the
with the AANA Food & Beverages Advertising & Marketing Communications Code
Australian Association of
as well as to the provisions of this Code.
National Advertisers

328 Marketing
Distorting the truth in advertising Spotlight 
Advertising and the media in general are regularly criticised for the way they portray women —
particularly for using young models, continuing stereotypes, employing demeaning or sexually
suggestive imagery, and depicting unrealistic body images. These images can have a negative effect
on women and girls, as they compare themselves to and try to reach the unattainable standards
set by the media. That effect can include low self-esteem,
depression, eating disorders like anorexia and bulimia,
exercise addictions, unhealthy attitudes towards sexuality and
body image, and — in extreme cases — can lead to suicide.
With the recent advancement of graphics editing programs
like Photoshop, images can be changed, manipulated and
altered. This can result in an image that may be unlike the
original model, which increases the unrealistic standard set
by some advertising images.
In the last few years, advertising regulators have been
concerned with the images used in magazine advertisements,
including advertisements for fashion (Miu Miu), fragrances
(Oh, Lola!) and cosmetics (Lancome and Maybelline).
However, of note is the landmark decision by the US
advertising authority, the National Advertising Division of
the Council of Business Bureaus Claims (NAD), to ban an
advertisement for CoverGirl for ‘excessive Photoshopping’.
Singer, songwriter and teen idol Taylor Swift was the model
in an advertisement for CoverGirl’s Nature Luxe Mousse
Mascara, which appeared in fashion magazines like the US edition of Vogue. Taylor Swift was depicted
with her hair flowing in the breeze, along with claims that the mascara will give your lashes ‘2× more
volume’ and is ‘20 per cent lighter’ than other brands. However, at the bottom of the picture there was Questions
a fine-print disclaimer: ‘lashes enhanced in post-production’. NAD reviewed the advertisement after 1. Find examples where
some complaints, and NAD director Andrea Levine said: you believe that there
has been Photoshopping
You can’t use a photograph to demonstrate how a cosmetic will look after it is applied to a woman’s face of the image or
and then — in the mice type — have a disclosure that says ‘okay, not really’. exaggeration in the
advertisement. Why do
Procter and Gamble agreed to retract the advertisement. Appearing surprised by the decision,
you believe that this
Brent Miller, CoverGirl spokesman, said ‘Retouching is standard, and post-production is standard was done?
across all advertising .  .  . Everyone does it’. It was claimed that ‘this is the first major ban by the NAD.
2. Prepare an argument
The ban marks the beginning of the NAD’s supposed crackdown on excessive Photoshopping’.
both for and against
However, given the extent of Photoshopping across the industry, the move may prove to be this statement:
impractical.18 ‘Photoshopping should
be banned in print
advertisements’.

Concepts and applications check

Learning objective 3  describe different types of advertising and the steps in creating an
advertising campaign
3.1 Not-for-profit organisations, such as charities, often run advertising campaigns. How might their
campaigns differ from those run by commercial organisations?
3.2 Think of a product and describe how it could be promoted using comparative advertising.
3.3 Briefly explain each of the key steps in creating an advertising campaign.
3.4 Choose two advertising media options outlined in table 9.3 (e.g. television versus the internet).
Outline the advantages that each advertising media option has over the other.
3.5 Explain how the effectiveness of an advertising campaign can be measured.

Chapter 9 Promotion 329

 PUBLIC RELATIONS
Learning objective 4 Public relations is a term used to describe promotional efforts designed to build and
outline the role of public sustain good relations between an organisation and its stakeholders. Stakeholders
relations in promotion
include customers, employees, neighbours, shareholders, regulators, governments,
competitors, the media and society in general. In contrast to advertising, which often
public relations Promotional
promotes products, brands or the organisation through direct paid communications
efforts designed to build
and sustain good relations in the media, public relations uses written materials, sponsorships, giveaways, good
between an organisation and its deeds and other ways to generate positive publicity and goodwill towards the organ-
stakeholders. isation. Public relations is also used reactively to counter poor publicity (e.g. when a
business is accused of being an environmental polluter, they may embark on a public
relations campaign to ‘set the record straight’ or to show the benefits of the business
that offset its negative environmental impact) or as a part of crisis management.
For example, the National Australia Bank (NAB), with the help of Mango Com-
munications, promoted credit cards by conducting some ‘honesty experiments’ in
which people were tested to see if they would return lost property. The slogan for
the campaign was ‘honesty shouldn’t go unrewarded’, with the idea that if people are
honest, ‘they deserve honest credit cards to match’. The honesty experiments were
filmed and screened as television and online advertisements, and also generated
news publicity. The results were over 1 million views on YouTube, 2319 social media
reactions (3 × the average for finance content) and 90 pieces of media coverage —
a total PR value of $1  454  049.40.19

Approaches and methods

publicity Unpaid exposure in One of the most effective public relations outcomes is publicity. Publicity is the
the media. exposure a marketing organisation receives when it obtains free coverage in the
media. Positive coverage is preferred, but many marketers adhere to the old idea
that ‘any publicity is good publicity’. Apart from the obvious advantage that it is free,
publicity is also often better received by the public, which is increasingly sceptical
about and tired of advertising. Publicity seems to have an implicit endorsement of
the news organisations that carry the story.
Organisations can generate publicity by promoting something newsworthy to news
media. This is most often done with a media release — a short article written in
news format and sent to news organisations. Some news organisations, particularly
smaller ones, will simply publish many of the media releases sent to them. Others
are choosy and some will not use media releases as a source of articles. A media
release is most likely to lead to positive publicity if the content is of genuine public
interest. For example, pharmaceutical companies can generate publicity by issuing
news releases about breakthroughs in medical treatments; many organisations can
generate publicity by making a donation to charity or offering some community ser-
vice. In the aftermath of the Victorian bushfire and Queensland flood crises, many
businesses donated money, goods and services to the aid and recovery efforts.
A related approach is to call a press conference, which is essentially the same
strategy on a grander scale, where media reporters are invited to attend a presen-
tation involving a speech, written materials, demonstrations and the opportunity for
questions and photos. This approach is often used to generate publicity for sporting
events; for example, in the lead up to and during the Australian Open, Tennis
­Australia arranges press conferences with star players, issues articles, media releases
and background information about the tournament and players, provides photos for
media to use and makes several staff available to respond to media enquiries. Press
conferences are also one of the basic tools of the trade for politicians.

330 Marketing
 Besides publicity, marketing organisations can generate good public relations
through written communications directly with stakeholders. For example, public
companies send annual reports and other reports to their shareholders, which pro-
vide them with financial and non-financial information, such as the company’s cor-
porate social responsibility activities. Schools give newsletters to students to take
home to their parents or guardians, which outline successes in the school.
One of the highest-profile public relations tools is sponsorship. This is covered
in more detail later in the chapter. Briefly, sponsorship is a paid association with
an event or person. For example, Sanitarium sponsors Australia’s state cricket com-
petition, the Sheffield Shield, via its Weet-Bix breakfast cereal brand. On a smaller
scale, local businesses might sponsor school fetes by donating prizes.
A further public relations tool is the involvement of the company in charitable
donations or acts. Many businesses donate to charity or a ‘good cause’ and usually
receive a public thank you and a certificate they can display at their premises. Busi-
nesses may also receive publicity for their charitable work, such as McDonald’s
McHappy Day events.
Another major role of public relations, apart from proactively presenting good
news stories, is to be reactive, countering negative publicity or managing a crisis.
This can be extraordinarily complex. Think about trying to run the public relations
campaign for:
• the Coal Seam Gas industry after complaints from rural landholders
• Tiger Airways when it was going through a series of customer service mishaps
• Football Australia during a series of incidents involving club supporters violently
attacking opposition supporters.
Even a highly successful company such as Apple is not immune from negative
publicity surrounding new product launches. The company experienced this when
it launched the iPhone 4. This particular iPhone model had its antenna on the
outside of the phone in a stainless steel band. When held a certain way (in what
became known as ‘the death grip’), the phone’s signal and reception capabilities
were diminished, increasing the likelihood of dropped calls. Within weeks, and after
several hundred complaints, then Apple CEO Steve Jobs called a press conference to
announce that Apple would give away free bumpers (cases that wrap around the rim
of the phone) in order to prevent this problem from occurring on the iPhone 4. He
further stated that customers who are still not satisfied could return the phones for
a full refund. He said, ‘We are human and we make mistakes sometimes’, while still
extolling the many virtues of the product. Apple has since corrected the antenna
issue in the subsequent iPhone 4S and 5 models.20

Public relations as a profession

Public relations professionals, whether employed in a specialist public relations
business or within a department of some organisation, may undertake any or all of
the following activities:
• monitor public opinion regarding an organisation or particular issues
• develop and implement communication strategies for an organisation and advise
management on communication issues and strategies
• plan public relations programs, including the preparation of cost budgets
• present arguments on behalf of an organisation to government, other organ-
isations and special interest groups
• respond to enquiries from the public, media and other organisations
• arrange interviews with journalists, prepare and distribute news releases, and
make statements to the media

Chapter 9 Promotion 331

 • write, edit and arrange production of newsletters, in-house magazines, pamphlets
and brochures
• assist in preparing organisational documents such as annual reports, corporate
profiles and submissions
• write speeches, prepare visual aids and make public presentations
• oversee production of visual (film or video), audio and electronic material,
including managing websites
• organise special events such as open days, visits, exhibitions and functions
• conduct internal communication courses, workshops and media training
• develop risk assessments and implement crisis and issues planning to ensure an
organisation’s reputation is maintained
• plan, develop and manage brand identity
• organise and manage events, exhibitions, conferences and product launches
• procure sponsorship deals.21
Many organisations and individuals use public relations specialists to manage
their publicity. This is particularly the case among celebrities and public identities,
whose publicists have the dual role of ensuring regular positive media attention
while minimising negative press. For example, the Markson Sparks organisation
manages public relations for the Hockeyroos, TV personality Ajay Rochester and
singer Gina Jeffreys, among many others.
Given the complexity of running a public relations campaign to deal with an
incident, marketing organisations should prepare contingency plans and materials
so they can make a response quickly and efficiently. Managers and others in the
organisation who may be called on to comment publicly should all be advised as
to the business’s position on various issues so that they can provide a consistent
message to the media. Many organisations do have predetermined policies and pro-
cedures to get their message into the news as quickly as possible. Police and other
­emergency services in particular have dedicated public relations offices to deal with
the ­incidents — positive, negative and neutral — that they are inevitably involved in.

Spotlight  Killing off Louie: a PR stunt

The late bestselling author Bryce Courtenay is known for his novels, including The power of one,
Tandia, April Fool’s Day, The potato factory, Tommo and Hawk, Solomon’s song, Jessica, and so on.
However, as well as being an author, he worked in the advertising industry. During his career of
34 years, he worked in the agencies of McCann Erickson, J Walter
Thompson and George Patterson Advertising, and in 1957 was the
creator of ‘Louie the fly’, the brand ambassador for Mortein. It became
the longest running campaign in Australia — that is, until a shock press
release announced that Mortein would be dropping Louie from future
campaigns, effectively ‘killing him off’.
Marketing director Chris Tedesco admitted ‘We have moved on in
terms of the technological advancement of our products. The products
do kill all sorts of insects beyond just Louie and his fellow flies’. The
announcement gained some media coverage as nostalgic stories were
run about Louie, the 54-year Mortein campaign and the connection
with Bryce Courtenay.
However, even at the time there was industry talk that it was a PR
stunt. A Facebook page was created (by Red Agency, although not
identified on the page) for fans of Louie, encouraging people to vote to
‘save’ him. ‘Louie’ came to life online, sending regular updates trying to

332 Marketing
convince the Mortein executives to keep him alive. Shortly after, Mortein announced that Louie would
continue as the mascot due to ‘public demand’. It became clear that the original announcement was a
hoax, and just part of a PR campaign.
Afterwards, industry sources said that Mortein was facing media backlash over its ‘cynical stunt’ to
pretend to kill off Louie. According to Simon van Wyk of HotHouse Digital, ‘It will backfire on them because
people don’t like to be manipulated and the cornerstone of social media is to be honest and upfront’.
However, according to Red Agency, the campaign generated over 850 media items, and the Facebook
page obtained nearly 250  000 hits — despite having a target of only 35  000. It became an award-winning
campaign, including winning an award from the Public Relations Institute of Australia (PRIA). Katja Thiess
of Reckitt Benckiser (the client) said there was a ’fantastic response to this campaign, amazing media
pick-up and an overwhelming response on Facebook. It has blown our expectations’.
While it was criticised by the industry, the campaign was successful in reviving awareness in Louie the
fly and the Mortein brand name. It was a twist deserving of being right out of a Bryce Courtenay novel!22

Questions
1. The Mortein campaign was criticised as it was a PR stunt that was not really going to kill off Louie the
fly. Do you think that the result was worth the criticism?
2. What are some other examples where companies have undertaken a PR campaign to get attention for a
brand?

Concepts and applications check

Learning objective 4  outline the role of public relations in promotion
4.1 What are some examples of public relations activities?
4.2 Prepare a marketing argument for and against this statement: ‘Any publicity is good publicity.’
4.3 What steps can companies take to counter the effects of negative publicity and/or manage a crisis?
4.4 Richard Branson from Virgin has been described as a ‘master of PR’. Why do you think he would
be described in this way? What activities does Virgin undertake to generate publicity?

SALES PROMOTION
Sales promotions are short-term activities that are designed to encourage consumers Learning objective 5
to purchase a product or encourage resellers to stock and sell a product. Sales pro- explain how sales
promotion activities can
motions offer some extra benefit or incentive above and beyond the intrinsic value
be used
of the product (e.g. a bonus product with the purchase, a discount on the price or
the opportunity to trial the product). Sales promotions are often used in combination
with advertising. After all, the sales promotion can only be an effective inducement sales promotions Short-term
if people know about it. incentives to encourage purchase
of a product by either resellers or
The choice of sales promotion approach will be based on consideration of: consumers.
• other elements of the promotional mix
• the characteristics of the product
• the characteristics of the target market
• whether the promotion is aimed at resellers, the business market or consumers.

Consumer sales promotions

Sales promotion methods aimed at the consumer include:
• free samples
• premium offers
• loyalty programs

Chapter 9 Promotion 333

 • contests
• coupons
• discounts
• rebates
• point of purchase promotions
• event sponsorships.
We will discuss each of these in turn.
Free samples
Free samples are just that: a sample of a product provided for free to consumers
so they can experience the benefits and features of the product without having
to commit to a purchase. Homemaker magazines often have a one-use sample of
shampoo or laundry powder included. Trade shows often give free samples to both
consumers and resellers. Time-limited software downloads are also an example of
a free sample sales promotion. Free samples remove any monetary disincentive to
trial a product. Once the potential customer has tried the product, they are in a
better position to decide whether to purchase.
Premium offers
premium offers Bonus Premium offers are somewhat similar to free samples, but are given as a bonus for
products given for free or sold at purchasing a product. Sometimes they are free; other times they are at a substantial
a heavily discounted price when
discount to the usual price. For example, alcohol retailer BWS (Beer, Wine, Spirits)
another product is purchased.
gave away a free wine decanter with purchases of six bottles of particular wines —
‘while stocks last’. JB Hi-Fi also has bonus gifts of free ink cartridges with certain
printer purchases.
Many premium offers are on a much smaller scale. For example, booksellers often
give away a bonus cheap paperback book with the purchase of a full-price book.
Some butchers give away a free kilo of sausages with any purchase of meat over a
certain value.
Loyalty programs
loyalty programs Schemes Loyalty programs are designed to encourage repeat purchases by rewarding con-
that reward customers based on sumers based on the amount they spend. The rewards can be discounts, vouchers,
the amount they spend.
free gifts and so on.
MyerOne, Fly Buys, Woolworths’ Everyday Rewards cards and Qantas Frequent
Flyer points attached to credit cards are some well-known examples. Every purchase
at Myer contributes two Shopping Credits for every dollar spent in store or online,
and when 2000 Shopping Credits are earned, consumers receive a $20 reward card
that can be redeemed at Myer. Frequent flyer points were originally conceived to
reward those who travelled regularly with airlines. The more kilometres they trav-
elled, the more points they would accumulate — eventually having enough to qualify
for a free flight. Over time, these schemes evolved to the point that in addition to
points for kilometres flown, points were awarded for all purchases on co-branded
credit cards (with bonus points for purchases at affiliated businesses) and could be
redeemed for a host of products, not just flights.
Loyalty programs can be very effective in creating customer loyalty as customers
look to accumulate enough points to get something for free. On the other hand,
there is from time to time a backlash against loyalty programs that require the con-
sumer to spend an enormous amount of money in a limited time period to obtain a
product of relatively little value.
Contests
One of the most common examples of contests asks potential customers to ‘Tell
us in 25 words or less why you would like to win [insert product name]’. This is a

334 Marketing
clever promotion, as only people who want the product will be motivated to enter
(so they are potential customers), and the contest requires the entrants to think
about and articulate the benefits of the product to them (this is an aim of all promo-
tional efforts). Contests and games like this can thus be an effective way to promote
product benefits to consumers. A less involving promotion along similar lines is a
sweepstake, which is simply a prize draw based on luck. In addition to encouraging
consumers to think about the products that are offered as prizes, sweepstakes and
contests can help marketing organisations build a database of the contact details of
the members of their target market.
Coupons
Coupons are vouchers that offer consumers a discount
price on a product or service. They are commonly used
by the major takeaway pizza chains where presentation
of the voucher results in cheaper pizzas or a ‘meal deal’.
Coupons often have some conditions attached, as well
as an expiry date. They may be distributed by direct
mail, printed within some publication, available to print
from a website or printed on the back of supermarket
dockets (e.g. ‘Shop-A-Docket’). Some businesses ­compile
coupons from different businesses into booklets and
­distribute these through the mail.
Discounts
Discount offers provide a certain amount off the regular price. The major super-
market chains offer fuel discounts on purchase of a certain value of groceries. This
encourages grocery purchases at the supermarket, encourages fuel purchase at
­company-owned or co-branded petrol outlets, and is often teamed with a further dis-
count if the customer buys goods other than fuel at the petrol station.
Rebates
Rebates are the return of some of the purchase price to consumers upon presen-
tation of proof of purchase. To the consumer they result in a similar price to a dis-
count, but they offer several advantages to the marketer over discounts:
• any regret or second thoughts the consumer might experience after purchase is
softened by the receipt of cash
• the consumer needs to apply for the refund and usually has to give up some per-
sonal information (e.g. phone number, address) when making the application
• some consumers will not bother to claim the refund (whereas no consumers turn
down a discount and ask to pay full price).
A special type of rebate is offered by governments when they want to encourage
the purchase of particular products. For example, in Australia governments at various
times have offered rebates on such items as rainwater tanks, solar panels, LPG-fuelled
cars, private health insurance, road tolls, child care and land care. This  ­benefits
both  consumers, who in effect get a discount, and marketers, who  can  expect
higher  demand from the lower effective price and the other promotional activities
the government undertakes to encourage consumption. In some instances, especially
with rainwater tanks, it can be possible to make a purchase at no net cost.
Point of purchase promotions
Point of purchase (POP; also sometimes called ‘point of sale’ or POS) promotions
include signage and displays in stores and free product trials or demonstrations in
stores. Most stores have displays in their windows, behind the counter, on walls and

Chapter 9 Promotion 335

 on display throughout the store. Bakeries can probably count the aroma of freshly
baked warm bread as a point of purchase promotion!
Many retailers use in-store demonstrations. The cosmetics departments in the
large department stores are typical examples where customers can trial products (in
fact, on a slow day, it can be difficult to get through the department without being
perfumed!). Many liquor sellers offer free tastings of wine, often in combination
with a discount price, on Friday evenings. Finally, many supermarkets have taste
test displays set up during busy times to enable consumers to try a small sample
of a new product for free. Such approaches, particularly with cosmetics, can be
expensive, but the potential customer often feels obliged to make a purchase after
receiving something for free.
Event sponsorships
Sponsorship is an approach to promotion that we cover in more detail later in the
chapter. One aspect of event sponsorship that can be classified as a form of sales
promotion could be an exclusive merchandise deal, whereby the sponsor has sole
rights to sell products at the venue. This can include merchandise specifically
related to the event (e.g. concert programs, T-shirts, souvenirs) or unrelated prod-
ucts such as food and drinks. Sponsorship usually crosses over with advertising and
public relations as well.

Trade sales promotions

Trade sales promotions are aimed at business purchasers and are run by pro-
ducers or industries to present products to business customers. Major examples are
­conventions and trade shows. In addition to having a captive audience of decision
makers with  an inherent interest in the products being presented, products can
be ­demonstrated and much goodwill can be created, particularly if expenses are
met, meals are ­ provided  and free products are given away. In particular, most
people who  attend a trade show or convention will depart with free, branded
notepads,  pens, coffee mugs, caps and T-shirts. These are known as promotional
products.
Sales contests offer rewards to marketing intermediaries that sell a certain level
or sell the most of a particular product in a particular timeframe. The rewards can
be quite significant and may be cash prizes, overseas holidays and other desirable
gifts. Sales contests are only effective when the thresholds to receive a reward are
achievable and the delivery of the reward is very clearly tied to the achievement of
the threshold. Sales contests can be both a business-to-business approach and a trade
sales promotion approach.
Trade sales promotions aim to persuade wholesalers and retailers to stock and
market particular products. They are not aimed at consumers. As such they are
push policy methods. They are often run in conjunction with promotions aimed at
consumers. The marketer generates consumer demand and ensures the retailers
and other intermediaries are in a position to capitalise on it. Trade sales promotion
methods include the following.
• Trade allowances. These aim to encourage marketing intermediaries to stock and
push the marketer’s products. They essentially give marketing intermediaries
price discounts, refunds or contributions towards promotional efforts in return for
stocking and promoting a producer’s products.
• Gifts and premium money. These are simply free merchandise or monetary rewards
given to resellers once they purchase and/or sell a particular volume of product.

336 Marketing
• Cooperative advertising. Cooperative advertising shares the media costs between
manufacturers and retailers for advertising the manufacturer’s products.
• Dealer listings. These involve the manufacturer promoting the retailers that carry
their products, thus influencing retailers to stock the products, building traffic at
the retail level, and encouraging consumers to shop at participating dealers.

Shop-A-Docket Spotlight 
Shop-A-Docket is one of the best known coupon companies in Australia. Founded in 1986, it promotes
businesses through local supermarkets and retailers by printing coupons on the back of receipts.
Currently, around 2470 supermarkets and variety stores across Australia participate in the Shop-
A-Docket scheme, including Coles, Woolworths, Target, BiLo, Kmart, IGA and Franklins. More than
1000 businesses advertise through Shop-A-Docket, which adds up to more than 157 million dockets
printed each week. Shop-A-Docket also provides a variety of
services to participating businesses, including point of purchase
material, assistance in creating an advertisement and marketing
advice.
Consumers can also access the offers online and via mobiles.
The online service made Shop-A-Docket Australia’s first online
coupon site, running 800  000 page impressions each month. As
for customers, there are 225  000 in the member database with
140  000 unique browsers every month, and 53 per cent of the
audience has downloaded coupons.
According to Shop-A-Docket, it has a track record of success,
based on providing a marketing vehicle that is inexpensive,
effective and directly measurable. However, it is important to note
that its ability to reach shoppers is its core advantage. Research
conducted by the Nielsen Company confirms high levels of
consumer awareness (94 per cent), reach (93 per cent) and
usage (31 per cent) of Shop-A-Dockets. Further, the audience
for Shop-A-Dockets is the primary grocery buyers — 80 per cent are female, with 54 per cent aged
25–54 years old. At a time when people are watching their money and becoming more promotions
sensitive, shoppers are getting discounts and saving money on a variety of goods and services.
Some of the feedback from the advertisers includes a café owner, who said:
Since having Shop-A-Docket we have found that with this kind of advertising we have had a 20% increase
in turn over during the campaigns. I will continue to use this service to further increase our business share
in the marketplace.

A video store (which, interestingly, is a type of store struggling for survival) said:
We have been on Shop-A-Docket for over 10 years and continue to have a great response. Our sales have
increased via the dockets. We are very happy to continue using this service.

Feedback from customers has also been positive, with people commenting that they enjoy the meal
deals and online offers.
With more than 60 per cent of advertisers regularly repeating their campaigns due to their sales
success, it would seem that Shop-A-Dockets are a valued form of sales promotion for both advertisers
and customers.23

Question
Provide examples of products for which you think Shop-A-Docket would be an effective sales promotion
tool. Justify your answer.

Chapter 9 Promotion 337

 Concepts and applications check
Learning objective 5  explain how sales promotion activities can be used
5.1 Briefly explain the major types of consumer sales promotion activities. What factors would make a
company choose one activity over the others?
5.2 Think of an example of a sales promotion that you have seen recently. Describe it and explain
whether you thought it was an effective form of promotion.
5.3 Provide arguments for and against this statement: ‘Loyalty programs rip off consumers.’
5.4 Provide examples of trade sales promotions. How can trade promotions assist an organisation’s
sales when they are not aimed at the final customer?

PERSONAL SELLING
Learning objective 6 Personal selling, as the name suggests, is the use of personal communication with
understand the nature of consumers to persuade them to buy products. Personal selling is the most expen-
personal selling
sive form of promotion as it requires the full dedication of a salesperson, or sales
representative, to a customer. It does, however, have strong advantages over the
impersonal forms of promotion — in particular that the salesperson can tailor the
promotion to the customer’s needs, adjusting the promotion as they receive feed-
back from the customer.

A model of personal selling

Many marketing organisations use a sales model to manage the personal selling
process. Such a model gives salespeople a defined approach to use. There are many
differing models, but in this chapter we will look at one: INPLCF, which stands for
Information, Needs, Product, Leverage, Commitment/close, Follow-up.
Information
Gathering information includes developing a list of potential customers, a process
known as prospecting. For some organisations, this might involve market research;
for others — many of those in retail — it is just the people who walk into the store.
In non-retail situations, salespeople develop a list of potential customers using some
predetermined set of criteria (e.g. those who live in a particular area or those with an
income in excess of a particular amount). Once the potential customers are identified,
further information is sought and analysed about each prospect. Using this analysis,
prospects are further narrowed down to those that will actually be approached. Upon
approaching the potential customer, the information-gathering process continues as
the salesperson tries to discover the particular needs of the prospect.
Needs
Identifying the individual customer’s specific needs is the most often overlooked and
most poorly performed part of personal selling. Many salespeople move straight into
a product presentation without first finding out what the potential customer wants or
needs from the product. This puts the salesperson at a disadvantage as they do not
know which benefits, features and strengths of the product to promote to the potential
customer. In finding out the needs of the customer, the salesperson should begin to
build a relationship with the customer. As part of this, the salesperson will discover
more about the customer’s wants and needs. Armed with that knowledge, the sales-
person can begin to analyse how best to choose and present a product to match the
customer’s needs. They should also be able to pre-empt likely or possible objections.

338 Marketing
Product
Once the salesperson knows what the customer’s needs are, they should present
the product in such a way as to highlight how the product features match those
needs. They should be able to stimulate interest in the product and hold interest in
the product. This may involve a formal product presentation and opportunity for
touching, holding or using the product. In a business-to-business environment, it
might involve a group presentation.
Leverage
In presenting the product, the salesperson should highlight comparative and com-
petitive advantages. There will usually be some objections or hesitations from the
customer. In overcoming them, the salesperson should treat objections as requests
for further information. If the needs analysis has been performed well, it should be
possible to anticipate likely objections and to have responses prepared.
Commitment or close
Commitment or ‘close the sale’ is the stage in the selling process when the sales-
person asks the prospect to buy the product. It is important that salespeople do
not rush to this stage. To maximise the chance of a successful sale, the salesperson
should have taken every opportunity to identify the needs of the customer and
to have presented the product in such a way that those needs are best met. They
should have properly addressed any objections.
Follow-up
Customer loyalty and repeat business can be encouraged by following up with
­customers. Follow-up should determine if the delivery and setup of the order was
completed to the customer’s satisfaction. Follow-up also helps reduce post–­purchase
dissonance (the feeling that many purchasers develop that they have spent too
much, bought the wrong product, or are not finding the product all that they thought
it would be). Like needs identification, many salespeople under-use follow-up,
instead concentrating their efforts almost exclusively on trying to generate the next
sale with a new prospect. Such an approach can be problematic, particularly for
organisations that are dependent on both repeat and new business. In such cases,
a careful balance is necessary between a salesperson’s focus on the follow-up and
servicing of existing customers versus chasing new business leads.

Managing a sales force

Salespeople are the public face of a business. They are crucial — at times defining —
to the customer’s experience of interacting with the business, and determine not
only whether the customer makes a purchase, but whether they will repurchase in
the future and initiate positive or negative word-of-mouth about their experiences.
As such, retailers and/or sales managers need to both choose salespeople carefully
and manage them effectively.
While a topic as broad as managing a sales force could fill many books on its own,
the following are the key tasks that a sales manager will likely need to undertake:
• establish sales force objectives and targets
• determine the appropriate size and location of the sales force
• recruit and train salespeople
• assist salespeople to effectively manage their time
• monitor and motivate performance
• compensate salespeople (usually comprising a base salary plus a commission or
bonus scheme designed to motivate them by offering rewards based on results).

Chapter 9 Promotion 339

 Spotlight  What does a sales ‘rep’ do?
Sales representatives sell goods and services to industry, business and professional establishments,
and wholesale or retail outlets. The following is taken from a sales representative job description
provided by the Department of Education, Employment and Workplace Relations (DEEWR).24
Sales representatives may perform the following tasks:
•  visit clients to demonstrate use of products, show samples and take orders
•  arrange a schedule of visits to major potential buyers by contacting people and
making appointments
•  develop and update knowledge of their own products and the products of their
competitors
•  speak with other sales and marketing personnel in their company to determine
the best methods of promoting products
•  establish customers’ needs and explain and demonstrate products to them,
which may involve technical descriptions of products and how they may be
used
•  quote and negotiate prices and credit terms
•  prepare contracts and record orders
•  report to employers on sales and provide feedback on the marketing of new or
established products
•  carry out formal presentations of products using videos and other training aids,
attend promotional markets and organise product displays
•  work on telemarketing campaigns
•  plan and work towards meeting sales targets and budgets
•  use e-business technology.
Sales specialisations can include:
•  building and plumbing supplies representative
•  business services representative
•  chemical sales representative
•  insurance sales representative
•  motor vehicle parts and accessories representative
•  personal and household goods representative
•  pharmaceutical representative
•  sales demonstrator.
The personal requirements of sales representatives include:
• enjoy working with people
• friendly and confident manner with a pleasant personality
• able to work without direct supervision
• able to clearly present product and service information
Question • good personal presentation
Refer to the INPLCF • excellent communication skills.
sales model of personal Sales representatives spend a lot of time travelling from one location to another, including country
selling and compare it to and interstate locations. Meeting sales targets and budgets can be stressful.
the sales representative
job description
provided by DEEWR.
As comprehensively as
possible, itemise the major Concepts and applications check
tasks performed by a sales
Learning objective 6  understand the nature of personal selling
representative and the
related skills required into 6.1 Not all organisations use personal selling as part of their IMC campaign. What types of industries
the six categories of the
and products are suited to a focus on personal selling in their promotional mix? Why, for example,
INPLCF model.
would pharmaceutical companies spend a lot of effort on personal selling?

6.2 Briefly describe each of the steps in the personal selling process and relate it to the marketing of
an industrial product.

340 Marketing
6.3 ‘Sales people are all talk.’ How could a professional salesperson disprove this statement by
following the steps in the personal selling process?
6.4 Think of the last time you had an encounter with a salesperson. Analyse their performance and
how it could have been improved in relation to the steps in the personal selling process.
6.5 Briefly explain the major aspects of a sales manager’s role.

ADDITIONAL FORMS OF PROMOTION

In addition to the major elements of the promotional mix that we have discussed Learning objective 7
(advertising, public relations, sales promotion and personal selling), there are a discuss a range of
marketing communication
number of other methods that can be utilised by an organisation. Some of these
options additional to the
are well established, while others are still in their early stages. Many of the newer traditional promotion mix
approaches have emerged as marketers try to ensure promotional activities are effec-
tive. We will examine these before looking at some of the challenges that marketing
organisations face in managing promotion as part of the marketing mix.

Ambush marketing
Ambush marketing is the presentation of marketing messages at an event that ambush marketing The
is  sponsored by an unrelated business or even a competitor. The aim is to grab presentation of marketing
messages at an event that is
attention away from the official sponsor, and be newsworthy. Ambush marketing is
sponsored by an unrelated
legal and can be extremely successful, although major events are becoming more business or a competitor.
sensitive to ambush marketing and taking steps to reduce its impact and protect
sponsors.
Advertising company Messages On Hold’s use of ambush marketing for self-­
promotion at televised sporting and celebrity events has been so extensive and
successful that the owner Kym Illman has been described as the ‘king of ambush
marketing’. The company’s logo has appeared on stickers, posters and the ‘big
hands’ at sporting and television events, obtaining brand promotion worth millions.
In one stunt, the company paid $1000 for a man to stand near the finish line of
the ­Melbourne Cup waving his ‘big hands’ with the Messages on Hold logo — with
millions of people seeing the logo over and over again.25 The value generated by the
publicity stunt far exceeded the cost of $1000.
The Olympics, one of the biggest televised events on a global scale, is often a target
for ambush marketers, and they are often rewarded by considerable success. The
organisers of the 2012 London Olympic Games undertook strict measures, like £20  000
fines, to protect the official sponsors from ambush marketing (who pay millions to be
official sponsors). However, there still were several examples of ambush marketing.
Nike ran an advertisement a few days before the beginning of the Games called
‘Find your greatness’, which presented ordinary people exercising, running, cycling
and playing sport in different cities around the world all called ‘London’, in coun-
tries such as Canada, the United States, Norway, Jamaica and Nigeria. This campaign
was to the annoyance of the London Organising Committee and Adidas, who was the
official sponsor.26 Strategies by ‘non-sponsors’ to connect to the Games can build the
impression in consumers’ minds that the company has an official link with the Olym-
pics. Marketers considering sponsoring events need to take steps to defend themselves
against ambush marketing, including assessing whether the risk is worth it.
Another major international sporting event that is vulnerable to ambush marketing
is the FIFA World Cup, held every four years. In the 2010 event held in South Africa,
during the Netherlands vs. Denmark match, 36 young women wearing orange mini
dresses associated with the Dutch brewer Bavaria entered the stands and attracted

Chapter 9 Promotion 341

 a lot of attention from the crowd. Authorities proceeded to eject the women, with
two people being arrested for organising ‘unlawful commercial activities’. The World
Cup’s authorised beer was Budweiser, and the company had paid millions for the
privilege of exclusive representation during the competition.27
Although similar in that they are trying to get attention, there is a difference
between ‘ambush marketing’ and ‘guerilla marketing’. Ambush marketing is usually
related to an event and official sponsors, while guerilla marketing is more about get-
ting the attention of customers.

Guerilla marketing
guerilla marketing The Originally coined to refer to highly creative, low-budget marketing efforts,28 guerilla
use of an aggressive and marketing is now used to describe any aggressive and unconventional marketing
unconventional marketing
approach. Its aim is simply to grab the attention of consumers when they are
approach to grab attention.
unaware, and create some goodwill and publicity in both traditional and social
media. Some recent guerilla marketing tactics have been posting online, such as
Youtube, and also become viral marketing successes. It was more commonly used by
small businesses that cannot afford large-scale marketing efforts, but this is changing
due to the large amount of publicity it can generate. Its effectiveness relies on its
ability to take its target unawares — they don’t expect it, so they don’t filter it out.
Durex used the The use of ‘flash mobs’ has been a successful guerilla tactic. In the United
opportunity to promote Kingdom, T-Mobile organised and filmed a mass dance held in London’s Liverpool
its products as part Street Station, which has had over 37 million views on YouTube and generated
of the World Pillow millions in publicity worldwide. In Sydney and Melbourne, a group of men dressed
Fight Day flash mob in
as John Farnham, with mullets and rolled up sleeves, walked around, singing the
London in April 2013.
song ‘You’re the voice’ at random people to promote Ford’s SYNC technology, the
voice-activated entertainment system in new Ford
cars.29
Even large government organisations with
substantial budgets may choose to use guerilla
marketing approaches. For example, Land Trans-
port New Zealand promoted safe driving around
schools by placing flyers under the windscreen
wipers of cars parked near schools in the town of
Waikato. When the driver got into their car, they
were met with a graphic photograph of a child
injured when struck by a car, along with the mes-
sage ‘Please don’t speed near schools’.30 The cam-
paign was cheap and impacting, and generated a lot
of publicity. Some of this publicity included criti-
cism due to the graphic nature of the image por-
trayed. It could certainly be argued, however, that the campaign effectively caught
its target audience by surprise — one of the key aspects of guerilla marketing.

Product placement
product placement The paid Product placement is the paid inclusion of products in movies, television shows,
inclusion of products in movies, video games, songs and books. The product is portrayed or mentioned in context
television shows, video games,
as part of the story line of the show, usually in a positive or at least neutral way. It
songs and books.
can be featured or incidental. Product placement of one product or brand often also
involves the exclusion of competitors’ products and brands (giving us, for example,
movies in which every character drives an Audi).

342 Marketing
 Australia is the third-largest market for product placement,
behind the United States and Brazil, with advertisers annually
spending more than $250 million on product placement in
­Australian television programs, such as MasterChef. US advertisers
spent an estimated $4 billion on product placement in a recent
year.31 In the case of the MasterChef television program in ­Australia,
show sponsor Coles has reported that certain grocery items have
had significant sales spikes immediately after featuring in recipes
on the show. For example, Coles sales data on key ingredients for
beef stroganoff (such as beef fillet steak, parsley and shallots), all
increased significantly shortly after the recipe featured on the
popular show.32 This  sales trend has been repeated at Coles for
numerous other recipes that have aired on MasterChef.
There are many other examples of product placement.
• In an episode of The Biggest Loser, trainer Shannan Ponton told
two contestants about the benefits of krill oil, while holding a
container of Nature’s Way Krill Oil with the label facing the
camera. Nature’s Way just happens to be a sponsor of The Big-
gest Loser, and Shannan Ponton is a product ambassador.33
• James Bond films regularly featured product placement. For
example, the British car Aston Martin has featured in many
films in the f­ranchise, and BMW and Lotus vehicles have also
appeared. In Skyfall, Bond was seen with a range of brands,
including Coke Zero, Sony Vaio and Heineken, and the film is
reported to have signed ‘one of the largest product placement
packages in history’.34
• The movie Ted contained 38 onscreen products and brand references, including
Boston landmarks, Charlie’s Sandwich Shoppe, Corn Pops and, most notably,
­Budweiser. The Brand Channel awarded it for Achievement in Product Placement
in a Single Film.35
Not every product seen in a movie is the result of product placement. Some prod-
ucts are so commonplace that their absence in certain types of content would be odd;
for example, a lot of people eat Kellogg’s breakfast cereal or drive Toyota cars. Some
media producers invent brands to use. For example, a number of Quentin Tarantino’s
films include ‘Big Kahuna Burgers’ and The Simpsons creators have invented an entire
world of made-up brands, including Krusty Burger, Duff Beer and Kwik-E-Mart.
While product placement offers a way for marketers to have their products presented
to their target market, often in a desirable context, there are some disadvantages:
• it can be difficult to measure the effectiveness of a product placement strategy
• they are expensive (e.g. it is claimed that brewer Heineken paid £28 million to be
tied to the James Bond movie Skyfall ).36
• consumers can react negatively to product placement if they feel it is over done
or interferes with the integrity of the show (such as the Sex and the City movies,
which were heavily criticised for featuring several dozen product placements).
Somewhat related to product placement is the plug. A plug is when the media
overtly promotes a product within a program rather than as a separate advertise-
ment, such as when a lifestyle program such as Better Homes & Gardens recom-
mends a particular brand and type of paint to use for a DIY project. In contrast,
Australia’s public broadcaster, the ABC, avoids plugs in its shows. For example,
­
­Gardening Australia, when the presenters are shown using actual products, carefully
angles product labels so the brand name is not caught by the camera.

Chapter 9 Promotion 343

 Viral marketing
viral marketing The use of Viral marketing is the use of electronic social networks to spread a marketing mes-
social networks to spread a sage. Viral marketing gets its name from the idea that the marketing message, once
marketing message.
introduced, spreads from one person to another via contact, much the way a virus
(such as the flu virus) spreads. It can occur via word-of-mouth, the forwarding of
emails or links to websites and so on. For example, a person may email the URL of
a campaign that they find interesting to their email address book at the start of a
day. The people who receive the email may spend time perusing that website and
forward the email to their address book and so on. Some people along the way may
add the URL to their Facebook profiles, potentially exposing all of their Facebook
friends to the campaign.
Successful viral marketing can reach millions of people very quickly. Because the
marketing message is spread by friends and colleagues it has greater credibility  —
and is more likely to be considered — than marketing messages sent via mass
media. Among the most famous and successful examples of viral marketing in recent
times was Tourism Queensland’s ‘Best job in the world’ campaign which generated
more than $100 million of free publicity around the world.37 Other international
viral marketing campaigns include Kony 2012, which aimed to create awareness of
Joseph Kony, the Ugandan guerilla group leader and head of the Lord’s Resistance
Army; and Old Spice, which has the fastest growing online viral video campaign ever,
­garnering 6.7 million views after 24 hours, and over 23 million views after 36 hours.38
The flipside of viral marketing is that it can go very wrong. Firstly, attempts at
viral marketing can fail to get off the ground. If the content or presentation does not
grab the attention of the people initially targeted it will not be forwarded and will
not spread. Credibility is all that opinion leaders online have, so they are choosy
about what they choose to promote. The social nature of viral marketing can back-
fire on marketing organisations that try to initiate viral marketing messages. For
example, the Kony 2012 quickly lost credibility when the financial revenues of the
organisation behind the campaign were questioned. The credibility of the organ-
isation’s CEO was also questioned after he ‘had a very public breakdown after he
was found running around the streets in his underwear’.39
Viral marketing campaigns can also be hijacked. Confectionery company Skittles
invited people to post their own comments online about Skittles using Twitter; how-
ever, when word spread over the internet that Skittles had begun to use its Twitter
search feed as its homepage, users began posting crude messages and even links to
pornographic material, much to its embarrassment. Skittles has now changed its site
to redirect users to its Facebook page, and uses a moderator.40

Permission marketing
permission marketing  Permission marketing is the broad term given to activities that are centred around
Marketing that aims to build obtaining customer consent to receive information and marketing material from a
an ongoing relationship with
company.41 As people have become increasingly concerned about the amount of
customers.
junk mail, telemarketing and advertising that interrupts programs, permission-based
marketing has emerged as an alternate philosophy to traditional forms of ‘interrup-
tion marketing’. With permission-based marketing, marketers actually ask and gain
permission to contact the customer. This reduces waste and may encourage genuine
customers who want to ‘opt-in’ and be informed about new stock or sales.
Permission-based marketing campaigns can utilise traditional media, such as
direct marketers sending newsletters or catalogues, as well as e-marketing facilities
to send emails and provide relevant links to prospective customers who have agreed

344 Marketing
to the communication. Customers can opt-in to the communication by ticking a box
on a form when buying a product from a company to indicate that they are recep-
tive to being contacted by the company with future information and offers. Boost
Juice Bars, for example, provide this service to customers, encouraging them to go
online to join their VIBE (Very Important Boost Enthusiast) club in order to receive
every eleventh drink for free, a free drink on birthdays, monthly newsletters with
competitions and information on exclusive monthly drink offers.42 Similarly, online
stores can offer the ability for consumers to opt-in or opt-out of permission-based
marketing campaigns. If they opt-in, consumers are likely to receiving future emails
from the company in relation to future products and offers.

Sponsorship
Sponsorship is the paid association of a brand with an event or person. A ­company sponsorship The paid
develops a sponsorship relationship with a particular event, providing financial sup- association of a brand with an
event or person.
port in return for the right to display a brand name, logo or advertising. For example,
Holden is the major sponsor of the Australian netball team (The Diamonds) while
New World is the sponsor of the New Zealand netball team (The Silver Ferns). Spon-
sorship can be used in cause-related marketing, positively associating an organ-
isation with the sentimental feelings aroused by certain causes, including charities
or other worthwhile endeavours. DHL sponsors surf lifesaving in Australia and
Westpac sponsors rescue helicopters in both Australia and New Zealand.43
Australasian Sponsorship Marketing Association member Jann Kohlmann has
warned potential sponsors to be aware of four emerging issues:
1. media fragmentation
2. consumer cynicism
3. social consciousness
4. environmental awareness.
As media become more and more fragmented with smaller, niche audiences, the
pay-off on the extraordinary sums of money required to sponsor events diminishes.
Consumers are also becoming more cynical about commercial interests in what to
them is a leisure pursuit. Some consumers would rather watch their football without
advertisements plastered over the players, venue and television screen. Social con-
sciousness and environmental awareness are prompting consumers to think about
the overall activities of marketing organisations, rather than to analyse and accept
the promotional message in isolation. A study found consumers are rapidly paying
less attention to corporate sponsorships. During the global economic downturn,
corporate sponsorships of sporting events by US organisations were found to have
a negative effect on consumer perceptions if the organisation was known to be
accepting some form of government financial assistance. The study found that the
most effective sponsorships in terms of raising public opinion were philanthropic
sponsorships of not-for-profit organisations (with 41 per cent of survey respondents
claiming it would improve their opinion of the organisation).44
There does not need to be a direct connection between the products of the sponsor
and the event sponsored. For example, eating KFC probably does not help young chil-
dren play cricket better, but KFC does sponsor youth cricket in Australia. Sometimes
there is a direct connection, such as Gatorade sponsoring numerous sporting events and
athletes, and Nike sponsoring athletes who wear Nike clothing and shoes while com-
peting. Sponsors need to be careful that there can be no negative association with an
event. For example, KFC’s sponsorship of youth cricket drew some negative publicity,
with the Institute of Nutrition, Obesity and Exercise calling the sponsorship ‘unhelpful
and irresponsible’, given the increasing incidence of childhood obesity in Australia.45

Chapter 9 Promotion 345

 Spotlight  Swatch Girls Pro China
Swatch is a popular watch brand that is also a regular sponsor of sporting events around the world.
Appealing to young, active, design-conscious people, the company claims that ‘Sports are an essential
component of the Swatch identity’. It provides support to sport by being the official timekeeper and
directly sponsoring events and particular sportspeople.
Swatch has had a long-term partnership with the TTR World
Snowboard Tour, the Swatch Freeride World Tour and the FIVB
Beach Volleyball Swatch World Tour. The individual athletes
form part of the Swatch Proteam in a range of sports, such as
snowboarding, freeskiing, FMX, surfing and beach volleyball. The
Swatch website says ‘Like the Swatch Proteam members, Swatch
loves to push the limits and dares to make the impossible happen’.
As an example of daring new things, Swatch became the naming
sponsor of the first Association of Surfing Professionals (ASP)
women’s surf event ever to take place in China — the Swatch
Girls Pro China. The event was held at Hainan Island and was
memorable for not only being the first ASP women’s surf event held
in China, but also publicising surfing in China and introducing the
surf world to Darci Liu.
Darci received a wildcard for the competition and became the
first Chinese surfer to compete in an ASP event. She originally
trained in ballet at the Hubei Provincial Art School, and a few
years ago tried surfing with the encouragement of her US husband. Although she was defeated in the
opening round, Darci was mobbed by local fans.
I want more people in China to know about surfing and this is the start. It is a graceful and beautiful sport, it
is dancing across the sea. I have not been surfing very long so I feel like the baby of the event, but the baby is
very excited. It’s why I have a smile on my face that will last a long time.

The mayor of Wanning said Darci Liu had helped place Hainan Island on the world surfing map:
China has open arms to surfing from this day. We want new tourists to come to beautiful and dynamic
Wanning. We have a healthy, passionate and dynamic coastal location and we want to popularize surfing in
China.

With Swatch sponsoring this event from the very beginning, it is also hoped that the brand name will
be introduced to a young Chinese market who are interested in surfing and sport in general.46

Questions
1. Imagine you are the marketing manager for an organisation that sponsors a sporting team or individual.
What are the advantages and disadvantages of being connected to sports sponsorship?
2.  Discuss the benefits of being the first international sponsor of an event in China.

Concepts and applications check

Learning objective 7  discuss a range of marketing communication options additional to the
traditional promotion mix
7.1 Organisations can spend millions on sponsorship. What are the advantages and disadvantages of
using sponsorship?
7.2 What is product placement? How can this type of promotion be effective?
7.3 Explain the differences between ambush, guerilla and viral marketing.

346 Marketing
SUMMARY Key terms and
Learning objective 1  explain promotion (marketing communication) and its role concepts
in the marketing mix advertising  319
AIDA model  326
Promotion (or marketing communications) is the creation and maintenance of com-
ambush marketing  341
munication with target markets. In marketing, promotion is usually thought of as cause-related
comprising a strategic mix of advertising, public relations, sales promotions and  marketing 311
personal selling. Promotion is an extremely important part of the marketing mix: frequency  325
it makes consumers aware of and interested in the product on offer. It is crucial guerilla marketing  342
that marketers effectively and efficiently communicate their message about their integrated marketing
product to the marketplace. Promotion often sends messages about the other parts  communications
of the marketing mix: the product, pricing and distribution.  (IMC)  313
loyalty programs  334
permission marketing  344
Learning objective 2  understand the integrated marketing communications
premium offers  334
approach to marketing promotion and the major elements of the promotion mix product placement  342
Integrated marketing communications (IMC) describes the coordination of promo- promotion  307
tional efforts to maximise their effectiveness. The goal of IMC is to consistently send publicity  330
public relations  330
the most effective possible message to the target market. The four main components
pull policy  317
of IMC are advertising, public relations, sales promotion and personal selling. With
push policy  317
a basic understanding of each component of the promotion mix and some of their reach  325
relative strengths and weaknesses, a manager can consider how they are chosen and sales promotions  333
combined. The most effective choice and mix of promotion elements will vary with sponsorship  345
the specific goals of the marketing effort, individual product characteristics, indi- viral marketing  344
vidual target market characteristics, the nature of the marketing organisation itself,
and the resources and budget available to the marketer.

Learning objective 3  describe different types of advertising and the steps in

creating an advertising campaign
Advertising is the paid promotion of a business, products and brands to a mass audi-
ence using traditional mass media such as television, radio and newspapers, signage,
and emerging media such as mobile phone networks. Within the IMC strategy, the
overall advertising plan is known as the advertising campaign. Any decisions about
advertising should be made in the context of an IMC approach. The key steps in cre-
ating an advertising campaign are: understand the market environment; know the
target market; set specific objectives; create the message strategy; allocate resources;
select media; produce the advertisement; place the advertisement; and evaluate the
campaign.

Learning objective 4  outline the role of public relations in promotion

Public relations describes promotional efforts designed to build and sustain good
relations between an organisation and its stakeholders. Stakeholders include cus-
tomers, employees, neighbours, shareholders, regulators, governments, competitors,
the media and society in general. In contrast to advertising, which often promotes
products, brands or the organisation through direct paid communications in the
media, public relations uses written materials, sponsorships, giveaways, good deeds
and other ways to generate positive publicity and goodwill towards the organisation.
Public relations is also used reactively to counter poor publicity or as a part of crisis
management. The main outcome of public relations is publicity. Publicity is the expo-
sure a marketing organisation receives when it obtains free coverage in the media.

Chapter 9 Promotion 347

 Learning objective 5  explain how sales promotion activities can be used
Sales promotions are short-term activities designed to encourage consumers to pur-
chase a product or encourage resellers to stock and sell a product. Sales promotions
offer some extra benefit or incentive above and beyond the intrinsic value of the
product. Sales promotion can be directed at the final consumer (consumer pro-
motions) or to those in the marketing channel (trade promotions). Sales promotion
methods aimed at the consumer include: free samples, premiums, loyalty programs,
contests, coupons, discounts, refunds, rebates; point of purchase promotions; and
event sponsorships. Trade promotions include trade allowances, gifts and premium
money, cooperative advertising and dealer listings.

Learning objective 6  understand the nature of personal selling

Personal selling is personal communication with consumers to persuade them to
buy products. Personal selling is the most expensive form of promotion as it requires
the full dedication of a salesperson to a customer, but it does have strong advantages,
in particular that the salesperson can tailor the promotion to the customer’s needs.
Salespeople play a very important role for some companies and are the public face of
the business. Many marketing organisations manage the personal selling process by
using the INPLCF model, which stands for Information, Needs, Product, Leverage,
Commitment/close and Follow-up. In managing the sales force, the sales manager
needs to establish sales force objectives and targets; determine the appropriate size
and location of the sales force; recruit salespeople; train salespeople; compensate
salespeople; and monitor and motivate performance.

Learning objective 7  discuss a range of marketing communication options

additional to the traditional promotion mix
There are many promotional methods available to an organisation in addition to
advertising, public relations, sales promotion and personal selling. Sponsorship is
the paid association of a brand with an event or person. A company develops a spon-
sorship relationship with a particular event, providing financial support in return
for the right to display a brand name, logo or advertising. Ambush marketing is the
presentation of marketing messages at an event that is sponsored by an unrelated
business or even a competitor, and can be extremely successful. Product placement
is the paid inclusion of products in movies, television shows, video games, songs and
books. Guerilla marketing refers to highly creative, aggressive and unconventional
marketing approaches, most commonly used by small businesses that cannot afford
large-scale marketing efforts. Viral marketing is the use of electronic social networks
to spread a marketing message from one person to another. Permission marketing
is where activities are centred around obtaining customer consent to receive infor-
mation and marketing material from a company.

348 Marketing
Cold brewed coffee from the Antz nest Case study
Delane Osborne, Curtin Business School, Curtin University; and Carol Osborne, School of
Management and Governance, Murdoch University

Entrepreneur and coffee connoisseur Craig Muzeroll, founder of Australia’s largest and fastest
growing drive-through coffee franchise Muzz Buzz, is stirring the Australian coffee market
once again with another unique and innovative start-up business — Antz Inya Pantz cold
brewed coffee.
The Muzz Buzz story began in Spokane, Washington, where Muzeroll modelled his business
idea after a successful drive-through coffee business operated by a friend. When he realised the
market gap for a similar business in Australia, he set about learning all he could about coffee. After
a reconnaissance trip to Perth, he decided to make the move to Australia. Based on the reasoning
that Perth was an isolated market like Spokane, he thought the concept was transferable and the
first Muzz Buzz was established in September 2001. The success of Muzz Buzz ultimately led to
franchising, and there are now more than 60 stores in Australia and New Zealand — with several
more currently in development. With a proven business model and successful growth strategy, the
company now has its sights set on further international expansion into Asia and Eastern Europe.
The rapid growth of Muzz Buzz saw an increase in shareholders, resulting in dilution of Muzeroll’s
financial interest. The subsequent increase in shareholder influence and resulting change in direction
led Muzeroll to divest of his interest in 2005.
Antz Inya Pantz, Muzeroll’s latest venture, looks to be just as innovative and successful as
his last. Having again modelled a business idea on an American product, his attention is now
focused on cold brewed coffee. The coffee and water that go into the brew are treated with the
utmost care and respect. The coffee beans, which Muzeroll refers to as ‘the most complex organic
substance known to man’, are carefully selected and then roasted on-site. The roasted beans are
then saturated in cold water before being extensively filtered. The water used to make the brew is
softened and passed through eight filtration processes to give a pure and clean result. The final
brew has a unique light and slightly sweet taste with a caffeine content higher than a regular cup
of coffee. In keeping with the honest, uncomplicated approach of the business, the brew
is sold in small, crown-sealed bottles and packaged in simple brown cardboard
carriers.
The cold brewed coffee, together with a range of hot brewed coffee, is
currently sold from the business’s small café located in a trendy suburb
of Perth, as well as from a network of 20 cafes that use the beans
and stock the cold brew. The café opens early each morning,
and customers are often seen queuing on the footpath for their
morning coffee fix prior to work or after their morning exercise.
The business philosophy is based on the premise that ‘good
coffee and coffee preparation will bring customers in and
back’. This philosophy is reflected in the 95 per cent of sales
that are generated from repeat customers. A range of freshly
roasted, ground coffee made from single-origin beans or a
blend of beans is available to drink in store or to take away.
Customers can also order their own special blend of roasted
beans to take away in unadorned brown paper bags.
Contrary to the usual small café trend, food is kept to a
bare minimum, as the experience is directed more towards the
coffee aficionado. With this in mind, the business has resisted
the temptation to clutter the café and surrounding footpath
with umbrellas, partitions and sandwich boards embellished with
advertising. The décor of the café is minimalistic — the walls are
adorned with a collection of recycled coffee bean bags, and customers sit on
an eclectic mix of mismatched wooden chairs and cozy sofas.

Chapter 9 Promotion 349

 Apart from a website, Facebook page and publicity generated from newspaper articles and
guest speaking engagements by Muzeroll, little has been spent to actively promote Antz Inya
Pantz. Instead of advertising, expenditure goes into top quality filtration and roasting equipment.
Much of the promotion for the launch of the business focused on Muzeroll’s reputation as an
experienced coffee entrepreneur with a passion for new, innovative business concepts. As well
as having a top quality product, Muzeroll cites great customer service as a form of promotion in
itself, explaining:
My first rule of business is to make the best possible product, because if you do, your cus-
tomers will find you. We pursue quality and the revenue follows, we don’t need to do massive
amounts of promotion — the coffee sells itself.
Word of mouth is a significant component of the business’s promotional strategy, as Muzeroll
is reverent about the coffee he sells, believing customer recommendation to be the ultimate
compliment. An example of how this strategy works is the treatment of new customers — their first
coffee is always free. This business rule was created on the premise that if customers enjoy their first
coffee they will return, more than happy to pay for their second and subsequent coffees.
There is a sense of community within the store amongst the customers, who often sit together
and chat at the large tables. This is also evident in the interactions between the customers and
staff. If a customer is short on cash or forgets their wallet, rather
than being turned away, they are still served and staff let them
know they can pay on another occasion. This unique approach
sees customers honouring the business’s good faith by paying
next time they visit or slipping money under the door if the café is
closed. Antz Inya Pantz also participates in a number of activities
that foster community engagement. Philanthropic initiatives
include giving coffees to the homeless, donating to local school
fetes and fundraisers and, most notably, the ‘take away the till’
day that occurs on the first Friday in November. On this day, the
cash register is removed from the store and all coffees are free.
Customers still choose to leave cash on the counter, and all money
raised is donated to various local charities. The business ethos also
includes environmentally friendly practices, such as the installation
of solar panels on the roof of the café and the use of recycled
coffee bean bags as cushion covers.
Antz Inya Pantz has developed a new niche in the coffee market,
with a top quality product and a promotional strategy that focuses on
customer service and community engagement. In such a competitive
market, the business has struck a chord with coffee connoisseurs
who enjoy the friendly and relaxed atmosphere. And with expansion
plans for the business already on the drawing board, cold brewed
coffee looks sure to be a success.47

Questions
1. How has Antz Inya Pantz used community engagement as a focus in their promotional strategy?
2. What additional forms of promotion could Antz Inya Pantz utilise?
3. As the business grows and possibly expands into franchising, will it need to broaden its promotions
strategy to include broadcast advertising such as radio and television? Why/why not?
4. Is it necessary for Antz Inya Pantz to maintain a presence on social media?
5. What are the pros and cons of the minimalistic approach to promotion that Antz Inya Pantz has
taken compared with the pros and cons of heavy promotion?

350 Marketing
Advanced activity
Now that you have studied this chapter, look back at the Arnott’s Tim Tam opening
case and think about all the issues that relate to the concept of promotion. Imagine
you were the marketing manager of Tim Tams and evaluate the strengths and
weaknesses of the various promotional methods available from their perspective.
Broadly outline an integrated marketing communications strategy that may be
appropriate for Tim Tams as it strives to position itself in the competitive biscuit
market.

Marketing plan activity

For your marketing plan, think about the promotion (marketing communication)
issues that will help you to efficiently communicate a message about your product
to the marketplace, and particularly potential customers. Who is best to send the
message that will gain the target markets’ attention? What is the best message/
creative strategy? What are the main media to use? Who is the target audience for
the advertisement? Once you have thought about these questions, write down the
promotion strategies you have decided will meet the needs of the target market.
A sample marketing plan has been included at the back of this book to give you
an idea where this information fits in an overall marketing plan.

Chapter 9 Promotion 351

 CHAPTER 10

Distribution
(place)
Learning objectives
After studying this chapter, you should be able to:

understand the concept of place and how distribution channels connect

producers and consumers/organisational buyers

describe the major activities involved in the distribution of goods

describe the major activities involved in the distribution of services

understand the major aspects of retailing

explain the role of agents and brokers in the distribution channel

explain the role of wholesalers in marketing distribution.

Live abalone in China
Seafood is a huge market, particularly in Asia, and it is extremely important that
products — like fish, prawns and abalone — are fresh when they get to the final con-
sumer. For an Australian company to successfully sell highly perishable seafood to
Asia, it is vital that it has an efficient supply chain management system. The idea of a
quality product and a consistency of supply has been a focus of Ralph’s Tasmanian Sea-
food (a processor and exporter of blacklip and greenlip abalone), which has become
the world’s largest supplier of live abalone caught in the wild.
Ralph’s Tasmanian Seafood began exporting in
2001, and now exports to China, Taiwan, Japan,
Malaysia, Korea and Hong Kong. It is Australia’s
largest exporter of live abalone to China, sup-
plying almost one-third of the total Chinese live
market, or approximately 500 tonnes per annum,
with a turnover of $35 million. But it is not an
easy process to deliver the product fresh to China.
The live abalones are sourced from selected
licensed commercial divers around the u­ npolluted
waters of Tasmania. They are then transported to
the factory at Hobart with refrigerated vehicles.
The abalones are placed into holding crates and
lowered into s­ tate-of-the-art holding tanks. The
holding facility can store 40 tonnes of live aba-
lone, ensuring several weeks supply if the weather
turns bad for an extended time. All abalones are held for a minimum of five days (usually
seven to ten days) to ensure the quality is maintained.
The live abalones are hand-selected and packed into 12-kilogram net polystyrene boxes.
Each box is lined with a plastic bag that contains corrugated plastic on which the abalone
are placed. A foam pad soaked in saltwater is placed over the top to maintain moisture.
The bag is then filled with oxygen and tied off with a rubber band. An ice pack is the last
thing added to the box to maintain a stable temperature during the journey. The boxes are
placed on pallets and sent to the airport 30 minutes away.
According to general manager, Mark Webster, the export process is extremely tricky
and requires precise timing with air freight. Staff strikes, ash clouds, ­baggage prob-
lems and even cricket teams have caused problems with exports in the past. ‘We have
a maximum of 30  hours from our tank to their tanks [in China]. The stuff that we
exported this morning will actually arrive over there later tonight.’ That takes a lot of
logistical precision. This has also been recognised by the industry as Ralph’s ­Tasmanian
Seafood has recently won the Australian Seafood Industry Business Award for ‘busi-
ness growth, innovation, excellence in product service or marketing, and making a
significant contribution to the seafood industry’.1

Question
How can marketers attempt to overcome the challenges of distributing a
perishable product like live seafood?
INTRODUCTION
Placing products in the hands of the ultimate consumer is the marketing function
known as ‘distribution’ or ‘place’. Distribution requires a chain or network of organ-
isations and individuals. The chain that exists between producers and consumers
(or organisational buyers in the case of the business-to-business market) is known
as a distribution channel. The key organisations that make up the distribution
channel are called intermediaries. The main intermediaries are wholesalers, indus-
trial buyers, agents or brokers, and retailers. Distribution channel intermediaries
themselves often rely on a host of specialist service providers. Selling chocolate to
overseas consumers, for example, can involve a distribution channel comprising
intermediaries and service providers that specialise in trucking, packing, preserving,
handling, port operations, sea freight operations, customs, warehousing, wholesaling
and retailing.
For a small-scale fruit grower, the distribution channel might involve some boxes,
a truck and the delivery bay at the local greengrocer, but for a multinational elec-
tronics business, the channel of distribution will be somewhat more complicated. In
this chapter we will look at the main components of marketing distribution that are
broadly applicable to most businesses: choosing appropriate distribution channels
and using marketing intermediaries to move the product to a place of purchase.

DISTRIBUTION CHANNELS
Many manufacturers and service businesses deal directly with the consumers of Learning objective 1
their products. For example, if you have bought a loaf of bread from Baker’s Delight, understand the concept
of place and how
flown in a Qantas jet, had an injured limb x-rayed in a hospital or bought software
distribution channels
from Adobe’s website, you have been a consumer dealing directly with the producer connect producers and
of those goods and services. This approach to marketing is known as direct  distri- consumers/organisational
bution and it is particularly common for services products, as services are directly buyers
tied to the service provider. Conversely, many producers, especially makers of
physical products, rely on other organisations and individuals to help them get their
product to end users. This approach is known as indirect distribution and the main
organisations and individuals who act in the distribution chain between the pro-
ducer and end user are known as marketing intermediaries. The key marketing marketing intermediaries 
intermediaries are industrial buyers, wholesalers, agents and brokers, and retailers. Individuals or organisations that
act in the distribution chain
The path from the manufacturer or service provider to the end user is known as the
between the producer and
distribution channel or marketing channel. end user.
Marketing intermediaries are useful and necessary when they can more effi- distribution channel A group
ciently connect producers with their customers than can the producers themselves. of individuals and organisations
Perhaps you have bought fruit or vegetables from a roadside stall next to a farmer’s directing products from
driveway. If so, you as the consumer have connected directly with the producer producers to end users.
and no intermediaries have been involved. However, most of the farmer’s produce
only gets to the consumer via a string of intermediaries, such as agents, wholesalers
and retailers, before ending with the final consumer. It is obvious that a farmer is
not going to be able to sell a million-dollar apple harvest from a stall at the end of
their driveway or even to individual buyers via a website. It is also obvious that
you do not want to drive to a farm every time you want to buy an apple. The same
applies to most producers and most consumers. Even if a producer can manage
to get their product directly to end users, they are often better off to concentrate
on their core abilities (production) and rely on specialist intermediaries who can
more efficiently move the product closer to customers. Because they have expertise,

Chapter 10  Distribution (place) 355

 equipment, experience, contacts, skills and scales of economy, intermediaries help
producers achieve better results than producers can achieve when acting alone.
When they are well managed, effective intermediaries operating in distribution
channels achieve the following benefits. They:
• make products available to the consumer at the time that the consumer wants to
purchase them
• make products available in the locations that the consumer wants to purchase
them
• customise products to the consumer’s particular needs
• make transactions as efficient, simple and cheap as possible for consumers, pro-
ducers and other intermediaries by establishing and managing efficient exchange
processes.
Conversely, when poorly managed, or inappropriately chosen, marketing inter-
mediaries can add to costs, reduce efficiency, create delays and cause frustration.
Consumers are often wary of intermediaries, believing they are ‘middlemen’ who
add no value but increase the price they must pay for products. Some producers
blame intermediaries for every problem they face and, like consumers, can feel they
add little value to the marketing process.
Figure 10.1 shows an example of the simple exchanges required for breakfast. For
breakfast, a person may want to consume Sanitarium Weet-Bix cereal, Dairy Farmers
FIGURE 10.1 milk, Tip Top bread and Mildura orange juice, but if there was no marketing inter­
mediary, the consumer would have to go to each producer and each producer would
The benefits of using
have to go to each consumer, as shown in figure 10.1(a). The benefit of a well-­
distribution channel
intermediaries managed distribution channel compared to marketing without the involvement of
marketing intermediaries is shown in figure 10.1( b).
(a) (b)
Sanitarium

Sanitarium
Weet-Bix

ix
et-B
We ix
t-B
br

ee
W d or
ix

ea
ee an
t-B

W
t-B ge
ee

ix
W

ix
t-B
Dairy Farmers

Dairy Farmers
m uice

mil
ilk

ee
k
j

milk W
We
bre e
milk ad t-Bix m milk
ora
ilk nge ilk
m juic
e Marketing
channel
br
ea intermediaries
bre d bre
ad ilk ad
ix m ice
et-B nge ju
Tip Top

Tip Top
bread e
W ora
ad
ad bre
or

bre
an
ce
ge ilk

ge
an m
jui

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Mildura

Mildura

orange juice

356 Marketing
 The existence of distribution channel intermediaries reduces the number of inter-
actions from 32 to 8 in figure 10.1, as the consumer can go to the one intermediary
(e.g. a supermarket) to purchase the products for breakfast. This shows that the
existence of an intermediary can make the whole process more efficient for both the
producer and the consumer, which can lead to cost savings.
It is clear then that intermediaries can add considerable value to a producer’s
offering. In choosing a distribution channel, the producer needs to first consider the
way in which its product can best be marketed, so that the supply chain from pro-
ducer to consumer effectively becomes a value chain. The market coverage decision
takes into account the nature of the product and its target market. Generally, mar-
keters will choose from:
• intensive distribution, which distributes products via every suitable intermediary intensive distribution An
• exclusive distribution, which distributes products through a single intermediary approach to market coverage
for any given geographic region that distributes products through
every suitable intermediary.
• selective distribution, which distributes products through intermediaries chosen
exclusive distribution An
for some specific reason.
approach to market coverage that
Intensive distribution is an obvious strategy for everyday purchases such as milk. distributes products through a
The consumer invests little time in deciding where, when or how much to buy or single intermediary in any given
how much to pay. They make their decision based on convenience, often just pur- geographic region.
chasing at the closest store, whether that be a corner store, a supermarket, a petrol selective distribution An
station or a takeaway food store. In contrast, exclusive distribution is generally used approach to market coverage
for products that are only purchased after a great deal of deliberation by the con- that distributes products through
intermediaries chosen for some
sumer or where exclusivity adds to the appeal of the product. Prestige cars and specific reason.
designer furniture are typical examples. Producers and wholesalers can also increase
the commitment of retailers in the marketing channel by promising them exclu-
sivity. Selective distribution falls somewhere between intensive and exclusive distri-
bution. It is most appropriate for goods that require some degree of deliberation by
the consumer and where the consumer might visit multiple stores to compare prices
and products. Selective distribution is often chosen when the intermediary can pro-
vide some specific value-adding function to the producer’s offering. While it may be
good for the consumer, it is not generally beneficial to the parties in the distribution
channel to have consumers play suppliers against each other.
In the next two sections we will examine how different intermediaries operate in
the consumer products market and the business-to-business products market.

Consumer product distribution channels

For consumer products, the main marketing intermediaries are agents, wholesalers
and retailers, which we shall discuss in more detail later in the chapter. A distri-
bution channel can consist of all, some or none of these between the producer and
the consumer. Some of the possibilities are now discussed.

Distribution channel 1

Producer Consumer

In distribution channel 1, the producer deals directly with the consumer. This
model has increased in use in recent years and is expected to continue to grow as
more consumers use the web to research and ultimately purchase products. Examples
of this approach include: Dell and Apple, which sell their computers and other goods
directly to consumers via their websites; Domino’s Pizza, which makes and sells

Chapter 10  Distribution (place) 357

 pizzas at its retail outlets; and Just Cuts hairdressing salons, which, like most services
businesses, produces and delivers the service at the same time. Because services are
consumed as they are produced, there is often little need for intermediaries. Note
that it is not always the case though, as we will discuss in a moment. In choosing dis-
tribution channel 1, producers must decide that, in addition to making the product,
they are able to effectively manage distribution and deal with customers one-on-
one. They must also be wary of the reaction of retailers to producers selling directly
to customers. For example, when Dell began selling directly to customers, Harvey
Norman threatened not to stock Dell computers. In choosing to deal directly with
producers, customers need to feel confident that they can get the level of service,
including after-sales support, they require. Dealing directly with producers can be
attractive to consumers because it can offer greater customisation (generally com-
plete customisation in the case of services) of the product. For example, a consumer
dealing directly with Apple can choose to have more memory put in their new com-
puter, software pre-installed on an iPad, or a personal message engraved on an iPod.
Consumers also often feel they can get a cheaper price by bypassing retailers. This is
often not the case, though, as producers are reluctant to undercut the prices of their
retail distributors. Dealing directly with producers will more often than not require
the consumer to pay in full for the goods before receiving them, if mail order or
online purchasing is involved.

Distribution channel 2

Producer Retailer Consumer

In distribution channel 2, producers provide their products directly to retailers

for sale to consumers. Both Dell and Apple use this strategy as well as the strategy
in distribution channel 1. Many small boutique producers use this strategy, such
as the Byron Bay Cookie Company which sells its product at numerous outlets,
including McCafe, Michel’s Patisserie, Harris Farm, Coles, Woolworth’s, IGA, as well
as Virgin Australia, Qantas and Tiger Airlines.2 Airlines and hotels can also use this
strategy, often in combination with distribution channel 1. For example, you can
book a motel room directly with the Best Western motel of your choice or use a
travel agent or online service such as wotif.com or hotelclub.com. Similarly, you
can book a Qantas flight on the airline’s website, or use Flight Centre or some other
intermediary. Large retailers often choose strategy 2, preferring to deal directly with
producers rather than wholesalers. From the consumer’s perspective, many feel that
they receive more personal service from a retailer than a producer, including the
ability to examine the goods before purchasing them and often to take possession of
the goods when paying for them.

Distribution channel 3

Producer Wholesaler Retailer Consumer

In distribution channel 3, producers sell to wholesalers who then sell on to the

retailers. This is a common choice for goods that are sold in high volumes through
numerous retailers. Examples include grocery items and mass-marketed clothing.
The advantage for the producer is in dealing with larger volumes to fewer buyers
rather than small volumes to numerous buyers. The advantage for the retailer is

358 Marketing
the ability to buy a range of different lines from one source (the wholesaler) rather
than having to deal with large numbers of producers. In this distribution channel,
consumers still deal with a retailer, so their experience is essentially the same as in
distribution channel 2. A possible difference is that a retailer that uses wholesalers
may carry a wider range of products.

Distribution channel 4

Agent/
Producer Wholesaler Retailer Consumer
broker

Distribution channel 4 is a common choice for exports, where the complexities

of  dealing with different legal, regulatory and cultural factors suggest an experi-
enced and skilled agent will be able to more effectively deal with intermediaries in
the foreign market. It is also used for mass marketed products where the producer
believes an agent can more effectively sell the products to wholesalers.

Distribution channel 5

Agent/
Producer Consumer
broker

Distribution channel 5 is commonly used in the financial services industry. For

example, mortgage brokers deal directly with consumers and the banks and other
financial institutions that offer loans. For the consumer, they are able to offer a
higher level of service than the financial institutions (e.g. home visits after normal
office hours) and for the producer (the banks), mortgage brokers can bring new
business from otherwise unidentified potential customers. However, the brokers are
then paid a trailing commission, which represents a cost to the bank (and therefore
the consumer) and, during the housing boom in the early 2000s, mortgage brokers
approved loans for people who may not have met banks’ own lending criteria.
It should be clear from our discussion that marketing organisations do not always
simply choose one strategy. Rather, they might use a combination of strategies for
different markets or even the same market. Similarly, consumers might choose dif-
ferent channels. You might buy an iPad or iMac directly from Apple via its website
or an Apple store, but you’d be less likely to buy a spare USB cable via the website
because the delivery charge would more than offset the convenience of not having
to visit a shop. You might also prefer to go to a shop to try out a new mouse or piece
of software rather than rely on the description of the product online.

Business-to-business product
distribution channels
In the market for business-to-business products — that is those products that are
used in the production of other goods or services or in day-to-day business oper-
ations, rather than being sold to end consumers — the main intermediaries are
agents and industrial distributors. A distribution channel can consist of both, one or
neither of these between the producer and the organisational buyer.

Distribution channel 1

Organisational
Producer
buyer

Chapter 10  Distribution (place) 359

 The strategy shown in distribution channel 1 accounts for the majority of
­ usiness-to-business product transactions. Business buyers are usually buying prod-
b
ucts that are crucial to their own business success and often want to deal directly
with the producer so they can be sure of direct access to information and assistance.
Sometimes the organisational buyer will need a customised product and so needs
to deal directly with the producer. For example, a designer furniture manufacturer
would want a foam factory to provide foam cushions in the exact sizes to match
their chairs.

Distribution channel 2

Industrial Organisational
Producer
distributor buyer

Distribution channel 2 features an industrial distributor. Industrial distribu-

tors play roughly the same role in the business-to-business product channel as
retailers do in the consumer product distribution channel. They purchase com-
monly used goods such as tools and office supplies from producers and resell them
to organisational buyers. Staples is a typical industrial distributor that provides
stationery, office products, office furniture and other business technology solu-
tions from locations in Australia and New Zealand, as well as 24 other countries.
It has annual ­worldwide sales of $25 billion, and is ranked second in the world in
e-commerce sales.3

Distribution channel 3

Organisational
Producer Agent
buyer

Distribution channel 3 features an agent. An agent in the business-to-business

products market is an intermediary who plays matchmaker between producers
and organisational buyers and is paid a commission on the sales they bring to the
producer.

Distribution channel 4

Industrial Organisational
Producer Agent
distributor buyer

Distribution channel 4 combines channels 2 and 3. The agent takes a commission

on sales it secures with industrial distributors. The industrial distributor then sells to
organisational buyers, as in channel 2.

Supply-chain management
It is important not to fall into the trap of thinking that the addition of intermediaries
to a marketing channel adds complexity. Indeed, the entire reason intermediaries
are used is to allow producers, all of the other intermediaries and consumers to focus
on what they are best at and thereby make the path from producer to consumer
as efficient as possible. This can be most effectively achieved when the producer

360 Marketing
and the intermediaries fully understand the goals and needs of the other parties
and work  together to find efficiencies. This approach is known as ­ supply-chain supply-chain management 
management. An approach to managing
marketing channels based on
Formally, the supply chain consists of the producer and marketing intermediaries
ongoing partnerships among
as well as all of the other parties that play direct or indirect roles in getting products distribution channel members
to consumers; for example, raw materials suppliers, transport companies, whole- that create efficiencies and
salers and retailers. Supply-chain management is a complex and crucial task. It does deliver value to customers.
not imply one party managing the role and activities of all the others. Rather, it is
based on cooperation and relationship building to the mutual benefit of all parties.
This chapter is concerned with one end of the supply chain — from the producer to
the consumer.
Distribution channel partnerships
Each party in a distribution channel has expectations of and obligations to other
parties in the channel. Distribution channels work most effectively when the dif-
ferent parties agree on goals and processes and then cooperate to implement them.
Having said that, it is rare that all parties in the distribution channel will reach
a consensus on the best approaches, and it is common that the different parties
will have different relative amounts of power. When one member of the distri-
bution channel can exert power over the ability of other members of the channel
to achieve their goals, that powerful member is known as the channel captain and
is said to have channel power. Channel power must be carefully exercised. A dis-
tribution channel is only effective when all channel members benefit from their
involvement.
An arrangement between Linfox and National Foods’ Australia has seen Linfox
working hard to optimise National Foods’ supply chain, including the construction
of a state-of-the-art national distribution centre (NDC) at Laverton, Melbourne. The
28  000 square metre NDC features high-quality chilled warehousing for dairy, cheese
and juice products. National Foods’ famous brands include Dairy Farmers, South
Cape Fine Goods, Yoplait, Berri, King Island and Coon. The warehouse is designed
to store approximately 26  500 pallets.4
Not all distribution arrangements are successful. Disagreements, misunder-
standings and miscommunication all have the potential to create conflict within a
marketing channel. The more parties that are involved in a marketing channel, the
greater the potential for conflict. The emergence and rise of online selling, in par-
ticular, has unsettled many formerly stable marketing channels. The web provides
a relatively easy way for producers to sell directly to consumers. For example, US
­software company Adobe once heavily relied on importers, wholesalers and retailers
to make its software available to Australian and New Zealand consumers. Now Adobe
maintains its old marketing channels, but also directly competes with those chan-
nels by selling its software via its websites, both as packaged products and as down-
loads.5 Theoretically, it could abandon its distribution partners and just deal directly
with consumers.
Horizontal and vertical channel integration
In any supply chain, certain functions must be undertaken if a product is to make
its way from producer to consumer. We discussed earlier that there are various chan-
nels that can be chosen. Within any existing channel it is possible to redistribute horizontal channel
particular responsibilities and obligations between different channel members. This integration Bringing
is known as channel integration. organisations at the same level
of operation under a single
Horizontal channel integration occurs when organisations at the same level  of
management structure.
operation are combined under one management structure. For example, horizontal

Chapter 10  Distribution (place) 361

 channel integration occurs when a retailer buys out a competitor. An example
is the purchase of homewares retailer Bay Swiss by Freedom Furniture, who
then rebranded the Bay Swiss stores and closed stores where they were too
close to each  other.6 Another example is Webjet, Australia’s largest online travel
booking ­ website.  To  expand its operations, Webjet purchased the international
online travel  agency Zuji’s operations in Australia, Hong Kong and Singapore for
$23.7 million.7
vertical channel integration  Vertical channel integration occurs when different stages of the distribution
Bringing different stages of the channel are combined under one management structure. For example, vertical
distribution channel under a
channel integration occurs when a wholesaler buys a retailer or a transport busi-
single management structure.
ness. Vertical integration enables closer cooperation and coordination between
vertical marketing system 
A distribution channel in which
the two stages of the marketing channel. At its most extensive, vertical integration
all stages occur under a single brings all stages of the marketing channel under one management structure. The
management structure. resultant structure is known as a vertical marketing system or VMS. Australia Post
is an example of a VMS. It owns post boxes situated on street corners; post offices
that sell envelopes, stamps, boxes and other goods, as well as accept mail; a fleet
of delivery vans and bikes; storage and sorting facilities; and so on. Franchises are
also a type of VMS in which individual retail outlets are contractually obliged to
cooperate closely with the franchisor.

Franchising
franchising An approach to Franchising is a type of business where the right to sell products or rights to use the
business in which one party (a main elements of a business model are licensed by one party to another. In fran-
franchisor) licenses its business
chising, the franchisor:
model to another party (a
franchisee). • licenses the right to use its business model or to sell its products
• provides services such as advertising, business know-how and supplier networks
• stipulates standards and rules by which the franchise business must operate
• sometimes promises exclusive rights to a particular geographic area.
And the franchisee:
• pays the franchisor a fee and/or percentage of sales receipts
• supplies labour and capital
• operates the business in accordance with the conditions of the franchise
agreement.
Franchising is growing rapidly in Australia and New Zealand. It offers franchisors
a way to expand relatively rapidly, keep some control of the distribution of their
products, and to share risk; it offers franchisees a way to start a business without
needing to formulate an idea, systems or raise a profile and, statistically, gives them
a much higher rate of business success (50 per cent compared to 10 per cent for
new independent businesses). According to the Franchise Council of Australia, there
are over 1000 franchise systems in Australia with a collective turnover of more than
$131 billion.8
In Australia, retail franchises operate in the following ways.
• A producer licenses distributors to sell its products to retailers. Coca-Cola ­operates
like this, licensing bottlers to make up its drinks from syrup and then sell the
­finished beverage to retail stores.
• A franchisor licenses key aspects of its business model to the franchisee. These are
among the best known franchises and include stores such as the Domino’s pizza
stores, Gloria Jean’s Coffee and Boost Juice businesses.
• A manufacturer authorises retail stores to sell its brand name item. Examples
include agricultural and lawn care products company John Deere and car com­
panies Ford and Toyota.

362 Marketing
Ben & Jerry’s Spotlight 
Ben & Jerry’s is a franchise with a difference, as it is not all about business, greed and profits. It has
had a message of ‘Peace, love and ice-cream’ since it was founded by Ben Cohen and Jerry Greenfield
in a former petrol station in Vermont, United States, in 1978. Since then, Ben & Jerry’s has expanded
to have over 800 scoop shops around the world, including Hong Kong, Japan and Singapore, with the
intention to open more.
The first scoop shop in Australia was opened with a lot of fanfare at the beachfront at Manly
in 2009. Since then, stores have also been opened at Bondi and Chatswood in Sydney, Chapel
Street in Melbourne, Movie World on the Gold Coast, and several Hoyts cinemas, as well as
selling the ice-cream in pint tubs and mini cups (or ‘shorties’) in selected retail outlets. It has
a growing fan base, and there are plans for further expansion to Adelaide, Canberra, Perth and
New Zealand.
As well as the concept of ‘Peace, love and ice-cream’, Ben & Jerry’s is dedicated to a sustainable
corporate concept of linked prosperity, which is reflected in its three part mission statement:
Our Social Mission: To operate the Company in a way that actively recognizes the central role that
business plays in society by initiating innovative ways to improve the quality of life locally, nationally
and internationally.
Our Product Mission: To make, distribute and sell the finest quality ice-cream and euphoric concoctions
with a continued commitment to incorporating wholesome, natural ingredients and promoting business
practices that respect the Earth and the Environment.
Our Economic Mission: To operate the Company on a sustainable financial basis of profitable growth,
increasing value for our stakeholders and expanding opportunities for development and career growth for
our employees.

As Ben & Jerry’s looks to expand its operations, it

needs people to be franchisees. To be a franchisee,
the capital investment required is between $300  000
to $450  000, depending on site size and fit-out work
required. In return, Ben & Jerry’s provides support in
various ways, including:
• site selections expertise and assistance
• complete initial and ongoing training for franchisees
and staff
• an opening launch campaign
• ongoing marketing campaigns
• in-store and point of purchase promotions ideas and
material
• free ice-cream to give away on Free Cone Day.
But it is not a case of going to Ben & Jerry’s with the
money and getting a store — franchisees are carefully
selected. According to the website, a franchisee ‘means
you are a totally devoted, head-over-heels Ben & Jerry’s
nut. You live for euphoric super-premium ice-cream. You
live for serving customers. And you live for giving back to
the community’. Clearly, Ben & Jerry’s is a franchise with
a heart .  .  . as well as nice ice-cream!9

Question
Franchises such as Ben & Jerry’s have been growing in number over the last few years. From a
marketing perspective, what are the advantages of franchising for the franchisor, the franchisee and
the customer?

Chapter 10  Distribution (place) 363

 Concepts and applications check
Learning objective 1  understand the concept of place and how distribution channels connect
producers and consumers/organisational buyers
1.1 Consumer product distribution channels can vary in the number of intermediaries involved.
Choose five organisations and describe their distribution channels.
1.2 Explain how supply channel management works. What can happen if this system does not run
smoothly?
1.3 From a marketing perspective, what is meant by ‘place’? How do marketing intermediaries assist
in bringing the product to the customer?

DISTRIBUTION OF GOODS
Learning objective 2 Physical products (or ‘goods’; see the introduction to marketing chapter) need to
describe the major be moved from producers to consumers via a number of activities that are collec-
activities involved in the
tively known as physical distribution. Service products generally do not require
distribution of goods
these activities and will be dealt with separately in the next major section of this
chapter. Physical distribution involves order processing, inventory management,
warehousing and transportation. The physical distribution process is summarised in
figure 10.2. You should refer to it as you read through this section.
Physical distribution activities can be performed by any member of the distribution
channel. Members may share responsibility for different aspects, one member may
take responsibility for all physical distribution activities, or the physical distribution
can be outsourced to a specialist provider. Note that outsourcing distribution does
not add another party to the marketing channel — the distribution provider does not
have any managerial power within the marketing channel; they merely provide ser-
vices requested by the producer or marketing channel intermediary. The attraction of
­outsourcing is that it allows both parties to focus on their core competencies.
Whichever approach is taken, the aim is to minimise costs and the time taken to
complete a process and maximise speed, quality, dependability and service.

Order processing
Order processing is the term used to describe all of the activities involved in man-
aging the information required to receive, handle and fill a sales order. Efficient
order processing is important to minimise costs and ensure customer satisfaction.
Order processing is usually most efficient when computerised systems are involved,
but paper-based ordering systems are still common and their relative simplicity
and low cost are significant advantages for smaller businesses. Electronic order pro-
cessing systems are based on electronic data interchange, which uses standardised
data formats to share information, often in real time, between all the different func-
tional areas of distribution (order processing, production, inventory, accounting and
transportation systems), whether they are performed by the producer, distribution
channel intermediaries, outsourced service providers or the consumer.
Order processing begins when a customer or salesperson (on behalf of a customer)
places an order. An order usually specifies the products wanted, the price to be
paid and how the payment will be made, the time the products are wanted and the
location to which the products should be delivered. The next step is order handling,
which involves checking that the terms of the purchase are acceptable (price, credit-
worthiness of purchaser and so on) and that the product is in stock. If the product is

364 Marketing
not in stock, it will be ordered and/or the customer will be contacted to see if they
will accept a substitute product. When the order details and product availability are
verified the order will be assembled and shipped, and the company records will be
updated to reflect completion of the purchase.

Customer and Order Inventory

Warehouse Transport
salesperson processing management

Make/update Receive order Road

order
Verify order
details Rail

Check stock Manage stock

on hand levels Trigger
Sea
dispatch

Confirm Update stock Dispatch

Confirm order In stock
dispatch levels Air

Advise Out of stock

Order stock Receive stock Pipeline

k
oc
St

Manufacturer
Materials handling

FIGURE 10.2

Inventory management Physical distribution

Inventory management involves managing stocks of products to ensure availability

to customers while minimising holding costs. If a business holds too little stock, it
will experience shortages and be unable to meet customer needs, prompting cus-
tomers to move to other businesses with competing products. Further, for many
retailers, like supermarkets that are in the fast-moving consumer goods (FMCG)
environment, it is important to have stock on show to potential buyers, and not in
storage or somewhere on a truck. Customers need to see stock on the shelves, and
even if there is stock in the morning, by the afternoon the stock of a certain item
may be gone. Therefore, inventory needs to be monitored on an hourly basis so that
shelf space can be managed accordingly. Conversely, if a business holds too much
stock it will experience higher warehousing, insurance, handling and other costs.

Chapter 10  Distribution (place) 365

 Most businesses have an inventory management system based on:
• order lead time — the usual time between placing an order and receiving the stock
• usage rate — how much stock is sold during a particular period of time
• safety stock — a quantity of stock held to cover unexpectedly high sales and/or
unexpectedly long order lead times.
Some businesses try to hold only enough inventory to meet near-term demand;
that is, they aim to receive stock just as they are about to use or sell it. Main-
taining such low inventory levels requires ordering small quantities frequently. This
just-in-time (JIT) An approach approach is known as just-in-time (JIT). JIT minimises inventory holding costs, but
to inventory management that only works when order lead times and usage rates are predictable and when the
involves holding only that stock
supply chain is reliable. This requires a high level of supply chain visibility, which
that is about to be used or sold.
refers to the availability of comprehensive and up-to-date information about all
aspects of the supply chain.

Warehousing
Warehousing is the use of facilities (generally a building) to store and move goods.
Warehousing is an important tool in the inventory management approach of many
businesses. Effective warehouse operations enable businesses to hold surplus stock
until customers require it and to hold a level of safety stock to ensure unexpected
demands can be met. The appropriate type of warehousing facilities is determined
by the nature of the products, the location of suppliers and customers, and the types
of transportation used.
Many businesses — particularly larger, stable businesses — buy or lease ware-
houses for their exclusive use. This enables them to set up the warehouse in such a
way to most efficiently store and move the business’s products. On the other hand,
a warehouse represents a substantial cost to a business, including the purchase or
rental, plus maintenance, security, insurance and other costs. The increasing inci-
dence of direct links between producers and consumers (brought about by the
internet), increasing demand for customised products and the increasing speed of
innovation that quickly renders products obsolete are all factors working against the
use of company-owned warehouses.
Some businesses specialise in providing warehousing services to other businesses.
These public warehouses lease space and distribution and sometimes offer exten-
sive other physical distribution services — if a business wants to, it can, in fact, out-
source the entire physical distribution process. Public warehouses are particularly
appealing to businesses that have large fluctuations in storage needs, need to main-
tain inventory at many different locations, require only occasional warehousing or
are unsure whether they will have a long-term presence in a particular market. As
always, outsourcing enables each party to focus on their core competencies.
distribution centre A A variation on the warehouse is the distribution centre, a type of warehouse that
warehouse focused on moving focuses on moving rather than storing goods. Distribution centres are designed to
rather than storing products.
efficiently receive goods, assemble them into orders and ship them to customers
cross-docking The practice with a minimum of handling. This practice is known as cross-docking. At its best,
of expediting the movement of
goods from receipt to shipping.
cross-docking eliminates the storage component of warehousing. As such it is most
suited to FMCG — products that are sold quickly and in predictable volumes, and do
not require safety stock to be held. For example, perishable products such as milk
and bread are well suited to a cross-docking approach. Cross-docking is facilitated by:
• products designed with cross-docking in mind
• protective packaging that reduces or eliminates the need to check the state of the
products on receipt
• packaging that is suitable for sale, eliminating the need for repacking

366 Marketing
• labelling that can be computer-read and is suitable for retail use
• close cooperation, communication and coordination between the suppliers, distri-
bution centre and customer.10
Whether they aim to achieve cross-docking or not, distribution centres are usually
highly automated, making extensive use of computer-controlled machinery. They
are usually located next to major transport infrastructure (including road, rail, air
and sea port facilities).
The effective physical management of goods in a warehouse and on to transport
is known as materials handling. Effective materials handling minimises time and materials handling The
costs involved in moving physical products. Materials handling strategies include physical handling of goods.
efficient unloading, storing, packing, labelling and loading.
Issues to be considered in materials handling include:
• the use of standard pallets to enable machinery to efficiently move products
• the use of standard containers to hold many small items to enable their efficient
transport (the containers you see on the back of trucks, on ships and on trains are
all the same size and shape)
• special demands due to the nature of the product such as safety measures that
must be taken in handling dangerous chemicals, careful handling of fragile goods
such as glassware, and sanitary handling of foods.

Transportation
Transportation is the process of moving products from their place of manufacture to
their place of consumption. The key modes of transportation are road, rail, sea, air
and — somewhat less obviously — pipelines. Most distribution channels coordinate
multiple modes. This is known as intermodal transportation and relies on the use of
standard shipping containers and container handling equipment. Specialist transpor-
tation companies known as freight forwarders allow businesses with small volumes freight forwarders Specialist
of freight to combine their products with the products of other businesses so that transportation businesses that
combine cargo from different
they can take advantage of containerisation and the efficiencies of larger loads.
businesses in order to achieve
Choosing a mode of transport efficient load sizes.
Like most marketing decisions, the choice of mode of transport comes down to
factors such as availability, cost, speed, flexibility, reliability and environmental
impacts. Different transport modes are considered in table 10.1.

Table 10.1  Comparing modes of transport

Transport mode Availability Cost Speed Reliability Environmental impacts
Road Extensive road Mid-range Fast Highly reliable, but Quarrying of materials to build roads
network in most to high can be affected Destruction of habitat where roads
areas, connecting by accidents, are built
most locations congestion, flooding
Production of materials to build
trucks
Exhaust emissions from burning of
diesel fuel
Rail Extensive Mid-range Mid- Mid-range Mining and smelting of materials to
rail network range Infrastructure build rails
connecting disruptions can Destruction of habitat where
specific points cause severe delays railroads are built
Dedicated Production of materials to build
railroads in mining rolling stock and locomotives
and agricultural
areas Exhaust emissions from burning of
diesel fuel

(continued )

Chapter 10  Distribution (place) 367

 Table 10.1  (continued )
Transport mode Availability Cost Speed Reliability Environmental impacts

Sea Available between Cheapest Slow Mid-range Mining and smelting of materials to
specific locations option Loss at sea is build ships and ports
only (coastal usually catastrophic Destruction of habitat and pollution
with deep water (complete loss of of sea around sea ports
access, or on a cargo) or results
major waterway), Exhaust emissions from burning of
in a long delay in diesel fuel
but reasonably salvaging cargo
accessible in Catastrophic environmental damage
combination with Sea freighters can from oil spills etc.
other modes spend days or
weeks waiting off
the coast for port
facilities to become
available

Air Available Very high Very High Mining, smelting and production
between specific fast Loss of aircraft is of materials to build aircraft and
locations only, catastrophic (loss of airports
but reasonably all cargo) Destruction of habitat around
accessible in airports
combination with
other modes Exhaust emissions from burning of
jet fuel

Pipeline Must be purpose Low once Slow High Mining, smelting and production of
built constructed materials to build pipelines
Destruction of land and sea habitat
around pipelines
Pollution or contamination caused
by leaks

In the paragraphs that follow, we will look at the key characteristics of each mode
of transport and then summarise the issues to be considered when choosing which
to use.
Road transport (trucks, vans and so on) offers the most flexibility of all the modes
of transport because it has the most extensive infrastructure. You can drive almost
anywhere something is produced, almost anywhere something is consumed, and
almost everywhere in between. This makes road transport a more attractive option
for some businesses, but it is more expensive than rail and more prone to accidents
and delays.
Rail transport is best suited to bulky items that need to travel long distances over
land. Australia has numerous rail lines built specifically to move mineral ores to pro-
cessing plants or sea ports. Many of Australia’s farming areas are criss-crossed with
rail lines designed to move crop harvests to processing centres. Many factories and
warehouses have rail yards alongside rail lines to facilitate transportation of their
products.
Sea freight takes advantage of the massive cargo capacity of ocean-going vessels
and is used for bulky items that do not need to be rushed to their destination. In
many countries, including much of Asia, waterways such as rivers are also used
for transport. This is less common in Australia and New Zealand where landscapes
and  regular droughts and flooding make the inland waterways less suitable. More
than 95 per cent of international cargo moves via sea freight. Ports are usually
serviced by road and rail to facilitate movement of products to and away from
the coast.

368 Marketing
 Air freight is fast but expensive. It is most suitable for perishables, lightweight
items, urgent deliveries and high-value items. Like sea freight, it is usually ­necessary
to transfer products to rail or road to complete their journey.
Pipelines are specifically used for water, oil and gas (as well as some items that
can be transported in a stream of water, such as some cereal grains) and are usually
owned by the businesses that produce the product. Many pipelines are publicly or
partly publicly owned. Pipelines can run for thousands of kilometres, carrying raw
material to processing plants, or delivering processed materials to customers, as in
the case of the water mains into people’s houses.
The matrix in table 10.1 offers a convenient way to compare the different trans-
port options. Different businesses will place different weightings on each factor. For
example, some businesses will rate environmental impact highly, whereas others —
unfortunately — will have little concern for it. Marketing channels may rely on out-
sourcing some or all of their transportation requirements and there are numerous
businesses that offer this service, including some that operate across all modes of
transport.

Technology in physical distribution

The internet and other telecommunications technologies have enabled great
advances in the efficiency of physical distribution. The term e-distribution is often
used to describe the full implementation of advanced telecommunications technol-
ogies in the physical distribution process. E-distribution offers efficiencies inter-
nally and externally. For example, internally, scanning technology, databases and
reporting software can be combined to keep inventory records. Radio frequency
identification (RFID) technology involves attaching small electronic tags to items or
containers, enabling their movements within a goods handling facility to be tracked
down to a matter of centimetres. Externally, the internet enables two organisations’
inventory records to ‘talk’ to each other, thus automatically generating reorders.
Technologies such as these have led to large advances in supply chain visibility.

Road transport — watch out for triple Bs Spotlight 

While road transport is a popular way to transport goods, the use
of big trucks is often criticised for adding to road congestion,
pollution, speeding to meet unrealistic schedules and being
dangerous to others on the road leading to fatal accidents. At
times there has been discussion and support for the use of other
modes of transport, like rail, sea and air. However, one plan to
assist in moving goods from Sydney to Melbourne, and removing
some of the trucks on the highway, is to have bigger trucks.
There has been a push to allow B-triple trucks on the Hume
Highway (which runs between Sydney and Melbourne) with
support for a trial beginning 2014. The B-triples are trucks
that have three trailers attached to the prime mover, and are
35 metres long. This type of configuration of truck (B-trains
and particularly B-doubles) is used to travel long distances in
many countries, but B-triples are more restricted on where they
can travel. In Australia, they are allowed in desert areas of New
South Wales, Queensland, South Australia, Western Australia
and the Northern Territory, but not in the south-eastern part of
the country.

Chapter 10  Distribution (place) 369

 According to Australian Trucking Association communications manager Bill McKinley:
B-triples are what you call long-haul combinations. They’re a combination you use to deliver freight from
a distribution centre on the outskirts of Melbourne to a distribution centre on the outskirts of Sydney. The
combination is then broken up and the individual parts then go to their destination.

‘There are enormous advantages for allowing these vehicles on the Hume (highway)’, he said,
as B-triples carry more goods than standard semi-trailers or B-doubles, and this could mean the
possibility of fewer trucks on the road.
As for safety, McKinley suggests that B-triples tended to be newer than smaller vehicles and so are
fitted with safety features such as a ‘blind spot radar’. ‘We have an excellent understanding of how they
handle. The safety and productivity case for bringing them in is compelling.’ On the other hand, Greens
transport spokesperson Cate Faehrmann said the trial of bigger trucks would lead to bigger crashes.
While there are arguments on both sides, as the projections for freight movements are that they will
increase, it is important to consider and plan for new ideas in the transportation of goods over long
distances.11

Questions
1. What sort of products might lend themselves to road freight distribution over other forms of
transportation?
2. What are some of the advantages and disadvantages of having B-triple trucks on a major highway
between two large cities?

Concepts and applications check

Learning objective 2  describe the major activities involved in the distribution of goods
2.1 Physical distribution activities can be performed by any member of the marketing channel.
Discuss some of these activities and how they can reduce costs and be of benefit to the final
consumer.
2.2 Using examples, explain the advantages of using a just-in-time (JIT) approach to inventory
management.
2.3 What are the functions of a warehouse? Discuss the different types of warehousing and how they
can assist the movement of a product through the marketing channel.
2.4 What is a distribution centre? How is it different to a private warehouse?
2.5 Imagine that you are the marketing manager for Cookie Time and you are exporting cookies to the
United States. What transport issues would you need to plan between the factory and the final
consumer?
2.6 There has been a lot of criticism of trucks travelling long distances as a mode of transport for the
delivery of goods. Outline the advantages and disadvantages of two potential modes of transport to
replace road for the distribution of some non-perishable goods.

DISTRIBUTION OF SERVICES
Learning objective 3 Services products are usually produced at the time of consumption and so the notion
describe the major of ‘service distribution’ is quite different to physical distribution. This is discussed
activities involved in the
in much greater detail in the services marketing chapter, but here we will briefly
distribution of services
discuss some key differences and similarities in relation to distribution of services.
• Physical distribution is required for the physical inputs used in producing and
delivering the service product.

370 Marketing
• Some services are delivered using infrastructure.
• Service businesses must ensure that the labour is available at the right time and in
the right quantities to ensure customers can be served.

Physical inputs
The creation and delivery of most services products requires physical inputs. The
service business must ensure that the various physical inputs it needs to deliver the
service are available. For example, a potential customer walking into a hairdresser
can only receive the blonde dreadlocks they want if the hairdresser has shampoo
and bleach on hand, staff to undertake the styling, and chairs, scissors and so on
with which to produce the service.
On a grander scale, a state government providing school education to hundreds
of thousands of children each year needs to coordinate an array of infrastructure,
goods and people. All of the discussion in this chapter about physical distribution
applies to the physical inputs required to produce services.

Delivery infrastructure
Some services are distributed via a physical infrastructure. While you might go to
a retailer to purchase a haircut, medical advice or travel advice, some service pro-
viders bring the service to you. For example, the electricity supply to your home
is delivered via an extensive network of above-ground, underground and under-sea
cables. Similarly the gas supply and telephone lines come to you via ­infrastructure.
Mobile phone and internet services themselves are based around satellites and
­telecommunications towers. The web has expanded the range of services available
in this format. Whereas once you would visit a bank branch to make a transaction,
technology enabled automatic telling machines and later internet banking.

Scheduling
Scheduling in service businesses is designed to smooth demand. Just as producers
and sellers of physical products must manage inventory to minimise holding costs
yet maximise availability to consumers, service businesses must manage their
capacity to ensure customers can be served but that there is not excess labour. For
example, a restaurant might be able to serve 50 customers a night with three kitchen
staff and two waiters. If a 51st customer turns up, the restaurant might be able to
cope, but if another ten customers turn up, the restaurant might need to turn them
away. On the other hand if only 20 customers go to the restaurant that night, the
restaurant still has to pay the three kitchen staff and two waiters. Service businesses
go to great lengths to smooth demand. For example, restaurants encourage diners to
book well ahead. Diners are told this ensures them a table, but it also helps the res-
taurant plan to have sufficient staff on hand to cater for the number of customers.
Hairdressers have an appointment book for the same reason. Restaurants also often
have family nights when children can dine for free or cheap takeaway nights when
they offer two-for-one deals or 10 per cent off normal prices to encourage custom
on otherwise slow trading days. For example, many cinemas have promotions to
encourage more customers on Tuesdays each week, like Hoyts’ ‘Super Tuesdays’.
Some businesses can not so easily control demand for their services. For example,
a hospital cannot encourage people to schedule their illnesses and injuries according
to a conveniently staggered timeline. Such businesses often face higher costs as
they must maintain somewhat higher capacity than will usually be needed to meet
demand.

Chapter 10  Distribution (place) 371

 Spotlight  Hoyts: increasing entertainment formats
In the old days you would see a movie at the cinema and that was it. But as media has changed,
so have the opportunities for movie companies to offer movies on different platforms. This has been
reflected in the activities of Hoyts.
Hoyts was founded by dentist (and amateur magician) Dr Arthur Russell, who bought a share in
a small American travelling circus, Hoyts Circus. After an unsuccessful start, Russell returned to
Melbourne, leased a hall in Bourke Street (which became the Hoyts Esquire), and began screening
films on Saturday nights. This was a very successful venture, and Russell formed a new company,
Hoyts Pictures Pty Ltd, which he expanded to the suburbs of Melbourne and Sydney. In 1926, Hoyts
merged with other theatre companies to become Hoyts Theatres Limited. Over the years, it has had a
number of owners and expanded across Australia and New Zealand, but its focus has been to provide
entertainment to its customers. It is now ‘one of the world’s leading entertainment corporations’. But
Hoyts has not just kept to screening movies at cinemas.
Hoyts Cinemas: Hoyts runs 55 cinemas across Australia and New Zealand, with over 448 screens
and more than 75  000 seats. Hoyts Cinemas are located in all mainland states and territories of
Australia, as well as both islands of New Zealand, and employ more than 3000 staff.
Hoyts Kiosk: Hoyts Kiosk is the largest network of movie rental machines in Australia. Formerly known
as Oovie, it has more than 390 bright green machines located at supermarkets and other convenient
positions, and is expanding. Beginning operations in 2005, Hoyts Kiosk pioneered the DVD rental
machine market and has served over 700  000 customers, renting more than 5.3 million DVDs.
Hoyts Stream: Hoyts’ latest move is into the digital movie
streaming market. Using an internet-based streaming platform,
Hoyts Stream will provide pay-as-you-go or subscription-based
models for new releases, as well as classic movies and TV content,
with multi-device access (computer, iPad, mobile, etc.). The
release dates for new content will coincide with the release of
new DVDs.
David Kirk, Hoyts Corporation chairman, claimed that:
Australians are growing more and more demanding in how they
want their movie experience delivered. The convergence of
entertainment and technology is exciting and has inspired us to
harness digital platforms so as to provide our customers choice for
how they consume filmed entertainment from Hoyts, be it on the big
screen, small screen or now any screen.

Clearly, Hoyts is prepared to move with the technology to satisfy

the demands of the customers.12

Question
Explain how the concept of ‘distribution of services’ relates to the Hoyts Group and its various activities.

Concepts and applications check

Learning objective 3  describe the major activities involved in the distribution of services
3.1 How does the distribution of physical products differ from the distribution of services? Give
examples in your answer.
3.2 Using your own service example, describe how advances in technology have changed the delivery
infrastructure of that service over time.
3.3 Explain the concept of scheduling demand for a service, using an example other than a
restaurant.

372 Marketing
RETAILING
From the discussion at the start of this chapter, we know that the main distribution Learning objective 4
channel intermediaries are retailers, agents and wholesalers in consumer products understand the major
aspects of retailing
markets, and agents and industrial buyers in business-to-business products markets.
In this section we will discuss the most naturally familiar stage of distribution for
most consumers: retailing. We will then work back through the distribution channel
to analyse the less familiar roles of agents, brokers and wholesalers, and the impor-
tant roles each can play in the marketing of goods and services.
Retailing describes any exchange in which the buyer is the ultimate consumer of retailing Any exchange in
the product. When people think of retailing, many immediately think of department which the buyer is the ultimate
consumer of the product.
stores, supermarkets and specialist shops such as Myer, Woolworths and Just Jeans.
These are examples of businesses whose main concern is retailing. As such they are
known as retailers. Retailing excludes transactions in which the buyer intends to
resell the product or use it in the making of another product. This activity occurs in
business markets.
In addition to the conventional stores, in marketing many other businesses are
also, technically, retailers. For example, a passenger airline such as Virgin Australia
sells air transport to consumers and is therefore a retailer. A general practitioner
working in a medical clinic primarily sells healthcare to patients and thus is also a
retailer, even though you might not usually think of them as such.
Other businesses may undertake retailing, but their primary focus is on something
else. For example, manufacturers often sell their goods to wholesalers or retailers
but many also make direct sales to consumers. This has increased massively with
the growth of online shopping. For example, the clothing business Country Road
supplies stores, like David Jones and Myer, that then sell its clothing to consumers,
but Country Road also sells its clothing directly to consumers via its website and a
small number of company-owned stores.13 Country Road is not primarily a retailer,
as its main business is making clothes.
If you think about the operations of the ANZ Bank, you can see that while it has
retailing operations (providing savings accounts and loans to individuals), it also
provides finance to other businesses, offers insurance, invests money in the stock-
market, lends money to other lenders and so on. It becomes unclear whether you
could really classify ANZ as just a retailer. You will find this is often the case. Is
Apple a computer retailer or computer manufacturer? Or is it a music retailer? What
about Optus, which provides landline and mobile phone services to individuals as
well as businesses, and sells network access on to other providers, including Virgin
Mobile?
Clearly, the concept of retailing is not necessarily straightforward. Many com-
panies may also have a retailing aspect to their business. The important point is
that many types of organisations undertake retailing, whether or not they are pri-
marily retailers. The following discussion will focus mainly on retailers, but much
of the discussion is also applicable to the retailing operations of other types of
organisation.

Retailing strategy
There are two aspects to retailing strategy:
• the marketing organisation must decide what retailing approach (or approaches)
is suitable for its products
• the retailer must decide on location and positioning.
These aspects cross over so much that we will discuss them together.

Chapter 10  Distribution (place) 373

 Location
Most of the types of retailer that we discuss in this chapter require some type of
physical presence, which means they must choose a location. For traditional stores,
location is critical. It determines the following.
• The natural geographic area from which customers will be drawn. Retailers should
locate their store close to their target customers. For example, an upmarket
jeweller will probably do best to locate in the central business district (CBD) or
an exclusive suburb of a major capital city, and not so well in a small town or an
industrial area. A convenience store will opt for an area full of residences.
• Proximity to competitors. Retailers might try to choose to be removed from competi-
tors or to be close to them. For example, in a major shopping centre, a takeaway
food store needs to decide whether to locate among its competitors in the food
court or away from them in a different part of the mall. Clothing stores will often
locate near direct competitors because consumers tend to move from shop to shop
trying to find clothes.
• Proximity to complementary retailers. Groups of stores, if they are the appropriate
mix, can draw more customers overall than any of the stores could manage by
themselves. For example, a takeaway food store may make a sale to someone
whose main purpose was to go to a newsagent. The newsagent might sell a maga-
zine to someone who was mainly concerned with going to the hairdresser. The
hairdresser might obtain a customer who wants a new hairdo to go with their
new dress from a fashion outlet. Proximity to other stores also enables retailers to
share facilities such as car parking, public toilets, signage and security.
• Customer access to public transport and public parking. With the possible exception
of convenience stores, most customers will need to travel to get to a store. Retailers
should choose locations that make this convenient for the customer.
The location options tend to be:
• the CBD, which offers a high density of people and a degree of prestige, but also
very high tenancy costs and parking problems
• free-standing structures
• neighbourhood shopping centres, which are in residential areas and comprise a
small cluster of convenience and specialty stores
• community centres, which are designed to serve a few suburbs and usually include
a department store and a small number of specialty stores
• regional centres, which are located in major metropolitan or regional areas, but
which target people from some distance away by offering shops not usually avail-
able in smaller centres.
Positioning
The retail sector is intensely competitive. One response from some retailers has
been to develop a retail positioning strategy. Retail positioning refers to the practice
of identifying a gap in the market and targeting it by creating some distinguishing
feature in the mind of customers. This practice has been adopted by upmarket
department store David Jones, whose corporate mission is ‘to be Australia’s best
department store on measures of customer perception and shareholder value and to
be an acknowledged worldwide centre of excellence in retailing’.14
A store’s image is an important factor in attracting customers and positioning the
store against competitors. A shop that looks expensive will deter people looking for
a budget buy. A shop that looks like a bargain basement will put off shoppers who
find status in spending large sums of money and being seen with the right bags.
The look, the quality of service and the quality of products on sale all go towards
attracting and retaining customers. A lot of mobile phone stores seem to resemble a

374 Marketing
nightclub and jeans outlets usually feature very loud popular music. By contrast, an
upmarket menswear store might have quiet classical music playing and an atmos-
phere more akin to a library. Store image is particularly important for services busi-
nesses, where the store helps to provide the physical evidence (see the services
marketing chapter) of the quality of the service on offer.

Benefits of retailers
As explained earlier, retailers are distribution channel intermediaries that are pri-
marily concerned with retailing (or selling products to end consumers). We saw in
the first part of this chapter that marketing intermediaries are useful when they
add value to the distribution chain. They add value for customers and producers by
creating or providing the following.
• Time utility. Vending machines, 24-hour supermarkets, 24-hour service stations and
corner shops ensure consumers can buy (and hence producers can sell) a range of
basic goods when they need them. Without such retailers it would not be possible
to buy milk, a packet of Panadol, nappies or a bar of chocolate in the early hours
of the morning.
• Place utility. Retailers move products closer to the consumer. For example, a corner
shop (also known as a convenience store) brings necessities within a short walk
or drive of people’s homes. More generally, retailers ensure consumers do not
need to go directly to producers or wholesalers to make purchases. In the ultimate
example of place utility, newsagents can ensure your Saturday morning news-
paper is on your front step before you wake up.
• Form utility. Some retailers can customise products to the consumer’s particular
needs and preferences. For example, a hi-fi store can put together a stereo system
or home theatre system that perfectly suits the customer. A wealthy enthusiast
can spend $40  000 on a Classé CD player, stereo receiver and amplifier, $100  000
on a set of Meridian speakers, and a further few thousand dollars on cables to
connect it all. A music lover on a more modest budget might leave the same store
with $1500 worth of Yamaha gear. A Bunnings customer looking to build a set of
shelves can ask the sales assistant to cut the timber to length for them. A tailor
will take up the trouser leg of a suit to match the customer’s height and style
of shoe. Products that are services, discussed in detail in the services marketing
chapter, generally involve high levels of form utility.
• Advice and personal service. Retailers are geared to deal with customers one-on-one,
providing advice and personal service. For example, a consumer wanting to buy
a new 3D TV television set can speak with a Harvey Norman salesperson about
the pros and cons of different models from a variety of manufacturers, as well as
actually view the different sets.
• Exchange efficiencies. Retailers reduce the number of parties that producers and
wholesalers must deal with and reduce the number of sellers that consumers must
deal with. Retailers can offer consumers a wide range of products from numerous
producers all in one place. For example, a David Jones department store in a shop-
ping mall may carry clothing from 50 different designers.15 In the same shopping
mall, there might be half a dozen other clothing stores carrying multiple designers’
clothes as well as several specialist clothing stores carrying just one brand. Home-
maker centres offer a similar advantage. A consumer looking to buy a new dining
suite can often see dozens of options in several stores all under one roof. Super-
markets bring many different types of products into one store, meaning con-
sumers can buy meat, dairy products, fruit and vegetables, canned foods, cleaning
products and many other items with one shopping trip and one transaction. At its

Chapter 10  Distribution (place) 375

 extreme, this is known as ‘scrambled merchandising’. Even if they choose to visit
a butcher, a cheese shop and a greengrocer instead, it is still often much easier for
the producer and consumer than having direct exchanges between the producers
and consumers for each product.

Types of retailers
There are many different forms of retailer, each offering relative strengths and weak-
nesses for the customer and the producer or wholesaler. We will discuss the various
forms in this section and also note the ‘wheel of retailing’ theory, which explains
how the overall mix of the retail sector evolves over time.
Specialty retailers
Specialty retailers usually carry just one or a small number of different types of
products, but within that product line, they carry a great deal of variety. The charac-
teristics of the main specialty retailers — specialty stores, category killers, off-price
retailers and pop-up shops — are outlined in table 10.2.

Table 10.2  Specialty retailers

Type of store Description Characteristics Examples

Specialty Retailers that carry • Often located in shopping Sussans

stores a relatively narrow centres Michael Hill
range of product • Offer customers variety and Jeweller
types, but offer great personal service by salespeople
variety within those with a high degree of product Sportsgirl
product lines knowledge
• Higher prices than similar
products at department stores
or supermarkets
• Specialty stores with well-
established marketing channels
(particularly franchises and chain
stores) can obtain substantial
discounts from suppliers

Category A type of specialty • Operations are big enough that JB Hi-Fi

killers retailer that focuses it can buy supplies very cheaply Toys ‘R’ Us
on a particular and sell cheaply in enough
product category volume to make a profit
and attracts • Make it very difficult for
customers with smaller-scale specialty stores to
low prices and a compete
very wide variety of • Often result in a monopoly or
products within that oligopoly
category

Off-price Retailers that sell • Some are collections of DFO (Direct

retailers manufacturers’ manufacturers’ stores Factory
seconds, • Often carry quite similar lines Outlet)
superseded to department stores but at a
products, excess considerably lower price
supply and returns • Little flexibility in terms of returns
with little customer • Often located away from
service and at very retailers to avoid competing
low prices directly on price with partners in
the distribution channel

376 Marketing
 Type of store Description Characteristics Examples

Pop-up shops Retailers that appear • Often located in empty stores in Olympics
(flash retailing) for a short term in a streets or shopping centres Clothing
temporary space to • Open for a limited time labels
sell a specific type or • Low rent outlet
themed product • Limited flexibility in terms of One
returns Direction
• Products may be fads or taking Dr Who
advantage of a special event

General-merchandise retail stores

General-merchandise retail stores offer a wide variety of products. The main general-
merchandise retail stores are convenience stores, showrooms, department stores,
discount stores, supermarkets, superstores and hypermarkets. Most of these will be
familiar if you spend much time shopping. Table 10.3 highlights the key character-
istics of each of these.

Table 10.3  General-merchandise retail stores

Type of store Description Characteristics Examples

Convenience Small shops located • High operating costs 7-Eleven

stores/corner near residential • Low turnover BP Select
shops areas, carrying a • High prices
small range of basic • Local customers Star Mart
necessities and • Source stock from
opening extended wholesalers or a larger
hours retailer

Supermarkets Self-service retailers • Account for about three- Woolworths

that carry a large quarters of Australia’s Safeway
range of food and grocery purchases
non-food grocery • Large range of both food Coles
items (fresh, canned, dried BI-LO
and frozen) and non- IGA
food (cleaning products,
clothing, storage and Aldi
hygiene) grocery items
• Customers pick items off
shelves and pay at central
checkouts
• Low prices (based on
high turnover and efficient
supply chain management)
• Relatively long opening
hours
• Often located next to other
stores
• Face competition from
specialty stores

(continued )

Chapter 10  Distribution (place) 377

 Table 10.3  (continued )

Type of store Description Characteristics Examples

Discount Self-service stores • Little customer service The

stores relying on low prices • Range of products is Warehouse
and high turnover similar to department Big W
stores
• Popular with consumers to Kmart
the detriment of higher- Target
priced department stores

Department Large stores • Attentive, personal service Myer

stores carrying a wide • Access to finance David Jones
range of products, • Relatively easy returns
often organised • Delivery services Ballantynes
into specialist • Additional services such (NZ)
departments, and as gift wrapping
offering a relatively
high level of
customer service

Showrooms Large retail facilities • Large inventories (stored in IKEA

that offer little warehouse-like facilities in Far Pavilions
customer service, store or off site)
handle products • Often present products in
in a similar way to simulated real-life settings
warehouses, and • High-profile retail locations
base their business • Sometimes locate
on low margins, but warehouse facilities off site
high turnover for cost benefits
• Often offer a delivery
service

Hypermarkets Retailers that • Relatively unknown in Tesco Lotus

combine the Australia and New Zealand Giant
products and • Common in Europe and
characteristics of a Asia
supermarket and a • Carry up to 50  000 items
discount store ranging from bread and
televisions to jewellery and
fast food

Superstores Retailers that carry • Relatively unknown in Carrefour

supermarket lines Australia and New Zealand
plus a wide range of • Common in Europe and
other goods more Asia
traditionally carried • Similar to supermarkets,
by specialist or but carry several times as
department stores many products, including
whitegoods, hardware and
motoring items

378 Marketing
The ‘wheel of retailing’ theory
The wheel of retailing is a theory about how retailers evolve in the market. It
is somewhat similar to the product life cycle concept. According to the wheel of wheel of retailing The theory
retailing theory: that retailers enter the market
with low costs, low margins and
• retailers enter the market using some innovation to achieve low costs and use that
low prices, but move to high
to charge low prices costs and high prices as they
• other new and existing retailers copy the low-cost innovation and compete directly seek to compete with copiers,
with the new entrants only to then have to compete with
• to distinguish itself, the retailer adds extra services, improves its location and store new low-price entrants.
image, and so on, which results in higher costs and higher prices
• new retailers enter the market using some new innovation to achieve low costs
and then compete with the original, now high-price, retailer.16
Online retailing
Online retailing is a rapidly growing form of retailing. Online retailing (or e-tailing)
involves selling to customers via the internet. The most common online purchases
are airline tickets, accommodation, DVDs, books and magazines. For customers,
online retailing enables purchases without leaving home. This is offset by the
inability to examine the product in ‘real life’, plus the probable postage fees. For the
online retailer, catalogue marketing avoids the expense associated with stores and
enables them access to customers in any geographic region.
There are generally two types of online retailers: those that exist only online or
online in combination with other direct marketing avenues; and those that operate
an online ‘store’ as a complement to their physical store.
In the first category — retailers that operate only through direct marketing
approaches — are businesses such as the men’s underwear site DUGG (Down Under
Guys Gear — www.dugg.com.au) and auction site eBay.
In the second category are retailers such as Officeworks that have stores located in
metropolitan areas, but also offer all of their products via their website. This strategy
allows Officeworks to sell to customers who do not live anywhere near an Officeworks
store, thus competing with local stationery and office supplies outlets, and to sell to
those who simply prefer the convenience of buying online. Other examples include
Dymocks, ABC, Qantas and the major banks. Retailers with a physical and an online
store need to carefully coordinate the offerings of each. According to Adrian Williams, a
senior analyst at retail researcher IGD, the web cannot be seen as a distinct marketing
channel; the online price should be available in store and if a consumer buys a product
online, that product should be able to be returned to a physical retail outlet.17
With the now pervasive nature of the internet, retailers must carefully coordinate
their promotional activities. Whereas once consumers might visit five stores and
look at dozens of alternative products before making a choice (for major purchases),
there is a distinct trend now for consumers to research and shortlist online and then
go to just one or two stores and look at only a few products ‘in the flesh’ before
making their choice. While many consumers like to go to a physical store to make
the purchase even though they have, or nearly have, chosen which product to buy
online, there have been complaints from retailers who claim people try clothing in
the retail store but then purchase online at a lower price.18
From the very first days of e-commerce, internet industry strategists and the mass
media warned that consumers would be reluctant to buy online because they would
have to divulge their credit card and other personal details and/or they did not trust
the retailer. With massive media coverage given to cybercrime, a degree of para-
noia became entrenched in the early years of online retailing. However, while there
are real security risks involved in revealing personal information online, millions

Chapter 10  Distribution (place) 379

 of people conduct their transactions online every day. In fact, almost two-thirds of
­Australians and nearly half of New Zealanders make an online purchase every month.
Only a minority of transactions are subject to fraud. Nevertheless, security remains
an issue, which stops some customers from using the online purchasing facilities.
According to a study by A.C. Nielsen, some 75 per cent of Australians do not feel safe
providing credit card information online and only 18 per cent of ­Australians say they
trust online retailers. Over time, however, online shopping has become more per-
vasive. At the moment, there are still some trends apparent in the profile of online
shoppers. While males and females shop in equal numbers, people aged over 55 are
under-represented and people with incomes over $95  000 are overrepresented.19
mobile e-commerce The Related to online retailing is mobile e-commerce or m-commerce. Mobile
use of a mobile phone to make e-­commerce is the use of a mobile phone to make purchases. Given mobile phones
purchases.
are increasingly web-enabled, mobile e-commerce encompasses all of online retailing,
plus a number of unique direct selling opportunities. Mobile e-commerce is still very
much an emerging field. There should not really be any difference between buying
with a mobile and buying with a PC. In fact, it is quite possible already to stand in
front of a salesperson in a shop and go online on a mobile to check c­ ompetitors’
prices. A Google survey found that 49 per cent of Australian smartphone owners
have used their mobile phone to research and call local businesses, and 20 per cent
have used their phone for purchasing.20 Online retailing is discussed further in the
chapter on electronic marketing.
Other forms of retailing
direct marketing A type of Direct marketing is a type of non-store retailing that uses mail, telephone or the
non-store retailing that promotes web to promote products directly to potential customers and requires the cus-
and sells products via mail,
tomer to respond in the same way. Direct marketing does not rely on a store, but
telephone or the web.
offers consumers complete flexibility as to the timing of their purchases and the
ability to shop without leaving their homes. The main types of direct marketing are
online retailing, telemarketing, catalogue marketing, television shopping and direct-
response marketing. We will discuss each in turn.
Telemarketing
Telemarketing is the performance of marketing-related activities over the telephone.
Consumers overwhelmingly hate it, but it is successful enough that many businesses
invest enormous resources into it. The type of telemarketing that consumers most
object to is cold calling at home, whereby a business phones a private residential
phone number and tries to sell a product or service to the householder. Sometimes
householders are chosen based on an existing relationship with the business (e.g. if
you have a savings account with ANZ, they might phone you trying to sell you life
insurance); sometimes based on a related interest (e.g. a magazine that you subscribe
to sells your details to a business that sells products related to the topic of the maga-
zine); and sometimes there is no pre-selection of the ­household — the telemarketer
is calling you entirely at random. Public resistance to telemarketing reached such
a strong point in the early 2000s that the Australian federal government introduced
the Do Not Call Register whereby households could opt out of telemarketing offers21
(except those by charities, religions and businesses with which the householder has
an existing business relationship). The New Zealand Marketing Association runs a
similar scheme, but it is applicable only to members of the association.22
Catalogue marketing
Catalogue marketing might sound old-fashioned, but it is still an effective direct
marketing approach. Avon, Amway and Tupperware are all businesses that use
catalogue marketing. In catalogue marketing, the marketing organisation provides

380 Marketing
a catalogue to customers who then place their orders by mail, telephone or the
internet. Catalogue marketing offers customers all the convenience of online shop-
ping. They can peruse the catalogue at their leisure and purchase without leaving
their homes. On the other hand, the range of products available via catalogues is
fairly limited. For the retailer, catalogue marketing provides access to customers
who do not live near stores.
Direct-response marketing
Similar to catalogue marketing, direct-response marketing requires customers to use
the mail, internet or telephone to make a purchase. The difference is that instead
of catalogues, direct-response marketing uses advertising, such as a brochure in
a mailbox, spam or a television advertisement. For example, advertisements pro-
moting the product that ends with a phone number, the instruction to ‘call now’ and
the reassurance that ‘our operators are waiting’.
Television home shopping is essentially an enlarged version of direct-response
marketing, where a full half-hour program is devoted to promoting a particular
product  (often in the early hours of the morning) or indeed an entire television
channel is dedicated to home shopping, like the Television Shopping Network.23 Like
the other forms of direct-response marketing, television home shopping ­promotes
a product to viewers and then requires customers to phone in their order  details.
Television home shopping offers convenience for customers, but as with all direct
marketing approaches, the consumer cannot inspect the product before they
­purchase and may find it does not meet their expectations. Some sellers overcome
this by offering to accept the product back if it does not satisfy the customer.
Door-to-door selling
Door-to-door selling, sometimes known as direct selling, is an approach taking
its name from the old practice of a salesperson walking door to door to promote
products to people at home. Few companies still use this approach. Today a modi-
fied version, whereby potential customers are more strategically selected, is more
common. Usually customers are identified through some other means and then an
appointment is made for a visit by a salesperson.
A variation on door-to-door selling is the party plan, most commonly associated
with Tupperware and Tupperware Parties. In recent years, the party plan concept
has expanded to other products, most notably lingerie. The party plan method of
direct selling relies on a consumer hosting a party for friends, work colleagues
and/or neighbours at which a salesperson leads the group through product demon-
strations. The party plan is generally better accepted by consumers because they opt
in to it rather than being targeted by a door-to-door salesperson or someone wan-
dering around a shopping centre.
Successful door-to-door selling relies on a skilful salesperson and a considerable
devotion of time and resources to generate sales. As such, it is the most expensive
form of retailing. It does, however, offer the marketer exclusive access to the cus-
tomer and the ability to fully promote the benefits of their products. For consumers,
door-to-door selling offers the highest level of customer service and, in the case of a
party plan, a degree of entertainment.
Automatic vending
Automatic vending relies on machines to accept payments and then dispense prod- automatic vending Use
ucts. Historically, vending machines have involved putting coins in a slot. With of machines to dispense a
product; used for small, routinely
increasing prices and for convenience, some now take notes and some take credit
purchased products.
or debit cards. In fact, there are vending machines that accept notes and dispense
coins just to provide the coins required for other vending machines! Some vending

Chapter 10  Distribution (place) 381

 machines are now being installed that allow payments to be made via the customer’s
mobile phone — the charge for the product appears on the customer’s phone bill. At
present these are most common in Japan, but they are gradually being installed in
metropolitan areas in other countries, including Australia.
Automatic vending machines are often used to sell the following goods:
• hot and cold beverages (including beer in some countries) and snacks — in work-
places, hospitals, train stations, airports, shopping centres
• lollies — the traditional mechanical gumball machine dispensing a superball, a
trinket or a handful of gum or M&Ms
• DVDs — at supermarkets, shopping centres, convenience stores
• condoms and feminine hygiene products — particularly in service stations, pubs
and clubs
• cigarettes — though this is banned in many countries and declining in others due
to anti-smoking regulations and concerns about underage customers
• newspapers — particularly in the USA.
While the type of goods available from vending machines in Australia is fairly
limited, in some other countries, most notably Japan, a very wide range of items
is available from vending machines. For example, vending machines in Japan sell
underwear, toothbrushes, disposable cameras, magazines and iPods.
Some service organisations have made use of vending machines to avoid people
queuing to see a customer service officer, when the process does not really require
human judgement. Train ticket machines are one example — at some train stations
commuters can still choose to buy their ticket from a person; at others they cannot.
More recently airlines have adopted similar machines, where passengers can obtain
their boarding pass from a vending machine. If they have no luggage to check, it
avoids the need to join a long queue at check-in.
The main benefits of automatic vending are that the product can be bought by
the customer without any immediate interaction with staff of the marketing organ-
isation. Essentially, vending machines are an ‘always open’ store. In some cases, like
printed tickets and hot drinks, the machine actually does some of the making of the
product. While not strictly vending machines, coin-operated laundromats and public
toilets work on a similar principle of pay per use without a customer service oper-
ator involved.
It is not all good news though. Vending machines are expensive pieces of elec-
tronic machinery, which require regular maintenance and restocking (some more
sophisticated machines report their inventory back to base). They are subject to
vandalism and they are impersonal — not many customers feel loyalty to a vending
machine. They often malfunction. Anyone who uses vending machines regularly
will have experienced receiving a cup of hot water rather than a cup of hot choco-
late, or will have seen the bag of crisps they have paid for dangling from the shelf
rather than falling into the dispensing tray.

Spotlight  David Jones: from mail to online catalogues

Distance and isolation have always been a problem for people living in rural areas, particularly for
the purchasing of important household products. During the late 1800s with the establishment of
the railway, the increase in literacy, the improvement in postal services and the growth of department
stores, a large variety of goods was made available through mail order. People across the country who
were unable to get to ‘the big smoke’ or city could still purchase the latest products, including modern
machinery, kitchenware, linen and especially fashion. Mail-order catalogues became an important
medium for marketing a store’s product line and vital for achieving sales nationwide. For people in

382 Marketing
outlying areas, catalogues altered the quality of their lives, as it became their link with the city and the
changing society. Soon, ‘it took its place beside the family Bible in the country homesteads’.24
In 1838, Welsh merchant David Jones began trading. Over the years, the business prospered and
expanded, becoming Australia’s main up-market retailer, and was responsible for a number of firsts in
Australian retailing, including mail order. David Jones Ltd has used catalogues displaying products for
many years. Although an informal mail-order service had been available, it first offered a formal
mail-order catalogue in 1879. People restricted by distance could now purchase dresses, suits, hats,
gloves and more from David Jones through the mail with delivery by Cobb & Co coaches. Samples of
new fabrics and a self-measurement form were enclosed with each catalogue to help customers order
the style and colour of clothing they liked.
Mail-order selling continued to be popular during the 1930s and 1940s. However, a number
of factors resulted in a decline in the use of mail order for the large city department stores. Better
transport in the country, the growth of well-serviced country centres, the feeling of resentment from
country shopkeepers, and the development of chain variety stores and supermarkets saw a fall in
the use of mail order from the country. For retailers, the increased competition meant an increase
in discounting and a decrease in profits, while the price of paper and postage rose, making it more
expensive to maintain the large storage areas for inventory. The number of mail-order retailers
declined, resulting in a few dominant leaders with regular customers and a focus into niche markets,
rather than a full range of products. David Jones closed its large mail-order warehouse in Homebush in
1980, just on 100 years since it commenced operating its mail-order business.
However, the arrival of the internet has
not only revolutionised communications but
retailing around the world. Its impact on
business has been significant in changing
how companies market their products. While
being criticised for being slow to get on the
internet bandwagon, David Jones has made
catalogues available online with limited sales
operations. In 2012, David Jones released its
‘Future strategic direction plan’, which sets out
the strategy to deal with changes in the retail
sector and economic conditions. It included
plans to transform it into an ‘omni channel
retailer’ by growing the store network and its
physical infrastructure, upgrading warehouse
facilities and launching a new online shopping
site. The website offers more than 950 local  opyright David Jones Limited.
C
and international brands with a choice of 90  000 individual products. This will mean that people can Reproduced with permission.
access the same brands online that they would see at any David Jones store.25

Questions
1. Discuss the similarities and differences between mail-order catalogues and selling online.
2. W
 hat might be some distribution implications for retailers such as David Jones if their online sales
significantly increase in the future?

Concepts and applications check

Learning objective 4  understand the major aspects of retailing
4.1 Think of an example of a product that is exclusively distributed through a specific retailer in your
geographic region. Explain why you think the organisation has adopted that distribution strategy
for its product.
4.2 Outline the major considerations in choosing a retail location.

Chapter 10  Distribution (place) 383

 4.3 Choose example stores from two of the types of general merchandise retail stores outlined in
table 10.2 (e.g. a discount store such as Kmart versus a department store such as Myer). Outline
the advantages that each store has over the other.
4.4 Imagine you are the marketing manager for a specialty hardware retailer such as Mitre 10. Briefly
outline some marketing strategies you may be able to use against a potential ‘category killer’, such
as Bunnings.
4.5 Explain the ‘wheel of retailing’ concept in your own words.
4.6 Discuss three types of non-store retailing. What are the benefits to consumers?

AGENTS AND BROKERS

Learning objective 5 Agents and brokers are important intermediaries that connect customers, industrial
explain the role of agents buyers and other participants with each other in the distribution channel. Agents
and brokers in the and brokers earn income from commissions, which are usually calculated on the
distribution channel
total size of the sale.

Agents
agents Marketing intermediaries Agents are engaged by buyers or sellers on an ongoing basis to represent them in
engaged by buyers or sellers on negotiations with other marketing channel participants. For example, Max M ­ arkson’s
an ongoing basis to represent company Markson Sparks! acts as an agent for a number of well-known celebrities,
them in negotiations with other
parties in the marketing channel.
including TV presenter Catriona Rowntree (see www.marksonsparks.com). The main
types of agents are as follows
• Manufacturers’ agents that act in a similar way to a salesperson for multiple pro-
ducers, selling specified, non-competing products in a particular region under
standard terms and conditions. For the manufacturer, the use of manufacturers’
agents can remove the need to employ and manage a sales team. For the retail
and wholesale buyers, it is more efficient to deal with a small number of manufac-
turers’ agents than to deal with manufacturers individually.
• Selling agents that are commonly used by small producers that cannot afford a
salesforce or marketing department. Selling agents usually work for multiple pro-
ducers, but do not take on competing products. They have a fairly involved role in
how the product is promoted and priced.
• Buying agents that make specialist purchases and handle goods for long-term part-
ners, such as retailers. Buying, or purchasing, agents generally have extensive
knowledge of the products they work with, can advise their partners and are able
to obtain beneficial pricing and terms.
• Commission merchants that receive goods on consignment and negotiate the best
possible price in centralised markets. The Tokyo flower markets operate with com-
mission merchants who sell consignments of flowers at a massive flower market
by auction each morning.

Brokers
brokers Marketing Brokers are engaged on a short-term or one-off basis to negotiate on behalf of buyers
intermediaries engaged by buyers or sellers. They have a more limited role than agents, but their value is in their
or sellers on a short-term or specialist knowledge and well-established contacts in the industries in which they
one-off basis to represent them in
negotiations with other parties in
work. Real estate salespeople (commonly — and rather confusingly — known as real
the marketing channel. estate agents), insurance brokers, mortgage brokers and stockbrokers are among the
better known examples of brokers.
Insurance brokers work to find the most suitable insurance for individuals and
organisations and provide expert advice about insurance contracts. Even standard
consumer insurance products such as motor vehicle insurance and home and

384 Marketing
contents insurance can involve long and complex policy documents. For the exten-
sive and often very specific insurance requirements of businesses (including insur-
ance for assets, revenue, liability, personnel and indemnity), an insurance broker
can use their industry knowledge and contacts to negotiate a suitable insurance
product that adequately covers the business. Insurance brokers can also help insur-
ance providers by handling many of the upfront administrative tasks.
Mortgage broking became a boom industry in the 1990s as many non-bank lenders
entered the home loan sector to compete with the traditional banks. As the mortgage
market became more competitive and as mortgage products themselves became more
complex, offering a bundle of financial services in one integrated package, many con-
sumers turned to mortgage brokers to help them identify the best deal. As discussed
earlier in the chapter, mortgage brokers can offer consumers a higher level of service
than the financial institutions and offer lenders access to new customers. Mortgage
brokers often take responsibility for almost all aspects of the loan application.
The insurance and mortgage broking industries have been widely criticised over
the past decade, as it has come to light that some brokers have guided their cus-
tomers towards products that maximise the broker’s income rather than necessarily
providing the most suitable product. Mortgage brokers, for example, receive dif-
ferent fees and trailing commissions from different financial institutions, providing
an incentive to direct their customers to the loan that will provide the highest pay-
ment to the broker. Some, particularly in the United States, have also been criticised
for manipulating the loan application process to obtain much larger loans for bor-
rowers than they can realistically afford to repay.
The business of many brokers has changed over the past decade as e-commerce
has taken over many of the functions of processing transactions. For example, the
broker Commonwealth Securities, better known as CommSec — a subsidiary of the
Commonwealth Bank of Australia (CBA) — offers traditional telephone broking of
shares and other financial securities, but the vast majority of its business is now
done through its low-cost online service (www.comsec.com.au). Traditionally, stock-
broking was undertaken by specialist stockbrokers for a small number of investors,
but the increasing stockmarket awareness of the general public, combined with
the ability to provide cheap broking, has greatly increased the number of people
investing in the stockmarket. The budget online services usually provide low-cost
access to stockmarket data that investors can analyse, but do not provide specialist
advice, which remains a premium add-on product.

Elders: rural agents Spotlight 

Most people would recognise the name and the red Elders logo as being a real estate agency.
However, if you perceive Elders as only a real estate agent then you are probably a city dweller. In rural
areas, Elders plays a major role as an agribusiness company across Australia and New Zealand. In
1839, Alexander Lang Elder started the company as a branch of his Scottish family’s merchant and
shipping business. To begin with, it was a trading company and commission agent for wool and other
agricultural products for sale to the United Kingdom. These days, it has over 4000 employees and
offices around the world, including Germany, Japan, Korea and China.
Elders’ real estate agent network is better known by some people, and it has over 320 offices
operating in cities, and major regional and rural centres across the country. Recently in one year it
sold over 8000 properties for a total value of $3.23 billion. As well as providing the usual services for
residential sales, such as houses, units and land, Elders also offers a wide range of areas including
property management, commercial sales and leasing, rural property and commercial farms, hobby
farms, water trading, and holiday rentals.

Chapter 10  Distribution (place) 385

 However, Elders also has a number of
trading divisions, including wool, livestock,
grain, merchandise, real estate, business
brokers, insurance, risk management,
financial planning and telecommunications. As
a livestock agent, Elders has a network of over
100 livestock agents and dairy herd
specialists. It offers their clients specialist
advice and expertise aimed to help them
achieve their objectives. Some of the national
and international marketing activities include:
• auctions
• forward contracts
• livestock calculations
• on-farm clearing sales
• prime stock marketing
• private treaty sales
• live export.
With a strong international network of relationships, Elders supplies sheep and cattle for markets in
North Africa, the Middle East, South America, Russia and Asia.
Next time you see an Elders sign, you know that the organisation is more than just people trying to
sell a house.26

Questions
1. Elders is a large organisation with several trading divisions. Discuss the advantages and disadvantages
of working in these different areas.
2.  What advantages do companies like Elders bring to the primary industry market?

Concepts and applications check

Learning objective 5  explain the role of agents and brokers in the distribution channel
5.1 How is a wholesaler different to an agent? What type of industries would use an agent?
5.2 What is the difference between an agent and a broker? Give examples in your answer.
5.3 Explain how agents and brokers can assist in bringing about a sale.

WHOLESALING
Learning objective 6 Wholesaling comprises exchanges in which products are bought for resale, for use as
explain the role of inputs in other products, or for some other use in a business. Wholesaling does not
wholesalers in marketing
include transactions with end consumers. A wholesaler is simply an organisation
distribution
primarily engaged in wholesaling. Some organisations do undertake wholesaling and
retailing. For example, Sydney Fish Market Pty Ltd is a fresh fish wholesaler, but
wholesaling Exchanges in also has an extensive fresh seafood retail business.
which products are bought for While retailing is familiar to most of us, consumers do not usually deal with whole-
resale, for use as inputs in other salers. Wholesaling differs from retailing in that wholesalers deal with businesses.
products, or for some other use
Their marketing mix is geared towards that, so, for example, they generally do not
in a business.
advertise in the mass media or try to site themselves in a fashionable shopping

386 Marketing
area. They tend to deal in large volumes of product in each transaction. While some
­wholesalers do deal directly with end consumers, they are usually not set up to handle
numerous small transactions.

Major wholesaling functions

Wholesalers act as the connection between producers and retailers and offer ben-
efits to both. For the producer, wholesalers:
• act as a salesforce, promoting and selling its products to retailers
• hold and manage inventory, relieving the producer’s warehousing and transport
burden
• assume the risk when retailers are given products on credit
• provide cashflow by paying for and taking possession of inventory shortly after it
is produced
• communicate producer and market issues to retailers.
For many producers, these benefits — and the fact that wholesalers, being special-
ists, can provide the services more efficiently than the producer can perform them
itself — outweigh the financial costs of dealing with wholesalers in the marketing
channel.
For the retailer, wholesalers:
• manage distribution
• help choose and source appropriate inventory
• have bulk buying power and the ability to negotiate good deals with producers
• provide access to a wide range of goods through one business partnership
• can provide sophisticated technology solutions to manage ordering
• can provide credit
• communicate market and retail issues to producers.

Types of wholesalers
Wholesalers are considered to be merchant wholesalers if they are independently
owned and manufacturers’ wholesalers if they are owned by the producer. Agents
also share many of the characteristics of wholesalers, but the fact they do not take
ownership of the products at any point in the distribution channel is an important
distinction.
Merchant wholesalers
Merchant wholesalers are independently owned (i.e. not owned by the producer). merchant wholesalers 
They take ownership of the product from producers and sell it on to retailers. (Indus- Independently owned wholesaling
businesses that take title to
trial distributors are the business market equivalent of merchant ­ wholesalers  —
products.
selling to producers rather than retailers.) Merchant wholesalers are either
full-service wholesalers or limited-service wholesalers.
Full-service wholesalers
Full-service wholesalers, as the name suggests, perform the full gamut of whole-
saling activities, and retailers and producers rely heavily on them for numerous
­services. Full-service wholesalers are one of the following:
• general-merchandise wholesalers — wholesalers that carry a wide variety of product
lines, but relatively little depth within those product lines
• limited-line wholesalers — wholesalers that carry only a few different product lines,
but have considerable depth in each line
• specialty-line wholesalers — wholesalers that carry a single product line and only a
few items within that line.

Chapter 10  Distribution (place) 387

 Limited-service wholesalers
Limited-service wholesalers specialise in a narrow range of wholesaling services,
leaving it to producers and retailers to perform for themselves many of the functions
provided by full-service wholesalers. For example:
• cash and carry wholesalers — wholesalers that supply a limited number of lines of
high-turnover products to small businesses, which pay in cash and transport the
products themselves
• drop shippers — wholesalers that purchase from producers and sell to retailers, but
organise shipment directly between those two parties rather than take possession
of the products
• mail-order wholesalers — wholesalers that use catalogues and mail or courier ser-
vices rather than salespeople and their own transport to promote, sell and deliver
goods to retailers.
Manufacturers’ wholesalers
manufacturers’ wholesalers  Manufacturers’ wholesalers, also known as manufacturers’ sales branches and
Wholesalers owned by the offices, are similar to merchant wholesalers, but are owned by the producer itself
producer.
and thus represent a form of vertical integration. A producer will choose to operate
its own wholesaler when no existing wholesaler provides the necessary services or
when the producer, through some technique, can more efficiently handle wholesale
than could a partner.
Manufacturers’ wholesalers are either sales branches or sales offices. Sales
branches are located close to the manufacturer’s major customers and provide credit,
transport, promotional and other services. In addition to selling the producer’s prod-
ucts to retailers and other intermediaries, sales branches support the producer’s
salesforce. Sales offices do not carry inventory, but otherwise function in much the
same way as sales branches.

Spotlight  Fish markets: seeing marketing in action

Even though they can be loud and smelly places, fish markets are an example of wholesale selling.
At these markets, those who have caught the fish and other seafood products connect with fish
merchants, restaurateurs, retailers and individual customers. It is big business and many fish markets
around the world have also become tourist attractions.
The Auckland Fish Market at Freemans Bay, for example, sells over 20 tonnes of seafood a day
provided by over 200 suppliers. But the market building also has a number of seafood retailers, a food
market, restaurants, licensed cafes and the Auckland Seafood School. Similarly, the Sydney Fish Market
at Pyrmont has a variety of seafood retailers, a bakery, sushi bar,
restaurants and a deli, as well as a working fish market, which trades
over 14  500 tonnes of seafood a year, making it the largest market of its
kind in the Southern Hemisphere. However, this is a fraction compared
to the Tokyo Metropolitan Central Wholesale Market, the biggest
wholesale fish and seafood market in the world. The Tokyo fish market,
or the Tsukiji market, located in central Tokyo, has been described as
‘the heart, soul and, most importantly, the stomach’ of Tokyo. It is also
one of the largest wholesale food markets of any kind and has become
a major attraction for visitors. There are two areas of the market:
1. the inner market, which is the wholesale market where the
auctions and the processing of the fish take place, and where
900 wholesale dealers operate stalls
2. the outer market, which is a mixture of restaurants, wholesale
shops and retail shops that sell seafood and cooking supplies.

388 Marketing
 The Tsukiji market handles more than 400 different types of seafood, including seaweed, sardines,
tuna, and even, controversially, whale meat. Each year over 700  000 tonnes of seafood are sold,
valued at around 600 billion yen, and the market employs approximately 60  000 people. So big is the
market that it has grown out of its old building and it will move to a new location a few kilometres away.
The new market will have 408  000 square metres of floor space, which is 40 per cent larger than the
current building.
If you go to Tokyo, Sydney or Auckland, it is highly recommended that you have a look at the fish
market, as there you will see marketing in action with wholesalers, distributors, retailers and consumers
at the one place.27

Question
Wholesalers such as those at the fish markets usually deal with both businesses and consumers. What
problems could this cause in the marketing channel?

Concepts and applications check

Learning objective 6  explain the role of wholesalers in marketing distribution
6.1 Explain the role of a wholesaler in your own words.
6.2 Outline how wholesalers can benefit producers.
6.3 Outline how wholesalers can benefit retailers.
6.4 Explain the difference between manufacturers’ wholesalers and merchant wholesalers.

Chapter 10  Distribution (place) 389

 Key terms and SUMMARY
concepts Learning objective 1  understand the concept of place and how
agents  384 distribution channels connect producers and consumers/organisational
automatic vending  381 buyers
brokers  384
cross-docking  366 The concept of ‘place’, or distribution, involves the way products can be eventu-
direct marketing  380 ally ‘placed’ in the hands of the final consumer through a supply chain between
distribution centre  366 producers and consumers (or organisational buyers in the case of business-to-­
­
distribution channel  355 business markets). The chain of distribution is known as a distribution channel.
exclusive distribution  357 The key organisations in the marketing channel, or intermediaries, include
franchising  362 ­wholesalers, industrial buyers, agents or brokers, and retailers. Marketing inter-
freight forwarders  367 mediaries are useful and necessary when they can more efficiently connect pro-
horizontal channel
ducers with their customers than can the producers themselves. Even if a producer
 integration  361
can manage to get their product directly to end users, they are often better off to
intensive distribution  357
just-in-time (JIT)  366 concentrate on  their core abilities (production) and rely on specialist intermedi-
manufacturers’ aries who can more efficiently move the product closer to customers. Because they
 wholesalers  388 have e ­xpertise,  ­
equipment, experience, contacts, skills and scales of economy,
marketing ­intermediaries help producers achieve better results than producers can achieve
 intermediaries  355 when acting alone.
materials handling  367
merchant wholesalers  387 Learning objective 2  describe the major activities involved in the distribution
mobile e-commerce  380 of goods
retailing  373
selective distribution  357 Physical distribution is the movement of physical products from the producer to
supply-chain the consumer. It involves order processing, inventory management, warehousing
 management 361 and transportation. Order processing involves receiving and validating orders from
vertical channel customers and salespeople. Inventory management involves ensuring the organ-
 integration  362
isation holds enough stock to fill orders without having so much stock on hand that
vertical marketing
 system  362 inventory holding costs become unreasonably high. Warehousing is the use of facil-
wheel of retailing  379 ities (generally a building) to store and move goods. Transportation is the process
wholesaling  386 of moving products from their place of manufacture to their place of consumption,
principally via road, rail, sea, air and pipelines. Most distribution channels coordi-
nate multiple modes of transport.

Learning objective 3  describe the major activities involved in the distribution

of services
Services products are usually produced at the time of consumption and so the notion
of ‘service distribution’ is quite different to physical distribution. However, physical
distribution is required for the physical inputs used in producing and delivering the
service product, some services are delivered using infrastructure, and service busi-
nesses must ensure that the labour is available at the right time and the right quan-
tities to ensure customers can be served.

Learning objective 4  understand the major aspects of retailing

Retailing describes any exchange in which the buyer is the ultimate consumer of
the product. Distribution channel intermediaries that are primarily concerned with
retailing are called ‘retailers’. Retailers provide customers with time utility, place
utility, form utility, advice and personal service, and exchange efficiencies. There is
an enormous range of retailers, including general-merchandise retail stores, specialty
retail stores, online retailers and numerous others.

390 Marketing
 Learning objective 5  explain the role of agents and brokers in the distribution
channel
Agents and brokers bring together other participants in the distribution channel.
Agents are engaged by buyers or sellers on an ongoing basis to represent them in
negotiations with other distribution channel participants. The main types of agents
are manufacturers’ agents, selling agents, buying agents and commission merchants.
Brokers, on the other hand, are engaged on a short-term or one-off basis to negotiate
on behalf of buyers or sellers. They have a more limited role than agents, but their
value is in their specialist knowledge and well-established contacts in the industries
in which they work.

Learning objective 6  explain the role of wholesalers in marketing distribution

Wholesaling comprises exchanges in which products are bought for resale, for use as
inputs in other products, or for some other use in a business. Wholesaling does not
include transactions with end consumers. Wholesalers tend to deal in large volumes
of product in each transaction. Wholesalers offer benefits to the producer by acting
as a salesforce, promoting and selling its products to retailers; holding and managing
inventory, relieving the producer’s warehousing and transport burden; assuming the
risk when retailers are given products on credit; providing cashflow by paying for
and taking possession of inventory shortly after it is produced; and communicating
market issues to the producer and retailers. For the retailer, wholesalers can manage
distribution; help choose and source appropriate inventory; have bulk buying power
and the ability to negotiate good deals with producers; provide access to a wide
range of goods through one business partnership; can provide sophisticated tech-
nology solutions to manage ordering; can provide credit; and communicate market
and retail issues to producers.

Chapter 10  Distribution (place) 391

 Case study Linfox growing businesses across Asia
Linfox is a great Australian success story. Founded by Lindsay Fox in 1956 with one truck in
Melbourne, it has become the largest privately owned supply-chain solutions provider in the
Asia–Pacific, offering warehousing, transportation and supply chain management. Red and yellow
trucks with ‘you are passing another FOX’ on the back can be regularly seen on Australian roads,
but Linfox is far more than just a trucking company. It operates:
more than 3.8 million square metres of warehousing and nearly 5000 vehicles across
10 countries. More than 19  200 people deliver sophisticated supply chain services to a wide
range of leading business names.28
Since opening its first Asian office in China in 1984, Linfox’s work in the region has spread. The
company is now developing a strong presence in Asia, including countries like India and Malaysia.
These operations are supported in the region by specialist IT, finance and administration, fleet and
procurement, facilities development, human resources, legal, risk and insurance, and supply-chain
management services. According to Mark Parlane, Vice President Asia Retail and Industrial (who has
responsibility for Linfox in China, Thailand and India):
Linfox is already capitalising on growth opportunities. For instance, our work with Tesco in China
and Thailand is growing substantially as the retailer’s business develops. We provide the planning
expertise, IT systems and ability to manage scale in economies that account for 45 per cent of the
world’s population.29
Linfox China began its partnership with Tesco in 2009 and provides ambient transport services
for 94 stores in eastern China, as well as national delivery to Tesco’s fresh distribution centres (DCs)
across China and transfers cargo from Jiashan to Shanghai. Linfox Thailand (which is the company’s
largest Asian business with nearly 2000 employees) has provided transport to Tesco Lotus’ 800 stores
across the country since 2005. It operates and manages 571 vehicles including 94 multi-temperature
trucks and many vehicles that run by natural gas. It also has partnerships with Unilever, PTTRM,
Foremost, Minor Food Group and BlueScope Steel. Linfox also has partnerships with Unilever in
Indonesia and Vietnam.
Linfox CEO Michael Byrne points out that more than half of Linfox’s workforce already lives and
works in Asia.
Linfox brings sophisticated supply chain skills and world leading standards in safety, tech-
nology and training. I see tremendous opportunity in the next decade to help key businesses
and truly grow Linfox into a regional leader in Asian logistics.30
Linfox has developed a particularly strong business presence in India and Malaysia, which is
discussed below.

India
Linfox entered the Indian market in small steps and with strong customer partnerships. It began
transport operations for Tata BlueScope, a joint venture between India’s Tata Steel and Australia’s
BlueScope Steel, in 2006. Their previous experience in transporting BlueScope products in Australia
and Thailand using customised trailers was an important advantage in efficient steel distribution.
The work with Tata BlueScope led to a relationship with Tata Steel in 2007, transporting steel coils
from Jamshedpur in India’s east to Pune more than 1800 kilometres to the west. Linfox has used
its ‘prairie wagon’ style trailers to provide additional product protection for transporting Tata coils,
and these trailers also carry an increased payload, thereby adding further benefits for Tata. In 2010,
the Linfox board visited Jamshedpur to receive the 100th truck in the Tata Steel fleet, and it was
announced that there would be a further 100 trucks to join the fleet to operate the Jamshedpur to
Chennai route. The new trucks will be Tata Motors Prima prime movers. Linfox’s manager in India,
Ben Sullivan, said that:
Linfox makes a substantial contribution to India’s economy, providing more than 2200 jobs
and helping raise operating standards in the logistics industry. The purchase of locally made
Tata trucks demonstrates our commitment in India.31

392 Marketing
 In 2006, Hindustan Unilever — the Indian arm of the global personal and home care products
giant — appointed Linfox to manage its warehouse operations at Khanna. Again, Linfox had
experience on its side, as the company had already developed partnerships with Unilever in five other
countries. In 2008, Linfox and Unilever signed a ten-year agreement that focused on developing a
strategic network of state-of-the-art distribution centres across India. There
are currently eight distribution centres, with plans for more.32
Importantly, only two Australians are involved in managing Linfox’s Indian
business, with the rest of the Linfox team being locals. Michael Byrne has
commented that:
India presented a rapidly expanding economy with strong demand for
modern consumerism. Leading manufacturers required sophisticated
supply chain expertise to reach growing markets. Linfox was encouraged
as some of our customers from the region had already built, or were
building their Indian presence.33

Malaysia
Linfox commenced its operations in Malaysia in 1992, and now employs
more than 400 people. It has been involved in expanding both industrial and
consumer markets.
Linfox has 90 specialised vehicles and 150 specially trained drivers
servicing chemical, fuel and gas operations in Malaysia. For example, Linfox
provides national distribution for Malaysian Oxygen (MOX), which is part
of the German-based Linde Group, and Malaysia’s largest producer and
supplier of industrial, specialised and medical gases. Linfox distributes a
range of lubricants and chemicals from Gebeng for BP Chemicals Malaysia.
The company also operates the distribution centre, including full warehouse
management, documentation and loading activities. Finally, ExxonMobil
Malaysia awarded Linfox the distribution contract for domestic transport of fuel
to retail and commercial sites. The company produces about 25 per cent of
Malaysia’s oil and around 50 per cent of natural gas supplies for Peninsular
Malaysia.
In the Malaysian consumer markets, Linfox provides transport services
distribution centre facilities for fast-moving consumer goods (FMCG) customers at Linfox DC1 (based
at Shah Alam). Linfox’s four major FMCG customers (SC Johnson, Procter & Gamble, Guinness
Anchor Berhad and Nestlé) represent the Malaysian divisions of leading global businesses. For
example, Guinness Anchor Berhad is Malaysia’s leading beer producer, with more than 60 per cent of
market share, and Linfox provides the fleet and team that distributes the company’s popular brands
(including Tiger, Guinness, Heineken and Malta) from their brewery at Selangor. It also distributes
imported beers, such as Paulaner and Strongbow, from an external distribution centre.34
Even though it is an Australian company, around 70 per cent of Linfox’s employees are employed
outside Australia, and by 2015 it is predicted that over 25 per cent of Linfox’s revenue will come from
overseas, with business in Asia expected to grow twice as fast as the business in Australia. Clearly
Asian countries want efficient supply chain management for their goods, and Linfox is willing and
able to provide it.

Questions for discussion

1. What are some of the supply-chain services that Linfox can provide its customers? How would these
services benefit the company?
2. What are some climatic and cultural issues that need to be considered when transporting
and storing goods across Asia? How could these be different or similar to local transportation
and storage?
3. Linfox wants to become ‘a regional leader in Asian logistics’. What does this mean? Suggest ways
that Linfox could achieve this goal.

Chapter 10  Distribution (place) 393

 Advanced activity
Distribution decisions cannot be made in isolation from the other elements of the
marketing mix. Outline how the distribution choices for the seafood industry might
affect the rest of the marketing mix and also how the rest of the marketing mix
might affect distribution options.

Marketing plan activity

For your marketing plan, think about the distribution issues that will help you to
efficiently move your product (good or service) through the marketing channel to
be placed in the hands of your customer. What is the best distribution strategy?
What are the main intermediaries? What is the best retailer for your target
market? Once you have thought about these questions, write down the place
(distribution) strategies you have decided will meet the needs of the target market.
A sample marketing plan has been included at the back of this book to give you
an idea where this information fits in an overall marketing plan.

394 Marketing
 CHAPTER 11

Services marketing
Learning objectives
After studying this chapter, you should be able to:

explain the importance of the service sector to the Australian and New Zealand
economies, and the difference between services products and service as the
delivery of products

describe how to develop and manage an effective marketing mix based on the
unique characteristics of services

appreciate the major challenges in the marketing of services.

 Aussie! Aussie! Aussie!
John Symond is a big man in any company. In the Australian home mortgage market,
he is a colossus, and Aussie Stadium was, from 2002 to 2007, a suitably ­monumental
symbol of his success. Symond founded Aussie Home Loans in 1992, which, for a time,
was unique in its approach as a home lender in offering 24-hour service and lower
interest than offered by banks. In 1994, the company introduced securitisation of
home loans, which allowed it to offer loans upwards of 3 per cent cheaper than its
competitors. In 2002, the company morphed into a mortgage broking firm and, shortly
after, introduced its own credit card. It now sells some 19 brands of home loans.
Following the acquisition of Wizard Home Loans in February
2009 and boutique wholesale mortgage aggregator National
Mortgage Brokers (nMB) in 2012, Aussie now has a loan
book currently worth almost $55 billion. More than 250  000
­customers are being serviced by Aussie’s lending team of around
750 mortgage brokers across retail franchise and mobile chan-
nels, together with an additional 165 nMB mortgage brokers.
The success of the Aussie business model and brand led the
Commonwealth Bank of Australia (CBA) to acquire a 33 per cent
share in August 2008. This share was converted into a control-
ling interest of 80 per cent in 2012, although Aussie continues
to operate as a standalone business. CBA’s purchase will extend
its market leading position in the home loan market (Westpac is its closest competitor).
For CBA, the Aussie distribution network and the Aussie brand were strategically
attractive. CBA’s executive of strategic development Rob Jesudason said:
We recognise the strength and reputation of the Aussie brand and name in the
­Australian mortgage market and also the importance of broker distribution of home
Questions loans and other financial products.

1. How would At the same time, currently, 80 per cent of Aussie’s current business is generated
you explain the through internet chatrooms, a position that has emerged only in the past five years. As
historical growth of Stuart Tucker, Aussie’s marketing manager, observes:
Aussie’s home loan We’ve undergone a pretty significant business transformation in the past five years.  .  ..
business during the In those days, it was all about the next TV ad and whether the phones would ring. Now
first ten years? it’s about digital efficiency, digital conversion, embracing social media mobilisation.
2. How would you Aussie’s slogan has also evolved from the famous original ‘We’ll save you’, which may
explain the recent have alienated proud people who didn’t feel they needed saving. Instead, the new
dramatic loss of campaign ‘It’s smart to ask’ is felt to empower the consumer.
market share of
As for the future, Symond’s decision to sell a controlling interest was undoubtedly very
the non-bank home
smart, and a fair reward for 20 years of innovation, risk and hard work. Privately,
lenders? he  may feel that the timing of his decision was ‘not a day too soon’. Following the
3. What changes 2008 global financial crisis, the non-banking home lenders’ share of the mortgage
should non-bank market has declined from 15 per cent to around 1.7 per cent. The combination of
lenders like Aussie intense competition from the ‘big four’ banks, fewer people confident to enter into
make to re-position long-term mortgage debt, lower interest rates and the shift of customers away from
themselves for the non-bank lenders have conspired to ensure that the future for non-bank mortgage
long term? lenders is likely to be tough. Certainly, however, both Aussie and the Commonwealth
appear to be happy and optimistic with the new marriage.1
INTRODUCTION
In the chapter on product, we learned about the concept of a product and how to
manage a product through its life cycle. In our discussion of the marketing mix in
earlier chapters, we touched on some of the complexities of marketing products that
are services. In this chapter, we will focus on concepts that apply specifically to the
marketing mix for services.
The strong growth of the services sector over the past few decades in many ways
has been the result of external macro-environmental forces, such as economic, social
and technological changes. Aussie Home Loans has grown, in part, as a result of these
changes. The needs and wants of consumers have also changed, particularly as they
have become more affluent (see the discussion of higher order needs in the chapter
on consumer behaviour). Services now account for the major share of total economic
activity in developed economies, and the services sector provides the most jobs, by
far, of all sectors of the economies of developed countries. The vast majority of organ-
isations in any modern economy are in the business of offering services as a central
part of the ‘product mix’. Such organisations in the for-profit sector include those
offering financial (e.g. banks), personal (e.g. hairdressers and medical providers) and
professional (e.g. accounting) services; and in the not-for-profit sector include chari-
ties, sporting and social clubs, religious organisations and educational institutions. In
addition, the public, or government, sector exists to provide social and community
services and accounts for roughly one-third of the national economy.
We will begin this chapter by defining services and outlining the growing impor-
tance of the service sector in developed economies. We will then discuss the unique
characteristics of services and the marketing opportunities and challenges they pro-
vide. This discussion also provides insights into the modified marketing mix for
services, taking into account the people, processes and physical evidence aspects
that we mentioned in the introduction to marketing and product chapters. We will
then explore some of the particular challenges in services marketing, including the
importance of providing high levels of customer service. The chapter concludes with
a discussion of the marketing of not-for-profit services.

SERVICE-DOMINANT ECONOMIES
Service industries generate about 70 per cent of the national incomes of Australia Learning objective 1
and New Zealand, and accordingly employ the majority of the workforces of both explain the importance
of the service sector to
countries. Similar service-based economies include the United States, western
the Australian and New
Europe, Japan and the United Kingdom. Emerging economies such as China and Zealand economies, and
Thailand are still more grounded in manufacturing, with the services sector repre- the difference between
senting less than 50 per cent of their respective national incomes.2 services products and
As with most service-dominant economies, private sector organisations in A
­ ustralia service as the delivery
of products
and New Zealand are the primary providers of many services including retail, prop-
erty and construction, with the government sector being a major provider in the
areas of defence, health, education and welfare. The most rapidly growing service
industries are communications, education and health, and these areas are expected
to provide many opportunities for marketers in the coming decades. Other ­service
industries can be quite volatile, including the finance, tourism and hospitality
­industries — all of which are more exposed to fluctuations in the global economy,
experiencing severe contractions in global economic downturns, and vice versa.
However, despite this potential for volatility, these areas are fundamentally sound
parts of the services sector and provide numerous opportunities for marketers.

Chapter 11  Services marketing 397

 Service industries are
expected to provide
many opportunities for ‘Services’ and ‘service’
marketers in coming
decades.
Before we begin a detailed exploration of the marketing of services, it is important
to clearly understand the concepts of services products and service as the delivery of
products (whether goods or services).
• Services are products, distinguished from goods by a number of unique charac-
teristics. The most obvious distinguishing feature of services is their intangible
nature. Services are not ‘things’; rather, they are deeds, activities or performances.
services Activities, performances More formally, services are activities, performances or benefits that are offered
or benefits that are offered for for sale, but which involve neither an exchange of tangible goods nor a transfer of
sale, but which involve neither an
title. Much of this chapter will be dedicated to examining the uniqueness of ser-
exchange of tangible goods nor a
transfer of title. vices products and the consequences for marketing strategy.
• Service is the act of delivering a product (whether it is a good or services product).
Service involves human, intellectual or mechanical activity that adds value to
the product.
Services are usually provided through the application of intellectual or physical
efforts to a person or physical object; for example, medical services are provided to
people, and repairs and maintenance are provided to mechanical objects such as
cars and computers. As such, services involve a service component. Marketers need
to be concerned with offering a competitive range of services and ensuring those ser-
vices are delivered with the highest standards of service.
In reality, most products are a combination of tangible and intangible components.
For example, when you have your car maintained by a mechanic, you may pay for
new spark plugs, a few litres of oil, a new timing belt and brake pads (all of which
are goods) as well as the mechanic’s efforts and a fee for environmental disposal of
the old engine oil (both of which are services). Depending on exactly what is done to
the car, either the good or the service component may make up the majority of the
overall product. A purely intangible service (such as legal advice) is the exception
rather than the rule.

398 Marketing
 Further, a wide variety of services, such as construction and health care, are
provided using combinations of equipment and people’s intellectual and physical
efforts. They are considered services because the intangible inputs into the services
comprise the largest proportion of the value delivered by the product. For example,
when you are treated by a doctor, they may use cotton swabs, pharmaceuticals and
latex gloves, but you are purchasing the service product of medical care and advice.
Service-dominant logic
The propositions that modern economies are dominated by the services sector have
been further extended to their logical conclusions by Vargo and Lusch in their argu-
ments for a service-dominant logic of marketing. The essence of their argument is
that all products should be seen as means to an end: that of providing value to the
user/consumer. That value derives from the use of the product; that is, the service
the product provides — the value in use. Furthermore, that value is co-created in the
interaction between customers, service providers, suppliers, distributors and other
participants in the service interactions. Following this logic, all products are essen-
tially service-delivery mechanisms; all economies are, thus, service economies, and all
businesses are service businesses. While the theoretical and practical implications and
limitations of this argument are still being extended and debated, the recognition of
service-­dominant logic is causing marketers to re-evaluate and question the traditional
­preoccupation of marketers with the ‘4 Ps’ (product, pricing, distribution (place) and
promotion). In this sense, service-dominant logic places service, and services, at the
centre of marketing theory and practice. In particular, it draws fresh attention to:
• the concept of value and its essential intangibility
• how the customer is inextricably involved in the process of co-creation of value
• how that value is co-created over time and between parties through the develop-
ment of networks of communication and extended relationships.3

Service product classification

In the product chapter, we learned that products generally can be considered con-
sumer products or business-to-business products. Consumer services are those consumer services Services
services purchased by individual consumers or households for their own private purchased by individual
consumers or households for
consumption (to provide, for example, functional, sensory or psychological ben-
their own private consumption.
efits). Common consumer services include airlines, banking, finance, hairdressing,
hotel accommodation and restaurants. The drivers of demand for consumer services
are similar to the drivers of demand for all consumer products, discussed in the
product chapter. Many areas of the service sector are dependent on the health of the
economy as a whole. During periods of economic growth, demand for services tends
to increase. This provides the opportunity for organisations to sell greater quantities
of services, to augment their existing services and to create new services (e.g. in
the economic boom of the mid 1990s to the late 2000s, services such as personal fit-
ness coaching and adventure travel were created). During tougher economic times,
demand for many services (such as fine dining) drops away. Some services, how-
ever, are counter-cyclical; for example, during periods of higher unemployment, the
demand for higher education and training services tends to increase as people seek
to ‘upskill’ to improve their chances of gaining work.
Lifestyle changes over the years have also created demand for new services; for
example, the emergence of dual income families in recent decades has increased
the  need and thus the demand for child care and home maintenance services.
Technological change has also created opportunities for service providers, such as
eBay and CommSec Securities, which have ­succeeded in creating new service oppor-
tunities that exploit the power, reach and economies of the internet.

Chapter 11  Services marketing 399

 The ageing of the population in Australia and
New Zealand also represents a major demographic shift
in each country’s marketing environment. Increasing
life expectancies, along with the ageing of the large Baby
Boomer generation (born in the 20 years after World
War II), mean the older demographic repre­sents a sub-
stantial and growing market. In A ­ ustralia, for example,
the number of people over the age of 65 is projected to
increase from 13 per cent in 2010 to 23 per cent by 2050.4
Similar figures exist for New ­Zealand, where the number
of people aged 65 and over is expected to double from
2005 levels by the 2030s.5 As the Baby Boomers are
beginning to reach retirement age, many businesses —
­particularly in the services sector — are realising the
opportunities presented by this growing and relatively
Older Australians are affluent market segment. For example, home services such as cleaning, maintenance,
actively targeted by pet care and gardening are potential services that can capitalise on this demographic
tourism operators trend. The ageing population can also be expected to create demand for health and
because they generally aged care services such as physiotherapy and nursing care. Tourism operators also
have both money actively target the retiree market, offering various specialist packages to meet the travel
and time to travel. expectations and lifestyles of those in their retirement years. A significant number of
This market segment, people in this segment are cashed up and have time on their hands to travel.
which includes the Business-to-business services are those services purchased by individuals and
Baby Boomers, is also
organisations for use in the production of other products or for use in their daily busi-
driving strong demand
ness operations. Business-to-business services are also often known as ‘professional
for health and aged
care services such services’. They include the services provided by lawyers, accountants, advertising
as physiotherapy and agencies, engineers and management consultants. Again, the drivers of demand for
nursing care. business-to-business services are similar to the drivers of demand for all business-
to-business products, discussed in the chapters on business buying behaviour and
product. The economic boom of the mid 1990s to late 2000s saw strong growth in
business-to-business the importance and variety of business-to-business services, including consulting,
services Those services installation, equipment leasing and outsourcing. In the case of outsourcing, organ-
purchased by individuals and isations shift business activities that they consider to be peripheral to their core
organisations for use in the business to specialist ‘outside’ providers. For example, major retailers such as Wool-
production of other products or
for use in their daily business
worths may choose to outsource their warehousing logistics and delivery operations
operations. to specialist logistics companies, such as Linfox. Similarly, in recent years major
banks have outsourced much of their call centre and data p ­ rocessing operations to
specialist information technology and computer service providers, such as EDS.
For many organisations, an important question in the delivery of their core ser-
vice products is whether or not to rely on their permanent full-time workforce or
use specialist outside service providers as contractors. Outsourcing tends to go hand
in hand with ‘downsizing’ (or ‘rightsizing’). Telstra and the major banks, for example,
have regularly made hundreds of permanent employees redundant. They rely on
part-time employees and contractors to work on special projects or to cover the
workload during periods of peak demand.
For many organisations, especially those operating globally, it makes sense to
employ a global workforce, particularly where communications technology creates,
effectively, a ‘borderless world’. Global businesses such as American Express and
Citibank, and even Australian businesses such as Telstra and Qantas, maintain cus-
tomer service call centres in several locations around the world, to deliver ‘24/7’
service availability. Changes in information and communications technologies have
both created the demand for, and enabled the delivery of, such services.

400 Marketing
Super profits, super service? Spotlight 
As we saw in the opening case for this chapter, the ‘big four’ consistently outperform smaller
institutions and enjoy bumper profit levels. The banks are always quick to justify their profit levels,
subscribing to the logic that what’s good for the bank and its shareholders is good for the customers
and the broader community.
Following the collapse of many overseas institutions during
the global financial crisis, the Commonwealth Bank of Australia
(CBA) is now the tenth biggest bank in the world. In the 2012–13
financial year, the lender’s earnings exceeded $21 million a day.
In the biggest ever profit for an Australian bank, CBA’s cash
earnings jumped 10 per cent to $7.8 billion in the year. While
few would argue that bank executives and shareholders have
benefited from the record profit levels of recent years (which
have grown at a rate far greater than the restrained growth of
the national economy), critics would argue that the profits are
largely the result of an oligopolistic market. This means there
is a marked absence of vigorous price competition, especially
between the big four banks, who account for more than 80 per
cent of the banking system.
From a services marketing perspective, it could be hotly
debated as to whether the record profits are the result of
employing happy, productive staff who deliver quality customer
service to customers who are very satisfied, loyal and profitable;
or merely an inevitable consequence of the market power and
protected status.
The finance sector has become, by far, the largest and most profitable sector in developed econ-
omies over recent decades, and the big four Australian banks are among the most profitable banks in
Question
If you were a banker, how
the world. It is also true that Australian bank customers, as a whole, are generally loyal. However,
might you demonstrate that
whether that loyalty is the result of genuine satisfaction — or the lack of a viable alternative — will, no
your bank’s profits are at
doubt, continue to be debated in the foreseeable future.6 least partly a consequence
of high customer service
levels?

Concepts and applications check

Learning objective 1  explain the importance of the service sector to the Australian and New
Zealand economies, and the difference between services products and service as the delivery of
products
1.1 Identify at least three factors that may affect the potential consumer and/or business demand for
each of the following broad categories of service products:
•• health
•• education
•• retail
•• construction
•• accommodation
•• transport
•• finance and insurance
•• telecommunications.
1.2 In your own words, explain the distinction between services as products and service as delivery
of products.
1.3 Provide three examples of consumer services and three examples of business-to-business
services, other than those outlined in the preceding discussion.

Chapter 11  Services marketing 401

 THE SERVICES MARKETING MIX
Learning objective 2 From your study of this textbook so far, you may have begun to appreciate some of
describe how to develop the underlying characteristics of services that differentiate them from goods. In the
and manage an effective
first part of this section of the chapter, we will discuss the characteristics that for-
marketing mix based on
the unique characteristics mally distinguish services from goods, namely:
of services • intangibility
• inseparability
• heterogeneity
• perishability.
Each of these characteristics has important consequences for the development
of the marketing strategy for service products. They suggest that the marketing of
services may be fundamentally different from, and perhaps more complex than, the
marketing of tangible goods. Although the marketing mix for services necessarily
includes the familiar ‘4 Ps’ — product, pricing, distribution (place) and promotion —
the unique characteristics of services suggest an additional range of variables, which
need to be considered when formulating the marketing mix. These new variables
have been conveniently labelled an additional ‘3 Ps’ — people, process and physical
evidence — to make up the ‘7 Ps’ marketing framework. We will discuss the extended
services marketing mix in the second half of this section.

Unique characteristics of services

Much of our discussion in the chapters on the ‘4 Ps’ (product, price, promotion and
place) applies to the marketing of services, but some specific characteristics of ser-
vices products — intangibility, inseparability, heterogeneity and perishability —
necessitate modifications to the marketing mix.
Intangibility
The characteristic of services which most fundamentally distinguishes them from
intangibility The characteristic goods is their intangibility. Because a pure service is an activity and not an object,
of lacking physical form. it cannot be easily perceived by the five physical senses. You cannot touch finan-
cial advice or smell education. As we discussed in the first section of this chapter,
however, pure services are very rare. Even with a service such as education, there
are tangible elements that form an important part of the value of the product —
­students do place value on textbooks, printed lecture notes, and access to university
computers and equipment. Similarly, pure goods are very rare — even a commodity
such as fruit must be stored, priced, displayed and delivered, all of which are
activities with a service component.
Most products contain elements of both goods and services and therefore prod-
ucts are better described as sitting on a continuum with purely tangible goods at
one end and purely intangible services at the other. In the middle, we find prod-
ucts such as restaurant dining. When a product contains tangible and intangible
elements, marketers can add value to the product component of the services
marketing mix by:
• adding tangible components to their intangible service — for example, an invest-
ment advisor could provide digital content to further explain their services
• adding intangible service components to their tangible goods — for example, a
consumer electronics company could provide installation information and advice
and an extended warranty.
Of course, an organisation should add only those extra attributes that increase
the value of the product to the target market. Conversely, IKEA, for example, has
arguably created a huge and profitable market for itself by providing less service in

402 Marketing
its products and by requiring the customer to provide more of their own labour (in
exchange for a substantially reduced price).
Recall from the chapters on consumer and business buying behaviour that as part
of the purchasing decision-making process, potential customers evaluate alternatives
by examining the products. While this is relatively simple with goods (e.g. a potential
customer can try on a skirt for fit and check how it looks in the dressing room mir-
rors), intangibility makes the evaluation of services prior to purchase difficult, and
often impossible. The inability of a customer to examine a service before they pur-
chase it increases their feelings of uncertainty and perception of risk about the pur-
chase. For marketers, intangibility makes it difficult to promote the features and
benefits of service attributes. There are two strategies marketers can employ to
reduce the uncertainty that potential customers feel.
1. Marketers can use tangible cues, such as logos, staff uniforms, archi-
tecture and décor, to communicate the desired image of the intan-
gible service. This tangible evidence will serve as both a promise and
a reminder of the otherwise intangible service. For example, Hilton
International went to great lengths in the design of the extensively
renovated Hilton Sydney hotel to evoke an ambience of luxury
and refinement. The hotel foyer is designed to convey to prospec-
tive guests that they will enjoy the finest treatment and the highest
quality facilities during their stay — from the uniformed concierge to
the combination of limestone floors and walls, natural light, timber
and plush fabrics. Similarly, Qantas highlighted the size and comfort
of the Airbus A380 when it introduced this model to its Australian
fleet. Alternatively, advertising might focus on corporate logos that
link the organisation and the benefits of its services; for example,
the ‘helping hands’ of the St. Vincent de Paul Society. Because of the
intangible and often complex nature of services, advertising themes
should focus on simplifying the service, highlighting the benefits and
linking the service to the brand.
2. Reduce the level of risk perceived by customers through such
techniques as service guarantees, testimonials and positive word-­
­
of-mouth. A service guarantee offers the potential ­ customer the
­knowledge that they can obtain some course of redress should  the
service not live up to expectations. Testimonials provide potential cus­
Marketers can use
tomers with the confidence that other individuals or organisations
tangible cues, such as
have been happy with the service provided. In this way, service ­providers can logos, staff uniforms,
emphasise their reputation, qualifications and experience. Advertising agencies, architecture and décor,
architects and consultants often quote past and existing customers as evidence to communicate the
of their track record. A similar, even more effective, technique is to generate­ desired image of an
positive word-of-mouth, but it remains largely untapped by commercial organ- intangible service.
isations. ­
Negative word-of-mouth of course can prove swift and destructive, The Hilton Sydney
especially when service performance fails to meet customers’ expectations. In hotel evokes an
this  sense, word-of-mouth, particularly in internet chat rooms and blogs, can ambience of luxury
and refinement, and it
create  or destroy corporate reputations more quickly than commercial adver-
is no coincidence: the
tising. When subject to negative word-of-mouth, the best response is likely to parent company of the
be to  use public relations to spread more favourable discussion of the brand or hotel has ensured that
­service among the population at large. various tangible cues
More generally, the intangible nature of services makes it necessary for service convey this impression
providers to educate their customers as a means of managing — and meeting — to consumers.
their expectations.

Chapter 11  Services marketing 403

 Potential customers often look to price as an indicator of the likely quality of the
service. In this way, professional service providers such as doctors, lawyers, account-
ants and management consultants are often able to charge high prices, especially
when they have a strongly established brand name and reputation. In these cases,
the combination of price and brand name can promote customer confidence in the
service provider and the likely outcome of the service.
The intangible nature of services, in many cases, makes them more difficult for
customers or clients to imagine and understand. For example, complex financial,
legal or investment products often cannot be simply explained or represented,
especially to the untrained or inexperienced. (This ‘information asymmetry’ will
also lay open the possibility of deceit and/or exploitation, which has been his-
torically true of many ‘get rich quick’ financial investment schemes, with obvious
ethical implications for service providers.) The intangibility and complexity of
many services will lead such service providers to promote their products through
personal selling (see the chapter on promotion). To a much greater degree than
for goods, customers of such services are often unaware of the nature and work-
ings of the service, its benefits and its relevance to their needs. For example, life
insurance is a service which, arguably, provides greatest potential benefits to those
whose immediate needs make the costs of insurance premiums a low priority — in
particular, to those entering the workforce. These potential customers, who will
benefit most from life insurance in the long term by locking in low premiums
or increased contributions when they are young, will often require the most per-
suasion. This is why all life insurance companies engage a large number of agents
who spend the majority of their time in the homes or workplaces of potential
customers.
Intangibility also creates challenges in developing new services, particularly in
testing new service concepts through market research. Because consumers find it
difficult to imagine new intangible services, it is often necessary to explain new
services as a series of brief concepts and value propositions. Even after such expla-
nations, consumers may still not understand the service or how it ‘works’; or may
not believe the value propositions. Because it is difficult to illustrate new services in
a model or visual representation, marketers need to spend more time in carefully
researching new service concepts.
Inseparability
For most services, it is impossible to separate the production of the service and
inseparability The the consumption of the service. This characteristic is known as inseparability or
characteristic of being produced simultaneity. That is, for high-contact services provided by, say, a dentist or a
and consumed simultaneously.
hairdresser, you cannot separate the service from the service provider; nor can
you usually separate production and consumption in time. If you think about the
services a dentist provides, it quickly becomes evident that the dental service pro-
vided (for example, a new crown) cannot be separated from the dentist who per-
forms the surgical procedure. In such circumstances, it can be argued that the
service provider is the service, the ‘product’ and the brand. The service is also
created at the same time it is consumed, and it is created and consumed in the
same location.
Because the service cannot be separated from the person who provides it, this
implies that many service organisations depend on their people for their existence. A
medical or legal practice fundamentally will depend on the quality of its service pro-
fessionals for its reputation, and ultimately its continued existence. For these organ-
isations, competitive success will depend on the quality of the people employed.
This quality is usually a mix of technical, professional and customer relations skills.

404 Marketing
It follows that service organisations will seek to recruit, train, reward and retain
the best people in their respective specialist fields. In such circumstances, there
will arise an inevitable tension between the technical demands of service provision
with the necessary emotional intelligence to maintain harmonious and constructive
relationships with customers (and other staff).
The inseparability of services also means that, usually, the service provider and
the consumer have close interpersonal interaction. In fact, often the consumer
plays a role in the production of the service. This holds true for almost all services.
Contrast this with goods, which are produced, stored, transported and consumed
sometimes months or even years later (e.g. in the instance of vintage wine). In this
case, the producer may never see the consumer, who could live in another part of
the world.
The inseparability of services presents a significant challenge in the marketing
and delivery of services. Because buyers and sellers of services are frequently ‘co-
producers’ of the service, it can be very difficult to control quality and, hence, cus-
tomer satisfaction. For example, a dentist with a patient who has a severe fear of
dental procedures will find it very difficult to deliver a satisfactory service experi-
ence, regardless of his or her skill and chair-side manner. Under such circumstances,
managing the quality and delivery of the service and building a happy relationship
between the customer and service provider may prove near impossible. At the same
time, it is essential that service providers develop their interpersonal skills. This is
especially so in the case of medical practitioners, for whom ‘bedside manner’ has
always been regarded as a crucial technique and skill. Their customers (or patients)
may commonly find it difficult to evaluate the technical quality of the service pro-
vided even after the medical procedure has been successfully concluded. Even for
more understandable services such as a haircut, service providers need to be con-
cerned with both their technical skills and their customer service delivery. Further, the
service provider should actively manage their customers’ expectations and remind
them of their own role in producing the service; for example, a gym should remind
its customers ‘no pain, no gain’.
Inseparability also implies that production and consumption occur together in
time, or simultaneously. In this context, many ‘people processing’ services are deliv-
ered in real time, as and when required — for example, a visit to the doctor, the vet
or the hairdresser. Because such services are required ‘then and there’, it is essen-
tial for the service provider to be able to supply the service when the customer
demands it. This may not always correspond to normal business hours in the case
of medical emergencies; nor will it always occur in convenient, ‘quiet’ times for ser-
vice providers. It’s a sad fact that Christmas holidays are times of peak demand for
divorce and criminal lawyers and for emergency medical and dental services. There
are two important implications of this. First, there are limits to how long clients are
willing to  wait or spend at the service site, or to how much they will adjust their
schedules to suit a service provider. In such circumstances, time and efficient pro-
cessing assumes greater importance, and speed can be a competitive advantage over
rival providers. An alternative is for service providers to make their services more
available at times and in locations that better suit customers or clients. For example,
late-night medical clinics, gyms and restaurants will find a ready market among
‘time poor’ customers or clients; and mortgage brokers have established a position
in the market by visiting prospective clients in their residences outside normal busi-
ness hours.
A second implication of the simultaneous production and consumption is that
many services, particularly professional services, are provided individually. For

Chapter 11  Services marketing 405

 most professional service providers, their services cannot be ‘mass produced’, and
there are thus limits to how many patients or clients a doctor or accountant can
see in a day. In this sense, maximising ‘billing hours’ is a crucial metric for the
profitability of a law firm. Conversely, while there are obvious limits imposed by
‘business hours’ and the working week, customers or clients will value convenient
times of service provision (for example, at lunch times or after ‘normal’ working
hours) and minimal time spent in service provision. ‘Time is money’ for both the
service provider and customer/client, and managing service provision over time is
a crucial concern.
Modern information and communications technologies have somewhat altered
the traditional inseparability characteristic of services products. Technology is
allowing new distribution and service delivery models for some services. It is still
most common for customers to attend service providers’ retail outlets to consume
the service; for example, to attend a hairdressing salon for a hair cut or a doc-
tor’s surgery for a medical check-up. It is also common for service providers to
attend the consumer’s home or business to provide the service; for example, to
provide garden maintenance, plumbing, electrical, air-conditioning and heating
repairs and service. Increasingly, however, routine services — especially ‘admin-
istrative’ services that do not require physical contact between customer and
service provider — are delivered via ­telephone, mail or the internet. These ser-
vices include banking transactions, travel bookings and insurance. The ability to
transact such business remotely provides increased convenience to the consumer
and lower d ­ istribution and processing costs to the service provider. While deliv-
ering services face-to-face will generally promote trust and confidence, it is impor-
tant for marketers to consider and explore alternative distribution channels that
may provide greater convenience to the customer and/or lower costs to the ser-
vice provider. When potential customers or clients believe there are few differ-
ences among the leading service providers, a low price, based on low-cost delivery,
is likely to be necessary to secure market share. This is true of household and
car insurance.

It is common for service providers to attend a

consumer’s home or business — as in the case of
an electrician installing lighting fixtures in a family
home; and for consumers to attend a service
provider’s outlet — as in the case of a patient
attending an appointment at a dentist’s clinic.

406 Marketing
 The internet offers the potential to revolutionise traditional distribution channels
for services. For example, a university education can be delivered over the internet
(although the experience of academic staff and students will not be the same), so it
is not always necessary for the producer and consumer to be in the same location
or to produce and consume at the same time. Generally, though, many services,
including dental, medical and other professional services, are likely, for the most
part, to retain the traditional direct channels of distribution. Under such conditions,
the need for a close personal relationship between service provider and customer
(or client) will usually mean that the industry will be dominated by a large number
of small independent professional service providers.
When setting prices based on costs, the largest component is often that of time.
Pricing for professional services such as medical, dentistry, accounting, physio-
therapy and architectural services will primarily reflect the hours spent by pro-
fessionals in consulting with the customer, and in resolving the problem. For some
services, however, particularly those which are delivered using expensive tech-
nology, time and direct labour are less important components of costs. In such cases,
the high fixed costs of the technology results in very low transaction costs, and profit-
ability is often dependent upon recovering fixed costs over a very large volume of
transactions. Examples include telecommunications and internet-based services. In
such cases, flexible pricing, with low joining fees, but which encourages high-volume
or frequency of transactions and/or a contractual membership period are common.
Service marketers, therefore, need to understand their cost structure, and the balance
of fixed and variable costs, upon which their pricing strategy will crucially depend.
Heterogeneity
Services are provided by humans who, unlike machines, are subject to variations in
mood, skill and willingness to provide service of an agreed quality. This makes it
unrealistic to promise perfect service every time. Beyond the actions and variability of
the service provided by the seller, heterogeneity also arises through the actions of the
customer, and the interactions with the customer service provider. In the latter sense,
both the ‘seller/provider’ and the customer can be seen as c­ o-producers, or co-creators
of the service. (See the earlier discussion of service-dominant logic.) Thus, the quality
of the service outcome is often critically determined by the unique ‘chemistry’ of the
interaction between the provider and customer. This variability or heterogeneity in
the service outcome might also occur as a result of the actions of other customers or
patrons who are within spatial proximity to the service encounter. For example, drunk
or disruptive airline passengers can spoil the service experience of other passengers
in close proximity, and crowd reactions can make or break an individual spectator’s or
audience member’s experience of a sporting event or musical performance.
The inevitable variations in the service provided give services the characteristic
of heterogeneity. For service marketers, the challenge is to provide a product with a heterogeneity Inevitable,
reasonably consistent level of quality that matches customers’ expectations. The key but minimisable, variations in
quality in the delivery of a service
strategies for the marketer are.
product.
• To develop service delivery systems. McDonald’s and many other fast food outlets
provide some of the most obvious examples of how systems can standardise ser-
vice delivery. Despite having millions of customer service staff around the world,
each with their own individual characteristics, a restaurant such as McDonald’s has
achieved a high level of consistency in the delivery of its meals in thousands of
stores by developing and implementing extensive, detailed procedures that cover
every aspect of service delivery. Technology and machinery can also reduce hetero-
geneity; for example, unlike a bank teller, ATMs provide the same service to every
user, every time. Similarly, the use of electronic scanners at supermarket checkouts

Chapter 11  Services marketing 407

 has improved the speed and accuracy of supermarket service, and ­ automated
­ticketing typically improves the service and efficiency of public transport.
• To manage the expectations of customers. Service providers must work to ensure the
service they deliver, at least, matches the service they promote. In other words,
they must be careful to not ‘over promise and under
deliver’. Virgin Australia, for example, regularly pub-
lishes its ‘on-time performance’ each month. Cumu­
latively these figures show that the airline achieves
on-time departures and arrivals for approximately
84  per cent of its flights over a calendar year.7 This
approach suggests to customers that they can usually
expect their flights to run on time, although there will
sometimes be unavoidable delays. Beyond managing
the expectations of customers, it may often be necessary
to manage the behaviour of customers to ensure a
desired service outcome. For example, participants in
otherwise risky service activities such as bungee
jumping, white-water rafting, skydiving, indoor rock
climbing or even yoga and dieting will often need to be
closely managed — especially in the early stages  — to
ensure a safe and successful service experience.
McDonald’s has
• To invest heavily in staff training. Staff members need to be trained to effectively
sophisticated service implement the service delivery systems and to manage the expectations of cus-
delivery systems in tomers. The first aspect involves developing competence and technical skills. The
place to ensure that second involves developing interpersonal communication and personal selling
consumers receive their skills. Across most service categories, however, the priority should be ‘be efficient
food orders quickly and first; then be friendly’.
reliably. The delivery • To select customers carefully. Because the success of the service outcome can cru-
systems that are in place cially depend on the interaction between the customer and the provider, service
also help to streamline organisations may need to be selective in which clients they accept in the first
costs, ensuring that place. For example, lawyers typically do not take on cases that they think will be
consumers can buy
unsuccessful, bouncers do not allow drunk patrons to enter bars, and banks prefer
their burgers, fries and
to accept only those new customers who are likely to be easy to manage (and
drinks at a competitive
price.
profitable) in the long run.
For service marketers, measuring and managing service quality should be a con-
tinuous process, using such techniques as ‘mystery shoppers’ or customer service
surveys.
Combined with the inseparability characteristic, these strategies to manage hetero-
geneity result in distribution channels that are usually short and direct, with little
or no scope for the use of intermediaries. In those service industries where inter-
mediaries are common (e.g. in travel, insurance and mortgage broking) it is usually
possible because, as agents, they are selling standardised services in the form of
‘packages’ on behalf of original service providers who have strong brand names and
reputations. The keys to the success of distribution using intermediaries are stan­
dardisation of the service and a market that has confidence in the agent and the
original service provider.
The heterogeneous nature of services, in addition to presenting marketers with
some challenges, creates an opportunity for service providers to add value to the
product they offer customers. The service provider can, within reason, tailor the ser-
vice provided to the individual needs of each customer. For example, gym operators
can customise their service to the individual needs of each member by assessing their
current health and fitness, enquiring about their fitness goals and recommending an

408 Marketing
appropriate exercise regimen, including classes and individual instruction. Of course,
this customisation comes at a cost to the operator, which must be reflected in the
pricing of the service — by building it into the overall prices charged or by adjusting
the price to reflect the components of the customised service provided to the indi-
vidual. Some service providers offer a number of standardised packages, thus pro-
viding a midpoint between standardisation and customisation of the service.
As with all pricing, a key consideration is the perceived uniqueness of the product,
whether for goods or services. Service providers should therefore seek to differen-
tiate their products as far as possible through such means as respected brand names
and through their reputation and customer service. Singapore Airlines, for example,
has secured for itself a pre-eminent position among international airlines based
upon its strong brand and its reputation for technical excellence and high levels of
customer service.
Perishability
The inseparability of the production and consumption of services leads to a further
distinctive characteristic, known as perishability. Perishability refers to the inability perishability The inability
to store services for use at a later date — they are ‘time bound’. For example, the to store services for use at a
later date.
vacant rooms in a motel during the low season cannot be stored and sold to guests
in the high season. Similarly, unsold concert tickets and empty seats on an aero-
plane are permanently lost. These situations arise when supply exceeds demand.
Conversely, if hundreds of people would still like to buy tickets to a sold-out concert,
the demand exceeds supply and the potential profit from the people who cannot
obtain a ticket is foregone. This is an example of a situation in which it becomes
necessary to discourage sales or consumption of services in order to avoid unac-
ceptable levels of crowding, poor service and customer dissatisfaction; for example,
at the annual Big Day Out music festival. In such circumstances, service providers
need to strictly adhere to their capacity and safety limits, commonly accompanied
by pricing and promotional adjustments.

The vacant rooms in a motel during the low season cannot

be stored and sold to guests in the high season. Similarly,
unsold concert tickets and empty seats on an aeroplane are
permanently lost. These situations arise when supply exceeds
demand.

Chapter 11  Services marketing 409

 The challenge that perishability presents to marketers is to balance supply and
demand over time in such a way as to maximise profitability. Marketers have a
number of strategies at their disposal.
• Manage demand over time. Because services can’t be stored to match the expected
fluctuations in demand over time, it is appropriate for the organisation to seek to
‘level out’ the fluctuations in demand over hours in the day (for example, energy
consumption); days in the week (for example, parking in the city); or months in
the year (for example, holiday travel). This may be best achieved by persuading
customers to change the time at which they use the service. When supply capacity
is constrained (i.e. in periods of peak demand), there may be some customers who
can be persuaded to defer their use of the service. For example, US domestic air-
lines, which regularly over book flights in busy periods, will routinely offer cash
payments to passengers who agree to take a later flight. Similarly, with planning,
these passengers might also be equally persuaded to fly earlier, especially if there
is a price incentive. Thus, for service providers who have fixed service capacity,
it is advisable to manage the fluctuations in demand over time so that, ideally,
supply capacity is used to its maximum and no potential customer is turned away
because there are no more seats or service staff are already fully occupied. This
is a critical management issue for airlines, hotels and holiday resorts, theatres
and restaurants. ‘Yield management’ computer software has been developed in
response to this problem, and it is vital to the profitable operations of airlines
and hotels. For consumers, the importance of the time of service delivery implies
that timing of service consumption carries an associated value. Consumers will
ordinarily pay more to ‘consume’ or experience the service at an optimal time
(for example, weight loss prior to summer), although many may be persuaded
to advance or defer purchase if the price, or total value, is right. Conversely,
many consumers will pay a price premium to experience the excitement of a ‘big
occasion’, such as theatre premieres, the Olympics, Melbourne Cup Day or foot-
ball grand finals.
• Stimulate demand. It is appropriate to stimulate demand when the organisation has
excess capacity to deliver services. For example, cinemas tend to experience huge
variations in demand for their services. Most people go to the movies at night.
This often leaves cinemas playing movies to just a handful of people during the
day. To stimulate demand, cinemas often offer cheaper tickets on Tuesday (tra-
ditionally the slowest day of the week) and Greater Union cinemas have even
introduced a ‘Babes in Arms’ program that encourages stay-at-home parents to take
their young children to screenings on Wednesday mornings, when young children
are admitted for free. This both stimulates demand at an otherwise unpopular
viewing time and provides extra value to the cinema experience for parents of
young children. The program is suspended during school holidays, when cinemas
experience a natural increase in demand from school-aged children.8 Businesses in
the accommodation, travel and entertainment sectors have taken advantage of the
internet to promote price discounts during slow periods. For example, lastminute.
com and Halftix.com offer discount prices for accommodation and entertainment.
A danger for marketers is that customers will become accustomed to purchasing
services at reduced prices and therefore resist ever paying normal prices.
• Restrict demand. It seems counterintuitive that an organisation would seek to
restrict demand for its services, but it must be remembered that the objective
of the services marketer is to smooth demand to level out peaks and troughs in
demand. The objective is not so much to reduce demand as to manage when it
occurs. For example, popular restaurants use a reservation system that is designed

410 Marketing
 to maximise the number of diners served. Perhaps the most popular time to dine
is 7.30 pm, but many people will be prepared to accept a booking for 6.30 pm or
8.30 pm. In this way, the restaurant can accommodate the most possible diners
instead of having to turn people away due to a lack of tables. Government traffic
and public transport authorities undertake promotional activities to encourage
people to travel in off-peak periods to minimise congestion on roads and to make
the most efficient use of public transport services. Public transport operators often
implement a pricing strategy with different fares for different parts of the day (as
do taxi services and airlines). Cheaper fares during off-peak travel times encourage
people who are not travelling to work to avoid the busy commuter periods in the
morning and afternoon.
• Increase or decrease supply capacity. Services organisations that experience fluctu-
ations in demand can increase or decrease supply capacity. This is a particularly
suitable approach if the periods of high and low demand are reasonably ­predictable.
For example, the hospitality and entertainment industries use casual workforces
that can be adjusted with hourly, daily and seasonal changes in demand. The
Wet’n’Wild Water World amusement park on the Gold Coast alters its operating
times throughout the year to suit demand.
These issues all affect the pricing of services, which is frequently based on the
likely level and variation in customer demand. In circumstances where demand
would otherwise fluctuate over time, flexible pricing can be employed to ensure
that demand and supply are balanced as far as possible. For example, electricity and
airline ticket pricing can vary according to the time of day. Cinema pricing varies
according to days in the week and hotel accommodation prices are varied according
to weeks, months and seasons. The key to the success of such a pricing approach
is to ensure that all available capacity is sold at the highest prices that buyers are
prepared to pay. In the case of the theatre, hotel and airlines, no revenue is obtained
from empty seats and flexible pricing is therefore common. For airlines, the key to
the success of this pricing is the instant availability of data on seat vacancies. To
meet this need, ‘yield management’ computer software is essential to ensure accu-
rate and timely changes in pricing to meet hourly fluctuations in customer demand.

The extended services marketing mix

The intangibility, inseparability, heterogeneity and perishability of services create
the following issues for marketers:
• inability for customers to inspect and evaluate a product prior to consumption
• inevitable variability in service quality
• inability to store product.
As we read earlier, marketers can pursue various strategies to deal with these
issues:
• create tangible cues
• invest heavily in staff training
• develop and implement standardised service delivery systems
• use customer testimonials
• manage customer expectations
• manage supply and demand.
These strategies clearly involve managing the product, pricing, promotion and
distribution of services. It should also be clear from our discussion of the intan-
gibility, inseparability, heterogeneity and perishability of services that there are
additional elements that need to be carefully managed when marketing services.
These elements are people, process and physical evidence, and they are focused upon

Chapter 11  Services marketing 411

 ‘the delivery of the promise’; that is, the service delivery and customer’s experience.
Combined with the traditional ‘4 Ps’ of the marketing mix, they make up the ‘7 Ps’
marketing framework, also known as the extended services marketing mix. The
addition of these elements arguably means that the marketing of services is more
complex and difficult than the marketing of tangible goods, especially if it is to be
effective and successful. We will discuss each of these additional elements in turn.
People
Most successful services marketing organisations will readily claim that their
‘people’ are their most valuable asset and the key to their success. Our discussion of
the inseparability characteristic of services noted that the production and consump-
tion of most services occur at the same time and in the same place. This means, of
course, that the customer or client will usually have close contact with the person or
people creating and delivering the service. In this sense, it could be argued that you
cannot separate the service from the person who provides it. Although customers
and clients are usually focused on the service outcome, rather than the person (or
process) providing the service, it is crucial the marketing organisation understands
and manages the role of people in defining the quality of each customer’s or client’s
service experience. The ‘people’ in the extended services marketing mix are those
coming into contact with customers who can affect value for customers: the organ-
isation’s staff (particularly the actual service provider and/or its ‘front-line’ customer
service staff  ); the customer or client being served; and other customers or clients
either directly or indirectly involved in the service experience.
The most controllable factor in service delivery is the organisation’s staff. It is
essential that the organisation chooses staff who are:
• technically competent
• able to deliver high standards of customer service
• able to promote products through personal selling.
The heterogeneity of many organisations’ service offerings places particular
demands on their people to deliver complex service products to meet the individual
needs of a wide range of customers. These service expectations therefore impose
additional demands on service organisations and their employees, particularly cus-
tomer service staff. To ensure high standards of service delivery, service organ-
isations need to carefully consider the selection, training, outfitting, motivating and
rewarding of their staff so that they deliver services effectively, efficiently and to
the standard expected by customers and the organisation. In service organisations,
a key issue for the delivery of high standards of customer service is the concept of
‘empowerment’, which enables staff to respond to the particular needs of individual
customers. Companies which are renowned for their customer service excellence
will typically provide high levels of empowerment and discretion to front-line cus-
tomer service staff. A further requirement for customer service excellence is the
development of a ‘customer service culture’ (of which ‘empowerment’ is a common
feature), but which also stresses the importance of customer service in the func-
tional management and organisation of the business. Experience across a wide range
of industries suggests that the use of ‘self-directed work teams’ with a dual focus on
operational performance and customer service is an increasingly common practice.
Beyond the organisation’s staff, the customer or client is, of course, an important
factor in service delivery. Not only does the customer or client often play a role as
co-producer of the service, but the service provider also needs to manage the cus-
tomer’s expectations and their interaction with the organisation during the  service
transaction and in their future relationship with the organisation. While the cus-
tomer or client is not controllable in the manner that staff members are, the service

412 Marketing
provider must train staff to ensure they can deal
with customers effectively through the skills of
technical competence, customer service and
personal selling. In doing so, customer service
staff need to be able to display empathy, flexi-
bility and integrity in meeting customers’ par-
ticular needs.
Beyond the staff and the customer, other cus-
tomers within physical proximity of the ser-
vice delivery can influence the outcome of
the service and customer satisfaction. Service
organisations need to manage the behaviour of
surrounding customers to ensure that they do
not intrude on the customer’s personal space or
on the service process. In this context, crowding Nightclubs employ
and the behaviour of unruly or dissatisfied customers can significantly impact on bouncers to control the
customer satisfaction. For example, at major sporting events, when spectators are behaviour of patrons
sometimes forced to sit in crowded and cramped conditions for extended periods of and to ensure that
time, it is essential that security staff ensure that the behaviour of tired, unruly or patrons meet minimum
intoxicated fans does not impinge on the amenity and experience of others watching entry requirements,
such as having suitable
the match. Similarly, nightclubs usually employ bouncers to control the number and
identification. The
behaviour of patrons. presence of bouncers,
Process and the role that
In the services context, process refers to all of the systems and procedures used to they perform, helps
to ensure that other
create, communicate, deliver and exchange an offering. An organisation’s processes
customers can enjoy
define the manner in which the service is coordinated and delivered. At the same
the experience that is
time, the inseparable nature of the service from its provider means that the success on offer at clubs.
of the process will, to a very large extent, depend upon the performance of the ser-
vice staff member and their interaction with the customer. The key concern is that
the process delivers the service in a way that at least matches the customer’s expec-
tations. Ideally, the performance should exceed the customer’s expectation, although process The systems used to
this becomes increasingly difficult over the long term of the relationship. It is there- create, communicate, deliver and
fore essential that an organisation understands customers’ expectations and, from exchange an offering.
that understanding, designs and delivers operational systems and procedures that
enable staff to match those expectations consistently.
As a generalisation, customers usually have two kinds of expectations:
• functional expectations — expectations of the technical delivery of the service
transaction
• customer service expectations — expectations that relate to the service experience
and the social interaction between the customer and service provider.
In this sense, it is generally advisable to be ‘efficient first and friendly second’.
Service providers should therefore rightly focus their attention primarily on the
delivery of effective and efficient service. When this level of technical performance
is assured, they should focus additional energies on the customer service experience.
At the same time, however, while most services demand a combination of technical
(‘hard’) and personal (‘soft’) skills, the heterogeneity of many services means that it
is difficult to ‘mass produce’ or ‘manufacture’ service. Thus, service staff will often
face additional demands in dealing with individual customers and their expectations
or the demands of unique circumstances. Factors that help deliver a consistently
high level of service include service delivery systems, the management of customer
expectations, and staff training. It is important that organisations constantly assess

Chapter 11  Services marketing 413

 customer service performance and a range of metrics are available to do so. For
example, Australia Post constantly measures delivery time and accuracy as key per-
formance measures.
Physical evidence
The intangibility of services makes it difficult for customers to evaluate the quality
and suitability of services, especially when using the service for the first time. As
discussed earlier, one strategy marketers can use to manage the uncertainty that
intangibility creates is to offer tangible cues as to the quality of the service. Cus-
physical evidence Tangible tomers look to these cues and other physical evidence as a way of evaluating the
cues that can be used as a service prior to purchase.
means to evaluate service quality
Service marketers should therefore pay close attention to the physical environ-
prior to purchase.
ment in which the service is delivered and to all the other accompanying physical
cues. The physical environment should be designed to inspire confidence in the
technical delivery and effectiveness of the service and in the likely service experi-
ence. The physical environment includes architectural design, floor layout, furni-
ture, décor, shop or office fittings, colours, background music and even smell. All
potentially affect the customer’s or client’s experience, and need to be carefully
‘­choreographed’. Similarly, staff uniforms, brochures, service or delivery vehicles and
stationery are all potentially influential in the customer’s experience. An important
implication of the heterogeneity of service is the necessity (and difficulty) in main-
taining consistently high standards in the presentation of all the physical evidence
that customers will use to judge the quality of the service. In the case of McDonald’s,
the consistent cleanliness of the physical surroundings (particularly the restrooms)
anywhere in the world is an important component of the ‘McDonald’s experience’,
and maintaining that consistency is an important priority in the franchise system.
Similarly, the cleanliness of an aircraft when boarding may be an important indi-
cator of a consistently high standard of service (or to the contrary).

Spotlight It’s your funeral!

If you’ve watched a lot of daytime commercial television recently, you’ll know about the trend of
advertising ‘blanket’ funeral and income protection insurance. The combination of the transition to
retirement of Baby Boomers, coupled with poor investment returns and the threat of redundancies
for those still employed, has created a seemingly perfect opportunity for marketers of these insurance
products aimed at the ‘stay-at-home’ audience. While insurance products and advertising may
differ significantly, they all have a common theme: that responsible, caring people (and invariably
attractive, immaculately groomed and middle-class) will insure themselves for life’s catastrophes —
such as death or redundancy — to better protect their ‘nearest
and dearest’. What’s more, for only a few dollars a week, you can
cover yourself generously for the financial costs of these unhappy
occurrences. The truth, of course, is far less rosy. After all, if it sounds
too good to be true, it almost certainly is — especially in the case of
funeral insurance.
While there are currently more than two million funeral policies
outstanding in Australia, as Choice magazine points out, ‘Ensuring
your family doesn’t suffer financially in the case of your death is a good
idea, but the National Information Centre on Retirement Investments
(NICRI) warns consumers to be very careful before signing up
to funeral insurance and other prepaid funeral plans’. A Choice
investigation found that:
• under some funeral insurance plans, you can end up paying more in
premiums than the value of the cover

414 Marketing
• prepaid funerals, funeral bonds and life insurance are more cost-effective options for covering your
funeral costs.
Andrew Smith, head of Australia's biggest funerals, burials and cremation provider Invocare,
has stated that insurers are ‘misleading’ customers about the prospect of loved ones being left to
pay, as an executor of a will has the power to release funds to cover funeral costs. Furthermore,
the fine print in these policies is rarely discussed, and seemingly rarely understood by many policy
holders.
The problem does not arise with all insurance products or funeral products. There are life assur-
ance, life insurance, funeral bonds and prepaid funeral plans — all of which may offer better financial
benefits for ‘average’ policy holder/investors. With funeral insurance, typically, the longer you live, the
more you pay — and, therefore, the less you benefit. The majority of retirees will happily live to their
mid 80s, by which time they will have contributed vastly more than their beneficiaries will receive when
the policy holder dies. While the prospect of a long and happy retirement is statistically probable for
many Australians, the value of funeral insurance is equally questionable. In fact, it could be argued
that with these funeral policies, the only way you ‘win’ is by dying early!9 Question
Thinking about the four
distinctive characteristics
of services, how do these
Concepts and applications check help explain the recent
popularity of funeral
Learning objective 2   describe how to develop and manage an effective marketing mix based on insurance?
the unique characteristics of services
2.1 Explain the major differences between goods and services in your own words.

2.2 Goods and services can be thought of as being on a scale, with a purely intangible service
(with no accompanying physical good) being at one end and a purely tangible good (with no
accompanying service) at the other. Categorise the following goods and/or services in the likely
order they could appear on such a scale:
•• restaurants
•• soap
•• insurance
•• cars
•• hospitals
•• salt
•• public transport
•• computer software
•• holiday resorts
•• mobile phones.

2.3 Using service examples of your own choosing, outline several ways that marketers can offset
potential consumer uncertainty and risk.

2.4 What are some techniques that services marketers can attempt to balance supply and
demand?

2.5 What measures can marketers take to ensure service quality?

2.6 In your own words, explain the ‘people’, ‘process’ and ‘physical evidence’ aspects of services
marketing.

SERVICES MARKETING CHALLENGES

Learning objective 3
The four key differences between goods and services (intangibility, inseparability, appreciate the major
heterogeneity and perishability) pose particular challenges in the marketing of ser­ challenges in the
vices. While there are numerous challenges in the successful marketing of services, marketing of services

Chapter 11  Services marketing 415

 there are three key issues which, arguably, make the marketing of intangible ­services
more challenging than the marketing of tangible goods. These are:
1. achieving a sustainable differential advantage in marketing services
2. managing profitable customer relationships
3. delivering consistently high levels of customer service.

Managing differentiation
Because services are produced by people and not machines, and because it is dif-
ficult to protect service innovation from immediate copying by competitors, it is
difficult to achieve lasting product differentiation in service industries. Services do
not enjoy the protection of legal patents or copyright and can be more readily mim-
icked by competitors. For example, the core products provided by the major banks
(cheque and savings accounts, mortgage and personal loans, credit cards and foreign
exchange) are generally ‘standardised’ products with closely comparable — if not
identical — benefits, conditions and prices. In such an environment, any service
innovations are almost immediately replicated by competitors. Furthermore, in such
market conditions, customers also expect their bank to offer closely comparable
products to those of the competition, and customers are therefore often reluctant
to switch banks, even in the face of short-term product innovation and intense
marketing promotion.
Recall that a product can be viewed as a collection, bundle or package of attri-
butes comprising a ‘core’ service, expected service, augmented service and potential
­service. The core service is the want or need the product satisfies. The expected
service is those attributes that deliver the benefit. For example, in a hotel, the
core  ­service is accommodation, provided by the expected service of a room and a
bed. In addition to the core and expected service, a range of supplementary services
are often included, which add value from the customer’s perspective and which may
serve to differentiate the service offering from that of competitors’ offerings. In the
case of a hotel, in addition to the room, a range of augmented services such as use
of the swimming pool and gymnasium, complimentary laundry, safekeeping and
breakfast are frequently included in the room tariff. It is also important to note that
the core and expected service is usually a ‘given’, from the customer’s perspective,
and the focus in marketing the service product will therefore usually be on the aug-
mented services. Marketers should therefore explore opportunities to enhance or
add value to their core services (or goods) through the provision of supplementary
or supporting services, such as guarantees, technical advice, ‘help lines’, or member-
ship services or privileges (such as Qantas’ Frequent Flyers club).
At the same time, as competition increases and new product features are con-
stantly added, there may also be new market opportunities in offering reduced
(‘no frills’) service packages. For example, Jetstar and Tiger compete with Qantas
and Virgin Australia by offering low-price, basic airline services, with the customer
paying additional money when they require supplementary services such as meals,
in-flight entertainment and additional baggage. Similarly, discount share trading has
enjoyed rapid growth in recent years, partly fuelled by the low-cost service and
delivery model made possible by the internet.
For service organisations, the sources of sustainable differentiation are relatively
few. If products cannot be protected from imitation, then ‘service culture’ offers an
opportunity to create a unique market positioning. This is an approach favoured by
luxury hotel chains, such as Ritz Carlton, some airlines such as Emirates, exclusive
restaurants and other ‘boutique’ service providers. Another potential source of differ-
entiation is in distribution coverage or quality. For example, the major retail banks

416 Marketing
have created a strong market positioning by virtue of the number of their retail
­outlets. This investment is difficult to match in the short term. Similarly, the quality
of distribution provided by retail outlets may prove difficult for competitors to match.
For example, Lexus established its position in the luxury car market based, in part,
on the quality of its dealer service, the enhanced warranty provision enjoyed by cus-
tomers, and augmented services such as free parking at the Sydney Opera House. For
all service providers, however, the objective of achieving and maintaining meaningful
differentiation in the face of competitive imitation remains a challenge.

Developing profitable customer relationships

For many service organisations, long-term survival depends upon the ability to
create and maintain profitable relationships with target customers or customer seg-
ments. Professional service providers, such as accountants, lawyers, architects and
investment advisers, manage their customers closely as individuals and provide
each with a service tailored to their unique circumstances and needs. Professional
service providers in this context can be contrasted with consumer service providers
who typically provide a standardised service offering, such as that provided by the
retail banks. For most service providers, it is not enough to attract new clients or
customers (even in their thousands), as new customers are generally not profitable
in the early stages of their relationships with the service provider. This is because
the costs of ‘customer acquisition’ are high, as are the fixed costs of establishing the
relationship, and these costs cannot be recovered in the immediate future.
For many service providers, the problems of high customer turnover (or ‘churn’),
together with low average transaction volumes and values, mean that many cus-
tomers may never be profitable. In such circumstances, the challenge for services
marketers is to measure the profitability of individual customers and, particularly,
to develop close relationships with profitable customers. To achieve this implies that
the service provider can accurately measure the profitability of individual customer
relationships and that the service provider can tailor an offer to meet the require-
ments of these potentially profitable customers. It also implies that the customer
sees value in developing a closer relationship with a service provider.
Developing closer relationships (particularly in the case of large organisations
dealing with large numbers of customers) typically requires extensive customer
information files, often managed by customer relationship management (CRM)
software. Such systems are costly to establish and are not guaranteed to succeed.
They are most likely to be effective if accompanied by comprehensive management
systems that support the creation and maintenance of customer relationships. The
key to successful customer relationship management lies in building the trust and
satisfaction of customers such that customers reward the service provider with their
long-term loyalty, even in the face of competitors’ efforts to persuade the customers
to switch providers.

Delivering consistent customer service quality

The intangible nature of services makes it difficult for customers to evaluate some of
the services they receive. More generally, products can be classified according to the
different qualities which customers use in evaluating them. Some products can be
objectively evaluated prior to purchase via what are known as search qualities, which
include colour, size and smell. Airline tickets are usually purchased in this way. Many
services, however, lack search qualities and instead customers rely on other qualities.
The quality of most services are most likely to be evaluated during and after service
delivery. These are known as experience qualities and include a theatre performance,

Chapter 11  Services marketing 417

 hairstyling or restaurant service. In some circumstances, consumers cannot even
assess the quality of the service after they have consumed it. For example, surgery
provided under general anaesthetic may leave the medical patient sore and sorry
when the effects of the anaesthetic wear off, but the outcome of the procedure will
probably be only immediately known by the medical staff. Depending on the type
of procedure, the patient may never really know the quality of the service provided.
Legal and investment advice are other examples, in which customers commonly
know little about the service provided and are limited in their ability to assess the
quality of the service. Such services must be evaluated based on credence qualities,
which are based on an evaluation of the service provider’s trustworthiness, integrity
and professionalism. Figure 11.1 illustrates the use of search, experience and credence
qualities in the evaluation of products.

Most Most
goods services

Easy to Difficult
evaluate Clothing to evaluate
Jewellery
Furniture
House
Motor vehicle
Restaurant meal
Holiday
Haircut
Child care
Television repair
Legal service
Root canal
Auto repair
Medical diagnosis
FIGURE 11.1
Product evaluation using
High in search High in High in
search, experience and
qualities experience credence
credence qualities qualities qualities

Because services are delivered by humans, rather than machines, it is very diffi-
cult to provide perfect service delivery every time. Even ‘six-star’ hotel chains such
as Shangri-La Hotels and Resorts will find it almost impossible to perfectly satisfy
every customer, every time. For marketers, the challenge is to match the ‘promise’
with the ‘performance’, so that customers are satisfied consistently. Of course, many
service marketers will argue that ‘mere satisfaction’ of customers is not enough.
Rather, they argue that superior service providers aim to ‘delight’ their customers
by providing a level of service which exceeds the customer’s expectations. This idea
is simple in theory, but extremely difficult to execute in practice. The consistent
delivery of such a promise requires the highest levels of training, motivation, perfor-
mance and rewards. This is both difficult and costly to achieve.
For organisations such as banks, government agencies and airlines who serve
millions of customers in the broad population every day, it may simply not be prac-
ticable to aim to ‘delight’ customers consistently. Of course, this is no justification
for low levels of customer service as customers will quickly switch service providers
if they believe they are receiving consistently substandard levels of service. The
challenge for service organisations is to set high standards of customer service that
can be consistently achieved, and for these customer service standards to form part
of the core promise made to customers in the organisation’s marketing communi-
cations. Delivering such high standards of service is the responsibility of the entire
organisation and requires total commitment from senior management, extending all
the way through the ‘back office’ to frontline customer service staff.

418 Marketing
 In delivering high levels of customer service, organisations need to consider four
key issues:
1. understand customers’ expectations
2. establish service quality standards
3. manage customers’ service expectations
4. measure employee performance.
Understand customers’ expectations
In order to deliver high levels of customer service, the organisation must first
develop an objective understanding of customers’ expectations. Such understanding
can be achieved best through the use of regular and systematic customer service
research. This involves, as a starting point, identifying the specific service attri-
butes that customers use to evaluate and distinguish between service providers. For
example, when evaluating a hotel, customers will form opinions about décor, room
sizes, cleanliness, friendliness of staff, accuracy of billing, speed of room service and
price, to name only a few attributes. While the range of service attributes is poten-
tially limitless, five common dimensions have been identified which customers
typically use to evaluate service quality across a wide range of industries. These
dimensions are outlined in table 11.1.10

Table 11.1  A checklist of service quality

Dimension Explanation Evaluation criteria

Reliability Consistency and dependability • Began on time

• Finished on time
• Billed correctly

Tangibles Physical evidence • Condition of premises

• Presentation of service provider
• Condition of equipment

Responsiveness Willing and able to provide • Enquiries responded to

the service • Service provided promptly
• Accommodated urgent needs

Assurance Trust and confidence in the • Demonstrated knowledge and skills

service provider • Reputation
• Personal manner of service provider

Empathy Care and attentiveness • Listened to needs

• Cared about customers’ interests
• Provided personalised service

In general, reliability is the most important criterion; that is, the service provider
does consistently what it promises. Beyond identifying the service attributes, it is
necessary for the marketing organisation to understand the customers’ service perfor-
mance expectations; that is, the quality level at which they expect the service to be per-
formed. Customers will have much higher expectations of a five-star hotel than of a
three-star or a backpackers’ hotel, even though they may be evaluating the same basic
service attributes. Understanding service expectations is crucial and customers typi-
cally have a range of service expectations ranging from ‘ideal’ to ‘the bare minimum’.
It is crucial that the organisation’s service at least falls within the ‘zone of tolerance’,
which describes the range of service quality between the minimum ‘acceptable’ level
and the actual ‘desired’ level. Within this range, customers will generally be satis-
fied with the customer service. Above the zone of tolerance, customers are said to be

Chapter 11  Services marketing 419

 ‘delighted’ and will become ‘advocates’ for the company. Conversely, below the zone
of tolerance, they will be dissatisfied and will be likely to defect and to spread bad
word-of-mouth.
To understand both the range of relevant service attributes and the level of cus-
tomers’ expectations, as well as the actual level of customer service performance,
organisations will need to conduct thorough market research typically involving
qualitative research, such as focus groups, to establish the customer service
­performance criteria, and regular sample surveys of customers to determine actual
levels of customer service delivery. Service organisations such as banks and air-
lines, and fast food and retail chains should conduct such surveys more or less
continuously.
Establish service quality standards
Once an organisation has determined its customers’ service expectations, it can
translate them into service standards, which can in turn be built into staff training
and evaluation processes. In banking, for instance, customers overwhelmingly
expect accuracy and therefore it is necessary for bank management to establish
The adage ‘The objective standards (e.g. error rates) against which service can be evaluated. Simi-
customer is always larly, in telecommunications, service availability and call ‘dropout’ rates are a pri-
right’ is reinforced to mary concern. In air, train and bus travel, it is typically the timeliness of departures
staff because of the and arrivals that is the first concern. In a changing, competitive marketplace, it is
damage that can be likely that customer service expectations will change and it is therefore necessary
caused by unhappy for management to monitor these changes and to adjust performance specifications
customers. Customer to correspond with customers’ expectations. Beyond establishing such specifications,
service expectations can it is essential that the organisation demonstrates commitment to the standards. In
be shaped by different
particular, line managers need to ensure that they have confidence in the staff and
factors. If expectations
are not met, dissatisfied
the performance standards so that individual customer service staff can appreciate
customers will often not the link between the organisation’s service expectations and their own performance
hesitate to share details and rewards.
about their negative
Manage customers’ service expectations
experience with others.
Because services are typically intangible and frequently variable in
quality, it is important that service marketers actively manage customers’
expectations, so that customer service delivery will consistently fall within
customers’ zone of tolerance. In this context, advertising and other pro-
motional vehicles (e.g. websites and in-store promotions) can play an
important role. The temptation for management to over-promise, however,
should be resisted. At the same time, customers need to be attracted to
visit a service provider, especially for the first time. In this context, there
may be an opportunity for a ‘special introductory offer’, rather than relying
upon unsustainable promises. After the first service experience, customers
will place less reliance upon advertising and promotion and will over-
whelmingly base their service expectations on their experience. Again, it
is important to ensure that their experience matches the promise.
Customer service expectations are also shaped by word-of-mouth as cus-
tomers tend to tell many of their friends when they receive exceptional
service, especially exceptionally poor service. In instances of poor service,
management needs to give close attention to ‘service recovery’, ideally
ensuring that, as far as reasonably possible, no customer leaves a service
provider’s premises dissatisfied and in a mood to tell their friends. (Of
course, there are some customers who are not always right; for example,
the abusive, deceitful or intoxicated.)

420 Marketing
Measure employee performance
Having established service quality specifications and demonstrated management’s
commitment to such expectations, it is necessary for management to ensure the
customer service staff members are able to meet these expectations consistently.
In this context, training, equipping, motivating and rewarding staff should recog-
nise the importance of customer service as part of the employees’ overall job per-
formance. Difficulties will frequently arise when job efficiency expectations clash
with the need to provide high levels of customer service, such as in periods of peak
demand. In such circumstances, customers will usually — and quite rationally —
expect ‘efficiency first and friendliness second’, although it is important to note
that they will expect both. Organisations which are renowned for their customer
service recognise the frequent need to juggle these competing expectations and
carefully manage their staff training and operations to ensure that customer service
is always a high priority. Finally, staff members need to be rewarded for delivering
high levels of customer service in addition to their high standards of technical com-
petence. The challenge for organisations in such circumstances is to be able to
objectively measure and reward the customer service performance of individual
staff members.

Marketing services: is franchising Spotlight

the answer?
Marketers, as a group, are optimistic by nature. The glass is always ‘half full’. As a subgroup of
marketers and service providers, franchisors must be among the most optimistic.
Some people, after losing their jobs, decide that their savings and redundancy package could be put
towards investing in a franchise rather than searching for a replacement job. Armed with case studies
of franchise successes, the franchise industry is nothing if not resilient.
BRW ’s top franchises list for 2013 has Laser Clinics Australia coming in at number one. While the
company’s annual revenue was only $20.1 million for the previous financial year, it has grown by
246 per cent.11 Jetts Fitness was listed at number two, with a growth rate of 219 per cent.
The top ten growing franchises in Australia are:
• Laser Clinics Australia
• Jetts Fitness
• Anytime Fitness
• OPSM
• Zambrero Mexican restaurants
• Mad Mex Fresh Mexican Grill
• Smith & Sons home renovators
• Plus Fitness
• Keen to Clean Group
• Salsas Fresh Mex Grill.12
According to the managing director of Franchise
Relationship Australia, Greg Nathan:
It comes down to financial management, effective systems
and a strong discipline. Franchisees have a network of other
franchisees and the franchisor to look to for advice and a sense
of security. In the worst case scenario, in good franchise groups
the franchisor will step in to assist if a franchisee is in difficulty.13

The success and survival rates of franchises, when compared with other independent small busi-
nesses in the same service/retail sectors, are perhaps the most compelling of the advantages in

Chapter 11  Services marketing 421

 buying into an established franchise system. The most obvious ‘downside’ is the capital cost and
servicing any borrowings required to buy the franchise, especially when the franchise entry price has
been calculated at the peak of the economic cycle. Providing these costs can be met, especially in
the initial years, the (usually) successful business, marketing and service delivery models of long-
established franchises will commonly spell marketing and financial success.

Question
From a marketing perspective, what would be some additional challenges of franchising a service product
compared to a physical good?

Concepts and applications check

Learning objective 3  appreciate the major challenges in the marketing of services
3.1 Using your own service example, explain ways in which the service is differentiated from
competitive offerings in the market.
3.2 Outline the key differences between professional, as opposed to consumer, service providers. How
would these differences affect marketing strategy?
3.3 Evaluate a recent service experience you have had in terms of the five dimensions of service
quality outlined in table 11.1.
3.4 What measures can services marketers take to ensure quality?

422 Marketing
SUMMARY Key terms and
Learning objective 1  explain the importance of the service sector to the concepts
Australian and New Zealand economies, and the difference between services business-to-business
products and service as the delivery of products  services 400
consumer services  399
Service industries generate in excess of 70 per cent of the national incomes of
heterogeneity  407
­Australia and New Zealand and are the largest employers. For-profit businesses com- inseparability  404
prise the largest part of the service sector, but the government is a substantial ser- intangibility  402
vice provider, particularly in the areas of health, education, welfare and defence. perishability  409
Services are activities, performances or benefits that are offered for sale, but physical evidence  414
do not involve the exchange of goods nor transfer of title. ‘Service’ is the act of process  413
delivering a product. Services involve a significant service component (as do many services  398
goods). Consumer services are purchased by individual consumers or households
for private consumption. Business-to-business services are purchased by individuals
and organisations for use in the production of other products or for use in day-to-day
business operations.

Learning objective 2  describe how to develop and manage an effective

marketing mix based on the unique characteristics of services
Four characteristics fundamentally distinguish services from goods: intangibility,
inseparability, heterogeneity and perishability. These distinguishing characteristics
have important consequences for how services are marketed. In addition to product,
pricing, promotion and distribution, the services marketing mix is usually extended
to include the factors of people, process and physical evidence, highlighting the need
for the services marketer to focus on the role of people — staff, the customer and
other customers — who affect service delivery, the procedures and systems they use
to ensure services are reasonably consistent in quality and the tangible cues that
services marketers use to reduce the risk or uncertainty that people often feel when
considering purchasing a service.

Learning objective 3  appreciate the major challenges in the marketing

of services
The intangibility, inseparability, heterogeneity and perishability require organ-
isations to focus on achieving a sustainable differential advantage, managing profit-
able customer relationships and delivering consistently high levels of customer
service. Differentiation is difficult in the services sector because services are easily
copied by competitors. Establishing a service culture to provide consistently high-
quality service is one approach. Many services customers are unprofitable and it can
be expensive to attract new customers. The organisation must focus on identifying
those customers that offer the most profit potential and building long-term relation-
ships with them. To deliver consistently high-quality service, the organisation must
understand customers’ expectations, establish appropriate service quality standards,
manage customers’ service expectations and measure employee performance.

Chapter 11  Services marketing 423

 Case study Airbnb and the sharing economy
David Fleischman, University of the Sunshine Coast

Do you enjoy the experience of travelling? What is it about travel experiences that makes them
unique and exciting? Is it the people you meet, or the places you stay? Airbnb is one service that
claims to cater for the type of traveller that seeks experiences giving travellers an ‘authentic’ feel
for a place.
Airbnb was founded in 2008,14 and was valued at over $2 billion dollars after only five years of
existence.15 It is a website that provides a marketplace service where travellers can connect with local
hosts of a destination who are offering a unique accommodation experience. Listings range from tree
houses to castles, private islands, teepees and even water towers. There are also ‘normal’ houses and
apartments available for bookings. In total, Airbnb listings offer accommodation in over 33  000 cities
and 192 countries around the world. On a typical night, approximately 150  000 Airbnb guests
connect and stay with different hosts all over the world. New York City boasts 23  000 accommodation
listings, and Paris a staggering 24  000. In Australia, Sydney and Melbourne both offer around
1800 listings. To put that into perspective, the Hilton hotel chain offers approximately 600  000 rooms
in total worldwide. It is obvious that Airbnb has unlocked a market gap that was previously untapped
within the travel service industry.16
Several factors have influenced the success of Airbnb. The growth of middle-class income
in countries such as China, Brazil and India has fuelled an increase of travellers worldwide.
Sociocultural trends in travel have also changed. Many consumers are now seeking more personal
and intimate experiences when they travel. In addition, the poor economic climate, as a result of the
global financial crisis in 2008, has driven people to seek income from alternative sources. Hence, we
have seen the rise in popularity of innovative peer-to-peer (P2P) business models like Airbnb, which
provide users with an opportunity to generate extra personal income. The culmination of these factors
has been a catalyst for the emergence and growth of the ‘sharing economy’. In a sharing economy,
the trust in the value behind services like travel accommodation has shifted from the corporate
supplier to P2P transactions. Instead of corporate suppliers fully controlling value propositions
and exchange, organisations such as Airbnb simply facilitate value propositions and exchange
between users.
The business models utilised by Airbnb and other organisations benefiting from the emerging
sharing economy have not been met with acceptance from all. Traditional suppliers of services like
accommodation and car rentals are threatened by the potential of the sharing economy, and have
been lobbying against P2P sharing services. In the case of Airbnb, opposing parties contend that
Airbnb’s P2P sharing services are unregulated and unsafe for consumers, as they are not required to
uphold the same legal standards and regulations as traditional accommodation suppliers.
New York, in particular, has come under scrutiny for violating the state’s occupancy code. In May
2013, a man was found guilty of violating New York’s illegal hotel law by renting out his apartment
on Airbnb.17 Despite these contentions, Airbnb has continued its growth (with the potential of an
additional $100 million in venture capital injections projected in the near future), and provides
a number of measures to ensure the protection of its guests and hosts, as well as the quality of its
services.18
As trust is the catalyst for P2P service organisations, high standards of consistent security and
protection for users are paramount. In most countries, Airbnb host listings are insured for damages
of up to $1 million for every booking.19 Hosts are also encouraged to adhere to local laws and
regulations, as they may be required to obtain a permit or legal permission for their accommodation
offering. Extensive and easily comprehendible information and tips are clearly outlined on the Airbnb
website for all hosts and guests. All personal information is kept confidential and is verified via
electronic security systems through Airbnb’s website. Airbnb also provides a secure platform for all
financial transactions between hosts and guests, along with an efficient 24/7 help service.
In addition to the safety and security initiatives of Airbnb, the high level of service quality also
helps create a novel accommodation experience and consumer trust. Airbnb aims to create a social
experience rather than just a search site for travel accommodation. This is what separates it from

424 Marketing
other similar P2P services where travel accommodation may be sought (e.g. Couch Surfing
or Gumtree).
As the excitement of the travel experience begins
with a search of destinations, flights, activities and
accommodation, Airbnb provides features that stimulate
consumers while sifting through this information. From the
moment the website is accessed, the consumer receives
a feel for their chosen destination via photographs of the
various types of accommodation that can be discovered. If
they are travelling to one of the most popular destinations
(e.g. Rio de Janeiro, London or New York City), users can
browse accommodation using ‘neighbourhood guides’.
These guides provide more detailed accommodation
information based on attributes such as ‘trendy’, ‘quiet’ or
‘nightlife’ in distinct areas within a city.
Consumers can also create wish lists. The wish list
feature provides an avenue for consumers to formulate
a list and then compare their dream places to stay and
visit. This can be shared with friends and used to create
collaborative trips. Airbnb also creates themed wish
lists for consumers seeking diverse experiences. For instance, consumers can view wish lists that
centre on bespoke style architecture accommodation, romantic accommodation for couples or
green accommodation for eco-enthusiasts. Moreover, wish lists provide another channel for Airbnb
to engage and create relationships with their users. Essentially, consumers may visit the site just to
update or explore wish lists, and not necessarily to search and book accommodation — ensuring
repeat visits to the site.
Beyond some of the latter features is the notion of communicating P2P with another human
being and establishing a genuine social connection. These social connections are what provide the
authentic travel experiences that many consumers desire. And to think, all of these connections
are built off a single common denominator — trust. Put simply, Airbnb and other similar sharing
services have prospered by making users the regulators of trust. Guests and hosts have the
transparent opportunity to rate each other, which helps instil integrity and confidence in the quality of
service provided.
The service experience that Airbnb offers for travel accommodation is unique. While there
will always be a segment of consumers who desire travel accommodation via conventional
suppliers, the market of consumers seeking an inimitable travel accommodation experience
will continue to grow. While there are still many unknowns about service organisations that centre
on business models fuelled by the sharing economy, it is hard to contend with the future potential
of organisations like Airbnb.

Questions
1. What makes Airbnb different from other service organisations in the travel accommodation sector?
2. Using examples, explain what features of Airbnb’s service fulfil the five dimensions of service
quality. How do the features contribute to creating and maintaining long-term customer
relationships?
3. How does Airbnb overcome issues that can emerge, given the unique characteristics of services
(tangibility, inseparability, heterogeneity and perishability)? Provide examples.
4. What current and potential future challenges does Airbnb face as a service that centres on the
emerging sharing economy?
5. Describe some innovative solutions and/or strategies that service organisations using P2P sharing
business models can implement by understanding the extended services marketing mix.

Chapter 11  Services marketing 425

 Advanced activity
Refer back to the opening case about Aussie Home Loans. Now that you have read
the chapter, outline how you believe they could:
(a) create a sustainable differential advantage in marketing home loans and other
financial services
(b) enhance profitable customer relationships
(c) deliver consistently high levels of customer service across their range of
services, using the extended services marketing mix.

Marketing plan activity

If you have chosen a service organisation for your marketing plan, analyse that
service in relation to the additional ‘3 Ps’ of the services marketing mix, as outlined
in this chapter (people, process and physical evidence). Outline potential marketing
strategies to achieve sustainable competitive advantages in each of these three
areas.
If you have chosen a good rather than a service for your marketing plan,
analyse the good in terms of potential customer services (human, intellectual or
mechanical activities) that can add value to it. For example, as outlined in the
chapter, the provision of a warranty can add value to the purchase of a car or a
home entertainment system. Can you identify any sustainable customer service
competitive advantages for your good?
A sample marketing plan has been included at the back of this book (see the
end of the book) to give you an idea where this information fits in an overall
marketing plan.

426 Marketing
 CHAPTER 12

Digital marketing
Learning objectives
After studying this chapter, you should be able to:

identify digital marketing activities

explain the unique characteristics of digital marketing

explain specific digital marketing methods

appreciate ethical and legal issues relating to digital marketing

discuss the role of digital marketing in an overall marketing strategy.

Dumb ways to die
Often campaigns for public transport safety are boring and not noticed by the com-
muters. However, a campaign by Metro Trains in Melbourne, ‘Dumb ways to die’,
became a viral hit on social media sites with over 49 million views on YouTube, an app
released, and the song released on iTunes (reaching the top 10 in the charts).
The 3-minute animated video presents 21 cute cartoon characters who die in a
­variety of dumb ways — including setting fire to hair, poking a grizzly bear and swim-
ming with piranhas — culminating in 3 of the characters dying from train-related
accidents, all to the sound of a quirky song. It was created by advertising agency
McCann ­Melbourne, developed by Pat Baron, animated by Julian Frost and produced
by Cinnamon Darvall. The aim was to engage with people who are not interested in
hearing a safety message.
The multimedia campaign launched in November
2012 with a website; Facebook, YouTube and
Tumblr accounts; as well as advertising in news-
papers, local radio, outdoor advertising; and
throughout the Metro Trains network. Within two
days, it was viewed 2.7 million times, and in two
weeks it had been viewed 28 million times plus
encouraged 85 parodies. Further, the catchy song
‘Dumb ways to die’, written by John Mescall and
Ollie McGill from the Cat Empire and sung by
Emily Lubitz, was released on iTunes, and within
24 hours was in the top 10 on the iTunes charts.
It was described as ‘Australia’s biggest ever viral
hit’, also charting in Hong Kong, Singapore,
Taiwan and Vietnam. An app was created for
iPhone, iPod touch and iPad, in which players had to avoid the dangerous activities
displayed in the ad and pledge to ‘not do dumb stuff around trains’.
According to McCann, in two weeks the campaign had generated at least $50 million
worth of global media value in publicity as well as more than 700 media stories,
for ‘a  fraction of the cost of one TV ad’. Importantly, Metro Trains stated that the
campaign helped achieve a 30 per cent reduction in ‘near-miss’ accidents, comparing
figures to the same time the previous year. Metro Trains has also been approached by
international companies, including railways, to use the campaign.
The campaign also won several industry awards, but the main thing is that, with social
media, it helped save lives and made people aware of safety around trains.1

Questions
1. Why do you think Metro Trains’ campaign was so successful?
2. How did social media help in making this such a popular campaign? Could
the same have been achieved just with the use of traditional media, like TV,
radio and print?
INTRODUCTION
From time to time throughout history, a technological change has come along that
has fundamentally changed the way humans live. The internet and mobile tele­
communication technology represent such a technological shift. In Australia and
New Zealand — and all developed countries — these technologies have transformed
the way individuals communicate and consume, the way organisations do business,
and the way government, businesses and citizens interact with each other. Busi­
nesses such as Amazon, Castle Rock and HotelClub have been established, with
their main presence being on the internet.
According to government figures, 79 per cent of Australian households have home
internet access and 83 per cent of households have access to a computer.2 Much
of this access is shared, be it at home, work or school. Virtually all businesses are
online in some capacity, ranging from having a simple email address and conducting
internet banking transactions, through to multinational corporations conducting vir­
tually all aspects of their business online.
Although mobile phones, the internet and all the associated technologies that are
gradually converging into one have been with us for a couple of decades now, many
of the marketing approaches are still very much in the exploratory and evolving
stages. Of course, there have been some spectacularly successful business and
marketing models, such as Amazon and Google, and some equally spectacular fail­
ures, including Boo.com, GeoCities and eToys — all victims of the ‘dot.com’ melt­
down at the end of the 1990s.
It is important to remember that the availability and nature of technology is quite
different around the world. Many rural areas in developing countries have virtually
no telecommunications infrastructure. In parts of rural India, for example, adver­
tisers place television screens on the side of vans and park them in town centres for
people to watch (including the advertising messages, of course). In Africa, internet
access is more commonly achieved via mobile phone than via a computer, with the
Central African Republic being the most expensive place to get a fixed broadband
connection, costing nearly 40 times the average monthly income there.3
This chapter focuses on the use of digital marketing. In this chapter we will define
digital marketing and explain its unique characteristics, including profiling, inter­
action and community, control, accessibility and comparability, and digitalisation.
Then we will explain specific digital marketing methods, such as e-commerce, digital
products, banner and pop-up ads, viral marketing and search engine optimisation.
Any organisation wishing to participate in digital marketing must be aware of the
relevant legal and ethical issues. We will examine legislation, ethics and how the
rules of digital marketing are still developing. Finally, we discuss the role of digital
marketing in an overall marketing strategy. It is important to remember that digital
marketing is just one part of a broader marketing strategy and that digital marketing
efforts must be consistent and coordinated with the overall marketing plan.

DIGITAL MARKETING Learning objective 1

identify digital marketing
Digital marketing refers to all of the activities involved in planning and imple­ activities
menting marketing in the electronic environment, including the internet and web
on computers, tablets and smartphones, and other information and telecommuni­ digital marketing The
cations technologies. Examples of digital marketing include: activities involved in planning and
implementing marketing in the
• the sale of products via an e-commerce website (at its most basic, the digital
electronic environment.
marketing equivalent of a mail order service)

Chapter 12  Digital marketing 429

 • the texting of potential customers about a new offer or sale (an example of
e-promotion)
• an email sent to an existing customer asking them to click a link to participate in
a survey for the opportunity to win a prize (a promotion and customer relation­
ship management technique)
• the provision of information, examples and testimonials via social networks
(a growing digital channel being used by a variety of businesses, including small
companies and musicians using Facebook, Twitter and Tumblr)
• the use of magazine advertising to encourage consumers to subscribe to an SMS
horoscope service (an example involving a product and distribution method
unique to digital marketing)
• the inclusion of discount vouchers on takeaway food websites that encourage
people to visit the website, knowing they will be able to access a lower price as a
result (an example involving promotion, pricing and the active involvement of the
purchaser, contrasting with the delivery of pizza discount vouchers via mail that
entail no active engagement by the consumer).
It is clear then that the internet and other technologies offer numerous oppor­
tunities for digital marketing. These opportunities are only likely to increase in
the future with the younger generation, often referred to as ‘digital natives’ or the
‘net generation’,4 not surprisingly being the most prolific users. Younger consumers
are spending an enormous amount of time using the internet compared to other
generations. According to a Roy Morgan study, even though Australians in general
spend more time viewing television than consuming other media, observing TV and
internet viewing across different generations, the time spent on the internet for both
Generation Y and Z is now at a level that is comparable to television. Older users,
sometimes referred to as ‘digital immigrants’ or ‘silver surfers’, are also increasing
their hours a week online and there has been a slight decrease in TV watching.5
A marketing organisation that fails to engage with digital marketing is clearly setting
itself up for failure. The key purchasing decision makers of the future are definitely
‘online’.6
No doubt you will have engaged with many examples of digital marketing and
found various advantages and disadvantages. One of the main advantages to you
might be convenience, as you can access websites 24 hours a day, 7 days a week,
from just about anywhere, to obtain information that will assist in making the final
purchase decision — and in many cases you can make the purchase. You are not
limited by the usual store opening hours, the location of the store or having to
wait while other customers are served. Of course, among the disadvantages for the
­consumer are the inability to physically examine the product before making the
­purchase and the risk of credit card fraud.
Marketing organisations also find pros and cons in digital marketing. For
example, they are potentially exposed to much greater competition (as geography
has little  meaning online), but they also have access to the entire global market
(something that cannot be easily achieved in the bricks and mortar world).
­
Additionally, not everyone has access to the internet, and some specific target
­
markets in particular (e.g. the elderly, those living in remote areas and those with
low s­ocioeconomic status) have low rates of access. Payment can also give rise to
issues, with consumers concerned about security and the possibility of online fraud
or deception (not everyone has a credit card or wants to give credit card details
online).
Digital marketing allows consumers to interact deeply with the marketing organ­
isation without the need for dealing with an actual person. Banking is one of the

430 Marketing
most obvious examples. Only a few decades ago, to withdraw cash from a bank
required the customer to take a passbook to a teller during opening hours and be
handed cash over the counter, with the transaction handwritten and stamped in the
passbook. Today, customers can withdraw cash from an automatic teller machine
24 hours a day or move their money around using credit cards, EFTPOS and internet
banking more or less as they please. There are quite clear advantages in terms of
convenience for the consumer, although some consumers, particularly some older
people, prefer personal service rather than dealing with technology. There are also
very big advantages for the banks. For example, a banking transaction performed
by a consumer using internet banking costs about 20 cents. The same transaction
performed in a bank branch costs $3.7 Considering banks conduct millions of trans­
actions a day, this is a very significant saving. The banks found though that con­
sumers still generally prefer to deal with bank personnel when it comes to more
complex matters such as discussing investments, loans and insurance. Some of the
larger banks experienced a consumer backlash when they began closing branches in
rural and regional centres, forcing consumers to use technology or to travel if they
wanted personal service.

Online shopping study Spotlight 

A major study by research company Roy Morgan has found some interesting points about online
shopping. The 2013 ‘State of the nation report’ (no. 15) identifies social trends across society,
including an examination of internet purchasing trends. The study found that over the last 10 years,
there has been consistent year-on-year growth in internet shopping. Further, there was a 12 per cent
growth in online retail over the past year and, for the first time, more than half (50.3 per cent) of
Australians had shopped online.
The Australian Bureau of Statistics (ABS) claims that
$258 billion is being spent yearly on retail, with Roy Morgan
estimating that $24.3 billion — or 9 per cent of that — is
spent online, with the average weekly online expenditure
being $285 per person. As for where the online dollar is being
spent, travel, entertainment and leisure, electronics, fashion,
and food and beverages were the top five categories. The
most popular online purchases were in leisure and travel,
making up 45 per cent of online purchases, followed by
fashion with 23.4 per cent. Also, those who shopped online
were increasingly less likely to go to an actual store, as 23 per
cent of online shoppers said they go to stores less often now,
compared to 10 per cent in 2003.
Based on the results, Roy Morgan Research CEO Michele
Levine believes that online shopping is becoming increasingly
mainstream, and that traditional retailers need to adjust to
exist alongside online shopping, attributing the surge to the
growth in smartphone use:
Within just a few years, smartphones have added another layer of complexity to the scene. While over half
of Australians now own a smartphone, less than 7 per cent of them bought online using the phone in the
last four weeks — nevertheless, this is double the proportion a year ago.

What the smartphone does is it means they don’t have to go home, they can do all of those things
wherever they are, any time they like. What we’re seeing is people are using them to check prices, explore
the availability of goods and doing research.

Chapter 12  Digital marketing 431

 However, there are also negative issues associated with smartphone use:
But despite the significant growth, security and trust are still unresolved issues for online retailing.
56 per cent of all Australians do not feel comfortable giving their credit card details online, and even
among those who have bought online in an average three-month period, nearly two thirds say they
only buy from retailers they know.8

Questions
1. Outline the types of digital marketing activities that may be most effective in reaching you and your
friends. How do the activities change depending on the type of product sold?
2. Imagine you are the marketing manager for a traditional retailer that is being criticised in an online
forum. From a marketing perspective, briefly outline how you would address the situation.

Concepts and applications check

Learning objective 1  identify digital marketing activities
1.1 What is meant by the term ‘digital marketing’?
1.2 Outline the advantages and disadvantages of digital marketing activities, both from a consumer’s
and a marketer’s perspective.
1.3 Describe some digital marketing activities that you have experienced. Have these been successful
in making you aware of a particular product or prompted you to purchase it?

CHARACTERISTICS OF DIGITAL
MARKETING
Learning objective 2 A number of key characteristics of digital marketing differentiate it from other
explain the unique forms of marketing. To truly harness the potential of online marketing, it is impor­
characteristics of digital
tant to understand these characteristics and their consequences for any marketing
marketing
approach. The key characteristics we will examine are profiling, interactivity and
community, control, accessibility and comparability, and digitalisation.

Profiling
profiling The process of Profiling refers to the process of getting to know about potential customers before
getting to know about potential they make a purchase and to find out more about existing customers. In a sense it
customers before they make a
takes the place of the information and needs stages of the INPLCF sales model that
purchase and to find out more
about existing customers. we discussed in the chapter on promotion. The more the organisation knows about
the customer and their needs and preferences, the better it can present a product
that will offer value to the customer. Marketing organisations can gather information
about their customers in the digital environment through the following methods.
• Requiring registration. Registration may be required to access a website, parts of
a website or some other electronic service (such as email newsletters, RSS feeds
or SMS services). Registration usually requires the visitor to provide such infor­
mation as their name, age, occupation, income level and address.
• The use of cookies on websites. Cookies are small pieces of software written to a
user’s computer when they visit a website. They send information back to the
website operator about how often a user visits, what pages they visit, when they

432 Marketing
 visit and how much time they spend on the site. The cookie can also respond to
the user’s preferences to tailor their experience on the website (e.g. if an online
newspaper reader often clicks on sports stories, the website can present more
links to sports stories as well as more advertising related to sports).
• Competitions. Many organisations operate online competitions that require users
to provide personal information in return for an entry into the competition. Some
competitions may actually involve games or skill, but they all require the user to
provide information that the marketing organisation can analyse and use to gain a
view of both its overall market and each member of the market.
Once the organisation has collected all of this qualitative and quantitative infor­
mation from customers and potential customers, it needs to be able to organise,
analyse and apply its new wealth of knowledge. Information is usually stored in
a structured database or data warehouse, which will contain profiles of individual
customers and their transaction records. This data is analysed and used to ensure
marketing offerings to each customer provide the maximum possible value to that
customer. For example, the surf wear chain City Beach ran a campaign that would
build a customer database while generating revenue at the same time. The ­campaign,
Shopping Surfari, saw City Beach deliver 1.3 million catalogues tagged with a pre­
mium SMS number to targeted areas across Australia. Customers were asked to send
their name (so future communications may be personalised) and postcode (to track
the effectiveness of the catalogues) to a premium SMS number. At the close of the
campaign, City Beach had over 11  000 entries in the competition and was left with a
database of 5464 highly profiled customers.9
In the digital marketing environment, this can be done in real time, with the soft­
ware underlying the website drawing on the data store to make informed responses
to the customer’s actions. As discussed in the market research chapter, data is only
useful if it is structured, organised and accessible, so this must be planned into any
digital marketing efforts that aim to gather data.

Interaction and community

Other than an in-person interaction with a salesperson or other customer service
officer, digital marketing offers the most opportunity for interaction between the interaction The ongoing
marketer and the customer. In many ways, this type of interactivity can surpass exchange of information between
marketer and customer (or
even that offered by a one-on-one marketing experience (e.g. if the salesperson does
potential customer).
not have a good knowledge of the product) and it is certainly a cheaper option that
can reach far more people than one-on-one in-person contact. Interactive technol­
ogies such as smartphones and websites offer customers an avenue by which to tell
the marketer who they are and what they want. This can be as direct as posting a
suggestion in a ‘feedback’ form on an organisation’s website, or as indirect as long-
term profiling of preferences and characteristics, as described above. Interactivity
can occur in many ways, including the following.
• A virtual customer service officer. Websites, particularly those driven by Web 2.0 tech­
nologies, can respond to customers’ enquiries and comments with tailored answers.
• A real customer service officer. Telstra’s website offers a chat facility that allows cus­
tomers, or potential customers, to ask questions and have basic changes made to
their service, or apply for a new service. An actual customer service officer res­
ponds to the website visitor in real time to answer their queries and respond to
their comments. The service only operates to a certain level of complexity, with
more challenging or out of the ordinary questions being referred to a specialist
customer service officer. Essentially the website visitor is directed to a phone
number.

Chapter 12  Digital marketing 433

 • Email newsletters and RSS feeds. Sending a weekly, monthly, quarterly or ad hoc
newsletter or other information via email or RSS feed (with consent) helps main­
tain brand awareness in a customer’s mind. While the organisation must strike
a careful balance between regular contact and respecting the customer’s privacy
(and peace), well-timed information, particularly if it includes some special offer,
can be very effective.
• Survey participation. Surveys are an important market research tool that help mar­
keters find out more about their target market. Surveys can be emailed to cus­
tomers or can appear as a pop-up on websites. To be effective, online surveys
need to be completed, and so they should usually be kept short and relevant
to maximise the likelihood the user will fill in the survey. Survey participation
can be improved by offering some incentive, such as entry into a prize draw, to
respondents.
• Online communities. Hosting an online community (discussed in more detail later
in the chapter) provides a virtual meeting place for customers and potential
customers. The marketing organisation can observe their comments and their
interests, and can seed ideas in the community to gauge responses to proposed
marketing or product campaigns. An active online community centred around
a brand or organisation can help build very strong long-term relationships and
brand associations. Marketing organisations need to be aware, however, that
online communities can also generate and sustain negative commentary about a
business, forcing the organisation to weather the criticism, intervene in the com­
munity (a move itself guaranteed to generate more negativity), close the commu­
nity down, or try to make some positive response to the criticism.

Control
Individuals exercise varying degrees of control over their interaction with marketing.
For example, the driver of a car may pay no attention to roadside billboards; their
passenger might only glance at them, or might read their detail if they are of
interest. A television viewer may watch an advertisement or channel surf during
commercial breaks. A web surfer might block advertising, ignore advertising, glance
at it or in fact click through to the website it links to. As you can see, the digital
marketing mode offers the customer many more options to control how they relate
to the marketing message. The formal marketing terms used to distinguish these
push advertising Advertising different modes are push and pull. Push advertising refers to advertising sent from
sent from the marketer to the the marketer to the customer (it is pushed to them). Pull advertising refers to adver­
customer.
tising that the customer actively seeks out (they pull it from the marketing organ­
pull advertising Advertising isation). Some digital marketing is push marketing (e.g. banner advertisements on
that the customer actively
seeks out.
websites), but much of the more sophisticated digital marketing uses pull marketing
(e.g. subscription SMS services). Control, formally defined, is the ability of the cus­
tomer to determine how they interact with the marketing message and to influence
the presentation and content of the marketing message. This can involve permission
marketing, which was discussed in the promotion chapter, where there are activities
aimed at obtaining customer consent to receive information and marketing material
from a company. For example, online stores can offer the ability to opt-in or opt-out
of receiving further emails, catalogues, announcements of promotional offers, and
so on.
As customers have more — sometimes complete — control in the digital marketing
environment, marketing organisations have to go to greater lengths to attract the
attention of customers. They have to make them actively want to engage with
marketing messages that many customers have learnt to actively avoid.

434 Marketing
Accessibility and comparability
The web provides individuals with more ability than ever before to research prod­
ucts, compare products and seek the opinions of others about products. In the past,
a prospective customer may have visited a few stores to look at and ask questions
about a few different models of a product they were considering purchasing. Today,
using the web, customers can easily research numerous different options, as well as
read independent product reviews online. Their research is conducted outside the
influence of a salesperson and it is not rare for a customer to know as much or more
about their desired product than a salesperson does by the time the customer goes
to a store (assuming they do not complete their transaction online). Some online
services actually prepare detailed comparisons for customers. For example, iSelect
chooses the most appropriate private health insurance plans for clients based on the
information they fill out in an online form. Realestate.com.au enables web users to
get information like ‘local sales’ of recently purchased properties in the same area
that you are searching.
Hence, customers are far more informed about products and competing products
than ever before. The online environment also offers them the choice of completing
a transaction online, which opens them up to a choice of many more retailers than
they can access in the real world. Online, the only real difference between buying
from a local store and buying from a warehouse on the other side of the globe is the
freight charge and delivery time (though even that does not always vary).

Digitalisation
Digitalisation is the ability to deliver a product as information or to present digitalisation The ability to
i­ nformation about a product digitally. For example, an MP3 or MPEG4 file downloaded deliver a product as information
or to present information about a
from the iTunes store is a product delivered as information; a Flash ­presentation on
product digitally.
a website that offers a 3D walkthrough of an art gallery presents information about
the product, but does not deliver the product (a visit to the art gallery) itself.
Some products can be completely digitalised. Music is one such example. Since the
advent of the CD (and other similar digital recording media), music recordings have
been just bits of information, so the move to distributing music via t­ elecommunications
technologies was not much of a technological leap. The appropriate business model
for doing so, however, has proved quite a challenge. For example, Apple created the
best-known online music store, iTunes Store, but restricted playback of purchased
music to its own devices and software (iPods, iPhone and iPad) and prevented the
music being further copied. Some established and emerging performing artists have
offered their recorded music to fans for free (including Paul Kelly, the Arctic Monkeys
and various artists via radio station Triple J). While not making any money from the
recordings, they served as a strong incentive for fans to purchase other merchandise
and to attend very lucrative live performances. This approach was partly a response
to the pervasive copying/pirating of music. This had always occurred, with friends
making cassette copies of records or CDs for other friends, but the internet and peer-
to-peer sharing technologies ensured that once an illegal copy of a song was online,
virtually everyone could obtain an illegal copy. Torrenting technologies have simi­
larly facilitated the piracy of movies in recent years.
File sharing is a major issue for the recorded music industry. According to ARIA (the
Australian Recording Industry Association), approximately 3.4 million ­Australians
have illegally downloaded music files via file sharing services,10 while globally a
report by the IFPI (International Federation of the Phonographic Industry) suggested
40 billion music files are illegally shared annually. This r­epresents 95  per  cent of

Chapter 12  Digital marketing 435

 all music downloads. Interestingly though, the other 5 per cent ­represents ­millions
of people still choosing to purchase legal music.11 A further consequence is for
record companies, which traditionally have profited most from recorded music.
Home recording technology that matches that used in multi-million dollar recording
studios, combined with the internet, has enabled emerging and well-established
recording artists to work without record companies. Of course, one of the key func­
tions of record companies has been to gain radio play for new songs and new artists
as well as other types of promotion. It is interesting to note that most of the art­
ists who have given away their music for free are either completely unknown (and
without a recording contract) or very well known (and thus not needing further pub­
licity to their established fan base). Music is not the only industry affected by digital
downloads. The television and film industries are similarly affected, and now even
e-books can be downloaded illegally.
Other products cannot be completely digitalised, but part of the service can. For
example, various grocery retailers have experimented — with mixed success — with
offering online grocery stores in which consumers shop at an online store using a
virtual shopping trolley and then pay a fee to have the full order delivered to their
homes. The benefits to the consumer are convenience, traded off against the fee
charged for delivery (around $15). Some of the disincentives are the requirement to
plan grocery needs (including meals) a week ahead and to be sufficiently organised
that running out of something does not force a trip to the grocery store anyway. It
appears many consumers, however, find the benefits insufficient motivation. Take-
up has been slow and as a result retailers have been very slow to expand their
offerings. Most online grocery services currently operate only in the inner areas of
the major capital cities. The service has mainly appealed to young families who are
stretched for time, and people who are older or have a disability that makes it more
difficult to go to and shop in a grocery store.12

Spotlight  Game of illegal downloads

A significant characteristic of digital products is the ability for them to be downloaded online, and
because of this there is the constant problem of illegal downloads for the music, TV and film industries.
In fact, Australians have the dubious honour of downloading music illegally more frequently than any
other country per capita, while still paying for downloads and the physical product. According to a
survey by Musicmetric, Australia was sixth in the top 10 of downloaded music, with just over 19 million
downloads, which was beaten by the US, UK, Italy, Canada and Brazil. However, the issue of illegal
downloads and video piracy can be a particular problem for certain TV programs, as TV shows are
illegally downloaded more regularly, and by more people, than movies or
music. An example of this is the medieval epic fantasy Game of Thrones.
First broadcast on HBO in 2011, Game of Thrones has developed a strong
international fan base. In 2012, it was claimed to be the most pirated show
of the year, and its third season became ‘the most anticipated TV event of
all time’, with the season premiere having over 1 million torrent downloads
in less than a day. Of those who illegally downloaded the premiere episode,
10.1 per cent were Australian, making it the country with the highest illegal
downloads, followed by the US and the UK.
The main reasons for illegal downloads are convenience and the lower
cost. The high rates for Game of Thrones in Australia were also explained
by the six-month delay between the US and Australian screenings. The
illegal downloading had become such an issue that Jeff Bleich, the US
Ambassador, issued a statement criticising local piracy of the series.

436 Marketing
 The director of the show, David Petrarca, said that he was against the pirating of copyrighted work,
although he did admit that illegal downloading of the series helped create a ‘buzz’ about it. HBO,
to help counter the problem, announced that it would make the series available worldwide within a
week of the US premiere. However, the regular habit of illegally downloading material and the added
convenience to the fans may see this problem continue.13

Question
Discuss the advantages and disadvantages of the ability to download music, movies and TV shows illegally
from the perspective of the customer and affected industry representatives.

Concepts and applications check

Learning objective 2  explain the unique characteristics of digital marketing
2.1 Using your own examples, briefly describe the unique characteristics of digital marketing that
differentiate it from traditional marketing.
2.2 Describe some of the ways marketing organisations can ‘profile’ their customers in an electronic
environment.
2.3 Prepare an argument for and against the following statement: ‘Digital marketing provides greater
opportunity for interaction between a marketer and a customer than a one-on-one marketing
experience.’
2.4 Provide your own examples of ‘push’ and ‘pull’ digital marketing activities.
2.5 Assume that you are going to purchase a new piece of clothing. Compare and contrast the steps
you would take if you were looking to purchase online as opposed to purchasing in a traditional
retail environment.

DIGITAL MARKETING METHODS

There are numerous specific methods used in digital marketing. We will describe Learning objective 3
the key features of these in this section. Bear in mind as you read this that any one explain specific digital
marketing methods
method may be just one part of a complete digital marketing approach, and that
the digital marketing approach is often just one part of the organisation’s complete
marketing strategy.

Banner and pop-up advertisements

Two popular forms of online advertising are as follows.
1. Banner advertisements. Banner advertisements appear on websites, much like
newspaper advertisements. They are relatively cheap on most websites, but sites
that can prove they have high visitor numbers or desirable niche audiences can
charge significant sums for advertising space. One of the key issues confronting
organisations considering using banner advertising is to assess how effective it will
be. Just like advertising in traditional media, many website visitors simply ignore
advertisements. Organisations have come up with various ways to measure the
effectiveness of advertising and charge the advertiser accordingly. For example,
the Adwords advertising service offered by the Google search engine only charges
advertisers if the user actually clicks on the advertisement (and hence travels
to the advertiser’s site). Variations on this include advertising that only incurs
a charge if the website visitor completes a purchase or registration transaction.
Facebook gives advertisers the option of paying by the ‘click’ like Google, or by

Chapter 12  Digital marketing 437

 the number of ‘impressions’ (i.e. the number of times the advertisement is shown
on a webpage, regardless of the number of times it is ‘clicked’).14 In the earlier
years of the internet, software to block advertising was commonplace, but this has
declined in popularity as internet connection speeds have increased to the point
that advertising no longer noticeably affects the speed with which a page loads.
2. Pop-up advertisements. Pop-ups are advertisements that open in a new web browser
window. While this means that the user is not confronted with the advertisement
on the page they have visited, many users react negatively to the manner of
pop-up advertisements and many actually disable them in their browser software.
Pop-ups are popular among survey companies that ask users to participate in a
survey, and among gambling and adult entertainment providers.
A variation on banner and pop-up advertising involves banner advertisements that
temporarily enlarge to cover the main part of the website, thus drawing the user’s
attention (and often requiring them to manually close the advertisement before they
can see the actual content of the page).
A similar device is the inclusion of a static or video advertisement before granting
access to an article, photo gallery or other feature of the website. To avoid a cus­
tomer backlash, most such advertisements provide the option of allowing the user
to close them without watching them. For example, YouTube videos can begin with
a 15-second advertisement that the user can skip after 5 seconds. Other forms of
online advertising include brochure sites and search engine marketing (both of
which are discussed in the next few pages).

Brochure sites
Brochure sites are websites that are essentially an online advertisement for the
organisation. They usually present product and contact details, but offer little other
functionality. They rely on users finding the site through more traditional adver­
tising or through a search engine or link from another site. They are particularly
useful for presenting a portfolio of work. For example, a cabinetmaker can post
extensive photos of completed work in a variety of styles so interested potential cus­
tomers can examine their work.

Social media
Social networking, podcasting and video/photo sharing sites — as well as those that
social media The various facilitate blogs, wikis and question-answer databases — are all examples of social media.
websites using technologies and Generally, social media is a term used to describe the various websites using technol­
experiences that involve online ogies (e.g. wikis and Ajax) and experiences that involve online communities where
communities where members
contribute to and build the members contribute to and build the community and content, and where users can sub­
community and the content, and stantially control their own online experience through customis­ation and i­nteractivity.
where users can substantially Developed on the foundations of Web 2.0, these websites do not just allow users to
control their own online retrieve information but encourage interactive information sharing and user-generated
experience through customisation content. This means that content on particular websites, or a part of a website, is made
and interactivity.
available to the general public and is produced or generated by the end-users in a vir­
tual community. This is in contrast to websites where users can only passively view
information. Examples of user-generated content can take the form of news, research,
reviews and gossip, which can be positive or negative towards a company or a brand.
There are several types of social media depending on the primary focus of the
website. Social networking provides an interactive platform where people can add
friends, comment on profiles, join groups and have discussions. Facebook, Twitter,
MySpace, Hi5, Reddit and LinkedIn are some examples of widely used social net­
works. YouTube, Tumblr, Instagram, Flickr and Pinterest are examples of social photo

438 Marketing
and video sharing sites, where photos and videos are shared and comments can be
posted. A wiki is the term given to websites that allow for the creation and editing of
web pages, such as when articles can be posted and subsequently edited by users or
a community. Wikipedia and Wikia are examples of this.
Many businesses have tried to capitalise on social media to try to build communities
based around their products and to generate positive associations with their products.15
This has included rock bands, artists and products aimed at younger audiences, who
have been the main users of social networking sites. A New Zealand outdoor clothing
company, Icebreaker, uses social media approaches on its website. On its website you
can view the most recent media releases; watch videos about the company’s phil­
osophy, history and supply chain; download detailed product images; leave a comment;
and connect to their Facebook, Twitter, YouTube and blog pages. There is also an oppor­
tunity to add your name to the opt-in email news list. This helps cement customer
loyalty as it allows outdoor enthusiasts to not only build a relationship with the com­
pany, but personally engage with it via a number of platforms. It also enables potential
customers to read about the experiences of people who have tried Icebreaker products.
Telstra, in Australia, is another company attempting to harness social media, particu­
larly the interactive communication element. It has an active presence on YouTube
with videos showcasing its own products and services, as well as associated technol­
ogies. The channel also features videos on how to solve a range of technical issues that
customers may experience with technology in general. Like any YouTube channel,
Telstra’s channel can also connect to its other social media sites (Facebook, Twitter,
Google+ and LinkedIn) with the ability for the company to actively monitor for feed­
back. Via Twitter, Telstra invited members of the public to review a new mobile phone
alongside ‘tech’ journalists. Over 2000 applications were received for the 25 trial phones
on offer, and the successful applicants ultimately produced more than 360 blogs about
their experiences with the phones. Telstra has also joined with Facebook to offer an
online live chat service to assist customers with billing issues and setting up accounts.16
Kristen Boschma, Telstra’s head of online communications and social media, explains:
Traditional advertising involves a sort of broadcast to the masses, which is all about
a push strategy whereas with social media you’re looking at a pull strategy. Where
you’re engaging with your customers and inviting them to come to you.17
There is an important caveat, however, for organisations considering putting so
much control in the hands of their actual and potential customers. Not all customer
experiences are positive ones and the online complaints of a few disgruntled cus­
tomers can cause more damage to a brand than can hundreds of positive comments
from happy customers. Companies like Coles and Woolworths have used social
media for public comments, only to find negative responses, which had to be deleted
but were up for long enough to generate negative publicity.

Viral marketing
Viral marketing is the use of social networks to spread a marketing message. As we viral marketing The use of
read in the chapter on promotion, it gets its name from the idea that a marketing social networks to spread a
message can spread from one person to another, in much the same way as a virus marketing message.
spreads. Online, it generally relies on the forwarding of email messages, links to
websites or word-of-mouth in online discussion groups and other communities.
Because viral marketing messages are spread by friends and colleagues, they have a
much greater chance of being considered than traditional advertising.
One of the most successful viral marketing efforts of all time in recent times was
the ‘Best job in the world’ campaign created by Tourism Queensland. The campaign
comprised an advertisement for a job that involved, principally, spending six months

Chapter 12  Digital marketing 439

 on tropical islands in the Great Barrier Reef. Word-of-mouth saw the $2  million
campaign gain $150 million worth of publicity around the world, highlighting
­
­Queensland as an ideal holiday destination during the Northern H ­ emisphere winter.
This was followed up by the Tourism Australia campaign ‘Best jobs in the world’,
which gave seven people exciting positions from which they had to market certain
aspects of Australia. The campaign had over 600  000 applicants and generated much
publicity around the world.18
Viral marketing online is very much controlled by the online community and some
businesses have paid a heavy price for trying to manipulate online word-of-mouth
or use social networking sites for commercial purposes. For example, Domino’s was
a victim of a social media backlash after it had run a week-long teaser campaign in
which it said that it would make an announcement that would be a ‘game changer’.
The big build-up fell flat when the announcement was that there would be a range of
square-shaped pizzas and some new, premium toppings. Immediately, the D ­ omino’s
YouTube site was hit with negative comments expressing disappointment in what
they perceived would be a ‘game changer’.19

Portals
Web portals were very popular in the 1990s when the web first became widely
portal A website that is designed used. A  portal is a website that is designed to act as a gateway to other related
to act as a gateway to other sites. It carries news stories or other information relevant to the topic of the portal
related sites.
and includes links to other sites with related information. The portal itself either
carries advertising or is intended to serve as an advertising tool for the portal busi­
ness itself. The popularity of the portal has declined as search engines have become
more powerful and as users have realised they can often better find content them­
selves. Most portals now feature a search engine. Portals are still widely used by
government where the intention is to provide citizens with a starting point from
which to access all government services; for example, the New Zealand Government
maintains the http://newzealand.govt.nz website as an entry point for all online
government information and services. Ninemsn is one of the better known Aus­
tralian portals and features Microsoft’s Bing search engine.

Search engine optimisation

search engine optimisation Search engine optimisation (SEO) means tailoring certain features of a website to try
(SEO) Tailoring features of a to achieve the best possible ranking in search results returned by a search engine.
website to try to achieve the best
The theory behind this approach is that consumers will be most likely to click
possible ranking in search results
returned by a search engine. through to the first sites listed among the search results. An enormous industry has
developed around SEO and numerous businesses exist that specialise in providing
SEO services to other businesses.
Search engines themselves have taken steps to try to prevent or at least restrict
the commercial manipulation of search results, in a bid to preserve the integrity of
their service and the usefulness of their service to their customers. For example,
Google continually reinvents its search algorithms to prevent organisations manipu­
lating their own websites to appear at the top of Google search results. Traditionally
search engines used metadata to find websites that were most relevant to users’
searches. Metadata is a series of words or phrases included in the data underlying
a website. More sophisticated approaches are often now used, including Google’s
approach which bases search results on the actual content of the sites and on how
many other sites include links to the site.
The effectiveness of SEO has also declined as users have become knowledgeable
and cynical about how businesses work to appear among the top hits on search

440 Marketing
engines. The inclusion of paid advertising — that looks very similar to search
results — at the top of lists of search results has also decreased the effectiveness of
SEO. Nevertheless, it is still a common approach to ensuring visibility online.

Search engine marketing

As mentioned above, many search engines now seek paid advertising to place on
search results pages. This approach is known as search engine marketing. These search engine marketing 
are usually presented slightly differently or separately to the actual search results. Paid advertising that appears
similar to a search result on a
The advertisements that appear at the top of search results are known as sponsored
search engine page.
links. Sponsored links are appealing to businesses because they are only returned
for searches that are relevant to the advertised product, effectively ensuring the
link is placed more prominently than links that are returned purely due to SEO
efforts. There has been somewhat of a user backlash, particularly against Google
and Yahoo!, in response to the use of sponsored links on search pages, but they have
proved popular with businesses. Even some Australian government departments
now advertise using Google’s sponsored links feature. Figure 12.1 outlines the basic
method of operation of Google’s Adwords advertising product.

Google maintains a list of keywords relevant to possible

searches performed on its search engine site.

Advertisers choose words from the list to be included

in their ad profile, or they can use words of their own
that do not appear on Google’s list (the key being to
choose words that their potential customers are most
likely to type into the search field).

Different words cost different amounts to include, so

choosing the most popular words will involve a higher
cost to the advertiser.

Based on the words used in the user’s search term,

Google returns several advertisements at the top of its
search results, ranked according to relevance (which in
turn is related to the words the advertiser has chosen).

The advertiser is charged for the sum of the words FIGURE 12.1
it has included if and only if the user clicks on the
sponsored link. How Google Adwords
works

Chapter 12  Digital marketing 441

 Yahoo!’s online advertising system works in a similar way. Advertisers choose key
words, each of which has a price based on its desirability, and put money into an
account that is then debited when someone clicks on their advertisement. Smaller
advertisers can find their accounts run down quickly and their advertisements
are then hidden until they top up their account. It is therefore crucial that adver­
tisers ensure that a reasonable percentage of click throughs on their search engine
marketing advertisements are converted to sales.
Google extended the Adwords concept to YouTube, a company it purchased in
2006. Advertisers wishing to utilise the ‘Promoted videos’ facility on YouTube can bid
for priority listings related to particular video searches. The advertisements appear
when YouTube viewers arrive on particular video pages, and advertisers are charged
on a similar cost-per-click basis as that utilised on the advertisements related to
Google’s search engine.20

Email, SMS and MMS marketing

While spam is an unwelcome and illegal approach to marketing, legitimate email
and SMS marketing can be an effective way to build customer relationships. For
example, when a business makes a sale, a well-timed follow-up email can help
reduce purchase dissonance and can prompt a further purchase. For example, a con­
sumer who has purchased a home theatre system online might welcome an email or
SMS text a week later offering a discount on DVDs. In contemporary society, many
people carry their mobile phones permanently with them, enabling them to virtu­
ally be reached anywhere, anytime. The chances are that an SMS will be read (and
perhaps responded to) within minutes of receipt. Mobile phones are also personal
items, allowing for direct communication with the intended recipient of messages.
The capabilities of contemporary smartphones also provide additional oppor­
tunities for marketers via multimedia message services (MMS). Such messages
can contain audio, images and video, as well as text. Brewer Lion Nathan in New
­Zealand ran an MMS campaign whereby for a limited time consumers could receive
free Beck’s beer at selected bars by registering to receive vouchers to download onto
their mobile phones via MMS. The benefit for Lion Nathan was publicity, as well
as the creation of a ‘Beck’s community’ (database) for future marketing campaigns.
The metrics for the Beck’s MMS campaign were impressive. Over six weeks, there
were more than 16  700 requests for free beer, and 41 per cent of text coupons were
redeemed by consumers within seven days.21

Apps
A phenomenon that has coincided with the increased availability, affordability and
consumer uptake of smartphones has been the development of application software
(or ‘apps’) to run on these mobile devices. Within a few years, a bewildering array of
apps has become available for consumers to download onto their phones. Some apps
are purely entertainment-based, such as games; some are information-based, such as
news services; and others still are designed to solve problems and/or improve user
productivity. Apps are generally priced cheaply (or are even free in some cases),
with software developers hoping to achieve volume sales and/or publicity. Once
downloaded, apps appear as visual icons on the user’s smartphone — being ready
for them to access at any time.
Marketers are increasingly recognising the potential for ‘apps’ to enable brands to
be displayed permanently on consumers’ mobile phones. Ticketmaster, the largest
global event ticketing company, has a mobile app available for iOS and Android. It

442 Marketing
is free and provides extra convenience for customers to buy tickets on their smart­
phone. It also has a number of special features, including the capability to:
• find events you like by scanning your device’s music
• access past set lists for shows you have attended
• turn on auto-location to find nearby events
• access your Ticketmaster account and see past or upcoming orders
• integrate with Facebook and Twitter
• access artist and venue info, including seat maps
• know what’s coming up with in-app alerts.22

QR codes
With the growth in use of smartphones, marketers are
increasingly using QR codes (or quick response codes)
in their advertisements. These are two-dimensional bar­
codes that can encode text, URLs or data so it can be
quickly read by a QR code scanner. A smartphone is
used as a scanner, and so an interested person can scan
the QR code on the advertisement, poster or billboard
and convert it into useful information. The humani­
tarian organisation World Vision has run a number of
innovative campaigns whereby people can hear the
voices of some of the people that they have helped, and
information on how to donate money.23

E-commerce
Of course, all of the approaches we have described above are designed to result in a
marketing exchange. When the marketing exchange occurs via the internet, mobile
phone or other telecommunications technology, it is known as e-commerce. For
example, most local council websites allow residents to renew and pay the licence
for their pet dog. Online stores, such as Cradle Rock, enable customers to examine,
order and pay for products online. E-commerce is particularly attractive to small,
niche businesses. The web enables them to reach consumers across the globe, poten­
tially making a business viable that would not be able to generate adequate turnover
just through local customers.

Banking on Facebook Spotlight

Facebook is the world’s largest social network service, with over 1.1 billion
members — you are probably a member and are taking time out from
checking your updates to read this textbook! Advertising is the major source
of income for Facebook, accounting for 85 per cent of its revenue, even
though at first it was hesitant to have advertising on the site. With the use of
digital technology, Facebook advertising has become very sophisticated at
being able to target based on various categories, including demographics,
social connections, interests and search habits. There are several ways
to advertise on Facebook, including brand pages, display ads, promoted
posts, page post ads, mobile app install ads and log-out screen ads.
A bank in New Zealand presents an innovative campaign that was based
on Facebook. ASB Bank is one of the main commercial banks in New
Zealand, with over 140 branches throughout the country. As part of a new
campaign, it wanted to ‘build an online community of fans and reinforce the

Chapter 12  Digital marketing 443

 brand’s reputation for innovative technology and superior customer service’. The solution to this was
that ASB organised a Facebook advertising campaign to promote the brand and launch a customer
service ‘Virtual Branch’ application, developed specifically for the Facebook platform.
Before launching the campaign, ASB’s goal was to gain 11  000 fans for its Facebook page in
six months; however, within three months, ASB had over 13  000 fans (an average of 300 new fans
every day). There was a 10 per cent increase in awareness of ASB Bank’s Virtual Branch among
New Zealand Facebook users, with the Facebook ads receiving over 6.5 million impressions during
the campaign period — this in a national market of 4.2 million consumers! The virtual banking and
customer service experience on Facebook was also able to generate a ‘buzz’ in the global financial
services media. Finally, ASB saw a significant increase in user engagement with its Facebook page and
in social chatter about the brand.
‘It was the biggest amount of activity and conversation strands relating to ASB that we’ve seen to
date across social media’, explains Deborah Simpson, General Manager, Brand and Marketing, ASB.
‘But it’s about more than ad campaigns. It’s about activation. We’ll have a key focus, like the Virtual
Branch, and bring it to life through an integrated approach.’
In the future, organisations will see Facebook as more than just a way for friends to connect, but a
core part of an advertising strategy.24

Question
Identify the digital marketing methods banking institutions currently use. What additional digital advertising
methods could Facebook consider implementing?

Concepts and applications check

Learning objective 3  explain specific digital marketing methods
3.1 Compare and contrast banner advertisements and pop-up advertisements. What are the
advantages and disadvantages of each of these forms of online advertising?
3.2 Provide an example of a product for which a marketer could effectively utilise the capabilities of
social media, and explain how they could do this.
3.3 Differentiate between search engine optimisation and search engine marketing.
3.4 Provide examples of digital marketing methods whose popularity has changed over the years, and
explain why this has occurred.
3.5 Visit a website for a newspaper and observe the types of advertising that appear when you click
on different pages. Do the advertisements seem related to the topic of the news stories you are
viewing? Is it appropriate having so much advertising on a news site? Justify your answer.

ETHICAL AND LEGAL ISSUES

Learning objective 4 Just as in the wider field of marketing, digital marketing raises many ethical and
appreciate ethical and legal issues, questions and responsibilities. Some of these need particular attention
legal issues relating to when related to digital marketing because of:
digital marketing
• the pervasive, always-on nature of modern information and telecommunications
technologies
• the personalised and interactive nature of digital marketing
• the international, cross-border nature of modern information and telecommuni­
cations technologies
• the failure of laws and international agreements to keep pace with technological
change and the innovative use of new technologies.
These particular features are central to the main themes in ethics and law sur­
rounding digital marketing: privacy, misleading or deceptive conduct, spam, intel­
lectual property rights, consumer protection and technology burnout.

444 Marketing
Privacy
One of the main focuses of digital marketing has been gathering information about
customers and potential customers for profiling to use in formulating marketing
strategy and in delivering optimum marketing experiences to help build and sustain
relationships.
Virtually everything an individual does in the online world leaves a digital
footprint:
• cookies that send information about what an individual has done on a website
they have visited, how long they were there, what site they were on before and
which site they went to when they left (people can tell their computers not to
accept cookies, but they lose functionality as a result)
• transaction records that detail where and when an individual has used EFTPOS
or a credit card to spend money and how much they have spent — and in many
cases exactly what they have purchased
• subscribing to or registering for any online (or offline) service requires the pro­
vision of a lot of personal information, usually including full name, date of birth,
address, email address, phone numbers and often other details such as gender,
occupation and income.
For many people, collection of the information itself is not a problem (although
privacy advocates oppose it). What most people are concerned with is how the infor­
mation is used. No-one takes issue with a bank issuing a credit card statement that
shows a transaction’s time, place and amount. Few people mind that the bank might
include an advertising brochure with the statement. Many people, however, are
unhappy when they receive marketing approaches from businesses they have no
existing connection with. Often such approaches are based on information that can
be traced back to some online activity. Many businesses and other organisations
now specify what they will and will not do with information collected from cus­
tomers. For example, consider this extract from Bholu, an online homewares store:

SECURITY & PRIVACY

We aim to provide all of our customers with a safe online shopping experience. Our
system encodes your credit card and contact details to ensure its safe transfer to us. We
respect your privacy and personal information, and will not share it with anyone else.
We may use your email address to send our email newsletters and other announce­
ments regarding promotions, new products and special features. Should you wish to
be removed from our mailing list at any time, please let us know via email, phone
or fax.25
Similar statements are published on many other websites.
Visiting a few websites across a range of different types of organisations reveals
that the level of detail and the specifics of privacy policies vary considerably (the
privacy policy details usually appear as a link at the bottom of the home page).
In particular, privacy laws and privacy policies differ across national boundaries.
In Australia and New Zealand, the common themes found in most privacy policies
relate to the type of personal information that may be collected, the user’s right
to access that information, whether that information will be used to market prod­
ucts to you, if and how that information will be shared with related and unrelated
organisations, and how to contact the organisation should the user need to. In some
isolated cases, the security of the records of online organisations has been com­
promised, resulting in personal details of their customers or clients falling into the
hands of others.

Chapter 12  Digital marketing 445

 A related problem is people misappropriating the identity of others, or ‘identity
theft’. While this can lead to credit card fraud and other serious crimes, there are
also simpler invasions of privacy that can occur, such as someone registering or
subscribing to a web service under someone else’s identity. To overcome this, many
online organisations now require registrants to respond to a confirmation email sent
to the nominated address and, for purchases, will not deliver to an address other
than the registered residential address.
With the exception of spam laws (discussed later in this section) and the Privacy
Act 1988 (enacted before the widespread public adoption of the internet), there are
few laws or rules aimed directly at regulating privacy protection online. However,
the Australian Law Reform Commission has recommended a series of updates to the
legislation in order to bring it into the internet era, and these proposals are currently
being considered by the Australian federal government. Among the recommen­
dations is a steep increase in fines for organisations found to be breaching the pri­
vacy of individuals.26 However, many marketing organisations have now voluntarily
curtailed their use of data, in contrast to the loose practices that emerged in the early
days of the internet. They have imposed restrictions on themselves in an attempt to
not only avoid the imposition of formal regulations, but to avoid the risk of an online
consumer campaign against them and all of the associated negative publicity.

Misleading or deceptive conduct

Just as in the ‘real’ world, business activities in the online realm are governed by
the Competition and Consumer Act in Australia and the Fair Trading Act and the
Commerce Act in New Zealand, which prohibit misleading or deceptive conduct.
Companies must be honest and truthful in all their business dealings and, if they
are not, they are liable to be punished by the law. Specifically, the Competition and
Consumer Act, the Fair Trading Act and the Commerce Act prohibit:
• anti-competitive behaviours (such as colluding with competitors on pricing)
• unconscionable conduct
• unsafe products and practices
• some aspects of trade mark infringement
• making false or misleading statements
• misrepresentation of product characteristics.
Unfortunately the internet is used by some people to fraudulently obtain money from
others. While some scams are well known, people still regularly get caught. Online
fraud has grown to be a multi-million dollar global industry.
• Phishing. Phishing involves the use of an official-looking email, often purporting
to be from a bank, online retailer or credit card company. These emails direct
recipients to a website that looks like the real website of a retailer or financial
institution and then tries to elicit the visitor’s financial details such as credit card
numbers, account names and passwords or other personal information.
• Pharmaceutical scams. Usually distributed by email, these scams offer for sale
products that supposedly boost health, appearance or virility.
• Nigerian scams. These scams — many of which have originated in the African
nation of Nigeria, hence the name — involve an email which asks the target to
send money in return for a much larger lump sum being transferred to their bank
account at a later date.
• Work-at-home schemes, lottery wins and prizes. These scams all involve the target
making some type of financial ‘investment’ before being sent money they have ‘won’.
• Pump ‘n’ dump stock scams. These scams involve creating massive demand for a
particular stock and then selling that stock while the price is pumped up.27

446 Marketing
 As people have become more at home online, some of the less sophisticated scams
have become ineffective, leading to increasingly sophisticated approaches. One of
the outcomes of the long history of online scams, the increasing sophistication of
some fraudsters and the regular media coverage of online dangers, is that some
consumers have been reluctant to fully engage with businesses and other organ­
isations online, particularly in terms of actually completing a financial transaction.
In a report into ‘scam’ activity, the Australian Competition and Consumer Com­
mission (ACCC) revealed that fraudsters currently swindle a reported $93 million
from Australians each year, much of it online. However, the report also revealed that
the ACCC estimates the figure would most likely be closer to $1 billion annually, as
some consumers do not know that they are being swindled and are loathe to report
becoming victims of fraud due to embarrassment.28

Spam
As most users of email know, the amount of spam (unsolicited commercial) email spam Unsolicited commercial
sent and received is mind-boggling — estimated at more than 183 billion messages electronic messages.
a day, with ‘pharmacy ads’ being the most popular spam topic.29 Spam is a finan­
cially attractive way to advertise because millions of emails can be sent for just a
few cents. It only takes a few recipients to respond to make the exercise profitable.
This is in contrast to more traditional advertising that can cost tens of thousands of
dollars and needs to generate significant business to create an acceptable return on
the investment.
The impact of spam on individuals (wasted time, invasion of privacy, sometimes
exposure to obscene content, usage of paid download allowance), businesses (similar
to individuals) and internet service providers (it is common for spammers to hijack
the servers of internet service providers and businesses to send spam), however, has
prompted the Australian and New Zealand governments to introduce legislation to
regulate how commercial electronic messages can be sent. In Australia, the relevant
legislation is the Spam Act 2003. In New Zealand, it is the Unsolicited Electronic Mes­
sages Act 2007, which applies to email, instant messaging, SMS and MMS, but does not
apply to fax, pop-up advertising on websites or telephone telemarketing. While most
of us think about spam as specific to email, the legislation in both countries covers
most unsolicited commercial electronic messages (except traditional phone and fax).
The key points of each piece of legislation are outlined in figure 12.4.30

SPAM ACT 2003 (AUSTRALIA)

• Commercial electronic messages should only be sent with the recipient’s consent
(whether explicit or inferred from the fact they are an existing customer).
• Commercial electronic messages must include information about who sent the message.
• Commercial electronic messages must include an unsubscribe facility.

UNSOLICITED ELECTRONIC MESSAGES ACT 2007 (NEW ZEALAND)

• It is illegal to send spam to and from New Zealand and within New Zealand.
• Commercial electronic messages must include details of who sent the message.
• Commercial electronic messages must include an unsubscribe facility by which the
recipient may opt out of future messages.
• It is illegal to use software to ‘harvest’ email addresses to create lists for targeting with
spam.
• In principle, people should not misuse information and communications technology.
• In principle, businesses should only send commercial electronic messages to customers FIGURE 12.2
and others who have consented to receive it.
Regulation of spam

Chapter 12  Digital marketing 447

 In a bid to encourage compliance with the Spam Act and to ensure that digital
marketing does not attract extensive and restrictive regulation, the Australian Com­
munications and Media Authority (ACMA) has developed the eMarketing Code of
Practice to ‘establish comprehensive industry rules and guidelines for the sending
of commercial electronic messages with an Australian link in compliance with the
Spam Act 2003’.31 The Code provides details on the following key areas relating to
the sending of commercial electronic messages in an email and mobile marketing
environment:
• obtaining and maintaining consent
• keeping records of consent
• complying with viral marketing campaign obligations
• including accurate information about senders/message authorisers
• providing and operating a functional unsubscribe facility
• sending commercial electronic messages about age-sensitive material
• handling complaints.
ACMA has also recommended consumers take steps to protect themselves from
spam, including simple measures such as:
• contacting your ISP about spam filtering and using spam filtering software
• protecting your email address and mobile phone number online
• deleting suspicious emails without opening or replying to them
• checking the terms and conditions of anything you sign up for — for example, are
you consenting to receive commercial messages?
• boosting your internet security to ensure that spammers can’t send spam via your
computer through zombie spam and spoofing
• learning more about email scams and fraud.32

Intellectual property
Intellectual property theft has long been a crime in most Western countries. It has
also been one of the more difficult areas of the law to enforce, but modern infor­
mation and communication technologies have greatly increased the problem. For
example, it has always been illegal to copy movies. However, it has also always
been very simple to do so by merely hooking two video recorders together, or more
recently copying DVD files to a computer and burning back to DVD. Pirated movies
represent an enormous industry, particularly in parts of Asia. The anonymous inter­
connected nature of the internet has increased the problem a thousandfold. Now
high-quality digital copies of films can be posted online for all to download. This has
significant ramifications for the rightful copyright owners, as it denies them sales.
The same principle applies to music and text. While many people who download
copies of music, movies, software or books do not see themselves as criminals, they
are actually committing a crime, with potential to be punished with very large fines
and imprisonment.
Of broader relevance to business is the potential theft of intellectual property
assets such as trade marks or the misuse of trade marks. Online, it is quite simple to
copy logos, designs and other corporate branding materials and essentially recreate
an online facsimile of a real business.
A practice that was common in the earlier days of the internet was for someone
to buy a domain name that closely relates to an existing business and then force the
business to pay huge sums of money to buy the domain name. Litigation has since
made this more difficult to do. A number of celebrities have also been forced to
litigate or pay to buy their own names online. One of the highest profile examples
was Madonna, who sued to gain control of the madonna.com domain. Julia Roberts

448 Marketing
has also been involved in such litigation. Corporations that have litigated to take
over domains from ‘cybersquatters’ include Christian Dior, Deutsche Bank, Micro­
soft, Nike and Australia’s own Southcorp Wines. Southcorp took legal action against
a cybersquatter who had registered a domain in the name of the wine group’s
­Lindemans brand and then tried to sell it to Southcorp.33

Consumer protection
Despite some relatively clear ethical guidelines for businesses and, increasingly,
laws aimed at regulating online behaviour, consumers are well served by taking
their own steps to manage their online experience. The simplest yet most effective
methods consumers can take to protect themselves online include:
• use a secondary email address (such as Gmail or Hotmail) when registering for
online services
• install anti-virus software and keep it up to date
• install a firewall
• use email filters to automatically delete spam (junk emails)
• never respond to unsolicited email messages
• never give personal details, particularly banking information, to strangers online
• read the privacy policy of any organisation you deal with online
• use information and communication technologies appropriately and moderately.

Technology burnout
An interesting counter-trend has emerged in the aftermath of the technological
revolution in recent times — that of professionals seeking to literally ‘switch off’
or ‘unplug’. The incredible business and personal adoption of technologies such as
laptop computers, BlackBerry devices, mobile phones and mobile internet has led to
a situation in which many people feel they cannot have time to themselves. Those
working 9 to 5 (or perhaps longer — 8 to late) suddenly found they would be reading
and replying to work emails from their bedroom at midnight or from an island
beach during their summer holidays with their family — connected to work (and
other commitments) virtually 24 hours a day, 7 days a week. As individuals and
organisations increasingly began to realise the damage this was doing to wellbeing,
a move began to encourage people to take time out from technology; to ensure their
holidays were holidays; and to make time with their families.34

Legal enforcement
There can be significant legal consequences for organisations and individuals that
breach laws related to their conduct online. These include fines that can run into the
hundreds of thousands of dollars as well as significant prison time for officeholders
within organisations. The borderless, international nature of the online world, how­
ever, makes it complicated to determine which laws apply and who can or should
enforce them. This has resulted in some interesting defamation suits, including the
case Dow Jones & Company Inc v Gutnick [2002] HCA 56. In this case, mining
magnate Joe Gutnick claimed that an article published in the US magazine Barron’s
defamed him. He began proceedings against the US publisher Dow Jones & Com­
pany Inc in a Victorian court, arguing that he had been defamed in Victoria because
a number of Victorian residents subscribed to the internet version of Barron’s. The
publisher argued that the article was published in the United States (its website is
hosted on servers in New Jersey). The court had to decide whether it had juris­
diction to hear the case and which law should be applied. The court decided that it

Chapter 12  Digital marketing 449

 could hear the case because the article was in fact ‘published’ in Victoria whenever
it was downloaded and read.
The matter of jurisdiction has also led to some complex international business
arrangements in the online gambling industry, as well as some inconsistencies of
approach. For example, Australia’s Interactive Gambling Act 2001 makes it illegal to
provide an interactive gambling service to someone in Australia, but it is not illegal
for someone in Australia to gamble online. Gambling in that sense refers to tra­
ditional casino games such as poker. By contrast, gambling on sport events is legal
with high-profile sports gambling operations Centrebet and Sportingbet licensed
by the government. Centrebet’s business arrangements hint at the complexity of
online law and how businesses use them to establish the best possible organisational
structure. Centrebet is an Australian company licensed to operate betting operations
under Northern Territory law. To comply with the various laws of different coun­
tries, Centrebet:
• offers sport and horse-race betting through a licensed Australian bookmaker
• offers sport and horse-race betting through a licensed UK bookmaker
• operates gaming services through a licensed Netherlands Antilles company
• prohibits access to online gaming (poker and casino games) to residents of
­Australia, Netherlands Antilles, Estonia, Israel, Cyprus and Antigua and Barbuda
• prohibits access to all sites and services to people from the United States and
Turkey.35

Spotlight Regulating ads online: a new frontier

Around the world, advertising comes under some form of regulation to ensure that it does not offend,
mislead or deceive. In a self-controlled system, the advertising industry regulates the communication
and conduct of its members by imposing a code of ethics, sanctions for violation of this code, and
enforcement procedures to ensure compliance. If a member of the general public is offended by an
advertisement, a comment or complaint can be lodged with a regulatory body (such as the Advertising
Standards Bureau in Australia or the Advertising Standards Authority in New Zealand). The advertiser
then responds or complies, and the regulator formulates and, in most cases, enforces determinations.
However, the growth of various types of social media networks has resulted in commercials formerly
banned in countries now being available for viewing globally via sites like YouTube, Facebook and
Twitter. This has effectively bypassed the regulators, as their responsibility is usually confined to
traditional media, like television, radio, print and billboards.
In a landmark ruling that could change how social networking sites work, in 2012 the Australian
Standards Board (ASB) announced that Facebook is not just a way to communicate but also an
advertising medium. Following complaints about comments
made by ‘fans’ on the Smirnoff Facebook site relating to
sexism, underage drinking and obscene language, ASB
dismissed the complaints but ruled the comments posted on
Facebook must comply with industry codes and consumer
protection laws.
The ASB said that it would be watching what advertisers
place online, as it would regulate ‘any advertising or marketing
communications over which the advertiser has a degree of
control’. This ruling would include banner ads, Facebook
and Twitter, although it would be more difficult on sites like
YouTube and blogs. This means that companies could be
fined or publicly shamed for the comments that appear on
their Facebook ‘brand’ pages, and they will be forced to vet
comments posted by a third party to ensure they are not sexist,
racist or factually inaccurate.

450 Marketing
 It is claimed that this is a world first for a regulatory body, and the implications are to be tested.
Clearly the old system of advertising regulation has changed with the use and popularity of digital
media and social networks, and regulatory bodies are trying to catch up and stay relevant.36

Question
Imagine you are working on an online marketing campaign for an organisation or product of your own
choosing. Broadly describe what legal and ethical issues could be raised by this campaign.

Concepts and applications check

Learning objective 4  appreciate ethical and legal issues relating to digital marketing
4.1 Compare and contrast privacy issues in relation to digital marketing with those in the traditional
marketing environment.
4.2 Describe some measures an organisation can take to enhance consumer privacy in a digital
marketing environment.
4.3 How is the legal enforcement of business laws made more complicated in an electronic environment?
4.4 One of the most popular websites for selling is the online auction site eBay. Visit the eBay site and
analyse what measures they use to ensure ethical behaviour, as well as their legal warnings.

DIGITAL MARKETING AND MARKETING

STRATEGY
An organisation’s marketing strategy should be a cohesive whole designed to achieve Learning objective 5
the organisation’s overall goals. While we are looking specifically at digital marketing discuss the role of digital
marketing in an overall
approaches in this chapter, any digital marketing strategy will be part of — and con­
marketing strategy
sistent with — a broader organisational marketing strategy. It will come as no sur­
prise then that many of the issues to be considered in a digital marketing strategy
are the same as those considered in formulating the overall marketing strategy and
marketing plan. In this section we will examine target markets, customer relation­
ship management, the marketing mix and evaluating effectiveness, as well as briefly
overview electronic business.

Target markets
Just as in the physical world, the total of online users can be divided into different
segments or niches based on particular characteristics. As discussed earlier in the
chapter, the potential for gathering information about potential customers in the
online environment can provide the marketing organisation with a powerful tool
with which to identify and profile target markets.
Identifying target markets is an important step. Organisations should generally
avoid assuming that all online users are their target market. In the early days of
the web, particular types of people were more likely to be online (i.e. male, pro­
fessional, relatively young), but today the online community is extremely diverse.
Over one-third of Australians who have access to the internet have made online
purchases, with many more doing research online prior to making a purchase at
a physical store. In New Zealand, almost half (45 per cent) of internet users make
regular online purchases. According to one study, people who shop online are more
likely to be high-income earners who prefer quality over bargains.37

Chapter 12  Digital marketing 451

 The pull nature of online marketing means some of the target market will actively
seek out the marketing organisation, but this is not a sufficient plan in itself. The
organisation must generate awareness of its existence and its offerings.

Customer relationship management

The earlier parts of the chapter have examined how the online marketing environ­
ment provides marketing organisations with many opportunities to gather extensive
data on individuals and how the online experience for customers and potential cus­
tomers can be tailored to make use of that knowledge and so deliver the best ­possible
product offering. This of course is part of the broader approach of ‘customer relation­
ship management’, which we have discussed from time to time through this book.
customer relationship In digital marketing, customer relationship management (CRM) focuses on using
management (CRM) The information about customers to produce digital marketing experiences that create,
processes and practices put
build and sustain long-term relationships. As discussed earlier, the online environ­
in place to identify, track and
use customer information and ment provides the opportunity to address customer needs at the individual level,
preferences to provide superior which is the concept at the heart of CRM. When done well, CRM can build strong
customer service and sustain customer loyalty, lead to positive word-of-mouth, and create in the customer a sense
long-term relationships. that it will be difficult or costly for them to change to another provider.
Marketing organisations need to be aware that the public is becoming more
aware of customer relationship technologies and approaches, and that individuals
have simultaneously developed a degree of cynicism about them and a high level of
expectation about what the organisation should already know about them. Unfortu­
nately, many CRM software packages suffer from clumsy interfaces and numerous
screens. It is all too easy to overlook notes and information that has been recorded
earlier when dealing with a customer, which is likely to lead to frustration — just the
opposite of what a CRM system is intended to do. The tool is merely there to record
and present information and make it available to whomever in the organisation is
dealing with the customer — it parallels the long-term personal relationship and
knowledge that would once have been built between a customer and a salesperson.
Another pitfall of CRM tools is the tendency for organisations to over-rely on
them. Some organisations can fall in to the trap of expecting customers to serve
themselves based on interactions with the organisation’s technology.

The marketing mix

Developing a marketing mix for the online environment is based on the same principles
as developing the overall marketing mix, but the specific details and approaches can be
quite different. The following sections look at various marketing mix considerations.
Product
Some products have characteristics that better lend themselves to online purchase
than others. Those that can be completely digitalised are particularly attractive prop­
ositions, followed by products that can be partly digitalised. Products that cannot be
digitalised may seem inappropriate for online purchase, but this is not necessarily
so. While it may be difficult to promote and impossible to deliver such a product
online (e.g. a haircut or a car tyre), some aspects of the transaction can still be
undertaken online. For example, a person may be able to book a haircut appoint­
ment online and a trucking company may be able to order 100 tyres from their sup­
plier using an extranet. In fact, at present, business-to-business transactions make
up the vast majority of online purchases.
The most popularly purchased consumer products bought online are airline
and concert tickets, books/magazines and clothing/shoes/accessories, as well as

452 Marketing
technology-related products, such as computers and downloadable products (e.g.
software, ringtones, MP3s, MPEG4s). Some online products are actually a result of
the online environment itself. For example, various internet service providers and
other technology businesses offer online services such as secure, backed-up data
storage and ‘cloud’ computing services that enable customers to synchronise their
mobile phones, iPods, laptops, home computers and other devices. BigPond offers
such a service to its web customers and Apple offers a similar MobileMe service for
subscribers.
Pricing
As mentioned earlier, the online environment enables consumers to easily com­
pare the offerings of numerous online businesses. One particular feature that can
be compared is price. In fact, many websites have been developed that aggregate
prices from other sites, enabling potential customers to identify the cheapest vendor
without needing to do any actual comparison work themselves. Combined with the
fact that the purchase and delivery experience can be very similar — even indistin­
guishable — between competing online vendors, online marketers must find ways to
offer more value, rather than necessarily engaging in a price war.
Additionally, as discussed in the distribution chapter, online vendors need to ensure
that the prices they offer online are consistent with the prices offered in their physical
stores. More expensive prices online (or additional costs due to delivery) or more
expensive prices in-store will both lead to confusion or annoyance among customers.38
Promotion
The amount of information on the internet has empowered consumers with more
product and price knowledge than ever before. A couple of decades ago, a business like
bookseller Dymocks only really had to worry about the offerings of their competitor
in the same or surrounding suburbs — perhaps an ABC or independent bookstore.
Today, a regional Dymocks store is competing with businesses all over the world,
including the formidable Amazon.com. It is not uncommon for bookstore customers
to tell bookstore staff that they can get books from Amazon faster than the bookstore
can get them in from their suppliers. So while the internet provides opportunities for
promotion, those opportunities are also available to all competitors. The challenge for
the marketer is to offer a better value proposition than competitors. Many businesses
perform an environment scan (an examination and analysis of online competitors) to
inform them better about the offerings of competitors in the online realm.
The pull nature of online marketing suggests that website visitors have an
existing interest in the product — otherwise they would not be on the website.
Their interest in the website may have been generated by search results, word-
of-mouth, or a URL printed in some other medium (e.g. in a print advertisement,
a  television  advertisement or on product packaging). Some of the more innovative
television ­advertisements include links to websites (for viewers with interactive tele­
vision devices such as TiVo). These, for example, enable television viewers to go to
the Domino’s Pizza website to order a pizza in response to a television advertise­
ment. Similar features are being built into Blu-ray discs, enabling movie watchers to
engage with the story online, beyond the actual movie presentation.
Distribution (place)
The internet and other telecommunications technologies, such as mobile phones,
can themselves act as a distribution platform. For example, a ringtone is delivered
via the mobile phone network to the mobile phone device. Another example is
the downloading of software directly to the user’s computer rather than the user
­purchasing a software package on a boxed set of disks.

Chapter 12  Digital marketing 453

 The ability of the internet to transfer data in real time between individuals and
organisations has led to greater efficiencies in distribution. For example, a customer
can place an order on a website, knowing that it is in stock, be given an estimated
(or guaranteed, depending on the vendor) delivery date, and so on. The organisation
itself can have systems in place that automatically order a freight delivery com­
pany in response to an online order and trigger their suppliers to send more stock.
The customer can track the progress of their order online and the organisation can
follow up with the customer after delivery via email.
One important challenge for online businesses is to control the cost of delivery.
Most online stores display a sale price. Some include delivery in that price, whereas
others add a delivery fee. The need to send the product to the customer (as opposed
to many retail arrangements where the customer collects the product) can create
pricing disadvantages. On the other hand, savings should be made in inventory
management and holding costs.

Evaluating digital marketing effectiveness

Practitioners actively engaged in digital marketing know that it is notoriously diffi­
cult to measure the effectiveness of digital marketing campaigns. There are some
technical tools that do offer very specific data on the success of some types of
online activities, but many of the difficulties experienced in evaluating ‘real world’
marketing also apply online. It can also be difficult to decide exactly what success
is. For example, it has been found that one in two Australians plan their holidays
online, but less than one in seven then books and pays for the holiday online.39
Should the travel agent consider that a success? It depends on whether the agent the
customer books through is the same one they used to plan their trip.
Some online marketing efforts are much easier to evaluate. For example, websites
that offer an e-commerce facility get direct feedback through purchase volumes. Big
Brown Box, for instance, is a subsidiary of Radio Rentals that wanted to expand its
operations to include selling online. With an advertising campaign and viral com­
petition, the new online store established a solid brand identity quickly and in its
first year the site attracted in excess of 800  000 visits.40 Another online success
story is Down Under Guys Gear, which is Australia’s largest online store for men’s
underwear, socks, T-shirts and swimwear. Using Google Adwords, it is able to direct
potential customers to the right products, at the time they are searching for them.
This means that online it can have hundreds of specific ads running at once, making
different offers to customers in different countries, relating to different brands and
product categories. It has enjoyed a growth rate of 30 per cent a year, and allocates
about 10 per cent of its turnover to online marketing.41
Online advertising is one area that offers further potential for marketers to assess
effectiveness. If a customer visits a store after seeing a newspaper or television adver­
tisement for the store, the business may never know that it was the advertisement
that prompted the store visit. Online, however, as discussed earlier in the chapter,
the consumer will ‘visit the store’ by clicking on the advertisement. Hence, there is
direct feedback as to the effectiveness of the advertisement. The business may never
know how many people ignored the advertisement, but they will know exactly how
many people clicked on it (and, therefore, click-through rate) and exactly how many
people went on to complete a transaction (conversion rate). Deciding on a particular
metric that quantifies as aspect of marketing performance can be invaluable infor­
mation for the online marketer to know how successful a marketing activity is. For
example, if an online promotion can generate a high click-through rate and con­
version rate, the marketer may continue with similar promotions. However, if there

454 Marketing
is a high click-through rate but also a low number of unique visitors or conversion
rate, or a high customer acquisition cost, then the marketer may reconsider such an
activity and try something more effective. Table 12.142 provides an overview of some
of the metrics commonly used by marketers to evaluate the effectiveness of online
marketing campaigns, particularly online advertising.

Table 12.1  Online advertising marketing metrics

Metric Description
Cost per The cost of an online advertisement in terms of how many thousands of people
thousand views see it.
The cost is known and the number of people visiting a web page on which the
advertisement appears is easy to measure. It is impossible, however, to know how
many of those visitors saw or paid attention to the advertisement.
Click-through rate The percentage of people who visited a web page on which the advertisement
appears that actually clicked on the advertisement.
This can be accurately measured and can give an indication of the effectiveness of
an advertisement relative to other advertisements. It is still impossible to tell how
many people who visited the web page actually saw the advertisement.
Cost per click This is determined by dividing the total cost by the total number of people who click
through.
Conversion rate This is determined by how many people who clicked through actually completed
a marketing transaction. This is the most effective marketing metric in determining
the overall outcomes of the advertisement, but does not necessarily allow us to
determine why the marketing effort was successful for each customer.
Customer This is the cost associated with acquiring a new customer. It can be calculated by
acquisition cost dividing the total acquisition expenses by the total of new customers.
Unique visitors This is the number of individuals who have visited the website at least once over a
given period of time. Calculations can be based on the IP address and viewed over
a 30-day period, or during the campaign.

The interactive nature of the online environment also offers opportunities for
detailed qualitative information from consumers. Feedback forms, chat services,
forums and online communities all encourage consumers to communicate directly
with the business. Marketing organisations are also well advised to look beyond
their own online presence. There is a proliferation of online communities dedicated
to consumer reviews and these can provide valuable information and feedback to
businesses.

Electronic business
The focus of this textbook is marketing, rather than the broader topic of business,
but, as we have stressed throughout this textbook, marketing is all about creating
maximum customer value. We will therefore devote a little space to discussing some
aspects of electronic business that can help the organisation’s overall service delivery.
Supply chain management
Technology plays a crucial role in managing the supply chain (the process of get­
ting raw materials made into products and then getting them to the retailer and
the consumer). Because the web provides comprehensive, secure and real-time
data exchange (known as electronic data interchange, or EDI), organisations can
remain connected with partners, ensuring stock is managed in real time. Well set
up supply chain management systems can remove many manual tasks involved in
managing inventory levels. They can also monitor and confirm dispatch processes.

Chapter 12  Digital marketing 455

 For example, if a customer purchases a product from Apple’s online store, they are
sent a confirmation email which includes a link to freight company TNT Express’s
parcel tracking site, and they can watch the progress of their goods (e.g. notification
of pick-up, arrived at distribution centre, arrived at destination city, on board van for
delivery, delivered in full).
Another example of supply chain management is when a salesperson at a Bay
Leather Republic furniture store uses an intranet to access stock levels in the com­
pany’s Sydney warehouse to let the customer know when their desired stock will be
available in the local store or delivered to their residence. This is a simple system,
almost universally used in businesses with multiple outlets.
Businesses that make extensive use of barcode scanning can build stock manage­
ment into their checkout procedures. For example, when a checkout operator scans
the barcode on a jar of Vegemite, not only does the price add to the customer’s
bill, the stock record for that particular sized jar of Vegemite is reduced by one. An
automated process such as this can help ensure stock is managed correctly, without
the need for a manual stocktake, and can help inventory managers identify pur­
chase patterns (from the obvious, such as selling more ice cream in summer, to the
obscure, such as selling more pork sausages on Thursdays).
Intranets and extranets
Just as the web offers consumers many opportunities to access information, it can
be used to provide information to (and gather information from) members of the
intranet An internal website for marketing organisation. For example, many organisations maintain an intranet that
the use of staff. hosts detailed product information, training materials and an online community for
staff members.
Many organisations also have extranets, which are private networks among a
number of member organisations. For example, a furniture retailer may be part of
extranet A private website for an extranet with a trucking company so the two businesses can share information
sharing information securely on deliveries.
between different organisations.
The virtual organisation
A further consequence is that virtual organisations can come together easily and
cheaply. Whereas traditionally many organisations kept many functions within the
organisation, telecommunications technologies and the internet have enabled organ­
isations to come together based on skills to complete a particular task or project
and then dissolve again. It has become cheaper and more efficient to bring together
specialist teams or individuals than to maintain different functional areas within
one organisation.

Spotlight Smart shopping with smartphones

Times have changed when it comes to shopping. In the old days, people would go window shopping to
compare products and prices. Then they would ‘let their fingers do the walking’ by obtaining telephone
numbers from the Yellow Pages and calling the retail outlets. More recently, there was online searching
from a computer; and now it is simply a matter of getting out a smartphone.
A survey found that more than 65 per cent of shoppers try before they buy, with customers
doing their homework in store before searching for the best deals online. However, a customer can
now try on some clothes and then point the mobile phone at the barcode to immediately get price
information for stores nearby and online. The practice of examining a product in a traditional retail
store but buying it online at a lower price is called ‘showrooming’, and while it gives more power to
consumers, it is becoming a problem for retailers. (Although, some retailers are fighting back with
their own apps.)

456 Marketing
 Woolworths was the first major retailer to launch an app
with limited offerings, including the ability for customers
to scan a product’s barcode with their smartphone, add it
to their shopping list and then order and pay for their
groceries, which are home delivered. Big W also launched
a mobile app, which offered a feature whereby customers
could scan a product in any competitor’s store and get
the comparable price at Big W, and buy from Big W for
home delivery or lay-by. Customers can also track the
progress of their order, and an SMS alerts them when it’s
about to be delivered — which Big W management
believes will reduce customer inquiries about the location
of their orders.
Fashion retailer Sportsgirl was another early adopter of
a mobile app. According to the strategic brand manager:
Our girls are on the phones 24/7 and we should be too.
They can purchase as much as they want from the mobile.
If they are in a store that doesn’t have the product, they can
use the mobile to order it.

She said that Sportsgirl sees the mobile not as a threat, but an opportunity.
Bringing smartphone shopping to customers is not just about price matching, but also about product
range, product quality and being more innovative to bring customers back to the stores.43

Question
Explain how retailers could integrate a smartphone app into their marketing mix strategy. What are the
advantages and disadvantages for a retailer embracing digital technology, such as smartphone apps, in
their marketing strategy?

Concepts and applications check

Learning objective 5  discuss the role of digital marketing in an overall marketing strategy
5.1 Briefly outline the major considerations in developing a digital marketing strategy, and how a
digital marketing strategy should relate to an organisation’s overall marketing strategy.
5.2 Describe the type of products most suited to online purchase.
5.3 Explain how digital marketing activities can facilitate customer relationship management and the
potential benefits for both marketers and customers.
5.4 Several CRM software packages are available to help companies interface with their customers.
Do a search for ‘CRM software’ and analyse what the companies have on offer. As a marketer,
what elements would encourage you to purchase a particular package?
5.5 Describe some ways in which the effectiveness of digital marketing activities can be measured
and evaluated.
5.6 Provide examples of how marketers can utilise supply chain technology to create customer value
and enhance service delivery.

Chapter 12  Digital marketing 457

 Key terms and SUMMARY
concepts Learning objective 1  identify digital marketing activities
customer relationship
Digital marketing (e-marketing) refers to all of the activities involved in plan­
  management (CRM)  452
ning and implementing marketing in the electronic environment, including
digitalisation  435
digital marketing  429 the internet and web, mobile phones and other information and telecommuni­
extranet  456 cations t­echnologies. Examples of digital marketing include the sale of products
interaction  433 or ­providing marketing information via a website, texting and email. A key con­
intranet  456 sumer ­advantage is ­convenience: they are not limited by the usual store opening
portal  440 hours, the location of the store or having to wait while other customers are served.
profiling  432 Among the d ­ isadvantages are the inability to physically examine the product before
pull advertising  434
making the purchase and the risk of credit card fraud. Marketing organisations are
push advertising  434
search engine ­potentially exposed to much greater competition online, but they also have access to
 marketing  441 the entire global market. Digital marketing allows consumers to interact deeply with
search engine optimisation the marketing organisation without the need for dealing with an actual person.
 (SEO) 440
social media  438 Learning objective 2  explain the unique characteristics of digital marketing
spam  447
viral marketing  439 A number of key characteristics of digital marketing differentiate it from other
forms of marketing: profiling, interactivity and community, control, accessibility
and comparability, and digitalisation. Profiling is the process of getting to know
about potential customers before they make a purchase and to find out more about
existing customers. Interaction is the ongoing exchange of information between
marketer and customer (or potential customer); an online community provides a
virtual meeting place for customers and potential customers. Control is the ability
of the customer to determine how they interact with the marketing message and
to influence the presentation and content of the marketing message. Accessibility
is shown by the web providing individuals with information 24/7, while compara­
bility means that access to a variety of websites enables the individual to compare
products, brands and options, and seek the opinions of others. Digitalisation is the
ability to deliver a product as information or to present information about a product
digitally.

Learning objective 3  explain specific digital marketing methods

A popular digital marketing approach is online advertising, which includes banner
advertisements appearing on websites and pop-up advertisements that open in a
new web browser window. Brochure sites are websites that are essentially an online
advertisement for the organisation which present product and contact details, but
offer little other functionality. Social media describes the various mobile and online
websites using technologies and experiences that involve online communities where
members contribute to and build the community and the content, and where users
can substantially control their own online experience through customisation and
interactivity. Viral marketing is the use of social networks to spread a marketing
message from one person to another. A web portal is designed to act as a gateway
to other related sites. Search engine optimisation (SEO) means tailoring certain
features of a website to achieve the best possible ranking in search results returned
by a search engine. Search engine marketing is paid advertising that appears simi­
larly to a search result on a search engine page. E-commerce involves marketing
exchanges that take place online.

458 Marketing
 Learning objective 4  appreciate ethical and legal issues relating to digital
marketing
Digital marketing raises many ethical and legal issues due to the pervasive nature of
telecommunications technologies, the personalised and interactive nature of digital
marketing, the international, cross-border nature of telecommunications, and the
failure of laws and international agreements to keep pace with technological change
and the innovative use of new technologies. The main themes in ethics and law
surrounding digital marketing are privacy, misleading or deceptive conduct, spam,
intellectual property rights, consumer protection and technology burnout.

Learning objective 5  discuss the role of digital marketing in an overall marketing

strategy
An organisation’s marketing strategy should be a cohesive whole designed to achieve
the organisation’s overall goals. Therefore, any digital marketing strategy will be part
of, and consistent with, a broader organisational marketing strategy. Many of the
issues to be considered in a digital marketing strategy are the same as those con­
sidered in formulating the overall marketing strategy and marketing plan. In formu­
lating a digital marketing strategy, consideration must be given to how e-activities
affect target markets, the marketing mix (product, price, promotion, distribution),
and evaluating campaign effectiveness. In particular, customer relationship man­
agement (CRM) focuses on using information about customers to produce digital
marketing experiences that create, build and sustain long-term relationships.

Chapter 12  Digital marketing 459

 Case study Sight for All
Vipul Pare, Flinders University

One of the lesser known facts about blindness is that about 80 per cent of cases in the world are
avoidable. Blindness is primarily caused by preventable or easily treatable diseases, such as cataract,
refractive error and trachoma.44 What can be cured should not have to be endured, and, with this
motto in mind, one Australian non-governmental organisation aims to eliminate avoidable blindness
from the world, one case at a time. This organisation is Sight for All.
Sight for All is a non-denominational, not-for-profit
organisation based in South Australia that works with an
objective to address preventive blindness in Australia and
across the world. The organisation firmly believes that
alleviating blindness will go a long way towards eliminating
poverty, as blindness has a significant consequence
on the socioeconomic development of a country or
community. In South Australia, Sight for All works closely
with the Aboriginal Health Council of South Australia and
the Adelaide Crows and Port Power Football Clubs in
the implementation of eye disease awareness campaigns for
the local communities.45 In developing and underdeveloped
countries, Sight for All works with local communities in
order to encourage them to prioritise eye health projects,
train overseas doctors and medical professionals to
address these issues in their local communities, and work
towards educating communities to reduce preventable
blindness. Sight for All’s team of consultants give their time and expertise voluntarily, with the
aim of strengthening the capacity of ophthalmologists, ancillary staff and health workers in the
developing world to deliver effective, high-quality and sustainable eye healthcare.46 Furthermore,
the organisation is actively engaged in collaborative field research and raising awareness. The
organisation funds all its activities through charitable donations, corporate sponsorship and support
from the Australian government.47

Uniqueness
Sight for All educates, promotes, researches and equips communities in all eye health issues.
It ensures sustainable eye heathcare in partnering communities/countries. One unique aspect
of Sight for All is that it takes a holistic solution to this problem. It does this by training doctors
from developing countries to perform cataract surgery in their own countries, and helping in the
development of eye health promotion infrastructure.

Media presence
Sight for All was established in 2009 and has grown organically. It is regularly seen in media through
press releases, events and interviews. Every year, the organisation has several media releases
describing its social achievements and experience in Australia and developing countries, while others
highlight the charitable events that it has successfully organised to increase awareness of the cause
and raise funds. These regular appearances in the media, accompanied by charitable support from
celebrities, philanthropists, artists, sportspersons and highly respected public personalities, have
increased recognition, public confidence and awareness.

Social media
Social media and digital marketing is widely discussed in relation to categories such as entertainment
(movies and television programs), food and drinks (restaurant and wines), clothing (fashion
wear), and other leisure categories. As we have learned in this chapter, the number of people

460 Marketing
using social media on a regular basis has grown massively, encouraging organisations in other
areas, such as education, the service industry and not-for-profit business, to include it in their
marketing strategies. Online presence has become an order of the day. Sight for All is also using
social media as an effective platform to communicate its message. Social media is a cost-effective
and engaging platform where organisations can attract users who care about the work they are
doing, and enable them to multiply their awareness through word-of-mouth and create fundraising
opportunities.
The first phase of Sight for All’s social media campaign was to establish its presence in the most
commonly used social networking services. The Sight for All website was up and running with the
launch of the organisation. The organisation was careful to ensure that the website was easy to
navigate and had attractive colour and highlight, and that useful icons such as ‘donate now’ or
‘subscribe’ were in a strategic position. A succinct and clear website sets the brand apart. Facebook
and Twitter accounts followed within a few months of its launch. These two social media sites are
regularly updated with the latest activities of Sight for All, including fundraising events, collaborations,
supports, activities in the developing world, and links to significant articles and research work in the
field. In late 2012, the organisation included Pinterest as another tool to communicate and share its
vision and activities. Sight for All also has a YouTube channel, where it uploads videos related to the
organisation and its work.
The second phase is to actively work towards increasing the use of social media to
capitalise on its benefits. The intention is to increase the regular and effective use of social
networking services; monitor progress in terms of sharing, liking and other measures; and work
towards the core objective — namely, to increase awareness that would translate into greater
donations and support. To attain this objective, Sight for All monitors ‘likes’ on Facebook, followers
on Twitter, and the number of YouTube views and website visits. It also monitors awareness level.
It found that both overall awareness level and the number of likes on Facebook are increasing,
but they are still relatively low in a highly competitive fundraising market. This brings us to the
third phase.
The third phase is to intensify the current effort. A highly enthusiastic Sight for All team has
decided to adopt an intensified approach to increasing their presence in social media. The
organisation plans to do this in a variety of ways. First, it plans to streamline the writing by managing
content strategically, using relatable and relevant language, and being tactical and well organised in
terms of flow of information. Second, it plans to enhance its YouTube presence and use the videos
on other platforms to generate more cross-traffic. The future videos will include personal stories of
the people — of those who are involved in assisting the projects, and those who have benefited from
eye care assistance. Third, Sight for All has started paying to ‘promote’ some of its essential posts
on Facebook. By promoting these vital posts, the organisation ensures greater visibility, as the posts
appear higher in news feeds. This was clearly evident from the fact that its ‘likes’ on Facebook almost
doubled within a week, raising the level of awareness too. Fourth, Sight for All plans to intensify its
social media activities by blogging experiences, activities and achievements and linking them to other
networking services. It is also exploring search engine optimiser techniques and possible apps that
are suitable for increasing awareness and fundraising.

Questions
1. What are the other digital marketing avenues that the organisation can explore?
2. Develop a brief social media strategy keeping in mind Sight for All’s core objective of using social
media (i.e. to raise awareness and funds).
3. Think of four tips that would lead to an increase in awareness and sharing on Facebook. Bear in
mind that Sight for All is a not-for-profit organisation and has a limited budget.
4. Think of a conventional method to raise funds for charity. Do you think that method is better than
online approaches to raising funds? Are people likely to donate more online or when approached in
more traditional ways?

Chapter 12  Digital marketing 461

 Advanced activity
Now that you have read this chapter, look back at the ‘Dumb ways to die’ case and
think about all the issues that relate to the concept of digital marketing. What
issues should public safety organisations take into account in determining a digital
marketing strategy and what digital marketing methods could the organisations
consider implementing? How can they develop an integrated marketing campaign
for both their online and traditional media?

Marketing plan activity

For your marketing plan, think about how the electronic environment will affect
how you market your product to your target audience. Go back through the
elements that relate to your marketing strategy and think about what will be
influenced by a digital marketing strategy. How could the electronic environment
affect decisions on the target market, the marketing mix and campaign evaluation?
Once you have thought about these questions, add to the relevant sections in the
marketing plan.
A sample marketing plan has been included at the back of this book (see the
end of the book) to give you an idea where this information fits in an overall
marketing plan.

462 Marketing
 CHAPTER 13

International
marketing
Learning objectives
After studying this chapter, you should be able to:

understand the concept of ‘globalisation’ and its consequences for organisations

seeking to engage in international marketing

discuss the political, economic, sociocultural, technological and legal forces at

play in international markets

understand why and how organisations internationalise

explain how marketers create, communicate and deliver a product of value in an

international market.
Cancer Council: taking
on the world
Building on its success in Australia, the Cancer Council has gone global. As Australia's
peak national non-government cancer control organisation, Cancer Council Australia
advises the Australian government and other bodies on practices and policies to help
prevent, detect and treat cancer. To realise these missions, the Cancer Council:
• supports research by granting over $50 million in scholarships and fellowships
each year
• provides information, guidelines and support to patients and healthcare professionals
• organises a broad range of funding events
• markets a range of sun protection products.
Products marketed by the Cancer Council include sunscreens, protective clothing,
beach shelters and cosmetics with sun protection. Royalties generated from the sales
of sun protection products support the activities of the Cancer Council. Revenues are
forwarded to state and territory branches to fund research, patient support services
and education.
The Cancer Council brand is now marketed in 20 countries, including Chile, Germany,
the Netherlands, Turkey, China, Korea and Thailand. The decision to go global wasn’t just
about profits, but also about cooperation with similar
bodies in other countries to build skin cancer awareness.
In countries where the local cancer prevention
organisation doesn’t have its own-brand sunscreen,
the Cancer Council Australia uses Skin Health — an
­Australian-owned company — to manufacture ­products
under its name. By selling skin protection products
across the globe, the Cancer Council has overcome
problems associated with seasonality. In Australia,
more than 65 per cent of Cancer Council product sales
occur between August and December each year. In the
summer of 2011–12, the Cancer Council sold 75  000
litres of sunscreen in Australia, or 675  000 standard-
sized tubes. Revenue in the same year was $2 million —
of which one-third came from sunscreen sales.1

Question
From a marketing perspective, what factors do you think the Cancer Council
would need to consider before expanding to various international markets?
INTRODUCTION
The increasing political, economic, social, cultural and technological interconnect-
edness of countries throughout the world has given rise to the concept that we are
living in a ‘global village’ and that we are becoming ‘global citizens’. If there was ever
any doubt that these flows of money and products connect us all in a web of inter-
dependence, it was dispelled with the onset of the global financial crisis in the late
2000s. The crisis subsequently damaged almost every economy and highlighted just
how much all of our lives are tied together.
While countries are connected through trade, and trends are being followed the
world over, those that have travelled and spent a lot of time overseas will know
there are still very substantial differences between the peoples of different coun-
tries and regions. We remain more different than we are the same. For marketers
charged with  the responsibility of marketing across borders, this poses some
unique ­challenges. International marketers need to understand the similarities and
differences that exist in the marketplaces and marketing environments in which
they operate.
International marketing — the application of marketing principles beyond the
home country — has, over the past couple of decades, presented both huge oppor-
tunities and threats for organisations. Even those businesses that do not choose to
actively participate in international marketing may find themselves competing with
businesses and products from overseas.
It is therefore imperative that marketers understand the international marketplace
and individual foreign markets, how to choose appropriate target markets, and ulti-
mately how to create, communicate and deliver products of value in the international
market. The fundamental approach to marketing remains the same — u ­ nderstand,
create, communicate and deliver — and this is represented in figure 13.1.

Understand
international Marketing Research International marketin
ng research International Marketing Research International m
ternational Marketing Research International Marketing Resea
International Marketing Research International Marketin
Deliver international marketing Research Create

ternational Marketing Research International Marketing Resea

arketing Research International Marketing Research Internati
FIGURE 13.1
international Marketing Research International marketin
International marketing research
Communicate
The fundamentals of
international marketing

The challenge for marketers is to understand the similarities and differences

in  the  markets and their environments. Marketers need to consider whether
what works at home will work abroad or whether an alternative offering needs to
be ­created, communicated and delivered to better meet the needs of the ­international
market.

Chapter 13  International marketing 465

 INTERNATIONAL MARKETING
FUNDAMENTALS
Learning objective 1 For most of history, communities have been isolated and self-sufficient. Contact and
understand the concept exchange with other communities was difficult if not impossible until the advent of
of ‘globalisation’ and
efficient transport and communications technologies. While some forms of trans-
its consequences for
organisations seeking to port have been with us for thousands of years — horse-drawn carriages and sailing
engage in international ­vessels — their impracticality, lack of speed and lack of size meant that until the last
marketing few hundred years trade was largely restricted to precious and non-perishable com-
modities such as gold, textiles and spices. These were so highly valued that kings
would send their best captains on treacherous year-long sea journeys to obtain them.
With the leaps in technology that began with the Industrial Revolution in the
1700s, the world started becoming a smaller place. Just a couple of hundred years
ago, the journey from England to Australia took eight months and even the well
travelled would make such a journey just once in a lifetime (often in close quarters
with convicts); today the flight takes 24 hours and business travellers can travel up
to a dozen times a year. Undoubtedly the world is now a smaller place. We can travel
quickly and easily between almost any country we choose, exchanging products and
ideas as we go. We have communications technologies that enable us to exchange
information instantaneously with people on the opposite side of the world, whether
one-to-one via email or phone, or to a billion people tuning into an Olympic Games
broadcast or to watch the US presidential election. In recent years, as the bene-
fits of a relatively free exchange of products and ideas have become increasingly
accepted and desired, political, social, cultural, language and economic barriers have
diminished, facilitating ever greater interconnections between different countries
and their different peoples. This close interconnection has produced a close inter-
dependence in terms of trade, finance, living standards and security — and many
people now say we live in a truly global village.

A global village?
The global village/global citizen/global market concept is derived from the process
of globalisation. Globalisation has been occurring since the first time someone trav-
elled beyond their home territory. They would be influenced by what they would
experience and they, in turn, would influence the country and people they came
into contact with. The process of globalisation has increased rapidly over the past
few hundred years and in the past 50 years has become the subject of much research
in the business and academic worlds.
globalisation The process Formally defined, globalisation is the process through which individuals, organ-
through which individuals, isations and governments become increasingly interconnected, with consequences
organisations and governments
for national identity, national sovereignty, economic activities, laws and culture.
become increasingly
interconnected and similar. Almost every aspect of our lives is touched by globalisation. While it is not our
intention to deliver a lesson on world history, it is important to recognise that
globalisation has been going on throughout much of modern history. In the 1500s,
England, Spain, Portugal and France were building colonial empires around the
­
world. Parts of Asia and the Pacific islands were colonised by Portugal and France.
Later, the United States, Australia and New Zealand were colonies of England, with
early settlers taking land from the Indigenous peoples.
For many years the United States has been the dominant world power. The United
States has used its economic power, mass media dominance and technological infra-
structure to ‘export’ its culture, ideals, products and way of life to the world. This
has given rise to the notions of ‘Americanisation’ and ‘CocaColonisation’, in which

466 Marketing
people equate the blending of cultural, social, economic and political ­characteristics
that arises from globalisation with countries ‘becoming like America’. It is easy
to see why such perceptions arise — think about Australian or New Zealand teen
boys wearing baseball caps backwards (or indeed wearing baseball caps at all); think
about how close you are to the nearest McDonald’s takeaway food outlet; think
about where your favourite five movies were made, the nationality of the stars, and
where the stories were set; think about the global financial crisis and how it all
began with American corporations granting home loans to people without incomes,
without jobs, without assets — without the ability to repay the loans (these were
subsequently called ‘Ninja’ loans). There is no doubt that the United States has more
pervasively influenced the other cultures of the world than any other country in
modern times and that some countries have actively opposed this, but globalisation
is more complex than a simple one-way transfer of values.
It is a fascinating, though exhausting, exercise to spend a day analysing the ori-
gins of each thing you engage with. You will most probably find yourself immersed
in products and ideas from all through Asia, Europe and the United States, and to
a lesser degree South America and Africa. Cheaper air travel, the increasing inter-
nationalisation of business activities and the greater openness of most countries to
foreign visitors have also led to greatly increased international travel compared to
just 20 years ago. This travel can broaden people’s conception of their world and
blur the historical national frontiers that have defined much of history. In fact, inter-
national travel and work experience can be a valuable asset for people seeking work
and other opportunities in many spheres of business. Multinational businesses and
universities often offer top-performing employees and students the chance to under-
take exchange programs to gain international experience and exposure to different
cultures, societies and politico-legal systems. Some organisations even require their
senior managers to have international experience, and executives in some multi-
national companies spend significant time abroad each year. Increasingly, school
leavers and university graduates take it upon themselves to travel overseas for a
period of time before embarking on a career. During these travels, they experience
both the similarities and many differences across national borders. It is an under-
standing of those similarities and differences that can help create a competitive
advantage and a successful marketing approach in business (both internationally and
domestically, considering the multicultural nature of Australian and New  ­Zealand
societies).
While many of us do not have the opportunity to travel extensively for work or
pleasure, much can still be learned about the rich diversity of the world’s peoples by
research and engaging with people from diverse cultural backgrounds.

Standardisation versus customisation

There are thousands of businesses across the country engaging with the world
through their marketing activities. To do so requires a sound understanding of the
different forces at play in different countries, how to select potential target markets
and how to implement a marketing mix for them. This could be as simple as selling
products designed for the home market to businesses or consumers based in another
country or as complex as creating an entire marketing mix aimed specifically at the
unique needs of customers abroad.
In this section of the chapter, we will look at one of the biggest decisions the
international marketer must make and one of biggest areas of academic debate: the
extent to which an international marketer should maintain one marketing mix across
international markets (standardisation) versus the extent to which the international

Chapter 13  International marketing 467

 marketer should tailor the marketing mix to the specific characteristics of various
target markets (customisation).
Regardless of the products offered, the currency they are priced in, how they
are  transported and whether the packaging and advertising is in English, Spanish
or Japanese, the marketing organisation has at some point made a decision about
whether to:
• make one standardised offering across international markets
• customise offerings for each market
• strike some balance between the two extremes.
International marketers must understand the commonalities and differences
between the markets.
A key decision faced by international marketers is whether to standardise or cus-
standardisation Applying a tomise their offerings. Standardisation refers to applying a uniform marketing mix
uniform marketing mix across across international markets, with only minor modifications to meet local conditions
international markets, with only
(e.g. printing packaging or instructions in the local language or choosing a different
minor modifications to meet local
conditions. price point to suit local incomes). Customisation refers to carefully tailoring the
marketing mix to the specific characteristics and wants of each market. For some
customisation Carefully
tailoring the marketing mix to the marketers their offering is a mix of the two strategies. Think about Google. It has
specific characteristics and wants essentially the same search engine interface for every country (a simple interface
of each market. that can load quickly regardless of the speed of the user’s internet connection) and
the same set of algorithms underlying the indexing and search functions, but pro-
vides the interface in the local language. Australian beer companies tend to sell the
same product around the world, but position it differently. For example, Foster’s
lager is an everyday beer in Australia but is considered a premium beer in Europe,
just as Heineken is considered an everyday beer in the United States but is mar-
keted as a boutique beer to Australians.
On the other hand, some companies find that the very characteristics that give
them a competitive advantage in their home market also provide an advantage
offshore and thus little customisation is required. For example, Australian based
­
company Splatter (www.splatter.biz) have built a strong reputation, both locally
­
and  globally in recent years, and have become a leader in products designed
with children and families in mind. Splatter markets paintings for children’s rooms
and baby nurseries using an online gallery and exhibitions in key geographic
markets.2
Figure 13.2 summarises the main aspects of standardisation and customisation.
Keep these in mind as you study the rest of this chapter, as the marketer’s decision
about the appropriate degree of standardisation or customisation must be based on a
sound understanding of the factors that we discuss in the following pages.

STANDARDISATION CUSTOMISATION
• Similarities between different countries/ • Social, cultural, economic, political and
convergence legal differences between countries
• Economies in research and • Creation of competitive advantage
development • Competition from local marketers in the
• Economies of scale in production foreign market
FIGURE 13.2 • Economies in marketing • Facilitation of innovation in the
• Uniformity and ease of control of foreign market
Standardisation versus
marketing approach
customisation

468 Marketing
Global trade
There is no doubting that global trade connects the world in a complex web of
exchanges. Table 13.1 summarises the extent and overall nature of Australia’s and
New Zealand’s trade.3 It is clear that a large proportion of total production and con-
sumption is sent overseas or sourced from overseas. For example, a local university
student may work on a laptop made by Lenovo, a Chinese company, under licence
from IBM, a US company, running software by Microsoft, a US company, but sold
in Australia.

Table 13.1  The flow of products and services

Australia Exports (type) Merchandise imports (type)

GDP: $1.379 trillion Iron ore $62.7 billion Personal travel $22.3 billion
Coal $47.9 billion Crude petroleum $20.9 billion
Gold $16.7 billion Passenger motor vehicles $16.0 billion
Natural gas $12.0 billion Refined petroleum $15.9 billion
Total $316 billion Total $311 billion

Exports (destination) Imports (source)

China $78 billion China $43 billion
Japan $51 billion United States $31 billion
Korea $22 billion Japan $20 billion
India $13 billion Singapore $15 billion
USA $10 billion Germany $11 billion

New Zealand Exports (type) Imports (type)

GDP: $159 billion Milk powder, butter $12.4 billion Mineral fuels $7 billion
and cheese $5.1 billion Mechanical machinery $5 billion
Meat $48 billion Total $54 billion
Total

Exports (destination) Imports (source)

Australia $11 billion China $7 billion
China $6 billion Australia $6 billion
United States $4 billion European Union $7 billion
Japan $3 billion

The contaminated milk powder crisis in China demonstrates how not only
finished products are traded around the world, but how the components of those
products may cross borders several times before ending up in the hands of con-
sumers. The Chinese dairy group Sanlu, part-owned by New Zealand dairy group
Fonterra, recalled its infant milk formula after reports of hundreds of children in
a number of Chinese districts developing kidney stones. It was suspected the milk
powder was contaminated with the industrial chemical melamine (used in plastic
production and in the production of cheap furniture and cabinetry). The milk
powder was also exported to Burma, Bangladesh, Yemen, Gabon and Burundi. Some
21 other businesses had to recall products because they used the milk powder in
their production. Taiwan was forced to remove thousands of products from stores
that had the milk powder as an ingredient and South Korea was also investigating
whether products had included the powder during processing. This incident high-
lights the extent to which products and the parts that go into their production travel
freely across national borders.
Although the volume of international trade is enormous, an organisation contem-
plating moving into the international markets faces numerous decisions and risks.

Chapter 13  International marketing 469

 Many governments have established export promotion programs to help domestic
organisations enter and succeed in international markets. Further, most govern-
ments provide some degree of direct assistance to organisations undertaking inter-
national marketing. Assistance may take several forms:
• information and advice
• production support
• marketing support
• finance.
The Australian Trade Commission (Austrade) is a government agency established
to provide advice, marketing intelligence and support to organisations to help them
reduce the cost, time and risk involved in their international marketing efforts. Aus-
trade also helps domestic organisations identify potential overseas joint venture and
investment opportunities. The New Zealand Trade and Enterprise agency performs
a similar role for New Zealand organisations, as do SPRING Singapore, the Hong
Kong Trade Development Council and the Malaysia External Trade Development
Corporation, in their respective countries.4

Spotlight  Havaianas: a fashion icon

In the 1990s, Amelia Maribondo-Aspen was the entrepreneur who introduced Havaianas thongs to
Australia. Thongs were still considered in Australia to be ‘the poor person’s shoe’ but were worn by
millions of Brazilians — and the Australian launch of the brand was one of the leading factors in
Havaianas becoming a global fashion item. Today, Amelia’s Sydney-based Havaianas business turns
over millions of dollars and employs 40 staff. While marketing experts identify cultural branding that
emphasises Brazil’s ‘vibrancy, youth, fun, sensuality and humour’ as the key to Havaianas’ success,
Amelia’s opinion differs. She attributes the success of Havaianas to hard work and also to luck —
suggesting that had she started two years earlier or later she may not have the same success.
The key to making Havaianas a fashion item was to use unconventional people (e.g. surfers and
artists) and celebrities to lead people into accepting the fashionability of thongs. According to one of
the executives who masterminded the marketing campaign, the middle class are followers who will look
towards celebrities and follow their lead.
In 2000 inspired by Amelia Maribondo-Aspen’s success
in the Australian market (among the company’s highest ­per-
capita market penetrations), Havaianas decided to launch
into various export markets. The popularity of Havaianas in
the European market has helped to fuel sales in the Brazilian
market. At present, Havaianas’ most valuable market is Brazil,
where people living in the north-east of the country buy 80 to
90 million pairs of the thongs each year.
The Havaianas factory, which is the largest factory in northern
Brazil, employs more than 2000 people on each shift. In Brazil,
the minimum wage is approximately $300 per month, but
workers in the Havaianas factory are paid $450 per month for
basic process work. Workers are provided with opportunities
to study and to progress within the organisation, with their pay
rising to $1000 after the first round of study or promotion.
Havaianas are different from cheaper PVC thongs. They are
said to be made from a ‘secret recipe’ combining multiple types
of man-made rubber derived from petroleum waste and natural
rubber from plantations in Brazil and Mexico.5

470 Marketing
 Question
Should the marketers of Havaianas adopt a standardised or customised approach to the marketing mix for
their product in all countries? Justify your answer.

Concepts and applications check

Learning objective 1  understand the concept of ‘globalisation’ and its consequences for
organisations seeking to engage in international marketing
1.1 Are fundamental domestic and international marketing principles the same? Explain your answer.
1.2 Prepare an argument for and against the following: ‘Drinking at risky levels is a growing trend in
most developed countries, with an increasing homogenisation of drinking cultures across many
countries, strongly influenced by Anglo–US cultural zeitgeist’.6
1.3 Using a product of your own choosing as an example, briefly outline the main arguments for a
customised marketing strategy for one international market. Refer to leading market data to justify
your decision.
1.4 Havaianas is one example of a brand that has succeeded in spreading globally. Choose another
brand that has spread globally, and develop a timeline to illustrate the global spread of the brand.

THE INTERNATIONAL MARKETING

ENVIRONMENT
In the chapter on the marketing environment, we examined the marketing environ­ Learning objective 2
ment in relation to the marketing organisation, its internal environment, micro discuss the political,
economic, sociocultural,
­environment and macro environment. In the macro environment, we identified sev-
technological and
eral forces at play — political, economic, sociocultural, technological, environmental legal forces at play in
and legal (commonly referred to as the PESTEL model). A similar set of forces is international markets
at play in the international marketing environment, both within individual target
foreign markets and in the organisations, arrangements and other circumstances
between countries. These factors are outlined in figure 13.3 (overleaf).
Marketing organisations that engage in international marketing need to develop
a strong understanding of how these forces differ from the more familiar forces in
their home countries in order to select appropriate target markets and to amend
their marketing approach appropriately. Ideally, international marketers should
understand the international market in the same ways they would understand their
local market. This is no small task. This part of the chapter is designed to introduce
you to the issues that international marketers need to consider. We cannot possibly
teach you all you will need to know. For those who seek to work in international
marketing, we encourage you to:
• travel — recreationally, for study and for work
• read — guide books, magazines, international newspapers
• learn — a second (or third or fourth) language
• watch — movies and television shows on foreign channels to broaden your horizons
• experience — different foods and beverages
• work — with students from a foreign background
• overcome — a home-country bias in your view of the world. It is a somewhat
natural tendency to favour the familiar, but it is of little help in the world of inter-
national marketing.

Chapter 13  International marketing 471

 International marketers must consider:
1. Alliances and agreements: 2. Market-specific political factors:
• bilateral trade agreements • view on private ownership
Political
• free trade areas and business activity
• the World Trade Organization. • the influence of government policy
• the stability of the political environment.

International marketers need to understand the economy in both the short and
long term. They must consider:
1. the overall state of the global economy
Economic
2. country-specific conditions such as levels of income and wealth, exchange
rates, the availability of credit, employment levels and the quality of
national infrastructure.

Social and cultural influences have a large effect on businesses. For each
country in which they wish to operate, international marketers must understand:
Sociocultural 1. religion, culture, subcultures, values, attitudes and beliefs
2. population trends including age, household size and composition, marriage
and divorce trends, places lived, ethnicity and health.

International marketers must consider:

1. the role of technology in their marketing mix
Technological 2. the differing technological infrastructure in different countries
3. the different levels of access to information and communications
technologies among citizens of different countries.

International marketers need to understand environmental influences,

Environmental including ecological and environmental aspects such as weather,
climate and climate change.

International marketers need to understand legal and regulatory influences

such as:
FIGURE 13.3 Legal 1. international 'law', agreements and regulatory bodies (e.g. the
World Trade Organization)
The international marketing 2. the specific laws of international markets in which they wish to operate
environment 3. trade barriers.

More information can be accessed from various government sources, including

Austrade and New Zealand Trade and Enterprise, both of which exist to promote the
participation of businesses in the international marketplace. Austrade’s overview of
the Chinese market includes details such as its political and economic conditions and
statistics about its trade relations. It shows, for example, that Australia’s trade with
China has increased massively over the past decade, thanks mainly to the booming
construction sector in China, which has driven strong demand for Australia’s min-
eral ore exports. Today China is Australia’s largest export partner, having overtaken

472 Marketing
the United States. The corresponding page on New Zealand Trade and Enterprise’s
website includes information about China and links to specific market research con-
ducted into sectors relevant to the New Zealand business sector, including wine and
education exports. For example, a New Zealand business thinking about establishing
a subsidiary in Shanghai can find out important details such as office rental costs,
average salaries and appropriate methods for recruiting local staff.7
Following, we will examine each of the major environmental factors in turn and
then look at the key international organisations that govern aspects of international
trade in order to give you a taste of the complexity of the international marketing
environment.

Political forces
Political forces may be broadly categorised as:
• political alliances and agreements between countries
• political factors within a target market country.
Alliances and agreements
It is important for international marketers to understand political alliances. Some alli-
ances favour trade between countries, enhancing the chances of success, while others
can work against international marketing goals. Some countries align in regional
trading arrangements. International trade agreements are formal arrangements
between countries to encourage and facilitate trade between them. They aim to:
• streamline paperwork
• reduce or eliminate trade barriers (e.g. tariffs)
• create preferred zones of trade among their member countries (often, inciden-
tally, to the detriment of non-members).
Such arrangements can be bilateral or multilateral. Bilateral trade arrangements
involve two countries, whereas multilateral arrangements involve more than two
countries, often located within a region. Table 13.2 shows some of the bilateral
agreements in place involving Australia and New Zealand.8

Table 13.2  Australia and New Zealand bilateral trade agreements

Party 1 Party 2 Date of commencement

Australia New Zealand 1983

New Zealand Singapore 2001

Australia Singapore 2003

Australia Thailand 2005

New Zealand Thailand 2005

Australia USA 2005

Australia Chile 2008

New Zealand China 2008

New Zealand Hong Kong 2009

New Zealand Malaysia 2009

New Zealand Hong Kong 2011

Australia Malaysia 2012

Chapter 13  International marketing 473

 Table 13.3 shows some of the regional trade areas that are of the most direct
­relevance to Australian and New Zealand marketers.
For Australia and New Zealand, arguably the most important free trade agree-
ments are ASEAN and APEC, illustrated in figures 13.4 and 13.5 over the following
pages. In 2010 Australia and New Zealand entered into what is for both countries
their largest ever trade agreement when the ASEAN–Australia–New Zealand Free
Trade Agreement came into force.9

Table 13.3  Regional trade areas

Trade area Parties
Asia–Pacific Economic Cooperation (APEC) Australia, Brunei, Canada, Chile, China, Hong Kong,
Indonesia, Japan, South Korea, Malaysia, Mexico,
New Zealand, Papua New Guinea, Peru, Philippines,
Russia, Singapore, Taiwan, Thailand, USA, Vietnam
Association of South-East Asian Nations Brunei, Cambodia, Indonesia, Laos, Malaysia,
(ASEAN) Myanmar, Philippines, Singapore, Thailand, Vietnam
Association of South-East Asian Nations ASEAN (above) plus Australia, New Zealand
(ASEAN)–Australia–New Zealand Free Trade
Area (AANZFTA)
European Union (EU) Austria, Belgium, Bulgaria, Cyprus, Czech Republic,
Denmark, Estonia, Finland, France, Germany, Greece,
Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg,
Malta, the Netherlands, Poland, Portugal, Romania,
Slovakia, Slovenia, Spain, Sweden, UK
North American Free Trade Agreement (NAFTA) Canada, Mexico, USA
South Asian Association for Regional Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan,
Cooperation (SAARC) Sri Lanka, Afghanistan

MYANMAR PACIFIC
L
A

A
SE
V
O

I
S

OCEAN
T

IN

THAILAND
N

CH
A M

CAMBODIA PHILIPPINES
TH
U
O
S

MALAYSIA BRUNEI

N
MALAYSIA

SINGAPORE

INDIAN
I
N
OCEAN D
O
N E S I A
FIGURE 13.4
0 500 1000 km

ASEAN countries

474 Marketing
 Russia

Canada

United States
Japan of
China America
South Korea

Taiwan
Hong Kong Mexico
Thailand Vietnam
Philippines
Brunei
Malaysia
Singapore Papua New Guinea

Indonesia Peru

Australia
Chile

New Zealand
N

0 1000 2000 km FIGURE 13.5

APEC member countries

APEC countries

A number of global organisations exist to encourage trade. The General Agree-

ment on Tariffs and Trade (GATT) was established after World War II to help
settle trade disputes and encourage the involvement of developing countries in
the global economy. GATT aimed to reduce tariffs and other barriers to trade and
asked member countries to treat other member countries equally in terms of trade
arrangements. GATT created the World Trade Organization in 1995 with the aim
of further liberalising trade between nations, while at the same time establishing
and enforcing rules to govern e-commerce and outlaw, or at least discourage, some
unhelpful trade practices.
Country-specific political factors
Political systems vary greatly between countries. Marketers need to understand the
political system of each target country and understand its influence on business and
commerce. Democratic political systems tend to see reasonably regular changes of
government, which result in changes of policies, some of which can have significant
effects on business. Dictatorships tend to see infrequent changes in rule, but when
those changes happen they often fundamentally alter the state of the country. Multi-
party systems, while offering representation of a broad range of interests, often
suffer an inability to actually implement policy, which means governmental change
can be slow.
Political factors can determine the degree to which private ownership and busi-
ness activity is allowed. For example, capitalist countries such as the United States
give great scope for private sector business activity with relatively little regulation;
socialist countries such as Cuba greatly restrict private-sector activity, particularly of
foreign businesses. Many countries fall somewhere on a continuum between the two
classic economic/political models.

Chapter 13  International marketing 475

 Marketers need to understand the stability of the political system in the countries
in which they operate, as instability can severely impact on business performance.
In particularly unstable countries, the degree of risk may be too high to accept (this
risk may be to the safety and security of employees and physical assets; the value of
the country’s currency; or in the possibility of nationalisation of assets).
The political forces in different countries also combine to create an international
environment that can be more or less conducive to international marketing. Another
important international effect is the overall stability of the world economy. In the
first decade of this century, there was a gradual destabilising of the global com-
munity prompted by factors such as the 9/11 terrorist attacks on the United States
and the US invasion of Afghanistan and Iraq, the increasing economic and military
might of China and India, the threat of nuclear proliferation, and the virtual collapse
of the global financial system.

Economic forces
International marketers’ understanding of the economic forces in the international
marketplace must encompass:
• the global economy
• the economies of the specific countries of interest to them.
The global economy
As we emphasised in the first part of this chapter, communications and transport
technologies have led to unprecedented levels of interconnectedness and interde-
pendency between countries. This means that the economic conditions within any
specific country are likely to be significantly influenced by the global economy.
Conversely, the global economy can be significantly influenced by economic con-
ditions within one or a few economies if those economies are big enough.
The global financial crisis that began with a liquidity crisis in the United States
led  to the worst economic crash since the Great Depression and clearly demon-
strated just how interconnected the world’s economies are. Consider that the seeds
of the crisis were planted in the early 2000s when funds flowed freely from Asia
and the Middle East into the United States, facilitating cheap and easy credit. The
massive growth in borrowing led to the invention of complicated financial instru-
ments that enabled investors around the world to use credit to speculate. US and
European lenders reduced their loan criteria to the point that many of the loans
were irresponsible, with little prospect of being paid in a negative growth environ-
ment. The realisation that many organisations around the world were owed money
that could never be repaid triggered a loss of confidence among lenders, resulting in
an unwillingness to lend and hence an abrupt halt to business investment. Business
and consumer confidence collapsed, resulting in corporate collapses, plummeting
profits and job losses. It is intriguing — though not really difficult — to contem-
plate that the massive wealth generated by oil and manufacturing in Asia, Europe
and the Middle East over the past decade led — eventually, through a convoluted
path — to Australian or New Zealand retirees who had to return to work because
­superannuation was no longer sufficient to fund a long retirement.
Overall, the worldwide losses caused by the global economic crisis totalled in the
trillions of dollars and few economies escaped unscathed. Some economies, most
notably in the United States and Europe, are still struggling to recover. It is clear
then that international marketers must be aware of global economic conditions and
alert for the sudden and substantial effect any changes can have, not only on each
international market, but also on the home market conditions.

476 Marketing
Country-specific economic factors
The economic environment in a particular country will to some degree determine
the  relative attractiveness of that country as a potential target market. Levels of
income and wealth, exchange rates, the availability of credit and the quality of
national infrastructure will all affect the suitability of a business’s product and
overall marketing mix to a particular international market. A business may target
those markets with similar characteristics to the home market, or other character-
istics that suggest their products may succeed. Alternatively, the business, upon
discovering the different economic conditions, may decide to customise their
­marketing mix to suit those conditions. It is important to avoid the assumption that
the wealthiest countries are the best potential foreign markets. They will be coun-
tries already well served by domestic business and a host of other international
businesses. While they may offer attractive opportunities, less developed countries
can also offer great market potential. In particular, India and China are enormous
emerging markets in which many consumers are keen to pursue the opportunities
afforded by growing aff luence.
Exchange rates are one of the most important economic factors for international
marketers. As the economic conditions in countries change or there is a shift in
overall global economic conditions, the value of a country’s currency relative to
others may change. International marketers need to be aware that in international
currency dealings, there is potential for misunderstanding due to so many currencies
sharing the dollar name and symbol ($) — Australia, New Zealand, Singapore, Hong
Kong and the United States, to name a few. Usage of International Standard currency
codes avoids this problem, as each currency has its own unique three-letter code as
its symbol (e.g. Australian dollar AUD, New Zealand dollar NZD, Singapore dollar
SGD, Hong Kong dollar HKD, United States dollar USD). In international trans-
actions, these codes should always be quoted.
While it is often assumed that exchange rate changes will be gradual and foresee-
able, that is often not the reality. For example, just after the onset of the global econ­
omic crisis, over a period of about four months the Australian dollar fell from being
worth USD 0.98 to USD 0.60. For the international marketer, currency fluctuations
have serious consequences, for example:
• an Australian importer paying USD 20 million a month for supplies from a United
States firm suddenly found themselves with a USD 33 million a month bill for the
same quantity of supplies
• an Australian exporter receiving AUD 10 million a month for goods suddenly
found themselves asked to supply nearly half as much again as it was now costing
the US company only AUD 6 million for the same quantity and so they could
afford more of it.
Of course, the situation is reversed when the Australian dollar appreciates against
other currencies. In 2010 the Australian dollar appreciated by 20 per cent versus the
US dollar, making it very difficult for Australian exporters to remain competitive in
key export markets. At the same time, imports became cheaper, affecting the local
market.
Many businesses enter into complex financial arrangements to insure themselves
against such currency movements (using a technique known as foreign exchange
hedging), but changes in exchange rates can fundamentally affect the supply and
demand of various products across national borders, particularly for the traditional
agricultural and mining industries that account for such a large part of Australia’s
foreign trade.

Chapter 13  International marketing 477

 Sociocultural forces
Sociocultural forces are among the most important factors at play in the ­international
marketing environment. They are often also the forces that display the most s­ ubtlety
and complexity, and international marketers will find themselves needing to pay
a great deal of attention to understanding the sociocultural characteristics of the
markets that they wish to enter. To complicate matters further, each international
market is likely to have sociocultural variations within it.
As we have learned throughout this book, at the heart of marketing is the crea-
tion of value for customers. Because that value is determined by individuals’ beliefs,
attitudes, experiences and so on, and the major forces at play in their society, value
is intimately connected with the culture and society in which those consumers live.
For example, ANZ Bank has been pushing into Asia over the past decade in a bid to
establish itself as a major financial services institution ahead of the expected emer-
gence of a new level of affluence within parts of Asia. It has, however, not chosen
countries that are predominantly Muslim as Muslim religious law forbids traditional
Western financial arrangements — the charging of interest on borrowings. While
there are ways to provide such services without breaking the Muslim laws, it is a
degree of complexity that banks have chosen to avoid in the initial efforts to enter
Asian markets. With the growing affluence of some predominantly Muslim coun-
tries, however, there is an increasingly attractive opportunity for a financial services
firm willing to adapt to the different needs of Islamic investors.
On a simpler level, marketers need to be aware of the different cultural meanings
of symbols, such as colour, in different countries. For example, PepsiCola lost its domi-
nant market share to Coca-Cola in South-East Asia when Pepsi changed the colour of
its vending machines and coolers from deep ‘regal’ blue to light ‘ice’ blue — light blue
is associated with death and mourning in South-East Asia. The colours red and yellow
have specific (and sometimes very different) symbolic meanings in many Asian coun-
tries. Table 13.4 summarises some of the meanings of colours in different cultures.10

Table 13.4  The different meanings of colour

Cultural group

Anglo-
Saxon Germanic Chinese Japanese Korean Slavic

High quality Warm High quality High quality High quality

BLUE Corporate Feminine Trustworthy Trustworthy Trustworthy
Masculine

Envy Pure Love Pure

GREEN
Good taste Reliable Happy Adventure

Happy Envy Pure Envy Happiness Envy

Jealousy Jealousy Good taste Good taste Good taste
YELLOW
Royal
Authority

Masculine Fear Love Love Love Fear

Love Anger Happiness Anger Adventure Anger
RED Lust Jealousy Lucky Jealousy Good taste Jealousy
Fear
Anger

Expensive Fear Expensive Expensive Expensive Fear

BLACK Fear Anger Powerful Powerful Powerful Anger
Grief Grief

478 Marketing
 In Australia or New Zealand, when presented with a business card, you might
poke it in to your notebook or top pocket, but this is considered disrespectful in
Japan, where you should receive the card with both hands, read the details and
then neatly file the card. Cultural differences can greatly complicate business nego-
tiations and this has important consequences for sales people. For example, some
cultures, particularly in the Middle East, expect to haggle over price, whereas in
Japan it is considered offensive to deal with price during negotiations. In some
parts of Asia, facilitating payments are expected in the course of doing business.
FIGURE 13.6
In Australia and New Zealand, such payments would usually be considered a bribe,
but in other countries, business people may find it difficult to win any business Results of Transparency
with another organisation or to seal a deal with a partner in the absence of such International’s Corruption
payments. Transparency International's Corruption Perceptions Index measures Perceptions Index 2012
the perceived level of public sector corruption in countries and territories around Source: Data taken from Transparency
the world. See figure  13.6 (bearing in mind that a map produced by the countries International, Corruption Perceptions
Index. © Transparency International
labelled highly corrupt might look somewhat different!). 2012. All rights reserved.

A R C T I C O C E A N

Arctic Circle

P A C I F I C A T L A N T I C
Tropic of Cancer
O C E A N

O C E A N
CPI 2012
Equator 90 to 100 (Very clean)
80 to 89
A T L A N T I C
I N D I A N 70 to 79

O C E A N 60 to 69
O C E A N
Tropic of Capricorn 50 to 59
40 to 49
30 to 39
20 to 29
10 to 19
N
0 1000 2000 3000 4000 km 0 to 9 (Highly corrupt)
No data

Technological forces
Technology has become a great enabling force in international marketing over the
past 20 years with the advent and relatively cheap price of communications tech-
nologies that enable easy transfer of information between different countries in
moments. Technology has also created, revolutionised and destroyed entire indus-
tries. For example, traditional full-service stock brokers struggle to compete with
online brokers that offer enormous quantities of information and cut-price broking
services to people who can manage their own stock trades from home. The introduc-
tion of digital television is predicted to cause the video rental market to decline. The
internet has also revolutionised the newspaper industry, with newspaper publishers
increasingly reliant on advertising sales as they are forced to offer most of their

Chapter 13  International marketing 479

 content for free online, and this content is accessible to anywhere around the world,
to anyone with an internet connection. While their content is more accessible and
open to a potentially wider audience, the challenge for newspaper publishers in the
internet era is how to monetise their content, with the number of consumers paying
for it in its traditional paper format declining. Alternative revenue streams are being
explored; for example, with various tabloids launching paid iPad applications. How-
ever, newspapers such as The Times in the United Kingdom that have moved to lock
their internet content behind ‘paywalls’ have seen their online readership figures
plummet (which subsequently impacts upon advertising revenue). Significantly
though, Rupert Murdoch, the chairman and chief executive officer of News Corpor-
ation, which publishes numerous newspapers around the world, has committed his
organisation to exploring paid online content models for the future.11 Exactly what
these models will be remains uncertain.
The other great influence of technology in the sphere of international marketing
is the infrastructure available in different foreign markets. Marketers cannot assume
that potential target markets will have a similar technological infrastructure as the
home market. For example, many metropolitan businesses in Australia assume that
most households have broadband internet connections, but in fact only about half
do, with many regional and remote areas poorly served by service providers. Some
developing countries have few phone lines and hence little telephone or internet
access, and some countries have few mass media outlets, making advertising diffi-
cult. In countries suffering political or civil instability, technological infrastructure is
regularly targeted in war.

Environmental forces
The health and sustainability of human civilisation are dependent on the oceans,
the lands, and the flora and fauna. In recent decades, overfishing, poor resource
management, climate-induced acidification, coral bleaching and a host of systemic
problems have revealed just how intertwined the lives of people are with the envi-
ronment. Oceans are vast and obscure, so while we may be able to observe indi-
vidual symptoms in isolated regions, visualising health on national and international
scales is a major undertaking.
International marketers need to keep themselves informed, and they need to seek
to understand the relationship between their commercial activities and the envi-
ronment. A wide range of resources is available to assist international marketers
to understand which countries may provide positive consumer perceptions and
which may not. For example, the Global Green Economy Index evaluates the efforts
of countries to create environmentally sustainable economies, focusing on efforts
to invest in clean energy technology, sustainable forms of tourism and improved
domestic environmental quality. The Global Green Economy Index also seeks to
capture how the performance of these countries is perceived internationally.12

Legal forces
The laws in force in different countries can be vastly different. For example, in
Australia and New Zealand, intellectual property is legally protected by copyright,
patent and trade mark legislation and a host of case law, whereas many Asian coun-
tries have cultures that do not even recognise the concept of intellectual property
(it is a Western idea) and thus do not protect copyright. This means goods as wide
ranging as movies, software, drugs, fashion clothing and books are regularly counter­
feited or pirated — sometimes poorly, but sometimes at a standard little different,
at least on the surface, to the original — and sold at a significant discount to the

480 Marketing
genuine product. Some consider this practice undermines sales, profits and the pres-
tige and brand image of the creator of the original product. Marketers with products
particularly susceptible to imitation must take other steps to protect themselves,
such as tightly controlling distribution channels.
Marketing organisations must be aware of the laws in force in the markets in
which they operate to ensure their marketing mix complies with all legal require-
ments. In addition, most multinational businesses seek to base various parts of
their operations in countries that have the most conducive mix of environmental
factors, legal forces being one. Sometimes this raises ethical dilemmas; for example,
is it reasonable for an extremely successful US company to engage child labour in
a developing country in order to minimise production costs, in turn to maximise
profits, while at the same time reducing employment opportunities in its home
country? Many countries also base their head offices in ‘tax havens’, countries that
charge little or no corporate tax.
Some countries restrict trade practices through laws and regulations. It is impor-
tant for international marketers to be aware of trade barriers such as:
• tariffs a duty charged on imports that has the effect of increasing the price tariffs Duties charged on
of  imported goods relative to domestically made goods (e.g. Australia charges imports that effectively increase
the price of imports relative to
a  tariff on cars in a bid to protect the local car industry from cheaper imports;
domestically made products.
New ­Zealand charges a 10 per cent tariff on clothing, footwear and carpets)13
quotas Annual limits on the
• quotas limits on the amount of particular types of goods that are allowed to be amount of particular types of
imported per year (quotas, combined with tariffs, have often presented barriers to goods that can be imported.
Australian exports to Japan) embargoes Bans or restrictions
• embargoes and sanctions — a ban or other restriction on the import of a ­particular on imports from a particular
product or a ban on products from a particular country, often due to political country.
motivations (e.g. South Africa was subject to trade embargoes during the apartheid
era; and Iraq was subject to trade embargoes relating to oil exports while under
the rule of Saddam Hussein)
• limits or bans on foreign ownership — for example, Australia imposes limits on
the amount of Australian assets that can be foreign owned, with larger acquisi-
tions subject to approval from the Foreign Investment Review Board; New Zealand
similarly requires government approval for large foreign purchases of land.
The World Trade Organization has worked for many years to promote free trade
by the reduction and eventual elimination of restrictive trade practices.
Finally, the degree and types of regulation imposed on marketing activities need
to be understood. More developed countries tend to have more laws and rules in
place to ensure marketing activities are in the overall interest of the public (e.g.
bans on cigarette advertising and bans on dangerous goods). Less-developed coun-
tries often have fewer regulations.

Moneypenny: crossing borders to offer Spotlight 

24-7 service
Established in 2000, Moneypenny (based in Wrexham in Wales) currently employs 280 staff. The
Moneypenny service handles over 8 million calls per year for 6000 clients, with a client base ranging
from small business operators to multinational firms.
Large firms often use telephone answering and outsourced reception and PA services to reduce
costs, and the Moneypenny firm provides such services. Knowing that some people in the UK
contacting call centres prefer to hear a voice with an English accent, the firm was faced with a

Chapter 13  International marketing 481

 problem. How could they offer 24-7 call centre service when
only a handful of the company’s staff want to work night shift?
The answer? Move them to New Zealand. One of the
Moneypenny co-founders had the idea while enjoying a
sabbatical in Australia. With New Zealand 12 hours ahead of
the United Kingdom, Moneypenny staff could still work day
shifts but provide late-night cover when their colleagues in
Wales clock off. Staff were asked if they wanted to work nights
or relocate temporarily. The first group of four staff moved to
Takapuna in New Zealand’s North Island for a four-month
period to trial the idea. Employees were housed in rental
accommodation, and they worked for Moneypenny on a four
days on, four days off cycle.
With this arrangement, Wrexham Moneypenny workers
can leave the office at 8 pm local time and hand over to their
New Zealand colleagues, who man the phone lines until 8 am
Wrexham time — giving UK customers the same service day
and night.14

Question
Which international marketing environment forces would impact Moneypenny’s decision to relocate some
staff to New Zealand temporarily?

Concepts and applications check

Learning objective 2  discuss the political, economic, sociocultural, technological and legal forces
at play in international markets
2.1 Search for released results from the Global Green Economy Index report. Name two ‘green cities’
in the report.
2.2 Consumers around the world display both similarities and differences depending on their cultural
backgrounds, values, motives and demographics. Find an example, like Moneypenny, that seeks
to cater for consumers’ preferences.
2.3 In your opinion, is Australia economically independent from China? Justify your answer.
2.4 Australia’s proximity to the fast-developing Asian markets — together with the Australian
government’s measures to address climate change — mean Australia’s clean technology
industries are poised for growth. Research and identify data to find one international market that
may consider Australian clean technology attractive.
2.5 Research and collect data on India that will help you prepare a brief profile of the types of leading
export products that could be marketed in India by Australian or New Zealand firms.

WHY AND HOW ORGANISATIONS

GO INTERNATIONAL
Learning objective 3 In many ways, the imperative for international marketing is straightforward:
understand why and • the world holds many more potential customers than does the home market, thus
how organisations
offering a way to increase revenues and profits
internationalise
• communication and transport technologies make international marketing a real-
istic option, even for smaller businesses

482 Marketing
• the increasingly free trading environment makes international marketing easier
and at the same time increases competition within the domestic market (few busi-
nesses can escape competition from marketing organisations entering their home
market from abroad)
• faced with increasing competition at home, a marketer may be able to find a
market that does not currently have access to its product
• greater economies can be achieved by increasing the scale of overall operations.
Internationalising can be a profitable way of expanding a business. Austrade
research shows that, on average, exporting companies are more profitable than
their non-exporting counterparts.15 Due to the comparatively small populations of
both countries in world terms, for Australian and New Zealand marketers more
than 98  per cent of potential consumers live overseas. Businesses choosing to
focus their efforts on domestic markets restrict their market potential, while busi-
nesses choosing to internationalise broaden their market potential considerably. For
example, a decision by an Australian business to export to Thailand increases their
market potential threefold.
Internationalisation can also help businesses to become more efficient. In pro-
ducing a greater volume, the cost of production per unit should decrease. Tapping
international markets can therefore assist businesses to lower their per unit produc-
tion costs and increase profitability.
Businesses that internationalise also increase their potential to gain new
­knowledge. They may be forced to adapt to best practice or new forms of tech-
nology in order to effectively compete in the global market. Their experiences
in international markets can be used by a business to improve both its domestic
and foreign operations. International business, like any new experience, exposes
businesses and their managers to new ideas, management practices, marketing
techniques and ways of competing that may not have been thought of prior to
internationalising.
Diversifying risks is a further potential advantage of internationalising. With an
organisation’s expansion into other countries, risks such as economic downfall and
market changes are more evenly distributed. While domestic companies may be
wholly affected by misfortune in the domestic market, a company with foreign
interests may not necessarily suffer to the same extent in other markets.
In addition to the many benefits that accrue to businesses that choose to inter­
nationalise, benefits also accrue in the wider community. Internationalisation activi­
ties such as exporting can help the wider community by creating jobs and wealth
for all partners in the business activity. Additional jobs and work help put more
money into local communities and businesses that support that community, which
raises living standards and supports publicly funded services. Of course, branching
out into international markets can be a risky and complex venture. Most organ­
isations naturally have far less knowledge of international markets and the issues
that can arise.

Selecting overseas markets

There are 230 national markets in the world and some are easier to enter than others.
The ‘easiest’ (i.e. lowest risk) international markets to enter are those which share
similar cultural and business practices and a common language with the domestic
market, and that are geographically close. The process of selecting foreign mar-
kets for export, sales or manufacturing is complex and time consuming, requiring
much research. Selecting an international market involves a two-step approach (see
figure 13.7 overleaf).16

Chapter 13  International marketing 483

 230 countries

Selection criteria
(e.g. product sales, Screening
language skills)

FIGURE 13.7
A two-step process for
researching international
markets: screening Best three countries
followed by in-depth
research
In-depth research

First, marketers should screen markets using secondary data to generate a short
list of countries to consider. A range of factors can be used in this market screening
stage (see stage 1 of table 13.5). The second step in the process involves more
detailed primary research to permit a thorough examination of short-listed markets
prior to selecting the preferred country or countries to enter. This stage must con-
sider the opportunities and risks in each market (see stage 2 of table 13.5).

Table 13.5  Two stages of international market research: screening followed by in-depth research

Stage 1: screening Screening research should consider broad market selection criteria such as:
1. population
2. income
3. demographic information (e.g. population age)
4. the business environment
5. competitors in the market
6. government stability
7. market access.

To narrow the search further, consider more specific criteria including:

1. sales potential
2. market growth rates
3. gross margin potential
4. forecast market development expenditure.

Stage 2: in-depth Shortlisted international markets need to match business strengths. The
research second phase involves detailed market research to assess:
1. required product positioning
2. required marketing mix, including service support to enable cost
implications and appropriate mode of entry to be identified.

Methods of market entry

Once the decision has been made to enter one or more international markets,
the marketing organisation must choose from among the available entry modes.
Choosing a market entry mode is a management function more than a marketing
one, but the marketer must understand the implications of each mode of entry in
order to devise the best marketing plan. This section will outline the many ways
that companies can enter foreign markets.

484 Marketing
 It is inevitable that a decision to internationalise (and how this will be achieved)
will affect an organisation’s departmental structure in many areas, not just mar-
keting. As such it is important to note that any decision to internationalise has
resource implications for the head/home office and thought needs to be given to
company structure following a decision to enter international markets. Different
entry modes will require different structures and it is important the company be
structured in a way that allows the business to be resourced and managed appro-
priately. In terms of the marketing department, examples of such decisions would
include whether to structure the department and appoint managers or staff for each
region and/or product line, and where those staff will be located.
The mode of international market entry depends on a wide array of environmental
and organisational factors. Factors such as risk, government control, local infrastruc-
ture, competition, organisational objectives, need for control, flexibility and organ­
isational resources, assets and capabilities impact the way products are marketed. It
is important to understand that there is no one ideal way to internationalise.
For most organisations, however, exporting is their first experience of international
marketing. It requires relatively little commitment and there are many intermedi-
aries that can handle the more complex or resource-intensive aspects of exporting.
As organisations become more experienced with international marketing, increase
the scale of their international involvement or — through greater knowledge —
identify more opportunities, they often evolve through increasingly direct means
of international marketing. In the following sections we will briefly describe the
various market entry choices, bearing in mind that the marketing organisation will
often evolve from the simpler approaches to the more complex ones.
Exporting
Exporting is an approach to international marketing involving the sale of products exporting The sale of products
into foreign markets while remaining based in the home market. Exporting can occur into foreign markets from a home
market base.
directly (where the company is responsible for exporting activities) or ­indirectly.
Direct exporting is an approach to exporting in which the marketing organisation direct exporting An approach
to exporting in which the
deals directly with the international market. The complexities of exporting will marketing organisation deals
usually prompt the marketing organisation to establish an internal department to directly with the international
focus on exporting activities, including developing knowledge of the target markets market.
to inform the marketing mix. Depending on the product, some direct exporters may
be able to deal with specialist buyers from foreign governments or businesses that are
specifically looking to import particular products and to encourage trade generally.
This last approach tends to suit smaller companies. They often rely on some trans­
ferable aspect of their home product and put little or no effort into understanding or
directly marketing to the international market.
Indirect exporting allows marketing organisations to access the international indirect exporting An
market without having to develop the expertise and contacts required to success- approach to exporting that relies
on the use of specialist marketing
fully place products into what is often a relatively unfamiliar market. It also lets
intermediaries.
them avoid many of the upfront costs and minimise the risks that can be involved
with moving into exporting. The main types of export intermediaries are:
• export agents, which bring together buyers and sellers from different countries
and charge a commission on the sale
• trading companies, export houses and export merchants, which purchase products
from businesses and then sell them into international markets.
licensing An agreement in
Contractual arrangements which a brand owner permits
another party to use the brand on
Licensing is an arrangement in which a business (the licensee) in a foreign country
its products.
undertakes to manufacture and sell the products of the home country company

Chapter 13  International marketing 485

 (the licensor) and pays a commission on the sales it makes. Licensing enables the
international marketer to access an international market and have its products
­
­marketed in a manner suited to the target market without having to make a direct
investment there. Coca-Cola is one of the best known examples. The next time
you or a friend has a bottle or can of Coke, check the label. It will acknowledge
this approach to international marketing with the words ‘Bottled in Australia under
licence by .  .  .’ Many beers are treated the same way.
franchising An approach In a franchising arrangement, a business (the franchisee) pays the franchisor a
to business in which one fee in return for the right to market the franchisor’s product using the franchisor’s
party (a franchisor) licenses
overall marketing and business plan. Such arrangements are familiar in the domestic
its business model to another
party (a franchisee). market — for example, Boost Juice, Red Rooster, Snooze and Baker’s Delight are
all franchises. Franchising offers businesses a way to enter an international market
without making a large upfront investment, transfer much of the risk to the fran-
chisee, and yet maintain considerable control over the product, way it is promoted,
standards and so on. For the franchisee, franchising offers a ready-made business
plan. This is complicated of course by the need to ensure the plan will work in dif-
ferent markets.
contract manufacturing An Contract manufacturing, in contrast to licensing and franchising, is an approach
approach to international to international marketing in which a domestic business pays a foreign business to
marketing in which a business
manufacture its product and market it in that foreign country under the domestic
pays a foreign business to
manufacture its product and company’s name.
market it in the foreign country
Strategic alliances and joint ventures
under the domestic business’s
name. A business that does not wish to or cannot make a direct investment in a foreign
international strategic
market may choose instead to form an international strategic alliance with a business
alliance A cooperative based in that country. This requires both businesses to be confident in the abilities
arrangement between a business and products of the other. Strategic alliances only make sense and can only succeed
and another business in a foreign when each partner brings value to the alliance and each partner stands to benefit.
market.
The international airline industry is a prime example of strategic alliances. For an
airline to compete with every other airline offering trips on the same route would
be disastrously expensive. Instead, three global alliances have emerged in the airline
industry: the Star Alliance (with 28 member airlines, including Air New Z ­ ealand,
Lufthansa, Continental Airlines and Singapore Airlines), SkyTeam (13  members
including Air France and Korean Air) and OneWorld (11 members including Qantas,
Cathay Pacific and Japan Airlines). These alliances allow the bigger airlines to pen-
etrate smaller markets by code-sharing with smaller operations. Under code-sharing
arrangements, the passenger experience is virtually seamless when moving from
one carrier to another — it is as if both flights are on the same line.
international joint A related approach is the international joint venture. In a joint venture arrange-
venture An approach to ment, rather than form an alliance, the two businesses actually form a new busi-
international marketing in which
ness together in the target market and forge a new identity for it, distinct from the
a marketing organisation forms
a new business with an existing parent businesses. Some joint ventures are balanced, while others will have a clear
business in the target foreign senior partner and clear junior partner. Joint ventures can help foreign businesses get
market. around restrictions that might be imposed by some countries and can help the foreign
business achieve some level of official and public acceptance in the target market.
Direct investment
foreign direct Foreign direct investment, as the name suggests, involves outright ownership of a
investment Outright ownership foreign operation. Direct ownership involves a long-term commitment, consider-
of a foreign operation.
able investment and acceptance of risk, and would usually only be pursued by an
international marketer who was highly confident of success. Most marketers would
only consider direct ownership once they have experience and success using the

486 Marketing
other approaches to international marketing. They may make a direct investment
by establishing a greenfields operation (a new business from the ground up), buying
out a strategic ally or even a competitor or buying a business somewhere up or
down the supply chain (e.g. a manufacturing plant or a retailer). Businesses that
develop extensive directly owned assets in numerous foreign countries are known
as multinational corporations.
Directly owned subsidiaries may operate with little or considerable autonomy
depending on the nature of the foreign market and the business’s products. If the
target international market is dissimilar to the parent business’s market, the sub-
sidiary may be given wide-ranging freedom to customise its products, marketing mix
and business operations, taking advantage of the local know-how of its management.
Success will then lead to greater autonomy. Such businesses also need to maximise
cooperation and standardisation where possible though, to ensure they benefit from
economies of scale and cumulative wisdom.
The inconsistencies and vagaries of laws around the world make direct owner-
ship approaches to international marketing very complex, but also potentially very
lucrative. Entire industries are built around finding the best countries to undertake
different functions. For example, diamond companies have, naturally, subsidiaries
in countries with rich deposits; while it may be an interesting ethical debate, the
reality is that many businesses are headquartered in tiny island nations that do not
charge corporate tax; and many manufacturing operations are located in countries
with few laws to protect workers.

Born global
The preceding sections have discussed the various ways that a business may enter
a foreign market or evolve its foreign marketing operations to ever-greater levels of
commitment. Before leaving this discussion we will briefly consider the phenom-
enon of businesses that are ‘born global’. A born global business is one that views born global A business that
the whole world as its market from day one. It will source materials from the most views the whole world as its
market from the outset.
efficient country to source them, locate manufacturing operations in the country
that provides the optimum conditions, manage itself from wherever it pleases and
sell to anyone who wants its products anywhere in the world. Clearly such a busi-
ness model is not suitable to all industries or products. Those that can most suc-
cessfully pursue global markets from day one are businesses that offer intellectual
property or data services (where transport is irrelevant), that offer very high-end
products where price is of little consequence, and those that have a unique, desir-
able product (such as a new pharmaceutical). The emergence of e-commerce has
been an important facilitator of born global business and most born global marketing
organisations are internet-based. Online auction site eBay is a prime example.

Futuris: if you can’t beat them, join them Spotlight 

Futuris Automotive designs and manufactures automotive seating and interior solutions. The Australian
company first looked to overseas markets in 2004, forming a $16 million dollar Chinese joint venture in
2005. The first car seats rolled off a Chinese assembly line in April 2007. At the time of establishing the
Chinese joint venture, 80 per cent of Futuris’ revenue came from Ford, Holden and Toyota in Australia.
In late 2012, Futuris executives predicted that by 2015 the breakdown would be 54 per cent domestic
and 46 per cent from overseas. This figure would have been revised upwards considerably following
Ford’s decision to cease manufacturing in Australia in late 2016.
When it first entered China, Futuris’ strength was that it made 80 different seat kits for the
50  000 Commodores — a far cry from the United States, where they have only 6 different seat kits for

Chapter 13  International marketing 487

 250  000 cars a year. Futuris could capitalise on its ability to offer
high levels of proliferation for low volume levels cost effectively.
The company undertook 6 months of research to reduce a list of
130 car manufacturers in China to a final short list of 6. These
were second-tier firms that Futuris predicted were highly likely
to grow over time, and they had production levels that were
consistent with levels produced by Australian car manufacturers
at the time. For example, Chery was making 76  000 cars a
year — similar to Holden’s annual production of Commodores
and Cruzes. Futuris could offer Chery what it needed now
and into the future, with Chery now making more than
650  000 vehicles each year.
Futuris’ decision to expand globally may have saved the
company from extinction, with the firm having recently signed
an order with premium car manufacturer SAIC for production
starting in 2014. Futuris currently has an international network
of design and manufacturing facilities across China, the Asia–
Pacific, North America and South Africa.17

Question
Referring to the major methods of market entry outlined in the preceding section and using your own
research, outline how Futuris has expanded internationally.

Concepts and applications check

Learning objective 3  understand why and how organisations internationalise
3.1 Explain the major reasons organisations would consider internationalisation.
3.2 Consider the case of Havaianas earlier in the chapter. What benefits have arisen for the local
community as a result of Havaianas’ success in globalisation?
3.3 For each of the internationalisation options discussed in this section of the chapter, identify and
outline an organisation that has internationalised using that particular method.

THE INTERNATIONAL MARKETING MIX

Learning objective 4 So far, we have discussed the process of globalisation and how it is leading to greater
explain how marketers similarities across markets as well as greater openness of markets to people and
create, communicate and
businesses from abroad. We have also examined the imperative for marketing organ-
deliver a product of value
in an international market isations to take a world view and how they can select a target market and decide on
varying degrees of standardisation and customisation of their marketing mix. Once
the decision to internationalise is made, a marketing organisation must choose an
entry mode. Most businesses start with the relatively simple approach of exporting
and rely on specialist intermediaries. As they gain experience, success and ambition
they may evolve to more direct means of international marketing.
As we have reiterated throughout this chapter, the aim of the international mar-
keter is to gather the knowledge and skills necessary to develop, implement and
­evaluate marketing strategies in their target international markets. With such knowl-
edge and skills, the marketer can make decisions that properly respond to the
uncontrollable environmental variables in the marketplace. Because the environ-
mental forces are not controllable, they must be continuously monitored so that

488 Marketing
the international marketing strategy can be modified to deal with change. This will
sound familiar — it is essentially the same process used for domestic marketing,
which we have dealt with throughout this book. We gather information to learn about
the market. We analyse the information so that we can formulate sound options for
action. Then we choose among the options.
At the heart of this is the four-step process that we outlined at the beginning of
the chapter: while building knowledge of the international marketplace may involve
special challenges, marketers must develop such an understanding in order to create,
communicate, deliver and exchange offerings that have value for customers, clients,
partners and society at large.
Consider Tourism Australia. The campaigns implemented over the past few dec-
ades by Tourism Australia to lure international visitors to Australia for holidays offer
an interesting case study in the complexities of understanding international mar-
kets. Tourism Australia’s approach has changed over time. In the 1980s, comedian,
television and soon-to-be movie star, and quintessential ‘Aussie bloke’ Paul Hogan or
‘Hoges’ featured in a long-running series of advertisements that invited foreigners to
come to Australia. Hoges promised he would ‘slip an extra shrimp on the barbie for
you’. The tagline of the campaign was ‘Come and say G’day’. The overall theme was
that Australia was a country of relaxed, laid-back, generous and welcoming people.
The campaign — aimed mainly at the USA — was an enormous success, with overseas
visitor numbers to Australia doubling in just five years and the country becoming one
of the preferred destinations of US tourists. The tagline of the campaign itself reveals
a careful consideration of the target market. Australians cook prawns on the barbie
(barbecue), not shrimp, but the advertisements were not aimed at Australians (use
of the word ‘barbie’ spawned a wave of parodies in which prawns were hurled at the
famous plastic Barbie doll toy). Nevertheless, so popular were the ads and so well-
loved was the Australian persona they portrayed that the line — modified to ‘throw
another shrimp on the barbie’ — has become part of the Australian lexicon.
In the years after the shrimp on the barbie campaign, tourism from Asia grew
strongly. Once growth began to weaken, a new, major overseas tourism push began,
featuring the presentation of some of Australia’s best known attractions, particularly
the beaches, and concluding with model Lara Bingle standing on a picturesque beach
asking potential visitors ‘So where the bloody hell are you?’ The $180 million cam-
paign sought to continue the theme that Australians are a relaxed and welcoming
people. Unfortunately the translations of the taglines in Asian countries (which in
most cases omitted ‘bloody hell’) were interpreted as a demand, rather than an invi-
tation, to visit Australia; Britain banned the ads because of the use of the words
‘bloody hell’; and Canada banned the ads because of the opening line ‘We’ve poured
you a beer’ which contravened Canada’s rules on alcohol advertising. It appears
the campaign badly misjudged the cultural and social values of their target markets
(various countries in North America, Asia and Europe). The campaign was widely
regarded as arrogant and offensive (and somewhat embarrassing to Australians).18
Not surprisingly Tourism Australia has changed their approach, evolving to an online
platform. In 2010 the ‘There’s nothing like Australia’ campaign involved A ­ ustralians
sharing their favourite Australian holiday stories online. The campaign was developed
in two phases. The first phase invited Australians to share their personal stories of
where they live and holiday in Australia — to show the world why they should visit. For
two months, Australians were given the chance as part of a competition to upload their
thoughts and photos online, explaining why ‘There’s nothing like Australia’. Australian
holiday prizes valued at $5000 were offered for the photo judged to be the best entry in
each state and territory, and an Australian holiday valued at $25 000 was offered for the

Chapter 13  International marketing 489

 best entry nationally. Tourism Australia subsequently used the entries to create an
interactive map of Australia that was made up of the things A ­ ustralians think are special
about their country. This map is available online (www.nothinglikeaustralia.com) and
is searchable by experience type, location and keywords.
Tourism Australia’s various campaigns to promote the
country as an attractive destination for international
tourists provides an example of the complexities of
adjusting the promotional message in the marketing mix
to cater to different international markets. Similar issues
arise in formulating product, pricing and distribution
strategies, and, in the case of services products, people,
process and physical evidence strategies. In contrast to
the variety of themes delivered by Tourism Australia’s
international marketing campaigns in recent years,
Tourism New Zealand has promoted a consistent mes-
sage for more than a decade. Its award winning ‘100%
Pure New Zealand’ marketing message focuses on the
country’s natural beauty, culture and people, its food
and wine, vibrant cities and extreme adventure tourism.
Tourism New Zealand’s
However, despite this consistent message, in a clear sign that Tourism New Zealand
‘100% Pure New
Zealand’ marketing understands that it must target particular foreign markets in appropriately customised
campaign has been ways, it maintains different websites for different country markets: Australia, Belgium,
highly successful in Holland, the Netherlands, Canada, India, UK-Ireland, Italy, France, Switzerland, USA,
attracting tourists to the Germany, Japan, Korea, China and Singapore.
region. The product mix needs to respond to customer preferences. For example, while
it is popular for women to bleach their hair blonde in Australia and New Zealand,
there is little market for hair-colouring products in Asia and so the marketers of
hair styling products are better advised to target that market with hair care rather
than hair-colouring products. The different levels of disposable income and wealth
encountered across the world also may require product quality, size and packaging
modifications for different markets. Nestlé’s ice-cream line in China, for example,
includes treat-sized products that sell for as little as 15 cents.19 Competitive pressures
may also necessitate product changes. Coca-Cola, in a bid to offer greater value than
its competitors, sells a wide range of ‘functional’ drinks (e.g. Shpla, a citrus drink
designed to overcome mental stress) that are specific to the Japanese market.
Once operating in different markets, the marketing organisation is likely to learn
more about each market and can then further refine its product mix to best ser-
vice its target customers. Branding is also an important consideration. Many organ-
isations aim to establish a consistent global brand, but this can give rise to some
difficulties. For example, many motoring industry commentators blame Nissan’s
decision to rebadge its Pulsar model ‘Tiida’ (the global model name) as a contri-
buting factor in the declining popularity of the car in Australia. Toyota’s Australian
marketers successfully campaigned for the company to retain the Corolla badge in
Australia, despite it renaming the model ‘Auris’ in every other market.
Services products present some additional challenges. The inseparability char-
acteristic of services (see the chapter on services marketing) means most service
delivery requires close interpersonal interaction between the customer and the ser-
vice provider (or people in the extended services marketing mix). This poses a host of
challenges even in the domestic market, but the numerous sociocultural differences
between the people of different countries can require changes — sometimes subtle,
sometimes substantial — to the way the service is delivered. The process by which

490 Marketing
the service is delivered may also require changes due to different technological and
legal factors. Similarly, the tangible cues (or physical evidence) that support the ser-
vice provider may need to be tailored to suit the different meanings of symbols in
different cultures. It can also be difficult to elicit feedback from customers in some
cultures that are reluctant to provide criticism.
In addition to the promotion issues highlighted by our discussion of the Tourism
­Australia campaigns, international marketers must also confront language barriers,
advertising regulations, differing media infrastructure and differences in market
maturity. These factors can require significant changes to promotional efforts in
­different markets.
International marketing, by definition, introduces an enormous range of distri-
bution challenges that do not necessarily confront the domestic marketing organ-
isation. The factors to be considered include:
• the need to transport products over much larger distances
• exchange rate fluctuations that substantially and quickly affect costs
• the appropriate use of marketing intermediaries who may facilitate distribution
into foreign markets (or can make distribution difficult if not handled properly) —
essentially, the international marketer can choose to sell directly to international
customers using its local sales force or via e-commerce, or it can use independent
intermediaries within the foreign market.
Pricing is one of the most complex issues facing international marketers. Not only
must pricing be sensitive to the local conditions in each market, but it must also reflect
the costs involved in the international marketing effort. Importantly, prices need to
display some consistency across markets — if not, the marketer may find that an unre-
lated business independently imports products from a ‘cheap’ market to resell in an
‘expensive’ market, undermining the legitimate marketer’s business. Pricing is also
influenced by exchange rates, trade barriers, government regulations, the level of com-
petition and the organisation’s specific marketing goals for each international market.
It should be clear then that international marketing is difficult. International mar-
keters have made many very newsworthy mistakes and it is from these mistakes that we
can all learn. Advertisers that failed to translate (e.g. English to Chinese) and then back
translate (e.g. Chinese to English) found out the hard way, as did marketers who did not
rely on market research to thoroughly test their offerings prior to introduction. Consider
this often-quoted example: Scandinavian vacuum manufacturer Electrolux used the
slogan ‘Nothing sucks like an Electrolux’ in its campaign, perhaps overlooking the less
literal meaning of the word ‘sucks’, or perhaps deliberately trying to draw attention.20
So far we have learnt that successful marketing requires the marketer to know
their market. Successful organisations put their customers’ wants and needs at the
heart of marketing and business decisions. International marketers with limited or
no experience in the market must rely on market research to understand their target
international market. To put it simply, in order to create, communicate, deliver and
exchange offerings that have value for customers, clients, partners and society at
large, marketers need to first understand what is of value. Market research is an
essential component of understanding the market. As we learned in the chapter on
market research, without market research international marketers would be left in
the dark and decisions would be an educated guess at best. International marketers
need to rely on market research to identify problems, uncover emerging trends, gen-
erate ideas on how greater value can be offered to customers, determine how to create
offerings, understand how to communicate and, finally, evaluate the effectiveness of
marketing initiatives. Market research needs to be used by international marketers
to stay in tune with their customers, clients, partners and society at large.

Chapter 13  International marketing 491

 Spotlight  Taking Australian food to the world
The Australian grocery market consists of a duopoly, with Coles and Woolworths commanding 80 cents
in every dollar spent in supermarkets in Australia. In a bid to continue growing revenue to keep
shareholders investing in their businesses, the supermarkets have resorted to cost-cutting measures
that have led to a decrease in the product range and brands available over time. Today, Coles and
Woolworths shoppers are faced with two dominant brands and generic (store label) brands. Australia is
a difficult market because the population in many potential areas is small, making it difficult to build
stores of a suitable size to generate desired profit levels per square metre.
Jones the Grocer was launched to provide food lovers with alternatives and a wider range of
products sourced and selected from around the globe. Jones the Grocer is a food emporium focused
on providing foods containing natural ingredients and produced by artisan suppliers — everything
from luxury chocolates and artisan crackers through to handmade pasta sauces. The foods are also
showcased in an innovative in-store café menu. About 70 per cent of revenue comes from the cafés
and 30 per cent from the retail operations.
The decision to expand to stores globally occurred
when the director, John Manos, noticed that Asian
customers were buying cheese and groceries to
take back to Singapore and Hong Kong. Jones the
Grocer could offer Asian customers a mid-priced
product that was not readily available. The first store
opened in Singapore in 2007 with a format that was
twice as large as an Australian store, and the entire
store inventory was bought in the first four days.
Following its initial success overseas, Jones the Grocer
expanded to Abu Dhabi in 2009, where it was an
immediate success. The company went on to build
a further six stores in the Middle East, and it expects
to grow fivefold in the coming years by building five
stores a year.
As an Australian origin brand, Jones the Grocer
helps the overseas market associate Australia with
good food.21

Question
Research Jones the Grocer to understand how it has grown in the past year. Outline some of the key
considerations for a café and food retailing business in developing an international marketing mix.

Concepts and applications check

Learning objective 4  explain how marketers create, communicate and deliver a product of value
in an international market
4.1 Ideas about international penetration often revolve around going to geographically and/or
culturally close countries. How does this approach relate to the beer market?
4.2 Using a product and international market of your own choosing as an example, briefly outline the
importance of market research in international marketing.
4.3 Choose a product that you are quite familiar with from your local market. Research the
international market of one country to discover what changes you might need to make to the
marketing mix to give your chosen product the best chance of success.

492 Marketing
SUMMARY Key terms and
Learning objective 1  understand the concept of ‘globalisation’ and its concepts
consequences for organisations seeking to engage in international marketing born global  487
contract manufacturing  486
Through the process of globalisation, individuals, organisations and governments
customisation  468
have become increasingly interconnected. This has greatly increased the number of
direct exporting  485
businesses engaging with the world through their marketing activities and the flow embargoes  481
of international trade is astounding: in the time it takes to read this chapter, more exporting  485
than $1.5 billion of goods and services was exchanged across national borders. One foreign direct
of the biggest decisions the international marketer must make is the extent to which  investment 486
it should maintain one marketing mix across international markets (standardisation) franchising  486
versus the extent to which it should tailor the marketing mix to the specific charac- globalisation  466
teristics of various target markets (customisation). indirect exporting  485
international joint
Learning objective 2  discuss the political, economic, sociocultural,  venture 486
international strategic
technological, environmental and legal forces at play in international markets
 alliance 486
Political, economic, sociocultural, technological, environmental and legal forces are licensing  485
at play in the international marketing environment, both within individual target quotas  481
foreign markets and in the organisations, arrangements and other circumstances standardisation  468
between countries. International marketers need to develop a strong understanding tariffs  481
of how these forces differ from the more familiar forces in their home countries in
order to select appropriate target markets and to amend their marketing approach
appropriately. Most governments have established specialist organisations to help
organisations interested in expanding into the international market; for example,
Austrade and New Zealand Trade and Enterprise.

Learning objective 3  understand why and how organisations internationalise

The imperatives for international marketing include access to many more customers
than exist in the home market, the increasingly free trading environment, increasing
levels of competition within the domestic market, the identification of unserviced
foreign markets and the pursuit of greater economies of scale. Organisations have
a number of market entry modes available, including direct and indirect exporting,
licensing, franchising, contract manufacturing, strategic alliances, joint ventures and
direct investment. Some businesses are ‘born global’, treating the entire world as
their market from the outset.

Learning objective 4  explain how marketers create, communicate and deliver a

product of value in an international market
In common with domestic marketing, at the heart of international marketing is the
need to build an understanding of markets and customers in order to create, com-
municate, deliver and exchange offerings that have value. To help build this knowl-
edge, they will often rely on marketing intermediaries, extensive market research
and their own experiences. Once armed with such knowledge, the marketer can
make decisions that properly respond to the uncontrollable environmental variables
in the international marketplace. These variables must be continuously monitored
so that the international marketing strategy can be modified when necessary to deal
with changing circumstances.

Chapter 13  International marketing 493

 Case study A duck out of water: Disney’s Hong Kong
adventure
Andrew McAuley, Pro-Vice Chancellor (Business & Law), Southern Cross University

Beginnings
Over ten years ago, news broke that Disney were in talks with potential partners in Hong Kong and
China to create a Disney-branded theme park. Hong Kong and Shanghai were both in the running
to provide a site for the park, which would be the second Disneyland in Asia (the first being in
Tokyo, Japan, which opened in 1983). By December 1999, the announcement was made that the
park would be built in Hong Kong on reclaimed land at Lantau Island. The location of the park is
20 minutes by Mass Transit Railway (MTR) from Hong Kong International Airport, and 30 minutes
from Central Station in the heart of the city on Hong Kong Island.
The aim of establishing a Disneyland was to help secure Hong Kong’s reputation as one of Asia’s
top tourist destinations. Construction began in 2003 and was swift (perhaps because it was one of the
smallest sites that Disney had ever developed — an issue which, over time, came to be a challenge
for the park operators).
During construction, attempts were made to be inclusive of the local culture, including adhering
to the principles of feng shui. For example, a bend was constructed into the entrance of the park
so good energy would not flow away into the South China Sea.22 The main gate was adjusted by
12 degrees on the advice of a local feng shui specialist, who said the change would ensure the
prosperity of the park. (It is not recorded how this individual’s job prospects fared given the financial
issues the park has faced since its inception!) The location of cash registers was also subject to much
scrutiny in the retail outlets, and incense was burned as each building was completed on the site.
The park opened on 12 September 2005, an allegedly lucky day, and at the time was the fifth
Disneyland outside the United States.23 The park is joint owned and managed by Disney and the
government’s Hong Kong International Theme Parks, which owns 52 per cent of the company
(previously 57 per cent). The main components of the park are Main Street USA, Fantasyland,
Adventureland and Tomorrowland on a site of 126 hectares, with park cast members proficient in a
number of languages, including Cantonese, Mandarin and English.

Performance
The park has a daily capacity of 34  000 visitors, and initial projections were for
5.6 million visitors per year. However, it was not until 2011 that this projection
was reached and surpassed.24

Year Visitor numbers

2005 5.6 million

2006 4 million

2007 4.5 million

2009 4.8 million

2010 5.2 million

2011 5.9 million

2012 6.7 million

Linked to poor visitor numbers is the lower than expected revenue. The
park was originally expected to break even in 2009, and no later than 2011;
it was thought that this was unlikely to happen even when a proposed park
expansion was completed in 2014.25 However, in January 2011, Walt Disney

494 Marketing
Co. reported that the annual loss had narrowed to US$93 million in the 12 months to October
2010.26 This was an improvement on the previous year of HK$1.3 billion, and was based on a 13 per
cent increase on visitor numbers and sales boost of 19 per cent to HK$3 billion. Then for the fiscal
year ending in September 2012, revenue of HK$4.3 billion was reported and a profit of HK$109
million. This was the park’s first profit in seven years, but with net accumulated losses in 2008–12
reported to be HK$3.8 billion, there is a long way to go.27
The reason for this improvement appears to have been increased numbers of visitors from mainland
China, which is linked to the increased affluence of an economy of some 1.3 billion people with
an expanding middle class. In 2012, the park attracted 45 per cent of its visitors from the Chinese
mainland, with 38 per cent from Hong Kong and 22 per cent international. In addition, the opening
of new attractions in recent years has boosted attendance. This has been in the planning since 2009,
when expansion was approved by government authorities.28 Developments have increased the size of
the park by almost 25 per cent, further enhancing its appeal with over 100 attractions and facilities.29
Prior to this expansion, the park had only 16 attractions and a single classic Disney ride, Space
Mountain, compared to the 52 rides at Disneyland Paris.30
The park does face competition from other attractions; for example, Ocean Park on Hong Kong
Island was established in 1977 and had a record 4.92 million visitors in 2006–07, which led to a
surplus of $141 million — a 9 per cent year-on-year increase. Attendance at Ocean Park reached
7.3 million in 2012. Therefore, it is not the case that a theme park cannot be successful; rather, the
challenge is getting the offering right. There are some 2500 theme parks in China, but a consultant’s
report suggests that 70 per cent are making a loss because they are too small, and based more on
historic replicas rather than on interactivity and rides which stimulate the senses. For theme parks to
attract visitors, there ‘must be large-scale, high-tech and interactive entertainment’.31

Challenges
One of the major challenges for Disney’s entry into the Hong Kong market was the lack of cultural
capital that exists in the United States and some European nations. For many in Asia, beyond
Japan where a Disney theme park had operated since 1983, there was little familiarity with Disney
characters or the associated merchandise. In fact, given the history of Sino–United States relations, it
would be fair to say that China has resisted the spread of Western, particularly American, culture for
many years. Reliance on the emotional attachment that the public has with characters like Cinderella
is critical to Disney’s success, where generations have grown up watching animated films. Disney
underestimated the fact that the Chinese have little connection with Disney’s heritage:
Many consumers don’t know Cinderella — they know newer characters like Lilo & Stitch
and the toys from Toy Story, but don’t get excited by things like the Mad Hatter’s teacups or
It’s A Small World.32
There appears to be a gap between running a theme park (which Disney is good at) and
understanding the Chinese guest, with which they have less direct experience. That said, Disney’s
own customer satisfaction surveys suggest that 80 per cent of visitors think the park is a great
experience. However, this may suggest that visitors agreeing to participate in Disney-sponsored
market research are unwilling to report what they really think. Problems included an underestimation
of how many people would turn up during special holidays. For example, on the Lunar New Year
in 2006, Disney neglected to notify customers that special tickets were required for entry that
week, resulting in visitors with perfectly valid normal tickets being turned away. The PR image was
damaging to the brand’s reputation, with local news television showing footage of a family attempting
to pass a child over the fence to gain access.33
Relationships with tour operators have required work too. Disney originally asked for many weeks’
notice to reserve rooms at the park’s hotels, but culturally many Chinese visitors only finalise their
travel plans a few days in advance. The two systems counteracted each other — doing business the
American way did not work in the new environment.
Other problems have ranged from internal issues (employee relations and complaints of poor
pay, long hours and sweltering conditions inside the costumes) to influences beyond the control
of the park (such as the global financial crisis and the swine flu epidemic in 2009). At the time of
construction, the park promised 11  000 full-time jobs, but in the first year of operation only 4400

Chapter 13  International marketing 495

 were created — 60 per cent less than predicted.34 All of these issues have conspired to take the
sparkle away from the Disney brand. The company has made attempts to improve its performance
and appeal to the locals. For example, in 2006, Disney gave away 50  000 tickets to taxi drivers in
Hong Kong so they could experience the park for themselves, and therefore share the joys with their
passengers.35
For many local or mainland visitors, the cost of a day at the park is still significant. As of June
2013 standard admission to the park cost HK$450 for adults, HK$350 for children (3–11) and
HK$100 for seniors (65+).36 In Australian dollars, this might not seem a lot, being approximately $63,
$49 and $14 dollars respectively; however, with the average wage in Guangdong (closest Chinese
city to Hong Kong) being around AU$665 per month, a visit to the park would cost a family of four
(two adults and two children) approximately 21 per cent of their monthly income. So, while it is within
reach, a visit is probably very much a treat and an aspiration for many. In other regions in China,
minimum wages are even lower, and therefore the cost is even more prohibitive.

Future plans
Cultural adjustment is never easy, and the exporting en masse of a quintessentially American
experience is undoubtedly always going to be a challenge. The opening of the park in 2005 meant
that, at the very least, the world’s largest entertainment company had arrived in the world’s largest
market. In 2010, the park celebrated its fifth anniversary, having welcomed over 20 million guests
with a 5000-strong cast who provide the spectacle the guests are seeking to experience.
However, the Hong Kong park may be further threatened by the Disneyland in development
in Shanghai. In November 2009, Disney received approval from the central government of China
to build a Disney theme park in the Pudong.37 ‘China is one of the most dynamic, exciting and
important countries in the world, and this approval marks a very significant milestone for the Walt
Disney Company in mainland China’, said Robert Iger, president and CEO of Disney, with the resort
expected to open in December 2015.38
How this development may impact the number of mainland Chinese who wish to travel to the
Special Administrative Region of Hong Kong is yet to be quantified. The additional cost of the
outbound tourism to access the Disney experience may be prohibitive for some, who then may go
to Shanghai instead. On the other hand, it may be that as the Chinese economy continues to grow,
there will be more than enough visitors in the population of 1.3 billion to keep the revenue stream
flowing to Hong Kong. What is certain is that the next few years may be just as much of a challenge
for Disney as the first seven years in Hong Kong. But, then, as Walt Disney himself said: ‘Disneyland
will never be completed. It will continue to grow as long as there is imagination left in the world.’

Questions
1. What cultural issues can an organisation face when it attempts to internationalise its activities?
2. Describe a ‘cultural shock’ you have experienced when travelling. What did you learn from the
experience?
3. In light of the Disney experience in Hong Kong, would you agree that a uniform external culture
cannot be imposed on a new market? Think about how other companies (e.g. Coca-Cola and
McDonald’s) deal with culture.
4. Find some examples from around the world of product or service introductions that failed to
understand the culture of the market being entered. What could have been done better?
5. Can people ever be culturally free?

496 Marketing
Advanced activity Case study
Choose one country and research its sunscreen market. Next, review the Cancer
Council website (see the ‘Sun protection’ section on the Cancer Council website at
www.cancer.org.au/preventing-cancer). Now, answer the following questions:
(a)  To what extent can the Cancer Council follow a standardised or customised
strategy? Justify your answer.
(b)  What environmental factors could potentially impact on the Cancer Council’s
success in the international markets you have chosen to analyse?
(c)  How can the Cancer Council create, communicate and deliver a product of
value in the market that you have chosen?

Marketing plan activity

Now that you have read this chapter, think about which parts of your plan you
would need to adjust to cater for an international market. Choose one country as
a potential international market for your product. Research and adjust one of the
following components of your marketing plan accordingly with information relating
to that international market’s potential for your product:
(a)   situation analysis
(b)   SWOT analysis
(c)   target market(s).
A sample marketing plan has been included at the back of this book to give you
an idea where this information fits in an overall marketing plan.

Chapter 13  International marketing 497

 CHAPTER 14

Social marketing and

not-for-profit marketing
Learning objectives
After studying this chapter, you should be able to:

discuss how social marketing aims to change behaviour for social good

understand the social marketing benchmark criteria

understand the three streams of social marketing

distinguish between social marketing, social advertising and other forms

of marketing

understand the nature of not-for-profit marketing.

Syke: targeting high-risk youth
United States tobacco smoking rates for teenagers have reduced substantially in
the past, with a 22 per cent change observed between 1997 and 2001 (with the
rate of teenagers who smoke in the United States changing from 43.4 per cent to
33.9  per  cent). The rate of change slowed between 2007 and 2011 (25.7 per cent
down to 23.4 per cent) with a 9 per cent reduction in teen tobacco use. Based on this
data, Rescue Social Change Group (rescue SCG) knew that efforts to reduce tobacco
use among high-risk teens needed to be innovative.
The Virginia Foundation for Healthy Youth (VFHY) in the United States funded the
development and launch of a targeted alternative rock peer crowd intervention branded
as ‘Syke’. Developed and implemented by Rescue SCG, the intervention focuses on
teens aged 13–18 years who identify with the alternative rock peer crowd. This group
has repeatedly been associated with above average tobacco use levels. Drawing on the
principles of social cognitive theory and diffusion of innovations, Syke targets socially
influential youths within the alternative
rock peer crowd to authentically dis-
seminate tobacco prevention messages
that can be adopted by other members
in the peer crowd.
The Syke campaign was designed based
on the social branding model.1 The
social branding model is a social mar-
keting approach that applies commer-
cial branding best practices to break
the association between affiliation
with a specific peer crowd and specific
risk behaviour(s) in order to associate
that same peer crowd with the inverse
healthy behaviour. A key aim of the Syke
campaign was to increase the belief that
being tobacco free is an important com-
ponent of being part of the alternative
rock peer crowd.
The Syke campaign features sponsorship at alternate rock events and the use of brand
ambassadors. Brand ambassadors help promote Syke events and spread the smoke-
free message to friends by handing out event flyers and hanging posters at relevant
stores, tattoo and piercing shops, concert events, and other places where local youths
spend time. At events, Syke brand ambassadors talk to youths about the current cam-
paign and collect contact information. When brand ambassadors are hired to work for
Syke at events, they receive US$0.50 for each direct mail card they collect, as well as
receiving free Syke gear and concert tickets.2

Question
Review the Rescue Social Change Group website (see www.rescuescg.com).
Explain how the group is changing behaviours for social good.
INTRODUCTION
As explained in the introduction to marketing chapter, the most successful
businesses throughout history have been those operating with a marketing
­
­philosophy. A  marketing philosophy centres on making customers happy — and
doing it better than competitors can. Companies such as McDonald’s and Coca-
Cola are frequently criticised for the role they play in the obesity epidemic. These
companies have ­created ‘value’ by delivering products at a time and place that is
convenient for their customers over decades. The products delivered by these com-
panies offer benefits desired by their consumers. It is the creation of a mutually
beneficial exchange of value between one party and another that is the purpose of
all marketing efforts.
The importance of the marketing philosophy is increasingly being recognised
by  governments across the globe. Today, governments in developed nations such
as  Australia and New Zealand are faced with many social problems at great cost
to the community. Let’s consider the case of tobacco. Tobacco remains a legal
and easily obtainable consumer product that harms users.3 Containing more than
4000  ­chemicals, tobacco is considered as the leading cause of preventable death
worldwide.4 Globally, smoking kills 5.4 million people annually and is responsible for
1 in 10 adult deaths.5 The mortality caused by smoking is higher than the combined
deaths caused by illegal drug use, automobile crashes, homicides, suicides and AIDS.6
­Statistics show the direct and indirect cost of smoking to the Australian nation is over
30 billion dollars.7 Reducing deaths from tobacco-related illness remains one of the
key global health challenges, and further actions to reduce smoking are needed.
Over recent decades there have been sustained efforts to reduce smoking. Policy
changes have included tax increases, tobacco advertising bans and graphic warnings
on cigarette packaging. Public health campaigns have involved the use of education
to increase awareness of the effects of tobacco use on health. These multi-faceted
strategies and comprehensive tobacco control programs have led to positive results
in decreasing tobacco consumption and reducing smoker numbers.8 Like policy
and public health, social marketing has been shown to be effective in voluntarily
changing smoking behaviour.9
This chapter introduces the concept of social marketing as a means to change vol-
untary behaviour in individuals and to influence policy. It also explores the formal
definition of social marketing — ‘Social marketing seeks to develop and integrate
marketing concepts with other approaches to influence behaviour that benefit indi-
viduals and communities for the greater social good’10 — and explains how this defi-
nition is adopted in practice by social marketers today.
Social marketing, done well, is a credible approach to behaviour change. As you
read through this chapter, think about how the ideas discussed can be applied to
the things you encounter in your everyday life. You will realise that there are some
common elements to each instance of social marketing. How these factors come
together to provide a value offering that leads to behaviour change is what differen-
tiates good social marketing efforts from bad social marketing efforts.

WHAT IS SOCIAL MARKETING?

Since social marketing was first defined by Kotler and Zaltman in 1971,11 there has Learning objective 1
been much debate surrounding the definition of social marketing. Various defini- discuss how social
marketing aims to change
tions have been proposed by authors over the past 40 years, and some are listed in
behaviour for social good
table 14.1 (overleaf ).

Chapter 14  Social marketing and not-for-profit marketing 501

 Table 14.1  Social marketing as defined by leading authors over time

Author Social marketing .  .  .

Kotler and Zaltman (1971)12 is the design, implementation and control of programs
calculated to influence the acceptability of social ideas
and involving considerations of product planning,
pricing, communication, distribution and marketing
research

Fine (1981)13 is the applicability of marketing thought to the

introduction and dissemination of ideas and issues

Kotler and Roberto (1989)14 is a social change management technology involving

the design, implementation and control of programs
aimed at increasing the acceptability of a social idea or
practice in one or more groups of target adopters

Andreasen (1994)15 is the adaptation of commercial marketing technologies

to programs designed to influence the voluntary
behaviour of target audiences to improve their personal
welfare and that of the society of which they are a part

Rothschild (1998)16 offers voluntary choices within an environment that

encourages and supports responsible and progressive
choices

Kotler, Roberto and Lee (2002)17 is the use of marketing principles and techniques
to influence a target audience to voluntarily accept,
reject, modify or abandon a behaviour for the benefit of
individuals, groups or society as a whole

Donovan and Henley (2003)18 is the application of commercial marketing technologies

to the analysis, planning, execution and evaluation of
programs designed to influence the voluntary and
involuntary behaviour of target audiences in order to
improve the welfare of individuals and society

Social marketing was first defined by Kotler and Zaltman as:

the design, implementation and control of programs calculated to influence the
­acceptability of social ideas and involving considerations of product planning, pricing,
communication, distribution, and marketing research.19
Social marketing has evolved significantly since the first definition, and today our
understanding extends far beyond the notion of idea promotion. A global initiative led
by Professor Jeff French was undertaken in 2012 to develop a consensus definition to
better understand social marketing.20 A working group comprised of representatives
from peak social marketing bodies — namely, the International Social Marketing
Association (iSMA) and the European Association of Social Marketing (ESMA) — was
formed to develop the consensus definition. The definition group consulted widely
social marketing A process with both practising social marketers and with social market­ing researchers to gain
that uses commercial marketing a consensus on the definition.
principles and techniques
An additional explanatory paragraph was offered to clearly show which com-
to influence target audience
behaviours that will benefit mercial marketing concepts are considered to be relevant to social marketing.
society, as well as the individual. Social marketing practitioners and researchers agree that social marketing prac-
tice is guided by ethical principles. Social marketing seeks to integrate research,
best practice, theory, audience and partnership insight to inform the delivery of
competition-sensitive and segmented social change programs that are effective,
­
efficient, equitable and sustainable.

502 Marketing
 Table 14.2 outlines the factors that were deemed to be essential or important by
the 167 social marketing experts from across the globe who completed the survey
in 2012.

Table 14.2  Summary of social marketing activities deemed to be important or essential

Essential & important

Description (% total responses) Rank

Set and measure behavioural objectives 83 1

Use audience insight and research 81 2

Focus on the production of social good 79 3

Use audience segmentation to understand and target interventions 76 4

Apply data, research, evidence and behavioural theory in developing 73 5

programmes

Undertake rigorous evaluation and reporting of short-term impacts, 73 6

ROI and longer-term outcomes

Use systematic planning and marketing management methodology 68 7

Undertake competition analysis and develop competitor intervention 67 8

strategies

Apply and be guided by an ethical analysis and standards 66 9

Apply commercial marketing theory and practice to social challenges 61 10

Focus on up-stream, mid-stream and down-stream audiences 58 11

Analyse communication channels and other forms of influence 57 12

Inform and shape the total social policy intervention mix 54 13

Focus on creating value for citizens and civil society through valued 51 14
negative exchanges

Focus on creating value for citizens and civil society through valued 50 15
voluntary exchange

Undertake stakeholder analysis and apply relationship management 49 16

strategies

Consider applying the ‘4 marketing Cs’ tool box — customer value, 43 17

convenience, cost, communication

Understand and use forms of influences that draw on rational choice 42 18

and rapid cognition

Design programs that aim to increase social equity 42 19

Analyse the potential costs and benefits of supporting and/or 42 20

partnering with private sector organisations

Consider applying the ‘4 Ps’ tool box — product, price, place and 41 21
promotion

Understand and make known the social consequences of 37 22

commercial sector marketing

Many commercial marketing concepts do not clearly translate to social marketing,

and these are areas that are being examined currently by social marketing scholars.
For example, there is a lot of debate around the ‘4 Ps’ of marketing. Many social

Chapter 14  Social marketing and not-for-profit marketing 503

 marketing scholars (researchers) believe the ‘4 Ps’ of commercial marketing cannot
be applied in social marketing. Note how the ‘4 Ps’ of marketing were ranked as
number 21 by the 167 social marketing experts surveyed in 2012. Some believe
the 4 Cs of marketing proposed by Lauterborne may be more applicable in social
­marketing, as they offer a clearer framework for application when compared to the
4 marketing ‘Ps’ originally proposed by McCarthy. In time, we expect consensus will
also emerge in social marketing giving us a marketing mix that is just as easy as
commercial marketing’s ‘4 Ps’ to remember.

Spotlight  Providing connections to support

breastfeeding
Breastfeeding levels in Australia are well below the World Health Organization’s (WHO) recommended
2 years duration and the National Health and Medical Research Council’s (NHMRC) target of
80 per cent of babies breastfed at 6 months. Australian Statistics show that only 71 per cent of babies
are fully breastfed at one month, 56 per cent at three months, 46 per cent at four months and
14 per cent at 6 months.
A Queensland University of Technology
pilot study (MumBubConnect (MBC)) was
conducted. MBC provided a two-way SMS
program to breastfeeding women participating
in the study, and the program was supported by
social media and online infant-feeding support.
Two-way SMS technology was chosen due to
its strong appeal for the majority of women,
and social media was viewed as a platform that
would give women control over their actions. In
addition to providing support to breastfeeding
women, MBC empowered women to problem-
solve feeding issues. Women participating
in MBC received a number of text messages
relating to feeding their baby, and they were
asked to respond to these messages over a
three-month period using a defined list of words
that included sleepy, tired, refusal, can’t explain
and so on. The only cost for participants was
the normal cost of sending an SMS.
The eight-week campaign was developed
as part of a university research study to
investigate the level of breastfeeding support
that could be provided by a two-way SMS
system. The program was accompanied by a custom website offering information resources (www.
mumbubconnect.com.au), which included further links to parenting and government websites and
Question a Facebook page.21 The Facebook page enabled participants to discuss common issues and receive
Review the MBC website peer-based and professional support and advice. Finally, support for breastfeeding women was
and Facebook page. provided by the Australian Breast feeding Association and Women’s Health. The Australian Breast
In your opinion, is Feeding Association provided outbound calls to women returning an SMS message that indicated a
MBC integrated social problem with breastfeeding (e.g. attachment problems).
marketing communication Evaluation results involving 120 women from diverse social backgrounds and geographical locations
or social marketing? indicated that all the participants were satisfied MBC. At the end of the trial, 79 per cent of the women
Explain why. were fully breastfeeding — a decrease of just 4 per cent from the baseline, compared to 46 per cent
nationally.

504 Marketing
Concepts and applications check
Learning objective 1  discuss how social marketing aims to change behaviour for social good
1.1 Find an example of social marketing in action and analyse the extent to which you think the
marketer has adopted ‘social marketing thinking’.
1.2 Set one behavioural objective for the social marketing campaign that you have identified.
1.3 Define social marketing in your own words. How has your understanding of marketing changed
after reviewing the first part of this chapter?

BENCHMARK CRITERIA FOR SOCIAL

MARKETING
A number of different frameworks have been proposed by various authors to give Learning objective 2
social marketing a clear structure. Frameworks serve to support better understanding understand the social
marketing benchmark
of core social marketing concepts and principles and to promote a consistent
criteria
approach to allow others to review and evaluate work that has been undertaken. In
his 2002 paper ‘Marketing social marketing in the social change marketplace’, Alan
Andreasen put forward six social marketing criteria, with the aim of distinguishing it
from other change disciplines (such as public health).
Andreasen’s six criteria act as a check that an intervention has a consumer focus,
as each criterion redirects the focus back to the goals of both the program sponsor
and the consumers the intervention seeks to influence. Behaviour change reminds
social marketers that their goal is to change behaviour, not just educate or inform.
Additionally, audience research and segmentation require clear thoughts about who the
efforts are aimed towards, while formative research helps ensure an understanding
of the consumer and orientation of the social marketing intervention towards the
target market. Next, creating an exchange requires consideration of what has to be
given up by the target audience in order for them to undertake the desired behav-
iour, while the marketing mix pushes social marketers to present holistic solutions
that are attractive and valuable, assisting to induce both trial and repeat behaviour.
Finally, consideration of the competition provides social marketers with the aware-
ness that they must consider the competing pressures faced by consumers (many
of which are far more appealing than the behaviour social marketers are attempting
to change). When planning, they need to understand how the offering they create
will reduce some of those pressures in favour of the behaviour they are trying to
influence.22
Over time, other authors have provided frameworks for social marketing.23 These
frameworks have many similarities, but also some differences (see figure 14.1). For
example, the Lefebvre et al. and Walsh et al. frameworks have a different emphasis
on consumer orientation and evaluation when compared to Andreasen’s framework;
while the UK National Social Marketing Centre’s eight benchmark criteria extend
Andreasen’s framework.24 Figure 14.1 (overleaf) illustrates the various criteria, indi-
cating areas of common understanding.25
Each framework displays an involved and considered process, with a clear focus
on  understanding the consumer through audience research. There is also a con-
sistent focus on having a marketing mix, or mix of strategies within the interven-
tion. However, the two earlier frameworks have more of a focus on integrated social
marketing communication, which is likely reflective of the early focus of social

Chapter 14  Social marketing and not-for-profit marketing 505

 marketing in the communication and mass media domain. Process management and
evaluation feature heavily in the first two frameworks, whereas Andreasen discusses
the importance of evaluation, and the challenges associated with evaluating social
marketing campaigns, but he does not include it in his framework. The National
Social Marketing Centre’s benchmark criteria also stress the criticality of planning,
review and evaluation. However, these are not included as separate criteria for
benchmarking social marketing campaigns, because they do not distinguish social
marketing from other behaviour change disciplines. Certainly, evaluation is vital for
funding bodies and governments to determine whether interventions are successful,
and calculations of return on investment (ROI) are essential to demonstrate the case
for continued support of programs.26

French et al. (2006), adapted

Walsh et al. (1993) Lefebvre et al. (1988) Andreasen (2002)
from Andreasen (2002)

Planning Behaviour change Behaviour

Consumer orientation Customer orientation

Audience research
Formative research Insight
Consumer analysis
Audience analysis
Segmentation Segmentation
and segmentation

Theory

Voluntary exchange Exchange Exchange

Marketing mix Marketing mix Marketing mix Methods mix

Market analysis Competition Competition

Communication

Channel analysis Channel analysis

Implementation

Process evaluation Process tracking

Marketing management

Outcome evaluation

FIGURE 14.1
It is important to note that while all elements of the criteria are not required for
Social marketing a program to be labelled social marketing, the use of all six benchmark criteria pro-
frameworks posed by Alan Andreasen has been shown to increase a social marketer’s chance
of changing the targeted behaviour.27 Let’s consider each of Alan Andreasen’s six
benchmark social marketing criteria in more detail.

506 Marketing
Behaviour change
As explained earlier in the chapter, the key aim for social marketers should be
behaviour. In many cases, social marketers want people to increase a desired behav-
iour or to decrease an undesirable behaviour. Behaviour change is considered the behaviour change The
bottom line for social marketers. modification of behaviour
targeted by a social marketing
For example, mosquito nets that are needed to reduce malaria outcomes can
intervention.
be measured in terms of product ownership and product use, or in terms of product
use effects such as reduced anaemia or lower infant mortality. Behaviour change
can be found in most social marketing frameworks (see figure 14.1), as it is funda-
mental to intervention success.
While the literature is clear in behaviour being the ultimate aim of social
marketing, in practice it is found that many social marketing practitioners and
researchers often aim to change attitudes, awareness and behavioural intentions
rather than focusing on the actual behaviour itself. Social marketing interventions
should be monitored to assess their effectiveness to understand whether the inter-
vention is achieving the desired behavioural change aims. Evaluation is used by
social marketers to identify activities that could increase the effectiveness of the
intervention. Best practice evaluation of social marketing interventions should
involve the inclusion of baseline measurement and a control group to effectively
evaluate change in the desired behaviour. The use of a control group permits con-
founding factors to be examined, ensuring that a comprehensive understanding of
what caused the behaviour change is gained. Social marketers should employ mul-
tiple evaluation methods including a pilot test, as well as pre and post tests to
identify improvements to be made to the intervention. For example, evaluation can
enable a social marketer to alter the target audience once evaluation data shows
that those interested in the intervention were younger than originally intended
during intervention planning. By repositioning the intervention to appeal even
more to a younger audience, the intervention can reach a target audience that is
more responsive and engaged with the intervention.

Audience research
Similar to the importance of market research in commercial marketing, a­ udience
research is essential in social marketing. According to Andreasen, audience audience research The use of
research  is essential to any social marketing intervention. Audience research pro- market research to understand
target stakeholders at the outset
vides an opportunity for the social marketer to learn about the target audience
of interventions (i.e. formative
and to understand how to best design an intervention for that specific audience. research), routinely pretest
There are a number of methods that can be employed when undertaking audi- intervention elements before
ence research, including both qualitative and quantitative methods. A qualitative they are implemented, and
approach could include focus groups, interviews and/or literature reviews. Quan- monitor interventions as they
are rolled out.
titative methods used for formative research may consist of surveys, observations
and/or analysis of previously collected data. Various research methods that are
commonly used in both commercial and social marketing were outlined in the
chapter on market research.
‘Last call’ was a social marketing campaign that aimed to reduce drink driving
with three components — taxi stands, point-of-sale information at bars and a media
campaign. The target group of the intervention was 21–34-year-old bar patrons
in three United States communities — Seattle, Portland and Spokane. Audience
research in the form of interviews was undertaken with a broad range of community
stakeholders — including bar staff, community leaders, neighbourhood organisations
and members of the police department — to determine the level of likely support in

Chapter 14  Social marketing and not-for-profit marketing 507

 the community for a drink driving intervention. Audience research revealed that it
was difficult to get a taxi in the downtown area, making it more convenient to drive.
By undertaking research with a diverse group of stakeholders, the intervention was
able to gain the cooperation of these stakeholders. A key aspect in the ‘Last call’ cam-
paign was the establishment of ten new taxi stands in five entertainment districts,
and the new taxi stands were promoted to taxi companies and potential patrons. The
findings emerging from audience research ensured that the intervention would be
appealing to the target audience, but also reinforced by the community.

Segmentation
Andreasen’s third benchmarking criterion states that careful segmentation of target
audiences is necessary in order to ensure maximum efficiency and effectiveness in
the use of scarce resources. As discussed in the chapter on markets, segmentation is
based on the principle understanding that populations are typically heterogeneous,
segmentation The process and that groups with similar needs and wants can be identified. Segmentation can
of dividing a total market be based on one or more of demographic, psychographic, geographic, behavioural
(population) into groups with
and epidemiological factors. Following principles used in commercial marketing,
relatively similar needs to design
a social marketing intervention and outlined in the markets chapter, social marketers can chose different targeting
that addresses the needs of each strategies to reach the market.
group identified. A social marketing campaign encouraging pregnant women to give up alcohol
during pregnancy segmented a target group into two different ethnic groups in Cali-
fornia in the United States. The two groups were African American women and
a group of Latina adolescent women. Although the campaign message of not con-
suming alcohol during pregnancy was consistent for both segments, the message
and delivery was altered to better suit the intended audience and their unique
characteristics. Two different campaigns and slogans were developed. For the
­
African American women, the campaign slogan was ‘Drinking and babies don’t mix’
with a graphic image of an ill baby in an intensive care unit with the word ‘nonre-
turnable’ stamped in the corner. The text that accompanied the image put attention
on the harm that even a small amount of alcohol can cause to an unborn baby. The
intervention materials for the Latina adolescents were delivered in both English and
Spanish, and were framed differently from the other segment with an emphasis on
‘What drinking can do and it lasts a lifetime’.28

Exchange
Exchange has been debated widely by social marketing researchers, because it is not
always present in social marketing campaigns. In the case of healthy eating cam-
paigns, clear cases of exchange exist when social marketers offer immediate benefits
in the form of food samples, coupons, vouchers, prizes or extra time off.29 Similar
to commercial marketing, exchange describes the something that a person has to
give up in order to get the proposed benefit. For a clear case of exchange to exist in
social marketing, something needs to be given up simultaneously to get a direct ben-
efit. Exchange can be difficult to detect when analysing social marketing campaigns.
Over time, performing an exchange or multiple exchanges is expected to lead to the
long-term desired outcome. Our ability to observe exchange in the short term in
social marketing can be very difficult. The debate centring around the application of
commercial marketing’s exchange principle in social marketing is highlighted by the
‘Team up’ social marketing campaign launched by VicHealth in 2013.
A user who finds a physical activity on Team Up may join in once, or on an ongoing
basis. If they enjoy the experience, they may continue to participate, increase their
participation or add extra activities to take part in. The act of registering on Team Up

508 Marketing
does not deliver an immediate benefit to the user but
over time the benefits of increased participation (e.g.
increased physical activity and associated health ben-
efits) may accrue. The long-term benefits are costly
and time consuming for a social marketer to measure
when compared to the ease a commercial marketer
experiences with direct measurement such as product
sales.
A good example of exchange in social marketing is
the ‘Road crew’ campaign that was delivered in the
United States to prevent drink driving. To reduce drink
driving, the ‘Road crew’ campaign introduced luxury
taxis that would take people home after a night out
drinking.30 In exchange for money, the target audience
could enjoy a ride home in a limousine, and this led to
an outcome of reduced drink driving.
Exchange can be difficult to achieve when the
desired behaviour is to decrease or to stop a ­pre-existing
behaviour. Understanding what the alternatives are to
the desired behaviour can provide insight into what
would represent a valuable exchange to the target audience. Similar to commercial
marketing, social marketers must know what is competing with the behavioural aim
of an intervention.31

Marketing mix
As outlined later in this chapter, social marketing is more than integrated social
marketing communications. Social marketers seek to offer a solution that is attrac-
tive to the target market. Many social marketing textbooks remain set out around a
traditional ‘4 Ps’ marketing mix of product, price, place and promotion. It is increas-
ingly being recognised in social marketing that the ‘4 Ps’ framework does not always
apply, and this framework can often confuse people as they try to explain a social
marketing campaign that is little more than a communications campaign.
Too few social marketing efforts expand beyond ‘1 P’ marketing efforts that favour
communication — e.g. advertisement, posters, pamphlets, public relations, and
social and mobile media. Social marketing efforts should extend beyond communi-
cations, and a full marketing mix should be directed at initiating new behaviour and marketing mix A set of
encouraging repeat behaviours.32 variables that a marketer can
exercise control over in creating
Social marketers need to adopt a full marketing mix of techniques that include (but
an offering for exchange.
are not limited to) pricing, sensory appeal, product bundling, promotions, packaging
and retail displays to influence behaviour change. Systematic literature reviews in
healthy eating and alcohol demonstrate that utilisation of a full marketing mix by
social marketers continues to be low. For example, a systematic literature review of
alcohol social marketing interventions identified that 3 out of 22 social marketing
interventions employed all of the marketing ‘4 Ps’ mix, and 6 employed 3 of the
4 marketing ‘Ps’.
This chapter recognises that scholarly debate on the appropriateness of the tra-
ditional ‘4 Ps’ marketing mix exists, and that a more comprehensive framework is
needed to provide a memorable and easily applied social marketing mix. Given that
the ‘4 Ps’ remains the dominant marketing mix framework, this chapter will pro-
vide some examples for each of the traditional commercial marketing ‘4 Ps’ to show

Chapter 14  Social marketing and not-for-profit marketing 509

 how social marketers have used marketing mix components in social marketing
interventions.
Product
Similar to commercial marketing, product refers to the bundle of benefits received
by the target audience following exchange. Examples of products used in social
marketing to reduce alcohol drinking have included alcohol-free events in the United
States and alcohol abstinence programs like Febfast and Hello Sunday Morning in
Australia. In one campaign, doctors asked patients to complete the alcohol use dis-
orders identification test (AUDIT). If a patient scored more than 8 but less than 15,
they were given an information leaflet and a follow-up consultation was arranged.
Xperience was a multi-level intervention that used social marketing and branding
techniques to make an alcohol-free lifestyle popular. Recognition of the campaign
was built with drug-free events for the first year of the intervention. Youth were
involved in every stage of the intervention, including developing branding and social
marketing strategies, and working on show production. Social marketing techniques
were used to recruit artists and audience members through the distribution of flyers
and posters. Artists had the opportunity to record their art pieces in a professional
recording studio and to perform at the scheduled drug-free events.33
Price
Price is one of the traditional marketing ‘Ps’ that is widely debated in social ­marketing,
as the use of dollar pricing in social marketing interventions is rare. Some social
marketers explain that price is viewed in terms of the cost or sacrifice exchanged
for the benefit (product) that the target market will incur. This mixes the concept of
price with exchange, which is concerned with understanding what a consumer has
to give up in order to get something. Price is a transactional concept outlining what
a consumer has to exchange in order to receive the bundle of benefits (product).
The ‘Road crew’ drink driving intervention incorporated a financial price, which was
identified as the cost paid by the patron to utilise the service (US$15–20).
Promotion
Promotion is the most widely adopted aspect of the marketing mix in social marketing.
As stated earlier, it is important that any social marketing intervention incorporates
more than promotion. It is recommended that effective and comprehensive strat-
egies are coordinated with and integrated into the marketing mix. When p ­ lanning
integrated social marketing communications, social marketers need to emphasise
the mix tactics that are known to drive consumer behaviour (e.g. direct selling, price
discounts, loyalty schemes and sales promotions). Advertising and public relations
activities should be used to remind the target market of the social brand, but mes-
sages need to be connected with behaviour-inducing strategies. Whatever pro­motional
tools are used, it is important to ensure consistency of the brand promise across
all mediums, and consistency with other elements of the marketing mix.
Place
Place refers to where and when the target audience enter into an exchange (e.g. the
places in which exchange occurs). A systematic review, conducted by social mar-
keters, of alcohol interventions reported in peer review journals between 2000 and
2013 demonstrated that social marketers seek to provide non-drinking event alter-
natives for the target market. These include movies, pool, bowling, breakfast bar,
games and student dances on college campuses.34 University and college campuses
were popular places to target youth, who are identified as one of the most at-risk
drinking groups.

510 Marketing
 Commonly used forms of promotion in social marketing are posters, printed
media, banners, stickers, leaflets, cards, booklets, TV and radio. Increasingly, ­digital
marketing tools — such as websites, social media and email marketing — are being
used by social marketers as part of their promotional tool box. Individual pro­
motional items such as T-shirts and water bottles have been used to prompt the
desired behaviours by social marketers.

Competition
Recognising and addressing the competition of the behaviour targeted by an inter-
vention remains a key ingredient to success for social marketers. For example, com-
petitive analysis was undertaken in the analysis grid for elements linked to obesity
(ANGELO) healthy eating social marketing campaign.35 The researchers looked at
the environment to determine what was (and was not) available both in terms of
foods (i.e. too many high-fat snacks available; mainly high-fat, low-vegetable meals;
too many high-sugar drinks at home; junk food in lunchboxes). They also looked at
the economic, policy and sociocultural influences present to design a campaign that
could counteract the competition. competition Direct and indirect
Social marketers have to understand what other behaviours are competing for the competing behaviours as well
as other factors (e.g. resources,
chosen target audience’s time and attention in order to develop strategies that mini-
perceptions and attitudes)
mise the impact of the competition. For example, the ‘Road crew’ social marketing affecting the targeted behaviour.
campaign identified that direct competition included other types of transportation
such as taxis. By considering direct competition, ‘Road crew’ could create a superior
product offering in the form of luxury limousines to reduce the incidence of drink
driving after a night out. In order to compete with commercial market offerings, social
marketing needs to offer unique and meaningful benefits, which represent better
value than the competing behaviours to take advantage of consumer self-interest.
As mentioned earlier, the UK’s National Social Marketing Centre (NSMC) expanded
upon Andreasen’s six social marketing benchmark criteria. The NSMC benchmark
criteria offer two additional factors to distinguish social marketing. Firstly, NSMC
expands audience research into two separate factors — namely, insights and cus-
tomer orientation. Second, the NSMC benchmark criteria emphasise the importance
of using theory in the design and planning of an intervention (refer back to the
right-hand column of figure 14.1 for an outline of the eight criteria).36

Think before you supply Spotlight 

‘Should you supply?’ was a community-based campaign designed to reduce levels of underage
drinking by discouraging the inappropriate supply of alcohol by adults, including parents. The
campaign was implemented in New Zealand in the South Island districts of Ashburton, Clutha and
Waitaki. The message ‘Think before you buy under 18s drink’ and a range of related images were used
in intensive advertising in local news media and where alcohol was sold.
This community-based campaign was broad and involved a wide range of stakeholders, including
parents, retailers of alcohol, other adult suppliers, policy makers and young people. The aims of the
campaign were to:
• increase the knowledge of adults in the Ashburton and Waitaki districts of the risks of supplying
alcohol to teens
• encourage a change of attitude such that a teenager’s parent is considered the only appropriate
supplier of alcohol, and that teenage drinking should occur only under adult supervision
• effect a reduction in the percentage of adults who supply alcohol to teens for unsupervised
consumption.

Chapter 14  Social marketing and not-for-profit marketing 511

 As a result of formative research, two key sources of
supply were targeted, including parents and alcohol
stores. Publicity for the campaign included radio
commercials, print media, events, open-air advertising,
flyers and posters in liquor stores, as well as forums
and events for parents. A formal liquor liaison group
was formed, and local government was lobbied for a
local alcohol policy. Law enforcement activity was
increased for the premises that supply alcohol illegally
to underage teenagers. Underage ‘mystery shoppers’
attempted to purchase alcohol, and if it was supplied
the manager was liable for prosecution. As a result,
nine premises lost their liquor licences for between one
and four days.
Parent supply of alcohol for unsupervised drinking
decreased in two districts (Ashburton and Waitaki) from
36.2 per cent to 29.8 per cent, while the change in the
third district (Clutha) was not significant. Overall, the intervention was successful in the short-term
reduction of the illegal supply of alcohol to under 18s.37

Question
You have been asked to lead the next implementation of the ‘Should you supply?’ community intervention.
Outline one change that would help to further improve the success of the program in future.

Concepts and applications check

Learning objective 2  understand the social marketing benchmark criteria
2.1 Find an example of a social marketing intervention. Choose one social marketing benchmark
framework (either Andreasen or NSMC). Which benchmark criterion has the social marketer used?
2.2 Using Andreasen’s six social marketing criteria, explain which criterion the ‘Should you supply?’
campaign has used.
2.3 Some social marketing scholars contend that the ‘4 Ps’ are not a useful marketing mix for social
marketing. Do you agree? Explain your answer. You may want to use intervention examples to
justify your point of view.
2.4 You have been engaged by VicHealth to provide advice on evaluation for the ‘Team up’ campaign.
How would you evaluate the effectiveness of the campaign?

THREE SOCIAL MARKETING STREAMS

Learning objective 3 Social marketing has been shown to be an effective method to motivate people to
understand the three quit smoking in a wide variety of contexts, including whole communities, segments
streams of social
of society or entire populations. Social marketing involves translating necessarily
marketing
complex educational messages and behaviour change techniques into concepts and
products that will be received and acted upon by a large segment of the population.
Promoting behaviour change in social marketing can be achieved through three main
streams: downstream, midstream and upstream. Each stream differs in the target audi-
ence and the way of measuring behaviour change. Social marketing scholars suggest
that action at all levels is needed in any comprehensive approach to delivery.

512 Marketing
Downstream social marketing
Downstream social marketing is focused on individual behaviour change and is the
most dominant stream in social marketing literature. The downstream concentrates
on individuals seeking to change their own behaviour. The majority of downstream
social marketing considers behaviour change as voluntary, and seeks to provide
offerings of greater value than continuation of the risky behaviour by the individual
being targeted. For example, the ‘Did you know?’ social marketing campaign dis-
seminated social norming messages with the intention of decreasing alcohol con-
sumption using various communication channels, including posters on campus,
screensavers in student computing labs, mouse pads, brochures and T-shirts. Alcohol
free events were also promoted, and students who hung posters in their room were
awarded gift vouchers for restaurants or the campus bookstore.38

Midstream social marketing

Midstream measures target behaviour change at the collective level. Communities that
social marketers might consider can include religious organisations, families, friends
and clubs. Midstream social marketing may be considered preferable to downstream
social marketing because it has the potential to affect a larger number of people.

Upstream social marketing

Downstream (individual-focused) interventions seeking to change behaviour (e.g.
decrease the incidence of women drinking alcohol during pregnancy) often ignore
environmental factors in intervention planning (e.g. the lack of non-alcoholic alter-
natives in bars). The failure to consider the environment surrounding the target
market can impact on the effectiveness of social marketing interventions.39 Adopting
thinking from other disciplines (including behavioural economics), scholars recom-
mend that in addition to influencing the way people think, social marketers need to
deal with a consumers’ choice environment, which may involve marketing to policy
makers to enact change at the policy level. This is termed ‘upstream marketing’.
There is increasing evidence to suggest that ‘changing contexts’ by influencing the
environments within which people act can change behaviour.
Upstream social marketing is concerned with influencing public policy, prioritisation
and budget allocation. It is concerned with the causal agents and determinants of social
problems, and focuses on creating change within policy or regulations to make envi-
ronments more conducive to the desired behaviour. Some social marketing scholars
acknowledge that an upstream social marketing view recognises that individuals should
not be left with the whole responsibility for their behaviour. The upstream approach
provides preventive measures that can be applied by agencies and organisations that
will bring about desired individual behaviour. For example, a reduction in smoking can
be attained by banning cigarette advertising and increasing cigarette taxation.
Scholars are increasingly advocating that social marketers consider simultaneously
implementing upstream and downstream methods to increase the effectiveness of
their campaigns. By using more than one social marketing stream, social marketers
are more likely to assist an individual to change their behaviour in a way that ben-
efits society, and therefore achieve a successful result for a campaign. Evidence sug-
gests that, over time, social marketing interventions across the three steams of social
marketing have assisted to decrease tobacco consumption — ­benefiting both the
individual and society as a whole through decreased smoking rates. Tobacco control
efforts have been developed as evidence has grown to support the use of different
approaches across a range of contexts.

Chapter 14  Social marketing and not-for-profit marketing 513

 Spotlight  Implementing a consumer-oriented approach
to water saving
According to the World Health Organization, Jordan is the fourth water-poorest country in the world.
By the year 2025, if current trends continue, per capita water supply is expected to fall from the
current 200 cubic metres per person to only 91 cubic metres, putting Jordan in the category of having
an absolute water shortage. In times of drought, Jordanians have been faced with water restrictions.
Based on the assumption that the people of Jordan were wasting water, the Jordanian government had
planned to add a water tax as a means to further reduce household water consumption. This proposal
outraged the local people. Formative research revealed
that the people were not to blame, because it was the
municipal buildings, private clubs and certain private
properties that were the big users of water. Water auditing
also revealed that the high consumption of water was
caused by water lines that were old or had been badly
assembled.
‘Yalla nwaffer mai’ (or ‘Let’s save water’), a water
conservation campaign, was launched by the Jordan
Water Company (Miyahuna), HSBC Bank, and USAID to
fight water waste and create awareness about the need
to conserve water in Jordan. The campaign aimed to
distribute and install free water saving devices in order to
reduce consumption in areas known for consuming large
quantities of water. Since western Amman consumes
over 20 per cent of the country’s water allocation, the
campaign focused on that region.
The installation of water saving devices was expected
to cut household water consumption by 30 per cent. In
Shepherds and their the 12 months following the launch of ‘Yalla nwaffer mai’, a total of 1200 houses had been equipped
flocks gather by a stream with the devices. The campaign organisers originally planned to equip 2500 homes with the devices,
on Amman’s outskirts. but then stated that the numbers had been reduced since standard houses in the target areas needed
more devices than originally expected. At the same time, the government renewed its water policies, and
new laws required all new houses to be built with water saving devices. Following this social marketing
campaign, the unpopular tax was avoided and water consumption decreased.40

Question
Use the information provided to explain which social marketing streams were involved in the ‘Yalla nwaffer mai’
campaign.

Concepts and applications check

Learning objective 3  understand the three streams of social marketing
3.1 The Australian National Preventative Agency has developed a priority-driven research agenda for
tobacco control (see www.anpha.gov.au). Download the document titled ‘A priority-driven research
agenda for tobacco control in Australia’, and identify one research question that will generate
evidence for each social marketing stream.
3.2 Find an example of an upstream social marketing campaign.
3.3 Find one example of a social marketing intervention that targets all three marketing streams.
3.4 Review the ‘Think before you supply’ case. Which social marketing streams were evident in the case?

514 Marketing
WHAT IS (AND IS NOT) SOCIAL
MARKETING?
Early definitions of social marketing reflected the idea that marketing tools and Learning objective 4
techniques could be used to promote ideas such as drink less, smoke less, choose distinguish between social
marketing, integrated
healthy food or recycle just as effectively as they could promote products and ser-
social marketing
vices. Social marketing was initially proposed as a means to change ideas to ben- communication and other
efit the society as a whole. Today, this is referred to as integrated social marketing forms of marketing
communication.41
It is important to distinguish social marketing from integrated social marketing
communication, as the terms are often confused.42 This confusion is to be expected, integrated social marketing
when many of the practitioners who call themselves social marketers are in fact communication integrated
social marketing communication
integrated social marketing communications. Consider the results of one recent sys-
involves communication of the
tematic literature review on the use of social marketing to encourage healthy eating. brand promise consistently
The literature review found that one-third of all ‘social marketing’ studies conducted across the different elements of
between 2000 and 2013 described solutions that relied solely on information, adver- the communication marketing
tising or promotion — suggesting that many who call themselves social marketers mix (e.g. advertising, public
relations, sales promotion and
do not use more than advertising or communication.43 Too few social marketing social media), integrated with the
efforts expand beyond ‘1 P’ marketing efforts that favour communication tactics and other ‘3 Ps’ of product, price and
vehicles. Social marketing efforts should be directed at initiating new behaviour promotion.
and encouraging repeat behaviours.44 As stated earlier in this chapter, commercial
­marketers use a multitude of techniques that extend beyond communication (e.g.
pricing, sensory appeal, product bundling, promotions, package size and retail dis-
plays) to influence behaviour change.
Based on the understanding that social marketing is more than integrated social
marketing communication, over time definitions of social marketing have shifted
from emphasising the promotion of ideas towards actual behaviour change (see
table  14.1 earlier in the chapter). The ‘Quit for you, quit for two’ social marketing
campaign was designed to help pregnant women take their mind off cigarette crav-
ings with fun exercises and games to keep their hands busy for the length of time they
would experience a nicotine craving. The idea behind the ‘Quit for you, quit for two’
app was to distract the pregnant woman when she feels the urge to light up, pro-
viding practical quit tips and advice. The app aims to encourage pregnant women
with facts about their baby’s development, along with ideas about the types of things
they could buy with the money they save by giving up cigarette smoking. Pregnant
women trying to give up smoking can personalise the app with their details so they
can get daily reminders and words of encouragement.
Similar to commercial marketing — where the end desired result for any commer-
cial marketer seeking to make a profit is a sale — social marketers quickly realised
the success of their work would be judged on whether the desired behaviour change
had occurred. Social marketers can significantly enhance the effectiveness of their
interventions and ongoing programs by keeping in mind that the promotion ‘P’ must
be integrated with the rest of the marketing mix, and the focus on communications
must be behaviour change and actions. As we saw earlier, the ‘Last call’ campaign,
which aimed to reduce drink driving, used wallet size cards that were distributed
in bars to promote the taxi stands and the messages of the campaign. Posters and
coasters were used in the bars, incorporating the message ‘Going out? Grab a cab,
bus or friend’. The posters were also placed in the women’s and men’s toilets. The
marketing communications materials were integrated with a full marketing mix that
also included the establishment of ten additional taxi stands in five entertainment
districts.45

Chapter 14  Social marketing and not-for-profit marketing 515

 Andreasen was one of the first social marketing scholars to argue that early defi-
nitions of social marketing that were restricted to ideas were problematic. The simple
promotion of ideas in social marketing is referred to as integrated social marketing
communication, and it is important for marketers to be able to distinguish social
marketing from other behaviour change disciplines (such as public health) that
public health is understanding also seek to provide information to improve population health. Public health is a
health needs and intervening behaviour change discipline that seeks to understand health needs and intervene to
to improve the health of the
improve the health of the population.46
population.
Despite variations in the definition of the discipline, social marketing scholars
agree that what distinguishes social marketing from its parent discipline of com-
mercial marketing is the end goal. Commercial marketing is concerned with profit,
while social marketing is concerned with changing or maintaining behaviours to
achieve social good. What is clear about the various definitions listed in table 14.1
is that social marketing has evolved from the original Kotler and Zaltman definition
to include not just the acceptability of ideas, but a focus on behaviour change as
the bottom line. Donovan’s definition stands out in its shift away from a focus on
voluntary behaviour change to include involuntary behaviour. Donovan argues that
commercial marketing does not always involve only voluntary behaviour; therefore,
social marketing should not either. Donovan cites marketers who negotiate exclusive
merchandising rights to sponsored events as an example.47
A key difference between commercial marketing and social marketing is, that
in most cases, commercial marketers are marketing an offering that is more desir-
able. Commercial marketers are charged with the job of marketing something that
is bigger, faster, new, improved or cheaper. In most instances in commercial mar-
keting, the consumer is immediately rewarded following a purchase with their new
and improved product offering. For example, buying and eating a chocolate bar gives
an immediate feeling of pleasure. This is not the case in social marketing. Social
marketers often have the job of persuading people to change to a less desired behav-
iour — for example, don’t drink alcohol, drink less alcohol, eat more vegetables,
use less salt, eat less fatty food, exercise more and take public transport. Rewards
accruing from a social marketing campaign are long term, and the consumer ‘pur-
chasing’ a social marketing offering may not experience positive outcomes such as
satisfaction and pleasure following the exchange. In fact, in some cases the con-
sumer who trials or adopts the social marketing behaviour may experience negative
outcomes in the short term. For example, people who attempt to take up exercise for
the first time  may experience getting sweaty while exercising, and they may have
sore ­muscles the following day. This is a vastly different offering for a marketer than
a chocolate bar.
Social marketing differs from commercial marketing because it is a harder offering
to sell, and the rewards to a consumer occur over the longer term and not immedi-
ately following purchase. Consider the ‘Swap it, don’t stop it’ integrated social mar-
keting communications campaign that was discussed in the chapter on promotion.
The campaign commenced with the ‘How do you measure up?’ question, which
first sought to make the target market aware they were overweight or worse. The
campaign then evolved into the ‘Swap it, don’t stop it’ message, which offers replace-
ment behaviours for the target audience to consider (including swapping fried for
fresh, fizzy drinks for water, and takeaway for homemade).
While there are differences between commercial marketing and social marketing,
a similarity remains. As we have discussed throughout this textbook, marketing is
a philosophy or a way of doing business. Marketers start by understanding their
customers to create an offering that has value. This offering is communicated and

516 Marketing
delivered to the target market at a time and place that is convenient to consumers.
This marketing philosophy or way of doing business is the same for commercial
marketing and social marketing. Like commercial marketing, social marketing
focuses on understanding the target audience — first through customer orientation
and insight, before providing a final solution. Scholars generally agree that social
marketing involves the use of commercial marketing techniques to change behav-
iours for social good. Researchers are now working to understand exactly which
commercial techniques can be used by social marketers to change behaviours for
social good.

Are you ‘Sun sound’? Spotlight 

While Australian youth are aware of the dangers of too much exposure to the sun, they
continue to exhibit poor sun protection behaviours. The University of Wollongong conducted
quantitative research about sun protection attitudes and behaviours with over 2600 adolescents
in New South Wales. The largest segment was called ‘forgetful attempters’, which accounted for
36 per cent of the target audience. These adolescents were aware they should protect their skin,
but often forgot to use sun protection. ‘Forgetful attempters’ were the target market for the ‘Sun
sound’ campaign.
Following the formative research stage, the Cancer Council NSW (CCNSW) and researchers at
the Centre for Health Initiatives at the University of Wollongong created ‘Sun sound’. A musical jingle
underpinned the campaign, which
was broadcast outdoors as a reminder
for forgetful adolescents to take action
to protect their skin. Designed to be
short and memorable, the jingle was
played over loudspeakers at beaches,
pools and events as a friendly, non-
authoritative reminder for forgetful
adolescents to protect their skin. The
jingle — known as the ‘Sun sound’ —
was developed with Australian musician
Ben Lee and Sony music.
CCNSW established partnerships
with Gosford City and Sutherland Shire
councils to pilot test the campaign in
the summer of 2009–10. ‘Sun sound’
was played daily each hour from 11 am
to 3 pm (peak UV radiation times) in 20
recreational settings. A communications
campaign was implemented to develop
recognition and understanding of ‘Sun
sound’ in the target audience.
To evaluate the campaign, a total
of 702 individuals aged between 12
and 18 years completed an intercept
survey that assessed unprompted and prompted recall of ‘Sun sound’, understanding of its purpose,
and actions taken as a result of hearing it. A total of 41 per cent of respondents in the intervention
communities recalled the jingle without prompting. When prompted, a total of 45 per cent recalled
the jingle. Overall, 79 per cent of respondents in the intervention communities understood the key
message that ‘Sun sound’ related to sun protection. Of those who recalled ‘Sun sound’ without
prompting, 38 per cent of respondents self-reported that they increased their use of at least one of the

Chapter 14  Social marketing and not-for-profit marketing 517

 five recommended sun protection measures as a result of hearing the jingle. Following evaluation of
the pilot, the campaign was expanded to over 60 settings in New South Wales. By 2012, ‘Sun sound’
had been licensed to Cancer Council offices across Australia.48

Question
Is ‘Sun sound’ a social marketing campaign or an integrated social marketing communications campaign?
Justify your answer.

Concepts and applications check

Learning objective 4  distinguish between social marketing, integrated social marketing
communication and other forms of marketing
4.1 Find an example of integrated social marketing communication. Explain why you feel this is
integrated social marketing communication and not social marketing.
4.2 Find one social marketing example and one integrated social marketing communication campaign
example. Explain how the two examples are different.
4.3 In your own words, explain how social marketing and integrated social marketing communication
are different.

NOT-FOR-PROFIT MARKETING
Learning objective 5 Not-for-profit marketing refers to the marketing activities of organisations or indi­
understand the nature of viduals intended to achieve objectives other than conventional business goals such
not-for-profit marketing as profits. Not-for-profit marketing includes two broad categories of marketing
activities.
In general, not-for-profit marketing involves the same processes as those under-
taken by commercial organisations. However, their non-commercial nature argu-
not-for-profit marketing The ably makes it more difficult to compete for the attention and support of their target
marketing activities of individuals
audiences. With a growing number of not-for-profits entering the market, com­
­
and organisations designed to
generate funds or awareness for petition for the donor, government and corporate dollar continues to intensify.
charitable causes. Currently, there are around 700  000 not-for-profit organisations in Australia, an esti-
mated 1  239  000 in the United States, and approximately 210  000 registered charities
and 500 voluntary organisations in the United Kingdom. In the US alone, there has
been a 57 per cent increase in the number of not-for-profit organisations in a decade.
This increased competition in the sector means less for more.
Many not-for-profit organisations practise marketing in much the same way as
commercial organisations and so their methods, objectives and tools are similar.
­Fundamentally, many not-for-profit organisations are competing for clients or mem­
bers and do so by providing desirable products and client satisfaction, while building
long-term relationships.
The core objectives of not-for-profit organisations are, therefore, not related to
financial returns. For example, the St Vincent de Paul Society will not measure its
success in financial terms, but rather in the number of needy people to whom it can
provide assistance. Similarly, the Cancer Council, whose mission is to limit the inci-
dence and impact of cancer in the community through promotion and research of
prevention and cures, will not be primarily driven by financial objectives. Govern­
ment organisations such as Centrelink do not aim to generate a profit, but they do

518 Marketing
have many financial objectives related to their costs and to the value they obtain
from their budgets. Not-for-profit organisations do need to be financially viable and
concern themselves with how they derive their revenue (often through member-
ship, subscription, sponsorship or ‘fee-for-service’), as well as how they manage
their costs (including their often limited promotional budgets).
Many not-for-profit organisations have primarily social objectives and will fre-
quently limit their income through memberships to the bare minimum so that
their members enjoy the social benefits at minimum costs. Many sporting clubs
and community groups have very modest marketing objectives. At the same time,
large, not-for-profit organisations, including large charities such as Lifeline, which
have genuine ambitions to serve the widest possible community audience, still have
limited financial resources. They therefore rely on the generosity of the public and
of many of their suppliers, including management and marketing professionals who
provide their services ‘pro bono’ (free for the public good).
Charities also enjoy strong community support and their message will often
reach a sympathetic audience and achieve remarkable results. The Salvation Army’s
annual ‘Red Shield Appeal’ is always well received and financially supported by the
community. While not-for-profit organisations often enjoy strong community sup-
port, this support also brings with it strong community expectations regarding what
is considered appropriate for such not-for-profit organisations. These expectations
limit the range of marketing activities which the community will accept. Therefore,
not-for-profit organisations may not be able to engage in the same wide range of
activities practised by commercial marketing organisations. For example, the use of
aggressive telemarketing through commission-based fundraising organisations will
not always be widely accepted, especially when such telemarketing practices are
seen to be obtrusive, aggressive or ill-timed.
Not all not-for-profit organisations have universal community support. Some not-
for-profit organisations promote potentially controversial causes and may attract as
many opponents as supporters, particularly in local areas. Organisations such as
Amnesty International, Greenpeace and many others have their critics and promo-
tional messages need to be carefully tailored to minimise criticism.
Finally, many organisations rely for their existence on volunteer membership and
usually volunteer boards. While volunteers are the lifeblood of the organisation,
they do not necessarily possess the managerial experience and abilities which may
be necessary to ensure the organisation’s financial viability. Volunteer trustees or
board members of not-for-profit organisations may not have commercial ­experience
to be able to critically evaluate the performance of their professional staff. More
importantly, they may lack the commercial experience or ability to provide the
necessary strategic direction and financial guidance to the organisation. Moreover,
volunteers who provide their time and energy to support not-for-profit organ­
isations will usually do so because they identify strongly with the traditional ethos,
image and practices of the organisation. These people may have a strong bond to
the ­traditions of the organisation and to the ‘status quo’. While these traditional
values and practices may have proven attractive to members or supporters in the
past, such commitment to traditional values may not guarantee the survival of the
organisation in the future in the face of changes in social values, technology or
demography. For not-for-profit organisations, the marketing challenges in adapting
to changes in society may be both more urgent and more difficult. While the use of
commercial marketing practices by not-for-profit organisations may not always be
possible or appropriate, the fundamental marketing principles still provide impor-
tant guidance.

Chapter 14  Social marketing and not-for-profit marketing 519

 Spotlight  Young people deserve young lives
According to Youngcare, right now there are over 7500 young Australians living in aged care.49 In
addition, a further 700  000 are being cared for at home by family and friends, often with limited
support. Aged care is designed for someone who is at the end of their life, which hardly fits a person
whose life is ahead of them. However, in reality, a young person requiring care will share a residence
where the average age of the other people is 83 and the average life expectancy is just three years.
More importantly, in most cases, the specific high-care needs of
those young people will not be met, as they differ greatly from
those of the elderly residents.
For those young people living in aged care, statistics
suggest that:
• 44 per cent will receive a visit from friends less than once
a year
• 34 per cent will almost never participate in community-based
activities such as shopping
• 21 per cent will go outside the home less than once a month.
Countless other studies have demonstrated increased
incidences of depression brought about by the social isolation.
On top of such sobering facts, it is important to recognise that
the family of a young person with 24/7 care needs also endures
daily struggles. According to Youngcare, counsellors have
advised that 70 per cent of all relationships involving a young
person with full-time care needs will end in divorce, and this
Musician Bernard
is where the greatest impact is felt. In many cases, it is not just the individual requiring care that is in
Fanning has helped to
crisis. Statistics reveal that:
promote Youngcare.
• 56 per cent of carers are defined as moderately depressed
• 40 per cent of carers are found to be severely or extremely depressed
• carers have the lowest level of wellbeing of any group in society.
The issues faced by young people with 24/7 care needs, their families and carers are broad and
complex, and there are many people in desperate need of assistance. Youngcare believes that there
is an urgent need to raise awareness of this national issue to drive change and create real options for
young Australians with full-time care needs.
Youngcare is a not-for-profit organisation that aims to provide hope, possibility and dignity for injured
and high-care young Australians. Youngcare has built community support, resulting in three blocks of
apartments — two in Queensland and one in Sydney — within the first five years of operations. They’ve
also given numerous grants for families to re-fit their homes. Since the At Home Care Grants program
was established in 2009, over $439  000 has been distributed to young Australians and their families.

Question
How can Youngcare build on its success?

Concepts and applications check

Learning objective 5  understand the nature of not-for-profit marketing
5.1 Explain the major ways in which not-for-profit marketing activities are likely to differ from those of
commercial organisations.
5.2 Choose a not-for-profit organisation and examine how they raise funds.
5.3 Imagine you are the marketing manager for Youngcare. Briefly outline a marketing strategy you
could implement to attract the ‘donor dollar’.

520 Marketing
SUMMARY Key terms and
Learning objective 1  discuss how social marketing aims to change behaviour for concepts
social good audience research  507
behaviour change  507
Social marketing seeks to develop and integrate marketing concepts with other
competition  511
approaches to influence behaviour and benefit individuals and communities for integrated social marketing
greater social good. Social marketing practitioners and researchers agree that social  communication  515
marketing practice is guided by ethical principles. Social marketing seeks to inte- marketing mix  509
grate research, best practice, theory, audience and partnership insight to inform the not-for-profit marketing  518
delivery of competition-sensitive and segmented social change programs that are public health  516
effective, efficient, equitable and sustainable. segmentation  508
social marketing  502
Learning objective 2  understand the social marketing benchmark criteria
Benchmarks have been offered by social marketing scholars to identify the common
elements that contribute to successful social marketing interventions. Social mar-
keting interventions should have a consumer focus and a behavioural objective.
Given that behaviour change is the aim of all social marketing campaigns in the
long term, behavioural objectives remind social marketers that their goal is to
change behaviour, not just educate or inform. Social marketers should undertake
audience segmentation to clearly identify who the intervention efforts are aimed
towards, while formative research helps ensure an understanding of the consumer
and orientation of the intervention towards the target market. Social marketers need
to consider exchange — what has to be given up by the target audience in order for
them to undertake the desired behaviour — and they need to offer a full marketing
mix to encourage trial and repeated behaviours. Finally, competition must be con-
sidered by social marketers.

Learning objective 3  understand the three streams of social marketing

Social marketing has been shown to be an effective method to motivate people to
change behaviours across a wide variety of contexts including whole communities,
segments of society or entire populations. Social marketing involves understanding
the target market to create, communicate and deliver a solution that will be received
and acted upon by a large segment of the population. Promoting behaviour change
in social marketing can be achieved through three main streams — upstream,
midstream and downstream — which differ in the target audience and the way of
measuring behaviour change. Action at all levels is needed in any comprehensive
approach to delivery.

Learning objective 4  distinguish between social marketing, social advertising

and other forms of marketing
It is important to distinguish social marketing from integrated social marketing com-
munication and other forms of marketing. Many people confuse social marketing
with social advertising. This confusion is to be expected when many of the prac-
titioners who call themselves social marketers are, in fact, delivering integrated
social marketing communications campaigns and not offerings involving a full mar-
keting mix. Too few social marketing efforts expand beyond ‘1 P’ marketing efforts
that favour communication tactics and vehicles — public service announcements,
posters, pamphlets, public relations, entertainment education, and social and mobile
media. Social marketing efforts should be directed at initiating new behaviour and

Chapter 14  Social marketing and not-for-profit marketing 521

 encouraging repeat behaviours. Social marketers must use a multitude of techniques
that extend beyond communication (e.g. pricing, sensory appeal, product bundling,
promotions, package size and retail displays) to change behaviours.

Learning objective 5  understand the nature of not-for-profit marketing

Not-for-profit marketing refers to the marketing activities of organisations or indi-
viduals intended to achieve objectives other than profits. Not-for-profit marketing
includes the marketing activities of not-for-profit organisations, such as The Smith
Family; and ‘social marketing’, which refers to the marketing of socially desirable
causes, such as anti-smoking campaigns. While not trying to generate profits, not-
for-profit organisations do need to remain financially viable and do compete with
other organisations, including for-profit organisations, for funds, members and
clients. Many, though not all, not-for-profit organisations enjoy strong community
support, but this is coupled with strong community expectations about how they
conduct their activities, including their marketing efforts.

522 Marketing
Obesity Prevention and Lifestyle Case study
(OPAL) program
Lisa Weir and Jo Williams, SA Health

The Obesity Prevention and Lifestyle (OPAL) program supports children, through families and their
communities, to eat well and be active. It is based on a proven community development and social
marketing program operating in eight countries, reaching an estimated 20 million people. OPAL
is a long-term commitment involving federal, state and local governments, operating within each
community for five years to maximise the chances of delivering lasting social change and ultimately
to reduce the rate of childhood obesity. Political support at all three levels of government has been
very important to the success of OPAL. This has ranged from the then Minister for Health in South
Australia initially commissioning and funding the program through to the Australian government’s
funding from the National Partnership Agreement on Preventive Health — Healthy Children, as well
as support from the mayors of the OPAL communities.
OPAL is focused on six goals based for obesity prevention to bring about behavioural change
across the community. These are:
•• healthy eating
–– healthy food choices available at outlets
–– healthy meals produced in the home
–– local, healthy food production, access and distribution
•• physical activity
–– active travel journeys
–– active leisure participation
–– use of parks, spaces and places.
These six goals are brought to life through annual themes, focusing on a single behaviour that
is known to have a positive impact on healthy weight. Each theme presents a positive approach
to challenging the social norms and practices that support unhealthy behaviour. OPAL staff are
encouraged to dedicate a significant portion of their activity to acting on the current theme, but
they are able to draw on any aspect of the goals to support and respond to their community’s needs.
The goals and themes are implemented through seven strategies. This complete set of strategies
ensures a comprehensive approach to applying interventions ultimately to change behaviours. OPAL
considers the seven strategies as the way to address the ‘methods mix’ from the social marketing
benchmark criteria and uses the terms interchangeably. The seven strategies are:
•• to provide tailored healthy eating and physical activity programs and services
•• to undertake research, monitoring and evaluation that informs decision making
•• to work with agencies and sectors to create coordination and partnerships around healthy eating
and physical activity
•• to develop policies and plans that ensure healthy eating and physical activity are the focus for the
long term
•• to develop supportive environments that make healthy eating and physical activity the easy choice
•• to raise awareness about OPAL and the importance of healthy eating and physical activity
•• to provide education and training to raise knowledge and skills around healthy eating and physical
activity.
OPAL operates at two levels. Firstly, OPAL is supported centrally by the State Coordination Unit
(SCU), which sits within SA Health. SCU is staffed by the OPAL state manager, social marketing
manager, evaluation manager, project officer and administration support officer. SCU develops a suite
of resources amd interventions for the annual theme (methods mix) across the seven strategies
centrally to ensure that the programs are consistent with official policies, as well as recommendations
on diet, health and physical activities. Secondly, OPAL has staff that operate at the community level in
teams hosted within local councils (LCTs). LCTs identify, design and deliver the most appropriate mix
of local interventions and resources that will achieve the maximum benefit for the theme and the
wider obesity prevention goals. Each LCT has an OPAL council manager and project support officer,

Chapter 14  Social marketing and not-for-profit marketing 523

 who are SA Health employees seconded to local councils. The manager has the skills and experience
to operate at a strategic level, enabling them to influence most aspects of council business including
policy and planning. The project support officers are generally new tertiary level graduates with
qualifications and knowledge in health promotion, nutrition and physical activity. Together, teams work
to build partnerships throughout their community, respond to local needs with the community
partners, build awareness through a non-stigmatising social marketing approach, and help create
environments that support eating well and being active.
Through partnerships with these
communities, OPAL reaches an
estimated 400  000 people across
South Australia, representing
approximately one quarter of
the state’s popula­tion. OPAL is
designed to help communities
help themselves, by implementing
effective and sustainable initiatives
at the local level, which bring
about lasting social change. They
work in partnership with a range of
influential community groups —
including schools, recreation
facilities, sporting groups, non-
government organisations,
community centres, health
professionals and private
businesses — to determine what is
needed locally to help children and
families become more active and
make healthy eating choices. LCTs
develop locally relevant projects and
initiatives, promote annual themes
created by SCU, and look for any
opportunities to link with or enhance
existing programs that encourage healthier lifestyles. The aim is to build capacity at the local level and
create environments conducive to healthy behaviours and lifestyles.
While OPAL has a coordinated approach to childhood obesity prevention and a consistent
theme as a catalyst for action, its activities will differ in each local area because it is shaped by the
community and its specific needs. Some examples of community projects include:
•• establishing Park and Stride locations to encourage active it to schools and other community
locations
•• working to enable public housing clients to grow fruit and vegetables in their gardens
•• developing healthy eating policies within councils to ensure council-owned facilities are providing
healthy food choices to the community
•• working with retail outlets to improve the quality and quantity of fresh fruit, vegetables and meats
available
•• installing clean, inviting water fountains in public places
•• introducing physical activity opportunities for children from areas of disadvantage holding cooking
classes and demonstrations to promote the use of economical, fresh and healthy foods.
•• working with youth on public art displays which communicate a healthy message.
A comprehensive multi-component research and evaluation program is underway to determine
OPAL’s effectiveness. One component is the evaluation of the yearly thematic approach. ‘Water. The
original cool drink’ is one theme that was implemented and subsequently evaluated.
A computer-assisted telephone interview (CATI) self-report survey of 1680 parents of children aged
0–18 was conducted following the implementation of the water theme. The results of the survey of

524 Marketing
parents in the intervention and control communities showed that there were significant differences
between the intervention and comparison communities. Intervention communities were more likely
than comparison communities to report drinking fewer sugar-sweetened beverages (46 per cent
versus 40 per cent). Other significant differences in reported behavioural differences included that
intervention communities were more likely to have made a change in relation to providing water
or milk as the first drink of choice (8 per cent versus 4 per cent), and to have reduced soft drink
purchases (15 per cent versus 11 per cent). In addition, as an indicator of the reach of the theme,
intervention communities (24 per cent) were more likely than comparison communities (13 per cent)
to be aware of the ‘Water. The original cool drink’ message. Additional evaluation of the campaign
also showed that 52 new drinking water fountains were installed across OPAL communities,
addressing in a sustainable way the environmental barrier of availability of water in public spaces.50

Questions
1. Use the information provided in the case to explain which social marketing streams were involved in
the OPAL campaign.
2. Do some research online to gain additional information on OPAL. Choose one social marketing
benchmark framework (either Andreasen or NSMC). Based on the information you uncovered,
which benchmark criteria has OPAL used?
3. Is OPAL a social marketing or an integrated social marketing communication campaign? Explain
your answer.

Advanced activity
Using the social marketing principles that you have learned in this course, develop
a social media campaign to raise awareness for decreasing sedentary activity
(number of hours sitting per day).

Marketing plan activity

Use some of the concepts outlined in this chapter to refine your marketing plan.
Check that your marketing plan considers social good. Are there unintended
consequences from consumption or excessive consumption of your marketing plan
offering?

Chapter 14  Social marketing and not-for-profit marketing 525

 CHAPTER 15

Marketing planning,
implementation
and evaluation
Learning objectives
After studying this chapter, you should be able to:

explain the relationship between the marketing cycle and marketing

management

understand the importance of effective marketing planning in achieving

organisational and marketing objectives

describe how to manage the implementation of a marketing strategy

explain the role of marketing metrics and the ongoing evaluation of marketing
performance in the marketing cycle.
Understanding the
effectiveness of industry
self-regulation efforts
Despite potential dangers to children’s health, drinking by pregnant women is fairly
common in many countries, including Australia. Alcohol exposure in pregnancy can
cause a range of physical and neurodevelopmental problems, and awareness of the
risks arising from drinking alcohol during pregnancy is low in the Australian child-
bearing population. A recent study identified that some women report experiencing
peer pressure to drink alcohol during pregnancy from partners, par-
ents and friends. Consider the following comment made by a mother
to her daughter: ‘I drank while I was pregnant with you and you turned
out OK’.
Research indicates that the alcohol industry has an important role to
play in changing drinking behaviour. UK statistics demonstrate that
spending on responsible drinking message (US$104 million) is far
outweighed by alcohol advertising (US$4.9 billion). These statistics
suggest that people are 239 times more likely to see an alcohol adver-
tisement than a responsible drinking or no drinking messages.
In response to known risk factors, a review funded by the Australian
government and all states and territories was undertaken. In December
2011, the Legislative and Government Forum on Food Regulation
(FoFR) acknowledged recent industry initiatives to implement volun-
tary label schemes. The alcohol industry was given two years to adopt
voluntary initiatives to place pregnancy warnings on alcohol labels
before regulating such a change. During this process, the forum wel-
comed industry efforts to introduce warnings on labels voluntarily, and
was committed to working with industry over this period.
Industry labelling messages are based on the initiative developed by
Drinkwise Australia, which was cited in the FoFR Response to Label-
ling Logic review. The 2009 National Health and Medical Research
Council guidelines, which have informed the Drinkwise initiative,
state that ‘For women who are pregnant or planning a pregnancy, not drinking is the
safest option’. In addition to labels and point of sale materials, Drinkwise currently
offers free promotional materials for medical clinics on its website (www.drinkwise.
org.au).
In late 2013, the Department of Health and Ageing commissioned research to evaluate
the effectiveness of the two-year voluntary pregnant label warning program under-
taken by the alcohol industry.1

Question
Suggest how you might evaluate the effectiveness of the two-year voluntary
pregnant label warning program.
INTRODUCTION
Throughout this book we have emphasised the need for organisations to adopt a
marketing orientation. A market-oriented approach simply means that decisions
are made to maximise customer value, based on knowledge of the market and the
marketing environment. Marketers can work in both commercial and social settings.
The opening case provides a more complex example showcasing some of the true
complexities contemporary marketers face, and demonstrates how commercial mar-
keters in the alcohol industry were given two years to provide pregnancy warning
labels on products, in line with the National Health and Medical Research Council
guidelines. At the end of the two-year period the Department of Health and Ageing
commissioned evaluation of the self-regulated approach to understand the extent to
which warning labels had been applied on alcohol products.
In this chapter we consider the marketing cycle. The marketing cycle commences
with understanding the market in order to create, communicate and deliver value to
customers. This process of creating, communicating and delivering is then evaluated
by marketers to understand the impact made, if any. Once marketers understand the
impact of their marketing program, they make adjustments to their program based
on the feedback obtained. The marketing cycle is best considered as an ongoing loop
where marketing programs and plans are constantly revised and refined. It is evalu­
ation, throughout and after marketing efforts, that makes the marketing process
cyclical in nature. It is also evaluation that truly enables a marketing organisation to
know, understand and respond to changes in the market.

THE MARKETING CYCLE

We have emphasised throughout this book that marketing is not a linear process Learning objective 1
that  begins with an idea, proceeds to a plan and ends with successful implemen­ explain the relationship
tation of the plan. Rather, marketing is an ongoing and interrelated process of under- between the marketing
cycle and marketing
standing, creating, communicating and delivering offerings. This can be represented management
in a simplified fashion as shown in figure 15.1. We call this the marketing cycle. It
emphasises that:
• understanding the customer results in the ability to create, communicate and marketing cycle  The
deliver value cyclical and interrelated process
of understanding, creating,
• evaluation of marketing performance builds further understanding that enables communicating and delivering
the marketing program to be refined to improve future performance. value, refined by continuous
evaluation.
Understand
t Research Market Research Market Research
arket Research Market Research Market Researc
ng Market Research Market Research Market R
ltMarketing
Research
Deliver
Market Research Market Research
Create
Market Research Market Research Market Res
t Research Market Research Market Research
Market Research Market Research FIGURE 15.1
Market Research
Communicate
The marketing cycle

Chapter 15  Marketing planning, implementation and evaluation 529

 Remember that feedback mechanisms work between each part of the process
r­ epresented in figure 15.1. For example, a marketer uses market research to create a
new product variant for breakfast cereal. Market research is once again used to test
if the new breakfast cereal variant appeals to the market.

Understanding, planning, implementation

and evaluation
The main activities an organisation must undertake in relation to marketing are:
• develop a detailed understanding of the market
• plan how to achieve the organisation’s goals
• implement the plan
• continuously evaluate marketing performance.
It is important to remember that this is not a linear process; in practice, mar-
keters continually refine and adapt each and every aspect of their offering based on
the changing marketing environment and evaluation of their marketing program
to date. The management task of understanding the market, and planning, imple-
marketing management  menting and evaluating marketing activities is known as marketing ­management.
The management task of Marketing management aims to ensure that the organisation achieves its marketing
understanding the market, and
objectives by maximising the value obtained from the marketing exchange —
planning, implementing and
evaluating marketing activities. for the organisation itself and its customers, clients, partners and society at
large.
This textbook has provided the foundations for building an understanding of the
market. The introduction to marketing chapter outlined the marketing concept and
the importance of adopting a market orientation. The chapter on the marketing
environment introduced how a marketing plan can be developed from such
an understanding. The chapter on market research discussed the role of market
research in building market understanding. The chapters on consumer and business
behaviour explained the decision-making processes and behaviours of consumers
and business purchasers respectively. The markets chapter described approaches to
understanding the composition of the market in such a way that plans can be made
to specifically target appropriate market segments.
Based on a sound understanding of the fundamental concepts related to the
market and marketing, the organisation can formulate a marketing plan to achieve
the organisation’s marketing objectives. This plan will incorporate the components
and issues discussed throughout the chapters. A marketing plan communicates to
all how the marketing team plans to get to where it needs or wants to be. It details
how to create value, communicate the offering to potential customers and deliver
the offering to the market.
Putting the plan into action is the implementation part of marketing. Just as imple-
mentation requires a marketing plan, a plan cannot ignore the realities of imple-
mentation. There is little point in having a plan that is impossible to implement or
goals that are impossible to achieve. This chapter discusses steps the organisation
can take to maximise the likelihood that the marketing plan will be implemented
effectively. We also note risks that can affect the success of the marketing plan in
achieving the organisation’s objectives and how these can be managed.
During implementation and at the conclusion of a marketing campaign, marketing
metrics and other systems can be used to evaluate marketing performance. It is
important to remember that evaluation should occur at all stages of the marketing
cycle so that the organisation can quickly and effectively respond to changing con-
ditions or some new understanding of the market. Accordingly, at this point you are
back to the understanding stage of the marketing cycle.

530 Marketing
 To better understand the marketing cycle and the role of marketing management,
let’s consider some examples.
Of the 10.2 million Australian holiday travellers, only half seriously consider
taking a holiday to New Zealand. Air New Zealand’s marketing manager was
given the task of building the brand in Australia. Market research suggested that
more than 80 per  cent of leisure travellers watch online video while planning
travel, and 45 per cent book as a result. YouTube and the power of online video
was chosen as a method to inspire Australians to take their next holiday in New
Zealand. Web episodes were used to follow four very different ‘Kiwi sceptics’ who
served as tour guides on their unexpectedly wonderful New Zealand holidays.
The campaign was launched with a one-day ‘road block’, meaning that every Aus-
tralian visitor to ­YouTube was exposed to the campaign. After 24 hours on You-
Tube, the campaign had 9.1 million impressions, 54  400 clicks and 23  914 video
views. In 2012, Air New  Zealand was recognised for the campaign with a Cannes
Bronze Lion for Branded Content and Entertainment. In addition to winning the
award, the Air New Zealand Marketing team received a return on investment of
$2 for every $1 dollar spent on advertising. People who saw the Kiwi sceptics
campaign had an average ticket increase of $50, and year-on-year sales increased
by 30 per cent.2
Government agencies also need to understand the market to deliver value to
customers and meet their organisational objectives. The Working with Children
Screening Unit is part of Western Australia’s Department for Child Protection.
With about 50 staff and an annual budget of around $10 million, a key aim is
the protection of children. This includes checking whether people who work
with children have a criminal record, and the Working with Children Screening
Unit conducts rigorous identity and background checks. Successful applicants are
issued with a Working with Children Card, which must be renewed every three
years. One of the greatest challenges facing the unit was providing people with
enough access points to submit their applications. Forms could not simply be
posted in, as a 100-point identity check had to be conducted in person and the
applicant’s photo had to be taken to complete the application. The Working with
Children Screening Unit recognised that setting up its own network of outlets was
not a viable business solution, and it needed a partner that offered an extensive
retail network. Australia Post was chosen for two key reasons. First, it had an
extensive retail network; and, second, it had experience in conducting similar
exercises for Australian Passports. In the first year of service, 23  000 applications
were processed.3
Now that we have explored the nature of the marketing cycle, we will dedicate
the rest of the chapter to discussing marketing planning (including marketing objec-
tives), implementation and evaluation in more detail.

Triumphantly reshaping women Spotlight 

Advertising agency BCM and Thrive PR were responsible for the IAB award-winning integrated
marketing communication campaign ‘The art of shaping’ for their client Triumph. The campaign was
introduced for Triumph’s Shape Sensation range of underwear. With brand tracking indicating that
Triumph was perceived as traditional and old-fashioned, a campaign was needed to connect with
Australian women. A key insight underpinning the award-winning campaign was that no matter what
age, women of all shapes and sizes wrestle with their body shape. This insight was used to position
Shapewear as the solution.

Chapter 15  Marketing planning, implementation and evaluation 531

 Shapewear was the fastest growing segment in the women’s lingerie market at the time of the
campaign, and the category was already cluttered with competitors whose products focused on
practicality, rather than comfort or good looks. BCM and the Thrive PR commissioned market
research, which was released as The shape report — a comprehensive quantitative and
qualitative survey of women’s perceptions of
their bodies.4 The findings indicated that more
than 70 per cent of Australian women are
unhappy with their bodies, and that terms for
female shapes, like ‘apples’ and ‘pears’, did
not help. BCM and Thrive PR decided to get
rid of the old body labels and rename them
using the names of artistic masters, such as
‘Matisse’ and ‘Rembrandt’. The overall aim
was to celebrate women’s various shapely 
forms.
A competition was launched to find six women
to represent each of the six body shapes, who
would serve as brand ambassadors for the
Triumph Shape Sensation range. An interactive
website provided the competition platform.5
Visitors to the website could answer a quiz to
determine their body shape, enter the competition,
vote for their brand ambassador and share their
body shape classification on social networks. The
campaign ran over a six-week period with the
following results:
• retail sales for Shape Sensation were up 45 per cent over budget
• over $1.1 million worth of free TV coverage was generated as well as coverage in national
newspapers, magazines and online editorials
• more than 250  000 women visited the website
• over 1700 women entered the competition
• 63  000 people voted through social networks.

Question
Explain the marketing cycle using Triumph’s Shape Sensation campaign as an example.

Concepts and applications check

Learning objective 1  explain the relationship between the marketing cycle and marketing
management
1.1 Market research is required at every stage in the marketing cycle. Discuss this statement.
1.2 Prepare an argument for and against the following statement: ‘Delivery is the key phase of the
marketing cycle.’
1.3 Imagine you have just been employed in your first marketing role for an information systems
division in a major corporation. All employees in your division have specialist IT backgrounds.
Your business specialises in delivering information systems. The entire marketing ‘department’
initially will consist only of you. How would you explain the marketing cycle to your colleagues,
and their place in it, in your own words?

532 Marketing
MARKETING PLANNING
In the chapter on the marketing environment, it was outlined that a thorough Learning objective 2
situational analysis, together with an organisation’s objectives, forms the basis for understand the
importance of effective
marketing planning. Organisations that operate with a marketing philosophy put marketing planning in
customers at the centre of their thinking. Research shows that organisations with a achieving organisational
marketing philosophy perform better for their stakeholders — they offer more value and marketing objectives
to customers and clients, better financial returns to partners and owners, and more
benefits for society at large.6 Let’s consider how this occurs in practice. Organisations
state their purpose using mission statements, values and organisational goals. Let’s
take a look at some examples.
• Coca-Cola. Coke’s goals are to refresh the world, to inspire moments of optimism
and happiness, to create value and make a difference.7
• McDonald’s. The McDonald’s brand mission is to be its customers’ favourite place
and way to eat and drink.8
• Dick Smith Foods. Dick Smith Foods are Australian made and Australian owned.9
Organisation goals, missions and values vary considerably and can serve to dis-
tinguish one organisation from another. Recall our discussion in the marketing
environment chapter that organisations need to distinguish themselves from compe-
tition. Mission statements represent the starting point as they communicate to both
internal stakeholders (e.g. employees) and external stakeholders (e.g. customers,
investors and media).
All of the examples above sound like reasonable — in some cases noble —
­objectives. Read the examples again and imagine you are the marketing director
of each organisation. Consider how you would go about achieving the objectives.
You might have some ideas, but you will have found that the statements do not in
themselves tell you much about how to go about achieving the objectives or indeed
exactly how you might know/measure if you have achieved the goals. While top
management establishes mission statements and overarching organisational goals, it mission statement 
is up to senior and middle managers to plan and implement respectively to achieve A summary statement of
the overarching goals of the
those goals. To fulfil the mission statement, organisational goals and values must be
organisation.
translated and disseminated throughout the entire organisation. Organisational
objectives must be carefully interpreted into objectives for each single business unit.
Business unit objectives then get translated into functional or area objectives.
Consider the following vision, which belongs to Tourism South Australia as stated
in its 2009–14 corporate plan:
By 2020 South Australia will have capitalised on its massive tourism potential and will
be a world’s best destination supporting a sustainable and profitable industry. South
­Australia will reap enormous benefits from developing its leading Australian experiences
(e.g. food and wine, major events and the natural environment), along with its vibrant
convention and education tourism sector. The SA experience will be characterised by our:
• bringing to life an authentic South Australian story
• marriage of heritage with contemporary expression
• engagement with people on their life journey
• ‘bundling’ and presentation of quality, value for money, activities
• excellence in innovative sustainable design
• provision of choice and exceeding visitor expectations.
South Australia will stick to its message and speak to the world about the best
we have to offer. It will take partner commitment to new levels. South Australia’s
authentic experiences will be so compelling, that it will be our visitors who spread the
word about the amazing and memorable time they spent here. South Australia could
be their favourite Australian destination.10

Chapter 15  Marketing planning, implementation and evaluation 533

 Key result areas outline how Tourism South Australia will seek to overcome the
challenges it faces in four key areas. The four key areas shown in the left column of
corporate strategy  A specific, table 15.1 represent the matters of concern for Tourism South Australia’s corporate
but high-level plan to achieve strategy, and the desired thirteen broad strategies are outlined in the right column.11
objectives that reflect the overall
Specific performance metrics for these desired strategies are contained in Tourism
mission of the organisation.
South Australia’s internal organisational documents, and these are tracked regularly
and reported upon annually.

Table 15.1  Major challenges for Tourism South Australia

Communicate   1. Better communicate the best of what the target audience wants to buy

  2. Leverage partnerships that help to reach the target audience with the most
compelling message and offer possible

Develop   3. Create new and refreshed tourism developments in South Australia

  4. Develop Adelaide’s tourism appeal by upgrading its special places

and spaces

  5. Ensure external planning and policy impediments to sustainable tourism

development are removed and that strategic investments are case managed
through the development process

Leverage   6. Grow new and existing festivals and events to act as a hook to visit South
Australia and grow its image

  7. Encourage further investment in South Australia’s tourism assets and

experiences (e.g. food and wine, nature)

  8. Market Adelaide as an ideal destination for business events.

  9. Build Adelaide’s reputation as a global study destination to encourage greater

visitation and participation in South Australia’s tourism

10. Make capturing the hearts and minds of visitors via authentic and powerful
storytelling a significant point of difference in building South Australia’s visitor
experiences

Activate 11. Make Adelaide and South Australia a destination that can be easily and
affordably reached

12. Ensure consumer demand finds the points of sale that are best able to convert
that demand into a holiday booking

13. Build a single, strong body that takes responsibility and leads operators to a
sustainable tourism future

From this broad corporate strategy, objectives at the business unit level would
business-unit strategy  be set and used to develop a business-unit strategy, which will guide the resources
Strategies for the various allocated to each business unit within Tourism South Australia. Strategies for each
business areas within an
functional area within each business unit would then be developed to assist the busi-
organisation to guide their
contribution to achieving the ness unit to achieve its objectives. Functional area strategies are then translated into
overall corporate objectives. functional area objectives. By breaking the organisational mission, goals and values
into business units and, later, functional objectives, organisations can assist each
area in an organisation to understand what needs to be done, when and by whom.
Given that ‘what is measured gets done’, this translation of organisational mission
into functional area objectives ensures that each and every person in the organ-
isation understands the organisation’s mission and the part that they need to play to
achieve the mission. This is represented in figure 15.2.

534 Marketing
 Mission

Corporate strategy

Business unit 1 strategy

Marketing IT HR Finance R&D Production

Business unit 2 strategy

Marketing IT HR Finance R&D Production

Business unit 3 strategy

Marketing IT HR Finance R&D Production

FIGURE 15.2
Hierarchy of strategic
planning

All areas of an organisation should be working to meet the same organisational

goals. While each functional area may have its own objectives, they are still working
together to meet one common goal. It is important to understand the relationship
between marketing and other organisational functions.
• Human resources and marketing. The marketing and human resources functions
need to work together to recruit the ‘right’ people to project the required image.
• Finance and marketing. The marketing and finance functions need to work
together to ensure that funding is available to create, communicate and deliver
the organ­isation’s products and to ensure that marketing activities operate within
the ­financial resources of the organisation.
• Accounting and marketing. The accounting and marketing functions need to work
together to ensure marketing has comprehensive, timely and structured data on
sales and past marketing performance, and that the marketing function is pro-
viding the accounting function with the necessary information to ensure man-
datory business and legal accounting obligations are fulfilled.
• Information systems and marketing. Information systems and marketing work
together to ensure marketing has the necessary tools to communicate and deliver
the product to customers. For technology-based organisations or organisations that
deliver technology-based products, the information systems area, if it incorporates
information technology, can be crucial in ensuring the product is delivered at a
satisfactory level of customer service. For example, for a bank such as Westpac
that offers customers the convenience of internet banking, the information

Chapter 15  Marketing planning, implementation and evaluation 535

 systems area must ensure that the service is working correctly virtually all of the
time. Similarly, businesses that use e-commerce rely heavily on their information
systems area to ensure the communication and delivery aspects of marketing are
reliably carried out.
• Research and development and marketing. Research and development has an impor-
tant role in keeping marketing up to date with new technologies and innovations
and in responding to market needs and wants as advised by the marketing area.
It is crucial that the research and development area focus its activities on the cur-
rent and anticipated needs of the market and this can only be achieved by close
communication and cooperation with those most in touch with the market — the
marketing department.
• Production and marketing. Marketing and production must communicate and
cooperate to ensure that products are produced in the appropriate quantities, at
the appropriate quality and at the right time. Historically, many organisations
have had a bias towards production, where products are created based on the
capabilities of the organisation’s production department, but organisations with a
market orien­tation try to focus the production department on delivering products
demanded by the market.
• Logistics and marketing. Delivery of products to customers when and where they
are wanted is a crucial part of marketing and the marketing and logistics depart-
ments (such as warehousing and transport) must work together to ensure this
aspect is completed well. Marketing is able to provide details as to likely levels
and locations of demand and can also undertake actions (such as discounts or
advertising) to affect demand at particular points in time.

Marketing objectives
The concept of marketing objectives will be familiar from your studies of this text-
book. Most commercial marketing organisations share the goals of profit, market share
growth and customer retention. Social marketers vary from commercial marketers,
with behaviour change as their main objective. We will dedicate some discussion to
these objectives now and then look at a model for creating effective objectives.
Monetary objectives
Commercial organisations exist ultimately to generate wealth for the business owners.
Hence a particular level of profit will be an objective of all business organisations. Not-
for-profit organisations do not always have profit as an objective, but they will usually
have some financial objectives (e.g. to generate enough funds to be self-supporting or
to generate funds in order to carry out charity or other philanthropic work).
The generation of profit is the culmination of virtually all of the processes that
take place within an organisation. Hence the objective of profit is likely to exist
at the corporate level and a particular level of profit is likely to be detailed in the
corporate strategy. This in turn will be broken down into targets and methods for
achieving those targets in particular business units and functional areas. For mar-
keters, monetary objectives are usually translated into return on investment metrics.
Market share growth
Market share growth is linked with profit, but it should not be mistaken for the same
thing. Successful business organisations are long-term entities and operate with a view
to sustainable operation. Hence organisations may be willing to sacrifice profit to estab-
lish market share. This is often seen when a business enters a new market — it will
undercut the prices of existing competitors to attract trial customers and win market
share. Once a degree of customer loyalty is established, it will gradually increase prices

536 Marketing
to ensure long-term profitability. Similarly, some businesses offer free trials of services
to hook customers who then must pay once the free trial expires if they wish to main-
tain the service. Apple did this with its online Mac and MobileMe services.
Customer retention
To ensure profitability and achieve market share growth, the business must not only
win new customers, but also retain the loyalty of its existing customers. It does this
by putting customers at the centre of its decision making. Attracting new customers
is difficult, so once a customer has engaged with a business, the aim should be to
generate customer loyalty and repeat business. This can occur by providing out-
standing service, acting quickly on problems or disputes and undertaking customer
relationship management. Customer relationship management (often abbreviated to customer relationship
CRM) refers to the processes and practices put in place to identify, track and use cus- management (CRM)  The
processes and practices put
tomer information and preferences to provide superior customer service and sustain
in place to identify, track and
long-term relationships. A simple example of customer relationship management is use customer information and
a bank sending an income insurance brochure to a customer who has just taken preferences to provide superior
out a loan. Another example is a hairdresser knowing which shampoo a customer customer service and sustain
favours, and yet another is a customer being able to ask for ‘their usual table’ at a long-term relationships.
restaurant or ‘the usual’ drink at a bar. The ‘cookies’ used by websites to ‘remember’
a visitor’s preferences or habits are an example of an automated CRM process.
Customer relationship management can be a very important tool in retaining cus-
tomers and in generating additional business from existing customers. The increasing
use of phone and other technologies to communicate with customers has led to sub-
stantial growth in customer relationship management approaches. Businesses must
be aware though that this practice has also led to much higher expectations from cus-
tomers. Customers expect the business to know more about them and to tailor their
offerings in response to that. Businesses that fail to know much about long-term
customers are at significant risk of losing that customer. Another thing businesses
need to beware of in adopting a customer relationship management approach is that
they can be complex and demand buy-in from all employees who will work with the
system. For them to be effective, every contact with the customer needs to be logged.
Societal objectives
In addition to the commonplace organisational objectives, many businesses have
objectives aimed at the good of society. These have been developed out of a sense
of obligation to the society in which the business operates and the increasing impor-
tance placed on social responsibility by growing numbers of potential customers. The
Woolworths Limited Corporate Social Responsibility Report outlines a series of issues of
interest to the public. For example, Woolworths is committed to giving preference to
domestic sources for fresh produce, and has hundreds of direct trading relationships
with the very best fruit, vegetable and meat farmers and growers in Australia and
New Zealand. In Australian supermarkets, 100 per cent of fresh meat was sourced
from Australian producers, and 97.3 per cent by weight (96.5 per cent by value)
of fresh fruit and vegetables was grown in Australia. For New Zealand Woolworths
supermarkets, 100 per cent of fresh chicken, pork and lamb and 90 per cent of fresh
beef was sourced from New Zealand.12
Corporate social responsibility is the notion that corporations are obliged to act corporate social
in the interests of the society in which they operate; for example, by protecting the responsibility  The obligation of
businesses to act in the interests
natural environment and creating employment.
of the societies that sustain them.
The SMART model
We will use the SMART model to consider the characteristics of effective marketing
objectives, which we first explored when we looked at defining the marketing

Chapter 15  Marketing planning, implementation and evaluation 537

 challenge and developing a marketing plan. According to the SMART model,
SMART model  An approach to
determining effective marketing ­objectives must be:
objectives that requires they be • Specific
Specific, Measurable, Actionable, • Measurable
Reasonable and Timetabled. • Actionable
• Reasonable
• Timetabled.
Specific
Objectives need to be clearly defined so that it is easy to understand what is to be
achieved and what will be considered successful. For example, ‘increase revenue’
is not a specific objective; ‘increase revenue by 10 per cent while containing cost
growth to 4 per cent’ is. Another example of a specific objective is ‘increase brand
awareness (measured by unaided recall) by 10 per cent’. By stating the measure of
brand recall, managers know what needs to be achieved.
Measurable
The exact measure must be stated and the objective must be able to be measured
through some means. Look back at the two examples above. It is relatively straight-
forward to measure whether a marketing campaign has managed to ‘increase
­revenue by 10 per cent while containing cost growth to 4 per cent’ by referring to
the business’s financial records. The second example above involves an objective
that can also be measured. Determining whether brand awareness had increased
by 10 per cent would require a validly constructed survey before and after the cam-
paign. Even less specific objectives can be measured. For example, the objective of
a retailer to improve in-store service could be measured by an exit survey of cus-
tomers conducted before and after the improvement program.
Actionable
The organisation needs to ensure that its business-unit managers, such as marketing
managers, have the authority and resources to take the actions necessary to achieve
the objectives that are set. If the necessary actions cannot be taken to achieve the
objectives, the objectives should not be set. For example, an objective for a sales
agent for a clothing designer may be to make presentations to 50 retail chains. This
objective would be actionable as long as the agent’s manager ensures that the neces­
sary time, materials and other resources are available to the agent.
Reasonable
There is little point setting unrealistic objectives for a marketing objective. An
organisation may well harbour grand ambitions and is entitled to do so, but it must
set objectives that are realistic. Unreasonable objectives can act as a disincentive
for managers and their employees. For a new industry entrant in a stable, mature
market, a reasonable objective might be to achieve a 5 per cent market share in
five years. An unreasonable objective would be to secure a 50 per cent market share
in five years (although it can happen in particular circumstances).
For an established business, a reasonable objective might be to grow 1 or 2 per cent
faster than the industry growth rate, but it would be unreasonable to expect a busi-
ness to achieve year-on-year double-digit growth in a mature industry that is growing
at only a few per cent each year.
Timetabled
Marketing is an ongoing effort, though marketing campaigns may occur over a
particular period of time. Moreover, marketing is an ongoing process that changes
in response to the marketing environment. To ensure consistent progress, and to

538 Marketing
ensure that progress can be measured, objectives should have milestone dates set.
For example, if a company such as SleepMaster that manufactures quilts, blankets
and pillows wants to achieve 10 per cent sales growth over a financial year, it would
set that as an objective, but would also have intra-year objectives. For example, it
might have an objective to implement an extensive advertising campaign in April
as the weather starts to cool down, combined with specific sales objectives for the
peak winter season of May, June and July. If the sales increase is not achieved
during winter, it may have to introduce a new objective to increase sales in spring
by offering aggressive price discounts. Objectives need to be timetabled to assist
managers to understand when to measure to assess performance.
Objectives and marketing metrics
Marketing objectives can take a variety of forms including profit related, sales and
market share related, customer related and societal objectives. Specific measures
of marketing performance are referred to as marketing metrics. The Australian marketing metrics  Measures
Marketing Institute offers a framework for marketing metrics. This framework’s that are used to assess marketing
underlying principles are that metrics should be linked to strategy, and should performance.
include as a minimum four key elements:
• return on investment
• customer satisfaction
• market share
• brand equity.
However, there is no one set of measures that marketers use to measure and com-
municate performance. Managers must choose and use metrics that are most relevant
to their organisation’s mission and the specific objectives that have been set. For
example, a marketer whose objective was to gain unaided brand recall of 15 per cent
would have achieved their objective if a 16 per cent unaided brand recall was reached.
Managers must choose and use metrics that are most relevant to their organisation’s
mission and objectives. For this reason one measure cannot be recommended for all
marketers, nor is there one set of metrics that all marketers can use to measure and
communicate performance. Marketers need to choose the metrics that best meet the
activities they are undertaking. The use of marketing metrics is discussed in depth
later in this chapter, including more detailed measures, but to see how they work in
tandem with objectives, consider the following discussion.
Take a moment to think about your university studies. How do you decide which
lectures to attend or which concepts to focus your efforts on? The assessment for the
course dictates how you choose to study. You are likely to focus on the concepts that
are being assessed in more detail than concepts which are not directly assessed. You
are likely to attend lectures that are relevant to the assessment that you are required
to undertake. You are more likely to attend a lecture if it is known the lecturer
is likely to present exam hints. These behaviours demonstrate the clear link between
objectives, performance and measurement: what is measured gets done.
On a personal level, setting objectives and measuring achievements are important
for a number of reasons. For example, you can gain a sense of accomplishment from
achieving set goals. By exceeding goals set you can communicate your effectiveness
as an individual to others, including employers. Many marketing salaries contain
significant bonus components and by achieving your objectives you may receive
a higher salary as you qualify for available bonus amounts. Table 15.2 (overleaf )
­outlines ­contemporary bonus incentives for marketing professionals. For example,
a marketing manager paid an annual salary of $80  000 may earn an additional
$50  000 in bonuses if all their objectives are met. Of course, the organisation must
ensure that achievement of the set objectives generates sufficient revenue and other
­benefits to justify such a bonus.13

Chapter 15  Marketing planning, implementation and evaluation 539

 Table 15.2  Professional marketer bonus incentives
Role Average bonus (percentage of salary)
Marketing assistant 17%
Marketing executive 43%
Marketing services manager 53%
Product/brand manager 72%
Marketing manager 63%
Marketing director/General manager, marketing 55%
Managing/Deputy managing director 41%

It is important for you to understand what your personal and professional objec-
tives are. You need to review these objectives from time to time to reflect on your
performance and you need to ensure that you have high-quality objectives.

Spotlight  Sales flow on .  .  .

Artline was created by Japanese organisation Shachihata more than 50 years ago. Since first coming
to market, Artline has produced and marketed a range of pens, receiving International Organization for
Standardization (ISO) certification for both its quality assurance and environmental management systems.
Today, Artline markets a vast range of pens and markers for all purposes that are renowned the world over.
Artline undertook an extensive review of its brand
positioning to understand how it could reposition the
brand in the Australian marketplace. The tag line ‘Things
flow better with Artline’ was developed by Little Giants,
a Sydney-based company, following the review. The tag
line was intended to show that Artline has a pen for every
occasion. An integrated marketing communications
campaign — incorporating a new website, as well
as online, magazine and TV advertisements — was
implemented.
The campaign involved a collaboration with Drawing
Book Studios, who created content promoting Artline’s
range of pen products. The Artline website and other
social media platforms (such as Facebook) feature
illustrations and video tutorials from resident artists that
demonstrate Artline pens in use. Artline engages with
consumers online, running competitions encouraging
people to vote for their favourite art work.
The integrated marketing communications campaign
brought Artline’s range of pens to life, demonstrating everyone from students to professionals using the
pens in everyday life. Artline’s television commercial producer Tina Bull stated:
My aim was to try and create all of our rooms in-camera, with an old school, low-fi approach, we painted
and outlined everything from calculators to surfboards, then placing them as ordinary props into [their]
environment. This created an interesting play with the vision, where you initially think things are 2D
drawings but they actually exist in the 3D world with real shadows and perspective.14

Question
Imagine you are the marketing manager for Artline. Select a pen from the range, and write one sales and
one social media (Facebook) objective, ensuring that you satisfy the SMART model criteria.

540 Marketing
Concepts and applications check
Learning objective 2  understand the importance of effective marketing planning in achieving
organisational and marketing objectives
2.1 Evaluate the organisational mission statements presented earlier in the chapter for McDonald’s,
Coca-Cola and Dick Smith Foods. Which mission statements demonstrate a marketing
philosophy?
2.2 Select one company and locate an example of each of the following:
(a) organisational objective
(b) business-unit objective
(c) functional objective.
2.3 You have been engaged as a marketing consultant. Outline why objectives are needed.
2.4 Explain why customer retention is an important marketing concept.
2.5 Using the SMART principles, make improvements to the following marketing objectives:
(a) increase customer retention
(b) increase brand image by 2 per cent
(c) gain 10  000 Facebook impressions
(d) increase sales of Kelloggs Rice Bubbles.

MARKETING IMPLEMENTATION
It is tempting to assume that once the marketing plan is formulated, implemen- Learning objective 3
tation will proceed in a straightforward manner. There are, however, numerous describe how to manage
the implementation of a
complexities that make implementing marketing problematic. Additionally, new
marketing strategy
information is likely to come to light that requires constant refinements of the
marketing plan.
By understanding some of the problems that arise in implementing marketing
plans, organisations can work to minimise their occurrence. Many of the problems
arise from the organisation’s internal environment. The first part of this section
looks at some of the complexities that can from time to time make implementing
the marketing concept a true challenge. If it was a simple matter of putting the
marketing plan into action, marketing would not be the diverse and interesting field
that it is. In the second part of this section, we will consider some of the things that
marketers can do to maximise the likelihood that the marketing plan will be suc-
cessfully implemented.

Potential internal barriers

Some of the most common barriers to effectively implementing the marketing con-
cept can be internal: inertia (including resistance to change), a lack of coordination
and/or cooperation, a lack of a clear message or the presence of mixed leadership
signals, and focusing too much on the short term at the expense of broader objec-
tives. All are complex problems, which are introduced for your consideration here.
Inertia
Implementing a change as fundamental and far-reaching as a shift from an internal
orientation to a market orientation is difficult, time-consuming and expensive. Many
people are resistant to change. Marketers seeking to change the way their company
does business can encounter resistance from those uncomfortable with change and
those with vested interests in preserving the status quo. Change management is an

Chapter 15  Marketing planning, implementation and evaluation 541

 industry in itself and meaningful change in a large and complex organisation can
take many years to accomplish. At each stage, but principally in the early days,
there is a risk of falling back into an internal orientation. For example, it is common
and natural for people who work in production to favour products and processes that
make their task easier, whereas the characteristics of easily produced products may
not be the ones valued by customers. Hence there is a conflict. Each time such a
conflict arises the market orientation is at risk. To counter such problems, marketers
seeking change must implement strong change leadership. To achieve successful
change, marketers must be champions for change, and this requires them to develop
a powerful and convincing argument for the need for change.
As mentioned, many people are fearful of change; it can be challenging, tiring
and threatening. In addition, in any change there is a shift of power that is usu­
ally resisted by those who may be required to give up some power. For example, in
adopting a market orientation, a research and development division within an organ-
isation may lose some autonomy as customers (via salespeople, the marketing divi­
sion or actual sales) provide guidance as to the types of product characteristics that
the market wants. In addition to resistance to the initial change ­process, a market
orientation is likely to require more organisational flexibility. The market changes,
competitors change and customers change as macro- and micro-­environmental forces
work. This means that businesses with a market orientation more often than not
need to be agile so that they can move with the market.
Poor coordination and cooperation
Politics, the quest for power, self-interest and professional ego can result in a lack
of coordination and cooperation between different functional areas. For example,
a human resources department may try to moderate recruitment, working hours,
salary and other issues to the hindrance of a sales department that feels it needs
to offer large incentive payments and require salespeople to work long hours
during peak seasons. Similarly, a sales department may keep the human resources
­department ill-informed about some of its practices so that it can bend the rules
(possibly even laws). As another example, a production department may be reluc-
tant to change a simple product feature such as colour because it adds complexity
to the production line, but the marketing department may consider colour a crucial
selling tool. For example, while it would have been easier for Apple to sell just one
colour of iPod Nano, it sells eight. To achieve organisational goals, missions and
values, functional areas must cooperate and coordinate.
Lack of strong leadership
A market orientation requires strong leadership. Given many people’s general resis-
tance to change, any blurring of messages, mixed signals or signs of uncertainty
from those leading the change will reinforce this resistance to change. It is crucial
that the need for a market orientation be clear and that the organisation’s culture,
processes and other characteristics are all consistent with a market orientation. For
example, there is little point in professing a market orientation if the production
­division and marketing division only meet once a year.
A short-term outlook
Many people working in organisations are most concerned with dealing with
immediate challenges and completing the work at hand, but ongoing business suc-
cess is dependent on long-term planning and actions based on sustainable competitive
advantage. Compounding most people’s concern with the here and now is the fact that
many remuneration and performance indicators are tied to short-term results. Sales-
people are bonused on monthly or annual sales figures; managers are assessed against

542 Marketing
annual expense budgets and annual staff turnover numbers; and chief executives are
rewarded for annual increases in share prices. Some of the corporate matters that
came to light during the global economic crisis clearly demonstrated that bonuses
offered on short-term results easily lead to people making business decisions with
little regard to the effects on the business and other stakeholders in the longer term.
The high-profile failure of Australian child care company ABC Learning Centres
and its founder Eddy Groves in recent times provides a classic example of the damage
that a short-term outlook can do. So much focus was put on corporate growth and
signing up new child care outlets internationally that insufficient attention was paid
to whether the total business would in fact prove profitable — it wasn’t. Its share
price ultimately crashed, it was placed into receivership and required a $22 million
dollar government bailout to stay afloat.15 Moreover, a short-term focus tends to lead
to an inward approach, with cost cutting and productivity increases championed,
whereas a market orientation requires an external focus and responsiveness to the
market. Key features of a long-term market-oriented approach include building cus-
tomer loyalty, reputation and goodwill. Most business advisers recommended that
organisations try to avoid short-term measures during the onset of the global econ­
omic crisis in order to preserve the integrity and competitiveness of their business
to take best advantage of the economic recovery.

Environmental factors
In addition to the internal factors described above, external environmental factors
affect the ability of an organisation to implement the marketing concept. One
important factor is the increasing saturation of the market in terms of all aspects saturation  The existence of
of the marketing mix. It is becoming more and more difficult for marketing organ- so many competitive offerings
in the marketplace that it
isations to create and sustain a competitive advantage or indeed to differentiate their
becomes virtually impossible to
offerings at all in the midst of extensive competition. Think about mobile phone differentiate an offering or create
companies. What are the differences between the offerings of Telstra, Virgin Mobile, a competitive advantage.
Optus and Vodafone? They mostly sell the same handsets and offer phone calls,
SMS  and web browsing. Virgin tries to portray its products as somehow more fun
than the others while all try to present lower prices than Telstra, while Telstra has a
slight advantage in coverage in rural areas. Overall, however, it is difficult to say one
is a clear choice over any other for most of us.
Another factor is the fragmentation of the market. The market increasingly com- fragmentation  The increasing
prises smaller and smaller niches with specific needs. Consider the mobile phone division of the market into ever
smaller niches with increasingly
example again. Between the few companies offering services there are thousands
specific needs.
upon thousands of plans and options to choose from, each trying to provide an ideal
combination of price and services for a small number of potential customers.
Now that we have considered some of the problems that can arise when imple-
menting a marketing orientation and marketing plan, we will outline the many
things that marketers and managers can do to enhance their chances of success.

Maximising success
Successfully implementing the marketing concept is crucial to sustainable competi-
tive advantage and hence ongoing business success. We will now discuss some of the
processes that can maximise the chance of the marketing concept being successfully
applied.
Planning
There is an old adage that ‘those who fail to plan, plan to fail’. This recognises the impor-
tance of planning ahead of implementation. Research shows that organisations that

Chapter 15  Marketing planning, implementation and evaluation 543

 plan perform better than organisations that do not plan. Think about your own studies.
Do you take time out to plan before commencing studies each semester? If so, does this
mean you have a plan that allows you to focus on getting the work done to meet dead-
lines? If not, are you constantly spending time checking what is due and when? Could
this time be better spent on studying, working or enjoying some personal time?
Plans that effectively communicate strategies and objectives are documents that
outline what needs to done, by whom and when, to achieve agreed upon objectives.
action plans  Implementable Marketing plans typically contain action plans to be implemented by departmental
plans with specific actions, and line managers. Ideally, marketing plans will include schedules and specific
schedules and goals that direct
actions to be taken so that managers who are responsible for implementation (but
managers and staff that are not
directly involved in strategic not involved directly with strategic planning) have a clear plan forward, and a clear
decisions. idea of what is expected, and of whom.
emergent approach  The Organisations do not always completely adhere to their written plans due to changes
development of marketing that may arise in the marketing environment. An emergent approach relies on devel-
strategy in response to changing oping strategy in response to changing market conditions. An emergent approach
market conditions.
allows marketers to operate in highly competitive and changing markets. It is impor-
tant, though, not to confuse the absence of planning for an emergent approach.
Plans can help marketers focus on the longer term. Rather than focusing on the next
week or month, planning requires marketers to think about this year and the next few
years. The planning process requires marketers to monitor their competition. When
trying to think about the competition, marketers use their market intelligence to think
about the possible ways that competitors may act. Marketers often develop contingen­
contingency planning  The cies to identify the different ways that competitors may act. Contingency planning
process of putting in place plans requires managers and others to think ahead to things that might not go to plan and to
for unforeseen or uncertain
have strategies in place to deal with them. Proper contingency planning helps organ­
eventualities to ensure managers
think ahead and can respond isations both identify possible problems (and opportunities) and respond quickly and
to emerging problems and appropriately to them.
opportunities. Plans help marketers to develop priorities and focus efforts on achieving specific
goals and objectives. The planning process requires marketers to think about their
customers and this often means that marketers focus on targeting their primary
customer. The planning process helps marketers to understand which marketing
approaches work and which do not work for their organisations.
Motivation and incentives
People join organisations for a wide range of reasons. While pay is probably the first
thing that comes to most people’s minds, most employees (and especially volun-
teers) also have other motivations such as job satisfaction, the desire to help others,
the desire to achieve, the desire for social companionship, intellectual or physical
challenges, and so on. Organisations can use these various motivations to encourage
marketing implementation. An obvious example is to pay bonuses based on sales
results or the provision of quality service, but there are many other opportunities.
For example, an employee who values intellectual challenges may be given the
opportunity to participate on a team charged with finding more efficient ways to
provide call centre services to customers.
It is important that incentives align well with overall organisational objectives.
For example, while most salespeople have a bonus component in their overall remu-
empowerment  Enabling neration, it does tend to encourage a short-term view rather than sustainable com-
employees to make decisions
petitive advantage.
to do their job properly and
ensuring they have the necessary Empowerment
resources to make effective use
Empowerment — enabling employees to make the decisions they need to make to
of their power to make decisions.
properly do their job — is crucial to enabling the organisation to respond to customer

544 Marketing
needs and wants. Empowerment allows employees to deal with customer queries
and complaints quickly and efficiently. An important aspect of empowerment is
ensuring that employees have the knowledge, contacts, confidence and support they
require to make effective use of their decision-making power.
As we have emphasised throughout our discussion, marketing is a dynamic
activity that takes place in an ever-changing environment. While the marketing plan
should guide all marketing activities, it cannot possibly come close to covering every
possible situation. In addition, opportunities that arise often demand quick action if
they are to be taken advantage of. To cope with these inevitabilities, managers and
employees in organisations need to be appropriately empowered to make decisions
that accord with the objectives of the organisation but that may not be specifically
covered in the marketing plan. For example, BigPond Internet has empowered its
call centre managers to offer a discount to unhappy customers who have been let
down by some aspect of the organisation’s service. A call centre operator dealing
with a customer who is complaining about a late delivery of an installation package
has the authority to compensate the customer by waiving the first month’s subscrip-
tion fee. Google perhaps represents the ultimate expression of employee empower-
ment, with employees free to use a portion of their time each work day on their
own projects and to allocate themselves to various Google projects according to their
interest. Of course, they also need to produce results for Google.
Structure for cooperation and coordination
The organisational structure itself can be an important factor in the success or organisational structure  The
otherwise of implementing the marketing concept. Organisations that are structured formal arrangement of business
functions within an organisation.
to encourage cooperation, coordination and communication between different func-
tional areas are more likely to achieve a consistent market orientation across the
business. Organisations with discrete functional areas, often located in different
sites, or with a silo mentality — each area concerned with its own agenda — may
struggle to achieve cooperation and coordination across the various functions and
so it is likely that they will be characterised by a production department with a pro-
duction focus, a finance department with a budget focus, a human resources depart-
ment with a bureaucratic focus and so on.
On a smaller scale than the structure of the organisation is the structure of the
marketing department itself. The structure of the marketing department defines responsi-
bilities, authority and expectations. It can have a significant impact on the success of the
­organisation. The main options for structuring the marketing department are as follows.
• Customer structure. Organisations with distinctly different groups of customers
may organise the marketing department by customer type. For example, most car
dealers have separate sales people for fleet sales and personal sales.
• Product structure. In a business with a diverse array of products, it may make more
sense to have separate units dedicated to particular products or product lines. It
would not really make sense for the marketing department at Wesfarmers to adopt
a functional structure which would see its advertising team responsible for adver-
tising clothes to Kmart shoppers and fertilisers to farmers.
• Functional structure. In a marketing department organised along functional lines,
there will be separate units dedicated to functions such as market research, sales
and advertising. This structure is most suited to large organisations with estab-
lished and relatively homogeneous customers.
• Regional structure. Organisations that operate across dispersed geographic regions
may be best to structure their marketing department along regional lines so that
each marketing team can be located close to their target market and cater for
regional differences.

Chapter 15  Marketing planning, implementation and evaluation 545

 Organisational culture
organisational culture  The The factors above all contribute to the organisational culture — the organisation’s
values and behaviours shared shared values and behaviours. It is crucial that organisational culture be aligned
throughout the organisation.
with the marketing concept. This is not the case in many organisations and, to make
matters worse, cultural change is one of the most difficult things to achieve in an
organisation. It requires considerable effort, years of commitment and eternal vigi-
lance. In organisations with a market-focused culture, all employees and managers
will make all decisions and act in accordance with the ideal of delivering maximum
customer value.

Spotlight  Game, set and match!

Kia has sponsored the Australian Open tennis championship for 17 years, at a reported cost of
$50 million over the last 5 years. In 2013, Kia focused on social media during the January event,
with the objective to engage with a variety of audiences in a fun and interactive way.
To engage with a variety of audiences, Kia needed to work across several platforms and needed
to have numerous touch points for Kia fans and tennis audiences Australia-wide. Digital marketing
agency We Are Social developed Kia’s social media strategy, seeking to engage fans with the
brand beyond the traditional sponsorship. Content
generation was used to amplify the messaging and
to encourage reporting from on the ground at the
Australian Open.
Kia partnered with Yahoo!7 to create an integrated
social competition that encouraged people to return to
the website on a daily basis. The game ‘Kia big shot’,
hosted on mobile app Fango, ran for three weeks before
and during the tournament, with three prizes of Kia cars
up for grabs. The game allowed users to compete with
their Facebook friends and the more they played, the
more entries they accumulated towards the final draw.
The game was also promoted on air through the Seven
Network, both live in broadcast during the tennis, as well
as through dedicated TV spots. Another competition,
the ‘Kia tie-break’, ran for the first week of the Australian
Open, with daily prizes up for grabs, including tennis
tickets.
Kia experienced phenomenal social media activity as a result of this campaign:
• more than 28 million Kia-related impressions across all social channels (including media)
• more than 12 million impressions on defined hashtag #kiaAO alone (all earned media)
• more than 100  000 visits to Kia-owned competitions
• more than 90  000 active engagements on Kia-related content on all social channels
• 6000 new Facebook ‘likes’.
By the close of the tournament, Kia Australia had the highest audience engagement the brand
had ever received on social media, was top in sponsor share of voice (with 90 per cent total share
of tennis-related content), and the hashtag #kiaAO was the ninth most popular tennis hashtag in
Australia.16

Question
Identify potential barriers that Kia would have had to consider and manage in implementing this social
media campaign during the Australian Open.

546 Marketing
Concepts and applications check
Learning objective 3  describe how to manage the implementation of a marketing strategy
3.1 Think about recent service experiences that you have encountered. Explain how an employee
could have been empowered to improve the service delivery.
3.2 How can an organisation (and its marketing manager) attempt to eliminate or minimise the
barriers identified in the Kia Spotlight?
3.3 Marketing includes activities performed across the entire organisation; it is not limited to the
subset of activities that have been assigned to the marketing department. Search online and find
two examples outlining how organisations implement marketing in practice. You may wish to use
organisational charts.

EVALUATING MARKETING PERFORMANCE

The marketing cycle is best considered as an ongoing loop where marketing programs Learning objective 4
are constantly revised and refined. It is evaluation, throughout and after marketing explain the role of
efforts, that makes the marketing process cyclical in nature. It is also evaluation that marketing metrics and
the ongoing evaluation of
truly enables a marketing organisation to know, understand and respond to changes marketing performance in
in the market. In the many examples presented in this textbook, we have demon- the marketing cycle
strated some of the many ways that marketers have evaluated their performance. It
is important that we conclude with evaluation, as evaluation is the means by which
marketers can assess the performance of their marketing programs.
As we read in the chapter on international marketing, it is quite possible for a large
organisation such as Tourism Australia to spend an enormous amount of money and
other resources on a complex and extensive marketing campaign without having
clearly determined exactly what it is the campaign is meant to achieve. This is a
mistake. Only with clearly defined and understood objectives can the marketing
organisation:
• properly plan and implement an effective marketing campaign
• evaluate the extent to which the objectives have been achieved (and therefore
identify what, if anything, needs to change).
While we are presenting this section on evaluation towards the end of your course,
we have mentioned evaluation and marketing metrics throughout the book and we
reiterate that marketing is not a simple linear process, or even simply a cyclical
process. Rather, it is a complex web of plans, actions, feedback, modifications and
so on. A formal evaluation should certainly occur at the conclusion of a marketing
campaign, but evaluative actions should also occur periodically during the campaign
and ideally as an ongoing process from day one that enables the marketing organ-
isation to properly respond to the successes or otherwise of the campaign, alter the
campaign to cater for changing environmental conditions and so on.

Measuring performance
As mentioned earlier in this chapter, in order to evaluate how well objectives have
been achieved, a marketing organisation must use metrics. Marketing metrics are
the various measures that marketers use to understand how their marketing pro-
gram has performed. In the absence of marketing objectives and metrics it is diffi-
cult, if not impossible, to evaluate the achievement of goals.
The performance of every student is measured for each course they undertake
at university. Course grades indicate the student’s performance. The Grade Point
Average (GPA) indicates their overall performance at university and it can assist

Chapter 15  Marketing planning, implementation and evaluation 547

 employers to understand if a job candidate is an average or high performer. Similarly,
performance is measured in the workforce. Individual performance is measured
for promotion purposes; areas are measured to determine how effective managers
are; and company initiatives are measured to understand their impact on the busi-
ness. Marketing programs are assessed both to understand how they performed to
improve for the future and to communicate the contribution of the program to the
overall business.
Performance is measured by comparing the performance achieved against the
objectives that were set. Consider Pizza Hut, which implemented a $4 million
marketing communications campaign to promote its new Pasta Hut brand and range
of pasta meals. Pizza Hut’s objective was for pasta to account for 20 per cent of the
business by 2013. In order to understand its performance against this objective, Pizza
Hut monitored the contribution of its pasta products to the business. For example,
Pizza Hut Singapore’s pasta menu, which was introduced in 2009, comprises more
than 20 per cent of Pizza Hut's sales revenue, suggesting that Pizza Hut achieved its
objective in Singapore.17
In order to be effective, the metrics used to assess performance must be rel-
evant to the organisation’s strategy. Marketing metrics should be chosen carefully
to ensure they are suitable and they should be applied fairly and objectively. To
illustrate the potential complexity of using marketing metrics, consider how the
Hong Kong Department of Health’s ‘EatSmart’ Restaurant Campaign18 encouraged
restaurants to supply healthier food options for patrons. Eating out is a way of life
for Hong Kong people with over 50 per cent of Hong Kong adults eating out of
home at least five times per week. Unhealthy diet is a known major risk factor
for chronic diseases. Based on the understanding that more than 90 per cent of
Hong Kong adults wanted to be offered healthier dishes when eating out, the Hong
Kong ­Department of Health collaborated with local restaurants in launching the
‘[email protected] ­ Campaign’. The EatSmart Campaign offers labelling at
point of purchase when restaurants offer five or more dishes, which are made up
primarily of ‘fruit and v­ egetables’ and/or are ‘low in salt, sugar and oil’. To qualify as
an EatSmart ­Restaurant, staff training and changes in business practice are required.
The [email protected] ­ Campaign was branded as a trendy, healthy eating
movement, driven by socially responsible restaurants.
A pilot study was initially undertaken in 50 EatSmart Restaurants, involving 200
staff and 500 customers. The results of the pilot study found an increase in the
demand and sales of EatSmart Dishes. Nearly all staff (98 per cent) interviewed con-
sidered the [email protected] Campaign a feasible mode of operation. Among
customers who had ordered EatSmart Dishes:
• 99 per cent supported the notion that restaurants should offer healthier choices
• 95 per cent indicated satisfaction with the dish served
• 75 per cent said they would patronise the restaurant again for healthy dishes.
After the pilot phase, the program was rolled out. Within a year, over 580 restaurants
were involved in the EatSmart Restaurant program. Overall, 897 restaurateurs and
chefs have received nutrition training.
Consider how the Hong Kong Department of Health has implemented and meas-
ured the effectiveness of its social marketing campaign in changing restaurant serving
practices and customer ordering behaviour. The Hong Kong Department of Health
introduced the campaign initially in 50 restaurants to understand restaurant owner/
employee and customer perceptions. Once it understood that the social marketing
campaign did assist in providing healthy meal options, it then rolled the campaign out
territory wide. If no effect had been noted in the pilot study involving 50 Hong Kong

548 Marketing
EatSmart Restaurants, the Hong Kong Department of Health could have focused on
building an alternative marketing program to improve customer food choices. This
example shows how marketers can evaluate performance. This knowledge also allows
marketers to adjust their programs as required to improve performance in the future.
Marketing objectives can take a variety of forms including profit related, sales and
market share related, customer related and societal objectives. Marketing ­metrics are
used to both set objectives and to evaluate marketing performance against marketing
objectives. The Australian Marketing Institute has developed a list of more than
160  marketing metrics, and some of the more common of these are defined in
table 15.3.

Table 15.3  Marketing metrics

Metric Description

Acquisition cost Total acquisition spending divided by the number of new customers acquired.

Ad awareness Per cent of total population that is aware of the advertising by a brand.

Brand awareness Per cent of total population that is aware of a brand. Awareness may be
prompted (a list of ads or brands is shown), unprompted or total (prompted
unprompted). Prompted awareness is also called recognition.

Brand valuation The financial net worth of the brand (equity) asset. Clearly crucial when buying
or selling brands but of limited value for marketing planning or evaluation.

Churn A measure of customer attrition. It refers to the per cent of customers a

business loses over a specific period of time.
Churn (%) = 100% – Retention (%)

Click through rates Measures user response to online advertising.

Complaints Recorded number of communicated complaints.

Contribution margin Mean contribution per unit as a per cent of unit price.

Conversions In the hierarchy of people in the target market progressively becoming

customers, conversion is the per cent of targets graduating from one level to
the next; e.g. leads becoming prospects.

Cost per call The cost of handling a telephone call; e.g. in a call centre.

Cost per thousand Cost of advertising/impressions generated (in thousands).

impressions

Customer lifetime value Expected net cash flow to company from a customer. This formula assumes
a constant customer defection rate, a constant net margin and a discount
rate. CLTV = m / (k + d) where
m = constant net margins (profits − retention costs);
k = discount rate; d = constant defection rate.

Customer profit The difference between the revenues earned from and the cost associated
with the customer relationship during a specified period. Note singular
customer. When the metric is for all customers then that is the same as
business profitability.

Customer satisfaction The degree to which the expectations of a consumer are fulfilled or surpassed
by a product.

Customer traffic The total number of buyers during a specific period of time; e.g. per hour.

Impressions Opportunities to see (OTS) or exposures.

Knowledge Should not be confused with awareness, namely knowing of the brand.
Knowledge is an index of the extent to which the average user understands
the brand and product characteristics and capabilities.

(continued)

Chapter 15  Marketing planning, implementation and evaluation 549

 Table 15.3  (continued )

Metric Description

Leads Number of individually identified potential customers.

Likeability Used for advertising, an index of how agreeable the advertisement is to view
or hear.

Marketing cost per unit Total marketing cost per unit divided by total units sold in time period.

Market penetration The number of purchasers of the category as a per cent of total population or
target market.

Market share Describes a company’s sales as a percentage of total sales volume in a

specific industry, market or product area.

Preference ratio Per cent of target market who claim to prefer the brand (used by BA).

Purchase intention Per cent of people who respond to a survey indicating that they expect/intend
to purchase the brand in future.

Reach The number of people who see/hear/receive at least an impression of an

advertisement (usually expressed as a per cent of target market) within a fixed
period of time.

Recall May be aided or unaided. Per cent of people mentioning ad or brand name
when suitably prompted.

Retention rate The number of active customers at the end of a time period divided by the
number of active customers at the start of that time period.

Revenue Total income from sales of products and services.

Sales volume Sales expressed as units or quantities.

Share of requirements Brand purchases as a per cent of total category purchases by buyers of that
brand. Unit share of requirements (%) = Brand purchased (X) ÷ Total category
purchases by brand buyers (X).

Top-of-mind awareness First brand mentioned when questioned about the category by researchers.

Willingness to Per cent of surveyed customers who say they would recommend the brand
recommend to a friend. Should correlate with top box satisfaction but may not. The
Reichheld question: How likely is it that you would recommend [company X]
to a friend or colleague?

Willingness to search Willingness to search (%) = Per cent of customers willing to delay purchases,
change stores or reduce purchase quantities to avoid switching brands.

Source: Australian Marketing Institute

The Australian Marketing Institute also offers calculators to assist in the ­calculation
customer lifetime value  a of additional marketing metrics, including customer lifetime value. ­Customer ­lifetime
metric of the dollar value of a value (CLV) is the dollar value of a customer relationship based on the present value
customer relationship based on
of the projected future cash flows from the business/customer relationship. CLV
the present value of the projected
future cash flows from the ­provides a basis for quantifying the long-term health of the customer relationships.
business/customer relationship CLV can be computed for an individual customer, segments of customers and the
total customer base. Computing CLV by segments can be useful when different seg-
ments have different retention rates and/or margins.
Alternative tools, such as the direct mail return on investment calculator, are
also offered by the Australian Marketing Institute.19 A direct mail investment should
not be made unless there is an expectation of a sufficiently high positive return
on investment using reasonable assumptions (ideally based on past performance).
Marketing metrics such as direct mail return on investment calculator can be used

550 Marketing
to evaluate the return on investment (ROI) of alternative direct mail options and as
such provides a good basis for choosing between alternative direct mail methods.
Marketing metrics enable marketers to refine their marketing approach based on
performance achieved and they also help marketers to demonstrate the important,
central contribution that marketing makes to the overall success of the organisation.
As we have stressed throughout this chapter, and indeed this book, evaluation of
marketing plans, actions and outcomes is an ongoing process that should continu-
ously inform marketing strategy.

Chilling out Spotlight 

Chilled juice in Australia is part of a fast-growing market, with growth
between 4 and 8 per cent year on year. Prior to Golden Circle’s
marketing campaign, the market-leading Daily Juice brand accounted
for 25.6 per cent of the Australian chilled juice market. At the time
Golden Circle engaged BCM, one of Australia’s largest independent
advertising agencies, all chilled juice products sold in the Australian
market contained preservatives.
Golden Circle, a small market player with 2.2 per cent market
share, started with market research to gain insights into consumers’
perceptions of the chilled juice market. The research aimed to uncover
how Golden Circle could increase its share of the chilled juice market to
help the brand to stay in the chilled section of Australian supermarkets.
The research led to the discovery that consumers believed Daily Juice
was preservative free. This perception stemmed back to the television
commercial that was used to launch Daily Juice into the Australian juice
market in the early 1990s, which featured a group of people sitting and
squeezing oranges in the back of a delivery truck.
Armed with this understanding, Golden Circle developed a chilled juice
range that was preservative free. The chilled juice range, also sugar free,
includes regular orange, pulp-free orange and a range of juice blends.
A television commercial was created by BCM to support the launch of the
range. Featuring the tagline ‘Naturally you can count on Golden Circle’, the
commercial re-created scenes from the Daily Juice commercial, delivering
the message that Golden Circle chilled juices were preservative free (and
clearly pointing out that competitors contained preservative 202).
The results indicated that the campaign had a significant impact,
increasing market share of Golden Circle chilled juices from 2.2 per cent
to 18 per cent just 8 months after the campaign — growing the brand’s
slice of the chilled juice market by $58 million.20

Questions
1. Referring to table 15.3,
what additional
Concepts and applications check marketing metrics
might be suitable to
Learning objective 4  explain the role of marketing metrics and the ongoing evaluation of evaluate Golden Circle’s
marketing performance in the marketing cycle marketing campaign?
4.1 Explain how the performance of the Eat Smart campaign was evaluated. 2. Explain how Golden
Circle has demonstrated
4.2 Search for a marketing campaign summary. What was the objective of the marketing campaign? its understanding of the
marketing process.
4.3 Which marketing metrics were used to evaluate the performance of Kia’s social media
campaign?

Chapter 15  Marketing planning, implementation and evaluation 551

 Key terms and SUMMARY
concepts Learning objective 1  explain the relationship between the marketing cycle and
action plans  544 marketing management
business-unit strategy  534
The marketing cycle is the cyclical process of understanding, creating, communi-
contingency planning  544
cating and delivering value, refined by continuous evaluation. The management
corporate social
 responsibility  537
task of building market understanding, and planning, implementing and evaluating
corporate strategy  534 marketing activities is known as marketing management. Marketing management
customer lifetime value  550 aims to ensure that the organisation achieves its marketing objectives by maximising
customer relationship the value obtained from the marketing exchange — for the organisation itself and its
  management (CRM)  537 customers, client, partners and society at large.
emergent approach  544
empowerment  544 Learning objective 2  understand the importance of effective marketing planning
fragmentation  543 in achieving organisational and marketing objectives
marketing cycle  529
marketing management  530 Organisations with a marketing philosophy perform better for their stakeholders —
marketing metrics  539 they offer more value to customers and clients, better financial returns to partners
mission statements  533 and owners, and more benefits for society at large. Top management establishes
organisational culture  546 mission statements and overarching organisational goals; senior and middle man-
organisational structure  545 agers plan and implement, respectively, to achieve those goals. Organisational objec-
saturation  543 tives must be carefully interpreted into objectives for each business unit. Business
SMART model  538
unit objectives then get translated into functional or area objectives. Effective objec-
tives should display the characteristics described by the SMART model; they should
be specific, measurable, actionable, reasonable and timetabled.

Learning objective 3  describe how to manage the implementation of a

marketing strategy
Implementing a marketing plan involves numerous complexities. Some of the most
common internal complications in implementing marketing are inertia, a lack of
coordination and/or cooperation, a lack of a clear message or the presence of mixed
signals, and focusing too much on the short term at the expense of broader objec-
tives. Characteristics of the micro- and macro-environment also pose possible prob-
lems. They include increasing saturation of the market and fragmentation of the
market. To minimise problems and build a platform for marketing success, mar-
keters should plan, provide motivation and incentives for organisational members,
empower staff, structure the organisation to support a market orientation and build
a customer-focused organisational culture.

Learning objective 4  explain the role of marketing metrics and the ongoing
evaluation of marketing performance in the marketing cycle
The marketing cycle is an ongoing loop where marketing programs are constantly
revised and refined in response to evaluation, both throughout and after marketing
efforts. Evaluation enables a marketing organisation to know, understand and res-
pond to changes in the market. Marketing metrics are the measures that marketers
use to understand how their marketing program has performed against the objec-
tives set for it. This enables marketers to not only refine their marketing approach,
but also demonstrate the important, central contribution that marketing makes to
the overall success of the organisation.

552 Marketing
Lovedale Long Lunch Case study
Margurite Hook and Philip J. Rosenberger III, University of Newcastle

Planning is an integral part of a successful

marketing campaign, particularly for the Enjoy an entire
weekend of fine wine,
marketing of an event. Objectives, goals and an gourmet food and
overall marketing strategy are key factors in the live entertainment
across seven Lovedale
planning phase. An effective planning phase wineries, with Saturday
entry packages including
ensures that implementation and evaluation of re-admission on Sunday.
an organisation’s marketing happens easily and Bookings essential for groups
of 20 or more people.
smoothly.
Celebrating its 20th anniversary in 2013, Visit www.lovedalelonglunch.com.au for event information and ticket purchases.
the Lovedale Long Lunch is a weekend-long
event held in May each year. During the event,
patrons are treated to gourmet meals and wines from seven Lovedale wineries in the Hunter Valley
region of New South Wales. In 2013, over 25  000 meals were served to around 17  000 patrons across
the wineries involved. The seven wineries involved in the event are Allandale Winery, Emma’s Cottage,
Gartelmann Hunter Valley, Saltire Wines, Sandalyn Estate, Tatler Wines and Wandin Hunter Valley.
The critically acclaimed event has received awards for excellence in tourism, showing the high status
the event has achieved over its 20 years.21 Figure 15.3 presents the patronage figures for the past
eight years.

25 000

20 000

15 000

10 000

5000
FIGURE 15.3
Patronage for the Lovedale
0
Long Lunch
2006 2007 2008 2009 2010 2011 2012 2013

Patrons have the option of attending the event on either the Saturday or Sunday, or the full
weekend. To attend, an entry package must be purchased. The Saturday entry package, at $85,
entitles the holder to receive two meal tickets, one dessert/cheese ticket, one tasting glass, ten tasting
tokens and re-admission on Sunday. Each of the tasting tokens can be used to sample wines at the
seven wineries, and the holder can choose at which wineries they wish to use their tickets for the
gourmet meals and dessert/cheese. There are two options for entry on the Sunday only: package
one ($65), which includes one meal ticket, one dessert/cheese ticket, a tasting glass and five tasting
tokens; or package two ($85), which includes the same features as the Saturday entry package
excluding readmission. In addition, patrons can purchase supplementary meals and desserts if
desired.22
To ensure that the event runs smoothly and the marketing is used effectively, an extensive planning
phase is implemented for the event. Planning for the next year’s event commences very early, with
meetings starting the week after the current year’s event is held. In other words, the planning is a
continuous process with no distinct end, even after the event has taken place. The seven wineries

Chapter 15  Marketing planning, implementation and evaluation 553

 come together each year to plan and implement the event to ensure a successful weekend for all the
patrons who attend. In the beginning of the planning stage, meetings are held at least every three
weeks, and for the last five months prior to the weekend, they are held every week. The brochures,
which feature the menus and entertainment on offer, have to be finalised and printed by October in
order to be distributed from the October long weekend onwards. This means that the major aspects
of the coming event need to be confirmed prior to October.
The seven wineries plan the event together, except for the last few days before the event is held
in May. In these last few days before the event, each winery completes the planning needed for
its own activities. During the weekend the event is held, the wineries also operate individually in
delivering the experiential service of the event to its patrons. Each winery organises its own catering,
as well as marquees, tables, chairs and live music. In 2013, one of the wineries involved — Allandale
Winery — hired multiple marquees, used The Cellar Restaurant for its catering and employed 28 staff
specifically for the Lovedale Long Lunch. In comparison, on a typical day, only five staff are employed
at Allandale, no marquees are in place and there are no catering requirements.
The target market for the Lovedale Long Lunch is both men and women aged between 25 and 55,
who have a fairly high income as well as a pre-existing interest in wine. In recent years, the majority
of patrons have fitted into these categories; however, in some years, this was not the case. For those
years, a number of patrons came to the weekend simply for the prospect of free wine tasting, did
not always have a pre-existing interest in wine and acted in an unbecoming manner. This caused
an issue for the Lovedale Long Lunch due to negative press and publicity, which had the potential
to significantly damage the image of the event held by the public and potential future visitation, as
well as the licensing of the event (because of the service of alcohol). As a result, changes were made
to the entry conditions and booking process, which effectively obstruct the reoccurrence of these
incidents.
Multiple marketing media are used to promote the event and, hence, all need to be incorporated
into the planning process. In particular, brochures, outdoor banners, posters, magazines,
newspapers, buses, radio and the internet are all utilised as part of the Lovedale Long Lunch’s
marketing strategy. An overview can be seen in figure 15.4 of the advertising budget by medium as
a percentage.23

25%

20%

15%

10%

5%

FIGURE 15.4 0%
s

ge
re

er

ne

er

se

di

in

na
nl
hu

st

ap

Ra

Percentage distribution of
Bu
i
az

O
Po

g
oc

sp
ag

Si

advertising budget
Br

ew
M

A clear mission and the setting of objectives are critical in the planning stage of the Lovedale Long
Lunch. The original mission of the event was to promote and attract people to the Lovedale area.
Uniquely, a key goal of the event was not to create a profit, but rather simply to break even. This
break-even goal has not changed over the many years the event has been held; however, additional
goals for the event have since emerged:
•• firstly, to facilitate the delivery of an experiential service to patrons through the offer of gourmet
food, wine and entertainment
•• secondly, to promote each of the wineries involved in the event and, in turn, increase the reach of
the wineries’ products
•• finally (through the increase in reach of the wineries’ products), increase brand awareness.
Overall, breaking even remains the main objective.

554 Marketing
 For the 2013 Lovedale Long Lunch, the objectives were centred on the marketing media used.
The introduction of a VIP tent at Allandale Winery, open to media, trade and wine club members, was
used partly to generate positive press and media releases (unlike those received for previous years).
Allandale Winery, for example, used the VIP tent to engage in trade (B2B) and relationship marketing
to current and potential distributors and retailers.
One objective, which the event is yet to successfully achieve, is to increase patrons on the Sunday.
In 2013, the majority of patrons attended the Lovedale Long Lunch on the Saturday (approximately
67 per cent), and only around 33 per cent attended on the Sunday. This is also representative of
previous years and, therefore, it has been a goal each year to increase attendance so that both days
achieve around the same number of patrons. This is particularly relevant due to capacity constraints
for Saturday at some wineries as attendance numbers have increased. At Allandale Winery in 2013,
the winery was almost at capacity on the Saturday.
Multiple methods of evaluation are used to determine the effectiveness of marketing and,
additionally, the extent to which the objectives have been achieved. The predominant method of
evaluation occurs through a short survey given out to patrons during the weekend at the various
wineries. The survey used at the 2013 event was designed to be quick, easy to complete and not
distract from the respondent’s experience. Through this survey, the marketing media used to promote
the event can be evaluated, identifying which medium generated the greatest exposure amongst
those attending. The 2013 results (presented in figure 15.5) suggest that word of mouth was an
important exposure vehicle for the Lovedale Long Lunch, with 67 per cent of patrons hearing about
the event from this form of marketing.24

Word of mouth

Signage

Online

Radio

Posters FIGURE 15.5

2013 Results from
Printed media
survey regarding patrons’
exposure to marketing
0% 10% 20% 30% 40% 50% 60% 70% 80%

Additionally, to determine the number of patrons who attended the event over the course of the
weekend, the used tasting glasses are counted, as only one tasting glass was given to each patron
for the entire weekend. The planning, implementing and evaluation of the Lovedale Long Lunch is a
continuing cycle and is sure to evolve and adapt into the future.

Questions
1. Imagine you are in charge of organising the Lovedale Long Lunch for next year. How would you
try to increase the number of patrons that attend the Lovedale Long Lunch on the Sunday?
2. What objectives would you set for the next Lovedale Long Lunch event? Would you change the
break-even goal? Explain your answer.
3. Do you think the current target market is an appropriate one for the event? Would you change
anything, and why?
4. What methods of evaluation would you employ to determine the effectiveness of the current
marketing?
5. Do you think the current survey is adequate? What additional questions would you add,
and why?

Chapter 15  Marketing planning, implementation and evaluation 555

 Case study Advanced activity
Use some of the marketing metrics displayed in table 15.3 to refine the marketing
objectives for the next Drinkwise campaign. Check that each objective is SMART.

Marketing plan activity

Use some of the marketing metrics displayed in table 15.3 to refine the marketing
objectives for your marketing plan. Then check that each of your objectives satisfies
each of the criteria in the SMART model outlined in the chapter.
Finally, develop a guide for the measurement of marketing performance for your
marketing plan. Your plan must clearly show how marketing performance will be
assessed.
Upon completing the above tasks — and if you have been working steadily
through the marketing plan activities in each chapter of the book — you should
have enough information to assemble your organisation’s marketing plan. The
appendix to this book provides a sample of a marketing plan for an organisation
that you can use as a guide in terms of the structure, layout and content of the
marketing plan that you are preparing for your own chosen organisation.

556 Marketing
 APPENDIX

Marketing plan
The following is an example of a marketing plan, which shows how the
marketing planning process could be implemented. This model is a useful
guide if you have to prepare a marketing plan.

Note that due to corporate confidentiality, some of the financial figures are not disclosed or
have been changed. The authors would like to thank David Freeman and Annelise Beard from
H2Coco; and UTS students Anthony Bell, Rongkai Cai, Natalie Pidding, Stuart Robinson and
Matthew Robson for their assistance with the plan.

Appendix  559
 Marketing plan
H2Coco

Executive summary
This report is the marketing plan for H2Coco Pty Ltd in Australia for the year 2014.

The purpose of this marketing plan is to outline the complete marketing strategy for H2Coco, which is a
private company based in Sydney that manufactures, supplies and distributes the product H2Coco Pure
Coconut Water.
In Australia, the movement towards creating and maintaining a healthy lifestyle is on the rise. Continually,
products that offer a nutritious and healthy consumer benefit are highly sought after by the public, especially
by the fit and active. With this increase in demand for healthier products, opportunities arise for brands
like H2Coco to capitalise on this trend, as well as strengthen and reinforce its brand positioning within
this market.

Corporate vision. To see H2Coco expand in Australia and New Zealand while establishing it as a world-class
brand and product.

Mission statement. ‘To achieve a healthy living lifestyle across Australia by educating people with the correct
health benefits of H2Coco.’ (Freeman 2012)

This marketing plan builds on the theme ‘H2Coco Pure Plus’. It emphasises the advantages of the coconut
water drink, which ‘naturally rehydrates and restores wellbeing. It’s an all-natural, fat-free, low calorie health
drink, packed with life-giving nutrients, potassium and electrolytes’. The primary message is that H2Coco is
a trendy and healthy energy drink for those with active lifestyles. Existing competitors in the coconut water
market (for example, Nudie Coconut Water and Vita Coco) pose as a threat to the success of H2Coco. With
consumer demand levels on the rise and with the coconut water industry now existing in the growth phase,
now is a good time for H2Coco to differentiate themselves from existing competitors via a well-informed
media strategy.

The aim of the company is to build a range of coconut water products that provides the following:
• a world-class brand and product
• an ‘eco-friendly’ brand that has longevity
• far-reaching sales networks and capabilities
• a business that has an enterprise value, based on its products.

Specific objectives are as follows.

Marketing objectives:
• to educate the Australian market on the health benefits of coconut water
• to increase awareness among Australians who are consuming coconut water that H2Coco holds the
best nutritious benefits
• to raise awareness of coconut water as a new beverage category in Australia.

560 Marketing
Sales objectives:
• to increase market share by 50 per cent in the Australian coconut water segment by 2015
• to sell 10  000  000 units for 2014 (achievable considering orders placed by Coles supermarkets
averaged around 3  000  000 units for 2013)
• to be the largest coconut water company in Australia.

Communication objectives:
• to raise awareness of H2Coco’s new range in the coconut water category segment, also ensuring
H2Coco is the target market’s first preference for coconut water
• to raise awareness of H2Coco’s new slogan ‘H2Coco Pure Plus’
• to target the hospitality market and potentially high drinkers of coconut water.

The brand is primarily aimed at:

• women between the ages of 16 and 25 who are active with a higher disposable income
• males between 18 and 30 who care about their health and fitness.

The marketing mix strategy will consist of the following.

Product. H2Coco’s core product is a coconut water beverage available in Pure, Organic Certified, Pineapple,
and Pomegranate and Acai flavoured.

Price. The Pure, Pineapple, and Pomegranate and Acai flavours are priced at RRP$2.95 for 330mls; Organic
is priced at RRP$3.20; and the carton is priced at RRP$35.40.

Place. The selection of several distribution channels includes IGA, Coles, and Woolworths; niche distributors,
like Boost Juice bars and City Convenience; and smaller independent vendors, such as cafes, gyms
and grocers.

Promotion. H2Coco will focus on product endorsement by celebrities. Various media channels will be used:
radio (Southern Cross Austereo); magazines (Pacific Magazines); social media accounts (Facebook, Twitter,
Instagram and Pinterest); and public relations (including smoothie lookbook, ‘Summer Pic’ competition and
new packaging launches).

The proposed campaign will span for one full year from January to December, with heavier weightings
allocated towards the summer months. Responsibility for implementing the media plan will be in the hands
of the management of H2Coco.

The campaign will be evaluated via focus groups and online monitoring.

Introduction
Since entering the market, H2Coco (www.h2coconut.com) has carried out regular marketing activities
to promote the new product of coconut water, and the brand H2Coco. Although it is a small company,
awareness of the brand name is growing. Coconut water is a new beverage category in the marketplace,
and H2Coco has an opportunity to educate consumers in understanding the nutritional benefits coconut
water has to offer. In doing so, it will also promote the brand H2Coco.

Appendix  Marketing plan 561

 The company is currently in the growth stage of the product life cycle, and as such is looking for new
marketing opportunities to expand its market share. While the H2Coco brand in general continues to grow
in awareness and sales, this marketing plan will focus on the marketing of the H2Coco Pure Coconut Water
within Australia, and its new campaign theme ‘H2Coco Pure Plus’.

Situation analysis
Company analysis
The prime decision makers for this marketing plan are David Freeman, the founder, CEO and co-director
(with Andrew Hawkins and Kyle Sandilands); and Annelise Beard, marketing manager. H2Coco entered
Australian and New Zealand markets in 2011 as an Australian owned and operated company that
manufactures, supplies and distributes pure coconut water. Based in Sydney, the company’s immediate
markets are Australia, New Zealand and Hong Kong, with inquiries from other potential countries. In Australia
and New Zealand, H2Coco has an established distribution channel into the major supermarket chains
and food service providers, such as Coles and Woolworths in Australia, and New World and Countdown in
New Zealand.

Review of current promotional programs

Promotional activities currently undertaken by H2Coco include a radio campaign with spots running during
the Kyle and Jackie O Show, which provides opportunities to reach the target audience.

Content marketing is a tactic currently employed, with strong messaging and regular updates occurring
on the brand’s various social media channels, including Facebook, Instagram, Twitter and Pinterest. The
Facebook page currently boasts over 13  500 fans, its twitter feed has over 8000 followers, its Instagram
has around 10  000 followers and Pinterest has only a couple of hundred. No media spend has been used
to reach out to audiences via social media.

Brand image
Within the marketplace, H2Coco is perceived as a healthy and nutritious beverage alternative. The premium
pricing strategy and aesthetically pleasing packaging have also allowed H2Coco to position itself as a trendy
and exclusive product in the market.

Environment analysis
The purpose of analysing the marketing environment is to identify the possible external factors.

Political and legal factors

Due to the nature of H2Coco’s products, there are minimal political factors. In Australia, the removal of
tariff protection (Moffatt 2013) has made it easier for countries to sell their products overseas, thus creating
competition for H2Coco in the domestic non-alcoholic beverage market. In addition, H2Coco is restricted
by Australia’s food regulations, particularly the Department of Health and Ageing and Food Standards
Australia New Zealand (FSANZ), as well as the Australian Association of National Advertisers’ (AANA) ‘Food
and beverages advertising and marketing communications code’ (AANA, 2010).

562 Marketing
Economic factors
According to the Reserve Bank of Australia, the Australian economy experienced strong and continuous
growth from mid 2011 as a result of a continued strength in investment in the resource sector (RBA 2012).
This continued growth will lead to a strong pick-up in household spending, leading to an overall feeling
of optimism among the target market. This means that H2Coco’s target’s willingness to spend will be on
the increase, so products that are a luxury or are not seen as necessary (such as H2Coco) will be more
frequently purchased. The Australian Food and Beverage industry is following the global lifestyles of health
and sustainability (LOHAS) trend, with $12 billion spent on the LOHAS food/beverage market segment
in 2011. This market is expected to continue to grow.

Social factors
The Australian consumer is displaying a growing concern for obesity and other health issues. This has
created opportunities for fast-moving consumer goods (FMCG) brands to release healthy, fresh and natural
snacks and beverages, with organic options seeing the largest boost in demand. An increase in fruit and
vegetable consumption has also risen due to a heightened awareness of health and nutrition (New Zealand
Trade and Enterprise 2012).

Health-conscious consumers are starting to look at low-fat, low-calorie and low-sugar food and drinks.
H2Coco has been able to identify this trend in the marketplace and mould its positioning accordingly.
However, the brand must be sure to maintain this brand image across all marketing decisions, including
distribution and media channel selection. In response to the changing nature of markets, H2Coco
must  ensure  packaging is recyclable to meet the demands and expectations of this environmentally
aware culture.

Technological factors
Technological advances in packaging and communication have created efficiencies in the manufacturing
of goods. The introduction of Tetra Paks is a significant technological feature for H2Coco because of its
ability to impact the warehouse storage and shelf life of products. There have been recent studies into the
nutritional benefits of drinking coconut water, with many nutritionists backing its healthy attributes, helping
to drive the demand for these products.

H2Coco also leverages its various social media channels, including Facebook, Twitter, Pinterest and
Instagram, in order to build an online community of young women. These women are more engaged and
tend to be more loyal to the H2Coco brand than those reached via traditional channels.

Cultural factors
The Australian culture is ever changing towards healthy and nutritional food and beverages. Society as
a whole is becoming more health conscious, and because of this health products such as H2Coco are
becoming more appealing in the health-conscious consumer’s eyes. This cultural shift has changed the
way food and drink products are advertised — 20 years ago, products would be promoted because of
their great taste, not for a healthy lifestyle associated with them. These days, products such as H2Coco
are marketed with more information promoting the health benefits they provide, in order to be seen as a
health-conscious and beneficial product for the individual.

Appendix  Marketing plan 563

 Competitor analysis
‘Coconut water represents one of the fastest growing beverage categories due to its natural hydrating
qualities, great taste and nutritional benefits’, which has resulted in more competitors entering the market
around the world (Alave 2012). Most brands position themselves as a natural, health-conscious, hydrating
alternative to sports and soft drinks (Rovell 2012). An emphasis is placed on the way it is packaged and the
purity of the drink in order to promote the benefits of having a natural lifestyle. The main competitors are
listed in table 1.

Table 1:  Major competitors

Brand Comments

Nudie Coconut Nudie Coconut Water is positioned as ‘a healthy way of hydrating’. It is a major competitor
Water due to its benefits from carrying the brand name of the already popular Nudie beverage,
which has high awareness amongst the target audience. Unlike some other coconut water
brands, it has differentiated itself by providing fruit-flavoured product extensions.

Vita Coco Vita Coco is marketed as a natural, healthier alternative to sports drinks. The main claim
emphasised is the 700  mg of potassium per 330  mL serving the drink contains, which is
around 15 times more than standard sports drinks like Gatorade and Powerade per ml.
Madonna, Matthew McConaughey, Demi Moore and Anthony Kiedis are all investors of
Vita Coco and, while are not directly tied in with the advertising, they have been a part
of the consumer awareness of the brand, particularly in the United States. Like H2Coco,
Vita Coco is packaged in Tetra Paks, making the product eco and socially responsible.
However, Vita Coco’s distribution in Australia is quite limited and it is not stocked by any
major grocery retailer, with the company relying on independent distributors.

Coconut Coconut Essence is marketed as pure natural coconut water, and most of its marketing
Essence efforts are based around promoting the water and its health benefits. An emphasis on
the natural method of production, along with its lack of processing and additives, is also
used to differentiate itself from its competitors. Coconut Essence has larger cans than
its competitors (at 520  mL), and as such is able to further differentiate itself compared to
smaller sized competitors. Marketing efforts have been limited, with a large focus on digital
channels to reach the audience. Coconut Essence targets the consumer via behavioural ­
re-marketing strategies to target browsers who have previously visited the website.

Kokomo Kokomo is produced by Schweppes and came to fruition in late 2011. It markets itself as
‘100% natural’ and ‘powered by nature’. This natural emphasis is carried on throughout the
website and all communication strategies (Mumbrella 2011). The Kokomo Facebook page
is used to share coconut water recipes and company events, and also as a way to connect
with customers and address inquiries.

Customer analysis
The beverage itself is a convenience product with mass-market appeal, targeting middle-class individuals
of all age groups. However, the primary market is the 18–30 age group living in metropolitan areas. Leading
active, outgoing and demanding lifestyles, individuals are conscious of their personal health and wellbeing.
In addition, with a high disposable income, the target market is not price sensitive when it comes to fresh,
quality, organic produce. They are health-conscious, energetic individuals who are enthusiastic about
staying fit and appearing trendy. Further, they tend to purchase when out of the house and in transit from
place to place, including before and after exercise sessions, as well as on the way to university or meeting
up with friends.

564 Marketing
SWOT analysis
Strengths
• consistent in-house public relations activities
• strong communication between H2Coco staff
• innovative, young and enthusiastic staff members
• sales have tripled (300 per cent) since its full inception into the market via Coles in August 2012
(Freeman 2013).
• current celebrity ambassadors Kyle Sandilands and Lara Bingle have started raising brand awareness
for H2Coco
• strong brand image
• end users are able to purchase the product direct without intermediaries (grocery supermarkets)
• distributors do not carry competing brands (category exclusivity)
• Tetra Pak technology (12-month shelf life).

Weaknesses
• small business structure — difficult for company to keep up with demand
• due to small company, there is a need for an external agency, which is more expensive
• Australians are very unaware that coconut water is a new beverage category in Australia
• Australians recall coconut water to taste like coconut milk (due to lack of education on product)
• competitors’ stronghold of distribution.

Opportunities
• catchy brand name — simple and describes what it is
• eye-catching packaging
• coconut water is very popular at the moment, and ‘celebrities from Madonna to Lara Bingle have been
pictured’ drinking coconut water (Browne 2012)
• one 330  mL Tetra Pak of H2Coco coconut water provides as much hydration as 1 litre of water
• further space to educate the market to drink coconut water through eye-catching packaging and taste
• celebrity endorsers raising brand awareness.

Threats
• beverage category is very saturated with brands
• competition is increasing in Australia with ‘more than 15 new brands on the market’ (Browne 2012)
• popularity of other beverages, such as Red Bull, outweighs thought to drinking coconut water.

Opportunity analysis
There are opportunities to launch the brand to a number of markets. This is provided the products:
1. allow the market to have a ‘grab and go’ option
2. are supported with effective branding and marketing
3. are perceived as aspirational or ‘trend’ orientated
4. are relevant to the target markets’ demographic lifestyle.

Coconut water — with its worldwide appeal, fast growth, unique hydration and health benefits — contributes
to the consumer viewing it as a normal part of their daily water intake and personal health. Aligned to this
is the appeal of H2Coco in the market that is primarily but not limited to gym and sportspeople, but also

Appendix  Marketing plan 565

 spreads from the very young to the aged as a healthy choice. Also a target is the hospitality industry
(cocktails, hangover cure), and the travel industry (jetlag).

Objectives
Marketing objectives
• to educate the Australian market on the health benefits of coconut water
• to increase awareness amongst Australians who are consuming coconut water that H2cCco holds the
best nutritious benefits
• to raise awareness of coconut water as a new beverage category in Australia.

Sales objectives
• to increase market share by 50 per cent in the Australian coconut water segment by 2015
• to sell 10  000  000 units for 2014 (achievable considering orders placed by Coles average around
3  000  000 units for 2013)
• to be the largest coconut water in Australia.

Communication objectives
• to raise awareness of H2Coco’s new range of coconut water in the coconut water beverage category
to raise awareness of H2Coco’s new range in the coconut water category segment of the beverage
industry, also ensuring H2Coco is the target market’s first preference for coconut water
• to raise awareness of H2Coco’s new slogan ‘H2Coco Pure Plus’
• to target the hospitality market and potentially high drinkers of coconut water.

Target market
Geographic
For this marketing plan, H2Coco is aimed towards people living in Australian metropolitan areas due to its
availability in grocery stores. However, H2Coco’s targeted customers have also been noted to live around
coastal areas as it is enjoyed more during summer. The H2Coco range will thus need to meet the demands
of both city and coastal consumers.

Demographic
H2Coco target markets are:
• women between the ages of 16 and 25 who are active with a higher disposable income
• males between 18 and 30 who care about their health and fitness
• from a range of multicultural backgrounds
• either students or young professionals
• part of generation Y, which has the highest usage rates of media, communication and technology than
any other previous generation.

Psychographics
The product is aimed towards males and females, driven by fitness and health motivations to improve and
maintain their personal wellbeing.

566 Marketing
Positioning
Positioning H2Coco has been developed through creating an image for the H2Coco range and presenting it
to its target market in such a way that sets it meaningfully apart from competition. This is achieved through
the communication process and the message of ‘H2Coco Pure Plus’. Items will be positioned to consumers
on a range of levels.

Positioning by product attributes and benefits. This includes highlighting desirable attributes of coconut
water as a new beverage category, the quality of the coconut water and the benefits of drinking the product.

Positioning by use. This will be employed though radio advertisements and social media, specifying the
ease of purchasing H2Coco from grocery markets.

Marketing mix strategy

Product
H2Coco’s core product is a coconut water beverage. It was one of the first brands to launch into the
Australian market. Having such a hold in the market, the company will endeavour to supply pure coconut
water, along with other potential coconut products, as it continues to grow as a brand through building its
product portfolio.

H2Coco contains a complex blend of vitamins, minerals, amino acids, antioxidants, enzymes, health-
enhancing growth hormones and other phytonutrients. As its electrolyte content is similar to the human
plasma, it has gained international acclaim in being the only natural sports drink, where it has proven
superior  to commercial sports drinks. Coconut water’s unique nutritional profile gives it the power to
balance body chemistry, slow the ageing process and boost your metabolism so you burn more calories.
H2Coco:
• is 100 per cent natural
• has no added sugar
• has no preservatives or additives
• has no cholesterol
• is fat free
• has more potassium than a whole banana
• has 15 times more potassium than most sports drinks
• has great taste, and is not made from concentrate
• contains 5 essential electrolytes
• is gluten free.

H2Coco is bottled and manufactured at its source in the Philippines from young green coconuts in their
natural state into ‘grab and go’ Tetra packs. This packaging means that the creation of a product can be
as pure as possible, reflecting the real taste of a coconut and retaining all the health benefits, while staying
fresh without the need of preservatives. H2Coco is available in the following varieties:
• H2Coco Pure Coconut Water
• H2Coco Pure Coconut Water (Organic Certified)
• H2Coco Pure Coconut Water with Pineapple
• H2Coco Pure Coconut Water with Pomegranate and Acai.

Appendix  Marketing plan 567

 The H2Coco Pure Coconut Water range includes:
• 330  mL Tetra Pak (single packs)
• ‘The Cluster Pak’ (4 packs)
• 5  L Cask.

Price
H2Coco offers four different varieties of the coconut water. The Pure, Pineapple and Pomegranate and Acai
are all priced at RRP$2.95 for 330  mL; and the Organic flavour is priced higher at RRP$3.20. The carton is
priced at RRP$35.40. As the product is healthy and is a new range, the price is set higher to communicate
premium quality branding.

Distribution (place)
H2Coco Pure Coconut Water is a convenience product with mass-market appeal; however, with the aim
of a medium intensity level of distribution H2Coco focuses on a selection of several distribution channels
to gain customer reach, including IGA, Coles and Woolworths grocery outlets. Additionally, the product is
distributed to more niche locations, like Boost Juice bars and City Convenience, and smaller independent
vendors across Australia and New Zealand, including cafes, gyms and grocers.

Promotion
H2Coco focuses highly on product endorsement by celebrities, such as using Lara Bingle as the official
ambassador. She publicly promotes and advocates the product range via public relations tactics, including
public events and interviews in newspaper and magazines such as Sydney Morning Herald and New Idea.
Kyle Sandilands and the Stafford Brothers are also advocators of H2Coco.

Public relations promotions and giveaways are used to generate awareness and earn media around the
product. H2Coco heavily aligned its brand with summer by hosting a ‘Summer Pic’ competition on Bondi
Beach, encouraging consumers to take a photo and post it on Facebook and Instragram (tagging H2Coco)
to go in the running to win a prize pack.

This marketing plan builds on the theme ‘H2Coco Pure Plus’ and emphasises the advantages of the coconut
water drink. The primary message will be that H2Coco is a trendy and healthy energy drink for those with
active lifestyles. Various media channels will be used.

Broadcast media (radio)

Southern Cross Austereo will be used to advertise regularly through 2Day FM networks. This is because
Austereo has been found to capture 44.5 per cent of the important demographic in Australian metropolitan
areas. Radio is an effective advertising tool to be selective in targeting geographically towards young, busy
audiences who will be close to the event.

Print media (magazines)

It has been found that magazine readers are more likely to experience an enhanced brand recall along with
reading in a ‘less hurried pace’ and comprehending the advertisement (Belch and Belch 2012). Factors such
as clutter, noise and competing advertisements, however, will need to be considered. Pacific Magazines will
be used for advertisements in Men’s Health and Women’s Health.

568 Marketing
Social media accounts
Facebook, Twitter, Instagram and Pinterest have been found to enable consumers to become more engaged
with brands; and are powerful in ‘passing along’ the benefits of the product and creating consumer-generated
marketing by giving followers the opportunity to speak (i.e. through hashtags on Instagram). These accounts
will enable viewers to be more engaged in the campaign through asking questions, commenting, re-posting,
sharing and promoting the launch of new products to their contacts.

Public relations
Public relations events will be run based around the H2Coco ambassadors. Press releases will be aimed to
generate interest and newsworthy publicity to relevant media. Press releases to be sent include:
• smoothie lookbook
• ‘Summer Pic’ competition
• 4-pack launch (world first)
• 5  L cask launch (world first)

Budget
The primary concern with designing the budget for this marketing plan is to ensure that the amount that
needs to be spent to achieve objectives is realistic relative to the amount that H2Coco is able and willing to
outlay — remembering that it is a small company. The budget for this campaign is $300  000. Table 2 outlines
the promotion budget for H2Coco.

Table 2:  Budget for 2014

Production Media Total

Print
Magazine advertisements 10  000 40  000 50  000
Magazine competitions 5  000 20  000 25  000
Radio
Radio advertisements 50  000 50  000
Sponsorship
Event 20  000 25  000 45  000
Point of sale
Display 10  000 25  000 35  000
Samples 10  000
Incentives 20  000
Social media
Maintaining social media sites 50  000 50  000
Google Adwords 20  000 20  000
Contingency 10  000

Total 300  000

NOTE: The above figures have been changed for privacy reasons.

Appendix  Marketing plan 569

 Implementation

Tactic Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

Print

Magazine ads

Magazine comps

Radio

Radio ads

Sponsorship

Event

Point of sale

Display

Samples

Incentives

Social media

Maintaining social
media

Google Adwords

Evaluation
In order to effectively evaluate the ‘H2Coco Pure Plus’ campaign, both pre- and post-campaign launch
feedback will be considered. Marketing, sales and communications objectives will be tested allowing
for revisions in activities to be made before, during and after the campaign to maximise the campaign’s
effectiveness and achieve the objectives.

Pre-test
Focus groups consisting of target market members will be used to gain qualitative data that will be used to
assess the marketing strategies’ ability to satisfy the communications objectives. Five groups of ten subjects
in the target market will be randomly sampled to provide a strong understanding of the target market’s

570 Marketing
perceptions of H2Coco Coconut Water and the advertising communication, as well as gain insights into the
favourability of the product and market in general.

Campaign monitoring
Media vehicles will be regularly monitored to allow for optimisations to drive more effective activities. The
online sites will be measured on their ability to drive clicks to the H2Coco home page by referring to click-
through rates. Any site that appears to be significantly lagging in performance will be discontinued, and
media spend will be optimised towards best performing sites. Likewise, regular monitoring will allow the
campaign to improve, with heavier weighting being allocated towards those creative executions that are
proving to be stronger drivers of sales than others. Focus groups will also be used during the ‘H2Coco Pure
Plus’ campaign to gauge the awareness of the product, brand and slogan, and any changes in attitudes
that might be significant for future campaigns.

Conclusion
This report sets out the proposed marketing plan that H2Coco will be implementing for its ‘H2Coco Pure
Plus’ campaign. As outlined in the report, the target market consists of two market segments: women
between the ages of 16 and 25 who are active with a higher disposable income; and males between 18 and
30 who care about their health and fitness. The sales objective is to achieve sales of 10  000  000 units.
Promotion activities will include magazine and radio advertising, sponsorship, point-of-sale material and
online activities. By the end of this campaign, the objective is to increase market share by 50 per cent and
raise awareness of the H2Coco brand name.

Finally, with changing economic, competitor, consumer and media trends, it is strongly recommended to
regularly monitor the external environment to allow for contingency strategies and ultimately ensure the
marketing plan provides H2Coco with the best possible sustainable market growth.

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1. Elements of this case study have been adapted winningthestorywars.com; ‘The Dove campaign for real
from J.R. Schermerhorn Jr, P. Davidson, D. Poole, beauty’, Dove website, www.dove.us/social-mission.
A. Simon, P. Woods and E. McBarron, Management: 21. R. Le Pla (2005), ‘Too slow? Are your customers leaving
5th Asia–Pacific Edition, John Wiley & Sons, Australia, you behind?’, NZMarketing Magazine, February.
Brisbane, pp. 612–14. 22. A. Moses (2013), ‘Every inch counts: Subway fails
2. ‘2012 consumer shopping trends and insights’, to measure up’, Sydney Morning Herald, 17 January,
Steelhouse website, www.steelhouse.com. www.smh.com.au.
3. Australian Bureau of Statistics, ‘Online @ home’, 23. ‘Bad news (about brands) travels fast’ (2011),
Australian Social Trends, June 2011 (cat. no. 4102.0), MarketingProfs, 22 March, www.marketingprofs.com.
www.abs.gov.au. 24. ‘About Chatime’, Chatime website, www.chatime.com.
4. AIMIA (2012), Australian retail adoption plans for online au/about_us.php.
advertising and e-tailing, AIMIA Industry Retail Group, 25. J. Gardner (2012), ‘A taste for rapid growth’, BRW,
Sydney, 2012, www.aimia.com.au. 13 September, www.brw.com.au.

  References and notes 575

 26. ibid. 3. D. Mark (2013), ‘Ford closure highlights car
27. ibid. manufacturing industry’s struggle for survival’,
28. ibid. ABC News, 17 June, www.abc.net.au/news; C. Lucas,
29. ibid. ‘Holden warns of exit if pay cuts rejected’, Sydney
Morning Herald, 19 June, www.smh.com.au.
Chapter 5 4. ‘New record set in 2012 new motor vehicle sales’ (2013),
1. J. Breen (2012), ‘Continued erosion of the blockbuster Federal Chamber of Automotive Industries, 4 January,
model’, Interbrand website, www.interbrand. www.fcai.com.au/news.
com; G. Wilkins (2013), ‘Local pharma firms face 5. ‘Our vision’, Toyota website, www.toyota.com.au.
“patent cliff ”’, Sydney Morning Herald, February 15, 6. C. Kruger (2013), ‘Ten drops ‘extreme youth focus’,
www.smh.com.au. Sydney Morning Herald, 9 April, www.smh.com.au;
2. ‘Telstra signs National Broadband Network G. Shearer (2011), ‘Network Ten launches channel 11
agreement’(2010), Australia Times, 20 June, www. with classic shows aimed at under-30s’, news.com.au,
australia-times.com.au. 11 January.
3. AAP and S. Tindal, ‘Telstra signs on to the NBN for 7. Roy Morgan Research.
$11bn’, ZDNet, www.zdnet.com.au. 8. Strategic Business Insights (SBI), www.
4. Coles, ‘Our national charity partners’, www.coles.com.au. strategicbusinessinsights.com/vals.
5. WesTrac (2013), ‘WesTrac Newcastle taking shape’, 9. Mosaic Australia website, www.mosaicaustralia.com.au;
www.westrac.com.au; B-J. Davis (2012), ‘200 jobs at GeoSmart, RDA Research website, www.rdaresearch.
WesTrac head office’, Maitland Mercury, 12 July, www. com.au/geosmart.
maitlandmercury.com.au; L. Foschia (2012), ‘New 10. ‘History and heritage’, Opel Australia website,
headquarters for WesTrac in the Hunter’, ABC News, www.opel-australia.com.au; T. Beissmann (2013),
30 August, www.abc.net.au/news; I. Kirkwood (2013), ‘Opel Australia closure: how it happened and where
‘200 Hunter jobs axed at WesTrac’, Newcastle Herald, to from here’, Car Advice, 8 August, www.caradvice.com.
28 June, www.theherald.com.au. au; J. Dowling (2013), ‘Opel abandons Australian arm
6. ECN Group website, www.ecngroup.com.au. after less than a year after poor sales’, News.com.au,
7. Australian Competition and Consumer Commission 2 August.
website, www.accc.gov.au; Commerce Commission
website, www.comcom.govt.nz. Chapter 7
8. Commerce Commission (2009), ‘Commerce Commission 1. 7-Eleven website, www.7-eleven.com; Slurpee website,
issues warning to Real Estate Network’, 31 March, www. www.slurpee.com.au; Team Slurpee (2012), ‘Slurpee
comcom.govt.nz. season’, Slurpee website, 1 October, www.slurpee.com.
9. Interbrand website, www.interbrand.com; K. Bell (2012), au/news; Team Slurpee (2012), ‘Slurp down the flavours
‘Apple climbs up to second in best global brands survey’, of Summer!’, Slurpee website, 10 January, www.slurpee.
Cult of Mac, 4 October, www.cultofmac.com. com.au/news.
10. ‘AMD lists Intel “dirty tricks”’ (2005), Personal Computer 2. Developed from T. Levitt (1983), The marketing
World, 1 September, p. 19. imagination, The Free Press, New York.
11. D. Burger (2005), ‘AMD: Intel holds chip market 3. See Bonds website, www.bonds.com.au.
hostage’, The Linux Beacon, vol. 2, no. 29, 26 July. 4. Trivett Group website, www.trivett.com.au; Trivett Harley-
12. Australian Bureau of Statistics (2007), Business Use Davidson Sydney website, trivettharley-davidson.com.au.
of Information Technology, 2005–06, cat. no. 8129.0, 5. ‘Special report: new products’ (1998), Ad Age
Australian Bureau of Statistics, Canberra. International, 13 April.
13. V. Carson (2009), ‘Packer’s US ambitions thwarted 6. W.D. Hoyer, R. Chandy, M. Dorotic, M. Krafft, and
again’, Business Today, 13 March, www.businesstoday. S.S. Singh (2010), ‘Consumer cocreation in new product
com; B. Trembath (2010), ‘Industry angered by scrapped development’, Journal of Service Research, vol. 13,
Sydney Metro plans’, ABC News, 23 February, www.abc. no. 3, pp. 283–96.
net.au. 7. News.com.au (2010), ‘PlayStation 3 announces movie
14. ‘O’Farrell to budget for $4b north-west rail link’ (2013), service’, News.com.au, 18 May, www.news.com.au; M. Starr
Sydney Morning Herald, 16 June, www.smh.com.au. (2010), ‘Sony announces video delivery service through
PlayStation network’, 18 May, CNET Australia, www.cnet.
Chapter 6 com.au; Bigpond (2010), ‘Sony PlayStation announces
1. E. Knight (2013), ‘Store wars: set for new campaign’, movie service’, 19 May, http://bigpondnews.com.
Sydney Morning Herald, 12 April, www.smh.com.au. 8. E.M. Rogers (1983), Diffusion of innovations, Free Press,
2. ‘Light commercials lead the charge in February car New York.
sales’ (2013), Federal Chamber of Automotive Industries, 9. ‘Samsung presents “Camera, Reborn” — the GALAXY
5 March, www.fcai.com.au/news. Camera’ (2012), Samsung press release, 29 August,

576 References and notes

 www.samsungmobilepress.com; ‘Samsung announces 28. ‘Hungry Jack’s’ minis a repackaging success’ (2012),
first “smartcam”’ (2012), Photo Counter Australia, Marketing Magazine, 4 May, www.marketingmag.com.au.
4 September, www.photocounter.com.au. 29. ‘Our brands: Mountain Dew’, Schweppes Australia
10. Jimmy Possum website, www.jimmypossum.com.au. website, www.schweppesaustralia.com.au.
11. Kiwibank website, www.kiwibank.co.nz. 30. K. Courtney (2008), ‘Adidas: walk this way’, Marketing,
12. Adopt a Pet website, www.adoptapet.com.au; RSPCA August.
Australia website, www.rspca.org.au; K. Picker (n.d.), 31. J. Clarke (2012), ‘YSL to try “Saint Laurent” on for size’,
‘10 reasons why you shouldn’t buy from pet shops or Sydney Morning Herald, 29 June, www.smh.com.au.
backyard breeders’, Roka Pet Photography website, www. 32. ‘Diana+’, Lomography Australia and New Zealand
roka.com.au. website, www.lomography.com.au.
13. A.C. Nielsen (2012), ‘Australian online landscape review’, 33. T. Huynh (2008), ‘JVC shuts down VHS players
The Nielsen Company, www.au.nielsen.com. production, still produces DVD/VHS hybrids’, Techgeek,
14. IP Australia, www.ipaustralia.gov.au; Intellectual www.techgeek.com.au; Colin Paterson (2012), ‘UK’s “last
Property Office of New Zealand, www.iponz.govt.nz. typewriter” produced’ PMF Legal website, 20 November,
15. ‘Big Aussie brands shedding millions in value’ (2012), www.pmflegal.com/blog.
News.com.au, 11 June, www.news.com.au; Brand Finance 34. A. Devic and J. Nash (2012), ‘Melbourne beer
(2012), Brand Finance: Australian top 30, May, Brand drinkers cheers Victoria Bitter’s return to full-strength
Finance Australia, Sydney. brew’, News.com.au, 19 October, www.news.com.au,
16. PepsiCo corporate website, www.pepsico.com. Jessica Kennedy (2012), ‘CUB admits it got it wrong
17. G. Medcalf (2006), ‘Marketing Magazine marketing with Victoria Bitter’, B&T Weekly, 4 September,
awards 2006: a slice of High Country’, NZMarketing, www.bandt.com.au.
August. 35. ‘PC sales now in record slide as tablet market bites’
18. Redheads website, www.redheads.com.au. (2013), The Age, 11 July, www.theage.com.au; T. Bradley
19. Murray Goulburn Co-operative website, www.mgc.com.au. (2013), ‘R.I.P. PC? A closer look at gloomy IDC forecast’,
20. Franchising (2010), ‘Domino’s links with The Biggest Forbes, 28 May, www.forbes.com; ‘Personal computer
Loser to meet growing demand for healthy meals’, sales down as mobile tablets and smart phones
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21. McDonald’s website, www.mcdonalds.com.au; adelaidenow.com.au.
‘McDonald’s re-names stores Macca’s in Australia Day
PR stunt’ (2013), Mumbrella, 8 January, www.mumbrella.
Chapter 8
com.au; AFP (2013), ‘McDonalds to become “Macca’s” in
Australia’, NineMSN Finance, 8 January, www.finance. 1. T. Webber (2013), ‘Airfare add-ons can beat the budget’,
ninemsn.com.au; Carleen Frost (2013), ‘Macca’s — an Sydney Morning Herald, 15 February, www.smh.com.au.
Australian-made nickname up in lights for our national 2. ibid.
day’, Daily Telegraph, 8 January, www.dailytelegraph. 3. Volkswagen (2010), ‘The Golf’, www.volkswagen.com.au.
com.au. 4. ‘Price fixing’, Australian Competition and Consumer
22. ‘Potatopak wins NZ best packaging award’ (2011), Commission website, www.accc.gov.au.
FreshPlaza website, www.freshplaza.com. 5. D. Palmer (2009), ‘Unit pricing code to be imple­
23. S. Sacharow (1982), The package as a marketing tool, mented by year’s end’, Australian Food News, 24 March,
Chilton Book Company, Radnor, Pennsylvania. www.ausfoodnews.com.au; Aldi website, www.aldi.
24. A.C. Nielsen (2008), ‘Packaging and the environment: com.au.
a global Nielsen consumer report’, The Nielsen 6. R. Blackburn (2009), ‘Numbers game: why advertised
Company, www2.acnielsen.com. car prices are going up’, Sydney Morning Herald, 16 May,
25. K. Chapman (2012), ‘Out with traffic lights, in with www.smh.com.au; Mercedes Benz website, www.
stars — next steps for food labelling’, The Conversation, mercedesbenz.com.au.
7 December, www.theconversation.edu.au. 7. ‘Price discrimination’, Australian Competition Law
26. Coca-Cola Australia website, www.coca-cola.com.au; website, www.australiancompetitionlaw.org.
Simon Canning (2011), ‘Coke’s $5m summer marketing 8. Australian Consumer Law website, www.consumerlaw.
blitz gets personal’, The Australian, 30 September, www. gov.au.
theaustralian.com.au; ‘Share a Coke case study’ (2011) 9. ‘New drugs push up PBS spending’ (2013), Sydney
ADMA Awards, www.admaawards.com.au; ‘“Share a Morning Herald, 27 May, www.smh.com.au.
Coke” follow-up campaign unlocks songs with Spotify’ 10. A. Corderoy (2013), ‘Drugs deal wastes $260m’, Sydney
(2012), Marketing Magazine, 17 September, www. Morning Herald, 29 April, www.smh.com.au.
marketingmag.com.au. 11. A. Moses (2012), ‘Beware: “$24 iPad” penny auction deals
27. ‘Pauls Pure Organic’, Parmalat website, www.parmalat. could leave you penniless’, The Age, 5 January, www.
com.au. theage.com.au.

  References and notes 577

 12. ‘Australia’s best cars’, NRMA website, www.mynrma. Phillips (2012), ‘Deals Direct enters marketing
com.au. partnership with IdeaWorks’, PowerRetail, 11 October,
13. Editorial (2013), ‘Travellers lose out badly at Sydney www.powerretail.com.au.
Airport’, Sydney Morning Herald, 4 May, www.smh. 9. M. Morrison, D.S. Waller, J. Greig and R. McCulloch,
com.au. ‘Effective communication to landholders: a survey of
14. E. Greenblat and S. Cauchi (2013), ‘Grange price war local environmental authorities’, Australia and New
triggers tit-for-tat discounting’, Sydney Morning Herald, Zealand Communication Association (ANZCA) Conference,
2 May, www.smh.com.au. Canberra, July 2010.
15. E. Greenblat and M. Hawthorne (2013), ‘Grange sparks 10. ‘Green media fails online’ (2008), BRW, 14–20 August,
bidding war’, Sydney Morning Herald, 3 May, www.smh. p. 14.
com.au. 11. A. Sibillin (2009), ‘Don’t believe it’, BRW, 19–25 March,
16. E. Greenblat (2013), ‘Global price battle erupts over p. 45.
“perfect” Grange’, Sydney Morning Herald, 29 April, 12. ‘Bestads Rankings 2011: which are the top advertising
www.smh.com.au. agencies in the top 10 countries? (2012), Campaign Brief,
17. ‘Imposing minimum retail prices’, Australian 3 January, www.campaignbrief.com.
Competition and Consumer Commission website, 13. Nature’s Child Pty Limited (Complaint No. 2011-09-020),
www.accc.gov.au. Therapeutic Goods Administration, www.tga.gov.au.
18. P. Courtney (2013), ‘Price war drives demand for 14. Australian Association of National Advertisers, ‘AANA
farmhouse milk’, ABC News, 10 May, www.abc.net.au/ Code of Ethics’, www.aana.com.au.
news; C. Kruger (2013), ‘The high cost of cheap milk’, 15. Advertising Standards Authority (2009), ‘Advertising code
The Age, 29 March, www.theage.com.au. of ethics’, www.asa.co.nz.
16. A. Sharp (2009), ‘Anger at lack of action on
Chapter 9 obesity’, The Age, 3 June, www.theage.com.au; The
1. ‘Arnott’s Tim Tam spreads the love with Aussies in an Courier Mail (2009), ‘Fast food giants sign children’s
integrated campaign via DDB Group Australia’ (2013), code’, 26 June.
Campaign Brief, 13 February, www.campaignbrief.com; 17. ‘Subliminal advertising in Network Ten’s ARIA Awards
R. Greenbaum (2013), ‘Arnott’s spreads Tim Tam love telecast’, The Courier Mail, 8 October 2008.
across Australia’, Business Review Australia, 13 February, 18. A. Levine (2011), NAD Case Report 5400; D.S. Waller,
www.businessreviewaustralia.com; ‘Tim Tam bus goes ‘Advertising cosmetics and a backlash from regulators:
on “Love More Than One” tour of Australia giving away an analysis of blog comments’, Australia and New
200,000 biscuits’ (2013), Mumbrella, 13 February, www. Zealand Communication Association (ANZCA) Conference,
mumbrella.com.au. Adelaide, July (2012); J. Seigel (2012), ‘The lash stand:
2. C.E. Shannon and W. Weaver (1999) [1949], The will new attitudes and regulatory oversight hit delete on
mathematical theory of communication, University some photo retouching in print ads?’, Adweek, 29 May,
of Illinois Press, Chicago, IL; W. Schramm (1961), www.adweek.com.
‘How communication works’, The Process and Effects 19. ‘NAB honesty experiments’, Mango website, www.
of Mass Communication, University of Illinois Press, thisismango.com.au.
Urbana, IL. 20. C. Beaumont (2010), ‘Apple “knew about iPhone 4
3. iSentia website, www.isentia.com/en-au. antenna problems”’, The Telegraph, 16 July, www.
4. National Breast Cancer Foundation (2013), www.nbcf. telegraph.co.uk; M. Helft (2010), ‘Apple goes on the
org.au, www.pinkribbon.org.au; G. McColl (2009), offensive’, The New York Times, 16 July, www.nytimes.
‘Cause & effect’, BRW, 5 October, pp. 40–1. com.
5. iSentia website, www.isentia.com; ‘Testimonials’, 21. ‘Public relations officer’ (2013), MyFuture website, www.
iSentia website, www.isentia.com/en-au/testimonials; myfuture.edu.au.
N. Christensen (2013), ‘Sentia Media rebrands as 22. R. Browne (2011), ‘Louie finally told to buzz off after
iSentia’, Mumbrella, 26 March www.mumbrella. 50 years’, Sydney Morning Herald, 11 September, www.
com.au. smh.com.au; ‘Mortein: kill or save “Louie the fly”’,
6. P. Ruthven (2013), ‘Internet ads surge ahead’, BRW, Public Relations Institute of Australia website, www.
21 March, www.brw.com.au. pria.com.au; ‘Mortein Louie The fly death “hoax” sparks
7. McHappy Day website, www.mchappyday.com.au; media backlash’ (2011), Mumbrella, 25 September, www.
Ronald McDonald House website, www.rmhc.org.au/ mumbrella.com.au.
mchappy-day. 23. Shop-A-Docket website, www.shop-a-docket.com.au.
8. Deals Direct website, www.dealsdirect.com.au; ‘Online 24. Job guide is authored by Hobsons and Miles Morgan
department store Deals Direct launches integrated Australia on behalf of the Department of Education,
marketing campaign via IdeaWorks’ (2012), Campaign Employment and Workplace Relations (DEEWR). See
Brief, 9 October, www.campaignbrief.com; Campbell http://jobguide.thegoodguides.com.au.

578 References and notes

25. R. Baxendale (2012), ‘Mastering the art of ambush 40. Patrick Stafford (2009), ‘Skittles Twitter stunt backfires
marketing, Smart Company, 12 July, smartcompany.com. spectacularly.  .  . or does it?’, Smart Company, 5 March,
au; Messages on Hold website, www.messagesonhold. www.smartcompany.com.au.
com.au. 41. S. Godin (1999), Permission marketing: turning strangers
26. M. Hickman (2012), ‘Britain flooded with “brand into friends, and friends into customers, Simon & Schuster,
police” to protect sponsors’, The Independent, 16 July; New York.
O. Milman (2012), ‘Five great Olympic ambush 42. Vibe Club, Boost Juice website, www.boostjuice.com.au/
marketing campaigns’, Start Up Smart, 2 August, vibe.
www.startupsmart.com.au. 43. G. Medcalf (2008), ‘Building invincible brands’,
27. C. Turner (2010), ‘Lessons marketers can learn from NZMarketing, February.
World Cup ambush marketing’, UtalkMarketing, 23 June, 44. ‘Sports sponsors fail to sway consumers’ (2009), BRW,
www.utalkmarketing.com. 19–25 March, p. 13.
28. The term was first used by Jay Conrad Levinson in his 45. AAP (2008), ‘KFC sponsorship of cricket must end:
1984 book Guerrilla Marketing. obesity experts’, The Sydney Morning Herald, 5 October,
29. ‘Ford and Farnham: a match made in advertising?’ www.smh.com.au.
(2012), news.com.au, 22 October, www.news.com.au. 46. Swatch website, www.swatch.com; W. Swanton (2011),
30. ‘NZ Road Safety — Windscreen Flyer’, The Gruen ‘Ballerina reveals beauty of surfing to China’, Reuters,
Transfer, www.abc.net.au. 26 October, www.reuters.com.
31. A. Meade and L. Sinclair (2010), ‘When Oprah 47. C. Muzeroll (2013), personal communication, 28 May;
Winfrey educates Yanks on our “hip” McCafes, it’s the A. Wilson-Chapman (2013), ‘Cooler coffee brews for
dollar talking’, The Australian, 6 December, www.news. hot drive-throughs’, Sunday Times, 20 January, p. 52;
com.au. Antz Inya Pantz website, www.antzinyapantz.com;
32. M. Byers (2013), ‘The value of product placement part 3: R. Payne (2013), ‘Coffee guru gives real-world lesson in
leveraging your placement’, Marketing, 16 April, www. entrepreneurship’, media release, Murdoch University,
marketingmag.com.au. 20 March, http://media.murdoch.edu.au; Muzz
33. D. Knox (2013), ‘When is product placement not Buzz (2012), ‘Muzz Buzz opens 50th Australian drive
product pracement?’, TVtonight, 26 March, www. thru store’, media release, 29 October, www.
tvtonight.com.au. muzzbuzz.com.
34. J. Lee (2008), ‘James Bond reigns in his licence to
sell’, Sydney Morning Herald, 23 October, www.smh. Chapter 10
com.au; S. Felix and L. Stampler (2012), ‘The evolution 1. Ralph’s Tasmanian Seafood website, www.
of James Bond movie Product placement’, Business ralphstasmanianseafood.com.au; Correspondence with
Insider Australia, 22 October, http://au.businessinsider. Jenna Boyd, Logistics Officer, Ralph’s Seafood; H. Martin
com. (2012), ‘Asian tastes driving exports’, The Mercury,
35. A. Sauer (2013), ‘Announcing the 2013 Brandcameo 8 January, www.themercury.com.au; S. Dakis (2011),
product placement award winners’, Brand Channel, ‘Abalone exporter wins national seafood award’, ABC
25 February, www.brandchannel.com. Rural, 14 November, www.abc.net.au.
36. R. Cooper (2012), ‘James Bond just sold out: Daniel 2. Byron Bay Cookies website, www.cookie.com.au.
Craig swaps vodka martini for a bottle of Heineken 3. Staples website, staplesadvantage.com.au.
to star in controversial new 007 beer ad’, Daily Mail, 4. Linfox (2010), ‘Innovation at National Foods’,
21 September, www.dailymail.co.uk. Solutions: Asia Pacific, June; Linfox website, www.
37. S. Molloy (2009), ‘Rush for “best job in the world” linfox.com.au.
crashes website’, The Sydney Morning Herald, 5. Adobe website, www.adobe.com.au.
14 January, www.smh.com.au; K. Schneider (2009), 6. ‘Bayswiss is power brand for freedom’ (2003), B&T
‘Ben Southall wins Tourism Queensland’s “dream job”’, Weekly, 19 February.
6 May, www.news.com.au 7. M. O’Sullivan (2012), ‘Webjet snaps up Zuji in Asian
38. L. Brown (2012), ‘Viral marketing and human push’, Sydney Morning Herald, 21 December, www.smh.
emotion in advertising’, Marketing, 18 July, www. com.au.
marketingmag.com.au; Ryan Wianko (2010), ‘And 8. Franchise Council of Australia website, www.franchise.
the “Oldspice Naneuver” is created, blows the doors org.au; Franchise Council of Australia (2008), ‘What
off of advertising’, RyanWianko.com, 15 July, www. every franchisor must know’, Franchise Business, www.
ryanwiancko.com. franchisebusiness.com.au.
39. T. Shepherd, ‘Remember Kony 2012? Well, it’s 2013. 9. Ben & Jerry’s website www.benandjerry.com.au;
What happened?’, News.com.au, 11 January, www.news. Franchise Council of Australia website, www.
com.au. franchisebusiness.com.au.

  References and notes 579

 10. M. Napolitano (2007), ‘Warehouse management: how 26. Elders Limited website, www.elders.com.au.
to be a lean, mean cross-docking machine’, Logistics 27. Sydney Fish Market website, www.sydneyfishmarket.
Management, www.logisticsmgt.com. com.au; Auckland Fish Market website, www.afm.
11. J. Saulwick (2012), ‘O’Farrell makes way for B-triples to co.nz; Tsukiji Fish Market website, www.tsukiji-market.
hit the Hume’, Sydney Morning Herald, 30 December, or.jp; CNN Travel staff (2012), ‘Iconic Tokyo fish market
www.smh.com.au; ‘NSW government downplays B-triple to close, replacement design unveiled’, CNN Travel,
trials’ (2012), Sydney Morning Herald, 30 December, 11 December, travel.cnn.com.
www.smh.com.au; ‘Hume Highway could see B-triple 28. ‘Linfox Logistics — supply chain solutions’ (n.d.),
trucks’ (2012), ABC News, 30 December, www.abc.net.au. www.linfox.com/About-Linfox.aspx.
12. Hoyts website, www.hoyts.com.au; Hoyts Kiosk website, 29. Linfox (2010), ‘Asia focus’, Solutions: Asia Pacific,
www.hoytskiosk.com.au; ‘Hoyts announces market September, pp. 6–7, www.linfox.com.
leading digital movie streaming business launching early 30. ibid.
next year’ (2012), Campaign Brief, 10 September, www. 31. Linfox (2011), ‘Indian milestones’, Solutions: Asia Pacific,
campaignbrief.com. March, pp. 6–7.
13. Country Road website, www.countryroad.com.au. 32. ibid.
14. David Jones website, www.davidjones.com.au. 33. Linfox (2010), ‘Linfox in India’, Solutions: Asia Pacific,
15. David Jones, www.davidjones.com.au. June, pp. 10–11, www.linfox.com.
16. R.F. Hartley (1985), Retailing: challenge and opportunity, 34. Linfox (2011), ‘Focus on Malaysia’, Solutions: Asia Pacific,
3rd edn, Houghton Mifflin, Boston, MA. June, pp. 6–7, www.linfox.com.
17. IGD senior analyst Adrian Williams, cited in BRW,
24–30 July 2008, p. 41. Chapter 11
18. Google Australia retail marketing manager Ross 1. AAP (2012), ‘CBA takes control of Aussie Home Loans’,
McDonald, cited in BRW, 24–30 July 2008, p. 41; N. Klein news.com.au, www.news.com.au; S. Colnan (2012),
(2012), ‘Shoppers try clothes on in store, but buy online’, ‘Home loans hero plans new attack’, Professional
Herald Sun, 14 June, www.heraldsun.com.au. Marketing, July–September.
19. The Nielsen Company (2009), ‘New Zealanders 2. The data is drawn from the respective country entries
embracing online consumer generated activity’, of the Central Intelligence Agency’s The World Factbook,
media release, 18 May, www.nielsen-online.com; www.cia.gov.
The Nielsen Company (2009), ‘Online shopping hits 3. S. L. Vargo and R. F. Lusch (2004), ‘Evolving to a new
record levels: Nielsen online’, media release, 18 March, dominant logic for marketing’, Journal of Marketing,
www.nielsen-online.com; ‘Two-thirds shop online’ vol. 68 (January), pp. 1–17.
(2008), BRW, 24–30 July, p. 41; M. Freitas (2007), ‘The 4. Australian Government, Treasury website, www.
New Zealand online market under the microscope’, treasury.gov.au.
Entrepreneurship, 29 March, www.geekzone.co.nz. 5. K. Dunstan and N. Thomson (2006), ‘Demographic
20. ‘Two-thirds shop online’ (2008), BRW, 24–30 July, aspects of New Zealand’s ageing population’, Statistics
p. 41; ‘Google reveals 220% surge in mobile shopping New Zealand, www.stats.govt.nz.
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13. G. Medcalf (2009), ‘Tightening the screws’, NZ Marketing, and assistance of the Lovedale Long Lunch and
December–January, pp. 26–31. associated wineries.
14. Artline website, www.artline.com.au; C.B. (2013), 23. K. Lock (2013), personal communication, 24 June.
‘“Things flow better with Artline” in latest campaign 24. ibid.

  References and notes 585

 Glossary
action plans  Implementable plans with specific actions, business markets  Individuals or organisations that
schedules and goals that direct managers and staff that purchase products for resale, use in the production
are not directly involved in strategic decisions.  544 of other products, or for use in their daily business
advertising  Paid promotion of a business, product or brand operations. 153
to a mass audience.  319 business-to-business products  Those products purchased by
agents  Marketing intermediaries engaged by buyers individuals and organisations for use in the production
or sellers on an ongoing basis to represent them of other products or for use in their daily business
in negotiations with other parties in the marketing operations. 224
channel. 384 business-to-business services  Those services purchased by
AIDA model  A simple model that represents the response a individuals and organisations for use in the production
customer can take when engaging with an advertisement: of other products or for use in their daily business
Attention > Interest > Desire > Action.  326 operations. 400
ambush marketing  The presentation of marketing messages business-unit strategy  Strategies for the various business
at an event that is sponsored by an unrelated business or areas within an organisation to guide their contribution to
a competitor.  341 achieving the overall corporate objectives.  534
aspirational reference groups  Groups to which the buying centre  The groups and structures within an
individual would like to belong.  125 organisation that make business buying decisions.  169
audience research  The use of market research to causal research  Research that assumes that a particular
understand target stakeholders at the outset of variable causes a specific outcome and then, by holding
interventions (i.e. formative research), routinely pretest everything else constant, tests whether the variable does
intervention elements before they are implemented, and indeed effect that outcome.  91
monitor interventions as they are  rolled  out.  507 cause-related marketing  Philanthropic activities tied to the
automatic vending  Use of machines to dispense a product; purchase of a product. 311
used for small, routinely purchased products.  381 clients  ‘Customers’ of the products of not-for-profit
behaviour change  The modification of behaviour targeted organisations. 13
by a social marketing intervention.  507 co-branding  The use of two or more brand names on the
behavioural segmentation  Market segmentation based on same product.  243
actual purchase and/or consumption behaviours.  199 co-creation  The process whereby consumer experiences
born global  A business that views the whole world as its are used to drive organisation improvement and change,
market from the outset.  487 resulting in enhanced market performance drivers for the
brand  A collection of symbols such as a name, logo, slogan firm (loyalty, relationships, customer word of mouth).  6
and design intended to create an image in the customer’s cognitive dissonance  A  purchaser’s second thoughts
mind that differentiates a product from competitors’ or doubts about the wisdom of a purchase they have
products.  25, 238 made. 144
brand equity  The added value that a brand gives a competition  Direct and indirect competing behaviours as
product. 240 well as other factors (e.g. resources, perceptions and
brand extension  Giving an existing brand name to new attitudes) affecting the targeted behaviour.  511
product in a different category.  241 competition-based pricing  An approach to pricing based
brand image  The set of beliefs that a consumer has on the prices charged by competitors or on the likely
regarding a particular brand.  238 response of competitors to the organisation’s prices.  282
brand loyalty  A customer’s highly favourable attitude and consumer behaviour  The analysis of the behaviour of
purchasing behaviour towards a certain brand.  240 individuals and households who buy goods and services
break-even analysis  An analysis designed to estimate the for personal consumption. 117
volume of unit sales required to cover total costs.  277 consumer decision-making process  The process of need/
brokers  Marketing intermediaries engaged by buyers or want recognition, information search, evaluation of
sellers on a short-term or one-off basis to represent options, purchase and post-purchase evaluation that are
them in negotiations with other parties in the marketing common to most consumer buying decisions.  140
channel. 384 consumer products  Those products purchased by
bundle of attributes  The features and functions of a product households and individuals for their own private
that benefit the customer.  25 consumption. 224

586 Glossary
consumer services  Services purchased by individual characteristics of populations, such as age, education and
consumers or households for their own private income. 194
consumption. 399 derived demand  Demand in business markets that is due to
consumers  People who use the good or service.  13 demand in consumer markets.  164
contingency planning  The process of putting in place descriptive research  Research used to solve a particular and
plans for unforeseen or uncertain eventualities to ensure well-defined problem by clarifying the characteristics of
managers think ahead and can respond to emerging certain phenomena.  90
problems and opportunities.  544 differential pricing  The practice of charging different buyers
contract manufacturing  An approach to international different prices for the same product.  293
marketing in which a business pays a foreign business differentiated targeting strategy  A marketing approach that
to manufacture its product and market it in the foreign involves developing a different marketing mix for each
country under the domestic business’s name.  486 target market segment.  190
convenience products (fast-moving consumer goods)  diffusion of innovations  The theory that social groups
Inexpensive, frequently purchased consumer products influence the decisions made by individuals in such a
that are bought with little engagement with the decision- way that innovations are adopted by the market in a
making process.  225 predictable pattern over time.  233
corporate social responsibility  The obligation of businesses digital marketing  The activities involved in planning
to act in the interests of the societies that sustain and implementing marketing in the electronic
them.  17, 537 environment. 429
corporate strategy  A specific, but high-level plan to digitalisation  The ability to deliver a product as information
achieve objectives that reflect the overall mission of the or to present information about a product digitally.  435
organisation. 534 direct exporting  An approach to exporting in which
cost-based pricing  An approach to pricing in which a the marketing organisation deals directly with the
percentage or dollar amount is added to the cost of the international market.  485
product in order to determine its selling price.  280 direct marketing  A type of non-store retailing that promotes
cross-docking  The practice of expediting the movement of and sells products via mail, telephone or the web.  380
goods from receipt to shipping.  366 dissociative reference groups  Groups with which the
culture  The system of knowledge, beliefs, values, rituals and individual does not wish to be associated or which the
artefacts by which a society or other large group defines individual may wish to leave.  125
itself. 121 distribution centre  A warehouse focused on moving rather
customer lifetime value  a metric of the dollar value of a than storing products.  366
customer relationship based on the present value of the distribution channel  A group of individuals and
projected future cash flows from the business/customer organisations directing products from producers to end
relationship 550 users. 355
customer relationship management (CRM)  The processes distribution (or place)  The means of making the offering
and practices put in place to identify, track and use available to the customer at the right time and place.  27
customer information and preferences to provide economic forces  Those factors that affect how much people
superior customer service and sustain long-term and organisations can spend and how they choose to
relationships.  452, 537 spend it.  57
customers  People who purchase goods and services for their embargoes  Bans or restrictions on imports from a particular
own or other people’s use.  13 country. 481
customisation  Carefully tailoring the marketing mix to the emergent approach  The development of marketing strategy
specific characteristics and wants of each market.  468 in response to changing market conditions.  544
demand  A want that a consumer has the ability to empowerment  Enabling employees to make decisions to do
satisfy. 25 their job properly and ensuring they have the necessary
demand curve  A graph showing the relationship between resources to make effective use of their power to make
price and volume sold.  271 decisions. 544
demand schedule  A table showing actual or estimated environmental analysis  A process that involves breaking
quantity demanded for a particular good at particular the marketing environment into smaller parts in order to
prices. 271 gain a  better understanding of it.  44
demand-based pricing  The influence of demand on pricing environmental forces  The environmental factors that affect
decisions. 270 individuals, companies and societies.  58
demographic factors  The vital and social characteristics of equipment  Capital equipment and accessory equipment
populations, such as age, education and income.  131 used in the production of the business’s products.  226
demographic segmentation  Market segmentation based on ethics  A set of moral principles that guide attitudes and
demographic variables, which are the vital and social behaviour. 15

Glossary 587
 exchange  The mutually beneficial transfer of offerings of guerilla marketing  The use of an aggressive and
value between the buyer and seller.  11 unconventional marketing approach to grab
exclusive distribution  An approach to market coverage that attention. 342
distributes products through a single intermediary in any habitual decision making  Low-involvement purchasing
given geographic region.  357 decisions, usually involving small, routine, low-risk
exploratory research  Research intended to gather more products. 141
information about a loosely defined problem.  90 heterogeneity  Inevitable, but minimisable, variations in
exporting  The sale of products into foreign markets from a quality in the delivery of a service product.  407
home market base.  485 horizontal channel integration  Bringing organisations at
extended decision making  High-involvement purchasing the same level of operation under a single management
decisions involving high-price, high-risk and/or structure. 361
infrequent, unfamiliar products.  141 hypothesis  A tentative explanation that can be tested.  91
external environment  The people and processes that indirect exporting  An approach to exporting that relies on
are outside the organisation and cannot be directly the use of specialist marketing intermediaries.  485
controlled. 49 individual branding  A branding approach in which each
external reference price  A price comparison provided by product is branded separately.  240
the manufacturer or retailer.  291 individualism  The extent to which people focus on their
extranet  A private website for sharing information securely own goals over those of the group.  121
between different organisations.  456 indulgence  The extent to which a relatively free
family branding  A branding approach that uses the same gratification of basic and natural human drives related to
brand on several of the organisation’s products.  241 enjoying life and having fun is allowed.  122
family life cycle  A series of characteristic stages through inelastic demand  Demand that is relatively independent
which most families pass.  127 of price, a common characteristic of demand within
foreign direct investment  Outright ownership of a foreign industries in business markets.  165
operation. 486 inseparability  The characteristic of being produced and
fragmentation  The increasing division of the market into consumed simultaneously.  404
ever smaller niches with increasingly specific needs.  543 institutional markets  Business markets in which non-public,
franchising  An approach to business in which one party not-for-profit organisations buy and sell products.  157
(a franchisor) licenses its business model to another party intangibility  The characteristic of lacking physical
(a franchisee).  362, 486 form. 402
freight forwarders  Specialist transportation businesses that integrated marketing communications (IMC)  The
combine cargo from different businesses in order to coordination of promotional efforts to maximise the
achieve efficient load sizes.  367 communication effect.  313
frequency  The number of times each target market member integrated social marketing communication  integrated
is exposed to the advertisement.  325 social marketing communication involves communication
generic brands  Products that only indicate the product of the brand promise consistently across the different
category. 242 elements of the communication marketing mix (e.g.
geographic pricing  A pricing strategy that includes price advertising, public relations, sales promotion and social
differentials based on those costs that vary with distance media), integrated with the other ‘3 Ps’ of product, price
between the buyer and seller.  288 and promotion.  515
geographic segmentation  Market segmentation based intensive distribution  An approach to market coverage
on variables related to geography, such as climate and that distributes products through every suitable
region. 194 intermediary. 357
globalisation  The process through which individuals, interaction  The ongoing exchange of information between
organisations and governments become increasingly marketer and customer (or potential customer).  433
interconnected and similar.  466 internal environment  The parts of the organisation, the
good  A physical (tangible) offering capable of being people and the processes used to create, communicate,
delivered to a customer.  26 deliver and exchange offerings that have value.
government markets  The market for selling products to The organisation can directly control its internal
national (Commonwealth), state (provincial) and local environment. 46
(municipal) governments for use in providing services for internal marketing  A cultural framework and a process to
citizens. 156 achieve strategic alignment between front-line employees
greenwashing  The dissemination of questionable or and marketing.  48
potentially misleading information by an organisation in internal reference price  The price expected by consumers,
relation to its products, in order for the organisation and its largely based upon their actual experience with the
products to be perceived as environmentally friendly.  22 product. 291

588 Glossary
international joint venture  An approach to international market segment profile  A description of the typical potential
marketing in which a marketing organisation forms a customer in the market segment; that is, a description
new business with an existing business in the target of the common variables shared by members of market
foreign market.  486 segments and how the variables differ between market
international strategic alliance  A cooperative arrangement segments. 202
between a business and another business in a foreign market segments  Subgroups within the total market that are
market. 486 relatively similar in regards to certain characteristics.  187
intranet  An internal website for the use of staff.  456 market share  The proportion of the total market held by the
involvement  The level of engagement undertaken by organisation. 205
a  consumer when considering perceived consequences of market specialisation  A target marketing strategy in which
a purchase. 141 all marketing efforts are focused on meeting a wide range
joint demand  Interdependent demand for products that are of needs within a particular market segment.  190
used together in the production of another product.  165 marketing  The activity, set of institutions and processes
just-in-time (JIT)  An approach to inventory management for creating, communicating, delivering and exchanging
that involves holding only that stock that is about to be offerings that have value for customers, clients, partners
used or sold.  366 and society at large.  3
laws  Legislation enacted by elected officials.  59 marketing cycle  The cyclical and interrelated process of
licensing  An agreement in which a brand owner permits understanding, creating, communicating and delivering
another party to use the brand on its products.  242, 485 value, refined by continuous evaluation.  529
limited decision making  Limited-involvement purchasing marketing environment  All of the internal and external
decisions, usually involving infrequently bought, forces that affect a marketer’s ability to create,
but familiar, products. 141 communicate, deliver and exchange offerings of value.  43
line extension  A new product that is closely related to an marketing information system (MIS)  The structure put in
existing product in a product line.  250 place to manage information gathered during the usual
logistics  That part of the marketing process concerned with operations of the organisation.  81
supply and transport.  28 marketing intermediaries  Individuals or organisations that
long-term orientation  The extent to which a pragmatic, long- act in the distribution chain between the producer and
term orientation is valued over a short-term focus.  122 end user. 355
loss leader  A high-volume product priced below cost to marketing management  The management task of
attract customers into the store, where it is expected they understanding the market, and planning, implementing
will buy other, normally priced, products.  276 and evaluating marketing activities.  530
loyalty programs  Schemes that reward customers based on marketing metrics  Measures that are used to assess
the amount they spend.  334 marketing performance.  65, 539
macro environment  The factors outside of the industry that marketing mix  A set of variables that a marketer can
influence the survival of the company; these factors are exercise control over in creating an offering for
not directly controllable by the organisation.  55 exchange.  24, 509
manufacturer brands  Brands owned by producers and marketing planning  An ongoing process that combines
clearly identified with the product at the point of organisational objectives and situation analyses to
sale. 241 formulate and maintain a marketing plan that moves the
manufacturers’ wholesalers  Wholesalers owned by the organisation from where it currently is to where it wants
producer. 388 to be.  61
marginal analysis  An analysis designed to determine marketing process  A process that involves understanding
the effect on costs and revenue when an organisation the market to create, communicate and deliver an
produces and sells one more unit of product.  279 offering for exchange.  8
market  A group of customers with heterogeneous needs and masculinity  The extent to which traditionally masculine
wants.  12, 185 values are valued over traditionally feminine values
market potential  The total sales of a product category that within a culture in Hofstede’s cultural dimensions.  121
all organisations in an industry are expected to sell in Maslow’s hierarchy of needs  A theory of motivation that
a specified period of time assuming a specific level of suggests that people seek to satisfy needs according to
marketing activity.  205 a hierarchy that places lower order needs before higher
market research  A business activity that discovers order needs.  134
information of use in making marketing decisions.  79 materials handling  The physical handling of goods.  367
market research brief  A set of instructions and membership reference groups  Groups to which the
requirements that generally states the research problem individual belongs.  124
and the information required, and specifies the merchant wholesalers  Independently owned wholesaling
timeframe, budget and other conditions of the project.  86 businesses that take title to products.  387

Glossary 589
 micro environment  The forces  within an organisation’s physical evidence  Tangible cues that can be used
industry that affect its ability to  serve its customers and as a means to evaluate service quality prior to
clients  — target markets, partners and competitors.  51 purchase. 28, 414
mission statement  A  summary statement of the overarching political forces  The influence of politics on marketing
goals of the organisation.  533 decisions. 55
mobile e-commerce  The use of a mobile phone to make population  All of the things (often people) of interest to the
purchases. 380 researcher in the particular research project.  98
modified rebuy  The purchase of a product that is portal  A website that is designed to act as a gateway to
similar, but not identical, to one a business has other related sites.  440
previously purchased, after evaluating a small range of positioning  The way in which the market perceives an
alternatives. 167 organisation, its products and its brands in relation to
motivation  An individual’s internal drive to satisfy competing offerings.  208
unfulfilled needs or achieve goals.  134 power distance  The degree of  inequality among people that
multiculturalism  The existence of diverse cultures within a is  acceptable within a culture.  121
society. 123 premium offers  Bonus products given for free or sold at
need  A day-to-day survival requirement: food, shelter and a heavily discounted price when another product is
clothing. 25 purchased. 334
new product development  When the organisation develops price elastic  Demand for which price elasticity is greater
the idea, undertakes research, prepares prototypes, pre- than 1 (i.e. the percentage change in quantity demanded
test the product, makes modifications before the product exceeds the percentage change in price).  273
launch. 229 price elasticity of demand  The sensitivity of quantity
new task purchase  A first purchase in a product demanded to changes in price.  273
category in response to a new problem, process or price floor  A minimum price that must be charged to cover
product. 168 costs. 276
non-probability sampling  A sampling approach that price inelastic  Demand for which price elasticity is less
provides no way of knowing the chance of a particular than 1 (i.e. the percentage change in quantity demanded
member of the population being chosen as part of the is less than the percentage change in price).  273
sample that will be studied.  98 price leader  A high-volume product priced near cost to
not-for-profit marketing  The marketing activities of attract customers into the store, where it is expected they
individuals and organisations designed to generate funds will buy other, normally priced, products.  276
or awareness for charitable causes.  518 price skimming  Charging the highest price that customers
opinion leader  A reference group member who provides who most desire the product are willing to pay, and then
relevant and influential advice about a specific topic of later lowering the price to bring in larger numbers of
interest to group members.  125 buyers. 293
opportunities  Factors that are potentially helpful to primary data  Data collected specifically for the current
achieving the organisation’s objectives.  68 market research project.  92
organisational culture  The values and behaviours shared private label brands  Brands owned by resellers, such as
throughout the organisation.  546 wholesalers or retailers, and not identified with the
organisational structure  The formal arrangement of manufacturer. 241
business functions within an organisation.  545 probability sampling  A sampling approach in which every
partners  Organisations or individuals who are involved in member of the population has a known chance of being
the activities and processes for creating, communicating selected in the sample that will be studied.  98
and delivering offerings for exchange.  13 process  The systems used to create, communicate, deliver
parts and materials  Business-to-business products that form and exchange an offering.  28, 413
part of the purchasing business’s products.  226 producer markets  The markets in which business
penetration pricing  A pricing tactic based on setting a low organisations and professionals purchase products for
price in order to gain rapid market share and turnover for use in the production of other products or in their daily
a new product.  293 business operations.  155
perception  The psychological process that filters, organises product  A good, service or idea offered to the market for
and attributes meaning to external stimuli.  135 exchange.  25, 221
perishability  The inability to  store services for use at a product adoption process  The sequential process of
later date. 409 awareness, interest, evaluation, trial and adoption
permission marketing  Marketing that aims to build an through which a consumer decides to purchase a new
ongoing relationship with customers.  344 product. 231
pester power  The influence of children on their parents’ product deletion  The process of removing a product from
purchasing decisions.  128 the product mix.  251

590 Glossary
product differentiation  The creation of products and push policy  An approach in which a product is promoted
product attributes that distinguish one product from to the next organisation down the marketing distribution
another. 236 channel. 317
product item  A particular version of a product.  224 qualitative research  Research intended to obtain rich,
product life cycle  The typical stages a product progresses deep and detailed information about the attitudes and
through: new product development, introduction, growth, emotions that underlie the behaviours that quantitative
maturity and decline.  229 research identifies.  96
product line  A set of product items related by characteristics quantitative research  Research that collects information
such as end use, target market, technology or raw that can be represented numerically.  93
materials. 224 quotas  Annual limits on the amount of particular types of
product mix  The set of all products that an organisation goods that can be imported.  481
makes available to customers.  224 reach  The proportion of the target audience exposed to the
product placement  The paid inclusion of products in advertisement at least once.  325
movies, television shows, video games, songs and reference group  Any group to which an individual looks for
books. 342 guidance. 124
product positioning  The way in which the market perceives regulations  Rules made under authority delegated by
a product in relation to competing offerings.  250 legislation. 59
product specialisation  A target marketing strategy in research design  The detailed methodology created to
which all marketing efforts are concentrated on guide the research project and answer the research
offering a single product range to a number of market question. 90
segments. 190 research problem  The question that the market research
product-line pricing  Setting a range of prices in a project is intended to answer.  86
product line based on differences in manufactured reseller markets  The market of retailers, wholesalers and
costs, customer perceptions of product features and other intermediaries that buy products in order to sell or
competitors’ prices.  265 lease them to another party for profit.  154
product–market specialisation  A target marketing strategy restraint  The extent to which gratification of needs is
in which marketing efforts are concentrated on offering a suppressed and regulated by means of strict social
single product to a single market segment.  190 norms. 123
profiling  The process of getting to know about potential retailing  Any exchange in which the buyer is the ultimate
customers before they make a purchase and to find out consumer of the product.  373
more about existing customers.  432 sales promotions  Short-term incentives to encourage
promotion  The marketing activities that make potential purchase of a product by either resellers or
customers, partners and society aware of and attracted to consumers. 333
the business’s offerings.  27, 307 sales revenue  Total volume of  sales multiplied by the
promotional pricing  The combination of a pricing approach average selling price.  205
with a promotional campaign.  294 sample  The group chosen for the study.  98
psychographic segmentation  Market segmentation based sampling error  A measure of the extent to which the results
on the psychographic variables of lifestyle, motives and from the sample differ from the results that would be
personality attributes.  196 obtained from the entire population.  99
psychological characteristics  Internal factors, independent saturation  The existence of so many competitive offerings
of situational and social circumstances, that shape the in the marketplace that it becomes virtually impossible
thinking, aspirations, expectations and behaviours of  the to differentiate an offering or create a competitive
individual. 134 advantage. 543
public health  is understanding health needs and intervening search engine marketing  Paid advertising that
to improve the health of the population.  516 appears similar to a search result on a search engine
publicity  Unpaid exposure in the media.  330 page. 441
public relations  Promotional efforts designed to build and search engine optimisation (SEO)  Tailoring features of a
sustain good relations between an organisation and its website to try to achieve the best possible ranking in
stakeholders. 330 search results returned by a search engine.  440
pull advertising  Advertising that the customer actively secondary data  Data originally gathered or recorded for
seeks out. 434 some purpose other than to address the current market
pull policy  An approach in which a product is promoted research problem.  91
to consumers to create demand upward through the segmentation  The process of dividing a total market
marketing distribution channel.  317 (population) into groups with relatively similar needs to
push advertising  Advertising sent from the marketer to the design a social marketing intervention that addresses the
customer. 434 needs of each group identified.  508

Glossary 591
 segmentation variables  Characteristics that buyers have straight rebuy  The low-engagement purchase of the same
in common and that might be closely related to their products as previously purchased from established
purchasing behaviour.  193 vendors under established terms.  167
selective distribution  An approach to market coverage that strengths  Those attributes of the organisation that help it
distributes products through intermediaries chosen for achieve its objectives.  67
some specific reason.  357 subculture  Groups of individuals whose members share
service  An intangible offering that does not involve common attitudes, values and behaviours that distinguish
ownership. 26 them from the broader culture in which they are
services  Activities, performances or benefits that are immersed. 123
offered for sale, but which involve neither an exchange of supply-chain management  An approach to
tangible goods nor a transfer of title.  398 managing marketing channels based on ongoing
services and supplies  Business-to-business products that are partnerships among distribution channel members
essential to business operations, but do not directly form that create efficiencies and deliver value to
part of the production process.  226 customers. 361
shopping products  Consumer products that involve supply chain  The parties involved in providing all of the
moderate to high engagement in the decision-making raw materials and services that go into getting a product
process, in the purchase decision being based on to the market.  28
consideration of features, quality and price.  224 sustainable development  Development that meets the
situational influences  The circumstances a consumer finds needs of the present without compromising the ability of
themself in when making purchasing decisions.  118 future generations to meet their own needs.  20
situation analysis  An analysis that involves identifying sustainable marketing  The ‘way and means’ for combining
the key factors that will be used as a basis for the ecological and economic elements through innovative
development of marketing strategy.  61 products and systems.  21
SMART model  An approach to determining effective SWOT analysis  An analysis that identifies the strengths and
marketing objectives that requires they be Specific, weaknesses and the opportunities and threats in relation
Measurable, Actionable, Reasonable and Timetabled.  538 to an organisation.  67
social class  A group comprising individuals of similar rank target market  A group of customers with similar needs and
within the social hierarchy.  123 wants. 24
social marketing  A process that uses commercial marketing target marketing  An approach to marketing based on
principles and techniques to influence target audience identifying, understanding and developing an offering for
behaviours that will benefit society, as well as the those segments of the total market that the organisation
individual.  31, 502 can best serve.  188
social media  The various websites using technologies and tariffs  Duties charged on imports that effectively increase
experiences that involve online communities where the price of imports relative to domestically made
members contribute to and build the community and products. 481
the content, and where users can substantially control threats  Factors that are potentially harmful to the
their own online experience through customisation and organisation’s efforts to achieve its objectives.  68
interactivity. 438 total product concept  A view of the product that describes
social risk  The belief by a consumer that a particular the core product, expected product, augmented product
choice of product may have potentially negative social and potential product in order to analyse how the product
consequences. 124 creates value for the customer.  222
sociocultural forces  The social and cultural factors that trade mark  A brand name or brand mark that has been
affect people’s attitudes, beliefs, behaviours, preferences, legally registered so as to secure exclusive use of the
customs and lifestyles.  57 brand. 239
spam  Unsolicited commercial electronic messages.  447 uncertainty avoidance  The extent to which people in
specialty products  Highly desired consumer products a culture feel threatened by uncertainty and rely on
with unique characteristics that consumers will make mechanisms to reduce it.  121
considerable effort to obtain.  225 unsought products  Goods or services that a consumer either
sponsorship  The paid association of a brand with an event knows about but doesn’t normally consider purchasing,
or person.  345 or doesn’t even know about.  225
stakeholders  Individuals, organisations and other groups value  A customer’s overall assessment of the utility of an
that have a rightful interest in the activities of a offering based on perceptions of what is received and
business. 17 what is given.  11
standardisation  Applying a uniform marketing mix across vertical channel integration  Bringing different stages of
international markets, with only minor modifications to the distribution channel under a single management
meet local conditions.  468 structure. 362

592 Glossary
vertical marketing system  A distribution channel in wheel of retailing  The theory that retailers enter the market
which all stages occur under a single management with low costs, low margins and low prices, but move to
structure. 362 high costs and high prices as they seek to compete with
viral marketing  The use of social networks to spread a copiers, only to then have to compete with new low-price
marketing message.  344, 439 entrants. 379
want  A desire, but not necessary for day-to-day survival.  25 wholesaling  Exchanges in which products are bought for
weaknesses  Those attributes of the organisation that hinder resale, for use as inputs in other products, or for some
it in trying to achieve its objectives.  67 other use in a business.  386

Glossary 593
 Index
7-Eleven 220 agents 384 Australian Communications and Media
AIDA model  326 Authority (ACMA)
A air freight  369 Commercial Television Industry
ABS Bank  443–4 Airbnb 424–5 Code of Practice  327
accessory equipment  226 airline industry eMarketing Code of Practice  448
accounting, and marketing  535 demand fluctuations  164–5 Australian Competition and Consumer
action plans  544 low-cost carriers  258–9 Commission (ACCC)
Advanced Medical Institute (AMI)  327 alcohol industry, voluntary label action against Dulux  23–4
advertisements schemes 528 approach to user-generated
AIDA model of customer alcohol-related interventions comments 129
responses 326 decreasing consumption  513 inquiry into competitiveness of retail
banner advertisements  437–8 drink driving  507–8, 509, 515 grocery prices  266
frequency 325 drinking during pregnancy  508, 528 role 23
placing 326 underage drinking  511 Australian Consumer Law  267
pop-up advertisements  438 Aldi  32, 264, 266 Australian Lifestyle Survey  81
production 325–6 ambush marketing  341–2 Australian Market and Social Research
reach 325 AMD, impact of derived demand  166 Society (AMSRS), code of
advertising Antz Inya Pantz  349–50 practice 84
benefits 313 APEC countries  475 Australian Marketing Institute (AMI)
by media sector in Australia  314 Apple Brand Revitalisation Award  7
definition 319 bonuses 144 calculators 550–1
distorting the truth  329 brand loyalty  137, 290 code of professional conduct  16
of junk food to children  18, 327 customer support  236–7 marketing metrics framework  65
legal issues  326–9 iPhones 25 marketing metrics list  549–50
limitations 313 pricing  290, 296 Australian and New Zealand Standard
online advertising marketing response to problems with Industrial Classification System
metrics 455 iPhone 4 331 (ANZSIC) 200–1
organisational or institutional application software (‘apps’)  442–3 Australian Open tennis
advertising 319 Armstrong, Lance  119 championship 546
photoshopping in magazines  329 Arnott’s 306 Australian Red Cross Queensland
product advertising  319 Arthritis Australia, Advocacy Floods Appeal  17
pull advertising  434 Survey 99 automatic vending  381–2
push advertising  434 Artline 540
regulation of online ads  450–1 ASB Bank New Zealand  443–44 B
top 10 advertisers in Australia  314 ASEAN countries  474 B-triple trucks  369–70
advertising agencies  52 ASEAN–Australia–New Zealand Free Baby Boomers  195
advertising campaigns Trade Agreement  474 bait pricing  266, 296
creating 319–26 aspirational reference groups  125 bait and switch pricing  266
evaluation 326 attitudes balance seekers  132
key steps  320 components 137 banks 401
market environment  320 and consumer behaviour  137–8 banner advertisements  437–8
media options  322–5 audience research BCM 531–2
message strategy  322 definition 507 behaviour change
placing of advertisements  326 social marketing  507–8 definition 507
production of advertisement  325–6 augmented products  223, 249 and social marketing  507
resource allocation  322 Aussie Home Loans  396 behavioural learning theories  138–9
specific objectives  321–2 Austrade 472 behavioural segmentation  199–200
target market (audience)  320–1 Australia New Zealand Food Standards beliefs, and consumer behaviour  137
Advertising Standards Authority Council (ANZFSC)  245 Ben & Jerry’s  363
(NZ)  327, 450 Australia Post ‘Best job in the world’ campaign 
Advertising Standards Board (ASB) Australian Lifestyle Survey  81 439–40
(Aust)  129, 450 Post Connect  81 Big W  184, 457
Advertising Standards Bureau Australian Association of National The Biggest Loser (TV program) 
(Aust)  59, 327, 450 Advertisers (AANA), Code of 243, 343
age, as segmentation variable  195 Ethics  327, 328 BigPond Internet  545

594 Index

BMIndex.indd 594 03/06/15 9:35 AM

 bike hire schemes  89 business decision-making process Chatime 148–50
bilateral trade agreements  473 evaluation of options  171–2 children
biometrics 96 information search and specification advertising junk food to  18, 327
blindness 460–1 development 171 influence on parents’ purchasing
born global businesses  487 post-purchase evaluation  172 decisions 128
Bosch, DIY line  237 problem/need recognition  170 chilled juice market  551
brand competition  53 purchase 172 China, environmental analysis  45
brand equity  239–40 business demand CHOICE  18, 59
brand extension  241 characteristics of  164–6 Cisco 163
brand image  238 derived demand  164–5, 166 CityCycle 89
brand loyalty  137, 240 joint demand  165 clients
brand metrics  240 pricing and demand  165–6 definition 13
brand names  239 business markets understanding needs and wants  51
brand ownership  241–2 categories 153 co-branding 243
brand strategies definition 153 co-creation 6
brand extension  241 discounting  288, 289 Coca-Cola
brand ownership  241–2 features 154 advertising  138, 310
co-branding 243 government markets  156–7 goals 533
family branding  241 institutional markets  157–8 labelling 246
franchising 242 market segmentation  200–1 codes of ethics  327, 328
individual branding  240–1 ‘mega’ brands  163 codes of practice  59, 84
licensing 242 producer markets  155–6 cognitive dissonance  144
branding 238–44 relationships 160–1 cognitive learning theories  139
brands reseller markets  154–5
Coles  54, 301–2
B2B ‘mega’ brands  163 social media  174–5, 178–9
colour, different meanings  478
definition  25, 238 business performance, and market
Commerce Act (NZ)  295
heritage brands  136 orientation 30–1
Commerce Commission (NZ)  17, 162
most valuable brands in business services  226
commercialisation, new product
Australia 239 business-to-business marketing,
trends 178–80 development 231
retailer’s own brands  155
business-to-business markets commission merchants  384
break-even analysis  277–9
see business markets Commonwealth Bank of Australia
breastfeeding 504
business-to-business pricing (CBA)  396, 401
BreastScreen Australia  7
for distribution  288 communication, model of  308–10
Brisbane City Council, CityCycle  89
brochure sites  438 for intermediaries  287–8 company analysis  62
brokers 384–5 overview 287 comparison discounting  266, 295
bubble tea  148–50 business-to-business products, competition
bundle of attributes  25 distribution channels  359–60 definition 511
business analysis  231 business-to-business services, levels 53
business buying behaviour definition 400 non-price competition  285
business decision-making business-unit strategy  534–6 in social marketing  511
process 170–2 buyer beware  275 types 53
characteristics 167–70 buying agents  384 Competition and Consumer Act 2010
environmental influences  172–4 buying centres  169 (Cwlth)  266, 267, 295, 327
external environmental factors  competition-based pricing  282
173–4 C competitive advantage
internal environmental factors  173 call centres  49–50 and branding  240, 242, 243
organisational buyer  169–70 Cancer Council  7, 464, 517 and customisation  468
business conduct, regulation of  16–17 capital equipment  226 and globalisation  467
business customers captive pricing  267, 296 and product differentiation  236–7
assessment of purchase car industry, pricing practices  267 and product management  249
alternatives 161 carbon tax proposals  60 services 405
demand characteristics  162–3 cash and carry wholesalers  388 sustainability of  542, 543, 544
high-value/high-volume cash discounts  288 competitive analysis  62
purchases 159–60 catalogue marketing  380–1 competitors, analysis of  52–3
marketing to  159–63 category killers  376 component pricing  267
number of buyers and sellers  160–1 causal research  91 components 226
ongoing relationships with cause-related marketing  311 computer industry, inelastic
suppliers 161–2 caveat emptor 275 demand 165
price competition and celebrity endorsements  119–20 computer-assisted personal interviews
negotiation 160 Centrebet 450 (CAPI) 95

Index 595

BMIndex.indd 595 03/06/15 9:35 AM

 computer-assisted telephone interviews cost-based pricing  280 demand
(CATI) 95 Council of Australian Governments definition 25
concept evaluation  230 (COAG), Healthy Communities price elastic  273
consumer advocates  18 Initiative 3 price elasticity of demand  273–4
consumer behaviour coupons 335 price inelastic  273
and beliefs and attitudes  137–8 Courtenay, Bryce  332–3 demand characteristics, business
cultural factors  120–4 critical path method  101 customers 162–3
definition 117 cross-docking 366 demand curves  271–2
demographic factors  131 culture demand fluctuations, derived
family influence  126–8 definition 121 demand 164–5
group influences  118, 120–9 differences in national demand schedules  271–2
individual influences  118, 130–9 cultures 121–3 demand-based pricing  270–1
influencing factors  118–19 Hofstede’s dimensions  121–3 demographic changes  57
and learning  138–9 influence on consumer demographic factors, and consumer
and lifestyle  131–2 behaviour 120–4 behaviour 131
and marketing mix  117–18 subcultures 123 demographic segmentation  194–6
and motivation  134–5 currency fluctuations  57 department stores  378
opinion leaders  125–6 customer expectations depth interviews  97
and perception  135–6 management of  420 derived demand, business
personal characteristics  130–3 and quality of customer markets  164–5, 166
and personality  132–3 service 419–20 descriptive research  90, 91
psychological characteristics  134–9 types 413–14 ‘Diana’ camera  251
reference groups  124–5 customer lifetime value (CLV)  550 Dick Smith Foods  533
roles and status  128–9 customer relationship management ‘Did you know?’ social marketing
situational influences  118 (CRM) campaign 513
social factors  124–9 and customer retention  537 differential pricing  293
and socio-economic status  123–4 definition 537 differentiated targeting strategy  190
subcultures 123 digital marketing strategy  452 diffusion of innovation  232–4
consumer decision-making software 417 digital cameras  234–5
behaviour, and levels of customer retention  537 digital marketing
involvement 141–2 customer service quality accessibility and comparability  435
consumer decision-making process checklist 419 characteristics 432–7
definition 141 consistency in  417–20 consumer protection  449
evaluation of options  143 and customer expectations  419–20 control 434
information search  142–3 measurement of employee definition 429
need/want recognition  142 performance 421 digitalisation 435–6
post-purchase evaluation  144 standards 420 ethical and legal issues  444–51
purchase 143–4 customer services  399 evaluating effectiveness  454–5
stages 140–1 customers and intellectual property  448–9
consumer markets, market attitudes to price  290–2 interaction and community  433–4
segmentation 194–200 definition 13 legal consequences for breaching
Consumer NZ  18 understanding needs and wants  51 laws 449–50
consumer products customisation and misleading or deceptive
categories 224–6 definition 468 conduct 446–7
distribution channels  357–9 versus standardisation  467–8 overview 429–31
consumer protection, and digital privacy issues  445–6
marketing 449 D profiling 432–3
contests 334–5 data, types  91–9 spam 447–8
contingency planning  544 data analysis and technology burnout  449
contract manufacturing  486 in market research  101–3 digital marketing methods
convenience products  225 qualitative analysis  103 apps 442–3
convenience stores  377 quantitative analysis  102 banner advertisements  437–8
cooperative advertising  337 data collection  100–1 brochure sites  438
core products  222 David Jones e-commerce 443
corporate citizenship  18 American Express Card  243 email marketing  442
corporate social responsibility catalogues 382–3 MMS marketing  442
definition  4, 537 dealer listings  337 pop-up advertisements  438
importance of  17–19 Deals Direct, integrated marketing portals 440
and sustainability  22–4 approach 317–18 QR codes  443
corporate strategy  534 Dell, sustainable marketing search engine marketing  441–2
Corruption Perceptions Index  479 practices 21 search engine optimisation  440–1

596 Index

BMIndex.indd 596 03/06/15 9:35 AM

 SMS marketing  442 DuluxGroup Australia, ACCC action external environment  49
social media  438–9 against 23–4 external reference prices  291
viral marketing  439–40 Dumb ways to die  428 extranets 456
digital marketing strategy
customer relationship E F
management 452 e-commerce 443 Facebook  129–30, 144–5, 443–4
distribution (place)  453–4 e-procurement  155, 171 Fair Trading Act 1986 (NZ)  17, 266,
electronic business  455–6 EatSmart Restaurant Campaign  548–9 327, 446
marketing mix  452–4 eBay 275 family
pricing 453 economic forces consumption decisions  127
promotion  452–3, 453 country-specific economic influence on consumer
target markets  451–2 factors 477 behaviour 126–8
digitalisation 435–7 definition 57 family branding  241
direct distribution  355 global economy  476 family life cycle  127
direct exporting  485 in macro environment  57 fast-moving consumer goods
direct mail return on investment economies of scale, and pricing  (FMCG)  225, 365
calculator 550–1 280–1, 281–2 FIFA World Cup  341–2
direct marketing  380 Elders 385–6 finance sector  401
direct-response marketing  381 electronic business financiers 51
discount stores  378 intranets and extranets  456 fish markets  388–9
discounting, in business market supply chain management  455–6 flash mobs  342
transactions  288, 289 the virtual organisation  456 flash retailing  377
discounts 335 email marketing  442 focus groups  97
discretionary products, demand embargoes 481 foreign direct investment  486–7
for 273–4 emergency products  225 foreign ownership restrictions  481
Disneyland Resort Hong Kong  emergent approach  544 fragmentation of market  543
494–6 emissions trading schemes  60 franchising
dissociative reference groups  125 empowerment of employees  544–5 as brand strategy  242
distribution centres  366 energy drink market  207 definition 362
distribution channel partnerships  361 environmental analysis  44, 62 in international market  486
distribution channels environmental forces success of  421–2
business-to-business products  definition 58 supply-chain management  362–3
359–60 in international marketing fraud 446–7
consumer products  357–9 environment 480 free samples  334
definition 355 in macro environment  58–9 free trade agreements  474
intermediaries 355–7 equipment 226 freight forwarders  367
supply-chain management  360–2 ethics full-service wholesalers  387
distribution of goods in advertising  327, 328 fun seekers  133
efficiency and technology  369 codes of ethics  15–16 functional discounts  288
inventory management  365–6 definition 15 funeral insurance  414–15
order processing  364–5 and the law  16–17 Futuris Automotive  487–8
transportation 367–9 in market research  84
distribution (place) ethnicity, as segmentation variable  195 G
definition 27 European Association of Social gambling industry  450
digital marketing strategy  453–4 Marketing (ESMA)  502 Gantt charts  101
as element of marketing mix  27–8 evaluating marketing GE (General Electric)  163
and social marketing  510 performance 547–51 General Agreement on Tariffs and
distribution of services event sponsorships  336 Trade (GATT)  475
delivery infrastructure  371 everyday low prices (EDLP)  294, 297 general-merchandise retail
physical inputs  371 exchange stores 377–8
scheduling 371 as a marketing concept  11 general-merchandise wholesalers  387
diversification 248 and social marketing  508–9 Generation X  195
Domino’s Pizza  243, 440 exchange rate fluctuations  477 Generation Y  195
door-to-door selling  381 exclusive distribution  357 Generation Z  195, 215–16
downsizing, consumer goods  42 executive summaries, market research generic brands  242
downstream social marketing  513 briefs  86, 87–8 generic competition  53
drink driving interventions  expected products  222–3 geo-demographics 194
507–8, 509 experiments 96 geodemographic segmentation 
‘Drinking and babies don’t mix’ exploratory research  90, 91 194, 203
campaign 508 exporting 485 geographic pricing  288
drop shippers  388 extended decision making  141 geographic segmentation  194

Index 597

BMIndex.indd 597 03/06/15 9:35 AM

 geoSmart 203 inelastic demand  165–6 international marketing research,
global economy  476 information systems, and two-step process  484
Global Green Economy Index  480 marketing 535–6 International Organization for
global trade  469–70 inseparability of services  404–7 Standardization (ISO), guidelines
globalisation 466–7 institutional markets  157–8 for environmental claims  23
Globe footwear  125 insurance broking  384, 385 International Social Marketing
‘Going out? Grab a cab, bus or friend’ intangibility of services  402–4 Association (iSMA)  502
campaign 515 integrated marketing communications international trade  469–70
Golden Circle  551 (IMC) internationalisation of business,
goods definition  307, 313 reasons for  482–3
definition  26, 221 integrating promotion mix intranets 456
distribution 364–70 elements 316–18 inventory management  365–6
Google 545 promotion mix  313–16 involvement
Google Adwords  441 integrated social marketing consumer decision making  141–2
Great Wall  262 communication 515 definition 141
greenwashing 22–3 Intel 163 iSentia 312
grocery market  54, 492 intellectual property, and digital
guerilla marketing  342 marketing 448–9 J
intensive distribution  357 James Bond movies  343
H interaction 433 JCDecaux 89
habitual decision making  141 Interactive Gambling Act 2001 Jetstar  258–9, 261
Harley-Davidson 227 (Cwlth) 450 Jimmy Possum  236
harmony seekers  132 interest rate changes  57 joint demand  165
Havaianas 470 internal environment Jones the Grocer  492
headline pricing  267 definition 46 junk food advertising  18, 327
health-conscious people  132 nature of  46–50 just-in-time (JIT) approach  366
heritage brands  136 internal marketing  48–9
Hero Rewards  37–9 internal marketing audit, case K
heterogeneity of services  407–9 study 73–5 Kellog’s 66
high-context societies  234 internal reference prices  291 KFC, sponsorship of youth cricket  345
Hofstede’s dimensions of culture  international joint ventures  486 Kia 546
121–3 international market entry methods Kimberley-Clark 7
Hong Kong Department of contractual arrangements  485–6 Kiwibank 236
Health 548–9 direct investment  486–7 KMart 184
horizontal channel integration  361–2 exporting 485 Kodak 58
household composition, as joint ventures  486
segmentation variable  195–6 strategic alliances  486 L
Hoyts Cinemas  372 international marketing labelling 245–6
Hoyts Kiosk  372 complexity of  491 Land Transport New Zealand, safe
human resources, and marketing  535 fundamentals  465, 466–70 driving promotion  342
hypermarkets 378 global trade  469–70 ‘Last call’ social marketing
hypotheses 91 globalisation 466–7 campaign  507–8, 515
methods of market entry  484–7 learning
I selecting overseas markets  483–4 behavioural learning theories  138–9
IBM 163 standardisation versus cognitive learning theories  139
Icebreaker 439 customisation 467–8 and consumer behaviour  138–9
idea generation  230 international marketing environment legal forces
ideas, as products  221 economic forces  476–7 definition 59
identity theft  446 environmental forces  480 in international marketing
IKEA, product differentiation  236 legal forces  480–1 environment 480–1
illegal downloads  436–7 overview 471 in macro environment  59
impulse products  225 PESTEL model  471, 472 ‘Let’s save water’ campaign  514
impulse purchases  141–2 political forces  473–6 licensing agreements  242, 485–6
inadequacy marketing  139–40 sociocultural forces  478–9 lifestyle, and consumer
income, as segmentation variable  196 technological forces  479–80 behaviour 131–2
indirect distribution  355 international marketing mix limited decision making  141
indirect exporting  485 distribution challenges  491 limited-service wholesalers  388
individual branding  240–1 overview 488–9 line extension  250
individualism 121 pricing 491 Linfox 392–3
individualist people  133 product mix  490–1 lingerie market  531–2
indulgence versus restraint  122 promotion issues  491 location, and retailing strategy  374

598 Index
logistics research types and uses  90–1 marketing environment
definition 28 role in marketing decisions  79–84 definition 43
and marketing  536 sampling 98–9 nature of  43–5
logistics firms  51 timing 83 marketing implementation
long-term orientation  122 market research briefs coordination and cooperation 
loss leaders  276, 297 definition 86 542, 545
‘Louie the fly’  332–3 preparing 86–8 empowerment of employees  544–5
Lovedale Long Lunch  553–5 market research industry, self- environmental factors  543
low-context societies  234 regulation 84 fragmentation of market  543
loyalty programs  310, 334 market research problems inertia 541–2
defining 86–8 leadership 542
M responding to  105–6 maximising success  543–6
McDonald’s using multiple approaches for motivation and incentives  544
heterogeneity of services  407, 408 complex problems  91 organisational culture  546
Rainforest Alliance coffee  4 market research process  82–3 organisational structure  545
rebranding as Macca’s  243–4 Market Research Society of New planning 543–4
macro environment Zealand (MRSNZ), code of potential internal barriers  541–3
complexity 59–60 practice 84 saturation of market  543
definition 55 market researchers, codes of short-term outlook  542–3
economic forces  57 practice 84 marketing information systems (MIS)
environmental forces  58–9 market segment profiles  202–3 components 82
legal forces  59 market segmentation definition 81
nature of  55–60 behavioural segmentation  role 81–2
PESTEL framework  55, 56, 59 199–200 marketing intermediaries  355
political forces  55–7 business markets  200–1 marketing management, key
sociocultural forces  57 consumer markets  194–200 activities 530–1
technological forces  58 criteria 201–2 marketing metrics
mail surveys  95 demographic segmentation  194–6 best practice marketing metrics  66
mail-order wholesalers  388 geodemographic segmentation  definition  65, 539
maintenance, repair and operating 194, 203 and evaluation of marketing
(MRO) supplies  226 geographic segmentation  194 performance 548–51
manufacturer brands  241 psychographic segmentation  196–9 list of measures  549–50
manufacturers’ agents  384 segmentation variables  193–202 and marketing objectives  539–40
manufacturers’ wholesalers  388 market segments  187 uses 65–7
marginal analysis  279–80 market share  205, 263 marketing mix
market, definition  12–13, 185 market share growth  536–7 definition  24, 509
market analysis  62 market specialisation  190 digital marketing  452–4
market development  248 market strategies  188–91 elements of  24–8
market orientation, and business market targeting international marketing mix  488–91
performance 30–1 competitive situation  206 services 402–14
market penetration  248 cost structure  206 social marketing  509–11
market positioning see positioning evaluation of potential marketing mix strategy, in marketing
market potential  205 segments 205–6 plan 64–5
market research sales potential  205 marketing objectives
assessing effectiveness  106 selecting target markets  206–7 customer retention  537
availability of resources  83 targeting strategy choice  204 market share growth  536–7
components 82–3 marketing and marketing metrics  539–40
conclusions 103–4 aim of  11–14 monetary objectives  536
considerations before approach to business  6–8 SMART model  537–9
undertaking 83 as a career  32–3 societal objectives  537
cost–benefit analysis  83 contribution to society  31–2 marketing performance,
data analysis  101–3 definition 3–6 measuring 547–51
data collection  100–1 evolution of  5–6 marketing planning
data types and uses  92–3 exchange of value  11–14 business-unit strategy  534–6
definition 79 and quality of life  31 corporate strategy  534
design issues  90–9 reasons for studying  29–34 definition 61
ethics 84 reputation of  2, 31 internal marketing audit  73–5
need for new information  83 of yourself  33 mission statements  533
relevance 83 marketing cycle  529 objectives 536–40
reporting the findings  104–5 marketing decisions, role of market and situation analysis  61–70
research methods  93–8 research 79–84 marketing plans, components  63–5

Index 599
 marketing process, nature of  8–9 new task purchase  168 New Zealand Marketing
marketing strategy, new product New Zealand Association 380
development 230–1 advertising agencies  325 New Zealand Natural  242
marketing-oriented view of advertising code of ethics  327 New Zealand Post  236
market 188 ageing population demographic  400 New Zealand Trade and
masculinity 121 bilateral trade agreements  473 Enterprise 470–73
Maslow’s hierarchy of needs  134–5 boutique beer target markets  207 News Limited, ‘1 Degree’ sustainability
mass marketing  188, 189, 207–8 brand loyalty for wines in Australian program 21
MasterChef (TV program)  343 market 8–9 Nigerian scams  446
materials handling  367 business conduct legislation  17 Nike, support of Tiger Woods  120
media intelligence companies  312 business performance research  30 non-price competition  285
medicinal and pharmaceuticals Chinese export market non-probability sampling  98
sector 152 information 472–73 not-for-profit marketing
membership reference groups  124 common business market definition 518
merchant wholesalers  387 segmentation  200 nature of  518–19
Messages on Hold  341 consumer advocates  18 not-for-profit pricing  265
micro environment declining manufacturing
competitors 52–3 industry 156 O
customers and clients  51 emissions trading schemes   60 Obesity Prevention and Lifestyle
definition 51 ethnicity as segmentation  195 (OPAL) program  523–5
partners 51–2 flow of products and services  469 observation, as research method 
suppliers 52 food labelling requirements  245–46 96, 97
midstream social marketing  513 foreign ownership of land  481 off-price retailers  376
milk pricing, in supermarkets  301–2 franchising popularity   362 oligopolies  53, 283
misleading or deceptive conduct, and geographic segmentation  Olympic Games  341
digital marketing  446–7 194–95, 201 one-to-one marketing  188, 189
mission statements  533 government web portals  440 online advertising, marketing
MMS marketing  442 guerilla marketing campaigns  342 metrics 455
mobile e-commerce  380 individual branding strategies  241 online auctions  275
mobile surveys  95 influence of American culture in  online communities  434
modified rebuy  167–8 466–67 online gambling industry  450
Moneypenny 481–2 intellectual property regulations  480 online retail industry  78
monopolies  53, 283 internationalisation 483 online retailing  379–80
monopolistic competition  53, 284 Kiwibank’s product differentiation online shopping
monopsony 53 strategies 236 attracting customers  116
Mortein 332–3 legislative regulations  446–47 and retail sector  60–1
mortgage broking  385 major retailers  155 showrooming 456
Mosaic 203 market research industry peak trends 431–2
motivation 134–5 bodies 84 using smartphones  456–7
multi-sport market  10 market segmentation criteria  online surveys  95
multiculturalism 123 201–02 Opel, market entry strategy  212
MumBubConnect (MBC)  504 marketing employment opinion leaders  125–6
music industry, digital statistics 30, 32 opportunities, and SWOT analysis  68
downloads 435–6 MMS campaigns  442 Oracle 163
Muzz Buzz  349 oligopolistic industries  283 order processing  364–5
Myer, promotions mix  316 online purchases  167, 380, 451 organisation chart  47
packaging 244 organisational culture  546
N price discrimination  295 organisational structure  545
NAB Online Retail Sales Index  78 pricing regulations  266 OzTAM 106
National Australia Bank (NAB)  330 privacy policies  445
National Broadband Network  157 rate of online orders  167 P
natural disasters  58 regional trade areas  474 packaging 244–6
Nature’s Child  327 regulatory bodies  17, 327, 450 PALS psychographic data  132–3
need/want recognition  142 reseller markets  155 partners  13, 51–2
needs, definition  25 salary 32 parts and materials  226
negotiated pricing  271, 296 service industries  397 Pavlov, Ivan  138
new product development (NPD) social class and consumer penetration pricing  293
definition 229 behaviour 123–24 Penfolds Grange  286
phases for introducing social media marketing ‘penny’ auctions  275
products 230–1 approaches 439 people, as element of marketing
as stage in product life cycle  229 spam regulation  447 mix 28

600 Index

BMIndex.indd 600 03/06/15 9:35 AM

 perception business markets  160 process, as element of marketing
and consumer behaviour  135–6 as element of marketing mix  26–7 mix 28
definition 135 overview 260 procurement 155
perfectly competitive markets  283 in social marketing  510 producer markets  155–6
periodic discounts  294, 295 symbolic use  264 product adopters, categories  233
perishability of services  409–11 price competition product adoption process
permission marketing  344–5 alternatives 285 definition 231
personal computers  255–6 overview 281–2 diffusion of innovation  232–4
personal selling understanding competitors’ stages 231–2
benefits 316 pricing 283–5 product classification
definition 338 price discrimination  267–8 business-to-business products 
INPLCF model  338–9 price elastic  273 224, 226
limitations 316 price elasticity of demand  273–4 consumer products  224–6
managing a sales force  339 price fixing  266 product competition  53
uses 316 price floors  276 product deletion  251
personality, and consumer price inelastic  273 product development  248
behaviour 132–3 price leaders  276, 297 product differentiation  235–8
pester power  128 price lining  292, 296 product innovation, and pricing 
pharmaceutical industry  152–3, 269 price management 297–8
pharmaceutical scams  446 customer value perceptions  product items  224
phishing 446 290–2 product life cycle
physical evidence, as element of pricing established products  new product development  229–31
marketing mix  28 293–4 overview 228–9
pipelines 369 pricing new products  292–3 and price management  292–4
Pizza Hut  548 pricing through product life and product management  248–51
planned obsolescence  251 cycle 292–4 stages 229
point of purchase promotions  335–6 psychology of pricing  290–2 product lines  224
political forces setting final price  294–5 product management
alliances and agreements  473–5 price skimming  293 approaches 247–8
country-specific political pricing and product life cycle  248–51
factors 475–6 break-even analysis  277–9 product obsolescence  251
definition 55 business-to-business 287–9 product/market growth strategy
in macro environment  55–7 ‘clarity in pricing’ legislation  267 matrix 248
pop-up advertisements  438 competition considerations  repositioning 250–1
pop-up shops  377 281–6 product mixes  224
population (research project)  98 cost and revenue analysis  276–81 product obsolescence  251
portals 440 and demand in business product placement  342–3
positioning markets 165–6 product positioning  250–1
analysing current positioning  210 demand considerations  270–5 product relationships  224
competitive positioning and digital marketing strategy  453 product specialisation  190
repositioning 211 and economies of scale  280–1 product-line pricing  265
definition 208 legal environment  266–8 product-market specialisation  190
for each segment  210–11 marginal analysis  279–80 product-oriented view of market  188
and market segmentation  208–12 and product innovation  297–8 product/market growth strategy
marketing mix for each psychology of  290–2 matrix 248
segment 211 for stability  285 production, and marketing  536
and pricing  263–5 pricing method, selecting  268 products
and retailing strategy  374–5 pricing objectives augmented products  223
potential products  223 determining 261–5 business-to-business products 
power distance  121 long-term prosperity  263 224, 226
pre-mixed spirits  297–8 market share  263 consumer products  224–6
preferred customer/supplier positioning 263–5 convenience products  225
arrangements 162 and pricing process  261–2 core products  222
premium offers  334 profitability 262 definition  25, 221
premium pricing  265, 297 pricing tactics, summary  295–7 digital marketing strategy  452–3
prescription pharmaceuticals, cost primary data  92 as element of marketing mix  25–6
of 269 privacy, and digital marketing  emergency products  225
prestige pricing  264, 295 445–6 equipment 226
prestige products, demand for  271–2 Privacy Act 1988 (Cwlth)  446 expected products  222–3
preventable blindness  460–1 private label brands  241–2 fast-moving consumer goods  225
price probability sampling  98 impulse products  225

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 parts and materials  226 Q general-merchandise retail
potential products  223 Qantas 261 stores 377–8
services and supplies  226 QR (quick response) codes  443 online retailing  379–80
shopping products  224–5 qualitative analysis  103 specialty retailers  376
in social marketing mix  510 qualitative research telemarketing 380
specialty products  225 definition 96 types 376–82
staple products  225 methods  96, 97 ‘wheel of retailing’ theory  379
total product concept  222–3 nature of  97 retailing 373
unsought products  225–6 uses 97 retailing strategy
profiling 432–3 quantitative analysis aspects 373
promotion quantitative research  93–6 location 374
definition  27, 307 definition 93 positioning 374–5
digital marketing strategy  453 methods  94, 95 Rivers, promotion mix  316–17
as element in marketing mix  27 surveys 95 ‘Road crew’ campaign  509, 510
integrated marketing uses 94–5 road transport  368, 369–70
communications (IMC)  313–18 quantity discounts  288 role models  119–20
model of communication  308–10 Quantium, and NAB  78 Roy Morgan Values Segments  196, 197
objectives 310–11 Queensland Aboriginal and Islander RSPCA, Adopt a Pet program  237–8
overview 307 Health Council (QAIHC)  37–9 rural agents  385–6
in social marketing  510–11 Quibids 275
promotion mix ‘Quit for you, quit for two’ S
advertising  313–14, 319–29 campaign 515 sales contests  336
ambush marketing  341–2 quotas 481 sales force management  339
elements 313 sales potential  205
guerilla marketing  342
R sales promotion
integrating the elements  316–18 radio frequency identification benefits 315
permission marketing  344–5 (RFID) 369 consumer sales promotion  333–6
personal selling  316, 338–40 Radiohead, price of album  26–7 definition 333
product placement  342–3 rail transport  368 limitations 315
public relations  314–15, 330–3 Ralph’s Tasmanian Seafood  354 trade sales promotions  336–7
pull policies  317 random discounting  294, 296 uses 315
push policies  317 random sampling  98 sales representatives  340
raw materials  226 sales revenue  205
sales promotion  315, 333–7
rebates 335 samples, definition  98
sponsorship 345
reference prices  291 sampling 98–9
viral marketing  344
reference groups sampling errors  99
promotional allowances  294
and consumer behaviour  124–5 sampling methods  98
promotional pricing  294
definition 124 Samsung, Galaxy camera  234–5
psychographic market
regional trade areas  474 saturation of market  543
segmentation 132–3 scams 446–7
regulation, of business conduct  16–17
psychographic segmentation  196–9 regulations 59 screening 230
psychological characteristics resale price maintenance  295 sea freight  368
of consumer behaviour  134–9 Rescue SCG  500 seafood industry  354, 388–9
definition 134 research design search engine marketing  441–2
public health  516 definition 90 search engine optimisation
public relations key issues  90–9 (SEO) 440–1
approaches and methods  330–1 types of data  91–9 seasonal discounts  288
benefits 15 types of research  90–1 secondary data
definition  314–15, 330 research methods, types  93–9 definition 91–2
limitations 315 reseller markets, definition  154 sources 92–3
as a profession  331–2 retail industry, campaign on GST and secondary-market pricing  268, 296
public transport safety  428 import duty threshold  59 segmentation
publicity 330 retail spending  60–1 definition 508
pull advertising  434 retailers social marketing  508
pull policies  317 automatic vending  381–2 segmentation variables
pump ‘n’ dump stock scams  446 benefits 375–6 age 195
purchases, business markets  catalogue marketing  380–1 ethnicity 195
159–60 definition 52 expected benefits  199
pure competition  53 direct marketing  380 household composition  195–6
push advertising  434 direct-response marketing  381 identifying 193–4
push policies  317 door-to-door selling  381 income 196

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 occasion 199–200 audience research  507–8 subliminal advertising  327
sex 196 behaviour change  507 Subway 144–5
volume usage  200 benchmark criteria  505–11 success-driven people  133
selective distribution  357 definitions 501–2 ‘Sun sound’ campaign  517–18
self-regulation distinguished from commercial Sunny Queen Eggs  29
benefits of  59 marketing  503–4, 509–10, supermarkets
market research industry  84 515–17 characteristics 377
selling agents  384 downstream social marketing  513 discount trade terms  289
service, definition  398 exchange 508–9 dominance of grocery
service guarantees  403 frameworks 505–6 market 54
service product classification  Hero Rewards  37–9 milk pricing  301–2
399–400 important or essential partnerships 52
service-dominant economies, activities 503 product range  492
overview 397–9 integrated social marketing superstores 378
service-dominant logic  6, 399 communication 515 suppliers 52
services marketing mix  509–11 supply chains, definition  27
characteristics 402–11 midstream social marketing  513 supply-chain management
definition  26, 221, 398 nature of  31–2, 515–17 definition 361
distinguished from ‘service’  398 segmentation 508 distribution channel
distribution 370–2 streams 512–13 partnerships 361
heterogeneity 407–9 upstream social marketing  513 electronic business  455–6
inseparability 404–7 social media franchising 362–3
intangibility 402–4 for business markets  174–5 horizontal and vertical channel
perishability 409–11 commercial and legal status of integration 361–2
services marketing management discussions 129–30 surveys 95
customer relationships  417 definition 438 sustainability
customer service quality  417–21 as marketing method  438–9 and corporate social
managing differentiation  416–17 risks to advertisers  144–5 responsibility 22–4
services marketing mix Sight for All campaign  460–1 nature of  20–2
extended services marketing types 438–9 sustainable development  20
mix 411–14 social networking  438 sustainable marketing  21–2
people 412–13 social photo and video sharing ‘Swap it, don’t stop it’
physical evidence  414 sites 438–9 campaign 516
process 413–14 social risk  124, 233 Swatch, sponsorship of sporting
unique characteristics of society, definition  13 events 346
services 402–11 sociocultural forces  57, 478–9 SWOT analysis  67–9
sex, as segmentation variable  196 spam 447–8 Syke 500
Shapewear 531–2 Spam Act 2003 (Cwlth)  447 Symond, John  396
Sharapova, Maria  7–8 special-event pricing  294
Shop-A-Docket 337 specialty products  225 T
shopping products  224–5 specialty retailers  376 Target  184, 185
‘Should you supply?’ campaign  511 specialty stores  376 target market segments,
showrooming 456 specialty-line wholesalers  387 understanding 185–6
showrooms 378 sponsorship  311, 345, 546 target marketing
Sight for All  460–1 Sportsgirl, mobile app  457 based on segments  189–91
situation analysis stakeholders 17 concept of  187–8
components 62 standardisation definition 188
definition 61 definition 468 product and market
and marketing planning  61–70 versus customisation  467–8 specialisation 190–1
situational influences, on consumer staple products  225 target marketing process  191
behaviour 118–19 straight rebuy  167 market segmentation  193–203
skin protection behaviour  33–4 strategic alliances, international market targeting  204–8
Skinner, B. F.  138 marketing 486 positioning 208–12
Slurpees 220 strategic planning target markets
SMART model  537–9 business-unit strategy  534–6 definition 24
smartphones, online shopping  456–7 corporate strategy  534 digital marketing strategy  451–2
SMS marketing  442 hierarchy 535 in marketing plans  63–4
social branding model  500 stratified sampling  98 tariffs 481
social class, and consumer strengths, in SWOT analysis  67 technological forces  58, 479–80
behaviour 123–4 Subaru, target markets  25 technology burnout  449
social marketing subcultures 123 telemarketing 380

Index 603

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 television audience measurement  106 travel service industry  424–5 W
television industry, code of triple bottom line  18, 19 Walk to School Day  69–70
practice 327 Triumph 531–2 wants, definition  25
Telstra water consumption  514
delivering value over time  14 U weaknesses 67
market segmentation  200 uncertainty avoidance  121 Wes Bonny Testimonial Campaign 
social media use  439 underage drinking intervention  511 33–4
Ten television network, targeting Unilever 42 WesTrac 158
strategy 192 unit pricing  266 ‘wheel of retailing’ theory  379
test marketing  231 Unsolicited Electronic Messages Act wholesalers
Therapeutic Goods Act 1989 2007 (NZ)  447 definition 52
(Cwlth) 327 unsought products  225–6 types 387–9
Therapeutic Goods Regulations 1990 upstream social marketing  513 wholesaling
(Cwlth) 327 USM Events, and multi-sport definition 386
threats, and SWOT analysis  68 market 10 major functions  387
Thrive PR  531–2 Wicked Campers  327
Tim Tam Treat Packs  306 V wikis 439
tobacco smoking  500, 501, 515 VALS consumer segments  196–9 Woods, Tiger  119, 120
total budget competition  53 value, as a marketing concept  11–12 Woolworths
total product concept  222–3 value-based pricing  297, 300 corporate social responsibility  537
Tourism Australia  440, 489–90 VB (Victoria Bitter)  136, 252 domination of grocery sector  54
Tourism New Zealand  490 vertical channel integration  362 milk pricing  301–2
Tourism Queensland  439–40 vertical marketing systems  362 mobile app  457
Tourism South Australia  533–4 VicHealth work-at-home schemes  446
Toyota 186–7 market research  110–13 World Association of Opinion
trade allowances  336 ‘Team up’ social marketing and Marketing Research
trade conventions  336 campaign 508–9 Professionals 84
trade marks  239 Walk to School Day  69–70 World Trade Organization  475
trade sales promotions  336–7 viral marketing  344
trade shows  336 Virgin Australia, market research Y
trade-in allowances  294 project 81 Youngcare 520
Transparency International, Corruption Virginia Foundation for Healthy Youth
Perceptions Index  479 (VFHY) 500
transportation virtual organisations  456
comparison of modes  367–8
distribution of goods  367–9

604 Index

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