Foundations of Marketing

Foundations of Marketing

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Foundations ofMarketingJONATHAN GROUCUTT

© Jonathan Groucutt 2005

All rights reserved. No reproduction, copy or transmission of this publication may bemade without written permission.

No paragraph of this publication may be reproduced, copied or transmitted save withwritten permission or in accordance with the provisions of the Copyright, Designs andPatents Act 1988, or under the terms of any licence permitting limited copying issued bythe Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP.

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First published 2005 byPALGRAVE MACMILLANHoundmills, Basingstoke, Hampshire RG21 6XS and175 Fifth Avenue, New York, N.Y. 10010Companies and representatives throughout the world

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ISBN-13: 978–1–4039–0327–1

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ISBN 978-1-4039-0327-3 ISBN 978-0-230-21227-5 (eBook)DOI 10.1007/978-0-230-21227-5

This book is printed on paper suitable for recycling and made from fully managed andsustained forest sources.

The years 2003 and 2004 witnessed the passing of two respectedand talented university lecturers whom I had the privilege ofknowing. Both Chris and Stuart had the gift of captivating the

students’ imagination for marketing. They left this world far tooearly in their lives, and thus we are all the poorer.

This book is dedicated to the memory of Christopher Berry (London Guildhall University)

and Stuart Rooks (Oxford Brookes University)

Jonathan Groucutt is a Senior Lecturer in Marketing and Strategy at the Business School,Oxford Brookes University, England. As well as being a writer and academic, Jonathan hasconsiderable business experience including the media industries and over ten years inconsultancy.

Jonathan has co-authored books on marketing, e-business, ethics and communication. Inaddition he has written over 40 business articles. His areas of personal research includecomplexity theory and its relationship to marketing, the history of marketing thought andthe strategic development of the global cruise ship industry.

Jonathan holds Fellowships of the Royal Society of Arts, the Royal Geographical Societyand the Academy of Marketing Sciences. In addition he is a member of the American Market-ing Association, the Academy of Marketing, the Institute of Direct Marketing, the EuropeanMarketing Academy, the European Academy of Management and the Strategic PlanningSociety. He is also a Network Member of the Centre for Complexity Sciences at the University of Liverpool and an Associate Member of the Institute of Nanotechnology.

The Author

List of figures xiiiList of tables xviiList of mini cases xviiiPreface xxiAcknowledgements xxvii

PART 1

The Scope of Marketing

1 A Brief Introduction to Marketing 3

Learning outcomes 3What are your favourites? 3Introduction 3The origin of marketing 4An economics approach 5A consumer’s (or buyer’s) approach 6The societal approach 6The managerial or systems approach 7A broader approach 7Relationships 9Transactions 9Time 9Dialogue 9The marketer: alchemist, magician,

sorcerer and medicine man 10Marketing as an organisational function 11Who is engaged in marketing? 12Marketing now and tomorrow: current

and future trends 122004–14? 13Chapter summary 15Questions for review and reflection 16References 16

2 The Marketing Environment 19Learning outcomes 19Introduction 19Market volatilities and chaos theory 20The marketing environment 20

Contents

What is the macro environment? 21PESTLE factors 22Political 22Economic 28Societal 31Legal (regulatory) 34Environmental–ecological 34Technology 39Combinations of events 42Reversed issues 42What is the micro environment? 42Micro factors 42Suppliers 43Employees 43The local community 44Local government 44Intermediaries 44Customers 44Competitors and co-operators 45Retired employees 45Trade unions 45Opinion formers 46Local regulators 46Control of micro factors 46Analysing the environment 46The ‘What if?’ scenario 48Chapter summary 48Questions for review and reflection 49References 49

PART 2

Tools and Techniques

3 Segmentation, Targeting and Positioning 53Learning outcomes 53Introduction 53What is segmentation? 54B2B segmentation 55Segmentation characteristics of B2B

markets 57B2C segmentation 60

Segmenting by geographic location 60Segmenting by demographics 60Segmenting by socio-economic status 60Segmenting by behaviour 60Segmenting by lifestyle 61Formulating a segmentation strategy 61Targeting 61Positioning 62Repositioning 63Perceptual or positioning mapping 63Chapter summary 64Questions for review and reflection 65References 65

4 Marketing Research 66Learning outcomes 66Introduction 66The role of research in marketing 66Potential benefits 67Understanding the market 67Forecasting 67Improving return on investment 67Exploiting new market opportunities 68Reducing the level of risk 68Supporting competitive advantage 68A systematic process for marketing

research 68Establishing the need for marketing

research 68Problem definition 68Research objective or hypothesis 69Research brief 69Identifying the relevant methodology 69Questionnaire design 69Data collection 70Data analysis 70Research report 70Marketing research techniques 70Primary research techniques 71Secondary research techniques 73Does everyone use marketing research? 77Chapter summary 77Questions for review and reflection 77References 78

5 Competitive Intelligence 79Learning outcomes 79Introduction 79Defining competitive intelligence:

what it is and is not 80

Marketing research 80Competitive intelligence (also known as

business intelligence) 80Competitor intelligence 80Economic intelligence 81Why competitive intelligence analysis

is important to marketers 82Types of organisational competition 82The need to understand competitor

actions and intentions 82A competitor intelligence system 86Sources of competitor intelligence 86Sales value and volumes 87Pricing strategies 87Product ranges and developments 87Promotional activities and spend 87Channel management/logistics

operations 88Company and management structures 88Recorded data 88Observable data 90Opportunistic data 90Analysing competitor intelligence 90Industry structure and characteristics 90Strategic groupings 90Key competitors 91Evaluation of the data 91Potential new competitors 91Competitor organisations leaving the

marketplace 91Legal and ethical implications of

competitor intelligence 92Regulation 92SCIP Code of Ethics for CI Professionals 95Chapter summary 95Questions for review and reflection 95References 96

6 Strategy in Marketing 97Learning outcomes 97Introduction 97What is strategy? 98Strategy levels 99Corporate strategy level 99Business strategy level 99Functional strategy level 99The marketing–strategy relationship 99The marketing audit 100Environmental audit 100Marketing strategy audit 101

viii CONTENTS

Marketing organisation audit 101Marketing systems audit 101Marketing productivity audit 101Marketing function analysis 101Ansoff’s portfolio matrix 102The GE matrix 103Market attractiveness 103Business position (also known as

business strength) 103SWOT analysis 104The five forces model 106The threat of new entrants 107The threat of substitution 108The power of suppliers 108The power of buyers 109Industry competitors (also known as

intensity of rivalry between currentcompetitors) 110

Competitive advantage: generic strategies 110

Competitive scope 110Competitive advantage 110Analysis of generic strategies 111Focus 112Stuck in the middle 112Adding value to the product or service 112Company infrastructure 112The human resource management team 112Technology development 112Procurement 112Competitive market positioning

strategies 113Market leader 113Market challengers 113Market followers 114Market nichers 114Competitive and defensive positions 114Position defence 114Pre-emptive defence 114Counter-offensive defence 115Mobile defence 115Strategic withdrawal 115Frontal attack 116Flanking attack 117Guerrilla attack 117Chapter summary 117Questions for review and reflection 118References 118

7 The Branding of Products and Services 119

Learning outcomes 119Introduction 119What is branding? 120Origins of branding 120Consumer and business brands 122Why brand? 122Protection 122Values 124Differentiation 124Segmentation 126Selection 126Awareness 127Recall 127Recognition 127Brands that develop a cult status 127Extending the brand (also known as

brand elasticity) 127Valuations and equity 131Promotion 132Types of branding 132Family brands 133Individual brands 133Own-label brands 134Brand management 134The world’s most powerful brands 135Rebranding 137Proactive motivations 137Reactive motivators 139Brand longevity -– do brands last

forever? 142Reasons for brand longevity 143The disposal or termination of brands 144Risks associated with brand disposal 149Chapter summary 151Questions for review and reflection 151References 152

PART 3

The Marketing Mix

8 The Marketing Mix and Relationship Marketing 155

Learning outcomes 155Introduction 155The marketing mix debate 155The origins of the marketing mix 156

CONTENTS ix

Rationale for extending the marketing mix 158

Marketing mix network or architecture 159Relationship marketing 160What is a relationship? 160Chapter summary 164Questions for review and reflection 164References 164

9 Products 167Learning outcomes 167Introduction 167What is a product and why are they

important? 167Standardisation or adaptation? 168Reasons for product adaptation –

international dimension 168Technical factors 168Cultural perspectives 169Legal or regulatory issues 171Safety 171Market classifications 171Consumer product classifications 171Industrial and commercial product

classifications 176New product development and service

innovations 178The processes involved in determining

NPD 178Idea generation (also known as

exploration) 179Idea screening (also known as initial

screening process) 180Concept testing 183Business analysis 183Product development and testing 184Market testing (also known as test

launch) 186Product launch 187Commercialisation: the diffusion and

adoption processes 187Adoption characteristics 190New product failure 194The product life cycle concept 198Does the product life cycle concept exist

in reality? 199Different shapes and sizes 203Chapter summary 205Questions for review and reflection 206References 206

10 Promotion 208Learning outcomes 208Introduction 208Promotional objectives 208Communication models 209Feedback and noise 213Promotional strategy and tactics 215Advertising 215Early development phase 215Modern development phase 217Challenge and defence phase 218Types of advertising 220Types of advertising media 222Direct marketing 230Direct marketing techniques 231Kiosks 232Buzz, or word of mouth promotion 232Product placement 236Movie tie-ins 236Merchandising the brand 237Examples of merchandising 237Celebrity endorsements 238Sponsorship 239Potential benefits of sponsorship 239Sales promotion 240Types of sales promotion 240Sales promotions can be too successful 242Exhibitions, expos and trade fairs 242Public relations 242Scope of public relations 244Integrated marketing communications 244The future 246Chapter summary 246Questions for review and reflection 246References 247

11 Price 249Learning outcomes 249Introduction 249Pricing objectives 250Factors that influence price 252Cost of research and development

(R&D) 252Cost of production 252Additionals: local taxes and surcharges 252Economic value of the product or

service 253Competitive forces 253Market conditions 253Geography 254

x CONTENTS

Pricing tactics 255Pioneer pricing 255Price skimming 257Penetration pricing (predatory pricing) 257Price matching 257Variable pricing (flexible pricing) 258Psychological pricing 258Prestige pricing 258Odd-even pricing 259Single price/double pricing 259Promotional pricing 259Trade-in allowances 260Discount pricing 261Buy one get one free 261Book early discount 261Special event pricing 262Direct payment mechanisms 262Professional services pricing 262Competitive tendering 262International pricing 263Ethical and illegal pricing issues 264Dumping 264Price fixing – cartel operations 264Premium pricing issues 266Bait and switch 266Chapter summary 266Questions for review and reflection 266References 267

12 Place and Placement 268Learning outcomes 268Introduction 268Defining place 268Place as a physical location 270Location factors 270Place as channel management 274A one-stage channel 274A two-stage channel 275Three-stage channels 275Physical distribution 275Logistics 276Porter’s supply chain model 277Retail outlets 280Markets 280Vending (automatic retailing) 281Individual stores 284Multiples or chain stores 284Online stores 284Chapter summary 285Questions for review and reflection 285

References 285

13 People 287Learning outcomes 287Introduction 287Who is included in ‘people’? 288Right people – right job 290Building relationships 290People and not-for-profit organisations 291What happens when things go wrong? 291Potential ethical issues 291Chapter summary 293Questions for review and reflection 294References 294

14 Physical Evidence 295Learning outcomes 295Introduction 295Physical evidence and psychology 296Exteriors 296The architecture and design of buildings 296Design of vehicles 297Landscaping 297Parking facilities 297Interiors 298Ease of access 298Confines of an environment 298Product access 298Foyers, entrance areas and public spaces 299Signage and corporate identity 300Space 300Layout and configurations 301Seating 302Security and privacy 303Cleanliness and hygiene standards 303Ambience and atmospherics 303Visual factors 305Lighting and illumination 305Colour 305Uniforms 306Stationery 306Presentation 306Aural factors 307Music and sounds 307Olfactory factors 310Air quality 310Smells and odours 310Taste 310Tactile factors 311Temperature 311

CONTENTS xi

Touch 311Chapter summary 311Questions for review and reflection 311References 312

15 Processes 313Learning outcomes 313Introduction 313Types of processes 314Technological processes 314Non-technological processes 319Combination processes 321The need to adapt and changeprocesses 321Process standardisation or adaptation 323Ethical issues 325Future issues 325Chapter summary 326Questions for review and reflection 326References 326

16 Psychology 327Learning outcomes 327Introduction 327Why psychology? 328Key approaches in psychology and

their relationship to marketing 328Psychoanalytical aspects 329Behavioural aspects 331Humanistic approach 334The cognitive approach 334Evolutionary approach 336Social psychology 336The relationship between psychology

and marketing 337Categories of buyer behaviour 337People 337Culture 339Lifestyle 339Financial and economic influences 339Fear 340Media 341Price 342Necessities 342Chapter summary 342Question for review and reflection 342References 343

17 Performance 344Learning outcomes 344Introduction 344What is performance? 344Measured performance 346Product or service performance 346Brand performance 346Revenue performance and sales performance 347Market share 348Distribution and logistics 349Marketing plans 349Experiential performance 349Quadrant 1: passive participation–

entertainment–absorption 350Quadrant 2: active participation–

educational–absorption 350Quadrant 3: active participation–

escapist-immersion 351Quadrant 4: passive participation–

esthetic (aesthetic)–immersion 353Experience is a dynamic function 354Future issues 354Chapter summary 355Questions for review and reflection 355References 356

18 Packages and Packing 357Learning outcomes 357Introduction 357What is packaging? 358Combination or bundling 358Product or brand packaging 358Physical packaging 359Attributes of physical packaging 359Chapter summary 364Questions for review and reflection 365References 365

Notes 367Glossary of marketing terms 371Bibliography 379Index 389

xii CONTENTS

0.1 Timeline development of the marketing mix xxiii

1.1 A Parisian street with marketing images galore 4

1.2 Stunning architecture such as the Eiffel Tower in Paris acts as a branding not only of Paris but of France 4

1.3 The Taj Mahal at Agra in the Uttar Pradesh region of Northern India 5

1.4 In this weekly Italian market the shoppers have a wide variety of choice of both fresh food and goods including clothing, toys and luggage 5

1.5 Marketing within an organisational context 12

1.6 An example of a B2G product: specially designed fire-fighting flying boats 16

1.7 A familiar sight in most high streets around the world – an eye-catching store window display, an example of B2C marketing 17

2.1 The relationship between macro and micro factors 20

2.2 1.5 litre bottles of Mecca Cola with bothEnglish and Arabic text 24

2.3 Passengers on this flight from China to Thailand are requested to wear surgical masks as a safety precaution againstSARS 38

2.4 The International Space Station (ISS) is not only an example of how space agencies from different countries can work together for the benefit of human-kind, it is also a laboratory that may help solve some of the world’s greatesthealth dilemmas 41

2.5 The organisation (profit and not for profit) 43

3.1 The STP schematic 543.2 A diagrammatic representation of how

a mass market can be divided into several sections of segments 55

3.3 A diagrammatic representation of a

positioning map for a selection of cruise vacation companies 63

3.4 Two photographs from Hebridean Cruises illustrating the ultra luxury end of the market sector 64

4.1 The indoor market in Barcelona, Spain 67

4.2 The marketing research process 68

5.1 Competitor types 845.2 The functions of a competitor

intelligence system 87

6.1 The three key levels of strategy in many organisations 98

6.2 Ohmae’s strategic triangle 1006.3 Ansoff’s portfolio matrix 1026.4 The GE matrix or business screen 1046.5 SWOT analysis incorporating the

matching of the organisational analysis with the environmental analysis 106

6.6 The factors that contribute to a SWOTanalysis 107

6.7 The five forces model 1076.8 Porter’s value chain concept 1136.9 Position defence 114

6.10 A pre-emptive defence 1146.11 Counter-offensive defence 1156.12 Mobile defence 1166.13 Strategic withdrawal 1166.14 Frontal attack 1166.15 Flanking attack 1176.16 Guerrilla attacks 117

7.1 The Pan Lounge on board the luxury cruise ship Hebridean Spirit 126

8.1 Marketing mix architecture 1598.2 Customer focus 164

9.1 Consumer product classifications 1729.2 The Hebridean Spirit, an ultra-luxury

cruise ship that has 49 bedrooms 175

Figures

9.3 Industrial and commercial productclassifications 176

9.4 The reinforcement process ofdiffusion and adoption 188

9.5 The typical S-shaped diffusion curve 1889.6 The sequence of adoption 1889.7 An innovation–decision process 1909.8 A typical adoption pattern 1919.9 Desired and typical diffusion patterns 194

9.10 The stereotypical product life cycle 1889.11 Product life cycle for a fad 2059.12 Product life cycle for a seasonal

fashion item 2059.13 A possible product life cycle for real

Christmas trees 2059.14 Life cycle for a product that is

regularly rejuvenated 205

10.1 EasyJet uses its planes as a promotional tool 209

10.2 A simple one-directional communication model 210

10.3 The general communications system model 210

10.4 Schramm’s adaptation of Shannon’s communication model 211

10.5 An expansion of Schramm’s communication model 212

10.6 A simplified version of Berlo’s model 21310.7 Sometimes the simplest of tactics help

a company to break through the clutter 214

10.8 The AIDA model 21610.9 Scott’s model 216

10.10 Strong’s model 21610.11 Colley’s hierarchy of effects model 21810.12 Ehrenberg’s ATRN model 21810.13 Vaughn’s model 21910.14 An example of primary advertising 22110.15 A Parisian news kiosk displaying a

wide selection of magazines 22210.16 A poster for Exide batteries at Pune

railway station, India 22310.17 Billboards do not have to be

permanent fixtures 22410.18 The Government Assembly building

in Paris adorned with photographic mages to advertise a major exhibition 224

10.19 Outdoor advertising does not have to be on a large scale to be effective 224

10.20 Some of the merchandising undertaken by the Business School at Oxford Brookes University 237

10.21 A telecommunications company sponsored the sailing regatta onLake Garda, Italy in 2004 239

10.22 The exhibition stand for the Australian-based company Muir Anchoring Systems at the 2004 Monte Carlo Boat Show 243

11.1 Yachts, super yachts and mega yachts adorning the marina in Monte Carlo 250

11.2 The prototype of the Airbus A380 in flight 252

12.1 A luxury hotel on the island of Cyprus 269

12.2 A TGV prepares for departure from Paris’s Gare du Nord 272

12.3 Place attachment 27412.4 A one-stage channel process 27512.5 The producer sells direct to an

independent retailer who in turn sells the product on to the consumer 275

12.6 The producer sells directly to a multiple branch retailer or to a wholesale warehouse that in turn sells to the multiple-brand retailer. The end buyer purchases the product from one of the retail branches 275

12.7 The producer distributes the product to its own franchised retail operation. The retailer then sells the product on to the end buyer or consumer of the product 275

12.8 A two-stage channel in a B2B environment. The producer sells to adistributor which in turn sells to a business user 276

12.9 Here there are two intermediaries operating between the producer and the end consumer of the product 276

12.10 Bremen Express at sea with her cargo of containers 276

12.11 Loose cargoes such as minerals are still moved along waterways 278

12.12 A special nuclear flask is loaded aboard a ship for transportation 278

12.13 The delicate manoeuvring of a sectionof the Airbus A380 fuselage on a multi-wheeled transporter 278

12.14 A freight yard in Washington State,

xiv FIGURES

USA with both open wagons (for carrying minerals) and containers 278

12.15 Packages in a container are loaded on board a Federal Express cargo plane 279

12.16 Michael Porter’s supply chain model 27912.17 A value system 28012.18 An indoor food market in Barcelona,

Spain 28112.19 Traditional wooden market stalls on

the left bank of the River Seine in Paris 281

13.1 The relationship between musicians and an audience 290

13.2 Information and customer care staffare the public face of the organisation 291

14.1 Designed by Norman Foster and Partners the Swiss Re Tower dominates the London Skyline 297

14.2 Examples of landscaping at two luxury hotels 298

14.3 Singapore’s Changi International Airport illustrates the use and dimensions of space, the combination of natural and artificial lighting, ease of access and spaciousdesign style 299

14.4 This bookshop at Singapore’s Changi International Airport demonstrates both efficiency in terms of the use of shelf space and ease of access 299

14.5 One of the lounges on the Hebridean luxurious cruise ship Hebridean Spirit

clearly demonstrates space, style and quiet luxury 300

14.6 Clarity of signage is important to the efficient movement of people, especially where there is a risk of congestion, and in a large complexsuch as an airport 300

14.7 The space between tables on a terrace at a luxury five-star hotel 301

14.8 The relationship between a physical environment and customer behaviour 304

14.9 A luxury five-star hotel bathed in lights at night creates an inviting romantic atmosphere 305

14.10 A small delicatessen in a side street in the old part of Verona in Italy 306

14.11 A perfume shop – a dramatic display which uses a variety of strong warm

colours and images to promote upmarket suntan lotions 308

15.1 The relationship between technological and non-technological processes 314

15.2 The linkages between electronic processes 315

15.3 Wincor Nixdorf’s compactBank is a self-service system for self-service areas or mini branches 317

15.4 One of the many ATMs that are available in banks, shopping centres, railway stations and petrol service stations 317

15.5 A barcode scanner attached to a Personal Shopping Assistant (PSA) 318

15.6 A miniature RFID chip with antenna is attached to a product 318

15.7 The LG Internet Refrigerator 32015.8 With intelligent scales the consumer

places the product on the scales and the price label is automatically printed out 321

15.9 A personal shopping assistant (PSA) attached to the face of a trolley 322

15.10 A self-check-out system for supermarket shoppers 323

15.11 The spacious arrivals baggage collection area at Singapore’s Changi International Airport 324

15.12 The need for rapid transit systems has been an important component of contemporary airport development 325

16.1 Several hundred people enjoy a summer’s evening concert at Kenwood, Hampstead in London 328

16.2 People purchase products and services that fulfil their particular lifestyle 339

16.3 A sale at a London men’s clothing store 342

17.1 Types of performance 34517.2 Pine and Gilmore’s experience realms 35017.3 The British Airways London Eye 35317.4 A pod on the British Airways London

Eye which towers over the River Thames near the Houses of Parliament 353

17.5 The stunning snow-capped Atlas Mountains in Morocco 354

FIGURES xv

17.6 The picturesque town of St Florent in Corsica 354

17.7 Adaptation of Pine and Gilmore’sexperience realms 355

18.1 A container is an example of tertiary packaging as it contains numerous packages in a safe protective environment 359

18.2 The main attributes of physical packaging 360

18.3 An example of an easy-to-use pour device 351

18.4 Tetra-Pak packages 362

xvi FIGURES

0.1 Marketing and other non-business disciplines xxiv

1.1 Marketing relationships 131.2 Groups involved in marketing 141.3 Key trends in marketing research

according to the MSI 17

2.1 The main global trading groups 232.2 Forms of political risk 262.3 Business and economic cycles 292.4 Cultural orientations and behaviours 312.5 Calorie and fat content of McDonald’s

foods 322.6 Demographic factors 332.7 Tourist jobs in countries affected by

the tsunami 402.8 Growth in tourism before the tsunami 40

3.1 The scope and scale of markets 56

4.1 The different research techniques available to marketers 71

5.1 Analysing competitors 85

6.1 Quadrants in Ansoff’s portfolio matrix 103

6.2 Market attractiveness factors 1056.3 Business position factors 1066.4 Generic strategies 110

7.1 The five Cs of intimacy 1247.2 Types of extension 1297.3 Individual brands and their parent

companies 1337.4 The world’s top ten brands 1367.5 Country origins of top 100 brands 1367.6 The wealth of nations (measured by

gross national income) 1377.7 Brand longevity 146

8.1 Borden’s original marketing mix structure 156

8.2 McCarthy’s 4Ps 1588.3 Possible additions to the marketing

mix 160

8.4 Booms and Bitner’s extensions for the marketing mix 162

8.5 Further extensions to the marketing mix 163

9.1 Product attributes 1699.2 Lost in translation: examples of product

names that did not travel well 1719.3 Level of hybrid corn seed usage over

time 1899.4 Potential marketing impact on the

diffusion process 1909.5 Colby and Parasuraman’s framework

for technology readiness 1929.6 The percentage of the US population

that appears to fit certain adoption categories 193

9.7 Strategic and marketing mix issues within the different stages of the product life cycle 200

9.8 Limitations of and objections to the product life cycle concept 204

10.1 Lavidge and Steiner’s model 21710.2 Key forms of ambient media 22510.3 Types of online advertising 22710.4 The rationale for merchandising a

brand 23810.5 The value of exhibitions 24210.6 A selection of key B2B and B2C

exhibitions worldwide 24310.7 The scope of public relations 244

11.1 Tariff and non-tariff barriers 25511.2 Pricing tactics 256

12.1 Types of shipment 27712.2 Requirements for service innovation 280

14.1 The cultural meaning of colour 307

16.1 An example of reinforcing behaviour 33216.2 Types of reinforcement 33316.3 Schedules of reinforcing behaviour 33316.4 The relationship between Maslow’s

hierarchy of needs and marketing 335

Tables

2.1 The longshoremen dispute in West Coast USA 21

2.2 The boycott of US cola drinks 242.3 Political pressure 252.4 War in Iraq 252.5 Political and financial unrest in

Venezuela, 2003 272.6 Nestlé and Ethiopia 272.7 Diageo and national sensitivities 282.8 Obesity 322.9 The cruise industry in US waters:

pollution control 342.10 Restrictions on the shipment of wine

within the United States in the 21st century 35

2.11 Storms batter US economy 362.12 The impact of SARS 382.13 A tsunami devastates Southeast Asia 402.14 Studio removes shuttle film trailer 412.15 A restaurant and its suppliers 432.16 The case of the UglyRipe™ tomato 47

3.1 Segmentation, targeting and positioning` within the cruise vacation market 64

4.1 Module evaluation questionnaires 73

5.1 The Body Shop 815.2 The political intentions of a government

and country 825.3 Crossing the line in the sand 935.4 Konkordski 94

6.1 European low-cost airlines 111

7.1 London Hilton, Park Lane, London 1227.2 The battle against the movie pirates 1237.3 Johnson & Johnson and Tylenol® 1257.4 Godzilla® 1287.5 Harley-Davidson® 1287.6 Kit Kat chocolate bar 1307.7 Fashion designers extending their

brands 1317.8 BIC® 1327.9 Premier Foods and Premier Brands 135

7.10 Lucozade® 139

7.11 Rebranding the British monarchy 1417.12 The transformation of UK holiday

‘camps’ into holiday centres 1427.13 Samaritans 1447.14 Rebrandings too far 1457.15 Unilever and its strategy for growth 1487.16 Sunny Delight 150

9.1 The Barbie® doll 1709.2 Coca-Cola 1709.3 Nylon® 1799.4 Bisquick™ 1799.5 3M and Post-it Notes® 1819.6 Viagra® 1849.7 The Boeing 777 1859.8 The movies 1879.9 The Sinclair C5 196

9.10 Crest Whitestrips dental kit 1989.11 Rejuvenation of Škoda cars 199

10.1 Fly posting: an unethical approach to ambient marketing 226

10.2 Barnardo’s 22810.3 ipoint: real-time public information

system 23310.4 When is a national secret not a national

secret? When it is a myth, and on theofficial website 234

10.5 Eats, Shoots & Leaves 23510.6 The rise, rise and further rise of product

placement in James Bond movies 23610.7 Oxford Brookes University Business

School 23710.8 Orange™ Prize for Fiction 24010.9 Hoover® and the free flights offer 241

11.1 ESSO® PriceWatch™ Campaign 25711.2 London to Oxford coach service 25811.3 Tendering: Republic of Botswana 26311.4 UK Ministry of Defence and Chinook

Helicopters 26311.5 International cartel in vitamin

supplements 265

12.1 Holiday Inn Express® 282

Mini cases

12.2 Food and drink vending machines in schools – an ethical issue? 283

13.1 Hotels 28913.2 British Airways 29213.3 When is a gift a bribe? 293

14.1 The power of music in Hitchcock’s Psycho 309

15.1 ATMs 31615.2 Barcodes and export documentation 31715.3 Amazon 31915.4 The intelligent home 320

15.5 METRO Group future store initiative 32215.6 Credit card applications 32315.7 Hotel room cleaning 32415.8 Airport baggage handling 324

16.1 Introducing women to smoking 33016.2 Dichter and the introduction of the

Barbie Doll™ 33116.3 The cognitive approach and marketing

shampoo 33616.4 Werther’s Originals 338

17.1 Science of Sport exhibition 351

MINI CASES xix

Everyone lives by selling something.Robert Louis Stevenson (1850–1894)

Scottish novelistFrom Across the Plains (1892)

‘Beggars’, Part 3.

■ Welcome to Foundations ofMarketing

Every aspect of our lives is affected, in one way oranother, by the action of marketing, whether welisten to the radio when we wake up, make thecoffee, catch the metro, buy birthday cards, listento our favourite CD or watch a new movie. In allthese cases marketing has been used to influenceand/or support our purchasing decision. Thisbook seeks to explain how marketing works andhow it is influential in most people’s lives.

■ Objectives of this bookMy overall objectives in writing this text havebeen to:

� Create a text that was relatively easy anddirect to read and thus communicate apassion for the subject of marketing. More-over, I sought to write this text in an ‘easystyle’ language that conveyed the impressionof a one-to-one conversation with you, thestudent. I hope that that has been achieved.

� Create an objective view of marketing.Contrary to perhaps ‘populist’ views,marketing is not a panacea for an inappropri-ate idea, concept or indeed poor manage-ment. Marketing is but one function of anorganisation. Therefore marketing must beseen as an integral component within anorganisational context.

� Provide a contemporary view of market-ing. Although there are some historic data

and examples, the main approach is acontemporary one.

� Seek possible links between the theoreticalaspects of marketing and practical real-world cases or situations. Often marketing isconsidered in purely theoretical contexts.Although this is valuable for the develop-ment and health of the subject, it is importantto explore links to the real world. It is only byexploring the links with the real world thatwe know whether the theory is practical ornot. In many cases the theory is transferable;however it is not so in all cases.

� Provide an international feel by incorporat-ing a range of examples and mini cases.Generally marketing theory has evolvedfrom American and British universities. Inmany cases consultants and certain busi-nesses and industries have influenced thedevelopment of these theories. However, weshould not take for granted that a theorydeveloped within the confines of a Westernuniversity should or could work universally.International students, in particular, will beaware of the diverse approaches to market-ing products or services within their owncountries. In many cases it is unlikely to takea ‘standardised’ Western approach. With thisin mind it is useful for you, the student, toexamine this text through two lenses: first asa generally Westernised philosophy, andsecond considering how this philosophymay be perceived and enacted in differentcountries, including your own. Explore theinternational perspectives by discussingthem with fellow international students andsearching the web. This will help you gain aholistic approach to the subject area.

� Provide a platform for the further development of the marketing mix.

� Create a platform for debate amongststudents. Many of you, I hope, will disagree

Preface

with some of the content in this book. If so,that’s great! Why? Because you are begin-ning to critically evaluate material and infor-mation, seeing whether or not it is applicableto you and/or the country in which you live.Only so much information can be stated in atextbook of this size. It is up to you and yourfellow students to take this information, addto it and consider its viability.

■ Objectivity and criticalthinking

This book does not contain everything that thereis to know about the subject of marketing. Justimagine the sheer number and weight ofvolumes to cover such an extensive field ofknowledge! It is merely, like every other text-book, a snapshot of ideas, issues, theories, inci-dents and cases. Moreover, it contains (as doother texts) issues that are debatable and perhapscontentious. If so, the more the better! The ration-ale, in my view, for any textbook is to encourageyou to think critically about the subject area.Indeed every subject you study should beviewed critically.

Glaser (1941, cited in Cottrell 2003), whodeveloped a test for critical thinking, stated:

Critical thinking calls for a persistent effort toexamine any belief or supposed form ofknowledge in the light of the evidence thatsupports it and the further conclusions towhich it tends.

As Cottrell (2003) suggests, this is the ‘weighingup of the arguments and evidence for and against’(italics in original). Therefore do not take thesubject of marketing at face value: be moreanalytical in your approach to the subject area.

Increasingly pre-university qualifications inmany countries are including critical and analyt-ical thinking on their syllabi. With this approachin mind I have sought to include details withinthis text that may at first be challenging to thereader. However, my aim is to get you to queryand debate issues.

xxii PREFACE

■ The audience for this bookThis book has value for a variety of audiencesdepending on their individual needs.

� Students studying a one-semester module inmarketing. Here chapters can be selected tocover the core elements of the one-semesterprogramme. The end-of-chapter questionsprovide an aid to knowledge and understanding.

� Students studying on a pre-university, Foun-dation or Associate degree (for instanceAssociate of Business Administration)programme. This includes professionalcertificate and diploma courses.

� Business people who want to refresh orupdate their knowledge of the subject area.This includes individuals who have neverstudied marketing before but now requiresome knowledge as part of their job specification.

� Undergraduate students studying on a twoto four-year marketing or business degreeprogramme. It will be valuable throughoutthe length of the programme.

� Undergraduate students studying on amodular degree programme wheremarketing and business modulescomprise part of their degree. This is alsoapplicable to students who are majoringin a separate discipline, for instancePsychology, with Business or a relatedsubject as a minor.

� Students who have embarked on a postgrad-uate business-related qualification but haveeither never studied marketing, or not studied it for a significant period of time.This text will provide a solid foundation onwhich you can build knowledge and understanding of the subject area.

■ The structure of the bookThis text is divided into three overarchingsections:

Part 1 focuses on the definitions and scope of

PREFACE xxiii

marketing, and how it relates to both internaland external factors and influences.

Part 2 covers the key tools and techniques thatmark the subject’s territory. These includesegmentation, targeting, positioning and marketresearch. These are the tools that set the basicparameters of marketing. These tools helpmarketers define the individuals or groups ofpeople they seek to inform and influencethrough the marketing mix.

In Part 3 the focus is on the marketing mix.This develops from the original 12 componentsdefined by Borden (1964), through to the 4Psmnemonic created by McCarthy (1965) and theextended 3Ps from Booms and Bitner’s 1981research. Moreover this text seeks to extend thenow generic 7P marketing mix to 10Ps with theinclusion of psychology, performance and pack-aging (see Figure 0.1). Also considered withinthis section is the development of the relation-ship marketing school of thought.

Although the text is divided into sectionsand chapters, it is vital to consider it as inte-grated. The various elements, components andtechniques that comprise marketing are inter-related and highly dependent on each other.Organisations that do not engage with thisconnectivity often fail within an increasinglydynamic globalised marketplace. Their rivals,who do see the connectivity, build and supportsuperior forces and thus gain competitiveadvantage. However, the story does not stopthere. This is a continuous process. Gainingcompetitive advantage is only one move.Maintaining that advantage over the longerterm is a much more complex series of moves

and counter moves. All these moves willinvolve an appreciation of the changingmarketing environment.

■ The relationship betweenmarketing and otherfunctional areas of business

Although this book focuses on marketing, thesubject should not be viewed in isolation of theother functional areas within the broader subjectof business. Marketing is but one, albeit impor-tant, function of an organisation. When youstudy the subject of marketing you should link itto the other functional areas that combine todrive forward an organisation. This is equallyapplicable to profit-making and not-for-profit organisations (including charities andgovernment agencies).

■ The relationship betweenmarketing and other subjectareas

However, it does not stop there. Marketing is oneof those subjects that touches, or is touched by, somany other subject areas. As you progressthrough this text and consider the interrelation-ships, I hope you will see how and why market-ing interfaces with so many other disciplines.

Table 0.1 lists some of the many (direct) non-business disciplines or studies that influence/impact upon marketing functions and activities.By the end of this text you should be able tomake links between the subject of marketing andthese disciplines and areas of study. Moreoveryou should be able to add to the table’s contents.

■ Marketing as an ethical andsocial responsibility issue

Recently ‘marketing’ has been criticised for creat-ing, amongst other issues, a global commer-cialised world, promoting potentially dangerousproducts (for instance, tobacco) and aiding andabetting a ‘greed is good’ culture. Marketing has

Figure 0.1 Timeline development of the marketing mix

4Ps 3Ps 3PsProduct People Psychology

Promotion Physical evidence PerformancePrice Processes PackagingPlace1960s 1970s 2005

Time line

xxiv PREFACE

always been a part of human existence.However, it is not marketing itself that createsthe ethical and social dilemmas. It is how indi-viduals and organisations use the tools ofmarketing that creates such dilemmas. Thereforewhen studying marketing it is important to bearin mind how it is used to develop and promote aproduct or service. When considering the tools ofmarketing view them in terms of individualethics and organisational social responsibility.Everyone involved in marketing and, indeedbusiness, has an ethical and social responsibilityto the rest of society.

■ The role of the mini casesPlaced throughout this text are over 80 minicases. The mini cases aim to provide you with:

� Snapshots of real practical marketing issuesand situations. Many of these are contempo-rary issues. However, a few historical caseshave been used to illustrate certain generalsituations or particular events.

� Links between the practical issues and thetheoretical underpinning within each chapter.

� A basis upon which to continue research intothe subject area. Even contemporary casesdate with time. Therefore it will be a usefulexercise for you to explore ‘What happenednext?’ The questions at the end of many ofthe mini cases will help you explore further.

■ Figures and tablesThroughout the text figures and tables have beenused to illustrate specific issues, ideas, conceptsand real-world cases. Where appropriate webaddresses have been included within the

text/note sections to help you discover more onthe particular topic areas.

■ End of chapter questionsEach chapter concludes with a series of questionsfor review and reflection. Linked to the chapter’sLearning Outcomes, they will help you synthe-sise your subject knowledge. Some questions aredesigned for self-study while others are linked tosharing knowledge with your fellow students.They can also be used as group work exercises.

■ Currency of dataEvery attempt has been taken to use the mostcurrent data and statistics available. Some organ-isations provide statistics on an annual basis,others every few years. Moreover some statisticaldata is extremely expensive to acquire. Where thisis the case, abstracted data has been used to createan overview of the current situation.

A general health warning

It takes many months to write a work of thislength. Because of the length of time betweenconception and arrival on the bookshelves, situa-tions will have changed. This is especially truewhere the activities of companies are concerned.What was important or breaking news at the timeof writing may not be so now. Micro and macroevents may have overtaken those discussed in thebook. That does not make them redundant as alearning exercise; far from it. However, it isimportant to consider many of the issues raised inthis book as a snapshot in time. They are some-thing upon which to build your knowledge andunderstanding, not just of marketing but perhapsthe complex world we all inhabit.

Table 0.1 Marketing and other non-business disciplines

Mathematics Psychology Logistics Geography Ecology ClimatologySociology Geology Art & Design Communication Graphics EthicsPhilosophy Physics Geopolitics Manufacturing Shipping LanguagesHistory Culture Education Technology Computing AnthropologyMusic Nutrition Meteorology Archaeology Tourism Hospitality

■ Marketing mix extension: anintroduction to the rationale

As stated earlier, a major section of this text isdevoted to the marketing mix. Although therecontinues to be much debate regarding theempirical basis of the marketing mix, it remainsthe mainstay of contemporary marketing. Someauthors and researchers suggest that relationshipmarketing is a replacement for the marketingmix. However, I suggest that in many ways themarketing mix and relationship marketingcomplement each other. Moreover, I furthercontend that now is the time to extend themarketing mix to encapsulate a further three Ps:Psychology, Performance and Packaging.

Since the establishment of the original 4Pframework, numerous authors (see Chapter 8)have suggested extending the mix. In 1981Booms and Bitner suggested that McCarthy’s4Ps be extended to include Process, PhysicalEvidence and Participants (People) to supportthe increasing services component of marketing.Booms and Bitner’s additional 3Ps have gener-ally been accepted as a valid addition to the orig-inal framework. Thus the literature increasinglydiscusses the generic 7P marketing mix.

So why incorporate these additional Ps ofPsychology, Performance and Packaging? As issuggested in Chapter 8 and elsewhere, psychol-ogy has been for centuries the underpinningmotivation for why we behave in certain ways.Psychology has provided this underpinningeven though as marketers or buyers we mightnot even have been aware of its influence. Interms of ‘modern’ Western marketing we onlyhave to read the writings of, for instance, E. StElmo Lewis in the late 19th and early 20thcentury, and E.K. Strong Jr. in 1925 to see eventhen the potency of psychology in product sell-ing. Today psychology is a technique that is usedto persuade us to purchase a myriad of productsand services.

It has been claimed that accountants andfinancial directors have always consideredmarketing as a cost centre rather than a profitcentre. Both articles and business books haveemphasised that the accounting and finance

PREFACE xxv

departments seek to measure every type ofperformance. The accountants, it has beensuggested, are the guardians of performancethrough due diligence and the balance sheet.

In reality everyone within an organisation isresponsible for the performance of the organisa-tion. It cannot rest with one department and onedepartment only. It is a collective operation.Therefore, on this basis, performance should beconsidered an integral component of the market-ing mix. Moreover as you will see in Chapter 17,performance covers a range of issues, from theoperational aspects of a product or service to thefinancial contribution marketing makes to thesuccess or failure of an organisation.

Packaging has often sat uncomfortablybetween promotions on the one side and producton the other. This may have been satisfactorywhen packaging was the simple wrapping of aproduct. Today, packaging is much more thanthat. Nor is it any longer confined to the physical-ity of a product. Today services, such as vacations,are packaged. Indeed packaging has a multitudeof operational and marketing functions and onthat basis needs to be considered as a separate, yetintegrated, component of the marketing mix.

■ ReferencesBooms, B. H. and Bitner, M. J. (1981) ‘Marketing strate-

gies and organisation structures for service firms’,in J. H. Donnely and W. R. George (eds), Marketingof Services, Chicago: AMA.

Borden, N. H. (1964) ‘The concept of the marketingmix’, Journal of Advertising Research, June, pp. 2–7.

Cottrell, S. (2003) The Study Skills Handbook, 2nd edn,Basingstoke: Palgrave Macmillan.

Glaser, E. (1941) ‘An experiment in the development ofcritical thinking’, New York: Teachers’ College,Columbia University, cited in S. Cottrell (2003) TheStudy Skills Handbook, 2nd edn, Basingstoke:Palgrave Macmillan.

Lewis, St. Elmo E. (1915) Getting the Most Out of Business, New York: Ronald Press.

McCarthy, E. J . (1965) Basic Marketing, Homewood, Ill:Irwin.

Strong, E. K. Jr (1925) The Psychology of Selling andAdvertising, New York: McGraw-Hill.

Writing anything, whether it is a concerto or abook, can be a lonely business. You lock yourselfaway in your study, often buried under papersand notes, and hope to emerge with a compre-hensive and coherent piece of work. As the busi-ness thinker Tom Peters so aptly stated in hisimaginative book Re-imagine! ‘Writing is a nastybusiness. One eventually alienates all one’sfriends’. Hopefully I have not alienated anyonein the process of writing this text!

However, no completed and published bookis really the work of one person. Writers arealways influenced by experience, by the peoplearound them and other internal and externalfactors. Moreover, the physical shape of the bookis the outcome of many who work behind thescenes. It is they who transfer and shape thework into the book that you hold before you.Therefore a special thank you to the publishingand printing teams involved with this text for alltheir hard work and patience.

There might be only one name on the frontcover of this text, but if it had not been for thesupport and encouragement of others this bookwould never have been completed. I particularlywant to thank the following individuals for theirkindness, continual support and encouragement:Shereen Baig, Ian Bathgate, David Bennett, Chris

Blackburn, Peter Boynton, Michael and ElizabethBrown, Suzanne Burywood, Dr Jack Colford,Professor George Corfield, Brenda and PhilipCrook, Glauco de Vita, Christine Ewers, Dr PaulGriseri, Jan Harwell, Geoff Holmberg, CherylHopkins, Colin Horner, Dr John Lang, ElspethMacfarlane, Ian Marshall, John Muir, ShonaMuir, Wendy Muir, Rebecca Peek, Della Rhodes,Judy Slinn, Peter A. Taylor, Sheila Thomson,Simon Williams and Dr Catherine Wang.

I should also like to thank those students whoover the years have participated in my marketingand strategy classes. Thank you for your encour-agement, constructive criticism and support.

Every effort has been made to contact thecopyright holders of material reproduced in thisbook and to obtain permission for its use. Theauthor and publisher apologise for any instanceswhere permission has not been obtained, andwill be happy to rectify this in future editions.

And finally to you, the reader. I hope you findthis book an enjoyable and stimulating read thatencourages you to explore marketing further.

Jonathan GroucuttLondon and Oxford

November 2005

Acknowledgements

The Scope ofMarketing

PART1

■ What are your favourites?It may seem very strange to start the first chapter of a textbook with a question.However, it is a highly pertinent one. Before reading the Introduction take a fewminutes to answer the following brief questions:

� What are your three favourite movies? Why are they your favouritemovies? What influenced you to go to see them?

� What are your three favourite CDs? Why are they your favourite CDs?What influenced you to go to buy them? If you did not buy them, were theya gift to you?

� What is your favourite food? Why is it your favourite food? Did anyone oranything influence you to try this food for the first time?

Encapsulated within those brief questions are the basics of marketing. By thetime you reach the end of this textbook you will know exactly how pertinentthese questions are to you and your understanding of marketing.

IntroductionThe aim of this chapter is to ‘set the scene’, to consider what marketing reallyis to you and me. It discusses what marketing comprises, its development andhow it affects our daily lives. Marketing, as we shall see throughout this text, iscomposed of many elements from numerous subject areas and disciplines. Forinstance, economics, sociology, psychology, statistics and mathematics, as wellas politics and the law, have all influenced marketing in one form or another.

CH

AP

TE

R

1A Brief Introduction toMarketing

Learning outcomes 3What are your

favourites? 3Introduction 3The origin of

marketing 4An economics approach 5A consumer’s (or

buyer’s) approach 6The societal approach 6The managerial or

systems approach 7A broader approach 7Relationships 9Transactions 9Time 9Dialogue 9The marketer:

alchemist, magician,sorcerer and medicine man 10

Marketing as an organisational function 11

Who is engaged in marketing? 12

Marketing now and tomorrow: current and future trends 12

2004–14? 13Chapter summary 15Questions for review

and reflection 16References 16

ContentsLearning outcomes

After completing this chapter you should be able to:

� outline the origins and the different orientations of marketing

� debate the role of the marketer within a business environment

� evaluate the development of marketing

� consider marketing within the ‘realistic’ real world environment.

The actual term ‘marketing’ may be a creation ofrecent history, often associated with the dawn of the20th century. However the actions of marketingdate back thousands of years. We know from exca-vations of caves that early civilizations used ‘adver-tising’ to inform other members of the communityof events and issues, indeed also to warn them ofperils in the area. Equally customers or consumers,as we know them, are far from being a recentphenomenon. Customers are as old as the firsttransaction between two people.

The social, economic, political and technologicalchanges during the 20th century revolutionised theway we lived and worked. Moreover these ‘revolu-tions’ provided the means or the platform for anequally dramatic change in the marketing of prod-ucts and services linked to dynamic competitiveenvironments. The 21st century obviously remainsan unknown quantity. Already in its early years thiscentury has witnessed tremendous growth incertain business sectors, decline in others, increasedcompetition in both home and internationalmarkets, societal change and geopolitical turmoil.Where the next 20 or so years will lead us isanyone’s guess. However, marketing, in one form

or another, will play an integral role in reacting tochange and even shaping change.

■ The origin of marketingMarketing is something that affects every one ofus every waking moment of our lives – eventhough we may not necessarily be conscious of it.From that very moment we stir out of deep sleep,turn on the radio or television, and walk aroundthe house, we are bombarded by marketing mes-sages. They are not always in the form of adver-tisements beaming from the radio or television.

4 1 • INTRODUCTION TO MARKETING

Figure 1.1

© Jonathan Groucutt

Everywhere we go we are being marketed to in oneform or another. Marketing is with us each second ofour waking lives.This is a Parisian street with marketing images galore.What are the marketingimages where you live?

Figure 1.2


Stunning architecture such as the Eiffel Tower in Parisacts as a branding not only of Paris but of France.Thesame could be said of the Statue of Liberty in NewYork, the Opera House in Sydney and the Houses ofParliament in London.What other national symbols doyou think represent countries? What are the nationalsymbols of your country?

Think of the packaging in your kitchen or bath-room. Even on non-commercial radio and televi-sion stations there are still marketing messages, inthe form of publicity and public relations. Evenbefore we leave the house we have already seen orheard hundreds of marketing messages. Then itjust explodes – newspapers, magazines, billboardsand posters. There are messages everywhere,invading every aspect of our lives.

All this relates to marketing, but how do wedefine marketing? This is not as easy as onemight think. Indeed as Cooke, Rayburn andAbercrombie (1992) suggested, ‘after about 80years of formal marketing education (thought)there is no consensus on the definition ofmarket’. Has this perspective changed? No. It isperhaps a scary thought that a subject that is amajor course at the vast majority of universitieshas no hard and fast definition. However, beingable to debate a definition for marketing allowsus to consider the subject as being flexible anddynamic, just like the world we live in.

In the next section we investigate some of thevarious definitions of marketing, drawing on arange of subject areas. It may well turn out thatthere is no one definition that fits all aspects ofmarketing. As marketers we may have to be flexible in our understanding of the subject, andits relationship with us both as individuals and a

society, especially within a turbulent macro environment.

An economics approachWith an economics approach the emphasis is onproducts (usually referred to as goods) and services,sources of supply, the most commonly used chan-nels of distribution and the functions performedduring the marketing process (Cooke et al. 1992).

Three definitions can be provided on the basis ofthe economics approach:

Marketing is the performance of business activ-ities directed toward, and incident to, the flow ofgoods and services from producer to consumeror user.(American Marketing Association (AMA) 1948)

Marketing embraces all the business activitiesinvolved in getting commodities of all kinds,including services, from the hands of producersand manufacturers into the hands of the finalconsumers. All the business steps through whichgoods progress on their way to final consump-tion is the concern of marketing. This is

THE ORIGIN OF MARKETING 5

Figure 1.3

© Shereen Baig. Reproduced with kind permission.

The Taj Mahal at Agra in the Uttar Pradesh region ofNorthern India.This imposing extravagant white marble mausoleum has become, in essence, the touristsymbol of traditional India.

Figure 1.4


Marketing however is not just about symbols andbrands. It is about how we choose the products andservices we want to buy. In this weekly Italian marketthe shoppers have a wide variety of choice of bothfresh food and goods including clothing, toys and luggage.They will make decisions based on several factors including quality, price and customer service.

especially true of the points in those stages atwhich change of ownership takes place.

(McNair et al. 1975)

Marketing is the performance of business activ-ities that direct the flow of goods and servicesfrom producer to consumer or user.

(AMA 1960)

As Cooke et al. (1992) state, there are several keywords that summarise these definitions:

� goods/services

� transfer of ownership

� storage

� flow of goods/services

� distribution/transport

� functions.

We shall return to these points later.

A consumer’s (or buyer’s) approachThis perspective arises out of consumers’ dissat-isfaction with products, services and the organi-sations that provide them. Linked to this is thesubsequent need for governments to protect indi-vidual consumer rights through legislation. Thedissatisfaction emanated from the followingviews:

� The marketing system was unresponsive toconsumer wants.

� Marketing practitioners were unscrupulous.

� Marketers made claims that were not borne outby the actual performance of the product.

� Consumers sought increased product quality.

� Increasing concern over hazardous and unsafeproducts entering the marketplace, especiallyelectrical goods and children’s toys.

� Concern over misleading advertising, deceptive packaging and labelling.

Three definitions provide an insight into theconsumer perspective:

Marketing consists of four general activities: 1.Identifying and selecting the type of customerthat the business will cultivate, learning hisneeds and desires; 2. Designing products orservices that the firm can sell at a profit inconformity with customers desires; 3. Persuad-ing customers to buy at the firm’s offerings; 4.Storing, moving, and displaying goods afterthey leave the production site.

(Oxenfeldt 1966)

Note the use of the word ‘his’. Perhaps the focusremained male dominated?

That process through which a business enterprise,institution, or organization 1. selects targetcustomers or constituents, 2. assesses the needs orwants of such target customers, and 3. manages itsresources to satisfy those customer needs or wants.

(Star et al. 1977)


� consumer

� meet – fulfil – satisfy

� product (goods and services)

� wants

� determine – assess needs

� needs

� target customers.

We shall return to these points later.

The societal approachThis can be considered as a needs-fulfillingexchange or relationship activity that is present, toa greater or lesser degree, within all cultures. Cookeet al. (1992) suggest that it is the ‘process ofexchange in society and this process must occur insociety so that the consumption of values canoccur’. They continue:

The societal view of marketing as exchange rela-tionships begin with the basic idea that mosthuman behaviour is the planned, purposefulquest and search for want satisfaction. Individu-


als act to satisfy their wants and desires. Goods,services, or ideas are the source of this satisfaction.

Cunningham and Cunningham (1981) suggest that societal marketing performs three essential functions:

1 As an information network – knowing andunderstanding the consumer’s changing needsand wants.

2 Equalising the distribution function – effi-ciently and effectively managing the supplyand demand of products and services.

3 Centralising the exchange function – efficientprovision of distribution and payment processing systems.

Two definitions provide an insight into the societalperspective:

Marketing may be thought of as that phase ofbusiness activities which human activities aresatisfied by the exchange of goods and services,on the one hand, for some valuable consideration– using money or its equivalent – on the other.

(Pyle 1931)

Marketing is the delivery of a standard of livingto society.

(Mazur 1947)


� consumption – relationship

� matching

� society

� exchange

� social process

� standard of living.

Once again, we shall return to these points later.

The managerial or systems approachThis is the approach of management within individual companies or organisations (including

not-for-profit and public sector organisations) tomarketing. The emphasis is on how the individualorganisation processes marketing and develops thestrategic dimensions of marketing activities.Hughes (1978) suggests that marketing managersfocus on market analysis and the selection of targetmarket segments, strategy development and thecreation of a profit plan. Of course, a profit plandoes not exist within a not-for-profit organisation,such as a charity. Nevertheless these organisationsneed to generate revenues to both develop theorganisation and to deliver products/services to itsclients: for example, the distribution of food andmedical supplies in famine-stricken areas.

The managerial approach can be described asfollows:

Marketing is the combination of activitiesdesigned to produce profit through ascertaining,creating, stimulating, and satisfying the needsand/or wants of a selected segment of the market.

(Eldridge 1970)

As Cooke et al. (1992) state, there are several keywords that summarise this approach:

� anticipate (demand)

� business – corporation – organisation

� goods – services

� objectives of organisations

� product development – design

� stimulate (demand)

� assess – determine

� create (demand)

� meet – fulfil

� profit

� strategy

� target (customers).

A broader approachWhile some definitions fit relatively neatly into oneof the four categories above, not all definitions do.Perhaps marketing is not as easy to define as wemight think?

In the early 1990s Kotler defined marketing as:


A social and managerial process by which indi-viduals and groups get what they need andwant through creating and exchanging productsof value with others.

(Kotler 1991)

By 2000 he had slightly modified this to:

A societal process by which individuals andgroups obtain what they need and want throughcreating, offering, and freely exchanging prod-ucts and services of value with others.

(Kotler 2000)

While the differences between the two definitionsmight appear slight, they are significant. Considerthe following:

� The second definition has introduced the term‘societal’ and removed the managerial element.However, it could be debated that marketingneeds management of the process in order forit to be both effective and efficient.

� Also in the second definition the word ‘freely’is introduced. Marketing involves an exchangeof one form or another. This can be anexchange of a product for money. Equally itcould be an exchange of an emotional feeling(for instance, a thank you) for a donation to acharity, or a huge hug when we give a gift to aloved one.

� In the second definition Kotler has also intro-duced the word ‘service’. While an early focuson marketing was driven by ‘products’, the last30 years especially have witnessed a dramaticrise in service-oriented business, coveringeverything from travel companies to super-markets. Thus ‘service’ is a key ingredient inmarketing operations, even within a mainlyproduct-based business. This is an element thatrecurs throughout this text.

Now compare Kotler’s views with those of theAMA. In many ways they are similar, only differingin some of the nomenclature and specifics, such aspricing. However, it could be argued that theAMA’s definition is more financially focused interms of transactions.

In the 1960s the AMA defined marketing as:

The process of planning and executing theconception, pricing, promotion and distribu-tion of ideas, goods and services to create exchanges that satisfy individual andorganisational goals.

(AMA 1960)

As Cooke et al. (1992) state, definitions of market-ing change as a result of environmental changes,or because our knowledge of the subjectimproves, or indeed through a combination ofthese two reasons. Marketing as a subject ordiscipline is therefore evolving. It is important tocomprehend marketing as a dynamic and not astatic subject. As we shall see as we journeythrough this textbook, the elements thatcomprise the marketing discipline are often in astate of flux due to the fluidity of both the microand macro environments. (See Chapter 2.) It ishow the people involved in marketing handlesuch environments and experiences that oftendetermines whether a product or service is viableor not, and over what time frame.

This is made clear by a new definition issued bythe AMA in 2004 (Keefe 2004):

Marketing is an organizational function and setof processes for creating, communicating anddelivering value to customers and for managingcustomer relationships in a way that benefitsboth the organization and the stakeholder.

While there is still an emphasis on process – thatis fundamental to marketing – we now see theuse of the words ‘value’, ‘managing customerrelationships’ and ‘stakeholders’ being broughtto centre stage. These are issues that are reflectedthroughout this text.

Equally, as Mercer (1997) contends:

Marketing is the one (our italics) fundamentalactivity undertaken by all organizations. Formost of them it is also the most importantcontributor to their success or failure.

Mercer (1997) also suggests that marketing is:

Both a relationship with the customer, basedupon a series of transactions which, over time,should result in mutual benefit, and a parallel


dialogue between you and the customer(s),which communicates the information necessaryto define the relationship.

There are several key elements to Mercer’s descrip-tion which define the interaction between customer(buyer) and supplier (seller) as ‘complex’. Thiscomplexity has often been overlooked.

RelationshipsThese must be seen as two-directional, not just purelyseller to buyer, but also buyer to seller. The sellermust understand the needs and wants of the buyerin order to deliver a suitable product and/or service.

TransactionsTraditionally writers have considered transactionspurely in terms of the exchange of money for aproduct. This is a tangible transaction: somethingsolid changes hands. Thus there was a view thatdefinitions containing the word ‘transaction’ werenot applicable to not-for-profit organisations, suchas charities, as the transactions they dealt in wereintangible. However a transaction does not have toinclude money for a physical product or service: itcan equally take place within a charitable environ-ment. For instance, if a person donates 100 euros toa children’s charity, three parties benefit from thatdonation:

� the child who receives the direct benefit of thedonation

� the charity in terms of raising donations and itsprofile

� the individual who donates the 100 euros,whose element of the transaction is the psycho-logical good he or she feels, and the belief thathe or she has contributed to helping to providea child with a better life.

TimeMercer (1997) refers to ‘a series of transactionswhich, over time, should result in mutual benefit’.The time element could be construed in several ways.

Some transactions take place within a very short

time frame. For example, a commuter buying anewspaper from a street corner vendor on his orher way to work is engaged in a quick transaction.Others do not. For example, an individual maywant to purchase a product or donate to a charity.He or she is short of funds and unable to do so rightaway, but intends to do so later, perhaps in a weekor a month. One important issue here is the needfor the organisation to maintain a dialogue with theprospective customer (see below).

Mercer’s statement comes into its own when thebuyer and seller develop a relationship. Continualtransactions – for example, regular visits to a partic-ular restaurant – can deepen the relationshipbetween the staff/owner and the customer. Themutual benefit derived can be a mixture of:

� revenue for the restaurant – not only from thecustomer but also from the customer’s friends(to whom he or she recommends it)

� loyalty from the customer in the form ofcontinuing support

� the food and ambience that the customerenjoys, and his or her personal feeling of‘reward’ for dining at that restaurant.

DialogueThere must be a dialogue between the buyer andthe supplier. This can take two forms.

Supplier to buyer

This is usually in the form of marketing communi-cations such as advertising and public relations.This is where the supplier communicates andpromotes the features and benefits of the product orservice.

Buyer to supplier

This is where buyers either directly or indirectlystate their personal needs and wants. A customermay communicate directly with a companythrough marketing research, where the companyseeks feedback on specific marketing issues. Alter-natively, the customer may have an indirectdialogue with the company by switching brands.This indirect dialogue can be seen as informing thecompany that ‘something is wrong with the


product’. This ‘problem’ could be price, quality,accessibility or a combination of factors.

We have looked at a few definitions of market-ing, but there are significantly more. McDonald(2002), for example, cites some 30 definitions. Virtu-ally everyone who has written on the subject ofmarketing has probably put forward his or her owndefinition in one way or another. So as for manyother disciplines, there is no absolute definition.The definitions given vary to a greater or lesserextent, depending on circumstances, attitudes andthe time at which they were conceived. At the endof this chapter we briefly consider the future of thisdiscipline called ‘marketing’. While it will continueto affect our lives into the distant future, what wecall it and how we define it may be different fromthe terms we use now.

■ The marketer: alchemist,magician, sorcerer andmedicine man1

As we have seen from the brief examples earlier inthis chapter, marketing is universal. However, is it anart or a science? Perhaps marketing is more likesorcery. Think of a sorcerer collecting ingredientsfrom different sources and mixing them into a potion,accompanied with the magical effect of a flash of lightand the illusion to follow. To some extent this fits withCulliton’s vision of a marketer as a ‘mixer of ingredi-ents’ (a view we consider fully in a later chapter). Ofcourse sorcerers are more mythical than real, but if westay with this myth it may help to dispel some of themyths surrounding ‘marketing’.

Though mythical, sorcerers were far fromperfect. Not all their potions and spells succeeded.When they tried to cure diseases, the patient oftendied through severe poisoning – and the fate of thesorcerer was anyone’s guess. Perhaps the samecould be said of alchemists. Alchemy was themedieval dream of using a ‘philosopher’s stone’ tochange base metals like iron and lead into gold. Itwas a combination of chemistry, astrology, philoso-phy and mysticism, and took hold not only inEurope but in India and China too. No base metalwas ever transmuted into gold, but plenty of peoplespent their lives searching for the formula.

So what has this to do with marketing? In realitya great deal.

Let’s consider a Disney movie for a moment. In1940 the Disney Organization made a movie thathas stood the test of time, and remains one of thebest-animated movies ever created – Fantasia. Themovie is a series of vignettes involving animatedcharacters with their actions set to classical music.In one sequence Mickey Mouse™ is a Sorcerer’sApprentice who decides to find another solution tofilling the well other than his carrying buckets ofwater. Through magic he replicates a broom manytimes over and provides the replicants with armsand hands to carry the buckets. Having given thecommand to the brooms to fill the well he promptlyfalls asleep only to be woken by the flow of runningwater. The well has been filled to overflowing andpoor Mickey, now awake, doesn’t know how tostop the brooms filling the overflowing well. Panicsets in, but worse is to come as the Sorcerer returnshome to see mayhem. With one wave of the handcalm is restored except for a bedraggled apprentice.

In the section heading ‘medicine man’ wasincluded. There is some link to alchemists here inthat many were also considered healers, mostnotable being Paracelsus.2 Although medicine mencan be associated with native North Americans, thenative tribes of South America, Australia’s aborig-ines and African tribes, there is also an associationwith the charlatans who preached to communitiesin Victorian England and the emerging townshipsof 18th and 19th-century North America. These‘medicine men’ pronounced that they ‘held in theirhands a bottle that contained the elixir of life’. Atbest it was a rough alcohol, at worst it was a poison-ous concoction that could lead to an untimely andpainful death. Indeed many were simply known as‘snake-oil merchants’ doing little to promote theindividual seller or merchant in the then ‘WildWest’.

So what has any of this got to do with market-ing? I can see four separate, but linked, ways inwhich an analogy can be made.

1 Companies spend billions of dollars onmarketing campaigns that either help to selltheir goods or services, or do not. The literatureis full of companies that have implementedmarketing campaigns which for one reason oranother have failed. Therefore some of or all ofthe ingredients in this marketing potion werewrong, or incorrectly mixed.


2 Those with some knowledge of marketing donot always have enough knowledge to dealwith specific situations and the complica-tions that can ensue. It is sometimes claimedthat if you can market cars you can marketcosmetics – it’s all the same. This is a myth.An understanding of marketing principles isonly the start. Then you need to understandthe product or service you are marketing, notjust in broad terms but in depth. In the movieFantasia, Mickey as the apprentice had abasic understanding of the magician’s craft –but not sufficient to achieve what he set outto accomplish, hence the debacle at the end.Marketing comprises a series of techniquesor tactics that can be engaged as a part of anoverall marketing strategy. This, in turn,feeds into the corporate strategy. For amarketing strategy to be successful themarketer must understand what tactics touse, when and when not to use them, and inwhat proportion to use them and for howlong. It is a skill that is developed over time.

3 Marketers need to have a grip on reality.Research conducted at Cranfield University inthe United Kingdom by McDonald (2003)suggests that marketers, consultants andacademics have failed to understand the realdynamics of the marketplace. McDonald (2003)found that a significant number of seniormarketing practitioners revealed a depressing‘lack of knowledge about the financial impactof marketing expenditure’. He also contendsthat many companies fail to integrate market-ing within corporate strategy decision making,and to measure marketing performance (forexample, the link between customer retentionand profitability).

4 Marketing is not a cure for all ills. It. Forinstance, it cannot sell a product or service forwhich there is no market. It cannot turn aroundthe fortunes of a business that has no markets,no real product or an unsafe product, any morethan a government that has continually lied topeople can use spin to keep its majority in ademocracy. Thus marketers cannot be medi-cine men who turn a failed product or serviceinto an overwhelming success, no matter howmuch they believe they can, or how cleverlythey manipulate their clients and the public at

large. As with the snake oil merchants, the game will unravel, with disastrous consequences for all parties.

Earlier in this chapter a statement was made thatmarketing is neither a science nor an art. In factit is a hybrid drawing upon a diverse range ofdisciplines. Purists would disagree with thisview and suggest that it is really a science or anart. However, if you consider the range of disci-plines that marketing draws upon, it can reallyonly be classed as a hybrid. Those less disposedto such a description may call marketing a ‘thiefin the night who steals ideas from other disci-plines’. Whichever view you are predisposed totake, remember that it is a ‘potion’ that cannotcure all ills. Many marketers have believed thatthey can build a brand in such a way as to gainand sustain competitive advantage, only to see itfalter and fail. Equally, organisations have failedto harness the possibilities that marketing maybe able to deliver, to in turn falter and fail.

Therefore marketing must be viewed objectively,and a course in marketing does not make amarketer. It is experience, and the knowledgegained from that experience, that makes for apotentially more objective and thus ‘successful’marketer.

■ Marketing as anorganisational function

While marketing is central to most organisations,it does not stand alone. Figure 1.5 shows a typical arrangement of functional units within anorganisation. Each unit has separate functions,procedures and staff, but they are also integratedwithin the organisation as a whole.

Marketing cannot operate without finance,operations, HRM and other functions within anorganisation. Table 1.1 illustrates the linkagebetween Marketing and other functional unitswithin the organisation.

When marketing works effectively in concertwith other functional units, the organisation has an opportunity to create an efficient corpo-rate strategy. Unfortunately, though, manyorganisations operate in a manner that pays onlylip service to functional integration. The organi-sation might survive in the short term, but its

ALCHEMIST, MAGICIAN, SORCERER AND MEDICINE MAN 11

longer-term future could be in jeopardy, as this isan inefficient use of valuable internal resources.Business history is littered with examples ofcompanies that were once powerful but havesince gone bankrupt, or have been acquired andmerged into other businesses. In many casestheir collapse has been caused by a lack of func-tional integration and a dynamic and soundcorporate strategy.

■ Who is engaged in marketing?It would probably be very difficult to find agroup or organisation that is not, in some way oranother, engaged in marketing. Even tribeswithin remote jungles often engage in tradethrough barter. They are ‘selling’ and exchangingproduce to gain a mutual benefit.

Table 1.2 outlines the various groups involved inmarketing. The objective here is to consider the vastarray of organisations involved in marketing opera-tions, and the groups to which they market. B2C andB2B are widely acknowledged abbreviations, but theother abbreviations given are less well established.

As you can see from the table, every one of us,

in both our working and private lives, has adirect or indirect link to marketing activity. Wemight take it for granted, but it is with us all ourwaking lives.

■ Marketing now andtomorrow: current and futuretrends

Initially it may seem out of place to comment onfuture trends towards the end of the first chapter.However, in attempting to understand whatmarketing is, we need to consider and analysewhere marketing is positioned today, and where itmay be positioned in the future. While there arenumerous industry watchers, in the main the focusof investigation has been the work of the MarketingScience Institute (MSI). In its research it hasoutlined the key developments and research topicsover a ten-year period (see Table 1.3). Many of theissues raised in the MSI research are discussed inthis text. However, it is worth briefly consideringwhat might be the ‘hot’ marketing topics over thenext years or so.


Figure 1.5 Marketing within an organisational context

Board of Directors or Governing Committee

Marketing

Marketing Director

FinanceDirector

OperationsDirector

HRMDirector

Marketingteam Finance team Operations team HRM

team

Finance Operations Human Resource Management

MARKETING NOW AND TOMORROW

Marketing’s relationship with

Description/comment

Accounting & Finance Provides the finance, maintains bank accounts and advises budget preparation.Allocatesthe funds for marketing activities.

Operations Marketing works with operations to meet customer needs and wants.The marketing department needs to sell to the quantity of products that can be realistically produced by operations.

Human ResourceManagement

Develops a Human Resource Strategy for the organisation. Involved in the recruitment of suitable staff (all levels) to work within the marketing department.Theinstigation of appropriate structures and operational procedures including those legallyenforceable such as working hours directives (European Union).

Facilities This unit provides the resources that enable organisations to function: for example, stationery and other consumables, computers, furniture, telephones and cleaning.

2004–14?

It is easy to speculate; that is part of the fun. So hereis some blue-sky thinking for the future:

� There will be stronger links between marketingand strategy. It will be the real strategicthinkers who will be able to leverage productsor services into the marketplace. Indeed themarketplace may increasingly be looked uponas a battlespace where companies compete formarket share.

� Competitive sustainability will becomeincreasingly hard to maintain within a globalbusiness environment. More of the developingnations will attain developed status, and havethe products and services to compete withestablished companies and brands head tohead. The major brands of the future might benot American or European, but Indian, Africanand Chinese. China-based companies havealready created several major brands.

� The marketing mix and relationship marketingwill combine to form a new approach to howcompanies and organisations relate to theircustomers.

� Information will be the key to success in thecompetitive world of the future. Thus compet-

itive intelligence and marketing research willform the platform for the development of newmarketing information systems, incorporatingreal-time analysis.

� Computing power will increase, and lead tomore embedded systems within the home andoffice that act on behalf of customers. Forinstance, remote systems will order productsand services automatically. Thus will market-ing messages need to be directed to the homecomputer system rather than the home owner?Will customers use home computers to removethe marketing clutter from their lives?

� The World Wide Web and the Internet willgrow – but what form will they take, how willwe interact with them, and on what scale?Whatever the answers, companies will need tobe both proactive and reactive to meet theneeds of customers working and living incyberspace.

� Measurement will be critical to truly under-standing success or failure. Computer systemswill drive the mathematics to interpret real-time movements in products and services.

� Customers will seek deliveries at times thatsuit them. While some companies are alreadyproviding such services, not all companieshave realised that customers will switch

Table 1.1 Marketing relationships

13


Table 1.2 Groups involved in marketing

Group Abbreviation Description/comment

Business to consumer

B2C A business (an individual or a multinational company) markets a product orservice directly to the consumer – the end user. For example, cruise lines market a Caribbean cruise to potential and current consumers.

Business to business

B2B Businesses market directly to other businesses. For example, food suppliersmarket their produce to a cruise line, a hair care company supplies a hairdresser with shampoos and conditioners, or an engine manufacturer supplies a jet engine to a aircraft manufacturer.

Business to employees

B2E This is also known as internal marketing. Here the organisation is marketing, forexample ideas, new practices or a restructuring, to its employees.While not allthe elements of the marketing mix (see Chapter 8) are used, key fundamentalssuch as promotion will be.

Business to government

B2G This can be approached from two angles. First, a business or an industry couldlobby government to adopt or amend a piece of legislation (see Chapter 10 onPromotion). Second, a business can market its products or services directly togovernment.This covers everything from office furniture to the contract tobuild the latest nuclear-powered aircraft carrier.

Business to non-governmental organisations

B2NGO Companies market special facilities and equipment to NGOs, especially for disaster relief: for instance, medicines, rescue equipment (inflatable boats) andtransport (heavy lift aircraft that can transport large quantities of relief suppliesinto terrain-difficult areas).

Government to business

G2B Governments market their services to businesses and industry. For example,governments may financially support home-country companies or organisationsto attend international exhibitions in order to win orders. Such actions canassist in providing a healthy balance of payments (see Chapter 2,The marketingenvironment). Equally, governments market to companies in other countries.Both the French and Spanish governments marketed their countries to theDisney Organization when Disney considered building a theme park in Europe.In such cases governments offer incentives such as providing infrastructures(road and rail networks), tax incentives and low-cost land.

Government topeople

G2P Democratically elected governments market their policies to the nation. Suchgovernments usually seek to explain why they have increased personal incometax. For example, by stating that it will be allocated to improve health care foreveryone. Equally governments market their national identities, not just to theirown people but also other nationalities.This is usually achieved through nationaltourist boards as a means of persuading people in other countries to visit astourists.

People to government

P2G The focus here is a particular aspect of public relations, namely lobbying. In thiscase interested parties or special interest groups (SIGs) market their cause togovernment.This is usually aimed at persuading the government to introduce,modify or remove a piece of proposed or actual legislation. Lobbyists can eitherbe individuals or more normally groups (of varying sizes). Recent examples inthe UK of such P2G activity have been proposals to lower the consenting agefor gay relationships and whether or not fox hunting should be banned.

MARKETING NOW AND TOMORROW 15

brands based upon delivery slots. This isbecause people’s time is increasingly limited.Companies that cannot adapt their distributionchannels to meet customer demands will notsurvive.

� Customers will seek the best deal for them, sobrand switching will increase. Companies thusneed to position themselves in the group ofbrands that customers consider. There will nolonger be single brands of choice.

� Consumers will seek higher ethical standardsfrom companies and organisations. The scan-dals of the late 1990s and early 21st centuryhave cost stakeholders significantly, forinstance, in stock values, life savings and prod-uct–service quality. Organisations that fail tomeet higher standards will see increasingshareholder power and boycott action.

� Clearly these are major issues. However,perhaps the greatest concern facinghumankind is the threat of global warming andglobal dimming (see Chapter 2). Individuals,

companies and governments must considerthe reality of this environmental threat, andhow they tackle this issue might determine theoutcomes of many of the trends suggestedabove.

These are thoughts based upon current trends.However, as we live in an increasingly turbulentworld it is really difficult to predict developmentsover the next few years. Whatever happens it willbe a challenge for marketers, no matter what typeof organisation they work in.

■ Chapter summaryThis chapter has briefly considered some of thedevelopmental aspects of marketing, the organisa-tion of marketing, who is involved in the marketingfunction, and possible future trends. It has statedthat marketing is an amalgamation of various disci-plines, so it is dependent on research and develop-ment in many disparate subject areas in order for itto evolve further. Equally, marketers must accept

Table 1.2 continued

Group Abbreviation Description/comment

People tobusiness

P2B This can be viewed as lobbying and/or boycotting activities. Customers [individuals and groups (free-forming or organised)] may actively lobby/boycott abusiness in order to force the business to modify its actions or policies. Forexample, consumers have boycotted companies such as Benetton, Nestlé andShell over specific practices.

Governmentto government

G2G Governments market to other governments, for example, in support of indige-nous companies that are pursuing contracts abroad. Equally, one government mayuse public relations tactics (see Chapter 10) to lobby another government toreduce barriers to market entry (protectionism).

Non-governmentalorganisationsto business

NGO2B This is marketing activity that supports good works.An example is UNICEF, theUnited Nations’ fund for the care and welfare of children worldwide. Such organisations will actively market to both businesses and organisations that theybelieve will help fund their welfare programmes in various countries around theworld.

Non-governmentorganisationsto consumersor non-governmentorganisationsto people

NGO2C orNGO2P

Throughout the year but especially at the time of national disasters NGOs mar-ket the need for support from individuals, usually in the form of donations.Anexample is the earthquake that devastated the ancient city of Bam in Iran onChristmas Day 2003 killing an estimated 30,000 people. NGOs, such as theInternational Red Cross and UNICEF, immediately issued appeals for donations tohelp the thousands who had been made homeless.

that they too need to explore other disciplines, notonly to further the subject but to see how theirorganisation will compete in the future.

■ Questions for review andreflection

1 Briefly outline the development of marketingas a subject area for study. Why do you thinkmarketing has taken such a route?

2 Do the definitions illustrated in this chapterreflect how you interact with marketing activity?

3 Debate with a group of fellow students themeaning of marketing, and see if you canconstruct your own definition.

4 ‘Everyone is engaged in the marketingprocess.’ Discuss this statement.

5 Why do you think that so much emphasis isplaced on the study of marketing within busi-ness degree programmes?

6 Various suggestions were put forward as to thefuture development of marketing. Do youagree with these suggestions? What otherdirections do you think marketing could takein the future?

7 Do you think the term ‘marketing’ has a future?This may be a question to reflect on after youhave considered the contents of this book.

■ ReferencesAmerican Marketing Association (AMA) (1948)

‘Report of the definitions committee’, Journal ofMarketing 13 (October), p. 202.


Figure 1.6


An example of a B2G product.These are speciallydesigned fire-fighting flying boats.They collect water inspecial tanks as they skim across a lake or sea, then flyover a bush or forest fire releasing the water to dampen the flames.These particular aircraft were inaction in Corsica. However, they are operated by fireservices (usually government agencies) in various countries around the world.

Figure 1.7


This is a familiar sight in most high streets around theworld – an eye-catching store window display. It is anexample of B2C marketing.

17

AMA (1960) Marketing Definitions: A glossary of marketing terms, Chicago: AMA.

Cooke, E. F., Rayburn, J. M. and Abercrombie, C. L.(1992) ‘The history of marketing thought asreflected in the definitions of marketing’, Journal ofMarketing – Theory and Practice, Fall, pp. 10–20.

Cunningham, W. H. and Cunningham, I. (1981)Marketing: A managerial approach, Illinois: Irwin.

Eldridge, C. E. (1970) Marketing for Profit,London: Macmillan.

Hughes, D. G. (1978) Marketing Management: A plan-ning approach, Reading, Mass.: Addison-Wesley.

Keefe, L. M. (2004) ‘What is the meaning of “marketing”?’ Marketing News, 15 September, pp.17–18.

Kotler, P. (1991) Marketing Management, New Jersey: Prentice Hall.

Kotler, P. (2000) Marketing Management, Millenniumedn, Harlow: Prentice Hall.

Lehmann, D. R. (2002) ‘What’s on marketers’ minds?’,Marketing Management 11(6) (November/December), pp. 16–20.

Mazur, P. (1947) ‘Does distribution cost enough?’,Fortune 36 (November), p. 138.

McDonald. M. (2002) Marketing Plans: How to preparethem; how to use them, Oxford: Butterworth-Heinemann.

McDonald. M. (2003) ‘Marketing died in the lastdecade’, Interactive Marketing 5(2) (October/

Table 1.3 Key trends in marketing research according to the MSI

Source: Lehmann (2002).

1994–6 1996–8 1998–2000 2000–02 2002–04

Successfully introducing newproducts

Customers and consumers

Marketing metricsand performancemeasurement

E-business/e-commerce/impactof the Internet

Assessing marketing productivity (returnon marketing) andmarketing metrics

Market orientation Innovation and newproducts and markets

Understanding thecustomer experience

Metrics/measuringmarketing performance

Brands and branding

Customer relationships

Information technology and newmedia

Marketing and theInternet

Branding Managing customers

Information technology and theinformation highway

Marketing management organisations andprocesses

Relationship marketing

Managing customer relationships

Growth, innovationand new products

Marketing engineering andempirical generalization

Global marketing Managing brands:brand equity,product management

Collecting and usingmarketing knowledge

Understanding customers

Managerial use ofinformation

Management use ofinformation and market research

Marketing innovation: creatingcustomers, creatingnew products

New product/innovation

The role of marketing

Brand equity andproduct management

Brand equity andproduct and brandmanagement

Marketing knowledge management

Communications Collecting,interpreting andusing information

MARKETING NOW AND TOMORROW


December), pp. 144–59.McNair, M. P., Brown, M. P., Leighton, D. S. R. and

England, W. B. (1957) Problems in Marketing, 2ndedn, New York: McGraw-Hill.

Mercer, D. (1997) New Marketing Practice: Rules forsuccess in a changing world, London: Penguin.

Oxenfeldt, A. R. (1966) Executive Action in Marketing,Belmont: Wadsworth.

Pyle, J. F. (1931) Marketing Principles, New York:McGraw-Hill.

Star, S. H., Davis, N. J., Lovelock, C. H. and Shapiro, B.P. (1977) Problems in Marketing, New York:McGraw-Hill.

Wren, D. (1979) The Evolution of Management Thought,2nd edn, New York: Ronald Press.

� IntroductionThis chapter examines the macro and micro environments in which companiesand organisations operate. The understanding of these ‘environments’ isimportant in the overall appreciation of how marketing operates within ourcontemporary and often dynamic world. A critical issue to bear in mind is thatthese environments are not static; they are in a constant state of fluidity. This isan issue that is often overlooked by both writers and students. By the time youread the mini cases within this chapter, the events they depict may havechanged manyfold, and probably dramatically. Thus the mini cases are for illus-tration, and for you to consider how the situations have changed since I wrotethem.

The fluidity of these environments illustrates one of the dilemmas facingorganisations (both nationally and globally) today. Organisations must bothunderstand and be able to monitor environments in an attempt to be bothproactive and reactive to changing conditions. If an organisation fails tosuccessfully read and understand the dynamics, it may face either a reduced

CH

AP

TE

R

2The Marketing Environment

Learning outcomes 19Introduction 19Market volatilities and

chaos theory 20The marketing

environment 20What is the macro

environment? 21PESTLE factors 22Political 22Economic 28Societal 31Legal (regulatory) 34Environmental–

ecological 34Technology 39Combinations of

events 42Reversed issues 42What is the micro

environment? 42Micro factors 42Suppliers 43Employees 43The local community 44Local government 44Intermediaries 44Customers 44Competitors and

co-operators 45Retired employees 45Trade unions 45Opinion formers 46Local regulators 46Control of micro factors 46Analysing the

environment 46The ‘What if?’ scenario 48Chapter summary 48Questions for review




� outline the terminology used to identify micro and macro environments

� critically appraise both the micro and macro environments in which organisations must operate

� consider how the macro and micro environments affect all aspects of busi-ness, in addition to marketing (you may also want to relate this learningoutcome to your other studies)

� monitor changes that occur within both the macro and micro environments

� debate how environmental scanning could help to predict changes withinboth the micro and macro environments

� consider the validity of scenario analysis within a dynamic global business and market environment.

market share, or at the worst total extinction. Suchmarketplace dynamics are not new. For example,the British shipbuilding industry, proud builders ofmighty passenger and battleships during the firsthalf of the 20th century, was virtually extinct by the1970s. It had failed to analyse the changing dynam-ics of shipbuilding management and the emergenceand/or consolidation of highly skilled Europeanand Far Eastern shipyards. While the United King-dom maintains a pre-eminence in luxury power-boats, it is unlikely to ever see the resurgence of theheavy shipbuilding industry.

� Market volatilities and chaostheory

In the introduction I emphasised the need toconsider both the micro and macro environmentsas fluid and dynamic. During the latter half of the20th century there was an increasing dynamicwithin the international business environment. Thisreached beyond the expansion of companies intoglobalised entities.

Conflicts have become increasingly globalised.The aftermath of 11 September 2001 has placed theworld on a terrorist alert. The terrorist attacks inBali, Kenya, Madrid and London, the actions of theUnited States in the Gulf, and its stand-off withboth North Korea and Iran over their nuclearpower programmes, have increased the volatilitywithin the world’s economy. With the ever-increased ‘connectivity’ between nations, no coun-try or region is immune from the political oreconomic fallout from such volatility.

Chaos theory explores how small events canhave large outcomes (and vice versa). It can beapplied to business as well as to the natural envi-ronment. A changing geopolitical situation in theMiddle East can have an impact (to a greater orlesser degree) on a small farming community inMiddle America or the highlands of Scotland. Thuswhen we consider both the micro and macro envi-ronments they should not be considered as eitherseparate from each other or separate from events inother parts of the world.

The mini case on the longshoremen’s disputeillustrates how an action within one sector of busi-ness or the economy can have both a detrimental

and positive effect on business. It all depends inwhich sector of business the company affectedoperates. As business acts increasingly globally, thecomplexity of the interactions between environ-ments will increase. An unrelated incident in onepart of the world could cause a range of events –some positive, some negative – in other oftenunconnected business areas in other parts of theworld.

� The marketing environmentBusiness and marketing activities are influencedand controlled by a mixture of external and internalfactors. These are often referred to as the macro andmicro environments. Figure 2.1 shows the macroenvironmental factors feeding into the micro envi-ronmental factors. As we progress through thischapter you will see the types of influence themacro environment has over the micro environ-ment. However, it is important to note that themicro environment also feeds back into the macroenvironment. For instance, both employees andmajor companies have the power (especiallythrough lobbying and the ballot box) of ‘influenc-ing’ government activities to a greater or lesserextent. However, in other areas such as extremeweather conditions, micro environmental influ-encers currently have very little or no power tocontrol extreme weather conditions.

20 2 • THE MARKETING ENVIRONMENT

Figure 2.1

Microenvironmental

factors

Macroenvironmental

factors

Feedbackloop

The relationship between macro and micro factors

� What is the macroenvironment?

This is often described by various mnemonics. Forinstance:

PEST: politics, economics, society and technology. This is sometimes also presented asSTEP.

LE-PEST-C (the LE represents legal and environ-mental, while the C stands for competitors –thus bringing competitors out of the micro environment into the macro environment).

SPECTACLES (developed by Cartwright 2002,this covers social, political, economic, cultural,technological, aesthetic, customers, legal, environmental and sectoral).

PESTEL/PESTLE.

WHAT IS THE MACRO ENVIRONMENT? 21

The longshoremen dispute in West CoastUSA

In September 2002 a dispute between management andthe longshoremen and women’s union over a new con-tract resulted in a ten-day lockout at 29 internationalseaports on the West Coast of the United States. In2002 more than US$300 billion worth of imports andexports flowed through West Coast ports, rangingfrom industrial machinery and toys to computers, carcomponents, fruit and vegetables.The industrial actionresulted in the halting of imports worth approximatelyUS$1 billion per day, and affected a range of manufac-turers and consumers in the United States and else-where. It risked weakening both US and Asianeconomies. Although such a lockout would have beendisruptive at any time of the year, with the run-up tothe November and December Christmas shoppingperiod it was an additional burden on the US economy.

During the lockout inbound ships were forced toanchor off the coast. By the end of the dispute some200 ships were waiting for off and on-loading.

Since they feared the dispute would continue forsome time, Asian car manufacturers with plants in theUnited States were forced to ship components by air.This added to production costs, as airfreight can costup to ten times more than shipping. They were alsoforced to reduce production of some vehicles, and layoff workers over the short term.

The US West coast ports are vital for exports andimports.With many Asian countries only just recoveringfrom recession, the longer the dispute continued, thehigher was the risk of their returning to recession. SouthKorea, for instance, lost an estimated US$354 millionworth of trade in the first few days of the lockout.

US trucking companies, many of which weredependent on business from the West Coast ports,were also hit hard by the lockout. Several companieswere forced to lay off drivers or give them unpaid leave.This had a direct impact on the drivers’ and their fam-ilies’ ability to purchase goods and services, and in turnaffected other businesses to a greater or lesser degree.

An upside to this dispute was increased business forAsian airlines. Both Taiwan’s China Airlines and SouthKorea’s Asiana increased the number of cargo flightsinto Los Angeles.

In early October, with the risk of the dispute esca-lating, the US government announced that PresidentGeorge W. Bush had signed an executive order to cre-ate a board of enquiry. Under US law (the 1947Taft–Hartley Act) this was the first stage in orderingboth sides in the dispute back to work.The Act allowsfor a President with the agreement of a judge to takesuch action if the dispute presents a threat to the‘national health or safety’.

By mid-October the ports were reopened.However, the build-up of goods on ships in the har-bours, in the warehouses and on the docks took weeksto clear. For many businesses and employees this hadboth a medium and a longer-term effect.

Sources: ‘Labour strife disrupts Pacific trade’, BBC NewsOnline, 1 October 2002;‘US port dispute hits Asian car firms’,BBC News Online, 4 October 2002; ‘Bush intervenes in portsrow’, BBC News Online, 7 October 2002;‘Asia counts cost ofUS port lockout’, BBC News Online, 8 October 2002; ‘USindustry counts cost of port dispute’, BBC News Online, 9October 2002; ‘US ports reopen’, BBC News Online, 9October 2002; ‘US dockworkers agree pay deal’, BBC NewsOnline, 13 December 2002.

Mini case 2.1

PESTLE factors

PESTLE is the one adopted for this text for severalreasons:

� It clearly defines the major external factors thataffect organisations both nationally and inter-nationally.

� It covers a much wider relevant perspectivethan a PEST analysis.

� It is easy to remember, which is always useful!

� The Oxford English Dictionary meaning of theword ‘pestle’ is ‘a club-shaped instrumentfor pounding substances in a mortar (bowl)’.This has some relevance to the effect on busi-ness organisations of the PESTLE factors.They can actually grind down a business.Think, for instance, beyond the politicalfactors. If the economic environment isunfavourable, even a company with a goodproduct can face bankruptcy.

Political

This can be subdivided into geopolitical events andnational politics.

Geopolitical events

Haven’t companies always been powerful?Geopolitics frames much of what happens

within the global community. Geopolitical eventscan be short-lived or prolonged. Both can and dohave an effect on organisations and their ability tomarket their products and services.

A case in point is the lingering Israel and Pales-tine conflict. This has seesawed from a form ofpeace to aggressive hostilities on both sides. Israel ishighly dependent on its tourist industry. In 2001both the Israeli and Palestinian tourism ministerstook active steps to promote tourism in their coun-tries. The Israeli Ministry of Tourism aimed to takemeasures to overcome misconceptions amongstpotential and actual travellers (Rosci 2001). Thesemeasures included special complimentary ‘impres-sion’ tours amongst American opinion formers, anddeep discounts to tour operators and travel agents.The largest visitor group to Israel is Americans,

with some 48 per cent becoming repeat visitors(Rosci 2001).

However, then followed a combination ofevents:

� the terrorist attack on the World Trade Center

� the increasing aggression since the 2000 al-Aqsa intifada or uprising, with Palestiniansuicide bombers and the threat of an all-outwar from Israel

� wider terrorist threats against Americans,Europeans and Australians.

These have drastically reduced the tourist business.Until 2002 no tourist had been killed in the conflict,then a Scottish tourist was a victim of a suicide busbomber. In 2002 alone some 24 hotels closed inIsrael because of the ongoing hostilities. Whoknows when they will reopen? In 2003 the intifadaresumed, and the then President of Palestine, YasserArafat, was unable to control the suicide bombers.In 2004 Arafat, the terrorist turned peacemaker,died, making way for a new leader.

Both Israel and Palestine need their touristindustries, yet while there is conflict it is unlikely, inthe short term at least, that there will be the neces-sary growth and development. This will have afurther impact on the economic stability of bothcountries.

Trading alliances

For centuries there have been trading blocs withinwhich countries form alliances for both trade andmilitary reasons (see Table 2.1). Currently thelargest is the European Union, which has 25Member States and may grow still larger. Suchalliances provide for favourable trading statusbetween member nations, but they can be detri-mental to non-members who face crippling barriersto entry for their goods.

The World Trade Organization (WTO) hassought to improve the balance between the poorand richer nations through global trade liberalisa-tion, therefore providing a mechanism throughwhich states that do not belong to trading blocs cantrade favourably with member states. This is a farfrom perfect system, though, and has been much



Table 2.1 The main global trading groups

Trading group Countries

European Union Member states in 2005:Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia,Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg,Malta, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, the Netherlands and the UnitedKingdom.Turkey, whose membership application has been heavily promoted by theUnited States and the United Kingdom, engaged in talks with the European Commissionduring 2004. However it may not be eligible to join until 2007 at the earliest. Bulgariaand Romania may also be eligible to join in 2007.There are also discussions with Croatia.GNP: est. US$6.6 trillion. Population approx. 418 million (2004 figures).

North American FreeTrade Area (NAFTA)

United States, Canada and Mexico. GNP: est. US$8.6 trillion (2001). Population approx.390 million.

Mercosur Argentina, Brazil and Paraguay. GNP: est. US $1.2 trillion (2001). Population approx. 204million.

Association of SouthEast Asian Nations(ASEAN Free TradeArea)

Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore,Thailandand Vietnam. GNP: est. US$632 billion (2001). Population approx. 481 million.

Asia Pacific Economic Co-operation (APEC)

Australia, Brunei, Canada, Chile, China, Hong Kong, Indonesia, Japan, Malaysia, Mexico,New Zealand, Papua New Guinea, the Philippines, Singapore, South Korea,Thailand andthe United States.

Central AmericanCommon Market

Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama.

Caribbean Communityand Common Market(CARICOM)

Antigua and Barbuda, the Bahamas (not currently a member of the Common Market),Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St Christopher-Nevis,St Lucia, St Vincent and Grenadines, Suriname and Trinidad-Tobago.The British VirginIslands and Caicos Islands are Associate Members.

Andean CommonMarket (ANCOM)

Bolivia, Colombia, Ecuador, Peru and Venezuela.

Economic Community ofWest Africa(ECOWAS)

Benin, Burkina Faso, Cape Verde, the Gambia, Ghana, Guinea, Guinea-Bissau, the IvoryCoast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo. Populationapprox.160 million.

Gulf Co-operation States(GCC)

Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

European Free TradeAssociation (EFTA)

Iceland, Liechtenstein, Norway and Switzerland. It has expanded its relationship withnon-European Union States, signing free trade agreements with Turkey (1991), Israel,Poland and Romania (1992), Bulgaria, Hungary, the Czech Republic and Slovakia (1993)and Estonia, Latvia, Lithuania and Slovenia (1995).

Arab Free Trade Zone In January 2003 Jordan, Egypt,Tunisia and Morocco signed a Free Trade Zone agreement.This is seen as a step towards a Euro-Mediterranean process where EU and Arab countries will create a Free Trade Zone by 2010 that incorporates all 27 countries.

debated among trade liberalisation pressuregroups.

Geopolitical perceptions have a societal influ-ence as well. International concern at the UnitedStates’s decision to invade Iraq has led to countriesand individuals boycotting US products and serv-ices. As the mini case exemplifies, when groups ofpeople feel disenfranchised by another group theymay seek economic alternatives. Although the indi-vidual power to switch brands may not financiallydamage major brands (in the short run, at least), it

does none the less send a clear signal of dissatisfac-tion. Companies that fail to address increasingdissatisfaction among their customer base risk theirlong-term health.

Political risk

As Czinkota and Ronkainen (1995) state, there is adegree of political risk within all nations, eventhose considered the most stable. It should also beborne in mind that the assessment of political riskwithin a nation can, and does, vary over time.


The boycott of US cola drinks

In 2003 a growing boycott of American products in theMiddle East provided an impetus for several Islamic-originated cola drinks. The Iranian Zamzam-Cola wasintroduced as a replacement for US-manufactured softdrinks during the 1979 Iranian revolution. In 2002 themarket for Zamzam-Cola, named after the scaredspring in Mecca, increased to include Bahrain, SaudiArabia, Pakistan and some African countries.Accordingto AFP News Agency reports, the growing boycott ofUS products was in protest at Washington’s support forIsrael in its dispute with the Palestinians. US productexports to Saudi Arabia declined by more than 40 percent in the first three months of 2002 alone.

Zamzam-Cola was not the only Muslim-focusedcola brand to enter the market. In late 2002 Frenchentrepreneur Tawfik Mathlouthi launched Mecca Cola,and by early 2003 was exporting it to Britain, Germany,Belgium, Italy and Spain. By January 2003 the companyhad sold over two million 1.5 litre bottles of cola, andreported increasing demand for the product.

In February 2003 a British company – Qibla Cola –entered the market with regular and diet colas. It usedthe catch line ‘liberate your taste’. Qibla is named afterthe Arabic word for the direction of Mecca.The aim ofthe company is to market the cola to Muslim commu-nities in major UK cities including London, Birmingham,Manchester, Bradford and Glasgow.

Although switching brands may not have a significantimpact on major brands in the short term, the longer-term effect is unknown. For instance, the longer UStroops are stationed in Iraq, the potentially greater theimpact of boycotts will be on companies that are heavily promoted as ‘American’.

Sources: ‘Islamic cola benefits from boycott’, BBC NewsOnline, 21 May 2002; ‘Islamic cola selling well in Saudi’, BBCNews Online, 21 August 2002. ‘Mecca Cola challenges USrival’, BBC News Online, 8 January 2003;‘Islamic cola launchedin the UK’, BBC News Online, 4 February 2003.

Mini case 2.2

© Mecca Cola®

A display of 1.5 litre bottles of Mecca Cola with bothEnglish and Arabic text.

Figure 2.2


Political pressure

In February–March 2003 President George W. Bush’sadministration sought support for tough United Nationsresolutions against Iraq.The administration’s goal was towin the majority of votes on the Security Council, toplace pressure on France and Russia to not use theirvetoes. In order to gain the ‘onside’ vote the Bush admin-istration leveraged political and diplomatic pressure onsmaller, often impoverished developing nations. If theyvoted with the United States and Britain in favour oftough resolutions, substantial aid and debt relief packageswould be forthcoming. If not, the Bush administration’smemory would ‘be long’. In other words there would beno relief packages or trade deals. In fact,where trade wasconcerned there could be ‘hidden’ restrictions: non-tariffbarriers such as excessive bureaucracy. Such actionwould directly impact on exports from these countries.

Such an approach to ‘diplomacy’ creates ethical dilem-mas for the small nations: they can either vote against theresolution (if they think that is the right course of action)and face the consequences, or vote for the resolution toobtain the aid and trade packages.The choice was beyondthe control of companies in these countries that wereattempting to export their products to the widermarketplace. Of course, major countries such as Franceand Germany which were not in favour of the Bushadministration’s political posturing could have providedalternative aid and trade agreements to the developingnations.

In the end the United States and the United Kingdomdid not table a resolution, deciding that if it were to berejected (the general view of members of the SecurityCouncil), they would take their own action.On 17 Marchthe United States launched a missile attack on Iraq.

Mini case 2.3

War in Iraq

In March 2003 American and British forces invaded Iraqto ‘neutralise’ the threat of the weapons of mass destruc-tion that the two governments believed Iraq held. More-over, the British government alleged that these could bedeployed in 45 minutes. However, there was confusionover whether these were battlefield weapons (whichcould not directly threaten the United Kingdom) or long-range weapons. This was a major oversight of govern-ment and senior defence officials. Since then it has beenproved that there were no weapons of mass destruction,and that Iraq was neither an immediate threat to itsneighbours nor a threat to countries such as Britain.

Although the overwhelming force the United Statesand its allies used meant the war was ‘won’ and declaredover in July 2003, the peace has been much harder togain.At the time of writing (early 2005), coalition forces(led by the United States and Britain) are still involved inmajor combat roles. Dissonant Iraqi and external forcesare engaged in guerrilla activities that result in the deathof both coalition forces and civilians. Car bombs, insur-gency activities and kidnapping are almost daily occur-rences.This has resulted in more military personnel andcivilians being killed than during the actual invasion andoccupation of Iraq. No one, it seems, can escape theturmoil and murder that has ensued. United Nation offi-cials and humanitarian relief workers have been amongthe many casualties of this appalling conflict.

This ongoing conflict has a much wider implication forglobal society. The disenfranchised and disenchantedamong the young and old alike have used,and probably willcontinue to use,it as their rallying cry against the West andWestern interests. The political, economic and societalimplications of such activity are significant for the globalvillage.They are not confined to the brutality of terrorismand the murder of civilians: they involve the potentialdownfall of the Western economic structure. In thisscenario everyone gets typecast in the same unjust mould.

However, in reality the vast majority of Muslims whobelieve in the true teachings of Mohammed are non-violent and want peace to prevail. They want to tradewith all nations. Equally, many Westerners want to be atpeace with all other nations and to trade.

In January 2005 elections took place across Iraq.Although various groups called for a boycott it is esti-mated that around 60 per cent of the population partici-pated in the first democratic elections in the country forsome 50 years.

Peace in Iraq will arrive. However, it may take severalyears to rebuild trust in order to gain that peace.Will therest of the world see an economic decline in the mean-time as a result? The sheer scale of the military andrebuilding costs will have an impact, but to what extent?This is but one of many,often baffling,questions that arisefrom the invasion of Iraq.Source: P. Reynolds, ‘CIA adds to gloom over Iraq’, BBC NewsOnline, 7 December 2004.

Mini case 2.4

Terrorism Even before the tragic events of 11 September 2001, terrorism was widespread throughoutthe world. Some terrorist groups focused their attention on political leaders and government institutions and facilities. Others concentrated on various public institutionswhile also targeting foreign companies, including their personnel.The increase in global terrorism, through radical groups such as al Qaeda and others, will have a profound effecton companies, organisations and ordinary consumers for many years to come.

Strikes While the ability to strike is viewed in many countries as a legal right and freedom, strikescan, if prolonged, be detrimental to companies not directly involved, for instance componentsuppliers. Reflect back to the longshoremen mini case (page 21).


Table 2.2 Forms of political risk

Form of politicalrisk

Description

Expropriation The host government takes control of the foreign investor’s business. Governments have foundthis appealing in the past, as it demonstrates nationalism and the transference of wealth to thehost country.The host government offers compensation to the foreign company. However, this isusually substantially less than the value of the business. Many governments have moved away fromsuch activity as it discourages foreign direct investment over the longer term, and this investmentis likely to be necessary for longer-term economic security.

Confiscation As with expropriation this is the transference of wealth from the foreign company to thehost government.The difference is that the host government does not pay any compensation.Again, governments have become wary of using such harsh tactics as they discourage foreigncompanies and governments from investing in the country. However, the consequences ofconfiscation do not always lead to a positive outcome for the host government.This is borneout by a relatively recent example, the land reforms instituted by President Robert Mugabe inZimbabwe in 2000.All land owned by white farmers (both individuals and groups) was confiscated and handed over to former war veterans. Unfortunately the war veterans had little or no experience of farming.The land fell into disrepair and millions faced starvation.

Domestication The objective here is for the host government to acquire some control over the foreigninvestment.This can be achieved through a partial transfer of ownership, some local management responsibility, the purchasing of locally produced components and/or the retention of a proportion of the company's profits within the host country. If, for example, thelocally produced components are of poor quality, this can have a detrimental effect on thecompany's overall quality performance. Equally, if local managers are poorly qualified there canbe a breakdown in efficiencies and communication. Some of these problems or issues can beovercome; however there are clearly financial and resource implications.

Revolution, civilwars and civilunrest

Growing political unrest can lead to revolutions and the forced removal of the government of theday. Revolutions can be either peaceful acts of power transference or bloody coups.An exampleof the former is the fall of the Berlin Wall and the reunification of East and West Germany. Abloody coup occurred in Sierra Leone, which became a politically instable region just after independence in 1961, although it was the 1990s that witnessed the perhaps most extremeviolence, descending into genocide.Action by several countries and the United Nations finallybrought a decade of civil war to an end in 2002, with UN Peacekeepers disarming thousands ofrebels and militia. Now the country must face the struggle of reconstruction.

Several African countries have been ravaged by years of bloodshed as a result of warring factions.These countries have witnessed genocide, political and economic instability. It maytake generations before peace is restored. However within the time it takes to gain peacemany of these countries will have slipped further back economically, negatively affecting boththe people and businesses.


Political and financial unrest in Venezuela,2003

In December 2002 a national strike in Venezuela lead tothe virtual collapse of political institutions and theeconomy. Opposition leaders, right-wing businessgroups and unions called a strike in an attempt to forcePresident Chavez to call early elections. They accusedhim of concentrating power and pushing the countryinto an economic recession.

The general strike paralysed the country for 63days. Faced with potential bankruptcy, several privatebusinesses, restaurants and stores reopened for busi-ness. The strike at the State-owned oil company hadthe most devastating effect on the country’s economy.To support the economy the government suspended all

currency exchange in order to prevent a banking crisis.However, the estimated cost of the strike in oil exportsalone was placed at US$4 billion.When the strike fal-tered the government moved to arrest the leaders, andsome 12 000 workers were sacked, mainly from theState-owned oil company.

During the strike many foreign companies, includingMicrosoft and Ford, closed their offices and repatriatedtheir staff. In such instable political and economic envi-ronments, companies must consider not only the short-term but the long-term consequences of the turmoil.Sources: ‘Firms flee Venezuela’s violence’, BBC News Online,22 January 2003;‘Venezuelan strike falters’, BBC News Online,28 January 2003; ‘Chavez claims strike victory’, BBC NewsOnline, 3 February 2003; ‘Fresh Venezuela strike arrests’, BBCNews Online, 27 February 2003.

Mini case 2.5

Nestlé and Ethiopia

In 1975 the communist military government of Ethiopiaconfiscated and then nationalised a meat processingcompany owned by the German Schweiesfurth Group, asubsidiary of Nestlé.No compensation was paid to eitherNestlé or its German subsidiary. In 1998 the Ethiopiangovernment sold the company to a local private businessfor approximately US$8.7 million.Through an Ethiopianlawyer the subsidiary of Nestlé Germany raised the issueof compensation, and initial discussions focused on thefigure of US$6 million.As Ethiopia is one of the poorestcountries in Africa, this compensation claim led to wide-spread condemnation by charities such as Oxfam in theUnited Kingdom, and a media attack on Nestlé.

The World Bank’s Multilateral Investment GuaranteeAgency brokered talks between Nestlé Germany andthe Ethiopian government. On 24 January 2003 repre-sentatives of Nestlé and the Ethiopian governmentsigned an agreement reimbursing the company withapproximately US$1.5 million. All the proceeds weredonated to humanitarian organisations working with theEthiopian government in providing emergency food aid.Additionally, Nestlé entered into negotiations with theEthiopian government to explore ways to create longer-term food security and access to water.

This mini case highlights the problems facing compa-nies that have had their assets confiscated by host

governments. In the majority of cases this happens indeveloping or poor nations without the financial andeconomic power of developed nations. However, it can be argued that companies have a legal right tocompensation.

On 23 December 2002 Peter Brabeck, Nestlé SA’sCEO, wrote:

We do think it’s important for the long-termwelfare of the people of Africa that their govern-ments demonstrate a capacity to comply withinternational law, but we are not interested intaking money from the country of Ethiopia whenit is in such desperate state of human need.

We will devote any money received from thissettlement to both public and private efforts torelieve hunger in Ethiopia.This will take the formof both short-term relief aid and longer-termfood security.

Sources: ‘Nestlé in Ethiopia compensation row’, BBC NewsOnline, 18 December 2002; ‘Nestlé offers Ethiopia refunddeal’, BBC News Online, 20 December 2002; ‘Nestlé andEthiopia: a statement by Nestlé CEO Peter Brabeck’, Nestlénews release, 23 December 2002; ‘Nestlé and Ethiopian gov-ernment reach settlement’, Nestlé news release, 24 January2003; ‘Nestlé and Ethiopia settle dispute’, BBC News Online,24 January 2003.

Mini case 2.6


Companies must therefore consider the politi-cal risks involved in operating within differentcountry environments. These risks can be dividedinto subsets which are illustrated in Table 2.2.

National politics

Political influence on a national level

Diplomacy is no longer just the preserve of govern-ment diplomats. Organisations too must be awareof the diplomatic sensitivities of nations, and inter-national political issues. Failing to understand suchsensitivities can be detrimental to the business inboth the short and longer term. In mini case 2.7 , a‘humorous’ advertisement from the drinks giant

Diageo almost led to the collapse of its market inTaiwan.

Economic

The changes in the economic fortunes of countriesand regions affect individuals and companies notonly within that region but elsewhere too. We areincreasingly living within a globalised economywhere everyone is to a greater or lesser extentdependent on everyone else. Economic cycles canto some extent be controlled or managed by thediligent use of economic instruments, but theseare imprecise and can have negative as well as

Diageo and national sensitivities

In December 2002 Diageo, the world’s largest alcoholicdrinks company, ran a poster campaign on the LondonUnderground’s 70-plus stations for its vodka brandSmirnoff Ice.The advertisement showed a half-wrappedChristmas gift with a label that said:

WARNING. This gift will break down onChristmas morning. Replacement parts availablefrom service centre. Box No 260 Taiwan. Allow365 working days for delivery.

The advertisement was making fun of Taiwan’s past rep-utation as a producer of poor-quality plastic goods. Ithas since shed that reputation, and worked hard tobuild an international reputation for the production ofhigh-quality goods such as laptops, carbon fibre bicyclesand microchips.

The Taiwanese Parliament and government did notsee the amusing side. Legislator Shen Chih-hwei of thePeople First Party criticised the advertisements as‘hurting others without benefiting itself ’, and settingback Taiwan’s years of efforts to establish the reputa-tion of its products. In addition to seeking compensa-tion from Diageo, she urged a public boycott of thecompany’s products.

On Friday 10 January 2003 the Taiwanese Parliamentvoted 115–100 to pass a resolution demanding that thegovernment suspend the sale of all Diageo’s drinks inTaiwan for one year, and seek compensation for thedamage to Taiwan’s reputation.Parliament officials stated

that the advertisement portrayed Taiwan as a maker ofshoddy goods with poor after-sales service. However,the ruling was non-binding and consumers were left todecide for themselves whether to boycott the company’sproducts or not.

Diageo’s brands Johnnie Walker Red and Black Labelwhiskies are very popular in Taiwan, accounting forapproximately 50 per cent of local whisky sales.

Diageo withdrew the advertisement, apologised inboth the United Kingdom and Taiwan for the offencethat had been caused, and placed advertisements in thelocal media expressing its deep regret. In London threesenior executives of Diageo visited Taiwan’s representa-tive in Britain,Tien Hung-mao, to apologise.

This type of ban is generally subject to World TradeOrganization (WTO) rulings, but a country can imposeit while negotiations take place with the WTO andother relevant organisations. Of course, neither theBritish nor the Taiwanese government wanted a diplo-matic argument.There were no open comments by theBritish government at the time, however there mayhave been some behind-the-scenes discussions as partof normal diplomatic routine.Sources: ‘British brewery says it’s sorry for advert debacle’,Taipei Times, 29 December 2002; ‘Taiwan stops Johnnie Walkerin his tracks’, Sydney Morning Herald,12 January 2003; ‘Today’,BBC Radio 4. 14 and 15 January 2003; Damian Grammatricas,‘Taiwan mulls Diageo ban’, BBC News Online, 14 January2003;‘Johnnie Walker not running out’, Taipei Times, 13 January2003; ‘MOFA seeks apology over British ad’, Central NewAgency, 24 December 2002; ‘Taiwan slur takes fizz out ofdrinks’, CNN.com, 5 February 2003.

Mini case 2.7

positive outcomes. For example, increases in inter-est rates to control inflation levels affect both richand poor. While an interest rate increase may reignin some of the uncontrolled spending of thewealthier in society it will also impact upon theneedy and poor.

It is not only economic cycles that affect thefortunes of a nation or region. Severe ecological andenvironmental disasters can virtually bankruptnations as they struggle to help their survivingpopulation. The tsunami of December 2004 (seepage 40) wrought havoc across vast stretches of


Southeast Asia’s coastline. Islands such as theMaldives which are highly dependent upon tourismfor their economic stability may take years torecover.

Business and economic cycles

Table 2.3 briefly outlines the characteristics ofthe main types of economic or business cycle.Governments and their central banks endeavourto maintain steady economic growth. However,they cannot be fully in control of a nationaleconomy within a globalised economic system,

Table 2.3 Business and economic cycles

Event Description

Depression orslump

A severe and often prolonged downturn in the economy.The depression that followed the WallStreet Crash in America in October 1929 lasted for some four years.At the time of the crashsome US $75 billion of US industrial capital was wiped out (Thompson 2000).The GreatDepression (as it became known) had a global impact, resulting in millions being made unemployed, severe poverty and countless company failures. Businesses that were once marketleaders were bankrupted almost overnight. In 1933 US President Franklin D. Roosevelt launchedthe ‘New Deal’, a social and economic reform programme that aided America's recovery.

Recovery An economy that has been in either recession or depression displays the first signs of growth.There is often a perceived ‘feel good’ factor associated with recovery, as the population and government look forward to an improved future.

Steady growth Most governments seek steady and effective economic growth.The economy is growing steadily,manufacturing and service industries are successful and the population is both investing and purchasing.The government and/or central bank monitors growth rates and may take marginalactions such as adjusting interest rates, which assist in either growing the economy or reducingconsumer spending.

Boom The economy is now working at almost full capacity. Overall product and service demands are high,as are wages, while unemployment is low.There is, however, a risk of inflation spiralling out of control as wage demands increase. Moreover, there is a risk of the economy overheating as consumers increase both their spending and debt levels.The government or the central bank mayuse interest rates to control inflationary activity and consumer spending/debt levels.

Recession A sharp and prolonged slowdown in the rate of growth of gross domestic product (GDP),associated with falling levels of investment, low manufacturing output, depressed business confidence, rising unemployment and an increasing number of business failures.With increasingunemployment there is a reduction in the level of individual spending power.As a result competition increases, as companies battle to sustain their market share.As has been seen inrecent history, all social classes are affected by economic recessions to a greater or lesser extent.

Stagnation The economy is stationary, neither growing nor receding.The Japanese economy suffered stagnation during the later years of the 20th century. It is only since 2004 that the Japanese economy has shown signs of progressing out of this phase.

Source: adapted from Groucutt et al. (2004).

since external factors such as recession, war andnatural disasters in other regions have an effect.A major slump in the US economy, for instance,can have repercussions for the economies ofmany nations. If the population of a major econ-omy is not purchasing goods from overseas, the supplier nation will inevitably be affected, though less so if it has other existingmarkets, or the opportunity to seek out newmarkets.

As a result it is important for any company(marketing locally, nationally or internationally)to be aware of changing economic conditions.

Inflation and interest rates

Both governments and central banks monitor infla-tion rates carefully. Their concern is that inflationwill spiral out of control, indicated by increasingprice rises and a reduced purchasing power for thenational currency. (In other words consumersreceive less for the value of their individualcurrency.) This in turn will have an impact ondomestic manufacturing and service industries.Countries that have experienced high levels ofinflation typically go on to witness economic recession, with high levels of unemployment.

To control inflation, governments and centralbanks use interest rate changes to reduce the levelof consumer spending. This affects people’s mort-gage payments, credit card bills and daily expendi-ture. The aim is to reduce their level of expenditureand borrowing, and so reduce the inflationary pressure on the economy.

Reducing inflation is beneficial to the econ-omy. However, during this period of higherinterest rates there is increased pressure on retail-ers and manufacturers to sell their products. Thesame number of retailers are vying for thereduced spending power of consumers, so retail-ers use different pricing techniques to influencepurchasing. For instance, in the United Kingdomsome furniture retailers make special offers of‘no deposit and interest-free credit for sixmonths’.

Those attempting to regulate inflation throughthe mechanism of interest rates have to be carefulthat the economy does not stagnate. If the reductionin consumer spending is too great, retailers and


manufacturers will suffer. A stagnant economy canalso lead to business bankruptcies and massiveunemployment.

Taxation systems

Taxation has both economic and political aspects:its rates and limits are determined by govern-ments, using more general political criteria as wellas economic criteria. There are two basic forms oftaxation, direct and indirect. Direct taxation is taxa-tion on earnings: it is generally taken out of week-ly wages and monthly salaries at source, soemployees receive their pay net of taxation.Indirect taxation is taxation on goods and services,like value-added tax in the European Union.Consumers have a choice whether to spend theirincome on products or services, or save it, so tothis extent they have a choice whether to pay indirect taxes.

In most countries displayed retail pricesinclude indirect taxes, so the amount of tax is notimmediately apparent to consumers.

Governments also levy special taxes. For exam-ple, in countries such as India and Trinidad specialtaxes are levied on tourists, usually as a surchargeon hotel accommodation.

Income levels

Marketers need to be aware of consumers’ levels ofdisposable income. This is the amount of moneyavailable to consumers after they have paid taxesand key items such as mortgage and utility bills, topurchase other products and services. The level ofdisposable income is affected by the various factorswe discussed earlier in this section (the overallhealth of the economy, inflation, interest rates andtaxation levels). When these factors change, thelevel of disposable income will also change.

Poverty

There is an assumption in some marketing text-books that everyone across the world is equal, thatwe all participate in ‘high-level’ marketing experi-ences. This could not be further from the truth. It isestimated that almost 50 per cent of the world’spopulation lives on less than US$2.00 per day(Wolfensohn 1998) and nearly a billion people

entered the 21st century unable to read or sign theirname (UNICEF 1999). Therefore we have toconsider the economic challenges that face individ-uals and countries across the world.

Various governments and politicians are work-ing to help individuals and countries out of thepoverty trap. It is hoped that this can be achievedcreating an improved life for millions where theycan obtain more than the staples of life.

Societal

Hofstede (1980) defines culture as:

The collective programming of the mind whichdistinguishes the members of one human groupfrom another.... Culture, in this sense, includessystems of value; and values are among thebuilding blocks of culture.

Doole and Lowe (1999) refine this for the international marketer, stating that culture is:

The sum total of learned beliefs, values andcustoms that serve to direct consumer behaviourin a particular country market.


A global economy presents challenges to managerswhich they do not confront when their operationsare constrained within national borders. They mustadapt company operations to different nations’legal, political and economic policies, but they mustalso deal with varying national cultures – theprimary values and practices that characteriseparticular countries – many of which are verydifferent from their personal backgrounds (Dooleand Lowe 1999).

Table 2.4 illustrates the different types of attitudeor cultural orientation that people display.However, as Hollensen (2001) states, culture isextremely broad and complex, encompassing virtu-ally every aspect of an individual’s life. It is impor-tant also to recognise that (whether we like it or not)cultures are not static. Like so many other things,cultures undergo continual change, influenced forexample by young people who travel and returnwith new ideas (perhaps from university overseas)and the development of mass communication.

Attitudes to health

Since the mid-1980s there has been increasing concern about the health of people in Western

Table 2.4 Cultural orientations and behaviours

Cultural orientationor direction

Typical behaviour

Parochialism Having a very narrow view of the world. Often an inability to recognise differencesbetween people of different cultures.

Ethnocentrism The belief that one’s own cultural values and customs are superior to all others. Peoplewho are of an ethnocentric orientation believe that others should fit in with their viewsof the world and business. For example, the same competitive and product–marketstrategies are applied to all markets. As a result any cultural differences are ignored.Thiscan be considered as total standardization.

Polycentrism Here the focus is on the local environment, and tends to be culturally sensitive. Generallythe country subsidiaries of a multinational are free to formulate objectives and plans tomeet local market conditions.This can be considered as total adaptation.

Regiocentrism The synthesis of ethnocentrism and polycentrism, this focuses on regions. It is based onthe assumption that there are both similarities and differences across cultures that can bemerged into regional trans-national strategies.As many cultures converge, companies maywell seek to adopt this strategic orientation.

Geocentrism A further development of regiocentrism, considered on global scale. Here subsidiaries ofa global business see themselves as an integral part of that business.


Obesity

One of the major concerns in the United States, andincreasingly in Europe too, is obesity in the public at large,and especially the young. In the United States it is esti-mated that a staggering 54 million adults can be classifiedas obese: that is, 15 kg or more over the healthy norm.Data for 2002 indicated that in the United Kingdom 8.5per cent of six year olds and 15 per cent of 15 year oldswere obese, three times as many as ten years earlier. Ifthis trend continued,40 per cent of the population wouldbe obese within a generation.

A survey by the UK children’s charity Barnardo’sdiscovered that peer pressure, taste, money and choiceaffected what children chose to eat. The researchsuggested that children accepted junk food as their stapleschool diet. Tam Baillie, Assistant Director of policy atBarnardo’s Scotland, stated,‘If we are really serious aboutmaking a difference to the food children eat in schools,we have got to start listening to what they have to say, sothat we can understand the meaning of food to them.‘

The blame for much of the obesity seen today hasbeen directed at fast-food companies such as McDon-ald’s. In 2003 lawsuits were filed against McDonald’s in UScourts, accusing it of being directly responsible forobesity, and alleging it ‘violated New York State’sconsumer fraud statutes by deliberately misleadingconsumers into thinking their products were healthy andnutritious’.The court ruled in favour of McDonald’s.

Since the late 1990s there has been an increasingmovement towards slimming and healthier eating habits.This has resulted in marked criticism of companies suchas McDonald’s for not supplying ‘healthy food’.

In 2004 over 100 of the UK’s leading health andconsumer groups urged the government to ban junkfood advertisements on the basis that they were fuellingthe increasing rates of obesity. However, the governmentwas sceptical about the value of a ban.The UK Food andDrink Federation stated:

Strict codes of practice already exist.… Thesestate that ads should not encourage children to eat ordrink frequently throughout the day, condone exces-sive consumption, or suggest that confectionery orsnacks should replace balanced meals.… There are noquick fixes. Any action needs to be based on soundscience,and requires government and all stakeholdersto work together with a commitment to achievingreal results over the long term.

Also in 2004, a documentary Super Size Me was aired inUS cinemas, in which journalist Morgan Spurlock eats

nothing but McDonald’s meals for a month. He not onlygains 11 kg, he is advised by his doctors to stop, other-wise he could become seriously ill.

Table 2.5 lists the caloric value and fat content ofregular and super-sized options. As you can see, a mealconsisting of a super-size Cola with fries and a Big Mac™contains 1302 calories and 44.1 g of fat.

When the movie was released in the UK,McDonald’sstated that its premise was ‘unrealistic’, and launched aseries of advertisements promoting its food as part of abalanced diet. It claimed it would take an averagecustomer six years to consume the amount of McDon-ald’s food Spurlock had eaten in 30 days. However inresponse not only to the movie but to changing attitudesto fast food, it also overhauled its menus, removing thesuper-size options in favour of lower-fat and lower-calo-rie options which included salad ranges.

With increasing numbers of news reports on the needfor healthy eating,and television programmes dedicated tofood,exercise and personal make-overs,people are begin-ning to realise the need for a combination of improveddiets and regular exercise. If this trend continues it willhave an impact on fast food retailers.Already companiessuch as McDonald’s have revised their menus and, in theUnited Kingdom, introduced television advertising thatpromotes ‘healthy options’. However will such retailershave to go further? Will there be organic food on themenu? Will hamburgers be significantly reduced in size andcooked differently? Indeed,will hamburgers be sold at all?

Sources:‘Junk food battle hits US schools’,BBC News Online,30May 2002; ‘Court dismisses McDonald’s obesity case’, BBCNews Online, 22 January 2003; ‘Obese children “facing pres-sure”’, BBC News Online, 12 February2004; ‘Minister cold onjunk food ad ban’,BBC News Online,3 March 2004;‘McDonald’sto scrap “supersizing”’, BBC News Online, 4 March 2004; S.Evans,‘McDonald’s: the journey to health’, BBC News Online, 20April 2004; ‘New menu gives lift to McDonald’s’, BBC NewsOnline, 22 July 2004; ‘McDonald’s serves up film blitz’, BBCNews Online, 20 August 2004; ‘Supersize debate on fast foodfilm’, BBC News Online, 10 September 2004.

Mini case 2.8

Table 2.5 Calorie and fat content ofMcDonald’s foods

Food item Calories Fat (g)Large fries 412 18Super-size fries 486 21.2Large Cola 226 NASuper-size Cola 323 NABig Mac™ 493 22.9

countries. In the mid to late 1980s there was adramatic increase in the production and sale ofexercise videos and keep-fit programmes such asmovie star Jane Fonda’s Workout. By the late 20thcentury the issue was healthy eating, with the focuson the drawbacks of fast food and ‘junk food’. Bythe beginning of the 21st century there was seriousdiscussion about the potential harm of fast food tothe young. Indeed, as is illustrated in the next minicase, health officials in many nations were worriedabout the type of food young people were consum-ing. The general view was that continuousconsumption of fast food is unhealthy and poten-tially leads to obesity. This had become a majorfactor in US society. In order to reduce the risk ofobesity and subsequent health conditions, bothcompanies and governments need to take action.

Demographics

As indicated earlier, cultures undergo change.Demographics is the study of the characteristics of


societies. Table 2.6 lists some of the changingdemographic factors facing contemporary soci-ety. It is important to look at them not as isolatedfactors but as an integrated whole. For instance,if it were not for young people taking backpack-ing vacations and travelling overseas to attenduniversities, many ideas and concepts would notreach other countries. This is not to say thatimported ideas are better than indigenous ones;it is just highlighting one of the many ways inwhich populations and societies change overtime.

Education

As was stated earlier, almost a billion peopleentered the 21st century unable to read or sign theirname (UNICEF 1999). However, educational levelsare increasing in most countries, and this has influ-enced societal change and development. Since the1990s increasing numbers of young people havegone to other countries for educational purposes.

Table 2.6 Demographic factors

Factor Description

Role of family In some Western countries women have become breadwinners while their husbands stay athome to look after the children. Moreover, children have assumed a greater decision-making rolewithin the family.This had led, for instance, to some car manufacturers in Europe devising advertisements that appeal to the whole family. Clearly this is not the case in all countries. Inmany countries the husband remains the family’s main decision maker.

Impact of communication

With improved analogue and the introduction of digital telephone links it is easier, and cheaper,to talk with people over longer distances. Moreover, the introduction of the Internet and e-mailhave dramatically increased the ease of communication for both business and pleasure.

Impact of transportation

Until the 1970s air travel was the domain of the rich and famous. Since then the introduction oflarger fuel-efficient aircraft, ‘packaged’ vacations and deregulation have created greater mobility.Initially this was confined to destinations close at hand; however today vacationers seek long-distance sun and enjoyment.With the reduction in airfares this has become increasingly possible.Improved transportation has not only affected vacationers, there have also been greater opportunities for business people to travel longer distances to discuss business opportunities.Equally, cheaper air travel has provided students with an increasing opportunity to study abroad.In many cases once students have graduated they remain in the country of their study to take upemployment.

Migration Migration is not a new phenomenon. In the 1950s, for example, the Australian government provided assisted passage to UK and European residents (mainly Italians and Greeks) for emigration to Australia.This vast country needed to build its working population.Today, throughthe European Union we see families emigrating across the Member States to improve their opportunities.

This ranges from pre-degree and foundationprogrammes to doctoral research. Although somewho graduate remain in that country, others returnhome or move to yet other countries. Their careerprospects are one factor, though not the only one.

Education is not only linked to attending univer-sity. Individuals can be educated in new ways ofdoing things or new experiences. For instance, thewealth of diverse food products on UK supermar-ket shelves is in stark contrast to 30 years ago.Today, virtually every food product in the world isavailable. Consumer tastes have been educated in avariety of ways. In the United Kingdom, forinstance, these are some of the factors:

� The development of a multicultural societyhas resulted in the opening up of specialistfood stores and restaurants: Afro-Caribbean,Chinese, Indian, Italian, Spanish and manymore. In the United Kingdom today there aremore Indian restaurants than any other type.

� In television cookery programmes, whichreach wide audiences, the celebrity chefs use arange of ingredients. Several celebrity chefshave become major influencers in the purchaseof food and kitchen items.

� There has been an increasing range of cook-ery books covering both exotic and tradi-tional meals. Cookery books proved to beone of the biggest growth markets in the UKbook trade during the late 20th century.Every indication is that this sector willcontinue to grow.

� Numerous magazines over the years have runfeatures on a variety of different foods.

Legal (regulatory)

Legal and regulatory issues are driven by a combi-nation of political and judicial factors. (See mini case2.10.) The degree of political influence depends onthe political system. Even in democratic countries,governments sometimes seek extraordinary legalpowers that affect both their citizens and the organ-isations that employ them. This is particularly sowhen the government introduces measures tocontrol or limit trade, such as the imposition of sanctions or embargoes.


Other legislation and regulation is intended toprotect people against dangerous substances. Forexample, the European Union has introduced anumber of regulations controlling the sale andadvertising of tobacco products, and is likely tointroduce more in future. Briefly they fall into thefollowing categories:

� Bans on the sale of tobacco products to individuals below a certain age.

� Bans on advertising tobacco products on billboards, racing cars and television.

� Requiring messages (both text and images) tobe printed on cigarette packs about the poten-tially harmful effects of smoking. The Cana-dian government was the first to introducethis, and it has been followed by many othergovernments worldwide.

Environmental–ecological

These are really interchangeable terms in thecontext of marketing’s external environment. Thereare four key areas:

� the weather

� disease

� global warming/global dimming

� geophysical activities and terrain.

The cruise industry in US waters:pollution control

The introduction of improved and arguably neces-sary safety standards within US territorial watersadded another dimension to this highly competitivemarket. Vessels that did not immediately meet thestandards were removed from US waters while thenecessary updating was undertaken.This is a highlycompetitive, perhaps overcrowded market, and thewithdrawal of vessels affected the ability of variouscruise lines to compete successfully. Some compa-nies repositioned the affected ships into other mar-kets. However, it could be argued that the financialburden for others was too great, leading to collapse.

Mini case 2.9

The weather

In recent years there has been much written anddebated about the potential threat of global warm-ing, and indeed its current impact. Clearly theweather influences all our lives, affecting choicessuch as where we vacation and our consumption ofice cream and cold drinks. For instance, in a mild


summer the sale of ice creams, cold drinks andsuntan lotions will be lower than in an unusually hotsummer. In 2004 Coca-Cola issued a profits warning,citing the ‘cold and wet weather in northern Europe’as one of the main factors for dragging down earn-ings (BBC 2004).

The UK Meteorological Office (part of theMinistry of Defence) is now working closely with

Restrictions on the shipment of winewithin the United States in the 21stcentury

In the United States the 18th Amendment to theConstitution was passed in 1920, creating a ban on thecommercial manufacture, transportation and sale ofalcohol.Alcohol was banned as a result of three inter-related beliefs:

� There was a strong Christian belief that drunken-ness breached divine teaching about moderation inall aspects of life. The growing Temperance Move-ment used its political power to bring about bans invarious States prior to the nationwide ban.

� There was a growing belief that alcohol was theroot cause of the social deprivation and injusticethat was ravaging American society.

� Finally there was the belief that the imposition ofsuch a ban would break the power of organisedcrime,which was heavily involved in the drink trade.

Although various powers were introduced to enforcethe ban, they did little to halt bootleg production andsmuggling across the border from Canada. Moreover,ironically the ban encouraged the formation of majorcrime syndicates, notably that of Al Capone(1899–1947). This in turn led to the corruption oflocal police officers and government officials. Theproduction of dangerous unregulated (and untaxed)alcohol made the crime bosses immensely wealthy.However, many who drank contaminated alcoholwere not so fortunate: they were killed, blinded orparalysed by it.

By the late 1920s it was clear that prohibition wasunenforceable, and in 1933 the 21st Amendmentrepealed the 18th Amendment, allowing Americans todrink alcohol once more – at least in theory.What the

amendment actually did was move the responsibilityfor control and regulation of the sale of alcohol fromthe Federal government to individual States. To thisday several States permit local communities andmunicipalities to ban the manufacture, sale andconsumption of alcohol.

However, some 70 years after the repeal of prohibi-tion an anomaly remains that affects American winedrinkers.A clause in the 21st Amendment controls thesale of alcohol across State boundaries. There arewineries in 24 States, but they are forbidden to selltheir wine directly to customers via mail order or overthe Internet if the wine will cross State borders. Out-of-State wine has to be ‘imported’ and sold through alicensed outlet. For example, the alcohol laws in NewYork provide for in-State winemakers to ship directlyto New York residents. However, out-of-State wineriesmust first establish a physical presence (such as anoffice) within the State.This is particularly expensive forsmall wine producers.

The legislation makes it difficult for small wineries tobreak into out-of-State markets. Selling direct to cus-tomers is more cost-effective than using establisheddistribution channels, but it is this that is banned, and asa result they are unable to compete against the majorAmerican and international producers.

The small wineries are challenging the law throughthe US Supreme Court. If the Supreme Court rules intheir favour, it will create an opportunity for them toopen up US-wide markets. However, there is strongpolitical pressure on both sides. The question iswhether the Supreme Court will rule in favour of thesmall wineries, and how far it will go in its ruling. Legalchallenges to the ruling could follow, so it might be sev-eral years before this issue is finally resolved.Sources: S. Evans, ‘Prohibition still hurts America’s wine makers’, BBC News Online. 8 December 2004; Thompson(2000); K. M. Smith, ‘Wineries await Supreme Court decisionon alcohol sales,’ Business Gazette, www.gazette.net,24 December 2004.

Mini case 2.10

retailers to understand how weather affectspurchasing habits. The British Retail Consortium(BRC) and the Meteorological Office offer ‘specialpackages of weather services for a variety ofretailers’ (Met Office 2004). John Cormode, chiefexecutive of BRC Trading, stated:

Our members, from trade associations throughmid-tier retailers to large supermarket chains,are aware that the weather has a significantimpact on consumer behaviour, which in turnaffects what they need to buy, how much andwhen. But very few retailers have the informa-tion at their fingertips to help them understandthe specific relationship between the weatherand the demand for their products.

(Met Office 2004)

Richard Bennett, the Meteorological Office retail


manager, supported the need for retail weatheranalysis:

All weather types can impact on a retailer’s busi-ness. In an increasingly competitive businessenvironment, an understanding of weather andits effects will become more and more crucial toretail supply chain, marketing and general plan-ning decisions, bringing with it improved efficiency and greater profits.

(Met Office 2004)

However, it is not just a case of the weather beingtoo hot, too cold or too wet. Severe weatherpatterns have a devastating effect on people, theirhomes and their livelihood. Mini case 2.11 demon-strates how severe weather conditions result incompanies having to change schedules to protecttheir customers. Moreover, it demonstrates the

Storms batter US economy

In February 2003 snowstorms swept across the north-eastern United States, causing havoc in both urban andrural communities.The immediate impact was on retail-ers. Already suffering from political and economicuncertainties, they had been hoping the President’sHoliday on Monday 17 February would afford anopportunity to sell unsold stock. However, the severeweather conditions resulted in many stores beingforced to close. Transport was also affected, with railfreight companies running only the most essential serv-ices.

For airlines the poor weather only added to theprevalent industry gloom.Their hope of good businessover this particular holiday weekend was not to be ful-filled. The appalling weather conditions led to the clo-sure of numerous airports, cancellation of flights andmisery for travellers and airlines alike. On 17 FebruaryAmerican Airlines cancelled one-quarter of its schedule– 627 flights in all – while United Airlines cancelledsome 380 flights. It was several days before airlineswere able to resume normal flight schedules.

In August and September 2004 Royal CaribbeanInternational and Celebrity Cruises, among othercruise lines, had to monitor closely the paths of twomajor hurricanes, Charley and Frances. On 2September they announced changes to their sailing pat-

terns to avoid Hurricane Frances (a category 4 storm).Two sailings from the ports of Miami and Canaveralwere cancelled. Guests booked on both three-nightsailings were refunded, and travel agents’ commissionswere protected.Additionally, three Saturday departureswere postponed till the Monday and sailed with modi-fied itineraries. Guest who sailed on these late depar-tures received on-board credit of US$500 per state-room and a certificate for a 50 per cent discount onfuture sailings of seven nights or less (excluding holi-days) that departed on or before 15 December 2005.Guests who had to cancel received letters of credit forthe cruise portion of their sailing.As before, the travelagents’ commission was protected.

Clearly companies that are affected by severeweather conditions must protect their customers andstaff.They have no control over the weather conditions,but they need to give incentives to lessen the disap-pointment of delay or cancellation for their customers.Equally they must minimise the impact on supply chainmembers, in this case travel agents.Sources: ‘Snow storms batter US economy’, BBC NewsOnline, 19 February 2003; ‘Royal Caribbean International,Celebrity Cruises respond to threat posed by HurricaneFrances’, press release, Royal Caribbean Cruises, I September2004; ‘Royal Caribbean International and Celebrity Cruisesannounce modifications to Friday and Saturday Sailings’, pressrelease, Royal Caribbean Cruises, 2 September 2004.

Mini case 2.11

economic impact on both companies and nationaland regional governments.

Disease

Disease is a normal part of our everyday lives, fromthe common cold to life-threatening and fatalillnesses. Moreover, we see regions and nationsdevastated by epidemics such as HIV and AIDS.The human and economic consequences can bebeyond comprehension.

The spread of disease across borders is far fromnew. At the end of the First World War in 1918 themovement of troops unleashed a global pandemicof Spanish flu which is believed to have contributedto the deaths of more than 50 million people (BBC2003). This was at a time when long journeys tookdays or weeks to complete. Now international jour-neys take a matter of hours, so the global village iseven more prone to the rapid spread of disease. Themini case on the impact of SARS explores both thehuman and economic cost.

Global warming and global dimming

Since the 1970s there has been much debatewhether or not human-made chemicals andcarbon emissions have created an imbalance inthe world’s climate. This has led to speculationthat frequent unpredictable and severe weatherconditions are a direct result of this atmosphericimbalance (see the mini case on page 40). Accord-ing to the US Environmental Protection Agency(EPA), since the beginning of the IndustrialRevolution (in the 18th century), atmosphericconcentrations of carbon dioxide have increasedby nearly 30 per cent, methane concentrationshave more than doubled, and nitrous oxideconcentrations have risen by approximately 15per cent (EPA 2000). The combination of these‘greenhouse gases’ has enhanced the heat-trapping capability of the earth’s atmosphere(EPA 2000).

Over the last 50 years of the 20th century therewas a significant increase in the release of thesegases through the burning of fossil fuels (to producepower to run cars, trucks, homes, businesses andindustry), increased agriculture, deforestation,increased use of landfill sites (which release


methane), industrial production and mining.According to the EPA, global mean surface temper-atures have increased by between 0.5 and 1.0 °F sincethe late 19th century (EPA 2000). The view in 2000was that increasing concentrations of greenhousegases would accelerate the rate of climate change,with global surface temperatures rising by from 1 to4.5 °F (0.6–2.5 °C) within 50 years. The result wouldbe increased rainfall in some regions (with severedroughts in others), increased rainstorms and risingsea levels (EPA 2000).

However, the situation could be much worsethan was originally predicted. Recent researchsuggests that there is an additional phenomenon,global dimming. It is believed that global dimmingis caused by the visible elements of air pollution:soot, ash, sulphur compounds and other particles.This visible air pollution reflects sunlight back intospace, preventing it from reaching the earth’ssurface. Moreover, it is believed that the air pollu-tants affect the optical properties of clouds, whichin turn make them reflect sunlight back into space.There could be several effects of this ‘dimming’, butthe two principal concerns are:

� The possible disruption of the pattern of theworld’s rainfall. It has been suggested that thedroughts that ravished sub-Saharan Africa inthe 1970s and 1980s were the direct result ofglobal dimming.

� That scientists have underestimated the realrisk of the greenhouse effect. It is suggestedthat the warming from the trapped greenhousegases has been offset by the cooling effect ofthe dimming process (BBC 2005). In essenceone effect has cancelled out the other.However, it is not so simple. Emissions ofcarbon dioxide are predicted to rise as wecontinue to burn fossil fuels (for instance inpower stations and vehicles). However, parti-cle pollution is slowly being controlled throughadvanced filtration systems. This means thatthe cooling effect will reduce, while the warm-ing effect will increase, and at a greater ratethan was once thought.

Climatologist Peter Cox illustrates the impact ofthis relationship between global warming andglobal dimming:

The impact of SARS

In November 2002 an unknown acute respiratory viruswas discovered in Guangdong Province in China.However, it was not until February 2003 that theChinese Ministry of Health reported that there hadbeen 300 cases (including five deaths).Within a monthHong Kong officials reported cases of the virus amonghealth workers. Within four days of the Hong Kongannouncement the World Health Organization (WHO)confirmed that the newly named Severe AcuteRespiratory Syndrome (SARS) was now considered a‘worldwide health threat’. By then possible cases hadbeen identified in Canada, Indonesia, the Philippines,Singapore, Thailand, Vietnam, the United States, theUnited Kingdom, Germany, Spain and Slovenia.

On 2 April the WHO recommended the postpone-ment of non-essential travel to Guangdong Provinceand Hong Kong. By the end of April the recommenda-tion included Toronto, Canada. The Beijing authoritiesordered the closure of all entertainment venues in thecapital until the outbreak was brought under control.

By July 2003 the WHO believed the disease hadreached its peak. Some 774 people had died and morethan 8000 people worldwide had been infected.Although new cases have since been reported, they arenot to previous levels.The disease appears to have beencontained.

SARS had an impact on the way people behaved. Inmany countries people shunned the use of publicmachines such as telephones.There was genuine fear ofphysical contact, with many people avoiding shakinghands on meeting and exchanging business cards. AtEaster masses in Toronto’s Roman Catholic churches,for example, the ‘sign of peace’ – shaking hands withother members of the congregation – was replaced bya bow and a smile. People had a fear of touching eventhough the medical evidence suggested this kind ofphysical contact could not spread the disease.

Governments introduced screening systems at air-ports to detect travellers with particularly high temper-atures. In certain regions of the world airlines provided

passengers with surgical masks and requested that theywear them (see Figure 2.3). In addition aircraft weredisinfected regularly to reduce the risk of the diseasespreading.

SARS had an impact on business in several ways:

� The world’s largest photographic film producer,Eastman Kodak, reduced its profit predictionsbecause of the effect of SARS in Asia. Asiantourism was depressed to the extent that East-man Kodak’s sales in the second quarter of 2003were cut by almost 50 per cent.

� In mid-June 2003 the number of scheduled flightsworldwide fell by 3 per cent, approximately 2.5million seats. Compared with June 2002 flightnumbers to/from China fell by 45 per cent, flightswithin China fell by 16 per cent, between HongKong and US/Canada by 69 per cent and


Mini case 2.12

© Catherine Hu. Reproduced with kind permission.

Passengers on this flight from China to Thailand arerequested to wear surgical masks as a safety precaution against SARS

Figure 2.3

If we don’t do anything by about 2030 we couldhave a global warming exceeding two degrees,and at that point it’s believed the Greenland icesheet would start to melt in a way that youwouldn’t be able to stop once it started.… Take along time to melt but ultimately it would lead to

a sea level rise of seven or eight metres.(BBC 2005)

Severe climate change leads to flooding anddroughts, as many countries have already witnessed.This impacts on societies, regional economies and


Here lies a dichotomy. On the one hand vasttracts of the world have become consumerist soci-eties fuelled by economic development andmarketing. On the other hand, if we continue withthis rate of consumerism the world as we know itwill change dramatically for the worse. The ques-tion is whether consumerist habits and an organisa-tion’s need for growth can change to preserve theworld for the future. Is society for the here and now,or geared for the future? Indeed, what part cantechnology play in reducing the risks for theplanet’s future?

Geophysical

The surface of the earth is a complex structure oftectonic plates which move relative to each other. Itis this movement that has created the physical worldin which we live. To the world’s population thesemovements are imperceptible, yet to geologists a 2 cm movement is dramatic, and can have cata-strophic consequences for local communities. Wherethe plates are active (that is, moving relative to eachother, as at the San Andreas fault line in California,or moving under each other, as on the Pacific rim ofSouth America), there is geophysical activity whichcan include earthquakes and volcanic activity. Japan,for instance, has three massive plates movingbeneath it. That is why there are intermittent tremorson land and near the Japanese coastline. Mindful ofthis geological fragility, the Japanese authoritiesregularly practise emergency procedures for use inthe event of a major disaster.

Geophysical activity occurs every day some-where in the world. Society only becomes aware ofsuch activity when it happens on a major scale. Thedestructive force of geophysical activity, and thereasons we need to understand it, are graphicallydemonstrated in Mini case 2.13. The devastationwrought by such an event has an impact beyondthe sheer physical. It affects lives, livelihoods andthe economic stability of nations. In addition, theeconomic disruption can affect organisations andcompanies many thousands of km away.

Technology

Technology has driven many aspects of societaldevelopment, business and marketing over the

between Hong Kong and Europe by 36 percent.

� In many Asian countries restaurants witnessed adecline in customers. This subsequently affectedthe Australian fish market. Restaurants in Singa-pore and Hong Kong are major buyers ofAustralian fish, but with the outbreak of SARSthey stopped buying. The unsold fish on theAustralian market led to a dramatic fall in prices,endangering the livelihoods of many fishermen.

� The epidemic increased the demand for ther-mometers, surgical garments and masks. In somecountries suppliers were unable to meet thedemand, and price rises were common.

� With executives not being able to or wanting tofly, there was greater use of the Internet and busi-ness television links. (This was also the case afterthe 9/11 tragedy.)

By mid-2004 the World Tourism Organization statedthat the industry was recovering from the slump in2003 which was mainly attributed to the Iraq war andthe global outbreak of SARS.These events had creat-ed a 1.2 per cent decline in international travel overthe previous year. Although it may not seem a high figure it equals several tens of millions of people.

Although the SARS epidemic appears to have abated, it demonstrates the vulnerability of both indi-viduals and organisations within the global villageenvironment.Sources:‘Canada’s grip on Sars weakens’, BBC News Online,19 April 2003;‘Sars threatens Aussie fish market’, BBC NewsOnline, 22 April 2003; Sars: Killer bug, Channel 4 television,aired 28 April 2003;‘Sars boosts thermometer demand’, BBCNews Online, 29 April 2003; ‘How the “global village” facedSars’, BBC News Online, 2 May 2003;‘Sars hit airlines “morethan war”’, BBC News Online, 13 June 2003;‘Eastman Kodakwarns of Sars impact’, BBC News Online, 19 June 2003;‘Sars:Global hotspots’, BBC News Online, 5 July 2003; ‘Worldtourism recovers from slump’, BBC News Online, 25 June2004; ‘Timeline: Sars virus’, BBC News Online, 7 July 2004.

potentially the geopolitical balance of power. Foodproducts and other resources that are now readilyavailable may be scarce in the future, leading to star-vation and social chaos. If these scenarios become real-ity, the social organisations and economic networksthat support the world will break down (Stipp 2004).


A tsunami devastates Southeast Asia

On the morning of Sunday 26 December 2004 amegathrust earthquake occurred at the interface ofthe India and Burma tectonic plates. The epicentrewas off the Indonesian island of Sumatra. As a resultof the megathrust quake, which measured 9 on theRichter Scale,2 approximately 1200 km of the plateboundary slipped.

It has been estimated that the displacement on thefault plane was about 15 metres, so the sea flooroverlying the thrust fault would have been uplifted byseveral metres.This pushed water upwards, creating awave that moved at about 500 km per hour in deepwater. It dramatically slowed to around 45 km perhour in shallower water, but this shallow water forcedhundreds of cubic kilometres of excess waterupwards, creating a tsunami (sea surge) wave, which ina matter of minutes devastated stretches of coastlinesin 12 countries (Bangladesh, Burma, the Maldives,Malaysia, India, Indonesia, Kenya, the Seychelles,Somalia, Sri Lanka, Tanzania and Thailand). The impactof the dissipating wave was felt as far away as SouthAmerica.

Indonesia, Sri Lanka, Thailand and the Maldivessuffered the worst both economically and in loss oflife. It is estimated that over 300 000 people died as adirect result of the tsunami. Many more died after-wards, as a result of disease and injuries.

Many of the most devastated areas were impor-tant tourist destinations, including Thailand’s Phuketisland and the Maldives.According to the World Traveland Tourism Council, tourism provided over 19

million jobs in the affected region (see Tables 2.7 and2.8). In the Maldives alone 64 per cent of all jobs weredependent on tourism. Continued tourism is vital tothe economic development of these areas. Numerousfishing and farming communities were also devastated,as well as other businesses.

The tourist officials and governments of the coun-tries affected encouraged visitors not to cancel theirplanned vacations.They worked with travel companiesto make alternative accommodation arrangements inparts of the countries not affected by the tsunami. Itis not only the major hotels that are dependent uponvisitor income; so are local stores, restaurants,souvenir shops and taxi drivers. For many of thesepeople tourism provides their own income.

Many of these countries also export goods such asfurniture and clothing to European countries, and insome cases raw material suppliers and factories weredamaged. One result of the disaster could be adramatic increase in inflation. Suppliers might demandto be paid earlier, and the cash flow implications ofthis could be disastrous for small businesses.Sources: ‘Tsunami among world’s worst disasters’, BBCNews Online, 27 December 2004; ‘Giant wave damages S.Asia economy’, BBC News Online. 28 December2004;‘Disease could swamp wave zones’, BBC News Online, 28December 2004; ‘Asia earthquake toll still rising’, BBC NewsOnline, 29 December 2004; ‘India issues tsunami alert,people panic’, South African Broadcasting Corporation, 30December2004; ‘Magnitude 9.0 off W coast of northernSumatra Sunday, December 26, 2004 at 00:58:53 UTC:preliminary earthquake report’, US Geological Survey,National Earthquake Information Center,World Data Centerfor Seismology, Denver.

Mini case 2.13

Table 2.7 Tourist jobs in countries affectedby the tsunami

Country Percentage Percentage of tourist jobs of GDP

India 5.6 4.9Indonesia 8.5 10.3Thailand 8.9 12.2Maldives 64.0 74.2Malaysia 12.7 14.7

Table 2.8 Growth in tourism before thetsunami

Country Percentage growth in tourism, Jan–Aug 2004

Malaysia 70Indonesia 30Thailand 28India 26Maldives 15Sri Lanka 7

centuries. The technologies that were developedduring the Industrial Revolution in 18th-centuryBritain fuelled economic expansion and develop-ment on a global scale. Since then developmentsin communication, materials and computingpower have revolutionised both manufacturingand service provision.

However, the technological revolutions of thelast 100 years have also led to the demise of vari-ous industries, products and services. Forinstance the typewriter has been superseded bythe computer. Typewriter manufacturers that didnot either ally themselves with computer manu-facturers or seek new products and markets wereeventually bankrupted.

The introduction of new farming technologiesprovided the impetus for mass crop productionand factory farming. These provided cheaperfoods in highly developed nations such as theUnited States and the United Kingdom.However, the economies of scale created by suchlarge-scale methods put pressure on smallerfarms in both developed and developing nations.In many cases, though not all, smaller farmswere regenerated through an increasing demand

for produce that is organic and/or not factory orintensely farmed.

Nations and industries have become increas-ingly reliant on technology. For instance, busi-nesses, organisations and universities aredependent on computer systems. When they fail(which includes being sabotaged by viruses),there is usually significant financial and personalimpact. Imagine a network failure at a freightforwarding company. The company’s inability tomeet its ‘marketing promises’ to its customerswould affect its bottom-line performance, itsreputation and that of its customers. There is awhole chain or channel of organisations and indi-viduals that are affected.

Organisations and individuals need to be awareof the development of new technologies and theimpact they are likely to have in the future. Thecombination of scientific and technological researchcurrently being undertaken on the InternationalSpace Station (see Figure 2.4) may provide aglimpse into the future. Overall 12 countries led bythe American, Russian and European space agencies are engaged in programmes that could


Studio removes shuttle film trailer

In February 2003, following the Columbia Shuttledisaster when seven astronauts died, ParamountStudios requested cinemas in the United States tostop showing a trailer for a new movie.The sciencefiction movie The Core is about a group of NASA‘terranauts’ on a highly dangerous mission. The Coresees the NASA crew travel in an experimental craftto the centre of the earth. Paramount reviewedboth its advertising and the movie’s shuttle scenesto ensure they did not appear insensitive followingthe Columbia tragedy.

This mini case is a further illustration of how fac-tors beyond the company’s control can affect bothits product – here, a movie – and its marketing. Inthis case, while it is expensive to re-edit and shootnew scenes, it is possible to modify the product tofit the new situation.With other products that is notalways (relatively) easily achieved.Source:‘Studio pulls shuttle film trailer’, BBC News Online,5 February 2003.

Mini case 2.14

Figure 2.4

Acknowledged source: US National Aeronautics and SpaceAdministration (NASA).

The International Space Station (ISS) is not only anexample of how space agencies from different coun-tries can work together for the benefit of humankind,it is also a laboratory that may help solve some of theworld's greatest health dilemmas.There are alsoopportunities for the creation of new materials thatcould significantly aid how we live and work.

potentially revolutionise many areas of research.These include the development of:

� new medicines for use especially in the fightagainst cancers

� high-performance industrial materials (forexample, new polymers for the use incomputer semiconductors)

� low-maintenance robot technology for indus-trial and commercial purposes.

These products could revolutionise several areas ofproduct development and manufacture, and mightallow companies to maintain and sustain competi-tive advantage over the short and medium terms.

Combinations of events

Of course, we should not view the macro factors inisolation. A variety of factors can converge, increas-ing the impact on various aspects of marketing aproduct or service. For example, a country mightsuffer geopolitical instability which in turn createseconomic instability and social unrest. This affectsthe production and export of raw materials and thepopulation’s ability to purchase both indigenousand imported products.

Reversed issues

We also need to consider the ‘opposite’ impact ofnegative macro factors. Although macro factors (aswe have seen) can and do have a negative impacton organisations, they can have a positive effect aswell. Consider, for instance, companies thatdevelop and manufacture rescue craft. These arerequired at times of distress, on both local and inter-national levels. So while there are negativeeconomic and marketing impacts from disasters,there are also individuals and organisations thatbenefit in these circumstances.

� What is the microenvironment?

The micro environment can be described as theenvironment that is most closely linked to the


organisation. Very loosely, it concerns the ‘internal-ities’ of the organisation. Some writers havesuggested that these are the forces over which theorganisation has some ‘control’. However, perhaps‘influence’ is a better way of describing the level ofpower the organisation actually possesses.

There must some caution here. While organisa-tions have some control (within legal frameworks)over their employees, and to some extent oversuppliers, the level of control over customers isdebatable. It is true that organisations can and doinfluence their customers, but this is not control inthe absolute meaning of the word.

Another issue that must also be considered isthe cultural ‘lens’ through which the microfactors are viewed. The vast majority of market-ing textbooks are written from a European(mainly British) or American perspective.However, the micro factors from, for instance, aChinese, Moroccan, South African or Chileanperspective might be very different. In somecountries businesses have greater control overtheir employees, are not so readily affected byshareholder opinions, and are less focused oncustomer relationship management.

Generally, the constituents of the micro environ-ment should be considered as stakeholders, of boththe organisation and the industry sector in which itoperates.

� Micro factorsUnlike the macro factors, there is no mnemonic torepresent the micro factors. Figure 2.5 shows themicro environmental forces that engage within andacross the organisation.

The point with micro factors is that they tendto focus on local issues. These could be related tosuppliers, employees, the local community, localregulators or local government, or directcustomers. However, there must be a word ofcaution here. With the development of globalbusinesses and the Internet, a customer no longerneeds to be ‘local’ to receive a product or service.For example online book and CD stores can belocated anywhere, as long as they have an effi-cient and effective logistics and distributionsystem.

Figure 2.5 The organisation (profit and not for profit)

Suppliers

Suppliers are key to any organisation, either profit-seeking or not for profit. Therefore the relationshipbetween the supplier and the organisation is partic-ularly important. As you will see in Chapter 6,organisations have to consider suppliers not only interms of their individual power (for example, theprices they charge) but also in the value theydeliver to the organisation and thus its endcustomer. In mini case 2.15 we consider a numberof potential suppliers to a restaurant. Unless therestaurant has a good working relationship with itssuppliers and vice versa, there is a risk that neitherthe suppliers, the restaurant or its consumers willbenefit from the relationship.

The various suppliers to an organisation andhow they operate need to be considered in termsnot only of the marketing mix (discussed in moredetail later in this text) but also of building aneffective relationship. It is also important to bearin mind that the same suppliers may well besupplying raw materials or components to competitors. This is often the case in therestaurant industry.

Employees

We discuss in Chapter 13 how individuals andgroups of employees are the backbone of any organ-isation. Although finance is required to set up a busi-

MICRO FACTORS 43

ness and keep it in operation, it is the people withinthe organisation who drive it forward (or not, as thecase may be). If we accept this, we need to considerhow employees both develop an organisation andassist in the marketing of its products or services.

Crucial to employees as ‘marketers’ is theirmorale. There is a blurring of issues at this

• Suppliers• Employees• Local community• Local government• Intermediaries• Customers• Competitors/cooperators• Retired employees• Trade unions• Opinion formers• Local regulators

The organisation (profit and not for profit)

A restaurant and its suppliers

Restaurants typically operate in a highly competitiveenvironment, especially in major cities such asLondon, Paris, New York, Singapore and Sydney.Many restaurants in the same city use the same sup-pliers, for example for meat, fish, vegetables andwines and spirits. It is vital therefore that the restau-rant builds a relationship with its suppliers to gainthe best value produce at a price it can afford. It isalso important that the relationship meets therequirements of the restaurant’s target clientele: inother words it needs to provide the things theywant to eat and drink, at value for money prices.

Of course, part of the value chain is the expe-rience of the chef and the kitchen team, and howthey transform the raw ingredients into a gastro-nomic delight. But the food will only be good if theingredients are good, which brings us back to therelationship between the restaurant and thesupplier.

Mini case 2.15

point. Morale is clearly a management andorganisational behaviour issue rather than apurely marketing one. However, to maximisethe marketing value of an individual or group,efficient and effective management and organi-sational behaviour policies need to be in place.In essence the management team need the work-force to be ‘on their side’. Unfortunately, busi-ness history is littered with numerous exampleswhere management has failed to truly value itsemployees, sometimes resulting in strikes andunrest. The result is often a loss of market shareand competitiveness, and sometimes the failureand closure of the organisation. The clearmessage is that management must have itsemployees ‘on board’ if it is to have any chanceof maintaining a competitive stance in today’sdynamic environment. (The role of employeeslinks into the value chain (as a competitive instrument) which is discussed in Chapter 6.)

The local community

Organisations have to be aware of the localcommunity that surrounds them. This is for twospecific reasons. First, it will include many oftheir customers. Consider, for instance, how asupermarket interacts with its local communityin controlling noise (such as in the timing andfrequency of deliveries). Second, the organisa-tion can be expected to support its community,either voluntarily (perhaps donating to a localhospital) or through a statutory agreement (forexample, an agreement to improve lighting andsecurity in the area, as a condition of gettingplanning permission).

Sometimes there is severe pressure on therelationship between the organisation and thelocal community. Take airports, for example.Consumers like the speed and convenience ofair travel, and its growth has meant that airlineslook to obtain a greater number of landing andtake-off slots at airports. But local residents mayhave very negative feelings about the noise(especially at night), traffic and disruption thatresults. There are generally major campaignsand planning battles when major airports suchas Manchester and Heathrow seek to expand.


Local government

Local governments both create regulations andbuild the infrastructure within which the localcommunity (including organisations in the area)operates. For example, in many countries if anorganisation wants to extend its buildings itrequires permission from local government, even ifit owns the land. This is often refused if the exten-sion is contrary to the interests of local people, forc-ing the organisation to consider alternatives (forexample, building elsewhere or reorganising itscurrent buildings) which could be more expensiveor inconvenient.

Local government is usually responsible for theroad infrastructure, and organisations (such assupermarkets and factories) need to liaise anddiscuss issues such as access, timings of deliveries,and when road maintenance is undertaken.

As we saw in the mini case on page 35, locallegal restrictions can affect a company’s competi-tiveness. Often companies try to obtain the supportof opinion formers in an attempt to reverse legisla-tion that they find restrictive.

Intermediaries

Chapters 6 and 12 discuss the important role ofintermediaries in the supply chain. These are theorganisations and individuals that operate betweencomponent suppliers, manufacturers and retailers.There may be several intermediaries in a supplychain (see Chapter 6). It is crucial for the organisa-tion to build a relationship with them in order toensure the smooth flow of components or finishedgoods to meet the demands of all those in thesupply chain. Any interruption within the supplychain can have a devastating impact, especially onthe organisation that deals directly with the enduser of the product or service.

Customers

Chapter 13 discusses how customers (sometimes ina wide sense) are fundamental to the existence ofany organisation. Generally we think of‘customers’ as consumer (you buying the latest CDfrom a music store) or a business customer (Airbus

Industries buying aircraft engines from Rolls-Royce). However, many organisations have differ-ent types of customer (see Table 1.2, page 14), so weneed to consider ‘customers’ in a more ‘global’sense.

Without a ‘customer’ there is no business. There-fore all organisations need to know who theircustomers are, where they come from and whatthey require. Much of this is discussed in later chap-ters of this book. They also need to understand howtheir customers might be affected by the macroissues considered earlier in this chapter.

Competitors and co-operators

Any organisation working within a competitiveenvironment must be aware of the actions of itsrivals (see Chapter 5). Organisations must monitorthe actions of their rivals (using methods that areboth ethical and legal) in order to be competitivewithin the marketplace (see Chapter 6). Sometimesorganisations that are normally rivals worktogether for the benefit of themselves and endusers. Let us consider two examples, one within thefor-profit sector and one within the not-for-profitsector.

Example 1: Bluetooth technology2

Various electronics companies have formed astrategic alliance to create a system that will enableunification (or convergence) across different elec-tronic communication systems (Groucutt and Gris-eri 2004). The aim is to improve the links betweendifferent wireless consumer hardware systems.

Example 2: Not-for-profit organisations

Charities are normally in competition with eachother, attempting to raise funds from companies,groups and individuals for worthwhile causes.However, at times they work in concert, both infundraising and in providing assistance on theground to relieve suffering and deprivation. Forexample, in parts of Africa where there has beenthe risk of mass starvation as a result of severedroughts and the after-affects of the tsunami inSouthern Asia (see page 40), famine relief charitieshave worked in close cooperation.

MICRO FACTORS 45

Retired employees

Unfortunately many companies appear to ‘forget’retired employees, but retirees can be an asset in anumber of ways.

� As opinion formers: they can be vocal support-ers and ambassadors for the organisation.

� They may be customers of the organisation.

� Because of their knowledge. Former employ-ees have in-depth knowledge of the workingsof the organisation. Although they are retiredthey might still be called on to help, for exam-ple when a technical problem arises and theexisting staff cannot solve it. Knowledge is acompetitive resource that some organisationslose when staff retire. This often occurs becausethe organisation does not have effective andefficient knowledge management systems.

It is important to bear in mind that regions such asEurope are witnessing a burgeoning population ofretired people who often have significant purchas-ing power. This could change over next 10–20years, with retirees facing increasing financial pres-sures from lower state and company pensionpayouts and decreased values for investments andprivate pensions.

Trade unions

The trade union movement developed in Europeand the United States to protect the rights ofworkers who were being exploited by factoryowners and management. Chronic exploitationof employees continues today in some parts ofthe world, as International Labour Organisation(ILO) research shows. However, in many coun-tries there has developed a close and effectiveworking relationship between trade unions andemployer organisations. This has sometimesfollowed years of argument and unrest; howeverthe unions offer a mechanism for negotiation andarbitration rather than conflict and industrialdisputes. As we saw in the mini case of the USlongshoremen (page 21), industrial action has awide negative impact, and it is obviously bestavoided.

Opinion formers

Through the use of public relations an organisa-tion will seek to inform (and influence) localopinion formers. These include not only the localmedia but also influential members of thecommunity. Often opinion forming is viewedonly from the organisational perspective: that is,the organisation seeks to influence local opinionin its favour. This is not always the case. Organi-sations may become involved in local issuesbecause they feel part of the community (forexample, an organisation might be the largestemployer in the neighbourhood) and want togive back something to it. Local companies oftenget involved in local charities, or fight to save thefuture of a local hospital or school.

Opinion forming is a two-way action: theorganisation seeks to influence local people, andthey also seek to influence it. For example, alocal community might try to halt increasedgoods traffic on its roads or prevent theproposed expansion of a factory or warehouse.In the United Kingdom local communities havesought to influence opinion formers not onlylocally but nationally: for example, to voice theirobjection to the proposed expansion ofHeathrow and Manchester airports. Theirconcerns in this case focused on the devaluationof their homes, and the increased noise, atmos-pheric pollution and road congestion as theresult of the expansion.

Local regulators

Here there is an overlap with the macro factors ofpolitics and legal issues, as well as a link to localgovernment. This is especially so when localgovernment is the originator and enforcer of theregulation. However, we must be careful of theworld ‘local’ in this context. In some countries,including the United States, Australia and partsof Europe, legislation and regulations are madeat regional, sub-regional and local levels. Theseshould act in concert with each other, but some-times their aims are contradictory, and thiscreates difficulties for organisations, including(but not only) in their marketing activities.

It is not only local authorities that make


regulations on a local level. In some countries sepa-rate organisations have been set up with powers toformulate and impose restrictions on the marketingof products and services. Mini case 2.16 illustrateshow local and regional organisations are involvedin the regulation of food produce in the UnitedStates.

Control of micro factors

The areas within the micro environment can be‘controlled’ to a greater or lesser degree by anorganisation’s management. Often in marketingtexts these are considered as the ‘controllables’.However they are only controllable to a limiteddegree, depending on factors such as geographicallocation, local regulations and political intent.

Thus external factors can influence or determinethe micro factors. For example, a company can influ-ence customers to buy a product or service. Theelement of ‘control’ is governed by what is accept-able within a particular area or region. For instance,on the one hand there will be consumer protectionlaws; on the other the organisation will have legalredress in order to obtain payment from customers(both B2C and B2B) if they renege on payment.

� Analysing the environmentLynch (2000) suggests that the environmental forcesthat surround an organisation can be assessedaccording to two main measures, changeability andpredictability. These assessors can help to deter-mine the level of turbulence operating within theenvironment. If the level of turbulence is particu-larly high, it will probably be impossible to predictthe outcome for the organisation. However, theremay be a way to identify key issues that can protectthe organisation, especially in the short term. Thenmore information can be gathered to make deci-sions to increase its viability over the medium tolonger term.

Changeability

This is the ‘degree to which the environment islikely to change’ (Lynch 2000). It is further subdivided into:

ANALYSING THE ENVIRONMENT 47

The case of the UglyRipe™ tomato

In 1933 the US Congress established marketing com-mittees which allowed small groups of farmers of fruits,vegetables and nuts to work together to set marketingstandards. In 2004 there were 34 boards across theUnited States with the authority to impose strict qual-ity and packing requirements.

One of these is the Florida Tomato Committee(FTC), established in 1955, which regulates the Floridafresh tomato industry south and east of the SuwanneeRiver, from mid-October to mid-June each year. Duringthe winter growing season the vast majority ofAmerica’s field-grown tomatoes come from Florida.This is a US$500 million a year industry which exportsannually almost 58 million 24 lb packages of tomatoesto other US states.

Typically Florida Round winter tomatoes are round,smooth and picked green.They are then gassed to turnthem a pinkish red prior to shipping. Over the yearsthis has become a highly mechanised process.

The FTC sets the standards for grade (shape), size,quality and maturity of round tomatoes that can beexported during the season. (Tomatoes grown west ofthe river, as well as grape, cherry, Roma and greenhousetomatoes, are exempt from the rules.) It is this stan-dardisation that has affected the UglyRipe™ tomato.

The UglyRipe™ tomato has derived from the FrenchMarmonde heirloom variety. An heirloom tomato is onewhere the variety is between 40 and 50 years old, is openpollinated and not a hybrid.A hybrid tomato may lose itsrich flavour and colouring after several generations ofbreeding.The UglyRipe™ tomato has gained a reputationacross America for its rich taste, albeit at a premiumprice. It has become a prize for US gourmet chefs.

During the warmer months UglyRipe™ tomatoesare grown in New Jersey and the southeastern States,and shipped across the United States to supermarketsand restaurants. However, during the winter monthsthey are grown in the Florida region.

The UglyRipe™ is so named because it is misshapen,with a wrinkled appearance – very different fromFlorida Round tomatoes. This is where the problemsbegin.To meet the grade 90 per cent of a consignmentmust meet the FTC shape standard. Producers ofUglyRipe™ tomatoes remove approximately 60 percent of the crop to ensure that shipments meet theirown standards, but in order to meet the FTC gradingstandards, which are not well suited to their product,they would have to remove a further 20 per cent – 80

per cent in all, leaving only 20 per cent to be sold.Theadditional problem for the UglyRipe™ tomato is thatthe FTC does not consider taste within its standardsclassification, so the UglyRipe™ gets no credit for itsrich taste.

Reginald Brown, the Manager of Florida’s TomatoCommittee stated:

Growers complain that UglyRipes™ could wreckthe reputation of Florida tomatoes.To allow mis-shapen and blemished tomatoes could open theway for a flood of ugly tomatoes to hit the mar-ket.… If you allowed the producers ofUglyRipe™ to ship any quality of tomato, thenhow could you justify not allowing any quality oftomato into the marketplace? The first contactyou make with any product is visual.. There’s aminimal visual quality that needs to be there.

The UglyRipe™ tomato is a registered brand ofProcacci Brothers, founded in 1948. Since then it hasbecome the world’s largest growers and handlers offresh tomatoes.

Joseph Procacci, CEO of Procacci Brothers,commented:

They bred Florida Round tomatoes for shape; webred an heirloom tomato for taste. The stan-dards are set for shape only. Heirlooms willnever be round, nor do consumers care if theyare round. So the Florida Tomato Committee isimposing a ridiculous standard that we can onlymeet by throwing out at least 8 out of 10 verytasty tomatoes. That’s wasteful, and the consumer will be the loser.

UglyRipe™ tomatoes can be sold within Florida.However, at the time of writing (January 2005) theycannot be exported outside the State during the wintergrowing period.Sources: ‘Florida tomato facts’, Florida Tomato Committee,www.floridatomatoes.org; ‘Focus on flavor: UglyRipe™ toma-toes’, Santa Sweets, www.santasweets.com; L. Parker,‘It’s a fightin Florida, and it’s ugly’, USA Today, 8 December 2004;J. Kofman, ‘Florida keeps ugly tomatoes to itself ’, World NewsTonight, ABC Television, 19 December 2004; ‘Florida TomatoCommittee votes against the “Certificate of Privilege” requestfor Procacci Brothers’ UglyRipe™ heirloom variety tomato:move will deny US consumers the tasty, Florida-grown “backyard” desired this winter’, press release, Santa Sweet, 6 January2005.

Mini case 2.16

� Complexity – this can be described as thedegree to which an organisation is affectedprimarily by the macro factors (PESTLEforces).

� Novelty – this can be described as the degree towhich the ‘environment presents the organisa-tion with new situations’ (Lynch 2000). It couldbe argued that SARS was a novel situation.Even though there had been both epidemicsand pandemics before (especially in the early20th century), the onset of SARS was sudden,rapid and terrifying.

Predictability

This is considered to be the ‘degree that suchchanges can be predicted’ (Lynch 2000). It can befurther subdivided into:

� Rate of change – that is, whether the rate ofchange within the environment can bepredicted or not. Consider for a moment howthe Internet has changed people’s behaviourand business practices. The rate of change wasquite dramatic and rapid. Was it predictable?Are the future rates of change of technologypredictable?

� Visibility of the future – the thought here isthat the availability and accuracy of infor-mation can help organisations predict thefuture.

The ‘What if?’ scenario

With increased complexity and turbulence oper-ating within both the macro and micro environ-ments, organisations are faced with consideringpotential ‘What if?’ scenarios. Van der Heijden(2002) suggests that external scenarios (that is,models of the external world) are ‘representativeof the ranges of possible future developmentsand outcomes within the external world’. Inessence they are external factors that are beyondan organisation’s control, but affect its businessoperations.

Organisations may examine future possibili-ties internally, or employ ‘think tanks’ to do so.


The objective is to try to understand what theknown and unknown variables might be in thefuture. However, as we have seen in earliersections of this chapter, there are many situationsthat are unpredictable. We can consider scenariosfor particular events. However, we cannotpredict when those events will occur.

� Chapter summaryThis has been a diverse chapter, examining boththe internal and external factors that affectorganisations today. Several critical points can begleaned from these discussions:

1 Both micro and macro factors do not operatein isolation. Often they work in concert (forinstance, political unrest and economicturmoil) or at the very least interact or overlap in some capacity.

2 None of these factors are static. Many areoften in a state of flux, increasing the dynam-ics in the local, national, regional and international context.

3 There are major issues, especially in relationto ecology and the natural environment(greenhouse gases, for instance) that couldhave a profound effect on how societiesfunction in the future. This in turn will affecthow organisations and markets operate.

4 A realisation that new materials and technologies are still being created anddeveloped.

5 Organisations need to continually monitorboth internal and external factors in order togauge potential changes within the market-place. This may, to a greater or lesser degree,be achieved through scenario planning.However, there is no guarantee about itsaccuracy. Nevertheless organisations needto be proactive in their thinking, otherwisedramatic changes within the external envi-ronment, for instance, could lead to areduced market for their products/services.

� Questions for review andreflection

1 Choose a company (it can be in any businessfield) and two of the macro factors. Then exam-ine how the two chosen macro factorsimpact/influence the marketing activities ofthat company within its own domestic envi-ronment.

2 Choose a company (it can be in any businessfield) and two of the macro factors. Then exam-ine how the two chosen macro factorsimpact/influence the marketing activities ofthat company within an international context.

3 The micro factors have often been described as‘controllables’. Critically evaluate this belief.What do you think and why?

4 Considering the level of ‘turbulence’ within themarketing environment, do you think scenarioanalysis/planning has any value at all?

5 Do you think that companies can ‘protect’themselves from the extremes of macro envi-ronmental activity? If so, how?

6 Outline the key societal changes that havetaken place in your home country over the past10 to 20 years. Have these changes had animpact or influence on how you live your life?

7 Critically evaluate how the threat of globalwarming and global dimming could affectbusiness and marketing operations in thefuture. What do you think are the critical issuesthat consumers and marketers must consider?

8 Using the Internet and other library resources,evaluate how changes in technology affectedthe typewriter industry. Do you think otherindustries can learn lessons from the changeswithin the typewriter market?

9 There has been a significant increase in thelevels of macro environmental turbulence.Such turbulence can be extremely damagingto the development and long-term survivalof a company, and indeed an industry. Exam-ine a business sector with which you arefamiliar, giving recent examples of macro

environmental turbulence that have affectedthat sector. Then critically evaluate thepotential long-term impact, and suggestactions that companies in that sector shouldconsider in order to survive.

ReferencesBBC (2003) ‘How the “global village” faced Sars’, BBC

News Online, 2 May.

BBC (2004a) ‘Wet weather hits Coca-Cola sales’, BBCNews Online, 15 September.

BBC (2005) Global Dimming, Horizon, BBC 2 television,first broadcast January.

Cartwright, R. (2002) Mastering the Business Environment. Basingstoke: Palgrave Macmillan.

Czinkota, M. R. and Ronkainen, I. (1995) InternationalMarketing, 4th edn, Fort Worth: Dryden Press.

Doole, I. and Lowe. R. (1999) International MarketingStrategy: Analysis, development and implementation,2nd edn, London: International Thomson BusinessPress.

Environmental Protection Agency USA (EPA) (2000)Global Warming, EPA, www.epa.gov.

Groucutt, J. and Griseri, P. (2004) Mastering e-Business,Basingstoke: Palgrave Macmillan.

Hofstede. G. (1980) Culture’s Consequences: Internationaldifferences in work-related values, Beverly Hills andLondon: Sage.

Hollensen. S. (2001) Global Marketing: A market-responsive approach, 2nd edn, Harlow: FT/PrenticeHall.

International Labour Organization (ILO) (2004) ‘Halfthe world’s workers living below the US$2 a daypoverty line: ILO says new policies for promotingproductivity growth and decent jobs couldimprove outlook for working poor’, press release,Department of Communications and Public Information, ILO.

Lynch, R. (2000) Corporate Strategy, 2nd edn, Harlow:FT Prentice Hall.

Met Office (2004) ‘Forewarned is forearmed’, pressrelease, Met Office 4 March.

Rosci, F. (2001) ‘Down but not out (tourism in Israel)’,Travel Agent, 16 April.

Stipp, D. (2004) ‘Climate collapse: the Pentagon’sweather nightmare’, Fortune, 26 January.

QUESTIONS FOR REVIEW 49

Thompson, P. (2000) Cassell’s Dictionary of ModernAmerican History, London: Cassell.

UNICEF (1999) The State of the World’s Children,UNICEF.

Van der Heijden, K. (2002) Scenarios: The art of strategicconversation, Chichester: Wiley.

Wolfensohn, J. D. (1998) ‘The other crisis’, address to annual meeting, 6 October, World Bank, Washington, DC.


Tools and Techniques

PART2

� IntroductionThis chapter examines the relationship between segmentation, targeting andpositioning (STP). Prior to the launch of a particular product or service, forinstance, an organisation needs an understanding of its market: in other words,who will be buying the product or service. If it has determined who is mostlikely to buy the product or service, it can then focus our attention on them. Thisapproach can provide the organisation with several interrelated benefits. Theseinclude:

� A more efficient use of resources. No matter how large and powerfulorganisations are, they all have limited resources. By judicious STP anorganisation maximises its opportunity to use its resources efficiently andeffectively.

� Adding clarity to marketing planning. STP allows the organisation todevelop marketing plans that focus on the requirements of specificcustomer groups.

� Increasing the opportunity to create effective customer relationshipmanagement: This area is discussed further in Chapter 8. The issue here isa greater propensity to understand the needs and wants (now and in thefuture) of the customer base. By targeting the right segment of the

CH

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3Segmentation, Targeting andPositioning

Learning outcomes 53Introduction 53What is segmentation? 54B2B segmentation 55Segmentation

characteristics of B2Bmarkets 57

B2C segmentation 60Segmenting by

geographic location 60Segmenting by

demographics 60Segmenting by socio-

economic status 60Segmenting by

behaviour 60Segmenting by lifestyle 61Formulating a

segmentation strategy 61

Targeting 61Positioning 62Repositioning 63Perceptual or positioning

mapping 63Chapter summary 64Questions for review




� explain the role of segmentation in B2B and B2C environments

� critically evaluate the relevance of segmentation within a contemporaryB2C marketplace

� critically evaluate the reasons organisations fail to successfully segmenttheir markets

� outline how an organisation positions its product or service within themarketplace

� explain how and why organisations seek to target a specific audience fortheir product or service.

population, the organisation has an improvedopportunity to learn more from its customers.

� Market position in comparison to competitors.Organisations can compare and contrast thepositioning of their products or services withthat of their current, and potential future,competitors.

� Increasing the opportunity to gain and sustaina competitive advantage. By directingresources to customer needs and wants, theorganisation has an opportunity to increase itscompetitive position in the marketplace.Indeed, it may be able to gain and sustain acompetitive advantage over its rivals.

The foundation model (the STP schematic) usedin this chapter was developed and enhanced byDibb (1998) and Kotler (2000) amongst others.Figure 3.1 diagrammatically represents the rela-tionship between segmentation, targeting andpositioning.

� What is segmentation?Smith (1957) provided an early definition ofsegmentation:

Segmentation is based on the observation ofevolution in demand and represents a moreprecise and rational adaptation of the productand the marketing effort to meet customer oruser demands.

Everyone is prepared to purchase products andservices (depending on their financial status) aslong as the products or services meet a particularneed or desire. As Wright (2004) suggests, segmen-tation is thus the ability to ‘divide the markets intogroups, or clusters, of customers based upon realis-tic and meaningful criteria so as to offer clear,targeted benefits to every customer’.

Kotler (2000) suggests that market segmentationis:

the subdividing of a market into homoge-neous (or similar) subsets of customers, whereany subset may conceivably be selected as atarget market to be reached with a distinctmarketing mix.

It is clear from both Kotler and Wright’s definitionsthat in order to deliver real value to both theircustomers and the organisation, marketers mustseek effective and efficient segmentation. Figure 3.2illustrates in broad terms how a mass market needsto be subdivided, and that this subdivision can beat many levels. The degree of subdivision willdepend on the product or service on offer and thedynamic of the market itself.

In order to gain a better understanding of thesegmentation processes it is worth briefly consider-ing the scope and scale of markets. These areoutlined in Table 3.1 (page 56). They are broad definitions, but they are important in creating theplatform for segmenting markets.

54 3 • SEGMENTATION, TARGETING AND POSITIONING

Figure 3.1

Feedback

Source: adapted from Dibb (1998).

The STP schematic.This is based upon the work ofDibb (1998) but a feedback loop has been added.While STP is portrayed as top-down model, it isimportant to consider feedback to the point of origin.Information learnt in positioning a product or servicein the mind of the customer could provide valuableinsight into the segmenting of particular groups.

Targeting• Agree on targeting strategy• Identify how many segments should be

targeted• Identify which segments should be tar-

geted

Positioning• Agree a positioning strategy• Need to position products and

services in the minds of customers• Design an appropriate marketing mix to

support the positioning strategy

Segmentation• Selection of variables to determine seg-

ments• Construct a profile of segments and

sub-segments• Validate emerging segments

The rationale for, and structure of, B2B and B2Csegmented markets are different. The methodsof segmenting these markets are discussedbelow.

� B2B segmentationWright (2004) suggests several reasons that B2Bmarkets require segmenting. These are listed belowwith additional comments:

� To clearly identify disparate customer needs.An organisation operating within B2B marketsmay have many customers. Thus it is impor-tant (in terms of efficiency) to be able to clusterthese customers into relevant groups.

� To plan strategic and tactical approaches thatmatch each and every customer need. If itknows the composition of the clusters, theorganisation can develop the most appropriatetactical plan to meet the needs of customers. Atthe same time it will be fulfilling the overallcorporate strategy.

� To develop a portfolio of products and serv-ices that match customer needs. By buildinga relationship with the cluster groups andthus knowing their needs, the organisation

can seek to market only relevant productsand services.

� To focus management and employee attentionacross every department on customers’ needs.This links into Porter’s value chain model(Porter 1985), where value can be added at eachfunctional stage from inbound logistics toafter-sales service. (See Chapter 6.) Addingvalue at each stage provides the opportunity toenhance both the perceived and real value ofthe product or service being marketed.

� To build and maintain competitive advantage.In highly dynamic environments organisationsnormally seek to build and gain a competitiveadvantage over their rivals in the marketplace.However, once this is gained the organisationwill need employee strategies and tactics todefend its position against current and potential challengers.

� To provide continuous superior customer serv-ice. Many B2B market operations relate tocustomised projects, for example the designand writing of software packages for specifictasks. In order to provide this kind of front-loaded and back-loaded service the

WHAT IS SEGMENTATION? 55

Figure 3.2 A diagrammatic representation of how a mass market can be divided into several sections of segments

Mass populationMass market

Niche market

Sub-segment 1 Sub-segment 3Sub-segment 2

Segmented market 2 Segmented market 3Segmented market 1


Table 3.1 The scope and scale of markets

Broad markettype

Description

Undifferentiatedmass market

The organisation seeks to market a single mass-produced, mass-distributed and mass-promoted item to all buyers.A classic example of this is the launch of the Model T Ford car in1908. Ford himself referred to it as ‘the universal’ car (Ford and Crowther 1926), implyingthat it had to meet mass-market conditions, or in other words appeal to the greater Americanpopulation without any customisation. However with increasing fragmentation of markets,distribution channels and promotion, the ‘one size fits all’ approach is difficult to maintain within the majority of markets.

Segments Kotler (2000) suggests that this ‘consists of a large identifiable group within a market with similar wants, purchasing power, geographical location, buying attitudes or buying habits’. Suchan approach provides the opportunity to deliver a product or service with the matching marketing mix variables to an appropriate audience.

Niche (single segment specialization)

This can be described as a sub-segment. It is normally a small narrowly defined market wherethere are only a few suppliers. Niche markets are ‘normally’ only of interest to small or medium-sized organisations because of the level of returns and overall profitability. However,there are clear examples where strategic business units (SBUs) of much larger organisationshave operated in highly profitable niche or specialist markets. Examples of niche marketsinclude specialist publishing (magazines for specific hobbies such as trainspotting), unusual vacation destinations (such as trekking across North African deserts or a polar expedition)and soft-top luxury sports cars such as the UK-built Morgan which are very much aimed atthe connoisseur segment of the car-buying market. However not all niche markets are prof-itable, even if there is only one player in the market.

Multiple segments

An organisation seeks to supply several segments. However it differentiates its products orservices to meet the needs of each of the segments.The Hilton® Hotel group illustrates thiswith a range of separate brands: Hilton® Hotels, Conrad Hotels® (an international luxurybrand of hotels and resorts), Doubletree® (an upscale chain of hotels, resorts, suites andclubs), Embassy Suite Hotels® (a pioneer in the all-suite segment of the hotel market in theUnited States), Hampton Inn and Hampton Inns and Resorts® (accommodation for both business and leisure travellers), Hilton Garden® (mid-priced brand) and Homeward Suites®(an upscale all-suite residential/extended stay hotel chain).

Customised orindividual segments or markets

The focus is on one-to-one marketing (also known as micro marketing).This is far from new.For centuries both B2B and B2C customers have been treated as individuals. Consider, forinstance, tailored clothing, hairdressing and management consultancy. Increasingly companieshave sought mass customisation to achieve economies of scope and scale.The objective hereis to produce on a large scale products that meet the individual needs of customers. An excellent example is Dell Computers.

Local customergroups

This is specific to a particular place or location. For instance, the manager of a local supermarket may order in additional qualities of particular products because he or she knowsthey sell well within that community. Equally, a restaurant might specialise in local delicaciesbecause the owners know this meets the needs of the local community. However, for largesupermarket chains there is a risk of diluting their economies of scale and scope by ‘localizing’.They will have to balance that against the turnover at the local store.

organisation needs to target specific segmentsof the B2B software buying market.

� To identify new opportunities within exist-

ing markets. Only by understanding theneeds of the market will an organisationdiscover, (1) gaps within the existingsegment for new products and services, and

(2) how the market needs change over time.Thus the organisation needs to be in a posi-tion to exploit possible opportunities.

� To identify new opportunities in non-servedmarkets: By breaking markets down intosegments or clusters an organisation canclearly see the markets it currently needs toserve. Equally, it might be able to identifypossible trends in non-served markets that itcould enter at a later stage, perhaps with anew product range. An example is a hotelchain that has been catering for businesscustomers, but sees an opportunity in devel-oping short city breaks (covering Friday toSunday) for the regional leisure market.

� To help bring sales, profit and organisationalsuccess. Targeting appropriate segmentsassists the organisation in controlling costs,developing market potential and long-termprofitability.

� To prepare all company members for thelikelihood of change. Segments do notremain static. As with everything else inbusiness, they are dynamic. Organisationscan use the knowledge gained from clustersto analyse how the needs of a segment ormarket might change over time. Most organisations undergo minor changes, butsome are subjected to radical, and at timesdiscordant, change. A historic example is acompany that manufactured only typewriters for commercial use. If it had notradically rethought its business and marketopportunities when IBM-compatible office computers were introduced, it would have been unlikely to remain in business.

� Overall, to make the company more competitive. Again, by building knowledgeabout the segment and acting on it, an organisation can exploit competitive opportunities.

Segmentation characteristics of B2BmarketsThe characteristics that define B2B marketsegmentation can be divided into two broad

categories, macro segmentation and microsegmentation.

Macro segmentation

Wright (2004) states that these are ‘the factors thatdistinguish one sector from another, one industryfrom another and one type of organisation fromanother’. These could be perceived as the structuralfactors of the B2B market environment.

The following are the key factors that determinemacro segmentation:

Which market(s)?An organisation needs to determine whether it willoperate within the B2B, B2C or both markets, andhow, since as we shall see later in this chapter, theB2C market operates differently from the B2Bmarket. If an organisation chooses to operate inboth markets, the operations are usually handledby different strategic business units (SBUs). Forinstance, companies that manufacture householdcleaning materials might also have a unit produc-ing a similar product in larger containers for theindustrial market.

Business and industrial sectorsIn the 1940s the US government introduced a clas-sification system to provide a standardised methodof clustering industrial sectors. The principle hasbeen adopted in varying forms by many developednations. The Standard Industry Codes are valuableto suppliers, since they allow them to develop theright marketing strategy for the most appropriatesector.

Geographic locationSome industries or businesses tend to congregate inspecific locations. This might be for several reasons:

� They are situated near or at the source of rawmaterials, for instance coal mines.

� The business or industry is dependent onparticular natural environmental conditions.This is especially the case in agriculturalsectors, such as viticulture. Consider, forinstance the weather and soil conditions inthe wine-growing regions of South America,France, Italy, Australia, Washington State

B2B SEGMENTATION 57

and California. It is the combination of theweather and soil that provides the conditions for a successful or poor harvest.

� It is a centre of knowledge and skill. Forinstance, Mumbai has a large concentrationof advertising agencies and marketingconsultancies. On the other hand Bangaloreis now the thriving heartland of India’s inter-national telemarketing and customersupport services operations.

� The physical infrastructure supports theclustering of businesses and industrieswithin a particular location.

� It is close to particular markets. Some typesof SME cluster near major manufacturinghubs. For instance, from the 1930s to the1970s the UK car industry was situatedprimarily in the English Midlands. Compa-nies that supplied component parts werealso generally situated there.

For profit, not for profit and the public sectorSupplying companies may market their productsand services to either all business sectors or aspecific sub-sector. These can be categorised underthe following headings:

� For-profit organisations include micro busi-nesses (usually sole traders), SMEs and publiclimited companies.

� Not-for-profit organisations include regis-tered charities, voluntary organisations,educational centres (in some countries) andfriendly societies (also known as mutualassurance societies).

� Within a mixed economy the public sectorcomprises local and national government. Itsactivities include health, education, defence,the emergency services, waste disposal, socialservices. The public sector also includes state-owned industries and public corporations suchas the British Broadcasting Corporation (BBC).

Increasingly the distinctions between these sectorsare becoming blurred, as for-profit and public-sector organisations work in partnership. An exam-ple of this is the UK’s public–private partnership

initiative (PPP), a component of which is theprivate finance initiative (PFI), where profit-oriented companies invest in public-sector operations such as the London Underground.

Organisational size

Both suppliers and buyers take into account thesize of the companies with which they transactbusiness. This is for several reasons including:

� The efficient use of resources. This links toPareto’s law that, in essence, states that 80 percent of the business comes from 20 per cent ofthe customers (or similar ratios). Thus thecompany needs to focus upon those customerswho are going to deliver significant revenuelevels for the company. However, there needsto be a caveat here. There are times when a newcustomer only buys sporadically and in lowvolumes. Thus there may be a tendency to de-list this company as a customer simply becauseit is deemed too expensive to service theaccount. However there is always a chance thatthis new company will expand and become amajor player in the marketplace. In ‘revenge’for being delisted it might place its (now large)orders with the direct competition. Thus care-ful management of accounts – both large andsmall – is necessary.

� Financial security from both the supplier andbuyer perspective. If a company is buyingmaterials or components from a supplier on aregular basis, it need to know its supplier isfinancially viable. Companies that operate just-in-time (JIT) systems are particularly at risk if asupplier suddenly closes down. Equally asupplier is at risk if a customer fails to pay billsin time or becomes insolvent (see ‘Microsegmentation’). However, the size of thecompany is no guarantee of financial stability.Two prime examples of major financialcollapse in recent years have been the US-based Enron and the Italian-based diary giantParmalat.

Segmentation by products and services providedThe B2B market for products can be further sub-segmented into three categories:


� End users, for items such as stationery andother consumables.

� Original equipment manufacturers (OEMs)that buy in components for their products.For instance, a computer manufacturermight buy complete chip systems fromIntel®, or memory boards from Kingston®.

� Distributors, that purchase products to sellon (to end users or OEMs).

Micro segmentation

Wright (2004) states that micro segmentationconsiders the ‘processes involved with the purchas-ing decision and the behaviour of those involved inmaking these decisions’. This can be seen on twolevels: the behaviour of the organisation, and thebehaviour of the individual(s) involved with thesupplying company.

Segmenting by organisational buyer behaviourSeveral factors can be encapsulated here:

� The currency of purchasing. For instance arethe buyers current buyers, past buyers orpreviously non-buyers?

� The buying level: light, medium or heavy?Increasingly companies use data warehousesand data mining to produce monthlymanagement reports to identify the level ofprofitability of each customer.

� Buying systems. Some companies operate acentralised rather than a decentralisedbuying system. For instance, major book-shop chains in the United Kingdom usecentralised buying, where the decisions are made at head office rather than by individual store managers.

� Single or multiple sources. Some companiesbuy similar products from various companies.This is for two main reasons. First, they cannegotiate competitive rates, and second, if onesupplier becomes insolvent the product supplyis not interrupted. However, some companiessource single suppliers with the aim of buildinga mutually beneficial relationship. In somecases there is no choice except to have a single

supplier, as only one organisation supplies therequired product or service.

� Payment history: Some buyers settle theiraccounts with suppliers on the date due. Thismay not just be a principle of the companybut may also be the negotiated basis for arate reduction. Other companies may takesignificantly longer to pay. Slow payment isa risk to the cash flow, especially of smallerbusinesses. Some countries such as Germanyhave introduced legislation to protect smallbusinesses from larger companies thatextend their payment periods.

Segmenting by group and individual buyerbehaviourThis can be subdivided into three subsets: thepurchasing situation, group buying behaviour andindividual buyer behaviour.

� The purchasing decision. There are manyfactors involved in the purchasing situation,including the time span from negotiation to thedelivery of the product or service. In manycases it is minimal: for instance a company cancall a stationery supplier one day and takedelivery the next day. However some large-scale projects take years to be completed.

� Group buyer behaviour concerns the leveland number of people involved in the deci-sion-making process. Stationery supplies, forinstance, might be controlled by one person,perhaps the senior administrator or facilitiesmanager. In other cases several tiers ofmanagement might be involved, especiallyfor large-budget items or projects.

� Individual buyer behaviour: B2B salespeople who see their customers on a regularbasis will (or should) have an understandingof their personality and general behaviour.Product or service selling does not onlyinvolve knowing a list of features and bene-fits; it is much more. Groucutt and Telford(1995) emphasise the need to understandrelationships:

Salespeople don’t create needs, they exist inthe mind of the buyer. The role of the sales-person is to enable the customer to articulate

B2B SEGMENTATION 59

their needs. That comes through a process ofhelping customers know what they want – aprocess whereby the customer talks and thesalesperson listens, actively and skilfully.

Thus in a highly competitive B2B environmentsales people who build relationships are morelikely to ‘key in’ to the customer’s real needs.(Aspects of selling are discussed in Chapter 10.)

� B2C segmentationThe segmentation of consumer markets is generallyvery different from that in B2B markets. Segmenta-tion is normally considered under five categories:geographic, demographic, socio-economic, behav-ioural and lifestyles. It must be stated that whilethese are considered separately below, they ofteninterrelate and work in concert with each other.

Segmenting by geographic locationWe can segment a potential market by consideringwhere customers live and how culture influencesthem within that location. Consider, for instance,where you live and the culture of that area. Whatproducts and services would best suit the peopleliving in your area based upon geography andculture? Consider, for instance, the marketing offood products into the Middle East. There are arange of issues to consider ranging from religiousbeliefs (what ingredients are acceptable and whatare not) to regional tastes and climatic conditions.

Segmenting by demographics

Marketers can analyse and segment the marketaccording to personal characteristics such asgender, age, race and religion, and trends in popu-lation movements (such as emigration). These areimportant characteristics in studying how marketschange. For instance, several countries in Europehave ageing populations, where there are morepeople over 50 than under 18, and the 50-plusgroup increasingly has a high level of disposableincome. Tréguer (2002) argues that:

The over 50s make up an increasingly impor-tant sector of the population (often more than

30%) and they possess a purchasing powervastly superior to the under 50 generation (generally in the region of 40% to 45% of thenational purchasing power). They increasinglyconsume everything (their market share ofhundreds of consumer, equipment and servicesmarkets is often greater than 40%), and yet 95%of marketing and advertising investment con-tinues to be aimed at the under 50s! Less than5% is devoted to this enormous potential.

(Geographic location and demographics are oftenmerged into geodemographics. This combination ofinformation can help to build profiles of groupswith similar needs and wants within specificgeographical locations. Since the 1970s severalcompanies have developed software models toanalyse data on this basis. The two major examplesare CACI® with ACORN™ and Experian® withMOSAIC™.)

Segmenting by socio-economic statusThis is an analysis of financial status, credit ratings,disposable income, house ownership, family sizeand occupation. Understanding an individual’sfinancial status enables companies to assign thatperson to a group, and target the right product orservice to match the profile of the group. Forinstance, a credit card company offering an exclu-sive Platinum or Black card normally targets agroup with income and savings above a certainlevel, some collateral (as a means of risk reduction)and the propensity to spend using the card. (Thecard company’s revenue is generated from interestand other surcharges.)

Segmenting by behaviourThis focuses on the purchasing habits of individu-als that are driven by their individual behaviour.For instance, is the customer loyal to one particularbrand? Does he or she buy one type of product orservice? Does he or she switch brands, and if so,how often?

A company such as Amazon.com segments itscustomers on whether they buy only books or CDs,or a combination of both. It can refine the segment-ing by considering, for instance, the types of bookspurchased: perhaps historical romances, contempo-


rary crime thrillers or books on marketing. Thisknowledge allows Amazon to create a list of recom-mendations each time a customer logs on to itswebsite.

Segmenting by lifestyle

This is the process of segmenting a market byattempting to understand the way in which indi-viduals (or groups) choose to live their lives. AsGroucutt, Leadley and Forsyth (2004) suggest, thefactors that determine an individual’s lifestyle areoften immensely complicated. Moreover, an indi-vidual’s lifestyle will often change, sometimes inrelation to changing socio-economic status anddemographic conditions. Returning to the 50+ cate-gory illustrated earlier, individuals may haveworked hard for most of their lives, and as theyreach perhaps early retirement their lifestyle maychange. For instance, they may now decide to ‘playhard’ and spend several months a year travelling.Thus marketers have to account for the fact thatindividual’s lifestyles may go through variousmetamorphoses through their lives.

� Formulating a segmentationstrategy

Organisations analyse the data gleaned from thevarious approaches to segmentation, and considerhow their products and services match thesesegments. From this they structure their marketingmix to match the needs of that particular segmentor segments. In the mini case study on page 64, thecruise vacation market is briefly analysed.

We discussed earlier (see Table 3.1) how somecompanies target multiple segments with differen-tiated brands, using the example of the Hilton®Hotel group and its associated brands. The samesituation applies to the cruise vacation market,where the Carnival Corporation has several majorbrands catering for different segments of the over-all market.

Targeting

Whether it operates in the B2B or B2C markets, orboth, any organisation has to decide which

segment(s) to target. Efficient targeting is funda-mental for the following reasons:

� The organisation can focus its resources onwhat it believes will be the most profitablesegments. If it operates within severalsegments, the coverage might spread itsresources too thinly, and it might find itselfinvesting resources into marketing to segmentsthat provide a poor return on the investment.

� It provides an analysis of the competition. Byfocusing attention on key segments the organ-isation can gauge the particular strengths andweaknesses of the opposition against its own.The organisation may discover that there areparticular segments that are not particularlywell served by the competition. Equally,though it may determine that the competitionis particularly strong and protective of itsmarket position within that segment. Thus theorganisation will need to consider whether ornot it is viable to enter that segment. The organ-isation may not want to engage in battle withthe competitor as this may be damaging andresource depleting in the longer term.

� It enables the organisation to consider how itwill use the marketing mix to gain entry, growand sustain position within a segment.

� It enables the organisation to find a strategic fitbetween its marketing strategy and its longer-term objectives. Although the organisationcould operate within several segments, it needsto target the segments that fit its overall corpo-rate objectives. For example, a cruise vacationline could possible deploy its ships acrossseveral segments. However, if its corporateobjectives were to be in the large-scale mass-market themed short-cruise sector in theCaribbean, it would not strategically fit theultra-luxury Mediterranean segment. It isunlikely be a profitable segmenting of themarket for the company, even though thevessels, facilities and crew could physicallycater for that market.

� It allows the organisation to consider any ethi-cal and legal issues that might affect segmentsdifferently. For instance, a company mightdecide not to target a particular geographic

B2C SEGMENTATION 61

region for fear of offending local cultural tradi-tions. This is particularly the case with food-stuffs that contain ingredients not all religiousgroups will eat. Equally, a company mightchoose not to target a country because of itspoor enforcement of copyright protection.

� It improves communication between the sellerand buyer. This provides an opportunity tobuild a mutually beneficial relationship, especially in the B2B environment.

� It allows the organisation to focus its atten-tion on segments it understands. There isalways a risk that companies will focus theirattention on as many ‘relevant’ segments aspossible. As well as diluting resources (asstated earlier), they risk entering marketswhere they have only the barest of knowl-edge. For example, many UK-based univer-sities look to recruit international students tostudy in the UK, and some look to developcampuses abroad or go into partnership withoverseas universities. They have the bestchance of success if they build up theirknowledge and contacts in a country orregion, and focus their marketing effortsthere. To target students from regions orcountries they do not know well runs therisk of failure which could be damaging notonly financially, but reputationally as well.

PositioningHere the company seeks to position its brand at aparticular ‘location’ within the targeted marketsegment. Once the product or service is positionedwithin the market, it will stand alongside its majorand minor competitors. The company is thenmaking a clear statement to both customers andcompetitors about where it believes its product orservice is ‘located’ within that market.

This is particularly important in what Ries andTrout (2001) call the ‘battle for the mind’. How andwhere the product or service is positioned in theminds of customers will generate either success orfailure. This is how buyers ‘perceive’ the value of theproduct or service being marketed to them. In anovercrowded and cluttered market, product or serv-ice positioning is important in order to help it standout from the crowd.

Different variables help determine a product’sor service’s (in other words, a brand’s) positionwithin the marketplace. These include:

� Brand attributes. These are the particularfeatures and benefits of the brand. A buyerexpects a brand to deliver the features andbenefits that match the brand’s reputation. Forexample, a UK£160,000 Aston Martin sportscar will deliver different brand attributes thana UK£10,000 saloon.

� Price/quality relationship. A product or servicehas to be priced at the right level to reflect thequality provided. For instance, a hotel thatprices its rooms at UK£400 per night will haveto provide the quality expected from a four orfive-star hotel and not a two-star one.

� Competitor(s) within the segment(s). Whilecompetitors will challenge new entrants to thesegment, being associated with such competitors can heighten a brand’s reputation.

� Brand user. The individuals or groups thatuse the brand (product or service) also assistin positioning it in the mind of othercustomers. Celebrity promotion can assist inpositioning the brand in the mind of thosewho want to be (or are) like the celebrity.Movie stars, television and sports personali-ties who have promoted various brands overthe years, including Sean Connery (Jim Beamwhisky), Laurence Olivier (Olivier cigarettesmanufactured by Benson & Hedges) andDavid Beckham (Brylcreem™ and mobilephones). (See Chapter 10.)

� Brand class. This can be defined as the statusthe brand (product or service) acquires withinthe marketplace. For instance, an Aston MartinDB5 car is considered an upmarket classicluxury sports car. Equally, the six-star ratedBurj Al Arab hotel in Dubai is considered to beone of the most luxurious and stunning hotelsin the world.

� Positioning across segments. Companies alsoseek to position their products across relatedoverlapping segments of the market. Forinstance companies such as Procter & Gambleand Unilever use this strategy in the detergentsmarket. They position different brands within


the various market segments. Customers relateto the brand names and not the corporate iden-tities of Procter & Gamble and Unilever. More-over, both companies tend to have severalbrands competing within each segment as wellas across segments.

RepositioningMarkets are dynamic and turbulent, perhaps moreso today than ever before. Therefore companieshave to be both proactive and reactive to changingcircumstances, and that may include repositioningtheir brands.

Repositioning may occur for several reasons,including:

� Evolution of both the company and the brand.While some companies obtain the ‘perfect’position for their brand from day one, forothers (perhaps the majority) it is an evolution-ary process. The corporate histories of manyorganisations show repositioning of theirbrand(s) as the company’s image and reputa-tion develop.

� Extending the life of the product or service.Chapter 9 examines the product life cycle, thestages a product or service goes through fromintroduction to decline. A company mightreposition in an attempt to rejuvenate an ailingbrand. For example, Lucozade was originallyintroduced as a drink for people recoveringfrom illness. It was repositioned in the marketas a high-energy sports drink. This reposition-ing was supported by effective management ofthe marketing mix through the creation of newpackaging, promotion and variants on the original flavour. This repositioning has beenparticularly successful.

� The wrong segment. Acompany may have posi-tioned its brand in the wrong segment, perhapsbecause it underestimated or overestimated thevalue of the segment. In the latter case, competi-tors within that segment might exert additionalpressure, forcing the repositioning.

� Changing societal conditions. Societies as awhole change, and so do individuals withinsocieties. These changes may be the result ofnew knowledge and socio-economic condi-

tions. Therefore demands for particularproducts and service levels may alsochange. For example, overall UK holiday-makers seek today higher quality and serv-ice standards from their packaged holidays(Palmer, 2000). Today there are significantdifferences in the quality of packaged holi-days from those of the 1970s. Tour operatorshave had to reposition themselves withinthe packaged holiday sector to reflect thesechanges.

Perceptual or positioning mappingThis is a strategic tool that allows the company toshow visually the position of its brand relative tothe completion within the marketplace. Themapping exercise can also identify any gaps withinthe segment that could be exploited, perhaps witha modified product or service.

Figure 3.3 illustrates the positioning of a selec-tion of cruise vacation companies based upon thesegments Ultra luxury, Luxury, Premium and Massmarket. It has to be remembered that this is a

FORMULATING A STRATEGY 63

Figure 3.3

A diagrammatic representation of a positioning map fora selection of cruise vacation companies:(1) Hebridean (2) Seabourn(3) Silverseas (4) Cunard(5) Radisson Seven Seas (6) Holland America(7) Carnival (8) Celebrity

Ultra luxury

LuxuryPremium

Mass market

12

34

5

6

8

7


Segmentation, targeting and positioningwithin the cruise vacation market

The cruise vacation market has become a multi-billiondollar industry with both major and specialist compa-nies operating within highly competitive markets. Thecompanies segment their markets using the criteria dis-cussed in this chapter. From this information theydevise a marketing mix to support the positioning oftheir brand within the market.

The following are key STP factors used in the cruisevacation market:

� Geographic – destinations. Some cruise linesspecialise in one or two specific destinations. Forinstance, the Louis Cruise Line offers mini cruisesfrom Cyprus to Egypt, Greece (Rhodes), Lebanon(Beirut), and Syria (Latakia).

� Customer profile. Individuals or groups that aretargeted include independent travellers, families,singles,wedding parties and honeymooners, gay andlesbian singles and couples.Within all these groupsthere are a variety of socio-economic levels andlifestyles.

� Cruise types. Some cruise lines create particulartypes of cruise, for instance cruise and stay (amixture of a cruise and land-based vacation), minicruises (see the Louis Cruise Line example above)and themed cruises (which vary from the perma-nent Disney theme on the Disney Cruise Line tospecialist cruises that visit locations to study theflora and fauna, antiques or the music of the region).Specialists in the various fields usually accompanysuch cruises.

� Positioning within the market sector (see Figure3.3). Positions include mass market, premium,luxury, ultra luxury and niche/specialist. Forinstance, in the niche market sector Poseidon ArticVoyages provides cruises to the Artic Circle onboard a nuclear-powered icebreaker.

Mini case 3.1

Figure 3.4

© Hebridean Cruises. Reproduced with kind permission.

Two photographs from Hebridean Cruises illustratingthe ultra luxury end of the market sector.These arestaterooms on board the Hebridean Spirit.

diagrammatic representation of their relative positions within the markets. A company position-ing itself within a segment normally does sothrough a detailed analysis of its brand (and brandvalues) compared with its immediate competitors.

� Chapter summaryThis chapter has examined the rationale behind andthe structure of segmentation, targeting and positioning (STP) of products and services in botha B2B and B2C context.

In order to become and remain competitivewithin a marketplace, a company must:

� separate the market into appropriate segmentswith a focus upon those that are likely todeliver the best return on investment

� target the potential customers within the desig-nated segment(s) who would derive the most bene-fits from the product or service being marketed

� successfully position the product or service inthe mind of potential customers by illustratingthe benefits they will gain by consuming theproduct or service

� be prepared to reposition their products orservices if the market conditions warrant it.

The STP of products and services can only beachieved by the judicious management of themarketing mix. However, the organisation mustinitially be relatively certain it has chosen the mostappropriate segments to enter. The concept of find-ing the ‘perfect’ segment might be acceptable in atheoretically oriented debate, but in the real worldcompanies must be aware that their chosensegment may not be the right one. For variousreasons, including unpredictable dynamic marketchanges, the company might realise that thesegment(s) is inappropriate for its needs. It thenneeds to take often-radical actions to protect itsbrand and indeed its overall business.

The STP model is a viable one, but the wholeprocess of segmenting and targeting markets andpositioning brands is far from a perfect science.


1 Critically evaluate the rationale for segmentinga mass consumer market.

2 Working with fellow students, consider howyou might segment the following marketswithin either your home country or the coun-try where you are studying: coffee, chocolate,ready-prepared meals (as purchased in a storeor supermarket), toothpaste, take-away meals (as in McDonald’s™) and sports shoes (trainers).

3 Working with fellow students, draw a position-ing map for your university or college. You willprobably need to consider it in relation tonational rather than international competition.What factors do you think differentiate youruniversity or college from competitors in themarketplace? Were these differences the reasonyou personally chose to study there?

4 Reflect back to the societal issues discussed inChapter 2. Then consider how lifestyles havechanged within your home country and howthey now influence the segmentation of markets.

5 Using the Internet and other library resources,examine the following issue. There has beenmuch discussion, in various countries, aboutthe ethical implications of segmenting andtargeting children under the age of 12 withproduct marketing. What is your view?Support it with evidence.

ReferencesDibb, S. (1998) ‘Market segmentation: strategies for

success’, Marketing Intelligence and Planning 16(7),pp. 394–406.

Ford, H. and Crowther, S. (1926) My Life and Work,London: Heinemann.

Groucutt, J., Leadley, P. and Forsyth, P. (2004) Market-ing: Essential principles, new realities, London: KoganPage.

Groucutt, J. and Telford, A. (1995) Communicating forImproved Business Performance, Cheltenham:Thornes.


Palmer, A. (2000) Principles of Marketing, Oxford:Oxford University Press.

Porter, M. E. (1985) Competitive Advantage, New York:Free Press.

Ries, A. and Trout, J. (2001) Positioning: The battle for themind, New York: McGraw-Hill Education.

Smith, W. R. (1957) ‘Product differentiation andmarket segmentation as alternative marketingstrategies’, Journal of Marketing 21(1), pp. 3–8.

Tréguer, J-P. (2002) 50+ Marketing, Basingstoke:Palgrave.

Wright, R. (2004) Business-to-Business Marketing: A step-by-step guide, Harlow: FT Prentice Hall.

CHAPTER SUMMARY 65

� IntroductionThis chapter examines the role of marketing research within the contemporarybusiness environment. It considers four core areas:

� the various techniques that organisations can use with the aim of betterunderstanding the marketplace

� how complex environmental forces influence or affect marketing researchdata

� the reasoning behind organisations undertaking marketing research

� why some organisations choose not to use marketing research beforelaunching a product or service.

While marketing research is often deemed essential to business, it must beremembered that it is not an exact science. It can only provide an indicator ofpossible outcomes, and possible reasons for those outcomes. Information gath-ering is one thing; how it is interpreted and used to make decisions is another.Nevertheless, market research can contribute to a better understanding of howto manage the marketing mix, product/service life cycles, why people buy,and how to improve the product or service offering.

� The role of research in marketingFirst we should consider a definition of marketing research. One of the mostsuccinct is by Burns and Bush (2000) They describe it as:

CH

AP

TE

R

4 Marketing Research

Learning outcomes 66Introduction 66The role of research in

marketing 66Potential benefits 67Understanding the

market 67Forecasting 67Improving return on

investment 67Exploiting new market

opportunities 68Reducing the level of

risk 68Supporting competitive

advantage 68A systematic process for

marketing research 68Establishing the need

for marketing research 68

Problem definition 68Research objective or

hypothesis 69Research brief 69Identifying the relevant

methodology 69Questionnaire design 69Data collection 70Data analysis 70Research report 70Marketing research

techniques 70Primary research

techniques 71Secondary research

techniques 73Does everyone use

marketing research? 77Chapter summary 77Questions for review


Contents Learning outcomes


� debate the value to an organisation of undertaking marketing research

� explain the different marketing research techniques that a company ororganisation can employ

� examine how marketing research can help an organisation make effective decisions in relation to the marketing of its products and/or services.

The process of designing, gathering, analysingand reporting of information that may be used tosolve a specific marketing problem.

The marketing ‘problem’ they refer to can be deter-mining anything from the market for a new prod-uct, to why an existing product no longer capturesthe market’s imagination. Thus the ‘problem’ canbe diverse in form and structure.

Groucutt, Leadley and Forsyth (2004) suggestthat prior to undertaking marketing researchorganisations need to have:

� a reasonable understanding of their targetedsegments, and thus an ability to position theirproduct or service

� a clear objective as to what the organization isaiming to achieve – both through marketingand corporate objectives.

This gives the organisation a sound basis on whichto develop its knowledge of the market, and allowsit to be focused.

� Potential benefitsThe effective and efficient use of marketingresearch can provide organisations with several

short and long-term benefits. The outline below isdeveloped from the work of Quee (1999).

Understanding the market

In a hypercompetitive environment1 (D’Aveni1995), organisations need to have a clear under-standing of the dynamics of the market(s) in whichthey currently operate. This understanding needsto encompass:

� current customers

� current competitors

� potential customers

� potential competitors

� the impact of macro environmental forces.

It is only through understanding, or at leastattempting to understand, such diverse groups thatan organisation can be both proactive and reactiveto changing circumstances.

Forecasting

Marketing research provides a systematic approachto the creation of information that will improveforecasting potential. For instance, there is littlevalue in a company producing millions of a partic-ular toy if the market research suggests it will onlysell a few thousand. Of course the situation maychange, especially if word of mouth (see Chapter10) builds the profile and it becomes a majorsuccess within the marketplace. However, if theinitial marketing research indicates a lower marketpenetration, it would be unwise for the company toproduce large volumes. The product will simply bestockpiled in a warehouse, depreciating in valuewhile incurring warehousing costs.

Improving return on investment

Companies should continually seek to improvetheir bottom-line performance. In other words theyneed to use their resources both efficiently andeffectively. Of course, that does not mean operating‘on the edge’, with the absolute minimum of (for

THE ROLE OF RESEARCH IN MARKETING 67

Figure 4.1

© Shona Muir. Reproduced with kind permission.

The indoor market in Barcelona, Spain.Why do peoplebuy? Whether it is fruit, vegetables or the latest down-loadable music clips, marketers need to understandbuyer behaviour and trends. Marketing research helpsus to analyse purchasing habits and tastes (both current and potentially those in the future).

instance) human capital. That is a potentially high-risk scenario. However, companies should evaluateways of improving return on investment. This isparticularly the case where substantial funds havebeen invested in research and development tocreate the product (or service) in the first instance.

Exploiting new market opportunities

Marketing research is not only about here and nowproblems. As we have already noted, it can be usedfor forecasting market demand. Moreover, it can beused to discover potential product and service gapswithin the market.

Reducing the level of risk

The development and subsequent introduction ofnew products and services can present significantfinancial and business risks to companies. Manycompanies have introduced new products only tofind that they are poorly received in the market-place and no amount of marketing spend willreverse their fortunes. In some cases the companyfaces bankruptcy as a result.

Marketing research might provide informationon whether the product either has a market at all, orneeds minor adjustments to meet market needs.

Supporting competitive advantage

As with competitor intelligence (see Chapter 5),knowledge management (in all its forms) providesinformation on market trends, customer prefer-ences, and competitors and their potential actions.Collectively this information (and its efficientmanagement) can provide the platform for acompany to develop a competitive advantage strategy.

� A systematic process formarketing research

It is generally accepted (based on its definition) thatthe process of undertaking marketing research iscarried out systematically. Several basic steps tendto be completed prior to moving on to the next

stage. This is a general overview of the steps in themarketing research process. They are illustrated inFigure 4.2 and explained in detail below.

Establishing the need for marketingresearch

The organisation first has to determine whether itneeds to, or actually can, undertake marketingresearch. The three key issues here are:

� The information that the organisation requirescould already be available through sources ofsecondary research data. For example,commercial research companies producemarket reports by sector. Purchasing this datamay prove to be cheaper than instigating theirown research.

� The organisation might not have the time tocollect raw data and then process it. Otherfactors (especially macro factors) might requirerelatively speedy decision making whichprecludes the use of marketing research.

� It may be too expensive for the company toeither originate its own research or purchaseresearch from a commercial market researchcompany. This is especially the case for micro,small and medium-sized enterprises (SMEs).

Problem definition

This relates to the question, ‘What are we trying toinvestigate and why?’ Initially you might think thisis straightforward. However, it is rarely the case.

68 4 • MARKETING RESEARCH

Figure 4.2

Establishing the need for marketing researchProblem definition

Research objectives or hypothesisResearch brief

Identify the relevant methodologyQuestionnaire design

Data collectionData analysis

Research report

The marketing research process

The organisation might have several ‘problems’ orissues to contend with, and be faced with prioritis-ing them. Again, this could be easier said thandone.

The ‘problem’ needs to be defined clearly so thatthe researchers can focus on real issues rather thanperceived ones. If there is a lack of clarity, the organ-isation might pursue the wrong course of action.This in turn could lead to loss of market share orpoor positioning of a new product within themarketplace. Rectifying such a situation mightprove costly.

Research objective or hypothesis

Groucutt et al. (2004) suggest that this should be‘developed as a range of scenarios for the market-place that are plausible, rational and in “reality”quite probable.’ It is the hypothesis that in turndefines the type of research technique to be used.

Research brief

This is the brief that is presented to either the inter-nal or external marketing research team. Itnormally contains:

� relevant background information – in essencewhy this research needs to be undertaken (theproblem or research question will be includedhere)

� the objectives of the research – what is to betested and why

� how the testing of the objectives will, or could,assist the organisation’s marketing.

From this information the research methodology –using primary data, secondary data or a combina-tion – will be determined. Depending upon thecomplexity of the issues and/or brief, the market-ing research team might conduct exploratoryresearch to clarify the objectives and/or the suit-ability of the methodology.

Identifying the relevant methodology

The research team needs to determine whetherprimary research, secondary research or a combina-

tion of both will be used. Primary research (alsoknown as field research) involves data that iscollected and then analysed specifically for thespecific project. Secondary research (also known asdesk research) is the analysis of data that has beencollected by other organisations on the subject ortopic area. The scope of primary and secondarydata is discussed later in this chapter.

Questionnaire design

This relates to primary research where the researchteam wants to ask specific questions of a definedsample of people. As a student you will be familiarwith questionnaires at the end of modules, terms orsemesters. These are designed to provide yourcollege or university with an overview of yourperceptions and how these relate to your originalexpectations. However, a questionnaire is notsimply a basis for collecting a specific amount offacts. It must be designed in such a way that theinformation can be collated and then analysed. It isonly when the data is analysed that any meaning-ful information can be determined.

Zikmund (1994) suggests that there are fivemajor areas research teams must analyse in order todevelop an effective questionnaire. These are:

� What questions should be asked? This leadsback to the purpose of the marketingresearch. In other words, what is the organi-sation trying to find out? For instance, acollege or university module evaluationquestionnaire is intended to find out how themodule is rated on specific criteria from astudent perspective. So for example, it mightask respondents to rate the core textbook ona scale of 1 to 5, with 1 being poor and 5being outstanding. This gives the moduleleader an insight into the class’s (that is, thesample’s) view of the textbook.

� How should each question be phrased? Writ-ing questionnaire questions is a complexprocess for several reasons:

� The question must be phrased in such away that potential respondents will beable to understand it. Therefore questionstend to be short and succinct, usingeveryday (non-colloquial) language.

A SYSTEMATIC PROCESS FOR MARKETING RESEARCH 69

� There must be clarity in the questiondesign to avoid any potential ambiguity.The potential respondent must knowwhat you actually mean by asking thatquestion.

� Each question must focus on one issueor topic only. Two or more issues perquestion will only lead to confusion.

� The question must be phrased so thatpotential respondents can express theiropinion and their opinion only. Ques-tions must not ‘lead’ the respondent to aparticular answer. There is also an ethi-cal issue here. The research must beunbiased, and the research team mustapproach the project with an objectivemindset.

� What is the most appropriate sequencing forthe questions? Generally questionnairesbegin with fairly simple questions (usuallyto relax the respondent), then graduallybuild to focus on the specific data to becollected. Some questions incorporate filter-ing devices. So if a respondent answers, say,question 4 with a ‘No’, he or she is directedto skip a section of questions that are notrelevant to his or her experiences.

� How should the questionnaire be presented?Some questionnaires are simplistic in theirformat, comprising a series of questions withshort dichotomous ‘Yes’ or ‘No’ typeanswers. Others are more complex, featuringcombinations of question types, for instance,multiple choice (using a scale to rate anexperience) and open-ended, where respon-dents can state their views in their ownwords. Returning to the earlier example,while the textbook might be scored on ascale of 1 to 5, the next question might be,‘What for you have been the strengths of thismodule?’ Respondents are then providedwith a space in which to give a free-formqualitative answer.

� How should the questionnaire be tested? It isuseful to pre-test questionnaires on a smallsample of the target audience. This allowsthe research team to make any necessaryadjustments prior to the rollout of theprimary research.

Data collection

This is the bringing together of the data from allsources (primary, secondary or both).

Data analysis

Once the marketing research team are satisfied thatthey have collected all the necessary data, they canproceed to analyse it. Raw data is of little value. Itmust be critically evaluated and analysed in orderfor it to have any meaning. The analysis may rangefrom time-series and regression analysis to testingvariance and qualitative explanations of perspec-tives. Today much of the statistical analysis is under-taken using software packages such as SPSS®.

Research report

The final process element is the production of theresearch report. It is important that the researchteam know exactly who will read the report. In thevast majority of cases the readers or decision mak-ers are not marketing researchers. They mighthave little interest in the minutiae of data gather-ing and analysis, but will need an overview (usually presented through an executive summa-ry), a presentation of the results (analysis and findings) and a set of justified recommendations(conclusions and recommendations).

The commissioners of the research use the reportas the basis on which to make their decision – andas I said earlier, the success or failure of a productor service can rest on that decision, and so on thequality of the marketing research. However, it mustbe stated that circumstances can and do change,sometimes dramatically, and these changes mightmake research that was originally valid invalid.Risks like this can only be alluded to in a researchdocument. It is for the decision makers to take intoconsideration the ‘probable situations’ whenmaking their final decision.

� Marketing researchtechniques

This section gives a brief overview of the differenttypes of primary and secondary research


techniques. (Table 4.1 lists the different categories.)The marketing research team needs to determinewhich technique or combination of techniques ismost suitable to use in attempting to answer theresearch question and meet the objectives. Otherlimiting factors might need to be taken into consid-eration, including the time frame available toconduct the research, and the budget.

Primary research techniques

Observation

In this technique an individual’s behaviour isobserved without the observer communicatingwith him or her, thus the person is oblivious to thefact that he or she is under observation. Within theterm ‘observation’ there are many sub-categories.These include:

� Structured human observation. This is wherespecific behaviours are observed, for example,

how long grocery shoppers spend examiningfruit before they decide whether to make apurchase.

� Mechanical observation. These can vary fromelectronic counters that simply log the numberof people who enter a store and when they doso. This is useful in planning traffic flowsthrough a store at specific times of the day.Groucutt and Griseri (2004) refer to e-observa-tions, that occur in electronic environments.Organisations can track surfers and regularvisitors to their web pages, seeing how theyreact or behave in that particular web space.This can, for example, identify the mostfrequently visited pages in a website.

Observation is valuable, for instance, in determin-ing traffic flows or movements of people. Thisenables organisations to improve the throughput ofpeople in supermarkets, visitor attractions andeven metro stations. This is also an useful techniquefor determining the right height for shelving

MARKETING RESEARCH TECHNIQUES 71

Table 4.1 The different research techniques available to marketers

Research technique Main category Sub-categories

Primary Observation Structured human observationMechanical observation

Focus groups

In-depth interviews

Questionnaires

Personal interviewTelephoneMailed or postale-questionnaire

Secondary Internal information

Sales historyPayment historyInventoriesResearch reports

External information

Commercial research reportsCompany directoriesCompetitor informationGovernment reportsIndustry sourcesThink tanks

(supermarkets), ticket machines (metros) andpurchasing stations (check-out counters). (See alsoChapter 13 on people and Chapter 14 on physicalevidence.)

There are both legal and ethical issues involvedin observation. In some countries it is a legalrequirement to inform people that they are beingobserved, and there also is the issue of privacy. Isobserving a group of people shopping for groceriesan invasion of their privacy? Some might argue yes,others no. Often it is a fine line that distinguishes anethical from an unethical act.

Focus groups

The psychologist Ernest Dichter devised theconcept of the focus group in the 1930s, and usedfocus groups to gauge people’s reaction to thebrand Ivory soap. He developed the concept out ofgroup therapy techniques, which were popular inEurope at the time. A focus group typically containsbetween six and eight people, who are:

� Relevant to the product, service or topic beingdiscussed. For example, for a toy manufac-turer’s research they might be mothers withchildren in the three-to-five-year age group.

� Potential users of the product or service, orpeople with a direct link to the topic. Forinstance, a political party wanting to knowwhat the key issues are for first-time voterscould create a focus group of young peoplewho have just reached voting age.

� Of a geodemographic composition that is relevant to the product, service or topic ofdiscussion.

An objective moderator usually encourages groupmembers to share their views on a particular topic,for instance the launch of a potential new product.The moderator’s role is to keep the group focusedon the topic area, without too much digression.Often for the purposes of objectivity the group isnot told the name of the manufacturer or supplierof the product or service being discussed.

In-depth interviews

An organisation might decide it needs to conductin-depth interviews with potential and existing

customers. These are usually conducted face toface. An interviewer asks an interviewee a seriesof questions that might be quantifiable (the inter-viewee is asked to assigning numerical values tosomething, for example rating it on a scale of 1 to5) or qualitative (the interviewee is asked to givehis or her personal views in response to open-ended questions).

Questionnaires

A questionnaire consists of a specially designedseries of questions focused on a specific topic or arange of topics. The ‘range’ will be very muchdetermined by the objectives of the research. Ques-tionnaires can be executed in several ways. Oftentheir length determines which is used:

� Personal interview questionnaire: a face-to-faceinterviewer takes the respondent through thequestions one by one. These can be conductedin the home, place of work, or a high-trafficenvironment or thoroughfare such as a metroor railway station.

� Telephone questionnaire: an interviewer takesthe respondent through the questions over thetelephone. This is usually reserved for shortquestionnaires, especially if participants arephoned at their place of work.

� Mailed or postal questionnaire: the question-naire is mailed to a specific segmented targetgroup, who (it is hoped) complete it unaidedand mail it back. This is usually reserved forlarge questionnaire formats where the organi-sation is asking a wide range of questions. Inthe United Kingdom, for instance, there aretargeted mail questionnaires that seek to builda picture of the purchasing habits of specificgroups of the population. The questions covertopics ranging from the number of credit cardsand the frequency of newspaper purchasing, tothe type and location of annual vacations. Cashprize draws are usually a feature of such ques-tionnaires, to encourage respondents to spendthe time they take to complete.

� e-questionnaires: increasingly questionnairesare being used in the electronic environment.There are currently two processes that can beused:

� Emailed questionnaires: the potential


respondents are pre-selected and emailedfor their response.

� Web questionnaires: potential respon-dents self-select a website and choose tocomplete the questionnaire. There areusually multiple choice or two-choice(yes/no type) answers, and the partici-pants click on their selections. Once thequestionnaire is completed the informa-tion can be stored automatically readyfor computer-generated analysis.

Secondary research techniques

Secondary research is based on material that hasalready been gathered and analysed. Such infor-mation might be available to an organisationinternally, externally or a combination of thetwo.

Internal information

This is the information that exists within the organ-isation. It can provide valuable data to address theresearch question and objectives. The range ofinternal information can include:

� Sales history: when individuals or organisa-

tions purchase products or services on either aregular or ad hoc basis they create a saleshistory. This history will include volumespurchased, incentives/special offers accepted,purchasing time frames (regularity ofpurchase) and financial value to the business.

� Payment history: an analysis of a customer’spayment history can show whether or not thecustomer is creditworthy. In other words, doeshe or she (or it) pay on time?

� Inventories: some products sell on a regularbasis, while others are seasonal (for example,overcoats sell in the autumn ready for thewinter). Companies need to know (1) whichproducts are selling, (2) which are not, (3)what are the seasonal variations, if applica-ble, and (4) if there is no seasonal issue, whyproducts are not selling. It is not just theissue of the movement of product out of thewarehouse onto the shelves and then into thecustomer’s ownership. The slow or non-existent movement of product has two costimplications for the company: (1) little or norevenue generation, and (2) storage costs.

� Research reports: companies or departmentswithin companies often commission a varietyof reports. This information can be valuable inunderstanding market trends, for instance.


Module evaluation questionnaires

Most university colleges, faculties and schools undertakeregular evaluation questionnaires. This is in order toestablish how students feel about a particular course,module or simply studying at the establishment. Thefollowing example was used to gather feedback fromfirst-year, first-term students at a British university. Thiswas done for two reasons:

� Provided the recommendations from the currentstudent group had validity (relevance), they could beapplied when the course was run for the nextstudent group.

� The responses were discussed at staff QualityAssurance meetings, so students who completedthis questionnaire could benefit from any changes

made to subsequent modules as a result of thefeedback.

One issue with questionnaires like these is that theyseem a good idea in theory, but they are of no practicaluse unless the feedback is acted upon. You may want to consider how they work at your own college or university.

As you can see from the sample questionnaire(overleaf), it is based upon both qualitative and quanti-tative data gathering. If there were a large studentgroup the quantitative information would be read usingoptically read data sheets. For example students wouldmark, in pencil, columns representing A, B, C or D andthese would be computer scanned to provide the over-all results.This can be achieved in a matter of minutescompared with an individual painstakingly counting upthe returns for each value, A, B, C, D or E.

Mini case 4.1


Module 1 Module Evaluation Questionnaire

Throughout your degree programme at this University you will be asked to complete numerous questionnaires that ask you to evaluate the module you have just undertaken.Whilst this constant evaluation may seemtiresome, it is your opportunity to comment upon the module, and help us to improve it. Please circle, using a pen,A B C D or E for each question to show the alternative that reflects your opinion or view of thismodule.

PLEASE DO NOT WRITE EITHER YOUR NAME OR STUDENT NUMBER ON THIS QUESTIONNAIRE.

Section 1:What is your OVERALL view of this module?

1 It was worthwhile A B C D E It was not worthwhile

2 I have learnt a lot about business A B C D E I have learnt nothing about business

3 It was well organised A B C D E It was not well organised

4 It got me interested in the subject A B C D E It did not get me interested in the subject

5 It was intellectually demanding A B C D E It was not intellectually demanding

6 Too much material / content A B C D E Too little material / content

7 It was enjoyable A B C D E It was not enjoyable

8 It was well taught A B C D E It was poorly taught

Section 2:What is your evaluation of the LECTURES on this module?

9 They were clearly presented A B C D E They were not clearly presented

10 They were interesting A B C D E They were dull

11 They were well organised A B C D E They were not well organised

12 Helped my understanding A B C D E Did not help my understanding

13 How many lectures did youattend? Please tick. ALL 14 13 12 11 10 9 8 7 6 5 4 3 2 1

Section 3:What is your evaluation of the SEMINARS on this module?

14 They were valuable A B C D E They were of little value

15 They were enjoyable A B C D E They were not enjoyable

16 They involved discussion A B C D E They involved little discussion

17 They were well organised A B C D E They were not well organised

18 I was encouraged to participate A B C D E I was not encouraged to participate

19 My seminar tutor was approachable A B C D E My seminar tutor was not approachable

20 How many seminars did youattend? Please tick. ALL 14 13 12 11 10 9 8 7 6 5 4 3 2 1


Section 4:What is your evaluation of The Student Workbooks (Main and Supplementary) on this module?

21 They were well written A B C D E They were poorly written

22 They were very useful A B C D E They were not very useful

23 There was too much information A B C D E There was not enough information

24 They were well presented A B C D E They were not well presented

Section 5:What is your evaluation of the handouts you received on this module?

25 They were well written A B C D E They were poorly written

26 They were helpful A B C D E They were not helpful

27 There was the right number of handouts A B C D E There were not enough handouts

Section 6: How would you evaluate your own PERSONAL contribution to the module?

28 I prepared for each session A B C D E I did not prepare for each session

29 I was always on time for lectures A B C D E I was never on time for lectures

30 I always contributed to discussions A B C D E I never contributed to discussions

31 I read the business sections of the major news-papers A B C D E I never read the business sections of the

major newspapers

32 I watched the business news on TV A B C D E I never watched the business news on TV

33 I listened to the business news on the radio A B C D E I never listened to the business news on theradio

34 I read the relevant sections in the textbook A B C D E I never read the relevant sections in the text-book

35 I read other books on the subject areas A B C D E I never read other books on the subjectareas

Section 7:What is your evaluation of the recommended textbook for this module?

36 The textbook was very readable A B C D E The textbook was not very readable

37 The textbook was very interesting A B C D E The textbook was not very interesting

38 I liked the textbook A B C D E I disliked the textbook

39 If you disliked the textbook have you any suggestions for a possible replacement? If so, please state below:

Section 8:What is your evaluation of the COURSEWORK (Assignment and Posters)?

40 Both involved thinking and understanding A B C D E Both required very little thinking and under-standing

41 The assignment topic was interesting A B C D E The assignment topic was dull

42 Both the assignment and poster assessedimportant areas of the module A B C D E Both the assignment and poster did not

assess important areas of the module

43 Both added much to my understanding of thesubject areas A B C D E Both added little to my understanding of the

subject areas

44 Both related well to the module as a whole A B C D E Both related poorly to the module as awhole

45 Both came at the right times within the twoterms A B C D E Both came at the wrong times within the

two terms

46 Working in groups on the posters was enjoy-able A B C D E Working in groups on the posters was not

enjoyable

/ continued overleaf

External information

This is information that the organisation acquiresfrom external sources. In some cases it is free (forinstance, information from trade/industry publica-tions) but it is often charged for (for instance, indus-try and market research reports). The range ofexternal information includes:

� Commercial research reports produced by inde-pendent research companies. They cover, forinstance, B2C and B2B markets, specific coun-tries and societal trends. Many of them can bepurchased online and then downloaded.

� Company directories which provide informa-tion on companies, organisations and thesectors in which they operate. Increasingly, thisinformation is available online by subscription.Previously it was available only in book form,and was prone to becoming dated very quickly.However, online systems provide the opportu-nity for regular updating.

� Competitor information: we explain in Chapter6 why it is vital for a company to gauge theabilities of current and potential rival compa-nies, especially if it is operating in a highlycompetitive market. Information such as theannual report and accounts, marketing literature and articles in trade or industry

publications can provide an insight intocompetitor motives.

� Government reports: many governmentsprovide reports that cover statistical informa-tion (for example, economic data, purchasingtrends and census data) and changes in society(for instance, the structure, age ranges andwealth).

� Industry sources, generally publicationsproduced by professional and trade bodiesthat represent particular business sectors andindustries. These sources generally provideauthoritative information on such areas asmarket trends, changing legislation, newtechnologies and government perspectiveson the sector or industry.

� Think tanks, groups of experts who provide aperspective on emerging trends, societal andcommercial issues. Think tanks can be:

� commercial organisations, such as theUK-based company Demos

� departments within major companies,such as the futures department within UK-based telecommunications company BT

� departments within universities whichresearch particular technological or socie-


Section 9:A few details about yourself

47 Male M F Female48 I have studied business before Yes No I have never studied business before49 Ethnic Origin: Please tick the ethnic group to which you feel you belong:Asian [ ] European [ ] African [ ] Caribbean [ ] Chinese [ ] Middle Eastern [ ] South American [ ] Canadian [ ] North American [ ]Other [ ] Please state ___________________________50 Age (Please indicate your age range) 18–25 [ ] 26–33 [ ] 34–41 [ ]

Section 10: Finally, please will you comment on the following areas:

51: STRENGTHS:What, for you, have been the strengths of this module?

52:WEAKNESSES:What, for you, have been the weaknesses of this module?

53: IMPROVEMENTS:What improvements would you suggest for this module?

54:ADVICE:What advice would you give to next year's students?

Thank you for completing this questionnaire.We take your evaluation and suggestions very seriously.

tal issues, for example the impact of nan-otechnologies on particular industriesand market sectors.

� Does everyone use marketingresearch?

The simple answer is no.Some companies and organisations do not under-

take marketing research because of resource limita-tions. Some companies and individuals simply rejectthe notion of marketing research. Chapter 9 outlinesthe launch of the C5 concept vehicle (page 196),which was not preceded by any marketing research.Its designer Sir Clive Sinclair believed the productwould succeed because he would create a market forit (Marks 1989). However sales failed to reachtargets, and the financial burden eventually forcedhis company into bankruptcy.

Whether marketing research would haveprevented bankruptcy of the business is of coursehard to tell. There are so many factors that cancontribute to the collapse of a business. Howevermarketing research might well have raised issues ofconcern, especially with people’s perception of thevehicle on busy congested roads. Sir Clive Sinclairmay well have then been able to either modify it orposition it for a different market, not one thatincluded a replacement for the car withincongested urban areas, especially in a society thathas grown increasingly car-oriented.

Both companies and individuals will continue todevelop and launch products and services withoutundertaking any form of marketing research. Statis-tics suggest that some will be successful, and otherswill not be so lucky (or astute, depending on yourperspective). Consider, for example, how manyuniversity courses are created without any invest-ment in discovering whether there is a market forthem. Ask your college or university if it under-takes any structured marketing research beforelaunching a new degree programme. You might besurprised at the answer, or indeed lack of one.

� Chapter summaryThis chapter has briefly examined the rationale forundertaking marketing research and the standard

process involved. It has also provided an overviewof the different techniques that an organisation canuse to gather primary and secondary data.However, it is not just a question of undertakingmarketing research for its own sake. There must bea rationale and purpose to justify the investment. Inother words the organisation needs:

� clear objectives: what is it attempting todiscover?

� to use the most appropriate techniques toprovide a solid and relevant data platform

� appropriate analysis techniques to provide theright information in the right format to assistunbiased decision-making.

Not all companies undertake marketing research.Some lack the funds, and others distrust its validityor doubt its relevance to a product or market.Nevertheless, the use of marketing researchremains a vital part of marketing operations withinmost organisations.


1 You are the managing director of a departmentstore. You are planning to redevelop the store’sinternal layout and are interested in gainingcustomer reaction to your plans. You want thelayout to be efficient for your business to oper-ate effectively, while at the same time beingpleasant for customers. Your organisationvalues customers’ opinions and views, andoperates a loyalty scheme to help cement thatrelationship. What marketing research tech-niques would you use to gather customers’opinions and views?

2 Critically evaluate the use of secondary datasources in marketing research. What are thepotential risks associated with the use ofsecondary data?

3 With your fellow students debate the potentialethical issues surrounding the use of peopleobservation to gather marketing research information.

DOES EVERYONE USE MARKETING RESEARCH? 77

4 Evaluate how undertaking marketing researchcould reduce the level of decision-making riskwhen it comes to launching a new product orservice into a market.

5 Apply the questionnaire development processto produce a questionnaire that could be usedin research prior to the introduction of a newsnack bar by a confectionery company.

6 Discuss the contribution that marketingresearch can make to overall marketing deci-sion making.

7 What do you consider to be the possible ethicaldilemmas associated with the use of marketingresearch?

8 Although the objectives might be the same, theexecution of international marketing researchmay differ substantially from domestic market-ing research. Critically evaluate the factors thatcould cause or influence a difference.

9 Critically examine how the Internet, the WorldWide Web and e-mail can be used in marketingresearch.

� ReferencesBurns, A. and Bush, R. (2000) Marketing Research, 2nd

edn, New Jersey: Prentice Hall. D’Aveni, R. A. (1995) Hypercompetitive Rivalries:

Competing in highly dynamic environments, NewYork: Free Press.


Groucutt, J., Leadley, P. and Forsyth, P. (2004) Marketing: Essential principles, new realities, London:Kogan Page.

Marks, A. P. (1989) ‘The Sinclair C5: an investigationinto its development, launch and subsequent failure’, European Journal of Marketing 23(1), pp.61–71.

Quee, W. T. (1999) Marketing Research, Singapore:Butterworth-Heinemann/Marketing Institute ofSingapore.

Zikmund, W. G. (1994) Business Research Methods, 4thedn, Fort Worth: Dryden Press.


■ IntroductionNam et ipsa scientia potestas est.For also knowledge is power.

Francis Bacon (1561-1626)English lawyer, philosopher and essayist

Bacon’s words above underscore the overall importance ofknowledge. Indeed, knowledge management is increasinglyseen as a vital part of everyday business life. Over the past 20years or so there has been increasing use of competitive intel-ligence gathering in the commercial world. However, as thePrussian military strategist Carl von Clausewitz (1780–1831)wrote, intelligence is often ‘unreliable and transient’.1 Thusthe accuracy of intelligence gathered must be verified beforeit is treated as a sound basis for decision making.

CH

AP

TE

R

5Competitive Intelligence

Learning outcomes 79Introduction 79Defining competitive intelligence:

what it is and is not 80Marketing research 80Competitive intelligence (also known as

business intelligence) 80Competitor intelligence 80Economic intelligence 81Why competitive intelligence analysis

is important to marketers 82Types of organisational competition 82The need to understand competitor

actions and intentions 82A competitor intelligence system 86Sources of competitor intelligence 86Sales value and volumes 87Pricing strategies 87Product ranges and developments 87Promotional activities and spend 87Channel management/logistics

operations 88Company and management structures 88Recorded data 88Observable data 90Opportunistic data 90Analysing competitor intelligence 90Strategic groupings 90Key competitors 91Evaluation of the data 91Potential new competitors 91Competitor organisations leaving the

marketplace 91Legal and ethical implications of

competitor intelligence 92Regulation 92SCIP Code of Ethics for competitive

intelligence professionals 95Chapter summary 95Questions for review




� evaluate why companies must seek competitive intelligence(CI) and act on the information gathered

� outline the potential sources of competitive intelligenceinformation, and the accuracy of the information gathered

� demonstrate an understanding of the dynamics of competi-tion and the global competitive environment

� reflect on the relationship between competitive intelligenceand other marketing information systems

� reflect on the legal and ethical issues associated withcompetitive intelligence gathering.

� Defining competitiveintelligence: what it is and isnot

Often business writers and academics tend to meldmarketing research, competitor intelligence,competitive intelligence and economic intelligenceinto one. While there are ‘some’ similarities, as weshall see there are significant and fundamentaldifferences. Thus it is important at this juncture toconsider some definitions.

Marketing researchIn Chapter 5 marketing research was defined as:

the process of designing, gathering, analysingand reporting of information that may be used tosolve a specific marketing problem.

(Burns and Bush 2000)

While there are links between marketing research(MR) and competitive intelligence (CI) gathering,as we shall see, it is incorrect to say that MR = CI.Their scope and scale are very different.

Competitive intelligence (also knownas business intelligence)McDaniel and Gates (1999) define competitiveintelligence as:

the creation of an intelligence system that helpsmanagers assess their competition and theirsuppliers in order to become a more efficient andeffective competitor.

However, it can be debated that this does not fullyreflect the role of competitive intelligence. Sharp(2000) further refines this view when she states that:

Competitive intelligence targets anything in thebusiness universe that affects the ability tocompete.… Intelligence is information that hasbeen analysed and suggests actions, strategies,or decisions. Intelligence reveals critical infor-mation or insight and implications beyond data.

There are two key issues here. First, competitive

intelligence considers everything within the ‘busi-ness universe’. If you like, it looks at the macroenvironment to gain knowledge of the ‘big picture’.Reflect back to Chapter 2 and consider some of themacro issues discussed there and how they impacton organisations. Robbins and Coulter (1996)consider competitive intelligence gathering to bepart of an organisation’s environmental scanningprocess or activity.

Second, there is Sharp’s suggestion that informa-tion and actions go way beyond the original datacollection. The central issue is how individualsinterpret and act on the subsequent information.You may want to reflect back to the brief quote fromvon Clausewitz (1832) and the need for verificationand continual updating.

Lauginie, Mansillon and Dubouin (1994) believethat competitive intelligence is a value addedconcept, and have subsequently defined it as acompetitive strategy. This is a point echoed byWright and Pickton (1998) when they state:

Competitive Intelligence is the strategic processof identifying, understanding and using CriticalSuccess Factors.

Critical success factors (CSFs) are based upon thePareto Principle1 that it is a few core items that actu-ally drive the long-term viability of the business. Inthis context Wheelan and Hunger (1992) suggestthat the CSFs are the 20 per cent of the total factorsthat determine 80 per cent of the organisation’s orstrategic business unit’s (SBU’s) overall perform-ance, and ultimately success or failure. Wright,Pickton and Callow (2002) suggest that ‘using’ (inthe quote above) involves the active employment ofCSFs to direct the competitive intelligence effort.This in turn both informs and drives the develop-ment of a competitive strategy.

Competitor intelligenceSharp (2000) defines competitor intelligence in amore narrow vein, suggesting that it includes‘monitoring and understanding competitors.However, it cannot stand on its own becausetracking only the competition is the surest way todevelop tunnel vision, and be blindsided by significant marketplace changes.’

Lauginie et al. (1994) agree that competitor

80 5 • COMPETITIVE INTELLIGENCE

intelligence is but one part of competitive intelli-gence. They add that the focus of competitorintelligence ‘tends to be on the problems associ-ated with the daily profitable marketing of acompany’s products or services’. Here they focuson profit-oriented organisations, but this isequally applicable to not-for-profit organisations.

Economic intelligenceContrary to what some people may believe, truecompetitive intelligence gathering does not involvesearching through a competitor’s rubbish bins in thedead of night. This is generally unethical, in manycountries it is illegal, and most often it is a fruitlessadventure. It is a plot out of a novel and should beleft to fiction writers. However even the mostrespected of companies can find itself embarrassedby such activities (see mini case 5.3, page 93).

Nor do people have to be trained by shadowyraincoat-clad spymasters from the British SecretIntelligence Service (SIS), the US Central Intelli-

gence Agency (CIA) or France’s Direction Généralede la Sécurité Extérieure (DGSE) to be involved incompetitive intelligence gathering.

However it would be naïve to think that suchactivities do not occur. Indeed, the secret services ofseveral countries are actively engaged in economicespionage on behalf of companies. Both Orton (2002)and Cochran (2003) refer to how security services inthe United States, France and South Korea have beeninvolved in economic intelligence gathering. Insome cases, the government intelligence service hasworked in league with companies to gather the data.

Although many competitive intelligenceanalysts say there is no similarity between compet-itive intelligence and intelligence gathering bynational security services, this it is not the case. Thestaff of national intelligence services are not all likethe fictional spy, James Bond. True, they use elec-tronic surveillance and conduct dangerous covertoperations, especially against terrorists. However,there is a large body of national intelligenceanalysts whose role is not too dissimilar from

DEFINING COMPETITIVE INTELLIGENCE 81

The Body Shop

In 1976 Anita Roddick, who was then aged 34, and herhusband Gordon took out a £4,000 bank loan and bor-rowed money from a friend to open the first BodyShop in Brighton, England. They specialised in a smallrange of beauty products using natural ingredientswhich they packaged and promoted to the increasinglyhealth conscious middle England.

As Jeremy (1998) states, there was:

an increasing concern (post 1950s) for healthand beauty.No longer were the models and stan-dards held aloft in Hollywood movies and in tel-evision adverts unattainable. In sharp contrast tothe 1930s, clean, perfumed bodies, for both menand women, increasingly became the norm.…Anita Roddick drove this new interest in thebody (seen previously as self expression or nar-cissism) forwards, neatly combining concern forhealth, beauty and the environment.

From this one store in Brighton the Roddicks were ableto build a franchised empire that became one of themost respected companies on the London Stock

Market.This was a spectacular rise of fortunes, all with-in a relatively short period of time. Anita’s Roddick’sdetermination to bring animal testing to the forefrontof the media agenda also significantly helped to publi-cise the Body Shop to the consuming public.

The problem for Body Shop’s competitors was thatthey had failed to actively take into consideration chang-ing societal issues – the very issues that the Body Shophad keyed into.Society,especially in the United Kingdom,was looking for beauty products that were natural andwhere the ingredients had not been tested on animals. Inboth cases they wanted the statements to be true andclearly stated on the product containers.Although manyof the major beauty product manufacturers had eitherreduced or eradicated the need for animal testing theyhad failed to alert the public to such changes.Thus whenthe Body Shop actively promoted products that had notbeen tested on animals (and that were good for you) thepublic pounced on the idea.As a result Body Shop fran-chises began to spring up over the United Kingdom.Thisadded further woes to well-established beauty andcosmetics companies which had failed to effectivelyanalysis the competitive environment in which they wereoperating.Source: Jeremy (1998).

Mini case 5.1

competitive intelligence analysts. Both groupsconduct painstaking desk research analysing adiverse range of information, and sometimes theyeven use the same paper sources. However, it is notacceptable for competitive intelligence companiesto resort to the more covert operations that are asso-ciated with national security organisations. Thereare more legitimate means of gathering andanalysing business information.

� Why competitive intelligenceanalysis is important tomarketers

Chapter 2 examined the marketplace from both themacro and micro perspectives. It showed how theenvironments in which organisations operate (andin which we live) are dynamic and complex. Theyare not static but fluid, constantly changing in rela-tion to each other. In order to survive, let alone becompetitive, organisations have to continually scantheir environments for both dramatic and subtlechanges. Environmental scanning has increasinglybecome a critical activity within corporate strategicthinking.

As Wright et al. (2002) state, ‘monitoring, under-standing and responding to competitors has longbeen recognised as a significant marketing activity’.However, they raise the issue that actual analysis ofthe competitive environment has often been subor-dinated to other activities. Yet it is the analysis of the‘bigger picture’ that can assist in the formulation ofeffective and efficient marketing strategy. As indi-cated in Chapter 3, marketers need a firm under-standing of corporate strategy in order to make thelinks between business strategy (at the SBU level)and marketing strategies. In order to achieve thissuccessfully, marketers must constantly scan boththe micro and macro environments. The analysis ofthe information or data gathered can provide a plat-form from which to either anticipate change or reactmore effectively to change.

� Types of organisationalcompetition

Competition exists at a number of levels, and theorganisation must be aware of this when consider-ing the types of competitive strategy to follow. The

highest is the industry level, followed by thecompany level and the product or brand level. Notall competitors compete at all levels, so it is impor-tant to establish at which level the competitionactually exists.

Doyle (1998) identifies four types of competitor.These are outlined in Figure 5.1 (page 84).

� The need to understandcompetitor actions andintentions

All too often companies ignore, to their peril, theactions of their current and potential competi-tors. It is important here to note the inclusion of


The political intentions of a governmentand country

In order to compete internationally, companies need tobe aware of both home and host country political envi-ronments (see the PESTLE model in Chapter 2, page22).The business and thus the marketing environmentare affected by changes in the political doctrines andstructures in countries and regions.

Even in stable democracies, political decisions canpose a significant level of risk to a business. Forinstance, the fact that the United Kingdom is currentlynot part of the eurozone places limitations on the abil-ity of many companies to market their products andservices across the eurozone. Currency conversionfrom Sterling to the euro and vice versa has cost impli-cations. British politicians do not all agree whether ornot the United Kingdom should join the eurozone.Some political parties are in favour of membership assoon as possible, while others believe that the UnitedKingdom should preserve its independence from therest of Europe and retain Sterling as its currency.Companies need to analyse such political thoughts andbeliefs and consider how they will affect them over themedium and longer term.

That example is at one end of the scale.At the otherextreme are governments or political parties that arein favour of (or indeed carry out) ‘hostile’ actionsagainst international companies.These range from poli-cies to privatise or confiscate foreign company assets,to a breakdown of civil law and humanity, with a coun-try slowly collapsing into civil war. When this happens

Mini case 5.2

potential competitors in the analysis. Companiesmight observe the actions of current directcompetitors. However that might not be wherethe greatest threat lies. An excellent case in pointis Coca-Cola and Pepsi, which were so engagedin combat that they did not appear to see VirginCola gaining market share in the Japanesemarketplace.

Thus it is vital for companies to understand theactions, and intentions, of their rivals, most espe-cially within highly dynamic markets. Rothschild(1979) suggests seven key questions that companiesneed to answer in terms of competitor analysis.

1 Who is the competition now and who will be inthe future?

2 What are the key competitors’ strategies, objec-tives, and goals?

3 How important is a specific market to thecompetitors and are they committed enough toinvest?

4 What unique strengths do the competitorshave?

5 Do they have weaknesses that make themvulnerable?

6 What changes are likely in the competitors’future strategies?

7 What are the implications of the competitors’strategies for the market, the industry and thecompany?

West (1999) suggests that a typical competitor information profile should cover 12 areas:

1 Ownership and organisational structure.

2 Financial history.

3 Financial resources.

4 Key decision makers and their experience/track record.

5 Staff resources.

6 Production resources and locations.

7 Product lines (brand extensions) and productportfolios.

8 Patents, licenses and other unique assets.

9 Market and segments served.

10 Distribution channels used.

11 Export activity and country/countriessupplied.

12 Sales and marketing activities.

West (1999) also suggests that the depth and qual-ity of information available will vary from onemarket sector to another, and across borders.However, he contends that data can be obtained on:

◆ Population size, geodemographics.

◆ The structure of distribution and the importance of various channels. (Logistics

THE NEED TO UNDERSTAND COMPETITOR ACTIONS AND INTENTIONS 83

many companies seek to exit the engulfing turmoil assoon as possible. If the company had been scanning thepolitical environment of that particular country orregion it might well have been aware of the impendingdisaster, and have had a pre-planned exit strategy.

Between these two points governments and politi-cal parties often seek mechanisms to protect indige-nous industries, even though this is increasingly againstthe policies of the World Trade Organization (WTO).Using tariff and non-tariff barriers, countries seek togenerate revenues from foreign imports whilst bolster-ing often inefficient local industries and businesses.Therights and wrongs of such actions are an area of signif-icant debate. However, any company seeking to marketits products or services in another country must beaware of current political and governmental activityand possible future intentions.

If they are aware of political intentions in a countryor region, organisations can make decisions on a rangeof issues including:

◆ purchasing raw materials from the country orregion

◆ outsourcing manufacturing to particular countries

◆ marketing to that country or region

◆ the appropriate level of foreign direct investment(FDI), if any within the country or region

◆ the overall level of risk or exposure through theirinvolvement with a particular country or region.

operations will also be relevant informationto gather.)

◆ Total sales, imports and exports of products.

◆ Imports and exports by origin and destination.

◆ Products available and their specifications.

◆ New product launches.

◆ New contracts and successful bidders foroutstanding contracts. (These range frommajor contracts such as the building of a powerplant to a contract to handle the company’sadvertising.)

◆ Prices/pricing policy.

◆ Advertising expenditure by product, industrysector and supplier.

◆ New market entrants. (It is also useful toconsider companies leaving the market andhow that will affect the market.)

◆ Staff movements (for example the appointment

of a new marketing director and how thatmight influence future direction of thecompany).

◆ Financial performance of suppliers. For exam-ple, if a key supplier is struggling to remainsolvent, there could be the following reactions:

● The company buys the supplier in orderto turn that business around and main-tain supplies. This is an example of back-ward integration.

● The supplier is acquired by another com-pany (which might even be a competitor),and the purchasing company increasesprices, which could be detrimental toboth companies.

● The supplier collapses and ceases totrade. The company’s supply chain isaffected, allowing competitors to gainsome market advantage through theirown continuous supply to the market.


Figure 5.1 Competitor types

Cus

tom

er

Indirect competitor Direct competitor

Similar

These offer different products, but tosimilar customers.A company offering fitted kitchens could be anindirect competitor to the FordMotor Company, as it is likely to betargeting similar customers who havelimited financial resources, so theyare likely to buy either a new kitchenor a new car.

A competitor with a similar productthat is being offered to similar customers.These are the easiest toidentify and should be well known toany organisation in the marketplace.

Implicit competitor Product competitor

Different

Competitors who currently offer different products to different customers. However, that may notalways be the case as they seek newmarket opportunities to develop andgrow.

Organisations that offer a similarproduct but to different customers.These should be monitored closelyas they could easily target customerswith their product if they believethat they can offer some differentialadvantage.

Different Similar

Source: adapted from Doyle (1998).

Much of the above and more is covered in thework of Aaker (1995) and Wong and Saunders(1996). This has been brought together in Table5.1, which examines a process for analysingcompetitors within the marketplace.

By having a greater understanding ofcompetitors’ actions and plans, a company canuse a range of business techniques to outper-form them. For example, it could improve itscompetitive performance through the judicioususe of the marketing mix variables or value

chain processes. However, such analysis shouldnot be considered as merely a ‘snapshot’ in time.The world, let alone the business world, iscomplex and dynamic in form, so competitoranalysis must be an ongoing dynamic operation,considering how and why competitorsbehave/react in different ways. It is also impor-tant to consider the influence of the wider macro environment and how the variouselements affect the competitors and triggeractions.

THE NEED TO UNDERSTAND COMPETITOR ACTIONS AND INTENTIONS 85

Table 5.1 Analysing competitors

Stage Process Issues

1 Identifying thecompany’s competitors

Here Aaker (1995) asks several relevant questions Who are the competitors? Againstwhich organisations does the company usually compete? Which are the most intensecompetitors? Who are less intense competitors but still remain a competitive threat?Who make substitute products? (Reflect on the five forces model (Porter 1980): seepage 86.) This also links back to the premise that there are four types of organizational competitor (Doyle 1998) – see Figure 5.1.

2 Determining competitors’objectives

Aaker (1995) suggests that knowing the competitors’ objectives may assist in predicting how they will move or position themselves within the marketplace.Theobjectives could be defined in terms of financial performance, technological developments, brand perceptions/image, level of customer satisfaction targeted andfuture markets to penetrate and sustain. In other words, where is the competitorcompany now and where does it want to be in the short, medium and longer terms?

3 Identifying competitors’strategies

There is a need to analyse competitors’ strategies, both past and present. Simkin(1996) suggests that past strategies need to be analysed as businesses are often predictable in their strategy development and enactment.Thus if a particular tactic orstrategy was successful in the past there is a likelihood that the competitor will repeatit.The converse may also be true: if a particular tactic or strategy did not work in thepast then the competitor may be reluctant to repeat the exercise. However, it mightbe an avenue that another competitor could exploit. If it was not successful in thepast that does not mean it will not be successful in the future. However, many companies are apt to take the safe trusted route in order to minimise risk.

4 Assessing competitors’strengths andweaknesses

It is vital to identify and then analyse the relative strengths and weaknesses of eachcompetitor or strategic group (Aaker 1995). Equally, a company needs to considerhow its own strengths and weaknesses compare and contrast with its competitors.This activity cannot be seen in isolation. As Aaker (1995) states, it should considerwhat leverage points (the company’s strategic weaknesses) competitors could exploitin order to either enter the market, consolidate their position or gain an advantage.Equally, as Aaker indicates, companies need to assess the potential strengths and weaknesses in terms of possible market exit strategies. If exit barriers are high (forexample, high costs involved to withdraw from the market and close factories), asAaker suggests, the competitor may continue to struggle within the market, and thusremain a potential threat. Determining how serious the competitor is in remainingwithin the market will determine the level of resources need to combat any actionfrom the competitor.


� A competitor intelligencesystem

Porter (1980) states that for competitor analysis tobe effective there needs to an ‘organised mecha-nism’ – a competitor intelligence system that willensure an efficient process of evaluation. Porter(1980) suggested a process for identifying the func-tions that must be performed prior to actual analy-sis. Figure 5.2 is an adaptation of Porter’s originalmodel. The section that follows outlines some of thebackground information on companies, and thesources used to obtain such information.

As we saw in Chapter 4, collecting vast amountsof data on an organisation is only the beginning ofthe exercise. The collated data has to be analysed,effective conclusions reached and strategies drawnfrom the analysis. Of course, as with anything inbusiness the strategies should not be cast in

concrete and considered final. There needs to be alevel of flexibility because of the volatility of themarketplace. As well as companies being proactivein their approach to decision making, they must beprepared to be reactive and change or modify plansas required or demanded by the market.

As Figure 5.2 illustrates, there are a series ofstages that companies can utilise in order to gainthe necessary material to analyse to provide a struc-ture for the formulisation of a necessary and aptstrategy.

� Sources of competitorintelligence

Porter (1980) states in his process that the informa-tion that forms the basis of the analysis emanatesfrom both field data and published data. Here is abrief overview of some of the data sources that


Table 5.1 continued

Stage Process Issues

5 Estimatingcompetitors’reaction patterns

As Simkin and Cheng (1997) state, the development of a competitive strategy is notcomplete without an estimation of competitors’ reactions to any moves against them.In the 1960s Xerox enjoyed a virtual monopoly within the photocopier market(Eckles 1990). From its power base it decided to use its market leadership to challenge IBM’s leadership in the computer market by introducing a range of main-frame computers. IBM retaliated by launching a photocopier, challenging Xerox on itshome ground. However, this was only the beginning of the troubles for Xerox.While itwas fighting essentially on two fronts – challenging IBM in the computer market anddefending itself against IBM retaliation – Japanese companies saw the possibility ofentering the US photocopier market.They entered the market with much improvedand less expensive copiers aimed at the SME market.Thus Xerox was fighting onthree battlefronts. Eckles (1990) believes that Xerox lost a significant percentage ofthe copier market to the Japanese companies because it failed to identify, appraise andreact to two fundamental changes in its product/market environment: the emergenceof new markets, and the emergence of new competitors. Since then Xerox have hadto invest in regaining and rebuilding its market position.This example illustrates that:• An attack on a new market can lead to retaliation.• As the two primary competitors battle for position, other newer competitors work

their way into the market thus causing potential disruption to the company that initiated the first offensive move.Thus companies must analyse the potential reactions of all competitors within the marketplace, even those that are currentlyseen as ‘lower level’ challengers.

6 Selecting competitors toattack and avoid

As stated above, companies need to be aware of the risks of challenging companies, especially if they are market leaders and have the resources to combat adirect attack. Moreover, they need to be aware of other potential players within themarket that could acquire market share (as in the case of Virgin Cola mentioned earlier in this chapter) when the two protagonists in the market battle for position inseveral markets simultaneously.

companies can use to build a profile of theircompetitors.

Sales value and volumesThis includes details of competitors’ sales by value,volume and customers by market segment andproduct line. This is not necessarily the easiest ofdata to obtain. Competitors might indicate suchinformation in their annual reports and throughmedia-related material at exhibitions and industryconferences.

Pricing strategiesWhether a company operates within a B2C, B2Benvironment or indeed both, its pricing struc-ture will normally be a matter of public record.However, what may not be in the public domainis the level of discounting that is available.While a consumer may, normally, pay the stated

price, a company will seek discount on volume.Buyers however may provide a valuable sourceof information here. In competitive markets it isthe buyer who will often release details of thedeal it has been offered by one competitor toanother. While it may be argued that this isunethical as it may breach (depending upon thenegotiation) confidentiality, buyers will be seek-ing the best deal for themselves and theircompany.

Product ranges and developmentsDetails of these can often be gleaned from exhibitions and promotional campaigns.

Promotional activities and spendDetails of competitors’ promotional activity mustbe carefully monitored and recorded, and anychanges noted. This information can be obtained

SOURCES OF COMPETITOR INTELLIGENCE 87

Figure 5.2 The functions of a competitor intelligence system

Collecting field data Compiling the data

Cataloguing the data

Digestive analysis

Communication to strategist

Competitor analysis forstrategy formulation

Collecting published data

Source: adapted from Porter (1980).

by collecting copies of the competitors’ promo-tion and calculating the budget from the variousmedia rate cards. Large companies might placeall, or various components of, their promotionalactivity out for pitch. This is usually reported inthe media industry press, along with budgets.The media industry press also reports on forth-coming campaign launches and associatedbudget spends.

Channel management/logistics operationsThe way a company distributes its products canhelp gain it a competitive advantage over itscompetitors. Buyers are increasingly time-limited as they use Just-in-Time (JIT) manage-ment to minimise stock levels and warehousingcosts. Therefore they seek efficient and flexibledelivery systems. Companies need to understandhow their competitors use logistics to meetcustomer demands. This is equally relevant inthe B2C marketplace. In our 24/7 society we canorder products online as and when we want, andwe look for flexible delivery to match ourpersonal time limitations. One of the reasons forthe UK supermarket Tesco’s success in onlinegrocery ordering has been its flexible deliveryservice, which fits customers’ requirements. Notall delivery companies have such flexibility, andthose without it will lose any competitive edgethat they held.

Company and management structuresThis includes details of how the organisation isfinanced and the cost structures. The structure ofmanagement and the identification of the key deci-sion makers will allow closer monitoring of the waythe organisation operates. This information canoften be obtained by analysing annual reports orthrough press coverage in industry-focused media.For example, companies often announce major staffand structure changes through press releases.Increasingly these can be read on the company’swebsite.

Davidson (1997) identifies three main sources ofinformation: recorded data, observable data andopportunistic data.

Recorded dataThis is relatively easily to obtain, and is available inpublished form either internally or externally.Information can be obtained from a wide variety ofsources. These include:

Competitors’ annual reports

If the company is listed on a stock market, it has tomake available to prospective, as well as current,shareholders copies of its annual report. Thisprovides information on its trading position, aswell as its financial position over the previous 12months. In some countries it is also possible toobtain copies of private companies’ reports. In theUnited Kingdom, for example, all private limitedcompanies must file audited financial statementswith Companies House every year. This is a legalrequirement. For a small fee, individuals or compa-nies can obtain copies of their competitors’ reportsdirectly from Companies House. Additionally,many accounting firms will undertake a fullappraisal of a company’s financial status, for exam-ple its gearing ratio (which relates to its level ofborrowing).

Mailing lists

A company executive might join a competitor’smailing list in order to receive copies of the latestpromotional literature. This allows the executive toscrutinise the literature at the same time as thecompetitor’s customers. It often provides informa-tion of products (features and benefits), pricing andpromotional strategies and tactics. The companymight be able to react by, for example, offering aproduct at a lower price than that advertised in thecompetitor’s literature.

Newspapers, trade and professional journals

Timely articles on companies and market sectorscan provide valuable information on productsuccesses and failures, as well as potential externalopportunities and threats. Often in trade publica-tions CEOs talk at length about their company’sactivities. If the CEO is somewhat indiscreet withthe journalist, he or she might say more than he orshe should about his or her objectives and those ofthe company!

It is also important to consider trade and


industry publications not directly related to thebusiness: for instance publications on packag-ing, transportation, distribution channels andlogistics, and employee development. In thesetypes of publications there might be informationon a direct competitor. For instance, a competi-tor might sign a significant distribution dealwith a freight forwarder, and the article or pressrelease appears in freight forwarding tradepublications rather the company’s industry-specific publications. This is why many compa-nies subscribe to press cutting agencies, oftenthrough their public relations departments,requesting cuttings on not only their own presscoverage but their competitors as well.

Television and radio

As with publications, information can be gatheredfrom a range of television and radio programmes.For example:

◆ A news bulletin might reveal that a company isplanning to invest within a particular region ofthe country, stating the level of investment andjob provision.

◆ CNN, Bloomberg and BBC Worldwide broad-cast business information on companyperformance, market share and productlaunches/developments.

◆ CEOs and other senior executives are regularlyinterviewed.

◆ There is an increasing range of documentariesthat feature companies and business sectors.While there is a time lapse between the docu-mentary being made and broadcast, it is possi-ble to glean longer-term intentions or indeeddiscover inherent weaknesses. Competitorsseeking to gain increased market share canexploit such weaknesses.

◆ Consumer programmes. These tend to behighly current (often live) and thus relevant. They may reveal problems thatcompetitors have in supplying particular prod-ucts or services, including quality controlsystems.

Just as with press cutting services, companies cansubscribe to television monitoring services that willvideo record specific programmes.

The Internet

As companies move ever closer to real-time pricechanges, they need to study competitors’ websites onan ongoing basis, A company’s website can revealmuch about its e-marketing capabilities. Online newsdatabases such as Lexis-Nexis and the FinancialTimes can provide details on company’s financialperformance and recent stock and product issues.

Business directories

These also provide vital information. This includeslistings of companies and corporations, their exec-utives’ names, their subsidiaries, number ofemployees and product/service range. These areusually updated annually, and are increasinglybecoming available over the Internet. KompassDirectories, for example, contain information onover 1.5 million companies in 66 countries, 23million products and services, and over 400 000trade and brand names.

Local and regional telephone directories

These can provide information on potentialcompetitors. Most countries have their ownversion of Yellow Pages that lists companiesoperating within a defined area. Generally, theyare very well cross-referenced, so it is relativelyeasy to discover which companies operate in aparticular market sector. As well as listingsunder business area, companies also advertise,and their advertisement may reveal product andcompany details.

Government reports

Governments publish regular reports and updateson statistics, trade and financial information. Muchof this is now readily available on governmentdepartment websites. Such information can helpcompanies determine whether their competitorshave access to favourable tax incentives (for exam-ple, in regional development areas) or other home-based or host-based trading benefits.

Government research

Governments also publish reports relating to fairtrading, trading standards and monopolies andmergers, which often contain significant detail oncompany activities. In the 1960s the British

SOURCES OF COMPETITOR INTELLIGENCE 89

Government’s Monopolies Commission reporton the industrial gas market provided valuableinformation on the size and segments of themarket. At the time the British Oxygen Corpora-tion (BOC) was the market leader, and the reportalso contained details of BOC’s production,distribution, costs and profits. This informationwas used successfully by Air Products to gainentry into the marketplace (James 1985).

Specialist research companies

Companies such as Mintel and Dun & Bradstreetcan provide companies with specialist analysis ofmarkets and the major players within those markets.

Observable dataThis data has to be actively sought, and oftenassembled from a number of different sources.Many companies regularly buy competitors’ prod-ucts to analyse the product itself, its pricing andsupportive promotional activities. Retailers oftenuse secret shoppers to discover what specialpromotions their competitors are offering.

The product analysis may even include thecompany’s engineering and design teams ‘break-ing down’ the product to identify competitive costs,design features, performance characteristics andproduction methods. This is known as reverse engi-neering. The Ford Taurus car was a product ofreverse engineering, as Ford’s engineers examinedcompetitors’ cars and incorporated the best featuresin their own model (Haddigan 1995).

In terms of services, what better way, for exam-ple, than for airline executives to fly on a competi-tor’s aircraft rather than their own? By experiencingsay a business-class flight on a rival carrier, an exec-utive can gain a better understanding of how his orher company’s competitors either maintain theiradvantage or might leverage advantage.

The removal of older products from the market-place can also provide useful data on the competi-tor’s perception of the marketplace, and its futuremarketing strategies.

Opportunistic dataThis is much more difficult to collect. Much of thistype of data is anecdotal, obtained from suppliers

or at trade shows, exhibitions and conferences.However, it might be more gossip than hard factualdata. To act on this type of information (withoutcorroborating it) – reflect back to von Clausewitz’squote on the reliability of intelligence at the start ofthis chapter – would be suicidal for any company.Occasionally customers served by both thecompany and its competitor prove a rich source ofdata. Of course a disgruntled customer might exag-gerate his or her comments, but this can still furnishthe sales team, for instance, with additional infor-mation that they can analyse in conjunction withother sources. In such cases the sales team can be avital source of competitor information.

� Analysing competitorintelligence

Collecting vast piles of raw data or information isonly the starting point. As we mentioned whendiscussing the competitive intelligence system(Porter 1980), this data has to be analysed, and it isthis analysis that contributes to strategy formula-tion. Cravens (1982) identified six areas that need tobe considered as the starting point for the analysis.

Industry structure and characteristicsAll industries are structured differently, so it isnecessary to define clearly the way the particularindustry is structured. The structure needs to beanalysed carefully to ensure that no substruc-tures have been overlooked. Details of the char-acteristics of the industry must also be definedcarefully. These will indicate how the industryoperates within the structure, and help identifythe major players and the type of organisationthat might decide to join competition in thefuture.

Strategic groupingsWithin the industry it is also necessary to identifyand analyse the strategic groupings of the players.Not all organisations in an industry try to serve thesame set of customers, or even provide the sametypes of benefit to the marketplace. The differentgroups need to be identified and their strengths andweaknesses analysed. This will provide insight into


the opportunities the organisation and its competi-tors might try to exploit, and threats they mustavoid to survive.

Key competitors

The next stage is to identify and describe the keycompetitors. Not all organisations in an industrywill be a company’s competitors, therefore it isimportant that the key ones are clearly identifiedand analysed. This must include their salesrevenue, market share, share price movements (ifthe company is stock-market listed), details of newproducts launched into the market, and new seniorstaff appointments and what values or insights theycan bring to the organisation. Much of this informa-tion will be known or readily available, but it needsto be collected and formalised. This informationestablishes not only the company’s position in themarketplace, but also that of the key competitors.

Evaluation of the data

Then follows a full evaluation of the data that thecompany holds or has collected on these keycompetitors. It is necessary for the organisation toknow as much about the workings of the competi-tors as it does about itself. This needs to go evendeeper than a SWOT analysis, as it is necessary tounderstand how the organisations think and workin practice. From this type of analysis it is possibleto anticipate likely future actions by competitors sothat the company can be in a position to react to, orindeed pre-empt them.

Potential new competitors

It is also necessary to be able to identify any poten-tial new competitors entering the marketplace, andthe likely effect of their entry.

Competitor organisations leaving themarketplace

Likewise the possibility of any competitor organisa-tions leaving the marketplace, and the action thecompany would need to take to secure their marketshare. Of course there are costs involved in exiting

a market, as there is in entering the marketplace.(Refer to Porter’s five forces model: see page 107.)

Johnson and Scholes (2004) list a number of ways ofassessing competitors; while this list is not exhaus-tive, it forms a basic framework from which toassess the strengths and weaknesses of competitors.The assessment is divided into three major areasstarting with size and relative market share. Thisincludes the extent of product/service diversity,degree of geographical coverage, number and typeof market segments being served and the types ofdistribution channels being used. An analysis ofthese areas provides a good indication of the powerof the organisation within the marketplace.

Details of the branding philosophy are alsorequired, and these are identified through evalu-ating the product/service quality, the marketposition of the organisation providing that prod-uct or service (leader, challenger or follower), itstechnological position (leader, challenger orfollower) and its research and development capa-bility. This analysis provides a view of how itscustomers perceive the organisation in themarketplace, and indicates if there are any gapsin the way it serves its market.

Finally, the cost structure and behaviour of theorganisation need to be considered. What is thepattern of ownership? Is the organisation over orunder-capitalised? What is its internal culture?Many organisations are paternalistic, whileothers try to buy staff loyalty through high payand incentives or benefits. What is the degree ofvertical integration? How much control does theorganisation have over its suppliers and its chan-nels of distribution? Finally, what is its reputa-tion in the marketplace? Does this reputationgive the organisation any differential advantageover its competitors?

By careful analysis of the findings it is possible tocompare competitors not only with one company,but also with every other company. This canprovide a very useful insight into the way themarket operates at the company level.

It is suggested that a SWOT analysis is a veryuseful tool in establishing competitive position.What is required is identification of the weak pointsof the competition. A number of factors should besought when undertaking the weaknesses analysis,and these should include:

ANALYSING COMPETITOR INTELLIGENCE 91

◆ Finance analysis: look for low profit margins,poor growth or high-cost operations or distribution.

◆ The markets being served. Is there over-dependence on one market, and more partic-ularly on one customer within that market?Is the competitor only strong in fallingsectors of the market, and does its orienta-tion tend to short-term survival rather thanlong-term growth?

◆ Any indication of industrial relations problemscan also indicate weaknesses in the way theorganisation operates.

Analysts also need to look for organisations thatare predictable, or with products or services thatare obsolescent or weak. Companies with highmarket shares can be as vulnerable as those withlow market share. Another sign of weakness isslow-moving bureaucratic structures and fiscalperiod fixation. Companies that work everythingfrom costs are particularly vulnerable, as they can-not react to market changes quickly enough. Donot forget that the entrepreneur Henry Ford(1863–1947) became famous because he set theprice first, to match market conditions, then worried about the cost of producing the product.

It is important to remember that the gatheringand analysis of intelligence data is not a one-offexercise. Both current and potential competitorsmust be monitored on an ongoing basis tomaximise the long-term benefits.

� Legal and ethical implicationsof competitor intelligence

As stated earlier, competitor intelligence gatheringis not about searching through a competitor’srubbish bins in the dead of night. This is unethical,in many countries illegal, and most often a fruitlessadventure. However, it would be extremely naïveof us to imagine that such activities do not takeplace. Companies do engage in industrial espi-onage, using either their own staff or variousprivate agencies,. Industrial espionage can bedescribed as attempting to discover a competitor’strade secrets by illegal and/or unethical means.This is straightforward spying, and is usually usedby companies, and sometimes governments, to

gain intellectual or propriety information. (Propri-ety right is a legal term that refers to, for example,the rights of ownership of a drug trade markedunder and protected by a registered trade name.)

The two mini cases that follow are very differentin form. In Mini case 5.3, a usually reputablecompany crossed the line between acceptable andnon-acceptable practices. Mini case 5.4 is at theother extreme: it concerns deliberate attempts tosteal trade secrets to gain a series of major advan-tages, politically, technologically, economically andin the marketplace.

RegulationIn February 1999, the US Federal Bureau of Investi-gation (FBI) and the US Chamber of Commerceannounced that US companies were losing a stag-gering US$2 billion a month because of corporateespionage (NACIC 1999). To counter this loss,governments are increasing turning to their legalsystems. In 1996 the US government passed theEconomic Espionage Act. The Act makes it a criminal offence for:

Any person to convert a trade secret to their ownbenefit, or the benefit of others intending or know-ing that it would be injurious to the owner of thetrade secrets. The term trade secret refers to allforms and types of financial, business, scientific,technical, engineering or economic information,which includes patterns, plans, compilations,procedures, methods, techniques, codes, processesno matter how the information is stored.

(NCIX 2004a)

The Act covers industrial espionage that occurswithin the United States, is a furtherance of anoffence conducted within the United States, orwhere the offender is a US citizen or organisation.The penalties are severe:

The courts can impose up to a 15 year prisonsentence and/or a maximum of US$500,000 fineon an individual, and a US$10 million fine on anorganisation who steals or destroys a trade secretof value with intent to benefit a foreign country.Equally, the court can impose up to a10 year prison sentence and/or a maximum$250,000 fine on an individual and a


US$5 million fine on an organisation who know-ingly steals or destroys any trade secret with theintent to economically benefit anyone other than

the owner; and injure the owner of the trade secret.(NCIX 2004a)

LEGAL AND ETHICAL IMPLICATIONS 93

Crossing the line in the sand

In 2001 Procter & Gamble (P&G) revealed that it hadconducted a corporate espionage programme againstseveral competitors, with specific reference to its majorrival Unilever. P&G was particularly interested in gain-ing information on the competitors’ hair care ranges.Unilever’s brand ranges Salon Selectives, Finesse,Thermasilk and Helene Curtis were in direct competi-tion with P&G’s own brands, which included Pantene,Head & Shoulders and Pert.

In order to obtain the information P&G had hired acompetitive intelligence contractor which had, in turn,hired several subcontractors.As the operation expand-ed, lack of control led to over-zealous analysts breach-ing both general and company-specific codes of con-duct.The analysts acting on behalf of P&G went ‘dump-ster diving’* at Unilever’s US hair care headquarters inChicago. Over a period of several months it is believedthat the analysts obtained over 50 sensitive documents.These apparently revealed significant amounts of dataon Unilever’s brands, new product developments, pro-posed selling prices and even margins.

Eventually details of this operation came to theattention of senior executives at P&G, including chair-man John Pepper. Shocked by what he heard, Pepperhalted the intelligence-gathering operation andlaunched an immediate investigation.The result was thedismissal of the three managers directly involved in theproject.Then in an unprecedented move, in April 2001Pepper contacted Unilever to reveal what had beenhappening since 2000.

Pepper’s motives in contacting Unilever were probably:

◆ To reveal upfront what had occurred to limit anylong-term damage to the reputation of thecompany. If the story had been ‘broken’ by themedia, P&G would have found it difficult to managethe publicity. Being honest and open and demon-strating that the company had taken action againstthe instigators placed it in a far better position todeal with the criticism. It was being proactive ratherthan reactive.

◆ To show that although the company was highlycompetitive in the marketplace, such activity wasagainst its principles.

◆ To move towards an upfront settlement to preventUnilever suing P&G. A court battle would mostlikely have damaged the reputation of the company,and affected its share values. Moreover, if (as waslikely) it had lost, P&G might have been forced topay punitive damages.

In September 2001 executives from P&G and Unileverreached a settlement after several months of negotiation.The terms of the settlement have not been disclosed byeither company. However press speculation estimatedthat P&G paid some US$10 million. John Pepper stated:

We believe the agreement protects both P&G’s andUnilever’s business interests. I have been personallyinvolved in ensuring that none of the information hasbeen or will be used in any P&G plans.This agreementwill have no impact on the effectiveness of our prod-uct or marketing plans and will not inhibit fair andrigorous competition in the marketplace.This was anunfortunate incident.The activities were not in keep-ing with P&G principles and policies.We’re convincedwe did the right thing by voluntarily and promptlymaking Unilever aware of this incident, quarantiningthe information and working with them to protecttheir interests.We expect this agreement will bringthis situation to an end so we can focus fully on serv-ing consumers and building our business.

Sources: A. Serwer, ‘P&G comes clean on spying operation’,Fortune, 30 August 2001; J. Mclean,‘Unilever threat to P&G on“spying”’, London Evening Standard, 31 August 2001; ‘Shampoogiant caught spying’, BBC Business Online, 31 August 2001;‘P&G and Unilever reach an agreement’, P&G press release, 6September2001; ‘Settlement in shampoo spy case’, BBCBusiness Online, 6 September 2001; ‘P&G settles withUnilever’, CCN Money, 6 September 2001; A. Serwer, ‘P&G’scovert operation: an intelligence-gathering campaign againstUnilever went way too far’, Fortune, 17 September 2001.* Dumpster diving is also known as waste archaeology. An individualstudies the waste collected from rubbish bins in order to find docu-ments or plans of intent.These might include drafts of advertising cam-paigns, copies of price lists and/or complete drafts of financial and newproduct development plans.

Mini case 5.3

Bellocchi (2001) believes that the US Act has madesignificant improvements in protecting the secretsof American corporations. However there areweaknesses in its provisions. Bellocchi believes

these shortfalls relate, in part, to the fact that it doesnot create a mechanism to take action againstforeign countries actively engaged in economicintelligence gathering. Indeed the US government’s


Konkordski

As indicated earlier, governments sometimes work withcompanies to gain competitive information. Countriessuch as France and China have been accused in the pastof aiding and abetting some of their companies. One ofthe most infamous incidents was the stealing of theplans for the Anglo-French supersonic airlinerConcorde by the KGB, the then Soviet Secret Service.The KGB recruited an aeronautical engineer – code-named ‘Ace’ – who handed over tens of thousands ofpages of technical specifications.

There were three key aims in obtaining this information:

◆ World political prestige. The world was still verymuch in a Cold War state and the Soviet Union wasa major rival to Western industrial, economic andcommercial power. It was clear at the time that itcould not afford to lose its positioning.

◆ World airline prestige. It was believed at the timethat supersonic flight had enormous commercialand financial possibilities.The aircraft manufacturerthat built a cost-effective supersonic transport (interms of purchase price) would gain orders fromthe leading airlines, and this would give its homecountry commercial power.

◆ If it could be first into the sky, and thus the market,the Soviet Union hoped to become market leaderand take market share from Concorde.

When pictures of the Tupolev TU-144, the plane devel-oped using this stolen information, were first releasedit was so strikingly similar in appearance to Concordethat it was dubbed Konkordski. It first flew severalmonths before Concorde, and was able to achievesupersonic speeds. However the TU-144 was an ill-fated aircraft. Before it was flown to Paris for the 1973Paris Airshow, the Tupolev Design Bureau added sidefins just behind the cockpit for additional stability.This apparently intrigued the French authorities, who decided to photograph the TU-144 in flight.

There are conflicting reports about what really hap-pened at the Paris Air Show. All airspace above ademonstration flight at an air show is normally keptclear, but it is believed that a French Mirage fighter flewabove the TU-144 to take photographs.As the Russianpilot climbed above the cloud he saw the Mirage, andtook evasive action. This stalled the engines, and theonly way he could restart them was to place the aircraftinto a dive and then climb out of the dive once theengines started. It is clear from footage of the incidentthat the aircraft was coming out of the dive when thetail section broke up, followed by the mid portion.Thecrash that followed killed the crew, observers on board,and several people in a nearby village who were hit bydebris. It is the view of Concorde designers and a former test pilot that Concorde would have survivedsimilar g-forces to those the TU-144 faced, as suchstresses on the airframe were built into the originalspecifications.

The point here is that while the Soviet plane mak-ers had thousands of pages of drawings and notes, theydid not have the deeper insight that motivated theBritish and French designers. Industrial espionage gavethem a short-term advantage – being the first super-sonic transport – but it did not provide them with along-term advantage.

After several modifications the TU-144 went intoservice as a transport aircraft within the then SovietUnion. However, a subsequent crash in 1977 endedthe chances of the Soviet Union competing in thecommercial supersonic aircraft market, although itclearly had the ability to do so. If such commercial andpolitical pressures had not been exacted on theTupolev Company, perhaps the history of supersonicflight would have been different. Tupolev might haveemerged as an aircraft manufacturer to rival bothBoeing and Airbus within the international market-place. Passenger supersonic aircraft might still beenflying today.*Source: Konkordski, Channel 4 television documentary, 2002.

* Both Air France and British Airways retired their Concorde fleet in2003.

Mini case 5.4

own statistics indicate that ‘foreign businessmen,scientists, academics and government officials frommore than 90 countries continued targeting sensi-tive US technologies and corporate trade secrets inboth 2002 and 2003’ (NCIX 2004b). Bellocchi (2001)claims another problem is that civil suits againstforeign companies, and even foreign governments,are not allowed in US courts.

In spite of these problems the US Act appears atleast on the surface to be having some impact.Other governments have also sought to protectindigenous industries from such attacks andthreats. However, it seems obvious (even if this is asomewhat cynical view) that governments willcontinue to spy on foreign companies if theybelieve it is in the best interest of their nation.

Most people involved in gathering intelligenceon companies do so without resorting to illegal, andunethical actions. Professionals involved in compet-itive intelligence gathering abide by codes of ethics.The Society of Competitive Intelligence Profession-als (SCIP) Code of Ethics is reproduced in the box.

� Chapter summaryThe gathering of competitor information is vital tothe survival and growth of virtually any business.It can be argued that this is now even more true, ascompanies increasingly operate globally. However,companies gathering such information must beaware of the legal and ethical implications. Somecompanies, and indeed nations, do undertake ille-

gal industrial espionage to gather covert informa-tion. In most cases there is only a short-term return,and the risks associated with such adventures canbe overwhelming.

Companies that use ethical and legal avenuescan call on a wealth of data resources. However, thekey is in analysing and processing the data toprovide a basis for individuals and companies tomake informed decisions that affect the strategicdirection of the business.

It is important to remember that the gatheringand analysis of intelligence data is not a one-offexercise. Both current and potential competitorsmust be monitored on an ongoing basis tomaximise the long-term benefits. By monitoringcurrent and potential competitors carefully, acompany can protect its market position. Goodintelligence is a collection of knowledge that hasbeen verified and analysed, that can be applied to abusiness scenario to make a viable decision.


1 Outline, in detail and using additionalresources, the reasons that competitor intelli-gence gathering is an important aspect of gaining market share.

2 Outline the types of resource that can be usedto gather information on a company.

CHAPTER SUMMARY 95

SCIP Code of Ethics for Competitive Intelligence Professionals

◆ To continually strive to increase the recognition and respect of the profession.

◆ To comply with all applicable laws, domestic and international.

◆ To accurately disclose all relevant information, including one’s identity and organisation, prior to all interviews.

◆ To fully respect all requests for confidentially of information.

◆ To avoid conflicts of interest in fulfilling one’s duties.

◆ To provide honest and realistic recommendations and conclusions in the execution of one’s duties.

◆ To promote this code of ethics within in one’s company, with third-party contractors and within the entireprofession.

◆ To faithfully adhere to and abide by one’s company policies, objectives and guidelines.

© 2004 Society of Competitive Intelligence Professionals.

3 Take an multinational corporation of your choice.Spend a day in a major reference library research-ing all you can on the organisation. Supplementthis with information from the Internet. Thenconsider what tools and techniques you wouldrequire to analyse this information.

4 Take a multinational corporation of yourchoice and study its website. What sort ofinformation or data does it present that mightbe of interest to a competitor?

5 We considered the US Economic Espionage Actof 1996. Use the Internet to discover whichother countries have, or are considering, simi-lar types of legislation.

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■ IntroductionThis chapter examines the relationship betweenstrategy and marketing. It builds upon the knowl-edge gained in Chapters 2 to 5, and signals some ofthe issues that will be examined in the later chapters on the marketing mix and branding.

As Grant (2002) suggests, strategy is not adetailed plan or programme of instruction; it is aunifying theme that provides coherence and direc-tion to the actions and decisions of organisations. Inorder to achieve this aim the marketer must be able to:

� analyse both the micro and macro environ-ments using appropriate tools and techniques

� continually refine this analysis in relation tochanging environmental conditions

� continually analyse competitive actions and beable to either pre-empt or react to such actions

CH

AP

TE

R

6Strategy in Marketing

Learning outcomes 97Introduction 97What is strategy? 98Strategy levels 99Corporate strategy level 99Business strategy level 99Functional strategy level 99The marketing–strategy

relationship 99The marketing audit 100Environmental audit 100Marketing strategy

audit 101Marketing organisation

audit 101Marketing systems

audit 101Marketing productivity

audit 101Marketing function

analysis 101Ansoff’s portfolio

matrix 102The GE matrix 103Market attractiveness 103Business position (also

known as businessstrength) 103

SWOT analysis 104The five forces model 106The threat of new

entrants 107The threat of

substitution 108The power of suppliers 108The power of buyers 109Industry competitors 110

Competitive advantage:generic strategies 110

Competitive scope 110Competitive advantage 110Analysis of generic

strategies 111Focus 112Stuck in the middle 112Adding value to the

product or service 112Company infrastructure 112The human resource

management team 112Technology

development 112Procurement 112Competitive market

positioning strategies 113Market leader 113Market challengers 113Market followers 114Market nichers 114Competitive and

defensive positions 114Position defence 114Pre-emptive defence 114Counter-offensive

defence 115Mobile defence 115Strategic withdrawal 115Frontal attack 116Flanking attack 117Guerrilla attack 117Chapter summary 117Questions for review


Contents


� discuss the relevance of strategy to marketing

� explain the role of the marketing audit in relation to meeting the organisation’s overriding objectives

� debate how various strategic tools or tech-niques can assist marketers to meet bothmarketing and corporate objectives

� explain how organisations can gain and defendmarket share within turbulent markets.

Learning outcomes

� link marketing to the overall ambitions of theorganisation (the corporate strategy), but witha need for flexibility

� marshal or group resources and core compe-tences to compete within the market place

� marshal the components of the marketingmix to both compete within the market placeand achieve the overall objectives of theorganisation.

The subject of strategy is a particularly large one,and many books have been written on it. This chap-ter provides a brief overview of some of the rele-vant key issues. You are advised to supplement itby reading more widely on this topic. The referencesources mentioned in the chapter provide a goodstarting point.

■ What is strategy?Before examining the relationship between strategyand marketing, it is worth briefly considering themeaning of strategy. The word ‘strategy’ has itsbasis in military campaigns dating back to theAncient Greeks. Leaders and their generals devisedstrategies to conquer nations using appropriatetactics to defeat their enemy. In military terms theconcepts have basically remained the same,although the range of weaponry to support thetactics has increased dramatically.

The deployment of strategies and tactics in themilitary sphere has been around for centuries.However the overt discussion of strategies andtactics within the business world is relatively new.Much of the analysis of the competitive environ-

ment and use of strategies and tactics dates from the1960s. Ideas and concepts have been introduced andrefined along the way, and will continue to be so.

Mintzberg et al. (2003) describe strategy as:

The pattern or plan that integrates an organiza-tion’s major goals, policies and action sequencesinto a cohesive whole. A well-formulated strat-egy helps to marshal and allocate an organiza-tion’s resources into a unique and viable posturebased on its relative internal competencies andshortcomings, anticipated changes in the envi-ronment, and contingent moves by intelligentopponents.

Being aware of the micro and macro environmentalfactors is critical in judging the scope and scale orresources necessary to compete within the market-place. Aligned with this is a key phrase in this defi-nition, ‘a well-formulated strategy helps to marshaland allocate resources’. As with a militarycampaign:

� There has to be the appropriate level and typeof resources.

� They need to be deployed efficiently and effec-tively to support the organisation’s corporateobjectives and goals.

� There needs to be flexibility to be both proac-tive and reactive to changing environmentaland competitive conditions.

98 6 • STRATEGY IN MARKETING

Strategic Business Unit 1 Strategic Business Unit 2 Strategic Business Unit 3

Marketing Finance Ops HRM Marketing Finance Ops HRM Marketing Finance Ops HRM

Figure 6.1

The three key levels of strategy in many organisations.The strategic business units may be located in differentcountries, not necessarily the company’s home country.

Corporation – Parent company – MultinationalCEO and Board of Directors

� The analyst must continually monitor andanalyse micro and macro environments in orderto understand and pre-empt market changes.

However, ‘strategy’ does not occur at just one levelwithin an organisation. It is involved at manylevels, as is shown in the next section.

■ Strategy levelsUnless the business is a micro business (with asingle owner–operator), strategy will not be carriedout at only one level. Strategies are normallyconceived and deployed at three levels: the corpo-rate, business and functional levels (see Figure 6.1).

Corporate strategy levelThis is the overall strategy that governs the directionof the company. Usually it addresses two fundamen-tal questions: what business are we in? And whatbusiness should we be in? These are not one-offquestions but ones that should be asked on a regularbasis. Only by asking such questions can a companyfully understand how the macro environment (seeChapter 2) affects its business objectives. Marketschange, and if those changes are not addressed,using appropriate resources, the company mightfalter, be overtaken by competitors, or discover it isin a shrinking market with no future.

Business strategy levelWhat are often known as strategic business units(SBUs) can be either divisions or subsidiaries of amuch larger organisation, sometimes known as theparent. They usually focus on distinct products orservices, and have a defined market segment(s).The business-level strategy usually seeks to addressthe question, how can the business unit competesuccessfully within the chosen market segments,achieving competitive advantage? If the businessunit is successful at achieving competitive advan-tage, it might well help the parent to gain andsustain competitive advantage as well. Specificquestions within this overarching theme include:

� Can new opportunities and new markets beidentified?

� Can the business unit’s strengths and weaknesses be clearly identified?

� Can new products and service opportunities beidentified that match current and potentialcustomer needs?

� Can the business unit deliver the new productsand services that match the customer’s needsat the price/quality level expected?

� Can the business unit counter competitoractions to protect its share within the segmentof the market?

� Can the business unit exploit external opportunities while countering externalthreats?

Many of these questions can be answered by theuse of such tools as a SWOT analysis (see page 104).

Functional strategy levelThese are also known as the operational units of abusiness although that can be confusing when acompany has Operations as one of its functions. Itis more appropriate to consider them as the func-tions of the company, such as finance, humanresource management, distribution and operations.Although often considered separately, they must beseen as integrated units working together toachieve both business-level and corporate-levelstrategies.At the functional level the key questions are:

� What goals have to be achieved at the func-tional level to ensure strategic success at thebusiness and corporate levels?

� What resources are required at the functionallevel to achieve those goals?

■ The marketing–strategyrelationship

Ohmae (1982) suggests that there is strategic trian-gle that encompasses the organisation’s strengths,the competitors’ strengths and the customers’needs (see Figure 6.2). While this provides a goodstarting point for discussion, it is nonetheless asimplistic overview. For instance, the impact of the

STRATEGY LEVELS 99

external macro environment has to be considered.Equally, weaknesses of the different organisationsmake them vulnerable to attack. Ohmae himself(1982) suggests that there is the need to move awayfrom ‘the realm of the abstract to the realm of theconcrete’. Thus, there needs to be wider explorationof how strategy and its tactics operate within thereal world.

Taking this theme slightly further, Ohmae’striangle needs to be looked upon as operating in adynamic (often turbulent) environment. An organ-isation has to consider not only competitors’ posi-tions within the market but also customers’ needsand wants. In order for the organisation to competeit needs to consider its strengths. Among these arethe resources and competencies (sometimes calledcapabilities) within the organisation. As Grant(2002) states:

During the 1990s, the ideas concerning the roleof a firm’s resources and capabilities as the prin-cipal basis for its strategy and the primarysource of profitability coalesced into what hasbecome known as the resource-based view of thefirm [his italics]. Central to this ‘resource-basedview’ is the idea that the form is essentially apool of resources and capabilities, and that theseresources and capabilities are the primary deter-minants of its strategy.

It is important to note that some authors use theterm ‘capabilities’ whilst others use ‘competencies’.Although it can be argued that there are differencesin meaning, they are generally taken as interchangeable.

Capabilities or competencies take two forms:

� Threshold competencies are the same as thoseheld by the competitors, easy to imitate andnecessary to exist within the industry ormarketplace.

� Core competencies on the other hand are thoseresources and competencies that are differentfrom competitors’, are difficult to imitate andare superior to competitors’.

The combination of threshold and core compe-tencies provides the company with a view ofwhere its strengths lie at a particular point.However, there is the need to continually reviewthese competencies. One of the many areas thatmust be examined is the organisation’s market-ing effort, and this can be achieved by carryingout a marketing audit.

■ The marketing auditKotler et al. (1989) describes this as:

An independent examination of the entiremarketing effort of a company, or somespecific marketing activity, covering objec-tives, programme, implementation and organ-isation for the purpose of determining what isto be done, appraising what is being done,and recommending what should be done inthe future.

However, as Baker (2000) contends, it should alsobe used to identify future trends, opportunities andthreats in both the micro and macro environments.This will then link in to the practical technique ofthe SWOT analysis (see page 104).

A typical marketing audit consists of the following elements.

Environmental audit

1 Macro environment.

2 Micro environment.

These issues are dynamic and must be reviewed onan ongoing basis (see Chapter 2).


Figure 6.2

Customers’ needs

Organisational Competitors’strengths strengths

Ohmae’s strategic triangleSource: Ohmae (1982).

Marketing strategy audit

1 Marketing objectives.

2 Strategy.

The corporate objectives need to be stated clearlyand to lead logically into the marketing objectives.Equally, the marketing objectives must be in a clearformat to drive marketing planning and perform-ance measurements (for example, benchmarking).The marketing objectives must be appropriate,given the company’s positions, resources andcompetencies.

The marketing strategy must be linked to theobjectives and be realistic (achievable) given thelevel of resources available (now and planned forthe future).

Marketing organisation audit

1 Formal structure.

2 Functional efficiency.

3 Interface efficiency.

An organisation can have a brilliant product orservice. However, if the marketing team is poorlyled and ill-trained, the chances of the product orservice becoming a success are limited. Equally, themarketing team needs to interface with other func-tional units, for example, operations and finance.Such interfaces must be effective and efficient to drive not only the marketing effort but the corporate objectives as well.

Marketing systems audit

1 Marketing information systems (MIS).

2 Marketing planning systems.

3 Marketing control systems.

4 New product development systems.

Information is vital, and this emanates frommarketing research and competitive intelligence,combined into an MIS. The information must betimely, accurate and actionable. The planningsystem will utilise MIS data, as well as data from

elsewhere, and thus must be well developed andeffective. Even within a turbulent environmentthere has to be some form of control in order toorganise and monitor daily, weekly and monthlyactivities to meet the overall objectives.

Organisations need time to research and testnew product ideas (discussed in Chapter 9). There-fore systems need to be in place to generate, screen,organise and test ideas.

Marketing productivity audit

1 Profitability analysis.

2 Cost-effectiveness analysis.

It is important to analyse on a regular basis theprofitability of the products or services, segments,markets and distribution channels. Companies alsoneed to examine whether it is profitable to:

� enter new markets (and when to enter them)

� develop and implement market expansion

� withdraw from a segment, a market or an entire industry. If so what are the cost implications of doing so?

As well as looking at profitability, companies needto consider costs. Some companies take a veryaggressive stance, seeking to eliminate costs wher-ever possible in the organisation. An example ofthis approach is Europe’s low-cost no-frills airlines.(See Porter’s generic strategies, page 110.)

Marketing function analysis

1 Products and services.

2 Price.

3 Promotion.

4 Place.

5 People.

6 Processes.

7 Physical evidence.

8 Psychology.

9 Performance.

10 Packaging.

THE MARKETING AUDIT 101

Each one of these elements has objectives that linkinto the marketing and hence corporate objectivesof the organisation. While these are considered asseparate entities for the sake of presentation, in real-ity a holistic view should be taken. Chapter 8 high-lights the origin of the marketing mix, and as theterm indicates, they can be ‘mixed’ together, so anintegrated approach should be considered. (Thislist is adapted and developed from Kotler, Gregorand Rogers (1989).)

■ Ansoff’s portfolio matrixAnsoff (1987) believed there were two related typesof strategy that described an organisation’s strate-gic development, portfolio analysis and competi-tive strategy. Ansoff’s matrix is a portfolio analysisthat examines the organisation’s activities withinexisting markets and potential markets withcurrent products and new developments. Thestructure is illustrated in Figure 6.3.

Table 6.1 examines each of the quadrants thatcomprise the portfolio matrix, giving examples ofeach activity.

The Ansoff portfolio matrix is particularly goodat examining growth strategies. However, it maynot be in its best interests for a company to expand.That might sound like a contradiction, but if forexample a company is faced with turbulent marketconditions, to attempt to maintain its positionacross several market segments, let alone expand,could be a suicidal strategy in the longer term. The

best strategic option would be for it to retrench andfortify its position.

A retrenchment strategy can take on severalforms, and be implemented as either an individualtactic or a combination of tactics. These include:

� Divest non-core businesses: this is perhaps themajor retrenchment tactic, and usually the onethat gains the largest return for the divestingcompany. Divestment can mean either closureof the business or selling it to another company(ideally not a rival) at an appropriate marketvalue. If the company decides to close a busi-ness there will be costs involved. These caninclude redundancy payments to staff, assis-tance in finding the staff alternative employ-ment (if this cannot be achieved byredeployment elsewhere in the company), andcosts related to the demolition of buildings andsale of land. On the company’s balance sheetthis expenditure is usually considered as a one-off cost. If a company seeks to close severalplants, while this might initially makeeconomic sense, it risks causing harm to itselfin public relations terms. The outcome is verymuch down to how the company handles suchclosures, which are usually painful for all thoseinvolved.

� Divestment of products or services: a companymay examine its portfolio of products andservices and decide to merge the marginallyprofitable ones and phase out the unprofitableones. By concentrating on profitable activities itcan maximise its investment in terms of themarketing mix. As with the divesting of non-core businesses, the termination of a product orservice can result in the closure of a business(SBU) and factories. Therefore the cost implica-tions of such a move need to be considered.Chapter 7 on Branding considers Unilever’sPath to Growth strategy in which it divesteditself of hundreds of brands in order to concen-trate its resources on a core of 400 brands.These core brands form the platform for thecompany’s next phase of growth.

� Withdrawal from a market(s): the companymay decide to withdraw from a market sector,especially if it is marginally profitable or thereare indications it will become unprofitable.


Figure 6.3

ProductPresent/existing New

Present/existing

Markets

New

Ansoff’s portfolio matrixSource:Ansoff (1987).

Market penetration

Product development

Marketdevelopment Diversification

Again, there may be costs involved as a resultof such a withdrawal.

■ The GE matrixGeneral Electric and the management consultantsMcKinsey developed the GE matrix, or GE businessscreen, as it is also known. The purpose of thematrix is to classify either strategic business unitactivity or major products based on two determi-nants, market attractiveness and business position.

Figure 6.4 (overleaf) shows the matrix structure.In this 3x3 matrix the options are to invest, protect,harvest or divest. The decisions are based on thelevel (high, medium or low) of market attractive-ness and business position (also known as businessstrength).

Market attractivenessWhether a market is attractive or not will dependon numerous factors, some of which may be pecu-liar to a particular industry. Generally, the factorsare briefly considered in Table 6.2 (overleaf).

Business position (also known asbusiness strength)

This concerns the various factors that determine theposition of the business in the marketplace. A selec-tion of the key factors are highlighted in Table 6.3(page 106).

From an analysis of market attractiveness andbusiness position several strategies can emerge.(See Figure 6.4.)

� Invest: the company seeks to invest resourcesin the SBU or product/service. The objective isto build and strengthen position over themedium and longer terms.

� Protect: these SBUs or products/servicesrequire protection as they are the cash genera-tors for new products, services or even SBUs.Thus the company must allocate resources andimplement actions to protect these in themarketplace.

� Harvest: there is generally a medium to lowbusiness position coinciding with a medium to

STRATEGIC MATRICES 103

Table 6.1 Quadrants in Ansoff ’s portfolio matrix

Matrix component Description

Market penetration The organisation can seek to further penetrate the market by providing customers withthe incentive to purchase more product. Such incentives might also bring potential customers over to the organisation from its competitors.They include price competition,special promotions (loyalty card schemes) and/or expanding the usage of the product orservice on offer (for example, breakfast cereal as an all-day snack food). However,depending on the competitive forces within the marketplace, such actions may create ahighly volatile competitive market with rivals prepared to enter a price war. (See the section on competitive rivalry, page 110.)

Market development The objective here is to seek out new markets for the company’s existing products andservices.A company could seek new markets either in its home country or internationally.

Product development The company seeks the development of a new product (service) to launch within an existing market. Product development can include improvements to existing products aswell the development and launch of totally new products into the marketplace.

Diversification The company seeks to develop new products (or services) to launch within new markets.To achieve this companies may acquire other non-product-related companies in order tomove into these new markets. However, not all companies that have diversified have beensuccessful within the diversified area. Often this is because they do not understand thecomplexities of that particular market.The result is often an expensive withdrawal fromthat particular market.

low level of market attractiveness. Thecompany’s objective here is to maximise therevenue stream with the minimum level ofinvestment in resources. There may well comea point where the company will need toconsider the following options:

● selling the SBU or product/service toanother company

● closing the SBU or terminating the prod-uct/service

● finding a way of re-energising the SBU orproduct/service.

Harvesting can be equated to the declining sectionof industry and product life cycles. (See Chapter 9for more on the product life cycle.)

� Divest: this is the weakest position on the grid,and the company must seek to divest itself ofthe SBU or product/service. This might mean

selling it to another company or closing theSBU and terminating the product or service.

Although the grid is set out in quadrants, that doesnot restrict movement within its framework. Forinstance as Stanton, Etzel and Walker (1994)suggest, a company may harvest profits fromdivesting an SBU or product/service to anothercompany. While there are costs incurred fromdivesting (even through a sale), the additionalresources (including finance) can be invested intoSBUs or products/services that require additionalprotection within the marketplace. Thus a problemwithin one area can be used as a basis for protectingand developing others.

■ SWOT analysisThe concept of the SWOT analysis derives fromthe work of Andrews and others at Harvard


High

Medium

Low

Figure 6.4 The GE matrix or business screen

Business positionHigh Medium Low

Mak

et a

ttra

ctiv

enes

s

Invest forgrowth

Invest selectivelybuilding for

growth

Protect.Develop

selectivelybuilding upon

strengths.

Invest.Theorganisationmay need to

be selective inchoice of

product orservice.

Protect.Develop and

build selectively for

revenue generation.

Harvest

Protect.Theneed to

develop forrevenue

generation.

Harvestor divest Divest

SWOT ANALYSIS 105

Table 6.2 Market attractiveness factors

Factor Questions and issues

Market share The focus is on that already held, secured and or potentially gained.This is a performance measure.

Market size How large is the market? Can it sustain more players? Can the company expand? Or should theorganisation consider withdrawal?

Financial performance

An organisation must consider whether or not a market will deliver the level of returns on investment that it expects or needs.With the introduction of a new product or service the initial returns may be poor. However, the organisation has to consider the medium to longer-termprospects of being in that particular market.There are two critical factors though: can it financiallysustain poor returns over the short term, and does it have the resource strength to increase itsmarketability? Organisations may enter markets because they perceive them to be viable but lackthe resources to support that entry.The resulting financial performance is often poor.

Barriers toentry

Porter’s five forces model (see page 107) considers possible barriers that might prevent a newentrant into the marketplace/industry.At the same time, such barriers protect the incumbents,although it could be argued that new entrants bring a fresh approach to the marketplace/industrythat can improve the position of many of the competitors. Competition from new entrants canhelp revitalise industries.

Strength andpower of the competition

This is also reviewed under the five forces model in terms of an industry.Whether it is an analysisof either an SBU and/or product level, the company has to consider the number of competitors currently in the market; their level of power within the marketplace; level of competitors’ sustainability; their current and potential future strategies; and potential entrants (a small entranttoday could be a major competitive threat in the future).

Technologicalrequirements

As discussed in Chapter 2, technology has had a significant impact on the development of business(and marketing) since the Industrial Revolution of the 18th century.The new technological revolution (based on computer systems) will have an even more dramatic impact.Therefore companies need to consider where their SBUs and products ‘sit’ in this dynamic and complex technological landscape.As we already know, technology is changing so fast, it is sometimes difficultfor companies to identify the best strategic move. In other words companies need to ascertain inwhich directions(s) the market will go, what is driving it and whether it is sustainable.

Other macrofactors

Although technology has been separated out (see above) the remaining PESTLE factors should notbe discarded. Chapter 2 examined how the macro factors have had, and continue to have, animpact on business and marketing in particular.The underlying essence of that chapter is that theworld is a turbulent place – part created by the human race, part created by the forces of nature.Companies therefore need to examine market attractiveness in relation to these constantly developing forces.

University (Andrews 1986). It analyses twodistinct areas, the organisation and the environ-ment in which it operates. (See Figure 6.5.) Theorganisational analysis focuses on the inherentstrengths and weaknesses within the organisa-tion. In contrast the environmental analysisfocuses on the external opportunities and threatsthat exist within the industry or field in which theorganisation operates.1

In Figure 6.6 the dotted line between ‘Internalanalysis – micro environment’ and ‘Industry analy-sis’ is to symbolise the linking of competitors. It is

important to realise that there is often a link or over-lap between environmental factors.

Once an organisation has established itsstrengths and weaknesses and opportunities andthreats, it can develop the SWOT further throughmatching and conversion.

In matching the organisation links its appropri-ate strengths with the market opportunities, toexploit opportunities in the marketplace. Forinstance, there might be a positive change in tariffregulations in a certain region, which leads to amarket opportunity, as this makes it cost-effective

to market to that region. If one of the organisation’sstrengths is flexibility in production, it could imme-diately increase production to meet the potentialdemand in this region.

In conversion identified weaknesses are eithereliminated or transformed into strengths. Forexample, after an analysis, the organisation might

discover it is particularly weak at monitoring itsmarketing budget. Hence the marketing depart-ment do not know how much they spend and whatthey have purchased until the end of the fiscal year.This weakness could be converted into a strengthby formulating procedures that provide on-screentracking of expenditure and the production ofmonthly management accounts and reports. Thiscan be reinforced by closer working relationshipswith the finance department.

The organisation might also be able to convertan external threat into an opportunity. For instance,there might be a change in legislation that is ageneral threat to the industry, such as a new tax.Other companies might have to pass the cost on totheir customers, but if the organisation has aextremely efficient production system (one of itsstrengths) it might be able to absorb the cost(though perhaps only in the short to medium term),keeping its prices stable and possibly gaining itextra market share.

During the process of SWOT analysis, manage-ment will also begin to re-evaluate the company’scurrent mission and objectives. If changes arerequired in the overall direction of the business, thisis where those changes are likely to originate.

■ The five forces modelPorter (1980) devised a structural analysis of indus-tries that is commonly known as the five forces


Table 6.3 Business position factors

Factor Questions and issues

Brand An organisation’s position is often determined by the power of its brand(s) in the marketplace.The word ‘power’ covers many attributes from reputation through to value. Branding (discussedin Chapter 7) can convey enormous power in the marketplace.

Marketing mixvariables

In later chapters the marketing mix variables are examined. How these variables are presented to the market will create a position for the company in the mind of the buyer. Forinstance, the quality of a product or service, its price, how it is promoted and how easy it is toobtain illustrate the position or strength of the company offering the product or service.Consider, for example, the business strengths of certain major hotel chains.What is their businessposition based on?

Managementskills andknowledge

An organisation may have a great product. However, if the management is poorly trained,inefficient, and/or just ill equipped for the task there is increased risk of market failure.An effective and efficient management team will not only assist in developing product and servicepositioning but will also create a viable reputation in the marketplace.

Figure 6.5

Organisational analysis Environmental analysis

Conversion Conversion

Matching

Strategic choices

SWOT analysis incorporating the matching of theorganisational analysis with the environmental analysis.

Source: adapted from Barney (1997).

Strengths Opportunities

ThreatsWeaknesses

⎧ ⎪ ⎪ ⎨ ⎪ ⎪ ⎩

model (see Figure 6.7). This states that there are fivekey or distinguishing forces that govern the role ofcompetition in the marketplace.

The threat of new entrantsPorter (1980) suggests that a new entrant into amarket creates new capacity with the objective ofgaining (and sustaining) market share. To do this itoften invests in substantial resourcing. Such anentrant can destabilise the competition, creating ashakeout in the market. However, entry into anindustry and/or market depends upon two keyfactors: the barriers to industry entry, and the reac-tion from current competitors within the industry(see page 110).

Porter (1980) proposes seven sources of barriersto entry.

� Economies of scale: where companies are ableto drive down unit costs of a product or serv-ice as the volume increases. An entrant has twooptions, either to match or outperform the levelof economies of scale, or to start at a levelwhere the economies of scale are less andaccept that there will be cost disadvantagesthat may well be reflected in price disadvan-tages. Both options may prove to be barriers toentry.

� Product differentiation: established compa-nies within the industry have had time andopportunity to build customer loyalty throughproduct differences, branding and marketing

THE FIVE FORCES MODEL 107

Figure 6.6 The factors that contribute to a SWOT analysis

Strengths and Weaknesses

Opportunities andThreats

Internal analysis – micro environment

PESTLE analysis

Industry analysis

Figure 6.7

The five forces model


Threa

t of n

ew en

trant

s

Threa

t of s

ubsti

tutes

Buyer power

Supplier power

Industry competitors

communications. A new entrant will have toinvest significantly in product differences andmarketing communication to establish itsbrand in the marketplace. This will beresource-intensive with no guarantees that thebrand will find a position that generates suit-able returns on the investment.

� Capital requirements: substantial investmentmay be required to enter and establish a newbrand. The venture might be considered highlyrisky, and the financial risk could deter poten-tial entrants.

� Switching costs: the costs (often one-off)incurred by existing buyers if they switch fromexisting suppliers to new entrant suppliers. Achange of supplier may mean costs incurred inretraining staff, the installation and testing(proving/qualifying) of the new equipment,acquisition of ancillary materials/equipmentand the time (a cost) in building a relationshipwith the new supplier. Because of these costs,buyers often remain with their establishedsuppliers. This in turn makes it more difficultfor new entrants to gain a position in themarketplace.

� Access to distribution channels: companiesthat are already well established in the indus-try will have (or should have) efficient chan-nels of distribution. The new entrant will haveto either find a new avenue for distribution(perhaps technological) or persuade existingintermediaries and distributors to take extrasupply. In some areas, especially retail, this isparticularly difficult. For example, in theconsumer detergent market a new entrantwould have to persuade supermarket chains tomake extra shelf space available in an alreadyhighly competitive industry and marketplace.To do this it might need to offer incentives tothe channel members, but this would restrictits profitability.

� Cost disadvantages independent of scale:established entrants may be able to display costadvantages beyond economies of scale which anew entrant cannot readily replicate. Thesemight include technical know-how (securedvia patents), direct access to raw materials, anideal location, government subsidies (includ-

ing protectionist policies) and significantindustry or market experience.

� Government policy: this can range from theregulation of certain industries (for example,the nuclear industry) and protectionist policiesfor local industry to environmental legislation.Companies faced with such legislation mayfind it either impossible to enter an industry orvery expensive to do so.

The threat of substitutionProducts or services that can perform the same orsimilar functions as the product or services alreadyestablished within the industry pose a substitutionthreat. Here Porter (1980) considers how the sugarindustry has been confronted with the large-scalecommercialisation of high-fructose corn syrup as asugar substitute. Since then various types of sweet-ening products have entered the market to challenge sugar.

The power of suppliersAccording to Porter (1980) a supplier group canhold significant bargaining power over buyers insome circumstances. For example if:

� The supplier group is dominated by a fewcompanies and is more concentrated than theindustry it sells to. For example, Groucutt et al.(2004) point out there are only a few main-stream tyre manufacturers even though thereare hundreds of car manufacturers.

� The suppliers are not obliged to contend withother substitute products for sale to the indus-try. However, substitutes may cover severalindustries. Sugar has many applications.Equally, so do the variety of sweeteners avail-able.

� The industry is not an important industry forthe supplier group. If suppliers market toseveral industries and one of them does notrepresent a significant proportion of sales, thesuppliers can exert more power. In contrastwhen the industry is an important customerfor the suppliers, to maintain their position(including survivability) with those buyers


they will be prepared to negotiate favourablerates.

� The suppliers’ product is an important inputinto the buyers’ businesses. A supplier’s poweris raised when it is the key provider of acomponent for the buyer’s manufacturingprocess.

� The supplier group’s products are differenti-ated or it has built up switching costs. Thiscreates a difficulty for a buyer to create compe-tition between suppliers for an improved negotiated rate.

� The supplier group poses a credible threat offorward integration: that is, an individual orgroup of suppliers has the power to acquire thebuyers of their products, controlling more ofthe overall supply chain.

The power of buyersWhere buyers are particularly powerful within anindustry they have the power to create competitionamong suppliers. This can lead to the forcing downof prices and demands for higher-quality productsand services at the lower prices. This might providethe buyers with short-term gains, but in the longerterm there is a risk: if suppliers operate on lowermargins they will be particularly susceptible tosudden changes in the marketplace.

Porter (1980) proposes eight conditions wherebuyers will exercise power.

� The buyer group is concentrated or purchaseslarge volumes relative to the sellers’ sales. If abuyer acquires products in large volumes fromsuppliers (especially a single-source supplier)it can exert power. An example is the own-labelmarket in the UK. Their buying power meansthat large supermarkets can exert pressure onthe producers of their own-label products,driving down prices whilst insisting on qual-ity standards.

� The product it purchases from the industryrepresents a significant fraction of the buyer’scosts or purchases. If product buying is a majorcost, buyers will use their power to find alternative suppliers, if possible, to provide the product at a lower price. Under such

conditions it is worth the buyer’s time andmoney to do so.

� It purchases either standard or undifferenti-ated products. Buyers will use their power tohunt around for alternative (cheaper) supplies.They may also seek to play one supplier offagainst another.

� Customers face few switching costs. If buyersare not locked into a particular suppliers –because of the costs incurred in switching –they can relatively easily move to anothersupplier.

� The company earns low profits. In this case thebuyer will seek to further drive down the prod-uct price from the supplier. This, of course, canplace the supplier at financial risk as itsmargins are squeezed.

� Buyers pose a credible threat to backward inte-gration (also known as vertical integration).Depending upon the size of the buyers theymay already have some products manufac-tured either in-house or by a supplier theyhave acquired. This posses a threat to othersuppliers in that the buyer might decide toincrease in-house production of components,for example, and slowly – or even suddenly –close supplier accounts. To limit the impact thesupplier is faced with offering the buyer addi-tional product-related benefits and/or finan-cial incentives, or seeking new buyers.

� The industry’s products are unimportant to thequality of the buyer’s products or services. Abuyer might be price-sensitive and seekcheaper and lower-quality products (for exam-ple, components) if they do not have an impactupon the quality and performance of itsfinished product. This could give it significantpower. However, if the product quality (forexample, the component) is important, thebuyer will probably be less-price sensitive as itwill need to source a quality item that will notfail.

� The buyer has full market-industry informa-tion. Buyers that have significant knowledge ofthe market and sellers within the industry haveincreased bargaining power. They can leverage(through negotiations) this knowledge and

THE FIVE FORCES MODEL 109

power to obtain the best process and productquality from suppliers.

Industry competitors (also known asintensity of rivalry between currentcompetitors)Porter (1980) suggests that rivalry occurs becausecompetitors either feel the pressure (of competi-tion) or see an opportunity to improve theirmarket or industry position. However, hebelieves that competitors are mutually depend-ent, so if one competitor makes a move there isan impact on the others. They may have to retal-iate in order to protect their position. (See page116.)

For example, a company might make a majorprice reduction, potentially creating price competi-tion in the marketplace. Rivals may retaliate byreducing their prices lower than the initiatingcompany, which would force it to either stay at theinitial reduced price (which is now higher than itscompetitors) or reduce the price even further. Afurther reduction could damage its profit margins.Other competitors might choose not to reduce theirprices, on the basis that their customers buy onquality and/or manufacturing process rather thanprice alone.

One major hamburger chain in New Yorkdramatically reduced its prices in the belief that itwould gain market share from its main competitor.However, its competitor refused to enter into aprice war. It believed that its customers werecontent to pay a higher price because its burgerswere flame-grilled rather than fried. The firstcompany had miscalculated, and did not gain theincreased market share it had hoped for. Instead itfaced a significant shortfall in revenue.

■ Competitive advantage:generic strategies

Porter (1985) suggests that there are three funda-mental approaches through which an organisationcan achieve sustainable competitive advantage:cost, differentiation and focus. Table 6.4 showsthese approaches and their variants. It also linkscompetitive scope with competitive advantage.

First we must ascertain what is meant by the terms competitive scope and competitive advantage.

Competitive scopeThis can be defined as the breadth of an organisa-tion’s activities. Porter and Millar (1985) suggest ithas four key dimensions: segment scope, verticalscope (degree of vertical integration), geographicscope, and industry scope (or the range of relatedindustries in which the organisation operates).These are ‘condensed’ into broad and narrow cate-gories. Broad refers to companies that can exploit‘interrelationships between the value chains serv-ing different industry segments, geographic areasor related industries’ (Porter and Millar 1985).Conversely a narrow scope allows the company tocustomise the value chain to a particular targetsegment of the market to achieve lower costs anddifferentiation.

Competitive advantageIn essence, competitive advantage can be describedas any factor that provides an organisation with amarket edge over its competitors. For example, asingle factor within the marketing mix (such asprice) might provide the edge or advantage


Table 6.4 Generic strategies

Competitive scope Competitive advantage

Lower cost Differentiation

Broad 1 Cost leadership 2 Differentiation

Narrow 3a Cost focus 3a Differentiation focus

Source: Porter (1985).

necessary to gain a position ahead of the competi-tion. However, it is one thing to gain an advantage,and another to maintain or sustain that advantage.While one factor might create the edge, it might bea combination of factors that provide the sustain-ability the company needs to stay ahead of thecompetition.

Analysis of generic strategiesThis section briefly examines the three main genericstrategies of cost, differentiation and focus, andtheir variants.

Cost leadership

The company aims to be the lowest-cost producerwithin the industry. In order to achieve this objec-tive it must seek ways of taking costs out of thebusiness. If it can achieve this it is likely to be anabove-average performer within the market as long

as it can charge prices at or near the industry aver-age (Porter 1985). The point to remember here isthat to be the lowest-cost producer does not neces-sarily mean that it will sell at have the lowest price.However this is often the case: for example theEuropean no-frills airline Ryanair offers fares atsubstantial discounts over other airlines flying thesame or similar routes, and is also renowned fordriving down costs in the business.

Differentiation

In a differentiation strategy the company knows itsproducts or services possess either a single attributeor several attributes that are unique in the minds ofbuyers. These attributes (which could be eithertangible or intangible, or both) significantly differ-entiate the company from its competitors. Thisallows it to charge a premium prices for its prod-ucts or services. For example, a painter or photog-rapher may have styles that clearly distinguish himor her from his or her competitors. If the market

COMPETITIVE ADVANTAGE STRATEGIES 111

European low-cost airlines

Since the early 1990s there has been a significantgrowth in the European low-cost air travel market,which we consider here from the perspective of thefive forces model.

Threat of new entrants

With deregulation and the development of new region-al airports there are opportunities for new companiesto enter the marketplace. However there are significantcost implications in setting up and running an airlinebusiness.The risks can be high, as illustrated by variousfinancial casualties over the past ten years. Newentrants have to balance the risk against the opportu-nity to enter the market. Moreover it is an intenselycompetitive market, and new entrants may not be ableto gain the critical mass needed to survive.

Supplier power

There are various suppliers to this industry, includingaircraft manufacturers (Airbus and Boeing are the twolargest), refuelling facilities and airports.

Buyer power

With the introduction of low-cost fares, discounted

fares (from national carriers) and the influx of numer-ous airlines, buyers (mainly individuals rather than com-panies) have increased power of choice. Of course, thelevel of buyer power also depends on the number ofairlines flying to the chosen destination. For example,several airlines fly from the London region to Paris, andcustomers are spoilt for choice, but this is not so for alldeparture and arrival locations.

Threat of substitutes

There are other modes of travel within Europe – car,coach and train. In some countries the train service ishighly efficient, comfortable and cost-effective; in othersit is the opposite.Therefore the degree of substitutionis highly dependent on the availability and efficiency ofthe alternative modes of transport.

Industry competitors

This has become a highly competitive market. It couldbe argued that it is at, or near, saturation point.However, that might not discourage new entrants ifthey believe they can gain a sustainable competitiveadvantage through some form of differentiation or focus. (See the discussion on generic strategiesopposite.)

Mini case 6.1

values the styles and outcomes, the works are likelyto commend high prices either at auction or privatesale. On another level, say a food companyproduces and markets a range of unusual, yettantalisingly flavoured potato crisps: crisp loversmight choose these products even if they are moreexpensive than other crisp brands.

FocusHere the company selects a segment or small groupof segments in the market, then customises its strat-egy to meet the needs of that segment(s). There aretwo subsets:

� cost focus, where the company reduces costs togain a cost advantage with the targetedsegment(s)

� differentiation focus, where the companyapplies a differentiation strategy within thetargeted segment.

Stuck in the middlePorter (1985) suggests that companies must be clearwhich generic strategy is right for their particularbusiness. If they are not clear, they could end upbeing, as he calls it, ‘somewhere stuck in themiddle’. This indecisiveness can have a negativeimpact on short to longer-term business perform-ance, or even lead to business failure.

■ Adding value to the productor service

Increasingly customers seek more than just the bestprice from a product or service: they demand qual-ity and forms of added value. Companies seekways of adding value to their products and servicesas a means of gaining and sustaining competitiveadvantage. They have realised that value is notdelivered at one precise point, but throughoutevery element of company operations.

The ‘value’ can be created by an examination ofcosts and performance (in all areas – see Chapter17) in order to discover and then implementimprovements that will benefit the customer (andthe company). When these activities are grouped

together they can be viewed as a value chainrunning through all aspects of the company, fromadministration to operations and distribution.

Porter (1985) suggests that for a company toleverage a competitive advantage it must consideritself as part of a larger value chain which encom-passes suppliers, distributors and customers. Thisprocess is diagrammatically illustrated in the valuechain model (Figure 6.8) in which Porter groupedthe various activities of a company.

The support activities relate to the infrastruc-tural support that can be provided to the primaryactivities.

Company infrastructureThis includes the overall structure of the organisa-tion, corporate planning, financial controls,management abilities and the quality control mechanisms.

The human resource managementteamThis will be responsible for all activities relating torecruitment, training, developing and rewardingpeople (incentives) throughout the organisation.

Technology developmentThis encapsulates a multitude of areas and must beconsidered in the broadest terms. On this basis itincludes product design, improving overallprocesses and the utilisation of resources.

ProcurementThis is the acquisition or purchasing of any compo-nents or raw materials that are used within theprimary activities.

Porter (1985) suggests that the five primaryactivities represent the activities of physically creat-ing the product or service, then transferring it tothe customer with the support of appropriate after-sales service. These primary activities are:

� Inbound logistics: receiving, storing anddistributing internally inputs (for example,raw materials and packaging).


� Operations: the activities that transform theraw materials or other component inputsinto a finished product or service. Thisincludes machining, assembly and manufac-turing systems.

� Outbound logistics activities relate to thephysical collection and distribution of thefinished products or services to customers.

� Marketing and sales is the implementationof the marketing mix. This should be inte-grated to maximise the return on investmentto the organisation.

� After-sales service provides the necessaryservice assistance to support the product orservice that is being offered within themarket.

After these processes are completed there is themargin: the excess the customer is prepared topay over the cost of providing resources andvalue added. It is important to remember thatthe activities within the value chain affect eachother.

■ Competitive marketpositioning strategies

If organisations operate in a highly competitiveworld, there will be some companies out in the leadand others following. Kotler (2000) identified fourmarket positions that companies may seek toadopt: leader, challenger, follower and nicher.

Market leadersThis is the position that many (though not all)organisations seek to achieve: in essence to be lead-ers in one, a selection or all of their marketsegments. As stated earlier it is one thing to gainleadership (competitive advantage) and quiteanother to sustain that leadership, especially withinvolatile markets.

Market challengersThese organisations continually challenge thedominance of the market leader by attempting to

ADDING VALUE 113

Company infrastructure

Human resource management

Technology development

Procurement

Inbound logistics

Operations Outboundlogistics

Marketingand sales

After-salesservice

Primary activities

Sup

port

act

ivit

ies

Mar

gin

Figure 6.8 Porter’s value chain concept


win increased market share. They will seek tomanipulate their marketing mix, as a tacticalweapon, to gain leverage within the market.

Market followersThese companies are satisfied with developingtheir own profitable market segments or marketshare. They achieve this through innovation andthe use of the marketing mix variables. However,they do not seek to challenge either the marketleaders or market challengers, as they consider ittoo risky. Not only would it require additionalresources, the counterattack could be highlydamaging. However, if the market leader and chal-lengers become embroiled in a long damagingconflict, followers might be able to sweep upcustomers who have become disillusioned withboth leader and challengers.

Market nichersThese organisations are able to dominate a smallmarket segment or segments. They tend to be smallin sector terms, and are unlikely to interest eitherthe market leaders or challengers, so there is anopportunity for them to gain a reputation and bethe best within that niche market.

■ Competitive and defensivepositions

Organisations (especially market leaders and chal-lengers) need to develop strategies and tactics togain and sustain market share. This section brieflyexamines some of the positions that companiesmay adopt.

Position defenceThe market leader introduces a range of innova-tions to protect its product position within themarketplace (see Figure 6.9).

Pre-emptive defenceRather than waiting to be attacked, the marketleader may either warn of or instigate a pre-

emptive strike against a challenger (see Figure6.10). The company may take the view that ‘the bestdefence is an offensive one’. For instance, acompany might launch a major well-resourced


Figure 6.9

Position defence

Marketshare

defender

Fortification or defensive ring to

protect the business and its brands

Market challengers with different levels of power in themarketplace. Companies maywork in concert to gain theleadership position.This can

include mergers or other formsof strategic alliances

Figure 6.10

A pre-emptive defence.A pre-emptive strike, or threatof one, can be used as a defensive manoeuvre.

Marketshare

defender

Potential challenger

‘burst’ promotional campaign (which has been kepta closely guarded secret). This campaign will beused not only to reinforce the company’s productsand services within the market, but also seek togain market share from the unsuspecting challenger.

Counter-offensive defenceThe market share defender often will counter-attack with overwhelming force to dislodge themarket challenger’s attack (see Figure 6.11). Insuch cases the market challenger will have littleor no choice other than to withdraw. To maintainthe attack could severely weaken it, and it in turncould come under attack from another marketchallenger. This could result in an aggressivetakeover bid.

Mobile defenceMarket leaders often seek expansion into new terri-tories with the intention of increasing their businessopportunities, resources, size and financial strength(see Figure 6.12). When a company has gainedstrong positions in several markets it may becomeharder to challenge over so many markets. Insteadthe challenger may consider attacking the weakerof the leader’s markets. However, it risks attack bynot only the leader but also other potential challengers within those markets.

Strategic withdrawalMajor organisations often seek to gain competitiveadvantage (and thus market share) across severalterritories. This has become apparent with an

COMPETITIVE AND DEFENSIVE POSITIONS 115

Figure 6.11 Counter-offensive defence

Market share defender

Challenger attacks market leader

Market challenger

Either during or after the counter-offensive attack, the challenger will seek to withdraw from the battle.This willprovide it with the opportunity to rethink its strategy and examine its resources. Depending upon the ferocity ofthe attack, its level of resources and the market situation, the challenger might decide to either consolidate itsposition in the market or attempt another attack on the leader. If the challenger is severely weakened by thecounter-offensive move it could itself become the target, this time from another market challenger that seeks anaggressive takeover.

increase in globalisation activities. However, thereis a risk that the organisation will become involvedin too many markets and spread its resources toothinly. This is particularly the case with companiesthat have grown rapidly and till that point haveseemed invincible. However, they create a situationwhere they could face a massive competitiveonslaught from several challengers in different

markets but simultaneously. When an organisationhas critically over-extended itself it might need toconsider a strategic withdrawal from the market(Figure 6.13). Such a move would protect valuableresources that could be moved to another prod-uct/service or market. If it remains within thevulnerable market it might need to use thoseresources to defend the product or service from anattack by a challenger. If it cannot ‘hold’ the prod-uct or service’s position within the market place,the resources will have been wasted.

Frontal attackIn a frontal attack or assault the major challengerbuilds resources and expertise to directly attack themarket leader in its major markets (see Figure 6.14).This requires considerable resources, core compe-tencies and skill to succeed, as it will usually needto be a sustained effort. The challenger also needs tounderstand the market leader’s weaknesses. Thesemay range from the quality of the product, its pric-ing and distribution to the quality of management


Figure 6.12

Market leader

Market challenger

Market 3

Market 1

Market 2

Mobile defence.The challenger needs to considerwhich markets to attack. Of course, the marketleader seeks to protect the market under attack. Itmight be able to transfer resources from anothermarket (as long as this does not set that market upfor attack) to retaliate against the challenger.

Figure 6.13

Strategic withdrawal

Market challenger Market or segment

Market sharedefender

Figure 6.14

Frontal attack

Market challengerMarket leader

defending marketshare

and after-sales service (elements that can be seen inthe value chain and the marketing mix).

Examples include the UK-based supermarketchain Tesco gaining market leadership over Sains-bury during the 1990s. Indeed by 2004 Sainsburywas under attack from both Asda (part of the Wal-Mart group) and Morrisons (which had acquiredSafeway in the United Kingdom and now had themarket power to challenge companies such asSainsbury). In aircraft manufacturing Boeing usedto dominate the passenger aircraft market.However, by 2004 Airbus had taken leadership inthe marketplace by challenging Boeing in themedium, long haul and large capacity aircraftmarkets.

Flanking attackHere the challenger seeks to exploit a weakness inthe market leader’s position. This permits the chal-lenger to go around or flank the market leader andtake some market share (see Figure 6.15). Duringthe 1970s and 1980s the US automotive industryfailed to realise the growing demand for small,more fuel-efficient vehicles. Several Japanese carmanufacturers could see that this was a weaknessin the US automotive industry, which they couldexploit by marketing their smaller, more environ-mentally friendly vehicles in the United States.Such a move would also provide a foothold withinthe US market. This would later lead to their build-ing car plants in the United States to directly feedthe American market.

combined, especially if a challenger has devotedsignificant resources to gaining market leader-ship. The attack might last several years, andchallengers and leaders move positions and seekto gain the loyalty of their customers. Either achallenger or defender might change positionsor move from one strategy to another. Through-out there needs to be flexibility in order to bothreact to market conditions and competitivemovements and be proactive.

■ Chapter summaryThis chapter has briefly examined the relation-ship between strategy and marketing. It hastaken as its starting point the preceding chapterson the micro/macro environment, competitiveintelligence gathering and marketing research.

An understanding of strategy is vital to thedevelopment and implementation of marketingobjectives, leading to the fulfilment of the corpo-rate objectives. When you read the followingchapters on the marketing mix you will need tomake the link to the strategic objectives of thebusiness. For instance, consider how the market-ing mix can be used to strategically place anorganisation’s brand in the marketplace, in aposition that can be sustained competitivelyover the longer term.

COMPETITIVE AND DEFENSIVE POSITIONS 117

Figure 6.15

Marketchallenger

Market

Mar

ket

lead

er

Flanking attack

Figure 6.16

Guerrilla attacks.A series of small yet ongoingattacks to gain small sections of market share.

Marketchallenger M

arke

t le

ader

defe

ndin

g m

arke

tsh

are

Guerrilla attackThis is a type of competitive attack that is increas-ingly being used by new entrants into markets,particularly young and vibrant businesses. Guer-rilla attacks are a series of small ongoing actionsthat are designed to (1) frustrate the market defend-ers, and (2) raise the company’s profile in thetargeted segments (see Figure 6.16). As the attacksare small – though numerous – it is unlikely that amajor market leader or defender will devote theresources to counter-attack on a large scale. There isno guarantee of success and these tactics couldmake the challenger vulnerable to attack in othersectors of the market.

Guerrilla tactics include use of merchandising,special event marketing, intensive personal sellingand linking the brand to an issue, for example,animal rights.

Although these strategies are discussed here asseparate actions, in practice they are often


1 What is a strategic marketing audit? Whatcontribution do you think it can make to theformulation of an organisation’s marketingpolicy?

2 What type of defensive marketing strategiescould a leading retailer use to protect itselffrom competitive actions?

3 What strategies do you think a new entrantinto a market could use to gain a competitiveadvantage over incumbents?

4 Use the Internet and other library resources tocritically examine how Swatch Watch revolu-tionised the watch market in Europe. Do youthink other companies could learn from itsmarketing strategies? If so, how?

5 Imagine you are the marketing director of youruniversity or college. What strategies wouldyou consider to attract undergraduatestudents? Support your view with evidence.

6 Gaining increases in market share is oftenstated as being the main objective of market-ing strategy, yet there are many examples ofcompanies with small market share that arevery successful. Debate with your fellowstudents this apparent contradiction.

■ ReferencesAndrews, K. (1986) Concept of Corporate Strategy, New

York: McGraw-Hill.Ansoff, H. I. (1987) Corporate Strategy, rev. edn,

Harmondsworth: Penguin.Baker, M. J. (2000) Marketing Strategy and Management,

3rd edn, Basingstoke: Macmillan.Barney, J. B. (1997) Gaining and Sustaining Competitive

Advantage, Reading, Mass.: Addison-Wesley.Grant, R. M. (2002) Contemporary Strategy Analysis:

Concepts, techniques, applications, 4th edn, Oxford:Blackwell.

Kotler, P., Gregor, W. and Rogers, W. (1989) ‘The MAcomes of age’, Sloan Management Review 30(2)(Winter), pp. 49–62.

Mintzberg, H., Lampel, J., Quinn, J. B. and Ghoshal, S.(2003) The Strategy Process: Concepts, context andcases, 4th edn, Harlow: Prentice Hall.

Ohmae, K. (1982) The Mind of the Strategist, London:McGraw-Hill.



Porter, M. E. and Millar, V. E. (1985) ‘How informationgives you competitive advantage’, in M. E. Porter(1998) On Competition, Boston, Mass.: HarvardBusiness School Press.

Stanton, W. J., Etzel, M. J. and Walker, B. J. (1994)Fundamentals of Marketing, 4th edn,. New York:McGraw-Hill.


■ IntroductionThe branding of products and services has become an integral component ofmarketing, business and everyday life. Not only do customers closely associatethemselves with brands, it is clear that organisations strive to increase andmaintain the value of their brands. Brands are the generators of wealth for theorganisation.

We are surrounded by brands. You have probably heard of the follow-ing brands, for example, even though you might not actually ‘consume’them, buy into their ‘values’ or know who owns them. Nevertheless youwill know that they exist:

◆ Airbus Industries

◆ Aston Martin

◆ Boeing

◆ Burger King

◆ Ford Motor Company

◆ Formula 1 Racing

◆ Harley-Davidson

◆ H. J. Heinz

CH

AP

TE

R

7The Branding of Productsand Services

Learning outcomes 119Introduction 119What is branding? 120Origins of branding 120Consumer and business

brands 122Why brand? 122Protection 122Values 124Differentiation 124Segmentation 126Selection 126Awareness 127Recall 127Recognition 127Brands that develop a

cult status 127Extending the brand 127Valuations and equity 131Promotion 132Types of branding 132Family brands 133Individual brands 133Own-label brands 134Brand management 134The world’s most

powerful brands 135Rebranding 137Proactive motivations 137Reactive motivators 139Brand longevity – do

brands last forever? 142Reasons for brand

longevity 143The disposal or

termination of brands144Risks associated with

brand disposal 149Chapter summary 151Questions for review




� outline the different brand structures or architecture that companies use todistinguish their brands from competitors

� explain the benefits and risks associated with branding in a global context

� debate the reasons companies terminate a brand and the potential risksassociated with such actions

� evaluate the power of brands in the marketplace

� demonstrate an awareness of how customers perceive brands.

◆ McDonald’s

◆ Sony

◆ Toyota

◆ 20th Century-Fox Entertainment

◆ University of London

◆ Werther’s Originals.

Brands are not just packaged products, services oricons. How an organisation invests in and positionsits brands in the market can have a significantimpact on whether (or not) a brand can gain andsustain a competitive advantage. Such investmentand positioning also reflects upon the competitivestance held by the organisation. This is even moreso in a highly complex and dynamic business envi-ronment.

This chapter examines the role of branding in thedevelopment and promotion of both products andservices. It considers why companies and organisa-tions brand themselves, and how different brandrelationships are developed with customers. It alsoconsiders the risks associated with branding.

■ What is branding?In Chapter 1 it was suggested that marketingpervades every aspect of our waking lives. We areliterally engulfed by images of products and serv-ices. As well as communicating needs and desires,these images also communicate brands, ones weoften recognise and trust. It is this awareness,recognition and trust that is fundamental to thesuccessful development and building of brands.Kotler (2000) describes brands as:

A name, term, symbol or design (or combinationof them) which is intended to signify the goodsor services of one seller or groups of sellers andto differentiate them from those of the competi-tors.

However this definition is limiting. Dibb et al.(1997) suggested that branding is a component of aproduct’s tangible features – the verbal and physi-cal cues that assist the customer in choosing oneproduct over another. However, this is not justapplicable to a ‘product’. Services also communi-

cate verbal and physical cues. Chapter 14 discusseshow physical evidence affects a customer’s choiceof restaurants and hotels. A five-star hotel provid-ing a range of services transmits a range of verbaland physical cues to potential customers. They areall part of the hotel’s brand.

As is emphasised throughout this text, theactions of people, the processes involved, the pack-aging and the psychology behind the operations allcontribute to the branding of a product or service.It is really a combination of these factors that drivesbranding.

■ Origins of brandingFor centuries products were sold unbranded, thatis, without any identifiable name or logo attached.Many products such as grain, and later on sweets,were often sold loose from barrels or glass jars. Theactual word ‘brand’ is believed to be derived fromthe old Norse word ‘brandir’, which translates as‘to burn’. In other words this can be interpreted asimprinting an idea or symbol onto a product.

While branding is quite rightly associated withthe American Wild West, this was not the first timethat items were branded. The concept of brandingcan be traced back to the merchant guilds of 11thcentury England. These trade or craft guildsbecame powerful forces within local government.By the 14th century they effectively controlled mostof the trade and commerce in Medieval Europe.Branding was important to the craftsmen of theguilds because it directly linked to their reputa-tions. They sought to control the quality andproduction of the goods they made for market.Indeed, many of the craftsmen realised that qualityand availability of the product also affected thepricing of the product. This is as true today as itwas 700 years ago.

Farming in Europe tended to be associated withmany small or medium-sized farms. Not so in thevast, sprawling American landscape. As the Westopened up, there emerged a new breed of farmer –the cattle barons. Increasingly the cattle ranchersfaced the problem of identifying their herds fromtheir neighbours’, even when vast distances sepa-rated two ranches. In order to clearly identify cattlethat had either been rustled or wandered ontoanother ranch, the cattle ranchers introduced thepractice of branding their cattle with hot irons. This

120 7 • THE BRANDING OF PRODUCTS AND SERVICES

simple branding technique showed whether thecattle were from the T-bar or Circle O ranches fromthe branded ‘T’ or ‘O’ on the side of the cattle. Thusthere could be no mistake who owned the cattle –at least in theory. This did not stop cattle rustlersfrom stealing the cattle and altering the brand, orthe cattle ranch logo on the skin of the cattle, to suitthe rustler’s own needs. As you will see later in thischapter, such rustling, or brand piracy as it is nowknown, costs legitimate organisations significantamounts in lost revenue. So the age of the cattlerustler is not dead!

Goldfarb (2001) suggests that one of the first truebrands as we know them today was Sunlight Soap.Prior to the launch of Sunlight, soap products wereproduced by mixing tallow (a hard, usually animal,fat that is melted down) with alkali in large barrels.The solidified material was then cut into large barsthat were sliced by the grocer into smaller ones andwrapped in paper for the customer. William Lever,the son of a grocer, realised that consumers werebecoming increasingly dissatisfied with the quality,performance, odour (the smell was often quiteunpleasant), inconsistency of weight and lack ofpackaging.

In 1884 Lever registered the name Sunlight Soap,and began developing a revolutionary soap formulathat would remain virtually unchanged for years. In1885 he launched his product, which was a mixtureof coconut, cottonseed oil and resin instead of tallow.In addition to the brand name and new formula,Lever produced bars of a uniform size and shape,which were packaged and branded with a logo.

Such was the demand for the new packagedsoap that William Lever joined forces with hisbrother James to create Lever Brothers Limited(later to form part of Unilever). William Lever wenton to build the world’s largest soap works at PortSunlight, along with a village for his employees. Bythe turn of the 20th century Lever Brothers domi-nated the UK soap industry, selling nearly 40 000tonnes in the UK alone (Leverfaberge 2004).1

Lever’s success with Sunlight Soap has beenattributed to many factors:

◆ A significant investment in innovative adver-tising campaigns. As Jeremy (1998) states,‘Lever aimed at drawing the housewife’s atten-tion to his soap, using slogans, enamelled-platesigns on railway stations, hoardings [bill-

boards], newspaper advertisements, and eventhe novelette, the melodrama, and doggerelverse [poor or trivial verse]. He went as far asto issue an annual 500-page Sunlight YearBook, combining education and advertise-ment.’ Wilson (1954, cited in Jeremy 1998)stated that in 1885, his first year of trading,Lever spent UK£50 on advertising but by 1905he had spent UK£2 million. Today that UK£2million expenditure would equate to a multi-million pound budget – perhaps more thanmany blue-chip companies actually spend.

◆ Packaging: the wrapping of uniform blockswith packaging that displayed large colouredletters clearly identifying the brand.

◆ Lever’s ability to reduce both production anddistribution costs while also purchasing low-cost raw materials.

However Goldfarb (2001) argues that its successwas more a question of the ‘careful management ofthe Sunlight brand’. This is a point that will bereferred to later in this chapter.

While Lever was adopting what were to becomebrand management strategies and tactics, in theUnited States Henry Heinz was engaged in similaractivities. As Koehn (1999) suggests, Heinz under-stood the strategic rationale for branding. Koehn(1999) states that Heinz realised consumers had to be‘able to identify a particular product’s source, func-tional attributes, and perceived quality relative torival goods. Customers also needed to be made toappreciate the intangible aspects of a good – theassociation and expectations that they attached to it.’

Until Heinz, most customers were unaware ofthe manufacturers that produced the products theypurchased. Heinz went a step further by creating,in 1896, ‘Heinz 57 Varieties’. Although the Heinzcompany was to manufacture many more than 57varieties, Heinz kept to the number ‘57’. This was tobecome one of the most enduring slogans in brandhistory.

While there were many pioneers, the real impetus for branding came at the turn of the 20thcentury. The key indicators that led to this development included:

◆ The introduction of mass production tech-niques. With mass production came the need to

ORIGINS OF BRANDING 121

visually signify who owned the product, orindeed the patent.

◆ A move towards mass forms of advertising.The development of print media led to anincreasing use of advertising as a means ofpromoting products.

◆ Mobility of people and goods. Through thedevelopment of the railways, the car, shipping,and later aircraft there was greater mobility ofboth people and goods. Products were nowshipped more easily across nations and theworld. The development of containerisation inthe 1950s significantly increased tradingopportunities (see Chapter 12).

◆ Increasing national wealth. While this wastrue during much of the 20th century, it isvital to remember that many countries, espe-cially in Europe and the Far East, suffereddeprivation as a result of the agonisingconflicts, dictatorships and economiccollapse.

This section has very briefly illustrated the originsof branding, but it is not a static story. Branding andhow the world perceives it is an ongoing develop-ment. As we have seen, while branding is an inte-gral part of all our lives, it is a subject surroundedby much controversy. This issue will be exploredfurther in later sections of this chapter.

■ Consumer and businessbrands

Initially we can consider brands as two very broadcategories, consumer oriented (B2C) and businessoriented (B2B). Clearly consumer-oriented brandsencompass everything from holidays to washing-up liquids. Equally, business-oriented brands focuson a range of products and services that meet theneeds of commercial organisations.

However, it is not that simplistic. Brands canbe marketed to both consumers and businessessimultaneously. An example is the LondonHilton Hotel in Park Lane. This five-star hotelcaters for both business people and tourists (seemini case 7.1). While both groups share a rangeof facilities, business clients have access to additional business facilities.

■ Why brand?Organisations and companies brand themselves,their products and services for a multitude ofreasons. This section considers some of the reasonsthat branding has become a fundamental compo-nent of marketing.

ProtectionBranding can be used as a means of obtaining inter-national legal protection for the product or service,and intrinsic features and benefits within the prod-uct or service. This protection is enforceablethrough copyrights, trademarks and patents. Forexample Microsoft® Word (the program which wasused to write this textbook) is a registered trade-


London Hilton, Park Lane, London

Located in London’s prestigious Park Lane, theLondon Hilton overlooks Hyde Park and is the flag-ship hotel of the Hilton Group.The hotel provides arange of services for both business clients andleisure visitors. In addition to the restaurants, roomfacilities/service and onsite leisure facilities, businessclients also have access to the following:

◆ business centre

◆ business phone service

◆ dictaphones

◆ fax

◆ meeting rooms

◆ photocopying service

◆ office rental

◆ secretarial services

◆ video messaging.

Equally, there are dedicated marketing teams toassist business clients and tourists, from bookingtheir stay through to activities and transportationwhile they are in the United Kingdom.Source: Hilton Hotel Group.

Mini case 7.1

mark of the Microsoft Corporation. Therefore if acompany copied Microsoft® Word and attemptedto market it under a different name, the MicrosoftCorporation would have the legal right to seekdamages against that company. In essence the othercompany would be undertaking theft, or brandpiracy.

Branding is fundamental in protecting acompany’s legal rights. However, brand theft orpiracy has become a critical problem for manycompanies. The International Chamber ofCommerce estimates that the annual worldwidesales of counterfeit products are in the order ofUS$350 million (ICC 2004). The problem forconsumers is that reproductions, imitations or fakesoften look deceptively authentic. Pavitt (2000) citesthe example of Cuban cigars, where only an expertcan tell the difference between the real cigar andsome counterfeits. A clue is apparently the way thepaper is folded at the end of the cigar.

Consumers might buy a product in the beliefthat it is legitimate only to discover that it is of poorquality, and this will cause them to lose faith in thebrand name. Equally, some consumers purchaseproducts they know are fake, but which are cheaperthan the originals. For example, fake designerbranded watches can be purchased on market stallsin Singapore. They are a fraction of the price of theoriginal, but look the same. However, they often donot weigh the same, keep time as accurately as theoriginals, nor are they covered by any guarantee.There is no redress if they stop working after acouple of days.

Brand piracy is not limited to direct counterfeit-ing of products. Companies will also use namesand packaging that are similar to the registeredname and packaging. This ‘passing off’ of a productis aimed to confuse customers into thinking theyare purchasing a genuine well-known brandedproduct.

In 2000 the Victoria & Albert Museum in Londonheld an exhibition on branding. In one secure room– courtesy of the authentic brand owners – were acollection of products designed to ‘pass off’ underthe brand name and image of legitimate products.These were exhibited alongside the genuine prod-ucts. While it was possible to distinguish some fakeor ‘passing-off products’ from the genuine articles,it was very difficult in other cases.

Increasingly companies are turning to specialistorganisations to help them both protect their brand

identities and hunt down those who either counter-feit or pass off products as the genuine brand. Thereis also pressure on governments to act forcefullyagainst the counterfeiters.

WHY BRAND? 123

The battle against the movie pirates

Although the US film and television business isworth an estimated US$65 billion per year, in 2002Hollywood studios lost an estimated US$3 billion inrevenue to counterfeiting.Many movies appeared onDVD and/or the Internet before their generalrelease in the cinemas. In 2002 the number of pirat-ed videos and DVDs seized worldwide was approx-imately 60 million, a rise of 161 per cent since 1999.In addition to the breach of copyright, such actioncan significantly reduce revenue from cinema andlegitimate video/DVD sales.

Concerned that piracy could have a similarimpact to that which shattered the music business,Hollywood is seeking to protect its brands.The stu-dios are using both international copyright laws andlocal legislation to protect both their corporatebrand identities and the individual movie brands.Production and distribution companies are workingwith police forces and legal teams in several coun-tries in an attempt to curtail piracy. Productioncompanies have also imposed strict codes for thepreviewing and distribution of their movies.Surveillance equipment is used to deter would-bepirates from videotaping movies at previews, and thedistribution of preview copies is carefully moni-tored.

Clearly all production and distribution compa-nies must work together to protect their corporateand individual brands. However, some industry insid-ers suggest that Hollywood and other major pro-duction centres are struggling to stop the piratesand protect their brands. If Hollywood does lose thebattle, the future of the movie industry as we cur-rently know it will be radically different – that is, if itsurvives at all.

As you can see from this example, protection ofa brand may be core to the survivability not only ofthat particular brand, but of an entire industry.Sources: R. Grover and H. Green, ‘The digital age presentsHollywood heist’, Business Week, 21 July 2003; J. Doward,‘Pirates loot the film and music giants’ coffers’, Observer,8 February 2004.

Mini case 7.2

Although brand piracy is the standard termused, this author prefers the stronger term ‘brandmugging’. The word ‘piracy’ can conjure up aromanticised view of theft, but brand theft is farfrom romantic. It is more akin to ‘mugging’ in thatit is not only the brand owners that are robbed butall the stakeholders of the business (see Chapter 2),including the customers who wittingly or unwit-tingly buy the counterfeit products.

It may seem from this brief section that brandprotection has little value. On the contrary, eventhough there is counterfeiting, companies mustseek legal ways of protecting their brands. It is theonly means of assuring that the customer consumesthe product at the quality specified by the authen-tic brand owner.

ValuesThere needs to be a word of caution before weconsider brand values. While there is a link, brandvalues must not be confused with brand valuation(see page 347). Brand values are the values orintrinsic qualities that the brand communicates tocustomers. These may include quality, trust andreliability. Therefore a product or service maycommunicate to its customers a combination ofintrinsic values which they can relate to and appreciate.

Chapter 16 on psychology examines how theunderstanding of emotion is important to ourknowledge of consumer behaviour. Barlow andMaul (2000) suggest that high levels of emotional

involvement with an organisation, company orbrand tend to drive customer loyalty more thanspecific judgments regarding quality. This authorpartially agrees with Barlow and Maul’s supposi-tion (especially in relation to mini case 7.3).However this cannot be considered as a ‘given’.There are cases where the appeal lies in a combina-tion of high emotional appeal and the features andbenefits delivered by the product or service. At bestit should be considered a continuum – a line alongwhich brands travel depending on the values (realand intrinsic) of a particular product or service.

Barlow and Maul postulate that organisationsand companies must be customer focused thoughthe implementation of what they call the five Cs ofintimacy (Barlow and Maul 2000). Table 7.1 outlinestheir 5C framework.

A good example of positive emotional involve-ment is how the pharmaceutical giant Johnson &Johnson handled a case of product tampering. Thisis highlighted in mini case 7.3.

DifferentiationBranding helps the company or organisation todifferentiate its product and/or service fromcompetitors (see Chapter 6 on strategy). In turn thishelps customers to identify the products and/orservices that match their individual needs. If thebrand is both effectively differentiated and posi-tioned in the market, there is a potential for creatingloyalty for that product or service. This might main-tain or increase sales for the product or service.


Table 7.1 The five Cs of intimacy

Point of emotionalinvolvement

Description

Communication Two-way communication that is both proactive and reactive.

Caring Valuing individuals beyond selling them a particular product and/or service.

Commitment The company or organisation creating the right emotional environment or climate. Proactivedemonstration of commitment to the customer.

Comfort The establishment of rapport with the customer, being emotionally ‘in tune’ with that person –empathetic, understanding and concerned.

Conflict resolution The ability to resolve conflicts in a constructive rather than a destructive manner.

Source: adapted from Barlow and Maul (2000).

WHY BRAND? 125

Johnson & Johnson and Tylenol®

During the 1960s Tylenol®, an acetaminophen-basedanalgesic produced by McNeil Pharmaceuticals, asubsidiary of Johnson & Johnson, was introduced to theUS market as an over-the-counter (OTC) product.Tylenol® was heavily promoted to doctors, pharmacistsand the general public alike as a safe substitute for aspirin,which is known to often irritate the stomach.By the early1980s it was the leading analgesic on the market, with a35 per cent share and annual sales of US$400 million(Green 1992).

It appeared that the growth of Tylenol® was assured– until late September 1982,when it was discovered thatTylenol® Extra-Strength capsules had been contami-nated with cyanide, leading to seven deaths in theChicago area. Rigorous checks on the batch numbersfollowed. It soon became clear that the contaminationhad occurred not at the point of manufacture but at thepoint of distribution. Johnson & Johnson removed allTylenol® products from supermarkets and drug storesacross the United States. This cost the company overUS$100 million, the retail value of removing 31 millioncontainers.

As reputation risk management expert Peter SheldonGreen (1992) stated,

The uniqueness of Tylenol®, which enabled it tocapture more than a third of the total USpainkiller market, was in the marketing of theproduct.The value of the Tylenol brand was a func-tion of public perception and public perception –not the uniqueness of the product itself.

The Johnson & Johnson strategy

The company’s strategy for handling this crisis included:

◆ A focus on the company’s credo. In 1935 during theDepression, ‘General’ Robert Wood Johnson, theson of the founder, stated his belief in a ‘new indus-trial philosophy’, defining this as the corporation’sresponsibility to customers, employees, thecommunity and stockholders. In 1943 this philoso-phy was formulated as the company’s Credo – aseries of statements of good conduct.This remainsa focal point of the business today. In 1982 it was itsethical stance that drove the company’s strategy indealing with the crisis.

◆ An open public relations policy, the objective being

to minimise the potential spread of rumours anddisinformation. The board sought clear lines ofcommunication to customers and employees alike.Key board members were interviewed by themedia. The CEO, James E. Burke, appeared onnetworked television shows to answer questionsand state the company’s position.

◆ Charge-free telephone helplines: in the first 11 daysof the crisis more than 136,000 calls were taken.Asthe number of calls increased, more lines weremade available.

◆ Employee information: both current and retiredemployees were updated on the situation on aregular basis.

◆ Openly working with the US Federal Drugs Admin-istration (FDA): the company supported moves bythe FDA for the introduction of tamper-resistantpackaging.

The reintroduction of Tylenol®

◆ Although the company was advised by marketingconsultants to rebrand Tylenol®, it decided itshould be reintroduced into the market under thesame brand name.The objective was to reintroduceTylenol® into the market in tamper-resistant pack-aging (pre-empting any government legislation).

◆ Within 10 weeks of the original product recall, thecapsules were back on the shelves.

◆ By the end of 1982 more than 2000 Johnson &Johnson sales people had made presentations tothe medical community. It has been estimated thatover a million presentations were made in all.

◆ The company offered coupons to the value ofUS$2.50 towards the value of the reintroducedTylenol®. To be placed on the list to receive thecoupons, consumers had to call a charge-freenumber. By the first week of December 1982 over200 000 calls had been received.

◆ For a relatively short period Tylenol® was withdrawnfrom the marketplace completely, allowing otherbrands to capture market share.However,on reintro-duction Tylenol® once more became a leading

Mini case 7.3


However, there are degrees of differentiation.Some products and/or services are very easy todifferentiate. For example, a chain of motels caneasily be differentiated from a chain of four-stardeluxe hotels. Both have a necessary positionwithin the hotel market. However, it becomesincreasingly difficult to differentiate one four-stardeluxe hotel from another. If both brands haveachieved four-star deluxe status, they should be ofequally high quality. The differentiation mightfocus on the size of the hotel (for example, 50 roomscompared with 200 rooms) and the potential forincreased personal service. It will depend on theneeds and desires of the potential guests. Thusbrand differentiation can be determined on bothmacro and micro scales.

SegmentationAs was stated in Chapter 4, products and servicescan be segmented into different groups. In thatchapter we considered how the cruise industrycould be segmented depending on the variouscompanies’ market positions. Branding helps toreinforce that positioning. For example, Seabourn,Silverseas and Hebridean have brand images thatcommunicate ultra luxury, and thus can easily bepositioned in that market segment (see Figure 7.1).

SelectionThis relates to the positioning of the brand in themind of the consumer. If he or she has an attach-ment to a brand, the consumer feels comfortableselecting that branded product or service. Forinstance consider the supermarket environment.

Here shoppers usually recognise brands they haveseen in promotions and/or used before. Dependingupon how they ‘feel’ about the brand, they mightselect it from the supermarket shelves. If there wasno branding, all the products would possibly lookexactly the same. Shoppers would have no affinitywith any of the products, and as a result would buyone at random, which might or might not be infe-rior to the next on the shelf. They just would not beable to tell.


household brand name. Just over 10 years from thistragic episode the highly competitive US analgesicmarket was valued at US$2 billion per year.Tylenol®was by far the strongest selling brand, with morethan US$1 billion in sales (O’Reilly 1994).

◆ Today Tylenol® is available in a range of line exten-sions and remains a major brand within the anal-gesic market.

The general belief is that the successful reintroduction of

Tylenol® would not have been possible had the companyfailed in its duty of care to act quickly and decisively in thepublic interest as the news of crisis broke.While this isclearly self-evident, there is another dimension. Johnson& Johnson has, since the 1930s, built a solid trusted repu-tation. It is a core theme that has become the focus of itscommunication – caring, committed and nurturing (thecomfort of Barlow and Maul’s five Cs of intimacy).Source: Green (1992); B. O’Reilly,‘J&J is on a roll’, FortuneInternational, 26 December 1994, pp. 122–8.

Mini case 7.3 (continued)

Figure 7.1

© Hebridean Cruises. Reproduced with kind permission.

The Pan Lounge on board the luxury cruise shipHebridean Spirit.

AwarenessBranding is a mechanism by which companies cancreate an ‘awareness’ for the product or service theyare marketing. Awareness is where the customerrecognises the product or service. This awarenessmay be ‘imprinted’ on the mind of the consumer,creating a spontaneous reaction. Equally, awarenesscan be promoted through, for example, in-storepromotions, ambient media or point-of-sale (PoS)materials (see Chapter 10).

RecallThis is very much linked to brand awareness.Brand recall is the extent to which the consumercan recall the name and/or promotional/packag-ing images associated with a brand. For instance, inmarketing research shoppers may be shown imagesthat both depict sections of packaging or a logofrom a branded product, and asked to identify theproduct. Some customers will be able to identitythe product immediately from that partial image orlogo. Creating logos, names and images that areeasy to remember can significantly aid the recall ofthat brand in the mind of the consumer.

RecognitionAgain, recognition links to recall and awareness.This is the extent to which a consumer can recog-nise a brand from a series of visual or aural clues(reflect back to the opening section on branding).For instance, consumers shopping in a supermarketare literally bombarded by thousands of visualimages. Out of that ‘wall of imagery’ will stand outone or two visual clues that trigger brand recogni-tion and potential purchase. This might be not aconscious act, but very much a subconscious one.Thus the imagery that encompasses a brand mustbe memorable to aid such recognition.

However, there are negatives to recognition (aswith recall and awareness). If the brand has (right-fully or wrongly) gained a negative reputation,recognition will equally result in a negativeresponse from the consumer.

Additionally, it is interesting to note (as we shallsee later in this chapter) that not all brands arememorable. It is as if some companies have activelysought to create brand names and images that are

127

easily forgettable. This has often led to a radicalrethinking of their brand strategy.

■ Brands that develop a cultstatus

Both individuals and groups can have an emotionalattachment to brands. (This is discussed in moredepth in Chapter 16 on psychology.) We are alldriven, in one way or another, by emotionalresponses, and these responses manifest them-selves in a variety of ways. For example, considerteenagers (and adults) who collect a particularbrand of toy, for instance Barbie™ dolls, orteenagers who become wildly excited when theysee their favourite band or singer perform on stage.These are not new phenomena, they have been partof society for decades.

This section focuses on brands as ‘cult icons’.These brands are not all packaged goods. For exam-ple some bands, actors and football players haveachieved an iconic status, being mobbed whereverthey venture. However, what actually creates a cultor iconic brand?

Mini cases 7.4 and 7.5 illustrate brands that haveachieved a cult status and are emotive for thosewho are loyal to the brand.

■ Extending the brand (alsoknown as brand elasticity)

Kapferer (1998) states that ‘extending the range is anecessary step in the evolution of a brand throughtime’. This is where additional products are, overtime, added to the original brand to serve variousmarkets. The elasticity comes from the view thatthe brand can be stretched over several productswithout harming the original branded product.

Kapferer (1998) indicates that there are severalapproaches to extending the brand – specificallyline, range and brand extensions. While it is clearlyrelevant to the understanding of brands, thisnomenclature can be confusing. This is most likelywhy many marketing texts tend to subsume thethree components into ‘brand extensions’ (seeGroucutt et al. 2004).

Table 7.2 explains the relevance of the differentcategories. However, as you can see, some of the‘ingredients’ are more subtle than blatant.

CULT BRANDS


Aaker (1991) suggests that effective extensionstrategies have the following core characteristics:

◆ The original brand has strong positive associa-tions that reinforce consumer expectations.These reduce the level of communicationrequired to establish the extension and help inthe differentiation of the brand.

◆ There is already a highly perceived (and real)value associated with the original brand name.

◆ The original brand is well known and thusrecognised within its relevant market place.

Kapferer (1998) suggests that brand extensionshave become increasingly important strategically.He concludes that companies can employ exten-sions as a tactic to defend the brand against attackfrom current and potential competitors. Kapferer(1998) suggests that many companies that haveremained in their original market and not consid-ered extensions risk seeing their position eroded.

The Kit Kat mini case is an illustration of a lineextension strategy. As you can see, for some 60years there was no change to the brand. However,

Godzilla®

In 1954 the monster Godzilla® (known as Gojira inJapan) came to life on Japanese cinema screens. It isunlikely that anyone at the time thought this firstmovie would spawn more than 30 movies in a long-running series that would gain cult status, gainingmore than 100 million fans in Japan alone.Significantly it has become part of Japanese culture.

In 1954 the low-budget move Godzilla: King of theMonsters introduced the dinosaur-like creature tothe world. Mutated as a result of the Bikini Atolltests in the South Pacific, Godzilla goes on the ram-page through several movies, fighting foes like KingKong. In the majority of cases Godzilla is represent-ed not by state-of-the arts visual effects but by aman in a green suit. State-of-the-art visual effectswere paramount with the 1998 release of a US$120million Hollywood-made version.This, however, wasto prove a box-office failure. Perhaps the streamlin-ing removed the edge that had been so prevalentwith the lower-tech Godzilla movies?

What is clear is the emotion that the Japanesehold out for this creature. In 2002 a Godzilla® exhi-bition opened at Tokyo’s Taro Okamoto Museum ofArt. It portrayed the monster, not as a trivial char-acter, but as a Japanese cultural phenomenon of the20th century.Within days of opening over 1000 peo-ple per day were visiting the exhibition, such is theiconic value of the Godzilla® brand.

In 2004 the final Japanese-produced Godzillamovie was released, ending a 50-year series of 28movies. The Final Wars features ten monsters fromprevious Godzilla movies who go on the rampage inNew York, Shanghai, Sydney and Paris.

Although these movies may not have received auniversal theatrical release, they have none the lessachieved cult status in their home country. ClearlyGodzilla® has achieved cult status as a 20th centu-ry (and perhaps 21st century) Japanese brand icon.Sources: ‘Godzilla shelved over sub tragedy’, BBC NewsOnline, 20 February 2001; ‘Japanese flock to “highbrow”Godzilla’, BBC News Online, 7 June 2002; ‘Final battlelooms for Godzilla’, BBC News, 3 March 2004; ‘Godzillarises for the final time’, BBC News Online, 29 November2004;‘Godzilla’s 50 years of film terror’, BBC News Online,29 November 2004.

Mini case 7.4

Harley-Davidson®

In 2003 Harley-Davidson® celebrated its 100thanniversary as a motorcycle manufacturer. In 1903 the21-year-old William S. Harley and the 20-year-oldArthur Davidson produced their first Harley-Davisonmotorcycle – a racer. This was the beginning of a legend that would see the company swing from majorsuccess to near failure and closure.Yet through merg-ers, buyouts and fierce Japanese and European compe-tition the Harley-Davidson® motorcycle has become abrand icon.

The iconic image for Harley-Davidson® is not arecent phenomena. We can perhaps trace back thisburgeoning image to the 1940s. When the UnitedStates entered the Second World War, the productionof domestic motorcycles was suspended in favour ofmilitary production. By 1945 Harley-Davidson® hadproduced some 90 000 bikes for military use. It is inter-esting that many young Americans experienced theirfirst feel of a Harley® while in military service, anexperience they would remember on their return to

Mini case 7.5

129EXTENDING THE BRAND

Table 7.2 Types of extension

tion of the Harley Owners Group, affectionatelyknow as HOG®. This soon became the largest factory-sponsored motorcycle club in the world.Harley-Davidson® created the Owners Group inresponse to riders who wanted ‘ an organised way toshare their passion and show their pride’. By 2003international membership exceeded 800 000, with1157 local chapters.

Although Harley-Davidson® actually producesfewer motorcycles per year than its major rivals, ithas created an emotional attachment to the motor-cycle. It is this emotion or experience that links therider to the bike.As is stated in Chapter 16 on psy-chology, emotion and experiences are importantinfluences on our lives and indeed our lifestyles. ForHarley-Davidson® riders, the bike is not purely ameans of transportation, it is part of who they are,their lifestyle and perhaps their view of life itself. It isthis emotional attachment to the Harley® experi-ence that has created a sustainable brand icon.Source: Harley-Davidson.com.

Type of extension Description

Line extensions This can be described as adding a line of complementary products to the original brand.For example, Unilever’s Dove soap brand has been extended to include shampoo, foambath and shower gels.The Mini case 7.6 on Kit Kat illustrates how Nestlé has extendedthat brand.

Range extensions A range of products that carry the original brand’s name are associated with the single‘promise’ created by that brand and focus on the same area of competence or capability.For example, Heinz is seen as one of the world’s leading food producers.

Brand extensions Kapferer (1998) suggests that this is an attempt to diversify the brand towards differentproduct categories and different target audiences.While there may be an attempt to extendthe brand in different product categories, the target audience may actually include the samecustomers as well as new ones.The reason is that the original brand's customers are stillbuying into the brand’s inherent values.This can be seen in mini case 7.7, which examineshow fashion designers have moved into the hotel business.

Source: adapted from Kapferer (1998).

one can speculate that increasing competition in the1990s forced Nestlé to rethink its brand strategy forKit Kat, prompting the various line extensions.

A very good example of a company that has

developed numerous brand extensions is the UK-based Virgin group of companies under the controlof Sir Richard Branson. The extensions to the Virginname are listed overleaf.

civilian life. This experience created a demand forHarleys® after the war, and one the company immedi-ately geared up to meet.

Equally, magazines and movies enticed an increasing-ly international audience towards Harley-Davidson®motorcycles. In 1956 a rising young rock star – ElvisPresley – posed on a Harley® for Enthusiast magazine.However, it was arguably the image of Marlon Brandoas Johnny in the 1953 movie classic The Wild One thatcemented the relationship between motorcycles andthe young. While it was supposedly a social commen-tary, very loosely based on a true story, the moviebecame more of a voice for a younger generation whohad not yet found their own voice. Although theBrando character was to a large extent an anti-hero,his image became a visual statement for a generation ofmotorcyclists.

Harley-Davidson® began selling what was toemerge as the classic black leather motorcycle jacket in1947.This was some six years before Brando made it afashion accessory. However, merchandising took on awhole new meaning in the early 1980s with the forma-


Virgin describes itself as the ‘third most recognized brand in Britain’, claiming that it is now:

becoming the first global brand name of the 21stcentury. We are involved in planes, trains,finance, soft drinks, music, mobile phones, holi-days, cars, wines, publishing, bridal wear – thelot! What ties all these businesses together arethe values of our brand and the attitude of ourpeople.

(www.virgin.com)

This is a list of businesses (as of January 2004) thatuse the Virgin brand name:

Virgin Active Virgin AtlanticVirgin Air Cargo Virgin Balloon FlightsVirgin Bikes Virgin BlueVirgin Books Virgin BridesVirgin Business Solutions Virgin CarsVirgin Cosmetics Virgin Credit CardVirgin D3 Virgin DrinksVirgin Experience Virgin ExpressVirgin Holidays Virgin HomeVirgin Limobike Virgin LimousinesVirgin Megastores Virgin MobileVirgin Money Virgin PulseVirgin Radio Virgin TrainsVirgin Travelstore Virgin WareVirgin Wines Virgin.comVirgin.net Virginstudent.comVirgin Vacations

As you can see, there is an extremely wide selectionof businesses. In addition there are businesses thatdo not carry the Virgin branding. These include:

Blue Holidays – innovative package holidaysLimited Edition – exclusive hotelsNecker Island – Branson’s own private island in

the British Virgin Islands, which can be hiredPacific Blue – daily airline service between

Australia and New ZealandRadio Free Virgin – digital radio serviceRoof Gardens – a venue in Kensington, London

which includes the Babylon restaurantthetrainline – online booking service for UK rail

networksUlusaba – Branson’s private game reserve in

South AfricaV2 Music – an independent record label.

Kit Kat chocolate bar

The Kit Kat brand was originally launched in theUnited Kingdom in 1935 as Rowntree’s ChocolateCrisp. It was rebranded in 1935 as Kit KatChocolate Crisp (later becoming known as simply‘Kit Kat’). Although there is much debate regardingthe origin of the name ‘Kit Kat’, it is suggested thatit is linked to the literary club of 17th and 18th-century London.2

For some 60 years the Kit Kat brand remained asingle product. However, as a result of increasingcompetition within the confectionery marketNestlé introduced various line extensions, some ofwhich were sold for a limited period only.

By the 1990s Kit Kat had become the UK’s best-selling confectionery brand with, according toNestlé, 47 being consumed every second in theUnited Kingdom alone. In 2000 sales reached someUK£260 million. However sales dipped to UK£116million in 2003.There are several possible reasons,from the weather to the drive towards healthier lifestyles.

In 1999 Nestlé introduced Kit Kat Chunky, a sin-gle giant finger version of the traditional multi-packof Kit Kat. Over 200 million Kit Kat Chunky barswere sold in its launch year alone.

In the late 20th century and early 21st centuryNestlé launched several additional line extensions,some of which have been more successful than oth-ers.These included:

◆ white chocolate

◆ orange flavoured

◆ Kit Kat Cubes (small cubes of Kit Kat ratherthan in the form of a finger biscuit)

◆ lemon cheesecake Kit Kat, which is sold inGermany and Japan

◆ curry-flavoured Kit Kat for the UK marketplace.

The introduction of these line extensions has beenintended to curb falling revenues within a highlycompetitive marketplace by keeping the brandprominent in the mind of the consumer.Source: www.nestle.com

Mini case 7.6

131

Another example of brand extensions as describedby Kapferer (1998) can be seen in how major iconicfashion brands have diversified into the travel busi-ness. Mini case 7.7 illustrates how some of thesefashion brands have extended their valuable brandname into the hotel business.

Another example of brand extension is theFrench ballpoint pen manufacturer BIC. Mini case7.8 outlines both the successes and the failures ofthe company as it extended its global brand name.

However, companies need to be aware that thereare risks associated with extending their brands.These include:

◆ Attaining a critical point where the value of theoriginal brand is severely diluted because ofthe number of extensions. It could be argued

EXTENDING THE BRAND

that the French fashion house brand PierreCardin has been over-extended through thesheer volume of licences that have beengranted to manufacture products under thebrand name. According to Czinkota et al.(1998), the label granted 800 licences in 93countries to create and manufacture a range ofitems from clothing, luggage and watches totoiletries and pens.

◆ A problem associated with one product withinthe extended brand range can possibly tarnishthe image of the other products: for example,where one product is the subject of a productrecall. Customers may be wary of purchasingother products within that brand range for fearthere might also be problems with them. Thiscould be an issue of perception rather that actu-ality. Nevertheless a perceived problem can beas damaging as a real one.

Valuations and equityAaker (1991) defines brand equity as:

a set of assets and liabilities linked to a brand,its name and symbol, that adds to orsubtracts from the value provided by a prod-uct or service to a firm and/or to that firm’scustomers.

Aaker (1991) goes onto define the asset cate-gories as brand awareness, brand loyalty,perceived quality and brand associations. Keller(1993) suggests that it is necessary for a company(or organisation) to invest in both brand aware-ness and brand image in order to create anddevelop value or equity for the brand. Yet it isreally much more than awareness and image, asimportant as they may be. It goes to the heart ofthe credibility of the brand, and the trust peoplehave in that brand. We have seen throughout thisbook that trust is an important ‘condition in themind of the customer’, whether it applies to anindividual product or service, or an organisationsuch as a government department.

While image is linked to trust, it really doesnot go deep enough. The image of a brand mightbe slightly tarnished, but overall the customercould still be loyal to that brand. However, if thecustomer loses faith or trust in that brand, it

Fashion designers extending theirbrands

Various haute couture houses have extended theirbrand into the luxury hotel market. In 2000 theItalian design house Versace entered a joint venturewith a German hotel company to open the six-starPalazzo Versace in Queensland,Australia.

In 2001, the Italian fine jeweller Bvlgari entered ajoint venture with the Marriott Hotel Internationalto form Bvlgari Hotels & Resorts. In 2003 Bvlgariopened its first five-star hotel in Via Privata Fratelli,Gabbain, Milan’s most prestigious shopping and cul-tural area adjacent to the famous La Scala operahouse.The rooms and suites are priced at the top ofMilan’s high-end hotel market. Such pricing reflectsthe image and value of the Bvlgari brand.

Other fashion houses that have entered the hotelmarket include Cerruti, Mulberry and Biba.Althoughthese companies are extending their brands, they areentering a highly competitive luxury hotel market-place.The possible advantage they have over some oftheir competitors is that they have a range of brandedproducts they can market to hotel customers, includ-ing clothes, travel accessories, bags and cosmetics.Indeed, they have the opportunity to create a lifestyleexperience for their customers.Sources: www.bulgari.com; www.hotelbiba.com; J. Arlidge,‘The rise of the hotel couture’, British Airways High Life,January 2004, pp. 37–40.

Mini case 7.7

might well be damaged in the short, mediumand indeed the longer terms. As we shall seelater in this chapter, brands are damaged byadverse situations, sometimes of the brand’s orcompany’s own making. We must rememberthat brands are vulnerable, and that organisa-tions must be able to recognise that vulnerabil-ity for both the sake of the brand and thesurvivability of the organisation itself.

Brands have a real financial value to acompany or organisation. Therefore thecompany or organisation has to create anddevelop through its brand managers an environ-ment that will build brand equity over not justthe shorter term but the long term as well. The organisation is therefore seeking to create,and most importantly sustain, a competitive advantage.


PromotionThe collective elements of branding (for instance,name, images, ambience and packaging) all contributeto building a communications profile of the product orservice. A brand should communicate a set of valuesand an identity to its audience. These values and iden-tity can be projected across a diverse range of mediathrough an integrated marketing communicationscampaign. (See Chapter 10.) Although the media maybe diverse, the brand message and values shouldremain the same. This is, it is hoped, will increasebrand awareness, recognition and recall.

■ Types of brandingCompanies can adopt a range of policies to createa ‘brand environment’ to encompass their

BIC®

In 1945 Marcel Bich (1919–1994) and his colleagueEdouard Buffard bought an empty rectory in a Parisiansuburb and developed what was to become a multi-billion-dollar empire. In the 1950s Bich obtained the orig-inal patent rights to a ballpoint pen from a Hungarianinventor, journalist and artist Ladislao Biró (1899–1985),who lived in Argentina.

Biro patented the idea in 1938, and fled Germany in1940 to escape the Nazi regime. He sold his rights tohis backer H. G. Martin in 1944, and Martin began mar-keting the original ‘biro’ pens in the United Kingdom.They were then introduced in the United States, with alaunch in a New York department store. On the firstday 10 000 were sold at US$12.50.

It was Bich who had the idea of creating the dispos-able ballpoint pen, and thus the ‘BIC® biro’ as we knowit today was developed. In 1958 Bich acquired theAmerican-based Waterman pen company, and this pro-vided him with the opportunity to enter the US mar-ket.This resulted in sales of over 330 million ballpointsper year into that market.

With such success mounting in the global ballpointpen market, Bich decided to extend his brand by intro-ducing the disposable lighter.This was to be one of sev-eral extensions to the BIC® brand. Initially the dispos-able lighter was test marketed in Sweden, then a yearlater he introduced it into the US market. Here it was

in competition with the established leader, the Cricketlighter produced by Gillette. Both companies engagedin advertising and pricing battles, with BIC® emergingthe winner. In 1984 Gillette sold Cricket lighters toSwedish Match.

Both companies were again to battle for marketshare, this time with disposable razors. Bich had seenanother way of extending the BIC® brand. However,the situation was very different now.This was Gillette’smain marketplace, and its reputation and expertise inshaving helped it to outperform BIC® in this particularmarket.While it has not become market leader withinthe US market, BIC® shavers have nonetheless gainedsignificant ground in the global marketplace.

While remaining the market leader in ballpoint pens,BIC® has been able to successfully extend its brandacross the diverse product ranges of lighters andshavers. By the turn of the 21st century BIC® was sell-ing 4 million BIC® lighters and 11 million BIC® one-piece shavers every day.

As Christensen, Berg and Salter (1980) suggest,BIC® is in the market of selling easy-to-manufacture,low-priced disposable items, and aims to use its signifi-cant volume of production to reduce its costs. In 2002SOCIÉTÉ BIC generated revenues of €1.5 billion (US$1.9 billion; UK£1 billion approximately).Sources: Christensen et al. (1980), Hillman and Gibbs (1998),van Dulken (2000), www.bicworld.com.

Mini case 7.8

133

product and/or service. The following list is notexhaustive, and the nomenclature for brandtyping varies from textbook to textbook andcountry to country. Students are advised to readwidely on this subject and consider the differences.

Family brands

As the name suggests this is a brand range thatadopts the name of the company. This can bedone regardless of whether the company is amanufacturer or service provider. Examplesinclude Heinz Foods, Virgin, Cadbury choco-lates, Shangri-La Hotels in the Far East andNestlé Foods.

TYPES OF BRANDING

Individual brands

These are products and services that stand alone,separate from their parent company. They possessa distinct individual identity, and the consumermight not actually know which company owns thebrand. Table 7.3 lists some individual brands andtheir parent companies. As you can see, severalinternational brands are owned by organisationswith equally well-known family brands, for exam-ple Aston Martin and its parent Ford.

These individual brands will have their ownbrand strategies to compete within their ownmarketplace. One of the advantages of individualbranding is that a parent company such as Procter& Gamble can have several individual brandscompeting within the same market segment for a

Table 7.3 Individual brands and their parent companies

Individual brand Product/service type Parent Location of parent company

Ariel Clothes washing liquid/powder Procter & Gamble USA

Asda UK supermarket chain Wal-Mart USA

Aston Martin Luxury cars Ford Motor Corporation USA

Camay Soap Procter & Gamble USA

Conrad Hotels Luxury hotels Hilton International & HiltonHotels Corporation (through ajoint venture arrangement)

UK/USA

Cunard Luxury cruise line Carnival Corporation USA

Dove Soap and shampoo range Unilever UK/Netherlands

Durex Condoms SSL International plc UK

Evian Mineral water Group DANONE France

Flash Kitchen cleaner Procter & Gamble USA

HarperCollins Publishers News Corporation USA/Australia

Scandia Hotels European hotel group Hilton International UK

Sheaffer Premium writing instruments –fountain pens and ballpoints

Société BIC France

20th Century-Fox Film and television production anddistribution

News Corporation USA/Australia

Werther’s Originals Caramel and cream candy Storck Germany

All brand trademarks and registrations are fully acknowledged.

share of that particular market. Having such brands‘competing’ within the same segment can meanthat the parent has a greater overall share of thatmarket segment than its competitors, both individ-ually and collectively.

The Carnival Corporation is divided into sixbrands that cater for different segmented targetmarkets:

Brand name Segmented target marketCarnival Cruises FamilyCosta FamilyHolland America Family – luxuryCunard LuxurySeabourn Niche luxuryWindstar Niche luxury

Own-label brandsThese are brands that are owned and marketed byretailers. They are also known as retailer brands,own brands, dealer brands, private labels, storebrands and generics. The major UK supermarketshave, for instance, created a range of own-labelbrands encompassing everything from chocolate towashing liquids. These compete, normally on price,with the major-label brands such as Heinz,Cadbury’s and Kellogg’s. The aim of own-labelbrands is to build loyalty between the customer andthe retailer, and to improve store margins.

Supermarkets do not manufacture own-labelbrands; instead they seek companies that have theexperience of manufacturing specific products orranges of products. For instance the UK-ownedcompany McBride is one of Europe’s leadingmanufacturers and suppliers of own-label house-hold cleaning, personal care and pharmaceuticalbrands. McBride is a UK£500 million multinationalbusiness with 18 factories in seven countries(McBride 2004).

Euromonitor (2004a) reported that in 2002 own-label brands of Over the Counter (OTC) medicinesaccounted for 6.4 per cent of the global market. Theresearch contends that own-label brands haveproved attractive (as a result of their lower priceposition) in markets where the national economydisplays low growth and rising unemployment.Where there are the threat of unemployment anddiminishing levels of disposable income,consumers will feel increasingly insecure. This will


lead them to purchase lower-priced products,usually own-label brands. In such a competitivemarket, the major brands may retaliate by loweringtheir prices to compete on price, or maintain theirposition. In the latter case they are identifying aquality rather than a price position.

The potential strength of the own-label brandscan be seen from an examination of the UK textilewashing products market, where the market shareof the major players in 2002 was:

Procter & Gamble 40.9%Unilever 37.5%Own-label brands 17.0%Reckitt Benckiser 3.2%

(Euromonitor 2003)

Euromonitor (2003) suggests that the only threat tothe dominance of Procter & Gamble and Unilevercame from the development of own-label products.The Euromonitor research indicates that the rise ofthe own-label brands within this sector, is a result ofthe increasing sophistication and quality of theretailer brands.

Some companies can manufacture their ownbranded products as well as own-label products forsupermarket chains (see mini case 7.9).

■ Brand managementWe have seen that numerous attributes can beassigned to a brand, from advertising to valuation.A brand can also be an individual entity or an inte-gral component of a family of brands. In order for abrand to function effectively and efficiently it needsto be managed, hence the development of brandmanagement.

Brand management can be defined as:

The strategic organization of the marketing mixto effectively and efficiently build and manage abrand over its life cycle.

We discussed earlier Goldfarb’s (2001) sugges-tion that Lever’s success with the introduction ofSunlight Soap was due to his careful manage-ment of the brand. Lever focused on a targetmarket, the English working-class housewife ofthe period. This targeting was carefully linked tothe advertising of the brand and, most impor-

135

tantly, the communication of the brand’s imageto the target audience.

■ The world’s most powerfulbrands

As well as being a powerful weapon in acompany’s arsenal to gain and sustain competitive

BRAND MANAGEMENT

advantage, brands have a financial value thatcompanies seek to maximise. Table 7.4 gives thevalue of the world’s ten most powerful brands as of2004. The UK-based company Interbrand hasdeveloped a formula for calculating brand valuesusing several measures, and this table is based onits value estimates. Of course, brand fortunes canchange over time, and this table simply gives asnapshot in time.

Premier Foods and Premier Brands

In 1986 Paul Judge* led a management buy-out (MBO)of the tea and foods businesses of Cadbury Schweppes.As part of the MBO, Premier Brands would continue tomanufacture Cadbury chocolate and Cadbury choco-late cakes and drink under licence. Hillsdown Holdingsplc later acquired the company. In 1999 HillsdownHoldings was in turn acquired for UK£822 million bythe Dallas-based venture capitalist company Hicks,Muse,Tate & Furst Inc, which owns substantial holdingsin diversified business interests.

On acquisition Hillsdown Holdings was divided intotwo core businesses, Premier Foods and HorizonBiscuits (whose brands include Cadbury biscuits,Wagon Wheels® and Maryland Cookies®).

As of 2004 Premier Foods had a turnover of UK£1billion. Since the original MBO it has been activelyengaged in a series of acquisitions and licensing agree-ments, including:1999 Acquired the license to use raconteur Lloyd

Grossman’s name on a range of cookingsauces.

2002 Acquisition of Nestlé’s ambient food businessesfor an estimated UK£120 million3 – Branston (arange of pickles), Crosse & Blackwell (saladdressings), Sarson’s (vinegars), Sun Pat (spreads,including peanut butter), Gales (honey) andRowntree’s Jelly.

2003 Acquired from Unilever the UK-basedAmbrosia, which produces a variety ofdesserts, and French and German-basedBrown and Polson brands (which supply thecatering industry with desserts and cornflour)(see mini case 7.15).

2003 Hicks, Muse,Tate & Furst acquired for UK£642million the UK-based Weetabix company withthe cereal brands Weetabix®, Alpen® and

Ready Brek®. In 2003/2004 Weetabix® wasthe United Kingdom’s number one cereal, andsold in more than 80 countries.

The objective of Hicks, Muse,Tate & Furst is to createa leading UK-based food manufacturer. Premier Foodshas developed an expertise in the following areas:

◆ tea

◆ hot chocolate

◆ spreads and desserts

◆ pickles, vinegars and sauces

◆ cooking sauces

◆ convenience foods: canned foods ranging frombeans to soups.

◆ retailer (own-label) brands.

It is this last section that is now considered.Through its SBU Premier Brands, Premier Foods

also manufactures own-label brands for many of theUK’s major retailers. These cover the areas above, inwhich the company has developed a strong reputationin the marketplace. In 2004 Premier was the UK’slargest manufacturer of own-label canned foods, rang-ing from beans and spaghetti to vegetables, fruit, soupsand meat. It is also a leading producer of own-label teasand beverages for UK supermarkets.

It can be argued that Premier has leveraged itsknowledge and expertise, gained through producing itsown range of major brands, to penetrate the retailerbrand market.Sources: www.premierbrands.com; ‘How the Americans swal-lowed Weetabix’, www.timesonline.co.uk, 23 November 2003.* Paul Judge left Premier Foods after its acquisition by HillsdownHoldings plc. He later donated funds to build the Judge Institute ofManagement at the University of Cambridge.

Mini case 7.9

There are several points from this table that youmay want to consider in relation to the value andpower of these brands.

◆ Coca-Cola has retained its dominance anddisplayed steady growth over the four-yearperiod.

◆ The top three brands – Coca-Cola, Microsoftand IBM – have held their positions over thefour-year period.

◆ Both Disney and Nokia have seen a decrease intheir brand values over the four-year period.

◆ There was a sharp decrease in the overall valueof the ten brands from 2000 to 2002. Howeverthis fall steadied in 2003.

◆ Eight of the top ten global brands are US-owned.

◆ In 2003 the value of the top ten brands wasUS$386 billion.

An analysis of the world’s top 100 brands (as of2003) shows the following:


◆ US-based companies dominate branding. Table7.5 shows the breakdown by country of originof the top 100 brands for 2003

◆ The nearest nations to the United States are theFrench and the Japanese with seven brandseach, but that is clearly significantly below thedominance of the US brands at 62.

Table 7.4 The world’s top 10 brands

Values are given in US$ billion.

Sources: 2003 data: Business Week (2003)/Interbrand. 2000–02 data: Interbrand: Copyright Interbrand.

Brand 2003 Value 2002 Value 2001 Value 2000 Value Country of origin

Coca-Cola 1 70.45 1 69.63 1 68.94 1 83.84 USA

Microsoft 2 65.17 2 64.09 2 65.06 2 70.19 USA

IBM 3 51.77 3 51.18 3 52.75 3 53.18 USA

GE 4 42.34 4 41.31 4 42.39 6 38.12 USA

Intel 5 31.11 5 30.86 6 34.66 4 39.04 USA

Nokia 6 29.44 6 29.97 5 35.03 5 38.52 Finland

Disney 7 28.04 7 29.25 7 32.59 8 33.55 USA

McDonald’s 8 24.70 8 26.37 9 25.28 8 27.85 USA

Marlboro 9 22.18 9 24.15 11 22.05 11 22.11 USA

Mercedes 10 21.37 10 21.01 12 21.72 12 21.10 Germany

Value totals 386.57 387.82 400.47 427.50

Country Number of top 100 brands Bermuda 1Finland 1France 7Germany 6Italy 2Japan 7Netherlands 2Netherlands/UK 1South Korea 1Sweden 2Switzerland 3United Kingdom 5United States 62

100

Table 7.5 Country origins of top 100 brands

◆ Based on Business Week/Interbrand statisticsfor 2003 (Business Week 2003), the total value ofUS brands was US$706 billion. Brands fromother nations were collectively valued atUS$268 billion. Thus the total value of the top100 brands for 2003 was US$974 billion. To putthis in perspective, Table 7.6 lists the wealth ofcertain nations (as of 2001). Of course this is nota like-for-like comparison, but a quick compar-ison with the top 10 brands have significantvalue or wealth compared with some countries.

■ RebrandingIn essence rebranding is when a company or organ-isation decides, perhaps for one of many reasons, tochange a significant element of the brand. Contraryto general belief it does not necessarily mean achange in the brand name, although it often does.

The reasons underlying rebranding can be manyand varied. Kaikati and Kaikati (2004) haveattempted to categorise them into proactive andreactive motivations, and identified seven majorfactors in each category. Their approach has beenadapted to both include and exclude motivationalfactors. Of course, with any type of listing thereneed to be caveats, and here there are two. First,these motivators are not necessarily stand-aloneswithin a group. A company may choose to rebrandfor several interconnected reasons. Second, themotivators for change can transcend both proactiveand reactive groups. What starts as a reactive movecould lead to proactive motivators being intro-duced into the rebranding activity.

Proactive motivations

Consolidation to create an international orglobally recognised brand

Kaikati and Kaikati (2004) suggest multinationalsmay seek to consolidate numerous regional brandsinto one powerful global brand. Such an approachshould maximise the efficiency of design, produc-tion, promotion and distribution. For instance, thechocolate bar Snickers was known by differentnames in various countries: in the United Kingdomfor example it was known as Marathon. In the late1980s the Mars Corporation decided to rebrand it

137REBRANDING

globally as Snickers. This allowed the company tocapitalise on economies of scale when marketingthis flagship brand.

Table 7.6 The wealth of nations (measured by gross national income)

Country GNI 2001 (US$ billion)Albania 4.2Argentina 260.3Australia 385.9Belgium 245.3Botswana 5.3Brazil 528.9Canada 681.6Chad 1.6China 1 131.2Congo 4.2Czech Republic 54.3Egypt 99.6Entrea 0.7Estonia 5.3France 1 380.7Gambia,The 0.4Germany 1 939.6Greece 121.0Haiti 3.9India 477.4Italy 1 123.8Japan 4 523.3Kenya 10.7Lithuania 11.7Malaysia 79.3Mexico 550.2Niger 2.0Pakistan 60.0Poland 163.6Russian Federation 253.4Rwanda 1.9Singapore 88.8Spain 588.0United Kingdom 1 476.8United States 9 780.8

Source: World Development Indicators 2003 (World Bank 2003).GNI (Gross National Income) is the sum of value added by allresident producers plus any product taxes (less subsidiaries) notincluded in the valuation of output plus net receipts of primaryincome (compensation of employees and property income)from abroad.

Note: GNI is also known as Gross National Product (GNP) inthe terminology of the 1968 United Nations System of NationalAccounts.

Corporate diversification

Over time companies and organisations may diver-sify from their original core business, and their orig-inal corporate identity might not adequatelyrepresent the business areas in which they nowoperate. A classic example is British Petroleum (BP).In 1909 the Anglo-Persian Oil Company wasformed to exploit the first commercial discovery ofoil in the Middle East, in the region then known assouthwest Persia. In 1935 Persia was renamed Iran,and the Anglo-Persian Oil Company became theAnglo-Iran Oil Company. Further development ofboth the oil fields and the business continued. In1951 the Iran government nationalised the oil fields,precipitating an international crisis. After threeyears of negotiation the crisis was resolved when aconsortium was formed to restart the Iranian oilindustry. In the 1954 the Anglo-Iranian OilCompany was renamed the British PetroleumCompany, and it held a 40 per cent share of the newconsortium.

From then until the 1990s BP diversified intoseveral business sectors as well as continuing as amajor oil company. However, it was for the latterthat it was chiefly known, and high-profile acquisi-tions supported that profile or image. During thelate 1990s BP shed its British Petroleum image byrebranding itself as BP and introducing a new logodesign. BP now wanted to communicate themessage that it was more than an oil company. Itwas no longer an ‘oil company’, it had become an‘energy company’, developing energy sources fromoil to solar power.

Development of new markets and marketsegments

As we explained earlier, in order to remain compet-itive a brand may need to seek out new markets, ornew segments of existing markets. This can some-times be achieved through extending the reputa-tion of the brand across market sectors, but it mightalso be necessary to rebrand. This does not neces-sary mean a name change, instead it can be a ‘make-over’ of the product and packaging. This is also beassociated with re-energising the brand.

Avoiding confusion in the market or potential markets

Confusion might occur for three key reasons:


◆ A company seeks to move into an internationalmarket only to discover that there is already awell-established product with a very similarname. The company will rebrand its product inthat market to avoid any link with the alreadyestablished brand.

◆ Equally, the company could face a legal chal-lenge if it entered that market with a brandname similar to the already established one.Depending on the laws in that country, it couldbe sued for attempting to ‘pass off’ its productas the established one. This is especially thecase if the products have similarities beyondthe brand name, such as similar brand prom-ises.

◆ The brand name does not translate well or hasa negative meaning in the local language. (Seealso page 139.)

Appeal to a new target audience

Companies or organisations may rebrand them-selves or a product or service range to appeal to anew target audience. British politics in the 1980sand 1990s provides an example. The ConservativeParty had been in government since 1979, firstunder Margaret Thatcher then under John Major.Under Prime Minister Thatcher the party moved toa more right-wing position. In 1990 Thatcherresigned as prime minister, having won three termsin office. John Major succeeded her. During theThatcher years, as they came to be known, theBritish Labour Party had been left quietly driftingin the doldrums. It had been tarnished with the ‘taxand spend policies’ of the 1960s and 1970s.However, it decided to rebrand itself as a morecentrist party rather than being known as left wingin varying degrees. In rebranding itself as NewLabour the party attempted to cast off some of thesocialist trappings it had been renowned for, andembrace many aspects of the market economy. Itsview was that this ‘Third Way’,4 as it was called,would make it electable as a government. TheConservative Party lost the 1997 election to NewLabour, which gained an overwhelming majorityin the House of Commons.

However, because of increased pressure onthe government from members of its own partyas well as the opposition, there was a move todrop the ‘new’ from the corporate identity. It

could be argued that the ‘new’ was outliving itswelcome.

Re-energising the brand

This can also be considered as reinventing thebrand, and may be a means of extending the life ofthe product or brand within a specific or multiplemarkets. (See also Chapter 9 on products.) Anexample of successful brand reinvention is thesports drink Lucozade© (see mini case 7.10).

Translation problems

A company might brand a product or service witha brand name and/or set of symbols that are appro-priate for it within its regional context. However,difficulties might occur if the company looks to thelonger term, and markets that span borders. Brands(as names and identities) do not always transcendlocation. There are countless examples of brandnames and logos that are perfectly innocent in thecountry of origin, but take on an altogether differ-ent meaning in other countries and languages.Creating a ‘universal’ brand identity is not as easyas it is sometimes suggested in textbooks.

To create brand unity across several markets

Companies can expand from small businesses intomultinational corporations. Their growth is often amixture of acquisition of other companies andorganic growth of the original company. As theymove into new territories they establish similarbrands in different markets. Sometimes this is aclearly planned approach, based on what is seen asthe best strategy at the time. However, markets aredynamic, and within an increasingly globalisedworld there might come a time when it is in thecompany’s best interests strategically to rebrandproducts in different markets to create a brandunity across several markets. However, as weexplained it is not always easy to create a singleglobal identity.

Reactive motivators

To reflect a new status

An organisation might rebrand itself to reflect achange in status. For example, in the 1980s theBritish government enacted legislation that allowed

139REBRANDING

polytechnics to gain university status, whichenabled them to award their own degrees ratherthan give degrees through the Council for NationalAcademic Awards (CNAA). It can be argued thatthere was no real difference in the quality of educa-tion received in a university and a polytechnic, butthere was a perceived difference. Turning all higher

Lucozade©

In 1927 in the north-east of England an energy drinkGluozade was introduced. In 1929 it was rebrandedas Lucozade. In 1938 Beecham acquired the originalmanufacturing company Eno’s Proprietary Ltd.Originally, and subsequently for 50 years, Lucozadewas marketed as a ‘convalescent drink’ for thosewho were ill. During the 1950s and 1960s Lucozadebecame Beecham’s largest brand.

However with increased market pressures it wasrepositioned in 1985 as an ‘everyday replacementenergy drink’.This allowed the company to broadenits market. In 1986 the product line was extended toinclude orange and lemon variants. In 1989SmithKline Beckman merged with the BeechamGroup to form SmithKline Beecham plc.

The product line was further enhanced in 1990,with the introduction of a new tropical flavouredvariant.However, by 1996 it was clear that the brandwas in need of a major repositioning.The brand wasrelaunched with a new-shape 300 ml bottle (laterreplaced by a 380 ml PET bottle), a new logo andfresh advertising. Further revitalisation of the brandwould come in the form of the computer-generated(later live-action) character Lara Croft, the heroineofTomb Raiders. New advertising and a new logo onall packs reinforced its position in the market as an‘iconic energy drink’.

In 2000 GlaxoSmithKline plc was formedthrough the merger of Glaxo Wellcome andSmithKline Beecham to create one of the world’sleading pharmaceutical companies. Lucozade hasbecome one of the world’s best-known energydrinks, and comprises three brands: LucozadeEnergy, Lucozade Sport and Solstis. Its major mar-kets include the United Kingdom, Ireland, Mexicoand Hong Kong. In 2003 a new flavour – CitrusClear – was introduced to the Lucozade Energymarket.Sources: GlaxoSmithKline plc (www.gsk.com).

Mini case 7.10

education centres into universities removed thisperception to some extent. Thus, for example,Oxford Polytechnic became Oxford BrookesUniversity and the City of London Polytechnicbecame London Guildhall University. LondonGuildhall was later to merge with the University ofNorth London (formerly the Polytechnic of NorthLondon).

A reflection of merger activity

When two or more companies or organisationsmerge, the new corporate entity will seek a newbrand identity to reflect the merger. When the twocar giants Chrysler and Daimler merged, the newcompany rebranded itself as DaimlerChrysler. Itwas vital for both companies that it was clearly seenas a merger and not as an acquisition by onecompany of the other. Another approach is to createa completely new brand identity for the mergedorganisation. That was the approach taken byLondon Guildhall University and the University ofNorth London: on their merger in 2002 they formedLondon Metropolitan University.

A reflection of acquisition activity

As a company acquires others it may seek torebrand the acquired company’s corporate identity,products and services. When Nestlé acquired theUK-based confectioner Rowntree Mackintosh itslowly rebranded the corporate identity of Rown-tree Mackintosh to that of Nestlé. However, thebrand names of products such as Kit Kat remainedunchanged.

Demergers (also known as corporatedivorces)

A demerger may occur for several reasons:

◆ The company reviews its businesses anddecides that one or more business units nolonger fit strategically with its longer-termobjectives. It might seek to be more focused onits core business(es).

◆ As a strategic defence against a potentialhostile takeover bid. The petrochemicalcompany ICI demerged its pharmaceuticalbusiness, creating a separate entity – Zeneca –which was listed on the London Stock Market.


◆ While the original merger may have madestrategic sense, it might subsequently prove tobe an error of judgement.

The demerger activity will see rebranding activity,as both companies or organisations seek to distancethemselves from each other. This will especially bethe case if the demerger was acrimonious.

Legal compliance

There are two separate issues here. First, a companymight enter a market unaware that a product orservice with a similar-sounding brand namealready exists within that market. The ‘resident’brand owners might seek legal redress from thenew entrant. As part of the settlement the newentrant will generally either withdraw from themarket or rebrand its product. The decision willdepend on the costs of exiting the market comparedwith the costs of rebranding, which can be setagainst potential revenues from the longer-termdevelopment of the market. Second, the companymight be forced to rebrand its product or servicebecause of connotations associated with the brandname. This may be the case where the translation ofthe brand name (if it is not an artificiallyconstructed word) has a different, perhaps obscene,meaning in another language.

Tarnished brand name

A company may decide to rebrand a product orservice on the basis that the original brand namehas been tarnished. If a brand has been significantlydamaged in a market, the company might haveonly two options: terminate the brand altogether inthat market or rebrand it, possibly creating a newlease of life for the product or service. The level ofthe rebranding activity will depend on the degreeof negativity shown towards the brand.

In 1992 the Walt Disney Company openedEuro Disney just outside Paris. Disney’s themeparks in the United States and Japan had been atremendous success, and there were high expec-tations for Euro Disney. However, various inter-nal and external factors meant the park’sperformance did not live up to these expecta-tions. To distance it from the negative publicity, itwas rebranded as Disneyland Paris. Of course,the rebranding alone would not have provided

solutions to Euro Disney’s numerous problems.There was significant internal restructuring ofthe business at the same time, and this rejuve-nated the theme park.

Familiarity of previous name

Companies or organisations have sought torebrand themselves only to discover that therebranding, for one reason or another, was fatallyflawed. Some companies have gone for ‘cool, hip,now, trendy’ rebranding only to discover – at vastexpense – that they have alienated not only theircurrent customer base but the prospectivecustomers they had hoped to attract.

Unpopular rebranding

While this is similar to the last motivator, the differ-ence may not be reflective of the name alone. Forexample, UK postal services were rebranded asConsignia. Public outcry caused it to revert to beingcalled Royal Mail. (See mini case 7.14.)

When British Airways (BA) decided to dispensewith the Union Flag (also know as the Union Jack)on its aircraft tailfins, in favour of a variety ofgraphic designs, it was unaware of the hostility thiswould cause. The graphic designs were intended torepresent the four corners of the world the airlineflew to, promoting an international vision ratherthan a British one. BA’s decision to rebrand wasbased on sound strategic reasoning. All the recentresearch pointed to significant growth in the leisuremarket and flights outside the United Kingdom. Itwanted to appeal to both holidaymakers and over-seas customers who might choose it over their ownnational carrier. The new designers were aiming toconvey a friendly international approach ratherthan the perhaps more stuffy ‘colonial’ identityconveyed by the traditional logo.

However, BA had failed to alert people to theproposed changes and the reasoning behind them(Hilton 2001). Nor was this the only issue. Itlaunched the new look at the time of a cabin crewstrike, and was faced with mounting media pres-sure on two fronts, the crew strike and the newdesigns. This was also fuelled by the discontent ofBA passengers, especially the business and firstclass passengers who were the real revenue gener-ators for the airline. Then a famous negative photoopportunity landed on BA’s desk. At the 2001

141REBRANDING

Conservative Party conference the former PrimeMinister Margaret Thatcher (now Lady Thatcher)arrived at the BA stand. She retrieved a handker-chief from her infamous handbag and proceeded towrap it around the tail fin of a model aircraft withthe new design. This image and her wordscondemning the change circled the world – toeverywhere BA flew.

Rebranding the British monarchy

In 1840 Queen Victoria (1819–1901) married PrinceAlbert (1819–1861), the son of Ernst, Duke of Saxe-Coburg and Gotha. Queen Victoria remained amember of the House of Hanover. However, whenher eldest son Edward VII (1841–1910) acceded tothe throne he took the name Saxe-Coburg. In turnhis second son, George V (1865–1936), retained theSaxe-Coburg name. Then the First World Warbrought Britain into conflict with George V’s cousin,the German Emperor and King of Prussia, KaiserWilhelm (1859–1941).There was concern amongroyal advisors that a German name was inappropri-ate for the British monarch. So the decision wastaken to have George V adopt a name that assertedhis ‘Englishness’ while playing down the extent of hisGerman ancestry.

Lord Stamfordham (1849–1931), George V’sPrivate Secretary, considered various options,including Plantagenet,York, England, Lancaster, d’Esteand Fitzroy. Some were rejected on the grounds thatthey might sound slightly comical. One name on thelist was Windsor. This derived from Edward III(1312–1377), who was known as Edward ofWindsor; and of course there was Windsor Castlewhich dated from the 11th century and had beenthe seat of the Royal Family since William theConqueror. Thus on 17 July 1917 the House andFamily name of Windsor was adopted by KingGeorge V, and it has been used by his descendants tothis day. All German elements associated with themonarchy were revoked, and this led to some otherfamilies changing their German-sounding names tomore English-sounding ones.

In essence this was a rebranding exercise byLord Stamfordham at what was believed to be acritical juncture in the war. However, the war hadbeen raging for some three years before the decision was taken.

Mini case 7.11

While the rebranding of British Airways had animpact (perceived or real) on the airline, this waslater overshadowed by the horrific events of 11September 2001 and the terrorist attacks in NewYork and Washington. These deplorable attacks ofviolence will have a significant effect on the airlineindustry for years to come.

As can be seen from the various mini cases inthis section, rebranding may comprise a ‘minor’change in the brand name or a radical rethink of theorganisation’s position in the marketplace. Just aswhen a first name for the brand is chosen, seriousconsideration must be given to how any new namewill be received in the marketplace. Rebranding isan expensive operation, and not always successful:in fact some rebrandings have proved a majordisaster for the image and reputation of thecompany concerned.

Chapter 2 examined the external or macro envi-ronment within which an organisation operates.Global political dynamics since 11 September 2001have influenced societal attitudes, especially tointernational travel. Research indicates that anincreasing number of UK citizens are preferring tovacation in the United Kingdom rather than traveloverseas (Mintel 2004). This, along with newentrants to the market and easier overseas travel,has forced traditional UK resorts to reinvent them-selves. Mini case 7.12 illustrates how external envi-ronment and competitive factors led to the rise,decline and possible reinvention of holiday camps.

■ Brand longevity – do brandslast forever?

In a world that is often associated with instant‘disposability’ and highly competitive markets,people may be forgiven for thinking that brands arehere today, gone tomorrow novelties. That is notthe case. Cooper and Kleinschmidt (1991b)conducted research that indicated over 75 per centof brands had been in the marketplace for morethan 40 years. Of course, some of those brandsmight be at the end of their maturity, and perhapsentering their declining phase. Moreover, inincreasingly competitive and turbulent environ-ments, such as the turn of the 21st century, it is hardto determine the impact of such factors on brandlongevity. However, the research demonstrates thatsome brands have a significant life span.


The transformation of UK holiday ‘camps’into holiday centres

The uniquely British holiday camp concept was devel-oped by the entrepreneur William Butlin (1899–1980)in the 1930s. During the First World War on a trip toCanada with his parents he visited lakeside holiday cen-tres. He believed something similar could be intro-duced to the British seaside, and his first holiday campwas opened in 1936 near Skegness, a town on theLincolnshire coast.

During the Second World War the camp was occu-pied by the Royal Navy, but it was reopened to thepublic in 1946 after a refurbishment that included alaunderette, tennis courts, swimming pools and a ball-room. However, the ‘camp’ had the appearance of amilitary camp, with its communal bathrooms, wirefencing and loudspeaker announcements. Still, after thedevastation and sacrifices of the war (food rationingwould continue until the 1950s), this experience wasviewed by the mass population as a luxury.

While the Butlin’s empire grew, so did the compe-tition. Other companies such as Pontins built holidaycamps around the UK coastline. However, there weregreater challenges unfolding. The postwar UK econ-omy had been transformed, and people increasinglyhad more disposable income.The introduction of jetaircraft, more airlines and packaged holidays meantthat many people were no longer confined to theUnited Kingdom for their vacation. Overseas travel,especially within Europe, was no longer the privilegeof the wealthy. There was also the added benefit ofpotentially better weather. Countries such as Spainand Greece realised the potential of the tourist trade,and expanded hotels and resorts to entice Britishholiday makers.

By the 1980s many of the British holiday camps had

Mini case 7.12

Table 7.7 (page 146) shows the longevity of 40brands. Some have only a regional dimension,while others have gained an international, almosticonic reputation. As you will see, several of thebrands, perhaps including brands you personallyuse or consume, originated before you wereborn. Many brands may look ‘new’, but that mayonly be their packaging and their promotion. Infact they might already have had a significant lifespan.

143BRAND LONGEVITY

The company or organisation needs to be strate-gically focused when considering the growth anddevelopment of its brand portfolios. Thus longevitymay be attained by a combination of the followingfactors:

◆ Maximising the brand’s positioning in themarket place through effective and efficientdeployment of marketing communications.

increasingly sophisticated in their choices. It has alsoallowed the holiday centres to market a higherproportion of premium-priced vacations.

◆ A greater range of options is now available to thosewho vacation at a holiday centre, for instance in thestyle and type of accommodation and facilities.Thishas been driven partly by increased customersophistication but also by competition, from bothleisure centres and parks at overseas destinations,and European companies that have invested in theUnited Kingdom, bringing with them a new holidaycentre experience. For instance, the Dutchcompany Center Parcs® Europe5 created in 1968the first holiday centre amongst forests and land-scaped grounds.This provided customers with theopportunity to relax in surroundings of peace andtranquillity.

◆ The UK weather was originally a driver of theexodus abroad (along with the development ofpackaged holidays, and other factors). Increasingly,though, UK summers are becoming longer, withsustainable higher temperatures.This has led morepeople to remain in the United Kingdom, eventhough inexpensive holiday packages for overseasdestinations remain available. The holiday centreshave also invested in the latest designs and buildingtechnologies to provide large enclosed areas. Forinstance, designer swimming pools can be fullyenclosed and enjoyed by the whole family regard-less of the weather.

In 2000 some 5.5 million holiday centre vacations werepurchased, and this rose to 6 million by 2003. Thisbrought the value of the UK holiday centre market toapproximately UK£1 billion.

Reasons for brand longevityThere are no hard and fast rules that ensure a brandwill have a long life span. In fact it could be not oneaction but a combination of actions, over time, thatensure longevity. Companies need to consider boththe micro and macro factors that affect both theorganisation and its brands over time (refer toChapter 2).

closed. However, the late 1990s witnessed a revival ofthem, for several reasons (Mintel 2004):

◆ Fear of terrorist attacks. The attacks of 9/11 andthe invasion of Iraq, together with continuing inter-national unrest, have created a climate of fear. Eventhough there are numerous low-cost airlines offer-ing cheap travel to European destinations, the fearof terrorism has persuaded some families toremain in the United Kingdom rather than traveloverseas.

◆ Segmentation into three types of holiday centre:

● Traditional centres (that is, holiday camps inthe established style, not ‘historical’ experi-ences). Companies in this segment includeButlin’s, Pontin’s and Warner.

● Forest villages: landscaped villages in forestsettings that provided a very different experi-ence.

● Holiday parks, providing a combination of car-avan, chalet and lodge accommodation alongwith other facilities. In total there were (in2004) some 3500 such parks in the UnitedKingdom.

◆ The more traditional ‘holiday camps’ have beenreinvented and rebranded as ‘holiday centres’.Significant investment in these holiday centres hastransformed them from military-style camps tostate-of-the-art accommodation, leisure facilitiesand exterior landscaping. It is estimated that Butlin’sand Pontin’s invested about UK£200 millionbetween the mid-1990s and the early 2000s.Thisrebranding and significant updating created a strate-gic fit with the expectations of consumers, who are

◆ Continual reappraisal of the brand’s positioningin comparison with actual and potentialcompetitors.

◆ Product-line extensions could be used to rein-force the brand’s overall market positioning andleadership. Consider, for example, the impactthe launch of the Kit Kat Chunky bar in 1999had on the UK confectionery market (See minicase 7.6).

◆ The company could seek new regional or inter-national markets and grow the brand in thosemarkets.

◆ The company could use marketing communica-tions as a means of encouraging an increase inbrand usage. For instance, advising customersto use a shampoo twice per week rather thanonce.

◆ The company could promote the brand to a newtarget audience. For instance, adults with sensi-tive skin could use shampoos originallydesigned for babies.

◆ The brand is highly valued and trusted withinthe marketplace. Thus the company seeks toreinforce that trust and value within the mindsof its target audience.

This is far from an exhaustive list, and the reason fora brand’s longevity might be unique to a particularbrand and the company or organisation that owns it.

■ The disposal or termination ofbrands

A company may decide to terminate its associa-tion with a brand, and either end its life or


Samaritans

In November 1953 Chad Varah founded the charity TheSamaritans (now known as simply Samaritans). In hisearly years as a minister he buried a 14-year-old girlwho had committed suicide when her periods started,because she mistakenly thought they were a sign ofsexually transmitted disease. This tragic event affectedhim, and he wanted to create an organisation wherepeople could share their fears and worries. Initially TheSamaritans were run from St Stephen Walbrook churchin the City of London with one telephone, but by 2004there were 203 branches operating 24 hours a day, 80of which were equipped to reply to e-mails, with 18 300specially-trained volunteers.

Traditionally people’s perception of a person con-tacting the Samaritans was a suicidal depressive with‘one hand on the phone and both feet dangling out ofthe window’. In fact Samaritans deal with a much widerrange of issues, but cases of suicide are on the increase.Since the 1990s the rate of suicide of young men in theUnited Kingdom has increased significantly, and it isnow the biggest killer of men under the age of 24.

Samaritans’ vision:

Is for a society where fewer people die by sui-cide because people are able to share feelings ofemotional distress openly without fear of beingjudged. Samaritans believes that offering people

the opportunity to be listened to in confidence,and accepted without prejudice, can alleviatedespair and suicidal feelings. It is the aim ofSamaritans to make emotional health a main-stream issue.

The rebranding campaign positioned Samaritans as ‘ theemotional support charity’, and tried to prompt peoplein the United Kingdom and the Republic of Ireland toreconsider their attitudes towards emotional healthissues such as depression and stress. The rebranding(linked to an advertising campaign) placed mentalhealth issues in a context that people could under-stand.

To quote marketing director David Richards:

We want to encourage a society where peoplecan express their feelings and people are pre-pared to listen to them.… If people are down,angry, concerned about debt or are in someform of emotional distress, we want people totalk about it. It’s all about encouraging goodmental health.

Sources: ‘Andrew Williams Kicking off the blues’, Metro Focus,3 February 2003; ‘Samaritans launches campaign to challengestigma around emotional health’, press release, Samaritans,27 November 2002.

Mini case 7.13

145

dispose of it to another company, for a variety ofreasons. These reasons include (separately orcollectively):

◆ The brand has been in decline in severalmarkets and as a result is providing diminish-ing revenues and profits. If this is allowed to

REBRANDING

Rebrandings too far

The title for this mini case is a variant on the movie ABridge Too Far. Directed by Richard Attenborough, itdepicted the true story of the heroic yet flawed strate-gy of British and American forces in 1944 to capture aseries of bridges over the Rhine in a simultaneous oper-ation. It was only partially successful, and at Arnhem inthe Netherlands British forces held out for several daysunder heavy bombardment, yet were unable to capturethe bridge successfully. This was the ‘bridge too far’which jeopardised the success of the whole operation.

Some companies have carried out highly criticisedrebranding exercises, often leading them to rethinktheir branding strategies.

In January 2001 Royal Mail in the United Kingdomwas rebranded as Consignia, a name based on the word‘consign’. By February 2001, under a deluge of criticism,the newly appointed CEO was considering a furthername change. In May 2001 Consignia announced that itwould replace the name, and by the end of 2001 it wasRoyal Mail once more.To take another example, in Febru-ary 2002 the accountancy firm PricewaterhouseCoopers(PwC) announced that it would ‘spin off ’ its businessconsultancy business in the wake of issues raised by theEnron scandal.The objective was to protect its account-ancy business from any potential ‘conflict of interest’ ifthe consultancy business provided the same clients as theaccountancy side of the business with advice. In order toremove any perceived ‘conflict of interest’ PwC decidedto de-merge and re-branded its global business consult-ing and technology unit PwC Consulting. Analystssuggested that the new company would be valued atbetween US$4 billion and US$6 billion.

Originally PwC Consulting was apparently to be re-branded as PwCC.However, the business was rebrandedin mid 2002 as ‘Monday’. It is estimated that someUS$110 million was invested in developing the newbrand identity. Greg Brenneman, CEO of PwC Consult-ing described the rebranding in February 2002 as a ‘realword, concise, recognisable, global and the right fit for acompany that works hard to deliver results’.

Unfortunately, the unveiling of the name ‘Monday’resulted in derision from the media, competitors andPwC employees alike. One of many PwC employees on

the BBC Online News site wrote:

The re-branding was supposed to produce aglobally meaningful identity. Obviously PwC’sview of global only extends as far as the western,English speaking world. ‘Monday’ is global in nei-ther a linguistic, nor cultural sense – apologies tothe Middle East, where we would be better offbeing called Saturday.

A PwC internal communication stated (extracts):

We set out to identify a distinctive memorablename, one that would stand out from the con-sulting ‘crowd’. We want it short, global, a realword (not a contrived made-up moniker), andwe believe we’ve succeeded. Finally, as we men-tioned earlier, getting used to our new name andinfusing it with new associations and attributeswill be a process. It will be up to all of us to makeour new name stand out from the crowd; tomake it a name we can all be proud of.And you’llknow when we’ve achieved this by the look ofrecognition and respect you get when you say: ‘Iwork at Monday.’

However, by the end of July of 2002, just a few shortmonths after announcing the rebranding, Pricewater-houseCoopers announced that it was selling PwCConsulting to the world’s largest information technolo-gy company, IBM. IBM paid approximately US$3.5 billionin cash and stock. PwC Consulting was combined withthe Business Innovations Services unit of IBM GlobalServices, creating a new global unit, IBM ConsultingServices.As a result of this acquisition IBM created theworld’s largest consulting services organisation, withoperations in more than 160 countries.Sources: ‘PwC to spin off consultancy’, BBC News Online, 3May 2002;‘Monday name change for PwC’, BBC News Online,10 June 2002; ‘What happened next Monday?’ BBC NewsOnline, 10 June 2002;‘R.I.P Monday’, BBC News Online, 31 July2002; ‘IBM to acquire PwC Consulting’, press release,PricewaterhouseCoopers, 30 July 2002; Maggie Shiels, ‘Hunt ison for world’s worst re-branding’, BBC News Online, 13August 2002; ‘IBM, PricewaterhouseCoopers complete sale ofPwC Consulting’, press release, IBM, 2 October 2002.

Mini case 7.14


Table 7.7 Brand longevity

Brand Product or service type Year of introduction

Country of origin

Adidas Sports footwear 1920s GermanyAutomobile Association Car recovery company, insurance and on-

the-road repairs.1905 UK

Barbie Children’s doll 1959 USABIC Ballpoint pens, Biros 1950 FranceBlue Nun White wine 1921 GermanyBody Shop Cosmetics range and retail outlet 1976 UKCadbury’s Bournville Chocolate 1908 UKChanel Perfume and clothing 1921 FranceCoca-Cola Cola drink 1886 USA

Dr Pepper Carbonated drink 1885 USADurex Condoms 1929 UKFord Motor Company Car manufacturer 1903 USA

Gale’s Honey 1919 UKGillette Safety razors 1903 USAGodzilla Movie and cartoon character 1954 JapanGucci Leather accessories, luggage and shoes 1923 ItalyHard Rock Café Restaurant chain 1971 UKHarley-Davidson Motor bikes 1903 USAHarvard University University 1636 USAHartley’s Fruit jams 1871 UKHello Kitty Merchandising character 1974 JapanHP Sauce Spicy sauce 1903 UK

All brand trademarks and registrations are fully acknowledged.

continue, the brand could slip from minor prof-itability into a loss maker. If the companycannot sell the brand to another company, itwill face costs (for example, plant closure andredundancy payments) to cease productionand distribution.

◆ Excessive brand proliferation: this is wherethere are literally too many similar brands in aparticular market. In other words, the market issaturated with brands that demonstrate littleor no differentiation in features and benefits.This can, for example, result in too manybrands vying for the same shelf space in asupermarket. If they have few or no differentialfeatures and benefits, consumers might seekout the cheapest. A company may decide to

remove a brand from such a saturated market,especially if it is yielding low returns on invest-ment (both operational and marketing spend).Indeed, some companies have several individ-ual brands competing in this type of market-place. The removal of the weakest performercould aid the development of the others in aless saturated market. (That assumes there willbe no new entrants to the marketplace; butsaturation or near saturation should provide abarrier to entry into the market. See Chapter 6on strategy.)

◆ Declining markets. If the market itself is indecline, the company may decide to dispose ofor terminate the brand before the declineaffects revenue streams and profitability.

147

Companies need to factor into their analysisthe cost of plant closures and redundancypayments. Examples of declining markets overthe last 100 years include slide rules (replacedby electronic calculators) and typewriters(replaced by computers). However, thereremain some viable international markets forboth manual and electronic typewriters.

◆ Companies may decide to focus their attentionon their core brands, in order to maximiserevenue streams and profits from a small buteffective set of brands. This is precisely theaction taken by Unilever when it implementedthe decision to reduce an 1800-brand portfoliodown to 400 core brands. (See mini case 7.15.)

THE DISPOSAL OF BRANDS

◆ Insufficient promotional budgets. Companieswith large brand portfolios that have beencreated over time may be faced with spreadingthe budget thinly over the full brand range. Inthe longer term this may be detrimental to themore powerful brands in the company’s arse-nal, so it could decide to limit the range ofbrands in order to allocate marketing spend(usually in the form of promotion) to thestrongest performers. Of course, there is a riskto this strategy. A strong performer todaymight be a weak one tomorrow because offactors beyond the control of the company.

◆ Mounting competition. As we keep emphasis-ing, competition is not static, it is a dynamic,constantly evolving force. Companies that

Brand Product or service type Year of introduction

Country of origin

IBM Computer designers and manufacturers,later becoming the world's largest information technology company

1924 USA

Levi Strauss Denim and work wear 1853 USAJames Bond Character in novels written by Ian Fleming

and published by Jonathan Cape, London.1953 UK

Kit Kat Chocolate 1935 UKKleenex Tissues 1924 UKMarks & Spencer Retail 1894 UK

Mercedes-Benz Car manufacturer 1886 GermanyNescafé Coffee 1938 Switzerland

Prada Leather goods and fabrics 1913 ItalyQantas International Airline 1920 AustraliaSarsons Vinegar 1794 UKSony Electronics 1946 JapanStarbucks Coffee shops 1971 USAStar Wars Movie series 1977 USASun-Pat Peanut butter 1960s UKToyota Car manufacturer 1949 JapanTyphoo Tea 1903 UKVirgin Atlantic International airline 1984 UKWrigley’s JuicyFruits andSpearmint

Chewing gums 1893 USA

Note: while the brand name may have remained the same, the owners of that particular brand might have also remained the same orhave changed over time.What might have been originally US-owned, for example, could now be French-owned.


Unilever and its strategy for growth

Unilever is an Anglo-Dutch company which posted aturnover in 2003 of almost €48billion with net prof-its of almost €3 billion.The sales of its leading brandsgrew by 2.5 per cent, and these accounted for 93 percent of its total business.This growth and develop-ment is a key part of a strategy that began in Febru-ary 2000, when the board of Unilever agreed afive-year strategic plan called Paths to Growth.

The key drivers of value creation in the Paths toGrowth strategy were:

◆ significant growth of the leading brands

◆ exit from tail brands in a way that would stillcreate value for the company

◆ delivering earnings per share in a quality way toincrease gross margins, with profits partly reinvested in additional support for the leadingbrands

◆ restructuring the business to create a platformfor growth

◆ the need for a critical review of under-performing businesses

◆ the creation of an organisational structure thatwould enable the execution of the Paths forGrowth strategy.

The objective was to accelerate top-line growth andincrease brand margins. In order to achieve theobjectives within the designed time frame, theboard decided to focus the company’s attention onfewer but stronger brands to achieve significantbrand growth. The overall objective, by the end of2004, was to achieve annual top-line growth of 5 to6 per cent and operating margins of more than 16per cent. Growth would also be achieved through

Mini case 7.15

savings of €1.5 billion by the end of 2004 from restructur-ing and an additional €1.6 billion (by the end of 2002)from global procurement. (This is a different strategy fromthe Premier Foods strategy discussed on page 135.)

At the start of 2000 Unilever manufactured and distrib-uted some 1600 brands. One of the objectives of the Pathsfor Growth strategy was to reduce these to 400 corebrands. This linked to, and required, an equally significantrestructuring of the business.The principal components ofthe restructuring plan were as follows.

Overall cost

Estimated at €5.0 billion, mainly spent on restructuring.

Brands

The 400 core brands were expected to deliver over 90per cent of total sales by the end of 2004 (compared with75 per cent in 1999), with marketing support increasedfrom 13 per cent to 15 per cent of sales by the end of2004.

Some Unilever brands have a global presence, whileothers are more regional in focus, for example thefood brands PG Tips (tea) and Marmite (yeast spread)in the United Kingdom, Maille (mustard) in France;Breyers (ice cream), Ragú (sauces) and I Can’t Believeit’s Not Butter (margarine spread) in the United States,and AdeS (a soya-based drink) in Latin America; and thepersonal products brands Suave and Vaseline in theUnited States, Lifebuoy (soap) in India, Robljn in theNetherlands, and Cream Silk in the Philippines.

By 2003 14 brands had a global presence andturnovers in excess of €1 billion, compared with onebrand in 1993 with the equivalent turnover in realterms.

Disposals or divestments included DiverseyLever, aninstitutional and industrial cleaning business, to JohnsonWax Professional (the business was renamed Johnson-Diversey), Mazola (oils) in the United States and LodersCroklaan in Europe.

ignore this 21st century trend will face severedamage to their brand, if not total self-destruc-tion. The competitive environment is in aconstant state of flux and thus companies needto consider not only current competitors – local,regionally and internationally – but potentialnewcomers, because they might become major

threats in the future. Because of competitivethreats companies might decide to removebrands from certain markets or dispense withthem altogether. This action could be taken onthe basis that defending the brand’s position inthe market would be too costly. If the brand isdelivering increasingly small contributions to

149

◆ As a result of acquisitions. A company mightacquire another company with a large brandportfolio, when the reason for the acquisition isto add particular brands to the existing portfo-lio. Brands that do not fit strategically into thepurchaser’s portfolio will either be sold toother companies (often not direct competitors)or closed altogether (with inherent closurecosts). While the acquirer has grown throughacquisition, this will mean it has remainedfocused on its core business and not diversifiedinto unfamiliar territories, choosing to disposeof the unrelated brands instead.

Risks associated with brand disposalThe disposal or termination of brands is not a ‘cutand dried’ decision: there are many issues andrisks. These are some, though not all, of the issuescompanies face when taking such strategic decisions.

◆ Public outcry. Groucutt et al. (2004) suggest thatconsumers may protest when a company saysit is considering terminating a particular brand.In 1999, for example, there was a public outcryin the UK when H.J. Heinz announced that itwas thinking of ceasing production of its SaladCream dressing. The reason was clear – signif-icant competition from an array of other saladdressings and varieties of mayonnaise.Whether or not H.J. Heinz had actually‘planned’ the termination of its Salad Cream ornot, such was the storm of protest that HeinzSalad Cream remained on supermarketshelves, as it does today (November 2005).

◆ Brand switching. A company may decide toterminate or dispose of a brand in the knowl-edge that it has other similar competingbrands within the market, which it wants todevelop and grow within its portfolio.However, it does not mean that when thecompany axes a particular brand, itscustomers will automatically switch toanother brand in the company’s portfolio.Customers might either consciously orsubconsciously decide to switch to acompetitor brand instead. However, if signif-icant numbers of clients switch to rival

THE DISPOSAL OF BRANDS

the company’s balance sheet as a result ofcompetitive forces, it might be a wise decision todispose of it and bear the close-down costs (aone-off expenditure in that year’s tradingaccounts), in order to focus attention on othervaluable brands and perhaps defend theirposition in the marketplace.

Supply chain

The plan involved a restructuring of manufacturingsites, with the closure or disposal of 100 sites at a costof €2.3 billion.

Simplification

The reduction of overheads and streamlining of thecorporate centre had an estimated cost of €2.0 billion.

Under-performing businesses

The reorganisation or divestment of businesses thatdid not meet the required performance targets. (Seeabove under brands, and the discussion about PremierFoods on page 135.)

Bestfood integration

In 2002 Unilever acquired the American companyBestfoods. The objective was to integrate Bestfoods,which would produce savings of €0.8 billion.This sumwas exceeded by the second quarter of 2003.The totalcost of the integration exercise was €1.2 billion, most-ly associated with the reduction in job numbers(through a combination of redundancy, retirement andresignation) and the sale or closure of about 30 sites.

2004 and beyond

By 2010 Unilever aims to generate over €30 billion ofungeared free cashflow and to increase Return on Capi-tal Invested (ROCI) to at least 17 per cent (comparedwith 12.5 per cent in 2003).These plans are based uponorganic growth rather than acquisition. However,between now and 2010 opportunities might arise thatUnilever can exploit to its advantage, including the acqui-sition of all or part of a competitor company.Sources: Niall FitzGerald, ‘Path to Growth Strategy(Summary)’, address to Unilever PLC annual meeting by chair-man, 7 May 2003; Unilever (2003) ‘Path to Growth Summaryand Update (Path to Growth Summary and Progress onImplementation, Second Quarter Half Year, 2003’; Unilever(2003) ‘Results: Fourth Quarter and Annual Results’, Unilever.

brands then the removal of the company’sbrand from the market will have achievedlittle in the way of developing the otherbrands within the portfolio.

◆ The potential reduction of the company’srevenue streams. If large-scale brand cullingtakes place, even over a few years, thecompany runs the risk of incurring reducedrevenue and hence (possibly) reduced prof-itability. This might be a short-term reduc-tion in revenue and profit for which thecompany can gain the support of its stake-holders. If it has developed an effectivedisposable and growth strategy, its remain-ing brands should have the opportunity tobecome increasingly profitable over themedium and longer term.

◆ Costs of termination. There is always a costassociated with exiting a market and/or termi-nating a brand. These costs usually (though notalways) include severance pay for staff made

redundant, contracting specialists to removeplant and possibly demolish buildings andclear the site, hiring public relations teams tocommunicate to various stakeholders why production of the brand is ending, andhuman resource teams to advise staff facing redundancy.

◆ New ownership. There are several issues asso-ciated with selling a brand to potential owners,such as:

● The sale price. It has to be set at a levelthat compensates the company, at least inthe short term, for the loss of revenuegenerated, cost of disposal and potentialprofit. However the potential purchasermay be reluctant to acquire the brand if ithas been starved of promotion over thelong term and the current owner is askinga relatively high price. The purchasermust be sure that it will add value to itsportfolio.


Sunny Delight

Doric Foods, located in Florida, USA, created the cit-rus fruit drink Sunny Delight in 1964. In 1983 SundorBrands of Connecticut purchased Doric Foods, and inMarch 1989 Sundor Brands was acquired by Procter &Gamble (P&G). Since then P&G has attempted toexpand the market base for its ‘citrus punch’.

In the United States P&G has developed the brand’sproduct line to incorporate Tangy Original FloridaStyle, Smooth California Style, Smooth California Stylewith Calcium, Lemonade, Tropical Punch CaribbeanStyle, Mango Style, Lemon & Lime and Intense Sport.

In 1998 P&G launched Sunny Delight in the UnitedKingdom, with a UK£10 million promotional campaign.Within a year it had become the third biggest-sellingsoft drink in the country, behind Coca-Cola and Pepsi,grossing UK£160 million, a growth of a staggering 5 224per cent.The demand was so great that supermarketshad difficulty keeping viable stock levels, and some ranout of stock.

However, unaware to the consumers dark cloudswere looming over the brand. Food nutritionists start-ed complaining that it should not call itself a fruit drinkas there was only some 5 per cent fruit content. Also

the UK’s Food Commission was begin to consider whatwas actually contained with this soft drink.According tothe Food Commission the marketing campaign had‘attributed’ certain ‘healthy benefits’ to the drink. TheFood Commission was concerned as to the justificationof these ‘attributes’. Subsequent negative publicity alert-ed consumers and they began to lose faith in the product. Poor advertising only added to the negativereaction from consumers.

By 2001 sales had fallen by over 35 per cent, asSunny Delight had been hit by the perception that itwas less healthy than more natural fruit drink brands.

In March 2002 P&G relaunched the brand as SunnyD, backed by a UK£312 million promotional campaign.It increased the fruit content to 15 per cent andlaunched four flavours with no added sugar.This addedup to a significant makeover of the brand. However, bylate 2003 P&G was seeking to sell the brand.Sources: J. Clayton, ‘The rise and fall of Sunny Delight’, TheMoney Programme, BBC television, 3 December 2003;’Delight debut for soft drink’, BBC News Online, 15 August1999; ‘Sunny slumps in UK brand chart’, BBC News Online,8 August 2001; ‘Sunny makeover to lift sales gloom’, BBCNews Online, 20 February 2002; Procter & Gamble,www.pg.com.

Mini case 7.16

151

seek to use and develop their brands as a means ofsustaining competitive advantage. This drive forsustainability is witnessed through the re-energisingof brands and the focus on core brand development.

Purely American or UK brands no longer popu-late the brand landscape. With the development ofglobalisation, the Internet and ‘freer’ trade there arenow significantly more brands emerging from Asiaand the Far East. These brands display the featuresand benefits of Western brands, but often at highlycompetitive prices. Competition within the brandarena is most likely to become significantly morecomplex in the future.


1 Critically evaluate the risks of having a brandachieve cult status.

2 Compare and contrast the different types ofbranding that an organisation can adopt. Doyou think some companies may have adoptedthe wrong brand structure? Please cite possibleexamples and provide evidence for your view.

3 Critically evaluate the rationale for rebrandinga product or service. Are there any cases whereyou think the product should not have beenrebranded? If so, state why, with supportingevidence for your belief.

4 Critically evaluate why some brands appear tohave a very short life span while others have amuch longer one. Are there any lessons thatcan be learnt from studying brand longevity?

5 ‘Non-profit organisations can offer consider-able value to their customers through an asso-ciation with their brand.’ Critically examinethis statement.

6 With fellow students debate a case for andagainst the branding of a product or service.

7 What is meant by the term ‘brand extension’?Consider the positive and negative aspects of acompany using a brand extension policy.Provide evidential support for both cases.

8 ‘If you can build a powerful brand you willhave a powerful marketing programme.’

CHAPTER SUMMARY

● There may be risks associated with sellingthe brand. This may be especially the caseif the brand owner has similar products inits portfolio. Sellers must considerwhether the acquirer could use the brandto help build a portfolio to challenge itsown brands in the marketplace. A compa-ny on the acquisition trail might buybrands from several companies in orderto build a portfolio that will challenge theposition of another company, whichcould be one of the sellers.

● An acquirer does not have to be an estab-lished company. It can be a new businesswith significant financial resources that isacquiring brands to build a strong portfolioin the marketplace in order challenge exist-ing market leaders. (Here you may want toreflect on Porter’s five forces model andpotential or real barriers to entry.)

◆ The impact on local communities. There isoften a social impact to brand culling, espe-cially if it means plant closure or the transfer ofjobs to a new location. The level of socialimpact depends on factors such as the struc-ture of the local community, the size of theplant being closed, the level of local unemploy-ment, local job prospects and the number ofother industries within the area, and the levelof fall-out on other businesses that haddepended on business from the company.Companies need to factor in these issues whenthey consider brand culling which will result inplant closure. Apart from the impact oncommunities, companies might face a publicrelations backlash that in turn affects consumerconfidence and its share price (if it is listed ona stock market).

■ Chapter summaryThis chapter has considered how brands are devel-oped and how they can sustain their position in anincreasingly competitive marketplace. Brandsclearly have an emotional value or appeal tocustomers, but customers do not always remainloyal to a particular brand.

It is one thing to gain a competitive advantage,but it can be quite another to sustain it. Companies

Provide a critical evaluation of brandingwithin marketing.

9 Compare and contrast B2B and B2C branding.

10 Explain why brand valuations and equity arean important asset to an organisation.

■ ReferencesAaker, D (1991) Managing Brand Equity, New York:

Free Press.Barlow, J. and Maul, D. (2000) Emotional Value, San

Francisco: Berrett-Koehler.Business Week (2003) ‘Best global brands’, Business

Week, European edn, 5 August. Christensen, C. R., Berg, N. A. and Salter, M. S. (1980)

Policy Formation and Administration: A casebook forsenior management problems in business, 8th edn,Irwin, Ill.: Homewood.

Cooper, R.G. and Kleinschmidt, E. J. (1991b) New Prod-ucts: The key factors in success, Chicago: AMA.

Czinkota, M. R., Ronkainen, I. A., Moffet, M. H. andMoynihan, E. O. (1998) Global Business, Fort Worth:Dryden Press.

Dibb, S., Simkin, L., Pride. W. M. and Ferrell. O. C.(1997) Marketing: Concepts and strategies, 3rd edn,Boston, Mass.: Houghton Mifflin.

Euromonitor (2003) ‘Textile washing products in theUK’, Euromonitor Research, July.

Euromonitor (2004a) ‘Retailing developments: privatelabel trends’, in ‘Aspects of retailing: global OTChealthcare distribution’, Euromonitor Research,February.

Goldfarb, A. (2001)’ Let there be Sunlight! The rise ofLever Brothers and Sunlight Soap’, working paper,Northwestern University.


Hillman, D. and Gibbs, D. (1998) Century Makers,London: Weidenfeld & Nicolson.

Hilton, S. (2001) ‘Take the wrap’, Guardian G2, 8 June,pp. 2–3.

ICC (2004) ‘Counterfeit products – overview’, Coun-terfeit Intelligence Bureau, ICC Commercial CrimeServices, www.icc-ccs.org.

Jeremy, D. J. (1998) A Business History of Britain,1900–1990s, Oxford: Oxford University Press.

Kaikati, J. G. and Kaikati, A. B. (2004) ‘Identity crisis:the dos and don’ts of brand rechristening’, Market-ing Management, January/February, pp. 45–9.

Kapferer, J-N. (1998) Strategic Brand Management:Creating and sustaining brand equity long term, 2ndedn, London: Kogan Page.

Keller, K. L. (1993) ‘Conceptualizing, measuring andmanaging customer-based brand equity’, Journal ofMarketing 57(1), January, pp. 1–22.

Koehn, N. F. (1999) ‘Henry Heinz and brand creationin the late nineteenth century’, Harvard BusinessSchool Working Knowledge, 7 December.


Leverfaberge (2004) www.leverfaberge.co.uk/abou-tus/history.html

McBride (2004) www.mcbride.co.uk. Mintel (2004) Holiday Centres – UK, Mintel

International, January.Pavitt, J. (2000) Brand New, London: V& A

Publications.van Dulken, S. (2000) Inventing the 20th Century: 100

inventions that shaped the world, London: BritishLibrary.

Virgin (2004) Company details accessed from corporate website, www.virgin.com.

The MarketingMix

PART3

■ IntroductionThis chapter examines the development of two key concepts in marketing, themarketing mix and relationship marketing. It is the view of many authors thatthe marketing mix is the foundation of the marketing subject. Indeed it is theview of this author that the mix can be extended to include a total of 10 Ps. Arationale is developed for such an extension, that is continued in the chaptersthat follow. However, not all authors agree with the basic concept of the mar-keting mix, believing it to be out of place in contemporary society. Their beliefis that relationship marketing provides a firm bedrock for the future develop-ment of marketing. This rationale will be examined. However, it is not mycontention to dismiss relationship marketing in favour of the marketing mix.On the contrary, the reason for placing them together is that it is my belief thatthey can work in tandem. There is, if you like, a relationship between the twoconcepts that can help in supporting each other. This rationale is exploredwithin this chapter.

■ The marketing mix debateFirst let’s consider the development of the marketing mix. Since the 1950s and1960s the marketing mix model has been widely considered a cornerstone ofmarketing. However, much debate and controversy surrounds the development

CH

AP

TE

R

8The Marketing Mix andRelationship Marketing

Learning outcomes 155Introduction 155The marketing mix

debate 155The origins of the

marketing mix 156Rationale for extending

the marketing mix 158Marketing mix network

or architecture 159Relationship

marketing 160What is a relationship? 160Chapter summary 164Questions for review




� explain the origins of the marketing mix

� debate the possible rationale for extensions to the original 4Ps of themarketing mix

� explain the development of relationship marketing

� debate the merits of the different schools of thought – the marketing mixversus relationship marketing

� consider how transaction-oriented and relationship marketing can work inconcert with each other.

and continued use of this framework. In this sectiontwo fundamental issues are considered:

� the origins of the marketing mix

� the rationale for extending the mix from theoriginal 4Ps.

The origins of the marketing mixMarketing academics and students tend to believethat the marketing mix originated as the 4Ps.However, during the 1940s and 1950s severalresearchers were debating the link between certaincombinations of price and product. In 1948 Culliton(of the Harvard Business School) in his study ofmanufacturer’s marketing costs described the busi-ness executive as a:

‘decider,‘ and ‘artist’ – a ‘mixer of ingredients,’who sometimes follows a recipe prepared byothers, sometimes prepares his own recipe as hegoes along, sometimes adapts a recipe to theingredients immediately available, and some-times experiments with or invents ingredientsno one else has tried.

(Culliton 1948 and Borden 1964)

We see clearly here the view that business execu-tives mixed elements together in order to effectivelymarket their product.1 Culliton’s phrase appealeddirectly to Neil H. Borden, also of Harvard Busi-ness School, who melded the phrase ‘mixer ofingredients’ into the ‘marketing mix’ (Borden 1964).For him it consisted of important elements or ingre-dients that comprised a marketing programme(Borden 1964). Borden’s original ‘marketing mix of

156 8 • THE MARKETING MIX AND RELATIONSHIP MARKETING

Table 8.1 Borden’s original marketing mix structure

Element Description

Product planning Policies and procedures relating to:• product lines to be offered – qualities and design• markets to sell – to whom, where, when and in what quantity?• new product policy – research and development programmes.

Pricing Policies and procedures relating to:• the appropriate pricing levels to adopt• specific prices to adopt• pricing policy – one price or varying price or maintaining a constant price• margins to adopt – for the company and the industry.

Branding Policies and procedures relating to:• selection of trade-marks, patents and copyrights• brand policy – individualised or family brand• sale as a private label or unbranded.

Channels of distribution

Policies and procedures relating to:• channels to use between plant and the end consumer• degree and selectivity among wholesalers and retailers• efforts to gain co-operation of the industry.

Personal selling Policies and procedures relating to:• the burden to be placed on personal selling and the methods to be employed in

manufacturer’s organisation, the wholesale segment of the industry and retail segment of the industry.

Advertising Policies and procedures relating to:• amount to spend – that is, the burden to be placed on advertising• copy platform to adopt – both product and corporate image to be desired• mix of advertising – to the related industry, through the industry, and to

consumers.

manufacturers’ contained 12 components asoutlined in Table 8.1.

Borden did not believe that his list was defini-tive, and suggested that others might have differ-ent perspectives. However, it was E. JeromeMcCarthy who in the 1960s developed themnemonic the ‘4Ps’ which has become the mostenduring of the marketing mix frameworks(McCarthy 1965). McCarthy regrouped Borden’s12 elements into:

� product

� price

� promotion

� placement (also known as place, for distribution).

As stated earlier this has probably become the mostenduring and widely recognised concept inmarketing. However what have been its key contri-butions to marketing? These perhaps can be listedas follows:

� It provided a central organised structure orfoundation for marketing activity, whichmanagers and company executives could relateto and easily understand, at least in principle.

� This structure could be used for any productwithin any environment. It was not solelylinked to marketing activities within the USmarketplace.

� Each of these elements could in turn be consid-ered as a ‘mix; for example product mix, promo-tion mix, price mix and so on (McCarthy 1965).

157THE MARKETING MIX DEBATE

Element Description

Promotions Policies and procedures relating to:• the burden to place on special selling plans or devices directed at or through the

industry• form of these devices for consumer promotions and for industry (B2B) promotions.

Packaging Policies and procedures relating to:• formulation of packaging and labelling.

Display Policies and procedures relating to:• the burden to be placed on display to help create and maintain sales• the methods to adopt to secure display within point of sale locations, for example a

department store or bookshop.

Servicing Policies and procedures relating to:• providing the services needed.

Physical handling Policies and procedures relating to:• warehousing• transportation• inventories.

Fact finding and analysis Policies and procedures relating to:• securing, analysis, and the use of facts in marketing operations (in essence this was

market and marketing research).

Source: adapted from Borden (1964).

Originally McCarthy (1965) defined the marketingmix as:

A combination of all the factors at a marketingmanager’s command to satisfy the targetmarket.

With Perreault, he later revised this statement to

The controllable variables that an organizationcan co-ordinate to satisfy the target market.

(McCarthy and Perreault 1987)

McCarthy (1965) makes an interesting linkage hereto target market: ‘The marketing mix is not a stand-alone model.… The focus has to be on the targetmarket, otherwise the mix cannot succeed’. It wasalso around this time that Wendell Smith (1956)postulated his work on segmentation, and the twoconcepts are complementary.

As Baker (1997) contends, it is the manipulationof the elements within the marketing mix thatprovides a strategic framework for marketing. Tosome extent this links back to Culliton’s vision ofthe executive as a mixer of ingredients.

Rationale for extending the marketingmixYudelson (1999) suggests that there have been sixmajor challenges to McCarthy’s 4P framework:

� A focus on the customer via the marketingconcept or orientation. (However, it can beconsidered that the customer is the nucleus ofall marketing mix decisions.)

� The broadening of marketing to include not-for-profit, services, good causes (charities) andeven politics. (Thus the need to broaden themarketing mix to embrace services in thewidest sense of the term.)

� Identification of exchange transactions as thecore of marketing. (In one form or anothereveryone is involved to a greater or lesserdegree in an exchange. This may even be acombination of tangible and intangible bene-fits. For example, making a donation to charityis a transaction. A tangible asset (money) isgiven to the charity. The giver receives inexchange the intangible asset of feeling goodabout what he or she has just done. )

� The introduction of Total Quality Management(TQM), with the emphasis on customer satis-faction. (The elements of the marketing mixmust also perform to standards that satisfy theneeds and wants of customers.)

� The extension from transaction marketing torelationship marketing. (As will be examinedlater, there are links between the two concepts.)

� Identification of the company or organisationas a member of a complete value chain


Table 8.2 McCarthy’s 4Ps

Mix variable orcomponent

Description and comments

Product Traditionally this has been called a ‘good’. It has origins in economics (see Chapter 1). It can beconsidered as a collection of features and benefits that provide customer satisfaction.

Price This is considered the only element of the mix to be revenue generating, in the pure sense,again a link back to economics. However, price reflects more than the economic cost of producing the product.There is also the value perceived in the mind of the customer.

Promotion Here the full range of marketing communication activities are considered, including advertising,direct marketing, face-to-face selling, public relations, sales promotions and word of mouth.

Place (placementor distribution)

This covers location, distribution channels and logistics.

(Porter’s value chain model is examined inChapter 6). (While this is true, it can also beargued that the marketing mix supports theprinciples of the value chain. Consider, forinstance, placement in terms of logistics withinthe value chain.)

As Yudelson (1999) suggests, McCarthy’s 4Psprovided a suitable and effective nomenclature forthe study and analysis of marketing. However withthe greater expansion of marketing beyond a prod-uct–sales orientation into services, there was concernthat the 4Ps did not relate to services. Magrath (1986)was one of the first (along with Booms and Bitner1981) to postulate that the 4Ps should be expandedto encompass personnel, physical facilities andprocess management. (See Table 8.4, page 162, forthe Booms and Bitner extended model.)

Since the 1960s there has been no shortage ofideas and suggestions for extending the marketingmix. Table 8.3 (overleaf) provides a list, withproposers, of some 30 possible marketing mix exten-sions. Of those listed, three have become part ofwhat is now the generic marketing mix (see Table 8.4).

There has been great debate about the validityof some of these suggestions. It is beyond thescope of this textbook to evaluate critically each ofthe recommendations. However, students interest-ed in pursuing this further are encouraged to seekout the various research papers listed in the bibliography.

As you can see from Table 8.3, there is a diversityof views on how the marketing mix framework canbe enlarged. However Rafiq and Ahmed (1995)contend that the proliferation of numerous ad hocconceptualisations has undermined the concept ofthe marketing mix, and what is required is a morecoherent approach.

As we indicated, there has been concern thatthe classic 4Ps do not incorporate the characteris-tics of services, such as inherent intangibility,perishability, heterogeneity (variability), insepa-rability and ownership. However Table 8.3 showsthat the 4Ps can be extended to incorporatefactors that bind them to a service orientation. AsRafiq and Ahmed (1995) suggest, the most influ-ential to date of the alternative frameworks hasbeen Booms and Bitner’s 7Ps marketing mix(1981). Booms and Bitner extended the 4Ps to

include participants (now referred to in the liter-ature as people), physical evidence (the physical-ity of the environment) and process (see Table 8.4, page 162).

In their original article Booms and Bitner (1981)intended their additional 3Ps to be limited to serv-ice marketing. However, there are academics andwriters, for example Levitt, who suggest that ‘thereare only industries whose service components aregreater or lesser than those of other industries.Everybody is in service’ (Levitt 1972). Raqif andAhmed (1995) contended that a marketing mix wasneeded that cut across the boundaries of goods,services and industrial marketing – a genericmarketing mix. Increasingly the Booms and Bitnermarketing mix framework has been adopted tomeet that need.

My own feeling is that the generic marketingmix of 7Ps is all well and good. However, there arethree key fundamentals that need to be added to create a well-rounded and fully integratedmarketing mix (see Table 8.5, page 163).

Marketing mix network or architectureThe Marketing Mix can be seen as a network orarchitecture where all the elements that comprisethe mix are interconnected (Figure 8.1). In Chapter6 it was said that the elements of the marketing mixare presented as separate entities for the purpose ofpresentation. In reality they should be viewed in a

159THE MARKETING MIX DEBATE

Figure 8.1

Marketing mix architecture


Table 8.3 Possible additions to the marketing mix

Addition Authors and notes

Packaging Mason (1958), Nickels and Jolson (1976),Asher (1987), Patty(1997). Mason’s article precedes McCarthy’s original work onthe marketing mix.

Partition (segmenting the market) Kotler (1991)

People Booms and Bitner (1981) – their original suggestion was participants – Johnson (1986), Judd (1987), Payne and Ballantyne(1991), Baker (1997)

Penalty Yudelson (1999)

Perception/perceive Johnson (1986) and Yudelson (1999)

Performance/perform Johnson (1986), Harvey, Lusch and Cavarkapa (1996) andYudelson (1999)

Personalisation Goldsmith (1999)

Personnel Magrath (1986)

Physical Evidence Booms and Bitner (1981) Magrath (1986) – he suggested physical facilities

Plan Johnson (1986)

Planning Harvey, Lusch and Cavarkapa (1996)

Politics Arndt (1979), Harvey, Lusch and Cavarkapa (1996)

Political-based marketing decisions Wind (1985)

Portfolio of market segments Wind (1985)

Portfolio of products by segments by distribution outlets

Wind (1985)

Portfolio of countries by mode of entry Wind (1985)

holistic form. Thus looking at them as a network orarchitecture perhaps helps to convey this web orinterconnected approach.

■ Relationship marketingWhat is a relationship?The Oxford English Reference Dictionary providesfive definitions (Pearsall and Trumble 1996):

� The fact or state of being related.

� A connection or association (enjoyed a goodworking relationship)

� An emotional (esp. sexual) association betweentwo people.

� A condition or character due to being related.

� Kinship.

Since the 1980s there has been a growing body ofwork on the relationship between suppliers andbuyers. Berry (1983) introduced the term ‘relation-ship marketing’ within a services marketingcontext. He viewed it as a strategy to attract, main-tain and enhance customer relationships. Grönroos(2000a) defined relationship marketing as:

The process of identifying and establishing,maintaining, enhancing, and when necessaryterminating relationships with customers andother stakeholders, at a profit,2 so that the objec-tives of all parties involved are met, where this is

done by a mutual giving and fulfillment ofpromises.

Gummesson (2002) defines relationship marketingas ‘marketing based on interaction within networksof relationships’. He continues, ‘A network is a set ofrelationships which can grow into enormouslycomplex patterns.… In the relationships, the simpledyad as well as the complex networks, the partiesenter into active contact with each other. This iscalled interaction’ (italics in original).

Rapp and Collins (1990) go further by statingthat the goals of relationship marketing are to createand maintain lasting relationships between theorganisation and its customers which are mutuallyrewarding. Håkansson and Snehota (1995) suggestthat a ‘relationship is a mutually oriented interac-

tion between two reciprocally committed parties’.Grönroos (2000b) suggested that in terms of servicemarketing the’ relationship has developed when acustomer perceives that a mutual way of thinkingexists between the customer and supplier or serviceprovider’.

Blomqvist, Dahl and Haeger (1993) provide anoutline of what they see as the key characteristics ofrelationship marketing:

� Every customer is considered an individualperson or unit.

� Activities of the company or organisation arepredominately directed towards existingcustomers.

� It is based upon interactions and dialogues.

161RELATIONSHIP MARKETING

Addition Authors and notes

Position/positioning Trout (1969),Wind (1985), Brown, (1991), Kotler (1991) andBixler (1991) have all suggested positioning as a marketing mixvariable, although that has been disputed by writers such asAnderson and Taylor (1995)

Power Kotler (1986)

Predict Johnson (1986)

Preservation LeDoux (1991)

Prioritise (specifying markets to target) Kotler (1991)

Probability Harvey, Lusch and Cavarkapa (1996)

Probing Borden and Marshall (1959),Traynor (1985) – probing (to covermarket and marketing research – and Johnson (1986). Bordenhad included ‘fact finding and analysis’ in his original marketingmix. Kotler (1991).

Program Wind (1985)

Process/processes Booms and Bitner (1981), Magrath (1986) – who suggested process management – Payne and Ballantyne (1991)and Yudelson (1999)

Professional Johnson (1986)

Profit Wright (2003)

Psychology Groucutt (2003a)

Publics Harvey, Lusch and Cavarkapa (1996)

Public relations Goodrich, Gildea and Cavanaugh (1979), Mindak andFine(1981), Wind (1985) and Kotler (1986).Wind (1985) calledhis public relations and public affairs.

Purpose Johnson (1986)

� The company or organisation is trying toachieve profitability through the decrease ofcustomer turnover and the strengthening ofcustomer relationships.

However, there remains the issue of what reallyconstitutes a relationship. Zolkiewski (2004) asks,can relationship marketing be applied ubiqui-tously? In other words, can it be applied to all situ-ations? For that is arguably its raison d’être. InZolkiewski’s analysis, ‘most writers simply talkabout relationships or a move from a transactional[Often stated as the marketing mix approach] to arelational approach’.

Zolkiewski (2004) questions the notion of therelationship. She notes that ‘If there is a mutualcommitment between the supplier or serviceprovider and the customer then possibly a truemarketing relationship can be said to exist. Even so,do both parties believe that they are in a relation-ship?’ She continues:

This is not to deny that relationships are a criti-cal part of many aspects of marketing, but itcould be argued that this is only truly apparentin certain contexts. For example, relationships

are evident and persistent in many business-to-business contexts , but not all.

Hunt and Morgan (1994) argue that that the processof relationship marketing lies in the developmentand growth of trust and commitment among part-ners. They define trust as a ‘willingness to rely onan exchange partner in whom one has confidenceand commitment … as … an enduring desire tomaintain a valued partnership’. They suggest thattrust receives positive support from communica-tion and shared values. Relationship commitmentis sustained through shared values together withrelationship benefits and relationship terminationcosts (ending the relationship has a cost to be borneby both parties). Morris, Barnes and Lynch (1999)suggest that these variables collectively act posi-tively upon commitment.

Lijander and Roos (2002) investigated the rela-tionship between after-sales service customers andan authorised car dealership. They concluded thatthere was a continuum, with true relationships atone end and spurious relationships at the other.They define a true customer service relationship asthe biased (non-random) behavioural responsive(purchases, word of mouth, information sharing


Table 8.4 Booms and Bitner’s extensions for the marketing mix

Mix component Comment

People (participants) This includes customers, employees and suppliers.These are the various ‘communities’involved in the marketing relationship.There is also a link here to the micro environment asexamined in Chapter 2.

Physical evidence(physicality)

These are the tangible aspects (or physicality) associated with the ‘delivery’ of the productor service. For example, the physicality of a supermarket includes the layout of the store,the positioning of the checkout counters, the height of the shelving and how products aredisplayed on those shelves.The physicality of the supermarket influences the buying behaviour of customers. For example, is it a welcoming easy-to-use environment? Equally,the table positions within a restaurant convey something of the ambient environment.Therestaurant’s management may want to fit as many tables and chairs as possible into therestaurant (to maximise revenue potential). However, too close proximity to other peopleeating might deter people from going to the restaurant, because they know that their conversations will be overheard.

Process These are the assembly or flow activities that support the fulfilment of the marketing mix:for example the use of barcodes and bar code scanners, and automated till systems tospeed processing at the checkout counter at the supermarket.These processes benefit bothcustomers (efficient service) and the supermarket (increased throughput and stock controlupdates).

and other positive behaviours), expressed overtime by some decision-making unit with respect toone service provider out of a set of such providers,which is a function of psychological (cognitive andeffective) processes, including the presence of trust,relationship benefits and the absence of negativebonds, resulting in service–provider commitment.They view a spurious customer relationship as thebiased (non-random) behavioural response(purchase), expressed over time, by some decision-making unit, with respect to one or more alterna-tive service providers out of a set of such providers,which is a function of inertia, trust deficit, weak orabsent relationship benefits and/or the existence ofnegative bonds.

Although this was only a small-scale study, it isimportant to recognise that some customers areengaged in a variety of different types of relation-ships. Some will be deemed strong while others areweak. However it is very difficult to define the terms‘strong’ and ‘weak’. They are perhaps dependent onthe perception of the individuals involved. AsZolkiewski (2004) suggests, there needs to be ‘amove away from the one-size fits all premise’.

Some of the debate surrounding the marketingmix and relationship marketing focuses on thewords ‘transaction’ and ‘exchange’. Much has beenwritten about relationship marketing being a para-digm shift from traditional marketing frameworks(that is, the marketing mix).

As Bagozzi (1975) has suggested, marketershave tended to focus on exchange theory beingdirect transfers of tangible entities between twoparties. He argues that marketing exchanges areoften indirect, may involve intangible and symbolicaspects, and that more than two parties may partic-ipate. Grönroos (2004) states that:

The relationship marketing perspective is basedon the notion that on top of the value of productsand/or services that are exchanged, the exis-tence of a relationship between the two partiescreates additional value for the customer andalso for the supplier or service provider.

Thus it could perhaps be argued that there is alink between the marketing mix and relationshipmarketing. Figure 8.2 suggests that the customeris in the centre, involved in a relationshipmarketing interaction. It is only by understand-ing what the customer requires (the interaction)that elements of the marketing mix can interact(in some form) with the customer. However, it isimportant to consider the level and depth of therelationship. As we have seen, not all relation-ships have meaning, so we need to considerwhere the customer–supplier relationship sits onthe continuum. That, however, can only really be judged by the individuals involved in eachsituation or encounter.

163RELATIONSHIP MARKETING

Table 8.5 Further extensions to the marketing mix

Mix component Comment

Psychology Although economics has contributed significantly to the understanding of marketing within amacro environment (see Chapter 2) and pricing (see Chapter 11), psychology significantlyunderpins so much of contemporary marketing.There is increasingly the need to understandhow and why people buy the products and services that they do. Understanding their behaviour helps companies to supply the right product or service at the right time to supportbuyer behaviour.This is far from new. Consider for instance the work of Strong (1925),Bernays (1920s–1950s), Ditchter (1960) and others which all point to the use and value ofpsychology in marketing.

Packaging For many years packaging has been positioned uncomfortably between product and promo-tion. However, packaging is often so fundamental to the success of a product or service that itcannot really be subsumed into either.

Performance Performance is often associated with the features and benefits of a product, for example, the performance of an Aston Martin sports car. However, performance is muchmore than features and benefits. It links, for example, to TQM (one of the suggested challengesto the marketing mix framework – Yudelson 1999), people, processes and economics.

■ Chapter summaryThis chapter has examined the development of themarketing mix and relationship marketing. Bothconcepts have made considered contributions tothe development of marketing, both theoretical andpractical.

The marketing mix has developed from an orig-inal 4P concept to a generic 7Ps that has enhancedthe involvement of services. However, it issuggested that there is an opportunity to developthe generic 7P framework further by adding afurther 3Ps, psychology, packaging and perform-ance. This is not the first time that additions havebeen suggested. However, it is believed that theseare in keeping with the spirit of the marketing mixand fit the contemporary world.

Much has been written on the development ofrelationship marketing. However, there has beendebate about what actually constitutes a relation-ship, and whether everyone seeks a relationshipwith customers or suppliers. Equally, it has beenargued that the marketing mix is purely a transac-tional exchange framework that does not support arelationship approach. It is clear that both frame-works have their flaws, perhaps like any othermodels or concepts. Nonetheless it is believed that

both frameworks are linked, depending on thenature of the relationship and transactions takingplace. It is viewed here that one framework doesnot replace another. Instead that they can work incollaboration with each other.


1 Briefly outline the development of the market-ing mix framework.

2 Critically review the case for and against thecontinuing use of the marketing mix frame-work as a key platform for marketing opera-tions. What is your perspective on themarketing mix? Support your view withevidence.

3 The author believes that there is a fundamentalsynergy between the marketing mix and rela-tionship marketing. Critically evaluate thispoint of view.

4 Relationship marketing places the customer atthe heart of the marketing operation. Do youbelieve that this is the case in the real world?Support your view with evidence.

5 Working with fellow students, debate the merits and demerits of extending themarketing mix beyond the current 7Ps.

■ ReferencesAnderson, L. M. and Taylor, R. L. (1995) ‘McCarthy’s

4Ps: timeworn or time-tested?’ Journal of MarketingTheory and Practice, Summer, pp. 1–9.

Arndt, J. (1979) ‘Toward a concept of domesticatedmarkets’, Journal of Marketing 43 (Fall), pp. 69–75.

Asher, J. (1987) ‘Packaging: the interactive fifth “p” ofmarketing’, Marketing Review, January, pp. 21–3.

Bagozzi, R. P. (1975) ‘Marketing as exchange’, Journalof Marketing 39 (October), pp. 32–9.

Baker, M. J. (1997) ‘People: the fifth P of marketing’, inJ. Yudelson (1999) ‘Adapting McCarthy’s four P’sfor the twenty-first century’, Journal of MarketingEducation 21(1) (April), pp. 60–7.

Bernays, E. (1923) Crystallizing Public Opinion, NewYork: Boni & Liveright.


Figure 8.2

These concentric rings place the customer at the heartof the marketing operation, supported by relationshipmarketing and the marketing mix

Marketing mix

Customer

Relationship marketing

Berry, L. L. (1983) ‘Relationship marketing’, in L. L.Berry, G. L. Shostack and G. Upah (eds), EmergingPerspectives on Service Marketing, Chicago: AMA.

Bixler, M. (1991) ‘Maintaining your marketing consis-tency’, Small Business Reports 16 (January), pp.27–34.

Blomqvist, R., Dahl, J. and Haeger, T. (1993) Rela-tionsmarknadsföring: strategi och metod iservicekonkurrens (Relationship Marketing Strat-egy and Methods for Service Operations),Gothenburg: IHM Publishing.

Booms, B. H. and Bitner, M. J. (1981) ‘Marketing strate-gies and organization structures for service firms’,in J. H. Donnely and W. R. George (eds), Marketingof Services, Chicago: AMA.


Borden, N. H. and Marshall, M. V. (1959) AdvertisingManagement: Texts and cases, Illinois: Irwin.

Brown, R. (1991) ‘Making the product portfolio a basisfor action’, Long Range Planning 24(1), pp. 102–10.

Culliton, J. W. (1948) The Management of MarketingCosts, Division of Research, Graduate School ofBusiness Administration, Harvard University,Cambridge, Mass.

Dichter, E. (1960) The Strategy of Desire, New York:Doubleday.

Goldsmith, R. E. (1999) ‘The personalized market-place: beyond the 4Ps’, Marketing Intelligence andPlanning 17(4), pp. 178–85.

Goodrich, J., Gildea, R. L. and Cavanaugh, K. (1979) ‘Aplace for public relations in the marketing mix’,MSU Business Topics 27 (Autumn), pp. 53–7.

Grönroos, C. (1997) ‘From marketing mix to relation-ship marketing: towards a paradigm shift inmarketing’, Management Decision 35(3/4), pp.322–40.

Grönroos, C. (2000a) ‘Relationship marketing: theNordic School perspective’, in J. N. Sheth and A.Pavatiyar (eds), Handbook of Relationship Marketing,London: Sage.

Grönroos, C. (2000b) Service Management and Market-ing: A customer relationship management approach,2nd edn, Chichester: Wiley.

Grönroos, C. (2004) ‘The relationship marketingprocess: communication, interaction, dialogue,value’, Journal of Business and Industrial Marketing19(2), pp. 99–113.

Groucutt, J. (2003a) ‘Extending the marketing mix’,Working paper.

Gummesson, E. (2002) Total Relationship Marketing, 2ndedn, Oxford: Butterworth-Heinemann.

Håkansson, H. and Snehota, I. (eds) (1995) DevelopingRelationships in Business Networks, London: Routledge.

Harvey, M. G., Lusch, R. F. and Cavarkapa, B. (1996) ‘Amarketing mix for the 21st century’, Journal ofMarketing Theory and Practice (Fall), pp. 1–15.

Hunt, S. and Morgan, R. (1994) ‘The commitment-trusttheory or relationship marketing’, Journal of Marketing 58, pp. 20–38.

Johnson, A. A. (1986) ‘Adding more P’s to the pod or12 essential elements of marketing’, MarketingNews, 11 April, p. 2.

Judd, V. C. (1987) ‘Differentiate with the 5th P: people’,Industrial Marketing Management 16, pp. 241–7.

Kotler, P. (1986) ‘Megamarketing’, Harvard BusinessReview 64 (March–April), pp. 117–24.

Kotler, P (1991) Marketing Management, New Jersey:Prentice Hall.

LeDoux, L. (1991) ‘Is preservation the fifth ‘p’ or justanother macro environmental factor?’, in G. F.McKinnon and G. A. Kelley (eds), Challenges of aNew Decade in Marketing, Western MarketingEducators Association, pp. 82–6.

Levitt, T. (1972) ‘Production line approach to service’,Harvard Business Review (September–October), pp.41–52.

Lijander, V. and Roos, I. (2002) ‘Customer-relationshiplevels – from spurious to true relationships’, Journalof Services Marketing 16(7), pp. 593–614.

Magrath, A. J. (1986) ‘When marketing services, 4P’sare not enough’, Business Horizons 29 (May–June),pp. 44–50.

Mason, W. R. (1958) ‘A theory of packaging in themarketing mix’, Business Horizons, Summer, pp.91–5.

McCarthy, E. J . (1965) Basic Marketing, Homewood, Ill:Irwin.

McCarthy, E. J. and Perreault Jr.,W. D. (1987) BasicMarketing, 9th edn, Homewood, Ill.: Irwin.

Mindak, W. A. and Fine, S. (1981). ‘A fifth ‘p’: publicrelations’, in J. H. Donnely and W. R. George (eds),Marketing of Services, Chicago: AMA.

Morris, D. S., Barnes, B. R. and Lynch, J. E. (1999)‘Relationship marketing needs total quality

165REFERENCES

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Rafiq, M. and Ahmed, P. K. (1995) ‘Using the 7Ps as ageneric marketing mix: an exploratory survey ofUK and European marketing academics’, MarketingIntelligence and Planning 13(9), pp. 4–16.

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■ IntroductionThis chapter explores the product component of the marketing mix. Threekey areas are discussed and evaluated: (1) the development of productsand their market classifications, (2) how products are diffused into themarketplace, and (3) the value of the product life cycle.

While products have a logical link with other components of themarketing mix, the topic is also associated with branding, which is coveredin detail in Chapter 7.

■ What is a product and why are theyimportant?

It is useful at this stage to consider definitions for what we commonly calla ‘product’. The vast majority of us probably take products for granted,since they are a functional part of our everyday life. However, productsand the relationship that we have with them are far more complex than wemight first imagine. As you read through this chapter it will become appar-ent that the products and brands that we often take for granted arecomplex. What we must remember, as Inwood and Hammond (1993)stress, is that a product (including a service) exists to generate value, andthis can only be achieved by fulfilling the needs of customers.

Let us start with two definitions. The first is from Kotler (1998), and thesecond from Dibb et al. (1997). In general terms they are similar, but as you

CH

AP

TE

R

9Products

Learning outcomes 167Introduction 167What is a product and why

are they important? 167Standardisation or

adaptation? 168Reasons for product

adaptation – internationaldimension 168

Technical factors 168Cultural perspectives 169Legal or regulatory issues 171Safety 171Market classifications 171Consumer product

classifications 171Industrial and commercial

product classifications 176New product development

and service innovations 178The processes involved in

determining NPD 178Idea generation 179Idea screening 180Concept testing 183Business analysis 183Product development and

testing 184Market testing 186Product launch 187Commercialisation: the

diffusion and adoptionprocesses 187

Adoption characteristics 190New product failure 194The product life cycle

concept 198Does the product life cycle

concept exist in reality? 199Different shapes and sizes 203Chapter summary 205Questions for review and

reflection 206References 206



� explain how B2C and B2B products are classified

� critically evaluate some of the risks associated with developing newproducts and launching them into the marketplace

� explain the process of market diffusion and why it is important in thelaunching of new products or services

� critically evaluate the different stages in the product life cycle.

will see from Dibb et al. they have also stated that aproduct is ‘everything both favourable andunfavourable’, and that it is a ‘complexity of tangible and intangible attributes’.

Kotler (1998) describes it as:

A product is anything that is offered to a marketfor attention, acquisition, use or consumptionand that might satisfy a want or need. It includesphysical objects, services, persons, places, organ-izations and ideas.

Dibb et al. (1997) say:

A product is everything, both favourable andunfavourable, that is received in exchange. It is acomplexity of tangible and intangible attributes,including functional, social and psychologicalutilities or benefits. A product can be ideas, aservice, a good or any combination of thesethree.

So a product can be anything from an idea to a serv-ice, a physical good (for example, a mobile phone),or to a combination of these. It is often the combina-tions that attracts the buyer to make a purchase. Forinstance, the mobile phone and the after-sales serv-ice and care policy are usually a ‘package’ in themind of the buyer.

Let us examine some of the attributes describedby Kotler (1998) and Dibb et al. (1997) in moredetail. This will help us gain a clearer understand-ing of products and their relationship to the buyer.Table 9.1 dissects these attributes.

■ Standardisation oradaptation?

In 1983 Levitt wrote a seminal article entitled ‘Theglobalization of markets’ (reproduced in Levitt1983). In it he stated:

A powerful force now drives the world towardsa single converging commonality, and that forceis technology. It has proletarianized communica-tions, transport, and travel, making them easilyand cheaply accessible to the world’s mostisolated places and impoverished multitudes.Suddenly no place and nobody is insulated fromthe alluring attractions of modernity. Almost

everybody, everywhere wants the things thathave all heard about, seen, or experienced viathe new technological facilities that drive theirwants and wishes. And it drives these increas-ingly into global commonality, thus homogeniz-ing markets everywhere.

The result is a new commercial reality – theexplosive emergence of global markets for glob-ally standardized products, gigantic world-scalemarkets of previously unimagined magnitudes.

Since the publication of Levitt’s articles and bookson this topic there has been much heated debateabout the truth of this view. Arguments can be putboth for and against a standardised view of theworld. However, even companies that have becomehighly globalised such as McDonald’s have toadapt to some degree in order to operate within an‘individual’ marketplace.

■ Reasons for productadaptation – internationaldimension

There can be several reasons that companies haveto adapt their products in order to market theminternationally. In some cases they need majormodification, while in others minor modificationsare acceptable. A company needs to analysewhether or not the cost of modification is justifiedin terms of market entry and sustainability. Some ofthese reasons will change or adapt over time, so thecompany will need to continually monitor the needfor adaptations (for instance, to meet regulatorychanges) and the financial performance of the prod-uct. If the demand for adaptation becomes finan-cially unviable, the company may need to consideran exit strategy from that market.

Technical factorsElectrical equipment ranging from computers totelevisions and video cassette recorders (VCRs)may have to be adapted to meet different voltageand transmission standards. This is one of thereasons that videos from the United States cannotbe played on UK-manufactured VCRs. The colourtelevision standard in the United States is NTSC(National Systems Television Committee), while in

168 9 • PRODUCTS

parts of Europe, Africa and Australia/NewZealand it is PAL (Phase Alternation by Line), andin France, parts of Africa and Eastern Europe it isSECAM (Sequential And Memory). As you can seethe move towards different standards can only beconfusing for many consumers.

In theory the advent of digital technologiesshould overcome these technical problems in thefuture.

Cultural perspectivesAttitudes and cultural perspectives can vary enor-mously both within regions and between countries.

In Chapter 2 (page 60) there is a brief discussion ofcultural orientations and how people perceiveother countries. It is not only other countries thathave to be considered. Many people perceive theUnited States as one homogeneous environment.This is far from reality. It is a vast country compris-ing not only diverse geographical landscapes butdiverse beliefs as well. These beliefs extend beyonda wide political spectrum (liberal to ultra right-wing) to personal attitudes and behaviours.

Alashban et al. (2002) cite how religion can be afocal point of a country’s culture. For example,Nike was the goddess of victory in Ancient Greece.While that is not an issue in many countries, in

PRODUCT ADAPTATION 169

Table 9.1 Product attributes

Attribute Description

Tangible This is something that can be touched and/or felt, for example the carton that containsmilk or the steering wheel of a new car.

Intangible This is something that cannot be touched but can be experienced, for example, thepleasure gained from using a product. If the product is a foot spa, an intangible is therelief given to aching feet.

Satisfying wants or needs This is the degree to which an individual’s needs and wants are satisfied by the purchasing of a particular product. For example, if you have a raging headache, the purchase of a branded over-the-counter (OTC) analgesic will relieve the pain.Thusyour need for pain relief is satisfied.

Favourable This can be defined as the features and benefits of the product that the individual considers favourable (or acceptable) to their needs and wants.The degree of‘favourability’ will vary from individual to individual and each person’s own particularneeds.

Unfavourable There may be product attributes that the individual considers, to varying degrees,unfavourable: for example, the positioning of certain buttons or indicators on a car’sdashboard.This might not prevent the individual from purchasing the car, but he or shemight find the positioning of the buttons and indicators an irritation (thus anunfavourable attribute).

Exchange Various exchanges take place. On one level money or goods are exchanged for theproduct. On another level it is the benefits, features and psychological perceptions ofthe products that are exchanged when the individual uses or consumes the product.This exchange satisfies (or goes someway to satisfying) the needs and wants of thebuyer.

Relationship(s) This is the relationship(s) that the individual has with the product (or brand).This relationship links to the loyalty the individual displays to the product. For example, youmay prefer to buy a certain type of product on a regular basis, such as a high-profilebrand of cola drink.Thus there is a ‘relationship’ between the product and the individual in terms of the individual’s loyalty to that brand. However, brand loyalty canbe fragile, in that a failure in the product can lead to the individual switching brands,and an individual might be ‘loyal’ to several competing brands.

Saudi Arabia any reference to a god outside a reli-gious context raises disapproval. As a consequencesome Saudis may boycott Nike sportswear products.

What these issues and examples suggest is thatcompanies have to be sensitive to a region or coun-try’s cultural point of view. Equally, culture doesnot remain stationary. Like all aspects of life it is ina continuous state of flux or development. Thisdevelopment might or might not be for the good,but nonetheless it has to be understood.

Food

As Doole and Lowe (1999) state, ‘ food is a particu-larly difficult area for standardisation, as the prepa-ration and eating of food are often embedded in the

history, religion and/or culture of the country’. Fastfood companies that have an international pres-ence, such as McDonald’s, must vary their menusto take into account religion and local tastes.

Perception of numbers

The intrinsic value placed on numbers is extremelyimportant in certain cultures. In the West we tend toconsider the number 13 as unlucky. However, inJapan the number is 4 is considered bad luck,whereas the numbers 3 and 5 are considered lucky.Therefore packaging items in containers of fourmight not be received favourably in Japan. In manycountries the number 7 is considered lucky, but inGhana, Kenya and Singapore it is consideredunlucky.

Perception of colours

Colour can have many meanings, most especiallyamong older generations. In Brazil mourning isrepresented by the colour purple, in Mexico it isyellow, and it is dark red in Africa’s Ivory Coast(Kotler 1998). As a result companies may need toconsider the colour of their product and the pack-aging that accompanies it. (See Chapter 14 on phys-ical evidence.)

Language

Individual languages are complex statements of acountry’s origins. Even within the country there aremisunderstandings when the language is used.Translating a language is often fraught with diffi-culties and even more misunderstanding. Even

170 9 • PRODUCTS

The Barbie® doll

In 1959 the Barbie® doll was introduced into theUnited States by the toy manufacturer Mattel. It wasthe brain-child of Mattel co-founder Ruth Handler,who was inspired by watching her daughter Barbaraplay with paper dolls. Following market researchHandler and her team realised there was a niche fora three-dimensional fashion doll. After severaldesigns, Barbie® was launched to a sceptical toy-buying market at the annual toy fair in New York in1959.

Although Barbie® was a fashion-conscious dollreflecting all the emerging trends, the American ver-sion – tall, slender and blonde-haired – was the onlyversion available.Today, this toy has undergone cul-tural adaptation and different versions represent 45different nationalities. The first black and HispanicBarbie dolls were launched in 1980. In Malaysia, forexample, Barbie is known as Kebaya Barbie®, andhas long black hair, dark brown eyes and wears tra-ditional Malay clothes (known as sarong kebaya).The Malaysian Barbie® is available in three varia-tions, wearing a white, dark green or pink kebaya.

By 2003 Barbie® was being marketed in morethan 150 countries worldwide, and has establisheditself as the most popular fashion doll ever created.By 2002 it had become a US$2.5 billion per yearbusiness, including licensed products under Mattel’sConsumer Products Division.Source: Mattel™ investor relations website.

Mini case 9.1

Coca-Cola

As Daniels and Radebaugh (1998) suggest, one strat-egy a company can adopt for compromisingbetween uniformity and diversity is to standardiseas many constituent parts as possible, while chang-ing the end characteristics. An example is Coca-Cola.The company exports its concentrate to bot-tling plants in numerous countries worldwide.At thebottling plant carbonation, water, colour and sweet-eners are added to adapt the drink to local tastes.

Mini case 9.2

English-speaking nations have different words forthe same item, as the list below shows:

British version American versionChemist/pharmacy Drug storeNappies DiapersBiscuits CookiesCrisps Potato chipsFootpath SidewalkTaxi CabLift ElevatorSolicitor LawyerLong-distance call Trunk call

We need to consider the meaning of actual wordsand phrases and their translation. This will impacton brand names and the slogans used to promotebrands. A successful brand name in one countrycould be a household joke or obscenity in another.Table 9.2 gives a few examples that do not travelvery well.

■ Legal or regulatory issuesProducts may have to be adapted to meet the hostcountry’s specific regulatory standards.

SafetyDifferent countries impose different ranges ofsafety standards which cover a variety of home-produced and imported components andcompleted products. The directives regulate such

products as cosmetics, pharmaceuticals, textiles(where the main concern is to prevent the use offlammable materials in furniture), toys and fire-works. (You may want to reflect back to the issuesraised in Chapter 2.)

■ Market classificationsProducts are generally divided into two broadmarket classifications, consumer and industrial.These can be further divided into a series of sub-categories. In this section we explore the two broadmarket classifications and their sub-groups.

Consumer product classificationsProducts aimed at satisfying personal and familyneeds and desires can be assembled into particu-lar groups, categories or classifications. Theseclassifications rely heavily on understandingconsumer buying behaviour and attitudes (Dibbet al. 1997).

Convenience products

These are referred to as basic everyday items orgoods. These are purchased frequently and involvelittle or no pre-planning on behalf of the purchaser.These can be further sub-classified into staple,impulse and emergency purchases.

Here brand awareness becomes particularlyimportant, as manufacturers attempt to positiontheir brand in the mind of the consumer. For such

LEGAL OR REGULATORY ISSUES 171

Table 9.2 Lost in translation: examples of product names that did not travel well

Word Country Product Another meaning

Sweat Japan Soft drink Perspiration in English

Mist Stick USA Curling tongs for hair Excrement in German

Nova USA-UK General Motors car range No’va means ‘does not go’ in Spanish

Gerber USA Brand of baby food In French gerber means vomiting.Thus Gerberfoods are not for sale in France.

Traficante Italy Mineral water In Spanish it means drug dealer

Silver Mist UK Model of Rolls-Royce car Had to be changed in Germany because mistmeans excrement.

products Dibb et al. (1997) suggest that manufac-turers expect little promotional effort at the retailend of the chain. Therefore they need to provide itthemselves in the form of advertising and salespromotion. Promotion can be through a mixture ofadvertising and on-pack promotions. Memorableslogans also play a part (often significantly) inreminding consumers of the product’s attributes.For example ‘They’re G-R-Reat!’ for Kellogg’sSugar Frosted Flakes. This was first used in theUnited States in 1951, and is (as of 2005) still usedin some markets (Rees 1997).

Staple products or purchases

These are products that are generally consumed ona regular, if not daily, basis. The type and range ofproducts purchased will depend on the geographi-cal location and personal wealth of the buyer. Whatis a staple product in one country might not be inanother, although there will be some similarities. Inthe United Kingdom, for example, they includebread, tea, coffee, milk, fruits and vegetables andbasic over-the-counter (OTC) medicines such as

paracetamol, aspirin or other cold and flu remedies.In other countries the bread might be replaced byrice, and there might be a different selection of fruitand vegetables.

While these staples can be, and are,purchased at regular intervals by most people, itis interesting to consider them at times ofeconomic recession or depression. At such timesmost consumers will ‘normally’ resist expensiveor luxury purchases, and tend instead, toincrease the amount of staple (or basic) foodproducts. Price sensitivity is a critical factorhere, especially among consumers who havelittle disposable income.

Impulse products or purchasesThese are product or services purchased ‘on thespur of the moment’ or immediate following a deci-sion to buy. Products in this category include low-cost confectionery, newspapers and magazines, butare not be limited to these. A customer walkingaround a bookshop, for instance, may suddenlydecide to purchase a book or books because theyare on special offer.

172 9 • PRODUCTS

Figure 9.1 Consumer product classifications

Consumer product classifications

Convenience products

Stapleproducts

Resolving a problem

Hard sell

Medium andlonger-term

considerationEmergencyproducts

or purchases

Impulseproducts or purchases

Shopping goods or products

Luxury orspeciality items

Unsought products or services

In many supermarkets confectionery isdisplayed near the checkout counters or in newspa-per kiosks. As Underhill (1999) states, we must notunderestimate the value of impulse buying. It canadd value and profitability for both the retailer andthe manufacturer. One thing that might be consid-ered is whether impulse buying is affected bydownturns and upturns in the economy. Somecustomers refrain from such purchases in aneconomic downturn, the aim being to save as muchas possible of their income and spending theremainder on staple products. On the other hand,customers might see these as ‘treats’ to overcomethe gloom of recession.

Emergency products or purchases (also knownas distress purchasing)These are goods purchased when the need isurgent, such as an umbrella during a sudden rain-storm or aspirin when suffering from a suddenheadache. Stores often anticipate the need for emer-gency purchases and locate these products near theentrance. In London, for instance, many depart-ment stores, convenience stores and even souvenirshops have compact umbrellas convenientlylocated near the entrance way. You never knowwhen an umbrella might be urgently required withBritain’s unpredictable weather!

Traditionally, in the United Kingdom at least,consumers have tended to buy convenience prod-ucts at retail outlets near to their home. However,with increasingly long working hours and retailoutlets, such as supermarkets, opening till late atnight, some consumers shop near their offices.Increasingly supermarkets have opened in or nearbusy office districts.

Linked to convenience products are conveniencestores, also known as C-stores. These trade prima-rily on the appeal of the convenience they offer tolocal customers. In many countries these tend to beindependent outlets (often family-run businesses).They might also be chain stores, such as Londis orSpar in the United Kingdom and the US-based 7-Eleven chain which has expanded its outlets intoseveral countries.1

Stanton, Etzel and Walker (1994) suggest thatother products may be classed as convenienceproducts, even though they are not purchased on afrequent basis. They suggest Christmas lights and

Mother’s Day cards. To this we can add productsassociated with Valentine’s Day, birthdays, Eastercelebrations and other religious and national festiv-ities (such as the Chinese New Year).

Shopping goods or products

This focuses on durable or semi-durable items thathave a relatively long life span. There are severalkey factors usually associated with shoppinggoods. For instance:

◆ Shopping goods include such products asclothing, furniture, televisions, video cameras,DVD players, cars, washing machines, dish-washers and refrigerators. These vary signifi-cantly in price and durability. There is, forinstance, a significant difference between theprice of men’s shirts and a washing machine.

◆ While some academics have tended to suggestthat ‘the purchasing of shopping goods tendsto be infrequent’, that is not always the case.Agreed, it will normally be more infrequentthan shopping for the weekly groceries.However some men buy new shirts, forinstance, on a reasonably regular basis. Othercustomers change their cars every year for anew model. The parameters of purchasing maybe wider here than first thought.

◆ Shopping goods can be divided into thesubsets of homogeneous and heterogeneous.

● Homogeneous goods are products thatare similar to each other in terms of per-formance, features, benefits and pricing.For example, most dishwashers can beconsidered as homogeneous goods.However, some manufacturers attempt todifferentiate their products throughdesign, features and technical perform-ance. Such additional features are usuallyreflected in a higher price band.

● Heterogeneous goods are non-standardproducts where features, benefits andimage tend to outweigh the price. In thiscase individuals’ personal behavourialfactors tend to influence their purchasingdecisions. For example, the advent of dig-ital technologies has led some manufac-turers to develop highly sophisticated

MARKET CLASSIFICATIONS 173

slim-line, wide-screen home entertain-ment systems. In terms of features, bene-fits and performance they outweigh stan-dard home television and video/DVDsystems. Equally, these systems com-mand an exceptional price.

◆ With shopping goods, the consumer maydevote time and effort to gathering a range ofcomparative information between brands. Thisinformation will normally include features,benefits, performance, price, credit facilities,delivery arrangements, guarantees and after-sales service. The time spent on this activity canbe significant, especially if it is a high-costpurchase such as a car. Decision makers haveto be comfortable in their own mind that theyare buying the most appropriate product forthem, at the right price and under the rightcontractual conditions.

◆ Brand awareness can be a critical factor.Companies often engage in high-profilepromotional campaigns that assist in creatingstrong brand awareness in the minds ofconsumers. Therefore consumers might beinfluenced to a greater or lesser degree toconsider one particular brand over another. Acustomer might be loyal to one particularbrand of car or washing machine, for instance,and tend to buy from that brand range.However, consumers are not always brandloyal. Otherwise, as Dibb et al. (1997) pointedout, they would not spend so long in research-ing the different variables to assist them in theirdecision making.

◆ The quality of service can be an additionalfactor in consumers’ decision to purchase froma particular store. If the sales people are knowl-edgeable and supportive, customers maydecide to purchase there rather than in anotherstore even if it is more expensive. It is often aquestion of building rapport or understandingwith the customers that leads to the sale.Customers usually do not want to be ‘sold to’,they want support and advice to help themmake the right decision.

◆ The price and quality of after-sales service isan important factor. With the vast majority ofproducts there is at least 12 months of free

after-sales service. After that it usually comes ata price, often in the form of an insurance agree-ment. The scope of such agreements can be adecisive factor in whether a customerpurchases the product or not.

Luxury or speciality items and services

As the name suggests these are products or servicesthat possess one or more special or unique qualitiesor features. Consumers seeking these may devotesignificant time, and often resources, to obtainingthe product or service of their choice. In order to doso they are prepared to pay a premium price. Hereare a few examples of luxury items:

◆ In 2003 the multi-millionaire Australian golferGreg Norman took delivery of a UK£25 millionmega-luxury yacht named Aussie Rules. Theyacht has a cinema, six deluxe cabins for 12guests, a gym, dining rooms, an observationlounge, swimming pool and spa, and sevenboats stored on board. To keep everything inorder there are 12 crew members. Of course,the purchase of such a craft is only the begin-ning – there are running costs of several thou-sand pounds per day, from insurance and crewsalaries to mooring charges and fuel.

◆ Caviar, the roe or eggs of the sturgeon fish, is aluxury food. Although there are many varietiesof caviar, the most expensive comes fromRussia – most notably the roe of the CaspianSea sturgeon. Beluga, Sevruga and Osietra (theRussian word for sturgeon) caviar arerenowned for their link to luxury and theircost. In 2000 restrictions were placed by theRussian government on the amount of stur-geon that could be caught in the Caspian. Thiswas an attempt to revive depleting stocks. Thisreduction in availability only sought toincrease prices even further. The restrictionsalso increased illegal fishing of sturgeon, open-ing up a black market for the delicacy.

◆ The World is one of the world’s most luxuriousships. It is actually a residence at sea, for shehas 106 private apartments, 19 studio apart-ments and 40 studios. Prices in 2004 rangedfrom US$2.3 million to US$7.5 million. Allapartments have a 50-year lease and potentialbuyers are vetted for their suitability. At a cost

174 9 • PRODUCTS

of some US$450 million to construct, The Worldboasts two pools, four restaurants, tenniscourts and a golf course. The ambience ismuch like that of a private yacht, seaside villaor exclusive country club. In 2004 The Worldcalled on five continents, visiting 136 ports in54 counties (The World 2004).

◆ Aston Martin is a luxury British car brand thatis owned by Ford and was made famous byanother British brand, James Bond. Although ithas had a turbulent financial past (almostbeing made bankrupt on several occasions) it isnow in the hands of a company that has helpedrevitalise the brand. In 2002 Aston Martinlaunched the Volante which retailed forUK£140 000, followed in 2004 with the luxuri-ous DB9 retailing at UK£106 000.

◆ A luxury cruise: there are many cruise compa-nies operating in today’s market, but only afew that offer exclusive and luxurious accom-modation and itineraries. One is the UK-basedHebridean Cruises, which has two ships, onecruising around Scotland and the other in theMediterranean and parts of South Asia and theFar East.

Unsought products or services

These are products or services that consumers hadnot considered purchasing until they were made

aware of either a need or a benefit. This categorycan be divided into three subsets:

Resolving a current or ‘near-future’ problemAn example of a current problem is the replace-ment of a window pane, door locks or a completenew door following a burglary. Here thecustomer requires the skilled services of a glazier,locksmith and/or carpenter. It was not the origi-nal intention of the customer to replace the glass,have new locks or a door fitted. The need wasdriven by actions beyond his or her personalcontrol and to resolve the problem of a brokenwindow and door.

A ‘near-future’ problem could be the need torenovate a house or repair superficial dents in avehicle. Although they are not immediately press-ing, these problems need to be resolved within atime frame decided by the owner or possibly (for acar) legally determined. On this basis people often‘plan’ for future problems.

‘Hard sell’ techniquesAlthough these techniques are illegal in severalcountries, they still exist. A classic example fromthe United Kingdom is the selling of products byfinancial service companies. Perhaps unfairly, themajority of sales people in this sector have beentarnished with the actions of the few who opt forthe hard sell approach. In some countries thelegislation to control hard selling includes cool-ing-off periods, which give consumers time toconsider whether they want to proceed with theagreement or not.

Medium and longer-term considerationsHowever, we must also consider that unsoughtproducts and services can, over the medium andlonger term, satisfy customers’ needs and wants.Customers do see genuine benefits from purchas-ing products such as life insurance, pension plansand savings policies. Initially the approach of thesales person (by mail or telephone) might beunsought, but that does not mean the product isautomatically undesirable. Of course, the selling ofsuch policies must clearly benefit the customer.Here the sales person has an ethical obligation, andoften a legal one too, to ensure that the product isappropriate.


Figure 9.2

© Hebridean Island Cruises. Reproduced with kind permission.

This is the Hebridean Spirit, an ultra-luxury cruise shipthat has 49 bedrooms

Industrial and commercial productclassificationsCommercial and industrial products or materialsare generally purchased on the basis of thecompany’s overall goals and objectives (Eckles1990). Such products or materials can be dividedinto the subsets shown in Figure 9.3.

Raw materials

These are the basic materials that contribute to amanufacturing or production process. They includenatural resources (gold, diamonds, iron ore, tin,coal, crude oil and sand) and agricultural products(cocoa, wheat, soya).

Processed materials

These are materials used directly in productionsuch as various types of chemicals, lubricants,filters, plastics and sheet steel.

Component parts (also known as fabricatingparts)These are identifiable and distinguishable compo-nents that form part of the finished product. Forexample an aircraft manufacturer such as AirbusIndustries or Boeing does not produce all theelements that go into the finished aircraft. The vastmajority of components are produced by a series ofapproved suppliers. Either Rolls-Royce or GE, forinstance, might manufacture the engines. In turn

they will seek approved suppliers to provide essential components for the engines.

There are several key factors to consider here:

◆ The components must meet the quality speci-fied by the assembler/manufacturer of thefinished product. It is the assembler’s reputa-tion that is often on the line if the finished prod-uct fails. A failure of a key component within ajet engine could endanger the safety of theaircraft and its passengers. A disaster will havean immediate impact on the chain of manufac-turers involved, as well as the operating airlineitself.

◆ Supply chain logistics are often critical in thetimely completion of the final product or fornecessary repairs later. With a jet engine,components are not just required for the origi-nal manufacture, they are also required fornormal routine repairs and servicing. Thussuppliers need to be able to provide therequired components not just locally but glob-ally. Delays in receiving components can inturn delay the manufacture or servicing of theaircraft, often leading to increasing costs.

Plant and machinery

These are major items of plant, equipment ormachinery that are necessary for the production offinished products, from a state-of-the-art comput-erised printing press for the production of high-

176 9 • PRODUCTS

Figure 9.3 Industrial and commercial product classifications

Industrial/commercial product classifications

Raw materials

Component parts(fabricating parts)

Consumablesupplies

Businessservices

Processed materials

Plant and machinery

Accessories(auxiliary equipment)

quality pictorial-format books (art or photographybooks) to computerised car manufacturing lines.

The companies that purchase such equipmentwill normally consider the following issues:

◆ The long-term financial and operational viabil-ity of the plant and equipment. Plant andmachinery, for example computerised printingpresses, often requires high levels of invest-ment. The company will seek to maximise thereturn on its capital investment. As technologyrapidly develops, previous machinery becomesobsolete in comparison. This may have littleimmediate impact over the short term, but ifcompetitors invest in the latest technology theymight be able to gain an operational costadvantage. Thus the decision to purchase isoften linked to the long-term competitiveviability of the organisation.

◆ The company’s final decision may not be basedon the cost of the equipment alone. There areseveral other factors:

● Payment terms and conditions. The sup-pliers may offer a range of paymentterms, from a discount for full payment inadvance to instalments over a specifictime period.

● The range of features and benefits cur-rently available. The buyer will also wantto consider whether or not the machinerycan be ‘updated’ without the need forpurchasing a completely new machine.Increasingly technology allows for ‘add-ons’ that improve the efficiency of themachine without the need for a totallynew purchase. For instance, consideryour own computer. You can enhance itsperformance by installing additionalmemory chips and new software. Whileyou have to purchase the ‘add-ons’ this isunlikely to be as expensive as purchasinga brand new computer.

● The cost of operating the equipment inboth human resources and materialresources (for example, electricity).

● Quality of the after-sales service shouldthere be any operational/functional prob-lems. Many companies provide 24-hour

breakdown and servicing coverage, withsite attendance within a specific timeframe. Some companies offer compensa-tion to their customers if they are unableto reach the site within an agreed time ordeliver replacement parts.

Accessories (auxiliary equipment)

This is equipment that does not become part of thefinished product, but in one way or anothercontributes to its successful production and distri-bution. These items tend to be less expensive thancapital purchases, and include office and opera-tional equipment such as computers, softwarepackages and electronic test facilities.

Consumable supplies

These are supplies that facilitate operation andproduction, but they are not part of the finishedproduct. Within an office environment they includepens, paper, laser and photocopying cartridges.Within an operation and production environmentthey include gloves, safety glasses, uniforms andhard hats.

Generally, the products are homogeneous andtherefore companies may use several suppliers inan attempt to gain competitive pricing and/ordelivery times.

Business services

Many companies and organisations use bought-inservices to achieve their overall business and corpo-rate objectives. They include legal, financial,accounting, training, catering, market research,printing, advertising, security and managementconsultancy services. Their cost and relative valueto the company or organisation varies enormouslydepending on the scale of the company. Forinstance a business partnership might only requirea small accountancy firm for a few days per year toconduct an audit and finalise the accounts, costingit perhaps UK£1000. However a corporation with avast network of subsidiaries or strategic businessunits (SBUs) will need the services of an account-ancy firm on a year-round basis, not just at the timeof filing the accounts. The accountancy firm mightalso provide non-auditing services including duediligence work in respect of acquisitions anddisposals, tax compliance and advisory services,


and other general consultancy. The fees charged forsuch services can be very large. For example, in1999 Unilever paid UK£ 8 million in audit fees andUK£23 million to PricewaterhouseCoopers for non-audit services (Unilever 1999).

Although business services can be very expen-sive, they are often key to the successful operationof the business, so their importance should not beunderestimated.

■ New product developmentand service innovations

The development of new products or services isoften the key to the beginnings of a new organisa-tion, or the continuation of an existing one. Compa-nies normally seek, over time, to develop newproducts and/or enhance existing ones, so newproduct development (NPD) must be considered asan ongoing long-term operation. As Drucker (1999)suggests, most innovations usually result ‘from aconscious and purposeful search for innovationopportunities which are found only within a fewsituations’.

A company might engage in NPD for one ormore of the following reasons (developed fromInwood and Hammond 1993):

◆ To replace products that are either approachingor have entered the declining phase of their lifecycle. This might be as a result of changingtechnologies: for instance, the launch of inkjetand laser printers saw the decline of muchslower, noisier and less efficient dot matrixprinters.

◆ The development of enhancements or modifi-cations to increase or rejuvenate the life of theproduct. In the section on plant and machinery(page 176) we discussed the value of ‘add-ons’to existing equipment. In some industries theseboth enhance the machine’s operating effi-ciency and prolong its overall life expectancy.

◆ The development of products that support thecompany’s longer-term strategic objectives.The objectives may include maintaining a tech-nical-specific competitive advantage over anincreasing number of rivals. An example is theenhancements and development associated

with mobile phones since 2000, includingpicture messaging and video.

◆ The simple adaptation of an existing productor its packaging. (This can be particularly rele-vant to a product entering an internationalmarket. Various factors, ranging from govern-ment legislation in the host country through tocustomer preferences, may determine the leveland scope of adaptation.)

◆ An unexpected occurrence which then leads toan unexpected innovation and product. Thiscan also be considered as the ‘flash of geniusfactor!’ As we will see later in this chapter, thePost-It Note© that we all take for grantedoccurred in very much this way.

◆ In response to societal, including demographic,factors. Societies change, and so the needs andwants of society also change. Companies mustanalyse how societies are changing in order todevelop the right products and services. Forinstance, as we saw in Chapter 2, the demo-graphic structure of Europe is changing, withthe 50-plus sector outnumbering the under-20s. As a result companies will consider how toadapt products and services to meet thedemands of an increasingly affluent market ofthose aged 50 or more.

The development of new products is often essen-tial if a company is to survive, let alone grow andprosper within a highly dynamic business envi-ronment. Many products become obsolete, as aresult of technological developments, aggressivecompetition, changing societal attitudes andbuyer behaviour. Examples include manual type-writers and mechanical cash registers. So in orderto survive a company, must be proactive in itsanalysis of its product range and market demand(present and future).

The processes involved in determining NPDIn this section we consider how a company couldapproach the implementation of a NPD strategy.The procedure outlined was devised by the interna-tional management consultants Booz Allen &Hamilton (Baker 2000). This is currently the most

178 9 • PRODUCTS

widely used method for the development of a newproduct.

Generally there are eight stages in NPD,although some authors combine or add stages. Weshall examine each stage or phase in some detail.

1 Idea generation.

2 Idea screening.

3 Concept testing.

4 Business analysis.

5 Product development and testing.

6 Market testing.

7. Product launch.

8 Commercialisation: the diffusion and adoptionprocess.

Idea generation (also known as exploration)It is obvious that all new products commence withan idea. This idea can be extremely simple or highlycomplex. Ideas emanate from a variety of sources,and usually require detailed exploration. Thesources might include one or more of the following:

◆ Enhancements of an existing product througha refinement or adaptive feature.

◆ External technology, scientific developments ornew discoveries. New developments in onetechnological or scientific field may lead toinnovations in another.

◆ Senior management might see a potentialopportunity or niche in the marketplace thatthey believe can be entered relatively quicklyand efficiently.

◆ A sales person or the sales team. In theirmeetings with their customers, members ofthe sales team may hear suggestions forproduct improvements and developments.Equally, the sales team themselves may makerecommendations for enhanced product

NEW PRODUCT DEVELOPMENT 179

Nylon®

In the 1930s organic chemist Wallace HumeCarothers (1896-–1937) and his team at the E. I. duPont De Nemours (now known as Du Pont) labora-tory in Wilmington, Delaware were investigating anew area of research: polymers.As a result of theirvarious experiments they discovered a syntheticpolyamide, which they called nylon®, andneoprene®, one of the first synthetic rubbers.

Initially E. I. du Pont decided to sell nylon® to thehosiery market for stockings.This was so successful(especially during the Second World War) thatstockings became known by the generic name‘nylons’. However this was not the end of the story.Nylon® has since then been used a diverse range ofproducts from parachutes to carpets, clothing,luggage and automotive components.

Mini case 9.3

Bisquick™

In 1930 Carl Smith, a General Mills sales executive,was returning to San Francisco by train.Although hehad arrived on the train too late to order dinner, hedid receive a plate of oven-hot biscuits. He was soamazed that the cook was able to produce fresh bis-cuits in such a short time that he went to see thecook in the galley. The cook showed him how heblended lard, flour, baking powder and salt and thenstored the mixture in an ice chest (a compartmentfull of ice to keep food cool). From this batter thecook could make biscuits quickly and to order.

Smith recognised the potential of a pre-mixedbaking mix, and took the idea to Charlie Kress, thehead chemist of the Sperry Division of GeneralMills.There were particular challenges in attemptingto create such a ‘ready mix’, one being the rightblend of ingredients.

The final product was called Bisquick™.However, General Mills was not the only companyconsidering such a product. Within months ofBisquick’s launch there were 96 biscuit mixes onsale in the United States. However, only six brandssurvived into the following year.Although the recipehas undergone various changes or modificationsover the years, Bisquick™ retains a leading marketshare of the convenience baking mix market in theUnited States.Source: General Mills website (www.generalmills.com).

Mini case 9.4

development or the creation of a new product altogether.

◆ Those customers that do not come in directcontact with a sales team might contact acompany to suggest improvements they havethought about in using the product on a regularbasis. They might also contact a company tocomplain about the product. While complaintsare potentially damaging to a company inpublic relations terms, they can also providesignificant opportunities for product enhance-ment and development. It is all a question ofhow the company handles the complaint, andrelays the customer’s views to the developmentdepartment. For this to work efficiently therehas to be a strong proactive internal communi-cations process. Unfortunately that is notalways the case, especially in multinationals,whose size means they might not have an effi-cient and effective cross-company reportingstructure or process.

◆ By watching and analysing the action ofcompetitors, companies may be able to emulatetheir success, or indeed leapfrog them in termsof product enhancements and development.

◆ Brainstorming sessions, ideally carried out by amix of people (not just the research and devel-opment team) often create a rich variety of ideasand constructive debate. Many of these ideasmight not be practical, either at all or at thattime, but gems are born out of such creativethinking processes. Abrainstorming team needsto take the view that there is ‘no such thing as adumb idea’, it just may not be practical at thisprecise moment in time.

When the television series Star Trek startedin the 1960s everyone probably marvelled at thecrew’s ‘communicators’, which flipped up andwere handy pocket sized. Anyone whoventured that such things might be possible bythe end of the century was probably laughed atas a mere ‘trekkie’. However, consider the simi-larities with today’s mobile phones! In realitywe have progressed technologically evenfurther with the ‘communicator’ than the crewof the Starship Enterprise.

◆ New ideas are not just the province of different levels of management. There are

numerous examples of employees, at all levelswithin an organisation, generating ideas thathave either saved the company money, orhelped it create a new range of products.Some companies, such as 3M, actively encour-age all their employees to suggest ideas. Thiswas born out of a management philosophycreated by the company’s former president,William L. McKnight (chairman of the board 1949–66). He set out a basic rule of management in 1948:

As our business grows, it becomes increas-ingly necessary to delegate responsibility andto encourage men and women to exercisetheir initiative. This requires considerabletolerance. Those men and women to whomwe delegate authority and responsibility, ifthey are good people, are going to do their jobsin their own way.

Mistakes will be made. But if a person isessentially right, the mistakes he or shemakes are not as serious in the long run as themistakes management will make if it under-takes to tell those in authority exactly howthey must do their jobs.

Management that is destructively criticalwhen mistakes are made kills initiative. Andit’s essential that we have many people withinitiative if we are to continue to grow.2

(3M 2003)

3M believes that anyone, not just the researchand development department, has the abilityto generate ideas. The company has two ruleson ideas generation. The 15 per cent ruleencourages every employee (not just technolo-gists) to commit 15 per cent of their time tothinking of new ideas. In essence, employeeswho generate new ideas become ‘productchampions’. The 25 per cent rule states thatevery manager must ensure that at least 25 percent of his or her portfolio of products is lessthan five years old (3M 2003).

Idea screening (also known as initialscreening process)The process of developing new products is highlyrisky and expensive. Ideally a company should

180 9 • PRODUCTS

undertake a series of screening activities orprocesses to determine, even at this early stage,whether a proposition is viable or not.

Often companies (especially large multination-als) are quoted in the media saying they investbillions of dollars in research and development.They must clearly seek a return on that investment,over the medium term or more likely the longerterm. Some research and development is verymuch ‘future thinking’ with little or no immediatepractical application. If you like, the ‘jigsaw puzzle’that makes up the innovation or development maynot be complete: several technologies might have toconverge before a product can be mass produced.

A company usually forms a working group orcommittee to analyse and consider the viability ofany new ideas. This might comprise people fromvarious departments – Research and Development,Marketing, Finance, Production and Operations,for instance. Its function is to identify potentialwinners. As I said earlier, there is no such thing asa ‘dumb idea’, but companies need to considerwhat is practical for them over the medium andlonger term. This is never an easy task, but theintroduction of a systematic approach usually aidsthe decision-making process.

The company must determine whether the ideastrategically fits its corporate objectives, consider-ing resourcing requirements, competitive forcesand, most critically, the market demand. As youwill see from the questions below, the companymust consider a whole range of issues, fromproduction and operations to finance and humanresource management. Equally, there will be arange of micro and macro factors that need to beconsidered.

◆ Does this idea fit with the existing productrange? Will the new product affect the viabilityof an exiting product or a product portfolio?What will be the likely impact on the businessof the introduction of this new product?

◆ What is the possible demand for this product?Who will buy it and why? Will the initialpurchase be high followed by a rapid decline,or will there be continual growth over a longertime frame? Companies need to consider whatthe life cycle of the product could be, althoughit must be remembered that gauging the life ofa product is far from an exact science.


3M and Post-it Notes®

The Post-it Note® that adorns most desks was oneof the great research and development accidents ofall time. A research chemist, Spencer Silver, wastasked with developing a new glue that wouldbecome the strongest on the market. However,Silver’s work resulted in a very different type of glue– a glue that would only stick for a very short peri-od of time. He noticed that this glue had particularproperties: it could be reused (provided it did notget dirty), and it left no visible marks or residue onthe materials to which it had been applied.

For ten years he tried to find an application forthis unusual glue without success.Then a colleague,new product engineer,Arthur ‘Art’ Fry, discovered asolution to Silver’s dilemma. Fry was in the choir ofhis local Presbyterian church, and each Sundaywould use scraps of paper to mark the place of theselected hymns in his hymn book. However, as heopened the hymn book his slips of paper often fellout.

He came across Silver asking colleagues if theyhad a use for a weak adhesive, so he applied theadhesive to a sheet of paper and realised he had hisbookmark. However, Fry started using the adhesivebeyond the bookmarks in his hymn book. He wouldwrite notes on slips of paper and use the adhesiveto attach them to reports. He found that colleagueswould often write on the slips and return them withthe reports. Believing that the adhesive had a longer-term value to the company, Fry began to activelypromote it within 3M. His manager Bob Molenda,who helped push the project through the pilot testphase, backed the idea.

As a result, in 1977 3M tested Post-It Notes® inthree American cities.The packs were sold, but saleswere not encouraging.A final effort was made in thetown of Boise in Idaho. Office workers were shownhow the note pads worked, and this time given freesample packs.The sales teams returned a week laterto discover that 90 per cent of customers wantedto buy packs.

Today, the product has been diversified intosome 600 different Post-It® products sold in over100 countries.There are 62 colours, 25 shapes andeight standard sizes. It is universally recognised andhas become an everyday global item.Sources: Hillman and Gibbs (1998); van Dulken (2000); 3Mcorporate website (www.3m.com).

Mini case 9.5

◆ Does the company have the appropriateexpertise to develop the idea? If not, can itacquire that expertise, and how long will it taketo acquire and assimilate it? What could be thepossible negative effects of bringing the expert-ise into the company – for example, how willthe current employees react? (As you can see itis not just a marketing, production and financeissue here, it also very much involves humanresource management, and all associated with it.)

◆ Does the company have the capacity toproduce this new product, or will it need toconsider building new facilities or outsourcingto suppliers or other specialists? It needs toanalyse both the cost and potential time lags.

◆ Will the company be required to invest in newequipment and other resources in order tomanufacture this product?

◆ What is the likely sales potential of this prod-uct? What is the potential size of the market –nationally, regionally, international or globally?What are the possible risks of marketing thisproduct internationally? Is it a standardisedproduct or will it have to be modified for inter-national consumption?

◆ What are the likely costs involved in the devel-opment and production of this new productidea? Will the company need to seek additionalfunding from external sources, or can it befunded by the current operations budget? Ifexternal funding is required, how will it beraised – share market, via banks, venture capi-talists or a combination of all three? If thecompany needs to seek external funding, whatwill be the cost of such borrowings? And canthe company meet these financial demands?

◆ When will the idea be technically feasible – inthe short, medium or longer term?

◆ Are there any obvious problems that can beforeseen in the development stage of this idea?For instance, are there any regulatory condi-tions that need to be met? For example, if theproduct emits background radiation, will itconform to international radiological stan-dards? Or will further research be necessary tofind a means of reducing the radiation level?

◆ What will the potential reaction of the currentcustomers be? Does the idea meet a currentmarket need and trends? Reflect back to thesection on ideas generation. There we consid-ered the role of the sales team in developingideas based on conversations with customers.As the company progresses with new ideas, itcan test them out with current and potentialfuture customers. Obviously, companies oper-ating in highly competitive markets will needto consider confidentiality issues. However,discussions with outsiders can be useful in helping companies progress to the development stage.

◆ Should the product be aimed at a newcustomer base? What is the potential size ofthat customer base? Or is it designed for atotally new market? If so, how will that marketreact, and how will the company contact it?

◆ What is the possibility of substitution or prod-uct obsolescence? If so, are there any measuresthat can be taken to overcome these, or reducetheir potential risk? The company may need tothink of how ‘add-ons’ could possibly enhancethe product in the future.

◆ What is the potential competitor reaction?Could competitors be working on a similaridea? Could they launch a similar productearlier, beating the company to market? If so,what will be the likely impact on the market,and the company?

◆ Are there any negative/positive environmen-tal considerations? Will the raw materials, themanufacturing process or the finished productharm the environment? Will the processesconform with current and possible future environmental legislation?

◆ Are there any potential legislative issues to beconsidered, for example, product safety impli-cations both now and in the future?

◆ What are the potential advantages and/ordisadvantages from the company’s perspec-tive?

◆ To what extent will the proposed product assistin reducing production or marketing costs ofother products? In other words, is there ameans of achieving economies of scale?

182 9 • PRODUCTS

◆ Will the introduction of the new product canni-balise the company’s current product range(s)?If so, is it a risk to the business or not? In somecases companies may allow the cannibalisationof existing products in order to build a firmfoundation for the new one. However, it can bea very risky strategy. If the life of the new product falls dramatically short of expecta-tions, the company could face serious financial problems.

◆ What will be the impact on current distributionoutlets? Will new distribution patterns need tobe developed? If so, what are the potential costand management implications?

◆ What are the estimated time scales from theideas stage through to prototype and thenmanufacture? This will need to link into themost appropriate time to launch the product.

◆ Who are the competitors? Are they thecompany’s current competitors, or will newones enter the market? Consideration must begiven to potential international competition,not just local, regional or national competition.With the growth in e-commerce, business isbecoming very much a global entity withglobal competitors, even for SMEs.

These questions are very much inter-related, relianton cost, and are to some extent future thinking.While it is impossible to predict the future accu-rately, there are trends that may provide some indi-cation of what could happen in the near future.However, it is advisable to add a word of warninghere. As we saw in Chapter 2, the macro environ-ment is volatile to say the least. Companies devel-oping new products or enhancing existing onesmust be aware of this volatility. A market might bepotentially lucrative one day and dead the next.While global companies may be able to exertcertain levels of power, they are usually powerlessagainst severe political and economic turbulence.

Concept testingAs part of the ideas screening process, marketersmay have to test the concepts on potentialcustomers. Here the objective is to gain customerreactions to the idea, positive or negative. This canbe a valuable exercise, but there are inherent

problems associated with concept testing. Theseinclude:

◆ Can the concept be communicated effectivelyto the potential customers so that they canmake realistic judgments? A developmentteam might be able to visualise the final prod-uct, indeed the whole production process.However can they accurately translate the ideainto a language customers easily and readilyunderstand? It depends on the skill of thosecommunicating with current and potentialcustomers. Often the research and develop-ment team will seek the assistance of themarketing team to find the most efficient andeffective way of communicating ideas to thecustomer base. One method that can beemployed is the focus group.

◆ Will the reaction to the concept be objective andrational? Will people, for instance, think it is anovel idea and say so, but in reality consider itimpractical? This is one of the risks associatedwith marketing research. Individuals or focusgroups might seek to please a questioner,rather than say what they genuinely think. Thecultural perspective must also be taken intoconsideration: some cultures tend to be morevocal and critical than others.

◆ Is the exercise cost-effective in terms ofresource expenditure versus the quality offeedback? For some companies extensive feed-back research (such as focus groups) is prohib-itively expensive. They must be able to see aworthwhile return on their investment.

◆ Companies also need to consider how far indi-viduals are conditioned by ‘traditional’ viewsof life. Radical new ideas might be consideredbizarre by traditionalists – but convenient andpractical for others. The difficulty here isassembling the most appropriate audience toreview and comment upon the idea.

Business analysisBased upon the outcome of the concept testing,management will need to consider the market andfinancial viability of the potential product. Thisinvolves break-even and market analysis, the forecasting of costs, sales and potential profit.


In the case of a radical new product develop-ment, some of the forecasts can only be ‘educatedguesses’ based on prior experience. Generally,companies conduct business analyses not only atthis stage but throughout all subsequent stages.

At a later stage it may become overwhelminglyclear that the product faces several barriers. Forinstance:

◆ It will be far too expensive to develop at thistime.

◆ It is not technically feasible to develop at thistime.

◆ There is no current evidence that a marketexists for such a product.

On the basis of such information, a company maydecide to shelve, terminated or postpone the proj-ect. It might believe that the project could be feasi-ble at another time, depending on technologicaldevelopments or the development of a new marketopportunity.

Product development and testingThis is the stage where a prototype or workingmodel is constructed. This reveals the tangible andintangible attributes of the product.

Products can normally be tested in one of twoways:

◆ The company develops and implements itsown tests on the product, this is known asalpha testing. The tests might be of thecompany’s own design, dictated by a regulator,or a mixture of both, depending on the prod-uct. Many products have to meet minimumsafety standards for example, and these areenshrined in legislation (which changes overtime). An example of this is the design and test-ing of commercial aircraft. Mini case 9.7 brieflyexamines the development of the Boeing 777.Before the aircraft can enter commercial servicein the United States, it must receive FederalAviation Authority (FAA) certification. Equallybefore it can fly in UK airspace it must obtainthe UK’s equivalent certification through theCivil Aviation Authority (CAA). These can beseen as the two main benchmarks for airwor-thiness. The removal of either one will result inthe grounding of not one aircraft but the entirefleet.

◆ Potential customers can also be involved in thetesting process. This is known as beta testing.Here the product is tested in order to replicatereality as closely as possible. For example,computer software and hardware manufactur-ers provide both consumers and businesscustomers with beta test samples of theirsystems to examine how the products performunder real user conditions. The feedback frombeta test sites is important for the developmentof product refinements and debugging.

While many companies engage in rigorous producttesting, others do not. The reasons behind suchdecisions are many and varied, and some of the keyissues are examined below.

◆ The senior management team might havecommitted the company to launch the prod-uct within a restrictive deadline, whichmeans there is time for limited or no testing.It might be that the product actuallyrequires little or no testing, but dependingon the product, this could prove to be anerror of judgment. A ‘rush to market’ is notalways a successful strategy to win market

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Viagra®

As Palmer (2000) suggests, while products shouldbe market led, many new products arise by accident.We described in mini case 9.5 how the Post-itNote® came into existence accidentally, yet a mar-ket followed.

Researchers at the pharmaceutical giant Pfizerwere working on the development of an anti-anginadrug when they noticed unexpected side-effects.This led to further tangential development and theanti-impotence drug Viagra® was created. When itwas launched in 1998 it was a commercial success.Since then it has been prescribed to 16 million men.According to Pfizer’s Viagra® website, nine tabletsare dispensed every second.Sources: Palmer (2000); www.viagra.com.

Mini case 9.6


The Boeing 777

In June 1994 Boeing’s latest aircraft, the twin turbofanwide-body 777 passenger aircraft, took to the skies.Theprototype was test flown by the company’s chief com-mercial aircraft test pilot John Cashman and his co-pilotKen Higgins.

The area where the passengers would normally sitwas filled with banks of computer systems to test dif-ferent aspects of the aircraft’s performance, from thehydraulic control systems to individual engine perform-ance.After some four hours of inflight testing Cashmanand Higgins landed back Boeing’s Everett airfield inWashington State. However, this was only one part of avast testing programme.

The criticality of such testing was demonstratedwith the flying testbed that was created to test theengines under real flight conditions.A 747 was convert-ed so that its existing inboard left engine was replacedby the Pratt & Whitney 4048 engine designed for the777. On the third test-bed flight in November 1993 theconverted 747 sped down the runway at Boeing’sEverett test facility. At the point of rotation (themoment when the pilot has committed the aircraft totake-off, the nose is up and the front wheel has left theground) the 4058 engine surged and two loud bangscould be heard both in the cockpit and on the ground.In addition to the bangs those on the ground sawsmoke and flames shoot from the engine. A surge iswhere airflow turbulence causes air in the back of theengine to move forward, causing a loss of thrust andthe engine backfiring, like a misfiring exhaust on a car.

The aircraft is designed to take off on one engine atthe point of rotation (when the front wheel leaves theground and the plane is known as ‘committed’).The abil-ity to do this significantly enhances safety, because therisk of crash on take-off is reduced.Thus it increases itsmarketability to airlines. For any aircraft the two criticalpoints are rotation (speed and engine/flap performance)and touch down (speed/positioning and flap perform-ance), combined of course with weather conditions.

With the engine shut down the plane continued toclimb. Such a dramatic incident illustrated the need forboth alpha testing and highly trained people to testsuch prototypes. Maybe such a demonstrationenhanced Boeing’s reputation for quality and safetywhilst increasing the marketability of the 777.

Testing does not stop with the original prototype,however: this is only the beginning. When each newversion is developed the prototype version of that air-craft must undergo rigorous testing. In October 1997the prototype of the Boeing 777-300 took off fromBoeing’s Paine Field in Everett, Washington State, tobegin a seven-month flight test programme. This four-hour flight was the first of some 1400 flight test hoursplanned for the aircraft. During the test flights, the 777-300 was subjected to extreme hot and cold climates toprove the aircraft’s systems’ safety and reliability.

In addition to actual proving flights, Boeing hasdeveloped special test rigs to ‘fatigue’ test the aircraft.Fatigue testing provides engineers with key data thathelp identify the likelihood and causes of prematurefatigue damage or wear on the aircraft’s structure com-ponents. If fatigue damage occurs in the fleet, then itcan be addressed effectively through service bulletinsand eliminated through subsequent productionchanges.

Housed in a cage of steel, tubes and wires, a 777fatigue test aircraft was built to verify the durability ofits structure. This is a structurally complete airframewithout the systems and interior components. Onehundred computer-controlled hydraulic actuatorssimultaneously applied loads to the airframe to simu-late all conditions during typical in-service operations.These tests include pre-and post-flight taxi, pilotmanoeuvres, gusts of wind and cabin pressurisation.Within such test rigs, the aircraft receives the treat-ment it would receive in continual flight. In all the 777fatigue test plane flew 120 000 flights, which represent-ed an equivalent of 60 years in service, twice theexpected service life of the aircraft.

‘A commercial airplane represents a huge invest-ment for our airline customers’, commented LarryRydell, chief engineer, 777 Structures. ‘It’s therefore tobe expected that they will be flying them longer in thefuture.This test shows us what to expect with an even-tual aging fleet.We can anticipate maintenance require-ments and thereby ensure continued safe, economicaloperation of the aircraft.’Sources: ‘Boeing 777 fatigue test airplane completes recordnumber of flights,’ news release, Boeing, 17 March 1997;‘Boeing 777-300 complete first flight,’ news release, Boeing, 16October 1997; Sabbagh (1996).

Mini case 9.7

share. It can be seen as a short-termistapproach.

◆ Only qualitative data, rather than ‘hard’ quan-titative data, might be available. Managers insome companies view qualitative data as ‘soft’data. As a result they may be reluctant to haltthe project if the qualitative data has signalleda negative response to the product, especially ifthe project has enthusiastic support from thesenior management team. Depending on theculture of the organisation, staff might be reluc-tant to deliver potentially bad news to seniormanagers, or might persuade themselves theproduct will ‘work’ sufficiently when it islaunched. This can be a high-risk strategy. Assome companies have found to their cost, amassive advertising budget will not persuadecustomers to buy an inferior product.

◆ Fear of competitive pressures, can result in acompany launching a product withoutconcept (and market) testing. The view inthe boardroom might be, what if the compe-tition launches a similar product before wedo? Again, this is a high-risk strategy. Itmight succeed, but if it fails it will not onlytarnish the product but affect the company’sreputation.

◆ Sometimes companies are prepared to take therisk of ‘backing a hunch or a gut feeling’. Thisis often in the absence of any real demand forthe proposed product or service. This approachmight work – it has in the past. New marketsand market opportunities have been openedup as a result of hunches, but the risks for acompany can be enormous. (See mini case 9.8.)If the product fails, the company’s survivalcould be at risk.

Pop music, for instance, is always a risk. Aband might spend a year working on a newalbum, but there can be no guarantee it will bea success. In Chapter 1 complexity theory isdiscussed. This shows how various dynamicsdetermine what is a hit and what is not, butunderstanding the dynamics does not by anymeans guarantee a ‘hit’. Even the most success-ful solo artist and groups, with loyal follow-ings, cannot guarantee that their next single oralbum will be a massive hit, so the pop musicbusiness is high-risk and volatile.

Market testing (also known as testlaunch)Before the product is introduced to a widermarket segment, it may be market tested. Thiscan be described as a ‘sample’ launch of theproduct in a limited area to determine the reac-tion of customers. Confectionery companies, forexample, might launch a new chocolate bar in alimited number of regions, market testing notonly the reaction to the bar itself (through thelevel of purchasing) but also the reaction to itsmarketing campaign. If the campaign is notfound to be successful it can be modified beforethe national campaign launch. If the chocolatebar proves not to be successful, the companymight decide to rethink the formula and/or thepackaging. In a drastic move it could scrap the product. Of course, that would be a veryexpensive alternative.

Market testing can provide several benefits:

◆ It allows product exposure to a natural(rather than a controlled) market, and thusshould give a more realistic measure ofperformance.

◆ It provides the marketing team with an oppor-tunity to test different aspects of the marketingmix. This testing can take place in differentlocations, allowing marketers to experimentwith pricing, packaging and different promo-tional variations.

◆ The marketing team can observe weaknessesin the product and other components of themarketing mix. This provides them with theopportunity for corrective action prior to themain launch. Testing the mix can lead to moreeffective use of the mix, and prevent embar-rassments such as inappropriate advertising ora product that fails.

◆ Testing can provide additional information forcost, sales and profit forecasts. Prior to markettesting companies can estimate sales forecasts(usually based upon similar products andproduct ranges). However, it is only whenmarket testing takes place that a more realisticidea of sales can be gauged.

◆ Sample launching allows for supplies of the

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product to be accumulated over a longer timeframe prior to the full market launch.However, there will be warehousing andpotential depreciation cost implications.

Product launchOnce the product has successfully completed theconcept and market testing stages, it is ready forlaunching into a wider marketplace, which mightbe national, multinational or, increasingly, global.Generally, a product can be launched either of twoways:

◆ One launch date: on a given date the product ismade available to customers, nationally orinternationally. It might be anything fromwashing powder or a car, to a style of jeans.Such products are usually supported by inten-sive launch and ongoing promotionalcampaigns. The important issue for companiesis that appropriate quantities of product areavailable in the distribution outlets prior tolaunch date. Nothing is more frustrating forconsumers than to view a promotionalcampaign for a new product only to discoverthat it is not available, and may not be forseveral days or weeks. This damages not onlythe product’s reputation (often before it haseven been tried) but also the manufacturer’sreputation.

◆ Roll out: the product is made available instages, region by region. This can meangeographical area by area within a country, orprogressing through several countries. A prod-uct might be rolled out through Europe over aperiod of several months.

Commercialisation: the diffusion andadoption processesThis is the full-scale manufacturing and marketingof the new product. The diffusion and adoptionprocesses focus on how information and experi-ences of the new product disseminate through themarket place.

Often, in textbooks, diffusion follows adoption.However, normally diffusion of the ‘idea’ precedesadoption. Of course, diffusion can be a reinforcingaction (see Figure 9.4). As a product or service isadopted, information about its quality (good orbad) is diffused among the relevant marketsegment(s). This can reinforce customer behaviour– the decision to buy or reject the product – espe-cially when customers consider repurchasing.


The movies

The movie industry has for years undertaken testpreviews to gauge audience reaction to either amovie generally, or specific elements within it. Forexample, film companies have been known tochange the ending of a movie because test audiencereaction to the original ending was negative. Thisdoes not necessarily make the movie an instant hit,but it can prevent a box-office embarrassment.

A classic example, in more ways than one, is the1945 movie The Lost Weekend, directed by BillyWilder. It was a particularly outstanding achieve-ment because it showed, with gritty realism, a tensepsychological study of an alcoholic novelist. RayMilland collected an Academy Award for his intenseportrayal of a man on the edge of his life.The moviealso collected awards for Best Picture, BestScreenplay and Best Director. However, all this suc-cess might well not have happened.

When the movie was completed, in their hasteto preview it the studio dubbed various tracks fromits music library onto the soundtrack. It was ‘cov-ered’ in an assortment of musical idioms that weretotally inappropriate for the intensity of the subjectmatter.When the movie was test screened in SantaBarbara, California there were howls of laughterfrom the audience. What had been intended as adramatic, often morbid and frightening film had beenturned into a ‘comedy’.

As a result the studio planned to shelve themovie, but producer and co-screenwriter CharlesBrackett and composer Miklós Rózsa persuadedthem otherwise. Rózsa provided music that under-stood both the humanity of the main character, andthe fear that engulfed him in his moments of intox-ication. When the movie was previewed with thenew score, the audience reactions were very differ-ent.The movie went on to garner both critical andpublic acclaim.

This is an example of one element having anundeniable impact on the success of the wholeproduct.Source: Turner (1980).

Mini case 9.8

Companies and organisations are particularly inter-ested in repeat buyers, because in the long run theyare more profitable than one-off purchasers.

The examination of how information isdiffused among a population began towards theend of the 19th century and included aspects ofsociology, psychology and anthropology.Perhaps one of the most important figures at theturn of the 20th century was the French sociolo-gist, psychologist and criminologist GabrielTarde (1843–1904). Although he had no formaltraining he made several observations abouthuman behaviour. First, he believed that societywas entering the age of ‘publics’: that people canonly belong to one crowd at a time, but they canbe part of several publics at the same time(Mattelart and Mattelart 1998). Second, he wasinfluenced by the notion of suggestion andsuggestibility, which led to his Laws of Imitation(Mattelart and Mattelart 1998). From this analy-sis he plotted the original S-shaped diffusioncurve (Valente and Rogers 1995). (The diffusion

curve looks ‘roughly’ like an S seen side on – seeFigure 9.5.

Further research was undertaken in the 1930sand 1940s by two American rural sociologists fromIowa State University, Bryce Ryan and Neal Gross.In 1928 a new hybrid corn seed was introduced toGreene County, Iowa. It was superior to any otherseed that had been used by the local farmers overprevious decades, but it was not readily adopted.The reasons behind this reluctance were the essenceof Ryan and Gross’ research. They studied the atti-tudes of 255 Greene County farmers. Table 9.3 givesa breakdown of the usage by the 259 farmers.

Ryan and Gross’ work renewed interest inTarde’s S-curve. They identified five groups offarmers, and categorised them as:

◆ innovators

◆ early adopters

◆ early majority

◆ late majority

◆ laggards.

In his 1960s seminal work Everett Rogers furtherdeveloped the theories and views on the diffusionof innovations. Rogers (1983) originally defineddiffusion as:

The process by which (1) an innovation; (2) iscommunicated through certain channels [forexample direct marketing or advertising]; (3)over time; (4) among members of a socialsystem.

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Figure 9.4

The reinforcement process of diffusion and adoption

Diffusion

Diffusion

Adoption Adoption

Figure 9.5

The typical S-shaped diffusion curve.The x axisdenotes the time of adoption while the y axis denotesthe cumulative proportion of adopters.

Y

X

Figure 9.6

Awareness

Knowledge

Evaluation

Trial

Adoption

The sequence of adoption

Adoption can be viewed as the sequence of eventsin Figure 9.6.

As Robertson (1984) suggests, while this is auseful approach for high-involvement products,‘this “rational” or “learning” bias may be inappro-priate for low involvement products where aware-ness may be sufficient to encourage trial’. Forinstance, the consumer might trust a particularbrand name and thus readily purchase a new soapor washing-up liquid sold under that brand.

Let us analyse Rogers’ original diffusionelements further:

◆ An innovation: this can be an idea, a practice orproducts that are new, or perceived as new. Youmay want to reflect back to the descriptions ofnew product development, which coveredboth new and revitalised products.

◆ Communication and communication channels:communication is where people participate inboth creating and sharing information andideas. Communication channels are the meansor medium by which the information ormessage is ‘transported’ from one individualor group to another individual or group. Thechannels can be mass media (for example, tele-vision), interpersonal (face-to-face contact, forexample through a sales person) or a combina-tion. While people will seek some scientificresearch to help them make decisions, manyjudgments to buy are based on feedback frompeers and opinion formers who have adoptedthe product or service. While this has validity,

some 30 years after it was first suggestedRogers felt that it was ‘too linear, too mathe-matical’. He looked on communication as a‘convergence process in which the participantscreate and share information with one anotherin order to reach mutual understanding’(Rogers and Kincaid 1981).

◆ Over time: this can be divided into threesubsets. This first relates to the ‘innovation–decision’ process. This is the mental processthrough which an individual or group movesfrom first awareness of the product or serviceto confirmation of the decision (to buy or not tobuy). This is depicted diagrammatically inFigure 9.7 in Rogers’ five-stage process.

The second subset refers to the ‘relative time’by which the an innovation is adopted by anindividual or group. The third subset is the‘rate of adoption’ of the innovation into themarket or social system. Several variables canaffect this overall rate of adoption. Theyinclude the type of innovation decisions made(adopt or reject – this may be after some delib-eration), the nature of the communicationchannels diffusing the innovation at variousstages in the innovation process, the nature ofthe social system (for instance, liberal or closedsystems) and the level of success of the changeagents in diffusing the innovation.

◆ Social system: this can be described as a set ofinterrelated decision-making units engaged injoint problem solving to achieve a commonpurpose or solution that has mutual benefits.


Table 9.3 Level of hybrid corn seed usage over time

Time frame No. of farmers adopting seed Type of adoption Total numbers by type1928–33 24 Innovators 241934 16 Early adopters 371935 211936 36 Early majority 1431937 611938 461939 36 Late majority 361940 14 Laggards 171941 3Non-adopters 2 2

Source: adapted and developed from Malcolm Gladwell, ‘The coolhunt’, New Yorker, 17 March 1997.

For instance moviegoers consist of a broad spec-trum of people of different ages, incomes andlife styles. However, the diffusion of informa-tion, knowledge and experiences regarding a

particular movie can lead to either the adoptionor rejection of the movie. For example, diffusionof vast quantities of positive information onJames Cameron’s Titanic led it to become a box-office smash hit, rather than the most expensiveflop ever made, as some had predicted.

Robertson (1984) suggests that diffusion theory isincomplete unless it recognises the proactive natureof marketing and competitive actions. Table 9.4details the potential impact of marketing activitieson the diffusion process.

Adoption characteristicsRogers (1983) built on the work of Ryan and Grossand devised a broad classification for customerswho adopt new products. These are listed belowand reflected in Figure 9.8. Rogers apportionedpercentages of the population who would adopt aproduct or service over the course of the lifecycle ofthe product.

Innovators

As can be seen from Figure 9.8, this is a small groupof around 5 per cent of the population. These are

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Figure 9.7

Awareness of, or exposure to, the new product orservice

Information Persuasion

Evaluation

Decision or commitment

Adoption or rejection of innovation

Post-adoption confirmation/rejection (Here the buyermight consider his/her adoption of the

product or service an error of judgment)

An innovation–decision process

Table 9.4 Potential marketing impact on the diffusion process

Source: adapted from Robertson (2001).

Diffusion concept Potential marketing impact

The innovation Here marketing activity focusing on the product’s design and positioning is criticalto the consumer’s perception of the innovation and its characteristics.

The diffusion process Marketing activities influence the pattern and speed of diffusion for the total market, and by segments.This is based on marketing mix activities such as pricingand distribution.

The adoption process Marketing activities can modify the speed and breadth of adoption.

The communication process Communication strategies and tactics, such as advertising and personal selling, canlead to a purchase without the customer seeking ‘objective’ independent perspectives.

Opinion formers Opinion leadership can be important in influencing an individual to either purchase or not purchase a particular product or service. Equally, marketing activity can be deployed in an attempt to counter negativity created by opinionformers.

Adopter categories Marketing activities can assist in determining who the innovator will be based onmarket segmentation.

the first customers to purchase the product, and canbe perhaps characterised by the word ‘venture-some’. In other words they are eager to try newideas. Innovators are also risk takers as there isgenerally no guarantee that the product (or theideas behind the product) will ultimately besuccessful.

Rogers (1983) suggests that communicationnetworks among innovators are common,although the geographical distance betweenthem may be considerable. Here we can see theuse of the mobile phone and the Internet/e-mailas a means of diffusing the relevant informationbetween innovators.

Innovators tend to:

◆ Be younger people.

◆ Have access to financial resources (thus theyare able to absorb or recover from the lossincurred by purchasing an ‘unprofitable’ innovation).

◆ Be reasonably well educated. This may tie inwith their ability to understand and applytechnical knowledge, for instance in communi-cation via the Internet and adopting‘perceived’ technically difficult innovationssuch as the programmable VCR.

◆ Be confident in their outlook on life and thusable to handle various degrees of uncertainty.

◆ Adopt the product if it is fashionable and thusfits within their current or aspiring lifestyle.

◆ Act as opinion formers (this can be throughbeta testing – see page 184) for companies todrive the product into a wide marketplace.

Early adopters

This is usually a larger group than innovators,representing some 10 per cent of the population.Early adopters tend to be:

◆ Well educated with high incomes and self-confidence. These are traits that they sharewith innovators.

◆ More cautious in the level of risk they areprepared to take. This is where they begin todiffer from innovators.

◆ Potential change agents as they are respectedby society and their peers. They are seen asvery strong opinion formers and leaders, andthus can influence other people’s views. Oftenpotential adopters will check with earlyadopters for advice, information and opinionsas part of their decision-making process. There-fore companies target them with promotionalcampaigns to reinforce the features and bene-fits of the new product or service. Zikmundand D’Amico (1999) suggest that earlyadopters filter the products accepted by the


Figure 9.8 A typical adoption pattern

5%

10%

35% 35%

15%

Innovators Early Early Late Laggardsadopters majority majority

innovators and popularise them, which in turnleads to acceptance by the majority of buyers inthe marketplace.

Early majority

This group accounts for 35 per cent of the population. Early majority adopters tend to:

◆ Be mass market consumers.

◆ Rarely be opinion formers in the sense of innovators and early adopters.

◆ Be cautious in their approach to buying. Theywant to see the products proven within themarket before committing themselves topurchase.

◆ Be a large category and one that cannot beignored by manufacturers.

Late majority

This group also comprises approximately 35 percent of the population. Late majority adopters tendto:

◆ Be sceptical and cautious about the product’sreal long-term value to them. This makes themeven more reluctant to purchase the product.

◆ Adoption comes via proof of the product’sperformance and value, and usually pressurefrom others to adopt. The latter may be in theform of social and political pressure – for exam-ple, adopting unleaded fuels for the family car.

Laggards

This group can also be called Late adopters. Theycomprise some 15 per cent of the population.Laggards tend to be:

◆ Reluctant to adopt any innovation. They tendto be suspicious of innovation, instead theyreflect upon the past. This may be a result oftheir age, educational background or tradi-tional points of view. Jobber (1998) suggests theinnovation needs to be perceived as almost atraditional product before they will considerpurchasing it. An example is the mobile phonein the United Kingdom. The laggards will mostprobably be those that have adopted a ‘stan-dard’ mobile phone, not one that includespicture messaging and video.

◆ Older, conservative and traditional in theiroutlook, avoiding risk taking wherever possible.

◆ People with little leverage as opinion formers.

◆ People with often limited financial resources(although this is not always the case). However,those with limited resources tend to be morecautious about investing in innovations just incase the innovation is short-lived and they needto find some form of replacement. They tend todeliberate (often for sometime) before commit-ting themselves to purchase.

Variants on the standard form

Research conducted in the United States by Colbyand Parasuraman (2003) suggests that there is a

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Table 9.5 Colby and Parasuraman’s framework for technology readiness

Technology belief dimension

Technology segment Contributors Inhibitors

Optimism Innovativeness Discomfort Insecurity

Explorers High High Low Low

Pioneers High High High High

Sceptics Low Low Low Low

Paranoids High Low High High

Laggards Low Low High High

Source: Colby and Parasuraman (2003).

wide variance in people’s technology readiness,that is the embracing and use of new technologies.This is most especially related to e-systems, such asusing the Internet and installing intelligent homesystems.

Colby and Parasuraman’s study indicates thattechnology readiness is more than a continuumfrom low to high or adopting early through toadopting late. In essence there are four elementsthat comprise technological adoption, two contrib-utors and two inhibitors. Their findings also indi-cate that an individual’s beliefs can varyindependently over the four elements, with beliefsbeing a mixture of both positive and negative reac-tions (Colby and Parasuraman 2003). These aredepicted in Table 9.5. The areas shaded in grey arethe groups associated with a high degree of techno-logical readiness. The un-shaded areas illustrate

groups that are associated with a low degree oftechnological readiness.

Colby and Parasuraman (2003) suggest thatthere is a ‘natural cascading of adoption of e-serv-ices’. In the early stages the explorers create thedemand and become advocates. If effective andefficient marketing supports this, there is an uptakeof such technologies as the Internet and resulting e-services by the other groups. In essence there is afiltering of knowledge and information down tothese groups, as the benefits of these technologiesbecome known.

Desired and typical diffusion patterns

There is normally a difference between thepreferred or desired diffusion pattern and the onethat actually occurs. Companies in highly volatile


Table 9.6

This illustrates the percentage of the US population that appears to fit certain adoption categories. However, it shouldbe borne in mind that it is a generalisation.The level of adoption will depend on the product or service and the environment in which it is marketed.

Source: adapted from Colby and Parasuraman (2003).

Group Percentageof US population

Description

Explorers 17 This group is the most actively technologically ready, being the first to adopt newtechnologies.They tend to be affluent, young, generally male and work in technology-related businesses.They are generally advocates of e-related services.

Pioneers 23 While this group is highly motivated to adopt new technologies, a high level of discomfort and insecurity also inhibits them.Their concerns may be generated by, forexample, the risk of Internet fraud.

Sceptics 24 This group can be described as the ‘doubters’, exhibiting few motivations and fewinhibitions.They are yet to be convinced about the benefits of embracing the newtechnologies and related services.

Paranoids 18 While this group may believe in technology’s overall benefits, they are constrained bya high level of discomfort and insecurity.These feelings may stem from fear of usingthe technologies, that it is beyond their abilities to use it, potential Internet fraud anddiscomfort created by a fear that every transaction may be monitored perhaps bygovernment agencies.

Laggards 18 This group is the least technological ready of the population.They have a low level ofmotivation and a high level of resistance to embracing new technologies. Laggardscan be lower income groups and the elderly (who may see no use for such technologies within their lives, though this is not always the case and this will probably change over time).

and competitive markets will seek to achieve high-velocity sales within a short time frame. As Shimp(2000) states, companies will specifically aim toachieve the following objectives:

◆ secure initial sales as quickly as possible (arapid take-off)

◆ achieve cumulative sales in a steep curve (arapid acceleration)

◆ secure the highest possible sales potentialwithin the targeted market segment (maxi-mum penetration)

◆ maintain sales for as long as efficiently andeffectively possible (a long-run franchise).

These objectives are illustrated in Figure 9.9. Line Aindicates the preferred route of adoption, while lineB indicates the often typical level of adoption overtime. Companies seeking a route that coincide withline Awill need to clearly focus on efficient and effec-tive marketing communications to achieve theirobjectives. It is unlikely that this will be a low-costroute. However, in a highly competitive market-place such as the pharmaceutical and airline indus-tries this may be one of the options to undertake.

A general point on adoption theory

Rogers’ model provides a valuable insight into,first, how information is diffused to target groupsand individuals, and second, how products are

adopted by customers (Rogers 1983). However, afew caveats need to be considered:

◆ Not everyone purchases a product that can bedescribed as an innovation. Therefore individ-uals or groups that fit this category could bedescribed as non-adopters under any circum-stance. As seen in Ryan and Gross’s study(Table 9.3), two farmers did not adopt the newhybrid corn seed. There will be many otherexamples of such non-adoption.

◆ An individual might be classed as an innova-tor for one product, but decide to be an earlyadopter for another product. It is feasible forsomeone who has been an innovator tobecome a laggard for other future products.This could be an issue of age. For example,people who were innovators in 1950s Britainand bought television sets will have updatedtheir television set since, but when theyreached retirement age many will not haveinvested in the latest digital flat screensurround sound technology. For them a basiccolour television set might be sufficient.Therefore the innovators of today may be thelaggards of the future.

New product failureClearly there are numerous (and often signifi-cant) risks associated with the development andlaunch of a new or modified product. Accordingto some research, the failure rate is extraordinar-ily high. For instance, Clancy and Shulman(1991) estimated the failure rate of new packagedgoods at 80 per cent, and believed that it wassimilar in financial services. Cooper and Klein-schmidt (1991a) drew similar conclusions, withtheir research estimating that 75 percent of newproducts failed at launch.

If this research is to be believed, what are thereasons for such catastrophic failure rates? Onevery dramatic example of product failure is theSinclair C5, explored in mini case 9.9 (overleaf).

Potential actions to minimise the risk of failure

While it is impossible to eliminate the risk of fail-ure totally, steps can be taken to help minimise

194 9 • PRODUCTS

Figure 9.9

A: desired patternB: typical pattern

Desired and typical diffusion patterns

Potentialadopters

Time of adoption

A

B

Introduction

the level of failure. In this section several charac-teristics are evaluated in relation to the market-ing mix and proposed target markets. Such ananalysis may help organisations to minimiseNPD risks and ultimately failure.

What is the relative advantage over otherproducts?As Inwood and Hammond (1993) stress, a prod-uct (including services) exists to generate value,and this can only be achieved by fulfilling theneeds of customers. Therefore a product thatoffers consumers real benefits over existingproducts will tend to be adopted more readilythan one that does not. An example is a washingpowder that includes an advanced stainremover that effectively removes a variety ofstains but does not harm the texture of theclothes.

Compatibility with current technologiesGenerally, an innovation will have an increasedchance of success if it is compatible in some formwith current technologies, usage patterns andconsumer behaviour. An example is the ability toplay both music CDs and DVDs on a computersystem using the same drive.

Trialability or testingThis is the opportunity for consumers to test theproduct before a commitment to buy. If the trialis successful, there is the possibility that theywill adopt the product. Such trialability canmanifest itself in several forms, for instance:

◆ The company distributes trial packs, througheither in-store promotion or door-to-doordrops, for products such as soap andproposed new confectionery brands. Thiswas how Dove soap (a Unilever product)was introduced to the UK market.

◆ Organised demonstrations, for goods fromnew kitchen appliances to computersystems. The customer has the opportunityto try the product following the demonstra-tion, and/or ask questions. This hands-onopportunity might be the key that persuadespeople to purchase the product.

Observed product performance prior to purchaseAdoption is increased when consumers can seehow the advantages of the new product relate totheir own lives: for example, during the evolutionand development of the mobile phone. Consumerscould witness the benefits others found in commu-nicating with their friends and family, and thisaction could persuade non-users to make apurchase.

The levels of product simplicity and complexityMany consumers who revel in the complexity ofproducts: the more features, add-ons, attachmentsand gadgets, the happier they are. For them thesheer complexity is value added. However, this isnot always the case. Many consumers are reluctantto adopt new products that are complex in eitherreality or perception. Here too the mobile phone isa good example. Since the mid-1990s it has becomeincreasingly complex, with numerous features fromtexting to video recording, transmission anddisplay. For many people, these are exciting addi-tions that will be quickly adopted. However, othersare looking for a portable phone, not a ‘communi-cations toolkit’. The lessons here are perhaps theneed for basic versions, and for complex facilities orfunctions to be relatively simple to operate.

The level of risk involvedIn Rogers’s analysis, consumers are reluctant toadopt a new innovation if a high degree of risk isperceived (Rogers 1983). This perceived risk can beeither individual or collective – monetary, psycho-logical or physically related. With the C5 (mini case9.9), there was a perceived risk to driving it inheavy traffic in major urban areas. The fear of ‘seri-ous injury’ discouraged people from buying it inmany cases. As stated, the Dutch Governmentperceived this ‘physical’ risk to be so high that itbanned the product.

Clearly there are risks in everything we do, andwe calculate the positives and negatives in order toassist our personal decision making. Certain foodsor food ingredients, for example foods high in satu-rated fats, can contribute to heart conditions.However, people continue to eat them, some inmoderation, some not. Here the individual has


196 9 • PRODUCTS

The Sinclair C5

The man behind the development of the C5 was SirClive Sinclair, a British scientist who had developed theexecutive pocket calculator in 1972 and the microvisionpocket television in 1977. He went on to develop thesuccessful ZX Spectrum personal computer.

During the 1970s various countries became moreenergy conscious as oil prices soared (controlled by theOPEC cartel) and fuel shortages began to crippleeconomies.As a result Sinclair believed there was a mar-ket for a small personal electric vehicle. In the early1980s he and his team began working on a prototypevehicle, the aim being to develop a vehicle that wouldcarry one person, replace the moped, be limited tourban areas, have a top speed of about 50 kph (30 mph)and be competitively priced.

By 1981 a basic model had been created, the C1.However it was not until 1983, when Sinclair placed adevelopment contract with Lotus Cars,that the C5 proto-type began to take shape.By 1984 an agreement had beenreached with Hoover Ltd in Merthyr Tydfil in Wales tomanufacture the components that formed the C5.Sinclairenvisaged initial sales of 100 000 per year, rising to over500 000. He planned that the C5 would be sold via mailorder, so three distribution centres were arranged, two insoutheast England and one in the northwest.

On 10 January 1985 the C5 was launched with amajor promotional campaign in London.The initial pricewas UK£399 plus UK£29 for delivery. Included were anowner’s manual, battery charger and accessory cata-logue. However, the product failed to capture people’simagination, and both the Consumers’ Association andjournalists raised serious safety concerns. Although thecompany maintained that safety had been a priority andvarious safety groups had been consulted, theConsumers’ Association report was damning:

◆ The height of the C5 was such that the driver’s body wasdirectly at car bumper height.This was likely to increasethe risk of serious injury in the event of a collision.

◆ The driver was at a height to inhale exhaust fumes,and be hit by spray from other vehicles, affecting thedriver’s performance and visibility.

◆ The C5 was hidden behind other vehicles in heavytraffic, increasing its vulnerability.

◆ The headlight beam was ineffective.

Mini case 9.9

◆ The C5 had no reverse gear, so any movement back-wards would involve getting out of the vehicle. Thiswould pose a further hazard at night and/or on busy roads.

◆ The maximum speed of 24 kph (15 mph) could behazardous considering some urban speeds of 50 kph(30 mph).

◆ The body of the C5 gave little protection in the eventof a collision.

◆ The basic model was not fitted with any mirrors orindicators.

The collapse of the C5 was swift:

January The launch of the C5.February Unemployed teenagers were hired to drive

the C5 around major cities.March Production was halted for three weeks for

modifications on the gearbox component ofvehicles in stock.

April Production of the C5 was cut by 90 percent to just 100 vehicles per week.

May The company admitted stock levels of 6000,twice the level previously disclosed.

June The Consumers’ Association report waspublished.

July The Advertising Standards Authority publisheda report highlighting numerous complaints aboutstatements made in the advertising for the C5.

August The Comet retail chain cut the price of theC5 to UK£189 including all accessories.

September Production of the C5 stopped.October Receivers were called in to Sinclair Vehicles.

Debits were estimated at UK£7.75 million,of which UK£7 million was owed to Sinclairhimself. 14 000 C5s had been made and only4500 had actually been sold. This was a farcry from the original production estimate of100 000 in the first year.

In ten short months the company had gone from a launch ina hail of publicity to collapse. So what led to such a dramaticfailure? Marks (1989) provides many of the answers from hisresearch.These are briefly outlined below.

Ideas generation

The idea was conceived within the company. It was verymuch a technology-pushed idea rather than one pulled bydemand. Although there was no vehicle to compare it


with, no market research was undertaken.

Ideas screening

There was only one product. It appears that the only screen-ing was of which concepts were considered better thanothers. Marks suggests that Sinclair believed that the product would succeed and he could create a market for it.

Concept development and testing

The Sinclair team decided on the core benefit proposition ofthe product: silent, pollution free, economic and safer than amoped. However they appear to have not sought feedbackfrom potential customers about the original concept of thevehicle – small, one-seated and electric powered. Basically,the concept was not tested with the public, the very peoplewho would buy the product. Marks (1989) suggests thatmarket research would have flagged the potential weak-nesses in the concept,and might have prevented the error oflaunching the product in the first place. Equally, it might haveflagged other possibilities for the product, for example, as a‘fun’ vehicle that could be driven around leisure complexeswhere there were no ‘traditional’ vehicles.

Business analysis

Apart from electric-powered milk vans there was very littlehistorical data on electric vehicles from which sales forecastscould be estimated. It was clear that milk vans would not bea reliable comparator.While production and marketing costscould be determined,estimates of the demand for the prod-uct would be very subjective. The Sinclair team perceivedtheir target market to be the number of households thatowned a second car, and based their projections on the 2.4million households that did so according to 1978 UK govern-ment statistics.This was a highly risky presumption.The limi-tations of the C5 could not make it a serious rival to thesecond car, and for it to be seen as one would have requireda major societal change in attitude, which was not likely tooccur. The team also considered the C5 to be a rival tomopeds, and targeted ‘14 year olds, housewives for urbancommuting and anyone who wanted to get about’. Onceagain, the unlikeliness of these groups buying a C5 might havebeen flagged by market research.

Production, development and testing

Various shapes were developed and tested in order toproduce the final model. As Marks states, the vehicle wasnot extensively tested in heavy traffic before launch. Insteadit had been put through its paces on a test track and in a‘crash test simulation’.The Consumers’ Association appar-ently conducted the first tests in ‘real’ driving conditions.

Test marketing

There was no test marketing, and no feedback frompotential customers. Once the C5 was ready it waslaunched.

Commercialisation

There was a national launch with a high-profile market-ing campaign.The product was launched in London inJanuary 1985 – in the middle of winter.The basic prod-uct was an open-top vehicle. Waterproofing for thedriver came as an extra, at an additional price.

The safety concerns were echoed in numerous news-paper articles. The authorities in the Netherlands –perhaps the most cycle-friendly country in Europe – wereso concerned about the C5’s safety issues that theybanned the vehicle.

Marks suggests that perhaps the launch should havebeen a rolling campaign. While this might have helpedcustomer awareness, there were inherent flaws in theoverall concept of the vehicle. It is unlikely that a rollinglaunch would have saved this product from failure with-in the market. There were just too many problemsassociated with it, both real and perceived.

Was there a market opportunity?

The product had a clear ‘identity crisis’. On one hand itwas promoted as a serious mode of transport, on theother it was promoted as a ‘fun’ vehicle.The marketingwas contradictory.Market research might have suggest-ed some real market opportunities for such a vehicle,but they were far removed from the congested anddangerous roads of cities such as London. Some peopledid see opportunities for the C5, using them on golfcourses and in other ‘safe’ environments. These couldhave been exploited further, but the company wasstuck in a groove which led to bankruptcy.

Final points

It is interesting to note that the C5 is now a collectors’item.Second-hand C5s today cost well over UK£1000 toacquire.

In 2003 it was reported that Sir Clive Sinclair wasworking on a new version of the C5.He described it as ‘anew product designed at getting people around town’.Byearly 2005 there had been no launch of this new version.Sources: Andrew P. Marks, ‘The Sinclair C5: an investigationinto its development, launch and subsequent failure’, EuropeanJournal of Marketing, 23(1), 1989; Tibballs (1999); JonathanDuffy, ‘Move over Segway, I’m planning the C6’, BBC NewsOnline, 5 August 2003.

inwardly considered the level of risk involved andmade a decision to either purchase or not.

■ The product life cycle conceptFowler and Thomas (1993) describe the product lifecycle as a concept that

Is used to predict the strategic needs associatedwith products as they age within the market-place. It allows for the development of strategiesappropriate to the life cycle stage and anticipatethe need for changes in strategy as progressionfrom one stage to the next occurs.

The product life cycle was originally developed inthe 1950s (usually attributed to Dean) and popu-larised by Levitt in the early to mid-1960s.3 Sincethen it has become an established framework forthe analysis of a company’s product portfolio.

Figure 9.10 is a diagrammatic representation ofthe product life cycle concept. Some authors refer tothis as an S-shaped curve, although it could bedescribed as more like a slightly flattened bell shape. The vertical axis represents revenue

generation (through sales) and profit, while thehorizontal represents the time frame or life of theproduct. This could be measured in terms of days,months, years, decades or even centuries. In thelatter case you may want to reflect on the life cycleof products such as Coca-Cola or Kellogg’s CornFlakes.

In Figure 9.10 the profit curve is slow to start andcontinues to the virtual death of the product,although this is not always so. It could be achievedif the company has been able to develop economiesof scale.

Opinions vary regarding the number of stagesthat may occur within a product life cycle(Goncalves and Aguas 1997). Jauch and Glueck(1988) and Reid (1989), for example, presentedfive stages, whereas Kerin and Peterson (1980),and Cokayne (1991) considered only three stages.Although the vast majority of sources tend tofocus on four stages – introduction or develop-ment, growth, maturity and decline – this textconsiders six potential stages. It must be empha-sised that these are only potential stages. As isdiscussed later in this section a product life cycle

198 9 • PRODUCTS

Crest Whitestrips dental kit

Procter and Gamble (P&G) decided to develop and launch a home tooth whitening kit in the United States. Noother company had taken this approach before. Crest Whitestrips are clear flexible strips coated with a gel – theenamel ingredient used by dentists – that adhere directly to the teeth.

The product was developed in 1997 and pre-launched in 2000 via the Crest Whitestrips Internet site.Althoughinitial sales provided a few million dollars in revenue, it provided a learning experience for P&G.The company con-tacted a sample of those who had purchased the product to find out how they had used it and what they liked ordidn’t like about it.This research helped P&G to shape the brand.

The product was launched in May 2001 to mass-market stores, such as drug stores and supermarkets. For cus-tomers who preferred to visit their dentist, a professional version was made available through more than 20 000dental practices nationwide.

To quote P&G’s Global Marketing Officer, James R. Stengel:

When we went national with Whitestrips, we were able to tailor the brand to those who responded in theInternet trial.There were four core groups: teenage girls, brides-to-be, young Hispanics, and gay men.All fourof these groups were targets.We launched the brand in the media that went to where the consumer was.As it turns out,Whitestrips was one of the great launches, not just for P&G but for any consumer goodscompany.

Sources: Kevin T. Higgins, ‘P&G reinvents itself ’, Marketing Management, November/December 2002; ‘Smile … and get white-hotfor summer with Crest Whitestrips’, press release, Procter & Gamble, 5 April 2001; ‘About Whitestrips’, www.whitestrips.com.

Mini case 9.10

might not follow the typical pattern presented inFigure 9.10.

Table 9.7 outlines both the strategic and market-ing mix issues that interact with the product lifecycle at each stage of its progression. You may wantto reflect back upon this table when you readthrough the other chapters on the marketing mix.

Does the product life cycle conceptexist in reality?There has been much debate over the yearswhether the product life cycle concept really exists.

THE PRODUCT LIFE CYCLE CONCEPT 199

Figure 9.10

The stereotypical product life cycleA This can be a mixture of research and

development and marketing planning.A productmay undergo changes before introduction to themarket that change its market focus. Equally, aproduct may be terminated or ‘killed off ’ evenbefore introduction into the market.This may befor numerous reasons such as product failure orchanges within the macro environment that prevents launch.

B Introduction into the marketplace.Also known asthe pioneering stage.

C Growth.D Maturity within that specific market.E Decline.This may be either a natural decline or

one induced by the company as new productssupersede this one.Within the declining stagethere has been reference to ‘senility’.This can beinterpreted as where the product has remainedwithin the market far too long and has becomeunprofitable.This should only be used as adescriptor for the product life cycle and not thehuman condition.

F Rejuvenation.This is where the product undergoes some transformation to extend its lifecycle.

Sales & profitF

TimeA B C D E Profit

Rejuvenation of Škoda cars

The Škoda car company of the Czech Republic hashad something of a chequered history. It originatedin 1905 and by the late 1930s had gained an interna-tional reputation for style and craftsmanship. In1945 the then Czechoslovakia became part of theSoviet Union, and Škoda went from producing styl-ish sedans and coupes to grey utilitarian vehiclesthat looked more like square steel containers. Itsimage and reputation quickly diminished. Škoda carswere not confined to the Soviet Union, they wereexported to the West, even at the height of theCold War. Although relatively cheap to purchasethey were unreliable and the brunt of many a joke,especially in the United Kingdom.

In 1989 Czechoslovakia moved towards becom-ing a nation-state independent of Russia. By 1990there were moves to start the privatisation of busi-nesses. One company that was placed on the mar-ket was Škoda. In 1991 Volkswagen (VW) paid anestimated US$700 million to the Czech governmentfor a controlling interest in Skoda (it acquired theremainder of the shares in 2000).

VW pushed through a programme of rationalisa-tion to improve production processes to match thoseat other VW plants.Škoda staff were sent to other VWplants to observe production methods and qualitycontrol procedures.This was to be the benchmark towhich the Škoda plant would have to operate.Between 1991 and 1998 an estimated US$1 billion wasinvested in capital facilities and equipment. In 2000 anestimated US$500 million was invested in a newengine plant at Škoda’s Mlada Boleslav plant.By 2003 afurther US$1.7 billion had been invested in technologyand new product design and development.

Since its acquisition by VW, the image of Škoda hasbeen radically changed and the product lines dramat-ically rejuvenated.Škoda has been repositioned withinthe marketplace and has achieved success both athome and abroad.By 2003 Škoda was one of the bestselling car brands in the United Kingdom.Sources: Peter Fuhrman, ‘Memories of development’,Forbes, 16 April 1990; ‘The people’s car,’ Economist, 3 July1992, ‘My other car’s a Bentley’, Economist, 19 September1998; ‘VW Group tries to give Skoda image a remake’,Automotive News, 22 November 1999;Tom Mudd, ‘The lastlaugh’, Industry Week, 18 September 2000; ‘Slav Motown,’Economist, 1 June 2001; Normandy Maddy, ‘Skoda’s newface looks in two directions’, Advertising Age International,January/February 1997.

Mini case 9.11

200 9 • PRODUCTS

Table 9.7 Strategic and marketing mix issues within the different stages of the product life cycle

Stage and subsets

Actions/potential outcomes

Pre-introductoryphase

This can be described as the stage where the company completes its research and developmentand contemplates whether it should launch the product or not.There may be significant investment in R&D with the production of prototypes.

Marketing The company either internally or externally may undertake extensive market research to see ifthere is a need and or desire for the potential product.This may include discussing ideas andconcepts with known existing customers.The company will have to establish its pricing objectives, taking into account a range of costs and the potential demand forecasts.

Finance Depending on the product significant financial resources may have already been deployed in thedevelopment of the project. Consider, for instance,Airbus Industries decision to develop theA380 passenger aircraft, capable of carrying some 500 passengers. Many years of research andanalysis were invested in this project prior to the company’s public announcement. If it is a newor start-up company with a revolutionary idea, it will have to secure sufficient finance in orderto realise the objectives.

Operations Depending on the scale of the project there may be significant operational implications in thedevelopment of the project: for instance the development and construction of prototype aircraft.Once the product is introduced into the market, and assuming success, the level of operationswill need to be scaled upwards.

HRM People are a key asset in the development of any product or service, from the actual conceptionof the idea to the construction of prototypes.

R&D The level of R&D required clearly depends on the type of product being planned. For someproducts there may be many years of R&D before they can be launched.

Introductoryphase (alsoknown as pioneeringstage)

Customers’ knowledge and awareness are usually limited. Low sales volumes and growth as market becomes familiar with the product’s features and benefits.

Customers Initially few customers.These are likely to be first innovators then early adopters.

Competitors If this is a totally new product entering a new market sector, competitors will be either very fewor non-existent. However, if the company is launching a new product into a market with similarproducts, the competition could be significant.

Marketing Activities such as advertising, trialling and special introductory offers are used to increase cus-tomer awareness. For a new company and new product the risks are high due to uncertaindemand.There may be little or no competition.

Finance Investment and other expenses will be high relative to revenues. Cash flow will be negative.Established companies may be able to finance new products from existing resources. New companies with new products will seek financing from venture capitalists and banks.This is apotentially high-risk scenario as limited credit may be available.

Operations A company may need to sub-contract manufacture, especially if specialist work is required.Therecould be frequent alterations in order to ‘perfect’ the product.A ‘rush to market’ before techni-cal problems are resolved could prove damaging for both the company and the product. Laterentrants into the market may gain a favourable position and market share because of the betterreliability of their product.


HRM Quality personnel with both the skills and adaptability are necessary.This is true whether it is anestablished company or a new start-up. Entrepreneurs may have good ideas, but they need theright team to develop and produce the product.

R&D The company must seek feedback on its product and carry out R&D to eliminate bugs.This isparticularly true of computer software packages. Equally, as competitors enter the market, R&D isnecessary to create new enhanced versions of the product to help maintain market share andposition.

Growth phase Sales and subsequent revenues grow, often rapidly. Companies need to gain market share beforecompetitors (with better economies of scale) gain position through lower prices. Late entrantsmay gain position through greatly superior products and services.

Customers At this stage the typical product is moving into the mass market sector.This is reflected by theincreased ‘mass’ of customers purchasing the product, typically early majority adopters.

Competitors These will have increased as established companies, as well as perhaps new entrants, see marketopportunities.

Marketing Companies seek out niches and use the marketing mix to build product awareness, and potentialcustomer loyalty.

Finance Increase in revenues, reduced unit costs. However increase in costs to support growth and counter/defend against competitive attack. Cashflow management important and budget planningfor further growth and development.

Operations Potential expansion of facilities leading to increased costs. Larger production runs increase efficiency (economies of scale). Operations will need to cope with increased demand withoutcompromising quality. Need to balance efficiency costs against promotional activities such as pricecuts which could affect profits.

HRM Increased productivity achieved through more employees, overtime, or a combination of both.Increase in costs. Some employees may not want to work overtime.Also long-term overtime canlead to exhausted employees with an impact on their health, the quality of finished product anddeteriorating relationships with management. Potential for strike action.

R&D Need for continued improvement in production processes to reduce costs and improve the product to successfully differentiate it from competitors’ products.

Maturityphase

Product accepted by current and potential buyers. Product may be reaching saturation point within this market. Product differentiation and market dominance important. Profit growth in theearly stages of maturity, however it will (though not always) fall in the latter part of the decliningstage.

Customers While the current customer base will continue to purchase there may well be late majorityadopters of the product.

Competitors If it is a financially valuable market sector many competitors will remain active.

Marketing The company will focus on protecting its market share with the identification of new markets,new segments and/or distribution channels. Companies will seek to increase usage through thecurrent customer base, for example, marketing ‘breakfast’ cereal as an ‘anytime’ snack.While someadvertising will keep the product in the customer’s mind, it is unlikely to gain significant levels ofnew customers.

/continued overleaf

202 9 • PRODUCTS

Table 9.7 continued

Finance Companies need to prepare themselves for the eventual decline of the product. As Fowler andThomas (1993) state, ‘care must be taken to insure that sufficient financial support is available toallow the mature product to maintain its market position as long as it remains profitable but toreduce that support as the maturity stage reaches its end making recovery of that investment difficult’.

Operations Here the company needs to control and minimise costs.This includes inventories and the propermaintenance of facilities (as replacement of equipment is unlikely unless it serves another purpose, for instance a new product).

HRM This can be an area of significant difficulty, with poor morale and motivation, redundancies andearly retirements, and transfers to other parts of the organisation.

R&D R&D will either have little involvement in this product, focusing its attention on new products, orbe seeking ways to improve the product for the current or new markets.

Decliningphase

A substantial reduction in demand resulting in decreased revenue and profits.This stage can bevery difficult for companies as they can encounter ‘variations’ in decline. If demand and thus revenues continue to decline the company may decide to terminate the product before a ‘natural’death.

Customers There will now be an overall decline in customers. However, laggards may well be at their adoption stage.

Competitors With decline in demand competitors will seek to exit the market place in the most cost-efficientmanner possible.This may include selling their brand and associated facilities to another company,maybe even to a previous rival.

Marketing Little marketing activity will take place, the aim being to reduce overall marketing expenditure.Distributors and intermediaries may also seek to reduce the levels of stock they carry.

Finance Increased costs and reduced revenues eventually lead to losses.A company with a large marketshare and low production costs might remain in the industry: although profits will fall it canremain in the business for some time.A company with high market share and high costs willencounter losses, but it might decide to remain in a market that others desert in the hope ofreturning to profitability.A company may seek to terminate the product. It will need to offset thisagainst the costs of exiting the market, such as closing plant and making staff redundant.Alternatively it may seek to sell the product to another company in a different location or region.

Operations Production is being scaled down, so there will be smaller production runs.Thus there will have tobe a balance between managing inventory, the costs incurred through small production runs andthe revenue generated.The company could subcontract small runs to other manufacturers (ifthere are standardised facilities) or devote resources to another product.

In this section some of the key issues for andagainst the product life cycle are outlined. Like alltheories and models, it has its flaws, its supportersand its detractors. Thus it is important to under-stand the product life cycle within this critical environment.

Table 9.8 (overleaf) summarises some of thepossible limitations of, and objections to, the product life cycle concept.

Although there are potential limitations orobjections to the concept there remains an over-

whelming acceptance of the model, but cautionshould be exercised: it is not a flawless concept.Urban and Star (1996) suggest that the productlife cycle concept has been accepted for threekey reasons. First, it is easy to understand as aconcept. Second, it is intuitively appealing, andthird, that examples have been published forindustries where some life cycle patterns havebeen established. Perhaps as Groucutt et al.(2004) suggest, the product life cycle conceptshould be considered as an aid to determining


HRM Here there is the possibility of excess personnel.As with the maturity stage companies will seek areduction in the workforce, which could be achieved through redundancies, early retirements orretaining/relocating workers to other tasks/plants.

R&D R&D will have a minimal involvement. Its focus will be on the development of new products orimproving existing ones (perhaps for other markets or earlier life stages).

Rejuvenationphase (alsoknown as restaging or revitalisation)

This usually takes place during the maturity stage of the life cycle.The company sees an opportunity to extend the life of the product. It might radically overall a range of elements fromcomponents, the product itself (perhaps a redesign), or attempt rejuvenation through promotion.

Customers These will usually be a combination of existing ‘loyal’ and new customers.The company will needthe new customers to prove that rejuvenation of the product was a justified action.

Competitors Some previous competitors may remain within the market and may decide to rejuvenate theirproducts in a similar way. Equally if the rejuvenated product has moved into another market segment there will be competition from companies already operating in that segment.

Marketing This may involve ‘reinventing the product’, positioning it within a previously untapped market or niche (which could be overseas) or a mixture of both.This will require an intense levelof promotion, especially if breaking into a new market and battling against established competitorswithin that market.There needs to be a planned and sustained campaign (using the elements ofthe marketing mix) to sustain or gain and retain market position.

Finance The company will need to invest not only in R&D but also in supporting the relaunch and growthof the product.

Operations Operations will need to gear up (including adding new plant and machinery, where necessary) forboth the relaunch and estimated demand for the product.

HRM While there may still be a reduction of staffing levels (initially) the company must be sure that ithas the properly trained workforce to develop and maintain production and sales targets.

R&D R&D may have attributed in the first place to the rejuvenation of the product.The company mayseek to regularly review the product to see if enhancements can continually breathe new life intoit. Equally, the introduction of revolutionary new compatible technologies can assist in increasingthe life expectancy of the product.

Source: adapted from Fowler and Thomas (1993) and Groucutt et al. (2004).

the position of a product (within its life-span)within a market, but not the sole determinant.

Different shapes and sizes

Although Figure 9.10 shows the archetypicalproduct life cycle curve, this is far from the real-ity of many product cycles. Kotler (1998)suggests that researchers have identifiedanything from 6 to 17 different product life cycle

patterns. However it is possible that there aresignificantly more, especially if the focus isplaced on specific products rather than genericproducts or phase (such as short-term or immediate fads). Below are a few examples ofvarying product life cycles.

Figure 9.11 (overleaf) shows the curve for whatis normally referred to as a fad item, although itcould equally be a short-lived fashion item. Anexample is a manufactured pop star or group thathas one hit and then disappears from the scene, as

consumers move on to another group or acompletely new music fad.

The curve in Figure 9.12 is feasible for a fashionitem within a seasonal collection. A relatively stepgrowth phase is followed by a minimal maturitystage and then a step decline. Prior to decline (orbecause of it) the price is likely to be drastically

204 9 • PRODUCTS

reduced to sell off stock, especially as the newseason’s range will already be in store.

Figure 9.13 shows a possible product life cyclefor real Christmas trees, which from the buyer’sperspective is clearly a seasonal activity, but onethat (currently at least) recurs every year.

Finally, in Figure 9.14 there is the cycle for a

Table 9.8 Limitations of and objections to the product life cycle concept

Author(s) Limitation orobjection

Brief description

Brownlie andBart (1985)

Clear definition ofmarket

The concept might requires the collection of disparate product segmentsinto one market.This could be misleading where market boundaries cannot be readily and accurately identified. Many products cannot bedefined within a generalist life cycle.

Too general As a prescriptive tool it is difficult to apply specific strategies.This reflectsthe problem of knowing when the turning points are within the life cycle.Can that be achieved through market analysis alone?

Influence of external factors

The issue here is that the concept does not allow for the impact or influence of external environmental forces such as changing economicconditions that might influence short-term buying decisions.These mightreflect artificial turning points (or blips) in the life cycle.

Level of influenceover the life cycle

It may not be obvious when, how or if at all that marketing strategiesinfluence the life cycle. It is possible that pioneering companies and thosethat dominate the market do have influence.

Length of stages The length of stages can vary within and across markets.Thus it is difficultto determine the precise length of any stage.

Bennett (1999) Life span of a newproduct

Difficult to predict the life span of a new product. It could be quite longor relatively short (see mini case 9.9 on the Sinclair C5 )

Competitors’ behaviour

Even with competitor intelligence, it is often difficult to predict theactions of the competition.Their actions may be a primary factor in thelongevity of the product irrespective of the product’s real or perceivedposition within the life cycle.

Marketing input This is the skill of the marketing department to judge trends and the levelof resourcing that they have available.

Product termination Death is not inevitable.The decision to terminate a product is a management one.There may be opportunities within the marketplace torepeatedly extend the product’s life expectancy.

Groucutt(2003b)

Snapshot in time andlocation

The life cycle is often viewed as a snapshot in time, and so as static. Inreality it is dynamic and fluid.Therefore companies need to view the lifecycle as a continually fluctuating entity.This then links back to Bennett’sargument that the marketing staff must be highly skilled in understandingthe dynamics of the market, from both a predictive and a reactive perspective. Equally it is a ‘snapshot’ of location. For instance a productmay be in decline in one country or region yet in an aggressive growthphase in another country or region.

product that transforms itself through various‘mini’ lifecycle changes from growth, maturity,decline, then rejuvenation, growth, maturity,decline, rejuvenation and so on. The product mayactually enjoy a very long overall lifespan. Exam-ples are classic movies that are originallyscreened in the cinema, then on television, video,DVD and then again in the cinema as they enjoya retrospective or indeed an anniversary(perhaps with the launch of a digitally enhancedversion). Movies that fit this type of life cyclespan include the epics Gone With the Wind (1939),ET: THE EXTRA-TERRESTRIAL (1982) and StarWars (1977). Will these epics ever disappear, asthey still generate revenues for the owners oftheir rights? Only time will tell.

■ Chapter summaryThis chapter has covered a wide range of issuesconcerning products, their development, and

potential life cycles including adoption and poten-tial destruction. It is vital that you consider thefollowing issues:

◆ How products are developed, including theirrationale for development. New products arenot always supported by sound marketresearch. Therefore what is the risk assessment?

◆ What products and services are being devel-oped and why. There has to be a clear rationalefor the development of products and services.

◆ What markets the products and services areaimed at. Do they constructively meet theneeds of these markets?

◆ Not everyone will buy into the company’sproduct or service, therefore the companyneeds to know why.

◆ If the company operates within a highlydynamic and competitive environment itneeds to consider whether it can sustain its


Figure 9.11

Product life cycle for a fad

Figure 9.12

Product life cycle for a seasonal fashion item

Figure 9.13

A possible product life cycle for real Christmas trees

Figure 9.14

Life cycle for a product that is regularly rejuvenated

position in that market. If not, it may need toconsider either terminating the brand or sellingit on to another company. Timing is everythingin this game.

◆ Overall companies need to understand whatmakes one product or service more success-ful than another. It may not just be a case ofthe financial investment. People play animportant part in taking a product or serviceto market.

◆ What is the expected life stage of the product orservice on offer? Can the life stage be extended,and if so, how?


1 The product life cycle is one of the most widelyused models in marketing. However, there issignificant disagreement among both academ-ics and researchers about its real value. Outlinethe arguments for and against the product lifecycle model. What is your view? Support itwith evidence.

2 Can the analysis of product life cycles provideclear indicators for the evaluation of acompany’s business and marketing strategiesand the possible need for change?

3 Research indicates that some 80 per cent of newproducts launched into the market fail. Howcan a company reduce the risk of failure whenintroducing a new product into the market?

4 Briefly outline how B2B and B2C products areclassified.

5 Some writers have suggested that products canbe ‘standardised’ so that they can be soldanywhere in the world. Critically evaluate thispoint of view.

6 ‘You can market test ad infinitum and still fail inthe market.’ What is your view of this statement and why?

7 Using the Internet and library resources, exam-ine the adoption process in relation to mobilephones in your country.

8 What are the key attributes of a product asnoted by Dibb et al. (1997) and Kotler (1998)? Inyour view how do they help marketers gain aclear understanding of the relationshipbetween the product and the buyer?

9 What are the core difference between B2B andB2C products?

10 Why is the S-shaped curve often called thestereotypical product life cycle?

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www.3m.com.

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Colby, C. L. and Parasuraman. A. (2003) ‘Technologystill matters: never mind the doomsayers, e-serv-ices are alive, well and positioned for growth’,Marketing Management 12(4) (July/August), pp.28–33.

Cooper, R. G. and Kleinschmidt. E. J. (1991a) ‘Newproduct processes at leading industrial firms’,Industrial Marketing Management, May, pp. 137–47.

Cokayne, F. (1991) Successful Marketing Strategies,Cambridge: Fitzwilliam.

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Ford, H. and Crowther, S. (1926) My Life and Work,London: William Heinemann.

Fowler, A. R. Jr. and Thomas, J. (1993) ‘Functionalstrategic response to progression through the product life cycle: an accommodation to marketingreality’, American Business Review (June), pp. 36–44.

Goncalves, V. F. Da. C. and Aguas, P. M. R. (1997) ‘Theconcept of life cycle: an application to the touristproduct’, Journal of Travel Research 36(2) (Fall), pp.12–23.

Groucutt, J. (2003a) ‘Extending the marketing mix’,Working paper.

Groucutt, J. (2003b) ‘An analysis of various productlifecycles’, unpublished teaching materials.


Groucutt, J., Leadley, P. and Forsyth, P. (2004) Marketing:Essential principles, new realities, London: Kogan Page.

Higgins, K. T. (2003) ‘The rebirth of 7-Eleven’, Market-ing Management 12(4) (July/August), pp. 18–21.

Hooley, G. J. (1995) ‘The lifecycle concept revisited: aidor albatross?’, Journal of Strategic Marketing 3(1), pp.23–39.

Inwood, D. and Hammond, J. (1993) Product Develop-ment: An integrated approach, London: Kogan Page.

Jauch, L. R. and Glueck, F. W. (1988) Business Policy andStrategic Management, 5th edn, New York: McGraw-Hill.

Jobber, D. (1998) Principles and Practice of Marketing,2nd edn, Maidenhead: McGraw-Hill.

Kerin, R. A. and Peterson, R. A. (1980) Perspectives onStrategic Marketing Management, Boston: Allyn andBacon.

Kotler, P. (1998) Marketing Management: Analysis, plan-ning, implementation and control, 9th edn, NewJersey: Prentice Hall.

Levitt, T. (1983) The Marketing Imagination, New York:Free Press.

Mattelart, A. and Mattelart, M. (1998) Theories ofCommunication: A short introduction, London: Sage.

Rees, N. (1997) Dictionary of Slogans, London: Harper-Collins.

Reid, R. D. (1989) Hospitality Marketing Management,3rd edn, New York: Van Nostrand Reinhold.

Robertson, T. S. (1984) ‘Marketing’s potential contribu-tion to consumer behavior research: the case ofdiffusion theory’, Advances in Consumer Research 2,pp. 484–9.

Rogers, E. M. (1983) Diffusion of Innovations, 3rd edn,New York: Free Press.

Rogers. E. and Kincaid. L. (1981) CommunicationNetworks: Towards a new paradigm for research, NewYork: Free Press.

Shimp, T. A. (2000) Advertising Promotion: Supplementalaspects of integrated marketing communications, FortWorth: Dryden Press.


Underhill. P. (1999) Why We Buy: The science of shopping,London: Orion Business Books.

Unilever (1999) Annual Report & Accounts.Urban. G. I. and Star, S. H. (1996) Advanced Marketing

Strategy, New Jersey: Prentice Hall.Valente, T. W. and Rogers, E. M. (1995) ‘The origins

and development of the diffusion of innovationsparadigm as an example of scientific growth’,Science Communication, March, pp. 242–73.

World, The (2004) The World: Corporate and Media FactSheets, www.aboardtheworld.com.

Zikmund, W. G. and D’Amico, M. (1999) Marketing,6th edn, Mason: South-Western Publishing.

REFERENCES 207

■ IntroductionPromotion is an all-encompassing word that describes the tactics used byorganisations to raise and sustain the profile of their product or service in themind of the customer. An organisation’s objective is to gain and sustain acompetitive advantage in the marketplace. This applies equally to not-for-profit and profit-centred organisations. Charities and other non-governmen-tal organisations need to advance or actively promote their causes in order togenerate donations for their important work. As with for-profit organisations,they use promotional tactics to communicate their messages to potential donors.

However, promotion is not only directed at people external to the organ-isation. Marketing is not only an external activity. Organisations need toconsider how they market internally to their employees.

This chapter examines both internal and external marketing in the contextof the various promotional tactics organisations use. Psychology (in thebackground) and the overt use of psychology are important areas in consid-ering how products and services are promoted to individuals and groups.Therefore it is important for you to consider the chapter on psychology andhow promotion and psychology interrelate. Moreover, you will see thatthere are important interrelations with other elements of the marketing mix.

■ Promotional objectivesFor a promotion to be effective it must encompass one or more objectives.Rossiter and Percy (1987) identified four key objectives:

CH

AP

TE

R

10 Promotion

Learning outcomes 208Introduction 208Promotional objectives 208Communication models 209Feedback and noise 213Promotional strategy and

tactics 215Advertising 215Early development phase 215Modern development

phase 217Challenge and defence

phase 218Types of advertising 220Types of advertising media222Direct marketing 230Direct marketing

techniques 231Kiosks 232Buzz, or word of mouth

promotion 232Product placement 236Movie tie-ins 236Merchandising the brand 237Examples of

merchandising 237Celebrity endorsements 238Sponsorship 239Potential benefits of

sponsorship 239Sales promotion 240Types of sales promotion 240Sales promotions can be

too successful 242Exhibitions, expos and

trade fairs 242Public relations 242Scope of public relations 244Integrated marketing

communications 244The future 246Chapter summary 246Questions for review and




� explain and critically evaluate the various communications models

� critically evaluate the different types of promotional activities that anorganisation could use to market its products or services

� discuss the different models used in persuading a consumer to purchasea product or service

� evaluate the concept of integrated marketing communications.

� Creating a primary demand or market. This isparticularly relevant where a company is plan-ning to either introduce a new product into anexisting market or create a new market. Forexample, consider the introduction of the firstmobile phones. In essence a market had to becreated and the focus was on business peopleworking in large cities (which could benetworked) who wanted to be at the forefrontof communication technology. (You may wantto reflect back to Chapter 9 on products andconsider the relationship to the diffusionmodel.)

� Create brand awareness. Through the variouspromotional tactics at the disposal of compa-nies, they can inform current and potentialcustomers of the features and benefits of theirbrands. Whether it is a new or establishedbrand it is vital that companies are able tomaintain awareness of it in the minds ofcustomers. This is particularly the case wherethe market is saturated, there is a high degreeof competition and there is a risk of newentrants into the marketplace.

� Enhancing attitudes and influencing intentions. In developing their promotionalcampaigns companies seek to create a positive

attitude towards their brand(s). By direct state-ment or inference, the promotion will illustratehow the brand will benefit customers, fulfillingtheir individual needs and wants. This benefitmight be cleaner hygienic floors or the seduc-tive taste of a luscious rich dark chocolate. Eachof these benefits psychologically links with acustomer’s needs and/or desires. If potentialcustomers have been influenced by the promo-tions they may intend to purchase that brandthe next time they seek to fulfil their needs andwants.

� Facilitating purchase. Clearly developing themarket, creating awareness and influencingattitudes are worthless activities if potentialcustomers have difficulty in locating the brand.Just imagine for a moment if after the franticbuild-up to the launch of J. K. Rowling’s fifthHarry Potter book, Harry Potter and the Order ofthe Phoenix (published in 2003) only a limitednumber of copies were available in a few hard-to-find bookshops. If this had happened thenthere would have been much embarrassmentfor the publishers, distributors and retailers.Equally, there would have been millions ofangry Harry Potter fans (and parents!) world-wide. While this might be an extreme scenario,it demonstrates the importance of linkingpromotion to the ready availability of the product.

The promotional objectives must effectively andefficiently link with the other marketing mixelements. Achieving this generates not only brandawareness but also equity over the term of thebrand’s life cycle.

■ Communication modelsPrior to examining the individual componentsthat comprise promotion, it is important to gainsome understanding of the communicationprocesses involved. We are all involved in thecommunication process. Even before humankindcould speak we communicated – through actions –our thoughts and fears. Throughout the centuriesindividuals have communicated to other individ-uals and groups through the spoken and writtenword. Through our study of history, literature and

PROMOTIONAL OBJECTIVES 209

Figure 10.1

© easyJet Co. Ltd. Reproduced with kind permission.

EasyJet uses its planes as a promotional tool

philosophy we have come to appreciate the wordsof Aristotle, Plato, Lincoln, Dickens, Tolstoy,Descartes and others. Through their speeches andwritings they communicated ideals, concepts andoften raw emotions. The 20th century brought aproliferation of mass media that would change thenature of communication forever.

Communications has often been seen as a single-step model comprising a sender, the message itselfand the receiver of that message (Figure 10.2).While it does work in many situations, this modelis far too simplistic to accommodate the realities oflife. It does not consider whether or not receiversunderstand the message communicated to them, anissue that will be discussed later.

it considers the channel used and the effect of themessage. While this is an useful development, thereremained the need for enhancement and an under-standing of the environment in which the commu-nication took place. Models on this basis did notoriginate until the late 1940s.

Shannon1 (1948) published a theory that encap-sulated communications theory. Horgan (1990)stated that Shannon’s initial goal was to ‘improvethe transmission of information over a telegraph ortelephone line affected by electrical interference, ornoise. The best solution he decided, was not toimprove transmission lines but to package informa-tion more efficiently.’ On this basis Shannon devel-oped a linear model of communications, what isoften referred to as a transmission model.

Mattelart and Mattelart (1998) state that thiswas:

Based on a chain of constituent elements: thesource of information which produces amessage, the encoder or transmitter, whichtransfers the message into signals allowingtransmission, the channel, which is the means tosend the signals, the decoder or receiver, whichreconstructs the message from the signals, andthe destination, which is the person or thing thatreceives the message.

This model is shown in Figure 10.3. What is clearfrom observing this model is its linearity.

However as Rogers (1994) indicates, the Shan-non model is very mathematical in its structure,and still has a linear format. Schramm (1955)adapted the model to include a greater understand-

210 10 • PROMOTION

Figure 10.2

A simple one-directional communication model

Sender Message Receiver

Information source Transmitter

Noise source

Receiver Destination

Figure 10.3 The general communications system model

Message

Signal Receivedsignal Message

Source: Shannon (1948).

Lasswell (1927) devised a model that considered:

WhoSays whatIn which channelTo whom it may concernTo what effect

The difference between Lasswell’s model and thesimple communications model in Figure 10.2 is that

ing of human interaction in the communicationprocess. There was also an increasing debate on theeffect of mass communication on society after theSecond World War. As we have seen in earlier chap-ters (and will in later ones), marketers were alreadystudying the psychological aspects of behaviourand communication.

Figure 10.4 shows Schramm’s adaptation ofShannon’s model. This is the model that you willsee in most textbooks on marketing and marketingcommunications, perhaps with some further minoradaptations. Schramm (1955) believed that commu-nication could not occur unless the field of experi-ence of the sender and receiver overlapped. In the21st century this aspect of the model might bethought debatable, especially in terms of marketingcommunications. While similar knowledge orexperience of course aids communication, we oftencommunicate to people who have little or no equiv-alent field of experience. It therefore becomes theart or science of the individual to communicateknowledge to the recipient in a way that can beeasily understood and remembered.

Reflect for a moment on the first time you sat ina lecture theatre. What was your field of experiencecompared with that of the professor presenting atopic to you? Probably very far removed from it.The professor’s task was to communicate not onlyhis or her knowledge but also the rudiments of aspecific topic within a defined time frame. In manyways marketers have exactly the same task, thistime aimed at potential customers who have notpreviously considered the product or service. Theyneed to find the media channels, a style and afrequency suitable for the target audience.

Although Schramm’s model is a further devel-opment, it too can be considered limiting. Themodel tends to assume one-to-one communicationas the norm. Although there has been a move inmarketing since the 1970s to develop a more one-to-one marketing approach, tactical marketingcommunication involves several channels. Thusnoise, for instance, can affect both single and multiple channels.

Figure 10.5 attempts to illustrate (although one-dimensionally) the following:

� More than one communication channel may beused at any one time to communicate to morethan one individual. Think about how youwould communicate to a mass audience.

� How one person decodes the message maybe different from how another persondecodes it. For example, look at either a tele-vision or magazine advertisement. Decidewhat it means to you, then show it to severalfriends and ask them the same question. Youmay find that you do not all ‘see’ the samething!

� As the communication is to more people, sothere is a greater amount of feedback. Thisfeedback will vary in type and intensity.However, the feedback should not be consid-ered as a single loop from the receiver to thesender. On receiving the feedback the sendermay need to communicate further with thereceiver, so this should be considered more asa double-loop feedback system than as singleone-way traffic.

COMMUNICATION MODELS 211

Sender Encoder

Noise

Field of experience Field of experience

Signal ReceiverDecoder

Figure 10.4 Schramm’s adaptation of Shannon’s communication model

Source: Schramm (1955).


Figure10.5 An expansion of Schramm’s communication model

While this is one-dimensional you need to consider it operating in the three-dimensional world you inhabit.

� Noise or the potential for noise is all-pervasiveacross all elements of the communication. Thisis shown in Figure 10.5 as a wire framework. Atany point in the communications process noisecan disrupt the communications process itself

or the meaning of the message being communicated.

Berlo (1960) devised a communications model thatemphasised the relationship between the sender

and receiver of the communication. He consideredthis an important variable in the communicationsprocess. Figure 10.6 illustrates a simplified versionof Berlo’s model.

Feedback and noiseSchramm’s model develops two important aspects,feedback and noise (Schramm 1955). To someextent the concept of ‘feedback’ links to Lasswell’s1927 model and the statement ‘to what effect’. Feed-back provides an interaction, and can be consideredin the following forms:

� a discussion, comment and analysis of theissue(s) being communicated

� a mechanism for clarification of points andissues – perhaps through focus groups

� a critical response to the message, which couldbe translated, for example, into a boycott of aproduct or service

� a positive response to the message, for example, an increase in purchases.

Noise can be described as the interruptions ordistortions that influence the communicationsprocess or understanding of a message. Noise canbe divided into four subsets: physical, semantic,competitive and channel overload.

Physical noise

As the title suggests, this is anything that ‘physi-cally’ reduces the effectiveness or efficiency of themessage communicated. In other words it is thephysical distortion that affects the communication

and the resultant understanding of that communi-cation. Imagine for a moment that you are at theend of an aircraft runway. You are on your mobilephone to your favourite person. You are about totell them how you feel about them, then an A380flies over your head. If your friend hears anythingat all it will be patchy, distorted, noisy and for alarge part incomprehensive. In fact, they couldmishear words, and this could give them a falseimpression of how you feel about them. You mightsay, ‘There can never be anyone else,’ and theymight hear, ‘There … else,’ which makes themthink that there is someone else.

This is an extreme example, but it goes someway to explain that physical distortion affectshow we both send and receive messages.Consider another example. You are standing nearthe edge of a metro platform reading a largeposter on the other side of the tracks. You areengrossed in this poster, and half-way throughreading the text when a metro train hurtles intothe platform and all you see are carriages flash-ing at speed before your eyes. The message onthe poster has disappeared. You might catch it atanother station or you might not. In fact youmight never see that poster again, or rememberthe brand name being promoted.

Physical noise is thus anything that physicallydistracts you from reviewing the promotion,whether it is a poster on the metro, an advertise-ment in a magazine, a radio commercial, a textmessage or a television commercial. These phys-ical distractions can range from movements infront of the television set blocking vision to atrain hurtling past a poster on a billboard in arailway station.

COMMUNICATION MODELS 213

Figure 10.6 A simplified version of Berlo’s model

Source: Berlo (1960).

Source:CommunicationskillsKnowledgeSocial systemCultureAttitudes

Message:CodeContent Treatment

Channel:SeeingHearingTouchingSmellingTaste

Receiver:CommunicationskillsKnowledgeSocial systemCultureAttitudes

Semantic noise

This relates to the actual meanings of words andphrases, and is often used to discuss ‘culturalnoise’. Even when the words or phrases are inthe native language of the individuals receivingthe message, there can be misunderstanding.Consider, for instance, how many times you havemisunderstood what has been said to you byrelatives. This kind of misunderstanding or‘semantic noise’ can happen anywhere. Forinstance, a company might advertise a productor service using ideas that its home-country stafffind funny. However, in another country thehumour might not be understood. At best theadvertisement would be ignored; at worst itcould be considered offensive and the productmight be boycotted as a result.

Therefore companies, whether they areadvertising in their own country or another,must consider how the language they use will‘play out’: that is, how will it be received. Thesecultural perspectives must be considered closely.

Competitive noise

This aspect of noise is often either overlooked or mixed in with physical noise. Both are

inappropriate, as they assume that competitivenoise is a secondary function.

If a company operates in a highly competitiveenvironment, a rival (rightly or wrongly) mightattempt to disorientate its customers throughspoiler promotional campaigns designed todiscredit it. This is a high-risk strategy for therival company, because its own integrity couldbe discredited if customers realise it is takingsuch an approach. This is clearly an ethical issue.However companies do use this approach to ‘off-balance’ their rivals, and this creates ‘noise’ inthe marketing environment.

Channel overload

Some authors do not consider this as ‘noise’ inthe strictest sense of the word. However, it isclearly something that can lead to the distortionof the communication message, and thus shouldbe included under the category of noise. Imagineyou are standing in front of your best friend andhe or she is talking to you. Then imagine that 20other people stand around your friend andsimultaneously start talking to you, all sayingdifferent things. However, each one is sayingsomething that is relevant to you. You standthere trying desperately to snatch the meaning ofeach communication from the 21 people in frontof you, but you only grasp a morsel of eachmessage. You never see the full picture that the21 people in front of you are trying to communi-cate. Thus you stand in a world that is ‘cluttered’by communication.

When the only means of communication wasthe solitary village or town weekly newspaper,there was little in the way of communicationsclutter. However, consider the communicationsmarket now. We are constantly bombarded by24-hour multi-channel television (satellite,terrestrial and cable), the Internet, newspaperand magazine advertising, various forms ofdirect marketing, radio and cinema advertising,one-to-one selling, in-store promotions, telemar-keting and mobile text messages. It is endless.Thus the communications market is overloadedwith various promotional messages. The criticalissue for companies in the 21st century is howthey can cut through this clutter, this channeloverload that creates its own very special presence within the marketplace.


Figure 10.7


Sometimes the simplest of tactics help a company tobreak through the clutter. Here in a London street aman holds aloft a small billboard to advertise an ‘asmuch as you can eat’ buffet lunch.

■ Promotional strategy andtactics

A company can use various promotional tactics,many of which are listed below. These can be usedas either stand-alone or integrated tactics.However, the company needs to carefully considerwhich are used separately and which are combined.The decision must be based on how best to use thetactic(s) to achieve the overall promotional objectives of the product or service:

� advertising

� direct marketing

� sales promotion

� sponsorship

� product placement

� merchandising

� public relations

� word of mouth – viral marketing

� exhibitions.

■ AdvertisingAdvertising is far from new. Cave drawings over2500 years old illustrate primitive forms of advertis-ing. Commercial advertising was well establishedin ancient Greece (Fletcher 1999), and burgeonedduring the time of the Roman Empire. Just imaginehow the 50 000 seats in the Rome’s Colosseum werefilled with spectators for the gladiatorial events.Posters were placed around Rome and outlyingtowns announcing the often extravagant events. Thegruesome public hangings that took place at Tyburn(now Marble Arch, Oxford Street, London, England)between the 14th and 18th centuries were alsoheralded by poster campaigns. These hangings werepublic events, and the lawmakers of the day wantedto show the power of their authority, hence thepublicity that surrounded them.2

Thus advertising is not a new function of society.However, how it is used and the channels throughwhich it can be used are radically different from thoseof Ancient Rome and London of the Tyburn period.

Before we consider the different forms of adver-tising it is appropriate to define advertising. Colley

(1961) suggested that the role of advertising couldbe defined as follows:

Advertising’s job purely and simply is tocommunicate, to a defined audience, informa-tion and a frame-of-mind that stimulate action.Advertising succeeds or fails depending on howwell it communicates the desired informationand attitudes to the right people at the right timeat the right cost.

Perhaps a more succinct version would be:

A paid for communication vehicle that isintended to inform, influence and/or persuadeone or more individuals.

However Colley (1961) raises several interestingpoints that involve both the potential customer’smindset and the need to target customers via themost appropriate media. These are themes that arediscussed throughout this chapter, as they are rele-vant not only to advertising itself, but to other forms of marketing communications.

It is important to realise that advertising is not forfree – it is a commercial transaction between thosewho want to place the advertisement and the mediaowners. This links to the channels the advertisersuse to most effectively communicate their messageto their intended audience. The media owners areproviding the communications channels.

Basically, advertising has three overarching func-tions or objectives: to inform, persuade and sell.Various models have been created to demonstrate asequential learning pattern that has been called, overtime, the Hierarchy of Effects. Barry (1987) suggeststhat the development of the hierarchy of effects, todate, has encompassed three phases: early develop-ment, modern development and the challenge anddefence phase. What has to be clear from the outsetis that since the turn of the 19th century numerousmodels and adaptations of these models have prolif-erated. For the purpose of this text a selection hasbeen made to cover the major developments. This inno way negates the value of the other models, butspace limits further examination.

Early development phaseAn American salesman, St Elmo Lewis, developedthe first of these hierarchy models in 1898, now

PROMOTIONAL STRATEGY AND TACTICS 215

commonly known as the AIDA model3 (see Figure 10.8).

Lewis used this linear process as a means ofexplaining to sales people how they could improvetheir sales potential. The sales person had to makethe potential customer aware of the product (atten-tion), then raise (interest) by discussing the prod-uct’s various features and benefits, followed byhow these various features and benefits would helpthe customer (his or her desire), and finally (action)the purchase of the product.

It was not long before revisions to Lewis’s modeland new models were being conceptualised. Shel-don (1911) added another component to Lewis’smodel, that of permanent satisfaction to followaction (purchasing). In 1913 the psychologist WalterDill Scott developed a model (See Figure 10.9)

which was based on the then current thinkingregarding sensory perception and motivation. Heapplied this model to advertising, and was one ofthe first to make the link between psychology andadvertising. However, while the model leads tounderstanding it does not necessary result in apurchase.

Strong (1925) postulated a model (Figure 10.10)that has similarities to Lewis’s original AIDAmodel. In Strong’s model awareness and interestare combined.

An interesting aspect of Strong’s model is theintroduction of satisfaction as one of the drivers.Perhaps this was the first time that considerationhad been given to buyer satisfaction post purchase,in other words buyers’ feelings after they haveconsumed or used the product or service. Theymight feel positive, negative or even neutraltowards the purchase, and how they feel may influ-ence whether or not they purchase and/or recom-mend the product or service in the future.


Figure 10.8

The AIDA model.Alongside the model has been positioned the location of cognition, affect and conation.

Attention

Interest

Desire

Action

Cognition

Affect

Conation

}}}

Attention

Comprehension

Understanding

Cognition

Affect/conation

}}

Figure 10.10

Strong’s modelSource: Strong (1925).

Want

Solution

Action

Satisfaction

Cognition/attitude

Conation

⎫⎬⎭⎫⎪⎬⎪⎭

Until the 1950s various models were postulated,which mainly relied on the AIDA concept. Insummarising this development phase, Barry (1987)contends that:

These early models were descriptive representa-tions based on intuition and logic. There wasvirtually no empirical analysis of any of them.Some were more psychologically-bounded thanothers, but it is evident that these models

Figure 10.9

Scott’s modelSource: Scott (1913).

provided the foundation for the discussions ofthe hierarchy models developed over the nextthirty years.

It is interesting to note that the AIDA modelremains in use today.

Modern development phaseLavidge and Steiner (1961) developed from previousmodels their model for predictive measurements ofadvertising effectiveness (Table 10.1). They believedmuch advertising had longer-term effects ratherthan immediate ones. However, they contended thatto gain the potential of the longer-term purchase,there had to be shorter-term actions to build convic-tion. They developed a model which suggests thatconsumers move through a series of steps that maynot necessarily be equidistant in space and time. Theactual purchase depends on the level of need, timingand product/service availability.

It appears that Lavidge and Steiner (1961) wereamongst the first to link the hierarchy of effectsconcept to cognition, affective and conation. Theysuggested that:

Awareness and = information or ideasknowledge (cognition)Liking and = attitudes or feeling preferences (affective)Conviction and = actionpurpose (conation)

They viewed this more than a semantic issue,suggesting that actions to stimulate a channel arelikely to be different from those that provide knowl-edge. These will also be different from the actionsthat create a favourable attitude towards the product or service being promoted.

Colley (1961) created a model similar to Lavidgeand Steiner’s, which has been abbreviated toDAGMAR – Defining Advertising Goals forMeasured Advertising Results. Figure 10.11 showsColley’s hierarchy of effects model. Colley wasparticularly interested in identifying a procedurethat would ensure that (Yeshin 1998):

� Goals were established and formulatedprecisely.

� The goals could be monitored (benchmarked)and measured.

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Table 10.1 Lavidge and Steiner’s model

Unawareness Potential customers are unaware that the product or service exists.

Awareness The potential customer has become aware of the existence of the product or service.

Knowledge The potential customer is now informed about the features and benefits the product or service has to offer. Lavidge and Steiner (1961) consider these customers as prospects. Itshould also be considered here, although not specifically mentioned by Lavidge and Steiner,that prospective customers will seek knowledge not only from the advertising, but potentiallyfrom a variety of sources (many of them promotional in form).They will also compare andcontrast this product or service with others available on the market to increase their knowledge base.

Liking the productor service

Prospective customers have a favourable attitude to the product or service.

Preference The product or service has become the preferred choice of prospective customers. It is likely(though not a given fact) that they will have compared its features and benefits of this productor service with those of rivals.

Conviction Prospective customers are convinced their preferred choice is right.They now have the desireto make the purchase.

Purchase The final step, the point at which preference and conviction are translated into acquisition.

Source: Lavidge and Steiner (1961).

� Precise timescales could be determined for theachievement of the objectives.

� The target audience was carefully identified sothe right people received the message at theright time and in the right place (channel).

Although Colley’s model is often criticised forportraying potential or actual customers as passive,it remains widely used.

Challenge and defence phaseRay et al. (1973) began to challenge how thesemodels were sequenced. Again, as we have seenearlier in this chapter there had been an under-standable move towards linearity. As they andothers argued, cognition (learning) does notalways precede affect (attitude, feeling, emotion)or conation–motivation (behaviour). Taking adifferent approach, Ray et al. (1973) suggestedthat there were three hierarchy models: the learning, dissonance–attribution and low-involvement hierarchies.

The learning hierarchy

This was considered the learning model. Here thepotential consumer proceeds through the cogni-tion–affect–conation stages. This is the traditionalmodel discussed above.

The dissonance-attribution hierarchy

This is considered the reverse of the learning hier-archy model. Here the consumer reacts to thecommunication, then formulates or develops atti-tudes and feelings as a result of that reaction orbehaviour. The processing of information thatsupports the original behaviour then follows. Forexample, you might buy a CD, enjoy listening to itand justify your purchase because you have readrave reviews about it. Thus this is aconation–affect–cognition approach based on thetheories of, among others, Festinger (1957). (Seealso Chapter 16 on psychology.)

Ehrenberg (1974) developed an awareness–trial–reinforcement (ATR) model, which he believed wasmore in tune with changing patterns of consumerbehaviour. Until then models had not consideredthat most consumers are not brand loyal, preferringinstead to switch across brands as it suits them. In1997 Ehrenberg added a further component to hisframework, nudging. Figure 10.12 shows thisATRN model, which is an example ofdissonance–attribution.

Ehrenberg’s model reflects the following:

� Awareness: the potential consumer becomeseither initially or further aware, and thus inter-ested in the product or service. Ehrenberg


Figure 10.11

Colley’s hierarchy of effects model

Source: Colley (1961).

Awareness

Comprehension

Conviction

Action

Figure 10.12

Ehrenberg’s ATRN model

Source: Ehrenberg (1997).

Awareness

Trial

Reinforcement

Nudging

suggests that this awareness can be achievedthrough the use of various promotional tactics.

� Trial: the consumer is curious about the prod-uct or service and may make an initialpurchase to test it. Companies often producetrial-size samples that are either available in-store, distributed through on-pack magazinepromotions or delivered house to house.

� Reinforcement: marketing communicationscan reinforce the brand’s image and position inthe minds of potential consumers.

� Nudging: this affects both actual and potentialconsumers. The objective is to persuade actualconsumers to repeat purchase, while encour-aging potential consumers to buy for the firsttime. They in turn may well become repeatbuyers over time. Organisations use a varietyof communication channels to reinforce thebrand’s image and values in the mind of theconsumer.

Low-involvement hierarchy

This is based upon the early work of Mendel-sohn (1962) and later Krugman (1965 and 1966,cited in Barry 1987). Its perspective is thatconsumers react, and then gain knowledge as aresult of that particular behaviour or reaction.As a result of the behaviour and knowledgeacquired, they acquire attitudes towards theproduct or service.

Vaughn (1980, 1986) developed a model basedprimarily on the low-involvement approach. Hesuggested four versions:

� informative (thinking)

� affective (feeler)

� habit forming (doer)

� self-satisfaction (reactor).

These are shown in Figure 10.13, which to someextent employs the relationship between cognition,affect and conation.

Vaughn (1980) suggests that there are severalstrategies that can be developed. Quadrant 1suggests that consumers seek information prior topurchase. The learn–do–feel sequence provides anapproach where ‘functional and salient information

is designed to build consumer attitudinal accept-ance and subsequent purchase’ (Vaughn 1980).

In Quadrant 2 the feel–learn–do sequence domi-nates. Here the strategy relates to consumers’ self-esteem, how they ‘feel’ about a product or service.For example, buyers of Harley-Davidson® motor-cycles are not just buying a model of transport, theyare buying into an emotional experience.

Quadrant 3 depicts the do–learn–feel approach,where the consumer tends to form a conveniencebuying habit. In other words minimal thought isinvested in the decision-making process. This isapplicable to the purchase of staple food items.As Vaughan suggests, brand loyalty may also bea function of habit, for instance shopping at thesame supermarket or visiting a restaurant on aregular basis. However, within this brand-loyaltymindset, consumers may be loyal to several simi-lar products or service providers. While habitsfor purchasing particular brands and genericproducts may form, it must be realised thatbrands may have a limited life span. Consumersmay be introduced to brand replacements

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Figure 10.13

Quadrant 1 Quadrant 2Informative Affective (thinker) (feeler)High importance High importanceRational decisions Emotional decisionsModel: Model:learn–feel–do feel–learn–doProducts: car, Products: fashion,new products, jewellery and furniture motorcycles

Quadrant 3 Quadrant 4Habit forming Self-satisfaction(doer) (reactor)Low importance Low importanceRational decisions Emotional decisionsModel: Model:do–learn–feel do–feel–learnProducts: food and Products: drinks andhousehold confectionery

Thinking Feeling

Hig

h in

volv

emen

tLo

w in

volv

emen

t

Vaughn’s modelSource:Vaughn (1980).

through a trialling process (free samples ormoney-off coupons to entice them to trialpurchase the brand).

Quadrant 4 is a do–feel–learn approach whereconsumers are fulfilling their personal tastesthrough normally short-term satisfaction.Purchases of confectionery, cigarettes and alcoholtend to encapsulate this approach.

As Vaughn (1980) points out, these are not fixedquadrants. That is to say, some products and/orbuyer behaviour may overlap quadrants. In anincreasing diverse complex world, neither brandsnor behaviour are likely to fit comfortably intoboxes in all instances.

Barry (2002) suggests that the Hierarchy of Effectsconcept remains valuable for the following reasons:

� It is appealing due to its simplicity, intuitive-ness and logic.

� It assists in predicting behaviour, no matterhow imperfect those predictions appear.

� It provides a platform on which advertisingstrategies should focus (cognition, affect andconation) based on segmentation. It provides aplanning, conceptual and training tool.

Hierarchy of effects models have been in existence,in one form or another, for over 100 years. At thisstage several points need to be considered:

� Several of these models were devised whenadvertising was the dominant form of promo-tion. Much of the criticism that surrounds themderives from the fact that the analysis is basedon advertising. In some instances it may beadvertising that informs and persuades aconsumer to take action. However, the sphereof influence is often much wider, encompass-ing interaction with friends, family, other formsof marketing communication and the rest ofthe marketing mix. Thus is it important toconsider the hierarchy of effects models as notbound by advertising alone, but operating in awider environmental context.

� For ease of description, the models are in alinear form. That suggests two possibilities:first, that there is a linear progression from oneposition to another, and second, that no exter-nal factors influence or intervene in the

process. We need to consider these issues in thecontext of the environments in which theselinear models were created. It can be arguedthat in the late 19th and early 20th centuriesresearchers and commentators in marketingwere at the cutting edge of ideas. It was a timeof attempting to understand psychologicalbehaviour, and the introduction of massproduction on a scale never before seen. WhileEuropean countries came to terms with thehorror of the First World War and started torebuild their economies, the United States wasprospering – until the Wall Street Crash of 1929.The world has changed significantly anddramatically since those days, and it continuesto change, but the concept of linearity haspersisted in these models. They still have avalue in understanding human behaviour, butthey must be considered in the wider context ofmarketing communications (not just advertis-ing) and in a world governed by complexity,needless to say most of all in human behaviour.

The Hierarchy of Effects models have a value inunderstanding both marketing within thehistoric context and processes that customersmay undertake to purchase a product or service.However, it is important to consider them in thewider context of marketing communications, theremainder of the marketing mix and the externalenvironment.

Types of advertisingAdvertising can be classified into four basic types.Although this is a logical classification, it is impor-tant to consider that there are situations where thereis an overlap between two or more of these types.

Primary

The objective with primary advertising is to stimu-late a demand for a particular product or service(see Figure 10.14). For example, primary advertis-ing is used for the launch of an exhibition, a J. K.Rowling Harry Potter novel or a new James Bondmovie. However this form of advertising is notconfined to the B2C market: it is equally applicableto the B2B market. Trade organisation as well as suppliers use primary advertising to raise awareness of products and services.


Selective product or service

Here a manufacturer, for instance, focuses theadvertising on a single brand without any referenceto its corporate identity. The focus is clearly on thebrand and not the brand owner. For example, thevarious brands owned by Procter & Gamble havetheir own individual identities. Unless a consumerstudied the packaging closely, he or she would notknow the brand was owned by or marketed byProcter & Gamble.

Product or service range

Here the focus is on the range of products or serv-ices available under one particular brand name. Forexample, when Unilever advertises its Dove brand,

it might either advertise selective elements of therange, for example, soap, or advertise the full brandrange from soap to shampoo. By advertising thewhole range Unilever is clearly stating to potentialand current customers that there is a Dove productfor all their face and body cleansing needs.

Institutional

This is advertising that in some way promotes thecorporate identity, image and values of the organi-sation. For example, in the 1990s BP used televisionadvertising as a channel to promote itself as anenergy company rather than (as it originally was) apetroleum company. The advertisement focusednot on any one product but on the diverse areas inwhich the company operated.

Companies and organisations also use adver-tising as a means of recruiting staff. As well asstating briefly the job requirements, job adver-tisements usually take the opportunity toemphasise why the organisation is a good one towork for. For example in 2004 the UK FinancialServices Authority advertised in The SundayTimes newspaper for a director (contract, revenueand information management). The openingsection of the advertisement read:

The Financial Services Authority employs 2,300staff and has a £200m annual budget to tackle adaunting and rapidly changing array of chal-lenges: maintaining market confidence; promotepublic financial understanding; protectingconsumers; and fighting financial crime. It aimsto maintain efficient, orderly and clean financialmarkets and help retail consumers achieve a fairdeal. The variety, complex content and widersignificance of the issues it deals with equals thatof any organisation in Britain. Its launch andearly years have been a success. But now it facesa step increase in its regulatory responsibilities,because of the introduction of mortgage andgeneral insurance regulation. Therefore the FSAis reorganizing to realign its strategic priorities,to shift from policy development to policyimplementation and to become an easier organ-ization to do business with.

You may want to consider how your college oruniversity advertises for both students and staff(academic and administrative).

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Figure 10.14


An example of primary advertising.A giant poster atthe Institut du Monde Arabe in Paris, advertising an artexhibition from 6 May to 17 August 2003.

Types of advertising mediaSimply in terms of advertising, there is an oftenoverwhelming variety of media channels that canbe deployed to market a product or service. Thefollowing section outlines the key advertising chan-nels. However, it is only an uncritical glimpse ofwhat is currently available. The range of advertis-ing channels will vary from country to country andbe affected by the political and legal regime withineach country. For instance, government regulationsmight prevent advertising on television (this isusually the case where the television channel isState owned).You may want to reflect on the adver-tising environment in your own country.

There may also be restrictions on the type ofproduct/service advertised and the images usedto communicate the advertising message. Forinstance, the advertising (in all its forms) oftobacco products has been banned in severalcountries.

Print media

As the name suggests this concerns advertisementsthat appear in newspapers and magazines. Themedia can be divided into five categories:

Daily newspapersThese can be national or regional, and in broad-sheet and/or tabloid format. Generally they have aloyal following, especially if they have a particularpolitical leaning or bias. As a result they are partic-ularly useful for reminder and prestige advertising.

Local and regional newspapersThere are generally two types of local/regionalnewspaper, those that are free (distributedthrough either door drops and/or collection atkey outlets), and those that are paid for, and soldin (and often delivered by) local newsagents andstores. They contain a mixture of display andclassified advertising.

Consumer magazinesDifferent magazines are published weekly, monthlyand quarterly. The subject areas are diverse, rang-ing from DIY to holidays and women’s issues.There are broad classifications such as ‘women’smagazines’, and they can be further segmented by

their appeal to different ages and socio-economicgroups.

Trade and professional magazinesThis heading covers two areas: B2B magazineswhich market products and services to businessand industrial customers, and magazines producedby professional organisations or trade bodies as ameans of communicating issues with theirmembers. Increasingly these magazines are beingplaced on web sites (for viewing and/or download-ing) rather than published in a conventional printformat.

Customer magazinesThese are either sold or distributed free to acompany’s customers. They are produced by thecompany’s marketing department or a specialistcontract publishing house. In addition to reinforc-ing the brand image of the company or organisa-tion, customer magazines provide opportunities forother companies to advertise their products andservices. For the publication this creates revenue tocover costs and generate profit. For the advertiser itprovides a communications channel to targetspecific groups.

A company may have different magazines tomeet the needs of specific customers. For example,an airline may provide different magazines foreconomy, business and first-class passengers.


Figure 10.15


A Parisian news kiosk displaying a wide selection ofmagazines

Targeting these groups not only provides a specificlink between customers in the groups, it alsosegments the market for the benefit of advertisers.For instance, Cyprus Airways has Apollo ExecutiveReview, which is a quarterly in-flight magazine forits executive club members (business and first-classpassengers).

Television, cinema and radio

TelevisionOverall, this is still regarded as the best medium forachieving large-scale coverage for products andservices. As television is a combination of soundand pictures it provides the perfect vehicle to visu-alise or demonstrate the product or service beingmarketed, whether that is a car, an airline or awashing detergent.

Advertising is usually sold in ‘spots’ that rangefrom ten seconds to three minutes. The time andthe audience determine the price the advertisermust pay to secure a slot. Prime time television isusually regarded as the period from 19.00 to 21.00hours (it may vary from country to country). This isthe period where the highest fees apply, because ofthe nature of the programmes being shown and thesize of the viewing audience. Television media salescompanies operated by the television networksusually offer discounts to buyers who purchase aseries of slots in advance, for example everyWednesday evening at 19.20 for one month.

Buying the ‘spot’ is only one element of the tele-vision commercial, the other being its production.Television commercials often look like, and retainthe same production values as, mini-movies. Signif-icant investment is often made in the locationshooting, the actors, the sets and the music topromote a product or service.

However, not all countries permit televisionadvertising, and in many it is strongly regulated toprotect the vulnerable (for example, children) fromundue influence and pressures.

CinemaWith its escapist atmosphere and large screen,the cinema can have an enormous impact on itsaudience. However most people are irregularvisitors to the cinema, so a cinema advertisementdoes not have the regular impact of, say, a televi-sion campaign aired at the same time each

evening. This medium is useful in supportingpress and television campaigns. It can also beused to show advertisements that would not bepermitted on televisions stations because of thetype of product (for instance, alcoholic drinks),or the way it is advertised (for example, overtlysexual in content).

RadioState-run radio stations usually do not transmitadvertisements. In countries that permitcommercial radio stations (for example, theUnited Kingdom and United States) they havebecome an excellent outlet for advertising prod-ucts and services. Companies can choose theradio station that best serves their customersegments. Commercial radio stations cover everytype of music and talk (news and current affairs)possible. Thus it is possible to segment audiencesby the type of programme and radio station theylisten to. It is in the interest of radio stations toconduct audience research so they can use thissegmentation to persuade companies to buyadvertising slots.

Radio advertising normally costs less thantelevision advertising, so SMEs are able use radioas a means of advertising their products andservices.

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Figure 10.16


Although outdoor advertising is often considered interms of posters and electronic billboards there areparts of the world where outdoor advertising is painted onto brick work.This photograph illustratesthe meticulous work invested in painting posters forExide batteries.This is Pune railway station, India.

Outdoor billboard advertising

Outdoor advertising is usually strategically locatednear high-density populations, busy road junctions,walkways, at commuter stations or on vehicles. Theobjective is to position a poster showing a productor service in a place where it will have high visibility.

Ambient media (also known as fringe media)

Ambient Media is usually amalgamated withoutdoor advertising in many textbooks. However,because of its format and its increasing presence itneeds to stand alone as a form of advertising media.As the word ambient suggests, such advertising ispositioned ‘in the surroundings or in the back-ground’. Table 10.2 lists key forms of ambientmedia.

Guerrilla ambient media (GAM)4

The concept of guerrilla marketing (let aloneguerrilla ambient media) stems from the idea ofguerrilla warfare. This in turn derives from theSpanish Civil War, where small groups of indi-viduals acting individually took on the might ofthe regular army. Their action was consideredirregular or unusual. This approach has been


Figure 10.17


Billboards do not have to be permanent fixtures.During the development/refurbishment of this store inParis, Gap™ used the protective screens as a billboardto advertise their products and opening date.This is astunning use of outdoor advertising.

Figure 10.18


The Government Assembly building in Paris adornedwith photographic images to advertise a major exhibition

Figure 10.19


Outdoor advertising does not have to be on a largescale to be effective. Here is a poster in a Verona streetadvertising a forthcoming concert by maestro EnnioMorricone.This was one of several posters thatappeared in this format in the streets of the old quarter of Verona.

handed down to various disciplines, includingmarketing. Here it is considered in the light ofusing unusual means of ambient media to coveythe message.

This can be considered a ‘cool’ marketingapproach for certain groups. However, it must beused carefully for it can sometimes, thoughcertainly not always, pose distinct ethical issues.

Mini case 10.1 provides an example of guerrillaambient media and how it can have a detrimentaleffect on society as a whole. It is critically importantto remember here that individuals engaged inmarketing also have a responsibility to the widersociety – not just those individuals who might bevaguely interested in their products or services. Itshould be apparent that this case describes what is

clearly unethical behaviour on the part of compa-nies, which has significant potential for damagingtheir brand within the wider consumer group. TheCEOs of companies who authorise fly postingwould be the first to complain if there was aggres-sive fly posting in their own neighbourhoods. Theydo potentially irretrievable harm to their ownbrand.

As mini case 10.1 shows, the use of fly posting asa form of ambient media can, and does, cause stressamong communities. It therefore has to be ques-tioned why companies endorse such unethical andillegal practices, since in the longer term they willonly harm the company’s reputation. Perhaps someCEOs only look at the short term, rather than themedium and longer terms. If this view is correct,

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Table 10.2 Key forms of ambient media

Medium Description

Aerial This includes airships (often referred to as blimps), moving and static balloons, and banner towing.Airships and balloons flying over a location often carrying an array of advertising including illuminated signage across their length. With banner towing, specially equipped light aircraft towbanners across a location advertising, for example, a forthcoming event.

Giveaway postcards

These are normally standard sized postcards that feature an event, product or service.They areoften located in racks in hotels, cinemas and restaurants.

Maps Tourist maps often feature small advertisements for a range of local products and services.Thesecan include details of hotels, restaurants, sightseeing tours, car rentals, museums, art galleries anddepartment stores.

Taxis This includes both exterior and interior advertising. In London, for example, the famous cabs areoften emblazoned with brand logos advertising everything from airlines to newspapers and softdrinks. In some countries, for example, Singapore, taxis have illuminated signs on the roofs of thecabs.

Tickets Although train, bus and cinema tickets, for example, are used over a relatively short time framethey can incorporate promotional elements. For instance on the reverse of a cinema ticket a softdrink, available from the concession counter, can be advertised. It could be used to publicise aspecial promotion for a limited period only.

Trolleys Trolleys at airports, supermarkets and train stations often feature advertising signage.This canrange from promoting special in-store offers to credit cards and local hotel and taxis services.

Washrooms In the United Kingdom especially this is one of the fast-growing forms of ambient media.Everyone has, at some time, the need to use the washroom in the restaurant or shopping mall.The advertising messages can range from health issues (using a condom to reduce the risk of HIVinfection and unwanted pregnancy) and warnings about drinking and driving to special offers atlocal stores.

Other potentialsources

These include rubbish bins, lamp posts, petrol pump nozzles, fast-food cartons, carrier bags andeven pavements. (See the ethical issue within the section on guerrilla ambient media.)

then it is a worrying view of the future of manycontemporary businesses.

Internet advertising

Yelkur and DaCosta (2001) stated that:

The Internet represents an extremely efficientmedium for assessing, organising andcommunicating information. As such, theInternet subsumes communication technolo-gies ranging from the written and spokenword to visual images. Internet marketing isone of the newest distribution channelsmarketers to reach the customer. It is differentfrom traditional channels in that it is also acommunication network. Like all communica-tion networks, the Internet is all about

establishing and reinforcing connectionsbetween people.

This clearly indicates the importance they placeon the development of marketing in the Internetenvironment. As Groucutt and Griseri (2004) inti-mate in their work, the statistics indicate a rapidgrowth of the Internet as an advertising medium.There are two critical issues for Internet advertis-ers. First, do any of the types of advertising irri-tate the surfer? The key example here is the use ofpop-ups. Many Internet service providers (ISPs)have installed software to allow their users toblock pop-ups, which are often annoying andoffensive. Unfortunately these have, in manycases, been superseded by spam emails which areequally detrimental to the online advertising


Fly posting: an unethical approach to ambient marketing

Fly posting can be described as the ‘rapid displaying ofmini posters within an any unauthorised space to pro-mote a now happening event or service’.The use of flyposting is to circumvent the use of legitimate siteswhich, of course, incur a cost. However, many of thosewho use fly posting argue that the use of such a tech-nique is ‘in tune with the youth of today’.

By fly posting on the walls of railway tunnels, bridgesand buildings legitimate companies avoid the cost ofadvertising on major poster sites. However, there areclear ethical issues here. Fly posting is unsightly andugly. In already run-down areas it adds to the degrada-tion. How can an area hope to break out of a down-ward spiral if it is littered with fly posters? Let us beclear here: many of those that authorise fly posting donot live in the area where it takes place, and would bethe first to complain if any fly posting was undertakenin their area. This is a fundamental ethical issue. Whyshould it be inflicted on any level of society?

In 2004 the local council in Camden, a borough ofLondon, took legal proceedings against two majorrecord companies after receiving over 1000 complaintsfrom local residents regarding fly posting. The councilissued antisocial behaviour orders (ASBOs) against thechief executives of both Sony Music (UK) and BMG.According to reports at the time, ‘both companies

saved more than UK£8 million in advertising coststhrough fly posting on everything from shop hoardingsto pillar boxes in the borough’. Camden Council esti-mated that cleaning up such fly posting costs the bor-ough’s taxpayers some £250 000 each year.

Dame Jane Roberts, Leader of Camden Council,commented:

Fly posting is a similar sort of behaviour to graf-fiti, in that it involves the illegal and non-approved use of property, degrading that proper-ty and making an area seem uncared for and anunpleasant place to live. Fly posting has a detri-mental impact on the value of property and con-tributes to people’s fear of crime and, as a resultto actual criminal behaviour, which is why we asa council are seeking to outlaw it.

In June 2004 the CEO of Sony Music (UK) stated thatthat it ‘would not engage in fly posting any more in thiscountry’.

Since Camden Council took this stance, other coun-cils in the United Kingdom have followed in issuingASBOs against fly posters, no matter whether they areindividuals or companies.Sources: ‘Top music chiefs are spared ASBOs’, BBC NewsOnline, 1 June 2004; ‘Music Chief’s anti social orders’, BBCNews Online, 1 June 2004; ‘Jail threat over city fly posting’,BBC News Online, 20 June 2004.

Mini case 10.1

business. Second, what is the level of conversionfrom legitimate advertising that appears on theInternet? Associated with this is the psychologi-cal perception of Internet advertising. Is it, forinstance, seen as legitimate and thus trustworthy,or should all Internet advertising be distrustedbecause it emanates from potentially ‘corrupted’sources?

Clearly some individuals and companies haveused the Internet to make a ‘fast buck or two’ byplacing bogus advertisements. While such actioncannot be defended, it is far from new. The ‘medi-cine men’ alluded to in Chapter 1 are ancestors ofthe new fraudsters of the 21st century. Whereasin the 18th century they claimed that springwater (if their customers were lucky: it mighthave been something more harmful) sold fromthe back of a covered wagon was the elixir of life,today they use the Internet to sell their bogusproducts and services. It could be argued ‘samedeceit, different century, different marketingchannel’.

While bogus companies use the Internet tomarket their ‘products and services’, there arealso legitimate organisations, both small andlarge, using the Internet for honest and lawfulpurposes. There are several ways that suchorganisations can advertise on the Internet, andthese are briefly discussed in Table 10.3.

As with pop-ups, both individuals and organi-sations are bombarded by spam, or junk emails.Whether the spam contains legitimate marketingmessages or fraudulent ones,5 they are a seriousirritation to both individuals and organisations.According to various sources, spam accounts forover 70 per cent of emails worldwide, with signif-icant costs to businesses (BBC 2004b).6 Spamaffects not only those who receive it but also thoseorganisations that have a legitimate message theywant to communicate to their target audience.There is a risk that legitimate companies will befalsely accused alongside the spammers, and this in turn can have a detrimental effect on e-commerce and e-marketing.

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Table 10.3 Types of online advertising

Format Description

Banners Usually a rectangular graphic that normally appears along either the top or bottom of the page.They can be either static or animated – increasingly the latter as clever animation can increaseawareness of the advertisement.

Skyscrapers Large vertical advertisements that, like banners, can either be static or animated.

Buttons Usually small oval, circular, square or rectangular objects that often display an image, which mightbe a company name, logo or brand name. Clicking on this image usually links to either the corporate or brand web site.

Classified Just as with print media, online provides the facilities for classified advertising.This can covereverything from individuals seeking friendship and romance to education and new business ideas.It could be argued that the classified advertisements we see so often in the print media have leaptonline.The difference though is that online classified advertising has the potential, for instance, toenable users to click through to either an individual or company website.

Pop-up advertising

Also known as interstitials, advertising windows that pop up when a new screen is displayed.Usually, when such advertisements are displayed the advertisement can only be closed by the userclosing the window.That however will not prevent another pop-up from being displayed.Whilethe pop-up has the advantage of being highly visible, there are several disadvantages.Theseinclude: (1) irritation factor: if there is a sequence of pop-ups surfers will just spend their timeclosing down windows and will possibly be so frustrated that they log off. (2) If a pop-up becomes‘scheduled’ within a list of pop-ups then the message is most likely to be missed.The surfer willbe too busy closing down the pop-ups. (3) If surfers have been frequently annoyed by pop-upsthey are unlikely to trust any company that uses them. (4) With pop-up blockers available, bothindividuals and companies will use them to prevent this unwanted form of ‘junk’ advertising.

Shock advertising

Shock advertising (also known as shockvertising)can be broadly described as:

the inclusion of frightening, visceral, offensive,taboo and emotion-provoking imagery andwords to promote a product, service, concept oridea.

It became part of the public’s consciousness withOliviero Toscani’s work for the Italian clothingcompany Benetton. Toscani’s advertising focusednot on clothes but on images often linked to societyor tragic events of the time, including the birth of anewborn baby, the blood-stained clothes of a deadCroatian soldier and the faces of men on DeathRow in US penitentiaries. This latter advertisingcampaign unleashed the greatest controversy,damaging the brand in the United States. This wasperhaps an advertising campaign too far for Benet-ton, and it marked a separation between Toscaniand Benetton.

However, shock advertising was used prior toToscani’s startling images. During the First WorldWar, the British government used shock advertisingtechniques to instil fear into the UK population.Many of the advertisements depicted Germansoldiers as the personification of evil. Such propa-ganda advertising techniques have been used bygovernments ever since to promote and support thereason for war, whether justified or not.

Companies, governments and organisations(including charities) have used shock advertisingtechniques to promote their messages. For instance,in both the United Kingdom and the United Statesduring the 1980s, there were campaigns against thefur trade and fur coats. In a UK cinema commercial,a model walks along a catwalk and swirls a fur coataround, splattering blood on the affluent audience(Saunders 1999). The aim was to create a powerfuladvertisement that would be positioned on thatfine line between shocking and revolting to get theviewer to address the issue (Saunders 1999).

Shock advertising raises many questions. Onethat is particularly important is whether or not suchadvertising is consistent with the brand. It could beargued that some shock advertisements are clearlyrelated or linked to the organisation or brand,where others are not. Some may argue, for instance,that Toscani’s advertising for Benetton had no link


Barnardo’s

Barnardo’s is the UK’s largest children’s charity, sup-porting some 100 000 children and their familiesthrough more than 300 projects. In 2003 Barnardo’slaunched an advertising campaign entitled ‘There are nosilver spoons for children born into poverty’.The aimsof the campaign were to:

� Highlight that one in three children in the UnitedKingdom live in poverty, that these children aredisadvantaged from birth, and that children borninto poverty are more likely to have a disadvan-taged adult life – through ill-health, unemployment,homelessness, crime, drug and alcohol misuse andabusive relationships.

� Highlight Barnardo’s role in alleviating child poverty.

� Cut through the misconceptions of child poverty.

� Create support for Barnardo’s work.

The campaign featured three advertisements, eachdepicting an element of poverty – homelessness, alco-hol and drug abuse. Each image featured a young babylying on his or her back, and superimposed were(respectively) a cockroach, a bottle of methylated spir-its and a syringe, positioned to create the illusion thatthey were protruding out of the babies’ mouths.Theseobjects metaphorically represented the possible futurelives of the babies. The digital composition of theimages made them particularly graphic.

Each year the UK Advertising Standards Authority(ASA) receives complaints from the public about adver-tisements. It is then the responsibility of the ASA Councilto decide whether to uphold or reject them. In 2003 theASA received 475 complaints regarding Barnardo’s ‘SilverSpoon’ campaign.This was the largest number of complaintsfor a national press campaign in the ASA’s history.

There were two areas of objections:

1 ‘That the advertisements were offensive, shockingand unduly distressing,especially if seen by children’.

2 ‘That the advertisements were irresponsible andcould encourage emulation by children’.

In a news release (12 November 2003) Barnardo’s stated:

[Barnardo’s].... made a decision to draw atten-tion to this national disgrace [child poverty]

Mini case 10.2

ADVERTISING 229

through the most effective means at its disposal:attention grabbing images placed as adverts innewspapers and subsequent interviews and debatein the media.

As Britain’s largest children’s charity we do notuse powerful images lightly, however we have a dutyto act as a voice for the most vulnerable children and young people in this country.

While Barnardo’s appreciates that some peoplefind the images shocking we have also received sig-nificant support from the public and media alike.Before our advertising campaign child poverty hadnot captured the public’s imagination.

In their adjudication, the ASA stated:

The advertisers said they had intended to drawattention to child poverty and to encourage dona-tions for their work with children living in poverty.They said research had shown 86% of people did notknow that one in three children in the UK lived inpoverty; they said the UK had the highest rate ofchild poverty in Europe.The advertisers argued thatthe advertisements showed the reality of childpoverty and its long-term effects and reflected thenature of their work, which was often distressing.They explained that the advertisements that hadgenerated complaints contrasted the opportunitiesand dreams available to some children with the hard-ship into which other children were born; theyexplained that another advertisement in thecampaign showed an image of a happy baby with asilver spoon placed gently in its mouth.

The advertisers conceded that not all poor childrenremained poor as adults or lived troubled lives; theysaid many poor children, however, were exposed tosqualor, homelessness, substance abuse or crime andmany of those children would live with similar prob-lems later in their lives.They argued that poor childrenhad fewer opportunities than did more privileged chil-dren.The advertisers believed people were shockedby the advertisements but more shocked by discover-ing the facts about childhood poverty.The advertiserssaid they had chosen to advertise in national newspa-pers, because they targeted adults, not children; theybelieved the advertisements were unlikely to causeserious or widespread offence to adults.They arguedthat, like road-safety or anti-smoking campaigns, theadvertisements caused distress with good reason.They said the babies in the advertisements had beenphotographed with the permission, and in the pres-

ence, of their parents.They said the objects in thebabies’ mouths were computer-generated, not toscale and did not seem to have been placed thereor pushed into the mouths; they believed thescenarios were obviously unreal and argued thatthe advertisements did not, therefore, show chil-dren close to dangerous substances.The advertis-ers said they had followed the Committee ofAdvertising Practice Copy Advice team’s advice to(a) remove the needle from the syringe in theadvertisement, (b) tone down the amniotic fluid inthe advertisements and ensure genitals were notvisible on the babies.They said they had receivedpositive comments on the advertisements fromtheir project workers, parents of children growingup in poverty and members of the public.They sentfive newspaper articles about the campaign andextracts from 16 letters from the public in supportof the campaign.Complaints upheldThe Authority considered that the photographs inthe advertisements would be interpreted asstylised illustrations of babies’ possible lives. Itconsidered that,because they were unlikely to readnational newspapers, children were unlikely to bedistressed by the advertisements. The Authorityacknowledged the serious message of the adver-tisements but nevertheless considered that theadvertisers had used shocking images to attractattention and that the photographs were likely tocause serious or widespread offence. It told theadvertisers not to repeat the advertisements.Complaints not upheldThe Authority considered that, because theyappeared in national newspapers, which targetedadults, not children, and because they featuredobjects to which children were unlikely to haveready access, the advertisements were unlikely toencourage emulation by children. It consideredthat, although the babies in the photographsseemed to be in dangerous situations, the adver-tisements did not condone or encourage unsafepractices; it concluded that the advertisementswere not irresponsible.

The advertisements can be viewed on Barnardo’s web-site at www.barnardos.org.uk/resources/students advertising/Sources: Adjudications: Barnardo’s, 10 December 2003’,Advertising Standards Association; ‘Top ten most complainedabout ad campaigns 2003’, ASA press release, 22 April 2004;‘Advertising campaign in 2003 – Silver Spoon’, www.barnardos.org.uk.

whatsoever to the manufacture or marketing ofclothes. Others though may argue, perhaps Toscaniamong them, that the brand is more than clothes –it is about people, societies, life and death – inessence the world around us.

Many charities have used the shock approachin both mainstream advertising and directmarketing to communicate the plight of thosesuffering, either animals or people. In many casesthe images and the tone of the descriptions areshocking, often difficult to accept. However,there are various difficulties for many govern-ment and organisations attempting to communi-cate important messages to society. Thesedifficulties can be summarised as:

� Cutting through the clutter of communicationsmessages. As explained earlier, clutter is anelement of noise that may prevent an organisa-tion from reaching its target audience with theappropriate message. Clutter can be seen as thevolume of messages being communicated atany one time. If many of the messages are simi-lar in format, how does one message stand outfrom the rest? To achieve this companies andorganisations will seek ways of cutting throughthe clutter, and for some, shock advertisingtechniques may be effective.

� Society becomes numb to issues. If consumersare consistently being bombarded with ‘issues’messages they may become indifferent toworthy issues and causes. Shock advertisingmay bring those issues from the background tothe foreground of conversation. However,there is another potential risk in doing so.People, it appears, are becoming increasinglynumb to such dramatic images because theyare routinely viewing such images on nightlynews bulletins.

Mini case 10.2 illustrates how shock advertising canbe used to raise the profile of issues in the mind ofthe public.

■ Direct marketingThere are many definitions of direct marketing.However Tapp (1998) provides one of the moresuccinct:

Direct marketing focuses on using a database tocommunicate (and sometimes distribute)directly to customers so as to attract a directresponse.

As Groucutt et al. (2004) state, direct marketing isoften considered as one-to-one marketing. Unfortu-nately, direct marketing is often seen as purely aprocess of database marketing. While databases area fundamental component of direct marketing, itwill not succeed as a marketing communicationstool unless there is customisation. It is this elementof customisation that truly creates the opportunityfor one-to-one marketing. The aim is to build a rela-tionship with customers by understanding theirpreferences so that future offers can be tailored orcustomised to those preferences.

Grönroos (1990) supports the one-to-oneapproach when he states:

Marketing is to establish, maintain and enhancerelationships with customers and other parties,at a profit,7 so that the objectives of the partiesinvolved are met. This is achieved by the mutualexchange and fulfilment of promises. Thisperspective departs from the traditional view ofmarketing that emphasises only ‘exchange’ andmoves towards the notion of ‘exchange in rela-tionships.

Groucutt et al. (2004) suggest that direct marketingprovides the opportunity for three distinct advantages:

� Organisations have the opportunity to tracksingle and/or segmented groups of customersvia their database. By tracking customers theorganisation can better understand theirpurchasing/donating behaviour. Thus, theorganisation is able to target customers moreefficiently and effectively.

� It creates an opportunity for ‘a dialogue’between the customer and the organisation. Inorder to better understand the customer theorganisation provides the mechanism for feed-back. A case in point is the online retailerAmazon. Through its recommendations tocustomers it can get direct online feedbackfrom customers on whether, for example, acustomer already has a book, wants the book


when it is available, or is not interested ineither the book or the genre it represents. Inother cases an organisation could use a rangeof paper-based or online questionnaires todiscover, for example, likes and dislikes, devel-oping interests and changes in personalcircumstances such as the birth of a child.

� The opportunity to developed enhancedcustomisation, where products and servicescan be tailored to meet the needs and desires ofthe individual. An example is the customisa-tion operations of Dell Computers, wherecustomers can configure the specification of thecomputer to meet their individual needs.

Direct marketing techniquesThere are several techniques that can be employed todirect market a product or service to a customer,whether it is B2B or B2C. This section considers themindividually, but it is important to remember thatnormally they form part of an integrated package.

Door drops (door-to-door distribution)

This is a very basic form of direct marketing whereprinted information is hand-delivered and placedin individuals’ letterboxes. This may form part of anational distribution, for example samples of a newproduct just launched onto the market. Alterna-tively, the door drops may be very localised, forexample, a promotional leaflet advertising the take-out menu for a nearby Indian restaurant. The pointto remember is that door drops are not personalisedand thus information is not recorded on a database.

Inserts

Inserts can range from single, folded sheets to minicatalogues that are inserted into newspapers,magazines, bank and credit card statements. Whilethey are very much like a postal form of door drops,there is an opportunity to improve targeting. Thiscan be achieved by selecting the magazines thatbest match the target audience, for example, for theproduct and service being promoted.

Door-to-door selling

Although door-to-door selling is practised less thanit used to be in many countries, such as the United

Kingdom, it remains a marketing focal point inothers. For some people face-to-face contact is morereassuring than buying a product, for example, viadirect mail or the Internet.

Direct mail

Here a company mails information direct to apotential consumer or B2B customer. Direct mailcan encompass a vast array of products and serv-ices, from credit cards to gift catalogues through torequests for disaster relief funds by organisationssuch as the International Red Cross/Red Crescentand UNICEF.

Telemarketing

While there are many definitions for telemarketing,one of the most effective was proposed byHarridge-March (2002):

An organisation’s integrated and strategic use oftelecommunications to make effective use oftime and resources in order to create and maintain a relationship with its publics.

In this definition Harridge-March is linkingtelecommunications with resources and writes ofbuilding and maintaining relationships withcustomers. This links back to the Grönroos quoteearlier. Telemarketing is not simply a communi-cations channel to promote a product or service,but one that allows the development of a rela-tionship. Like the Internet, it provides an oppor-tunity for two-way communication. Thisapproach can be summarised by consideringthe operation of outbound and Inboundtelemarketing.

� In outbound telemarketing a representative ofthe organisation calls either a potential or exist-ing customer to discuss the organisation’sproduct or service range. This also includesorganisations following-up potential/actualcustomer enquiries generated by the complet-ing of pre-paid reply cards or inbound calls.

� In inbound telemarketing a potential or exist-ing customer initiates the call via a free-phonenumber. He or she may be responding to a direct response television or radio advertisement or a direct mailer.

DIRECT MARKETING 231

There has been a significant growth in telemarket-ing since the mid-1990s. The US-based DirectMarketing Association estimated that US telemar-keting sales grew from US$63.1 billion to overUS$100 billion in 2002. At the same time the UKmarket was worth £3.1 billion and the AustralianA$8.8 billion (DMA 2003). Much of this growth hasbeen attributed to the expansion of call centre operations.

Call centres

Since the 1990s telemarketing has been centralisedin ever-expanding call centres. A call centre can bedefined as:

A designed physical environment where trainedpeople, using telephone and computer technol-ogy, interact with potential and actual customersto provide a combination of inbound andoutbound services in real time.

However, telemarketing and call centre operationshave faced a barrage of criticism in recent years.These include:

� Unwanted or unsolicited calls: the increasednumber of such calls provoked outrage in theUnited States, leading in 2004 to ‘Do Not Call’legislation. Individuals can register on a centraldatabase their wish not to receive unsolicitedtelemarketing. If a company breaches thislegislation it faces heavy penalties. However,to some extent this has shifted the problemoverseas, with US-based companies cold-call-ing individuals in the United Kingdom, forinstance, with special offers. While legislationmight alleviate the potential problem in onenation, it might only move it to another.

� Potential for fraud: fraudsters have seen thepotential for using telemarketing to sell prod-ucts and services that either do not exist or areinferior. This has become a major problem,especially within the United States. Accordingthe US Federal Bureau of Investigation (FBI),there was an estimated US$40 billion lost totelemarketing fraudsters in 2002 (FBI 2003).

� Offshoring: this is the increasing relocation ofcall centres overseas. Thus, for example, theUK-based insurance and financial group,

Norwich Union, has call centres in India. Formany companies offshoring has become along-term strategy to reduce costs and improveservice. According to Datamonitor (2004)global call centre jobs will expand to almost 5 million by 2007, with 241 000 jobs moving toMexico and South Africa. However, concernshave been raised about security of information,quality of customer service training and callcentre working conditions. These concernsmay have reputational impact on the companies who seek offshoring strategies.

■ KiosksThese can be described as ‘interactive touch screensthat allow in-store customers to search and retrieveinformation as well as order products and services’.Kiosks are increasingly being located in busy shop-ping malls and supermarkets, providing customerswith the opportunity to browse catalogues beforepurchasing goods and services.

■ Buzz, or word of mouthpromotion

This is also referred to as viral or contagion market-ing, especially in relation to ‘spreading the word’on the Internet. However, the use of the terms viraland contagion is equally applicable to non-Internetmarketing.

Rosen (2000) refers to buzz as a ‘social process’and concludes that it is ‘the sum of all commentsabout a certain product that are exchanged amongpeople at any given time’. He continues, ‘Buzz is allthe word of mouth about a brand. It’s the aggregateof all person-to-person communication about aparticular product, service or company at any pointin time.’

The final thought here, ‘at any point in time’, is animportant one. Buzz is often, and quite rightly, asso-ciated with what is new and cool. However, it canalso apply to products, services and companies thatare well established in the marketplace. For exam-ple, a well-established brand might undergo a trans-formation or rejuvenation (see the section on theproduct life cycle, page 198). This revitalised productthen becomes the centre of buzz activity, leading anew group of buyers to be added to existing ones.


Rosen (2000) states that:

‘65% of customers who bought a Palm organisertold the makers of this device that they hadheard about it from another person.

47% of the readers of Surfing magazine (USA)say that the biggest influence on their decisionsabout where to surf and what to purchase comefrom a friend.

Friends and relatives are the number onesource for information about places to visit orabout flights, hotels or rental cars, according tothe Travel Industry Association (USA). Of thepeople surveyed, 43% cited friends and familyas a source for information.

57% of customers of one car dealership in Cali-fornia learned about the dealership by word ofmouth. ‘This is not unusual’ says Jim Callahan of

BUZZ, OR WORD OF MOUTH 233

ipoint: real-time public information system

Devised and developed by Highland Medialinks (HML),ipoint consists of a specially programmed databasewhich can display information on attractions, activities,services, accommodation, restaurants, shopping, busi-ness and visitor attractions in the Highlands ofScotland. The information is accessed through simple-to-use touch-screen terminals located in strategic posi-tions to offer maximum access to the public.

Locations

A combination of full-size terminals and smaller desk-top units are sited in normally busy locations. It is pos-sible to operate touch-screen systems through ordi-nary glass windows, so given the right locations, safeaccess is enabled on a 24-hour basis. ipoint is installedin the following locations: Ballachulish TouristInformation Centre, Dornoch Tourist InformationCentre, Thurso Tourist Information Centre,Rothiemurchus Visitor Centre, Made in Scotland,Fairways Leisure, Nevis Range, Inverness RailwayStation, Eilean Donan Castle, Highland Wildlife Park,Inverness Floral Hall, the Whisky Shop Dufftown, LochNess 2000 Exhibition, Aros Centre and GlenmorangieDistillery.Desktop units are also to be installed in NevisSports, RAF Lossiemouth and Glenmore ForestryCommission.

Content updating and presentation

Information on the system is real time and updatableon a daily basis.The terminals operate from an internalhard drive that contains all the current information onthe database. Until broadband/wireless access is avail-able to allow a permanent Internet connection, eachterminal automatically connects to a remote server toenable the necessary updating and changes to be facili-tated.This is generally done at night to allow minimumdisruption to the service.

All date-sensitive information is automaticallyarchived throughout. It is possible to place informa-tion on location specific terminals thus achieving site or user-specific promotions and informationdissemination.

Clients (whose information is given on the system)are able to view monitoring statistics for their entryby logging onto the admin section of thewww.ipointhighlands.com website. This section alsoallows them to update and alter their entry informa-tion as often as they wish

Indexed information on the database isprogrammed to appear in a random manner whichallows every entry the opportunity of being in a differ-ent position for choice, and not always beingpresented in a structured order such as alphabeticalor order of inclusion.

Languages and the user interface

If desired, the information on the system can be shownin a number of languages. Usually the general user infor-mation is translated into the five common Europeanlanguages, and specific service or activity provider infor-mation is only presented in English.

The user interface for the system is uncluttered,highly visual and attractive. It is extremely easy to useand only requires a minimum number of choices to bemade before the desired information is reached. Theinterface does not carry banner advertisements nordoes it have a presentation with too many choices, bothof which often have a negative effect on users.Information is readily accessible and the system is verysimple for first-time users to navigate.

The online statistics provide a level of detail aboutthe effectiveness of the system and overall usage(regarding visitor profiles: who is looking at whatentry/piece of information, from which location andhow often).Source: Highland Medialinks.

Mini case 10.3

the Dohring Company, which conducts surveysfor about 500 car dealerships (in the USA) everyyear.

Every year we hear about movies such as TheBlair Witch Project or There’s Something AboutMary that are driven by word of mouth. 53% ofmoviegoers rely to some extent on a recommen-dation from someone they know, according to astudy by Maritz Marketing Research. No matterhow much money Hollywood pours into adver-tising, people frequently consult with each otherabout what movie to see.

70% of Americans rely on the advice of otherswhen selecting a new doctor, according to thesame study (above). 63% of women surveyed forSelf magazine cited ‘friends, family or co-workerreferral’ as one of the factors influencing over-the-counter (OTC) drug purchases.

As you can see from Rosen’s research, individuals

can place great value on both word of mouth andwho communicates the information to them. (Youmay want to reflect on this when you read Chapter16. Consider the relationship between psychologyand buyer behaviour. As stated in that chapter, trustin other people’s judgments, among other vari-ables, is an important factor in helping an individ-ual make a purchasing decision.)

Of course buzz is nothing new. Throughouthistory there are examples of how buzz has beeninstigated or used to create awareness – everythingfrom marketing products to launching a revolution.However, it could be argued that with an ever-expanding networked society, the potential forbuzz to be a driving force in promoting products orservices greatly increases.

However, there needs to be a word of warning.It tends to be assumed that buzz is a positive driverin marketing communications. This is clearly notalways the case. As well as telling people how cool


When is a national secret not a nationalsecret? When it is a myth, and on the official website.

The UK Security Service (generally known as MI5)was originally founded in 1909. Its role is to protectUK interests both at home and abroad from foreignintelligence agencies and terrorist groups. Althoughthere were numerous official and ‘semi-official’ histo-ries, MI5 used to appear cloaked in a veil of secrecy.In 1990s the then Director-General, Stella Rimming-ton, took a much more enlightened approach andbecame the public face of MI5. Since then the Servicehas taken a more open approach in communicating itsrole. It began by launching a website (which has beencontinually updated to reflect the changing dynamicsof world politics).

As the organisation had for so long been clad insecrecy (for understandable reasons), various mythsand misunderstandings abounded. The buzz was thatanyone who worked, past or present, for the Servicecould not reveal anything about it. In reality the offi-cial and ‘semi-official’ histories should have dispelledthis particular myth, but this was clearly not the case.The myths, however, have grown in somewhat strangeproportions.To quote from the MI5 website:

Our members and former members are prohib-ited by Section 1 of the Official Secrets Act 1989from disclosing, without lawful authority, infor-mation relating to security or intelligence whichcame into their possession while in the Service.

It is clearly important that security and intelli-gence information is protected from unauthoriseddisclosure, to prevent damage being caused to oursources,operations and methods.But Section 1 issometimes criticised as prohibiting disclosureseven about such unimportant matters as thecolour of the Thames House [London Headquar-ters] carpets (which are blue) and the menu in thestaff restaurant.These criticisms are misguided.

Yes, as incredible as it may seem, for years the colour ofthe carpet was considered a national secret.This is clearlynot true, but it does illustrate how buzz can also set up along-term negative image, producing a set of ‘urbanmyths’ about a product,service or organisation.For yearsthe location of MI5’s headquarters was also considered anational secret. The joke in the 1970s was that if youasked any London cabbie, he or she would say, ‘Oh, youwant the old Ministry of Education building in CurzonStreet.’ Perhaps this is the urban myth that the Servicewanted the British public to know anyway?Source: www.mi5.gov.uk

Mini case 10.4

a particular product or service is, we are equallyprone to tell people how poor a product or serviceis. One issue here is that not everyone who criti-cises a product has necessarily tried it. They aresimply going on the buzz surrounding them at thetime. The risk is that the supposed inferiority of theproduct or service may become greatly exaggeratedin the repeated telling of the story.

When negative buzz circulates, the companyneeds to be able to consider the following (ofteninterrelated) approaches:

� Counteract the buzz by rectifying the negativeaspect. A combination of marketing communi-cation tactics may be deployed for thispurpose. There needs to be an element of real-ism here, in that the negativity might be soingrained that it is difficult or impossible torectify it. Time will rectify the problem some-times, but not always.

� Counteract the buzz by stating the positiveaspects of a product or service, thus to some

extent ignoring the negative comments. Politi-cians, for example, are very good at focusingon what they believe their party has done wellfor the country rather than any negatives. Thisis even the case when they are asked directquestions about problems associated with theirparty’s policies. Of course, this is a potentiallyhigh-risk scenario as the public becomedistrustful of the ‘spin’ placed on the productor service. This could, over time, lead to furthernegativity.

� Counteract the buzz by agreeing that therehave been problems with the product or serv-ice. This may include accepting the ‘untruths’in the short term to build a much more focusedand positive image in the future.

The MI5 example illustrates, if perhaps in a slightlyridiculous yet humorous sort of way, that myths candrive negative buzz. Opposite to this is the way inwhich positive buzz can drive forward and buildthe reputation of a product. Groucutt et al. (2004)

BUZZ, OR WORD OF MOUTH 235

Eats, Shoots & Leaves

You probably never thought that a book on punctuationcould become a best seller! That is exactly what hap-pened to Lynne Truss’s book Eats, Shoots & Leaves, pub-lished in 2003. By June 2004 it had sold almost a millioncopies in the United Kingdom. It was the publishingphenomenon of 2004, and along the way collected theBritish Book of the Year Award.

Perhaps like all good books it caught people’s imag-ination. Truss’s approach to punctuation is witty anddirect. Just consider the following brief quote from thejacket cover:

A panda walked into a cafe. He orders a sand-wich, eats it, then draws a gun and fires two shotsin the air.‘Why?’ asks the confused waiter,as the panda makes

towards the exit. The panda produces a badly punc-tuated wildlife manual and tosses it over his shoulder.

‘I’m a panda’, he says, at the door.‘Look it up’.The waiter turns to the relevant entry and, sure

enough, finds an explanation.‘Panda. Large black-and-white bear-like mammal,

native to China. Eats, shoots and leaves.’

The book, originally published in the United Kingdom byProfile Books,had an initial print run of 5000 copies.Withina month of its launch it was already into its sixth reprint,such was the demand.

Several factors may have led to the success of thisbook: First, the author’s anarchic approach to punctua-tion made it both relevant and witty. Second, severalmajor booksellers saw its potential, especially for theChristmas market.Third, the media latched onto both thewit and value encompassed in the book. Their glowingreviews spread like wildfire throughout the marketplace.Soon it was topping the best seller lists.

Such was the success of the book that Lynne Truss wascommissioned by Penguin Books (USA) to write anAmerican version, which was launched in April 2004.Therelatively small British publisher, Profile Books, that hadoriginally commissioned the book went on to republishthree previous books by Truss during 2004.Sources: www.eatsshootsandleaves.com; www.profilebooks.co.uk; ‘Grammar book tops bestseller list’, BBC News Online,1 December 2003; ‘Grammar book enriches publishers’, BBCNews Online, 17 February 2004.

Mini case 10.5

described how word of mouth marketing helpedcatapult Dava Sobel’s book Longitude, about the lifeof 18th century clock maker John Harrison, into thebestseller lists. Asimilar event happened with LynneTruss’s Eats, Shoots & Leaves (see mini case 10.5).

■ Product placementProduct placement refers to a product or servicethat purposely appears in a television programmeor movie. The brand owners invest to have theirproduct or service associated with a particular char-acter, movie or television series. The belief is thatsuch association will help to build brand awarenessand cut through the clutter often associated withother forms of marketing communications.However, it can also greatly benefit the movie or

television programme. The brand owners usuallyinvest in campaigns associated with it, which inturn raise and/or maintain the movie’s profile.

Mini case 10.6 focuses on the increasing use ofproduct placement marketing in the James Bondmovies. Since his first movie outing in 1962, JamesBond has become an important global movie character with which brands want to be associated.

■ Movie tie-insAnother way of linking major brands to potentialblockbuster movies is through a product tie-in. Forexample, the fast food chain Burger King investedan estimated US$45 million in advertising and toys(an estimated 50 million were produced) in theirpromotion of Disney’s® Toy Story (1995), and saw a


The rise, rise and further rise of productplacement in James Bond movies

‘Ah 007, so glad you could join us! This isHenderson, your product placement manager.And this time try and bring everything back inone piece!’

‘Well, Q, you really do not know how rough itcan be out there in the field.’

‘Yes 007, we know!’

Since their conception in 1962 the James Bond movieshave become the biggest grossing movie series of alltime, and this trend is destined to continue.While theactors who play the sophisticated British Secret Intelli-gence Service agent may come and go, the series hasgone from box-office strength to strength.The movieshave a long history of product placement. In 1964 JamesBond drove a sleek gadget-filled Aston Martin DB5 alongSwiss mountain roads in pursuit of Goldfinger in the filmof the same name.By 1995 in Goldeneye Bond was at thewheels of a BMW Z-3 series.

By the time of Goldeneye the power of product place-ment in a James Bond movie was clear to everyone.Thelink between the movie and the introduction of BMW’sZ-3 was to produce one of the most successful carlaunches to date. For BMW the use of the Z-3 in themovie proved to be the ideal teaser campaign.The Z-3was launched some three months after the global releaseof Goldeneye, and was supported by a series of James

Bond-themed television advertisements.The car gaineda global recognition, and BMW obtained 12 monthsworth of orders (Stewart-Allen 1999).

By the time of the next Bond movie – TomorrowNever Dies (1997) – there was reportedly over UK£20million of product placement (BBC 2001). However, thevalue to BMW was even more significant.With a rangeof products from the Z-3 to motorbikes, it is estimat-ed that the return on BMW’s investment was overUS$100 million (Stewart-Allen 1999)

In Die Another Day (2002), Bond returned to drivingan Aston Martin (the V12 Vanquish), with its usual arrayof weapons and gadgets supplied by Q. Bond’s villain inthe movie drove an equally well-equipped Jaguar.Interestingly, Ford Motor Company owns both theBritish-made Aston Martin and Jaguar brands.

In all there were 24 major promotional partners inDie Another Day, ranging from Aston Martin to Bollingerchampagne, Omega and Swatch watches. It was esti-mated that they would spend some UK£95 million oncampaigns associated with the movie worldwide(Bhatia 2002). The actor Pierce Brosnan, who playedJames Bond in the film, could be seen dressed in a din-ner suit adorning posters on Parisian streets wearing anOmega watch.This major watch brand was clearly iden-tifying itself with the cool sophistication of James Bond.Sources: ‘Bond: nobody sells it better’, BBC Online, 2001; S.Bhatia, ‘Ah, Mr Brand, I’ve been expecting you’, Observer, 17November 2002, p.16;A. L. Stewart-Allen, ‘Product placementhelps sell brands’, Marketing News, 15 February 1999.

Mini case 10.6

significant return on its investment (Lukk 1997).During the first week of the Toy Story promotion,launched a week prior to the opening of the movie,Burger King doubled the sales of its Kid’s Mealsover the previous year’s figure. It is estimated thatBurger King sold 6.4 million Kid’s Meals that firstweek alone (Lukk 1997).

Toy Story was and remains a highly successfulmovie. However, not all movies are so successful,so choosing the right movie in order to invest in tie-ins remains a high-risk venture. However, if themovie is a box-office hit there can be significantreturns on investment.

■ Merchandising the brandAs stated by Groucutt et al. (2004), ‘virtually everycompany and organisation is involved, to a greateror lesser extent in merchandising its brand identity.The value of merchandising within this context,should not be underestimated.’

There is often confusion surrounding the word‘merchandise’ for it has two meanings:

� As a derivative of the word merchant it can anddoes mean goods or products. In the retailbusiness, for example, the clothes on the racksare referred to as merchandise.

� The second definition is a focus on themerchandising of a particular brand, relating itto specific events or organisations.

As you will see in the remainder of this section, thefocus here is on the second of the two definitions.Before considering examples it worth consideringwhy organisations invest in merchandising theirbrand. Table10.4 outlines several potential reasons.

Examples of merchandising

A university

Universities and colleges often market merchandiseto their alumni, ranging from pens to teddy bearswearing university shirts or jumpers. In some casesuniversities have opened their own shops to marketmerchandise not only to current and past studentsbut to the general public as well. In the United King-dom Oxford University has a store in the centre ofOxford (also a tourist city) which sells a wide range

of university-related merchandise. As well asuniversity merchandising, departments within auniversity may develop their own line of merchan-dising. Mini case 10.7 illustrates how the BusinessSchool at Oxford Brookes University developed itsown merchandising.

MERCHANIDISING THE BRAND 237

Oxford Brookes University BusinessSchool

In 2003 the Business School at Oxford BrookesUniversity launched its own range of merchandising.The objective was to market the Business School’sbrand to current staff, students and alumni, and indoing so create a scholarship fund. All proceedsfrom the sale of the merchandise go to the BusinessSchools’ Business Club Alumni Scholarship Fund.Source:www.brookes.ac.uk/alumni

Mini case 10.7

© Oxford Brookes University. Reproduced with kind permission.

Some of the merchandising undertaken by theBusiness School at Oxford Brookes University

Figure 10.20

oxfordBROOKES

UNIVERSITY Business School

Oxford Brookes UniversityBusiness School

Merchanidisewww.business.brooks.uk

A movie

As Table 10.4 shows, the merchandising of a moviebrand can enhance its promotion and provide anadditional revenue-generating stream.

An airline

Both major international carriers and their low-cost regional equivalents engage in merchandisingtheir brands. In the vast majority of cases the prod-ucts are available onboard, and some are sold bymail order or via the Internet. British Airways forexample has its own retail outlet in London’sRegent Street. As well as marketing vacations andtravel goods (from luggage to maps), it markets its

own merchandise, including postcards of aircrafts,history of the airline and specific aircraft (forexample, Concorde), business folders and children’s gifts.

■ Celebrity endorsementsThe concept of celebrity endorsements of productsand services is far from new. Hollywood actors inthe 1940s and 1950s endorsed everything from carsto cigarettes (Including former US President the lateRonald Reagan when he was a movie actor).However, what is new is criticism of celebrities forendorsing some products or services. It is mostunlikely that any celebrity would today endorse a


Table 10.4 The rationale for merchandising a brand

Rationale Description

Brand awareness– visibility

Merchandising takes the brand outside its normal habitat. For example, a child wearing a clubfootball shirt in the street is ‘promoting’ both the club and possibly a named star player for theteam.This increases visibility and thus brand awareness for that club.

Reinforcementand recall

Merchandising can be used to reinforce the brand in the mind of the customer. Someorganisations use merchandising as ‘giveaways’ to current and potential clients: for example,notepads for desks so the organisation’s name and contact details are always visible.The objectiveis that the customer will recall the organisation’s expertise from seeing its notepads on the desk,and contact it. Major printing companies, for example, in the United Kingdom have used suchmerchandising tactics to significant effect.

Identification Merchandising is a way of associating or identifying with a particular brand or organisation.Graduating students from college or university become members of that institution’s alumni.Thepurchase of alumni merchandising creates a symbolic link between the graduate and the institution.

Extending thebrand

There is a case to be made that merchandising is a form of brand extension. Movie companies, forexample, sell rights to companies to create and market merchandise using movie brands.The StarWars sagas are an excellent example of how merchandising can increase income generation andpromote the movies.This ranged from the introduction of toys through to John Williams’ best-selling album, recorded with the London Symphony Orchestra, of the score to the movie. (It wentPlatinum in the worldwide album charts!)

Revenue generation

There is clear evidence that merchandising can generate significant income for the organisation.One of the most successful companies at merchandising its brand is Manchester United FootballClub, which has supporters worldwide. Manchester United originally formed a wholly owned subsidiary, Manchester United Merchandising Ltd, to further develop its global brand name andimage.As part of its strategic review, Manchester United signed a deal in 2003 with Nike that was‘designed to generate new value from the Group trademarks by using their [Nike] product development, marketing and distribution reach to supply our existing customers and new customers in Asia’. The partnership arrangement with Nike allowed Manchester United to launchits new 2003/04 shirt in 58 territories simultaneously.The football club believed (at the time ofwriting, 2004) it would benefit from ‘Nike’s expertise in developing products and marketing themaround the world’.Source: ‘Business strategy’, Manchester United plc.

pack of cigarettes or a fur coat. It could mean theend of his or her career, as he or she would be vili-fied by the media and boycotted by the public.

One of the most difficult problems facinggovernments in the West especially is obesity. Thisis at least in part caused by our fast-food consumersocieties, with heavy consumption of foods likehamburgers, French fries and potato crisps. Drivenby increasing health care bills, some governmentshave made moves to seriously restrict the advertis-ing of foods associated with health problems. Thedifficulty for celebrities endorsing them is the riskof being tarnished by the stigma associated withobesity. On the other hand the product manufactur-ers have to rethink their manufacturing processesto reduce the content of fat and salt especially. Bythe end of 2004 companies such as McDonald’s™were actively promoting the need for healthyeating.

■ SponsorshipThis is a specialist form of advertising that cancreate significant market exposure for the sponsor-ing organisation. Cornwell and Maignan (1998)describe sponsorship as:

Sponsorship involves two main activities: (1) anexchange between a sponsor [such as a brand]and a sponsee [such as a sporting event]whereby the latter receives a fee and the formerobtains the right to associate itself with the activ-ity sponsored and (2) the marketing of the asso-ciation by the sponsor. Both activities arenecessary if the sponsorship fee is to be a mean-ingful investment.

Companies and organisations align themselveswith an activity with which they want to be associ-ated, such as a series of classical music concerts, acharity or specific cause, or a major sporting eventsuch as the Olympic Games or a sailing regatta (seeFigure 10.21).

Potential benefits of sponsorship

� The value of the association itself: Organisa-tions involved in sponsoring major arts festi-vals, for example, can gain significant benefits

(both concrete and in the form of reputationenhancement) through association with theevent.

� Exposure: depending on the size of the event,the exposure of the organisation and its brandscould be on a global scale. Consider the globaltelevision exposure of sponsoring a winningFormula 1 racing team.

Of course, this assumes that the events spon-sored are a success. Companies have, in the past,sponsored sporting individuals and teams onlyto see them lose (in a match there can only be one winner), or far worse, be disqualifiedbecause of cheating (for instance, taking bannedsubstances).

SPONSORSHIP 239

Figure 10.21


A telecommunications company sponsored the sailingregatta on Lake Garda, Italy in 2004

■ Sales promotionThis is a marketing activity that can be used to:

� promote a new product or service

� reinvigorate interest in an established productor service

� discount a product or service where this isnecessary because of overstocking, or toincrease off-peak sales, for instance within thevacation market.

As well as introducing a new product or service, acompany can use sales promotions to attract newcustomers to existing products or services, and tomaintain a competitive edge.

Types of sales promotionThere are various types of sales promotion thatorganisations can use. The choice will depend onmany factors including the type of product or serv-ice on offer. A company may decide to use morethan one type of sales promotion.

Free samples

This is the distribution of free samples via door-to-door drops or as on-pack promotions. The objec-tive is that the recipient will try the product,especially as it is free, and consider purchasing it infuture.

Money-off coupons

These are vouchers or coupons that allow shoppersa discount (usually time limited) on particularproducts. They are usually distributed via door-to-door drops, in magazines and newspapers and atretail outlets.

Extra value offers

These are offerings where an extra value is addedto the product being promoted. This can take theform of:

� More of the product for the same price. Forexample, a company producing shaving foammight offer 220 ml for the price of 200 ml, socustomers receive an extra 20 ml free.

� Adding an extra related product to the pack.For example, the Spanish shaving foamZorrick® was marketed in the United King-dom with a pack of six twin-bladed disposablerazors attached.

Buy one get one free (BOGOF)

Originally this focused on the promotion of oneparticular product. Therefore if you bought onepack of brand X you received another pack of brandX. This approach was easily emulated, and compa-nies have developed variants on the theme, forexample:

� three for the price of two – same product

� three for the price of two – mix and match


Orange™ Prize for Fiction

In January 1996 the Orange™ Prize for Fiction waslaunched in the United Kingdom to specifically hon-our writing by women. Since its inception, themobile phone network company Orange™ hasactively sponsored the prize, and it has expanded itssponsorship to include the award of a new prizefrom 2005 – the Orange™ Award for New Writers.This focuses on celebrating emerging female writingtalent, and the winner receives UK£10 000 to helpher pursue her writing career with greater freedom.

Additionally, Orange™ supports Orange™Labyrinth, an online site that explores the process ofwriting a novel, featuring interviews, competitions,reviews and workshops.

Orange was attracted to the Prize for Fiction asmuch by the educational and lifelong learning initia-tives that were planned to run alongside it as by theactual award itself.To quote the company:

Sponsorship increases awareness of theOrange™brand and values. It adds to thebrand personality through the activities supported and endorses the Orange™philosophy as an investor in the future.

Today, the Orange™ Prize for Fiction is among theUnited Kingdom’s largest annual literary awards.Sources: www.orange.com, www.orangeprize.co.uk

Mini case 10.8

within a product range (for example, vitaminand other supplements manufactured by thesame company).

Special offer bins or shelves

These are in-store promotions. The retailer maydecide to discount a range of similar products,DVDs for instance, placing them on designatedshelves or in special bins. These offers are often usedto reduce stock levels of discontinued products.

Bundling

Here ancillary products are bundled with themain product on offer. Bundling is extensivelyused in the UK computer market, where addi-

tional software and hardware are bundled withthe computer. Companies usually provide vari-ous bundled options so that the customer canchoose which bundle of products is best for their needs. (See Chapter 11 on pricing, whichdiscusses the pricing strategy in relation to both bundled and unbundled products andservices.)

Privilege points

Various companies now offer ‘privilege points’ tocustomers. The most common form is the super-market loyalty card. Such reward schemes arealso prevalent in the airline industry (forinstance, Air Miles®), the credit card industry(cash-back bonuses or gifts) and retail outlets

SALES PROMOTION 241

Hoover® and the free flights offer

In August 1992, Hoover® UK launched a major travelpromotion. In essence anyone in the United Kingdomspending £100 on Hoover® products by the end ofJanuary 1993 would receive two free round-trip airtickets to selected European destinations.An additionalexpenditure of £150 resulted in two free round-triptickets to either New York or Orlando, Florida.Hoover® worked with two travel agencies whichintended to obtain low-cost air tickets. Commissionwould be earned by selling packages (hotels, car rentaland insurance) to the customers. For each packagesold, Hoover® would receive a percentage of the com-mission, and this was intended to provide a revenuestream that would offset the cost of the promotion.Theoverall objective was to sell a growing inventory of vac-uum cleaners and washing machines, and turn around aEuropean deficit of some UK£10 million.

Hartley (1998) states that Hoover® executivesexpected no more than 50 000 responses. Of those, itwas estimated that only a few would complete all thesteps necessary to take the free trips. However, morethan 200 000 customers responded and qualified forthe free trips.The demand for Hoover® products wasso great that the factory in Scotland, which had beenproducing vacuum cleaners only three days a week, wasforced to operate 24/7.

The demand for the airline tickets caused a majorbacklog in paperwork. Some customers did not receivetheir tickets, others were not offered flights on the

dates they requested, and some received no reply at allto their correspondence.

The company set up a telephone hot line whichprocessed some 2000 calls per day.The developing crisiswas exacerbated by the negative publicity that followed.Additionally, many of those who obtained free flights didnot take up the add-on packages, reducing the revenuestream Hoover® had factored into the promotion.

Soon the company was struggling not only to fulfilits promotional promise but also to push back the tideof negative publicity that was engulfing it. It had under-estimated the potential response to the promotion andoverestimated the financial returns.

Several senior executives, including the President ofHoover® Europe, were dismissed by Hoover’s parentcompany Maytag. The crisis lasted some six years, andeventually some 220 000 people received free flights.Theestimated cost to Hoover® and Maytag was UK£48million.

One group that did significantly benefit from thepromotion was electrical retailers. It is estimated thatan additional UK£9 million was added to their profits.

Maytag sold Hoover® Europe to the Italian appli-ance manufacturer Candy SpA, and set up a fund tohandle litigation against the company. The factory inScotland was closed. Overall this was a significant pub-lic relations disaster for both Hoover® and Maytag.It demonstrates the need for accurate cost–benefit analysis when planning a sales promotion campaign.Sources: Hartley (1998); BBC Television, Trouble at the Top:Hoover flights fiasco, broadcast on BBC 2,12 May 2004.

Mini case 10.9

(one coffee house chain rewards regularcustomers with a free coffee after 10 visits). Allthese are designed to increase usage of the product or service.

Sales promotions can be too successfulIt is worth briefly noting that sales promotions canbe too successful, and thus jeopardise the organisa-tion’s reputation. A classic promotion that was ‘toosuccessful’ was the Hoover® flights promotionconsidered in mini case 10.9.

■ Exhibitions, expos and tradefairs

Exhibitions, expos and trade fairs are used inboth B2C and B2B environments, marketingeverything from computer software and cars tovarious types of machinery, equipment andfashion items. As Table 10.5 illustrates, the exhi-bition environment can deliver opportunities forcompanies if they approach exhibitions from asystematic perspective.

Table 10.6 highlights a selection of the keyB2B and B2C exhibitions and related festivalsused to promote products and services.

■ Public relationsThere are many definitions for public relations.Virtually every association that represents publicrelations practitioners has its own definition. Inessence it concerns the relationship between anorganisation or individual and its (or his or her)direct and indirect publics. For a greater under-standing of public relations it is worth dissectingthat definition further.

� Organisation: this can be any type includingfor-profit companies, non-government organi-sations (NGOs), not-for-profit organisations(such as charities and universities), govern-ment departments and units within organisa-tions (such as strategic business units ordepartments). All these organisations use andneed public relations to a greater or lesserextent.

� Individual: whilst the majority of definitionsfocus on organisations it is worth rememberingthat individuals too use public relations topromote themselves. This is especially true ofcelebrities and politicians, although ordinarypeople are sometimes thrust into the limelightof the media.

� Publics: each organisation or individual has a


Table 10.5 The value of exhibitions

Indicator Description

Target audience

It is usually only people interested in the specific products or services on offer who frequent B2Bor B2C exhibitions.Thus, exhibitions can focus directly on a specific target audience. Especially ina B2B environment, key buyers or potential buyers can be invited to the exhibition to see theproducts and services.This is usually accompanied by supportive PR activity such as a reception.

Quality audience Linked to the point above, usually only individuals or groups who have the resources to purchasethe products or services visit exhibitions.

Time spent If the exhibition stand incorporates some form of interactivity, it is likely that a visitor will spendmore time discussing the product or service. For example, this might be a demonstration of thelatest software or a presentation on the services available. By being able to increase visitor timeon the stand, the company has an increased opportunity to interest the visitor in its products orservices.

Launch potential

Exhibitions can be used to launch a new product or service. PR activities to support the launchare usually employed.These include media packs and a reception.As the media will normallyspend time at an exhibition, it can be a very good location to launch a product or service,maximizing the number of journalists writing about it.A launch also increases the potential foradvance order taking.

set of publics or groups that interact with it (orhim or her). These include employees,customers, media, fans, pressure groups andlegislators. It is possible to create two subsets ofan organisation’s publics:

● Direct publics: as the title suggests theseare publics that have a direct relationshipwith the organisation or individual.Depending upon the nature of the rela-tionship they normally include employ-ees, customers, suppliers, competitorsand the local community.

● Indirect publics: these are publics thathave no immediate direct relationshipwith the organisation or individual.However they may be influenced, atsome point in the future, by its (or his orher) actions. Examples are the proposedintroduction of new rules and regulations

PUBLIC RELATIONS 243

Figure 10.22

© Shona Muir. Reproduced with kind permission.

The exhibition stand for the Australian-based companyMuir Anchoring Systems at the 2004 Monte Carlo BoatShow

Table 10.6 A selection of key B2B and B2C exhibitions worldwide

Location/country Exhibition-expo-tradefair

Description

Buenos Aires,Argentina

Expo Comm Argentina B2B Telecommunications exhibition covering a range of products and services from fibre optics to cellular and broadband services.

California, USA Western Foodservice andHospitality Expo

Sponsored by the California Restaurant Association. Food andbeverage products and food service equipment.

Cannes, France Cannes International BoatShow

B2B and B2C. Boat builders and importers of sailing and motorboats, ship chandlers, sailing wear and insurance services.

England, UK Farnborough InternationalAir Show

Aviation and aerospace.Announcements of new aircraft andequipment.

England, UK Defence Systems andEquipment Exhibition

Defence equipment manufacturers marketing to other companies and government representatives.Thus B2B andB2G.

Germany Frankfurt International BookFair

Publishers market rights and permissions for a wide range ofbook titles.

Kuala Lumpur,Malaysia

International HealthcareShow

Hospital management systems, medical equipment and products, pharmaceuticals and healthcare services.

Paris, France Visual CommunicationsEurope

B2B exhibition that covers all aspects of visual communication from signs to communication agencies.

Queensland,Australia

Queensland Mining andEngineering Expo

Products and services for the mining mineral processing, powergeneration, sugar processing and smelting industries.

Spain Medical Forum Expo International healthcare systems exhibition.

by a government department, and how acompany or individual handles a crisismanagement situation.

� The relationship: this is the type or nature ofthe relationship that exists between organisa-tions/individuals and their publics. It includesthe reputation and image of the organisationand its brands. For instance, whether an organ-isation has been ethical in its dealings with itspublics will ultimately affect its reputation andperformance. An example of a damaged repu-tation is the US-based energy companyENRON, which collapsed in 2002 amidstcorporate scandals.

Scope of public relationsPublic relations covers many aspects of communi-cations between organisations or individuals and

their various publics. Table 10.7 outlines the manyand varied elements that comprise the all-encom-passing term ‘public relations’. As you see it is avery broad subject, covering both internal andexternal communications. Additionally, you willsee that several of the elements are interrelated.

■ Integrated marketingcommunications

Integrated marketing communications (IMC) is theprocess of creating a uniform message and stylethat incorporates the different forms of media. Thusthe company, organisation or brand communicatesto its target audience with a single message usingvarious communications channels.

Schultz, Tannebaum and Lauterborn (1993)encapsulated the relevance of the IMC conceptwhen they stated:


Table 10.7 The scope of public relations

Activity Description

Corporate relations

The relationship between an organisation (at the corporate level) and its publics, who includestakeholders (including shareholders) and the media.

Community relations

The relationship between the organisation and the community within which it operates.A multinational corporation (MNC), for instance, will operate within several, often very different,community environments. Companies may work closely with local communities (including localgovernment representatives) to alleviate problems such as noise from late night deliveries. Equally,companies may become actively involved in local community activities such as fundraising for localschools and hospitals, building a strong link between the organisation and the community. In manyparts of the world organisations have become not only the largest employer within a community,but also the centre of that community.

Customer relations

In increasingly competitive markets companies seek to build longer-term relationships with theircustomers. Customer relations can include the development of loyalty card systems, meet andgreet policies in hotels and stores, and how complaints are handled.

Employee relations

This is the relationship between the organisation and its employees, on both a one-to-one andone-to-group basis. Employee relations normally includes communications with retirees who perhaps benefit from the organisation’s pension plan. It can be argued that for a for-profit organisation (depending on the nature of the business) retirees can also be viewed as customers.Employee relations is often considered as the core component of internal communications.Research has indicated that good internal communication processes can enhance employee motivation.

Industrial relations

This can be viewed from two perspectives. First is the relationship between different companiesoperating in the same industrial or commercial sector.While refraining from revealing companysecrets, organisations can share information that will have a benefit to the industry as a whole,through special forums and/or through trade/professional bodies. Second, this can be the relationship between the organisation and the various trade unions and professional bodies thatrepresent its employees in negotiations.

PUBLIC RELATIONS 245

Activity Description

Governmentrelations

Organisations communicate with government on many different levels. For instance, they maylobby governments to persuade them to either introduce or modify legislation. Equally,government may communicate new initiatives and trade developments directly to the businesscommunity: for instance, new levels of financial support available to companies wanting to partici-pate in overseas exhibitions to market their products and services.

Issues management

This is also known as crisis management, and is a major component of public relations.Organisations prepare plans in case a crisis or major issue arises.These can relate to humanresources (such as strikes), or to products (faulty goods or contaminated products). Crisis orissues management may be used either as part of an ongoing campaign or to handle a one-offspecific crisis. For example, an organisation may have an ongoing crisis that it needs to handleover the longer term, such as a need to counteract consistent attacks by determined campaigners.Various chemical, food and oil companies have for years had to deal with ongoing cri-sis management issues regarding their operations both at home and abroad.The second majorcategory covers one-off incidents.These range from a major disaster (oil rig fire or plane crash)to mismanagement of the business (for example, the collapse of the energy giant ENRON in theUnited States).

Investor relations

To some extent this links into corporate relations, as stated above. It focuses on stock marketlisted companies and how they communicate with their shareholders, and the investment andbanking communities in general. It is critical that such companies build a strong relationship withtheir investor community. Such a relationship becomes ‘critical’ when companies have to issueprofits warning (i.e. profits will not be in line with forecasts and this will impact upon the shareprice) or the company faces a potential hostile takeover threat. If the investor community (especially large fund holders) are ‘onside’ with the company, a hostile takeover might be blocked.If they are not ‘onside’ the investors may vote for the takeover.

Market or supply chainrelations

The relationship organisations have with their suppliers and distributors. In an increasingly 24-hour operational environment which is reliant on just-in-time (JIT) movements, organisations haveto develop effective relationships through the supply chain.

Media relations The ongoing communications between an organisation and the relevant media.As with customers,organisations have to build a relationship with the media. Media relations is both a proactive andreactive occurrence.

New productand servicelaunches

Companies and organisations (for example, government departments) use a range of techniquesto launch a new product or service into the marketplace.These include product demonstrations,launches at exhibitions (for instance, a new model at an international car show) and service experiences (for instance, the launch of a new train service).

Promotion The marketing of the individual, organisation, product or service to interested publics.This may beachieved through exhibitions or special events.

Public affairs Governments, non-government organisations (NGOs) and opinion formers (a component ofpublics) communicate on issues of public policy and legislation.Again, lobbyists may work behindthe scenes to persuade legislators to make amendments to current or proposed legislation.

Publicity It is often assumed, quite wrongly, that public relations consists solely of publicity.At the turn ofthe 20th century it could be argued that publicity was the mainstay of public relations. However,public relations is much more today. Publicity can be described as ‘the dissemination of plannedand executed messages through selected media to further the interests of a person or organisation without payment to the media’.This ties in with media relations as discussed above.

Source: adapted from Groucutt et al. (2004).

In this new era of integrated marketing commu-nications, the communication strategy is theimperative element in the communicationsprocess for all departments within the marketingorganisation. It forces every aspect of thecommunications process to reach the consumerin a unified manner, with one personality, onebenefit, one selling idea. Every communicationtactic that flows from the integrated communica-tions strategy reinforces the reason why theconsumer should believe in the product.

As they suggest, for IMC to be successful, organisa-tions need to develop a communications strategy.This following aspects need to be considered:

� The strategy needs to link back to the corporatestrategy of the organisation. That is what theorganisation wants to achieve over the short,medium and longer terms, bearing in mind, ofcourse, that in today’s turbulent world long-term planning is usually just ‘blue-sky’ think-ing.

� For an integrated strategy to have an opportu-nity to be successful the different communica-tions channels need to operate in concert witheach other. This is often easier said than done.Discussing the various promotional variants ina book chapter is a straightforward exercise.However, these channels of communicationsare operated by different groups of people,usually operating within different organisa-tions (for instance, PR companies, directmarketing agencies and so on). While theyhave the same client (the marketing depart-ment of the organisation), they remain distinctcompanies in their own right. Both individualsand organisations often have their own agen-das, and while working in concert makessense, there may be other issues that preventsuch an approach. Therefore the onus is on theorganisation’s marketing department toprovide clear direction and control in order tosuccessfully harness the talent within thesupplier companies and to overcome anypotential rivalries.

� Communication, like any marketing planning,needs to be flexible. What might appear towork on paper might not in reality. Even with

the ‘best’ marketing research to pre-test thecommunications strategy, promotional activi-ties can, and do fail. Therefore all companiesinvolved in developing the strategy need to beflexible enough to amend it if required.

� There must be systems in place to measure andevaluate the level of success of the communica-tions strategy. Linked to the point above, thismeasurement and evaluation cannot be under-taken only at the final stages of the campaign.Measurement and evaluation must be an ongo-ing process in order to allow for remedialchanges as and when necessary.

■ The futureThe future will be determined by the external ormacro environment (see Chapter 2). However,contemporary research indicates that the Internetand mobile phone technologies, for example, willplay an increasing role in expanding communica-tion channels among the young. However in manycountries, especially in Europe, an increasingproportion of the population is aged 50 and over,and many traditional forms of media channel willbe of crucial importance.

■ Chapter summaryThis chapter has examined the various forms ofcommunication and promotion available to compa-nies and organisations. It has also briefly consideredthe psychology behind attempts to persuade indi-viduals to buy either products and services. Many ofthe techniques are over 100 years old, while some aremore recent. Nonetheless the principle remains thesame: using the right channel of communication atthe right time to reach the right target audience inorder to fulfil the marketing objectives and then thecorporate objectives of the business. This sounds farsimpler than it is in reality. The goal, though, is toachieve these aims and objectives.


1 Marketing communications campaigns arenormally developed within a competitive and


dynamic environment. Using examples toillustrate your answer, examine the factors thatmight be considered when planning a promotional campaign.

2 In a contemporary world political partiescannot afford to ignore the role of marketingcommunications to support their activities. Useexamples to explain some of the tactics thatpolitical parties may use to communicate theirmessage to a target audience.

3 Sponsorship has experienced significantgrowth over the past ten years. Using an exam-ple of a major sporting event, critically discussthe benefits a company might gain fromproviding sponsorship.

4 Some companies and organisations have usedshock advertising to promote their messages.Critically evaluate the arguments for andagainst this type of advertising.

5 ‘Clutter’ is often cited as a major barrier toaffective communications and promotion. (a)Explain what is meant by the term’ clutter’. (b)Using examples, consider what tacticsmarketers can use to break through the clutter.

6 Critically evaluate the cases for and against theintegration of marketing communications.

7 ‘Noise’ within the communications processcan dramatically affect how a customerperceives, and thus reacts to, information.Clearly outline what is meant by the term‘noise’, then critically evaluate how noisecan be reduced.

8 Consider how public relations can be used topromote a fast-moving consumer good.Support your answer with examples.

9 Imagine that you are the marketing director ofa retail food store chain in your home country.You are about to launch a new range of own-label foods. Devise a marketing communica-tions plan to launch this new range. Stateclearly what promotional tactics you woulduse and why.

10 ‘In a technologically-driven world the way wecommunicate with customers makes the role ofthe individual sales person outdated.’ Critically evaluate this statement.

11 You are the marketing director of a majorcosmetics company considering the launch of anew sophisticated fragrance for men in theMiddle East. Using the Internet and otherresources, examine the key issues to considerwhen developing the promotional campaign.(You may also want to refer to the discussion ofsocietal issues in Chapter 2).

12 Critically examine how direct marketing can beused to develop the lifetime value (LTV) of acustomer. Use practical examples to illustrateyour answer.

13 ‘Direct marketing will be the key marketingconcept of the 21st century.’ With fellowstudents debate this statement.

14 Briefly outline the potential ethical issues associated with marketing communications.

15 Examine how the Internet can be used topromote a vacation destination.

■ ReferencesBarry, T. E. (1987) ‘The development of the Hierarchy

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BBC (2004b) ‘Spam messages on the increase’, BBCOnline, 25 May.

Berlo, D. K. (1960) The Process of Communication: Anintroduction to theory and practice, New York: Holt,Rinehart and Winston.

Colley, R. H. (1961) Defining Advertising Goals for Measured Advertising Results, New York: Association of National Advertisers.

Cornwell, T. B. and Maignan, I. (1998) ‘An interna-tional review of sponsorship research’, Journal ofAdvertising 27(11) (Spring), pp. 1–27.

Datamonitor (2004) Global Offshore Call CentreOutsourcing: Who will be the next India? Datamonitor.

DMA (2003) DMA Census of the Direct Marketing Industry 2002–2003, Direct Marketing Association(UK) Ltd, July.

Ehrenberg, A. S. C. (1974) 'Repetive advertising andthe consumer', Journal of Advertising Research 14(April), pp. 25–34.

Federal Bureau of Investigation (FBI) (2003)

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Telemarketing Victim Call Center Background, LosAngeles FBI Center, www.losangeles.fbi.gov/tele-market.

Festinger, L. (1957) A Theory of Cognitive Dissonance,Stanford, Conn.: Stanford University Press.

Fletcher, W. (1999) Advertising, Advertising, London:Profile.

Grönroos, C. (1990) Service Management and Marketing,New York: Lexington.


Groucutt, J., Leadley, P. and Forsyth, P. (2004) Market-ing: Essential principles, new realities, London: KoganPage.

Harridge-March, S. (2002) Marketing communica-tions, lecture notes on telemarketing, OxfordBrookes University.

Horgan, J. (1990) ‘Claude E. Shannon: unicyclist,juggler, and father of information theory’, IEEEInformation Theory Society Newsletter (June).

Lasswell, H. (1927) Propaganda Technique in the WorldWar, New York: Knopf. See also Lasswell, H. (1948)'The structure and function of communications insociety', in L. Bryson (ed.), The Communication ofIdeas, New York: Harper & Row.

Lavidge, R. J. and Steiner, G. A. (1961) 'A model forpredictive measurements of advertising effective-ness', Journal of Marketing 25 (October), pp. 59-62.

Lukk, T. (1997) Movie Marketing: Opening the picture andgiving it legs, Los Angeles: Silman-James Press.


Mendelsohn, H. (1962) 'Measuring the process ofcommunication effect', Public Opinion Quarterly 26(Fall), pp. 411–16.

Ray, M. L.,Sawyer, A. G., Rothchild, M. L., Heeler, R.M., Strong, E. C. and Reed, J. B. ( 1973) 'Marketingcommunications and hierarchy of effects', in P.Clarke (ed.), New Models for Mass CommunicationResearch, Beverly Hills: Sage.

Rogers, E. M. (1994) A History of Communication Study:A biographical approach, New York: Free Press.

Rosen, E. (2000) The Anatomy of Buzz: Creating word-of-

mouth marketing, London: HarperCollins Business.Rossiter, J. R. and Percy, L. (1987) Advertising and

Promotions Management, New York: McGraw-Hill.Saunders, D. (1999) 20th Century Advertising, London:

Carlton.Schramm, W. (1955) 'How communication works', in

W. Schramm (ed.), The Process and Effect of Commu-nication, Urbana: University of Illinois Press.

Schultz, D. E., Tannebaum, S. I. and Lauterborn, R.F.(1993) Integrated Marketing Communications, Lincol-nwood: NTC Business Books.

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Sheldon, A. F. (1911) The Art of Selling, Chicago: Shel-don School.


Sunday Times (2004) ‘FSA director advertisements’,Appointments, Section 7, Sunday Times, p. 1.

Tapp, A. (1998) Principles of Direct Marketing, Harlow:Financial Times/Prentice Hall.

Vaughn, R. (1980) 'How advertising works: a planningmodel', Journal of Advertising Research 20 (October),pp. 27–33.

Vaughn, R. (1986) 'How advertising works: a planningmodel revisited', Journal of Advertising Research 26(February/March), pp. 57–66.

Yelkur, R. and Da Costa, M. (2001) 'Differential pricingand segmentation on the Internet: the case ofhotels', Management Decision 20(4), pp. 252–61.

Yeshin, T. (1998) Integrated Marketing Communications:The holistic approach, Oxford: Butterworth-Heinemann.


■ IntroductionAll the following have one thing in common:

◆ a music CD

◆ 10 000 micro chips for a computer manufacturer

◆ a meal at a restaurant

◆ a mega yacht

◆ a nuclear power generating plant

◆ a family car

◆ a bunch of flowers.

They all come with a price tag attached. Agreed, the scale of the price tag willbe very different – but it is a price tag nonetheless.

Price is often considered to be the only marketing mix variable that is purelyrevenue generating. It can be defined as a ‘measure of the value exchanged bythe buyer for the value of the product or service offered by the seller’. Themedium of exchange may be either financial (where money changes hands) orgoods. However, like all the variables price cannot be considered as purelyindependent, but must be related to the rest of the mix. For example, a customer

CH

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11Price

Learning outcomes 249Introduction 249Pricing objectives 250Factors that influence

price 252Cost of R&D 252Cost of production 252Additionals 252Economic value 253Competitive forces 253Market conditions 253Geography 254Pricing tactics 255Pioneer pricing 255Price skimming 257Penetration pricing 257Price matching 257Variable pricing 258Psychological pricing 258Prestige pricing 258Odd-even pricing 259Single/double pricing 259Promotional pricing 259Trade-in allowances 260Discount pricing 261Buy one get one free 261Book early discount 261Special event pricing 262Direct payment

mechanisms 262Professional services

pricing 262Competitive tendering 262International pricing 263Ethical issues 264Dumping 264Price fixing – cartels 264Premium pricing issues 266Bait and switch 266Chapter summary 266Questions for review




� discuss why price can have the most dramatic and immediate effect on thefinancial fortunes of an organisation

� outline why successful marketing strategies depend upon carefullyplanned and executed pricing strategies

� critically evaluate the different pricing tactics or techniques that companies, organisations and retailers employ

� critically examine the potential value of price flexibility at the time ofvolatility within the marketplace.

might become interested in the product throughpromotion, seek a distribution outlet (place),discuss the product with staff (people), consider theprice in relation to his or her perceived needs andthe quality of the product (psychology) and use acredit card to pay for the product (process).

It is necessary to consider what constitutes price,the methods of determining what price could becharged, how price affects the other variables andhow they in turn affect price.

Various objectives influence pricing decisions:

◆ The need to generate revenues and maximisingprofits: this is maximising the returns on assetsand/or investments.

◆ Maintaining or increasing market share: thisinvolves maintaining (basic option) or increas-ing (preferred option) customer involvement.This may require different, radical and compet-itive approaches to pricing. For a company ororganisation to have the largest share of themarket does not mean it will be the most prof-itable in the marketplace. Other factors mustbe taken into consideration, including its finan-cial and operational efficiencies and effective-ness.

◆ Creating a price that is fair and equitable forboth the seller and the buyer.

◆ A price that delivers a perceived or real value,or indeed both, to the buyer.

◆ Legal and ethical issues which deter actionsthat are detrimental to buyers and the competitive environment.

■ Pricing objectivesButtle (1986) believed an organisation’s pricingobjectives depend on several key factors. Each onein turn has an impact on the profit line. However,they must not be viewed in isolation as they canhave a cumulative effect on pricing.

◆ The cost of producing the product or service.This is the first cost that companies mustconsider. Initially the costs may be highbecause of:

● the uniqueness of the product

● limited sales as it is new to market

● market forces – competition

● market opportunities.

You may want to reflect on the issues discussedin Chapter 9 on Products.

◆ The cost of marketing the product or service.This will vary depending on the type of prod-uct or service and the competitive environmentinto which it is launched.

◆ The time frame in which the company requires areturn on the investment in the new product orservice. Some companies seek a short-term returnon their investment, while others take the longerview. This may include developing and expand-ing markets for sustainable long-term growth.

◆ The profit margin the company wants toachieve. This is the level of revenue generatedabove the cost of manufacturing and marketingthe product or service. It will vary depending on:

● the costs of production

● competitive forces

● the product’s or service’s position in themarketplace

● its lifecycle position.

250 11 • PRICE

Figure 11.1


Yachts, super yachts and mega yachts adorning themarina in Monte Carlo.They all come with a veryheavy price tag, not just for construction but for maintenance as well.

◆ Whether the product or service will bemarketed as a single purchase, or couldbecome a repeat purchase. For example, aluxury car will be a one-off purchase at leastfor a couple of years before it is traded in fora newer model. A chocolate bar, on the otherhand, could be a regular or repeat impulsepurchase on a daily, weekly or monthlybasis.

◆ The relationship between the price of thenew product and other products in thecompany’s product line. A company thatproduces and markets several similar prod-ucts will need to consider the effect of thenew product on existing ranges. Pricing theproduct too low, for example, may canni-balise sales from the company’s existingranges as well as from competitors. Whilethis might in the short term be good for thenew product, it will have a financial impacton existing trusted brands. In the longerterm this could be damaging to the company,especially if the new product begins to loseground in the marketplace.

◆ Whether the product or service is new to themarket or established. The company may beusing a penetrating price policy to createposition for the product in the marketplace.If it is an established product the companywill need to consider any changes that occurin the marketplace that might affect its pric-ing position. For example, if several newproducts enter the market at a lower price,the company might need to consider its posi-tion. It might lower the price to match thenew entrants, take the price below thecompetition (reducing margins), or resistchanging the price. It could take the latterview if it believes:

● its product is of superior quality

● a change in price will affect customers’perception of the product

● the new entrants will only be able to sup-port the lower pricing position over ashort term, and damage to their brandduring this period will be minimal

● a combination of these factors.

◆ The level of uniqueness of the product orservice compared with the competition. Ifthe company believes its product is superiorto the competition (current and potential) itmight charge a higher price. Of course, itdepends on whether customers also considerthe product or service offers superior valuefor money.

◆ Where the product is located within its lifecycle. Price is often affected by life cyclepositioning. Higher prices may be chargedduring the growth stages (depending on theproduct’s uniqueness) whereas lower pricesmay be charged towards the end of the prod-uct’s life as a result of competition in themarketplace. The price will depend on manyfactors, both internal and external to theorganisation.

◆ The type of relationship the company wants toestablish with its customers: short, medium orlonger term? This may reflect the types andlevel of discount available to a customer.

◆ The type of price comparison the companyseeks to establish with its competitors in themind of its customers.

◆ The extent to which the company seeks toestablish a major share of the market. Thismay be over the short, medium and/orlonger term.

◆ The level of inventory for the product. Themore stock that is held in warehouses, thegreater the cost to the company. If inventorylevels are high the company may decide tosignificantly reduce prices to move stock out ofits warehouse and through retail outlets,particularly if a new version of the product isdue to be introduced.

Companies must consider these objectives sepa-rately and cumulatively. The result will dependvery much on the product or service type, its agewithin the marketplace and the customerprofile. The objectives should not be viewed as static. Markets are often in a dynamic flux,thus companies must continually review their objectives in the light of changes within themarketplace.

PRICING OBJECTIVES 251

■ Factors that influence priceThere are many factors that influence costs bothseparately and cumulatively. This section considerssome of the key influencing factors.

Cost of research and development(R&D)Some products or services require very littleresearch and development and thus can be rapid-ly introduced to market. Others though mayrequire several years of R&D and significant finan-cial support over that time frame. Consider theR&D invested in the Airbus A380 passenger air-craft, or in the software program that was used towrite this book. Neither product appeared on themarket overnight. Relatively significant levels ofresources – financial, technology and people –were invested to develop the prototype prior tocommercial production. Therefore companiesmust seek the means of recouping this investmentin the price they charge for the final product.

Clearly such R&D costs cannot be ‘normally’included in the initial price to the consumer. If thatwere the case a word processing package, for exam-ple, would cost several thousand euros, whichwould make it unaffordable to many users.Although R&D costs need to be considered if a

product is aimed at the mass market, it still has to bepriced at a level prospective buyers can afford. Thisis a point we return to later in this section.

Cost of productionA major influencer will be cost of production. Theprice charged must ensure that the cost is recov-ered, even if this is not achieved immediately. Theanalysis must include both fixed and variable costs.While the costs of the production process may befixed to an extent, the cost of raw materials mayvary. For instance, a poor cocoa harvest due toexceptionally bad weather conditions will increasethe price of cocoa, with the price increase beingdetermined by the level of demand in relation tothe level of supply. Chocolate producers wouldthen have to consider either a price rise to compen-sate for the increased cost of raw materials, orabsorbing the cost within their current price (andreducing their margins). A company may be forcedto take the latter position if it was operating withina price-sensitive marketplace.

Additionals: local taxes and surchargesWhen considering the pricing of a product or serv-ice the company must be mindful of any ‘addition-als’. These are costs added when the bill is finallypresented to the customer. They can include:

◆ Local taxes. There might be more than one tax.These range from energy to tourist taxes, andmay be imposed by a local government ornational legislature.

◆ Service charges. If you are staying in a hotel, forinstance, you will most likely be charged forordering a meal by room service, on top of thecost of the food you order.

◆ Surcharges (such as costs associated with adelivery from your local pizza takeaway).

◆ Value added taxes (these are normally imposed by the regional state and/or national governments).

Although these are often small amounts, they areoften hidden and can mount over time.

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Figure 11.2

© AIRBUS S.A.S. Photo by exm company/ H. GOUSSÉ.

The prototype of the Airbus A380 in flight.There hasbeen significant investment in R&D to create thisadvanced aircraft capable of carrying over 500 passengers.

Economic value of the product orserviceThis can also be considered as the perceived valueof a product or service. Just imagine the followingscenario:

You’re in the desert. You are thirsty, very thirsty.Your throat is dry and sore from the lack of mois-ture. The day has been long, hot and the suncontinues to beat down upon your body. Perspi-ration runs, in long thin tiny rivulets, down yourface, you can taste the salt as it enters yourmouth. The thirst is driving you crazy.

So how much would you pay for a large glass ofcooling, refreshing sparkling mineral water?

There are times when products are plentiful andtimes when they may become scarce, and this isreflected in the price charged. This can happen indeveloped as well as developing nations.

A product or service may have a uniqueness thatis particularly difficult to replicate, and so hold aparticularly high economic value. Consider, forinstance, any of the following:

◆ a painting by a great artist such as Picasso orMonet

◆ a football or soccer player such as David Beckham

◆ Russian caviar (see page 174).

All of these have an economic value that results ina high price being charged.

Competitive forcesIf a company holds a monopolistic position withinthe market and is not regulated by the government,it is free to charge what it likes. If a company is partof a cartel and the cartel holds control over themarket, it too can charge what it likes. However,markets are rarely monopolies or cartels. Compa-nies normally operate in competitive markets, andso need to consider how their products or servicescompare with their rivals’. A company might beable to differentiate its products or services from itscompetitors’, but this is not always possible.Consider, for example, basic tinned tomatoes on a

shelf in a supermarket. With a few exceptions thecontents of the tins are essentially the same,although they have different brand names.

A company marketing tinned tomatoes mightbelieve it has a superior brand and thus charge ahigher price. However, it will depend oncustomers’ perception of the value they are receiv-ing for the higher price. If customers perceive thatthey are receiving appropriate value, they will paythe price. However, if the price is substantiallydifferent from competitors, customer might not payit. In order for the company to achieve a higherprice there must be a real as opposed to a perceivedvalue. This added value could be in the types oftomatoes used, or the canning process employed toretain the flavour.

In the 1990s there was a price battle over basictinned tomatoes in UK supermarkets. By the end ofthis battle tinned tomatoes were selling at 5 pence atin, significantly reducing margins for the retailoutlets. Such a battle could only be short lived.

Companies have to consider:

◆ The dynamics of the competitive environment:new companies will enter the market whileexisting companies may leave it. Competitorsmight not only be locally or regionally based.With increasing globalisation and the develop-ment of the Internet, competition can be inter-national in context.

◆ Differentiation: in markets where products andservices are increasingly being perceived bycustomers as ‘the same’, companies need toconsider whether they can compete on pricealone. If not, then they have to develop a differ-entiator that allows them to first, stand outwithin the competitive market – perhaps gain-ing a competitive advantage; and second,charge a price that reflects the differentiator.However, competitors may be swift to imitatethe differentiator in some form. Thus the value-added competitive advantage is lost and priceonce more becomes what determines purchase.

Market conditionsThe marketplace in which companies operate is notstatic but in a constant dynamic shift or state ofmovement. The movement is influenced by severalfactors. These include:

FACTORS THAT INFLUENCE PRICE 253

◆ Economic: the economic environment deter-mines the level of disposable income availablefor purchasing products or services. Generallyat times of high employment and sustainedeconomic growth, disposable income will behigh. The converse happens when there is ahigh level of unemployment and an economyin recession or depression. In the latter case,consumers will normally be highly price sensi-tive.

◆ Societal: as discussed in Chapter 2, societiespossess various cultural norms and traditionsdeveloped over centuries. However, culture isdeveloped, modified and altered over time.This is partly through the influence of externalfactors, but also because of generationalchanges and the desires, needs and wishes ofnew generations. Demographic changes do notonly focus on new generations. Europe, forinstance, is witnessing people living longer,and in many cases with a significantly higherlevel of disposable income than the elderly hadin previous generations.

Companies need to monitor market conditions on aregular basis. They must be aware of both gradual,and the possibility of dramatic, changes in theeconomic and societal components of the market.

GeographyFor centuries there has been import and export of various loose and manufactured products, everything from coal to trucks. There are fourfundamental factors to consider:

◆ costs of transporting the products

◆ costs associated with product adaptation

◆ government barriers

◆ whether customers in the overseas market willbe able to afford the product.

Transportation cost implications

There are various costs incurred when movingproducts from one location to another, especially ifis across national borders and over long distances.In 1936 the International Chamber of Commerce

agreed a set of standard trade definitions for use ininternational sales contracts. These became knownas Incoterms, short for International CommercialTerms. Since 1936 these terms have been revised sixtimes, with the latest (at the time of writing) beingIncoterms (2000). It is available in 31 languages.

The 13 incoterms1 cover the obligations betweentrade buyers and trade sellers and manufacturers ininternational trade. This includes who is responsi-ble for costs such as shipment and insurance. Thesecosts have to be factored into the price charged bythe seller to the buyer throughout the supply chain.

Adaptation costs

Although many products can be classed as stan-dardised, that is, they are usable in the same formacross geographical boundaries, others are not.Products may be adapted for various reasons,including legal and technical issues or a combina-tion of these. Any adaptation will incur some cost.Again, it is a question of who will initially incurthose costs and whether they will be subsumed intothe price of the product to the end customer.

Government barriers

Although the World Trade Organization (WTO) isworking towards a reduction in trade barriers,these are still imposed by nations to both protecttheir indigenous industries and to raise revenues.The barriers can be divided into tariff and non-tariff, and those related to cost are briefly outlinedin Table 11.1.

Affordability

A product may be readily affordable within onecountry but out of the reach of potential customerswithin another. Companies need to consider a raftof economic conditions (inflation, interest rates andlevels of disposable income) to understand whethera product will be affordable or not within anothergeographic location. Then, as discussed fully laterin this chapter, the company has to ‘think locally’when developing the most appropriate pricingstructure.

Price sensitivity

Customers may be particularly sensitive to eitherthe set price or increases, even if they are marginal.

254 11 • PRICE

For example, a 10 per cent price increase on an €30product would only be €3, but it could preventsome consumers from making a purchase. Theywill seek an alternative product at a lower price.For them the increase is too high; they are particu-larly sensitive to it.

In most textbooks, price sensitivity is consideredwhen discussing lower income groups where liter-ally ‘every penny counts’. There is a view that itonly affects the poor and disaffected. This is anurban myth. Everyone is price sensitive to a greateror lesser extent. Even financially comfortablegroups may be particularly sensitive to pricechanges for several reasons: for example they areconsidering the relationship between price and thetangible and intangible value of the product orservice, or there has been a significant change in theeconomic environment which is affecting thissegment of the market. This was the case in the1990s when the UK recession was particularlydamaging to middle-income groups. Redundancyand falling property values placed severe spendingrestrictions on households that had been quiteaffluent during the high-growth phase of the

economy. Even when the economy moved out ofrecession, many middle-income householdsremained price sensitive as a result of the impactthe recession had had on their lives.

■ Pricing tacticsThis section examines the various types of pricingtactics that companies employ. They are listed inTable 11.2. A company may use some or all of thesepricing tactics during the life of a product or serv-ice, depending on what it is attempting to achieveand the influence of external factors. It is importantnot to view these tactics in isolation.

Pioneer pricingAs the name suggests the company is exploring orleading the way in terms of pricing for the particu-lar product or service. This tactic may be adopted ifthe product or service is particularly new to themarket and the company is seeking to understandhow the market will react. Even though marketresearch may have been conducted, the company

FACTORS THAT INFLUENCE PRICE 255

Table 11.1 Tariff and non-tariff barriers

Tariff barrier Description

Export tariff The government of the exporting nation imposes a tariff charge on the products being exported.

Transit tariff When products are moved by road and rail across borders they may incur a transit tariff.Thiscould be considered as a form of trans-shipment tax.The argument is that if products are movedacross a nation to be sold in another nation, the road and rail infrastructure is being utilised andthus there should be a charge levied.

Import tariff The government of the importing nation imposes a tariff charge on the products being importedinto the country.This is often used to protect indigenous companies who may not be able tocompete effectively against imported products.

Non-tariff barriers

Import licences Generally these apply to products that are restricted in some way, for example, products thatcontain radiological materials such as scanners. Licences have to be granted prior to shipping andthere is an inherent cost to obtaining them.

Administrativeprocedures

All countries have administrative procedures covering such areas as safety testing and labeling.These are important issues. However, two factors can impinge on companies exporting orimporting products. First is the number of procedures to be undertaken and the length of time tocomplete them. Both administrative procedures and any delays in executing them can impactfinancially on companies.The question is whether costs are absorbed or recouped through thesupply chain and from the end customer.

will not know until it launches the product or serv-ice in the marketplace whether it is a sustainableprice or not.

The company will also need to take into consideration the following issues:

◆ Will the marketplace accept the price?

◆ Is the product or service overpriced or under-priced for the market? Products or services canbe underpriced, which may give potentialcustomers the perception that the product orservice is a lower quality than expected.Equally, if it is perceived as priced too high, thecompany will have effectively priced the prod-uct or service out of the market. This could alsoresult in a competitor marketing a similarproduct or service at a lower price and gainingmarket share. Therefore the follower ratherthan the pioneer gains the longer-term value.

◆ Will the price set deter competitive pricingactions from companies that market similarproducts or services?

◆ Can current competitors enter the market withan imitation product or service? If so, what isthe time frame to possible launch and whatcould be the price?

◆ Are there potential new entrants to the market?If so, will they act differently from establishedcompetitors?

As you can see, there are overlap issues and poten-tial difficulties in ascertaining the actions of rivals.Although competitor intelligence gathering mayhelp to some extent, it will not provide the completepicture. (See Chapter 5.) The company will have toattempt to calculate the level of risk involved inadopting a pricing tactic.

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Table 11.2 Pricing tactics

Pricing tactic Subsets

Pioneer pricing

Price skimming

Penetration pricing (predatory pricing)

Price matching

Variable pricing (flexible pricing)

Psychological pricing Prestige pricingOdd-even pricingSingle price/double price

Promotional pricing BundlingTrade-in allowanceDiscount pricingQuantity discountsDifferential pricingBuy one get one freeBook early discountsSpecial event pricingDirect payment mechanism

Professional service pricing

Competitive tendering

International pricing Standard worldwide pricingDual pricing mechanismMarket pricing

Price skimmingThe objective here is to charge a higher than normalprice for a specific time frame. Assuming that theproduct or service demonstrates volume sales, thedifference between the normal price and the higherprice can be ‘skimmed off’. It thus becomes an addi-tional or marginal ‘income’ for the company, whichmay be used to offset some of the initial researchand development costs.

A company may choose price skimming duringthe introductory and early growth stages of theproduct’s life cycle. This is because the product orservice may be price inelastic: that is, demand isrelatively price insensitive. In other words, rela-tively high prices can be charged and they will notaffect the purchasing decisions of those who wantthe product or service. This can often be seen in theearly adoption phase for a product or service.(Reflect back to Chapter 9 and the adoptionprocess.)

A company is unlikely to be able to maintain aprice skimming strategy for a significant length oftime. If the product is based on a new technology,once that technology is established and can beimitated there will be new entrants to the market-place. This was witnessed with the introduction ofIBM-compatible computers in the late 1980s andthe proliferation of mobile phones.

Penetration pricing (predatory pricing)The overall objective of penetration pricing is tofind a way of accessing a market by cutting throughexisting pricing structures or strategies. To someextent the associated name (predatory pricing) is amisnomer, for it suggests a form of exploitation andpricing at a significant loss to gain entry. Such anapproach could be deemed as short-termism. Thisis not the point of penetration pricing, becausecompanies are seeking to enter the marketplace anddevelop a segment or niche for themselves.

Penetration pricing can be used to achieve thefollowing aims:

◆ Entry into an existing market through theintroduction and maintenance of very lowprices set against the average price for thatproduct or service.

◆ The development of a new low-price segment,often within the existing marketplace.

◆ The acquisition of increased market share overthe medium and longer term.

Prices are set deliberately low in order for thecompany to enter the market, ensure that a highlevel of sales is achieved, and achieve efficienteconomies of scale. An example is the introduc-tion of no-frills airlines into the UK aviationmarket in the mid-1990s. This proved to be ahighly competitive market, with other playersvying for market share, not just in the UnitedKingdom but throughout Europe.

Price matchingThis is often used in highly competitive marketswhere competitors are situated in relatively closeproximity to each other. So, for instance, twosupermarkets may routinely check the prices of

PRICING TACTICS 257

ESSO® PriceWatch™ Campaign

In January 1996 the petroleum company ESSO®launched a PriceWatch™ campaign in the UnitedKingdom. The petrol pump market had becomehighly competitive. Between 1990 and 1997/8 theshare of the supermarket-owned petrol stations hadgrown from 5 per cent to some 23 per cent. Thisincreased competition with the major oil compa-nies, and the market witnessed a 30 per cent over-all reduction in petrol pump prices.This was clearlybeneficial to consumers, but for the majors therewas a risk of market shrinkage.

The objective of the ESSO® campaign was tocontinually monitor prices at a range of competitorpetrol forecourts within a particular radius of its fill-ing stations.The aim was not to undercut the low-est price charged within the set radius, but to matchit. This would demonstrate that ESSO® was com-petitive in the marketplace without drasticallyreducing margins and risking the accusation ofuncompetitive behaviour by regulatory bodies suchas the Office of Fair Trading.Source:‘Petrol market competitive says OFT’, press releaseno. 23/98, Office of Fair Trading, 18 May 1998.

Mini case 11.1

the leading brands in each outlet to match eachother in discounts and associated special offers.

Variable pricing (flexible pricing)Companies may adopt a variable pricing structureto accommodate changes within a competitiveenvironment, customers’ specific requirements,and/or to offer special value-added options. Minicase 11.2 discusses the fare structure for a Londonto Oxford 24-hour coach service.

Psychological pricingIt could be argued that all pricing relies on a combi-nation of economics and psychology. While pricingmay be rooted in economics in terms of supply and

demand, it is often from the psychological perspec-tive that we decide to make the purchase. Evenwhen it comes to the relationship between ‘value’and ‘price’ we are making a psychological judg-ment. The products may be identical, for example,cans of tinned tomatoes at the same price.However, we still might ask ourselves, ‘Which oneshould I buy?’

Although we may argue that psychology perme-ates all purchasing decisions, there are certain pric-ing tactics that have particularly strongpsychological undercurrents. These are examinedin the next section.

Prestige pricingThe word ‘prestige’ symbolises reputation, glam-our, respect, power and influence. These are not

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London to Oxford coach service

The Oxford Bus Company, a subsidiary of the Go-Ahead Group plc, operates a 24-hour coach servicefrom London to Oxford branded the oxfordespress.This is one of three services that operate between thetwo cities on a 24/7 basis, so there are competitivepressures. The company offers a variety of faresdepending upon customers’ travel requirements andage group.Adult fares (as at 2004 in UK£):UK£9.00 one-wayUK£11.00 day/next day returnUK£13.00 three-month returnUK£47.00 12 trips (12 single journeys valid for 12

months)Season tickets (unlimited travel on oxfordespressplus free travel on other Oxford Bus Company routesin and around Oxford)UK£37.00 one weekUK£65.00 two weeksUK£97.00 three weeksUK£120.00 four weeksUK£345.00 13 weeksUK£670.00 26 weeksUK£910.00 12 monthsUnder 16 and over 60 faresUK£4.50 one-way

UK£5.50 day/next day returnUK£6.50 three-month returnStudent and young person’s faresUK£7.00 one-wayUK£8.00 day/next day returnUK£10.00 three-month returnUK£42.00 12 trip (12 single journeys valid for 12

months)Group fares (up to two adults and three children)UK£24.00 day/next day returnUK£28.00 three-month returnNight owl fareUK£7.00 Day/next day return for travel after 3 pm

from Oxford.Additionally, there are special timed offers. Betweenlate December 2003 and the end of January 2004 the12-month season ticket was available at a special rate ofUK£777, a saving of UK£133. During the school Eastervacation, up to two children accompanied by an adultwere charged only UK£1.00 each for a day return tick-et.This offer was only valid from Saturday 3 April untilmidnight on Sunday 19 April, 2004.

Such a ticket pricing structure provides customerswith flexibility depending on their travelling needs. Forthe author who lives in London but travels to Oxfordevery week, the discounted 12-month season ticketprovided both perceived and real value.Source: www.oxfordbus.co.uk

Mini case 11.2

only ‘value-driven’ phrases but clearly psychologi-cal ones as well. Therefore products or services thatexemplify such characteristics need to reflect thesein the price. Indeed prestige pricing can often beused to create an ‘extreme image’ of the product orservice, which defines it within its prescribedsegment of the marketplace. It also significantlydifferentiates it from other general marketsegments. Here are a few examples of products andservices that demonstrate prestige pricing (seeChapter 7):

◆ Russian or Iranian caviar. In many countriescaviar has a prestige value and so carries anassociated high price. In the United Kingdom,for instance, a small jar of Beluga Russiancaviar may cost several hundred euros.

◆ Luxury sports cars. Whether these are AstonMartins or Ferraris, their prestige value isreflected in their pricing.

◆ Certain types of drinks. For instance fine cham-pagne or Napoleon Cognacs may be priced at€500 or more a bottle.

◆ A five-star hotel.

In all cases the price must reflect (both real andperceived) value in the products or service.

Odd–even pricingHere the product is priced at an odd number ratherthan being rounded up to a whole or even number,for example a CD priced at UK£4.99 rather thanUK£5.00. While it is obvious it is only one pennycheaper, the perception is that it is cheaper.Consumers may focus more on the ‘4’ or even the‘99’ rather than rounding up the number. Thismethod of psychological pricing may well enticethe consumer to buy more products in the pricerange.

Single price/double pricingAlthough this concept predates the retailer FrankWinfield Woolworth (1852–1919), it was he whochampioned it. When he originally opened hisretail venture Woolworths, the stores were knownas ‘five and dime’ stores, reflecting the fact that

products were priced at either five or ten cents. Formany years these were the only two prices charged,but as more products were introduced Woolworthbegan to vary his prices to reflect the variety onoffer. However, by this time he had attracted a largecustomer base on which to build his retail businessand empire.

In many towns and cities you will find generalretail stores that sell a range of products using thesingle or double pricing technique. In the UnitedKingdom, for example, there are retailers which sellproducts at 50p and/or 99p. While many of theproducts sold are leading brands, others are lesswell-known brands or unbranded.

Customers might seek low prices with theknowledge that the quality will be reflected in theprice. While there may be a perceived or psycholog-ical discount on the items, some products may actu-ally be cheaper in major retail outlets than in‘bargain’ stores. This is especially the case withsoap products and detergents. Priced at 99p in thediscount outlets, they may actually be priced at 85por 95p in the major supermarkets. The supermarketmight be cheaper simply because it has the powerto discount further through bulk purchasing fromthe manufacturer.

Promotional pricingThe objective here is to use a promotional or specialprice to persuade customers to purchase a particu-lar product or service. The promotional pricingmay be ongoing or limited to a particular timeframe and/or product range.

Bundling or the all-inclusive concept

Here several products or services are offered as apackage at a single price. As Churchill and Peter(1998) suggest, bundling assumes that consumerswill appreciate receiving a variety of products orservices in one bundle. This is not always the case,as is discussed below.

Vacations, computers, restaurant menus andDVD box sets are four common examples of wherecompanies use bundling techniques.

Thomas Cook (1809–1892) pioneered theconcept of the packaged holiday in the 1850s and1860s, a form that would be developed by his sonJohn Mason Cook. However, this was limited to themiddle classes and wealthy of the time who wanted

PRICING TACTICS 259

to tour Europe and Egypt, travelling by rail andship and staying in quality hotels. Packaged vaca-tions as we now know them developed in the late1960s as air travel increased in popularity andaffordability, and countries increased the buildingof hotel complexes.

Issa and Jayawardena (2003) use the Caribbeanas an example of fully inclusive vacations. Theystate:

Generally the all-inclusive concept goes muchfurther and covers practically everything a hotelor resort has to offer, including all drinks, taxes,transfers from and to airport to hotel and sports,with tipping being prohibited. A result of such aprice package, in most cases, is money beingeliminated from the holiday experience and thevisitor knowing in advance what their holiday islikely to cost, except for personal expenses, suchas telephone calls, laundry, car hire, dining off-property and shopping.

Increasingly some resorts include sporting activi-ties such as golf and scuba diving in their overallpackage. Such bundling is ideal for families operat-ing on a limited budget. Apart from ‘extras’ (whichcan be either purchased or not) a family knows howmuch its vacation has cost in advance of its depar-ture from home.

Several computer suppliers have opted for pricebundling. The bundles usually include thecomputer, monitor, video/photo camera, printer,scanner, educational software, home software, busi-ness software, modem, Internet access and gamessoftware. There is usually the option to upgrade toa higher specification package depending on thebuyer’s requirements. Such bundling may be idealfor a prospective customer who is either purchasinga computer and the peripherals for the first time, orsignificantly upgrading from an outmoded system.However, someone who wants to upgrade acomputer but already has peripherals such as aprinter/scanner might consider that bundling isnot the right option.

Many restaurants offer two types of menus. Anà la carte menu allows customers to choose from anarray of separate dishes, each carrying an individ-ual price. Alternatively, customers can choose a setmenu with a limited variety of dishes, where anoverall price is set for a fixed number of courses: forexample, a two-course menu (excluding drinks) for

UK£12.00 per person or a three-course menu forUK£15.00. Customers therefore know how muchthe food will cost them. All they then have to do isadd the cost of drinks and any service charges orlocal taxes to the bill.

Fixed price or set menus provide various advantages:

◆ The restaurant can choose dishes that are rela-tively easy and inexpensive to prepare.

◆ The restaurant knows the margin that will beobtained on each set menu consumed.

◆ Because of the relative ease in preparation, therestaurant may be able to increase the through-put of customers over a lunchtime or evening.

Some restaurants in London’s West End offer pre-theatre set menus. Revenue is generated fromcustomers who would like to dine prior to attend-ing the theatre. After a set time, only the à la cartemenu is available, for customers who want a longleisurely meal with friends and/or family.

Movie or television companies can market DVDproducts individually or box them together toreflect a particular genre or the entirety of a series.For example:

◆ The James Bond movies can be purchased asindividual DVDs or packaged as a box set.

◆ Universal Pictures has packaged movies star-ring Audrey Hepburn as a special DVD collec-tion.

◆ The BBC has packaged various comedy anddrama series into DVD collections. Again, theDVDs can be purchased either separately or asspecial packages. By bundling them togetherinto a package or collection, the BBC is offeringcustomers the ability to purchase the completeseries.

Trade-in allowancesA company may offer a prospective buyer a pricereduction for trading in an old item when a newone is purchased. This approach has been usedextensively in the car retail business. Car ownerstrade in their used car for another used car, or anew one. The dealer offers owners a trade-in price

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for their old car, and this is offset against the priceof the new purchase.

Discount pricingCompanies may offer customers discounted pric-ing when items are either bulk purchased and/orpurchased within a particular time frame. Thefollowing examples illustrate how discount pricingcan operate.

Quantity discounts

The seller offers the buyer a discount based uponthe quantity of the product or service purchased.Usually the greater the volume, the greater thediscount. Thus there is an incentive for the buyer tocarefully consider how much of the product orservice will be consumed over a time period. If, forexample, the buyer consumes a significant amountof photocopy paper over a 12-month period, thereis a financial incentive to negotiate a bulk-buyingprice. High levels of discounting are usuallyreserved for the B2B environment.

Differential pricing

This is normally a price reduction for buyers whopurchase the product or service out of its normalseasonal pattern. Here are a few examples:

◆ Winter fashions are discounted just prior to thearrival of the spring/summer collections. Thediscounts are normally higher for women’sfashion than men’s. This is usually becausemen’s clothes span several winter seasons, andwomen’s fashion does not, particularly in theretail sector known as fast fashion. Herecompanies need to react quickly to rapidlychanging trends. Companies such as the Span-ish clothier and retailer Zara have employedlogistics normally associated with the automo-tive industry to rapidly bring new fashions tothe stores.

◆ Garden furniture and barbecues may bediscounted during the autumn/winter period.Retailers use this type of discounting to moveold stock in preparation for the arrival of newlines.

◆ Holiday companies use differential pricing

during peak and off-peak seasons. For exam-ple, a vacation in southern Spain will becheaper in April/May when the weather ismilder than in July/August when it is usuallyhot and dry – ideal for beach and sun lovers.Hotels may charge a premium rate not onlyduring the summer months but also at specialtimes of the year such as Christmas and NewYear.

Buy one get one freeThis is also known as a BOGOF promotion, and isgenerally used in the retail sector as a means ofpromoting own-label brands. Originally it waslimited to two identical items such as two bars ofsoap. Increasingly it has been broadened to includea range of products, but generally they are all own-label brands. Companies that use BOGOF promo-tions tend to set specific time frames, for example,‘for two weeks only’. This is a further psychologicalincentive to prospective buyers.

There are several variations on this theme:

◆ Three for the price of two, which as the titlesuggests is a greater value incentive to thepurchaser. The retailer may use this option as ameans of reducing a stock inventory.

◆ Lower price item reduced: when two items arebought from a particular range the lower-priced item is discounted. The objective here isto create an incentive for the buyer to tryanother product within the product range.

◆ Free product with every purchase: this can beused as a co-branding exercise where thecompany links up with a related product: forexample, a toothpaste manufacturer co-brandswith one that produces toothbrushes.Although the toothbrush is free it provides themanufacturer with a promotional outlet whichmay lead to increasing purchases of its productrange.

Book early discountTravel companies use this technique to sell holidaysseveral months beforehand. A holiday booked for July but paid for in January may command asignificant discount.

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Special event pricingThis is a special price set for a product, productrange or service for a limited time frame and event.For example, a supplier or retailer might celebratean anniversary, and advertise special discounts forthe anniversary week or month. These could bebased upon, for example:

◆ the length of the anniversary, such as ‘25 percent off all products to celebrate our 25 years inbusiness ‘

◆ the prices for similar products when theretailer first opened.

Direct payment mechanismsCompanies may offer a price reduction to thosecustomers who pay their bills using a direct debitsystem. For example, in the United Kingdom theutility providers offer discounts to customers whoopt for direct debit payments. This allows the util-ity company to withdraw a set amount directlyfrom the customer’s bank account on a specific day,each month or quarter of the year. This reducespotential delays for the utility company receivingpayment (subject to there being sufficient funds inthe customer’s bank or credit card account), andprovides an incentive to the customer to adopt adirect payment method.

Professional services pricingHere individuals and companies such as lawyers,accountants, marketing and strategy consultants,doctors and special advisors charge for their profes-sional services. Such pricing can operate withinboth B2C and B2B environments. Here are a fewexamples:

◆ A lawyer acting on behalf of a family who wantto purchase a house may offer an all-inclusiveprice for the conveyancing (the legal transfer oftitle/ownership of the property). (This is a B2Cexample.)

◆ Private medical facilities: a doctor or medicalcentre’s charge may be based on a particulartime of day or night (for visits), the type ofmedication and treatment. (This is a B2C example)

◆ A public relations firm might charge its clientsa monthly fee plus agreed expenses. This isusually for a set time frame, for instance 12months, after which time the contract may bere-negotiated. (This is a B2B example.)

◆ An accountant will usually charge a fee basedon the time it has taken to prepare an individ-ual or company’s accounts for presentation tothe Inland Revenue. (These are B2C and B2Bexamples.)

Competitive tenderingThis is also known as competitive bidding or pitch-ing. While most textbooks consider this in a B2Bcontext, it is widely used in a B2C context as well.The purpose of tendering (and associated terms) isan attempt to meet published or known specifica-tions/criteria with a tailor-made proposal or quotethat includes the price.

The following are a few examples that explorethe tendering process within both a B2C and B2Bcontext:

◆ A family decides it wants to renovate its house.It is unlikely that it will invite only one builderto quote. More likely it will invite severalbuilders to quote or tender for the business.Each tender will include not only the price forthe renovation work but also the time framewithin which the work will be completed. Thefamily will decide from the tenders (and meet-ing the builders) the most appropriate for itsspecific needs. Individuals will again considerthe price–value relationship.

◆ Governments are the largest buyers of goodsand services, and the vast majority have elec-torates to report to. They normally use atendering process to make it clear that thepopulation’s wealth is being used both effec-tively and efficiently. Governments purchaseeverything from nuclear reactors to stationerysupplies and office furniture. Mini case 11.3outlines one government’s product and servicerequirements.

It is important to remember that contracts are notalways awarded to the lowest bidder. The buyerwill be seeking reassurance that the proposed

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supplier can and will actually deliver the prod-ucts or services by the deadline. However, evenwhen assurance are given, projects do not alwaysgo to a planned schedule. With this in mindbuyers may build into the agreement financialsafeguards or penalties against cost over-runs ordelivery delays.

The specifications for the products or servicesmust be clearly identified so that the product deliv-ered fulfils its purpose. However, this is not alwaysthe case, as mini case 11.4 clearly illustrates.

International pricingThere are many issues to consider when pricingproducts and services across international bound-aries. As a result companies may adopt a variety ofpricing mechanisms for international business. It isimportant to remember that these mechanisms arenot set in stone and thus can be changed dependingon the circumstances facing the company.

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Tendering: Republic of Botswana

The Botswana Government operates a comprehen-sive tendering and evaluation process for all govern-ment department purchases.The requesting govern-ment department or ministry issues the requestsfor tenders.While the tender evaluation is conduct-ed by the requesting department or ministry, theprocess of tender evaluation is governed by theCentral Tender Board, under the auspices of theMinistry of Finance.

In early 2004 the Government of the Republic ofBotswana listed, as a matter of routine, products andservices required for purchase. The requests fortenders included:

◆ Long-term consultancy for ICT infrastruc-ture services management (operations andnetworks).

◆ The supply of servers, computers and network-ing systems for the Ministry of Health.

◆ Supply of television broadcast workshop equip-ment for the Department of BroadcastingServices – Botswana Television.

◆ The provision of cheque signing, cheque printingmachines and network printers for the Depart-ment of the Accountant General.

◆ The supply, delivery and installation of a librarymanagement system for the Botswana PoliceCollege at Otse.

◆ Consultancy to develop a human resourcedevelopment (HRD) strategy for the Ministry ofTrade and Industry.

As you can see from this relatively small selection,both the requirements and those who need theproducts/services are varied.Source: Government of Botswana.

Mini case 11.3

UK Ministry of Defence and ChinookHelicopters

Chinook helicopters are the workhorse of the USArmy and the Royal Air Force (RAF) (among others)for the movement of troops, artillery, fuel and othersupplies.They are also used for medical evacuation,search and rescue, disaster relief and fire fighting. In2004 the RAF had more than 40, making it thelargest fleet outside the US Army.

In 1995 the UK government signed a contractwith the aircraft manufacturer Boeing for eightChinook Mark 3 helicopters at a cost of UK£259million.The aircraft were supposed to be in servicein 1998. However, it was found that the radar sys-tems and software – supplied under a separate con-tract – could not be accommodated in the cockpit.Since their delivery in 2001 the helicopters havebeen restricted to flying above 152 metres in cloud-less skies, with the pilots using landmarks on theground to navigate.

When the Chinooks were ordered, the Ministryof Defence identified 100 essential requirements foroperation. However only 55 were specified in thecontract. This is clearly an inadequate position forany combat-ready aircraft.

At the time of writing the cost of fixing the prob-lems was estimated at approximately UK£127 million. Until a solution is found to remedy the nav-igational software problems, the helicopters areeffectively grounded.Sources: ‘Chinook blunder “left RAF short”’, BBC NewsOnline, 7 April 2005; P. Adams, ‘Chinook helicopters forsale?’ BBC News Online, 7 April 2004.

Mini case 11.4

Standard worldwide pricing

This is a pricing tactic that can be used to cover allinternational markets. It is determined by averag-ing the unit cost, made up of fixed, variable andexport-related costs (including special packaging,insurance, warehousing and tariff charges – refer toIncoterms and other charges as stated earlier).Generally, this has been considered a theoreticalmodel. However, with the development of Euro-pean Monetary Union (the eurozone countries), itmay be possible for companies operating in thiszone to create standard pricing for some products.

Dual pricing mechanism

In dual pricing domestic and international pricesare differentiated. Two approaches or methods canbe used to calculate the international price: the cost-plus method and marginal cost method.

◆ Cost-plus: this is a full allocation of bothdomestic and international costs, and includesan effective margin. However, there are twokey problems with such a method. First, it canmake the product too expensive for theintended market. (Reflect back to the earlieranalysis on market dynamics.) To overcomethis obstacle, companies often build in a degreeof flexibility. This usually comes in the form ofdiscounts to meet local market conditions.Second, the company can under price the prod-uct or service. In addition to the potential lossof revenues, buyers may perceive the productor service as inferior because of its low price.

◆ Marginal cost: here the company considers thedirect costs of producing, marketing and sell-ing the product for export. The fixed costs ofplant, equipment, research and development,domestic overheads and domestic marketingcosts are not included. As a result, the companycan lower prices if it believes it needs to bemore competitive (purely on price) within themarket.

Market pricing

In such cases, companies price their products andservices appropriately for specific individualmarkets. Such price discrimination involves charg-ing a price each market will accept. The determi-

nants are reflected in the company and its products,the market and external factors. These factors varyto a greater or lesser extent from one country toanother. These dynamics are often reflected in thepricing policies of multinational companies.

■ Ethical and illegal pricingissues

Pricing tactics are not without the need for seriousethical consideration. Every one of us makes trans-actions in order to obtain and consume productsand services. In each and every case we are seekingboth perceived and real value for the moneyexchanged. We want to know that we have paid theright price for the product or service. Unfortunately,we are all – individuals and companies alike –susceptible to being cheated by unethical businesspractices. Here are a few examples of how price canbe manipulated to disadvantage both buyers (B2Band B2C) and competitors.

DumpingCompanies may decide to ‘dump’ their productson the market by pricing them below their marginalcost. This implies that the seller is making a loss oneach transaction. This tactic has been used to pene-trate difficult or highly competitive markets, andthus increase market share. Once the company hasgained market entry and established a position, itcan increase prices and/or introduce newer prod-ucts into that market. While it could be argued thatthe customer is benefiting in the short term, thereare long-term implications. Dumping has beenmade illegal in many countries, including the Euro-pean Union, because it is anti-competitive. If acompany can gain significant market share bydumping its products, it could reduce the effective-ness of the competitive environment. Some rivalsmight be forced to seek alternative markets or ceaseoperations. In the longer term this is detrimental tocustomers because the element of choice is eitherrestricted or removed altogether.

Price fixing – cartel operationsA cartel is where groups of competing companiesor countries agree on a set price for a product or

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ETHICAL AND ILLEGAL PRICING ISSUES 265

International cartel in vitamin supplements

Between January 1990 and February 1999 severalmajor pharmaceutical companies involved in the pro-duction of vitamin supplements operated a global car-tel. In 1999 and 2000 both US and European agenciesprosecuted the companies for collusion to eliminatefair competition within the marketplace and to over-charge both business and individual customers. EUinvestigators suggested that the arrangements betweenthe companies were ‘part of a strategic plan conceivedat the highest levels to control the world market invitamins by illegal means’.

By the late 1990s the companies F. Hoffman-LaRoche and BASF AG held 40 per cent and 20 per centrespectively of the US vitamin market. La Roche’s totalrevenues from vitamin sales were estimated at US$2.5billion.

In 1999 both companies pleaded guilty in a US courtof conspiring to fix, raise and maintain prices and allo-cate sales volumes of vitamins sold in the United Statesand elsewhere. Roche agreed to pay US$500 million (atthat time the largest criminal fine imposed by theJustice Department), while BASF paid US$225 million infines. According to the US Department of Justice theinflated prices imposed by the cartel affected productsranging from animal feedstuffs to breakfast cereal.Additionally, five senior executives pleased guilty to par-ticipating in the cartel and were sentenced to betweenthree and four months in prison and fined betweenUS$75 000 and US$350 000. However, this was onlyone of several actions taken by US authorities againstinternational pharmaceutical companies over price fixing.

The following is an extract from the US Departmentof Justice’s Sentencing Statement of F. Hoffman-LaRoche. It illustrates the character and dimension of thecartel’s organisation and operation.

Throughout the world, on a country and region-al level, Roche and other conspirator companiestasked their lower level employees and managersto forward pricing and market share informationto higher level management. On a quarterlybasis, regional and world marketing managersfrom the conspirator companies would meet toexchange pricing and sales information in orderto have an accurate picture of the overall globaldemand and price for vitamins. Once a year, the

global marketing directors for each of the con-spirator companies, in concert with the variousproduct managers for the companies,would con-duct a ‘budget’ meeting. During this meeting, theoverall global sales volume for the vitaminswould be determined for the current year, andbased on agreed-upon projected growth rates,the global sales volume for the coming yearwould be determined. Next, each companywould be allocated a percentage of this project-ed global market demand as its ‘budget target’for the following year which it would then imple-ment on a regional or country basis. Finally, vita-min pricing would be reviewed and, if priceincreases were needed to either account forcurrency discrepancies or to raise profit levels,new pricing would be agreed upon, to includethe timing of the price increases and designa-tions of which company would lead the priceincrease.

It is clear from this extract that the conspiring compa-nies were manipulating the market to their benefit butto the disadvantage of customers and companies not inthe cartel.

In 2001 the European Union imposed significantfines against several pharmaceutical companies, includ-ing F. Hoffman-La Roche and BASF AG, for operating aseries of vitamin cartels. La Roche and BASF were finedUS$411 million and US$263 million respectively.Further prosecutions followed from both theAustralian and Canadian governments, resulting in fur-ther multi-million dollar fines for the companies.

Since these prosecutions the companies have takensignificant steps to deter employees from engaging insuch anti-competitive activities.Sources: United States v F. Hoffman-La Roche Ltd,Transcriptof Plea of Guilty and Sentencing, US Department of JusticeCR-184-R, 20 May 1999; J. Wolf, ‘EU probes vitamin cartel’,Guardian Online, 22 May 1999; ‘Former F. Hoffman-La Rocheexecutive agrees to plead guilty for participating in interna-tional vitamin cartel’, press release, US Department ofJustice,19 August 1999; ‘Four foreign executives of leadingEuropean vitamin firms agree to plead guilty to participatingin international vitamin cartel’, press release, US Departmentof Justice , 6 April 2000. ‘Vitamin cartel fined for price fixing’,Guardian Online, 21 November 2001; R. C. Marshall, L. MMarx and M. E. Raiff, Cartel Price Announcements: The vitaminsindustry, Fuqua School of Business, Duke University, N.Carolina, 2003.

Mini case 11.5

service. The world’s leading cartel is the Organiza-tion of Petroleum Exporting Countries (OPEC).Formed in 1960, this is a cartel of 13 oil-producingnations which meet regularly to coordinate both thelevel of production and the price per barrel of crudeoil originating from them.

While it could be argued that the formation ofOPEC was a justifiable response to the dominanceof Western oil producers, contemporary carteloperations cannot provide that justification. Minicase 11.5 illustrates how major pharmaceuticalcompanies were involved in an international car-tel operation to fix the market price for vitaminsupplements.

Premium pricing issuesThis has become of particular concern in the UnitedKingdom. At the time of writing (2005) severalcompanies are charging people significant pricesfor product information or the opportunity to winprizes. A company leaves voice messages on recip-ients’ telephones, claiming they have an opportu-nity to benefit from a major discount on a vacationif they return the call. The recipient is not madeaware that the number to call back is a premiumrate number, so the call will be expensive. In somecases the discounted vacations do not exist, or areoffered under such tight conditions that it isextremely difficult for callers to take advantage ofthem. Nonetheless they incur significant chargesover the length of the call. Under current UK legis-lation this is a legal practice because the recipienthas made the decision to return the call. However,the ethicality of the companies who operate suchpractices can be questioned.

Bait and switchAccording to Hoyer and MacInnis (1997), this is atactic used to draw a customer into a store byadvertising a product at a particularly low price(the ‘bait’). Once potential customers are in thestore a sales person attempts to persuade them totrade up to a higher-priced product (the ‘switch’).

Sales staff use several techniques to persuadecustomers to buy the higher-priced product. Forinstance, they might claim the advertised product isout of stock, such was the demand for it. Alterna-tively, the advertised product is ‘OK, but not as

good as this other product on display’. Of course,the product advertised might not have existed inthe first place, or there might be no difference inquality between it and the ‘trade-up’ product.Clearly, the aim is to get the customer to spendmore through the use of deceptive tactics. Suchactions may well be illegal as well as unethical.

■ Chapter summaryPrice is influenced or determined by several inter-nal and external factors. These range from costs(which are in turn influenced by numerous vari-ables), the competition (local, regional, interna-tional and global), general and changing marketconditions (influenced by demographics andeconomics), the product’s life cycle position, andpeople’s sensitivity to prices.

Successful marketing strategies depend to a largeextent on well-developed pricing strategies. In turn,successful pricing strategies depend on carefulongoing analysis of dynamic market conditions.

The overall influencing factor is the potentialbuyer. If the customer is not prepared to buy at theset price, the sale is lost. If customers perceives theprice as too high they will not make a purchase.Likewise if they perceive the price as too low, theywill consider the product or service as inferior andthe sale will again be lost. It is therefore very impor-tant for companies to ensure that the price setequates with customers’ lifestyles and perceptionsof value for money. Understanding of the psychol-ogy of consumer behaviour is as important insetting prices as is understanding of accountingand financial practice.


1 ‘Price is the only marketing mix variable that isa revenue generator.’ Discuss this statement.Support your views with evidence.

2 Choose a product or service, then explain indetail the factors that may influence its pricing.

3 Critically compare and contrast the advantagesand disadvantages of cost-plus and marginalcost pricing. Provide examples of when it isappropriate to use each.

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4 Using the Internet and library resources, criti-cally evaluate how a host country’s laws canaffect a company’s pricing policies in thatcountry.

5 Explain how an organisation’s pricing strategycan be influenced by both micro and macroenvironmental factors. (You may want torevisit Chapter 2 before considering this question.)

6 Outline the ethical issues that can be associatedwith an organisation’s pricing policies.

7 Explain why government agencies use atendering process to purchase products andservices.

8 Discuss with fellow students how price affectsboth you and them in your daily lives. Forinstance, are you price sensitive?

9 Using the Internet and library resources,explain why a product may be priced differently in two different countries.

10 Under what conditions might a company useprice skimming and price penetration strategies?

■ ReferencesButtle, F. (1986) Hotel and Food Service Markets, New

York: Holt, Reinhart & Winston.Churchill, Jr., G. A. and Peter, J. P. (1998) Marketing:

Creating value for customers, 2nd edn, New York:Irwin McGraw-Hill.

Hoyer, W. D. and MacInnis, D. J. (1997) ConsumerBehavior, Boston and New York: Houghton Mifflin.

Issa, J. J. and Jayawardena, C. (2003) ‘The ‘all-inclu-sive’ concept in the Caribbean’, International Journalof Contemporary Hospitality Management 15(3), pp.167–71.

QUESTIONS FOR REVIEW AND REFLECTION 267

� IntroductionOf all the elements of the marketing mix (both new and old), place or place-ment is perhaps the most unusual. That is, it is ‘unusual’ in the sense that theword ‘placement’ does not actually fit as comfortably as perhaps product, priceor promotion. It may mean different things to different people, as we shall seelater in this chapter. Yet placement (for want of a better word) is key to thesuccess or otherwise of a product or service in the marketplace. This statementis not aimed at denigrating the other elements of the marketing mix; far fromit. However, the actual placement of the product or service within a retail outlet,for instance, is crucial to that product becoming a success in the marketplace.

This chapter examines two key aspects of placement, location and distribu-tion channels, for both are integral to the placement of a product or service inthe marketplace.

� Defining placeIn numerous marketing textbooks place or placement is associated directlywith distribution channels and logistics. That is correct, but there are several

CH

AP

TE

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12 Place and Placement

Learning outcomes 268Introduction 268Defining place 268Place as a physical

location 270Location factors 270Place as channel

management 274A one-stage channel 274A two-stage channel 275Three-stage channels 275Physical distribution 275Logistics 276Porter’s supply chain

model 277Retail outlets 280Markets 280Vending (automatic

retailing) 281Individual stores 284Multiples or chain

stores 284Online stores 284Chapter summary 285Questions for review and




� debate the role of ‘place’ as a concept within the marketing mix

� debate the role of ‘location’ as part of the concept of ‘place’ within themarketing mix

� explain the role of channel management in delivering a product to the enduser

� examine the different distribution channels that an organisation maychoose and the reasons for the choice

� compare and contrast B2C and B2B modes of distribution and channelmanagement

� debate the future of channel management and distribution in relation tochanging external environmental factors.

authors who believe that placement is far morethan distribution, in the traditional sense of theword. Perreault et al. (2000) describe place as:

Making goods and services available in the rightquantities and locations, and when customerswant them. When different target markets havedifferent needs, a number of place variationsmay be required.

This definition has significance in that one of theauthors is E. Jerome McCarthy, who developed theoriginal 4Ps matrix. Within this definition is aconsideration for both channel operations and loca-tion of the ‘retailer’. As the authors state, ‘locationcan spell success or failure for the retailer … thedecision about to where to locate a business istherefore very much a marketing strategy decision’(Perreault et al. 2000).

There are two points to be taken from thisperspective. First, since this book was written, theInternet has developed significantly, not only as avehicle for ordering products and services but alsoas a distribution channel (for example, the receipt ofelectronic flight tickets) as we shall see later.Second, location as a term must encompass farmore than purely retail outlets such as departmentstores and supermarkets. Indeed Bowie and Buttle(2004) separate location from place and consider‘location’ as another marketing mix component.They clearly believe that the two issues of location

and distribution, while linked, are components ofthe marketing mix that should be considered sepa-rately.

This is an interesting view, and particularlysignificant when you consider the location, forexample, of leisure places such as DisneylandParis™. The determinant of location is equallyapplicable to hotels, restaurant and bars. Why aresome bars, for instance, highly successful whileothers close in a matter of weeks? Agreed, there aremany factors that can lead to success or failure.However, location does have a significant influenceon both success and failure.

There is yet another view of place that should beconsidered. The research of Inalhan and Finch(2004) examines ‘place’ within the confines of theenvironment in which people live and work. Theystate that ‘people are linked through three keypsychological processes: attachment, familiarityand identity.’ Milligan (1998) defines place attach-ment as ‘the emotional link formed by an individ-ual to a setting that has been given meaningthrough interaction, comprised of two interwovencomponents: the interactional past and the interac-tional potential of the setting’.

Here the ‘interactional past’ refers to past expe-riences or memories of the place or location. On theother hand, the ‘interactional potential’ refers to theexpectations of experiences to come. In the case ofa vacation, for instance, a family may continuallyrevisit the same location each year because of thestored (and developing) memories they have of thatplace. Equally, a young couple flying off to an exoticlocation and staying at a five-star beach resort willhave varying levels of expectation. These willinclude the level of service, the style of food, theviews over the sea, the weather, the sea and thebeach. Their only ‘experience’ prior to arrival mayhave been reading a glossy holiday brochure thatincludes three or four ‘amazing’ photographs of thelocation. Stokols and Shumaker (1981, cited in Inal-han and Finch 2004) suggest that the level of satis-faction gained in relation to their needs and goalswill determine their individual judgment of itsquality. This, it is contended, will regulate theirattachment to the place.

Inalhan and Finch (2004) state that ‘place attach-ment is a pattern of reactions that setting [location]stimulates for a person. These reactions are a prod-uct of both cognitive and emotional/symbolicaspects of the bond.’ If we accept this perspective,

DEFINING PLACE 269

Figure 12.1

© Shereen Baig. Reproduced with kind permission

A luxury hotel on the island of Cyprus.This is place asa physical location.

‘place’ has a strong link to other marketing mixelements such as psychology and physicalevidence.

In this context, place clearly relates to the physi-cal world that we inhabit. However, we must alsoconsider ‘place’ as a location in the virtual world.Increasingly both individuals and organisationsconduct their communications and businessthrough cyberspace. This is a trend that is mostlikely to continue as long as technology providesthe tools for such growth. New generations will bemore comfortable operating within a virtual envi-ronment. However, we already see experiences of‘place’ within cyberspace. Individuals alreadyfrequent virtual cyber cafés where they can discusseverything from urban myths to what is cool andwhat is not. Cyber consumers frequent onlineretailers such as Amazon.com or Tesco.com topurchase everything from books and CDs throughto groceries and washing machines. These maybecome consumers’ online favourite places, whichthey visit regularly. They are all ‘places’ people visit– the only difference is that they are online.

Companies and organisations also transact busi-ness through B2B exchanges (also known as e-marketplaces). These are online portals that func-tion as information brokers and gateways to the purchasing of products services throughe-procurement (Groucutt and Griseri 2004).

As you can see from this brief introduction, theterm ‘place’ is far from the straightforward distri-bution of goods that has often been portrayed.

� Place as a physical locationPlace in terms of location is relevant, whether it is aretail outlet, hotel, leisure park, restaurant orairport. The location of the ‘outlet’ is often crucial asto its success in the marketplace. There will, ofcourse, be exceptions to the rule, and the impor-tance of location cannot be considered purely as asnapshot in time. Changes in the external environ-ment may make a location unsuitable when once itwas ideal. For example, in the late 1950s Beirut inthe Lebanon was the travel destination for the richand famous who wanted to soak up the sun, laze onthe golden beaches and experience the hospitalityof the local people. In the 1970s all that changeddramatically, as the region was racked by a devas-tating civil war. Only by the early 21st century was

some normality beginning to be restored. Manyother examples can be cited of once-beautiful placesthat have been devastated by civil wars. Slowlymany of them are recovering. However, many ofthe businesses that once thrived in those locationsare no longer viable propositions. Thus locationmust be viewed as not a static option, but one thatneeds to be constantly reviewed.

Location factorsThis section briefly considers the possible factorsthat lead to the success or potential failure of a loca-tion. The PESTLE model is used, illustrating that itis the macro factors, those beyond the control of theorganisation, that will have an influence oversuccess or failure. Organisations need to under-stand how these factors may affect the location theyhave identified. However, it is not external factorsalone that determine the success of a business. It isalso dependent on management expertise, the qual-ity of employees, level of customer service, and lastbut not least, financial management and accountingpractices.

The PESTLE factors should not be viewed inpure isolation. Often they overlap, or one factorinfluences the development of another. Forinstance, a government’s political mission to investin high-technology enterprises may result in theintroduction of new technologies which in turnhave an impact or influence on society, and thishelps the economic development of the country.When reflecting on the factors below, consider howthey may be interrelated in your own country.

Political

This covers a wide range of issues which can havenational, regional and international impacts. Hereare a few examples:

� The expansion of conurbations and the devel-opment of new towns or cities: the govern-ment may decide there has to be an extensivebuilding programme to accommodate anincreasing population. Major retailers, forinstance, will seek to be involved, purchasingor leasing suitable land to provide strategical-ly located outlets. Governments may alsoactively seek to reduce the level of building onthe outskirts of conurbations, in an attempt to

270 12 • PLACE AND PLACEMENT

preserve the countryside. Instead they mayprovide incentives to regenerate depressedtown-centre locations.

� Incentives for new developments: the Britishgovernment in the 1980s, for instance,provided Japanese companies with financialand infrastructure (new road and rail systems)incentives to locate manufacturing plants inregionally depressed areas of the United King-dom. The objective was to regenerate the areasthrough the development of new industries.The same principle was applied to the locationof Euro Disney™ (now Disneyland Paris™)near Paris rather than in Spain, which wasanother possible location. It could be arguedthat its climate would have made Spain a betterchoice.

� The political situation within a region or coun-try might deteriorate, leading to instability andcivil war. Since the 1950s this has happened inseveral countries in Europe, Africa, the Far Eastand South America. For companies that haveinvested in these regions (for instance, hotelchains), political failings have led to the collapseof the local market and closure of the hotels.

� At the same time political stability has returnedto several nations, for instance Vietnam. Thisarea is now being opened up to tourism, withaccompanying hotel developments (often byEuropean and American companies).

� However, the spectre of terrorism can strike atany time, and with devastating effect, as waswitnessed in Bali in 2002. While Bali mighthave seemed the ideal location for an escape-from-it all vacation, on that day it became thewrong location. Bali and New York have recov-ered from such horrific events, but it can beargued that all locations are now prone to suchattacks.

Economic

The economic circumstances can be viewed fromtwo perspectives, local and global.

� The initial question is whether the local econ-omy can sustain the business, or people willtravel from other locations to purchase theproducts or services on offer. In general, a local

supermarket will be dependent on the localeconomy and local people’s level of disposableincome. However an out-of-town shoppingcentre will be dependent on a wider economicbase than a local supermarket. Similarly amajor hotel in a city will be more reliant onwealthy tourists and the business market.

Local economies are, of course, dependent onpolitical stability. If the country is in politicalturmoil, the economy will suffer at bothnational and local levels. The likely outcome isthat businesses will collapse, pushing the econ-omy further into recession and potentiallydepression.

� To a greater or lesser extent, economies haveconverged. Thus the world is linked economi-cally, if not politically. A recession in one regioncan lead to a recession in another. For example,if the US economy collapses, for whateverreason, there would be severe repercussions infor instance the United Kingdom, which enjoysa significant level of US investment. In essencethere would be a domino effect.

Societal

Societal factors should be considered on a local,national, regional and global scale. There is a needto understand geodemographics and how locationsmay change or adapt as a result of populationmovements. For example, in the United Kingdomthere has been a growing trend for individuals andfamilies to relocate to the country and commute tocities. This is especially the case with London,where several million people travel into the capitaleach working day. For many the quality of life isbetter in the country or suburbs than in Londonitself.1 Such trends can result in a changing land-scape in the outer reaches of a city. Indeed, inEngland rural communities have been transformedinto commuter villages, and this affects the layoutand structure of the retail heart of the village.Companies have adapted too: for example the UKretail giant Marks & Spencer has opened severalfood stores at key London railway stations, provid-ing a service to commuters both arriving for workand leaving for home.

When an organisation is considering a location itmust attempt to understand the societal issues thatcould affect it. This must not be considered purely

PLACE AS A PHYSICAL LOCATION 271

as a snapshot in time. The quality and value of alocation can change over time as a result of societalissues. For instance, a depressed crime-ridden areacan be rejuvenated and given a new lease of life.Rejuvenation is far from new: during the 18th and19th centuries parts of London were depressingslum areas which today contain the homes of theup-and-coming middle classes.

A thriving area can also go into decline. If onecompany or industry dominates an area, and thecompany closes or the industry declines, that willhave a direct impact on the local community. TheUnited Kingdom saw this with the decline of coalmining and the steel industry. These were thecentral employers for several areas and entireregions. When the mines and steel works closedthere was a direct economic impact on all otherbusinesses in the area. For instance, people whohad frequented the local shops and restaurantswhen they were in work became extremely pricesensitive when they lost their jobs. This affected thefinancial stability of local service providers. Forsome the result was closure, and either relocation orbankruptcy and further unemployment.

This process led many to leave these areas toseek a new life and employment elsewhere. Migra-tion too has an impact on the local community.However some areas were regenerated throughsignificant government investment and incentivesto international companies. This led to the influx ofnew core employers and secondary business suchas suppliers and service providers. As well asregenerating the local communities, this providedthe opportunity for people to migrate from otherregions, which in turn may be suffering from eitherhigh unemployment or full employment with littlein the way of job acquisition.

Of course, we must not consider geodemo-graphic changes purely from a micro perspec-tive. The relative ease of global travel, increasedfreedom of movement2 and opportunities haveled to global movements of people. As ethnicgroups mix they begin to share their cultures.London, for instance, has become very much acosmopolitan city with a wide variety of ethnicgroups which have brought richness to the city.To illustrate how societal perspectives maychange, for many years the number one take-away food in the United Kingdom was fish andchips. By 2002 it was curry.

Technological

Four technological factors have had a particularimpact on location: the car, the passenger jet, thetrain and new building materials.

� The arrival of the car did much to changeshopping attitudes and hasten the growth ofout-of-town shopping centres or malls. Carswith large boot space allowed Americanshoppers, for example, to maximise the valueof their trips to hypermarkets. Society still hasa love affair with the automobile, but todaywe seek smaller, fuel-efficient and environ-mentally friendly vehicles. Nonetheless, theyremain an essential part of the weekly shop-ping experience, as is apparent if you look ata UK supermarket carpark on a weekend.This mobility has also led to the developmentof out-of-town shopping malls.

� The introduction of jet-powered aircraft in the1950s increased the opportunity for overseastravel. The further development of jet passen-ger aircraft and the introduction of low-costpackage holidays, especially in Europe, led to aboom in overseas vacations. The new genera-tion of fuel-efficient passenger aircraft willincrease the opportunities for lower-cost travelworldwide. This in turn may lead to the devel-opment of new hotels in resorts that have notreached saturation point, such as in parts ofSpain.


Figure 12.2


A TGV prepares for departure from Paris’s Gare duNord

� While some countries have a poor rail network,others, such as France, can boast of havingcontinually invested in an integrated railnetwork. This has provided France with signif-icant benefits. French Railways’ fast intercityTGVs allow tourists to reach their destinationsin a fraction of the time it would take them todrive, and in considerably greater comfort.Thus hoteliers, for instance, throughout Francecan market their services countrywide andindeed Europe-wide in the knowledge thatthey can be reached relatively easily.

� New types of building materials allow forthe low-cost construction of supermarketsand multi-storey shopping malls. These canhave a more architectural look rather thanthe functional box shape of previous hyper-markets and malls, especially in the UnitedStates.

Legal

� The planning system regulates what can andcannot be modified or built. The level oflegal control varies from location to locationand country to country. In some countriesplanning and building regulations are verylax, while in others there is strict control. Inthe United Kingdom, for instance, there isgenerally very strict zoning that prevents orlimits the scale of building in ’green belt’ andrural areas.

� The building of out-of-town hypermarkets hasprobably reached saturation level in the UnitedKingdom, so the supermarket owners are look-ing at a combination of alternatives for furtherexpansion:

● Renovating town sites, sometimes undera slightly different brand name. Forexample, Tesco city sites are known asTesco Metro.

● Opening new town sites: for example,Marks & Spencer and its food shops atkey London railway stations.

● Developing their online capabilities. Inthis case retailers need a warehouse, butthis does not have the same locationrequirements as a supermarket.

Environmental/ecological

The impact of the natural environment on locationis often overlooked in the analysis of marketing.Instead, it is considered a geographical phenome-non. However, the natural environment has asignificant influence on marketing as a whole, aswe saw in Chapter 2. In terms of location, thephrase ‘natural environment’ does not only applyto weather conditions: the terrain of the locationmust also be taken into consideration. For instance,it might seem a wonderful idea to locate a luxuri-ous hotel at the top of a mountain, but apart fromthe practicalities of access for constructionpurposes, is the terrain suitable for its construction?Of course, it can be argued that modern buildingtechniques and facilities make this kind of projecteasier than it once was, but that is only one part ofthe overall equation. Clearly, the luxurious skiresorts of Europe have conquered the buildingissue. The quality of the snow and the superb viewshave helped them attract the right market segment.

Weather also plays important role in where anorganisation locates itself, especially in the hospital-ity business. The impact of global warming willneed to be considered by future generations. Willthere be dramatic changes in weather conditions, assome writers predict, leading to more storms, moreflooding and longer periods of hot weather?Exploring this is beyond the scope of this text, butit is an important issue that requires further inves-tigation not only by scientists in the fields of geog-raphy and meteorology but also from theperspective of marketing and its impact on societyand business.

Location and place attachment

Earlier in this chapter the concept of place attach-ment was discussed. Figure 12.3 (overleaf) not onlyillustrates the link between location and placeattachment, but also highlights some of the factorsthat determine location.

There are several factors that we can extrapolatefrom Figure 12.3.

Physical features

These include the geographical aspects of theterrain (as discussed above), the infrastructure of the area (roads, rail, ports and so on) and thephysical construction of the outlet.

PLACE AS A PHYSICAL LOCATION 273

Social issuesThese include the demographics of the area andmarket segmentation.

Psychological factorsThe location has to be positioned in the minds ofcustomers as being the right place for them to visit.This is relevant whether it is a supermarket or aluxury holiday resort.

Individual needs and wantsThe location must fulfil the needs and wants ofindividuals. For example, a keen golfer is mostlikely to seek out a holiday resort that has a golfcourse on-site or nearby. Although an organisationmay engage in one-to-one marketing, it will seeksimilarities among clusters of individuals and posi-tion its service to that cluster. So in this brief exam-ple, a five-star golfing resort would market thefeatures and benefits of the resort to a particularsegment of golfing holidaymakers.

� Place as channel managementChannel management can be described as the formor channel through which a product or service isdistributed to the end user. The number of channelsor stages of channel management can vary depend-ing on the number of intermediaries involvedbetween the manufacturer and the buyer. Channelmanagement is an integral component of supply-chain management, especially when it is linked tologistics.

The following briefly outlines the potentialchannel stages.

A one-stage channelThis is a direct and often straightforward relation-ship between the producer and the buyer (seeFigure 12.4). The buyer could be either an individ-ual or a company, so it is equally applicable ineither a B2C or B2B environment.


Figure 12.3 Place attachment

Physical features

Social features

Needs andwants

Place attachment

Features ofsettings/location Personal processes

Psychological factors

Location or setting The individual

Source: adapted from a model created by Steele (1981) cited in Inalhan and Finch (2004).

A two-stage channelWhere a two-stage channel is concerned there areseveral variations which result in the producer sell-ing to an intermediary prior to the product beingsold on to the end buyer: see Figures 12.5, 12.6, 12.7and 12.8.

Three-stage channelsHere the product moves through three channels ofdistribution before it reaches the end user. Theproducer is increasingly removed from end users inthe physical sense. However, it may seek to build arelationship with them via promotion and market-ing communications. An example is a detergentmanufacturer that is physically removed fromconsumers yet seeks to build an emotional bondthrough television advertising.

� Physical distributionA component of the placement process is the phys-ical distribution or movement of the product

PLACE AS CHANNEL MANAGEMENT 275

Producer Buyer

A one-stage channel process.A B2C example of thisis the European low-cost airline easyJet™, which sellstickets online directly to its customers.

Figure 12.5

Producer Independentretailer

End buyer –consumer

The producer sells direct to an independent retailerwho in turn sells the product on to the consumer.The independent retailer may be one person whoowns a small local store.

⎛ ⎝ ⎛ ⎝

B2B operation B2C operation

Multiplewholesalewarehouse

Producer Multiple retailbranch

End buyer –consumer

The producer sells directly to a multiple branchretailer or to a wholesale warehouse that in turnsells to the multiple-branch retailer.The end buyerpurchases the product from one of the retailbranches.

⎛ ⎝

⎛ ⎝

B2C operation

B2B operation

Figure 12.6

Figure 12.7

The producer distributes the product to its ownfranchised retail operation.The retailer then sells theproduct onto the end buyer or consumer of theproduct.An example is the cosmetic company BodyShop International which develops and manufacturesits own products and distributes them through itsown franchised retail operation.

Producer Franchisedretailer

End buyer –consumer⎛ ⎝ ⎛ ⎝


through to the end user. The product may gothrough several forms of physical distributionbefore it reaches its final destination. For instance,consider a car manufactured in Japan which isshipped by sea to a port in the United Kingdom,from where it is transported by rail to a centralwarehouse facility. After checks have been under-taken it is moved by a road transporter to a retailshowroom/dealership to be marketed to the endcustomer. In order for that car to reach the end userit has undergone several physical movements.

Figure 12.4

This example focuses on an originally large ship-ment (perhaps 100 cars) that is gradually brokendown to a road transporter carrying approximatelysix vehicles to a showroom. Several physical move-ments take place over a large geographical area.Some items are in contrast small and deliveredwithin a localised area: for example, letters deliv-ered by the postal service. Products vary in size,shape and fragility.

The transportation methods used depend on thenature or constituents of the materials or products.Table 12.1 outlines the different types of productsand materials that are shipped and the form ofshipment.

� LogisticsChapman, Soosay and Kandampully (2003)describe logistics as an extension of physical distri-bution relating to the management of materials andinformation streams through the various channelsto the end user. Contemporary logistics was bornout of the massive military campaigns of theSecond World War. However, the importance oflogistics in moving men, materials (including foodsupplies) and armaments dates back to the Greek


A two-stage channel in a B2B environment.The producer sells to a distributor which in turn sells toa business user.An example is a paper mill that producers photocopy paper. It sells it to a majorcommercial distributor such as Viking Direct whosecustomers range from micro-businesses to corporations.

Producer Business user

B2B operation

Business/industrial

distributor

Figure 12.8 Figure 12.10

© Hapag-Lloyd. Reproduced with kind permission.

Bremen Express at sea with her cargo of containers.

Here there are two intermediaries operating between the producer and the end consumer of the product.Anexample is a wholesale merchant (or cash and carry company) which makes bulk purchases from producers.Thewholesale merchant then sells products (in varying amounts) to independent retailers which in turn sell themonto consumers (again in varying amounts).This example demonstrates a link between B2B and B2C.

Producer Wholesale merchant

Independentretailer

End user –consumer


Figure 12.9

and Roman Empires. Military planners and strate-gists achieved this through procurement, mainte-nance and transportation. The same principles existtoday, but on a global business scale.

As Chapman et al. (2003) state, ‘as organisationsglobalize to access new markets and achieve higherproduction and sourcing efficiencies, logistics playan important role in moving materials, productsand services through supply chains’. Thus the useof efficient and effective logistics management

becomes a contributor to an organisation’s ability togain a competitive advantage.

Porter’s supply chain model

It is important to consider logistics in relation to theoverall supply chain from raw material provisionthrough to the end user of the product. Porter(1985) encapsulated supply chain management as acombination of support activities and primary

LOGISTICS 277

Table 12.1 Types of shipment

Material orproduct

Description

Loose cargoes These range from coal and ores to liquids such as oil. Specialist containers (including pipelines),vehicles and ships are used to transport such materials. In the case of fish specialised refrigeratorcontainers can be loaded onto cargo aircraft to ensure freshness and quality on long-haul flights. Itis the use of such technology that ensures that fresh fish produce is available on supermarketshelves, especially in Europe. Fish caught in the Caribbean one day can be on UK supermarketshelves 24 hours later.

Containerisedcargoes

Containerisation has created an efficient inter-modal delivery system.Advantages include:• Several loads can be consolidated into one, creating economies of scale.• Loading and unloading time is dramatically reduced, minimising port costs.• There can be inter-modal movement of products without the containers being opened (which

reduces transportation time, costs and the risk of theft or damage).

Hazardous materials

Hazardous materials include everything from corrosive chemicals to oil and nuclear materials.Thelevel of toxicity depends on the material being transported. Clearly a major oil spillage will have adetrimental impact on the immediate environment. It will also have negative impact on the reputation of the oil company concerned, especially if the spillage was caused by negligence.Themovement of nuclear material for reprocessing, by road, rail or sea, creates numerous risksincluding terrorist attack. Both shippers and governments are mindful of the risks.

Valuables This includes the movement of cash (for banks and stores) as well as diamonds and gold bullion.In many countries private companies transport such valuables in specialist vehicles.To gain, andretain customers, security firms must be able to market their ability to handle and move valuablesefficiently, effectively and with the minimum risk of theft.

Vehicles The type of vehicle moved varies from cars to specialist cranes.A common factor is the need forspecialist transporters and trained personnel.

Perishable produce

Perishable products such as food (chilled, frozen and fresh) and flowers must be transported tothe marketplace with the minimum of delay in order to maintain their quality.The use of, forexample, special containers (for air freighting) and refrigerated vehicles allow such produce to betransported over long distances. Fresh produce was usually only grown in the country of consumption.Thus it had a seasonal limitation.Today fresh produce, for example, strawberries, isavailable all year round in the United Kingdom.This is due, in the main, to developments in thespecialist transportation.

Outsized loads These are unusual loads that because of their size and shape do not ‘fit’ any standard criteria.Their movement requires specialist vehicles, ships or aircraft. For example, specialist vehicles areused to move sections of the A380 aircraft to the assembly plant in France.

activities. As you can see from the primary activi-ties, both inbound and outbound logistics areclearly linked with operations, marketing and serv-ice (to the customer).

However, there are not one but several supplychains in the process of delivering a finished prod-uct from the manufacturer to a customer or enduser. Porter (1985) views this as a value system.

Figure 12.17 (overleaf) illustrates a possiblescenario.

All these supply chains feed into each other inorder to deliver the product to end users at theright time (to meet their needs) and in the rightplace (location). An excellent example of this isthe operations behind Airbus SAS. For over 30years the organisation has been supplied witheverything from sheet metal to complete landinggear. Today, more than 1500 companies in over 30countries supply it with a vast array of


Figure 12.11


Loose cargoes such as minerals are still moved alongwaterways. Here sand is moved, on a regular basis,along the River Seine in Paris.

Figure 12.12

© British Nuclear Fuels. Reproduced with kind permission.

A special nuclear flask is loaded aboard a ship fortransportation

Figure 12.13

© AIRBUS S.A.S. 2004 – exm company/P. MASCLET

The delicate maneouvring of a section of the AirbusA380 fuselage on a multi-wheeled transporter

Figure 12.14


A freight yard in Washington State, USA with bothopen wagons (for carrying minerals) and containers

products (Airbus 2004). These include theGoodrich Corporation (main landing gear on theA380) and Matsushita Avionics Systems, Sumit-omo Precision Products and Jamco Corporationwhich are providing components, cabin andgalley equipment for the A380 (Morris 2004). Thesuppliers to Airbus for the A380 are from Europe,America (some 50 per cent of content) and Japan(Morris 2004).

Each of the suppliers will have its own supplychain. Just for a moment reflect upon the vastnumbers of sub-suppliers and individualsinvolved in providing Airbus Industries with thetools, facilities, materials and products thatenable you to fly in one of their aircraft.

Kandampully (2002) suggests that innovationis a core competency of service organisations,and Chapman et al. (2003) believe that there arethree requirements for service innovation (basedupon Kandampully 2002):technology, knowledgeand relationship networks. These are brieflyexplored in Table 12.2. However, the key for anycompany is how to exploit these core competen-cies by linking them to the supply chain to gain(and more importantly sustain) competitiveadvantage.

LOGISTICS 279

Figure 12.15

© Civil Aviation Authority of Singapore. Reproduced with kindpermission.

Packages in a container are loaded on board a FederalExpress cargo plane

Company infrastructure

Human resource management

Technology development

Procurement

Inbound logistics

Operations Outboundlogistics

Marketingand sales

After-salesservice

Primary activities

Sup

port

act

ivit

ies

Mar

gin

Figure 12.16 Michael Porter’s supply chain model


� Retail outletsThere are various forms of retail outlet dependingon the location, the nature and form of the transac-tion undertaken, and size of outlet. This sectionvery briefly outlines the outlets in which goods orproducts (both branded and unbranded) are sold.

Markets

The structure and regularity of markets variesfrom location to location. In Morocco, for

instance, there are weekly local markets, usuallyheld on a Saturday, where produce from theregion is brought for sale or barter. This includeseverything from donkeys to vegetables. Themarketplace is not only a place for the selling ofgoods and produce, it is where people meet toexchange their views of the world on a weeklybasis, where people actually keep in touch witheach other. In many countries it is also the waypeople conduct business – it is a matter ofconnection, conversation, friendship and trust.The power of the local market should never be


Figure 12.17 A value system

S1: Supplier value chainsS2: Organisation’s value chainS3: Distributor or retailer value chain

Table 12.2 Requirements for service innovation

Innovation andlogistics

Description

Technology The focus is on information and communications technologies (ICT), which range from onlineordering and monitoring through to vehicle routing and just-in-time (JIT) inventory replenishment.

Knowledge The management of knowledge is a vital part of any department within any organisation.This isespecially so in a world that is being saturated with continuous flows of information. Chapman etal. (2003) suggest that knowledge in logistics incorporates ICT which creates a basis for knowl-edge sharing, and the people who operate within organisations.They believe that for an effectivelogistics knowledge-management system to operate there has to be an holistic combination ofthese factors.This would create knowledge networks which provide organisations with the abilityto create, share and use knowledge strategically to continually improve operational efficienciesand thus better service customers (Kandampully 2002).

Relationship networks

This suggests that rather than the combative stance that often occurs between suppliers and buyers there needs to be greater ‘partnering’. Chapman et al. (2003) suggest that when intermediaries act as partners the boundaries between them become fluid.This results in greaterintegration, information and knowledge flow.

End user orconsumer

underestimated, especially where such traditions continue unaffected, in the main, bydevelopments in the rest of the world.

Vending (automatic retailing)

The world’s first commercial vending machineswere introduced in London in the 1880s anddispensed postcards.3 However, it was in NorthAmerica that the vending revolution developed.The value of the global vending market is estimatedto be US$ 40 billion, with the major markets concen-trated in America, Japan and parts of Europe (CR80News 2005).

While many common items are vended, therange of products available varies from country tocountry. This is a very small selection of items thathave been, or currently are, dispensed from vending machines:

� bait for fishing

� beach equipment such as beach balls and toys

� business cards and letterheads

� cameras (disposable one-use format)

� cigarettes

� comic books

� computer disks (at various universities forstudents using 24-hour computer facilities)

� condoms

� confectionery

� female hygiene and sanitary protection

� hot drinks

� hot food

� popcorn

� soft drinks

� tennis balls

� travel tickets at metros, bus and railwaystations

RETAIL OUTLETS 281

Figure 12.18

© Shona Muir. Reproduced with kind permission

An indoor food market in Barcelona, Spain

Figure 12.19


Traditional wooden market stalls on the left bank ofthe River Seine in Paris.These stalls sell books,postcards, old magazines (for collectors) and advertising posters.

� video cassettes and DVDs

� washing travel packs containing soap, tooth-brush, toothpaste, a razor and shaving foam.These are found in major railways stations inthe United Kingdom, and are increasinglylikely to be found in budget or low-cost hotelswhere clients purchase the room but then mustbuy sundry items separately that are providedfree in more expensive hotels. This is based onthe same principle as low-cost airlines.

Vending machines provide various advantages:

� Convenience of location. They can be designedand operated for both interior and exterior use,so products can be dispensed on a 24/7 basis.

� No location staffing requirements. Unlike astandard retail outlet the vending machinedoes not usually require on-site staffing. Themachines are restocked by the operator-ownersor leasors.

� On-site branding: they provide branded prod-uct manufacturers with an opportunity toadvertise their products on a 24/7 basis.

� Major distribution outlet: for branded confec-tionery, snack and drinks companies, in partic-ular, vending offers a significant distributionchannel alongside traditional retail channels.

� Opportunity for higher margins: brandedproduct manufacturers are able to gain highermargins from their own controlled vendingoutlets. Vending machines are inexpensive inrelation to the revenues they can generate, andnew machines tend to yield sales in excess oftheir purchase price within the first year ofoperation (Euromonitor 2004b). Thus manycompanies, especially in the United States,have been able to finance market expansionthrough revenue generation (Euromonitor2004b).

� New location and market opportunities.Companies have been able to seek out newmarkets. For instance, in the United Kingdommany offices and factories had their own cater-ing facilities. This was often seen as a costburden to the organisation, and thus whencosts were reviewed these operations were

downsized. In many cases a range of vendingmachines providing hot/cold drinks andsnacks replaced the in-house catering facilities.In addition, to reducing catering costs, suchactions have also freed up space for other uses.

� Other new locations have included hospitals,universities, schools (see mini case 12.1), rail-way stations and prisons.

� New technological developments in storage,heating and cooling have greatly widenedmarket opportunities. Now a wide range ofchilled and ready to cook products are avail-able through vending machines.

� Companies have sought network expansionthrough both organic growth and acquisitions.For example, the UK-based Compass Groupexpanded in to the highly developed Japanesemarket by acquiring, in 2002, a significantshare of Seiyo Foods.

� Can drive impulse purchasing. Vendingmachines that have glass-fronted panels andthus branded products on display, and agreater variety of packaging formats, can driveimpulse buying in the ‘ready to go’ sectors.


Holiday Inn Express®

Holiday Inn Express® is a brand of theInterContinental Hotels Group. The Holiday InnExpress® brand caters for value-oriented cus-tomers. Many of these hotels in the UnitedKingdom, North and South America have either aseparate vending area and/or machines on eachfloor.These areas may be in addition to a lounge/bararea and a restaurant.

Using the hotel’s restaurant or visiting a restau-rant in the neigbourhood may be too expensive forvalue-driven customers, so vending provides a suit-able alternative.The vending facilities provide a vari-ety of products including hot/cold drinks, hot/coldfood, snacks and alcohol. In addition, there are usu-ally facilities that dispense books and toiletries.

Guests do not have to use change to obtain theproducts. A swipe of their room key immediatelytransfers the cost of the items to their room bill.Sources: Mintel (2003), www.ichotels.com

Mini case 12.1

� Cashless payments. On page 284 the use oftelemetry is linked to cashless paymentsystems. Increasingly credit card readers andtelemetry links have been installed in somevending machines. This has widened the use ofvending machines to dispense such items astrain and airline tickets. The ability to use creditcards increases the possibility of higher-valuegoods being dispensed from vending units.

Technical developments in vending

New developments have improved, and continueto improve, both the efficiency and range of products available:

� Widening provision and quality. Over the lastten years or so the refrigeration and cookingsystems in vending machines have greatlyimproved. This has enabled companies not onlyto provide a wider range of products (fromcoffee to hot snacks and ice creams), but also toimprove the overall quality of the products.

� Telemetry – remote management. The use ofwireless technologies provides companies withseveral key advantages:

� The monitoring of supply levels: whenstocks reach a critical point an employeecan be despatched to restock the machine.

RETAIL OUTLETS 283

Food and drink vending machines inschools – an ethical issue?

Schools in various countries have introduced vendingmachines dispensing a range of snacks and soft drinks.However, in recent years there have been growing con-cerns about obesity in children, most especially (thoughnot exclusively) in North America.

Such is the concern that America’s largest schooldistrict – Los Angeles Unified School District – bannedthe sale of soft drinks in all its schools from January2004.Water, milk and drinks containing at least 50 percent fruit and no added sweeteners are provided as analternative.Also of January 2004 Arkansas was the firstUS State to pass legislation banning vending machinesfrom elementary schools. Other US States have enact-ed or intend to enact legislation that will limit or pre-vent the sale of certain products (for instance, carbon-ated soft drinks) from school vending machines.

In the United Kingdom a survey of 736 parents con-ducted by FDS International for the Times EducationSupplement revealed that eight out of ten parents want-ed vending machines removed from schools. This fol-lowed a survey of 1000 people conducted in October2003 forThe Guardian newspaper where the figure wasseven out of ten requesting such a ban. However, theUK Department for Education and Skills has stated thatit has no plans to ban vending machines from schools,preferring instead for head teachers and school gover-nors to make the decision.

It is estimated that some 95 per cent of secondaryschools in the United Kingdom have vending machines,

which can earn the schools significant additional rev-enues. Estimates have varied from UK£15 000 toUK£50 000 in larger secondary schools. For manyschools this becomes a vital revenue source to provideadditional facilities, so head teachers and governors arefaced with a dilemma.

Various companies, such as Nestlé, have sought toprovide alternatives to the normal vending machinerange such as mineral water and milk. In the US Stateof Iowa the Midwest Diary Association™ and DiaryManagement Inc partnered with Swiss Valley Farms toplace vending machines that serve milk, cheese andyoghurt products in several schools as an alternative toother snack foods.

In early 2004 a 1200-student specialist technologycollege – Queensbury School in Dunstable,Bedfordshire– was the first secondary school in the United Kingdomto remove sugary snacks and soft drink vendingmachines.They were replaced with new machines thatprovided additive-free Fruesli bars, organic orange juiceand mineral water.Queensbury’s head teacher Nigel Hillcommented, ‘Do you put students’ health first or themoney you can make selling them chocolate and fizzydrinks?’Sources: Euromonitor (2004b); National Conference of StateLegislature, www.ncsl.org/programms/health/vending.htm;Midwest Diary Association, www.midwestdiary.com; W.Mansell, ‘Stop selling junk food to our children’, TimesEducation Supplement, 23 April 2004; M. Shaw,‘Coke “too prof-itable” to lose’, Times Education Supplement, 3 October 2003;PA News, ‘School replaces junk food with healthy snacks’,Times Educational Supplement, 3 February 2004.

Mini case 12.2

This eliminates restockers unnecessarilyvisiting machines that do not requirereplenishment, so there is a more efficientuse of labour.

� Malfunction analysis and alert: if themachine malfunctions, a central controlcan be alerted to the fact and the possiblecause of the malfunction. A service engi-neer can be despatched to repair theequipment, knowing in advance thenature of the fault. In the future any soft-ware problems will be rectified remotelywithout the need for an engineer to visitthe site. Thus downtime is minimised.

� Cashless payment systems: in many,though not all, cases customers musthave either the right monetary change ortokens to use vending machines. This isoften the case with ticket machines, forexample, in bus stations in London whichwill only accept (as of 2005) the correctamount of change. In some countriesthere are facilities that allow customers touse their mobile phones to call a numberto release the product from the vendingmachine. The cost of the item is added tothe caller’s mobile phone bill (Mintel2003).

� Location profiling. Companies have usedtechnology to gain a better understanding ofthe market in which the vending machine islocated. The US company Sodexho usedgeodemographic data on client populationsto profile customers and determine potentialproduct offerings (Euromonitor 2004b).Companies have also experimented with theconcept of raising and lowering prices(remotely) depending on the levels ofdemand (Euromonitor 2004b).

Individual storesThese are single store retail outlets which areusually owned by an individual or a family. Theterm ‘individual’ implies that the family will neces-sary remain the owners of one single store, but thisis not always so: over time they might purchaseother stores in the same area and slowly broaden

their network. Even though the store might expandinto a small chain, it is likely to remain an inde-pendent retailer, and this offers it the ability to bedifferent from major retailers. An example is a localbutcher who prepares meat to individualcustomers’ needs (for instance, de-boning or slic-ing). This is a personal touch that might not beavailable in a supermarket. Individual stores often,though not always, provide an example of one-to-one relationships.

Multiples or chain storesThe size of chains (and their individual physicaloutlets) varies. For instance, a local or regional busi-ness might have several outlets but only in oneregion. On the other hand, the high street retailerMarks & Spencer has outlets throughout the UnitedKingdom.

Online storesTraditionally retail outlets were purely ‘bricksand mortar’. Today and into the future onlinestores act as virtual stores. They are unlikely toreplace bricks and mortar in the short term, ifever, but they need to be considered as retailoutlets. Companies such as Amazon that builttheir reputation on a limited range of productshave significantly expanded their offerings. Like-wise food retailers such as Tesco have broadenedtheir range online to include large items (such astelevisions and washing machines) that wouldtake up too much store space and thus not becost-effective in their conventional outlets. Byleveraging partnerships and distribution chan-nels, they can deliver larger items to theircustomers.

As computer technology becomes increasinglysophisticated the virtual store, where consumerscan ‘walk around’ and choose items, will become areality. While this will not replace an individual’sphysical movement around a store, and the abilityto touch items, it will provide many people with aneasy way of shopping.

Perhaps the critical factor is delivery of theproducts. It is one thing ordering a productonline, and very much another for it to be deliv-ered at a suitable time. One of the key factorsbehind Tesco’s success as an online retailer in the


United Kingdom is that it is able to meetcustomers’ delivery expectations, which addsvalue to its products and services.

� Chapter summaryThis chapter has considered the role of ‘place’ in themarketing mix. Generally place has come to beassociated with distribution. However, it is muchmore than distribution alone. It covers a vast canvasfrom actual locations through to channel manage-ment, logistics and the physical handling of goods.This is quite a spectrum, and one that continues tobe a vital part in the delivery of goods and servicesto end users, whether they are individuals, companies or governments.

For many goods and services the nature of distri-bution might not change significantly over thecoming years. However, for others radical change isalready being undertaken. New technologies haveprovided many opportunities for companies, forexample:

� The use of vending machines to dispense adiverse range of products 24/7.

� New ways of handling fragile cargoes andshipping them over long distances in shortertime frames.

� The use of satellite technology to monitor andplan deliveries.

� The use of online distribution. Airline flights,for instance, can be booked online with a refer-ence number acting as the ‘ticket’. In this casethe intermediary – the travel agent – has beenremoved from the channel as airline companiessuch as British Airways and easyJet transactthe purchase directly with the customer.

However, it is not just technology alone that hasaffected the development of distribution and chan-nel management. We have to consider how otherexternal environmental factors such as economicsand society have changed. Indeed, we need toconsider how they will change in the future, andwhat therefore will be the impact upon place as awhole. This will vary from the importance of loca-tion through to how products and services aredelivered to end users.


1 With fellow students debate the role of place asa concept within the marketing mix.

2 ‘The Internet will replace the physical retailstore in the next ten years.’ Critically evaluatethis statement. What is your opinion? Supportyour view with evidence.

3 What factors influence place as a physicallocation? Use examples to support youranswer.

4 Using examples explain one-stage, two-stageand three-stage channel management.

5 Critically review how B2C and B2B modes ofdistribution and channel management vary.Use examples to support your answer.

� ReferencesAirbus (2004) Operations: Procurement, Airbus SAS.

www.airbus.com.Bowie, D. and Buttle, F. (2004) Hospitality Marketing:

An introduction, Oxford: Elsevier Butterworth-Heinemann.

Chapman, R. L., Soosay, C. and Kandampully, J.(2003) ‘Innovation in logistic services and thenew business model’, International Journal ofPhysical Distribution and Logistics Management33(7), pp. 630–50.

CR80 News (2005) ‘USA Technologies launchescontactless credit card payment systems for vending’, 2 June, www.cr80news.com.

Euromonitor (2004b) Global Vending CorporateOverview – Report, Euromonitor, May.


Inalhan, G. and Finch, E. (2004) ‘Place attachment andsense of belonging’, Facilities 22(5/6), pp. 120–8.

Kandampully, J. (2002) ‘Innovations as the corecompetency of a service organisation: the role oftechnology, knowledge and networks’, EuropeanJournal of Innovation Management 5(1), pp. 18–26.

Milligan, M 1998. ‘Interactional past and potential: thesocial construction of place attachment’, SymbolicInteraction 21(1), pp. 1–33.

CHAPTER SUMMARY 285

Mintel (2003) Vending – UK Report, Mintel International Group, February.

Morris, J. (2004) ‘Aerospace and aviation’, specialfeature, Business Week European edition, 26 July–2August, pp. 46–52.

Perreault, W. D., McCarthy, E. J., Parkinson, S. and

Stewart, K. (2000) Basic Marketing, London:McGraw-Hill.


Steele, F. (1981) Sense of Place, Boston, Mass.: CBIPublishing.


� IntroductionThis chapter considers the role of people in the marketing environment. Whilesome (particularly accountants and finance managers) might argue that financeis the key to the operation of any business, others may well say that people arethe real key to success. If it were not for the people element there would be nobusiness in the first place. Kotler (1975) considered people as a ‘public’, andstated that this was ‘a distinct group of people and/or organisations that havean actual or potential interest and/or impact on an organization’.

Harvey, Lusch and Cavarkapa (1996) quote Dawson (1969) who developeda ‘human concept of business’. Dawson (1969) suggested that organisationsdevote their efforts to meeting the needs of people, and he formulated threeareas:

� Level 1: this is internal and relates to the role of the organisation in devel-oping the human resource element. This includes employee training andincentives. However, the level and effectiveness of the training has to be inkeeping with the quality of the output required from the employees. Train-ing for the sake of training has proved, countless times, to be a waste ofboth financial and human resources.

� Level 2: this is the relationship between the organisation and its customers,competitors, suppliers and distributors. This series of relationships linksback to the micro environmental factors discussed in Chapter 2.

� Level 3: this is the relationship between the organisation and society as awhole. Dawson considered this as the ‘market for human fulfilment’. Thiscan be linked to ethical and societal responsibility in the widest sense. For

CH

AP

TE

R

13People

Learning outcomes 287Introduction 287Who is included in

‘people’? 288Right people – right

job 290Building relationships 290People and not-for-

profit organisations 291What happens when

things go wrong? 291Potential ethical issues 291Chapter summary 293Questions for review




� evaluate the role of people (participants) in the marketing environment

� debate the complexity of people as decision-making units (DMUs)

� appraise the wide-ranging impact of the ‘people’ element within themarketing mix.

example, both for-profit and not-for-profitorganisations invest in improving individuallives. The Royal National Lifeboat Institution isa UK voluntary organisation which, combinedwith the Coast Guard and air-sea rescue,provides both inshore and offshore rescuecover.

As Kotler (1992) suggests, organisations need toundertake ‘wrap-around’ marketing, in otherwords work collaboratively to ‘get and retaincustomers through relationships’.

As we have already seen, a significant amount ofmarketing relates to transactions. However, trans-actions cannot take place without the interaction ofpeople, whether they are store assistants orcustomers. Consider your position as a student, forinstance. While your university or college mightprovide the physical surroundings, it only providesthe physicality of the learning space. If it were notfor the administrative and academic staff the valueof that learning space would not be maximised. It isthe people that make the university or college, notthe physical assets. It is the people who communi-cate, who instruct, who teach and support students.Thus any institution cannot exist without the pres-ence of quality academic and administrative staff.

In this chapter we look at the role of peopleand their interaction with one another. WhileBooms and Bitner (1981) developed and modi-fied the marketing mix to focus on ‘service’elements, including people, Borden (1964) indi-cated in his work on the marketing mix thatpeople made contributions ‘in specific circum-stances’ (my italics). Although Booms and Bitner(1981) have not been the only ones to promote‘people’ (participants in their original paper) as amarketing mix element (see Chapter 8), theymade a very strong claim for their inclusion.Indeed, it could be argued that ‘participants’ideally illustrates this marketing mix element, because the focus is on some form of‘interaction’. It is not a static relationship.

Some texts portray ‘people’ in a stereotypicalfashion, but it is important to remember that weare dealing with individuals, not a series of digi-tal codes. This is often a failure of many organi-sations, a criticism that has been levied at manyUK high-street banks. As we shall see in Chapter16 on psychology, our behaviour is governed by

a variety of stimuli, some pleasant, others not so.Our reactions thus can be highly complex, and itis important that we attempt to understand thiscomplexity and the role of people within themarketing environment.

� Who is included in ‘people’?At first this may sound like a particularly odd ques-tion. Yet often when dealing with the peopleelement of marketing, books and journals tend torefer to two categories, employees and customers.While that is perfectly correct, it is only one part ofthe whole picture. Indeed some texts only refer tothe ‘customer services department and thecustomer’, thus making the term ‘people’ evenmore restrictive. Clearly ‘people’ refers to manymore individuals that this.

Here we can refer to Porter’s (1980) value chainanalysis (see page 278) to help us expand the roleof ‘people’. From Porter’s analysis we can see thatvalue can be added to a product and/or servicethroughout the manufacturing and deliveryprocess. Just as value can be added to a product,so can value be added via people, both as individ-uals and within groups.

Every day of our waking lives we come intocontact with people involved in the marketing of aproduct or service. We might never meet them on aface-to-face basis, but without them the product orservice would not be delivered. For instance,consider the number of individuals who contributeto the creation and development of a movie. Thenext time you watch either a Star Wars or a JamesBond movie, stop and watch the end credit list. It isthe collective abilities of these people that haveplaced the images on the cinema or televisionscreen. Without them, the marketing teams thatpromote the movies and the cinema staff, youwould not have had an enjoyable, thrilling coupleof hours.

The mini cases in this chapter provide examplesof the complexity of the people element withingiven situations.

Individuals and groups represent the organisa-tions that employ them. In essence they are theambassadors for that organisation, whether or notthey have direct contact with, or access to,customers. Let us consider a selection of diverseexamples.

288 13 • PEOPLE

Computer systems operations at a bank

Computer software designers work in the ‘back-room’ and have no direct interface with the bank’scustomers. However, how they organise and writethe programs that drive, for example, online retailfacilities has a direct impact on the bank’scustomers. For example, bank managers rarelydraft individual letters to customers any more. Inmost Western-oriented banks computer systemsproduce (and sign) the letters and mass despatchthem to customers. If a customer is overdrawn onhis or her account, it will often automatically trig-gering a letter to him or her. Where an individualbank manager may ‘personalise’ the letter, acomputer will produce a standardised letter. Thetrick is for the computer programmers, workingwith customer relations staff, to devise letters thatadd an element of ‘tailoring’ or ‘personalisation’.This provides added value from the customerperspective.

Military personnel

The customers of armed forces are potentiallymany: their government, the citizens who elect thatgovernment, host governments (if they are servingabroad), potential recruits and the innocent civil-ians that they protect from genocide (this is partic-ularly the case with international peacekeepingforces, often under the control of the UnitedNations). It may seem ironic, even callous, todiscuss this in terms of ‘marketing’. However, it isabout relationships and the public’s perception ofthe armed services. For example, various militaryforces around the world (for example the British,French, Scandinavians, Australians and NewZealanders) have built a reputation for calm profes-sionalism (often in the face of extreme adversity),humanitarian relief and peacekeeping. These arevery different roles from the combative attitude wesee in endless war movies.

Especially in peacekeeping roles, many armedservice personnel display immense patience andhumanitarian support under very difficult situa-tions. Along the way many of these personnel havegained the respect of aid agencies, governmentsand ordinary citizens. However, it is a fragile publicperception. Any wrongdoing can tarnish the reputation of a whole military force that has beenbuilt up over centuries.

Pilots

Passengers board an aircraft in the belief that thepilots, the onboard crew, the ground crew, theairline company and the various air trafficcontrollers can assure a safe flight. With enhancedonboard security we only hear the voice of thepilots as they welcome us aboard and update usduring the flight. We no longer see either the pilotor co-pilot walking through the aircraft during theflight. We place our faith, and indeed our lives, intheir ability to deliver us safely to our destination.

As mini case 13.1 shows, people are fundamen-tal to the operations of any organisation. However,the focus must also be having the right people inthe right job doing the right thing at the right time.

Should we purely focus on ‘people’ in theeveryday business or university setting? Wemust broaden out this notion of ‘people’ toconsider all professions and activities. Actors in amovie are people engaged in ‘marketing’ an ideaor an experience to members of the movie-going

WHO IS INCLUDED IN ‘PEOPLE’? 289

Hotels

Whether you consider a major hotel chain such asthe Hilton Group or the Shangri-la Group in the FarEast, or a small country-style hotel in SouthernFrance, all are dependent on the actions and behav-iour of people.

Most of us are familiar with front of house staff.These include the concierge, the hall porters andthe restaurant waiting staff. However, there arenumerous behind the scenes staff, who do not havea direct interface with the guests. Along with thefront of house staff we know that there are clean-ers, chefs and other kitchen staff as well as mainte-nance, marketing and management teams. All theseare involved in the smooth running of the hotel.However, they would not be able to undertake theirroles if it were not for their suppliers.These rangefrom the providers of fresh fruit and vegetables forthe kitchen to the printers responsible for thehotel’s letterhead and compliment slips.

All these people are involved in a dynamic chainto provide an efficient and effective service for theircustomers, whether they are individuals staying onbusiness, couples/families on vacation or delegatesusing a conference/exhibition facility.

Mini case 13.1

public. Why do young people queue around theblock to buy that latest Harry Potter book? It isbecause the author J. K. Rowling has conjured upin her imagination a storyline that enthrals hermillions of readers. Yet, she is not the only personinvolved in bringing the adventures of youngHarry and his friends and foes to a global read-ing public. Consider the role of the people work-ing for the publishers, printers and distributors.Each and every person involved has contributedto the phenomenal success of these magicalbooks.

An orchestra can ‘get into the mind’ of acomposer and understand the emotions thatdrive the musical work (Figure 13.1). Theconductor (who may also be the composer) canengender their passion and interpretation ornuances of the music. Thus a relationship buildsbetween the composer, orchestra and conductor.It is this combined performance that becomes a‘transaction’ with the audience. In return for theirattention and interest in the music/orchestra/conductor (in some combination), they receive a

performance (which might well be memorable).This can be considered as a ‘transaction ofemotions’.

� Right people – right jobA company not only needs people in order tofunction, it needs the right people, and thatincludes the right suppliers. It is one thinghaving a brilliant idea for a product, service ornew marketing campaign. However, the rightpeople need to be in place to drive the ideaforward. Collier (1991) states that participants(customers or staff) are ‘the final link in the valueadded chain of retailing’. He continues by usingthe international clothing retailer Benetton as an example of developing staff to work effectively with customers:

Benetton sales people are trained on the job,usually in established stores. They are trainedin mix and match colours and outfits. Theymust be well-groomed and fit the marketniche personality for that store, be friendlyand polite, and know the procedures of thestore.

(Collier 1991)

Following on from Collier’s point, the selecting andtraining of employees to be ‘customer-focused’ hasbecome an increasingly critical issue in marketing.Almost a decade before Collier, Cowell (1984)emphasised the importance of carefully selectingand training customer contact personnel. However,as stated earlier, customer-contact staff are not theonly people bound up in the marketing equation. Inessence everyone has, to a greater or lesser extent,an involvement in customer development andsatisfaction.

� Building relationshipsAs stated in Chapter 3, organisations attempt todevelop ‘prospects’ (potential customers) intoloyal customers who act as ‘advocates’.However, this relationship building can be alengthy process, as the various parties involvedseek to understand each other and build mutualtrust and respect (at least to a degree). Of coursepeople can remain loyal to another individual or

290 13 • PEOPLE

Figure 13.1

Composer

Orchestra

Conductor

Auditorium

Audience

This diagrammatically represents the relationshipbetween musicians and an audience.We can arguethat everyone in this relationship is a participant.Indeed if we were referring to a pop concert/venue(such as Glastonbury in the UK) the audience wouldbe on its feet dancing to the music.

organisation even if they do not have a highdegree of respect for it (him or her). This is aperhaps curious factor of human behaviour, yettrue. Just consider how many people remainloyal to the organisation they work for eventhough they do not have the deepest regard forthe managing director or chairperson. In suchcases other elements link together with therelationship to bind the loyalty.

� People and not-for-profitorganisations

As we have already seen, for-profit organisationsare dependent on people, especially how they inter-act with customers. However, it could equally beargued (some may say more so) that people are anintegral element of not-for-profit organisations. Wehave already seen how military personnel may beperceived both nationally and internationally. Not-for-profit organisations such as voluntary organisa-tions and charities put an immense reliance on thegoodwill of both individuals and groups. Manycharities, for instance, are dependent on thesupport of volunteers to raise funds and organisespecial events. They are also dependent on thesupport of individuals and groups to support thecharity through donations, financial and/or offacilities and equipment.

� What happens when things gowrong?

If we accept that people are at the heart of an organ-isation, there must be a realisation that there areoccasions when relationships fail. This failure maybe internal: that is, between the employees, suppli-ers and management. It can also be external, that is,between the organisation and a customer. These arenot mutually exclusive. An internal disputebetween employees and management can have adevastating effect on the organisation’s relationshipwith their customers. In mini case 13.2 (overleaf)we examine the impact on British Airways whenthe relationship between management and itscheck-in staff broke down, leading to chaos and apublic relations nightmare for the company.

� Potential ethical issuesWhere people are involved ethical issues clearlyarise. Dawson (1969: see also page 287) consideredhis level 3 of the ‘human concept of business’ to bethe relationship between the organisation and thewider society. This can be linked to the wider ethi-cal and social responsibility issues that are increas-ingly part of our contemporary lives.

As we investigated in other chapters, people usevarious techniques, such as deceptive pricing

BUILDING RELATIONSHIPS 291

Figure 13.2


Information and customer care staff are the public faceof the organisation.They support not only the customer but also the organisation that employs them.This can be a pivotal function in any organisation, andcan be crucial to the successful marketing of thatorganisation and the products and/or services it provides. Customer care may be the ‘tipping point’ inan organisation maintaining an advantage in a dynamicvolatile competitive environment.

292 13 • PEOPLE

Mini case 13.2

British Airways

For many years British Airways (BA) used the advertis-ing slogan ‘The world’s favourite airline’. This memo-rable tagline, created in 1983 by the Saatchi & Saatchiagency, reinforced the popularity of the airline as anexpanding global business flying more people to moredestinations than any other airline.

The relationship between an organisation and itscustomers is paramount. Companies seek to buildstrong longer-term relationships with their customers.Research indicates that dissatisfied customers willinform more people of their verdict than those whohave been satisfied. Thus the pressure is on organisa-tions to create an effective, efficient and long-term rela-tionship with their customers. One key problem is thata major dysfunctional activity can have potentially damaging long-term effects.

In July 2003 British Airways management introduceda new swipe-card system for its check-in staff atLondon’s Heathrow Airport, the world’s busiest air-port. This was to replace traditional ‘clocking-in’ sys-tems for the staff. Known as automatic time recording(ATR), the system in itself would make very little differ-ence to the customer service staff, who were alreadysigned in and out by their duty managers.

The real concern covered two key areas. First, nei-ther the staff nor their union were consulted on theintroduction of the system. Second, there was concernthat this was a new form of monitoring of their activi-ties.There was also apparent concern among staff thatthis would eventually mean the introduction of an inte-grated airport resource management system (iARM).The fear was that an integrated system would lead tothe restructuring of staff rotas and the introduction ofannualised hours and split shift patterns. This couldmean staff on duty for two hours, off duty for twohours, then back on duty for two hours. At the timestaff knew their rotas three months in advance, andthus could plan their lives around the rota system: forexample, booking child care. However, with the intro-duction of electronic systems staff fears began to focuson being called in at particularly busy times but beingsent home if there was a particularly quiet period.

British Airways responded by stating that the airline

was planning to move from a paper-based system to anelectronic one over a period of five years. It also claimedthe introduction of ATR was not linked to the introduc-tion of iARM. The aim, BA contended, was to make therostering system more productive and accurately recordshifts. However, the dispute escalated between manage-ment and employees to the point where, on Friday 18 July,the staff took unofficial strike action which lasted for fourdays.The result was chaos.

The swipe-card system was introduced at one of thebusiest periods of the year for both British Airways andHeathrow Airport. This is the period where the Britishtend to travel abroad on vacation.The impact on BA staff,its customers, Heathrow Airport and British Airways as acompany was enormous.

BA staff

One staff member explained:

The management have been saying we don’t careabout the passengers and that really hurt a lot ofthe staff because we do care about them.… Thestaff have had a really hard time – they’ve even beenspat on and some were shouted at outside the airport when people saw the uniforms.

Customers

It was estimated that up to 100 000 passengers werestranded and some 500 flights cancelled. However, it wasnot only the four-day strike that was to affect the airline’scustomers. It took days to clear the backlog of flights anddelayed passengers.This led to customers ‘camping out’ atthe airport, and clearly this tested their patience. Many ofthem claimed they would never fly BA again.

BA and the British Airports Authority (BAA) (whichoperates Heathrow Airport) erected marquees to takethe passenger overflows from the terminal buildings, andprovided free food and refreshments.

Heathrow

For BAA the strike led to additional large numbers of peo-ple within the terminal complex. Additional resourcessuch as tents (as shelter from the sun and to provide extracatering facilities) had to be provided.

techniques, to deceive others. While some actionscan be clearly defined as unethical (and perhapsalso illegal), not all actions can be judged so clearly.It may be an issue of degree: for example what is

ethical in one country might be considered on thefringe of unethical behaviour in another. It might,after all, be an issue of perception. Mini case 13.3uses the example of bribery. The giving of a gift in

� Chapter summaryIn this chapter we have considered the role ofpeople or participants in the marketing mix.People are involved in all aspects of the supplychain, from production to after sales care (SeeChapter 12). Often finance is considered thenumber one priority of an organisation. Whilefinance is critically important to the daily opera-tions of a business, it is equally important torealise that it is people who drive the organisa-tion forward. If it were not for people – bothemployees and customers – there would be nobusiness at all. That is common sense. The criti-cal issue for many organisations is the recruit-ment, training and retention of the mostappropriate people.

POTENTIAL ETHICAL ISSUES 293

British Airways

At the end of the strike action BA revealed that thestrike had cost the airline in the region of £30–40 million. BA Chief Executive Rod Eddington commented:

Clearly the disruption at Heathrow two weeksago was terrible for our customers, terrible forour staff and terrible for our business.… We’vegot to rebuild our business, our relationship withour customers and restore trust where it brokedown with our people.

The underlying issue for BA was its need to restructureitself in the light of depressed economic climates, terror-ist threats affecting people’s willingness to fly, and increas-ing competition from low-cost carriers.This resulted in amassive restructuring programme – Future Size andShape – which in turn led to redundancies and a reduc-tion in both flights and routes.The introduction of theswipe-card system was clearly at the wrong time for allconcerned, a view supported by Eddington himself:

The timing obviously wasn’t good. But whenyou’re trying to change as many things as we arehaving to change at British Airways, we can’talways have the flexibility on timing that wewould like.

Although there were clearly disgruntled passengers, avi-ation analysts at the time suggested that the airline’sbrand was strong enough to survive the disruption andnegative publicity. However, they also suggested thatBritish Airways had to build bridges with both itsemployees and its customers.

Sources: ‘BA forces Heathrow changes’, BBC News Online, 23July 2003; ‘BA talks break down’, BBC News Online, 23 July2003; ‘BA and unions resolve dispute’, BBC News Online 30July 2003;‘Losses batter bruised BA’, BBC News Online 31 July2003;‘BAA unfazed by Heathrow strike’, BBC News Online, 11August 2003; ‘BA sees profits halved to £105m’, BBC NewsOnline, 10 November 2003; B. Hale, ‘Will travellers forgiveBA?’ BBC News Online, 22 July 2003; M. McGann,‘Tales of trav-el misery’, BBC News Online, 22 July 2003.

When is a gift a bribe?

It is a fundamental to many cultures to present acustomer or visitor with a gift. It can be consideredas a token of friendship, of respect. Perhaps it is aprecursor to the building of a long-term and valu-able relationship or friendship. However the value ofthe gift might, to some, be out of proportion withthe transaction or business relationship. The givingof a high-quality product such as a Mont Blanc™ orGross™ fountain pen might be considered appropri-ate (and ethical) by the host, but not by receiversand their colleagues.They might see it as an artificialmeans of developing customer loyalty.

In such cases cultural sensitivity needs to be con-sidered. To consider behaviour purely in aWesternised framework is insufficient. In many FarEastern cultures it is considered a natural courtesyto provide a gift: for example, many graduating stu-dents consider it a mark of respect to present theirtutor(s) with a gift. However, many Western univer-sity officials devise complex rules in the understand-able fear that such gift-giving could be construed aspart of a bribe.While there need to be regulationsto protect all parties involved from allegations ofthis kind, there needs to be an equal measure of cul-tural sensitivity. Otherwise the graduation ceremo-ny might be a memorable experience for all thewrong reasons.

Mini case 13.3

one country might be a demonstration of the high-est respect for a guest or customer. In another it could be considered a form of bribery, thus unethical.


1 ‘People are the most important element withinthe marketing mix.’ Critically evaluate thisperspective.

2 Using an example, illustrate how peoplecontribute to the development of an organisation.

3 Reflect back to previous chapters and citewhere people have had a key role to play inmarketing activity.

4 When your lecturers present a class are theyinvolved in a marketing activity?

5 Can people be the link for a company lookingto gain and sustain a competitive advantage?Use examples to support your answer.

� ReferencesBooms, B. H. and Bitner, M. J. (1981) ‘Marketing strate-

gies and organization structures for service firms’,in J. H. Donnely and W. R. George (eds), Marketingof Services, Chicago: AMA.


Collier, D. A. (1991) ‘New marketing mix stresses service’, Journal of Business Strategy, March/April,pp. 4 –5.

Cowell, D. (1984) The Marketing of Services, Oxford:Butterworth-Heinemann.

Dawson, L. M. (1969) ‘The human concept: new philosophy for business’, Business Horizons,December, pp. 29–38.

Harvey, M. G., Lusch, R. F. and Cavarkapa, B. (1996)‘A marketing mix for the 21st century’, Journal ofMarketing Theory and Practice (Fall), pp. 1 –15.

Kotler, P. (1975) Marketing for Non-Profit Organizations,New Jersey: Prentice Hall.

Kotler, P. (1992) ‘Marketing’s new paradigm: What’sreally happening out there’, Planning Review, pp.50–2.


294 13 • PEOPLE

� IntroductionIn this chapter we discuss the role of physical evidence or ‘physicality’, andits contribution to the marketing mix. In their original development of theservice mix elements, Booms and Bitner (1981) suggested that physicalevidence referred to the ‘tangible’ aspects of delivery. However, we canconsider physical evidence in a much wider context. It can be viewed as the‘space, perceived look, feel, ambience and physical presence of an environ-ment’. It does not have to be totally ‘physical’ in the sense of ‘tangible’. Thespace can exude an ambience, both visual and aural. Churchill and Peters(1998) suggest, for example, that physical surroundings can influence buyerbehaviour. They comment:

An attractive display may influence need recognition by stimulating adesire to try something new. A quiet elegant bank lobby may signal thatan institution is stable and professional, thereby stimulating the decisionto open an account there.

Bateson (1989) argues that the physical environment encompasses morethan the location of the operational processes. He states that:

The configuration of room, the décor, the lighting – are all part of the‘tangible clues’. Many of these physical characteristics are seen by theconsumer and must therefore be viewed as part of the product.

We only have to consider our own behaviour when we enter an unfamiliar

CH

AP

TE

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14Physical Evidence

Learning outcomes 295Introduction 295Physical evidence and

psychology 296Exteriors 296The architecture and design

of buildings 296Design of vehicles 297Landscaping 297Parking facilities 297Interiors 298Ease of access 298Confines of an environment 298Product access 298Foyers, entrance areas and

public spaces 299Signage and corporate

identity 300Space 300Layout and configurations 301Seating 302Security and privacy 303Cleanliness and hygiene

standards 303Ambience and

atmospherics 303Visual factors 305Lighting and illumination 305Colour 305Uniforms 306Stationery 306Presentation 306Aural factors 307Music and sounds 310Air quality 310Smells and odours 310Taste 310Tactile factors 311Temperature 311Touch 311Chapter summary 311Questions for review and




� evaluate both the positive and negative aspects that can be associatedwith physical evidence

� debate how physical evidence integrates with the other elements of themarketing mix

� critically evaluate the role of physical evidence within the contemporarymarketing environment.

building to know that we have a psychologicalreaction to that physical space. We also have a reac-tion when we enter a building with which we arefamiliar, though this is often very different. Thus itis important for marketers to understand thepsychology that lies behind the physical space inwhich live and work.

Hoffman and Bateson (1997) provide a goodsummary of the range of physical evidence thatconsumers can use to evaluate a product and/orservice. They contend that:

A firm’s physical evidence includes, but is notlimited to, facility exterior design elements suchas the architecture of the building, the firm’ssign, parking, landscaping and the surroundingenvironment of the firm’s location; interiordesign elements such as size, shape and colours,the firm’s entrance and foyer areas, equipmentutilised to operate the business, interior signage,layout, air quality and temperature; and otherphysical evidence that forms customer percep-tions, including business cards, stationery,billing statements, reports and the appearanceof personnel and the firm’s brochures.

� Physical evidence andpsychology

In Chapter 16 we examine the relationship betweenpsychology (as one of the 10Ps) and marketing. Ourability to relate to physical evidence or physicalityis dependent on our senses and our psychologicalbehaviour. As Santrock (2000) states, ‘all outsideinformation comes into us through our senses.Without vision, hearing, touch, taste, small andother senses, your brain would be isolated from theworld: you would live in dark silence – a tasteless,colourless, feeling less void.’ To understand thisrelationship we need to first consider the meaningsof sensation and perception.

Santrock (2000) describes sensation as ‘theprocess of detecting and encoding stimulusenergy in the world’. In other words our sensoryorgans detect physical energy – light, sound andheat – and transform it into a code that can betransmitted to our brains. Perception is describedby Santrock (2000) as ‘the brain’s process oforganizing and interpreting sensory information

to give it a meaning’. From this we then use theinformation as part of a decision-making process.

Although they can be considered separately, thetwo processes are in reality inseparable. The brainreceives informatIon, processes, interprets, analy-ses and then responds to it. As a result perceptionand sensation are often described as a unified infor-mation-processing system (Santrock 2000; Gold-stein 1999).

Our behavioural reactions to the areas coveredin the rest of this chapter are dependent on bothour sensations and perceptions. Thus it is impor-tant that we have a basic understanding of thesefactors.

� ExteriorsThe architecture and design of buildingsBuildings can be both inviting and impressive. Theycan also be repressive (or symbols of repression) andfar from inviting. In many ways whether or not wefind a building inviting is subjective. A beautifulbuilding to one person is ugly to another. The land-scape of London, for instance, is a mixture of theclassical (for example, St Paul’s Cathedral designedby Sir Christopher Wren) and the modern (for exam-ple, the Swiss Re Tower at 30 Mary Axe in the City ofLondon. This unusually shaped 41-storey tower wasdesigned as the Headquarters of Swiss Reinsurance,and is the second tallest building in London).

Marketers have to consider how the design orarchitecture of a building can affect people’sperception of the organisation that occupies it. Forinstance, grand five-star hotels, whether they are inLondon, Paris, Delhi, Marrakesh or Kuala Lumpur,tend to have imposing entrances. The buildingsmay be either classical or contemporary in design,yet their entrances make a statement about thequality and the clientele of the hotel.

Supermarkets, airports and other retail outletsneed to be designed to cater for varying amounts ofpeople, and provide comfort and functionality.Although they must be functional, they do not haveto be drab and uninviting. Various airports suchSingapore Changi International Airport (see Figure14.3), Kuala Lumpur International Airport andDubai International Airport are both functional andaesthetically and visually interesting constructions.

296 14 • PHYSICAL EVIDENCE

Design of vehiclesHere we mean ‘vehicle’ in the widest meaning ofthe word: that is, anything that transports people,materials or products, whether it is a truck, a shipor a plane. At first you may wonder what physicalevidence or physicality has to do with the design ofa vehicle. However, consider the design of trucks,cruise ships, buses and airplanes. They provideboth a physical protective structure and a visualstyle.

The visual style of a contemporary cruise ship,for example, is very different from those designed

and built in the 1950s and 1960s. This has beenmade possible through the use of computer-aideddesign systems, new materials that add flexibilityand new methods of construction. An example isthe Royal Caribbean International cruise shipVoyager of the Seas. Launched in 1999, this 138 000tonne ship is one of the largest and sleekest cruiseships afloat.1 The state-of-the-art ship boasts thefirst promenade that runs much of the length of thecentre or spine of the ship. The Royal Promenade isthe length of two US-style football fields and is fourdecks high. It comprises a vast selection of shops,restaurants and entertainment facilities. Withoutthe use of new materials and construction technolo-gies this vast promenade would not have beenfeasible.

LandscapingIt is not only the physical exterior of a building thatcan influence potential customers, but also thelandscaping surrounding it. For example, althoughthe Louvre museum and art gallery in Paris isbounded on all four sides by roads, the central area(enclosed on three sides) contains a spacious openexpanse of paving and a parking area. The use oflandscaping can enhance hotels and shoppingmalls, making them welcoming to both guests andvisitors.

Parking facilitiesThere has been a complex relationship between thedevelopment of the car and out-of-town super-hypermarkets and shopping malls. This has beenespecially the case in the United States, where theready availability of land led to rapid growth, butin other nations too, not only in the West, we havebecome accustomed to using cars for regular shop-ping trips. Therefore the need for easy parking hasbecome an integral factor in the design andconstruction of super-hypermarkets and malls.

‘Parking facilities’ have gone beyond the loca-tion of space near the supermarket or mall. Car andpersonal security are now key issues, especiallythough not exclusively where there is 24-houropening. Individuals and families may be morelikely to visit a store where there are secure parkingand walkways to and from the shopping area. Thesecurity measures might include uniformed

EXTERIORS 297

Figure 14.1


Designed by Norman Foster and Partners the Swiss ReTower dominates the London Skyline.Within a matterof a few years this building (affectionately known as theGherkin) has become one of London’s most iconicbuildings.

patrols, closed-circuit television systems, clearsignage and brightly lit walkways. Security in suchareas needs to be overt, not just to prevent potentialcriminal activity but also to create a perception inthe minds of customers of safety and security.

� InteriorsEase of accessHere ‘ease of access’ can have two interrelatedinterpretations. First, it refers to access in the phys-ical confines of the environment, for instance, ahotel foyer, airport or retail outlet. Second, it refersto ease of access to the products on display in retailoutlets. Here the displays are the focal point, yetthey are not divorced from the other factors that

govern the physical environment. They must beconsidered as intertwined.

Confines of an environmentEase of access in the confines of an environment issomething we often take for granted, most espe-cially if we are young, physically fit and able-bodied. Yet not everyone in the world falls into thiscategory, therefore planners and marketers have toconsider the following groups:

� less-able people – this includes the elderly andthe disabled

� parent(s) with young children – consider, forexample, a mother or father struggling with ayoung child, pram (buggy) and shopping.

The physical evidence here is portrayed throughthe installation of ramps to and from buildings,wider isles in supermarkets, special supermar-ket trolleys that have child seats, and specialramps for passengers on buses and trains. In theUnited Kingdom, for instance, many buses arefitted with a hydraulic system that allows thebus to ‘kneel’ at the front to provide easieraccess.

While many countries have introduced legisla-tion (for instance, those in the European Union) thatforces organisations to provide facilities for the lessable in society, many other countries have not.Equally, many organisations have been slow torespond in providing facilities for such groups. Theirony here is that these are often groups with highspending power.

Product accessWithin the second category we can consider twosubsets, eye level and accident proof.

Eye level

For this subset let us consider a supermarket. Prod-ucts are usually displayed in distinct categories:cereals, washing powders/liquids, beverages (tea,coffee, chocolate and other related drinks), tinnedsoups, and so on. The product ranges tend to bepositioned on the shelving units (gondoliers) inspecific ways. For instance:


Figure 14.2

Both photos © Jonathan Groucutt

Examples of landscaping at two luxury hotels. In bothcases this creates an exclusive haven for guests whoseek privacy.

Top–middle shelves: the well-known brands,usually produced by companies such as Heinz,Kellogg’s, Unilever, Danone and Procter &Gamble.Middle–lower shelves: these tend to be thestore’s own-label products.Lower shelves: these are normally cheaperunbranded products.

However, there are exceptions to this rule. Forinstance, washing powders are available in a rangeof package sizes. The larger 2 kg boxes, with theirown carrying handles, are usually placed on thelower shelves. This provides:

� Ease of access: the customer can simply lift thebox by its integrated handle.

� Less risk to the customer. If the box was higherthere is the risk customers might harm them-selves as they struggle to take the box off theshelf. Injuring customers has both legal andpublic relations implications for the store.

� A reduced risk of breakage: a box on a lower-level shelf is less likely to break open (evenreinforced ones can split) if it is dropped.

The work of Leed and German (1973) suggests thatplacing products/brands at eye level tends toincrease the sales of those items.2 This is one of thereasons that major brands tend, though not always,to dominate the middle and upper shelves.

Accident riskCustomers will use avoidance behaviour if theybelieve that a display is unsafe or insecure in some way.

Foyers, entrance areas and publicspacesThe structure and spatial dimensions of foyers,entrance areas and public spaces can influence ourbehaviour. Entrance areas, for instance, can bethought of as a ‘transition zone’ between the exter-nal world of the street or car park and the internalworld of the store itself (Underhill 1999). Therefore,the transition from one zone to another zone needsto be as effortless as possible. For instance, considera mother or father with children and carrying shop-ping, trying to push open a door. This can be bothdifficult and dangerous, especially where smallchildren are involved. However, automatic doors,provide for ease of entry and exit. Creating a mucheasier ‘entry area’ can facilitate a greater propensityto shop at the store, especially for families.

INTERIORS 299

Figure 14.3


This image of Singapore’s Changi International Airportillustrates the use and dimensions of space, the combination of natural and artificial lighting, ease ofaccess and spacious design style.The architecturaldesign of this airport makes it one of the most welcoming and efficient in the world.

Figure 14.4


This bookshop at Singapore’s Changi InternationalAirport demonstrates both efficiency in terms of theuse of shelf space and ease of access

Foyers, entrance areas and public spaces canconvey numerous visual and emotional clues. Forinstance:

� Selective and exclusive: some organisations,such as five-star hotels, want to portray theexclusivity of their brand. This can beachieved through the design of the entrancearea (including the driveway and foyer).Whether it is physically imposing or subtle,it can communicate style and elegance anddifferentiate the hotel from other categories.For instance, the luxurious Burj Al Arab (partof the Jumeirah International hotel group) inDubai is the world’s tallest hotel (as of Janu-ary 2005), standing at an imposing 321metres. This billowing sail-shaped structurewas constructed on its own island with acauseway linking it to the mainland. Thespectacular and elegant structure also housesthe world’s largest atrium lobby. Its verystructure and its construction on a purpose-built island reflect its exclusive brand iden-tity. Equally stores may reflect exclusivity:for instance designer clothing stores in Parisor Monte Carlo, or jewellers in London’sfashionable Bond Street.

� Open and welcoming: while some stores mayreflect exclusivity with their entrance areas(catering for a niche market), others cater for amass market. This must be reflected in thestructure, shape and design of their entranceareas. An example is the expansive glassfrontage of department stores, fast-food outletsand supermarkets. Such structures create anopenness, inviting the customer to browse andpossibly purchase.

Signage and corporate identitySignage not only has a directional value but alsolinks to the organisation’s brand identity. Clear andaccurate signage helps customers find the productsand services that they require. Such clarity insignage is important in, for example, major depart-ment stores and supermarkets. If the signage isconfusing and mis-directional, customers are likelyto become frustrated and may well leave the store,distancing themselves from the environment.

SpaceThis can be defined as the space between people,whether they are standing or sitting. As with


Figure 14.5

© Hebridean Island Cruises. Reproduced with kind permission.

One of the lounges on the Hebridean Cruises luxurious cruise ship Hebridean Spirit. It clearly demonstrates space, style and quiet luxury.

Figure 14.6


Clarity of signage is important to the efficient movement of people, especially where there is a risk ofcongestion, and in a large complex such as an airport.Here the signage clearly identifies both the departuregates and the other facilities available at the airport.

several of the physical evidence factors, there is acultural dimension. An invisible circle surroundsus all. Those people we know and love we tend toallow within that circle. Those people we do notknow we tend to keep at a distance. The dimensionof the circle is at least in part culturally determined:in some cultures people tend to stand close tostrangers, in others they stand farther apart.

Of course, there are exceptions to the rule.Crowded public transport systems, whether inLondon, Tokyo or New York, usually mean

strangers are ‘crunched’ together for their morningand evening journeys. As it is for a short time andunavoidable, people tend to accept this often-unpleasant routine. However, when they have achoice they seek to avoid such closeness tostrangers.

Herein lies a problem for restaurateurs as theyseek to maximise their revenue. If they place tablesclose together it makes for the maximum number of‘covers’ or seats possible. However a too close prox-imity of tables can inhibit private conversation,expose diners to the loud intrusive conversation ofothers, and create overall tension derived from theinvasion of individuals’ private space. Thiscontributes to a disappointing experience, and theproblem can be compounded by other negativefactors in the restaurant’s environment, such asloud intrusive music, poor-quality food, poor serv-ice and a price too high for the service and foodquality. Even if customers do not complain (manypeople will not), they will be reluctant to either usethat restaurant again or recommend it to friends.

Using space effectively can be a very realdilemma for organisations. Commercial organisa-tions such as restaurants must maximise theirrevenues. However, there needs to be a balance inorder to generate sufficient repeat business over thelonger term.

Layout and configurationsFoxall, Goldsmith and Brown (1998), focusing onthe work of Donovan and Rossiter (1982), suggestthat customers are likely to remain longer in alarger shopping environment. Of course, this maybe because there is more to explore, a wider choiceof products and brands, and a greater possibility offinding bargains. While these factors might all berelevant, Foxall et al. (1998) also believe the layoutor configuration influences customers’ perceptionsof the store. This point is equally applicable to ahotel, train station or international airport.

As Foxall et al. (1998) state, a supermarket layoutcan be used as a means of ‘holding’ or keeping thecustomer in the store environment for longer. Forinstance, some staple items (milk, bread, alcohol)may be placed at the rear of the supermarket. Thismeans that customers have to walk through thesupermarket to reach these items, passing itemsthat they might buy on impulse.

INTERIORS 301

Figure 14.7


The space between tables on a terrace at a luxury five-star hotel. Such spacing allows a couple to have a private conversation without disturbing the guests atan adjacent table.This is not the case at many restaurants, where the objective is to maximise thethroughput of dinners.Too-close tables do not alwaysresult in customers returning to the restaurant.

With a supermarket environment, for instance,consideration must be given to traffic flow. This canbe described as the ‘flow and volume of peoplealong an isle or other walkway’. It has severalconnotations. First, the movement of people in astore needs to be efficient and effective, whileallowing them time to browse and purchase.Second, it is vital in emergencies for rescue servicesto gain quick access, and staff and customers to beable to evacuate the building efficiently.

The analysis of traffic flows is important indetermining the width and structure of aisles, forboth able and less-able people. Linked to flow andvolume is the positioning of check-out counters(and the number available in relation to the size ofthe store). Once they have decided on theirpurchases, shoppers do not want to wait to pay.Moreover, the range of check-outs available adds toboth the physicality of the store and the efficiencyof the buying process (see also Chapter 15 onprocesses).

Supermarkets tend to provide three types ofcheckouts:

� Express: these are for shoppers who have asmall number of items (usually six or fewer) intheir baskets. As the name suggests thisprovides for a rapid or express system ofpayment, and reduces queueing.

� Wide checkouts: these are for shoppers withspecial needs, for example, those with chil-dren’s buggies and the less-able in wheel-chairs. Additionally, there is room for assistantsto help pack groceries and carry them tocustomers’ vehicles.

� Standard: the vast majority of the check-outcounters for the remainder of the store’s shoppers.

SeatingThe increasing use of seating provides severalpotential benefits, although it is dependent onavailable and easily accessible space. These benefitsinclude:

� Encourages browsing: in London, for exam-ple, several bookshops including majorssuch as Borders and Waterstones have

incorporated seating on most floors of theirbuildings. Customers can take books off theshelves and browse through them whilerelaxing in a comfortable chair. The idea isthat when relaxed people will make consid-ered purchasing decisions, and this willincrease both overall purchases and therightness of people’s decision which book(s)to purchase. This is not a new phenomenon:evidence suggests some bookstores in boththe United States and the United Kingdom inthe 1950s and 1960s provided seating.

� Comfort for friends and family: this is particu-larly the case in clothing stores where acustomer may be trying on a range of clothes.The provision of seating for accompanyingfriends and/or family reduces the risk oftension created by boredom. Some fashionstores such as Jaeger in London’s Regent Streetprovide seating, fresh coffee and magazines foraccompanying friends and/or family in theirwomen’s departments.

� Rest area: this is particularly valuable, forexample, in the department store, shoppingmall and airport environments. Walkingaround a department store or mall can betiring, so rest areas are beneficial for customers.If customers know rest areas are available, itmay well contribute to their decision tofrequent the store or mall.

� Food and beverage consumption: outlets thatsell food and beverages within a largercomplex, for instance an airport or trainstation, need to provide adequate andcomfortable seating. Clearly a difficultyarises when there are delays with a subse-quent backlog of passengers. Overcrowdingand lack of seating becomes an inevitableconsequence.

There are, however, other factors that need to beborne in mind. The seating needs to be:

� easy to access: both easy to get to, and not toolow to create difficulty in sitting down andstanding up, especially for the elderly

� clean, with no evidence of marks or spillage

� well-maintained – ripped or damaged seating


is a disincentive and projects a poor image ofthe organisation.

Security and privacy

This is an increasing aspect in all people-focusedenvironments, whether they are supermarkets,shopping malls or hotels. Customers need to feelsafe within the shopping environment, for exam-ple, or walking to and from their car or public trans-port. Over the past five years there has been asignificant increase in the use of closed-circuit tele-vision (CCTV) and uniformed patrols across theworld. Originally this was to deter store thefts andmuggings.

Since 11 September 2001 much of this height-ened security has been terrorist-threat related (SeeChapter 2). However, the highly visual profile ofsecurity can reassure people, as they perceive thisas a deterrent to would-be criminals. As they havea greater feeling of safety, customers may remainwithin the environment longer, potentially increas-ing their propensity to purchase.

Cleanliness and hygiene standards

Many countries (for example, Singapore) have strictregulations governing cleanliness and hygiene inpublic environments. However, not all countriesmatch such rigorous standards. Nonetheless,depending on people’s subjectivity, objectivity andenvironmental conditioning, cleanliness andhygiene standards may well affect their buyingdecisions.

For example, consider the purchase of food froma small shop or supermarket. Several factors willaffect customers’ purchasing decisions, from priceto size. They will make a visual inspection of boththe product (packaging, ingredients, use-by dateinformation) and storage location (condition of theshelves, chill or freezer cabinets). If they have adoubt regarding its freshness and how it has beenstored, they may be reluctant to purchase. Two keyfactors may influence their return to the store:

� The condition of both the food and storageareas. Even if they do not make a purchase, thepoor condition may dissuade them fromreturning to that store.

� If after making a purchase they become illthrough food poisoning, as well as making acomplaint (to the store owners and perhapsthe local health authority), they are mostlikely to refrain from using that store. Addi-tionally, they are likely to inform theirfriends, family and neighbours of their expe-rience. (See the section on word of mouth –viral marketing on page 232.)

Ambience and atmosphericsKotler (1973) suggests that the ambient dimensionincludes all the ‘background’ stimuli within thestore environment, which is usually referred to asatmospherics. We should take the word ‘store’ tomean not just a shop, but any environment wherethere is an interface between an organisation and acustomer. The same factors apply to, for example,restaurants and hotel lobbies.

Mehrabian and Russell (1974) developed an envi-ronmental psychological model to provide the basisfor understanding the effect of ambient or atmos-pherics within the retail environment (see Figure14.8 overleaf). The model aims to show that aperson’s perceptions of, and behaviour within, anenvironment result from the emotional statescreated by that environment. While the authors mayrelate this specifically to the retail sector, it is appli-cable to any environment where there is an inter-action between the organisation and the customer.

Individuals perceive environmental stimuli in avery personal or unique way. In other words peoplereact differently to the same stimulus. One personmay be stimulated by the aroma of freshly brewedcoffee and freshly baked croissants and thus betempted to purchase. On the other hand, anotherperson might not react to the aromas, or might posi-tively dislike them.

If the environment positively stimulates theperson, an emotional state is developed. Here threestates can be considered:

� Pleasure: this can be defined as the degree towhich people feel good about the environ-ment in which they are located, which couldbe a hotel lobby, a department store or asupermarket.

� Arousal: this can be defined as to the extent or level that the person feels excited or

INTERIORS 303

stimulated. For example, two people may besitting in a Parisian café involved in joyousanimated conversation. While they may havemany things to say to each other, the environ-ment in which they are located may becontributing to their excitement. Equally, anexotic location can add to the arousal, forexample a moonlit beach.

� Dominance: This can be described as the controland power that customers feel or believe theyhave within the physical surroundings. Dono-van and Rossiter (1982) suggest that dominancehas a non-significant effect on individual behav-iour. However, it could be argued that if indi-viduals feel intimidated by a physicalenvironment, they have no feeling of controland thus will seek to avoid it. Examples of thisare seen in various in-town shopping centresconstructed in the United Kingdom during the1970s. With the closure of shops that moved tonewer out-of-town malls, the inner towncentres fell into disrepair and decay. Althoughsome shops remained open, many customerswere reluctant to frequent the centres becausethey felt insecure, and lacked control. With the

revitalisation of town centres, the introductionof new stores and a safe (controllable) environment, many customers returned.

A behaviour or reaction emanates from theemotional response. This behaviour can beapproach–avoidance oriented. Donovan andRossiter (1982) suggest that, at this stage, individu-als will evaluate several stimuli including the envi-ronment in which they are situated, attitudes toother environments (that they may have experi-enced), spending behaviour (or ability to spend andlevel of possible expenditure) and long-termpatronage decisions. Approach–avoidance actionscan be described as follows:

� Approach: this is a positive effect where indi-viduals explore the environment in which theyare located, for instance a supermarket,increasing their propensity to purchase.

� Avoidance: this is a negative effect where indi-viduals begin to distance themselves from theenvironment. This action results in decreasedparticipation and a reduced propensity topurchase.


Figure 14.8 The relationship between a physical environment and customer behaviour

Source: adapted from Mehrabian and Russell (1974).

Environmental stimulus Emotional response Customer behaviour

Visual: types of colour and theirbrightness.The shape or layout ofthe environment. For example narrow rows may make it difficult(both perceived and real) for shoppers to pass each other.

Type of music: for example is it fastor slow? Is it repetitive? Does itconvey calm or agitation?

Aural (volume and pitch of music).

Olfactory (smell and freshness)

Tactile (softness and temperature).

Does the stimulus create:• pleasure?• arousal?• dominance?• irritation?

Approach–avoidance

Time spent within the environment, such as a store (itmay be welcoming or distractingand thus the customer leaves)

Willingness to purchase – links tothe level of spending

Patronage – how often the customer revisits, for example, thestore or restaurant

In the next section several stimuli are consideredwhich affect individuals to a greater or lesserdegree in a physical environment such as a super-market, restaurant or hotel.

� Visual factorsLighting and illuminationAs Underhill (1999) suggests, lighting and illumina-tion (specific or general) affect all customers, youngand old. We can consider lighting under three keyheadings:

� Safety: a safe environment is often conveyedthrough bright lighting configured to cover thedesignated area: for example, a hotel or super-market car park which guests or patrons feelsafe using whatever the time of day or night.On a more general note, people need to seewhere they are walking, thus physical loca-tions need to be well lit to aid movement andprevent injury.

� Aiding readability: effective lighting makes iteasier to read. Underhill (1999) uses the exam-ple of a fast-food restaurant which realised itscustomer base included an increasing numberof over-55s, so it needed to react positively tothis changing demographic composition. Atthat time its menu board was typed and diffi-

cult for many over-55s to read. The retina in theaverage person over 50 receives about one-quarter as much light as an average 20-year-old receives (Underhill 1999), so the over-50shave increasing difficulty reading boards withsmall type, especially if the writing is on a darkbackground and the board is in a relativelypoorly lit section of the restaurant. In thisexample, the restaurant redesigned the boardand increased the illumination. Fewer itemswere listed, but sales increased.

� Intimacy: if, for example, a restaurant marketsitself as a ‘romantic place’, the lighting needs toreflect the intimacy of two people diningtogether. Usually this is achieved by the use ofcandlelight and more subtle background light-ing. Bright lighting would not create the sametype of atmosphere.

ColourIndividuals all have their favourite colours.However, we are also influenced by colour on botha cultural and a psychological-emotional basis.Consider, for instance, traffic signals. Most coun-tries have the same sequencing – red for stop anddanger, amber or yellow for caution, and green forcontinue or go. We have all grown up with thatsequencing firmly imprinted in our minds. Equally,in generalist terms, the red of fire engines, the whiteof ambulances and the blue (or black and white) ofpolice vehicles create a mental picture in our minds.Their presence, especially when travelling at speed,with wailing sirens and flashing lights, makes usreact immediately, either getting out of the way orstopping to stare. In this case it is a combination ofcolour, sound and speed that is imprinted into oursubconscious. Colour creates an emotional reaction,in one form or another, in all of us.

Hofstede (1980) defined culture as:

the collective programming of the mind whichdistinguishes the members of one human groupfrom another.… Culture, in this sense, includessystems of value; and values are among thebuilding blocks of culture.

As Hollensen (2001) states, culture is extremelybroad and complex, encompassing virtually everyaspect of an individual’s life. However, we must

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Figure 14.9


A luxury five-star hotel bathed in lights at night createsan inviting romantic atmosphere

also recognise that culture is not static. Cultureundergoes continual change and reformation, oftenslowly and imperceptibly. Thus a younger genera-tion may not be influenced by colour in the sameway as previous generations. For instance, in theUnited Kingdom black is the traditional colour towear at funerals. While a large number of peoplestill observe this cultural colour code, it is by nomeans universal any more. Some families now askpeople to wear brighter colours to funerals, as away of celebrating people’s lives rather thanmourning their deaths.

Table 14.1 gives some of the cultural meanings ofcolour. This is far from an exhaustive analysis.However, it provides a brief indicator of some ofthe issues that organisations face in an internationalcontext.

UniformsUniforms reflect the brand image and identity ofan organisation, and often provide a perception inthe minds of customers of authority, knowledge,support, security and comfort. Think of the flightand cabin crew of an airline such as Virgin Atlanticor Singapore Airlines. When we fly we place ourtrust in the knowledge and abilities of both theflight deck crew and the cabin staff to get us to ourdestination safely and comfortably.

However, this assumes that the uniforms arewell designed and in very good condition. Poor-quality designs and staff who look dishevelled inunkempt uniforms do not portray a positive brandimage; quite the contrary. One of the manycomplaints that used to be made against the State-run organisation British Rail in the 1970s and 1980swas the often-dishevelled look of some of its trainstaff. This conveyed, rightly or wrongly, the impres-sion that the staff did not care about the service theywere providing. It only compounded the highlypublicised problems of late running trains, ageingrolling stock and expensive tickets.

StationeryThe style of letterheads, compliments slips, busi-ness cards and brochures reflects the corporateidentity of the organisation. All organisations usestationery to some extent, including micro busi-nesses, government departments and universities.

However, it is one thing to have stationery, andanother to define how it should be used. All lettersmight be written on the same headed paper, forexample, but if there is no consistency in the use offonts and type sizes across the organisation, it willdetract from an unified style for the organisation.

PresentationThis covers the visual presentation of the productsor goods offered to customers, and ranges from thestacking of tins of baked beans on a display shelf, tothe presentation of food on a plate in a restaurant. Insome restaurants, for instance, the food is ‘sculp-tured’ or layered. This adds another dimension to theoverall experience in which the customer participates.

Window displays are used to catch potentialcustomers’ attention, so they must be inviting. Forexample, furniture stores often use set displaysshowing the furniture not in isolation but accompa-nied by other products such as bed linen. The aim isto create an image in the mind of potential customers– ‘This is how it could look in your own home’.Figure 14.10 shows a delicatessen in Verona, Italy. Itvery clearly displays what is on offer in this store.Moreover, it conveys a warm, friendly, trusting,welcoming feeling. Figure 14.11 illustrates howstrong people images and warm colours sell not onlyproducts (suntan lotions) but aspirations as well.


Figure 14.10


A small delicatessen in a side street in the old part ofVerona in Italy.The window display just overflows withculinary delights. It is personal, friendly and very welcoming.

AURAL FACTORS 307

Table 14.1 The cultural meaning of colour

Sources: Keegan and Green (1997); Smith, Berry and Pulford (1997); Usunier (2000); De Pelsmacher, Geuens and Van den Bergh(2004).

Colour Country Cultural meaning

Red China and parts of Africa Good luck and fortune

Europe,America and Australia/NZ Danger – warning/alert

Parts of Europe Masculine colour

Ivory Coast (Dark red) mourning

Turkey Death

Blue Iran Immorality

Purple Brazil Mourning

Asian cultures Symbolises expense

Green Many Western nations Organic foods, freshness, environmentally friendly, goodhealth.

Japan Considered to be a high-tech colour

Middle East Often considered a lucky colour

Indonesia A forbidden colour

Countries with dense jungle areas,for example in South America.

Normally associated with death – fevers that emanatefrom the jungles and swamp areas

Yellow In many countries Feminine

Mexico Mourning

Saudi Arabia Strength and reliability

Pink America Feminine

Black Most Western nations Mourning. However, can also reflect style and elegance.

China Trust and high quality

White Japan and other Far Eastern nations Mourning (especially if a painted face or mask).

Western nations A sign of cleanliness and purity. Peace.

Brown Nicaragua Disapproval

� Aural factorsMusic and soundsMusic evokes very strong opinions and emotions inpeople. Lovers of classical music, for example, may

find Garage or House music too repetitive andaggressive for their tastes. It is known that musicand musical sounds have the power to evokeemotions. This was evident from the early days ofthe cinema. Although we may call it the silentmovie era, it was actually not silent. Although the

technology had not been developed to recordactors’ voices, music or sound effects, musicalaccompaniment to films was provided in cinemas.For the most part silent movies were accompaniedby a lone pianist seated below the screen. Using amixture of classical repertoire and his or her owningenuity, the pianist would conjure up the appro-priate music to underscore the emotion on thescreen. Often the success of the movie was literallyin the hands of the pianist, and the emotion he orshe could convey to the audience.

Since the advent of the ‘talkies’ in the 1920smusic has been used to carry forward the action,drama and comedy of movies. Music should addanother dimension which cannot be conveyedthrough the script, the visual effects, the photog-raphy or the skill of the actors. Few directors,producers and studios have taken the gamble ofreleasing a movie without a music score.3 Filmscores become an integral component of themovie, and can be linked to both promotion(merchandising) and performance (the experi-ence the consumer gains from listening to thescore). Soundtrack albums for films such asSaturday Night Fever, The Bodyguard, Grease andTitanic have gone on to become blockbuster hitsin their own right.

A classic example of the power of music is AlfredHitchcock’s 1960 movie thriller Psycho. Both thefilm and its music score became the forerunners of

the thrillers and musical sounds that chill us today.(See mini case 14.1.)

For many years there has been debate about theuse of background music in office foyers, stores andshopping malls. While some customers like it,others loathe it. For many years it was colloquiallyknown as ‘elevator music’.

The range of background music used today isfar greater than it was from the 1960s to the 1990s,and now it is sometimes known as ‘audio architec-ture’; but it is nothing new. General George Squierpatented the transmission of background music inthe early 1920s. He found that it soothed his staffand improved their overall productivity. This wasthe birth of the Muzak® Company, and later theword Muzak® would come to symbolise back-ground music in offices, restaurants and stores.

By the 1950s there had been significant growthin the use of background music. This was aided bythe development and use of audiotape rather thanphonographic discs or records. The expansion ofshopping malls and supermarkets also heightenedits use.

The Muzak® Company, still perhaps the largestprovider of background music, re-records hit songsfor its clients, but other companies produce compi-lations of contemporary original artists to be usedas foreground music. As the name suggests, thesetracks are ‘upfront’ and to be listened to. So, forexample, a café may play jazz or classical musictracks while its customers sit and reflect over theirdouble espressos. Foreground music can be consid-ered as an active branding device, reflecting orhelping to define the image of the company usingthe music. For instance, the Pret A Manger chain ofsandwich outlets in the United Kingdom tends toplay classical and jazz music, creating a relaxed and‘cool’ environment even when the branches are attheir busiest. This helps portray an upmarket feelthat goes hand-in-hand with the chain’s image forfreshness, hand-made sandwiches and organicingredients.

In the United States in particular some compa-nies sell CDs of their in-house music compilations.Examples include coffee house Starbucks, fashionretailer Gap and the book/CD store Borders. Suchsales link the music to the brand, reinforcing itsimage. Equally, record companies have foundanother distribution channel for their artists,whether they are established performers or newtalent.


Figure 14.11


A perfume shop – a dramatic display which uses a variety of strong warm colours and images to promote upmarket suntan lotions

AURAL FACTORS 309

The power of music in Hitchcock’s Psycho

Director Alfred Hitchcock created several successfulmovies during the 1950s, featuring such stars as JamesStewart, Cary Grant and Grace Kelly.They were inven-tive melodramas, often graced with elements of come-dy. However Psycho, based on a novel by Robert Bloch,was very different from his previous work. IndeedUniversal Studios were not convinced of the viability ofthis proposed story of a deserted motel, a crazed mur-derer with a mother fixation (Norman Bates, chillinglyplayed by Anthony Perkins) and a woman running awayfrom the law after stealing US$40 000 from her boss(Marion Crane, played by Janet Leigh). There were noadmirable people in the storyline.Then came the mur-ders, the first of a woman taking a shower and the sec-ond of a detective on the staircase.The studio consid-ered it more likely to be a B-movie than to match thecalibre of Hitchcock’s previous A-list movies.

Hitchcock began shooting his chilling thriller inblack and white, with sets constructed on the backlotof Universal Studios. With budget restrictions, heapparently pondered whether or not he could afford tohave music composed for the film, and believed that thevisuals would in any case carry the action, conveying thefear of the brutal knife attack that became the famousshower murder scene. However, after editing thesequence he realised something was missing. Althoughthe visuals were dramatic, far beyond anything seen onthe screen before, they lacked the full impact he want-ed. He wanted the audience to be scared!

Hitchcock turned to the composer BernardHerrmann who had successfully scored several of hisprevious movies – The Trouble with Harry (1955),The ManWho Knew Too Much (1956), The Wrong Man (1956),Vertigo (1958) and North by Northwest (1959). Herrmannviewed this black and white movie as a challenge decid-ing to score it in ‘back and white’ sound. He chose toscore it limiting himself to purely strings.This was a radi-cal departure from the traditional scoring of thriller andhorror movies at the time.Without the use of a ‘conven-tional’ orchestra he limited the various tonal coloursthat he could have used.The string section of the orches-tra would provide the right tonal colour to emphasizethe various emotions (and horrors) that would raindown onto the unexpected audience. Moreover, cinemaaudiences had come to expect to hear strings duringromantic scenes. In contrast to contemporary moviessex had to be ‘imagined’. Therefore violins and celloswould be deployed (often in large numbers) to musically

portray the couple making love. However, Herrmannwould create fright in the audience by using strings onlyto illustrate not love but horror.

Although complex in form, the shower murdersequence is stark in its reality – a woman’s naked body(although we never see it in its entirety), a porcelainshower tub, a metal drain and shower head, a knifeblade and a shadowy menacing figure obscured behindan opaque shower curtain.When the murderer bringsdown the knife to strike the first blow, the scenechanges to a sequence of rapidly edited camera anglesaccompanied by a chilling music cue.

Herrmann created a ‘shrieking effect’ by reiterated,dissonant, sharp down-bow strokes and wild glissandos(sliding of the bow across the strings).The combinationof the angled shots, fast editing and the music produceda powerful effect. Perhaps what is really interesting isthat this combination led the audience to believe they‘saw’ the murder, when actually they did not. At nopoint does the murderer’s knife make contact with thevictim’s skin. It is an impression created in the mind ofthe viewer.

Psycho is now considered tame compared withmore recent thrillers and chillers. However, it remainsthe blueprint from which these movies developed. Itnot only projected Hitchcock as the ‘Master ofSuspense’, it also made him wealthy.Arguably it remainsa classic because it did not rely on blood and gore.

This low-budget thriller became an instant criticaland box-office success.As the film critic Adrian Turnercommented:

Its continuing fascination and power to involve(not to say enslave) its audience is also becausePsycho is neither a whodunit (Hitchcock wasnever interested in those): instead, it is an essayon the universality of evil in which the audienceplays the most significant role.

This example demonstrates the power of music whencombined with dramatic visual images. This is an artform that has continued to be used in movies, televisionprogrammes and, of course, commercials.Sources: G. Burt, The Art of Film Music, Boston, Mass.:Northeastern University Press,1994; S. C. Smith, A Heart atFire’s Center: The life and music of Bernard Herrmann, Berkeley,Calif.: University of Los Angeles Press, 2002;A.Turner, ‘Psycho’in The Movie:The illustrated history of the cinema, no. 69. London:Orbis Publishing, 1981; J. Groucutt, A Musical Enigma: The relationship between music and film, unpublished manuscript.

Mini case 14.1

Decades of research show that music by classicalcomposers such as Mozart and Vivaldi has a sooth-ing and relaxing effect on people. Perhaps this iswhy companies that have developed subliminallearning systems tend to use music by these twocomposers (as well as others) as the ‘carrier’ for thelearning text. On the other hand aggressive fast-tempo repetitive music has the opposite effect. Ittends to create a more stimulated, excited person.

Retail outlets have used the psychology behindmusic in an attempt to regulate traffic flows. Forinstance, if a fast-food outlet is becoming particu-larly crowded, with the seating full, or virtuallyfull, it might switch to background music with afaster tempo to help increase the rate at which foodis consumed. If business is slack, a slower tempomight induce people to stay longer, which is helpful since few people like entering empty take-aways or restaurants.

� Olfactory factorsThis refers to our sense of smell and how we reactto both common and not-so-common odours. Inmany countries we have become sensitive to‘odours’ as depicted in the numerous commercialsadvertising everything from personal body spraysto carpet and rubbish bin fresheners.

Air qualityThis is included here to reflect the changing socie-tal view of smoking in public places. People todayhave several concerns about smoke-filled environ-ments:

� Health: there is a growing body of evidencethat non-smokers inhaling smoke are at risk oflung and heart disease. Non-smokers alsosuffer from minor health problems in smokyenvironments, including nasal irritation andcoughing. In premises such as pubs and winebars, those who worry about, or suffer from,these problems might choose to leave if theatmosphere is smoky.

� The odour of tobacco clings to clothes and hair,and smokers might need to spray their clotheswith special fresheners or have them drycleaned to remove the smell.

It is primarily for the first reason that many localand national governments have banned smokingin public places.

Smells and odoursPleasant smells can portray a sensual quality. Thinkof how you react to high-quality perfumes andaftershave lotions, such as CHANEL No. 5™, JeanPatou’s Joy™ and Christian Dior’s Eau Sauvage™.These all convey sensuality, wealth and elegance.

Miller (1991, cited in Hoyer and MacInnes 1997)cites a research finding that pleasant-smelling envi-ronments can have a positive effect on shoppingbehaviour. Consider, for instance, coffee outletsfrom chains such as Starbucks, Costa and CoffeeRepublic. Their strong smell of freshly brewedcoffee helps sell not only cups of coffee, but loosecoffee as well. Similarly, the smell of freshly bakedbread permeates many food stores and small shops,so shoppers are aware of it even when they arebuying washing powder or baked beans. The smell:

� reminds the customer to buy bread, whetherfreshly-baked or pre-packed

� creates a pleasant shopping environment, andhelps to mask less attractive smells such as therather clinical odours from floor cleaners

� gives customers the impression that the storeprovides fresh produce.

Foul-smelling food, in contrast, will drive existingcustomers out of a shop and prevent others fromentering. It creates a barrier (and possibly preventscustomers from suffering from food poisoning!).We associate the clinical antiseptic smell of a hospi-tal or doctor’s waiting room with a ‘protective’environment.

TasteThe senses of smell and taste are closely linked. Therelationship between taste and the physicality ofthe environment can be considered as follows:

� Taste experience: this is the experience gainedfrom consuming food or a drink. A positiveexperience may result in repeat purchases,either there and then or in future. If the experi-


ence is negative, the customer might not finishthe food or drink, and is unlikely to buy itagain (unless there is a dramatic change incircumstances, for instance, new owners of therestaurant.)

� In-store promotions: there are numerous typesof these (see Chapter 10), but here we areconcerned with promoting food products. Bothproducers and retailers use in-store promo-tions to encourage people to sample products.The in-store promotion has physicality in itsown right, in that there is usually a stand andsignage. Staff engage with customers andtempt them to try the product, which might forinstance be chocolate, biscuits, pre-cooked orcured meats (such as honey-roast ham,prosciutto and salami), or varieties of cheeses.There is often a special offer (such as a money-off coupon) to make customers even keener tobuy the product.

� Tactile factorsThis refers to physical sensations that go beyondthe normal touching of a product.

TemperatureWhether it is too hot or too cold can affect buyingdecisions. Many countries have an infrastructurethat can effectively and efficiently handle tempera-ture extremes, whereas other countries are less wellequipped to deal with them. Everyone can feelextremes of temperature, but some people handlethem better than others. Temperature extremesaffect behaviour: for example, heat can createlethargy and reduce people’s appetite, althoughthey often increase their liquid intake to compen-sate for the loss through perspiration.

In extreme temperatures people seek ‘comfortzones’, which are created using air conditioning orcentral heating systems, and this can affect a deci-sion to eat in a particular restaurant, visit a cinemaor shop at a supermarket.

TouchEvery day we receive stimuli through touchingobjects, and this too has important psychological

and emotional effects on us. Consider, for example,how babies react to their mothers’ gentle touch.Think about how you react when you touch objects.What effect does it have on your feelings andbehaviour?

Underhill (1999) suggests that the success ofmany clothing retailers is that ‘you can easily touch,stroke, unfold and otherwise examine at closerange everything on the selling floor. A lot ofsweaters and shirts are sold thanks to the decisionto foster an intimate contact between shopper andgoods.’

In Chapter 3 we examined levels of buyerinvolvement (whether customers have high or lowinvolvement in their purchasing decisions). Shop-ping for clothes usually displays a high level ofcustomer involvement. Customers try on garments,consider how they feel to touch with both theirhands and their bodies, and consider how they lookin the mirror. They may also seek the views of thestore assistant and any friends or family with them.The physical sense of touch thus becomes one of themany determinants in the decision-making process.

� Chapter summaryThis chapter has considered the physical environ-ment or what is often called ‘physicality’. Clearlythis can influence both the marketing of a productor service and, importantly, buyer behaviour.Marketing is often considered purely in terms ofthe product or service offered to a potentialcustomer. However, this chapter demonstrates thatthere are many elements in the physical environ-ment that can and do determine whether or not aproduct or service is purchased. Thereforemarketers have to think beyond the product orservice on offer, and seek to create an appropriatepurchasing environment.


1 Using the example of a supermarket or a hotelwith which you are familiar, critically evaluateboth the positive and negative aspects of itsphysical evidence. If you were to make recom-mendations to the company, what would theybe and why?

OLFACTORY AND TACTILE FACTORS 311

2 Clearly ‘physical evidence’ is not an isolatedelement in the marketing mix. As stated inChapter 8, the marketing mix can be viewed asan architecture. Bearing this in mind, useexamples to illustrate how physical evidenceintegrates with other elements of the market-ing mix.

3 It is suggested in the text that we are influencedby odours and sounds as part of the physicalmake-up of our surroundings. Discuss thiswith your fellow students. Do you agree ordisagree? Support your answer with examples.

4 In view of all that has been discussed in thischapter, how do you view your university orcollege in terms of physical evidence andmarketing?

5 What are your favourite colours and why? Dothey influence you to make purchases?

� ReferencesBateson, J. (1989) Managing Services Marketing, New

York: Dryden Press.Booms, B. H. and Bitner, M. J. (1981) ‘Marketing strate-


Churchill, Jr., G. A. and Peter, J. P. (1998) Marketing:Creating value for customers, 2nd edn, New York:Irwin McGraw-Hill.

Donovan, R. J. and Rossiter, J. R. (1982) ‘Store atmos-phere: an environmental psychology approach’,Journal of Retailing 58 (Spring), pp. 34–57.

Foxall, G. R., Goldsmith, R. E., and Brown, S. (1998)Consumer Psychology for Marketing, 2nd edn,London: Thomson Learning.

Goldstein, E. B. (1999) Sensation and Perception, 5th edn,Pacific Grove: Brooks/Cole.

Hoffman, K. D. and Bateson, J. (1997) Essential ofService Marketing, New York: Dryden Press.

Hofstede, G. (1980) Culture’s Consequences: Internationaldifferences in work-related values, Beverly Hills andLondon: Sage.

Hollensen, S. (2001) Global Marketing: A market-respon-sive approach, 2nd edn, Harlow: FT/Prentice Hall.

Hoyer, W. D. and MacInnis, D. J. (1997) ConsumerBehavior, Boston and New York: Houghton Mifflin.

Kotler, P. (1973) ‘Atmospherics as a marketing tool’,Journal of Retailing 49, pp. 48–61.

Leed, T. W. and German, G. A. (1973) Food Merchandis-ing: Principles and practices, New York: Chain StoreAge Books (cited in Foxall et al. 1998).

Mehrabian, A. and Russell, J. A. (1974) An Approach toEnvironmental Psychology, Boston, Mass.: MIT Press.

Miller, C. (1991) ‘Research reveals how marketers canwin by a nose’, Marketing News, 4 February, pp. 1–2.

Santrock, J. W (2000) Psychology, 6th edn, Boston,Mass.: McGraw-Hill.

Underhill, P. (1999) Why We Buy: The science of shopping,London: Orion Business Books.


� IntroductionBooms and Bitner (1981) in their original research suggested that ‘process’ wasthe ‘Process of service assembly’. This can be defined as the process involvedin providing a service, and thus can be aligned with the service industry.However, ‘processes’ also have a distinct operational role. It is the contentionhere that processes have both a service and an operational position in relationto the marketing mix.

To use Booms and Bitner’s phrase, the efficiency and effectiveness associatedwith the ‘process of service assembly’ will vary depending on the activitiesinvolved. Rafiq and Ahmed (1995) use the example of the process of obtaininga meal at a fast-food outlet compared with a restaurant. Although they bothserve food, the processes involved are very different. Thus as Rafiq and Ahmed(1995) indicate, the customer must be aware of the factors that govern theprocess. In this particular example it is the level of understanding of theprocesses involved in ordering and receiving the two very different types ofmeal.

This is a straightforward example, and individuals generally know thedifferences in the ordering processes of the two meal types. However, in othercircumstances the processes may not be so clear. Several governments, forinstance, have struggled to create a direct taxation self-assessment process thatis ‘user-friendly’. However, the taxpayer who opts for this system (rather thanusing an accountant) is often overwhelmed by documentation, paper-based oronline. For many it seems a complicated process.

CH

AP

TE

R

15Processes

Learning outcomes 313Introduction 313Types of processes 314Technological

processes 314Non-technological

processes 319Combination

processes 321The need to adapt and

change processes 321Process standardisation

or adaptation 323Ethical issues 325Future issues 325Chapter summary 326Questions for review




� discuss how processes integrate with other elements of the marketing mix

� outline the key forms of processes that are used within contemporary busi-ness environments

� evaluate both the positive and negative aspects of processes within acontemporary environment

� critically evaluate how processes will contribute to the future marketing ofproducts and services.

For marketers, whether they work for govern-ments or companies, the objective is to implementprocesses that are mutually beneficial to the organ-isation and its customers. This chapter highlightsthe different forms of processes, citing exampleswhere the process has been beneficial in capturingand retaining customers.

� Types of processesProcesses are normally divided into two distinctcategories: technological and non-technological.However, this gives the impression that there is norelationship between the two categories. This is afalsehood. As you will see in the remainder of thischapter there are direct connections between thetwo, and they should be considered as integratedrather than separated. On this premise, it issuggested that there is a third core category, combi-nation processes.

These processes also encompass direct and/orindirect actions/responses from the customer or theprovider organisation. The ‘linkage’ between thesevarious relationships can be seen in Figure 15.1.

As can be seen from Figure 15.1, a non-technological process, for instance, can be an oper-ation that has either a direct or indirect action. Forexample, a student completing the documentationfor the submission of a dissertation has a direct

action. The student has to complete the process, thedocumentation having been provided by theuniversity. The student submits the completeddocumentation to the university office, which inturn processes it. The dissertation is handed tomarkers who report back to the university officeand the grade is added to the student’s score sheet.This action is ‘indirect’ as the student has no inputinto it. It is a ‘behind the scenes’ process. Thestudent only experiences the outcome of the indi-rect action – the final grade. The various examplesthat follow throughout this chapter provideinstances of both direct and indirect actions.

Technological processesTwo subsets can be defined here: manufacturing–production and electronic processes.

Manufacturing–production processes

Customers are generally unlikely to be interested inthe processes involved in the creation of mass-produced goods. However, there is an increase inmass customisation or ‘tailoring’ of products tomeet customer needs. This is not new. As the term‘tailoring’ suggests, the clothing industry has forcenturies been creating bespoke clothes, for exam-ple gentlemen’s shirts and suits and ladies’ dresses.Luxury carmakers such as Aston Martin can ‘tailor’

314 15 • PROCESSES

Indirect

Combination

Direct

TechnologicalNon-

technological

Figure 15.1 The relationship between technological and non-technological processes

their models by adding extras chosen by theirclients.

Clearly bespoke tailoring and luxury cars arehigh-ticket items and beyond the purchasing powerof most individuals. However, the development ofthe Internet and computer-aided logistics systemshas enabled a greater degree of mass customisation.An example of this is Dell Computers, wherecustomers can choose, online, a range of options fortheir ‘custom-built’ computer. Once the computerhas been ordered, the customer can track itsprogress from manufacturing to delivery. Herecustomers have a direct involvement throughchoosing what features and benefits they requirefor their computer: as a result they are involved inthe process.

Of course, while being able to choose thecomputer’s features provides certain distinctadvantages, this is not the end of the process stage.Once customers have decided on the features andpaid online for the product, they usually seek deliv-ery as soon as possible. This is where the manufac-turing and delivery processes must be able to meetthe customer’s expectation in terms of performanceand reliability.

Electronic processes

Normally electronic processes can be categorisedinto the five groups shown in Figure 15.2,consisting of barcodes, radio frequency identifi-cation (RFID), electronic point of sale (EPOS),computerisation, unifying technologies and theInternet.

ComputerisationThe development of the computer and accompany-ing software has revolutionised most lives on theplanet. The pioneering work of such notable indi-viduals as Konrad Zuse, Alan Turing, John VincentAtanasoff with Clifford Berry, John Mauchly, JohnEckert and Thomas Flowers laid the groundworkfor technological developments that have enhancedpeople’s lives, from providing safer transportation,medical discoveries to the very system that is beingused to write, store and rewrite this text. Thedramatic revolution in computer technology can besummarised with a simple comparison. There ismore computing power in the laptop being used towrite this text then there was in the Eagle landingcraft which allowed the human race to set foot onthe moon in 1969!

BarcodesIn the vast majority of countries packaged goods(from groceries to televisions) carry a small label of13 lines. The combination of these 13 lines withspaces comprises an internationally recognisedcode representing the manufacturer’s identity andproduct number/details. This information is readby a laser-beam scanner (hand-held or fixed) at thecheck-out counter, and is relayed to both the check-out till and the store’s stock control database. Thebarcode provides the product description and codefor the check-out computer to display and log theprice.

The information relayed to the store’s stockcontrol database consists of product description,package size, manufacturer and price. This allowsretailers to efficiently organise their stock levels.Where land is at a premium, for instance citycentres, it is more cost-effective for retailers tomaximise their selling area rather than have largestock rooms. As in-store levels of a particular prod-uct decline, retailers order further suppliers fromtheir suppliers.

However, it was a long haul of research anddevelopment to reach where we are today. In 1929the Westinghouse Corporation of America intro-duced the original idea of the barcode, as a meansof sorting electricity bills. Unfortunately, the systemwas not fully developed and thus not fully success-ful. Between 1932 and 1948 researchers at HarvardBusiness School and the Drexel Institute of Tech-nology in the United States resolved to develop an

TYPES OF PROCESSES 315

Figure 15.2

The linkages between electronic processes

Barcodes

Internet

RFID

EPOS

Computerisation

Unifyingtechnologies

effective and efficient barcode system. In 1949Bernard Silver and Norman Woodland of theDrexel Institute filed a patent application, but thepatent was not issued until 1952 (van Dulken 2000).

Various companies sought to turn the idea intoan operational reality, but that was not achieveduntil 1974 when the first fully effective barcodescanner was introduced. On 26 June 1974 a ten-packof Wrigley’s Juicy Fruit Chewing Gum,1 featuring abarcode, was scanned at the Marsh Supermarket inTroy, Ohio (Hillman and Gibbs 1998). The ‘simple’action of scanning this pack of chewing gum

commenced the computerised shopping revolutionthat most people in most countries now take forgranted.

Barcoding is used in both the B2C and B2Benvironment as it is now a fast and convenientmeans of tracking items and initiating fast turn-around times. For example, consider the speed ofuse at the supermarket checkout counter.Barcodes can also speed up shipment and tran-shipment times by reducing bureaucraticdisplays in assessing documentation. This ishighlighted in mini case 15.2.


ATMs

In 1967 Barclays Bank in the United Kingdom intro-duced the world’s first automatic teller machine (ATM).This was very different from the ATMs we are nowfamiliar with, which are found in most of the world.Asthe swipe card had not been fully developed, the firstATMs operated on a paper-based system. Customersreceived vouchers which could then be exchanged (viathe ATM) for £10.00 notes.

In 1972 the UK retail bank Lloyds and the comput-er giant IBM further developed the ATM concept andinstalled the first online ‘cash-point’ machine.This used,for the first time, a plastic card with a magnetic stripethat identified the customer’s Lloyds Bank account.Theuse of the plastic card and a link between the ATM andthe bank’s central computer system meant that thecard did not have to be processed physically, as inBarclays’ system.This is basically the same principle thatis used today.

By the end of the 1970s the original offlinemachines, as developed by Barclays, had been replacedby these second-generation online facilities. Work inthe United States and Japan extended the self-servicebanking machine beyond one that simply dispensedcash to the customer.The offering of a range of otherservices, which we use today, meant that the ‘cash dis-penser’ had truly become an ATM.

The problem for customers though was the limitednumber of machines available. In the first 16 years ofdevelopment and operation only 100 000 were installed.However, developments in computing power and thedemand (both internal and external to the banks) led toanother 100 000 being installed over the following fouryears.The ATMs we use today are very different fromthose first introduced in the 1970s.ATMs today feature:

� slim-line design

� full colour screens

� full graphics images

� multiple language capabilities

� increased transaction speeds

� automated balance checks

� ordering facilities for cheque books and statements

� increased security systems – cameras and personalidentification numbers (PINs)

� facilities for topping-up pay-as-you go mobilephones.

ATMs have also expanded beyond the lobby of thebanks.Today ATMs can be seen in a variety of locationsfrom petrol and gas stations, supermarkets, departmentstores to student halls of residence in universities.

By the late 1990s the banking industry had investedover US$30 billion in just buying these machines.Significant additional amounts have been invested ininstalling and operating them. ATMs are available inmost countries. In 2003 the Asia–Pacific was the largestmarket in the world, followed by Europe, NorthAmerica, then Central and South America. Africa wasthe only continent where there had been little impact.South Africa had the largest numbers of ATM in Africa,while some African countries had no ATMs.The lack ofATMs highlights the financial plight and poor infrastruc-ture of these countries.Source: Retail Banking Research Ltd,The Global ATM Marketto 2004, www.rbrldn.demon.co.uk/history.htm

Mini case 15.1


Figure 15.3

© Wincor Nixdorf. Reproduced with kind permission.

Wincor Nixdorf’s compactBank is a self-service systemfor self-service areas or mini branches.All the basicbranch services are bundled into a self-service systemthat has a physical footprint of less than two squaremeters.The components of this system are individualmodules that can be configured to meet the needs ofthe bank facility.

Figure 15.4

© Wincor Nixdorf. Reproduced with kind permission.

One of the many ATMs that are available in banks, shoppingcentres, railway stations and petrol service stations

Barcodes and export documentation

In order to accelerate the documentation process,importers, exporters and customs officials are using acombination of barcodes and Internet facilities. Themove towards digitised documentation will, it isbelieved, reduce errors and accelerate clearance proce-dures.The aim is to forward the standardised and cod-ified documentation electronically prior to the arrivalof the goods. This Pre-Arrival Review System (PARS)will enable customs officials to determine which goods,on arrival, require close inspections and which can beaccepted quickly.

Processes that accelerate shipments through

customs have the potential to reduce costs toexporters, importers and carriers. However, there aretwo other factors to take into consideration. First, notall countries will readily embrace ‘paperless trade doc-umentation’. Therefore shipments will still, in manycountries, be subject to closer, and thus potentiallyslower, inspections. Of course, this will change overtime. Second, in the wake of 11 September 2001, cus-toms officials will be working to heightened levels ofsecurity and inspection. Thus even shipments withadvance ‘paperless documentation’ may be subjected tonecessary security inspection delays.Source: D. Mandell, ‘Digital day dawning’, World Trade 14(2),February 2001, p. 52.

Mini case 15.2

Electronic point of sale (EPOS)The link between computerisation and barcodeshas provided retailers with EPOS facilities. EPOSprovides several advantages for customers andorganisations. For customers it means:

� Faster check-out timing.

� Increased accuracy of check-though of itemsover traditional methods. Today the computer

inputs the price of the goods. Previously, thecheck-out assistant would read the price tagand manually enter the details. This methodwas prone to error, most especially if the assis-tant was tired at the end of a long shift.

For staff it means:

� As the computer scans and inputs the data, thisreduces the error of margin over traditionalmethods. As stated above, in the manualsystem, errors could occur because of tirednessafter a long shift pattern.

� The computer system automatically calculatesthe change that needs to be handed back to thecustomer.

For retailers it means:

� Faster check-out timings, so the potential forgreater throughput of both products andcustomers.

� The potential for the more efficient and effec-tive involvement of staff. While there is a needto train staff on using computerised check-outfacilities, they can also be allocated a variety ofother functions. These can include customerservices (helping shoppers, for instance, to findthe right products). This helps create variety in

the workplace and provides a valuable servicefor the retailer’s customers.

� A real-time analysis of stock levels and thuspurchasing timing. This significantly aids thereplenishment of stock levels to the benefit ofboth the customer and retailer.

� When linked to a loyalty card system, retailerscan build a profile of their customers byanalysing the range and type of productspurchased. The retailer can use this informa-tion to create targeted direct mail opportuni-ties offering customers special limitedincentives.

Radio frequency identification (RFID) tagsThese are individual wireless miniature computerchips combined with an antenna, which areattached to the product and transport packaging(see Figure 15.6). RFIDs were originally developedat the Los Alamos National Laboratory in theUnited States for two Federal Government author-ities, the Department of Energy for the tracking ofvehicles and nuclear materials, and the Departmentof Agriculture for tracking cattle and the monitor-ing of their health. Today this technology can beused for overall supply chain management and toprovide customers with added process benefits.These benefits include:


Figure 15.5

© METRO GROUP AG

A barcode scanner attached to a Personal ShoppingAssistant (PSA). See mini case 15.5.

Figure 15.6

© METRO GROUP AG.

A miniature RFID chip with antenna is attached to theproduct.This can provide a variety of informationincluding price, use-by date and weight.

� The ability to store vast amounts of informa-tion: RFID tags have a higher information stor-age capacity than the current barcode system.Product information such as price, weight, sell-by and use-by dates can be stored. This infor-mation is then decoded by an RFID readerwhich can scan the chip information from adistance of a metre. (A standard currentbarcode reader needs to be placed close to theproduct’s barcode in order to scan it.)

� The ability to optimise the logistics process:packages can be tracked from manufacturer tothe point of assembly or sale. RFID tags canalso be used to locate components, products orpackages (including pallets) in a warehouse,improving delivery times to the assembly lineor front of store.

� The ability to optimise stock levels: with RFIDtags attached to individual products a centralcomputer system is able to monitor stock levelsand automatically reorder as required. Formanufacturers operating with a just-in-timesystem this means the risk of component short-fall is greatly reduced. In-store stock levels canalso be maintained more efficiently, for exam-ple for supermarkets seeking to meet thedemands of their customers.

RFID technology is being increasingly used andtested in a variety of industries. For example,Austria and several US states have used such tech-nology for the efficient collection of toll fees onmotorways. The RFID tags are integrated intowindscreen stickers. As the car approaches thebarrier scanners read the tag information.

Mini case 15.5 illustrates some of the practicaluses for RFID technology.

Unifying technologies

Technologies have often been developed in isola-tion to each other, for instance the different televi-sion and video standards – NTSC, PAL and SECAM– which have prevailed since the late 1930s.However, the 21st century has witnessed a conver-gence of technologies. This has been achievedthrough unifying communications systems such asBluetooth® technology.2 The name derives fromKing Harald 1 ‘Bluetooth’ who unified Denmark,just as Ericsson hopes Bluetooth® will enable the

unification of communications across several differ-ent electronic systems (Groucutt and Griseri 2004).

The developments in Bluetooth® technology aredriven by promoter companies or members: AgereSystems, Ericsson Technology Licensing AB, IBMCorporation, Intel Corporation, Microsoft Corpora-tion, Motorola Inc., Nokia and Toshiba Corporation(as of July 2005). However, several thousandcompanies have become associate and adoptercompanies, able to provide their customers with thebenefits and features of this technology.

Internet

The Internet is a valuable tool not just in the processstage but also for the whole of the marketing mix. Ithas created numerous possibilities for the ordering,tracking, payment and communication associatedwith buying goods and services, often in real time.Mini case 15.3 briefly illustrates the processinvolved in establishing an online relationship witha customer. Compare this with mini case 15.4,which outlines how the Internet and other digitalcommunication devices can use processes to‘improve’ the quality of an individual’s home life.

Non-technological processesThe marketing literature tends to focus on technol-ogy as the driver of processes. However, this isclearly not the case. Organisations can instigate


Amazon

The online retailer Amazon is a successful exampleof order processing and information updating viathe Internet. Once customers have established arepeat customer profile, the ordering of books forexample via their credit card is further simplified bya reduced number of clicks to verify their order anddetails.

Once a customer has confirmed an order,Amazon sends an email to him or her, acknowledg-ing the order and giving approximate delivery dates.When the goods are ready for despatch Amazonemails the customer again, and if there is a delay ineither obtaining the goods or despatching themAmazon once again advises the customer via email.

Mini case 15.3


The intelligent home

Since the World Fairs of the 1950s, where companiesexhibited their views of the future, there has been thedream of a fully automated home.This has proved elusivebecause of the divergence of technologies and the rivalrybetween manufacturers, both nationally and globally.Increasingly, though, technologies are becoming conver-gent through unifying interfaces. Companies such as LGElectronics of South Korea have been developing theconcept of the fully integrated intelligent home.

LG Electronics defines the home network as a

process or system (using different methods orequipment) which provides the ability to enhanceone’s lifestyle,and make a home more comfortable,safe and efficient.Home Networking can link light-ing, entertainment, security, telecommunications,heating and air conditioning into one centrallycontrolled system.

LG Electronics suggests that the home now becomes an‘active partner’ in people’s busy lives.

The system is organised through a central microproces-sor which receives signals from controlling devices (internaland external sources). The microprocessor then relaysmessages to the various appliances in the home to modifytheir operation. The user can interface with the micro-processor (via unifying technologies such as Bluetooth®)through keypads,mobile phones,Internet-linked computers,touch-screens and panic buttons (for security systems).

Within the home Plasma Display Panels (PDPs) indifferent rooms can relay such information as the secu-rity status of the house (which doors and windows areopen or locked), provide wake-up calls and displayweather and traffic information.

In terms of appliances, the Internet refrigerator isalready available. Using scanner technology it can readbarcodes of products as they are placed in the refrigera-tor, and information (such as temperature, use by datesand cooking instructions) can be displayed on the refrig-erator’s LCD screen.The next step in the developmentof connectivity will allow the systems to alert the home-owner, via Internet or WAP technology, on what shouldbe consumed that day. Once supplies become low, thecomputer will be able, via the Internet, to order moregroceries from the preferred supplier.

The system provides a range of additional features:

� TV screen: By connecting to the DVD playermovies can be watched on the TFT-LCD screen.

Mini case 15.4

© LG Electronics. Reproduced with kind permission.

The LG Internet Refrigerator

Figure 15.7

� Album: digital photographs can be transferred to thesystem and used as screen savers or as reminders, forexample, of forthcoming birthdays. A memo facilityallows for footnotes and dates.

� Cooking information: a visual and information displayof recipes, classification of food types and the ability tosearch by ingredients.

� Music facility: auto search for FM radio channels andMP3 player with downloadable capabilities.

� Memo facilities:voice,picture and text messages can bedisplayed. Messages can be password protected andchecked remotely through, for instance, mobile SMS.

� Internet access: the system’s virtual keyboard allows theuser to access emails and the Internet for shopping andinformation searches.Handwriting recognition softwarecan replace or augment the virtual keyboard facility.

processes that are non-technological, yet havesignificant benefits for their customers.

Direct activities

Usually they are a series of mini-stages that can berelatively quickly completed, benefiting both thecustomer and seller in terms of resource allocation.Mini case 15.6 gives the example of credit cardapplications. A sales person in a face-to-face meet-ing could easily enhance the value of the meetingby completing all relevant documentation for thecustomer. If the documentation was ‘minimal’ thatwould further enhance the processing time. This isrelevant whether it is a B2C or B2B transaction.

Indirect activities

These are ‘behind the scenes’ processes. While theend result may have a direct impact on customers,the process is indirect or hidden. Customers havelittle or no involvement in the process itself, theyonly experience the outcome. It could be arguedthat the customer only ‘reacts’ to the process ifsomething goes wrong.

Mini case 15.7 considers room cleaning in ahotel, something most people experience, but prob-ably pay little attention to until the process fallsbelow the standard they expect.

Combination processes

As indicated earlier, this is the combination of bothtechnological and non-technological processes.Basically, it can be considered as the relationship orinterface between people and technology.

� The need to adapt and changeprocesses

Changing patterns in customer needs anddemands require processes to be evolutionaryrather than static. Organisations that can differ-entiate their processes add value to the productsand services they market. As we have seen earlierin this chapter, investment in new technologiescan significantly aid in the development ofprocesses that are more efficient and effective forcustomers.


� Diary facility: this includes scheduling alarms forimportant dates such as birthdays, storingfrequently used telephone numbers and general filemanagement. It can be accessed remotely via amobile phone SMS.

� System self-management: the system is able tocheck for problems in real time and inform the uservia email. It can also provide information on thenearest service centre.

The retail price of the LG Internet Refrigerator (as of July2005) ranged from UK£4300 to UK£5700.* In somecases this included delivery.

As of early 2005 the home environment can be modi-fied to operate available ‘connected’ appliances.Over thenext 10 to 15 years there will be greater digital connec-tivity embedded into newly constructed homes.This willespecially be the case in parts of the United States,Europe and the Far East.

The question is whether this enabling digital connec-tivity will significantly increase the ‘convenience’ factor. Inother words will it enhance people’s lives?* Based on a price comparison of seven online retailers.

Source: LG Electronics, www.lge.com and www.dreamlg.com

Figure 15.8

© METRO GROUP AG.

With intelligent scales the consumer places the product on the scales and the price label is automatically printed out.The customer no longerhas to memorise numbers, as the automatic scaleswill recognise the type of fruit and vegetables beingweighed.


METRO Group future store initiative

The METRO Group of Germany has joined with vari-ous partners in a project to create the potential retail-er venture of the future. Based in Rheinberg Germany,the Extra Future Store is an operational supermarketwhich incorporates a range of intelligent technologies.Many of these are based on the RFID systems discussedearlier in this chapter.Although it is a fully operationalstore it has provided a unique opportunity to testadvanced technologies and innovations.

Personal shopping assistants (PSAs)

Each trolley is fitted with a PSA computer system whichcan provide the shopper with various benefits. Forexample:

� Customers can insert their personal card into thePSA, which recognises who they are and addressesthem by an agreed name. In addition, they may(depending on the store chain) automatically gain

bonus points for their shopping.They do not haveto wait until their next loyalty card statement.

� Customers can be provided with a previous shop-ping list, very much like a grocery Internet shoppercan (usually under the heading ‘favourites’), toremind them to make regular purchases.

� Special offers can be tailored to the shopper’sprofile. This happens in many stores now:customers’ loyalty card details and the customer’srange of purchases are routinely logged bycentralised computer systems.

� Consumers can call up product information andprice by placing the product in front of the onboardscanner.

� The PSA can search the store for a particular prod-uct. If for any reason the shelf is empty (although itshould be automatically restocked under an RFIDsystem), it can trigger restocking.

� The PSA can direct particular advertising andpromotional campaigns to known consumers,attempting to meet their needs and desires.Point-of-sale information (including videos) can be displayed.

� The PSA provides the total price of all the goodsselected prior to check-out.

� The system speeds up check-outs because theproducts have already been scanned by the PSA.

� Shelf information can also be upgraded, with labelcorrection and updating of prices. RFID tags meanthe store team is automatically informed if a prod-uct has been removed from the shelves and/orwrongly replaced. In other words the shelves,through the use of embedded technologies, indicatewhen they have to be replenished.

� The combination of RFID tags and PSAs allowsconsumers to check out their own purchases andpay by cash or credit/debit card.When a customertriggers the ‘pay and go’ procedure on the PSA thepurchase data is transmitted to the check-out.Thisshould greatly reduce the long queuing lines insome supermarkets.

Mini case 15.5

© METRO GROUP AG.

A Personal Shopping Assistant (PSA) attached to theface of a trolley. Customer can recall their previousshopping lists, and self-scan products prior to placingthem in the trolley.The scanner is mounted on the left-hand side of the PSA in this picture. Once customers have completed their shopping they alertthe check-out via the PSA, and pay on arrival at thecheck-out.There is no need for them to empty theirtrollies, saving time and avoiding long queues.

Figure 15.9

Process standardisation or adaptationMühlbacher, Dahringer and Leihs (1999) considerprocess standardisation as an ‘attempt to make theprocedures of decision making, implementationand control as similar as possible across all organi-sational units belonging to the firm or under itscontrol’. Consider, for instance, an internationalhotel chain such as the Hilton Group. It has a globalreputation for the provision of quality hotel accom-modation and services. Customers are able to bookonline for any Hilton hotel, choosing, for instance,the type of room required. This is a standardisedprocedure.

However, Mühlbacher et al. (1999) indicate that itis difficult to standardise marketing processes in aninternational context, especially if there are diver-gent cultural and local/national market conditions

THE NEED TO ADAPT AND CHANGE PROCESSES 323

Credit card applications

Completing forms is usually an irritation for mostpeople. Through careful targeting of potential cus-tomers several credit card companies have signifi-cantly reduced the amount of form filling required.In the 1990s American Express® in the UnitedKingdom developed a personalised direct mail cam-paign with a minimalist application form. The per-sonalised introductory letter invited recipients toconsider the benefits of owning an Amex® card.Toapply, all they had to do was complete three boxeson the attached application form: their signature, thedate and their required credit limit (a minimum andmaximum was stated). A pre-paid return envelopewas enclosed.The rest of the paperwork would becompleted by American Express®, including creditreference checks.

The key issue here is that American Express®had carefully selected its target audience prior tothe despatch of the application forms. This hadallowed them to drastically reduce the number ofquestions that normally appear on credit card appli-cation forms.

Once a credit card company has built a signifi-cant profile on a customer (spending and paymenthabits, for instance), it might seek to upgrade thecustomer’s card.Again, in such cases, the amount ofpaperwork for the customer is usually limited to afew key questions.

Mini case 15.6

© METRO GROUP AG.

A self-check-out system where customers can (if notusing a PSA) slide their individual shopping itemsacross the scanner and place them in a bag.They canthen pay either by cash or credit/debit card.With theintroduction of personal identification numbers(PINs) this can increase safe processing of credit/debit card information.

Of course customers vary, especially in supermarkets.Some customers are in a hurry (maybe they do not likesupermarket shopping) and want to make their transac-tions as quickly as possible. On the other hand thereare customers who want to choose the right brands atthe right price. They may take longer to shop andrequire much more detailed information on the variousproducts and brands on offer. The objective of thesenew technologies is to serve both groups.

The objective behind the Future Store Initiative is touse various integrated technologies to improve service,create more individuality (similar to the Internet),improve reliability and create greater convenience forthe shopper.Sources: www.future-store.org, www.metrogroup.de,www.siemens.com.

Figure 15.10

that must be taken into consideration. Processesthat are successful in one location might not be inanother. To maintain a perceived international qual-ity standard, as expected from customers, is thechallenge for many organisations. With increasedglobalisation many companies work closely withtheir local offices to implement a local or regionallyoriented set of processes rather than an ethnocen-tric one. This adaptation of company processes notonly ‘fits’ better with the local market conditions


Airport baggage handling

We normally take for granted, when we hand over ourbaggage to airline check-in staff, that it will arrive at thedestination at the same time as we do. In the vastmajority of situations it is there on the right carouselin the baggage reclaim hall of the destination airport.However, consider the sheer numbers of passengers –both arriving and departing – at an international air-port at any one time. Some typical annual figures are:

Dubai International Airport: 13.5 million (2001),expected to be 45 million by 2030.Narita International Airport (Tokyo): 24.7 million(2001).Haneda Domestic Airport (Tokyo): 57.7 million(2001).Melbourne Airport: 3.4 million international passengers.Riga International Airport: 633 000 (2002).Sharjah International Airport (UAE): 1 million(2002).

London’s Heathrow Airport (the busiest airport in theworld) processes some 80 million items of luggageeach year. To place this in context, Singapore Changi

Mini case 15.8

Hotel room cleaning

The standard of room cleaning can be a contribu-tory factor in a customer’s overall perception of thehotel.The combined factors of housekeeping, cater-ing, maintenance and staff qualities can be, and oftenare, deciding factors as to whether guests return(become repeat buyers) or recommend to theirfriends and families (become advocates).

While few guests see the cleaning process inaction, they are affected by the quality of the out-comes, for example:

� whether the room is actually cleaned or not

� new clean towels

� the emptying of bins

� the replacement of toiletries

� the restocked mini-bar

� sweeping/vacuuming of floors

� dusting of furniture surfaces

� how the guest’s items are handled – are theyplaced back where the guest left them or not?

� overall cleanliness.

Guests do not want to know the intricacies of theprocess, but they require a standard of service com-mensurate with the cost of the room and the hotel’srating. If standards are not maintained, they are like-ly to complain. How the hotel handles the complaintmay be the deciding factor as to whether the guestreturns and/or recommends the hotel in the future.

There is a clear link to the value of people, as discussed in Chapter 13.

Mini case 15.7

© Civil Aviation Authority of Singapore. Reproducedwith kind permission.

The spacious arrivals baggage collection area atSingapore's Changi International Airport

Figure 15.11

but may also improve the relationship between thecompany and its customers.

� Ethical issuesThe difficulty for many organisations is that simpli-fied processes can have a negative impact. This maysound like a contradiction, but consider the issue ofcredit cards in the United Kingdom. As mini case15.6 showed, the application forms can be greatlysimplified to include only a few key questions.From both a marketing and customer perspectivethis is more ‘user friendly’, but there is an argumentthat the simplification of application processesencourages individuals to instantly apply for thecredit card or loan. Of course, that is the entirepurpose of simplifying the procedure, but is there a‘grey’ ethical issue here? Making it ‘too easy’ or ‘tooencouraging’ to apply could lead individuals to livebeyond their financial means. While there does notappear to be empirical evidence to suggest that thisis the case, it is still a point worth debate.

Another possible ethical issue is the impositionof processes that may conflict within local orregional cultures. It is important that nations keeptheir cultural identity, maintaining the world’s richdiversity. Therefore organisations need to considerhow they can adapt their processes to take accountof local attitudes. Such actions usually add value tothe marketing operation.

� Future issuesIt is worthwhile to briefly consider future develop-ments that may have a significant impact on futureprocesses in the marketing mix. We have alreadyseen in this chapter how barcodes are slowly beingreplaced by microchip RFID tags.

A key science that underpins these develop-ments is nanotechnology. This, in essence, involvesthe manipulation of structures at a molecular level,which changes the behaviour of materials.Nanotechnology is fundamental in the develop-ment of pervasive technologies (sophisticateddevices such as home security and lighting systemsthat react to human presence) through sensors inthe walls and floor. (See mini case 15.4.)

Overall nanotechnologies can be seen asenabling technologies that will help create systemsthat are smaller, lighter, stronger, more efficient and

ETHICAL ISSUES 325

International Airport handles approximately 29million passengers per year (2002). Its two terminalsare capable of handling 20 000 bags per hour fordepartures and 10 000 bags per hour for arrivals – atotal of 30 000 bags per hour being processed (atmaximum capacity).

This is achieved by a combination of technologicaland non-technological processes. Between the check-in staff and the baggage handlers who load and unloadthe aircraft, there is a computerised system that weighsthe luggage and records weight, owner, flight and desti-nation details, and places the baggage in the right placeat the right time to be transported to the aircraft forloading.

Of course, when baggage does not arrive at itsrightful destination the passenger is severely inconve-nienced. The reputation of both the airline and theembarking/disembarking airport are affected.Sources: British Airports Authority, www.baa.com; SingaporeChangi International Airport, www.changi.airport.com.sg;Dubai International Airport, www.dubaiairport.com; SharjahInternational Airport, www.shj-airport.gove.ae; RigaInternational Airport, www.riga-airport.com; Narita andHaneda Airports, Japan, www.narita-airport.or.jp; MelbourneAirport, www.melair.com.au.

© Civil Aviation Authority of Singapore. Reproducedwith kind permission.

The need for rapid transit systems has been an important component of contemporary airport development. Here a RTS links the main terminal building with the arrival and departure gates.Space is provided for luggage.

Figure 15.12

highly cost-effective to produce. To some extent weare already seeing these developments take shape.Today it is common to see flash memory devices incomputers and digital cameras. In the relativelynear future a terabit of data (equal to ten hours ofsuperior quality video) will be stored on a devicethat is no larger than an ordinary postage stamp.

Nanotechnologies will contribute to the minia-turisation of data storage systems with the capacityto store vast libraries, PCs that will contain thepower of today’s mainframe computer centres, thedevelopment of fuel cells that will make our currentbatteries obsolete, and improved medical proce-dures and processes. Clearly we are only touchingthe surface of what may be possible. However, aswitnessed with RFID tags, the Internet refrigeratorand the intelligent home, technology is alreadyhaving a significant influence in shaping currentand future processes.

� Chapter summaryThis chapter has illustrated the vital link processesmake to the remainder of the marketing mix,customer satisfaction and potential to reduceorganisational expenditure. Since Booms and Bitnerexamined ‘processes’ as a feature of service market-ing in the early 1980s much has changed. We haveseen the rise of barcoding and ATMs, items that wenow take for granted. However, what is perhapsparticularly interesting is the dramatic rise incomputing power which has enhanced other tech-nologies, enabling companies to develop and offera vast array of products which provide a serviceprocess function. Clearly ATMs furnished this role,but it is now much more linked to the home andshopping environment. This is where the revolu-tion is taking place.

The process of shopping is changing, whether itis in-store or via the Internet. The timescale andeventual extent of the change are perhaps mattersof debate. However, discussions of an Internetrefrigerator in the late 1990s raised smiles as some-thing out of a science fiction fantasy movie. Nowthey are a reality. So the development of nanotech-nologies may yet yield significant changes in theuse of marketing mix processes.



1 Briefly outline the key types of processes thatare used within the marketing context.

2 Critically review how processes can be inte-grated with the other elements that comprisethe marketing mix.

3 Debate with fellow students how technologycan influence the process element of themarketing mix.

4 Debate with fellow students what you thinkwill be the influence of nanotechnologies onmarketing processes over the next five to tenyears. You may want to check out ideas via theInternet and a library prior to your debate.

� ReferencesBooms, B. H. and Bitner, M. J. (1981) ‘Marketing strate-




Mühlbacher, H., Dahringer, L. and Leihs, H. (1999)International Marketing: A global perspective, 2nd edn,London: International Thomson Business Press.

Rafiq, M. and Ahmed, P. K. (1995) ‘Using the 7Ps as ageneric marketing mix: an exploratory survey ofUK and European marketing academics’, MarketingIntelligence and Planning 13(9), pp. 4–16.

van Dulken, S. (2000) Inventing the 20th Century: 100inventions that shaped the world, London: BritishLibrary.

■ IntroductionIn Chapter 1 you were asked to consider the following questions:

� What are your three favourite movies? Why are they your favouritemovies? What influenced you to go to see them?

� What are your three favourite CDs? Why are they your favourite CDs?What influenced you to go to buy them? If you did not buy them, were theya gift to you?

� What is your favourite food? Why is it your favourite food? Did anyone oranything influence you to try this food for the first time?

These may have seemed innocuous questions. However, as indicated in theintroduction to Chapter 1, they go to the heart of marketing. This is never moreso than when it comes to the discussion of the psychological aspects of market-ing. Why we buy certain products or services can be traced back to our innerthoughts, needs, desires and feelings. This was also considered in Chapter 10on Promotion. There we considered the various hierarchy of effects models,where there is a relationship between the cognitive, affect and conation.

This chapter explores the relationship between psychology and marketing.To some extent it discusses who we are and why we buy particular productsand services. Moreover, here psychology is considered as one of the ‘P’s of a‘revised’ marketing mix. While this chapter focuses on psychology it is

CH

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16Psychology

Learning outcomes 327Introduction 327Why psychology? 328Key approaches in

psychology and theirrelationship to marketing 328

Psychoanalytical aspects 329

Behavioural aspects 331Humanistic approach 334The cognitive

approach 334Evolutionary approach 336Social psychology 336The relationship

between psychology and marketing 337

Categories of buyerbehaviour 337

People 337Culture 339Lifestyle 339Financial and economic

influences 339Fear 340Media 341Price 342Necessities 342Chapter summary 342Question for review




� briefly explain the different approaches to psychology and consider howthey relate to marketing

� debate the relevance of psychology as another component in the market-ing mix

� examine how psychology can influence buyer behaviour

� critically evaluate the different stimuli that can influence our buyer behaviour.

important to realise that virtually all the chapters inthis book link in to the essence of psychology. Assuggested in Chapter 1, along with disciplines suchas economics, it is one of the cornerstones thatcomprises what we call marketing.

Succinctly, psychology can be defined as thescientific study of behaviour and mentalprocesses. One of the founders of modernpsychology, William James (1842–1910) describedpsychology (in 1880) as ‘the science of mental life… of such things as feelings, desires, cognition(learning/knowledge), reasoning, decisions andthe like’. As Santrock (2000) suggests, psychology‘contributes enormously to our knowledge aboutwhy people are the way they are, why they thinkand act the way they do, and how they can copemore effectively with their lives’. Psychology hasalso been used to motivate our desires to engagein various types of marketing activity.

As psychology and buyer behaviour are so inex-

tricably linked, discussions on buyer behavioursare included in this chapter.

■ Why psychology?It is interesting to note that very few generalmarketing textbooks overtly discuss the role ofpsychology in marketing. Throughout marketing isportrayed as a means of satisfying the wants anddesires of a consumer audience. Rarely discussed,though, is the use of marketing strategies andtactics to create those desires, and to some degreeeven to create needs.

Reflect back to Chapter 10 on promotion. Thework of psychologists such as Scott in 1913 andStrong in 1925 illustrates that early in the 20thcentury there was an attempt to link perception andmotivation to acquisition of products and service.Overall the objective of such models as the hierar-chy of effects was to link the various stages to cogni-tion (knowledge/learning), affect (attitudes/preferences) and conation (conviction/purpose andresultant action). The contention here is thatpsychology must be considered a founding ‘P’ ofthe marketing mix, for it underpins a considerableamount of marketing activity.

■ Key approaches in psychologyand their relationship tomarketing

This section of the chapter covers three interrelatedareas:

� the key approaches in psychology

� the main exponents and contributors to thosefields of investigation

� the relationship between these individualfields of investigation and marketing activity.

The key approaches can be identified as:

� psychoanalytical

� behavioural

� humanistic

� cognitive

328 16 • PSYCHOLOGY

Figure 16.1


Several hundred people enjoy a summer’s evening concert at Kenwood, Hampstead in London.As weexamined in Chapter 3, marketers can segment andtarget a group of people with ‘like-minded’ interests.However, we are all driven and influenced by differentneeds, wants and desires.Therefore some in this audience are there to enjoy the music played by a symphony orchestra, others are there because theirfriends or family wanted to go, while others may bethere to enjoy the collective enjoyment of music.Therewill be a multitude of drivers and reasons, some rational and others perhaps not. However, these are allfactors that comprise the ‘human condition’.

� evolutionary

� social psychology.

Psychoanalytical aspectsThe psychoanalytical approach emphasizes theunconscious aspects of the mind, conflict betweenbiological instincts and society’s demands, andearly family experiences (Santrock 2000). The keyproponent of the psychoanalytical approach wasSigmund Freud (1856–1939). Freud is consideredone of the founders of modern psychology, espe-cially psychoanalysis in relation to a general theoryof human personality.

Throughout our lives we process large volumesof information at different levels of awareness. Inmany cases we are fully aware of this processing, atother times we are not. This is an individual’sconsciousness – a state that can be defined as anawareness of both internal and external stimuli.The external stimuli derive from activities weparticipate in during the day, whilst internal stim-uli are the awareness of our own sensations (forexample, hunger) as well as our thoughts and feel-ings. It was the American psychologist WilliamJames who described the mind as a stream ofconsciousness. In other words, the mind is a contin-uous but unstructured flow of changing sensations,images, thoughts and feelings (Santrock 2000).Freud, however, concluded that most of ourthoughts were ‘unconscious’.1 That is, they arebeyond our conscious awareness. He believed thatunconscious thought was a collection of sociallyunacceptable wishes, feelings and thoughts.

Freud’s view was that this unconscious ‘self’had to be controlled, either by an individual’sconscious thought processes or by external forces.In terms of ‘extremes’ of human behaviour we canconsider this as control of immoral thoughts andactions. For instance, we may become angry withsomeone but our instinct or conscious thoughtprocesses normally prevent us from converting thatanger into a physically violent act.

The basis of Freudian theory is the ‘self’. Thissuggests that individuals are driven by the need tofulfil their own particular desires – their wants andneeds. Linked to this is the concept of personality,which can be viewed as enduring, distinctivethoughts, emotions and behaviours that charac-terise how we adapt to the world we inhabit

(Santrock 2000). Freud believed that personalitywas a structure composed of three elements, the id,the ego and the super-ego. The id is an individual’sunconscious and thus has no contact with reality. Itsfocus is on an individual’s unacceptable thoughtsand feelings. The ego, on the other hand, is theelement of personality that interacts with reality. Itis considered as a facilitator of our higher mentalfunctions, providing for reasoning, problem solv-ing and rational decision making.

While the id seeks to satisfy unacceptabledesires, our ego seeks satisfaction within theboundaries of socially acceptable behaviour. Itmay push the barriers of what is socially accept-able, but it will not allow us to ‘normally’ breakthem. However, like our id, our ego has no moral-ity function. Freud believed that there must be amoral aspect to our personalities, however. Thishe described as our super-ego, which could alsobe considered as our ‘conscience’. However, likethe id, our super-ego has no interaction with real-ity. It is there to moderate the feelings andthoughts that emanate from our id and seek tosatisfy them within a moral framework. Freudlikened personality to that of an iceberg. In otherwords most of our personality exists within theunconscious, and so below our level of aware-ness, just like the bulk of an iceberg is below thewaterline. The id is totally submerged, with onlya fraction of our ego and super-ego above thatprecious waterline.

However, since Freud formulated theseelements of personality, several psychologists havechallenged his findings. Carl Jung (1875–1961), forinstance, believed that Freud undervalued the roleof the unconscious mind in our personalities. Jungseparated the unconscious into two subsets. First,our personal unconscious contains our repressedthoughts and feelings. Second, our collective uncon-scious is an impersonal layer of the unconscious thatrepresents the collective experiences of the past asshared by humanity. This collective unconsciouscan manifest itself through images and ideas thathave rich symbolic meaning, for instance in art, religion and even in our dreams.

After Sigmund Freud died his psychoanalyticalwork continued through research conducted by hisdaughter Anna Freud (1895–1982). She believedthat changing or modifying the environmentaround them could influence individuals. This was,as with Sigmund Freud’s views, a perspective

KEY APPROACHES IN PSYCHOLOGY 329

adopted by his nephew Edward Bernays, as weshall see later in this section.

Alfred Adler (1870–1937) on the other handbelieved in individual psychology, where individu-als are motivated by purposes and goals, beingcreators of their own lives. Thus, according toAdler, individuals are able to ‘consciously’ monitortheir own lives, adapting to their surroundings bydeveloping social interests and reducing feelings ofinferiority (Santrock 2000).

One of the first to see the value of Freudianpsychoanalytical theory in relation to marketingwas Freud’s own nephew Edward Bernays(1891–1995).2 Another was Ernest Dichter(1907–1991). Bernays is often credited as creating‘public relations’ as a form or component of

marketing. However, he was one of several duringthe early part of the 20th century who developed a‘public relations orientation’ for both governmentand business.3 What Bernays arguably did achievewas to mould public relations into a profession thatboth governments and companies took seriously.He incorporated strategies and tactics to communi-cate messages and change attitudes. This is wherehe relied on the work of Sigmund Freud.

Ernest Dichter was, like Freud, an Austrian-bornpsychologist who believed that consumers neededto verbalise their needs, wants and importantlytheir desires. To increase his understanding ofconsumer desires Dichter developed the FocusGroup, a means of gathering information andviews that is today commonplace in market


Introducing women to smoking

Until the 1920s smoking was considered, in America atleast, to be a purely masculine activity. Indeed psychol-ogists at the time debated whether or not the cigarettewas an extension of male sexuality, power and domi-nance.Therefore to see a woman smoking in public wasnormally considered to be socially unacceptable andunfeminine, although many women did smoke in theprivacy of their own home. George Washington Hill, thepresident of the American Tobacco Company, sought toincrease sales of the company’s cigarettes, especially theLucky Strike brand (known as Luckies). Bernays wasasked to consider ways of opening up the market towomen.

Women’s rights and the suffragette movement hadbeen growing in popularity. Bernays sought to use thisas a means of popularising smoking amongst women.He consulted the American psychologist A.A. Brill, apsychoanalyst and follower of Freud who believed:

It is perfectly normal for women to smoke ciga-rettes.… The emancipation of women has sup-pressed many of their feminine desires. Morewomen now do the same work as men do. Manywomen bear no children; those who do bearfewer children. Feminine traits are masked.Cigarettes which are equated with men, becometorches of freedom.

This gave Bernays an idea. He decided to use New

York’s 1929 Easter Parade as the event that wouldchange people’s perception of women smoking. He per-suaded ten young debutantes to walk down FifthAvenue with their escorts, carrying hidden Lucky Strikepackets, then at a given signal take out a cigarette andlight up. He tipped off numerous photographers andjournalists with the aim of generating stories that forthe first time a group of women had smoked cigarettesopenly on the street. This he named ‘Torches ofFreedom’. In a country that promoted the values offreedom and liberty (though not always supportedthem) this was seen as a argument that no one couldreally counter. The Torches of Freedom campaign,though simple in its idea, had a profound effect on theperception of women who smoked.Within days womenwere seen in streets across America lighting up andsmoking cigarettes in public.

Bernays’ actions helped to empower women in theeyes of American society, although it can be argued thatit has taken several decades since for women in theUnited States and Europe to obtain any form of realequality. However from an ethical perspective it mustbe stated that Bernays never revealed to either thedebutants or the media that the campaign had beenplanned by a tobacco company.

Since then numerous commercial enterprises,including tobacco, car and detergent companies, haveused psychology to persuade individuals to buy prod-ucts and indeed change their habits.Sources: Ewen (1996),Tye (1998).

Mini case 16.1

research (see Chapter 4). Like Bernays, he appliedFreudian thinking to business and marketing.Through his Institute of Motivational Research, hewas able to investigate ways of motivatingconsumers to purchase an ever-increasing array ofmass-produced products.

Behavioural aspectsBehavioural psychologists tend to see humanbehaviour as a response to environmental stimuli,while phenomena such as thought, intention andemotion are subjective and minimal in their effect.One of the leading theorists of behavioural psychol-ogy was Burrhus. F. Skinner (1904–1990). Skinnerwas a leading American psychologist whoseresearch concluded that a history of reinforcing

actions determined behaviour. In other words bycontrolling the rewards (positive reinforcement)and punishments (negative reinforcements) inresponse to particular behaviours, behaviour couldbe ‘shaped’. This has become known as operantconditioning. Thus behaviour could, according toSkinner’s research, be modified or conditioned.

Table 16.1 gives an example of how behaviourcan be modified through both positive and negativereinforcement. Positive reinforcement is where thefrequency of response increases as a direct result ofa rewarding stimulus, in the example, praise fromthe lecturer for the delivery of course work on time.The opposite of this is negative reinforcement,where the frequency of response increases as adirect result of the removal of an unpleasant stimu-lus. In Table 16.1 this is the ‘removal’ of criticism of


Dichter and the introduction of the BarbieDoll™

In 1945 Ruth and Elliott Handler formed a companycalled Mattel Creations (with a partner, Harold Matson,who had left the partnership by 1946). With theirexpertise in the use of plastics the Handlers developedseveral toy products. However it was the 1950s thatwas to have a serious impact on Mattel Creations.Thiswas the time of the post-Second World War babyboom, a significant change in the demographics of boththe United States and Europe. By the mid-1950s chil-dren’s television was witnessing a boom, thanks largelyto the work of Walt Disney who realised that it provid-ed huge opportunities for both programming and pro-motion. The Handlers also realised that television hadtremendous potential for their products, and with thehelp of Walt Disney and ABC Television they used themedium wisely to promote their range of products.

The Handlers had seen a German doll called Lilli,based loosely on a comic strip character. It was aimed atan adult audience, as Lilli was portrayed as ‘sexy andimmoral’, and thus became something of a sexual iconfor men.The Handlers believed there was a market for adoll for older children that was different from those forvery young children, but clearly Lilli was not the one.They experimented with different forms. However find-ing the right image would, they knew,be only one part ofthe battle; they also had to find and convince their targetmarket. It was at this point that they engaged ErnestDitcher to advise on their marketing plan.

The doll Mattel designed was named Barbie™ afterthe Handlers’ daughter Barbara. Ditcher spent sixmonths researching the project.A key concern was par-ents’ objection to their child playing with in essence a‘grown up’ doll with adult-style clothes. Ditcher’sresearch suggested that Barbie™ had to be made‘wholesome and thus innocent as a babe in arms’.

Barbie™ became a role model ‘to guide Americandaughters through puberty into adulthood. Barbie™ isa beautiful single girl, happy and independent. Her life ispicture perfect, unspoilt by the demands made onhousewives and mothers.’

To support this life style Mattel created and devel-oped an entire life for Barbie™. She was the teenagefashion model, virtuous and glamorous – in essencewhat every young American girl wanted to be. She notonly became an icon (indeed a brand icon), she alsobecame the biggest selling toy product.

Barbie™ has not remained living in a vacuum: shehas changed with societal changes and attitudes. Shehas had a ‘relationship’ with another doll called Ken(named after the Handlers’ son) and they have gonetheir separate ways. Perhaps this is very reflective ofsocietal changes in Europe and North America.

Although there is competition in the marketplace,Mattel realise that even at 46 (her ‘age’ in 2005),Barbie™ competing against ‘younger’ girl dolls has beenreflective of changing societal trends.Source: ‘Barbie always a living doll’, American Antiques Journal,2003.

Mini case 16.2

you by your lecturer and, of course, the downgrad-ing of the assignment because of its late submis-sion.

Reinforcement can be separated into varioussubsets, which are outlined in Table 16.2.

Reinforcements can be scheduled or timetabled.Table 16.3 outlines the four components thatcomprise a schedule of reinforcement.

Of course not all behavioural psychologistsagree with Skinner’s view of rejecting the level ofimpact of an individual’s thought processes. AlbertBandura (1925–), for instance, proposed a socialcognitive theory of human functioning in whichbehaviour is determined not only by its controllingenvironmental conditions but also by how thoughtsmodify the impact of the environment (Santrock2000). Bandura believed that individuals are self-organising, proactive, self-regulating and self-reflecting, and not only shaped by externalenvironmental forces, as Skinner suggests, or

driven by deeper hidden desires and impulses, asFreud suggests. The theory also suggests that indi-viduals actually regulate their own behaviour andmotivations as a result of the positive and negativeconsequences of their own actions. Individuals seekactivities or objectives that provide a degree ofsatisfaction and self-worth (or self-esteem – see thediscussion on Maslow below). Conversely theyreject activities or objectives that may underminetheir self-worth.

However, as Bandura intimates individuals donot exist in isolation; they tend to work collectively.This links into his more recent work where heconsidered the power of psychological modellingin shaping human thought, emotions and actions.This includes how individuals and groups areinfluenced by messages communicated via variousmedia. Consider, for example, how televisionadvertising can be used to persuade a segmentedaudience to purchase a particular brand of car.


Table 16.1 An example of reinforcing behaviour

Source: adapted from Santrock (2000).

Reinforcement behaviour

Positive reinforcement

Behaviour Consequence Future behaviour

Approach 1

You submit your marketing module assign-ment at the required timeat the undergraduateoffice.

Your lecturer says well done for meeting thedeadline. (This may be either a public or private display of congratulations. Either waywe will assume for the point of this exercisethat it is affirming and supportive.)

You seek to meet the required deadline for submission with all yourassignments.

Negative reinforcement

Behaviour Consequence Future behaviour

Approach 2

You submit your marketing module assign-ment at the required timeat the undergraduateoffice.

Your lecturer stops criticising you for the latesubmission of your coursework.Additionally,you are not penalised with a loss of marks forlate submission.

You seek to meet the required deadline for submission with all yourassignments.


Table 16.2 Types of reinforcement

Type of reinforcement Description

Primary Reinforcements that are innately satisfying, in other words an individual doesnot have to engage in learning to make them satisfying. Examples include theconsumption of basic need items such as food and water.

Secondary Reinforcements that are attained through experience. In other words they arelearned or conditioned reinforcers. For example, a credit card company awardsbonus points or ‘rewards’ when the card owner purchases products or servic-es on that particular card. It also acts an incentive to purchase more productsand services on that credit card.

Continuous The response is reinforced every time reinforcement occurs. For example,people continue to visit a particular restaurant, on a regular basis, because ofthe personal service they receive on each visit.The quality of the service reinforces their behaviour.Added value provided by the restaurant, for example, additional complementary drinks, will help to further reinforce thebehaviour.

Partial A response is reinforced occasionally rather than continuously.An individual entering a weekly lottery is unlikely to win every week, but mightwin small sums on an occasional basis.This response will usually be sufficientfor him or her to carry on buying tickets in the hope of winning something.The person probably still has his or her sights on the ‘big’ win at some time inthe future, even though it might never come his or her way.

Table 16.3 Schedules of reinforcing behaviour

Type of schedule

Description

Fixed ratio The behaviour is reinforced either after a set number of specific responses or at a fixed time interval. With a credit card, additional bonus points may be awarded if spending exceeds a specificamount within a given time frame, for instance a month.This may encourage the owner to spendmore on the card to gain the additional bonus points or the chance to win a prize (for example, aluxury vacation for two and spending money).

Variable ratio The responses are rewarded on an unpredictable basis. For example a company celebrating its 25thanniversary tells its customers that for the anniversary month only every 30th customer who buysonline will receive a special gift.The customers purchasing online will not know whether they arethe 30th customer or not, but most likely there will be a steady stream of customers making onlinepurchases in the hope that they will be lucky, especially if it is a high-value prize.

Fixed interval Behaviour is reinforced after a specific period of time.With a credit card, cardholders may receiveadditional bonus points six or twelve months after taking out the card, perhaps subject to their having used it regularly and paid the statutory minimum amount by the due date.

Variable interval

The behaviour is reinforced after a variable time period.An example here is an attempt to give upsmoking.At times the smoker might abstain from smoking, but at moments he or she might relentand smoke.This could be viewed as peaks and troughs in the act of giving up.The long-term gainmay be having given up smoking permanently.Although there are chemical-based supports (nicotinegums and patches) it is after all a matter of personal will that will break the habit.

Humanistic approachIn often sharp contrast to both the psychoanalyticaland behavioural approaches there developed thehumanistic approach to psychology. This approachplaces emphasis on individuals’ capacity forpersonal growth, the development of a positive atti-tude and the freedom to choose their own actionsand destiny. This is very much concerned withmotivation.

One of the leading architects of this movementwas American psychologist Abraham Maslow(1908–1970). You probably have already encoun-tered Maslow’s Hierarchy of Needs in organisa-tional studies. The Hierarchy of Needs (see Table16.4) is equally applicable to the marketing envi-ronment. In Maslow’s original concept lower-orderneeds have to be fulfilled or satisfied before higherneeds or desires can be satisfied. So, for example,our basic physiological needs (for instance food andwater) must be substantiated before we canconsider issues of self-esteem and above.

Normally Maslow’s Hierarchy of Needs isdepicted as a pyramid with self- actualisation at thepinnacle and physiological needs at the base. Hereit is presented in tabular form to illustrate both thehumanistic and marketing perspectives. It must beunderstood that as well as moving upwards, anindividual can also move downwards. An individ-ual might normally have strong self-esteem, but aseries of negative life events could significantlyreduce it. Therefore the hierarchy must not beenseen as a rigid system, more one of fluidity.

For instance, there might be a downturn in theeconomy (see Chapter 2). This leads to peoplebeing made redundant, which in turn shatterstheir self-esteem. They in essence ‘fall down’ thehierarchy and focus upon their basic needs untilthey can rebuild their lives. This was exemplifiedin the late 1980s in the United Kingdom with astock market crash and recession. While it had animpact on all groups in society, it was the middleclass who were hit the hardest. Many hadpurchased large mortgages to acquire homes atvastly inflated prices. When the market collapsedthe value of their properties fell dramatically,leaving many with negative equity. With therecession many companies closed, resulting inredundancy, and thus reducing people’s abilityto continue their mortgage repayments. In suchcases people’s lifestyles can changes significantly,

and people who had not been particularly price-sensitive in the past become so.

The cognitive approach‘Cognitive’ originates from the Latin ‘cognitio’,meaning to apprehend or to know. The Latin word‘cogito’, which has a similar derivation, means ‘Ithink’, and is the principle of establishing the exis-tence of individual from their thinking or aware-ness. The French philosopher René Descartes(1596–1650) expressed this truth in his Cartesianformula, often known as the Cogito argument –‘Cogito, ergo sum’ – ‘I am thinking, therefore Iexist’. Cottingham (1995) suggests that ‘thecertainty of Cogito is, for Descartes, a curiouslytemporary affair: ‘I can be sure of my existence onlyfor as long as I am thinking.’ This philosophy goesto the core of the cognitive approach.

In the cognitive approach an individual’s mindacquires, represents and uses knowledge – it isviewed as an active problem-solving system. Thussuch an approach will encompass sensation,perception, reasoning, learning, comprehension,memory and problem-solving facilities.

The cognitive approach was influenced by thework of Swiss psychologist Jean Piaget (1896–1980),who conducted research into how childrenreasoned and their changing perceptions of theirexternal environment. Piaget believed that individ-uals’ learning was based on the progressive struc-turing of experience – through trial and error –rather than on environmental conditioning asproposed by the behaviourist approach (see minicase 16.3, overleaf).

Here learning can be both experiential andcognitive. Experiential learning can be consideredas learning through doing, while cognitive learningcan be described as problem-solving learning. Anexample of cognitive learning is how a familyapproaches buying a new car. They might considerseveral factors to help them solve the problem ofwhich model to buy, including price range, how topay for the new car, type of car (saloon, hatchback,estate), make of car, features and benefits of each makeof car being considered, and the future resale value.

Cognitive dissonance

The cognitive approach encompasses sensation,perception, reasoning, learning, comprehension,



Table 16.4 The relationship between Maslow’s hierarchy of needs and marketing

Dir

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fulfi

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Hierarchy ofmotives – behavioural motivator

Humanistic perspective Marketing perspective

Self-actualisation Individuals strive to develop their fullpotential. Maslow believed that this wasthe highest form of need and the mostdifficult to reach.

A university, for instance, could market doctoral programmes as a means of individuals achieving the pivotal point ofacademic success.

Self-esteem Belief in one’s self, often described asself-worth.

Self-esteem may be exemplified in thegoods or services an individual purchases:perhaps a luxury watch costing UK£5000 todemonstrate wealth and the ability to livelavishly. Companies market products andservices (such as luxury vacations) by tap-ping people’s need to reinforce their self-esteem, perhaps to indicate that they have‘made it’.

Love and belongingness

Wanting to belong to a particular groupand or be involved in the dating process.

This can include the sending of cards,flowers and/or gifts. It can also mean joininga club, group and/or dating agency.All theseare marketed to segmented groups.

Safety The feeling of being secure, for example,in our homes, at our place of work andwhen we walk down the street.

This ranges from the local police force‘marketing’ its presence to the engagementof local security guards (as in some UShotels and neighbourhoods), and the development and marketing of personalprotective equipment such as personal pro-tection alarms and biological/radiation protection suits (as witnessed in the UnitedStates after the 9/11 attacks and the ensuing fear of a biological/nuclear terroristattack).A university might market itself onthe differential value that it has a very safecampus environment.This would appeal tostudents who are away from home for thefirst time, as well as their parents.

Physiological Basic needs for survival within the environment in which the individuallives.

This includes the availability of producefrom the local market or supermarket.

memory and problem-solving facilities; but thissuggests that such activities operate as a constant.When we buy products or services we often have tobalance the positive and negative aspects of themagainst others.

Festinger (1957) developed the idea of cognitive dissonance (see Chapter 10). Thinkback to the family attempting to decide on a new

car. Dissonance may occur as an element of post-purchase behaviour. The family buying thecar, for instance, might reflect on the positivefeatures of the alternative models they did notbuy, and the negative aspects of the car they actually chose. It is these ‘differences’between the two alternatives that cause thedissonance.

Williams (1992) suggests that the degree ofdissonance will depend on several factors:

� The level of significance an individual placeson the purchasing decision: the greater thesignificance, the greater the degree of disso-nance. Therefore the dissonance may be rela-tively high for items such as a luxury cruisevacation or a diamond engagement ring.

� The more attractive the attributes of therejected alternative compared to the chosenone, the greater the degree of dissonance.

� The greater the negative attributes of thechosen one compared with the alternatives, thegreater the degree of dissonance.

� The greater the range of alternatives availableto the buyer, the greater the degree of disso-nance. As the number of positive alternativesincreases, so does the number of positive char-acteristics that will have to be rejected.

Evolutionary approachAs the word ‘evolutionary’ suggests, this approachemphasizes adaptation, reproduction and the‘survival of the fittest’ in explaining individual and

group behaviour. Pinker (1997) suggests that themind operates in an evolutionary format, learning,developing and adapting from experience in orderto survive. Of course, so the argument develops,organisms that do not evolve or develop fail tosurvive.

We could argue here that experience, memoryand learning can be the basis of such an evolution-ary approach. We gain experiences over time, andthese can be viewed as a series of mini learningevents, although not all such events will be small.These events might be small and repetitious such asbuying a coffee on the way to college or universityfirst thing in the morning. Perhaps you find thecoffee is of increasingly poor quality and taste, or iteven begins to make you feel ill. Therefore youseek, through this experience, to adapt to thechanging conditions and either find another outletor stop buying coffee on the way to college.

Another example in relation to evolutionarypsychology and marketing is eating healthy foodand keeping fit. People who eat healthy food andkeep fit look and feel better. This will in turn per-suade them to continue with the healthy eating.This has further reinforcing effects in terms offriendships, meeting people and shopping forclothes that complement their healthy look. Asthis continues and evolves, the health regimebecomes a key component of their lifestyle.Therefore we adapt to the circumstances andchanging environment.

Social psychologySocial psychology focuses on an individual’s socialthinking, influence and relationships. This is bornout of the need to understand the combination ofculture, ethnicity and gender. Social psychology orthe socio-cultural approach emphasizes thatculture, ethnicity and gender are essential to under-standing behaviour, thought and emotion(Santrock 2000). The components can thus bedescribed as:

� Culture – Mühlbacher et al. (1999) defineculture as ‘the standards of belief, perceptions,evaluation and behaviour shared by themembers of a social group’. In their definitionthey also refer to Hofstede (1994), who definesculture as the ‘collective programming of


The cognitive approach and marketingshampoo

A company may decide to launch a new range ofshampoo. It is aware it is entering a highly competi-tive marketplace, and that customers may be ‘loyal’ toa particular brand.A customer might also not want toinvest in a large bottle of the new shampoo just incase he or she uses it once and does not like it.

The company could introduce trial-size sachets.These might form part of a door-drop promotion,be attached to the cover of a magazine, and/or bemade available free in stores. This form of promo-tion allows potential customers to trial the productprior to deciding whether or not to purchase, forinstance a 500 ml bottle. If the company decides onproduct line extensions, sachets can be attached tothe bottle of the already established shampoo sothat customers can trial the new product.

Mini case 16.3

minds’ which distinguishes one group fromanother.

� Ethnicity – this originates from the Greek word‘ethnos’, which means nation, and focuses on asocial group that shares a common nation,traditions, heritage, characteristics, religion(though not always – there may be multiplereligions), race and language (though dialectswill vary within nations).

� Gender – Grimshaw (1999) describes genderas:

a social construction of male/female iden-tity which is distinguished from sex, thebiologically based distinction betweenmen and women. Gender is an integralpart of the process of social classificationand organisation. It is both a set of ideas (aaway of thinking about relations, of influ-encing behaviour, a set of symbols) and aprinciple of social organisation (allocationto roles and division of labour).

It is useful to explore here the term ‘role’ inrelation to gender. Raban and Torrance (1999)describe ‘role’ as the ‘bundling of formal andpredictable attributes associated with a partic-ular social position, as distinct from the indi-vidual characteristics of the individual whooccupies that position’. In terms of gender ithas often been associated with the man goingto work and the woman staying at home tocare for the family. These have, in many coun-tries, become stereotypical roles which areoften exploited by society as a whole.

Out of these develop our individual reaction tosocial thinking, influence and relationships.

■ The relationship betweenpsychology and marketing

The above has provided a brief outline of the mainapproaches to psychology and some of the keycontributors to those approaches. Already you haveperhaps begun to see some of the possible links tomarketing. The remainder of this chapter isdevoted to some of the drivers that underpin whywe buy products and services. This is not an

exhaustive commentary. However, as you reflectback over the previous chapters you should be ableto see how psychology has an influence (often asignificant one) in how products and services aremarketed to us. Moreover, you should also see howwe react to those influences through our purchas-ing behaviour.

■ Categories of buyer behaviourIn order to develop an understanding of buyerbehaviour it is worth attempting to categorise thedrivers for that behaviour. However, there needs tobe a word of warning here. It is very easy to fall intothe trap of thinking that an individual is influencedby one category and one category only. That is notthe case. As we have seen earlier in this chapter, thehuman mind is an extremely complex system,which is still not fully understood, and might neverbe. Therefore it is rational to say that an individualmay be influenced by some or all of the factors.Indeed there may be factors that might influencebuyer behaviour that have not, for one reason oranother, been included by researchers.

PeopleWe are influenced to a greater or lesser extent by thepeople we consider part of our lives. We may knowthem either directly or indirectly. Those we knowdirectly include friends, family, teachers, neigh-bours and co-workers. Those we know indirectlyare usually people we admire, aspire to be or callour heroes, be they football players, pop stars oractors. Both direct and indirect contacts can have anenormous influence upon our lives.

Let us unpack this section by subdividing it intothree subsets:

� immediate family

� relatives

� friends.

However, while they are examined as individualsubsets there is most likely to be some form ofcross-influence. Equally, other factors such asculture will have an influence.

Immediate family

CATEGORIES OF BUYER BEHAVIOUR 337

When considering the influence of the family youwill need to examine it from various cultural stand-points. For instance, the cultural history of thefamily, where they live now and how contempo-rary culture influences the family as a whole and itsdifferent members.

For instance, if we look at the dynamics of familylife in the United Kingdom since the 1960s therehave been significant changes. The stereotypicalview of a nuclear family where the husband isemployed and the wife stays at home to look afterthe house and family has generally faded. Thisequally applies to the husband making all the deci-sions for the family.

Women have become career oriented and inde-pendent. Households are not stereotypicallycomprised of a husband, wife and two children.There is a greater number of childless couplesliving together, as opposed to being married. Manyfamilies only have one child. Decisions are increas-ingly made collectively, so even children may havean influence, or at least a contribution to make to asignificant purchase. In the UK in 2002 one carcompany aired television advertisements where itwas the young girl who was the influencer in thepurchase of a new car.

Family experiences, both positive and negative,can subsequently influence our behaviour.Companies often reflect back on people’s child-hood experience to market to them a similar prod-uct as they become adults. For instance, considerthe warming bowl of soup you may have beengiven by your parents after being out in the cold,perhaps playing a sport. The bowl of soup notonly helped to warm you up but there were prob-ably several psychological actions underpinningthe experience. These range from basic environ-mental comforts such as warmth and safetythrough to love and affection from your parents(reflect back on Maslow’s hierarchy of needs).

Manufacturers of soup and similar types of foodhave used such childhood experiences to promotetheir products. The objective is for viewers toreflects back to their childhood and the importanceof a bowl of soup in their lives. When they then goshopping they might buy soup because it reflectssecurity and affection as well as nourishment.However, they may not necessarily buy the brandthey saw in the television advertisement, preferringperhaps an own-label brand if they are price-sensitive.

Mini case 16.4 again makes a psychologicalconnection to childhood and the relationshipbetween a grandfather and his grandson.

Relatives

As Groucutt, Leadley and Forsyth (2004) stated:

The level of influence may depend upon the‘closeness’ of the family in emotional terms,and their ethnicity. Families, for example, ofIndian or West Indian origin tend to be moreclosely-knit. Here various members of the fam-ily be they grandparents, uncles, aunts, cousinsand so on can have an impact upon the deci-sions of others.

Again, while in some cultures there may be both aphysical and emotional closeness, this will not bethe same in all cases.

The development of, for instance, mass trans-portation and widening job opportunities has seen


Werther’s Originals

In 1903 the Wertherian Candy company (later to berenamed August Storck) was established in Werther,Germany. Originally the company produced a mixedcaramel and cream candy without giving it a brandname. As brands were developed Storck chose aproduct line to be named Werther’s Echte (original).In 1998 this was rebranded as Werther’s Original toprovide a universal appeal.

The advertising storyline for the brand focuseson the relationship between a grandfather and hisgrandson. In many ways the grandfather can bedescribed as ‘everyone’s favourite grandfather’. He isthe image we would all like our grandfathers to be,whether ours actually fits this mould or not. In theseries of advertisements the grandfather explainsthe tradition of eating Werther’s original from onegeneration to another. Once again there is a senseof tradition, of security, of love and affection. Thecandy becomes the link over the generations.

As of 2005 Werther’s Originals is one of theleading caramel and cream candies in the world. It issold in over 80 countries and is Storck’s most suc-cessful brand worldwide.Source: www.storck.com.

Mini case 16.4

families fragment as individuals move away fromthe family home. Relatives may maintain someinfluence over distance (especially with the use ofemail) – but this is likely to diminish across gener-ations.

Friends

Friends can be a significant influence on our behav-iour especially in two key ways:

� We trust our real friends to give us their honestopinion, as we would them. This trust elementmay remain with us for the rest of our lives.Chapter 10 on promotion cited the work ofRosen (2000) in relation to the power of wordof mouth, or buzz. Rosen states that ‘47% ofreaders of Surfing Magazine (USA) say that thebiggest influence on their decision about whereto surf and what to purchase comes from afriend’.

� The need for friendship. This may lead us towant to be one of the ‘group’ and thus buy intohow the group operates, for example, throughthe fashion clothes that the group wears.However there is a risk of group think.Santrock (2000) describes this as ‘involvingimpaired decision making and avoidance ofrealistic appraisal to maintain group harmony’.An example is where the group wear a partic-ular fashion brand, and to be a member of thatgroup you have to purchase that fashionbrand. That might be financially advantageousfor the fashion brand, but it raises some ethicalissues, particularly where young children areconcerned. A primary school in England in thelate 1990s banned major brands of trainersbecause children who did not wear a particularbrand were ‘excluded’ by other children. Such‘exclusion’ placed enormous pressure on thechildren and their parents.

CultureCulture is often described as the norms, attitudesand beliefs of a particular nation or group. Theessence of culture varies throughout the world. It isdiverse and in many ways ever-changing andadapting to external influences and pressures (bothpositive and negative). Depending upon who we

are and where we live, this may have a greater orlesser influence upon our lives. Some cultures havea very strong influence, whereas others are muchweaker. This relative strength or influence canrange from the types of foods that are consumed tothe style of gifts purchased for family members.

LifestyleLifestyles can be both real and aspirational. Wemay, as individuals, be content with our lifestyles,and purchase products and services that fit ourparticular lifestyle. Equally we may be aspirational,seeking a lifestyle that reflects how we really wantto live. At this point you may want to reflect back toMaslow’s Hierarchy of Needs, especially the issuesof self-actualisation.

Financial and economic influencesClearly our personal financial circumstances dictateor influence our buyer behaviour, to a greater orlesser degree. Consider the following scenarios.

� Example 1: people who are unemployed andliving on state benefits may be aspirational inoutlook. However, they have to live within


Figure 16.2


People purchase products and services that fulfil theirparticular lifestyle. In this photograph some peoplehave relatively small boats compared with others in themarina.They may be content with their lifestyle, orthey might aspire to one day owning a luxury yacht likethe one in the background.

their financial constraints at that particularpoint in time, and this will make them particu-larly price sensitive. Thus they seek tomaximise the benefits of their purchases withwhat little money they have. In the majority ofcases their disposable funds will be used topurchase essential items, such as food. Whenthey become fully employed again, with aregular salary, their buying habits may adapt totheir increased weekly income. They may notbe as price sensitive as before, and should beable to purchase a wider range of products, notjust basic necessities.

� Example 2: in example 1 individuals living onstate benefits focused their limited financialresources on the basic necessities, but that is notalways the case. People might try to balance thebasic necessities with what they describe as‘personal luxuries’, ranging from a bar of choco-late to alcohol to gambling. The latter might benot just a ‘personal luxury’ but a vain hope thata significant win on a racehorse or the lotterywill provide riches and thus create a better life.(It should be noted here that the vast majority ofthe world’s population in countries wheregambling is legal dreams of winning a lotteryfortune, for instance.)

� Example 3: entrepreneurs who have turned anidea into a product that dominates the marketusually reap the rewards of their success, bothemotionally and financially. An individualwho has achieved such success will have finan-cial stability, and thus purchasing power.However, normally financial limits still apply.Even multimillionaires have faced bankruptcyas a result of living (or spending) beyond theirfinancial limits.

Having access to financial resources does not meanthat an individual will use those resources fully.There has been a tendency, in the West at least, forthose with significant financial resources to use thatwealth to display their social standing, for exampleliving in large houses. This is not always the case.Some will be ostentatious, others not.4

The changing economic fortunes or a region orcountry must also be considered here. Chapter 2reviewed the macro factors through the PESTLEmodel, where economics acts as an externality thatinfluences both individuals and organisations.

Consider, for instance, the impact on individualbuyer behaviour when a country moves throughthe economic cycle from growth to recession. In the1990s in the United Kingdom, all socio-economicgroups were affected by the recession that tookplace. Individuals and families that used the valueof their homes as collateral for increased borrow-ings (loans and credit cards) often saw the value oftheir properties decline significantly relative totheir borrowings. With increasing insecurity withinthe job market, this led many to face the potentialrisk of personal bankruptcy. The experience of thisrecessionary period led many to be price-sensitiveand to control their individual spending limits. Thiswas particularly noticeable with the UK’s middleclasses. Their behaviour was influenced, it could beargued, by the fear of losing everything they hadworked to achieve. This would have a detrimentalimpact on their individual self-esteem.

What is interesting to note, however, is the possi-ble change in behaviour as the UK economy expe-rienced strong growth, aligned with low inflationand interest rates. Since 2001 there has been a signif-icant increase in personal debt, alongside increasingproperty values. By 2005 the level of personal debtin the UK was calculated in trillions of euros!

FearThis can be viewed on two levels: as a result ofmacro events (such as the threat of terrorist attacks)and micro events – for instance, safety from crime.

Macro level

During the 1950s a climate of fear developed as aresult of the Cold War, a period when the West andthe Soviet Union viewed each other with immensesuspicion. This led to the build-up of nuclear arse-nals, a legacy that remains with us today. The ColdWar lasted until the 1980s, when relationshipsimproved and there was an active move to reducethe arsenals, although they remain substantial.During this period there were degrees of fear overwhether the world would be plunged into a devas-tating nuclear conflagration.

The peaceful revolution that swept throughEastern Europe in the 1990s significantly reducedthe fear of a nuclear war between the superpowers.However, the aftermath of the Twin Towers attackin New York on 11 September 2001 has once more


created a climate of fear. Various reports from theUS administration on the threat of biological, chem-ical and nuclear attacks from terrorists resulted in arush by ordinary American citizens to purchase arange of products and services, from stocking up oncanned foods to purchasing biological protectionsuits.

Micro level

The micro level can be sub-divided into three areas:

� local crime

� safety online

� future financial security.

Local crimeThe fear of crime (real and perceived) at the locallevel can have a profound effect on individuals,families and communities. To reduce this fear indi-viduals and groups purchase a range of productsand services to protect themselves and their prop-erty. These range (depending on the country theylive in and their economic status) from alarmsystems and paper shredders to handguns andpersonal protection teams.

In the United Kingdom concerns over personalidentity theft have led to a significant rise in thenumber of paper shredders bought in the con-sumer market. Previously shredders were thedomain of the B2B environment, but the rise ofidentity crime created a new consumer market forlow-cost shredders.

Safety onlinePartially linked to the threat of identity theft, thereis the risk from hackers even on personal comput-ers. Internet service providers (ISPs) have built insafety features to protect users from hackers andpotentially offensive sites (through parentalcontrols). Online banks and organisations thatprovide online payments incorporate additionallevels of security (encryption) against hackers.However, as hackers increase their skill, ISP andonline organisations have to improve their expertsecurity systems. This appears, at the moment, tobe an ongoing battle. Media coverage of high-profile incidents, such as attacks on bank accounts,

have increased not only consumer awareness buttheir fears as well.

Future financial securityWe perhaps all dream of a long life and financialsecurity into our old age, although worries offinancial security may not become paramount ina person’s mind until they reach their 30s.However, increasingly in highly developednations there is concern about future financialsecurity. There is a view that unless individualsinvest at a much younger age, they will not havesavings or pensions that will deliver a comfort-able standard of living in their retirement years.This has been a particular debate in the UnitedKingdom, and both insurance companies and thegovernment have been encouraging youngerpeople to invest in their future early. Theapproach has often been based on the fear of littleincome in the future, when they actually retire.

MediaThe media has a tremendous influence on ourlives, for it is from the media that we gain dailyinformation on events in and beyond our owncountry. Global reporting may influence ourbeliefs in terms of the macro factors (see Chapter2). Equally it can influence our buying habits.Chapter 10 on promotions described how varioustechniques can influence our buyer behaviour,ranging from advertising through to point of saleand public relations.

It is key here to understand that promotion ormarketing communications can use psychology toinfluence our decision making (as we have alreadyseen with the work of Edward Bernays). However,in order to avoid such issues as cognitive disso-nance the media messages must not be used toexaggerate the positive features of the product orservice. Clearly, if the media message persuadescustomers to purchase a product and it does notlive up to the claims made, customers will judge itnegatively. This in turn may lead to no furtherpurchases and possibly a complaint. In addition,disgruntled customers may use word of mouth andviral communication (via Internet user groups andchat rooms) to vent their dislike of the product orservice.


PricePsychology permeates several pricing decisions,such as prestige pricing, odd–even pricing,single/double pricing and even sale items (seeChapter 11, and Figure 16.3). Even when it comesto the relationship between ‘value’ and ‘price’ weare making a psychological judgment. For exam-ple, a person who pays €250 000 for a sports caris not only seeking quality and performance fromthe car, but also seeking a psychological value forhim or herself and in the eyes of others.

NecessitiesMaslow’s hierarchy (see page 334) drew atten-tion to our physiological needs. We can translatethese into the basic necessities people must havein order to live. For most people this covers itemssuch as basic foods and shelter. However, we canargue that for millionaires the basics are verydifferent from the basics for those living atsubsistence level. Therefore we have to interpret‘necessities’ in relation to the society andpeople’s position within it (for want of a betterphrase).

■ Chapter summaryThis chapter has introduced the idea of psychologyas another ‘P’ in the marketing mix, becausepsychological behaviour underpins a significantproportion of buyer behaviour and thus marketing.Psychology is a major discipline in its own right,and only a snapshot can be given in a generalmarketing text. However, it is clear that psychol-ogy has and continues to be a major contributionnot only to marketing in itself, but also to how we,as individuals, make our daily decisions. On thisbasis consider how psychology influences not onlyyour buyer behaviour but everything else that isdiscussed with this text, from branding and pricingthrough to the shape of packaging.


1 Maslow’s theory suggests several levels ofneed. Outline his hierarchy and suggest howthe different levels apply to buying a familycar.

2 Using the Internet and library resources, criti-cally evaluate how and why culture can be coreto an individual’s decision to purchase a prod-uct or service.

3 Bernays was able to change attitudes to womensmoking in public through his ‘Women andSmoking’ campaign. Can you (a) think of acampaign that used similar techniques topersuade the public to change their attitude tocertain products or services, and (b) think of aproduct that could benefit from such acampaign? Justify your choice.

4 Reflect on two or three purchases you havemade over the past month – perhaps clothing,CDs, games or a DVD. Consider the degree ofcognitive dissonance. Was it significant,marginal or nonexistent? If there was signifi-cant cognitive dissonance, could you haveprevented it? If so, what preventive actioncould you have taken?

5 Do you think psychology is used to promoteany of the following brands? If so how?

Ford Motor Company


Figure 16.3


A sale at a London men’s clothing store.There are significant reductions prominently displayed. Howeverthe buyer will still be making a psychological judgmentin relation to ‘value’ and ‘price’.The objective is tomake the right decision and avoid cognitive dissonance.

Haagen-Dazs ice cream

Cunard cruise line.

6 At the beginning of this chapter you werepresented with three questions that alsoappeared at the start of Chapter 1. Explorethese questions and consider how psychologi-cal influences may have affected your decisionmaking. You may also want to consider if therewas any cognitive dissonance post purchase.

■ ReferencesCottingham, J. (1995) ‘Rene Descartes’ in T. Honderich

(ed.), The Oxford Companion to Philosophy, Oxford:Oxford University Press.


Grimshaw, A. (1999) ‘Gender’, in A. Bullock and S.Trombley (eds), The New Fontana Dictionary ofModern Thought, London: HarperCollins.

Groucutt, J., Leadley, P. and Forsyth, P. (2004) Marketing: Essential principles, new realities, London:Kogan Page.

Hofstede, G. (1994) ‘The business of international busi-ness is culture’, International Business Review 3(1),pp. 1–14.

Mühlbacher, H., Dahringer, L. and Leihs, H. (1999)International Marketing: A global perspective, 2nd edn,London: International Thomson Business Press.

Pinker, S (1997) How The Mind Works, New York:Norton.

Raban, J. and Torrance, J. (1999) ‘Roles and roletheory’, in A. Bullock and S. Trombley (eds), TheNew Fontana Fontana Dictionary of Modern Thought,London: HarperCollins.

Rosen, E. (2000) The Anatomy of Buzz: Creating word-of-mouth marketing, London: HarperCollins Business.


Williams, K. C. (1992) Behavioural Aspects of Marketing,Oxford: Butterworth-Heinemann.

REFERENCES 343

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17 Performance

■ IntroductionThis chapter examines the role of ‘performance’ both in marketing as a wholeand as an integral component of the marketing mix. In Chapter 8 the develop-ment of the marketing mix was considered. Research indicates that the role of‘performance’ has previously been considered in relation to the development ofthe marketing mix. Yudelson (1999), for instance, suggested that ‘product’ beredefined as ‘performance’. He believes that this redefinition:

Conveys the sense of benefit to the customer. The ‘performance’ of the tangi-ble product or the proffered service is what generates the benefit to thecustomer. Alternate forms of ‘performance’ create product lines. Branding,as a value-adding part of the product, ‘performs’ by reducing search time orby guaranteeing expectations. ‘Performance’ over time is thus the basis foran enduring relationship and trust.

While it is not suggested in this text that product should be redefined asperformance, Yudelson (1999) provides an insight into other areas that could becategorised under performance: the performance of the product/service itself,and the brand. While these are considered in this chapter, additional indicatorsare also examined.

■ What is performance?The Oxford English Reference Dictionary (Pearsall and Trumble, 1996) providesvarious definitions of the word ‘performance’:

Learning outcomes 344Introduction 344What is performance? 344Measured

performance 346Product or service

performance 346Brand performance 346Revenue performance

and sales performance 347

Market share 348Distribution and

logistics 349Marketing plans 349Experiential

performance 349Quadrant 1: passive

participation–entertainment-–absorption 350

Quadrant 2: active participation–

educational–absorption 350Quadrant 3: active

participation–escapist–immersion 351Quadrant 4: passive

participation–esthetic(aesthetic)–immersion 343

Experience is a dynamicfunction 354

Future issues 354Chapter summary 355Questions for review




� debate the reasons for including performance within the marketing mixframework

� explain the different types of performance measures that can be used togauge the success or failure of a marketing activity

� examine the methodology behind brand equity and brand values.

The act or process of performing or carrying out.

The execution or fulfilment (of a duty etc.)

A staging or production (of a drama, piece ofmusic etc).

A person’s achievement under test conditions.

The capabilities of a machine.

A fuss or a scene; a public exhibition.

Of high capability.

In finance the return on an investment.

There are many other definitions or perspectives. Asthe definitions indicate, the word ‘performance’ hasmany connotations. These range from how well anorchestra played at a concert to what grade youachieved in your last assignment. They are bothperformances requiring skills, knowledge and anoutcome. In both cases the ‘performance’ creates a‘reaction’. This reaction can be both qualitative andquantitative. In the case of the orchestral perform-ance, the audience’s reaction will be qualitative tothe performance. On the other hand a musicologistreading the score during the performance may bemore analytical or quantitative in his or herapproach. Both have a value. A professor markingyour assignment will consider your overall perform-ance both qualitatively and quantitatively. Did you,for instance, use the appropriate data sets andanalyse them effectively? Did you express your ownopinion in the work and substantiate your views?

As you can see from these brief examples, weare all involved in creating ‘performance’ in oneform or another. Moreover, this chapter shows thata performance can also be an ‘experience’. Forinstance, your time as a student is an ‘experience’ –hopefully an enjoyable and rewarding one. Youalong with your tutors are involved to varyingdegrees in performances. They perform to conveyto you ideas and concepts. You perform in terms ofyour work, presentation and examinations. Thequality of the performances may or may not vary.Just as with a business, the quality of the perform-ance will be affected by both internal and externalforces. Organisations (including companies orgovernments) survive, develop or die on the basisof their performance – what they have achieved (ornot, as may be the case).

From the definitions performance can be consid-ered as two interconnected arenas, measured and

experiences (see Figure 17.1). Measured, as we shalldiscuss later, relates to the quantifiable part of theperformance. Reflecting back on the example ofyou, the student, your performance in an examina-tion is measured by the mark or grade awarded.Experiences, on the other hand, are more qualified.

However, that does not mean that therecannot be some form of measurement linked tothe experience. For instance, you may visit thecinema and watch the movie Spider-Man 2™,becoming totally enthralled by the visual effectsand the dramatic roller-coaster rides. Being in adarkened cinema watching this movie is anescapist experience. You have watched aperformance created by numerous people both infront of and behind the camera, including themarketing team who promoted the movie to amass audience. Although this is an ‘experience’you could quantify it by rating it alongside thefirst Spider-Man™ movie. You might choose torate the overall experiences with a straightcomparison between movies one and two. Alter-natively, you could compare and contrast thevarious elements that come together to make amovie – acting, script, sets, music, special effectsand so forth. Each could then be rated to providean overall score for each movie. This would, tosome degree, measure your experience of theperformance of the two movies.

WHAT IS PERFORMANCE? 345

Figure 17.1 Types of performance

Performance

Measured Experiential

The remainder of this chapter is divided intotwo major sections: measured performances andexperiential performances. The division is neces-sary for the purposes of explanation. However, asillustrated above, they should not be considered inisolation. Thus when you reflect upon these issuesconsider the possible linkages between the two.

■ Measured performanceOften one of the criticisms levelled at marketing isthat it is not measurable; rather, that it is a drain onresources, being a cost, rather than a profit centre.This is a negative approach to marketing as both asubject and a practice. Marketing, as with account-ing, can and should be a measurable entity. Theperformance of the marketing investment shouldbe measured. Only by analysing performance can amarketer really know whether or not there will bea realistic return on investment and the level ofmarket share.

This performance measurement should not beconfined to the final outcome (see the section onmarketing plans, page 349). Then it may be too lateto react to the changing dynamics. It is thereforeproposed that measured performance covers thefollowing areas:

� Individual areas of the marketing mix, forinstance, an analysis of the performance of themarketing communications campaign: perhapsusing recall factors and the opinions of focusgroups.

� Brand values/equity: brands contribute bothan asset value and a revenue generation poten-tial to the business. These are usually thelargest generators of wealth for a business.

� Cumulative effect: in essence the outcome ofbringing all the elements together. Success orfailure is usually reflected through the statisticsin the organisation’s annual report.

Contemporary business operates in a hyper-competitive global environment. Whether theorganisation operates solely or in concert withothers (via strategic alliances) the environmentremains hyper-competitive. On this basis organisa-tions must ‘perform’ if they are to survive. As themarketing contribution to this success is crucial, itsperformance must be measurable. It is on this basisthat performance is considered an integral elementof the marketing mix.

Product or service performanceHere there is a link between operations and market-ing. Marketing may demand a specific level of

performance, but one that cannot be met by opera-tions. The ‘gap’ between the two may be the resultof levels of expectations and/or resource capabili-ties/competences in the organisation.

Brand performanceThe value apportioned to brands is discussed inChapter 7. In this section the link between brandvalues and marketing performance of brands isexamined.

As Keller (2003) states, the marketing advantagesof strong brands can be summarised as:

� improved perceptions of product performance

� greater opportunity for loyalty

� less vulnerability to competitive marketingactions

� less vulnerability to marketing crises

� larger margins

� more inelastic consumer response to priceincreases

� more elastic consumer response to pricedecreases

� greater trade cooperation and support

� increased marketing communications effectiveness

� possible licensing opportunities (reflect back to Chapter 7 on branding and consider the various examples discussed)

� additional brand extension opportunities.

Research conducted at Otago University suggeststhat brand strength is linked to three main practices(NZ Marketing Magazine, 2002):

� investment in marketing communications

� improving the quality of service

� encouraging good communications betweencustomers and employees.

While these are key factors, they are not the onlyfactors that drive brand development and equity.The wider issues discussed in Chapter 7 have to be

346 17 • PERFORMANCE

considered. Although strong brands have thepropensity to create a marketing advantage, theyare still ‘governed’ by decisions made bycustomers. Customers’ decision to purchase may berational or irrational. Whichever it is, their behav-iour will be affected by the ‘emotions’ they associ-ate with the brand. Haigh (2003) suggests thatbrand equity is a ‘measure of the emotional reser-voir which shows how far the demand curve hasmoved and what the future cash flows will be.Brand valuation is a snapshot of those future cashflows.’

As discussed in Chapter 7, individuals buildtheir own relationships with brands; they associatethemselves with particular names and logos.Brands provide reassurance, aspiration and self-expression (Haigh 2003). As Haigh (2003) suggests,‘strong brands with high ‘brand equity’ possess theability to persuade people to make economic deci-sions based on emotional rather than rational crite-ria. They consequently have a profound economicimpact and economic value.’

As Leiser (2003) notes, the lifetime value ofrepeat customers (the loyalty factor) ties directly into the financial performance of the business.Consider, for instance, the loyalty that buyers haveto Procter & Gamble, Unilever and Virgin’s prod-ucts. The lifetime value of each customer delivers(cumulatively) significant value to the balancesheet, together with gaining and maintaining sharein the marketplace.

The US-based customer loyalty research consul-tancy Brand Keys (www.brandkeys.com) has, sincethe 1980s, been analysing the value of customerloyalty to companies (refer to Chapter 7). Theirresearch indicates that:

� It costs seven to ten times more to recruit a newcustomer than to keep an existing one.

� An increase in customer loyalty of only 5 percent can lift lifetime profits per customer by asmuch as 95 per cent.

� An increase in loyalty of 2 per cent is, in somesectors, equivalent to a 10 per cent cost reduc-tion.

From this research it is clear that brand loyalty canbe a significant performance indicator. The numberof times individuals purchase a particular product

or services indicates how they rate its performance.For instance, cities like Paris or Prague have a rangeof hotels to suit different tastes and price prefer-ences. However, regular visitors to those cities maychoose to stay at the same hotel. This could be forseveral reasons including location (see Chapter 12)and how they rate the quality drivers of that partic-ular hotel. In other words they consider theperformance of the hotel overall, including the effi-ciency of the staff, the quality of the food andwhether all the facilities work efficiently.

There must be a methodology to measurebrand values. Knowles (2003) suggests thatperformance measurements of brand equity canbe analysed by integrating brand health meas-ures from the BrandAsset® Valuator1 (BAV) data-base maintained by the global marketing andcommunications agency Young & Rubicam withmeasures of financial performance from globalconsultants Stern Stewart’s Economic ValueAdded (EVA®) database.2 The research companyBrandEconomics has developed a model usingBAV and EVA data. Some 400 observations ofmonobrands3 were made across several industrysectors between 1993 and 2000. Their analysis‘demonstrates that financial factors explainaround 55 per cent of the market value of compa-nies, brand explains around 25 per cent and otherfactors (especially industry context and economiccycle) explain much of the remaining 20 percent1(Knowles 2003).

Revenue performance and sales performanceAll organisations, whether for-profit or not-for-profit, seek to generate revenue that providesboth stability and growth potential. In order tomaximise revenue performance all functions ofan organisation should work in tandem. That isthe ‘ideal’ theory; however it is not always thecase in practice, which is one (though not theonly) reason many companies do not survive in ahostile market environment.

A contributor to revenue performance is sales.Sales tends to be a numbers-driven operationwhere outcomes are measured against predeter-mined targets. While this is a ‘measurable’ perform-ance it is often plagued with difficulties. These‘difficulties’ can include:

MEASURED PERFORMANCE 347

� The potential associated risks of targets beingset 12 months in advance. It assumes accurateforecasting of the future.

� The set targets do not take into considerationchanging environmental conditions. Theseinclude changing weather conditions (a poorsummer in the United Kingdom can signifi-cantly reduce the sales of ice creams in that market), regional conflict (such as the US-led invasion of Iraq in 2003), increased/decreased competition in the marketplaceand changing customer tastes.

� The targets may be ‘unrealistic’ even assum-ing market growth. Thus the preconditionson which the targets are set could be flawed.

� The facilities, including support staff, areinadequate or inappropriate. Without suchfacilities it may be difficult to meet therequired targets.

� Poorly recruited and trained sales staff. Thisissue links back to Chapter 13 on people,where the recruitment and effective trainingof employees was considered critical tobuilding an operational relationship withcustomers. Without knowledge and interper-sonal skills, it is difficult for a sales person todevelop the long-term relationship with acustomer that creates the lifetime customervalues organisations seek.

� The creation of short-term outcomes. Somesales people with often unrealistic targets tomeet have opted for short-term solutions.These have sometimes resulted in unethicalpractices, such as the mis-selling of, forinstance, insurance policies and pensions.Although there is a short-term measurableoutcome (revenue generation), the longer-termcosts will probably outweigh any short-termgain. This was the case in the late 1990s forseveral UK-based insurance houses that wereprosecuted over regulatory breaches associatedwith the mis-selling of pensions. Similar prob-lems have occurred in the United States andcontinental Europe.

Some organisations have attempted to overcomethese potential difficulties by implementing

policies that take account of environmental considerations. For instance:

� Regular comparisons between forecast targetand actual outcomes, taking into account anyvariations in the marketplace.

� Resource allocation that can support the fore-casts.

� Appropriate initial and ongoing training ofsales people. This is more than understandingof the product or service’s features and bene-fits. Effective training encompasses inter-personal skills in order to fully appreciate theneeds of the customer.

� Some organisations do not pay bonuses basedon an individual’s sales targets. Instead theyexamine the overall performance of thedepartment and the organisation. If theselarger holistic targets are met, department-wide/company-wide bonuses are paid. Whileit can be argued that this is not a totally fairsystem (some people may work harder thanothers), it reduces the risk of unethical activities such as mis-selling.

However, we must not consider sales in isolation.This is only one component of the promotional orcommunication mix within an organisation. Withinan integrated marketing communication strategy,for instance, sales will be reinforced by otherpromotional activities and vice versa. This inter-relationship subsequently reinforces the brand’sidentity in the marketplace.

Market shareCompany performance is often measured by itsshare of the market. This is often reflected in theannual report and accounts. The ability to penetratea market and increase market share is clearlyimportant if a company is to grow its major brandsand sub-brands.

As Chapter 6 explained, it is one thing to gain acompetitive advantage and another to maintain orsustain it. The same is perfectly true with marketshare – gaining is only one element of the perform-ance. The company has to be able to use the market-ing mix and other techniques to sustain and furtherdevelop its share of the market.


Distribution and logisticsAs discussed in Chapter 12, it has become increas-ingly important for companies to use hyper-effi-cient channels to deliver products or services to endusers. In highly competitive markets it may be theefficiency of distribution that gains a company acompetitive advantage over its rivals. Thus compa-nies throughout the supply chain must consider thequestion, how efficient is their distributionnetwork?

Distribution and logistical performance must bebenchmarked not only against industry standards4

but also against customer requirements (and expec-tations). This is particularly demanding whencustomers (for example in the automotive indus-try) operate a just-in-time (JIT) supply operation.Such companies cannot afford to have disruption totheir supply chain and JIT systems. Otherwise thatcould mean operational downtime, with theproduction line lying idle, costs mounting and fallsin revenue. Mini case 2.1 gave a good example of alabour dispute that led to this type of disruption.

Buyers often judge a company on the perform-ance of the distribution/logistics company it uses,especially if they could purchase the product fromanother supplier that guarantees delivery to meettheir needs. One of the dichotomies of the Internetis that potential buyers can make a purchase 24/7,but may be faced with only a very limited deliverywindow. For instance, a major delivery company inthe United Kingdom only delivers on Monday toFriday from 8 am to 6 pm. That has no value to aproduct buyer who works and thus is faced withthree choices: (1) collect the product from the depothim or herself; (b) ask a neighbour to accept deliv-ery, that is, if any of his or her neighbours are notemployed or (c) take the day off, possibly with theloss of pay (depending upon the type of employ-ment) to receive delivery of the product. Suchinflexibility by the delivery company is unlikely towin any customer loyalty for suppliers. With anincrease in online providers and customers buyingonline, delivery companies that remain locked intothe Monday to Friday (8 am to 6 pm) mindset areunlikely to survive.

Marketing plansThe vast majority of organisations create market-ing plans in one form or another, usually for each

fiscal year. Some organisations plan further aheadin order to forecast longer-term revenue streamsand costs. The marketing plan usually consists ofan analysis of the marketing mix variables in termsof projected needs, budget requirements andrevenue generation. Such a plan must fit strategi-cally with the overall corporate ambitions.

However, a marketing plan is not a static entity.As explained earlier, both internal and externalforces can dramatically alter an organisation’splans. Thus it is not a question of measuring theperformance of the marketing plan only at fiscalyear end: it is vital to measure it as the yearprogresses. By gauging movements in both themicro and macro environment an organisation canmake any required changes. These changes may bedriven by a combination of proactivity and reactiv-ity, depending on the nature and suddenness of theenvironmental changes. Thus some organisationsmeasure performance against the plan on a weeklybasis, while others do so on a monthly basis. Ofcourse, there are organisations that only measureperformance on a quarterly and bi-annual basis.This, however, reduces their ability to counterthreats and exploit opportunities within themarketplace.

■ Experiential performancePine and Gilmore (1999) suggest that organisations‘stage an experience whenever they engage [theiritalics] customers, connecting with them in apersonal, memorable way’. This engagement is notonly in the form of the customer service relation-ship but is likely to include the wider physical envi-ronment. An example is a theme park wherevisitors spend time engaged in a series of miniexperiences, from rides through to merchandiseshopping and eating. These mini experiencescombine to provide the visitor with an overall expe-rience. If the theme park has been successful, visi-tors will leave feeling they have had a positive andmemorable experience, one they will rememberand may repeat later. They may also become anambassador for the theme park, promoting itthough viral marketing.

However, there is more than one experientialdimension. Pine and Gilmore (1999) suggest thatindividuals can experience several ‘realms of expe-rience’. These are shown in Figure 17.2.

MEASURED PERFORMANCE 349

Quadrant 1: passive participation–entertainment–absorption

Here there is little active involvement with theentertainment experience. For example, mostpeople passively watch television. However, theymay, to a lesser or greater extent, be absorbed in thesounds and images coming from the television.They could move from being passive to activethrough the use of interactive television systems,thus their position would shift into another experi-ence realm.

Another example is a patron sitting in London’sBarbican concert hall watching the LondonSymphony Orchestra perform a classical work. Heor she is passively absorbing the experiencethrough the sights and sounds of the performance.Listeners may or may not be influenced by thosesitting around them. They may be fully absorbed bythe experience of watching and listening to theperformance.

Quadrant 2: active participation–educational–absorption

The educational experience can be viewed fromseveral standpoints: for example, from the perspec-tive of an undergraduate at a university, a childvisiting a museum with interactive elements, and

increasing use of interactive television within thelearning environment.

The undergraduate experience

The global university sector has become a highlycompetitive marketplace. Thus universities seek toprovide an overall student experience that includesnot only what happens in the lecture theatre butalso the quality of accommodation, computer/library facilities, social/sporting activities andcatering. For instance, the teaching environmenthas undergone a quiet revolution in many coun-tries. In many universities today it consists of amixture of traditional lectures, group/individualworkshops, seminar activities and independentstudy. The move is towards greater interaction inseminar activities, so students are no longer passivelisteners. They must be actively engaged in prepa-ration and then participation in the workshop environment.

In many universities students complete an eval-uation form after the completion of each module, sothe performance of the teaching staff and themodule itself is measured, as of course are thestudent’s knowledge and abilities through coursework and examination assessments. The student’sdegree is the outcome measure of the student’sperformance during his or her time at university.

Moreover, many universities conduct exitsurveys to measure the overall student experi-


Figure 17.2 Pine and Gilmore’s experience realms

© 1999 B.Joseph Pine II and James H. Gilmore.

Absorption

Entertainment Educational

Esthetic Escapist

Active participation

Passiveparticipation

Immersion

ence. This can be a valuable assessment high-lighting various strengths and weaknesses. Theuniversity (like any organisation) can enhance itsstrengths while seeking to remedy the perceivedand actual weaknesses highlighted by suchsurveys. In turn the performance strengths can beused to market the university. (You may want toconsider the overall performance of your currentcollege or university.)

A child visiting a museum

Traditionally the vast majority of museums wereemblazoned with signage stating ‘Look, but do nottouch!’ The signage was for clear and understand-able reasons – many of the exhibits were fragile andpotentially dangerous. Modern technologies havepermitted museums to create hands-on experienceswhere children and adults can be fully engaged inactivities. Mini case 17.1 describes one of many

interactive exhibitions at London’s ScienceMuseum.

Interactive television

Although interactive television is often associatedwith shopping channels and the self-programmingof television evenings, it also has educational value.Children can use hand controls, for example, to keyin possible answers to onscreen questions. Thisprovides them with an instant response. Moreover,it can lead them into another programme packagethat provides higher-level learning capabilities.

Interactivity also allows for viewers to commenton issues being discussed in live broadcasts. Anexample is the BBC’s current affairs programmeQuestion Time. Members of a studio audience puttopical questions to an invited panel, usuallycomprising politicians, business leaders, writersand academicians. The studio audience commenton the panel’s answers, and viewers can alsocomment if they have a digital television system.They can also text messages to the studio.

The BBC has used such interactive capabilitieson a wide range of one-off programmes which havecovered everything from the war in Iraq to generalknowledge skills of the UK population. It is clearthat interactive television has not only entertain-ment potential but also the means of enhancingpeople’s knowledge and skills base. However, for itto have any real value there will need to be activeparticipation, and organisations will need to seek tomarket the engaged performance element of theoverall experience.

Quadrant 3: active participation–escapist–immersionPine and Gilmore (1999) suggest that this is thepoint where the customer seeks immersion intotally participative escapist activity. We canconsider this in the here and now and the futurepossibilities.

The movies

We can argue that movies fit into this category.Consider, for example, a darkened cinema with thelatest state-of-the-art Surround sound™ system anda movie that totally engages you and everyone elsein the audience. There are several performances

EXPERIENTIAL PERFORMANCE 351

Science of Sport exhibition

In 2004 the Science Museum in London opened itsScience of Sport exhibition, supported bySPORTENGLAND and UKsport. The exhibitionexplains how science contributes to sportsmen andwomen achieving high performances such asOlympic gold medals. The state-of-the-art exhibitsprovide interactive displays and simulated experi-ences. For example, visitors can dribble a footballagainst the clock, climb an indoor rock face, test theaccuracy of their tennis shots, or compete againstfriends in a quick track sprint, then watch the actionreplay.The interactive displays provide visitors withthe ability to learn more about their level of fitnessby checking their pulse rate, measuring their heightand weight and testing their reaction times.

The combination of hands-on exhibits and infor-mation throughout the exhibition was designed tohelp both children and adults understand suchissues as the effects of exercise on the body, the roleof nutrition in sporting activities and how to analyseindividual performance data.

The exhibition is also supported by a websitewhich includes video clips and additional education-al information for teachers, parents and students.Source: Science Museum, London(www.sciencemuseum.org.uk).

Mini case 17.1

being rolled into one in this experience. First, thereis the performance of the cinema itself in providingthe atmosphere, the comfort and theprojection/sound quality. Second, there is thecombined artistry of the film makers: the director,scriptwriter, composer, actors, designers, visualeffects teams and so on. Their collective work isafter all what is seen and heard in the cinema.Finally, there is the audience who immerse them-selves in the emotion and drama of the movie setout before them.

An example of this collective participation isSteven Spielberg’s 1982 movie E.T.: THE EXTRA-TERRESTRIAL. Respected movie critic and writerDerek Elley (Elley 1993) called Spielberg’s movieabout a stranded alien, E.T., who is protected bythree children until he can return home, ‘captivat-ing, endearingly optimistic and magical at times’.Audiences became engrossed in the story of thislovable lost alien. In one sequence the search is onfor E.T., who is found by the children in a wateryditch and near to death. By this point in the story-line audiences have come to love E.T., this magicalalien, and they too are in tears at the discovery ofthe dying E.T.

In a later sequence the three children rescue E.T.from the Federal authorities and seek to take himback to the landing site ready for his journeyhome. They are joined on their bikes by countlessother children in the neighbourhood to helpthwart the authorities who are now in hot pursuit.ET is seated in the basket on the front of the leadchild, Elliot’s bicycle. As they approach a policeroadblock Spielberg builds the tension by having apolice office raise his shotgun towards the chil-dren and ET. The tension is underscored by JohnWilliams’s music. At that point the audience doesnot know what is going to happen. Will a policeofficer actually shoot a child to stop the alienescape? That is the premise. However, ET closeshis eyes and suddenly (with the assistance of JohnWilliam’s transforming uplifting score) he andElliot have taken off and are flying above theirpursuers. At this moment audiences tend to cheer,at one with Elliot and ET. Spielberg and his teamhave engineered a situation where the audiencesbecame actively engaged in the performance. Themovie’s combination of charm and drama hasmade it one of the largest-grossing box-office hitsof all time. Yet it would not been such a success ifit had not been for Spielberg and his very talented

team being able to totally immerse the audience ina performance of drama and emotion.

Extreme sports

Until the 1990s it could be argued that extremesports such as long-distance car rallying and motorracing were the domains of the wealthy. Todaythough there are numerous opportunities toactively participate in extreme sports such asbungee jumping, riding the rapids and parachut-ing. Whatever the duration, the participant isactively immersed in the experience.

Extreme vacations

These can be described as vacations beyond thosenormally experienced by the vast majority of fami-lies, and include trekking across deserts, mountainsand icescapes. Consider for instance trekking acrossa desert landscape for ten days living in a tentattached to a Land Rover vehicle. Increasingly indi-viduals and families seek the thrill of being part ofwild and stunning landscapes. The performance isin the experience, and how well the trek is organised and supported.

From extreme to relaxing rides

Ever since the first roller-coaster rides in 19th centuryParis, the leisure industry and thrill-ride designershave been seeking to develop more thrilling anddramatic rides. Coasters and thrill rides now utilisecomputer design systems and the latest in construc-tion materials and technologies to create mind-blow-ing experiences. For instance, Ride Trade, a divisionof the Liechtenstein-based Intamin Company, devel-oped the Giant Drop, where participants are hoistedto the top of a tower, reaching speeds of up to 5metres per second, then wait to plummet in a freefalldown to earth. The moments of anticipation bothprior to and during the ride (the wait at the top of thetower) add to the overall performance, creating a realthrill-seeking experience.

Of course not all escapist rides need beextreme in pushing people to their limits ofendurance. Rides can provide thrills because oftheir location. For example the British AirwaysLondon Eye, located near the Houses of Parlia-ment, provides a stunning panoramic view of thehistoric and contemporary London skyline (seeFigures 17.3 and 17.4).


Future escapism

In the opening sections of Paul Verhoeven’s futur-istic movie Total Recall (1990), based on a short storyby Philip K. Dick, a construction worker DouglasQuaid (Arnold Schwarzenegger) sees a commercialabout a virtual vacation. The advertisementannounces, ‘Have you always wanted to climb themountains of Mars – but now you’re over the hill?Then come to Rekall [sic] Incorporated where youcan buy the memory of your ideal vacation –cheaper, safer and better than the real thing.’ Ofcourse, Quaid’s virtual experience (being a secretagent on Mars) is transformed into a non-stop

action thriller before he meets his alter ego Hauserwhen the plot or plots are revealed.

Of course this is fantasy, or is it? Clearly thestoryline of the movie Total Recall is fantasy, but thepremise behind it – virtual reality – is not. Forseveral years research has been conducted in creat-ing virtual reality experiences. Already there aregames that can be played using virtual realitysystems. There are also experiments in creatingvirtual reality supermarkets as an extension ofonline shopping. By wearing a special headset youenter and ‘walk around’ the supermarket andchoose your items off-shelf, as you would do in a‘bricks and mortar’ store.

While virtual reality systems have potential usein retail and games environments, their develop-ment stems from improving military capabilities,for example developing battle and flight simulatorsfor training. From such technologies will be devel-oped commercial systems that will enhance thevirtual experience. Therefore the virtual vacationremains within the realms of the possible.

Quadrant 4: passive participation–esthetic (aesthetic)–immersionThe esthetic (aesthetic) is concerned with the appre-ciation of or sensitivity to beauty. Here individualsimmerse themselves in an environment simplybecause they want to be there. They are ‘soaking

EXPERIENTIAL PERFORMANCE 353

Figure 17.3


The British Airways London Eye. In the immediatebackground is St Stephen’s clock tower (which housesthe clock Big Ben), part of the Houses of Parliament.You can see how the London Eye towers over this historic landmark.

Figure 17.4


A pod on the British Airways London Eye which towers over the River Thames near the Houses ofParliament

up’ or appreciating the beauty of the surroundingsthat envelop them. Examples include standing atthe base of a gigantic waterfall, watching the sunsetover a desert or the views from a mountaintophotel. These are all experiences that potentiallyimmerse the individual in an esthetic environment.The same images are often used by travel compa-nies to illustrate the experience that customers willenjoy when they book a vacation. This can beconsidered an element of the performance that ispart of the experience of a vacation.

Figures 17.5 and 17.6 are images that mightinvite people to visit these locations should they bedisplayed in a travel brochure or on a travelwebsite.

Experience is a dynamic functionIf we accept the premise that experience is adynamic function, we must view the experiencerealms model not as a static two-dimensional imagebut as a sphere divided into four sections orwedges, displaying three-dimensional characteris-tics. Such an approach gives fluidity to the concept.We all engage with an experience at different levelswithin a quadrant. Thus we can then plot where anindividual is involved in the experience as a pointon a curved surface.

We must also take the view that individuals canchange their experience realm during the experi-ence, and move from one quadrant to another. For

example, consider the BBC Proms concerts held atLondon’s Royal Albert Hall annually during July,August and September. During this period numer-ous classical works are performed by some of theworld’s greatest symphony orchestras, conductors,instrumentalists and singers. For many of theperformances the concertgoers (known as prome-naders) fit into the passive participation–entertain-ment–absorption category. However, during thelast night of the season the audience are encour-aged to actively participate by singing, cheeringand becoming involved in the music. Thus there isa transformation from passive participation to theactive participation side of the model during theevening’s performance. By the end of the eveningthe promenaders are immersed in the atmosphereof the occasion. This process of conversion illus-trates that we can move in and out of performancestates, that the environment can change to allow anincrease in our level of active participation (or not,as the case may be).

■ Future issuesAs we have done throughout this chapter, we canlook at performance in the future from the twostandpoints of measured and experiential.

The difficulty with many forms of performancemeasurement is that they are historical in context.While historical data can be used to plot or suggestfuture trends, the result can be far from accurate.


Figure 17.5


The stunning snow-capped Atlas Mountains in Morocco

Figure 17.6


The picturesque town of St Florent in Corsica

The increased complexity in the current globalenvironment (for instance, hyper-competition andterrorism) makes it increasingly difficult to forecastperformance based on past results. We have toaccept that complexity will affect how we measureperformance in the future.

We shall also have to research further into expe-riential performances and devise or expand modelsthat explain a consumer’s relationship withperformance.

■ Chapter summaryThis chapter has examined an additional marketingmix element, performance. It was concluded thatthere are two broad areas of ‘performance’, meas-ured and experiential, although these are not mutu-ally exclusive. Measured performance allows themarketer to benchmark and quantify resultsagainst industry standards and organisational

forecasts, while experiential illustrates the degreeto which – using Pine and Gilmore’s model – indi-viduals engage in an ‘experience’ as part of theoverall performance created by the organisationsinvolved, such as a thrill ride at a theme park.

Taking these various elements together we cansee how performance integrates with and supportsother elements of the marketing mix.


1 Using the Internet and library resources,compare and contrast the market share of keypharmaceutical brands. For instance, you maydiscover that certain over the counter (OTC)brands of painkillers have different marketshares in different countries or regions. Whydo you think that this might be the case? Fromthe evidence you find, do you think there is

FUTURE ISSUES 355

Figure 17.7 Adaptation of Pine and Gilmore’s experience realms

Source: adapted from Pine and Gilmore (1999).

Absorption

Active participation

Passiveparticipation

Immersion

Entertainment Educational

Esthetic Escapist

anything companies can do to increase themarket share of a particular brand? This is anissue you may want to debate with a fellowstudent.

2 Do you think that from a strategic marketingperspective, the measured performance indica-tors can be linked? If so how would you do it?You may want to discuss this with fellowstudents.

3 Critically evaluate Pine and Gilmore’s modelof experience realms. You may want to under-take this exercise by asking a random sampleof your colleagues how they relate (or not) tothe four quadrants in the model.

4 In terms of the performance indicators(Quadrant 2: active participation) of Pineand Gilmore’s model, consider the overallperformance of your current college oruniversity.

5 Take your next CD or music downloadpurchase and consider the ‘performance’. Howwould you describe the experience, and howwould you consider it in terms of ‘marketing’?

6 If you have recently been, or are planning togo, on an experience-ride at a theme park, whatwords would you use to describe the experi-ence? Do they have marketing connotations,both positive and negative?

7 Critically evaluate the rationale for includingperformance as an additional ‘P’ in the marketing mix framework.

■ ReferencesElley, D. (1993) Variety Movie Guide 1994, London:

Hamlyn.Haigh, D. (2003) ‘An introduction to brand equity:

how to understand and appreciate brand value andthe economic impact of brand investment’, Interac-tive Marketing 5(1) (July/September), pp. 21–32.

Keller, K. L. (2003) ‘Understanding brands, brandingand brand equity’, Interactive Marketing 5(1)(July/September), pp. 7–20.

Knowles, J. (2003) 'Value-based brand measurementand management', Interactive Marketing 5(1), pp.40–50.

Leiser, M. (2003) ‘Strategic brand value: advancing useof brand equity to grow your brand and business’,Interactive Marketing 5(1) (July/September), pp.33–9.

NZ Marketing (2002) ‘Performance measures’, NZMarketing 21( 8) (September), p. 2.


Pine, B. J. II, and Gilmore, J. H. (1999) The ExperienceEconomy: Work is theatre and every business a stage,Boston: Harvard Business School Press.



� IntroductionThe word ‘package’, like ‘place’ (Chapter 12), is not as clear-cut in its meaning,in marketing terms, as say the word ‘promotion’. Packages and packaging canhave several relevant meanings. This chapter explores the various meanings ofthe words package and packaging in a marketing context.

As Hine (1995) suggests, packaging has become an important part of oureveryday lives. From both the consumer and business perspectives packagingis integral to our existence. You just have to look in your kitchen or bathroomto see the extent to which packaging invades our everyday lives. However,‘packaging’ can as easily refer to the agglomeration, combining or bundling ofseveral items into one form. An example is the package vacation (see also Chapters 10 and 11).

Packaging has usually been associated with the marketing mix in one ofthree ways:

� as an element of the product

� as an element of promotion

� as something that straddles both marketing mix components.

This has been, by and large, an unsatisfactory outcome. Packaging in its manyforms contains sufficient diversity to be considered as a marketing mix compo-nent in its own right. That is the raison d’être of this chapter.

This chapter briefly explores the background to packaging and the variousattributes that contribute to its form. As you will note, packaging is more thana protective device for a product.

CH

AP

TE

R

18Packages and Packaging

Learning outcomes 357Introduction 357What is packaging? 358Combination or

bundling 358Product or brand

packaging 358Physical packaging 359Attributes of physical

packaging 359Chapter summary 364Questions for review




� discuss the different types of packaging that are relevant to marketing

� critically evaluate the relationship between packaging and the othercomponents of the marketing mix

� explain the various attributes that comprise packaging.

� What is packaging?In any dictionary you will find various meaningsfor the words ‘package’ and ‘packaging’. The sameis applicable to marketing, and this has alreadybeen indicated in Chapters 10 and 11 with theconcept of bundling.

The package or packaging can be consideredunder the following categories.

Combination or bundlingThis is the bringing together of several items tocreate one package. It is common in the mediaindustries, where programme makers talk of the‘package’ being transmitted. For example, acompany may supply a news broadcaster with avideo news release (VNR) which includes videofootage of new facilities and technologies. Thenews broadcaster might add to this an interviewor a report to camera. The material from thecompany is then combined with the news broad-caster’s material to form a news item or packagefor transmission. While the material supplied bythe company will have a company public rela-tions angle, the news broadcaster’s materialmay take a more objective stance, raising ques-tions or issues for future debate.

Similarly, in the hospitality and tourismindustries the word ‘package’ has long beensynonymous with specific types of vacations or tours. In a vacation package several relatedand complementary offerings or elements arecombined into one. The packaged vacation mayinclude airfare, transfers between the destina-tion airport and hotel, hotel accommodation(this could be on a bed and breakfast, half-boardor full-board basis), the services of a tour guideand entrance to specific attractions. The combination will vary depending on customerrequirements, the vacation location and touroperator. However, packaged vacations providecustomers with several benefits includingincreased convenience (arranging and buying),greater economy (competitive pricing as abundle) and budget awareness (the majority ofthe cost is known and paid for in advance of thevacation).

A company may also seek to repackage existingmaterial. This is often undertaken in order to

market the repackaged product to a new or existingaudience. In the latter case it may be because thereare enhancements to the original product or pack-aging, and/or it was not easily available at the timeof its original launch.

Here are a couple of examples:

� Compilation CDs which feature selectionsfrom various previously released CDs. Inaddition to possible enhanced sound quality,the repackaged CD will usually feature newcover artwork and liner notes. In July 2004Decca Classics (part of the Decca MusicGroup) released the two-CD compilationJohn Williams and the Boston Pops – Encore!The CDs feature John Williams (the multi-award-winning composer of the music forthe Star Wars and Harry Potter movies) withone of America’s major orchestras. Thiscompilation is derived from many record-ings that were produced for the Philips label(part of the Decca Music Group). However,the repackaging provides another marketopportunity, especially in the Americanmarketplace.

� DVD reissues of movies previously releasedon VHS video. Increasingly major movies(past and present) are being released onDVD. The digital domain allows for morematerial to be presented on the disk. Hence,as well as the movie, there are usually trail-ers, interviews with the director, cast andcrew, and background to the development ofthe movie itself. This repackaging with addi-tional material provides an enhanced experi-ence for viewers, especially if they are moviebuffs.

Product or brand packagingLee and Lye (2003) state that product packagingis ‘the science, art and technology of protectingproducts for the purpose of containment, protec-tion, transportation/storage and informationdisplay’. While packaging is often described interms of the physical protection of a productfrom the external environment, it is much morethan that. It also expresses the visual, tactile,emotional and functional (convenience) values ofa product or brand.

358 18 • PACKAGES AND PACKAGING

� Physical packagingWhat we know as physical packaging can be categorised into three inter-related subsets:

� Primary packaging: the packaging that‘surrounds’ the product itself and is intrinsi-cally linked with it, for example the case thatprotects the inner workings of the watch onyour wrist, or the case that protects the innerworkings of the computer used to write thistextbook.

� Secondary packaging: the packaging thatprotects the product in transit and storage. Anexample is the packaging of washing powder.In the watch example, the watch will be storedand sold in a presentation box. Once the watchis purchased the owner might either throwaway the box or keep it for storing the watchwhen he or she is not wearing it.

� Tertiary packaging: this is packaging thatprotects often large quantities, of primary andsecondary packaged items in transit. Forinstance, boxes of washing powder may becarried in a freight container from the point ofmanufacture to a supermarket’s distributiondepot. This container, loaded onto a vehicle,

train or ship, protects the boxes from externalelements that might damage the packagingand/or the contents.

In our daily lives it is the primary and secondarypackaging that we tend to come into contact with.Again, you just need to view the contents of yourhome to see that physical packaging is very muchpart of our everyday lives.

Attributes of physical packagingPackaging, however, is no longer designed just toprotect the product: it has become a highly sophis-ticated marketing tool. In this section the variousattributes that can be associated with physical pack-aging are examined. Companies can use these todifferentiate their products from their competitors’.Consider, for instance, the shelves of detergents ata major supermarket. Each manufacturer is, inessence, selling the same outcome – cleaner, fresherclothes. While it is not the only reason to purchase,packaging does contribute to the decision-makingprocess to buy.

The motivational psychologist Ernest Dichterstated that the product must literally reach out and‘tap the shopper on the shoulder’ (Nickels andJolson 1976). Nickels and Jolson also state that pack-aging needs to ‘catch the consumer’s eye, hold theirattention and initiate an interaction between theproduct and the consumer’. In Chapter 10Schramm’s communications process was examined(Schramm 1955). A feature of the process is noise, ofwhich a subset can be described as clutter, that is, ahigh intensity of competing messages that arevying for the consumer’s attention. Therefore pack-aging plays an integral role in placing the productwithin the reach of the consumer.

Figure 18.2 (overleaf, based on the work of Leeand Lye 2003) shows the main attributes of physicalpackaging. They are briefly discussed below. Theseattributes work not in isolation but in concert witheach other to present the customer with an holisticoffering.

Protection and preservation

Most definitions of physical packaging empha-size, first, its protective nature, being a barrieragainst external environmental factors. Thesefactors include excessive temperature changes,

PHYSICAL PACKAGING 359

Figure 18.1

© Hapag-Lloyd. Reproduced with kind permission.

A container is an example of tertiary packaging as itcontains numerous packages in a safe protective environment

cross-contaminants, liquids (such as water),corrosive materials, and disturbances while intransit (for example, poor roads or turbulenceduring air transportation).

Physical packaging also preserves the longevityof the contents. For example, food and beveragecanning techniques and materials means thatproduce will normally stay fresher longer.

Containment and safety

Physical packaging contains the product, whether itis washing powder, sardines or tomato soup. Thepackaging may be constructed of any number ofdifferent material types from plastics to aluminiumand glass.

While containment of the product preventsspillage under normal circumstances, increasinglypackaging has had to feature additional safetydevices. Following the Tylenol™ incidents in theUnited States in the 1980s (see Chapter 7), compa-nies, especially in pharmaceuticals, sought todevise tamper-resistant containers. These providetwo core safety benefits: they prevent a consumer

terrorist adding poison (which is what happenedwith Tylenol™), and they prevent children fromopening the package and playing with or ingestingthe contents.

Today tamper-resistant or safety closures areused on a wide range of products from medicinesto kitchen and bathroom cleaners. Such safetydevices are also applicable in a B2B environment,especially where corrosive materials are stored andused.

Market, brand and emotional appeal

Physical packaging aids in the creation of anemotional appeal for the product. A product that issimply packaged (for instance, an own-label brand)can convey several emotional responses in theconsumer. These can include:

� Simple packaging, thus it is an easy-to-useuncomplicated product.

� Simple packaging, thus it has simple (pure)ingredients. One soap manufacturer has


Figure 18.2 The main attributes of physical packaging

Source: adapted from Lee and Lye (2003).

Materials

Information andlegislation

User convenience

Protection andpreservation

Containmentand safety

Market andbrand appeal/psychology

Attributes ofphysical

packaging

adopted this approach to convey the purity ofits products.

� Simple packaging, thus low cost. The view is, ‘Iam paying for the product and not elaboratepackaging.’ This is especially true wherecompanies promote ‘no frills’ grocery andbeauty products.

Expensive-looking packaging (for instance,jewellery boxes) also needs to convey the value ofthe product contained within. To provide anextreme example, it would be incongruent for aUK£200 Cartier™ pen to be packaged in a brown-paper bag. It clearly would not fit with either the

prestigious quality of Cartier™ or with an individ-ual who would purchase such a distinctive pen.Thus packaging often reflects the inner values ofthe purchaser.

Consider, for instance, the image and valuestatements of chocolate. Depending on thebrand, its ingredients and price, chocolate rangesfrom an everyday ‘convenience’ bar to thoseindividually wrapped in gold foil and displayedin a stylish box at the luxury end of the market.Both have their value within their respectivemarkets.

Sandwiches in plastic containers also allow theconsumer to make a judgement about value formoney. The transparency provides the sandwichretailer with a promotional opportunity – theamount of filling in the sandwich can reinforce thevalue-for-money concept. The sandwiches can alsobe made to look mouthwatering, thus ‘persuading’the consumer to purchase. However if the sand-wiches are poorly presented, consumers might notpurchase them.

As we can see, the design of the packagingcontributes significantly to our perception of theproduct we are purchasing. Product design can bedescribed as encompassing three areas:

� It is an inherent feature of any product nomatter what its price range. It is not just aboutmaking something practical or ‘nice’ to look at,it is a marketing variable and thus can be usedto enhance the marketing effectiveness of aparticular product. Chapter 14 considered howcolour is important in providing the rightphysical evidence to convey emotion. Exactlythe same is true in packaging. Colour, in mostcountries, conveys important psychologicalmeanings for many people. Hence, forinstance, the use of green to convey that a prod-uct is ‘natural’, safe or environmentallyfriendly. Colour can also be used to get theproduct to stand out from similar products oncrowded supermarket shelves.

� Design is used to convey product quality,which includes such qualities as durability.Customers will consider the relationshipbetween design, quality and price. The valuefor money may be either real or perceived;either way design makes a valuable contribu-tion to the customer’s decision to purchase.


Figure 18.3

©Tetra Pak. Reproduced with kind permission.

SlimCap opening – Tetra Brik Aseptic 1500S package.An example of an easy-to-use pour device

This is often reflected, as indicated above, inthe no-frills variety of products.

� It may link directly to fashion and current lifestyles. The sleek and often unusual designs ofSwatch™ watches from Switzerland are anexample. These have been linked to both fashion and the creation of fashion statements.

Integral to the overall design of the packagingwill be the use of textures, typology and illustra-tions. In addition to inviting us to look at theproduct they also aid our purchasing memory. Itis more than purely remembering the brandname, for instance. Consider the classic-shapedCoca-Cola® bottle. This has become a designicon and is recognisable anywhere in the world.You could remove the contents, the label, the topand it would still be recognised as Coca-Cola®,such is the memory impact. This is perhaps trueeven if you do not drink Coca-Cola®. Of course,not all products have packaging that has devel-oped such iconic value. However, it is importantto understand that the visual (design) componentof packaging has a psychological imperative thatneeds to be explored. It is this psychological linkthat could make or break a product as it islaunched into the marketplace.

User convenience

The consumer seeks convenience of use. Here are afew examples:

� Easy to open ring-pull tops on beverage cans.

� The drinking spouts found on the top of plas-tic bottles that allows easy drinking of thecontents, and prevents spillage.

� Reclosable plastic or cardboard pour devicesoften found on milk and fruit juice cartons.

� Polystyrene cartons to carry fast-food productssuch as hamburgers.

� Squeezable pouches for single-serve foodproducts. These are used for pet foods as wellas soft drinks and fruit juices.

� Microwaveable containers or films: Theseallow for convenience foods to be quickly andeasily prepared.

� Refill packs: for example, concentrated fabricconditioners can be stored in smaller refillpouches. This reduces the wastage of produc-ing plastic containers, the refill pouch may berecyclable, and it is less bulky, so easier forconsumers to carry in their shopping.

� Plastic measuring cups enclosed in washingpowder packets: These help consumers meas-ure the right amount of powder for a particulartype of wash. The packaging design providesclear pictorial instructions on the right quanti-ties to be used.

� Pump-action dispensers, for example the intro-duction of liquid soaps (used for years inindustry) in the consumer market. The promo-tion of these focused on eliminating the wetcongealing soap stains around sinks. Addition-ally, there is ease of use. Other products avail-able in pump-action dispensers includetoothpaste, shower gels, shampoos and condi-tioners.

� Availability of different sizes: the combinationof technology and specific demands has led toproducts being packaged in different sizes. Forexample, washing powders are often madeavailable in 1.1 kg (15 wash), 3.3 kg (45 wash)and 5.5 kg (75 wash) sizes. Products such astoothpaste are available in a range of sizes tocater for vacation as well as home use.


Figure 18.4

©Tetra Pak. Reproduced with kind permission. Photographer:

Stellan Stebe.

Tetra Pak packages, from left:Tetra Classic,TetraWedge,Tetra Rex,Tetra Prisma,Tetra Brik,Tetra Fino,Tetra Top,Tetra Recart.These are easy to open andpour examples of packaging for liquids and powders.

� Easy storage and carrying of the product: forexample, there has been a move away from theuse of glass to PET (polyethylene terephtha-late) jars for food products. These jars are safe,non-breakable and can incorporate mouldedside grips for easily handling. Another exam-ple is the large packs of washing powder thatincorporate sturdy plastic carrying handles.

Information and legislation

Customers require on-packaging information inorder for them to make an informed decision topurchase the product or not. Legislators (espe-cially in the European Union) also seek clear andspecific on-package information to ensure thatcustomers are well informed. This is normallyseen as part of a government’s manifesto forconsumer protection.

� Features: information conveys the product’sfeatures. These can range from natural ingredi-ents (no artificial colourings or additives infood, for instance) through to special enzymesin washing powders and the ability tomicrowave certain foods.

� Benefits: these are the benefits derived from thefeatures of the product. For instance, a re-sealtab that allows ground coffee to remain fresh inits original foil packaging, and the containerthat you can place directly into the microwaveto obtain a fast-ready cooked meal.

� Contents or ingredients: this may be importantto the customer for a variety of reasons. Forinstance, the purchaser might:

� have an allergy, for example to nuts

� want to avoid artificial additives andcolourings (for instance E numbers1) inthe belief that they may inflict long-termharm

� seek high levels of a particular ingredient(for example, 100 per cent fruit ratherthan concentrates or sugar in a fruit-based drink)

� want organically grown ingredients and/or want to avoid genetically modifiedingredients

� want to know whether the ingredientshave been tested on animals

� wants the packaging to be environmen-tally friendly and thus biodegradable.

� Country of origin or manufacture: customersmay be interested in knowing the country oforigin or manufacture for several reasons:

� they know that the best produce (forinstance, fruit) comes from that region

� they want to support the farmers in thatregion, for instance the coffee growersallied to a fair trade scheme in a particular country

� the quality of manufacture for a particular product is of a particular highstandard

� they want to avoid poor manufacturingstandards

� the country’s human rights record mightinfluence their purchase.

� Suitability: who the product is suitable for willconcern groups such as vegetarians-vegans,children (within certain age ranges) and theelderly depending on the product and its ingre-dients or attributes. For example, some toys arenot suitable for children under five becausesmall working parts might break off, and thechild might pick them up and inadvertentlyswallow them, risking choking.

� Use by date: the packaging of food products, inmany countries, now carries use by dates. Thisis the latest date the product should be usedbefore it is considered unfit for humanconsumption. In some cases this date can beextended if the product is frozen on the day ofpurchase.

� Storage instructions: various products have tobe stored under certain environmental condi-tions. For example, food may need to be frozenor chilled after purchase and used within acertain timeframe (see point above). Otherexamples include household cleaners such asbleach where the container must be storedupright to prevent the risk of spillage and thusstaining, and out of the reach of children.


� Opening instructions: some packaging is easyto open while others may have an element ofdifficulty for a particular reason. As statedearlier, some products (for example, medi-cines) have to be packaged in tamper-proofcontainers. In such cases the lid may only beopened if it is pushed down and unscrewed. Inother cases the opening instructions include awarning to open the product away from theface or using gloves. This is particularly thecase with certain garden chemicals or bleachesthat can burn the skin on contact.

� Usage instructions: how to use or apply theproduct, whether it is shampoo, medicines orsuntan cream. These need to be accurate, espe-cially for medicines. In many cases additionalinformation is provided in leaflet form (withinthe pack) to supplement the on-package infor-mation.

� Disposal instructions. These often cover threedistinct areas.

� Any remaining ingredients or product.For example, medicines need to be dis-posed of safely to prevent them beingingested by children or animals.

� Where the packaging can be recycled(particularly for glass, certain plastics andaluminium cans).

� Where the product and packaging areintrinsically linked such as in an aerosolcan. In such cases because of the flamma-bility of the product they must be dis-posed of safely, and not for instance,thrown onto a fire where they willexplode.

� Quantity: an accurate statement of the weightor the number of items in a packet.

� Nutritional information: for food and healthproducts most governments require accuratelabelling of their nutritional values.

� Quality statement: most companies now addquality statements to their products.

� Customer service information: many compa-nies now include on the packaging a dedicatedtelephone or email address, in case thepurchaser has a product query. This is seen as

good customer relationship management inthat the company can gain an understanding ofcustomer issues. The knowledge gained canthen be translated into product and packagingdevelopment.

� Potential hazards: for instance most beautyproducts (skin cleansers and shampoos, forexample) state,: ‘Avoid contact with eyes. If theproduct gets into your eyes rinse immediatelywith water’. The warnings will vary depend-ing on the risks involved.

� Ecological issues: companies have increasinglymoved towards green labelling, stating, forexample, whether the product is environmen-tally friendly, dolphin friendly and containsrecyclable materials.

Materials

The importance of materials cannot be underesti-mated in the development of packaging, especiallyin relation to convenience foods. In 1812, forinstance, both Nicolas Appert and Bryan Donkinworked, separately, on the development of the tincanning process. As a result we can now purchaseeverything from meat and fish to fruits in canswhich ensure they are preserved, and remain fresh,for a significant amount of time. Such packagingclearly protects and preserves the contents. Equally,it is part of the convenience and emotional appealof the product.

Since the introduction of the tin can, there hasbeen a myriad of packaging developments, espe-cially in plastics and plastic films. The introductionof such packaging has had an impact on society. Forinstance, new types of packaging not only preservethe contents of food, for example, but allow it to bemicrowaved in its packaging. This is especially thecase with industrial catering.

As Groucutt et al. (2004) suggest, you may wantto reflect on how packaging materials have bothinfluenced societal behaviours and created newmarket opportunities.

� Chapter summaryThis chapter has sought to illustrate how packagingis an integral component of the marketing mix.While it has a direct relationship to product and


promotion, for instance, there are sufficientelements in its composition for it to be consideredas another component in the overall mix.

Packaging, as we have seen, displays certaincharacteristics beyond that of a physical ‘envelope’that protects its contents. Various materials andideas can be packaged, products can be repack-aged, and indeed physical packaging displays vari-ous attributes beyond that of protection.

While we may or may not pay conscious atten-tion to packaging, it has become an essential part ofour everyday lives. Virtually every item we handlein our homes, college or office has been packaged inone form or another. Thus marketers must considerhow the packaged item, whether it is a CD or a boxof ice cream, interests or tempts us to purchase itover all the others on the shelf. While packagingalone may not be the final trigger for the decision topurchase, it will have been one of them.


1 Using the Internet, library and other resources,briefly explain how packaging has developedover the past 100 years. Then consider how thischanging in packaging may have influencedthe marketing of products.

2 Although packaging is a tangible asset (inother words we can touch and feel it), some-times companies refer to packaging as havingintangible assets or values. What do you thinkthese could be? Why do you think that theymay be important to both the marketers andthe product itself?

3 Go to your kitchen cupboard. Briefly outlinethe basic attributes that the packaging of thegoods in it conveys to you. Would you haveconsciously considered any of these attributesif you had not been directed to do so?

4 Select an example of a piece of packaging thatyou think is both innovative and useful. Thenexplain to a group of fellow students why youhave chosen it. Do they agree with you? Askthem to justify their views. What, if anything,would they do differently and why?

5 Packaging companies today emphasize thatcontainers are much easier to open and use. Doyou agree with this statement? You may wantto use the Internet and library resources toinvestigate this question further.

ReferencesGroucutt, J., Leadley, P. and Forsyth, P. (2004) Market-

ing: Essential principles, new realities, London: KoganPage.

Hine, T. (1997) The Total Package: The secret history andhidden meanings of boxes, bottles, cans and otherpersuasive containers, Boston and New York: BackBay Books, Little, Brown.

Lee, S. G. and Lye, S. W. (2003) ‘Design for manualpackaging’, International Journal of Physical Distrib-ution and Logistics Management 33(2), pp. 163–89.

Nickels, W. G. and Jolson, M. A. (1976) ‘Packaging: thefifth ‘p’ in the marketing mix?’, SAM AdvancedManagement Journal, Winter, pp. 13–21.

Schramm, W. (1955) ‘How communication works’, inW. Schramm (ed.), The Process and Effect of Commu-nication, Urbana: University of Illinois Press.

CHAPTER SUMMARY 365

Notes

Chapter 11 This normally relates to a person who is believed to

have special healing powers. Equally it could beargued that marketers are ‘witch doctors’ in that theyare supposed to keep evil spirits at bay. In other words,the competition in the marketplace.

2 Paracelsus, originally Philippus Aureolus Theophras-tus Bombastus von Hohenheim (1493–1541), was aSwiss-born alchemist and physician who travelledEurope and the Middle East. He is renowned for estab-lishing the use of chemistry in medicine. He was alsothe first to argue that a small dose of what makespeople ill can also cure them – the premise of thevaccine.

Chapter 21 The Richter Scale is named after US seismologist

Charles F. Richter (1900–1985). He devised it withfellow geophysicist Beno Gutenberg (1889–1960), tomeasure earthquake magnitude on a scale of 1–10.

2 Bluetooth is named after Harald I Gormsson(c910–985) who was the first King of Denmark to unifyall the (often warring) factions and provinces of thecountry under a single crown. Through his conversionto Christianity, he was able to strengthen the unity andcentral administration of the country. King Harald’snickname was ‘bluetooth’. This, so legend suggests,referred to the discolouration of his teeth because ofhis love for (and overindulgence in) blueberries andblackberries.

Chapter 41 D’Aveni (1995) states that hypercompetition results

‘from the dynamics of strategic maneuvering amongglobal and innovative combatants’. He continues bystating that:

it is a condition of rapidly escalating competitionbased on price–quality positioning, competition tocreate new know-how and establish first-moveradvantage, competition to protect or invade estab-lished product or geographic markets, and compe-tition based on deep pockets and the creation ofeven deeper pocketed alliances. In hypercompeti-tion the frequency, boldness and aggressiveness of

dynamic movement by the players accelerates tocreate a condition of constant disequilibrium andchange.… In other words, environments escalatetoward higher and higher levels of uncertainty,dynamism, heterogeneity of the players and hostility.

Chapter 51 Originally published in 1832, Clausewitz’s On War

became perhaps the most significant attempt in West-ern history to understand war, both from the perspec-tive of its internal dynamics and as an instrument ofpolicy. There have been attempts to link the work ofvon Clausewitz to business strategy. Another majormilitary strategist was Sun Tzu who over 300 yearsago also wrote a text on warfare. This too has beenused as the basis of books analysing both businessstrategy and warfare.

2 The economist and sociologist Vilfredo Pareto(1848–1923) postulated the 80/20 rule as a means ofunderstanding income distribution; that is, 80 per centof a nation’s income will benefit 20 per cent of thepopulation. Since he formulated this ratio, Pareto’slaw or principle has been extended to cover numerousbusiness functions and activities. For instance, 80 percent of business revenue is typically generated by 20per cent of the organisation’s customers.

Chapter 61 It is a common error to think that the opportunities

and threats are issues that exist within the organisationrather than external factors.

Chapter 71 In 1925, following the death of William Lever (then

Lord Leverhulme), Lever Brothers Limited mergedwith the Dutch Margarine Union. This merger waslater to form Unilever. In 2001 the Lever Brothersbrand was merged with Elida Fabergé to form theLever Fabergé brand. Sunlight Soap is no longer soldin the United Kingdom, but it is currently (2005) avail-able in India, Sri Lanka and Australia.

2 The Kit Kat Club was founded in the late 17th century

by prominent Whigs (a liberal-oriented political party)and literary figures of the time. According to theEnglish poet Alexander Pope (1688–1744), other writ-ers such as the Irish essayist Sir Richard Steele(1672–1729), the English poet Joseph Addison(1672–1719) and the English dramatist Sir JohnVanbrugh (1664–1726) were members.

3 Ambient foods are food products that are not cookedby the purchaser. They range from general confec-tionery to food dressings and spreads.

4 This can be viewed as a middle way or positionbetween the left wing often associated with social-ism and the right wing often linked with parts ofthe Conservative party. Others might view this as aliberal approach as espoused by the British LiberalDemocratic Party.

5 In 1989 the UK brewery and leisure company Scottish& Newcastle acquired Center Parcs Europe, but itdisposed of it in 2001. It was acquired by the privateequity firm MidOcean Partners. In 2003 MidOceansold Center Parcs UK to a group of fund managers foraround UK£300 million. In turn the fund managersfloated the company on the London Stock Market.

Chapter 81 It must be remembered that the emphasis at the time

was on manufacturing and selling products. Servicesindustries did exist (including advertising andmarketing in the B2B arena), but for the vast majorityof people, especially in the growing consumeristUnited States, it was very much a production andsales orientation.

2 Although we generally think of the word ‘profit’ infinancial terms it does not have to be so. It could belooked on as benefit derived, and that could beemotional (intangible) as well as money in the bank(tangible).

Chapter 91 The concept of the convenience store was created in

1927. The Southland Ice Company in Dallas, Texassold blocks of ice for the preservation of food, then anemployee began selling milk, bread and eggs onSundays and evenings when the normal grocerystores had closed. This new business soon becamepopular, and the Southland Ice Company createdconvenience outlets which it named Tote’m stores(The name was based upon the American colloquialexpression tote, to carry or convey, especially a heavyload.) In 1946 the name was changed to 7-Eleven toreflect the stores’ new opening hours – 7 am to 11 pm,

368 NOTES

seven days per week. The company remained a leaderin the convenience store field until the late 1980s whenit faced a financial crisis. Ito-Yokado Co. Ltd, theparent of the licensee 7-Eleven Japan, acquired themajority of the 7-Eleven stock in 1991, preventing apossible bankruptcy. By 2003 7-Eleven was the world’slargest operator, franchiser and licenser of conven-ience stores, with more than 24 000 stores worldwide,primarily in North America and the Far East. Totalsales in 2002 were US$33 billion (Higgins 2003, 7-Eleven 2003).

2 At the time of writing (2005) the underlying principlescreated by McKnight had generated over 50 000 inno-vations. 3M has become a diversified technologycompany with operations in more than 60 countriesand serving customers in some 200 countries. Globalsales (2002) were US$16 billion.

3 The introduction of the product life cycle is generallyattributed to J. Dean (1950). Levitt is cited in Hooley(1995) as popularising the concept: see Levitt (1965).

Chapter 101 This is sometimes presented as the Shannon and

Weaver model, since Warren Weaver and ClaudeShannon wrote a book entitled The Mathematical Theoryof Communication (1949), which included Shannon’soriginal work with some amendments. This bookrefers instead to Shannon’s original article (1948).

2 Depending on a person’s status in society theremight have been one last chance of a reprieve fromthe gallows. If an aristocrat stood before the crowdand made an impassioned speech, a public apologyin effect, denouncing his (or her) own crimes andthose of others (perhaps implicating others in theprocess), he or she might be spared the hangman’snoose. Many chose death rather than make such aplea on the basis that there was honour in death.Public hangings were stopped because the govern-ment believed there was a risk of rioting, as increas-ingly the crowds began to rage against the injusticeshanded down from the courts and government onindividuals (both rich and poor) who were consid-ered by the masses to be innocent of the crimes laidbefore them. A plaque now marks the spot where theTyburn gallows once stood.

3 The AIDA model is often attributed to the StanfordUniversity psychologist Edward K. Strong. It wasStrong who publicised it, in The Psychology of Sellingand Advertising (1925).

4 I am totally against both fly posting and graffiti. Bothare detrimental to society as a whole. I argue that suchguerrilla types of ambient media should be made ille-gal. Clearly, the problem for some countries is the level

of enforcement powers. That is clearly the role of thejudiciary. However, the use of fly posting bringsmarketing as a whole into disrepute.

5 There are spam messages that suggest that an individ-ual can gain a BA or BSc degree in 30 days. This isclearly a falsehood and those who ‘buy’ such degreesare being enticed into purchasing a useless piece ofpaper.

6 In 2003 these costs were estimated as US$10 billion forUS businesses and £3.2 billion for UK companies andorganisations (BBC 2004). The sheer quantity of spammessages fills inboxes, which need to be cleared, andthis slows down even the most powerful systems.

7 Although Grönroos uses the term ‘profit’ the issueshould not be confined purely to for-profit organisa-tions. Not-for-profit organisations (including charities)aim to generate revenues and surpluses. Equally, theyaim to build a relationship with their donating andsupporting customer base in order to both generatefurther revenues and fulfil their commitment to society.

Chapter 111 Readers are directed to the International Chamber of

Commerce (ICC) website www.iccwbo.org/incotermswhere full descriptions of the 13 Incoterms can beread. Various official publications can be purchasedfrom the site including Jan Ramberg’s ICC Guide toIncoterms 2000, which shows how Incoterms can beimplemented in an international trading environment.

Chapter 121 As well as the perceived quality of life, there is the

issue of the cost of accommodation, both rental and forpurchase. It is significantly more expensive living inLondon and the surrounding area than in many otherparts of Southeast England.

2 During the late 1990s many countries began to relaxentry requirements to allow for greater freedom ofmovement. This was especially so within the Euro-pean Union. There was also a greater opportunity forstudents to study in various countries, such as theUnited Kingdom. Since the events of 11 September2001 governments have understandably tightenedsecurity and entry requirements. Although there maybe the reimposition of exacting entry restrictions, thetrend in global migration appears to be continuing.

3 The Greek mathematician and engineer Hero ofAlexandria (1st century) developed the first vendingmachine. He devised a machine that on the payment ofa token would dispense holy water in Egyptiantemples.

NOTES 369

Chapter 141 The Voyager of the Seas was the largest cruise ship ever

built until the launch of the Cunard Line’s Queen Mary2 in late 2003. Her maiden voyage was undertaken inJanuary 2004. Cunard Line is an operating unit of theMiami-based Carnival Corporation.

2 While this may be a factor, it may not be the onlycontributory reason for purchasing. Other factors suchas colour and shape of packaging, for instance, need tobe taken into consideration.

3 There have been only a few major movies that havenot featured a music score, most notably the board-room political drama Executive Suite (1954) and twoCold War nuclear thrillers, Fail Safe (1964) and The WarGame (1966).

Chapter 151 This pack of chewing gum was not consumed. Instead

it was taken to the Smithsonian Institution’s NationalMuseum of American History (www.si.edu) where itis on display.

2 See Chapter 2 note 2.

Chapter 161 Here Freud considers ‘unconscious’ as a state of mind,

rather than the unconsciousness that would resultfrom, for example, a blow to the head or being in acoma.

2 Bernays lived to the grand age of 103 and was stillgiving company executives advice almost until hisdeath.

3 In the 1920s the UK General Post Office (GPO), whichwas responsible for both telephone and postal serv-ices, actively used PR techniques (mainly film) topromote its services to a wider general public. It can beargued that the difference between the GPO’sapproach and Bernays was that the GPO was directly‘informative’ whereas Bernays attempted to base hiswork on psychological principles.

4 An example of an entrepreneur who became a million-aire but decided on a relatively simple life was theEnglish-born Percy Shaw (1890–1976), the inventor ofthe reflective road studs which he called and patentedas Cat’s eyes®. Shaw came from a working-class back-ground and was one of 14 brothers, sisters, half-broth-ers and half-sisters. Although he left school at 13 helater went on to study at evening classes. He had anenquiring mind that led to several inventions andideas. Even after his success Shaw continued to live asimple life in the house he had grown up in, in Hali-

fax, Yorkshire, which was now next to the factory hehad started to manufacture Cat’s eyes®. It is reportedthat he disliked travelling and that his house wasfurnished in a simple style. His only luxury was aRolls-Royce.

Chapter 171 The BVA database contains data gathered over a ten-

year period on 20 000 brands across 40 countries.2 The EVA database is a financial performance measure

which indicates the economic measure of an organisa-tion.

3 BrandEconomics® defines Monobrands as thosecompanies whose principal revenues (those in excessof 80 per cent) are derived from products or servicessold under the company’s primary brand. Accordingto Knowles (2003), Coca-Cola® is designated aMonobrand while Pepsi®is not. As of August 2003the Pepsi-Cola® brands numbered over 30. Knowles(2003) states that while the ‘use of this set ofMonobrands enabled the overall company financialresults to be related definitely to the health of thecore brand, it could be argued that all the brands inthe Pepsi® stable make, to a greater or lesser degree,a contribution to the health of the Pepsi® brand.

370 NOTES

4 Industry standards must be viewed in the widercontext of an industry in one country. Companies nowoperate on a regional, international and global basis.Thus companies need to consider what would bedeemed efficient and effective in a wider globalcontext.

Chapter 181 This is a specific code number that is designated for

food additives under EU legislation. There arecurrently some 200 additives registered as E-numbersin the European Union (2005). The ‘E’ represents theword European. While E-numbers are acceptablewithin the European Community some are notaccepted in other countries, namely the United Stateswhere the Food and Drugs Administration (FDA)believe that some additives with E-numbers may present a health risk.

Glossary of Marketing Terms

Adding value An organisation through, for example,cost reduction or performance enhancements, addsvalue (in the mind of the customer) to the productor service. When several such activities are groupedtogether they can be viewed as a value chain.

Adaptation A product is adapted for a particularmarket. For example, some cola drinks and choco-lates have increased levels of sweetener added tomeet consumer tastes in certain markets.

Adoption The level by which customers adopt or usethe product or service over the course of the lifecycle of the product. Adopters can be grouped asinnovators, early adopters, early majority, latemajority and laggards.

Advertising A paid-for communications vehicle thatis intended to inform, influence and/or persuadeone or more individuals to buy into a product, serv-ice or idea. It can be used by for-profit and not-for-profit organisations.

Advertising media The range of advertising mediachannels available will vary from country tocountry. These cover print media, television,radio, cinema, outdoor (billboard), ambient andthe Internet.

AIDA model Developed by St Elmo Lewis, this is ahierarchy of effects model. The acronym stands forAttention, Interest, Desire and Action.

Ambient media Also known as fringe media, this isadvertising that is positioned in the surroundingsor background. Includes aerial (aircraft towingbanners), give-away postcards, and advertising onmaps and tickets.

B2B marketing An abbreviation of business-to-busi-ness marketing operations.

B2C marketing An abbreviation of business-to-consumer marketing operations.

Brands Kotler (2000) defines a brand as a ‘name, term,symbol or design (or combination of them) which isintended to signify the goods or services of oneseller or groups of sellers and to differentiate themfrom those of the competitors’.

Brand awareness The level of customer recognition ofa branded product or service.

Brand disposal An organisation decides to sell ordispose of a brand to another company. This may

be for several reasons including strategic with-drawal from declining markets and focusingresources on core profitable brands.

Brand elasticity The level to which a brand can bestretched over several products without harmingthe original branded product.

Brand equity Aaker (1991) defines this as ‘a set ofassets and liabilities linked to a brand, its name andsymbol, that adds to or subtracts from the valueprovided by a product or service to a firm and/orto that firm’s customers’.

Brand extensions Additional products or services are,over time, added to the original brand to serve vari-ous markets. Linked to this is brand elasticity.

Brand longevity The age span of a brand. For exam-ple, many everyday brands have been in existencefor over 40 years.

Brand management The strategic organisation of themarketing mix to effectively and efficiently buildand manage a brand over its life cycle.

Brand recall The extent to which a customer can recallthe name and/or promotional/packaging imagesassociated with the brand.

Brand recognition This links to brand awareness andbrand recall. It is the extent to which the customercan recognise the brand from a series of visual oraural clues.

Brand termination A company decides to prema-turely end the life of a brand. This may be forseveral reasons, for instance declining marketsand/or customer resistance to the brand.

Brand values The intrinsic qualities that the brandcommunicates to potential and current customers.

Branding The tangible features – the verbal and phys-ical cues – that assist the customer in choosing oneproduct or service over another.

Bundling Several products or services are combinedin a single package at a single price. Alternativelyproducts can be unbundled and sold separatelyand individually priced.

Business level strategy This links to strategic businessunits (SBUs) where the focus is normally on prod-ucts and/or services within defined marketsegment(s).

Business services B2B services that a company canbuy in to achieve its overall corporate objectives.

These include legal, financial, accounting andmanagement consultancy services.

Buzz Also referred to as viral, contagion and word-of-mouth marketing. A social process where person-to-person communication highlights both positiveand negative aspects of a brand.

Cartel A price fixing operation where a group ofcompanies or countries agree on a set price for aproduct or service. This is often deemed unethicaland within some countries, illegal too.

Celebrity endorsement A promotional activity wherea personality usually movie or music star endorsesa product or service.

Channel overload We are constantly bombarded bycommunications messages via, for example, 24-hour multi-channel television, the Internet, news-papers and magazine advertising, various forms ofdirect marketing and in-store promotions. This canlead to overload and clutter, reducing the opportu-nity for the communication message to be fullyunderstood.

Communication models Models that explain thecommunication process from sender to receiver.

Competitive advantage An organisation gains amarket edge or advantage over its competitors.While an organisation may be able to gain anadvantage, the critical issue is whether it cansustain that advantage over the longer term or not.An advantage may be gained through cost leader-ship, where the organisation becomes the lowest-cost producer within the industry. Alternatively, itmay gain and sustain an advantage by differentiat-ing its products and services from its competitors.

Competitive noise In highly competitive environ-ments companies may use spoiler promotionaltactics to disorientate their rival’s customers.

Competitive scope The breadth of an organisation’sactivities. In some instances an organisation maybe able to ‘collectively’ exploit these activities togain a competitive advantages. Alternatively itmay be able to customise activities for a particulartarget segment.

Competitor intelligence Also known as businessintelligence, the gathering and analysis of informa-tion relating to an organisation’s competitors.Organisations must operate to clear ethical andlegal guidelines.

Convenience products Basic everyday productswhich can be subdivided into staple, impulse andemergency purchases.

Corporate strategy The overall strategy that governsthe direction of an organisation. It usually

372 GLOSSARY

addresses two questions: ‘What business are wein?’ and ‘What business should we be in?’

Cost plus pricing A dual pricing mechanism thataccounts for the full allocation of both domesticand international costs plus a suitable margin.

Counter-offensive defence A strategic position wherea market share defender will counter-attack thechallenger with overwhelming resources todislodge it. The challenger may have no option butto withdraw in order to protect its existing marketshare.

DAGMAR Colley’s 1961 work on Defining Advertis-ing Goals for Measured Advertising Results. Anhierarchy of effects model: awareness, comprehen-sion, conviction and action.

Demographics The use of population data (gender,age, race, religion and emigration trends) to under-stand market segments. Geodemographics considerspopulation data in relation to geographical loca-tions.

Diffusion Rogers (1983) defines this as ‘the process bywhich (1) an innovation; (2) is communicatedthrough certain channels [for example, directmarketing or advertising]; (3) over time and (4)among members of a social system’.

Direct marketing Tapp (1998) describes this as a focuson ‘using a database to communicate (and some-times distribute) directly to customers so as toattract a direct response’. Techniques include doordrops, inserts, direct mail, telemarketing and door-to-door selling (personal selling).

Discount pricing Companies may offer customersspecial discounts when items are bulk purchasedand/or purchased within a particular time frame.

Dumping An action where companies sell their prod-ucts within the marketplace at below marginal cost.This tactic has been used to penetrate difficult orhighly competitive markets. Many consider this anunethical pricing tactic while some governmentsstate that it is anti-competitive and thus illegal.

Ehrenberg’s ATRN model A hierarchy of effectsmodel – Awareness, Trial, Reinforcement andNudging.

Emergency purchases Also known as distresspurchasing. Products or services that are purchasedwhen the need is urgent, such as an umbrelladuring a sudden rainstorm.

Family brands The brand range adopts the name ofthe parent company, for example, Cadbury’schocolate.

Five forces model Developed by Michael Porter ofHarvard Business School, this analyses an organi-sation at an industry level. It comprises five compo-nents: the threat of substitution, the power ofsuppliers, the power of buyers, the threat of newentrants (into the marketplace) and the level ofrivalry between competitors.

Flanking attack A market challenger seeks to exploita weakness in the market leader’s position. Thisaction permits the market challenger to movearound or flank the market leader and gain marketshare.

Focus group A marketing research technique where agroup normally of six to eight people, who matchthe product or service’s target audience, are askedto respond to questions relating to an unspecifiedproduct or service.

Frontal attack Normally where a market challengerbuilds a combination of resources and expertise todirectly attack the market leader in its majormarkets and territories.

Functional strategy The operational level of an organ-isation, which can include HRM and finance aswell as marketing. This is where the marketingstrategy is determined.

GE matrix An analysis of either strategic businessunit (SBU) or product activity based upon marketattractiveness and business position (businessstrength). Developed by General Electric and themanagement consultants McKinsey.

Generic marketing mix Also known as the 7Ps –Product, Price, Place, Promotion, People, PhysicalEvidence and Process.

Guerrilla attack A series of small competitiveattacks that are designed to frustrate the marketdefender, and raise the guerrilla attacker’sprofile within the target segments. Guerrillatactics include the use of merchandising, specialevents marketing, intensive personal selling andlinking the brand to a specific high-profile issue,for example, animal rights.

Heterogeneous products Non-standard productswhere features, benefits and image tend tooutweigh the price.

Hierarchy of effects models Models that demonstratea sequential learning pattern from awarenessthrough to reinforcement of the brand’s image inthe mind of the customer.

Homogeneous products Products that are similar toeach other in terms of performance, features, bene-fits and pricing.

GLOSSARY 373

Impulse purchases Products that are purchased onthe spur of the moment without little or no priorpurchasing analysis. They can include low-costconfectionery, newspapers and magazines.

In-depth interviews A marketing research techniquewhere an individual is asked, in a face-to-face situ-ation, a series of questions relating to specific prod-ucts and services.

Individual brands Branded products or services thatstand alone, separate from their parent company.They provide a distinct individual identity, and thecustomer may not actually know which companyowns the brand. For example, the sports car brandAston Martin (which is owned by the Ford MotorCompany).

Industrial and commercial products B2B productsthat can be subdivided into raw materials,processed materials, plant and machinery, acces-sories and consumable supplies.

Integrated marketing communications The processof creating a uniform message and style so that anorganisation communicates to its target audiencewith a single message using various communica-tion channels.

Internal factors Also known as micro factors, theseare environmental factors that are normally inter-nal to an organisation. They can include the rela-tionship with suppliers, the local community andcustomers.

Internet media Advertising on Internet sites, classi-fied as banners, skyscrapers, buttons, classified andpop-ups (interstitials).

Kiosks Interactive touch screens that allow in-storecustomers to search and retrieve information aswell as order products and services.

Lavidge and Steiner’s model A hierarchy of effectsmodel – predictive measurements of advertisingeffectiveness: unawareness, awareness, knowl-edge, liking the product or service, preference,conviction, conviction and purchase. This wasamongst the first to link the hierarchy of effectsconcept to cognition, affect and conation.

Lifestyle analysis Used in segmentation, targetingand positioning as a means of understanding howindividuals and groups choose to live their lives.

Logistics The management of materials and informa-tion streams through the various distribution chan-nels to the end user.

Luxury items Products or services that possess one ormore special or unique qualities or features. Forexample, sports cars and five-star hotels.

Macro factors External factors that impact upon anorganisation. The mnemonic PESTLE is usuallyused to delineate these factors.

Marginal costing A dual pricing mechanism wherethe company considers the direct costs of produc-ing, marketing and selling the product for export.The fixed costs of plant, equipment, research anddevelopment and domestic overheads are notincluded.

Market challengers Organisations that challenge thedominance of the market leader for increasedmarket share.

Market followers Organisations that are satisfiedwith developing their own profitable marketsegments and seek not to attack either the marketleaders or market challengers.

Market leader An organisation that is the leader inone, or a selection of all of its markets.

Market niche A small, often specialised, segment ormarket.

Market nicher An organisation that focuses on aparticular niche (or niches) within the marketplace.

Market pricing A tactic where companies price theirproducts and services appropriately for specificindividual markets. Such price discriminationinvolves charging a price each particular (usuallyoverseas) market will accept.

Marketing The American Marketing Association(2004) defines marketing as ‘an organizationalfunction and set of processes for creating, commu-nicating and delivering value to customers and formanaging customer relationships in a way thatbenefits both the organization and the stake-holder’.

Marketing audit The examination of the entiremarketing effort of an organisation from planningto implementation, including the structure andoperation of the marketing department.

Marketing department An organisational depart-ment comprising staff engaged in a range ofmarketing and related activities. Depending uponthe size of the organisation this will range fromadministrative support to marketing planning andmarketing research. A marketing director who mayor may not be a member of the organisation’s exec-utive management board usually controls the oper-ations of a marketing department.

Marketing environment The environment in whichmarketing activity takes place, which covers bothinternal (micro) and external (macro) factors.

Marketing mix A combination of tactics that are usedto market a product or service. Originallycomprised 4Ps: Product, Price, Place and Promo-

374 GLOSSARY

tion. A further 3Ps were added in the 1980s Physi-cal Evidence, Process and People (participants).Also known as the generic marketing mix. A further3Ps, Psychology, Performance and Packaging arenow suggested.

Marketing research Burns and Bush (2000) define thisas ‘the process of designing, gathering, analysingand reporting of information that may be used tosolve a specific marketing problem’.

Marketing strategy The strategy that will determinethe marketing function within an organisation.This feeds into the SBU and overall corporate strat-egy.

Merchandise Products that are introduced to support(promote) a particular brand. For example, toysbased on Star Wars movie characters.

Micro factors Environmental factors that arenormally internal to an organisation. These caninclude the relationship with suppliers, the localcommunity and customers.

Mobile defence A strategic position where the marketleader expands into new territories with the inten-tion of increasing its business opportunities,resources, size and financial strength. When theorganisation expands by such means it becomesharder to challenge across so many markets.

New product development Organisations often seek,over time, to either develop and launch new prod-ucts or enhance existing ones.

Noise The interruption or distortions that influencethe communications process or understanding of amessage. There are four subsets: physical, seman-tic, competitive and channel overload.

Observation A marketing research technique wherean individual’s buying behaviour is observed with-out his or her knowledge.

Own-label brands Brands that are owned andmarketed by retailers such as supermarkets. Theyare also known as retailer brands, own brands,dealer brands, private brands and store brands.Such brands are produced by independent manu-facturers for the retailer.

Packaging An additional marketing mix variable thatincludes both tangible and intangible attributes ofa product or service. These attributes includecontainment materials, bundling and emotionalappeal.

Penetration pricing Also known as predatory pricing,this is a tactic for accessing a market by cuttingthrough existing pricing structures. Prices are often

set deliberately low in order for the company toenter the market, ensuring a high level of sales.

People Also known as participants, this is one of thegeneric marketing mix variables. People are a coreelement in the operation of an enterprise, whetherit is for profit or not for profit.

Performance An additional marketing mix variablethat analyses measured (such as the level of salesand subsequent revenue generation) and experien-tial (activity participation) actions.

PESTLE A mnemonic that describes the external(macro) environment – Politics, Economic, Societal,Technological, Legal and Ecological/Environmen-tal. There are a range of alternatives such as PEST.

Physical evidence Also known as physicality, this thespace, perceived look, feel, ambience (visual andaural) and physical presence (tangibility or tangibleclues) of an environment, such as a hotel.

Physical noise Anything that physically reduces theeffectiveness or efficiency of a message beingcommunicated between the sender and receiver.

Pioneer pricing A pricing tactic adopted if a productor service is particularly new to the market and thecompany is seeking to understand how the marketwill react.

Place This can be the confines of the environment inwhich a person lives and work. It can also be theplacement (or distribution) of a product or servicethrough channels to the target market segment.

Portfolio analysis Also known as Ansoff’s matrix,this examines an organisation’s activities withinexisting and potential markets with current andpotential new product/service developments.

Position defence A strategic position where themarket leader introduces a range of innovations toprotect its position within the marketplace.

Positioning The ‘location’ of a product or servicealongside key competitors and in the mind of theconsumer. Positioning can depend on severalfactors including price/quality relationships.

Positioning map Also known as a perceptual map.The visual representation of a brand, within aspecific marketplace, showing its position relativeto close and distant competitors.

Pre-emptive defence A strategic position where themarket leader launches an attack against a marketchallenger. For example, the market leader maylaunch a major promotional campaign aimed atprotecting its position and destabilising the chal-lenger.

Prestige pricing This symbolises reputation, glamour,respect, power and influence. These are not onlyvalue-driven phrases but clearly psychological

GLOSSARY 375

ones as well. Products or services that exemplifysuch characteristics need to reflect these in theprice.

Price The measure of the value exchanged by thebuyer for the value of the product or service offeredby the seller. It is often considered the only market-ing mix variable that is purely revenue generating.

Price matching A tactic often used in highly compet-itive markets where competitors are situated inrelatively close proximity to each other. Thecompetitors check each other’s prices and thenmatch each other in discounts and associatedspecial offers.

Price sensitivity The point at which an individual willbe sensitive to a set price or an increase in price,even though it may only be a marginal increase.

Price skimming A pricing tactic where a higher thannormal price is charged for a product or service fora particular time frame. Assuming that the productor service demonstrates volume sales, the differ-ence between the normal price and the higher pricecan be ‘skimmed off’.

Primary research Also known as field research, thecollection and analysis of original data for thepurpose of addressing a specific research questionor project.

Print media Advertising that appears in newspapersand magazines divided into five categories: dailynewspapers, local/regional newspapers, consumermagazines, trade/professional magazines andcustomer magazines.

Processes A marketing mix variable that highlightsdirect or indirect actions from the customer or theprovider organisation to the benefit of the end user.Processes can be technological and non-technolog-ical in form. Applying for a credit card is a process-driven action.

Product Dibb et al. (1997) suggest that a product ‘iseverything, both favourable and unfavourable, thatis received in exchange. It is a complexity of tangi-ble and intangible attributes, including functional,social and psychological utilities and benefits.’

Product adaptation Organisations may need to adapttheir products in order to market them internation-ally. The adaptation may be for technical, culturaland/or legal reasons.

Product life cycle The life stages of a product orservice, normally depicted as an S-shaped curveand encompassing introduction, growth, matu-rity, decline and death. There can also be rejuve-nation of the product or service. Some productlife cycles are relatively short (for example; fashion items).

Product placement A form of promotion where aproduct or service is purposely placed (used)within a movie or television series. Product place-ment is often used to cut through the advertisingclutter in the marketplace.

Professional service pricing This tactic is used byindividuals and companies such as lawyers,accountants and management consultants whocharge various rates for their services.

Promotional mix The combination of tactics used toraise and sustain the profile of a product or servicein the mind of the customer. Tactics include adver-tising, merchandising, public relations and salepromotion.

Promotional pricing A tactic where a special price isused to persuade customers to purchase a particu-lar product or service. The promotional price maybe limited to a particular time frame, for example‘special offer – for one day only’.

Psychological pricing A tactic that explores the rela-tionship between ‘value and price’ in the mind ofthe customer.

Psychology An additional marketing mix variablethat studies the behaviour and mental processes(cognition, reasoning, desires and feelings, forinstance) of customers. This knowledge leads to abetter understanding of why customers choosecertain products and services over others, in otherwords why we buy and how we can be influencedto buy.

Public relations A promotional activity that focuseson the relationship and communication between anorganisation and its various publics.

Questionnaire A marketing research technique wherean individual is presented with a series of ques-tions that focus on a specific topic or a range oftopics. Questionnaires can be conducted face toface, over the telephone or via email.

Rebranding An organisation decides to change asignificant element of the brand, often its name.Rebranding may be used to create, for instance, aninternationally or globally recognised brand.However, such rebranding may not always besuccessful.

Rejuvenation of a brand When a brand is in thedeclining stage of its life cycle a company may seekto re-energise it. This may be achieved by, for exam-ple, repositioning it to a new target marketsegment(s) or repackaging it.

Relationship marketing ‘The process of identifyingand establishing, maintaining, enhancing, and

376 GLOSSARY

when necessary terminating relationships withcustomers and other stakeholders, at a profit, so theobjectives of all parties involved are met, when thisis done by mutual giving and fulfilment of prom-ises’ (Grönroos 2000a).

Repositioning Brands may be repositioned over timeto exploit new market opportunities. Can be usedto rejuvenate brands.

Sales promotion Promotional activities that arenormally used to introduce a new product/serv-ice, reinvigorate a current product/service orreduce stock levels. They include free samples,money-off coupons, extra value offers andbundling of products.

Schramm’s model A communications model devel-oped by Walter Schramm (1955) that depicts sender– receiver – feedback and noise. This was an adap-tation of Shannon’s model.

Scott’s model A hierarchy of effects model – Atten-tion, Comprehension and Understanding – devel-oped by psychologist Walter Dill Scott.

Secondary research Research that is based on mate-rial that has already been gathered and analysedinternally and/or externally. Secondary researchcan comprise previous research reports and/orgovernment statistics such as a census.

Segmentation The subdivision of a market into simi-lar subsets of customers that can be targeted with aspecific marketing offer. B2B segmentation canoccur by type of product/service or businesssectors. B2C segmentation can occur by demo-graphics, socio-economic status, behaviour andlifestyle.

Semantic noise The language or cultural noise thatcan negatively impact upon the communicationsprocess.

Shannon’s model Also known as Shannon andWeaver’s model, a communications system thatdepicts a linear process from information source todestination. Adapted by Schramm (1955).

Shock advertising Also known as shockvertising, thiscan be broadly described as the inclusion of fright-ening, visceral, offensive, taboo and emotion-provoking imagery and words to promote aproduct, service, concept or idea.

Shopping goods Durable or semi-durable productsthat have a relatively long life span. They includeclothing, furniture, televisions, DVD players andwashing machines.

Sponsorship Cornwall and Maignan (1998) describethis as ‘(1) an exchange between a sponsor [such asa brand] and a sponsee [such as a sporting event]

GLOSSARY 377

whereby the latter receives a fee and the formerobtains the right to associate itself with the activitysponsored and (2) the marketing of the associationby the sponsor. Both activities are necessary if thesponsorship fee is to be a meaningful investment.’

Standard worldwide pricing A tactic used to cover allinternational markets. It is determined by averag-ing the unit cost, made up of fixed, variable andexport related costs. Generally considered a theo-retical model.

Staple products Products that are generallyconsumed on a regular, if not daily, basis. Staplesmay include (depending upon geographical loca-tion) bread, tea, coffee, rice, milk and vegetables.

Strategic withdrawal An organisation decides towithdraw from a particular market. Withdrawalmay be for several reasons, for example, increasingcompetition demanding significant resources tomaintain position within that particular market, orattempting to maintain too many brands within theorganisation’s portfolio.

Strong’s model A hierarchy of effects model – want,solution, action and satisfaction – developed byEdward Strong in 1925.

Supply chain The process of delivering the raw mate-rials to and finished product from the manufac-turer to the customer and end user. Dependingupon the complexity of the end product there willbe several supply chains involved.

SWOT analysis An analysis/comparison of the organ-isation’s Strengths and Weaknesses (Internal) with

the environmental analysis of Opportunities andThreats (external) prevalent within the industry. APESTLE analysis can be undertaken to providepotential industry Opportunities and Threats.

Targeting The process of focusing marketingresources (marketing mix) to a segmented audience.

Unsought products or services Items that consumershad not considered purchasing until they are madeaware of either a need or a benefit. There are threesubsets: resolving a current or ‘near-future’ prob-lem, ‘hard sell’ techniques and medium/longer-term considerations.

Value chain When activities (such as cost andperformance) are grouped together they can beviewed as a value chain running throughout allaspects of the company from administrationthrough to operations and distribution. The objec-tive is to examine costs and performance to imple-ment improvements that will benefit the customer.

Variable pricing Also known as flexible pricing, thisis where a company varies prices to accommodatechanges within the competitive marketplace andcustomer needs.

Vaughn’s low involvement model A hierarchy ofeffects model that is divided into four quadrants:(1) Informative (thinker), (2) Affective (feeler), (3)Habit forming (doer) and (4) Self-satisfaction(reactor).

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BIBLIOGRAPHY 387

Index

3M, 180, 181, 3683Ps, xxiii4Ps, 157–95Cs, 1247-Eleven, 173, 3687Ps, xxiii, xxiv, 15910Ps, xxiii

AAaker, D., 131Abercrombie, C. L., 5, 6, 7, 8adaptation costs, 254adding value, 112–13

firm infrastructure, 112HR, 112procurement , 112technology development,

112Adler, A., 330adoption characteristics/groups,

188–94, 371advertising, 28, 215–30, 368–9,

371, 377Advertising Standards

Authority, 228–9AIDA model, 216, 368, 371ambient media, 224–6,

368–9, 371billboards, 224Colley’s hierarchy of effects

model, 217–18direct marketing, 230–2dissonance–attribution

hierarchy, 218–19early development, 215, 217Ehrenberg’s ATRN model,

218–19fly posting, 226hierarchy of effects models,

215–20, 373, 377institutional, 221Internet, 226–7Lavidge and Steiner’s

model, 217learning hierarchy, 218media, 222–30, 371

misleading, 6offending people, 28, 228–9primary advertising, 220–1print media, 222–3product or service range,

221Scott’s model, 216selective product or service,

221shock advertising, 228–30,

376Strong’s model, 216television, cinema and radio,

223of tobacco, 34types of, 220–2Vaughn’s model, 219–20

affordability, 254after-sales service, 113AIDA model, 216, 368, 371AIDS, 37Airbus, 116, 252aircraft, 16, 94, 116, 184–5, 209air travel, 21, 33, 38–9, 111, 272,

296airport baggage handling,

324–5airport noise/disruption,

44, 46cheap airlines, 33, 111and SARS, 38–9

alchemy, 10alcohol

advertising of, 28restrictions on sale, 35

Amazon.com, 60–1, 270, 284, 319American Airlines, 36American Express, 323American Marketing Association,

5, 6, 8Andean Common Market

(ANCOM), 23Ansoff, H. I., 102, 375 approaches to marketing

consumer, 6economics, 5–6

societal, 6–7Arab Free Trade Zone, 23Arafat, Yasser, 22architecture and design of

buildings, 296–7Asda, 116Asiana Airlines, 21Asia Pacific Economic Co-

Operation (APEC), 23Association of South East Asian

Nations (ASEAN), 23Aston Martin, 133, 175, 236Attenborough, Richard, 145audit

accounting, 177marketing, 100–2, 374

aural factors, 307–10automatic teller machines (ATMs),

316–17

BB2B see business to business (B2B)

marketing B2C see business to consumer

(B2C) marketing Bacon, Francis, 79bait and switch, 264Bandura, A., 332banking, 316–17barcodes, 317Barbie Doll, 127, 170, 331Barcelona, 67, 281Barclays Bank, 316barcodes, 315–16Barnardo’s, 228–9Barlow, J., 124Bateson, J., 295, 296BBC, 89, 351Benetton, 15, 228–30Bernays, E., 330, 369beta testing, 184BIC, 131,132Bisquick, 179Bitner, M. J., xxiii, xxvBlomqvist, R., 161Bloomberg, 89

Bluetooth technology, 45, 319, 367BMW, 236Body Shop, The, 81Boeing

Airbus, 116777, 184–5

BOGOF, 240–1, 261Bond, James, 81, 220, 236, 260, 288Booms, B. H., xxiii, xxvBorden, N. H., xxiii, 156–7, 288Borders, 308Botswana, Republic of, 263boycotts, 15, 24brainstorming, 180brand names

tarnished, 140translation problems, 139unpopular, 141

branding, 119–52, 371acquisition activity, 140avoiding confusion, 138awareness, 127creating brand unity, 139definition of, 120demergers, 140equity, 17, 131–2, 371legal compliance, 140market development, 138new target audience, 138origins, 120–2promotion, 132rebranding, 137–42, 376reasons for, 122–7rebranding of organisations,

139segmentation, 126

brands, 106, 371attributes, 62awareness, 127, ,209, 217,

371consolidation, 137–8consumer and business, 122corporate diversification,

138counterfeit, 123cult, 127differentiation, 124–6, 253disposal, 149–51, 371elasticity, 371extension, 127–31, 371family, 133, 372favourite, 3, 327individual, 133, 371, 373

luxury, 62, 174–5, 259, 373management, 17, 134–5 (see

also branding)monobrands, 370own-label, 134, 374packaging, 358, 360–3 (see

also packaging)performance, 346–7powerful, 135–7protection, 122–4recall, 127, 371recognition, 126–7, 371re-energising/rejuvenation,

139, 376repositioning, 376selection, 126switching, 15types of, 132–4valuation, 131values, 124, 346–7, 371

Branson, Sir Richard, 129bribery, 293Bridge Too Far, A, 145British Airways, 141–2, 238, 292–3British Monarchy, rebranding of,

141British Oxygen Corporation

(BOC), 90British Petroleum, 138British Retail Consortium (BRC),

35–6bundling, 241, 259–60, 371Burj Al Arab hotel, 300Burns, A., 66–7, 80Bush, G. W., 21, 24, 25Bush, R., 66–7, 80business to business (B2B)

marketing, 14, 55, 57, 122, 275,276, 371–2, 373

market characteristics, 57–9micro segmentation, 59–60segmentation, 55–60

business to consumer (B2C)marketing, 14, 47, 60–4, 122,275

business to employees marketing,14

business to government marketing, 14

business intelligence seecompetitive intelligence

business to non-governmentalorganisations marketing, 14

Butlin’s Holiday Camps, 142–3Buttle, F., 250–1buyers see customersbuying systems, 59buzz, 232–6, 372Bvlgari 131

CCadbury chocolates, 133, 134Cadbury Schweppes, 135call centres, 232Callow, J., 82Canada, 38Caribbean Community and

Common Market (CARICOM),23

Carnival Corporation, 134cartels, 264–5, 372Cat’s eyes, 369–70Celebrity Cruises, 36celebrity endorsements , 62, 239,

372Center Parcs, 143, 368Central American Common

Market, 23change agents, 190change management, 57, 82

rate of change, 48channel management, 83, 88, 108,

274–5chaos theory, 20Chapman, R. L., 276, 277charities, 7, 8, 9, 46Chavez, H., 27children, 298China, 13

SARS in, 38–9China Airlines, 21Chinook Helicopters, 263cinema, 223

see also moviesClausewitz, C. von., 79, 79, 367CNN, 89Coca-Cola, 35, 83, 136, 170, 198,

362, 370Coffee Republic, 311cola drinks, 24, 35, 83, 136, 170,

198, 362, 370Colby, C. L., 192–3Colley, R. H., 215, 217–18Collier, D. A., 290 colour, 304, 305–6

perception of, 170

390 INDEX

Columbia Shuttle disaster, 41communications, 17, 144, 189,

190, 372buyer–supplier dialogue,

9–10, 62, 230–1electronic, 33integrated marketing (IMC),

244–6, 373models, 209–13, 368, 372,

376strategy, 246see also advertising, media,

promotioncommunity, local, 44, 56competencies, 100competitive advantage, 54, 55, 68,

110–12, 372cost leadership, 111differentiation, 111–12focus, 112indecisiveness, 112scope, 110, 372

competitive forces, 252 competitive intelligence, 79–96,

372analysis of, 90–2channel management see

channel managementcompany and management

structures, 88competition, level of, 82competition, actions and

intentions of, 82–5competitor analysis, 85competitor intelligence

system, 86competitor types, 84competitor’s annual reports,

89data, 90–1definition, 80–1economic intelligence, 81–2government reports, 89importance of, 82Internet, 89legal and ethical

implications of, 92–5mailing lists, 89newspapers, journals and

directories, 89pricing strategy, 87product range, 87promotional activities, 87–8

recorded data, 88–90sales value and volume, 87sources of, 86–90

competitive positions, 54, 114–17,372–5

competitive tendering, 262competitors, 45, 105, 147–8, 200

analysis of see competitiveintelligence

assessment methods, 91–2generic strategies, 110–12and hypercompetition, 67,

367key, 91potential new, 91, 107–8rivalry between, 110types of, 84

components, 176computing, 13, 15, 41, 289, 315

failure of systems, 41future developments, 13manufacturers, 59see also technological

processesConcorde, 94confiscation of goods, 26Conservative Party, 138, 141Consignia, 141, 145consumers see customersconsumerism, problems of, 39Cook, T., 259–60Cooke, E. F., 5, 6, 7, 8co-operators, 45Core, The, 41Cornwell, T. B., 239Corsica, 16cost

disadvantages, 108focus, 112leadership, 111of marketing, 10–11, 147of market entry, 108of product development,

182switching, 108, 109see also pricing

cost centre, marketing as, xxvCosta, 311Cottrell, S., xxiiCouncil for National Academic

Awards (CNAA), 139coupons, money off, 240Cox, P., 37–8

Cranfield University, 11credit card applications, 60, 323Crest Whitestrips dental kit, 198critical success factors (CSFs), 80Croft, Lara, 139cruises, 34, 36, 61, 64, 126, 134,

369Culliton, J. W., 156culture, 62, 169–71, 339

changes in, 31definition, 30–1and meaning of colour, 307orientations and behaviours,

31Cunningham, I., 7Cunningham, W. H., 7customers, 44–5, 163–4

analysis see segmentationbehaviour, 59–60, 304,

337–42business see business to

business marketingloyalty, 290needs of, 6–7, 9, 55, 100, 274,

321, 335power, 109–10relationship marketing see

relationship marketingservice, 55–6types of, 45

customisation, 56, 231Cyprus airways, 223

DDaCosta, M., 226DAGMAR, 217, 372Dahl, J., 161Dahringer, L., 336DaimlerChrysler, 140data

analysis, 70collection, 70mining, 59observable, 90opportunistic, 90sources, 88–90warehouses, 59see also competitive

intelligence, marketingresearch

database marketing, 230, 370Davidson, D., 88Dawson, L. M., 287–8, 291

INDEX 391

defensive positions, 114–17, 372deliveries of goods, 15

see also logisticsdemergers, 140demographics, 33, 60, 372

geodemographics, 83depression, economic, 29Descartes, R., 334developing world, 13, 25Diageo, 28Dibb, S., 54, 168, 171, 172Dichter, E., 72, 330–1, 351diplomacy, 26–8direct marketing, 230–2, 372disasters, natural, 15, 28–9, 36, 40,

45disease, 36–7, 38–9Disney Organization, 10, 64, 136,

140, 237Euro Disney, 14, 140–1, 269

distribution, 59, 108, 183, 275–6, 349see also channel

management, logisticsdiversification, 103, 138divestment, 102domestication (political risk), 26Doole, I., 31, 170Doyle, P., 82, 84Dubouin, J., 80, 81dumping, 264, 372Dun & Bradstreet, 90

Ee-business, 17

see also Internete-mail, 33, 72–3, 369E.T. THE EXTRA TERRESTIAL,

205, 352Eastman Kodak, 38Eats, Shoots & Leaves, 235ecological issues, 39

disease, 36–7geophysical, 39global warming, 15, 34–9pollution control, 34weather, 34–9

Economic Communityof WestAfrica (ECOWAS), 23

economic issues, 28–30, 254, 271business cycles, 29income levels, 30, 60, 254,

339–40 (see also socio-economic factors)

inflation and interest rates,30

instability, 42intelligence, 81–2poverty, 30 taxation systems, 30

economic value, 253economics approach to marketing,

5–6educational issues, 33–4Ehrenberg, A. S. C., 218–19, 372electronic processes

ATMs, 316barcodes, 315–17computerisation see

computingEPOS, 317–18RFID tags, 318–19see also technological

processesEldridge, C. E., 7employees, 43–4, 84

exploitation of, 45retired, 45training of, 348see also people

environment, marketing, 19–49,100, 374

audit, 100–1changeability of, 46–8macro environment, 21–42,

98, 105, 374micro environment, 42–6,

98, 373, 374predictability of, 48

environment, physical, 15, 34–40,273, 364

threats within, 15environmental audit, 100–1EPOS, 317–18escapism, 351–3espionage, industrial, 92–5ESSO Price Watch campaign, 257ethical issues, xxiii–xxiv, 61–2,

92–3, 264–5, 291–3, 325code of ethics, 95

Ethiopia and Nestlé, 27ethnocentrism, 31Etzel, M. J., 104Euromonitor, 134European Free Trade Area (EFTA),

23

European Union, 22, 23, 30, 33,34, 265

exhibitions, expos and trade fairs,14, 242

experience realms, 349–50, 355expropriation, 26extreme activities, 352

Ffacilities management, 13family, role of, 33Fantasia, 10–11fashion industry, 131Federal Bureau of Investigation

(FBI), 92feedback loop, 54Ferrell, O. C., 168, 171, 172Finch, E., 269five forces model 106–7, 373fly posting, 226focus

cost, 112differentiation, 112groups, 71, 72, 373

Ford cars, 56, 133Fonda, J., 31food, 34, 135, 277, 313, 368

additives, 370cultural aspects, 60, 170diversity available, 33–4junk, 31–2legislation regarding, 47tomatoes, 47see also individual food

companies/brands byname

for-profit organisations, 58forecasting, 67

see also future trendsforeign direct investment (FDI), 83Forsyth, P., 230, 338Fowler Jr., A. R., 198France, 14franchising, 81Freud, A., 329–30Freud, S., 329–30, 332, 369future trends, 13-16, 48, 318–26,

354–5

GGap, The, 308General Electric, 103–4

GE matrix, 103–4, 373

392 INDEX

geocentrism, 31geography, 57–8, 254

and business location, 57–8impact on price, 254and segmentation, 60geophysical events, 39, 40

geopolitical events, 20, 22, 42Germany, 26Ghoshal, S., 98Gilmore, J. H., 349, 351Glaser, E., xxiiGlaxoSmithKline, 139global dimming, 15, 34–9global warming, 15, 34–9global businesses, 31globalisation, xxiii, 13, 17, 20, 42,

168, 271of conflicts, 20

Godzilla, 128Goldfarb, A., 121, 134Gone With The Wind, 205government

action over SARS, 38–9activity in marketing, 14–15,

245barriers, 254confiscation of property, 27incentives, 14, 271information, 89–90local, 44policy, industrial, 108systems, 313

Grant, R. M., 97–8, 100Grimshaw, A., 337Grönroos, C., 160, 163, 230, 369Groucutt, J., 59–60, 230, 338Guardian, The 283guerrilla marketing, 224–6Gulf Co-Operation States, 23

HHaeger, T., 161Haigh, D., 347Hammond, J., 178, 195hard selling, 175Harley-Davidson, 128–9Harridge-March, S., 231Harry Potter and the Order of the

Phoenix, 209health and safety, 36–7, 38–9, 42,

360attitudes to, 31–2

Hebridean Cruises, 175

Heinz Foods, 133, 134, 149, 299Hero of Alexandria, 369Herrmann, B., 308Hilton Hotels, 56, 122, 323Hitchcock, A., 308, 309HIV, 37Hoffman, K. D., 296, 336Hofstede, G., 30, 31, 305holiday camps, 142–3Hoover, 196, 241hotels, 56, 57, 122, 269, 289, 300,

301, 305, 323room cleaning, 324

Hughes, D. G., 7human resource management, 13hygiene, 303

IIBM, 57, 86ICI, 140Inalhan, G., 269income levels, consumer, 30, 60,

254, 339–40see also socio-economic

factorsIncoterms, 254India, 5, 13, 30, 58industrial action, 21, 27, 44, 45industry structure and

characteristics, 90inflation, 30ipoint, 233industrial espionage, 92–4information

market, of buyers, 109–10external, 71, 76–7internal, 71, 73, 280main sources, 88–90systems, 101see also competitive

intelligence, marketingresearch

innovators, 190–1integrated marketing

communications (IMC), 244–6intelligent home, the, 320–1interactive television, 351interest rates, 30intermediaries see supply chainInternational Chamber of

Commerce, 123, 254, 369International Labour

Organisation, 45

International Space Station, 41Internet, 13, 33, 39, 42, 72–3, 319,

373advertising on, 227future developments, 13–14online stores, 284–5

interviews as research technique,72

Inwood, D., 178, 195ipoint, 233Iraq war, 24, 25, 348Israel–Palestine conflict, 22Issa, J. J.. 260issues management, 245Italy, 5

JJames, W., 328Japan, 29Jayawardena, C., 260Johnson & Johnson, 125–6Jung, C., 329just-in-time systems, 58, 88

KKandampully, J., 276, 277Keefe, L. M., 8Keller, K. L., 346Kellogg’s, 134, 172, 198, 299KGB, 94Kincaid, L., 189kiosks, 232, 373Kit Kat

chocolate bar, 128, 130, 140,144

club, 367–8Koehn, N. F., 121Kompass directories, 89Konkordski , 94Kotler, P., 7, 8, 54, 100, 120, 168,

170, 203, 288

LLampel, J., 98Lasswell, H., 210Laughinie, J. M., 80, 81Lauterborn, R. F., 244Lavidge, R. J., 217, 373LE-PEST-C, 21Leadley, P., 230, 338legislation and regulations, 46,

171, 273compliance with, 140

INDEX 393

consumer, 6, 34, 46hostile, 82–3levels of, 46information on packaging,

363–4safety, 182trade, 35, 47, 255, 317

Leihs, H., 336Leiser, M., 347Lever Brothers, 121, 367Levitt, T., 168, 368Lewis, E. St. Elmo, xxv, 215–16LG Electronics, 320–1life cycle of products, 142–3,

198–205, 251, 368, 375lifestyle, consumer, 61

see also socio-economic factors

Lloyds Bank, 316lobbying, 14–15, 20local

community issues, 44, 46government, 44regulators, 46

logistics, 42, 83–4, 88, 112–13, 176,276–9, 319, 349, 373

Londis, 173London Eye, 353London Metropolitan University,

140London Stock Market, 140longshoremen dispute, 20, 21Lost Weekend, The, 187low cost airlines, 111Lowe, R., 31, 170loyalty, brand, 15, 290Lucozade, 63, 139luxury brands see brands, luxuryLynch, R., 46, 47

Mmacro environment, 21–42macro segmentation, 57–9

see also segmentationMaignan, I., 239Major, J., 138management, marketing, 106Mansillon, G., 80, 81market

analysis see segmentationattractiveness, 103

market classificationsconsumer products, 171–5

industrial and commercialproducts, 176–8

market conditions, 253–4decline, 146–7development, 103, 138function analysis, 101–2mass, 56

market positioning strategies,113–14, 372–4

challengers, 112–13, 374followers, 114, 374leaders, 112, 374nichers, 114, 374

marketpricing, 264share, 348size, 105

marketersas alchemists, 10–11groups engaged, 12–13

marketingaudit, 100–2, 374 campaigns, cost of, 10as cost centre, xxvcurrent and future trends,

12–16definitions, 5–10, 374direct, 230–2ethics and social responsibil-

ity see ethical issuesgroups involved in, 12, 14history of, 4and other subject areas, xxiiias organisational function,

8, 11–12plans, 349relationship to psychology,

328–42as science or art, 11strategy see strategyteam, 12as university subject, xxiii, 5

marketing mix, 155–64, 373, 3743Ps, xxiii4Ps, xxiii, 157–97Ps, xxiii, 15910Ps, xxiiiarchitecture, 159debate about, 154, 160extension of, xxii, xxv, 158–9origins, 156–8packaging, 357–65

TQM, 158see also individual elements

by namemarketing research, 66–77, 374,

375, 376brief, 69competitive advantage, 68data collection and analysis,

70establishing need for, 68exploiting new market

opportunities, 68external information, 76–7focus groups, 72, 373forecasting, 67 (see also

future trends)identifying methodology, 69internal information, 73key trends, 17objective or hypothesis, 69observation technique, 71–2potential benefits, 67–8problem definition, 68production of final report, 70questionnaires, 69–70, 72–3,

376reducing risk, 68return on investment, 67–8role of, 66–67systematic process, 68–70techniques, primary and

secondary, 70–7, 375, 376understanding the market,

67widespread use of, 77see also competitive intelli-

genceMarketing Science Institute (MSI),

13markets

new, 57street/retail, 5, 67, 280–1

Marks & Spencer, 271, 284Mars Corporation, 137Maslow, A., 334

hierarchy of needs, 334–5materials

high-performance industrial,42

Mattel, 170, 331Mathlouthi, T., 24Mattelart, A., 210Mattelart, M., 210

394 INDEX

Maul, D., 124Mazur, P., 7McBride, 134McCarthy, E. J., xxiii, 157–9, 269McDonald, M., 10, 11McDonald’s, 32, 168, 170measurement, 15

of performance, 17Mecca Cola, 24media, the, 34, 88–9, 341, 375

for advertising, 222–7, 371ambient, 224–5, 371as opinion former, 46relations, 245see also advertising

Mercer, D., 8,9merchandising, 237–8, 374Mercosur, 23mergers, 140messages, marketing, 4–5

directed to computers, 13see also advertising,

communications, publicrelations

metrics, marketing, 17METRO Group future store

initiative, 322–3Mickey Mouse, 10–11micro environment, 42–6, 98, 373,

374micro segmentation, 59–60

see also segmentationMicrosoft, 122–3, 136migration, 33, 369Miller, V. E., 110Milligan, M. 269mind, battle for the, 62Mintel, 90, 142Mintzberg, H., 98,Met Office, 35,36Morrisons, 116movies, 358, 369

and Columbia Shuttle disaster, 41

escapism, 345, 351–2piracy, 123product placement, 236test previews, 187tie-ins, 236–7

Mugabe, R., 26Mulbacher, H., 336multiculturalism, 34

music and sounds, 304, 307–10,358

Muslim brands, 24Muzak Company, 308

Nnationalisation, 27nations

identity marketed, 14symbols of, 4wealth of, 137

Nestlé, 15, 27, 133, 135, 140New Labour Party, 138new product development

adoption characteristics,187–90

business analysis, 183–4concept testing, 183commercialisation, 187–90idea generation, 179–80idea screening, 180–3life cycle concept, 198–204market testing, 186–7minimising risk of failure,

194–8product failure, 195–8product launch, 187processes, 178–9product testing, 186

niche markets, 55, 56, 114see also segmentation

Nike, 170noise

airport noise/disruption,44, 46

control of supermarket, 44as communications concept,

213–14, 372, 374, 375, 376non-governmental organisations,

14, 15Norman, Greg, 174norms, societal, 254North American Free Trade Area

(NAFTA), 23not-for-profit organisations, xxiii,

7, 45, 58, 158non-technological processes,

321Nylon, 178

Oobesity, 32

objectives, organisational, 61, 102,178

objectivity in book, xxiiobservation as research technique,

71–2Ohmae, K., 99, 100oil industry, 27olfactory factors, 310–11operations function, 13opinion formers, 45, 46Orange, 240

Prize for Fiction, 240organisational function of

marketing, 11–12organisations

acquisition activity, 140environmental forces, 46–8functions other than

marketing, 13, 99, 200–3marketing as function of,

11–13merger activity, 140rebranding of, 139size, 58, 99structure, 88, 98, 101

Organization of PetroleumExporting Countries (OPEC),266

original equipment manufacturers(OEMs), 59

origins of marketing, 4–5Oxford Brookes University, 140,

237Oxford Bus Company, 258

Ppackages

convenience, 362–3containment and safety, 360information and legislation,

363–4market appeal, 360–1materials, 364protection and preservation,

359–60packaging, 163, 357–65, 369, 374

attributes, 359brand packaging, 359definition of, 358in marketing mix, xxv, 157,

160, 163physical, 359–64product, 358

INDEX 395

Palestine, 22Paracelsus, 10, 367Parasuraman, A., 192–3Pareto’s Law, 58, 80, 367Paris, 4, 281Parkinson, S., 269parochialism, 31participants see peoplepayments, problems with, 46, 59people, 162, 287–94, 375

building relationships, 291computer software

designers, 289ethical issues, 293hotel staff, 289in marketing, 288as marketing mix element,

xxvin not-for-profit

organisations, 291military personnel, 289pilots, 289–290psychology of, 337–9relationships breakdown,

291–3at British Airways, 292–3right people in the right job,

290Pepsi, 83, 370perceptual mapping, 63–4Percy, L., 209performance, 163, 344–56, 375

brand, 346–7definition, 344–5distribution and logistics,

349as a dynamic function, 354experiential, 349–54future issues, 354–5in marketing mix, xxv, 160,

163marketing plans, 349market share, 348measurement, 17, 346–9product or service, 346revenue, 347–8sales, 347–8

Perreault Jr., W. D., 158, 269personal shopping assistants,

322–3 personnel see employees, peoplePEST, 21PESTLE, 22, 48, 82, 270, 375

physical evidence, 162, 295–312,375

air quality, 310ambience , 303–5architecture and design of

buildings, 296–297aural factors, 307–10cleanliness and hygiene, 303colour, 305–6ease of access, 298environmental confines, 298exteriors, 296–8foyers, entrances, public

spaces, 299–300interiors, 298–305landscaping, 297layout, 301–2lighting, 305in marketing mix, xxvmusic and sounds, 307–10olfactory factors, 310–11parking facilities, 297presentation, 306product access, 298–9seating, 302–3security and privacy, 302signage, 300smells and odours, 310space, 300–1stationery, 306tactile factors, 311taste, 310–11temperature, 311touch, 311uniforms, 306vehicle design, 296visual factors, 305–6

Piaget, J., 334Pickton, D., 80, 82Pine, B. J. H., 349, 351piracy (of brands), 123place/placement, 268–85, 375, 376

channel management seechannel management

definition of, 268–70distribution, 275–6, 349economic, 271environmental, 273legal, 273logistics, 276–7physical location factors,

270–4political, 270–1

Porter’s supply chain model,277–9

societal, 271–2technological, 272–3retail outlets, 280–5

placement, product, 236political factors, 22–8, 82–3, 158,

270–1, 368doctrines and structures of

government, 82–3legal, 34pressure, 25risk, 26, 271

pollution, control of, 34polycentrism, 31Pontin’s Holiday Camps, 142–3Porter, M. E., 55, 86, 87, 90, 91,

106–10, 112–13, 277, 373five forces model, 106–7supply chain model, 277–9

portfolio matrix, 102–3, 375positioning, market, 62–3, 375

see also segmentationPost It Notes, 178, 181Premier Foods, 135premium pricing, 264Pret A Manger, 308price, 249–67, 342

ethical and legal issues, 264,266

factors influencing, 252–5fixing, 264–5matching, 375objectives, 251and psychology, 342and quality, 62sensitivity, 254–5, 375

PriceWaterhouseCoopers (PwC),145, 178

pricing factors, 252–5pricing tactics, 84, 87, 255–64, 372,

375, 376, 377book early discount, 261BOGOF, 240–1, 261bundling, 259–260competitive tendering, 262differential discounts, 261direct payment mechanisms,

262discount pricing, 261dual pricing mechanisms, 264ethical and legal see ethical

issues

396 INDEX

flexible, 258international, 263–4marginal costing, 374market, 264odd–even, 259penetration, 257, 374–5pioneer, 255–6, 375prestige, 258–9, 375price matching, 257–8price skimming, 257promotional, 259–60psychological, 258quantity discounts, 261single price/double price,

259special event, 262standard worldwide, 264,

377see also competitive

positions, strategyPride, W. M., 168, 171, 172privacy issues, 72private finance initiative, 58privilege points, 241–2prizes, offers of, 266processes, 162, 313–26, 375

adapting and changing,321–5

combination, 321ethical issues, 325future issues, 325–6as part of marketing mix,

xxvstandardisation or

adaptation, 323–5types of, 314–21non-technological, 319–21technological, 314–19

Procter & Gamble, 92, 133, 150,221, 229, 347

procurement, 112–13production, cost of, 252productivity, marketing, 101products, 167–206, 375

access, 298–9accessories, 177adaptation, 168–71, 371, 375attributes, 169business analysis, 183–4business services, 177commercialisation, 187–90concept testing, 183consumable supplies, 177

consumer product classifications, 171–6

convenience products,171–3, 372

cultural perspectives,169–71

definition, 167–8differentiation, 107–8,

111–12emergency, 173, 372food, 170 (see also food)heterogeneous, 373homogeneous, 373idea generation, 179–80idea screening, 180–3impulse purchases, 172–3,

373industrial and commercial

classifications, 176–8language differences, 170legal issues, 171life cycle concept, 142–3,

198–205, 251, 368, 375luxury goods, 174–5market testing, 186perception of colours, 170perception of numbers, 170plant and machinery, 176–7ranges, 87shopping goods, 173–4, 376staple products, 172, 377substitution, 108, 149–50,

182technical factors, 168unsought, 175, 377

products, new, 17, 84, 102, 251development, 178–98, 374diffusion, 187–94, 372failure, 194–8launch, 187, 245

professional services pricing, 262profit, 57

margin, 250, 347–8, 368promotion, 87–8, 132, 157, 208–47,

376celebrity endorsements, 239exhibitions, expos and trade

fairs, 242future of, 246integrated marketing

communications, 244–6kiosks, 232merchandising the brand

237–238movie tie-ins 236–237objectives 208product placement 236, 376sales promotion, 240–2sponsorship, 239strategy and tactics, 215 (see

also strategy)word of mouth, 232–6see also advertising, direct

marketing, public relations

protectionism, 15Psycho, 308–9psychology, 163, 188, 269, 274,

327–43behavioural aspects, 331–3categories of buyer

behaviour 337, 342cognitive approach, 334–6evolutionary approach, 336fear, 340–1financial and economic

influences, 339–40humanistic approach, 334key approaches, 328–37lifestyle, 339in marketing mix, xxv, 161, 163media, 341necessities, 342people, 337–9price, 258, 342, 376and physical evidence, 296psychoanalytical aspects,

329–31relationship with marketing,

337social psychology, 336–337

public–private partnerships, 58public relations, 46, 242–4, 369,

376public sector, 58

see also governmentpublicity, 245purchasing decision, 59Pyle, J. F., 7

Qquality

and price, 62of products, 6, 15

Quee, W. T., 67Question Time (BBC), 351

INDEX 397

questionnaires, marketingresearch, 69–70, 72–3, 376

student module evaluation,73–6

Quibla Cola, 24Quinn, J. B., 98

RR&D, 41–2, 178–81, 200–3

cost of, 252see also products, new

Raban, J., 337radio, 223Rayburn, J. M., 5, 6, 7, 8rebranding, 137–42, 376recessions, 29, 255regioncentrism, 31regulations see legislation and

regulationsreinforcing actions, 331–3relationship marketing, 13, 17,

53–4, 160–3, 288, 290–3, 376relationship networks, 280rescue operations, 42research and development see

R&Dresearch, marketing see marketing

researchrestaurants, 9, 34, 39, 43, 260, 313

suppliers to, 43retail outlets, 16, 280–5, 306, 308,

317–18, 368future store initiative, 322–3Holiday Inn Express, 282individual stores, 284markets, 280–281multiple or chain stores, 284online stores, 284–285in schools, 283supermarket layout, 301–2technical developments,

283–4, 317–18vending see vendingwindow displays, 16

retired people, 45return on investment, 67–8, 250,

345RFID tags, 318–19risk management, 68, 82, 194–8

political, 24, 26, 271product, 6

risk taking, 191robots, 42

Roddick, A., 81Roddick, G., 81Rogers, E., 188–91, 195Roosevelt, F. D., 29Rosen, E., 232–4, 339Rossiter, J. R., 209Rothschild, W. , 83Rowling, J. K., 209, 220Royal Caribbean International, 36Royal Mail, 141, 145

SSainsbury, 116Safeway, 116sales promotion, 240–2

see also promotionSamaritans, The, 144Santrock, J. W., 296, 328, 330, 336,

338SARS, 37,38–9, 48scale, economies of, 107scenario planning, 48Schramm, W. 376Science of Sport Exhibition, 351Schultz, D. E., 244Scott, W. D., 216, 376security issues, 303

security services, 81segmentation, 54–64, 126, 373, 376

B2B, 55–60B2C, 60–1behaviour, 60characteristics, 57demographics, 60geographic location, 60lifestyle, 61macro segmentation, 57–9micro segmentation, 59–60perceptual mapping, 63–4positioning, 62–3products, 58–9repositioning, 63services, 58–9socio-economic behaviour,

60–1strategy formulation, 61–4targeting, 61–2

services, 56business, 177–8, 371–2, 376to customers, 55–6packaging of, xxvsector, 8

shampoo, 336

Shangri-La Hotels, 133Sharp, S., 80Shaw, P., 369–70Shell, 15shipbuilding industry, 20shops see retail outletsSierra Leone, 26Simpkin, L., 168, 171, 172Singapore Changi International

Airport, 296, 299, 324–5Skinner, B. F., 331–2Skoda cars, 199Smith, W. R., 57Sinclair C5, 77, 194–7societal approach to marketing, 8societal issues, 30–4, 254, 271–2

demographics seedemographics

education, 33–4health, attitudes to, 31–2social psychology, 336–7social unrest, 42 (see also

political factors)technology, 42 (see also

techological processes)Society of Competitive

Intelligence Professionals, 95socio-economic factors, 60, 190–2,

369see also demographics,

economic issuesSoosay, C., 276, 277Spar, 173special offers, 30SPECTACLES, 21Spielberg, S., 352sponsorship, 239, 376–7Spurlock, M., 32stakeholders, 8, 15Stanton, W. J., 104Starbucks, 308, 311Star Trek, 180Star Wars, 288stationery, 306Steiner, G. A., 217, 373Stewart, A., 269stores see retail outletsstrategic business units (SBUs),

56, 57, 98, 99, 371strategic industry groupings,

90–1strategy, 13, 97–117, 371, 373–4, 377

adding value see value

398 INDEX

addingAnsoff’s portfolio matrix,

102–3business, 99business strength, 103–4buyer power, 109–10competitive advantage,

110–12competitive positions, 54,

114–17, 372–5competitive scope, 110of competitors, 85, 86, 110corporate, 99, 372cost leadership, 111defensive positions, 117definition, 98–9differentiation, 111–12five forces model, 106–7functional, 99GE matrix, 103–4market attractiveness 103market function analysis

101–2market positioning 113–14marketing audit 100–2new entrant threat, 107–8relationship with marketing,

99–100substitution threat, 108supplier power, 108–9SWOT analysis, 104–6, 367,

377Strong, E. K. Jr., xxv, 216, 368, 377students as audience for book,

xxiiSunlight Soap, 121, 367Sunny Delight, 150supermarket layout, 301–2Supersize Me, 32suppliers, 43, 84

financial performance, 84multiple sources, 59power, 108–9

supply chain, 44, 377model, 277–9

Swiss Re tower, 297SWOT analysis, 104–6, 367, 377symbols, national, 4systems approach, 7

Ttactile factors, 311Taiwan, 28

Tannebaum, S. I., 244Tapp, A., 230Tarde, G., 188targeting, consumer, 61–62, 377targets, sales, 348taxes and surcharges, 30, 252, 255

direct and indirect, 30technological processes, 272–3,

280, 314–19electronic, 315–19 (see also

electronic processes)impact of changes, 39–42,

112, 282–4, 321–5Internet, 319manufacturing-production,

314–15nanotechnology, 325–6national differences, 168–9see also computing

telemarketing, 231–2television, 34, 89, 168–9, 223

interactive, 351Telford, A., 59–60terrorism, 20, 22, 25, 81Tesco, 116

Tesco.com, 270, 284Tetra Pak, 361–2Thatcher, M., 138, 141think tanks, 48, 71, 76Thomas, J., 198time element, 9

for new product adoption,189

Times Educational Supplement, 283tobacco, xxiii, 34, 330tomatoes, 47Tomb Raider, 139Torrance, J., 337Toscani, O., 228–30Total Quality Management

(TQM), 158Total Recall, 353tourism, 33, 56, 63

and terrorism, 22and natural disasters, 28–9,

39, 40in Southeast Asia, 40 taxes on, 30see also cruises

Toy Story, 236–7trade, international, 27, 82–4, 254,

317barriers to, 15, 34

into the United States, 21trade-in allowances, 260–1trade unions, 45

longshoremen, 21trading alliances, 22–4transactions, 9transportation, 33, 275–9

costs, 254types of shipment, 277see also distribution,

logisticstravel, 358

impact of consumer, 33see also cruises

Treguer, J–P., 60trials, product, 195Truss, L., 235tsunami in SE Asia, 28–9, 40, 45Tupolev aircraft, 94Tylenol, 125–6, 360typewriter, superseded, 41, 57

UUgly Ripe tomato, 47UNICEF, 15Unilever, 92, 102, 135, 147, 148–9,

178, 221, 299, 347path to growth, 102, 148–9

United Airlines, 36United Kingdom

car industry, 58political activities, 25shipbuilding industry, 20Ministry of Defence, 263National Security Service

(MI5), 234–5United Nations, 15, 25, 26United States

Chamber of Commerce, 92Economic Espionage Act, 92Environmental Protection

Agency, 37Great Depression, 29levels of regulation, 46longshoremen’s dispute, 21political issues, 25territorial waters, 34wine shipments, 35weather, 36

universitiescourse evaluation, 73–6marketing research by, 77as a market place, 350–1

INDEX 399

University of North London, 140

Vvalue adding, 80, 112–13, 371value chain, 43, 55, 377Vaughn, R., 219–20, 377Van der Heijden, K., 48Varah, Chad, 144vehicle design, 296vending, 281–3, 369Venezuela, 27vertical integration, 109Viagra, 184Victoria & Albert Museum, 123Virgin, 83, 129–30, 133, 347virtual reality, 353vitamin supplements (cartel), 265Volkswagen, 199Voyager of the Seas, 297

WWalker, B. J., 104Wal-Mart, 116Wall Street Crash, 29Warner Holiday Camps, 143weather, the, 20, 34–9

and wine growing, 57–8Werther’s Originals, 338West, C., 83–4Western philosophical approach,

xxi, 42Wilder, Billy, 187withdrawal from markets, 102–3,

115–16Woolworth, F. W., 259World, The, 174–5World Bank, 27World Health Organization, 38World Trade Center disaster, 22,

39

World Trade Organization (WTO),22, 28, 83, 254

Wright, R., 54, 55–7, 59Wright, S., 80, 82

XXerox, 86

YYelkur, R., 226

ZZamzam Cola, 24Zeneca, 140Zikmund, W. G., 69–70Zimbabwe, 26Zolkiewski, J., 162

400 INDEX

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Foundations of Marketing

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