Introduction

To fully understand the marketing concept you will need to understand the

range of activities in which the marketer participates. Not only will you

need to be aware of the emerging trends in the industry but also the

relationships that exist between marketing and its key promotional

components such as personal selling and advertising.

You will need to be aware of the legal and ethical constraints on marketing

and how these affect the marketing of goods and services.

1. What is marketing?

In its most basic form, marketing is about the old-fashioned idea of barter. That is,

if someone has something you want and you have something they want, you can

exchange, or trade, and both parties are then satisfied. This sort of trade was

common many years ago.

Where does this kind of barter still occur?

It still occurs in primitive societies, where food, clothing and tools may be bartered

between tribes. It also happens in schoolyards, where children swap lunches and

collectibles such as cards.

In the case of modern day marketing the barter, or exchange, is usually in terms

of goods and services for money. In order for the exchange to occur, the buyer

must have a need. We will discuss the concept of needs later in this topic.

Find some definitions of marketing from textbooks and dictionaries and write

them down.

Marketing may be defined as all the activities undertaken by an organisation in

the process of satisfying customer demand, while making a profit. This includes

producing, pricing, distributing and promoting goods and services in a way that

satisfies demand.

It is not only businesses that engage in marketing. The range of organisations

involved in marketing is diverse. It includes businesses, charities and non-profit

groups, government departments and farms. For example, rather than selling

goods or services, charitable organisations may encourage donations or support

for a cause.

Government departments may seek community support or private enterprise

investment in infrastructure. You will find out more about the

The Marketing Concept –overview

Topic 1: The Market Place

range of organisations that engage in marketing in the following reading.

Note that the term ‘customers’ includes a wide range of people including

consumers, businesses and other organisations. Note also that the term ‘profit’ can

also include a wide range of concepts – for example in the case of a charity

‘profit’ may refer to greater efficiency in the acquisition of new donors or

supporters.

2. The marketing concept

The marketing concept is a business philosophy built upon the reason for the

existence of a business organisation is the satisfaction of customer needs.

If the basis of the marketing concept is customer need satisfaction, it therefore

makes sense that those organisations which best satisfy customer needs will be

the most successful and profitable in the long run.

Think about your own purchase behaviour. Imagine you have your car in for a

service and the manager goes out of their way to make sure you are looked after

and the car is cleaned and washed ready for collection at the allocated time. Now

imagine you book your car in somewhere else and find the service poor and the

waiting time unacceptable—it happens! Which of these two service agents is

more likely to get the return customers?

Did you say that the service agent that best meets customer expectations will

obviously get the return customers?

Again, we must stress that it is not only businesses that can profit from

satisfying ‘customer’ needs.

If you were running the Blood Bank, how would you get your blood donors to

come back and let people stick needles into them and take their blood, again

and again and again? (Note: it is illegal in Australia to give people money for

donating blood’)

The Blood Bank is not a business, but it certainly is in the business of marketing

itself to get people to give blood regularly. Whilst blood donors aren’t

‘customers’ they are as important to the blood bank as customers are to profit

making businesses. The Blood Bank provides comfortable facilities and food

and beverages for blood donors. They also have friendly and welcoming staff.

The Blood Bank gives people a reason to come back!

3. The elements of the marketing

concept

The marketing concept has three basic elements. These are:

1. Customer focus

Everything the organisation does should be done with customer needs in

mind. This means conducting formal and informal research to identify and

satisfy changing customer needs and preferences.

2. Organisational objectives

These may include profitable sales volume, customer service or market share.

An organisation should endeavour to maximise sales whilst still ensuring the

sales volume is profitable for the business.

3. Co-ordination of marketing related activities

Management of a truly ‘marketing-focused’ organisation will ensure that all

aspects of the business are geared towards satisfying customer needs. This

starts with co-ordination of the elements of the marketing mix and includes

production, finance, sales and warehousing. Co-

Ordination among all these areas aimed at satisfying customer

needs will yield greater productivity and profitability in the long

term.

You can read further about the marketing concept by clicking onto the

following web addresses and text-based resources.

www.netmba.com/marketing/concept/

4. The role of marketing in organisations

Marketing planning

This occurs in the wider context of organisational planning. Marketing

objectives and plans are directed by long-term corporate goals and

strategies. Some of the key questions that are addressed by a corporate

plan are:

Where are we now?

Where are we going?

How are we going to get there?

How will we know we got there?

The marketing plan is derived from these corporate goals. For example, if an

organisation is looking to dramatically increase its profitability, the management

teams in each department would be required to develop their own department’s

plan to address this goal.

The human resources department may need to hire additional staff and the

production department might have to upgrade machinery.

The specific marketing plan may involve the introduction of new product lines, or

entry into new markets. It may even involve a long-term brand building campaign.

5. How is marketing different to selling?

So far we have seen what a marketing person does and the position the marketing

function holds in various organisations. There is still one area where even those

with some understanding of marketing get confused— whether marketing is

different to selling.

It has been suggested that marketing is just a fancy name for selling – some

cynics have called it ‘selling with a university degree’. Other people think that

marketing is advertising.

So, at this point, we need to be quite clear in out thinking. In fact,

personal selling and advertising are both parts of the ‘promotional mix’— a

concept we will examine in detail a little later.

6. The marketing mix

The marketing mix is also referred to as the 4 Ps. It is called the

4 Ps because it is a combination, or mix, of four key elements.

These are:

Product

Price

Promotion

Place (or distribution)

Service markers add an additional 3 Ps to as a means of

controlling variables created by intangibilities caused by the

delivery of services

People

Processes and

Physical evidence

For the purpose of this topic, you do not need to know about the marketing mix

in detail. However you should be familiar with the concept.

The 7 Ps – The marketing mix

Figure 1: The marketing mix

Product mix

A product is a set of tangible and intangible elements. The term ‘product’ can

refer to physical goods, such as cars, food or clothing, as well as services such as

Tourism, Events, insurance and ideas.

The term ‘product mix’ refers to the total range of products offered by an

organisation. For example, a consumer electronics company may market a range

of television sets, DVD players, camcorders and hi-fi equipment. Within each

product category, various models with different features as well as sizes and

prices are available to suit a range of needs and budgets.

It is vital that advertisers communicate the benefits of products, rather than

focus on features. Consumers do not buy features; they buy benefits as you can

see from the example below.

Let’s look at the example of buying a car.

Features Benefits

Air conditioning Comfortable driving experience

Security system Reduce risk of theft

Free servicing for 12 months Have more money to spend on other things

A person doesn’t buy a car with air conditioning because they like the actual air

conditioning. The air conditioning provides comfort, particularly on hot summer

days and cold winter mornings!

You must always keep this in mind when developing advertising to appeal to a

target market.

Fill in the table for a Tourism product of your choosing.

Product:

Features Benefits

Brands

A brand identifies a product and acts as a point of differentiation. A brand can be

as valuable to an organisation as its entire plant and equipment. Consider brands

such as QANTAS or McDonalds and Nike. These brand names are invaluable to

their owners. Consumers often buy ‘brand name’ items to reduce risks associated

with purchase. This is because the consumer perceives that the brand is

‘reputable’ or “safe”.

‘Branding’ does not only apply to consumer goods. Consider the following case

scenario:

This example illustrates that even in the market for charitable donations,

branding is still important.

What are some items where brand is an important consideration in your choice?

Price

Price is what you pay for what you get. The price customers are willing to pay

depends on the situation. Consider the following examples:

Buying a can of soft drink

What is the usual price for a can of soft drink from a takeaway shop? Don’t you

hate paying more when you go to sporting events or concerts? They are dearer

here because at the sporting venue, customers are limited to one or two choices.

Often drinks are not allowed to be taken into these venues so the drink sellers

have a ‘captive’ market. At the take-away shop, customers have the option of

going to another shop or choosing something else.

What are some circumstances where price is the most important consideration

in your choice of product?

When is price a less important consideration?

Setting a price

Setting a price is a delicate business. It must be higher than the costs (including

costs of marketing, distribution and retailing) but must not be more than the

customer is willing to pay.

Place (distribution)

‘Distribution’ involves all of the activities in the process of delivering a product to

its end user. An organisation may choose to distribute directly to customers, or

indirectly, using intermediaries.

Intermediaries are the independent organisations that act as a link between the

producers of goods and services and their customers. Intermediaries are

commonly referred to as ‘middlemen’. Examples of intermediaries are retailers,

wholesalers, agents and other distributors.

Direct distribution

Direct distribution occurs when an organisation has direct dealing with a

customer and delivers the product directly to them.

Examples of direct distribution are:

Major paint companies such as Wattyl, Dulux and Taubmans all have

company-owned stores for customers to buy from.

Party plan or catalogue selling of products such as home wares, lingerie and

ladies fashions.

Airlines such as QANTAS sell seats on their flights direct to consumers.

Stationery suppliers that sell to other business users through catalogues and

phone orders.

Indirect distribution

Indirect distribution occurs when an organisation uses one or more intermediaries

to distribute its products.

Examples of this are:

Coca Cola sells products to Woolworths stores which then sell to consumers.

Smallgoods companies sell to distributors who then sell to retail outlets such

as delicatessens, which then sell to consumers.

QANTAS also use intermediaries to sell to the public, such as Travel agents

who sell on their behalf or wholesalers who package their flights with touring

product.

Promotion

Advertising is the most obvious and visible form of promotion. However there is

more to promotion than just advertising. The promotion mix includes advertising,

promotion marketing (sales promotion), public relations/publicity and personal

selling.

Advertising

This involves mass communication of paid advertisements, placed in the media.

Promotion marketing (sales promotion)

This generally involves all the activities used by marketers to generate interest

and short-term sales. However, a consistent effort is required to ensure all of the

smaller ‘promotions’ communicate a common message to the market place.

Promotion marketing includes: in-store displays, trade shows, competitions and

give-aways.

Public relations/publicity

This can broadly be described as communication designed to influence attitudes

and opinions of a target group. Unlike advertising, public relations does not involve

guaranteed media placement.

Publicity and media coverage are the largest areas of public relations. However

there are many other effective public relations tools. Some of these include media

relations, corporate public relations, crisis and issues management as well as

marketing and product public relations.

Personal selling

This involves two way interpersonal communication. It may involve face-to- face

communication and interaction or personal interaction over the telephone.

Personal selling is common in the Tourism industry, where companies such as

airlines, hotels and wholesalers have Sales representatives who call on retail

travel agents to promote their products.

Organisations commonly use more than one type of promotion to get a message

across. For example, cosmetics manufacturers such as ‘Clinique’ commonly use

glossy magazines for advertising, however they also often use direct media (to

Myer and David Jones credit card holders) and frequently seasonal gifts with

purchase promotions.

7. The marketing environment

A lot of significant world and national events have occurred in the past decades

that have had a huge impact on the way organisations do business – particularly

the Tourism industry. The marketing environment itself is a dynamic and

constantly changing phenomenon just as the world is. Marketers must be aware of

changing market conditions in order to respond quickly and stay competitive.

Most managers in organisations have a good understanding of the environment in

which they operate. For example, some markets, such as hair care products, are

highly competitive, where others, such as service agents for large mining

equipment, may be far less competitive. Every different market has a range of

factors that influence it.

The marketing environment includes all those factors that have an influence over

the operation of a business and its effectiveness in the market place. It can include

factors that the organisation has total control over, such as cash reserves to things

such as interest rates over which the organisation has no control.

You must also be aware of your organisation’s strengths and limitations as these

factors will influence your marketing decisions. For example, a small or medium

sized manufacturing business may not have the financial resources or the

marketing knowledge to conduct an advertising campaign, but they may be very

good at relationship building via their sales force.

When analysing the marketing environment, the first question to ask, is ‘what

market are we in’? It might sound easy and obvious, but it requires careful

consideration.

For example, imagine you manufacture soft drinks. Would you say you operate in

the ‘soft drink market’, or the broader ‘beverages market’? In each case there

may be different competitors. In the beverages market you are competing against

alcoholic drinks, milk drinks, fruit juices, and water. These products are not direct

competitors, however they are substitutes for soft drinks. They must still be

considered when analysing the marketing environment. As a marketer you must

get to know the market/s you operate in and who your key competitors are.

Another example may be an airline such as Jetstar. Are they operating in just the

“airline market” or the broader “transportation market”? Again, in each they

would have different competitors. In the airline market they compete against

Virgin and other domestic carriers, and in the transportation market they are

competing against bus, rail and car transport operators.

When we analyse the marketing environment, we are looking at all the factors that

influence our company’s marketing activities and the behaviour of the target

market. In marketing and advertising planning, this is done as part of a ‘situation

analysis’.

There is a macro environment (external) and a micro environment (internal). For

the purpose of this unit we will only focus on the external environment as this

influences the needs and wants of the target market.

You should now review the relevant chapter from the recommended text list for

this topic:

Political/legal factors

Political and legal factors are usually considered together as laws and

regulations are developed by Governments at all levels. Examples of political

and legal factors that could influence marketing activities include:

laws and regulations

change of Government (or elections)

taxes and other economic policies

trade policies.

Some of the many laws and regulations affecting marketing and advertising

include

Competition and Consumer Act 2010, . This is monitored by the Australian Consumer

and Competition Commission (ACCC).

Privacy Act (1988) Monitored by the Office of the Federal Privacy

Commissioner

The ACCC website provides summaries of the Competition and Consumer Act 2010,,

and you can also find out about the range of action taken by the ACCC against

marketers over the past few years.

www.accc.gov.au/

You can read about the 10 National Privacy Principles at

http://www.privacy.gov.au/act/index.html

Economic factors

People and organisations are the market—but they don’t exist in a vacuum,

unaffected by the economy around them. Nor do they have a constant and infinite

supply of money. A variety of factors govern their willingness to spend and the

marketer must take these influences into account.

The first thing to consider is the general state of the economy. Economies tend to pass

through a four-stage cycle—prosperity, recession, depression and recovery.

Thankfully, economic management techniques are able to prevent the third stage

from occurring too frequently. When it does occur, the results are disastrous, as

happened in the 1890s and 1930s in Australia. However recessions, as

experienced in Australia in the early 1980s and 1990s, are a regular fact of

economic life. During recessions, customers reduce their spending.

What is the state of the economy now?

Inflation, interest rates and unemployment

The general state of the economy, inflation, unemployment and interest rates are

referred to as ‘key economic indicators’ and they can have a huge

impact on the marketing environment.

Inflation affects customers and marketers. Inflation means prices are rising, so

buyers receive less for each dollar spent. It is most common at times when there

is money around, but not enough goods and services to meet new needs. Such a

situation occurs when an economy is coming out of recession and production

levels have not caught up with new levels of demand.

The challenge for the marketer is to handle inflation most effectively. When

inflation is high, both pricing and the control of costs, which will also rise, are

important. You must know how high to permit prices to rise without driving

customers away.

It is important to be careful with expansion plans. Many marketers, driven along

on a wave of optimism by the apparent strength of the economy, rush to release

ill-considered new products or enter normally low profit areas of the market.

Times of low inflation mean you must keep a closer eye on costs. You must select

your markets carefully to ensure you continue to make reasonable profits. You

cannot rely on inflation alone to provide you with automatic price increases if you

get into trouble. Inflation alone will not provide automatic price rises. You still

have to make a decision to raise prices.

Interest rates can affect marketing activities greatly. In a period of high interest

rates, the purchase of items that require the customer to borrow money tends to

slow down. Houses and motor vehicles, along with industries associated with

these areas (furniture, white goods, motor vehicle parts and accessories), tend to

suffer severely in these periods. Low interest rates have the opposite effect.

Household debt increases as money is more freely available for property

investment and other purposes.

Finally, unemployment has a direct affect on people’s capacity and willingness to

spend. In times of high unemployment or uncertainty over the future stability

employment, people tend to spend less on items that are perceived as ‘non

essential’ or luxury items. Similarly, there is less money given to charity groups at

a time when it is most needed.

Economic data and forecasts are freely available from the Australian Bureau of

Statistics (www.abs.gov.au). You can also keep up to date by reading the

financial pages of daily newspapers.

Socio-cultural trends

Lifestyle factors, such as how we spend our time as well as our attitudes towards

a range of issues, are vital for marketers to understand when attempting to build a

profile of the target audience. The socio-cultural environment includes social and

cultural trends such as lifestyle choices and social values. It has a huge influence

on the marketing environment. Some of the major trends are the emphasis on

healthier living and increasing awareness of, and concern for, the environment.

What changes in the supermarket have you seen in the last few years that reflect

changing socio-cultural trends?

Social diversity

Australia is a multicultural society, but we are also a socially diverse nation. As a

democratic society, we have a range of cultures, religious beliefs, social attitudes

and political beliefs that influence our lifestyle choices. There is also a large

income spread among the community.

The ‘traditional’ nuclear family with mum, dad and the kids is not as common as

it was many years ago. Divorce, single parent families and people deciding to

have children later in life (or not at all) all combine to influence purchasing habits.

The advertising media in Australia is becoming increasingly fragmented to appeal

to the needs of different groups. This is the result of our busy lifestyles and

growth in the use of technology and telecommunications innovations.

Technology factors

Thanks to technology marketers have instant, low cost access to a global

market and consumers have access to a world full of products and information.

Technology is often well beyond the control of the organisation and can create

enormous changes in the marketing environment. Examples of technology factors

that have influenced the advertising and promotions industry in Australia include

the Internet, SMS and other mobile phone technologies.

Demographic trends

Demography involves the statistical study of populations. It includes elements

such as income, gender, family status, religion, education and age. The major

demographic trends in Australia are the ageing population, changing household

compositions and the appearance of ‘Generation X’. Each of these is discussed in

the following section.

One of the best sources of demographic data in Australia is the Australian Bureau

of statistics (ABS). The ABS offers a great deal of free information but can also

provide a range of customised and specific reports for a fee.

Australia’s ageing population

One of the most significant trends in the marketing environment is the trend

towards an ageing population. The phrase ‘ageing population’ refers to the fact

that as a percentage of the total population, older generations are increasing in

numbers.

You may have heard the term ‘baby boomers’. This refers to those people who

were born in the years following the Second World War. Most of these people are

somewhere in the age bracket 50–65 and they are nearing or planning for

retirement. After the ‘baby boom’ period of the 1950s and 60s, the birth rate began

to decline. This is why we have an ageing population. The percentage of

Australians aged over 65 is over 13%.

Generation X

Another significant grouping for marketers is the so-called Generation X— those

born between 1965 and 1981. This demographic group has been described as the

‘selfish generation’—well-educated, watching more television, and living in the

family home longer. This group is also extremely attractive to marketers. Many

Xers are now in their 30s and at their peak earning potential and are well

established in their careers.

Generation Y and Generation Z

Perhaps you would be more familiar with the term Generation Y – which

describes the generation born between 1982 and 2000; or, perhaps, not so

familiar with Generation Z which describes those after 2001.

You can read all about Generation Y here:

http://www.learningtolearn.sa.edu.au/Colleagues/files/links/UnderstandingG

enY.pdf

Household composition trends

Another part of demographics also includes the make-up of the household. In the

1960s and 1970s, the traditional concept of mother and father with two children

was the reality for marketers. By the year 2000, however, things changed

radically. Nearly 30% of households consist of one adult living alone. A

substantial number of homes (approximately 18%) is occupied by only two

people. The response to this trend has been the construction of increasing

numbers of small flats and units for one or two persons.

Factors that have lead to the increasing number of singles (sometimes called

‘home-alones’) include:

the increasing divorce rate

ageing of Australia’s population

the increasing life expectancy of Australians

people marrying later in life—or not at all

people having children later in life—or not at all.

A look around your supermarket reveals a variety of brands and types of meals

for one or two people. Many of these are for microwave use, the convenient way

of preparing a meal for those with no need or wish to cook. The traditional items,

such as family-size pies, are pushed to the back of the freezer.

Ethnic diversity

The increasing diversity of Australia’s ethnic population mix is also an

opportunity for marketing action. Supermarket shelves carry a variety of foods

from all parts of the world (from Indian curries to Thai stir fries) and some are

pre-prepared meals designed for variety in tastes and eating patterns.

Restaurants offering cuisine of overseas origin are found in every town and

suburb. Impacts of cultural diversity are also being found in other areas, such as

housing, financial services and leisure industries.

Changing gender roles

The roles of both men and women have changed considerably over the past 40 or

so years. The changing role of women is often talked about, with women having

greater flexibility and choice in their work and social lives.

However, marketers are slowly realising that the role of men is also

changing. Product categories that were once considered for ‘women only’ are

now targeting men. A perfect example is the launch of the Nivea for Men range in

the 1990s. There are many more examples of personal and skin care products now

targeting men. Fashion has also become a point of interest for many men, with

major city and metropolitan shopping centres, such as Westfield, actively

promoting fashion to men.

Competition

We all know that in today’s competitive business environment, business is tough,

especially with the impact of technology that links people around the world—

instantly!

Just how much of a problem competition causes you depends on who is out there

competing. In the case of the computer market, there are lots of companies all

trying to gain the greatest market share they can. If you are a marketer in this

industry you had better be on your toes. The mobile phone service battle is pretty

hot also.

At the other end of the line are operations like Australia Post that have a position

of no competition (monopoly) for their postal services. Even they have to watch

out for people providing the same service in a different way, such as courier

companies and the suppliers of fax machines.

8. Marketing information and market research

How does a family pizza shop know what types of toppings are preferred by its

customers and how does the Red Cross know who is supporting the charity?

Finally, how do the television networks know who is watching? The simple

answer is that they have market information.

The pizza shop owner only has to look at her records to see that seafood and BBQ

chicken seem to be the most popular choices lately. The Red Cross could look at

its database of receipts to find out who is donating and how much they are giving.

The television networks subscribe to ratings information.

Marketing information is critical to the success of any organisation, large or small.

Marketing information includes everything from how much and what you are

selling (such as the Pizza shop example), to who is watching television and when

they are watching. It also helps organisations to keep an eye on competitors and

monitor market trends.

In this section we will discuss the types of marketing information, their

collection methods and their application.

Gathering market information

A marketing information system is simply a method of collecting, analysing and

storing information. For example, the pizza shop owner in the previous example

might know from memory that seafood is a popular pizza topping,

however she might not know off the top of her head how cheese suppliers and

prices have changed over time. She would need to look at her records to find this

information. This information would form part of the marketing information

system for the business. Of course, large organisations have hi- tech computerised

data base systems for this purpose, however the pizza shop example demonstrates

that even small businesses can use a marketing information system.

Modern marketing information systems can now, at the press of a button,

provide:

regular reports on sales, profit, and stock turnover

data on trends and sales movements by product, service or geographical area

estimates of the likely result of particular marketing actions, e.g.

He effect on sales and profit of a price rise, extra discounting to

certain customers or an increase in the level of stock held in the warehouse

marketing intelligence from your own people and contacts.

At this point we should make the difference between a marketing information

system and marketing research clear.

Marketing information systems (MkIS)

MkIS are systems that continually gather information that can be used to make

marketing decisions. Information may include sales figures, economic data for

trend analysis, customer details, etc. In the case of the Blood Bank that we

discussed earlier, it may maintain its database of previous donors as part of its

MkIS.

Marketing research

Marketing research is information gathered for a specific question. We use

marketing research to gather information about the marketing environment and

about customer needs. In the case of the television network mentioned earlier, it

relies on external information that is specifically collected to determine ratings.

You should now review the relevant chapter from the recommended text list for

this topic:

Rix P Marketing: A Practical Approach, McGraw Hill, Sydney.

Primary and secondary data

Researchers usually divide their data into: primary data and secondary data.

Primary data is information gathered specifically for the project you are working

on. Secondary data is information that is directly relevant to what you are doing

but that has been gathered originally for some other purpose. Or if you like, your

secondary data is someone else’s primary data!

Although it is just as likely to be your own data from another project.Gathering

secondary data

The beauty of secondary data is that you can get a lot of it while sitting at a desk.

That’s why you may hear it referred to as desk research. Where can you find

secondary data?

The best place is probably the Internet. The Internet is a valuable source of

information. If you use major search engines carefully, you’ll be able to access

secondary data, which would save hours of work.

Alternatively, you could visit a library, where you can access information either in

written publications, books, magazines and journals or on a computer database.

One thing both the Internet and a library have in common is information published

by the Australian Bureau of Statistics (ABS). They publish statistical data and

information about trends in a large variety of areas. Examples include census data,

population estimates and projections, information about consumer income and

expenditure, housing and construction, manufacturing industries, retail outlets and

much more.

Other sources of secondary data

Another place you could look would be in the files of large general market

research companies. A number of these (with A C Nielsen being the prime

example) conduct continuous research programs on all manner of subjects with a

view to selling the results to anyone interested. If your project involves consumer

goods sold in a supermarket, the AGB research organisation can supply you with

information on customer buying patterns drawn from records created by checkout

scanners. Visit their website www.agbgroup.com for further information.

Gathering primary data

Primary data may be collected using a range of techniques. These include focus

groups, observation research and surveys. If you are not already familiar with

these from your previous reading, look them up in your textbook.

Focus Groups

Surveys

Central location/personal survey

Telephone survey Mail survey

You can read further about marketing information and market research in

Australia by visiting the website of the Australian Market and Social Research

Society at www.amsrs.com.au

9. Consumer and business markets

The term ‘B2B’ means ‘business to business’ marketing. Similarly, the term

‘B2C’ means ‘business to consumer’ marketing. The basic difference between the

two is the intended use of the product.

In this section we will introduce the key differences between B2B and B2C

marketing. We will also look at the different influences on decision making in

both types of markets.

We will look at consumer markets first, followed by a discussion of

business markets.

Consumer markets

We are all consumers—so when you are considering how consumers

behave, think about your own buying behaviour! Understanding

consumer motivations and behaviour is very important for advertisers as it

underpins all of our marketing communication planning strategies and

decisions.

Consumers should actually be viewed as problem solvers because we make

purchase decisions to solve problems. For example, we buy new clothes to make

us feel good or because old ones have worn out. We might buy a drink when we

are thirsty, or food when we are hungry.

Earlier when we discussed the product mix, we stated that people buy benefits,

not features. The benefits that consumers look for are those that will best solve

their immediate problem.

There are three broad types of decision-making. These are:

Extended search decisions

Extended search decisions are likely to be high involvement decisions. They

involve a lot of time and effort and often a great deal of expense and risk.

Extended search decisions tend to be made in the case of some shopping goods

and specialty goods.

Examples of extended search decisions may be buying a house or new car, or

buying a wedding dress.

Limited search decisions

Limited search decisions involve some search; however, the buyer is likely to

settle for a substitute item if the preferred item cannot be found. These decisions

tend to be made for shopping goods, such as new shoes or a new wallet.

Routine decisions

Routine purchases tend to be everyday convenience items such as milk and bread.

If the sought brand is not available, the brand will be substituted without much

thought.

As you can see, the type of decision influences the marketing decisions that should

be used in each case.

10. Business markets

Think about something you have purchased recently. It may be a can of soft drink, or a

new CD, or maybe even a new car. For each of these purchases you would have gone

to a shop and paid money and taken the item home and used it. But how did each of

these items get into the ‘shop’ for you to be able to buy them? All the steps in the

manufacture and delivery of these items to a retail outlet are part of the business

market.

As consumers we don’t tend to think about how all the things we buy get to their

point of purchase. However thinking of soft drink, the manufacturers must buy cans,

ingredients and other packaging materials to actually make their products. All these

stages of manufacture fall into what is called the business market.

In tourism, the Tourism wholesaler “buys” hotel rooms, flights and touring products

to create their products and brochures.

The basic principles of marketing apply equally to business and consumer

markets.

The differences between consumer and business decision making lie in

the nature of demand

the composition of the business market

the motives of buyers in each market.

There are also differences in the use requirements in each market.

The business market consists of all organisations that purchase goods and services. All

organisations operate in the business market in some way. We refer to the business

market, but in fact we are actually referring to the organisational buying market. This is

because it is not only businesses that are the target of business-to-business marketers.

Other organisations such as hospitals, schools, charities and agricultural enterprises

also form part of the business market. The business market is often referred to as the

B2B (business-to-business) market.

Organisational buyers will also have different needs and buying patterns across

different buying situations. For example, a stationery and office furniture company

sales representative may call on major accounts regularly to maintain orders for

consumable type products, such as photocopy paper and general office supplies.

However, more time is required when looking at a situation where a client is looking

at spending many thousands of dollars on the upgrading of all its office furniture. In

this case, a large amount of sales time may be required before the sale is actually

finalised. The same applies in Tourism, where Product Managers from Tour

Wholesalers will negotiate deals with suppliers such as airlines, hotels and cruise

companies approximately 18 months in advance.

The basic principles of marketing apply equally to business and consumer markets.

The differences between consumer and business decision making lie in the nature of

demand, the composition of the business market and the motives of buyers in each

market. There are also differences in the use requirements in each market.

The scope of the business market

The following is a list of some of the types of ‘organisations’ that are

considered business buyers:

Agri-business sector

You may not think of a flower grower as a business, but they are in fact businesses.

The grower needs irrigation equipment, labour and other supplies to run the operation.

Tourism sector

Tour wholesalers can be considered business buyers, as they “buy” product from

suppliers such as airlines, hotels and tour operators to create packages and

brochures. Without these other businesses to buy from, they would not have

products to sell.

Mining

The mining industry in Australia a significant market for companies such as

Caterpillar, which sells and leases large mining machinery.

Building and construction

The construction market has been booming in recent years with commercial and private

developments across the major cities of Australia. The mobile population means that

coastal areas in New South Wales are now booming as people move north from city

areas of Sydney.

Manufacturing

Manufacturing organisations need production machinery, raw materials, packaging

supplies, safety equipment and many other products and services to keep the business

running.

Transport

Obviously in this sector, vehicles and their maintenance are very important, however

there are other associated markets that are linked to the transport sector. Forklift

suppliers, pallet suppliers, container shipping and handling facilities, storage

warehouses are just some examples of industries linked to the transport market.

Wholesale and retail trade

This is probably the main industry you would think of when you first consider the

business market. Tourism is a very good example of this. Retailers market to

consumers, however retail suppliers (such as airlines, wholesalers etc.) conduct

extensive marketing and personal selling aimed at retailers. Companies that buy goods

from other organisations to resell are commonly referred to as ‘resellers’. Retail travel

agents could be classed as resellers.

Business services

Finance, insurance and real estate are just three examples of service based

markets but they are just as important as product based markets

Government contracts

Government contracts can sometimes be very lucrative, depending on their

nature. However

The government market operates slightly differently from many other markets, with

tender processes to determine which supplier will be awarded government business.

Not for profit organisations

Non-profit organisations are often charities, but they could also be community groups,

such as Greenpeace, council run childcare centres or special interest clubs and

associations. Each of these types of organisations forms part of the business market

with its own unique environmental influences and busying decision processes.

Buying patterns in business to business markets

This section contains a summary of the material you looked at in the previous text

reading. It discusses some of the elements that influences B2B buying patterns.

Buying is often a group process

Marketers should never assume that there is only one person involved in the decision

process. There may be a number of people which influence the process, but who do

not actually place the order

Buying is less frequent and in larger quantities Order sizes and quantities will vary from order to order in business markets.

One week you may have a customer ordering 100 pallets and the next week

demand may be significantly down.

Tourism is a very good example of this with fluctuating and seasonal

demand.Negotiation period is often longer

Obviously this depends of the type of decision. For example, a factory owner’s

decision to buy manufacturing machinery would take longer than their decision

about what brand of soap to use in their washrooms.

Customer service is often a main requirement

Many organisations count on the reliability of suppliers to help them satisfy their own

customers;’ needs. Often greater reliability may come at a higher cost, meaning that

price is not always the key concern of buyers. For example, Tsubaki Australia sells

maintenance parts for heavy mining equipment. If mine operations are closed down

for any length of time for a breakdown while parts are sourced, a great deal of money

will be lost in down time. Guaranteed availability means that customers are willing to

pay more.

Consistency of quality and supply are important

This point is similar to the previous and also indicates why some firms may pay more

for guarantee of quality and consistency. For example, Coke could not accept cans

with varying print quality, some red, some crimson, some pink. That would be totally

unacceptable from any supplier. McDonalds is the same. They are famous for

consistent quality. In Tourism (being in the service industry) the product or service

(airline, hotel etc) must deliver a consistently high standard of product and of

customer service. If they don’t, consumers will complain and negative publicity will

result in a drop in sales.

Business market demand

Consumer demand is heavily influenced by such marketing environment factors as

the interest rate level, social trends and marketing communications. Whilst some of

these factors may influence business buying, there are three main aspects of business

market demand that marketers should understand

Demand is derived

The demand for business goods is based on the underlying demand for consumer

goods, so business markets are said to have ‘derived demand’. For example, a brick

manufacturer must base its forecast on the number of brick homes and buildings being

constructed. The company can only sell as many bricks as there is demand for brick

buildings.

The healthy lifestyle trend has seen a decline in the consumption of sugar and some

dairy goods. Campaigns by the industry associations for these products have helped to

boost consumption levels. In each case, the demand for the raw materials is influenced

by consumer demand. A similar industry campaign was run several years ago by the

aluminum can manufacturers. They ran a campaign that promised ‘nothing’s as good

as a coldie’, which encouraged consumers to choose drinks in aluminium cans as they

stay colder, longer. The industry was trying to influence consumer demand so that

demand for can stock from soft drink and beer manufacturers would increase.

In Tourism, destinations try to drive demand by advertising both domestically and

internationally with campaigns such as those run by Tourism Australia.

It is extremely important for B2B marketers to keep up to date with trends in the

consumer market. For example the increasing popularity of Spa Resorts, Cruising

holidays and Eco style resorts. Other examples might be the popularity in lifestyle

and home improvement television shows has seen an increase in demand for a whole

range of products, including paint, pots for plants, garden maintenance products and

light building goods such as pergola roofing. There has also been a trend towards

more internal décor items such as wall hangings and light fittings.

Demand is relatively inelastic

‘Elasticity of demand’ refers to how responsive demand will be to a change in price.

The price must be an industry wide price change. The demand for business goods is

generally considered inelastic as the cost of one element of a product is usually only a

small portion of the cost of the finished product. For example, if the price of sugar

went up, it might cost beer manufacturers an average of an extra two cents per can.

Even if the retail price increased by two cents, the overall demand for sugar would be

unlikely to change. Unless consumer demand changes as a result of the industry price

rise, business market demand is unlikely to change significantly.

Demand is widely fluctuating

The demand for business products fluctuates more widely than for consumer products.

This is because consumers tend to purchase in single units, where as business market

purchases vary in size and order frequency.

Business market buyers are well informed

Increasingly, business purchasing is handled by a specialist buyer, even in small

businesses, buyers are aware of what each supplier can offer and where the best deal

is. Many organisations make purchasing a specialised function and establish teams of

purchasers. The individuals on those teams are often university or TAFE qualified and

have skills in evaluating alternative suppliers and conducting negotiations.

Most B2B marketers place greater emphasis on personal selling, so sellers are able to

make sure their customers and potential customers are well informed about products

and services on offer in the market place. As mentioned previously, personal selling

is used across the Tourism sectors and hotels, cruise companies, airlines and the like

all have Sales representatives that make it their job to build strong relationships with

business buyers (such as Tour wholesalers).

The key distinction between consumer and B2B markets is the type of

customer and their reason for buying, or product usage.

Consider the example of a hotel room. The following table outlines the different

motives that different customer types have when they purchase a hotel room.

Reasons for buying a hotel room.

Tourist (consumer) Retail Travel Agent

(re-seller)

Tour Wholesaler (B2B)

Price Some are interested in

value for money

– not necessarily the

lowest price, others may

just be interested in the

lowest price.

Requires high profit from the

sale, so will try to upsell

where possible to a more

expensive hotel. If not, will

charge a service fee.

Will try to negotiate the

lowest price possible to

increase their margin.

Product

Range Different consumers will

have different needs and

requirements of a hotel room.

Some want views, others

want larger rooms with extra

facilities. Hotels try to have

a range of rooms to suit

individual needs.

Travel Agents may try to

promote exclusive lines with

higher profit yield such as

selling exclusive upmarket

resorts or promoting 5 star

hotels. They also need to be

able to access and sell hotels

in all categories for the

varying needs of their client

base.

Will try to buy a good quality

range of hotels that they can

include in their brochures.

Maybe a few in each category

but generally not 1 or 2 star

hotels. More likely to feature

more 3 star hotels with some

4 and 5 star for the top end.

Promotion In general hotel

promotion direct to the

Tourist is done via

newspaper advertising.

Consumers are looking

for hotels for varying

reasons, but the lure of

beautiful beaches and

tropical settings will

always attract.

Hotels use Personal selling

to drive business. They

have dedicated

representatives that call on

Travel Agents to promote

their products. They offer

free or discounted rooms to

Travel agents so they can

experience the product first

hand.

Tour wholesalers are looking

for hotels that will support

them in the long run with good

rates and great service

standards.

Incentive deals may be done

and deals on rates are very

important. Again, this is all

done via Personal selling,

building strong business

relationships for the long term.

Distribution The ease and availability of

the Internet have made

purchasing easy for the

consumer. They can now

look at brochures, look at

websites and find prices

and availability online.

These are all methods of

distribution for a hotel,

along with the use of Retail

Travel agents.

Retail travel agents have

their own websites and

sometimes call centres. This

is their way of distributing

their services.

Tour wholesales buy in bulk

from hotels by the way of

room allocations or a room

freesale facility. The more

they sell, the better their rate

might be the next year.

Business users are organisations that buy goods and services for any of the

following purposes:

To make other goods and services such as a cheese company buying milk,

or a bread manufacturers buying flour to make bread.

To resell to other business users or consumers—these are often called

‘resellers’ because they buy goods to ‘resell’ them. For example, the major

supermarkets are all resellers.

To conduct the organisation’s operations—these are the day-to-day supplies

that the business needs, such as stationery and staff amenities.

11. Emerging trends and technologies

A number of changes in the last decade have impacted on the marketer and

therefore the way that marketing is applied. We will now look at some of the

emerging trends and technologies in marketing.

Relationship marketing

Have you bought a cup of coffee lately or a muffin for morning tea and then been

asked for your ‘customer card’ for stamping? Many businesses now run a bonus

system where regular customers receive every ‘nth’ purchase free. What are these

businesses trying to do? They are telling you, the regular customer, that you are

important to them and should be rewarded. The business is participating in

relationship marketing.

Examples of relationship marketing

Remember that relationship marketing focuses on the long term relationship not just

the current sale.

Let’s now look at two areas of relationship marketing

loyalty marketing

value adding.

Loyalty marketing

Do you belong to a ‘customer club’? You may know someone who does. This

‘customer club’ is most probably a loyalty marketing scheme, where the more you

buy from the organisation the more you may benefit. The best known schemes in

the Tourism industry are the airline Frequent Flyer programs. These are incentive

programs designed to reward you for continuing to fly with them. The more you

fly, the more points you earn, which can be exchanged for free flights and even

other goods and services.

Value adding

Another popular area of relationship marketing is value adding. Many

organisations believe that customers need to be rewarded with extra benefits. Many

luxury car companies provide benefits at their showrooms such as gymnasiums,

billiard rooms, and meeting rooms. Others provide benefits like free valet parking

at hotels and airports, special events tickets to sporting and cultural events and even

fashion previews.

In Tourism, hotels add value by offering 7 nights for the price of 5, or by including

Free Buffet Breakfast daily.

Total quality management (TQM)

Because of the importance of quality and reliability to consumers today

marketers are starting to use Total quality management (TQM) as a means of

meeting continuous improvement in their organisations.

The ‘father’ of TQM, W. Edwards Deming, was responsible for taking TQM

techniques to Japan after WWII. This approach has been credited with the

incredible economic growth that Japan saw in the post-war era.

Deming’s message about TQM is summarised in the following three points:

1 Find out about your customers and what they want

2 Study and improve your products and services until they cannot be

beaten.

3 Involve everyone throughout the organisation, at all levels and

disciplines.

It sounds like Dr Deming was a marketer!

Technology and marketing

Have you used Facebook this week? Or posted a video on YouTube? Have you

surfed the Internet using a Wi-Fi connection? Or used a Bluetooth hands free

device in your car? Or downloaded songs to your iPhone?

These are all examples of major technological breakthroughs that are relatively

new. So, what has this to do with you? Plenty, you are a marketer!

Major technological breakthroughs have created new industries, killed off industries

and stimulated unrelated industries. Think of the negative effect e- mail has had on

courier and postal services, however on the positive side, the positive effects of online

stores have dramatically increased their business.

Retail Travel has suffered and had to change with the times as Tour Wholesalers and

many other Tourism sectors sell their wares online. This has been the biggest change

to this Industry ever and it is still changing today.

As a marketer you will need to be aware of what technology is doing to your

market.

Technology has particularly changed the way we communicate with each other.

Telemarketing

Telemarketing is where an organisation uses telecommunications equipment to

market to customers, contact existing customers or to take order. Often

Telemarketing is used in conjunction with other sales techniques such as a

follow up call by a salesperson. There are strong financial benefits as the cost of

a phone call is minimal compared to that of a call in person. Having routine

orders placed with telephone sales staff allows the sales team to devote more

time and efforts in other more profitable areas.

Another area of Telemarketing is customer service. You may have had a

customer service operator from your educational institution phone you to ask

how your study program is going. Many organisations use this type of follow

up call to ensure customer satisfaction and the chance of repeat usage.

Telemarketing is also used as a feature on different television programs, where

to enter a contest you call a particular number and give information about that

program or choose the ‘catch of the day’ in a cricket game.

An effective telemarketing team can be difficult to run effectively and some

organisations outsource. There are many specialist firms that run call centres for

a variety of clients.

E-marketing

E-commerce or e-marketing is the term that is being used to describe the on-

line activities of a business. These may include the use of web pages, email,

mobile phones and wireless access.

E-marketing includes online shopping and online purchasing. Online shopping

is where the customer gathers information about the product or service that

they would like to buy. Online purchasing is where the organisation provides

the technology for the customer to place an order and then pay for the product

or service via the Internet.

Suggested response

The marketers in an organisation should ask questions like these:

What are the benefits and downfalls of e commerce?

Is our organisation large enough to take advantage of this new style of

marketing?

Do we have the right products or services?

How do we design an effective web site?

How do we get our current and future customers to visit our site?

The answers to these questions are specific to your business.

12. Legal, ethical and environmental

issues

Consumers today are calling for organisations to be more socially responsible

and to be aware of the impact of their actions on the environment and society.

Corporate ethics has become the hot issue in the first few years of the new

millennium. The collapse of such companies as Ansett Airlines, Onetel and

HIH Insurance has many board-room members looking at their legal and

ethical obligations.

Across the other side of the world, the fall of the huge organisations of Enron

and WorldCom, setting records as the largest ever corporate collapses, has had

the US Government tightening their laws regarding corporate governance.

More recently, the global financial crisis had created a range of issues little

imagined by our legislators and leaders just a few short years ago.

Where does marketing fit in all of this? Well, you the marketer needs to realise

that this is part of meeting the consumers needs and wants. As consumers

become more socially aware and demanding of organisations to meet higher

standards of social responsibility, it is the marketing department that must meet

this challenge head on.

Legal issues

There is a range of legislation that relates to marketing. You don’t need to be a

‘legal eagle’ but you do need to be aware of the main laws and why they were

passed and how they could affect your organisation.

The legislation can be divided into two main areas, those that regulate

competition and those that protect consumers. One of the best-known laws

would be the Trade Practices Act 1974.

The ACCC

A regulatory body that you should also be aware of, is the Australian

Competition and Consumer Commission (ACCC). It was established in 1995

by merger between As an independent Authority it administers the

Competition and Consumer Act 2010 and the Prices Surveillance Act 1983. It

is the only national agency that handles matters of competition and the only

agency with the responsibility for enforcing the Competition and Consumer

Act 2010

You may wish to look up the ACCC’s website, which is quite informative.

The web address is: http://www.accc.gov.au.

Legislation can be found at: http://www.austlii.edu.au/

Summary

This has been a brief introduction to some of the most essential aspects of

marketing, such as the marketing concept, the effect of emerging trends and

technologies on marketing and the legal and ethical constraints of marketing.

You should now be familiar with some marketing terms and strategies, and be

able to apply some of them to real life situations