Topic 8

Marketing

Prepared by Paull Weber

Curtin Business School, Curtin University
 Chapter outline
• The concept of marketing
• An overview of the marketing process
• The extended marketing mix (7Ps)
• Understanding the mechanics of price
setting
• Evaluation of marketing
 Learning objectives
• Define the concept of marketing and its importance
to entrepreneurs and small-business owners
• Explain the five steps involved in the marketing
process for new and small firms
• Describe the ‘seven Ps’ that make up the extended
marketing mix
• Be capable of calculating a range of price related
formula and applying them to pricing decisions
• Understand when and why to use various pricing
strategies
• Discuss how to evaluate marketing effectiveness
The concept of marketing
• Marketing:
– The process of planning and executing the
conception, pricing, promotion and
distribution of ideas, goods or services to
create exchanges that satisfy individual and
organisational goals
– Marketing problems are one of the most
common causes of failure among new and
small business ventures
 An overview of the
marketing process
• Marketing is a multistage process
• Involves different activities that must all
be integrated together
• Typically follows a sequential pattern
• This allows entrepreneurs to adopt a
logical approach to marketing
 An overview of the
marketing process

Figure 11.1: The marketing process

 Goal setting
• The marketing goals set for the business
often depend upon:
– The age and life cycle of the business
venture
– The age and life cycle of the product or
service it sells
• The owner’s personal goals
• Whether the firm has adopted a
production- sales- or a consumer-
oriented marketing philosophy
Understanding the market
• Research is needed to fully understand
many issues
• These can include market trends and
dynamics, consumer demand, product
changes, government requirements, etc.
• A marketing strategy based on sound
research has more likelihood of success
• Techniques for conducting and analysing
market research are discussed in more
detail in Chapter 6
Understanding the market
Target markets
• All firms should have an idea of their
priority groups of customers
• No-one sells everything to everyone
• In reality, there may be a difference
between potential and actual numbers of
paying target customers. But it is useful to
identify and focus marketing effort on a
clearly articulated niche
 Understanding the market
• The firm’s target market (core customers) can be
defined in several ways:
• Their geographical distribution
• is typically the easiest.
• creates different target customer groups based on
geographical boundaries.
• Because potential customers have needs, preferences,
and interests that differ according to their geographies,
• understanding the climates and geographic regions of
customer groups can help determine where to sell and
advertise, as well as where to expand your business.
 Understanding the market
Demographic Psychographic Behavioral
(B2C) (B2B/B2C) (B2B/B2C)

Definition Classification Classification based on Classification based on

based on individual attitudes, aspirations, behaviors like product usage,
attributes values, and other criteria technology laggards, etc.

Examples Geography Gender Lifestyle Personality Traits Usage Rate Benefit Types
Education Level Values Opinions Occasion Purchase Decision
Income Level

Decision You are a smaller You want to target You want to target
Criteria business or you are customers based on values customers based on
running your first or lifestyle purchase behaviors
project

Difficulty Simpler More advanced More advanced

The extended marketing mix
• A comprehensive marketing strategy
must then be devised that covers the
‘four Ps’ of marketing and the extended
(extra) ‘three Ps’ that relate to service
design
The extended marketing mix
The product or service
• One critical difference that many small
business owners fail to appreciate is the
difference between product features and
benefits:
– Product feature:
• what a product or service is or does.
– Product benefit:
• the advantage that a consumer can receive by
purchasing a good or service (really is more
important to the customer than features).
 Promotional tools
• How will the business promote its
product and let the marketplace know
that it is available?
• Some options include:
– Personal canvassing
– Electronic tools
(see ICT chapter for more on this)
– Print media advertising
– Telephone directories
– Signage
Promotional tools (cont’d)
– Logos and business names
– Pamphlets
– Business cards
– Television and radio
– Sponsorship
– Word of mouth
– Trade shows
 Price
Pricing strategies:
• Going rate -setting a price for a product or service
using the prevailing market price as a basis
• Cost-plus - is a cost-based method for setting
the prices of goods and services. 
• Maximum - or price ceiling when the government
sets a maximum legal limit of a price of a
particular good or service.
• Perceived - sets the price of a product by
considering what product image a customer carries in
his mind and how much he is willing to pay for it
 Price
• Skimming- sets a relatively high initial price for a
product or service at first, then lowers the price over
time. It is a temporal version of price discrimination
/yield management.
• Discounted
• Loss
• Price lining (or price segmentation) - is a marketing
process wherein products or services within a specific
group are set at different price points. The higher the
price, the higher the perceived quality to the consumer
 Understanding the
mechanics of price setting
• To be able to establish a price that is both
competitive but still covers all costs and
provides a reasonable return, business
owners must understand:
– Fixed costs vs variable costs
– Break-even point
– Contribution margin
– Mark-ups and margins
 Understanding the
mechanics of price setting
• Fixed costs:
– expenses which remain the same, regardless
of the level of activity or sales turnover
which a business generates
• Variable costs:
– expenditure items which increase or
decrease as sales volume moves
 Understanding the
mechanics of price setting
• Break-even point:
– the level of sales where all expenses have been
met, but no profit has been made

• One conventional formula for calculating a

break-even point is:
Total fixed costs
Break-even point in units =
Unit sales price - Variable cost per unit
 Understanding the
mechanics of price setting
• Contribution margin:
– the proportion of money left in each dollar of
sales, after variable costs have been met, that is
available to cover fixed costs and contribute to
profits

Total Sales - Total Variable Costs

Contribution margin =
Total Sales
 Understanding the
mechanics of price setting
• Mark-up:
– A measure of the extent to which the price of a
product is increased from its original cost to its
final selling price
• If measuring the whole of the business:
gross profit
mark-up =
cost of goods sold

• If analysing an individual product:

profit
mark-up =
cost price
 Understanding the
mechanics of price setting
• Margin:
a measure of how much of the final sales
price is gross profit
• If measuring the whole of the business:
gross profit
margin =
sales
• If analysing an individual product:
profit
margin =
selling price
 Understanding the
mechanics of price setting
Setting an hourly rate
• Very small firms in the services sector
often can use a much simpler procedure
than those described above
 Understanding the
mechanics of price setting
• If the principal or only cost of a business
is the time and labour of the
owner/manager, then a price can be set
by:

Total funds required

Hourly charge rate =
Hours available
 Placement
• Most goods/services are exchanged
between buyers and sellers through one
of the following types of distribution
channels:
– Directly from business to final customer
– Through agents
– Via brokers
– By wholesalers
– Through retailers
 People, process
and physical evidence
• Services (in particular) require a focus on making
the invisible visible, the intangible tangible
• People:
– training, attitude, motivation, skills and aptitudes
• Process:
– timing, consistency, practice, systems, error
reduction, quality
• Physical Evidence:
– accreditation, uniforms, awards, branding, etc.
 Issues to consider
• Does one channel provide a
comparative advantage over others?
• What is the industry norm for
distribution?
• Pricing – is it too expensive?
• How much packaging and handling of
goods is required?
• How and when will you be paid?
 Issues to consider
• What contractual and legal arrangements
need to be set up?
• How much packaging and handling of
goods is required?
• How and when will you be paid?
• What contractual and legal arrangements
need to be set up?
Evaluation of marketing
• Several possible techniques exist:
– Compare marketing expenditure with sales
revenue
• does marketing effort lead to a growth in sales
revenue?
– Trace the source of sales
• which promotional medium generates most
sales?
– Measure the satisfaction level of existing or
previous customers
– Examine customer complaints
• what are they unhappy about, and how can this
be corrected?
 Summary
• Marketing is one of the core activities of
all firms, and is closely linked to the
financial and operational management of
an enterprise
• There are seven P’s in the extended
marketing mix:
Price, Product, Promotion, Place,
People, Process and Physical Evidence
 Summary
• Pricing plays a critical role in small business
design and success
• Product (or service) should be sold on
benefits, not features
• Promotion takes many forms that should be
integrated and targeted at specified niches
• Placement is determined by
• People, Process and Physical Evidence are
dealt with in more depth in other chapters (12
& 13)
 Summary
• There are six steps to the marketing
process:
1. Goal setting
2. Conduct market research and define target
market (two steps)
3. The establishment of an appropriate
marketing mix
4. Implementation of the marketing mix
strategy
5. Subsequent evaluation of its performance
Chapter 11