AND HOSPITALITY TOURISM MARKETING Study Guide Dr MAZLINA JAMALUDIN NUR FATIN NADZIRAH ABDUL RAZAK SYAZWANI FISAL NUR BALQIS BAHARIN NURFADHILAH HUSNA SABRE
Tourism & Hospitality Marketing Dr MAZLINA JAMALUDIN NUR FATIN NADZIRAH ABDUL RAZAK SYAZWANI FISAL NUR BALQIS BAHARIN NURFADHILAH HUSNA SABRE
POLITEKNIK SULTAN IDRIS SHAH JABATAN PENDIDIKAN POLITEKNIK DAN KOLEJ KOMUNITI (JPPKK) KEMENTERIAN PENDIDIKAN TINGGI COPYRIGHT RESERVED Published 2023 No part of this book may be reproduced in any form and by any means including electronic, mechanical, photocopying, recording and so on without the written permission of the Author and Publisher of Sultan Idris Shah Polytechnic eISBN 9789672860549 Published by Politeknik Sultan Idris Shah Sg. Lang, 45100 Sg Air Tawar, Selangor Darul Ehsan No. Tel : 03 3280 6200 No. Fax : 03 3280 6400 Laman web : https://psis.mypolycc.edu.my
ACKNOWLEDGEMENT This e-book was developed and designed to help students learn the fundamental aspect of Tourism Marketing. We would like to offer our heartfelt gratitude to our previous students Balqish and Husna who contributed to the successful completion of this e-book. This e-book was initiated by the two of them as their final semester project and was upgraded later for publication. We are proud in realising this ebook. Without their effort, this ebook can never be realised as what it is now. Please share and use it wisely for your success. i
SYNOPSIS Part 1 of this book discussed the Introduction of Marketing which includes definition of marketing, the concept of marketing, the importance of marketing and the marketing challenges. Part 2 focused on Marketing Mix Strategies which review on product, price, promotion and place in Tourism and Hospitality Industry. Part 3 of the book comprises of past year questions, references and authors' biography. ii
Table of Contents Part 1 - The Introduction of Marketing Definition of Marketing The Concept of Marketing The Importance of Marketing The Marketing Challenges 02 04 16 20 Tourism & Hospitality Product Tourism & Hospitality Price Tourism & Hospitality Promotion Tourism & Hospitality Place Part 2 - Marketing Mix Strategies 23 37 51 67 Past Year Questions References Biography 74 77 79 Part 3 Acknowledgement iii
P A R T 1 T H E I N T R O D U C T I O N O F T O U R I S M A N D H O S P I T A L I T Y M A R K E T I N G 1
"The science and art of exploring, creating, and delivering value to satisfy the needs of a target market at a profit. Marketing identifies unfulfilled needs and desires. It defines, measures and quantifies the size of the identified market and the profit potential. It pinpoints which segments the company is capable of serving best and it designs and promotes the appropriate products and services." Definition of Marketing ? by Dr. Philip Kotler 2
WHAT IS MARKETING ? Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging value with other through satisfying customer needs. In a narrower business context, marketing involves building profitable, value-laden exchange relationships with customers. Hence, we define marketing as the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return. Additional information for you! Scan here. 3
CORE MARKETING CONCEPT Markets Needs, Wants, Demands Products & Services Exchange, Transactions & Relationship Value, Satisfaction & Quality CORE MARKETING CONCEPT Additional information for you! Scan here. 4
DEFINITIONS A human need is a state of felt deprivation. Examples include the need for food, clothing, warmth and safety. NEEDS WANTS DEMANDS "Wants" is how people communicate their needs. A hungry person may want a hamburger, noodles, cheese or bread. When backed by buying power, wants become demands. 5
VALUE SATISFACTION QUALITY Is the difference between the benefits that the customer gains from owning or using a product or services, and the costs of obtaining the product. Depends on a product’s perceived performance in delivering value relative to a buyer’s expectations. Begins with customer needs and ends with customer satisfaction. 6
EXCHANGE TRANSACTION RELATIONSHIP Is the act of obtaining a desired object from someone by offering something in return. Is marketing’s unit of measurement and consists of a trade of values between two parties. Builds relationships with valued guests, distributors, and suppliers by promising consistently delivering high-quality products, good service, and fair prices. 7
PRODUCTS SERVICES MARKETS Anything that can be offered to a market to satisfy a need or want. Activities or benefits offered for sale that are essentially intangible and don’t result in the ownership of anything. The set of actual and potential buyers of a product or service. 8
Customer Needs, Wants, and Demands Marketers must understand human needs. 1. Human needs famous definition refers as 'states of felt deprivation' by Kotler. 2. Human needs include basic physical needs such as needing for food, clothing, warmth and safety. Social needs refer to belonging and affection. Individual needs refer to as knowledge and self-expression. 3. These needs were not created by marketers . They are a basic part of the human. Wants are the form of human needs as they and are shaped by culture and individual personality. 1. Wants are shaped by one’s society and are described in terms of objects that will satisfy needs. 2. When backed by buying power, ‘wants’ become demands. 3. Given their wants and resources, - people demand products with benefits that add up to the most value and satisfaction. Exchanges and Relationships Marketing occurs when people decide to satisfy needs and wants through exchange relationships. Exchange is the act of obtaining a desired object from someone by offering something in return. 1. In the broadest sense, the marketer tries to bring about a response to some marketing offer. 2. The response may be more than simply buying or trading products and services. Marketing consists of actions taken to build and maintain desirable exchange relationships with target audiences involving a product, service, idea, or other object. 1. Marketers must attract new customers and creating transactions. The goal is to retain customers and grow their business with the company. 2. Marketers want to build strong relationships by consistently delivering value to Understanding the Marketplace and Consumer Needs 9
Marketing Offers – Products, Services, and Experiences 1. Consumers’ needs and wants are fulfilled through a marketing offer – some combination of products, services, information, or experiences offered to a market to satisfy a need or want. 2. Marketing offers are not limited to physical products. They also include services, activities or benefits offered for sale that are essentially intangible and do not result in the ownership of anything. 3. Many sellers make the mistake of paying more attention to the specific products they offer than to the benefits and experiences produced by these products. 4. These sellers suffer from “marketing myopia”. They are so taken with their products that they focus only on existing wants and lose sight of underlying customer needs. 5. They forget that a product is only a tool to solve a consumer problem. Customer Value and Satisfaction. Consumers usually face a broad array of products and services that might satisfy a given need. How do they choose these many marketing offers ? Customers from expectations the value and satisfaction that various marketing offers will deliver and buy accordingly. 1. Satisfied customers buy again and tell others about their good experiences. 2. Dissatisfied customers often switch to competitors and disparage the product to others. 3. Marketers must be careful to set the right level of expectations. If they set expectations too low, they may satisfy those who buy but fail attract enough buyers. If they raise expectations too high, buyers will be disappointed. 4. Customer value and customer satisfaction are key building blocks for developing and managing customer relationships. Markets The concepts of exchange and relationship lead to the concept of a market. 1. A market is the set of actual and potential buyers of a product. - These buyers share a particular need or want that can be satisfied through exchange relationships. 2. Marketing means managing markets to bring about profitable customer relationships. 3. Sellers must search for buyers, identify their needs, design good marketing offers, set prices for them, promote them, and store and deliver them. 4. Activities such as product development, research, communication, distribution, pricing, and service are core marketing activities. 5. Although we normally think of marketing as being carried on by sellers, buyers also carry on marketing. 6. Consumers do marketing when they search for the goods they need at prices they can afford. 7. Company do marketing when they search for the goods they need at prices they can afford. 10
Marketing management want to create strategies that will help them build profitable relationships with their target customers. But what philosophy should these marketing strategies be guided by? What weight should the interests of customers, the organization, and society be given? These interests are frequently at odds. THE PRODUCTION CONCEPT THE PRODUCT CONCEPT THE SELLING CONCEPT THE MARKETING CONCEPT THE SOCIETAL MARKETING CONCEPT MARKETING MANAGEMENT PHILOSOPHIES 11
THE PRODUCTION CONCEPT The first occurs when a product's demand exceeds its supply. Management should look for ways to increase production levels in this situation. The second scenario occurs when the product's cost is too high and increased productivity is required to reduce it. DEFINITION: The idea that consumers will prefer products that are readily available and reasonably priced. As a result, management should concentrate on increasing production and distribution efficiency. This is one of the oldest orientations that sellers follow. The production concept is still a useful philosophy in two types of situations: This philosophy only works when demand exceeds supply. Furthermore, a customer does not always prefer a low-cost product over others. There are numerous other factors influencing his purchase decision. THE PRODUCT CONCEPT This concept is based on the assumption that customers prefer 'higher quality' products and that 'price and availability' have no influence on their purchase decision. As a result, the company spends the majority of its time developing a higher-quality product, which is usually more expensive. Because marketers' primary focus is on product quality, they frequently lose or fail to appeal to customers whose demands are driven by other factors such as price, availability, usability, and so on. DEFINITION: The belief that consumers will prefer products with the highest quality, performance, and features, and that the organization should therefore focus its efforts on continuous product improvement. 1. 2. EXAMPLE: LG introduced new technology to the market and achieved marketing success as customers became more aware of the brand and television technology. 12
THE SELLING CONCEPT Production and product concepts are both concerned with production, whereas selling concept is concerned with the actual sale of the product. The Selling Concept focuses on making every possible sale of the product, regardless of the product's quality or the customer's need. The primary goal is to make money. Building relationships with customers is not part of this philosophy. Companies that adhere to this concept may even attempt to deceive customers in order to persuade them to purchase their product. DEFINITION: The belief that unless the organization engages in large-scale selling and promotion efforts, consumers will not purchase enough of the products. 1. 2. 3. The selling concept takes an inside-out perspective. EXAMPLE: It starts with the factory focuses on the company’s existing products, and calls for heavy selling and promotion to obtain profitable sales. THE MARKETING CONCEPT This concept is based on the assumption that consumers purchase products that meet their needs. Businesses that follow the marketing concept conduct research to learn about their customers' needs and desires, and then develop products that meet those needs and desires better than their competitors. Many businesses continue to profit while adhering to other concepts. It is entirely dependent on demand and supply, as well as the needs of the parties involved. DEFINITION: The marketing management philosophy that holds that achieving organizational goals is dependent on determining the needs and desires of target markets and providing the desired satisfactions more effectively and efficiently than competitors. 1. 2. 3. EXAMPLE: Companies who want to stay in the market for a long time. 13
THE SOCIETAL MARKETING CONCEPT The company focuses on how to meet client wants while also considering the environment, natural resources, and the well-being of society. This ideology holds that business is a part of society and, as such, should participate in social activities such as poverty alleviation, illiteracy reduction, and population control, among other things. Many large corporations have included corporate social responsibility into their marketing strategies. DEFINITION: The concept that a organization should determine the requirements, wants, and interests of target markets and supply desired satisfactions in a way that preserves or increases customer and societal well-being. 1. 2. 3. Three considerations underlying the societal marketing concept are; Society ---> (human welfare) Consumers ---> (want satisfaction) Company ---> (profits) EXAMPLE: The fast food industry. Today's massive fast-food businesses may appear to provide good and convenient cuisine at reasonable costs. PRODUCTION CONCEPT PRODUCT CONCEPT SELLING CONCEPT MARKETING CONCEPT SOCIETAL MARKETING CONCEPT 14
THE MARKETING CONCEPT Marketing and Sales Concepts Contrasted STARTING POINT FOCUS MEANS ENDS FACTORY EXISTING PRODUCTS SELLING & PROMOTING PROFITS THROUGH VOLUME THE SELLING CONCEPT MARKETS CUSTOMER NEEDS INTEGRATED MARKETING PROFITS THROUGH SATISFACTION 15
THE IMPORTANCE OF MARKETING Customer Satisfaction Competitive Advantage Corporate Image Expansion of Business Economies of Scale Efficiency Organizational Objectives Optimum Use of Resources Brand Loyalty Brand Equity Brand Image Benefit to Stakeholders Marketing is a strategy that businesses do to advertise their businesses. Every business entity needs to understand such a strategy and how to employ it. Business sectors have been using marketing strategies. 16
Inventive and creative designs or patterns. Artistic promotion plans. Efficient customer relationship systems, etc. The importance of a marketing strategy is that good marketing encourages healthy market competition. Professional marketers' proactive nature aids in the decision-making process. They come up with the following: Professional marketers have a competitive advantage due to their proactive decisions. Product development strategy: Introduction of new items into current or modern markets Market development strategy: Using existing or new items to break into new markets. Market penetration strategy: In the current marketplaces, increasing marketing efforts. Effective marketing aids in the expansion of a firm on a local, national, and international scale. Market-related activities aid in the expansion of the firm's business, such as: Customers are unsatisfied when product performance falls short of their expectations, and they are delighted when product performance meets their expectations. When a product's performance exceeds the customer's expectations, the customer is ecstatic; when the product's performance exceeds the customer's expectations by a large margin, the customer is astounded. Customer satisfaction is linked to the performance of the product and the expectations of the customer. 1. 2. Customer Satisfaction Competitive Advantage Corporate Image Expansion of Business Marketing to businesses is that it strengthens and expands their brand image. Marketing techniques that are effective and efficient help the company operate better. As a result, the company's image improves, instilling trust and confidence in employees, customers, dealers, suppliers, shareholders, and other stakeholders. A positive corporate image attracts many investors, allowing the company to expand and diversify its horizons. The organization's survival and development depend on the support of a variety of investors. 17
Research and development. Technology up gradation. Training and development, etc. Marketing's Importance Effective marketing leads to increased earnings. A portion of the profits is used for a variety of purposes, including: All the above activities improve efficiency of the firm, i.e... The firm gets higher returns at lower costs. Efficiency Economies of large-scale distribution such as discount on bulk purchase of materials. Economies of large-scale distribution such as the freight concession due to bulk transportation. The significance of Professional marketers take proactive decisions in the marketing of an organization's success. As a result, demand for the company's products has increased. Increased demand necessitates large-scale manufacturing and delivery. As a result, the company benefits from large-scale economies such as: Economies of Scale Increase in profits. Improved brand image. Increase in market share. Improved corporate image. Enhanced customer loyalty, etc. With the help of marketing, the firm's organizational objectives are met. When the corporation uses innovative and creative designs or patterns, as well as artistic promotion methods and distribution, it is able to increase sales. The following are the Organizational goals: Objectives Physical resources: machines, equipment's, tools, etc. Capital resources: working capital funds and fixed capital funds. Manpower: managerial and non-managerial employees. The company's goods/services are in increased demand as a result of efficient marketing. Demand increases, which leads to increased production and distribution. As a result, a company can make the most use of resources such as: Optimum Use of Resources 18
Repeat purchases by satisfied / delighted customers. Brand loyalty of the product increases by suggestions and reviews of existing clients/customers to friends, neighbors, etc. The product's brand loyalty grows because of effective marketing. The term "brand loyalty" relates to: "Customer word-of-mouth is the finest alternative to advertising,". Devoted customers persuade others to purchase the products which they are pleased. Brand Loyalty Marketing actions help to build brand equity. Brand equity contributes to the product's increased worth. Customers are willing to pay a higher premium for well-marketed products. Unique product design, great after-sale service, and other marketing activities, for example, enable a company to charge a premium price for its brands. Brand Equity Salaries and other incentives / perks of the employer may rise. Dealers may earn extra incentives due to increase in demand of the product. Higher tax revenue may generated by the government. Higher dividends may be given to the shareholder of the company. Distributors of this firm may generate more orders. Increasing profit might benefit the society. Effective marketing brings larger returns to the organization, which is why it is so important. Higher returns provide several benefits to stakeholders, including: Benefit to Stakeholders Brand image improves marketing activities, which is why marketing is so important. The buyer will remember the brand's image for a long time. Products with a positive brand image always give a competitive edge to a company. For example, effective marketing methods for a product, such as promotion, publicity, sales promotion, advertising, salesmanship, and so on, help the company improve its brand image in the market. Customers will not only be loyal to your brand if it has a positive image, but they will also be willing to pay a premium price for it. Brand Image 19
MARKETING CHALLENGES Because of the number of sales required to ensure that there is sufficient demand and purchasing power, products are becoming more global. As a result, the globalization market can help to lower the price of expensive items on the market by lowering the cost of manufacturing and operation. Technologies for connecting information. Advancement in computer, telecommunication, information, and transformation is the main factor in connectivity. Customers, marketing partners, and the rest of the world must be connected to these technologies. Technologies assist in gathering, transporting, and delivering timely and accurate information to its intended recipient. It help to eliminate inaccuracy, deliver accurate information, and analyse data more effectively. Globalization Market. Development of Non-profit organization. The profit of non-profit organizations is expanding due to societal demand. The growth of non-profit organizations is critical since they create revenue and aid in the financial, medical, and moral support of the poor, disabled groups, handicapped, homeless, immigrants, war veterans, and others. Society will become more harmonious, wealthier, and a better nation as a result of this type of organisation. Not every government can assist these people. These organisations will help governments and nations burdens and duties. 20
Consumers have become more educated and aware of their demands and desires. They are more aware of changes and advances that are beneficial to society. Marketers and dealers must deliver items that are healthful, hygienic, safe, and devoid of hazards. Labels that must be accurately disclosed and posted on product containers. Ingredients, warranties, preservatives, flavors, and colors used in products must be evaluated, approved by authorities, and inspected on a regular basis to assure consumer safety. Products that have not been approved should be barred from accessing the open market. Development of world economy. Small and medium-sized businesses are merging in order to generate mass production and a global brand, thereby reducing economic uncertainty. The industries will be very stable as a result of this development, which will assist to reduce unemployment and maintain global economic and social stability. Because of the emergence of a new worldwide market, global items may be easily sold, resulting in global culture and diversity. Because of the previous establishment in the worldwide market, people can readily accept global brands. Demands on social responsibilities and ethics. The new marketing landscape. Internet marketing, multi-level marketing, and cottage industries are all growing in popularity. These industries are expanding quickly because they involve profit sharing in small and medium-sized businesses. This is becoming more popular as a result of the low initial investment. It also creates a secure working environment. These businesses also foster loyalty and trust between sellers and buyers, resulting in long-term business relationships among group members. Additional information for you! Scan here. 21
PART 2: MARKETING MIX STRATEGIES
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The marketing mix is a collection of controllable tactical marketing tools—product, pricing, location, and promotion—that a company uses to generate the desired response in its target market. DEFINITION OF MARKETING MIX SCAN HERE 24
PRODUCT Anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. LEVELS OF PRODUCT AND SERVICES Revlon. “In the factory, we make cosmetics; in the store, we sell hope”. Maybank. It provide financial service. It promises to fulfill customers’ financial dreams. 1. Core Benefit Product. (level 1) What is the buyer really buying? What is the problem solving benefits or services that consumers seek. Example: So, product planners must turn the core benefit into an actual product. 25
Sony camcorder is an actual product. Its name, parts, styling, features, packaging, and other attributes have all been combined carefully to deliver the core benefit. a convenient, high-quality way to capture important moments. 2. Actual Product. (level 2) Develop product and service features, design, a quality level, a brand name, and packaging. Example: (brand name, features, quality level, packaging, design) Finally, product planners must build an augmented product. Sony must offer more than just a camcorder. It must provide consumers with a complete solution to their picture-taking problems. When consumers buy a Sony camcorder, Sony and its dealers also might give buyers a warranty on parts and workmanship, instructions on how to use the camcorder, quick repair services when needed, and a toll-free telephone number to call if they have problems. 3. Augmented Product. (level 3) By offering additional consumer services and benefits. Example: (delivery and credit, after sale service, warranty, installation) Consumers see products as complex bundles of benefits that satisfy their needs. When developing products, marketers first must identify the core consumer needs the product will satisfy. They must then design the actual product and find ways to augment it in order to create the bundle of benefits that will provide the most satisfying customer experience. 26
Core Benefit or service Packaging Installation Features Quality Design Brand After sale Warranty Delivery & Credit Augmented Product Core Product Actual Product THREE LEVEL OF PRODUCT SCAN HERE 27
INTANGIBILITY Services, unlike physical products, cannot be felt, tasted, or experienced before being consumed. INSEPERABILITY Both the service provider and the consumer must be present for the transaction to take place in the service business VARIABILITY The quality of a service is determined by who offers it, as well as when and where it is delivered LACK OF OWNERSHIP Services cannot be purchased and stored like products, and they are only used/hired for a limited time PERISHABILITY The importance of time is highlighted here; services cannot be saved. CHARACTERISTICS OF TOURISM OR HOSPITALITY PRODUCT 28
Manage demand Understand demand patterns Price, Shift demand Reservation, Overbooking Create promotional events Manage capacity Cross train personnel Schedule downtime during low capacity periods PERISHABILITY (LACK OF ABILITY TO INVENTORY) Capacity and demand management Services come with a high level of risk. It's tough to judge service before you've had the opportunity to use it. In addition, there is a lack of tangibility following the event. Making the intangible tangible Build a strong brand image for your company Participate in post-purchase communication Stimulate word-of-mouth and publicity INTANGIBILITY Service encounter, Moment of truth Managing staff Communication training Empowerment Managing customers What do you expect customers to do? Communication with other clients INSEPARABILITY (THE CUSTOMER BECOMES PART OF THE SERVICE) 29
Assisting with consistency Standardized procedure: industrialise the relationship between service and cutting Personalized: focusing on the needs of each individual Inform customers Train staff who will have direct contact with customers as well as those who will not. Control the quality of your suppliers VARIABILITY (LACK OF CONSISTENCY) Services cannot be owned and stored in the same way that products can. Services are used/hired on a temporary basis. For example, when purchasing a ticket to the United States, the service may run up to 9 hours each way; yet, clients demand and expect exceptional service during that period. LACK OF OWNERSHIP 30
BRANDING A name, term sign, symbol or design or a combination of these, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. Consumers view a brand as an important part of a product, and branding can add value to a product. Example: White Linen perfume as a high quality product, expensive. But, unmarked bottle would likely be viewed as lower quality, even if the fragrance were identical. Desirable qualities of a good brand name include; Product benefits, qualities, easy to pronounce, recognize and remember, distinctive, legal protections. a. Private brand (store brand) A brand created and owned by a reseller of a product or service. Example: Ikea, Macro, Unilever, Kraft. b. Co-branding The practice of using the established brand names of two different companies on the same product. Example: Pillsburry and Nabisco to create Pillsbury Oreo Bars baking mix. c. Brand Development. Line extension occur when a company introduces additional items in a given product category under the sane brand name, such as 31
The positive differential effect that knowing the brand name has on customer response to the product or service. A measure of a brand’s equity is the extent to which customers are willing to pay more for the brand. One study found that 72 percent of customers would pay a 20 percent of customers would pay a 20 percent premium for their brand of choice relative to the closest competing brand; 40 percent said they would pay a 50 percent premium. Example: Tide and Heinz lovers are willing to pay a 100 percent premium. Loyal Coke drinkers will pay a 50 percent premium. Volvo users a 40 percent premium. BRAND EQUITY For consumers, a. brands make it easy to identify goods or services. They aid shoppers in moving quickly through a supermarket, discount outlet, or other retail store and in making purchase decisions. b. brands also help assure consumers that they will get consistent quality when they reorder. For sellers, brands can be promoted. a. they are easily recognized when displayed in a store or included in advertising. b. branding reduces price comparisons. This is, because brands are another factor to be considered in comparing different products, branding reduces the likelihood of purchase decisions that are based solely on price. c. the reputation of brands also influences customer loyalty among buyers of services as well as business and consumer goods. REASONS FOR BRANDING 32
REASONS FOR NOT BRANDING Two responsibilities come with brand ownership : 1) promoting the brand and 2) maintaining a consistent quality of output. Many firms do not brand their products because they are unable or unwilling to assume these responsibilities. Some items remain unbranded because they cannot be physically differentiated from other firm’s products. Selecting a Good Brand Name Some brand names are so good that they contribute to the success of products. Desirable Characteristics • Suggest something about the product, particularly its benefits and use. • Be easy to pronounce, spell, and remember. • Be distinctive • Be adaptable to additions to the product line. • Be capable of registration and legal protection. 33
After launching the new product, management wants the product to enjoy a long and happy life. Although it does not expect the product to sell forever, the company wants to earn a decent profit to cover all the effort and risk that went into launching it. Management is aware that each product will have a life cycle, although its exact shape and length is not known in advance. PRODUCT LIFE CYCLE (PLG) Product life cycle (PCL), the course that a product’s sales and profits take over its lifetime. The PLC has five distinct stages: product development, introduction, growth, maturity and decline. 1. Product development begins when the company finds and develops a new-product idea. During product development, sales are zero and the company’s investment costs mount. 2. Introduction is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction. 3. Growth is a period of rapid market acceptance and increasing profits. 4. Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition. 34
5. Decline is the period when sales fall off and profits drop. Not all products follow this product life cycle. Some products are introduced and die quickly; others stay in the mature stage for a long, long time. Some enter the decline stage and are then cycled back into the growth stage through strong promotion or repositioning. As one analyst notes, “well-managed, a brand could live forever”.American Express, Budweiser, Camel, Coca-Cola, Gillette, Western Union for instance, are still going strong in their respective categories after 100+ years. Even if a brand dies, it can rise again, though perhaps in more limited distribution. SUMMARY OF PLC CHARACTERISTICS, OBJECTIVES AND STRATEGIES 35
PRODUCT LIFE CYCLE Sales and Profits Over the Product's Life From Inception to Demise SCAN HERE 36
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PRICE The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service. The only element in the marketing mix that produces revenue; all other elements represent costs. SCAN HERE 38
1. Marketing Objectives. Before setting a price, the company must decide on its strategy for the product. If the company has selected its target market and positioning carefully, then its marketing mix strategy, including price, will be fairly easy. But, pricing strategy is largely determined by decisions on market positioning. Common objectives are include ; a. survival b. current profit maximization c. market share leadership, and d. product quality leadership Charging different prices depending on individual customers and situations. DYNAMIC PRICING INTERNAL FACTORS AFFECTING PRICING DECISIONS 39
2. Marketing Mix Strategy Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective marketing program. Here, price is a crucial productpositioning factor that defines the product’s market, competition, and design. If the product is positioned on nonprice factors, then decisions about quality, promotion, and distribution will strongly affect price. If price is crucial positioning factor, then price will strongly affect decisions made about the other marketing mix elements. But, even when featuring price, marketers need to remember that customers rarely buy on price alone. Instead they seek products that give them the best value in terms of benefits received for the price paid. 3. Costs. Costs set the floor for the price that the company can charge. The company wants to charge a price that both covers all its costs for producing, distributing, and selling the product and delivers a fair rate of return for its effort and risk. A company’s costs may be an important element in its pricing strategy. But, companies that sets lower costs can set lower prices that result in greater sales and profits. Types of costs are ; a. Fixed costs – costs that do not vary with production or sales level. b. Variable costs – costs that vary directly with the level of production. c. Total costs – the sum of the fixed and variable costs for any given level of production. 40
TYPES OF COST FACTORS THAT AFFECT PRICING DESICIONS Fixed Costs (Overhead) Costs that don't vary with sales or production levels. Executive Salaries, Rent Variable Costs Costs that do vary directly with the level of production Raw materials Total Costs Sum of the Fixed Variable Costs for Given Level of Production 4. Organizational Considerations. Management must decide who within the organization should set prices. Some companies, prices are handle by top management some, sales departments, divisional managers or even product line managers. In industrial markets, salespeople may be allowed to negotiate with customers within certain price ranges. Even so, top management sets the pricing objectives and policies, and it often approves the prices proposed by lower-level management or salespeople. 41
EXTERNAL FACTORS AFFECTING PRICING DECISIONS 1. The market and demand. Whereas costs set the lower limit of prices, the market and demand set the upper limit. Both consumer and industrial buyers balance the price of a product or service against the benefits of owning it. Thus, before setting prices, the marketer must understand the relationship between prices and demand for its product. The seller’s pricing freedom varies with different types of markets. Each markets presenting different price; a. Pure competition – the market consists of many buyers and sellers tading in a uniform. b. Monopolistic competition – the market consists of many buyers and sellers who trade over a range of prices rather than single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Yet, physical product can be varied in quality, features, style and services accompanied can be varied. c. Oligopolistic competition - the market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies. d. Pure Monopoly – the market consists of one seller. The seller may be a government monopoly, a private regulated monopoly , or a private nonregulated mnopoly. Pricing is handle differently in each case. Price elasticity of demand – how responsive demand will be to a change in price. 42
2. Competitors’ Costs, Prices, and Offers. Another external factor affecting the company’s pricing decisions is competitors costs and prices and possible competitor reactions to the company’s own pricing moves. A consumer who is considering the purchase of a Canon camera will evaluate Canon’s price and value against the prices and values of comparable products made by Nikon, Minolta, Pentax. 3. Other External Factors. When setting prices, the company also must consider other factors in its external environment. Economic conditions can have a strong impact on the firm’s pricing strategies. Economic factors such as ; I. boom or recession, II. inflation and III. interest rates These factors will affect pricing decisions because they affet both the costs of producing a product and consumer perceptions of the product’s price and value. How will reseller react to various prices? The company should set prices that give resellers a fair profit, encourage their suppport, and help them to sell the product effectively. Besides that; i. The government policies ii. regulation and iii. social impacts could also be part of the external influence on pricing decisions. 43