CHAPTER FIVE

MANAGING MARKET MIX ELEMENTS

MARKET MIX ELEMNTS:

5.1 PRODUCT Decision

5.2 PRICE decision

5.3 PROMOTION decision AND

5.4 PLACE decision

1
5.1 PRODUCT

1. MEANING OF PRODUCT

2. PRODUCT CLASSIFICATIONS

3. INDIVIDUAL PRODUCT DECISIONS

4. PRODUCT LINE DECISIONS

5. PRODUCT MIX DECISIONS

6. NEW PRODUCT DEVELOPMENT

7. PRODUCT LIFE CYCLE STRATEGIES

2
5.1.1 MEANING OF PRODUCT
A product is anything that can be offered to a market to satisfy a
want or need.
Products that are anything marketed include physical goods,
services, persons, places, organization, and ideas.
5.2 PRODUCT CLASSIFICATIONS
• Products fall into two broad classes based on the types of
consumers that use them:
1. Consumer products and
2. Industrial products.
3
5.2 PRODUCT CLASSIFICATIONS…to be continued
1. Consumer products: products bought buy by final consumers for
personal consumption.
 they can classified on the basis of consumer shopping habits.
Example: convenience products, shopping products, specialty
products and unsought products
a) Convenience products: are consumer products that the consumer usually
buys frequently,
• Usually low priced, and
• Available in many location and when a customer needs them.
Example: soap, candy, newspaper, fast food
4
Consumer products …to be continued
b) Shopping products: less frequently purchased consumer products
• Consumers compare carefully on suitability, quality, price and style
• Consumers spend much time and effort in gathering information and making
comparisons.
• Usually distributed through fewer outlets but provide deeper sales support
Example: Furniture, clothing, used cars major appliances and hotel and airline
service
c) Specialty products: products with unique characteristics or brand
identification
• Buyers normally do not compare specialty products
• They invest only the time needed to reach dealers carrying wanted product
5
Consumer products …to be continued
d) Unsought products: products that the consumer either does not know about
or knows about but does not normally think of buying.

• Unsought products require a lot of advertising, personal selling and other

marketing efforts.

Example: life insurance, cemetery plots, home security systems, funeral

services and blood donations to Red cross

6
2. Industrial products
• Industrial products are those bought for further processing or for use in
conducting a business.

• Industrial product is based on the purpose for which the product is purchased

There are three groups of industrial product: materials and parts, capital items
and supplies and services:

a) Materials and Parts:

• Industrial products that enter the manufacturer’s product completely,

Example: raw materials and manufactured materials and parts

7
2. Industrial products… to be continued
• Raw materials consist of farm products (wheat, cotton, livestock, fruits,
vegetables) and natural products (fish, timber, crude petroleum, iron ore).

• Manufactured materials and parts include component materials (iron, yarn,

cement, wires) and component parts (small motors, tyres, castings).
b) Capital items: Industrial goods that partly enter the finished product,
including installations and accessory equipment.
• Installations consist of buildings (factories, offices) and fixed equipment
(generators, drill presses, large computer systems, lifts).
• Accessory equipment includes portable factory equipment and tools (hand
tools, lift trucks) and office equipment (fax machines, computers, desks). 8
2. Industrial products… to be continued
c) Supplies and services: Industrial products that do not enter the finished
product at all.

• Supplies: operating supplies (lubricants, coal, computer paper, pencils) and

repair and maintenance items (paint, nails, brooms).

• Business services: maintenance and repair services (window cleaning,

computer repair) and business advisory services (legal, management
consulting, advertising).

9
5.1.2 Individual product decisions
• Marketers make product decisions at three levels: individual product
decisions, product line decisions and product mix decisions.

• Individual product decisions: decisions relating to the development and

marketing of individual products,

Example: product attributes, branding, packaging, labelling and product-

support services.

a) Product attributes: defining the benefits that the product will offer

• Example: quality, features, style and design. 10

5.1.2 Individual product decisions
b) Brand: 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.
c) Packaging: The activities of designing and producing the container or wrapper for a
product.
d) Labelling: Labels may range from simple tags attached to products to complex
• The label might also grade the product, or describe several things about the product
– who made it, where it was made, when it was made, its contents, how it is to be
used and how to use it safely.
• The label might promote the product through attractive graphics that are part of
the package. 11
5.1.2 Individual product decisions
e) Product-support services: Services that augment actual products

• Customer service is another element of product strategy.

• Good customer service makes sound business sense.

5.1.3 Product-line decisions

• Product line: A group of products that are closely related because they
function in a similar manner, are sold to the same customer groups, are
marketed through the same types of outlet, or fall within given price ranges.
12
5.1.3 Product-line decisions… to be continued

• For example: Nokia produces several lines of telecommunications products,

Philips produces several lines of audio entertainment systems and Nike
produces several lines of athletic shoes and clothings.

• The major product line decisions:

a) Product line stretching decision: Increasing the product line by lengthening

it beyond its current range.

• Product line length is influenced by company objectives and resources.

• There are Downward stretch, Upward stretch and Two-way stretch 13

5.1.3 Product-line decisions… to be continued
• Stretching Upward: Targets product for a higher level and higher-priced market
segment.
• Stretching Downward: Targets the product for a lower level and lower-priced
market segment.
• Stretching Both Ways: Targets a different group of upper, middle, or lower class
buyers.

b) Product line filling decision: Increasing the product line by adding more items
within the present range of the line

• Reasons for product line filling: reaching for extra profits, satisfying dealers,
using excess capacity, being the leading full-line company, and plugging holes to
keep out competitors. 14
5.1.4 Product-Mix decisions
• Product mix (product assortment)—The set of all product lines and items that a
particular seller offers for sale to buyers.

• For example, a cosmetics firm may have four main product lines in its product
mix: cosmetics, jewellery, fashions and household items. Each product line may
consist of sub-lines.

• For example, cosmetics beak down into lipstick, powder, nail varnish, eye-
shadows and so on. Each line and sub-line may have many individual items.

• For example, eye-shadows contain a string of items, ranging from different

colours to alternative application modes (e.g. pencil, roll-on, powder). 15
5.1.5 NEW PRODUCT DEVELOPMENT

• New-product development: it is the development of original products,

product improvements, product modifications and new brands through the
firm’s own R&D efforts.

• New Product Development starts with idea generation

• The major sources of new product ideas include internal sources, customers,
competitors, distributors and suppliers.

16
New-product development process
• The new-product development process for finding and growing new products
consists of nine main steps:

1. New-product strategy

2. Idea generation

3. Idea screening

4. Concept development and testing

5. Marketing strategy

6. Business analysis 17
New-product development process…to be continued
7. Product development

8. Test Marketing

9. Commercialization

1. New Product strategy

• Effective product innovation is guided by a well-defined new-product strategy

• The new product strategy achieves four main goals:

• First, it gives direction to the new-product team and focuses team effort;
18
New-product development process…to be continued
1. New Product Idea Generation….to be continued

• Second, it helps to integrate functional or departmental efforts;

• Third, where understood by the new-product team, it allows tasks to be

delegated to team members, who can be left to operate independently; and

• Fourth, the very act of producing and getting managers to agree on a strategy
requires proactive, not reactive, management, etc.

• Successful innovative companies place more emphasis upon the use of

definitive strategy statements or a product innovation charter (PIC). 19
New-product development process…to be continued
2. Idea Generation

• The systematic search for new-product ideas.

• Idea generation should be proactive and systematic rather than haphazard.

• Source of new product ideas are; internal sources, customers, competitors, distributors
and suppliers.

3. Idea Screening: Screening new-product ideas in order to spot good ideas and drop poor
ones as soon as possible.

• As product development costs rise greatly in later stages, it is important for the company
to go ahead only with those product ideas that will turn into profitable products
20
New-product development process…to be continued
4. Concept development and testing:

• Product concept—A detailed version of the new-product idea stated in

meaningful consumer terms.

• Concept testing—Testing new-product concepts with a group of target

consumers to find out whether the concepts have strong consumer appeal.

5. Marketing strategy development

• Marketing strategy—The marketing logic by which the business unit hopes to

achieve its marketing objectives. 21
New-product development process…to be continued
5. Marketing strategy development…to be continued

• Marketing strategy statement—A statement of the planned strategy for a new

product that outlines the intended target market, the planned product
positioning, and the sales, market share and profit goals for the first few years

• The marketing strategy statement consists of three parts.

1st, part describes the target market, the planned product positioning, and the sales,
market share and profit goals for the first few years.

2nd, part of the marketing strategy statement outlines the product’s planned price,
distribution and marketing budget for the first year 22
New-product development process…to be continued
5. Marketing strategy development…to be continued

• 3rd, part of the marketing strategy statement describes the planned long-run
sales, profit goals and marketing mix strategy.

6. Business analysis—A review of the sales, costs and profit projections for a
new product to find out whether these factors satisfy the company’s objectives

7. Product development- Developing the product concept into a physical

product in order to ensure that the product idea can be turned into a workable
product.
23
New-product development process…to be continued
8. Test marketing —The stage of new-product development where the product
and marketing programme are tested in more realistic market settings.

• When using test marketing, consumer-products companies usually choose

one of three approaches –standard test markets, controlled test markets or
simulated test markets.

9. Commercialisation— Introducing a new product into the market.

The company launching a new product must make four decisions: When,
Where, to whom and How?
24
5.1.6 PRODUCT LIFE CYCLE STRATEGIES

Product life-cycle (PLC)— The course of a product’s sales and profits

over its lifetime. It involves 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

25
5.1.6 PRODUCT LIFE CYCLE STRATEGIES
2.Introduction: is a period of slow sales growth as the product is being introduced
in the market. Profits are non-existent 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.

5. Decline: is the period when sales fall off and profits drop. See next figure
26
27
5.2 PRICING DECISIONS

5.2.2 Meaning of price

5.2.2. Factors to consider when setting prices

5.2.3. General pricing approaches

5.2.4. New product pricing strategies

5.2.5. Product mix pricing strategies

5.2.6 Price adjustment strategies

28
5.2 PRICING DECISIONS ….to be continued!
5.2.2 Meaning of Price
• Price is the amount of money charged for a product or service.
• Price is the sum of all the values that consumers exchange for the benefits of
having or using the product or service.
• In the past, price has been the major factor affecting buyer choice.
• However, non-price factors have become more important in buyer choice
behaviour in recent decades
• Price is the only element in the marketing mix that produces revenue; all
other elements represent costs.
29
5.2 PRICING DECISIONS ….to be continued!

5.2.2. Factors to consider when setting prices

• A company’s pricing decisions are affected both by internal company factors

and by external environmental factors:

A. Internal factors affecting pricing decisions

• Internal factors affecting pricing include the company’s marketing objectives,

marketing-mix strategy, costs and organisation.

1. Marketing objectives:

• Before setting price, the company must decide on its strategy for the product.
30
1. Marketing objectives…
• If the company has selected its target market and positioning
carefully, then its marketing-mix strategy, including price, will be
fairly straightforward
2. Marketing-mix strategy
• Price is only one of the marketing-mix tools that a company uses to
achieve its marketing objectives.
• Price decisions must be coordinated with product design,
distribution and promotion decisions
• Decisions made for other marketing-mix variables may affect
pricing decisions.
31
2. Marketing-mix strategy…to be continued
• Companies often make their pricing decisions first and then base
other marketing-mix decisions on the prices that they want to
charge.
3. Costs
• Cost is set the floor for the price that the company can charge for its
product.
• 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.
• Many companies work to become the ‘low-cost producers’ in their
industries. 32
4. Organisational considerations
• Management must decide who within the organisation should set
prices.
• Companies handle pricing in a variety of ways.
Example:
In small companies, prices are often set by top management
In large companies, pricing is handled by divisional or product line
managers.
In industrial markets, salespeople may be allowed to negotiate
with customers within certain price ranges.

33
B. External factors affecting pricing decisions

• Pricing decisions are affected by external factors such as:

1. The nature of the market and demand,

2. Competition and

3. Other environmental elements

34
5.2.3. General pricing approaches

• Companies set prices by selecting a general pricing approach that

includes one or more of these three sets of factors – costs, consumer
perception and competitors’ prices.

1. The cost-based approach (cost-plus pricing, break-even analysis and

target profit pricing);

2. The buyer-based approach (perceived-value pricing); and

3. The competition-based approach (going-rate and sealed-bid pricing)

35
1. The cost-based approach

a) Cost-plus pricing: Adding a standard mark-up to the cost of the

product

• Mark-up/mark-down—The difference between selling price and

cost as a percentage of selling price or cost.

For example: submit job bids by estimating the total project cost and
adding a standard mark-up for profit.

See next slide 36

Given: Variable cost $10, Fixed cost $300,000 and Expected unit sales
50,000

• Then the manufacturer’s cost per toaster is given by

Unit cost= Variable cost + =$ 16

• Now suppose the manufacturer wants to earn a 20 per cent mark-

up on sales. The manufacturer’s mark-up price is given by:

Mark-up price===$20

37
 b) Break-even analysis and target profit pricing
• Another cost-oriented pricing approach is break-even pricing or a variation
called target profit pricing

• The firm tries to determine the price at which it will break even or make the
target profit it is seeking

• Target pricing is used by General Motors, which prices its cars to achieve a
15–20 per cent profit on its investment

• This pricing method is also used by public utilities, which are constrained to
make a fair return on their investment.
38
 b) Break-even analysis and target profit pricing

Example: The total revenue and total cost curves cross at 30,000 units. This
is the break-even volume. At $20, the company must sell at least 30,000
units to break even and using VC $10; that is, for total revenue to cover
total cost. Break-even volume can be calculated using the following
formula:

Break even volume= 30,000.00

39
 2. The buyer-based approach (perceived-value pricing);
• Value pricing —Offering just the right combination of quality and good
service at a fair price

• Value-based pricing uses buyers’ perceptions of value, not the seller’s cost,
as the key to pricing.

• Value-based pricing means that the marketer cannot design a product and
marketing programme and then set the price.

• Price is considered along with the other marketing-mix variables before the
marketing programme is set.
40
 3. Competition-based pricing
• Consumers will base their judgements of a product’s value on the prices
that competitors charge for similar products.

• The are two forms of competition-based pricing:

1. Going-rate pricing —Setting price based largely on following competitors’

prices rather than on company costs or demand.

2. In sealed-bid pricing, a firm bases its price on how it thinks competitors

will price rather than on its own costs or on demand.

41
 5.2.4. New product pricing strategies
• Pricing strategies usually change as the product passes through its life-cycle.

• The introductory stage is especially challenging

• A company that plans to develop an imitative new product faces a product-

positioning problem.

• It must decide where to position the product versus competing products in

terms of quality and price.

• There are four possible positioning strategies: a premium pricing strategy,

economy pricing strategy, good-value strategy and overcharging strategy
42
 5.2.4. New product pricing strategies…to be continued
1. Premium pricing strategy – producing a high-quality product and charging
the highest price.

2. Economy pricing strategy – producing a lower-quality product, but

charging a low price.

3. Good -value strategy -represents a way to attack the premium pricer

4. Overcharging strategy-the company overprices the product in relation to

its quality

43
 5.2.4. New product pricing strategies…to be continued
Pricing strategy for innovative product. There are two:

1. Market-skimming pricing: Setting a high price for a new product to skim

maximum revenues layer by layer from the segments willing to pay the
high price; the company makes fewer but more profitable sales.

2. Market-penetration pricing: Setting a low price for a new product in

order to attract large numbers of buyers and a large market share.

44
 5.2.5 Product-mix pricing strategies
There are Five product-mix pricing strategies:

1. Product line pricing: Setting price steps between product line items

2. Optional-product pricing: Pricing optional or accessory products sold

with the main product

3. Captive-product pricing: Pricing products that must be used with the

main product

4. By-product pricing: Pricing low-value by-products to get rid of them

5. Product-bundle pricing: Pricing bundles of products sold together 45

 5.2.6 Price-adjustment strategies
• Companies usually adjust their basic prices to account for various customer
differences and changing situations.
• There are seven price-adjustment strategies:
1. Discount and allowance pricing,
2. Segmented pricing,
3. Psychological pricing,
4. Promotional pricing,
5. Value pricing,
6. Geographical pricing and
7. International pricing. 46
 5.2.6 Price-adjustment strategies…to be continued
1. Discount and allowance pricing: Reducing prices to reward customer
responses such as paying early or promoting the product

2. Segmented pricing: Adjusting prices to allow for differences in customers,

products and locations

3. Psychological pricing: Adjusting prices for psychological effect

4. Value pricing: Adjusting prices to offer the right combination of quality

and service at a fair price

5. Promotional pricing: Temporarily reducing prices to increase short-run

sales 47
 5.2.6 Price-adjustment strategies…to be continued
6. Geographical pricing: Adjusting prices to account for the geographical
location of customers

7. International pricing: Adjusting prices in international markets

48
5.3 PLACE DECISION: Placing the product…Weekend

5.3.1 The meaning and importance of distribution channels

5.3.2 Function of marketing channel

5.3.3 Number of channel and channel structure

5.3.4. Number of intermediaries

49
5.3.1 The meaning and importance of distribution channels

• Distribution channel: is a set of interdependent organizations involved in

the process of making a product or service available for use or
consumption.

• A marketing channel performs the work of moving goods from producers

to consumers.

• Channel members add value by bridging the time, place, and possession
gaps

•
50
5.3.2 Function of marketing channel
• Information: Gathering and dissemination of marketing research and
intelligence information.

• Promotions: The development and dissemination of persuasive

communications designed to attract customers to the offer.

• Contract: Finding communicating with prospective buyers.

• Matching: Shaping and fitting the offer the buyer’s needs, including
activities such as manufacturing, grading, assembling, and packaging.

• Negotiation: Reaching and agreement on price and other terms of the offer
51
 function of marketing channel…to be continued
• Ordering: Marketing channel members’ communication of intentions
to buy to the manufacturer.
• Physical distribution: Transporting and storing goods.
• Financing: Acquiring and using funds to cover the cost of the channel
work.
• Risk taking: Assuming the risks of carrying out the channel work.
• Payment: Buyers’ payment of their bills to the seller through banks
and other financial institution.

52
 5.3.3 Number of channel and channel structure
Number of channel:There are basically four types of marketing channels:

1. Direct selling;

2. Selling through intermediaries;

3. Dual distribution; and

4. Reverse channels.

1. Direct selling: Direct selling is the marketing and selling of products directly
to consumers away from a fixed retail location.

• The direct personal presentation, demonstration, and sale of products and

services to consumers, usually in their homes or at their jobs 53
 5.3.3 Number of channel and channel structure
2. Selling through intermediaries; A marketing channel where intermediaries
such as wholesalers and retailers are utilized to make a product available to
the customer is called an indirect channel.

Example: Producer/manufacturer --> agent --> wholesaler --> retailer -->

consumer

3. Dual Distribution: Dual distribution describes a wide variety of marketing

arrangements by which the manufacturer or wholesalers uses more than one
channel simultaneously to reach the end-user.

54
 5.3.3 Number of channel and channel structure
Example: franchising

4. Reverse Channels: the reverse direction and may go – from consumer to

intermediary to beneficiary.

Channel structure: Form or shape that a marketing channel takes to perform

the tasks necessary to make products available to consumers.

• Analyzing consumer needs

• Setting Channel Objectives

55
 5.3.3 Number of channel and channel structure
• Identifying Major Alternatives
• Types of intermediaries
• Company sales force
• Manufacturer’s agency
• Industrial distributors
• Number of intermediaries
• Responsibilities of intermediaries

56
 5.3.3 Number of channel and channel structure…
• Dimensions of Channel Design

1.Length of the channel

2.Intensity of various levels (Exclusive, Selective, Intensive)
3.Types of intermediaries involved

57
 Length of Channel
• Channel length = number of levels in a distribution channel.

2 3 4 5
level
Manufacturer level
Manufacturer level
Manufacturer level
Manufacturer

Agent

Wholesaler Wholesaler

Retailer Retailer Retailer

Consumer Consumer Consumer Consumer

58
 Determinants of Channel Structure
1. The distribution tasks that need to be performed

2. The economics of performing distribution tasks

3. Management’s desire for control of distribution

4. Transaction Efficiency (refers to the effort to reduce the

number of transactions between producers &consumers).

59
5.4 PROMOTION DECISION: Communication and promotion strategy
5.4.1 Meaning of promotion

• Promotion is a form of corporate communication that uses various methods to

reach a targeted audience with a certain message in order to achieve specific
organizational objectives.

5.4.2 The Purpose of Promotion

• Build Awareness & Provide Information

• Create Interest

• Stimulate Demand
60
• Reinforce the Brand
5.4 PROMOTION DECISION: Communication and promotion strategy

5.4.3. Promotional Mix Elements

• 5.4.3.1. Advertising

• 5.4.3.2. Sales promotion

• 5.4.3.3. Personal selling

• 5.4.3.4. Public relations and publicity

61
5.4.3. Promotional Mix Elements

5.4.3.1. Advertising

What is advertising? Advertising is a non-personal form of promotion that is

delivered through selected media outlets

• Advertising has long been viewed as a method of mass promotion in that a

single message can reach a large number of people.

• Advertising also has a history of being considered a one-way form of marketing

communication

• Advertising evolves is the view that advertising does not stimulate immediate
62
demand for the product advertised.
5.4.3.1. Advertising… to be continued

Use of Advertising

• Stimulating Primary and Selective Demand

• Offsetting Competitors Advertising

• Making Salespersons more effective

• Increasing use of product

• Reminding and Reinforcing Customers

• Reducing Sales Fluctuations

63
5.4.3.1. Advertising… to be continued

Advantage

• Flexibility allows you to focus on a small, precisely defined segment.

• Cost efficient

• Allows for repeating the message

• Very expressive, allows for dramatization

• Also used to build a long term image of a product

64
5.4.3.1. Advertising… to be continued

Disadvantages

• Rarely provides quick feedback, or necessarily any feedback

• Less persuasive than personal selling

• Audience does not have to pay attention

• Indirect feedback (without interactivity)

65
5.4.3.2 What is Sales Promotion?

• Sales promotion describes promotional methods using special short-term

techniques to persuade members of a target market.

• Sales Promotion, a key ingredient in marketing campaigns, consists of a

collection of incentive tools, mostly short term, designed to stimulate
quicker or greater purchase of particular products / services by consumers
or the trade.

• Short-term incentives to encourage the purchase or sale of a product or

service.
66
5.4.3.2 What is Sales Promotion?

Objectives of Sales Promotion

To introduce new products

To attract new customers

To induce present customers to buy more

To help firm remain competitive

To increase sales in off season

67
5.4.3.2 What is Sales Promotion?...to be continued

Objectives of Sales Promotion…to be continued

• To increase the inventories of business buyers

• To develop patronage habits among customers

• To educate customers

• To stimulate sales

• To facilitate coordination

68
69
 Objectives of Sales Promotion
• Building Product Awareness
• Creating Interest
• Providing Information
• Stimulating Demand
• Reinforcing the Brand
Selecting Promotional Tools
1. Identify the Audience
2. Identify the Stage of Product Life Cycle and Promotion Strategy
3. Product Characteristics
4. Stages of Buying Decision
5. Channel Strategies (Pull vs Push)
70
 Sales Promotion Opportunities and Limitations
Opportunities
• Increase in sales by providing extra incentive to purchase
• Objectives must be consistent with promotional objectives and overall
company objectives.
• Balance between short term sales increase and long term need for desired
reputation and brand image.
• Attract customer traffic and maintain brand/company loyalty.
• Reminder functions-calendars, T Shirts, match books etc.
• Impulse purchases increased by displays
• Contests generate excitement esp. with high payoffs.

71
 Sales Promotion Opportunities and Limitations
Limitations

• Consumers may just wait for the incentives

• May diminish image of the firm, represent decline in the product quality.

• Reduces profit margins, customers may stock up during the promotion

• Shift focus away from the product itself to secondary factors,

72
Sales promotion

73
Sales promotion

74
 5.3.3.3 Public Relation and Publicity
What is Public relation (PR)?

• Public relations involve the cultivation of favorable relations for organizations

and products with its key publics through the use of a variety of
communications channels and tools.

Role of public relations

• Building awareness and a favorable image

• Closely monitoring numerous media channels for public comment

• Managing crises that threaten company or product image

• Building goodwill among an organization’s target market 75

 5.3.3.3 Public Relation and Publicity
What is Publicity?

• A broad set of communication activities used to create and maintain favorable

relations between the organization and its publics.
Characteristics of publicity
• Publicity is primarily informative
• Publicity is more subdued (Passive)
• Publicity does not identify the sponsor
• Publicity is free
• Publicity is part of a program or print story and appears more objective
• Publicity is not subject to repetition
• Publicity is more credible
76
• Little control over publicity
 5.4.3.4 Personal Selling
What is Personal Selling?

• Personal selling is a promotional method in which one party uses skills and
techniques for building personal relationship with another party that results
in both parties obtaining value.

Advantages of Personal Selling

• it is a two-way form of communication

• The interactive nature of personal selling

• the most practical promotional option for reaching customers who are not
77
easily reached through other method
 5.4.3.4 Personal Selling … to be continued
Disadvantages of Personal Selling

• The degree to which this promotional method is misunderstood

• the high cost in maintaining this type of promotional effort (Cost per action-
CPA)

• personal selling is not for everyone

78
Personal selling

79
PR and Advertising

80
END OF THE CHAPTER

THANK YOU!

81
CHAPTER SIX: VALUE CHAIN ANALYSIS

6.1 The Value Chain

6.2 Cost Advantage and the Value Chain
6.3 Differentiation and the Value Chain
6.4 Technology and the Value Chain
6.5 Linkages between Value Chain Activities
6.6 Analyzing Business Unit Interrelationships
6.7 Outsourcing Value Chain Activities
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CHAPTER SIX: VALUE CHAIN ANALYSIS…

6.1 The Value Chain

What is value? the value is the total amount (i.e. Total revenue) that buyers
are willing to pay for a firm’s products.
• The value chain is a tool developed by dr. Michael porter(Harvard
business school)
What is value chain? Porter’s definition includes all activities to design,
produce, market, deliver, and support the product/service.

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 Value Chain ….
What is value chain?
• The value chain is concentrating on the activities starting with raw materials
till the conversion into final goods or services.
Two categories:
• Primary Activities (operations, distribution, sales)
• Support Activities (R&D, Human Resources)
TYPES OF VALUE CHAIN:
Value Chain is categorized into types based on the type of organizations.
1. Manufacturing based.
2. Service based.
3. Both manufacturing and service based. 84
 Value Chain ….
What is value chain analysis?
• Used to identify sources of competitive advantage
• Specifically:
Opportunities to secure cost advantages
Opportunities to create product/service differentiation
• Includes the value-creating activities of all industry participant

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 6.2 Cost Advantage and the Value Chain
• A firm may create a cost advantage either by reducing the cost of
individual value chain activities or by reconfiguring the value chain.
• Once the value chain is defined, a cost analysis can be performed by
assigning costs to the value chain activities.
Porter identified 10 cost drivers related to value chain activities:
• Economies of scale
• Learning
• Capacity utilization
• Linkages among activities
• Interrelationships among business units
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 6.2 Cost Advantage and the Value Chain…
Porter identified 10 cost drivers related to value chain activities:

• Interrelationships among business units

• Degree of vertical integration

• Timing of market entry

• Firm's policy of cost or differentiation

• Geographic location

• Institutional factors (regulation, union activity, taxes, etc.)

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 6.3 Differentiation and the Value Chain
• A differentiation advantage can arise from any part of the value chain.

For example: procurement of inputs that are unique and not widely
available to competitors can create differentiation, as can distribution
channels that offer high service levels.
• Differentiation stems from uniqueness
• A differentiation advantage may be achieved either by changing
individual value chain activities to increase uniqueness in the final
product or by reconfiguring the value chain.

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 6.3 Differentiation and the Value Chain
Porter identified several drivers of uniqueness:
• Policies and decisions
• Linkages among activities
• Timing
• Location
• Interrelationships
• Learning
• Integration
• Scale (e.g. better service as a result of large scale)
• Institutional factors

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 6.4 Technology and the Value Chain
• Technology is employed to some degree in every value creating activity
• changes in technology can impact competitive advantage by incrementally
changing the activities
• Various technologies are used in both primary value activities and support
activities:
i. Inbound Logistics Technologies
ii. Operations Technologies
iii. Outbound Logistics Technologies
iv. Marketing & Sales Technologies: Online sales (Amazon and Alibaba)
v. Service Technologies
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 6.5 Linkages between Value Chain Activities
• Value chain activities are not isolated from one another.

• one value chain activity often affects the cost or performance of other ones.

• Linkages may exist between primary activities and also between primary and
support activities.

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 6.6 Analyzing Business Unit Interrelationships
• Interrelationships among business units form the basis for a horizontal
strategy.

• Such business unit interrelationships can be identified by a value chain

analysis.

• Tangible interrelationships offer direct opportunities to create a synergy

among business units.

For example, if multiple business units require a particular raw material, the
procurement of that material can be shared among the business units.
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 6.7 Outsourcing Value Chain Activities
• A firm may specialize in one or more value chain activities and outsource
the rest.
• Managers may consider the following when selecting activities to outsource:
 Whether the activity can be performed cheaper or better by suppliers.
 Whether the activity is one of the firm's core competencies from which
stems a cost advantage or product differentiation?
 The risk of performing the activity in-house.
 Whether the outsourcing of an activity can result in business process
improvements such as reduced lead time, higher flexibility, reduced
inventory, etc.

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