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The marketing training material provides a useful supplement to marketing training received or information for those who are yet to attend a marketing training course. Marketing is an important component of business success and this material will help to provide a good understanding of marketing and the key considerations to implementing marketing into their organisation.
The material has been developed by Spearhead Training over many years of exhaustive work. We also continually develop new material for our marketing training courses. For those new to marketing or with no formal marketing training we recommend attending our Introduction to Marketing training course to gain a thorough grounding in the subject of marketing.
INTRODUCTION
The first stage in the evolution of today’s marketing concept began with the emergence of the distribution of labour and the transition from custom made production to mass production (industrialisation). The main commercial task lay in solving production and technical problems. Market-orientated questions played a secondary role as demand was greater than supply. Henry Ford, for example, was able to build every car that he wanted because there was always a buyer. This period was also known as the phase of product orientation.
Progress in technology and constant improvement of working methods eventually led to an increase in production. Since this also increased supply, manufacturers found it easier to assert themselves in the market because they were able to offer higher-quality products. This was the beginning of the quality orientation phase.
Good quality was no longer a guarantee for sufficient sales. Commercial efforts were concentrated increasingly on sales. This was the beginning of the sales orientation phase which lasted in the United States until the 1960s and in Europe until the 1970s.
Societal developments (the creation of target groups) and improved analytical methods (market research) led to the phase of marketing orientation. The idea behind this was that it is easier to obtain sales success if all commercial activities are based on the needs of the market partner. Marketing is understood as a conception of market oriented company management.
The evolution of marketing shows that the idea of marketing must first assert itself within a company. Sales which for a long time constituted the predominant commercial activity, can be diametrically opposed to marketing. Marketing is often understood as an abstract theory, whereas the important decisions are taken “on the sales front”.
Many companies have come to realise, however, that the idea of marketing is a decisive factor in success: the requirements of the buyer form the basis of all commercial activities.
The companies which are most successful are those which have transposed this idea the most consistently – without, however, neglecting their own interests. A precondition for success is that all of a company’s areas of operation are oriented towards marketing ideas. Since competition is becoming more intense, no company can afford not to use success potential.
The widespread conflict between marketing and sales must be overcome and there must be close co-operation between them, precisely because sales is closest to the market. This co-operative relationship is easier to achieve the more both sides know of and understand each other. Sales managers must deal with marketing and in turn marketing managers must understand the importance of sales.
More recently in the 1st decade of the 00’s, we have seen organisations manage the market pull towards a saturated and therefore commoditised market place. This has been created with the influx of competition caused by the opening of trade boarders with countries such as China. This in turn has led to the need to demonstrate value more than ever before. Another key challenge is managing “the long tail” which describes numerous customers in a market place each with slightly different requirements. Technology has enabled successful marketing of the long tail and is likely to present a greater challenge in the future as customers and potential customers become more discerning and diverse in their needs.
THE FUNDAMENTAL PRINCIPLES OF MARKETING
What is marketing?
Marketing is the “conscious market-oriented management of the whole company or market-oriented decision-making in the company” (Meffert). It needs to be understood that sales success is not primarily determined by one’s own abilities but by the ability to provide demand requirements and to fulfil these better than the competition.
The market as the basis of commercial activities
Instead of developing a product and then trying to sell as many as possible, the marketing conception first asks what the existing requirements on the market are. Each individual product can then be ideally developed according to these requirements. The market thus becomes the basis of all commercial activities which is how marketing differs from all other management concepts.
Four areas of operation
Marketing affects every area of sales, not just product development. There are four main areas of operation: product policy, price policy, sales policy and communication policy. Market orientation is the predominant business and decision-making criterion.
Marketing should not act as a service function for sales but should be the fundamental management authority in a company. All commercial activities should be geared to the current and future demands of the market and come together to form a balanced marketing mix.
Successful marketing demands that all of the four main areas of operation are co-ordinated. This is what we call the marketing mix.
Integral thinking
The effects of the different areas of operation are difficult to separate. For example, packaging, which is part of product policy, also has a communicative effect. Sales negotiations, which are part of sales policy, are closely co-ordinated with communications policy (e.g., advertising). In the field of consumer goods marketing, there are always disputes as to the area of responsibility into which sales promotion falls – sales or product management.
This can only be resolved if a company realises that every measure must co-ordinate and form a unified whole. The decisive factor is that market consumers must be able to recognise the measures of sales promotion, such as posters, announcements in shops etc, from whichever form of advertising is chosen and associate this with the company that is carrying out the advertising. The same goes for the visual structure of packaging. Packaging, sales promotion and advertising must be interwoven as tightly as possible, so that they present a single unit.
Harmonise all measures
It is the job of the marketing managers to guarantee the co-ordination of all activities in their area of responsibility. Since, in practice, sales is often an individual area of responsibility next to the marketing department, it is the management’s job to co-ordinate these areas. The goal of management must be to overcome the conflict between marketing and sales.
The areas of operation in marketing are based on many sub-functions. The four areas of operation which are used for the purpose of these notes can be divided up into a host of sub-functions:
Product mix
1. Product policy (supply policy) consists of
· Quality structure
· Packaging structure
· Brand policy
· Range policy (including product elimination)
· Innovation policy (including quality variation, diversification, etc.)
· Service policy
Price mix
2. Price policy consists of
· Price differentiation
· Sales campaign price policy
· Discount policy
· Credit guarantee
· Delivery conditions and conditions of payment
Sales mix
3. Sales policy consists of
· Organisation of the field sales staff
· The choice of sales methods
· The choice of sales system (i.e. the choice between travelling salespeople and agents, wholesalers or distributors)
· Logistics
· An incentive system for the field sales staff
· Management of the field sales staff
· The field salespeople’s staff policy
· Export decisions
· Decisions to co-operate with the market or other sales partners
Communications mix
4. Finally, communications policy consists of
· Advertising
· Public relations (working with the general public)
· Product publicity
· Sales campaigns (these normally differ according to the following three levels: sales department oriented, market oriented or buyer oriented).
· Sales negotiations (personal sales)
Decisions about individual activities can be delegated. A management executive must always make sure that detailed discussions do not prevent conceptional decisions being made. The sub mix areas must also be harmonised as best as possible.
Sub mix areas
In order to refer to all the sub areas of the four main areas of operation, in marketing these are regarded as sub mix areas. For instance, the sub areas of product policy, as a whole are known as a sub mix area and likewise for the other three.
When making marketing decisions always bear in mind the effects any decision will have on all areas of responsibility. It is often the weakest point in the overall mix which determines the success or failure of a marketing strategy.
Marketing mix areas within marketing strategies
Most companies pursue several marketing strategies. For example, a capital goods company which sells street construction and mining equipment must ensure that the marketing mix for both of these are a close-knit unit, but in order to portray a clear image and sustain credibility, the company must also harmonise both marketing mix areas. This co-ordinating function is the job of the marketing or company management.
The interaction of all marketing activities
The interaction of all marketing activities is enhanced by the fact that, for example, newspaper advertising, posters and packaging portray a unified image of a product. Since consumers are exposed to over 1,000 product advertisements every day, there is hardly any danger of them becoming bored. On the contrary, a unified image clearly increases their ability to recognise a product.
Defiance marketing- the market is not the only decisive factor
The maxim of marketing does not focus on developing a product based on one’s own ideas and selling as many of these products as possible. It focuses instead on determining needs and developing products which will satisfy those needs. The premise of this maxim is understandable enough: even the best sales technique is worthless if there is no market for what you are trying to sell.
This realisation has led to a misunderstanding – namely, that the market dictates commercial activities. It is certainly true that it is easier to realise some goals by succeeding in fulfilling the needs of the market. Total market orientation can, however, also lead to uneconomical management: too many product variations, too high a turnover of programme changes and the elimination of too many existing production methods.
You must also orientate yourself to your own strengths
If we have mastered a sales technique and then realise that one of our competitors is enjoying greater success with a different technique, we do not immediately throw our own technique out of the window. It may prove better in the long run to stick with our own technique, improve it and sustain our existing position in the market by emphasising and extending our own strengths.
Realising financial limitations
It is easier to implement our own interests by adapting to the desires of the market. However, realising financial limitations is also an integral part of marketing.
Marketing, when understood as the market orientation of the whole company, does not mean accepting the ultimate dictates of the market. It means that all decisions must be based on a consideration of the facts and conditions which prevail on the market or of the possibilities of influencing the market.
Marketing does not mean sales marketing
No one will seriously argue that sales, i.e. the sale of manufactured goods, is the central goal of commercial activity. The fact that in most markets more is produced than there is demand for makes it seem thoroughly justified to talk of “the primacy of sales over marketing”. It would be wrong, however, to ignore the possibilities open to marketing in other markets in which your company is present.
Apart from the sales market, there are primarily four other markets which are of importance to companies. These are:
· Job market
· Financial markets
· Procurement markets
· Information markets
In the job market, companies offer job placements and look for employees. In procurement markets, companies offer financial resources and seek production goods in exchange. In financial markets, they look for financial resources and offer interest and securities in return. Information markets are particularly complicated. Here, a company offers journalists information, for example, and desire coverage in return which will boost their company image. A company may seek market information for a fee. Companies are often unaware of the sources from which they can procure such information. The more intensely a company has co-operated in the past with sources which offer information, the easier it will be to procure the requisite information today. This shows that behaviour which conforms to the market is advantageous even in the job market.
Commercial activities effect a company’s image in all markets
Commercial activities effect a company’s image in all markets (including sales), and these, in turn, also effect the implementation of sales goals.
Every job advertisement you place should be checked from the point of view of how it will effect your company image. The more favourably a company is judged by the general public, the easier it is to get qualified staff and financial support from banks or to overcome bottle-necks in the supply of productive goods.
It is important that every effect means of communication your company has with the outside world comes under the umbrella of a marketing strategy.
The marketing concept
Marketing is only a concept – that is the concept is promising in its entirety. A marketing concept contains all the goals, measures and data which are relevant to the long-term success of the product. A precondition for the success of a marketing concept is that all the integral elements are harmonised. The marketing concept also thereby defines the longer-term basis on which future decisions concerning the marketing of the product will be made.
The following check list should help you draw up a marketing concept for your company. It lists all the important points which should be included in a complete marketing concept. Extend the list with additional elements which are specific to your company.
Marketing concept check list
¨ Product characteristics
¨ Promises made to the buyer
¨ What is the product’s main advantage compared with that of the competition (USP = Unique Selling Point)?
¨ If there is no USP, what are the reasons for purchasing the product?
¨ Description of the target group, the key target group and an extended target group.
¨ Assumed market volume
¨ Desired market share
¨ Sales methods
¨ Trading partner
¨ For consumer goods: how many shops do you want to purchase your product?
¨ Short-term, medium-term and long-term price goal
¨ Sales campaign prices
¨ Turnover goals according to sales areas, clients and time periods
¨ Cover charge goals
¨ Profit goals
¨ Cost structure in manufacturing
¨ Break-even analysis (define the maximum risk)
¨ ROI analysis (ROI = Return on Investment
¨ Argumentation aids for sales
¨ Sales training
¨ Method of presenting a product (sales meeting)
¨ Advertising strategy (as regards content and choice of media)
¨ Advertising budget (short and long-term)
¨ Sales promotion measures
¨ Sales promotion budget
¨ Press information before introducing the product to the market
¨ Possible future product modifications
¨ Expected effects on existing products
¨ Exact time plan for introducing the new product to the market
SUPPLY POLICY
Supply and product must be the focal point of marketing
The most important factors necessary for successful marketing are the offer and the appropriate price which will satisfy the client. An appropriate price is what the client is prepared to pay for a product or service and one which is also favourable in comparison with the competition. Advertising, public relations work, careful attention to image or sales promotion campaigns cannot, in the long-run, even out any weaknesses your offer may have.
Products are solutions to problems
Product and/or supply policy therefore forms the core of marketing strategy. It all depends on whether you define your product too narrowly. Offering solutions to problems means more to a company than offering a product or a single service.
If a supplier concentrates solely on this so-called core product, they will miss out on a great deal of opportunities of boosting their company’s image.
Marketing not only covers the sale of core products, but also includes advisory and other services in the periods before and after purchase. In short, all “problems” which emerge in a product’s associated field for the purchaser should be considered in supply policy. An excellent performance in a product’s associated field in comparison to the competition could be the decisive factor in a company’s success.
Additional services
A cupboard as a core product consists, for example, of the basic materials: wood, metal or synthetic material, held together with nails, hinges and glue. This alone, however, is not serving the client. An additional service will enable and facilitate its use. For furniture, such an additional service may take the form of a delivery service, combined with specialist assembly and installation. On top of this you can also have after-sales service and a repair service.
Even the totality of these concrete solutions to problems does not yet constitute the whole product. It is a well-known fact, especially in the field of consumer goods, that products must also radiate a certain degree of fascination.
Only the combination of the more objective uses and subjectively felt images create a complete product. In industrial goods marketing on the other hand, subjective feelings only play a minor role. Core products and additional services are decisive factors in success.
Try and determine the needs your purchaser wants to fulfil by buying the product. The more aspects you find, the more possibilities you will have of making your mark on the market.
Looking for new products
The client’s problems should form the basis of all your considerations
A woman who wants to buy hair dye, primarily wants her hair to have more shine and more beauty. On top of this the sales assistants need advice about the suitability of each dye for each hair type, for example. A small computer was developed for self-service shops, into which the customers could enter their wishes and questions about their hair and it could answer them with an appropriate product recommendation.
Knowledge about the wishes and requirements of consumers is a precondition for companies wanting to offer market-oriented products and services. A comprehensive strategy helps to detect these wishes and requirements early on and adapt your line of thinking to them. A manufacturer of sports goods, for example, must be aware of the general public’s favourite pastimes. Every change detected (e.g., increasing environmental awareness) can conceal dangers or opportunities if they react quickly enough for the company.
When marketing a new product, you must ask yourself what need the product is satisfying and what problem the client needs solved. The more urgent the problem is from the client’s point of view, the better the preferred solution is in comparison to that offered by the competitor and finally, the more you manage to convince the potential buyer of the advantages of your offer, the more successful your marketing will be. Need intensity, strength of image and strength of persuasion are three very important success factors in marketing.
Creativity and systematology
The search for innovation is one of the most important areas in active marketing, which demands both creativity and systematology. This seems to be a contradiction in terms – that systematology restricts creativity. However, an unsystematic search for innovation quickly leads to chaos and unnecessary costs.
The first step towards systematisation is the determination of the areas you are looking into. A two dimensional analysis is sensible; based on the company and the market.
Firstly, determine your company’s strengths; technical know how, existing capacity, patents, production possibilities, financial strength, the extent to which knowledge is transferred throughout departments within the company, image, existing marketing knowledge and knowledge of the market.
You then need to determine the markets which are appropriate for what you are offering. Criteria which determine your choice can be: consumer trends, market volume (as it stands now or is expected in the future), market growth, market entry barriers in your company’s way, market entry barriers for future competition, economic and political risks, the requisite market investment and existing competition.
Possible growth strategies
Innovation trends
When determining interesting areas to look into you must establish the fundamental direction which your innovation should take. To do this we use the Ansoff plan (Ansoff 1957), which portrays the basic growth possibilities of a company. The matrix consists of four areas, resulting from the question of whether existing or new products should be introduced to existing or new markets. The plan is depicted below.
Basic Product Market Strategies
Market Products
Old New
Old Market Penetration Product Development
New Market Extension Diversification
Accordingly, a company can try to cultivate existing markets with existing products more intensively, which is described as a market exhaustion strategy or market penetration strategy.
The development of new products open up further possibilities of exhausting growth potential in existing markets (product development strategy).
Another strategy is to tap into new markets on the basis of your current products (market extension strategy or market development strategy).
Finally, a company can try to achieve growth by introducing new products to new markets (diversification strategy).
Choosing from four possible product-market strategies
· Market exhaustion (market penetration)
This is the correct strategy if the “domestic markets”, i.e. the markets in which you are currently present, still have unexhausted potential and growth strategies appear to be financially justifiable. The company can, for example, try to increase the number of consumers who use a particular product brand or increase the user intensity per consumer. It is not a question of trying to secure the largest possible market share in an existing market. Somewhere along the line a greater market share entails a greater investment than can be justified by the profit it can yield. It is more sensible to try and secure the best possible market share for the company.
· Product development
The strategy of product development can be successful if there are still problems to be solved in existing markets, covering an area for which your company is responsible or which, with a justifiable amount of investment (channelled into communication, for example), your company could become responsible for. With this strategy your company can introduce completely new or even modified products (through improvements) onto the market.
· Market extension (market development)
This strategy presents itself if production capacity is available which cannot be exhausted in existing markets. You can expect market extension to lead to cost degressions, which will in turn create further competitive advantages for your company. A company can, for example, extend its market area geographically or reach other markets by creating additional distribution channels.
· Diversification
Diversification is the most risky growth strategy and is only to be recommended if you have exhausted all the other growth strategies.
When choosing your company strategy; provided there is unexhausted potential in your regular markets, you should concentrate on exhausting this. If the strength of your company is determined by the products you offer, it is wise to look for new markets, but if the strength of your company lies more in distribution, the strategy of product development will probably be more advantageous. If you have exhausted all of these strategies, you should investigate the opportunities afforded by diversification.
From the idea to the market
When you have determined which areas you want to investigate and have established the direction in which your innovation strategy should go, the phase of innovative activity begins. The planning process for new products can be divided into six phases or activities.
1. Finding an idea: analysis of client requirements and the activities of
the competition, tapping the field salespeople’s experience and evaluating the results of product testing institutes, investigating creative techniques for finding ideas.
2. Screening: testing out your ideas with the help of an assessment
matrix with a points system.
3. Analysis of financial viability: assessing financial viability with the
help of the interest rate method or cash conversion method; cost and
profit analysis with the help of cover charge calculations; a break-even
or ROI (return on investment) analysis.
4. Product development: concrete development of the product idea,
product descriptions and the establishment of a prototype or test
series.
5. Market testing: assessing the results of the consumer or other tests,
possibly running the product on a test market.
6. Introducing the product onto the market: decide the time and the
geographical strategy i.e. whether the product should be introduced
onto the international market immediately or introduced onto the
domestic market and launched internationally at a later date.
An initial rough selection for new product ideas
The choice of innovation projects comes into effect after you have determined your assessment criteria. A two-step assessment is sensible: first of all you have to make a rough selection. During this initial phase you use a few basic assessment criteria to merely check whether the idea you are assessing fulfils these criteria or not. Here are a few examples:
¨ maximum investment range
¨ minimum annual turnover
¨ minimum expected profit
¨ use of existing sales methods
¨ use of existing product brands
¨ use of environmentally friendly production techniques, etc….
The criteria you believe must be fulfilled at all costs, depends on your commercial goals. In practice, the following procedure has proved to be effective: absolutely every idea which fulfils the minimum criteria is followed up. Ideas which fulfil all but one of the criteria are followed up for a temporary period.
Before making a final decision, check whether it is justifiable that an idea does not fulfil a minimum condition within the framework of your rough selection. For example: let us assume that a pharmaceutical company sets the minimum condition that: only ideas which can call on existing sales methods can be followed up. The idea of conceiving possible new product developments led to the idea of a protective sun screen lotion, which, in the first instance, could be marketed in the drug sector. If the expected profit justifies the creation of its own sales network for the drug sector, the company could possibly dispense with fulfilling the minimum requirement of “pharmaceutical sales”.
Prices analysis
During the next phase the remaining ideas undergo a precise analysis. It is necessary to first determine the requisite assessment criteria. In the second phase, you must not only ask whether the ideal fulfils the criteria but also to what extent it is fulfilled. Assessment guidelines must therefore be determined for every criterion you use. For the purpose of assessing the extent to which the idea fulfils the criteria, let us assume that we use “very good”, “good”, “satisfactory” and “unsatisfactory”. Determine for every criteria when each idea reaches each stage of assessment.
Assessment plan
To make an assessment plan for new product ideas quantifiable, the categories of assessment should receive a point total, such as the following.
Very good 5 points
Good 3 points
Satisfactory 1 point
Unsatisfactory 0 points
The meaning of the individual assessment criteria for the company must be determined. It has proved to be of value to introduce evaluation weighting factors, the total of which add up to 1, as can be seen in the table following. In this case, the company deems the gross profit margin per item to be particularly important (value:0.20), whereas it believes sales to be less important (0.05).
EVALUATION OF ASSESSMENT CRITERIA
Criteria Evaluation Weighting
Market Development 0.15
Turnover 0.10
Sales methods/sales 0.05
Product advantage 0.15
Acceptance in the market 0.05
Quality improvement 0.10
Influence on range turnover 0.05
Gross profit margin per item 0.20
Means of production 0.10
Area of responsibility/product brand 0.05
____
Total 1.00
When all the criteria have been established, your assessments determined and all the criteria evaluated, an idea can be tested on the following grid.
The way to determine the factor value of a product idea is simple: you multiply the point score of every individual assessment criteria with its assigned evaluation factor and the total is given a score.
CRITERIA FOR ASSESSING NEW PRODUCT IDEAS
Area Criteria Satisfactory/Good/Very Good
Market Development Stable market, minimum X
volume of 30 million
Growing market (10% per annum) X
few strong manufacturers, market
volume over 10 million in the first
year.
Flourishing market (clearly over 10% X
per annum) with the realistic possibility
of becoming market leader.
Currently expected Between 4 and 5 million X
turnover in (for example) Between 5 and 7 million X
3 years Over 7 million X
Sales methods/sales Excluding current sales methods. X
Excluding current sales methods. X
but same product group and
purchasers.
Excluding current sales methods but X
same product group and purchasers
and additional sales qualifications
available.
Product advantage Product improvement, some product X
characteristics are superior to those
of the competition.
Improved product solution, all of the X
product characteristics are superior to
those of the competition.
Completely meets the client’s requirements X and fulfils as yet unrequited requirements.
Acceptance in the There is a market for the product X
market solely as a result of intensive sales
efforts.
There is a market for the product even X
without intensive sales efforts.
The market is very interested in the product X
Improved quality Possible for all other suppliers to copy, X
but expensive.
Area Criteria Satisfactory/Good/Very Good
Influence on the Well tolerated, little substitution X
turnover of products in expected.
in the other ranges.
No substitution possible. X
No substitution, increases in turnover
of large ranges (i.e. other products
profit from it). X
Gross profit margin
In % X % X
Y% X
Z% X
Means of production Out-of-company production X
possible at first, followed at a
later date by in-house production.
Production partially by plants not X
exhausting their production capacity.
Production completely carried out X
by plants not exhausting their
production capacity.
Area of competence/ The area of competence of other X
brand ranges can be used (possible image
transfer)
The area of competence for new X
areas is already available.
The area of competence is
unrestrictively available X
The above is read as follows: in the area of market development: stable market, volume at least 30 million = satisfactory; growing market etc. = good and flourishing market (clearly over 10%) = very good. The division of criteria is up to each individual company.
The chart below illustrates this procedure with the help of an example.
In our example, the fictitious product idea gained a total score of 2.80 points. In the assessment plan all the new product ideas are assessed and placed in order of score. The best ideas are then allowed to proceed to the product development stage.
POINT SCORING PROCEDURE IN PRACTICE
Factor UN SATIS- GOOD VERY A B AXB
SATIS- FACTORY GOOD VALUE EVAL- FACTOR
FACTORY UATION EVAL-
UATION
Market development X 1 0.15 0.15
Turnover X 3 0.10 0.30
Sales methods/sales X 3 0.05 0.15
Product advantage X 5 0.15 0.75
Acceptance in the market X 3 0.05 0.15
Quality improvement X 5 0.10 0.50
Influence on range turnover X 1 0.05 0.05
Gross profit margin X 3 0.20 0.60
Means of production X 0 0.10 0.00
Areas of responsibility/ X 3 0.05 0.15
product brand. 3 0.05 0.15
____
Total 2.80
The scores above are ones we are using for the purposes of the example.
Product testing to test the market
Overview
As a result of the procedure described in the last extract, you should now have a list of product ideas, which can proceed to the development department or external designer, in order to work out problem solutions.
The whole of the development process, which takes place from now until the product attains market maturity, can be supported by several different methods of market research. This is particularly true of products in the consumer goods industry.
Methods of production
The following methods can be used for product testing
q Home-use test or studio test
q Blind test or identified test
q Comparative test or monadic test
q Monitored or unmonitored test market
Product testing, which seems promising, can however never guarantee success. In the real market there are many factors which play a role and which are sometimes unforeseeable.
Why then do companies still carry out product testing? Because it allows them to recognise and eliminate problems at an early stage. The detection of every problem can enhance a product’s chances of success and may even forestall unmitigated failure.
Home-use test
With home-use tests, consumers use the product in their household for a long period of time. This test is mainly considered if the product can be produced in small item pieces within the framework of a test series.
The disadvantage of home-use tests is that those participating may not adhere to the test guidelines. The product may be used a great deal or not at all and this should be checked by asking questions after the test period has elapsed. Generally these tests are carried out by market research institutes.
The home-use test is normally concluded with an oral or written questionnaire for participants to fill in.
Studio test
The decisive advantage of studio tests is that all the influencing factors can be monitored in a controlled atmosphere. The disadvantage, however, is that they are not carried out in the products’ natural environment, but in a studio specifically designed to test it – which, in turn, can distort the test results. Studio tests are mainly used if there is only one available model of a specific product (e.g. a kitchen appliance).
A more durable consumer product should not only be judged on the basis of studio tests. A home-use test should always be carried out too, so that the product is tested over a longer period of time.
Blind test and brand test
In a blind test the brand is not disclosed to the consumer. In brand tests, or identified tests, the brand name of the product or the name of the company is known to the consumer participating in the test. Proprietary articles should always be tested in this way, so that it is shown that the products are able to stand on their own without having to rely on the goodwill consumers may have towards the brand.
Ideally, both types of test should be carried out. This way, you can ascertain whether the product can stand on its own and the additional goodwill potential you can tap for the brand.
One would, of course, expect the results of the tests to be better if the product brand name is divulged than if it is not. This is, at least, the desired result of careful attention to image. The results of tests in which the product brand is not divulged should also be sufficiently good, so that the product can be categorised as successful.
If the results of the tests in which the product name is divulged are poorer than if it is not, this is conclusive proof that consumers are not categorising this product with the appropriate brand or company.
If you introduce products to the market which can only assert themselves because of the brand image, but cannot stand successfully on their own, this will erode the image of the product brand in the long-term and secure the long-term success of your product brands by carrying out a blind test.
Parallel product testing
Consumers participating in comparative and monadic tests each receive one (monadic test) or several test products to assess.
The disadvantage of comparative tests is that the test consumers deliberately look for differences between the test products and hence quality differences become apparent, which are never relevant to life. This market research effect is called “over reporting”. The over-reporting effect can be avoided if each test household or test person only receives one product to assess. If several test products have to be assessed, it is recommended that you form as many test groups as there are products to be tested. These test groups must be comparable, however; i. e. the composition of the test groups must not differ.
Comparable test groups
Each group receives only one product to test and then the results of each group are compared. This is a good way of carrying out a comparative test without getting the “over reporting” effect. Another advantage of this method is that further product variations can be tested at a later date and the results of these compared with the previous results.
Product testing should not just monitor quality – it should also test the product name and packaging.
Monitored test market as a last testing measure
If a product is ready to introduce into the market, exposing it to a monitored test market is a final testing measure.
In the past, products were predominantly exposed to regional test markets, whereby a company’s field sales staff placed the product in shops and monitored the turnover it created within a fixed period of time. This method presupposes that a regional market can be found, that is representative of the whole sales area, which is not the case today. Furthermore, it is not always easy to ascertain, what is attributable to a product’s successful or unsuccessful turnover. It could be, for example, how well or badly the field sales staff looked after the product during the test period.
It is more popular now to use so-called monitored test markets, rather than regional test markets.
What matters is not that the test products are placed in a vast number of shops, but that it is placed in a few, well-selected and more representative shops and that there is constant monitoring of product presentation. This must fulfil stipulated standards with regard to volume, type and pricing during the whole period of the test. Any sales promotion measures have to be standardised as only in this way can a statement really be made as to the factors which attributed to the product’s success or failure.
Imposing checks
Normally within the framework of these tests, sales are monitored not only over the whole period, but also during the interim periods. If a test lasts for 16 weeks, for example, it is possible to have a monitoring of sales every four weeks. In order to monitor the situation, two monitoring checks can be carried out a week. These checks are not carried out by the field sales staff, but normally by a market research institute which guarantees that the checks are carried out correctly. Monitoring checks are necessary to make sure that the placements are comparable and remains constant throughout the test period.
It is especially necessary to make sure that the shops have constant supply of the test products. Test markets which are monitored this way yield reliable result statistics and this is increasingly true as companies can then fall back on data provided by bar codes.
Market research with scanner cash desks
The widespread use of scanner cash desks, which make the cashiers’ job easier by permitting them to record the purchase of a product by pressing its bar code down on to the till scanner, means that the possibility now exists to store everything the cashier does electronically and transmit this to the data banks of market research institutes, where it can be evaluated. This not only allows market research institutes to ascertain how many products have been sold within a particular period of time but also to determine whether consumers frequently buy one or several packets at a time as well as the combination of products alongside which the test product is purchased. On top of this, market research institutes can also analyse the effect of the purchase on other products: are other products in the range losing turnover as a result of the new product? Are your competitors’ products losing turnover as a result of your new product? Is your own turnover being pushed up by the new product? Are old products, therefore, also gaining more acceptance in the market as a result of the new product?
When carrying out market tests, you should pay particular attention to two aspects:
· Do not be taken in by “the law of volume”. Far more important than a large test market is the representative selection of test shops and the monitoring of all market data.
· Do not be taken in by the flush of initial success. Only repeat sales figures are representative of actual success. This takes time. Do not, therefore, cut your test period short because of initial success.
Choosing the right brand
Brand management rather than brand maintenance
The consumer good industry is mainly characterised by proprietary articles. The main marketing decisions to be taken are those pertaining to brand policy. The brand performs the function of making the product seem distinctive and unique in the eyes of the consumer. Since consumers are far less able than professional buyers to judge products objectively, subjective ideas, which can be created by the right brand management, are extremely important.
A clear brand image
This only succeeds if all the marketing measures are channelled into the priority goal of brand policy. All measures must be clearly assigned to one’s own brand and must be distinctive and in no way distort the image you are aiming to achieve with consumers. The measures must also support the image consumers have of the brand.
The goal of brand policy is to make your own offer distinctive. It should be seen as unique in the eyes of the consumers. If you are in the consumer goods industry and want to pursue a different strategy than that of price profiling and still be successful, proprietary articles are a sensible alternative. Brand management, however, requires considerable investment.
Active brand management
There are examples of a host of small brands, but also of important brands which are only “maintained” – i.e., the status quo is accepted and all marketing measures are aimed at “preserving the brand”. Active brand management distinguishes itself by the fact that goal is established concerning how a particular brand should be lodged in the minds of the consumers five years from now, for example, so that the brand will retain its success in the future.
Brand strengths
The most important corporate activities in managing and strengthening a brand and extending its competence are:
· Innovative products and constant quality improvements
· Strong communication with the market
· A constant effort to find out more about and fulfil client requirements
A single brand or over-arching policy?
We can distinguish two extremes in brand policy: single brand policy and an over-arching policy. Single brand policy covers an individual product, which is possibly offered in few sizes or packaging variations. All market communication activities are focussed solely on this one product. This leads to a clear product image and enhances consumers’ ability to recognise the product. Activities for other products do not have the same effect on their image. The product can, therefore, be placed in total isolation on the market.
A critical disadvantage of individual product brands is that this type of brand policy is expensive: it can only be successful if the company has a large marketing budget.
Creating a new individual product brand needs an annual advertising budget of between 20 and 40 million pounds. This type of brand management policy can be found in companies selling alcoholic beverages, semi-luxury foods and tobacco and cigarettes or companies which have decided to opt for individual product brands.
Most companies are prohibited from pursuing this strategy for financial reasons. If it is too expensive to pursue individual product brands, it is best to pursue multiple brands (company or manufacturing brands). In multiple brand marketing, several different products, which must be related in some way, are marketed under the same brand name. This carries with it the advantage of e very new product being able to profit from the existing brand name, making it cheaper to launch a new product. Some individual product brands can be transformed into equally successful multiple brands for a whole product group.
Brand competence
With this strategy, you must first clarify which area a brand is responsible for or should be responsible. This area of responsibility must, under no circumstances, be exceeded. The fact that new products can no longer be placed individually on the market, since this is not financially possible for most companies, encourages companies to keep adding new products to brands that have already been successfully launched on to the market. However, with every extension there is the danger of weakening the brand. It is a question of developing an instinctive feeling to find the right compromise and, if necessary, to decide against adding a new product to your brand name.
Strengthening the brand through quality
The new product should not only profit from brand competence but its own excellent quality should also contribute to the ‘goodwill’ of the brand name. If a product is only successful as a result of the existing brand image, it will inevitably lead to the decline of the whole brand name.
A classically successful form of using competence was employed by Nivea, which originally only marketed skin care products, from which a whole range of body care products was created. Every new product in the body care range contributed to the strengthening of the brand name. The extension of the Coca Cola and Pepsi Cola brands into the overall range of soft drinks was a similar phenomenon. It would have been problematic to extend the Coca Cola brand to mineral water. It was because of this that Coca Cola introduced a new brand name.
Marketing strategy
A brand name, be it a manufacturing or company brand name, needs a marketing strategy which encompasses the following areas:
· Strategic goal – what is the brand trying to achieve?
· Brand promises – what advantages does the brand promise? – eg, “cleanliness throughout the house”.
· Reasons for the promise – why can it be given?
· Style of communication – in what style should the brand be communicated? This affects advertising, sales promotion, public relations work and sales.
These should be a criteria guiding the introduction of new products onto the market.
When do you know when a brand is strong?
We often wonder what makes a particular brand successful. A range of different investigations have revealed that quality and communication are the main aspects of success. The nine points to emphasise are:
1. Strong brands arouse high expectations in the client, which are also
fulfilled.
2. The very name of strong brands conjure up an image of a certain
product category (e.g Pritt for glue, Vileda for cleaning cloths, Nivea for
skin cream). The more extensively consumers perceive the area of responsibility covered by a particular product, the more difficult it is to
associate the brand with one specific area of products.
3. Strong brands are unique in image and quality.
4. Strong brands induce a clear image in the minds of consumers.
5. Strong brands have a high degree of product recognition in the target
group. A high degree of product recognition can be achieved if 75-80%
of the target group associate the kind of product concerned directly
with the brand name. Since it is extremely cost-intensive to build up
such a high degree of product recognition, many companies should set
themselves limits when describing their target group and try and realise
this goal with a smaller target group.
6. Strong brands are normally advertised in the same way for a long
period of time – frequent sales promotion changes can often be the “death” of a brand.
7. Strong brands are constantly being slightly adapted to fit in with
modern trends, but a sudden about-turn should be avoided.
8. Strong brands are more in demand than any products manufactured by
your competition.
9. Strong brands have a good profile with potential clients.
To summarise, these nine points indicate the following tips for marketing:
· Use advertising to arouse expectations and then fulfil these with good quality products.
· Use sufficiently intensive means of communication to make sure that your consumers immediately associate your brand with a certain product.
· Make sure that your brand is distinctive by making it original.
· Make sure that you have constant advertising, which is slightly adapted to new demands.
· Delineate your area of competence clearly.
Important factors for success
Significant price or performance advantage.
Clear difference between the new brand/product and existing brands/products.
New idea which has not yet been tried and tested.
A comparative survey of successful and unsuccessful brand names yielded the results shown in the following chart below.
COMPARATIVE PERFORMANCE OF COMPETITIVE BRANDS
Differences in competitive Of successful Of unsuccessful
products brands (%) brands (%)
Considerably better performance 44 8
Slightly better performance at a 6 12
higher price.
Better performance at the same price 24 0
Same performance at a lower price 8 0
Same performance at the same price 16 30
Same performance at a higher price 2 30
Poorer performance at the same or a 0 20
higher price.
100 100
Failure of “Me Too” products
Suppliers of better performance are clearly more successful than all the others (44% and 24%). Lack of success is mainly attributable in the first instance to “Me To” products and poorer performance. This may seem trivial at first glance – but it is amazing how often this mistake is made.
The table below shows that the degree of originality is of particular importance.
DEGREE OF ORIGINALITY AND ITS INFLUENCE ON THE SUCCESS OR FAILURE OF NEW PRODUCTS
Degree of originality Out of 50 successful Out of 50 unsuccessful
brand products (in %) brand products (in %)
Extremely different 20 8
Very different 48 22
Slightly different 12 38
Similar 20 32
100 100
Market success and originality
Originality in this sense means some form of uniqueness. Most successful brands are very different from other competitive products and most cases of failure stem from products which are only slightly different from others.
There are very few “extremely different” products as it is very difficult to develop truly new products. Furthermore, there is a high risk of expecting too much acceptance of new products from consumers. A gradualist approach is often the best.
It can be concluded from this that quality and originality are more effective than price advantages with new products. Proprietary articles do not achieve market importance through price.
The rules governing the success of a new product seem simple
The consumers must be offered more for their money than is currently available from the competition’s product. Provided you abide by this simple rule, a new product under an existing brand name will be in demand and will, in turn, boost the brand’s image.
Avoid making the following mistakes when introducing new products, since these can disadvantage your brand policy.
Putative time pressure. New products introduced by your competitors are never a good reason for reacting hastily if your own company brand is strong.
Unflexible goals. It is foolish to expect a certain amount of new products per annum as this can lead to the introduction of second rate products.
Lack of managerial will to stop projects that are at an advantage stage. Every product can theoretically be stopped at any stage before its introduction to the market.
Wrong estimation of the competition. This often results from an over-estimation of your own company’s strengths.
Rely on your own competence!
Social psychological quality
The original concept of quality has taken on new social psychological dimensions. The additional psychological uses of brand products are constantly increasing in comparison to the fundamental uses of the product. This also explains why the success of brand products is increasingly attributable to top-class communication skills.
The psychological advantage, which is solely based on communication, must find its counterpart in quality components in order to maintain its viability in the long-term.
Competence and image
Your brands’ competence and image must be constantly monitored. It is, in any case, sensible to carry out an annual check by performing market research surveys.
Your own competence can be relatively easily monitored by asking consumers the following question: “What products do you think brand XXX has to offer?”
If consumers name products which are not, in fact, part of that particular brand, this is an indication of the high product competence assigned by consumers to the brand concerned.
Do not employ advertising to try and cover up any inherent weaknesses your product may have. Ensure your products are of excellent quality and emphasise this in your advertising. Demonstrate your competence – but make sure that this is justified!
PRICE POLICY
The most important goal: ensuring your own productivity
Ensuring competitiveness
The main goal of price policy must be ensuring your company’s competitiveness in the long-term. i. e. on top of yielded capital, making sure you have enough surplus capital and profit to cover costs and investment costs.
Boosting your image
Boosting your image over that of the competition is the second goal of all marketing instruments. Price policy advantages can be equalled out relatively quickly through the measures taken by the competition. Price policy is the most competitively sensitive marketing instrument. Reacting to the competition can be done without losing very much time. Advantages in the price policy sector are only long-term defensible competitive advantages if these can be secured with simultaneous advantages in cost structure in comparison to the competition.
Stimulating demand
The third goal is influencing the market. Price policy can stimulate demand. This presupposes that demand reacts to price changes – i.e. that requirements are not determined by other factors.
As with other measures of price policy, you should always consider the possible reaction to the competition. Ask yourself, first of all, whether your company is in a position to sustain a long-term price battle.
Two promising price levels
Current developments on many markets demonstrate that there are, in principle, two price levels which can be profitable over a long period of time: high price and low price levels. There seems to be no future in the medium price bracket.
By employing a low price policy, companies try to eke out a profitable existence by producing a large quantity of goods with low production costs. By employing a high price policy, companies can only succeed if their products are of a truly excellent quality.
Companies placing their goods in the low price category must, therefore, be able to produce the goods extremely cheaply. In this sector marginal price differences are a decisive factor of success. If a company has production costs which are too high, it will soon incur losses on the market. In the high price sector maximum quality is a precondition of success. Stable preferences are a further pre-requisite for potential purchasers.
The medium price sector is disappearing
The fact that the medium price sector in most markets is decreasing smaller can be explained by the fact that there is now a polarisation of client requirements. It appears that a majority of purchasers in almost every market are either extremely price-oriented or extremely quality-oriented.
THE POLARISATION OF MARKETS
High
Price
Low High
Quality
Finding the right balance between price and quality
You should remain relatively consistent when setting sales campaign prices. Frequent price changes confuse consumers and make them uncertain. Price and quality should be in tune with each other in the long-term. Sales campaign prices should be specifically set – in the long run they will not be able to balance out any competitive price disadvantages.
A way of escaping price competition lies in the strategy you employ – i. e. through the marketing measure you use to distinguish your product from that of the competition (i. e. quality improvements), so that price plays a secondary role in the decision to buy. However, you will not be able to escape from price competition completely by using such a strategy, as the purchaser will always compare the product’s quality and price with those of competitive products.
Quality perception
A company must way up the extent to which it can assert itself on the market by improving its products’ quality and raising its prices as covered in marketing training. At least in consumer good marketing it seems possible to justify higher prices through (assumed) higher quality and the associated higher brand image. Consumers are not normally in a position to perceive quality characteristics objectively.
Do not allow yourself to be tempted to make up for poorer quality (and comparable price) through advertising, image policy or other measures.
It appears that, in the long term, most markets react very sensitively to price/quality differences. Nevertheless, the fact remains that it is easier to sustain price differences in consumer goods markets, than in capital goods or supply markets.
Market listing
We should not overlook the fact, however, that trade is generally interposed in consumer goods markets. Purchasers and purchasing committees decide between the listing of individual products. At this level, decisions are made in a highly rational and profit-oriented manner. The market is ready to allow brand products to demand higher prices for a correspondingly high image, but it also demands that these products have higher profit margins. Practically all brand products on the market are subjected to a direct and relatively rational price/performance comparison. Exaggerated prices, which are perhaps viable in the short-term as a result of an existing brand image, often lead to competitors settling their prices below this price level and thereby gaining a considerable chunk of business. The fact that your products are in the high price range of the market does not mean that you have a carte blanche to pursue a price policy which is not sensible. Companies which occupy the high price range of the market also have to ensure that the overall uses the consumers can gain from their products result from a comparative assessment of both product characteristics and price.
Irrespective of which market you are in, one of the most important rules is: never neglect your cost management. Competitive price disadvantages cannot be balanced out by other measures!
Aggressive price policy in new markets
Prices become more important the older and more established the market is. There is no way round this, therefore, it is important to pave the way for a successful price policy in older markets in time – i.e. before you launch your new product.
When introducing new products to the market, there are, in principle, two possible price strategies available to you: skimming strategy and penetration strategy.
Skimming strategy
With a skimming strategy, the product is first launched at a high price, in order to skim off the highest cover charges possible and reduced later to help acquire further market potential. This strategy should only be pursued if the product has an unbeatable advantage at the time it is launched and if it can satisfy a real need – i. e. if demand is independent of price. A further precondition is that there is no likelihood of one of your competitors introducing a similar product in the near future. This strategy is also sensible if you are launching short-lived products.
Penetration strategy
With a penetration strategy, the product is automatically launched onto the market at a relatively low price in order to achieve a high number of items purchased as soon as possible and prevent potential competitors from gaining a foothold in the market.
This strategy is set up with the experience curve mechanism. According to the experience curve law, whenever the volume of production is doubled, manufacturing costs fall by the same percentage. It must, however, be pointed out that, realistically, this reduction in costs does not happen purely as a result of this law – it is far more a question of the potential for cost reduction. It is really a question of bringing about this cost potential through excellent cost management.
If you can fulfil the following criteria, you could use the penetration strategy – i. e. offer your product at the lowest possible price in its introductory phase on the market:
a. You can expect noticeable cost reductions as a result of volume growth
i.e. the product can be manufactured at a cheaper cost in the future.
b. The consumers/purchasers react to price differences – i.e.
consumption depends on price.
c. The product is probably so durable that the achievable cost reductions
can also be used in the long-term.
An example of an experience curve
Higher profit margin despite lower market price
Supplier A launches a new product at a high price on the market. Another competitor follows with the same or comparable product at a lower price. As a result of supplier A’s high price and the competition’s lower price, the latter has the opportunity to sell more of their products more quickly and to enjoy the experience curve effect. In terms of volume, they will be seen as the market leader and in the medium to long-term will have the greatest cost reduction potential. Despite lower market prices, they will be able to operate with a higher profit margin in older and stagnating markets than A who introduced their product at too high a price in the first place. Supplier A will not be able to skim off as much cost reduction potential and in the long-term will find themselves in an unfavourable cost situation. A supplier who wants to skim off as much profit margin as possible in the introductory phase, find themselves in the same uncomfortable position as the supplier who sold their product too cheaply, which has perhaps even incurred losses.
When you introduce a new product into the market:
· You should assess how much you want to sell over the next few years and what manufacturing cost reduction potential this will afford you;
· Your price policy should be based on this cost level;
· You should, therefore, not just consider current costs, but also consider your situation from the point of view of the extent to which you expect your costs to be lowered in the future.
Full cost or cover charge orientation
One of the basic principles of price policy is that for the whole offer you achieve a full cost cover, plus the desired profit margin. The total costs are thereby the determining factor in setting prices.
Price strategy of the competition
The prices you set, based on the full cost calculation, must be compared with the price strategy of your competitors and market requirements. This triangle covers the consideration of both price and marketing strategy.
A full cost calculation includes all the variable manufacturing and production costs, all the variable turnover-dependent sales costs, all fixed cost components and the profit percentage.
Part costs
It is also possible to calculate the individual ranges on the basis of part costs. A company can increase its overall profits by including product areas in its offer which only cover a part of the fixed costs.
An example of cover charge calculations
Let us assume that a company is offering an existing range having made the following calculation:
Profit - 5%
Fixed Costs - 30%
Turnover-dependent variable costs (planned) - 20%
Variable manufacturing and production costs (planned) - 45%
___
100%
Turnover increase is higher than fixed cost increase
This company is able to increase its profits considerably if it includes another range in its offer, even if this range’s manufacturing costs are clearly higher than those of the existing range. A precondition is that the percentage turnover increase is higher than the percentage increase in fixed costs. Let us assume, for example, that the new range would lead to a turnover increase of 50% then there would only be a 16.7% increase in fixed costs. This leads to the situation shown below:
CALCULATION ON BASIS OF PART COSTS
Range A Range B Total
Profit 5% 5 million 5% 2.5 million 5.0% 7.5 million
Fixed Costs 30% 30 million 10% 5.0 million 23.3% 35.0 million
Turnover- 20% 20 million 20% 10.0 million 20.0% 30.0 million
dependent
variable costs
(inc. marketing)
Variable 45% 45 million 65% 32.5 million 51.7% 77.5 million
Manufacturing
& production costs.
Total turnover 100% 100 million 100% 50 million 100% 150 million
As shown in the diagram, the company has managed to increase its profits by 50% from 5 to 7.5 million pounds. Turnover increased from 100 to 150 pounds and fixed costs rose from 30 to 35 million pounds. The variable sales and marketing costs remained the same at 20% of turnover and therefore rose from 20 to 30 million pounds. Overall profit was thereby raised by 50% although a more poorly calculated range was included.
When is it sensible to carry out a cover charge calculation?
It makes sense to carry out a cover charge calculation if the variable manufacturing and production costs of the new range can also be lowered in line with future turnover increase – i.e. if there is an experience curve effect.
If, however, a company does not reduce its costs by extending its range and the importance of the range shifts onto the overall turnover in favour of the poorly calculated range, it runs the risk of experiencing financial difficulties.
The fixing of prices on the basis of parts costs or cover charge is therefore only sensible if an extension of the poorly calculated range covers the full costs.
In the short-term, individual ranges can be effectively supported and extended by a cover charge calculation, but in the long-term individual ranges must be calculated on a full cost basis. This is possible without increasing the price, if a company can manage to take advantage of the price reduction potential which results from an extension of turnover.
In the long-term, all prices should be calculated on a full cost basis. This calculation includes all:
- Variable costs
- Fixed costs
- Calculation costs and
- Supplementary profit
In the short-term and for targeted sales campaigns, prices can also be calculated on a part cost basis.
For example:
- When defending your competitive position
- When canvassing new clients
- When introducing a new product into the market
The variable costs are used to form the lowest price level. This price should never be exceeded.
Reacting to price wars
If your competitors instigate a price war to win some of your customers, you should not attempt to win them back by lowering your prices.
You need to analyse why your clients turned to the competition. You may then realise that it is not a question of reacting by lowering your own prices as marketing success is often based on the interaction of all marketing instruments and not just one individual instrument, such as price policy.
Always look at your complete price/performance ratio when assessing your own competitive position and seeking explanations for possible client reactions. A check list can help you do this by comparing your company’s decision-making criteria with those of the competition.
Cost-aware management
Only when it is clear that there is a real price war underway, is it necessary to react by re-evaluating your own prices. Medium-sized companies especially complain of ruinous competition, which forces the whole branch to adjust its prices to the point that they are no longer covering costs. This is often an excuse for one’s own inability to carry out efficient, cost-aware management.
Check lists for assessing your competitiveness compared to the competition must be specifically related to individual branches. They must, however, comprise the following overarching criteria:
¨ Quality
¨ Reliability of supply
¨ An advisory service especially for client-specific problem solving
¨ Range
¨ Progressive production technology
Price reductions normally require a reduction in your costs
Partial withdrawal strategy
Companies which conduct themselves aggressively on the market regarding price, are normally in a position to do so as a result of cheaper cost structures. In cases such as this, aggressive competitors can normally keep up. A company, whose prices are being undercut by several different suppliers, who have always specialised in specific markets, must first check what product policy measures it can take to boost its image against its encroaching competitors.
In extreme cases, it is sometimes recommended to fall back on a partial withdrawal strategy, which amounts to your company eventually occupying its own niche of the market.
When viewed realistically, there is really no alternative to lowering your prices. Even excellent attention to image, public relations work and the best client relationships are not sufficient in the long run to balance out effective price disadvantages on the market. The company should, however, not only lower its prices, but should also adjust its own level to the price level demanded by market forces.
If you use price as a weapon of attack, you should bear in mind the following aspects:
· A low price level can only be maintained in the long-term if your own cost level permits it.
· You may lose any new clients you gain when you increase your prices in the future.
Price, in conjunction with new products, improved quality and new services can only be used as a temporary incentive to get new clients to buy your products. In order to keep them, a company must be able to convince them with further performance-related qualities.
Discounts must be accompanied by something in return. They play an important role in guiding purchasers’ behaviour and in stimulating demand.
Using discounts to gain access to a new, regional market
Compensating for cost increases with savings
In this case, you must establish that you will be able to reach a normal price level or reduce your prices in the future with additional volume of business, in order to justify your low prices. It is conceivable, for example, that a company which is present in markets located further away geographically does not initially consider transport costs in its calculations, in order to offer competitive prices. Any increase in turnover must, however, compensate for the company’s transport costs.
Bulk discounts
By offering discounts, companies try to motivate their clients to purchase larger amounts. A company should check the extent to which additional sales volume actually reduces costs, which will, in turn, compensate for the reduction in price. If a company awards discounts for a general extension of business, without considering costs, it must expect a reduction of its per unit profit margin.
Performance Discounts
Discounts are possible if the purchaser fulfils concrete obligations, such as picking up the goods themselves, sticking to regular order dates, placing their order at a time which is best for you, placing advance orders or for storing the goods themselves.
Loyalty discounts
Awarding loyalty discounts is a way of linking the client to your company in the long term.
They can be justified whenever the purchaser’s behaviour results in cost savings for the company. For instance, resulting from a more favourable use of production capacity or from the elimination of obligations which were initially included in cost calculations. A performance-related discount policy should be the aim of every sales negotiation. If you can justify discounts with return services, you can maintain a credible and understandable price policy.
Price modifications can be very dangerous
Do not orientate your prices towards the average
It is not always sensible to serve the overall market with a uniform price level. Clients differ both in their demands for quality and in their acceptance of price. It would be totally inappropriate to orientate yourself to an average price on the overall market.
A company is often faced with a situation in which in one segment of the market, higher price combined with higher quality is accepted, whereas in other segments only low price goods are successful – even though it is accepted that this comprises quality.
In cases such as this, you could either have a narrow range of goods at very low prices or a low amount, but wider range, of more expensive quality goods.
The danger of price modifications
It is unwise to modify the prices of similar quality products for different purchasers. If a company’s price policy is not to appear dubious, there should be no relation between the markets. This price strategy is only possible in geographically remote foreign markets, but no longer within Europe. It is even unwise to modify your prices on markets in areas bordering the EU, since you should always bear in mind the possibility of the re-importing of goods, which would undercut domestic or EU price levels.
COMMUNICATION POLICY
Advertising – the classical means of communication
Advertising and marketing success
Advertising should make your product known to consumers, make them like it and convince potential buyers of the advantages offered by your product. A frequent marketing conception is the assumption that advertising leads directly to turnover. The assumption, “We can gauge the success of our advertising by turnover”, seems reasonable at first glance, but is nevertheless incorrect. Turnover is always the end result of the use of all marketing instruments. This is an important distinction, since it can prevent you from making poor judgements.
Successful sales do not necessarily mean that it is a sign that your advertising is perfect. Similarly, a decline in turnover is not necessarily attributable to poor advertising. It would be wrong to try and solve the problem simply by changing your advertising without first checking out the situation.
Advertising is only one element of the marketing mix which contributes its own part to company turnover. Turnover is always the end result of the complete marketing mix, include all the measures undertaken by your competitors, the market and wider trends, which your own marketing cannot influence.
Research into the effects of advertising
Even if you can establish, through market research, the exact extent (%) to which advertising contributes to your company turnover, you should carry out research into the effect your advertising actually has on consumers, in order to be in a position to systematically improve it.
From marketing to advertising goals
In order to monitor the effect advertising has on consumers, you must first define concrete advertising goals. Since advertising is one of the instruments within the marketing mix which contributes to the realisation of higher marketing goals, the right way to determine advertising goals is firstly to formulate a marketing goal, such as “Realisation of x% market share in a particular market within a specific period of time”, “Gaining the custom of x consumer households, which on average consume a certain amount of products per annum”, “Gaining the custom of x amount of large-scale clients with y amount of orders a year”. From the marketing goal, you can deduce the number of people that should be informed and accordingly convinced of the merits of the product. Concrete advertising goals can be, for example: “Realisation of x% active market knowledge for a certain target group”, “Conveying product knowledge, so that x% of the defined target group know that product A has a specific characteristic, a specific component part”. Advertising goals should always contain a concrete time element.
Advertising goals and the advertising budget
The advertising budget can be determined from the defined advertising goals. For example, the average consumption of a product per household is x packages per annum. From the turnover of marketing goals, which demands the overalls sale of y million items, it can be deduced that the custom of z million households must be gained.
You then need to define the percentage of those households which know the product and like it and then ascertain the percentage of those households which like the product and also use it.
Liking is a precondition for purchase
The assumption that knowledge is a precondition for liking and that liking is a precondition for purchase appears plausible.
Surveys have shown that the above correlation is indeed true in many markets. If there is no appropriate data available for your market (from market research you or others have carried out), you will have to rely on appropriate estimations.
Brand knowledge, liking and purchasing patterns
If the relationship between “Brand knowledge: liking: purchasing patterns” were to receive the gradings 3:2:1 in the market in the above example, this requires a brand knowledge which is three times the size of the households using the product.
Therefore, if z million consumer households are necessary in order to attain the turnover goal, it follows that z x 3 million households must be informed about the product and must have an active brand knowledge.
Active brand knowledge
Active brand knowledge can be defined as follows: a person is asked what brands spring to mind in association with a certain type of product. Taking the example of “Glue”, if 60% of those asked (men between 20 and 50 years old), name the brand Uhu, then Uhu has an active brand knowledge of 60% among this consumer group.
The advertising goal derived from this marketing goals is: “Realisation of active brand knowledge for brand A in x million households”. If, for instance, this represented 12% of all households in Britain, you could also say: “Realisation of active brand knowledge of brand A in 12% of all households”.
Since products are normally bought by individuals, the consumer goods companies normally refer to the person in charge of housekeeping and designate these as the target group.
Determining the requisite advertising pressure per person depends on five factors
After you have determined how many people your advertising must reach, you will have to work out how often your advertising should reach them. This is a requisite advertising pressure. The following criteria may help you to determine this:
Consumer trends
If consumer trends and purchasing patterns are stable, or if there are obstacles preventing you achieving your marketing goal (e.g. if consumers prefer the competition’s products or if your own product is not yet/no longer ‘a la mode’), you must increase your advertising pressure.
The complexity of advertising statements
The more complex and comprehensive your own advertising statement is, the greater the advertising pressure must be. Many marketing managers cram too many arguments into advertising.
Interest in the product
The less interest the purchaser has in the product, the greater the advertising pressure must be. It is not in vain that the advertising budgets of cleaning agents are so large.
The behaviour of the competition
The greater the advertising pressure of the competition, the greater your own advertising pressure must be. That is the reason why, despite a great deal of interest in car advertising, large budgets are still necessary. Incidentally, car salespeople should have a time when they themselves are not thinking of selling a car – i. e. when they are still a disinterested party.
The use intensity of the media
The poorer the attentiveness of media users, the more often they have to be addressed through the medium of advertising. Radio is often seen as ‘something in the background’ – this is an example of lack of attentiveness on the part of the consumer. For this reason, advertising messages are needed several times during the day as with television. Magazines are used more intensively so only occasional advertising messages are needed.
The advertising pressure necessary for a particular product depends on the following factors:
¨ Consumer trends in conjunction with habits
¨ The complexity of your own advertising statement
¨ Interest in the product
¨ The advertising pressure of your competitors
¨ The attention paid to selected advertising mediums
Within the framework of an advertising campaign for most consumer goods you should have no less than 5, or better 7, contact figures.
Calculating the budget
In order to determine your advertising budget, the company must determine the number of people from the target group which are to be reached and how often. Your advertising strategy should also contain details of which advertising mediums you want to cover (with television or radio advertising, you have to decide on the length of the advertisement; with newspaper and magazine advertising, you have to decide on the format and colours of your advertisements). You can calculate the advertising budget you will need in order to attain your marketing and advertising goals on the basis of how much it will cost you to place your advertisements.
Assessing media analysis
Setting an advertising budget is relatively easy, since you have ready access to much of the necessary data. Studies such as media analyses, consumer analyses and Allensback analyses of advertising mediums, for example, have shown which people use which advertising medium and also, which mediums must be covered and how often in order for advertising to reach a particular target group. It is also possible to determine (with the help of a computer) the extent to which (%) and how often target groups are addressed when a company places an advertisement in a particular medium.
Turnover as a criteria
When setting your advertising budget the decisive criteria is that the budget must be derived from your goals and not from turnover. In practice, a certain percentage of turnover is frequently designated for advertising purposes. This is wrong. Even if you have no access to precise information on the requisite contact frequency, so-called advertising pressure, or the relation between consumers, those who like the product and those who have knowledge of the market or the product, these factors should at least be roughly estimated and the budget set according to these estimates.
The budget must be in line with the goal. It is illusory to think that a lack of advertising pressure can be balanced by “better” advertising. If consumers are not paying attention to the message conveyed by your advertising, better arguments or better pictures will do nothing to improve this situation.
Choosing the form of advertising medium is based on qualitative and quantitative criteria
For the advertising of consumer goods, the following forms of advertising mediums can be considered: television, magazines, radio, cinema or newspaper advertising. In capital goods marketing, the most important forms of advertising medium are specialist journals and direct advertising.
Qualitative criteria for choosing the form of advertising medium
Magazines, for example, are used relatively intensively, whereas radio advertising is not listened to quite as attentively. The more intensive the use, the more intensive is the expected advertising effect.
Use intensity
Each medium has a different use intensity, for example, bill boards are seen when consumers walk past them and radio advertising is often listened to whilst the consumers are doing housework or driving – i. e. when engrossed in something else.
Many specialist journals or magazines which focus on specific issues, in which the general public is particularly interested are, on the other hand, made intensive use of.
The presentation possibilities of advertising
These depend on the technical preconditions of the advertising medium. It is often apparent that radio only offers an acoustic appeal. Print advertising is limited to a static presentation, whereas cinema and television advertising can be made life-like.
The image of the advertising medium, for example, a magazine is, on the other hand, not a decisive factor. Firstly the image is of greatest importance to those who read the magazine; secondly, it has not yet been proven that the image of an advertising medium is projected onto the advertising company.
You can choose advertising mediums according to the use intensity and their presentation possibilities. The image of the advertising medium is not a sensible criteria on which to base your choice as image is not transmitted to the product you have chosen to advertise.
Quantitative criteria for choosing the form of advertising medium
What people are to be reached and where?
Quantitative criteria first of all deals with the question – which people are to be reached and at what cost. It must be clear how many people you are trying to reach, how they can be chosen according to target group and how specific the timing of the advertising medium can be.
Advertising in daily newspapers and on the radio can be timed precisely, since their transmission takes place on a specific day and its use is only possible on that day. In contrast to this, advertising in journals which appear monthly cannot be planned to fit in with a specific time, since the use of the title is extended over a longer period of time.
Multiple contact
Finally, you must consider whether, by choosing a particular advertising medium, you have the possibility of multiple contacts with the target group. A radio or television advertisement has only one opportunity of being seen by the consumers in your target group. In contrast, an advertisement in a magazine has many chances of being seen. This aspect is currently being considered by modern assessments of media surveys.
Television as an advertising medium
Passive use
Television advertising is basically suited to large budgets. Since television is a medium in which advertisements are taken in passively, it is necessary to book frequent advertising spots. It is not advisable to book only a few spots, even on the new TV channels. You should also make sure you have a regular slot on regional TV channels. Advertising on regional channels is less expensive and is of particular interest to companies which are only present in regional markets.
As yet no target group selection
With television advertising, there is the advantage that target groups cannot be selected. In the past, there have been very few television channels which appeal to one type of person alone. This can be expected to change with the increase in the number of privately owned stations. At the moment, private stations are managing to target specific groups.
Target group specific television use
People over the age of 60 watch more than the average amount of television, whereas people under the age of 59 watch less than the average amount of television. This is not true of all channels, however. Research has shown that households with a below average income tend, on average, to watch more television, as do people who are not working.
Behaviour during advertisement presentation
The main problem associated with television advertising is that too little is known about what people are actually doing when the advertisements are shown. It is not known how many people go and do other things during the commercial breaks, leave the room or indeed actually watch the advertisements closely. The increased use of remote controls has increased the problem of viewers switching channels during the commercial breaks.
From the data we have about television advertising, it is clear that TV viewers divide their watching time between an increasing number of channels. It is only possible to apply enough advertising pressure, therefore, if you book advertising slots on all the important channels. If you want to concentrate your advertising on one channel, you must make sure that your advertisements appear frequently, in order to reach your target group.
Television advertising slots
As with the cinema, television is the most diverse medium. Moving images, spoken or sung words and music are the main components of this type of advertising. A good advertisement acoustically and visually evokes the right atmosphere. Health, happiness, relaxation, freshness, joie de vivre and most other emotions can be conveyed visually and acoustically.
Television advertising is only viable if it is original and can stand on its own. This is true of both national and smaller campaigns for regional television channels.
Concentrating on one idea
When considering television advertising, you should first have a good idea which can be conveyed structurally. In the final analysis, television, like any advertising, depends on originality. Seeing a car drive up a ski jump is far more memorable than hearing a convincing and credible explanation of a car’s attributes.
Arouse interest
The first and last seconds of television advertising are crucial for the overall effect of the advertisement. The beginning is important because this is when you can arouse the viewer’s interest. The viewer must have the feeling that they are being individually addressed. If you do not succeed, the advertisement will have little effect on the viewer. The end, on the other hand, is important in that it can leave a final, “lasting impression” on the viewer.
Gain the viewers’ attention
In television advertising, the viewers’ attention can be gained by unusual images, changes of scene in quick sequence, acoustic signals (e.g. signature tune), a sense of humour, eroticism, children, animals, etc. The more entertaining the television advertisement is, the more attentively the viewer will watch it. The entertainment value of a television advertisement, however, should never become an end in itself and distract the viewer from the actual message of the advertisement.
When deciding on an advertisement for a TV commercial, concentrate your thoughts on one good idea and do not try to cram in too much information. Good television advertisements make simple and convincing statements and are attractively presented. Do not skimp on production costs when producing an advertisement for television.
Magazines: addressing target groups or another example of the mass media.
Of all the mediums for advertising, magazines offer the best opportunity to talk directly to specific target groups. The readership of individual magazines can be clearly distinguished according to sociodemographic characteristics, interests and needs. A company’s target group description therefore correlates with the use structure of individual magazines.
Intensive use
A reader normally uses a magazine intensively, which means that they come into regular contact with magazine advertising. Despite the relatively intensive use of the magazine, however, the advertisements are only looked at for a short period of time. The average length of time a reader spends looking at an advertisement is between 2 and 4 seconds. Only advertisements which evoke a particular interest in the reader, stand any chance of being looked at attentively.
The advertisement should be understandable and structured in such a way that it conveys the essence of the message at first glance. Simple, clear headings and good pictures help convey the message quickly. Advertisements can be problematic, as most have to be watched a few times in order to take in more information and readers have to concentrate more to pick up all the information which they are being presented.
Advertisements are a valuable source of information
There are also magazines, however, which have different rules: so-called “Special Interest” titles. These are magazines which deal with issues in which the readers are particularly interested, such as computer, sport and hobby magazines. Readers of such magazines often view advertisements as a valuable source of information and therefore use them intensively. It is, therefore, best to place advertisements with high information content in special interest magazines. The same goes for specialist journals.
Advertisements in magazines
If one assumes that human beings can process about five units of information in about a second, it becomes clear that advertisements must be immediately understandable. The following rules must be observed:
· Your advertisement should directly address your target group’s needs.
· Message and product uses must be concise.
· Consumers’ understanding of the advertisement is enhanced by repeat advertisements or by the use of the same image and text in sales promotion and product packaging.
· Creative and unusual elements grab consumers’ attention.
· Colour and size are other important elements used to enhance customers’ attentiveness. Smaller formats are certainly cheaper, but they often have less effect.
· You should avoid unpleasant appeal at all costs. Consumers do register this appeal but suppress it easily. This is not the way to make consumers like your products.
· Every advertisement must be original and distinctive.
· Your offer must be at the heart of the advertisement. Creative elements which are there to attract the consumers’ attention must not distract them from seeing your offer. Creativity must never become an end in itself.
· Humour or eroticism certainly attract the customers’ attention, but must be adapted to the offer you are making and be integrated into the whole structure of the advertisement.
· Communication via imagery has a particularly high effect on people’s attentiveness.
The rules governing advertising in specialist journals are more or less the same for advertising in normal magazines. Because of the great interest shown by professional buyers, it is normally wrongly assumed that advertising in specialist journals is governed by quite different rules. It has, however, been empirically proven that even if there is already a lot of interest:
· Potential buyers do not look at an advertisement for any longer period of time.
· Pictures are better than text.
· Emotive images are preferred to pictures of the product alone.
Structural rules governing advertising in specialist journals
If we transfer this to specialist advertising, the following rules apply.
· Clear, good pictures
· Concise headings
· Short, easy to read text
· Emotive message
· Rapid understanding
· Image-based communication
It is more difficult to advertise in specialist journals
Despite the need to make the presentation of your advertisement simple, you must ensure that the experts who read the journals never get the impression that your advertisement is banal. This makes it more difficult to advertise in specialist journals: even sophisticated advertisements which contain a lot of information have to be structured according to the laws of advertising.
Newspapers: differentiation is your trump card
Newspaper advertising is somewhat different to magazine advertising. A distinction is made between daily/weekly/Sunday papers and regional and national newspapers, subscription papers etc.
Commercial advertisements in daily regional newspapers
With daily papers, the distinction between regional and national is very important. Commercial advertising is done mainly in daily regional papers. It has been shown that advertisements for regional businesses are viewed by households as genuine and seen as a credible purchasing aid.
Brand name advertising in national newspapers
National newspapers are the medium for classical brand name advertising. National daily newspapers, just like national weekly and Sunday papers, can be selected by specific target groups. You might also find a few daily newspapers which contain capital goods advertising.
Radio: national and regional advertising
It is assumed that radio is the media which is the most superficially used. Frequent coverage is therefore a precondition for effective radio advertising.
In radio advertising it is also possible to address certain target groups by covering particular radio stations and transmission times. Radio listeners can essentially be selected according to sex and age. It is also possible to select transmission times according to programmes and thereby reach a certain group of people at particular times. In the morning, for example, the main target group are professional people driving to work, the later morning slots target housewives and the afternoon slots are aimed at young people,
Using the radio for commercial advertising
Radio advertising is primarily suited to reactivating messages conveyed in other branches of the media. If an advertisement has been placed in a newspaper, magazine or in any other type of media, it can be backed up by radio advertising. Since radio advertising is concentrated in a relatively short space of time, sales promotion measures, which only run for a limited period of time, can be supported by radio advertising. A precondition for this is, of course, that you cover enough radio stations in the catchment area.
Forms of radio advertising
As well as the classical 20 or 30 second advertising slots, there are a whole range of particular forms of radio advertising. Radio stations have entertainment programmes, which are interrupted for commercial breaks or the radio DJ leads the audience into the advertisement.
The attention radio listeners pay to radio commercials can be increased by so-called tandem or double spots. These are combined advertising slots, which can, for example, be interrupted by a short piece of music.
Other forms of advertising: focussing on regional advertising
Other forms of advertising include bill posters and advertisements on public transport although these are generally only used for a short and superficial length of time. This is especially true of bill posters, which must be “striking” in the truest sense of the word. Advertisements like this must relay simple and clear messages if they are to be successful. Since they can be used regionally, this type of advertising is also suited to supporting commercial sales campaigns.
The problem with bill poster advertising is that it is difficult to select target groups. Although it is true to say that this kind of advertising mainly reaches people in cities and predominantly professional and young people.
Until a few years ago, bill poster advertising was not wise between the months of November and February because of the short daylight hours. This winter month disadvantage has now been overcome by the widespread use of lit bill boards. Bill poster advertising can now be used all year round and seems a sensible option given the small budget needed.
Structural rules for bill poster advertising
The structure of bill poster advertising is similar to that of other advertising. The following structural rules are useful:
· Make sure your advertisements are concise and limit the message you are relaying to its essentials.
· Emphasise the image as a means of communication.
· Make sure it has a short heading which is easy to understand.
· Place the heading at the top of the advertisement (an important difference to the structure of the advertisement, which results from the positioning of the bill poster).
· Do not use lengthy texts.
· If your advertisement is composed of several small parts, this can lead to displacement when putting it up. Particular parts of the picture (such as people’s eyes or mouth) should not appear on joins in the poster. The same goes for brand names or company logos.
Methods of researching the effectiveness of advertising
You can ascertain the effect an advertisement or commercial will have on consumers by carrying out surveys or studio tests. There are a range of methods, including:
Memory
This method involves showing a group of people an assortment of commercials or advertisements, one after the other. At the end, they are asked which commercials or advertisements they can remember. The percentage of people who recall the test advertisement is called the recall value. Advertisements of well-known brand products always achieve a higher recall average than unknown brands. High recall values can therefore be deceptive.
Recognition
This method is similar to the recall method. This time, however, those taking the test are shown commercials or advertisements and are then asked if they can remember just having seen the advertisement. This measure the recognition value of an advertisement and can test the feasibility of a current advertising campaign. Obviously it can only be used as a test after the advertising campaign has begun.
Attention
Technical equipment is used to gauge the amount of attention an advertisement triggers. The effect is expressed in small dermatological changes, which are monitored by electrodes and registered on a graph. This very expensive method is used especially when testing the effect of television advertising.
Advertising visual effectiveness
This technically expensive method determines the visual sensation experienced when watching an advertisement, giving an insight into the perception of visual means of advertising. It is possible to determine which parts of the image, heading or text the reader fixes on and if the company’s name/logo is picked up. This allows companies to improve the graphic structure of their advertisements. It can also be used for television advertising and is more precise than the results of written surveys.
Ways of looking at advertisements
This method involves secretly filming someone when they are reading a magazine – filming both the magazine and the person’s face. By a very precise assessment of the person’s eye movements, it is possible to gain a rough insight into the way they look at the advertisements in the magazine. The advantage of this method is that it shows how advertisements are perceived by readers.
These methods of researching the effect of advertisements are all quite expensive and only make sense if you have a correspondingly large advertising budget.
Check list for structuring advertisements
If you have a small advertising budget, it is recommended that you estimate the effect your advertisements will have with the help of a check list. This could include the following:
¨ Is the advertisement distinctive?
¨ Is the solution you are offering for a particular target group visible at first glance?
¨ Is the advertisement’s message easily understandable and distinguishable?
¨ Is the advertisement’s text appealing and easy to read?
¨ Does the advertisement use imagery?
¨ Is the image strong enough? If you are not including parts of the picture, do you have good reasons for this?
¨ Are the people used in the picture representative of a particular target group?
¨ Does the advertisement arouse interest?
¨ Is the advertisement’s argument (visual and literal) really convincing?
¨ Is the advertisement’s message a fair balance between emotive and rational statements?
Media planning – deciding on the right media coverage
In media planning, the aim to decide which forms of media you should select (magazines, television, newspapers etc….) how often your advertisements should appear and when you should book them.
Ensure that:
a) the message of your advertisement reaches the target group as cheaply as possible and
b) your advertisements correspond as well as possible with your marketing and advertising goals.
Information on using the media
A precondition is that you know which people and which form of the media you want to use and when. This information can be provided by a whole range of media surveys, which are carried out at regular intervals: media analyses, advertising analysis, television research, consumer analysis or a buyer analysis. With the help of these studies it is possible for advertising or media agencies to determine the cheapest combination of media use.
If your advertisement is supposed to be aimed at a particular target group, such as pharmacies, doctors, children, financial decision-makers, you can call on the help of specialist analysis.
Media briefing
A media agency is only in a position to suggest the best media plans if you can provide it with a precise list of tasks. This so-called briefing contains the following tasks:
¨ an exact definition of the target group you are trying to reach, based on socio-demographic data, attitudes, values and wishes.
¨ Your marketing, advertising and media objectives. The latter should indicate how many people you want to reach and how often. Furthermore, you should give an indication of which form of media you prefer and the times at which your advertisements should appear – whether they should appear continually throughout the year or with alternating intensity.
¨ Your advertising budget.
¨ Fundamental decisions about the structure of the advertising. From this, the media agency can decide whether your advertisements should be 1/1 or 1/2 sided, black and white or in colour, or if you are considering radio or television advertising, whether the advertisements should be 20 or 30 seconds long.
Media plans are developed on the basis of financial criteria.
The agency draws up a list of appropriate media forms. There are two decisive criteria attached to this:
Range
This expresses the number of people in the desired target group that can be reached by a particular media form.
Cost
Cost is calculated as the so-called ‘thousand price’ – i. e. the agency determines how much it costs to reach 1000 people with different media forms.
Affinity
In practice, another list is drawn up based on target group affinity. This estimates the strength of the target group percentage which uses the media compared with the target group percentage in the total population. If the share of the target group which uses a magazine is 10%, for example, and the share of the total population is 5%, the magazine receives an affinity index of 200 (10:5). Since the question of the financial choice of media can be clarified through the costs and uses, this procedure is actually superfluous.
Image
A form of media should not be chosen on the basis of its image as the image of any particular form of the media does not contribute to the image of the product you are advertising in that media. This widespread fallacy results in most companies covering over-expensive media forms.
Price-performance ratio
By analysing the price-performance ratio, the agency can draw up finished media plans, which can then be assessed. The media list only gives an idea of cost and performance of one type of media for one advertisement. As well as listing the individual media forms, the media plan contains suggestions as to the frequency of advertisements.
Check contact intensity
It is appropriate to mention a word of caution at the end of this section: you can establish the overall performance of a media plan by multiplying the range by the average contact frequency per person reached. In the extreme, this means that a media plan which reaches 10 million people three times, has a value of 30 million; a plan which reaches 3 million people 8 times, however, only has a value of 24 million. The first plan, which has a higher overall value, is probably ineffective because the number of times each person is reached is not sufficient (the contact intensity is too weak).
When assessing media plans, take care that your average contact figures merely focus on contact opportunity. You must only measure the contacts with media forms in which your advertisement is placed. You can never say with certainty whether there has been actual contact with your advertisements. Contact opportunity is also designated Opportunity to Contact (OTC), Opportunity to See (OTS) or Opportunity to Hear (OTH).
The probability that someone will come into contact with your advertising simply because they are in contact with the media form will depend on the intensity of use of each individual media form by the target group. Media forms, which only have a superficial or fleeting digestion of information by its users (as far as advertising is concerned) must therefore be covered more frequently.
Direct advertising – direct access to clients
In direct advertising, those on the receiving end of the advertising are addressed directly with an advertising letter.
Direct advertising is also possible with low budgets
The first and most important step towards successful direct advertising is a precise definition of the target group. Due to the high costs involved for each individual contact, failures can be very costly. If you can manage to avoid these, direct advertising can also be appropriate for low budgets. When writing to existing clients, your own client file is the most reliable source of information, as long as this is always kept up-to-date. If you are writing to new clients, you will need qualified addresses, which can be gathered from branch records, trade fair catalogues, lists of conference participants or other membership lists. When writing to commercial clients, it is best to write to several people separately, so that no one feels that they have been overlooked. You should, however, at all costs avoid sending several letters to one person.
Direct advertising has a range of advantages:
- It allows you to select a precise target group.
- It is extremely flexible and precise time-wise.
- With direct advertising, which is aimed at receiving concrete orders, it is possible to measure financial success immediately. The same goes for invitations and other desired reactions on the part of the client.
Many direct advertising campaigns do not have a specific goal before they are introduced. This condemns them to failure right from the start.
Next, you must work out what you want your direct advertising to achieve. The aim of the campaign has a great deal of influence on both its structure and the choice of addressee.
What are the goals of direct advertising?
· Gaining new clients.
· Addressing existing clients to maintain general business relationships, even though this may not result in the automatic placing of an order;
· Addressing existing clients in preparation for a sales visit;
· For general information;
· To send out all kinds of invitations (to a company celebration, open day, presentation of a new production system);
· To support the field sales staff;
· To implement sales offers.
The time and cost plan of direct advertising
Before carrying out a direct advertising campaign, you should draw up an exact cost plan. The costs are then compared to the expected uses to be gained from the campaign (cost/use analysis). Since you can also establish a lasting relationship with a client through direct advertising, you should not measure the uses of direct advertising exclusively according to direct reactions.
The cost plan you draw up should contain the following types of costs:
· Text conception
· Structural conception (blueprint)
· Drawing, type and lithography (print preparation)
· Production: printing, hinges
· Gathering addresses (when these have to be bought, if they are not readily available)
· Placing in and addressing of envelopes
· Stamps and postal expenses
· Posting
The most important aspect of direct advertising is perfect structure, which is best left to experts. Advertising agencies or service companies, which deal exclusively with direct advertising, are most suited to do this.
The time plan of direct advertising
The whole process (from setting the task, to sending it to an agency, to the dispatch of correspondence) normally takes three months: four weeks for the agency to present its blueprints; two more weeks for corrections (which are almost always necessary); two more weeks for the printing preparations and four weeks for production.
Returns from new clients
The reaction to direct advertising, as far as direct sales reaction is concerned, is often overestimated. If you gain any new clients through direct advertising, you cannot count on a success rate of more than 3%. You can improve on this in the long-term by sending out more letters.
Returns from existing clients
You can realistically expect a return rate of 5% when using direct advertising on existing clients. Let us assume that the advertising share per order is £50 on account of the average expected cover charge per order placed. If a direct advertising campaign then costs £10,000 you will need 200 orders in order to cover your costs (200 orders x £50: advertising share per order = £10,000 overall budget).
Cost-use considerations
With a return rate of 5% you will have to write to 4,000 clients. Even if you cannot exactly determine costs and uses beforehand, these kinds of calculations are suitable for realistically estimating the expected uses of direct advertising.
You must always bear in mind both the individual sales campaign and the long-term effects through regular measures of direct advertising. The latter can only be roughly estimated.
Follow-up measures
The effect of direct advertising can be enhanced through follow-up measures (over the phone or through the post). You can give an added impetus to multistage direct advertising by sending off more letters, prospectuses or order invitations (which stir the client into action). The important thing to remember is that the structure of your means of direct advertising takes into consideration the multiple means of addressing your target group and does not just concentrate on sending out row after row of individual letters.
Make answering as simple as possible
Response cards
In every form of direct advertising, the response is greater the easier it is for the recipient to respond. Response cards are therefore an essential part of a direct advertising campaign, provided what you are sending is exclusively an informative letter. Even prospectuses can be more effective if they contain response cards. Of course, prospectuses should always be accompanied by an explanatory letter. The following table shows various different structural possibilities and their desired effects.
POSSIBILITIES IN DIRECT MARKETING
Possibilities Desired Effect
Only a letter Personal notification, incentive to
respond only facilitated through the
request of the text.
Letter and response card Personal notification, response is
made much easier.
Only a prospectus Impersonal notification, incentive to
respond through the contents of the
prospectus.
A prospectus plus response card Impersonal notification, stronger
incentive to respond, since it is made
much easier.
Prospectus, letter and response Personal information with relatively
card. high incentive to respond.
Answer coupons
If you send out advertisements with answer coupons, observe the following rule: the easier it is to cut out a coupon, the higher the response will be. The ideal thing is to ensure that the coupon can be extracted with one cut, for instance diagonally across a corner or along the bottom; it is still good if the coupon can be extracted with two cuts. The worst thing you can do is to insert a coupon in the centre of your advertisement, which the client is then expected to cut out, as this is a laborious task.
Postcards
In top class magazines, which people like to collect, it is better to stick postcards onto the advertisement, rather than using coupons, since the latter also removes whatever is on its reverse side.
The structuring of direct advertising
Creating needs
Create the need for additional information, by initially addressing the recipient’s own problems. This motivates the recipient to read on or creates interest in a sales visit.
Solving problems
You are selling products as solutions to problems, so you can begin your argumentation by focussing on the problem. Your offer then supplies the solution. It is sensible to briefly summarise the most important points at the end of your advertising letter.
Arguments concerning uses
Formulate the most important points in short, clear headings. The recipient of your advertising letter must be able to see what the main uses of your product are at first glance.
As well as argumentation, an advertising letter should also contain a specific invitation to act. This significantly increases the return rate. A trivial sounding sentence such as “All you need to do is place a cross on the answer card” is sufficient.
Images
Remember that images are easier to take on board than words. Illustrate your advertising letter. Unusual pictures are especially advantageous. Therefore, portray known things in an unknown, new way.
Readability
The readability of your texts is particularly important. Your sentences should not be too long. The indentation you use should help the reader to easily understand the text. Emphasise important passages in colour, but be careful not to do this with too many (no more than 20% of the text). Check that the passages you have highlighted are understandable in themselves as many people will only read these parts of the text. Avoid long paragraphs.
Part 2 of this marketing training material builds on the ground covered in Part 1.
