How to Use Marketing Strategy to Improve Sunform Supermarket's Performance - Dissertation Example

Table of Contents 1. Marketing Strategy 2 2. Satisfaction 2-4 3. Relationship Marketing 4-6 4. Segmentation 6-7 1.5. Target Customers 7-9 1.6. Marketing Positioning Strategy 9-10 1.7. Marketing Mix Decision 10-16 1.7.1. Product Mix 11 1.7.2. Place Mix 12 1.7.3. Price Mix 12-13 1.7.4. Promotion Mix 13-16 1.7.4.1. Sales Promotion 14-15 1.7.4.2. Advertising 15-16 1.7.4.3 Evaluating Effectiveness 16 1.8. Summary 16-17 1.9. References 18-20 1.1. MARKETING STRATEGY Marketing Strategy is defined as the broad marketing thinking which enables an organization to develop its products and marketing mixes in the right direction, consistent with overall corporate objectives (‘glossary’ (n.d.), accessed on 05.06.05). Therefore, it can be said that marketing strategy is an idea, plan or action that helps companies to attain its overall strategic objectives. It includes segmenting and defining the target market, selecting proper marketing mix to achieve marketing objectives and determine the product unique selling point to create a defensible competitive position. It seems the heart element to successful marketing strategy is an understanding of your customers and their needs so as to satisfy them and gain substantial profit by serving them more effectively than other competitors. 1.2. CUSTOMER SATISFACTION In order to improve profitability in long run, satisfying customer is the way to achieve it (Collins, 1992). In general, satisfaction is a person’s feeling of pleasure or disappointment resulting from comparing a product’s perceived performance or outcome in relation to his or her expectation. If the performance falls short of expectations, the customer is dissatisfied. If the performance matches the expectations, the customer is satisfied. If the performance exceeds expectations, the customer is highly satisfied or delighted (Fournier & Glenmick, 1999). Thus, to encompass the idea of customer satisfaction, Michael Dells recommendations (Michael Dell, 1999) can be helpful: See the big picture Run with the suggestions your customers provide Always think bottom line. But not just yours Go beyond selling, and make yourself valuable as adviser The object of such a customer-centric system is to deeply understand the customers. Then giving them what they want, how, where and when they want it, at a profitable price that they are happy to pay. All the rest of marketing wont make up for failures on these key strategic elements (‘Customer satisfaction’ (n.d.), accessed 09.09.05). In order to improve the customer satisfaction level, the marketers need to assess what the customers need. The knowledge of consumer psychology (Hawkins, Del I., Roger J. Best, and Kenneth A. Coney, 1998) is helpful in assessing the customer needs and then giving them what they need: By knowing how consumers think, feel, reason, and select between different alternatives (e.g., brands, products) Assessing the influence of environment upon customer choice (e.g., culture, family, signs, media) Study the behavioral attitude of customers while shopping or making other marketing decisions Realize the relationship between consumer motivation and decision strategies that differ between products, in their level of importance and interest that they entail for the consumer For a business to survive in a competitive market, satisfying customers needs better than its competitor is important because it is able to help the company build customer loyalty and increase sales. Xerox’s senior management found out that its ‘completely satisfied’ customers are six times more likely to repurchase Xerox products over the following 18 months than its ‘very satisfied’ customers (Jones & Sasser, 1995). Moreover, the cost of recruiting a new customer is usually considerably higher than the cost of retention, even in supermarket context (Sirohi et al., 1998). One estimate (Patricia Sellers,1989) is that it is cost five times more to attract a new customer than pleasing an existing one. Customer retention is thus more important than customer attraction. Moreover, one study showed that dissatisfied customers may bad-mouth product to 10 or more acquaintances (Albrecht and Zemke, 1985). The influence of bad news is greater in Chinese society, as Chinese consumers tend to rely more on word-of-mouth communication (Yau, 1994). Therefore, there are three drivers of customer satisfaction; Service, Quality and Value. Quality appears to be a satisfaction-maintenance factor (a reduction in Quality strongly reduces customer satisfaction but an increase adds little). Value is a satisfaction-enhancement factor (positive changes do more good than negative changes do harm), while Service has the strongest effects in general. Importantly, its positive effect accelerates with positive changes while its negative effect decelerates with negative changes. (Wittink, Dick R., accessed 11.09.05) 1.3 RELATIONSHIP MARKETING In today’s world of advertisement and product offerings, the customer is left with taking a decision on what to choose. It makes customers more selective than ever together with higher expectations. The basis of buying decisions is now more than product specifications and price. Presently, maintaining continuous relationship with the customers greatly influences buying process (‘Relationship marketing’ (n.d.), accessed 01.09.05). Therefore, a business needs to establish strong relationship with its customers by (‘Effective relationship marketing’ (n.d.), accessed 01.09.05): 1) Nurturing – it lies in identifying potential customers, facilitating the exchange of information and consistently influencing buyers decision towards a purchase. 2) Growing – to build strong customer relationships by encouraging the existing customers to keep buying. 3) Retaining – to retain the existing customers and win-back the customers who have given up on your product. According to Grönroos (1989) marketing is all about making and keeping the promises. When a business keeps its promises, it builds customer trust, which is followed by long-term relationships. Customer retention strategies build barriers to customer switching. This can be done by product bundling (that is, combining several products or services into one "package" and offering them at a single price), cross selling (that is, selling related products to current customers), cross promotions (that is, giving discounts or other promotional incentives to purchasers of related products), loyalty programs (offering incentives for frequent purchases), increasing switching costs (that is, adding termination costs, such as mortgage termination fees), and integrating computer systems of multiple organizations (primarily in industrial marketing) (‘Relationship marketing’ (n.d.), accessed 08.09.05). A business can enhance its profitability by maintaining strong relationships with customers (Buchanan &Gilles, 1990) because: The cost of acquisition occurs only at the beginning of a relationship, so the longer the relationship the lower the amortized cost. Long-term customers tend to be less inclined to switch, and also tend to be less price- sensitive. This can result in stable unit sales volume and increases in dollar-sales volume. Long-term customers may initiate free word of mouth promotions and referrals. Long-term customers are more likely to purchase ancillary products and high margin supplemental products. There are following ways for a business to grow its revenues gradually with the help of relationship marketing: Improved Sales Force: existing research has shown that the relationship between sales people and their customers affect the retail performance. Persuasion is enhanced for customers who perceive the sales people to have positive attitude towards them. Take The Extra Step: sales force should be trained to take extra step in assisting the customers. For instance, if someone walks into the store and asks for help in finding something, don’t just say, “its in Aisle 3.” Lead the customer to the item. Better yet, wait and see if he has questions about it, or further needs. Whatever the extra step may be, if you want to provide good customer service, take it. Throw in Something Extra: Whether it’s a coupon for a future discount, additional information on how to use the product, or a genuine smile, people love to get more than they thought they were getting. Deal With Complaints: If you give the complaint your attention, you may be able to please this one person this one time - and position your business to reap the benefits of good customer service. 1.4. SEGMENTATION To reach the goal of customer satisfaction, a business needs to segment its customers into different homogenous groups based on their potential and interest in using the product or services offered Rather than offering the same Marketing Mix to vastly different customers, the market segmentation makes it possible for firms to tailor the marketing mix to specific target markets, thus better satisfying customer needs. A market segment should be (‘Market segmentation’ (n.d.), accessed 10.09.05): Measurable Accessible by communication and distribution channels Different in its response to a marketing mix Durable (not changing quickly) Substantial enough to be profitable A basis for segmentation is a factor that varies among groups within a market but that is consistent within groups (‘Market segmentation’ (n.d.), accessed 10.09.05): Geographic Segmentation is based on regional variables such as region, climate, population density and population growth rate. Demographic Segmentation is based on variables such as age, gender, ethnicity, education, occupation, income and family status. Psychographic Segmentation is based on variables such as values, attitudes and lifestyles. Behavioral Segmentation is based on variables such as usage rate and patters, price sensitivity, brand loyalty and benefits sought. Therefore, segmenting a market can be very helpful in selecting the largest group of customer, interested in products and services provided by a business and then targeting them to achieve the desired results. 1.5. TARGET CUSTOMERS After segmenting the market into different groups, companies have to evaluate each segments and decide how many and which ones to target. The principle for evaluation is to look at three factors: segments size and growth, segment structural attractiveness, and company objectives and resources (Kotler, 2003). One of the best ways to identify your target market is to look at your existing customer base. Who are your ideal clients? And what do they have in common? Investigate competitors or similar businesses in other markets to gain insight (‘Target Market’ (n.d.), accessed 11.09.05). Establishing an intimate understanding about the needs of your target market is critical. How will your customer profit or otherwise gain from using your products or services? Meeting this need is one of the most convincing points for sales to be made, cash to flow, and profits to result (‘Target Market’ (n.d.), accessed 11.09.05). You must seek to quantify the value of offering a solution to this need. You may be able to do this by asking these questions about your products and services (‘Target Market’ (n.d.), accessed 11.09.05): : How much can it save your target customer? How much can it earn for your target customer? What intangible benefits might target customers realize, and is it possible to quantify these benefits? Target marketing allows you to reach, create awareness in, and ultimately influence, that group of people most likely to select your products and services as a solution to their needs, while using fewer resources and generating greater returns (‘Target Market’ (n.d.), accessed 11.09.05). One study of consumer behavior in Asia (Schutte & Ciarlante, 1988) shows that women are always regarded as responsible for family purchases as food, beverages and household appliances in Asia. However, retailers should recognize that children have significant control over the buying decision. One survey (business Beijing as cited in Schutte & Ciarlante, 1988, p52) of 425 urban families with single children between the ages of 7 and 12 found that children influenced 40% of all household purchase decisions. These children are becoming highly skilled in consumerism at a young age. 21.2 % children surveyed shopped every day of the week, while 45.7% regarded shopping as one of their favorite activities. 1.6. MARKET POSITIONING STRATEGY Market positioning is arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers (Kotler, 2003). The heart of any effective strategic positioning is differentiation—emphasizing what’s truly unique about your offering. Strategic positioning involves providing unique value (Wortzel, 1987). It begins with differentiating the company’s marketing offer so that it will give consumers more value than competitors’ offers do (Armstrong & Kotler, 2003). A question arise here is how the company discover its points of differentiation? The following may be some points of distinction for a supermarket: Customer focus, customer lifetime value Superior product quality Lowest price Accumulated brand equity and positive company reputation Low cost production techniques For example, supermarket, like Mark Spenser distinguishes its product from other by providing high quality products, whereas, Asda, positions itself as proving lowest price every day. Once a company finds its several potential advantages, what is left is to decide how many differences to produce and which difference to promote. Since not every difference make a good differentiator and each difference are creating cost for company as well as benefit for customer. The company must carefully select the way it is going to distinguish itself from competitors. Although such choices are difficult, it may be crucial for the success of a business. The end result of positioning is the successful creation of a customer-focused value proposition—the full mix of benefits upon which the brand is positioned. It is a cogent reason why the target market should buy the product (Kotler, 2003). Each company must develop its own winning positioning strategy to serve the needs and wants of its target customers. Armstrong & Kotler (2003) claims in short-run some companies can achieve such lofty positions but it will find very difficult to sustain in long run. Companies who try to delivery high quality of product and service with lower price at the same time may lose out to more focused competitors. 1.7. MARKETING MIX DECISION Once the company has identified target audience and chosen a position, it must communicate and deliver that positioning effectively through all the elements of the marketing mix. Marketing mix is the combination of the 4Ps (place, price, promotion and product) that create an integrated and consistent offering to potential customers that satisfies their needs and wants (‘glossary’ (n.d.), access on 05.06.05). For example, if the company wants to build a position on better quality, it must produce high quality products, together with premium price charge, nice packaging, good personnel service available, distribute through high-quality dealers and advertise in high-quality media. The entire marketing mix must be coordinated for greatest communication impact. The following are the 4 P’s of marketing: 1.7.1 PRODUCT MIX It is the most important element of the marketing mix. A good product does its marketing by itself as long as it gives benefits to the customer. The objective of a business is to satisfy customer needs at a profit; and these needs can be satisfied if consumers get the right quality products. With more consumer satisfaction there could be higher demand for a product and consequently, more efficient utilization of resources. If the quality of a product is not good, then it may be rejected. Quality is related to the success of an entrepreneur because, a product with quality can (‘Appropriate marketing strategies (n.d.) accessed on 11.06.05): : Create satisfied customers; Facilitate volume purchase; Easily bring repeat purchase. In a business where the competitors’ products are homogenous and offer the same benefits, same quality, same price, you have then to differentiate your product with design, features, packaging, services, warranties, return and so on. In general, differentiation is mainly related to (‘Marketing mix’ (n.d.) accessed on 11.06.05): -The design: It is the most important feature of the product mix. It can be a decisive advantage but it changes with fads. For example, a fun board must offer a good and fashionable design adapted to young people. -The packaging: It should be done with due consideration to appearance and convenient use depending on the nature of potential customers. For example, it must have the element of style if it is supposed to serve the young people. -The safety: The product should be safe for the customers themselves, and also for the people in their surrounding. -The "green": A product, which is not hazardous to the environment gets an advantage among some segments. 1.7.2 PLACE MIX The place is where you can expect to find your customer and consequently, where the sale is realized. Knowing this place, you have to look for a distribution channel in order to reach your customer. In a retail business, there are no intermediaries between the business and the customers. As a retail shop is an essential linkage within the marketing channel, the location has to be chosen strategically. The premise can be chosen by making a comparison analysis between the costs and benefits to be gained. Before choosing a location for the retail shop carrying out simple research concerning the potential buyers and the nature of the product could be advantageous. The study should identify the following (‘Appropriate marketing strategies (n.d.) accessed on 11.06.05). : The type of potential buyers (attitudes towards the product and habits); The product type (e.g. durable, perishable, for low income, for adults, for girls); Whether the product or service is in high competition or not; The method with which the retailer intends to attract the purchaser; The period of time in which buyers prefer to do shopping. 1.7.3 PRICE MIX “Price is a ratio reflecting the exchange value of a good or a service, measured in terms of money” (‘Appropriate marketing strategies (n.d.) accessed on 11.06.05). A suitable pricing strategy should be used to sell the product effectively. Prices may be reduced to increase sales or to sell products in high stock. Although reduction in prices encourages customers of purchasing larger quantities, however, the pricing strategy has to regard the profit margin. A strategy to produce good quality products and charge an appropriate price is a practical approach to pricing. In short, the following pricing strategies may be used (‘Marketing mix’ (n.d.) accessed on 11.06.05): -Competitive pricing: Competitive pricing is about keeping the lowest price for your products or services among all the competitors. Sometimes, competitive pricing is essential. For instance, when the products are basically the same, this strategy will usually succeed. -Cost-plus-profit: It lies in adding the desired profit to the cost of products. It is also called cost-orientated strategy and is mainly used by the big contractor of public works. To apply this strategy, the authority must have access to the costing data and should like to check if the profit added to the cost is not too high. -Value pricing: Under this strategy, you price the product or service based on the value it has to customers. For example, when a new technology has a very large success, you can charge high prices to the customer. Value pricing is also common in luxury items. Sometimes, the higher the price, the more you sell like, fashionable clothing or restaurants for snob people. 1.7.4. PROMOTION MIX Among those marketing mix, the promotion mix is the company’s primary communication activity. Ries and Trout (1982) regard communication strategies are primarily means for positioning or re-positioning a brand in the consumer’s mind. Promotion facilitates exchange of information between product/service providers and the customers. The choice of promotion depends upon the goods and services offered, as well as on the potential customers (‘Appropriate marketing strategies (n.d.) accessed on 11.06.05). The major promotional mixes are as follows: 1.7.4.1. Sales promotion Sales promotion is an activity that induces the customers to purchase more by enhancing the value for the customer (‘Appropriate marketing strategies (n.d.) accessed on 11.06.05). This value may be created through volume discounts. One study show that in the average consumer packaged-goods company, sales promotion accounts for 74% of all marketing expenditure (Neff, 2000). In a competitive market, the objective of a business should be to increase short-term sales and to help build long-term market share. More specific speaking, according to Abratt’s et al (1995) ten major promotion objectives includes; to encourage more frequent or multiple purchases, to encourage repeat usage and to stimulate unplanned purchase. In order to achieve an organization’s objective of cost effectiveness, several tools should be considered in the promotion mix: Price-pack: it refers to marking reduced prices on goods that reach the date of expiry for quick sales, such as “two for the price of one” and “buy one get one free” etc. Patronage rewards: by giving away a stamp or token every time a customer makes a purchase. This kind of use of token is aimed at reinforcing brand loyal behavior and encourages repeat purchase (Morden, 1993). Coupons: by giving away coupons offering discounts on different purchases without changing current product’s price structure; reinforcing brand loyalty by focusing the consumer’s attention on the brand and encouraging repeat purchase behavior. Premiums: premiums on certain purchases in the form of “more products for your money”; such as “buy two get one free” or may gift a different item once a customers has made a requisite purchase. For example, by inserting free gift in cereal pack. Contests, sweepstakes and games: give consumers that chance to win something, such as cash, trips or goods (Armstrong & Kotler, 2003), which ultimately increases purchase propensity. Self-liquidating offer: by offering specified goods or services by asking customers to send in the required number of proofs of purchase. Advertising specialties: are useful tool to communicate company’s message, increase its awareness and ultimately increase its sales by giving free gifts to customers having advertiser’s name on them. 1.7.4.2. Advertising Advertising is a form of impersonal broadcasting through commercial mass media. The objective of advertising can be classified into three purposes: inform, persuade, or remind. For a supermarket, the possible objectives could be to announce new store opening, inform current promotion available in store and persuading customers to make prompt purchases. There is a wide choice of media for the retailer advertiser, including television, radio, newspapers, magazines, direct mail, outdoor, internal and electronic media. The decision is based on the retailer’s communication requirements and budget cost. For smaller businesses, like a supermarket that serves people living around its premises, the budget for advertising in some sense is limited by its financial resource. Hence, only feasible choices are discussed below: Internal Advertising It can also be called ‘in-store advertising’ method. In-store advertising includes posters, carrier bags, packages, leaflets or catalogues given away at the checkout, message on sales receipts, and so on. Beside these, it may also include audio announcements, videos or slide presentations promoting specific products or store benefits and in-store kiosks as information points and to issue special offer vouchers (Mcgoldrick, 2002). Direct Mail Post the basic leaflets or full-color catalogues to the people living around store on a regular basis. The main advantage of this communication is the minimal wastage of circulation; every recipient can be proposed as an actual or potential customer (Mcgoldrick, 2002). 1.7.4.3. Evaluating Effectiveness Finally, both sales promotion and advertising need to be evaluated on their effectiveness. For sales promotion programs, the most common evaluation tool is to compare sales before, during and after a promotion (Armstrong & Kotler, 2003). For advertising program, Armstrong and Kotler (2003) suggest it should be evaluated on both the communication effects and sales effects. They say communication effects can be evaluated by copy testing that can be done before and after an advertisement is placed while sales effects can be evaluated by comparing the sales before and after the advertisement. 1.8. Summary Therefore, from the literature, it can be summarized that a business should first focus its attention on nurturing, retaining and growing its existing customers before planning to spend more on new customers. Satisfying existing customers is critical in order to enhance its sales. To achieve this objective, it should understand its customer psychology to gain knowledge of what they want and how they want it. Only then it will be able to deliver the most value point to its customers. Since it is not practical to deliver the same product to all the customers belonging to different groups, it is better to divide the market into different segments, then evaluate each segment’s attractiveness, select target segment having more profit potential, identify positioning concept for each target and then effectively communicate and deliver the chosen positioning concept to target customers. This will create an image for the business in the minds of customers, which in turn will grant it market ownership in the future. After segmenting and targeting the largest customer group, Marketing Mix should be used to improve its performance and customer satisfaction level. By strategically applying the product, place, price and promotion tactics into the business, and by communicating effectively those promotions, it can influence customer’s choice and reach its ultimate goal of increased sales followed by high profits. References: Abratt, R., Bendixen, M. and Plessis. A.D. (1995) ‘Manufacturer and retailer perceptions of in-store promotions in South Africa,’ Journal of Marketing Management, Vol. 11, pp. 443-468. ‘Appropriate Marketing Strategies’, (n.d.), retrieved 11-09-05 from: http://www.bds-ethiopia.net/marketing2.html Armstrong, G. and Kotler, P., (2003) ‘Marketing,’ UK: Pearson education. Buchanan, R. and Gilles, C. 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