You’ll begin this learning activity by learning what marketing means, ultimately understanding that marketing is a combination of many different activities, such as advertising, packaging, and branding. You’ll discover how these activities come together in the marketing mix and how the marketing mix affects the success (or failure) of retail stores and other service businesses.
As you continue within this unit, you’ll focus on each of the four parts of the marketing mix and their importance to retailing.
To illustrate these concepts, you will follow the development of a fictitious retail business, called “Presents,” learning how the owner applies each part of the marketing mix to her enterprise.
What you will learn
After completing this learning activity, you will be able to
- list and describe eleven marketing activities
- provide examples of products and services
- discuss the importance of various pricing policies to different retail stores
- describe the effectiveness of various promotional techniques
- identify the four parts of the marketing mix and describe how they influence marketing activities
- describe the types of products offered by retail and service businesses
What is a business?
To understand marketing, you first need to understand what a business is and how it functions. What makes a business successful?
Study each of these business examples, considering what they have in common.
- An Ontario maple syrup producer makes her product on site, selling it each day for a small profit. She is successful because people love the flavour of her syrup, particularly with breakfast products.
- A maple syrup manufacturer buys the raw, unprocessed tree sap after it has been produced in sanitized containers. The factory’s expenses total $40 000 each week during production season. Since people want maple syrup, the factory can charge stores across North America $50 000 per week for its product.
- The maple syrup producers and manufacturers hire transport companies to ship the sap or the syrup to where it is needed. The transport company doesn’t make or grow things to sell; instead it sells its services for profit.
- Stores and supermarkets across North America buy the maple syrup from the manufacturers and make a profit as well. Like the transport company, the stores and supermarkets don’t manufacture the products they sell (with some exceptions, such as stores that have bakeries); they provide services (buying, selling, storage, distribution, and so on).
Did you notice that there are some common words that apply to each of these businesses? For example, all businesses sell things. Two of the four businesses make the things they sell, whereas the other two businesses sell the services they provide. What else do they have in common?
Each business satisfies the wants or needs of a group of consumers, or else they would not be in business. They each sell their products and services for more than it costs to make them.
When a business sells goods or services for more than it costs to make them, it makes a profit.
What is the purpose of a business?
A business makes or sells products or services to satisfy the wants and needs of consumers and make a profit.
“Presents” is an independent gift store located in Sarnia, Ontario. Presents buys products such as soap, coffee mugs, picnic baskets, and greeting cards from manufacturers or distributors, and then resells them to their customers. It is much easier for a person who wants a card for a special occasion to buy one at Presents than it is to travel to Montreal, Quebec, where the greeting card is made.
Businesses can exist only if they satisfy the needs and wants of their customers, while making a profit.
Profit is created when a business sells its products or services for more than it costs to make or provide them.
It costs Presents $700 for the goods that the store sold on Saturday. It also costs Presents $400 to cover its overhead (the daily costs of doing business, such as rent, utilities, wages, etc.) on Saturday. If Presents made $1400 in revenue (sales) on Saturday, how much profit did they make on Saturday? If you’re not sure, take a guess.
Indicate whether the following statement is true or false, then press Submit to see how you did.
Scenario debrief: Presents
Presents made $300 in profit on Saturday. This image shows how their profit is calculated:
How is a business structured?
There are five functions of a business which typically exist as unique divisions or departments within a medium-sized business. These include the following
A business must offer something, either a product or a service. For example, a greeting card manufacturer produces greeting cards (a product). In contrast, a taxi driver produces a service (transportation).
Consider Sarnia-based gift store, Presents, from the previous example. They produce a service: selling products that other businesses make.
Every business must have a person or people to operate it. An online business may have just one employee, whereas Walmart employs thousands of people worldwide to operate its stores. All the people working in a company are its human resources. Presents has three full-time and five part-time employees that make up its human resources.
Generally the people who run the business perform management functions such as organizing, planning, directing, and controlling the various functions of a business. The manager of Presents, Pam Haughton, is also the store’s owner. Pam is responsible for organizing the inventory, scheduling her employees, directing employee labour, and controlling the store’s finances, among other things.
The accounting department (or individual) records the businesses’ revenue and expenses, pays bills, and controls the “books”. The books are a business’s financial records, which inform the owner(s) about how much the business is worth, its total sales revenue, and how much profit it makes. Pam does much of the accounting herself, but hires a professional accountant during tax season to prepare the store’s taxes for her.
Marketing consists of all the activities involved in getting the goods and services from the original producer to the ultimate consumer. You’ll discover a great deal more about these activities as you continue in the course
For each business function select the corresponding description from the drop-down menu. Then press Submit to see how you did.
What is marketing?
Have you ever wondered how you can use maple syrup at breakfast that was, only weeks earlier, in a tree in Central Ontario? It is marketing that gets it to your breakfast table. However, marketing is not just one thing. It can be many things.
Buying a selection of ties for your menswear store is a marketing activity. Studying your competition to see what style of ties they carry is also a marketing activity. Advertising your new ties is marketing as well. Approaching a customer to show him how great one of the new ties looks with his new suit – that’s marketing too. In fact, anything you do to try to get a product or service from the business that produces it to the person (or business) that uses it is a marketing activity.
Marketing is the total of all the activities involved in getting goods and services from the original producer to the ultimate consumer, including you.
Explore the following video for a brief introduction to the concept of marketing.
There are at least eleven activities that businesses perform that are considered part of marketing.
Research is so important to marketing that many companies have their own research departments. Research discovers what consumers currently want (or tries to discover what they are starting to want), and then makes it for them. Do consumers react well to the smell of a peach? If so, then a company might make a detergent with a peach scent. Are consumers starting to use computer tablets, such as the iPad, more frequently than laptops? If yes, a company might make more stands or cases for computer tablets and fewer laptop accessories. Why do some consumers prefer Brand X over Brand Y? What makes consumers want a new car? How many viewers of The Big Bang Theory saw the company's commercial? Answers to these and many other questions can help businesses make the right decisions regarding the successful marketing of their products or services. Research reveals the answers.
Research and product development are often joined together. Many firms have Research and Development (or R & D) departments whose sole job is to come up with new ideas. Food companies, computer manufacturers, communication companies, and hundreds of other businesses spend a great deal of money trying to keep ahead of the competition and discover the next big thing. For example, Facebook spent $114 million on R & D in 2011 and $1.06 BILLION in 2015 and today has over one billion registered users. Service businesses and retail stores can also do product development by improving their service to customers or offering new services.
When you are pricing a product or service to sell to customers, you need to consider two major things:
1. what selling price will cover your costs and allow you to make a profit
2. what selling price will most of your potential customers pay
Often, the two considerations are in conflict: in order to make a profit you will need to charge your customers more than most are willing to pay (or more than your competitors charge).
A brand is the name and identity of a product. It is often written in a special way. One of marketing's main goals is to develop a brand through several stages. The product or service begins with brand awareness, when marketing tries to establish, or register, the name with consumers. Good marketing leads consumers into brand identification, where advertising and promotion helps consumers recognize the brand and what it stands for.
If the product is successful, it will enter brand preference, where many consumers select the brand instead of another similar product (Harvey’s instead of another fast food hamburger, Tim Hortons instead of another brand of coffee).
Finally, with a successful combination of great marketing and an exceptional reputation, some products enter "brand insistence." A product or service demonstrates "brand insistence" when no other product or service will do. For example, if a store is out of Diet Coke, some consumers will go to another store rather than buy another brand. Services often reach this brand stage. For example, many consumers have a favourite hairstylist or barber. They will wait for an appointment with him or her rather than see someone else sooner.
Often considered part of branding, packaging is by itself an important marketing activity. Its primary function is to protect the product from germs, sunlight, dirt, and breakage. Packaging is considered part of branding because the package displays the brand name and a package's shape can also be identifiable (such as the shape of the old Coke bottle), making it a part of the brand.
Packaging is often called the "silent salesperson." Its bright colours focus a consumer’s attention on the product. The attractive labels, with clear pictures of the product on the front, build interest and create a desire to own the product. The package often provides important information as well, such as the price, or nutritional data for food products.
Many retail businesses place a customer’s purchase in another package: a box or bag with the store’s name on it. This practice is declining, however, as many consumers bring reusable bags with them when they shop.
Promotion consists of all the actions that businesses take to increase sales directly. Promotional activities include coupons, contests, special sales, and samples.
A retail buyer's role in marketing is crucial. For example, as a buyer of chocolate for a specialty chocolate store, you must consider the quality of the product, otherwise your customers will soon disappear. At the same time, you must think about the price. You might also consider these questions:
- Where can I find quality chocolates?
- What are the shipping costs?
- Do I have to buy a minimum quantity, and if so, how many?
- What is the reputation of the seller?
- Do any of my competitors have this product?
Marketers use the answers to these and other questions to determine which company to buy from. That decision can be critical for the store and can affect how the business handles their other marketing activities.
Industrial buyers play a slightly different role, in that they are sourcing materials that the company will use to make other products. For this buyer, a small difference in price can mean a large increase or decrease in profit. Assume that a company such as Tim Hortons uses 100 000 kilograms of flour per week. If the buyer can negotiate a deal with a flour supplier that saves one cent per kilogram, Tim Hortons will make $1000 more in profit. As a result, the company can increase food sales by charging less for its products such as bread, buns, muffins, bagels, and donuts.
When most people hear the word "marketing," they think of advertising, primarily because it is the "face" of marketing to the consumer – the most visual aspect of marketing. Advertising is all around you: on your computer, in your mailbox, on the subway or bus you ride, on your favourite TV show, in your morning newspaper. Many ads provide information about products or services that marketers hope you want to know: What is this product and what does it do? Why should I buy it? How much does it cost? Where can I find it?
Marketers sometimes simply want you to remember the brand name. For example, they might associate a brand with something funny hoping that you will have a positive reaction to the brand because the commercial made you laugh. If the product is demonstrated in a happy family setting, you may remember the brand because you liked the feeling you had when you saw the ad. In other words, advertising doesn’t always tell you something about the product or service, sometimes it invokes a feeling. Companies spend a great deal of money on advertising; Tim Hortons spent almost $200 million in 2010 to promote its coffee, donuts, and other products.
Salespeople are found in different marketing roles. Sales representatives (reps) show their lines to prospective retail and industrial buyers. Sales brokers and agents sell insurance and real estate. Salespeople are essential to car and boat dealerships. Each salesperson interacts with potential customers and helps them make informed buying decisions.
It may be difficult to see transportation as a marketing activity, but how would businesses exist if they couldn’t get the goods and services they need to operate? Transportation plays a crucial role in marketing: delivering fresh oranges from Florida to the juice manufacturer in Quebec; making sure that the order of kettles from China arrives at the Walmart store in Thunder Bay.
Storage is the act of keeping goods safe and available until they are needed. Manufacturers store parts and raw material in their factories. Transportation companies store goods they are getting ready to ship in their storage depots. Importers store the goods they import in large warehouses. Major retail chains store their inventory in big distribution centres. And, retail stores store their products in the store (which is why retail businesses are called “stores”). Storage makes sure that the goods a business needs are ready when they are needed.
Question: Marketing activities
For each marketing activity select the corresponding description from the drop-down menu. Then press Submit to see how you did.
Marketing activities at Presents
Here are just some of the ways that store owner, Pam, demonstrates key marketing activities at her gift store, Presents:
|Marketing activity:||Demonstrated at Presents by:|
|Pricing||Pam recognizes that big box stores may order thousands of boxes of candles and so the manufacturer may give them a substantial discount that it does not provide to a small store like Presents.|
|Branding||Pam stocks some well-known names that are difficult to find in smaller communities such as hers. She does this to entice customers who have a loyalty to particular brands into her store.|
|Packaging||Pam places a customer’s purchase in another package; a box or bag with the store’s name on it.|
|Advertising||Pam buys a quarter-page ad in the local newspaper at least twice a month, which costs about $1000. She feels that advertising attracts both local residents and new customers who are visiting the area.|
|Selling||Pam appreciates the visits that sales reps make when they have insights or something new to show her. She sees each one about once a month. She deals with nearly 30 suppliers, so six or seven salespeople may make appointments with her each week.|
|Transportation||Pam has coffee mugs delivered to Presents from London, England.|
Now, consider some of the additional marketing activities that Pam fulfills at her gift store, Presents.
Select the correct answer, then press Submit to see how you did.
What are retail services?
In this course, you will focus on retail and service marketing, which are somewhat different from industrial marketing. Industrial marketers are interested in selling products to other businesses. For this reason, it is often called business-to-business (B2B) marketing. The majority of marketing activities take place in the B2B sector because there are more business-to-business transactions that require marketing activities than business-to-consumer transactions.
Consider an example using orange juice:
- farm equipment companies, seed companies, fertilizer companies and other agricultural firms market their products to the orange grower
- packaging businesses, machine manufacturers, refrigeration companies, and others target the orange juice manufacturer
- the orange juice manufacturer targets the stores
But, in addition to the stores, the orange juice manufacturer also targets the consumer.
It is a two-pronged approach to marketing, and most major brands market their products this way: selling to both the retail stores and the consumer. When a company like a large orange juice manufacturer sells its orange juice to a major grocery store, this is B2B marketing. When the manufacturer advertises its orange juice to the consumer in magazines or on television, it is business-to-consumer (B2C) marketing.
Retail marketing is primarily B2C while service marketing is often both B2B and B2C. Service businesses that provide personal care and entertainment are B2C services; service businesses such as advertising agencies and transportation companies are B2B. Many provide services to both groups: food and accommodations services, for example, market to both the business traveller and the tourist.
The service industry
Service industries make up the largest and fastest-growing sector of the Canadian economy (the other two are primary industries, such as agriculture and forestry, and secondary industries, such as manufacturing or processing). Service industries (also known as tertiary industries) do not produce things, they perform activities. These are intangible items that you can’t touch or see. Services are things you experience or see the result of, such as a neck massage or a haircut. Paying $10 for admission to an art gallery provides you with the opportunity to see the paintings and sculptures that are there, but you can’t take any of them home.
The following is a partial list of services that businesses (and governments) provide:
- cultural industries (museums, art galleries)
- finance (banks, investment companies, insurance companies)
- real estate, including rentals
- technical services
- food services
- arts, entertainment, and recreation
- health care
- personal care
- public administration (government services)
- repair and maintenance
- retail trade
Can you think of any more?
The retail sector
You may have realized that retail trade is only one part of the enormous service industry. Stores provide a service to both consumers and businesses. Retailers provide a distribution outlet for the goods that manufacturers and importers sell and are a source of those goods for consumers. They bring the buyer (consumer) and seller (chocolate bar manufacturer) together. Imagine how difficult it would be for both businesses and consumers if there were no retailers. You would need to go directly to the manufacturer’s plant to get your maple syrup.
Because retailers do not make the products they sell, they are part of the service sector and not the secondary (manufacturing) sector.
The retail-service mix
Many retailers sell extra services as part of their business, just as many service businesses sell products. Some stores sell alterations, extended warranties, and delivery service as well as goods. Others provide restaurant services inside their largest stores.
The more services retailers offer, the better they can compete with similar stores. Sometimes services may even be offered for free. For example, Presents offers a gift-wrapping service at no charge. Many customers comment that they shop at Presents for this reason.
Can you think of two service businesses that sell products as well as services?
Student Alberto’s answer:
The first service business that I can think of that also sells products is a movie theatre. They sell, and make a great deal of profit from, snacks like popcorn and soft drinks. The second would be hair salons, who sell hair care and beauty products on top of providing hair cutting and styling services.
Retail and service businesses are similar in that they both sell directly to consumers. Service is important to both categories when it means looking after customers in a friendly helpful way. How many times have you decided not to shop at a store or eat in a restaurant based on a previous experience that didn’t meet your expectations? Conversely, how many places do you return to regularly because they provide excellent service and you like shopping there? A business can spend thousands, even millions, of dollars to attract you, but it is good service that keeps you coming back.
What is the marketing mix?
The marketing activities you learned about earlier in this learning activity can be summarized in four major categories that combine to form the marketing mix. The term “mix” indicates how important it is for all businesses to blend their marketing activities in the right combination.
The major categories that are always a part of the marketing mix are referred to as the Four Ps and include the following:
The product mix is made up of activities such as product development, packaging, branding, buying, and product research. When Pam started her gift store business, Presents, she spent time designing a logo, a store sign, and special shopping bags. She also researched what items would make great gifts. As a result, she has a beautiful store, with a distinctive brand, where customers come to find the perfect present for someone.
The pricing mix included marketing activities such as buying, pricing, and competitive research. Pam shops very carefully for the products she sells at Presents, negotiating deals on shipping, payment terms (which often provide an early-payment discount), and other price reductions that will allow her to sell her products at a profit. She is very careful to research the prices other stores charge for similar products to make sure she remains competitive. She also makes certain that her expenses are under control, as they can also affect her profitability.
Place mix includes marketing activities such as transportation and storage. Pam depends on regular shipments from her suppliers, staggered to allow her to have just enough merchandise to fill her shelves and keep some back stock, but not so much that her stockroom is overcrowded.
Pam often gets to choose the method of transportation for her products. A wrong choice can be very costly as it has the potential to delay the arrival of her goods or increase her shipping costs, making her goods no longer competitive. For example, Pam once found some special wicker picnic baskets that came with real china and cutlery in them. They were elegant and she knew they would make a perfect wedding present. The only problem was that they were made in Great Britain. She had two choices, if she wanted the store to carry the baskets: one was to ship by air, which would take a week but cost almost $100 per basket; the other was to ship by ocean freighter, which would cost only $20 per basket but would take eight weeks. Pam found the baskets in May and wanted them for the June wedding season, so she opted for air freight. The baskets cost her $100 each, plus $100 for shipping, which meant she had to sell them for $400. She had ordered four baskets, and sold one. The shipping made them too expensive for most customers. When she reduced the price to $250, she sold them all, but did not make a profit.
The promotional mix includes marketing activities such as selling, sales promotion, and advertising. It is critical that businesses have methods in place to tell people about their products or services, advertise them to the general public, and promote their discounts and sales. If promotion is left out of your marketing mix, potential customers won’t know what you sell, where you are, or even how to buy your products. Presents runs regular advertisements in the local newspaper, which provides customers with the store’s location and hours, and lets customers know what items the store sells. On occasion, Pam runs a special sale to increase business. Presents has friendly, knowledgeable staff who help customers with their gift selections and even gift-wrap the purchases, if asked.
Questions: The marketing mix
For each example of marketing activity select the corresponding marketing mix category from the drop-down menu. Then press Submit to see how you did.
You’ve now had a chance to learn the fundamentals of business and marketing. As you’ve seen, there are many different types of businesses and forms of marketing that exist in the retail and service sectors. Next, you will learn about different marketing products and services and the choices that businesses have to make deciding upon what products and services they will carry.