FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing

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StrategicManagement MGT603

Lesson 14

FUNCTIONS OF MANAGEMENT

Objectives:

Afterreading this lecture, youwill be able to know about the functions of management andhow firm

formulatestrategies in order to performthese functions.

Marketing:

Marketingcan be described as the process of defining, anticipating, creating, and fulfillingcustomers'

needsand wants for products andservices.

There are seven basic functions of marketing:

(1)Customer analysis,

(2)Selling products/services,

(3) Product and serviceplanning,

(4) Pricing,

(5)Distribution,

(6)Marketing research,and

(7)Opportunity analysis.

Understanding these functions helpsstrategists identify andevaluate marketing strengths andweaknesses.

CustomerAnalysis

Customeranalysis--the examination and evaluation of consumerneeds, desires, andwants--involves

administering customer surveys, analyzingconsumer information, evaluating marketpositioning strategies,

developing customer profiles, and determining optimal market segmentationstrategies. Theinformation

generated by customer analysis can be essential in developing an effective mission statement.Customer

profilescan reveal the demographiccharacteristics of an organization'scustomers. Buyers,sellers,

distributors, salespeople, managers, wholesalers,retailers, suppliers, andcreditors can all participate in

gathering information to identify customers'needs and wantssuccessfully. Successfulorganizations

continuallymonitor present andpotential customers' buyingpatterns.

SellingProducts/Services

Successfulstrategy implementation generallyrests upon the ability of an organization to sell some product

or service. Sellingincludesmany marketing activities such as advertising, sales promotion,publicity, personal

selling,sales force management, customerrelations, and dealerrelations. These activities areespecially

critical when a firm pursues a market penetration strategy. The effectiveness of various selling toolsfor

consumerand industrial products varies.Personal selling is mostimportant for industrialgoods companies,

and advertising is most important forconsumer goods companies.Determining organizational strengths

andweaknesses in the selling function of marketing is an important part of performing an internalstrategic-

management audit.

Withregard to advertising products andservices on the Internet, a newtrend is to base advertising rates

exclusively on sale rates. This new accountability contrasts sharply withtraditional broadcast andprint

advertising that bases rates on the number of persons expected to see a given advertisement. The newcost-

per-saleonline advertising rates arepossible because any Website can monitor whichuser clicks on which

advertisementand then can record whether that consumer actually buys the product. If there are no sales,

then the advertisement is free.

Themost popular type of Internetadvertisement is the banner. However,many people just ignore online

banneradvertisements.

Product and Service Planning

Productand service planning includes activities such as test marketing; product and brand positioning;devising

warranties;packaging; determining product options,product features, productstyle, and product quality;

deleting old products; and providingfor customer service. Product and service planning is particularly

important when a company is pursuing product development or diversification.

One of the most effective product andservice planning techniques is testmarketing. Testmarkets allow an

organization to test alternative marketing plans and to forecast future sales of new products. In conducting

a test market project, an organization mustdecide how many cities to include, which cities to include, how

StrategicManagement MGT603

long to run the test, what information to collect during the test, and what action to take after the testhas

beencompleted. Test marketing is usedmore frequently by consumergoods companies than by industrial

goodscompanies. Test marketing canallow an organization to avoidsubstantial losses by revealingweak

productsand ineffective marketing approaches before large-scale productionbegins.

Pricing

Five major stakeholders affect pricingdecisions:

Consumers,

Governments,

Suppliers,

Distributors,

Competitors.

Sometimes an organization will pursue a forwardintegration strategy primarily to gain better controlover

pricescharged to consumers. Governments canimpose constraints on pricefixing, price discrimination,

minimumprices, unit pricing, priceadvertising, and price controls.

Competing organizations must be carefulnot to coordinate discounts, credit terms, or condition of sale;not

to discuss prices, markups, andcosts at trade associationmeetings; and not to arrange to issue new price

lists on the same date, to rotate lowbids on contracts, or to uniformlyrestrict production to maintain high

prices.Strategists should view pricefrom both a short-run and a long-run perspective, because competitors

cancopy price changes with relative ease. Often a dominantfirm will aggressively matchall price cuts by

competitors.

Withregard to pricing, as the value of the dollar increases, which it has been doing steadily,U.S.

multinationalcompanies have a choice. They can raise prices in the local currency of a foreigncountry or

risk losing sales and marketshare. Alternatively, multinational firms can keep prices steadyand face reduced

profitwhen their export revenue is reported in the United States in dollars.

Distribution

Distributionincludeswarehousing, distribution channels,distribution coverage, retail sitelocations, sales

territories, inventory levels andlocation, transportation carriers,wholesaling, and retailing. Mostproducers

today do not sell their goods directly to consumers. Various marketing entities act as intermediaries; they

bear a variety of names such as wholesalers,retailers, brokers, facilitators, agents,middlemen, vendors, or

simply distributors.

Distributionbecomes especially important when a firm is striving to implement a market development or

forwardintegration strategy. Some of the most complex and challengingdecisions facing a firmconcern

productdistribution. Intermediaries flourish in our economy because manyproducers lack the financial

resourcesand expertise to carry out direct marketing. Manufacturers who could afford to sell directly to the

publicoften can gain greaterreturns by expanding and improvingtheir manufacturing operations.Even

General Motors would find it very difficult to buy out itsmore than eighteen thousand independent dealers.

Successfulorganizations identify andevaluate alternative ways to reachtheir ultimate market.Possible

approaches vary from direct selling to usingjust one or many wholesalersand retailers. Strengthsand

weaknesses of each channel alternative should be determined according to economic, control,and adaptive

criteria. Organizations should consider the costsand benefits of various wholesalingand retailingoptions.

They must consider the need to motivate and control channelmembers and the need to adapt to changes in

the future. Once a marketing channel is chosen, an organization usually mustadhere to it for an extended

period of time.

MarketingResearch

Marketing research is the systematic gathering, recording, andanalyzing of data about problems relating to the

marketing of goods and services.Marketing research can uncover critical strengths and weaknesses,and

marketing researchers employ numerous scales,instruments, procedures, concepts,and techniques to gather

information.Marketing research activities support all of the major business functions of an organization.

Organizationsthat possess excellent marketing research skills have a definite strength in pursuing generic

strategies.

StrategicManagement MGT603

OpportunityAnalysis

Theeighth function of marketing is opportunityanalysis, whichinvolves assessing the costs, benefits, and risks

associatedwith marketing decisions. Three stepsare required to perform a cost/benefitanalysis:

Compute the total costs associatedwith a decision,

Estimate the total benefits from the decision,and

Compare the total costs with the total benefits.

As expected benefits exceed totalcosts, an opportunity becomesmore attractive. Sometimes the variables

included in a cost/benefit analysis cannot be quantified or even measured,but usually reasonableestimates

can be made to allow the analysis to be performed. One key factor to be considered is risk.Cost/benefit

analyses should also be performed when a company is evaluating alternative ways to be sociallyresponsible.

MarketingAudit Checklist of Questions

Similarly as provided earlier formanagement, the following questionsabout marketing arepertinent:

1. Are markets segmented effectively?

2. Is the organization positioned well amongcompetitors?

3. Has the firm's market sharebeen increasing?

4. Are present channels of distribution reliable andcost-effective?

5. Does the firm have an effective sales organization?

6. Does the firm conduct marketresearch?

7. Are product quality andcustomer servicegood?

8. Are the firm's products andservices priced appropriately?

9. Does the firm have an effective promotion, advertising, andpublicity strategy?

10.Are marketing planning and budgeting effective?

11. Do the firm's marketing managers haveadequate experience and training?

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