CIMA E1 Official Learning System - Enterprise Operations Aug 2009

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Finally, knowledge of market segments assists with marketing planning. Dividing mar-

kets up allows organisations to develop plans that give special attention to the particular

needs of customers in different segments. The time scale of such plans can also be facili-

tated because some segments change more rapidly than others and such changes need to

be anticipated in any planning operation. The markets in ladies’ fashions and in recorded

music are examples of rapidly changing markets and of the need to anticipate and to plan

accordingly.

Solution 2

2.1 (B)

2.2 (B)

2.3 (A)

2.4 Marketing mix: a manufacturing ﬁ rm’s ‘blend’ of price, product, promotion, place.

For service organisations other relevant factors include a lack of ‘physical evi-

dence’, because:

●

Services are intangible

●

Potential customers may therefore feel greater risk.

Reassurance is therefore needed. (e.g. testimonials/references from past customers).

2.5

Data Beneﬁ ts

One-off market research data already available Improves problem-solving capacity

Other marketing intelligence Method of structuring decisions

Internal information on products, trends, markets and

competitors, etc.

Integrates all types of knowledge

Maximises IT potential

Total system of marketing information to

support decisions

2.6

●

The market is so insubstantial that the effort is not justiﬁ ed

●

Market life cycle in decline therefore little future potential

●

Difﬁ culty (and cost) in analysing market

●

Homogeneous market making segmentation unnecessary

●

Competitors already established in all proﬁ table segments.

2.7

●

Buyer survey of intentions

●

Sales force forecasts

●

Expert opinion/judgement

●

Statistical techniques using historical sales data

●

Market testing of products

●

Assessing total market potential/sales and relative market share

●

Estimates based on linked factors (e.g. temperate forecasts and heat consumption)

SOLUTIONS TO REVISION QUESTIONS E1

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Solution 3

In the segmentation of consumer markets the availability of information on demographic,

socio-economic and geographic location variables have made their usage popular.

Demographic variables include age, gender, family, race, and religion; socio-economic

variables include income, occupation, education and social class; geographic location vari-

ables include country, region, type of urban area, and type of housing. The use of lifestyle,

motives and personality are also increasingly used for segmentation purposes.

There is no single best way of segmenting a market and few if any market segments can

be regarded as timeless but experience tells us that a number of variables have been found

useful as a basis for segmenting particular markets.

Some of the useful bases for segmenting the market for clothing include the following:

Differences in the clothing worn by males and females is so evident that it hardly needs

to be mentioned. Males and females do, however, wear different styles and items of

clothing so it is necessary to design, promote, price and place male and female cloth-

ing according to the demands in each market segment.

A second useful variable is that of age. Common observation tells us that retailers seg-

ment the population according to age. So it is common in a retail department store

to see not only men’s and women’s clothing displayed separately but also clothing for

children, young teenagers, older teenagers, and young adults to mature adults.

Another variable that may be used is that of occupation. Professional, managerial and

administrative workers tend to wear business suits to the ofﬁ ce while other occupa-

tional groups tend to wear more casual attire.

The clothing market can be segmented by other variables related to occupation such

as income. High-income earners can afford more exclusive and expensive cloth-

ing than middle-income earners who in turn can afford better quality clothing than

low-income earners. The above variables represent the more common bases for

segmentation.

The segmenting of organisational or industrial markets is less frequently carried out than

segmentation in consumer markets but nevertheless, companies ﬁ nd it increasingly useful.

Organisations may segment markets according to personal characteristics of buyers,

situational factors such as urgency and size of order, purchasing approach, technologies

applied by buying organisations, and demographic aspects like location, industry and size.

An example of segmentation according to personal characteristics of buyers might be a

paint manufacturer who segments potential customers into several different groups such as

paint wholesalers, do-it-yourself retail outlets, housing developers, contracting decorators,

and vehicle manufacturers.

Segmenting according to situational factors such as order size can also be illustrated by

the example of the paint manufacturer. The size of container and packaging of the paint

will vary according to the user needs of the customer. Contracting decorators, for instance,

may need large containers, but will not be particularly concerned about packaging, while

do-it-yourself outlets may require containers of various sizes with attractive decoration.

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Solution 4

(a)

Slide 1:

Features of sales-orientated organisations:

●

Aggressive selling, advertising and sales promotion.

●

A concentration on selling not marketing.

●

A strong sales department.

Marketing is about:

●

Supplying what the customer wants.

●

An organisation-wide philosophy.

Notes to Slide 1:

The claim that Hubbles concentrates on ‘selling’ implies that it is not focussed on cus-

tomer needs. Instead of ﬁ nding out what the customer wants, it is trying to sell whatever

items it happens to have in stock.

(b)

Slide 2:

Adopting the marketing concept:

●

focus on potential customer needs (and how these can be satisﬁ ed);

●

greatest opportunity 5 meeting needs (gaps) not currently met;

●

implies market research, competitor product research;

●

possible future benchmarking;

●

NOT a change to the Marketing department: a new way of organisational thinking;

●

training for all staff;

●

management to help by providing the right products and resources.

Notes to Slide 2:

Reorientation means Hubbles to change the way it deﬁ nes and investigates its markets,

prices, products and communication with its customers. The critical people are the front-

line staff that customers come into direct contact with. This customer-led focus should

permeate every department so that the needs of the customer are kept in view at all times.

(c)

Slide 3:

Components of marketing mix:

●

Product. Customers’ product wants and desired characteristics;

●

Place (distribution). Desired quantity available at the right place and time;

●

Promotion. Increasing awareness of products; inform about product features; keep

interest;

●

Price. Is critical and can be used as a competitive tool.

Plus sometimes added for service organisations:

●

People. Staff decisions, image and actions central to the other marketing mix components.

SOLUTIONS TO REVISION QUESTIONS E1

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Notes to Slide 3:

After Hubbles has identiﬁ ed its target market, it will be in a position to develop its market-

ing mix. Components are decision variables that can be changed and Hubbles must decide

how to create and maintain a marketing mix that satisﬁ es consumers’ needs.

(d)

Slide 4:

●

Product. Develop new products, modify/enhance existing ones and eliminate others.

●

Place. Improve inventory, transport and storage to serve market. Well-sited premises

redesigned to reﬂ ect brand, and so on.

●

Promotion. Rebranding, advertising campaigns, using different media to target groups.

●

Price. Revise pricing structure to convey value, or price below competitors.

●

People. Training programmes, monitoring systems and on going support can inﬂ uence

buyer behaviour.

Notes to Slide 4:

Must develop a marketing mix that precisely matches the needs of potential customers in

the target market. First research the market for data about the age, income, sex and educa-

tional level of target market, preferences for product features and attitudes to competitors’

products.

Solution 5

(a) CM’s situation (marketing including ethical issues)

Major challenges

CM is said to be facing three major challenges:

●

increasing competition

●

sales levels that seem to have ‘peaked’

●

the prospect of the retirement of the key decision maker.

Competition: CM is the market leader in breakfast food manufacture in Europe and

Oceania but is facing increasing competition (from North America). CM appears to

have no presence on the other continents, making it an international rather than glo-

bal player. Although diets vary across continents it is likely that the North American

diet (at least) is similar. This means that potentially other ﬁ rms are supplying the

American market and these competitors could be powerful and have the ability to

challenging CM’s leadership in its own markets. CM needs to decide how it responds

to this threat from international competition. There is no information on the basis

upon which CM’s competitors’ marketing mix varies from their own. If an alternative

mix to CM is apparently proving more successful then CM should reexamine their

own mix accordingly (See later).

More positively Q should recognise that potential markets on other continents exist

and these represent opportunities for development.

Sales: Sales levels seem to have ‘peaked’. One interpretation can be drawn from an

understanding of the concept of the market life cycle. When the life cycle of a market

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reaches so called ‘maturity’ stage demand will have reached its limit. If this is the case,

CM should consider new products or new markets before the market life moves into a

‘decline’ stage. In terms of product range CM has a portfolio of twenty product items,

but it unclear how often this range is ‘refreshed’. Reference to potential new markets,

maybe outside Europe and Oceania has been referred to earlier.

Decision making (and Strategic Marketing approach): CM’s founder, as the key deci-

sion maker, is retiring soon. He/she is credited with growing CM to its present size

from a business ‘start-up’ operation. He/She is very ‘hands on’ and has made all the

major strategic decisions to date based on intuition. (It is apparent that there is no

structured strategic marketing plan). The development into another geographical

market typically seems to have resulted through good fortune and market demand

rather than a rational decision-making and promotional efforts. (CM made the

breakthrough into Oceania thanks to a demand from ex-pats and contacts with a

family member who happened to be a director of a supermarket chain in Australia).

Organisationally, it is difﬁ cult to continue operating in this way, particularly with

the retirement of the founder. Although the organisational culture could properly be

described as entrepreneurial CM’s sheer size may mean that some of the spirit is in

any case diminishing.

This can in part be explained by reference to Greiner’s organisational growth model

(1972). Under this model ﬁ rms can experience evolutionary growth that eventually

leads a situation of revolutionary crisis, when the organisation’s ways of doing things

become less effective. The implication of this thinking is that change is unavoidable,

and ways of overcoming each crisis need to be determined for the organisation to con-

tinue growing. Under the model, the ﬁ rst phase of growth is achieved by some crea-

tive idea, product or service that enables the organisation to become established in the

market place. A crisis occurs when the entrepreneur’s informal and personal approach

to managing the business simply cannot cope with its increased size. This crisis of lead-

ership appears to have been reached within CM. If the organisation can adopt more

formal systems of management (in CM’s case strategic marketing), there will be a basis

for further growth through ‘direction’.

Other issues!

Ethical issues. The adverse publicity from an international health ‘watchdog’ body that

claims that CM’s products contain potentially harmful levels of both sugar and salt

raises ethical concerns. CM spends ‘heavily’ on TV advertising and undoubtedly the

target audience for CM’s promotional effort is children as it advertises before and after

childrens’ programmes. The inclusion of small gifts contained within packs and the

association of certain of the products to cartoon characters and expensive packaging

conﬁ rms as much. Children inﬂ uence their parents to purchase the product. The ethi-

cal issues are as follows:

IS it ‘right’ that promotion is based on children placing demands on their parents par-

ticularly if their parent cannot afford to buy the product?

The sugar and salt content are apparently important in achieving a taste that children

like. Is it ethical to manufacture and sell products that might be unhealthy to vul-

nerable children?

SOLUTIONS TO REVISION QUESTIONS E1

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The adverse publicity may impact upon sales. CM will need to decide how it

responds to these claims, for instance:

●

Conduct its own research and possibly challenge the watchdog claims.

●

Discredit the ﬁ ndings and the body making the claims.

●

Modify its product content so there is less salt and sugar present.

●

Increase promotion to compensate any fall off in sales as a result of adverse publicity.

Product nature: there is good reason for believing that the associated features and

packaging are the most signiﬁ cant product feature, speciﬁ cally:

Past research conﬁ rms that children love small gifts contained within packs and the

association of certain of the products to cartoon characters.

Some products are sold as ‘own brand’ alternatives for some large supermarket

chains. Although these sell more cheaply than CM branded products but are less costly

to produce as they contain inexpensive packaging and no free gifts. The minimal sales

underlining the point that packaging and advertising are crucial.

Marketing mix: CM’s current marketing mix has evidently developed over time and

seems to be the product of decisions made by the company’s founder. CM can prop-

erly be described as a ‘marketing-orientated’ organisation as it has a main focus of the

customer (children) and their demands. The mix exhibits in particular product fea-

tures and packaging, promotion through expensive advertising, and (using the ﬁ fth P

of the marketing) the founder as the key person. In terms of place sales are through

supermarkets and based on two continents. The price reﬂ ects high promotional costs

and expensive packaging.

(b) Developing a marketing strategic plan for CM

An important point, particularly given CM’s own position of a lack of formal strategy

and the past inﬂ uence of a single person (the founder), is that a range of people from

within the organisation should be involved. Although marketing specialists might

lead processes all functional areas should participate in developing the strategy. This is

important so that there is ownership, realism and coordination.

In order for CM to develop a Marketing Strategic plan a number of key processes

will need to be undertaken. Some of these processes might be undertaken concur-

rently, and are identiﬁ ed below.

Identify and articulate CM’s corporate objectives and the role that marketing can

play in achieving them.

Conducting an audit of the external environment

This will involve a detailed investigation of:

●

The market for manufactured breakfast food.

●

The market segments which CM is interested in (e.g. European childrens’ eating

habits and preferences).

●

The trends inﬂ uencing the market, typically using a PEST (political, economic,

socio-cultural and technological ) framework for analysis (Other alternative frame-

works might be used including PESTEL which also recognises environmental and

legal factors etc.). A consideration of CM’s position relative to the most signiﬁ cant

factors (including potential realistic ways in which the organisation might inﬂ uence

such factors) should be undertaken.

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●

The activities, strategic capability and strengths and weakness of competitors.

●

Future potential scenarios and tends possibly using industry and other experts.

Conducting an internal analysis

This will clarify what CM wants to achieve over the planning period and its capability

including marketing competences, speciﬁ cally:

●

The identiﬁ cation of the factors that contribute towards CM’s strengths and weak-

nesses. These internal factors are controllable and may lead to the development of

targets.

●

The agreement of corporate aspirations including speciﬁ c marketing objectives and

SMART (speciﬁ c, measurable achievable realistic and time bound) targets.

Synthesis and discussion

Some of the main factors arising from the above processes might be synthesised into

a SWOT (strengths, weaknesses, opportunities and threats) analysis. (SW are internal

and OT are external factors).

Discussions should focus on developing an appropriate mix of marketing factors to

achieve CM’s objectives in the light of earlier analysis; this will include any actions

necessary to bridge gaps between expectations and capability. Speciﬁ cally, the mix will

address future actions relating to pricing issues, promotional activity, place, and prod-

uct features.

Communication and coordination

A strategy can ultimately be developed. It will however need to be carefully coordi-

nated with other functional strategies including Finance, IT and HR.

The strategy should be written, approved by CM’s decision-makers and clearly com-

municated to the workforce. The strategy will include:

●

Clear marketing goals and objectives

●

Targets, measures and performance indicators

●

The costing of the plan and the development of a revenue budget

●

An identiﬁ cation and costing of any capital requirements

●

Identiﬁ cation of strategic alternatives

●

A detailed action plan.

SOLUTIONS TO REVISION QUESTIONS E1

Managing Human Capital

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LEARNING OUTCOMES

This chapter concerns an organisation’s most powerful yet unpredictable asset: its

human resource (HR). It addresses the functional areas of managing human capital

including major developments and associated tools and techniques. By completing this

chapter it should help you to:

䉴 Explain how HR theories and activities can contribute to the success of the organisation

䉴 Explain the importance of ethical behaviour in business generally and for the line

manager and their activities

䉴 Explain the HR activities associated with developing the ability of employees includ-

ing recruitment, selection, induction, appraisal, training and career planning activi-

ties of a project team

䉴 Discuss the HR activities associated with the motivation of employees

䉴 Describe the HR activities associated with improving the opportunities for employees

to contribute to the ﬁ rm

䉴 Discuss the importance of the line manager in the implementation of HR practices

䉴 Prepare a HR plan appropriate to a team.

This should enable you to explain the relationship of HR to the organisation’s operations

and discuss the activities associated with the management of human capital.

5.1 Human resource management and

organisational success

Organisations at their most basic level are nothing more than collections of people. The

policies, procedures and practices associated with people are commonly referred to either

‘personnel’ or ‘human resource’ matters. Since organisations came into being it has always

Managing Human

Capital