| Small enterprise development: in-service mining manual |
|Session 7: Introduction to marketing concepts|
The following information is intended to explain the complex marketing relationships represented in the Marketing Flows handout.
1. The Producer-Consumer Relationship
Since the choice of product originates in the relationship between producers and consumers, in the form of market studies to measure the level of demand, begin with that relationship.
Producer to Consumer A - Some consumers can be reached directly (in this case, and individual purchaser) by the producer. Of course, some individuals prefer going to convenient retail outlets. An example of a direct sale would be when a consumer goes to the workshop to buy the carpenter's products.
Producer to Consumer B - Other customers will only purchase through retail outlets. It is not worth the effort for some consumers to go to the workshop -they would be willing to pay a little more to be able to purchase the product nearby. Some consumers are so large that they prefer all logistics be done by retailers (for example, schools or other institutions).
Producer to Consumer C - Some consumers offer the producer a longer term commitment, a larger scale of business, and other special advantages. These relationships may take more time and resources to develop, but the potential payoffs are greater. One example is government agencies.
Producer to Consumer D - Some consumers used to purchase the business' products, but have stopped doing so. The reasons for the change should be determined, so that Consumer D will resume buying the product and so that others won't quit for the same reasons.
Producer to Consumer G - There are always new POTENTIAL clients floating in the market. For a number of reasons they are not currently buying any products from the producer or competitors. It could be they don't see the need, don't understand all the benefits of the product, or don't think they can afford it. The reasons for their lack of involvement can tell the producer a lot about how to design, modify or advertise to increase sales.
Competitors to Consumer E - Some consumers are loyal to the competition's products. A better understanding of this loyalty can tell the Producer about how to win them over, and may suggest ways to increase loyalty among their own consumers.
Substitutes to Consumer F - Other consumers meet their needs with different products. For instance, many people buy handkerchiefs rather than kleenex. Advertising and pricing changes could win some of them over to what the producer is offering.
2. The Producer-Competitors Relationship
There are also a number of productions choices that reflect internal decisions on the part of the managers. These have been labeled as "Value Added Options" on the Marketing Flows Handout. In other words, the firm can make a basic product, or can enhance the finished product by providing special services (e, a. insurance, transportation) and/or refinements (e.g. special packaging). While raising the price and need for labor specialization, these can also increase the profit potential.
Accompanying Services - The producer can offer to deliver something through the mail, or offer to provide training, assembly, a limited warranty, etc. These services increase the value added to the end product by the producer, so the price can be justifiably higher.
Packaging - This component of the end product can decrease the chance of breakage, increase "shelf life", make the product more attractive and even give the product a higher resale value. Just as with "Accompanying Services" above, it reflects a conscious decision on part of the producer.
Transportation - The producer can make it more appealing for consumers to buy his product by delivering it to the house, to a nearby store, etc.
Advertising - This can also add to the perceived value of the product (and therefore the price that can be charged) by informing consumers about all the benefits of the product. Telling people that your product is "long-lasting", "preferred by nine of ten doctors", etc. costs money, but also attracts more interested consumers.
3. The Producer-Suppliers Relationship
An additional fide of the marketing equation is the relationship between the producer and primary raw materials suppliers. Since this directly affects the costs of production, choices in this area can have a decisive impact on the financial success of a business or project.
Producer to Primary Supplier Raw Material A - The producer may have a secure link to some producers, preferring them because of their location, reliability, family ties, quality of output or other reasons.
Producer to Primary Supplier Raw Material B - Other inputs that are required for production may be in scarce supply, and the producer may have to bid against competitors for the materials.
Producer to Supplier C - There are also inputs that could be used, although they are not the preferred inputs for technical or economic reasons. This relationship is represented by a dotted line because it is something the producer should be aware of, although he may never have to resort to it. It could be that competitors are already making use of this supplier.
Producer to Potential Secondary Sources - The producer should also know about other options for each of the critical inputs. If there's a sudden shortage, this could give him a decisive edge.
4. The Producer -External Forces Relationship
A final relationship is the link between the producer and external forces, including economic forces beyond his control, political decisions, institutional ties, environmental issues, and the like. These forces may set arbitrary limits on what can be produced, how much can be charged for it, when and where it may be sold, and what level of quality is required.
In the face of such forces, the producer may decide to develop special relationships to insulate his business from sudden shifts, or may attempt to unite with competitors so that they as a group can have more control over the situation.
Of course, it is also important to realize that these external forces also impinge upon the choices and behavior of other actors in the marketing flows system (consumers, suppliers, and makers of substitutes).