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P3 - Business Analysis

Lecture 3
9 March 2015
Strategic Position
1. Corporate Behaviour

Strategic Choice
2. Marketing

Lecturer: Leonard Sammut


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Strategic Strategic Strategic

Position Choices Action

Information Project Financial
Technology Management Analysis


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1. Corporate Behaviour

Capabilities, Corporate This section looks at how organisations

Environment Resources,
determine their objectives and
Competences Behaviour
policies, which play a vital role in
strategic choice. They help prioritise
strategies and eliminate others.



Ethics and CSR

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1. Corporate Behaviour
1.1 Mission Statement
The mission statement is:-

the overriding objective from which all other objectives are set
should consider all stakeholders and aim to satisfy their needs

Purpose Strategy Policies Core Values

The primary reason The general manner Expectations and Feelings and moral
for existence (raison in which the purpose behavioural principles underlying
detre) will be achieved guidelines to shape corporate culture
(corporate strategy) daily decisions

Advantages Criticisms
Helps resolves stakeholder conflicts May be full of meaningless terms like the best

Sets direction and helps strategy formulation Often written retrospectively to justify past actions

Communicates values and culture to employees Often ignored by managers

Aids marketing process by communication with

Might be reduced simply to a PR exercise

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1. Corporate Behaviour
1.1 Mission Statement
Barnes and Noble:-

Our mission is to operate the best specialty retail business in America, regardless of the product we sell.

Because the product we sell is books, our aspirations must be consistent with the promise and the ideals of

the volumes which line our shelves. To say that our mission exists independent of the product we sell is to

demean the importance and the distinction of being booksellers. As booksellers we are determined to be

the very best in our business, regardless of the size, pedigree or inclinations of our competitors. We will

continue to bring our industry nuances of style and approaches to bookselling which are consistent with our

evolving aspirations. Above all, we expect to be a credit to the communities we serve, a valuable resource

to our customers, and a place where our dedicated booksellers can grow and prosper. Toward this end we

will not only listen to our customers and booksellers but embrace the idea that the Company is at their


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1. Corporate Behaviour
1.2 Stakeholders
Objectives are governed by key stakeholders.

Mendelows matrix is a well-known method for mapping stakeholders and their influence using two

The ability to impose The likelihood
on organizational
demands of exercising

Indicators Indicators
Status Personal financial or career
Claim on resources investment
Representation in decision- Absence of alternative
making process Accountability
Legal rights Social impact

Mendelows matrix helps organisation to deal with stakeholders conflicting demands by understanding who the
most important stakeholders are.

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1. Corporate Behaviour
1.2 Stakeholders
Level of Interest

Low High

Keep reassured of the outcome of the Major drivers of change, capable of hindering
strategy strategic plans
High Otherwise, interest level could rise, turning Manage them actively, communicate plans
these into key players and discuss implementation issues
Difficulties arise if key players consist of
competing groups


Easily influenced, accept instructions Keep convinced that strategic plans are
Ignoring ethical considerations, ignore these justified
Low stakeholders Otherwise, they might form alliances with
high power stakeholders

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1. Corporate Behaviour
1.2 Stakeholders
Exam Question Dec 2009 1(c) - Exam Kit 73(c) [Section A Question - 10 marks]
Level of Interest

Low High
Corporate Customers
Medium interest because they can move to Powerful they pay for 60% of students and
another one of the players are switching from one provider to the other
High power they are well-known and a They need to be actively managed and
High distinctive competence of Eroba, if they leave reassured that named training staff will not
students may follow them change especially since Gillian will now leave
Keep satisfied, at least in the short term (first EIoBA
step should be prompt payment) High power (can withdraw certification) and

probably high interest in the standards being

maintained during and after change

Big diverse group High interest (arising from their employment)

Low power and little interest in the transition but low power
Low Minimal effort, arguably can be ignored They are under pressure, evident also from
completely delayed payments
Keep informed to keep them on your side

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1. Corporate Behaviour
1.3 Corporate Governance
Corporate governance refers to how organisations are run and controlled.

A. Need for Corporate Governance

Separation between owners and managers

The principal-agent model states that agents (managers) should act in the best interest of the principal
(owners). However agents may act in their own self-interest at the expense of the principal

B. Aims of Corporate Governance Regulation

Creating a framework to control powerful companies whose interests may not be aligned with national interest
Controlling multinationals, which can dominate local economies
Ensuring that companies are answerable to all stakeholders, not just shareholders
Ensuring that companies are run according to the applicable legal framework
Protecting investors who buy shares in the same way as buyers of other financial investment products

C. The Legal Framework

Companies Act (external audit, appointment and removal of directors etc)

Accounting Standards
Corporate Governance Codes usually based on the comply or explain principle

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1. Corporate Behaviour
1.3 Corporate Governance
C. Principles of Good Corporate Governance
Rights of Equitable Treatment The Role of Disclosure &
Board Responsibility
Shareholders of Shareholders Stakeholders Transparency
Accountability Equal treatment of Recognition of the Timely and Strategic guidance
towards all shareholders, role of all accurate Effective
shareholders including minority stakeholders disclosure on all monitoring and
Adequate redress and foreign Active material matters management
mechanisms shareholders coordination with Full accountability
all stakeholders

D. Strategic Implications of the Increased Focus on Governance

Increasing shareholder power by ensuring that shareholders interest are preserved

Increasing the role of other stakeholders
Greater scrutiny of companies, particularly quoted ones, which might encourage short-termism
Greater scrutiny of mergers and acquisitions
Greater pressure on board of directors to:-
Consider all stakeholders
Formulate strategy and adequately control the business
Conduct adequate risk assessment which might result in excessive risk aversion

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1. Corporate Behaviour
1.4 Ethics and CSR
A. Distinction

Business Ethics and Corporate Social Responsibility are sometimes used interchangeably. However:-

ethics is more concerned with right and wrong the main aim of business ethics is that businesses
should not harm anyone
CSR refers to an obligation or duty towards the people affected by the business through such things
as: training; environmental initiatives; employee and community welfare programs; sponsorships;
contributions to overseas aid and support for educational institutions.

B. Pros and Cons of Being Ethical

Benefits Dangers
Attractive to customers, potential employees and As a differentiating strategy, it is easily copied by rivals
providers of capital
Attractive to potential collaborators and business International business may need different ethical
partners approaches in different markets
Avoids negative press Success often relies on trial and error
Saves time and costs in paying damages and fines and in It typically increases costs
dealing with investigations by regulatory bodies

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1. Corporate Behaviour
1.4 Ethics and CSR
C. The Ethical Stance

Ethical stance is the extent to which organisations exceed the minimum obligations to stakeholders as specified by laws
and regulations. The same ideas apply to CSR.
The only standard to be adhered to is the minimum legal standard
Aim is to maximize profit for shareholders in the current financial year
The social responsibility of a business is simply to make profits, which is ultimately in the
Interest public good

Longer Term The only standard to be adhered to is the minimum legal standard
Shareholder Awareness of other stakeholders because they impact on long-term profit
Interest Additional costs may need to be incurred now for higher future returns

Organisations do not exist solely to make a profit, rather they have a role to play in society
They must take account of all stakeholders interest and explicitly involve all stakeholders
In certain circumstances, shareholders interest must be sacrificed for the greater good of
Obligation other stakeholders

Ideologically driven and aimed at driving ethical social and market change
Shaper of Society Vision is the overriding purpose and the focus of all actions
Shareholders and other stakeholders interest take a secondary role

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1. Corporate Behaviour
1.5 Integrated Reporting
In addition to communicating via the mission statement (which is normally very brief), integrated reported offers
a further, regular approach to communicating values and vision.
It recognises that the organisation is not valued only from a financial perspective and that a wider spectrum of
stakeholders need to be considered in corporate reporting.
It communicates how strategy, performance, governance and prospects, in the context of the external
environment, lead to value creation in the short, medium and long-term

Overview Overview of the organisation, business model and governance structure, including
vision, strategic goals and mission in order to explain how decisions are taken
Operating Context An environmental analysis of the current strategic position
Strategic Objectives, How the organisation aims to create value for stakeholders, the competencies
KPIs & KRIs needed and the manner in which progress will be measured and monitored
Performance Evaluation of performance against KPIs and KRIs as well as a conclusion as to whether
objectives have been achieved
Future Performance Any new objectives for future periods to deal with environmental changes, including
Objectives areas of future possible concern to stakeholders
Remuneration Policies Principles governing remuneration for management
Analytical Commentary Managements conclusions on how the organisation is performing as well as progress
towards achieving its mission
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Strategic Strategic Strategic

Position Choices Action

Information Project Financial
Technology Management Analysis


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Strategic Choice

Generation of strategic options

Evaluation of the options to assess their relative merits and feasibility

Selection of the strategy or option that is to be pursued

Although there are techniques for evaluating options, the choice is likely to be influenced by subjective
elements such as: values of stakeholders, power, culture.

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2. Marketing
Strategic Choice

Strategies for Methods of

Direction for Strategic
Competitive Strategic
Growth Evaluation
Advantage Development

2. Maintaining
Value Chain Competitive
Competitive Benchmarking
Marketing Analysis Strategies

The Marketing



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2. Marketing
2.1 The Marketing Process

Market Customer Market
Targeting Mix
Analysis Analysis Research

A. Market Analysis

Appraising and understanding the current market situation to identify the appropriate marketing strategy by:-

Identifying gaps in the market where consumer needs are not being satisfied;
Looking for opportunities that the organisation can benefit from, in terms of sales and product development.

Porters 5 Forces
Product Lifecycle
Opportunities and Threats

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2. Marketing
2.1 The Marketing Process
B. Customer Analysis


Dividing the customers into groups with similar purchasing characteristics. Each group might require a unique

Traditional Segmentation Value-Based Segmentation

Uses variables such as: Segments on the basis of customer value, that is:-
Geographic (region, country, country size, Revenues customer generates
climate) Costs of establishing and maintaining the
Demographic (age, gender, income, occupation) relationship
Psychographics (personality, lifestyle, values,
Behavioural (benefits sought, usage rates, brand

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2. Marketing
2.1 The Marketing Process
C. Market Research
Determining characteristics of each segment (size, potential, level of competition) Quantitative Forecasting

Primary research collection of original primary data (interviews, questionnaires,

observations, experiments);
Secondary research collection and analysis of existing research.

It is important to understand:-

Motivation - the customers selection process, benefits sought, objectives and the general changes in customers
motivation in buying the products.

Unmet Needs - why customers are dissatisfied and why they are changing brands and suppliers.

D. Targeting

Selecting which segment/s to target and how to target the selected segment/s

Undifferentiated marketing one product for one market, no attempt to segment e.g. sugar
Differentiated marketing different products developed for different segments e.g. Toyota
Niche or target marketing specialising in one or two of the identified segments e.g. Ferrari

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2. Marketing
2.1 The Marketing Process
E. Marketing Mix Strategies

Marketing mix is the set of controllable variables used to influence the buyers responses.

Product Price Promotion Place

Branding Level Advertising Distribution channel
Packages Discounts Sales promotion Distribution
Features / Options Allowances Public relations coverage
4Ps Outlet locations
Quality Payment terms Personal selling
Service Sales territories
Style appeal Inventory levels
Warranty Inventory location

3 additional Ps have developed because of e-marketing (marketing using IT) and are particularly relevant for
services. However, e-marketing affects the other 4Ps as well

People Process Physical Evidence

7Ps Adequately trained staff Order & Payment Website layout
Support services Delivery Website navigation

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2. Marketing
Exam Question June 2008 3(b) - Exam Kit 33(b) [Section B Question 15 marks]
Product Use web casts and pod casts. Such courses might be fully on-line or the new technologies might be
integrated with older ones, such as workshops and offline assignments, to provide a varied approach
Instead of allowing only sampling of the material, have sample videoed sessions available on the web
so that prospective customers can judge the training sessions
Allow candidates to pay a fee per manual, with a discounted fee for buying the whole set. Some
student would lack the confidence to buy the whole set and others might not need it as they would
have accessed AECs web-site only after passing some of the exams.
Consider product bundling - offering further products and services to complement core products. e.g.
travel booking, accommodation services to accountants attending CPD courses.

Price Adopt differential pricing in different countries to reflect local conditions

Internet makes it easier to adopt dynamic pricing (early bird discounts, cheap late bookings)
Be aware that internet makes pricing more transparent and the consequent dangers
Different pricing strategy for training manuals e.g. charge students on demand pay per use
Discounts for customers who book online as it saves administration costs
Promotion Promote the website through other traditional media (TV, radios) and use the allocated 50% of the
budget to promote it through technology: search engine optimisation, pay per click, banner
advertising, viral marketing
Place The dates and locations of training courses, is globally accessible but only really relevant to people
living in the geographical regions near to the training centres
Use the technology discussed under the product heading to increase global reach.
Process Use internet to book training courses and to offer post-sales support. This would free up the
companys administrative resources as well as providing a better service to customers and exploiting
the Internets independence of location
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2. Marketing
2.2 Pricing
A. Pricing Objectives B. Practical Pricing Methods
Break even to cover a short- Launching product with a high price to
Survival Price skimming
term crisis (e.g. recession) skim off those willing to pay more
Negotiated pricing Price agreed through bargaining
Achieve longer term profit Full cost plus, marginal costs plus, target
Profits Cost plus pricing
objectives ROI
One product sold at a loss in the hope of
Return on Loss leaders
Achieve target ROI selling others profitably
Where customers must buy two products,
Captive product
Achieve a certain market one is sold cheap to attract customers, the
Market pricing
share by pricing below other is expensive
competition Penetration Pricing Low price to gain market share
Bring in cash and alleviate Periodic
Cash Flow Temporary reduction for limited period
cash flow problems Discounting
Going rate pricing Price that matches competitors
Maintain existing (often
Status Quo mature) position with no Low priced model to attract customers to
Bait pricing
price competition higher priced models
Prestige Pricing High price to reflect/create quality image
Product Promote quality image by
Quality pricing high Complementary products packaged and
Bundle pricing
sold for one price

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2. Marketing
2.2 Pricing
C. Economic-Based Pricing

Based on assumptions regarding demand and supply and the interaction between these two factors. From a
marketing perspective, the focus is on demand.

1. Demand Based Pricing

Changing price to fit demand.

Low demand: low price ------ High demand: high price
Examples gym membership: off peak vs peak; hotel rooms cheaper in winter

Changing price to influence demand

Depends on price elasticity of demand
If demand hardly changes with a small change in price Demand is Inelastic
If demand changes considerably with a small change in price Demand is Elastic

Price Elasticity of Demand =

% change in quantity demanded/ % change in price
0 0 to 1 1 1 to
Perfectly Inelastic Unit Elastic Elastic Perfectly
Inelastic Elastic
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2. Marketing
2.2 Pricing
C. Economic-Based Pricing

2. Profit Maximisation
Setting the price where marginal revenue = marginal costs or marginal profit = 0

3. Revenue Maximisation
Setting the price where marginal revenue = 0
Total Total Total Marginal Marginal Marginal
Price Demand
Revenue Cost Profit Revenue Costs Profit
70 3 210 120 90 - - -
65 4 260 160 100 50 40 10
60 5 300 200 100 40 40 0 Maximum
Maximum Profit
50 6 300 240 60 0 40 (40)
40 7 280 280 0 (20) 40 (60)

D. Conclusion

The main pricing considerations are: costs, customers, competitors, corporate objectives

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2. Marketing
2.2 Pricing
Exam Question Dec 2011 4(a) - Exam Kit 8(a) [Section B Question 15 marks]

Pricing Pricing objective needs to be aligned with the strategic objectives

Objectives ATL has differentiated itself by charging high prices for high quality training (prestige pricing)
The same approach can be used for the e-learning product.
However, other objectives would need to be considered including:-
The objective of providing a cheaper route to qualification
The desire to exploit a global market, including in less developed countries

Customer Three distinct customers in mind

Considerations Individual customers worldwide (B2C), particularly in less developed countries. They are more
sensitive to price (demand is elastic) although no data to measure elasticity is available
The target market in Eothen (top 500 companies i.e. B2B) is reducing training spend due to
recession. Data is available to forecast training spend. They may expect discounted prices for
bulk purchases (negotiated princing)
Training brokers who get a reduced fee and then add their profit margin. This margin needs to
be factored in the pricing decision

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2. Marketing
2.2 Pricing
Exam Question Dec 2011 4(a) - Exam Kit 8(a) [Section B Question 15 marks]

Cost Costs need to be understood better, including ATLs attitude to recovering costs
Considerations E-learning likely to have low variable costs, thereby it would make sense to focus on maximizing
Difficult to predict overheads (such as cost of support) as they will depend on demand and the
quality of the product likely to behave as stepped fixed costs
The costs of product development have already been incurred and can be considered as a sunk
cost. However, ATL might attempt to explicitly recover its investment in the product.

Pricing It can consider penetration pricing, cost plus pricing and it must keep in mind the cost of
Strategy/ classroom training (reference pricing)
Methods Negotiated prices seems feasible for brokers (already in use) and business customers
It can also consider differentiated pricing charging a lower price to customers in developing
It can also consider bundling bundling in the examination fee and trying to negotiate a reduced
price with ISD

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2. Marketing
2.3 E-Marketing
A. The 6 Is
The 6Is of marketing summarise the difference between new media and traditional media

Interactivity Intelligence Individualisation

Two-way communication - Unlike Low-cost methods of collecting
Communication can be tailored to
traditional push media, the marketing information about
the individual and website
customer usually seeks information customers and tracking their
experience can be personalised
on the pull web media activities

Customers can respond to offers
Industry Structure Independence of Location
publicised in other media or use the Relationship between a company and
Internet gives possibility of global
website to support purchases not its partners can be dramatically
communications, reaching markets
done through the internet. Websites altered. Moreover, re-intermediation
that were previously inaccessible
can also have integrated direct and disintermediation can occur
response facilities.

Disintermediation: buyers buy directly from the manufacturer, by-passing wholesalers and retailers
Re-intermediation: new intermediaries have emerged e.g. E-Bay

B. E-Branding

Web-site design, corporate branding, e-commerce and search engine optimisation are critical components in
building a companys e-branding
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2. Marketing
Exam Question June 2008 3(a) - Exam Kit 33(a) [Section B Question 15 marks]
Interactivity Push vs pull
Internet allows a long-term dialogue to develop with the customer
Currently, this is restricted to collecting information for people who wish to view
downloadable study material.
This is too restrictive and it will probably exclude all the potential CPD customers. AEC should
find ways for visitors to register their details to improve 30% rate of run seminars
Individualisation AEC currently uses a generic web-site mass customisation
Content can be customised to reflect the two market segments the global accounting
company vs other students or professional education vs CPD students
Also, individuals can have the content customised depending on the stage of qualification they
currently are. Customised content should focus on relevant information only
Intelligence Internet allows relatively cheap collection of data about customers requirements (through
analysis of web logs).
Internet allows measurement of conversion rates - how many accesses are turned into actual
sales, which may be an important source of information
AEC does have some data but does not know how often their training course catalogue is
accessed and which pages are looked at. Such analysis would allow AEC to focus on particular
products or services.
Independence of Internet provides independence of location allowing the company to move into geographical
location areas that would otherwise have been unreachable
Global accounting company contract would not have been possible without the internet
Integration A direct response facility may be set up - customer chat line
Customers can respond to adverts published on other web-sites (through link building) or
adverts in traditional media
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2. Marketing
2.4 Customer Relationship Management
The objective of CRM is to increase customer loyalty in order to increase profitability
It is an approach to building and sustaining long-term business with customers
It emphasises relationship marketing as opposed to transactional marketing

Transactional Marketing Relationship Marketing

Orientation to single sales Orientation to customer retention
Discontinuous customer contact Continuous customer contact
Focus on customer value, customer service and meeting
Focus on product features
customers expectations
Long time scale (especially value of customers
Short time scale
purchasing lifetimes - Customer Lifetime Value).

It involves four key marketing activities - The Customer Lifecycle

Selection Acquisition Retention Extension

Defining types of Forming relationships Keeping existing Increasing the range of
customers being with new customers customers products bought by
targeted, understand Focus is on service customers and hence
their value and decide quality at minimum the customer lifetime
how to reach them acquisition costs values

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2. Marketing
2.4 Customer Relationship Management
Customer Acquisition

Online Techniques
Search Engine Improving position in search engine listings for key terms and phrases e.g.
Search Optimisation through link building
Pay per Click Displaying adverts in search engine results as a sponsored link
Trusted Feed Feeding a websites online inventory onto search engines database
Media Alerting Services Using online media and journalists for press releases
Online PR Portal Representations Ensuring presence on portals (gateways to information and services)
Business Blogs Using online journals to showcase employees expertise
Link building Creating reciprocal links to/from sites with quality content
Affiliated Marketing Paying commissions to sites that link to own site
Sponsorships Sponsoring a particular website
Co-Branding Labelling products with two brand names (e.g. motor insurance)
Aggregators Including products in comparison sites
Interactive Adverts Interactive banners using rich media (e.g. animation, overlays)
Viral Marketing Using a clever idea in an e-mail to ensure that it is widely circulated
Others Opt-in e-mails, online communities

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2. Marketing
2.4 Customer Relationship Management
Customer Retention
The key to retaining customers is customer satisfaction through the following drivers

Tangibles Reliability Responsiveness Assurance Empathy

The appeal of Ability to deliver Willingness to Knowledge and Individual
physical facilities, the promise help customers courtesy of attention makes
communications, dependably promptly employees, customers feel
websites Ease of Fast websites, ability to inspire understood
Design of connection to quick responses confidence Personal human
websites, content websites, no to requests Quality of online contact,
quality, update downtime, ease responses, personalisation of
frequency of use security of website and e-
information mails

Online techniques to retain customers

Mass Online
Personalisation Extranets Opt-in E-mail
Customisation Communities
Individualised Customised Available solely Asking customers Creating
content through content to groups for customers, to whether they discussion forums
web-pages or e- of users through provide additional would like to where customers
mail web-pages or e- services and receive offers and create content.
mail information information via e-

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2. Marketing
2.4 Customer Relationship Management
Customer Extension
Re-selling Selling products similar to previous sales
Cross selling Selling products closely related to previous sales
Up selling Selling products that are more expensive than previous sales

Propensity Modelling Sense, Respond, Adjust

Evaluate customer behaviour and make Sense - Monitor customer activities;
recommendations to them for future products. Respond with timely, relevant communications
Normally involve monitoring products typically to encourage desired behaviours;
bought by customers and then enticing Adjust - Monitor responses and change future
customer - Customers who have bought... also communications accordingly.

Software Solutions

Software plays a key role in CRM. It can organise, automate and synchronise marketing and sales actions.

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2. Marketing
2.4 Customer Relationship Management
Exam Question Jun 2013 3(b) - Exam Kit 37(b) [Section B Question 10 marks]

Acquisition CT has recognised expertise in the difficult and dangerous task of chemical distribution where
there is a need for compliance with stringent and emerging legislation.
Without disclosing sensitive information, the website needs to provide examples of this,
including if possible testimonials from established customers
Constantly updated technical information would tempt people to return to the site.
All the above will suggest to potential customers that CT would be a worthy business partner.
It has to be recognised that it is a B2B website and that no contract will be entered into as a
result of the website alone. It is about building up confidence that may lead to a contract
Website should look professional and should be advertised on-line (sponsored links, search
engine optimisation) and in off-line media (relatively simple due to finite set of customers)

Retention A system to request and track deliveries is, at the moment, crucial for customer retention
Website has to be reviewed to explore possibilities to enhance the service it offers and to
assist in the long-term retention of customers.
Customers might be offered a service which helps them plan deliveries to help minimise
distribution costs. This is potentially even more valuable if it can assist in distributing
chemicals directly to the end customer, hence avoiding wholesaler storage costs.
Payment for the delivery might also be organised through the website
Customer retention is improved by integrating the systems of the supplier and the end
customer, which would make it difficult for CTs customers to switch.
Providing valuable management information on-line to help customers run their business
more effectively can also enhance retention

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Further Work
File aCOWtancy

Chapter 4 Chapter 2
Internal Analysis
Marketing and the
Value of Staff

Past Papers Exam Kit Past Papers Exam Kit

Mission Statement Marketing
Jun 2012 - Question 1(c) Question 70(c)
Dec 2012 Question 2(b) Question 9(b)
Integrated Reporting
Dec 2013 Question 3(b) Question 34(b)
- Question 46(b)
Dec 2013 - Question Question 35(a)
Ethics and CSR
Dec 2002 - Question 1(d) Question 71(d) Jun 2010 - Question 1(c) Question 68 (c)

Stakeholders Jun 2014 - Question 2 -

- Question 3

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