Marketing

Higher/Int 2 Business Management

2009 - 2010

What is a market?

• Meeting place for buyers and sellers– examples include shops, restaurants, telephone

• Consumer Markets - individuals purchasing goods/services for their personal use

• Industrial Markets - organisations purchasing goods/services to use in the production of other goods/services

What is marketing?

• Market Research• Promotion and Advertising• Direct Mail • Preparation of Publicity Material• New Product Development• Branding

Definition of Marketing

“The process involved in identifying, anticipating and satisfying consumer requirements profitably.”

The Chartered Institute of Marketing

Role and Importance of Marketing

• Raise awareness of product/service

• Raise awareness of the organisation

• Target new and Retain existing customers

• Find out what customers want

• Monitor changing tastes/trends/fashions

• Allow an organisation to meet strategic objectives (long-term aims)

Strategic Objectives

Covered in detail later in the course …

Examples:• To increase or maximise profits• To increase market share• To extend the life of a current brand• To become the market leader• To increase the product portfolio

Marketing in Action

• A local authority may want to increase public use of certain facilities

• A charity may want to increase donations or raise awareness of the plight of others

• The police may want to raise awareness of certain campaigns and reduce crime figures

• A local business may want to increase profitability by making customers more aware of their product/services

Identifying Consumers’ Requirements

• Encouraging repeat purchases

• Ensuring that a product/service continues to meet consumers’ needs

• Identifying price and quality demanded

• Considering prompt delivery, packaging and after-sales service

Anticipate Consumers’ Requirements

• What will be wanted in the future?

• Especially important when fashions/trends change eg clothes/toys

• Also important in the case of technology

• Must develop products to stay ahead of competition

Satisfy Consumers’ Requirements

• Businesses are often said to be consumer focused - without consumers the business would fail

• Good quality and value for money are essential

• Prompt delivery, after-sales care and price are crucial

Profitability?

• Some organisations use marketing where profitability is not an objective

• Examples include schools and hospitals

American Car Industry

• American manufacturers tended to ignore trends taking place in the rest of the world where small, economical vehicles with lower engine capacities were capturing an ever-increasing share of the market.

• American vs Japanese beliefs over the market in America

• 1970s - fuel, labour and raw material costs made American cars expensive to buy and run.

Swatch

• 1980s - well executed marketing plan

• An inexpensive, good-quality quartz analog watch could rival the saturated digital market

• Watches were to be a fashion accessory first and a watch second

• Repeat purchasing was encouraged

• Point of Sale was chosen carefully - not to flood the market

• Marketing is far more than just selling the product.

• It is concerned with what is to be sold, how it is to be sold, when it is to be sold and where it is to be sold.

Assessing the Market

• Where are the consumers?

• How many consumers are there?

• Attitudes and Preferences of consumers

• Effective distribution methods

• Strengths and weaknesses of competitors

Product-Orientated Organisations

• Feeling of no need for change or product development – no real competition

• May be a new invention

• Might be strong advertising eg Henry Ford: “customers can have any colour they want as long as it is black”

Customer-Orientated Organisations

• Modification of products or services in response to changes in the market

• Profits/success depend on meeting customer needs

• 1980s and 1990s – customers became more knowledgeable as to what was available on the market and the level of competition increased.

• Consider the customer before production commences

Apple iPod

What factors might have influenced Apple to launch its iPod range?

BS p142 Q1

Apple iPod

• Developments in technology

• Changing tastes and fashions eg downloading

• Competition

• Economic growth – disposable income

The Marketing of Products and Services

• Marketing also applies to industrial goods and services!

• Crucial considerations– Performance and quality– Link between buyer and seller closer– Branding may be less common

Service? What Service?

• Intangible – can’t be handled or tested

• Sold and consumed at the same time

• Perishable – can’t be stored

• Quality may be variable even in a controlled environment eg McDs

• CONCENTRATE MARKETING ON QUALITY

The Marketing Environment

THE MARKET

Competition The Economy

TechnologyGovernment

Consumer Trends and Behaviour

The Consumer

• Why buy one product rather than another?– Age– Gender– Disposable Income– Household status– Social Class (see pp13-15 notes for

tables)

Tastes, Fashion, Lifestyle

• Persuasive power of advertising and promotion

• A life-style is a behaviour pattern adopted by a particular community

• Health and nutrition awareness

• Environmental issues

The Government

• Legislation and economic policy

• Consumer protection laws – including our statutory rights

• Minimum standards in manufacture

• Deregulation of financial services

Technology

• The creation of new markets and the decline of others

Economic Forces

• Low interest rates have fuelled the housing market and consumer demand for goods and services

• Recently this has been affected by “the credit crunch”

Market Segmentation

“the breaking down of markets into increasingly homegeneous sub-groups that can be targeted with a specific marketing mix”

Kotler

Why Segment?

• Meet buyer requirements more closely

• Advertising and promotion more focused

• Specialise in particular segments

• Achieve higher sales

• Increase profits

Methods of Segmentation

• Age• Gender• Socio-economic group• Education level• Income• Religion• Ethnic grouping• Family structure• Residential area• Lifestyle preferences

– (hobbies, political, values & opinions)

Personal Selling

• Even the smallest segment may have thousands of potential customers

• A standardised marketing package cannot hope to have equal appeal to every single individual.

Niche Marketing

• Aiming a product at a small market segment

• Examples:– The Whisky Shop– Saga– Aston Martin

• Allows:– Expertise to be built in product or customer– Avoids competition

• Risk of failure – reliance on a small group of customers

Working Lunch – Lunch Lessons

Vinyl Records

Niche Marketing

Having a High Market Share

• Power to buy raw materials in bulk

• Special components – can make them themselves

• Research and development – profits reinvested

• Economies of scale

Differentiated Marketing

Involves providing different products and services for particular segments

Undifferentiated Marketing

• Involves aiming products and services at the population as a whole without producing different products for different market segments

eg Heinz Beans

Market Research

The systematic gathering, recording and analysing of data about an organisation’s products and/or services and its target market

Why Market Research?

• To anticipate changes in customer tastes

• Keep ahead of competition

• Meeting customer needs

• Correct pricing and promotion

• Correct distribution chain

• Attract new market segments

What Information is Provided?

• Size and nature of target market

• Age, sex, income and preferences of customers

• Effectiveness of selling/advertising methods

• Customer opinions

• How a test product could be improved

Market Research Methods

•Field Research

•Primary Information

•Desk Research

•Secondary Information

Personal Interview

Advantages

• 2-way communication

• Encourage answers

• Misunderstandings resolved

Disadvantages

• Expensive (time and training)

• Home interviews are unpopular

Focus Groups

Advantages

• Qualitative information gained

Disadvantages

• Difficult to analyse

Telephone Survey

Advantages

• Relatively inexpensive

• Immediate response

• Large number can be surveyed quickly

Disadvantages

• Hostility can be encountered

Postal Survey

Advantages

• Inexpensive – no trained interviewer

Disadvantages

• Questions must be simple to answer

• Response rate is low

• Often need prize-draws etc to encourage response

Hall Test

Advantages

• Qualitative information gained

Disadvantages

• Difficult to analyse

• Results can be flawed – complimentary comments Qualitative information gained

EPOS (inc Loyalty Cards)

Advantages

• Accurate customer profiles

• Offer promotions linked to customer needs

• Monitors brand loyalty

Disadvantages

• Expensive to set up

Observation

Advantages

• Qualitative information gained

Disadvantages

• Can’t ask questions that explain actions – no direct contact with customer

Consumer Panel

This is a group of people who are consulted on their reactions to a product over a period of time.

eg a number of households throughout the country have the TV programmes they watch monitored electronically

Test Marketing

Advantages

• Highlights aspects of product which are disliked

• Saves expensive national launch

Disadvantages

• Regional tastes may not be representative

Structure of a Questionnaire

• Purpose clearly stated• Easy-to-use layout• Relevant questions• Not rely on memory• Concise• Start with few questions to gauge

suitability• Avoid jargon• Logical order of questions

Sampling

• When conducting market research it is often not feasible to question every potential respondent.

• A sample has to be selected …

but how?

Random Sampling

• Individuals preselected from a list

• Each person has an equal chance of being chosen

• No bias involved in selection – however may be unrepresentative of population

• Must interview people selected – expense!

Stratified Random Sampling

• Makes a random group more representative

• Sample is divided into segments with a representative sample then chosen from each group

• More administration and effort than simple random sampling

Quota Sampling

• Interviewers are given targets for the number of people out of each segment (eg age, sex, marital status) they must interview

• More targeted method of sampling the population interested in particular goods/services

Other Sampling Methods

• see Additional Handout

– Cluster Sampling– Multi-Stage Sampling– Snowballing

Problems with Market Research

• No Guarantees – eg New Coke – returned to original recipe– eg Levi’s failed to enter men’s suit market

• Sampling Bias• Human Behaviour• Interviewer Bias• Size of Sample• Expense of gathering information

Benefits of Market Research

• see Additional Handout

– Decision Making– Reducing Risk– Link with the Outside World– Size of Markets– Public Relations

The Marketing Mix

Product

Price

Promotion

Place

Product

The goods/services that the customer purchases.

The product includes the packaging, image, guarantee and after-sales service.

– Core Product– Actual Product– Augmented Product

Branding

• Distinguishing a product from its competitors

• Could be name of company or product range eg Virgin or Mr Kipling

• Can you identify the brands?

• Remember own-brands!Quick

Fire Quiz

Why Brand?

• Save money on marketing• Higher prices can be charged• Customers become brand loyal• Easier to launch new products

• Might have to fight against fake goods using ‘brand name’

Federation Against Copyright Theft

Major brand manufacturers find

it almost impossible to prevent the

production of fake items, particularly

in the Far East.

Product Life Cycle

Shows the different stages a new product passes through over time and the sales expected.

Include any relevant diagrams in product life-cycle or product mix questions. Remember to label your diagrams.

Stages of Product Life Cycle

• Research and Development (not in this diagram)

• Introduction• Growth• Maturity• Saturation• Decline

More details to follow …

Research and Development

• Undergoing R&D during this initial stage

• Costly and time-consuming

• Prototypes

• Extensive testing

Introduction

• Product is launched onto the market

• Costs of holding stock, advertising and promoting the product high

• Few competitors and usually a high price

Growth

• Sales increase significantly

• Customer knowledge of product increases

• A few competitors launch products

Maturity

• Product becomes commonplace

• Growth begins to slow down

• Competition increases

• Price falls

Saturation

• Competition becomes fierce

• Prices tumble

• Customer tastes begin to change

• Not all competing products survive

Decline

• Other new advanced products are launched

• Sales fall

• Prices become very low

• Product is withdrawn from the market

… going on forever?

• Mars, Persil, Heinz Baked Beans, Coca-Cola appear to never reach the decline stage

• Successful extension strategies

• Constant brand promotion

• No close rivals

Extension …………….. Strategies

• Improve the product

• Change the packaging

• Change the channel of distribution

• Change product prices

• Change the promotion

• Change the use customers have for a product

• Rebrand the name of the product

• Produce line extensions

Extension …………….. Examples

• More frequent use was made of airlines with reduced cost carriers eg Easyjet.

• Selling mobiles and computers to the home market.

• Firelighters now used for barbecues.

• New versions eg Irn-Bru: fruit chews and alcho-pops

• Styling changes eg football strips

Product Mix (Portfolio)

• Businesses plan the introduction of new products to replace existing ones before they become unprofitable

• Products at different stages on PLC

• Keeps profits stable

Product Mix (Portfolio)

• Baxters Food Group have a product portfolio which includes jams, sauces, pickles and soups.

• Allows Baxters to reduce risk

• Baxters can also meet the different needs of consumers, increase profits and raise the businesses profile!

Boston Matrix

Another method of showing the Product Mix

Product Development

• see Additional Handout

• New products have an extremely high failure rate – only 2% of product ideas become successful products

Price

An important indicator of quality and image providing consumers with a way of making value-for-money judgements.

Different Markets … Difference in Importance

• White Emulsion Paint: – Price is critical

• Fashion Clothing: – Price outweighed by style

and design

What Price?

• The price for a product should be based on what the customer is prepared to pay:– Competitors’ prices– Position of product in PLC– Cost of manufacture– Time of Year– Profit Level Expected– Suppliers’ Prices– Point of Sale– State of The Economy– Government Pressure

Pricing

• Long-Term Strategies– Low Price– Market Price– High Price

• Short-Term Tactics– Skimming– Penetration– Destroyer– Promotional– Demand Orientated

Long-Term Pricing

• Low Price: – Where there is Price Elasticity of Demand ie low prices

= much higher sales. Used where no brand loyalty, eg supermarket DVDs and CDs are lower than market price

• Market Price– Where price competition is of no benefit eg petrol

prices (no effect on demand)

• High Price:– High-quality premium goods/services– USPs or patents– Where supply of goods is restricted– Newly launched innovative products

Short-Term Pricing

The next slides illustrate examples of Short-Term Pricing Strategies …

Price Skimming

• Company launches a new product

• High initial price allows R&D costs to be recouped before competitors enter the market

• Price will gradually fall

• Most common example: Home Electronics

Penetration Pricing

• Competitors already sell in the market

• Set a price lower than competitors

• Once the product is popular, the price is raised

Destroyer Pricing

• Trying to eliminate the Competition – setting an artificially low price

• Business will make a loss initially

• Prices will then rise possibly above current market price

Promotional Pricing

• Boosting sales in the short-term

• eg Supermarkets use promotional pricing as loss-leaders

• Attracts customers (hopefully to buy other products too!)

Demand-Orientated Pricing

• Prices varies with demand

• eg crops– Higher price when poor harvest – less

supply available

see price discrimination on the next slide

Price Discrimination

• Different Prices for the same product!

• Depends on the time of day, year or usage

• Can you think of some examples?

Setting the Selling Price

• Cost-plus pricing: – adding a % profit to the cost of

manufacture

• Contribution pricing:– Taking the total cost of manufacture

(including wages etc) and sharing among the number of units expected to be sold. If the price is set above the contribution to fixed costs a profit will result

Place

• The Channel of Distribution is:

“the route taken by a product as it passes from the producer to the consumer”.

• Ownership of goods not physical movement.

The Channels of Distribution

The Channels of Distribution

• Each link in the chain means the end cost to the consumer will be higher:– Transportation– Storage– Advertising– Insurance

• Each reseller will want to make a profit for the service they are providing

Agents

• Provide a link between buyer and seller in exchange for commission

• Often used by organisations entering a foreign market – knowledge of laws etc.

• Examples: – estate agents– travel agents

Brokers

• Also provide a link between buyer and seller

• Examples:– Insurance– Share dealing– Commodity markets such as coffee

and metals

Factors affecting Distribution

• Product being sold• Legal restrictions• Changes in buying habits• Existing buying habits• Finance available• Reliability of other companies• Desired image of the product• Stage in Product Life Cycle• Manufacturer’s distribution capability

Wholesaler

• Provides a link between producer and retailer– Source of marketing information

• Buys in bulk• May finish off packaging and pricing• Reduces producer's risk• Could destroy the producer’s

marketing mix (poor promotion)

Retailer

• Located close to customers• Established customer base• Breaks down the bulk• Information and advice provided• Related services eg credit

facilities, hire-purchase and after-sales-care

Speaking the Customer’s Language

Types of Retailer

• Independents• Multiple Chains• Supermarkets• Co-operatives• Department Stores• Specialist Stores• Franchises• Discount Stores

Other Methods

• Direct-Selling/Internet selling• Mail Order• Direct Response Advertising

– Newspapers/magazines– Direct “junk” mail

• Personal/Door-to-Door/Telephone Selling

• Television Selling eg QVC

Retailing Trends

• Out of town shopping– Food outlets– Leisure facilities– Parking

• Extended opening hours• Domination of supermarkets eg

ASDA Walmart• Increase in internet shopping

Promotion

• Advertising

• Sales Promotions

• Public Relations

The way in which a customer is

made aware of a product

or service and is persuaded to purchase it

Promotion

• Above the line: use of TV/Newspapers – large audience, some of the promotion is ‘wasted’

• Below the line: sales promotions/direct mail/personal selling – targeted audience

Advertising

• Informative– New or improved products /

Government• Persuasive

– Powerful images and language• Corporate Advertising

– Whole company adverts• Generic Advertising

– Whole industry advertising

also toremind

consumers!

Advertising

• Product Endorsement– Famous sports-person or celebrity is

paid to wear a particular product

• Product Placement– A firm pays for its products to be used

in films or television

Advertising Media

• Products aimed at the whole market are usually advertised during very popular TV programmes eg Coronation Street

• 3 main types of advertising media:– Print– Broadcast– Outdoor

Advertising Media

• See notes pages 36/37

Advertising Decisions

• Effect of advertising on sales?

• Who, What, Where, Why, When?

• Why do consumers NOT buy?

• Which combination of media?

Choice of Advertising

• The product to be advertised• The market segment to be targeted• The type of coverage required• The budget !• Competitors’ actions• Technical nature of the product• Size of organisation• Legal restrictions

Controls on Advertising

• Advertising Standard Authority– Legal, honest, truthful and not cause offence

• OfCom (replaced powers of ITC)– Newsreaders– Actors – commercial breaks

• Pressure Groups• Trade Descriptions Act 1968

– Products must match the claims made by them

Sales Promotions

short-term inducement to encourage

customers to react quickly

vs

Advertising – a long-term process to build brand

image and loyalty

Promotions into-the-pipeline

• Dealer Loaders (6 cases for 5)

• Point-of-Sale Displays (Real Deals/JML)

• Dealer Competitions• Staff Training (deal more effectively with customers)

• Sale or Return (newspapers/sandwiches)

• Extended Credit (possibly several months)

Promotions out-of-the-pipeline

• Free Samples/Trial Packs (often on magazines)

• Bonus Packs (eg 50% free)

• Free Offers (50p off)

• Buy one get another product free• Coupons/Vouchers (possibly for next purchase)

• Credit Facilities (possibly 0% for 6 months)

• Tastings/Demonstrations (test drives)

• Competitions (scratch cards especially in newspapers)

• BOGOF!• Merchandising

Public Relations

• Communication with:– Public– Press– Government– Shareholders

• Planned to enhance the organisation's image

• Role includes:– Press statements– Charitable donations– Sponsorship– Product endorsement– Customer care

Publicity

• Public Relations = time and money

• Publicity can be free eg news broadcasts/magazine articles

• Danger of bad publicity:– Fires– Scandals– Product side-effects

Public Relations & Publicity

• Provide information

• Build confidence/awareness

• Develop goodwill

• Support other areas of the Promotional Mix eg advertising

Congratulations

You have completed

Marketing

in

Higher/Int 2 Business Management