APPLY KNOWLEDGE AND UNDERSTANDING OF HOW THE MARKETING FUNCTION CONTRIBUTES TO THE SUCCESS OF SMALL AND MEDIUM SIZED ORGANISATIONS.

N5 MMO 1.1: Describe methods of market research and outline their costs and benefits.N4 BiA 2.1: State the importance to a business of satisfying customer needs (market research).

N4 BiA 2.2 - Outline how small businesses use market research information to satisfy the needs of customers.

N5 MMO 1.2: Outline the stages of the product life cycle.

N5 MMO 1.3: Describe elements of the marketing mix.N4 BiA 2.1: State the importance to a business of satisfying customer needs (marketing mix).

N4 BiA 2.3: Describe promotional strategies used by small businesses.

N5 MMO 1.4: Outline ways ICT can be used to contribute to effective marketing.

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N5 MMO 1.1: Describe methods of market research and outline their costs and benefits.N4 BiA 2.1: State the importance to a business of satisfying customer needs (market research).

N4 BiA 2.2 - Outline how small businesses use market research information to satisfy the needs of customers.

IDENTIFYING AND SATISFYING CUSTOMER NEEDS THROUGH MARKET RESEARCH

Market Segmentation and Target Markets

Customers can often be divided into groups who share similar characteristics – a ‘market segment’. Typical ways of segmenting the market include:

Age eg child, teenager, adult

Gender eg male, female

Income eg low, middle, high

Marital status eg single, married, divorced2

Life style and interests – eg health conscious, arts focused

Geographical location eg urban, rural

Socio-economic class eg upper, middle, working class.

Because customers in a particular market segment tend to have similar wants and needs, businesses may choose to ‘target’ one or more market segments with their products.

The benefits of this include:

Products will be more appealing to their target market, thus increasing sales.

Having a range of products spreads risks.

Products can be priced and placed to suit to the needs of the target market.

Promotional activities are more cost effective as money is not wasted on activity that is not appropriate to certain market segments.

TYPES AND METHODS MARKET RESEARCH

There are 2 types of market research - field research and desk research.

Field Research involves the gathering of primary information – information collected first hand for a specific purpose. Methods of include:

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Interviews – a researcher asking questions verbally face to face or over the telephone. Advantages are that the interviewer can explain questions and ask follow up questions. Disadvantages are that it is time-consuming and expensive as it is labour intensive.

Questionnaire/Survey – customers answer questions handed, posted or e-mailed out. Questionnaires can be sent to large numbers at a relatively low cost. A drawback is that questions cannot be too detailed as they cannot be clarified. Many people ignore questionnaires so an incentive may be

needed eg a prize draw entry.

Test Marketing - trialling a product in a limited area to get an idea of whether the product will sell before entering into mass production. Changes to the product may be made based on feedback. Test marketing can still be costly, however, and may not be representative of the wants and needs of all customers.

Consumer Panels - a group of customers try the product over a period of time and feedback. This gives good detail on their opinions but consumers may not keep an accurate diary

Observation - monitoring consumer behaviour by watching eg counting people using a particular shop or product. It is relatively cheap to operate and is not intrusive on customers. Information may be of limited value though as it goes not explore reasons behind customer behaviour.

Advantages of Field Research

Information is reliable as it is collected first hand and the source can be checked.

It is more likely to be relevant to the needs of the organisation.

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It is more likely that the information will be accurate as it will be up to date.

Problems of Field Research

It is more expensive as researchers have to be paid.

It takes time to gather and process the information into a usable format.

Desk Research involves using secondary sources – information from a previously published source that has been collected for a different purpose but which can still be of use to decision making.

Internal secondary sources include information from sales figures from EPOS (Electronic Point of Sale) and loyalty cards. This monitors individual customers’ shopping habits. Other internal sources include staff reports and a review of customer complaints.

External secondary sources include viewing competitors’ web sites to compare products and prices. This type of research is inexpensive and immediate making it possible to make decisions quickly. Businesses may not, however, get details on all their competitors’ decisions as not everything is available on the web site.

Government statistics can give information on levels of income and employment which can help a business decide where or when to start a new business or launch new products. The information is often available free of charge. The information may not be up-to-date as statistics may have been collected some time previous however it should be free from bias.

Newspaper or magazine articles can give an insight into customer preferences as they may review products and provide information on lifestyles. The information is cheap to collect but may be biased as it reflects the opinions of the author.

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Specialised Trade Associations publish statistics and data relevant to their area and so may help inform decisions within a particular industry.

Advantages of Desk Research

The information already exists therefore it is relatively inexpensive to obtain and can be obtained relatively quickly.

It can give a business a picture of the overall business environment.

Problems of Desk Research

Information may be out of date and therefore inaccurate.

Information may not be directly relevant to the decisions being taken.

Information may also be available to competitors.

Information may contain bias as the method of collection may not be known.

N5 MMO 1.2: Outline the stages of the product life cycle.

N5 MMO 1.3: Describe elements of the marketing mix.N4 BiA 2.1: State the importance to a business of satisfying customer needs (marketing mix).

N4 BiA 2.3: Describe promotional strategies used by small businesses.

THE MARKETING MIX - INTRODUCTION

For marketing to be successful, an organisation has to combine a successful mix of the right product, sold at the right price, in the right place, using the

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most suitable promotion. The elements of marketing used by organisations are known as the 4 Ps:

Product

Price

Place

Promotion

The Marketing Department must ensure that these four tools are used together in the correct way to obtain the best marketing mix. All four elements are important to ensure that the product appeals to the customers.

MARKETING MIX - PRODUCT

The product must meet the wants and needs of the customer. The product may be a good or a service. Different versions of the same product may be offered by competing firms and can vary greatly in terms of quality, style, packaging and so on – for example, Coca Cola, Virgin Cola, Tesco Cola.

PRODUCT DEVELOPMENT

Having a successful product can lead to internal growth through increased sales and reinvested profits. A business that diversifies (produces different products) and innovates (has ideas for new products) is more likely to succeed in satisfying the wants and needs of their customers.

Stages in Product Development

1. Come up with an idea for a new product (innovation and diversification).

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2. Carry out market research to check likely demand and existing competition.

3. Develop a prototype of the product – a trial version – and test market it.

4. Review test marketing findings and modify the product if necessary.

5. Obtain finance necessary to set up production.

6. Source factors of production suppliers, workers, equipment.

7. Make pre-launch marketing decision eg packaging, price, place and promotion.

THE PRODUCT LIFE-CYCLE

The product life-cycle shows the different stages a product will pass through and the level of sales that can be expected at each stage. The first stage of the product life cycle is to research and develop a product (see above). At this stage there are no sales and therefore no profits. The following others stages of a product life cycle:

Introduction – the product is launched and customers have limited awareness of the product. Sales may be slow and the product is unlikely to make a profit. Lots of marketing activities are needed to get the product established in the market.

Growth – sales are increasing as more customers become aware of the product. Marketing activities continue to establish the product. The product may break even or begin to make a profit at this stage. See earlier note on market growth.

Maturity - the product is established with highest levels of sales and profits. Competitors begin to notice and may consider entering market. At saturation point, most people who want the product now have the product.

Decline - sales and profits begin to fall as people switch to other newer products offered by competitors, or the product has become technologically obsolete.

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DEVELOPMENT

INTRODUCTION

GROWTH

MATURITY

DECLINE

Diagram showing the different stages of a product life cycle:

PRODUCT BRANDING

A brand is a product or range of products with unique and easily recognisable features for example we all recognise Heinz, Cadbury, Virgin or Coca-Cola. Brand identity may take the form of a logo, slogan or distinctive packaging. The aim of the manufacturer is to make the product instantly recognisable to the consumer, and to develop customer confidence in the product.

Benefits and Drawbacks of Branding

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Customers develop brand loyalty as they believe the product is better than other products on the market. Customers will not waste time shopping around but will make repeat purchases of the product.

Consumers may be willing to pay more for an item because of its brand eg Rolls Royce, Calvin Klein. This is known as a premium brand. (Other brands market themselves on being a ‘budget’ option.)

Launching new products under the brand name may be easier as consumers will already trust the brand and so be willing to try other products in the mix.

However, if a customer has a bad experience with one product in a brand range, it may put them off all products in that brand range.

It can be hard to prevent other businesses imitating brands and the business may have to take legal action to protect its brand.

The costs of establishing and maintaining a brand can be high, and the business must continually check that the brand identity is evolving with customer tastes.

Own Brand Products

Many large retailers – eg Tesco, Sainsbury and Boots – sell a range of goods branded under their own name eg Tesco Finest and Tesco Value. These products challenge the premium brand names as the products may be of a

similar quality, with similar packaging but are cheaper than branded goods. Consumers can become loyal to a supermarket brand as it offers better value for money.

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MARKETING MIX - PRICE

The price is the amount that consumers must pay for a product. Lower prices usually lead to higher sales volumes and vice versa.

Factors to consider when setting the price -

Prices being charged by competitors for similar products.

The cost of producing the product.

The level of demand for the product.

The income and expectations of the target market.

The desired profit margin eg social enterprises may choose to sell for lower prices for the benefit of their cause.

Where the product is in its life cycle eg introduction, growth, maturity.

MARKETING MIX – PLACE

Organisations must decide where and how they will distribute their product to customers. This involves making decisions on:

The location of the business – manufacturing or retailing;

The channel of distribution – direct or indirect;

The physical method of transporting finished goods.

BUSINESS LOCATION

Factors affecting the choice of location may include:

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Degree of competition – some businesses choose to locate close to competitors to get the benefits of a concentration of customers. Others will avoid locating close to their competitors eg so they do not have to continually price

match.

Distance to market – a retailer will want to ensure that they located where a reasonable number of customers can access them. Manufacturers may choose to locate close to the market if their finished product is bulky or perishable.

Distance to raw materials - a manufacturer may locate close to its source of raw materials to reduce chances of delay and cut delivery costs.

Availability of skilled workers – businesses may wish to avoid the costs of training staff, so may locate in an area that has an established workforce available.

Availability, suitability and cost of premises – rent and rates are lower away from city centres. Retailers may be attracted to out of town shopping centres where they can afford larger premises which may be serviced by good parking and public transport. Manufacturers may consider the scope to expand.

Government assistance – businesses may be influenced by financial incentives to locate in areas of high unemployment eg tax breaks, grants, reduced rates. The ease with which planning permission is gained may be a factor.

PHYSICAL DISTRIBUTION (TRANSPORTATION)

Physical distribution decisions refer to how the product is transported to the wholesaler, retailer or customer. This may involve using one or more of the following:

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Road Products can be taken anywhere there is a road eg a remote location. Road transport can be affected by congestion and the weather and is heavily regulated by the government.

Rail Rail transport tends to be cheaper and faster than road as large volumes can be moved at speed, without risk of congestion. However goods transported by rail also have to spend time on the road to reach their final destination.

Sea Overseas markets may be reached by sea if the products are bulky and relatively low in value. Sea transport can be slow compared to air travel but is usually cheaper when moving large volumes. Container ships can refrigerate perishables.

Air Air transport is the fastest but most expensive way of transporting goods to overseas markets. It tends to be used for products that are high in value and not bulky or heavy to transport. Products transported by air may be unpopular with some consumers as they leave a high carbon footprint.

MARKETING MIX - PROMOTION

Promotion is the way in which an organisation makes consumers aware of the features and benefits of their products. An organisation promotes its products or services to gain new customers or retain existing ones.

PROMOTION THROUGH ADVERTISING

Radio/Television Adverts placed in commercial breaks between programmes. These can be targeted according to the station chosen and the choice of programme. They can reach local or national markets on a large scale. They

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may be expensive.

Newspapers/ Magazines

Market segments can be targeted by the choice of publication. Adverts can contain more detail in text or numerical format. Customers can cut out and keep for future reference.

Sponsorship By sponsoring a major sporting team, adverts not only reach their supporters, they may gain additional TV coverage.

Web Sites Adverts on an organisation’s own website and/or by purchasing space on sites which the target market will be likely to view. Organisations are increasingly making use of social networking sites to gain exposure.

Posters / Billboards Can be placed in a variety of places eg bus stops, sporting venues. Often concentrated so that customers view them several times.

Cinema Used to advertise forthcoming features – a captive audience as most people remain in their seats.

Celebrity endorsement

Sports or show business personalities are paid to promote a product leading to increased sales to fans of the celebrity.

SALES PROMOTIONS

Sales promotions are special offers to retailers or customers. Examples of sales promotions include:

BOGOF – Buy One Get One Free

Bonus packs - 50% extra free

Promotional price discounts

Entry into prize draws

Credit facilities eg interest free credit

Free samples linked to money-off vouchers

Point of sale displays14

ETHICAL MARKETING CONSIDERATIONS

Some consumers make product choices based on how ethically responsible the manufacturer or retailer is eg how environmentally friendly they are, or whether they have treated producers fairly. While products may be more expensive, consumers are willing to pay in support of their beliefs. Customers may be attracted to Fair Trade products, products using recycled packaging, products that are sources locally. Organisations must endeavour to publicise their ethical credentials through public relations activities or individual product information, often including details on their packaging.

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N5 MMO 1.4: Outline ways ICT can be used to contribute to effective marketing.

INTERNET WEB SITES – USES IN MARKETING

Can display detailed descriptions of products – text, specifications, images, video.

Used to advertise products and promotions on an organisation’s own site and/or as pop-ups on related web sites which the target market is expected to view.

E-COMMERCE (ON-LINE SELLING) – USES IN MARKETING

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Customers make purchases via a website and have products delivered by post, or use ‘click and collect’ to pick up from a local outlet. Benefits include:

Reaches a global market;

Allows shopping 24/7;

Reduces overheads (fewer shops);

Can display more stock than in a shop;

Reaches customers who do not live close to a retailer.

Drawbacks of E-Commerce:

Requires a secure payment system;

May involve high costs of postage and returns;

Exposes the business to intense competition (price comparison sites).

E-MAIL – USES IN MARKETING

Customers can be contacted using e-mail distribution lists which they register for or provide contact details for in the course of on-line shopping.

E-coupons can be attached to encourage further purchases on-line.

Used to carry out primary research by way of an on-line survey - large numbers of potential customers can be reached with a single low cost message.

MOBILE PHONES – USES IN MARKETING

Group texts can be sent containing adverts and special offers.

People may be asked to participate in text surveys.

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‘APPS’ can be downloaded to a smart phone allowing users to browse web pages and make purchases at a time that suits.

QUICK RESPONSE CODES – USES IN MARKETING

Take customers to a web site where they can view / buy products.

Provide directions to a retail outlet (shop)

Populate a distribution list to receive further promotional offers.

WEB 2.0 TECHNOLOGIES – USES IN MARKETING

Facebook used to advertise and to build a contacts list when people ‘like’ pages.

Twitter – used to update followers on offers and share feedback on products.

BLOGs – sharing information by contributing to a web log (blog) eg reviewing products, suggesting improvements.

Video Sharing – product demonstrations uploaded to file sharing sites such as You Tube to give customers detailed information.

EPOS / LOYALTY CARDS – USES IN MARKETING

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Electronic Point of Sale technology can be used by retailers when loyalty cards are swiped through electronic tills at the point of sale. This can give detailed information about an individual customer’s shopping habits. This can be used for general market research or to ‘manage’ shopping habits by customising special offers to products that are likely to appeal to the individual customer.

COMMON BUSINESS SOFTWARE – USES IN MARKETING

Word Processing eg Microsoft Word can be used to type up letters to be mailed to customers.

Desk Top Publishing eg Microsoft Publisher can be used to prepare brochures and other promotional materials.

Presentation Software eg Microsoft PowerPoint can be used to prepare sales presentations for business-to-business sales or for point-of-sale advertising within a shop.

Spreadsheets eg Microsoft Excel can be used to record and analyse findings of field market research. Sales figures can be recorded and analysed and presented in charts for ease of understanding.

Databases eg Microsoft Access can be used to record customer details – this information can be merged with WP documents for personalised direct mailing. When shopping on-line, customers are effectively viewing a database of products for sale.

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ALL IMAGES SOURCED VIA GOOGLE IMAGES

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