Download Marketing and the competitive environment

Unit 2: Managing a business
Marketing and the competitive environment
Chapter 28
Effective marketing
Unit 2: Managing a business
Marketing and the competitive environment
Purposes of marketing
marketing: the anticipating and satisfying of customers’ wants in a way that
delights the consumer and also meets the needs of the organisation.
This definition provides an introduction to the purposes of marketing:
• anticipating customers’ wants
• satisfying customers’ wants in a way that delights customers
• meeting the needs of the organisation
Unit 2: Managing a business
Marketing and the competitive environment
Marketing objectives
marketing objectives: the goals of the marketing function within an organisation.
A firm’s marketing objectives must be consistent with the organisation’s corporate
objectives (the aims of the business as a whole).
What sort of marketing objectives might a business set itself?
Compile a list of five possible marketing objectives for a business.
See if they fit into the types of marketing objective listed on the next slide.
Unit 2: Managing a business
Marketing and the competitive environment
Types of marketing objective
Marketing objectives may be categorised in the following ways:
• size (e.g. reaching a sales target or certain market share)
• market positioning (e.g. targeting a particular market segment)
• innovation/product range (e.g. introducing five new products in the next
12 months)
• achieving brand loyalty/goodwill (e.g. attaining 75% repeat customers)
• security/survival (e.g. keeping customers in a declining market)
Unit 2: Managing a business
Marketing and the competitive environment
Consumer marketing v
business-to-business marketing
Most people are familiar with businesses providing products for individual
consumers. This is known as business-to-consumer marketing (b2c marketing) or
consumer marketing.
However, many products (e.g. raw materials) are sold from one business to another.
This is known as business-to-business marketing (b2b marketing).
Business-to-business marketing is very different from consumer marketing.
Unit 2: Managing a business
Marketing and the competitive environment
Main features of business-to-business
marketing
• Transactions are much larger, with perhaps millions of pounds worth of products
being bought and sold in one transaction.
• Buyers and sellers are specialist employees of organisations and therefore have
greater knowledge and understanding of the products.
• There is greater emphasis on quality and related factors, such as after-sales
servicing and maintenance.
• Promotions and advertisements tend to be more informative.
• Pricing depends on the level of competition in the market.
• Personal relationships between buyers and sellers are more critical.
Unit 2: Managing a business
Marketing and the competitive environment
Niche marketing
A critical decision for many start-up businesses is whether to target a narrow range
of customers.
niche marketing: targeting a product or service in a small segment of a larger
(mass) market.
Niche marketing can help small firms, as there may be little competition.
What are the advantages and disadvantages of niche marketing?
Unit 2: Managing a business
Marketing and the competitive environment
Advantages and disadvantages
of niche marketing
Advantages
• There may be fewer competitors.
• A small firm may be able to match the costs of larger rivals in a niche market.
• The limited demand may suit a small firm that lacks the resources to produce on
a large scale.
• A firm can adapt its product to meet the specific needs of the niche market. The
product will have a unique selling point (USP).
• It can be easier for firms to target just one type of customer.
Disadvantages
• The small scale of the market limits the chances of high profit.
• Small firms in niche markets can be vulnerable to changes in demand.
• An increase in interest in the niche market may attract larger firms.
Unit 2: Managing a business
Marketing and the competitive environment
Mass marketing
mass marketing: aiming a product at all (or most) of the market.
Examples of mass-market goods are sliced bread and pillows. In a mass market
there is only limited scope for targeting. For instance, there is little scope to modify
sliced bread to appeal to a niche market, although it is possible.
Can you think of ways of creating niche markets from sliced bread and
pillows?
What are the advantages and disadvantages of mass marketing?
Unit 2: Managing a business
Marketing and the competitive environment
Advantages of mass marketing
• Large-scale production is possible, which will help to lower costs per unit through
factors such as bulk buying.
• The mass market gives more opportunities to earn very high income.
• Mass marketing allows firms to use the most expensive (and usually the most
effective) marketing.
• The mass market allows businesses to fund the research and development costs
needed to introduce new products.
• Mass marketing increases brand awareness, helping firms to increase sales and
prices.
Unit 2: Managing a business
Marketing and the competitive environment
Disadvantages of mass marketing
• High fixed capital costs are incurred (e.g. for large shops).
• A fall in demand will lead to unused spare capacity, increasing unit costs.
• It can be difficult to appeal directly to each individual customer because massmarket products must be designed to suit all customers. As a result, prices tend
to be lower, reducing the opportunities for high profits.
• There is less scope for adding value. As customers’ incomes increase, there is a
growing tendency for customers to want high-priced, unique products.
Unit 2: Managing a business
Marketing and the competitive environment
Product differentiation in the mass
market
product differentiation: the degree to which consumers see a particular brand as
being different from other brands.
Product differentiation will benefit a business in two ways:
• increased sales volume
• greater scope for charging a higher price
Product differentiation can be achieved through:
• design, branding and packaging to improve the attractiveness of a product
• promotional and advertising campaigns to boost image and sales
• different distribution methods (e.g. internet sales)
• product proliferation — producing lots of varieties
Unit 2: Managing a business
Marketing and the competitive environment
Chapter 30
Using the marketing mix:
product
Unit 2: Managing a business
Marketing and the competitive environment
Marketing mix: product
Key terms
marketing mix: those elements of a firm’s approach to marketing that enable it to
satisfy and delight its customers.
product: the good or service provided by a business.
product design: deciding on the make-up of a product so that it works well, looks
good and can be produced economically.
product development: when a firm creates a new or improved good or service, for
release on to an existing market.
Unit 2: Managing a business
Marketing and the competitive environment
Product design
The features of the product must appeal to the consumer.
The characteristics of a good product will vary according to the customer and
according to the product.
Select a product and identify five or six features that make it attractive to
customers.
Unit 2: Managing a business
Marketing and the competitive environment
Key features influencing car
purchases
The key features influencing car purchase are listed below. How well do they
compare to the product you chose in the previous activity?
• reliability
• safety
• convenience of use
• fashion
• aesthetic qualities/appearance
• durability
• legal requirements
Unit 2: Managing a business
Marketing and the competitive environment
Development of new goods and
services
Every new product or service passes through certain stages before it is launched.
The stages of new product development are as follows:
• generation of ideas
• analysis of ideas — feasibility testing
• product development and testing the prototype
• test marketing
• launch
Unit 2: Managing a business
Marketing and the competitive environment
Influences on the development of
new goods and services
Key factors influencing the development of new products are:
• technology
• competitors’ actions
• entrepreneurial skills of managers and owners
Unit 2: Managing a business
Marketing and the competitive environment
Technology and the development of
new goods and services
• New technology can improve the quality of existing products.
• Technology can lead to the development of totally new products.
• Improvements in technology can bring products into new segments.
• Production technology has led to more cost-effective production.
• Technology allows goods to be made to the consumer’s individual specifications.
• Technology has improved business awareness of consumer tastes.
Unit 2: Managing a business
Marketing and the competitive environment
Competitors’ actions and the
development of new goods and
services
• The introduction of a new product by a competitor may encourage a business to
introduce its own new product.
• New products from competitors can give ideas for a new product to a business.
• Changes in consumer tastes may be detected through the actions of a
competitor.
Unit 2: Managing a business
Marketing and the competitive environment
Entrepreneurial skills and the
development of new goods and
services
• Identifying an opportunity. A skilled entrepreneur can be the first person to spot
a gap in a market.
• Organisations may encourage and reward employees who come up with
innovative ideas that lead to new products.
• Spending on research and development can lead to new inventions.
Unit 2: Managing a business
Marketing and the competitive environment
Other factors leading to the
development of new goods and
services
• market research
• personal experience
• personal need and inventiveness
• environmental awareness
Unit 2: Managing a business
Marketing and the competitive environment
Unique selling points (USPs)
unique selling point/proposition: a feature of a product or service that allows it
to be differentiated from other products.
In developing a new product or service, many firms will attempt to differentiate it
from those of competitors.
If a firm can improve customer awareness and goodwill by making its product
different from rival products, it can increase both its sales volume and its price.
Loyal customers are also less likely to stop buying the firm’s product.
Select two products and explain the way or ways in which they achieve a
unique selling point (USP).
Indicate which USP is most likely to add value.
Explain your reasoning.
Unit 2: Managing a business
Marketing and the competitive environment
Product portfolio analysis
Very few firms rely on one product.
In a multi-product firm (e.g. Kellogg’s), the range of products is its product portfolio.
Firms plan their product range to spread their risks. If one product has low sales, it
may be supported by other, more successful products.
An example of the way in which a business can carry out product portfolio analysis is
the Boston matrix.
Unit 2: Managing a business
Marketing and the competitive environment
The Boston matrix: introduction
Boston matrix: a tool of product portfolio analysis that classifies products according
to the market share of the product and the rate of growth of the market in which the
product is sold.
This matrix is used to focus on two factors that help an organisation to assess the
situation of its products in the market:
• market share
• market growth
A product with a high market share is clearly in a strong competitive situation.
A product in a high growth market should have opportunities for future growth.
Unit 2: Managing a business
Marketing and the competitive environment
The Boston matrix
Unit 2: Managing a business
Marketing and the competitive environment
Stars, cash cows, problem children
and dogs
In small groups compile a list of ten products. Categorise them under the four
headings above.
Your ten products must include at least two stars, two cash cows, two
problem children and two dogs.
Unit 2: Managing a business
Marketing and the competitive environment
Product portfolio analysis: conclusion
Ideally a firm will want a portfolio of cash cows and stars.
However, in the long term these products may decline, so new products with a low
market share but in high growth markets will be ideal replacements.
The Boston matrix is just a generalisation. Cash cows can lose money and dogs can
be very profitable in the right circumstances.
Overall the Boston matrix says relatively little about a product and should not be
used without reference to other factors, such as profitability.
Unit 2: Managing a business
Marketing and the competitive environment
Product life cycle (1)
product life cycle: the stages that a product passes through during its lifetime.
These stages are:
• development
• introduction
• growth
• maturity
• decline
Unit 2: Managing a business
Marketing and the competitive environment
Product life cycle (2)
Unit 2: Managing a business
Marketing and the competitive environment
Strategic use of the product life cycle
In theory, a firm should aim to have as many products in ‘maturity’ as possible, as
these are the products that should generate most profit.
However, to achieve this in the long run a firm needs to have a policy of new product
development, so that it has products in the introduction and growth stages which will
eventually enter maturity.
Conclusion
Firms attempt to have a balance of products under development and in the
introductory and growth stages, financed by the profits generated by their mature
products.
Unit 2: Managing a business
Marketing and the competitive environment
Extension strategies
The main focus of the product life cycle is to keep products at their peak: that is, in
the maturity stage.
This is achieved through extension strategies.
extension strategies: methods used to lengthen the life cycle of a product by
preventing or delaying it from reaching the decline stage of the product life cycle.
Think of three products or services in the maturity stage of the product life
cycle.
Suggest different ways (extension strategies) that might be used (or have
been used) to keep these products in the maturity stage of the product life
cycle.
Unit 2: Managing a business
Marketing and the competitive environment
Examples of extension strategies
The main types of extension strategy are:
• attracting new market segments
• increasing usage among existing customers
• modifying the product
• changing the image
• targeting new markets
• promotions, advertising and price offers
Provide one real-life example of each of these types of extension strategy
(excluding examples given previously).
Unit 2: Managing a business
Marketing and the competitive environment
Chapter 31
Using the marketing mix:
promotion
Unit 2: Managing a business
Marketing and the competitive environment
Promotion: key terms
promotion: in the context of marketing, the process of communicating with
customers or potential customers. (Promotion can also describe communication with
other interested groups, e.g. shareholders and suppliers.)
advertising: the process of communicating with customers or potential customers
through specific media (e.g. television and newspapers).
Note that advertising is just one element of promotion, although it is often the key
element of the promotional mix of a product.
Unit 2: Managing a business
Marketing and the competitive environment
Classifying promotions
Promotion and advertising can be informative or persuasive.
• Informative promotion is intended to increase consumer awareness of the
product and its features.
• Persuasive promotion is intended to encourage consumers to purchase the
product, usually through messages that emphasise its desirability.
Unit 2: Managing a business
Marketing and the competitive environment
Aims of promotion: AIDA
Promotion has a range of different purposes. AIDA describes the process of a
successful promotional campaign.
• Attention. The first step in a promotional strategy is to get the attention of the
consumer.
• Interest. Having gained the attention of the consumer, promotions will then try
to make people interested in the product.
• Desire. Promotions will then try to give consumers reasons for purchasing the
product — desire for it.
• Action. The final step is converting desire into the action of purchasing the
product.
Unit 2: Managing a business
Marketing and the competitive environment
Elements of the promotional
mix/types of promotion
promotional mix: the coordination of the various methods of promotion in order to
achieve overall marketing targets.
There are many different types of promotion. The main examples are:
• public relations (PR)
• branding
• merchandising
• sales promotions
• direct selling
• advertising
• sponsorship
• trade fairs and exhibitions
Unit 2: Managing a business
Marketing and the competitive environment
Public relations (PR)
• PR involves gaining favourable publicity through the media.
• An article in a newspaper that praises a product can raise awareness in a very
cost-effective way.
• It is not paid for, so it is more authentic and trusted by consumers.
• It may be unreliable, as it depends on the media’s use of the story.
• It is extremely cost-effective when it does work.
Unit 2: Managing a business
Marketing and the competitive environment
Branding
• Branding is the process of differentiating a product or service from its
competitors through the name, sign, symbol, design or slogan linked to that
product.
• Brands can add value to a product and a firm, as consumers are more likely to
buy well-known names.
• If one product within a brand gains a good (or bad) reputation, it can affect
customers’ loyalty to all of the products using that brand identity.
Unit 2: Managing a business
Marketing and the competitive environment
Merchandising
Merchandising describes methods of persuading consumers to take action at the
‘point of sale’ (PoS).
Some examples are:
• persuading retailers to offer more shelf space to a supplier
• providing attractive displays to persuade consumers to buy at the point of sale
• using pleasant smells to entice customers
Merchandising is well-suited to ‘impulse buys’.
Unit 2: Managing a business
Marketing and the competitive environment
Sales promotions
These are short-term incentives used to persuade consumers to purchase.
Think of five different examples of sales promotions. Which of the methods
that you have chosen is likely to be the most successful? Explain why.
Popular methods include:
• competitions
• free offers
• coupons
• ‘three for the price of two’ or BOGOF (buy one get one free) offers
• introductory offers
• product placement (featuring a product in a film)
• credit terms
Unit 2: Managing a business
Marketing and the competitive environment
Direct selling
This takes four main forms:
• direct mail
• telephone
• door-to-door drops
• personal selling
Why is direct selling often unpopular with customers?
Why is it more likely to be used in business-to-business (b2b) marketing than
business-to-consumer (b2c) marketing?
Unit 2: Managing a business
Marketing and the competitive environment
Advertising
The main advertising media are:
• television
• radio
• cinema
• national newspapers
• posters
• magazines
• internet and other electronic media
• regional newspapers
Unit 2: Managing a business
Marketing and the competitive environment
Comparing advertising media
In small groups, select two of the advertising media listed on the previous
slide. Research the costs and popularity of these two forms of media and
present the pros and cons of each.
Explain one product/ business that your first advertising medium would be
used to promote, and a second product/business that would be more suited to
the second medium you have researched. Explain your reasoning.
Unit 2: Managing a business
Marketing and the competitive environment
Sponsorship
Sponsorship means giving financial assistance to an individual, event or
organisation.
Common examples include companies sponsoring:
• sports teams (e.g. football clubs)
• venues, such as the O2 Arena
• good causes (e.g. charity events)
A company can create goodwill and closer links by inviting customers to events.
However, sponsorship can be unpredictable. An unexpectedly good cup run for a
rugby team, or a scandal involving the person sponsored can affect the results.
Unit 2: Managing a business
Marketing and the competitive environment
Trade fairs and exhibitions
Most exhibitions and trade fairs are used for business-to-business marketing.
They can be used to:
• ‘network’ (get to know people in other businesses)
• demonstrate products to potential customers
• provide detailed information and brochures
• allow customers to test out and order products
Unit 2: Managing a business
Marketing and the competitive environment
Influences on the choice of
promotional mix
When deciding what form of promotion to choose, a business will consider:
• objectives of the campaign
• costs and budgets
• the target market
• the balance of promotions needed to achieve AIDA
• legal factors (e.g. advertising restrictions)
• external factors (e.g. consumer preferences)
Think of a promotional campaign in which all of the factors listed above will
influence the promotional mix.
Unit 2: Managing a business
Marketing and the competitive environment
Chapter 32
Using the marketing mix:
pricing
Unit 2: Managing a business
Marketing and the competitive environment
Pricing strategies
There are five main pricing strategies.
price skimming: a strategy in which a high price is set to yield a high profit margin.
penetration pricing: a strategy in which low prices are set to break into a market
or to achieve a sudden spurt in market share.
price leadership: a strategy in which a large company (the price leader) sets a
market price that smaller firms will tend to follow.
price taking: a strategy in which a small firm follows the price set by a price leader.
predator (or destroyer) pricing: a strategy in which a firm sets very low prices to
drive other firms out of the market.
Unit 2: Managing a business
Marketing and the competitive environment
Price skimming
Features
• A high price is set to yield a high profit margin.
• This price is often used during the introduction of a product, when it appeals to
early adopters.
• In the long term, firms use this strategy for products that they hope will ‘skim
the market’. This means appealing to a more exclusive, up-market type of
customer.
• It is suited to marketing objectives such as maximising value added or profit
margins, and establishing a prestigious brand name.
Unit 2: Managing a business
Marketing and the competitive environment
Penetration pricing
Features
• This is the opposite of price skimming. Low prices are set to break into a market
or to achieve a sudden spurt in market share.
• Many firms use this strategy when a product is first released or to entice new
customers so that market share can be increased.
• It is suited to marketing objectives such as maximising sales volume (rather
than value) and increasing market share.
Unit 2: Managing a business
Marketing and the competitive environment
Price leadership and price taking
Features
• In price leadership a large company (the price leader) sets a market price.
• Price takers are the smaller firms that tend to follow the price leaders when
setting price.
• Usually the price leader is the firm with the largest market share.
• Small firms will usually be price takers because a lower price could trigger a
price war, while a higher price will mean that they lose customers.
• Both strategies are suited to a marketing objective that is based on maintaining
market share and stability in the market.
Unit 2: Managing a business
Marketing and the competitive environment
Predator (or destroyer) pricing
Features
• In this strategy, a firm sets very low prices to drive other firms out of the
market.
• Predator pricing acts against the consumer interest (by eliminating choice), so it
can be ruled illegal, but this is often difficult to prove.
• The marketing objective is to reduce the number of competitors in the market.
Unit 2: Managing a business
Marketing and the competitive environment
Pricing tactics
Pricing tactics are adopted in the short term to suit particular situations. There are
two main pricing tactics.
loss leadership: a tactic in which a firm sets a very low price for its product(s) in
order to encourage consumers to buy other products that provide profit for the firm.
This is often used by supermarkets.
psychological pricing: a tactic intended to give the impression of value (e.g.
selling a good for £9.99 rather than £10).
Unit 2: Managing a business
Marketing and the competitive environment
Pricing: activity
Bring in products or evidence of purchases (perhaps receipts for services)
that demonstrate each of these pricing strategies and tactics:
• price skimming
• penetration pricing
• price leadership
• price taking
• predator (or destroyer) pricing
Which strategies and tactics appear to be used most often?
Unit 2: Managing a business
Marketing and the competitive environment
Influences on the pricing decision
Two main influences will be examined:
• costs of production
• price elasticity of demand
Unit 2: Managing a business
Marketing and the competitive environment
Costs of production
Pricing strategies and pricing tactics depend upon setting a price that customers find
acceptable.
It is also necessary for a business to make a profit, so the price of a product must be
set in order to cover costs (unless a loss leader or predator pricing approach is being
used).
To achieve this goal, businesses will often use a method of pricing known as costplus pricing.
Unit 2: Managing a business
Marketing and the competitive environment
Cost-plus pricing
cost-plus pricing: a method of pricing in which the price set is the average cost
of a product plus a sum to ensure a profit.
Example:
A clothes retailer adds 150% to the wholesale cost of a dress which costs £30
to buy.
The price of the dress is £30 + (150% of £30) = £30 + £45 = £75.
Calculate the price of a tin of tomatoes which costs 30p and has a 40%
mark-up.
Unit 2: Managing a business
Marketing and the competitive environment
Cost-plus pricing
cost-plus pricing: a method of pricing in which the price set is the average cost
of a product plus a sum to ensure a profit.
Example:
A clothes retailer adds 150% to the wholesale cost of a dress which costs £30
to buy.
The price of the dress is £30 + (150% of £30) = £30 + £45 = £75.
Calculate the price of a tin of tomatoes which costs 30p and has a 40%
mark-up.
Answer:
30p + (40% of 30p) = 30p + 12p = 42p
Unit 2: Managing a business
Marketing and the competitive environment
Factors influencing the percentage
mark-up
The percentage added on will depend on a number of factors:
• the level of competition
• the price that customers are prepared to pay
• the image of the product/firm
• the firm’s objectives (e.g. whether it is aiming to break even, maximise profit or
achieve a high market share)
• the level of risk involved
Unit 2: Managing a business
Marketing and the competitive environment
Price elasticity of demand
price elasticity of demand: the responsiveness of a change in the quantity
demanded of a good or service to a change in price.
price elasticity of demand = % change in quantity demanded
% change in price
Unit 2: Managing a business
Marketing and the competitive environment
Elastic and inelastic demand (1)
Demand can be elastic, inelastic or unitary.
Elastic demand
If the percentage change in price leads to a greater percentage change in the
quantity demanded, the answer will be greater than 1 (ignoring the minus sign).
This indicates that demand is relatively responsive to a change in price.
Inelastic demand
If the percentage change in price leads to a smaller percentage change in the
quantity demanded, the answer will be less than 1 (ignoring the minus sign). This
indicates that demand is relatively unresponsive to a change in price.
Unit 2: Managing a business
Marketing and the competitive environment
Elastic and inelastic demand (2)
Unitary demand
If the percentage change in price leads to an equal percentage change in the
quantity demanded, the answer will be equal to 1 (ignoring the minus sign). This
indicates that demand is of unitary (or unit) elasticity, i.e. the change in demand is
equivalent to the change in price.
Unit 2: Managing a business
Marketing and the competitive environment
Elasticity: example calculation
Price falls from 25p to 15p, leading to an increase in quantity demanded from 200 to
240 units.
% change in quantity demanded = change in quantity demanded × 100
original quantity demanded
= (240 – 200) × 100 = +40 × 100 = +20%
200
200
% change in price = change in price × 100
original price
=
(15 – 25)
25
× 100 = –10 × 100 = –40%
25
price elasticity of demand =
+20
–40
= (–)0.5
An elasticity of 0.5 means that demand is inelastic, because the percentage change
in price leads to a smaller percentage change in quantity demanded.
Unit 2: Managing a business
Marketing and the competitive environment
Elasticity: calculation
Calculate the price elasticity of demand when price rises from £15 to £18,
leading to a decrease in quantity demanded from 80 units to 52 units.
Unit 2: Managing a business
Marketing and the competitive environment
Elasticity: calculation answer
% change in quantity demanded =
=
change in quantity demanded × 100
original quantity demanded
(52 – 80) × 100 = –28 × 100 = –35%
80
80
% change in price = change in price × 100
original price
=
(18 – 15) × 100 =
15
+3 × 100 = +20%
15
price elasticity of demand = –35 = (–)1.75
+20
An elasticity of 1.75 means that demand is elastic, because the percentage change
in price leads to a larger percentage change in quantity demanded.
Unit 2: Managing a business
Marketing and the competitive environment
Determinants of price elasticity
of demand
What are the main factors that will make demand price elastic or price
inelastic?
Complete a list of six factors and then note on your list whether the factor will
make demand price inelastic or price elastic.
Explain your reasoning.
Compare your answers with the list on the next slide.
Unit 2: Managing a business
Marketing and the competitive environment
Factors influencing the price elasticity
of demand
necessity
inelastic
habit
inelastic
high availability of substitutes
elastic
brand loyalty
inelastic
low proportion of income spent on a product
inelastic
consumers have high incomes
inelastic
Unit 2: Managing a business
Marketing and the competitive environment
Significance of price elasticity of
demand (1)
Price inelastic demand and sales revenue
The significance of price elasticity of demand can be seen by looking at its impact on
sales revenue and profit, following a change in price.
The effect depends on whether demand is elastic or inelastic, and on whether price
has risen or fallen.
If demand for a good is inelastic, when its price rises the quantity demanded falls by
a smaller percentage.
This means that sales revenue will increase.
For example, a 50% rise in price from £1 to £1.50 leads to a smaller (20%) fall in
sales from 100 to 80 units. Price elasticity is –0.4.
Sales revenue increases from (£1 × 100 = £100) to (£1.50 × 80 = £120).
Unit 2: Managing a business
Marketing and the competitive environment
Significance of price elasticity of
demand (2)
Price inelastic demand and profit
Does this mean extra profit? The answer is yes.
The total costs of producing 80 units will almost certainly be lower than those of
producing 100 units, so costs will tend to fall at the same time as revenue increases.
A price rise will always increase sales revenue and profit if price elasticity of
demand is inelastic.
A price fall will always lead to lower sales revenue and profit if price elasticity of
demand is inelastic.
Unit 2: Managing a business
Marketing and the competitive environment
Significance of price elasticity of
demand (3)
Price elastic demand and sales revenue and profit
What happens if demand is price elastic?
Carry out your own calculations using an example that is price elastic.
What happens to sales revenue and profit?
In general, you should find the following if demand is price elastic:
• A price rise will always decrease sales revenue, BUT the effect on profit will
depend on cost savings from cutting output.
• A price fall will always increase sales revenue, BUT the effect on profit will
depend on cost rises from the additional output.
There may be numerical exceptions to these rules if the figures chosen are not very
price elastic.
Unit 2: Managing a business
Marketing and the competitive environment
Difficulties in calculating and using
price elasticity of demand (1)
The use of price elasticity of demand can be very unreliable because of the
difficulties involved in calculating it.
Price elasticity of demand calculations assume that ‘other things remain equal’ while
price changes.
In real life, the assumption that ‘other things remain equal’ is not reliable. For
example, competitors will be constantly changing their marketing strategies.
The main difficulties in calculating (and using) elasticity of demand are summarised
on the next slide.
Unit 2: Managing a business
Marketing and the competitive environment
Difficulties in calculating and using
price elasticity of demand (2)
• There may have been significant changes in the market (e.g. changes in
consumer tastes or the image of the product).
• Changes in price may be matched by competitors, negating the effect.
• Consumers may react differently to increases in price than to decreases.
• The business may lack market research on the effect of price changes.
• The company itself may be changing other things (e.g. advertising).
Unit 2: Managing a business
Marketing and the competitive environment
Price elasticity of demand: conclusion
Price elasticity of demand is a very useful business concept that can help businesses
plan their marketing strategies.
However, it must be used with caution as the data are not always reliable.
Unit 2: Managing a business
Marketing and the competitive environment
Chapter 33
Using the marketing mix:
place
Unit 2: Managing a business
Marketing and the competitive environment
Place: the main factors
Place is an important element of the marketing mix in a number of different ways:
• location of the retailer
• placement of the product within the point of sale
• availability of the product in as many different locations as possible
• the ways in which products are distributed
Unit 2: Managing a business
Marketing and the competitive environment
Location of the retailer
The ‘right’ location involves several elements:
• convenience for consumers
• accessibility
• cost of access
• reputation of the area
• location relative to competition
Unit 2: Managing a business
Marketing and the competitive environment
Placement within the point of sale
About 70% of buying decisions are made in-store. Sales can be increased by the
careful placing of products within the point-of-sale outlet.
Placement also applies to direct selling. Businesses use catalogues and internet sites
to make them easy and attractive for shoppers to use.
In small groups, discuss ways in which supermarkets use placement within a
store to help sales. Compare your conclusions with the examples listed on the
next slide.
Unit 2: Managing a business
Marketing and the competitive environment
Placement within the point of sale:
examples
• Similar products (e.g. biscuits) are placed together, so that shoppers can make
comparisons.
• Brightly coloured, attractive fruit and vegetable displays are visible from outside
the store.
• Impulse buys (e.g. sweets) are placed by the checkouts.
• Popular products are given greater shelf space.
• Loss leaders are scattered around the store, with some placed well away from
the entrance.
• Standard, everyday purchases (e.g. bread) are placed at eye level, so that
shoppers will find them easily.
• Complementary products are placed in close proximity (e.g. cooking sauces
being located close to pasta and rice).
Unit 2: Managing a business
Marketing and the competitive environment
Number of outlets
For some products, especially impulse buys, persuading retailers to stock the
products is often crucial to success. The more outlets that stock the product, the
more sales a firm can generate.
How can firms such as Heinz and Mars get more outlets to stock their
products?
Compare your answers with the list below.
• promotional campaigns
• providing extra facilities or attractive displays
• offering high profit margins to retailers
• increasing brand variety
• discovering new types/alternative outlets (e.g. coffee shops in book stores)
Unit 2: Managing a business
Marketing and the competitive environment
Distribution
distribution: the process of transferring products from the original producer to the
final consumer.
distribution channels: the routes through which a product passes in moving from
the manufacturer (producer) to the consumer.
Most distribution involves one of three methods, as shown in the next slide.
Unit 2: Managing a business
Marketing and the competitive environment
Distribution channels
Unit 2: Managing a business
Marketing and the competitive environment
Roles of organisations in the
distribution channel (1)
Producers and wholesalers
Producers (or manufacturers) make the product by transforming inputs into outputs.
Wholesalers buy in bulk from the manufacturer (producer) and sell in smaller
quantities to the retailer. Their existence can benefit both manufacturers and
retailers.
Wholesalers help producers by:
• purchasing finished goods as soon as they are produced, saving storage costs for
producers
• helping cash flow by paying immediately
Wholesalers help retailers by:
• lowering delivery costs by delivering products from many manufacturers
• offering credit to retailers
Unit 2: Managing a business
Marketing and the competitive environment
Roles of organisations in the
distribution channel (2)
Retailers
The main role of the retailer is to serve the needs of the customer by providing:
• convenience
• advice
• financial assistance
In recent years, wholesalers have declined considerably. Why do you think
this has happened?
Unit 2: Managing a business
Marketing and the competitive environment
Factors influencing the method of
distribution
• size of the retailer
• type of product (e.g. perishable or non-perishable)
• technology
• geography of the market
• complexity of the product
• degree of control desired by the manufacturer (producer)
Unit 2: Managing a business
Marketing and the competitive environment
Place: group exercise
Visit and examine the following point-of-sale places:
• a food retailer
• a clothing retailer
• a catalogue
• a website offering direct sales to visitors
What conclusions can be drawn about the layout of the places that you
visited?
Explain why products were located in certain places or displayed in a certain
way.
What changes to the layout would you recommend and why?
Unit 2: Managing a business
Marketing and the competitive environment
Chapter 29
Designing an effective
marketing mix
Unit 2: Managing a business
Marketing and the competitive environment
Integrated marketing mix
Remember: the marketing mix comprises those elements of a firm’s approach to
marketing that enable it to satisfy and delight its customers.
The marketing mix should be looked at with emphasis on the integrated nature of
the mix.
No element of the marketing mix should be treated in isolation from the other
elements.
In small groups, identify four different products.
The first of these products should have price as the most important of the
‘four Ps’. The second, third and fourth should have product, promotion and
place as the most crucial ‘P’.
Justify your choices to the class.
Unit 2: Managing a business
Marketing and the competitive environment
Influences on the marketing mix
Major influences on the marketing mix include:
• finance
• technology
• market research
Unit 2: Managing a business
Marketing and the competitive environment
Impact of finance on the
marketing mix
A firm must keep within its marketing budget. A lack of money will limit marketing
opportunities.
A business should consider:
• its cash flow and profit (e.g. has it got the cash to finance a new store/place?)
• is the firm large enough to enter a price war?
• how much will promotions cost? Most firms cannot afford television advertising.
Unit 2: Managing a business
Marketing and the competitive environment
Impact of technology on the
marketing mix
• If a product is technologically advanced, it may need less promotion and sell at a
higher price.
• A more technologically advanced database will allow a firm to target its
marketing mix more exactly.
• Technology is helping firms to produce high-quality products at relatively low
costs (and thus prices). Promotion and place are then used to achieve product
differentiation.
• The internet is affecting the need for traditional shops (place) and is taking over
from television as the main medium of promotion.
Unit 2: Managing a business
Marketing and the competitive environment
Impact of market research on the
marketing mix
Market research helps a firm to adapt its marketing mix:
• Product differentiation. If market research shows the existence of a lot of
competition, a business needs to differentiate its product from those of
competitors. This is achieved through branding, patenting etc.
• Substitutes. Market research may show which products are the closest
substitutes for a firm’s products.
• Consumer opinions. Market research can show the price that can be charged,
what features of the product are valued most, where customers expect to buy
the product and the most effective ways of promoting.
• Market segment. Market research can show a firm how to reach its target
market.
Unit 2: Managing a business
Marketing and the competitive environment
Other factors influencing the
marketing mix
• the relative power of buyers and suppliers
• the quality and popularity of the promotion
• price elasticity of demand
• the reputation of the business
• the convenience of the location
Unit 2: Managing a business
Marketing and the competitive environment
Importance of an integrated
marketing mix
A good marketing mix needs to be coordinated so that each element supports the
other parts of the mix. Examples of the importance of an integrated marketing mix
include:
• If the main selling point of a product is its excellence, the quality of the product
must match consumers’ expectations. Consumers would also expect a high price
and an upmarket place.
• A supermarket would want its low-price, economy range of products to be
packaged simply so that consumers can see that money is not wasted on
packaging.
• Promotion should focus on the USP (high quality, low price etc).
• Efficient distribution (place) may enable a firm to keep costs and prices low, and
the point of sale can be used to show the product and to promote it.
Unit 2: Managing a business
Marketing and the competitive environment
Marketing mix: conclusion
In most cases, all elements of the marketing mix are important, but each element
may be crucial in particular situations:
• The product is crucial because it must satisfy the consumer.
• In a theatre, there may only be one type of bottled water available, so place is
the most important factor.
• A consumer with limited money may choose the item with the lowest price.
• A very persuasive promotion may encourage purchase, particularly if the
product is an impulse buy.
Unit 2: Managing a business
Marketing and the competitive environment
Coordinating the marketing mix with
other business functions
The success of the marketing mix also depends on other functional areas of the
business, such as operations, finance and people.
For example, if the marketing mix aims for an upmarket, quality image, it is vital
that:
• operations management ensures that higher-quality products are manufactured
to meet this target
• human resources management provides the training for staff so that better
quality can be achieved
• the finance department increases the budgets to allow better-quality materials
and machinery to be purchased
Unit 2: Managing a business
Marketing and the competitive environment
Chapter 34
Marketing and
competitiveness
Unit 2: Managing a business
Marketing and the competitive environment
Markets and market structure
market: a situation where buyers and sellers come together.
Some markets are very competitive with lots of small firms operating in them, each
achieving only a small proportion of total market sales.
Other markets tend to be dominated by a few large firms, each achieving a
significant proportion of the total market sales.
Unit 2: Managing a business
Marketing and the competitive environment
Market structure and the degree of
competition
In general, four different market structures explain the broad range of competitive
environments in which most firms operate:
• monopoly — only one supplier
• oligopoly — a few suppliers
• monopolistic competition — many suppliers
• perfect competition — very many suppliers
Unit 2: Managing a business
Marketing and the competitive environment
Monopoly
Key features
• In theory, monopoly means a single producer within a market.
• The legal definition is a firm with a market share of 25% or more.
• The potential danger of monopolies is that they will exploit the consumer.
• The government investigates them and can require them to change their
behaviour and subject them to massive fines.
Unit 2: Managing a business
Marketing and the competitive environment
Monopoly and barriers to entry
Firms with more than 25% of the market continue to exist because it is extremely
difficult for a new firm to enter the market of a monopolist owing to high barriers
to entry.
Barriers to entry include:
• the high capital costs required to set up a new business in large markets
• patents that allow existing firms to ‘monopolise’ the market legally
• the loyalty of customers to existing firms
• the need for new firms to achieve large scale production quickly in order to be
competitive
Unit 2: Managing a business
Marketing and the competitive environment
Oligopoly
oligopoly: a market dominated by a small number of large firms known as
oligopolists.
Key features
• Non-price competition. If one oligopolist reduces price, the others follow suit
and so no firm gains. Therefore, rivalry is usually in the form of ‘non-price’
competition (e.g. special offers and advertising).
• Cartels. This is a group of firms that come together to agree price and output
levels within an industry. Cartels are illegal in the UK, but oligopolists may be
tempted to form them to keep prices high.
Unit 2: Managing a business
Marketing and the competitive environment
Monopolistic competition
monopolistic competition: when a large number of firms are competing in a
market, each having enough product differentiation to achieve a degree of monopoly
power and therefore some control over the price it charges.
Examples are hairdressers, cafés and gyms.
It is easy for a new firm to enter this type of market because the set-up costs tend
to be relatively low and the nature of the market is such that there is a constant flow
of businesses.
Unit 2: Managing a business
Marketing and the competitive environment
Perfect competition
perfect competition: where there are a large number of sellers and buyers, all of
whom are too small to influence the price of the product.
Key features
• All the sellers produce homogeneous (identical) products.
• Sellers are ‘price takers’ — they accept the ruling market price.
• The buyers all have perfect knowledge.
• There is freedom of entry into and exit from the market for firms.
Unit 2: Managing a business
Marketing and the competitive environment
Monopoly and the marketing mix
How does monopoly affect the marketing mix?
• Product. With only one organisation in the market, there is little need for new
product development.
• Price. Monopolies are price leaders/setters and can take advantage of the lack
of competition in the market in order to set very high prices.
• Promotion. There are high barriers to entry in monopoly, so it is unlikely that
new competition can emerge. Therefore, promotion will mainly be informative,
i.e. geared towards ensuring that customers are aware of the product and its
benefits, rather than persuasive.
• Place. This is a relatively important element of the marketing mix because
customers will be less likely to purchase products or services that are not
conveniently located.
Unit 2: Managing a business
Marketing and the competitive environment
Oligopoly and the marketing mix
How does oligopoly affect the marketing mix?
• Product. The product is crucial to success because a unique selling point can be
achieved.
• Price. Although price wars are a feature of oligopoly markets, price does not
tend to be the main element of the marketing mix because price wars lead to all
oligopolists losing profit.
• Promotion. Promotion is important in oligopoly because it is one of the major
ways in which product differentiation and unique selling points can be achieved.
• Place. Place is also important in oligopolistic markets, as consumers will prefer
easy access to the product.
Unit 2: Managing a business
Marketing and the competitive environment
Monopolistic competition and the
marketing mix
How does monopolistic competition affect the marketing mix?
• Product. Product is vital in monopolistic competition, as it is the critical way in
which a business can make its marketing mix different from the competition.
However, the vast number of competitors in this market makes it difficult to
achieve a completely distinctive product.
• Price. Firms accept that prices tend to be very similar and use other
mechanisms to compete.
• Promotion. The need to be price competitive is likely to limit promotional
budgets in monopolistic competition. Therefore, it is less significant than in
markets such as oligopoly, although more important than promotion would be in
a monopoly market.
• Place. Monopolistic competition features many small firms. Place can be very
important, as consumers want convenience.
Unit 2: Managing a business
Marketing and the competitive environment
Perfect competition and the
marketing mix
To a large extent perfect competition is a theoretical model, rather than one that
exists in the real world. Because all products are identical and firms are price takers,
there can be no distinction in products and prices between different firms competing
in a perfect market. Consequently, there is also no point in promoting a product that
cannot be distinguished from competition.
Unit 2: Managing a business
Marketing and the competitive environment
Competitiveness
competitiveness: the ability of firms to sell their products successfully within the
market in which they are based.
What factors affect the competitiveness of a business?
Identify one business that appears to be losing market share.
Identify one business that seems to be competing successfully.
What are the key reasons for the changes in competitiveness of these two
businesses?
Compare your answers to the main determinants of competitiveness found in
government surveys (see the next slide).
Unit 2: Managing a business
Marketing and the competitive environment
Determinants of competitiveness
According to government surveys, the main factors influencing competitiveness are:
• investment in new equipment and technology
• staff skills, education and training
• innovation through investment in research and development
• enterprise
Unit 2: Managing a business
Marketing and the competitive environment
Other factors determining
competitiveness
Other factors that determine competitiveness, and which are within the control of a
business, are:
• the effectiveness of the marketing mix
• incentive schemes for staff
• improvements to operational procedures
• quality procedures
• financial planning and control
Unit 2: Managing a business
Marketing and the competitive environment
Methods of improving
competitiveness
How can a business improve its competitiveness?
The AQA AS business studies specification highlights four main ways, but there are
potentially many more different ways.
In small groups, give a presentation to the group on how one of the four (AQA)
factors listed below might improve competitiveness:
• marketing
• reducing costs
• Improving quality
• staff training