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A2 Business Studies
OCR F293 Marketing
Q&A
Rapid Revision Handbook
 Step by step guide to key concepts
 Question and Answer format
 Glossary
Richard Young
2010 Edition
A2 Marketing
Contents
The market........................................................... 2
Role of marketing.............................................. 2
Relationship of marketing to business
decision making................................................. 2
Orientation........................................................... 3
Market segmentation ........................................... 4
Market Segmentation ...................................... 4
Market share and market growth .............. 6
Buyer behaviour................................................ 7
Marketing and the Law........................................ 8
Marketing and the law .................................... 8
Market research ..................................................... 9
Sampling Methods ......................................... 11
Data Analysis ................................................... 13
Marketing Planning............................................ 16
Market plan ...................................................... 16
SWOT Analysis ................................................ 17
Objectives.......................................................... 17
Ansoff and Porter Strategies ..................... 18
Porter’s Generic Strategy............................ 19
International marketing................................... 19
Overseas distribution................................... 19
The role of the EU .......................................... 21
The Marketing Mix ............................................. 22
Blending the Marketing Mix....................... 22
Product .................................................................... 23
Product differentiation ................................ 23
Product Portfolio ............................................ 23
Value Analysis.................................................. 24
Product Life Cycle .......................................... 25
Boston Matrix................................................... 26
Product Mapping ............................................ 27
New Product Development ........................ 27
Price.......................................................................... 29
Why price is important ................................ 29
Elasticity............................................................. 30
Income Elasticity of Demand..................... 32
Pricing Methods................................................... 33
Cost Based Pricing Methods....................... 33
Customer based pricing............................... 36
Competition based pricing ......................... 37
Promotion .............................................................. 38
Promotion mix................................................. 38
Above the line .................................................. 39
AIDA and DAGMAR........................................ 40
Below the line .................................................. 41
Place (distribution) ............................................ 43
A2 Marketing Glossary...................................... 45
1st Edition. First published 2010 © Richard Young.
All rights reserved. The right of Richard Young to be identified as the author of this Work has been
asserted in accordance with the Copyright, Designs and Patents Act 1988.
| The market
1
Stratified sampling involves segmentation. The population is separated into different sub
groups sharing similar characteristics. A sample is taken from each sub group. Used
when answers to questions are vary between segments.
In cluster sampling the target population is divided into groups (clusters). Clusters are
then selected at random from which a random sample is taken. A cost effective method
of sampling for widely dispersed populations.
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What types of non-probability sampling techniques can a firm use?
Convenience sampling a good source of data in exploratory research It is used by firms
for small-scale research where time, finance and ability to travel are limited. A relatively
small sample of people who can be reached easily is used eg existing customers. High
risk of unreliability. To ensure greater reliability a quota may be also used ie equal
numbers of men and women to be asked
Snowball sampling is where one individual being surveyed suggest other people. Firms
used snowball sampling where it is difficult to get a list of respondents
Quota sampling. The population is segmented into sub-groups eg by age or sex. A
business then selects respondents to interview eg a survey of magazine buying habits
can ask 20% men, 80% women, 10% aged 50+, 25% aged 18-25 – the weightings reflect
the population. Quota sampling is quick, inexpensive and convenient – if open to bias.
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Distinguish between random stratified and quota sampling. Both methods use
segmentation. In random stratified subjects are chosen by chance while in quota the firm selects
those to be interviewed.
Why use cluster instead of random sampling? Cluster sampling is used when surveying a list
of randomly chosen subjects involves too much time, travel or expense. Eg: suppose the target
audience is adults living in the EU. Random sampling involves the researcher travelling all over
Europe to interview subjects. An alternative is to select a few geographical areas at random and
interview every subject in a given town. More interviews take place in a given time period.
Which sampling method is best? Each method of sampling has its strengths and limitations.
The key issues are cost, time, ease of contacting representative respondents, and the extent to
which the consumers in the main market have similar or different characteristics.
Is sampling always completely reliable? Sampling an entire population means there is always
the chance that the respondents selected do not give answers representative of the whole target
population. Two statistical indicators summarise the amount of “certainty”
Confidence levels indicate how sure a firm can be that survey results are representative,
expressed as a percentage. A 95% confidence level means that there is a 5%, or 1 in 20,
chance of being ‘wrong’ or a 95% chance of being right
Confidence interval or margin of error: is the range of data within which the mean is
expected to lie and is usually shown as a ± (plus or minus) percentage. See sampling
error for an example.
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Explain sampling errors. Sampling error is the chance a samples’ answers may not reflect the
target population and is measured by the confidence interval.
How are sampling errors measured? Statisticians calculate a) the confidence level and b) the
confidence interval. This is the range of data within which the mean is expected to lie and is
usually shown as a ± (plus or minus) percentage.
Eg if 75% of respondents say they will try a firm’s new product, then given a confidence level of
95% & confidence interval of 3 , the firm can be "sure" that, 19 times out of 20, had the entire
population been asked, then between 78% (75+3)and 72% (75-3) would have picked that
answer.
12
Sampling Methods |
o the external environment eg customers, competitors and the economy,
Set marketing objective eg increased sales or market share
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What is the best strategy? Market planning is likely to suggest alternative action plans for
meeting set objectives. The best marketing strategy the one is most likely to deliver set
objectives given the current context of the business, its resources and external environment.
Ansoff and Porter Strategies
What is Ansoff’s Matrix? Ansoff’s matrix outlines potential
growth strategies by increasing sales in existing or new
markets with existing or new products.
Ansoff’s matrix identifies four options for achieving growth.
Explain market penetration. Market penetration is where
a firm focuses its activities on building sales of an existing
product in a market in which the business is already
operating. This is a low risk option as the firm is operating in
a known market with an established product. The pricing
strategy may be to cut price and the promotion strategy uses point of sale displays/
Explain market development. Market development seeks to find a new market for an existing
product. This can be a high-risk strategy if the firm has little experience of operating in the new
market. A place strategy may be to set up new distribution channels eg the web.
How can a firm reduce the risk associated with market development? Careful market
research and planning reduces risk. Particular care needs to be taken if targeting:
A new market segment. The firm needs to balance the benefits of meeting the specific
needs of the target sub market against the additional costs of offering tailored products.
Overseas market. The firm needs to be fully aware of the cultural, financial (eg exchange
rates) and legal difficulties involved.
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Explain product development Product development means launching a new or improved
product to an existing market eg orange flavoured Kit Kats. This strategy is often used when a
product is in need of an extension strategy because it is in the decline stage of its product life
cycle. NB a new product can be a new product for the firm or an innovation for the market
Explain diversification. Diversification involves targeting a new market with a new product.
This is a high risk strategy because the firm is developing new products for unfamiliar markets.
Why diversify? Firms diversify when existing markets and products offer little prospect of
meeting objectives. Moving into new markets with new products is a high risk strategy and can
be justified given potentially high rewards. Firms opt to diversity when existing markets are
highly competitive, market share is static, existing markets are in decline or if the firm wants to
spread risk across several products.
Are firms free to select any Ansoff strategy? A given marketing strategy depends on
Overall corporate objectives. If the business aims to become the market leader within 12
months a market penetration strategy is more likely than diversification
Resources The financial and human resources available are key factors. A firm may not
be able to fund or staff the market research and R&D needed for product development.
Capacity Firms operating close to capacity are unlikely to adopt a growth strategy
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Ansoff and Porter Strategies |
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Take advantage of new technologies
Create new products to make use of spare capacity
What are the drawbacks of NPD? Developing new products requires financial and human
resources. The launch requires a supporting marketing campaign with no guarantee of success
What are the main stages of product development? The first step in new product
development (NPD) is generating ideas. Suggestions for new products come from within the
firm eg research and development department or the marketing department’s analysis of
market research findings. Sometimes competitor analysis can be used to improve on existing
products from a rival.
The next stage is to screen ideas and eliminate some product proposals.
Concept development lists the product’s functions and benefits. A lowcost option is to create an ‘artists impression’ so that others can ‘get’ the
appeal of the proposed new product.
Concept testing involves asking potential customers to assess the
proposed new product.
Business analysis sets marketing objectives and identifies a suitable
integrated marketing mix. At this stage the function and appearance of
the product, together with its price, promotional strategy and distribution
method are decided.
The product is now developed including packaging. This allows potential
production challenges to be identified and countered. A prototype can
also be shown to potential distributors and customers, and feedback
sought. Test marketing may involve trialling the product with selected
customers when a given region. The final stage is the product launch
with associated marketing.
What is the role of market research in new product development? Market research
identifies market opportunities for new products; monitors and evaluates customer responses
to test marketing allowing improvements to be made and predicts sales at different price points
to establish potential profitability
How is product development financed? The process of research and development (R&D) test
marketing, and promotion can be very expensive. Many new products fail. Innovative firms with
high profit margins can generate the internal finance needed for new product development
What are lead times? Lead time is the time taken to develop and test new products. Reducing
lead times is a source of competitive advantage: new products are launched sooner than rivals
Do new products always succeed? It takes time and resources to get a product established.
Most products fail during launch, never reach the growth stage of the product life cycle because
Inaccurate initial market research overestimates demand and revenue.
Production delays means the product no longer meets evolving customer requirements
distribution problems mean consumers cannot buy the product
Costs are underestimated and the product cannot be sold at price that allows a profit
Design faults or manufacturing inadequacies means the item fails to fulfil function.
The product is a ‘me-too’ product no different form established market leaders
Rivals react by launching their own new product or enter into a price cutting war.
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28
New Product Development |
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Profit maximising firms may opt for creaming prices for new products and price
discrimination in sub markets
Growth seeking firms may opt for penetration prices
Firms in a recession or price war may opt for short term contribution prices to survive
until trading conditions improve
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How do firms price existing products? A firm’s pricing decision depends on its:
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Marketing objectives: growth seeking firms may opt for penetration prices
Market conditions: Firms in a recession may opt for short term contribution prices
Firms setting ‘low’ prices may be chasing market share, seeking extra sales to overcome cash
flow problems, or trying to drive out new or uncompetitive rivals from the market
Promotion
Promotion mix
What is promotion? Promotion is the process of business communicating with stakeholders
List the aims of promotion Potential promotion objectives include:
Inform: ie raise consumer awareness of a product, its functions and benefitsparticularly important for new products
Persuade: convince consumers and the trade that a product is superior to rivals
Branding to create product differentiation in the mind of the consumer
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How can firms promote products? Businesses use a mix of advertising, direct response
mailing, sales promotion, public relations or direct selling to promote products.
Why is promotion important? Excellent products with the right features, price and
distribution fail if customers are unaware of the good or service.
Distinguish between above the line and below the line promotion. Above the line promotion
is the use of non-targeted mass media advertising to reach a mass audience. The aim is to raise
product awareness and reinforce brand identity. Below the line promotions is the use of
targeted non-advertising methods to reach potential customers. The aim is to secure sales.
Above the line
Below the line
Definition
the use of non-targeted mass media
advertising to reach a mass audience
the use of targeted non-advertising
methods to reach potential customers.
Aim
Raise awareness
Secure sales
Audience
Mass
Targeted
Methods
television, newspaper, magazine, radio,
posters, internet and cinema advertising
Sales promotion, personal selling, public
relations, direct mail and sponsorship
List below the line promotion methods. Sales promotion, personal selling, public relations,
direct mail and sponsorship
38
Promotion mix |
A2 Marketing Glossary
4Ps: the traditional elements of the
marketing mix: product, price, promotion
and place
Above the line: the use of non-targeted
mass media advertising to reach a mass
audience. The aim is to raise product
awareness and reinforce brand identity.
Advertising: paid for non-personal
communication using mass media that
aims to persuade and inform
Advertising elasticity: measures their
responsiveness of demand to a given
change in advertising
Agent: individuals or businesses that sell
products on behalf of an organisation
AIDA: a communication model which aims
to obtain Attention, Interest, Desire and
Action
Ansoff's matrix: a framework for
identifying four strategic options for
growth in terms of markets and products
Asset led: firms markets products that (a)
match customers want and (b) match their
own strengths
Audit: an investigation into an area of
business activity
Average cost: the cost of making one item
ie unit cost
Below the line: the use of targeted nonadvertising methods to reach potential
customers. The aim is to secure sales.
Benefit: the gain obtained from the use of
a particular product
Boston matrix: a tool used to analyse the
product portfolio of a business against
market share and market growth
Brand: a named product customers
distinguish from other products eg
McDonalds
Branding: the process of creating a
distinctive image for a product that sets it
apart from its rivals
Break even: the minimum level of units
sold for revenue to cover all costs - the
business is making neither a profit or loss
Budget: an agreed plan forecasting future
income and expenditures or other
quantifiable targets
Budget holder: the individual responsible
for a particular budget and accountable for
explaining adverse and favourable
variance to their line manager
Business activity: the process of turning
inputs such as raw materials into outputs
ie goods and services
Business cycle: fluctuations in the level of
economic activity over time causing booms
and slumps. Also called the economic cycle.
Business to business (B2B): describes
activities between businesses, eg
manufacturer to wholesaler; wholesaler to
retailer.
Business to customer (B2C): describes
the activities of businesses selling goods or
services to end consumers.
Buying behaviour: the decision process
customers go through in deciding whether
or not to purchase a good or service
Calculated risk: a number value of the
chance of bad outcome from a decision. Eg
a 75% or 75:25 chance of a new business
surviving its first year.
Cannibalisation: one part of a business
grows by taking sales from another
Cartel: a group set up by rival firms to take
common action eg agree prices, market
share or exchange information on costs
Cash cow: in Ansoff's matrix a product
with high market share in a slow growing
market
Clearing price: market clearing price is
the one price which leaves neither unsold
products nor unsatisfied demand ie
equilibrium price.
Collusion: when rival producers
cooperate or collaborate eg agree a
minimum market price.
Commission: payment method linked to
sales eg 10% commission means a £10
bonus for every £100 of sales
Competition: when rival firms in the same
industry contend for customers
Competition pricing: when the selling
price of a firm's product is set taking into
account the price charged by rivals
Competitive advantage: being able to
offer a product which customers prefer to
rivals
Competitive market: an industry made
up of many rival sellers each competing for
the same customers.
Competitor analysis: the process of
identifying and analysing a competitors
strengths and weaknesses
Confidence levels: the number of times
out of 100 the results of a survey are
expected to be representative
Constraints: factors that restrict business
activity, both internal and external
| Below the line
45
Focus group: a small meeting of
customers discuss a product or topic,
guided by a moderator
Forecast: an attempt to estimate the
future value of a variable eg sales
Full costing: a costing method where all
direct and indirect costs are allocated to
one business unit called a cost centre
Gap in the market: no business is yet
providing a product with a combination of
features customers may need eg medium
quality low priced fashion clothing
Globalisation: the process of ever
increasing business activity taking place
across national boundaries creating
worldwide markets and interdependence
Gross profit margin: the proportion of a
product's selling price that is gross profit.
Overheads are ignored.
Growth: an increase in production levels.
Expansion
Guerrilla marketing: unconventional
promotional tactics unexpected by the
target market
Image: perceptions of a product, brand or
organisation held by others
Imports: domestic purchase of goods and
services produced overseas
Income elasticity of demand: measures
the responsiveness of demand for a
product to a given change in income
Income tax: a government charge on
individual's earnings. Gross income less
income tax is disposable income
Industrial goods: goods bought by
businesses as opposed to consumers
Inferior goods: products whose sales fall
as incomes rise. Items with a negative
income elasticity of demand
Intermediaries: an agent or go-between
Invention: discovery or creation of a new
product eg DVDs and sliced bread
Laggards: consumers who purchase a
product in the late stages of its lifecycle.
Law: the body of rules that govern and
regulate the way our society operates
Loss leader: products sold at a price that
does not cover unit cost to encourage the
purchase of other profitable items eg
printers and printer ink
Luxuries: items whose demand varies
significantly with income. The demand for
luxury items is income elastic
Marginal cost: the cost of making one
extra item
Margin of safety: the difference between
the actual level and break even level of
output
Mark up: the amount added to unit cost to
set the selling price - usually expressed as
a percentage. The amount of profit from
the sale of an item.
Market: any place where buyers and
sellers meet to trade products eg a shop or
the internet
Market analysis: a study of customers
and competitors for a product that
identifies eg size, growth, trends and
market share
Market development: selling an existing
product into a new (for them) market.
Market growth: an increase in total
market sales - by value volume
Market leader: the firm with the largest
market share
Market led: where outward looking
consumer orientated firms only make
what they can sell
Market penetration: a low risk strategy
for growth by increasing sales of existing
products in existing markets
Market research: collecting and analysing
data about potential customers,
competitors, markets and products
Market segment: a section of the total
market made up of customers with similar
requirements and behaviours
Market share: the proportion of total
market sales held by a firm or one of its
products, expressed as a percentage.
Market share = product sales/ market size.
Market shortage: demand exceeds supply
at a given price. Consumers are unable to
buy all they want at that price.
Market size: total sales of all the firms in a
given market expressed by value (ie in
money terms eg £1bn) or by volume (ie
number of units sold eg 200,000 units).
Market structure: the characteristics of a
market eg the number of firms in the
industry, barriers to entry and the extent
to which rival firms compete for customers
Marketing: the management process
responsible for identifying, anticipating
and satisfying customer requirements
profitably. (CIM)
Marketing mix: the elements of a firm's
marketing strategy designed to meet
customer requirements eg product price,
promotion and place (4Ps)
Marketing objective: are the expected
outcome from marketing activities, eg to
| Below the line
47