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Marketing
Higher Business Management
2009 - 2010
What is a market?
• Meeting place for buyers and sellers
– examples include shops, restaurants, telephone
• Consumer Markets - individuals purchasing
goods/services for their personal use
• Industrial Markets - organisations
purchasing goods/services to use in the
production of other goods/services
What is marketing?
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Market Research
Promotion and Advertising
Direct Mail
Preparation of Publicity Material
New Product Development
Branding
Definition of Marketing
“The process involved in identifying,
anticipating and satisfying consumer
requirements profitably.”
The Chartered Institute of Marketing
Role and Importance of
Marketing
• Raise awareness of product/service
• Raise awareness of the organisation
• Target new and Retain existing customers
• Find out what customers want
• Monitor changing tastes/trends/fashions
• Allow an organisation to meet strategic
objectives (long-term aims)
Strategic Objectives
Covered in detail later in the course …
Examples:
• To increase or maximise profits
• To increase market share
• To extend the life of a current brand
• To become the market leader
• To increase the product portfolio
Marketing in Action
• A local authority may want to increase public use
of certain facilities
• A charity may want to increase donations or raise
awareness of the plight of others
• The police may want to raise awareness of certain
campaigns and reduce crime figures
• A local business may want to increase
profitability by making customers more aware of
their product/services
Identifying Consumers’
Requirements
• Encouraging repeat purchases
• Ensuring that a product/service continues
to meet consumers’ needs
• Identifying price and quality demanded
• Considering prompt delivery, packaging
and after-sales service
Anticipate Consumers’
Requirements
• What will be wanted in the future?
• Especially important when fashions/trends
change eg clothes/toys
• Also important in the case of technology
• Must develop products to stay ahead of
competition
Satisfy Consumers’
Requirements
• Businesses are often said to be consumer
focused - without consumers the business
would fail
• Good quality and value for money are
essential
• Prompt delivery, after-sales care and
price are crucial
Profitability?
• Some organisations use marketing
where profitability is not an objective
• Examples include schools and
hospitals
American Car Industry
• American manufacturers tended to ignore
trends taking place in the rest of the world
where small, economical vehicles with lower
engine capacities were capturing an everincreasing share of the market.
• American vs Japanese beliefs over the market
in America
• 1970s - fuel, labour and raw material costs
made American cars expensive to buy and run.
Swatch
• 1980s - well executed marketing plan
• An inexpensive, good-quality quartz analog watch
could rival the saturated digital market
• Watches were to be a fashion accessory first and
a watch second
• Repeat purchasing was encouraged
• Point of Sale was chosen carefully - not to flood
the market
• Marketing is far more than just
selling the product.
• It is concerned with what is to be
sold, how it is to be sold, when it is to
be sold and where it is to be sold.
Assessing the Market
• Where are the consumers?
• How many consumers are there?
• Attitudes and Preferences of consumers
• Effective distribution methods
• Strengths and weaknesses of competitors
Product-Orientated
Organisations
• Feeling of no need for change or product
development – no real competition
• May be a new invention
• Might be strong advertising eg Henry Ford:
“customers can have any colour they want
as long as it is black”
Customer-Orientated
Organisations
• Modification of products or services in response
to changes in the market
• Profits/success depend on meeting customer
needs
• 1980s and 1990s – customers became more
knowledgeable as to what was available on the
market and the level of competition increased.
• Consider the customer before production
commences
Apple iPod
What factors might have influenced
Apple to launch its iPod range?
BS p142 Q1
Apple iPod
• Developments in technology
• Changing tastes and fashions eg
downloading
• Competition
• Economic growth – disposable income
The Marketing of Products and
Services
• Marketing also applies to industrial
goods and services!
• Crucial considerations
– Performance and quality
– Link between buyer and seller closer
– Branding may be less common
Service? What Service?
• Intangible – can’t be handled or tested
• Sold and consumed at the same time
• Perishable – can’t be stored
• Quality may be variable even in a controlled
environment eg McDs
• CONCENTRATE MARKETING ON QUALITY
The Marketing Environment
Consumer Trends
and Behaviour
Competition
The Economy
THE MARKET
Government
Technology
The Consumer
• Why buy one product rather than
another?
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Age
Gender
Disposable Income
Household status
Social Class (see pp13-15 notes for
tables)
Tastes, Fashion, Lifestyle
• Persuasive power of advertising and
promotion
• A life-style is a behaviour pattern adopted
by a particular community
• Health and nutrition awareness
• Environmental issues
The Government
• Legislation and economic policy
• Consumer protection laws – including our
statutory rights
• Minimum standards in manufacture
• Deregulation of financial services
Technology
• The creation of new markets and the
decline of others
Economic Forces
• Low interest rates have fuelled the
housing market and consumer demand
for goods and services
• Recently this has been affected by
“the credit crunch”
Market Segmentation
“the breaking down of markets into
increasingly homegeneous sub-groups
that can be targeted with a specific
marketing mix”
Kotler
Why Segment?
• Meet buyer requirements more closely
• Advertising and promotion more focused
• Specialise in particular segments
• Achieve higher sales
• Increase profits
Methods of Segmentation
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Age
Gender
Socio-economic group
Education level
Income
Religion
Ethnic grouping
Family structure
Residential area
Lifestyle preferences
– (hobbies, political, values & opinions)
Personal Selling
• Even the smallest segment
may have thousands of
potential customers
• A standardised marketing
package cannot hope to
have equal appeal to every
single individual.
Niche Marketing
• Aiming a product at a small market segment
• Examples:
– The Whisky Shop
– Saga
– Aston Martin
• Allows:
– Expertise to be built in product or customer
– Avoids competition
• Risk of failure – reliance on a small group of
customers
Working Lunch – Lunch Lessons
Vinyl Records
Niche Marketing
Having a High Market Share
• Power to buy raw materials in bulk
• Special components – can make them
themselves
• Research and development – profits
reinvested
• Economies of scale
Differentiated Marketing
Involves providing different products
and services for particular segments
Undifferentiated Marketing
• Involves aiming products and services
at the population as a whole without
producing different products for
different market segments
eg Heinz Beans
Market Research
The systematic gathering, recording
and analysing of data about an
organisation’s products and/or
services and its target market
Why Market Research?
• To anticipate changes in customer tastes
• Keep ahead of competition
• Meeting customer needs
• Correct pricing and promotion
• Correct distribution chain
• Attract new market segments
What Information is Provided?
• Size and nature of target market
• Age, sex, income and preferences of customers
• Effectiveness of selling/advertising methods
• Customer opinions
• How a test product could be improved
Market Research Methods
• Field
Research
• Desk
Research
• Primary
Information
• Secondary
Information
Personal Interview
Advantages
Disadvantages
• 2-way
communication
• Expensive (time
and training)
• Encourage answers
• Home interviews
are unpopular
• Misunderstandings
resolved
Focus Groups
Advantages
• Qualitative
information gained
Disadvantages
• Difficult to analyse
Telephone Survey
Advantages
• Relatively inexpensive
• Immediate response
• Large number can be
surveyed quickly
Disadvantages
• Hostility can be
encountered
Postal Survey
Advantages
• Inexpensive – no
trained interviewer
Disadvantages
• Questions must be
simple to answer
• Response rate is low
• Often need prizedraws etc to
encourage response
Hall Test
Advantages
• Qualitative
information gained
Disadvantages
• Difficult to analyse
• Results can be flawed
– complimentary
comments Qualitative
information gained
EPOS (inc Loyalty Cards)
Advantages
• Accurate customer
profiles
• Offer promotions
linked to customer
needs
• Monitors brand loyalty
Disadvantages
• Expensive to set up
Observation
Advantages
• Qualitative
information gained
Disadvantages
• Can’t ask questions
that explain actions
– no direct contact
with customer
Consumer Panel
This is a group of people who are
consulted on their reactions to a
product over a period of time.
eg a number of households
throughout the country have the TV
programmes they watch monitored
electronically
Test Marketing
Advantages
• Highlights aspects
of product which
are disliked
• Saves expensive
national launch
Disadvantages
• Regional tastes may
not be
representative
Structure of a Questionnaire
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Purpose clearly stated
Easy-to-use layout
Relevant questions
Not rely on memory
Concise
Start with few questions to gauge
suitability
• Avoid jargon
• Logical order of questions
Sampling
• When conducting market
research it is often not feasible
to question every potential
respondent.
• A sample has to be selected …
but how?
Random Sampling
• Individuals preselected from a list
• Each person has an equal chance of
being chosen
• No bias involved in selection –
however may be unrepresentative
of population
• Must interview people selected –
expense!
Stratified Random Sampling
• Makes a random group more
representative
• Sample is divided into segments
with a representative sample then
chosen from each group
• More administration and effort
than simple random sampling
Quota Sampling
• Interviewers are given
targets for the number of
people out of each segment
(eg age, sex, marital status)
they must interview
• More targeted method of
sampling the population
interested in particular
goods/services
Other Sampling Methods
• see Additional Handout
– Cluster Sampling
– Multi-Stage Sampling
– Snowballing
Problems with Market Research
• No Guarantees
– eg New Coke – returned to original recipe
– eg Levi’s failed to enter men’s suit market
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Sampling Bias
Human Behaviour
Interviewer Bias
Size of Sample
Expense of gathering information
Benefits of Market Research
• see Additional Handout
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Decision Making
Reducing Risk
Link with the Outside World
Size of Markets
Public Relations
The Marketing Mix
Promotion
Product
Price
Place
Product
The goods/services that the customer
purchases.
The product includes the packaging, image,
guarantee and after-sales service.
– Core Product
– Actual Product
– Augmented Product
Branding
• Distinguishing a product from its
competitors
• Could be name of company or product range
eg Virgin or Mr Kipling
• Can you identify the brands?
• Remember own-brands!
Quick
Fire Quiz
Why Brand?
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Save money on marketing
Higher prices can be charged
Customers become brand loyal
Easier to launch new products
• Might have to fight against fake
goods using ‘brand name’
Federation Against Copyright Theft
Major brand
manufacturers find it
almost impossible to
prevent the production
of fake items,
particularly in the Far
East.
Product Life Cycle
Shows the different stages a new product passes
through over time and the sales expected.
Include any relevant diagrams in product life-cycle or
product mix questions. Remember to label your diagrams.
Stages of Product Life Cycle
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Research and Development (not in this diagram)
Introduction
Growth
Maturity
Saturation
More details
Decline
to follow …
Research and Development
• Undergoing R&D during this initial stage
• Costly and time-consuming
• Prototypes
• Extensive testing
Introduction
• Product is launched onto the market
• Costs of holding stock, advertising
and promoting the product high
• Few competitors and usually a high
price
Growth
• Sales increase significantly
• Customer knowledge of product
increases
• A few competitors launch products
Maturity
• Product becomes commonplace
• Growth begins to slow down
• Competition increases
• Price falls
Saturation
• Competition becomes fierce
• Prices tumble
• Customer tastes begin to change
• Not all competing products survive
Decline
• Other new advanced products are
launched
• Sales fall
• Prices become very low
• Product is withdrawn from the market
… going on forever?
• Mars, Persil, Heinz Baked Beans, Coca-Cola
appear to never reach the decline stage
• Successful extension strategies
• Constant brand promotion
• No close rivals
Extension …………….. Strategies
• Improve the product
• Change the packaging
• Change the use
customers have for a
product
• Change the channel of
distribution
• Rebrand the name of
the product
• Change product prices
• Produce line
extensions
• Change the promotion
Extension …………….. Examples
• More frequent use was made of airlines with
reduced cost carriers eg Easyjet.
• Selling mobiles and computers to the home
market.
• Firelighters now used for barbecues.
• New versions eg Irn-Bru: fruit chews and alchopops
• Styling changes eg football strips
Product Mix (Portfolio)
• Businesses plan the introduction of
new products to replace existing
ones before they become
unprofitable
• Products at different stages on PLC
• Keeps profits stable
Product Mix (Portfolio)
• Baxters Food Group have a product
portfolio which includes jams, sauces,
pickles and soups.
• Allows Baxters to reduce risk
• Baxters can also meet the different needs
of consumers, increase profits and raise
the businesses profile!
Boston Matrix
Another
method of
showing the
Product Mix
Product Development
• see Additional Handout
• New products have an
extremely high failure rate –
only 2% of product ideas
become successful products
Price
An important indicator of quality and
image providing consumers with a way
of making value-for-money
judgements.
Different Markets …
Difference in Importance
• White Emulsion Paint:
– Price is critical
• Fashion Clothing:
– Price outweighed by style
and design
What Price?
• The price for a product should be based on
what the customer is prepared to pay:
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Competitors’ prices
Position of product in PLC
Cost of manufacture
Time of Year
Profit Level Expected
Suppliers’ Prices
Point of Sale
State of The Economy
Government Pressure
Pricing
• Long-Term Strategies
– Low Price
– Market Price
– High Price
• Short-Term Tactics
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Skimming
Penetration
Destroyer
Promotional
Demand Orientated
Long-Term Pricing
• Low Price:
– Where there is Price Elasticity of Demand ie low prices =
much higher sales. Used where no brand loyalty, eg
supermarket DVDs and CDs are lower than market price
• Market Price
– Where price competition is of no benefit eg petrol prices
(no effect on demand)
• High Price:
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High-quality premium goods/services
USPs or patents
Where supply of goods is restricted
Newly launched innovative products
Short-Term Pricing
The next slides illustrate examples
of Short-Term Pricing Strategies …
Price Skimming
• Company launches a new product
• High initial price allows R&D costs to be
recouped before competitors enter the
market
• Price will gradually fall
• Most common example: Home Electronics
Penetration Pricing
• Competitors already sell in the
market
• Set a price lower than competitors
• Once the product is popular, the
price is raised
Destroyer Pricing
• Trying to eliminate the Competition –
setting an artificially low price
• Business will make a loss initially
• Prices will then rise possibly above
current market price
Promotional Pricing
• Boosting sales in the short-term
• eg Supermarkets use promotional
pricing as loss-leaders
• Attracts customers (hopefully to buy
other products too!)
Demand-Orientated Pricing
• Prices varies with demand
• eg crops
– Higher price when poor harvest – less
supply available
see price discrimination
on the next slide
Price Discrimination
• Different Prices for the same
product!
• Depends on the time of day, year
or usage
• Can you think of some examples?
Setting the Selling Price
• Cost-plus pricing:
– adding a % profit to the cost of
manufacture
• Contribution pricing:
– Taking the total cost of manufacture
(including wages etc) and sharing among
the number of units expected to be sold.
If the price is set above the
contribution to fixed costs a profit will
result
Place
• The Channel of Distribution is:
“the
route taken by a product as it
passes from the producer to the
consumer”.
• Ownership of goods not physical movement.
The Channels of Distribution
The Channels of Distribution
• Each link in the chain means
the end cost to the
consumer will be higher:
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Transportation
Storage
Advertising
Insurance
• Each reseller will want to
make a profit for the
service they are providing
Agents
• Provide a link between buyer and
seller in exchange for commission
• Often used by organisations entering
a foreign market – knowledge of laws
etc.
• Examples:
– estate agents
– travel agents
Brokers
• Also provide a link between buyer
and seller
• Examples:
– Insurance
– Share dealing
– Commodity markets such as coffee and
metals
Factors affecting Distribution
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Product being sold
Legal restrictions
Changes in buying habits
Existing buying habits
Finance available
Reliability of other companies
Desired image of the product
Stage in Product Life Cycle
Manufacturer’s distribution capability
Wholesaler
• Provides a link between producer and
retailer
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– Source of marketing information
Buys in bulk
May finish off packaging and pricing
Reduces producer's risk
Could destroy the producer’s
marketing mix (poor promotion)
Retailer
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Located close to customers
Established customer base
Breaks down the bulk
Information and advice provided
Related services eg credit facilities,
hire-purchase and after-sales-care
Speaking the Customer’s
Language
Types of Retailer
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Independents
Multiple Chains
Supermarkets
Co-operatives
Department Stores
Specialist Stores
Franchises
Discount Stores
Other Methods
• Direct-Selling/Internet selling
• Mail Order
• Direct Response Advertising
– Newspapers/magazines
– Direct “junk” mail
• Personal/Door-to-Door/Telephone
Selling
• Television Selling eg QVC
Retailing Trends
• Out of town shopping
– Food outlets
– Leisure facilities
– Parking
• Extended opening hours
• Domination of supermarkets eg ASDA
Walmart
• Increase in internet shopping
Promotion
• Advertising
• Sales Promotions
• Public Relations
The way in
which a customer is
made aware of
a product
or service and is
persuaded to purchase it
Promotion
• Above the line:
use of TV/Newspapers – large
audience, some of the promotion is
‘wasted’
• Below the line:
sales promotions/direct mail/personal
selling – targeted audience
also to
remind
consumers!
Advertising
• Informative
– New or improved products / Government
• Persuasive
– Powerful images and language
• Corporate Advertising
– Whole company adverts
• Generic Advertising
– Whole industry advertising
Advertising
• Product Endorsement
– Famous sports-person or celebrity is
paid to wear a particular product
• Product Placement
– A firm pays for its products to be used
in films or television
Advertising Media
• Products aimed at the whole market are
usually advertised during very popular TV
programmes eg Coronation Street
• 3 main types of advertising media:
– Print
– Broadcast
– Outdoor
Advertising Media
• See notes pages 36/37
Advertising Decisions
• Effect of advertising on sales?
• Who, What, Where, Why, When?
• Why do consumers NOT buy?
• Which combination of media?
Choice of Advertising
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The product to be advertised
The market segment to be targeted
The type of coverage required
The budget !
Competitors’ actions
Technical nature of the product
Size of organisation
Legal restrictions
Controls on Advertising
• Advertising Standard Authority
– Legal, honest, truthful and not cause offence
• OfCom (replaced powers of ITC)
– Newsreaders
– Actors – commercial breaks
• Pressure Groups
• Trade Descriptions Act 1968
– Products must match the claims made by them
Sales Promotions
short-term inducement to
encourage customers to
react quickly
vs
Advertising – a long-term
process to build brand
image and loyalty
Promotions into-the-pipeline
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Dealer Loaders (6 cases for 5)
Point-of-Sale Displays (Real Deals/JML)
Dealer Competitions
Staff Training (deal more effectively with customers)
Sale or Return (newspapers/sandwiches)
Extended Credit (possibly several months)
Promotions out-of-the-pipeline
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Free Samples/Trial Packs (often on magazines)
Bonus Packs (eg 50% free)
Free Offers (50p off)
Buy one get another product free
Coupons/Vouchers (possibly for next purchase)
Credit Facilities (possibly 0% for 6 months)
Tastings/Demonstrations (test drives)
Competitions (scratch cards especially in newspapers)
BOGOF!
Merchandising
Public Relations
• Communication with:
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Public
Press
Government
Shareholders
• Planned to enhance the organisation's image
• Role includes:
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Press statements
Charitable donations
Sponsorship
Product endorsement
Customer care
Publicity
• Public Relations = time and money
• Publicity can be free eg news
broadcasts/magazine articles
• Danger of bad publicity:
– Fires
– Scandals
– Product side-effects
Public Relations & Publicity
• Provide information
• Build confidence/awareness
• Develop goodwill
• Support other areas of the
Promotional Mix eg advertising
Congratulations
You have completed
Marketing
in
Higher Business Management