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Marketing revision notes
Topic: Introduction to Marketing
What is marketing?
What makes someone buy a product? Or more importantly, what makes them buy the
product you are trying to sell? In business, you need to persuade a customer to part with
money in exchange for a good or a service. You have decide on what the product is
going to be like (e.g. shape, colour, size, features); at what price are you going to sell it;
where you are going to sell it (e.g. in a shop, over the Internet, by mail order); and how
you going to help the customer find out about the product (e.g. advertise in the local
newspaper or on the radio). Marketing is all of these things.
A market is a group of consumers, who could be individuals, businesses or governments
who might buy this type of product – for example, the market for running shoes or the
market for fresh flowers.
And marketing is often defined as:
“The process of identifying, anticipating (predicting) and satisfying customer
needs profitably”
What does it mean?
Identifying – finding out by using marketing research about current products, the
possibility of new products, and about current markets and possible new markets.
Anticipating (predicting) – analysing the data collected and using the managers’ skills
to judge what might happen in these markets and how the products might be suited or
changed, adapted or updated.
Satisfying customer needs – making sure the person, business or government is
happy with what they are buying, will not complain and will be happy to buy again if
appropriate.
Profitably – adding value to the product so when sold, the price of the product is greater
than cost of the inputs.
All of these marketing activities take place in a market.
Marketing revision notes
Topic: Kinds of Market
There are four main kinds of market:
Industrial markets: the market for manufactured products aimed at businesses, i.e.
capital goods e.g. engineering, construction.
Consumer markets: the market for goods and services that are sold to households e.g.
clothing, shampoo, holidays.
Commodity markets – market for primary products or raw materials e.g. steel, coal,
coffee.
Financial markets: the market for services that dealing with money e.g. banking,
insurance, accounting.
Much of your study of marketing will focus on consumer markets - since this relates to
the kinds of products and services that you, your friends and family buy.
Goods bought in consumer markets can be categorised in several further ways:
Fast-moving consumer goods (“FMCGs”)
- These are high volume, low unit value, fast repurchase.
- Examples include: Ready meals; Baked Beans; Newspapers.
Consumer durables
- These have low volume but high unit value. Consumer durables are often further divided
into “white goods” (e.g. fridge-freezers; cookers; dishwashers; microwaves) and
“brown/black goods” (e.g. DVD players; games consoles; personal computers).
Soft goods
- Soft goods are similar to consumer durables, except that they wear out more quickly
and therefore have a shorter replacement cycle. Examples include clothes, shoes.
Services (e.g. hairdressing, dentists, childcare)
Not all markets are the same. Some are very large, some small. Some markets are
focused on a particular location; others operate around the world. We need a measure of
a market – most often we talk about “market size”.
Market size means the number of customers in the market (either current or potential
buyers) and the amount (value or volume) that they buy.
One business rarely sells to all the customers in the market. They will have a share of the
market with the rest shared out amongst one or more competitors.
Market share by value: using sales in a specific period (usually one year).
Market share by volume : using units sold or bought as a measure of size.
Market share is an important idea. There is lots of evidence to show that businesses that
enjoy a large share of a market achieve higher profits than smaller competitors.
Marketing revision notes
Topic: Marketing Orientation
Businesses can develop new products based on either a marketing orientated
approach or a product orientated approach.
A marketing orientated approach means a business reacts to what customers want.
The decisions taken are based around information about customers’ needs and wants,
rather than what the business thinks is right for the customer. Most successful businesses
take a market-orientated approach.
A product orientated approach means the business develops products based on what it
is good at making or doing, rather than what a customer wants. This approach is usually
criticised because it often leads to unsuccessful products - particularly in well-established
markets.
Most markets are moving towards a more market-orientated approach because
customers have become more knowledgeable and require more variety and better quality.
To compete, businesses need to be more sensitive to their customers needs otherwise
they will lose sales to their rivals.
On the other hand some products are argued to create a need or want in the customer,
especially products with a very high technological content. Mobile phones have moved
from being a business accessory to being a big consumer brand item, with many
additional gadgets, such as pictures, video and Internet access. Innovations create the
need rather than the customer being able to second-guess how new technology is going
to develop.
Product orientated is not always worse, but for the purposes of your exam,
start with the assumption that they are market orientated!
Marketing revision notes
Topic: Role of marketing in business
Use this section to answer the “What does a marketing department do?” question!
Marketing is perhaps the most important activity in a business because it has a direct
effect on profitability and sales. Larger businesses will dedicate specific staff and
departments for the purpose of marketing.
It is important to realise that marketing cannot be carried out in isolation from the rest of
the business. For example:
The marketing section of a business needs to work closely with operations, research and
development, finance and human resources to check their plans are possible.
Operations will need to use sales forecasts produced by the marketing department to plan
their production schedules.
Sales forecasts will also be an important part of the budgets produced by the finance
department, as well as the deployment of labour for the human resources department.
A research and development department will need to work very closely with the marketing
department to understand the needs of the customers and to test outputs of the R&D
section.
Marketing revision notes
Topic: Segmentation
A market for a product is made up of different types of consumer who buy the product,
which can be subdivided into segments.
Market segments are an important part of marketing because markets consist of
customers with similar needs, or characteristics, these groups are known as market
segments. For example, consider the wide variety of markets that exist to meet the
following customer needs:
Need
Market Segments Created to Meet the Customer Need
To eat
Restaurants; fast-food outlets; grocery supermarkets
To drink
Coffee bars; wine & spirits production; milk production
To exercise Health & leisure clubs; sport equipment; walking holidays
To travel Airlines; railways; motor car industry; holiday industry
To socialise Introduction agencies; sporting events; pubs
As you can imagine, such markets (if they were not further divided) would be very broad
and of little use to someone wanting to make sensible marketing decisions.
Fortunately for those involved in marketing, customers in a market are not the same.
Customers differ in the:
 Benefits they want
 Amount they are able to or willing to pay
 Media (e.g. television, newspapers, radio stations) they see
 Quantities they buy
 Time and place that they buy
It therefore makes sense for businesses to segment the overall market and to target
specific segments of a market so that they can design and deliver more relevant products
and services
By splitting the market into segment it is easier to analyse who buys the product and then
aim to target these customers specifically. For instance if you know that it is mainly young
men under 21 who buy your product you might then advertise in magazines such as FHM
or Loaded, and not Vogue.
There now follows a more detailed examination of how a business might segment a
market.
Market segments
The main ways in which market can be segmented are into:
 Socio-economic grouping – see notes further below
 Age of the customer – for instance teenagers or old age pensioners
 Gender – male or female
 Size and composition of customer households – a household of say two
unmarried adults, or a single person living only or a family with 2 children and a
per dog
 Geographical location – e.g. London, Scotland
 Ethnicity and/or religion – e.g. Islamic or Anglo-Italian
 Educational background of customers – e.g. graduates or school leavers
Segmentation that divides the market into groups based on factors such as age, gender
and family size is known as “demographic segmentation”.
Socio-economic segments are widely used in marketing.
Marketing revision notes
The six standard socio-economic groupings in the UK are:
Group Description
Higher managerial, administrative or professional e.g. surgeon or company
A
director
B
Intermediate managerial, administrative or professional e.g. teachers, solicitors
C1
Skilled non-manual e.g. sales assistants, shop floor supervisors
C2
Skilled manual e.g. electrician, plumber
D
Semi skilled e.g. assembly line workers, cleaners
E
Unskilled, pensioners and unemployed
Age is a particularly important grouping because:
Members of the same age group tend to be at the same stage of their family life cycle,
e.g. new parents, and thus to have similar wants.
Consumers of a similar age also have similar financial circumstances (e.g. retired people
living on a pension and savings will have a different income they can spend compared
with students at university). They have also lived through similar cultural experiences so
will, to some extent, have shared values.
Marketing revision notes
Topic: Market research
Marketing research means finding out about the product and its marketplace. It is an
important part of identifying and anticipating customers needs. Once the product has
been bought, marketing research can be used to see if the customer was satisfied.
A business might carry out marketing research to:
 Find data and information that help a business understand what customers want
now or in the future.
 Find out whether current products are satisfying customers.
 Test new products by asking potential customers to try out the product.
 Assess the results of its promotional strategy – e.g. test the effectiveness of an
advertising campaign.
 Understand the activities and strategies of competitors.
The two main kinds of marketing research are
Primary (FIELD) research
Secondary (DESK) research.
Primary research
Primary research involves getting original data directly about the product and market.
Primary research data is data that did not exist before. It is designed to answer specific
questions of interest to the business - for example:
 What proportion of customers believes the level of customer service provided by
the business is rated good or excellent?
 What do customers think of a new version of a popular product?
 To collect primary data a business must carry out field research. The main
methods of field research are:
Face-to-face interviews – interviewers ask people on the street or on their doorstep a
series of questions.
Telephone interviews - similar questions to face-to-face interviews, although often
shorter.
Online surveys – using email or the Internet. This is an increasingly popular way of
obtaining primary data and much less costly than face-to-face or telephone interviews.
Questionnaires – sent in the post (for example a customer feedback form sent to
people who have recently bought a product or service).
Focus groups and consumer panels – a small group of people meet together with a
“facilitator” who asks the panel to examine a product and then asked in depth questions.
This method is often used when a business is planning to introduce a new product or
brand name.
In most cases it is not possible to ask all existing or potential customers the questions that
the business wants answering. So primary research makes use of surveys and
sampling to obtain valid results.
The main advantages of primary research and data are that it is:
 Up to date.
 Specific to the purpose – asks the questions the business wants answers to.
 Collects data which no other business will have access to (the results are
confidential).
 In the case of online surveys and telephone interviews, the data can be obtained
quite quickly (think about how quickly political opinion polls come out).
The main disadvantages of primary research are that it:
 Can be difficult to collect and/or take a long time to collect.
Marketing revision notes


Is expensive to collect.
May provide mis-leading results if the sample is not large enough or chosen with
care; or if the questionnaire questions are not worded properly.
DO NOT SAY A DIASDVANTAGE IS PEOPLE MAY LIE! WE CAN ALL, ALWAYS
LIE!
Questionnaires
Questionnaires are one the main tools in the use of field research. A questionnaire
contains a series of questions which gather primary marketing research data for the
business.
Questionnaires need to be designed carefully. The design of the questionnaire depends on
the following:
 Objectives of the questionnaire – what information is needed, at a minimum,
from customers who complete the questions?
 The type of person who is going to be asked – questions need be easy to
understand and also easy to answer depending on the person who is answering.
 How the questionnaire is going to be taken? – A face-to-face questionnaire
might include different questions to an emailed questionnaire. An interviewer will
be filling in a face-to-face questionnaire and the person may be able to ask for the
question to be rephrased if they do not understand it the first time.
The types of questions that can be asked can be split into three groups:
 Simple yes/no answers – e.g. have you seen the new advert for cornflakes
 Multiple choice – a number of options are available to the answer
 Sliding scale – a value is placed on an answer e.g. how do rate the performance
of this product – less than satisfactory, satisfactory, excellent (or could use a scale
of 1-10 with 10 being excellent and 1 being dreadful!).
Once the questionnaires are complete, the data is collated and analysed.
Marketing revision notes
Topic: Marketing strategy - introduction
Marketing strategies explain how the marketing function fits in with the overall strategy
for a business. Examples of marketing strategies could be:
Business
Strategy
Grow sales
Example Marketing Strategies
Launch new products
Expand distribution (e.g. open more shops)
Start selling products into overseas markets
Increase profits Increase selling prices
Reduce the amount spent on television advertising
Build customer Implement a public relations programme
awareness
Invest more in advertising
Once a strategy has been identified, then the business must develop an action plan to
turn the strategy into reality. The starting point for this plan is the setting of marketing
objectives…
Marketing objectives are the specific targets for marketing set by the business to achieve
their corporate objectives.
Examples of marketing objectives might be:
 Increase sales by 10%
 Launch a new product by the end of the year
 Achieve a 95% customer satisfaction rating
 Increase the number of retail outlets selling our products by 250 within 12 months
It is important for a business to set marketing objectives because managers can then
have targets for their work. They can then measure more effectively the success or failure
of their marketing strategies to achieve these objectives.
Marketing strategy - marketing mix
The marketing mix deals with the way in which a business uses price, product,
distribution and promotion to market and sell its product.
The marketing mix is often referred to as the “Four P’s” - since the most important
elements of marketing are concerned with:
 Product - the product (or service) that the customer obtains.
 Price - how much the customer pays for the product.
 Place – how the product is distributed to the customer.
 Promotion - how the customer is found and persuaded to buy the product.
It is known as a “mix” because each ingredient affects the other and the mix must overall
be suitable to the target customer.
For instance:
 High quality materials used in a product can mean that a higher price is obtainable.
Marketing revision notes

An advertising campaign carried in one area of the country requires distribution of
the product to be in place in advance of the campaign to ensure there are no
disappointed customers.
 Promotion is needed to emphasise the new features of a product.
The marketing mix is the way in which the marketing strategy is put into action - in other
words, the actions arising from the marketing plan.
Marketing revision notes
Topic: Products
What is a product? A product is “anything that is capable of satisfying customer
needs”. This definition therefore includes both:
Physical products – e.g. cars, washing machines, DVD players, take-away pizzas.
Services – e.g. dental treatment, accountancy, insurance.
Products are at the heart of marketing. The product needs to exist for the other elements
of the mix to happen.
Part of the marketing of the product is through product differentiation. This means
making the product different from its competitors. Product differentiation can be achieved
through:
Distinctive design– e.g. Dyson; Apple iPod.
Branding - e.g. Nike, Reebok.
Performance - e.g. Mercedes, BMW.
Most businesses sell more that one product. Often they will produce several similar
products that appeal to different customers. A collection of such products is known as a
“product group” or “product range”.
Good examples of product groups include:
Dell’s range of desktop and laptop computers.
Sony’s range of DVD players and televisions.
There are several advantages to having a product range rather than just one product:
Spread the risk – a decline in one product may be offset by sales of other products.
Selling a single product may not generate enough returns for the business (e.g. the
market segment may be too small to earn a living).
A range can be sold to different segments of the market e.g. family holidays and
activity holidays.
However a greater range of products can mean that the marketing resources (e.g.
personnel and cash) are spread more thinly. Recently Unilever, who make over two
hundred well known brands such as Dove and Flora margarine, decided sell some of their
product names to concentrate their investment on fewer products and brands.
Brands
A brand is a product with unique character, for instance in design or image. It is
consistent and well recognised.
Marketing revision notes
The advantages of having a strong brand are:
 Inspires customer loyalty leading to repeat sales and word-of mouth
recommendation.
 The brand owner can usually charge higher prices, especially if the brand is the
market leader.
 Retailers or service sellers want to stock top selling brands. With limited shelf space
it is more likely the top brands will be on the shelf than less well-known brands.
Some retailers use “own-label” brands, where they use their name of the product rather
than the manufacturers like Tesco’s “Finest” range of meals and foodstuffs. These tend to
be cheaper than the normal brands, but will give the retailer more profit than selling a
normal brand.
Some brands are so strong that they have become global brands. This means that the
product is sold in many countries and the contents are very similar. Examples of global
brands include: Microsoft, Coca Cola, Disney, Mercedes and Hewlett Packard.
The strength of a brand can be exploited by a business to develop new products. This is
known as brand extension – a product with some of the brand’s s characteristics.
Examples include Dove soap and Dove Shampoo (both contain moisturiser); Mars Bar and
Mars Ice Cream.
Brand stretching is where the brand is used for a diverse range of products, not
necessarily connected, e.g. Virgin Airlines and Virgin Cola; Marks and Spencer clothes and
food.
The logo on a product is an important part of the product. A logo is a symbol or picture
that represents the business. It is important because it is easy to recognise, establishes
brand loyalty and can create a favourable image.
Product life cycle
The product life cycle is an important concept in marketing because it describes the
stages a product goes through from when it was first thought of until it finally is removed
from the market. Not all products reach this final stage. Some continue to grow and
others rise and fall.
The main stages of the product life cycle are:
Introduction – researching, developing and then launching the product.
Growth – when sales are increasing at their fastest rate.
Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. new
competitors in market or saturation.
Decline – final stage of the cycle, when sales begin to fall.
This can be illustrated by looking at the sales during the time period of the product.
Marketing revision notes
A branded good can enjoy continuous growth, such as Microsoft, because the product is
being constantly improved and advertised, and maintains a strong brand loyalty.
Extension strategies extend the life of the product before it goes into decline. Again
businesses use marketing techniques to improve sales. Examples of the techniques are:
 Advertising – try to gain a new audience or remind the current audience, e.g. the
recent Kellogg’s Cornflakes adverts.
 Price reduction – more attractive to customers.
 Adding value – add new features to the current product, e.g. video messaging on
mobile phones.
 Explore new markets – try selling abroad, e.g. Robbie Williams trying to sell
more records in the US.
 New packaging – brightening up old packaging, or subtle changes such as
putting crisps in foil packets or Seventies music compilations.
 New uses – e.g. super glue
 New versions- Play station for example.
 New related products – Mars ice cream, for example.
One of the best routes to exam success is to link this with other parts of the marketing
mix. This means being able to say how price or promotion will change as the product
moves through it’s life-cycle.
Product Portfolios and the Boston Matrix
A business with a range of products has a portfolio of products. However, owning a
product portfolio poses a problem for a business. It must decide how to allocate
investment (e.g. in product development, promotion) across the portfolio.
A portfolio of products can be analysed using the Boston Group Consulting Matrix.
This categorises the products into one of four different areas, based on:
Market share – does the product being sold have a low or high market share?
Market growth – are the numbers of potential customers in the market growing or not?
How does the Boston Matrix work? The four categories can be described as follows:
Marketing revision notes
Stars are high growth products competing in markets where they are strong
compared with the competition. Often Stars need heavy investment to sustain growth.
Eventually growth will slow and, assuming they keep their market share, Stars will
become Cash Cows
Cash cows are low-growth products with a high market share. These are mature,
successful products with relatively little need for investment. They need to be managed
for continued profit - so that they continue to generate the strong cash flows that the
company needs for its Stars
Problem children or Question marks are products with low market share operating in
high growth markets. This suggests that they have potential, but may need substantial
investment to grow market share at the expense of larger competitors. Management have
to think hard about “Question Marks” - which ones should they invest in? Which ones
should they allow to fail or shrink?
Unsurprisingly, the term “dogs” refers to products that have a low market share in
unattractive, low-growth markets. Dogs may generate enough cash to break-even, but
they are rarely, if ever, worth investing in. Dogs are usually sold or closed.
Ideally a business would prefer products in all categories (apart from Dogs!) to give it a
balanced portfolio of products. This is to balance future revenues (Stars and Problem
Children), against current revenue to finance that (Cash Cows)
Marketing revision notes
Topic: Distribution or PLACE
Distribution is how the business gets its products to the customers. It does this through
four main distribution channels:
 Wholesalers
 Distributors / Sales Agents
 Retailers
 Direct
Wholesalers “break bulk” – they buy in large quantities from manufacturers and then
break them into smaller quantities to sell to retailers. This reduces transport costs to the
manufacturer (few journeys to wholesaler rather than many journeys to retailers) and
retailers can order in smaller amounts from wholesalers.
Agents provide a link between sellers and buyers. They are not employed by the company
but sell the products or services for a commission. The best examples of an agent are a
travel agent or an estate agent. For instance the travel agent will sell travel companies
holidays to potential holidaymakers and take a cut of the sales revenue.
Some businesses miss out the wholesaler, especially large multiples such as
supermarkets. They can order directly from the producer and then use their own system
of distribution. The advantage for a producer is that they get greater control over the
marketing of their product.
Other businesses use direct marketing as their key distribution channel. This is where they
sell directly to the customer. The most common channels for direct marketing are:
 Direct mail
 E-mails
 Mail-order catalogues
 Telephone sales
Selling overseas - exporting
Many businesses sell into overseas markets. This is known as “exporting”. Exporting is
not easy, for the following reasons:
Exchanges rates can change, making the prices of goods coming into or going out of
the country sometimes more expensive, sometimes much cheaper.
Language barriers mean that it can be difficult to communicate with potential buyers.
Different cultures mean that products are not suitable for certain countries, e.g. on
religious grounds.
Trade barriers, such as quotas, tariffs and legislation exist which can make it difficult to
actually place the product in that country, or certainly make it more expensive to sell
there.
The UK’s membership of the Europe Union (EU) has reduced the effect of trade barriers
for UK businesses.
The EU is a Single Market that has the freedom of movement of goods and services
within the market. The UK is part of the European Single Market which means it should
not face any barriers to trade, e.g. quotas and tariffs, which would add costs to their
exports.
Marketing revision notes
Promotion - advertising
WARNING!
When answering an question on advertising, my advice is steer clear of
advertising. IT IS A DULL ANSWER! It is NOT wrong, just boring. Much better
to use direct marketing or sales promotion. The poibnt is to show what you know.
Unless the exam question tells you it is a LARGE business, steer clear of
advertising on telly as it will be too expensive.
Advertising presents or promotes the product to the target audience through media such
as TV, radio, billboards to encourage them to buy.
When deciding which type of advertising to use – known as an advertising medium – a
business needs to consider the following factors:
Reach of the media – nationally or locally, the number of potential customers it could
reach.
Nature of the product – the media needs to reflect the image of the product; a
recruitment ad would be placed in a trade magazine or newspaper but a lipstick ad would
be shown on TV or women’s magazines.
Position in product life cycle – launch stage will need different advertising from
extension strategies.
Cost of medium – radio cheaper than TV, but may want to consider cost per head if
reaching a larger audience.
In the printed media, advertising can take two forms:
A classified advert is normally put into a newspaper by an individual and is expressed
solely in words and numbers.
A display advert is where space is bought in the newspaper or magazine and can be
filled with words and/or pictures.
Display adverts have more impact, but are more expensive.
Advertising can also be split into two main types:
Persuasive advertising - this tries to entice the customer to buy the product by
informing them of the product benefit.
Informative advertising - this gives the customer information. Mostly done by the
government (e.g. health campaigns, new welfare benefits).
Sometimes a business will employ an advertising agency to deal with its needs. An
agency plans, organises and produces advertising campaigns for other businesses. The
advantage of an agency managing the campaign is that it has the expertise a business
may not have, e.g. copywriters, designers and media buyers.
Businesses need to be fully aware of the laws that govern advertising. The main law is the
Trade Descriptions Act – goods advertised for sale must be as they are described. Also
the advertising industry has its own Code of Practice, and is regulated by the
Advertising Standards Authority where complaints about the nature of advertising
can be dealt with.
Direct marketing
Direct marketing is aimed directly at the customer, so bringing the promotional activity
straight to the target audience e.g. direct mailing or door-to-door sellers.
Examples of business than rely on direct marketing are:
 QVC (TV Selling)
 Boden (clothes from catalogues)
Marketing revision notes
 Sunday Times Wine Direct (wine through flyers in newspapers)
Direct marketing has the following advantages and disadvantages:
Advantages
Disadvantages
No intermediaries (e.g. retailers) to take part Costs of distribution of promotional material
of the profits
Producer can control own marketing
Costs of making distributional material (e.g.
catalogues for Next)
Chance to reach customers who would not
have gone to the shops
Sales promotion
Sales promotion is the process of persuading a potential customer to buy the
product. It can be part of the personal selling process.
The main methods of sales promotion are:
Money off coupons – customers receive coupons, or cut coupons out of newspapers or
a products packaging that enables them to buy the product next time at a reduced price.
Competitions – buying the product will allow the customer to take part in a chance to
win a prize (e.g. Coca Cola ring pulls).
Discount vouchers – a voucher (like a money off coupon).
Free gifts – a free product when buy another product.
Point of sales materials – e.g. posters, display stands – ways of presenting the product
in its best way or show the customer that the product is there.
Loyalty cards – e.g. Nectar and Air Miles; where customers earn points for buying
certain goods or shopping at certain retailers – that can later be exchanged for money,
goods or other offers.
Examples of recent sales promotions are:
 Tesco computers for schools
 Cadbury’s sport in the community
 Café Nero free coffee card
Loyalty cards have recently become an important form of sales promotion. They
encourage the customer to return to the retailer by giving them discounts based on the
spending from a previous visit.
Loyalty cards can offset the discounts they offer by making more sales and persuading
the customer to come back. They also provide information about the shopping habits of
customers – where do they shop, when and what do they buy? This is very valuable
marketing research and can be used in the planning process for new and existing
products.
Marketing revision notes
Topic: Pricing Introduction
The law of demand states that, for nearly all products, the higher the price the lower the
demand. In other words, sales will fall if prices are put up. However higher prices can also
mean higher profits. So how does a business decide how to set a price for its products?
A business needs to set a price which maximises their sales revenue. Sales revenue is the
total amount of money made from sales and is the price of the product multiplied by the
number of sales.
For a new business with a new product setting a price can be difficult to do because they
have no experience of what customers are prepared to pay.
Get the price too high and sales are lost, too low and people who are prepared to pay
more are not going to.
Businesses use a variety of methods to work out what price they might set:
 Past product data.
 What competitors or similar markets have as prices?
 Surveys and questionnaires.
They are several factors that the business will need to consider in setting the price:
The state of the market for the product – if there is a high demand for the product, but a
shortage then the business can put prices up. Recently, when the US government decided
to publish guidelines on what to do in the event of war, following the terrorist attacks on
their country, people rushed out to buy masking tape. There was quickly a shortage and
prices went up. Union flags during the Jubilee year were also subject to higher prices for
the same reason.
The state of the economy – some products are more sensitive to changes in
unemployment and workers wages than others. Makers of luxury products will need to
drop prices especially when the economy is in a downturn.
Pricing strategies
There are several different pricing strategies available to a business:
Strategy
Description
Cost-plus pricing
Setting a price by adding a fixed amount or percentage to the
cost of making the product
Penetration pricing Setting a very low price to gain as many sales as possible
Price skimming
Setting a high price before other competitors come into the
market
Predatory pricing
Setting a very low price to knock out all the other competition
Competitor pricing Setting a price based on competitors prices
Price discrimination
Setting different prices for the same good, but to different
markets e.g. peak and off peak mobile phone calls
Psychological
pricing
Setting a price just below a large number to make it seem
smaller e.g. £9.99 not £10
A new business that is entering the market might try the following strategies:
If they are first into the market then they might use price SKIMMING.
Marketing revision notes
If they are trying to establish themselves in the market then PENETRATION pricing.
Sometimes a business may use a loss leader. This is a product where the price is so low
that the retailer may not make any profit or even a loss on the sale, but does attract
shoppers to buy other full price products. Orange juice has been used by businesses such
as Rank Hovis McDougall to entice supermarkets to stock more of their other products.
Price skimming has been used for the launch of high technology products, such as DVD
players and Personal Digital Assistants (“PDA’s”) - which were far more expensive than
they are now when they first arrived in the market.
Marketing revision notes
Topic: E-commerce
E-commerce is the use of the Internet and email to buy, sell and market products. It has
grown in use considerably in the last five years, though it still makes up a surprisingly small
part of the whole retail market (less than 5% for most retail segments).
Businesses are increasingly under pressure to provide an e-commerce aspect to their business
– particularly those that sell to consumers (known as “B2C” or “Business to Consumer”).
This is normally in the form of a website and certainly email.
A website can be used to provide information on the product/business, or provide a pace
where sales can be made. If sales are required then there needs to be a link to a warehouse
for goods, so despatch can be made.
Costs and benefits of using e-commerce
The main costs of using e-commerce for a business are:
 Expense of setting up and maintaining the website – staff will need to be trained to
run the site especially if it is to be used for online purchasing.
 Businesses have become exposed to more fraud or hacking into their site.
The benefits for a business of using e-commerce are:
 Using websites to advertise more widely.
 Small business can access wider than local markets.
 Can market directly to past customers via email.
 Selling to larger markets.
 Reduces cost of sales (especially through purchasing online).
 Attracts new customers.
Businesses can therefore improve their productivity and competitive edge through the use of
e-commerce. However the business fundamentals must also be in place as e-commerce is
only one element in the whole business mix. These fundamentals are the key functions of the
business working well e.g. a good production and distribution network.
There are a number of issues that have arisen from the use of e-commerce:
Consumer protection – giving information over the Internet by customers has led to
potential situations of abuse of the information. Customers have become reluctant to give out
credit card information, despite the protection offered by both the business involved and the
credit card company.
With greater reliance on e-commerce there is a danger that more traditional forms of
shopping will become obsolete, meaning loss of jobs and also a loss of culture. Traditional
markets and High Streets may be lost.
Spam email is becoming an intrusion into the household beyond the normal junk mail
coming through the letterbox. Emails and e-commerce are much harder to control by the law
and therefore unscrupulous companies may be able to take advantage of less knowledgeable
and more easily manipulated consumers (especially those of school age).
To counter these problems a business which is going to use e-commerce needs to:
 Make sure it has a secure system which does not endanger the personal rights of it’s
customers
 Act in a socially responsible manner towards it’s customers
Marketing revision notes