IB Business and Management SL
IB Business and Management SL
Mr. Jackson
TOPIC IV: MARKETING
The emphasis in this topic is on the formulation of marketing
strategies to achieve organizational objectives, and in response to
the changing environment. Throughout this topic the focus should be
on interpretation rather than calculation. Topic 4 should be
studied in a way that encourages integration with other parts of
the syllabus, for example, Topic 3, Accounting and Finance. The
impact of new technologies should be integrated into each element
of the marketing module.
ContentLearning Outcomes
4.1 The Role of Marketing Definition and nature of marketing
Market and product orientation
Marketing of goods and services
Define marketing and describe its relationship with other
business activities.
The chartered institute of marketing gives this as a
definition:"Marketing is the management process of identifying,
anticipating, and satisfying customer requirements profitably"
Marketing contains many processes including:
- Selling products
- Advertising (not the same as Marketing)
- Market research
- Creating desire
- Product development/Product Management
- Consumer Behavior
- Communications
- Public Relations
Each process contains a series of actions which produce a change
or development. Marketing is essential for every business.
Factors that have affected the marketing of businesses and the
rise in the importance of marketing:
Economic growth
Fashion
Technology
Competition
Describe the difference between market and product
orientation.
Many businesses in the past, and some today, could be described
as product oriented. This means that the business focuses on the
production process and the product itself.
A market oriented business is one which continually identifies,
reviews, and analyses consumers needs. It is led by the market.
A market oriented business will have several advantages over one
which is product oriented:
It can respond more quickly to changes in the market because off
its use of market information. It will be in a stronger position to
meet the challenge of new competition entering the market. It will
be more able to anticipate market changes. It will be more
confident that the launch of a new product will be a
success.Explain the difference between the marketing of goods and
services.
(See discussion Marketing Mix additional Ps)
The market
Market size
Market growth
Market share
Examine the characteristics of the market in which the firm is
immersed.
What is a Market? A market is anywhere that buyers and sellers
communicate to exchange goods or services. They can range from
street markets, to markets for cars in many countries around the
world, to goods and services bought over the Internet. Markets
might be classified in a number of ways depending on their
characteristics:
Geographically
Buyer consumer market / industrial (commercial) market
Industry
Size
Market Size the size of the market can be estimated or
calculated by the total sales of all businesses in the market.
Markets differ in their size. The market for fast food is huge and
there is room for growth, especially in overseas markets. The
market for horse saddles is much smaller. Market size can be
measured in a number of ways:1. Customer base2. Barriers to entry3.
Location
Markets can grow either rapidly or slowly, or they might
contract and get smaller. What factors are likely to influence
whether a market gets bigger or becomes smaller and the rate of
growth and decline?
1. Economic changes
2. Social changes
3. Technological changes
4. Demographics changes
5. Changes in legislation.
Calculate market share from given information.
Market share the term used to describe the proportion of a
particular market that is held by a business, a product, a brand or
a number of businesses or products. Market share is shown as a
percentage. The market share of a business can be calculated
as:
Sales of the business
__________________
X 100
Total sales in the market
Ex: If sales revenue for a business are $100 million in an
industry that is worth a total of $400 million, the firms market
share is 25%.Why might the measurement of market share be
important? It might indicate a business that is a market leader.
This could influence other companies to follow the leader or
influence the leader to maintaining its position. It might
influence the strategy or objectives of a business. A business that
has a small market share may set a target of increasing its share
by 5% over a period of time. It may also be an indication of the
success or failure of a business or its strategy.
Hence, a common objective of established firms is to increase
their market share. How?
Promotion of brands
Product development, improvements and innovations
Motivation and training of the workforce to deliver better
customer service
Establishment of property rights through the use of copyright
and patents
Use of more efficient channels of distribution
Marketing in non-profit organizationsAnalyse the marketing
techniques of non-profit organizations.
It's important that these organizations understand that
marketing is more than just the old sense of making a sale or
obtaining a donation. Marketing is a way to satisfying the consumer
and donor needs, but where does the nonprofit organization
start?
1. Social (cause) marketing associate your product or service
with a cause.
2. Catchphrases (slogans)
3. De-marketing the use of marketing to reduce the demand for
socially undesirable products, such as tobacco.
4. Public relations fundraising events, sponsorships
5. Celebrity and hero endorsements
6. Internet technologies
7. Increase distribution channels
A marketing planDescribe the elements of a marketing plan
Marketing plan a detailed account of the companys marketing at
present, what it wants it to be in future and how it intends to
change it.
The marketing plan is concerned with a number of questions:
Where is the business at present? (SWOT analysis)
Where does the business wish to be in future? (setting
objectives)
How will a business achieve its objectives? (marketing
strategies)
4.2 Marketing Planning
Marketing mix- Product
- Place (distribution)- Price
- Promotion
- People
- Process
- Physical evidence
- Packaging
Apply the elements of the marketing mix to given situations.
Marketing planning a systematic process concerned with devising
marketing objectives and appropriate marketing strategies to
achieve these goals. It requires the collection and analysis of
information about a particular market, such as market research data
on existing and potential customers.The marketing mix is the
balance of marketing techniques required for selling the product.
Its components are often known as the four Ps:
Price - the price of the product - particularly the price
compared to your competitors - is a vital part of marketing. There
are two possible pricing techniques:
Market skimming - pricing high but selling fewer
Market penetration - pricing lower to secure a higher volume of
sales
Product - targeting the market and making the product
appropriate to the market segment you are trying to sell into
Promotion - this may take the form of point of sale promotion,
advertising, sponsorship or other promotions.
Place (Distribution) - this part of the marketing mix is all
about how the product is distributed. Current trends are towards
shortening the chain of distribution.
There are those that now refer to another 4Ps bringing the total
to 8! The other four are people, physical environment, process, and
packaging.
People - this stresses the importance of people in the marketing
process; often the first point of contact with any business is a
human being - the impressions given by this initial contact may be
very important. In addition, the role of human beings in developing
customer relations is seen as increasingly important especially in
a knowledge driven economy.
Physical Environment (Evidence) - this refers to the importance
in making the physical environment related to the product or
service as welcoming and as reflective of the business as possible
- for example, look at the showrooms of car dealers - many are very
well lit, stylish in terms of furniture and decoration and include
seating areas, coffee making facilities, newspapers and children's
play areas.
Process - the process by which the product is either
manufactured or passed on to the final user. This might include the
extended use of ICT facilities to speed up ordering, delivery,
etc.
Packaging a products packaging is important in its overall
marketing. This is because consumers often link the quality and
design of a products packaging with the quality of the product
itself. Unsuitable packaging may affect sales. The following
factors should be considered: weight and shape, protection,
convenience, design, information, and environmental factors.
The business plan will need details of all of these. What will
your price be and why? How will you distribute the good or service?
How will you promote the product? What is the unique selling point
(USP) of your product? All these questions need to be answered in
the business plan.
Discuss the effectiveness of a selected marketing mix in
achieving marketing objectives.
No marketing plan can work without all four elements of the
marketing mix. This is because the four Ps are interdependent. A
high price for a low-quality product without any promotion and with
limited distribution networks is a recipe for failure.Construct an
appropriate marketing mix for a particular product or firm.
Ethics of marketingDiscuss the ethical issues of what is
marketed and how it is marketed: nationally, internationally, and
across cultures.
ETHICAL ISSUES IN MARKETING MIX ELEMENTS
ISSUE CATEGORY
EXAMPLES
PRODUCT
Failing to disclose risks associated with a product
Failing to disclose information about a products function,
value, or use.
Failing to disclose information about changes in the nature,
quality, or size of a product.
DISTRIBUTION
Failing to live up to the rights and responsibilities associated
with specific intermediary roles.
Manipulating product availability
Using coercion to force other intermediaries to behave in a
certain way
PROMOTION
False or misleading advertising
Using manipulative or deceptive sales promotion, tactics, and
publicity
Bait and switch Health fraud
Get rich quick schemes
Travel fraud
Product misrepresentation Scare tactics Unsubstantiated claims
(4 out of 5) Pester power Confusion marketing
Offering or accepting bribes in personal selling situations
PRICING
Price fixing
Predatory pricing
Failing to disclose the full price of a purchase
Several areas of concern in marketing ethics:
UNFAIR OR DECEPTIVE MARKETING PRACTICES
Marketing practices are deceptive if customers believe they will
get more value from a product or service than they actually
receive. Deception, which can take the form of a misrepresentation,
omission, or misleading practice, can occur when working with any
element of the marketing mix. Because consumers are exposed to
great quantities of information about products and firms, they
often become skeptical of marketing claims and selling messages and
act to protect themselves from being deceived. Thus, when a product
or service does not provide expected value, customers will often
seek a different source.
Deceptive pricing practices cause customers to believe that the
price they pay for some unit of value in a product or service is
lower than it really is. The deception might take the form of
making false price comparisons, providing misleading suggested
selling prices, omitting important conditions of the sale, or
making very low price offers available only when other items are
purchased as well. Promotion practices are deceptive when the
seller intentionally misstates how a product is constructed or
performs, fails to disclose information regarding pyramid sales (a
sales technique in which a person is recruited into a plan and then
expects to make money by recruiting other people), or employs
bait-and-switch selling techniques (a technique in which a business
offers to sell a product or service, often at a lower price, in
order to attract customers who are then encouraged to purchase a
more expensive item). False or greatly exaggerated product or
service claims are also deceptive. When packages are intentionally
mislabeled as to contents, size, weight, or use information, that
constitutes deceptive packaging. Selling hazardous or defective
products without disclosing the dangers, failing to perform
promised services, and not honoring warranty obligations are also
considered deception.
OFFENSIVE MATERIALS AND OBJECTIONABLE MARKETING PRACTICES
Marketers control what they say to customers as well as and how
and where they say it. When events, television or radio
programming, or publications sponsored by a marketer, in addition
to products or promotional materials, are perceived as offensive,
they often create strong negative reactions. For example, some
people find advertising for all products promoting sexual potency
to be offensive. Others may be offended when a promotion employs
stereotypical images or uses sex as an appeal. This is particularly
true when a product is being marketed in other countries, where
words and images may carry different meanings than they do in the
host country.
When people feel that products or appeals are offensive, they
may pressure vendors to stop carrying the product. Thus, all
promotional messages must be carefully screened and tested, and
communication media, programming, and editorial content selected to
match the tastes and interests of targeted customers. Beyond the
target audience, however, marketers should understand that there
are others who are not customers who might receive their appeals
and see their images and be offended.
Direct marketing is also undergoing closer examination.
Objectionable practices range from minor irritants, such as the
timing and frequency of sales letters or commercials, to those that
are offensive or even illegal. Among examples of practices that may
raise ethical questions are persistent and high-pressure selling,
annoying telemarketing calls, and television commercials that are
too long or run too frequently. Marketing appeals created to take
advantage of young or inexperienced consumers or senior citizens
including advertisements, sales appeals disguised as contests, junk
mail (including electronic mail), and the use and exchange of
mailing listsmay also pose ethical questions. In addition to being
subject to consumer-protection laws and regulations, the Direct
Marketing Association provides a list of voluntary ethical
guidelines for companies engaged in direct marketing.
ETHICAL PRODUCT AND DISTRIBUTION PRACTICES
Several product-related issues raise questions about ethics in
marketing, most often concerning the quality of products and
services provided. Among the most frequently voiced complaints are
ones about products that are unsafe, that are of poor quality in
construction or content, that do not contain what is promoted, or
that go out of style or become obsolete before they actually need
replacing. An organization that markets poor-quality or unsafe
products is taking the chance that it will develop a reputation for
poor products or service. In addition, it may be putting itself in
jeopardy for product claims or legal action. Sometimes, however,
frequent changes in product features or performance, such as those
that often occur in the computer industry, make previous models of
products obsolete. Such changes can be misinterpreted as planned
obsolescence.
Ethical questions may also arise in the distribution process.
Because sales performance is the most common way in which marketing
representatives and sales personnel are evaluated, performance
pressures exist that may lead to ethical dilemmas. For example,
pressuring vendors to buy more than they need and pushing items
that will result in higher commissions are temptations. Exerting
influence to cause vendors to reduce display space for competitors'
products, promising shipment when knowing delivery is not possible
by the promised date, or paying vendors to carry a firm's product
rather than one of its competitors are also unethical.
Research is another area in which ethical is sues may arise.
Information gathered from research can be important to the
successful marketing of products or services. Consumers, however,
may view organizations' efforts to gather data from them as
invading their privacy. They are resistant to give out personal
information that might cause them to become a marketing target or
to receive product or sales information. When data about products
or consumers are exaggerated to make a
selling point, or research questions are written to obtain a
specific result, consumers are misled. Without self-imposed ethical
standards in the research process, management will likely make
decisions based on inaccurate information.
DOES MARKETING OVERFOCUS ON MATERIALISM?
Consumers develop an identity in the market place that is shaped
both by who they are and by what they see themselves as becoming.
There is evidence that the way consumers view themselves influences
their purchasing behavior. This identity is often reflected in the
brands or products they consume or the way in which they lead their
lives.
The proliferation of information about products and services
complicates decision making. Sometimes consumer desires to achieve
or maintain a certain lifestyle or image results in their
purchasing more than they need or can afford. Does marketing create
these wants? Clearly, appeals exist that are designed to cause
people to purchase more than they need or can afford. Unsolicited
offers of credit cards with high limits or high interest rates,
advertising appeals touting the psychological benefits of
conspicuous consumption, and promotions that seek to stimulate
unrecognized needs are often cited as examples of these
excesses.
SPECIAL ETHICAL ISSUES IN MARKETING TO CHILDREN
Children are an important marketing target for certain products.
Because their knowledge about products, the media, and selling
strategies is usually not as well developed as that of adults,
children are likely to be more vulnerable to psychological appeals
and strong images. Thus, ethical questions sometimes arise when
they are exposed to questionable marketing tactics and messages.
For example, studies linking relationships between tobacco and
alcohol marketing with youth consumption resulted in increased
public pressure directly leading to the regulation of marketing for
those products.
The proliferation of direct marketing and use of the Internet to
market to children also raises ethical issues. Sometimes a few
unscrupulous marketers design sites so that children are able to
bypass adult supervision or control; sometimes they present
objectionable materials to underage consumers or pressure them to
buy items or provide credit card numbers. When this happens, it is
likely that social pressure and subsequent regulation will result.
Likewise, programming for children and youth in the mass media has
been under scrutiny for many years.
In the United States, marketing to children is closely
controlled. Federal regulations place limits on the types of
marketing that can be directed to children, and marketing
activities are monitored by the Better Business Bureau, the Federal
Trade Commission, consumer and parental groups, and the broadcast
networks. These guidelines provide clear direction to
marketers.
ETHICAL ISSUES IN MARKETING TO MINORITIES
The United States is a society of ever-increasing diversity.
Markets are broken into segments in which people share some similar
characteristics. Ethical issues arise when marketing tactics are
designed specifically to exploit or manipulate a minority market
segment. Offensive practices may take the form of negative or
stereotypical representations of minorities, associating the
consumption of harmful or questionable products with a particular
minority segment, and demeaning portrayals of a race or group.
Ethical questions may also arise when high-pressure selling is
directed at a group, when higher prices are charged for products
sold to minorities, or even when stores provide poorer service in
neighborhoods with a high population of minority customers. Such
practices will likely result in a bad public image and lost sales
for the marketer.
Unlike the legal protections in place to protect children from
harmful practices, there have been few efforts to protect minority
customers. When targeting minorities, firms must evaluate whether
the targeted population is susceptible to appeals because of their
minority status. The firm must assess marketing efforts to
determine whether ethical behavior would cause them to change their
marketing practices.
ETHICAL ISSUES SURROUNDING THE PORTRAYAL OF WOMEN IN MARKETING
EFFORTS
As society changes, so do the images of and roles assumed by
people, regardless of race, sex, or occupation. Women have been
portrayed in a variety of ways over the years. When marketers
present those images as overly conventional, formulaic, or
oversimplified, people may view them as stereotypical and
offensive.
Examples of demeaning stereotypes include those in which women
are presented as less intelligent, submissive to or obsessed with
men, unable to assume leadership roles or make decisions, or
skimpily dressed in order to appeal to the sexual interests of
males. Harmful stereotypes include those portraying women as
obsessed with their appearance or conforming to some ideal of size,
weight, or beauty. When images are considered demeaning or harmful,
they will work to the detriment of the organization.
Advertisements, in particular, should be evaluated to be sure that
the images projected are not offensive.
Marketing auditExplain the value of a marketing audit as a
business tool.
Marketing audit an analysis of the internal organization and
procedures of the business and the external factors which affect
its marketing decisions.
It will help identify the strengths, weaknesses, opportunities,
and threats faced by the business. (SWOT analysis).
Marketing objectivesExamine how appropriate the marketing
objectives are in achieving the goals of an organization.
Marketing objectives are the targets that the marketing
department wishes to achieve. These objectives should be compatible
with the firms overall objectives. They may include, amongst many
others, and combination of the following: Maintain/increase
marketing share Market leadership
Product positioning
Consumer satisfaction
Diversification
Market development
New product development
Product innovation
High market standing
Constraints/limitations on achieving marketing objectives:
finance, costs of production, size and status of the firm, social
issues, time lags, competition, state of economy, political and
legal environment.
Market research
Role of market research
Primary and secondary researchAnalyse the role of market
research.
Market or Marketing Research refers to marketing activities to
discover the opinions, beliefs, and feelings of potential and
existing customers, i.e. it serves to identify and anticipate the
wants and needs of customers. Ad hoc market research as and when
necessary basis.
Continuous research - on a regular and ongoing basis.
An essential part of the business planning process is market
research. This may include:
Looking at the market - how big is the market? What type of
consumers are we aiming to attract? What is the spending pattern of
the target consumers? Are there any other market segments we could
adapt the product to meet? For example, putting orange juice into
mini-cartons to tap into the packed lunch market.
Looking at the product - this may mean some test marketing on a
focus group or representative group of consumers and seeing what
their reaction is.
Competitors - who are the key competitors? How can we
differentiate our product from theirs? Where are they located? How
have their sales been changing recently? What prices do they
charge? Where do they sell their products or services?
Price - we may need to test how sensitive consumers are to price
changes (how elastic is the price?).
Distribution - what are the most appropriate shops or outlets to
sell the product in? What are their price expectations?
Promotions - if you are proposing any promotions or other
advertising then it may be worth research to see what the reaction
of consumers will be to these promotions. Evaluate different
methods of market research.
There are two main types of market research. These are field
research (primary research) and desk research (or secondary
research). Primary (field) research - market research that involves
gathering data first-hand for a specific study. For example, if an
organization wanted to know how staff felt about their working
environment, primary research would be used. Primary research is
often used by firms to gather data and information directly from
customers to identify their buying patterns and to anticipate
changes in their behavior. Questionnaires
Observations
Experimentation
Online surveys
Advantages of primary research: up-to date, relevance,
confidential and unique, objectivity.
Disadvantages of primary research: time consuming, costly,
validity issues.
Secondary (desk) research involves the collection of second-hand
data and information, i.e. the data or information already exists
in anther form. This means that the data and information, such as
reports in a newspaper or magazine, have been gathered by
others.
Advantages of secondary research: cheaper and faster to collect,
huge range of sources, insight into whole industry.
Disadvantages of secondary research: may be outdated, may be
inappropriate format, may provide partial information, different
purpose, available to competition.In addition to primary and
secondary research, market research can also be classified as being
qualitative getting non-numerical answers and opinions from
respondents (focus groups, in-depth interviews) and quantitative
factual and measurable results (closed questions, ranking and
sliding scales).
Market segmentation and consumer profileAnalyse the usefulness
of market segmentation and consumer profiles.
There are various ways to segment your market. These may
include:
Demographically - according to the age structure of the
population
Geographically - by country or region or area
Behaviouristically - according to the nature of the purchase,
the use the product is put to, the loyalty to the brand and so
on
Benefit - according to the use and satisfaction gained by the
consumer
Socio-economically - according to social class and income
levels
Segmentation analysis is a way of dividing up a market to
identify trends in it. Segmentation analysis is used to create a
profile of the target market. The following can be taken into
account when segmenting a market:
Age, Gender, Level of Education/Occupation, Social Class,
Income, Religion, Ethnic Grouping, Family Characteristics,
Political Voting Preference, Geographical Region, Personality and
Lifestyle, By Purchases.
This information can help the company a lot with its marketing
efforts. It can be used to set quotas on a market research exercise
or be used to decide what promotional method is most appropriate
for the market.
In general, the following are advantages of segmentation:More
efficient use is made of marketing resources - less waste.A
competitive advantage can be gained in a particular part of a
market.It's beneficial for small firms as uses less
resources.Products can be modified to be exactly what the consumer
wants.Marketing mix can be more targeted.
The following are disadvantages of segmentation:Increased costs
to develop variations of the product.Higher stock holding
costs.Higher advertising and other costs.
Consumer Profiles. A business might make use of consumer
profiles to target the market. This is information which tells a
business about consumers of a particular product and their
characteristics. It might include where they live, how old they
are, whether they are male or female, how much they earn or their
lifestyle.
TargetingIdentify possible target markets.
Targeting means that each distinctive market segment can have
its own marketing mix.Target Market the consumers which businesses
choose to concentrate their selling efforts on.
Apply an appropriate marketing mix to the target market(s).
Mass Marketing the marketing of a product to all possible
consumers in the same way.
Ex: Coca-Cola, Nokia, Nike, Apple and Microsoft all use this
strategy to target all market segments in the same way. Governments
also use this strategy when communicating public announcements such
as anti drunk-driving campaigns.Niche Marketing the marketing of
products to a particular small segment of the market.
Ex: Businesses that cater for minority sports, such as horse
riding and Tae Kwon Do.
Businesses that provide specialty goods (such as Louis Vuitton
handbags, Armani suits, Ferrari cars and Cartier watches) also
operate in niche markets, catering consumers interested in high-end
luxury goods.
Positioning
Corporate image
Position/perception maps
Unique selling point/proposition (USP)Discuss how organizations
can differentiate themselves and their products from
competitors.
Market positioning - an analytical tool that ranks different
products, services or firms in relation to others in the market
according to the views of the general public. Ex: in the cosmetics
industry. Chanel is seen to be of higher quality and price compared
to Rimmel. Similarly, most customers perceive Evian and Perrier as
superior brands of bottled water.3 stages to positioning:
Identify the competitive advantages of the product.
Decide on which aspects of these strengths should be
marketed.
Implement the desired positioning by using an appropriate
marketing mix.Corporate image plays a vital part in the success of
businesses. A poor image will not only drive customers away, but it
can also impose damage that is irrevocable.USP (Unique Selling
Point) any aspect of a product that makes it stand out from those
offered by competitors. The USP explains why customers buy the
product over rival brands. For example, its appealing packaging. 3
basic competitive strategies for businesses to achieve positioning
success:
Cost leadership refers to businesses that aim to excel as low
cost suppliers of particular products. Differentiation refers to
businesses that produce distinct products buying methods such as
branding to differentiate their products from those supplied by
rivals firms. Focus refers to businesses that pay close attention
to a particular market segment.Construct a position map from given
information.
A position (perception) map is a visual tool which shows the
customers perception of a product or brand in relation to others in
the market.
The two-dimensional diagram plots customer perceptions using
variables such as price and quality. Premium brands products that
are high quality and high price. Examples include brands such as
Lexus, Mercedes-Benz and BMW. Economy brands products that are low
quality but appropriately priced. Supermarkets often supply no
frills products to lure price sensitive customers. Bargain brands
those that are of high quality but with low prices. This is not
sustainable and the approach is only used as a short-term tactic to
boost sales. Cowboy brands products that are of poor quality but
highly priced. These products are positioned to deceive customers
and are therefore only used as a short-term tactic to gain
revenue.Quality
High
Low
High
Premium brands
Cowboy brands
Low
Bargain brands
Economy brands
Price
Uses of position maps Position maps allow a business to identify
any gaps in its product portfolio. They can be used for targeting
strategies. They can also inform businesses of a need for
reposition their products - as markets and consumers tastes change
a business may try to REPOSITION its products. This can involve
changing the image of the product, its features or its target
market.
Development of marketing strategies and tacticsDesign or
evaluate marketing strategies for given situations.
Marketing strategies are the (long-term plans) taken by a
business to help it achieve its marketing objectives.
A business can have a # of marketing different strategies:
1. Competitive strategies
2. Growth strategies
3. Market positioning
In developing a marketing strategy, marketing managers may
choose from an array of tools, such as: perception mapping, Ansoff
matrix, Boston matrix, SWOT analysis, Force field analysis.Apply an
appropriate marketing mix to the strategy.
Successful marketing tactics and strategies are carefully
planned out in order to achieve the organizations marketing
objectives. The marketing strategy is implemented through an
appropriate marketing mix. Successful marketing strategy entails
examining the marketing mix from the perspective of consumers. This
is called the 4 Cs of marketing: customer solution (product), cost
to the customer (price), communication (promotion), and convenience
(place). Execution of the marketing strategy should be done in a
cost-effective way without the organization having to overspend its
budget.
4.3 Product
Classification of productsClassify products by line, mix, and
range.Product Line a variety of the same product that a business
produces for customers of a particular market. Ex: Samsung produces
different television sets such as LCD and plasma televisions. Its
product line will include all the different sizes and types of
televisions that Samsung manufacture. Crisps (potato chip snacks)
made by manufacturers such as Walkers come in different flavors to
meet the needs of different customer tastes within the same
market.
Products in a product line typically differ in color, size,
price or quality so that there is a greater chance that each
product meets the needs of different customers.Most businesses will
change their product line due to changes in the market. Some
products will be entering their decline phase in the product life
cycle, and will therefore be discontinued, whilst other products
will be introduced in new markets and hence be a new addition to a
firms product line.
Product Mix (also known as product assortment) describes the
variety of the different product lines that a business
produces.
Honda produces automobiles and motor bikes.
Unilever produces food, beverages, personal care and cleaning
products. Its brands include Axe, Vaseline, Persil, Cif, Flora, Ben
& Jerrys, Lipton, PG Tips, Pot Noodle, Marmite and Slim
Fast.
Ikeas product mix includes sofas, beds, desks, indoor and
outdoor plants, carpets and food.By having a wide product mix,
sometimes referred to as the product portfolio, businesses should
be able to increase overall sales as a variety of products are sold
to a larger customer base. Adidas, for instance, can sell its
sports shoes to one group of customers and sell its clothing or
sports equipment to other groups of customers. In addition, a wide
product mix allows a business to spread risks; a downturn in one
particular product line may be offset by increased sales in other
product lines.
Product Range
The product range of an organization refers to all product lines
of a firms product mix, i.e. all the products sold by the business.
For example, Apple Macintosh sells different types of computers
(product line) and laptops, accessories and iPods. These
collectively form Apples product mix; all the range of Apple
computers, laptops, iPods and so forth form the companys product
range.If there are two firms with the same product mix, such as
Sony and Samsung, the business with more products in each product
line (the firm with a wider product range) is likely to have higher
risk bearing.
New product design and developmentDescribe the importance of
innovation in an era of rapid technological change and discuss the
problems of financing research and development.
New Product Development (Stages):
1. Market research
2. Product development and testing prototypes, test
marketing.
3. Feasibility study is it marketable? Legal? Available
technology? Patents?
4. Launch
Sources of new product development:
Market research
Product extensions
R&D
Me too developments
Research and Development
To remain competitive products have to evolve and improve. This
doesn't happen on its own - money needs to spend on Research and
Development to ensure it. One of the problems with R and D is that
there is often a very long payback period for the money. The money
has to be spent at the earliest stage of the product life cycle,
but the product often takes a long time to develop. Once developed
the market then often takes time to grow. The return from the money
spent on R and D can often be a long time coming.
This is particularly true with aerospace industries, including
ballooning. This is because technical developments take a long time
and the products are often highly complex requiring several
developments to take place before the full product can be
developed.
In highly competitive markets businesses find that their profit
margins are squeezed. This means that financial and human resources
are often not available to develop new products. An example of this
is in the market for budget fashion clothing. Businesses in this
market tend to copy products developed for designed labels.
Product Life Cycle
Extension strategies
Relationship with investment, profit and cash flowAnalyse the
relationship between the product life cycle and the marketing mix,
and determine appropriate extension strategies.
Product Life Cycle
To be able to market its product properly, a firm must be aware
of the product life cycle of its product. The standard product life
cycle tends to have five or six phases:
1. Development
2. Introduction (Launch)3. Growth
4. Maturity
5. Saturation
6. Decline
Product Life Cycle
It can also be shown graphically. The graph often has two lines
- one to show the level of profit, and one to show the level of
sales:
The product life cycle shows the sales of a product over time
and consists of four main stages a product can be at during its
life:
Introduction: This contains new products that have just been
launched - they are advertised heavily.
Growth: The product is still new - discounts are still being
offered and people are still purchasing the product as not many
people may have one. There may be few competitors.
Maturity and saturation: This is the first stage when sales stop
increasing so rapidly. There may be more competition or other
products which are preferred.
Decline: Sales begin to rapidly drop. The product may have
become out of date or out of fashion.
Firms will often try to use extension strategies. These are
techniques to try to delay the decline stage of the product life
cycle. The maturity stage is a good stage for the company in terms
of generating cash. The costs of developing the product and
establishing it in the market are paid and it tends to then be at a
profitable stage. The longer the company can extend this stage the
better it will be for them.Extension strategies are used during the
saturation and decline stage to try and extend the product's life
cycle. These may include price reductions and other special offers.
Sometimes companies may decide to target a new segment of the
market as an extension strategy or develop an entirely new
product.
The product life cycle is shown as a line graph and is useful to
decide what marketing needs to be carried out for the product at
different stages. It must be remembered that different products
will spend different amounts of time at each stage of the life
cycle.
Analyse the relationship between the product life cycle,
investment, profit, and cash flow.
The life cycle of a product will therefore have varying effects
on a firms level of investment, profits and cash flow.PLC stage
Investment level
Profit
Cash Flow
R&D
Very high (R&D)None
Highly -
Launch
Very high (marketing)Little, if any
-
Growth
High (persuasive)Yes, rising
+
Maturity
Less (mainly reminding)High; but little or no growth
+
Saturation
Extension strategiesHigh, stable
+
Decline
Little, if anyYes, but failing
+, but falling
Product portfolio analysis
Boston consulting group (BCG) matrixApply the BCG matrix to a
given situation.
Product portfolio means the range of products owned by a
business. Product portfolio analysis allows businesses to decide
which products should receive more or less investment. For example,
products that do not have high market share may be withdrawn or
remarketed. The analysis allows a business to develop growth
strategies by adding new products to an existing or new
range.Boston Consulting Group Matrix (Boston Matrix)
Firms need to make sure that their product mix does not contain
too many products within one category why?
Problem Children - These are products with a low share of a high
growth market. They consume resources and generate little in
return. They absorb most money as you attempt to increase market
share.
Stars - These are products that are in high growth markets with
a relatively high share of that market. Stars tend to generate high
amounts of income. Keep and build your stars.
Cash Cows - These are products with a high share of a slow
growth market. Cash Cows generate more than is invested in them. So
keep them in your portfolio of products for the time being.
Dogs - These are products with a low share of a low growth
market. These are the canine version of 'real turkeys!. They do not
generate cash for the company, they tend to absorb it. Get rid of
these products.
The Boston Matrix is a common tool in marketing.
Criticisms of this model include
Overly focused on increasing market share rather than
consolidating it,
Ways in which products support each other.
Branding
Brand awareness
Brand
development
Brand loyalty
Discuss the importance and role of branding.
Branding form of differentiating a firms product from those of
its competitors. Brand management is the application of marketing
techniques to a specific product, product line, or brand. It seeks
to increase the product's perceived value to the customer and
thereby increase brand franchise and brand equity. Marketers see a
brand as an implied promise that the level of quality people have
come to expect from a brand will continue with present and future
purchases of the same product. This may increase sales by making a
comparison with competing products more favorable. It may also
enable the manufacturer to charge more for the product. The value
of the brand is determined by the amount of profit it generates for
the manufacturer. This results from a combination of increased
sales and increased price.
What is a Brand? A brand is a name, term, sign, symbol, design
or any other feature that allows consumers to identify the
goods/services of businesses and to differentiate them from those
of competitors. Ex: Mc McDonalds-name; Nike swoosh logo, 3 stripes
design Adidas, others: colour/slogan/tune, etc.
Well known brands are important to a business. It is argued that
brands add value to a product. A business will hope that its
products:
will be known by large amounts of consumers they will have brand
awareness or recognition. will be bought rather thn those of others
brand preference. will be bought by customers over and over again
brand loyalty.DEVELOPING A BRAND
There is a # of important features in developing and maintaining
a successful brand for a business.
1) Being the first or filling a gap.
2) Choosing the right brand name.
3) Finding a USP (Unique Selling Point)
4) Positioning the brand
5) Brand protection (copyrights/trademarks)
TYPES OF BRAND: Manufacturer brands, own label (private)
(distributor) brands, generic brands.
BRANDING STRATEGIES:
1. Individual 2. Family 3. Combination 4. Brand
extensions/stretching.
Reasons for Branding
There is a # of reasons why businesses use branding:
To create brand loyalty.
To differentiate the product.
To gain flexibility when making pricing decisions.
To help recognition
To develop a brand image
Problems with Branding
Branding might not always be a successful strategy for some
businesses for # of reasons:
Some products are generic
Not all markets are suited to brands
It can be expensive to promote and maintain a brand.
4.4 Price Pricing Strategies
Cost-based
- Cost-plus
What factors influence the price a business sets for its
product?1. Competition
2. Objectives
3. The Marketing Mix
4. Costs
5. Consumer perceptions and expectations
6. Market segment
7. Legal constraints
Analyse the appropriateness of each pricing strategy.
Cost-based pricing
All businesses are influenced by their costs when determining
prices with costs acting as a bottom line when choosing a price.
But some use COST-BASED PRICING as their strategy for price
setting.
Businesses using cost-based pricing are those where the
influence of cost is more important than other factors such as
market conditions or competitors pricing.Cost plus pricing involves
setting a price by calculating the average cost of producing goods
and adding a MARK-UP for profit.
Ex: If a business produces 10,000 goods costing 50,000, the
average cost would be 5.00. A mark up of 20 per cent would mean
goods would cost an extra 1.00 and the price would be 6.00 per
product. Retailers often use this method of pricing. Say that a
department store buys a colour TV from wholesalers for 200 and its
mark-up to allow for a profit is 100 per cent. The retail price to
consumers will be 400.
Benefits:
1. Quick and simple way of setting a selling price.
2. Ensures that sales revenue will cover total costs and
generate profit.
Criticisms:
1. A fixed mark-up does not allow a business to take market
needs into account when setting prices.
2. No attempt is made to allocate indirect costs to particular
products. This means they do not reflect the resources being
allocated by the business to that particular product or product
range.
Competition-based - price leadership
Competition based pricingWith COMPETITION BASED PRICING it is
the prices charged by competitors which are the major influence on
a producers price. It is used mostly by businesses which face
fierce and direct competition. As a rule, the more competitive the
market and the more homogeneous the products competing in that
market, the greater the pressure for competition based pricing.
Price leadership in some markets, often controlled by a small
number of large companies, there is an accepted price leader. They
will decide first to increase or lower prices, knowing that other
companies will soon follow.
Ex: When a petrol company changes the prices of a gallon of
petrol or when banks change rates.
Market-based
- Penetration
- Skimming
Market-based pricingMARKET BASED PRICING methods are those which
are based upon an analysis of the conditions in the market at which
a product is aimed. As such, they are much better suited to market
oriented businesses.
Penetration pricing used by businesses seeking to gain a
foothold in a market, either with new products or with established
products being placed in new markets. It involves pricing a product
at a low level so that retailers and consumers are encouraged to
purchase the product in large quantities.2 Reasons why businesses
use penetration pricing:
1. Consumers are encouraged to develop the habit of buying the
product, so that when prices eventually begin to rise they will
continue to purchase it.
2. Retailers and wholesalers are likely to purchase large
quantities of the product. This should mean that they will not buy
from other suppliers until they have sold most of their stock.
Businesses can thus gain a significant slice of the market.
Penetration pricing, because of its high cost, is often used by
large firms operating in mass markets, such as those selling
biscuits, sweets, washing powder and canned drinks.
It is also a policy used by new businesses or established
businesses in other areas to break into a new market.
It is not a policy that is suitable for products with short life
cycles. There is usually not enough time to recover the cost of
lost revenue from the initially low price.Market skimming involves
charging a high price for a new product for a limited period. The
aim is to gain as much profit as possible for a new product while
it remains unique in the market. It usually means selling a product
to the most profitable segment of the market before it is sold to a
wider market at a lower price.
2 Reasons why businesses adopt market skimming:
1. To maximise revenue before competitors come into the market
with a similar product.
Ex: new fashions, new toys, new inventions, and new versions of
products.
2. To generate revenue in a short period of time so that further
investment in the product
can be made. Companies in the electronics and pharmaceutical
industries often use
skimming for this reason.
4.5 Promotion
Types of promotion Above the line Below the lineDistinguish
between the different types of promotion.
Promotion refers to methods of communicating messages to the
market with the intention of selling a firms products.There are 3
key objectives to any promotional campaign: to inform, to persuade,
and to remind the market about the firms product(s).
There are two main types of promotion and these are:
Above the line promotion - refers to the use of mass media
sources (such as television, magazines and radio) to promote or to
establish a favourable long-term image of a business, its brands or
its products. Refers to any form of paid-for promotional technique
through independent consumer media.Examples:
Television Radio Cinema Newspaper Magazines Outdoor advertising
billboards, banners, posters Below the line promotion the use of
non mass media promotional activities. Unlike ATL, this means no
commission has been paid to external media agencies. Instead, the
business has direct control over the production of all its
advertisements.Examples:
Branding Slogans
Logos
Packaging
Word-of-mouth promotion
Viral marketing
Direct marketing telemarketing
Direct mail
Sales promotions
Personal selling
Point-of-sales promotion
Publicity
Sponsorship
Analyse the various promotional tools and discuss their
effectiveness.
The choice of promotional techniques is likely to be heavily
dependent on the sort of marketing budget that is available, and a
business start-up is unlikely to looking as much at above the line
promotion in its early days.
General advantages of above-the-line promotion include:
Due to potentially large audience figures, ATL promotion can
reach a huge number of customers. Research has suggested that
customers tend to take more notice of ATL promotion because they
are more interesting and appealing.General disadvantages of
above-the-line promotion include:
Promotion and advertising through the mass media may not appeal
to the right segments or potential consumers. Many advertisements
are simply ignored because people switch channels during television
and radio commercial breaks; readers often take no notice of
advertising placed in magazines and people complain about the
number of pop-up advertisements appearing on the internet. They
only cater for one-way communication and hence there is no easy way
to determine the effectiveness of such promotional activities.Below
the line tend to be cheaper than ATL.
Promotional mixPrepare an appropriate promotional mix.
In deciding on a promotional mix, marketers often consider the
marketing acronym AIDA: Attention, Interest, Desire, Action
The choice of which medium you use is likely to be down to a
number of factors, and these might include:
Cost
How well the method reaches the target market
The products position in its life cycle
The behavior of competitors
Legal restrictions
How well the medium enables you to reach your desired marketing
mix
The effectiveness of the medium and the impact it has
Each method of promotion has its advantages and limitations. The
important thing is to select the mixture of promotional activities
that best suits the businesss particular needs.
The Chartered Institute of Marketing puts forward four key
elements to make up a promotional mix. These consist of:
1. Advertising
2. Personal selling3. Public relations 4. Sales promotion.
4.6 Place (distribution)
Channels of distribution Distribution strategy
Discuss the effectiveness of different types of distribution
channels.
Distribution is about one of the 4 Ps of the marketing mix
PLACE. A business must get the product to the right place, at the
right time. A product which is effectively priced and promoted may
not be a success unless the consumer is able to purchase it
easily.
A channel of distribution the route taken by a product as it
passes from the producer to the consumer.
(Intermediaries firms which act as a link between products and
consumers in a channel of distribution.)
A producer can sell its products: 1) Directly to the consumer 2)
through a retail outlet 3) through a wholesaler 4) using an
agent.
Place decides where the product is to be sold. There are 3 main
distribution channels to choose from:Traditional - selling the
product to wholesalers who will then sell the product on to retail
outlets.Modern - producers selling the product directly to the
retail outlet.Direct - the producer selling directly to the
consumer such as door to door sales or over the internet.
The choice of Distribution Channel?
An efficient and cost-effective distribution strategy enables a
business to make products conveniently available to potential
consumers. This will therefore raise the likelihood of customers
purchasing the products. There are several factors that can affect
the distribution decision of a business. These issues include:
Cost and benefits
Product
Market
Time
Legal constraints
4.7 International marketing Entry into international
marketsEvaluate the opportunities and threats posed by entry into
international markets.
Entry into international markets:
Once a business has decided to market its product overseas,
there are various strategies that it can use:1. Exporting
2. Direct investment
3. E-commerce
4. Joint venture
5. Strategic alliances
6. Franchising
7. Mergers
8. Acquisitions/TakeoversOpportunities and Benefits of
International Marketing
Businesses may aim to market their products to an international
audience for several reasons:
Capture a wider customer base
Economies of scale
Increase brand recognition
Spread risk
Extend the product life cycle
Gain more profitAnalyse given situations considering the
cultural, legal, political, social and economic issues of entering
international markets.
Issues and problems in entering international markets:Cultural
issues cultural exports, local preferences, language, ethics,
business etiquette.
Legal issues copyright and patent, pricing, monopoly,
restrictive trade practices, consumer protection laws.Political
issues international trade barriers: quotas, tariffs, embargoes,
administrative barriers, subsidies.
Social and demographic issues socioeconomic and demographic
conditions, pressure groups.
Economic issues competition, transportation costs, exchange rate
fluctuations, interest rates and communication costs.
4.8 E-commerce
E-commerce
Business-to-business (B2B)
Business-to-customers (B2C)
Discuss the costs and benefits of e-commerce to firms and
consumers.
E-commerce is business activity conducted through some
electronic medium. This is becoming an increasingly important
method for business to be involved in and many businesses will have
taken the opportunity of setting up a Web site as a means of
establishing a presence - electronically.
Types of e-commerce
There is a certain amount of jargon associated with e-commerce
that it will be useful to know.
B2C - This refers to businesses engaged in servicing consumer
demand directly - this could be a firm like Dixons, who now have an
Internet presence, or it could be a small village caf. B2C refers
to 'business to consumer'. Even small businesses will have to think
about some element of e-commerce because they might have to think
about using credit and debit card services which use electronic
means of funds transfer.
B2B - This refers to businesses that service the requirements of
other businesses. They will be suppliers of machinery, equipment,
spare parts and other services such as payroll, insurance, banking
services and maintenance.
The Advantages of E-Commerce
E-commerce provides another source of revenue for many
organizations. The Internet gives businesses another channel of
distribution. E-commerce also represents an opportunity for
organizations to respond to competitors more quickly. Excessive
packaging can be reduced. Retail outlets tend to have higher
overhead costs. Customers have more choice and convenience. Speedy
completion of transactions is possible.The Disadvantages of
E-Commerce Set-up costs Finance charges imposed by Credit card
companies for using their services Spam Not highly suitable for
some businesses. More web pages than people in the world. Reliant
on advanced technology. Internet is volatile as is prone to hackers
and breakdowns. Shift to e-commerce trading from traditional
methods used in retail outlets may result in job losses.Analyse the
effect of e-commerce on the marketing mix.
Read pp. 603 607 E-commerce and the Marketing Mix