Analysing markets and marketing Learning objective – Understand the importance of analysing markets Learning outcomes – Identify why businesses may analyse markets – E Explain why businesses may test market – C Analyse the importance of market research and the advantages and disadvantages of using IT to analyse markets - A

Starter What is a market? Why would a business want to analyse the market they are operating in?

Market analysis Businesses must continually analyse their markets and how they market their products. Effective analysis helps a business to be successful. Business may analyse markets in order to: Gather evidence for devising new marketing strategies Identify significant patterns in sales

What marketing managers want to know How big is the market? (measured by sales, volume etc) How fast is the market growing and what is the growth potential? The key social, economic, political/legal and technological factors that drive change in the market Who are the existing competitors and their market shares? Extent of branding and customer loyalty in the market How the market is segmented to meet different customer needs Customer preferences in terms of when and where they buy, what prices they pay and which methods of promotion are effective The potential for developing a competitive position in a market – either through a USP or through effective price competition

Examples of when marketing analysis is really needed Forecasting sales for new products or investments into new markets Gathering evidence to support a finance-raising exercise To support a new marketing strategy or significant changes to the marketing objectives To help make decisions in relation to significant organisational or operational change

Test marketing Test marketing involves launching the product in small part (usually geographic) part of the target market in order to gauge the viability of a product or service in the target market prior to a main roll-out or launch.

Aim of test marketing To gather as much information as possible about the optimum marketing mix Product Price Promotion Place

Test marketing A business might analyse whether a product is successful by using test marketing. This is when a business sells a product to a limited group of customers to assess their reactions What do you think the advantages and disadvantages are of test marketing? innocent-drinks-41.htm

Benefits and drawbacks of test marketing AdvantagesDisadvantages Data provided is from actual customer spending Danger of the competition learning about the product and coming up with a response before the full launch Reduces the risk of a full-scale launch – if the product fails a test then significant costs may be saved Test market may not be representative of the full target market, leading to inappropriate decisions Provides a way to tweak the marketing mix before full launch Delays in full launch may limit the revenue opportunity in markets subject to rapid change Can create a promotional “buzz” which supports the main launch Costly and time-consuming to administer

Analysing trends – key topics Moving averages Extrapolation Correlation

A Moving Average A moving average takes a data series and “smoothes” the fluctuations in data to show an average The aim is to take out the extremes of data from period to period A moving average takes a data series and “smoothes” the fluctuations in data to show an average The aim is to take out the extremes of data from period to period

Moving average illustrated The blue line shows the actual quarterly sales figure which varies quarter by quarter The red line shows the quarterly moving average. This is calculated by adding the latest four quarters of sales (e.g. Q1 + Q2 + Q3 + Q4) and then dividing by four.

Moving average to extrapolation The moving average helps shows the growth trend (expressed as a percentage growth rate), and extrapolation can use this to predict the path of future sales. This could be done mathematically using a spreadsheet. Alternatively, an extrapolated trend can simply be drawn on the chart as a rough estimate, as shown below:

Benefits / drawbacks of using extrapolation AdvantagesDisadvantages A simple method of forecasting Unreliable if there are significant fluctuations in historical data Not much data requiredAssumes past trend will continue into the future – unlikely in many competitive business environments Quick and cheapIgnores qualitative factors (e.g. changes in tastes & fashions)

Moving Averages Practise Complete the 2 moving averages work sheets

Correlation Correlation looks at the strength of a relationship between two variables

Correlation variables The factor that causes the dependent variable to change Independent Variable The variable that is influenced by the independent variable Dependent Variable

Customer Enquiries (number per week) Advertising per week (£’000) Plotting correlation - example

Explaining the scatter chart (1) Correlation is usually measured by using a scatter diagram, on which data points are plotted. The dependent variable is normally plotted on the y-axis: the independent variable on the x-axis

Explaining the scatter chart (2) A “line of best fit” (the regression line) attempts to plot the mathematical relationship between the variables based on the data points.

Types of correlation Positive correlation A positive relationship exists where as the independent variable increases in value, so does the dependent variable Negative correlation A negative relationship exists where as the independent variable increases in value, the dependent variable falls in value No correlationThere is no discernible relationship between the independent and dependent variable

Positive correlation Holidays taken from the UK to Florida Pound / $ Dollar Exchange Rate

Negative correlation Demand for new houses Interest rate on mortgages

No correlation Demand for sausage rolls and other savoury pastries Number of weddings per year in the UK

Strong or weak correlation? The line of best fit indicates the strength of the correlation Strong correlation means that there is little room between the data points and the line Weak correlation means that the data points are spread quite wide and far away from the line of best fit If the data suggests strong correlation, then the relationship might be used to make marketing predictions

Correlation Complete the correlation worksheet provided

Qualitative forecasting – two approaches Hunch Delphi Method Delphi Method An educated guess Opinion from the experts

Hunch A forecast based on a hunch is likely to be influenced by the experience of the forecaster, perhaps supported by market research or from discussions with others in the market An experienced manager will have strong insights into the sales prospects for individual products, business units The starting point for a hunch forecast is often the previous years’ or period data

Delphi Involves getting a group of market experts to provide an opinion on the forecasting task – e.g. to estimate future sales growth in a market Experts first give a confidential individual opinion on the task Their forecasts then revised based on the submissions of each expert to the group Ultimately the aim of the Delphi method is to reach a “consensus” forecast

The analysts Businesses themselves Competitors Suppliers Trade associations Government Industry regulators Industry analysts

Example - retailing Individual retailers analyse sales using their EPOS terminals and other systems The Office of National Statistics produces regular data on total retail salesOffice of National Statistics Specialist market researchers like TNS track retail sales in great detail at the checkoutmarket researchers like TNS track The British Retail Consortium produces weekly and monthly data for its members (the BRC is the trade association for retailers)British Retail Consortium

Example – the media market Thousands of households track radio usage for RAJAR which is used to measure demand and market sharetrack radio usage for RAJAR Industry regulator OFCOM produces highly detailed market research on sales, cost and other market information for all consumer media markets Industry regulator OFCOM

When to use qualitative forecasting When there is little accurate or predictable historical data available (e.g. in the case of a new product launched into a new market) Where a market is subject to wide fluctuations in demand (e.g. unexpected surges or shocks) Where a market experiences significant change (e.g. shortened product life cycles, rapid changes in technology)

Using IT to analyse markets Almost every major market is analysed using IT

Information technology and market analysis IT now means even small businesses can analyse markets within which they work. Businesses can do this for themselves and there is also a huge quantity of readily available market data analysing trends in a variety of markets. This information is usually sold on to businesses for a small fee. What benefits are created from using ICT for market analysis?

Benefits of IT for market analysis Manage large amounts of data Extensive calculations can be carried out accurately Information can be manipulated and illustrated Data manipulation can be carried out quickly

Case Study Question Complete the forecast of UK consoles case study question. OR: Complete the Customer Relationships case study question.

Homework Please complete homework 2