Marketing

What is a market? Any place where buyers and sellers meet.

Consumer markets Consumer markets - are made up of individuals who purchase goods/services for personal or domestic use. Consumable goods, eg food, cosmetics, magazines Durable goods, eg cars, televisions, clothes

Industrial markets Industrial markets - organisations that purchase goods and services to use in the production of other goods and services. Consumable goods, eg raw materials Durable goods, eg machinery and equipment

What is marketing? ‘Marketing is the management process responsible for identifying, anticipating and satisfying consumer requirements profitably.’

What is the role of marketing? To identify, anticipate and satisfy customer needs. To provide customers with desired goods/services = profits. To ensure customer awareness of goods/services.

Marketing objectives To target a new market or market segment. To achieve or maintain market share. To develop a new range of products. To improve the image of the product.

Marketing activities Market research New product development Selling Pricing Promotion and advertising Preparing publicity information

Factors leading to the importance of marketing Economic growth and booms – with more disposable income, marketing is needed to gain market share. Fashion – marketing attempts to anticipate trends and/or changes in tastes, lifestyle. Technology – new product innovation is essential for firms to keep up with competitors. Competition – rivals may come from overseas. Firms have to be aware of the market environment both at home and abroad.

Product orientation Production capabilities Manufactureproduct Aggressive sales effort Customers Production orientation is when a business focuses on the production process and seeks to make goods that are viewed as superior.

Market orientation Potential market opportunities Marketing product and services Customer needs Customers Market orientation starts with the consumer and looks at consumer needs. It is customer orientated.

Advantages of market-orientated approach Can respond more quickly to changes in market due to market research. Increased chance of new product success. Stronger position to combat new competitors/entrants. Can anticipate market changes.

The marketing environment Consumer trends and behaviour Competition Political The market The economy Technology Social

Market share and market growth Market share is the percentage of customers who buy/use a company’s goods/services. Market growth is the volume of new sales or customers within a market.

Marketing mix The 4Ps Product Price Place Promotion Click for clip

Product/service Product – the good or item to be made for sale to customers. From the product everything else follows in the marketing mix (product, price, place, promotion). Now watch Steve Jobs’ iPod launch… Click for Clip

Levels of a product Core – the basic product. Actual – the product on sale to the public. Augmented – a product with additional features to boost its USP.

Boston box Click for clip Market share High Low High Market growth Low

Boston box – strategies Stars Build sales/market share Invest to turn into cash cow Problem children Build selectively Harvest or divest rest Cash cows Hold sales/market share Use excess cash to invest in stars, problem children Dogs Harvest or divest

Product lifecycle The product lifecycle is a theory that has some assumptions: Products have a lifespan. All products pass through the stages described. All products decline. Click for Clip

Stages in cycle Development – In this costly stage, money is spent on research to create a viable prototype.   Introduction – The product is launched onto the market but normally sales are low due to competition and lack of awareness from the public. Growth – Sales rise sharply as awareness increases. This is the first stage where the company starts making a profit.

Stages in cycle Maturity – The product is now a market leader and ways to expand sales become more difficult. When there is an overkill of supply, this is the saturation point. Decline – Sales begin to fall, and the product begins a slow death as trends, technology or imitators overtake it.

Product lifecycle

Extension strategies Change the product – have additional features or upgrade the product.   Change the price – lower prices to make it more appealing to non-users/buyers. Change the place/channel of distribution – look to more outlets or go online to widen market opportunities.

Extension strategies Change the promotion method – introduce sales promotional campaigns, such as BOGOF. Change the packaging – to make it more eye-catching to customers.

Effects of extension strategies

Answer a question Changing the packaging of products can make them more appealing and eye-catching to consumers. Explain five other methods of extending the product lifecycle. (5 marks) 2008 10 minutes

Peer marking You are going to swap answers. Has your partner answered well? Does the answer make sense? Is it worth a mark? Work with the class to assist them in understanding the way that questions are marked. They peer assess and discuss the answer with each other and then award the appropriate marks – teacher gives support.

Solution Improve the product by adding new or additional features customers will want, eg cameras on mobiles. Alter price, either lower or increase price to attract customers. Change the method of advertising, move the message, eg from TV to radio. Change the use of the product, eg Lucozade once was used to reenergise ill people, now used as a sports drink. Introduce line extensions to the product, create new flavours, different sizes or even alter the format like the PSP. Change the name of the product, eg Opal Fruits to Starburst, Marathon to Snickers. Alter the place the product is sold, offer products online to reach a wider customer base.

What is a new product? New to the world New product lines Additions to existing product lines Improvements and revisions to existing products Repositioned products Click for clip

New product development stages Generate ideas – Brainstorming session to come up with ideas. Quantity rather than quality is needed before refining the idea to something realistic. Analysis and further research – Time and money spent on discovering what is possible and what is not. Can existing technologies be used? Or will something totally new be created? Are the products marketable? – Will customers buy the product? Potential customers may be surveyed at this stage.

New product development stages (contd.) Prototype – A working model is developed. Test marketing – Potential customers may test several versions (or generations) of the product, and feedback will be used to modify the prototype. Full launch – If satisfactory, the product will be put into full production and a marketing campaign will be put in place to raise awareness of the product, emphasising the benefits it brings to customers.

Product failures Ford Edsel New Coke Sony Betamax VCR McDonald’s Arch Deluxe Sinclair C5 DeLorean motor car New Coke – In 1985 Coca-Cola’s market share was slipping, Pepsi was closing. It decided to bring out New Coke, which was to replace classic Coke. People rioted! They were forced to reintroduce classic Coke and regained their place at the top. Some said it was a marketing mistake and others said it was planned. The CEO said ‘We’re not that dumb and we’re not that smart’. Sony Betamax – competed with VHS for video home market in early 1980s. Incompatible with JVC’s VHS format. Its main problem was 60-minute length tapes. Films and sport lasted longer! It didn’t officially die out until 2002, but it had been effectively dead since 1988 when Sony ordered VHS VCRs. McDonald’s Arch Deluxe – a grown-up burger sold on taste. People go to McDonald’s for convenience not for sophistication. It was created at McDonald’s HQ and not out in the field as the Big Mac, Hot Apple Pie and others had been.

Successful NPD Does the product have a USP? Is there a specific market segment to target? Is the market large enough and will there be a return on investment? Are R&D and marketing communicating? Was NPD process handled well?

Branding A brand is a registered trademark of a company, including the name or logo that can only be used by that company. Branding helps create USPs (unique selling points), and via advertising and creating a positive, desirable image, build brand loyalty. Brands promote an image of high quality, which means a premium price can be charged.

Advantages of branding Easily identifiable. Brand loyalty – repeat purchases. Premium pricing can occur. High quality is associated with brands. Can create a family of branded products.

Disadvantages of branding Brands take time to establish reputation and quality. Advertising and promotion costs will be expensive. Negative press can tarnish entire family of products. Cheap imitations may flood the market.

Answer a question Discuss the effects on an organisation of branding their products. (6 marks) 2009 12 minutes

Peer marking You are going to swap answers. Has your partner answered well? Does the answer make sense? Is it worth a mark? Work with the class to assist them in understanding the way that questions are marked. They peer assess and discuss the answer with each other and then award the appropriate marks – teacher gives support.

Solution Products in the brand range are instantly recognisable and are uniquely different from other products. Brand loyalty can be built up, which can lead to repeat purchases. Brand is perceived to be of high quality, which can mean premium prices can be charged. Makes it easier to launch new products onto the market as there is already a brand family of products. Brand names can be expensive to build up as it takes time to achieve their reputation. Bad publicity can affect the whole brand, which can ruin the brand’s reputation overnight. Imitator and fake products are common, which can damage sales in the long run.

Own brands Own brands are goods made by a producer who sells them to a well-known retailer such as Tesco or Sainsbury’s, who repackage them and sell them at a low price under their own brand label. What are the own brands for the major supermarkets?  

Advantages of own brands Own brands will attract more customers and more sales within the store. Producer will have guaranteed sales. Products are cheaper. Disadvantages of own brands Some customers believe own brands are of lower quality than established brand names (although this is not necessarily true).

Answer a question Discuss the advantages and disadvantages of selling own brands. (4 marks) 2008 8 minutes

Self-marking You are going to answer on your own! Have you answered well? Does the answer make sense? Is it worth a mark? Work with the class to assist them in understanding the way that questions are marked. They self assess and then award the appropriate marks – teacher gives support.

Solution Own labels require very little advertising as customers will be normally be regular shoppers. The retailer does not need to produce the own-brand products as they can buy them from manufacturers and re-label them. A range of products with own labels can be sold because a brand family is established. Some own brands can be seen as value for money and a quality product when customers look for good deals. Own labels are cheaper to customers as the price is always lower than that of regular brands. Whole brands can be tarnished over one product’s failure or problem. This can ruin reputation overnight. Run the risk of imitator brands, which can damage sales.

Price Price has to be set appropriately or else customers will not purchase the product. High quality and high price normally go together and vice versa. In determining price firms have to consider: production costs of materials profit mark-up the market price (what competitors charge). Click for clip

Long-term pricing strategies Low price – Price lower than competitors. Only appropriate where there is a little brand loyalty and competition in the market is high. Market price – Setting price at a similar price to competitors. Homogeneous product means that price competition is not of benefit. They compete in other areas, eg service. High price – High-quality products, premium goods and services where image is important, such as perfumes.

Short-term pricing strategies Market skimming – In a new market a high price is set and then once the first customers have bought, the price is lowered to continue to skim the cream of the market layer by layer.   Penetration pricing – A low price used to enter a new highly competitive market.

Short-term pricing strategies Destroyer pricing – An illegal pricing tactic used to eliminate competition where a ridiculously low price is charged (sometimes at a loss) to smash competitors. Once market share is achieved, prices soar.   Promotional pricing – A short-term strategy to gain media attention and renew consumer interest, eg BOGOF or loss-leader tactics. Demand-oriented pricing – When different prices are charged at different times for the same good/service based on high demand or lack of demand.

Answer a question Describe three pricing tactics that could be used when an organisation attempts to break into a new market. (6 marks) 2009 12 mimutes

Peer marking You are going to swap answers. Has your partner answered well? Does the answer make sense? Is it worth a mark? Work with the class to assist them in understanding the way that questions are marked. They peer assess and discuss the answer with each other and then award the appropriate marks – teacher gives support.

Solution High price – price is set higher than competitors to give the image of quality and exclusiveness. Low price – price is set lower than competitors to attract customers to their product/service. Skimming – price is set high initially, when no competition exists. When competitors enter the market, price is lowered to market price. Market/competitive pricing – price is set at the same level as competitors, normally used for products that are identical.

Solution (cont’d) Penetration pricing – price is set slightly lower than competitors to attract customers; once a customer base is established, the price is slowly increased to same as competitors Promotional pricing – a low price is set for a short period of time to boost sales in the short term, possibly even making a loss on the product. This is often used by supermarkets to attract customers. Destroyer pricing – price is set very low compared to competitors and once there is no competition in the market the price is then put back up to the previous level or higher. This is mainly used by larger organisations to destroy competition, as you must have large reserves to sustain this tactic over any length of time. Cost-plus pricing – is the cost of buying in the materials with a mark-up added on.

Place Click for clip Producers Wholesalers Retailers Consumers Producer to wholesaler Producer to retailer Wholesalers Two or more intermediaries Direct selling Retailers Consumers

Choice of distribution channel Projected level of demand Geographical spread Optimum methods of stock control Seasonal trends Costs of distribution Speed of distribution Legal restrictions Changes in buying habits and life style Existing buying habits

A distribution channel Manufacturer Wholesaler Retailer Consumer

Direct channel This is from manufacturer to consumer. Fastest way (perishable goods?). Cheapest for consumer (no costs added on by each part of the chain).

C o n s u m e r s Manufacturers A B C D E Company warehouse Wholesalers Company outlets Retailers Retailers E-tailers C o n s u m e r s

Advantages of using wholesalers Buy in bulk, saving manufacturers the delivery costs of many small runs. They bear the risk of holding stock. Break down the bulk supplies and sort into quantities retailers will buy. Give advice to manufacturers, knowing what goods will sell well.

Key terms Manufacturer – firm that makes goods. Wholesaler – company that stores goods in bulk before selling them on in smaller batches. Retailer – firm that sells goods to end-users. Consumer – person who uses final good/service.

Answer a question Discuss the advantages and disadvantages to a manufacturer of using a wholesaler. (5 marks) 2008 10 mimutes

Peer marking You are going to swap answers. Has your partner answered well? Does the answer make sense? Is it worth a mark? Work with the class to assist them in understanding the way that questions are marked. They peer assess and discuss the answer with each other and then award the appropriate marks – teacher gives support.

Solution Advantages Saves on a number of smaller deliveries as retailers will buy in bulk. Less money tied up in stock as the wholesaler stores the materials. Wholesalers may label the product for the retailer, saving costs. Wholesalers break product down into smaller more saleable sizes that can be packaged and sold by the retailer. Wholesalers can give market research direct to manufacturer, which may affect future buying decisions. Disadvantages Loss of control of how the product is presented because it is normally packaged already. Lower profits as wholesaler, as intermediaries, take their cut.

Types of promotion Promotion Advertising Sales promotion Merchandising Direct mail Exhibitions and trade fairs Personal selling Public relations

What is promotion? Promotion is the way firms inform customers of their products and try to generate sales. Click for clip

Methods of promotion Advertising Sales promotion Public relations Merchandising Packaging Exhibitions and trade fairs Direct mail Personal selling Click for clip

Types of advertising Informative: Health Education Board for Scotland – smoking, drugs, alcohol etc Persuasive: used in very competitive markets, uses powerful images and language – ‘Probably the world’s favourite lager’. Corporate: promoting the whole company not a single product – BP adverts focus on their ‘green image’ not on the product (petrol) Generic: the whole industry comes together to promote the whole industry – Scottish beef, Scottish tourism Some classic adverts Click for clip

Types of advertising media Print: newspapers and magazines Broadcast: TV, radio, internet Outdoor: billboards, buses, round football grounds etc Which one is chosen depends on: cost: TV expensive but memorable target audience: choice of programme, newspaper competitors’ advertising: match to competitors impact required: new product  wide variety of methods the law: tobacco and alcohol Click for clip

Sales promotion – out of the pipeline and into the pipeline Into the pipeline targets retailers to purchase from suppliers. It also includes materials to help them sell to customers, eg merchandising displays and posters.   Out of the pipeline targets customers and end users, eg trial packs and BOGOF.

Public relations (PR) This is when an organisation tries to communicate with customers, shareholders, employees and the government – all of whom form the organisation’s ‘public’. The aim of public relations is to improve the image of an organisation’s products and the image of the organisation itself.

The role of PR Provides public with information about the organisation. Builds confidence/reputation of the organisation and awareness of its products. Develops goodwill in the community. Presents the organisation in a positive way. Supports and enhances other areas of the promotional mix, such as advertising and selling.

PR activities Opening a new store Charitable donations Event sponsorship Celebrity product endorsement Press conferences and press releases It is important to remember that PR is always conducted with ‘spin’ involved. In other words it always tries to have the firm viewed in the best possible light.

Merchandising Merchandising involves making sure a firm’s products are laid out in the most enticing or attractive way possible to customers. Special displays, stands or posters may be given to retailers to help point-of-sale advertising. ‘Eye level is buy level’, for example when a new DVD comes into the local supermarket expect giant posters and cardboard cut-outs of the characters to be emblazoned around the store!

Packaging The ‘cover’ or packaging of the product can also generate sales. Design – the colour scheme should help make the product stand out from rivals. Protection – is the packaging appropriate to ensure it doesn’t get damaged during distribution or when being taken home by the customer? Information – most products sold in supermarkets have to carry labels with information on their content or to indicate if they pass the BSI quality standard.

Answer a question Describe and justify four different methods of direct selling that could be used by an organisation. (8 marks) 2010 15 minutes

Self-marking You are going to answer on your own! Have you answered well? Does the answer make sense? Is it worth a mark? Work with the class to assist them in understanding the way that questions are marked. They self assess and then award the appropriate marks – teacher gives support.

Solution Personal selling – Products are sold by experienced sales personnel. Direct contact can be made with the retailer or consumer. Can be tailor-made to customer requirements. Demonstrations of the product or service can be shown. Mail order – Goods sold via catalogues. Offers credit facilities. No need for high-street stores. Internet selling – making use of websites to sell products. Consumers can order online from offices or homes. Is available worldwide. Can be accessed 24/7. Specialist magazines – Used to describe and sell specialised products or services. Customers who are sent or purchase the magazine are directly interested. Consumers can phone in orders or speak to specialists.

Target markets Undifferentiated or mass marketing When a product is sold to the entire market. Differentiated marketing When a product is offered to a group or groups within the total market. This is done by market segmentation. Click for clip

Undifferentiated marketing Firm Market Marketing mix

Differentiated marketing Segment 1 Marketing mix 1 Segment 2 Firm Marketing mix 2 Segment 3 Marketing mix 3

Concentrated marketing Segment 1 Segment 2 Firm Marketing mix Segment 3

Methods of market segmentation Age Race Gender Lifestyle Size of family Income Work Location Note: These are sometimes referred to as bases of segmentation.

Socio-economic group A Higher managerial, administrative or professional B Intermediate, clerical, administrative or professional C1 Supervisory, clerical, junior administrative or professional C2 Skilled manual D Semiskilled and unskilled E State pensioners, widows, casual and lowest paid

Psychographic segmentation Segments people according to lifestyle. Lifestyle is a person’s individual pattern of behaviour, including attitudes, beliefs, interests, hobbies, habits, religion.

Answer a question Describe six methods that an organisation could use to segment their market. (6 marks) 2009 12 minutes

Peer marking You are going to swap answers. Has your partner answered well? Does the answer make sense? Is it worth a mark? Work with the class to assist them in understanding the way that questions are marked. They peer assess and discuss the answer with each other and then award the appropriate marks – teacher gives support.

Solution Age – segments the market by different age groupings, such as young or old, under 12, 13–19, 20–35, over 35. Occupation – segments the market by different types of occupation. Education – segments the market by the level of education attained. Socio-economic – segments the market by grouping customers into different economic classifications. Geographical – segments the market by the area they live in. Cultural/religious background – segments the market by religion or ethnicity. Family lifestyle – segments the market by customers being either married or single.

Niche marketing A niche market is when a firm concentrates on selling to a specific market segment. Niche markets are normally very small, but can be highly profitable. Niche markets normally know their customers’ needs very well. Click for clip

Niche marketing Advantages Niche market may be overlooked Gain competitive advantage Disadvantages If successful, larger competitors may enter market Niche markets are smaller and may suffer more frequent swings in consumer spending

Market research What is market research? ‘The collection, collation, and analysis of data relating to the marketing and consumption of goods and services.’ Click for clip

Market research is used to find information about: the market itself (size and make-up – age, gender, income, tastes) promotional methods customer feedback (opinions, usage and attitudes) sales data (best sellers, best stores, best sales staff) influence and impact of competitors effect of price on market.

Primary (field) research Questionnaires Personal interviews Telephone interviews Postal surveys Observations Technology, eg loyalty cards Focus groups Customer panels Used to collect primary data

Sampling Sampling is a way to find out the views of the population without asking everyone! Random sampling – A randomly generated list of individuals. Free of bias, but not targeted at any market segment. Quota sampling – A group selected to reflect a proportion of the whole population. Cheaper than random sampling but can be less representative than the random method. Click for clip

Primary research Positives Only firm that collects data has access Can be controlled/verified Negatives Expensive to collect Lengthy time involved, information could be out of date

Secondary (desk) research Used to collect secondary data. Examples: sales figures annual reports and data internet data (eg other businesses’ websites) government publications, eg Social Trends commercial publications, eg Keynote, Mintel.

Secondary (desk) research Positives Saves time Relatively inexpensive Negatives Not specifically related to project undertaken Cannot be verified

Problems with market research Human behaviour is unpredictable. Sampling and bias. Other forms of bias, eg leading questions.

Answer a question Describe four methods of field research. (8 marks), 2009 15 minutes

Peer marking You are going to swap answers. Has your partner answered well? Does the answer make sense? Is it worth a mark? Work with the class to assist them in understanding the way that questions are marked. They peer assess and discuss the answer with each other and then award the appropriate marks – teacher gives support.

Solution Personal interview: this is a face-to-face interview, conducted in the street or at a person’s home, where an interviewer asks a respondent questions. Focus group: a small group of selected individuals are involved in discussions about an organisation’s product or service, led by a facilitator to provide qualitative information. Telephone survey: individuals are telephoned at their home and asked specific questions by an interviewer. Postal survey: questionnaires are sent through the post to selected individuals, but the response rate is very poor.

Solution Consumer audit: continuous market research is carried out with a selected group of consumers who record their purchases in a diary. This is then analysed for trends by marketers. Hall test: individuals are invited to try out a product and then give their opinion on it. These are collated and analysed. Observation: customers’ actions and purchasing patterns are observed by trained staff, who look for consumer behavioural trends. Test marketing: product is launched on a small area to gauge the consumers response. If successful the product can be mass produced.