3. Marketing (Only 3.1.3 and 3.3.2)

Question 1

What is mass marketing and what are the main features?

Answer 1

Mass marketing is where there are a very large number of sales and typically an undifferentiated approach.
These products are designed for people of all ages, races, religions, locations, lifestyles, etc.
The advertising and promotion should appeal to most customers

Question 2

What are some of the main features of mass marketing?

Answer 2

The main features of mass markets are:

• Low prices
• Similar customer needs across the market
• Undifferentiated products
• A wide range of sales outlets / wide availability
• Extensive promotion
• High sales volume

Question 3

What are the advantages and disadvantages of mass marketing?

Answer 3

Advantages

• A large amount of sales
• Economies of scale reduction in average costs per unit (we will learn more about this in 4.2)
• Risk can be spread out between different products
• Opportunities for growth

Disadvantages

• High levels of competition
• High cost of advertising
• Standardised products - they are not tailored towards certain wants or needs

Question 4

What is niche marketing?

Answer 4

Tailoring product to a particular type of customer (small specialised market)

Question 5

What are the main features of niche marketing?

Answer 5

The main features of mass markets are:

• Premium prices
• Small sales volumes
• Highly differentiated products
• A high skills base – it is often difficult for large companies / competitors to easily find the skilled labour to product the product

Question 6

What are the advantages and disadvantages of niche marketing?

Answer 6

Advantages

• Less competition from big companies.
• Can meet a customers specific needs.
• Can charge a higher price
• The added value can be very high for these products.

Disadvantages

• Limited number of sales
• Most businesses in these markets specialise in one product If that product is no longer wanted, the business may fail.
• Few economies of scale (can’t benefit from the lower costs that arise from a larger operations/market)

Question 7

What is cost-plus pricing?

Answer 7

Cost-plus pricing estimates the amount of products that will be produced, calculates the total cost of production, and then adds a mark-up for profit.

Question 8

What are the pros and cons of cost-plus pricing?

Answer 8

Pros:

• This method is very easy to apply.
• Easy to set price according to profit targets

Cons:

• The business can very easily lose sales if the price is higher than the competition.
• Ignores customer expectations, geographic differences etc

Question 9

Which situation would you use cost-plus pricing in?

Answer 9

for single-product businesses, who can easily calculate costs, e.g. banh mi seller

Question 10

What is the calculation for cost-plus pricing?

Answer 10

Total cost of production
——————————— + % of profit wanted = Total price
The amount of products

Question 11

What is Competitive Pricing?

Answer 11

Competitive pricing is putting prices very close to competitor’s prices. It can be the same or a little lower or higher.

Question 12

What are the pros and cons of competitive Pricing?

Answer 12

Pros:
- The consumers will make choices based on factors other than price such as:
Location
Quality
Customer service
- Price matches consumer expectations
- Sales are likely to be high as the price is competitive

cons:
- The business will need to research competitor’s prices, which costs both time and money.

No advantage gained in terms of price

Question 13

Which situation would you use competitive pricing?

Answer 13

when products are very similar to competitors, business compete on other factors, e.g. branding.

Question 14

What is Penetration Pricing?

Answer 14

This method is used when a brand is trying to enter an existing market.

Question 15

What are the pros and cons or penetration pricing?

Answer 15

pros:
- The business will set their price lower than the competitors to try and take some market share. This helps the business gain sales in a competitive market.

cons:

• However, the product is sold at a low price and so the profit is usually low.
• It may be difficult to raise the price in future
• Low price may not fit with brand image

Question 16

In which situation would you use penetration pricing?

Answer 16

launching new products in competitive markets

Question 17

What is price skimming?

Answer 17

This is used when a business has a new and unique product.

The business will sell the product for a very high price at first and lower it over time.

Question 18

What are the pros and cons of price skimming?

Answer 18

pros:
Using a high price can help establish a premium / high-quality image
Helps the firm gain maximum profit early in the product life cycle

cons:
- However, this method might lose the business some customers because of the high price.
- A price reduction early in the product life cycle may damage the brand image

Question 19

which situations would you use price skimming?

Answer 19

High price for new and unique products, e.g. new smartphones, cameras etc

Question 20

What is Promotional Pricing?

Answer 20

This method is used when the business wants to set a low price for a short time period. This helps the business get rid of stock that they are having a hard time selling.

Question 21

What are the pros and cons of Promotional Pricing?

Answer 21

pros:

• Can increase sales in the short-term
• Can increase brand awareness
• Can stop consumers buying competing products if they ‘stock up’ on a firm’s products

cons:

• Reduces profit margins for the promotional period
• Customers may not purchase unless it is on offer/ promotion
• May harm brand image

Question 22

Which situations would you use Promotional Pricing in?

Answer 22

low prices to sell unwanted stock / sales periods e.g. Black Friday, Christmas, New Year etc

Question 23

What is demand?

Answer 23

Demand is the quantity of a product that consumers are willing and able to purchase at a given price in a time period.
Typically the lower the price, then there should be more customers willing to buy it!

Question 24

What is price elasticity?

Answer 24

Price elasticity is a measure of the responsiveness of demand to a change in price. (measures the extent to which demand will change in response to a rise in prices)

Question 25

What is the difference between elastic and inelastic demand?

Answer 25

elastic - Where % change in demand is greater than % change in price (A product that is sensitive to price changes has price elastic demand.)
inelastic - Where % change in demand is less than % change in price (A product that is not sensitive to price changes has price inelastic demand.)

Question 26

What factors will affect PED (price elastic demand)?

Answer 26

• Availability of substitutes – the more choices consumers have, the greater the price sensitivity
• Buyers’ knowledge – the more they know about alternatives, prices etc, the more price sensitive they will be
• Switching costs – if someone is ‘locked in’ to a gym / mobile phone/broadband contract, it is
  usually expensive for them to switch, therefore they are less sensitive to changes in price. When customers can switch easily, they will be more sensitive to changes in price!

Question 27

Why is PED important?

Answer 27

Businesses can analyse potential impacts of price changes, promotions etc

They can also predict:
- Impact of a change in price on total revenue – if a price rise causes demand to fall significantly,
revenue will also fall. The firm should reconsider this price change!
- Effect of a government tax change – can the business pass on all/some of this tax onto the
consumers?
- PED can be used to support discriminatory pricing – e.g. a firm can calculate price sensitives of weekend and weekday cinema goers and adjust prices accordingly.

Question 28

Should a business raise the price of their products have price elastic demand?

Answer 28

Price elastic products (those with lots of competitors with similar products)
It is NOT a good idea to raise the price (unless costs increase)

Question 29

Should a business raise the price of their products have price inelastic demand?

Answer 29

Price inelastic products (necessities/products with a strong brand image and loyal customers)
Increased prices will lead to increased revenues (up to a point… if it increases a lot in price, consumers will switch eventually)

Question 30

What is a marketing department?

Answer 30

• Unless they are very small, most businesses will have a marketing department
• The bigger the business, the more departments and sections there are likely to be.

Question 31

what are the roles of marketing?

Answer 31

• Identify and satisfy consumer needs
• Keep customers loyal
• Gather information about customers
• Recognise how customer’s needs are changing

Question 32

What are a businesses marketing goals?

Answer 32

• Identify customer wants and needs
• satisfying customers needs
• maintaining customer loyalty
• Building customer relationships

Question 33

What is the sales department?

Answer 33

Responsible for the sales of the products. There are usually regional and export departments.

Question 34

What is the market research department?

Answer 34

Responsible for:
- Finding out the wants and needs of customers, market changes, the impact of competitor
actions.
- This information is used to make decisions on making new products, price, sales strategies,

Question 35

What is the promotion department?

Answer 35

• They are responsible for advertising. They must inform customers about their products in the most effective way.

Question 36

What is the distribution department?

Answer 36

• This department transports the product to the market.

Question 37

What are some needs you need to satisfy for customers?

Answer 37

What do they want?
How much would they pay?
Where and how do they want to buy the products?
What after-sales services do they want?