3.1-3.3 Flashcards
Purpose and What Is Marketing
-> the process of identifying, anticipating and satisfying customer wants and needs profitably
- Identifying customer needs (market research)
- Satisfying customer needs
- Maintaining customer loyalty
- Building customer relationships
Using market research, it can build up a more detailed understanding of what its customers want so that their specific needs can be more clearly met. This is known as relationship marketing, and it can help to build strong customer loyalty.
Product/Market-oriented firm
A market-oriented business identifies its customer’s needs and wants through market research before it develops its products. It frequently researches customer needs and wants through customer buying surveys and then develops products to meet them.
A product-oriented business develops its products before it knows what the consumer’s wants and needs are. (Some choose to use this method because technology develops so quickly and therefore it feels that by the time the research comes in, the market for technology would have changed)
Why does market change?
Market can change in terms of:
- Spending habits (change in income, fashion, price, competition)
- Competitiveness (globalization - increase in trade between countries and the sales of products all over the world, new technology, government regulation, communication)
In response:
Develop new products – By using market research to show how customer needs and wants are changing, businesses can develop new products to meet those needs.
Improve customer relationships – By improving customer relationships and building customer loyalty, businesses can gain a competitive advantage. This also encourages customers to maintain their spending habits because loyal customers will continue to spend with the same business.
Reduce costs through improved efficiency – By using their resources efficiently, businesses can reduce their average costs. This means that they can lower prices and still be profitable. Lower prices will mean an increase in sales.
Expand into new markets – By looking for buyers in other markets, such as in other countries, businesses can reduce the impact of changing consumer spending patterns or increased competition.
Pricing strategies
- Cost plus pricing
- Adding a mark-up for profit over the average cost per unit
- Suitable for grocery stores or clothes stores (low competition/ stable environment)
(It does not consider other factors.)
- Competitive pricing
- Setting prices lower than the competitors to undercut rival products
- Suitable for firms selling similar or same products (e.g. drinks, food) - Promotional pricing
- offering a product at a reduced price for a limited period
- Suitable for clearing unsold inventory - Price skimming
- setting a deliberately high initial price to give an impression of high quality, and then lowering it
- Suitable for low competition and high demand - Penetration pricing
- setting a deliberately low initial price to gain sales, build customer loyalty and win market share, and then raising it
- suitable for start-ups without brand recognition
Price elasticity of demand
-> how much demand varies after a change in price
Demand is the number of goods or services that are purchased at a given price. Demand and price have a negative correlation.
A demand curve for a price elastic demand.
Price elastic demand – small change in price causes a significant change in demand.
Price inelastic demand – change in price causes only a modest change in demand.
Products that experience price inelastic demand, prices are often higher because customers are prepared to pay more for goods or services they view as essential.
Products that experience price elastic demand usually have lower prices because they often have more competitors offering substitutes. This push prices down.
Product life cycle
- Development (with market research etc)
- Introduction
- Growth
- Maturity
- Decline (product extension?)
Businesses can maintain sales by using extension strategies:
- Reducing the price of the product
- Adapting the product by introducing new features or improving old ones
- Increasing promotional offers and/or the use of advertising
- Creating a new brand identity
Fads are products with short-lived cycles.
Brand name
The brand is the name or identity that customers associate with a product. It is the key factor that distinguishes the product from those of the competitors:
- increase product sales because the brand can be recognized by customers and used to attract potential buyer
- create customer loyalty
- a recognized brand name can add value
Promotion
- the process of raising customers’ awareness of the product and its benefit
- Above-the-line promotion – market communication using mass advertising media (below-the-line is not using mass media)
- E.g. TV adverts
(reach large audience, high cost, brand building) - Below-the-line - market communication not using mass advertising media
- Personalized, reaching specific target
- E.g. direct emails
- Point-of-Sale promotions – promotion targeting the customer at places where a product is displayed and sold (e.g. counter gum)
Methods of promotion
Advertising
- Paid-for communication that uses different types of media to present the product to potential consumers
- Reach large numbers; adaptive for different markets
- Expensive because produced by external agency; easy to be ignored
Sales promotion
- Where businesses try to attract customer interest by offering special deals or offers, such as buy one, get one free (BOGOF)
- Increase sale of price elastic products; cost is lower (no external agency involved)
- Costs are still attached (lost revenue); not suitable for long-term
Merchandising
- The process of promoting the product at the retail stage, often by setting up an attractive display that catches the customer’s interest
- If already have retail space, it is easy to organize; potential customers can see and handle the goods
- It is difficult to organize if not involved in retail; easy for customers to ignore
Direct mail
- Written communication about the product that is sent directly to the customer, either through the post or by email/social media
- Cheap to organize if use email; personalized, creating customer loyalty
- Easy to ignore because can be considered ‘junk mail’; low response rate, inefficient
E commerce
buying and selling goods online, and the use of appropriate marketing strategies to enable this process to take place
(risk and opportunities for customers and businesses！！！
Internet advertising:
- Reduce/lower costs
- Adaptable, website can be quickly updated
- Easy to ignore as customers may fear viruses or online crime
Channel of distribution
Routes which a product travels through between manufacturer and final consumer manufacturer and the final user
Retailer - business that sells finished products to the final customer
Wholesalers - business that buys a large quantity of products from a manufacturer and sells them on in bulk to a retailer
Delivery lead time – time lag between placing an order for a product and its delivery.
Niche and mass marketing
Mass market:
- Businesses that operate in the mass market produce products that are sold to most of the market
- products meet a general need or appeal to the whole market
- sold in large quantities for a low price
Pros/Cons:
- Economies of scale
- Regular income, less likely cash flow problems
- Cost for promotion is lower
- Highly competitive
- Less customer loyalty
Niche market:
- Businesses that operate in a niche market produce specialized products that meet a specific need
- appeal to a smaller part of the market
- They are usually sold in small quantities for a high price
Pros/Cons:
- Focus on target consumer, high customer loyalty
- Little competition, high market share
- Sales could be low
- Higher costs because output is lower (lower economies of scale)
Market segmentation
-> breaking the market into identifiable groups with shared characteristics.
Therefore, a market segment is just a group of customers.
Lifestyle segmentation involves dividing up customers into groups based on interests, hobbies, and opinions.
Other ways of market segmentation:
- Socio-economic groups (consumers with similar social, economic, or education status)
- Age & Gender (demographic segmentation)
- Location (geographic segmentation)
- Income
This allows businesses to identify the target audience to:
- Develop product features: e.g. packaging
- Select a pricing strategy
- Select how to promote their product
- Know what kind of products to produce
Market research
-> the process of gathering and interpreting information about a market, competitors or customers
Market research is used for:
- better understanding of its potential target market and allows it to develop products to meet customers’ specific needs and wants
- informs a business of what the competition is doing to meet the needs and wants of the target market
What affects the accuracy of market research:
- Validity (research conducted not for the same purpose)
- Sampling bias (size too small, or do not represent population as a whole)
- Bias (leading questions, or who carried out the research)
- Outdated research
Sampling methods:
Random sampling – Participants are selected at random from the population, so everyone has the opportunity to be selected.
Quota sampling – Participants are separated into groups that share common characteristics. A few participants are then targeted (groups are more likely to meet the characteristics of the target market).
Primary and secondary research
Primary market research is research that has been conducted for the first time and for a specific purpose.
Examples:
- Interviews (can ask detailed questions but is time-consuming)
- Online/postal survey (minimal costs, easy to ignore/ give false information
- Test marketing (release new products in small scale)
- Consumer panels (ask focus group to test new products)
(benefits and limitations see kognity)
Secondary market research is based on research that already exists in the past for another purpose. Secondary information comes from two main sources:
Internal secondary sources – These are the sources of information that are produced by the business, but not for market research:
- Sales records, Customer feedback, Workforce feedback
External secondary sources – These are the sources of information that are produced outside the organization:
- Online sources, government sources, reports from competitors
(benefits and limitations see kognity)
Marketing strategies
-> a plan a business creates to market a product to its customers
Product:
- must meet needs and wants of the consumer
Price:
- Decide on pricing strategies
- Is it a want or need? Average market price? Cost to produce? Demand? Price elasticity of demand?
Place:
- Locally, nationally, or globally? Chain of distribution? Transportation?
Promotion:
- Mass or niche marketing? Promotional budget? Target audience?
- The marketing of services usually requires more promotion and direct selling than the marketing of goods
A marketing budget is an estimate of all the likely costs involved in a marketing strategy. It can prevent overspending and help achieve the business objective. It should be cost-effective.
A business can:
- It can set the budget as a fixed percentage of sales
- It can budget to match the spending of competing businesses
- It can base the budget on what the business can afford
