3.3 DECISION MAKING TO IMPROVE MARKETING PERFORMANCE Flashcards
Define Price Elastic
MORE THAN 1
Measure of how reactive the market is to a change in price for a given product (More than 1)
CHANGE IN DEMAND IS MORE THAN CHANGE IN PRICE
Define Price Inelasticity
LESS THAN 1
Measure of how unreactive the market is to a change in price for a given product (Less than 1)
When the price goes up, consumers’ buying habits stay about the same, and when the price goes down, consumers’ buying habits also remain unchanged.
CHANGE IN DEMAND IS LESS THAN CHANGE IN PRICE
Define Income Elastic
MORE THAN 1
How responsive the quantity demand for a good or service is to a change in income.
Work out percentage change
- Work out difference between the 2 numbers
- Divide decrease by original number
- Multiply answer by 100
Contextual example of Income Elasticity of Demand
Margarine vs Butter
Inferior Good (YED)
Increased income leads to a fall in demand. Falls because consumers switch to better alternatives
E.g. cheap substitutes (supermarket coffee)
YED < 0
Negative elasticity of demand
- Demand falls when income rises
- Demand rises when income falls
Luxury Good (YED)
Increased income leads to more increase in demand.
E.g. Ferrari
YED > 1
Necessities (YED)
Normal Goods (YED)
As consumers’ income increase, there is a decrease in quantity demand - as they seek more luxury goods, making it income elastic.
State PESTLE
P - Political
E - Economic
S - Social
T - Technological
L - Legal
E - Environmenta
Give an example of the POLITICAL external environment
Government decisions / laws
Give an example of the ECONOMIC external environment
Interest rates and exchange rates
Give an example of the SOCIAL external environment
Demographic changes; trends and pressure groups
Give an example of the TECHNOLOGICAL external environment
Robotics, new technology, disruptive technology
Define disruptive technology
An innovation that significantly alters the way that consumers, industries, or businesses operate.
Give an example of the LEGAL external environment
Laws: employment laws/minimum wage/health and safety laws
Give an example of the ETHICAL / ENVIRONMENTAL external environment
Pollution, ethic sourcing, sustainability
What is a sustainable business?
A business that has a minimal negative impact, positive effect on the global or local environment
External factors affecting level of demand
- Prices & Incomes
- Tastes & fashions
- Competitor actions
- Social & demographic change
- Seasonal changes
- Changing technology
- Government decisions
Define ‘marketing objectives’
Set out what a business wants to achieve from its marketing activities.
Internal Influences on Marketing Objectives
- Corporate objectives
- Operational issues
- Finance available
- Management style
- Product availability
External Influences on Marketing Objectives
- Economy
- Market dynamics (size etc)
- Technology changes
- Social / political changes
Define ‘Sampling’
Getting opinions from number of people, chosen from specific groups
How do you lower the margin of error whilst sampling?
Get a larger sample size
Define cluster sampling
Certain demographics of people (clusters)
Advantages of cluster sampling
- Quick and easy; doesn’t need complete population
- Good for face-to-face surveys
Disadvantages of cluster sampling
- Expensive if clusters are larger, may need to travel
- Greater risk of sampling error
Define convenience sampling
- Use of volunteers
- Convenient for participants
Advantages of convenience sampling
- Subjects readily available
- Large amounts of information can be gathered quickly
Disadvantages of convenience sampling
- Doesn’t represent entire population
- Prone to volunteer bias
- Relies on volunteers taking part
Define judgement sampling
Deliberate choice of sample (NOT RANDOM)
Advantages of judgement sampling
- Good for providing case studies
- Allows businesses to approach their target market directly if wished
Disadvantages of judgement sampling
- Prone to bias
- Samples often small, more room for error
- Cannot extrapolate from sample
Define quota sampling
- Aim is to obtain a sample that represents the overall population
- Population divided/stratified by most important variables
- VERY SPECIFIC
Advantages of quota sampling
- Quick and easy
- Accurate and convenient
Disadvantages of quota sampling
- Not random, risk of bias
- Need to understand the population to be able to identify the basis of stratification
Define systematic sampling
Sample members from a larger population are selected according to a random starting point but with a fixed, periodic interval.
This interval, called the sampling interval, is calculated by:
Population size / sample size
(E.g.) every 4th customer that enters a shop
Advantage of systematic sampling
- Ensures sample is spread out
Disadvantages of systematic sampling
- Can be costly
- Can be time consuming
How would systematic sampling be conducted?
- Create list of employees
- Select a beginning number
- Select an interval
- Gather list of employees based on interval number
Define test marketing
Launching a product to part of target market to test if the product will be successful in the target market when it is officially launched
e.g. SpotifyCarThing
What is the aim of test marketing?
To gather as much information about the optimum marketing mix as possible
Reduce failure rate
Advantages of test marketing
- Data coming from actual events happening (customer interaction)
- Reduces risk of the launch failing
- Provides way of tweaking marketing mix before the launch
Disadvantages of test marketing
- Danger of competition learning about the product
- Delays full launch, loss of sale opportunities
- Test markets may not represent full target market
- Costly and time consuming
Define ‘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.
Often calculated quarterly or weekly
Advantage of using ‘moving averages’
Simplifies data, separates out random variations.
Allows extrapolation
Define ‘Extrapolation’
The use of past data to establish a trend which can project into the future
Assumes the pattern will continue into the future
Advantages of Extrapolation
- Simple method for forecasting
- Not much data required to complete
- Quick and cheap
- Useful when trends can be clearly identified and the market is relatively stable
Disadvantages of Extrapolation
- Unreliable if there are multiple fluctuations in the data in general
- Assumes past trends only
- Ignores qualitative factors
- The past is not always a good indication of the future
- Conditions / trends can change whenever
Define correlation
Looks at strength of relationships between two variables
Define dependent variable
Something that depends on that of another.
Define dependent variable
Something that doesn’t depend on that of another.
State the axis on a scatter graph for correlation
Y = Dependent Variable
X = Independent Variable
State the three types of correlation
- Positive
- Negative
- No correlation
Define a positive correlation
Independent variable increases in value, so does the dependent variable (/)
Define a Negative correlation
Independent variable increases in value, dependent variable falls in value ()
Define a strong correlation
Little room between data points
Define a ‘weak correlation’
Data points spread out/wide
Give an example of something that is price inelastic
PETROL: even if price increases, demand remains at an inelastic level, as petrol is essential
Define ‘market segmentation’
Division of the market into distinct groups of customers with similar characteristics or needs (segments)
e.g. age / income groups
Define targeting
Determines which customer segment to focus marketing on, adapting the product and marketing mix to appeal to this group
Selecting a segment
Define positioning
Position the product in the target customers’ minds so that they see it as better than the competitors
Allows customers to develop an opinion
Needs to position well to convince the target customers that the products have benefits to them and to differentiate from competitors
Suggest Positioning Strategies
- Offer more for less
- Offer more for more
- Offer more for the same
- Offer less for less
Define market mapping
Using a graph to plot competitors and their products to understand competitor behaviour and spot a gap in the market.
Advantages of market mapping
- Helps to spot gaps in the market
- Useful for analysing competitors
- Encourage the use of market research
Disadvantages of market mapping
- Just because there is a ‘gap’, doesn’t mean there is demand in that gap
- No guarantee of success
- How reliable is the market research
- Based on opinion, can be BIAS
What is the marketing mix?
THE 7P’s
- Product
- Place
- Price
- Promotion
- People
- Process
MUST ALL WORK TOGETHER!
Give an example of process (7P’s)
- Contactless payments
Give an example of people (7P’s)
- Customer support
Define ‘people’ (7P’s)
Everyone who is involved in the product or service whether directly or indirectly.
All these people have their own roles to play in the production, marketing, distribution, and delivery of the products and services to the customers.
People must be trained correctly
Includes all job roles
Define ‘physical environment’ (7P’s)
PHYSICAL EVIDENCE
The physical environment experienced by the customer.
The space, the decoration, the environment
Give an example of ‘physical environment’ (7P’s)
- Physical design and layout of the premises
- Layout of the website.
Define ‘process’ (7P’s)
- Systems/processes that deliver the product to the customer
- Can cause a customer to buy or not from a business
What is the Boston Matrix?
Model that helps businesses analyse their portfolio of businesses and brands.
Popular tool used in marketing and business strategy.
Why is the Boston Matrix useful for a business?
Helps decide where to allocate investment
Name all parts of the Boston Matrix
- Top left: Question mark / Problem child
- Top right: Rising star
- Bottom left: Dogs
- Bottom right: Cash Cows
Name all axis of the Boston Matrix
Y = % Market Growth Rate (are the numbers of potential customers in the market growing or not)
X = Relative market share (does the product being sold have a low or high market share?)
Suggest what being a ‘rising star’ means for a product (Boston Matrix)
- High share of a rapidly growing market
- Product is strong
- Requires high marketing spending to maintain its position and become future cash cow
- Cash flow may be positive, depends on profitability and market share
Suggest the strategies a ‘rising star’ may use (Boston Matrix)
- Invest to sustain growth
- Maintain/build market share
- Block competitors
Suggest what being a ‘question mark/problem child’ means for a product (Boston Matrix)
- Low share of fast-growing market
- Cash flow usually negative
- Products have potential
- Could either become a dog or star
Suggest the strategies a ‘question mark/problem child’ may use (Boston Matrix)
- Invest to increase market share
- Try to build a competitive advantage
- Be selective and invest in most likely stars, not dogs
- Cash flow likely to be negative
Suggest what being a ‘cash cow’ means for a product (Boston Matrix)
BEING MILKED
- High share of a low growth market
- Likely to be at mature stage of the product life cycle
- Little potential for growth
- Large, positive cash flow
Suggest the strategies a ‘cash cow’ may use (Boston Matrix)
- Defend market share, DEFENSIVE (1UP competitors)
- Reduce investing in order to maximise cash flow and profits, slowwwwww down
What may a business do with the profits from cash cows?
Re-invest them into ? and *
Suggest what being a ‘dog’ means for a product (Boston Matrix)
- Products that have failed
- or Products in decline of the product life cycle
- Low share of low growth market
- Not going anywhere, no hope or potential
- Does not always mean the company will discontinue the product
Suggest the strategies a ‘dogs’ may use (Boston Matrix)
- Not worth investing in anymore
- Uses up more management time/resources
SO
May be worth getting rid/dropping it to improve unnecessary cash outflows
Advantages of Boston Matrix
- Useful tool for analysing product portfolio decisions
- Easy to create, easy to view
- Free to create
Criticism of Boston Matrix
- Relative market share and rate of market growth aren’t the only factors important to a business when analysing their product portfolio
- Only a snapshot of current position
- Product life cycle can vary
Contrast the Product Life Cycle and the Boston Matrix
Product Life Cycle:
- Concerned with individual products
- Focused on sales
Boston Matrix:
- Concerned with portfolio of products, brand and business
- Greater focus on cash flow
What can the product life cycle model help with?
- Forecasting sales trends
- Market targeting and positioning
- Analysing and managing product portfolio
- Seeing which products to focus investment on
Name all stages of the product life cycle
- Development
- Intro
- Growth
- Maturity
- EXTENSION
- Decline
Describe the intro stage (product life cycle)
- Launch of the product
- Usually low sales
- Low capacity utilisation and high unit costs
- Heavy promotion to attempt to boost the product
- Usually negative cash flow
Strategies of the ‘intro stage’ (product life cycle)
- High promotion
- Price skimming / penetration
- Limited / focused distribution (only a few buyers)
Describe the ‘growth stage’ (product life cycle)
- Sales increasing - moves towards profit
- Rise in capacity utilisation
- Market acceptance
- Unit costs fall with economies of scale
- Positive cash flow beginning to build
Define ‘market acceptance’
Level of satisfaction with a product or service in a target market
Strategies of the ‘growth stage’ (product life cycle)
- Heavy promotion, to maintain growth
- Intensive distribution
- Market penetration
- Wider target market
- Improving the product
Describe the ‘maturity stage’ (product life cycle)
- THE PEAK
- Slower sales growth (reached peak), but customer loyalty built
- High profits for those with high market share
- Weaker competitors start to leave market
- Price starts to fall
- Cash flow strongly positive
- At cash cow phase
Strategies of the ‘maturity stage’ (product life cycle)
DEFEND POSITION AT THE PEAK
- Promotion focuses on differing themselves from competitors
- Intense distribution
- Reduce costs (bulk buying)
- Expand: enter new segments
Strategies of the ‘extension stage’ (product life cycle)
- Attract new users
- Reposition in the market
- Adapt marketing mix (7P’s)
- More efficient distribution (Amazon Prime)
- Innovate the product
Describe the ‘extension stage’ (product life cycle)
- Keeping a product going a little longer before it goes into decline
- HOLDING ON
Describe the ‘decline stage’ (product life cycle)
- Falling sales
- Market saturation (volume for a product maxed out in market)
- Rapid fall in profits and sales decrease
- Weak cash flow
- More competitors emerge
- Excess capacity (producing at a lower scale of output than it has been designed for)
- Rising unit costs
Define ‘market saturation’
Happens when the volume for a product or service is maxed out in a given market
Strategies of the ‘decline stage’ (product life cycle)
- Maintain market share as best as can
- Cut prices to encourage sales
- Support loyal customers
Why do products enter decline?
- Obsolete product - no customer need
- Technological advance
- Changes in consumer tastes and behaviour
- Increased competition
- Corrupt management (internal)
- Failure to innovate and develop the product
- Damaged publicity