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A LEVEL BUSINESS > 3.3.2 - Understanding Markets And Customers > Flashcards

3.3.2 - Understanding Markets And Customers Flashcards

1
Q

What does the law of demand suggest?

A

Prices up, demand down

Price down, demand up

When prices go up sales fall depending on elasticity (eg/ would assume proportional demand for the holidays will fall more than the demand for milk)

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2
Q

What is elasticity and what is the formula for PED? When is something elastic or in elastic?

A

Measurement of extent to which buyers and sellers respond to any particular change in market conditions

PED = % change in quantity demanded / % change in price

If PED is between 0 and -1 demand is INelastic which means demand doesn’t change a lot due to a change in price
- tend to be necessities eg/petrol bc people will buy no matter the price (so to increase revenue, increase price)

If elastic a change in price will result in greater proportional change in demand (so to increase sales revenue decrease the price)

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3
Q

What are the 3 determinants (factors) of price elasticity? What is another important factor apart from price?

A

1 degree of product differentiation
(Eg/ extent consumers view product as different-higher product differentiation=lower price elasticity)

2 availability of substitutes
(Eg/ when a product has many close substitutes price elasticity tends to be high)

3 branding and brand loyalty
(Eg/ strong brand names with strong images create customers who buy out of loyalty-stronger the brand, lower the price elasticity)

Another important factor influencing demand for product is household/disposable income (demand for luxury products would increase)

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4
Q

Data on PED can be used for two main purposes, what are they?

A

1 - sales forecasting

2 - pricing strategy

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5
Q

What is income elasticity of demand (YED)? Include some advantages
What is the formula? What is the 3 categories of YED?

A

Measures how responsive demand is following a change in income

+ knowing YED can help business maintain balanced portfolio of products

Measured same as PED (% change in quantity demand / % change in income)

  • “normal good” - positive YED between 0.1 and 1.5
  • “luxury good” - very positive YED greater than 1.5
  • “inferior good” - negative YED
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6
Q

What is segmentation and it’s 4 methods?

A

Means findings ways to divide market up to identify untapped opportunities which offers up possibility of new target markets and new positioning within market
- acknowledges customers aren’t all the same (different things needed for different people)

METHODS
1 DEMOGRAPHIC SEGMENTATION
- age gender ethnic origin

2 GEOGRAPHIC SEGMENTATION
- by region or county

3 INCOME SEGMENTATION
- in relation to household incomes

4 BEHAVIOURAL SEGMENTATION
- divided into how people behave and interact (eg/video games)

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7
Q

What are the benefits of segmentation? Include those for small/new firms and large companies

A

Increased customer satisfaction (customers willing to pay more premium price)

FOR SMALL/NEW FIRMS
- offers valuable strategy for breaking into market (could base business on uncommon market for less competition)

FOR LARGE COMPANIES

  • possibly add niche product to product portfolio already dominating mass market (eg/ coke introduce Diet Coke)
  • multiple segmentation: wide portfolio of niche brands can add up to a market leading position (publishers have different magazines)
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8
Q

What is the process of segmentation?

4

A

1 conduct research into different types of customer within a market

2 see if they have common tastes/habits

3 identify segment you wish to focus on, conduct some qualitative research into customer motivations and psychology

4 devise product

There are 3 steps (STP) segmentation targeting positioning

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9
Q

What is targeting as the second step after segmentation? How might a business do this (5)? What are the 3 main strategies?

A

Having analysed a market and identified suitable criteria for segmentation business needs to decide which precise segment it wishes to target

How might it do this:

  • take into account own strengths
  • consider potential size of each segment (volume and value)
  • consider the potential for growth in segment
  • consider if rival business within it are better fit (is there an existing producer already with a foothold in the segment)
  • accessibility of each possible target audience

3 main strategies:
MASS MARKETING -undifferentiated
SEGMENTED - different attire
CONCENTRATED - niche

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10
Q

What is positioning as the third step of segmentation?

A

Having decided which segment of market to target a business needs to position its product within segment

Eg/ gaming - target games like call of duty at teenagers or cartoons at young people

There is a “me too” approach (copy) or appeal strongly to a minority rather than a bit to many (unique)

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11
Q

What are the 3 values of segmentation? (importance of, what deoes it give the business?)

A

1 IMPROVED SALES VOLUME
Eg/ Wii targeted and positioned different part of segment (families) and sold more than Xbox and PlayStation

2 INCREASED PRICES
Eg/ center park segemented themselves as luxurious so charge a lot higher than butlins (and both the same)

3 INCREASED DIVERSIFICATION AND THEREFORE SECURITY
Eg/ crocs put all money into one so when it declined had nothing to fall back on so should target different segments

Other:
+ better opportunities for growth as customers can be encouraged to trade up after being sold on introductory lower priced product
+ businesses have improved target marketing communications (by segmenting markets relevant audience can be reached more often at lower cost)

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12
Q

What is mass marketing and successful features? What is niche marketing? Give 3 advantages and 3 disadvantages

A

Business targets WHOLE market, ignoring segments, focusing products on what customers need and what in common not how they differ

Features:
- success usually associated with low cost operation, heavy promotion, widespread distribution (recognised everywhere) or market leading brands

Business focuses narrowly on smaller segments or niches, tailoring product to particular type of customer
- Aiming to achieve strong market position (share) within those niches

+ CAN CHARGE HIGHER PRICE - customers prepared to pay for expertise and more loyal as you give what they want
+ CLEAR FOCUS - target customers (often easier to find and reach)
+ BUILDS SPECIALIST KNOWLEDGE AND SKILL (better merely expertise)

  • RISK OF OVERDEPENDENCE on single product or market
  • ATTRACT COMPETITION if successful
  • VULNERABLE to market changes - all eggs in one basket
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13
Q

What are the 2 advantages and 2 disadvantages of segmentation? (NOT VALUE OF SEGMENTATION)

A

+ focuses resources on parts of a market where business can succeed (product development focused on needs of customers in segment)
+ allows business to grow share in markets of fast growing segments

  • is an imprecise science meaning data isn’t always available, up to date or reliable
  • just bc you can identify a segment doesn’t mean you can reach customers in it and theyre very dynamic (always changing)
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14
Q

What is the importance of price? What do you do if you want to increase sales revenue?

A

Important role as a competitive weapon to help business exploit market opportunities

Has to be consistent with other marketing mix elements as it contributes to perception of product or service

Setting price too high or low limits business growth, ultimately causing cash flow and sales issues

LAW OF DEMAND states higher the price, lower the demand (sales fall) however higher prices mean higher profits

If product is:
Elastic DECREASE price (change results in greater change in demand)
Inelastic INCREASE price (change results in smaller change in demand)

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15
Q

What are the 6 factors affecting pricing decisions?

A

Must be acceptable to consumers

PED

Companies objectives

Competitor products

State of economy

All other Ps of marketing mix

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16
Q

What are the two important pricing strategies?

A

PRICE SKIMMING

  • involves setting high price before other competitors come into market
  • often used for launch of products with no or little competition usually due to some technological features
  • such products often bought by “early adopters” (prepared to pay higher price to have latest/best product in market)

PENETRATION PRICING

  • technique of setting relatively low intial entry price (lower than intended established price “special introductory offer”) to attract new customers, encouraging them to switch bc of lower price
  • aim is increase market share of product or sales volume providing opportunity to increase price once this objective has been achieved
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17
Q

What are the issues involved with price skimming and penetration pricing?

A

PRICE SKIMMING

  • as a strategy can’t last for long as competitors soon launch rival products that can put pressure on price
  • place may be a challenge for an innovative product as it may be necessary to give retailers higher margins to convince them to stock the product, reducing improved margins that can be delivered

PENETRATION PRICING
- in short term it’s likely to result in lower profits than would be the case if higher price was set however could be justified as there’s benefits to long term profitability of having higher market share

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18
Q

What are 3 other pricing strategies? Outline one

A

Dynamic pricing, predatory pricing and competitive pricing

DYNAMIC PRICING

  • pricing strategy in which business set flexible prices for products or services based on current market demands
  • 3 examples of factors that help determine a dynamic price are level of demand (eg/days of week or half term etc) customer location and competitor pricing
  • big data plays crucial role in making it possible which is algorithms used to turn data into pricing decision based around objectives set by businesses eg/revenue maximisation
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19
Q

What is the marketing mix and the 7 Ps in the extended marketing mix?

A

Combination of elements used by business to enable it to meet needs and expectations of customers (have to make sure each element works together to achieve marketing objectives

Price (how much customers pay for product)

Promotion (how customer is found and persuaded to buy)

Physical evidence (elements of physical environment customer experiences)

People (people making contact with customers to deliver product)

Product (good or service customer buys)

Process (systems and processes that deliver product to customer)

Place (how product is distributed to customer)

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20
Q

Discuss apple and Poundland’s marketing decisions related to the extended marketing mix (physical, process and people)

A

APPLE
physical - bright opening (enticing), less on display (premium products)
process - welcomed at door, can be hands on with product, stay in store for longer periods
people - more premium brand so higher expectations of customer service, experts that specialise, helpful

POUNDLAND
physical - dark colours, small doorway, windows filled with offers
process - in & cut culture, layout prints you to walk round full store (rely on high volume sales), quick and easy
people - friendly at till snd to help but don’t spend long periods of time with customers (would be frustrating-not needed)

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21
Q

What is the importance of product and what are the series of 8 layers that offer value to customers beyond the core value (reason you buy it)? Explain one

A

They’re at the heart of marketing and product needs to exist for other elements of mix to happen

  • quality
  • features
  • packaging
  • design
  • brand name
  • pre sale support
  • after sale service
  • warranty

PACKAGING

  • protects contents through distribution and selling (design and labelling also provides info and conveys certain image and may provide customer convenience eg/multipacks)
  • helps to differentiate product from others and to help advertise and promote brands image and maintain quality of standards
  • designed to encourage impulse buying eg/snacks
  • has to appeal to distributors (eg/shops)
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22
Q

What is brand extension and brand stretching in relation to product (marketing mix)?

A

BRAND EXTENSION
- when business uses a brand name on a new product that has some of brands characteristics

BRAND STRETCHING
- where brand is used for diverse range of products not necessarily connected
Eg/ virgin shows extent to which a brand can be stretched into distinct markets

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23
Q

What is a product portfolio? What is an issue and what models can be used to help analyse this?

A

A business with a range of products HOWEVER poses the problem of how much investment should be allocated across portfolio

1 Boston matrix

  • model which helps businesses analyse portion of businesses, products and brands
  • categorises products into stars, cash cows and ? Based on market share and market group (number of potential customers growing?)

2 Product life cycle
- theoretical model which describes stages a product goes through in its life including development (before release) , introduction (release), growth (sales volume increase), maturity (highest point before decline), decline (sales volume decline)

24
Q

In regards to how the Boston matrix is constructed what are its series of key assumptions? What are the axis on the model?

A

Market share can be gained by investment in marketing

Market share gains will always generate cash surpluses (which will be generated when product is in the maturity stage)

The best opportunity to build a dominant market position is during growth phase

Axis - market share (MS) and market growth (MG)

Milk cows, don’t waste money in dogs, invest in stars and give question marks some experimental funds to see if they can become stars

25
Q

Explain the meaning of a star and it’s position in the Boston matrix model for product portfolio analysis

A

High market share, high market growth

Products competing in markets where they’re strong in comparison to competition so may need protecting (attractive and successful)

Often need heavy investment to sustain growth which may be used from cash cow profits - growth eventually slows and assuming they keep their market share become cash cows

Still need promotion to ensure success

Eg/ Cadbury’s sharing packets

26
Q

Explain the meaning of a cash cow and it’s position in the Boston matrix model for product portfolio analysis

A

High market share, low market growth

Mature (been round a long time), successful products with relatively little need for investment

Generate high profits and cash for company bc sales are relatively high while promotional cost per unit is quite low

Need managed for continued profit so they continue to generate strong cash flows company needs for its stars or to invest in newer products but also if coming to end of its cycle where business is going to get money from to fund products

Eg/ Cadbury’s dairy milk/ buttons

27
Q

Explain the meaning of a question marks and it’s position in the Boston matrix model for product portfolio analysis

A

Low market share, high market growth

Have potential but may need substantial investment to grow market share at expense of larger competitors

Managers have to think hard about which ones do they let fail and which do they invest in (could become stars or dogs)

Usually need relatively high investment to promote

28
Q

Explain the meaning of a dogs and it’s position in the Boston matrix model for product portfolio analysis

A

Low market share, low market growth

May generate enough cash to break even but rarely worth investing in (try not to keep them too long and usually sold or closed)

Hold little appeal unless can be revived

Product or brand will be killed off once sales dip below breakeven

Eg/ Cadbury’s eclairs

29
Q

What are the uses and values of the Boston matrix?

A

+ Ideally a business wants products in all categories to give balanced portfolio so is a useful tool for these decisions

+ Can graphically demonstrate where excess cash flow should be invested (invested in stars to hold and in question marks to build)

  • only a snapshot of the current position
  • little or no predictive value
  • doesn’t take account of environmental factors
30
Q

What are some examples digital marketing and what are difficulties of it?

A

PLACE element

Email marketing, influencer marketing (fast growing and effective) and viral marketing (social media to promote-used extensively)

  • environment becoming more difficult as they can’t allow brand values to be damaged by social media platforms “people don’t trust what’s seen online”

+ useful method of gathering and analysing data for marketing decision making

Facebook asks for feedback to address and improve community standards (stop fake news, criticisms etc - used a lot by business)

31
Q

What is e commerce? What are the advantages and disadvantages?

A

Buying and selling of goods and services using electronic network (eg/internet)
-massive impact on PLACE and PROCESS element

+ attract customers across globe who can buy at any time day or night, comparing prices and payments received immediately instead of banked

+ reduced overheads compared to physical shop (no rent)

  • employees may need new skills (eg/ website maintenance - money for training)
  • need to maintain and update technologies including security (expensive but very important as many competitors across globe)
32
Q

What is new product development, the value of it and the 6 main influences on it?

A

Process of bringing a new product into market

A successful new product can create its own new life cycle giving an entire business a morale and profit boost

Main influences on NPD:
1 understanding of customers within market segmentation (future needs and wants)
2 gap in market
3 Human Resources (creativity and innovation)
4 resources (money and man power)
5 competition
6 technological developments

33
Q

Explain the importance of place as an element of the marketing mix

A

Aka distribution (how business gets product to customers-production to consumption)

Make products available in right place at right time in right quantities (if too late competitors may be ahead)

Achieved by using distribution channels including retailers, distributors, direct and wholesalers (all start with producer and end with consumer)
- if business sells through retailer producers can reduce costs (retailers have built up image, sort customers and pay for delivery and advertising)

Intermediaries relied on bc they keep producer happy as they rely on them

34
Q

The main function of a distribution channel is to provide a link between production and consumption, what are some of the main functions involved with organisations who are part of a distribution channel?

A

+ promotion (developing and spreading communications about offers)

+ contact (finding and communicating with customers and negotiating to reach on agreement on price, as well as adjusting offer to fit buyers needs (eg/ meal deals)

+ physical distribution (transporting and storing goods-they acquire and use funds to cover costs of distribution channel)

35
Q

Explain the role of a retailer as an intermediary in distribution channels (PLACE)

A

Deals directly with customer and are focused on consumer markets (eg/ department stores like Debenhams)

Key trends:

  • trend towards out of town stores (more convenient- anywhere with better parking eg/metro rather than city centre)
  • growth of retailer “own label” brands

+ convenient for customers
+ wide reach to customers
+ retailer hands financial transactions and after sales support and holds stock

36
Q

Explain the role of a wholesaler as an intermediary in distribution channels (PLACE)

A

Buy in large quantities from producers to break into smaller quantities to sell to retailers

Make money by buying at lower price from producer and adding profit margin onto price paid by retailer

+ reduce producers transport costs
+ retailers can order in smaller amounts from wholesalers

37
Q

A business faces a choice of using direct (short) or indirect (long) channels for distribution, briefly explain each with a method

A

DIRECT

  • producer and consumer deal directly with each other without involvement of an intermediary
  • give greater control over marketing of product
  • keep greater proportion of profit but means increased distribution costs
  • increasingly popular (used for expensive and complex goods)
  • direct mailing, e commerce or telemarketing

INDIRECT

  • involves use of intermediaries between producer and consumer
  • wholesaler, retailer, distributor, agent
  • reduced costs
  • reduced producers control over marketing
  • used for inexpensive and simple goods sold frequently to many customers
38
Q

What is multi channel distribution? Include some advantages and disadvantages

A

Involves business using more than one type of distribution channel

Eg/ APPLE sell devices through retail stores, online stores and multiple retail partners like Currys PC world

+ allows more target segments to be reached
+ higher revenues if something is sold out in store but available online

  • can be complex to manage
  • potential for channel “conflict” eg/competing with retailers also selling direct (Apple sell in own store and PC world) which could result in confusion of pricing strategy in customers eyes
39
Q

What are the uses and criticisms/implications of the product life cycle when analysing product portfolio?

A

+ to forecast future behaviour of sales
+ to identify deviations from the norm

  • difficult to recognise where a product is in its cycle and length cant be reliably predicted
  • shape and duration of cycle varies
  • business has to consider cash flow (negative during R&D no money coming in just out) and marketing strategy needed at each stage
40
Q

Explain the stage of R&D (research and development) in the product life cycle (1)

A

Often complex and absorbs significant resources

May not be successful (inadequate demand/change in external development/high costs/life cycle expected to be too short) - product evaluated throughout

Market research including a test launch often done to reduce risk of product failure - most don’t reach launch phase

41
Q

Explain the stage of introduction in the product life cycle (2)

A

Launched in market with low level of sales

High unit costs and usually negative cash flow

Distributors may be reluctant to take an unproven product

STRATEGIES

  • Heavy promotion to make consumers aware of product
  • Skimming or penetration pricing
  • Demand initially from early adopters
42
Q

Explain the stage of growth in the product life cycle (3)

A

Market grows, profit rises (fast growing sales from product gaining market acceptance) but attracts entry of new competitors

Cash flow may become positive - unit costs fall with economies of scale

STRATEGIES

  • Advertising to promote brand awareness
  • Increase in distribution outlets
  • Go for market penetration and price leadership
  • Target early majority of potential buyers
  • Improve product (new features, more options etc)
43
Q

Explain the stage of maturity in the product life cycle (4)

A

Slower sales growth as rivals enter market (fight for market share) however weaker competitors start to leave

High profits for those with high market share-cash flow should be strongly positive but then prices and profits fall

STRATEGIES

  • Product differentiation and improvements to defend position (promotion focused on this)
  • Competitor based pricing
  • Enter new segments, attracting new customers and repositioning to develop new uses
44
Q

Explain the stage of decline in the product life cycle (5)

A

Falling sales-decline in profits and weaker cash flows

Market saturation and more competitors leave

May decline due to technological advance, change in taste and behaviours, product side effects or economic circumstances

STRATEGIES

  • Maintain market share-price cut to maintain competitiveness
  • Harvest by spending little on marketing product
  • Rationalise by weeding out product variations
  • Promotion to retain loyal customers
  • Distribution narrowed
45
Q

In relation to the decline phase in the PLC (product life cycle) what strategies are there to reduce the rate of decline?

A

These are known as PRODUCT LIFE CYCLE EXTENSION-try to ensure products dont enter decline stage

Increase in promotion, focusing on profitable segments

Reduce prices

Change to more efficient distribution channels

Improve (eg/restyle) or reposition the product

Find new uses for the product

46
Q

Sometimes the life cycle of a product can not be extended (extension strategies don’t work) in this case rationalisation may be the best strategy, explain what it is

A

Elimination of product (natural death or termination)

Unless product is profitable or has growth potential or is seen as necessary to maintain sales of another product organisation should seriously consider elimination

Weak products take disproportionate amount of firms financial resources and can harm firms image

47
Q

When is a life cycle short and is decline inevitable?

A

SHORT IF

  • there’s high degree of innovation (new ideas, products etc) in market
  • technology and customers tastes are changing rapidly
  • product is badly marketed

IS DECLINE INEVITABLE?
- some classic products have a long life cycle and no apparent sign of decline, these are exceptions although life cycle can be extended (eg/Coca Cola)

48
Q

Promotion is a main part of the marketing mix, what are the aims? How is promotion split/done?

A

About communication, ensuring products are known to current and potential customers

SPLIT INTO

  • above the line promotion-paid for communication in independent media (TV) which can be targeted but also seen by anyone outside target audience-builds image and reputation
  • below the line promotion-promotional activities where business has direct control (direct mailing) which is aimed directly at target audience-builds customer loyalty
49
Q

What are the 5 main methods of promotion in relation to the marketing mix? What are the 7 factors influencing the choice of promotional method?

A

METHODS

  • advertising
  • public relations and sponsorship
  • personal selling
  • direct marketing
  • sales promotion

THEY DEPEND ON

  • stage in product life cycle
  • nature
  • how much info required before buying
  • competition
  • marketing budget
  • marketing strategy
  • target market
50
Q

What is an important element of promotion?

A

Branding - important bc its easy to recognise, establishes brand loyalty (repeated sales) and can create favourable image (could become global brand and charge higher prices if market leader-retailers want to stock)

BRAND EXTENSION-strength of a brand exploited by a business to develop new products

BRAND STRETCHING-brand is used for a diverse range of products not necessarily connected

51
Q

What are the advantages and disadvantages of sales promotion (incentives designed to stimukate purchase eg/samples)?

PROMOTION MIX

A

+ achieve a quick boost of sales
+ encourages customers to trial product or switch brands

  • sales effect may only be short term
  • customers may come to anticipate further promotions
52
Q

What are the advantages and disadvantages of advertising?

PROMOTION MIX

A

+ Wide coverage and effective for building brand awareness and loyalty
+ Repetition means that the message can be communicated effectively

  • Often expensive
  • Most methods are impersonal and are only one way communication
53
Q

What are the advantages and disadvantages pf personal selling?

PROMOTION MIX

A

+ High customer attention involving two way communication
+ Persuasive impact as it usually involves meeting to close a sale

  • Can only reach a limited number
  • Labour intensive
54
Q

What makes an effective marketing mix and what are the 6 things influencing this?

A

Integrated (should meet customer needs, achieve marketing objectives and be balanced and consistent)

1 - POSITION IN LIFECYCLE (different strategies needed for each stage as each products different)
2 - BOSTON MATRIX (balanced portfolio needed)
3 - TYPE OF PRODUCT (different approach for different product types eg/luxury)
4 - MARKETING OBJECTIVES (whether they’re looking to develop new product or increasing market share)
5 - TARGET MARKET (7ps need to be coordinated to meet needs of target market)
6 - COMPETITION (7ps may be influenced by competitors)
7 - POSITIONING (how business chooses to compete within target segment-use a marketing map)

55
Q

How does JD use market research?

A

To support and develop business

Accurately assess level of demand and influence decisions to target capital investment eg/new store, significantly reducing financial risk

Primary research=”shopping bag” survey seeing what bags customers bring in provides competitor insight and idea of retailers attracting similar profile which may influence location of stores

Secondary research=population make up helps with new store location (move close to target population), narrow or widen their product range

A LEVEL BUSINESS (17 decks)

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