3.3.3 - Decision Making To Improve Marketing Performance Flashcards
Role of marketing
The process of identifying, anticipating (predicting) and satisfying customer needs profitably
Objectives
Statements of specific outcomes that are to be achieved
Marketing objectives
Goals of the marketing function of an organisation
Mission of a business
Overall purpose of a business
Vision of a business
Overall aspiration of the business
Aims or goals of a business
General statements wished to achieve
Objectives of a business
More precise / detailed statement of aims and goals
Corporate objectives
Those related to the business as a whole
4 examples of functional change
- raising finance
- introduce quality assurance and lean production
- training programme for staff
- allocate specific production for a new retail customer
How does raising finance support marketing
Investment in new products
How does introducing quality assurance and lean production support marketing
Improves product quality and profitability
How does training programme for staff support marketing
Improve quality of customer service
How does allocating specific production for a new retail customer support marketing
Expand product distribution and increase sales
Example of marketing objectives for maintaining or increasing market shares
- increase market share by x% by 2017
- achieve revenue growth of x% in 4 years
Example of marketing objectives for developing new products / innovations
Launch at least X new products in a year - hard to quantify
Example of marketing objectives for meeting the needs of customers
At least X% good/excellent reviews and ratings each month
Example of marketing objectives for entering a new market / market positioning
Supply a minimum of X trial downloads per month
Example of marketing objectives for gaining an advantage over competitors
Improve brand recognition amongst X age group
Values of setting marketing objectives
- ensure functional activities consistent with corporate objectives
- provide a focus for market decision making and effort
- provides incentives for marketing team and a measure of success / failure
- establish priorities for marketing resources and effort
Problems of setting marketing objectives
- fast changing external environment, e.g. changes to legislation, new competitors.
- potential conflict between marketing objectives, e.g. increase market share by cutting prices may damage objectives for brand perception.
- easy too be too ambitious with marketing objectives, e.g. grow market shares without resources to achieve.
5 internal influences on marketing objectives
- corporate objectives
- finance
- human resources
- operational issues
- business culture
Corporate objectives internal influence on marketing objective
Most important internal influence and a marketing objective should not conflict with corporate objective
Finance internal influence on marketing objective
The financial position of the business (profitability, cash flow, liquidity) directly affects the scope and scale of marketing objectives
Human resources internal influence on marketing objective
A motivated and well trained workforce can deliver market leading customer service and productivity to create a competitive marketing advantage
Operational issues internal influence on marketing objective
Operations has a key role to play in enabling the business to compete on cost efficiency and quality and plays a part in determining wether a business can achieve its revenue objectives
Business culture internal influence on marketing objective
A production - oriented culture may result in management setting unrealistic or irrelevant marketing objectives
External influences on marketing objectives
- economic environment
- competitor actions
- market dynamics
- technological change
- social and political change
Economic environments external effect on marketing objectives
Key factor in determining demand, things such as exchange rates would also impact objectives concerned with international marketing
Competitor actions external effect on marketing objectives
Marketing objectives have to be taken into account of likely/possible competitor response
Market dynamics external effect on marketing objectives
Key market dynamics are market size, growth and segmentation. A market who’s growth slows is less likely to support an objective significant revenue growth or new product development
Technological change external effect on marketing objectives
Many markets are affected by rapid technological change, shortening products life cycles and creating great opportunities for innovation
Social and political change external effect on marketing objectives
Changes to legislation may create or prevent marketing opportunities. Changes in the structure and attitudes of society also have major implications for many markets
Market entrant
Brand new business entering the market or a business that already exists, branching out for the first time
How can you measure market growth
Either value (market sales) or volume (units sold)
Market growth
Key indicator for existing and potential market entrants
Market share
How overall market is split between exisiting competitors
Market share calculation
Market value but volume can be used
What insights are provided by effective market research
- demographic
- needs, wants, expectations
- competitor strategies
- dimensions of the market
- market segments, existing and potential
Primary data
Data collected first hand for a specific research purpose
Secondary data
Data which already exists and which has been collected for a different purpose
Primary research benefits
- focused to your project as you did it because you needed it - no extra info
- private
- more detailed
Primary research drawbacks
- time consuming
- risk of survey bias
- sample may not be representative
Secondary research benefits
- free and easy to obtain
- good source of market insights
- quick to access and use
Secondary research drawbacks
- can be out of date
- not tailored to business needs
- specialist reports can be expensive
Secondary data sources
- government
- market research reports
- trade press
- magazines
Primary data sources
- observations
- surveys
- telephone interviews
- experiments
Quantitive data
Concerned with data (numbers) - (how, who, when, where, how often, how many)
More statistically valid
Main methods of quantative
- telephone questionaires
- postal surveys/questionaires
- face - face surveys
- online surveys
Qualatitive data
Rich, detailed data based on opinions, beliefs, intentions and understanding customers behaviours
Qualatitive data research methods
- focus groups
- interviews
Qualitative data benefits
- essential for important new product development and launches
- focused on understanding customer needs, wants and expectations - useful
- highlight issues which don’t need addressing
- effect testing elements of marketing mix
Qualitative data drawbacks
- expensive to collect and analyse
- based around opinions and always a risk of not being representative
Quantative data benefits
- data relative easy to analyse
- provides insights into relevant trends
- can be compared with other sources
Quantative data drawbacks
- focused data, doesn’t explain
- doesn’t explain the reasons behind numerical data
- may lack reliability if sample size and method are not valid
Liquidation
Process of bringing a business to an end and selling its assets and using proceedings to pay off creditors and shareholders
Gross profit % calc
Gross profit / revenue x 100
Gross profit equ
Total revenue - cost of total goods
Operating profit calc
Revenue - cost of sales - admin
Profit of the year calc
Revenue - cost of sales - admin - taxation
4 P’s of business
Product
Price
Promotion
Place
Sampling
Gathering data from a sample of respondents, the results of which should be representative of the population as a whole
Benefits of sampling
- even a small sample can provide useful research
- using samples can reduce costs and risk
- flexible and relatively quick
Sampling drawbacks
- biggest risk = sample is unrepresentative of population, leading to incorrect conclusions
- risk of bias
- less useful in market segments where taste changes frequently
Cluster sampling
Certain groups or clusters, a random sample of clusters is taken then all units in the sample are examined.
Advantages of cluster sampling
- quick and easy
- doesn’t need complete population information
- good for face to face surveys
Disadvantages of cluster sampling
- expensive if the cluster is large
- greater risk of sampling error
Convenience sampling
Uses those who are willing to and easiest to involve in the study
Advantages of convenience sampling
- subjects are readily available
- large amounts of information can be gathered quickly
Disadvantages of convenience sampling
- sample is not representative of the entire population so results can’t speak for a entire population so it’s not harder to infer
- prone to volunteer bias
Judgement sampling
A deliberate choice of a sample - opposite of random
Advantages of judgement sampling
- good for providing illustrative examples or case studies
Disadvantages of judgement sampling
- very prone to bias
- samples often small
- can’t extrapolate from sample
Quota sampling
Aim to obtain a sample that is ‘representative’ of the overall population - population is divided by the most important variables such as income, age and location. Sample is then drawn from each stratum
Advantages of quota sampling
- quick and easy way of obtaining a sample
Disadvantages of quota sampling
- not random, bias risk
- need to understand the population to be able to identify the basis of stratification
Random sampling
Makes sure each member of the population has an equal chance of selection
Advantages of random sampling
- simple to design and interpret
- can calculate both estimate of the population and sampling error
Disadvantages of random sampling
- need a complete and accurate population listing
- may not be practical if the sample requires lots of small visits over the country
Systematic sampling
- after randomly selecting a starting point from the population between 1 and *n (every nth unit is selected)
*n = the population size divided by the sample size
Advantages of systematic sampling
- easier to extract sample than via random
- ensures sample is spread across the population
Disadvantages of systematic sampling
- can be costly and time consuming if the sample is not conveniently located
Product
A product is anything that is capable of satisfying customer needs
Layers of a product to consider
- core value
- design
- quality
- packaging
- features
- brand name
- warranty
- after sale service
- pre sale support
Consumer products
- brought by final consumers for personal consumption
- differ in the way consumers buy them
Industrial products
- brought for further processing or for use in conducting a business
- brought by other businesses, not consumers
Convenience products
- brought frequently
- little planning or shopping effort
- lower customer involvement
PRICE: tends to be low
PLACE: widespread distribution
PROMOTION: mass promotion
Shopping products
- brought less frequently
- customers careful on suitability, quality, price, brand, style, etc.
PRICE: tends to be higher
PLACE: selection distribution (fewer outlets)
PROMOTION: advertising by producer and resellers
Speciality products
- unique characteristics or brand
- buyers make special effort when buying
PRICE: high
PLACE: exclusive distribution or limited outlets
PROMOTION: more carefully targeted
What are the 3 main kinds of industrial products
- materials and parts
- capital items
- supplies and services
Materials and parts examples
- raw materials, components
- mostly sold to other industrial users
- price and service key issues
Capital items examples
- industrial products used in production or operations
- IT systems, buildings infrastructure
Supplies and services examples
- operating supplies and business services
Specialist buyers and sellers
Buyers are businesses - will have specialist requirements and more experience. Often dealing with professional ‘buyers’
Buyer seller relationship
Strong emphasis on customer relationship management and repeat business
Transaction value
Purchase value often substantial in a single transaction
Quality and price
Greater emphasis on product quality and price (where there are acceptable alternative products). Price is often negotiated by the buyer.
Support
Greater requirement for after sales support
Product life cycle
Theoretical model which describes the stages a product goes through over its life
Key uses of the product life cycle model
- forecast future sales trends
- help with market targeting and positioning
- help analyse and manage the product portfolio
Stages in the product life cycle
- development
- introduction
- growth
- maturity
- decline / end
Development stage
- often complex
- absorbs significant resources
- may not be successful
- may involves a long lead time before sales are achieved
New product development
- time consuming
- cost of development rises as it approaches launch
- market research
- test launch
- most products don’t reach the launch phase
Why are new products scrapped before launch
- inadequate demand
- action of competitors
- change in the external environment
- production problem
- high costs
- does not fit in the firm product range
- life cycle expected to be too short
Intro stage
- new product launched on the market
- low level of sales
- low capacity utilisation
- high unit costs
- usually negative cash flow
- distributors may be reluctant to take an unproven product
- heavy promotion to make consumers aware of the product
Strategies of the intro stage
- Aim – encourage customer adoption
- High promotional spending to create awareness and inform people
- Either skimming or penetration pricing
- Limited, focused distribution
- Demand initially from “early adopters”
Growth stage
- expanding market but arrival of competitors
- fast growing sales
- rise in capacity utilisation
- product gains market acceptance
- cash flow may become positive
- unit cost fall with economies of scale
- the market grows, profit rise but attracts the entry of new competitors
Strategies in growth stage
- Advertising to promote brand awareness
- Increase in distribution outlets - intensive distribution
- Go for market penetration and (if possible) price leadership
- Target the early majority of potential buyers
- Continuing high promotional spending
Improve the product - new features, improved styling, more options
Maturity stage
- Slower sales growth as rivals enter the market equals intense competition + fight for market share
- High level of capacity utilisation
- High profits for those with high market share
- Cash flow should be strongly positive
- Weaker competitors start to leave the market
Prices and profits fall
Strategies for maturity products
- Manage capacity & production
- Promotion focuses on differentiation
- Persuasive advertising
- Intensive distribution
- Enter new segments
- Attract new users
- Repositioning
- Develop new uses
Decline stage
- Falling sales
- Market saturation and/or competition
- Decline in profits & weaker cash flows
- More competitors leave the market
- Decline in capacity utilisation –switch capacity to alternative products
Reasons why products enter the decline stage
- Technological advance
- Changes in consumer tastes and behaviour
- Increased competition
- Failure to innovate and develop the product
Strategies for the decline stage
- Maintain market share
- Harvest by spending little on marketing the product
- Rationalise by weeding out product variations
- Price cutting to maintain competitiveness
-Promotion to retain loyal customers - Distribution narrowed
Extending the product life cycle
- Lower price
- Change promotion (e.g. new promotional message)
- Change product - re-styling and product improvement
- Look for alternative distribution channels
- Develop new market segment
-Find new uses for the product - Reposition the product
Weaknesses of the product life cycle model
- The shape and duration of the cycle varies from product to product
- Strategic decisions can change the life cycle
- It is difficult to recognise exactly where a product is in its life cycle
- Length cannot be reliably predicted
- Decline is not inevitable
Product portfolio analysis
Product portfolio analysis assesses the position of each product or brand in a firm’s portfolio to help determine the right marketing strategy for each
Boston matrix
Firms should analyse their portfolio (collection) of products
Products are categorised as:
- Question marks (also known as problem children)
- Stars
- Cash cows
- Dogs
The ideal is that firms should aim for a balanced portfolio with some products in each category
Question mark products and strategies
Products:
- Low share of a rapidly growing market
- Cash flow is negative
- Have potential but the future is uncertain
- Could become either a star or a dog
Strategies:
- Invest to increase market share
- Substantial investment to achieve growth at the expense of powerful competitors
- Invest in promotion and other aspects of marketing
- Build selectively
Star products and strategies
Products:
- High share of a rapidly growing market
- Position of leadership in a high growth market
- The product/business is relatively strong and the market is growing
- Require high marketing spending
- Net cash inflow is neutral or at best modestly positive
Strategies:
- Investment to sustain growth
- Build sales and/or market share
- Spend to keep competitors at bay
- Invest to maintain or increase leadership position
- Repel challenges from competitors
Cash cow products and strategies
Products:
- High share of a slowly growing market
- Mature stage in the product life cycle
- Mature, successful product
- Dominant share
- Little potential for growth
- Large positive cash inflow
Strategies:
- Defend market share
- Aim for short term profits
- Little need for investment
- Little potential for further growth
- Reduce investment in order to maximise short term cash flow and profits
- Use profits from cash cows to invest in new products
Dog products or strategies
Products:
- Dogs are either
- Products that have failed or
- Products that are in the decline phase of their life cycle
- Low share of a slow growth market
Not going anywhere & no real potential
Strategies:
- Phase out or sell off (divest)
- Not worth investing in
- Any profit made has to be re-invested just to maintain market share
- Uses up more management time and resources than can be justified
- Divest or, at most, focus on a defendable niche
Why is the Boston matrix valuable
- A useful tool for analysing product portfolio decisions
- But it is only a snapshot of the current position
- Has little or no predictive value
- Focus on market share and market growth ignores issues such as developing a sustainable competitive advantage.
How do businesses use marketing to create value for customers?
- Choose which customers to serve
- Decide how to serve those customers
What must managers do when segmentating, targeting and positioning
Managers must:
- analyse a market to identify the segments that exist
- select which segments they think the business should target (depending on eg relative strengths)
- decide where in the targeted markets the products should be positioned relative to competitors.
What is market segmentation
Market segmentation involves dividing a market into parts that reflect different customer needs and wants
Demographic segmentation
Dividing a market into segments based on demographic variables such as age, gender, family lifestyle, religion, nationality ethnicity etc.
Income segmentation
Dividing markets into different income segments, often on the basis of social-economic grouping
Behavioural segmentation
Dividing a market into segments based on the different ways customers use or respond to a product and the benefits they seek
Geographical segmentation
Dividing a market into different geographical units, such as nations, regions, cities, neighbourhoods or other territories
How can demographics be segmented
- age
- family
- job
- ethnicity
- gender
- nationality
How can behaviour be segmented
- occasions
- usage
- knowledge
- attitudes
- loyalty
- benefits sought
Benefits of market segmentation
- Focuses resources on parts of a market where the business can succeed
- Allows a business to grow share in markets or to “ride the wave” of fast-growing segments
- Helps with new product development – focused on needs of customers in the segment
- Helps make the marketing mix more effective e.g. better targeting of promotion
Drawbacks of market segmentation
- Segmentation is an imprecise science – data not always available, up-to-date or reliable
- Just because you can identify a segment doesn’t mean you can reach the customers in it!
- Markets are increasingly dynamic – fast-changing; so too are the segments
Niche market
Where a business targets a smaller segment of a larger market, where customers have specific needs and wants
Mass marketing
Where a business sells into the largest part of the market, where there are many similar products offered by competitors
Advantages of a niche market
- Less competition - a “big fish in a small pond”
- Clear focus - target particular customers
- Builds up specialist skill and knowledge
- Can often charge a higher price
- Profit margins often higher
- Customers tend to be more loyal
Drawbacks of a niche market
- Lack of economies of scale
- Risk of over dependence on a single product or market
- Likely to attract competition if successful
- Vulnerable to market changes – all “eggs in one basket”
Key features of the mass market
- Customers form the majority in the market
- Customer needs and wants are more “general” & less “specific”
- Associated with higher production output and capacity + potential for economies of scale
- Success usually associated with low-cost (highly efficient) operation or market leading brands
Target market
A target market is the set of customers sharing common needs and wants that a business decides to target
Segmented (differentiated) market
Business target several market segments within the same market. Products are designed and targeted at each segment. Requires separate marketing plans and often different business units & product portfolios
Market positioning
A market (or positioning) map illustrates the range of “positions” that a product can take in a market based on two dimensions that are important to customers
Possible dimensions of market maps
Low price, High price
Basic quality, High quality
Low volume, High volume
Necessity, Luxury
Light, Heavy
Simple, Complex
Unhealthy, Healthy
Low-tech, Hi-tech
Advantages of market maps
- spot gaps in market
- useful for analysing competitors
- encourages use of market research
Disadvantages of market maps
- gap in market doesn’t always mean there is demand
- not guaranteed success
- how reliable is the market research
Requirements for effective product differentiation
- Delivers things that are important to customers
- Distinctive – compared with the competition
- Communicated and visible to customers
- Not easily copied by competitors
- Affordable
- Profitable
Cost plus pricing + advantages and disadvantages
Widely used in retailing, where the retailer wants to know with some certainty what the gross profit margin of each sale will be. An advantage of this approach is that the business will know that it’s costs are being covered. The main disadvantage is that cost plus pricing may lead to products that are priced uncompetitively.
Competitive pricing + advantages and disadvantages
If there is strong competition in a market, customers are faced with a wide choice of who to buy from. They may buy from the cheapest provider or perhaps from the one which offers the best customer service. But customers will certainly be mindful of what is a reasonable or normal price in the market. Most firms in a competitive market do not have sufficient power to be able to set prices above their competitors. They tend to use “going-rate” pricing – i.e. setting a price that is in line with the prices charged by direct competitors. In effect such businesses are “price-takers” – they must accept the going market price as determined by the forces of demand and supply. An advantage of using competitive pricing is that selling prices should be line with rivals, so price should not be a competitive disadvantage. The main problem is that the business needs some other way to attract customers. It has to use non-price methods to compete – e.g. providing distinct customer service or better availability.
Psychological pricing + advantages and disadvantages
Sometimes prices are set at what seem to be unusual price points e.g. £12.99 . Customers have perceived price barriers, they will buy something for £9.99, but think that £10 is a little too much. So a price that is one pence lower can make the difference between closing the sale, or not! The aim of psychological pricing is to make the customer believe the product is cheaper than it really is. Pricing in this way is intended to attract customers who are looking for “value”.
Price skimming advantages and disadvantages
Skimming involves setting a high price before other competitors come into the market for a limited time. This is often used for the launch of a new product which faces little or no competition - usually due to some technological features. Such products are often bought by “early adopters” who are prepared to pay
a higher price to have the latest or best product in the market e.g. Apple iPad
Issue include the fact that this strategy cannot last for long, as competitors soon launch rival products which
put pressure on the price (e.g. the launch of rival products to the iPhone or iPod).
- Distribution (place) can also be a challenge for an innovative new product. It may be necessary to give retailers higher margins (a bigger slice of
potential profits) to convince them to stock the
product, reducing the improved margins that can be delivered by price skimming. - Can only be used if demand is price inelastic. - Can attract competitors
Predatory pricing + advantages and disadvantages
With predatory pricing, prices are deliberately set very low by a dominant competitor in the market in order to restrict or prevent competition. The price set might even be free, or lead to losses by the predator. Whatever the approach, predatory pricing is illegal under competition law.
Penetration pricing
You often see the tagline “special introductory offer - the classic sign of penetration pricing. The aim of penetration pricing is usually to increase market share of a product, providing the opportunity to increase price once this objective has been achieved.
Penetration pricing is the pricing technique of setting a relatively low initial entry price, usually lower than the intended established price, to attract new customers. The strategy aims to encourage customers to switch to the new product because of the lower price. Penetration pricing is most commonly associated with a marketing objective of increasing market share or sales volume. In the short term, penetration pricing is likely to result in lower profits than would be the case if price were set higher. However, there are some significant benefits
to long-term profitability of having a higher market share, so the pricing strategy can often be justified.
Penetration pricing is often used to support the
launch of a new product, and works best when a product enters a market with relatively little product differentiation and where demand is price elastic- so a lower price than rival products is a competitive weapon.
Other benefits include:
- Particularly beneficial when targeting middle or low income consumers.
- Can grow sales of new lines very quickly
- Fast growth may allow a business to lower unit costs and exploit EOS
- Can put pressure on rivals
Digital marketing
Digital marketing utilizes internet and online based digital technologies such as computers, mobile phones and other digital media and platforms to promote products and services.
Why is digital marketing important
• It’s ability to reach big audiences faster than
traditional media & at lower cost
• How powerful a tool it is for reaching younger consumers
• How linking it to “Big Data” via social media has transformed businesses ability to target, track and evaluate their marketing campaigns & build relationships with consumers
Main types of digital marketing
- online
- search engine
- content
- influencer
- viral
Email marketing
• The most widely used type of digital marketing
- also the most widely abused – “spam”
• Involves the broadcast of email messages to audiences of email addresses.
- Cost effective way to target large or niche audiences
• Has become much more sophisticated in terms of:
- Targeting
- Message content
- Campaign Evaluation
- Creating ongoing relationships with consumers not just one-off emails
Online advertising
• Few businesses that do not advertise online now.
• The ability to define and target online campaigns at specific audiences or locations is very attractive for business.
- Higher response rates than traditional media like TV
• Sophisticated and real-time performance data on that advertising, including being able to link advertising campaigns to online sales.
- Easier to measure results & evaluate return on investment
- Makes it easier to sell campaigns to stakeholders in the
business & therefore secure funding
- Online adverts can be modified easily in real time to keep them up to date & make them more effective
• Online advertising remains dominated by the large search engines (Google, Bing) as well as the major social media networks such as Facebook, Instagram, Twitter and LinkedIn.
Search engine optimisation
• With so much business now done online, it is vital that a business can be found by potential customers
• Done right, SEO can attract significant traffic to a website.
• The goal of SEO is to optimise content in a way that makes it appear among the first results on the results pages of search engines - particularly Google.
• There is a whole global industry dedicated to providing businesses with tools and advice on SEO
Content marketing
• Closely linked to search engine optimisation.
• It involves creating and distributing valuable, relevant, and consistent content to attract and retain a clearly defined audience eg: blogs, specialist reports, streamed videos and webinars.
- Content can be accessed by consumers for as long as it’s available on website
-Traditional advertising usually only seen when campaign is running
• Aim is to reach and then engage with the target audience - often by persuading the audience to provide contact details (usually email or registration for an online newsletter).
• This allows a business to build an ongoing relationship with potential customers
- Like a loyalty scheme, can make customers feel part of the business & connect closely with brands
- Retaining customers is much more cost effective than always having to recruit new ones
Influencer marketing
• Fast-growing part of digital marketing.
• A form of social media marketing that involves endorsements from “influencers”.
- people and who may possess (or claim to possess) an expert level of knowledge and/or social influence in their respective fields.
• The factors that determines the impact of an “influencer” vary eg number of “followers” or subscribers or the extent to which their comments and recommendations are “liked” or shared via share social media.
Viral marketing
• Viral marketing also uses existing social media networks to promote a product.
• Refers to how consumers spread information about a product with other people in their social networks
• Video content in particular has been proven to be some of the most “virulent” content shared in this way, which has helped some businesses gain significant audiences for their brands, products and services.
Elements of a successful digital marketing strategy
- Engaging website
- Search engine optimisation
- Content marketing
- Email marketing
- Social media marketing
- Pay-per-click
