Business Sears Flashcards
Why do businesses exist?
A business is an organisation that exists to provide goods and services on a commercial basis to customers
Different types of businesses
B2B - business to business e.g. canon
B2C - business to consumer e.g. screwfix
D2C - direct to consumer (middle man is cut out)
Manufacturing sector - where products are made
Service sector - businesses that offer a service e.g. hairdressers, schools
Key business objectives
Profit
Growth
Survival
Cash flow
Social
Ethical
Business objectives should be SMART
Specific
Measurable
Achievable
Realistic
Time bound
What is a mission statement?
The overriding goal of the business
The reason for it’s existence
A strategic perspective
A vision for the future
What makes a good mission statement?
Contains a formulation of objectives that enables progress towards them to be measured
Differentiates the business from its competitors
Defines the markets or business in which the firm wants to operate
Is relevant to all major stakeholders (not just shareholders and managers)
Excites, inspires, motivates and guides
What is a stakeholder?
Any person or group interested in the actions of a business
What are criticisms of a mission statement?
Not always supported by actions of the business
Often too vague and general
Often merely statements of the obvious
Often seen as a PR (public relations) exercise
Sometimes regarded cynically by staff
Sometimes not a true reflection of reality
Why do businesses set objectives?
Implement the mission
Provide a clear focus for decision making
Provide a target
Motivate employees
Provide a sense of unity
Reduce uncertainty
Provide a criteria for evaluation performance
Facilitate control of actual performance
What are some uses of profit?
Re-invest
Save it
Give to shareholders (dividend payment)
Why is profit important?
Growing the business (get more sales in future, be more competitive to competitors)
Profit can be a reward for the entrepreneur
Encourage investors (investors are more likely to buy shares if they see profit being made ( this makes the business more valuable +allows for growth)
Unincorporated businesses, what are they?
- The owner is the business- no legal difference
- Owner has unlimited liability for business actions (including debts)
- Most unincorporated businesses operate as sole traders
Difference between private and public sector?
Public sector = owned or ran by the government
Private sector = owned by individuals
Incorporated businesses, what are they?
- Legal difference between the business (company) and the owners
- Owners (shareholders) have limited liability
- Most incorporated businesses operate as private limited companies
What is unlimited liability?
Business owner/s are personally responsible for the debts and liability of the business. If the unincorporated business fails, the owners are liable for the mounts owed
What is limited liability?
Limited liability is a form of protection for shareholders and owners that prevents individuals from being held personally responsible for their company’s debts or financial losses. Only the amount invested is lost, to do with any company
Types of businesses that have unlimited liability
Sole trader, partnership
What is a sole trader?
A business owned by one person who has unlimited liability
Benefits of being a sole trader
- Keep all the profit because you are not allowed shareholders
- You get to be your own boss and make all the decisions
- Very quick and easy to set up as a sole trader
- Easy to shut down
Drawbacks of being a sole trader
- Have unlimited liability which is a big risk
- No shareholders so is much harder to raise finance to grow or expand
- Long hours
- The business is the owner, the business struggles if the owner becomes ill etc.
Why is limited liability important?
- An important protection for shareholders in a company
- Shareholders can only lose the value of their investment
However what does limited liability does not protect against?
- Wrongful or fraudulent trading
- When personal guarantees have been given by directors
How do
private limited companies operate?
Private means that the shares of the company are not traded publicly on the stock exchange (sold to friends/ family/ who owner chooses). They also must publish their financial statements
How do public limited companies operate?
A public limited company can sell its shares publicly on the stock exchange and have a larger value of share capital invested. They have to publish their financial statements.
Benefits of starting a limited company
- Limited liability so only money invested can be lost which protects the shareholders
- Easier to raise finance through the sale of shares and also easier to raise debt
- Stable form of structure, the business continues to exist even when shareholders change
Drawbacks of starting a limited company
- Longer to establish and set up the business
- Great admin costs
- Public disclosure of company information
- Directors have level duties (documents and statistics must be produced yearly)
Factors to consider when deciding if you want to be a sole trader or a limited company
Risk- what could go wrong and what are you prepared to loose
How many people- partnership must be more than one
Tax- different tax rules for companies (LTD)
Finance- might want to raise money by selling shares
Hassle- solve trader is easier to set up
What are your future plans- exit strategy, much easier to sell a company
Legal obligations- LTDs need to produce documents of yearly statistics
What are public sector companies?
-e.g. Royal bank of Scotland (nationalised), Network rail. Only a relatively small number of companies are owned or controlled by the government
What are public sector organisations?
-There are many more organisations that provide goods and services which are owned and operated by public bodies
-These are funded by central and local government, but still have charges for some services
-e.g. NHS, Highways Agency, Teachfirst
What are non-profit organisations?
-Businesses that trade in order to benefit the community
-These businesses have social and ethical aims as well as trying to make a financial return
-e.g. providing community services, reducing pollution, producing more sustainable products and creating employment opportunities
What are social enterprises?
-Businesses that put the interests and the planet ahead of shareholder gain
-These businesses are driven by an environmental/ social mission and re-invest profits into creating positive social change
-e.g. housing associations, community development trusts
What is ordinary share capital?
-Ordinary share capital is the money raised by a business through the sale of new shares to shareholders
What is market capitalisation?
Market capitalisation represents the total market value of the issues shared capital of a company. It is a measure of the size and value of a company, and it can be used to compare companies within the same industry as well as assessing the company’s potential for growth
What are unicorns?
Private owned businesses valued over $1billion
What are dividends?
Dividends are payments made by a company to its shareholders from the profits made by the company. Dividends are therefore, one part of the return on investment received by shareholders
What is the role of shareholders?
-They are responsible for appointing the board of directions (the people who are responsible for the day to day running of the business)
-In a LTD, the shareholders and board of directors may be the same people
-In a PLC, there are likely to be more shareholders and so the board of directors may be separated from the owners (divorce of ownership or control)
Why do shareholders invest in businesses?
-Shareholders invest in limited companies to earn returns
-There are two parts of the return: dividends, and any increase in the share price
-The level of dividends is decided by the business, but higher dividends may increase the attractiveness of investment to potential shareholders
-Shareholders can also earn a return if the share price increases above the price that they paid for them
What is share price indicative of?
-A share price is determined by the interaction of supply and demand
-If demand for a share is greater than supply (more buyers than sellers) then the share price should rise
-A falling share price indicates excess supply (more sellers than buyers)
Internal factors influencing share price
-Financial performance (e.g. profit growth)
-Dividend policy
-Relationship with key investors (including communication)
-Management reputation
External factors influencing share price
-State of the economy
-General market sentiment (attitude of investors)
-Whether the company is a takeover target
-Alternative investments in the company’s sector
Why is share price significant?
Share price is significant because :
-it affects the market capitalisation of the company
-is an indicator of the company’s financial performance, its growth prospects, and the overall state of the economy
Effect of ownership on mission and objectives for sole traders
-Sole traders are often small organisations and the owner is heavily involved in the day to day running of the business
-The objectives of a sole trader are likely to focus on survival, given that a large proportion of start ups fall within the first few years
-They can make all their own decisions as they do not have shareholders to consider
-Sole traders can set their mission and objectives
Effect of ownership on mission and objectives for limited companies
-Shareholders in an LTD are likely to be involved in the running of a business
-This may allow for a longer-term view, so will likely focus on market share, customer satisfaction or revenue growth instead of profit maximisation
-In a PLC, shareholders are often interested in higher dividends and rising share prices to maximise returns on their investments
-Therefore, objectives may be more ambitious relating to profit maximisation
What changes must be made when taking the external environment into account and what does pestle stand for?
Political e.g. Britain leaving the eu limited trade
Economic e.g. rise in minimum wage
Social e.g. vegan or plant based foods
Technological e.g. dynamic pricing, threat of AI
Legal e.g. employment law’s
Ethical/environmental e.g. tax, sustainability
What are market conditions?
Refers to a number of features of a market such as the level of sales, the rate at which they are changing and the number and strength of competitors
What does demand mean?
Is a term used to indicate the amount of a particular good or service that consumers or organisations want, and can afford, to buy at given prices. Shows the level of sales that businesses can expect
What are two indicators of market conditions?
Economic growth and GDP
How do businesses benefit from a growing economy?
- Increase in jobs, increase in spending and increase in profits mean that a business can grow
- A growing economy can give businesses an increase in confidence
What is market demand and what are the different types?
It is the size and growth rate of market and an indicator to market conditions:
1) fast growing market- can encourage new entrants as well as benefit existing competitors
2) slow growing market- market conditions are much tougher, competitors are fighting for their share of weak demand
How does competition make the external environment tougher?
- creates competitors with significant market share or faster growth than the market
- influence of disruptive technologies increases the risk of new competitors
- consolidation of a market with creates more powerful competitors e.g. takeovers
- spare or surplus capacity in the market/industry which reduces industry profits and makes price wars more likely
- investment in innovation and new product developments by close competitors
What is a real income?
- Real incomes measure the amount of disposable income available to consumers (e.g. households and individuals) take into consideration inflation
What is the Bank of England’s base rate of interest?
5%
What is inflation?
It is a general increase in prices and a fall in spending power and the value of money,
3 years ago inflation was at 11%
What factors affect real incomes?
- price inflation
- wage growth
- employment levels (lots of unemployed people would decrease wage growth creating smaller real incomes)
- interest rates
- government tax policy (increase in tax decreases disposable incomes with lower real incomes)
What are some examples of products for which demand is strongly influenced by income levels
- luxury electrical items
- restaurant meals
- long haul holidays
- household furniture
- jewellery
What are some examples of products for which income has little influence on demand
- bread, milk and other basic foods
- water
- lottery tickets
- cigarettes and tobacco
- petrol
Incomes and costs:
Income levels rise, wages also rise, businesses face sharp increase in costs, difficulties in maintaining competitiveness in terms of prices
What are interest rates?
An interest rate is the reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed
What are different types of interest rates?
- Interest rates in savings in the bank and other accounts
- Borrowing interest rates e.g. mortgage interest (housing loans) or credit card interest rates
- The Bank of England uses policy interest rates to help regulate the economy and meet economic policy objectives (to control inflation)
What can interest influence the amount of?
- actual and expected demand
- expected profits and business taxes
- interest rates and availability of business finance
- business confidence
What happens when interest rates fall?
Costs of loans or debts is reduced- boosting spending power
Consumer confidence increases- leading to more spending
Effective disposable incomes rises- lower mortgage costs
Business investment should be boosted e.g. prospect (for the possibility) of rising demand
Housing market effects- more demand and higher property prices
Exchange rate and exports- cheaper currency will increase exports
What are demographic factors?
- Demography is concerned with the size and composition (i.e. age) of a population
- Changes in population dynamics occur slowly but can be significant for businesses
How can demographic changes affect businesses?
Ageing population
- greater demand for services to support older people (e.g healthcare)
- increasing disposable incomes of older people are reflected in higher demand for goods and services (e.g. holidays)
Continued high net immigration
- higher costs of (but greater demand for) public services (e.g. education, health, housing)
- increase in the size of the labour force keeping wage rates low (minimum wage)
What are key environmental issues for businesses?
Carbon emissions
Sustainability
A “green” supply chain
Minimising packaging
Promoting environmental policies
Complying with environment laws
Waste disposal
What is fairtrade?
A social movement that exists to promote improved trading terms and living conditions for producers of products in less-developed countries
What is fairtrade about?
Better prices
Safer working conditions
Local sustainability
Fair terms of trade
Fair trade also impacts businesses in other ways:
Positive:
Allows businesses to charge higher prices
Without an unacceptable loss in sales
Negative:
May limit selling to smaller groups of consumers
Likely to increase costs
What is a market?
A market occurs when there are buyers and sellers
The role of marketing
“The process of identifying, anticipating (predicting), and satisfying customer needs profitably”
The value of setting marketing objectives
Ensures financial activities are consistent with corporate objectives
Provides a focus for marketing, decision- making and effort
Provides incentives for the marketing team and a measure of success/ failure
Establishes priorities for marketing resources and effort
What problems can occur regarding marketing objectives?
Fast-changing external environment- e.g new changes in legislation impacting the whole market, e.g new competitor enters the market
Potential conflict between marketing objectives- e.g trying to increase market share by cutting prices may damage objectives for brand perception
Easy to be too ambitious with marketing objectives- e.g growing market share without putting necessary resources in place to achieve it
Marketing objectives can include:
Sales volume and sales value
Market size
Market and sales growth
Market share
Brand loyalty
Market size
Indicates potential sales for a firm
Measure in terms of both volume (units) and value (sales)
Not normally a marketing objective, a firm cannot influence it
Market growth
Key indicator for existing and potential market entrants
Growth rate calculated using either value or volume
Market Share
Explains how overall market is split between existing competitors
Calculated based on market value (volume could be used)
Good indicator of competitive advantage
Look for significant +/-
Internal influences on marketing objectives and decisions
Corporate objectives- They are the most important internal influence. A marketing objective should not conflict with a corporate objective
Finance- The financial position of the business (profitability, cash flow, liquidity) directly affects the scope and scale of marketing activities
Human Resources- For a service business in particular, the quality and capacity of the workforce is a key factor in affecting marketing objectives. A motivated and well-trained workforce can deliver market- leading customer service and productivity to create a competitive marketing advantage
Operational issues- Operations has a key role to play in enabling the business to compete on cost (efficiency/productivity) and quality. Effective capacity management also plays a part in determining whether a business can achieve its revenue objectives
Business culture- e.g. a marketing-orientated business is constantly looking for ways to meet customer needs. A production- orientated culture may result in a management setting unrealistic or irrelevant marketing objectives
External influences on marketing objectives and decisions:
Economic environment- The key factor in determining demand e.g. marketing objectives changed as a result of the recession. Factors such as exchange rates would also impact objectives with international marketing
Competitor actions- marketing objectives have to take account of likely/ possible competitor response, e.g. an objective of increasing market share by definition means that competitor response will not be effective
Market dynamics- market size, growth and segmentation. Slow growth is less likely to support objective of the new product development
Technological change- many markets are affected by rapid technological change, shortening product cycles and creating great opportunities for innovation
Social and political change- changes to legislation may create or prevent marketing opportunities. Change in the structure and attitudes of society also have major implications for many markets.
Customers differ in terms of..
The benefits they want
The amount they are able to or willing to pay
Media (e.g. television, newspapers, websites and magazines) they see
Quantities they buy
Time and place that they buy
What is primary research?
Data collected first-hand for a specific purpose
What is secondary research?
Data that already exists and which has been collected for a different purpose
Benefits and drawbacks of primary research
Benefits-
Directly focused on research objectives
Kept private (not publicly available)
More detailed insights (particularly into customer views)
Drawbacks-
Time consuming and costly to obtain
Risk of survey bias
Sampling may not be representative of
Benefits and Drawbacks of secondary research
Benefits-
Often free and easy to obtain
Good source of market insights
Quick to access and use
Drawbacks-
Can quickly become out of date
Not tailored to business needs
Specialist reports often quite expensive
Examples of primary data
Observation
Postal surveys
Telephone surverys
Online surveys
Focus Groups
Face-to-face surveys
Test marketing
Experiments
Examples of secondary data
Google
Government departments
Trade associations
Trade press & magazines
Competitor websites & marketing materials
Market research reports
What is quantitative research?
Concerned with data and addresses questions such as who? how often? when? and where?
Based on large samples and is therefore more statistically valid
What is qualitative research?
Based on opinions, attitudes, beliefs and intentions
Answers questions such as why? would? or how?
Aims to understand why customers behave in a certain way or how they may respond to a new product or service
Benefits and Drawbacks of qualitative research
Benefits-
Essential for important new product development and launches
Focused on understanding customer needs, wants and expectations = very useful insights for a business
Can highlight issues that need addressing e.g why customers don’t buy
Effective way of testing elements of the marketing mix e.g new branding, promotional campaigns
Drawbacks-
Expensive to collect and analyse, requires specialist research skills
Based around opinions, always a risk that sample is not representative
Benefits and Drawbacks of quantitative research
Benefits-
Data relatively easy to analyse
Numerical data provides insights into relevant trends
Can be compared with data from other sources e.g competitors, history
Drawbacks- Focuses on data rather than explaining why things happen
Doesn’t explain the reasons behind numerical trends
May lack reliability if sample size and method is not valid
What is sampling?
Sampling involves the gathering of data from a sample of respondents, the results of which should be representative of the population (e.g target market) as a whole
What is random sampling?
Every member of a population has an equal chance of being selected
Respondents are selected ‘at random’
Random sampling does not target any specific segments of the market
It is quick and easy to select respondents and there is less chance of bias
But the sample may not represent the target market
What is quota sampling?
Respondents are selected based on specific characteristics such as age, income or location
The required number of respondents (the quota) is then drawn from each segment of the population
Quota sampling is more likely to be representative of the whole market and might require fewer respondents than random sampling
However, it is not random and so there may be greater risk of bias in the selection process
What is stratified sampling?
The researcher divides or ‘statifies’ the target group into sections, each representing a key group (or characteristic) that should be present in the final sample
Then each of those sections is sampled individually. The samples thus created should contain members from each key characteristic in a proportion representative of the target population
Benefits and Drawbacks of sampling
Benefits-
Even a relatively small sample size (if representative) can provide useful research insights
Using sampling before making marketing decisions can reduce risk and costs
Sampling is flexible and relatively quick
Drawbacks-
Biggest risk = sample is unrepresentative of population, leading to incorrect conclusions
Risk of bias in research questions
Less useful in market segments where customer tastes & preferences are changing frequently
Factors to consider when using extrapolation:
Product life cycle
Pace of technological innovation
Growth of the global economy
Rise in middle class emerging economies
Market Saturation (e.g. everyone already has one, sales don’t keep increasing, for example smartphones)
What is Extrapolation?
Extrapolation uses trends established from historical data to forecast the future
Benefits and drawbacks of using extrapolation:
Benefits-
Not much data required
A simple method of forecasting
Quick and cheap
Drawbacks-
Unreliable if there are significant fluctuations in historical data
Ignores qualitative factors (e.g. changes in tastes and fashions)
Assumes past trend will continue into future- unlikely in many competitive business environments
What is a correlation?
Correlation looks at the strength of a relationship between two variables
Positive correlation
A positive relationship exists where as the independent variable increases in value, so does the dependent variable
Negative correlation
A negative relationship exists where as the independent variable increases in value, the dependent variable falls in value
No correlation
There is no discernible relationship between the independent and dependent variable
Correlation is given a value:
The higher the figure, the stronger the correlation
-1 = perfect negative correlation
0= no correlation
+1= perfect positive correlation
The line of best fit indicates the strength of the correlation: points closer to the line = strong correlation, points further from the line = weak correlation
Confidence levels
The percentage probability that the research findings are correct
Confidence interval
The possible range of outcomes for a given confidence level (e.g. 95% confidence level that the sales will be between £50 and £70 (interval)).
A confidence interval helps a business evaluate the reliability of a particular estimate and understand whether or not to act on them. (Estimates)
Degree of confidence (level) will depend on factors such as:
The size of the sample; the bigger the sample, the more likely it is that the findings will reflect the population
How the sample was constructed; for example, were the people involved selected randomly?
What are examples of confidence intervals?
Budgeting, Forecasting, Quality management, Market research, Risk management
What is elasticity?
Elasticity measures the responsiveness of demand to a change in a relevant variable; price or income
What is price elasticity of demand
Price elasticity of demand measures the extent to which the quantity of a product demanded is affected by a change in price
Interpreting the price elasticity of demand
Always negative correlation
Elastic PED= more than 1, change in demand is more than the change in price
Inelastic PED= less than 1, change in demand is less than the change in price
Unitary price elasticity= exactly 1, change in demand is equal to the change in price
PED= always negative correlation
Factors influencing PED:
Brand strength- Products with strong brand loyalty and reputation tend to be price inelastic
Necessity- The more necessary a product, the more demand tends to be inelastic
Habit- Products that are demanded and consumed as a matter or habit tend to be price inelastic
Availability of substitutes- Demand for products that have lots of alternatives tends to be price elastic
Time- In the short-run, price changes tend to have less impact on demand than over longer periods
What is income elasticity of demand
Income elasticity of demand measures the extent to which the quantity of a product demanded is affected by a change in income
Interpreting the income elasticity of demand
normal good- Positive number = positive correlation
inferior good-Negative number = negative correlation
Inelastic YED= less than 1, the % change in quantity demanded is less than the % change in income
Elastic YED = more than 1, the % change in quantity demanded is more than the % change in income
Limitations and evaluative points of calculating elasticities
Limitations-
Can be difficult to get reliable data
Other factors affect demand (e.g. consumer tastes)
Many markets are subject to rapid technological change (which make previous data less reliable)
Competitors will react- so pricing decisions cant be taken in isolation!
Evaluative points-
Elasticities provide useful insights for management in decision- making
Firms tend to like to have products with inelastic demand
Building strong brands and product USP’s is a good strategy for making demand more price inelastic
4 main categories of market segment
Demographic segments- e.g. magazines for gender, radio stations for age
Geographic segments- e.g. McDonalds, in Germany they serve beer and more meet, India they don’t have beef and there is a McSpicy Paneer
Income segments- e.g. watches, Waitrose/lidl
Behavioural segments- shoes: marathon, sprinting, football, occasions- Halloween, Easter, Christmas
What is market segmentation?
Involves dividing a market into parts that reflect different customer needs and wants
What is a niche market?
Where a business targets a smaller segment of a larger market, where customers have specific needs and specific wants
Benefits and drawbacks of marker segmentation
Benefits-
Focuses on parts of a market where the business can succeed
Allows a business to grow share in markets to “ride the wave” of fast-growing segments
Helps with new product development- focused on needs of customer in the segment
Helps make the marketing mix more effective e.g. better targeting of promotion
Drawbacks-
Segmentation is an imprecise science- data is 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
Advantages and drawbacks of a niche market
Advantages-
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 are higher
Customers tend to be more loyal
Drawbacks-
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”
What is a mass market?
Where a business sells into the largest part of the market, where there are many similar products offered by competitors
Key features of a mass market:
-Customers form the majority in the market
-Customer needs and wants are more “general” and 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
Examples of mass marketing
Dominos, coke, McDonalds, Levi jeans
What is a target market?
A target market is the set of customers sharing common needs and wants that a business decides to target
Examples of segmented markets
Heigene e.g. LYNX- teenage boys, DOVE- sensitive skin
Examples of concentrated (niche) markets
Vegan food, foreign food
Market positioning
Having chosen which segment to target- businesses need to decide how to compete in those segments. Marketing people call this value proposition. Market position is defined by customers- the place a product occupies in customer minds relative to competing products
What is a market (positioning) map?
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
Advantages and disadvantages of market maps
Advantages-
Helps spot gaps in the market
Useful for analysing competitors
Encourages use of market research
Disadvantages-
Just because there is a “gap” doesn’t mean there is demand
Not a guarantee of success
How reliable is the market research?
Positioning & competitive advantage
Customers choose products based on value proposition. Providing superior value than the competition is a source of competitive advantage (if it can be sustained). There are various possible value differences which can deliver competitive advantage
Possible positioning strategies to offer value:
Offer more for less- Aldi: good quality at low prices
Offer more for more- high priced luxury products with prestige value
Offer more for the same- introduce new features & better performance for the same price
Offer less for much less- no frills low cost flying and hotels; good quality, back to basics & low price
Requirements for effective product differentiation:
Deliver things that are important to customers
Distinctive- compared with the competition
Communicated and visible to customers
Not easily copied by competitors
Affordable
Profitable
What is the marketing mix?
The marketing mix is the combination of the elements used by a business to enable it to meet the needs and expectations of customers. Elements of the mix should work together to achieve the desired effect
7 Ps in the marketing mix:
Product- The product or service that the customer buys e.g. luxury motor vehicles, tailor made holidays
Price- How much the customer pays for the product e.g. discount supermarkets, low-cost airlines
Place- How the product is distributed to the customer e.g convenience stores, coffee shops
Promotion- How the customer is found & persuaded to buy e.g. soap powders, furniture retailers
People- The people who make contact with customers in delivering the product
Process- The systems and processes that deliver a product to a customer
Physical environment- The elements of the physical environment the customer experiences
What is an effective marketing mix?
Achieves marketing objectives
Meets customer needs
Is balanced and consistent
Creates a competitive advantage
Consistent with the chosen target market and positioning
The marketing mix needs to delivery the marketing strategy (STP) and will vary according
Segmentation, Targeting, Positioning, Marketing Mix
What are consumer products?
B2C
They are goods bought for consumption by the general public ( thousands/ millions of customers being targeted, impacts promotional activities)
What are industrial products?
B2B
They are goods bought for use in business process
(They are less interested in packaging/ branding, more interested in quality and technological performance)
(You get value for money)
What is the well known method of portfolio analysis called?
The Boston Matrix
What is a 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
Question mark products:
Where do they lie on the Boston Matrix?They have a low share of a rapidly growing market
Cash flow is negative
Could either become a star or a dog
What could be the strategy for these types of products?
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:
Where do they lie in the Boston Matrix?
High share of a rapidly growing market
Net cash inflow is neutral or at best modestly positive
They require high marketing spending because competition is high so promotion must be high so others don’t steal their market share
What could be the strategy for these types of products?
Investment to sustain growth
Build sales and/or market share
Invest to maintain or increase leadership position
Repel challenges from competitors
Cash cow products:
Where do they lie on the Boston Matrix?
High share of a slowly growing market
Large positive cash flow
Little potential for growth
Mature stage in the product life cycle
Successful product
What could be the strategy for these type of products?
Defend market share
Little need for investment
Little potential for further growth
Use profits from cash cows to invest in new products
Aim for short term profits
Dog products:
Where do they lie on the Boston Matrix?
Low share of a slowly growing market
Not going anywhere & no real potential
They are either products that have failed or are in the decline phase of their life cycle
What could be the strategy for these types of products?
Phase out of 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
How valuable is the Boston Matrix?
It is a useful tool for analysing production portfolio decisions
But it is only a snapshot of the current position
It has little or no predictive value (doesn’t help people predict market in future)
It focuses on market share and market growth and ignores issues such as developing sustainable competitive advantages
If all products are cash cows, managers may worry about future success due to sales growth being slow
What is the product life cycle?
A theoretical model that describes the stages a product goes through over its life
Key uses:
- used to forecast future sales trends
- helps with market targeting and positioning
- helps analyse & manage the product portfolio
Why might a product enter the decline stage?
Technological advance
Changes in consumer tastes and behaviour
Increased competition
Failure to innovate and develop the product
What is an extension strategy?
An extension strategy occurs when a business attempts to prevent sales of a product from falling and avoid or delay the decline stage of the product life cycle
Extension strategies:
Lower price
Change promotion (e.g. new promotional message)
Change product (re-styling and product improvement)
Look for alternative distribution channels
Develop a new market segment (e.g. product that’s for women you advertise saying good for men as well)
Find new uses for the product
Reposition the product
Weaknesses of the product life cycle:
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 of the products life cycle cannot be reliably predicted
Decline is not inevitable (doesn’t happen in some cases)
What is a price strategy?
A model or method used to establish the best price for a product or service
Influences on pricing:
Stage of the product’s life
Costs
PED
Positioning
Other elements of the marketing mix
Competitiveness of the environment
What are examples of launch pricing strategies?
Penetration pricing
Price skimming
What is a loss leader?
A product that a company makes a loss on but people end up buying more as they are there, so it is positive
What is penetration pricing?
This occurs when a business charges a low price to gain market share
Most suitable when demand is sensitive to price
A low price can gain high sales and enable the business to benefit from producing on a large scale
The price could be increases once the target market share is reached
What is price skimming?
This occurs if a relatively high price is charged when a product is launched
Most appropriate when demand is price inelastic e.g. if the product is heavily branded
Best used in introduction or early growth stage of product life cycle
The price may be slowly decreased as time goes on
What is dynamic pricing?
A pricing strategy in which businesses set flexible prices for products or services based on current market demands
