Chapter 8 Strategies for products and markets Flashcards
1.1 Marketing concept
Marketing is the management process that identifies, anticipates and supplier’s customer needs efficiently and profitably.
- Strategic analysis: identify and anticipate customer needs, leads to market research
- Strategic choice: decide which customers to supply, market segmentation
- Implementation: supply customer’s needs efficiently and profitably, marketing mix
2.1 Marketing research
The systemic gathering, recording and analysing of data about problems relating to the marketing of goods and services. Research should be focused on the elements of the marketing mix: product research, pricing research, promotional research and place research.
There are two types of research which can be performed, desk research (gathering and analysis of existing secondary data) and field research (the collection of new primary information directly from respondents).
2.2 Desk research
Existing data may be gathered from internal or external or external sources including existing company records (loyalty cards, management accounts, sales trends), general economic data (government surveys, census) and specific market intelligence (trade journals).
2.3 Field research
Various techniques are used including questionnaires, internet surveys, interviews, observation, test marketing, experimentation and trial testing.
When doing research, the things to consider include cost (desk research costs less), historic v future (difficult to predict future actions from historic data), reliability and adaptability.
3.1 Market segmentation
This is the division of the market into homogenous groups of potential customers who may be treated similarly for marketing purposes. The key stages for selecting a target market are:
- What market segments exist?
- Which segments do we want to target?
- How should we position ourselves in the target market?
Segmentation can be divided into industrial segmentation (selling to other businesses) and consumer segmentation (selling to the end consumer).
3.2 Industrial segmentation
Segmentation for business includes:
- Geographic: markets are frequently split into regions for sales and distribution purposes
- Company size
- Company type: the range of products and services used in an industry will not vary too much from one company to another
- Purchasing characteristics: classification of customer companies by their average order size, the frequency with which they order.
3.3 Consumer segmentation
Segmentation for consumers includes:
- Geographic: markets frequently split into regions for sales and distribution purposes
- Demographic: customers defined in terms of age, sex, socio-economic class, country of origin, family life cycle of family status
- Purchasing motivation: consumers can be divided into groups sharing common psychological characteristics. For example, security-oriented or ego-centred
- Purchasing characteristics: customers may be segmented by the volume and frequency of purchases
3.4 Market positioning
Having decided on the target markets, the business needs to best position its products. Market positioning means giving a product a place relative to its competitors on factors such as quality, price, image.
4.1 Marketing mix
Marketing mix is the set of controllable marketing variables that a firm blend to produce the response it wants in the target market. The marketing mix uses 4Ps for product industry (product, promotion, place and price) and an additional 3 factors for the service industry (people, process and physical evidence).
4.2 Product
Product considers what the customer is physically buying or experiencing. The main components of the product are:
- Basic product: core benefits that it will provide
- Actual product: its features – branding, packaging etc
- Augmented product: goods or services that provide additional value
4.3 Branding
Brands add value to products and make them recognisable and attractive to customers. Brand positioning is as follows
- Cowboy brands: high price and low quality
- Economy brands: low price and low quality
- Premium brands: high price and high quality
- Bargain brands: low price and high quality
4.4 Promotion
A push promotion ensures that products or services are available for purchase where and when the customer requires them. A pull promotion is marketing variables set to persuade customers to purchase.
Main forms of promotion include advertising, sales promotion (buying shelf space with retailers), public relations and personal selling
4.5 Place
This covers the distribution channels. Direct selling incudes own retail operations, internet sales, direct mail order and personal selling. Indirect selling includes selling via distributors, wholesalers, retailers and agents.
The factors to consider direct or indirect distribution includes if the business has the resources and competencies to sell themselves and what expertise do the middlemen provide and at what cost.
4.6 Price
Considers the prices charged to customers but factors in means of payment, discount schemes and trade credit. The four key factors for selecting a pricing strategy include:
- Costs: they must be covered in the long term, businesses need to know their cost structures
- Customers: how much are customers willing to pay, predicted price sensitivity
- Competition: what prices are competitors charging and what competitive strategy is being adopted
- Corporate objectives: low prices may increase market share, high prices are consistent with a premium brand
Pricing strategies include:
- Price skimming: high prices initially to skim off customers willing to get product sooner
- Penetration: low price initially to increase market share which could also include loss leaders
- Price discrimination: different prices charged for same product to different customer groups
- Perceived quality: price reflects perceived value placed by customer on product
- Going rate: match competition or to meet market conditions
- Cost plus pricing: adding a mark-up to the cost of the product. This may be based on the marginal cost of the product or the full cost of the product
4.7 Price elasticity of demand
Price elasticity of demand looks at the degree to which demand is affected by changes in the selling price. PED = % change of demand / % change in price
- PED < 1, inelastic
- PED > 1, elastic
- PED = 0, perfectly inelastic
- PED = infinity, perfectly elastic
- PED = 1, unitary elasticity
Factors affecting the PED
- Availability and closeness of substitutes: if more substitutes exist then demand is more elastic
- Time: in the short run demand tends to be less elastic, in the long run, it tends to be more elastic
- Competitor’s pricing: if competitors follow a price cut, then demand is unlikely to rise (inelastic). If competitors do not follow a price cut, then demand will fall (elastic). This can give rise to price stickiness
- Nature of the product: luxuries demand is more elastic; necessities are less elastic. Habit-forming products are price inelastic
- Proportion of income accounted for by a god: if a good accounts for a large proportion of income, demand is elastic, if it accounts for a small proportion then it is less elastic.
