Chapter 8: Strategies for products and markets

Question 1

What information do we want from marketing research?

Answer 1

Research should be focused around the main elements of the marketing mix.
 Product research – e.g. lab testing, product safety, durability, adaptability etc.
 Pricing research – e.g. understanding likely cost structure for TAC + pricing, methods of likely payment, discount structures, likely pricing strategies etc.
 Promotional research – e.g. which media likely to be used?
 Place research – e.g. which distribution channels to be used?

Question 2

How can marketing research be gathered?

Answer 2

Desk research – the gathering and analysis of existing (secondary) data
Field research – the collection of new (primary) information directly from respondents.

Question 3

What is desk research?

Answer 3

Existing data may be gathered from internal or external sources, including:
 existing company records – e.g. loyalty cards, management accounts, sales trends etc.
 general economic data – e.g. Government surveys, census
 specific market intelligence – e.g. trade journals

Question 4

What is field research?

Answer 4

Various techniques may be used to gather responses, including:
 questionnaires
 internet surveys
 interviews
 observation – e.g. what items do customers look at in a retail store, do they purchase them, do they look at the price of the item before deciding?
 test marketing (small, self-contained, representative and adequate promotional facilities) – e.g. Marks and Spencer trial lines
 experimentation – e.g. limited edition Kit Kats
 trial testing – e.g. blind testing

Question 5

What are issues to consider when performing market research?

Answer 5

 Cost – desk research is likely to be less costly.
 Historic vs future – it may be difficult to predict future actions from historic data.
 Reliability – effective field research relies on reliable responses.
 Adaptability – existing data may not be relevant to future plans.

Question 6

What is market segmentation?

Answer 6

Market segmentation is “the division of the market into homogeneous groups of potential customers who may be treated similarly for marketing purposes.”

Question 7

How do you select a target market? How can segmentation be divided?

Answer 7

The key stages are as follows:
 Which market segments exist?
 Which segments do we want to target?
 How should we position ourselves in the target market?

Segmentation allows the organisation to vary its marketing mix to each segment it chooses to enter.

Segmentation can be divided into:
 Industrial segmentation – selling to other businesses (B2B sales)
 Consumer segmentation – selling to the end consumer (B2C sales).

Question 8

How is industrial segmentation broken down?

Answer 8

• Geographic: Markets are frequently split into regions for sales and distribution purposes.
• Company size: Large? Small? Multi-locational?
• Company type: Type of business, i.e. what they offer for sale. The range of products and services used in an industry will not vary too much from one company to another.
• Purchasing characteristics: The classification of customer companies by their average order size, the frequency with which they order, etc.

Question 9

How is consumer segmentation broken down?

Answer 9

• Geographic: Markets are frequently split into regions for sales and distribution purposes
• Demographic: Customers are defined in terms of age, sex, socio-economic class, country of origin, family life cycle or 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.

Question 10

What is market positioning?

Answer 10

Having decided on the target markets, the business needs to best position its products in those markets

Market positioning means giving a product a place relative to its competitors on factors such as quality, price, image etc.

The scale is measured on two axes:
- Price
- Perceived quality

Question 11

What is marketing mix?

Answer 11

Marketing mix is the set of controllable marketing variables that a firm blends to produce the response it wants in the target market (Kotler).

Question 12

What is the 4Ps (or 7Ps) model?

Answer 12

The marketing mix can be outlined by using the 4Ps (for a product industry) or 7Ps
(for a service industry) model.
The 4Ps model considers the following factors:
 Product
 Promotion
 Place
 Price
An additional 3 factors can be added to this to create the 7Ps model:
 People
 Process
 Physical evidence

Question 13

What does the product element of the marketing mix consider?

Answer 13

The product element of the marketing mix considers what the customer is physically buying or experiencing.

The main components of the product are as follows:
Basic product
 The core benefits that the product will provide.
Actual product
 The product’s features – branding, packaging, labelling etc.
Augmented product
 Goods or services that provide additional value.

Question 14

What does the branding element of the marketing mix consider?

Answer 14

Brands add value to products by making them recognisable and attractive to customers.

It is important to ensure that the brand has been effectively positioned.

 Cowboy brands – over-priced for quality of product. (High price, low quality)
 Economy brands – low price and an acceptable quality – e.g. Primark
 Premium brands – high price for high quality – e.g. Armani
 Bargain brands – low price yet a good quality – e.g. Next clothing

Question 15

What does the promotion element of the marketing mix consider?

Answer 15

Promotion aims to create awareness and interest for products and services and to persuade consumers to purchase.

Push vs. pull promotion
 Push promotion – ensuring that products or services are available for purchase where and when the ultimate customer requires them.
 Pull promotion – marketing variables set to persuade ultimate customers to purchase (e.g. advert on TV in or trade journal).

Main forms of promotion
 Advertising – Creating customer awareness and desire via various forms of media (e.g. TV, radio, magazines, Facebook adverts)
 Sales promotion – Can include buying shelf space with retailers and point of sale promotion (e.g. money off coupons, BOGOF offers)
 Public relations – Activities to increase the image of the company or brand (e.g. press releases, sponsoring local events etc.)
 Personal selling – very important in industrial selling as well as consumer marketing (e.g. sales reps, call centre staff)

Question 16

What does the place (distribution) element of the marketing mix consider?

Answer 16

The place element of the marketing mix considers the length, breadth and complexity of distribution channels.

Direct selling:
 Own retail operations
 Internet sales
 Direct mail order
 Personal selling

Indirect selling:
 Via distributors
 Via wholesalers
 Via retailers
 Via agents

Question 17

What are the key factors to consider when deciding between indirect vs direct distribution?

Answer 17

 if the business has the necessary resources and competencies themselves?
 what expertise do middlemen provide and at what cost?

Question 18

What does the price element of the marketing mix consider?

Answer 18

Price considers the prices charged to customers but also other factors (e.g. means of payment (e.g. buy now, pay in 6 months’ time), discount schemes, trade credit etc.).

Key factors to consider (4Cs of pricing)
Four key factors need to be considered when selecting a pricing strategy.

• Costs
   Costs 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?
   What competitive strategy is being adopted?
• Corporate objectives
   Low prices may help to increase market share
   High prices are consistent with a premium brand

Question 19

What are the different pricing strategies?

Answer 19

Different strategies which may be considered are as follows:
 Price skimming – high prices initially to skim off customers willing to get product sooner (e.g. new mobile phones, hardback books)
 Penetration – low price initially to increase market share (e.g. new magazines) which could also include loss leaders (e.g. heavily discounted products in supermarkets to attract customers)
 Price discrimination – different prices charged for same product to different customer groups (e.g. train fares, flights, family holiday parks)
 Perceived quality – price reflects perceived value placed by customer on product (e.g. expensive wine)
 Going rate – match competition (e.g. petrol station prices or supermarkets price match items) or to meet market conditions (e.g. local house prices)
 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 (e.g. building firms quoting prices to customers)

Question 20

What is price elasticity of demand?

Answer 20

Price elasticity of demand (PED) looks at the degree to which demand is affected by
changes in the selling price.
PED = % ∆ Demand /
% ∆ Price
It is convention to ignore the sign of PED as it is almost always negative.

Question 21

What are the varying degrees of elasticity?

Answer 21

Inelastic: PED < 1
Elastic: PED > 1
Perfectly inelastic: PED = 0
Perfectly elastic: PED = ∞
Unitary elasticity: PED = 1

Question 22

What are factors affecting the PED?

Answer 22

 Availability and closeness of substitutes, i.e. if readily available or close substitutes exist then demand will tend to be much more elastic.
 Time: generally, in the short run demand tends to be much less elastic, while in the long run it tends to be much more elastic.
 Competitor’s pricing: if competitors copy a price cut then demand is unlikely to rise (inelastic). The same competitors may not copy a price rise resulting in a large fall in demand (elastic). This can give rise to ‘price stickiness’.
 Nature of the product: in the case of luxuries demand tends to be more elastic, with necessities less elastic. Habit-forming products are price inelastic.
 Proportion of income accounted for by a good. If a good accounts for a large proportion of income, demand will tend to be elastic; if it accounts for only a small proportion, much less elastic.

Question 23

Demand for a product is 1,000 units at a price of £50. If price increases to £55, demand falls to 800 units. What is the price elasticity of demand?

Answer 23

Step 1: Calculate the percentage change in price and quantity as a percentage
of their starting values:
PED =
% ∆ Demand / % ∆ Price =
–20 / 10 = –2
Step 2: Insert the figures calculated in the PED formula.
Price: (£5/£50) × 100 = +10%
Demand (–200/1,000) × 100 = –20%

Question 24

What is the significance of price elasticity?

Answer 24

 Allows managers to predict the effect of price changes on demand and revenue.
 Inelastic products (PED <1) – increasing the price will increase the
total revenue even though fewer units are sold.
 Elastic products (PED >1) – increasing the price will cut the total revenue
and fewer units will be sold. For elastic demand the price must be cut to
increase revenue.

Question 25

What do Giffen and Veblen goods have in common?

Answer 25

Both Giffen and Veblen goods have upward-sloping demand curves and positive price elasticity of demand.

Question 26

What are Giffen goods?

Answer 26

Giffen looked at income effect of price changes:
- The price of bread increases
- People still buy bread (staple)
- Can no longer afford other more expensive foods
- End up buying even more bread

Question 27

What are Veblen goods?

Answer 27

Veblen goods are bought for ostentation, so a higher price makes them more exclusive and desirable

Question 28

What are the key considerations relating to the marketing of services (7Ps)?

Answer 28

 Services are often performed by individuals.
 Services are ‘perishable’ – in that they cannot be stored. Delivery and
consumption of the service are simultaneous.
 Services are intangible – Not a physical object but rather something that is done
for you.

Question 29

What 3 Ps are key to the perception of marketing of services?

Answer 29

 People – The attitude, professionalism, friendless and knowledge of the people
delivering the service are often integral to its perceived quality.
 Process – The use of appropriate systems and procedures to enhance the
quality of service provided.
 Physical evidence – Customers can actually see or experience when they use a service e.g. state of premises.