Marketing Flashcards
What is meant by market segmentation?
Market segmentation involves putting potential customers into groups based on specific criteria or characteristic
What is meant by target marketing
Once a business has segmented the market, the next step is to then decide which group to aim their products or services towards. This is known as a target market.
Outline ways in which a business can segment customers in their market
A business can use many different criteria to segment the market:
- Age-consumers are divided into groups bases on age brackets
- Gender- consumers are grouped together bases on the gender that they identify with as commonly used in the cosmetic and clothing markets.
- Income Level- consumers are grouped together bases on how much disposable income they have.
- Lifestyle/hobby- consumers who have a particular lifestyle or hobby are grouped together, e.g. vegetarians or gamers
- Religion- consumers are grouped together based on their religious or cultural beliefs.
Describe the benefits of target marketing to a business
Benefits of target marketing:
- products or services will be better suited to the target market’s needs or wants, leading to improved customer satisfaction.
- businesses will choose appropriate pricing that appeals to their target markets, leading to an increase in sales
- businesses will sell their products in appropriate places where the target market shops, leading to an increase in sales
- there is a decreased chance of product failure, leading to the likelihood of a reduction in wasted investment by businesses.
Describe the different types of market research
Field research involves a business gathering brand new information themselves using methods such as face-to-face interviews and focus groups. This type of research collects primary information.
Desk research involves the use of pre-existing data that has been gathered by someone else. This type of research collects secondary information.
Describe different methods of field research
- Personal interview- the researcher conducts face-to-face interview with the respondent using a questionnaire containing standardises question. Personal interviews allow the researcher to clarify questions for the respondent; however, they are a relatively time-consuming method of carrying out field research.
- Telephone survey- the researcher conducts an interview with the respondent over the telephone using a questionnaire containing standardises questions. Telephone surveys allow a large number of respondents to be surveyed at relatively little expense; however, many people see market research calls as a nuisance and will refuse to take part.
- Postal survey- a questionnaire is sent through the post to respondents who mail it back upon completion. Postal surveys can cover a wide geographical area and can target specific target markets based on postcode; however, they have a very low response rate as many people view it as junk mail.
- Online survey- a questionnaire is hosted on the internet for respondents to complete. Many
online surveying tools such as Survey Monkey will provide automatic analysis, graphs and
summaries of the data collected; however, this method relies on people having internet access. - Hall test- respondents are given a sample of the product to try and their feedback is gathered.
This method allows the researcher to gather high-quality, qualitative feedback instantly;
however, respondents might feel compelled to give a positive response out of politeness. - Focus group- a group of volunteers from a target market are brought together to discuss
a product. The researcher will record what is being said. The respondents have actively
volunteered to be part of the focus group, which means they should have lots of opinions to
share; however, organising focus groups is a relatively expensive and time-consuming method
of research.
Describe the different methods of desk research
- government reports and statistics (such as census data);
• reports produced by market research companies such as Mintel;
• competitors’ websites;
• trade magazines and journals;
• reputable newspapers.
Discuss the costs and benefits of market research
Advantages of field research:
• data collected is brand new and up-to-date;
• data is not available to competitors;
• the research is tailored to the specific requirements of a business, meaning that the data
gathered is highly relevant.
Disadvantages of field research:
• it can be an expensive type of research compared to desk research;
• it can be a time-consuming process, meaning that decisions cannot be made quickly
Advantages of desk research:
• it is a relatively inexpensive way of gathering and obtaining data;
• it is relatively quick to gather compared to field research, meaning that decisions can be made
quicker;
• large amounts of information and data are available at little to no cost.
Disadvantages of desk research:
• the data gathered could be out of date, leading to poor decisions being made;
• the same information is also available to competitors;
• the information might contain bias.
Outline the stages of the research and development of a new product
- Conduct market research to find out what consumers need or want in a new product.
- Generate an idea based on the data collected from the market research.
- Create a prototype of the product. This is a basic model which shows what the product would look like and how it would function.
- Test the market by giving consumers a basic model of the product to try and gathering their feedback.
- Make changes to the product based on the tests and feedback gathered from consumers.
- Put the final product into production.
Describe the different stages of the product life cycle
Introduction
• The product is first launched onto the market.
• Sales are low and slow as very few consumers are aware of the product.
• Heavy advertising will be required to make consumers aware of the product.
• Most products make a loss due to low sales and high advertising costs.
Growth
• Sales begin to rise quickly as more consumers become aware of the product and have been
persuaded to buy it.
• Heavy advertising is still required.
• Most products begin to become profitable by the end of this stage.
Maturity
• The product has been on the market for a while and has an established customer base.
• Sales of the product reach their peak.
• As the product is now well established, less advertising is required.
• Due to high sales and a reduction in advertising costs, profits will reach their peak.
Decline
• Sales of the product fall quickly as the product has been on the market for a long time and
newer products have been released which consumers are buying instead.
• Profits also fall due to decreasing sales. The business will withdraw the product from the
market before it starts to become unprofitable.
Describe the purpose, advantages and disadvantages of branding
Branding is used by businesses to give their products a strong identity and make them easily recognisable by consumers.
Advantages of branding:
• consumers tend to perceive branded goods as being of higher quality;
• customers will become brand loyal, meaning that they will only buy that brand;
• customers are often willing to pay a higher price for branded goods;
• costs and risks of launching a new product are reduced as consumers are already aware of
the brand.
Disadvantages of branding:
• establishing a brand can be a very expensive and time-consuming process;
• the entire brand could be damaged by one poor product in the range;
• branding goods makes them easy to copy for counterfeiters.
Outline the factors a business needs to consider when setting the price of a product
• Cost of buying or producing the product - the business will have to ensure that the price is
higher than the costs to buy or make the product to ensure that a profit is made on each
product sold.
• Amount of profit to be made - the business will price the product higher or lower depending on
the level of profit it wishes to make on each product sold.
• Price charged by competitors - the business needs to consider whether to match the price
charged by competitors or choose a different pricing strategy to stand out from the crowd.
• Quality of the product - the price set by the business must reflect the quality of the product. If
the business charges a high price for a poor quality product, the customer will feel that they
have been ripped off.
• Price target market will pay - the business must choose a price that is acceptable to their
target market otherwise they will struggle to persuade customers to buy it.
• Government restrictions on pricing - the government has legislation for specific products which
restricts the minimum or maximum amount a business can charge for the product (such as the
minimum unit pricing on alcohol set by the Scottish Government).
Describe the strategies a business can use to price their product or service
Long-term strategies
Premium (high) price
A business will set the price of their product higher than that of their competitors. Premium pricing
is used to give consumers the perception of quality and luxury. To justify the high price, the business
must ensure their product is of high quality. Examples of businesses that use premium pricing
include Apple and Gucci.
Low price
A business will set the price of their products lower than that of their competitors. Low price is
effective in markets where there is little brand loyalty and customers place price above all other
decision-making factors. However, some consumers will see low price as an indicator of poor quality
and will be put off from buying the product. Examples of businesses that use a low-price strategy
include Aldi and Ryanair.
Competitive pricing
This strategy involves setting the price of the product at the same level as that of competitors. As
there is no difference in competitive prices, businesses will then need to compete on other factors
such as customer service and product quality to convince customers to buy from them.
Cost-plus pricing
A business first calculates the cost of making or buying one unit of the product. They then add a
percentage mark-up to the cost price to calculate the selling price. For example, a business which
adds a 25% mark-up on a product which costs £1 to make will sell the product for £1.25. Cost-plus
pricing ensures a profit is always made on any product sold as the selling price will always be higher
than the cost price.
Short-term strategies
Price skimming
The price is set high when the product is first launched. Once there are no customers left willing to
pay the initial high price, the price of the product is then gradually lowered over time. Price skimming
is most effective in markets where there is little to no competition.
Penetration pricing
The price is set low when the product is first launched. The aim of the low price is to attract
customers away from competitors to buy the product. Once a customer base has been established,
the business will gradually increase the price over time. Penetration pricing is used when launching
products into highly competitive markets such as those for soft drinks and cereal.
Promotional pricing
A short-term reduction in the price of the product. It will be widely publicised and is used to generate
increased sales or to sell off outdated products. Examples include Boxing Day sales and buy one
get one free (BOGOF) offers
Psychological pricing
A price is selected which makes the customer feel they are getting a much better deal than they
actually are. When using this strategy, businesses will usually avoid rounding prices up to whole
numbers. For example, a business will charge 99p rather than £1. Customers are more likely to buy
at the 99p as their mind is tricked into thinking this is a lot cheaper than if it was priced at £1
Outline the factors a business needs to consider when choosing where to locate their business
Explain the advantages and disadvantages of different locations
