Strategies for products and markets

Question 1

Marketing concept

Answer 1

Marketing can be described as “the management process that
identifies, anticipates and supplies customer needs efficiently and
profitably”. (Institute of Marketing)

Question 2

Overview of marketing

Answer 2

1. Strategic
   analysis
   Identify and
   anticipate customer
   needs
   Market
   research
2. Strategic
   choice
   Decide which
   customers to
   supply
   Market
   segmentation
   (Select a target
   market)
3. Implementation
   Supply customer’s
   needs efficiently
   and profitably
   Marketing mix
   (Develop a
   marketing
   strategy)

Question 3

Marketing research

Answer 3

Marketing research can be defined as “the systematic gathering,
recording and analysing of data about problems relating to the
marketing of goods and services.”

Question 4

Marketing research
What information do we want?

Answer 4

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 5

Marketing research
How can information be gathered?

Answer 5

There are two main types of research that can be performed.
Desk research – the gathering and analysis of existing (secondary)
data
Field research – the collection of new (primary) information directly
from respondents.

Question 6

Desk research

Answer 6

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 7

Field research

Answer 7

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 8

Marketing research
Issues to consider

Answer 8

 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 9

Market segmentation

Answer 9

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

Question 10

Market segmentation
Selecting a target market

Answer 10

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.

Question 11

Market segmentation
Segmentation can be divided into:

Answer 11

 Industrial segmentation – selling to other businesses (B2B sales)
 Consumer segmentation – selling to the end consumer (B2C sales).

Question 12

Market segmentation
Industrial segmentation

Answer 12

Geographic
Company size
Company type
Purchasing
characteristics

Question 13

Market segmentation
Industrial segmentation
Geographic

Answer 13

 Markets are frequently split into regions for sales and distribution purposes.

Question 14

Market segmentation
Industrial segmentation
Company size

Answer 14

 Large? Small? Multi-locational?

Question 15

Market segmentation
Industrial segmentation
Company type

Answer 15

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.

Question 16

Market segmentation
Industrial segmentation
Purchasing characteristics

Answer 16

The classification of customer companies by their average order size, the
frequency with which they order, etc.

Question 17

Consumer segmentation
Segmentation for B2C sales:

Answer 17

Geographic
Demographic
Purchasing motivation
Purchasing characteristics

Question 18

Consumer segmentation
Segmentation for B2C sales: Geographic

Answer 18

 Markets are frequently split into regions for sales and distribution purposes.

Question 19

Consumer segmentation
Segmentation for B2C sales: Demographic

Answer 19

Customers are defined in terms of age, sex, socio-economic class, country of
origin, family life cycle or family status.

Question 20

Consumer segmentation
Segmentation for B2C sales: Purchasing motivation

Answer 20

Consumers can be divided into groups sharing common psychological
characteristics. For example, security-oriented or ego-centred

Question 21

Consumer segmentation
Segmentation for B2C sales: Purchasing characteristics

Answer 21

 Customers may be segmented by the volume and frequency of purchases.

Question 22

Market positioning

Answer 22

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.

Question 23

Marketing mix

Answer 23

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 24

The 4Ps (or 7Ps) model

Answer 24

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 25

Marketing mix: Product

Answer 25

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 26

Marketing mix: Branding

Answer 26

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.

Question 27

Marketing mix: Brand positioning

Answer 27

Price: High
Quality: Low
Economy brands

Price: High
Quality: High
Premium brands

Price: Low
Quality: High
Bargain brands

Price: Low
Quality: Low
Economy brands

Question 28

Brand positioning: Cowboy brands

Answer 28

over-priced for quality of product.

Question 29

Brand positioning: Economy brands

Answer 29

low price and an acceptable quality – e.g. Primark

Question 30

Brand positioning: Premium brand

Answer 30

high price for high quality – e.g. Armani

Question 31

Brand positioning: Bargain brands

Answer 31

low price yet a good quality – e.g. Next clothing

Question 32

Strategies for products and markets
Promotion

Answer 32

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

Question 33

Push vs. pull promotion

Answer 33

 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).

Question 34

Main forms of promotion

Answer 34

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 35

Place (distribution)

Answer 35

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

Question 36

Place (distribution)
Distribution channels

Answer 36

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

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

Question 37

Indirect vs. direct distribution

Answer 37

The key factors to consider when making this decision are:
 if the business has the necessary resources and competencies themselves?
 what expertise do middlemen provide and at what cost?

Question 38

Strategies for products and markets
Price

Answer 38

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.).

Question 39

Strategies for products and markets
Price
Key factors to consider (4Cs of pricing)

Answer 39

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 40

Pricing strategies

Answer 40

The key decision when considering the pricing element of the marketing
mix will be to select an appropriate pricing strategy.

Question 41

Pricing strategies
Different strategies which may be considered

Answer 41

1. Price skimming – high prices initially to skim off customers willing to get
product sooner (e.g. new mobile phones, hardback books)

2. 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)

3. Price discrimination – different prices charged for same product to different customer groups (e.g. train fares, flights, family holiday parks)

4. Perceived quality – price reflects perceived value placed by customer on
product (e.g. expensive wine)

5. Going rate – match competition (e.g. petrol station prices or supermarkets price match items) or to meet market conditions (e.g. local house prices)

6. 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 42

Price elasticity of demand

Answer 42

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 43

Elastic and inelastic demand

Answer 43

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

Question 44

Factors affecting the PED

Answer 44

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 45

Significance of price elasticity

Answer 45

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 46

Giffen and Veblen goods

Answer 46

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

Question 47

Giffen goods

Answer 47

 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 48

Veblen goods

Answer 48

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

Question 49

The marketing of services (7Ps)
Key considerations

Answer 49

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 50

As a result of the above the following 3 additional Ps are key to the perception
of the service

Answer 50

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.