Strategies for products and markets Flashcards
Marketing concept
Marketing can be described as “the management process that
identifies, anticipates and supplies customer needs efficiently and
profitably”. (Institute of Marketing)
Overview of marketing
-
Strategic
analysis
Identify and
anticipate customer
needs
Market
research -
Strategic
choice
Decide which
customers to
supply
Market
segmentation
(Select a target
market) -
Implementation
Supply customer’s
needs efficiently
and profitably
Marketing mix
(Develop a
marketing
strategy)
Marketing research
Marketing research can be defined as “the systematic gathering,
recording and analysing of data about problems relating to the
marketing of goods and services.”
Marketing research
What information do we want?
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?
Marketing research
How can information be gathered?
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.
Desk research
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
Field research
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
Marketing research
Issues to consider
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.
Market segmentation
Market segmentation is “the division of the market into homogeneous
groups of potential customers who may be treated similarly for
marketing purposes.”
Market segmentation
Selecting a target market
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.
Market segmentation
Segmentation can be divided into:
Industrial segmentation – selling to other businesses (B2B sales)
Consumer segmentation – selling to the end consumer (B2C sales).
Market segmentation
Industrial segmentation
Geographic
Company size
Company type
Purchasing
characteristics
Market segmentation
Industrial segmentation
Geographic
Markets are frequently split into regions for sales and distribution purposes.
Market segmentation
Industrial segmentation
Company size
Large? Small? Multi-locational?
Market segmentation
Industrial segmentation
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.
Market segmentation
Industrial segmentation
Purchasing characteristics
The classification of customer companies by their average order size, the
frequency with which they order, etc.
Consumer segmentation
Segmentation for B2C sales:
Geographic
Demographic
Purchasing motivation
Purchasing characteristics
Consumer segmentation
Segmentation for B2C sales: Geographic
Markets are frequently split into regions for sales and distribution purposes.
Consumer segmentation
Segmentation for B2C sales: Demographic
Customers are defined in terms of age, sex, socio-economic class, country of
origin, family life cycle or family status.
Consumer segmentation
Segmentation for B2C sales: Purchasing motivation
Consumers can be divided into groups sharing common psychological
characteristics. For example, security-oriented or ego-centred
Consumer segmentation
Segmentation for B2C sales: Purchasing characteristics
Customers may be segmented by the volume and frequency of purchases.
Market positioning
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.
Marketing mix
Marketing mix is the set of controllable marketing variables that a firm
blends to produce the response it wants in the target market (Kotler).
The 4Ps (or 7Ps) model
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
Marketing mix: Product
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.
Marketing mix: Branding
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.
Marketing mix: Brand positioning
Price: High
Quality: Low
Economy brands
Price: High
Quality: High
Premium brands
Price: Low
Quality: High
Bargain brands
Price: Low
Quality: Low
Economy brands
Brand positioning: Cowboy brands
over-priced for quality of product.
Brand positioning: Economy brands
low price and an acceptable quality – e.g. Primark
Brand positioning: Premium brand
high price for high quality – e.g. Armani
Brand positioning: Bargain brands
low price yet a good quality – e.g. Next clothing
Strategies for products and markets
Promotion
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
Place (distribution)
The place element of the marketing mix considers the length, breadth and complexity
of distribution channels.
Place (distribution)
Distribution channels
Direct selling
Examples:
Own retail operations
Internet sales
Direct mail order
Personal selling
Indirect selling
Examples:
Via distributors
Via wholesalers
Via retailers
Via agents
Indirect vs. direct distribution
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?
Strategies for products and markets
Price
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.).
Strategies for products and markets
Price
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
Pricing strategies
The key decision when considering the pricing element of the marketing
mix will be to select an appropriate pricing strategy.
Pricing strategies
Different strategies which may be considered
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)
Price elasticity of demand
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.
Elastic and inelastic demand
Inelastic: PED < 1
Elastic: PED > 1
Perfectly inelastic: PED = 0
Perfectly elastic: PED = ∞
Unitary elasticity: PED = 1
Factors affecting the PED
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
Significance of price elasticity
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
Giffen and Veblen goods
Both Giffen and Veblen goods have upward-sloping demand curves and positive
price elasticity of demand
Giffen goods
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
Veblen goods
Veblen goods are bought for ostentation, so a higher price makes them
more exclusive and desirable
The marketing of services (7Ps)
Key considerations
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.
As a result of the above the following 3 additional Ps are key to the perception
of the service
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.
