Unit 3 Flashcards
Marketing management
What is marketing?
The purpose of marketing is to increase sales by identifying, anticipating and satisfying customers’ requirements profitably.
What is marketing overall all about?
Identifying and understanding the market in which you trade / wish to trade:
- so that you sell (more of) the right product or service
- in the right place
- at the right price
- your customers know all about it (and love it)
What is a market? + give examples
A market is where buyers and sellers transact.
- C2C (customer to customer)
- B2B (business to business)
- Local business
- National business
- Physical
- E-commerce
What is the marketing process?
1) Setting marketing objectives
2) Understanding what customers want and can afford
3) Understanding the conditions of the market
4) Understanding internal strengths
5) Understanding how best to deliver added value to customer
6) Implementing marketing decisions
7) Reviewing
What are marketing objectives?
Targets set to the marketing function to achieve the overall business objective.
- Are likely to be informed by research and potentially constrained by budgets (money available in the marketing budget).
- They will be used to select the marketing strategy and develop a marketing plan.
- Must be SMART.
- Need to be consistent with and support corporate objectives.
Name the main marketing objectives
- Sales volume and sales value
- Market and sales growth
- Market share
- Market size
- Brand loyalty
Define sales volume
The number of units sold.
Define sales value
How much the sales are worth (in £)
Define market share
The proportion of a particular market that is controlled by an individual business.
Define market growth
Measures the change in size in a market as a %.
Explain sales volume as a marketing objective
Targeting to achieve a specified number of units sold or customers.
Explain sales value as a marketing objective
Targeting to achieve a specific revenue from sales.
Explain market and sales growth as a marketing objective
Targeting an increase in overall sales in order to either maintain market share (in a growing market) or improve it.
Explain market share as a marketing objective
Targeting an increase in the business’ own sales as a percentage of the total market. Increasing market share is likely to bring benefits for a business such as brand loyalty and greater revenue.
Explain market size as a marketing objective
In itself this is difficult to use as an objective, but a knowledge of market size will give an indication of the potential market. This would enable realistic targets to be set for sales, growth and share.
- It determines the potential number of customers.
- Usually measured in terms of both volume (units) and value (sales)
- Size of individual segments within the overall market can be measured.
Explain brand loyalty as a marketing objective
Targeting an increase in repeat purchases: customers coming back time after time or consistently buying the brand.
What are the values of setting marketing objectives?
- Ensures functional activities stay consistent with corporate objectives.
- Provide a focus for marketing decision-making and effort, giving a sense of direction.
- Provide incentives for marketing team and a measure of success/failure, which can be motivating.
- Establish priorities for marketing resources and effort.
- Allows for evaluation of performance.
How do marketing objectives enable evaluation of performance?
As with all objectives, they need to be SMART: specific, measurable, achievable, realistic, time based. All of the marketing objectives outlined are quantifiable and therefore measurable.
- As a result, they can be used to judge performance.
What are the potential problems with setting marketing objectives?
Fast-changing external environment
- E.g. changes in legislation impacting the whole market.
- E.g. new competitor enters the market.
Potential conflict between marketing objectives
- E.g. trying to increase market share by cutting prices may damage objectives for brand perception.
Easy to be too ambitious with marketing objectives
- E.g. growing market share without putting necessary resources in place to achieve it.
How to calculate market share
Sales revenue of a business / total market sales revenue x 100
E.g. if a business has a revenue of £3m in a market with total sales of £15m, its market share is: 3 / 15 x 100 = +20%
How to calculate sales growth
Difference in sales / earliest year x 100
E.g. if a business’ revenue was £500,000 in 2016 and £650,000 in 2017, the sales growth is: 150,000 / 500,000 x 100 = +30%
How to calculate market growth
Difference in size / earliest year x 100
E.g. if a market has grown from 2m units in 2016 to 2.5m in 2017 the growth is: 0,5 / 2 x 100 = 25%
How to calculate market size
(sales / market share) x 100
E.g. if a business has sales of £3m and a market share of 5% the market size is: £60m
or
- number of customers
- sales volume minus number of units sold
What is relationship marketing?
Relationship marketing is an approach to marketing in which a company seeks to build long-term relationships with its customers by providing consistent satisfaction.
- It focuses on customer retention rather than one off sales.
Internal influences on marketing objectives and decisions
- Finance: the marketing function needs to operate within the budget allocated.
- Production capacity: it must be physically possible to achieve growth targets.
- Human resources: market growth may be dependent on the skills and knowledge of the workforce and the availability of labour.
- Nature of product: innovative products have more scope for growth and development than staples such as bread and fuel.
- Investment needed
- Planned growth
External influences on marketing objectives and decisions
- Market and competition: objectives will vary according to the state of the market and the actions of competitors.
- Economic factors: factors such as the economic cycle and interest rates affect consumer spending.
- Ethics: consumers have become more aware of environmental issues, e.g. the amount of packaging.
- Technology: this affects the way businesses both produce and sell goods, e.g. mass customisation and online sales.
- Changing trends in society
How can a business identify and satisfy customers’ needs?
In order to be able to satisfy customers’ needs, businesses need to first identify and understand them. This is achieved through conducting market research.
Define market research and what can it involve?
Involves the systematic collection of data about the market and the customer to inform decision-making. This may involve:
- study of market trends and characteristics
- analysis of market shares and potential of existing products
- sales forecasting for products
- analysis and forecasting of sales of new products
What are the different roles of market research?
- Competitor analysis
- Customer feedback
- Ideas for new product development
- Identify trends in the market
- Aid pricing strategies
- Meeting consumer needs
What are the two main methods of market research?
- Primary research
- Secondary research
What is primary research?
Also known as ‘field research’, it involves the collection of information for the first time directly by or for a business to answer specific issues or questions. It is data that has not been gathered before.
Give examples of primary research
- Surveys/polls: conducting questionnaires face to face, by post, by telephones or online.
- Observation: watching people, observing reactions to displays or counting footfall.
- Focus groups: using small groups of people to determine consumer attitudes and opinions.
- Test marketing: trying out products on a small group prior to a full-scale launch.
What is secondary research?
The second-hand research involving the collection of data that already exists and has been produced by somebody else.
Give examples of secondary research
- Published reports: these might be reports published by trade associations and journals, which may contain valuable information on markets and trends.
- Government and other agencies: a great deal of information is available from various agencies. A key publication is the Annual Abstract of Statistics.
- Online research: a great deal of information regarding markets and consumer behaviour is also widely available through the internet.
Explain observation as a method of market research
- Watching how consumers behave provides many insights, but can leave questions unanswered.
- Observations work well in retail markets: sit outside a shop and watch how many people walk by, look at the window display, etc.
Explain postal surveys as a method of market research
- Sent to the address of potential customers who complete the form and send it back in a pre-paid envelope.
- Relatively cheap, a postal survey can cover a wide geographical area and avoids the potential for interviewer bias.
- However, response rates (the proportion of people sending back a completed survey) are often very low and it can take a long time before enough surveys are returned.
Explain telephone as a method of market research
- Not to be confused with “telesales” (which is a method of selling), the telephone interview allows quicker feedback than a postal survey.
- However, potential customers are often wary of being called and may be reluctant to give anything other than short answers.
Explain online surveys as a method of market research
- Increasingly popular and relatively low cost, online surveys are widely used by small businesses as a way of capturing the views of existing and potential customers.
Explain face-to-face surveys as a method of market research
- Personal interviews conducted face-to-face.
- A costly, but a good way to get detailed insights from an indiviual.
Explain focus groups as a method of market research
- Groups of potential customers are brought together to discuss their feelings about a product or market.
- Focus groups are a good way of getting detailed information about customer tastes and preferences.
Explain test marketing as a method of market research
- Involves selling a new product in a small section of the market in order to assess customer reaction.
- E.g. a start-up could start by selling to a limited local area in order to iron-out product issues.
- Software firms often test-market their products by offering “beta” versions for testing by a small group of potential customers.
- Can be a good predictor of how a new product or service will be received by the larger market (provided that it can be kept secret from competitors).
Advantages and disadvantages of primary research
ADVANTAGES:
- Specific to the business/product (more relevant)
- Up to date
DISADVANTAGES:
- Expensive and time-consuming
- Sample may be too small
- Poor validity of research (may be biased)
Advantages and disadvantages of secondary research
ADVANTAGES:
- Can be cheaper
- Immediately available
- Looks at the whole market
DISADVANTAGES:
- Not specific to the business/product
- Can be out of date
- Accessible to competitors
What are the two types of data that can be collected?
- Quantitative data: factual information (numerical, objective data) “hard data” as it is measurable
- Qualitative data: attitudes, views and opinions (subjective data) “soft data as it is often personal
What is qualitative market research?
The aim of qualitative market research is to find out about the attitudes and opinions of consumers. It is collected from small groups of consumers such as focus groups. It can reveal consumer reactions to:
- products
- pricing
- packaging
- branding
This might enable a business to design products that are more appealing to consumers.
What is quantitative market research?
The collection of information on consumer views that can be analysed statistically. It can be represented in easy-to-read charts and graphs showing:
- sales and potential sales
- the size of the market
- the prices consumers are prepared to pay.
Advantages and disadvantages of qualitative data
ADVANTAGES:
- Provides more in depth info about customers’ opinions.
DISADVANTAGES:
- Usually collected through focus groups: expensive and can be unreliable.
Advantages and disadvantages of quantitative data
ADVANTAGES:
- Based on a larger number of respondents so more accurate.
DISADVANTAGES:
- Doesn’t explain the reasons behind the data (why?)
What is market mapping?
Market mapping uses a graph to plot competitors or products in a market to understand their position and to spot a gap in the market.
- To see where competition is most concentrated.
- Two key features of a product/service are identified, e.g. price and quality.
- Each brand in that market can be placed on a grid according to quality (high or low) and price (high or low).
Pros and cons of marketing mapping
PROS:
- Spot gaps in market
- Analyse competitors
- Encourage market research
CONS:
- Gap does not equal demand
- No guarantee of success
- Reliability of market research
What is sampling?
The selection of a representative group of consumers from a larger population.
- The general principle is that the larger the sample, the more accurate the results are likely to be.
What is a sample?
A sample is a small group of people (subgroup or subset) of the target population who are representative of the target population.
What is another term that the whole population can be referred to as?
Census
Name the different sampling methods
- Random sampling
- Quota sampling
- Stratified random sampling
What is random sampling?
A sample is selected from a population where each individual is chosen entirely by chance (at random) and has an equal chance of being selected.
- Can be any age, any gender, any ethnicity, live anywhere.
- Appropriate when a firm is researching a product aimed at a large target group.
- Computers are often used to select people randomly.
What is stratified random sampling?
The population is first segmented into subgroups (or strata) before respondents are randomly selected from within that subgroup.
- E.g. within a subgroup of 16-18 year olds any member of the population has an equal chance of being selected.
- Avoids bias by ensuring that the composition of the sample accurately reflects that of the entire population.
What is quota sampling?
The population is first segmented into subgroups, each sharing common characteristics, before a judgement is made in selecting respondents that are representative of that subgroup.
- E.g. a survey might be conducted on the views of women about a new product, and the number of interviewees in each age category could be clearly set out.
- This saves money by limiting the number of respondents.
- Reflecting the % variations of target population in the sample.
Advantages and disadvantages of random sampling
ADVANTAGES:
- Simple, easy to do.
- Unbiased results.
DISADVANTAGES:
- May not guarantee representation of vital subsets of the larger population.
Advantages and disadvantages of stratified sampling
ADVANTAGES:
- Ensures representation from different subsets.
- More precision vs random.
- Able to analyse results from ‘each’ subset.
DISADVANTAGES:
- More time consuming as need to create subsets.
- Who is defining the subsets? risks of overlooking key subsets.
Advantages and disadvantages of quota sampling
ADVANTAGES:
- Researchers control the composition of the sample to ensure representation of certain characteristics.
DISADVANTAGES:
- Prone to researcher bias.
- Not random, may not be representative.
Overall benefits of sampling
- Reduces time (fewer people to survey).
- If the right people are surveyed, should be representative of the target population.
Overall drawbacks of sampling
- Samples may be inaccurate (asking the wrong people).
- The data collected may be unrepresentative (questions may be biased, the sample may be too small, etc.)
What does the value of sampling depend on?
- The sampling technique used.
- How the sample was carried out.
- The size of the sample.
What will the size of sampling depend on?
- The availability of manpower (as research can be expensive) and other resources, e.g. budget and costs.
- The importance of accuracy of data.
- The required degree of confidence in results and attitudes to risk.
What can be used to help evaluate the reliability of market research?
Once market research has been conducted, marketing teams need to decide how reliable it is, as a business cannot be 100% certain about any findings.
- They do this by producing a confidence level and using confidence intervals.
What is a confidence interval?
- The margin of error that a researcher would experience if they asked a particular question of a sample group and expected to get the same answer back beyond that sample.
(The plus or minus figure used to show the accuracy of results arising from sampling). - For instance: if a researcher used a confidence interval of 5, and 70% of respondents gave a particular answer, then the researcher could be sure that between 65% and 75% of the whole population would give the same answer.
What usually affects the confidence interval used?
Sample size
- The smaller the sample, the greater the margin of error and therefore the greater the confidence interval.
Why is a narrow confidence interval better?
Tells you that the estimated value is relatively stable - repeated polls would give approximately the same results.
- Greater degree of precision.
What is a confidence level?
- An expression of how confident the researcher is in the data collected.
- The probability that research findings are correct.
- Expressed as a percentage and indicates how frequently that percentage of the population would give an answer that would lie within the confidence interval.
- The most commonly used confidence level is 95%.
What is the value of technology in gathering and analysing data for marketing decision making
- Developments in technology mean that vast amounts of information can be collected, stored and analysed.
- This may enable a business to gain a much greater understanding about the person buying a product and as a result, firms such as Amazon can make recommendations to individual customers based on past buying habits.
- E.g. store and loyalty cards are an extremely effective way for businesses to collect data on their customers.
- Technology can provide faster communication, make forecasting easier, and enable targeted sales messages, but a business must have the right data in the first place.
Define correlation
A statistical technique used to establish the extent of a relationship between two variables, such as the level of sales and advertising expenditure.
- Takes marketing data and plots it on a chart to see whether there is a relationship.
- Line of best fit applied to see whether correlation exists.
When does correlation occur and how can it be used by businesses?
Correlation occurs when there is a direct relationship between one factor and another.
- Knowledge of correlation can sometimes help in decision making. For example, knowing that there is a positive correlation between incomes and sales might enable a business to more accurately forecast sales.
What are the different types of correlation?
This relationship may be positive or negative.
- E.g. a rise in incomes may lead to a rise in sales, which is a positive correlation (because they move in the same direction).
- E.g. or a price increase may lead to a fall in demand, which is a negative correlation (because they move in opposite directions).
It can also be either strong or weak.
- Strong: when it is easy to draw a line of ‘best fit’.
- Weak: when it is difficult to find a line of ‘best fit’. The weaker the correlation is, the least accurate the data will be.
Can also be no correlation (no relationship), data is scattered.
What should be businesses be careful with when interpreting correlation?
Results in correlation should be treated with caution as correlation only shows a relationship between two variables.
- Sales might appear to rise with increased advertising, but it might be due to a competitor raising its prices rather than the increase in advertising.
- Does not always mean there is a cause-and-effect relationship between the two variables.
What is extrapolation?
Analyses the past performance of a variable, such as sales, and extends the trend into the future.
- It is a useful technique when trends can clearly be identified and the market is relatively stable.
How to plot extrapolation?
1) Plot past sales figures using a graph.
2) Work out the trend by drawing the ‘line of best fit’ (by calculating the moving averages)
3) Extend the ‘trend’ in the future to predict sales.
Why should businesses be careful when using extrapolation?
Extrapolation should be treated with caution as it assumes that the future will be similar to the past.
- It may not be suitable for industries subject to rapid change such as fashion and technology.
Define elasticity
Elasticity is a measure of the responsiveness or sensitivity of demand to a change in a variable, e.g. price or income.
What is price elasticity of demand (PED)?
A measure of how responsive demand is to a change in price.
(Essentially, if price changes does demand change by a bigger proportion or a smaller proportion than the change in price?)
- This will determine whether a change in price will lead to an increase in decrease in revenue.
PED calculation
(% change in quantity demanded) / (% change in price)
For example:
When price goes down by 10% there is a 15% rise in demand, meaning that:
- % change in demand is +15%
- % change in price is -10%
- PED = +15% / -10% = -1.5
How can price elasticity of demand (PED) be interpreted?
If PED figure is below -1, this means that the % change in demand will be greater than the % change in price, so the demand is elastic. Customers are sensitive to price.
If PED figure is between -1 and 0, this means that the % change in demand is less than the % change in the price, so the demand is inelastic. Customers are not sensitive to price.
What are the implications of price elasticity of demand (PED) for businesses?
ELASTIC (e.g. -1.5):
- If price increases, will lead to a bigger % decrease in demand so revenue will fall (less sales).
- If price decreases, will lead to a bigger % increase in demand so revenue will rise (more sales).
- Therefore should be careful with price set.
INELASTIC (e.g. 0.7):
- If price increases, will lead to a smaller % decrease in demand so revenue will rise.
- If price decreases, will lead to a smaller % increase in demand so revenue will fall.
- Therefore charge highest possible price.
Will sales promotion be effective for products price elastic or inelastic?
Sales promotion will be effective for elastic, but useless for inelastic.
Why is it important for a company to know about the price sensitivity of a product?
Knowing the price sensitivity enables a business to anticipate how customers will react to a change in price.
- In some markets/situations the price hugely affects demand.
- In other markets/situations the price doesn’t affect demand.
How to calculate % change in demand
PED x % change in price
How to calculate % change in price
PED x % change in demand
Factors affecting price elasticity of demand (PED)
- The strength of the brand (e.g. Apple)
- Whether the product is a necessity (e.g. petrol, water, gas, or electricity).
- Whether there are substitutes (can the product be replaced by something else, e.g. train vs car)
- Whether other similar products are available (level of competition, e.g. McDonalds vs Burger King)
A business is interested in PED as it helps make key marketing decisions. What does this enable manager to do?
- Set the optimum price to maximise sales revenue.
- Anticipate the change in demand when de/increasing the price.
- Plan production output (no. of units produced), order the correct amount of stock from suppliers to match the new level of demand after a change in price.
- Decide on the correct promotion method. E.g. sales promotion isn’t a suitable promotion method for products/services with an inelastic PED.
Define luxury good
A product or service that isn’t necessary. It’s more of an aspiration.
Define normal good
A product or service that is a necessity. It needs to be bought.
Define inferior good
A product or service that has a low perceived value.
What is income elasticity of demand (YED)?
Income elasticity of demand (YED) measures how sensitive quantity demanded is to changes in income.
(Essentially, if income changes does demand change by a bigger proportion or a smaller proportion than the change in price?)
- This will determine whether a change in income will lead to an increase or decrease in revenue.
YED calculation
(% change in quantity demanded) / (% change in income)
For example:
When income goes up by 3% demand rises by 6%.
- % change in quantity demanded is +6%
- % change in income is +3%
- YED = +6% / +3% = +2
How can income elasticity of demand be interpreted?
If the YED figure is below -1, this means that the % change in demand will be greater than the % change in income, so the demand is elastic. But the change in income will lead to an opposite change in demand, e.g. an increase in income will lead to a decrease in demand.
If the YED figure is between +1 and -1, this means that the % change in demand is less than the % change in income, so the demand is inelastic.
If the YED figure is above +1, this means that the % change in demand will be greater than the % change in income, so the demand is elastic. An increase in income will lead to an increase in demand.
What will the change in demand for YED depend on?
The change in demand will depend on the type of product:
Inferior goods (below YED figure 0)
Normal goods (between YED figures 0 and +1)
Luxury goods (above YED figure +1)
What are the implications of income elasticity of demand (YED) for businesses?
ELASTIC (below -1)
- If the income increases, the demand of inferior goods will fall and revenue will fall too.
- If the income decreases, the demand of inferior goods will increase and revenue will fall too.
INELASTIC (between -1 and +1)
- If the income increases or decreases, the change in demand for normal/inferior goods will be small and so there will only be a small change in revenue.
ELASTIC (above +1)
- If the income increases, the demand of luxury goods will increase and the revenue will increase too.
- If the income decreases, the demand of luxury goods will decrease and the revenue will decrease too.
Why does income elasticity matter?
It helps managers plan for changes in the incomes of their customers.
- If the economy is doing well and incomes are rising, this will lead to relatively fast growth in the demand for products that have a positive and high income elasticity of demand.
- During a boom, demand for inferior goods is likely to fall.
What other factors apart from elasticity should be considered when making marketing decisions?
Although elasticity can be a useful tool, marketing decisions should not be based on this alone. Other factors that should be considered include:
- brand loyalty
- competitor actions
- consumer tastes and fashion
- availability of substitutes
What is highly important regarding using elasticity figures during decision making?
Elasticity changes over time, and it is important in decision making to use the most up-to-date figures.
- A figure that is even 1 year old may be out of date as the market may have changed or competitors may have introduced new products.
Which 3-step process do businesses follow to help focus their marketing decisions and activities?
The STP process (segmentation, targeting & positioning)
1) Segmentation - identify and describe market segments.
2) Targeting - evaluate segments and decide which to go after.
3) Positioning - design a product or service to meet a segment’s needs and develop a marketing mix that will create a competitive advantage in the minds of the selected target market.
Define market segmentation
The process of dividing a market into identifiable, distinct groups (sub markets). Those customers within the same segment will share common characteristics that can help a business target them and market to them effectively.
Name the 4 types of segmentation
- Demographic
- Geographic
- Behavioural
- Income
Explain demographic segmentation
- Identifies subgroups of the population based on social and economic profile or characteristics of individuals or households.
- This includes factors such as age, gender, level of education, race and religion.
Explain geographic segmentation
- Identifies subgroups of the population based on where people live, e.g. regions, cities or neighbourhoods.
- People in different geographical areas display different characteristics and needs.
Explain behavioural segmentation
Identifies subgroups of the population based on the behavioural patterns of the consumer rather than their characteristics, for example:
- Reasons for making purchases, e.g. needs, emotions, rewards.
- Frequency of purchase, e.g. heavy user or light user.
- Time of purchase, e.g. seasonal, weekly, late at night.
- Brand loyalty
Explain income segmentation
- Identifies subgroups of the population based on their levels of income and profession or socio-economic group.
- Socio-economic groups:
- A : Top management
- B : Middle management
- C1 : Junior management
- C2 : Skilled manual
- D : Semi-skilled
- E : Casual workers, unemployed & pensioners
Benefits of using market segmentation
- Helps understand the need of a specific group of customers.
- Helps design a tailored product or service.
- Helps differentiate a product or service.
- Makes marketing more targeted and efficient.
Drawbacks of using market segmentation
- Segment size may be too small to be profitable (not enough customers and revenue).
Define market targeting
The process whereby, after segmenting a market, a business will choose who to aim its products at, i.e. its target market.
What are some of the influences on the target market and positioning?
- The nature of the product: this might be the qualities of the product that help differentiate it or what the product may be used for.
- Competition: a business may want to avoid areas of the market that are highly competitive.
- The consumer: products might be developed specifically to suit consumer needs.
What is niche marketing?
When businesses identify and satisfy the demands of small segments of a larger market.
E.g. the radio station Classic FM serves the niche of people who wish to listen to popular classical music.
Benefits and drawbacks of niche marketing
BENEFITS:
- Enables specialisation & differentiation (USP).
- Often less competition in a niche market.
- Can charge premium price as the product meets the exact needs.
- May benefit from price skimming.
- Can be highly profitable.
- Customer loyalty.
DRAWBACKS:
- The niche may be too small to be profitable.
- Higher costs due to small scale (missing out on economies of scale).
- Success may attract competition.
What is mass marketing?
Targeting the entire market.
What are the two ways a business can target the entire market through mass marketing?
1) Generic product
2) Product adapted to each segment
Benefits and drawbacks of mass marketing
BENEFITS:
- Large target market means potentially high revenue and high market share.
- Large scale enables economies of scale (purchasing and marketing).
- Helps brand awareness.
DRAWBACKS:
- More competition means price competition.
- High levels of initial investment required to sell or produce large scale, e.g. on resources such as buildings, machinery and vehicles.
- Higher costs due to product adaptation to segments.
- Generic products may not meet customer needs.
Define market positioning
Market positioning is where particular products/brands stand in the market compared to competitors.
What is market mapping?
Market mapping is a matrix or map that illustrates the range of positions that a product can take in a market based on two dimensions that are important to customers.
- It can help a business identify the position of its product in the market relative to others.
- Two key features of a product or service are identified, e.g. price and quality. Each brand in that market can be placed on a grid according to the quality, high or low, and price, high or low.
How can a business differentiate itself from competitors and influence its position in the market?
Market positioning helps decide on product specification, price, where to sell the product, and how to promote it. In other words, decide on the marketing mix.
Pros and cons of using a market positioning map
PROS:
- Spot gaps in the market by seeing where competition is most concentrated (highly competitive markets).
- Analyse competitors.
- Encourage market research.
CONS:
- Gap does not equal demand and profit.
- No guarantee of success.
- Reliability of market research.
What is the marketing mix?
A combination of factors that can be controlled by a company to influence consumers to purchase its products.
- The combination of marketing activities that an organisation engages in so as to best meet the needs of its targeted market.
- The main variables comprising a firm’s marketing strategy.
Why is it called the marketing mix?
Because each element of the marketing mix is related to the others. Elements of the mix should work together to achieve the desired effect.
What are the traditional 4Ps of the marketing mix?
The mix was first developed for fast-moving consumer goods and consisted of the 4Ps of:
- Price
- Product
- Place
- Promotion
Explain the 7Ps of the marketing mix
- Product: the good or service that the customer buys.
- Price: how much the customer pays for the product.
- Place: how the product makes its way to the customer (distributed).
- Promotion: how the customer is found, informed and persuaded to buy the product or service.
- People: the staff who make contact with customers in selling and/or delivering the product.
- Process: the systems and processes that deliver a product to a customer.
- Physical environment: the elements of the physical environment the customer experiences.
How does the marketing mix blend together?
- The marketing mix blends together the elements of a marketing strategy.
- There must be internal consistency within the mix.
- Mix must be consistent with the product and its target market.
- No one element of the marketing mix is more important than another; each element ideally supports the others.
- Firms modify each element in the mix to establish an overall brand image and unique selling point (USP) that makes their products stand out from the competition.
What is an effective marketing mix?
- Achieves marketing objectives.
- Meets customer needs.
- Is balanced and consistent.
- Creates a competitive advantage.
- Consistent with the chosen target market and positioning.
- Able to constantly adapt to the ever-changing business environment. This could mean a business adapting their price, adopting new types of promotion, updating their product or changing distribution channels as required.
What are the aspects involved in each of the 7Ps: PLACE
- Retail
- Wholesale
- Mail order
- Internet
- Direct sales
- Peer-to-peer
- Multi-channel
What are the aspects involved in each of the 7Ps: PRICE
- Strategies
- Skimming
- Penetration
- Psychological
- Cost-plus
- Loss leader etc.
What are the aspects involved in each of the 7Ps: PROMOTION
- Special offers
- Advertising
- Endorsements
- User trials
- Direct mailing
- Leaflets/posters
- Free gifts
- Competitions
- Joint ventures
What are the aspects involved in each of the 7Ps: PEOPLE
- Employees
- Management
- Culture
- Customer service
What are the aspects involved in each of the 7Ps: PROCESS
- Especially relevant to service industries
- How are services consumed?
What are the aspects involved in each of the 7Ps: PHYSICAL ENVIRONMENT
- Smart
- Run-down
- Interface
- Comfort
- Facilities
What are the aspects involved in each of the 7Ps: PRODUCT
- Design
- Technology
- Usefulness
- Convenience
- Value
- Quality
- Packaging
- Branding
- Accessories
- Warranties
Name the key influences on the marketing mix for a business
- Technology
- Finance
- Market research
- Nature of the product
Explain how finance influences the marketing mix
- The level of profits that a business earns can impact on the price that it charges.
- A profitable business is able to cut prices significantly, at least in the short term.
- Its financial reserves also enable it to engage in extensive promotional campaigns.
- Another aspect is that a business with a healthy cash flow will be able to extend the range of outlets it uses by offering favourable trade credit terms.
Explain how the nature of the product influences the marketing mix
- The type of product can influence which elements of the mix are emphasised.
- An insurance firm may spend heavily on advertising to generate large numbers of enquiries in order to win an acceptable number of customers.
- In contrast a portrait painter may rely on the quality of the product and word-of-mouth promotion to achieve sales.
Explain how technology influences the marketing mix
- For some products that possess the latest technology, advertising may be used to inform potential customers of their existence and benefits.
- They will have high prices to maximise short-term profits and cover the costs of research and development.
- Technology has also affected the place element of the marketing mix. Developments have allowed publishers of music and books to distribute their products using internet downloads.
Explain how market research influences the marketing mix
- Primary market research may be the most important influence in designing a marketing mix.
- Its findings may provide information to help to make judgements on the form, functions and design of the product.
- The research may uncover information on prices that consumers will be willing to pay and the type of purchasers.
- May also determine pricing strategies.
Types of products (in terms of who the intended consumer or customer is)
There is a distinction between goods or services intended for use by individuals & households (consumer products) & for use by other businesses (industrial products).
Explain what industrial products are
Industrial products are bought by other businesses for further processing or to be used in the business activity (transformation process).
For example: Synectics
- sells surveillance solutions to large organisations and local government. Its sales team are experts in their field and are able to build unique security solutions for their clients.
Explain what consumer products are
Consumer products are bought by the final customers for personal use or consumption.
For example: Breitling
- a premium watch maker that specialises in making watches for professionals, in particular the aviation industry. Breitling has a number of its own boutiques in major cities across the UK.
Types of consumer products and examples
- Convenience products: products widely available, frequently bought or impulses, no planning, low customers involvement. E.g. crisps, chocolate bars, sandwiches, drinks.
- Shopping products: customers will ‘shop around’, some planning and customers involvement, brand and price are important. E.g. clothes, shoes, white goods, electronic equipment.
- Speciality products: customers take time to make a decision, high level of customer involvement, staff involved in the purchase are important. E.g. jewelry, cars.
Define unique selling point (USP)
Refers to differentiating factor(s) that allows a business to differentiate its product or service from others in the market.
What are the 3 levels that a product can be analysed at?
- Core product: NOT the tangible, physical product but the BENEFIT of the product that makes it valuable. E.g. a watch - the benefit is that it tells the time.
- Actual/tangible product: the actual physical product and relates to quality and design. E.g. it’s accurate, comfy and waterproof.
- Augmented product features: the additional benefits which go beyond what a customer expects and provide additional benefits to the customer.
Examples of augmented product features
1) Product warranty - most popular way to augment a product. A company makes a promise to fix a certain item if it breaks down in a specified time period, e.g. household appliances.
2) Installation - the companies have some technicians in their staff who can install or configure a product for free, e.g. a washing machine.
3) Free delivery - widely used for augmenting products by brands from different industries, especially furniture industry for expensive products.
4) Refund - some businesses provide refund option during a specified time period if a product doesn’t meet client’s needs.
5) Updates - common among online services and software products. Users are offered free and timely updates to their products.
6) Product trials - used by online services to engage more clients. Users are offered to test a particular service for free during a specified time period. This way marketers expect that leads will want to continue using a product and then buy it as a result.
7) Free samples - popular both online and in-store. Cosmetic stores usually give their clients free samples if they spend a certain amount of money on their purchase.
What is product development?
The process of developing new products or improving existing ones and then bringing them to the same market segments.
- Product development is also called Research & Development (R&D).
Phases of the product development process
Idea generation -> prototype + testing -> development -> modifications -> launch to market
Internal influences on new product development
- Finances (£)
- Research facilities (laboratory, equipment, machines)
- Time available
- Staff expertise/talent
- Entrepreneurial skills of managers and owners (creativity - being able to think up new ideas for goods and services that fit with customer needs leads to the development of many new products).
- Previous success/failure
- Strategy: innovation or copying
- State of current products
External influences on new product development
- Market research data: is there a need for something new?
- Competitors’ actions (a competitor producing a new product can be a spur to a rival to produce something that is at least as good, if not better. E.g. hotels have improved their services by offering guests a choice of different types of pillow to enhance comfort)
- Shareholders’ pressure and attitude to risk taking.
- Government policies (banning existing products)
- Technology (e.g. advances in battery technology technology have helped to generate a range of more efficient electric cars. Firms use these technological advances as the basis for the development of new products that meet the needs of consumers more fully).
Examples of ways of modifying products in product development
- Repackaging
- Performance improvements
- Quality improvements
Pros of product development
- Likely lead to increased sales … hopefully increased revenue. E.g. for creation of new products: small product portfolio, existing products: extension strategy to extend lifecycle.
- Opportunity for price skimming which can lead to increased revenue.
- Long term strategy (Boston Matrix - increase cash cows, Product life cycle - maturity stage)
- Sell to a different market segment (LID - location, income, demographic)
Cons of product development
- Costs (research & development, marketing), risk of failure: could lead to poor cash flow and hinder brand reputation)
- Low volume of output (due to new product/modifications) … lead to no economies of scale which can lead to increased costs and therefore price, which could decrease sales.
What is the importance of unique selling points?
Businesses add value by creating a unique selling point or USP for their products. A USP allows a business to differentiate its products from others in the market. This can help the business in a number of ways:
- The business can base its advertising campaign around the difference between its product and those of its competitors.
- Having a USP encourages brand loyalty as it gives customers a reason to continue to buy that particular business’ product.
- A USP allows a business to charge a premium price for its product.
What is the product life cycle?
A graph that tracks sales of each individual product over time in value (£) or volume (number of units). It is an important concept in marketing.
- It describes the stages a product goes through from when it was first thought of until it is finally removed from the market.
- Each product has its own product life cycle, so not all products reach this final stage. Some continue to grow and others rise and fall.
- E.g. ‘fads’ may experience a fast growth and decline in sales whereas some products will stay in the ‘maturity’ stage for many years.
- Some products have longer cycles than others, e.g. the Mars Bar was launched in the 1920s and is still going strong, whereas modern motor cars are expected to have a life cycle of about 10 years.
List the order of stages in the product life cycle
1) Research & Development (R&D)
2) Introduction
3) Growth
4) Maturity
5) Decline
Explain the research and development stage of the product life cycle
- Market research is carried out, the idea for the product is developed and prototypes produced.
- This is an expensive period for the company as no sales are made as the product is not yet available.
- Cash flow is expected to be negative.
Explain the introduction stage of the product life cycle
- Sales begin and start slowly as consumers are getting to know the product with the product’s initial appearance on the market.
- Costs will remain high and cash flow will remain negative.
- This stage will involve a lot of expenditure on promotion.
- The firm will need to convince their distributors to stock the new product.
- The price may have to be high to recoup the high initial launch costs.
- The failure rate for new products is high - 60% to 90%.
Explain the growth stage of the product life cycle
- At this stage, sales are accelerating fast.
- People are beginning to buy more of it and it is becoming successful.
- More outlets are selling the product.
- The firm should start to break even on costs and begin making a profit.
- Cash flow can improve considerably.
- The business’ profits per unit sold are likely to be at maximum because firms tend to charge a high price at this stage, particularly is the product is innovative.
- Firms with a technically superior product may well engage in price skimming.
- The growth stage is critical to a product’s survival, and its success rate will depend on how competitors react to it.
Explain the maturity stage of the product life cycle
- At this stage, the sales rate begins to slow down (sales curve peaks and begins to decline).
- Both cash flow and profits also may decline slowly.
- This stage is characterised by intense competition with other brands.
- Competitors emphasises improvements and differences in their versions of the product.
- At this stage, consumers of the product know a lot about it and require specialist deals to attract their interest.
- The firm should start to consider extension strategies to keep sales up.
Explain the decline stage of the product life cycle
- Sales begin to fall rapidly as the product becomes less popular.
- New technology or a new product may cause product sales to decline sharply.
- When this happens, marketing managers consider eliminating unprofitable products.
- Promotional efforts will be cut too.
- Unless, a firm may make the decision to boost sales again by spending more on marketing.
- Extension strategies?! - may be too late.
What are product life extension strategies?
Marketing actions taken to prolong the life of a product - extending the maturity phase.
- This is because researching, developing and launching new products is both risky and expensive so businesses will try to prolong the life of their products onto the market for as long as possible.
- Maintaining or reviving the sales levels of their products over time using a number of techniques (product life extension strategies). They can be used in combination with each other.
Examples of product life extension strategies
- Advertising: run promotional campaign to increase awareness of product or remind existing customers - change perception of product.
- Reduce price to increase sales, e.g. loss leader.
- New features/functionality - iPhones 4,5,6,7,8, X, etc.
- Finding new markets/segments for existing products. Some companies selling baby milk have targeted less economically developed countries.
- Changing the appearance or packaging. Some motor manufacturers have produced old models of cars with new colours or other features to extend the lives of their products.
Pros of using product life extension strategies
- Can attract broader audience - growth.
- Brand awareness and brand equity growth.
- Facilitates growth and further expansion.
- Increased market share.
- Market strategy advantage - cheaper to extend rather than launch entirely new product.
Cons of using product life extension strategies
- Brand dilution - occurs when a brand loses focus on its offering to a particular audience.
- Lost brand reputation if failed extension - may suggest there are other failings within the business.
- Damaged relationships with existing customers if failed - customers may feel the brand is not understanding their needs - lost trust after disappointment.
- Customers may not recognise the product if packaging/appearance is changed.
Business example - Nike: product life extension strategies
Nike:
- Initially created as a sports shoe brand called Blue Ribbon, later became Nike.
- Grew reputation throughout 1960s/70s to become known as top shoe producer.
- Nike used this brand equity and reputation to begin expanding into other categories.
- Since mid 1980s, has relied on strategic partnership by collaborating with known stars, e.g. Michael Jordan and Lebron James - basketball category, Tiger Woods - golf category, Wayne Rooney - football. - getting into these markets.
- Successful, e.g. in 2020 a pair of Jordans sold for £1.5 million.
- Has 30 market segments now.
Benefits of using the product life cycle to make marketing decisions
- Easy to use (just track sales).
- Suggest when it’s time to use an extension strategy.
- Can be used to forecast sales.
Drawbacks of using the product life cycle to make marketing decisions
- Real sales figures never follow a smooth pattern.
- Identifying which phase the product is in may be difficult.
- Misreading the graph can lead to wrong decisions.
What is a product portfolio?
The range of products that a business sells.
What is product portfolio analysis?
Product portfolio analysis assesses the position of each product or brand in a firm’s portfolio to help determine the right marketing strategy for each.
Why would a business want to have multiple products in different stages of the product life cycle? - the product mix
- Ensure sales revenue is maximised across different products.
- Offset costs of new products entering the introduction phase with products in the maturity phase, thus generating high returns.
- As one product reaches decline, replacements are entering the growth and maturity stages of their lives.
- This means that there will be a constant flow of income from products in the mature phase of their lives to finance the r&d of new products.
What is the Boston Matrix?
The Boston matrix allows businesses to undertake product portfolio analysis by plotting their products on a grid or matrix according to each product’s market share and its market growth.
What are the 4 categories that products can be placed in the Boston matrix?
- Dog: low market share & low market growth.
- Question marks/problem children: low market share & high market growth.
- Starts: high market share & high market growth.
- Cash cows: high market share & low market growth.
What are the 2 main purposes for a business using the Boston matrix?
- To suggest a strategy for each of the four products. For example, to invest heavily in ‘star’ products to maintain or increase their market share and ensure growth in sales.
- To identify any significant gaps in the matrix. For example, if a business doesn’t have any ‘problem children’ or ‘?’ this could mean that overall sales may decline in the future as the business will not generate products to replace ‘stars’.
What is the strategy that the Boston matrix suggests for question mark/problem child products?
MONITOR this product to see whether it has potential to become a star.
- If the product doesn’t achieve its potential market share it will become a dog.
Additionally:
- Invest to increase market share.
- Substantial investment to achieve growth at the expense of powerful competitors.
- Invest in promotion and other aspects of marketing.
- Build selectively - be conscious of what you are investing in - could it become a dog product?
What is the strategy that the Boston matrix suggests for star products?
INVEST in this product as it has potential for further growth.
- Keeping its market share high is key to ensure it becomes a cash cow in the future.
- Repel challenges from competitors.
What is the strategy that the Boston matrix suggests for dog products?
REMOVE this product from the market?
- It depends whether it is making a loss and how important it is to the brand.
What is the strategy that the Boston matrix suggests for cash cow products?
MAINTAIN this profitable product’s market share but do not spend too much on it as sales are unlikely to grow significantly.
- Aim for short term profits.
- Use profits from cash cows to invest in new products.
What conclusions can be drawn from the Boston matrix?
- Firms should avoid having too many products in any single category. Obviously, firms do not want lots of dogs, but they also need to avoid having too many stars and problem children.
- Products in the top half of the chart (stars and ?) are in the early stages of their life cycle and are in growing markets, but the cost of developing and promoting them will not have been recovered.
- Continuing production of cash cows will provide the necessary cash to develop the newer products.
- Firms need problem children products as they may become tomorrow’s cash cows.
Characteristics of star products (Boston matrix)
- Market leaders
- Fast growing
- Substantial profits
- Require substantial investment to finance growth + marketing spending
- Eventually growth slows + business hopes the star becomes cash cow.
Characteristics of problem children / question mark products (Boston matrix)
- Rapid growth
- Poor profit margins
- Enormous demand for cash
- Negative cash flow
- Have potential, but may need substantial investment to grow market share at the expense of larger competitors.
- Could become star or dog.
Characteristics of cash cow products (Boston matrix)
- Profitable products
- Generate more cash than needed to maintain market share
- Maturity stage of life cycle
- Successful products with relatively little need for investment.
- Large positive cash inflow
Characteristics of dog products (Boston matrix)
- Greatest number of products in this category.
- Markets are not growing - little new business.
- Operate at a cost disadvantage.
- Have either failed or in decline stage of life cycle
Define the term ‘balanced product portfolio’
A balanced product portfolio is when a business has a range of products spread across different stages of the product life cycle and/or Boston matrix. It has:
- Cash Cows providing the investment funds for Stars that ensure future success.
- Question Marks that use these funds to develop into Stars.
Benefits and weaknesses of the Boston matrix model
BENEFITS:
- Suggest strategies (what to do) for each of the 4 categories of products.
- It shows if the portfolio is balanced or not (is there a gap?)
WEAKNESSES:
- Some products can be borderline.
- Isn’t always right.
- Doesn’t actually give answers.
What is price?
The amount of money a customer is charged for a product or service.
- Price is a key factor in any product decision.
- Price will not only determine the demand for a product, it will also determine the contribution of a product and the overall profit margin for the business.
Key influences on pricing decisions
- Objectives
- Costs
- Competitors’ prices
- Demand
- Stage of product life cycle
- Elasticity of demand (PED)
- Positioning (niche/mass , B2B/B2C)
- Fashion / trends
- Disposable income
- Bargaining power
What are pricing strategies?
Pricing strategies are pricing decisions adopted over the medium to long-term to achieve marketing objectives.
Name the 4 principal pricing strategies
- Price skimming
- Price penetration
- Dynamic pricing
- Cost-plus
What is cost-plus pricing?
The price is determined by adding a % markup to the cost of producing a product.
Price = cost of making product + markup (profit)
E.g. if a jumper costs £20 to make and the business adds a 50% markup, the selling price would be £30.
Pros and cons of using cost-plus pricing as a pricing strategy
PROS:
- Quick and easy to calculate.
- Simple to see that you are making a profit.
- Covers all costs.
- Requires little research.
CONS:
- Can be complicated if you want to apply different markups to different products.
- Can reduce efficiency.
- May not reflect true value of product.
- Doesn’t take into account customers or external factors such as competition.
What is price skimming?
Setting a high initial price for a new, often innovative, product in order to recoup high development costs.
- When a firm releases a new product it may charge a high price targeting a segment of the market known as ‘early adopters’. Once this market has been ‘skimmed off’ the business may lower the price.
- Firms may base their initial promotional campaign around this idea, trying to create a ‘must have’ mentality amongst their target market.
What is an ‘early adopter’?
A type of consumer who is willing to pay a premium price for a new product in order to be one of the first to own it.
Pros and cons of using price skimming as a pricing strategy
PROS:
- By setting a high price, the business will achieve limited sales but with a high profit margin on each, which allows the firm to recoup some of the product’s development costs.
- Early adopters offer organic word-of-mouth advertising for the new product.
- Creates the perception of high quality or must-have products.
- Can create a higher-end brand image and increased customer loyalty.
- Early adopters provide feedback on new products before a wider launch.
CONS:
- Only works with an inelastic demand curve that doesn’t respond to price changes.
- Early adopters might become turned off by price decreases after their initial purchase.
- May end up with excess inventory if price skimming efforts fail.
What is price penetration?
Setting a low initial price for a new product in order to get a foothold in the market and gain market share.
- Once the product has been launched and built up a customer base the firm may raise the price to boost profit margins.
- May be a suitable pricing strategy for entering into a mass market.
- Works well for complementary products.
Pros and cons of using price penetration as a pricing stratgey
PROS:
- Win customers from competitors.
- Encourage new customers to try your product by offering discounted price.
- Can deter other competitors from entering the market during the promotional period.
- Become a market leader.
- Benefit from economies of scale - generally aim to have high levels of inventory in expectation of a high inventory turnover.
- Encourage organic marketing.
CONS:
- Requires significant up-front investment - bulk orders - can be relatively high risk.
- Can trigger a race to the bottom - competitors may retaliate by cutting their own prices.
- Can create the impression that you are a low-quality brand if price is set too low.
What is dynamic pricing?
When the price changes quickly in response to the ability to supply or to changing levels of demand (flexible).
- If demand is high (or at peak times) the price goes up.
- If demand is low the price comes down.
- This strategy can be used to encourage customers to buy in advance, e.g. ‘early bird’ offers on holiday or flights.
Pros and cons of using dynamic pricing as a pricing strategy
PROS:
- Better market overview.
- Increased revenue.
- Get to know your customers - will provide you with an overview of various trends.
- More control over pricing strategy - allows flexibility.
CONS:
- Risk of losing customers.
- Risk of starting price war.
- Can be time consuming - changing prices of products continually requires lots of competitor monitoring and market research, which can take up a lot of employee manpower.
- The process is prone to errors - inaccurate market data can cause significant profit losses.
Examples of businesses that use dynamic pricing
AMAZON:
- Changes its prices every 10 mins on average.
- Uses advanced algorithms and machine learning to analyse vast amounts of data in real-time.
UBER:
- Adjusts rates based on number of different variables, including the time and distance of your route, traffic, and the current rider-to-driver demand.
- E.g. temporary increase in price in busy periods.
Name the pricing strategies based on competitors’ influence
- Price taking
- Price makers
- Price leadership
- Price followers
What is price taking?
Price takers set their prices equal to the ‘going rate’ or the established market price.
- A common pricing strategy for small and medium-sized businesses.
- Price takers have no influence over the market price, as they are normally one of many smallish firms competing for business.
What are price makers?
Able to fix their own price.
- An entity that has the power to influence the price it charges because the good it produces does not have perfect substitutes.
What is price leadership?
Brands who are market leaders whose price changes are followed by rivals.
- Used for established products with strong brand images.
- The firm using this strategy will probably dominate the market and other businesses will usually follow their lead.
What are price followers?
Follow the price-changing lead of the market leader by closely monitoring and responding to the pricing decisions made.
What are pricing tactics?
Pricing decisions adopted in the short-term top suit particular situations.
What are some of the pricing tactics that a business could use?
- Loss leader
- Predatory pricing
- Psychological pricing
- Special-offer pricing
What is a loss leader?
Price set below cost-price as a “bait” to entice customers.
- Entails setting prices very low (often below cost of production) to attract customers.
- Businesses using this tactic hope that customers will purchase other (full-price) products while purchasing the loss leader.
What is predatory pricing?
Price set deliberately low by dominant competitor to undercut competitors.
- This is illegal.
What is psychological pricing?
Price set to trick customers to believe the product is cheaper than it really is.
- E.g. £9.99 instead of £10.
What is special-offer pricing?
This approach involves reduced prices for a limited period of time or offers such as ‘three for the price of two’.
How does price elasticity of demand (PED) influence pricing decisions?
Firms would prefer to sell products with demand that is price inelastic.
- This gives greater freedom in selecting a pricing strategy and more opportunity to raise prices, total revenue and profits.
What techniques can a business adopt to make demand for their products more price inelastic?
- Differentiating products from those of competitors - can increase brand loyalty. Consumers are more likely to continue to purchase a product when its price rises if it has unique characteristics.
- Reducing competition through takeovers and mergers. This process results in fewer competitor products being available to the consumer and may mean that demand will be less responsive to price.
Define distribution (place)
The component within the marketing mix that defines both the physical location where a product is available as well as the distribution channel it has travelled through, from manufacturer to consumer.
Where can you sell/buy a product? List the number of ways
- Own website
- Other websites, e.g. Amazon
- Own shop
- Retailer
- Supermarket
- Department store
- Market stall
- Television shopping channel
- Vending machines
Considerations for choosing the appropriate outlets and distributors for a business
- Fit with the rest of the marketing mix. E.g. if a product is to be sold cheaply, possibly to increase market share, a cost-cutting retail outlet might be appropriate so that the benefit of low prices is passed on to the final customer.
- Location - businesses will seek outlets and distributors in areas where their target customers live and where few competitors operate.
- Credit terms - a newly established or struggling enterprise might opt for outlets or distributors that do not request long periods of trade credit. This can help to protect a business’ cash flow.
- Willingness to display products in promotional positions. For some products (e.g. foods and confectionary), a good position in a retail outlet is an essential part of successful distribution.
What is a distribution channel?
The route to market that a product takes from producers to the final customer.
- It will affect the number of intermediaries and hence the price paid by the final customer.
What are intermediaries?
Intermediaries (or middle people) within the distribution channel include wholesalers and retailers.
What is a wholesaler?
An intermediary in the distribution channel that buys in bulk and sells to resellers (retailers) rather than to consumers.
- Makes profit by buying at a lower price from the producer and adding a profit margin onto the price paid by the retailer.
What are the advantages of a wholesaler?
- Reduce the producer’s transport costs (fewer journeys to the wholesaler rather than many journeys to retailers).
- Retailers can order in smaller amounts from wholesalers.
What is the aim of distribution / supply chain management?
Deliver the right goods, right quantity, right place, right time and as efficiently as possible.
What activities are involved in distribution / supply chain management?
- Packaging
- Inventory management
- Warehousing
- Transport
- Distribution channel selection
What is a retailer?
Retailer is the final step in the chain - deals directly with the customer.
- Focused on consumer markets.
What are the various kinds of retailer?
- Multiples - chains of shops owned by a single company (e.g. Sainsbury’s or Next)
- Specialist chains (e.g. fast fashion, perfume)
- Department stores (e.g. Debenhams, John Lewis)
- Convenience stores (e.g. Spar, Costcutter)
- Independents - a shop run by an owner.
- Franchises (retail format operated by franchisee)
Name the three types of distribution channels that exist
- Traditional
- Modern
- Direct
What is a traditional distribution channel?
Selling through wholesalers (long)
Producer -> wholesaler -> retailer -> consumer
- Many small retailers buy stock from wholesalers, as they do not purchase sufficient quantities to buy directly from producers.
- Wholesalers offer other benefits besides small quantities, such as advice, credit and delivery, although this can be expensive.
What is a modern distribution channel?
Selling through retailers.
Producer -> retailer -> consumer
- Major retailers such as Tesco purchase directly from manufacturers and arrange their own distribution.
- They can do this because they buy huge quantities of products and are able to negotiate large discounts that more than cover the costs of distribution.
- As a consequence, they can offer discounts to customers, enhancing their market position.
What is a direct distribution channel?
Selling directly to consumers (short)
Producer -> consumer
- This is a rapidly growing channel of distribution.
- It is attractive to many firms because it lowers the prices at which they can sell products to the consumer.
- Many small businesses have started to sell their products directly to customers using the internet.
Pros and cons of a direct distribution channel
PROS:
- No wholesaler or retailer involves therefore no ‘cut’ taken - full price (B2C price), meaning products can be sold at lower prices, increasing demand and sales.
- Often the quickest.
- Control over the way the product is distributed.
CONS:
- Postage costs.
- May need delivery service.
- Need to provide customer service in individual customers.
- Sales in smaller volume therefore higher distribution costs (multiple destinations).
- Smaller reach therefore high marketing costs.
Pros and cons of a modern distribution channel
PROS:
- Way to overcome high marketing costs as a retailer will have larger reach.
- Product will be well known as it is in multiple locations.
CONS:
- Won’t receive full price consumer pays (retailer margin)
- If there are lots of retailers, it will increase distribution costs.
Pros and cons of a traditional distribution channel
PROS:
- No contact with final customer (B2B only) = lower costs.
- Dealing with few customers and in large quantities.
- Less distribution/logistics costs
- Less risk.
CONS:
- Lower price (B2B price as each intermediary adds their mark-up)
- No control over the way the product is distributed (could damage the brand image).
- Less able to provide effective customer service.
What is multi-channel distribution?
Where businesses use more than one type of distribution channel.
- Consumers today expect to be able to access products and services in a variety of ways: in shops, online and click & collect.
Pros and cons of multi-channel distribution
PROS:
- Open 24/7
- Different prices for different channels (could also be a con)
- Increased brand awareness/visibility
- Access to customer feedback (extensions?)
CONS:
- Costs may be increased (shops + website)
- Lack of consistency of customer service
- PED < -1 increase? (customers get used to internet prices)
Name the factors influencing the choice of distribution
- The type of product
- Control over promotion and pricing
- Cost of distribution
- Customers’ expectations
- Geographical location
- The nature of the market
- The technical complexity of the product
Explain how the type of product can influence the choice of distribution channel
- Some products are difficult to transport because of their bulk, fragility or perishable nature.
- These are more likely to be distributed ‘direct’ to reduce delivery time.
- Producers selling large amounts of relatively low-priced products are more likely to use a wholesaler as it is expensive to store large amounts of products.
Explain how control over promotion and pricing can the influence choice of distribution
- A business may opt to use its own website or retail chain to control the way the product is sold, displayed, promoted and the price at which its sold
Explain how cost of distribution can influence the choice of distribution
- The more intermediaries involved in the chain of distribution, the more costs will be added as each business involved in the distribution of the product will add to the initial cost of producing the product.
- This will make the product more expensive.
Explain how customers’ expectations can influence the choice of distribution
- The way customers are expecting and willing to access the product: do they need to see, touch, try the product before purchasing?
- Do they expect to be able to buy it online?
Explain how geographical location can influence the choice of distribution
- A product sold internationally may require distribution through networks of wholesalers.
- By contrast a local business may simply require one retail outlet.
Explain how the nature of the market can influence the choice of distribution
- Businesses selling in dispersed markets usually require the services of wholesalers as they have the resources to supply in these circumstances.
Explain how the technical complexity of the product can influence the choice of distribution
- Technically complex products (such as laptops) are better distributed when the customer and the producer can easily contact each other to solve problems of installation or operation.
What is e-commerce?
The buying and selling of goods and services online.
Pros and cons of e-commerce
PROS:
- Reduces costs
- Reduces risk
- Larger amount of potential customers
- Open 24/7
- Range of payment options
CONS:
- High levels of competition
- Needs employees with skills in e-commerce
- Customers have to wait for products to be delivered.
What is m-commerce?
Buying and selling goods and services using a mobile phone.
Pros and cons of m-commerce
PROS:
- Convenient for busy customers.
- Easily integrate marketing and sales.
- Integrates well with traditional retail.
- Direct communication, e.g. push notifications.
CONS:
- Requires technological literacy.
- Fraud and security concerns.
- Competitors also using m-commerce.
- Needs to be responsive and easy to use.
What is digital marketing?
Digital marketing refers to any online marketing methods:
- email marketing
- pay-per-click advertising
- social media marketing
- blogging, etc.
Pros and cons of using digital marketing
PROS:
- Cheaper vs traditional marketing
- More targeted
- Marketing analytics
- Global reach
- Allows to personalise the message (using a customers’ name)
- Enables to suggest similar products (you may also like)
CONS:
- Privacy
- New costs… cloud
- Can’t touch product.
- Misses out customers who are not online or don’t use a device.
- Customers can opt out of Cookies and receiving marketing messages.
What is traditional marketing?
Traditional marketing comes in the form of newspapers, radio or TV advertising.
- The internet and e-commerce has meant that businesses are now using digital marketing instead.
What things does digital marketing include?
- Using the business’ own website
- SEO: search engine optimisation
- SMM: social media marketing
- PPC: pay per click
- Email marketing: customer data
- Influencer marketing: large audiences
What are the important values of digital marketing and e-commerce?
- Businesses can gather more detailed information about consumers and build relationships with them. This is illustrated by the way in which Amazon continually recommends products based on past shopping purchases.
- There is greater contact between consumer and business, allowing consumers to build their own products and give reviews of products or services purchased.
- Social media has also become very important and should not be underestimated from a business point of view. If a business can tap into social media with its marketing, this can be a very cost-effective way of boosting sales.
- Digital marketing makes it very easy for any business to set up and sell almost anywhere in the world.
What is promotion?
Promotion is the component of the marketing mix that attracts, informs and persuades customers about the product in order to sell that product.
What are the targets that promotion aims to achieve?
- To attract new customers and retain existing customers.
- To improve the position of the business in the market.
- To ensure the survival and growth of the business.
- To increase awareness of a product.
What is the promotional mix?
The combination (choice) of promotional methods/activities that a firm uses in order to create consumer awareness and generate sales by informing them of their products and to persuade them to buy these products.
Name all the key promotional methods in the promotional mix.
- Advertising
- Sales promotion
- Personal selling
- Merchandising
- Public relations (PR)
- Branding
- Packaging
- Exhibitions and trade fairs
- Social media
- Viral marketing
- Direct selling
- Sponsership
- Collaborations/influencers
Above and below the line marketing - what does this refer to?
Above the line marketing:
- The more traditional types of promotion such as TV ads, radio ads, and giant billboards are designed to reach a mass market.
Below the line marketing:
- The more niche promotional activities such as targeted online ads are designed to reach just the customers they want.
What is advertising?
A paid form of non-personal communication using mass media to change the attitudes and buying behaviour of consumers. It can be separated into two types:
- Informative advertising: this is designed to increase consumer awareness of a product by providing consumers with factual information. Such adverts centre on the prices and features of the products being advertised.
- Persuasive advertising: this attempts to get consumers to purchase a particular product by, for example, claiming that the product is better than the competition.
Pros and cons of advertising
PROS:
- Wide coverage
- Can be repeated to create brand awareness.
- Is expensive making it a barrier to entry for smaller businesses.
CONS:
- Usually very expensive.
- Lacks targeting.
What is sales promotions?
Short-term incentive (tactic) to increase sales which are special offers reducing the price of a product or service. Examples include:
- special offers
- ‘buy-one-get-one-free’ (BOGOFs)
- coupons
- vouchers
- free samples
- 3 for the price of 2, etc.
Pros and cons of sales promotions
PROS:
- Encourage customers to try out a product.
- Help reach sales targets
- Increase market share
- Only works if PED < -1
CONS:
- Customers may become unwilling to pay full price.
What is direct selling?
Promotional info directed by mail, text, social media, etc.
Pros and cons of direct selling
PROS:
- Focused on target market
- Can be personalised.
- Usually cheaper than advertising
CONS:
- Can be perceived as intrusive and junk mail.
What is personal selling?
Involves visits by a business’ sales representative to prospective customers.
- May be used more in business-to-business (B2B) selling when selling customised or made to measure products, technically sophisticated products or expensive products such as double glazing.
Pros and cons of personal selling
PROS:
- 1-2-1 service tailored made to customer - customer will feel valued.
- Enables customisation and negotiations.
CONS:
- Relatively expensive form of promotion as it requires paying sales staff and each staff can only visit a limited number of potential customers.
- Labour intensive = high costs
- May be intrusive.
- Low number of customers can be targeted.
What is social media promotion?
This form of marketing uses social media and social networks like Facebook, X platform (formerly Twitter) or Instagram to market products/services, engage with existing customers and reach new ones.
Pros and cons of social media promotion
PROS:
- Brand awareness
- Engagement
- Increased sales
- Communication
- Analytics
CONS:
- Other people using social media are allowed to comment under posts, e.g. sharing negative opinions about the business, which could lead to poor brand reputation, bad word-of-mouth promotion, etc.
What is public relations (PR)?
PR is communication through media (press, TV, YouTube, etc.)
- Promoting the business’ image to establish a favourable public attitude towards the company.
- It aims to improve the image of a business and its products in the expectations of increasing sales through sponsoring sporting or cultural events or making donations to worthwhile causes.
Pros and cons of public relations (PR)
PROS:
- Enhance the image of the product or business.
CONS:
- The communication isn’t always controlled by the business (e.g. bad reviews).
What is sponsorship?
Making a financial contribution towards an event.
What is merchandising?
This is in-store promotional activity by manufacturers or retailers at the point of sale.
- E.g. aisles or window displays.
- Merchandising can be very important when consumers make purchasing decisions at the point of sale and a variety of rival products are on display in stores - confectionary is an example.
Pros and cons of merchandising
PROS:
- Can be relatively cheap.
CONS:
- Not good at targeting specific groups of consumers.
What is packaging? (promotion)
Packaging emphasises the attractiveness of the product and informs the customers of its features.
- It also protects the good during its distribution to ensure that it reaches the consumer in perfect condition.
- It can also add value by making usage more convenient, e.g. a squeezable bottle of Ketchup rather than glass one.
How can packaging be a useful promotional method?
- Reflects the brand.
- Adds value.
- Premium packaging boosts sales.
- Makes products stand out.
What are exhibitions and trade fairs?
These are events staged to attract all those people involved in a particular market, both sellers and buyers.
- An example is the Motor Show held in Birmingham each year.
What is viral marketing?
This style of promotion relies on an audience to organically generate and push the message of a product/service.
- On social media, marketing is considered “viral” when it’s being shared rapidly by the public at large (with compounding effect) rather than just its target audience.
Pros and cons of viral marketing
PROS:
- If successful: cost effective, massive reach is possible, exponential growth.
- Enhanced brand awareness: sharing ‘indirectly’ endorses the brand.
- If the content is engaging leads to increased ‘brand interaction’: lead to increased trust levels and credibility.
CONS:
- Very uncertain outcomes: unpredictable therefore could be a huge waste of resources.
- If goes ‘viral’… control over how content is portrayed is lost: reputation issues -> damage brand.
- Often ‘short lived’ even in most successful campaigns: huge bursts of attention fades rapidly.
- Hard to replicate: not a long term strategy.
Define brand
A brand is a unique and recognised feature of a business or product such as name, shape, logo, colour, etc. It distinguishes the business from competitors.
What is branding?
Methods to increase customers’ recognition of a brand, e.g. name, logo, design, sign, colour, or slogan.
- This establishes an identity for a product that distinguishes it from the competition.
- If successfully done, it can allow higher prices to be charged and can extend the product’s life cycle by creating customer loyalty.
- It can create brand loyalty when consumers regularly purchase particular products and it can allow firms to charge higher prices.
What is the value of branding for a business?
- Brand loyalty and repeat sales.
- Can charge a higher price.
- New product launches are likely to be more successful.
- Easier to enter new markets.
- Act as barrier to entry (prevent new competitors coming in)
- Limits impact of economic down turn.
Features of strong branding
- Makes a product recognisable and provides a USP (charge premium price).
- Adds value to the product.
- Provides the business a competitive advantage.
- Builds trust and enables brand extension.
- Reduces price elasticity of demand.
- Means that less money needs to be spent on promotion: promoting the brand can increase sales of all products in a business’ portfolio.
- Can represent an intangible asset.
How does strong branding build trust and enable brand extension?
A strong brand means that consumers are familiar with or loyal to the brand and therefore more likely to be willing to try new products launched under that brand.
- It also means that new products under that brand name are more likely to be successful.
How does strong branding reduce price elasticity of demand?
As branding creates loyalty, consumers are less likely to swap to a substitute product even if one is available.
- This is because the branded product is perceived to be better than its competitors.
- This makes the consumer less sensitive to changes in price.
How does strong branding provide a business with a competitive advantage?
A strong brand is a way to differentiate a business’ product from those of its competitors.
- Leading to more sales, higher market share and profits.
How can strong branding represent an intangible asset?
A strong brand can add value to the ‘non-current assets’ of a business on its balance sheet meaning that a business can sell a product with a strong brand to another business for a large amount of money.
Name the influences on the choice of promotional mix
- The product’s position in its life cycle.
- The type of product.
- The finance available to the business.
- Where consumers make purchasing decisions.
- Competitors’ actions.
- Technology available.
How can the product’s position in its life cycle influence the choice of promotional mix?
- A newly launched product is likely to need heavy advertising to inform customers of its existence and the benefits it provides.
- For an established product, sales promotions may be used to persuade customers to buy it.
How can the type of product influence the choice of promotional mix?
- For expensive products and those where design is a major element, greater use will be made of exhibitions and trade fairs in the promotional mix.
- This element of the mix is important, for example, to firms selling homes and fashion products.
- Products with elastic PED benefit more from promotion.
How can the finance available to the business influence the choice of promotional mix?
- Firms with larger budgets may engage more in public relations and personal selling, as these methods of promotion are expensive.
How can where consumers make purchasing decisions influence the choice of promotional mix?
- For businesses that sell products that are purchased on impulse, often at the point of sale, merchandising and packaging may be particularly important.
- The attractiveness of the wrappers and the positioning of the product within shops may be vital.
How can competitors’ actions influence the choice of promotional mix?
- If a business’ rivals are engaging in heavy advertising or extensive sales promotions, it is likely that the business will respond similarly.
- This is more likely if the business trades in a market where there is relatively little product differentiation.
What is meant by ‘people’ in the marketing mix?
The people who make contact with customers in delivering the product.
- The staff who come into contact with customers during the purchasing process.
PEOPLE: examples of poor customer service (what annoys customers the most?)
- Long wait times
- Poorly trained staff
- Rude staff
- Not being active on all channels
- Slow response times
- Being passed around
- Automated things you get stuck in - bots / phone systems / etc.
If people do not meet customers expectations what might happen?
- Loss of reputation
- Bad reviews
- Negative word-of-mouth
- Low level of loyalty
- Low level of repeat purchases
- Sales and market share will fall
What should the key features involve of ‘people’? - marketing mix
The people involved with selling a service or a product are crucial and can make or break a sale, including telephone queries, to direct face-to-face interactions.
- A customer’s first impressions of a business are important and it is essential that the people offering advice or delivering the service are interested, helpful and polite.
- Employees should be well trained and motivated, as good customer service can enhance a business’ reputation, sometimes providing a USP and increased brand loyalty.
What is meant by ‘process’ in the marketing mix?
The systems and processes that deliver a product to a customer. It relates to the whole process of buying a product/service, from entering a business premises or going on a website to delivery of the product/service and the after-sales service offered.
- In store and online purchasing experience.
- How user friendly the website is.
- Order confirmation via emails, tracking, etc.
- Are products delivered on time?
The efficiency of the service can have a significant impact on the level of sales and revenue.
What is meant by the ‘physical environment’ in the marketing mix?
The elements of the physical environment the customer experiences - the quality of the premises that the customer needs to visit (cleanliness, decor, lighting, accessibility, etc.)
- It is important a business gives the right impression to consumers.
- The premises of a business selling a luxury product should be located in a more upmarket area and the decor should reflect the nature of the product.
- Is also relevant to the layout and structure of virtual stores, and websites.
How could the physical environment of a business affect air passengers?
Air passengers expect attractive and stimulating environments, such as interesting departure lounges, with activities for young children, etc.
How could the physical environment of a business affect hairdressing?
Hairdressing salons are expected to provide pleasant waiting areas, with attractive reading materials, access to coffee for customers, bright lighting, etc.
What is an integrated marketing mix?
An integrated marketing mix means that the individual elements complement each other to communicate a coherent message to customers.
How would a marketing mix for a premium product be constructed?
Product: high quality in terms of design, innovation, features or functions.
- Price: likely to be high (skimming) to reflect premium nature of the product.
- Place: outlets should reflect the quality or exclusivity of the product.
- Promotion: targeted at people who are likely to purchase the product.
- Physical environment: reflect the premium nature of the product.
- People: well-trained and motivated in order to deliver the customer service necessary for a more exclusive premium product.
- Process: consumers should find the whole process first-rate, from the decision to purchase to the delivery of the product or service.
Why is it important that a business has an integrated marketing mix?
If the marketing mix is inconsistent, consumers may be deterred from purchasing the product, thereby depressing sales and profits.
- In the case of a premium product, a low price might be a mistake as it may lead some consumers to think that the product is not of premium quality.
- Marketing mixes can be integrated in different ways depending on different factors.
- For example, easyJet and Rolls Royce have markedly different marketing mixes but both are integrated and therefore very successful.
Factors influencing the marketing mix for it to be integrated
- Position in the product life cycle
- The Boston matrix
- Type of product
- Marketing objectives
- The target market
- Competition
- Positioning
How can the position in the product life cycle influence the marketing mix for it to be integrated?
A firm may use ‘price skimming’ when launching a product onto the market (‘introduction’ phase) and then lower the price as sales start to increase (‘growth’ phase).
How can the Boston matrix influence the marketing mix for it to be integrated?
A firm may increase promotional spend on a ‘problem child’ to help it gain market share.
How can the type of product influence the marketing mix for it to be integrated?
A firm may invest in training shop assistants if the product has many tangible and augmented features.
How can marketing objectives influence the marketing mix for it to be integrated?
A firm with an objective to gain market share might use multi-channel distribution to reach as many customers as possible.
How can the target market influence the marketing mix for it to be integrated?
If the target market includes affluent customers with high disposable income a firm may ensure that the physical environment is attractive to this type of customers.
How can competition influence the marketing mix for it to be integrated?
A firm may respond to competitors’ actions by lowering prices or increasing promotional spend.
How can positioning influence the marketing mix for it to be integrated?
A firm may alter its product to be tailored more specifically to an identified target market or segment of the market.
