Unit 3: Marketing, competition and the customer (Chap 10) Flashcards
What is the role of marketing?
- Identifying customer needs
- Satisfying customer needs
- Maintaining customer loyalty
- Building customer relationships
What is a customer base?
One of the most important roles of marketing which is to create a group of customers who the business can sell its products to.
Examples of items in consumer markets
Products sold to the final consumer - food items, televisions and cars
Examples of items in industrial markets
Products sold to other businesses for use in the production process - machinery and equipment
Why do consumer spending patterns change?
- The price of the product
- The price of competitors’ products
- Changes in consumer income
- Changes in population size and structure
- Changes in taste and fashion
- Spending on advertising and other promotional activities
The price of the product (notes)
- The higher a product’s price, the lower the quantity sold
- The lower the price, the greater the quantity sold
The price of competitors’ products (notes)
- Most businesses are in very competitive markets
- If the products of businesses are very similar then consumers are most likely to buy the product with the lowest price
Changes in consumer income (notes)
- Consumers can only buy products if they have the money to do so
- If consumer income falls, e.g. an employee loses their job, then they will have less money to spend
- Consumers will buy what they need, instead of goods that may be considered a luxury like mobile phones
Changes in population size and structure (notes)
- If a country’s population grows in size then this increases the size of the market
- Could increase business sales
- A country where there are fewer children being born but people are living for longer is called an ‘ageing’ population
- The sale of products for children will fall, but the sale of products for older people will rise
Changes in taste and fashion (notes)
- Products become more, or less, popular with changes in consumer tastes and fashion
- Some countries are more aware about healthy eating
- This increases the demand in these countries for healthier food and drink
Spending on advertising and other promotional activities (notes)
- Almost all businesses spend money on promoting their goods or services
- Most advertising and promotional activities are aimed at persuading consumers to buy their product instead of competitor products
- Advertising creates a brand image
- Consumers will often pay more for a product because of its brand image, rather than cheaper alternatives
What is the importance of changing customer needs?
- One of the purposes of marketing is to satisfy customer needs at a profit
- If a business is to survive in the long run, it has to respond to any change in customer needs
Who do some markets become more competitive?
- Government intervention in markets
- Growth of free trade between countries
- Development of e-commerce and social media networks
Government intervention in markets
Governments can affect competition in markets through:
- Legal controls that prevent individual firms from dominating the market
- Selling off public sector organisations to the private sector, known as privatisation
- Deregulation - the removal of government controls from an industry
- Providing financial and other assistance to new and small medium-sized businesses
Growth of free trade between countries
Regional free trade agreements remove or reduce barriers to trade between countries.
Development of e-commerce (selling goods online) and social media networks
- Many businesses have their own websites and use these to sell their goods to customers all over the world
- Development of e-commerce has increased the size of a business’s market but has also increased the level of competition to that market
- Businesses use Facebook to promote their products
How do businesses respond to changing spending patterns and increased competition?
- Product development
- Improve efficiency
- Increased promotion
- Look for new markets
Product development
- Market research will identify how the needs and wants of consumers are changing
- This can be used to develop new products to satisfy the changing needs and wants of consumers
- Developing products will help a business to remain competitive
Improving efficiency
- The efficient use of resources will help a business to reduce average costs
- If average costs are reduced, the price of products can reduce
- Decrease in price will increase sales
Increased promotion
- Increasing advertising to persuade consumers to buy your product, not the products of other competitors
- Buy-one-get-one-free
- Money-off coupons
Look for new markets
- Sometimes the competition or change in consumer’s spending is so large that a business has to look for new markets for its products
- Markets with less competition
- Markets where consumers are likely to buy the product
Notes on niche marketing
- Very small part of the whole market
- E.g. a business that specialises in supplying hand-tailored suits is part of the much larger market for men’s clothing
- NM identifies the needs of this small part of the market and then develops products to satisfy those needs
- Often high-priced and high-status goods like Rolex watches
- Some businesses may target niche markets where the product isn’t particularly high status or high priced, like wedding cakes
Notes on mass marketing
- Opposite to NM
- A business sells the same product to the whole market, e.g. flour
- Less popular than it used to be
- Most businesses now see the benefits of dividing the market and providing a slightly different product to each segment
- Consumers don’t all want the same product
- E.g. different flavours of toothpaste
Benefits of niche marketing
- Small firms are able to survive and earn profit even in markets that are dominated by larger firms
- Less competition
- Firms don’t waste scarce resources responding to competitor actions
- Consumers will usually pay more for a high-status, exclusive product
- This offers firms the opportunity to charge high prices and earn high profit margins
Limitations of niche marketing
- Opportunity to earn high profits might attract competitors, reducing prices and future profits
- Small size of the market means economies of scale are unlikely to be achieved
- Unit costs are higher than they would be if the product was sold to a mass market
Benefits of mass marketing
- Requires large-scale production
- Larger firms often benefit from economies of scale, which reduces unit costs
- A larger market has the potential for high sales and profits
- Changes in consumer spending patterns may have less effect on firms selling to a mass market
- This reduces the risk to firms who operate in mass markets
Limitations of mass marketing
- Much more competition in the market, lowering prices and profit margins
- Not all markets are large enough to support a mass marketing approach
- Consumers are often looking for something slightly different from that offered by same product mass marketing
- This had led to greater division of the whole market and reduced the scope for mass marketing
What are the main methods of market segmentation?
- Geographic segmentation
- Demographic segmentation
- Psychographic segmentation
Notes on geographic segmentation
Geographic segmentation recognises that consumers in one location may have different needs from consumers in another location. These locations may be:
- Different regions within the same country
- Different regions of the world
- Different countries in the world
The geographical differences may be due to cultural reasons, religious beliefs or different climates.
What are the factors of demographic segmentation?
- Age
- Gender
- Income
- Social class
- Ethnic background
- Family size
What are the benefits of segmentation to business? (Card 1)
- Goods and services can be designed to meet the specific needs of consumers in each segment, increasing sales
- Small firms which may not be able to compete in the whole market are able to operate in one or two segments, maybe a niche market
- Segmentation of the whole market sometimes identifies a segment of consumers who have very specialised needs that aren’t currently being satisfied, presenting an opportunity for niche marketing
What are the benefits of segmentation to business? (Card 2)
- Marketing strategies can be better targeted at each segment, reducing the waste of scarce resources
- May be possible to charge higher prices for very similar products in one segment than in another, known as price discrimination
- E.g. first class, business class and economy class
How do businesses choose a method of segmentation?
- No one correct method of market segmentation
- The method chosen will depend on the type of product or service that a business wants to offer to the market
- E.g. a holiday company might use demographic segmentation to divide its market for its products according to the family size of consumers
- Consumers with young children will most likely be looking for a completely different holiday from a retired married couple
