Unit 3: Marketing, competition and the customer (Chap 10)

Question 1

What is the role of marketing?

Answer 1

• Identifying customer needs
• Satisfying customer needs
• Maintaining customer loyalty
• Building customer relationships

Question 2

What is a customer base?

Answer 2

One of the most important roles of marketing which is to create a group of customers who the business can sell its products to.

Question 3

Examples of items in consumer markets

Answer 3

Products sold to the final consumer - food items, televisions and cars

Question 4

Examples of items in industrial markets

Answer 4

Products sold to other businesses for use in the production process - machinery and equipment

Question 5

Why do consumer spending patterns change?

Answer 5

• 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

Question 6

The price of the product (notes)

Answer 6

• The higher a product’s price, the lower the quantity sold
• The lower the price, the greater the quantity sold

Question 7

The price of competitors’ products (notes)

Answer 7

• 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

Question 8

Changes in consumer income (notes)

Answer 8

• 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

Question 9

Changes in population size and structure (notes)

Answer 9

• 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

Question 10

Changes in taste and fashion (notes)

Answer 10

• 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

Question 11

Spending on advertising and other promotional activities (notes)

Answer 11

• 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

Question 12

What is the importance of changing customer needs?

Answer 12

• 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

Question 13

Who do some markets become more competitive?

Answer 13

• Government intervention in markets
• Growth of free trade between countries
• Development of e-commerce and social media networks

Question 14

Government intervention in markets

Answer 14

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

Question 15

Growth of free trade between countries

Answer 15

Regional free trade agreements remove or reduce barriers to trade between countries.

Question 16

Development of e-commerce (selling goods online) and social media networks

Answer 16

• 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

Question 17

How do businesses respond to changing spending patterns and increased competition?

Answer 17

• Product development
• Improve efficiency
• Increased promotion
• Look for new markets

Question 18

Product development

Answer 18

• 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

Question 19

Improving efficiency

Answer 19

• 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

Question 20

Increased promotion

Answer 20

• Increasing advertising to persuade consumers to buy your product, not the products of other competitors
• Buy-one-get-one-free
• Money-off coupons

Question 21

Look for new markets

Answer 21

• 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

Question 22

Notes on niche marketing

Answer 22

• 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

Question 23

Notes on mass marketing

Answer 23

• 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

Question 24

Benefits of niche marketing

Answer 24

• 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

Question 25

Limitations of niche marketing

Answer 25

• 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

Question 26

Benefits of mass marketing

Answer 26

• 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

Question 27

Limitations of mass marketing

Answer 27

• 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

Question 28

What are the main methods of market segmentation?

Answer 28

• Geographic segmentation
• Demographic segmentation
• Psychographic segmentation

Question 29

Notes on geographic segmentation

Answer 29

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.

Question 30

What are the factors of demographic segmentation?

Answer 30

• Age
• Gender
• Income
• Social class
• Ethnic background
• Family size

Question 31

What are the benefits of segmentation to business? (Card 1)

Answer 31

• 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

Question 32

What are the benefits of segmentation to business? (Card 2)

Answer 32

• 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

Question 33

How do businesses choose a method of segmentation?

Answer 33

• 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