Unit 3 - Marketing Management Flashcards
What is a market?
anywhere where buyers and sellers meet
What is marketing?
the process of identifying, anticipating and meeting customer needs profitably
What is the purpose of marketing?
- anticipating demand (e.g. seasonality?)
- recognising demand
- stimulating demand
- satisfying demand
What is the market size?
measures the total sales generated by selling a product on a market
What is the formula for market size?
market size = (sales / market share) x 100
What is market share?
refers to the percentage of sales in a market, by one particular firm
What is the formula for market share?
market share = (total sales of business / total sales in whole market) x 100
What is the market share of a business with £488 million sales, with a market size of £1836 million?
market share = (488 million / 1836 million) x 100 = 27%
What is market growth?
the percentage change in volume or value of sales of a generic product over time
What is the formula for market growth?
market growth = (change in market size / original market size) x 100
What is a market leader?
- has the highest market share
- usually a high gap between market share of the leader compared to the market share of nearest competitor
What are marketing objectives?
- increase sales volume
- increase sales value
- growing market size
- market share growth
- brand loyalty
What is the value of setting marketing objectives?
- target setting helps focus the business
- objectives can help to motivate
- objectives can be used as an evaluation of performance
What is sales volume?
measures the number of items sold
What is sales value?
measures the financial worth of sales
What is sales growth?
the percentage change in volume or value of sales for a specific business
What is a brand?
a name, sign, symbol, design or slogan linked to a product in order to differentiate it from competitors
What is brand loyalty?
measures the degree of attachment a consumer has for a product/service/brand. Brand loyalty for one product will reduce the likelihood of the consumer switching to another brand
What is market research?
research carried out to identify the needs and wants of customers
What are the two types of market research?
- primary
- secondary
What is primary market research?
data collected for a specific purpose by a business
What are examples of primary market research?
- questionnaire
- interview
- focus group
- observation
What are the advantages of primary market research?
- directly focused on research objectives, making it fit for purpose
- generally more up to date than secondary
- provides more detailed insights
- competitors do not have access to it
What are the disadvantages of primary market research?
- time consuming
- often expensive
- risk of survey bias (research samples may not be representative of whole population)
What is secondary market research?
data that already exists and which has been collected for a different purpose
What are examples of secondary market research?
- census data
- books
- newspapers
- internet
What are the advantages of secondary market research?
- no extra cost
- access to multiple sources
- lower risk, as not collecting data, less likely to encounter errors that may impact business
- faster
- more in depth results
What are the disadvantages of secondary market research?
- decreased access to data, may not provide what is required, or the data needed may not exist
- not necessarily always up to date or relevant
- competitors have access to the same data
What are the two types of research?
- quantitative
- qulitative
What is quantitative research?
- relies on numerical/measurable data
- used to see a trend or connection
- produce objective data
- done through questionnaires and surveys
What is qualitative research?
- relies on non-numerical data
- varied interpretations
- subjective results are produced
- possible personal bias
- done through interviews and focus groups
What is sampling?
selecting a representative group of people from the target market
What are the advantages of sampling?
- quicker and easier than trying to collect data from every single person
- the larger the sample, the more representative the results will be
What are the 3 sampling techniques?
- stratified
- random
- quota
What is stratified sampling?
where different groups are equally represented
e.g. if half the population were female, then half of the sample is female
What is random sampling?
where it is completely random
e.g. every tenth person is picked
What is quota sampling?
splitting population into groups and sampling a given number of people from each group
What is correlation?
- occurs when there is a direct relationship between one factor and another
- can be positive or negative
What are confidence intervals?
- the margin of error for the research
- indicates how accurate the findings are
- if a confidence interval of 5 is used, and 70% of respondents gave a particular answer, then the researcher could be sure that between 65% and 75% of the population would give the same answer
What is the confidence interval affected by?
sample size
- smaller sample = greater margin for error and greater the confidence interval
What are confidence levels?
- an expression of how confident the researcher is in the data collected
- expressed as a percentage
- most commonly used confidence level is 95%
What is extrapolation?
- uses known data to predict future data
- the further into the future it goes, the more difficult and less confidence in the certainty of results
- extending the line
What is market mapping?
using a diagram to identify the position of all of the products in the market using two key features, such as price and quality
What does market mapping enable a business to do?
- identify the position of its product in the market relative to others
- to see where competition is most concentrated and whether there are any gaps in the market
What is market positioning?
shows the views of the consumer in terms of quality and image compared to rivals
What is product differentiation?
distinguishing a product/service from rival firms (USP, innovation, quality, service)
What are the advantages of market mapping?
- helps spot gaps in a market
- useful for analysing competitors
What are the disadvantages of market mapping?
- there is not always demand for the gap in the market
- depends on reliability of the market research
What influences the development of new products?
- technology
- competitors actions
- market research
- product differentiation
What is the value of technology in gathering and analysing data for marketing decision making?
- faster communication
- makes forecasting easier
- enables targeted sales messages
- but relies on business having correct data to start with
What factors affect demand?
- supply
- price
- competition
- seasonality
What is price elasticity of demand?
measures the extent to which the quantity demanded of a good changes in response to a change in price
What is the formula for price elasticity of demand?
PED = percentage change in quantity demanded / percentage change in price
What is the formula for percentage change?
percentage change = (difference / original) x 100
What are the two types of elasticity?
- inelastic
- elastic
What is price inelastic?
if demand for a product doesn’t change much with a change in price
What are examples of inelastic products?
- petrol
- diamonds
- cigarettes
- Apple iPhone (due to brand loyalty)
- water
- raw materials
- healthcare
- electricity
- gas
- milk
What are the characteristics of inelastic products?
- have few or no close substitutes
- necessities
- addictive
- usually bought infrequently
What does the graph for inelasticity look like?
vertical gradient, tilting towards the Y axis
(price on Y, demand on X)
What is price elastic?
if the demand for a product changes a lot with a change in price
What are examples of price elastic products?
- chocolate
- crisps
- brands of water
- jewellery
What are the characteristics of elastic products?
- many substitutes
- competitive markets
- luxury goods (high % of income)
What does the graph for elasticity look like?
horizontal gradient, towards Y axis
(price on Y, demand on X)
If PED is between 0 and 1, what is demand?
inelastic
If PED is more than 1, what is demand?
elastic
A 20% decrease in price of Mars leads to a 30% increase in demand. Work out the PED and state whether it is elastic or inelastic.
PED = % change in quantity demanded / % change in price
PED = 30 / 20 = 1.5 = elastic
A 10% increase in the price of Mars leads to a 30% decrease in demand. Work out the PED and state whether it is elastic or inelastic.
PED = % change in quantity demanded / % change in price
PED = 30 / 10 = 3 = elastic
A shoe company reduces the price of their shoes by 10%, leading to demand increasing by 5%. Work out the PED and state whether it is elastic or inelastic.
PED = % change in quantity demanded / % change in price
PED = 5 / 10 = 0.5 = inelastic
What happens if PED is 1?
where the percentage change in demand is equal to the percentage change in price
What factors affect PED?
- substitutes
- percentage of income
- luxury/necessity
- addictive
- time period
How do substitutes affect PED?
more substitutes, PED is more elastic
How does the percentage of income affect PED?
if the good takes a lot of a person’s income, then PED will be more elastic
How does luxury/necessity affect PED?
- luxury are more elastic
- necessities are more inelastic
How does addictiveness affect PED?
more addictive = more inelastic
How does the time period affect PED?
short term PED might be more elastic as there are fewer substitutes, but in the long term, more subs may be available, making PED more inelastic
What other factors affect PED?
- degree of product differentiation
- availability of substitutes
- branding and brand loyalty
Why is PED negative?
a fall in price usually leads to an increase in demand
an increase in price usually leads to a fall in demand
as a plus and a minus equals a minus, PED is usually negative
therefore we ignore the minus
What is income elasticity of demand?
measures the responsiveness of quantity demanded given a change in income
What is the formula for YED?
YED = percentage change in quantity demanded / percentage change in income
If YED is between 0 and 1, what is the demand?
inelastic
If YED is more than 1, what is demand?
elastic
What happens to inferior goods as income increases?
demand decreases, and YED is less than 0
What happens to normal necessity goods as income increases?
demand increases, and YED is between 0 and 1
What happens to normal luxury goods as income increases?
even bigger increase in demand, and YED is more than 1
What happens is YED is 0
a unitary elastic good has a change in demand which is equal to the change in income
What type of good is it if the YED is a positive (+)?
normal good
What type of good is it if the YED is a negative (-)?
inferior good
A 20% increase in income leads to a 45% decrease in demand. Calculate the YED and state what type of good it is.
YED = % change in quantity demanded / % change in income
YED = 45 / 20 = -2.25 = inferior
A 10% increase in income leads to a 15% increase in demand. Calculate the YED and state what type of good it is.
YED = % change in quantity demanded / % change in income
YED = 15 / 10 = 1.5 = normal luxury
A 4% increase in demand is a result of a 15% increase in income. Calculate the YED and state what type of good it is.
YED = % change in quantity demanded / % change in income
YED = 4 / 15 = 0.26 = normal necessity
A 5% increase in income results in demand increasing from 25,000 to 450,000. Calculate the YED and state what type of good it is.
% change = (difference / original) x 100
difference = 450,000 - 25,000 = 425,000
% change = ( 425,000 / 25,000) x 100 = 17
YED = % change in quantity demanded / % change in income
YED = 17 / 5 = 3.4 = normal luxury
Income increases from £20,000 to £30,000, resulting in a decrease in demand from 100 to 60. Calculate the YED and state what type of good it is.
% change = (difference / original) x 100
difference = new - original
% change income = (10,000 / 20,000) x 100 = 50%
% change in demand = (-40 / 100) x 100 = 40%
YED = % change in quantity demanded / % change in income
YED = -40 / 50 = -0.8 = inferior (and inelastic)
Income increases from £20,000 to £25,000. Quantity demanded increases from 12 to 21. Calculate YED and state what type of good it is.
% change = (difference / original) x 100
difference = new - original
% change income = (5,000 / 20,000) x 100 = 25%
% change demand = (9 / 12) x 100 = 75%
YED = % change in quantity demanded / % change in income
YED = 75 / 25 = 3 = normal luxury
(as income increases demand increases)
What factors affect YED?
- necessities
- demand will be income inelastic
- luxuries
- demand will be income elastic
These are figures for Product X:
PED = 4.0
YED = +0.6
Is PED/YED elastic or inelastic and necessity or not/luxury?
What does this tell you about the product?
What type of product could it be?
What marketing strategies could be used for this product?
PED = very elastic, not a necessity
YED = inelastic, necessity
- competitive market
- lots of substitutes
- people buy regardless of their income
e.g. cereal
marketing strategies:
- short term
- reduce price to increase sales (depends on profit margins)
- change product image or re-brand
- long term
- reposition product to appeal to high income sectors
These are figures for Product Y:
PED = 0.3
YED = +2.5
Is PED/YED elastic or inelastic and necessity or not/luxury?
What does this tell you about the product?
What type of product could it be?
What marketing strategies could be used for this product?
PED = inelastic, necessity or few close substitutes
YED = elastic (high), luxury
- few substitutes
- consumers who can afford high prices
e.g. iPhone
marketing strategies:
- short term
- increase price, as will only be a small fall in demand
- long term
- maintain high prices, as will generate high profits
- protect product from competitors
What are the difficulties in using PED and YED?
- consumer tastes change quickly, so may not be accurate for the future
- new competitors enter the market
- technological advancements have an influence on the market
What is a consumer?
end user of the product
What is a customer?
the person buying the product
What is market segmentation?
the process of splitting buyers into groups who have similar buying habits
What are the 4 groupings of market segments?
- geographic
- behavioural
- demographic
- income
What is behavioral segmentation?
considers factors such as when people buy and why people buy
e.g. Christmas, or birthdays
What is geographic segmentation?
considers factors such as location (continent > post code), language, climate and season
e.g. hot climate
What is demographic segmentation?
considers factors such as age, gender, marital status, religion, nationality
e.g. young adults
What is income segmentation?
considers the amount of income of a person
e.g. purchase of a sports car
What are other segments?
- gym goers
- car enthusiasts
- smokers
- football fans
- university students
What is ACORN?
a system that categorises UK post codes by examining the income and lifestyle of consumers
What is the process of STP?
- segment
- target
- position
What is segmentation?
divide the market into groups with similar needs
What is targeting?
decide which segment to focus on and appeal to the group
What is positioning?
position the product in customers’ minds as better than the competition
What are the benefits of market segmentation?
- customers’ needs are matched and met
- therefore likely to purchase the product, thereby increasing sales and so profits
- increased customer retention
- targeted marketing
- promoting products using methods appropriate to the target market
- increased market share
- so will have more customers and sales and so profits
What are the limitations of market segmentation?
- businesses need to ensure they do not exclude customers by taking segmentation too far
- it is becoming increasingly difficult to categorise customers and their behaviour
- due to variety of options available in each market, and trends changing quickly
- too much segmentation could mean sales are lost
What are the two types of market?
- mass
- niche
What is a mass market?
where products are aimed at the largest part of the market
What is a niche market?
specifically targets a small group of customers within a larger market, who share the same characteristics
What are examples of products in a mass market?
- electricity
- soap
What are examples of products in a niche market?
- vegan face wash
- eco-friendly products
What are the advantages of being in a mass market?
- lots of customers to sell to
- benefit from economies of scale
What are the disadvantages of being in a mass market?
- lots of competition, so cannot easily increase prices
- advertising to a large, diverse group isn’t easy
What are the advantages of being in a niche market?
- low levels of competition, so could increase price
- business has a clear focus
What are the disadvantages of being in a niche market?
- dependent on a small group of customers = risk
- lack economies of scale, potential increased costs
- likely to attract competition
What is a marketing strategy?
a set of plans to achieve a marketing objective
What is the marketing mix / 7Ps?
a combination of factors that can be controlled by a company to influence consumers to purchase its products
What are the factors in the marketing mix / 7Ps?
- product
- price
- promotion
- place
- people
- process
- physical evidence
What is the product factor?
- product life cycle
- Boston Matrix
What is the product life cycle?
describes the stages of the product’s life
Draw the product life cycle, with labels.
See flashcards with pic on.
What are the stages of the product life cycle?
- introduction
- growth
- maturity
- decline
- extension strategy
What is the introduction stage?
when a product is being introduced into the market
What are sales like in the introduction stage?
low but fast because demand is low but growing as the product is new
What are costs like in the introduction stage?
marketing and research and development costs are high, so usually no profit
What is the growth stage?
when the popularity of a product increases
What are sales like in the growth stage?
start to rise
What are costs like in the growth stage?
costs start decreasing due to use of economies of scale
What is the maturity stage?
when a product is firmly positioned in the market and continues to be popular
What are sales like in the maturity stage?
still increasing but at a slower rate
What are costs like in the maturity stage?
low due to economies of scale
What are profits like in the maturity stage?
at their highest
What is the decline stage?
- when a product becomes less popular and fewer people buy it
- the product can start to lose money and eventually be withdrawn
What are sales like in the decline stage?
sales decrease as demand decreases/shrinks
What are costs like in the decline stage?
only production costs exist, as no new marketing etc
What is the extension strategy stage?
when a business tries to lengthen the life of a product either through promotion or improving the product
What is different about each product’s life cycle?
- products pass through the stages at different speeds
- some products will sell for much longer than others e.g. milk, bread compared to loom bands
What are the different sorts of goods?
- convenience goods
- shopping goods
- specialty goods
What are convenience goods?
- impulse purchases
- no loyalty
- price elastic
What is an example of a convenience good?
chewing gum
What are shopping goods?
- consumers will shop around
- comparisons of different brands etc
- brand and price are somewhat important to the decision
- susceptible to promotion techniques
What is an example of a shopping good?
trainers
What are specialty goods?
- long time to make a decision to buy
- the people involved in the transaction are important
- consumers willing to travel far
- physical environment is important (7Ps)
What is an example of a specialty good?
a car
What are the advantages of a product life cycle?
- useful if business has wide product range
- helpful when making decisions about where funds should be allocated
What are the disadvantages of a product life cycle?
- doesn’t provide any clear solutions for business
- is a tracker of progress, not a forecast
What is the Boston Matrix?
a grid which categorises a business’ products according to their market share and market growth
What does the Boston Matrix allow businesses to do?
undertake product portfolio analysis based on the product’s market growth rate and market share
What are the sections of the Boston Matrix?
- star
- problem child
- cash cow
- dog
Draw the Boston Matrix.
See flashcard with pic on.
What is a star product?
- fairly new and successful products
- sales are from product trials
- often in growth stage so need investment
- market leaders
- fast growth
- high market share
- high market growth
What is an example of a star product?
Nescafé
What is a problem child product?
- low percentage market share in a fast growing market = has potential for the future, if can increase market share
- pose problems for the business
- poor profit margins
- high demand for cash
- low market share
- high market growth
What is an example of a problem child product?
Kit Kat
What is a cash cow product?
- established products = no need for heavy promotion
- high customer loyalty
- repeat purchases
- in maturity stage
- use profits from cash cow to support other products
- generate more cash than needed to maintain market share
- low market growth
- high market share
What is an example of a cash cow product?
Coca Cola
What are dog products?
- unsuccessful products
- in decline
- should be withdrawn or extension strategy implemented
- low market growth
- low market share
What is an example of a dog product?
Milo
How does the Boston Matrix benefit a business?
- able to identify opportunities within the market
- which products offer the most potential
- which products could be dropped
- allocating resources
- how best to spend money
- which products will do well
- which products could benefit from investment
- how best to spend money
What are the disadvantages of the Boston Matrix?
- doesn’t offer accurate insights into markets
- ignoring other factors that may influence the success of products
- doesn’t take into account changes in demand
What are the influences on and value of new product development?
design mix
What is the design mix?
a combination of function, cost and aesthetics considered when developing a new product
How does the design mix change for different products?
different products will focus on different parts of the design mix depending on the target market
e.g. cars
- function = car designed for families
- aesthetic = sports car
- cost = small car
What is the definition of pricing strategy?
an approach businesses use to determine what prices they should charge for their products/services
What are the two types of pricing strategy?
(for new products)
- penetration
- skimming
What is price penetration?
when you set a low price to begin with and then increase the price once you have loyal customers and high market share
When is price penetration used?
- used on products that face lots of competition
- mass market products
- e.g. chocolate bar
What is the goal of price penetration?
attract a large number of customers with limited budgets
What is the target audience of price penetration?
price sensitive customers
What are the advantages of using price penetration?
- could raise brand awareness due to low prices
- quick way to gain market share
- benefit form economies of scale
- over time the prices increase, making the product more profitable
What are the disadvantages of using price penetration?
- selling at a loss at the beginning
- risky as customers may already be loyal to another brand, so may not switch
- might start a price war with competitors
- may be seen as lower quality, unless it is a well known brand
What is price skimming?
when you set a high price to begin with and then lower the price over time
When is price skimming used?
- used on products such as electronics
- innovative products
- e.g. Apple iPhone
What is the goal of price skimming?
maximise revenue from customers with high budgets
What is the target audience for price skimming?
early adopters (people who buy products as soon as they come out)
What are the advantages of price skimming?
- increased profit, can enable more research and development
- consumers who wait will benefit from lower prices
- high price can help recoup investment costs
- those that are loyal to the brand and want the new product immediately will pay the higher price > increased profit
What are the disadvantages of price skimming?
- consumers who pay a high price may feel ripped off
- could lose market share if the price is too high
- requires a degree of monopoly power
- if the business is known for price skimming, customers may just wait for the price to decrease, so business may not benefit
What is dynamic pricing?
applied to products where the price can fluctuate depending on demand
What are examples of products with dynamic pricing?
- hotel rooms
- plane tickets
What influences pricing strategy?
- costs
- USP that makes the product inelastic
- the stage in the product life cycle
- number of competitors
- brand image
- target market
What is branding?
creating an identity for your product which customers see as different from other products
How can a business create a powerful brand?
- colour
- product shape/size
- celebrity endorsement
- tagline/slogan
- theme tune
- packaging
- sponsorship
How does colour affect branding?
- increases brand recognition
- colour ads read up to 42% more than similar black and white ads
- can be up to 85% of the reason why people buy
What are the advantages of having a strong brand?
- can charge premium prices
- increase customer loyalty
- USP
- makes business stand out
- reduced price elasticity of products
What is promotion?
refers to raising awareness and desire for a product
What methods of promotion are there?
- advertising
- public relations
- sponsorship
- social media
- celebrity endorsement
- guerrilla marketing
- personal selling
- digital marketing
How can social media be used for advertising?
- free advertising
- paid advertising
- targeted advertising (cookies)
What is above the line promotion?
- using media to promote products
- TV
- radio
- posters
- internet
- direct marketing
- newspapers
- cinema
What is below the line promotion?
- using small scale promotion
- targeted at individuals
- free gifts
- coupons
- loyalty cards
- exhibitions
- sponsorship (except TV sport event, then it is above the line)
What is celebrity endorsement?
a marketing strategy that uses a celebrity’s fame and image to promote a brand or product
What are the benefits of celebrity endorsement?
- consumers are more likely to trust a product, builds credibility
- makes brand/product stand out
- opens up to new markets
What are the drawbacks of celebrity endorsement?
- celebrity images change
- if becomes negative, then reflects badly on brand/product
- may overshadow the brand
- expensive
What is public relations (PR)?
refers to development and maintenance of positive relationships between a business and the public
What is an example of PR?
- open days for schools
- awards celebrations
What are the benefits of PR?
- able to reach a large audience
- maintaining brand image
What are the drawbacks of PR?
- no direct control
- lack of guaranteed results
- difficult to evaluate effectiveness
What is sponsorship?
businesses can gain publicity by financially supporting an event or person
What is guerrilla marketing?
- a business’ use of images and artwork to incorporate their brand or product into every day life
- low cost
- creative
- unconventional method of promotion
- more appealing than TV advert
What is personal selling?
- involves interpersonal contact between the buyers and seller
- aim of encouraging the buyers to purchase the product
What is distribution (place)?
refers to making products/services available to customers where and when they need it
How are products/services distributed?
- through retailing (selling in person)
- through e-tailing (online)
What are wholesalers?
- buy in large quantities from producers
- break products into smaller quantities to sell to retailers
- reduce producer’s transport costs
What is a channel of distribution?
the path a product takes from producer to the consumer
What are the 4 channels of distribution?
- manufacturer > consumer
- manufacturer > retailer > consumer
- manufacturer > wholesaler > retailer > consumer
- manufacturer > agent > wholesaler > retailer > consumer
What factors influence distribution?
- type of product
- services are directly to consumers
- exclusive businesses choose outlets carefully
- speed
- whether the products are perishable, and so would need to get to the consumer quickly
- distance
- cost
What are the 3 types of distribution?
- direct
- modern
- traditional
What is direct distribution?
manufacture > consumer
What are the advantages of direct distribution?
- manufacturer can control distribution of their products
- manufacturer in control of the price charged
What are the disadvantages of direct distribution?
- can become increasingly difficult to sell to a large number of customers
What is modern distribution?
manufacturer > retailer > consumer
What are the advantages of modern distribution?
- intermediaries (retailer) makes it easier for producers to distribute their products more widely
- more convenient for customers to buy the product
What are the disadvantages of modern distribution?
- poor customer service of retailers could limit sales
- cause higher prices for the customer as the intermediaries must also make a profit
What is traditional distribution?
manufacturer > wholesaler > retailer > consumer
What are the advantages of traditional distribution?
- customers can try on products
- can have displays to attract customers
- retailers can benefit from economies of scale by buying from wholesalers
- help and advice on the spot
- enjoy experience of shopping
What are the disadvantages of traditional distribution?
- costs of running premises
- increased competition due to online at cheaper price
- cost and time to train staff
What are the benefits of online distribution?
- lower cost due to not needing shopfront
- do need a large space but can be anywhere
- always open
- access to wider markets around the world
- convenient
What are the drawbacks of online distribution?
- cost of warehouse
- cost of website
- website can crash
- not everyone has access to website
- concerns about fraud
- shipping/delivery times vs. instant
- consumers cannot see the product, resulting in more returns
What is the people aspect of the marketing mix (7Ps)?
- refers to employees
- may require people that know the product/service well as they can convey the benefits to the customer
- attitude, skills and appearance of sales personnel can influence customer satisfaction
What is the process aspect of the marketing mix?
- businesses need to take into consideration new technology and stay up to date with current trends
- technology enabled buying experience o become easier and quicker for customers
e.g. ordering online, flexible delivery
What is the physical environment aspect of the marketing mix?
- factors that help shape customers’ perception and image of service provided
e.g. colour of store, lighting used, music used, tone of voice/language of staff
