Unit 3.3 Flashcards
Confidence intervals
range of values, inside which we think our true value lies - sometimes called margin of error
- e.g. true average usage of toothpaste may be 2-3 times per day
Price elasticity of demand
responsiveness of customers to a change in price - for most goods, if prices rise then demand will fall, however for essential goods etc such as food, an increase in price will see demand stay the same
Use of PED data
helps set prices as business’s want to charge a price which will produce the greatest profit margins - called equilibrium or market clearing price
Elastic products
PED value greater than 1
Inelastic products
PED value between 0 and -1
Factors influencing PED data
- Brand strength
-Necessity e.g. fuel or food - Habit - addictions etc
- Availability of substitutes
Income elasticity of demand (YED)
Estimates how demand will change depending on changes to income
Income elasticity of demand (YED) - Normal (necessity) goods
demand increases when income increases - YED would be greater than 0
Income elasticity of demand (YED) - Inferior goods
demand decreases as income increases - YED less than 0 - generally cheap alternatives such as ‘Tesco’s own collection’
Types of price elasticity of demand - PED greater than 1
change in demand will be higher than the change in price - goods are price elastic
Types of price elasticity of demand - PED less than 1
change in demand will be lower than the change in price - goods are price inelastic
Types of price elasticity of demand - PED = 1
change in demand is the same as change in price - goods are unit elastic
Types of price elasticity of demand - PED = 0
change in price will not affect the demand for the product - goods are price inelastic
Perfectly elastic demand
when demand is perfect, total revenue falls to zero
Perfectly inelastic demand
When demand is perfectly inelastic, total revenue moves in the same direction by the same proportion
Income elasticity of demand is usually strongly positive for…
- fine wine and spirits
- sports and leisure facilities
Income elasticity of demand is lower for…
- mass transport - bus and rail etc
- Takeaway pizza etc
Segmentation
the process of dividing the whole market into smaller parts - enables the business to target their products at the right customers
Value of segmentation
- allows for the business to target consumers and thus maximise sales
- 4P’s = price, place, product, promotion
Targeting
way of identifying a group of people with similar characteristics - can them aim advertising at them
Positioning
to promote and advertise a product or service in a specific market segment - will educate the consumers about the features and benefits of the product’s
Segmentation - by demographic
could be gender specific or based on race and religious beliefs etc
Segmentation - Geographic
makes it easier for businesses to target regional markets - can be different country’s or areas such as rural or urban
Segmentation - Income
according to annual salary - establishing a groups disposable income is important so that products can be targeted to groups that can actually afford them etc.
Segmentation - Behavioural
lifestyle of the buyer etc - can include hobbies and interest’s etc
Mass Market
market that is aimed at the general population e.g. regular toothpaste
Niche Market
subset of the Mass market - addresses specialist needs e.g. sensitive toothpaste
Mass market characteristics
sold to all consumers in the same way - products can be sold on a global scale with just a few language tweaks e.g. Disney films
Mass market brands
very important in mass marketing - instils loyalty in customers - branding helps the business stand out from competitors
Pros of a Niche market
- can charge a premium price
- easier to target customers
- Less competition
Cons of a Niche market
- risky - demand may not be constant
- High unit cost so no economies of scale
Marketing 7P’s - Promotion
customer is found and persuaded to buy the product
Marketing 7P’s - Product
Product/Service a consumer buy’s
Marketing 7P’s - Price
How much a customer pays for a product
Marketing 7P’s - Process
systems that deliver’s a product to a customer
Marketing 7P’s - People
people who make contact with customers when delivering the product
Marketing 7P’s - Place
how the product is distributed to the consumer
Marketing 7P’s - Physical environment
element’s of the physical environment that the customer experiences
Product life cycle - Stage 1
Development
- product is designed and market research analysed
- all capital invested into the product - risky
Product life cycle - Stage 2
Introduction
- high cost’s in research and development
- sales are low as consumers are not aware of the product
- Advertising begins
Product life cycle - Stage 3
Growth
-Product’s enjoy rapid growth in sales and profit’s
- demand = high
- businesses may invest heavily into advertising at this point
Product life cycle - Stage 4
Maturity
- product begins to face intense competition as the market becomes saturated
- sales are high but profit begins to fall
Product life cycle - Stage 5
Decline
- Products may be limited in production - profit and sales have fallen and the product may be withdrawn from sale
- may heavily discount to promote sales
Product life cycle - Stage 6
Extension strategy
- Businesses can introduce measures to prolong the maturity phase of the product - this is when sales peak
Measures may include
- Updating packaging
- Investing into advertising
- adding new features
- price reduction
Boston Matrix - Cash Cow
Low market growth AND High market share
- will sell very well and little advertising is needed
Boston Matrix - Star Product
High market growth AND High market share
- this product has lot’s of potential
Boston Matrix - Question mark or problem child
High market growth AND Low market share
- needs investment into marketing etc for this product to succeed
Boston Matrix - Dog
Low market growth AND Low market share
- requires no investment as is in the decline phase of the product life cycle
Pros of the Boston Matrix
- Good starting point to review the portfolio
- informs marketing strategy and decisions
Cons of the Boston Matrix
- Products may not fit into the graph
- high market share doesn’t always lead to high profits
- Very Simplistic
Promotional mix - personal selling
- sales person act’s on behalf of the organisation - well trained however expensive in terms of wages and training
Promotional mix - Direct Marketing
Targeted through the mail/post - can be tailored to each customer
Promotional mix - Advertising (ATL and BTL)
ATL = above the line advertising = advertising to mass audience e.g. Tv adverts etc#
Pros = reaches large audience
Cons - Very expensive
BTL = below the line advertising = advertising to niche markets e.g. billboards and leaflets
Promotional mix - Sponsorships
Positive association of a product with a celebrity or sport - can be very expensive an it is difficult to tell the impact it has had in sales
Branding
the picture a customer paint’s of a business after seeing their products and advertising
Manufacturer / Corporate branding
aims to build communications and relationships between the business and the customers
Pros = Spreads awareness of the business across all of it’s brands (business’s can have many brands)
Cons = takes a long time to establish these relations
Product branding
aims to show the customer the benefit’s of a product and what differentiates it from other products in the same market
Pros = Branded products can command higher prices
Cons = May require a high investment and branding may take years to build up
Own brand products
made by a manufacturer on behalf of a supermarket
Pros = Boosts customer loyalty and fills gaps in the market
Cons = they can be poorer quality to the original which may damage sales
Cost Plus pricing Strategy
total cost of a product is calculated then a fixed percentage of profit is added on
Pros:
- Protects profit margins and is easy to apply
Cons:
- doesn’t take into account the pricing of the competition
Skimming pricing strategy
used when launching a new product - price is set high to start before being reduced as competitors enter the market
Pros:
- high starting price can establish an upmarket image and maximises profits made from buyers who ant the latest items etc and are willing to pay higher prices for them
Cons:
- Cheaper alternatives can take sales from the original
Competitive pricing strategy
Priced in line with competition - customers have to judge a product based on quality etc instead of price - Used when the market has lots of very similar products
Pros:
- encourages customers to shop at smaller businesses
Cons:
- May not cover all costs - smaller businesses cant take advantage of economies of scale
Penetration pricing
Setting the price low on a new product to encourage sales
Pros:
- encourages consumers to purchase the product
Cons:
- Expensive as it eats away at profits
Predatory pricing strategy
Businesses with monopolies may lower prices to prevent competitors from entering the market
Pros:
- drives competitors out of the market
Cons:
- depends on the price elasticity of the product
4 stage distribution
Manufacturer - Wholesaler - retailer - Consumer
Pros = manufacturers don’t have to invest into marketing etc
Cons = higher prices for consumers
3 stage distribution
Manufacturer- Retailer- Consumer
Pros = - easier for manufacturer to get products to the retailer
Cons = all responsibility regarding quality etc is on the retailer
2 stage distribution
Manufacturer- Consumer
Pros - Manufacturer could charge higher prices
Cons - More responsibility on the manufacturers
Influences on an integrated marketing mix - Position in the product life cycle
Developer focus on promotion during the introduction stage to attract more customers
Influences on an integrated marketing mix - The Boston matrix
Cash - cow businesses can focus on raising prices to maximise profit whereas Question mark products etc need a focus on marketing and alternative pricing strategies
Influences on an integrated marketing mix - Competition
Marketing activities change depending on the volume of competition within the market - highly competitive market = competitive marketing etc
Influences on an integrated marketing mix - Positioning
Products positioning in a market determines marketing activities etc also - High end brands have different marketing to cheaper goods etc
Advantages of being an E-Tailor
- larger range of products than a store
- can undercut competitors on price as they have less cost’s due to limited staff etc compared to a high street store - (Lower fixed costs)
-Potential to grow rapidly and reach a global marketplace
Disadvantages of being an E-Tailor
- Hard to establish trust with customers
- Only as strong as the distribution delivery time - if products arrive late then it might damage the reputation of the business
- Website costs can be high
Extended marketing mix - People
both inside and outside the business
Internal = recruiting right staff etc
External - Customers, suppliers etc
Extended marketing mix - Process
- Electronic processes = QR codes
- Technological Processes = ease of checkout in the website etc
- Direct processes = help customers choose the right product
- Indirect processes = customer helpline or warranty etc
Extended marketing mix - Physical evidence
What is experienced by the customer - includes the appearance of the shop as well as appearance of website and packaging
Integrated marketing mix
provides seamless experience for the customer - attempts to coordinate and combine the 7P’s
Digital marketing
using the internet to achieve marketing objectives
E-Commerce
business transactions conducted via the internet - E -Tailor sells goods directly through the internet
Primary market research methods
- Questionnaires
- Surveys
- Focus groups
- Observation
Secondary market research questions
- Business websites
- Commercial reports
- Newspaper/magazine articles
- Internet
- Gov reports
