1 Marketing
Marketing is much more than selling or advertising. Marketing is a process which identifies, anticipates and supplies customer requirements efficiently and profitably (CIM)
1.1 Market Definitions
1.1.1 What is a market?
1.1.2 How are markets
classified?
A market is made up of all those rival products (good or service) that can be used to satisfy a specific customer need. A market has
• Actual or potential customers willing and able to buy a product that satisfies a given consumer want or need
• Businesses willing and able to supply a product that satisfies a given consumer want or need
•
•
Consumer markets are where products are bought for personal consumption while
Industrial markets are where products are bought for use in the business or for resale to other customers.
Q: Is Coca Cola in the
cola, carbonated drinks,
or all portable liquids
market?
A: carbonated drinks
1.1.3 What is the
exchange process?
Consumers trade money for a product. Ideally the exchange process between a firm and its customers is mutually beneficial:
• Firms sell a good and earn sufficient profit to continue and, ideally, fund growth
• Consumers buy a product to satisfy a want or a need. If they receive excellent value for money, compared to rival products,
they are delighted. Delighted consumers generate repeat business and additional word of mouth sales.
1.1.4 Define marketing
There is no one agreed definition of marketing. However, the Chartered Institute of Marketing definition is widely used: marketing is
The management process which identifies, anticipates and supplies customer requirements efficiently and profitably. Hence:
• Marketing is a management process ie marketing activity is coordinated by a group of staff responsible for outcomes
• Marketing is concerned with identifying customer wants ie the firm needs to find out through market research what products
are bought; how they are bought; by whom they are bought; and why they are bought
• Marketing is about anticipating customer wants. Consumers may not yet know what they want. Marketing tries to foresee new
consumer needs and offer matching new products eg an innovative film, The Matrix, or the Sony Walkman.
• Marketing is about satisfying customer requirements. Consumers buy a product to satisfy a want or a need. The organisation
can ensure that the customer comes back by offering excellent value for money, compared to rival products. Delighted
consumers generate the firm repeat business and additional word of mouth sales.
• Marketing is about profitability. There is little point in offering a product at a price that does not generate sufficient profits to
reward owners and enable investment for growth. Similarly consumers must profit from exchange and become repeat
customers if the firm is to survive in the long run.
Marketing is more than
selling or advertising
Marketing definitions
include: The creation or
identification of a need,
its satisfaction (at a
profit) and its
regeneration
Getting the right products
to right customers at the
right time & in the right
place
1.1.5 What is the role of
marketing?
The marketing department is responsible for collecting and analysing information about customers, competitors and markets. It
advises the firm on potential market opportunities, customer requirements, pricing options, products and appropriate promotion
activities. Marketing is the department that:
• Links an organisation with its actual and potential customers.
• Is responsible for matching the strengths and core competencies of the firm with the needs of customers, ie identifying
products customers want and that the firm can produce at a profit.
• ‘Sets the pace’ for a proactive (forward thinking) organisation by setting targets for what needs to be produced and when.
Business success depends
on identifying and
meeting customer needs
profitably.
1.2 Orientation
1.2.1 What are core
competencies?
Each successful business has its own abilities and strengths, ie core competencies or capabilities, in producing a given product. Core
competencies can stem from the way in which the firm uses its resources, staff experience and expertise; the product range and
image; R&D resulting in innovative products; its distribution network, etc.
1.2.2 Explain competitive
advantage
A firm has a competitive advantage if it can offer a better product than its rivals in terms of price, functionality, quality, after sales ie
overall value for money. Firms achieve competitive advantage by capitalising on strengths - and minimizing or avoiding weaknesses
1.2.3 What is a marketing
orientation?
Orientating or attitude means ‘a way of looking at things’. Marketing orientation is the way in which firms view customers. There are
three potential orientations
•
Market orientation: outward looking firms research customer requirements and make what they can sell
•
•
Product orientation: inward looking firms use their own understanding of customer needs and try to sell what they make
Asset led orientation where firms make products they can sell that match their own strengths and core competencies
1.2.4 Explain product
orientation?
Product orientation is where inward looking firms try to sell what they make. Such firms believe they know what consumers want
and assume that customers merely want a better quality version of the same product. Such firms believe that if they produce high
quality products they will sell. Product orientated firms place heavy emphasis on controlling costs and R&D to improve products.
1.2.5 What is a consumer
orientation?
Consumer orientation is where outward looking firms only make what they can sell. They identify customer needs and then
developing products that deliver what the customer wants; customer needs come first. Consumer orientated firms place great reliance
on market research to identify customer requirements. Customer needs drive product development.
1.2.6 How do business
functions contribute to
marketing??
In a consumer orientated firm business activities are co-ordinated around meeting the needs of the customer –all departments have a
role to play in marketing.
•
Marketing identifies customers’ needs through market research, identifies target markets; the best product, price,
promotion and place mix to meet objectives and monitors customer response and competitor behaviour.
•
Production ensure the right quantity of goods are produced at the right time and to the right quality for the customer;
Develop new or improve existing products that best meet customers’ needs develops new or refines existing products to meet
those needs
•
Finance & Accounts: control costs, credit purchasing and accounting functions
•
HRM ensure the firm has the right mix of worker and management skills to serve the customers’ needs
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Is a printer necessarily as
highly capable in book
design?
What can be marketed
needs to be determined
before production.
Eg pharmaceutical & high
tech industries eg Intel?
Some firms do not have a
separate marketing
department – marketing
is a shared responsibility
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1.2.7 How can marketing
and other departments
objectives diverge?
1.2.8 What internal and
external constraints limit
marketing activity?
The Marketing Department is just one function of the business and does not operate in isolation.
•
Finance & Accounts Finance expects marketing to stay within a budget over the financial year. Marketing may want to
exceed budget to respond to unexpected fast-changing needs; Finance may want price to cover costs and make a profit in the
short and long run. Marketing may urge a penetration or contribution price tactics to develop a market arguing long term
profits justify short term losses; Finance are cautious in extending credit while marketing may want to use generous credit
terms as a marketing tool
•
Production: must ensure it has the capacity to produce and deliver the right product at the right price to the right place. If
output is late or fails to work correctly marketing effort is undermined. Eg Xbox. When developing new products, operations
prefer long lead-time to ensure the product is tried and tested before launch. Marketing want the new product launched as
soon as possible to achieve market leadership and associated first mover advantage.
•
HRM ensure the firm has the right mix of worker and management skills to serve the customers’ needs
Internal constraints within control of the business include:
External constraints beyond the control of the firm include:
•
Core competencies – what products can it produce at
lower cost and higher quality than rivals?
•
Competitors activities –eg new or improved
competitor products; change in rival’s marketing mix
•
Information – are decisions based on reliable, relevant,
up to date and complete data
Budget and resources – does the firm have the financial
and human resources
Time – how long before a course of action has an effect?
•
Economic conditions - eg world recession, a strong
pound or low inflation
•
Social changes and fashion trends eg an ageing
population or a movement in consumer taste
•
Technological eg new inventions that enable new
products and manufacturing process lower unit costs
•
Political & Legal eg new laws restricting sponsorship
•
•
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1.3 Market Segmentation
What are market
segments?
A market segment is a distinct section of the total market made up of customers with similar needs. Eg the car market is made of sub
markets such as family saloon, sports and people carriers.
Why not just offer one
product to all customers?
Not all customers are alike. Offering customers the same product when they have differing needs leaves some less than well satisfied.
The solution is to divide one mass market into smaller groups (segments) made up of customers sharing similar needs and then offer
different products tailored to the specific needs of these group. An item offered to each segment has its own marketing mix.
What is the market
segmentation process?
Market segmentation is two stage process. Identification a total market is broken down into various sub markets made up of groups
of customers (segments) having identifiably distinct product needs. Targeting each segment is offered a good or a service with its
own distinctive marketing mix
1.3.1 How are markets
segmented?
Segmentation divides up a market into groups of customers with shared characteristics. Segmentation bases (methods) include:
1.3.2 Why is segmentation
important
•
Geographic: by region eg ACORN groups consumers by the type of dwelling they occupy eg suburb
•
Demographic: by age, gender, etc. Family life stage segments markets into bachelors, newly married, & empty nesters
•
Psychographic methods segment by lifestyle, social class, beliefs eg by occupation: professional C2 skilled manual, etc
Competitive firms offer a
better product at a lower
price than rivals.
In practice firms make
use of more than one
base for segmentation.
Segmentation allows firms to
•
Create competitive advantage tailored products better meet the specific needs of a sub group than a one-size-fits-all
offering from a rival.
•
Identify marketing opportunities ie ‘unfilled’, profitable gaps in the market
•
Develop new products or improve existing products to meet the distinct needs of sub groups of customer exactly
•
Prioritise. Few companies have the resources to target all segments in a market. Segmentation allows firms to just focus on
those sub markets that offer the best opportunity of meeting objectives eg growth or profit.
•
Target each segment with its own distinctive marketing mix to enable competitive advantage
1.3.3 What are targeting
strategies?
An organization can opt for one of three targeting strategies based on segmentation:
• Mass (undifferentiated) marketing ignores market segments and offer a ‘one size fits all’ product to the whole market
• Differentiated offers each market segment a tailored product with its own marketing mix
• Concentrated targeting strategy: (niche marketing) focus on one specific segment.
1.3.4 Is segmentation
always possible?
A firm will only target a segment if it is
•
Identifiable or measurable ie firms can estimate the number of potential customers in a given segment
•
Reachable ie the business can contact customers in a given segment with their marketing activities
•
Profitable ie segments must be large and profitable enough to justify a distinctive offering and marketing mix
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Consumer orientated
firms tend to segment
markets by customer
differences.
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1.3.5 Explain and justify a
mass marketing strategy
An undifferentiated targeting strategy ignores market segments. The
firm offers a ‘one size fits all’ product to the whole market to:
• Lower unit costs: one product with one marketing mix
• Risks rivals entering the market targeting market segments
with tailored products, that better meet customer
requirements, resulting in lost sales
Works in markets where all customers have similar needs.
Ignoring segments is
called market
aggregation
1.3.6 Explain and justify a
targeted marketing
strategy
Differentiated targeting strategy where each market segment is
offered a tailored product with its own marketing mix. This:
• Increases customer satisfaction by better meeting
individual segment needs with tailored products
• Spreads risk across the market so that a decline in one
segment has less impact than niche marketing
• Prioritises resources by focusing on sub markets that offer
the best opportunity of meeting objectives
Targeting a submarket
requires firms to adjust
the marketing mix to
match the requirements
of each segment.
This raises costs but
increases customer
satisfaction.
1.3.7 Explain and justify a
niche marketing strategy
Niche marketing occurs when a firm concentrates its entire efforts
and resources on serving one segment of the market. Mainly used by
small firms competing in a large market eg Morgan cars.
Niche firms become highly expert at meeting the requirements of its
one target segment – a source of competitive advantage.
Niche firms usually target the premium sector of the market where
high spending customers value ‘uniqueness’
1.3.8 Why do firms adopt a
mass marketing strategy?
Some markets are homogeneous –individual wants are broadly similar. The firm adopts an undifferentiated marketing strategy and
offers one product that satisfies almost all customers and so enjoys significant economies of scale in production and advertising.
However if consumer requirements do vary then a rival may enter the market and offer a tailored product.
Niche marketing means
the business is
dependent on one
product. Customer
requirements &
technologies change
rapidly. To spread risk a
small firm may develop a
portfolio of niche
products.
1.3.9 How many segments
should a firm target?
Few companies have the resources to target all segments in a market. A firm has to decide how many market segments to target,
taking into account which ones are most likely to deliver stated objectives
1.3.10 What are the risks
of segmentation?
Excessive segmentation results in a large number of product items resulting in confused customers forced to decide between dozens
of brands and lost economies of scale through shorter production runs and additional advertising costs.
1.3.11 What are the risks
of niche marketing?
Niches may be short lived if a new, more efficient, entrant is attracted by potential profits. Is the offering of a small niche firm
sufficiently different to defend against new competition? Niche marketing normally involves small production runs and limited
opportunities for economies of scale
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Mass marketing allows
flow production hence
economies of scale.
A niche firm often adopts
a high quality, high price
prestige marketing mix
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1.4 Market Share and Growth
1.4.1 What is market size?
Market size is the total sales of all the firms in a given market expressed by value (ie in money terms eg £1bn) or by volume (ie
number of units sold eg 200,000 units).
1.4.2 How is market growth
calculated?
Market growth is when a market gets bigger by value or volume and is usually calculated as a percentage
1.4.3 What is market
share?
Market share is the proportion of total sales of all products competing in the same market held by a firm or one of its brands, usually
expressed as a percentage. Market share = product sales/ market size. Total sales can be calculated in terms of sales revenue ie £s
or sales volume ie the number of units sold
Unless the market is
clearly defined market
share is meaningless
1.4.4 Why is a large market
share important?
Generally, the higher a firm’s market share the higher its profit because it can use its larger size to better:
• Enjoy economies of scale eg in bulk purchasing and the utilisation of fixed assets.
Smaller firms are price
followers.
Average price = total
sales (£) / units sold
Market growth % = new value – old value/old value x 100 eg
if 2006 sales of £4m rise to 4.2m in 2007 then market growth = 2.4-2.2/2.2 x 100 = 9.1%
•
Set a price that best meets its objective eg high price for profitability, low price for growth.
1.5 Market Research and Analysis
1.5.1 Market research is
Market research refers to the collection and analysis of information about potential customers, markets and products.
1.5.2 Marketing research is
Market research is the process of identifying primary & secondary information about the demand for a product. Marketing research
is a broader process involving the market research, product testing pricing consumer relation to promotion & an evaluation of rivals.
1.5.3 Why is market
research undertaken?
Market research is undertaken for three reasons:
1. Descriptive: answers what questions eg is market share rising
2. Explanatory: answers why questions eg why do customers buy products
Informed decisionmaking requires reliable
data.
3. Predicative or causal: answers what-if questions eg consumers’ likely response to price rise or new product?
1.5.4 How do firms make
use of market research
results?
Informed decision-making requires reliable data. Accurate market research supplies the firm with information to identify problems
and opportunities early enough for action to be taken, create a competitive advantage and decide marketing:
•
Strategies: How large is a given market; is the market growing; is it competitive; what are likely sales?
•
Tactics: how much will consumers pay; what are consumers’ views of the product, its features, branding, packaging and
promotion? What is the most convenient kind of distribution, etc
•
Success: eg what did consumers think of the latest advertising campaign?
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Market research reduces
risk because it provides
information for better
decision making
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1.5.5 Give examples of how
a firm uses market research
Markets are constantly changing. As a result there is a regular need for market information to:
•
Help a firm to understand the market and evaluate changing consumer needs; establish how much consumers are willing to
pay; preferred outlet ie a develop a consumer orientation
•
Predict sales and set targets for output
•
Reduces risk Eg firms only develop a product customers want.
Market research offers a
snapshot of consumers
attitudes at a particular
moment in time
1.5.6 Difference between
data & information
Data refers to facts and figures, opinions and views and is of little use until it has been turned into information. Information is
processed data eg identifying trends and establishing correlation. Information is valuable because it can inform marketing decisions
Information not data
helps decision making
1.5.7 How is data
gathered?
There are two main methods of gathering information
• Primary (field) research gathers and analyses new data for the first time and for a specific purpose eg a survey
• Secondary (desk) research gathers and analyses existing data eg govt statistics or their own sales records
No one method is
‘better’; depends on the
firm’s need.
1.5.8 Explain the
difference between
qualitative & quantitative
research
Information can also be classified as qualitative or qualitative:
• Quantitative Research collects factual objective ‘hard’ data usually from surveys and questionnaires.
A survey is the process of
gathering data by asking
people questions
1.5.9 What methods are
used to collect primary
data?
Marketers can find out peoples’ views about a product through:
•
•
Qualitative Research collects ‘subjective’ data that is open to interpretation questions eg consumer attitudes and behaviour
usually gathered from group discussions or in depth interviews
Surveys such as personal interviews eg asking people in the
street; telephone interviews eg ringing customers at home;
Postal surveys eg sending questionnaires in the mail; eg
Internet survey eg asking visitors to a firm’s web site for their
views
•
Focus group: a small meeting of customers discuss a product
•
Observation of consumers’ eg responses to a product or filming
customers to identify buying behaviour
•
Experiment eg test marketing a new product in a regional trial
then making changes before a national launch
Focus Groups
Observation
Primary Research
Methods
Surveys
Personal
interviews
Telephone
interviews
Postal
surveys
Internet
surveys
Experiment
Test
marketing
Regional
trials
1.5.10 What is a focus
group
Focus Groups eg a small group of people are asked their views on a product. An expert chairs the meeting. Participants interact
with each other and. Expensive but useful for qualitative research ie reveals ‘why’.
1.5.11 Why spend money
collecting primary data?
Firms undertake field research when the impact of making a ‘wrong’ decision is serious and data does not already exist in any
usable secondary form. Primary data is up to date, specific to the information needs of the firm & confidential
Primary data is not available
to competitors.
1.5.12 Risks of primary
research?
Gathering new primary data is time consuming and important marketing decisions may be delayed and opportunities lost. It is
expensive to collect
Do the costs of research
justify the benefits?
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1.5.13 What methods are
used to collect secondary
data?
1.5.14 Why collect
secondary data
Secondary (desk) research gathers and analyses existing data eg sales
records & customer feedback forms
•
Internal eg past business sales figures and accounts, or the
results of previous surveys. Loyalty cards collect data on customer
purchases and are a rich source of data on buying habits by region
•
External data is published by the government and commercial
organisations.
Secondary data is already available saving data collection time and is
normally cheaper to collect and analyse than primary data. Where possible
firms use secondary data - it is quicker and cheaper. But is it up to date and
reliable? Does secondary data provide a meaningful, actionable insight into
customer wants and behaviour?
1.5.15 The disadvantages
of secondary research are?
Existing data may already be out of date or in the wrong format. Moreover
existing information may not answer all current research questions and Is
also available to competitors
1.5.16 Which is better:
primary or secondary data?
It depends on the information needs of the firm.
Previous
Past sales figures &
accounts
1
2
Internal
Government
Census data
Loyalty cards
surveys
External
Trade
Market Research
Associations
organisations eg Mintel
Economic data
& forecasts
Reports
Secondary Sources
Rivals
Publications
of companies
eg brochures
It is quicker and cheaper to use secondary data – if that data exists and is up to date.
•
Evaluating customer behaviour may require the expense and delay involved in primary research because there is no useful
secondary data available.
1.5.17 Who can undertake
market research for a firm?
The marketing research can be done ‘in-house’ by existing staff. Do they have the skill, resources & independence required? External
consultants are expert, impartial but relatively expensive. Which method yields quicker, more reliable results at lower cost?
1.5.18 Is market research
the only basis for decision
making?
Market research findings can appear to be ‘solid fact’ but may be the result of a biased sample, failure to ask or get a response from all
respondents, misinterpreted data or a sampling error. Market research suggested the Sony Walkman would fail. Sony ignored the data
and launched the Walkman on a hunch that it would meet a real need
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Journals
Annual Accounts
•
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Newspapers &
Internet
Market researchers
consider cost speed
accuracy & relevance of
each method
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