Business - 3.3

AQA Business A-level - Marketing

function of marketing

to identify exactly what the customer desires and then trying to ensure that the business delivers the product or services to meet customers’ wants (attracting repeat customers)

marketing objectives (x4)

1. sales and volume targets

2. sale growth targets

3. market share

4. brand loyalty

sales and volume targets as an objective

• shows the size of business based on level of sales made

• may either target the quantity sold or value of it (quantity sold x price)

• e.g. businesses with multiple product lines as makes it easier to identify which areas generating more sales

sales growth as a marketing objective

• use COOF 100 (change over original figure x 100) to calculate sales growth

• must identify external factors that affect this in order to predict future trends

factors affecting market growth (x5)

1. economic growth - if GDP is increasing, sales are likely to rise in most markets

2. nature of the product - luxury, non-essential products tend to grow quickly with high economic growth

3. changes in tastes and preferences

4. social changes / trends

5. fashion

market share calculation

sales of business / total sales of market x 100

aim of market share

compares a firms sales with those of competitors and it can only increase if a company is performing better than some of its rivals

brand loyalty as a marketing objective

enables businesses to gain regular repeat purchases and charge higher prices (as can reduce the products elasticity) BUT difficult to measure

benefits of setting marketing objectives (x4)

1. SMART objectives can help ensure all staff work towards the same goal

2. can assess performance of staff

3. common targets may mean staff are more likely to adopt a team approach

4. analysing reasons for success or failure to meet targets can help businesses to improve efficiency

costs of setting marketing objectives (x6)

1. external changes can be difficult to predict (and foreseeable internal problems may be countered)

2. several marketing objectives so some may conflict e.g. reduce price to increase sales volume reduces sales revenue

3. staff may attempt to meet sales targets regardless of consequences e.g. forcing products upon customers and then having to compensate them

4. may not have sufficient financial resources

5. if objectives are imposed, employees may not feel ‘ownership’ over objectives and so unmotivated

6. often over ambitious meaning lose their value as deemed unrealistic

market research

the systematic and objective collection, analysis and evaluation of information that is intended to assist the marketing process

benefits of market research (x7)

1. check whether the business achieves their objectives

2. identify trends

3. compare themselves to competitors

4. explain why certain things occur

5. predict trends

6. find links between sets of data

7. help understand the reaction of consumers

primary market research

referred to as field research as the business will go out and find the information for itself

advantages of primary research

generally more up to date and tailored to meet the specific needs of the business

disadvantages of market research

can take time to collect and it is generally more expensive than other methods of research

experiments

an organisation may try out a new idea or a new approach on a small section of their market to see if it will be successful

advantages of experiments (x2)

1. relatively cheap way of finding out consumer preferences

2. considers actual customer behaviour rather than opinions

disadvantages of experiments (x2)

1. consumer behaviour might not be the same throughout the country

2. takes time and may delay the introduction of a potentially successful strategy

observations

stores watch customers while they are shopping and gather information on customer reactions throughout the process (+ psychologists may analyse this behaviour)

advantages of observations (x2)

1. the layout of displays can be modified if observation reveals any issues

2. examines actual customer behaviour in general and can soemtimes show what customers are thinking

disadvantages of observations (x2)

1. expensive to employ specialist psychologists to observe

2. it simply shows what is happening rather than why it is happening

focus groups

a group of customers are encouraged to discuss their feeling about a product or a market (+ analysed by a psychologist afterwards)

advantages of focus groups (x3)

1. can establish why consumers act the way they do and this can allow the business to modify products according to customers comments

2. can identify gaps in the market

3. help identify new ideas on how to market products and services

disadvantages of focus groups (x2)

1. may be bias as consists of people who are already customers and have an existing interest in the product or service

2. can be relatively expensive and time consuming

surveys

when customers are questioned specifically about the product or serve (either forms or questionnaires)

personal interviews

interviews conducted face to face with the interviewer filling in the answers

advantages of personal interviews (x2)

1. wide range of information can be obtained (closed questions = limited choice of answers whilst open questions give opinions)

2. interview can explain any uncertainties in the wording preventing questions being misinterpreted

disadvantages of personal interviews (x3)

1. can be time consuming (particularly when members of the public may be reluctant to participate)

2. the person responding may give false answers

3. interviewer may not select a good representative cross section of potential or actual customers so could be biased

postal surveys

surveys posted to the addresses of potential customers who are then expected to complete the survey and then return it in a prepaid envelope

advantages of postal surveys (x4)

1. relatively cheap

2. allows targeting of a specific geographical area

3. may avoid the possible bias of a personal interview survey

4. respondents have longer to answer the questions so more detailed responses can be given

disadvantages of postal surveys (x3)

1. response rates are usually low (less than 2%)

2. no guarantee that the responses are representative as people completing them may have particularly strong views

3. may have to offer gifts or competition entries to encourage more replies which adds to the expense

telephone interviews

a market researcher telephones members of the public, seeking their answers to particular questions

advantages of telephone interviews (x2)

1. can be cheap

2. calls can be directed towards known customers (or ones that have made recent purchases etc.)

disadvantages of telephone interviews (x2)

1. detailed questions are difficult as most interviewees are reluctant to spend too much time on the phone

2. increased use of this type of survey by telesales companies has led to increased customer resentment

internet survey

questionnaires on internet sites enable customers to express their views about a product, service or company giving valuable information to the business whose website is visited

advantages of internet surveys (x4)

1. relatively inexpensive

2. respondents are more likely to be interested as made the conscious decision to go on the website

3. surveys can be easily updated to change questions

4. can use a detailed questionnaire

disadvantages of internet surveys (x2)

1. sample may be biased towards existing customers with an established interest tor loyalty

2. less useful if target market doesn’t use the internet

secondary market research

desk research as it has already been carried out for another purpose and so the business has to adapt this ‘second hand’ information to suit its own purpose

advantages of secondary market research

information already exists so less time consuming and inexpensive

disadvantages of secondary market research

has to be adapted for the businesses purpose so may not be accurate and the information gathered may be out of date

examples of secondary research

includes books, magazines, competitor websites, internet, census data, marketing professionals, previous sales history etc.

government publications

e.g. ONS provide information on economic and social trends based upon National Census Data which is collected every 10 years in the UK

loyalty cards

e.g. Nectar are proving extremely useful as enable businesses to monitor the spending patterns of their customers

qualitative

addresses issues such as ‘why’ or ‘how’

unstructured and interested in the thoughts and opinions of participants e.g. focus groups

quantitative

addresses questions like ‘how many’, ‘who’ and ‘how often’

structured and easily graphed e.g. surveys including questionnaires

advantages of qualitative research (x2)

1. gain greater insight into what it needs to do to appeal to its target market

2. highlights issues that the business may not have though of which can enable the business to modify its strategies

disadvantages of qualitative research (x3)

1. expensive and requires skilled personnel to interpret the information gathered

2. ‘small scale’ and so may not be representative of all customers

3. difficult to table/graph out opinions

advantages of quantitative research (x3)

1. summarises data in a concise and meaningful way

2. use of numerical data makes it easier to compare results with the results of other businesses

3. numerical data can be used to identify trends and project future trends

disadvantages of quantitative research (x2)

1. only shows ‘what’ and not ‘why’ and so data produced may be less useful as doesn’t allow the business to understand the reason behind the trend

2. if the sample asked is too small, the data can be too biased and so lack reliability and validity

target market

consists of all the potential or actual customers of the business (total target market = population)

sampling

the process of creating a small unbiased population to be used in a test or experiment

advantages of sampling (x5)

1. saves money as each individual member of the target population does not need to be considered

2. asking a small group of actual or potential customers can be a good indication of the behaviour of the entire market

3. can avoid expensive marketing errors

4. reliable information can be gathered from a fairly small cross section

5. enables the business to learn more quickly about its target market

disadvantages of sampling (x3)

1. samples may not be representative of the target population

2. sampling must be based on accurate customer profiling (if not, the results may be unreliable)

3. in markets where tastes constantly change, the time taken to select and then survey the sample may mean that the information is then out of date

quota sampling

the population is divided (stratified) by the most important variables such as income, age and location

advantages of quota sampling

relatively quick and easy and more likely to be representative

disadvantages of quoata sampling

not random so risk of bias and the method requires a good understanding of the population (may not be possible for new/inexperienced businesses)

random sampling

every member of the population has an equal chance of being chosen

advantages of random sampling

simple to design and interpret as well as being relatively quick (if the population is small and local)

disadvantages of random sampling

not practical if the population is very large and situated across a wide geographical area and the business must be able to list all members of the population

stratified sampling

the population is divided into categories using random sampling such as income, gender etc. using a representative number (e.g. 80/20 population women to male would mean 8 women participants and 2 men)

advantages of stratified sampling

the sampling is representative of the total population and all participants have equal chance of being chosen which limits bias

disadvantages of stratified sampling

it will take time, is most expensive and if the sample is large and geographically wide, it is more difficult

confidence level

an indication of how certain the business are of the results (depending on size of sample and how it was constructed)

confidence interval

‘margin of error’ e.g. 90% confident that 36% of the entire population may purchase the product with a confidence interval +-4 (so between 32% - 40%)

correlation

when there is an apparent relationship between two factors (closer to 1 or -1 = stronger correlation)

negative = as one increases the other decreases, positive = both increase

BUT, doesn’t imply causation

extrapolation

statistical technique to predict future trends based on existing data

trend analysis

examines the pattern in historical data and assumes that this pattern will continue in the future

method of extrapolation

1. calculate the average increase per annum (increase / number of years)

2. add the average increase per annum to the number of years asked to provide data for

advantages of extrapolation (x3)

1. common for past trends to continue into the future

2. sales growth generally builds up steadily in most markets

3. the method provides a good basis for forecasting future trends

disadvantages of extrapolation (x5)

1. less reliable when fluctuations in data (e.g. seasonal fluctuations) as unpredictable

2. assumes past changes will continue into the future

3. doesn’t take into account the fast changing business environment

4. ignores qualitative factors like changes in taste

5. ignores product life cycle which suggests most products experience growth but ultimately slow and fall

equation for price elasticity of demand (PED)

% change in quantity demanded / % change in price

PED

> -1 = ELASTIC

-1 - 1 = INELASTIC

> 1 = ELASTIC

(commonly a ‘-’ as negative correlation)

inelastic

demand changes by less than the change in price (e.g. a 10% increase in price, decreases demand by less than 10%) e.g. fuel, water, cigarettes, basic foods etc.

elastic

demand changes by more than the change in price e.g. soft drinks, luxury goods etc.

unitary

when PED = 1

% change in demand is exactly the same as % change in price

factors affecting PED (x8)

1. number of close substitutes (more = elastic)

2. cost of switching between products (may discourage switching) e.g. mobile phone service providers

3. degree of necessity (more = inelastic)

4. % of a consumer income allocated to spending on the good (if price changes make little or no difference then likely to be inelastic)

5. time period following a price change (longer = more elastic)

6. habitual consumption/addictive nature

7. peak and off-peak demand (inelastic at peak times)

8. brand loyalty (loyal customers make it more inelastic)

equation for income elasticity of demand (YED)

% change in quantity demanded / % change in income

YED

< 0 = inferior

0 - 1 = necessity

> 1 = luxury

AND INCLUDES ELASTIC AND INELASTIC GOODS (e.g. elastic = % change in quantity demanded is larger than % change in income)

normal goods

positive correlation between income and price e.g. laptops, steak, housing etc.

inferior goods

negative correlation between income and price e.g. canned meat, mac ‘n’ cheese etc.

limitations of PED and YED (x2)

1. don’t take into account all external factors like consumer tastes and preferences or changes in technology

2. PED doesn’t consider competitor reactions to changes in price

uses of data in marketing decision making (x5)

1. enables better understanding of customers + market place

2. market mapping shows positioning and potential opportunities in the market

3. sampling ensures sufficient data is gathered quickly and in a cost effective manner

4. statistical techniques can improve accuracy of forecasts

5. technology allows a broad range of data and can be more sophisticated analysis

limitations fusing data in marketing decisions (x3)

1. data may not be available in new markets where there is no previous information

2. business environment changes rapidly and so basing decisions on past data may be inappropriate

3. any technique relies on accurate data and forecasting

market segmentation

process of dividing a market into different groups of customers in order to create different products to meet their specific needs

demographic segmentation

groups people together with similar characteristics who might have similar needs and wants e.g. gender, age, ethnicity, occupation etc.

geographic segmentation

groups needs and wants together based on the geographical area in which customers are based e.g. McDonald’s not selling beef in India (includes region, size, population density and climate)

income segmentation

e.g. socioeconomic grouping (Upper/working class etc.)

behavioural segmentation

based on consumer knowledge, attitude, use or response to product e.g. regular purchasers? brand loyal? product benefits?

why is segmentation important (x6)

1. enables marketers to understand the market characteristics better

2. company can develop a more focused strategy to satisfy customer needs/wants more efficiently

3. better resource utilisation

4. enables to develop a suitable marketing mix

5. enables customised products

6. distinguishes between potential and profitable segments

positioning

involves identifying the benefit and price combination of a product relative to others provided by competitors in the market (features include price, brand image etc.)

benefit of positioning

can locate gaps in the market and position itself relative to competitors

influences on positioning (x4)

1. strength of business - efficient and highly productive may mean they can charge lower etc.

2. level of innovation - highly skilled employees, resources and systems to provide customers with greater benefits may charge a premium price

3. competition - finding a gap in the market

4. market conditions - affects price strategy

niche marketing

focuses on a particular segment of a larger market

advantages of niche marketing (x6)

1. focus marketing activities

2. can compete in a bigger market without having to challenge larger competitors

3. may have better idea of customer needs so can often charge a premium price

4. ideal for small businesses as limited demand may suit lack of resources

5. can tailor product and adapt quickly to meet changing demands

6. easy to establish a strong USP

disadvantages of niche marketing (x6)

1. vulnerable to loss of customers

2. profits may remain low due to low volume of sales

3. if the business does grow and become successful, may attract attention of larger businesses

4. may struggle to obtain necessary finance needed to grow and expand

5. vulnerable to changes in demand as often specialised so cannot spread their risks

6. easy for competitors to enter

mass marketing

aims to provide products or services which meet some of the needs of a large proportion of the market

advantages of mass marketing (x8)

1. suits larger companies using mass production

2. promotional techniques reach more customre’s

3. high volume of sales

4. access to economies of scale

5. easier to finance expansion

6. have resources to differentiate their product e.g. strong brand/attractive packaging etc.

7. high barriers to entry

8. can carry out product research and development

disadvantages of mass marketing (x6)

1. lose touch with changes in customer tastes and preferences so can appear ‘remote’

2. highly competitive markets due to high profits

3. expensive capital intensive production methods to produce high volume at lower costs

4. customers may change to niche market providers as target needs better

5. less scope to add value

marketing mix

the 7 P’s - product, price, promotion, process, place, people and physical environment

industrial market

business to business e.g. Coca Cola → Sainsbury’s