Business Management - Topic 4

What is a market?

A place where buyers and sellers come together or interact, a location, or a type of product

What is marketing?

The processes involved in identifying and satisfying customer needs

What is a product oriented business?

Business that prioritizes R&D of high quality and specialized products over market research, inward facing

What are advantages of being product orientated?

• Can focus on creating a different product to competitors that is higher quality and has a USP

• Can get patents for new products

• Lack of competition

What are the disadvantages of being product orientated?

• High risk, unsure if customers will be interested

• High costs of investment

What is a market orientated business?

Business that puts the wants and needs of the customers above everything else, only develops products after understanding the market

What are the advantages of being market orientated?

• Lower risk

• Increased number of repeat customers due to better product-market fit

What are the disadvantages of being market orientated?

• No USP

• Market research must be right

• Slow to adopt to changing market conditions

What is market share?

The value of a single company’s sales or revenues compared with the sales of all businesses in a market in a specified time

What is the equation for market share?

Market share = product sales ÷ total market sales x 100%

Market share = number of units sold by the company ÷ total number of units sold in the market x 100%

What is market growth?

The increase in sales revenue or sales volume in an individual market over time

What is the equation for market growth?

Market growth = (total market sales at the end of time period - total market sales at the start of time period) ÷ total market sales at the start of time period x 100%

What is a market leader?

The product or brand with the highest market share

What are advantages of being a market leader?

• Easier to access different distribution channels

• Brand recognition

• EoS

• Leaders have control over the “right” price for a product

How does a market leader benefit the customers?

• Products become more valuable the more people use it

• Market leaders can set lower prices if they have EoS

• Businesses can use revenue to further develop products

What are disadvantages of being the market leader?

• Lack of innovation may attract new competition

• May face DoS

How does a market leader negatively affect customers?

• Large businesses can abuse their power

• No guarantee for lower prices

• No competition will lower the motivation to innovate

How does a market leader negatively affect the economy, society, and the environment?

• Market leaders have power to sway politics

• Can easily gain support for mergers and acquisition to remove competition

• Can resist trade unions

• Can find tax loopholes

What is the BCG Matrix?

A tool to help businesses that have multiple products to decide on their marketing strategies by comparing market share of the product and the potential market growth

What are cash cows (BCG Matrix)?

• High market share, low market growth

• Likely to be in the mature stage of a product life cycle with an established customer base

• Will need less money for marketing

• Will have high sales revenue

• Focus promotion on maintaining loyalty

What are dogs (BCG Matrix)?

• Low market share, low market growth

• Likely at the end of its product life cycle or is a niche product competing in mature low-growth markets

What are stars (BCG Matrix)?

• High market share, high market growth

• Revenue is likely to grow strongly

• Requires significant investment to sustain growth

• Focus marketing around attracting new customers and establishing a brand image

What is a problem child (BCG Matrix)?

• Low market share, high market growth

• Often launched in response to competitor’s growth

• To gain market share investment is required

What is a marketing plan?

A document that outlines the entire marketing process of a business

What are elements of a marketing plan?

• Marketing objectives

• Marketing budget

• Segmentation and target market

• Market research

• Marketing strategies (marketing mix)

• Control tools (tools used to assess success)

What is segmentation?

Splitting a population into groups with similar needs or characteristics

What is the target market?

The consumer segment at which a business aims its marketing messages

What is geographic segmentation?

Dividing by geographic location (country-based, regional by continents, regional by state and country, urban vs. rural)

What is demographic segmentation?

Dividing by age, gender, occupation, socio-economic group, etc.

What is psychographic segmentation?

Dividing by lifestyle and personal interests (sports, music, food, movies, books, etc.)

What are advantages of segmentation?

• Identify gaps and opportunities in the market

• Design more suitable products

• Reduce waste of resources

• Diversify and spread risks by targeting different segments

What is targeting?

Selecting the most appropriate segment for a marketing campagin

What is a product positioning map?

A visual representation of how various competitors might attempt to position their brands in the eyes of consumers by displaying 2 attributes on a cartesian plane (usually price and quality or price and age)

What are the uses of product positioning maps?

• Identify market segments whose wants and needs aren’t fulfilled

• Establish gaps and opportunities in a market

• Help identify closest competitors and threats of a business

• Use info to target appropriately

What are niche markets?

Small part of a larger market that have very specialized wants or needs or those that are different from the larger market (eg. clothes for very tall people, gluten-free bread)

What type of promotion is normally used in a niche market?

Below the line

What is the advantage of being in a niche market?

Less competition can increase customer loyalty and allow for higher prices

What are the disadvantages of being in a niche market?

• Tends to have low quantity of sales

• Less reach

• Little growth potential

What is a mass market?

A market for goods that are produced in very large quantities

What type of promotion is normally used in a mass market?

Above the line

What are the advantages of being in a mass market?

• EoS

• High quantity of sales

What is the disadvantages of being in a mass market?

More competition = lower prices = lower profit margin

What is USP?

A feature that distinguishes a product or brand from its competitors

What is differentiation?

Differences between a business’s product or service from its rivals

What are product USPs?

Unique product design, first of its kind, patents

What are price USPs?

Offer the lowest (only for those who have significant EoS) and highest prices (can indicate exclusivity)

What is promotion USP?

Promoting effectively to lead to customer loyalty and a positive brand image

What is place USP?

Being in a convenient location, a global business, or in the right distribution channel

What is a process USP?

Positive interactions with employees, good customer service

What is a physical evidence USP?

Experience is different to other businesses (layout, interior design, temperature, presentation)

What is a process USP?

High efficiency to increase speed and improve customer service

What is Porter’s Generic Strategies?

4 strategies to help businesses consider how to respond to the external environment by considering 2 brad strategies against the target market

What is cost leadership (PGS)?

• Lower cost, broad market

• Business becomes the low-cost producer by reducing unit costs with EoS or increased efficiency

• Suitable for markets with standardized products and hard to differentiate

What is differentiation (PGS)?

• Differentiation, broad market

• Business makes a product better or different with a USP

• Can charge premium is successful

• Profits will increase if costs stay in control

What is cost focus (PGS)?

• Lower cost, narrow market

• Business becomes the low-cost producer in a niche market

• Usually for basic products

What differentiation focus (PGS)?

• Differentiation, narrow market

• Business produces specialized or differentiated products for a niche market

• Product must be very high quality, very exclusive, or provides a special charactristic that the niche market wants

• Can charge a premium to compensate for a small market

What is stuck in the middle (PGS)?

Business isn’t differentiated enough and costs are too high relative to competitors so the business has low profits or losses. Must change strategies by cutting costs or differentiating and focus on a broad or narrow market

What is the purpose of market research?

• Gain info on customers and competitors

• Identify wants and needs

• Understand consumer purchasing behavior

• Identify potential market change

• Establish customer likes and dislikes

• Test products

• Evaluate existing markets

• Investigate new possibilities in existing or new markets

• Identify human needs (social ent.)

What are methods of primary research?

• Surveys (large # of respondents in a short time, can gather quantitative data)

• Interviews (longer, qualitative, allows for follow up questions)

• Focus group (interview conducted with a small group of individuals, usually with similar characteristics, participants may get financial rewards)

• Observations (natural reactions of customers are studied, individual consumers can be followed, record route in a store, which promotions they notice, or clicks they make on a website)

What are methods of secondary research?

• Market analysis (pay agencies to do new research or buying pre-existing market analysis reports)

• Academic journals (publications from educational or research institutions, Harvard Business Review, Jstor, Google Scholar)

• Government publications (population stats, social trends, economic conditions, usually free and reliable)

• Media articles for current local or national info

• Online content (social media and social media analytics, e-commerce sales data, press release, company reports)

What are the benefits of primary research?

• Direct info about taste and preferences

• Provide info about resources for purchase

• Provides unique info that gives a competitive advantage

What are limitations of primary research?

• Expensive and time-consuming

• May need to train employees to carry out research

• Can be difficult to construct

What are benefits of secondary research?

• Low cost

• Provides broader contextual info

• Pre-published info is available

What are limitations of secondary research?

• Must rely on others’ research

• Info wanted may not exist

• Existing info may not fit the business

What is quantitative research?

Numerical data

What is qualitative research?

Non-numerical data (opinions)

What is a sample?

A subset of individuals from a given population that is used to make some estimation or prediction of the whole population

What are the 2 categories of sampling methods?

• Probability sampling (each subject has the same chance of being selected)

• Non-probability sampling (not all subjects have an equal chance of being selected)

What is random sampling?

Everyone in the population has the same chance of being selected to take part in the research, most representative of the population, probability sampling

What is quota sampling?

Divides the population into strata (subgroups based on a characteristic) and a small sample is taken from each stratum based on convenience, non-probability, faster and easier, less expensive than random, takes into account population proportions

What is convenience sampling?

Sample is made up of whoever is willing to take part, least representative, non-probability, simple, limited uses

What are descriptive statistics?

Tools used to present and interpret data collected (mean, mode, medium, standard deviation, charts, infographics, quartiles)

What is product (marketing mix)?

The result of a production process where resources are used to create a good or service to satisfy a want or need

What is the product life cycle?

A model to help businesses make decisions about a product’s marketing mix

What is R&D?

• Everything before the product is released

• No sales

• Market research

• Product development and testing

• Preparing production (finding suppliers, facilities, initial stock produced, promotion can be done to create a “buzz”)

What is introduction (product life cycle)?

• Product is released

• Likely for sales to be low

• Focus on promotion USP

• Pricing and distribution is important to consider

What is growth (product life cycle)?

• Sales accelerate

• Pricing strategies might change and distribution may need to expand

• Promotion focuses on raising awareness in new target markets

What is maturity (product life cycle)?

• High and steady sales revenue

• Slower growth rate

• Saturated market

• Focus on building customer loyalty

• Can decrease marketing budget

What is decline (product life cycle)?

• Falling sales or loss of market share

• Loss of USP due to high competition

• Product may no longer satisfy needs

• Can still be profitable

• Price may reduce

• Distribution channels may shift to discount retailers

What are extension strategies (product life cycle)?

• Methods to extend the maturity stage

• Easier and cheaper than starting new

• Find new target market (market research can be costly)

• Redesign packaging (customers may feel tricked or disappointed)

• Add new or different features to the product (can be developed quickly and at a low cost but loyal customers may not like the change)

• Reduce prices (can damage image or be perceived as lower quality)

• New promotional strategies to change mental model of how the product is used

What is a brand?

A name, symbol, or design used to identify a product or company

What is brand awareness?

The degree to which consumers recognize a product by its name or special characteristics (Nike ‘swoosh’)

What is brand development?

The process of creating and making a new strong brand which allows the company to launch secondary products with ease (Cadbury’s 20+ variations)

What is brand loyalty?

Customers continue to buy from a brand, even with alternative options, essential during hard times

What is brand value?

How much a brand is worth as an intangible asset, how much someone would pay for the brand

Why is packaging important?

• Helps the product stand out from competitors

• Represents the brand

• Protects the product

• Communicates info to customers

• Promotes the product

• Can be a USP

• Ease of use

What is cost-plus pricing?

All costs + a fixed or percent mark up

Easy to use, all costs are covered, doesn’t take into account market pricing

What is penetration pricing?

Setting prices low to attract new customers to a new product or service

Short-term strategy to improve brand loyalty, good for repeat purchase products, helps secure large market share early on, low profit margin

What is loss leader pricing?

Larger businesses with a large product portfolio prices lower than their production costs to attract customers to buy another, more expensive product

Very risky

What is predatory pricing?

Prices are so low that competitors are forced ut of the market

May be illegal in some countries and is impossible to maintain

What is premium pricing?

High prices to create a positive perception, makes value seem higher

People may not be willing to pay, will have a small target market

What is dynamic pricing?

Selling the same product to different customers at different prices (change according to customer, change based on time, change based on competitors, change based on demand)

What is competitive pricing?

Pricing the same as competition, no USP

What is contribution pricing?

Variable costs + mark up

Each product will contribute a portion to the payment of fixed costs

May be difficult to identify direct and indirect costs

What is price elasticity of demand (PED)?

Analyzes how the demand is affected by changes in price

PED = % change in demand ÷ % change in price

What does it mean if PED>1?

Price elastic demand

A change in price will have a proportionally greater change in demand

What does it mean if 0<PED<1?

Price inelastic demand

A change in price will have a proportionally smaller change in demand

What does it mean if PED = 1?

Unitary elastic demand

A change in price will have an equal change in demand

What are factors that can determine PED?

• Number and closeness of similar goods, the more similar goods the more elastic because if prices increase by a lot demand will drop by even more as they will buy from another product

• Time period, customers may not have time to react to changes in price so it is inelastic

What is promotion?

The use of advertising, sponsorships, sales promotion, and personal selling to inform and persuade customers