1.1 - Meeting customer needs (copy)

What is a market?

Any place where buyers and sellers can meet

What is the aim of marketing?

To help identify, anticipate and satisfy consumer needs and wants profitably

What is a mass market?

A very large market with high sales volume in which products with mass appeal are targeted

Characteristics of a mass market

- Products are less unique as they are aimed at broad market segments

- Low average costs due to large scale production leads to economies of scale

- Low prices lead to greater affordability and higher sales volumes

- Low prices lead to lower profit margins

What is a niche market?

Goods or services which are targeted at a small but specific segment of the population. More likely to be tailored to individual customers

Characteristics of niche markets

- Products are more specialised and unique as they are aimed at narrow market segments

- High average costs due to small scale production

- They do not benefit from economies of scale

- High prices make products less affordable and lead to lower sales volumes

- High prices can allow businesses to earn higher profit margins

What is market size?

This is the number of customers who look to buy a product.

Measurement of the total value of a given industry

How can the size of a market be measured?

Through sales volume or sales value

What is sales volume?

The number of products sold

What is the formula for sales revenue?

Selling Price x Quantity sold

How can market share be calculated?

Sales of a business / Total sales in the market x100

What is a brand?

A name, image, or logo which helps one product/ service stand out from its competitors

How do brands influence the position of the business within its market?

- Businesses operating in mass markets use branding to stand out from the competition

- Businesses operating in niche markets use branding to communicate their offering to a small, well defined group of consumers

- Strong brands are more likely to be able to charge higher prices for their products than weaker brands

- The perceived quality of a strong brands products is better than that of weaker brands

What is a dynamic market?

A market that is subject to rapid or continuous changes

What are the 4 areas to consider when examining dynamic markets?

- Online retailing

- How markets change

- Innovation and market growth

- Adapting to change

Advantages of online retailing for firms and consumers

- Provides business access to more consumers, including internationally

- Enables longer trading hours as the business is open 24/7

- Cheaper to run as it lowers fixed and variable costs compared to bricks and mortar retailers

- Businesses can collect data by tracking consumer behaviour which helps with primary market research

- Consumers can receive offers that they are more likely to benefit from

- Consumers can shop at a time that suits them

Disadvantages of online retailing for firms and consumers

- There may be high costs for website development, maintenance, and promotion

- Online retailing is dominated by larger businesses that are more well-known

- High levels of competition mean that it will be expensive to make a website stand out

- There is a lack of personal contact with customers

- Consumers may find it difficult to get the desired level of customer service

- Consumers may find it difficult to return unwanted products

- Online purchasing opens consumers up to credit card fraud

Changes that cause markets to be dynamic

- Changing consumer tastes and preferences

- Changing demographics

- The amount of competition

- Changing legislation

What is product innovation?

It involves the adaptation or improvement of existing products

What is process innovation?

It involves the adaptation or improvement of existing processes

What is market growth?

The measurement of the change in the entire market, expressed as a percentage of the original size

What factors cause market growth?

- Increasing population sizes can increase demand in certain markets

- Increasing incomes can increase demand in certain markets

- Changing tastes and preferences

Strategies to adapt to change

- Create flexible business structures, especially in terms of operations and people management

- Meet customer needs, by carrying out market research and communicating with customers

- Invest in staff training, new products and processes

- Innovate so as to gain the first mover advantage

What is competition?

Competition occurs when 2 or more rivals target the same consumers with similar goods and services

What is direct competition?

Occurs when the business is targeting customers with the same product as a competitor

What is indirect competition?

Occurs when firms sell different products but compete with each other for the customers disposable income

What benefits can customers gain from competition?

- Businesses offer lower prices

- Businesses produce better quality products

- Businesses provide better customer service

What does the absence of competition cause?

Reduces incentives for businesses to innovate, be efficient or offer consumers lower prices

What impact does competition have on markets?

- Healthy competition between businesses give consumers choice

- This means businesses are forced to avoid complacency, offer low prices, offer better quality

What is risk?

The potential threat to business success

What is uncertainty?

The amount of error that can't be foreseen or measured

What is market research?

The process of systematically gathering data from consumers which can be used to influence the business decisions

How can effective market research help a business?

- To reduce risk when launching new products or entering new markets

- Anticipate future needs and wants of consumers

- To understand consumer behaviour

- To identify potential consumer demand

- To identify how much consumers are prepared to pay

- To identify competitors and gauge their potential strengths and weaknesses

Market research data can be...

Quantitative (numerical data) or Qualitative (data based on thoughts and opinions)

Why conduct market research?

- Identify consumer's needs and wants

- Establishing likely levels of demand

- Gain insight into consumers behaviour

- Analysis of the competition

What is product orientation?

An approach to marketing that focuses on the characteristics of the product rather than the needs of the consumer

What is one problem with being too product orientated?

Over time your business may move further and further away from what the market is looking for, this increasing the risk of business failure

What is market orientation?

An approach to marketing that focuses on the needs of consumers and uses this information to design products that meet customer needs

What is the result of market orientation?

The firm will benefit from increased demand, increased profits, and a valued brand image as its products become more desirable

What is primary research?

- The process of gathering information directly from consumers in the target market using field research methods such as surveys, interviews, etc

- This gathers information that is new and does not necessarily exist in any format

Examples of primary research

- Interviews

- Surveys

- Observation

- Test marketing

- Focus groups

Advantages of primary research

- Accurate for the current time and can be used to ask specific questions and so will be more relevant

- Allows the business to get in-depth information from respondents

- Can be specific to the needs of the business and will not be available to rivals

Disadvantages of primary research

- The sample size may be too small and unrepresentative of all of the customers leading to unreliable results

- A business may need to hire a specialist market research agency to help and the process can be expensive and time-consuming

- Bias may mean that researchers can guide respondents to answer questions in a particular way

What is secondary research?

Using data that already exists

Examples of secondary research

- Google

- Reports

- Press

- Articles

- Government statistics

Advantages of secondary research

- Information is already available and so is quicker to collect than primary research thereby saving time

- Information is often free and is cheaper to collect leading to lower costs compared to primary research

- Suitable for a small business that lacks a large marketing budget and/ or expertise

Disadvantages of secondary research

- Information has been collected for other purposes and so may lack relevance or may not be factually correct

- Can be expensive to purchase market specific secondary data from specialist companies

- Information may be out-of-date especially in dynamic markets

What is primary and secondary market research data used to do?

- Identify and anticipate customer needs and wants

- Quantify likely demand

- Gain insight into consumer behaviour

Use of ICT to support market research

- Company websites: allow businesses to collect primary data more cheaply. Pop-ups used on websites can also be an effective way of gathering information

- Social networking: focuses on gathering information about consumers via online social channels. Also a useful method of running quick polls and surveys or tracking opinions about brands

- Databases: can be used to store large amounts of customer information. Also effective in collating customer e-mail addresses so that targeted customers can be surveyed later via e-mail

What is market segmentation?

The division of society into subsets of consumers who have common needs

Advantages of market segmentation

- Recognises that consumers are not all identical, consumer groups do not all share the same tastes and preferences

- Products and marketing activities can be altered to meet different needs of different groups of consumers and targeted more precisely

- Less expensive and wasteful than marketing products at wide market segments

- May increase loyalty if the consumer feels that their needs are being met which can lead to repeat purchases

Disadvantages of market segmentation

- Not everyone within a segment will behave in the same way

- May be difficult to identify a segment and consumers can belong to multiple segments at the same time

- Segmentation requires more detailed market research which can prove costly to the business

- A segment may be identified but it may be too small and unprofitable to cater for

What is demographic segmentation?

Dividing a market into different segments based on variables like age, gender, etc

Examples of demographic segmentation

- Age

- Life-cycle stage

- Gender

- Income

- Occupation

- Education

- Religion

-Ethnicity

- Generation

What is psychographic segmentation?

Dividing a market into different segments based on social class, lifestyle, or personality characteristics

Examples of psychographic segmentation

- Values

- Goals

- Needs

- Interests

- Hobbies

- Sexual orientation

What is geographic segmentation?

Segmenting buyers based on where they live

What is behavioural segmentation?

Groups consumers on the basis of why they buy, how often, and how they plan to use the products or services

Examples of behavioural segmentation?

- Purchasing habits

- Customer loyalty

- Brand interactions

- Actions taken on websites

What is market positioning?

The place a product occupies relative to competing products in the minds of target consumers

What is market mapping?

A tool for identifying the position of a product within a market

What is the market map?

A two-dimensional diagram that shows the attributes or characteristics of a product in comparison to rivals' products based on two variables e.g. price and quality

What is a market niche?

A gap in the market

Advantages of market mapping

-Helps spot gaps in the market which may enable a business to come up with ideas for new products

-Useful for analysing competitors

-Encourages use of market research

- Market maps are simple to construct and offer a visual illustration of the position of a product in the market

Disadvantages of market mapping

-Just because there is a "gap" doesn't mean there is demand

-Not a guarantee of success

-Markets are often dynamic and a market map only provides insight at a specific point in time

- Mapping a market may require primary research which can be expensive

- Only two criteria can be chosen which may prove too simplistic

What is product differentiation?

An attempt by a business to distinguish its product from those of competitors

What can successful product differentiation do

?

Helps the business to increase demand for its products, increase brand loyalty, and allow the business to charge higher prices

What is adding value?

The difference between the price that is charged to the customer and the cost of inputs required to create the product or service

How do businesses add value?

What is competitive advantage?

Refers to the features of a business and its products that are perceived as superior to its rivals by customers

How can a firm gain competitive advantage?

- Innovation

- Reputation (branding)

- Building strong relationships with stakeholders

- Adding value

- Differentiation

- Market segmentation

- Price leadership