Unit 4.1 - Introduction to marketing

4.1 - Introduction to marketing

Introduction to marketing

Needs are the essential necessities that all humans must have to survive

• ex. Food, shelter, warmth, and water

Wants are human desires

• Ex. things that people would like to have

Marketing exists to address people’s needs and wants

• Makes the customers want to buy the products from a business.
• Looks at the reasons behind people’s decisions;
    * ex. product’s features (colour, size, quality, special functions) and the price.

Four main/generic objectives for the marketing department:

1. Products

   
   1. Ensure that the right products are supplied to fulfil the needs and wants of customers

2. Price

   
   1. Set the correct price so that customers can afford to buy the product (and to ensure that they do not buy from a competitor).

3. Place

   
   1. Distribute (or place) the products conveniently for customers to buy the product.

4. Promotion

   
   1. Convinces customers to buy the firm’s products

There is no universally accepted definition of the term marketing because it is a complex process and differs from different organisations.

• Chartered Institute of Marketing defines it as:
    * “The management process involved in identifying, anticipating and satisfying consumer requirements profitably”

Other definitions:

• Marketing is a management process, so it requires people to take responsibility for decision-making
• Marketing involves identifying the needs and wants of customers. This can be done through market research and management information systems such as data analytics

Market and product orientation (AO2)

Market orientation

• A marketing approach used by businesses that are outward looking. They focus on making products that they can sell, rather than selling products that they can make.
• Focuses on the customer in order to identify, design, develop and supply products that meet their needs and wants.
    * Advantages:
      * Greater flexibility
        * Businesses can respond quickly to changes in the market as they have access to relevant data and information about customers
      * Lower risk
        * Market orientated businesses can be more confident in that their products will sell and be more successful
    * Disadvantages
      * Market research can be very expensive
      * The dynamic nature of the business environment and the uncertainty of the future generates uncertainty

Product orientation

• Is a marketing approach adopted by businesses that are inward looking. They focus on selling products that they make, rather than making products that they can sell.

Economies use Say’s Law (that supply creates its own demand) to describe how product orientation might be successful. The idea is that creative and innovative products are launched onto the market and customers will be tempted to buy these.

Many product oriented businesses today concentrate on producing high quality products. The belief is that customers are willing to pay a higher price for exclusivity and luxury products. Product oriented businesses generally supply products that they specialise in.

Advantages:

• Quality can be assured and the business has more control over its operations.
• Being innovated, product orientation can give organisations a competitive advantage or a unique selling point.

Disadvantages

• The needs of the market are ignored (because product oriented organisations assume they know what the market wants), there is a high failure rate of businesses that use this marketing approach.

Factors that affect businesses adopting a product orientated or market orientated approach:

• The market
    * Producers of hi-tech products, such as smartphones and electric vehicles, tend to start off as product oriented businesses. In mass consumer markets, a more market oriented approach tends to be adopted.
• Organisational culture
    * Businesses that believe customers are the key stakeholder group (i.e. that customers are always right) are more likely to be market oriented. Byu contrast organisations that rely on the creative and innovative ideas and designs of their skilled employees may take a more product oriented marketing approach.
• Barriers to entry
    * Businesses without much competition tend to be less customer-focused. Such organisations have market power in pricing and distribution decisions so can choose to be more product oriented.

Market share (AO2, AO4)

• Market share refers to an organisation’s portion of the total value of sale revenue in a specific industry. It is measured by expressing the organisation's sales revenue as a percentage of the total sales revenue in the industry, per time period
• There is a positive relationship between market share and profits, although the business with the largest market share is not necessarily the most profitable.
• High market share has other benefits like the status enjoyed from being a dominant market player and the ability to gain a range of economies of scale.
    * Known to be market leaders
• Businesses with high market share (market leaders) have better price-setting ability and are less threatened by competition.
    * A common objective of established businesses is to increase their market share through growth.

Ways to increase market share:

• The promotion of their products to develop brand value and brand loyalty
• Product development, product improvements and innovations
• Motivation and training of the workforce in order to deliver better customer service.
• Establishing intellectual property rights, such as the use of trademarks, copyrights and patents
• Use of more efficient channels of distribution

Market growth (AO2, AO4)

• Market growth refers to the rate at which the size of a market is increasing. This is usually expressed as a percentage change in the total sales of the market over a specific period, usually per year.
• It is an important factor when considering the development or launch of a specific product in a particular market.
• Market growth is often used as a measure of the success of a business in relation to its market share
    * Ex. if market growth in an industry is 5% but the firm’s market share has increased by 10%, then it is performing significantly better than its average competitor.
• Growth; firms strive to recognize and seize opportunities for growth by building on their strengths and core competencies.
    * It allows them to gain higher profits as the market grows.
    * Creates shareholder value
• Establishes customer loyalty. Brand loyalty occurs when customers buy the same brand of product repeatedly over time. Customers are faithful to the brand over other rival brands

Market share and market leadership (HL only) (AO3)

• Market leadership refers to the position of a business having the largest market share in a given market for a particular good ro service. A market leader can refer to a product, brand or organisation so long as it holds the highest percentage of sales revenue in a particular market.
    * They dominate the market by being able to have influence with regards to all aspects of marketing, such as pricing, promotion, brand value, quality standards and distribution.
• Market share is one of the most effective ways to measure the success of a business compared to its competitors. When a business has the largest market share in an industry, it shows that the firm’s corporate strategy is more successful than that of its competitors.
• Market concentration measures the degree of competitiveness that exists within a market by calculating the market share of the largest few firms in the industry
• The sum of the market shares is known as the concentration ratio.

Advantages to being a market leader

• Premium prices
    * can be charged due to the firm's market leadership status, which increases profit margins.
• Lower production costs
    * exist due to economies of scale as the market leader operates at a larger scale than its rival in the industry. This means the business has the market power to lower prices.
• Enjoys longer product life cycles
    * due to the high degree of customer loyalty that exists for the brand or product.
• Benefits from favourable distribution terms
    * as more retailers and intermediaries choose to sell or redistribute the products of well known brands.
• There is more publicity and brand exposure
    * due to having market leadership status.
• Can also be easier to attract and recruit highly qualified employees
    * as they feel more proud to be associated with market leaders.

Market leaders use a range of marketing strategies to maintain their market share and market dominance; done by aiming to achieve three interrelated goals:

1. Attracting new customers
2. Increasing repeat purchases from existing customers
3. Diverting customers from competitors. (brand switching)

Disadvantages

• Adds constant pressure for managers and employees to maintain a high standard and to continue to repeat success for the owners (shareholders) of the business.
• Market challengers also add pressure as they strive to become the market leader through aggressive price reductions to attract customers.

Introduction to marketing and the key concepts

Marketing in relation to other business functions:

Operations management

• The production department works closely with marketers in using sales forecasts and market research to prepare their production schedules.
• Work directly with each other to research, develop, and launch products to meet the changing needs of customers.
• There may be conflict as production managers may prefer a longer time period in which to create, test, and develop products whereas marketing managers may push for a quick launch to maximise sales revenues. Delays can be damaging for a company’s image

Finance and accounts

• To set appropriate budgets
• Conflict may occur because marketers might wish larger budgets to get maximum marketing exposure, etc.

Human resources

• Marketing data can help the HR department to identify staffing needs.
• The introduction of a new product might require hiring extra production staff and sales personnel.

 \n Marketing ethics

• Refers to the moral aspects of marketing
• Unethical marketing practices exist when moral codes of conduct are not adhered to and which activities cause offence to members of the general public.
    * Ex. bait and switch marketing techniques
      * Controversial marketing method used to entice customers by advertising deals that are simply too good to be true.
    * Confusion marketing
      * Involves businesses swamping customers with price and product information
    * Fear tactics
      * The exploitation of people’s worries or weaknesses is unethical as it preys on people’s vulnerability. ‘Limited stocks only advertising campaigns’
    * ‘ Get rich quick’ schemes
      * Offer people the opportunity to get rich quick with minimal effort
    * Health fraud
      * Untested scientific claims to promote a product, such as unsubstantiated promises of overnight medical cures
    * Pester power
      * Using children to harass their parents into buying certain products.
    * Product misrepresentation
      * Using brand names similar to well-known trademarks and/or using product descriptions that are highly inaccurate.
    * Travel fraud
      * Giving misleading information to travellers
        * Inaccurate hotel facilities
    * Unsubstantiated claims
      * Marking claims that cannot be proved, such as ‘9 out of 10’

Misleading or offensive marketing strategies can backfire and make customers boycott the products of a business.

Most businesses abide by certain guidelines and rules for ethical marketing (aka ethical code of practice), which help serve 3 main functions:

1. To identify acceptable business practices (from society’s point of view)
2. To foster internal management and control.
3. Too avoid confusion regarding what is and what is not acceptable.