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IB Business Management: Unit 4

Marketing is the management process of getting the right product to the right customer at the right price, the right place and the right time.


Product orientation is a business approach that focuses on making the product first before attempting to sell it. 


Market orientation is a business approach of first establishing consumer demand through market research before producing and selling a product.




Benefits of a market-orientated business 

  • Due to market research, firms have increased confidence that their products will sell, which reduces the risk of failure. 

  • Access to market information means that firms can anticipate and respond quickly to changes in the market. 

  • As a result of regular feedback from consumers due to market research, firms are in a strong position to meet the challenges of new competitors entering the market. 


Limitations of a market-orientated business 

  • Conducting market research can be costly and therefore weigh heavily on a firm’s budget.

  • Due to frequently changing consumer tastes, firms may find it difficult to meet every consumer’s needs with its available resources. 

  • Uncertainty about the future could have a negative influence on the market-planning strategy. 


Benefits of a product-orientated business 

  • It is associated with the production of high-quality products such as luxury sports cars, or safety products like crash helmets. 

  • It can succeed in industries where the speed of change is slow and the rm has already built a good reputation. 

  • It has control over its activities, with a strong belief that consumers will purchase its products. 

 Limitations of a product-orientated business 

  • Since the firm ignores the needs of the market, it takes risks that may lead to eventual business failure or closure. 

  • Spending money on research and development without considering consumer needs could be costly and not yield any promising results.


Market share 

Market share is the percentage of total sales that a business has within an industry. It is the percentage of one rm’s share of the total sales in the market, and is calculated by using the following formula: market share percentage = firm’s sales / total sales in the market × 100 


Market share can be measured by volume (units) or value (revenue): 

  • By volume: this measures the number of goods bought by customers. It is a quantitative measure of the units sold by businesses, for example the number of bags of maize. 

  • By value: this measures the amount spent by customers on the total number of goods sold by businesses. It is the total revenue expressed in monetary terms, such as Kenyan shillings (KSh), US dollars (US$), or Indian rupees. 


Market growth 

Market growth is the increase in the number of consumers who buy a good or service. It is the percentage change in the market size over a given period of time, usually a year. Market size represents the total sales made by all businesses in a given market. Market size can be measured by value or volume.


market growth percentage = market size (second year) - market size (first year) / market size (first year) × 100


Importance of market share and market leadership (HL) 

Even though market share does not show exactly how profitable a firm is, it does provide useful insights into the firm's revenues, growth and profit margins. This is because of economies of scale (a decrease in the average costs of production as a result of increasing a firm's scale of operation). The bigger the firm, the better it can serve greater numbers of consumers in a more cost-efficient manner. This is because goods can be bought for greater discounts due to larger wholesale orders. Hence, even when a larger rm is selling its goods for the same price as its competitors, with a greater market share and economies of scale it can attain higher profit margins, making it a stronger rm overall in the given market. As a result, it can offer more promotions, thereby driving market share even higher, as it captures new consumers from its competitors. Firms that have a compounding effect tend to use market share as a driving force. This means that the larger the rm, the more efficiently it can provide goods or services, and hence the more effective the rm is at capturing market share. The more market share it captures, the more efficiently it can provide goods or services, and so the cycle continues. However, when calculating and interpreting market share, careful thought is needed: 

  • Since market share can be measured in different ways, by value and volume, different results may be obtained in the same time period. 

  • Changes in the time period and market can influence market share results. 

  • The type of products included may also influence the calculation of market share. Measuring market share is important because it can indicate that a rm is a market leader. A market leader is the rm with the largest market share in a particular industry. The market leader can use its dominance in the market to influence other businesses or competitors to follow it. This influence could extend to winning over consumers, pricing decisions, distribution coverage, etc. Increasingly, the internet age has provided huge scope for businesses to become market leaders. 


Benefits of being a market leader 

  • The market leader often has first-mover advantages in new markets. Microsoft with its operating system (Windows) and Apple with the idea of a portable computer with a touch-screen display (the iPad) are examples of companies that have leveraged this advantage. 

  • The market leader enjoys increased sales revenue that translates to higher profits. 

  • The business is able to gain economies of scale.

  • Since the market leader could also be the brand leader (providing the product with the highest market share), the leading brand can act as a good promotional tool for consumers who would like to be associated with popular brands. 

  • Market leaders manage to attract the highest-quality development partners and adopt innovative technologies and processes which help them continue to outperform their competition. However, market leaders need to be cautious about how they use and obtain their market share. Businesses that become too dominant in the market or seem to be abusing their position may be subject to antitrust lawsuits. For example, Microsoft was once a target of regulators. In addition, a market leader may not necessarily be the most profitable business for an investor. Even though it may have a high market share, the firm's total expenses (including manufacturing costs, research and development (R&D) costs and marketing costs) may be too high to make it the most profitable firm among its competitors in the industry. 


4.2 Marketing Planning


Marketing planning is the process of formulating marketing objectives and devising appropriate marketing strategies to meet those objectives. The marketing plan includes some of the following components:

  • Marketing objectives

  • Key strategic plans

  • Detailed marketing actions

  • The marketing budget


Benefits of marketing planning

  • Marketing planning helps a firm to identify potential problems and seek solutions to them.

  • Setting SMART objectives improves the chance of success for a firm's marketing strategy.

  • Sharing the marketing plan with other business departments improves coordination and provides the whole organization with a clearer picture or sense of where it is heading.

  • Devising a marketing budget ensures that resources are not wasted on unprofitable activities. 

  • A clearly spelled-out plan could improve employees’ motivation and inspire confidence about the organization’s future.


Limitations of marketing planning

  • Marketing plans may become outdated if organizations are not quick to consider changes in market conditions.

  • The process may consume considerable resources in terms of time, expertise, and money in designing the plans.

  • Failure to prioritize marketing objectives may make it difficult for firms to tell whether they are meeting them.

Segmentation, targeting and positioning

Market segmentation

A market segment is a sub-group of consumers with similar characteristics in a given market. 

Market segmentation is the process of dividing the market into distinct groups of consumers so as to meet their desired wants and needs. 

Markets can be segmented in the following ways: 

Demographic segmentation – this considers the varying characteristics of the human population in a market, which include: 

  • age 

  • gender 

  • family characteristics – some businesses have used creative acronyms to segment their markets; for example, OINK (one income, no kids) targets young singles, while DINKY (double income, no kids yet) targets young married couples 

  • ethnic grouping


Geographic segmentation – this is where the market is divided into different geographical sectors and considers factors including: 

  • regions in a country where consumers reside

  • climatic conditions


Psychographic segmentation – this divides the market based on people’s lifestyle choices or personality characteristics, such as:

  • social and economic status

  • values 


Advantages of segmentation 

  • Segmentation helps businesses to identify existing gaps and new opportunities in domestic as well as international markets. 

  • Designing products for a specific group of consumers can increase sales and hence profitability. 

  • Segmentation minimizes the waste of resources by businesses through identifying the right consumers for their products. 

  • By differentiating their products, businesses can diversify and spread their risks in the market and so increase market share. 


A target market is a group of consumers with common needs or wants that a business serves or sells to. Targeting is the process of marketing to a specific market segment.


Undifferentiated marketing or mass marketing is a strategy where a firm ignores the differences in the specific market segments and targets the entire market. 


Differentiated marketing or segmented marketing is a strategy that targets several market segments and develops appropriate marketing mixes for each of these segments. 


Concentrated marketing or niche marketing is a strategy that appeals to smaller and more specific market segments. 


A consumer profile is a description of the characteristics of consumers of a particular product in different markets. 


Positioning

Product positioning involves analyzing how consumers define or perceive a product compared to other products in the market. 


Product position map/perception map is a visual representation of how consumers perceive a product in relation to other competing products.


The first step in positioning requires marketers to identify product features that consumers find important, such as quality, price, and image. In the second step, the rm chooses the key features to use to develop its positioning strategy. Finally, the rm communicates its desired position to its target customers with the support of its marketing mix. 


The importance of a position map 

  • It can help a firm to establish who its close competitors or threats are in the market. 

  • It helps to identify important gaps or opportunities in the market that the firm could fill by creating or offering new products. 

  • It is a simple and quick way of presenting usually sophisticated research data. 

  • It helps a firm in targeting specific market segments to best satisfy consumer needs and wants. 


The difference between niche market and mass market 

A niche market focuses on a small group of people or consumers who have interests that align with the product or service of a specific organization. A mass market is aimed at a large or broad market segment. A mass marketing strategy would involve communicating to the largest possible audience.


Unique selling point/ proposition (USP) is a product’s feature that differentiates it from other competing products in the market


The importance of having a USP

  • provides a firm with a competitive advantage in its product offering, thus attracting more customers

  • leads to customer loyalty, as customers continue to identify something special about the product compared to rival products

  • increases revenue, as customers buy products or services that best meet their needs, even paying top prices for a reputable brand they view as high-quality

  • makes it easier to sell the product or service, especially with sales representatives who see value in the product or even use the product themselves.


Product differentiation

This is the physical or perceived difference in a product. It can take the form of product features such as durability, performance, reliability, or other criteria. Due to its tangible nature, most marketers spend their time on this type of differentiation when pursuing customers. However, product differentiation can be a short-term strategy, as many product innovations can be easily duplicated. Despite the existence of intellectual property rights like patents and copyrights, in several cases these do not present practical challenges. Some businesses choose not to patent as this reveals to their competitors how to duplicate their product. However, a patent at least protects the product for the life of the patent, unlike when there is none and any competitor with capital can quickly produce a similar product. 


Service differentiation

This includes customer service, delivery, and supporting business elements like installation and training. Some organizations, however, view this as a simple component of a business not requiring any level of sophistication.


Price differentiation

A successful price differentiation strategy recognizes that every customer is willing to pay a different price for a product. Through segmentation and differentiation, a business can maximize its potential revenue by offering a differentiated product at a different price in each of its market segments. 


Distribution differentiation

The channel of distribution or path through which a good or service passes until it reaches the end consumer is an effective means of differentiation. This could be through providing immediate access to expertise, greater ease when ordering goods or services, or high levels of technical service. 


Relationship differentiation

This is differentiation through the organization’s personnel, including employees or team members with customer links. They are responsible for the day-to-day communication with customers, and are an important link between the product and the customer.


Image/reputation differentiation

This is usually created through other forms of differentiation (such as high product quality, great service, or superior performance), although a business can control and manage its image with the means of communication it uses with its customers. 


Porter’s Generic Strategies (HL)

Michael Porter developed generic strategies that apply to products and services in all organizations and industries regardless of their size. These are “cost leadership” (a no-frills approach), “differentiation” (involving the creation of uniquely desirable products and services), and “focus” (offering a specialized service in a niche market). The focus strategy is subdivided into two parts: “cost focus”, which emphasizes cost-minimization within a focused market, and “differentiation focus”, which involves pursuing strategic differentiation within a focused market.


4.3 Sales forecasting

Sales forecasting is the process of predicting the future sales of a firm.


Time series analysis is a quantitative sales forecasting method that predicts future sales levels from past sales data.


Below are key aspects that need to be identified in time series data. 

  • The trend – this is the visible pattern seen after inputting the past sales data. It can indicate the rise and fall of sales over a given period. 

  • Seasonal fluctuations – these are changes in demand due to the varying seasons in the year. An example of seasonal variation is when a business experiences an increase in sales of clothing at the beginning of a new year but these sales decline in the middle of the year. Seasonal variations are usually repeated and occur within one year or less. 

  • Cyclical fluctuations – these are variations tied to the business cycle in an economy. For example, sales could rise during the growth phase but decline during a recession. Cyclical variations can extend for more than one year. 

  • Random fluctuations – these are notable changes or fluctuations that stand out from a given trend. For example, a sudden increase in the demand for ice-cream during a rare warm day in winter. Random variations are unpredictable and can occur at any time.

Moving average is a sales forecasting method that identifies and emphasizes the direction of a trend.


Extrapolation is an extension of a trend line to predict future sales.


Variation is the difference between actual sales and trend values.


Calculating a three year moving average

  • Calculate the mean sales for the first three years.

  • Do the same for the next three sets of data.

  • The same process should be used for the following sets of threes.


Benefits of sales forecasting 

  • Alignment of an organization strategy for better results. When sales forecasting aligns with an organization’s strategy, it enables the right resources to be allocated at the right time. An organization with a goal of increasing its customer base by 20%, for example, could base this on its sales forecasts and allocate the necessary resources to its personnel to seek potential customers. 

  • Better cash-flow management. By considering cyclical and seasonal variation factors, financial managers can better plan to improve the liquidity position of a business. 

  • Increased efficiency. Sales forecasting helps the production department to know the number of goods to produce and to plan for stock required in the future. 


Limitations of sales forecasting 

  • Sales forecasting is time-consuming. It takes a long time to calculate because of its complex nature, especially when considering the calculation of average seasonal variations in each quarter over a number of years. 

  • Sales forecasting ignores qualitative external factors. Political, social, and economic factors can influence the accuracy of sales forecast predictions, for example political instability, changes in consumer tastes and preferences, and exchange rate fluctuations.

  • In sales forecasting, the entry of competitors into a market may be unforeseen. This can significantly change an organization’s dynamic and influence its sales position. For example, a rm that is enjoying a monopoly status in the present can lose that position if the consumers decide to switch to buying the competitors’ products. 

  • Sales forecasting may be based on present technology which can be rendered obsolete due to technological progress. Hence, products which may currently be enjoying good sales may lose their market to products made with the latest technology. An example is the market for electronic products and computers.

4.4 Market Research

Market research is the process of collecting, analyzing, and reporting data related to a particular market. This includes data on consumption of goods and services and on competitors’ behavior. Importantly, businesses use market research information to make key decisions.


Primary research the collection of first-hand information from the market. This is also known as field research. A key advantage of primary research is that the organization can gain information directly from its customers, which gives it an advantage over its rivals. However, field research is expensive because the research process takes time and requires specialist researchers.


Secondary research the collection of second-hand information from the market. This is also known as desk research. Organizations should first carry out secondary research to get an overall background picture, and then conduct primary research as a gap-lling measure. Desk research is a quicker and cheaper method than eld research and most of the information involved is readily available. However, the information collected may be out of date and it might have been collected for purposes other than the specific needs of the researching organization. In some cases, the source of the data may be unreliable.


The purposes of market research

  • To identify consumer needs and wants, as well as to understand consumer satisfaction levels and patterns in purchasing behavior.

  • To assist a business in predicting what is likely to happen in the future.

  • To reduce the risk of product failure (especially of new products) by effectively carrying out market research that establishes the likes and dislikes of consumers. 

  • To measure the effectiveness of a marketing strategy. This can be done by assessing or evaluating how a rm implements its marketing mix activities in specific market segments.

  • To provide the latest information on activities happening in the market.


Primary market research methods

Surveys 

These are questionnaires sent out to a particular target audience to enable the researcher to gather useful information. The questionnaire may contain different types of questions, such as closed questions needing “yes” or “no” answers, and open-ended questions which require a lengthier response. A consumer survey can focus on getting specific information from consumers by seeking their opinion on a particular product or issue. Surveys can be implemented in different ways. Some of the most common ways to administer surveys include: 

  • by mail

  • by telephone

  • online 


Interviews 

An interview is a conversation during which the interviewer asks the interviewee questions in order to gain information. Interviews can be conducted one on one, face to face, by telephone or online.


Focus groups 

Focus groups consist of a small number of people brought together to discuss a specific product or idea. The group comprises individuals who are representative of the customers of the business or of a specific segment of customers. In the discussion, participants respond to questions prepared by market researchers. Participants share their opinions, ideas, and reactions freely. They can also be asked to try a new product. Usually, all participant responses are viewed and studied to help researchers predict the reaction of the larger market population. 


Observation 

Observation is a fundamental and basic method of getting information by carefully watching and trying to understand certain things or people’s behavior. Some observations are scientific in nature, but not all are.



Secondary market research methods

Academic journals

These are publications of scholarly articles written by experts. The articles should be well referenced to provide the exact source of the information given. The experts usually include professors, graduate students, or others with first-hand experience in a particular subject. Academic journals are written for the sole purpose of providing and distributing knowledge and not as a money-making opportunity. 


Media articles

These include texts written and submitted for publication. Some examples are newspapers and magazines. 



Government publications

These are documents produced by the government that provide an ofcial record of government activities and cover a wide variety of topics. They can be issued by local, regional, or national governments or by their respective agencies.


Market analyses

These include commercial publications or market intelligence reports that gather data about particular markets. The highly detailed reports are usually carried out by specialist market research agents. They can be sourced at various local business libraries.



Online content

This involves gathering information from the internet or websites. The internet provides access to an abundance of data. Both published and unpublished secondary data can be found on the internet. 

Qualitative research is the collection, analysis, and interpretation of data about consumer opinions, attitudes, or beliefs 


Quantitative research is the collection, analysis and interpretation of numerical data or data that can be measured


Sampling methods 

The population comprises all potential consumers in a market. There is simply not enough time, energy, money, labor, or equipment to carry out a survey of the whole population. However, to gather adequate primary research and still have a clear idea of consumers’ views, it is necessary to take a sample of the population. A sample is a small group of people selected to represent the population or target market under research. For example, a small group of consumers could be selected out of a large number of potential buyers of a product. Sampling is simply the process of selecting the appropriate sample. Below are a number of commonly used sampling methods and the advantages and disadvantages of each.


Quota sampling 

This involves segmenting a given population into a number of groups that share certain characteristics (mutually exclusive sub-groups) such as age or gender. Targets are then set for the number of people who must be interviewed in each segment. For example, in a school of 500 students offering the IB diploma programme, a researcher may target 15 males and 20 females to interview regarding their perception of the programme


Random sampling

Every member in the population has an equal chance of being selected as part of the sample, as the sample of respondents is selected randomly.


Convenience sampling

This is a sampling technique where research groups are selected based on their easy access and proximity to the researcher.


Importance of properly collected data 

Benefits of properly collected data include: 

  • the ability of the research to accurately answer the research questions posed 

  • the ability to repeat and validate a particular study where needed 

  • increased accuracy of findings resulting in an efficient use of resources 

  • good opportunities for other researchers to pursue areas needing further investigation.

4.5 The seven Ps of the marketing mix

Marketing mix are the key elements of a marketing strategy that ensure the successful marketing of a product. 


Product is any good or service that is offered to the market with the aim of satisfying consumer needs or wants. 


Price what consumers pay to acquire a product 


Promotion ways of convincing consumers why they need a product and why they should buy it 


Place this concerns where the product will be sold and how it will be delivered to the market 


People the human capital in terms of skills, attitudes, and abilities necessary in the production of goods or the provision of services 


Processes the procedures and policies pertaining to how an organization’s product is provided and delivered 


Physical evidence the tangible or visible touch points that are observable to customers in a business


Product

A product life cycle shows the course that a product takes from its development to its decline in the market. Most products go through six stages in their life cycle: development, introduction, growth, maturity, saturation, and decline.


Stage 1: Development

In this stage, the product is designed following a series of steps. 

  1. Generating ideas

  2. Screening ideas

  3. Creating a prototype

  4. Carrying out test marketing 

  5. Commercialization 


At this first stage, the research and development costs are high as a lot of time, money, and effort is invested in developing the product. There are no sales yet and therefore no profit is earned. Cash flow is also negative. 


Stage 2: Introduction

This is the launch stage of the product onto the market. Sales are low because most consumers are not yet aware of the product’s existence. Costs incurred in the launch are high, so it is likely that the product is not profitable. Moreover, the cash flow is negative as the cash outflow is still greater than the cash inflow.


Price skimming is setting a high price when introducing a new product to the market.

Penetration pricing is setting a low initial price for a product with the aim of attracting a large number of customers quickly and gaining a high market share.


Stage 3: Growth

Once the product has been well received by the market, the sales volumes and hence revenues start to increase significantly. This translates to rising profits, especially with the possibility of economies of scale or lowering of unit costs. Cash flow now becomes positive. After a successful launch, prices that were initially low (through penetration pricing) can be increased to maximize profits. Products that started at high prices (through price skimming) may need to have their prices reduced slightly because of the increased competition from other businesses attracted by the profits. Advertising convinces consumers to buy more products and establish brand loyalty. A larger number of distribution outlets are used to push the product to different consumers in various locations. To maintain consumer demand, discussions begin on issues regarding product improvements and developments.


Stage 4: Maturity

At this stage, sales continue to rise, but they do so slowly. The product is well established, with a stable and significant market share resulting in a positive cash flow. Sales revenue is at its peak and profit is high, but there is little growth as competitors have entered the market to take advantage of these profits. A promotional pricing strategy is preferred to keep competitors at bay. Promotion assumes a reminding role, to maintain sales growth and emphasize brand loyalty. A wide range of distribution outlets for the product has been established. Plans for new product developments are at an advanced stage, with some rms introducing extension strategies to extend the life of their products. 


Promotional pricing is temporarily reducing the price of a good or service to attract customers.


Stage 5: Saturation 

By this point, many competitors have entered the market and saturated it. Sales are at their highest point and begin to fall. However, cash now is still positive. Some businesses are forced out of the market as a result of the stiff competition. Prices will have to be reduced, so promotional pricing is used. Many rms use extension strategies to stabilize their market share, and they use high levels of promotional activities such as aggressive advertising in an effort to maintain sales. The widest range of geographical distribution outlets has been established to get the products to consumers. Profits are high and mostly stable. 


Stage 6: Decline 

This stage signifies the steady drop in sales and, as a result, decreased profits. In addition, cash flow begins to fall but is still positive. The product may have lost its appeal to consumers because new models have been introduced. If sales fall too low, the product is slowly withdrawn from the market. Promotional activities are reduced and kept at a minimum. Prices are reduced in most cases to sell off any existing stock. Distribution outlets that are not profitable are closed.



Extension strategies are plans by firms to stop sales from falling by lengthening the product’s life cycle. Common methods that businesses use to extend their products’ life cycles include:

  • Selling existing products into new markets.

  • Finding new uses for the product. 

  • Changing the product’s packaging 

  • Targeting different marketing segments

  • Developing new promotional strategies

Extension strategies are important to the long-term success of a product as the market becomes saturated and sales begin to drop. For businesses, it would be better to extend the life of a mature product before this decline in sales starts. However, it is not always easy to determine where exactly a product is in its life cycle. Some businesses use sales forecasting to help with this. However, since forecasting is based on predicting trends, the results obtained may not always be entirely accurate. Moreover, unexpected external factors may have a strong influence on any future sales. 


Product portfolio analysis 

A product portfolio includes all the products or services provided by an organization. Product portfolio analysis is the process of evaluating these products. Portfolio analysis uses various models to help the business make decisions regarding its overall product offering and business portfolios. A business will want to invest more resources into its profitable products and phase out those that are not doing well. A common product portfolio analysis method is the Boston Consulting Group (BCG) matrix (also known as the Boston matrix), which was developed by the management consulting firm Boston Consulting Group. The BCG matrix is a growth–share matrix that measures the market growth rate on the vertical axis and relative market share on the horizontal axis. The market growth rate shows how attractive a product is in the market, while relative market share looks at how much of the market a product has captured – its strength in the market. 


Boston Consulting Group matrix is an analysis method of a rm’s product portfolio regarding its market share and market growth. 


This growth–share matrix is classified into the following four categories:


Stars

These are products with high market growth and high market share. They are successful products in the market and generate high amounts of income for the business. However, they need high levels of investment to sustain their rapid growth and status in the market, especially in a fast-growing market where competing firms can easily gain market share by attracting new customers. With time, as these products mature and their market growth slows down, they eventually turn into cash cows. 


Cash cows

These are products that have low market growth and high market share. They comprise well-established products in a mature market and, as a result, businesses will invest less to hold on to their market share. The product sales are high and very profitable, so they generate a reasonable amount of cash for the business. As the products have a strong presence in the market, businesses can even charge slightly higher prices to increase their profit margins. 


Problem children or question marks

These are products with high market growth and low market share. They are a concern to businesses because of the large amount of money needed to increase their share in the market. Moreover, the high market growth could mean that the products are operating in a fiercely competitive market and need a strong marketing strategy if they are to succeed. Businesses need to think carefully and be very selective about which problem children they should develop into stars and which ones should be eliminated. 


Dogs

These are products that have low market share and low market growth. They operate in markets that are not growing or in declining markets and therefore generate little income for the business. They offer poor future prospects for the firm and may need to be replaced. Businesses with many of these products may be faced with cash flow problems if they continue sustaining them.



BCG matrix strategies 

  • Holding strategy – the focus here is on products with a high market share, to ensure that they maintain their current position in the market. Some investment will be needed to ensure sustained consumer demand. 

  • Building strategy – this focuses on turning problem children into stars. Money from the cash cows could be invested in promoting or distributing these products to increase market share. 

  • Harvesting strategy – the focus here is on milking the benefits of products with a positive cash flow. These products provide the necessary finance, which can be invested in the other portfolio products. 

  • Divesting strategy – this is where the poor-performing dogs are phased out or sold off. The resources freed up from this will need to be used effectively to boost the performance of the other products in the portfolio. 


The limitations of the BCG matrix 

  • It focuses on the current market position of the firm's products, with little advice or information for future planning. 

  • It may be a time-consuming and complex exercise for businesses to define or classify their products according to market share and market growth. 

  • High market share does not necessarily equate to high profits. This is because sales revenue could be gained using promotional pricing, which may drive down a firm's profitability.




Brand is a name, symbol, sign, or design that differentiates a firm's product from those of its competitors.


Branding is the process of distinguishing one rm’s product from another.


Brand awareness is the ability of consumers to recognize the existence and availability of a firm’s goods or services. 


Brand loyalty is when consumers become committed to a firm’s brand and are willing to make repeat purchases over time. 


Brand value is how much a brand is worth in terms of its reputation, potential income, and market value.


The importance of branding

For start-ups, branding is about giving customers a clear image with which they can associate the business. Businesses with well-known brands can use premium pricing or charge high prices for their products because of the image the brand has in the minds of consumers. Consumers will associate such brands with consistently high quality, enabling the businesses to make good sales and earn high profit margins on a regular basis. Customers make judgments about certain products and services based on the way they are presented to them. A rm’s brand name can provide legal protection to a product’s specific features to prevent the product being copied by competitors. Branding provides the product with a unique name that makes it different from its competitors, therefore enabling the business to have a sense of ownership over its products. Effective branding can enable a sense of personal identification and emotional connection among consumers. The key is the impression that branding leaves on potential customers.

Price

Price refers to the money customers pay or give up for having or using a good or service. To meet their marketing objectives, businesses need to set the appropriate pricing strategies for new and existing products. 


Cost-plus pricing (mark-up pricing)

Cost-plus pricing refers to the adding of a mark-up to the average cost of producing a product. The mark-up is a percentage of the profit a rm wishes to gain for every product that it sells. 

Penetration pricing 

Setting a low initial price for a product with the aim of attracting a large number of customers quickly and gaining a high market share is known as penetration pricing. This could be used by businesses either introducing a new product to an existing market or entering new markets with existing products. This is a strategy used in mass marketing. Then as a rm gains market share, it can start to increase its price slowly.



Loss leader is the charging a low price for a product, usually below its average cost, to attract consumers to buy other higher-priced products. 


Predatory pricing is when a firm deliberately sets a very low price on its goods or services with the aim of driving its competitors out of the market.

Premium pricing 

Premium pricing is a strategy where a rm sets a high price for its product. This is usually substantially higher than the competitors’ products to give the impression that the firm's product is superior. This strategy is also known as image pricing or prestige pricing. 


Dynamic pricing (HL) 

Dynamic pricing is a strategy where rms charge different prices for their products depending on which customers are buying them or when the products sell. Dynamic pricing involves tailoring the prices of goods or services based on specific customer preferences. It is also known as surge pricing, demand pricing or time-based pricing. 






Competitive pricing (HL) 

Competitive pricing (also known as a market-oriented strategy) is where a rm sets the price of its product relative to its competitors’ prices.


Contribution pricing (HL)

Contribution pricing involves calculating the variable cost of production of a firm's product, after which the product’s price is set (usually at a higher level). Contribution per unit is the difference between the variable cost per unit and the price per unit. Note that it is not profit but the contribution that goes towards covering the unpaid fixed costs of production. 



Price elasticity of demand (HL) 

It is a measurement of how the quantity demanded of a good is affected by changes in its price.



Price discrimination

Charging different prices to different groups of consumers for the same product is referred to as price discrimination. For effective price discrimination, certain conditions must be satisfied. First, the business must have price-setting ability. This means that a rm can vary its prices and charge higher prices in a market that is not very competitive. Second, consumers should have different price sensitivities or elasticities of demand. This is the measure of how consumers respond in their buying patterns as a result of changes in the price of a product. The third condition for effective price discrimination is that the markets should be separated to ensure that the product is not easily traded. 

Promotion

Promotion is concerned with communicating information about a firm's products to consumers. The main aim of promotion is to obtain new customers or to retain existing ones.


Above-the-line promotion is a paid form of communication that uses independent mass media to promote a firm's products.

Advertising

Advertising plays a central role globally in passing on information about a product to a particular target audience. 

  • Informative advertising: It is useful when businesses want to introduce a new product to the market. Examples of informative advertising include classified advertisements in newspapers and government campaigns to discourage drink-driving.

  • Persuasive advertising: It convinces consumers to make unplanned purchases of a product – an act known as impulse buying. It also helps in enhancing a product’s brand image. 

  • Reassuring advertising: – the focus here is on existing customers, to remind them that they made the right purchasing decisions when they chose to buy the rm’s product and that they should continue to purchase it. 


The main forms of advertising media include television, newspapers, magazines, cinema,                                 radio, posters, billboards, and the internet. 





Below-the-line promotion is a form of communication that gives a business direct control over its promotional activities so that it is not reliant on the use of independent media. 

  • Direct marketing: Direct mail, which is a form of direct marketing, refers to sending information about a product through the post or via email. A limitation of this method is that most consumers regard the information as junk and may not pay any attention to it.

  • Personal selling: this involves the sale of a firm's product through personal contact. It makes use of sales representatives and can be done face to face or over the telephone. A major disadvantage of this method is the cost involved. 

  • Public relations: these are promotional activities aimed at enhancing the image of the business and its products. It includes the use of publicity or sponsorships.

  • Sales promotions: – these are short-term incentives provided by a business with the aim of increasing or boosting its sales.

    • Money-off coupons

    • Point-of-scale displays

    • Free offers or free gifts

    • Competitions

    • BOGOF (buy one get one free)

Through-the-line promotion is a form of promotion that uses an integrated approach of combining both above-the-line and below-the-line promotion strategies. 

  • 360 degree marketing

  • Digital marketing


Choosing a promotional method

However, certain factors will need to be considered when deciding on the promotional method to use: 

  • Cost

  • Legal framework

  • Target market

  • Stage in the product life cycle

  • Type of product


Social media marketing is a marketing approach that uses social networking websites to market a firm's products. 

Benefits of SMM

  • Wide reach

  • Engagement – in most cases, customers and other key stakeholders are participants rather than passive viewers. This means that a firm can find out what challenges customers are facing and what they like or dislike about the firm's product offerings. These interactions provide customers with the opportunity to ask questions and voice their complaints. This is known as social customer relationship management. 

  • Market information

  • Cost savings

  • Brand recognition

  • Speed


Limitations of SMM

  • Accessibility problems

  • Lurkers

  • Used as a supplement

Place

Place is about how the product reaches the intended user. It is concerned with how the product is distributed to make it available to consumers. 


Channel of distribution is the path taken by a product from the producer or manufacturer to the final consumer.


Zero intermediary channel 

This is where a product is sold directly from the producer to the consumer.


One intermediary channel 

This involves the use of one intermediary (such as a retailer or an agent) to sell the products from the producer to the consumer. In most cases, it is used where the retailer is operating on a large scale or where the products are expensive. 


Two intermediaries channel 

In this case, two intermediaries (usually wholesalers and retailers) are used by producers to sell the product to the consumer. The wholesalers are important in this channel and act as an additional intermediary between the producer and the consumer



People

People are the most important element of any service business. Services are produced and consumed at the same moment, and the specific customer experience can be changed to meet the needs of the person consuming it. People usually buy from people they like, so businesses should ensure that their staff have the right attitude, skills, and appearance at all times. People have an important role to play in service delivery and maintaining good customer relationships. Another important factor is that people form a transactional link between the organization and its customers. Therefore, the person’s role in the customer relationship between the business and the consumer is vital. Customer relationship management (CRM), which ensures that staff are trained to deliver good customer service, is important in developing a long-term employee–customer relationship. All organizations need to deal with the various cultural settings they are faced with. Culture includes the way employees perceive or behave in the organization.


Processes

Processes not only relate to the procedures and policies involved in providing and delivering an organization’s products. They also involve how the product is delivered to the consumer. At the outset, businesses need to clearly dene the shape their processes will take so that all stakeholders are fully aware of what to do. For marketing to be effective, there are a number of processes that businesses need to consider, including processes for identifying customer requirements, handling customer complaints, and handling orders, among others. If these are tackled well, they can go a long way towards developing customer loyalty and ensuring repeat customers.


Physical evidence

Physical evidence should therefore enable customers to “see” what is on offer prior to purchasing the service offering. Businesses should also ensure that the testimonials customers pass on to others about their product are good and lead to an enhanced image and increased sales. 


Benefits of a seven Ps marketing mix model 

  • It brings together marketing ideas and concepts in a simple manner, making it easier for a business to market its products or services. 

  • It assists a business in strategy formulation all the way to strategy implementation. 

  • The model allows a business to vary its marketing activities based on customer needs, resource availability and market conditions. 


Drawbacks of a seven Ps marketing mix model 

  • The incorporation of three extra Ps (people, processes, physical evidence) in the seven Ps may be viewed as complicated by some businesses that are used to the four Ps model (product, price, promotion, place). 

  • The seven Ps model misses out on addressing issues related to business productivity. 

  • As product is mentioned in the singular, this could mean that businesses that produce more than one product sell these in isolation, which is not necessarily the case.


4.6 International Marketing

International marketing is the marketing of goods and services across national boundaries.


Globalization is the increasing worldwide competition leading to a rise in international marketing.


E-commerce is trading over the internet.


Piggybacking is the use of the existing distribution channels of one domestic business by another home country business trying to sell a new product overseas.


How businesses enter global markets

  • The internet

  • Exporting – this can be done both directly and indirectly. In direct exporting, a country commits to marketing its product abroad on its own behalf. The main advantage here is that the business has control over its products and operations abroad. Indirect exporting involves hiring an export intermediary or agent in the home country to market the domestic rm’s product abroad. A common form of indirect exporting is piggybacking, where already existing distribution channels of one domestic business are used by another home country business trying to sell a new product overseas. 

  • Direct investment – also known as foreign direct investment, this is where a business sets up production plants abroad. One benet of investing in production plants in a foreign country is that a business gains access to the local market, making products easily available to customers. It also gains local market knowledge, so that it can adapt its products accordingly to suit consumer needs and wants.

  • Joint venture

  • International franchising


Opportunities as a result of entering and operating internationally 

  • A larger market

  • Diversification

  • Gaining economies of scale

  • Forming new business relationships 


Threats as a result of entering and operating internationally

  • Economic challenges – the inequitable distribution of income in many countries can pose a major problem for countries wanting to market overseas. Many developing countries have very low per-capita incomes or purchasing power and therefore may lack the income to buy the products being marketed. Fluctuating exchange rates and differing interest rates also pose planning problems for businesses willing to market abroad.

  • Political challenges – due to the volatile nature of the political arena, unstable political regimes pose a threat to domestic businesses that are willing to operate in foreign markets. The ease with which governments can change regulations also increases the political risk of doing international business. The increased threats of global terrorism and civil unrest have also heightened awareness regarding which countries businesses should trade with. The instability in the Middle East and the invasions of Afghanistan and Somalia are some examples. 

  • Legal challenges – different countries have different laws that businesses need to abide by if they are to market overseas. For example, the EU is known for its strict policies on anti-competitive behavior, advertising and product standards. International marketers must also adhere to the various consumer protection laws and intellectual property rights that exist in other countries. 

  • Social challenges – differences in the demographic or population structures of different countries should be a key consideration for international marketers. In a number of countries in Europe there is an increasing older population, while in many African countries there is a growing younger population. Marketers need to be aware of this disparity and segment the markets accordingly if they are to reap any benefits.

  • Technological challenges – the growing use of the internet has increased the speed at which businesses operate on a global scale. However, a number of developing countries still lack access to this vital resource. This, coupled with limited infrastructure and poor communication systems, can have a drastic impact on how businesses operate.




RB

IB Business Management: Unit 4

Marketing is the management process of getting the right product to the right customer at the right price, the right place and the right time.


Product orientation is a business approach that focuses on making the product first before attempting to sell it. 


Market orientation is a business approach of first establishing consumer demand through market research before producing and selling a product.




Benefits of a market-orientated business 

  • Due to market research, firms have increased confidence that their products will sell, which reduces the risk of failure. 

  • Access to market information means that firms can anticipate and respond quickly to changes in the market. 

  • As a result of regular feedback from consumers due to market research, firms are in a strong position to meet the challenges of new competitors entering the market. 


Limitations of a market-orientated business 

  • Conducting market research can be costly and therefore weigh heavily on a firm’s budget.

  • Due to frequently changing consumer tastes, firms may find it difficult to meet every consumer’s needs with its available resources. 

  • Uncertainty about the future could have a negative influence on the market-planning strategy. 


Benefits of a product-orientated business 

  • It is associated with the production of high-quality products such as luxury sports cars, or safety products like crash helmets. 

  • It can succeed in industries where the speed of change is slow and the rm has already built a good reputation. 

  • It has control over its activities, with a strong belief that consumers will purchase its products. 

 Limitations of a product-orientated business 

  • Since the firm ignores the needs of the market, it takes risks that may lead to eventual business failure or closure. 

  • Spending money on research and development without considering consumer needs could be costly and not yield any promising results.


Market share 

Market share is the percentage of total sales that a business has within an industry. It is the percentage of one rm’s share of the total sales in the market, and is calculated by using the following formula: market share percentage = firm’s sales / total sales in the market × 100 


Market share can be measured by volume (units) or value (revenue): 

  • By volume: this measures the number of goods bought by customers. It is a quantitative measure of the units sold by businesses, for example the number of bags of maize. 

  • By value: this measures the amount spent by customers on the total number of goods sold by businesses. It is the total revenue expressed in monetary terms, such as Kenyan shillings (KSh), US dollars (US$), or Indian rupees. 


Market growth 

Market growth is the increase in the number of consumers who buy a good or service. It is the percentage change in the market size over a given period of time, usually a year. Market size represents the total sales made by all businesses in a given market. Market size can be measured by value or volume.


market growth percentage = market size (second year) - market size (first year) / market size (first year) × 100


Importance of market share and market leadership (HL) 

Even though market share does not show exactly how profitable a firm is, it does provide useful insights into the firm's revenues, growth and profit margins. This is because of economies of scale (a decrease in the average costs of production as a result of increasing a firm's scale of operation). The bigger the firm, the better it can serve greater numbers of consumers in a more cost-efficient manner. This is because goods can be bought for greater discounts due to larger wholesale orders. Hence, even when a larger rm is selling its goods for the same price as its competitors, with a greater market share and economies of scale it can attain higher profit margins, making it a stronger rm overall in the given market. As a result, it can offer more promotions, thereby driving market share even higher, as it captures new consumers from its competitors. Firms that have a compounding effect tend to use market share as a driving force. This means that the larger the rm, the more efficiently it can provide goods or services, and hence the more effective the rm is at capturing market share. The more market share it captures, the more efficiently it can provide goods or services, and so the cycle continues. However, when calculating and interpreting market share, careful thought is needed: 

  • Since market share can be measured in different ways, by value and volume, different results may be obtained in the same time period. 

  • Changes in the time period and market can influence market share results. 

  • The type of products included may also influence the calculation of market share. Measuring market share is important because it can indicate that a rm is a market leader. A market leader is the rm with the largest market share in a particular industry. The market leader can use its dominance in the market to influence other businesses or competitors to follow it. This influence could extend to winning over consumers, pricing decisions, distribution coverage, etc. Increasingly, the internet age has provided huge scope for businesses to become market leaders. 


Benefits of being a market leader 

  • The market leader often has first-mover advantages in new markets. Microsoft with its operating system (Windows) and Apple with the idea of a portable computer with a touch-screen display (the iPad) are examples of companies that have leveraged this advantage. 

  • The market leader enjoys increased sales revenue that translates to higher profits. 

  • The business is able to gain economies of scale.

  • Since the market leader could also be the brand leader (providing the product with the highest market share), the leading brand can act as a good promotional tool for consumers who would like to be associated with popular brands. 

  • Market leaders manage to attract the highest-quality development partners and adopt innovative technologies and processes which help them continue to outperform their competition. However, market leaders need to be cautious about how they use and obtain their market share. Businesses that become too dominant in the market or seem to be abusing their position may be subject to antitrust lawsuits. For example, Microsoft was once a target of regulators. In addition, a market leader may not necessarily be the most profitable business for an investor. Even though it may have a high market share, the firm's total expenses (including manufacturing costs, research and development (R&D) costs and marketing costs) may be too high to make it the most profitable firm among its competitors in the industry. 


4.2 Marketing Planning


Marketing planning is the process of formulating marketing objectives and devising appropriate marketing strategies to meet those objectives. The marketing plan includes some of the following components:

  • Marketing objectives

  • Key strategic plans

  • Detailed marketing actions

  • The marketing budget


Benefits of marketing planning

  • Marketing planning helps a firm to identify potential problems and seek solutions to them.

  • Setting SMART objectives improves the chance of success for a firm's marketing strategy.

  • Sharing the marketing plan with other business departments improves coordination and provides the whole organization with a clearer picture or sense of where it is heading.

  • Devising a marketing budget ensures that resources are not wasted on unprofitable activities. 

  • A clearly spelled-out plan could improve employees’ motivation and inspire confidence about the organization’s future.


Limitations of marketing planning

  • Marketing plans may become outdated if organizations are not quick to consider changes in market conditions.

  • The process may consume considerable resources in terms of time, expertise, and money in designing the plans.

  • Failure to prioritize marketing objectives may make it difficult for firms to tell whether they are meeting them.

Segmentation, targeting and positioning

Market segmentation

A market segment is a sub-group of consumers with similar characteristics in a given market. 

Market segmentation is the process of dividing the market into distinct groups of consumers so as to meet their desired wants and needs. 

Markets can be segmented in the following ways: 

Demographic segmentation – this considers the varying characteristics of the human population in a market, which include: 

  • age 

  • gender 

  • family characteristics – some businesses have used creative acronyms to segment their markets; for example, OINK (one income, no kids) targets young singles, while DINKY (double income, no kids yet) targets young married couples 

  • ethnic grouping


Geographic segmentation – this is where the market is divided into different geographical sectors and considers factors including: 

  • regions in a country where consumers reside

  • climatic conditions


Psychographic segmentation – this divides the market based on people’s lifestyle choices or personality characteristics, such as:

  • social and economic status

  • values 


Advantages of segmentation 

  • Segmentation helps businesses to identify existing gaps and new opportunities in domestic as well as international markets. 

  • Designing products for a specific group of consumers can increase sales and hence profitability. 

  • Segmentation minimizes the waste of resources by businesses through identifying the right consumers for their products. 

  • By differentiating their products, businesses can diversify and spread their risks in the market and so increase market share. 


A target market is a group of consumers with common needs or wants that a business serves or sells to. Targeting is the process of marketing to a specific market segment.


Undifferentiated marketing or mass marketing is a strategy where a firm ignores the differences in the specific market segments and targets the entire market. 


Differentiated marketing or segmented marketing is a strategy that targets several market segments and develops appropriate marketing mixes for each of these segments. 


Concentrated marketing or niche marketing is a strategy that appeals to smaller and more specific market segments. 


A consumer profile is a description of the characteristics of consumers of a particular product in different markets. 


Positioning

Product positioning involves analyzing how consumers define or perceive a product compared to other products in the market. 


Product position map/perception map is a visual representation of how consumers perceive a product in relation to other competing products.


The first step in positioning requires marketers to identify product features that consumers find important, such as quality, price, and image. In the second step, the rm chooses the key features to use to develop its positioning strategy. Finally, the rm communicates its desired position to its target customers with the support of its marketing mix. 


The importance of a position map 

  • It can help a firm to establish who its close competitors or threats are in the market. 

  • It helps to identify important gaps or opportunities in the market that the firm could fill by creating or offering new products. 

  • It is a simple and quick way of presenting usually sophisticated research data. 

  • It helps a firm in targeting specific market segments to best satisfy consumer needs and wants. 


The difference between niche market and mass market 

A niche market focuses on a small group of people or consumers who have interests that align with the product or service of a specific organization. A mass market is aimed at a large or broad market segment. A mass marketing strategy would involve communicating to the largest possible audience.


Unique selling point/ proposition (USP) is a product’s feature that differentiates it from other competing products in the market


The importance of having a USP

  • provides a firm with a competitive advantage in its product offering, thus attracting more customers

  • leads to customer loyalty, as customers continue to identify something special about the product compared to rival products

  • increases revenue, as customers buy products or services that best meet their needs, even paying top prices for a reputable brand they view as high-quality

  • makes it easier to sell the product or service, especially with sales representatives who see value in the product or even use the product themselves.


Product differentiation

This is the physical or perceived difference in a product. It can take the form of product features such as durability, performance, reliability, or other criteria. Due to its tangible nature, most marketers spend their time on this type of differentiation when pursuing customers. However, product differentiation can be a short-term strategy, as many product innovations can be easily duplicated. Despite the existence of intellectual property rights like patents and copyrights, in several cases these do not present practical challenges. Some businesses choose not to patent as this reveals to their competitors how to duplicate their product. However, a patent at least protects the product for the life of the patent, unlike when there is none and any competitor with capital can quickly produce a similar product. 


Service differentiation

This includes customer service, delivery, and supporting business elements like installation and training. Some organizations, however, view this as a simple component of a business not requiring any level of sophistication.


Price differentiation

A successful price differentiation strategy recognizes that every customer is willing to pay a different price for a product. Through segmentation and differentiation, a business can maximize its potential revenue by offering a differentiated product at a different price in each of its market segments. 


Distribution differentiation

The channel of distribution or path through which a good or service passes until it reaches the end consumer is an effective means of differentiation. This could be through providing immediate access to expertise, greater ease when ordering goods or services, or high levels of technical service. 


Relationship differentiation

This is differentiation through the organization’s personnel, including employees or team members with customer links. They are responsible for the day-to-day communication with customers, and are an important link between the product and the customer.


Image/reputation differentiation

This is usually created through other forms of differentiation (such as high product quality, great service, or superior performance), although a business can control and manage its image with the means of communication it uses with its customers. 


Porter’s Generic Strategies (HL)

Michael Porter developed generic strategies that apply to products and services in all organizations and industries regardless of their size. These are “cost leadership” (a no-frills approach), “differentiation” (involving the creation of uniquely desirable products and services), and “focus” (offering a specialized service in a niche market). The focus strategy is subdivided into two parts: “cost focus”, which emphasizes cost-minimization within a focused market, and “differentiation focus”, which involves pursuing strategic differentiation within a focused market.


4.3 Sales forecasting

Sales forecasting is the process of predicting the future sales of a firm.


Time series analysis is a quantitative sales forecasting method that predicts future sales levels from past sales data.


Below are key aspects that need to be identified in time series data. 

  • The trend – this is the visible pattern seen after inputting the past sales data. It can indicate the rise and fall of sales over a given period. 

  • Seasonal fluctuations – these are changes in demand due to the varying seasons in the year. An example of seasonal variation is when a business experiences an increase in sales of clothing at the beginning of a new year but these sales decline in the middle of the year. Seasonal variations are usually repeated and occur within one year or less. 

  • Cyclical fluctuations – these are variations tied to the business cycle in an economy. For example, sales could rise during the growth phase but decline during a recession. Cyclical variations can extend for more than one year. 

  • Random fluctuations – these are notable changes or fluctuations that stand out from a given trend. For example, a sudden increase in the demand for ice-cream during a rare warm day in winter. Random variations are unpredictable and can occur at any time.

Moving average is a sales forecasting method that identifies and emphasizes the direction of a trend.


Extrapolation is an extension of a trend line to predict future sales.


Variation is the difference between actual sales and trend values.


Calculating a three year moving average

  • Calculate the mean sales for the first three years.

  • Do the same for the next three sets of data.

  • The same process should be used for the following sets of threes.


Benefits of sales forecasting 

  • Alignment of an organization strategy for better results. When sales forecasting aligns with an organization’s strategy, it enables the right resources to be allocated at the right time. An organization with a goal of increasing its customer base by 20%, for example, could base this on its sales forecasts and allocate the necessary resources to its personnel to seek potential customers. 

  • Better cash-flow management. By considering cyclical and seasonal variation factors, financial managers can better plan to improve the liquidity position of a business. 

  • Increased efficiency. Sales forecasting helps the production department to know the number of goods to produce and to plan for stock required in the future. 


Limitations of sales forecasting 

  • Sales forecasting is time-consuming. It takes a long time to calculate because of its complex nature, especially when considering the calculation of average seasonal variations in each quarter over a number of years. 

  • Sales forecasting ignores qualitative external factors. Political, social, and economic factors can influence the accuracy of sales forecast predictions, for example political instability, changes in consumer tastes and preferences, and exchange rate fluctuations.

  • In sales forecasting, the entry of competitors into a market may be unforeseen. This can significantly change an organization’s dynamic and influence its sales position. For example, a rm that is enjoying a monopoly status in the present can lose that position if the consumers decide to switch to buying the competitors’ products. 

  • Sales forecasting may be based on present technology which can be rendered obsolete due to technological progress. Hence, products which may currently be enjoying good sales may lose their market to products made with the latest technology. An example is the market for electronic products and computers.

4.4 Market Research

Market research is the process of collecting, analyzing, and reporting data related to a particular market. This includes data on consumption of goods and services and on competitors’ behavior. Importantly, businesses use market research information to make key decisions.


Primary research the collection of first-hand information from the market. This is also known as field research. A key advantage of primary research is that the organization can gain information directly from its customers, which gives it an advantage over its rivals. However, field research is expensive because the research process takes time and requires specialist researchers.


Secondary research the collection of second-hand information from the market. This is also known as desk research. Organizations should first carry out secondary research to get an overall background picture, and then conduct primary research as a gap-lling measure. Desk research is a quicker and cheaper method than eld research and most of the information involved is readily available. However, the information collected may be out of date and it might have been collected for purposes other than the specific needs of the researching organization. In some cases, the source of the data may be unreliable.


The purposes of market research

  • To identify consumer needs and wants, as well as to understand consumer satisfaction levels and patterns in purchasing behavior.

  • To assist a business in predicting what is likely to happen in the future.

  • To reduce the risk of product failure (especially of new products) by effectively carrying out market research that establishes the likes and dislikes of consumers. 

  • To measure the effectiveness of a marketing strategy. This can be done by assessing or evaluating how a rm implements its marketing mix activities in specific market segments.

  • To provide the latest information on activities happening in the market.


Primary market research methods

Surveys 

These are questionnaires sent out to a particular target audience to enable the researcher to gather useful information. The questionnaire may contain different types of questions, such as closed questions needing “yes” or “no” answers, and open-ended questions which require a lengthier response. A consumer survey can focus on getting specific information from consumers by seeking their opinion on a particular product or issue. Surveys can be implemented in different ways. Some of the most common ways to administer surveys include: 

  • by mail

  • by telephone

  • online 


Interviews 

An interview is a conversation during which the interviewer asks the interviewee questions in order to gain information. Interviews can be conducted one on one, face to face, by telephone or online.


Focus groups 

Focus groups consist of a small number of people brought together to discuss a specific product or idea. The group comprises individuals who are representative of the customers of the business or of a specific segment of customers. In the discussion, participants respond to questions prepared by market researchers. Participants share their opinions, ideas, and reactions freely. They can also be asked to try a new product. Usually, all participant responses are viewed and studied to help researchers predict the reaction of the larger market population. 


Observation 

Observation is a fundamental and basic method of getting information by carefully watching and trying to understand certain things or people’s behavior. Some observations are scientific in nature, but not all are.



Secondary market research methods

Academic journals

These are publications of scholarly articles written by experts. The articles should be well referenced to provide the exact source of the information given. The experts usually include professors, graduate students, or others with first-hand experience in a particular subject. Academic journals are written for the sole purpose of providing and distributing knowledge and not as a money-making opportunity. 


Media articles

These include texts written and submitted for publication. Some examples are newspapers and magazines. 



Government publications

These are documents produced by the government that provide an ofcial record of government activities and cover a wide variety of topics. They can be issued by local, regional, or national governments or by their respective agencies.


Market analyses

These include commercial publications or market intelligence reports that gather data about particular markets. The highly detailed reports are usually carried out by specialist market research agents. They can be sourced at various local business libraries.



Online content

This involves gathering information from the internet or websites. The internet provides access to an abundance of data. Both published and unpublished secondary data can be found on the internet. 

Qualitative research is the collection, analysis, and interpretation of data about consumer opinions, attitudes, or beliefs 


Quantitative research is the collection, analysis and interpretation of numerical data or data that can be measured


Sampling methods 

The population comprises all potential consumers in a market. There is simply not enough time, energy, money, labor, or equipment to carry out a survey of the whole population. However, to gather adequate primary research and still have a clear idea of consumers’ views, it is necessary to take a sample of the population. A sample is a small group of people selected to represent the population or target market under research. For example, a small group of consumers could be selected out of a large number of potential buyers of a product. Sampling is simply the process of selecting the appropriate sample. Below are a number of commonly used sampling methods and the advantages and disadvantages of each.


Quota sampling 

This involves segmenting a given population into a number of groups that share certain characteristics (mutually exclusive sub-groups) such as age or gender. Targets are then set for the number of people who must be interviewed in each segment. For example, in a school of 500 students offering the IB diploma programme, a researcher may target 15 males and 20 females to interview regarding their perception of the programme


Random sampling

Every member in the population has an equal chance of being selected as part of the sample, as the sample of respondents is selected randomly.


Convenience sampling

This is a sampling technique where research groups are selected based on their easy access and proximity to the researcher.


Importance of properly collected data 

Benefits of properly collected data include: 

  • the ability of the research to accurately answer the research questions posed 

  • the ability to repeat and validate a particular study where needed 

  • increased accuracy of findings resulting in an efficient use of resources 

  • good opportunities for other researchers to pursue areas needing further investigation.

4.5 The seven Ps of the marketing mix

Marketing mix are the key elements of a marketing strategy that ensure the successful marketing of a product. 


Product is any good or service that is offered to the market with the aim of satisfying consumer needs or wants. 


Price what consumers pay to acquire a product 


Promotion ways of convincing consumers why they need a product and why they should buy it 


Place this concerns where the product will be sold and how it will be delivered to the market 


People the human capital in terms of skills, attitudes, and abilities necessary in the production of goods or the provision of services 


Processes the procedures and policies pertaining to how an organization’s product is provided and delivered 


Physical evidence the tangible or visible touch points that are observable to customers in a business


Product

A product life cycle shows the course that a product takes from its development to its decline in the market. Most products go through six stages in their life cycle: development, introduction, growth, maturity, saturation, and decline.


Stage 1: Development

In this stage, the product is designed following a series of steps. 

  1. Generating ideas

  2. Screening ideas

  3. Creating a prototype

  4. Carrying out test marketing 

  5. Commercialization 


At this first stage, the research and development costs are high as a lot of time, money, and effort is invested in developing the product. There are no sales yet and therefore no profit is earned. Cash flow is also negative. 


Stage 2: Introduction

This is the launch stage of the product onto the market. Sales are low because most consumers are not yet aware of the product’s existence. Costs incurred in the launch are high, so it is likely that the product is not profitable. Moreover, the cash flow is negative as the cash outflow is still greater than the cash inflow.


Price skimming is setting a high price when introducing a new product to the market.

Penetration pricing is setting a low initial price for a product with the aim of attracting a large number of customers quickly and gaining a high market share.


Stage 3: Growth

Once the product has been well received by the market, the sales volumes and hence revenues start to increase significantly. This translates to rising profits, especially with the possibility of economies of scale or lowering of unit costs. Cash flow now becomes positive. After a successful launch, prices that were initially low (through penetration pricing) can be increased to maximize profits. Products that started at high prices (through price skimming) may need to have their prices reduced slightly because of the increased competition from other businesses attracted by the profits. Advertising convinces consumers to buy more products and establish brand loyalty. A larger number of distribution outlets are used to push the product to different consumers in various locations. To maintain consumer demand, discussions begin on issues regarding product improvements and developments.


Stage 4: Maturity

At this stage, sales continue to rise, but they do so slowly. The product is well established, with a stable and significant market share resulting in a positive cash flow. Sales revenue is at its peak and profit is high, but there is little growth as competitors have entered the market to take advantage of these profits. A promotional pricing strategy is preferred to keep competitors at bay. Promotion assumes a reminding role, to maintain sales growth and emphasize brand loyalty. A wide range of distribution outlets for the product has been established. Plans for new product developments are at an advanced stage, with some rms introducing extension strategies to extend the life of their products. 


Promotional pricing is temporarily reducing the price of a good or service to attract customers.


Stage 5: Saturation 

By this point, many competitors have entered the market and saturated it. Sales are at their highest point and begin to fall. However, cash now is still positive. Some businesses are forced out of the market as a result of the stiff competition. Prices will have to be reduced, so promotional pricing is used. Many rms use extension strategies to stabilize their market share, and they use high levels of promotional activities such as aggressive advertising in an effort to maintain sales. The widest range of geographical distribution outlets has been established to get the products to consumers. Profits are high and mostly stable. 


Stage 6: Decline 

This stage signifies the steady drop in sales and, as a result, decreased profits. In addition, cash flow begins to fall but is still positive. The product may have lost its appeal to consumers because new models have been introduced. If sales fall too low, the product is slowly withdrawn from the market. Promotional activities are reduced and kept at a minimum. Prices are reduced in most cases to sell off any existing stock. Distribution outlets that are not profitable are closed.



Extension strategies are plans by firms to stop sales from falling by lengthening the product’s life cycle. Common methods that businesses use to extend their products’ life cycles include:

  • Selling existing products into new markets.

  • Finding new uses for the product. 

  • Changing the product’s packaging 

  • Targeting different marketing segments

  • Developing new promotional strategies

Extension strategies are important to the long-term success of a product as the market becomes saturated and sales begin to drop. For businesses, it would be better to extend the life of a mature product before this decline in sales starts. However, it is not always easy to determine where exactly a product is in its life cycle. Some businesses use sales forecasting to help with this. However, since forecasting is based on predicting trends, the results obtained may not always be entirely accurate. Moreover, unexpected external factors may have a strong influence on any future sales. 


Product portfolio analysis 

A product portfolio includes all the products or services provided by an organization. Product portfolio analysis is the process of evaluating these products. Portfolio analysis uses various models to help the business make decisions regarding its overall product offering and business portfolios. A business will want to invest more resources into its profitable products and phase out those that are not doing well. A common product portfolio analysis method is the Boston Consulting Group (BCG) matrix (also known as the Boston matrix), which was developed by the management consulting firm Boston Consulting Group. The BCG matrix is a growth–share matrix that measures the market growth rate on the vertical axis and relative market share on the horizontal axis. The market growth rate shows how attractive a product is in the market, while relative market share looks at how much of the market a product has captured – its strength in the market. 


Boston Consulting Group matrix is an analysis method of a rm’s product portfolio regarding its market share and market growth. 


This growth–share matrix is classified into the following four categories:


Stars

These are products with high market growth and high market share. They are successful products in the market and generate high amounts of income for the business. However, they need high levels of investment to sustain their rapid growth and status in the market, especially in a fast-growing market where competing firms can easily gain market share by attracting new customers. With time, as these products mature and their market growth slows down, they eventually turn into cash cows. 


Cash cows

These are products that have low market growth and high market share. They comprise well-established products in a mature market and, as a result, businesses will invest less to hold on to their market share. The product sales are high and very profitable, so they generate a reasonable amount of cash for the business. As the products have a strong presence in the market, businesses can even charge slightly higher prices to increase their profit margins. 


Problem children or question marks

These are products with high market growth and low market share. They are a concern to businesses because of the large amount of money needed to increase their share in the market. Moreover, the high market growth could mean that the products are operating in a fiercely competitive market and need a strong marketing strategy if they are to succeed. Businesses need to think carefully and be very selective about which problem children they should develop into stars and which ones should be eliminated. 


Dogs

These are products that have low market share and low market growth. They operate in markets that are not growing or in declining markets and therefore generate little income for the business. They offer poor future prospects for the firm and may need to be replaced. Businesses with many of these products may be faced with cash flow problems if they continue sustaining them.



BCG matrix strategies 

  • Holding strategy – the focus here is on products with a high market share, to ensure that they maintain their current position in the market. Some investment will be needed to ensure sustained consumer demand. 

  • Building strategy – this focuses on turning problem children into stars. Money from the cash cows could be invested in promoting or distributing these products to increase market share. 

  • Harvesting strategy – the focus here is on milking the benefits of products with a positive cash flow. These products provide the necessary finance, which can be invested in the other portfolio products. 

  • Divesting strategy – this is where the poor-performing dogs are phased out or sold off. The resources freed up from this will need to be used effectively to boost the performance of the other products in the portfolio. 


The limitations of the BCG matrix 

  • It focuses on the current market position of the firm's products, with little advice or information for future planning. 

  • It may be a time-consuming and complex exercise for businesses to define or classify their products according to market share and market growth. 

  • High market share does not necessarily equate to high profits. This is because sales revenue could be gained using promotional pricing, which may drive down a firm's profitability.




Brand is a name, symbol, sign, or design that differentiates a firm's product from those of its competitors.


Branding is the process of distinguishing one rm’s product from another.


Brand awareness is the ability of consumers to recognize the existence and availability of a firm’s goods or services. 


Brand loyalty is when consumers become committed to a firm’s brand and are willing to make repeat purchases over time. 


Brand value is how much a brand is worth in terms of its reputation, potential income, and market value.


The importance of branding

For start-ups, branding is about giving customers a clear image with which they can associate the business. Businesses with well-known brands can use premium pricing or charge high prices for their products because of the image the brand has in the minds of consumers. Consumers will associate such brands with consistently high quality, enabling the businesses to make good sales and earn high profit margins on a regular basis. Customers make judgments about certain products and services based on the way they are presented to them. A rm’s brand name can provide legal protection to a product’s specific features to prevent the product being copied by competitors. Branding provides the product with a unique name that makes it different from its competitors, therefore enabling the business to have a sense of ownership over its products. Effective branding can enable a sense of personal identification and emotional connection among consumers. The key is the impression that branding leaves on potential customers.

Price

Price refers to the money customers pay or give up for having or using a good or service. To meet their marketing objectives, businesses need to set the appropriate pricing strategies for new and existing products. 


Cost-plus pricing (mark-up pricing)

Cost-plus pricing refers to the adding of a mark-up to the average cost of producing a product. The mark-up is a percentage of the profit a rm wishes to gain for every product that it sells. 

Penetration pricing 

Setting a low initial price for a product with the aim of attracting a large number of customers quickly and gaining a high market share is known as penetration pricing. This could be used by businesses either introducing a new product to an existing market or entering new markets with existing products. This is a strategy used in mass marketing. Then as a rm gains market share, it can start to increase its price slowly.



Loss leader is the charging a low price for a product, usually below its average cost, to attract consumers to buy other higher-priced products. 


Predatory pricing is when a firm deliberately sets a very low price on its goods or services with the aim of driving its competitors out of the market.

Premium pricing 

Premium pricing is a strategy where a rm sets a high price for its product. This is usually substantially higher than the competitors’ products to give the impression that the firm's product is superior. This strategy is also known as image pricing or prestige pricing. 


Dynamic pricing (HL) 

Dynamic pricing is a strategy where rms charge different prices for their products depending on which customers are buying them or when the products sell. Dynamic pricing involves tailoring the prices of goods or services based on specific customer preferences. It is also known as surge pricing, demand pricing or time-based pricing. 






Competitive pricing (HL) 

Competitive pricing (also known as a market-oriented strategy) is where a rm sets the price of its product relative to its competitors’ prices.


Contribution pricing (HL)

Contribution pricing involves calculating the variable cost of production of a firm's product, after which the product’s price is set (usually at a higher level). Contribution per unit is the difference between the variable cost per unit and the price per unit. Note that it is not profit but the contribution that goes towards covering the unpaid fixed costs of production. 



Price elasticity of demand (HL) 

It is a measurement of how the quantity demanded of a good is affected by changes in its price.



Price discrimination

Charging different prices to different groups of consumers for the same product is referred to as price discrimination. For effective price discrimination, certain conditions must be satisfied. First, the business must have price-setting ability. This means that a rm can vary its prices and charge higher prices in a market that is not very competitive. Second, consumers should have different price sensitivities or elasticities of demand. This is the measure of how consumers respond in their buying patterns as a result of changes in the price of a product. The third condition for effective price discrimination is that the markets should be separated to ensure that the product is not easily traded. 

Promotion

Promotion is concerned with communicating information about a firm's products to consumers. The main aim of promotion is to obtain new customers or to retain existing ones.


Above-the-line promotion is a paid form of communication that uses independent mass media to promote a firm's products.

Advertising

Advertising plays a central role globally in passing on information about a product to a particular target audience. 

  • Informative advertising: It is useful when businesses want to introduce a new product to the market. Examples of informative advertising include classified advertisements in newspapers and government campaigns to discourage drink-driving.

  • Persuasive advertising: It convinces consumers to make unplanned purchases of a product – an act known as impulse buying. It also helps in enhancing a product’s brand image. 

  • Reassuring advertising: – the focus here is on existing customers, to remind them that they made the right purchasing decisions when they chose to buy the rm’s product and that they should continue to purchase it. 


The main forms of advertising media include television, newspapers, magazines, cinema,                                 radio, posters, billboards, and the internet. 





Below-the-line promotion is a form of communication that gives a business direct control over its promotional activities so that it is not reliant on the use of independent media. 

  • Direct marketing: Direct mail, which is a form of direct marketing, refers to sending information about a product through the post or via email. A limitation of this method is that most consumers regard the information as junk and may not pay any attention to it.

  • Personal selling: this involves the sale of a firm's product through personal contact. It makes use of sales representatives and can be done face to face or over the telephone. A major disadvantage of this method is the cost involved. 

  • Public relations: these are promotional activities aimed at enhancing the image of the business and its products. It includes the use of publicity or sponsorships.

  • Sales promotions: – these are short-term incentives provided by a business with the aim of increasing or boosting its sales.

    • Money-off coupons

    • Point-of-scale displays

    • Free offers or free gifts

    • Competitions

    • BOGOF (buy one get one free)

Through-the-line promotion is a form of promotion that uses an integrated approach of combining both above-the-line and below-the-line promotion strategies. 

  • 360 degree marketing

  • Digital marketing


Choosing a promotional method

However, certain factors will need to be considered when deciding on the promotional method to use: 

  • Cost

  • Legal framework

  • Target market

  • Stage in the product life cycle

  • Type of product


Social media marketing is a marketing approach that uses social networking websites to market a firm's products. 

Benefits of SMM

  • Wide reach

  • Engagement – in most cases, customers and other key stakeholders are participants rather than passive viewers. This means that a firm can find out what challenges customers are facing and what they like or dislike about the firm's product offerings. These interactions provide customers with the opportunity to ask questions and voice their complaints. This is known as social customer relationship management. 

  • Market information

  • Cost savings

  • Brand recognition

  • Speed


Limitations of SMM

  • Accessibility problems

  • Lurkers

  • Used as a supplement

Place

Place is about how the product reaches the intended user. It is concerned with how the product is distributed to make it available to consumers. 


Channel of distribution is the path taken by a product from the producer or manufacturer to the final consumer.


Zero intermediary channel 

This is where a product is sold directly from the producer to the consumer.


One intermediary channel 

This involves the use of one intermediary (such as a retailer or an agent) to sell the products from the producer to the consumer. In most cases, it is used where the retailer is operating on a large scale or where the products are expensive. 


Two intermediaries channel 

In this case, two intermediaries (usually wholesalers and retailers) are used by producers to sell the product to the consumer. The wholesalers are important in this channel and act as an additional intermediary between the producer and the consumer



People

People are the most important element of any service business. Services are produced and consumed at the same moment, and the specific customer experience can be changed to meet the needs of the person consuming it. People usually buy from people they like, so businesses should ensure that their staff have the right attitude, skills, and appearance at all times. People have an important role to play in service delivery and maintaining good customer relationships. Another important factor is that people form a transactional link between the organization and its customers. Therefore, the person’s role in the customer relationship between the business and the consumer is vital. Customer relationship management (CRM), which ensures that staff are trained to deliver good customer service, is important in developing a long-term employee–customer relationship. All organizations need to deal with the various cultural settings they are faced with. Culture includes the way employees perceive or behave in the organization.


Processes

Processes not only relate to the procedures and policies involved in providing and delivering an organization’s products. They also involve how the product is delivered to the consumer. At the outset, businesses need to clearly dene the shape their processes will take so that all stakeholders are fully aware of what to do. For marketing to be effective, there are a number of processes that businesses need to consider, including processes for identifying customer requirements, handling customer complaints, and handling orders, among others. If these are tackled well, they can go a long way towards developing customer loyalty and ensuring repeat customers.


Physical evidence

Physical evidence should therefore enable customers to “see” what is on offer prior to purchasing the service offering. Businesses should also ensure that the testimonials customers pass on to others about their product are good and lead to an enhanced image and increased sales. 


Benefits of a seven Ps marketing mix model 

  • It brings together marketing ideas and concepts in a simple manner, making it easier for a business to market its products or services. 

  • It assists a business in strategy formulation all the way to strategy implementation. 

  • The model allows a business to vary its marketing activities based on customer needs, resource availability and market conditions. 


Drawbacks of a seven Ps marketing mix model 

  • The incorporation of three extra Ps (people, processes, physical evidence) in the seven Ps may be viewed as complicated by some businesses that are used to the four Ps model (product, price, promotion, place). 

  • The seven Ps model misses out on addressing issues related to business productivity. 

  • As product is mentioned in the singular, this could mean that businesses that produce more than one product sell these in isolation, which is not necessarily the case.


4.6 International Marketing

International marketing is the marketing of goods and services across national boundaries.


Globalization is the increasing worldwide competition leading to a rise in international marketing.


E-commerce is trading over the internet.


Piggybacking is the use of the existing distribution channels of one domestic business by another home country business trying to sell a new product overseas.


How businesses enter global markets

  • The internet

  • Exporting – this can be done both directly and indirectly. In direct exporting, a country commits to marketing its product abroad on its own behalf. The main advantage here is that the business has control over its products and operations abroad. Indirect exporting involves hiring an export intermediary or agent in the home country to market the domestic rm’s product abroad. A common form of indirect exporting is piggybacking, where already existing distribution channels of one domestic business are used by another home country business trying to sell a new product overseas. 

  • Direct investment – also known as foreign direct investment, this is where a business sets up production plants abroad. One benet of investing in production plants in a foreign country is that a business gains access to the local market, making products easily available to customers. It also gains local market knowledge, so that it can adapt its products accordingly to suit consumer needs and wants.

  • Joint venture

  • International franchising


Opportunities as a result of entering and operating internationally 

  • A larger market

  • Diversification

  • Gaining economies of scale

  • Forming new business relationships 


Threats as a result of entering and operating internationally

  • Economic challenges – the inequitable distribution of income in many countries can pose a major problem for countries wanting to market overseas. Many developing countries have very low per-capita incomes or purchasing power and therefore may lack the income to buy the products being marketed. Fluctuating exchange rates and differing interest rates also pose planning problems for businesses willing to market abroad.

  • Political challenges – due to the volatile nature of the political arena, unstable political regimes pose a threat to domestic businesses that are willing to operate in foreign markets. The ease with which governments can change regulations also increases the political risk of doing international business. The increased threats of global terrorism and civil unrest have also heightened awareness regarding which countries businesses should trade with. The instability in the Middle East and the invasions of Afghanistan and Somalia are some examples. 

  • Legal challenges – different countries have different laws that businesses need to abide by if they are to market overseas. For example, the EU is known for its strict policies on anti-competitive behavior, advertising and product standards. International marketers must also adhere to the various consumer protection laws and intellectual property rights that exist in other countries. 

  • Social challenges – differences in the demographic or population structures of different countries should be a key consideration for international marketers. In a number of countries in Europe there is an increasing older population, while in many African countries there is a growing younger population. Marketers need to be aware of this disparity and segment the markets accordingly if they are to reap any benefits.

  • Technological challenges – the growing use of the internet has increased the speed at which businesses operate on a global scale. However, a number of developing countries still lack access to this vital resource. This, coupled with limited infrastructure and poor communication systems, can have a drastic impact on how businesses operate.