Unit 3: Marketing

10. Marketing, competition and the customer

Customer base: a group of people businesses sell their products to

Role of marketing: to give consumers the illusion that their “wants” are a need

Market: includes all consumers who want to buy the product and have the financial means to do so

Target market: individuals identified by businesses as the customer of the product

Consumer market: markets for goods and services sold to the final consumer

Industrial market: markets for goods and services bought by other businesses (to use in production process)

Business environment: the external and internal factors that affect the operation of a business

Factors affecting consumer’s spending patterns

• Price of product

• Changes in customer income

• Changes in taste/trends

How businesses respond to changes (in spending patterns)

• Product development (make new products/alter existing products)

• Improve efficiency → Lower cost of product → make more profit

• Better advertising

• Enter new markets (when changes are too drastic/competition is too high)

Niche marketing: developing products catered to a small segment of the whole market

Benefits of niche marketing:

• Less competition → small businesses can survive

• Consumers willing to pay more since the products are exclusive

Disadvantages of niche marketing:

• Niche markets could attract competitors → products become less exclusive → less profit

• Small changes in consumer behaviour 

Mass marketing: selling the same product to the whole market (not as popular)

→ businesses now divide the market into segments and develop products tailored to these segments

⇒ market segmentation: dividing the market into different segments according to consumer’s characteristics (e.g. age, gender, preferences) then developing products catered to these segments 

Types of market segmentation:

Geographic segmentation: dividing the market into segments based on geographic location

Demographic segmentation: dividing the market into segments based on age, gender, ethnic background, social class

Psychographic segmentation: dividing the market into segments based on lifestyles, personality

11. Market research

Market research: the process of a business collecting and analysing information about the customer, the market, and its competitors

Secondary research: the collection of data from external sources

Primary research: the collection of first-hand data

Quantitative research: numerical data

Qualitative research: information collected about customer’s opinions/behaviour

Methods of primary research:

Focus group: a group of potential customers assembled by a business to see their opinions about a new product before it’s launched

Observation: behaviour of consumer is secretly observed by businesses

Test market: a limited quantity of the product is sold in an exclusive segment of the market

Consumer’s surveys: include interviews and online surveys

12. Marketing mix: product and price

Benefits of developing a new product:

• Meet changing needs of consumers

• Develop new products with a USP

• Increase potential for revenue

Disadvantages of developing a new product:

• Market research: costly, time-consuming

• Requires high capital expenditure

• Sales of existing products will decrease

• New product may not be a success

Product’s life cycle

• Introduction stage: sales are low + heavy advertising (costly) → might be making a loss

• Growth stage: product establishes a presence in the market → sales increase → make profit

• Maturity stage: sales are constant (not growing nor falling) → most profitable stage

• Decline stage: sales are falling → becomes unprofitable and eventually withdraw from the market

Extension strategies: marketing strategies used by businesses to extend the maturity stage of a product

Some extension strategies:

• Finding a new market for the product

• Finding new uses for the product

• Changing the packaging to appear more “fresh” to customers

• Increased advertising

The 4Ps of marketing

Place: the location where the product sold (will be limited in the introduction stage)

Promotion: the promotional activity depending on the product’s style/type and it’s life cycle

Price: the price of the product will depend on the product life cycle (start with a low price → slowly increase → after the declining stage the product’s price will likely decrease)

Product: the model of the product depends on the targeted customer and the product life cycle

Pricing methods:

• Market skimming: setting a high price for a new/unique product

• Penetration pricing: setting a low price for a new product

• Competitive pricing: setting the price based on your competitors

• Loss-leader pricing (a type of promotional pricing): setting the price for a small no. of products VERY LOW → attract customers to the store in hopes that they will also buy other products with profitable prices

• Cost-plus pricing: setting the price based on the cost of making the product

Price elasticity of demand: measured by how much the demand for a product changes when there is a change in the price

→ price inelastic demand: products not responsive to change in price usually a need (e.g. bottle water)

→ price elastic demand: products responsive to changes in price usually a want (e.g. plushies)

Marketing mix: 4 key decisions businesses must make to market the product efficiently. The decisions include: product, place, promotion, and price

13. Marketing mix: place and promotion

Channels of distribution: how a product gets from the producer to the final consumer

Middlemen: intermediaries in channels of distribution

• Wholesaler: a business that buys products in bulk from producers and sells them to retailers

• Retailers: outlets that sell goods to the final consumer

Direct selling: when the product is sold directly from the producer to the final consumer without the need for any intermediaries(middlemen)

Promotion: marketing activities used to persuade customers/potential customers into a buying a business’s product

Informative advertising: info about the product is given to consumers to attract them

Persuasive advertising: aimed at persuading customers to buy product

Sales promotion: tactics used to increase sales for a short period

Types of sale promotion:

• Coupons

• Sale displays (percentage off certain products) 

• Loyalty rewards

Types of promotions:

Personal selling: sale staff communicate directly with customer to persuade them → build a more personal/intimate relationship

Direct mail: advertising leaflets sent directly to the customer’s email

Sponsorship: payment by a business to have its name associated with a particular event

Marketing budget: the amount of money businesses set aside for promotional activities → affect promotional decisions

E-commerce: the use of the internet to market and sell goods to customers

14. Marketing strategy

Marketing strategy: the plan to achieve the marketing objective give a certain amount of resources