BM Unit 2 - LO2 1

Higher Business Management

Unit 2Learning Outcome 2

Marketing

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Marketing

“The process involved in identifying, anticipating and satisfying consumer requirements profitably”.

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Marketing

Role and Importance of Marketing

Identify consumer’ requirements – find out exactly what consumers want

Anticipate consumers’ requirements – future needs

Satisfy consumers’ requirements – service, quality + value for money?

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Marketing

Anticipating Consumers’ Requirements

What do they want today? What do they want in the future? Trends must be considered to anticipate

future needs Volatile markets - fashion, toys, technology

(mobile phones, computers, etc)

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MarketingIdentifying Consumers’ Requirements What do they want? Consumers must buy

products and continue to do so Fierce competition and consumers’

expectations mean that products must be constantly updated and altered to suit

Other factors - price, quality, prompt delivery, attractive packaging and after-sales service

Advertising and promotion play a big part

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MarketingSatisfying Consumers’ Requirements

“The customer is king!” Businesses must be customer-focused No customers no business Must offer - good service, quality products,

value for money, prompt delivery, good after-sales service (eg returns), well presented and packaged goods, at the right price and available at the right place

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Marketing

“Marketing involves anticipating customers' needs and finding the right product or service to meet those needs, thereby encouraging high sales levels. Vodafone goes further by looking to impress on its customers not merely what its products are i.e. features, but also what they can increasingly do i.e, benefits. This involves effective communication. “

                                                                                                                                                            

The essentials of marketing                                         

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Marketing

Role and Importance of Marketing

All organisations need to carry out marketing activities to meet their objectives:

Public Sector – may develop services if research shows that is what the community wants

Private Sector – meet customers’ needs through market research

Voluntary Sector – competition for donations, therefore charities spend huge amount of money on marketing.

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Marketing

Importance of Marketing

Poor marketing can lead to failure:

The American car industry

The British motor cycle industry

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Marketing

Good marketing can lead to success:

Importance of Marketing

Swatch

Easyjet and Ryanair

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Marketing

Marketing as a strategic activity

Using marketing, organisations hope to achieve a number of objectives which are essential for success:

To increase sales revenue and profitability To increase or maintain market share To maintain or improve the image of the

business, its brand or its product To target a new market or a new segment of

the market To develop new and improved products.

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Marketing – concerned with: Inception/design

Price

Selling and promotion

Distribution

After-sales services

Marketing

What

How

When

Where

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Marketing

Market – a meeting place for buyers (consumers) and sellers

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Marketing

Consumer MarketConsumer market are made up of individuals who buy goods or services for their personal or domestic use. The 3 classifications are:

Convenience goods – non-durable goods Shopping goods – durable goods Speciality goods – eg cosmetics, fashion items.

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Marketing

Industrial Market

Goods and services bought on the industrial market can be similar to those in the consumer markets, eg consumers use banking services and so do businesses. However, industrial goods also include plant and machinery, raw materials, consumable supplies and business services.

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Product-led - Product Orientated Putting a product on the market

without prior market research

Assumption of best available and no real competition

Often new inventions like Dyson vacuum cleaners or Playstation 2

A risky approach which can fail - British motor bikes

Marketing

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Market-led - Customer Orientated

Considering what the customers want before putting a product on to the market

Competition has led to companies focusing on the needs of the customer

Also looks at the influences on purchasing decisions

Marketing

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The Marketing Environment

THE MARKET

Consumer trends and behaviour

Technology

GovernmentCompetition

The economy

Marketing

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Marketing Environment – Government Influence on marketing

Trade Descriptions Monopolies and Mergers Act Fair Trading and Competition Acts Consumer Protection Laws Code of Advertising Practice Advertising Standards

Marketing

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Marketing Environment – Competition

Close substitutes Markets – Some markets dominated

by a few big producers; other markets have many producers.

Unique Selling Points (USP) Emotional Selling Proposition (ESP)

Marketing

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Marketing Environment – Technology

Use latest technology to keep up with competition Technological advances create new markets and

cause decline of others, eg video tapes and DVDs Sophisticated production methods allow high

quality, faster and cheaper production Improved communications and information Unique

Selling Points (USP) Internet and saturation usage of mobile phones

allow businesses new ways to tap into new markets

Marketing

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Marketing Environment – Economic forces

Interest rates – high rates, consumers buy less; organisations reduce borrowing and spending

Exchange rates affect - £ is low, UK exports become cheaper

Economic growth high consumer confidence and spending.

Marketing

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Marketing Environment – Consumer trends & behaviour Changes in the age distribution of the

population Disposable income Household status, eg rise in single households

– smaller ready meals Social class Location Lifestyle taste and fashion, eg environmental

issues, healthy lifestyle Political

Marketing

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The Marketing Mix

Promotion

Place

Price

Product

Marketing

In order to market or sell its product successfully, a business must develop a strategy based on 4 key elements:

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Product/Service Core

Actual

Augmented

The basic product - eg toothpaste cleans teeth

The way the product is presented - design, brand name, packaging, etc (Colgate toothpaste - red packaging)

Additional features - protection against decay, fresh breath, attracting the opposite sex, etc

Marketing

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The Product Life Cycle

Time

£000Costs/Sales Idea

NewProdu

ctLaunch/

Introduction

Decline

Saturation Death

Marketing

Growth Maturity

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Product Innovation Generating an idea

Analysing the idea

Producing a prototype

Test market

Adapt product to solve problems

Launch the product

Marketing

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Extending the Product Life Cycle/Extension Strategies

Developing new markets for existing products, eg computers

Providing line extensions - Mars: fun-sized, yoghurt, ice cream, mini-sized, giant-sized

Finding new uses for existing products Develop a wider range of products Develop styling changes Promoting more frequent use of the product –

mainly by reducing price

Marketing

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Extending the Product Life Cycle/Extension Strategies

Improve the product – think soap powder Change the packaging – perhaps to appeal to

different market segment Change the channel of distribution – internet

shopping Change product prices Change promotion method Rebrand the name of the product – Marathon

to Snickers

Marketing

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The Product Mix/Portfolio – range of products that a firm produces to spread risk. Very few companies have only one

product Some companies have a range of related

products eg Proctor & Gamble Some companies have totally unrelated

products in their product portfolios eg Imperial Group

It is important that you have new products being launched to replace products going into decline in your “Product Mix”

Marketing

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The Product Mix/PortfolioBoston Matrix – used by some firms to analyse

their product mix.

Marketing

Market Share

High Low

Market Growth

High Star Problem Child

Low Cash Cow Dog

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Branding

Branding distinguishes a product from its competitors – product differentiation

Instantly recognisable by consumers

Often linked to quality and reliability

Can command a premium price

Marketing

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Brands Benefits of branding:

Instant recognition, eg Cadbury

Brand loyalty, therefore repeat purchases

Charge higher prices because of brand loyalty

Easy to intro new products using brand name, eg Virgin

Strong brand has money value in Balance Sheet

Marketing

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Brands

Marketing

Drawbacks of branding: Time taken to establish brand Cost of promoting brand Bad publicity affects all products of same

brand Imitations/fakes difficult to combat Fashion brands can suffer when fashions

change

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Own Brands Products branded with

the name of the store selling them

Most of the big supermarkets (Tesco) and chain stores (Boots) have their own brands

Often cheaper alternatives to branded goods

Make a list of as many “own brands” you can think of. Indicate which branded product they are designed to rival

Eg “Wheat Bisks” by Safeway to rival “Weetabix”

Marketing

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Unique Selling Point (USP)

Marketing

This is a feature that allows a product to stand out from its rivals.

Should offer the consumer some unique benefit that may motivate them to switch brands

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Unique Selling Point (USP)

Try to identify the USP of each of the products listed opposite

Think of how they are presented to you in the advertising you see daily on TV, in newspapers and magazines

Coca Cola Nike Kit Kat Sunny D Skoda Cars Mercedes Cars Baxter’s Soups Fairy Liquid Finish

(dishwasher tablets)

Marketing

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Price of a Product? The price of a product is one of the main

factors in buying that product. Too low a price could give the impression of poor quality and too high a price may not give the feeling of value for money

Price is influenced by:- the product being new, what competitors are charging, the product’s stage in its life-cycle, the selling location, the market segment and many other factors

Marketing

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Long term pricing strategies: Low-price strategy

in a market with strong competition: price elasticity of demand.

Market-price strategypetrol – matching competitors

High-price strategyup-market, exclusive image

Marketing

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Short-term pricing strategies Skimming – high initial price for max

profit

Penetration pricing – low initial price for new product

Destroyer – eliminating the competition (‘Go’ and ‘EasyJet’/’Ryanair’)

Promotional – lowering prices for a period to ‘promote’ more sales

Marketing

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Short-term pricing strategies

Price discrimination (aka Demand-oriented) – charging different prices according to the level of demand eg cross-channel ferry fares in summer

Premium pricing – high prices to create exclusive image, eg Ferrari, Gucci

Loss leaders – use to entice customers

Competitive pricing – charge similar prices to avoid price war, eg petrol stations.

Marketing

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Calculating a Selling PriceCost-plus pricingA manufacturer or

retailer will calculate the cost of making or buying a product and add a set percentage profit to arrive at their selling price.

Different businesses use different rates of mark-up.

Method used by small businesses as it is the simplest.

Contribution pricingA business will calculate

the direct costs of making or buying a product (wages & raw materials).

A contribution toward the fixed costs of the business (rent, loan repayments) are added.

Any amount after covering fixed costs is profit for the business.

Marketing

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Place

The nature of the product or service will determine where a firm decides to sell – referred to as DISTRIBUTION.

The Channel of Distribution is the route taken by a product as it passes from the producer to the consumer.

Marketing

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Place - Distribution Channels

Producer 1

Producer 2

Producer 3

Consumer Retailer Wholesaler

RetailerConsumer

Consumer

Marketing

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The Channel of Distribution chosen depends on:

o The nature of the product being soldo Finance available to the organisationo Reliability of companies in the chaino Desired image for the producto Government restrictionso Product’s life cycleo Manufacturer’s distribution capability

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The Wholesaler Function Buys in bulk from producers (low transport

costs) and sells to retailers in smaller quantities

Bears stock-holding risk

Offers a wide variety of goods in small quantities

Packages and labels goods

Offers advice to both producers and retailers as to which goods are selling well

Marketing

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The Retailer Function Breaks down bulk to quantities consumers

wish to buy and store at home

Provides information to consumers through advertising, displays and trained staff

Stores a variety of goods, displays them and marks on prices

Offers range of related services - credit, HP, after-sales service and delivery

Marketing

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Types of Retailer Independent - convenience stores, corner

shops

Multiple Chains - M&S, Dixons, Boots

Supermarkets - Tesco, Asda, Safeway, etc

Co-operatives

Department Stores - Harrods, Selfridges

Franchises - Benetton, Body Shop, McDonald’s

Discount Store – Matalan, Primark and TK Maxx

Marketing

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Direct Selling Internet selling – allows a business to reach a

global market. Customer info is easily collected to target offers and promotions.

Mail Order – goods sold to customers through catalogues, Next, Kays. Credit facilities make this popular.

Direct mail – involves letters, brochures about products to homes, eg Reader’s Digest

Newspaper/magazine selling-customers respond directly to adverts.

Personal Selling – door-to-door or telephone, eg sales reps visit GPs, double-glazing sales.

Marketing

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Promotion

Promotion is the way in which customers are made aware of a product or service and is persuaded to purchase it.

Marketing

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Aims of Promotion

Persuading - to purchase the products

Informing - telling consumers about the product

Reminding - that the product still exists

Marketing

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Methods of Promotion

Advertising Sales promotions Public relations Exhibitions and trade fairs Merchandising Direct mail Personal selling

Marketing

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Types of Promotion are categorised as being:

Above the line: Use of independent media, eg TV and

newspapers to reach mass audience A lot of waste – not targeted

Below the line: Directly controlled by the business Sales promotion, direct mail, trade fairs

- targeted consumers who may be interested

Marketing

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Advertising

Informative advertising – new or improved products; Health info

Persuasive advertising – where consumers see little difference between one product and another

Corporate advertising – promoting whole company rather than single product, eg BA, BP

Marketing

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Advertising

Generic advertising – promoting whole industry, eg Scottish Beef

Product endorsement – famous sports or showbiz personalities are paid to wear particular product, eg Adidas pay David Beckham

Product placement – paying for products to be used in films or TV progs, eg BMW and James Bond

Marketing

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Advertising Decisions

The effect on Sales?

The target market?

Why do the consumers NOT buy the product?

Which is the best medium to use?

Marketing

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Advertising Decisions

Which is the best medium to use depends on:

Product Market segment Type of coverage – local, national Advertising budget How competitors advertise How technical the product is Size of the organisation Legal restrictions, eg tobacco

Marketing

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Types of Advertising Media

Print - newspapers and magazines, direct mail

Broadcast - TV, radio and cinema

Outdoor - billboards, posters, etc

Internet

Marketing

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Sales Promotion

Into the pipeline

Offered by manufacturers to retailers to encourage them to stock their products.

Point of sale displays

Sale or return

Dealer competitions/bonuses

Staff training

Credit facilities

Marketing

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Sales Promotion

Free samples Credit facilities Demonstrations Competitions Buy one, get one

free Bonus packs Free offers Coupons, vouchers

Out of the pipeline

Offered by the retailer to final customer to encourage purchases to be made.

Marketing

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Public Relations (PR)

Improving the image of the product and organisation

Supporting and promoting a charity

Sponsoring sporting or cultural events

Product endorsement by celebrities

Press conferences and press releases in times of difficulty or when good publicity can be obtained

Marketing

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Target Markets

Differentiated marketing:Different products sold to different groups within total

market. Products altered to suit needs of different consumers. Market is split into different groups who have similar wants and needs – goods produced specifically for these groups. Use market segmentation.

Undifferentiated (mass) marketing:

Marketing directed at all consumers, the whole market. One product is sold to the entire market – high volume sales, economies of scale. Eg milk, Mars Bars

Marketing

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Target Markets

Marketing

Niche marketing

Niche marketing involves a business aiming a product at a particular, often very small, segment of the market (local or small national). Focus on needs of a market ignored or overlooked by other firms – no competition in short term.

Disadvantage – attract competition in long term. Market too small for competition. Small number of consumers – more frequent swings in consumer spending than larger markets.

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Market Segmentation

Advantages

Seller can meet buyers’ requirements Advertising can be focused - less wasteful Expertise developed for a specific market Higher sales Increased profits

“Breaking down of markets into sub-groups that can be targeted with a specific marketing mix.”

Marketing

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Methods of Segmentation

Age – Smash Hits Gender - Heat Socio-economic grouping – Daily Record Education level – SundayTimes Income – Ski Monthly Religion Residential area Lifestyle preferences - hobbies, politics

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Methods of Segmentation

Socio-economic groupings:

Social classes are used by advertising and market research industries:

A Very senior managers or professionals, top civil servants

B Middle managers, owners of small businessesC1 Junior managers, non-manual workersC2 Skilled manual workersD Semi-skilled and un-skilled workers,

apprenticesE People on long term benefits, casual workers

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Market share

Percentage of total sales of product/service achieved by one organisation.

Advantages:

• Larger the market, larger the profit

• Purchasing economies of scale – reduce costs

• R & D with large profits• Costs – marketing, transport

– spread over larger output

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Assessment of the Market Where are the consumers of the product?

How many consumers are there?

What are their attitudes and preferences?

How effective are the distribution methods?

What are the strengths and weaknesses of competitors?

Marketing

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Market Research -Definitions

“Market research is the systematic gathering, recording and analysing of data about problems relating to the marketing of goods and services.”

“Market research is the means by which those who provide goods and services keep themselves in touch with the needs and wants of those who buy these goods and services.”

Marketing

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The Need for Market Research Predict changes required

in its product/service Identify what is selling Identify who is buying

the product/service Explain what is

happening in the market Investigate possible

courses of action Identify the size of the

market

Discover what consumers think of the product

Discover what consumers are willing to pay

Discover if a promotion is appropriate

Discover if the packaging is appropriate

Identify what competition exists - now and in the future

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Methods of Research

PRIMARY RESEARCH

Information collected by the organisation itself or by a paid market research agency.

SECONDARY RESEARCH

Information already collected for another purpose, eg government statistics.

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Methods of Research - PRIMARY

By observation or asking people questions

Up-to-date Collected for the exact purpose of the

organisation Not easily available to competitors Time-consuming Expensive

Primary data is gathered by field research

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Techniques of field research

Surveys Personal interview, postal survey,

telephone survey, purchase survey Sampling – who, how many, how to choose

Random sampling, Stratified random sampling, Quota sampling

Test marketing Consumer panel Hall tests Questionnaire – see notes 48-50 Collection of customer data – observation,

loyalty cards, EPOS/bar codes, the internet

Marketing

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Market Research – SECONDARY

Sales figures Stock figures Accounting records Customer comments Sales reps reports Market research data

gathered previously

Government publications - social and economic trends, annual statistics, population census

Competitors’ data - annual reports, promotions, price lists, web sites

Newspapers, trade magazines, Mintel (research org), etc

External Sources

Internal Sources

Marketing

Secondary data is gathered by desk research

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Market Research – SECONDARY

Value and reliability is limited because: Much of the information is historic Collected for another purpose Available to competitors Cannot normally go back to the initial source

to check accuracy or ask follow-up questions

Marketing

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ICT and Market Research Databases compiled by research agencies

Electronic point of sale information (EPOS)

Supermarket loyalty cards

Stock control software gives sales breakdown

Web sites - customers can e-mail comments back to the company

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Problems with Market Research

Sampling Bias - small sample can give a wrong impression

Human Behaviour - opinions change rapidly

Interviewer Bias - leading questions may be asked

Time taken for research - expensive

Difficult to access secondary – time wasted

Larger the sample, more reliable the information.

Marketing