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FUNCTIONAL AREA

MARKETING

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In this unit you will learn about

Difference between Market and Marketing

Market Share and growth Objectives of Marketing The consumer Branding and Generic goods 4Ps

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What is a market?What is a market? A meeting place for buyers (consumers)

and sellers. Shop, restaurant, telephone, internet, etc.

• Consumer markets - individuals who purchase goods or services for personal or domestic use.

• Industrial markets - organisations which purchase goods or services to use in the production of other goods and services.

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What is marketing?What is marketing?

“…the process involved in identifying, anticipating and satisfying consumer requirements profitably”

The Chartered Institute of Marketing

Aims of marketing:

to identify consumers’ requirements to anticipate consumers’ requirements to satisfy consumers’ requirements

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Why is marketing important?Why is marketing important? Marketing ensures that firms produce

what people want – it also makes customers aware of what a firm is producing.

If a firm can produce what customers want then they have a good opportunity to reach their objectives.

Marketing also allows firms to launch new products.

All firms will undertake marketing – including charities.

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Market Share & Market GrowthMarket Share & Market Growth

Most firms start off small. A common objective of new firms is to

grow in size. Market growth can be obtained by

increasing market share. Market share is the firm’s percentage of

all the sales in the market. For example, if the market for PCs in the UK is work a total of

Market growth is more difficult in an established market than a new growing market - due to the competition.

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Objectives of MarketingObjectives of Marketing

Marketing is linked to the overall objectives of the organisation and will therefore be different depending on the nature of the organisation.

For example, Charities will wish to increase donations to assist good causes, whereas public sector firms will wish to improve the service they deliver.

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Objectives of MarketingObjectives of Marketing

In the main the objectives of marketing include – To target new markets or market segments Increase revenue and profitability or income Increase or maintain market share Improve the image of products or the

organisation Improve existing products or develop new

products

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Business OrientationBusiness Orientation

A business will adopt a focus of attention with the hope of obtaining set corporate objectives.

  Traditionally, the focus of attention of the

business will centre on the product or the market (customers).

  The orientation adopted will affect all the

activities of the business.

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Product-led OrganisationsProduct-led Organisations Focus on product and production process. Emphasis on developing technically sound

product. Advertising will focus on how good the

product is – rather than how the product will satisfy the needs of customers.

Many publicly funded organisations – like universities – advertise what they can provide rather than focusing on how they can satisfy the needs of customers.

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Product-led: ConcordeProduct-led: Concorde Focus on Research and Development -

was the aircraft technically possible?

  Consumers and commercial viability

viewed as being less important.

  Developers assumed a supersonic

aircraft would sell itself.

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Concorde – After LaunchConcorde – After Launch British Airways and Air France only buyers - mainly due to governmental

involvement. Other airlines deterred by high price and low passenger capacity. Several airports - including New York - indicated possible ban due to noise pollution. Technical success does not guarantee commercial success.

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Market-led OrganisationsMarket-led Organisations

Focus on the customer and what they want. The firm will alter their product offering in line

with what customers want. Market research methods will be employed to

identify the needs of target customers. Many publicly funded organisations – like

universities – advertise what they can provide rather than focusing on how they can satisfy the needs of customers.

Realise that their success depends on meeting the needs of customers better than competitors.

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Market-led: Ford Model TMarket-led: Ford Model T Henry Ford - one of the first to adopt a

market orientated approach. Before production he researched the market

and identified a price that would allow large quantities to be sold.

Consumers’ needs were central to his decision-making.

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BrandingBranding

The name given by a producer to a product or range of products is known as a brand.

The aim of branding is to distinguish the product from its competitors and to make it instantly recognisable to the consumer. A brand can be -

Company name - Heinz, Coco-Cola Name given to a range of products - Fairy, Mr

Kipling

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HOW DOES A HOW DOES A FIRM BRAND ITS PRODUCTS?FIRM BRAND ITS PRODUCTS?

To brand a product a firm will use packaging and advertising.

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Brand NamesBrand NamesHave a massive influence on purchasing decisions. So much so that the brands themselves are sold for considerable sums of money.

Nestlé purchased Rowntree Mackintosh to obtain Kit-Kat, Polo and Smarties.

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Brand LoyaltyBrand Loyalty

Some customers are faithful to one particular product.

Marketeers strive to persuade customers that their product is better than competitors’ products and obtain brand loyalty which would allow them to charge higher prices.

Firms may add an existing brand name to a new product to increase the products chances for success.

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STRONG BRAND STRONG BRAND LOYALTYLOYALTY

Strong branding means that the firm can Strong branding means that the firm can charge a charge a premium pricepremium price because the because the product is perceived as product is perceived as high qualityhigh quality, it has , it has high visibility due to the amount of high visibility due to the amount of advertisingadvertising and and brandbrand loyaltyloyalty

Brands are facing challenges – customers are more price conscious and there has been an increase in the number of quality “own brands”

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Own BrandsOwn Brands

Many Large retailers – Tesco, Asda, Boots, etc… - sell a wide range of products under their own brand name.

Own brands now account for more than 20% of all retail sales.

Own brands have been successful at challenging well established brands by developing products of a similar quality, with similar packaging but at

cheaper prices.

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Generic GoodsGeneric Goods

Very little marketing is carried out by companies who sell generic goods.

They are seen by consumers to have no differences between them – eg light bulbs, matches, etc,

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The Marketing FunctionThe Marketing Function

Marketing decisions centre on four functional activities, known as the 4p’s.

Product Price Place (distribution) Promotion

When combined these four areas are known as the Marketing-Mix.

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ProductProduct

The product must meet the needs of customers and provide benefit to the customer.

Remember – a product can be a good or service. Different versions of the same basic product (known as the

core product) vary in quality, style, packaging and many other ways from their competitors’ products – eg cola and crisps.

These additional components of the core product are known as the augmented product.

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Motor CarMotor Car

Mode of transport

Comfort

Performance

Style Warranty

Credit Terms

Fuel Economy

Safety

Augmented Product

Core Product

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Our Life CycleWe are born and introduced to the world.

Then we grow into teenagers.

Then we mature into adults.

Finally, we get old and our health declines.

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The Life of a Product

Like humans, products have a

limited life.

The Sega Mega Drive, Subbuteo and ‘O’ Levels

have all been withdrawn from the market.

Before being withdrawn, a product will pass

through four stages –

known as the Product Life Cycle.

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LaunchLaunch The first stage of the product life

cycle begins when the product is

introduced into

the marketplace.

Products recently launched

include: Wii

and Divine.

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GrowthGrowth As more target customers

become aware of the product,

the popularity and sales of the

product will increase.

Mobile phones and internet

shopping are examples of

growth products.

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MaturityMaturity

Once target customers are fully

aware of the product, the

popularity and sales of the

product will level off.

Products in their maturity stage

include Sunny-D and the

Spice Girls.

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DeclineDecline The popularity of the product will

eventually drop.

Customers will stop buying the

product and sales will fall.

Products in their decline stage

include - Butlins Holidays, Power

Rangers and Cassette Tapes.

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Product Life Cycle ChartProduct Life Cycle Chart

Time

Sales

Launch

Growth

Maturity

Decline

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Sales

Time

Sales

Time

Peter AndreCoca-Cola

Variations in Product Life CyclesVariations in Product Life Cycles

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determine the future of their products.

decide when to introduce new products.

decide when to withdraw products

in decline.

decide which products to invest in.

Companies use Product Life Cycles to:Companies use Product Life Cycles to:

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Extending the life of a productExtending the life of a product

TimeProduct Extension Strategies

- change/modify product - new variants

- alter packaging - alter channel of distribution

- change pricing strategy - alter promotional support

Sales

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PricePrice

•The price is what the customer has to pay in order to obtain the product.

• The product must be priced so that an organisation covers its costs and can make a profit.

•If the product is priced too high – customers will not buy it (especially if a competitor has a similar more reasonably priced product on the market).

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Pricing DecisionsPricing Decisions The main pricing decision that a firm

takes is whether to charge:

A low price in order to attract sales. This makes it possible for a successful firm to sell large quantities at low costs.

An average price in relation to competitors. The firm will need to use other elements of the marketing-mix to compete.

A high price. Firms can charge a high price if they are seen as being better than their rivals in meeting the needs of customers.

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£

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CK be by Calvin Klein

HIGH PRICEHIGH PRICE

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AVERAGE PRICEAVERAGE PRICE

Ford FocusFord Focus

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HIGH PRICEHIGH PRICE

Chocolates Chocolates from Thorntonsfrom Thorntons

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LOW PRICELOW PRICE

Gola TrainersGola Trainers

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AVERAGE PRICEAVERAGE PRICE

Jeans from Jeans from Marks and SpencerMarks and Spencer

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Price-Quality RelationshipPrice-Quality Relationship Having a lower price than competitors does not guarantee

success.

Most people associate a high price with a high quality product.

• Would you expect to pay more for a Rolls-Royce or a Skoda?

• Why?

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Pricing StrategiesPricing StrategiesCost-plus pricing

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• The most common method of pricing in the UK

• Companies calculate the cost of producing one item

then add a profit ‘mark-up’, say 20%, to determine the selling price.

• The extent of the mark-up will

vary from industry to industry -

car dealers will usually add 17% onto the cost they pay manufacturers whereas

fashion clothing retailers may add between 100%-200%.

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Pricing StrategiesPricing StrategiesPenetration pricing• A low price is set for a new product to attract

customers and penetrate an existing market where

there is likely to be strong competition.

• Losses may be incurred in the short-term, however

once a foothold in the market has been obtained

prices may be increased to allow profits to be made.

• Brand products launched into consumer markets will use penetration pricing. For example, breakfast cereals

such as Kellogg’s Golden Grahams.

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Pricing StrategiesPricing StrategiesGoing-rate pricing• Also known as competitive pricing.

• The firm will set the price of its products at a level similar to competitors.

• This occurs in markets where businesses try to avoid price wars. Firms will set their prices at roughly the same level.

• Companies offering petrol for cars adopt going-rate pricing.

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Pricing StrategiesPricing StrategiesHour-based pricing

• The firm sets a price for a service based on time.

• The company will offer a quote for the service demanded by a customer - based on an

estimate of the time for completion and an hourly charge

rate.

• Car mechanics and cleaners use

hour-based pricing.

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Pricing StrategiesPricing StrategiesSkimming• Involves setting a high price for a new product.

• Once the first target segment is saturated, the producer will lower the price in order to tap a fresh segment of the market. The process continues until a large section of the total

market is catered for.

• Electronic and pharmaceutical

manufacturers often use skimming pricing.

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Pricing StrategiesPricing StrategiesDestroyer pricing• Employed to undermine the sales of rivals.

• The price of an existing product is reduced to an

artificially low level in order to destroy competitor’s sales.• Only adopted by very large

businesses with sufficient resources.

• Stagecoach buses applies destroyer pricing when

starting new bus routes.

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PlacePlace

The ‘place’ where the final exchange occurs.

• Refers to all activities undertaken by companies in distributing products to targeted consumers.

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What is meant by distribution?What is meant by distribution? The steps implemented by a company to make goods available for customers

to buy.

Objective of distribution = to make the product available in the right place at the right time.

• The company must make decisions about the channels of

distribution through which the product will pass and the methods of transport to use.

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Channels of DistributionChannels of Distribution The means by which an

organisation and its customers are brought together in a particular place in order to buy and sell.

This may be in a shop, over the telephone, on the internet or in an office.

The channel of distribution that a manufacturer may select to get products to target consumers may include intermediaries.

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IntermediariesIntermediaries Intermediaries - commonly known as

‘middlemen’ - may assist in the distribution of products to consumers.

The two main types of intermediaries are:

Wholesalers who buy from manufacturers and then sell to retailers. For example Cash and Carry firms.

Retailers who buy from wholesalers or direct from manufacturers then sell onto consumers. For example, RS McColls.

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Which Channel of Distribution?Which Channel of Distribution?

Producer

A B C

Customers

Retailers

Whole - -

salers

Retailers

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Effects of Technology on PlaceEffects of Technology on Place New technology has changed the

‘place’ where the final exchange occurs.

For example, banking was always carried out across the counter in a bank. We now use: automated tellers telephone banking online computer banking

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The InternetThe Internet

Developments in satellite and internet technology have greatly increased the number and variety of products being made available for customers to buy from their homes.

People can now purchase goods quickly and often at less cost from the comfort of their own homes.

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The Marketing EnvironmentThe Marketing Environment

THE MARKET

Competitors Consumers

Government

Economy

Technology

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PromotionPromotion• any form of communication used in an attempt to draw attention to a product/service – to make

customers .

Three aims - persuade, inform and remind.

Two main types:

Above-the-line promotion - aka Advertising

Below-the-line promotion – other methods of promotion which can be controlled by the firm – eg

direct marketing

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AdvertisingAdvertising•

•using the media to communicate messages

to customers.

Two main types - persuasive and informative.

Choice of advertising media will depend on -

cost, audience, competitors, impact, the law and the other components of the marketing-mix.

Controls on advertising include - the ASA, ITC, pressure groups and the Trades Descriptions Act 1968.

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Advertising Control

The British Code of Advertising Practice

The Advertising Standards Authority (ASA)

The Independent Television Commission

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Forms of AdvertisingForms of AdvertisingTV/Radio Posters

Magazines Billboards

Sponsored events Newspapers

Network of shops/outlets Cinema

Word-of-mouth

Packaging

Internet

Sales People

Direct Mail

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Advertising Media

•Television: Ads can reach millions and you can target people who watch particular programmes but it is very expensive.

•Cinema: Ads have a high visual and sound impact and you can target particular films. You have a captive audience but they are expensive

•Leaflets and Junk Mail: They are cheap to produce and distribute but they’re easy to ignore.

•Newspapers and Magazines: They know a lot about their readership so it’s easy to target effectively. They’ll often be read more than once.

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Advertising Media

Radio: Ads are usually cheaper and you can still target listeners of particular programmes but it’s sound only and audiences are usually smaller.

Posters and Billboards: Ads have a high visual impact and stay in place for a long time. Can be seen by lots of people but usually only for a short time so they can’t contain much information.

Internet Sites: Ads can have a high visual impact, be interactive and link directly to buying the product.

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Sales PromotionSales Promotion

Shops may hold sales to encourage customers to buy what they may

not have purchased at the full price.

Sales may encourage customers who would not normally go to the

shop to venture in.

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Market ResearchMarket Research• Market research provides managers with information about what customers want and need and what will influence them to buy a product.

• Market research is used to find out:•Consumer wants regarding existing products

•What makes consumers buy a firm’s products

•What customers think of new products

•What customers what from future products

•What competitors are doing to satisfy customers

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Importance of MRImportance of MR Market research:

•Indicates the size of a market and potential growth

•Provides information about the best place to sell products

•Helps identify customers’ needs and wants

•Allows firms to identify what makes some products successful

•Helps firms avoid costly mistakes – buy launching unwanted products

•Gives firms ideas on how to promote products

•Takes some risk out of launching new products

•Allows firms to identify who their target customers are.

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Methods of MRMethods of MR

There are two methods of market research:

• Primary (Field) - information collected by the company itself.

• Secondary (Desk) - information already collected for another purpose

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Field ResearchField Research• Questionnaires/Surveys – questions specifically

designed for the task. May be face-to-face, over the telephone, by mail or over the internet. The number of respondents will depend on the firm’s budget. The ‘sample’ must represent the total market.

• Test Market – launching a new product into a small section of the market to measure it’s suitability

• Consumer Panel – where a selected group of people are given a product and asked to comment in detail

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Field ResearchField ResearchAdvantages

• It is first hand

•It is more likely to meet the needs of the organisation

Disadvantages

•It is more expensive

•It takes time to gather

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USING A QUESTIONNAIRE

Questionnaires are used to obtain meaningful information from a large and varied group of consumers.

The business will analyse the responses and modify the product/service to appeal to the market

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HINTS ON PREPARING QUESTIONNAIRES

When designing a questionnaire you should: Keep it short Make it simple and easy to

understand State clearly the purpose of the

questionnaire

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HINTS ON PREPARING QUESTIONNAIRES

Questions should not rely heavily on the respondent’s memory

Begin with a few factual, easy to answer questions

Include some closed Yes/No response question

Follow up closed questions with open questions

Finish with a filter question designed to place the respondent in a market segment

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Desk ResearchDesk Research• Internal Sources - Sales figures, Stock figures, Accountancy records, Customers comments, etc…

• External Sources - Government Stats, Competitor information, Trade Journals, Market Research Organisations, Newspapers, Magazines, CD-ROMS, etc...

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Desk ResearchDesk ResearchAdvantages

•It is cheaper than field research

•It is quicker than field research – as long as the information is

available

Disadvantages

•Data may be out-of-date

•The information will be available to competitors

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Effect of New Technology on Effect of New Technology on Market ResearchMarket Research

• Databases

• EPOS

• Loyalty Cards

• Internet

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Problems with Market ResearchProblems with Market Research

• Sampling bias

• Human behaviour

• Interviewer bias

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Which Market Research Method?Which Market Research Method?

Depends on:

•Cost

•Time available

•Alternatives

•What will happen without the research

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The Importance of marketing for The Importance of marketing for different types of organisationsdifferent types of organisations

•Marketing is important to all organisations – they all must meet customers needs and make target customers aware of what the firm offers.

•However, marketing may be carried out differently depending on the type of organisation and the product they offer

•For marketing to be successful for any organisation, they must combine:

•The right product

•Sold at the right price

•In the right place

•Using the most suitable promotional methods

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Charities: Charities: Reason & Method of MarketingReason & Method of Marketing

•Advertising and promotion encourages people to donate money

•Tend to concentrate on letting people know what good things they have done – in the hope that target viewers will think the charity is worth giving to

•Some charities try to obtain donations from all sections of the community – rather than specifically targeting a particular segment. Others – eg Greenpeace and Amnesty International target particular groups – as do local charities – eg for a local hospital appeal.

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Public funded service providers Public funded service providers (eg schools/hospitals): (eg schools/hospitals):

Reason & Method of MarketingReason & Method of Marketing

•Will develop promotional documentation to attract and reassure customers. Many customers of such organisations will not have much choice of an alternative service provider.

•Such documentation will be in the form of prospectuses, handbooks or through positive publicity in local newspapers.

•The organisation will on be viable if customers continue to use the service on offer.

•Not as much money will be invested by such firms on marketing – these firms are non-profit making organisations and tend to to have high marketing budgets

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Private firms offering a service (eg a Private firms offering a service (eg a restaurant or bank): restaurant or bank):

Reason & Method of MarketingReason & Method of Marketing

•Marketing may be carried out differently as the company cannot illustrate the service easily – eg bank services

•Sales personnel will require specialised training to deliver the service

•If the company is a chain or franchise – it may benefit from national advertising but local firms will market their business on a much smaller scale.

•Marketing is important to maintain or increase the market share available to the business.

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Market Segmentation

Business Organisations can divide the market into different types of customers to meet their individual requirements: Demographics Socio-cultural groups

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Market Segmentation

Demography is the division of the population into different social groups

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Market SegmentationMarket Segmentation

Markets are segmented into different groups of people. The main segments are:

Age distribution of the population Gender Location Social class – A- professions to E -

unemployed Culture or religion

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Social Economic/demographic Groups

Social Grade

Social Status Occupation

A Upper middle class

Highest managerial/ administrative or professional

B Middle class Intermediate managerial/ administrative or professional

C1 Lower middle class

Supervisory or clerical, junior managerial, administrative or professional

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Social Economic/demographic Groups

Social Grade

Social Status Occupation

C2 Skilled working class

Skilled manual workers

D Working class Semi and unskilled manual workers

E Subsistence level

State pensioners or widows (no other earner) casual or lowest grade workers

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Other consumer Other consumer related factorsrelated factors

Taste, fashion and lifestyle Disposable income The Government Technology Economic forces Household class

We’re all different ages -

we want different

things

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Private firms offering a product (eg a Private firms offering a product (eg a food/car manufacturers): food/car manufacturers):

Reason & Method of MarketingReason & Method of Marketing

•These companies are dependent on customers buying their products to make a profit

•Without marketing consumers will not be aware of the products or companies and will buy competitors products

•Privately owned companies usually have a budget for marketing and often have a marketing department.

•Such firms will usually invest a great deal in marketing and promotional activities

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Customer Service

This is what affects the relationship between customer and business, ie the way the customer is treated by

sales staff how queries and complaints are

handled use of technology, eg phone system,

press 1 for sales, press 2 for information, press 3 for advisor, and so on.

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Protecting The Consumer

The Sale of Goods Act, 1979 The Trade Descriptions Act The Weights and Measures Act The Food and Drugs Act The Food Safety Act

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Advice for The Consumer

Trading Standards Environmental Health Citizens’ Advice Bureau Trade Associations, eg BETA Utilities watchdogs, eg gas, water,

electricity The Consumers’ Association – they

produce Which? magazine

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MORE INFORMATION ON MARKETING

Topic Chapter PagesFunctional Department

Ch 1 - 1.3 Pg 19

The Market, Market Research, Segments

Ch 2 - 2.1 Pg 23-24

Channels of distributionCustomer Service

Ch 3 3.4

Ch 3 – 3.4

68-69

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Market ResearchMarketing Mix

Ch 4 - 4.1 Pg 80Pg 83-91

You will need this information to prepare your study notes for the Marketing Topic.