Backnotes

What is Marketing?

Marketing- the process of planning and undertaking the conception, pricing, promotion, and distribution of goods and services to create and maintain relationships that will satisfy individual and organisational objectives

Marketing involves a number of related management functions, such as market research, product design, pricing, advertising, distribution, customer service, and packaging- marketing activities are associated with identifying the particular wants and needs of target-market customers and then trying to satisfy those customer need better than competitors

RELATED CONCEPTS TO MARKETING

  • Markets- the place or mechanism where buyers and sellers meet to engage in exchange
    • Markets also refer to the group of customers that is interested in a product, has the resources to purchase the product, and is permitted by law to purchase it
      • Target market- segment of the market that the business has decided to serve by directing its product towards this group of people
  • Human needs and wants
    • Needs- basic requirements that an individual wishes to satisfy; for example, physical needs include food, clothing, shelter; individual needs include desire for knowledge, recognition, affection, etc.
    • Wants- things that are not required for our survival, but they do satisfy certain requirements or individual needs of most people; for example, eating out at expensive restaurants, designer clothing, etc.
  • Value and satisfaction
    • A consumer will consider a product to be of goof value if it provides satisfaction at what is thought to be a reasonable price- this creates satisfaction within the customer

MARKETING OBJECTIVES AND CORPORATE OBJECTIVES

  • The long-term corporate objectives of a business will have a significant impact on both the marketing objectives and marketing strategy adopted
    • Marketing objectives- the goals set for the marketing department to help the business achieve its overall objectives
    • Marketing strategy- long-term plan established for achieving marketing objectives
  • Examples of marketing objectives-
    • Grow digital presence
    • Target new customers
    • Develop brand loyalty
    • Increase market share
  • For marketing objectives to be effective, they should:
    • Fit in with the overall aims and mission of the business
    • Be determined by senior management
    • Be realistic, motivating, achievable, measurable, and clearly communicated to all departments in the organisation
  • Marketing objectives are important because:
    • They provide a sense of direction for the marketing department
    • Progress can be monitored against these targets
    • They can be broken down into regional and product sales targets to allow for management by objectives
    • They form the basis of marketing strategy- marketing objectives have a crucial impact on the marketing strategies adopted

COORDINATION OF MARKETING WITH OTHER DEPARTMENTS

  • Marketing and finance
    • The finance department will use the sales forecasts of the marketing department to help construct cash-flow forecasts and operational budgets.
    • The finance department will have to ensure that the necessary capital is available to pay for the agreed marketing budget, for example for promotion expenditure.
  • Marketing and human resources
    • The sales forecasts will be used by human resources to help devise a workforce plan for all of the departments likely to be affected by a new marketing strategy, for example additional staff may be needed in sales and production.
    • Human resources will also have to ensure that the recruitment and selection of appropriately qualified and experienced staff are undertaken to make sure there are sufficient workers to produce and sell the increase in sales planned for by the marketing department.
  • Marketing and operations
    • Market research data will play a key role in new product development
    • The sales forecasts will be used by the operations department to plan for the capacity needed, the purchase of the machines that will be used and the stocks of raw materials required for the new output level.

MARKET ORIENTATION AND PRODUCT ORIENTATION

  • Market orientation- an outward-looking approach basing product decisions on consumer demand as established by market research; market orientation gives a business customer focus
  • This approach requires market research and market analysis to indicate present and future customer demand- the business attempts to produce what customers want rather than trying to sell them a product they may not really want to buy
    • Benefits of market orientation:
      • The chances of newly developed products failing in the market are much reduced if effective market research has been undertaken first
      • If consumer needs are being met with appropriate products, then they are likely to survive longer and make higher profits
      • Constant feedback from customers- allows the product and how it is marketed adapt to the changing tastes of customers
  • Product orientation- an inward-looking approach that focuses on making products that can be made or have been made for a long time, then trying to sell them
    • Product orientated business assume that there will always be a market for the products they make
    • Product-led marketing still exists to an extent because:
      • Product-oriented businesses invent and develop products in the belief that they will find consumers to purchase them.
      • Product-oriented businesses concentrate their efforts on efficiently producing high-quality goods- they believe quality will be valued above market fashion
  • Evaluation:
    • Most businesses nowadays are leaning towards market orientation, however there are some limitations:
      • If a business attempts to respond to every passing consumer trend or market fashion, then it may well over-stretch its resources and end up not doing anything particularly well
      • Trying to offer choice and range so that every consumer need is met can be expensive
      • In contrast, researching and developing an innovative product can be successful, even if there has been no formal market research- for example. Dyson’s hugely profitable cyclone vacuum cleaner
    • Asset-led marketing- an approach to marketing that bases strategy on the firm’s existing strengths and assets instead of purely on what the customer wants
      • This approach is based on market research too, but it doesn’t attempt to satisfy all customers in all markets
      • The business considers its own strengths in terms of people, assets, and brand image and will make only those products that use and take advantage of those strengths
      • For example, Levi’s restricts its product range to only clothing and accessories- but it does offer a wider range of clothing through the addition of its Dockers brand

SOCIETAL MARKETING

  • Societal marketing- this approach considers not only the demands of customers but also the effects on all members of society involved in some way when firms meet these demands
  • Social responsibility is becoming increasingly popular among organisations and can be regarded as an important strategic marketing tool
  • Implications of societal marketing:
    • It is an attempt to balance three concerns: company profits, customer wants and society’s interests.
    • There may be a difference between short-term consumer wants (low prices) and long-term consumer and social welfare (protecting the environment or paying workers reasonable wages)-societal marketing considers long-term welfare.
    • Businesses should still aim to identify consumer needs and wants and to satisfy these more efficiently than competitors do – but in a way that enhances consumers’ and society’s welfare.
    • Using this concept could give a business a significant competitive advantage-many consumers prefer to purchase products from businesses that are seen to be socially responsible.
    • A societal-marketing strategy, if successful, could lead to the firm being able to charge higher prices for its products as benefiting society becomes a ‘unique selling point’.

DEMAND, SUPPLY, AND PRICE RELATIONSHIP

  • Demand- the quantity of a product that consumers are willing and able to buy at a given price in a time period
    • Demand varies with price- for all normal goods, the quantity bought rises with a fall in price and the quantity bought falls with an increase in price
    • Other factors also change the demand of a product:
      • Changes in consumer’s incomes
      • Changes in the prices of substitute goods and complementary goods
      • Changes in population size and structure
      • Fashion and taste changes
      • Advertising and promotion spending
  • Supply- the quantity of a product that firms are prepared to supply at a given price in a time period
    • Supply varies with price- firms will be more willing to supply a product if the prices rises and will supply less as the price falls
    • Other factors also change the supply of a product:
      • Costs of production- change in labour or raw material costs
      • Government taxes imposed on suppliers that raises their costs
      • Subsidies paid by the government to suppliers which reduces their costs
      • Weather conditions and other natural factors
      • Advances in technology to make the costs of production lower

DETERMINING THE EQUILIBRIUM PRICE

  • Equilibrium price- the market price that equates supply and demand for a product
  • When demand and supply are combined, the equilibrium price will be determined- this is the point where demand=supply

FEATURES OF MARKETS

  • Market location
    • Local markets- some businesses operate locally where they sell products to consumers in the area where the business is located. Firms that usually just sell in these local markets include laundries, florist shops, hairdressers, and bicycle-repair shops.
      • Local markets have a limited sales potential
    • Regional markets cover a larger geographical area and businesses that have been successful locally often expand into the region or county so that they can increase sales
      • This process might then extend to national markets
      • Relatively few firms – compared to the thousands that operate just in local markets – will expand to try to sell to the whole national market- common examples include banking firms, supermarket chains and large clothing retailers
    • International markets offer the greatest sales potential- the rapid rise of multinationals that operate and sell in many different national markets illustrates the sales potential from exploiting international markets
      • Expanding into foreign markets is a very big strategic step as many aspects of marketing will have to change in order to respond to differences in tastes, cultures, and laws between different countries
  • Market size
    • Market size- the total level of sales of all producers within a market
    • This can be measured in two ways- volume of sales (units sold) or value of goods sold (revenue)
    • Market size is important because:
      • A marketing manager can assess whether a market is worth entering or not
      • Firms can calculate their own market share
      • Growth or decline of the market can be identified
  • Market growth
    • Market growth- the percentage change in the total size of a market (volume/value) over a period of time
    • The pace of growth depends on several factors such as general economic growth, changes in consumer incomes, development of new markets/products, etc
    • The rate of growth also depends on whether the market is ‘saturated’ or not
  • Market share
    • Market share- the percentage of sales in the total market sold by one business
  • Market share is often the most effective way to measure relative success of one business’ marketing strategy against that of its competitors
    • Benefits of having a high market share:
      • Sales are higher than those of any competing business in the same market and this could lead to higher profits too.
      • Retailers will be keen to stock and promote the best-selling brands. They may be given the most prominent position in shops.
      • As shops are keen to stock the product, it might be sold to them with a lower discount rate which has to be offered by the smaller, competing brands.
      • The combination of this factor and the higher sales level should lead to higher profitability for the producer of the leading brand.
      • The fact that an item or brand is the ‘market leader’ can be used in advertising and other promotional material- consumers are often keen to buy ‘the most popular’ brands.
    • However, it is not always easy to measure market growth and market share in an ambiguous way- different results may be obtained depending on whether the growth and share rates are measured in volume or value terms
      • A firm’s market share can still fall even if its sales are rising- this happens if the total market sales are increasing at a faster rate than one firm’s sales
  • Competitors
    • Businesses operate in a competitive environment- the most prominent way businesses compete is over price
    • There are also other forms of non-price competition such as customer service and location
    • Most businesses are faced by direct competitors- these are businesses that provide the same or very similar goods or services
    • Businesses can also face indirect competition- for example, in the bus transport industry, a bus operator experiences indirect competition from other providers of public transport such as taxi firms and rail companies, although they might be in different sectors of the same market

IMPORTANT MARKETING CONCEPTS

  • Creating/adding value
    • Added value is the difference between the selling price of a product and the costs of making the product
    • If businesses are able to increase their added value, then they have a greater potential for making profits- effective marketing makes this possible
    • Examples of marketing strategies that are likely to add value:
      • Create an exclusive and luxurious retail environment to make consumers feel that they are being treated as important- this will make them feel more prepared to pay higher prices and may have the psychological effect of convincing them that the product is of higher quality too
        • This approach is used by perfume and cosmetic retailers, expensive hairdressers, and luxury car showrooms
      • Use high-quality packaging to differentiate the product from other brands – widely used in cosmetics and confectionery (luxury boxes of chocolates)
      • Promote and brand the product so that it becomes a ‘must-have’ brand name that consumers will pay a premium price for, even if they may realise that the actual ingredients are little different from those used for other brands
        • For example, Coca-Cola and Levi jeans
      • Create a USP that clearly differentiates a product from that of other manufactures- product differentiation can lend to sales success
        • USP (unique selling point)- the special feature of a product that differentiates it from competitors’ products
        • Product differentiation- making a product distinctive so that it stands out from competitors’ products in consumers’ perception
  • Mass marketing and niche marketing
    • Mass marketing- selling the same products to the whole market with no attempt to target groups within it
      • Examples- fizzy drink companies, toothpaste, canned foods
      • Advantages
        • Small market niches do not allow economies of scale to be achieved. Therefore, mass-market businesses are likely to enjoy substantially lower average costs of production.
        • Mass-market strategies run fewer risks than niche strategies. As niche markets contain relatively small numbers of consumers, any change in consumer buying habits could lead to a rapid decline in sales. This is a particular problem for small firms operating in only one niche market with one product.
    • Niche marketing- identifying and exploiting a small segment of a larger market by developing products to suit it
      • Examples- expensive and high-status products such as Versace designs and Clinique perfumes; non-luxury products such as ‘pound stretcher’ retail shops that sell very cheap items, attracting a low-income segment
      • Advantages
        • Small firms may be able to survive and thrive in markets that are dominated by larger firms.
        • If the market is currently unexploited by competitors, then filling a niche can off er the chance to sell at high prices and high profit margins – until the competitors react by entering too. Consumers will often pay more for an exclusive product.
        • Niche market products can also be used by large firms to create status and image – their mass-market products may lack these qualities.
  • Market segmentation
    • Market segmentation- identifying different segments within a market and targeting different products or services to them
    • Market segment- a sub-group of a whole market in which consumers have similar characteristics
    • Sometimes segmentation is referred to as ‘differentiated marketing’ because, instead of trying to sell just one product to the whole market, different products are targeted at different segments
    • To be effective, firms must research and analyse the total market carefully to identify the specific consumer groups that exist within it

MARKET SEGMENTATION- IDENTIFYING DIFFERENT CONSUMER GROUPS

  • Consumer profile- a quantified picture of consumers of a business’ products, showing proportions of age groups, income levels, location, gender, and social class
  • There are 3 commonly used bases for segmentation:
    • Geographic differences
      • Consumer tastes may vary between different geographic areas and so it may be appropriate to offer different products and market them in ‘location-specific’ ways
      • Geographic differences might result from cultural differences
      • The way in which products are promoted may have to be adjusted too depending on the location
    • Demographic differences
      • Demography refers to the study of population data and trends
      • Demographic factors such as age, gender, family size, and ethnic background can be used to segment markets
      • Income and social class are also very important market segmentation factors- an individual’s social class may have a great impact on their expenditure patterns
        • Main socio-economic groups are:
          • Upper middle class – higher managerial, administrative, and professional, for example directors of big companies and successful lawyers
          • Middle class − managerial staff, including professions such as teachers
          • Lower middle class − supervisory, or junior managerial
          • Skilled manual workers
          • Working class − semi- and unskilled manual workers
          • Casual, part-time workers and unemployed
    • Psychographic differences
      • These are related to the differences between people’s lifestyles, personalities, values, and attitudes- many of these can be influenced by an individual’s social class too
      • Attitudes towards ethical business practices are very strong among some consumers – hence the growth of societal marketing towards these groups
      • Lifestyle is a very broad term that often relates to activities undertaken, interests, and opinions rather than personality
      • Many firms, particularly in their advertising, attempt to appeal to consumers who share certain personality characteristics
  • Advantages
    • Businesses can define their target market precisely and design and produce goods that are specifically aimed at these groups, leading to increased sales.
    • It enables identification of gaps in the market – groups of consumers that are not currently being targeted – and these might then be successfully exploited.
    • Differentiated marketing strategies can be focused on target market groups- this avoids wasting money on trying to sell products to the whole market – some consumer groups will have no intention of buying the product.
    • Small firms unable to compete in the whole market are able to specialise in one or two market segments.
  • Disadvantages
    • Research and development and production costs might be high as a result of marketing several different product variations.
    • Promotional costs might be high as different advertisements and promotions might be needed for different segments – marketing economies of scale may not be fully exploited.
    • Production and stock-holding costs might be higher than for the option of just producing and stocking one undifferentiated product.
    • By focusing on one or two limited market segments, there is a danger that excessive specialisation could lead to problems if consumers in those segments change their purchasing habits significantly.