3.3 Flashcards
1
Q
What is marketing
A
The process of identifying, anticipating and satisfying customers needs profitably
2
Q
Marketing model (step by step)
A
- The marketing model is a cycle and moves through stages going from 1 to 2 to 3 and so on
1. Marketing objective
2. Gather data
3. Form hypothesis
4. Test options
5. Control and review
3
Q
Marketing objectives closely link with
A
- Market share
- Market size and growth
- Corporate objectives
- Competition
- Brand awareness and loyalty
- Marketing mix
4
Q
What are objectives
A
- Objectives are statements of specific outcomes that are to be achieved
5
Q
Missions and visions of a business
A
Mission
- The overall purpose of the business (what we do)
Vision
- The overall aspirations of the business (where we want to get to)
Aims and goals
- General statements of what business intends to achieve (to achieve vision)
Objectives
- More precise & detailed statements of the aims/ goals
6
Q
Hierarchy of objectives
A
Increasingly
^ detailed
| Mission |
| Corporate/ strategic |
| Functional |
| Team |
| Individual |
Increasingly v
Strategic
Mission |
7
Q
Corporate objectives
A
Corporate objectives are those that relate to the business as a whole
8
Q
Examples of marketing objectives
A
Objective:
- To enter a new market
Example:
- Morrisons: to grow into the baby clothing market (bought kiddicare brand. Lost £230 million)
Objective:
- To increase market size
Example:
- Tesla: to grow market for electric vehicles in UK to 1 million in 2023
Objective:
- To increase sales volume or value
Example:
- Nike: to achieve sales revenue of $2 billion in the football division in 2014
9
Q
Objectives for Tesco’s
A
Corporate objectives
- In 2014 Dave Lewis set 6 objectives including:
> To restore profit margins to 3.5 - 4%
> To cut £1.5bn from its cost base
> To rebuild customer trust
Marketing objectives
- Stabilise UK market share
Marketing strategies
- Refresh ‘every little helps’ meaning for customers
- Compete with smaller chains of price and product
- Customised promotion
Marketing mix
- New product lines
- Refreshed packaging
- Digital marketing
10
Q
The value of setting marketing objectives
A
- Ensure functional activities consistent with corporate objective
- Provide a focus for marketing decision-making and effort
- Provide incentives for marketing team and a measure of success failure
- Establish priorities for marketing resources and effort
11
Q
Problems with setting marketing objectives
A
Fast changing environment
- E.g. changes in legislation impacting whole market
- E.g. new competitor enters the market
Potential conflict between marketing objectives
- E.g. trying to increase market share by cutting prices may damage objectives for brand perception
Easy to be too ambitious with marketing objectives
- E.g. growing market share without putting necessary resources in place to achieve it
12
Q
Internal influences on marketing objectives
A
Influence:
- Corporate objectives
Explanation
- Corporate objectives are the most important internal influence. A marketing objective should not conflict with a corporate objective
Influence:
- Finance
Explanation
- The financial position of the business (profitability, cashflow) directly affects the scope and scale or marketing activities
Influence:
- Human resources
Explanation:
- For a services business in particular, the quality and capacity of the workforce is a key factor in affecting marketing objectives. A motivated and well-trained workforce can deliver market-leading customer service and productivity to create a competitive marketing advantage
Influence:
- Business culture
Explanation
- A marketing-orientated business is constantly looking for ways to meet customer needs. A production-orientated culture may result in management setting unrealistic or irrelevant marketing objectives
13
Q
External influences on marketing objectives
A
Influence:
- Economic environment
Description:
- The key factor in determining demand - government policy, population, economic growth, recession, exchange rates
Influence:
- Competitor actions
Description:
- Marketing objectives have to take account of possible competitor response
Influence:
- Market dynamics
Description:
- The key market dynamics are market size, growth and segmentation. A market whose growth slows is less likely to support an objective of significant revenue growth or new product development
Influence:
- Technological change
Description:
- Many markets are affected by rapid technological change, shortening product life cycles and creating great opportunities for innovation
Influence:
- Social & political change
Description:
- Changes to legislation may create or prevent marketing opportunities. Change in the structure and attitudes of society also have major implications for any market
14
Q
Market size
A
- Indicates the potential sales for a firm (the “size of the prize”)
- Usually measured in terms of both volume (units) and value (sales)
- Size of individual segments within the overall market segments within the overall market can also be measured
- Not normally a marketing objective - since firm cannot influence it
15
Q
Market growth
A
- A key indicator for existing and potential market entrants
- Growth rate can be calculated by using either value (e.g. market sales) or volume (units sold)
16
Q
Market growth calculation (%)
A
Change in the size of the market over a period ÷ Original size of the market
× 100
17
Q
Market share
A
- Explains how the overall market is split between the existing competitors
- Tends to be calculated based on market value, but volume can also be used
- Good indicator of competitive advantage
- Key is to look for significant +/- changes
18
Q
Market share calculation (%)
A
Sales of one product OR brand OR business ÷ total sales in the market
x 100
19
Q
Advantages of being a market leader
A
- High distribution (everyone stocks the market leader)
- Consumer awareness
- Pricing power
20
Q
Why market research is important
A
Customers differ in terms of
- The benefits they want
- Amount they are able to or willing to pay
- Media (e.g. television, newspapers, websites and magazines) they see
- Quantities they buy
- Time and place that they buy
21
Q
Insights provided by Effective market research
A
- Dimensions of the market (size, structure, growth, trends)
- Shopping and usage habits (quantity, pricing, frequency)
- Competitor strategies (market share, positioning, unique selling points [USPs])
- Needs, wants and expectations of customers (& how these are changing)
- Media consumption (how and where to communicate)
- Market segments - existing and potential opportunities for new segments
22
Q
Two key categories of market research
A
Primary research
- Data collected first hand for a specific research purpose
Secondary data
- Data that already exists and which has been collected for a different purpose
23
Q
Primary data - main sources
A
- Observations
- Postal surveys
- Telephone interviews
- Online surveys
- Focus groups
- Face to face surveys
- Test marketing
- Experiments
24
Q
Focus groups
A
- Focus groups are common in primary research
- A focus group is a form of qualitative research in which a group of people are asked about their perceptions, opinions, beliefs, and attitudes towards a product, service, concept, advertisement, idea or packaging
25
Secondary data - main sources
Google
- A great way of getting quick market research for free
Government departments
- Provide detailed insights on the economy and on many industry sectors
Trade associations
- Most industries have an industry association - a great source of market analysis
Competitor websites & marketing materials
- Valuable information on marketing activities of competitors
Trade press & magazines
- Industry and market insights from professional business publishers
Market research profits
- Commercial organisations produce a side variety of reports (online & print) that analyse individual markets & industries
26
Benefits of primary research
- Directly focused to research
- Kept private - not publicly available
- More detailed insights - particularly into customer views
27
Drawbacks of primary research
- Time consuming and costly to obtain
- Ricks of survey bias
- Sampling may not be representative
27
Benefits of secondary research
- Often free and easy to obtain
- Good source of market insights
- Quick to access and use
27
Drawbacks of secondary research
- Can quickly become out of date
- Not tailored to business needs
- Specialist reports often quite expensive
28
Quantitative research
- Concerned with data and addresses questions such as "how many?" "how often?" "who?" "when?" and "where?"
- Based on larger samples and is therefore more statically valid
- The main methods of obtaining quantitative data are the various forms of survey - i.e. telephone, postal, face to face and online
- (NUMBERS AND DATA)
28
Qualitative research
- Based on opinions, attitudes, beliefs and intentions
- Answers questions such as "why?" "would?" or "how?"
- Aims to understand why customers behave in a certain way or how they may respond to a new product or service
- Focus groups and interviews ae common methods used to collect qualitative data
28
Benefits of quantitative research
- Data relatively easy to analyse
- Numerical data provides insights into relevant trends
- Can be compared with data from other sources (e.g. competitors, history)
28
Drawbacks of quantitative research
- Focuses on data rather than explaining why things happen
- Doesn't explain the reasons behind numerical trends
- May lack reliability if sample size and method is not valid
29
Benefits of qualitive research
- Essential for important new product development and launches
- Focused on understanding customer needs, wants, expectations = very useful insights for a business
- Can highlight issues that need addressing - e.g. why customers don't buy
- Effective way of testing elements of the marketing mix - e.g. new branding, promotional change
30
Drawbacks of qualitive research
- Expensive to collect and analyse - requires specialist research skills
- Based around opinions - always a risk that sample in not representative
31
Sampling in market research
Sampling involves the gathering of data from a sample of respondents, the result of which should be representative of the population (e.g. target market) as a whole
32
Benefits of sampling in market research
- Even a relatively small sample size (if representative) can provide useful research insights
- Using sampling before making marketing decision can reduce risk and cost
- Sampling is flexible and relatively quick
33
Drawbacks of sampling in market research
- Biggest risk = sample is unrepresentative of population - leading to incorrect conclusions
- Risk of bias in research questions
- Less useful in market segments where customer tastes & preference are changing frequently
34
Marketing strategy
Market segmentation
- What market are we in?
- Choose profitable market segments to target
Target consumer
- Who are our consumers?
- Define target consumer within those segments
Positioning
- What do they wany?
- Businesses need to decide how to meet consumer needs better than their competitors
- This requires consumer insights to be matched with product benefit
35
Market segmentation
Market segmentation involves dividing a market into parts that reflect different customer needs and wants
36
Main categories of market segmentation
- Demographic segments
- Geographic segments
- Income segments
- Behavioural segments
37
Overview of segments
Segment basis:
- Demographic
Summary:
- Dividing a market into segments based on demographic variables such as age, gender, family, lifestyle, religion, nationality and ethnicity
Segment basis:
- Income
Summary:
- Dividing markets into different income segments, often on the basis of social-economic grouping
Segment basis:
- Behavioural
Summary:
- Dividing a market into segments based on the different ways a customer use or respond to a product and the benefits they seek
Segment basis:
- Geographical
Summary:
- Dividing a market into different geographical units, such as nations, regions, cities, neighbourhoods or other territories
38
Benefit of effective market segmentation
- Focuses resources on parts of a market where the business can succeed
- Allows a business to grow share in markets or to "ride the wave" of fast-growing segments
- Helps with new product development - focused on needs of customers in the segment
- Helps make the marketing mix more effective - e.g. better targeting of promotion
39
Potential drawbacks of market segmentation
- Segmentation is an imprecise science - data not always available, up-to date or reliable
- Just because you can identify a segment doesn't mean you can reach the customer in it
- Markets are increasingly dynamic - fast changing; so too are the segments
40
Niche and mass marketing
Niche marketing
- Where a business targets a smaller segment of a larger market, where customers have specific needs and wants
Mass marketing
- Where a business sells into the largest part of the market, where there are many similar products offered by competitors
41
Advantages of targeting a niche market segment
- Less competition - a "big fish in a small pond"
- Clear focus - target particular customers
- Builds up specialist skill and knowledge
- Can often charge a higher price
- Profit margins often higher
- Customers tend to be more loyal
42
Drawbacks of targeting a niche market segment
- Lack of economies of scale
- Risk of over dependence on a single product or market
- Likely to attract competition if successful
- Vulnerable to market changes - all "eggs in one basket"
43
Key features of a mass market
- Customers form the majority in the market
- Customer needs and wants are more "general" & less "specific"
- Associated with higher production output and capacity + potential for economies of scale
- Success usually associated with low-cost (highly efficient) operation or market leading brands
44
Target market
A target market is the set of customers sharing common needs and wants that a business decides to target
45
Main strategies for targeting a market
Strategy:
- Mass marketing (undifferentiated)
Overview
- Business targets the WHOLE market, ignoring segments
- Products focus on what customers need and want in common, not how they differ
Examples:
- Global, ubiquitous brands
- Coke
- McDonalds
Strategy:
- Segmented (differentiated)
Overview
- Business target several market segments within the same market
- Products are designed and targeted at each segment
- Requires separate marketing plans and often different business units & product portfolios
Examples:
- Unilever's product portfolio
- LYNX
- Dove
- Sure
- Radox
Strategy:
- Concentrated (niche)
Overview
- Business focuses narrowly on smaller segments or niches
- Aim is to achieve a strong market position (share) within those niches
Examples:
- Whole foods market & the organic niche
46
Market positioning
Market position is define by customers - the place a product occupies in consumer minds relative to competing products
- Having chosen profitable segments to target
- Having chosen target consumers
- Businesses need to decide how to compete in those segments - brand position
- This requires consumer insight
47
The marketing (positioning) map
A market (or position) map illustrates the range of "positions" that a product can take in a market based on two dimensions that are important to customers
48
Possible positioning strategies
- Offer more for less
> E.g. Aldi: Good quality at low prices
- Offer more for more
> E.g. High prices luxury products with prestige value
- Offer more for the same
> E.g. Introduce new features & better performance for the same price
- Offer less for much less
> E.g. no-fills low cost flying and hotels; hood quality, back to basic & low price
49
Advantages of a marketing map
- Helps spot gaps in the market
- Useful for analysing competitor
- Encourages use of market research
50
Disadvantages with a marketing map
- Just because there is a gap doesn't mean there is a demand
- Not a guarantee of success
- How reliable is the market research
51
Positioning & competitive advantage
- Customers choose products based on the brand proposition
- Providing superior value that the competition is a source of competitive advantage
- There are various possible difference which can deliver a competitive advantage
52
Requirements for effective product differentiation
- Delivers things that are important to customers
- Distinctive - compared with the competition
- Communicated and visible to customers
- Not easily copied by competitors
- Affordable
- Profitable
53
What is the marketing mix
The marketing mix is the combination of elements used by a business to enable it to meet the needs and expectations of others
54
Why is there a marketing mix
- The marketing mix is there to deliver the marketing strategy
- Segmentation --> Targeting --> Positioning --> Marketing mix
- The marketing mix will vary depending on the segmentation, targeting and positioning strategy adopted
1. Choose which customers to serve
- Marketing segmentation (parts of a market)
- Targeting (segments to enter)
2. Decide how to serve those customers
- Product differentiation (what makes it different from the competition: the unique selling point [USP])
- Marketing positioning (how customer perceive the products)
55
The traditional four P's
Product
- The product or service that the customer buys
Price
- How much the customer pays for the product
Place
- How the product is distributed to the customer
Promotion
- How the customer is found & persuaded to buy
56
4 Ps now extended to the 7 Ps
People
- The people who make contact with customer in delivering the product
Process
- The systems and process that deliver a product to a customer
Physical environment
- The elements of the physical environment the customer experiences
57
Why add the 3 new Ps
- Adding physical, process and people to the marketing mix connects marketing closer with HRM and operations
Physical environment
- Layout and design premises; ambience, ease of movement
- Customer pricks up cluse from the phycical environment they buy in
Process
- Transaction process; website design; operational support
- Process is the reality of the customer experience
People
- Customer service; skills & experience; customer relationship management (CRM)
- The reputation of your business rests in your peoples hands
58
Example of how the 7 Ps are used for Premier Inn Hotels
Product
- Hotel accommodation & related services
- Proposition: a "good nights sleep - guaranteed"
Price
- Dynamic pricing; from approx.. £69 per night depending on location & availability
Promotion
- TV advertising; online & social media
Place
- Predominantly sold direct; emphasis on online booking
People
- Hotel reception staff; restaurants & bar staff
Process
- Online booking; hotel operation
Physical environment
- Branding, staff uniform, hotel ambience, facilities & standardised room layout
59
Why is it called a marketing mix
- Because each element of the marketing mic is related to the others
- Elements of the mix should work together to achieve the desired effect
60
Blending the mix
- The marketing mix blends together the elements of a marketing strategy
- There must be internal consistency within the mix
- Mix must be consistent with the product and its target market
61
What is an effective marketing mix
- Achieve marketing objectives
- Meets customer needs
- Is balanced and consistent
- Creates a competitive advantage
- Consistent with the chosen target market and positioning
62
Influences on the marketing mix
Business resources
- Particularly finance - impacts what activities can be undertaken
Technology
- Rapid technology change impacting on all aspects of the marketing mix, not just product and promotion
63
Why the focus of the marketing mix will vary
- Depending in the product the focus of the marketing mix will very
Price
- Example: Discount supermarkets, Low-cost airlines
Promotion
- Example: Soap powders, Furniture retailers
Product
- Example: Luxury motor vehicles, tailor-made holidays
Place
- Example: Convenience stores, coffee shops
64
Importance of Product in the marketing mix
- Products are at the heart of marketing
- The product needs to exist for the other elements to happen
65
The layers of a product
A product is anything that is capable of satisfying customer needs
- Core values is in the middle
Inner layer
- Actual product
- Brand name
- Design
- Packaging
- Features
- Quality
Outer layer
- Augmented product
- Warranty
- After sale service
- Pre sale service
66
Consumer products
- Bought by final consumers for personal consumption
- Differ in the way consumers buy them
67
Industrial products
- Bought for further processing or for use in conducting a business
- Bought by other businesses, not consumers
68
Three main categories of consumer products
- Convenience products
- Shopping products
- Specialty products
69
Convenience products
- Bought frequently
- Little planning or shopping effort - impulse
- Low customer involvement
Price
- Tends to be low
Place
- Widespread distribution
Promotion
- Mass promotion
70
Shopping products
- Bought less frequently
- Customers careful on suitability, quality, price, brand, style
Price
- Tends to be higher
Place
- Selective distribution (fewer outlets)
Promotion
- Advertising by producer and resellers
71
Specialty products
- Unique characteristics or brand
- Buyers make a special effort when buying
Price
- High
Place
- Exclusive distribution or limited outlets
Promotion
- More carefully targeted
72
Three main kinds of industrial products
Materials & Parts
- Raw materials, components
- Mostly sold to other industrial users
- Price and service key
Capital items
- Industrial products used in production or operations
- IT systems, buildings infrastructure, machinery
Suppliers and services
- Operating supplies (e.g. energy)
- Business service (e.g. maintenance, security)
73
Key features of marketing industrial products
Feature:
- Specialist buyers and sellers
Explanation:
- Buyers are businesses - will have specialist requirements and more experience. Often dealing with professional "buyers"
Feature:
- Buyer-seller relationship
Explanation:
- Strong emphasis on customer relationship management and repeat business
Feature:
- Transaction value
Explanation:
- Purchase value often substantial in a single transaction (e.g. bulk purchase contract)
Feature:
- Quality and price
Explanation:
-Greater emphasis on product quality and price (where there are acceptable alterative products). Price is often negotiated by the buyer
Feature:
- Support
Explanation:
- Greater requirement for after sales support
74
Product life cycle
A theoretical model which descries the stage a product goes through over its life
- Forecast future sales tends
- Market targeting and positing
- Analyse & manage the product portfolio
75
Extending the product life cycle
- Lower price
- Changing promotional message
- Changing product - re-styling and product improvement
- Look for alternative distribution channels
- Develop new market segment (new customer)
- Find new uses for the product
- Reposition the product
76
Weaknesses of the product life cycle model
- The shape and duration of the cycle varies from product to product
- Strategic decisions can change the life cycle
- It is difficult to recognise exactly where a product is in its life cycle
- Length cannot be reliably predicted
- Decline is not inevitable
77
Stages in the product life cycle
- Development
- Introduction
- Growth
- Maturity
- Decline/ End
Product life cycle model can be applied to a :
- Product category
- Style
- Brand or model
78
Development stage in product life cycle
- Often complex
- Absorbs significant resources
- May not be successful
- May involves a long lead time before sales are achieved
79
New product development
- Time consuming but computer aided design (CAD) is reducing product development times
- The cost of development rises as it approaches launch
- Market research including a test launch often done to reduce the risk of product failure
- Most new product ideas do not reach the launch phase
80
Why new product are scrapped before launch
- Inadequate demand
- Action of competitors
- Change in the external environment
- Production problem
- High costs
- Does not fit in the firms product range
- Life cycle expected to be too short
81
Introduction stage in product life cycle
- New product launched to the market
- Low levels of sales
- Low capacity utilisation
- High unit costs
- Usually negative cash flow
- Distributors may be reluctant to take an unproven product
- Heavy promotion to make consumers aware of the product
82
Strategies at the introduction stage
- Aim - encourage customer adoption
- High promotional spending to create awareness and inform people
- Either skimming or penetration pricing
- Limited, focused distribution
- Demand initially from "early adopters"
83
Growth stage in product life cycle
Expanding market but arrival of competitors
- Fast growing sales
- Rise in capacity utilisation
- Cash flow may become positive
- Unit costs fall with economies of scale
- The market grows, profits rise but attracts the entry of new competitors
84
Strategies in the growth stage
- Advertising to promote brand awareness
- Increase in distribution outlets - intensive distribution
- Go for market penetration and (if possible) price leadership
- Target the early majority of potential buyers
- Continuing high promotional spending
- Improve the product - new features, improved styling, more options
85
Maturity stage in product life cycle
- Slower sales growth as rivals enter the market = intense competition + fight for market share
- High level of capacity utilisation
- High profits for those with high market share
- Cash flow should be strongly positive
- Weaker competitors start to leave the market
- Price and profits fall
86
Strategies for mature products
- Manage capacity & production
- Promotion focuses on differentiation
- Persuasive advertising
- Intensive distribution
- Enter new segments
- Attract new users
- Repositioning
- Develop new uses
87
Declining stage in product life cycle
- Falling sales
- Market saturation and/or competition
- Decline in profits & weaker cash flows
- More competitors leave the market
- Decline in capacity utilisation - switch capacity to alterative products
88
Reasons why products enter the decline stage
- Technological advance
- Changes in consumer tastes and behaviour
- Increased competition
- Failure to innovate and develop the product
89
Strategies for the decline stage
- Maintain market share
- Harvest by spending little on marketing the product
- Rationalise by weeding out the product variations
- Price cutting to maintain competitiveness
- Promotion to retain loyal customers
- Distribution narrowed
90
Product portfolio analysis
Product portfolio analysis assesses the position of each product or brand in a firms portfolio to help determine the market strategy for each
91
Boston matrix
- Boston consulting group developed this as a tool of portfolio analysis
- It can be applied to the portfolio of product produced by a firm or the portfolio businesses owned by a firm
- Portfolio is the collection of business or products that make up a business
92
Boston matrix summary
- Firms should analyse their portfolio (collection) of products
Products are categorised as:
- Question marks/ problem children
- Stars
- Cash cows
- Dogs
- The ideal is that firms should aim for a balanced portfolio with some producers in each category
93
Drawing the Boston matrix
High
^
| |
Market | Question | Stars
Growth | Marks |
Rate |-------------------|-------------------
| |
| Dogs | Cash
| | Cows
Low | |
Low --------------------------------> High
Relative Market share
94
Comparison with the product life cycle
The product life cycle
- Is concerned with individual products
- Is concerned with sales over time
The Boston matrix
- Is concerned with the firms portfolio of products
- Focuses on cash flow from products
95
Axes of the Boston matrix
Relative market share
- This is expressed not as a % but share in relation to other firms in the market
- A measure of the firms/ products strength in the market
Market growth
- % rate of growth of sales in the market
- Measure of market attractiveness
- From this we derive four cells as a means of analysing products
96
"Question mark" products
- Low share of a rapidly growing market
- Cash flow is negative
- Have potential but the future is uncertain
- Could become either a star or a dog
97
Strategy for "Question marks"
- Invest to increase market share
- Substantial investment to achieve growth at the expense of powerful competitors
- Invest in promotion and other aspects of marketing
- Build selectively
98
Star products
- High share of a rapidly growing market
- Position leadership in a high growth market
- The product/ business is relatively strong and the market is growing
- Require high marketing spending
- Net cash inflow is neutral or at best modestly positive
99
Strategy for stars
- Investment to sustain growth
- Build sales and/or market share
- Spend to keep competitors at bay
- Invest to maintain or increase leadership position
- Repel challenges from competitors
100
Cash cow products
- High share of a slowly growing market
- Mature stage in the products life cycle
- Mature, successful product
- Dominant share
- Little potential for growth
- Large positive cash inflow
101
Strategy for cash cows
- Defend market share
- Aim for short term profits
- Little need for investment
- Little potential for further growth
- Reduce investment in order to maximise short term cash flow and profits
- Use profits from cash cows to invest in new products
102
Dog products
- Dogs are either
> Products that have failed
> Products that are in the decline phase of their life cycle
- Low share of a slowly growth market
- Not going anywhere & no real potential
103
Strategy for dogs
- Phase out or sell off (divest)
- Not worth investing in
- Any profit made has to be reinvested just to maintain market share
- Uses up more management time and resources that can be justified
- Divest or at most focus on a defendable niche
104
How valuable is the Boston matrix
- A useful tool for analysing product portfolio decisions
- But it is only a snapshot of the current position
- Has little or no predictive value
- Does not take niche markets into account
- Limited consideration of competitive advantage
105
What is price
- The money charges for a product or service
- Everything has to give up in order to acquire a product or service
- Usually expressed in terms of £
106
Factors that influence pricing
- Financial objectives
- Price sensitivity
- Product life cycle
- Market share
- Marketing objectives
- Positioning
- Competitors
107
Business objectives that will influence pricing
Financial
- Maximise profit
- Achieve a target level of profit
- Achieve a target rate of return
- Maximise sales revenue
- Improve cash flow
Marketing
- Maintain/ improve market share
- Beat/ prevent competition
- Increase sales
- Build a brand
108
Pricing strategies and tactic
Pricing strategies
- Adopt over the medium to long term to achieve marketing objectives
- Have a significant impact on marketing strategy
Pricing tactics
- Adopted in the short run to suit particular situations - more promotion
- Too much can damage long term price strategy and image
109
Competitors significantly influence how pricing is set
Price takes
- Have no option but to charge the ruling market price
Price makers
- Able to fix there own price
Price leaders
- Market leaders whose price changes are followed by rivals
Price followers
- Follow the price changing lead of the market leader
110
Pricing strategies
Cost based
- Mark up based on cost
- Ensures % profit on every saes
- Popular in retailing
Skimming
- Set a high price to maximise profit
Penetration
- Set a low price to gain market share
Dynamic
- Set flexible prices based in current market demands
- Dependent on technology
111
Benefits and drawbacks of using cost to influence pricing
Benefits
- Easy to calculate
- Price increases can be justified when costs rise
- managers can be confident each product is being sold at a profit
Drawbacks
- Ignores price elasticity of demand
- May not take account of competition
- Profits is lost if price is set below the price that customers are prepared to pay
- Sales are lost if price is set above the price customers are willing to pay
- Business has less incentive to control costs
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Price skimming
- Set a high price to maximise profit
- Product is sold to different market segments at different times
- Top segment is skimmed off first with the highest price
- Objective
> Maximise profits per unit to achieve quick recovery of development costs
- Works well for products that create excitement amongst "early adopters"
- Best used in introduction or early growth stage of product life cycle
- Electronic items provide many great examples
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Penetration pricing
- Opposite of price skimming
- Offer a product at a low introductory price
Aims to:
- Gain market share quickly
- Build customer usage and loyalty
- Build sales of higher priced related items
- Price can be increased once target market share is reached
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Distribution
To make products available in the right place at the right time in the right quantities
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Distribution channels serve more that one purpose
Provide a link between production and consumption
- Help gather market information
- Communicate promotional offers
- Find and communicate with prospective buyers
- Physical distribution - transporting and storing
- Financing - other parties finance the stock
- Risk taking - other parties take some risk
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Key advantages of retail distribution
- Convenience for customers
- Often UK-wide reach to customers
- Retailers chooses the final price
- Retailer handles the financial transaction
- Retailer holds the stock
- After sales support (e.g. returns)
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Retailers
- Retailers is the final step in the chain - deals directly with the customer
- Focused on consumer markets
Various kinds of retailer:
- Multiples - chains of shops owned by a single company (e.g. Sainsburys)
- Specialist stores (e.g. Fast fashion)
- Department stores (e.g. John Lewis)
- Convivence stores (e.g. premiers)
- Independents - a shop run by an owner
- Franchises (retail format operated by franchise)
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Wholesalers
Wholesales "break bulk"
- Buy in large quantities from producers
- Break into smaller quantities to sell to retailers
Advantages
- Reduce the producers transport cost (fewer journeys to the wholesaler rather than many journeys to retailers)
- Retailers can order in smaller amounts from wholesalers
- Wholesaler makes more money buying at a lower price from the producer and adding a profit margin onto the price paid by the retailer
Examples of wholesaler
- Newspaper publishers
- Newsagents
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Distributors
- Distribute (sell on) products and serve as a local sales point
- Usually specialise in a particular industry
> Examples - building supplies and electrical components
- Offer products from many producers = greater choice for customer
- Different from wholesalers in that a distributor doesn't supply a retailer
- Agents do not hold (buy) stock
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Wholesaler Vs Distributor
wholesaler
- Works to satisfy retailer
- Often work non-exclusively
- Not usually restricted to geographical location
Distributor
- Works to satisfy the brand/ manufacturer
- Often work exclusively
- Usually restricted to a specific geographical location
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Decisions about what types of distribution channel to use
- Channel length - direct or indirect
- Choice of intermediary
- Use just one or several channels
- How to move the goods through a channel
- Control over the channel - e.g. who decided price, promotion, packaging
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