MARKETING Flashcards
(172 cards)
1
Q
what is a market
A
any place where buyers and sellers can meet to conclude a transaction e.g. amazon.co.uk or a shopping mall
Different markets have different characteristics and are affected differently by changes
2
Q
what is the aim of marketing
A
to help identify, anticipate and satisfy consumer needs and wants profitably
Needs are considered to be essential e.g. shelter or food
Wants are desires which are non essential, even if consumers consider them to be essential e.g Nike trainers
3
Q
what is market research
A
the process of systematically gathering data from consumers which can be used to influence the business decisions
4
Q
how is market research essential
A
the process of systematically gathering data from consumers which can be used to influence the business decisions
5
Q
what is product orientation
A
an approach to marketing that focuses on the characteristics of the product rather than the needs of the consumer
The emphasis will be on creating a product first and then finding a market
The business has a belief that the product is superior i.e. it will sell itself
One problem with being too product orientated is that over time your business may move further and further away from what the market is looking for, thus increasing the risk of business failure
E.g. Gillette’s razors can be classed as a product oriented business as the business focuses on the quality of its products and regular innovations aim to increase sales
6
Q
what are the tools of product orientation
A
- product research
- product testing
- product focus
7
Q
what is market orientation
A
an approach to marketing that focuses on the needs of consumers and uses this information to design products that meet customer needs
Consumers are at the centre of marketing decisions
Products will be developed which respond to consumer needs
The result of market orientation is that the firm will benefit from increased demand, increased profits, and a valued brand image as its products become more desirable
E.g. Universities often develop new courses based on the feedback they receive from students and employers
8
Q
what are tools of market orientation
A
- market research
- market testing
- customer focus
9
Q
what is the aim of market orientation
A
to develop products to meet consumer needs identified during the market research process
10
Q
niche markets
A
products are aimed at a subset of the larger market e.g. gluten free products
Niche marketing occurs when businesses identify and satisfy the demands of a small group of consumers within the wider market
Production usually happens on a small scale
11
Q
mass markets
A
products are aimed at broad market segments e.g Kellogg’s Corn Flakes is an example of a breakfast cereal aimed at the mass market
Market segments are groups of consumers who share similar characteristics e.g. age, lifestyle, etc.
Mass marketing occurs when businesses sell their products to most of the available market
Production usually happens on a large scale
12
Q
characteristics of niche markets
A
Products are more specialized and unique as they are aimed at narrow market segments
High average costs due to small scale production
They do not benefit from economies of scale
High prices make products less affordable and lead to lower sales volumes
High prices can allow businesses to earn higher profit margin
Louis Vuitton is an example of a fashion company that aims its products at a niche market
13
Q
characteristics of mass markets
A
Products are less unique as they are aimed at broad market segments
Low average costs due large scale production economies of scale
Low prices lead to greater affordability and higher sales volumes
Low prices lead to lower profit margins
Primark is an example of a clothing company that focuses its product on the mass market
14
Q
how can the size of a market be measured
A
through sales volume or sales value
15
Q
sales volume
A
is the number of products sold i.e the physical number of units sold
16
Q
how to calculate sales revenue
A
price x quantity sold i.e the financial value of the units sold
17
Q
what is market share
A
the proportion of the total sales of a product/service as a proportion of the size of the market as a whole
E.g. Tesco has 26% of the UK grocery market
18
Q
how can market share be calculated
A
(sales of a business/market size)x100
19
Q
what does an increase in market share indicate
A
that a business has made effective use of marketing strategies to increase sales and gain customers from competitors
20
Q
what is market growth
A
the increase in the overall size, value or volume of a market over a period of time usually expressed as a percentage
This metric considers the size of the whole market/industry as opposed to a single firm’s share of the market
21
Q
ways of measuring market growth
A
sales revenue, sales volume or the number of customers
22
Q
how is market growth calculated
A
( (this year’s market sales - last year’s market sales) / last year’s market sales ) x100
23
Q
if the market growth rate is positive
A
the market is expanding
24
Q
if the market growth rate is negative
A
the market growth rate is contracting
25
what does market growth provide
an incentive for businesses looking to expand, increase sales and generate higher revenue
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reasons for market growth
- increased demand for products
- advances in technology
- population growth
- changes in tastes and preferences
- favourable economic conditions
- media attention
27
what is market leadership
a businesses ability to maintain the largest share of a specific market or industry
It can refer to a product, brand or organisation
It is a key way to measure business success
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oligopolies
small number of large businesses that control a large portion of market share, dominating their industry
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market concentration
measures how competitive these markets are
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high market concentration
is where market leaders have a very high combined market share
These markets are not very competitive
Examples include energy supply and textbook publishing
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low market concentration
is where market share is spread across market leaders and smaller competitors
These markets tend to be more competitive
Examples include UK supermarkets and travel agencies
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advantages of market leadership
- brand recognition
- economies of scale
- innovation and resources
- distribution channels
- competitive advantage
- attractive to highly-qualified job applicants
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marketing planning
is the process of formulating the marketing strategies and tactics that will help a business to achieve its marketing objectives
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three tools of marketing planning include
Market segmentation
Market mapping
Market positioning
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marketing plan elements
- objectives
- resources
- research
- marketing mix
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marketing objectives
These are specific SMART (specific, measurable, achievable, relevant, time bound) goals and may include
Increasing market share
Maximising sales revenue in a particular region or for a certain product
Achieving distribution targets
Improving brand awareness
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resources (marketing plan)
Planning which resources are required and where they will come from
This may include finance, staff time and expertise as well as the capital expenditure required to achieve the marketing objectives
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research (marketing plan)
Marketing research identifies the factors expected to impact upon the marketing plan such as
Market size and growth
Market segments
Competitor positioning
Customer tastes, preferences and views
The nature of distribution channels
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marketing mix
This involves planning the medium- and short-term marketing activities the business intends to undertake and who is responsible for them including
Pricing strategies and tactics
Promotional activity
Distribution and logistical plans
Product specifications, features and packaging
Physical evidence such as branding
How people and process are developed to support delivery of the rest of the marketing mix
40
marketing segmentation
the process in which a single market is divided into sub markets or 'segments'
Each segment represents a slightly different set of consumer characteristics
Firms often segment their markets according to factors such as social status, geographical location, religion, gender, or lifestyle
A target market is one or more market segments at which a product or service is primarily aimed
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demographic forms of market segmentation
- age
- gender
- religion
- family characteristics
- ethnic grouping
- sexuality
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geographic forms of market segmentation
- countries, continents, regions
- climate and weather conditions
- tourism
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psychographic
- social status
- economic status
- values and beliefs
- political allegiance
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advantages of market segmentation
- Recognizes that consumers are not all identical - consumer groups do not all share the same tastes and preferences
- Products and marketing activities can be altered to meet different needs of different groups of consumers and targeted more precisely
- Less expensive and wasteful than marketing products at wide market segments
- May increase loyalty if the consumer feels that their needs are being met which can lead to repeat purchases
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disadvantages of market segmentation
- Not everyone within a segment will behave in the same way
- May be difficult to identify a segment and consumers can belong to multiple segments at the same time
- Segmentation requires more detailed market research which can prove costly (but beneficial) to the business
- A segment may be identified but it may be too small and unprofitable to cater for
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market positioning
refers to the process a business goes through when launching a new product or service
The business decides where they want to position the product in the market with regard to price, quality, branding, and customer perception
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marketing mapping
is a tool for identifying the position of a product within a market
A market map refers to a two-dimensional diagram that shows the attributes or characteristics of a product in comparison to rivals’ products
Market maps are sometimes called perception maps
Only two criteria can be chosen e.g. price and quality, age and income, etc.
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if there are no spaces left on the map
Indicates that the market is saturated
- This means that there are no opportunities to exploit a market niche in the market
- Competition is likely to be high and profits low
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if there is evident space left on the map
may indicate the existence of a market niche
This needs to be researched carefully before the business commits e.g. it looks like there is a gap in the market in high price / low quality area in the map above
This gap does not represent a worthwhile market as the business would find it impossible to build and maintain a loyal customer base
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usefulness of market mapping
Market gaps can be identified which may enable a business to come up with ideas for new products
Comparisons can be made between a business’ products and those of its rivals - where are the business’ products positioned about its rivals?
Market maps are simple to construct and offer a visual illustration of the position of a product in the market
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limitations of market mapping
A gap in the market may exist because it is not profitable to fill
Mapping a market may require primary research which can be expensive
Only two criteria can be chosen which may prove too simplistic
Markets are often dynamic and a market map only provides insight at a specific point in time
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unique selling point
is a distinguishing factor or characteristic of a product, service or brand that sets it apart from its competitors
53
how does the USP help businesses
The USP helps a business to differentiate itself and give customers a reason to choose one product or service over others because it offers something distinct and valuable
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range of reasons as to why businesses develop USPs
Developing a brand identity
Achieving a competitive advantage over rivals
Effective communication with customers
The attraction and retention of customers
Achieving power over pricing
Encouraging innovation and adaption
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product differentiation
is an attempt by a business to distinguish its products from those of competitors
This involves creating functions or features of the product (or firm) which help it to stand out from its competitors
Strong product differentiation helps the firm to develop its competitive advantage
The development of product differentiation often helps a firm to create a unique selling point for its product which can be used in marketing
Product differentiation may be tangible (clearly visible) or it may be intangible (a perception) that is created about the product in the consumer's mind
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methods used by businesses to differentiate products
Marketing and branding activities
Eye-catching packaging
Attractive functions and features
Product customisation
Excellent customer service
57
sales forecasts
predict future revenues based on past figures, including
The volume and value of sales
The size of the market
Sales as a result of promotional activity
Sales as a result of cyclical factors
Sales forecasts are an important tool to support planning and can improve the validity of cash flow forecasts
Businesses use sales forecasts to determine resource requirements
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market research for constructing effective sales forecasts
Can include primary and secondary research sources
May rely on test marketing to understand customer reactions
Sample size needs to be sufficient to provide high data confidence
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extrapolation for constructing effective sales forecasts
Using historical data to identify and extend trends to predict future sales
Typically uses a line of best fit to make predictions
Requires strong correlations between data sets such as spending on promotional activity and sales revenue
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time series analysis for constructing effective sales forecasts
Identifying underlying trends from past sales figures recorded at regular intervals
Must take into account seasonal, cyclical and random variations
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factors which can influence the reliability of a sale forecast
Consumer trends
Changing economic variables
The actions of competitors
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Consumer Trends that Require Sales Forecasts to be Adjusted
- seasonal variations
- fashion
- long term trends
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Changing Economic Conditions that Require Sales Forecasts to be Adjusted
- economic growth
- inflation
- unemployment
- interest rates
- exchange rates
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Changing Economic Conditions that Require Sales Forecasts to be Adjusted
ACTIONS OF COMPETITORS:
Sales forecasts must consider short-term actions of competitors such as sales promotions as well as longer-term strategies such as changes to product ranges and expansion plans
Competitor actions are difficult to predict so the use of past data to predict future sales may be limited as a result
E.g. UK Company Marks and Spencer announced plans to open twenty new high street stores in 2023, partly in response to the closure of several key competitors including Debenhams
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difficulties of sale forecasting
Sales forecasting usually involves the use of past data to predict the future
In the short-term, sales forecasts are likely to reflect the recent past
Longer-term sales forecasting is often more problematic as several factors affect its reliability
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Effective sales forecasting requires skill, time and the accurate use of timely data
Smaller businesses in particular may lack the experience or specialised personnel to construct, analyse and interpret sales forecasts
It is difficult to avoid experience bias (e.g. opinions of the future based on experiences in the past)
Businesses may face problems in constructing sales forecasts that ignore the priorities of key stakeholders
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the future seldom repeats occurrences of the past
Sales forecasts will rarely reflect the full range of external influences that can affect future inflows such as fashions, trends, the actions of competitors
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too much data blurs the analysis
Internal data such as previous sales figures will be a key source of information when constructing forecasts
Selecting the most appropriate external data is extremely challenging and requires careful evaluation
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advantages of sales forecasting
- financial planning
- resource planning
- marketing strategy
- stakeholder confidence
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market research
is the objective collection, compilation and analysis of information about a market
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how will effective market research benefit a company
Reduce risk when launching new products or entering new markets
Identify and understand the future needs and wants of customers
Determine potential gaps (market niches) in the market which can be exploited to increase the sales volume
Identify competitors and gauge their potential strengths and weaknesses
Market research helps the business to make informed decisions about the most effective way to use their valuable resources
Market research enables the firm to develop an appropriate marketing mix
On-going market research helps businesses to keep changing their marketing strategy in line with customers changing needs and preferences
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primary market research
Primary research is the process of gathering information directly from consumers in the target market using field research methods such as surveys or interviews
This gathers information that is new and does not necessarily exist in any format
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primary research methods
- surveys
- observation
- interviews
- test marketing
- focus groups
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how has social media influenced market research
The rise of social media platforms such as Facebook, Twitter, Instagram and TikTok has changed this and now provides businesses with incredible primary research opportunities
The speed of communication between businesses and customers can be almost instantaneous e.g. by using online polls thousands of responses can potentially be received in several hours
The cost of gathering this information can be very low e.g. Online polls take a few minutes to set up and software automatically gathers and analyses the results
Social media helps businesses to generate an interactive relationship with their customers which helps to strengthen brand loyalty
Customers are also able to feedback quickly on products - or to express innovative ideas about how they want the products to be changed
This feedback may help the firm to develop extension strategies in their product life cycle
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advantages of primary research
- Information gathering is focused on the needs of the business and will not be available to its rivals
- The business can get in-depth information from respondents, for example, reasons behind certain behaviour
- primary market research is more up-to-date and can be used to ask specific questions and so will be more relevant
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disadvantages of primary research
- The sample size may be too small and unrepresentative of all of the customers leading to unreliable results
- Bias may mean that researchers can guide respondents to answer questions in a particular way
Similarly, respondents may be influenced by the responses of others, or not provide accurate information
- A business may need to hire a specialist market research agency to help and the process can be expensive and time-consuming
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secondary market research
involves the collection, compilation, and analysis of data that already exists
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sources of secondary research
- government publications
- academic institutions
- industry associations
- specialist market research reports
- financial reports
- online databases
- media sources
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advantages of secondary market research
- Information is already available and so is quicker to collect than primary research thereby saving time
- Information is often free (e.g. government websites and internet sources such as Statista) and is cheaper to collect leading to lower costs compared to primary research
- Suitable for a small business that lacks a large marketing budget and/or expertise
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disadvantages of secondary market research
- Information has been collected for other purposes and so may lack relevance or may not be factually correct e.g. Wikipedia
- Can be expensive to purchase market specific secondary data from specialist companies e.g. MINTEL reports
- Information may be out-of-date, especially in dynamic markets
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Market research data can be quantitative or qualitative
Quantitative data is based on numbers and could include financial reports (e.g. sales, costs), market data (e.g. markets share) or summaries of data gained from primary research (e.g. on a scale of 1-10 rate our customer service)
Qualitative data gathers descriptions or explanations based on conversations, discussions, impressions, and emotional feelings and is usually gathered through primary research
Both forms are useful and any data analysis should ideally include a combination of the two
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limitations of qualitative data
The sample size used to gather data may be too small and unrepresentative of all of the customers leading to unreliable results
Bias may mean that researchers can guide respondents to answer questions in a particular way
Respondents in focus groups may be influenced by the responses of others, or not provide accurate information
A business may need to hire a specialist market research agency to help gather primary data and the process can be expensive and time-consuming
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limitations of quantitative data
Information has been collected for other purposes and so may lack relevance or may not be factually correct
Can be expensive to purchase market specific secondary data from specialist companies such as MINTEL
Numerical data may be out-of-date, especially in dynamic markets
Data analysis and interpretation is a skill and individuals within the business may draw incorrect conclusions which are then used to guide business strategy
Looking at a small amount of data and then extrapolating the results can provide wrong assumptions from which strategic decisions are made
Numerical data may provide insights, but does not provide the reasons for the insights e.g. data may reveal sales volumes are falling, but not the reason for the decline
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sampling
involves getting opinions from a selected group of people in order to find out about the market as a whole
It is expensive and time-consuming to collect data from the whole population of a market
Market researchers use carefully designed sampling methods from which conclusions can be drawn about the market as a whole
In general, the larger the sample size, the more likely that results from market research activities will reflect the market as a whole
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quota sampling
The aim is to obtain a representative sample by determining specific proportions of each group of the population upon which to carry out research
E.g. a researcher carrying out a survey for a family car manufacturer may look to interview a sample of 25% between the ages of 18-24, 50% between the ages of 25-45 and 25% aged 46 and above
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advantages of quota sampling
Quick and easy way of obtaining a sample
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disadvantages of quota sampling
Not random so there is some risk of bias
Need to understand the population to be able to apply results to the market as a whole
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random sampling
Not random so there is some risk of bias
Need to understand the population to be able to apply results to the market as a whole
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advantages random sampling
Simple to design and interpret
As anyone in the population can be asked bias should be avoided
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disadvantages random sampling
As anyone may be selected, the sample may not be representative of the market as a whole
Researchers need a complete and accurate population listing
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convienience sampling
This method uses those who are willing to volunteer and easiest to access in the study
E.g. a cafe owner may ask regular customers during a quiet period of the day to fill in a written survey regarding their experiences of the menu and customer service
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advantages convenience sampling
Respondents taking part in research are readily available
Large amounts of information can be gathered quickly
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disadvantages convenience sampling
The sample is likely to be biased if those known to the researcher are chosen
The sample is unlikely to be representative of the market as a whole
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The choice of sampling method will depend upon a wide range of factors including
The time available
Knowledge of the target population
Skills of researchers
Where little time is available to carry out market research a quota sample may be the most appropriate sampling method as it is usually very quick and straightforward to organise
Where a business has a good knowledge of the target population a random sample is likely to provide a set of research data that lacks bias and can be interpreted with insight
Where researchers lack experience or expertise in market research a convenience sample is likely to provide a useful set of data that can be easily interpreted
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the marketing mix
refers to the seven elements that contribute to the successful marketing of a product
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product life cycle
describes the different stages a product goes through from its conception to its eventual decline in sales
There are typically five stages in the product life cycle: development, introduction, growth, maturity, and decline
The implications for cash flow and marketing vary at each stage of the product life cycle
Companies should tailor their marketing strategies and manage their cash flow to ensure long-term profitability and success
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extension strategies
refer to the techniques used by businesses to extend the life of a product beyond its natural life cycle
These strategies are designed to boost sales and maintain profitability for a product that has reached the decline stage of its life cycle
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two types of extension strategies
Product-related extension strategies
Promotion-related extension strategies
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product-related extension strategies
Involves changing or modifying the product to make it more appealing to customers and extend its life cycle and can be achieved in one of three ways:
Product improvements e.g. Samsung releases new versions of its Galaxy Smartphone every year with upgraded features and improvements to the previous model
Line extensions e.g. Coca-Cola introduced Diet Coke and Coke Zero as line extensions of its original Coca-Cola
Repositioning e.g. when IBM's personal computer division started losing market share to other brands, it repositioned its products as high-end business machines and focused on the enterprise market
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promotion related extension strategies
Involves changing the marketing and promotion of the product to extend its life cycle and could include one or more of the following changes:
Changes to advertising e.g Kellogg's continues to recreate adverts for its Corn Flakes cereal which has been around since 1906
Price promotions e.g. Cyber Monday occurs on the first Monday after Thanksgiving in the USA and electronic firms discount prices significantly to boost sales of their products
Sales promotions e.g. many coffee shops offer a loyalty program where customers can earn a free drink for every six consumed
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Boston Consulting Group matrix
a tool used by businesses to analyse their product portfolio and make strategic decisions about each product
The matrix classifies products into four categories based on their market share and the market growth rate
Cash Cow
Problem Child/Question Mark
Star
Dog
By categorising products into these categories, businesses can allocate resources more effectively, optimising their cash flow and developing marketing strategies that align with the product's potential
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limitations of BCG Matrix
- simplistic approach
- lack of focus on future
- ignore interdependencies
- time consuming
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branding
the process of creating a unique and identifiable name, design, symbol, or other feature that differentiates a product/service or company from its competitors
Branding is a strategic tool that helps businesses create awareness, develop strong customer relationships, generate loyalty, and establish a perceived value that sets them apart from competitors
Through consistent and effective branding efforts, companies can build a strong brand presence, cultivate customer loyalty, and achieve sustainable business growth
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Manufacturer/ Corporate branding
this refers to the use of a company name or logo to promote all the products or services offered by the company
This type of branding is used by companies like Nestlé, Nike, and Apple
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advantages of corporate branding
Creates a strong brand recognition and reputation for the company, which can increase customer loyalty and trust
Allows the company to leverage its existing reputation and customer base to introduce new products more easily
Helps to build economies of scale by promoting multiple products under one brand, which can reduce marketing costs and increase profitability
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disadvantages of corporate branding
If a company's reputation is damaged by a product it can have a negative impact on all the products offered under that brand
If the company faces intense competition in one market 9e.g smartphones), it may affect the sales of all the products offered across other markets (e.g laptops and desktops)
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product branding
refers to the use of a unique name, design, or symbol to promote a specific product
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advantages of product branding
Creates a distinct identity for the product which can help to differentiate it from competitors and increase brand loyalty
Allows the company to market different products to different segments of the market e.g. Coco Cola and Coke Zero
Can help to build customer loyalty and trust by associating the product with a specific quality and benefits e.g Dyson Vacuum Cleaners
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disadvantages of product branding
The cost of creating and promoting a new brand for each product can be expensive
Introducing new products under different brands is difficult as the business must build a new brand for each product from scratch
Different products within the brand may have different levels of quality which can affect customer satisfaction
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own brand or private label branding
refers to the use of a retailer's name to promote a specific product or service and is often used by supermarkets
E.g. ASDA chocolate, Tesco's Finest range, and Sainsbury's Basics range
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advantages of own brand products
It can help retailers to differentiate themselves from their competitors by offering unique products
It allows retailers to offer products at a lower cost than branded products which can help to increase sales and profitability
It can help to build customer loyalty by offering exclusive products that are not available elsewhere
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disadvantages own brand products
Own brand products may have a lower perceived quality than branded products which can affect customer loyalty and trust
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Brands can be built using any one, or a combination of the following methods:
By developing unique selling points (USPs)
Through advertising
Through sponsorship
Through the use of social media
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importance of branding
1. Added Value
Strong branding can add value to a product by creating a perception of quality, reliability and reputation
2. Ability to Charge Premium Prices
Customers may be willing to pay more for a product that is associated with a well-established brand as they perceive products with strong branding to be of higher quality and therefore worth the extra cost
3. Reduced Price Elasticity of Demand
Customers are less sensitive to price changes of products with strong and appealing branding because customers who are loyal to a brand are more likely to continue purchasing the product even if the price increases
4. Branding Establishes Recognition & Identity
This helps to builds trust and credibility and creates an emotional connection with customers which helps to generate repeat purchases
5. Business Differentiation
Branding differentiates a business from its competitors and supports marketing and advertising efforts which can use key elements to build memorable promotional materials and campaigns
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why is choosing the right pricing strategy essential for a business
Choosing the right pricing strategy is essential for a business to be profitable, competitive, and successful in the long run
By understanding their customers, competitors, and costs, businesses can set prices that maximise revenue and profitability
Pricing can play a significant role in positioning the brand in the market and help a firm to compete effectively
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pricing strategies
- cost plus
- premium
- loss leader
- predatory
- penetration
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Price
the only element of the marketing mix that relates directly to sales revenue and is vital to a business achieving its sales and marketing objectives
Businesses need to select the most appropriate methods of pricing to ensure that they are able to make a profit whilst meeting the needs and expectations of customers
A business may use more than one method of pricing across its product range
E.g. a large supermarket may offer premium-priced product ranges alongside a selection of loss leaders
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cost plus pricing strategy
The business calculates the cost of production and then adds a markup to determine the final price
The markup covers the cost of production plus the business's desired profit margin
This pricing strategy is commonly used by manufacturers that produce standardised goods e.g. washing machines
A simple and quick methods of calculating a price for a product
It ensures that a profit is made on each item sold
It does not consider the needs of the market
The pricing approach of competitors is ignored
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penetration pricing strategy
The business sets a low price for a new product/service when it is first introduced
This is effective when a business wants to quickly capture market share and attract price-sensitive customers e.g. many new perfumes launch using penetration pricing
Once they have enough customers, the business will start to raise the price
Customers are attracted to buy the product at a low price leading to high sales volume and market share
Competitors unable to match or beat the low price may be forced out the market leading to less competition
Customers may perceive that the product is of low quality if the product is sold at a low price
Selling at a low price will limit the amount of profit made
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loss leader pricing strategy
Charging a price below the average cost for a product
The aim of this method is to attract customers to buy other profitable, products at the same time, making up for losses on the low-priced product
It is frequently used by large supermarkets that operate in competitive markets
This is an effective way to attract customers to switch brands
Losses may be minimised for businesses that have high levels of stock turnover for loss leader products
Smaller rivals may accuse businesses using this method of behaving unfairly
If customers do not purchase other goods the business will make a loss
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predatory pricing strategy
The business sets prices so low that it drives its competitors out of the market
This strategy is illegal in many countries as it is considered anti-competitive and harms customers by reducing choice in the market
This method allows a business to gain a dominant position in the market
It acts as a barrier to entry for firms considering selling in the market
Use of this strategy may have a negative impact on a businesses reputation
It is an expensive strategy for which a business needs sufficient finance to fund
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premium pricing strategy
The business sets a high price for its product which gives customers an impression of high quality and luxury
This is effective for designer brands such as Chanel and Ritz Carlton Hotels
The high price helps the business differentiate its products from competitors and make high levels of profit
Premium pricing should not be confused with price skimming, where a high price is set for a short period at a product's launch
This method emphasises exclusivity and improves the value of a brand
Premium-priced goods often attract favourable attention from celebrities and the media, reducing the need for promotional activity
Large numbers of more price-conscious customers are ignored which limits sales revenue
Premium-priced products require high quality raw materials and components so variable production costs are usually high
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dynamic pricing
involves charging different prices to match demand patterns
It aims to maximise revenue whilst making full use of capacity available
Prices are raised if demand is high and limited capacity remains
Prices are lowered if demand is low and needs to be stimulated to maximise capacity utilisation
Dynamic pricing can be used very effectively online
Demand can be tracked in real time and prices programmed to change accordingly
Using artificial intelligence (AI) Amazon can change prices on products several times a day according to market demands
Advanced algorithms analyse sales data, detect patterns and make price changes at a fraction of the speed of competitors
This allows Amazon to nearly always have the most compelling offers faster than other retailers
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advantages of dynamic pricing
- Maximises revenue
Charge higher prices during peak times when demand is high
Lower prices during off-peak times to attract more customers
Revenue that might be lost with a fixed pricing strategy is captured
- Optimal use of resources
Airlines can fill empty seats during off-peak times by offering lower prices
Hotels can maximise room occupancy by adjusting rates based on demand
- Competitive advantage
Can respond quickly to changes in the market
Particularly important when prices are highly variable and experience supply and demand fluctuations
- Consumer behaviour insights
Analysing how consumers respond to price changes can inform future pricing strategies and marketing tactics
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disadvantages of dynamic pricing
- Customer backlash
Can lead to customer dissatisfaction if customers perceive it as unfair
Price changes may erode customer trust and loyalty if they feel they are being taken advantage of
- Complex
Dynamic pricing systems may require sophisticated algorithms and technology
Small businesses may lack finance to invest in and manage these effectively
- Ethical concerns
If prices are increased significantly during emergencies or crises a business may be accused of price gouging which can harm its reputation.
- Lack of transparency
Secret pricing algorithms can create distrust among customers who are uncertain about the fairness of the pricing strategy
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competitive pricing
involves matching or undercutting the prices charged by competitors in order to increase sales
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businesses can use a range of pricing tactics
Price matching is commonly used by UK supermarkets to highlight products that are sold at a lower price than rivals
Refund the difference matches the price of rivals if customers find a product at a lower price in a comparable retail outlet
Discounts for new customers attract sales away from rivals
Businesses with many products may price some competitively, while raising prices on others
E.g.Supermarkets will often use competitively priced alcohol to bring customers in, but then raise the prices on other products such as deli meat
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advantages of competitive pricing
Consumer familiarity
Customers may be more likely to accept products because they align with their expectations
Seen as fair and reasonable which can improve brand image and increase customer loyalty
Market share
Helps gain or maintain market share by offering prices that are in line with or slightly below those of rivals
Particularly important in price-sensitive markets
Flexibility
If a competitor lowers prices prices can be adjusted accordingly
Avoids losing market share whilst waiting for the pricing strategy to be changed
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disadvantages competitive pricing
Lower profit margins
If prices are constantly pushed down to match/beat competitors it is difficult to maintain healthy profits
Challenging to increase prices even if there are increases in production costs
Brand differentiation
May not allow for differentiation based on features or quality
If products are perceived as similar consumers make purchasing decisions solely based on price
Race to the bottom
Constantly adjusting prices can lead to a situation where prices keep dropping regardless of the actual value of the product
Limits a businesses ability to set prices based on costs or USP
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contribution pricing
involves setting prices that cover direct costs associated with producing a product and also contribute to covering indirect costs
This method ensures that a business does not make a loss on each product sold
It requires a business to be able to accurately allocate indirect costs to products in its range
Care must be taken to ensure that the price set is competitive and meets market expectations
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how does understanding price elasticity of demand help a business
to know when to raise its prices - and when to lower them
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price elasticity of demand
calculates how responsive the change in quantity demanded of a product will be to a change in its price
For most products, when there is an increase in price, there will be a fall in the quantity demanded
Similarly when there is a decrease in price there will be an increase in the quantity demanded
Businesses want to know by how much the demand will change as this can impact their pricing strategy
The responsiveness of demand to a change in price determines if the product is price elastic or price inelastic in nature
Where the quantity demanded changes more than the change in price, demand is price elastic
Businesses should avoid raising the price of these products
A 10% increase in price would lead to a greater than 10% decrease in the quantity demanded
Where the quantity demanded changes less than the change in price demand is price inelastic
Businesses should avoid cutting the price of these products
A 10% increase in price would lead to a less than 10% decrease in the quantity demanded
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calculation price elasticity of demand
The PED value is always negative because of the inverse relationship between price and demand (one goes up when the other goes down)
PED can be calculated using the following formula
%change in quantity demanded / %change in price
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interpretation of PED values
> 1
Elastic
Demand is more responsive to a change in price
The %∆ in QD is more than proportional to the %∆ in P
Luxury products such as cars, smart watches, foreign holidays, cinema visits, jewellery, and branded goods
Between
0 & 1
Inelastic
Demand is less responsive to a change in price
The %∆ in QD is more than proportional to the %∆ in P
Necessities such as bread, milk, eggs, and potatoes; fuel; rent; toothpaste, etc.
Addictive products such as cigarettes and sugary foods
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PED and pricing strategy
Businesses need to understanding the responsiveness of demand to a change in price before setting or changing their pricing strategy to maximise their revenue
If the demand for their products is relatively price inelastic (PED < -1), raising the price will lead to an increase in total revenue. However, lowering the price will lead to a fall in total revenue
Price skimming strategies are best employed for products that are price inelastic in demand
If demand for their products is relatively price elastic (PED > -1), raising the price will lead to a fall in total revenue. However, lowering the price will lead to a rise in total revenue
Competitive pricing strategies are best employed for products that are price inelastic in demand
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Factors Influencing Price Elasticity of Demand
- brand loyalty
- availability of substitutes
- the proportion of income taken up by a product
- luxury or necessity
- time period to adjust
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promotion
plays a crucial role in generating customer awareness, interest and desire for a product/service
A business uses promotional activities to communicate its value proposition to potential customers and differentiate itself from competitors
Promotion helps to build brand awareness and loyalty which can lead to repeat purchases and referrals
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three forms of promotion
- above the line
- through the line
- below the line
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above the line promotion
refers to advertising activities that are aimed at reaching a wide audience through traditional mass media channels to create awareness about a product, service, or brand.
These channels typically include television, radio, newspapers, magazines and outdoor advertising such as billboards
Mass reach: Above the line promotion aims to reach a large number of people often through broadcasting media and is designed to create brand awareness and generate interest among a wide audience
Non-targeted: It is generally not tailored to a specific customer segment and aims to capture the attention of as many people as possible
High cost: Traditional above the line promotion methods require significant budgets due to the costs associated with advertising on television, radio or print media
Brand building: Above the line promotion plays a crucial role in brand building by establishing brand recognition and familiarity among consumers
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advantages of above the line promotion
Businesses can reach a large and diverse audience because mass media channels provide a high level of visibility
It is effective for creating a strong brand image, enhancing brand recognition and establishing a sense of credibility and trust among consumers
The marketing message can be communicated in an impactful manner using sound, images and graphics
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disadvantages above the line promotion
Above the line promotion can be expensive, especially for small businesses with limited budgets
As it focuses on reaching a wide audience rather than specific target segments, advertising may not effectively reach the intended audience
Advertising typically offers limited interaction or direct engagement with consumers
With the rise of digital media traditional media consumption has decreased and consumers can easily filter out or ignore advertisements.
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below the line promotion
includes marketing communications over which a business has direct control and which do not make use of mass media
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methods of below the line promotion
- direct marketing
- sales promotion
- personal selling
- public relations
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through the line promotion
combines both above the line and below the line techniques to create a comprehensive promotional campaign
It allows for a holistic approach to reach customers through both mass media and personalised communications
A through the line promotion campaign might involve running a television commercial to create brand awareness followed by social media advertising and targeted email marketing to reach specific customer segments and encourage them to take action
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advantages through the line promotion
It combines the broad reach of advertising with the personal touch of below the line techniques which is likely to lead to increased customer engagement
The integrated approach can lead to better brand recognition as customers receive promotional messages in a variety of ways
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disadvantages through the line promotion
Coordinating a multi-channel through-the-line campaign requires marketing expertise for which a business may need to employ an expensive specialist marketing agency
Careful planning is needed to ensure that all elements present a coherent message
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social media marketing
targets promotional activity at users of online communities such as Facebook, Twitter and YouTube
Interacting with customers in this way builds relationships, drives repeat business from existing customers and attracts new customers as content is shared with other users
As social media platforms evolve, businesses must also adapt their social media strategies to keep up with the latest trends
E.g. Instagram has been a popular platform for businesses to promote their products through influencer partnerships.
More recently many businesses have shifted their focus to promoting their brands through short-form video content on platforms like TikTok
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advantages of social media marketing
Social media platforms have billions of active users which allows businesses to reach a vast audience across different demographics and locations
Social media platforms enable businesses to deliver promotional content to specific groups based on demographics, interests and behaviours, increasing the chances of reaching the right audience
Businesses can create and share content easily, increasing brand visibility and exposure which helps generate brand awareness
Social media marketing can achieve organic reach and engagement without a large budget
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disadvantages social media marketing
Effective social media marketing requires consistent effort and time to create quality content, manage multiple platforms, and engage with the audience which can be time-consuming, especially for small businesses with limited resources
Social media opens up channels for public feedback and reviews, which can include negative comments or complaints which can be viewed by all other users
Social media platforms frequently update their algorithms which may affect the visibility and reach of content
Businesses face the challenge of breaking through the noise and capturing users' attention amidst the large volume of competing content
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distribution channels
refer to the chain of intermediaries through which goods/services move from the manufacturer to the end customer
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types of distribution channels
- four stage distribution
- three stage distribution
- two stage distribution
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four stage distribution channel
A traditional channel consists of four stages: producer, wholesaler, retailer, and consumer
This channel is commonly used for products such as groceries, clothing, and electronics
E.g. The Coca-Cola Company produces the soft drink and then sells it to a wholesaler, who in turn sells it to a retailer
The retailer then sells the soft drink to the customer
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advantages four stage distribution channel
Storage costs are absorbed by the wholesaler
The wholesaler takes on responsibility for breaking a large quantity of products into smaller batches for retailers to purchase
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disadvantages four stage distribution channel
The wholesaler and retailer each demand a mark-up, reducing profit for the producer or increasing prices for consumers
Control over below-the-line promotional activity is no longer under the control of the producer
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three stage distribution channel
The three stage distribution channel eliminates the wholesaler stage, with the producer selling directly to the retailer
This channel is often used for products with high demand or where the cost of distribution is high
It is also frequently used for products with high profit margins, where the manufacturer can afford to sell directly to the retailer and still make a profit
Eg Toshiba produces laptops and sells them directly to retailers like Currys, who then sell them to the end customer
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advantages three stage distribution channel
Customer service and some promotional activities are carried out by the retailer
Storage and display costs are absorbed by the retailer
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disadvantages three stage distribution channel
The retailer's mark-up will reduce the profit of the producer or make the product more expensive for consumers
Promotional activity by the retailer may not be communicated with the producer, potentially causing production shortfalls
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two stage distribution channel
The two stage distribution channel eliminates both the wholesaler and retailer stages, with the manufacturer selling directly to the end consumer
This channel is commonly used for products that are sold online or through direct sales channels
E.g. RyanAir sells its service (passenger tickets) directly to the end customer on their website
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advantages two stage distribution channel
A low-cost and fast way to get products to consumers
The producer has full control over promotional activity, merchandising and customer service
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disadvantages two stage distribution channel
All storage and distribution costs are the responsibility of the producer
Resolving customer service issues can take a lot of time and take attention away from production
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changes in distribution trends
Changes in distribution have been impacted by social trends such as the growth of e-commerce and the shift from product-based businesses to service-based businesses
By understanding these trends, businesses can adjust their distribution strategies to meet the needs of their customers better and stay competitive in the marketplace
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explanation growth of e commerce
Online distribution has become increasingly popular due to the convenience and accessibility it offers to consumers
Many businesses now use drop-shipping, which allows them to sell products without holding stock
Once the business has sold the products, they are shipped directly from the producer to the customer
This reduces the cost and complexity of distribution, making it easier for businesses to sell online
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examples growth of e commerce
Amazon is known as a third-party logistics provider (3PLs)
It provides businesses with the infrastructure and online marketplace which allows them to reach a wide audience and increase sales without having to invest in their distribution infrastructure
Many businesses now generate the bulk of their sales selling on Amazon
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the importance of people in the marketing mix
People play a crucial role in the marketing mix as they are responsible for designing and carrying out marketing activities, interacting with customers, selling products and delivering a positive customer experience
People can also provide valuable feedback and propose innovative marketing solutions
In particular people contribute to the marketing mix in five key areas: customer interactions, brand ambassadors, customer service, innovation and feedback, sales and persuasion
Careful recruitment and training of workers, especially those in customer-facing roles, is increasingly recognised as the key determinant of marketing success
order to gain these benefits businesses need to foster a culture of unity, particularly amongst customer-facing employees and take steps to ensure that they are well-motivated
A satisfied workforce is more likely to provide excellent customer service, work hard to close sales and act as brand ambassadors
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Processes
refer to the activities, procedures and systems a company employs to deliver a product or service to its customers and create a competitive advantage
Businesses develop a set of processes that allow for a product or service to be delivered effectively to their customers
E.g. from the moment cruise passengers book their trip a series of process are engaged
Online booking and customer service processes provide for smooth organisation and preparation for the trip
When they arrive at the dockside customers are greeted
Their baggage is taken to their allocated cabin
Two weeks of services from restaurants and evening entertainment, casinos and shopping are organised
Specialist services and facilities are offered to those with particular needs
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reason for the importance of processes
- customer experience
- efficiency
- consistency
- adaptability
- alignment
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physical evidence
refers to the tangible and visible signs of a product/service that customers interact with and perceive during their buying experience
It is a particularly important element for services as it helps to shape customer perceptions and build trust in a process where the intangible product cannot be viewed or touched by potential customers
Businesses use these physical aspects to delight customers and set themselves apart from competitors
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key aspects of physical evidence in the marketing mix
- store/office ambience
- packaging
- signage and display
- digital presence
- staff appearance and behaviour
- equipment and facilities
- marketing materials
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Factors to Consider When Choosing an Appropriate Marketing Mix
Stage of the product life cycle
The stage of the product in its product life cycle is likely to affect several elements of the marketing mix
Promotional activity for a product in the maturity stage may need to be increased in order to differentiate the product from rivals
Low pricing tactics may be required during the introduction stage to persuade customers to purchase the product for the first time
The Boston Consulting Group (BCG) Matrix
The balance of products in the Boston Consulting Group (BCG) Matrix will inform the marketing mix chosen
Investment in seeking new distribution channels may be needed for star products
Improved staff sales training may be useful for question marks to increase market share over rivals
The type of product
The type of product, including whether it is aimed at a mass or a specialised niche market is likely to affect the marketing strategies and tactics selected
In a competitive mass market extensive promotional activity and low prices may be required to maintain market share
A business that sells specialised products may make extensive use of personal selling and informative advertising to support its niche products
The overall marketing objectives
The businesses marketing objectives will have a direct impact on the marketing mix
A growth objective may require a business seeking new distribution channels
An objective to increase market share may require increased investment in promotional activity
The target market
The target market is also an important factor in determining the marketing mix
Where the target market is relatively young digital promotional tactics may be effective
Older target markets may respond better to more traditional promotional activities and physical evidence such as brochures and direct mailings
Competitors actions
The marketing activities of competitors is a key factor to be considered
If a significant competitor launches a new product, a business may need to invest in product or packaging upgrades or reduce prices to maintain market share
Overall market positioning
Market positioning will also inform the marketing mix
A business that positions its products as luxury items is likely to focus heavily on personal selling, high quality packaging and other physical evidence
Quality-focused businesses may use premium pricing and streamlining processes to ensure customers are fully satisfied with the purchasing process
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How the Elements of the Marketing Mix work Together
The interaction between the elements of the marketing mix is crucial for the success of any marketing campaign
A change in one element can have a significant impact on the others
The marketing mix will change as a product moves through different stages of its product life cycle
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Factors to Consider Before Entering New Countries
When businesses are considering new markets, they have to consider the attractiveness of the market
This will involve businesses carrying out extensive market research, and using models such as the Boston Matrix and PESTLE
- ease of doing business
- infrastructure
- political stability
- exchange rates
- levels and growth of disposable income
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threats of entering and operating internationally
Global businesses must consider various cultural and social factors to effectively market their products/services in different countries and regions:
- language
- different tastes
- cultural differences
- unintended meanings
- inappropriate/inaccurate translations
- inappropriate branding and promotion
These are common errors that many businesses have made
These errors can damage the brand's reputation
These errors may be costly to correct resulting in lower profit margins
These errors may not be recoverable and may require a business to exit the market
