Topic 3 - Decision Making to Improve Marketing Performance Flashcards
(147 cards)
1
Q
Why is marketing one of the most important activities in a business?
A
Has direct effect on profitability and sales.
2
Q
What does the marketing section of a business need to work closely with?
A
Operations, research and development, finance and human resources to check their plans are possible.
3
Q
What will operations plan their production schedules?
A
Use sales forecasts produced by marketing department.
4
Q
What do marketing objectives set out?
A
What a business wants to achieve from it’s marketing activities. Needs to be consistency with overall aims and objectives of business.
5
Q
Define marketing
A
Process of identifying, anticipating (predicting) and satisfying customer needs profitably.
6
Q
What do marketing objectives need to be consistent with?
A
Purpose of marketing and overall corporate (business) objectives.
7
Q
What is the SMART criteria?
A
Specific - Details exactly what needs to be done
Measurable - Achievement or progress can be measured
Achievable - Objective accepted by those responsible for achieving it
Realistic - Objective possible to attain
Timed - Time period for achievement clearly stated.
8
Q
What are some business benefits of setting marketing objectives?
A
- Ensure functional activities consistent with corporate objectives
- Provide focus for marketing decision-making and effort
- Provide incentives for marketing team and measure of success/failure
- Establish priorities for marketing resources and effort.
9
Q
Internal influences on marketing objectives
A
- Corporate objectives
- Finance
- Human resources
- Operational issues
- Business culture
10
Q
External influences on marketing objectives
A
- Economic environment
- Competitor actions
- Market dynamics
- Technological change
- Social & political change
11
Q
What do market conditions relate to?
A
Attractiveness (or otherwise) of overall market in which business operates.
12
Q
2 key indicators of market conditions:
A
1) Economic Growth (GDP)
2) Market demand
13
Q
What does economic growth measure?
A
Value of output in economy.
14
Q
Key points of economic growth
A
- Level of demand in most markets influenced by rate of economic growth
- Economies vary in terms of their ‘normal’ long-term growth rate
- Mature economy like UK has long-term growth rate of around 2-3%
- GDP growth varies depending on state of economic cycle
15
Q
What does market demand measure?
A
How much of good/service consumer wants - and able to pay for.
16
Q
Key points of market demand
A
- Size and growth rate of market is key indicator of market conditions
- Fast-growing market will encourage new entrants as well as benefit existing competitors
- Slow-growing/declining market makes market conditions much tougher, with competitors fighting for their share of weak demand.
17
Q
By market fundamentals we mean understanding issues such as:
A
- How big is the market?
- How fast is market growing and what is market growth potential?
- Key social, economic, political/legal and technological factors that drive change in market
- Who are existing competitors and what market shares do they have?
- Extent of branding and customer loyalty in market
18
Q
Detailed marketing analysis is particularly important for tasks such as:
A
- Forecasting sales for new products/investments into new markets
- Gathering evidence to support finance-raising exercise
- To support new marketing strategy or significant changes to marketing objectives
- To help make decisions in relation to significant organisational or operational change.
19
Q
What 2 methods could be used to analyse a market that are in common use?
A
1) Test marketing
2) Trend analysis (Extrapolation, moving averages and correlation)
20
Q
What is secondary market research?
A
Uses data that already exists and has been collected by someone else for another purpose.
21
Q
Where can sources of secondary data come from?
A
Within firm itself - known as internal secondary data.
22
Q
Give an example that has given businesses the chance to gather a wide range of information on customers.
A
Increasing availability and use of loyalty cards and big data. This allows them to target promotional campaigns more effectively.
23
Q
Why should internal sources of data always be considered as a first line of enquiry for any investigation?
A
Usually the quickest, cheapest and most convenient source of info available. Internal data also be exclusive to organisation that generated it, so that rival firms will not have access to it.
24
Q
What is a drawback of internal data?
A
May be incomplete or out of date, and, if project is new, may be no relevant data at all.
25
Examples of external sources of secondary data
- Government
- Competitors
- General media
- Trade publication
- Commercial market research organisations
26
What is sampling?
Getting opinions from number of people, chosen from specific group, in order to find out about whole group.
27
Why do market researchers make extensive of sampling?
It would be expensive and time-consuming to collect data from whole population of a market.
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Sample design covers:
- Method of selection
- Sample structure
- Plans for analysing and interpreting results.
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What can sample designs vary from?
Simple to complex. Depend on type of information required and way sample's selected.
30
What does sample design affect?
Size of sample and way in which analysis is carried out.
31
What are many sample designs built around?
Concept of random selection. This permits justifiable inference from sample to population, at quantifiable levels of precision.
32
What is the first step in good sample design?
Ensure that specification of target population is as clear and complete as possible to ensure all elements within population are represented.
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How is the target population sampled?
Using a sampling frame.
34
What key factors will depend upon appropriate sample size?
1) No estimate taken from sample expected to be exact
2) To lower margin of error usually requires larger sample size
3) Confidence level is likelihood that results obtained from sample lie within required precision
4) Population size does not normally affect sample size.
35
What is cluster sampling?
Random sample of clusters taken, then all units within cluster are examined.
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Advantages of cluster sampling
- Quick and easy
- Doesn't need complete population information
- Good for face-to-face surveys
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Disadvantages of cluster sampling
- Expensive if clusters are large
| - Greater risk of sampling error
38
What is convenience sampling?
Those who are willing to volunteer and easiest to involve in study.
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Advantages of convenience sampling
- Subjects readily available
| - Large amounts of information can be gathered quickly
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Disadvantages of convenience sampling
- Sample isn't representative of entire population, so results can't speak for them - inferences are limited
- Prone to volunteer bias.
41
What is judgement sampling?
Deliberate choice of sample - opposite of random.
42
Advantages of judgement sampling
- Good for providing illustrative examples or case studies
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Disadvantages of judgement sampling
- Very prone to bias
- Samples often small
- Cannot extrapolate from sample
44
What is quota sampling?
Aim is to obtain sample that's 'representative' of overall population.
Population's divided ('stratified') by most important variables such as income, age, location.
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Advantages of quota sampling
- Quick and easy way of obtaining sample.
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Disadvantages of quota sampling
- Not random, so some risk of bias
| - Need to understand population to be able to identify basis of stratification.
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What is simply random sampling?
Makes sure every member of population has equal chance of selection.
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Advantages of simply random sampling
- Simple to design and interpret
| - Can calculate both estimate of population and sampling error
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Disadvantages of simply random sampling
- Need a complete and accurate population listing
| - May not be practical is sample requires lots of small visits over country.
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What is systematic sampling?
After randomly selecting starting point from population between 1 and *n, every nth unit selected.
51
Advantages of systematic sampling
- Easier to extract sample than via simple random
| - Ensures sample spread across population
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Disadvantages of systematic sampling
- Can be costly and time-consuming if sample is not conveniently located.
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Why may accurate, up-to-date information obtained by market research may not be realised?
- Budgetary constraints
- Time constraints
- Reliability of data
- Legal & ethical constraints
54
Correlation
Another method of sales forecasting. Looks at strength of relationship between 2 variables.
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Independent variable
Factor that causes other variable to change on x-axis.
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Dependent variable
Variable being influenced by independent variable on y-axis
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How can a managing manager make sense and use all of the data points once they have been plotted on the scatter diagram?
'Line of best fit' (regression line) which attempts to plot mathematical relationship between variables based on data points.
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What's a positive correlation?
Positive relationships exists where as the independent variable increases in value, so does dependent variable.
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What's a negative correlation?
Negative relationship exists where as the independent variable increases in value, so does dependent variable.
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What's no correlation?
There's no discernible relationship between independent and dependent variable.
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What does the line of best fit indicate?
Strength of correlation
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What's a strong correlation?
There's little room between data points and line.
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What's a weak correlation?
Data points are spread quite wide and far away from line of best fit.
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What is a danger with correlation?
Believing there's really a causal link between 2 variables when, in fact, they're not related.
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Why do businesses need to segment their markets?
Because customers differ in:
- Benefits they want
- Amount able to/willing to pay
- Media they see
- Quantities they buy
- Time and place they buy.
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Potential benefits of market segmentation to a business:
- Better matching of customer needs
- Enhanced profits for business
- Better opportunities for growth
- Retain more customers
- Target marketing communications
- Gain share of market segment
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What 4 main bases of segmentation are there?
1) Geographic
2) Demographic
3) Behavioural
4) Psychological
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Geographic segmentation:
Customer location, region, urban/rural, ACORN classification
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Demographic segmentation:
Age, gender, occupation, socio-economic group
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Behavioural segmentation:
Rates of usage, benefits sought, loyalty status, readiness to purchase
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Psychological segmentation:
Personality, lifestyle, attitudes, class
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What is a target market?
Set of customers sharing common needs, wants & expectations that business tries to sell to.
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What are the 3 main kinds of approaches to market targeting?
1) Mass marketing (undifferentiated)
2) Segmented (differentiated)
3) Concentrated (niche)
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What's mass marketing (undifferentiated)?
- Business targets WHOLE market, ignoring segments
| - Products focus on what customers need and want in common, not how they differ.
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What's a segmented (differentiated) market?
- Business target several market segments within same market
- Products designed and targeted at each segment
- Requires separate marketing plans and often different business units & product portfolios
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What's a concentrated (niche) market?
- Business focuses narrowly on smaller segments or niches
| - Aim's to achieve strong market position (share) within those niches.
77
Why is market positioning a critically important part of marketing strategy?
Determines to large extent what customers perceive is being offered to them.
78
What 2 decisions do businesses use to create value for customers?
1) Choose which customers to serve
- Market segmentation (analysing different parts of market)
- Targeting (deciding with market segments to enter)
2) Choose how to serve those customers
- Product differentiation (what makes it different from competition)
- Market positioning (how customers perceive product)
79
After having chose which segments to target, a business needs to decide how to compete in those segments. What is this choice called?
Value proposition (or market position)
80
What is a positioning map?
Map illustrating range of 'positions' that a product can take in a market based on 2 dimensions that important to customers.
81
Advantages of positioning maps:
- Help spot gaps in market
- Useful for analysing competitors
- Encourages use of market research
82
Disadvantages of positioning maps:
- Just because there's a 'gap' doesn't mean there's demand
- Not a guarantee of success
- How reliable is market research?
83
What does the market or positioning map assess?
Competitive position of brands and businesses based around 2 chosen dimensions.
84
Other common parts of business planning within sales forecast forms:
- HR plan: how many people need linked with expected output
- Production/capacity plans
- Cash flow forecasts
- Profit forecasts and budgets
- Part of regular competitor analysis and helps to focus market research.
85
Key factors affecting accuracy and reliability of sales forecast:
- Consumer trends
- Economic trends
- Competitor actions
86
Circumstances where sales forecast are likely to be inaccurate:
- Business is new: startup (difficult to forecast sales)
- Market subject to significant disruption from technological change
- Demand highly sensitive to changes in price and income (elasticity)
- Product is fashion item
- Significant changes in market share (e.g. new market entrants)
- Management have demonstrated poor sales forecasting ability in past.
87
What does a moving average do and what is its aim?
- Takes data series and 'smoothes' fluctuations in data to show average. - Aim is to take out extremes of data from period to period.
- Often calculated on quarterly or weekly basis.
88
What does extrapolation involve the use of?
Trends established by historical data to make predictions about future values.
89
Advantages of using extrapolation:
- Simple method of forecasting
- Not much data required
- Quick and cheap
90
Disadvantages of using extrapolation:
- Unreliable if there's significant fluctuations in historical data
- Assumes past trend will continue into future - unlikely in many competitive business environments
- Ignores qualitative factors (e.g. changes in tastes & fashions).
91
What does price elasticity of demand measure?
Responsiveness of quantity demanded for product to change in price.
92
How can calculating P.E.D be useful for a business?
Can assess how change in price will affect demand for its products. Useful for any marketing plan or finance, operations.
93
Firms can use P.E.D estimates to predict:
- Effect of change in price on total revenue & expenditure on product
- Likely price volatility in market following changes in supply
- Effect of change in an indirect tax on price and quantity demanded
- Information on P.E.D can be used by business as part of policy of price discrimination.
- Business contemplating tactical price-war or planning promotional discount based on price will want to know how responsive customer demand will be to pricing tactics used.
94
If P.E.D = 0:
Demand is inelastic. Meaning demand doesn't change when price changes.
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If P.E.D between 0 and 1:
(Demand smaller than price) Demand is inelastic.
96
If P.E.D = 1:
(Demand exactly same as change in price) demand said to unit elastic.
97
If P.E.D > 1:
Then demand responds more than proportionately to change in price i.e. demand is elastic.
98
Factors affecting P.E.D:
1) Number of close substitutes for good
2) Cost of switching between products
3) Degree of necessity or whether good is luxury
4) % of consumer's income allocated to spending on good
5) Time period allowed following price change
6) Whether good is subject to habitual consumption
7) Peak and off-peak demand
8) Breadth of definition of good/service
99
Potential issues with the concept of price elasticity of demand:
- Markets change: customers become more/less sensitive to price changes.
- Tastes and preferences of consumers change; new methods of distribution developed; consumers become more aware of pricing information.
100
What does Income elasticity of demand Y.E.D measure?
Extent to which quantity of product demanded is affected by change in income.
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For most normal products:
- Rise in consumer income result in rise in demand
| - Fall in consumer income result in fall in demand.
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Extent of the change (elasticity):
Will vary depending on type of product (e.g.luxury v necessity).
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For inferior goods, as income rises demand actually falls. Why does demand fall?
- Consumers switch to better alternatives
| - Substitute products become affordable
104
Niche marketing can be defined as:
Where business targets smaller segment of larger market, where customers have specific needs and wants.
105
Advantages of targeting a product/service at a niche segment:
- Less competition
- Clear focus - target particular customers
- Builds up specialist skill and knowledge = market expertise
- Can often charge higher price - customers prepared to pay for expertise
- Profit margins often higher
- Customers tend to be more loyal.
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Main disadvantages of marketing to a niche market include:
- Lack of 'economies of scale' (these are lower unit costs that arise from operating at high production volumes)
- Risk of over dependence on single product/market
- Likely to attract competition if successful
- Vulnerable to market changes.
107
Mass marketing can be defined as:
Where business sells into largest part of market, where there are many similar products on offer.
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Key features of a mass market:
- Customers form majority in market
- Customer needs and wants more 'general' & less 'specific'
- Associated with higher production output and capacity (economies of scale)
- Success usually associated with low-cost operation, heavy promotion, widespread distribution or market leading brands.
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What are the extended marketing mix (7P's)?
Product, price, place, promotion, people, process, physical.
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What is the marketing mix?
Combination of elements used by businesses to enable it to meet needs/expectations of customers.
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The 7P's extended marketing mix therefore comprises the following elements:
Product: Good/service customer buys
Price: How much customer pays
Place: How product distributed to customer
Promotion: How customer is found & persuaded to buy
People: People who make contact with customers in delivering product
Process: Systems and processes that deliver product to customer
Physical: Elements of physical environment customer experiences.
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What is a product?
Anything that's capable of satisfying customer needs.
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A product can be said to have 3 elements:
1) Core benefits: What product does - main functions of product
2) Tangible/physical element: What product made of; what looks like; dimensions or duration
3) Augmented benefits: Extra elements which add to perceived value of product in eyes of consumer.
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The traditional product design mix emphasises 3 elements:
1) Function
2) Economic manufacture
3) Aesthetics
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Function:
- Way product works
- Does it do what needs to do?
- Is product reliable?
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Aesthetics:
- How product appeals to customer in terms of looks, feels.
- Based on subjective judgement of customer
- Popular way to differentiate a product.
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Economic manufacture:
- Does design allow products to be made and sold profitably?
| - How much value is added during production process?
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Common features of products that successfully emphasise function in the design mix:
- More predictable and stable demand
- Longer product life cycles
- Lower promotional costs
- Build reputation for quality based on reliability
- Economic manufacture through economies of scale.
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What are the main stages of the product life cycle?
1) Research & development - before made available for sale in market
2) Introduction - launching product into market
3) Growth - when sales increasing at fastest rate
4) Maturity - sales near their highest, but rate of growth slowing down
5) Decline - final stage of cycle, when sales begin to fall.
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What can businesses do to extend the product life cycle?
Implement extension strategies - which intended to extend life f product before goes into decline.
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What are examples of extension strategies?
1) Advertising - try to gain new audience or remind current audience
2) Price reduction - more attractive to customers
3) Adding value - add new features to current product
4 )Explore new markets - selling product into new geographical areas or creating version targeted at different segments
5) New packaging - brightening up old packaging or subtle changes.
122
What is the Boston Matrix model useful for?
Helps businesses analyse their portfolio of business and brands.
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What is the Boston Matrix?
- Market share: does product being sold have low or high market share?
- Market growth: numbers of potential customers in market growing or not
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How the Boston Matrix is constructed:
- Market share gained by investment in marketing
- Market share gains always generate cash surpluses
- Cash surpluses generated when product in maturity stage of life cycle
- Best opportunity to build dominate market position is during growth phase.
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What are 'Stars' in the Boston Matrix?
High growth products competing in markets where they're strong compared with competition. Often need heavy investment to sustain growth. Eventually growth will slow and, assuming they keep market share, will become Cash Cows.
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What are 'Cash Cows' in the Boston matrix?
Low growth products with high market share. Are mature, successful products with relatively little need for investment. Need to be managed for continued profit - so can continue to generate strong cash flows that company needs for its Stars.
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What are 'Question Marks' in the Boston Matrix?
Products with low market share operating in high growth markets. Suggests have potential, but may need substantial investment to grow market share at expense of larger competitors. Managements have to think hard if want to invest or which ones should allow to fail.
128
What are 'Dogs' in the Boston Matrix?
Have low market share in low growth markets. May generate enough cash to break even, but rarely worth investing in. Dogs usually sold or closed.
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Main values of using Boston Matrix include:
- Useful tool for analysing product portfolio decisions
- Only snapshot of current position
- Has little or no predictive value
- Doesn't take account of environmental factors
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Boston Matrix can be criticised in several ways:
- Market growth inadequate measure of market's attractiveness
- Market share adequate measure of product's ability to generate cash
- Focus on market share and market growth ignores issues such as developing sustainable competitive.
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Pricing strategies are adopted:
Over medium to long term to achieve marketing objectives. Have significant impact on marketing strategy.
132
Pricing tactics are adopted:
In short run to suit particular situations. Tactics have limited impact beyond short-term sales of product itself.
133
4 categories of position a business finds itself in which influence the control has over pricing:
1) Price taker
2) Price maker
3) Price leader
4) Price follower
134
Factors a business needs to consider in setting a price:
- Competitors
- Costs
- State of market for product
- State of economy
- Bargaining power of customers in target market
- Other elements of marketing mix
135
Price skimming involves:
Setting high price before other competitors come into market
136
Problems/challenges with price skimming:
- Cannot last for long, as competitors soon launch rivals
- Distribution (place) can be challenge for innovative new product. May be necessary to give retailers higher margins to convince them to stock product.
- Firm may slow down volume growth of demand which gives competitors more time to develop alternative products ready for tome when market demand is strongest.
137
What is the aim of penetration pricing?
Increase market share of product, providing opportunity to increase price once objective achieved.
138
Advantages of penetration pricing:
- Catching competition off-guard/by surprise
- Sales volumes should be high, so distribution may be easier to obtain
- Low price can act as barrier to entry to other potential competitors considering similar strategy.
139
Disadvantages of penetration pricing:
- Low initial price can create expectation of permanently low prices amongst customers who switch
- May attract customers only looking for bargain, rather than being loyal to brand
140
Which promotional methods are used depends on several factors:
- Stage in life cycle
- Nature of product
- Competition
- Marketing budget
- Marketing strategy
- Target market
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Distribution is achieved by using one or more distribution channels, including:
- Retailers
- Distributors/Sales Agents
- Direct (e.g. via e-commerce)
- Wholesalers
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A distribution channel can be defined as:
All organisations through which product must pass between its point of production and consumption.
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What is the main function of a distribution channel?
To provide link between production and consumption.
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What do multi-channel distribution involve?
Businesses using more than one type of distribution channel.
145
Give an example of a business that used multi-channel distribution.
Apple
146
Benefits of multi-channel distribution:
- Allows more target market segments to be reached
- Customers increasingly expect products to be available via more than one channel
- Enables higher revenues.
147
Drawbacks of multi-channel distribution:
- Potential for channel 'conflict'
- Can be complex to manage
- Danger that pricing strategy becomes confused (in eyes of customer).
