Marketing is identifying, anticipating and satisfying customer needs profitably. A business that gets its marketing right sells more, builds loyalty and survives competition.
3.1 Marketing, competition and the customer
The role of marketing
Marketing does four jobs:
- Identify customer needs (through research).
- Satisfy them with the right product at the right price, place and promotion.
- Maintain customer loyalty (so customers come back).
- Build customer relationships (customer service, loyalty schemes, after-sales support).
Market changes
Why spending patterns change: changes in income (a recession reduces spending), fashion and tastes, age structure of the population, new technology, prices of substitutes, and advertising.
Why changing customer needs matter: a business that does not keep up loses customers to competitors.
Why some markets have become more competitive: globalisation (foreign firms entering), technology and the internet (easy price comparison, online sellers), deregulation, and lower barriers to entry.
How businesses respond: change or improve products, cut prices or offer promotions, improve customer service, innovate, cut costs, or enter new markets.
Niche and mass marketing
| Niche marketing | Mass marketing | |
|---|---|---|
| Meaning | selling to a small, specialist part of a market | selling the same product to the whole market |
| Benefits | less competition, can charge higher prices, loyal customers | large sales volumes, economies of scale |
| Limitations | small market and sales, risky if the niche disappears | high competition, lower prices and profit per item, high promotion costs |
Market segmentation
Market segmentation is dividing a market into groups of customers with similar characteristics.
Ways to segment: age, socio-economic grouping (income and occupation), location, gender, lifestyle and religion.
Benefits: the business can target each group with a suitable product, price and promotion, which gives more efficient advertising, higher sales and a better chance of beating competitors, and spots gaps in the market.
3.2 Market research
Market research is collecting and analysing information about customers, competitors and the market.
Why do it? A market-orientated business finds out what customers want before producing. Research tells it: who the customers are, what they would pay, what they like, what competitors do, and how big the market is. It reduces risk and helps set the product, price and promotion.
Primary and secondary research
| Primary (field) research | Secondary (desk) research | |
|---|---|---|
| What | new data collected first-hand for this purpose | data that already exists |
| Benefits | specific, up to date, under the business's control | cheaper and quicker, large amounts |
| Limitations | expensive and slow | may be out of date, not specific, others can see it |
Primary methods: postal questionnaire, online survey, interviews (face to face or telephone), focus groups (a small group discusses a product), observation, product trials.
Secondary methods: internet research, government sources (census, trade statistics), commercial market research reports (bought), company records, newspapers and trade journals.
Sampling: it is usually impossible to ask everyone, so a sample is chosen. It must be representative (the right mix of age, gender, income), and a larger sample is more reliable.
Factors influencing accuracy: sample size and selection (bias), how questions are worded (leading questions), honesty of respondents, out-of-date data, interviewer bias, timing and response rate.
Using the results
Be able to read graphs, bar charts, pie charts and tables, pick out the largest or smallest value and trends, and draw simple conclusions ("60% of respondents prefer Product B, so the business should focus on it"). Remember to mention the limits (a small sample).
3.3 Marketing mix
The marketing mix is the combination of product, price, place and promotion (the "four Ps"). The best mix depends on the market and must fit together (a luxury product has a high price, an exclusive place and prestige promotion).
Product
- Developing new products: benefits (new customers, higher sales, an edge over competitors, extension of the life cycle) and limitations (costly research and development, may fail, takes time).
- Brand image is how customers see a product's name and logo. A strong brand allows higher prices, repeat purchases and customer loyalty.
- Packaging protects the product, attracts attention, informs (ingredients, instructions), builds brand image and sometimes helps with convenience. Limitations: cost and environmental impact.
The product life cycle shows the sales of a product over time:
| Stage | Sales | Typical marketing |
|---|---|---|
| Development | none | costs, no sales |
| Introduction (launch) | low | heavy promotion to make people aware; often a high or penetration price |
| Growth | rising fast | competitors enter; promote the brand, keep quality |
| Maturity | highest, levelling off | defend market share; price competition |
| Decline | falling | cut costs, reduce promotion, or use an extension strategy |
Extension strategies try to lengthen the life of a product: new packaging, new features or variations, price cuts, new markets, advertising. (When you draw the cycle, sales are on the vertical axis and time on the horizontal, a curve that rises, levels and then falls, with extension strategy shown by a rise on the decline.)
Marketing decisions at each stage: at launch spend heavily on promotion; in growth build the brand; in maturity compete on price and promote; in decline reduce promotion or use extension strategies.
Price
| Pricing method | How it works | Benefit | Limitation |
|---|---|---|---|
| Cost-plus | add a mark-up (percentage) to the cost per unit | simple, guarantees a margin | ignores competitors and what customers will pay |
| Competitive | price similar to competitors | avoids price wars, simple | profit depends on costs, may not reflect quality |
| Penetration | low price at launch to gain market share, then raise it | quickly wins customers | low profit at first, may harm brand image |
| Skimming | high price at launch (new, unique products), then lower it | high profit from early buyers | few customers, attracts competitors |
| Promotional | temporary price cuts (sales, "buy one get one free") | boosts short-term sales, clears stock | reduces profit, customers may wait for sales |
Recommend and justify a pricing method: consider the type of product, competition, costs, customer income and the stage of the life cycle.
Price elasticity: price-elastic demand means that a price change causes a bigger percentage change in quantity demanded (for most non-essential products; a price rise reduces revenue); price-inelastic demand means the quantity changes less than the price (for necessities with few substitutes; a price rise raises revenue). A business that knows its product is inelastic can raise prices more safely. (The formula and calculations are not assessed.)
Place (distribution channels)
| Channel | How it works | Advantages | Disadvantages |
|---|---|---|---|
| Producer → consumer (direct) | selling directly (own shop, website) | keeps all profit, control over service, contact with customers | the business must deal with sales and delivery itself |
| Producer → retailer → consumer | retailer sells to the public | wide reach, shop displays, lower storage | retailer takes a mark-up |
| Producer → wholesaler → retailer → consumer | wholesaler buys in bulk and breaks it down | reduces storage and transport costs for the producer, reaches many small shops | more people take a share of the price, less control |
Recommend and justify: perishable or luxury products suit shorter channels; mass-market goods suit longer channels.
Promotion
Aims: inform customers, persuade them to buy, create or maintain a brand image, increase sales and remind people of the product.
| Form | Examples |
|---|---|
| Advertising | TV, radio, newspapers, posters, online |
| Sales promotion | discounts, free samples, buy-one-get-one-free, competitions, loyalty cards |
| Others | sponsorship, personal selling, public relations |
Cost-effectiveness: the marketing budget is limited, so the business must check that the extra sales (revenue) from promotion are greater than its cost, and choose the medium that reaches the target market cheaply.
Technology and the marketing mix
- E-commerce is buying and selling goods and services over the internet.
- Opportunities for business: a global market, lower costs (fewer shops), open 24 hours, easier collection of customer data. For consumers: choice, convenience, price comparison.
- Threats: security and fraud, intense competition, delivery costs and returns, and customers with no internet access; for consumers: no chance to see or try the product, risks to privacy.
- Use of the internet and social media for promotion: cheap, targeted advertising, viral sharing, direct contact with customers. Limitations: negative comments spread fast, constant updating needed.
3.4 Marketing strategy
Justifying a marketing strategy
The importance of each element of the mix varies: for a luxury product brand and promotion matter more; for a commodity (sugar, petrol), price matters; for a convenience product (snacks) place and availability. A marketing strategy is the plan that combines the elements for a target market. To recommend and justify one: identify the target customers, choose the most important element, say how the others support it and why alternatives are weaker.
Legal controls related to marketing
Laws protect consumers: misleading promotion (false advertising claims are illegal), faulty or dangerous goods (must be of satisfactory quality and safe), weights and measures, and product labelling. Impact: higher costs (testing, quality control), restrictions on advertising claims, risk of fines and loss of reputation, but better customer trust.
Entering foreign markets
Opportunities: new customers and higher sales, spreading risk, growth potential in countries with a growing middle class, economies of scale.
Problems: cultural differences (language, tastes, religion), lack of knowledge of the market, legal differences, import tariffs, exchange rate risk, competition from local firms.
Methods to overcome such problems:
| Method | Benefit | Limitation |
|---|---|---|
| Joint venture with a local business | local knowledge, shared risk and cost | shared profits, possible disagreement |
| Licensing (a foreign business pays to make and sell the product) | low cost and risk, quick entry | loss of control over quality, the licensee may become a competitor |
| Local agent or distributor | uses local contacts | commission costs |
| Adapting the product and promotion | fits local tastes | higher costs |
Practise this chapter
Every past-paper question on these topics, with the mark scheme.