Chapter 28 Effective marketing
Purposes of marketing • marketing: the anticipating and satisfying of customers’ wants in a way that delights the consumer and also meets the needs of the organisation. • This definition provides an introduction to the purposes of marketing: • anticipating customers’ wants • satisfying customers’ wants in a way that delights customers • meeting the needs of the organisation
Marketing objectives • marketing objectives: the goals of the marketing function within an organisation. • A firm’s marketing objectives must be consistent with the organisation’s corporateobjectives (the aims of the business as a whole). • What sort of marketing objectives might a business set itself? • Compile a list of five possible marketing objectives for a business. • See if they fit into the types of marketing objective listed on the next slide.
Types of marketing objective • Marketing objectives may be categorised in the following ways: • size (e.g. reaching a sales target or certain market share) • market positioning (e.g. targeting a particular market segment) • innovation/product range (e.g. introducing five new products in the next 12 months) • achieving brand loyalty/goodwill (e.g. attaining 75% repeat customers) • security/survival (e.g. keeping customers in a declining market)
Consumer marketing v business-to-business marketing • Most people are familiar with businesses providing products for individual consumers. This is known as business-to-consumer marketing (b2c marketing) or consumer marketing. • However, many products (e.g. raw materials) are sold from one business to another. This is known as business-to-business marketing (b2b marketing). • Business-to-business marketing is very different from consumer marketing.
Main features of business-to-business marketing • Transactions are much larger, with perhaps millions of pounds worth of products being bought and sold in one transaction. • Buyers and sellers are specialist employees of organisations and therefore have greater knowledge and understanding of the products. • There is greater emphasis on quality and related factors, such as after-sales servicing and maintenance. • Promotions and advertisements tend to be more informative. • Pricing depends on the level of competition in the market. • Personal relationships between buyers and sellers are more critical.
Niche marketing • A critical decision for many start-up businesses is whether to target a narrow range of customers. • niche marketing: targeting a product or service in a small segment of a larger (mass) market. • Niche marketing can help small firms, as there may be little competition. • What are the advantages and disadvantages of niche marketing?
Advantages and disadvantages of niche marketing Advantages • There may be fewer competitors. • A small firm may be able to match the costs of larger rivals in a niche market. • The limited demand may suit a small firm that lacks the resources to produce on a large scale. • A firm can adapt its product to meet the specific needs of the niche market. The product will have a unique selling point (USP). • It can be easier for firms to target just one type of customer. Disadvantages • The small scale of the market limits the chances of high profit. • Small firms in niche markets can be vulnerable to changes in demand. • An increase in interest in the niche market may attract larger firms.
Mass marketing • mass marketing: aiming a product at all (or most) of the market. • Examples of mass-market goods are sliced bread and pillows. In a mass market there is only limited scope for targeting. For instance, there is little scope to modify sliced bread to appeal to a niche market, although it is possible. • Can you think of ways of creating niche markets from sliced bread and pillows? • What are the advantages and disadvantages of mass marketing?
Advantages of mass marketing • Large-scale production is possible, which will help to lower costs per unit through factors such as bulk buying. • The mass market gives more opportunities to earn very high income. • Mass marketing allows firms to use the most expensive (and usually the most effective) marketing. • The mass market allows businesses to fund the research and development costs needed to introduce new products. • Mass marketing increases brand awareness, helping firms to increase sales and prices.
Disadvantages of mass marketing • High fixed capital costs are incurred (e.g. for large shops). • A fall in demand will lead to unused spare capacity, increasing unit costs. • It can be difficult to appeal directly to each individual customer because mass-market products must be designed to suit all customers. As a result, prices tend to be lower, reducing the opportunities for high profits. • There is less scope for adding value. As customers’ incomes increase, there is a growing tendency for customers to want high-priced, unique products.
Product differentiation in the mass market • product differentiation: the degree to which consumers see a particular brand as being different from other brands. • Product differentiation will benefit a business in two ways: • increased sales volume • greater scope for charging a higher price • Product differentiation can be achieved through: • design, branding and packaging to improve the attractiveness of a product • promotional and advertising campaigns to boost image and sales • different distribution methods (e.g. internet sales) • product proliferation — producing lots of varieties
Chapter 30 Using the marketing mix: product
Marketing mix: product • Key terms • marketing mix: those elements of a firm’s approach to marketing that enable it to satisfy and delight its customers. • product: the good or service provided by a business. • product design: deciding on the make-up of a product so that it works well, looks good and can be produced economically. • product development: when a firm creates a new or improved good or service, for release on to an existing market.
Product design • The features of the product must appeal to the consumer. • The characteristics of a good product will vary according to the customer and according to the product. • Select a product and identify five or six features that make it attractive to customers.
Key features influencing car purchases • The key features influencing car purchase are listed below. How well do they compare to the product you chose in the previous activity? • reliability • safety • convenience of use • fashion • aesthetic qualities/appearance • durability • legal requirements
Development of new goods and services • Every new product or service passes through certain stages before it is launched. • The stages of new product development are as follows: • generation of ideas • analysis of ideas — feasibility testing • product development and testing the prototype • test marketing • launch
Influences on the development of new goods and services • Key factors influencing the development of new products are: • technology • competitors’ actions • entrepreneurial skills of managers and owners
Technology and the development of new goods and services • New technology can improve the quality of existing products. • Technology can lead to the development of totally new products. • Improvements in technology can bring products into new segments. • Production technology has led to more cost-effective production. • Technology allows goods to be made to the consumer’s individual specifications. • Technology has improved business awareness of consumer tastes.
Competitors’ actions and the development of new goods and services • The introduction of a new product by a competitor may encourage a business to introduce its own new product. • New products from competitors can give ideas for a new product to a business. • Changes in consumer tastes may be detected through the actions of a competitor.
Entrepreneurial skills and the development of new goods and services • Identifying an opportunity. A skilled entrepreneur can be the first person to spot a gap in a market. • Organisations may encourage and reward employees who come up with innovative ideas that lead to new products. • Spending on research and development can lead to new inventions.
Other factors leading to the development of new goods and services • market research • personal experience • personal need and inventiveness • environmental awareness
Unique selling points (USPs) • unique selling point/proposition: a feature of a product or service that allows it to be differentiated from other products. • In developing a new product or service, many firms will attempt to differentiate it from those of competitors. • If a firm can improve customer awareness and goodwill by making its product different from rival products, it can increase both its sales volume and its price. • Loyal customers are also less likely to stop buying the firm’s product. • Select two products and explain the way or ways in which they achieve a unique selling point (USP). • Indicate which USP is most likely to add value. • Explain your reasoning.
Product portfolio analysis • Very few firms rely on one product. • In a multi-product firm (e.g. Kellogg’s), the range of products is its product portfolio. • Firms plan their product range to spread their risks. If one product has low sales, it may be supported by other, more successful products. • An example of the way in which a business can carry out product portfolio analysis is the Boston matrix.
The Boston matrix: introduction • Boston matrix: a tool of product portfolio analysis that classifies products according to the market share of the product and the rate of growth of the market in which the product is sold. • This matrix is used to focus on two factors that help an organisation to assess the situation of its products in the market: • market share • market growth • A product with a high market share is clearly in a strong competitive situation. • A product in a high growth market should have opportunities for future growth.
Stars, cash cows, problem children and dogs • In small groups compile a list of ten products. Categorise them under the four headings above. • Your ten products must include at least two stars, two cash cows, two problem children and two dogs.
Product portfolio analysis: conclusion • Ideally a firm will want a portfolio of cash cows and stars. • However, in the long term these products may decline, so new products with a low market share but in high growth markets will be ideal replacements. • The Boston matrix is just a generalisation. Cash cows can lose money and dogs can be very profitable in the right circumstances. • Overall the Boston matrix says relatively little about a product and should not be used without reference to other factors, such as profitability.
Product life cycle (1) • product life cycle: the stages that a product passes through during its lifetime. • These stages are: • development • introduction • growth • maturity • decline
Strategic use of the product life cycle • In theory, a firm should aim to have as many products in ‘maturity’ as possible, as these are the products that should generate most profit. • However, to achieve this in the long run a firm needs to have a policy of new product development, so that it has products in the introduction and growth stages which will eventually enter maturity. • Conclusion • Firms attempt to have a balance of products under development and in the introductory and growth stages, financed by the profits generated by their mature products.
Extension strategies • The main focus of the product life cycle is to keep products at their peak: that is, in the maturity stage. • This is achieved through extension strategies. • extension strategies: methods used to lengthen the life cycle of a product by preventing or delaying it from reaching the decline stage of the product life cycle. • Think of three products or services in the maturity stage of the product life cycle. • Suggest different ways (extension strategies) that might be used (or have been used) to keep these products in the maturity stage of the product life cycle.
Examples of extension strategies • The main types of extension strategy are: • attracting new market segments • increasing usage among existing customers • modifying the product • changing the image • targeting new markets • promotions, advertising and price offers • Provide one real-life example of each of these types of extension strategy (excluding examples given previously).
Chapter 31 Using the marketing mix: promotion
Promotion: key terms • promotion: in the context of marketing, the process of communicating with customers or potential customers. (Promotion can also describe communication with other interested groups, e.g. shareholders and suppliers.) • advertising: the process of communicating with customers or potential customers through specific media (e.g. television and newspapers). • Note that advertising is just one element of promotion, although it is often the key element of the promotional mix of a product.
Classifying promotions • Promotion and advertising can be informative or persuasive. • Informative promotion is intended to increase consumer awareness of the product and its features. • Persuasivepromotion is intended to encourage consumers to purchase the product, usually through messages that emphasise its desirability.
Aims of promotion: AIDA • Promotion has a range of different purposes. AIDA describes the process of a successful promotional campaign. • Attention. The first step in a promotional strategy is to get the attention of the consumer. • Interest. Having gained the attention of the consumer, promotions will then try to make people interested in the product. • Desire. Promotions will then try to give consumers reasons for purchasing the product — desire for it. • Action. The final step is converting desire into the action of purchasing the product.
Elements of the promotional mix/types of promotion • promotional mix: the coordination of the various methods of promotion in order to achieve overall marketing targets. • There are many different types of promotion. The main examples are: • public relations (PR) • branding • merchandising • sales promotions • direct selling • advertising • sponsorship • trade fairs and exhibitions
Public relations (PR) • PR involves gaining favourable publicity through the media. • An article in a newspaper that praises a product can raise awareness in a very cost-effective way. • It is not paid for, so it is more authentic and trusted by consumers. • It may be unreliable, as it depends on the media’s use of the story. • It is extremely cost-effective when it does work.
Branding • Branding is the process of differentiating a product or service from its competitors through the name, sign, symbol, design or slogan linked to that product. • Brands can add value to a product and a firm, as consumers are more likely to buy well-known names. • If one product within a brand gains a good (or bad) reputation, it can affect customers’ loyalty to all of the products using that brand identity.
Merchandising • Merchandising describes methods of persuading consumers to take action at the ‘point of sale’ (PoS). • Some examples are: • persuading retailers to offer more shelf space to a supplier • providing attractive displays to persuade consumers to buy at the point of sale • using pleasant smells to entice customers • Merchandising is well-suited to ‘impulse buys’.
Sales promotions • These are short-term incentives used to persuade consumers to purchase. • Think of five different examples of sales promotions. Which of the methods that you have chosen is likely to be the most successful? Explain why. • Popular methods include: • competitions • free offers • coupons • ‘three for the price of two’ or BOGOF (buy one get one free) offers • introductory offers • product placement (featuring a product in a film) • credit terms
Direct selling • This takes four main forms: • direct mail • telephone • door-to-door drops • personal selling • Why is direct selling often unpopular with customers? • Why is it more likely to be used in business-to-business (b2b) marketing than business-to-consumer (b2c) marketing?
Advertising • The main advertising media are: • television • radio • cinema • national newspapers • posters • magazines • internet and other electronic media • regional newspapers
Comparing advertising media • In small groups, select two of the advertising media listed on the previous slide. Research the costs and popularity of these two forms of media and present the pros and cons of each. • Explain one product/ business that your first advertising medium would be used to promote, and a second product/business that would be more suited to the second medium you have researched. Explain your reasoning.
Sponsorship • Sponsorship means giving financial assistance to an individual, event or organisation. • Common examples include companies sponsoring: • sports teams (e.g. football clubs) • venues, such as the O2 Arena • good causes (e.g. charity events) • A company can create goodwill and closer links by inviting customers to events. • However, sponsorship can be unpredictable. An unexpectedly good cup run for a rugby team, or a scandal involving the person sponsored can affect the results.
Trade fairs and exhibitions • Most exhibitions and trade fairs are used for business-to-business marketing. • They can be used to: • ‘network’ (get to know people in other businesses) • demonstrate products to potential customers • provide detailed information and brochures • allow customers to test out and order products
Influences on the choice of promotional mix • When deciding what form of promotion to choose, a business will consider: • objectives of the campaign • costs and budgets • the target market • the balance of promotions needed to achieve AIDA • legal factors (e.g. advertising restrictions) • external factors (e.g. consumer preferences) • Think of a promotional campaign in which all of the factors listed above will influence the promotional mix.
Chapter 32 Using the marketing mix: pricing
Pricing strategies • There are five main pricing strategies. • price skimming: a strategy in which a high price is set to yield a high profit margin. • penetration pricing: a strategy in which low prices are set to break into a market or to achieve a sudden spurt in market share. • price leadership: a strategy in which a large company (the price leader) sets a market price that smaller firms will tend to follow. • price taking: a strategy in which a small firm follows the price set by a price leader. • predator (or destroyer) pricing: a strategy in which a firm sets very low prices to drive other firms out of the market.