FUNCTIONAL AREA MARKETING
In this unit you will learn about • Difference between Market and Marketing • Market Share and growth • Objectives of Marketing • The consumer • Branding and Generic goods • 4Ps
What is a market? • A meeting place for buyers (consumers) and sellers. • Shop, restaurant, telephone, internet, etc. • Consumer markets - individuals who purchase goods or services for personal or domestic use. • Industrial markets - organisations which purchase goods or services to use in the production of other goods and services.
What is marketing? “…the process involved in identifying, anticipating and satisfying consumer requirements profitably” The Chartered Institute of Marketing Aims of marketing: • to identify consumers’ requirements • to anticipate consumers’ requirements • to satisfy consumers’ requirements
Why is marketing important? • Marketing ensures that firms produce what people want – it also makes customers aware of what a firm is producing. • If a firm can produce what customers want then they have a good opportunity to reach their objectives. • Marketing also allows firms to launch new products. • All firms will undertake marketing – including charities.
Market Share & Market Growth • Most firms start off small. • A common objective of new firms is to grow in size. • Market growth can be obtained by increasing market share. • Market share is the firm’s percentage of all the sales in the market. For example, if the market for PCs in the UK is work a total of • Market growth is more difficult in an established market than a new growing market - due to the competition.
Objectives of Marketing • Marketing is linked to the overall objectives of the organisation and will therefore be different depending on the nature of the organisation. • For example, Charities will wish to increase donations to assist good causes, whereas public sector firms will wish to improve the service they deliver.
Objectives of Marketing • In the main the objectives of marketing include – • To target new markets or market segments • Increase revenue and profitability or income • Increase or maintain market share • Improve the image of products or the organisation • Improve existing products or develop new products
Business Orientation • A business will adopt a focus of attention with the hope of obtaining set corporate objectives. • Traditionally, the focus of attention of the business will centre on the product or the market (customers). • The orientation adopted will affect all the activities of the business.
Product-led Organisations • Focus on product and production process. • Emphasis on developing technically sound product. • Advertising will focus on how good the product is – rather than how the product will satisfy the needs of customers. • Many publicly funded organisations – like universities – advertise what they can provide rather than focusing on how they can satisfy the needs of customers.
Product-led: Concorde • Focus on Research and Development - was the aircraft technically possible? • Consumers and commercial viability viewed as being less important. • Developers assumed a supersonic aircraft would sell itself.
Concorde – After Launch • British Airways and Air France only buyers - mainly due to governmental involvement. • Other airlines deterred by high price and low passenger capacity. • Several airports - including New York - indicated possible ban due to noise pollution. • Technical success does not guarantee commercial success.
Market-led Organisations • Focus on the customer and what they want. • The firm will alter their product offering in line with what customers want. • Market research methods will be employed to identify the needs of target customers. • Many publicly funded organisations – like universities – advertise what they can provide rather than focusing on how they can satisfy the needs of customers. • Realise that their success depends on meeting the needs of customers better than competitors.
Market-led: Ford Model T • Henry Ford - one of the first to adopt a market orientated approach. • Before production he researched the market and identified a price that would allow large quantities to be sold. • Consumers’ needs were central to his decision-making.
Branding The name given by a producer to a product or range of products is known as a brand. The aim of branding is to distinguish the product from its competitors and to make it instantly recognisable to the consumer. A brand can be - • Company name - Heinz, Coco-Cola • Name given to a range of products - Fairy, Mr Kipling
HOW DOES A FIRM BRAND ITS PRODUCTS? To brand a product a firm will use packaging and advertising.
Brand Names Have a massive influence on purchasing decisions. So much so that the brands themselves are sold for considerable sums of money. Nestlé purchased Rowntree Mackintosh to obtain Kit-Kat, Polo and Smarties.
Brand Loyalty Some customers are faithful to one particular product. Marketeers strive to persuade customers that their product is better than competitors’ products and obtain brand loyalty which would allow them to charge higher prices. Firms may add an existing brand name to a new product to increase the products chances for success.
STRONG BRAND LOYALTY • Strong branding means that the firm can charge a premium price because the product is perceived as high quality, it has high visibility due to the amount of advertising and brandloyalty • Brands are facing challenges – customers are more price conscious and there has been an increase in the number of quality “own brands”
Own Brands • Many Large retailers – Tesco, Asda, Boots, etc… - sell a wide range of products under their own brand name. • Own brands now account for more than 20% of all retail sales. • Own brands have been successful at challenging well established brands by developing products of a similar quality, with similar packaging but at cheaper prices.
Generic Goods • Very little marketing is carried out by companies who sell generic goods. • They are seen by consumers to have no differences between them – eg light bulbs, matches, etc,
The Marketing Function Marketing decisions centre on four functional activities, known as the 4p’s. • Product • Price • Place (distribution) • Promotion When combined these four areas are known as the Marketing-Mix.
Product • The product must meet the needs of customers and provide benefit to the customer. • Remember – a product can be a good or service. • Different versions of the same basic product (known as the core product) vary in quality, style, packaging and many other ways from their competitors’ products – eg cola and crisps. • These additional components of the core product are known as the augmented product.
Motor Car Core Product Safety Fuel Economy Comfort Mode of transport Performance Credit Terms Style Warranty Augmented Product
Our Life Cycle We are born and introduced to the world. Then we grow into teenagers. Then we mature into adults. Finally, we get old and our health declines.
The Life of a Product • Like humans, products have a limited life. • The Sega Mega Drive, Subbuteo and ‘O’ Levels have all been withdrawn from the market. • Before being withdrawn, a product will pass through four stages – known as the Product Life Cycle.
Launch • The first stage of the product life cycle begins when the product is introduced into the marketplace. • Products recently launched include: Wiiand Divine.
Growth • As more target customers become aware of the product, the popularity and sales of the product will increase. • Mobile phones and internet shopping are examples of growth products.
Maturity • Once target customers are fully aware of the product, the popularity and sales of the product will level off. • Products in their maturity stage include Sunny-D and the Spice Girls.
Decline • The popularity of the product will eventually drop. • Customers will stop buying the product and sales will fall. • Products in their decline stage include - Butlins Holidays, Power Rangers and Cassette Tapes.
Product Life Cycle Chart Sales Maturity Growth Decline Launch Time
Variations in Product Life Cycles Sales Sales Peter Andre Coca-Cola Time Time
Companies use Product Life Cycles to: • determine the futureof their products. • decide when to introduce new products. • decide when to withdraw products in decline. • decide which products to invest in.
Extending the life of a product Sales Time Product Extension Strategies - change/modify product - new variants - alter packaging - alter channel of distribution - change pricing strategy - alter promotional support
Price • The price is what the customer has to pay in order to obtain the product. • The product must be priced so that an organisation covers its costs and can make a profit. • If the product is priced too high – customers will not buy it (especially if a competitor has a similar more reasonably priced product on the market).
Pricing Decisions • The main pricing decision that a firm takes is whether to charge: • A low price in order to attract sales. This makes it possible for a successful firm to sell large quantities at low costs. • An average price in relation to competitors. The firm will need to use other elements of the marketing-mix to compete. • A high price. Firms can charge a high price if they are seen as being better than their rivals in meeting the needs of customers.
The Price is Right CK be by Calvin Klein HIGH PRICE
The Price is Right Ford Focus AVERAGE PRICE
The Price is Right Chocolates from Thorntons HIGH PRICE
The Price is Right Gola Trainers LOW PRICE
The Price is Right Jeans from Marks and Spencer AVERAGE PRICE
Price-Quality Relationship • Having a lower price than competitors does not guarantee success. • Most people associate a high price with a high quality product. • Would you expect to pay more for a Rolls-Royce or a Skoda? • Why?
Pricing Strategies Cost-plus pricing • The most common method of pricing in the UK • Companies calculate the cost of producing one item then add a profit ‘mark-up’, say 20%, to determine the selling price. • The extent of the mark-up will vary from industry to industry - car dealers will usually add 17% onto the cost they pay manufacturers whereas fashion clothing retailers may add between 100%-200%. +
Pricing Strategies • A low price is set for a new product to attract customers and penetrate an existing market where there is likely to be strong competition. • Losses may be incurred in the short-term, however once a foothold in the market has been obtained prices may be increased to allow profits to be made. Penetration pricing • Brand products launched into consumer markets will use penetration pricing. For example, breakfast cereals such as Kellogg’s Golden Grahams.
Pricing Strategies Going-rate pricing • Also known as competitive pricing. • The firm will set the price of its products at a level similar to competitors. • This occurs in markets where businesses try to avoid price wars. Firms will set their prices at roughly the same level. • Companies offering petrol for cars adopt going-rate pricing.
Pricing Strategies Hour-based pricing • The firm sets a price for a service based on time. • The company will offer a quote for the service demanded by a customer - based on an estimate of the time for completion and an hourly charge rate. • Car mechanics and cleaners use hour-based pricing.
Pricing Strategies Skimming • Involves setting a high price for a new product. • Once the first target segment is saturated, the producer will lower the price in order to tap a fresh segment of the market. The process continues until a large section of the total market is catered for. • Electronic and pharmaceutical manufacturers often use skimming pricing.
Pricing Strategies Destroyer pricing • Employed to undermine the sales of rivals. • The price of an existing product is reduced to an artificially low level in order to destroy competitor’s sales. • Only adopted by very large businesses with sufficient resources. • Stagecoach buses applies destroyer pricing when starting new bus routes.
Place • The ‘place’ where the final exchange occurs. • Refers to all activities undertaken by companies in distributing products to targeted consumers.