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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:

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Chapter 28

Chapter 28

Effective marketing


Purposes of 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

  • 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
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
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
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
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 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

  • 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
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
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 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

Chapter 30

Using the marketing mix: product


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
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
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
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
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
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
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
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
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 points (USPs) services

  • 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
Product portfolio analysis services

  • 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
The Boston matrix: introduction services

  • 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
Stars, cash cows, problem children and dogs services

  • 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
Product portfolio analysis: conclusion services

  • 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 (1) services

  • 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
Strategic use of the product life cycle services

  • 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
Extension strategies services

  • 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
Examples of extension strategies services

  • 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

Chapter 31 services

Using the marketing mix: promotion


Promotion key terms
Promotion: key terms services

  • 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
Classifying promotions services

  • 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
Aims of promotion: AIDA services

  • 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
Elements of the promotional mix/types of promotion services

  • 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
Public relations (PR) services

  • 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 services

  • 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 services

  • 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
Sales promotions services

  • 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
Direct selling services

  • 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
Advertising services

  • The main advertising media are:

    • television

    • radio

    • cinema

    • national newspapers

    • posters

    • magazines

    • internet and other electronic media

    • regional newspapers


Comparing advertising media
Comparing advertising media services

  • 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 services

  • 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
Trade fairs and exhibitions services

  • 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
Influences on the choice of promotional mix services

  • 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

Chapter 32 services

Using the marketing mix: pricing


Pricing strategies
Pricing strategies services

  • 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.


Price skimming
Price skimming services

  • Features

    • A high price is set to yield a high profit margin.

    • This price is often used during the introduction of a product, when it appeals to early adopters.

    • In the long term, firms use this strategy for products that they hope will ‘skim the market’. This means appealing to a more exclusive, up-market type of customer.

    • It is suited to marketing objectives such as maximising value added or profit margins, and establishing a prestigious brand name.


Penetration pricing
Penetration pricing services

  • Features

    • This is the opposite of price skimming. Low prices are set to break into a market or to achieve a sudden spurt in market share.

    • Many firms use this strategy when a product is first released or to entice new customers so that market share can be increased.

    • It is suited to marketing objectives such as maximising sales volume (rather than value) and increasing market share.


Price leadership and price taking
Price leadership and price taking services

  • Features

    • In price leadership a large company (the price leader) sets a market price.

    • Price takers are the smaller firms that tend to follow the price leaders when setting price.

    • Usually the price leader is the firm with the largest market share.

    • Small firms will usually be price takers because a lower price could trigger a price war, while a higher price will mean that they lose customers.

    • Both strategies are suited to a marketing objective that is based on maintaining market share and stability in the market.


Predator or destroyer pricing
Predator (or destroyer) pricing services

  • Features

    • In this strategy, a firm sets very low prices to drive other firms out of the market.

    • Predator pricing acts against the consumer interest (by eliminating choice), so it can be ruled illegal, but this is often difficult to prove.

    • The marketing objective is to reduce the number of competitors in the market.


Pricing tactics
Pricing tactics services

  • Pricing tactics are adopted in the short term to suit particular situations. There are two main pricing tactics.

  • loss leadership: a tactic in which a firm sets a very low price for its product(s) in order to encourage consumers to buy other products that provide profit for the firm. This is often used by supermarkets.

  • psychological pricing: a tactic intended to give the impression of value (e.g. selling a good for £9.99 rather than £10).


Pricing activity
Pricing: activity services

  • Bring in products or evidence of purchases (perhaps receipts for services) that demonstrate each of these pricing strategies and tactics:

    • price skimming

    • penetration pricing

    • price leadership

    • price taking

    • predator (or destroyer) pricing

  • Which strategies and tactics appear to be used most often?


Influences on the pricing decision
Influences on the pricing decision services

  • Two main influences will be examined:

    • costs of production

    • price elasticity of demand


Costs of production
Costs of production services

  • Pricing strategies and pricing tactics depend upon setting a price that customers find acceptable.

  • It is also necessary for a business to make a profit, so the price of a product must be set in order to cover costs (unless a loss leader or predator pricing approach is being used).

  • To achieve this goal, businesses will often use a method of pricing known as cost-plus pricing.


Cost plus pricing
Cost-plus pricing services

  • cost-plus pricing: a method of pricing in which the price set is the average cost of a product plus a sum to ensure a profit.

  • Example:

  • A clothes retailer adds 150% to the wholesale cost of a dress which costs £30 to buy.

  • The price of the dress is £30 + (150% of £30) = £30 + £45 = £75.

  • Calculate the price of a tin of tomatoes which costs 30p and has a 40% mark-up.

  • cost-plus pricing: a method of pricing in which the price set is the average cost of a product plus a sum to ensure a profit.

  • Example:

  • A clothes retailer adds 150% to the wholesale cost of a dress which costs £30 to buy.

  • The price of the dress is £30 + (150% of £30) = £30 + £45 = £75.

  • Calculate the price of a tin of tomatoes which costs 30p and has a 40% mark-up.


Cost plus pricing1
Cost-plus pricing services

  • cost-plus pricing: a method of pricing in which the price set is the average cost of a product plus a sum to ensure a profit.

  • Example:

  • A clothes retailer adds 150% to the wholesale cost of a dress which costs £30 to buy.

  • The price of the dress is £30 + (150% of £30) = £30 + £45 = £75.

  • Calculate the price of a tin of tomatoes which costs 30p and has a 40% mark-up.

Answer:

30p + (40% of 30p) = 30p + 12p = 42p


Factors influencing the percentage mark up
Factors influencing the percentage mark-up services

  • The percentage added on will depend on a number of factors:

    • the level of competition

    • the price that customers are prepared to pay

    • the image of the product/firm

    • the firm’s objectives (e.g. whether it is aiming to break even, maximise profit or achieve a high market share)

    • the level of risk involved


Price elasticity of demand
Price elasticity of demand services

  • price elasticity of demand: the responsiveness of a change in the quantity demanded of a good or service to a change in price.

  • price elasticity of demand = % change in quantity demanded % change in price


Elastic and inelastic demand 1
Elastic and inelastic demand (1) services

  • Demand can be elastic, inelastic or unitary.

  • Elastic demand

  • If the percentage change in price leads to a greater percentage change in the quantity demanded, the answer will be greater than 1 (ignoring the minus sign). This indicates that demand is relatively responsive to a change in price.

  • Inelastic demand

  • If the percentage change in price leads to a smaller percentage change in the quantity demanded, the answer will be less than 1 (ignoring the minus sign). This indicates that demand is relatively unresponsive to a change in price.


Elastic and inelastic demand 2
Elastic and inelastic demand (2) services

  • Unitary demand

  • If the percentage change in price leads to an equal percentage change in the quantity demanded, the answer will be equal to 1 (ignoring the minus sign). This indicates that demand is of unitary (or unit) elasticity, i.e. the change in demand is equivalent to the change in price.


Elasticity example calculation
Elasticity: example calculation services

  • Price falls from 25p to 15p, leading to an increase in quantity demanded from 200 to 240 units.

  • % change in quantity demanded = change in quantity demanded × 100 original quantity demanded

  • = (240 – 200) × 100 = +40 × 100 = +20% 200 200

  • % change in price = change in price × 100 original price

  • = (15 – 25) × 100 = –10 × 100 = –40% 25 25

  • price elasticity of demand = +20 = (–)0.5 –40

  • An elasticity of 0.5 means that demand is inelastic, because the percentage change in price leads to a smaller percentage change in quantity demanded.


Elasticity calculation
Elasticity: calculation services

  • Calculate the price elasticity of demand when price rises from £15 to £18, leading to a decrease in quantity demanded from 80 units to 52 units.


Elasticity calculation answer
Elasticity: calculation answer services

  • % change in quantity demanded = change in quantity demanded × 100 original quantity demanded

  • = (52 – 80) × 100 = –28 × 100 = –35% 80 80

  • % change in price = change in price × 100 original price

  • = (18 – 15) × 100 = +3 × 100 = +20%

  • 15 15

  • price elasticity of demand = –35 = (–)1.75 +20

  • An elasticity of 1.75 means that demand is elastic, because the percentage change in price leads to a larger percentage change in quantity demanded.


Determinants of price elasticity of demand
Determinants of price elasticity servicesof demand

  • What are the main factors that will make demand price elastic or price inelastic?

  • Complete a list of six factors and then note on your list whether the factor will make demand price inelastic or price elastic.

  • Explain your reasoning.

  • Compare your answers with the list on the next slide.


Factors influencing the price elasticity of demand
Factors influencing the price elasticity of demand services

  • necessity inelastic

  • habit inelastic

  • high availability of substitutes elastic

  • brand loyalty inelastic

  • low proportion of income spent on a product inelastic

  • consumers have high incomes inelastic


Significance of price elasticity of demand 1
Significance of price elasticity of demand (1) services

  • Price inelastic demand and sales revenue

  • The significance of price elasticity of demand can be seen by looking at its impact on sales revenue and profit, following a change in price.

  • The effect depends on whether demand is elastic or inelastic, and on whether price has risen or fallen.

  • If demand for a good is inelastic, when its price rises the quantity demanded falls by a smaller percentage.

  • This means that sales revenue will increase.

  • For example, a 50% rise in price from £1 to £1.50 leads to a smaller (20%) fall in sales from 100 to 80 units. Price elasticity is –0.4.

  • Sales revenue increases from (£1 × 100 = £100) to (£1.50 × 80 = £120).


Significance of price elasticity of demand 2
Significance of price elasticity of demand (2) services

  • Price inelastic demand and profit

  • Does this mean extra profit? The answer is yes.

  • The total costs of producing 80 units will almost certainly be lower than those of producing 100 units, so costs will tend to fall at the same time as revenue increases.

  • A price rise will always increase sales revenue and profit if price elasticity of demand is inelastic.

  • A price fall will always lead to lower sales revenue and profit if price elasticity of demand is inelastic.


Significance of price elasticity of demand 3
Significance of price elasticity of demand (3) services

  • Price elastic demand and sales revenue and profit

  • What happens if demand is price elastic?

  • Carry out your own calculations using an example that is price elastic.

  • What happens to sales revenue and profit?

  • In general, you should find the following if demand is price elastic:

    • A price rise will always decrease sales revenue, BUT the effect on profit will depend on cost savings from cutting output.

    • A price fall will always increase sales revenue, BUT the effect on profit will depend on cost rises from the additional output.

  • There may be numerical exceptions to these rules if the figures chosen are not very price elastic.


Difficulties in calculating and using price elasticity of demand 1
Difficulties in calculating and using price elasticity of demand (1)

  • The use of price elasticity of demand can be very unreliable because of the difficulties involved in calculating it.

  • Price elasticity of demand calculations assume that ‘other things remain equal’ while price changes.

  • In real life, the assumption that ‘other things remain equal’ is not reliable. For example, competitors will be constantly changing their marketing strategies.

  • The main difficulties in calculating (and using) elasticity of demand are summarised on the next slide.


Difficulties in calculating and using price elasticity of demand 2
Difficulties in calculating and using price elasticity of demand (2)

  • There may have been significant changes in the market (e.g. changes in consumer tastes or the image of the product).

  • Changes in price may be matched by competitors, negating the effect.

  • Consumers may react differently to increases in price than to decreases.

  • The business may lack market research on the effect of price changes.

  • The company itself may be changing other things (e.g. advertising).


Price elasticity of demand conclusion
Price elasticity of demand: conclusion demand (2)

  • Price elasticity of demand is a very useful business concept that can help businesses plan their marketing strategies.

  • However, it must be used with caution as the data are not always reliable.


Chapter 33

Chapter 33 demand (2)

Using the marketing mix:place


Place the main factors
Place: the main factors demand (2)

  • Place is an important element of the marketing mix in a number of different ways:

    • location of the retailer

    • placement of the product within the point of sale

    • availability of the product in as many different locations as possible

    • the ways in which products are distributed


Location of the retailer
Location of the retailer demand (2)

  • The ‘right’ location involves several elements:

    • convenience for consumers

    • accessibility

    • cost of access

    • reputation of the area

    • location relative to competition


Placement within the point of sale
Placement within the point of sale demand (2)

  • About 70% of buying decisions are made in-store. Sales can be increased by the careful placing of products within the point-of-sale outlet.

  • Placement also applies to direct selling. Businesses use catalogues and internet sites to make them easy and attractive for shoppers to use.

  • In small groups, discuss ways in which supermarkets use placement within a store to help sales. Compare your conclusions with the examples listed on the next slide.


Placement within the point of sale examples
Placement within the point of sale: examples demand (2)

  • Similar products (e.g. biscuits) are placed together, so that shoppers can make comparisons.

  • Brightly coloured, attractive fruit and vegetable displays are visible from outside the store.

  • Impulse buys (e.g. sweets) are placed by the checkouts.

  • Popular products are given greater shelf space.

  • Loss leaders are scattered around the store, with some placed well away from the entrance.

  • Standard, everyday purchases (e.g. bread) are placed at eye level, so that shoppers will find them easily.

  • Complementary products are placed in close proximity (e.g. cooking sauces being located close to pasta and rice).


Number of outlets
Number of outlets demand (2)

  • For some products, especially impulse buys, persuading retailers to stock the products is often crucial to success. The more outlets that stock the product, the more sales a firm can generate.

  • How can firms such as Heinz and Mars get more outlets to stock their products?

  • Compare your answers with the list below.

    • promotional campaigns

    • providing extra facilities or attractive displays

    • offering high profit margins to retailers

    • increasing brand variety

    • discovering new types/alternative outlets (e.g. coffee shops in book stores)


Distribution
Distribution demand (2)

  • distribution: the process of transferring products from the original producer to the final consumer.

  • distribution channels: the routes through which a product passes in moving from the manufacturer (producer) to the consumer.

  • Most distribution involves one of three methods, as shown in the next slide.



Roles of organisations in the distribution channel 1
Roles of organisations in the distribution channel (1) demand (2)

  • Producers and wholesalers

  • Producers (or manufacturers) make the product by transforming inputs into outputs.

  • Wholesalers buy in bulk from the manufacturer (producer) and sell in smaller quantities to the retailer. Their existence can benefit both manufacturers and retailers.

  • Wholesalers help producers by:

    • purchasing finished goods as soon as they are produced, saving storage costs for producers

    • helping cash flow by paying immediately

  • Wholesalers help retailers by:

    • lowering delivery costs by delivering products from many manufacturers

    • offering credit to retailers


Roles of organisations in the distribution channel 2
Roles of organisations in the distribution channel (2) demand (2)

  • Retailers

  • The main role of the retailer is to serve the needs of the customer by providing:

    • convenience

    • advice

    • financial assistance

  • In recent years, wholesalers have declined considerably. Why do you think this has happened?


Factors influencing the method of distribution
Factors influencing the method of distribution demand (2)

  • size of the retailer

  • type of product (e.g. perishable or non-perishable)

  • technology

  • geography of the market

  • complexity of the product

  • degree of control desired by the manufacturer (producer)


Place group exercise
Place: group exercise demand (2)

  • Visit and examine the following point-of-sale places:

    • a food retailer

    • a clothing retailer

    • a catalogue

    • a website offering direct sales to visitors

  • What conclusions can be drawn about the layout of the places that you visited?

  • Explain why products were located in certain places or displayed in a certain way.

  • What changes to the layout would you recommend and why?


Chapter 29

Chapter 29 demand (2)

Designing an effective marketing mix


Integrated marketing mix
Integrated marketing mix demand (2)

  • Remember: the marketing mix comprises those elements of a firm’s approach to marketing that enable it to satisfy and delight its customers.

  • The marketing mix should be looked at with emphasis on the integrated nature of the mix.

  • No element of the marketing mix should be treated in isolation from the other elements.

  • In small groups, identify four different products.

  • The first of these products should have price as the most important of the ‘four Ps’. The second, third and fourth should have product, promotion and place as the most crucial ‘P’.

  • Justify your choices to the class.


Influences on the marketing mix
Influences on the marketing mix demand (2)

  • Major influences on the marketing mix include:

    • finance

    • technology

    • market research


Impact of finance on the marketing mix
Impact of finance on the demand (2)marketing mix

  • A firm must keep within its marketing budget. A lack of money will limit marketing opportunities.

  • A business should consider:

    • its cash flow and profit (e.g. has it got the cash to finance a new store/place?)

    • is the firm large enough to enter a price war?

    • how much will promotions cost? Most firms cannot afford television advertising.


Impact of technology on the marketing mix
Impact of technology on the marketing mix demand (2)

  • If a product is technologically advanced, it may need less promotion and sell at a higher price.

  • A more technologically advanced database will allow a firm to target its marketing mix more exactly.

  • Technology is helping firms to produce high-quality products at relatively low costs (and thus prices). Promotion and place are then used to achieve product differentiation.

  • The internet is affecting the need for traditional shops (place) and is taking over from television as the main medium of promotion.


Impact of market research on the marketing mix
Impact of market research on the marketing mix demand (2)

  • Market research helps a firm to adapt its marketing mix:

    • Product differentiation. If market research shows the existence of a lot of competition, a business needs to differentiate its product from those of competitors. This is achieved through branding, patenting etc.

    • Substitutes. Market research may show which products are the closest substitutes for a firm’s products.

    • Consumer opinions. Market research can show the price that can be charged, what features of the product are valued most, where customers expect to buy the product and the most effective ways of promoting.

    • Market segment. Market research can show a firm how to reach its target market.


Other factors influencing the marketing mix
Other factors influencing the marketing mix demand (2)

  • the relative power of buyers and suppliers

  • the quality and popularity of the promotion

  • price elasticity of demand

  • the reputation of the business

  • the convenience of the location


Importance of an integrated marketing mix
Importance of an integrated marketing mix demand (2)

  • A good marketing mix needs to be coordinated so that each element supports the other parts of the mix. Examples of the importance of an integrated marketing mix include:

    • If the main selling point of a product is its excellence, the quality of the product must match consumers’ expectations. Consumers would also expect a high price and an upmarket place.

    • A supermarket would want its low-price, economy range of products to be packaged simply so that consumers can see that money is not wasted on packaging.

    • Promotion should focus on the USP (high quality, low price etc).

    • Efficient distribution (place) may enable a firm to keep costs and prices low, and the point of sale can be used to show the product and to promote it.


Marketing mix conclusion
Marketing mix: conclusion demand (2)

  • In most cases, all elements of the marketing mix are important, but each element may be crucial in particular situations:

    • The product is crucial because it must satisfy the consumer.

    • In a theatre, there may only be one type of bottled water available, so place is the most important factor.

    • A consumer with limited money may choose the item with the lowest price.

    • A very persuasive promotion may encourage purchase, particularly if the product is an impulse buy.


Coordinating the marketing mix with other business functions
Coordinating the marketing mix with other business functions demand (2)

  • The success of the marketing mix also depends on other functional areas of the business, such as operations, finance and people.

  • For example, if the marketing mix aims for an upmarket, quality image, it is vital that:

    • operations management ensures that higher-quality products are manufactured to meet this target

    • human resources management provides the training for staff so that better quality can be achieved

    • the finance department increases the budgets to allow better-quality materials and machinery to be purchased


Chapter 34

Chapter 34 demand (2)

Marketing andcompetitiveness


Markets and market structure
Markets and market structure demand (2)

  • market: a situation where buyers and sellers come together.

  • Some markets are very competitive with lots of small firms operating in them, each achieving only a small proportion of total market sales.

  • Other markets tend to be dominated by a few large firms, each achieving a significant proportion of the total market sales.


Market structure and the degree of competition
Market structure and the degree of competition demand (2)

  • In general, four different market structures explain the broad range of competitive environments in which most firms operate:

    • monopoly — only one supplier

    • oligopoly — a few suppliers

    • monopolistic competition — many suppliers

    • perfect competition — very many suppliers


Monopoly
Monopoly demand (2)

  • Key features

    • In theory, monopoly means a single producer within a market.

    • The legal definition is a firm with a market share of 25% or more.

    • The potential danger of monopolies is that they will exploit the consumer.

    • The government investigates them and can require them to change their behaviour and subject them to massive fines.


Monopoly and barriers to entry
Monopoly and barriers to entry demand (2)

  • Firms with more than 25% of the market continue to exist because it is extremely difficult for a new firm to enter the market of a monopolist owing to high barriers to entry.

  • Barriers to entry include:

    • the high capital costs required to set up a new business in large markets

    • patents that allow existing firms to ‘monopolise’ the market legally

    • the loyalty of customers to existing firms

    • the need for new firms to achieve large scale production quickly in order to be competitive


Oligopoly
Oligopoly demand (2)

  • oligopoly: a market dominated by a small number of large firms known as oligopolists.

  • Key features

    • Non-price competition. If one oligopolist reduces price, the others follow suit and so no firm gains. Therefore, rivalry is usually in the form of ‘non-price’ competition (e.g. special offers and advertising).

    • Cartels. This is a group of firms that come together to agree price and output levels within an industry. Cartels are illegal in the UK, but oligopolists may be tempted to form them to keep prices high.


Monopolistic competition
Monopolistic competition demand (2)

  • monopolistic competition: when a large number of firms are competing in a market, each having enough product differentiation to achieve a degree of monopoly power and therefore some control over the price it charges.

  • Examples are hairdressers, cafés and gyms.

  • It is easy for a new firm to enter this type of market because the set-up costs tend to be relatively low and the nature of the market is such that there is a constant flow of businesses.


Perfect competition
Perfect competition demand (2)

  • perfect competition: where there are a large number of sellers and buyers, all of whom are too small to influence the price of the product.

  • Key features

    • All the sellers produce homogeneous (identical) products.

    • Sellers are ‘price takers’ — they accept the ruling market price.

    • The buyers all have perfect knowledge.

    • There is freedom of entry into and exit from the market for firms.


Monopoly and the marketing mix
Monopoly and the marketing mix demand (2)

  • How does monopoly affect the marketing mix?

    • Product. With only one organisation in the market, there is little need for new product development.

    • Price. Monopolies are price leaders/setters and can take advantage of the lack of competition in the market in order to set very high prices.

    • Promotion. There are high barriers to entry in monopoly, so it is unlikely that new competition can emerge. Therefore, promotion will mainly be informative,i.e. geared towards ensuring that customers are aware of the product and its benefits, rather than persuasive.

    • Place. This is a relatively important element of the marketing mix because customers will be less likely to purchase products or services that are not conveniently located.


Oligopoly and the marketing mix
Oligopoly and the marketing mix demand (2)

  • How does oligopoly affect the marketing mix?

    • Product. The product is crucial to success because a unique selling point can be achieved.

    • Price. Although price wars are a feature of oligopoly markets, price does not tend to be the main element of the marketing mix because price wars lead to all oligopolists losing profit.

    • Promotion. Promotion is important in oligopoly because it is one of the major ways in which product differentiation and unique selling points can be achieved.

    • Place. Place is also important in oligopolistic markets, as consumers will prefer easy access to the product.


Monopolistic competition and the marketing mix
Monopolistic competition and the marketing mix demand (2)

  • How does monopolistic competition affect the marketing mix?

    • Product. Product is vital in monopolistic competition, as it is the critical way in which a business can make its marketing mix different from the competition. However, the vast number of competitors in this market makes it difficult to achieve a completely distinctive product.

    • Price. Firms accept that prices tend to be very similar and use other mechanisms to compete.

    • Promotion. The need to be price competitive is likely to limit promotional budgets in monopolistic competition. Therefore, it is less significant than in markets such as oligopoly, although more important than promotion would be in a monopoly market.

    • Place. Monopolistic competition features many small firms. Place can be very important, as consumers want convenience.


Perfect competition and the marketing mix
Perfect competition and the marketing mix demand (2)

  • To a large extent perfect competition is a theoretical model, rather than one that exists in the real world. Because all products are identical and firms are price takers, there can be no distinction in products and prices between different firms competing in a perfect market. Consequently, there is also no point in promoting a product that cannot be distinguished from competition.


Competitiveness
Competitiveness demand (2)

  • competitiveness: the ability of firms to sell their products successfully within the market in which they are based.

  • What factors affect the competitiveness of a business?

  • Identify one business that appears to be losing market share.

  • Identify one business that seems to be competing successfully.

  • What are the key reasons for the changes in competitiveness of these two businesses?

  • Compare your answers to the main determinants of competitiveness found in government surveys (see the next slide).


Determinants of competitiveness
Determinants of competitiveness demand (2)

  • According to government surveys, the main factors influencing competitiveness are:

    • investment in new equipment and technology

    • staff skills, education and training

    • innovation through investment in research and development

    • enterprise


Other factors determining competitiveness
Other factors determining competitiveness demand (2)

  • Other factors that determine competitiveness, and which are within the control of a business, are:

    • the effectiveness of the marketing mix

    • incentive schemes for staff

    • improvements to operational procedures

    • quality procedures

    • financial planning and control


Methods of improving competitiveness
Methods of improving competitiveness demand (2)

  • How can a business improve its competitiveness?

  • The AQA AS business studies specification highlights four main ways, but there are potentially many more different ways.

  • In small groups, give a presentation to the group on how one of the four (AQA) factors listed below might improve competitiveness:

    • marketing

    • reducing costs

    • Improving quality

    • staff training


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