Chapter 10: Marketing, Competition and Customer

Market : It consists of all buyers and sellers of a particular good.

Marketing: marketing is the management process responsible for identifying,

anticipating and satisfying consumers’ requirements profitably.

The role of marketing in a business is as follows:

- Identifying customer needs through market research

- Satisfying customer needs by producing and selling goods and services

- Maintaining customer loyalty: building customer relationships through a

variety of methods that encourage customers to keep buying one firm’s
products instead of their rivals’. For example, loyalty card schemes, discounts
for continuous purchases, after-sales services, messages that inform past
customers of new products and offers etc.

- Gain information on customers: by understanding why customers buy their

products, a firm can develop and sell better products in the future

- Anticipate changes in customer needs: the business will need to keep looking
for any changes in customer spending patterns and see if they can produce
goods that customers want that are not currently available in the market.

Some objectives of the marketing department in a firm may have:

- Raise awareness of their product(s)

- Increase sales revenue and profits

- Increase or maintain market share (this is the proportion of sales a company

has in the overall market sales. For example, if in a market, $1 million worth of
 toys were sold in a year and company A’s total sales was $30,000 in that year,
company A’s market share for the year is ($300,000/ $1000000) *100 = 30%)

- Enter new markets at home or abroad

- Develop new products or improve existing products.

Why customer spending patterns may change:

- change in their tastes and preferences

- change in technology: as new technology becomes available, the old versions

of products become outdated and people want more sophisticated features
on products

- change in income: the higher the income, the more expensive goods
consumers will buy and vice versa

- ageing population: in many countries, the proportion of older people is

increasing and so demand for products for seniors are increasing (such as
anti-ageing creams, medical assistance etc.)

The power and importance of changing customer needs:

Firms need to always know what their consumers want (and they will need to
undertake lots of research and development to do so) in order to stay ahead of
competitors and stay profitable. If they don’t produce and sell what customers want,
they will buy competitors’ products and the firm will fail to survive.

Why some markets have become more competitive:

- Globalisation: products are being sold in markets all over the world, so there
are more competitors in the market

- Improvement in transportation infrastructures: better transport systems

means that it is easier and cheaper to distribute and sell products everywhere
 - Internet/E-Commerce: customers can now buy products over the internet
form anywhere in the world, making the market more competitive

How business can respond to changing spending patterns and increased

competition:

A business has to ensure that it maintains its market share and remains competitive
in the market. It can ensure this by:

- maintaining good customer relationships: by ensuring that customers keep

buying from their business only, they can keep up their market share. By
doing so, they can also get information about their spending patterns and
respond to their wants and needs to increase market share

- keep improving its existing products, so that sales is maintained.

- introduce new products to keep customers coming back, and drive them
away from competitors’ products

- keep costs low to maintain profitability: low costs means the firm can afford
to charge low prices. And low prices generally means more demand and
sales, and thus market share.

Niche & Mass Marketing

Niche Marketing: identifying and exploiting a small segment of a larger market by

developing products to suit it. For example, Versace designs and Clique perfumes
have niche markets- the rich, high-status consumer group.

Advantages:

- Small firms can thrive in niche markets where large forms have not yet been
established
 - If there are no or very few competitors, firms can sell products at a high price
and gain high profit margins because customers will be willing be willing to
pay more for exclusive products
- Firms can focus on the needs of just one customer group, thereby giving them
an advantage over large firms who only sell to the mass market

Limitations:

- Lack of economies of scale (can’t benefit from the lower costs that arise from
a larger operations/market)

- Risk of over-dependence on a single product or market: if the demand for the

product falls, the firm won’t have a mass product they can fall back on

- Likely to attract competition if successful

Mass Marketing: selling the same product to the whole market with no attempt to
target groups within it. For example, the iPhone sold is the same everywhere, there
are no variations in design over location or income.

Advantages:

- Larger amount of sales when compared to a niche market

- Can benefit from economies of scale: a large volume of products are

produced and so the average costs will be low when compared to a niche
market

- Risks are spread, unlike in a niche market. If the product isn’t successful in
one market, it’s fine as there are several other markets

- More chances for the business to grow since there is a large market. In niche
markets, this is difficult as the product is only targeted towards a particular
group.

Limitations:
 - They will have to face more competition
- Can’t charge a higher price than competition because they’re all selling
similar products

Market Segmentation

A market segment is an identifiable subgroup of a larger market in which

consumers have similar characteristics and preferences

Market segmentation is the process of dividing a market of potential customers into

groups, or segments, based on different characteristics. For example, PepsiCo
identified the health-conscious market segment and targeted/marketed the Diet
Coke towards them.

Markets can be segmented on the basis of socio-economic groups (income), age,

location, gender, lifestyle, use of the product (home/ work/ leisure/ business) etc.
Each segment will require different methods of promotion and distribution. For
example, products aimed towards kids would be distributed through popular retail
stores and products for businessmen would be advertised in exclusive business
magazines.

Advantages:

- Makes marketing cost-effective, as it only targets a specific segment and

meets their needs.

- The above leads to higher sales and profitability

- Increased opportunities to increase sales

Chapter 11: Market Research

Product-oriented business: such firms produce the product first and then tries to
find a market for it. Their concentration is on the product – its quality and price.
Firms producing electrical and digital goods such as refrigerators and computers are
examples of product-oriented businesses.

Market-oriented businesses: such firms will conduct market research to see what
consumers want and then produce goods and services to satisfy them. They will set
a marketing budget and undertake the different methods of researching consumer
tastes and spending patterns, as well as market conditions. Example, mobile phone
markets.

Market research is the process of collecting, analysing and interpreting information

about a product.

Why is market research important/needed?

Firms need to conduct market research in order to ensure that they are producing
goods and services that will sell successfully in the market and generate profits. If
they don’t, they could lose a lot of money and fail to survive. Market research will
answer a lot of the business’s questions prior to product development such as ‘will
customers be willing to buy this product?’, ‘what is the biggest factor that influences
customers’ buying preferences- price or quality?’, ‘what is the competition in the
market like?’ and so on.

Market research data can be quantitative (numerical-what percentage of teenagers

in the city have internet access) or qualitative (opinion/ judgement- why do more
women buy the company’s product than men?)

Market research methods can be categorized into two: primary and secondary
market research.
Primary Market Research (Field Research)

The collection of original data. It involves directly collecting information from

existing or potential customers. First-hand data is collected by people who want to
use the data (i.e. the firm). Examples of primary market research methods include
questionnaires, focus groups, interviews, observation, and online surveys and so on.

The process of primary research:

1. Establish the purpose of the market research

2. Decide on the most suitable market research method
3. Decide the size of the sample (customers to conduct research on) and
identify the sample
4. Carry out the research
5. Collate and analyse the data
6. Produce a report of the findings

Sample is a subset of a population that is used to represent the entire group as a

whole. When doing research, it is often impractical to survey every member of a
particular population because the number of people is simply too large. Selecting a
sample is called sampling.

Random sampling: It occurs when people are selected at random for research

Quota sampling:It is when people are selected on the basis of certain

characteristics (age, gender, location etc.) for research.

Methods of primary research

● Questionnaires: Can be done face-to-face, through telephone, post or the

internet. Online surveys can also be conducted whereby researchers will
 email the sample members to go onto a particular website and fill out a
questionnaire posted there. These questions need to be unbiased, clear and
easy to answer to ensure that reliable and accurate answers are logged in.

Advantages:

- Detailed information can be collected

- Customer’s opinions about the product can be obtained
- Online surveys will be cheaper and easier to collate and analyse
- Can be linked to prize draws and prize draw websites to encourage customers
to fill out surveys

Disadvantages:

- If questions are not clear or are misleading, then unreliable answers will be
given
- Time-consuming and expensive to carry out research, collate and analyse
them.
​

Interviews: interviewer will have ready-made questions for the interviewee.

Advantages:

- Interviewer is able to explain questions that the interviewee doesn’t

understand and can also ask follow-up questions
- Can gather detailed responses and interpret body-language, allowing
interviewers to come to accurate conclusions about the customer’s opinions.

Disadvantages:
 - The interviewer could lead and influence the interviewee to answer a certain
way. For example, by rephrasing a question such as ‘Would you buy this
product’ to ‘But, you would definitely buy this product, right?’ to which the
customer in order to appear polite would say yes when in actuality they
wouldn’t buy the product.
- Time-consuming and expensive to interview everyone in the sample

Focus Groups: A group of people representative of the target market (a focus group)
agree to provide information about a particular product or general spending
patterns over time. They can also test the company’s products and give opinions on
them.

Advantage:

- They can provide detailed information about the consumer’s opinions

Disadvantages:

- Time-consuming
- Expensive
- Opinions could be influenced by others in the group.

● Observation: This can take the form of recording (eg: metres fitted to TV
screens to see what channels are being watched), watching (eg: counting how
many people enter a shop), auditing (e.g.: counting of stock in shops to see
which products sold well).

Advantage:
 - Inexpensive

Disadvantage:

- Only gives basic figures. Does not tell the firm why the consumer buys them.

Secondary Market Research (Desk Research)

The collection of information that has already been made available by others.
Second-hand data about consumers and markets is collected from already
published sources.

Internal sources of information:

● Sales department’s sales records, pricing data, customer records, sales

reports
● Opinions of distributors and public relations officers
● Finance department
● Customer Services department

External sources of information:

● Government statistics: will have information about populations and age

structures in the economy.
● Newspapers: articles about economic conditions and forecast spending
patterns.
● Trade associations: if there is a trade association for a particular industry, it
will have several reports on that industry’s markets.
● Market research agencies: these agencies carry out market research on
behalf of the company and provide detailed reports.
● Internet: will have a wide range of articles about companies, government
statistics, newspapers and blogs.
Accuracy of Market Research Data

The reliability and accuracy of market research depends upon a large number of
factors:

● How carefully the sample was drawn up, its size, the types of people selected
etc.
● How questions were phrased in questionnaires and surveys
● Who carried out the research: secondary research is likely to be less reliable
since it was drawn up by others for different purpose at an earlier time.
● Bias: newspaper articles are often biased and may leave out crucial
information deliberately.
● Age of information: researched data shouldn’t be too outdated. Customer
tastes, fashions, economic conditions, technology all move fast and the old
data will be of no use now.

Presentation of Data from Market Research

Different data handling methods can be used to present data from market research.
This will include:

- Tally Tables: used to record data in its original form. The tally table below
shows the number and type of vehicles passing by a shop at different times of
the day:
- Charts: show the total figures for each piece of data (bar/ column charts) or
the proportion of each piece of data in terms of the total number (pie charts).
For example the above tally table data can be recorded in a bar chart as
shown below:

The pie chart above could show a company’s market share in different
countries.
 - Graphs: used to show the relationship between two sets of data. For example
how average temperature varied across the year.

Chapter 12 : Product
Product: It is the good or service being produced and sold in the market. This
includes all the features of the product as well as its final packaging.

Types of products include: consumer goods, consumer services, producer goods,

producer services.

What makes a successful product?

- It satisfies existing needs and wants of the customers

- It is able to stimulate new wants from the consumers
- Its design – performance, reliability, quality etc. should all be consistent with
the product’s brand image
- It is distinctive from its competitors and stands out
- It is not too expensive to produce, and the price will be able to cover the costs
New Product Development: development of a new product by a business. The
process:

1. Generate ideas: the firm brainstorms new product concepts, using customer
suggestions, competitors’ products, employees’ ideas, sales department data
and the information provided by the research and development department
2. Select the best ideas for further research: the firm decides which ideas to
abandon and which to research further. If the product is too costly or may not
sell well, it will be abandoned
3. Decide if the firm will be able to sell enough units for the product to be a
success: this research includes looking into forecast sales, size of market
share, cost-benefit analysis etc. for each product idea, undertaken by the
marketing department
4. Develop a prototype: by making a prototype of the new product, the
operations department can see how the product can be manufactured, any
problems arising from it and how to fix them. Computer simulations are
usually used to produce 3D prototypes on screen
5. Test launch: the developed product is sold to one section of the market to see
how well it sells, before producing more, and to identify what changes need
to be made to increase sales. Today a lot of digital products like apps and
software run beta versions, which is basically a market test
6. Full launch of the product: the product is launched to the entire market

Advantages: Of new product development

- Can create a Unique Selling Point (USP) by developing a new innovative

product for the first time in the market. This USP can be used to charge a high
price for the product as well as be used in advertising.
- Charge higher prices for new products (price skimming as explained later)
- Increase potential sales, revenue and profit
- Helps spreads risks because having more products mean that even if one
fails, the other will keep generating a profit for the company
Disadvantages:

- Market research is expensive and time consuming

- Investment can be very expensive

Why is brand image important?

- Brand image is an identity given to a product that differentiates it from

competitors’ products.
- Brand loyalty is the tendency of customers to keep buying the same brand
continuously instead of switching over to competitors’ products.
- Consumers recognize the firm’s product more easily when looking at similar
products- helps differentiate the company’s product from another.
- Their product can be charged higher than less well-known brands – if there is
an established high brand image, then it is easier to charge high prices
because customers will buy it nonetheless.
- Easier to launch new products into the market if the brand image is already
established. Apple is one such company- their brand image is so reputed that
new products that they launch now become an immediate success.

Why is packaging important?

- It protects the product

- It provides information about the product (its ingredients, price,
manufacturing and expiry dates etc.)
- To help consumers recognize the product (the brand name and logo on the
packaging will help identify what product it is)
- It keeps the product fresh
PLC:

The product life cycle refers to the stages a product goes through from it’s
introduction to it’s retirement in terms of sales.

At these different stages, the product will need different marketing

decisions/strategies in terms of the 4Ps.
Extension strategies: marketing techniques used to extend the maturity stage of a
product (to keep the product in the market):

- Finding new markets for the product

- Finding new uses for the product
- Redesigning the product or the packaging to improve its appeal to consumers
- Increasing advertising and other promotional activities

The effect on the PLC of a product of a successful extension strategy:

Price

Price is the amount of money producers are willing to sell or consumer are willing to
buy the product for.

Different methods of pricing:

● Market skimming: Setting a high price for a new product that is unique or
very different from other products on the market.

Advantages:

○ Profit earned is very high

 ○ Helps recover/compensate research and development costs

Disadvantage:

○ It may backfire if competitors produce similar products at a lower

price
● Penetration pricing: Setting a very low price to attract customers to buy a
new product

Advantages:

○ Attracts customers more quickly

○ Can increase market share quickly

Disadvantages:

○ Low revenue due to lower prices

○ Cannot recover development costs quickly
● Competitive pricing: Setting a price similar to that of competitors’ products
which are already available in the market

Advantage:

○ Business can compete on other matters such as service and quality

Disadvantage:

○ Still need to find ways of competing to attract sales.

● Cost plus pricing: Setting price by adding a fixed amount to the cost of
making the product
Advantages:

○ Quick and easy to work out the price

○ Makes sure that the price covers all of the costs

Disadvantage:

○ Price might be set higher than competitors or more than customers

are willing to pay, which reduces sales and profits
● Loss leader pricing/Promotional pricing: Setting the price of a few products
at below cost to attract customers into the shop in the hope that they will buy
other products as well

Advantages:

○ Helps to sell off unwanted stock before it becomes out of date

○ A good way of increasing short term sales and market share

Disadvantage:

○ Revenue on each item is lower so profits may also be lower

Factors that affect what pricing method should be used:

● Is it a new or existing product?

If it’s new, then price skimming or penetration pricing will be most suitable. If
it’s an existing product, competitive pricing or promotional pricing will be
appropriate.
● Is the product unique?
If yes, then price skimming will be beneficial, otherwise competitive or
promotional pricing.
● Is there a lot of competition in the market?
If yes, competitive pricing will need to be used.
 ● Does the business have a well-known brand image?
If yes, price skimming will be highly successful.
● What are the costs of producing and supplying the product?
If there are high costs, costs plus pricing will be needed to cover the costs. If
costs are low, market penetration and promotional pricing will be
appropriate.
● What are the marketing objectives of the business?
If the business objective is to quickly gain a market share and customer base,
then penetration pricing could be used. If the objective is to simply maintain
sales, competitive pricing will be appropriate.

Price Elasticity

The PED of a product refers to the responsiveness of the quantity demanded for it
to changes in its price.

PED (of a product) = % change in quantity demanded / % change in price

When the PED is >1, that is there is a higher % change in demand in response to a
change in price, the PED is said to be elastic.

When the PED is <1, that is there is a lower % change in demand in response to a
change in price, the PED is said to be inelastic.

Producers can calculate the PED of their product and take suitable action to make
the product more profitable.

If the product is found to have an elastic demand, the producer can lower prices to
increase profitability. The law of demand states that a fall in price increases the
demand. And since it is an elastic product (change in demand is higher than change
in price), the demand of the product will increase highly. The producers get more
profit.
If the product is found to have an inelastic demand, the producer can raise prices
to increase profitability. Since quantity demanded wouldn’t fall much as it is
inelastic, the high prices will make way for higher revenue and thus higher profits.

For a detailed explanation about PED, click here

Place

Place refers to how the product is distributed from the producer to the final
consumer. There are different distribution channels that a product can be sold
through.

Distribution Disadvantage
Explanation Advantages
Channel s

– Delivery
– All of the profit is
costs may be
The product is sold to earned by the
high if there
the consumer straight producer
are customers
from the
Manufactur over a wide
manufacturer. A good – The producer
er area
example is a factory controls all parts of
outlet where products the marketing mix
to – All storage
directly arrive at their
Consumer costs must be
own shop from the – Quickest method
paid for by the
factory and are sold to of getting the
producer
customers. product to the
consumer
– All
promotional
 activities
must be
carried out
and financed
by the
producer

– The retailer
takes some of
the profit
away from the
producer
– The cost of
The manufacturer will
holding inventories – The
sell its products to a
of the product is producer
retailer (who will have
paid by the retailer loses some
stocks of products
control of the
Manufactur from other
– The retailer will marketing
er to manufacturers as
pay for advertising mix
Retailer well) who will then
and other
sell them to
promotional – The
to customers who visit
activities producer
Consumer the shop. For example,
must pay for
brands like Sony,
– Retailers are more delivery of
Canon and Panasonic
conveniently products to
sell their products to
located for the retailers
various retailers.
consumers
– Retailers
usually sell
competitors’
products as
well
 The manufacturer will – Another
sell large volumes of middleman is
its products to a added so
wholesaler more profit is
Manufactur – Wholesalers will
(wholesalers will have taken away
er to advertise and
stocks from different from the
Wholesaler promote the
manufacturers). producer
product to retailers
Retailer will buy small
to Retailer
quantities of the – The
– Wholesalers pay
product from the producer
to for transport and
wholesaler and sell it loses even
Consumer storage costs
to the consumers. One more control
good example is the of the
distribution of marketing
medicinal drugs. mix

The manufacturer will

sell their products to
an agent who has
Manufactur
specialized
er
information about the
market and will know – Another
to Agent
the best wholesalers middleman is
– The agent has
to sell them to. This is added so even
to specialised
common when firms more profit is
Wholesaler knowledge of the
are exporting their taken away
market
products to a foreign from the
to Retailer
country. They will producer
need a
to
knowledgeable agent
Consumer
to take care of the
products’ distribution
in another country
What affects place decisions?

● The type of product it is: if it’s sold to producers of other goods, distribution
would either be direct (specialist machinery) or wholesaler (nuts, bolts,
screws etc.).
● The technicality of the product: as lots of technical information needs to be
passed to the customer, direct selling is usually preferred.
● How often the product is purchased: if the product is bought on a daily basis,
it should be sold through retail stores that customers can easily access.
● The price of the product: if the products is an expensive, luxury good, it
would only be sold through a few specialist, high-end outlets For example,
luxury watches and jewellery.
● The durability of the product: if it’s an easily perishable product like fruits, it
will need to be sold through a wide amount of retailers to be sold quickly.
● Location of customers: the products should be easily accessible by its
customers. If customers are located over the world, e-commerce (explained
below) will be required.
● Where competitors sell their product: in order to directly compete with
competitors, the products need to be sold where competitors are selling too.

Promotion

Promotion: marketing activities used to communicate with customers and

potential customers to inform and persuade them to buy a business’s products.

Aims of promotion:

● Inform customers about a new product

● Persuade customers to buy the product
● Create a brand image
● Increase sales and market share

Types of promotion
 ● Advertising: Paid-for communication with consumers which uses printed
and visual media like television, radio, newspapers, magazines, billboards,
flyers, cinema etc. This can be informative (create product awareness) or
persuasive (persuade consumers to buy the product). The process of
advertising:

● Sales Promotion: using techniques such as ‘buy one get one free’, occasional
price reductions, free after-sales services, gifts, competitions, point-of–sale
displays (a special display stand for a product in a shop), free samples etc. to
encourage sales.
● Below-the-line promotion: promotion that is not paid for communication
but uses incentives to encourage consumers to buy. Incentives include
money-off coupons or vouchers, loyalty reward schemes, competitions and
games with cash or other prizes.
● Personal selling: sales staff communicate directly with consumer to achieve
a sale and form a long-term relationship between the firm and consumer.
● Direct mail: also known as mailshots, printed materials like flyers,
newsletters and brochures which are sent directly to the addresses of
customers.
● Sponsorship: payment by a business to have its name or products associated
with a particular event. For example Emirates is Spanish football club Real
Madrid’s jersey sponsor- Emirates pays the club to be its sponsor and gains a
high customer awareness and brand image in return.

What affects promotional decisions?

● Stage of product on the PLC: different stages of the PLC will require different
promotional strategies; see above.
● The nature of the product: If it’s a consumer good, a firm could use
persuasive advertising and use billboards and TV commercials. Producer
goods would have bulk-buy-discounts to encourage more sales. The kind of
 product it is can affect the type of advertising, the media of advertising and
the method of sales promotion.
● The nature of the target market: a local market would only need small
amounts of advertising while national markets will need TV and billboard
advertising. If the product is sold to a mass market, extensive advertising
would be needed. But niche market products such as water skis would only
need advertising in special sports and lifestyle magazines.
● Cost-effectiveness: the amount of money put into promotion (out of the
total marketing budget) should be not too much that it fails to bring in the
sales revenue enough to cover those costs at least. Promotional activities are
highly dependent on the budget.
Technology and the Marketing Mix

It is also worth noting that the internet/ e-commerce is now widely used to
distribute products. E-Commerce is the use of the internet and other technologies
used by businesses to market and sell goods and services to customers. Examples of
e-commerce include online shopping, internet banking, online ticket-booking,
online hotel reservations etc.

Websites like Amazon and e-Bay act as online retailers.

Online selling is favoured by producers because it is cheaper in the long-run and

they can sell products to a larger customer base/ market. However there will be
increased competition from lots of producers.

Consumers prefer online shopping because there are wider choices of detailed
products that are also cheaper and they can buy things at their own convenience
24×7. However, there is no personal communication with the producer and online
security issues may occur.

However, e-commerce means an entire new type of marketing strategy is also

required – online promotions, new channel of distribution, new pricing strategies
(since price competition in e-commerce is very high and demand is very price
elastic). It requires a lot of money to set up – online websites, promotions, web
developers and technicians to run and maintain the system etc.

The internet is also used for promotion and advertising of products in the form of
paid social media ads and sponsors, pop-ups, email newsletters etc. It helps reach
target customers, is relatively cheap and helps the firm respond to market
changes quicker(since online ads can be easily altered/updated rather than
billboards and TV ads). But it can alienate and chase customers away if they see it
too frequently and find it annoying. There is also the risk of the adverts being
publicised negatively if it has annoying or offensive content that customers quickly
criticise (since content is more easily shareable online).