Unit 3 Marketing

LESSON 16
WHAT IS
CAMBRIDGE INTERNATIONAL AS LEVEL
MARKETING 9609
LESSON OBJECTIVES

 understand what marketing is and the role of marketing in modern societies

 analyze the relationship between marketing, corporate objectives and other
functional departments
 analyze the relationship between demand, supply and price
 recognize the difference between market orientation and product orientation
 assess the main features of markets, such as growth, share and competitors
 understand the distinction between consumer and industrial markets
 evaluate the relative advantages of mass and niche marketing
 assess the significance of market segmentation and how this might be achieved
INTRODUCTION
 Most people think of marketing as just being about advertising and selling of products.

 This is a very limited view – marketing embraces much more than just telling people
about a product and selling it to them.
 There are thousands of definitions of marketing – each textbook seems to think of a
new one.
 One of the shortest and clearest is from the Chartered Institute of Marketing:

 Marketing is the management process responsible for identifying, anticipating and

satisfying consumers’ requirements profitably.
 Marketing: the management task that links the business to the customer by
identifying and meeting the needs of customers profitably – it does this by
getting the right product at the right price to the right place at the right
time.
DEFINITION OF MARKETING
 Marketing is the process of planning and undertaking the conception, pricing,
promotion and distribution of goods and services to create and maintain relationships
that will satisfy individual and organizational objectives.
 Marketing involves a number of related management functions. These include:
 market research
 product design
 Pricing
 Advertising
 Distribution
 Customer service
 Packaging
 RELATED CONCEPTS- MARKETS
 This term is vital to achieve an understanding of marketing. It has two rather different
meanings.
 Perhaps the most obvious meaning is the ‘place or mechanism where buyers and sellers
meet to engage in exchange’. The weekly fruit and vegetable market would be one
example of this. Shopping centres and auctions are other examples of markets.
 Increasingly, there is no physical place in the sense of a geographical location. The use of the
internet as a marketing tool has meant that a market can exist electronically with no physical
meeting between buyer and seller.
 The term market also refers to the group of consumers that is interested in a product,
has the resources to purchase the product and is permitted by law to purchase it. It can be
broken down into different definitions.
 For example, the potential market for a product is the total population interested in the
product. The target market is the segment of the available market that the business
has decided to serve by directing its product towards this group of people.
HUMAN NEEDS AND WANTS
 A human need is a basic requirement that an individual wishes to satisfy. Physical
needs include food, clothing and shelter. Individual needs include desires for
knowledge, recognition, affection, self-esteem and self-expression, e.g. through the
clothes people wear.
 Wants are broader in their perspective. They are things we do not need for our
survival as biological creatures, but they do satisfy certain requirements or individual
needs of most human beings.
 Wants are often described as being goods and services that fulfil the needs of
individual consumers.
 Many marketing managers believe that it is their aim to convert human needs into
wants by very persuasive product imagery through advertising.
VALUE AND SATISFACTION
 Do cheap goods always offer good value? Do expensive goods always provide
consumer satisfaction?
 A consumer will consider a product to be of good value if it provides satisfaction at what is
thought to be a reasonable price. Customer satisfaction is not always obtained with very
expensive products – a good might be so expensive that, although it performs its function
well, the consumer believes that ‘good value’ has not been received.
 Two examples will help to support these points:

 1. A consumer who is very hungry may be looking to eat in a top-class restaurant. If none is
open, and he decides to eat in a pizza café, the meal may be not as good as in a top-class
restaurant but because it is much cheaper, it might still provide value and, therefore,
customer satisfaction.
 2. A very expensive car may perform well, but once it is purchased the consumer may have a
sense of disappointment if he feels that it is actually too expensive for ‘what it offers’. There
will be no sense of good value and no long-term consumer satisfaction.
MARKETING OBJECTIVES AND CORPORATE
OBJECTIVES
EXAMPLES OF MARKETING OBJECTIVES INCLUDE AN
INCREASE IN:
TO BE EFFECTIVE, MARKETING OBJECTIVES SHOULD:

 fit in with the overall aims and mission of the business − the marketing objectives
should reflect the aims of the
whole organization and they should attempt to aid the achievement of these
 be determined by senior management − the key marketing objectives will determine
the markets and products a business trades in for years to come and these issues
must be dealt with by managers at a very senior level in the company
 be realistic, motivating, achievable, measurable and clearly communicated to all
departments in the organization
WHY ARE MARKETING OBJECTIVES IMPORTANT?
 They provide a sense of direction for the marketing department.

 Progress can be monitored against these targets.

 They can be broken down into regional and product sales targets to allow for
management by objectives.
 They form the basis of marketing strategy. These marketing objectives will have a
crucial impact on the marketing strategies adopted, as without a clear vision of what the
business hopes to achieve for its products, it will be pointless discussing how it should
market them. Examples of marketing strategies, which are explained later in this book,
include:
 Penetrating existing markets more fully – selling more to existing and new customers.

 Entering new markets – e.g. in other countries.

 Developing new, or updating existing, products

  This is vital. The links between the marketing
department and other functional departments –
such as finance, operations (production) and
COORDINATI human resources are an essential component of a
successful marketing strategy. As most business
ON OF decisions will be focused around achieving the
central marketing objectives, such as increasing
MARKETING sales and profits, it is inevitable that the marketing
department will have a central role in coordinating
WITH OTHER the work of other departments to help achieve
DEPARTMENT these marketing objectives.

S
 Finance
 human resources
 operations
MARKET ORIENTATION AND PRODUCT ORIENTATION

 Market orientation: an outward-looking approach basing product decisions on consumer

demand, as established by market research.
 Market orientation gives a business customer focus.

 This approach requires market research and market analysis to indicate present and future
consumer demand. The consumer is put first. The business will attempt to produce what
consumers want rather than try to sell them a product they may not really want to buy. It has
certain important advantages, especially in fast-changing, volatile consumer markets.
 In these cases, increasing consumer awareness of competitors’ products, prices and image
can result in significant fluctuations in popularity of goods and services customer focus.
  The chances of newly developed products failing
in the market are much reduced – but not
eliminated
 If consumer needs are being met with appropriate
products, then they are likely to survive longer
MARKET and make higher profits than those that are being
sold following a product-led approach.
ORIENTATION  Constant feedback from consumers – market
BENEFITS research never actually ends – will allow the
product and how it is marketed to be adapted to
changing tastes before it is too late and before
competitors ‘get there first’. Compare the market-
orientation concept with that of product
orientation (or product-led businesses)
PRODUCT ORIENTATION
EVALUATION OF
THESE TWO
APPROACHES
 The trend then is towards
market orientation, but there
are limitations.
 If a business attempts to
respond to every passing
consumer trend or market
fashion, then it may well over-
stretch its resources and end up
not doing anything particularly
well.
A THIRD WAY
– BETWEEN
MARKET AND
PRODUCT
ORIENTATION
– IS CALLED
ASSET-LED
MARKETING
SOCIETAL
MARKETING
THE SOCIETAL-MARKETING CONCEPT HAS THE
FOLLOWING IMPLICATIONS:

 It is an attempt to balance three concerns: company profits, customer wants and

society’s interests.
 There may be a difference between short-term consumer wants (low prices) and long-term
consumer and social welfare (protecting the environment or paying workers reasonable
wages). Societal marketing considers long-term welfare.
 Businesses should still aim to identify consumer needs and wants and to satisfy these more
efficiently than competitors do – but in a way that enhances consumers’ and society’s welfare.
 Using this concept could give a business a significant competitive advantage. Many consumers
prefer to purchase products from businesses that are seen to be socially responsible.
 A societal-marketing strategy, if successful, could lead to the firm being able to charge higher
prices for its products as benefiting society becomes a ‘unique selling point’
DEMAND, SUPPLY AND PRICE RELATIONSHIP
DEMAND

 This varies with price – for all normal goods the quantity bought
rises with a price fall and the quantity bought falls with a price
increase. This is shown by a demand curve (see Figure).
 Apart from price changes – which cause a new position on the
demand curve as shown in Figure – the level of demand for a
product can vary due to a change in any of these determinants
of demand:
 changes in consumers’ incomes
 changes in the prices of substitute goods and complementary
goods
 changes in population size and structure
 fashion and taste changes
 advertising and promotion spending
 All of these changes above lead to a new demand curve
SUPPLY
 This varies with price – firms will be more willing to supply a
product if the price rises and will supply less as the price falls.
This is shown in Figure 16.3 .
 Apart from changes in price – which cause a new position on the
supply curve as shown above the level of supply of a product can
vary due to a change in any of these determinants of supply:
 costs of production, e.g. change in labour or raw material costs
 taxes imposed on the suppliers by government, which raise their
costs
 subsidies paid by government to suppliers, which reduce their
costs weather conditions and other natural factors
 advances in technology to make cost of production lower.
 All of these changes above lead to a new supply curve (see
Figure 16.4).
 So, for example, the supply of rice will be reduced af er very poor
weather in the major growing areas. This leads to S2
ACTIVITY
DETERMINING
THE
EQUILIBRIUM
PRICE
 When demand and
supply are combined,
the equilibrium price
will be determined.
 This will be at the
point where demand
= supply. Equilibrium price: the market
 This is shown in price that equates supply and
Figure 16.5. demand for a product
  If the price were higher than this, there would be
unsold stocks – excess supply.
EQUILIBRIUM  Suppliers do not want this, so will lower the price. If
the price is lower than the equilibrium, then stocks
PRICE will run out – leaving excess demand. Suppliers
could make a higher profit by raising the price – to
the equilibrium level.
FEATURES OF MARKETS: LOCATION, SIZE, GROWTH,
SHARE AND COMPETITORS

 Successful marketing requires firms to understand which market they are operating in, who
their consumers are and where they are located, whether the market is growing or shrinking,
what the business’s share of that market is and the major competitors.
 Market location- Some businesses just operate locally – they sell products to consumers in
the area where the business is located. Firms that usually just sell in these local markets
include laundries, florist shops, hairdressers and bicycle-repair shops.
 Regional markets obviously cover a larger geographical area and businesses that have been
successful locally often expand into the region or county so that they can increase sales.
 International markets of er the greatest sales potential, of course. The rapid rise of
multinationals that operate and sell in many different national markets illustrates the sales
potential from exploiting international markets.
MARKET SIZE

 Market size- Th is can be measured in two ways: volume of sales (units sold) or
value of goods sold (revenue).
 The size of a market is important for three reasons:

 1. A marketing manager can assess whether a market is worth entering or not.

 2. Firms can calculate their own market share.

 3. Growth or decline of the market can be identified

MARKET GROWTH

 Market growth: the percentage change in the total size of a market (volume or
value) over a period of time.
 Some markets are obviously growing faster than others; some, such as desk top personal
computers, are declining rapidly. Is it always better to be operating in a rapidly growing
market? In many cases, yes, but not always – there might be many competitors entering
the market at the same time so profits might not be high.
 The pace of growth will depend on several factors, such as general economic growth,
changes in consumer incomes and development of new markets and products that take
sales away from existing ones, changes in consumer tastes and factors, such as
technological change, which can boost market sales when an innovation becomes
available.
  ‘Firm’s sales’ and ‘total market sales’ can be
measured in either units (volume) or sales
value in this market. Market share, and
MARKET SHARE increases in it, is often the most effective
way to measure the relative success of one
business’s marketing strategy against that
of its competitors.
 If a firm’s market share is increasing, then
the marketing of its products has been
relatively more successful than most of its
competitors. The product with the highest
market share is called the ‘brand leader’.
 Why might it be important for a brand or a
manufacturer to have market leadership in
this way?
COMPETITORS
 Businesses operate in a competitive environment. For example, mobile (cell) phone
providers are in fierce competition with each other to provide the best possible value for
money phones, and to of er the most suitable range of phone services for their customers.
 Businesses compete in many ways. One of the most obvious ways is over price. For
example, sports shoe sellers on the Internet compete to supply the same shoe brand at the
cheapest price to customers. Businesses can compete in many other ways, however.
 These are called forms of nonprice competition, e.g. customer service – giving the best
personal attention to the needs of customers; location – being at the most convenient
place for customers to buy the product.
 Most businesses are faced by direct competitors.
 In addition to direct competition, businesses also face indirect competition.
 For example, in the bus transport industry, a bus operator experiences indirect competition
from other providers of public transport such as taxi firms and rail companies, although
they might be in different sectors of the same market, or in apparently different markets.
1 CREATING/ADDING VALUE

 In Chapter 1, the important concept of creating or adding value was explained.

 Literally, ‘added value’ means the difference between the selling price of a product
and the cost of the materials and components bought in to make it.
 For example, a tub of luxury ice cream sells for $4. The cost of the milk, cream, sugar
and flavorings is $1. Value added = $3.
 This is not the same as profit – clearly the producer will have to pay wages, rent and
other costs – but profit will also be included in this added value. If the business is able
to increase this added value, then the potential for greater profits is clear. Effective
marketing makes this possible.
1 CREATING/ADDING VALUE

 Create a ‘unique selling point’ (USP) that clearly differentiates a product from that of
other manufacturers. Product differentiation can lend to sales success. Apple’s iPad
mini is a good example.
 USP − unique selling point (or proposition): the special feature of a product that
differentiates it from competitors’ products.
 Product differentiation: making a product distinctive so that it stands out from
competitors’ products in consumers’ perception.
2 MASS MARKETING AND NICHE MARKETING

 This market segment in niche marketing can be a very small section of the whole
market and may be one that has not yet been identified and filled by competitors.
 Examples of firms employing niche marketing include Versace designs and Clinique
perfumes. Both these businesses sell only expensive, high-status products.
 Niche marketing: identifying and exploiting a small segment of a larger market by
developing products to suit it.
 Mass marketing: selling the same products to the whole market with no attempt to
target groups within it.
MASS MARKETING

 Mass marketing is the exact opposite. ‘One product for the whole market’ is now becoming quite an
unusual concept for firms to adopt – yet is still seen in, for example, the toothpaste and fuzzy drinks
markets.
 Hoover, the vacuum-cleaner manufacturer, used to sell a very limited range of products as most
consumers wanted just a simple and effective cleaner.
 Now, with increased consumer choice and more competitors operating the market, Hoover of er a
much wider range of models of different sizes, power output and prices to appeal to different
segments of the mass market.
 So, although not true niche marketing, the company is recognizing the limits of pure mass marketing.

 The next section looks at market segmentation in detail. Both of these strategies have their
advantages
ADVANTAGES AND DISADVANTAGES OF NICHE
MARKETING
 3 MARKET SEGMENTATION
 This is a very widely practiced marketing strategy. It is customer-focused, so it is
consistent with the concept of market orientation discussed above.
 Sometimes segmentation is referred to as ‘differentiated marketing’ because,
instead of trying to sell just one product to the whole market, different products are
targeted at different segments. To be effective, firms must research and analyze the
total market carefully to identify the specific consumer groups that exist within it.
 Examples of market segmentation are:

 Computer manufacturers, such as Hewlett-Packard, produce PCs for of ice and home
use, including games, but also make laptop models for businesspeople who travel.
 Coca-Cola not only makes the standard cola drink but also Diet Coke for weight-
conscious consumers, and flavored drinks for consumers with particular tastes
MARKET SEGMENTATION
 Market segment: a sub-group of a whole market in which consumers have
similar characteristics.
 Market segmentation: identifying different segments within a market and
targeting different products or services to them.
 Market segmentation – identifying different consumer groups.

 Successful segmentation requires a business to have a very clear picture of the

consumers in the target market it is aiming to sell in.
 A ‘picture’ of the typical consumer needs to be built up to help with market research
sampling, designing the product, pricing and promoting the product. This is called the
consumer profile.
 The main characteristics of consumers contained in a consumer profile are
income levels, age, gender, social class and region
1 GEOGRAPHIC DIFFERENCES
 Consumer tastes may vary between different geographic areas and so it may be appropriate
to offer different products and market them in ‘location-specific’ ways. This approach would
be the opposite of adopting one marketing strategy for the whole area or region.
 This is sometimes referred to as ‘pan-Asian’ or ‘pan-European’ marketing. This will not be
effective if the geographical differences are so considerable that consumers demand products
geared towards their specific needs. These geographical differences might result from
cultural differences – for example alcohol cannot be promoted in Arab Muslim countries.
 A heating and refrigeration business will need to market different products to Malaysia
compared with Finland.
 This issue is not just about products. The way in which products are promoted may have to
be adjusted too. Competitions or lottery-type promotions are illegal in some countries.
2 DEMOGRAPHIC DIFFERENCES
 These are the most commonly used basis for segmentation.

 Demography is the study of population data and trends, and demographic factors –
such as age, gender, family size and ethnic background – can all be used to separate
markets.
 The main socio-economic groups used in the UK are:

 A – upper middle class – higher managerial, administrative and professional, for

example directors of big companies and successful lawyers
 B – middle class − managerial staff , including professions such as

 C2 – skilled manual workers

 D – working class − semi- and unskilled manual workers

 E – casual, part-time workers and unemployed

3 PSYCHOGRAPHIC FACTORS

 These are to do with differences between people’s lifestyles, personalities,

values and attitudes.
 Many of these can be influenced by an individual’s social class too – so the middle
class tend to have a very different attitude towards private education than most of the
working class, which is why some are prepared to spend large amounts of money on it
for their children
ADVANTAGES AND LIMITATIONS OF MARKET
SEGMENTATION
Table 16.2 Advantages and limitations of market
segmentation
TESTS