MARKETING

3.1 – Marketing, Competition and

the Customer
What is a market?
A market consists of all buyers and sellers of a particular good.

What is Marketing?
By definition, 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 – by a variety of methods that encourage customers
to keep buying one firm’s products instead of their rivals’. For eg:
loyalty card schemes, discounts for continuous purchases, after-
sales services, message system that informs past customers of
new offers.
 Gain information about customers: by understanding why
customers buy their products, they 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 the marketing department in a firm may have:
 Raise awareness of their product
 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 ($30,000/ $1000000) *100 = 30%)
 Enter new markets at home or abroad
 Develop new products or improve existing products.

Marketing Changes
Why customer spending patterns may change:
 change in their tastes and fashions
 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the old versions of products become outdated and people want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 products that are required by them 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:

 Globalization: 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 is keeping up its market share and
remain 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
increase 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 customer’s interest, so that
they don’t buy competitors’ products.
 keep costs low to maintain profitability: low costs means the
firms 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 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, and gain more sales.
Mass Marketing: selling the same product to the whole market
with no attempt to target groups with in 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, as compared to niche market.
 Can benefit from economies of scale: a large volume of
products are produced and so the average costs will be low, as
compared to niche market.
 Risks are spread, unlike in 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.

Market Segmentation
A market segment is an identifiable sub-group 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
 Increasing opportunities to increase sales

3.2 – 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 – it’s quality and price. The most common example are all
basic necessities for living- foods and agricultural tools.
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
Market research is the process of collecting, analyzing and
interpreting information about a date.

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’ questions prior to product development such as ‘will
customers be willing to buy this product?’, ‘what is the biggest
factor that influences customers’ buying preference, 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 include questionnaires, focus groups, interviews,
observation, online surveys and so on.
 The process of primary research:

(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. A random sampling occurs when people are
selected at random for research, while quota sampling 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:
1. Detailed information can be collected
 2. Customer’s opinions about the product can be obtained
3. Online surveys will be cheaper and easier to collate and analyze
4. Can be linked to prize draws and prize draw websites to
encourage customers to fill out surveys.
Disadvantages:
1. If questions are not clear or is misleading, then unreliable
answers will be given.
2. Time-consuming and expensive to carry out research, collate
and analyze them.

 Interviews: interviewer will have ready-made questions for

the interviewee.
Advantages:
1. Interviewer is able to explain questions that the interviewee
doesn’t understand and can also ask follow-up questions
2. Can gather detailed responses, body-language also allowing
interviewer to come to accurate conclusions about the customer’s
opinions.
Disadvantages:
1. The interviewer could lead and influence the interviewee to
answer a certain way. For example, by phrasing 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.
2. Time-consuming and expensive to interview everyone in the
sample.

 Focus Groups: A group pf 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:
1. They can provide detailed information about the consumer’s
opinions
Disadvantages:
1. Time-consuming
 2. Expensive
3. Opinions could be influenced by others in the group.

 Observation: This can take the form of recording (eg: meters

fitted to TV screens to see what channels are being watched),
watching (eg: counting how many people enter a shop), auditing
(eg: counting of stock in shops to see which products sold well).
Advantage:
1. Inexpensive
Disadvantage:
1. Only gives basic figures. Does not tell the firm why 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 if 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, the 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 it’s original form. The tally
table below shows the number and type of vehicles passing by a
 shop at different times of the day:

 Charts: shows 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.

3.3 – Marketing Mix

Marketing mix refers to the different elements involved in the marketing of
a good or service- the 4 P’s- Product, Price, Promotion and Place.

Product
Product is the good or service being produced and sold in the market. This
includes all the features of the product as well as it’s final packaging.

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

goods, producer services.
New Product Development: development of a new product by a
business. The process:

Advantages:
– 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 business: having more products mean that
even if one fails, the other will keep generating a profit for the company
Disadvantages:
 – Market research to identify customer needs- 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 itself from
competitors’ products.
Brand loyalty when customers keep buying the same brand again and
again instead of switching over to competitors’
 Consumers recognize their product more easily when
looking at similar products- helps differentiate one 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?
 Protect the product
 Provide information about the product (it’s ingredients, price,
expiry dates etc)
 To help consumers recognize the product (the brand name and
logo will help identify what product it is)
 To keep product fresh

Product Life Cycle (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 (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
 Increased 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 for the product.

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
Disadvantages:
– 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
competitor’s 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 or buying 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 it’s 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 a suitable action to
make the product more profitable.

If the product is found to have a elastic demand, the producer can

lower prices to increase profitability. The law of demand states that
a price fall 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

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’, occassional 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 it’s 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, it would
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 skiis would only need advertising in special
sports and lifestyle magazines.

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
Channel Explanation Advantages s
– All of the
profit is – Delivery costs
earned by may be high if
the producer there are
– The customers over
producer a wide area
controls all – All storage
The product is sold to parts of the costs must be
the consumer straight marketing paid for by the
from the manufacturer. mix producer
A good example is a – Quickest – All
factory outlet where method of promotional
Manufactur products directly arrive getting the activities must
er at their own shop from product to be carried out
to the factory and are sold the and financed by
Consumer to customers. consumer the producer
Manufactur The manufacturer will – The cost of – The retailer
er to sell its products to a holding takes some of
Retailer retailer (who will have inventories the profit away
to stocks of products from of the from the
Consumer other manufacturers as product Is producer
well) who will then sell paid by the – Producers lose
them to customers who retailer some control of
visit the shop. For – The retailer the marketing
example, brands like will pay for mix
Sony, Canon and advertising – The producer
Panasonic sell their and other must pay for
Distribution Disadvantage
Channel Explanation Advantages s
promotional delivery costs to
activities the retailers
– Retailers – Retailers
are usually usually sell
more competitors’
conveniently products as well
products to various located for
retailers. consumers
The manufacturer will
sell large volumes of its
products to a wholesaler –
(wholesalers will have Wholesalers – Another
stocks from different will advertise middleman is
manufacturers). Retailer and promote added so more
will buy small quantities the product profit is taken
Manufactur of the product from the to retailers away from the
er to wholesaler and sell it to – producer
Wholesaler the consumers. One Wholesalers – The producer
to Retailer good example is the pay for loses even more
to distribution of medicinal transport and control of the
Consumer drugs. storage costs marketing mix
The manufacturer will
sell their products to an
agent who has
specialized information
about the market and
will know the best
wholesalers to sell them
to. This is common
Manufactur when firms are
er exporting their products – Another
to Agent to a foreign country. middleman is
to They will need a added so even
Wholesaler knowledgeable agent to – The agent more profit is
to Retailer take care of the has specialist taken away
to products’ distribution in knowledge of from the
Consumer another country the market producer
 What affects place decisions?
 The type of product it is: If it’s sold to producers,
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 eg: luxury watches and jewelry.
 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 it’s 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.

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 favored 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.
The internet is also used for promotion and advertising of products in the form
of paid YouTube ads and sponsors, pop-ups, email newsletters etc.

3.4 – Marketing Strategy

A marketing strategy is a plan to combine the right combination
of the four elements of the marketing mix for a product to achieve
it’s marketing objectives. Marketing objectives could include
maintaining market shares, increasing sales in a niche market,
increasing sale of an existing product by using extension strategies
etc.
Factors that affect the marketing strategy:
Legal Controls on Marketing
There are various laws that can affect marketing decisions on
quality, price and the contents of advertisements.
 laws that protect consumers from being sold faulty and
dangerous goods
 laws that prevent the firms from using misleading information
in advertising. Example: Volkswagen falsely advertised
environmentally friendly diesel cars.
 laws that protect consumers from being exploited in industries
where there is little or no competition, known as monopolising.
Entering New Markets
Growing in other countries can increase sales, revenue and profits.
This is because the business is now available to a wider group of
people, which increases potential customers. If the home markets
have saturated (product is in maturity stage), firms take their
products to international markets. Trade barriers and restrictions
have also reduced significantly over the years, along with new
transport infrastructures, so it is now cheaper and easier to export
products to other countries.

Problems of entering foreign markets:

 Difference in language and culture: It may be difficult to
communicate with people in other countries because of language
barriers and as for the culture, different images, colors and
symbols have different meanings and importance in different
places. For example, McDonald’s had to make its menu more
vegetarian in Indian markets .
 Lack of market knowledge: The business won’t know much
about the market it is entering and the customers won’t be
familiar with the new business brand, and so establishing in the
market will be difficult and expensive.
 Economic differences: The cost and prices may be lower or
higher in different countries so businesses may not be able to sell
the product at the price which will give them a profit.
 High transport costs
 Social differences: Different people will have different needs
and wants from people in other countries, and so the product may
not be successful in all countries.
 Difference in legal controls to protect consumers: The
business may have to spend more money on producing the
products in a way that complies with that countries laws.
How to overcome such problems:
 Joint venture: an agreement between two or more
businesses to work together on a project. The foreign
business will work with a domestic business in the same industry.
Eg: Japan’s Suzuki Motor Corporations created a joint venture with
India’s Maruti Udyog Limited to form Maruti Suzuki, a highly
successful car manufacturing project in India.
Advantages
– Reduces risks and cuts costs
– Each business brings different expertise to the joint venture
 – The market potential for all the businesses in the joint venture is
increased
– Market and product knowledge can be shared to the benefit of
the businesses
Disadvantages
– Any mistakes made will reflect on all parties in the joint venture,
which may damage their reputations
– The decision-making process may be ineffective due to different
business culture or different styles of leadership
 Franchise: the owner of a business (the franchisor) grants
a licence to another person or business (the franchisee) to
use their business idea – often in a specific geographical area. Fast food
companies such as McDonald’s and Subway operate around the globe through lots of
franchises in different countries.
ADVANTAGES DISADVANTAGES
· Rapid, low cost
method of business
expansion · Profits from the
· Gets and income franchise needs to be
from franchisee in the form shared with the franchisee
of franchise fees and · Loss of control over
royalties running of business

· Franchisee will better · If one franchise fails,

understand the local tastes it can affect the reputation
and so can advertise and of the entire brand
sell appropriately
· Franchisee may not
· Can access ideas and be as skilled
suggestions from
franchisee · Need to supply raw
TO material/product and
FRANCHISO · Franchisee will run provide support and
R the operations training
TO · An established brand · Cost of setting up
FRANCHISE and trademark, so chance business
E of business failing is low · No full control over
· Franchisor will give business- need to strictly
technical and managerial follow franchisor’s
 standards and rules

· Profits have to be
shared with franchisor

· Need to pay
franchisor franchise fees
and royalties
support
· Need to advertise
· Franchisor will supply and promote the business
the raw materials/products in the region themselves