FUNCTIONAL AREA

1
FUNCTIONAL AREA

• MARKETING

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In this unit you will learn about

• Difference between Market and Marketing
• Market Share and growth
• Objectives of Marketing
• The consumer
• Branding and Generic goods
• 4Ps

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What is a market?

• A meeting place for buyers (consumers) and
  sellers.
• Shop, restaurant, telephone, internet, etc.

• Consumer markets - individuals who purchase
  goods or services for personal or domestic use.
• Industrial markets - organisations which
  purchase goods or services to use in the
  production of other goods and services.

4
What is marketing?

• the process involved in identifying,
  anticipating and satisfying consumer requirements
  profitably
• The Chartered Institute of Marketing
• Aims of marketing
• to identify consumers requirements
• to anticipate consumers requirements
• to satisfy consumers requirements

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Why is marketing important?

• Marketing ensures that firms produce what people
  want it also makes customers aware of what a
  firm is producing.
• If a firm can produce what customers want then
  they have a good opportunity to reach their
  objectives.
• Marketing also allows firms to launch new
  products.
• All firms will undertake
• marketing including charities.

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Market Share Market Growth

• Most firms start off small.
• A common objective of new firms is to grow in
  size.
• Market growth can be obtained by increasing
  market share.
• Market share is the firms percentage of all the
  sales in the market. For example, if the market
  for PCs in the UK is work a total of
• Market growth is more difficult in an established
  market than a new growing market - due to the
  competition.

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Objectives of Marketing

• Marketing is linked to the overall objectives of
  the organisation and will therefore be different
  depending on the nature of the organisation.
• For example, Charities will wish to increase
  donations to assist good causes, whereas public
  sector firms will wish to improve the service
  they deliver.

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Objectives of Marketing

• In the main the objectives of marketing include
• To target new markets or market segments
• Increase revenue and profitability or income
• Increase or maintain market share
• Improve the image of products or the organisation
• Improve existing products or develop new products

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Business Orientation

• A business will adopt a focus of attention with
  the hope of obtaining set corporate objectives.
•  
• Traditionally, the focus of attention of the
  business will centre on the product or the market
  (customers).
•  
• The orientation adopted will affect all the
  activities of the business.

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Product-led Organisations

• Focus on product and production process.
• Emphasis on developing technically sound product.
• Advertising will focus on how good the product is
  rather than how the product will satisfy the
  needs of customers.
• Many publicly funded organisations like
  universities advertise what they can provide
  rather than focusing on how they can satisfy the
  needs of customers.

11
Product-led Concorde

• Focus on Research and Development - was the
  aircraft technically possible?
•  
• Consumers and commercial viability viewed as
  being less important.
•  
• Developers assumed a supersonic aircraft would
  sell itself.

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Concorde After Launch

• British Airways and Air France only buyers -
  mainly due to governmental involvement.
• Other airlines deterred by high price and low
  passenger capacity.
• Several airports - including New York - indicated
  possible ban due to noise pollution.
• Technical success does not guarantee commercial
  success.

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Market-led Organisations

• Focus on the customer and what they want.
• The firm will alter their product offering in
  line with what customers want.
• Market research methods will be employed to
  identify the needs of target customers.
• Many publicly funded organisations like
  universities advertise what they can provide
  rather than focusing on how they can satisfy the
  needs of customers.
• Realise that their success depends on meeting the
  needs of customers better than competitors.

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Market-led Ford Model T

• Henry Ford - one of the first to adopt a market
  orientated approach.
• Before production he researched the market and
  identified a price that would allow large
  quantities to be sold.
• Consumers needs were central to his
  decision-making.

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Branding

• The name given by a producer to a product or
  range of products is known as a brand.
• The aim of branding is to distinguish the
  product from its competitors and to make it
  instantly recognisable to the consumer. A brand
  can be -
• Company name - Heinz, Coco-Cola
• Name given to a range of products - Fairy, Mr
  Kipling

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HOW DOES A FIRM BRAND ITS PRODUCTS?

• To brand a product a firm will use packaging and
  advertising.

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Brand Names

• Have a massive influence on purchasing
  decisions. So much so that the brands
  themselves are sold for considerable sums of
  money.
• Nestlé purchased Rowntree Mackintosh to obtain
  Kit-Kat, Polo and Smarties.

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Brand Loyalty

• Some customers are faithful to one particular
  product.
• Marketeers strive to persuade customers that
  their product is better than competitors
  products and obtain brand loyalty which would
  allow them to charge higher prices.
• Firms may add an existing brand name to a new
  product to increase the products chances for
  success.

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STRONG BRAND LOYALTY

• Strong branding means that the firm can charge a
  premium price because the product is perceived as
  high quality, it has high visibility due to the
  amount of advertising and brand loyalty
• Brands are facing challenges customers are more
  price conscious and there has been an increase in
  the number of quality own brands

20
Own Brands

• Many Large retailers Tesco, Asda, Boots, etc -
  sell a wide range of products under their own
  brand name.
• Own brands now account for more than 20 of all
  retail sales.
• Own brands have been successful at challenging
  well established brands by developing products of
  a similar quality, with similar packaging but at
• cheaper prices.

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Generic Goods

• Very little marketing is carried out by companies
  who sell generic goods.
• They are seen by consumers to have no differences
  between them eg light bulbs, matches, etc,

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The Marketing Function

• Marketing decisions centre on four functional
  activities, known as the 4ps.
• Product
• Price
• Place (distribution)
• Promotion
• When combined these four areas are known as the
  Marketing-Mix.

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Product

• The product must meet the needs of customers and
  provide benefit to the customer.
• Remember a product can be a good or service.
• Different versions of the same basic product
  (known as the core product) vary in quality,
  style, packaging and many other ways from their
  competitors products eg cola and crisps.
• These additional components of the core product
  are known as the augmented product.

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Motor Car
Core Product
Safety
Fuel Economy
Comfort
Mode of transport
Performance
Credit Terms
Style
Warranty
Augmented Product
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Our Life Cycle

We are born and introduced to the world.
Then we grow into teenagers.
Then we mature into adults.
Finally, we get old and our health declines.
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The Life of a Product

• Like humans, products have a limited life.
• The Sega Mega Drive, Subbuteo and O Levels have
  all been withdrawn from the market.
• Before being withdrawn, a product will pass
  through four stages
• known as the Product Life Cycle.

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Launch

• The first stage of the product life cycle begins
  when the product is introduced into the
  marketplace.
• Products recently launched include Wiiand
  Divine.

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Growth

• As more target customers become aware of the
  product, the popularity and sales of the product
  will increase.
• Mobile phones and internet shopping are examples
  of growth products.

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Maturity

• Once target customers are fully aware of the
  product, the popularity and sales of the product
  will level off.
• Products in their maturity stage include Sunny-D
  and the Spice Girls.

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Decline

• The popularity of the product will eventually
  drop.
• Customers will stop buying the product and sales
  will fall.
• Products in their decline stage include - Butlins
  Holidays, Power Rangers and Cassette Tapes.

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Product Life Cycle Chart
Sales
Maturity
Growth
Decline
Launch
Time
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Variations in Product Life Cycles
Sales
Sales
Peter Andre
Coca-Cola
Time
Time
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Companies use Product Life Cycles to

• determine the future of their products.
• decide when to introduce new products.
• decide when to withdraw products in decline.
• decide which products to invest in.

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Extending the life of a product
Sales
Time
Product Extension Strategies - change/modify
product - new variants - alter packaging -
alter channel of distribution - change pricing
strategy - alter promotional support
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Price

• The price is what the customer has to pay in
  order to obtain the product.
• The product must be priced so that an
  organisation covers its costs and can make a
  profit.
• If the product is priced too high customers
  will not buy it (especially if a competitor has a
  similar more reasonably priced product on the
  market).

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Pricing Decisions

• The main pricing decision that a firm takes is
  whether to charge
• A low price in order to attract sales. This makes
  it possible for a successful firm to sell large
  quantities at low costs.
• An average price in relation to competitors. The
  firm will need to use other elements of the
  marketing-mix to compete.
• A high price. Firms can charge a high price if
  they are seen as being better than their rivals
  in meeting the needs of customers.

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The Price is Right
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CK be by Calvin Klein
HIGH PRICE
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Ford Focus
AVERAGE PRICE
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Chocolates from Thorntons
HIGH PRICE
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Gola Trainers
LOW PRICE
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Jeans from Marks and Spencer
AVERAGE PRICE
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Price-Quality Relationship

• Having a lower price than competitors does not
  guarantee success.
• Most people associate a high price with a high
  quality product.

• Would you expect to pay more for a Rolls-Royce
  or a Skoda?
• Why?

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Pricing Strategies

• Cost-plus pricing

• The most common method of pricing in the UK
• Companies calculate the cost of producing one
  item then add a profit mark-up, say 20, to
  determine the selling price.

• The extent of the mark-up will vary from
  industry to industry - car dealers will usually
  add 17 onto the cost they pay manufacturers
  whereas fashion clothing retailers may add
  between 100-200.

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Pricing Strategies

• Penetration pricing

• A low price is set for a new product to attract
  customers and penetrate an existing market
  where there is likely to be strong competition.
• Losses may be incurred in the short-term,
  however once a foothold in the market has been
  obtained prices may be increased to allow
  profits to be made.

• Brand products launched into consumer
  markets will use penetration pricing. For
  example, breakfast cereals such as Kelloggs
  Golden Grahams.

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Pricing Strategies

• Going-rate pricing

• Also known as competitive pricing.
• The firm will set the price of its products at
  a level similar to competitors.
• This occurs in markets where businesses try to
  avoid price wars. Firms will set their prices
  at roughly the same level.

• Companies offering petrol for cars adopt
  going-rate pricing.

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Pricing Strategies

• Hour-based pricing

• The firm sets a price for a service based on
  time.
• The company will offer a quote for the service
  demanded by a customer - based on an estimate
  of the time for completion and an hourly charge
  rate.

• Car mechanics and cleaners use hour-based
  pricing.

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Pricing Strategies

• Skimming

• Involves setting a high price for a new
  product.
• Once the first target segment is saturated, the
  producer will lower the price in order to tap a
  fresh segment of the market. The process
  continues until a large section of the total
  market is catered for.

• Electronic and pharmaceutical manufacturers
  often use skimming pricing.

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Pricing Strategies

• Destroyer pricing

• Employed to undermine the sales of rivals.
• The price of an existing product is reduced to
  an artificially low level in order to destroy
  competitors sales.

• Only adopted by very large businesses with
  sufficient resources.
• Stagecoach buses applies destroyer pricing
  when starting new bus routes.

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Place

• The place where the final exchange occurs.

• Refers to all activities undertaken by
  companies in distributing products to targeted
  consumers.

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What is meant by distribution?

• The steps implemented by a company to make goods
  available for customers to buy.
• Objective of distribution to make the product
  available in the right place at the right time.

• The company must make decisions about the
  channels of distribution through which the
  product will pass and the methods of transport
  to use.

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Channels of Distribution

• The means by which an organisation and its
  customers are brought together in a particular
  place in order to buy and sell.
• This may be in a shop, over the telephone, on the
  internet or in an office.
• The channel of distribution that a manufacturer
  may select to get products to target consumers
  may include intermediaries.

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Intermediaries

• Intermediaries - commonly known as middlemen -
  may assist in the distribution of products to
  consumers.
• The two main types of intermediaries are

Wholesalers who buy from manufacturers and then
sell to retailers. For example Cash and Carry
firms. Retailers who buy from wholesalers or
direct from manufacturers then sell onto
consumers. For example, RS McColls.
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Which Channel of Distribution?
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Effects of Technology on Place

• New technology has changed the place where the
  final exchange occurs.
• For example, banking was always carried out
  across the counter in a bank.
• We now use
• automated tellers
• telephone banking
• online computer banking

56
The Internet

• Developments in satellite and internet technology
  have greatly increased the number and variety of
  products being made available for customers to
  buy from their homes.
• People can now purchase goods quickly and often
  at less cost from the comfort of their own homes.

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The Marketing Environment
Competitors
Consumers
THE MARKET
Government
Technology
Economy
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Promotion

• any form of communication used in an attempt to
  draw attention to a product/service to make
  customers .
• Three aims - persuade, inform and remind.
• Two main types
• Above-the-line promotion - aka Advertising
• Below-the-line promotion other methods of
  promotion which can be controlled by the firm
  eg direct marketing

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Advertising

• using the media to communicate messages
• to customers.
• Two main types - persuasive and informative.
• Choice of advertising media will depend on -
• cost, audience, competitors, impact, the law and
  the other components of the marketing-mix.
• Controls on advertising include - the ASA, ITC,
  pressure groups and the Trades Descriptions Act
  1968.

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Advertising Control

• The British Code of Advertising Practice
• The Advertising Standards Authority (ASA)
• The Independent Television Commission

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Forms of Advertising
TV/Radio Posters Magazines Billboards Spons
ored events Newspapers Network of
shops/outlets Cinema Word-of-mouth Packaging Inter
net Sales People Direct Mail
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Advertising Media

• Television Ads can reach millions and you can
  target people who watch particular programmes but
  it is very expensive.
• Cinema Ads have a high visual and sound impact
  and you can target particular films. You have a
  captive audience but they are expensive
• Leaflets and Junk Mail They are cheap to
  produce and distribute but theyre easy to
  ignore.
• Newspapers and Magazines They know a lot about
  their readership so its easy to target
  effectively. Theyll often be read more than
  once.

63
Advertising Media
Radio Ads are usually cheaper and you can still
target listeners of particular programmes but
its sound only and audiences are usually
smaller. Posters and Billboards Ads have a high
visual impact and stay in place for a long time.
Can be seen by lots of people but usually only
for a short time so they cant contain much
information. Internet Sites Ads can have a high
visual impact, be interactive and link directly
to buying the product.
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Sales Promotion
Shops may hold sales to encourage customers to
buy what they may not have purchased at the full
price. Sales may encourage customers who would
not normally go to the shop to venture in.
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Market Research

• Market research provides managers with
  information about what customers want and
  need and what will influence them to buy a
  product.
• Market research is used to find out
• Consumer wants regarding existing products
• What makes consumers buy a firms products
• What customers think of new products
• What customers what from future products
• What competitors are doing to satisfy customers

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Importance of MR

• Market research
• Indicates the size of a market and potential
  growth
• Provides information about the best place to sell
  products
• Helps identify customers needs and wants
• Allows firms to identify what makes some products
  successful
• Helps firms avoid costly mistakes buy launching
  unwanted products
• Gives firms ideas on how to promote products
• Takes some risk out of launching new products
• Allows firms to identify who their target
  customers are.

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Methods of MR

• There are two methods of market research
• Primary (Field) - information collected by
  the company itself.
• Secondary (Desk) - information already
  collected for another purpose

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Field Research

• Questionnaires/Surveys questions specifically
  designed for the task. May be face-to-face, over
  the telephone, by mail or over the internet. The
  number of respondents will depend on the firms
  budget. The sample must represent the total
  market.
• Test Market launching a new product into a
  small section of the market to measure its
  suitability
• Consumer Panel where a selected group of
  people are given a product and asked to comment
  in detail

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Field Research

• Advantages
• It is first hand
• It is more likely to meet the needs of the
  organisation
• Disadvantages
• It is more expensive
• It takes time to gather

70
USING A QUESTIONNAIRE

• Questionnaires are used to obtain meaningful
  information from a large and varied group of
  consumers.
• The business will analyse the responses and
  modify the product/service to appeal to the market

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HINTS ON PREPARING QUESTIONNAIRES

• When designing a questionnaire you
• should
• Keep it short
• Make it simple and easy to understand
• State clearly the purpose of the questionnaire

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HINTS ON PREPARING QUESTIONNAIRES

• Questions should not rely heavily on the
  respondents memory
• Begin with a few factual, easy to answer
  questions
• Include some closed Yes/No response question
• Follow up closed questions with open questions
• Finish with a filter question designed to place
  the respondent in a market segment

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Desk Research

• Internal Sources - Sales figures, Stock
  figures, Accountancy records, Customers
  comments, etc
• External Sources - Government Stats,
  Competitor information, Trade Journals, Market
  Research Organisations, Newspapers, Magazines,
  CD-ROMS, etc...

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Desk Research

• Advantages
• It is cheaper than field research
• It is quicker than field research as long as
  the information is available
• Disadvantages
• Data may be out-of-date
• The information will be available to competitors

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Effect of New Technology on Market Research

• Databases
• EPOS
• Loyalty Cards
• Internet

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Problems with Market Research

• Sampling bias
• Human behaviour
• Interviewer bias

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Which Market Research Method?

• Depends on
• Cost
• Time available
• Alternatives
• What will happen without the research

78
The Importance of marketing for different types
of organisations

• Marketing is important to all organisations
  they all must meet customers needs and make
  target customers aware of what the firm offers.
• However, marketing may be carried out differently
  depending on the type of organisation and the
  product they offer
• For marketing to be successful for any
  organisation, they must combine
• The right product
• Sold at the right price
• In the right place
• Using the most suitable promotional methods

79
Charities Reason Method of Marketing

• Advertising and promotion encourages people to
  donate money
• Tend to concentrate on letting people know what
  good things they have done in the hope that
  target viewers will think the charity is worth
  giving to
• Some charities try to obtain donations from all
  sections of the community rather than
  specifically targeting a particular segment.
  Others eg Greenpeace and Amnesty International
  target particular groups as do local charities
  eg for a local hospital appeal.

80
Public funded service providers (eg
schools/hospitals) Reason Method of Marketing

• Will develop promotional documentation to attract
  and reassure customers. Many customers of such
  organisations will not have much choice of an
  alternative service provider.
• Such documentation will be in the form of
  prospectuses, handbooks or through positive
  publicity in local newspapers.
• The organisation will on be viable if customers
  continue to use the service on offer.
• Not as much money will be invested by such firms
  on marketing these firms are non-profit making
  organisations and tend to to have high marketing
  budgets

81
Private firms offering a service (eg a restaurant
or bank) Reason Method of Marketing

• Marketing may be carried out differently as the
  company cannot illustrate the service easily eg
  bank services
• Sales personnel will require specialised training
  to deliver the service
• If the company is a chain or franchise it may
  benefit from national advertising but local firms
  will market their business on a much smaller
  scale.
• Marketing is important to maintain or increase
  the market share available to the business.

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Market Segmentation

• Business Organisations can divide the market into
  different types of customers to meet their
  individual requirements
• Demographics
• Socio-cultural groups

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Market Segmentation

• Demography is the division of the population into
  different social groups

84
Market Segmentation

• Markets are segmented into different groups
• of people. The main segments are
• Age distribution of the population
• Gender
• Location
• Social class A- professions to E - unemployed
• Culture or religion

85
Social Economic/demographic Groups
Social Grade Social Status Occupation
A Upper middle class Highest managerial/ administrative or professional
B Middle class Intermediate managerial/ administrative or professional
C1 Lower middle class Supervisory or clerical, junior managerial, administrative or professional
86
Social Economic/demographic Groups
Social Grade Social Status Occupation
C2 Skilled working class Skilled manual workers
D Working class Semi and unskilled manual workers
E Subsistence level State pensioners or widows (no other earner) casual or lowest grade workers
87
Other consumer related factors

• Taste, fashion and lifestyle
• Disposable income
• The Government
• Technology
• Economic forces
• Household class

Were all different ages - we want different
things
88
Private firms offering a product (eg a food/car
manufacturers) Reason Method of Marketing

• These companies are dependent on customers buying
  their products to make a profit
• Without marketing consumers will not be aware of
  the products or companies and will buy
  competitors products
• Privately owned companies usually have a budget
  for marketing and often have a marketing
  department.
• Such firms will usually invest a great deal in
  marketing and promotional activities

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Customer Service

• This is what affects the relationship between
  customer and business, ie
• the way the customer is treated by sales staff
• how queries and complaints are handled
• use of technology, eg phone system, press 1 for
  sales, press 2 for information, press 3 for
  advisor, and so on.

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Protecting The Consumer

• The Sale of Goods Act, 1979
• The Trade Descriptions Act
• The Weights and Measures Act
• The Food and Drugs Act
• The Food Safety Act

91
Advice for The Consumer

• Trading Standards
• Environmental Health
• Citizens Advice Bureau
• Trade Associations, eg BETA
• Utilities watchdogs, eg gas, water, electricity
• The Consumers Association they produce Which?
  magazine

92
MORE INFORMATION ON MARKETING
You will need this information to prepare your
study notes for the Marketing Topic.
Topic Chapter Pages
Functional Department Ch 1 - 1.3 Pg 19
The Market, Market Research, Segments Ch 2 - 2.1 Pg 23-24
Channels of distribution Customer Service Ch 3 3.4 Ch 3 3.4 68-69 72
Market Research Marketing Mix Ch 4 - 4.1 Pg 80 Pg 83-91