AS Business Studies Marketing

Another definition Marketing is the management process responsible for identifying, anticipating and satisfying consumers’ requirements profitably

Marketing BasicsA market – a place or mechanism where

sellers and buyers meet to engage in exchange

Consumer Market – final user is the person (consumer) – buying yogurt at Metro

Industrial Market – goods and services bought by businesses to use in the production process - SABMiller (Perú) buys silica to make glass bottles for its beer production

Concepts (required) for understanding

Marketing Human needs and wants – Marketer´s goal is

to convert needs into wants. You need to eat, but you don´t need to eat an expensive steak Ruth Chris Steakhouse tries to get you to go to its restaurant

Value and Satisfaction – To maintain good long-term relationships with customers, businesses should aim to offer good value (and thus, satisfaction) at all times Mcdonald´s consitency of product so customers return

Beginning ConceptsMarketing Objectives (determined by

senior management!) – the goals of the marketing department which will help the company achieve its overall goals Examples: increasing market share, rebranding a product, or increasing total sales

Marketing Strategy – long term plan established for achieving marketing objectives (later we will learn about the marketing mix, product, place, promotion, price)

More on marketing objectivesAll departments within the business need to

work together in order to achieve the overall corporate objectives

Marketing objectives will impact upon other departments within the business

Marketing departmen

t

The impact of marketing objectives

Other type of MarketingSocietal Marketing – this approach considers

not only the demands of consumers but also the effects on all members of the public (society) involved when firms meet these demands

IT IS A BALANCE (don´t forget about profits but don´t forget about the environment, fellow humans either)

Impact of marketing (example)A firm sets itself a marketing objective to

increase its number of sales. Its strategy to complete this objective is through extensive promotion. How will this affect:

The Production Department: Responsible for producing the product

The Human Resources Department: Responsible for organizing employees

The Finance Department: In charge of the firm´s finances

Examples, Societal MarketingExample 1 - Green approaches – could help a

company win over many customers in the long run

Example 2 – paying good wages could build goodwill or simply help society

Superbowl Commercials, two types

Gets the brand in your head

Talks about specific characteristics of the product

(product differentiation)

AS Business Studies Marketing

Market share

Measure of Market Share: The firm´s sales as a proportion of total sales

Market share = Total number of sales of the firm x 100

Total number of sales in the market

Is Coca-Cola more successful than Pepsi?

In 2009, PepsiCo achieved a $42 billion revenue whilst Coca-Cola achieved $30 billion

This is because Pepsi operates in several markets other than soft drinks

The PepsiCo group also owns Lay´s, Gatorade, Lipton, Doritos, and also works in partnership with Starbucks and Ben and Jerrys

The value of knowing your company´s market share

The ´brand leader´ benefits from:Knowing they have higher sales than

competitorsRetailers want to stock and promote the best

selling brandsA higher price may be charged to retailersBeing brand leader can be used in promotionCompetitors benefit fromConsidering the strategies that have been

adopted by the brand leader

Market GrowthThe rate at which total sales are increasing in the market each year

Calculate market growth in the following markets

Market Total Sales 2008 Total Sales 2009

Sports Clothing 250,000,000 225,000,000

Sports Footwear 120,000,000 140,000,000

Sports Equipment 82,000,000 86,000,000

Market Growth Questions1. Explain two factors that may have increased

the size of the sports footwear and equipment markets

2. Explain one factor that may have lead to the decline of the sports clothing market

3. If a producer of sports footwear maintained constant annual sales over the period shown what would be happening to their market share?

Market GrowthDetermined by:General economic growth

Changes in consumer incomes

Development of new products, and markets that take sales away from existing markets

Changes in consumer tastes

technological change

Other Important Marketing Concepts

Adding Value – The marketer needs to add value in order to successfully charge a price higher than it cost to make the product

Create a luxurious shopping environment

High quality packaging

Promote the product as ¨must have¨ item

Make the product very unique

Mass Marketing and Niche Marketing

Niche Marketing – identifying a small segment of a larger market by developing products that suite it

Mass Marketing – selling the same products to the whole market with no attempt to target groups within it

Mass Marketing and Niche Marketing

http://www.youtube.com/watch?v=ktRWfHUQdUU

Other Important Marketing Concepts and Definitions

Product Differentiation – making a product different so that it stands out from the competitor´s products in consumers´ perception

USP (unique selling point or proposition) – the special feature of a producut that differentiates it from competitor´s products

Practice – Page 260Read and discusss number 16

2 Good house marks for 1st to finish with correct answers and analysis

AS Business Studies Marketing

?Review - Why do Market Research?

Why?Examples –

Reduce the risks associated with a new product

Predict future demand changes

Explain patterns in sales of existing products and market trends

Assess the most favored flavors, designs, promotions and packaging for a product

MARKET RESEARCH – KEY TERMSQualitative Research - research into the in-

depth motivations behind a consumer’s buying decisions or behavior

Quantitative Research – Research that leads to numerical results that can be statistically analyzed

Statistical TermsMean is the average

Mode is the most frequently occurring data point

1 3 5 4 3 4 3 4 4 4 4 4 1 2 4 4 5 4 4 4

Median is the middle data point

1234 5 6789

Statistical TermsRange – difference between the highest and

lowes

2 to 50 (48)

inter-quartile range - middle 50% of data

1 to 25 26 to 75 76 to 100

AS Business Studies Marketing

What is the marketing mix?The four key decisions that must be made for effective marketing of a product

Product, Price, Promotion, Place

The 4 Cs as an alternativeCustomer Solution – what the company must do

to meet the customers needs and wantsCost to customer - total cost including delivery

and packaging

Communication with customer – up-to-date information provided, much communication

Convenience to customer – easily accesible pre-sales info and easy to find place to buy the product

Customer Relationship MarketingCRM – using marketing activities to establish successful customer relationships so that existing customer loyalty can be maintained

More about Maturity Stage of the Product Life Cycle

Extension Strategies – these are marketing plans to extend the maturity stage of a product before a brand new one is needed

Examples - 1.Developing new markets for existing

products (exports)2.New uses for existing products and product

relaunches involving new packaging or advertising

AS Business Studies Marketing

Fixed Costs, Variable Costs, Per unit cost, and Economies of Scale

Fixed costs, rent for the factory the company has, insurance , salaries of senior management

Variable costs vary by the amount that is produced (number of units), examples are electricity, raw materials, labor costs

Fixed Costs + variable costs = total costs

Economies of Scale

…..the cost per unit declines as you make more units (spreading the fixed costs over more units)

Mark up PricingAdding a fixed mark-up for profit to the unit price (cost) of a product

Mark-up Pricing ExampleTotal cost to make your product = $40

50% mark-up over your cost

So you charge a price of ___________?

Answer$60

50% x $40 = $20

$40 + $20 = $60

Target PricingSetting a price that will give a required rate of return at a certain level of output/sales

Example – Target PricingTotal units 10,000, total costs $400,000 (or $40

per unit)

Required rate of return 20% (.2 x 400,000 = $80,000)

Total revenue needed to make required return

$480,000 which, divided by 10,000 units, gets you the price to charge of = $48

Full Cost Pricing Setting a price by calculating a unit cost for the product (allocated fixed and variable costs) and then adding a final profit margin

Full Cost PricingFirst find out the cost of productionAnnual fixed costs $10,000Variable costs per unit $5Currently producing 5,000 units per year

Fixed costs of $10,ooo + variable costs of $25,000 = total costs = $35,000 or $7 per unit

A price of $7 needs to be charged to break even

Full Cost Pricing If the company adds a 1% profit margin it

will charge $7.07

If it adds a 10% profit margin it will charge $7.70

If it adds a 100% profit margin it will charge $14

Contribution (marginal) cost pricingSetting prices based on the variable costs of making a product in order to make a contribution towards fixed costs and profit

Contribution PricingFixed costs are $40,000Variable cost per unit - $2

The company decides it wants the price of its product to allow it to contribute $1 per unit sold towards the fixed costs, so it makes the price $3

After it sells 40,000 units, it will have covered the fixed costs

If it sells 60,00 units, it will have a profit of $20,000, etc..

Competition Based PricingA company will set its price based on what the competitions’ prices are

Penetration PricingSetting a relatively low price often supported by strong promotion in order to achieve a high volume of sales

Psychological PricingSet price just below some key level, like at 99 cents, or $9.99

Also, rely on your market research to not set prices at levels which consumers view as inappropriate for the style and quality of the product

Market Skimming Setting a high price for a new product when a firm has a unique or highly differentiated product with low price elasticity of demand (inelastic)

Loss Leader strategyPrice some products very low, even below their variable costs…..the hope is that customers will also purchase other products

Example of Loss Leader Srategy Gillette razors – IT SELLS THE RAZOR AT

A LOSS BUT IT MAKES A LOT OF MONEY ON THE REPLACEMENT BLADES

Discrimination PricingAirline example (first class vs. economy or early purchasers vs. last minute purchasers)

Destroyer PricingA large, powerful company in the market lowers its price to the point where it will force some of the weaker competitors out of the market

Price – additional issuesPrice wars to gain market share – note that the

weak may not survive (remember destroyer pricing)

Non-price competition – there can be fierce and competitive promotional campaigns designed to establish brand identity and dominance

Collusion – almost always illegal

AS Business Studies Marketing

Promotion

Promotion

Promotion

Promotion – at a baseball game

Sports Stadiumshttp://en.wikipedia.org/wiki/

List_of_sponsored_sports_stadiums

Promotion http://www.youtube.com/watch?

v=RDiZOnzajNU

Fedexhttp://www.youtube.com/watch?v=MLnzF5NcAc

4

Fedex DID NOT pay for this movie to feature them, but the movie increased brand awareness

Other times, COMPANIES DO PAY FOR THEIR PRODUCTS TO BE IN SHOWS OR MOVIES

http://www.youtube.com/watch?v=pX4dTg-6YZA

Promotion / Ice Rink

Mcdonald’s ok to keep promoting toys…..

http://www.youtube.com/watch?v=wDTuOcmcUNE

http://abcnews.go.com/blogs/health/2012/04/06/mcdonalds-can-keep-happy-meal-toys-court-rules/

More Promotion during Sportsevents

How much did Fedex pay ?A $10 millionB $50 millionC 0D $10,000E The movie producer paid Fedex $5 million

While there is an interview / Champions League / 2013

http://www.youtube.com/watch?v=fO3H6syCJJk

Soccer - many companies advertising!http://www.youtube.com/watch?v=wEhniGlF

DtA

746

Promotion – Sponsoring Athletic events, like a 10K run, etc..http://www.jpmorganchasecc.com/

events.php?city_id=4

Societal Marketing? Promotion?http://www.youtube.com/watch?

v=KXD7VgavogE

Promotion The use of advertising, sales promotion, personal selling, direct mail, trade fairs, sponsorshi, and public relations to inform consumers and persuade them to buy

Promotion Mix The combination of prmotional techniques that a company uses

Advertising Paid for communication with consumers to inform and persuade (TV commercial for example)

Also called Above the line promotion. The company is paying to have access to consumers

From all the commercials we saw…. Advertising – Informative vs. Persuasive (brand image building)

Advertising DecisionsWhich media to use?

Will depend on:CostSize of AudienceProfile of the target marketThe message to be communicatedThe other aspects of the marketing mix

(price, place, product)

Sales PromotionIncentives such as special offers or special deals directed at consumers or retailers to achieve short term sales increases and repeat purchases by consumers

Below the line promotionPromotion that is not a directly paid-for means of communication, but based on short-term incentives to purchase

Examples: price deals, coupons, loyalty reward programs, buy one, get one free, games and competitions…

Personal SellingA person from the sales staff communicates

directly with a potential customer to try to sell the product

Could be cold calling as well - Glengary Glenn Ross movie clip

Direct MailWe call it junk mail in the USA

The new age of junk mail is basically spam

Trade FairsAnd exhibitions…….for wholesalers for

example, but could be for retail as well

SponsorshipPayment by the company to the organizers

of an event so that the company name becomes associated with the event

Or Can be the sponsor of a whole league (Colombia soccer)

Public Relations (PR)The deliberate use of free publicity provided by newspapers, TV, and other media to communicate with and achieve understanding by the public

PR http://www.youtube.com/watch?v=C5uIH0V

Tg_o

http://www.semissourian.com/story/1319007.html

BrandingThe strategy of differentiating products from those of the competitors by creating an identifiable image and clear expectations of a product

Branding Goals include name recall and customer loyalty…..

What about the costs?Marketing or promotional budget – the

financial amount made available by the company for spending on marketing during a certain time period

Spending limits can be set by: a percentage of sales, objective based budgeting, or competitor-based budget

PackagingPart of the image, in addition to having to be

the right packaging for the product

See Nescafe Case Study on page 327, Analyze (answer Qs in class)

DistributionChannel of Distribution – this refers to the

chain of intermediaries a product passes through from producers to final consumer

ConsumersManufacturersRetailers

DistributionCustomer service as an objective of

distribution (PCs sold only on line

Or farmer example….

Channel Strategy See page 29! Self Study in class, answer

question

Internet Marketing The marketing of products over the internetYou get automatic market research toohttp://www.walmart.com/

http://www.barnesandnoble.com/http://www.fedex.com/pe/

http://www.apple.com/