Marketing

Market Segmentation

Extended response questions

1 Describe the following marketing terms Product orientation Industrial market 2 marks

2 The confectionary market is a highly competitive market. Manufacturers seek ways to prolong the life of each confectionary brand. Describe the ways in which a confectionary manufacturer can prolong the life of its product. Use a diagram to support your answer. 6 marks

3 Explain the pricing strategies that a new business might employ when introducing a new product onto the market. 8 marks

Classification Tables

These tables basically segment the population into groups depending upon their occupation and so their income.

We now know these as socio-economic groupings but in the past they were grouped as social class.

Therefore A socio grouping is upper or upper middle class.

These tables are used by the government to assist in the provision of public services, but organisations also find them useful to help them decided the market for their products.

Taste, fashion and lifestyle

These factors are becoming increasingly more important – these factor influence consumer behaviour.

Consumers are easily persuaded to buy what is in fashion at that particular time.

Lifestyle is a behaviour pattern adopted by a particular community – by identifying lifestyles organisations can produce products to suit this lifestyle and target these people eg environmentally friendly groups or people involved in keep fit.

Age, gender etc

The population can be split into age groups and gender groups and allows organisations to target those groupings effectively eg the under 5s.

Products can be very effectively targeted male or female – and putting gender and age together is also a way of segmenting your market.

Household status

Increasing number of households made up of people living on their own – this has led to an increasing number of smaller houses being demanded. Also increase in the number of products designed for the single person eg ready made meals for one.

Disposable Income

Disposable Incomes have risen in the UK over the past few years – so this has led to increased spending on housing, furniture, holidays etc. The percentage spent on tobacco and jewellery has declined.

Age Distribution

UK is seen to have an ageing population – also the baby boomers in their late 40s and 50s make up a large percentage of the population.

There is a decline in the numbers of under 25s.

So organisations will make products to target the larger numbers in the population

Other factors which can influence the market PESTEC FACTORS So we can have political factors which affect the

market eg legislation eg the smoking ban Economic factors – eg recession, boom etc Social factors – changes in consumer tastes etc Technological – any new technology advances

which may occur Environmental – green issues eg more people

buying “green” products Competitors – what products your competitors are

making, changes being made, prices being charged etc can affect the market.

Branding - Task

What are the advantages of branding a product?

What are the disadvantages of branding a product?

What is power branding?

Branding

Research some successful brands Find out why they have become successful –

what has the organisation done to make these brands successful?

Has the brand expanded – eg power branding – what is power branding – find some examples.

What are the advantages and disadvantages of branding and power branding.

What is branding? Almost every business has a trading name, from the smallest market

trader to the largest multi-national corporation. Only a minority of those businesses however, have what could be classed as a ‘brand’ or a ‘brand name’.

There are many different definitions of a brand, the most effective description however, is that a brand is a name or symbol that is commonly known to identify a company or it’s products and separate them from the competition.

A well-known brand is generally regarded as one that people will recognise, often even if they do not know about the company or its products/services. These are usually the businesses name or the name of a product, although it can also include the name of a feature or style of a product.

The overall ‘branding’ of a company or product can also stretch to a logo, symbol, or even design features (e.g. Regularly used colours or layouts, such as red and white for Coca Cola.) that identify the company or its products/services.

Benefits of branding A strong brand name and logo/image helps to keep your

company image in the mind of your potential customers. If a customer is happy with your products or services, a brand

helps to build customer loyalty across your business. If your business sells products that are often bought on impulse,

a customer recognising your brand could mean the difference between no-sale and a sale.

A strong brand projects an image of quality in your business, many people see the brand as a part of a product or service that helps to show its quality and value.

If your business has a strong brand, it allows you to link together several different products or ranges

Disadvantages of branding If you wish to create and maintain a strong brand presence, it

can involve a lot of design and marketing costs, which can be very costly.

Every brand has a certain image to potential customers, and part of that image is about what products or services you sell. If you are known for selling just one product, and you want to sell another product, will you be able to do so effectively?

The process of creating a brand will usually take a long period of time.

One bad piece of publicity about your one of your branded products can affect your whole brand.

Success stories The Nike brand name is known throughout the

world, people can identify the name and logo even if they have never bought any of their products.

However, not only is the company name a brand, but the logo (The ‘tick’ symbol) is also a strong piece of branding in its own right. The majority of people that are aware of the company can also identify it (or its products) from this symbol alone.

The clothing and running shoe company Adidas is well known for using three stripes on its range of products. This design feature branding allows people to identify their products, even if the Adidas brand name and logo is not present.

Not so successful

The Sunny Delight drinks brand was one of the biggest in the UK just a year after its launch. However, constant bad publicity about the quality of the product has severely damaged the image of the brand, and sales have dropped for each of the past several years.

Power branding

Sony sells televisions, music equipment, consoles, camcorders, DVD players, video players, and etc all under the Sony brand name.

Multiple Brands

Cadbury’s makes a range of confectionary under many different sub-brand names such as Dairy Milk, Boost, Flake, and Time Out. All of these are sold under the product brand, but all feature the Cadbury’s brand name on the packaging.

The Marketing Mix

The Marketing Mix is important – organisations must get the elements of the Marketing Mix just right, as it can contribute to the success or failure of the product or organisation.

Made up of 4 elements – the 4Ps Price Product Place Promotion

Product

Product has to meet customers needs – otherwise they will not buy it.

The product can be changed or adapted to meet customer needs.

Products are the means by which organisations provide customers with benefits – so if someone buys washing up liquid they will benefit from clean dishes.

Core, actual and augmented product The core product is the basic product or service – provides the

benefits for the customers. Actual product – this is where a product is not necessarily

purchased for one single need, it might be bought to fulfil several needs – this is called the product concept. This is as the name suggests the product the business puts on sale. This is the product that has been designed, has a brand name, distinctive packaging, particular features.

Augmented Product – This is where organisations who are operating in a highly competitive environment must make their product more attractive to customers – to give themselves a competitive edge. Things like guarantees, free delivery, after-sales service, interest free credit, improving style, packaging, colour – anything to enhance the product’s image.

Examples

Product Basic function Augmented Feature

Shampoo To clean hair Nourishing formula, image, designer name, celebrity endorsement

Trainers Protect feet whilst playing sport

Celebrity endorsement, guarantee, improved grip/tread

Mobile phone

To make telephone calls

Camera, web facilities, style, guarantee, free airtime etc

Product Portfolios Most organisations provide a variety of products on

the market. Some of these products may have been on the

market for a long time eg Nestle – Kit Kat has been around for about 70 years whereas some of their other products may only have been on the market for months and may only last for a few years.

Organisations have to maintain their product portfolio and know each of their products and how well they are doing, make decisions about keeping them on the market, changing their appearance, or take them off the market – all this contributes to the success and the profits of the organisation.

Extension Strategies

These are used by organisations to prolong the life of a product. Organisations may put extension strategies in place if they feel that the product is good enough to continue and they can “bring it back to life”. Usually introduced at the maturity stage of the produce life cycle, where the product is still making sales but is beginning to wane.

Extension Strategies which can be used. New advertising campaign – to raise awareness of

the product eg with celebrity endorsement. Changing the target market and/or expanding their

target market eg males 25-35 to all males over 25. Relaunch the product - promote Change name Change packaging Adding accessories Updating the product New models or new versions, saying new and

improved.

Summary questions

Explain what you understand by the term market share.

Describe the difference between the core and augmented product.

What are the benefits to an organisation of having a range of products.

What are the extension strategies available to organisations?

What are the benefits to an organisation of developing an successful brand.

Price Organisations have to get the price right for their product. The price to be charged can depend upon the stage the product

is at on its life cycle. The price may also be decided by the costs of production – if the

costs of production are rising then the price of the product may have to increase to maintain a profit.

Organisations have to consider what their competitors are doing – are they lowering their prices – if so should we do so etc.

Just like the other elements of the marketing mix organisations have to get the price right or the company may not be successful.

Importantly when customers are looking at price they are looking for value for money – so the price of the product has to be right for that product and the perception of customers.

Price can be dependent on The company’s objectives Competitors’ prices The position of the product in the life cycle The cost of manufacturing The time of year eg Winter sales The level of advertising The profit level expected Suppliers’ prices The place where the product is sold The state of the economy eg recession, inflation Government pressure eg prices of cars were reduced due to

government pressure Over all it is how much customers are willing to pay for the

product.

Pricing Strategies

Destroyer Pricing – used to eliminate the competition – prices are lowered – this forces competitors to lower their prices – the weaker competitors will be forced out of the market – when competitors are forced out prices will rise again to normal level (or even higher) – used by financially secure organisations who can run at a loss for a short period of time – in the end they have increased market share, increased profits and increased sales.

Promotional Pricing

Prices are reduced for a short period of time to promote the product. Used by organisations who wish to breathe new life into the product or to get rid of stock quickly. So could be used at the maturity stage to extend the life of the product or when the product is in decline to get rid of stock before it is taken off the market.

Market Skimming

Tends to happen at the launch stage of the product life cycle – the product is introduced onto the market at a high price – the products tend to be new and innovative eg new technology products – the product is aimed at those who are willing to pay a high price for a new product – the company gets as much money in as possible – this helps to recoup some of the development costs. They then put the product down in price over a period of time to capture different market segments.

Price Discrimination

Where organisations may charge different prices for their product at certain times of day, different market segments, etc. Examples are cinema tickets, hairdressers charging OAPs less on certain days, cheaper evening and weekend calls on the telephone etc.

Place

Distribution of goods and services – getting them to right place at the right time.

Place can also contribute to the image of the product – or the image the organisation wants the product to have.

Getting the Place right is important – if you are not selling in the right place – you won’t get the sales.

What are? - Describe and give examples

Department Stores Retailers Co-operatives Wholesalers Independent Store Chain Stores Discount Stores Supermarkets

Wholesalers Buys in bulk, relieves the manufacture of the cost of making a

large number of small deliveries, cuts the cost of transportation, volume of paper work etc

Bears the risk of holding large quantities of stock – if there weren’t wholesalers manufacturers would need to tie up capital in holding stocks of their products and have further costs of storage space

Breaks down the bulk supplies and offers a wide variety of goods in relatively small quantities to the retailer. Sometimes they will finish off the packaging and labelling of goods.

Provides advice to the manufacturer – by being in the middle man wholesalers know what goods are selling well and they are well placed to advise retailers on what to buy and what not to buy and manufacturers on what to produce and not to produce.

Department Store

Eg Jenners, Debenhams, Harvey Nichols, Harrods. They have a large number of departments and tend to employ more than 25 people. They tend to have an upmarket image, charge higher prices, many of which are exclusive and not for the mass market. This type of store has been in decline in recent years.

Retailers

Break down bulk supplies of an assortment of goods from a range of suppliers and offer them for sale to the public

Provides information to the public through advertising, displays, and trained sales staff

Stores goods and prepares them for sale, marks prices on them and displays them on the sales floor

Physically sells the goods to consumers.

Independent Stores

Operate only one outlet, offers a personal service, is in a convenient location and close customer contact. Almost 80% of retailers are independents eg hairdressers, dry cleaners, furniture stores and corner shops. Groups of independent retailers might join together to benefit from bulk purchasing of stock or advertising

Chain Stores

A retail store which operates more than 10 outlets – some chains are specialist stores concentrating on a narrow range of items eg Top Shop, River Island sell clothes. Others are variety chains and provide a range of goods eg Marks and Spencers, Boots.

Supermarkets

A supermarket is defined as having more than 2,000 square feet of selling area and at least 3 check out points. Supermarkets are a key feature of shopping, they offer consumers a wide range of food and other products at low prices. They operate on a low mark-up and rapid turnover.

Very large supermarkets are sometimes called hypermarkets or superstores and they sell an even wider range of goods.

Co-operatives

Owned by “members” rather than shareholders and profits are distributed to the customers in the form of dividends instead of being paid to shareholders.

Discount stores

Offer a wide variety of products at discounted prices eg Matalan. They sell large quantities of a limited range of products at discount prices.

Channel of Distribution

3 main channels of distribution

Producer Producer Producer

Consumer Retailer Wholesaler

Consumer Retailer

Consumer

Producer to consumer Catalogue (Mail Order), Online, Factory shop, Farm

Shop Advantages – cheaper for the consumer, consumer

has direct contact with the producer. Producer advantages – direct control of marketing and selling of the product, build up good customer relationships, get to know their market and what the customers want from the products.

Disadvantages – producer has to have warehouse to hold stock and so incur all the costs of holding that stock, the producer has to make the customer aware of their product

Producer to retailer to consumer

Advantages to producer are that they do not have to have as much storage space – saves money, retailer will take on some of the responsibility of raising consumer awareness, it is the retailers responsibility to sell the product – if the stock doesn’t sell its not the manufacturers problem

Disadvantages – less control over the marketing and pricing of the product, less of a profit because they are having to sell at a price for retailers who will then charge a higher price, higher distribution costs delivering to lots of different retailers.

Producer to wholesaler to retailer to consumer

Advantages – producers can take advantage of the services provided by the wholesaler, cuts costs to the producer eg storage etc

Disadvantages – losing even more control over the marketing of the product – can’t guarantee that your product will be sold in the right place to create the right image for your product.

Questions on Marketing

Describe the benefits of a business having a range of products.

Identify the life cycle extension strategies available to an organisation

Identify the various pricing strategies that a business could use

What are the 3 main channels of distribution – give an advantage and disadvantage of each (to a producer)

Methods of Direct Selling Internet Selling – (e-Commerce) – many organisations now sell

their products on line – payment is made by debit or credit card. They can collect customer information and so can target offers at customers more effectively.

Attractive to customers as they can shop from home 24/7. Some consumers are unsure of this method of shopping as they

fear putting their banking details into a website – so organisations have to make sure they provide a secure facility to do this.

Sometimes products are more expensive to buy over the internet and there may be the added cost of postage – although a lot of organisations offer free delivery.

Direct Selling …. Mail Order goods sold to customers through catalogues. Large growth in mail order because of the convenience of

shopping from home. Most catalogues offer credit facilities – buy now pay later.

Mail Order companies also save costs as they do not need as much staff, sales floors, etc.

Some mail order products are exclusive only sold by that company and most companies offer their products for sale on their websites too.

Some customers do not like mail order as there is a lack of personal contact and high delivery charges and the products can be more expensive especially if using the company’s credit facilities.

The companies may have high advertising costs and there is a high instance of bad debts.

Direct Selling …. Direct Mail This involves posting promotional letters, brochures

or leaflets about their products through letter boxes. The products can be ordered over the telephone or by post. Eg Readers Digest.

Can target customers within a certain target market, can reach customers in a wide geographical area. Can generate personalised letters through mail merges which can improve sales.

However customers do not like “junk mail” through the door. Mailing lists can become out of date very quickly so letters can go to the wrong people – costing the company extra money.

Direct Mail …. Newspapers/Magazines

Companies place adverts in newspapers/magazines describing and showing their product for sale. Customers respond directly to adverts by filling in coupons to post or by telephone.

Direct Selling ….Personal Selling

Some companies employ sales staff who sell products door-to-door or by telephone (tele-sales). Eg double glazing companies or pharmaceutical reps who visit doctors.

Allows the product to be demonstrated, technical details can be explained and feedback can be received from potential customers.

Retailing trends

Increase in out-of-town shopping – shoppers prefer these as there is usually easy parking, convenience of having all the shops together, also have food outlets, leisure facilities etc.

Extended opening hours to fit in with people’s work and leisure times eg some supermarkets are open 24 hours.

Increased domination of supermarkets and large supermarkets sell a variety of products not just food.

Increase in Internet shopping.

Promotion

2 main types of promotion Above the Line – where organisations use

independent media such as newspapers, TV to reach large audiences. This means that people who may have no interest in your product will be finding out about your product – you are not specifically hitting your target market – but some of the people who have no interest may require your product in the future.

Below the Line Promotion – directly controlled by the organisation eg sales promotions, direct mail, trade fairs and personal selling. They target the specific section of consumers who are interested in the product.

Advertising

What effect does advertising have on sales? - Look at an organisation and its advertising

campaigns – Cadbury, Guinness etc What types of above the line and below the

line promotion have they used? Which media or medium do you think works

best for the organisation. You could look at skillsspace.co.uk

Control of Advertising

As advertising is seen as a powerful medium it is recognised that there has to be some control over adverts. There are certain bodies which have been set up to ensure that advertising meets the required standards.

Advertising Standards Authority (ASA)

This is a voluntary body set up to monitor advertising in the UK. It is responsible for making sure advertisers conform to the British Code of advertising and sales promotion practice.

Advertisements must be legal, honest, truthful and not cause offence.

Independent Television Commission (ITC)

This is a body which controls advertising on TB and radio. Some of their restrictions include current newsreaders not being allowed to endorse products. Also actors are not allowed to appear in commercial breaks during programmes in which they appear.

Pressure Groups

As we know pressure groups become interested in organisations at particular times. This is the same with advertising if an advert goes against the principles of certain pressure groups then they will object eg women’s groups protest against advertisements they consider to be sexist.

Trades Description Act 1968

This is a piece of legislation which has an impact on the advertising of products.

It states that products must match the claims made about them in adverts.

Eg Carlsberg Lager – note that their catch phrase says “possibly the best lager in the world” – they couldn’t say that it is definitely the best lager in the world as it would break the Trades Description Act

Advertising

Advertising although powerful is not the only way to sell goods and services – at best it can only stimulate interest.

The interest has to be converted into a buying decision by consumers – other marketing tools such as merchandising, distribution channels and packaging can help in the selling of products

Advertising is not the only promotional strategy – there are a number of others …

Sales Promotion

These are the techniques which are designed to encourage customers to make a purchase.

They usually complement advertising campaigns. The essential feature of sales promotion is that it is

a short-term inducement to encourage customers to act quickly and buy something, whereas advertising is a more long term strategy and communication process designed to build brand image and loyalty.

2 main types of sales promotion Into the Pipeline – designed to enhance sales of a product to

trade outlets to help them sell the product to their customers. Eg – Point of Sale (POS) material such as displays, posters,

promotional videos etc. They may also have sale or return arrangements under which the

supplier agrees to take back unsold stock Dealer loaders – eg retailer buys ten and gets one free. Credit facilities – to encourage retailers to stock a product –

retailers will get stock in and pay for it at a later date Staff training to retailers eg when a product requires technical

knowledge, demonstrations or explanations eg car manufacturers offer training to car dealership staff

Types of sales promotion cont

Out of the pipeline – this promotion helps trade outlets to persuade their customers to make a purchase.

Eg free trial packs, discount vouchers, bonus packs, money off coupons, buy one get one free, competitions, credit facilities, interest free credit.

Some Marketing Terminology Niche Marketing – companies identifying a “gap” in a certain

market. A product is aimed at a small section of the market. An example is Aston Martin cars who take advantage of a niche market – providing luxury sports cars to people who can afford them. Niche marketing allows businesses to:

Build up expertise in one type of product and customer Avoid competition as niches are often not considered profitable

by larger organisations But if a niche becomes popular and experiences market growth

then larger organisations may become interested and so it becomes a competitive market

There is also a high risk of failure as the organisation relies on a small market.

Differentiated marketing

This involves an organisation providing different products for different market segments eg some car manufacturers provide different types of car for different types of customer eg estate cars for people who perhaps have dogs, or 4x4s for people who live in rural areas, small cars for economy conscious people etc.

Undifferentiated

Where products are aimed at the population as a whole – product different products for different market segment eg Heinz uses undifferentiated marketing as most of its products are targeted at the majority of the population – it does not provide tins of beans for AB customers and another for CD customers.