3.

1MARKETING, COMPETITION
AND THE CUSTOMER
 WHAT IS MARKETING?
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 ($300,000/ $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change in technology: as new technology becomes available, the old versions of products become outdated and people want more sophisticated features on products.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 trandportation infrastructures: better trandport systems mean 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 meand the firms can afford to charge low prices.
And low prices generally meand 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 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
Market segmentation is the process of dividing a market of potential customers into groups, or segments, based on different

characteristics. For example, Pepsi.co 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 product.

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 preferences- 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:
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
The marketing mix is the combination of marketing activities that an organization engages in
so as to best meet the needs of its targeted market.
Getting the mix of these elements right enables the organization to meet its marketing
objectives and to satisfy the requirements of customers.
The marketing mix is predominately associated with the 4P’s of marketing. 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.
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 Explaination Advantages Disadvantages
Channel

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