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Marketing. Market Segmentation. Extended response questions. 1 Describe the following marketing terms Product orientation Industrial market 2 marks
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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.
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.
