Premlal C R
Unit 3.1
MARKETING, COMPETITION AND THE
CUSTOMER
What is a market?
A market is a place where buyers and sellers
come together to exchange products for money. Market may be a place, a country
or worldwide.
What is marketing?
Marketing
is the management process which ensure the availability of products or services
to the people those who require them.
Marketing activities
1.
Conducting market research
2.
Developing products.
3.
Packaging or safeguarding the product.
4.
Branding the product
5.
Pricing the product
6.
Advertising and sales promotion
7.
Distribution.
The Marketing
department:
Marketing department consists of marketing manager, sales unit, research and development unit, promotion unit and distribution unit.
OBJECTIVES OF MARKETING MANAGEMENT (Mar
2016 Q.No-4e)
1. To increase sales revenue and profit
Increasing
sales revenue and therefore profits is the most obvious objective for a
marketing department.
2. To increase market share (market share is the percentage of total
market sales held by one brand or business)
Business
will also want to maintain its current share of the market, especially if the
market is very competitive, or may even be trying to increase its share.
3. To maintain or improve reputation of products or business:
This
may be necessary if the image of the business has been harmed by bad publicity.
For example, if a particular toy doll has harmed a child. Then the business
will need to find ways to convince customers that the problem has been
corrected.
4. To target new market or market segment:
Extending market to new area is not so easy. These could be markets in other countries or they could be different markets in their own country.
5. To develop new products or improve existing products:
Businesses
may also need to bring out new products to keep the customers’ interest in
their company. For example, Microsoft, which keeps on improving and developing
its operating system.
6. Prepare marketing budget.
(May/June 2016. Q no.2a)
Marketing budget is the proposed amount of money by a business to promote its products and services for a given period of time.
The
role of marketing (Mar
2018. Q no.3a P-2) (May/June
2023 Q.No3b P-2)
1. Identifying customer needs.
2. Satisfying customer needs
3. Maintaining
customer loyalty.
4.
Gain information about customers
5. Building customer relationships.
IMPORTANT TERMS RELATED WITH MARKETING
1. A market is a
place where buyers and sellers come together to buy and sell goods and
services.
2. The target market
is when a business decides to produce products for a particular group of
consumers.
3. Consumer market is
where product sold to the final consumer. For examples, food items, TV and cars.
4. Industrial market is
where products sold to other business for use in the production process. For example,
machinery and equipment.
5. Niche market is a very small part of the whole market. It is a
specialized market for particular product or service. For example- Lefty’s San Francisco- a retailer for left-handed people,
Wedding cake manufacturers- among cake manufacturers.
6. Mass market is the opposite of niche market this is where a
business sells the same product or service to the whole market. Example- rice.
7. Market share is the percentage of total sales held by one brand or
business in a market. (Oct/Nov 2022 Q.No-1a)
Why consumers spending patterns change?
1. The price of the product.
2. The price of competitor’s product
3. Changes in consumer
income.
4. Changes in
population size and structure.
5. Changes in tastes
and fashion
6. Spending on advertising and other promotional activities.
WHY SOME MARKETS BECOME MORE COMPETITIVE? (Oct/Nov
2017 Q.No-4a)
Almost all markets have
some level of competition within them. However, some markets have seen a much
greater increase in the level of competition than others.
1. Government
intervention in markets.
-
Privatization- selling off public sector to private sector
-Deregulation-
reducing formalities to start the business
-
Financial aids- government provides help to start business
2. Growth
of Trading blocs (Free trade between countries)
Trading
blocs are group of countries making agreement to trade without restrictions
such as duty, quotas, exchange control, etc.
3.
Developments in transport links
Growth of transport helps the speedy delivery of
resources across the borders, it creates more opportunities to enter business.
4. Development
of e-commerce and social networks.
Many businesses have
developed their own websites and use these to sell their goods so the development
of e-commerce has increased the size of a business’s market but it has also
greatly increased the level of competition in this market. Social network sites
such as Facebook are also being used by businesses to promote their products.
5.
Growth of Globalization
Increased international trade brings more chances to the arrival of MNCs. Growth of MNCs create more competitive atmosphere for the local or small businesses.
NICHE MARKETING (Mar
2019 Q.No-1a) (Mar 2021 Q.No-1b) (Mar-2021 Q.No-2b P-2)
Niche market
is a very small part of the whole market. It is a specialized market for
particular product or service. For example- Lefty’s San
Francisco- a retailer for left-handed people, Wedding cake manufacturers- among
cake manufacturers.
Benefits of niche marketing (May/June
2021 Q.No-1e)
1. Small firms are able
to survive and earn profit.
2. There is less competition in these markets.
3. Consumers will
usually pay more for a high status.
Limitations of niche marketing
1. The opportunity to
earn high profits might attract competitors and this will reduce prices and
future profits.
2. The size of the market is very small.
MASS MARKETING (May/June 2019 Q.No.2a) (Mar 2018 Q.No-3a) (Mar-2021 Q.No-2b P-2) (Feb/Mar 2023 Q.No-2e)
Mass market is the opposite of niche market this is where a business sells the same product or service to the whole market. Example- rice.
Benefits of mass marketing (Mar 2019 Q.No-3d)
1. It requires large
scale production. Larger firms often benefit from economies of scale which
reduces unit costs.
2. A much larger market
has the potential for high sales and profits.
Limitations of mass marketing
1. Much more
competition in the market which lowers prices and profit margins.
2. Not all markets are
large enough to support a mass marketing approach.
3. Consumers today are often looking for something slightly different from that offered by same product mass marketing. This has led to greater division of the whole market and reduced the scope for mass marketing.
MARKET
SEGMENTATION (Mar-2021 Q.No-2a)
Market segment is a selected part of whole market.
Market segmentation is dividing the whole market into segments by consumer characteristics and then targeting different products to each segment.
Methods
of Market segmentation
1. Geographic
segmentation: It is dividing
consumers in the market by geographic area.
a. Different regions
within in the same country.
b. Different regions of
the world.
c. Different countries
in the world
2. Demographic segmentation: It is dividing consumers in the market by factor
such as age, gender, income, ethnic background and social class.
a. By income group:
Here products are designed and sold by grouping people’s
jobs according to how much they are paid.
b. By age:
The products bought by people in different age groups will
not be the same. Young people buy different products to adults. The products
bought for babies will vary from those bought by old people.
c. By gender:
Some products are bought only by women or only by men. For
example, a shaving razor would normally be bought by a man, whereas perfume
would normally buy by women.
d. By use of the product:
Products may be similar or same models but they will be
marketed in a different way. For example, cars can be used by consumers for domestic
use or for business use.
3. Psychographic Segmentation
Psychographic Segmentation represents people’s lifestyle and their individual pattern of behavior, made up of their attitudes, beliefs, interests, social status and habits. Also, a single person earning the same income as a married person with three children will spend that income differently, buying different products
BENEFITS OF MARKET SEGMENTATION TO BUSINESS (May/June 2020 Q.No-3e) (May/June 2016
Q.No-2c) (May/June
2015 Q.No-2a P-2)
1. Goods and services
can be designed to meet the specific needs of consumers in each segment. This
is likely to increase sales.
2. It spreads the risk
of market failure. Small firms which may not be able to compete in the whole
market are able to operate in one or two segments.
3. It helps the
business to know market reaction quickly as the market is a small selected
group.
4. This helps to save
the cost of promotion because marketing strategies can be better targeted at
each segment. For example, posters can
be used for local market instead of TV advertisement.
5. It may be possible
to charge higher prices for very similar products in one segment than in
other. This is known as price
discrimination. For example, air travel
will often have three types of passenger: first class, business class and
economy class. They all travel on the same aeroplane, but pay very different
prices. This enables the airline to earn higher profits from those passengers
prepared to buy first or business class tickets.
Unit
3.2
MARKET RESEARCH
Market
research (Mar
2020 Q.No-4a) (May/June 2017 Q.No-1a.) (Mar 2016 Q.No-4a)
Market research involves collecting, recoding and analyzing data about customers, competitors, and the market for a product or service. It is a process of collecting information about a market.
IMPORTANCE
OF MARKET RESEARCH (May/June
2018 Q.No-2c) (Oct/Nov 2016 Q.No-4a P-2)
1. It helps to identify the changes in marketing technologies
2. It helps to identify consumer tastes and preferences
3. It helps to decide the best promotion methods
4. It helps to identify the competitors and their strategies
5. It helps to predict the future demand for the product
6. It helps to fix the price of a newly introduced product.
7. It helps to reduce the risk of business or product failure
TYPES OF MARKET RESEARCH
INFORMATION.
1. Quantitative information, which answers questions about the
quantity of something, for example, ‘How many sports shoes were sold in the
month of December?’ or ‘What percentage of children drink a certain sort of
Cola?’
2. Qualitative information, which answers questions where an
opinion or judgment is necessary, for example, ‘what do customers like about a
particular product?’ or ‘why do more women than men buy the company’s
products?’
MARKET
RESEARCH DATA COLLECTION- METHODS (Oct/Nov 2020, Q.No-3d) (May/June 2016
Q.No-2b P-2)
1. Primary
research, or Field research
2. Secondary
research or Desk research.
1.
PRIMARY RESEARCH:
Primary research or field research is the collection of original or first-hand data. It involves direct contact with potential or existing customers to collect data first time for own purposes.
Methods
of Primary research (Oct/Nov 2018 2a.
P-2) (Mar 2017 Q.No-3b)
(May/June 2023 Q.No2e)
1. Focus group (Oct/Nov-2015 Q.No1a)
In this
method, a group of consumers they are familiar with the products are invited to
discuss the topics such as quality, packaging, and advertisements. Eg: A Hair
shampoo manufacture can find out what consumers think about colour, smell and
packaging of a new shampoo.
Advantages
of Focus group (Oct/Nov-2019 Q.No2e).
1. It helps
to collect highly detailed responses form the customers.
2. Chance
of errors are lower in targeted data collection.
3. It helps
to get precise and confidential information to the business.
4. It helps
to get current and updated information to the business when comparing with
secondary research.
2. Observation.
Here,
the behavior of consumers is secretly observed by the market researchers. This
type of method is often used by large supermarkets who observe the behavior of
customers as they select their products from the displays.
3. Test Market
In this
method, a limited quantity of products is produced and sold in carefully
selected area of the market. Here the feed backs of buyers will be observed to
make changes in bulk production.
4. Sampling
Sampling
is possible if the market is wide and number of respondents are large. Here, instead
of collecting the feedbacks from all consumers, a few consumers are selected
randomly to collect the data.
5. Consumer surveys using questionnaires
Surveys
use to collect both quantitative and qualitative data with the help of
questionnaire. Methods of surveys are,
a.
Interview:- A trained interviewer asks set of questions-questionnaires
to the consumers and record the answers. Interview might face to face in the
business premises or may be telephonic.
b.
Postal survey:- Here,
questionnaires are sent to the address of the customers requesting to answer
and return.
c. Online survey:- In this method, business use internet and the website to carry out surveys. People can give feedbacks or stars according to the products and qualities.
What
is a questionnaire? (Oct/Nov
2019 Q.No-1b P-2) (Mar 2019 Q.No-1d)
A questionnaire is a set of questions systematically prepared and arranged for collecting the feedback or response of consumers.
Features
of a good questionnaire
1. Simple and familiar
terms should be used in questions.
2. Give choice for
answers
3. Do not focus to the
privacy of people.
4. Order of the
questions should be sequential
5. Questions should be logical and not be annoying.
Advantage of
Questionnaire
1. Large
amounts of information can be collected in a short period of time.
2. Many
people can be asked the same questions it helps to collect information from
different markets
3. Respondent
has time to consider questions so more likely to answer the questions but they
may not answer while in shop.
4. It is useful to collect genuine information if customers wish to answer anonymously.
Disadvantage of
Questionnaire
1. Response
may be poor if people interpret questions in a different way so business may
take wrong decisions.
2. People
may hide the truth if questions need lengthy response.
3. Simple
questionnaires cannot tell the meaning behind a response example yes or no
choice.
4. Business may need the help of expert to make the questionnaire attractive.
Benefits of sampling (Mar 2020 Q.No-2a
P-2) (Feb/Mar 2023 Q.No-4c)
1. It helps
to save the time to collect information because a few consumers are selected.
2. It helps
to save the cost of preparing questionnaire because a few prints are required.
3. It helps
to save the cost of travelling and data collection in the selected market.
4. It helps to get more accurate or relevant information – as potential customers can be targeted to collect data.
2. SECONDARY RESEARCH (Mar 2019 Q.No-4a) (May/Jun 2015, Q.No.3b)
Secondary
research or desk research is the use of information that has already been
collected and is available for use by others. The information may be from
either internal or external sources.
a.
Internal sources of information
This
is when information is obtained from inside the company. Examples of internal
sources of information include:
1. Sales records,
pricing data, customer records, sales reports.
2. Opinions of
distribution and public relations personnel.
3. Finance department
4. Customer Service
department.
b.
External source of information
This
is when information is obtained from outside the company. Examples of external
source of information include:
1. Internet: It
offers wide flat form to collect information for the current purpose through
different websites. However, care must be taken to check information as it is
not always accurate.
2. Libraries: Public
libraries offers facilities to the people to collect information through
magazines, journals, publications of industries, etc.
3. Media
reports or Newspaper: These
media help to share local, national and international information related with
business and economies. Most of the newspapers have a special column for
business news.
4. Government
report and statistics: These are official information collected
and publicized by the government organizations. Information such as population,
growth of industry, national income, foreign reserves, leading business, etc.
can be collected.
5. Market research agency’s reports: These are specialist agencies that carry out research on behalf of companies or anyone who commissions them. However, whilst the reports contain very detailed information about the market, they are expensive to buy.
Advantages
of secondary research (Oct/Nov-2019 Q.No.2e).
1.
Low cost way to gain information- no need to spend money for questionnaires or
appointing staffs.
2.
Information is available anytime so can be collected anytime.
3. It saves time for collecting data-if primary research is preferred it would take more time.
Factors
affecting the accuracy of market research information (Oct/Nov-2018 Q.No-2c)
(Mar-2021 Q.No-2c)
The accuracy of research information is depending on the following
factors.
1. Selected sample- Wrong sample selection, it may
be too small or not representing the population
2. Type of questionnaire- may be used complex
questions, calculations, time spending.
3. Method of data collection- not matching with
purpose of research.
4. Languages used by the interviewer- not familiar
to the interviewee
5. Attitude of interviewee- not ready to respond or
ignore
6. Out dated data- if secondary method is preferred
PRESENTATION
AND USE OF MARKET RESEARCH RESULTS
Tables could also be used to present data in situations such as when people are interviewed on why they like a product and they are given multiple choices.
Charts are a more meaningful and attractive way to present data. They are normally used to compare two or more sets of stats with each other.
3. Pictogram:
It is similar to a bar chart but uses symbols instead of columns. It becomes extremely effective if the data is short and simple.
4. Pie chart:
Pie charts are ways to
show the proportion that each component take up compared to
the total figure.
·
It is best use to present the proportion of a
sample
·
It is most useful where one or two results
dominate the findings
· It can represent data expressed as actual numbers or percentages
5. Line graph:
Graphs show
the relationship between two variables. It can be drawn in a straight
or curved line. It is usually to compare things with time and to
identify trends.
Unit 3.3
MARKETING
MIX: PRODUCT AND PRICE
Marketing
Mix
The marketing mix is a term which is used to describe the four keys of marketing decisions needed for the effective marketing of a product.
THE
ELEMENTS (FOUR Ps) OF THE MARKETING MIX (Oct/Nov 2020 Q.No-3b P-2) (May/June
2017.Q.No-4b P-2) (Oct/Nov 2016 Q.No-4b P-2) (May/June 2021 Q.No-1b)
“The right product at the right price
with the right promotion in the
right place”
1.
Product: The term product
represents goods or services. If goods, it highlights its design and quality.
2.
Price: The term price
shows the rate at which a product or service sold to the final consumers. Price
is not cost or profit.
3.
Promotion: The term promotion refers the methods used to boost the
sales of a product. It describes how the product is advertised and promoted.
4. Place: The term place refers to the channels of distribution selected for a product. It describes the movement of products from producer to the consumers including warehousing.
THE
MARKETING MIX: PRODUCT
The role of product in the marketing mix
The term product includes goods or services. It is probably the most important element in the marketing mix. Without the product, the rest of the marketing mix is pointless. After developing the product, the other parts of the marketing mix- price, promotion and place will be determined.
Product
development- Methods
Product development consists of the following
methods
1.
Develop new products- fresh in the market.
2. Changing an
existing product to meet the changing tastes of customers
3. Change an existing product to enter a new
market
New product development can be very expensive. Even if a
product is developed following market research, this does not guarantee
success.
Benefits of new product development (Oct/Nov 2021 Q.No-3a. P-2) (May/June 2022 Q.No-3a.)
1. Market research helps to identify the changing needs and
expectations of customers.
2. Developing a new unique product will bring competitive
advantages. The business may be able to charge a high price and achieve high
sales producing high profit.
3. New product developed for new markets increase potential
sales, revenue and profit.
4. Developing new products reduces the risk related with the current products.
Costs of new product development (Oct/Nov 2021 Q.No-3a. P-2)
1. Market research may be very expensive
2. The development of a new product often requires large
capital expenditure.
3. There is no guarantee that a new product will be a
successful in market. Risk is high
4. If the investment in a new product is financed by
borrowing and the product is not success, then this could threaten the survival
of the business.
BRANDING
(May/Jun 2015, Q.No.2b)
A brand is the name given by a business to its product or range of products. It allows a business to distinguish its products from those of its competitors. Creating a brand image increases a business’s sales and revenue.
Brand Image
(Oct-Nov 2020 Q.No-2b)
Brand represents the identity using a logo or unique name of a
product that distinguishes it from other similar products.
Brand image is the general impression or reputation of a product
held by consumers.
Brand
loyalty
The mental attachment of people towards a particular brand is known as brand loyalty.
The importance of Branding (Mar 2017 Q.No-4a.P-2)
1. Branding
helps to advertise the product.
2. Branding
helps the consumers to recognize the product more easily from similar products
3. Branded
products can be priced higher than less well-known brands
4. Branding
helps to launch new products onto the market without further introduction.
5. Branding
helps to expand the market.
6. It
helps to give the product a USP (Unique Selling Proposition)- USP is the marketing
strategy of informing customers about how one's own brand or product is
superior to its competitors.
PACKAGING
Packaging is the process of wrapping or protecting the products using various materials.
Importance of packaging (Oct/Nov-2015
Q.No1b) (Oct/Nov 2022, Q.No-2a.P-2)
1. It provides
safety and protection to the product without damage from external factors.
2. It helps to
carry products from one place to another place.
3. It helps to
provide information about the products as part of promotion.
4. It helps to
label the brand name on the products.
5. It helps to
indicate the details of contents of products.
THE PRODUCT LIFE CYCLE(May/June 2022 Q.No-3d.)
The PLC
shows the patterns of sales of a product from introduction to its withdrawal
from the market. All products have life cycle. The life cycle represents the
sales of the product overtime
The
product life cycle is divided into four main stages. (May/June 2017.Q.No-4a
P-2)
1. INTRODUCTION
STAGE: In this stage the product is just introduced or launched
on to the market.
Sales may be low at first because most consumers will not
be aware of its existence. It might result loss to the producers due to high
development cost- research and automation.
Business needs more budget as cost of advertising is
higher. Informative advertising is preferred.
Eg:- Artificial intelligence, robotics, etc.
2. GROWTH
STAGE:
In this
stage, sales start to grow rapidly. The advertising is changed to persuasive
advertising to encourage brand loyalty. Sales are increasing so profits start
to be made as the development costs are covered.
Eg:- Electric vehicles, Covid 19 medicines, etc.
3. MATURITY
STAGE:
In this
stage, sales now increase but very slowly. Competition becomes intense and
business should consider new pricing strategies such as competitive or
promotional pricing. A lot of advertising is used to maintain sales growth.
Profits are at their highest.
Eg:- Coca-Cola, introducing diet cola, etc.
4.
SATURATION STAGE
In this stage sales remain high but becomes
stable due to intense competition.
Profits
fall as sales are static and prices have been reduced.
Eg:- N95 Masks- demand remains same but may substitute with local masks and forced to reduce price.
5. DECLINE
STAGE: In this stage, sales of the product will decline as new
products come along or because the product has lost its market. The product
will usually be withdrawn from the market when sales become so slow and prices
have been reduced so far that it becomes unprofitable to continue the
production. Advertising is reduced and then stopped.
Eg:- VCR, Typewriter, Fax devices, etc.
The exact length of the life cycle, in terms of time, is affected by the type of product, for example, fashionable items will go out of fashion quickly whereas food products may last a very long time. The life cycle of some very popular brands, such as Coca-Cola, is many years, whereas the life cycle of fashionable cloth is often less than a year. New developments in technology will make original product obsolete and their life cycle will come to a quick end as new products are purchased in preference to old technology.
EXTENSION STRATEGIES IN MATURITY STAGE
1. Finding new markets for the
product – owners/managers will look to see if there are other
markets for their product, perhaps entering foreign markets.
2. Finding new uses for the
product – the research and development team might look to see if
the product can be used for something other than what it was originally intended
for, for example a fizzy drink which is promoted as having benefits as a sports
drink.
3. Adapting the product or the
packaging to improve its appeal to consumers – very often the
product does not change but the packaging is redesigned by the business to give
it a ‘fresh’ and more up-to-date appeal.
4. Increased advertising and
promotional activities – the marketing function looks at other
ways of promoting the product to perhaps appeal to a new market, or to remind
the existing market that the product is still available.
5. Rebrand the product and make it more appealing.
MARKETING MIX- PRICE
Price
Price is the amount paid by the customer to the supplier when buying a good or service. It denotes the value of the products. Price differs from cost. Price is the very important part of the marketing mix because it is often the most important influence on customer demand for a product
PRICING
METHODS (Oct/Nov-2018 Q. No-2e)
(Mar 2018. Q.No-3.e) (Oct/Nov 2017 Q.No.2b P-2) (Mar-2021 Q.No-2b) (Oct/Nov 2021 Q.No-3b P-2)
1. Market
skimming
2. Penetration
pricing
3. Competitive
pricing
4. Promotional
pricing
5. Cost
plus pricing
1. Market
skimming
A business may decide to set a high price for a new
product which is unique or very different from anything on the market, this
is known as market skimming.
For example, when Google introduced their Google glasses,
they were able to charge a very high price because it is a unique product and
consumers are willing to pay more for the very latest technology. Consumers may
also want the status of owing the latest version of a product and are prepared
to pay a high price for this.
The profit earned when using market skimming is very high.
Businesses sometimes need a large profit to get back the high costs of research
and development of the product.
Eg:- Google glasses, Apple products- iPhone.
Advantages
1. The
high price enables the firm to recover research and development costs.
2. The
high price may help the firm to create a quality image for its products
Disadvantages
1. The
high profits will eventually attract cheaper competitors.
2. Some customers who would like to buy the product are not able to do so because of the high price. This means a loss of sales.
2. Penetration
pricing (Oct/Nov 2016 Q.No-2b)
Setting a low price to attract customers is known as
penetration pricing. The price is set at lower level from similar products existing
in the market. The low price may encourage consumers to try the product. Once
the business has built up some customer loyalty for the product, it usually
increases the price to a level similar to that of its main competitors.
Eg:- Netflix, TV channels etc.
Advantages
1. Attracts
customers more quickly and helps the product to become established in the
market.
2. Can
increase market share in short run.
Disadvantages
1. Possible
loss of revenue due to lower prices.
2. Cannot recover any development costs quickly and if the life cycle is too short then development costs might never be recovered.
3. Competitive
pricing (May/June
2022 Q.No-1e.)
Setting a price similar to that of competitors’ products
which are already established in the market is known as competitive pricing. If
a business is to charge a higher price than its competitors it is likely that
consumers will not buy their product because they can get similar for cheaper.
Some industries are dominated by large companies. These
companies will set the market price for their products. Smaller firms,
producing similar products, will find it very difficult to set a price that is
very different to that of the market leader. This is sometimes called price leadership.
Eg:- Prices of accommodation in
resorts.
Advantages
1. Prices
are similar to competitors so business can compete on things they might be
better at such as quality product, or customer service.
2. Flexible
pricing, it can be adjusted with market situation.
Disadvantages
1. If
the market has a price leader then this price would need to be followed
otherwise customers and market share will be lost.
2. Still
need to find ways of competing in order to attract sales.
4. Promotional pricing
There are several methods of promotional pricing. They are
used for different reasons but all involve pricing the product as low as
possible for a limited period to get consumers to buy.
a. Loss-leader
pricing- In this method sometimes sellers offer a few products sell
below the normal price or cost price, sometimes even at a loss. These prices
attract customers into the store who will also buy other products at their
normal, profitable prices.
b. Buy-one-get-one-free-
This
pricing is used to create product awareness and develop customer and brand
loyalty.
c. Discount- This
is normal cut in selling price. It is also used to create product awareness and
build up customer loyalty. Sometimes it is used by businesses wanting to sell
off surplus stock.
Eg: Prices offered for the short run.
- New year, Ramazan, etc.
Advantages
of promotional pricing
1. Good
way to sell off unwanted inventory before it becomes out-of-date.
2. A
good way of increasing short-term sales and market share.
Disadvantages
of promotional pricing
1. Revenue
on each item is lower so profits may also be lower.
2. Can only be used for a limited time.
5. Cost-plus
pricing (May/June 2021 Q.No-1a)
Cost-plus pricing is based on the cost of making the
product and the addition of a fixed percentage of profit. It also known as mark-up
pricing. Here profit is added to the cost as fixed percentage and fixing a
selling price together.
Eg:-
Semi-finished goods such as tyre, steels, etc. sold to another industry based
on cost-plus pricing.
Advantages of cost-plus
pricing
1. Quick
and easy to work out price.
2. Makes
sure that the price covers all of the costs.
Disadvantages of cost-plus
pricing
1. Price
might be set higher than competitors or more than customers are willing to pay
this reduces sales and profits.
FACTORS
AFFECTING WHEN CHOOSING A PRICING METHOD (Mar
2020 Q.No-4c)
1. Type
of product- New or existing.
When
a product is new to the markets it might be priced lower than a product in the
growth or maturity stage. This is so it can gain sales and develop customer
loyalty to the product. When a product enters the decline stage its price might
be lowered to sell off the last remaining inventory.
2. Quality
of the product.
A skimming strategy – charging a very high price – might be
used for a product that has no close substitute. For example, the latest model
of iPhone or iPad is often launched onto the market at a very high price. Once
similar products enter the market, the competition will cause prices to fall.
3. Competition
in the market.
Very competitive markets will result in most firms charging
very similar prices for their product as consumers will buy the least expensive
if there is little to choose between them.
3. Brand
image of the business.
Companies such as Sony and Cadbury are able to charge a higher price of their products even though competitors have similar products on the market. This is because consumers trust the brand and consider the products to be of a better quality than cheaper alternatives.
4. Costs
of production.
Clearly, the price has to be greater than the cost of
making and marketing the product so that the business can earn profit.
5. Marketing
objectives of the business.
If the business wants to increase market share by volume of
sales then it might charge a lower price than competitors. However, if the
objective is to maximize profit, then they might have a different pricing
strategy.
6. Economic conditions
Pricing policies should be practiced
based on the market or economic conditions such as recession, boom, etc. During
recession the income of people may fall so it would affect the purchase too.
7. Government or legal control
Government controls such as tax, duty, deductions, etc. would affect the price of the product.
PRICE ELASTICITY OF DEMAND (Mar 2018 Q.No-3b) (Mar
2016 Q.No-4b) (Oct/Nov
2022 Q.No-2d)
The
demand for some products may change according to the change in price, it is
known as price elasticity of demand. Eg:- If price increases demand decreases
and vice versa.
Price elastic demand-
Products that are more responsive to changes in price.
Eg:- A small decreases in price brings high demand
for products.- Demand for cinema ticket, if price cut demand would increase.
Price inelastic demand-
Products that are not very responsive to changes in price. Eg:- If price
increases or decreases the demand and usage will be almost same. Demand for
bottled water and Medicines.
Unit 3.4
MARKETING MIX PLACE AND
PROMOTION
Marketing Mix- Place (Distribution Channels) (Mar 2020 Q.No.1b) (Mar 2016 Q.No-3b P-2)
This element of the marketing mix involves how to get the goods from the producer to the final consumer, it is also known as the channel of distribution.
Channels of distribution
a. Channel-1- Producer
to Consumer
In this channel of distribution, the producer
sells the product directly to the consumer. This is known as direct selling.
Producers may sell their own retail outlets or using online platforms.
Advantages
1. All
the profit is earned by the producer as no middlemen to share the profit.
2.The
producer controls all parts of the marketing mix.
3. It
is the quickest method of getting the product to the consumer. For example,
fresh fruit and vegetables.
4. The
producer can sell the products at lowest price
Disadvantages
1.
Consumers are not always able to check the product before they buy, for example
if purchased online.
2.
Delivery cost may be high.
3.
All storage cost must be paid for by the producer.
4. All promotional activities must be carried out and financed by the producer.
b. Channel-2
Producer - Retailer – Consumer (Oct/Nov 2021 Q.No-2c)
In
this channel of distribution, the producer sells the product to retailers. The
retailers then sell the goods in their shop to the final consumer. Mostly
non-durable goods are sold in this channel to avoid the delay in distribution.
Advantages
1.
Consumers can see and try the product before they buy.
2.
The cost of holding inventories of the product is paid, in part, by the
retailer.
3.
The retailer also will pay for the advertising and other promotional
activities.
4.
Retailers are usually more conveniently located for consumers.
Disadvantages
1.
The retailer takes some of the profit away from the producer.
2.
Producers lose some control of the marketing mix.
3.
The producer must pay delivery costs to the retailers.
4. Retailers usually sell competitors’ products as well.
c. Channel-3
Producer - Wholesaler -Retailer -Consumer
This channel of distribution uses two
middlemen- wholesalers and retailers. The producer sells large quantities of
the product to the wholesaler. The wholesaler then sells the product in small
quantities to the retailer, who then sells the product to the final consumer.
Durable goods are sold in this method.
Advantages
1.
The wholesaler buys in bulk from the producer and then breaks this down into
smaller quantities for retailers.
2.
Wholesalers will advertise and promote the product to retailers.
3.
The transport cost to the retailers is paid for by the wholesaler.
4.
Wholesalers will pay for the storage costs of the products purchased from the
producer.
5.
Distribution of goods through wholesalers helps the producer to sell its goods
to larger market.
Disadvantages
1.
Another middleman – the wholesaler – takes part of the profit from the
producer.
2.
Increases price due to more middlemen
3.
The producer loses even more control over the marketing mix.
d. Channel-4 Producer - Agent -
Wholesaler - Retailer – Consumer
This
channel of distribution is most commonly used when a business enters into a foreign market for the first time. Foreign
trade agents or freight forwarders are used in this channel. The agent has
specialist knowledge about the country and markets and can help the producer to
place their product with wholesalers and retailers abroad.
Advantages
1.
The agents find wholesalers and retailers in foreign countries so risk of
producers in marketing is reduced
2.
Helps the producer in communication and documentation issues abroad.
3.
Agents arrange transportation and warehousing abroad
Disadvantages
1.
More middlemen in the channel of distribution may reduce the profit to the
producer.
2. Price of the product would increase due to more middlemen
Advantages and disadvantages to the retailers buying from Manufactures (May-June 2021 Q.No-2b P-2) (May/June 2023 Q.No3e)
Advantages to the retailers
1. Manufactures
may arrange free delivery so cost of transportation can be saved
2. Manufactures
may offer trade discount for bulk purchase- Economies of scale
3. It
would help the consumers to get the goods at low price when the retailer bypasses
the wholesalers
4. It
helps the quick availability of goods without more middlemen
Disadvantages to the retailers
1. Marketing
risk may be increased
2. Storage
cost would increase as manufactures supply in bulk quantities and retailers
should maintain the warehouse
3. Risk
of wastage of products due to bulk quantity dealings
FACTORS INFLUENCING THE CHOICE OF METHOD OF
DISTRIBUTION. (CHOOSING A METHOD OF DISTRIBUTION)
There are a number of factors that
will influence the best method for the distribution of a business’s goods such
as:
1.
Cost of
transport- the cost of transporting goods to the customer
needs to be considered before selecting the mode of distribution, because, if a
business uses their own delivery vehicles and employ their own drivers to
deliver the goods, it can prefer a channel of distribution without more
middlemen.
2.
Nature of the product -some goods will need special
delivery conditions, for example fresh fruits and vegetables need special
transport vehicles to maintain the correct temperature. Perishable goods, such
as milk, bread, etc. need to get to the final consumer as quickly as possible
so a channel of distribution with more middlemen might not be appropriate.
3.
The type of market - markets that cover a wide
range geographical area are best served through wholesaler who can buy the
product in bulk from the producer and then break this down into smaller units
for retailers.
4. Distance from producer to
market -Normally in international market, business may
prefer agents such as freight forwarders but in domestic market, the business
may prefer without more middlemen.
MARKETING MIX –
PROMOTION
Promotion
involves all the methods used to boost the sales of goods or services. It tells
consumers about a product and tries to persuade them to buy it.
The
objectives of promotion
The
main aim of promotion is to increase sales.
1.
Attracting the attention of consumers by making them aware of the product, or
reminding consumers that the product is still on the market.
2.
Persuading consumers to buy the product
3.
Explaining how a product is better than competitors’ products
4.
Creating and developing brand image
5. Encouraging wholesalers and retailers to stock the product
The most common methods of promotion (May 2020 Q.No-2b P-2) (Mar 2020 Q.No-2b P-2) (Oct/Nov 2020 Q.No-4d) (Mar 2018. Q no 4.d) (May/June 2017 Q.No-1c.) (Oct/Nov-2015 Q.No1e)
1.
ADVERTISING
Advertising is a form
of communication by which information about goods, services and sellers are
shared among the public.
Objectives of
advertising. (Mar 2019 Q. No-3c)
(Oct/Nov 2016 Q.No-2c)
1.
Increase sales.
The main purpose behind advertising
is to increase sales by providing information about new services and goods to
the public.
2.
Persuade the public.
The methods or techniques used in
the advertising influence the public and force them to buy certain goods or
services; this results in the overall increase in sales as well.
3.
Sharing Information
The public get information about
various services and new products through the advertising. It enables them to
know how to use, where to purchase, price, benefits, etc.
4.
Expansion of market.
Advertising aims at maintaining or
expanding markets for existing products too.
Advertising does it by highlighting the attractive features and the uses
of existing products.
5.
Creation of goodwill.
Advertising creates reputation for the company and its products. It brings attraction to particular brand or company.
Advertising media (May/Jun
2015, Q.No.4d)
1. Internet
2. TV
3. Radio
4. Newspaper
5. Poster
6. Leaflets
7. Social
media
8. Trade journals and magazines(Oct/Nov 2022 Q.No-2e)
2.
Sales promotion (May/June 2019 Q.No.1d) (Mar 2019 Q.No-3a P-2) (May/Jun 2015, Q.No.3c) (May/June 2015 Q.No-2b P-2)
Sales promotion involves the total of all the
activities to boost the sales of particular product or service. It helps to
develop customer loyalty.
Sales
promotion include:
1.
Money-off coupons or vouchers
2.
Price discounts on special occasions- New year, Ramazan, etc.
3.
Point of sales displays in shops
4.
Loyalty card- Special cards issued to the regular customers and they gets
benefits from the repeated purchases.
5.
Competitions and games with cash or other prizes- Competitions for consumers
6.
Loss leader- Selling goods below the cost price or zero profit.
7.
After sales services- free service, installation, etc. in warranty period.
3.
Personal selling
Here the salesperson has direct contact with
the potential customer and will visit personally for selling products. This
enables the seller to build a relationship with the customer that can last
after the completion of sale and result in further sales in the future.
This can be an expensive form of promotion because more staff are needed to provide the service to customers those who require. Also, business provides incentives such as bonus or commission to sales staff so this reduces the profit to the business per item sold.
4.
Direct mail
Direct mail involves posting leaflets or other printed materials directly to the business offices or homes of potential customers. These potential customers have usually been identified through market research. This is very good way of communicating with a large market over a wide geographical area. However, it is so widely used that there is a danger of it being considered as ‘junk mail’ and thrown away before being read.
5.
Sponsorship
Sponsorship is where a business will pay to have its name linked to an event, or perhaps to an individual or group of individuals who are in the public eye.
Customer loyalty
Customer loyalty represents the customer’s mental attachment towards particular business or brands. It is determined based on customer satisfaction and experiences.
Measures
to increase customer loyalty (May-2020 Q.No-4d) (Oct/Nov 2017. Q.No-1d)
1. Increase regular communication with
customers to get feedbacks.
2. Offer good quality aftersales service.
3. Train staffs to offer a good quality customer
support service.
4. Get customer feedback frequently e.g. surveys to find out
how/what they need to do to improve
5. Resolve complaints quickly so that
customers don’t change to another option.
6. Offer rewards/ loyalty programs for
regular customers.
7. Offer extra services such as online/mobile
phone app assistance.
TECHNOLOGY AND THE MARKETING MIX
The development of technology has affected many
areas of business activities. The growth of IT resulted wide venue for
marketing management.
E-commerce
Many businesses, from sole traders through to multinational companies, have websites. One of the main benefits of this is to help them to sell their products over the internet. For this to work, customers must be prepared to use the internet to buy goods and services. The good news for businesses is that more and more consumers are using the internet to make purchase of items such as their weekly family shopping, books, clothing, furniture and much more.
Opportunities and threats of e-commerce (May/June 2020 Q. No-3d) (May/June 2018 Q.No-3d) (Oct/Nov
2017. Q.No-1e)
(March 2022 Q.No-2e)
Opportunities of e-commerce to
businesses
1. Increased
market – the business is able to sell its goods and
services consumers throughout the world- worldwide market
2. Reduced
costs –Cost of recruitment, salary of staffs and
other costs such as rent, etc. can be saved
3. Better
information – Through website, business can provide
all detailed information to customers as they need about goods and services
available.
Threats of e-commerce for
businesses
1. Increased
competition – Competitors can now be from any part of
the world, not just the local market.
2. Unfamiliarity
– Consumers are less likely to buy products from new businesses they don’t
know.
3. Increased cost of delivery and advertisement – Business
should spend more on advertisement and delivery of goods
Opportunities of e-commerce to
consumers. (Mar
2021 Q.No-1c)
1. Convenience
– Consumers can order their products from the comfort of their own homes at any
time of the day.
2. Wider
choice – Consumers are now able to buy goods which
they would not have had access to if they were not able to use their local
shops.
3. Lower
prices – Competition is worldwide and this reduces
prices.
4. Better information – Consumers are aware about goods and services available through the websites of the different businesses and also read reviews from consumers who have bought products from businesses.
Threats of e-commerce for
consumers
1. Fraudulent
practices – A website might take a consumer’s money and
not deliver the goods.
2. Hacking
– Consumers personal details or bank account details might be ‘stolen’
3. No
personal service – There is no face-to-face contact
between the consumer and seller.
4. Returning items – It can be inconvenient and expensive to return goods which do not meet the consumer’s need e.g. clothing that does not fit.
SOCIAL
MEDIA MARKETING (Oct/Nov
2018 Q. No 4d)
Apart from e-commerce, websites have other
uses. They can be used to promote a business and its products. In addition to
its own website, a business may pay to place banner advertisements, or
‘pop-ups’ on the websites of other businesses. This can advertise the business
especially if the ‘pop-ups’ or banner is placed on a related product’s website.
Recently, businesses have seen the benefit of using social networks such as Facebook, Viber, WhatsApp, Twitter and YouTube to promote their business. This is known as social media marketing.
Advantages of Social media marketing
1. Cover wide area –Social media access bring
wide area of market to the business comparing with traditional marketing.
2. Low cost method of advertising- So it
saves the cost of marketing and can offer products at low price.
3. Easy to update the changes and notify
customers- If any changes on price or products that can be notified to the
customers at free of cost but it would be expensive if TV or newspaper
advertisement.
4. It helps to create target group of
customers- So business can offer products to individual based on the
preferences of the group.
Disadvantages of Social media marketing.
1. It is not possible where there is no
internet access or banned social media.
2. Anyone can alter the message or post
against the business so it may affect the reputation of business.
3. Cost of network and devices for regular
updates.
Unit 3.5
MARKETING STRATEGY
Marketing strategy is a systematic plan to achieve the
marketing objectives using a given level of resources. Here the business combines
the 4 marketing mixes for developing strategies.
A
business produces a marketing strategy only after careful market research. The
marketing strategy also contains details of the marketing budget.
A
business’s marketing strategy is a plan to achieve its marketing objectives
using a given level of resources.
Once a
business has set its objectives then it needs to take decisions about product,
price, promotion and place to achieve them.
These decisions would depend to some extend on the available marketing
budget and the stage of product life cycle.
1. Protect
consumers from faulty and dangerous goods.
2. Prevent
businesses from using advertising to mislead consumers
3. Protect
consumers from being exploited in industries where there is little or no
competition.
Opportunities and problems of entering new markets abroad
E-commerce has enabled many businesses, of all sizes, to
enter new markets abroad. However, this expansion does not have to be through
e-commerce and there are many examples of businesses which now export their
goods and services to other countries using traditional distribution channels.
Although entering new markets abroad offers huge marketing opportunities, there may also be problems for businesses entering foreign markets.
1. Differences in language
Language and cultural
differences can cause problems for a business wanting to sell its goods and
services in another country. It results communication more difficult and
expensive.
2. Increased
expenses and hidden costs
Countries are separated by long
distances so it makes transport more expensive and issues due to late delivery
or damage to the products. So, it brings extra costs such as insurance,
middlemen, etc.
3. Social
and cultural differences
Social and cultural changes make the foreign trade more
difficult. Each country has their own cultural background so countries prefer
to import from countries which produce goods which meet their social and
cultural interests.
4. Differences
in legal controls to protect consumers
As mentioned above, countries have their own laws and
regulations to protect consumers from unfair or dangerous business activity. This
brings more legal complications and documentation for further trade. Each country
should protect their home industries and consumers from importers.
5. Foreign exchange rate fluctuation
Unexpected
exchange rate changes may bring loss to the traders in foreign exchange.
6. Lack
of market knowledge
Entering new markets for the first time brings two problems
for most businesses that the business does not know the market and the market (consumers)
does not know the business.
7. Lack of capital and cost of new recruitment
Business may need large capital investment to introduce new products or
entering into a new market.
METHODS
TO OVERCOME PROBLEMS IN FOREIGN MARKETS
1. Franchising
2. Licensing
3. Joint
ventures
4. Appoint
more agents
1. International
franchising.
Franchise
is an agreement allowing one business to trade under the name and logo of
another existing business. The business granting the franchise license is
called the franchiser and the
business taking out the franchise is called the franchisee.
International franchising is similar to franchising in the
same country. This method of entry into new markets in other countries is often
used by Subway.
Eg:- McDonald, Kentuky Fried Chicken(KFC), etc. in restaurant business.
2. Licensing
Here a business in one country permits a firm in a foreign
country to produce its branded product ‘under license’. The main benefit of
this method of international marketing is that the goods are produced in a
country by a firm that understands the local market. All of the problems of
entering foreign markets are removed, except perhaps the lack of consumer
knowledge about the product.
However, the limitation of licensing is the risk of poor
quality or other problems that could damage the reputation of the business whose
product it is.
Eg:- Male’ Aerated Water Company Pvt.Ltd.
3.
Joint Ventures (May/Jun 2015, Q.No.2d)
A
joint venture is a strategic
partnership (short, medium, or long-term) of a company or
groups of companies to work closely together on a particular business
opportunity.
Eg:- Allied Insurance Company of the
Maldives was established in 1985 as a joint venture Company between State
Trading Organization and Commercial Union Assurance Company of the United
Kingdom.
Merits
of joint ventures
1. It
reduces risk of production, marketing and cuts costs.
2. Each
business brings different expertise to the joint venture
3. Market
and product knowledge can be shared to the benefit of the businesses in the
joint venture.
Demerits of joint ventures
1. Any
mistakes made will reflect on all parties to the joint venture. This may damage
the reputation of all firms in the joint venture, even if they were not the cause
of mistake.
2. The decision-making process may be ineffective due to different business culture or different styles of leadership within each of the joint venture partners.
4. Foreign trade agents
Foreign
trade agents such as freight forwarders help the traders in foreign market in
many ways by charging commission. They manage transport, warehousing and
related documentation for the principals abroad.
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