IB Business and Management SL

IB Business and Management SL

Mr. Jackson

TOPIC IV: MARKETING

The emphasis in this topic is on the formulation of marketing strategies to achieve organizational objectives, and in response to the changing environment. Throughout this topic the focus should be on interpretation rather than calculation. Topic 4 should be studied in a way that encourages integration with other parts of the syllabus, for example, Topic 3, Accounting and Finance. The impact of new technologies should be integrated into each element of the marketing module.

ContentLearning Outcomes

4.1 The Role of Marketing Definition and nature of marketing

Market and product orientation

Marketing of goods and services

Define marketing and describe its relationship with other business activities.

The chartered institute of marketing gives this as a definition:"Marketing is the management process of identifying, anticipating, and satisfying customer requirements profitably"

Marketing contains many processes including:

- Selling products

- Advertising (not the same as Marketing)

- Market research

- Creating desire

- Product development/Product Management

- Consumer Behavior

- Communications

- Public Relations

Each process contains a series of actions which produce a change or development. Marketing is essential for every business.

Factors that have affected the marketing of businesses and the rise in the importance of marketing:

Economic growth

Fashion

Technology

Competition

Describe the difference between market and product orientation.

Many businesses in the past, and some today, could be described as product oriented. This means that the business focuses on the production process and the product itself.

A market oriented business is one which continually identifies, reviews, and analyses consumers needs. It is led by the market.

A market oriented business will have several advantages over one which is product oriented:

It can respond more quickly to changes in the market because off its use of market information. It will be in a stronger position to meet the challenge of new competition entering the market. It will be more able to anticipate market changes. It will be more confident that the launch of a new product will be a success.Explain the difference between the marketing of goods and services.

(See discussion Marketing Mix additional Ps)

The market

Market size

Market growth

Market share

Examine the characteristics of the market in which the firm is immersed.

What is a Market? A market is anywhere that buyers and sellers communicate to exchange goods or services. They can range from street markets, to markets for cars in many countries around the world, to goods and services bought over the Internet. Markets might be classified in a number of ways depending on their characteristics:

Geographically

Buyer consumer market / industrial (commercial) market Industry

Size

Market Size the size of the market can be estimated or calculated by the total sales of all businesses in the market. Markets differ in their size. The market for fast food is huge and there is room for growth, especially in overseas markets. The market for horse saddles is much smaller. Market size can be measured in a number of ways:1. Customer base2. Barriers to entry3. Location

Markets can grow either rapidly or slowly, or they might contract and get smaller. What factors are likely to influence whether a market gets bigger or becomes smaller and the rate of growth and decline?

1. Economic changes

2. Social changes

3. Technological changes

4. Demographics changes

5. Changes in legislation.

Calculate market share from given information.

Market share the term used to describe the proportion of a particular market that is held by a business, a product, a brand or a number of businesses or products. Market share is shown as a percentage. The market share of a business can be calculated as:

Sales of the business

__________________

X 100

Total sales in the market

Ex: If sales revenue for a business are $100 million in an industry that is worth a total of $400 million, the firms market share is 25%.Why might the measurement of market share be important? It might indicate a business that is a market leader. This could influence other companies to follow the leader or influence the leader to maintaining its position. It might influence the strategy or objectives of a business. A business that has a small market share may set a target of increasing its share by 5% over a period of time. It may also be an indication of the success or failure of a business or its strategy.

Hence, a common objective of established firms is to increase their market share. How?

Promotion of brands

Product development, improvements and innovations

Motivation and training of the workforce to deliver better customer service

Establishment of property rights through the use of copyright and patents

Use of more efficient channels of distribution

Marketing in non-profit organizationsAnalyse the marketing techniques of non-profit organizations.

It's important that these organizations understand that marketing is more than just the old sense of making a sale or obtaining a donation. Marketing is a way to satisfying the consumer and donor needs, but where does the nonprofit organization start?

1. Social (cause) marketing associate your product or service with a cause.

2. Catchphrases (slogans)

3. De-marketing the use of marketing to reduce the demand for socially undesirable products, such as tobacco.

4. Public relations fundraising events, sponsorships

5. Celebrity and hero endorsements

6. Internet technologies

7. Increase distribution channels

A marketing planDescribe the elements of a marketing plan

Marketing plan a detailed account of the companys marketing at present, what it wants it to be in future and how it intends to change it.

The marketing plan is concerned with a number of questions:

Where is the business at present? (SWOT analysis)

Where does the business wish to be in future? (setting objectives)

How will a business achieve its objectives? (marketing strategies)

4.2 Marketing Planning

Marketing mix- Product

- Place (distribution)- Price

- Promotion

- People

- Process

- Physical evidence

- Packaging

Apply the elements of the marketing mix to given situations.

Marketing planning a systematic process concerned with devising marketing objectives and appropriate marketing strategies to achieve these goals. It requires the collection and analysis of information about a particular market, such as market research data on existing and potential customers.The marketing mix is the balance of marketing techniques required for selling the product. Its components are often known as the four Ps:

Price - the price of the product - particularly the price compared to your competitors - is a vital part of marketing. There are two possible pricing techniques:

Market skimming - pricing high but selling fewer

Market penetration - pricing lower to secure a higher volume of sales

Product - targeting the market and making the product appropriate to the market segment you are trying to sell into

Promotion - this may take the form of point of sale promotion, advertising, sponsorship or other promotions.

Place (Distribution) - this part of the marketing mix is all about how the product is distributed. Current trends are towards shortening the chain of distribution.

There are those that now refer to another 4Ps bringing the total to 8! The other four are people, physical environment, process, and packaging.

People - this stresses the importance of people in the marketing process; often the first point of contact with any business is a human being - the impressions given by this initial contact may be very important. In addition, the role of human beings in developing customer relations is seen as increasingly important especially in a knowledge driven economy.

Physical Environment (Evidence) - this refers to the importance in making the physical environment related to the product or service as welcoming and as reflective of the business as possible - for example, look at the showrooms of car dealers - many are very well lit, stylish in terms of furniture and decoration and include seating areas, coffee making facilities, newspapers and children's play areas.

Process - the process by which the product is either manufactured or passed on to the final user. This might include the extended use of ICT facilities to speed up ordering, delivery, etc.

Packaging a products packaging is important in its overall marketing. This is because consumers often link the quality and design of a products packaging with the quality of the product itself. Unsuitable packaging may affect sales. The following factors should be considered: weight and shape, protection, convenience, design, information, and environmental factors.

The business plan will need details of all of these. What will your price be and why? How will you distribute the good or service? How will you promote the product? What is the unique selling point (USP) of your product? All these questions need to be answered in the business plan.

Discuss the effectiveness of a selected marketing mix in achieving marketing objectives.

No marketing plan can work without all four elements of the marketing mix. This is because the four Ps are interdependent. A high price for a low-quality product without any promotion and with limited distribution networks is a recipe for failure.Construct an appropriate marketing mix for a particular product or firm.

Ethics of marketingDiscuss the ethical issues of what is marketed and how it is marketed: nationally, internationally, and across cultures.

ETHICAL ISSUES IN MARKETING MIX ELEMENTS

ISSUE CATEGORY

EXAMPLES

PRODUCT

Failing to disclose risks associated with a product

Failing to disclose information about a products function, value, or use.

Failing to disclose information about changes in the nature, quality, or size of a product.

DISTRIBUTION

Failing to live up to the rights and responsibilities associated with specific intermediary roles.

Manipulating product availability

Using coercion to force other intermediaries to behave in a certain way

PROMOTION

False or misleading advertising

Using manipulative or deceptive sales promotion, tactics, and publicity

Bait and switch Health fraud

Get rich quick schemes

Travel fraud

Product misrepresentation Scare tactics Unsubstantiated claims (4 out of 5) Pester power Confusion marketing

Offering or accepting bribes in personal selling situations

PRICING

Price fixing

Predatory pricing

Failing to disclose the full price of a purchase

Several areas of concern in marketing ethics:

UNFAIR OR DECEPTIVE MARKETING PRACTICES

Marketing practices are deceptive if customers believe they will get more value from a product or service than they actually receive. Deception, which can take the form of a misrepresentation, omission, or misleading practice, can occur when working with any element of the marketing mix. Because consumers are exposed to great quantities of information about products and firms, they often become skeptical of marketing claims and selling messages and act to protect themselves from being deceived. Thus, when a product or service does not provide expected value, customers will often seek a different source.

Deceptive pricing practices cause customers to believe that the price they pay for some unit of value in a product or service is lower than it really is. The deception might take the form of making false price comparisons, providing misleading suggested selling prices, omitting important conditions of the sale, or making very low price offers available only when other items are purchased as well. Promotion practices are deceptive when the seller intentionally misstates how a product is constructed or performs, fails to disclose information regarding pyramid sales (a sales technique in which a person is recruited into a plan and then expects to make money by recruiting other people), or employs bait-and-switch selling techniques (a technique in which a business offers to sell a product or service, often at a lower price, in order to attract customers who are then encouraged to purchase a more expensive item). False or greatly exaggerated product or service claims are also deceptive. When packages are intentionally mislabeled as to contents, size, weight, or use information, that constitutes deceptive packaging. Selling hazardous or defective products without disclosing the dangers, failing to perform promised services, and not honoring warranty obligations are also considered deception.

OFFENSIVE MATERIALS AND OBJECTIONABLE MARKETING PRACTICES

Marketers control what they say to customers as well as and how and where they say it. When events, television or radio programming, or publications sponsored by a marketer, in addition to products or promotional materials, are perceived as offensive, they often create strong negative reactions. For example, some people find advertising for all products promoting sexual potency to be offensive. Others may be offended when a promotion employs stereotypical images or uses sex as an appeal. This is particularly true when a product is being marketed in other countries, where words and images may carry different meanings than they do in the host country.

When people feel that products or appeals are offensive, they may pressure vendors to stop carrying the product. Thus, all promotional messages must be carefully screened and tested, and communication media, programming, and editorial content selected to match the tastes and interests of targeted customers. Beyond the target audience, however, marketers should understand that there are others who are not customers who might receive their appeals and see their images and be offended.

Direct marketing is also undergoing closer examination. Objectionable practices range from minor irritants, such as the timing and frequency of sales letters or commercials, to those that are offensive or even illegal. Among examples of practices that may raise ethical questions are persistent and high-pressure selling, annoying telemarketing calls, and television commercials that are too long or run too frequently. Marketing appeals created to take advantage of young or inexperienced consumers or senior citizens including advertisements, sales appeals disguised as contests, junk mail (including electronic mail), and the use and exchange of mailing listsmay also pose ethical questions. In addition to being subject to consumer-protection laws and regulations, the Direct Marketing Association provides a list of voluntary ethical guidelines for companies engaged in direct marketing.

ETHICAL PRODUCT AND DISTRIBUTION PRACTICES

Several product-related issues raise questions about ethics in marketing, most often concerning the quality of products and services provided. Among the most frequently voiced complaints are ones about products that are unsafe, that are of poor quality in construction or content, that do not contain what is promoted, or that go out of style or become obsolete before they actually need replacing. An organization that markets poor-quality or unsafe products is taking the chance that it will develop a reputation for poor products or service. In addition, it may be putting itself in jeopardy for product claims or legal action. Sometimes, however, frequent changes in product features or performance, such as those that often occur in the computer industry, make previous models of products obsolete. Such changes can be misinterpreted as planned obsolescence.

Ethical questions may also arise in the distribution process. Because sales performance is the most common way in which marketing representatives and sales personnel are evaluated, performance pressures exist that may lead to ethical dilemmas. For example, pressuring vendors to buy more than they need and pushing items that will result in higher commissions are temptations. Exerting influence to cause vendors to reduce display space for competitors' products, promising shipment when knowing delivery is not possible by the promised date, or paying vendors to carry a firm's product rather than one of its competitors are also unethical.

Research is another area in which ethical is sues may arise. Information gathered from research can be important to the successful marketing of products or services. Consumers, however, may view organizations' efforts to gather data from them as invading their privacy. They are resistant to give out personal information that might cause them to become a marketing target or to receive product or sales information. When data about products or consumers are exaggerated to make a

selling point, or research questions are written to obtain a specific result, consumers are misled. Without self-imposed ethical standards in the research process, management will likely make decisions based on inaccurate information.

DOES MARKETING OVERFOCUS ON MATERIALISM?

Consumers develop an identity in the market place that is shaped both by who they are and by what they see themselves as becoming. There is evidence that the way consumers view themselves influences their purchasing behavior. This identity is often reflected in the brands or products they consume or the way in which they lead their lives.

The proliferation of information about products and services complicates decision making. Sometimes consumer desires to achieve or maintain a certain lifestyle or image results in their purchasing more than they need or can afford. Does marketing create these wants? Clearly, appeals exist that are designed to cause people to purchase more than they need or can afford. Unsolicited offers of credit cards with high limits or high interest rates, advertising appeals touting the psychological benefits of conspicuous consumption, and promotions that seek to stimulate unrecognized needs are often cited as examples of these excesses.

SPECIAL ETHICAL ISSUES IN MARKETING TO CHILDREN

Children are an important marketing target for certain products. Because their knowledge about products, the media, and selling strategies is usually not as well developed as that of adults, children are likely to be more vulnerable to psychological appeals and strong images. Thus, ethical questions sometimes arise when they are exposed to questionable marketing tactics and messages. For example, studies linking relationships between tobacco and alcohol marketing with youth consumption resulted in increased public pressure directly leading to the regulation of marketing for those products.

The proliferation of direct marketing and use of the Internet to market to children also raises ethical issues. Sometimes a few unscrupulous marketers design sites so that children are able to bypass adult supervision or control; sometimes they present objectionable materials to underage consumers or pressure them to buy items or provide credit card numbers. When this happens, it is likely that social pressure and subsequent regulation will result. Likewise, programming for children and youth in the mass media has been under scrutiny for many years.

In the United States, marketing to children is closely controlled. Federal regulations place limits on the types of marketing that can be directed to children, and marketing activities are monitored by the Better Business Bureau, the Federal Trade Commission, consumer and parental groups, and the broadcast networks. These guidelines provide clear direction to marketers.

ETHICAL ISSUES IN MARKETING TO MINORITIES

The United States is a society of ever-increasing diversity. Markets are broken into segments in which people share some similar characteristics. Ethical issues arise when marketing tactics are designed specifically to exploit or manipulate a minority market segment. Offensive practices may take the form of negative or stereotypical representations of minorities, associating the consumption of harmful or questionable products with a particular minority segment, and demeaning portrayals of a race or group. Ethical questions may also arise when high-pressure selling is directed at a group, when higher prices are charged for products sold to minorities, or even when stores provide poorer service in neighborhoods with a high population of minority customers. Such practices will likely result in a bad public image and lost sales for the marketer.

Unlike the legal protections in place to protect children from harmful practices, there have been few efforts to protect minority customers. When targeting minorities, firms must evaluate whether the targeted population is susceptible to appeals because of their minority status. The firm must assess marketing efforts to determine whether ethical behavior would cause them to change their marketing practices.

ETHICAL ISSUES SURROUNDING THE PORTRAYAL OF WOMEN IN MARKETING EFFORTS

As society changes, so do the images of and roles assumed by people, regardless of race, sex, or occupation. Women have been portrayed in a variety of ways over the years. When marketers present those images as overly conventional, formulaic, or oversimplified, people may view them as stereotypical and offensive.

Examples of demeaning stereotypes include those in which women are presented as less intelligent, submissive to or obsessed with men, unable to assume leadership roles or make decisions, or skimpily dressed in order to appeal to the sexual interests of males. Harmful stereotypes include those portraying women as obsessed with their appearance or conforming to some ideal of size, weight, or beauty. When images are considered demeaning or harmful, they will work to the detriment of the organization. Advertisements, in particular, should be evaluated to be sure that the images projected are not offensive.

Marketing auditExplain the value of a marketing audit as a business tool.

Marketing audit an analysis of the internal organization and procedures of the business and the external factors which affect its marketing decisions.

It will help identify the strengths, weaknesses, opportunities, and threats faced by the business. (SWOT analysis).

Marketing objectivesExamine how appropriate the marketing objectives are in achieving the goals of an organization.

Marketing objectives are the targets that the marketing department wishes to achieve. These objectives should be compatible with the firms overall objectives. They may include, amongst many others, and combination of the following: Maintain/increase marketing share Market leadership

Product positioning

Consumer satisfaction

Diversification

Market development

New product development

Product innovation

High market standing

Constraints/limitations on achieving marketing objectives: finance, costs of production, size and status of the firm, social issues, time lags, competition, state of economy, political and legal environment.

Market research

Role of market research

Primary and secondary researchAnalyse the role of market research.

Market or Marketing Research refers to marketing activities to discover the opinions, beliefs, and feelings of potential and existing customers, i.e. it serves to identify and anticipate the wants and needs of customers. Ad hoc market research as and when necessary basis.

Continuous research - on a regular and ongoing basis.

An essential part of the business planning process is market research. This may include:

Looking at the market - how big is the market? What type of consumers are we aiming to attract? What is the spending pattern of the target consumers? Are there any other market segments we could adapt the product to meet? For example, putting orange juice into mini-cartons to tap into the packed lunch market.

Looking at the product - this may mean some test marketing on a focus group or representative group of consumers and seeing what their reaction is.

Competitors - who are the key competitors? How can we differentiate our product from theirs? Where are they located? How have their sales been changing recently? What prices do they charge? Where do they sell their products or services?

Price - we may need to test how sensitive consumers are to price changes (how elastic is the price?).

Distribution - what are the most appropriate shops or outlets to sell the product in? What are their price expectations?

Promotions - if you are proposing any promotions or other advertising then it may be worth research to see what the reaction of consumers will be to these promotions. Evaluate different methods of market research.

There are two main types of market research. These are field research (primary research) and desk research (or secondary research). Primary (field) research - market research that involves gathering data first-hand for a specific study. For example, if an organization wanted to know how staff felt about their working environment, primary research would be used. Primary research is often used by firms to gather data and information directly from customers to identify their buying patterns and to anticipate changes in their behavior. Questionnaires

Observations

Experimentation

Online surveys

Advantages of primary research: up-to date, relevance, confidential and unique, objectivity.

Disadvantages of primary research: time consuming, costly, validity issues.

Secondary (desk) research involves the collection of second-hand data and information, i.e. the data or information already exists in anther form. This means that the data and information, such as reports in a newspaper or magazine, have been gathered by others.

Advantages of secondary research: cheaper and faster to collect, huge range of sources, insight into whole industry.

Disadvantages of secondary research: may be outdated, may be inappropriate format, may provide partial information, different purpose, available to competition.In addition to primary and secondary research, market research can also be classified as being qualitative getting non-numerical answers and opinions from respondents (focus groups, in-depth interviews) and quantitative factual and measurable results (closed questions, ranking and sliding scales).

Market segmentation and consumer profileAnalyse the usefulness of market segmentation and consumer profiles.

There are various ways to segment your market. These may include:

Demographically - according to the age structure of the population

Geographically - by country or region or area

Behaviouristically - according to the nature of the purchase, the use the product is put to, the loyalty to the brand and so on

Benefit - according to the use and satisfaction gained by the consumer

Socio-economically - according to social class and income levels

Segmentation analysis is a way of dividing up a market to identify trends in it. Segmentation analysis is used to create a profile of the target market. The following can be taken into account when segmenting a market:

Age, Gender, Level of Education/Occupation, Social Class, Income, Religion, Ethnic Grouping, Family Characteristics, Political Voting Preference, Geographical Region, Personality and Lifestyle, By Purchases.

This information can help the company a lot with its marketing efforts. It can be used to set quotas on a market research exercise or be used to decide what promotional method is most appropriate for the market.

In general, the following are advantages of segmentation:More efficient use is made of marketing resources - less waste.A competitive advantage can be gained in a particular part of a market.It's beneficial for small firms as uses less resources.Products can be modified to be exactly what the consumer wants.Marketing mix can be more targeted.

The following are disadvantages of segmentation:Increased costs to develop variations of the product.Higher stock holding costs.Higher advertising and other costs.

Consumer Profiles. A business might make use of consumer profiles to target the market. This is information which tells a business about consumers of a particular product and their characteristics. It might include where they live, how old they are, whether they are male or female, how much they earn or their lifestyle.

TargetingIdentify possible target markets.

Targeting means that each distinctive market segment can have its own marketing mix.Target Market the consumers which businesses choose to concentrate their selling efforts on.

Apply an appropriate marketing mix to the target market(s).

Mass Marketing the marketing of a product to all possible consumers in the same way.

Ex: Coca-Cola, Nokia, Nike, Apple and Microsoft all use this strategy to target all market segments in the same way. Governments also use this strategy when communicating public announcements such as anti drunk-driving campaigns.Niche Marketing the marketing of products to a particular small segment of the market.

Ex: Businesses that cater for minority sports, such as horse riding and Tae Kwon Do.

Businesses that provide specialty goods (such as Louis Vuitton handbags, Armani suits, Ferrari cars and Cartier watches) also operate in niche markets, catering consumers interested in high-end luxury goods.

Positioning

Corporate image

Position/perception maps

Unique selling point/proposition (USP)Discuss how organizations can differentiate themselves and their products from competitors.

Market positioning - an analytical tool that ranks different products, services or firms in relation to others in the market according to the views of the general public. Ex: in the cosmetics industry. Chanel is seen to be of higher quality and price compared to Rimmel. Similarly, most customers perceive Evian and Perrier as superior brands of bottled water.3 stages to positioning:

Identify the competitive advantages of the product.

Decide on which aspects of these strengths should be marketed.

Implement the desired positioning by using an appropriate marketing mix.Corporate image plays a vital part in the success of businesses. A poor image will not only drive customers away, but it can also impose damage that is irrevocable.USP (Unique Selling Point) any aspect of a product that makes it stand out from those offered by competitors. The USP explains why customers buy the product over rival brands. For example, its appealing packaging. 3 basic competitive strategies for businesses to achieve positioning success:

Cost leadership refers to businesses that aim to excel as low cost suppliers of particular products. Differentiation refers to businesses that produce distinct products buying methods such as branding to differentiate their products from those supplied by rivals firms. Focus refers to businesses that pay close attention to a particular market segment.Construct a position map from given information.

A position (perception) map is a visual tool which shows the customers perception of a product or brand in relation to others in the market.

The two-dimensional diagram plots customer perceptions using variables such as price and quality. Premium brands products that are high quality and high price. Examples include brands such as Lexus, Mercedes-Benz and BMW. Economy brands products that are low quality but appropriately priced. Supermarkets often supply no frills products to lure price sensitive customers. Bargain brands those that are of high quality but with low prices. This is not sustainable and the approach is only used as a short-term tactic to boost sales. Cowboy brands products that are of poor quality but highly priced. These products are positioned to deceive customers and are therefore only used as a short-term tactic to gain revenue.Quality

High

Low

High

Premium brands

Cowboy brands

Low

Bargain brands

Economy brands

Price

Uses of position maps Position maps allow a business to identify any gaps in its product portfolio. They can be used for targeting strategies. They can also inform businesses of a need for reposition their products - as markets and consumers tastes change a business may try to REPOSITION its products. This can involve changing the image of the product, its features or its target market.

Development of marketing strategies and tacticsDesign or evaluate marketing strategies for given situations.

Marketing strategies are the (long-term plans) taken by a business to help it achieve its marketing objectives.

A business can have a # of marketing different strategies:

1. Competitive strategies

2. Growth strategies

3. Market positioning

In developing a marketing strategy, marketing managers may choose from an array of tools, such as: perception mapping, Ansoff matrix, Boston matrix, SWOT analysis, Force field analysis.Apply an appropriate marketing mix to the strategy.

Successful marketing tactics and strategies are carefully planned out in order to achieve the organizations marketing objectives. The marketing strategy is implemented through an appropriate marketing mix. Successful marketing strategy entails examining the marketing mix from the perspective of consumers. This is called the 4 Cs of marketing: customer solution (product), cost to the customer (price), communication (promotion), and convenience (place). Execution of the marketing strategy should be done in a cost-effective way without the organization having to overspend its budget.

4.3 Product

Classification of productsClassify products by line, mix, and range.Product Line a variety of the same product that a business produces for customers of a particular market. Ex: Samsung produces different television sets such as LCD and plasma televisions. Its product line will include all the different sizes and types of televisions that Samsung manufacture. Crisps (potato chip snacks) made by manufacturers such as Walkers come in different flavors to meet the needs of different customer tastes within the same market.

Products in a product line typically differ in color, size, price or quality so that there is a greater chance that each product meets the needs of different customers.Most businesses will change their product line due to changes in the market. Some products will be entering their decline phase in the product life cycle, and will therefore be discontinued, whilst other products will be introduced in new markets and hence be a new addition to a firms product line.

Product Mix (also known as product assortment) describes the variety of the different product lines that a business produces.

Honda produces automobiles and motor bikes.

Unilever produces food, beverages, personal care and cleaning products. Its brands include Axe, Vaseline, Persil, Cif, Flora, Ben & Jerrys, Lipton, PG Tips, Pot Noodle, Marmite and Slim Fast.

Ikeas product mix includes sofas, beds, desks, indoor and outdoor plants, carpets and food.By having a wide product mix, sometimes referred to as the product portfolio, businesses should be able to increase overall sales as a variety of products are sold to a larger customer base. Adidas, for instance, can sell its sports shoes to one group of customers and sell its clothing or sports equipment to other groups of customers. In addition, a wide product mix allows a business to spread risks; a downturn in one particular product line may be offset by increased sales in other product lines.

Product Range

The product range of an organization refers to all product lines of a firms product mix, i.e. all the products sold by the business. For example, Apple Macintosh sells different types of computers (product line) and laptops, accessories and iPods. These collectively form Apples product mix; all the range of Apple computers, laptops, iPods and so forth form the companys product range.If there are two firms with the same product mix, such as Sony and Samsung, the business with more products in each product line (the firm with a wider product range) is likely to have higher risk bearing.

New product design and developmentDescribe the importance of innovation in an era of rapid technological change and discuss the problems of financing research and development.

New Product Development (Stages):

1. Market research

2. Product development and testing prototypes, test marketing.

3. Feasibility study is it marketable? Legal? Available technology? Patents?

4. Launch

Sources of new product development:

Market research

Product extensions

R&D

Me too developments

Research and Development

To remain competitive products have to evolve and improve. This doesn't happen on its own - money needs to spend on Research and Development to ensure it. One of the problems with R and D is that there is often a very long payback period for the money. The money has to be spent at the earliest stage of the product life cycle, but the product often takes a long time to develop. Once developed the market then often takes time to grow. The return from the money spent on R and D can often be a long time coming.

This is particularly true with aerospace industries, including ballooning. This is because technical developments take a long time and the products are often highly complex requiring several developments to take place before the full product can be developed.

In highly competitive markets businesses find that their profit margins are squeezed. This means that financial and human resources are often not available to develop new products. An example of this is in the market for budget fashion clothing. Businesses in this market tend to copy products developed for designed labels.

Product Life Cycle

Extension strategies

Relationship with investment, profit and cash flowAnalyse the relationship between the product life cycle and the marketing mix, and determine appropriate extension strategies.

Product Life Cycle

To be able to market its product properly, a firm must be aware of the product life cycle of its product. The standard product life cycle tends to have five or six phases:

1. Development

2. Introduction (Launch)3. Growth

4. Maturity

5. Saturation

6. Decline

Product Life Cycle

It can also be shown graphically. The graph often has two lines - one to show the level of profit, and one to show the level of sales:

The product life cycle shows the sales of a product over time and consists of four main stages a product can be at during its life:

Introduction: This contains new products that have just been launched - they are advertised heavily.

Growth: The product is still new - discounts are still being offered and people are still purchasing the product as not many people may have one. There may be few competitors.

Maturity and saturation: This is the first stage when sales stop increasing so rapidly. There may be more competition or other products which are preferred.

Decline: Sales begin to rapidly drop. The product may have become out of date or out of fashion.

Firms will often try to use extension strategies. These are techniques to try to delay the decline stage of the product life cycle. The maturity stage is a good stage for the company in terms of generating cash. The costs of developing the product and establishing it in the market are paid and it tends to then be at a profitable stage. The longer the company can extend this stage the better it will be for them.Extension strategies are used during the saturation and decline stage to try and extend the product's life cycle. These may include price reductions and other special offers. Sometimes companies may decide to target a new segment of the market as an extension strategy or develop an entirely new product.

The product life cycle is shown as a line graph and is useful to decide what marketing needs to be carried out for the product at different stages. It must be remembered that different products will spend different amounts of time at each stage of the life cycle.

Analyse the relationship between the product life cycle, investment, profit, and cash flow.

The life cycle of a product will therefore have varying effects on a firms level of investment, profits and cash flow.PLC stage

Investment level

Profit

Cash Flow

R&D

Very high (R&D)None

Highly -

Launch

Very high (marketing)Little, if any

-

Growth

High (persuasive)Yes, rising

+

Maturity

Less (mainly reminding)High; but little or no growth

+

Saturation

Extension strategiesHigh, stable

+

Decline

Little, if anyYes, but failing

+, but falling

Product portfolio analysis

Boston consulting group (BCG) matrixApply the BCG matrix to a given situation.

Product portfolio means the range of products owned by a business. Product portfolio analysis allows businesses to decide which products should receive more or less investment. For example, products that do not have high market share may be withdrawn or remarketed. The analysis allows a business to develop growth strategies by adding new products to an existing or new range.Boston Consulting Group Matrix (Boston Matrix)

Firms need to make sure that their product mix does not contain too many products within one category why?

Problem Children - These are products with a low share of a high growth market. They consume resources and generate little in return. They absorb most money as you attempt to increase market share.

Stars - These are products that are in high growth markets with a relatively high share of that market. Stars tend to generate high amounts of income. Keep and build your stars.

Cash Cows - These are products with a high share of a slow growth market. Cash Cows generate more than is invested in them. So keep them in your portfolio of products for the time being.

Dogs - These are products with a low share of a low growth market. These are the canine version of 'real turkeys!. They do not generate cash for the company, they tend to absorb it. Get rid of these products.

The Boston Matrix is a common tool in marketing.

Criticisms of this model include

Overly focused on increasing market share rather than consolidating it,

Ways in which products support each other.

Branding

Brand awareness

Brand

development

Brand loyalty

Discuss the importance and role of branding.

Branding form of differentiating a firms product from those of its competitors. Brand management is the application of marketing techniques to a specific product, product line, or brand. It seeks to increase the product's perceived value to the customer and thereby increase brand franchise and brand equity. Marketers see a brand as an implied promise that the level of quality people have come to expect from a brand will continue with present and future purchases of the same product. This may increase sales by making a comparison with competing products more favorable. It may also enable the manufacturer to charge more for the product. The value of the brand is determined by the amount of profit it generates for the manufacturer. This results from a combination of increased sales and increased price.

What is a Brand? A brand is a name, term, sign, symbol, design or any other feature that allows consumers to identify the goods/services of businesses and to differentiate them from those of competitors. Ex: Mc McDonalds-name; Nike swoosh logo, 3 stripes design Adidas, others: colour/slogan/tune, etc.

Well known brands are important to a business. It is argued that brands add value to a product. A business will hope that its products:

will be known by large amounts of consumers they will have brand awareness or recognition. will be bought rather thn those of others brand preference. will be bought by customers over and over again brand loyalty.DEVELOPING A BRAND

There is a # of important features in developing and maintaining a successful brand for a business.

1) Being the first or filling a gap.

2) Choosing the right brand name.

3) Finding a USP (Unique Selling Point)

4) Positioning the brand

5) Brand protection (copyrights/trademarks)

TYPES OF BRAND: Manufacturer brands, own label (private) (distributor) brands, generic brands.

BRANDING STRATEGIES:

1. Individual 2. Family 3. Combination 4. Brand extensions/stretching.

Reasons for Branding

There is a # of reasons why businesses use branding:

To create brand loyalty.

To differentiate the product.

To gain flexibility when making pricing decisions.

To help recognition

To develop a brand image

Problems with Branding

Branding might not always be a successful strategy for some businesses for # of reasons:

Some products are generic

Not all markets are suited to brands

It can be expensive to promote and maintain a brand.

4.4 Price Pricing Strategies

Cost-based

- Cost-plus

What factors influence the price a business sets for its product?1. Competition

2. Objectives

3. The Marketing Mix

4. Costs

5. Consumer perceptions and expectations

6. Market segment

7. Legal constraints

Analyse the appropriateness of each pricing strategy.

Cost-based pricing

All businesses are influenced by their costs when determining prices with costs acting as a bottom line when choosing a price. But some use COST-BASED PRICING as their strategy for price setting.

Businesses using cost-based pricing are those where the influence of cost is more important than other factors such as market conditions or competitors pricing.Cost plus pricing involves setting a price by calculating the average cost of producing goods and adding a MARK-UP for profit.

Ex: If a business produces 10,000 goods costing 50,000, the average cost would be 5.00. A mark up of 20 per cent would mean goods would cost an extra 1.00 and the price would be 6.00 per product. Retailers often use this method of pricing. Say that a department store buys a colour TV from wholesalers for 200 and its mark-up to allow for a profit is 100 per cent. The retail price to consumers will be 400.

Benefits:

1. Quick and simple way of setting a selling price.

2. Ensures that sales revenue will cover total costs and generate profit.

Criticisms:

1. A fixed mark-up does not allow a business to take market needs into account when setting prices.

2. No attempt is made to allocate indirect costs to particular products. This means they do not reflect the resources being allocated by the business to that particular product or product range.

Competition-based - price leadership

Competition based pricingWith COMPETITION BASED PRICING it is the prices charged by competitors which are the major influence on a producers price. It is used mostly by businesses which face fierce and direct competition. As a rule, the more competitive the market and the more homogeneous the products competing in that market, the greater the pressure for competition based pricing.

Price leadership in some markets, often controlled by a small number of large companies, there is an accepted price leader. They will decide first to increase or lower prices, knowing that other companies will soon follow.

Ex: When a petrol company changes the prices of a gallon of petrol or when banks change rates.

Market-based

- Penetration

- Skimming

Market-based pricingMARKET BASED PRICING methods are those which are based upon an analysis of the conditions in the market at which a product is aimed. As such, they are much better suited to market oriented businesses.

Penetration pricing used by businesses seeking to gain a foothold in a market, either with new products or with established products being placed in new markets. It involves pricing a product at a low level so that retailers and consumers are encouraged to purchase the product in large quantities.2 Reasons why businesses use penetration pricing:

1. Consumers are encouraged to develop the habit of buying the product, so that when prices eventually begin to rise they will continue to purchase it.

2. Retailers and wholesalers are likely to purchase large quantities of the product. This should mean that they will not buy from other suppliers until they have sold most of their stock. Businesses can thus gain a significant slice of the market.

Penetration pricing, because of its high cost, is often used by large firms operating in mass markets, such as those selling biscuits, sweets, washing powder and canned drinks.

It is also a policy used by new businesses or established businesses in other areas to break into a new market.

It is not a policy that is suitable for products with short life cycles. There is usually not enough time to recover the cost of lost revenue from the initially low price.Market skimming involves charging a high price for a new product for a limited period. The aim is to gain as much profit as possible for a new product while it remains unique in the market. It usually means selling a product to the most profitable segment of the market before it is sold to a wider market at a lower price.

2 Reasons why businesses adopt market skimming:

1. To maximise revenue before competitors come into the market with a similar product.

Ex: new fashions, new toys, new inventions, and new versions of products.

2. To generate revenue in a short period of time so that further investment in the product

can be made. Companies in the electronics and pharmaceutical industries often use

skimming for this reason.

4.5 Promotion

Types of promotion Above the line Below the lineDistinguish between the different types of promotion.

Promotion refers to methods of communicating messages to the market with the intention of selling a firms products.There are 3 key objectives to any promotional campaign: to inform, to persuade, and to remind the market about the firms product(s).

There are two main types of promotion and these are:

Above the line promotion - refers to the use of mass media sources (such as television, magazines and radio) to promote or to establish a favourable long-term image of a business, its brands or its products. Refers to any form of paid-for promotional technique through independent consumer media.Examples:

Television Radio Cinema Newspaper Magazines Outdoor advertising billboards, banners, posters Below the line promotion the use of non mass media promotional activities. Unlike ATL, this means no commission has been paid to external media agencies. Instead, the business has direct control over the production of all its advertisements.Examples:

Branding Slogans

Logos

Packaging

Word-of-mouth promotion

Viral marketing

Direct marketing telemarketing

Direct mail

Sales promotions

Personal selling

Point-of-sales promotion

Publicity

Sponsorship

Analyse the various promotional tools and discuss their effectiveness.

The choice of promotional techniques is likely to be heavily dependent on the sort of marketing budget that is available, and a business start-up is unlikely to looking as much at above the line promotion in its early days.

General advantages of above-the-line promotion include:

Due to potentially large audience figures, ATL promotion can reach a huge number of customers. Research has suggested that customers tend to take more notice of ATL promotion because they are more interesting and appealing.General disadvantages of above-the-line promotion include:

Promotion and advertising through the mass media may not appeal to the right segments or potential consumers. Many advertisements are simply ignored because people switch channels during television and radio commercial breaks; readers often take no notice of advertising placed in magazines and people complain about the number of pop-up advertisements appearing on the internet. They only cater for one-way communication and hence there is no easy way to determine the effectiveness of such promotional activities.Below the line tend to be cheaper than ATL.

Promotional mixPrepare an appropriate promotional mix.

In deciding on a promotional mix, marketers often consider the marketing acronym AIDA: Attention, Interest, Desire, Action

The choice of which medium you use is likely to be down to a number of factors, and these might include:

Cost

How well the method reaches the target market

The products position in its life cycle

The behavior of competitors

Legal restrictions

How well the medium enables you to reach your desired marketing mix

The effectiveness of the medium and the impact it has

Each method of promotion has its advantages and limitations. The important thing is to select the mixture of promotional activities that best suits the businesss particular needs.

The Chartered Institute of Marketing puts forward four key elements to make up a promotional mix. These consist of:

1. Advertising

2. Personal selling3. Public relations 4. Sales promotion.

4.6 Place (distribution)

Channels of distribution Distribution strategy

Discuss the effectiveness of different types of distribution channels.

Distribution is about one of the 4 Ps of the marketing mix PLACE. A business must get the product to the right place, at the right time. A product which is effectively priced and promoted may not be a success unless the consumer is able to purchase it easily.

A channel of distribution the route taken by a product as it passes from the producer to the consumer.

(Intermediaries firms which act as a link between products and consumers in a channel of distribution.)

A producer can sell its products: 1) Directly to the consumer 2) through a retail outlet 3) through a wholesaler 4) using an agent.

Place decides where the product is to be sold. There are 3 main distribution channels to choose from:Traditional - selling the product to wholesalers who will then sell the product on to retail outlets.Modern - producers selling the product directly to the retail outlet.Direct - the producer selling directly to the consumer such as door to door sales or over the internet.

The choice of Distribution Channel?

An efficient and cost-effective distribution strategy enables a business to make products conveniently available to potential consumers. This will therefore raise the likelihood of customers purchasing the products. There are several factors that can affect the distribution decision of a business. These issues include:

Cost and benefits

Product

Market

Time

Legal constraints

4.7 International marketing Entry into international marketsEvaluate the opportunities and threats posed by entry into international markets.

Entry into international markets:

Once a business has decided to market its product overseas, there are various strategies that it can use:1. Exporting

2. Direct investment

3. E-commerce

4. Joint venture

5. Strategic alliances

6. Franchising

7. Mergers

8. Acquisitions/TakeoversOpportunities and Benefits of International Marketing

Businesses may aim to market their products to an international audience for several reasons:

Capture a wider customer base

Economies of scale

Increase brand recognition

Spread risk

Extend the product life cycle

Gain more profitAnalyse given situations considering the cultural, legal, political, social and economic issues of entering international markets.

Issues and problems in entering international markets:Cultural issues cultural exports, local preferences, language, ethics, business etiquette.

Legal issues copyright and patent, pricing, monopoly, restrictive trade practices, consumer protection laws.Political issues international trade barriers: quotas, tariffs, embargoes, administrative barriers, subsidies.

Social and demographic issues socioeconomic and demographic conditions, pressure groups.

Economic issues competition, transportation costs, exchange rate fluctuations, interest rates and communication costs.

4.8 E-commerce

E-commerce

Business-to-business (B2B)

Business-to-customers (B2C)

Discuss the costs and benefits of e-commerce to firms and consumers.

E-commerce is business activity conducted through some electronic medium. This is becoming an increasingly important method for business to be involved in and many businesses will have taken the opportunity of setting up a Web site as a means of establishing a presence - electronically.

Types of e-commerce

There is a certain amount of jargon associated with e-commerce that it will be useful to know.

B2C - This refers to businesses engaged in servicing consumer demand directly - this could be a firm like Dixons, who now have an Internet presence, or it could be a small village caf. B2C refers to 'business to consumer'. Even small businesses will have to think about some element of e-commerce because they might have to think about using credit and debit card services which use electronic means of funds transfer.

B2B - This refers to businesses that service the requirements of other businesses. They will be suppliers of machinery, equipment, spare parts and other services such as payroll, insurance, banking services and maintenance.

The Advantages of E-Commerce

E-commerce provides another source of revenue for many organizations. The Internet gives businesses another channel of distribution. E-commerce also represents an opportunity for organizations to respond to competitors more quickly. Excessive packaging can be reduced. Retail outlets tend to have higher overhead costs. Customers have more choice and convenience. Speedy completion of transactions is possible.The Disadvantages of E-Commerce Set-up costs Finance charges imposed by Credit card companies for using their services Spam Not highly suitable for some businesses. More web pages than people in the world. Reliant on advanced technology. Internet is volatile as is prone to hackers and breakdowns. Shift to e-commerce trading from traditional methods used in retail outlets may result in job losses.Analyse the effect of e-commerce on the marketing mix.

Read pp. 603 607 E-commerce and the Marketing Mix