Unit 2: Managing a business Marketing and the competitive environment Effective marketing Chapter...

Unit 2: Managing a business

Marketing and the competitive environment

Effective marketing

Chapter 28



Purposes of marketing

marketing: the anticipating and satisfying of customers’ wants in a way that

delights the consumer and also meets the needs of the organisation.

This definition provides an introduction to the purposes of marketing:• anticipating customers’ wants• satisfying customers’ wants in a way that delights customers• meeting the needs of the organisation



Marketing objectives

marketing objectives: the goals of the marketing function within an organisation.

A firm’s marketing objectives must be consistent with the organisation’s corporate

objectives (the aims of the business as a whole).

What sort of marketing objectives might a business set itself?

Compile a list of five possible marketing objectives for a business.

See if they fit into the types of marketing objective listed on the next slide.



Types of marketing objective

Marketing objectives may be categorised in the following ways:• size (e.g. reaching a sales target or certain market share) • market positioning (e.g. targeting a particular market segment)• innovation/product range (e.g. introducing five new products in the next

12 months)• achieving brand loyalty/goodwill (e.g. attaining 75% repeat customers) • security/survival (e.g. keeping customers in a declining market)



Consumer marketing v business-to-business marketing

Most people are familiar with businesses providing products for individual

consumers. This is known as business-to-consumer marketing (b2c marketing) or

consumer marketing.

However, many products (e.g. raw materials) are sold from one business to another.

This is known as business-to-business marketing (b2b marketing).

Business-to-business marketing is very different from consumer marketing.



Main features of business-to-business marketing

• Transactions are much larger, with perhaps millions of pounds worth of products

being bought and sold in one transaction.• Buyers and sellers are specialist employees of organisations and therefore have

greater knowledge and understanding of the products.• There is greater emphasis on quality and related factors, such as after-sales

servicing and maintenance.• Promotions and advertisements tend to be more informative.• Pricing depends on the level of competition in the market.• Personal relationships between buyers and sellers are more critical.



Niche marketing

A critical decision for many start-up businesses is whether to target a narrow range

of customers.

niche marketing: targeting a product or service in a small segment of a larger

(mass) market.

Niche marketing can help small firms, as there may be little competition.

What are the advantages and disadvantages of niche marketing?



Advantages and disadvantages of niche marketing

Advantages• There may be fewer competitors.• A small firm may be able to match the costs of larger rivals in a niche market.• The limited demand may suit a small firm that lacks the resources to produce on

a large scale.• A firm can adapt its product to meet the specific needs of the niche market. The

product will have a unique selling point (USP). • It can be easier for firms to target just one type of customer.

Disadvantages• The small scale of the market limits the chances of high profit. • Small firms in niche markets can be vulnerable to changes in demand. • An increase in interest in the niche market may attract larger firms.



Mass marketing

mass marketing: aiming a product at all (or most) of the market.

Examples of mass-market goods are sliced bread and pillows. In a mass market there

is only limited scope for targeting. For instance, there is little scope to modify sliced

bread to appeal to a niche market, although it is possible.

Can you think of ways of creating niche markets from sliced bread and pillows?

What are the advantages and disadvantages of mass marketing?



Advantages of mass marketing

• Large-scale production is possible, which will help to lower costs per unit through

factors such as bulk buying. • The mass market gives more opportunities to earn very high income.• Mass marketing allows firms to use the most expensive (and usually the most

effective) marketing.• The mass market allows businesses to fund the research and development costs

needed to introduce new products. • Mass marketing increases brand awareness, helping firms to increase sales and

prices.



Disadvantages of mass marketing

• High fixed capital costs are incurred (e.g. for large shops).• A fall in demand will lead to unused spare capacity, increasing unit costs. • It can be difficult to appeal directly to each individual customer because mass-

market products must be designed to suit all customers. As a result, prices tend

to be lower, reducing the opportunities for high profits. • There is less scope for adding value. As customers’ incomes increase, there is a

growing tendency for customers to want high-priced, unique products.



Product differentiation in the mass market

product differentiation: the degree to which consumers see a particular brand as

being different from other brands.

Product differentiation will benefit a business in two ways:• increased sales volume• greater scope for charging a higher price

Product differentiation can be achieved through:• design, branding and packaging to improve the attractiveness of a product • promotional and advertising campaigns to boost image and sales• different distribution methods (e.g. internet sales) • product proliferation — producing lots of varieties



Chapter 30

Using the marketing mix: product



Marketing mix: product

Key termsmarketing mix: those elements of a firm’s approach to marketing that enable it to

satisfy and delight its customers.

product: the good or service provided by a business.

product design: deciding on the make-up of a product so that it works well, looks

good and can be produced economically.

product development: when a firm creates a new or improved good or service, for

release on to an existing market.



Product design

The features of the product must appeal to the consumer.

The characteristics of a good product will vary according to the customer and

according to the product.

Select a product and identify five or six features that make it attractive to customers.



Key features influencing car purchases

The key features influencing car purchase are listed below. How well do they

compare to the product you chose in the previous activity?• reliability• safety• convenience of use• fashion• aesthetic qualities/appearance• durability• legal requirements



Development of new goods and services

Every new product or service passes through certain stages before it is launched.

The stages of new product development are as follows:• generation of ideas• analysis of ideas — feasibility testing• product development and testing the prototype• test marketing• launch



Influences on the development of new goods and services

Key factors influencing the development of new products are:• technology• competitors’ actions• entrepreneurial skills of managers and owners



Technology and the development of new goods and services

• New technology can improve the quality of existing products.• Technology can lead to the development of totally new products.• Improvements in technology can bring products into new segments.• Production technology has led to more cost-effective production.• Technology allows goods to be made to the consumer’s individual specifications.• Technology has improved business awareness of consumer tastes.



Competitors’ actions and the development of new goods and

services• The introduction of a new product by a competitor may encourage a business to

introduce its own new product.• New products from competitors can give ideas for a new product to a business.• Changes in consumer tastes may be detected through the actions of a

competitor.



Entrepreneurial skills and the development of new goods and

services• Identifying an opportunity. A skilled entrepreneur can be the first person to spot

a gap in a market.• Organisations may encourage and reward employees who come up with

innovative ideas that lead to new products.• Spending on research and development can lead to new inventions.



Other factors leading to the development of new goods and

services• market research• personal experience• personal need and inventiveness• environmental awareness



Unique selling points (USPs)

unique selling point/proposition: a feature of a product or service that allows it

to be differentiated from other products.

In developing a new product or service, many firms will attempt to differentiate it

from those of competitors.

If a firm can improve customer awareness and goodwill by making its product

different from rival products, it can increase both its sales volume and its price.

Loyal customers are also less likely to stop buying the firm’s product.

Select two products and explain the way or ways in which they achieve a unique

selling point (USP).

Indicate which USP is most likely to add value.

Explain your reasoning.



Product portfolio analysis

Very few firms rely on one product.

In a multi-product firm (e.g. Kellogg’s), the range of products is its product portfolio.

Firms plan their product range to spread their risks. If one product has low sales, it

may be supported by other, more successful products.

An example of the way in which a business can carry out product portfolio analysis is

the Boston matrix.



The Boston matrix: introduction

Boston matrix: a tool of product portfolio analysis that classifies products according

to the market share of the product and the rate of growth of the market in which the

product is sold.

This matrix is used to focus on two factors that help an organisation to assess the

situation of its products in the market:• market share• market growth

A product with a high market share is clearly in a strong competitive situation.

A product in a high growth market should have opportunities for future growth.



The Boston matrix



Stars, cash cows, problem children and dogs

In small groups compile a list of ten products. Categorise them under the four

headings above.

Your ten products must include at least two stars, two cash cows, two problem

children and two dogs.



Product portfolio analysis: conclusion

Ideally a firm will want a portfolio of cash cows and stars.

However, in the long term these products may decline, so new products with a low

market share but in high growth markets will be ideal replacements.

The Boston matrix is just a generalisation. Cash cows can lose money and dogs can

be very profitable in the right circumstances.

Overall the Boston matrix says relatively little about a product and should not be

used without reference to other factors, such as profitability.



Product life cycle (1)

product life cycle: the stages that a product passes through during its lifetime.

These stages are: • development• introduction• growth• maturity• decline



Product life cycle (2)



Strategic use of the product life cycle

In theory, a firm should aim to have as many products in ‘maturity’ as possible, as

these are the products that should generate most profit.

However, to achieve this in the long run a firm needs to have a policy of new product

development, so that it has products in the introduction and growth stages which will

eventually enter maturity.

ConclusionFirms attempt to have a balance of products under development and in the

introductory and growth stages, financed by the profits generated by their mature

products.



Extension strategies

The main focus of the product life cycle is to keep products at their peak: that is, in

the maturity stage.

This is achieved through extension strategies.

extension strategies: methods used to lengthen the life cycle of a product by

preventing or delaying it from reaching the decline stage of the product life cycle.

Think of three products or services in the maturity stage of the product life cycle.

Suggest different ways (extension strategies) that might be used (or have been

used) to keep these products in the maturity stage of the product life cycle.



Examples of extension strategies

The main types of extension strategy are:• attracting new market segments• increasing usage among existing customers• modifying the product• changing the image• targeting new markets• promotions, advertising and price offers

Provide one real-life example of each of these types of extension strategy (excluding

examples given previously).



Chapter 31

Using the marketing mix: promotion



Promotion: key terms

promotion: in the context of marketing, the process of communicating with

customers or potential customers. (Promotion can also describe communication with

other interested groups, e.g. shareholders and suppliers.)

advertising: the process of communicating with customers or potential customers

through specific media (e.g. television and newspapers).

Note that advertising is just one element of promotion, although it is often the key

element of the promotional mix of a product.



Classifying promotions

Promotion and advertising can be informative or persuasive. • Informative promotion is intended to increase consumer awareness of the

product and its features. • Persuasive promotion is intended to encourage consumers to purchase the

product, usually through messages that emphasise its desirability.



Aims of promotion: AIDA

Promotion has a range of different purposes. AIDA describes the process of a

successful promotional campaign.• Attention. The first step in a promotional strategy is to get the attention of the

consumer. • Interest. Having gained the attention of the consumer, promotions will then try

to make people interested in the product.• Desire. Promotions will then try to give consumers reasons for purchasing the

product — desire for it.• Action. The final step is converting desire into the action of purchasing the

product.



Elements of the promotional mix/types of promotion

promotional mix: the coordination of the various methods of promotion in order to

achieve overall marketing targets.

There are many different types of promotion. The main examples are:• public relations (PR)• branding• merchandising• sales promotions• direct selling• advertising• sponsorship• trade fairs and exhibitions



Public relations (PR)

• PR involves gaining favourable publicity through the media. • An article in a newspaper that praises a product can raise awareness in a very

cost-effective way.• It is not paid for, so it is more authentic and trusted by consumers.• It may be unreliable, as it depends on the media’s use of the story.• It is extremely cost-effective when it does work.



Branding

• Branding is the process of differentiating a product or service from its

competitors through the name, sign, symbol, design or slogan linked to that

product. • Brands can add value to a product and a firm, as consumers are more likely to

buy well-known names.• If one product within a brand gains a good (or bad) reputation, it can affect

customers’ loyalty to all of the products using that brand identity.



Merchandising

Merchandising describes methods of persuading consumers to take action at the

‘point of sale’ (PoS).

Some examples are:• persuading retailers to offer more shelf space to a supplier• providing attractive displays to persuade consumers to buy at the point of sale• using pleasant smells to entice customers

Merchandising is well-suited to ‘impulse buys’.



Sales promotions

These are short-term incentives used to persuade consumers to purchase.

Think of five different examples of sales promotions. Which of the methods that you

have chosen is likely to be the most successful? Explain why.

Popular methods include:• competitions• free offers• coupons• ‘three for the price of two’ or BOGOF (buy one get one free) offers• introductory offers• product placement (featuring a product in a film)• credit terms



Direct selling

This takes four main forms:• direct mail• telephone• door-to-door drops• personal selling

Why is direct selling often unpopular with customers?

Why is it more likely to be used in business-to-business (b2b) marketing than

business-to-consumer (b2c) marketing?



Advertising

The main advertising media are:• television• radio• cinema• national newspapers• posters• magazines• internet and other electronic media• regional newspapers



Comparing advertising media

In small groups, select two of the advertising media listed on the previous slide.

Research the costs and popularity of these two forms of media and present the pros

and cons of each.

Explain one product/ business that your first advertising medium would be used to

promote, and a second product/business that would be more suited to the second

medium you have researched. Explain your reasoning.



Sponsorship

Sponsorship means giving financial assistance to an individual, event or organisation.

Common examples include companies sponsoring:• sports teams (e.g. football clubs)

• venues, such as the O2 Arena

• good causes (e.g. charity events)

A company can create goodwill and closer links by inviting customers to events.

However, sponsorship can be unpredictable. An unexpectedly good cup run for a

rugby team, or a scandal involving the person sponsored can affect the results.



Trade fairs and exhibitions

Most exhibitions and trade fairs are used for business-to-business marketing.

They can be used to:• ‘network’ (get to know people in other businesses)• demonstrate products to potential customers• provide detailed information and brochures• allow customers to test out and order products



Influences on the choice of promotional mix

When deciding what form of promotion to choose, a business will consider:• objectives of the campaign• costs and budgets• the target market• the balance of promotions needed to achieve AIDA• legal factors (e.g. advertising restrictions)• external factors (e.g. consumer preferences)

Think of a promotional campaign in which all of the factors listed above will influence

the promotional mix.



Chapter 32

Using the marketing mix: pricing



Pricing strategies

There are five main pricing strategies.

price skimming: a strategy in which a high price is set to yield a high profit margin.

penetration pricing: a strategy in which low prices are set to break into a market

or to achieve a sudden spurt in market share.

price leadership: a strategy in which a large company (the price leader) sets a

market price that smaller firms will tend to follow.

price taking: a strategy in which a small firm follows the price set by a price leader.

predator (or destroyer) pricing: a strategy in which a firm sets very low prices to

drive other firms out of the market.



Price skimming

Features• A high price is set to yield a high profit margin. • This price is often used during the introduction of a product, when it appeals to

early adopters.• In the long term, firms use this strategy for products that they hope will ‘skim the

market’. This means appealing to a more exclusive, up-market type of customer.• It is suited to marketing objectives such as maximising value added or profit

margins, and establishing a prestigious brand name.



Penetration pricing

Features• This is the opposite of price skimming. Low prices are set to break into a market

or to achieve a sudden spurt in market share. • Many firms use this strategy when a product is first released or to entice new

customers so that market share can be increased.• It is suited to marketing objectives such as maximising sales volume (rather than

value) and increasing market share.



Price leadership and price taking

Features

• In price leadership a large company (the price leader) sets a market price.• Price takers are the smaller firms that tend to follow the price leaders when

setting price.• Usually the price leader is the firm with the largest market share. • Small firms will usually be price takers because a lower price could trigger a

price war, while a higher price will mean that they lose customers. • Both strategies are suited to a marketing objective that is based on maintaining

market share and stability in the market.



Predator (or destroyer) pricing

Features• In this strategy, a firm sets very low prices to drive other firms out of the market. • Predator pricing acts against the consumer interest (by eliminating choice), so it

can be ruled illegal, but this is often difficult to prove. • The marketing objective is to reduce the number of competitors in the market.



Pricing tactics

Pricing tactics are adopted in the short term to suit particular situations. There are

two main pricing tactics.

loss leadership: a tactic in which a firm sets a very low price for its product(s) in

order to encourage consumers to buy other products that provide profit for the firm.

This is often used by supermarkets.

psychological pricing: a tactic intended to give the impression of value (e.g.

selling a good for £9.99 rather than £10).



Pricing: activity

Bring in products or evidence of purchases (perhaps receipts for services) that

demonstrate each of these pricing strategies and tactics:• price skimming• penetration pricing• price leadership • price taking• predator (or destroyer) pricing

Which strategies and tactics appear to be used most often?



Influences on the pricing decision

Two main influences will be examined:• costs of production• price elasticity of demand



Costs of production

Pricing strategies and pricing tactics depend upon setting a price that customers find

acceptable.

It is also necessary for a business to make a profit, so the price of a product must be

set in order to cover costs (unless a loss leader or predator pricing approach is being

used).

To achieve this goal, businesses will often use a method of pricing known as cost-

plus pricing.



cost-plus pricing: a method of pricing in which the price set is the average cost

of a product plus a sum to ensure a profit.

Example:

A clothes retailer adds 150% to the wholesale cost of a dress which costs £30

to buy.

The price of the dress is £30 + (150% of £30) = £30 + £45 = £75.

Calculate the price of a tin of tomatoes which costs 30p and has a 40%

mark-up.

Cost-plus pricing



Example:


to buy.



mark-up.



Cost-plus pricing



Example:


to buy.



mark-up.

Answer:

30p + (40% of 30p) = 30p + 12p = 42p



Factors influencing the percentage mark-up

The percentage added on will depend on a number of factors:• the level of competition• the price that customers are prepared to pay• the image of the product/firm• the firm’s objectives (e.g. whether it is aiming to break even, maximise profit or

achieve a high market share)• the level of risk involved



Price elasticity of demand

price elasticity of demand: the responsiveness of a change in the quantity

demanded of a good or service to a change in price.

price elasticity of demand = % change in quantity demanded

% change in price



Elastic and inelastic demand (1)

Demand can be elastic, inelastic or unitary.

Elastic demandIf the percentage change in price leads to a greater percentage change in the

quantity demanded, the answer will be greater than 1 (ignoring the minus sign). This

indicates that demand is relatively responsive to a change in price.

Inelastic demandIf the percentage change in price leads to a smaller percentage change in the

quantity demanded, the answer will be less than 1 (ignoring the minus sign). This

indicates that demand is relatively unresponsive to a change in price.



Elastic and inelastic demand (2)

Unitary demand

If the percentage change in price leads to an equal percentage change in the

quantity demanded, the answer will be equal to 1 (ignoring the minus sign). This

indicates that demand is of unitary (or unit) elasticity, i.e. the change in demand is

equivalent to the change in price.



Elasticity: example calculation

Price falls from 25p to 15p, leading to an increase in quantity demanded from 200 to 240 units.

% change in quantity demanded = change in quantity demanded × 100 original quantity demanded

= (240 – 200) × 100 = +40 × 100 = +20%200 200

% change in price = change in price × 100 original price

= (15 – 25) × 100 = –10 × 100 = –40%25 25

price elasticity of demand = +20 = (–)0.5 –40

An elasticity of 0.5 means that demand is inelastic, because the percentage change in price leads to a smaller percentage change in quantity demanded.



Elasticity: calculation

Calculate the price elasticity of demand when price rises from £15 to £18, leading to

a decrease in quantity demanded from 80 units to 52 units.



% change in quantity demanded = change in quantity demanded × 100

original quantity demanded

= (52 – 80) × 100 = –28 × 100 = –35%

80 80

% change in price = change in price × 100

original price

= (18 – 15) × 100 = +3 × 100 = +20%

15 15

price elasticity of demand = –35 = (–)1.75

+20

An elasticity of 1.75 means that demand is elastic, because the percentage change

in price leads to a larger percentage change in quantity demanded.

Elasticity: calculation answer



Determinants of price elasticity of demand

What are the main factors that will make demand price elastic or price inelastic?

Complete a list of six factors and then note on your list whether the factor will make

demand price inelastic or price elastic.

Explain your reasoning.

Compare your answers with the list on the next slide.



Factors influencing the price elasticity of demand

necessity inelastic

habit inelastic

high availability of substitutes elastic

brand loyalty inelastic

low proportion of income spent on a product inelastic

consumers have high incomes inelastic



Significance of price elasticity of demand (1)

Price inelastic demand and sales revenue The significance of price elasticity of demand can be seen by looking at its impact on

sales revenue and profit, following a change in price.

The effect depends on whether demand is elastic or inelastic, and on whether price

has risen or fallen.

If demand for a good is inelastic, when its price rises the quantity demanded falls by

a smaller percentage.

This means that sales revenue will increase.

For example, a 50% rise in price from £1 to £1.50 leads to a smaller (20%) fall in

sales from 100 to 80 units. Price elasticity is –0.4.

Sales revenue increases from (£1 × 100 = £100) to (£1.50 × 80 = £120).




Price inelastic demand and profitDoes this mean extra profit? The answer is yes.

The total costs of producing 80 units will almost certainly be lower than those of

producing 100 units, so costs will tend to fall at the same time as revenue increases.

A price rise will always increase sales revenue and profit if price elasticity of

demand is inelastic.

A price fall will always lead to lower sales revenue and profit if price elasticity of

demand is inelastic.




Price elastic demand and sales revenue and profitWhat happens if demand is price elastic?

Carry out your own calculations using an example that is price elastic.

What happens to sales revenue and profit?

In general, you should find the following if demand is price elastic:• A price rise will always decrease sales revenue, BUT the effect on profit will

depend on cost savings from cutting output. • A price fall will always increase sales revenue, BUT the effect on profit will

depend on cost rises from the additional output.

There may be numerical exceptions to these rules if the figures chosen are not very

price elastic.



Difficulties in calculating and using price elasticity of demand (1)

The use of price elasticity of demand can be very unreliable because of the

difficulties involved in calculating it.

Price elasticity of demand calculations assume that ‘other things remain equal’ while

price changes.

In real life, the assumption that ‘other things remain equal’ is not reliable. For

example, competitors will be constantly changing their marketing strategies.

The main difficulties in calculating (and using) elasticity of demand are summarised

on the next slide.



Difficulties in calculating and using price elasticity of demand (2)

• There may have been significant changes in the market (e.g. changes in

consumer tastes or the image of the product).• Changes in price may be matched by competitors, negating the effect.• Consumers may react differently to increases in price than to decreases. • The business may lack market research on the effect of price changes.• The company itself may be changing other things (e.g. advertising).



Price elasticity of demand: conclusion

Price elasticity of demand is a very useful business concept that can help businesses

plan their marketing strategies.

However, it must be used with caution as the data are not always reliable.



Chapter 33

Using the marketing mix:place



Place: the main factors

Place is an important element of the marketing mix in a number of different ways:• location of the retailer• placement of the product within the point of sale• availability of the product in as many different locations as possible• the ways in which products are distributed



Location of the retailer

The ‘right’ location involves several elements:• convenience for consumers• accessibility• cost of access• reputation of the area• location relative to competition



Placement within the point of sale

About 70% of buying decisions are made in-store. Sales can be increased by the

careful placing of products within the point-of-sale outlet.

Placement also applies to direct selling. Businesses use catalogues and internet sites

to make them easy and attractive for shoppers to use.

In small groups, discuss ways in which supermarkets use placement within a store to

help sales. Compare your conclusions with the examples listed on the next slide.



Placement within the point of sale: examples

• Similar products (e.g. biscuits) are placed together, so that shoppers can make

comparisons.• Brightly coloured, attractive fruit and vegetable displays are visible from outside

the store. • Impulse buys (e.g. sweets) are placed by the checkouts.• Popular products are given greater shelf space.• Loss leaders are scattered around the store, with some placed well away from

the entrance.• Standard, everyday purchases (e.g. bread) are placed at eye level, so that

shoppers will find them easily.• Complementary products are placed in close proximity (e.g. cooking sauces

being located close to pasta and rice).



Number of outlets

For some products, especially impulse buys, persuading retailers to stock the

products is often crucial to success. The more outlets that stock the product, the

more sales a firm can generate.

How can firms such as Heinz and Mars get more outlets to stock their products?

Compare your answers with the list below.• promotional campaigns• providing extra facilities or attractive displays• offering high profit margins to retailers• increasing brand variety• discovering new types/alternative outlets (e.g. coffee shops in book stores)



Distribution

distribution: the process of transferring products from the original producer to the

final consumer.

distribution channels: the routes through which a product passes in moving from

the manufacturer (producer) to the consumer.

Most distribution involves one of three methods, as shown in the next slide.



Distribution channels



Roles of organisations in the distribution channel (1)

Producers and wholesalersProducers (or manufacturers) make the product by transforming inputs into outputs.

Wholesalers buy in bulk from the manufacturer (producer) and sell in smaller

quantities to the retailer. Their existence can benefit both manufacturers and

retailers.

Wholesalers help producers by:• purchasing finished goods as soon as they are produced, saving storage costs for

producers• helping cash flow by paying immediately

Wholesalers help retailers by:• lowering delivery costs by delivering products from many manufacturers• offering credit to retailers



Roles of organisations in the distribution channel (2)

RetailersThe main role of the retailer is to serve the needs of the customer by providing:• convenience • advice • financial assistance

In recent years, wholesalers have declined considerably. Why do you think this has

happened?



Factors influencing the method of distribution

• size of the retailer• type of product (e.g. perishable or non-perishable)• technology• geography of the market• complexity of the product• degree of control desired by the manufacturer (producer)



Place: group exercise

Visit and examine the following point-of-sale places:• a food retailer• a clothing retailer• a catalogue• a website offering direct sales to visitors

What conclusions can be drawn about the layout of the places that you visited?

Explain why products were located in certain places or displayed in a certain way.

What changes to the layout would you recommend and why?



Chapter 29

Designing an effective marketing mix



Integrated marketing mix

Remember: the marketing mix comprises those elements of a firm’s approach to

marketing that enable it to satisfy and delight its customers.

The marketing mix should be looked at with emphasis on the integrated nature of

the mix.

No element of the marketing mix should be treated in isolation from the other

elements.

In small groups, identify four different products.

The first of these products should have price as the most important of the ‘four Ps’.

The second, third and fourth should have product, promotion and place as the most

crucial ‘P’.

Justify your choices to the class.



Influences on the marketing mix

Major influences on the marketing mix include:• finance• technology• market research



Impact of finance on the marketing mix

A firm must keep within its marketing budget. A lack of money will limit marketing

opportunities.

A business should consider:• its cash flow and profit (e.g. has it got the cash to finance a new store/place?)• is the firm large enough to enter a price war?• how much will promotions cost? Most firms cannot afford television advertising.



Impact of technology on the marketing mix

• If a product is technologically advanced, it may need less promotion and sell at a

higher price.• A more technologically advanced database will allow a firm to target its

marketing mix more exactly.• Technology is helping firms to produce high-quality products at relatively low

costs (and thus prices). Promotion and place are then used to achieve product

differentiation.• The internet is affecting the need for traditional shops (place) and is taking over

from television as the main medium of promotion.



Impact of market research on the marketing mix

Market research helps a firm to adapt its marketing mix:• Product differentiation. If market research shows the existence of a lot of

competition, a business needs to differentiate its product from those of

competitors. This is achieved through branding, patenting etc.• Substitutes. Market research may show which products are the closest

substitutes for a firm’s products.• Consumer opinions. Market research can show the price that can be charged,

what features of the product are valued most, where customers expect to buy

the product and the most effective ways of promoting.• Market segment. Market research can show a firm how to reach its target

market.



Other factors influencing the marketing mix

• the relative power of buyers and suppliers• the quality and popularity of the promotion• price elasticity of demand• the reputation of the business• the convenience of the location



Importance of an integrated marketing mix

A good marketing mix needs to be coordinated so that each element supports the

other parts of the mix. Examples of the importance of an integrated marketing mix

include:• If the main selling point of a product is its excellence, the quality of the product

must match consumers’ expectations. Consumers would also expect a high price

and an upmarket place.• A supermarket would want its low-price, economy range of products to be

packaged simply so that consumers can see that money is not wasted on

packaging. • Promotion should focus on the USP (high quality, low price etc).• Efficient distribution (place) may enable a firm to keep costs and prices low, and

the point of sale can be used to show the product and to promote it.



Marketing mix: conclusion

In most cases, all elements of the marketing mix are important, but each element

may be crucial in particular situations:• The product is crucial because it must satisfy the consumer.• In a theatre, there may only be one type of bottled water available, so place is

the most important factor.• A consumer with limited money may choose the item with the lowest price. • A very persuasive promotion may encourage purchase, particularly if the

product is an impulse buy.



Coordinating the marketing mix with other business functions

The success of the marketing mix also depends on other functional areas of the

business, such as operations, finance and people.

For example, if the marketing mix aims for an upmarket, quality image, it is vital

that:• operations management ensures that higher-quality products are manufactured

to meet this target• human resources management provides the training for staff so that better

quality can be achieved• the finance department increases the budgets to allow better-quality materials

and machinery to be purchased



Chapter 34

Marketing andcompetitiveness



Markets and market structure

market: a situation where buyers and sellers come together.

Some markets are very competitive with lots of small firms operating in them, each

achieving only a small proportion of total market sales.

Other markets tend to be dominated by a few large firms, each achieving a

significant proportion of the total market sales.



Market structure and the degree of competition

In general, four different market structures explain the broad range of competitive

environments in which most firms operate:• monopoly — only one supplier• oligopoly — a few suppliers• monopolistic competition — many suppliers• perfect competition — very many suppliers



Monopoly

Key features• In theory, monopoly means a single producer within a market. • The legal definition is a firm with a market share of 25% or more. • The potential danger of monopolies is that they will exploit the consumer. • The government investigates them and can require them to change their

behaviour and subject them to massive fines.



Monopoly and barriers to entry

Firms with more than 25% of the market continue to exist because it is extremely

difficult for a new firm to enter the market of a monopolist owing to high barriers

to entry.

Barriers to entry include:• the high capital costs required to set up a new business in large markets • patents that allow existing firms to ‘monopolise’ the market legally• the loyalty of customers to existing firms• the need for new firms to achieve large scale production quickly in order to be

competitive



Oligopoly

oligopoly: a market dominated by a small number of large firms known as

oligopolists.

Key features• Non-price competition. If one oligopolist reduces price, the others follow suit

and so no firm gains. Therefore, rivalry is usually in the form of ‘non-price’

competition (e.g. special offers and advertising).• Cartels. This is a group of firms that come together to agree price and output

levels within an industry. Cartels are illegal in the UK, but oligopolists may be

tempted to form them to keep prices high.



Monopolistic competition

monopolistic competition: when a large number of firms are competing in a

market, each having enough product differentiation to achieve a degree of monopoly

power and therefore some control over the price it charges.

Examples are hairdressers, cafés and gyms.

It is easy for a new firm to enter this type of market because the set-up costs tend to

be relatively low and the nature of the market is such that there is a constant flow of

businesses.



Perfect competition

perfect competition: where there are a large number of sellers and buyers, all of

whom are too small to influence the price of the product.

Key features• All the sellers produce homogeneous (identical) products.• Sellers are ‘price takers’ — they accept the ruling market price. • The buyers all have perfect knowledge.• There is freedom of entry into and exit from the market for firms.



Monopoly and the marketing mix

How does monopoly affect the marketing mix?• Product. With only one organisation in the market, there is little need for new

product development. • Price. Monopolies are price leaders/setters and can take advantage of the lack

of competition in the market in order to set very high prices. • Promotion. There are high barriers to entry in monopoly, so it is unlikely that

new competition can emerge. Therefore, promotion will mainly be informative,

i.e. geared towards ensuring that customers are aware of the product and its

benefits, rather than persuasive. • Place. This is a relatively important element of the marketing mix because

customers will be less likely to purchase products or services that are not

conveniently located.



Oligopoly and the marketing mix

How does oligopoly affect the marketing mix?• Product. The product is crucial to success because a unique selling point can be

achieved. • Price. Although price wars are a feature of oligopoly markets, price does not

tend to be the main element of the marketing mix because price wars lead to all

oligopolists losing profit.• Promotion. Promotion is important in oligopoly because it is one of the major

ways in which product differentiation and unique selling points can be achieved. • Place. Place is also important in oligopolistic markets, as consumers will prefer

easy access to the product.



Monopolistic competition and the marketing mix

How does monopolistic competition affect the marketing mix?• Product. Product is vital in monopolistic competition, as it is the critical way in

which a business can make its marketing mix different from the competition.

However, the vast number of competitors in this market makes it difficult to

achieve a completely distinctive product.• Price. Firms accept that prices tend to be very similar and use other

mechanisms to compete.• Promotion. The need to be price competitive is likely to limit promotional

budgets in monopolistic competition. Therefore, it is less significant than in

markets such as oligopoly, although more important than promotion would be in

a monopoly market.• Place. Monopolistic competition features many small firms. Place can be very

important, as consumers want convenience.



Perfect competition and the marketing mix

To a large extent perfect competition is a theoretical model, rather than one that

exists in the real world. Because all products are identical and firms are price takers,

there can be no distinction in products and prices between different firms competing

in a perfect market. Consequently, there is also no point in promoting a product that

cannot be distinguished from competition.



Competitiveness

competitiveness: the ability of firms to sell their products successfully within the

market in which they are based.

What factors affect the competitiveness of a business?

Identify one business that appears to be losing market share.

Identify one business that seems to be competing successfully.

What are the key reasons for the changes in competitiveness of these two

businesses?

Compare your answers to the main determinants of competitiveness found in

government surveys (see the next slide).



Determinants of competitiveness

According to government surveys, the main factors influencing competitiveness are:• investment in new equipment and technology• staff skills, education and training• innovation through investment in research and development• enterprise



Other factors determining competitiveness

Other factors that determine competitiveness, and which are within the control of a

business, are:• the effectiveness of the marketing mix• incentive schemes for staff• improvements to operational procedures• quality procedures• financial planning and control



Methods of improving competitiveness

How can a business improve its competitiveness?

The AQA AS business studies specification highlights four main ways, but there are

potentially many more different ways.

In small groups, give a presentation to the group on how one of the four (AQA)

factors listed below might improve competitiveness:• marketing• reducing costs• Improving quality• staff training

Unit 2: Managing a business Marketing and the competitive environment Effective marketing Chapter...

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