Please enable JavaScript.
Coggle requires JavaScript to display documents.
3 - Decision-making to improve marketing performance (Making marketing…
3 - Decision-making to improve marketing performance
Setting marketing performance
Examples of marketing objectives include...
Sales volume and sales value
-
sales volume is the number of units sold, sales value is how much the sales are worth.
Market size
- a
knowledge
of this will give an
indication of the potential market
. It would enable
realistic targets
to be set.
Market sales and growth
- targeting an
increase in overall sales
in order to either
maintain
or
improve
market share.
Market share
-
proportion of a particular market that is controlled by an individual business
.
Increasing
it would bring
benefits
.
Brand loyalty
- businesses want customers to
come back
time after time (they want to achieve
brand loyalty
).
The value of setting marketing objectives
Target setting
- gives the business a
focus
and
sense of direction
.
Motivation
-
objectives
can be motivating for those
responsible
.
Evaluation of performance
- all objectives need to be SMART. All of the marketing objectives outlined are
quantifiable
and therefore
measureable
. As a result, they can be used to
judge performance.
Possible calculations
Market share
-
Sales of firm/Total market sales x 100
Sales growth -
Difference in sales / Earliest year x 100
Market growth -
Difference in sales / Earliest year x 100
Market size -
(Sales / Market Share) x 100
External and internal influences on marketing objectives and decisions
External influences include...
Social factors
-
consumer tastes and fashion change
and this needs to be
reflected
in marketing
objectives
.
Ethics
- many businesses have
reviewed
their marketing objectives since
consumers are more aware of ethical issues
. This can be seen in the
move to promote fair trade
products.
Economic factors
- examples include the
stage of the economic cycle
and
interest rates
which will influences objectives as they will
affect consumer spending
.
Technology
-
big impact
on the way businesses both
produce and sell
their goods and services.
Major impacts
on objectives include the
growth of online sales
and the facility for consumers to
design their own products
.
Market and competition
-
objectives
are
likely to vary
according to whether the
market is growing or static
, and on the
actions of competitors
.
Internal influences include...
Production capacity
-
marketing functions must liaise (cooperate) with the operations function
in order to ensure that it is
physically possible
to achieve
any targets set
for sales
growth
.
Human resources
- objectives must take into account the
size and capabilities
of the workforce.
Increasing market share
might be
difficult
without
further recruitment and training.
Finance available
- all
marketing functions
need to operate within the
allocated budget
, although a
healthy state business
will be able to allocate
larger amounts to marketing.
Nature of product
- any objectives need to
reflect this
.
Innovative products
might have
considerable scope
for growth, whereas products such as
bread and fuel
will have
little scope
.
Understanding markets and customers
The value of primary and secondary research
Market research is the process of gathering data on potential customers
. It may involve one or more of the following...
Analysis of market shares
and
potential
of existing products.
Study of
market trends and characteristics
Sales
forecasting
for products.
Analysis and forecasting sales
of new products.
Primary research
Involves the
collection of information
for the
first time
directly by or for a business to
answer specific issues or questions
. Examples include....
Focus groups
: using small groups to determine consumer attitudes and opinions.
Test marketing
: trying out products on a small group prior to a full-scale launch.
Observation
: watching people. reactions to displays or counting footfall.
Surveys
: face to face, by post, telephone or online.
MAIN ADAVNTAGE
- DIRECTLY RELATED TO THE SPECIFIC NEEDS OF A BUSINESS
HOWEVER
...
IT CAN BE EXPENSIVE TO UNDERTAKE.
Secondary research
This is
second-hand research
involving the collection of data that
already exists
. Examples include....
Government and other agencies
: great deal of information. Key publication -
Annual Abstract of Statistics
.
Internet
: great deal of information
widely available
regarding
markets
and
consumer behaviour
.
Published reports
: may be
published by trade associations
and
journals
, which may contain
valuable information
on markets and trends.
Qualitative research
Its
aim
is to
find out about attitudes and opinions
of consumers. It is
collected from small groups
such as focus groups. It can
reveal consumer reactions
to the:
product; pricing; packaging; branding
.
Quantitative research
The
collection of information
on
consumer views
and can be
analysed statistically
. It can be represented in easy-to-read charts and graphs showing:
sales and potential sales; size of market; prices consumers are prepared to pay.
Market mapping
Definition:
using a diagram to help identify all the products in the market using two key features, e.g. price and quality.
It enables a business to see where
competition is most concentrated
and may reveal
potential gaps in the market
.
The value of sampling
Definition:
the selection of representative group of consumers from a larger population.
There are a
number of ways in which samples can be collected
...
Stratified random sampling
-
separates population
into
segments
or strata. Can
avoid bias
by ensuring that the
composition of the sample
reflects
accurately that of the entire population.
Quota sampling
-
split into a number of groups
that share
common characteristics
.
Clearly setting out
the number of people in each category
saves money
by
limiting the number of respondents
.
Random sampling
-
equal chance of being
included. Appropriate when
researching a product aimed at a large target group
.
Computers
are often used to aid random selection.
Factors influencing choice of sampling methods
The most obvious one is the
amount of finance available
. Businesses with l
arger marketing budgets
will sp
end more
and conduct research using
larger
samples.
Market research
involves a fundamental
trade-off
between
cost
and
accuracy
. Firms require
accurate information
on which to base marketing decisions, such as...
Product design
Type of promotion
Pricing policies
Target customers
Greater amount of collected information = more reliable,
however,
greater cost
.
Extensive
and
costly
research
cannot guarantee unbiased data
- people don't always tell the
truth
and
samples
don't always
reflect the entire population.
The interpretation of marketing data
It can be interpreted using various statistical tools, including
correlation, confidence intervals and exploration
.
Correlation
It is a
statistical technique
used to
establish the extent
of a
relationship
between
two variables
such as the level of sales and advertising.
Confidence intervals
Confidence interval (or margin of error) is the plus or minus figure used to show the accuracy of results arising from sampling.
A
confidence level
is the
probability that research findings are correct
. It is
expressed as a percentage
and indicates how frequently that % of the population would give an answer that would lie within the confidence interval.
Extrapolation
It
analyses past performance
of a variable, such as sales, and
extends the trend into the future
. However, it should be treated with caution as it assumes that the future will be similar to the past.
A trend is an underlying pattern of growth or decline in a series of data.
Example graph of extrapolation. Link:
The value of technology in gathering and analysing data for marketing decision-making
Technological developments
mean
vast amounts of information
can be
collected
,
stored
and
analysed
.
This may enable a firm to
gain greater understanding about the person
buying a product, and, as a result, can
make recommendations to individual customers
based on past buys.
Technology can provide: faster communication; make forecasting easier; enable targeted sales messages.
The interpretation of price and income elasticity of demand data
Elasticity is a measure of the responsiveness of demand to a change in variable. For example, price or income.
Price elasticity of demand = % change in demand / % change in price
NOTE: YOU ARE NOT REQUIRED TO CALCULATE THIS BUT KNOWING HOW IT IS CALCULATED WILL AID UNDERSTANDING AND INTERPRETATION
Income elasticity of demand = % change in demand / % change in income
NOTE: YOU ARE NOT REQUIRED TO CALCULATE THIS BUT KNOWING HOW IT IS CALCULATED WILL AID UNDERSTANDING AND INTERPRETATION
Analysing activity
- marketing manager will be interested in whether demand for the
product or service is elastic or inelastic
.
Answer > 1 = elastic demand
Answer < 1 = inelastic demand
The value of the concepts of price and income elasticity of demand to marketing decision-makers
Both
price and income elasticity
can be
useful tools in marketing decision-making
. They can be used to
evaluate the impact of changes
in prices and incomes on sales (volume and value).
Follow this link to a table of the effects of changes in price:
Demand for luxuries tends to be elastic,
whereas
demand for necessities tends to be inelastic
.
Although
elasticity
can be a useful tool,
marketing decisions should not be based on this alone
. Other factors that should be considered include:
brand loyalty; competitor actions; consumer tastes and fashion; availability of substitutes.
The use of data in marketing decision-making and planning
Marketing managers want to
reduce the risk and uncertainty in decision-making
, and the
analysis of all available data
makes a good starting point for this.
Data my also create a
better understanding
of the
market
,
environment
and
consumers
, and so is likely to
improve the quality of decision making.
Making marketing decisions: segmentation, targeting and positioning
KEYWORDS
Market targeting: when a business targets its marketing at a specific marketing segment.
Market positioning: where a particular brand strands in relation to other brands in the market.
Market segmentation: dividing the market into identifiable sub-markets, each with its own customer characteristics.
The process and value of segmentation, targeting and positioning
It is evident that segmentation is
related
to targeting, and targeting is related to positioning.
Segmentation
breaks the market into clearly definable groups
. This may be age, gender, income, social class or geographical area.
Once this has happened, it is then
possible to determine
at which
groups
a
particular product
or service will be
aimed
.
A business will then consider
how it wants to position its product or service
within the target
market
. This might be in terms of its
pricing
,
quality
and
overall brand image.
There are a number of benefits of the above process...
Marketing will be more effective
as it can be
directed at the target group
and
convey a clear message
relative to the product or service's positioning.
Resources used more effectively
resulting from the targeted marketing approach.
Sales and market share may increase
resulting from the
clear focus of marketing.
The approach may have its drawbacks, though...
By
targeting particular segments
of the market, a business may
overlook
a
potentially profitable segment.
It is possible that any
changes in taste and fashion could be overlooked.
Influences on choosing a target market and positioning
Number of influences...
Competition
- a business may want to
avoid areas
of the market that are
highly competitive
.
The consumer
- products might be developed specifically to suit consumer needs.
The nature of the product
- this might be the actual qualities of the product that help differentiate it or what the product may be used for.
Niche marketing is when businesses identify and satisfy demands of small segments of a larger market
Advantages
First company to identify one
can often
gain a dominant market position
as customers become
loyal
to the product, even if its price is higher.
Can be
highly profitable
, as
companies operating in them
often have the opportunity to
change premium prices.
Disadvantages
Sales may be relatively low
= firms
not able to spread fixed overheads
over sufficient sales to
attain acceptable profit margins.
If a niche market
proves to be profitable
, it is
likely to attract new competition
, making it
less attractive
to the companies that first discovered the market.
Mass marketing is when businesses aim their products at most of the available market.
Making marketing decisions: using the marketing mix
The elements of the marketing mix (7Ps)
The marketing mix is the main variables comprising a firm's marketing strategy.
The 7Ps
Promotion
People
Place
Process
Product
Physical environment
Price
Here is a diagram of the 7Ps explained:
The influences on and the effects of changes in the elements of the marketing mix
Designing a marketing mix
Finance
- profit levels and cash flow.
Level of profits
can impact the price a business charges. a
Profitable business is able to cut prices significantly,
at least in the
short term
. Its
financial reserves
also enable it to engage in
extensive promotional campaigns.
Market research
- a key influence on all elements of the marketing mix.
Primary market research
may be the
most important
influence in designing a marketing mix. Its findings
may provide information
to
help to make judgements
on the
form
,
functions
and
design
of the product.
Technology
- the product itself and methods of distribution.
Some products
possessing the latest technology
may use
advertising
to inform
potential customers
of their
existence
and
benefits
.
Technology has
affected the place element of the marketing mix.
Developments
have allowed publishers of music and books to distribute their products using internet downloads.
Nature of the product
- determines that certain elements of the mix may be more crucial.
Type can influence which elements of the mix are
emphasised
.
An insurance firm may spend heavily on advertising to generate large inquiry numbers to win an acceptable number of customers.
Influences on and the value of new product development
Factors affecting the development of new goods and services...
Technology
- developments in technology are at the heart of many of the new products that come on to the market.
Competitors' actions
- a competitor producing a new product can be a spur to a rival to produce something that is at least as good, if not better.
The entrepreneurial skills of managers and owners
- one of the talents of successful entrepreneurs is
creativity
. Thinking up
new ideas
for goods and services that
fit customer needs
leads to the
development of many new products.
The importance of unique selling points (USPs)
Businesses
add value by creating USPs
for their products. A USP allows a business to
differentiate its products
from others.
This can help the business in THREE ways...
Base
advertising campaigns
around the
difference
between its product and those of its
rivals
.
Assists in
encouraging brand loyalty
- gives customers a
reason to continue to buy
that business's product.
Commonly allows a business to
charge a premium price
for the product.
The product life cycle
It is the
theory
that all
products follow a similar pattern
throughout their
life
.
THE STAGES
Stage 1: The Development
Research and development
undertaken to
create new products
that will be future
best sellers
. Many products don't meet demand of customers.
Can be a very
expensive stage
,
cash flow
is expected to be
negative
.
Stage 2: Introduction
Product's initial appearance on the market
. Sales are 0,
product has a negative cash flow
. Sales should
rise
, providing
some revenue.
Costs remain high. Promotion = expensive, cash flow = negative.
Stage 3: Growth
Sales rise
rapidly
,
cash flow improves
.
Profits per unit
are likely to be at a
maximum
. Firms tend to charge a
high price
at this stage,
Critical to a product's
survival
.
Success
depends on
competitor reactions.
Stage 4: Maturity
Sales curve peaks
and begin to
decline
.
Cash flow and profits begin to decline
.
Intense competition
with other brands.
Product consumers
know a lot about it and require
specialist deals
to
attract
their interest.
Stage 5: Decline
Sales fall rapidly
.
New technology
or a
new product change
may cause product sales to
decline sharply.
Marketing managers consider
eliminating unprofitable products.
Here is a link to a diagram of the product life cycle:
Extension strategies
As a product
enters decline
, a firm may attempt to
prolong its life
. They may use one of the following two techniques...
Finding new markets for existing products
- e.g. companies selling baby milk have targeted LEDCs.
Changing the appearance or packaging
- e.g. motor manufacturers have produced old models of cars with new colours or other features to extend product life.
The product mix
Well-organised businesses
plan its product range. For example, as
one product enters decline
,
replacements
are
entering growth and maturity stages.
This results in a
constant flow of income
from products in the mature phase of their lives to
finance the development of new products.
Example of a healthy product mix:
The Boston matrix
Allows businesses to
undertake product portfolio analysis
based on the product's
market growth rate
and its
market share.
The matrix places products into four categories...
Cash cows
are products with a
dominant share of the market
but
low
prospects for growth.
Dogs
have a
low share of the market
and
no
prospects for growth.
Star products
have a
dominant share
of the market and
good
prospects for growth.
Problem children
are products that have a
small share of the growing market.
See a diagram of it here:
Conclusions that can be made from the matrix...
Firms should
avoid having too many products
in any
single category.
Products in the top half of the chart
are in the
early stages
of their life and are in
growing markets
, but the
cost of developing and promoting
them will
not have been recovered.
Continuing production
of cash cows will provide the
necessary cash
to develop the
newer products.
Firms need problem children as they may become tomorrow's cash cows...
Here is a table of the features of the components of the marketing mix:
The pricing strategies used by businesses
Pricing strategies are the medium to long-term pricing plans that a business adopts.
Price skimming
: unlikely for product to face direct competition immediately.
High price = limited sales
but
high profit margin.
Result =
recoup
some of the product's
development costs.
Penetration pricing
: price =
deliberately low
to
gain a foothold
in the market. Expectation =
raise price
once product is established to
boost profit margins.
Price leadership
: for
established
products with
strong brand images
.
Market dominated
, other businesses follow lead.
Price taking
: prices = '
going rate
' or established market price.
Common for small and medium-sized businesses
. No influence over market price.
Once a pricing strategy is determined, pricing tactics are adopted...
Loss leaders
-
setting prices low
to
attract
customers. Hope that customers
purchase other products
while purchasing the loss leader.
Special-offer pricing
-
reduced prices
for a
limited period of time
/offers such as 'three for the price of two'.
Influences on pricing decisions
Price elasticity of demand
The extent to which the level of demand for a product is sensitive to price changes.
Increase in price = reduced demand
Reduced price = increased demand
Demand is said to be price elastic if it is sensitive to price changes.
Price inelastic demand
exists when price changes have very little effect on demand level. Price elasticity of demand (PED) is calculated by the formula:
Percentage change in quantity demanded / Percentage change in price
Two techniques to make demand for products more price inelastic...
Differentiating products from those of competitors
- consumers are
more likely
to continue to
purchase a product
when its price rises if it has
unique characteristics.
Reducing competition through takeovers and mergers
-
fewer but larger firms competing
with each other. Result:
fewer products available
to the consumer,
demand = less responsive
to price.
What is promotion?
Promotion is
bringing consumers' attention
to a product or business. It aims to achieve targets including:
attracting new customers and retain existing ones; improving the position of the business in the market; ensuring the survival and growth of the business; increasing product awareness.
The elements of the promotional mix
Exhibitions and trade fairs
Events to attract
all those involved in a particular market,
both sellers and buyers.
Branding
Establishes product identity.
Successful branding allows
higher prices
and can
extend
the product's
life cycle.
Packaging
Attractiveness
of the product,
informs consumers
of its features, functions and contents. It
protects the good
to ensure it reaches the consumer in
perfect condition.
Personal selling
Visits by a firm's representative
to prospective customers. May be used
more in business-business selling
, or in selling
expensive
products.
Sales promotions and merchandising
Merchandising
is
in-store activity
at the point of sale. It can be important when consumers make purchasing decisions at the POS - for example, confectionary.
Public relations (PR)
Promoting the company's image
to establish a
favourable public attitude
towards the company. Aims to
improve a business's image
and its products with the expectation of
increasing sales.
Advertising
Paid form of non-personal communication.
Can be
informative
: increase consumer awareness by providing them with factual information. Can be
persuasive
: attempts to get consumers to purchase a product by claiming it's better than the competition.
The promotional mix is the
combination of methods
used by businesses to
communicate with prospective customers
to
inform
them of their products and to
persuade
them to buy these products.
Influences on the choice of promotional mix
The finance available to the business
- larger budgets = engage more public relations and personal selling.
Where consumers make purchasing decisions
- for businesses that sell products at the POS. merchandising and packaging may be important. Attractiveness and position may be vital.
The type of product
- expensive products and ones where design is a major element will make more use of the exhibitions and trade fairs.
Competitors' actions
- if a business's rivals are engaging in heavy advertising and extensive sales promotions, it's likely the business will respond similarly.
The product's position in its life cycle
- newly launched product = heavy advertising. Established product = use sales promotions to encourage customers.
Distribution decisions
The distribution (place) of a product refers to the range of activities necessary to make the product available to its customers.
Choosing appropriate outlets and distributors
Credit terms
- newly established or struggling enterprise might opt for those that don't request long periods of trade credit. This protects cash flow.
Willingness to display products in prominent positions
- for some products such as food and confectionery, a good position in a retail outlet is an essential part of successful distribution.
Location
- businesses will seek those in areas where their target customers live and where few competitors operate.
The types of distribution channel that exist
Traditional
- small retailers get stock from wholesalers, don't purchase enough to buy from producers. Can be expensive.
Modern
- major retailers purchase straight from manufacturers and arrange personal distribution. Reason: able to negotiate large discounts. Result: offer discounts to consumers.
Direct
- rapidly growing channel of dist. Attractive as it lowers prices at which they can sell products. Many small businesses have begun selling products directly using the internet.
The channels of distribution diagram:
So what is the choice of a distribution channel influenced by?
The nature of the market
The technical complexity of the product
The
type of product
- difficult to transport products are more likely to be distributed direct to avoid additional costs.
Multi-channel distribution
Where firms use more than one type of distribution channel.
Decisions relating to other elements of the marketing mix: people, processes and physical environment
Process
From first entering business premises or going on a website to the delivery of the product or service and the after-sales service offered, all of these are important.
Physical environment
It is important a business gives consumers the
right impression
. A business's premises
selling a luxury product
should be located in a
more up-market area
and the
decor
should
reflect the nature of the product.
People
Those involved with
selling a product or service
are crucial and can
make or break a sale
.
First impressions
are important and it's essential that those offering advice or delivering the service are
interested
,
helpful
and
polite
.
Therefore, employees need to be
well trained
and
motivated
, as
good customer service
can
enhance a business's reputation
, sometimes providing a USP.
The importance of and the influences on an integrated marketing mix
The importance of an integrated marketing mix (IMM)
An IMM is one that fits together. If a business is selling a premium product, the entire mix should support this.
Product
: should be
high quality
in terms of design, innovativeness, features or functions.
Price
: likely to be
high
(skimming) to
reflect the premium nature.
Place
: seek outlets that
reflect the quality/exclusivity
of the product.
Promotion
:
targeted
at the people who are
likely to purchase the product.
Physical environment
:
reflect the product's premium nature.
People should be
well trained
and
motivated
to deliver the
necessary customer service
. The whole
process
should be found
first rate.
Influences on an integrated marketing mix
Type of product
A product sold
B2B
will require a different mix to one that is sold
B2C
.
Marketing objective
Boston matrix
Target market
Position in the product life cycle
Competition
Positioning
Understanding the value of digital marketing and e-commerce
Technological developments have had a significant impact on the business marketing function. Benefits include...
More detailed information
can be gathered.
There is
greater contact between consumer and business
- consumers can build their own products and give reviews.
Social media
is very important as it can be a
very cost-effective way of boosting sales.
Digital marketing
makes it
easy for any business to set up
and sell almost anywhere.
However, there are some negatives...
Reputations can be destroyed
through online reviews and social media.
Consumers are free to write
reviews on products or services which
may not always be a true reflection
of the product or service offered.