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FUNCTIONAL AREA

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Title: FUNCTIONAL AREA


1
FUNCTIONAL AREA
  • MARKETING

2
In this unit you will learn about
  • Difference between Market and Marketing
  • Market Share and growth
  • Objectives of Marketing
  • The consumer
  • Branding and Generic goods
  • 4Ps

3
What is a market?
  • A meeting place for buyers (consumers) and
    sellers.
  • Shop, restaurant, telephone, internet, etc.
  • Consumer markets - individuals who purchase
    goods or services for personal or domestic use.
  • Industrial markets - organisations which
    purchase goods or services to use in the
    production of other goods and services.

4
What is marketing?
  • the process involved in identifying,
    anticipating and satisfying consumer requirements
    profitably
  • The Chartered Institute of Marketing
  • Aims of marketing
  • to identify consumers requirements
  • to anticipate consumers requirements
  • to satisfy consumers requirements


5
Why is marketing important?
  • Marketing ensures that firms produce what people
    want it also makes customers aware of what a
    firm is producing.
  • If a firm can produce what customers want then
    they have a good opportunity to reach their
    objectives.
  • Marketing also allows firms to launch new
    products.
  • All firms will undertake
  • marketing including charities.


6
Market Share Market Growth
  • Most firms start off small.
  • A common objective of new firms is to grow in
    size.
  • Market growth can be obtained by increasing
    market share.
  • Market share is the firms percentage of all the
    sales in the market. For example, if the market
    for PCs in the UK is work a total of
  • Market growth is more difficult in an established
    market than a new growing market - due to the
    competition.


7
Objectives of Marketing
  • Marketing is linked to the overall objectives of
    the organisation and will therefore be different
    depending on the nature of the organisation.
  • For example, Charities will wish to increase
    donations to assist good causes, whereas public
    sector firms will wish to improve the service
    they deliver.


8
Objectives of Marketing
  • In the main the objectives of marketing include
  • To target new markets or market segments
  • Increase revenue and profitability or income
  • Increase or maintain market share
  • Improve the image of products or the organisation
  • Improve existing products or develop new products


9
Business Orientation
  • A business will adopt a focus of attention with
    the hope of obtaining set corporate objectives.
  •  
  • Traditionally, the focus of attention of the
    business will centre on the product or the market
    (customers).
  •  
  • The orientation adopted will affect all the
    activities of the business.

10
Product-led Organisations
  • Focus on product and production process.
  • Emphasis on developing technically sound product.
  • Advertising will focus on how good the product is
    rather than how the product will satisfy the
    needs of customers.
  • Many publicly funded organisations like
    universities advertise what they can provide
    rather than focusing on how they can satisfy the
    needs of customers.

11
Product-led Concorde
  • Focus on Research and Development - was the
    aircraft technically possible?
  •  
  • Consumers and commercial viability viewed as
    being less important.
  •  
  • Developers assumed a supersonic aircraft would
    sell itself.

12
Concorde After Launch
  • British Airways and Air France only buyers -
    mainly due to governmental involvement.
  • Other airlines deterred by high price and low
    passenger capacity.
  • Several airports - including New York - indicated
    possible ban due to noise pollution.
  • Technical success does not guarantee commercial
    success.

13
Market-led Organisations
  • Focus on the customer and what they want.
  • The firm will alter their product offering in
    line with what customers want.
  • Market research methods will be employed to
    identify the needs of target customers.
  • Many publicly funded organisations like
    universities advertise what they can provide
    rather than focusing on how they can satisfy the
    needs of customers.
  • Realise that their success depends on meeting the
    needs of customers better than competitors.

14
Market-led Ford Model T
  • Henry Ford - one of the first to adopt a market
    orientated approach.
  • Before production he researched the market and
    identified a price that would allow large
    quantities to be sold.
  • Consumers needs were central to his
    decision-making.

15
Branding
  • The name given by a producer to a product or
    range of products is known as a brand.
  • The aim of branding is to distinguish the
    product from its competitors and to make it
    instantly recognisable to the consumer. A brand
    can be -
  • Company name - Heinz, Coco-Cola
  • Name given to a range of products - Fairy, Mr
    Kipling

16
HOW DOES A FIRM BRAND ITS PRODUCTS?
  • To brand a product a firm will use packaging and
    advertising.

17
Brand Names
  • Have a massive influence on purchasing
    decisions. So much so that the brands
    themselves are sold for considerable sums of
    money.
  • Nestlé purchased Rowntree Mackintosh to obtain
    Kit-Kat, Polo and Smarties.

18
Brand Loyalty
  • Some customers are faithful to one particular
    product.
  • Marketeers strive to persuade customers that
    their product is better than competitors
    products and obtain brand loyalty which would
    allow them to charge higher prices.
  • Firms may add an existing brand name to a new
    product to increase the products chances for
    success.

19
STRONG BRAND LOYALTY
  • Strong branding means that the firm can charge a
    premium price because the product is perceived as
    high quality, it has high visibility due to the
    amount of advertising and brand loyalty
  • Brands are facing challenges customers are more
    price conscious and there has been an increase in
    the number of quality own brands

20
Own Brands
  • Many Large retailers Tesco, Asda, Boots, etc -
    sell a wide range of products under their own
    brand name.
  • Own brands now account for more than 20 of all
    retail sales.
  • Own brands have been successful at challenging
    well established brands by developing products of
    a similar quality, with similar packaging but at
  • cheaper prices.

21
Generic Goods
  • Very little marketing is carried out by companies
    who sell generic goods.
  • They are seen by consumers to have no differences
    between them eg light bulbs, matches, etc,

22
The Marketing Function
  • Marketing decisions centre on four functional
    activities, known as the 4ps.
  • Product
  • Price
  • Place (distribution)
  • Promotion
  • When combined these four areas are known as the
    Marketing-Mix.

23
Product
  • The product must meet the needs of customers and
    provide benefit to the customer.
  • Remember a product can be a good or service.
  • Different versions of the same basic product
    (known as the core product) vary in quality,
    style, packaging and many other ways from their
    competitors products eg cola and crisps.
  • These additional components of the core product
    are known as the augmented product.

24
Motor Car
Core Product
Safety
Fuel Economy
Comfort
Mode of transport
Performance
Credit Terms
Style
Warranty
Augmented Product
25
Our Life Cycle

We are born and introduced to the world.
Then we grow into teenagers.
Then we mature into adults.
Finally, we get old and our health declines.
26
The Life of a Product
  • Like humans, products have a limited life.
  • The Sega Mega Drive, Subbuteo and O Levels have
    all been withdrawn from the market.
  • Before being withdrawn, a product will pass
    through four stages
  • known as the Product Life Cycle.

27
Launch
  • The first stage of the product life cycle begins
    when the product is introduced into the
    marketplace.
  • Products recently launched include Wii and
    Divine.

28
Growth
  • As more target customers become aware of the
    product, the popularity and sales of the product
    will increase.
  • Mobile phones and internet shopping are examples
    of growth products.

29
Maturity
  • Once target customers are fully aware of the
    product, the popularity and sales of the product
    will level off.
  • Products in their maturity stage include Sunny-D
    and the Spice Girls.

30
Decline
  • The popularity of the product will eventually
    drop.
  • Customers will stop buying the product and sales
    will fall.
  • Products in their decline stage include - Butlins
    Holidays, Power Rangers and Cassette Tapes.

31
Product Life Cycle Chart
Sales
Maturity
Growth
Decline
Launch
Time
32
Variations in Product Life Cycles
Sales
Sales
Peter Andre
Coca-Cola
Time
Time
33
Companies use Product Life Cycles to
  • determine the future of their products.
  • decide when to introduce new products.
  • decide when to withdraw products in decline.
  • decide which products to invest in.

34
Extending the life of a product
Sales
Time
Product Extension Strategies - change/modify
product - new variants - alter packaging -
alter channel of distribution - change pricing
strategy - alter promotional support
35
Price
  • The price is what the customer has to pay in
    order to obtain the product.
  • The product must be priced so that an
    organisation covers its costs and can make a
    profit.
  • If the product is priced too high customers
    will not buy it (especially if a competitor has a
    similar more reasonably priced product on the
    market).

36
Pricing Decisions
  • The main pricing decision that a firm takes is
    whether to charge
  • A low price in order to attract sales. This makes
    it possible for a successful firm to sell large
    quantities at low costs.
  • An average price in relation to competitors. The
    firm will need to use other elements of the
    marketing-mix to compete.
  • A high price. Firms can charge a high price if
    they are seen as being better than their rivals
    in meeting the needs of customers.

37
The Price is Right
38
CK be by Calvin Klein
HIGH PRICE
39
Ford Focus
AVERAGE PRICE
40
Chocolates from Thorntons
HIGH PRICE
41
Gola Trainers
LOW PRICE
42
Jeans from Marks and Spencer
AVERAGE PRICE
43
Price-Quality Relationship
  • Having a lower price than competitors does not
    guarantee success.
  • Most people associate a high price with a high
    quality product.
  • Would you expect to pay more for a Rolls-Royce
    or a Skoda?
  • Why?

44
Pricing Strategies
  • Cost-plus pricing
  • The most common method of pricing in the UK
  • Companies calculate the cost of producing one
    item then add a profit mark-up, say 20, to
    determine the selling price.
  • The extent of the mark-up will vary from
    industry to industry - car dealers will usually
    add 17 onto the cost they pay manufacturers
    whereas fashion clothing retailers may add
    between 100-200.


45
Pricing Strategies
  • Penetration pricing
  • A low price is set for a new product to attract
    customers and penetrate an existing market
    where there is likely to be strong competition.
  • Losses may be incurred in the short-term,
    however once a foothold in the market has been
    obtained prices may be increased to allow
    profits to be made.
  • Brand products launched into consumer
    markets will use penetration pricing. For
    example, breakfast cereals such as Kelloggs
    Golden Grahams.

46
Pricing Strategies
  • Going-rate pricing
  • Also known as competitive pricing.
  • The firm will set the price of its products at
    a level similar to competitors.
  • This occurs in markets where businesses try to
    avoid price wars. Firms will set their prices
    at roughly the same level.
  • Companies offering petrol for cars adopt
    going-rate pricing.

47
Pricing Strategies
  • Hour-based pricing
  • The firm sets a price for a service based on
    time.
  • The company will offer a quote for the service
    demanded by a customer - based on an estimate
    of the time for completion and an hourly charge
    rate.
  • Car mechanics and cleaners use hour-based
    pricing.

48
Pricing Strategies
  • Skimming
  • Involves setting a high price for a new
    product.
  • Once the first target segment is saturated, the
    producer will lower the price in order to tap a
    fresh segment of the market. The process
    continues until a large section of the total
    market is catered for.
  • Electronic and pharmaceutical manufacturers
    often use skimming pricing.

49
Pricing Strategies
  • Destroyer pricing
  • Employed to undermine the sales of rivals.
  • The price of an existing product is reduced to
    an artificially low level in order to destroy
    competitors sales.
  • Only adopted by very large businesses with
    sufficient resources.
  • Stagecoach buses applies destroyer pricing
    when starting new bus routes.

50
Place
  • The place where the final exchange occurs.
  • Refers to all activities undertaken by
    companies in distributing products to targeted
    consumers.

51
What is meant by distribution?
  • The steps implemented by a company to make goods
    available for customers to buy.
  • Objective of distribution to make the product
    available in the right place at the right time.
  • The company must make decisions about the
    channels of distribution through which the
    product will pass and the methods of transport
    to use.

52
Channels of Distribution
  • The means by which an organisation and its
    customers are brought together in a particular
    place in order to buy and sell.
  • This may be in a shop, over the telephone, on the
    internet or in an office.
  • The channel of distribution that a manufacturer
    may select to get products to target consumers
    may include intermediaries.

53
Intermediaries
  • Intermediaries - commonly known as middlemen -
    may assist in the distribution of products to
    consumers.
  • The two main types of intermediaries are

Wholesalers who buy from manufacturers and then
sell to retailers. For example Cash and Carry
firms. Retailers who buy from wholesalers or
direct from manufacturers then sell onto
consumers. For example, RS McColls.
54
Which Channel of Distribution?
55
Effects of Technology on Place
  • New technology has changed the place where the
    final exchange occurs.
  • For example, banking was always carried out
    across the counter in a bank.
  • We now use
  • automated tellers
  • telephone banking
  • online computer banking

56
The Internet
  • Developments in satellite and internet technology
    have greatly increased the number and variety of
    products being made available for customers to
    buy from their homes.
  • People can now purchase goods quickly and often
    at less cost from the comfort of their own homes.

57
The Marketing Environment
Competitors
Consumers
THE MARKET
Government
Technology
Economy
58
Promotion
  • any form of communication used in an attempt to
    draw attention to a product/service to make
    customers .
  • Three aims - persuade, inform and remind.
  • Two main types
  • Above-the-line promotion - aka Advertising
  • Below-the-line promotion other methods of
    promotion which can be controlled by the firm
    eg direct marketing

59
Advertising
  • using the media to communicate messages
  • to customers.
  • Two main types - persuasive and informative.
  • Choice of advertising media will depend on -
  • cost, audience, competitors, impact, the law and
    the other components of the marketing-mix.
  • Controls on advertising include - the ASA, ITC,
    pressure groups and the Trades Descriptions Act
    1968.

60
Advertising Control
  • The British Code of Advertising Practice
  • The Advertising Standards Authority (ASA)
  • The Independent Television Commission

61
Forms of Advertising
TV/Radio Posters Magazines Billboards Spons
ored events Newspapers Network of
shops/outlets Cinema Word-of-mouth Packaging Inter
net Sales People Direct Mail
62
Advertising Media
  • Television Ads can reach millions and you can
    target people who watch particular programmes but
    it is very expensive.
  • Cinema Ads have a high visual and sound impact
    and you can target particular films. You have a
    captive audience but they are expensive
  • Leaflets and Junk Mail They are cheap to
    produce and distribute but theyre easy to
    ignore.
  • Newspapers and Magazines They know a lot about
    their readership so its easy to target
    effectively. Theyll often be read more than
    once.

63
Advertising Media
Radio Ads are usually cheaper and you can still
target listeners of particular programmes but
its sound only and audiences are usually
smaller. Posters and Billboards Ads have a high
visual impact and stay in place for a long time.
Can be seen by lots of people but usually only
for a short time so they cant contain much
information. Internet Sites Ads can have a high
visual impact, be interactive and link directly
to buying the product.
64
Sales Promotion
Shops may hold sales to encourage customers to
buy what they may not have purchased at the full
price. Sales may encourage customers who would
not normally go to the shop to venture in.
65
Market Research
  • Market research provides managers with
    information about what customers want and
    need and what will influence them to buy a
    product.
  • Market research is used to find out
  • Consumer wants regarding existing products
  • What makes consumers buy a firms products
  • What customers think of new products
  • What customers what from future products
  • What competitors are doing to satisfy customers

66
Importance of MR
  • Market research
  • Indicates the size of a market and potential
    growth
  • Provides information about the best place to sell
    products
  • Helps identify customers needs and wants
  • Allows firms to identify what makes some products
    successful
  • Helps firms avoid costly mistakes buy launching
    unwanted products
  • Gives firms ideas on how to promote products
  • Takes some risk out of launching new products
  • Allows firms to identify who their target
    customers are.

67
Methods of MR
  • There are two methods of market research
  • Primary (Field) - information collected by
    the company itself.
  • Secondary (Desk) - information already
    collected for another purpose

68
Field Research
  • Questionnaires/Surveys questions specifically
    designed for the task. May be face-to-face, over
    the telephone, by mail or over the internet. The
    number of respondents will depend on the firms
    budget. The sample must represent the total
    market.
  • Test Market launching a new product into a
    small section of the market to measure its
    suitability
  • Consumer Panel where a selected group of
    people are given a product and asked to comment
    in detail

69
Field Research
  • Advantages
  • It is first hand
  • It is more likely to meet the needs of the
    organisation
  • Disadvantages
  • It is more expensive
  • It takes time to gather

70
USING A QUESTIONNAIRE
  • Questionnaires are used to obtain meaningful
    information from a large and varied group of
    consumers.
  • The business will analyse the responses and
    modify the product/service to appeal to the market

71
HINTS ON PREPARING QUESTIONNAIRES
  • When designing a questionnaire you
  • should
  • Keep it short
  • Make it simple and easy to understand
  • State clearly the purpose of the questionnaire

72
HINTS ON PREPARING QUESTIONNAIRES
  • Questions should not rely heavily on the
    respondents memory
  • Begin with a few factual, easy to answer
    questions
  • Include some closed Yes/No response question
  • Follow up closed questions with open questions
  • Finish with a filter question designed to place
    the respondent in a market segment

73
Desk Research
  • Internal Sources - Sales figures, Stock
    figures, Accountancy records, Customers
    comments, etc
  • External Sources - Government Stats,
    Competitor information, Trade Journals, Market
    Research Organisations, Newspapers, Magazines,
    CD-ROMS, etc...

74
Desk Research
  • Advantages
  • It is cheaper than field research
  • It is quicker than field research as long as
    the information is available
  • Disadvantages
  • Data may be out-of-date
  • The information will be available to competitors

75
Effect of New Technology on Market Research
  • Databases
  • EPOS
  • Loyalty Cards
  • Internet

76
Problems with Market Research
  • Sampling bias
  • Human behaviour
  • Interviewer bias

77
Which Market Research Method?
  • Depends on
  • Cost
  • Time available
  • Alternatives
  • What will happen without the research

78
The Importance of marketing for different types
of organisations
  • Marketing is important to all organisations
    they all must meet customers needs and make
    target customers aware of what the firm offers.
  • However, marketing may be carried out differently
    depending on the type of organisation and the
    product they offer
  • For marketing to be successful for any
    organisation, they must combine
  • The right product
  • Sold at the right price
  • In the right place
  • Using the most suitable promotional methods

79
Charities Reason Method of Marketing
  • Advertising and promotion encourages people to
    donate money
  • Tend to concentrate on letting people know what
    good things they have done in the hope that
    target viewers will think the charity is worth
    giving to
  • Some charities try to obtain donations from all
    sections of the community rather than
    specifically targeting a particular segment.
    Others eg Greenpeace and Amnesty International
    target particular groups as do local charities
    eg for a local hospital appeal.

80
Public funded service providers (eg
schools/hospitals) Reason Method of Marketing
  • Will develop promotional documentation to attract
    and reassure customers. Many customers of such
    organisations will not have much choice of an
    alternative service provider.
  • Such documentation will be in the form of
    prospectuses, handbooks or through positive
    publicity in local newspapers.
  • The organisation will on be viable if customers
    continue to use the service on offer.
  • Not as much money will be invested by such firms
    on marketing these firms are non-profit making
    organisations and tend to to have high marketing
    budgets

81
Private firms offering a service (eg a restaurant
or bank) Reason Method of Marketing
  • Marketing may be carried out differently as the
    company cannot illustrate the service easily eg
    bank services
  • Sales personnel will require specialised training
    to deliver the service
  • If the company is a chain or franchise it may
    benefit from national advertising but local firms
    will market their business on a much smaller
    scale.
  • Marketing is important to maintain or increase
    the market share available to the business.

82
Market Segmentation
  • Business Organisations can divide the market into
    different types of customers to meet their
    individual requirements
  • Demographics
  • Socio-cultural groups

83
Market Segmentation
  • Demography is the division of the population into
    different social groups

84
Market Segmentation
  • Markets are segmented into different groups
  • of people. The main segments are
  • Age distribution of the population
  • Gender
  • Location
  • Social class A- professions to E - unemployed
  • Culture or religion

85
Social Economic/demographic Groups
Social Grade Social Status Occupation
A Upper middle class Highest managerial/ administrative or professional
B Middle class Intermediate managerial/ administrative or professional
C1 Lower middle class Supervisory or clerical, junior managerial, administrative or professional
86
Social Economic/demographic Groups
Social Grade Social Status Occupation
C2 Skilled working class Skilled manual workers
D Working class Semi and unskilled manual workers
E Subsistence level State pensioners or widows (no other earner) casual or lowest grade workers
87
Other consumer related factors
  • Taste, fashion and lifestyle
  • Disposable income
  • The Government
  • Technology
  • Economic forces
  • Household class

Were all different ages - we want different
things
88
Private firms offering a product (eg a food/car
manufacturers) Reason Method of Marketing
  • These companies are dependent on customers buying
    their products to make a profit
  • Without marketing consumers will not be aware of
    the products or companies and will buy
    competitors products
  • Privately owned companies usually have a budget
    for marketing and often have a marketing
    department.
  • Such firms will usually invest a great deal in
    marketing and promotional activities

89
Customer Service
  • This is what affects the relationship between
    customer and business, ie
  • the way the customer is treated by sales staff
  • how queries and complaints are handled
  • use of technology, eg phone system, press 1 for
    sales, press 2 for information, press 3 for
    advisor, and so on.

90
Protecting The Consumer
  • The Sale of Goods Act, 1979
  • The Trade Descriptions Act
  • The Weights and Measures Act
  • The Food and Drugs Act
  • The Food Safety Act

91
Advice for The Consumer
  • Trading Standards
  • Environmental Health
  • Citizens Advice Bureau
  • Trade Associations, eg BETA
  • Utilities watchdogs, eg gas, water, electricity
  • The Consumers Association they produce Which?
    magazine

92
MORE INFORMATION ON MARKETING
You will need this information to prepare your
study notes for the Marketing Topic.
Topic Chapter Pages
Functional Department Ch 1 - 1.3 Pg 19
The Market, Market Research, Segments Ch 2 - 2.1 Pg 23-24
Channels of distribution Customer Service Ch 3 3.4 Ch 3 3.4 68-69 72
Market Research Marketing Mix Ch 4 - 4.1 Pg 80 Pg 83-91
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