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UNIT 3 - Marketing - FULL REVISION NOTE - IGCSE 0405
UNIT 3 - Marketing - FULL REVISION NOTE - IGCSE 0405
Marketing
3.1 – Marketing, Competition and the Customer
3.2 – Market Research
3.3 – Marketing Mix
3.4 – Marketing Strategy
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change in technology: as new technology becomes available, the old versions of products
become outdated and people want more sophisticated features on products
change in income: the higher the income, the more expensive goods consumers will buy and vice
versa
ageing population: in many countries, the proportion of older people is increasing and so
demand for products for seniors are increasing (such as anti-ageing creams, medical assistance etc.)
The power and importance of changing customer needs:
Firms need to always know what their consumers want (and they will need to undertake
lots of research and development to do so) in order to stay ahead of competitors and
stay profitable. If they don’t produce and sell what customers want, they will buy
competitors’ products and the firm will fail to survive.
maintaining good customer relationships: by ensuring that customers keep buying from their
business only, they can keep up their market share. By doing so, they can also get information about their
spending patterns and respond to their wants and needs to increase market share
keep improving its existing products, so that sales is maintained.
introduce new products to keep customers coming back, and drive them away from
competitors’ products
keep costs low to maintain profitability: low costs means the firm can afford to charge low
prices. And low prices generally means more demand and sales, and thus market share.
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Firms can focus on the needs of just one customer group, thereby giving them an advantage
over large firms who only sell to the mass market
Limitations:
Lack of economies of scale (can’t benefit from the lower costs that arise from a larger
operations/market)
Risk of over-dependence on a single product or market: if the demand for the product falls, the
firm won’t have a mass product they can fall back on
Likely to attract competition if successful
Mass Marketing: selling the same product to the whole market with no attempt to target
groups with in it. For example, the iPhone sold is the same everywhere, there are no
variations in design over location or income.
Advantages:
Larger amount of sales when compared to a niche market
Can benefit from economies of scale: a large volume of products are produced and so the average
costs will be low when compared to a niche market
Risks are spread, unlike in a niche market. If the product isn’t successful in one market, it’s fine
as there are several other markets
More chances for the business to grow since there is a large market. In niche markets, this is
difficult as the product is only targeted towards a particular group.
Limitations:
They will have to face more competition
Can’t charge a higher price than competition because they’re all selling similar products
Market Segmentation
A market segment is an identifiable sub-group of a larger market in which consumers
have similar characteristics and preferences
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The above leads to higher sales and profitability
Increased opportunities to increase sales
3.2 – Market Research
Product-oriented business: such firms produce the product first and then tries to find a
market for it. Their concentration is on the product – its quality and price. Firms
producing electrical and digital goods such as refrigerators and computers are
examples of product-oriented businesses.
Market-oriented businesses: such firms will conduct market research to see what
consumers want and then produce goods and services to satisfy them. They will set a
marketing budget and undertake the different methods of researching consumer tastes
and spending patterns, as well as market conditions. Example, mobile phone markets.
Market research is the process of collecting, analysing and interpreting information
about a product.
Why is market research important/needed?
Firms need to conduct market research in order to ensure that they are producing
goods and services that will sell successfully in the market and generate profits. If they
don’t, they could lose a lot of money and fail to survive. Market research will answer a
lot of the business’s questions prior to product development such as ‘will customers be
willing to buy this product?’, ‘what is the biggest factor that influences customers’ buying
preferences- price or quality?’, ‘what is the competition in the market like?’ and so on.
Market research data can be quantitative (numerical-what percentage of teenagers in
the city have internet access) or qualitative (opinion/ judgement- why do more women
buy the company’s product than men?)
Market research methods can be categorized into two: primary and secondary market
research.
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5. Collate and analyse the data
6. Produce a report of the findings
Sample is a subset of a population that is used to represent the entire group as a whole.
When doing research, it is often impractical to survey every member of a particular
population because the number of people is simply too large. Selecting a sample is
called sampling. A random sampling occurs when people are selected at random for
research, while quota sampling is when people are selected on the basis of certain
characteristics (age, gender, location etc.) for research.
Methods of primary research
Questionnaires: Can be done face-to-face, through telephone, post or the internet. Online
surveys can also be conducted whereby researchers will email the sample members to go onto a
particular website and fill out a questionnaire posted there. These questions need to be unbiased, clear and
easy to answer to ensure that reliable and accurate answers are logged in. (The first part of this wikiHow
article will give you the basic idea of how a questionnaire should be prepared.)
Advantages:
If questions are not clear or are misleading, then unreliable answers will be given
Time-consuming and expensive to carry out research, collate and analyse them.
Interviews: interviewer will have ready-made questions for the interviewee.
Advantages:
Interviewer is able to explain questions that the interviewee doesn’t understand and can
also ask follow-up questions
Can gather detailed responses and interpret body-language, allowing interviewer to come
to accurate conclusions about the customer’s opinions.
Disadvantages:
The interviewer could lead and influence the interviewee to answer a certain way. For
example, by rephrasing a question such as ‘Would you buy this product’ to ‘But, you would definitely
buy this product, right?’ to which the customer in order to appear polite would say yes when in
actuality they wouldn’t buy the product.
Time-consuming and expensive to interview everyone in the sample
Focus Groups: A group of people representative of the target market (a focus group) agree to
provide information about a particular product or general spending patterns over time. They can also test
the company’s products and give opinions on them.
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Advantage:
Time-consuming
Expensive
Opinions could be influenced by others in the group.
Observation: This can take the form of recording (eg: meters fitted to TV screens to see what
channels are being watched), watching (eg: counting how many people enter a shop), auditing (e.g.:
counting of stock in shops to see which products sold well).
Advantage:
Inexpensive
Disadvantage:
Only gives basic figures. Does not tell the firm why consumer buys them.
Secondary Market Research (Desk Research)
The collection of information that has already been made available by others. Second-
hand data about consumers and markets is collected from already published sources.
Sales department’s sales records, pricing data, customer records, sales reports
Opinions of distributors and public relations officers
Finance department
Customer Services department
External sources of information:
Government statistics: will have information about populations and age structures in the
economy.
Newspapers: articles about economic conditions and forecast spending patterns.
Trade associations: if there is a trade association for a particular industry, it will have several
reports on that industry’s markets.
Market research agencies: these agencies carry out market research on behalf of the company
and provide detailed reports.
Internet: will have a wide range of articles about companies, government statistics, newspapers
and blogs.
Accuracy of Market Research Data
The reliability and accuracy of market research depends upon a large number of
factors:
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How carefully the sample was drawn up, its size, the types of people selected etc.
How questions were phrased in questionnaires and surveys
Who carried out the research: secondary research is likely to be less reliable since it was drawn
up by others for different purpose at an earlier time.
Bias: newspaper articles are often biased and may leave out crucial information deliberately.
Age of information: researched data shouldn’t be too outdated. Customer tastes, fashions,
economic conditions, technology all move fast and the old data will be of no use now.
Tally Tables: used to record data in its original form. The tally table below shows the number and
type of vehicles passing by a shop at different times of the day:
Charts: show the total figures for each piece of data (bar/ column charts) or the proportion of each
piece of data in terms of the total number (pie charts). For example the above tally table data can be
recorded in a bar chart as shown below:
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The pie chart above could show a company’s market share in different countries.
Graphs: used to show the relationship between two sets of data. For example how average
temperature varied across the year.
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3.3 – Marketing Mix
Marketing mix refers to the different elements involved in the marketing of a good or
service- the 4 P’s- Product, Price, Promotion and Place.
Product
Product is the good or service being produced and sold in the market. This includes all the
features of the product as well as its final packaging.
Types of products include: consumer goods, consumer services, producer goods,
producer services.
Can create a Unique Selling Point (USP) by developing a new innovative product for the first
time in the market. This USP can be used to charge a high price for the product as well as be used in
advertising.
Charge higher prices for new products (price skimming as explained later)
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Increase potential sales, revenue and profit
Helps spreads risks because having more products mean that even if one fails, the other will keep
generating a profit for the company
Disadvantages:
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At these different stages, the product will need different marketing decisions/strategies
in terms of the 4Ps.
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Price
Price is the amount of money producers are willing to sell or consumer are willing to buy
the product for.
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Disadvantage:
Price might be set higher than competitors or more than customers are willing to pay,
which reduces sales and profits
Loss leader pricing/Promotional pricing: Setting the price of a few products at below cost to
attract customers into the shop in the hope that they will buy other products as well
Advantages:
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The PED of a product refers to the responsiveness of the quantity demanded for it to
changes in its price.
PED (of a product) = % change in quantity demanded / % change in price
When the PED is >1, that is there is a higher % change in demand in response to a
change in price, the PED is said to be elastic.
When the PED is <1, that is there is a lower % change in demand in response to a
change in price, the PED is said to be inelastic.
Producers can calculate the PED of their product and take suitable action to make the
product more profitable.
If the product is found to have an elastic demand, the producer can lower prices to increase
profitability. The law of demand states that a fall in price increases the demand. And
since it is an elastic product (change in demand is higher than change in price), the
demand of the product will increase highly. The producers get more profit.
If the product is found to have an inelastic demand, the producer can raise prices to
increase profitability. Since quantity demanded wouldn’t fall much as it is inelastic, the
high prices will make way for higher revenue and thus higher profits.
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Place
Place refers to how the product is distributed from the producer to the final consumer.
There are different distribution channels that a product can be sold through.
Distribution
Channel Explanation Advantages Disadvantages
Manufacturer The product is sold to the – All of the profit is – Delivery costs
to Consumer consumer straight from the earned by the producer may be high if
manufacturer. A good example – The producer controls there are customers
is a factory outlet where all parts of the marketing over a wide area
products directly arrive at their mix – All storage costs
own shop from the factory and – Quickest method of must be paid for by
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Distribution
Channel Explanation Advantages Disadvantages
the producer
– All promotional
activities must be
carried out and
getting the product to the financed by the
are sold to customers. consumer producer
Manufacturer The manufacturer will sell their – The agent has – Another
to Agent products to an agent who has specialised knowledge of middleman is
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Distribution
Channel Explanation Advantages Disadvantages
Exercise:
CHANNELS OF DISTRIBUTION
For each of the following products, which channel of distribution would be most
appropriate to get the product from the producer to the consumer? Explain your
answers carefully for each question.
1. Ice cream
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2. A new car
3. A television
4. Fresh vegetables
Promotion
Promotion: marketing activities used to communicate with customers and potential
customers to inform and persuade them to buy a business’s products.
Aims of promotion:
Sales Promotion: using techniques such as ‘buy one get one free’, occasional price reductions,
free after-sales services, gifts, competitions, point-of–sale displays (a special display stand for a product
in a shop), free samples etc. to encourage sales.
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Below-the-line promotion: promotion that is not paid for communication but uses incentives to
encourage consumers to buy. Incentives include money-off coupons or vouchers, loyalty reward schemes,
competitions and games with cash or other prizes.
Personal selling: sales staff communicate directly with consumer to achieve a sale and form a
long-term relationship between the firm and consumer.
Direct mail: also known as mailshots, printed materials like flyers, newsletters and brochures
which are sent directly to the addresses of customers.
Sponsorship: payment by a business to have its name or products associated with a particular
event. For example Emirates is Spanish football club Real Madrid’s jersey sponsor- Emirates pays the
club to be its sponsor and gains a high customer awareness and brand image in return.
What affects promotional decisions?
Stage of product on the PLC: different stages of the PLC will require different promotional
strategies; see above.
The nature of the product: If it’s a consumer good, a firm could use persuasive advertising and
use billboards and TV commercials. Producer goods would have bulk-buy-discounts to encourage more
sales. The kind of product it is can affect the type of advertising, the media of advertising and the method
of sales promotion.
The nature of the target market: a local market would only need small amounts of advertising
while national markets will need TV and billboard advertising. If the product is sold to a mass market,
extensive advertising would be needed. But niche market products such as water skis would only need
advertising in special sports and lifestyle magazines.
Cost-effectiveness: the amount of money put into promotion (out of the total marketing budget)
should be not too much that it fails to bring in the sales revenue enough to cover those costs at least.
Promotional activities are highly dependent on the budget.
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Technology and the Marketing Mix
It is also worth noting that the internet/ e-commerce is now widely used to distribute
products. E-Commerce is the use of the internet and other technologies used by
businesses to market and sell goods and services to customers. Examples of e-
commerce include online shopping, internet banking, online ticket-booking, online hotel
reservations etc.
Websites like Amazon and e-Bay act as online retailers.
Online selling is favoured by producers because it is cheaper in the long-run and they
can sell products to a larger customer base/ market. However there will be increased
competition from lots of producers.
Consumers prefer online shopping because there are wider choices of detailed products
that are also cheaper and they can buy things at their own convenience 24×7. However,
there is no personal communication with the producer and online security issues may
occur.
However, e-commerce means an entire new type of marketing strategy is also required –
online promotions, new channel of distribution, new pricing strategies (since price
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competition in e-commerce is very high and demand is very price elastic). It requires a
lot of money to set up – online websites, promotions, web developers and technicians to
run and maintain the system etc.
The internet is also used for promotion and advertising of products in the form of
paid social media ads and sponsors, pop-ups, email newsletters etc. It helps reach target
customers, is relatively cheap and helps the firm respond to market changes
quicker (since online ads can be easily altered/updated rather than billboards and TV
ads). But it can alienate and chase customers away if they see it too frequently and find it
annoying. There is also the risk of the adverts being publicised negatively if it has
annoying or offensive content that customers quickly criticise (since content is more
easily shareable online).
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3.4 – Marketing Strategy
Marketing Strategy
A marketing strategy is a plan to combine the right combination of the four elements of
the marketing mix for a product to achieve its marketing objectives. Marketing objectives
could include maintaining market shares, increasing sales in a niche market, increasing
sale of an existing product by using extension strategies etc.
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Factors that affect the marketing strategy:
There are various laws that can affect marketing decisions on quality, price and the contents of
advertisements.
laws that protect consumers from being sold faulty and dangerous goods
laws that prevent the firms from using misleading information in advertising Example:
Volkswagen falsely advertised environmentally friendly diesel cars and were legally forced to pull all
cars from the market
laws that protect consumers from being exploited in industries where there is little or no
competition, known as monopolising.
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also reduced significantly over the years, along with new transport infrastructures, so it
is now cheaper and easier to export products to other countries.
Problems of entering foreign markets:
Difference in language and culture: It may be difficult to communicate with people in other
countries because of language barriers and as for culture, different images, colors and symbols have
different meanings and importance in different places. For example, McDonald’s had to make its menu
more vegetarian in Indian markets
Lack of market knowledge: The business won’t know much about the market it is entering and
the customers won’t be familiar with the new business brand, and so getting established in the market will
be difficult and expensive
Economic differences: The cost and prices may be lower or higher in different countries so
businesses may not be able to sell the product at the price which will give them a profit
High transport costs
Social differences: Different people will have different needs and wants from people in other
countries, and so the product may not be successful in all countries
Difference in legal controls to protect consumers: The business may have to spend more
money on producing the products in a way that complies with that country’s laws.
How to overcome such problems:
Joint venture: an agreement between two or more businesses to work together on a project.
The foreign business will work with a domestic business in the same industry. Eg: Japan’s Suzuki Motor
Corporation created a joint venture with India’s Maruti Udyog Limited to form Maruti Suzuki, a highly
successful car manufacturing project in India.
Advantages:
Reduces risks and cuts costs
Each business brings different expertise to the joint venture
The market potential for all the businesses in the joint venture is increased
Market and product knowledge can be shared to the benefit of the businesses
Disadvantages:
Any mistakes made will reflect on all parties in the joint venture, which may damage
their reputations
The decision-making process may be ineffective due to different business culture or
different styles of leadership
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Franchise/License: the owner of a business (the franchisor) grants a licence to another person
or business (the franchisee) to use their business idea – often in a specific geographical area. Fast food
companies such as McDonald’s and Subway operate around the globe through lots of franchises in
different countries.
ADVANTAGES DISADVANTAGES
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standards and rules
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Identify and explain one advantage and one disadvantage to SA of starting to sell new products
in a niche market.
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