3.

Marketing
3.1 – Marketing, Competition and the Customer
3.2 – Market Research
3.3 – Marketing Mix
3.4 – Marketing Strategy

3.1 – Marketing, Competition and

the Customer
A market consists of all buyers and sellers of a particular good.
What is marketing?
By definition, marketing is the management process responsible for identifying,
anticipating and satisfying consumers’ requirements profitably.

The role of marketing in a business is as follows:

 Identifying customer needs through market research
 Satisfying customer needs by producing and selling goods and services
 Maintaining customer loyalty: building customer relationships through a variety of methods
that encourage customers to keep buying one firm’s products instead of their rivals’. For example, loyalty
card schemes, discounts for continuous purchases, after-sales services, messages that inform past
customers of new products and offers etc.
 Gain information on customers: by understanding why customers buy their products, a firm can
develop and sell better products in the future
 Anticipate changes in customer needs: the business will need to keep looking for any changes
in customer spending patterns and see if they can produce goods that customers want that are not
currently available in the market.
Some objectives the marketing department in a firm may have:
 Raise awareness of their product(s)
 Increase sales revenue and profits
 Increase or maintain market share (this is the proportion of sales a company has in the overall
market sales. For example, if in a market, $1 million worth of toys were sold in a year and company A’s
total sales was $30,000 in that year, company A’s market share for the year is ($300,000/ $1000000) *100
= 30%)
 Enter new markets at home or abroad
 Develop new products or improve existing products.
Market Changes
Why customer spending patterns may change:
 change in their tastes and preferences

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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become outdated and people want more sophisticated features on products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.

Why some markets have become more competitive:

 Globalization: products are being sold in markets all over the world, so there are more
competitors in the market
 Improvement in transportation infrastructures: better transport systems means that it is easier
and cheaper to distribute and sell products everywhere
 Internet/E-Commerce: customers can now buy products over the internet form anywhere in the
world, making the market more competitive
How business can respond to changing spending patterns and increased competition:
A business has to ensure that it maintains its market share and remains competitive in
the market. It can ensure this by:

 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.

Niche & Mass Marketing

Niche Marketing: identifying and exploiting a small segment of a larger market by
developing products to suit it. For example, Versace designs and Clique perfumes have
niche markets- the rich, high-status consumer group.
Advantages:
 Small firms can thrive in niche markets where large forms have not yet been established
 If there are no or very few competitors, firms can sell products at a high price and gain high
profit margins because customers will be willing be willing to pay more for exclusive products

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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

Market segmentation is the process of dividing a market of potential customers into

groups, or segments, based on different characteristics. For example, PepsiCo
identified the health-conscious market segment and targeted/marketed the Diet Coke
towards them.

Markets can be segmented on the basis of socio-economic

groups (income), age, location, gender, lifestyle, use of the product (home/ work/ leisure/
business) etc.
Each segment will require different methods of promotion and distribution. For example,
products aimed towards kids would be distributed through popular retail stores and
products for businessmen would be advertised in exclusive business magazines.
Advantages:
 Makes marketing cost-effective, as it only targets a specific segment and meets their needs.

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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.

Primary Market Research (Field Research)

The collection of original data. It involves directly collecting information from existing or
potential customers. First-hand data is collected by people who want to use the data
(i.e. the firm). Examples of primary market research methods include questionnaires,
focus groups, interviews, observation, and online surveys and so on.

The process of primary research:

1.  Establish the purpose of the market research

2. Decide on the most suitable market research method
3. Decide the size of the sample (customers to conduct research on) and identify the sample
4. Carry out the 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:

 Detailed information can be collected

 Customer’s opinions about the product can be obtained
 Online surveys will be cheaper and easier to collate and analyse
 Can be linked to prize draws and prize draw websites to encourage customers to fill out
surveys
Disadvantages:

 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:

 They can provide detailed information about the consumer’s opinions

Disadvantages:

 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.

Internal sources of information:

 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.

Presentation of Data from Market Research

Different data handling methods can be used to present data from market research.
This will include:

 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.

What makes a successful product?

 It satisfies existing needs and wants of the customers

 It is able to stimulate new wants from the consumers
 Its design – performance, reliability, quality etc. should all be consistent with the product’s brand
image
 It is distinctive from its competitors and stands out
 It is not too expensive to produce, and the price will be able to cover the costs
New Product Development: development of a new product by a business. The process:
1. Generate ideas: the firm brainstorms new product concepts, using customer suggestions,
competitors’ products, employees’ ideas, sales department data and the information provided by the
research and development department
2. Select the best ideas for further research: the firm decides which ideas to abandon and which
to research further. If the product is too costly or may not sell well, it will be abandoned
3. Decide if the firm will be able to sell enough units for the product to be a success: this
research includes looking into forecast sales, size of market share, cost-benefit analysis etc. for each
product idea, undertaken by the marketing department
4. Develop a prototype: by making a prototype of the new product, the operations department can
see how the product can be manufactured, any problems arising from it and how to fix them. Computer
simulations are usually used to produce 3D prototypes on screen
5. Test launch: the developed product is sold to one section of the market to see how well it sells,
before producing more, and to identify what changes need to be made to increase sales. Today a lot of
digital products like apps and software run beta versions, which is basically a market test
6. Full launch of the product: the product is launched to the entire market
Advantages:

 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:

 Market research is expensive and time consuming

 Investment can be very expensive
Why is brand image important?
Brand image is an identity given to a product that differentiates it from competitors’
products.
Brand loyalty is the tendency of customers to keep buying the same brand continuously
instead of switching over to competitors’ products.
 Consumers recognize the firm’s product more easily when looking at similar products- helps
differentiate the company’s product from another.
 Their product can be charged higher than less well-known brands – if there is an established
high brand image, then it is easier to charge high prices because customers will buy it nonetheless.
 Easier to launch new products into the market if the brand image is already established. Apple
is one such company- their brand image is so reputed that new products that they launch now become an
immediate success.
Why is packaging important?
 It protects the product
 It provide information about the product (its ingredients, price, manufacturing and expiry dates
etc.)
 To help consumers recognize the product (the brand name and logo on the packaging will help
identify what product it is)
 It keeps the product fresh

Product Life Cycle (PLC)

The product life cycle refers to the stages a product goes through from it’s introduction
to it’s retirement in terms of sales.

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 At these different stages, the product will need different marketing decisions/strategies
in terms of the 4Ps.

Extension strategies: marketing techniques used to extend the maturity stage of a

product (to keep the product in the market):
 Finding new markets for the product
 Finding new uses for the product
 Redesigning the product or the packaging to improve its appeal to consumers
 Increasing advertising and other promotional activities
The effect on the PLC of a product of a successful extension strategy:

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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.

Different methods of pricing:

 Market skimming: Setting a high price for a new product that is unique or very different from
other products on the market.
Advantages:

 Profit earned is very high

 Helps recover/compensate research and development costs
Disadvantage:

 It may backfire if competitors produce similar products at a lower price

 Penetration pricing: Setting a very low price to attract customers to buy a new product
Advantages:

 Attracts customers more quickly

 Can increase market share quickly
Disadvantages:

 Low revenue due to lower prices

 Cannot recover development costs quickly
 Competitive pricing: Setting a price similar to that of competitors’ products which are already
available in the market
Advantage:

 Business can compete on other matters such as service and quality

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 Disadvantage:

 Still need to find ways of competing to attract sales.

 Cost plus pricing: Setting price by adding a fixed amount to the cost of making the product
Advantages:

 Quick and easy to work out the price

 Makes sure that the price covers all of the costs
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:

 Helps to sell off unwanted stock before it becomes out of date

 A good way of increasing short term sales and market share
Disadvantage:

 Revenue on each item is lower so profits may also be lower

Factors that affect what pricing method should be used:
 Is it a new or existing product?
If it’s new, then price skimming or penetration pricing will be most suitable. If it’s an existing product,
competitive pricing or promotional pricing will be appropriate.
 Is the product unique?
If yes, then price skimming will be beneficial, otherwise competitive or promotional pricing.
 Is there a lot of competition in the market?
If yes, competitive pricing will need to be used.
 Does the business have a well-known brand image?
If yes, price skimming will be highly successful.
 What are the costs of producing and supplying the product?
If there are high costs, costs plus pricing will be needed to cover the costs. If costs are low, market
penetration and promotional pricing will be appropriate.
 What are the marketing objectives of the business?
If the business objective is to quickly gain a market share and customer base, then penetration pricing
could be used. If the objective is to simply maintain sales, competitive pricing will be appropriate.
Price Elasticity (just need to learn the notion – calculations are unneeded)

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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

– The retailer takes

some of the profit
away from the
producer
– The producer
loses some control
– The cost of holding of the marketing
The manufacturer will sell its inventories of the mix
products to a retailer (who will product is paid by the – The producer
have stocks of products from retailer must pay for
other manufacturers as well) – The retailer will pay delivery of
who will then sell them to for advertising and other products to the
customers who visit the shop. promotional activities retailers
Manufacturer For example, brands like Sony, – Retailers are more – Retailers usually
to Retailer Canon and Panasonic sell their conveniently located for sell competitors’
to Consumer products to various retailers. consumers products as well

The manufacturer will sell large – Another

volumes of its products to a middleman is
wholesaler (wholesalers will added so more
have stocks from different profit is taken
manufacturers). Retailer will – Wholesalers will away from the
buy small quantities of the advertise and promote producer
Manufacturer product from the wholesaler the product to retailers – The producer
to Wholesaler and sell it to the consumers. – Wholesalers pay for loses even more
to Retailer One good example is the transport and storage control of the
to Consumer distribution of medicinal drugs. costs marketing mix

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

specialized information about

the market and will know the
best wholesalers to sell them to.
This is common when firms are
exporting their products to a
foreign country. They will need added so even
to Wholesaler a knowledgeable agent to take more profit is
to Retailer care of the products’ taken away from
to Consumer distribution in another country the market the producer

What affects place decisions?

 The type of product it is: if it’s sold to producers of other goods, distribution would either be
direct (specialist machinery) or wholesaler (nuts, bolts, screws etc.).
 The technicality of the product: as lots of technical information needs to be passed to the
customer, direct selling is usually preferred.
 How often the product is purchased: if the product is bought on a daily basis, it should be sold
through retail stores that customers can easily access.
 The price of the product: if the products is an expensive, luxury good, it would only be sold
through a few specialist, high-end outlets For example, luxury watches and jewellery.
 The durability of the product: if it’s an easily perishable product like fruits, it will need to be
sold through a wide amount of retailers to be sold quickly.
 Location of customers: the products should be easily accessible by its customers. If customers
are located over the world, e-commerce (explained below) will be required.
 Where competitors sell their product: in order to directly compete with competitors, the
products need to be sold where competitors are selling too.

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:

 Inform customers about a new product

 Persuade customers to buy the product
 Create a brand image
 Increase sales and market share
Types of promotion
 Advertising: Paid-for communication with consumers which uses printed and visual media like
television, radio, newspapers, magazines, billboards, flyers, cinema etc. This can be informative (create
product awareness) or persuasive (persuade consumers to buy the product). The process of advertising:

 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:

Legal Controls on Marketing

 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.

Entering New Markets

Growing business in other countries can increase sales, revenue and profits. This is

because the business is now available to a wider group of people, which increases
potential customers. If the home markets have saturated (product is in maturity stage),
firms take their products to international markets. Trade barriers and restrictions have

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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

Rapid, low cost method of

business expansion

Gets an income from Profits from the franchise

franchisee in the form of needs to be shared with the

franchisee
franchise fees and
royalties Loss of control over
running of business
Franchisee will better
understand the local If one franchise fails, it
tastes and so can can affect the reputation of
advertise and sell the entire brand
appropriately
Franchisee may not be as
Can access ideas and skilled
suggestions from
franchisee Need to supply raw
material/product and
Franchisee will run the provide support and
operations training
TO FRANCHISOR

TO FRANCHISEE Working with an Cost of setting up business

established brand means
No full control over
chance of business failing
business- need to strictly
is low
follow franchisor’s

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 standards and rules

Profits have to be shared

with franchisor

Franchisor will give Need to pay franchisor

technical and franchise fees and
managerial support royalties

Franchisor will supply Need to advertise and

the raw promote the business in
materials/products the region themselves

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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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