3.1 Marketing, competition and the customer Objectives • A01 Understand what is meant by marketing • A02 Assess the pros and cons of mass and niche marketing • A03 Recommend and justify an appropriate method of segmentation in given circumstances Key terms • • • • Marketing Niche marketing Mass marketing Market segmentation What is marketing? Marketing • Marketing is a set of activities related to creating, communicating, delivering, and exchanging offerings that have value for others. In business, the function of marketing is to bring value to customers, whom the business seeks to identify, satisfy, and retain. What is the role of marketing? Marketing The role of marketing • Marketing identifies customers, their needs, and how much value they place on getting those needs addressed. • Marketing informs the design of the product to ensure it meets customer needs and provides value proportional to what it costs. • Marketing is responsible for communicating with customers about products, explaining who is offering them and why they are desirable. • Marketing is also responsible for listening to customers and communicating back to the provider about how well they are satisfying customer needs and opportunities for improvement. • Marketing shapes the location and terms of the transaction, as well as the experience customers have after the product is delivered. Why do markets change? Why do customer/consumer spending patterns change? • • • • Change Change Change Change in in in in tastes and preferences technology income demographics of the population Why is it important that the firm recognises changes in 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 have some markets become more competitive? Competitive markets • 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 can businesses respond to changing spending patterns and increased competition? • 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. What is niche 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. What is mass marketing? • 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. What are the benefits of niche marketing? • 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 • 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 What are the limitations of niche marketing? • 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 What are the benefits of mass marketing? • 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. What are the limitations of mass marketing? • They will have to face more competition • Can’t charge a higher price than competition because they’re all selling similar products What is market segmentation? Market segmentation • 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 healthconscious market segment and targeted/marketed the Diet Coke towards them. Market segmentation Why do businesses need to segment their markets? Because customers differ in the… • Benefits they want • Amount they are able to or willing to pay • Media (e.g. television, newspapers, and magazines) they see • Quantities they buy • Time and place that they buy What are the benefits of market segmentation? • Better matching of customer needs - Customer needs differ. Creating separate products for each segment makes sense • Enhanced profits for business - Customers have different disposable incomes and vary in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits • Retain more customers - By marketing products that appeal to customers at different stages of their life ("life-cycle"), a business can retain customers who might otherwise switch to competing products and brands. • Target market communications - Businesses need to deliver their marketing message to a relevant customer audience. By segmenting markets, the target customer can be reached more often and at lower cost Key terms • • • • Marketing Niche marketing Mass marketing Market segmentation Objectives • A01 Understand what is meant by marketing • A02 Assess the pros and cons of mass and niche marketing • A03 Recommend and justify an appropriate method of segmentation in given circumstances
