• 3 Market Positioning Product & Market orientation Market Mapping, Market segmentation Differentiation Competitive advantage Adding value From the specification a) Product/Market orientation b) Market mapping c) Competitive advantage of a product or service d) The purpose of product differentiation e) Adding value to products/services To market a product a business must through market research find out what customers want and how much they are prepared to pay. Do all businesses find out what customers want? Market Orientation Market orientation Businesses develop products according to customers needs and wants. LOTS OF MARKET RESEARCH Respond to changes in consumer tastes Market Orientation Market orientation How can a pen be improved to suit customer needs? Product Orientation Product orientation Businesses develop products to persuade customers to buy. Innovative companies are product orientated. Do you agree? New products not always a success SPOTIFY Music streaming service Launched in 2008 Swedish music podcast & video streaming Phenomenal growth Digital platform 1. Outline 2 ways Spotify can be seen as a market orientated business. (4) Users listen to 30million+ tracks few $$ per month Market or Product? • • • • • • Nature of product Policy decisions Nature & size of market Competition Views of owners/managers Costs Evaluation of product v market • Trend towards market – limitations • $$$ (resources) • R & D of innovative product = success • Read pg 20-21 advantages & disadvantages TASK/hmk • Read hand-out (chapter 3 pg 20-21) • Discuss Activity 1- questions 1,2,3 • Read about Market segmentation • Learn all the different types & benefits/ drawbacks • Answer Activity 3, pg 27 • One benefit of being product orientated is that Sun Pharmaceutical Industries can concentrate solely on the development of new, high-quality drugs and medicines. It does not have to ‘waste’ resources on expensive market research, promotion and advertising. For example, once a new medicine has been developed, perfected and tested, Sun Pharmaceutical Industries knows that the market already exists. Also, since the product will be new on to the market, sales are almost guaranteed. Sun Pharmaceuticals can also obtain patents on new products, which prevent other companies from copying their new drugs. This means they will have no competition for a period of time. MARKET MAPPING Starter • Mars Bar • In teams come up with as many new product ideas for dairy milk as you can in 3 minutes: MARS • Who would have dreamt in the late 1980s that you could transform chocolate bars into ice creams? • The market for confectionery ice cream did not exist at the beginning of 1988. Today it is the fastest growing sector of the ice cream market. • In 1994 the total market for ice cream was worth £908 million. projected to be worth about $54.7 billion in 2016. https://www.statista.com/statistics/326315/global-ice-cream-marketsize/ • It is in this market's fastest growing sectors that the confectionery manufacturers Mars and Nestlé are having the biggest impact. • http://www.mars.com/uk/en/brands/chocolate.aspx Market mapping • In order to identify a gap in the market, it may be useful for a business to construct a diagram of where competitors are on two axis (for example price and quality): Premium Price •Jimmy Choo •Ugg •Nike Functional Luxury (a treat) •Clarks Budget Price •Primark What is market mapping? • Read hand-out & pg in book • Try the cadbury’s task at Market mapping • A perception from customers point of view (not business). The customers make the decisions. (position map) • So how do customers perceive value? While you think…. Back to the Market Map… Turkish Delight Milk Tray Cadbury Snaps Mars Dairy Milk Smarties Crunchie Maltesers Twix Snickers Galaxy Kit Kat Cadbury’s Caramel Cadbury’s Celebrations Luxury Chocolate 12 13 11 1 Filling chocolate 2 14 10 Light chocolate 3 4 5 9 7 6 Everyday chocolate 8 Answers 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Turkish Delight Cadbury’s Caramel Cadbury’s Dairy Milk Snickers Twix Mars Kit Kat Smarties Maltesers Galaxy Celebrations Milk Tray Cadbury Snaps Crunchie Answers – Perceptual map for cars What does this map show? Mars is good at filling, everyday chocolate Snickers Twix Mars But people are worrying about their weight, and so are buying… Did you get it? They are buying e.g. Lighter chocolate Crunchie Maltesers Cadbury Snaps The idea of market mapping is to identify gaps, to show where a sector is overcrowded, and to stop a producer becoming over-reliant on one sector. Mars is very strong in the filling everyday sector (Twix, Mars and Snickers), but this is a declining sector as people worry about their weight. So the 1990s launch by Mars of Celebrations was a clever move. Thinking time…Is there room for a new chocolate product?? Is there room for something new in the market? What could it be? Why would you launch it? Using market mapping: • For new businesses can help identify potential gaps in the market. • Or position new product in with the others (SAFE?) – less risky but less profit • Marketing manager can now focus on which features of the product to market/ promote more. • If an existing brand, can help reposition itself – maybe new advertising campaign/ restyle packaging (rather than cost of new product) Identifying Market Map Key Factors High priced/low priced High quality/low quality High Reputation/ low reputation For the young/for the old Modern/traditional For men/for women Companies decide on the “right” factors after careful TASK • ACTIVITY 2 – PG 23 • Advantages & Disadvantages of market mapping (add to hand-out) • Present . • Read hand-out – evaluation together Can you?..... • identify how market mapping might be used by a business • Advantages & disadvantages of using market maps to a business Lesson Objective 2 To be able to identify how market mapping might be used by a business To analyse the advantages & disadvantages to a business of using market mapping To be able to describe how a business could gain competitive advantage To be able to discuss the purpose of product differentiation To be able to identify ways that a business can add value to products or services To be able to answer exam questions based on the topic area TASK • IN GROUPS, YOU WILL BE GIVEN A BUSINESS SITUATION. 1. HOW WILL YOU DIFFERENTATE YOURSELF FROM YOUR COMPETITORS? 2. WHAT WILL YOU DO TO GAIN A COMPETITIVE ADVANTAGE? 3. WHAT IMPLICATIONS WILL THIS HAVE ON YOUR BUSINESS? (+ & -) Business TASK 1. 2. 3. 4. Hair salon Italian restaurant Bakery Furniture store 1. HOW WILL YOU DIFFERENTATE YOURSELF FROM YOUR COMPETITORS? 2. WHAT WILL YOU DO TO GAIN A COMPETITIVE ADVANTAGE? 3. EXPLAIN HOW YOU WILL ADD VALUE. Competitive advantage • Competitive advantage is an advantage that enables a business to perform better than its rivals in the market Competitive advantage • • • • • • • • • product design (a feature, look, function) Product quality (high quality = high price) Promotion (persuasive advertising, creative promo) Customer service (high quality service) Delivery times (speed) Ethical stance (fairtrade, environmental) Flexibility (change design, speedier production) EOS (produce at low cost = lower price) Focus on a particular market segment (different) Product differentiation • Where a product is different from the competition in some way. • Consumers must be able to perceive this difference and may be willing to pay a premium price for the product. Bugatti veyron – website here which outlines its features, including 1200 bhp (average car is about 104) Article of cost of a Veyron here Methods of differentiation • Flexible pricing (perception of price) • Recognition (different – packaging) • Extend product range (appeal to different tastes) • Brand development (strong brand) • Overcome competition (increase market share) Adding value • Offering extra features when selling a product, such as high quality customer service, which helps to exceed customer expectations Adding value • • • • • • Bundling Customer service Speed of response to customers Packaging Frequent buyer offers Customisation However…. • IN order to differentiate, if your business is providing a better service because of xyz • Then costs may rise, so prices to customers rise, so customers who have low disposable incomes may choose not to purchase your product/service. Benefits of adding value for a business 1. Can charge a higher price – increase profit 2. Protection against competitors offering lower prices 3. Customer loyalty, repeat business 4. Focus more on target market – meeting needs of customers more effectively 5. Differentiate a product and gain a competitive advantage Input for handbags Radley have added value to leather, these bags cost £300 Evaluation - think about…. • Value-added might not be important to all customers, particularly during a recession or in areas where disposable incomes are low in which case low value added is likely to be necessary as this will enable low prices to be charged. • For some customers - with higher income & luxurious lifestyle a recession may not effect their decision to continue purchasing a particular product/service. Adding value • Design – develop new technology/design features to make their product unique (differentiation advantage) • Production – achieving quality and efficiency adds value. – Quality will ensure a higher price can be charged (differentiation advantage) – Efficiency helps cut costs of the input (cost advantage) • Marketing – creating an image that makes the product more desirable, a brand differentiation advantage) • Service: - eg. hairdresser: refreshments, top reputable designer stylists, comfortable waiting area, massage chairs. Glossary • Market mapping: Market mapping is about positioning the products/service a business plans to provide • Added value: value added is when a business chooses to enhance the quality of a core product by providing extras to improve a customer’s utility/experience • Product differentiation: How a business differentiates its products; through reputation, service, features or value • Competitive advantage: An advantage a business has over its competitors, allowing it to generate larger than average turnover for the industry Revision Video Added value Revision • http://www.tutor2u.net/business/reference/e nterprise-adding-value • http://www.tutor2u.net/business/reference/a dding-value-and-the-transformation-process Reading • http://businesscasestudies.co.uk/masterfoods /how-mars-transformed-the-ice-creammarket/#axzz4NW42lqUZ • Information case study on Mars Sample question 1 Market mapping: Case study on next slide This is a levelled question to get 5 or 6 marks students will need to provide a two sided argument and an evaluation Case study for question 1 Answer question 1 Level Marks Suggested answer 4 5-6 Markets change because of changes in consumer tastes and preference or incomes or because of new entrants, in which case the variables which determine the product positioning of cakes are no longer valid. EVALUATION PLUS TWO SIDED ANALYSIS 3 3-4 Anna can make sure she prices her wedding cup-cakes appropriately at the high-end of the market given the endorsement by Vogue magazine. ANALYSIS (ONE SIDED) 2 2 Anna could use market mapping to compare her cup-cakes in relation to rival bakeries APPLICATION (CONTEXT) 1 1 Market mapping is about positioning the products/service your business plans to provide KNOWLEDGE (NO CONTEXT) Sample question 2 Competitive advantage: This is an 8 mark answer Note it asks for two ways (4 marks per way) Case study on next slide Answer question 2 Level Marks per way given Suggested answer 4 4 However, if by providing a better quality experience through Shiatsu massage chairs adds significantly to the price of the hair treatments, then customers may be put off going to the salon when personal budgets are tight/incomes fall because of unemployment. EVALUATION PLUS TWO SIDED ANALYSIS 3 3 Handmade sofas will make the client experience more enjoyable which may therefore lead to customer loyalty ANALYSIS (ONE SIDED) 2 2 Offering waiting clients Italian handmade sofas; wide range of hair services available, David’s reputation APPLICATION (CONTEXT) 1 1 How a business differentiates itself; by providing a better quality service, value for money, customer after-sales care, marketing, advertising (word of mouth) KNOWLEDGE (NO CONTEXT) Sample question 3 Added value Case study is on next slide 8 marks, which means it’s a 4 level question and will need a contextualised evaluation to get into 8 marks (Judgement needs to be specific to this case study) Notice the question asks for ANY fold enterprise not just the one discussed in the case study Answer question 3 Level Marks per way given Suggested answer 3 5 For example because the customers at the Fold are quite discerning or have higher disposable incomes and so more likely to expect to buy a product which has been made with care and attention ANALYSIS (ONE SIDED) 2 3-4 For example when the chef at the ecoCafe prepares soups he/she uses organically produced ingredients. APPLICATION (CONTEXT) 1 1-2 For example value added is when a business chooses to enhance the quality of a core product by providing extras to improve a customer’s utility/experience OR changing inputs in a way that consumers see as beneficial and attractive. KNOWLEDGE (NO CONTEXT) How to get level 4 –top marks 6-8 marks Level 4 Marks 6-8 Such as that in order to ensure that customers continue to buy the products it is important that they consider their purchases to have been carefully crafted since it is not price competitiveness which appears to be important but the nature of the product itself, for example muffins at the ecoCafe are likely to be made with fair trade bananas. However, value-added might not be important to all customers, particularly during a recession or in areas where disposable incomes are low in which case low value added is likely to be necessary as this will enable low prices to be charged. EVALUATION PLUS TWO SIDED ANALYSIS Q4 (a) When Sue Wragg opened up her hair salon in the Mailbox shopping mall in Birmingham, she considered a number of ways to add value. Which one of the following is least likely to add value for Sue’s clients? A Creating a website for supporting clients’ on-line bookings B Furnishing the waiting area with leather sofas C Increasing prices D Providing magazines and refreshments for clients Answer __________ (1) (b) Explain why this answer is correct.(3) Answer q4 a. C b.- Definition of adding value (1) –when a business chooses to enhance quality of a product by proving extras to improve a customer’s utility/ experience or changing inputs in a way that consumers see as beneficial and attractive. - Prices increase of hair cuts may increase revenue for( Sue 1 mark) but not customer value /experience at the salon(1) - Websites, sofas, magazines and refreshments are for the direct benefit of the customer (1) Q5 Analyse one reason why it might be important for Fraser to differentiate his business. (6) Answer q5 Knowledge: 1 mark for defining differentiation, e.g. distinguishing your product or service (1 mark) OR identifying a reason, e.g. similar products/businesses already exist; gives competitive advantage; to sell more products/increase sales volume (1 mark) Application: 1 mark for applying in context, e.g. the jams are made from super fruits such as cranberries/with fruit juice not Sugar (1 mark) Analysis: up to 2 marks are available for identifying cause and consequence/expanding, e.g. in order to gain a competitive advantage (1 mark) which should help increase sales of jam because this is something that rivals may not do (1 mark) NB allow 2 marks if 2 separate analytical comments are made. See examiner comments for more detailed answers. Revision resources • https://www.tutor2u.net/business/reference/ marketing-segmentation-targetingpositioning-video