Business Studies - Marketing notes HSC topic 3: Marketing Study

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Business Studies - Marketing notes

HSC topic 3: Marketing Study Notes

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The focus of this topic is to develop an understanding of the nature and role of marketing in a business and the main elements involved in the development and implementation of successful marketing strategies.

Outcomes

The student:

H1.2 critically analyses the role of business in Australia

H2.1 describes and analyses business functions and operations and their impact on business success

H3.2 evaluates the effectiveness of management in the organisation and operations of business and its responsiveness to change

H4.1 critically analyses the social and ethical responsibilities of management

H5.1 selects, organises and evaluates information and sources for usefulness and reliability

H5.2 plans and conducts an investigation into business to present the findings in an appropriate business format

H5.3 communicates business information, ideas and issues, using relevant business terminology and concepts in appropriate forms.

Content

Students learn to: use existing business case studies to investigate and communicate ideas and issues related to marketing. The focus of these case studies will be to:

• analyse and evaluate marketing strategies for a product or service

• analyse the marketing plan of a business

• construct a marketing plan for a single product/service (real or imaginary).

Students learn about: nature and role of markets and marketing

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• the role of marketing in the firm and in society

• types of markets — resource, industrial, intermediate, consumer, mass, niche

• production–selling–marketing orientation

• the marketing concept — customer orientation, relationship marketing

• marketing planning process elements of a marketing plan

• situational analysis including SWOT and product life cycle

• establishing market objectives

• identifying target market

• developing marketing strategies

• implementation, monitoring and controlling — developing a financial forecast, comparing actual and planned results, and revising the marketing strategy market research process

• determining information needs, data collection (primary and secondary), data analysis and interpretation customer and buyer behaviour

• types of customers — people, households, firms, educational institutions, government, clubs and societies, religious organisations

• the buying process — buyers and users

• factors influencing customer choice — psychological, sociocultural, economic, government developing marketing strategies

• market segmentation and product/service differentiation

• product and service

– positioning

– branding

– packaging

• price including pricing methods — cost, market and competition-based

– pricing strategies/tactics — skimming, penetration, loss leaders, price points

– price and quality interaction

• promotion

– elements of the promotion mix — personal selling, advertising, below-theline promotions, public relations

– the communication process including opinion leaders and word of mouth

• place/distribution

– distribution channels and reasons for intermediaries

– channel choice including intensive, selective, exclusive

– physical distribution issues including transport, warehousing, inventory

• environmental effects on distribution — technology, local government

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ethical and legal aspects

• environmentally responsible products

• other issues including creation of needs, impacts of retail developments, sugging (selling under the guise of research)

• role of consumer laws in dealing with

– deceptive and misleading advertising

– price discrimination

– implied conditions

– warranties

– resale price maintenance.

Nature and role of markets and Marketing:

Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organisational objectives. Marketing is a total system of interacting activities, designed to plan, price, promote and distribute products to present and potential customers. A successful business develops a marketing plan based in careful research and design. The customer should always be the central focus of the marketing plan. Any business that does not develop and maintain a customer base soon goes out of business. It is a role of the marketing to make sure a customer base is created and maintained.

Role of marketing in the business and in Society:

A market focused business will want to create products that customers want to buy. The business needs to see itself as a customer-satisfying process rather than a production process. To achieve the goal of profit, the marketing plan should be the focus of all short term planning for three reasons:

1: The marketing plan outlines the strategies to be used to bring the buyer and seller together. The business needs to be able to identify:

- Where the market is

- Who will buy the product

- Why they will buy the product

- How often they will buy the product

2: The core of marketing is satisfying existing customer wants, which should lead to repeat sales.

3: Marketing is the revenue- generating activity of any business. Nothing is achieved until a sale is made.

A business must, therefore, determine what the customers want, then develop a product and marketing plan to satisfy these wants.

Types of Markets:

A market is group of individuals, organisations or both that: need or want a product, have money (purchasing power) to purchase the product, are willing to spend their money to obtain the product and are socially and legally authorised to purchase the product. There are many markets in an economy, based on the characteristics of the individuals and groups that make up a specific market; it is possible to divide markets into six main types.


Resource Market: Consists of those individuals or groups that are engaged in all forms of primary production, including mining, agriculture, forestry and fishing. As a group, this market in Australia is made up of approximately

118 000 enterprises or customers and has a large purchasing power.

Industrial Market: Includes industries and businesses that purchase products to use in the production of other products or in their daily operations. For example tip top bakery that purchases flour to make into bread.

Intermediate market or resellers: Consists of wholesalers and retailers who purchase finished products and sell them again to make a profit. The vast majority of goods sold to consumer markets are first sold to an intermediate market. Subway for example, is a retailer that buys goods to make into sandwiches and salads for sale to consumers.

Consumer Markets: consist of an individual that is members of a household who plan to use or consume the products they buy i.e. consumers do not intend to use the products to make other goods or services. Each of us is part of numerous consumer markets for products such as housing, clothing, food, entertainment, appliances, music recordings and cars.

Mass Market: is where the seller mass produces, mass distributes and mass promotes one product to all buyers. Very few products are marketed to the mass market, due to greater choice, higher personal incomes and customers seeking more individualised products, the mass market has been replaced with segmented or niche markets.

Niche Markets: is a concentrated or micro market, is created when the mass market is finely divided into smaller markets consisting of buyers who have specific needs or lifestyles.

Production, selling and market orientation – Approaches to marketing:

The production approach: the industrial revolution began in Britain over 170 years ago. This burst of industrial growth saw demand for products exceed the production capabilities of many businesses. Up until world war one, businesses concentrated their efforts on the production of goods and services. Businesses were usually able to sell all their output. Marketing consisted of simply taking orders and delivering the products.

The sales approach: When higher quality, mass produced products came onto the market and competition between businesses increased. No longer could a business rely on selling all it produced. Businesses increased their advertising, making use of newly developed electronic communication systems, such as radio and film. Businesses faced the challenge or persuading customers to buy a specific brand.

The marketing approach: For the first time after WWII Australian’s had discretionary income, more income than needed to obtain the necessities of life. This extra income was used to satisfy new needs and wants with different


kinds of goods and services. For example, consumers started spending on travel and recreation. Producers now had to learn how to satisfy wants as well as needs ; this involves market research to determine what those wants are. Something else was needed if products were to sell as well as previously.

The Marketing Concept:

The marketing concept is a business philosophy that states that all sections of the business are involved in satisfying a customer’s needs and wants while achieving the business goals. The business should direct all of its policies, plans and operations to achieving customer satisfaction. In recent decades there has been increasing focus on environmental sustainability leading to marketing focusing on ‘greener’ products.

Customer orientation: occurs when a business bases its marketing decisions and practices on its customers’ wants. To be effective, the marketing concept must be adopted by all its employees of the business, employees should work towards customer satisfaction by establishing positive relationships with customers. A market focused business wants to create a product that customers want to buy. The business therefore needs to see itself as a customer satisfying process rather than a production process.

Relationship marketing: is the development of long term and cost effective relationships with individual consumers. The ultimate aim is to create customer loyalty by meeting the needs of customers on an individual basis. Relationship marketing, therefore, emphasises customer retention (creating reasons to keep customers coming back). A highly successful marketing strategy introduced during the early 1990s was loyalty reward programs such as Fly Buys and ABC reward card. These schemes offer rewards to those loyal customers who spend specified amounts or make repeat purchases.

Marketing Planning Process:

Strategic marketing planning is the process of developing and implementing marketing strategies to achieve marketing objectives.

Step 1: Performing situational Analysis:

A situational analysis investigates the marketing opportunities and the potential problems. To do this market research is used to gather all the available information about the market environment. The data is then

analysed by marketing managers. Situational analysis attempts to answer two broad questions: where is the business now? and Where will the business be in the future?.

Step 2: Establishing Market Objectives:

A marketing objective is a statement of what is to be achieved through marketing activities. These expectations become the business objectives, clear objectives are essential for any marketing plan to be effective.

Determining these objectives is the most important step in the marketing process. Some examples of marketing objectives might include: increase market share by 5 per cent and to improve existing product range.

Step 3: Identifying Target Markets:


The target market is the group of customers to which the business intends to sell its product. Once the target market is identified, the business concentrates its marketing activities towards that group. Business owners must conduct some basic research to identify their customers’ needs in order to tailor stock and service standards to group’s expectations. Data may be collected through questionaries, informal interviews with customer and written surveys.

Step 4: Developing Marketing Strategies:

Marketing strategies are plans that outline how a business will use its resources to achieve its marketing objectives. The four main strategies a business can peruse are referred to as the marketing mix. The marketing mix is the four Ps of marketing which are Product- including brand name, packaging, positioning and warranties.

Price- including list price, discounts, credit terms and payment period.

Promotion- including advertising, sales promotion and publicity

Place- including location of its markets, warehousing, distribution, transport and inventory.

Step 5: Implementing, Monitoring and controlling the marketing plan:

The marketing plan will not operate effectively unless it is well managed; marketing management is the process of monitoring and modifying the marketing plan. Monitoring involves comparing actual performance with predetermined performance standards. By using performance standards, such as market share analysis profitability by product or territory, management can assess the effectiveness of the marketing plan.

Elements of a Marketing Plan:

Situational Analysis – SWOT Analysis and Product life cycle:

SWOT (Strengths, Weaknesses, opportunities and threats)- Changes in the external environment can dramatically alter the course of a business. A business must constantly monitor these changes, looking for any opportunities to exploit and find any threats to avoid. Internal forces operate from inside the organisation and are largely within the control of the business. These internal forces are unique to each business and, by analysing them; management can assess the strengths and weaknesses of the business. To develop a clear understanding of both internal and external environments a SWOT analysis should be conducted and the marketing plan modified to reflect this information.

Product Life Cycle: An assessment of the product’s position in the product life cycle should be carried out. This is necessary because different marketing strategies will need to be used at different stages of a product’s life. Using this information a business will be able to launch, modify ad delete products in response to changes in the product life cycle. Failure to do so will result in declining sales and reduced profits. The position in the product life cycle is very important information for the situational analysis, it will effect marketing strategies.

Establishing Marketing Objectives:


Market objectives should be more customers orientated than the objectives for the entire business. They are also concerned with products and markets.

Four common marketing objectives include: increasing market range, expanding the product range, expanding existing markets and maximising customer service.

Increasing market Share: Market share refers to the business’s share of the total industry sales for a particular market.

Expanding the product Range: The product mix is the total range of products offered by a business. Businesses are usually keen to increase to increase their product mix, this will in the long term increase profits because the same product mix will not remain effective for long because customer’s tastes and preferences will change over time. To develop an ideal product range, businesses must understand customer’s needs.

Expanding existing markets: The demand for some products varies greatly due to geographic variables. Geographical representation refers to the presence of a business and the range of its products across a suburb, town, city, state or country.

Maximising customer service: Customer service means responding to the needs and problems of the customer. High levels of customer service will result in improved customer satisfaction and a positive reaction from customers towards the products they purchase. Customer service can no longer be regarded as merely explaining the refund policy or providing a complaints desk. Rather it is an attitude that should be adopted by all departments within the business.

Identifying Target Markets:

The market segmentation approach:

Market segmentation occurs when the total market is subdivided into groups of people who share one or more common characteristics. Marketing managers use four main variables when segmenting the total market.

Demographic: age, gender, ethnicity, income, occupation, education level, religion, family size and social class.

Geographic: urban, suburban, rural, region, climate and landform.

Product related: regular user, first time user, brand loyalty, price sensitivity and end use.

Psychographic: personality, motives, lifestyles.

Developing Marketing Strategies:

Marketing Mix – the four Ps:

Product- The business owner must determine the product’s quality, design, name, warranty and guarantee, packaging, labelling and exclusive feature.

Price- Business’s must be careful when setting price, a price set too low may give customers the impression of the product being cheap and nasty however a price too high could mean lost sales unless superior customer service is offered.

Promotion- A promotion strategy details the methods to be used by a business to inform, persuade and remind customers about its products. The main forms of promotion include personal selling, advertising, below the line promotions and public relations.


Place- This element of marketing deals with the distribution of the good or service and consists of two parts. The first is the transportation and storage of finished products. Second, the business owner has to decide how many intermediaries will be involved in the distribution process. The most common intermediaries are wholesalers and retailers. The number of intermediaries chosen will determine how widely the good or service will be distributed.

Implementing the Marketing Plan:

Implementation is the process of putting the marketing strategies into operation. To implement a plan effectively a number of basic questions need to be answered:

- Is the plan fully integrated with all other sections of the business?

- Who are the best people for the various tasks needed to implement the plan?

The implementation of this stage is quite difficult, especially as unforseen situations may arise thatput in jeopardy the success of the entire marketing plan.

- Are all other employees familiar with the marketing objectives and marketing strategies?

Monitoring and Controlling:

Monitoring means checking and observing the actual progress of the marketing plan. This requires the marketing department and personal as well as other employees to gather information and report on any important changes, problems or opportunities that arise during the life of the marketing plan. The first step to the controlling process requires the business to outline what is to be accomplished, that is to establish a performance standard. A performance standard is a forecast evel of performance against which actual performance can be compared. For example, a performance standard could be:

- Increase monthly sales by 5 per cent

- Improve sales revenue per salesperson by 10 per cent over the next six months.

The second step in the controlling process is to compare or evaluate actual performance against the performance standard. Budgets, sales, statistics and cost analyses can be used to evaluate results.

Developing a Financial Forecast:

Requires two steps:

1: Cost estimate- How much is the marketing plan expected to cost? Cost of the marketing plan can be divided into four major components: market research; product development; promotion, including advertising and packaging; and distribution.

2: Revenue estimate- How much revenue is the marketing plan expected to generate? Forecasting revenues will be based on two major components: how much consumers are expected to buy and for what price; and what sales staff predict they will sell. As time goes by, actual revenue can be compared with the forecast revenue data to determine the effectiveness of the marketing strategy.

Comparing actual and planned results:


Sales analysis- uses sales data to evaluate a business’s performance and the effectiveness of a marketing strategy. The more the sales are broken down, the clearer the picture becomes. The main strength of sales analysis is that sales figures are relatively inexpensive to collect and process. Their main weakness, however is that data for sales revenue do not reveal the exact profit level: such information can only be gleaned from further investigations of total expenditure.

Market share analysis/ ratios:

This evaluation can reveal whether changes in total sales, either increases or decreases, have resulted in the business’s marketing strategies or have been due to some other uncontrollable external factor.

Marketing Profitably Analysis:

Is a method in which the business breaks down the total marketing costs into specific marketing activities. By comparing the costs of specific marketing activities with the results achieved, a marketing manager can assess the effectiveness of each activity. This evaluation also helps in deciding how best to allocate marketing resources in the future.

Revising the Marketing Strategy:

Once the results of the sales, market share and profitability have been calculated, the business is then in a position to asses which objectives are being met and which are not. Based on this information, the marketing plan can be modified. Modification of the marketing plan is equally important as all the other steps involved in creating successful marketing strategies.

Changes in the marketing mix: Changes to the marketing mix that could be introduced include the following:

- Production modifications: no product is perfect; businesses that

continually upgrade their products will be able to maintain a

competitive advantage.

- Price modifications: Prices fluctuate due to a variety of reasons.

Therefore, the price component of the marketing mix will need to be modified in response to changes in the external business

environment.

- Promotion modifications: Promotion costs will decrease as the

product continues through its life cycle therefore a business must continually update their products.

- Place modifications: As a product’s success increases the distribution

channels will need to be expanded to cater for the growing market.

New overseas markets may be tapped, while old markets may

decrease due to demographic changes. With the development of electronic communications, new distribution channels, such as the internet may be used.

New Product Development: The product cycle indicates that products have an average life of 5-10 years, and as technology accelerates this will only become a shorter time span, therefore if a firm wants to achieve long term growth, it must continually introduce new products.


Product Deletion: is the elimination of some lines of product, outdated products may create an unfavourable image and this negativity may rub off on other products sold by the business. Most businesses find it difficult to delete a product, especially is it had been successful for a long time. Attention must be paid to Apple in this area where they release new product lines every line and phase out the old products.

Market Research and Customer and Buyer Behaviour:

The Three Steps of the Market research Process:

1: Determining information needs:

The best method to determine the relevance of data is to constantly ask questions concerning its ultimate use. Information is useful if it:

- Results in marketing strategies that meet the needs of the business’s target market

- Assists the business to achieve its marketing objectives.

- May be used to increase sale and profits.

More businesses are undertaking marketing research of recent years.

2: Data Collection (Primary and Secondary):

Marketing data refers to the information, usually expressed as facts and figures, relevant to the defined marketing problem. Market researchers may use two types of data: primary and secondary data. Normally market researchers use a combination of both types of data.

Primary Data- are the facts and figures collected from original sources for the purpose of the specific research problem. Many businesses outsource the activity of collecting market data. The three main methods used to gather primary data:

- Survey: mean gathering data by asking or interviewing people.

- Observation method: involves recording the behaviour of customers.

- Experiments: involve gathering data by altering factors under tightly controlled conditions to evaluate cause and effect. This is often used on beauty products and health products.

Secondary Data – is information that has already been collected by some other person or organisation. There are two types of secondary data:

- Internal data: This is information that has already been collected from internal sources. That is from inside the business such as financial statistics, annual and management reports, research reports and customer feedback.

- External data: This is published data from sources outside the business.

Examples include magazines, industry association newsletters, government reports and ABS statistics.

3: Data analysis and interpretation:

Statistical interpretation analysis is the process of focusing on the data that represents average, typical or deviations from typical patterns.

Customer and Buyer Behaviour:

Buyer behaviour may be defined as the decisions and actions of people involved in buying and using products. Marketing managers are better able to predict how customers may react to particular marketing strategies


© if they are aware of factors that influence the buying behaviour of different types of customer.

Types of Customer:

- Personal spending refers to the consumer purchases made by individuals.

- Household spending refers to the combined purchases of individuals

living together

- Business consumer (firms) consists of those businesses that purchase

goods and services for further processing or for use in their production

process.

- Institutional customers consist of schools, clubs, churches and other non

profit organisations. Because institutions often have limited budgets and

different objectives, marketing managers need to devise special marketing

strategies to serve these customers.

- Government customers: governments spend millions of dollars each year

on a variety of goods and service. Governments make a majority of their

purchases through a process called tendering, which is a process where

by firms submit quotes to supply a good or service. The lowest bid that

meets the specifications is accepted.

The Buying Process:

All customers tend to follow common steps in the buying process:

1: Recognise problem- need or wanting require satisfaction

2: Search for information: brand names, product characteristics, warranty, service and price.

3: Evaluate alternatives: cost benefit analysis

4: Purchase- particular choice made, product brought

5: Evaluate after purchase- weighing up the suitability of the product, satisfaction gained, dissatisfaction may occur.

A buyer is the individual or group who purchases the product. Buyers are sometimes called purchasing agents, select suppliers and negotiate in terms of purchase. A user is the individual or group who actually uses the product being purchased.

Factors influencing consumer Choice:

Four main factors influence both consumer and organisational purchasing decisions.

Psychological:

Psychological factors are influences within an individual that affect his or her buying behaviour.

Perception: is the process through which people select, organise and interpret information to create meaning. Usually there are a range of perceptions across different individuals. As individuals we often act on our perceptions of reality rather than reality itself. Consequentially, marketing managers are extremely aware that they must create a positive or favourable perception about their product in the mind of the consumer. For example advertising may be used to


create a perception that a product is trendy, luxurious or classy however it may not necessarily have those qualities.

Motives: A motive is the reason that makes an individual do something. The main motives that influence individual’s choice are comfort, health, safety, ambition, taste, pleasure, fear, amusement, cleanliness and the approval of others.

Attitudes: An attitude is a person’s overall feeling about an object or activity.

Customer attitudes to a business and its products generally influence the success or failure of the business’s marketing strategy.

Personality: An individual’s personality is the collection of all behaviours and characteristics that make up that person. To some extend personality will influence the types and brands of product a person buys. For example the style of a car may reflect their personality.

Sociocultural Influences:

Whereas psychological influences are internal influences, sociocultural influences are forces exerted by other people and groups that affect customer behaviour.

Family and roles: Family roles influence buying behaviour, for example although women’s roles are changing, market research shows that most women still make buying decisions about health related products, food and laundry supplies.

Reference (peer) groups: A reference or peer group is a group of people with whom a person closely identifies, adopting their attitudes, values and beliefs. A customer’s buying behaviour may change to match the rest of the group’s beliefs and attitudes. For example if a close friend tells you of a bad experience in a particular shop you will probably change your buying behaviour based on this information.

Social Class: influences the type, quality, quantity, quality of the product that a customer buys. For example higher income earners will purchase luxury cars to symbolize their status.

Culture and subculture: influences buying behaviour because it infiltrates all that we do in our everyday life. It determines what people wear, what and how we eat and where and how we live.

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Economic Influences:

Economic forces have enormous impacts on both business and consumers.

They influence a business’s capacity to compete and a customer’s willingness and ability to spend. Economies do not always experience constant growth.

Boom: Is a period of low unemployment and high incomes and inflation.

Businesses increase their production lines, and attempt to increase their market share by intensifying their promotional efforts. Customers are willing to spend because they feel secure about their jobs and source of income.

Contraction: Is a period of slowly rising unemployment with incomes stabilising.

The mood changes from optimism to one of caution and if this phase lasts for a long time, customers and business pessimistic. This can drastically decrease consumer spending and customers become price conscious.

Recession: sees unemployment reach high levels and incomes fall dramatically.

Customers and businesses lack confidence in the economy and a mood of deep pessimism persists.


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Expansion: Unemployment rates start to fall slightly and incomes begin to rise.

During this expansion phase, marketing managers need to modify their marketing plans to tap into this rising prosperity.

Government Influences:

The government has a number of methods of either expanding or contracting the economy; these policies can directly or indirectly influence business activity and customers’ spending habits and as such will influence the marketing plan.

A number of laws have been introduced that will influence marketing decisions.

Marketing manager need to be fully informed about these laws and must adjust their marketing strategies accordingly.

Developing Marketing Strategies:

Market segmentation and differentiation of products and services:

A business segments its markets so it can direct its marketing strategies to specific groups of customers rather than the total market. This allows the business to better satisfy the wants and needs of the targeted group. This occurs because the business is able to:

• Refine the marketing strategies used to influence consumer choice

Common variables for segmenting customer markets include demographic, geographic, lifestyle and behavioural.

Sometimes a business is able to identify a primary and secondary market. A primary target market is the market segment at which the most of the marketing resources are directed. A secondary target market is usually a smaller and less important market segment.

Mass marketing approach:

Mass marketing or a total marketing approach seeks a large range of customers. Products that can be marketed using the mass marketing approach include basic food items, water, gas and electricity.

Concentrated or Niche Markets:

Niche markets require the business to direct its marketing mix towards one selected segment of the total market. The needs of customers in these markets are often neglected by large businesses because it is rarely profitable for them to alter their marketing mix for very small groups.

Differentiation of products and services:

Product differentiation in its broadest sense is the process of developing and promoting differences between the business’s products and those of its competitors.

Products and Services:

A product is a good or service, an idea or any combination of the three that can be offered in an exchange. All products are a combination of tangible and intangible attributes.

Positioning:


Product positioning refers to the development of a product image as compared with the image of comparing products. Whenever a new product is launched, the marketing manager needs to have clearly determined the desired position of the product. This will be achieved through the product’s name, price, packaging, styling and promotion.

Branding- Symbols and Logos:

A brand is a name, term; symbol, design or any combination of these that identifies a specific product and distinguishes is from its competition. A brand name is the part of the brand that can be spoken. A brand symbol or logo is a graphic representation that identifies a business or product. To guard other businesses against using its brand name or symbol, a business can apply to have the name registered. This gives the business exclusive rights to use the name or symbol and protect itself from infringement. The symbol TM or R at the end of a brand name signify that the name or symbol is a registered trademark.

Packaging:

Packaging involves the development of a container and the graphic design for a product. Well designed packaging will give a positive impression of the product and encourage first time customers. For example, tasteful packaging can create an image of luxury, sensuality and exclusiveness, helping to promote the product. In addition, packaging helps preserve, inform, protect and promote the product.

Price and Pricing Methods:

Price refers to the amount of money that a customer is prepared to offer in exchange for a product. A price set too high could mean lost sales unless superior benefits are offered. A price set too low could give off the perception of the product being cheap and nasty.

Pricing methods:

- Cost plus margin: is the simplest method, the business determines the

total cost of production and then adds an amount for profit. This extra

margin is referred to as the mark up.

- Market: Business sometimes sets prices according to the level of supply

and demand-whatever the market is prepared to pay. Then demand is

high, prices are high. When demand is low, prices fall.

- Competition Based: this method is often used when there is a large

degree of competition from businesses producing similar products. A

business can choose a price that is either below, equal to or above that

of the competitors.

Pricing Strategies:

A number of strategies can be used by a business when determining the price of the product, including the following:

- Price skimming: this occurs when a business charges the highest price

possible for innovative products – that is, they ‘skim the cream’ off the

market.


- Price penetration: This occurs when a business charges the lowest price

possible for a good or service, the strategy aims to quickly achieve a

large market share for a product and is sometimes called mass market

pricing.

- Loss Leader: When businesses deliberately sell a product below its cost

price to attract customers to the shop. This was a controv ersial move

made by Coles where milk was offered for $1 per litre, customers were

shopping at Coles thinking that they were receiving value for money

although other products in the shop were increased in price in order

to cover the costs of the milk sale.

- Price lining: is a price strategy mainly used by retailers. The business

chooses a limited number of key prices or price points for selected

product lines. For example, a jeweller may offer a line of watches

priced at $35 and a more expensive line at $55.

Price and Quality Interaction:

Price is important in positioning a product as it can create customer perceptions, a product image or even persuade the purchase just based on the price and a small other number of factors. Normally, products of superior quality are sold at higher prices. This is usually due to the higher manufacturing cost involved in producing them. If a business charges a low price for a product, customers may perceive the product as ‘cheap’, if a high price is charged the product and the product develops an aura of quality and status. This pricing strategy is known as prestige pricing and is designed to encourage status conscious consumers to buy the product.

Promotion:

Promotion describes the methods used by a business to inform, persuade and remind a target market about its products. To achieve these objectives of informing, persuading and reminding, a promotion campaign attempts to:

• Attract new consumers by heightening awareness of a particular product

• Increase brand loyalty by reinforcing the image of the product

• Encourage existing customers to purchase more of the product

• Provide information so customers can make informed decisions

• Encourage new and existing customers to purchase new products

• Change individuals’ behaviour through information or persuasion

Elements of the promotion mix:

- Personal Selling: involves activities of a sales representative directed to

a customer in an attempt to make a sale. The major advantage of this

method is that the message can be modified to suit the individual

customer’s circumstances.

- Advertising: is a paid non personal message communicated through a mass

medium. In Australia, businesses spend approximately $9 billion a year

on various forms of advertising. Advertising may take many forms, from

buying time on national television to inexpensive leaflets or posters.

Advertising media is a term for the many forms communication used

to reach an audience. The five main advertising media includes

television, radio, newspapers, magazines and internet.


- Below the line promotions: are promotional activities for which the

business does not make use of an advertising agency. The promotional

activities are designed and developed in house. The ‘line’ is an imaginary

boundary between those businesses that pay a commission to external

advertising agencies and those that do not. The main types of below the

line promotions are mail catalogues and telemarketing.

- Publicity and public relations: Publicity is any free news story about a business’s products. Public relations are those activities aimed at creating and maintaining favourable relations between a business and its customers. It is the role of public relations personal to design, implement and manage the publicity events of the business.

The communication Process:

A Channel is any method used for carrying a message; two of the most common channels used for promotional communication include print and electronic media advertising. Noise is any interference or distraction that affects any or all stages in the communication process. Often Consumers may be more willing to purchase a product if the message comes via a respected and trusted channel such as an opinion leader or by word of mouth.

- Opinion Leaders: An opinion leader is a person who influences others, for

example actors, sports stars, musicians and models.

- Word of mouth communication: occurs when people influence each other

during conversations. Friend’s recommendations are very important,

especially for the purchase of services; often we use services of a

mechanic,dentist or hairdresser because they are recommended by a

friend.

Place:

Distributions and reason for intermediaries:

The final ‘p’ of the marketing mix is place, channels of distribution or marketing channels are the routes taken to get the product from the factory to the customer. The four most common channels of distribution are:

1: Producer to customer- This is the simplest channel and involves no intermediaries, virtually all services use this method and as online shopping becomes more popular this is an increasing channel.

2: Producer to retailer to customer: A retailer is an intermediary who buys from producers and resells to customers. This channel is often used for bulk or perishable products such as furniture fruit.

3: Producer to wholesaler to retailer to customer: This is the most common method used for the distribution of consumer goods. A wholesaler is an intermediary who buys in bulk, from the producer, then resells in smaller quantities

4: Producer to agent to wholesaler to retailer to customer: An agent distributes products to wholesalers but never owns the product. Agents are paid a commission by the producer. Usually agents are inexpensive, frequently used

products. A business that does not have any sales representatives will often use an agent instead.

Channel Choice –including intensive, selective and exclusive:


Market coverage refers to the number of outlets a firm chooses for its product.

A business can decide to cover the market in one of three ways as follows, the difference being the intensity of coverage:

1: Intensive Distribution: This occurs when the business wishes to saturate the market with its product. Customers can shop at local outlets and be able to purchase the product. Many convenience goods such as milk, lollies and newspapers, are distributed this way.

2: Selective Distribution: This involves using only a moderate proportion of all possible outlets. Clothing, furniture and electrical appliances are often distributes using this method. The customer is prepared to travel and seek out a specific retail outlet that stocks a certain brand.

3: This is the use of only one retail outlet for a product in a large geographic area. This method of distribution is commonly used for exclusive, expensive products.

Physical Distribution Issues:

Physical Distribution is all those activities concerned with the efficient movement of the products from the producer to the customer.

- Transport: The method of transportation a business uses will largely

depend on the type of product and the degree of service the business

wishes to provide. The four most common methods of transportation

are rail, road, sea and air.

- Warehousing is a set of activities involved in receiving, storing and

dispatching goods. A warehouse acts as a central organising point for

the efficient delivery of products.

- Inventory control is a system than maintains quantities and varieties

of product appropriate for the target market.

Environmental effects on Distribution:

Technology:

Businesses are always looking for different ways to distribute their products, the purchasing of products from a store or a supplier is the oldest and most common form of distribution. Non- Store retailing is retailing activity conducted away from the traditional store, is gaining more popularity. With rapid changes in electronic communication businesses are beginning to exploit types of electronic marketing as alternative methods. Two of the most rapidly developing methods are telemarketing and internet marketing.

- Telemarketing: Is where offers are called in to consumers guaranteeing

them huge saving.

- Interactive Technology and Internet Marketing: It is now relatively easy

for any business to obtain a domain name and a website and begin

marketing its products via internet.

Local Government: Many businesses overlook the importance of local government regulations, any business using premises or land must first seek local government approval. Local governments have authority over businesses using signs, outdoor seating etc and whilst fulfilling these laws can be frustrating it is important to in order to ensure that public areas are safe and acceptable for all.


Ethical and Legal Aspects of Marketing:

Marketing managers should never forget that the business exists because of its customers. By satisfying customers a business may operate profitably.

Dishonest or unethical marketing managers may ultimately drive customers away.

The ethics of sponsorship Deals:

Sponsorship agreements open up a variety of problems, such as:

• Over commercialisation of school

• Direct marketing to children (pester Power)

• Health implications of promoting some food and drink products

• Influence on the school curriculum.

The ethics of product placement:

Product placement is the inclusion of advertising into entertainment. For example in the recent James Bond film the DB9 became highly demanded due to its large part in the film.

Environmentally Responsible Products:

Green Marketing: refers to the development, pricing, promotion and distribution of products that either do not harm or have minimal impact upon the environment. Green marketing provides businesses new opportunities however research shows that consumers may not be prepared to pay a higher cost to protect the environment, still want to use convenience products, are confused about which products are environmentally safe. *Consumers need to be aware of ‘green wash’ products that appear t be environmentally friendly but are not.

Other marketing ethical and legal issues:

Creation of Needs (materialism):

Materialism is an individual’s desire to constantly acquire possessions. Those who argue marketing does not encourage materialism, point out that marketing merely satisfies the existing needs of customers.

Impact of Retail Developments:

Retailing will further evolve with developments such as:

• Linking of direct marketing to electronic databases.

• Introduction of automatic checkout scanning systems that do not require an operator.

•

•

Use of in- store television presentations

•

Provision of internet ordering services

Transformation of shopping malls into entertainment centres

Along with these developments will come increased competition between retailers. The pressure to survive in this intensely competitive environment may result in some retailers using questionable marketing practices.


Sugging:

Is selling under the guise of a survey, is a sales technique disguised as market research. Although this technique is not illegal, it does raise several ethical issues, including invasion of privacy and deception.

Role of Customer Laws:

Trade Practices: The trade practices act 1974 is one of the most important pieces of legislation in Australia and has two major purposes:

• To protect customers against undesirable practices, such as misrepresenting the contents of products or their place of protection.

• To regulate certain trade practices that restricts competition, hence the term ‘restrictive trade practices‘. The government also wants to ensure that a number of businesses are operating at any one time in the same market to avoid the problem of monopolistic power.

Consumer Laws and Specific Marketing Practices:

Deceptive and Misleading advertising:

Even though the trade practices act makes false or misleading advertising illegal, a number of methods are still used by some retailers. The most common include:

• Fine print: Important conditions are written in small sized print and are therefore difficult to read.

• Before and after advertising: Consumers may be mislead by before and after advertisements where the comparison is distorted so that ‘before’ images are worsened and after’ are enhanced.

• Tests and surveys: Some advertisements make unsubstantiated claims; for example, stating that 9 out of 10 people prefer a product when no survey has been conducted.

• Country of origin: Accuracy in labelling is important; for example ‘made in Australia’ and product of Australia has two distinct meanings.

• Packaging: The size and shape of the package may give a misleading impression of the contents.

• Special offer: Advertising may be misleading or deceptive to the imply that a special offer is available only for a limited time when the offer is permanently available.

• Bait and switch: When a few products are advertised at extremely competitive prices to attract customers, when these products quickly run out, customers are directed to purchase higher prices items.

Price discrimination:

Is the setting of different prices for a product in separate markets. The difference in price is possible because:

• The markets are geographically separated; for example, city and

country prices

• There is product differentiation within one market; for example, different electricity prices for domestic and business users.

• Separate discounts and allowances being offered


Implied conditions:

Are the unspoken and unwritten terms of a contract, these conditions are assumed to exist regardless of whether they were especially mentioned or written into a contract. The two most important implied terms relating to customer purchases refer to the merchantable quality and fitness of the product.

• Merchantable quality means that the product of a standard a reasonable

person would expect for the price. Merchantable quality applies to most

consumer contracts.

• Fitness of purpose means that the product is suitable for the purpose for which it is being sold. That is, it will perform as the instructions or advertisements imply.

Warranties:

A warranty is a promise by the business to repair or replace faulty products.

In recent years government legislation has made it necessary for businesses to state, clearly and simply, the terms and conditions of the warranty.

Resale price maintenance:

Occurs when the manufactured or supplier insists that a retailer sell the product at a certain price. For example, if a distributer of television sets forced a retailer to charge a set price for a product; this would be viewed as an incidence of resale price or maintenance and therefore, a breach of the act.


Business Studies - Marketing notes HSC topic 3: Marketing Study

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